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                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 20-F

[ ]   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, 2000

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
                        COMMISSION FILE NUMBER: --------
                            ------------------------

                   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)

                            ------------------------

               ELSE-KRONER 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:

<TABLE>
<CAPTION>
    TITLE OF EACH CLASS                                     NAME OF EACH EXCHANGE ON WHICH REGISTERED
    -------------------                                     -----------------------------------------
    <S>                                                     <C>
    American Depositary Shares representing Preference      New York Stock Exchange
    Shares

    Preference Shares, no par value                         New York Stock Exchange(1)

    American Depositary Shares representing                 New York Stock Exchange
    Ordinary Shares

    Ordinary Shares, no par value                           New York Stock Exchange(1)
</TABLE>

     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: 9% TRUST PREFERRED SECURITIES, 7 7/8% USD TRUST PREFERRED
SECURITIES; 7 3/8% DM TRUST PREFERRED SECURITIES

     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 23,765,093

     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 [ ]

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

                          Item 17 [ ]     Item 18 [X]
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1 Not for trading, but only in connection with the registration of American
  Depositary Shares representing such shares.
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                PAGE
                                                                                ----
<S>                <C>                                                          <C>
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................   43
Item  6.           Directors, Senior Management and Employees..................   57
Item  7.           Major Shareholders and Related Party Transactions...........   63
Item  8.           Financial Information.......................................   68
Item  9.           The Offer and Listing Details...............................   71
Item 10.           Additional Information......................................   76
Item 11.           Quantitative and Qualitative Disclosures About Market
                   Risk........................................................   86
Item 12.           Description of Securities other than Equity Securities......   90

PART II
Item 13.           Defaults, Dividend Arrearages and Delinquencies.............   91
Item 14.           Material Modifications to the Rights of Security Holders and
                   Use of Proceeds.............................................   91
Item 15.           [Reserved]..................................................   91
Item 16.           [Reserved]..................................................   91

PART III
Item 17.           Financial Statements........................................   91
Item 18.           Financial Statements........................................   91
Item 19.           Exhibits....................................................   91
</TABLE>

                                        i
<PAGE>   3

                                  INTRODUCTION

INTERNATIONAL DISCLOSURE STANDARDS

     On September 28, 1999, the United States Securities and Exchange Commission
adopted international disclosure standards for foreign private issuers that
became mandatory for annual reports relating to fiscal years ending on or after
September 30, 2000.

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".

                                        1
<PAGE>   4

                                     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 1996 through 2000. 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 Wirtschaftsprufungsgesellschaft, 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".

<TABLE>
<CAPTION>
                                     2000         1999(A)       1998(B)        1997         1996(C)
                                  -----------   -----------   -----------   -----------   -----------
                                            (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Net revenues....................  $     4,201   $     3,840   $     3,506   $     2,974   $     1,419
Cost of revenues................        2,734         2,463         2,243         1,886           860
                                  -----------   -----------   -----------   -----------   -----------
Gross profit....................        1,467         1,377         1,263         1,088           559
Selling, general and
  administrative................          814           785           743           675           344
Research and development........           32            32            31            22            14
Special charge for Settlement...           --           601            --            --            --
                                  -----------   -----------   -----------   -----------   -----------
Operating income (loss).........          621           (41)          489           391           201
Interest expense, net...........          216           218           220           184            56
Earnings (loss) before income
  taxes.........................          405          (259)          269           207           145
Income (loss) from continuing
  operations before cumulative
  effect of accounting change...          405          (249)          132           104            89
Net income (loss)...............  $       212   $      (249)  $        19   $        90   $        88
                                  ===========   ===========   ===========   ===========   ===========
Weighted average of:
  Preference shares
     outstanding................   19,002,118     9,023,341     9,023,341     6,506,917       517,808
  Ordinary shares outstanding...   70,000,000    70,000,000    70,000,000    70,000,000    43,907,500
Basic income (loss) from
  continuing operations per
  Ordinary share................  $      2.37   $     (3.15)  $      1.62   $      1.34   $      2.00
Fully diluted income (loss) from
  continuing operations per
  Ordinary share................         2.36         (3.15)         1.62          1.34          2.00
Basic income (loss) per Ordinary
  share.........................         2.37         (3.15)         0.20          1.16          1.96
Fully diluted income (loss) per
  Ordinary share................         2.36         (3.15)         0.20          1.16          1.96
Basic income (loss) from
  continuing operations per
  Preference share..............         2.43         (3.15)         1.78          1.39          2.07
</TABLE>

                                        2
<PAGE>   5

<TABLE>
<CAPTION>
                                     2000         1999(A)       1998(B)        1997         1996(C)
                                  -----------   -----------   -----------   -----------   -----------
                                            (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
<S>                               <C>           <C>           <C>           <C>           <C>
Fully diluted income (loss) from
  continuing operations per
  Preference share..............         2.42         (3.15)         1.78          1.39          2.07
Basic income (loss) per
  Preference share..............         2.43         (3.15)         0.36          1.21          2.03
Fully diluted income (loss) per
  Preference share..............         2.42         (3.15)         0.36          1.21          2.03
Basic and fully diluted net
  income (loss) per Ordinary
  ADS...........................         0.79         (1.05)         0.07          0.39          0.66
Basic and fully diluted net
  income (loss) per Preference
  ADS...........................         0.81         (1.05)         0.12          0.40          0.68
Dividends declared per Ordinary
  share (E)(a)..................         0.78(b)        0.69         0.59          0.51            --
Dividends declared per
  Preference share (E)(a).......         0.84(b)        0.75         0.64          0.56          0.10
Dividends declared per Ordinary
  share ($)(a)..................           --(b)        0.64         0.61          0.55            --
Dividends declared per
  Preference share ($)(a).......           --(b)        0.69         0.66          0.61          0.11
BALANCE SHEET DATA
Working capital.................  $       191   $      (229)  $       448   $       548   $       408
Total assets....................        5,979         5,752         5,679         5,541         5,093
Total long-term debt(c).........        1,611         1,618         2,070         2,001         1,806
Shareholders' equity (net
  assets).......................        2,679         2,002         2,357         2,446         2,156
Capital Stock -- Preference
  shares -- Nominal Value.......           64            28            28            28            18
Capital Stock -- Ordinary shares
  -- Nominal Value..............          229           229           229           229           229
</TABLE>

---------------

(A) Reflects the impact of the special charge relating to the settlement
    agreement reached 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 "Item 5.B. Operating and Financial Review and Prospects
    -- Liquidity and Capital Resources" and in Note 2 of the Notes to our
    Consolidated Financial Statements.

(B) Includes the effect of an accounting change. See Note 1 of the Notes to our
    Consolidated Financial Statements

(C) Includes the results of Fresenius Medical Care Holdings for the period
    subsequent to September 30, 1996.

(a) Amounts shown for each year 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
    2000 of E0.84 per Preference share and E0.78 per Ordinary share. The 2.25
    million Preference shares issued on January 5, 2001 in connection with the
    acquisition of Everest Healthcare Services Corporation (see "Item 5.B.
    Operating and Financial Review and Prospects -- Liquidity and Capital
    Resources") will also be eligible receive this dividend. These dividends are
    subject to approval by our shareholders at our annual general meeting to be
    held on May 23, 2001.

(c) Total long-term debt represents long-term debt and capital lease
    obligations, less current portions and (i) at December 31, 1996 and 1997,
    the mandatorily redeemable preferred securities of Fresenius Medical Care
    Capital Trust, and (ii) at December 31, 1998, 1999 and 2000, the mandatorily
    redeemable preferred securities of Fresenius Medical Care Capital Trust,
    Fresenius Medical Care Capital Trust II, and Fresenius Medical Care Capital
    Trust III.

                                        3
<PAGE>   6

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 40% 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, 2000 approximately 40% of our
consolidated revenues resulted from 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 Medicare
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 28% of dialysis care revenue in our North America
segment for the twelve months ended December 31, 2000. EPO is produced by a
single source manufacturer, Amgen Inc. Our current contract with Amgen Inc.
covers the period from January 2001 to December 2001 with price guarantees and
volume and outcome based discounts. 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, administration of EPO,
which could materially adversely affect our business, financial condition and
results of operations.

                                        4
<PAGE>   7

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 and other claims and, in connection
with the merger, W.R. Grace & Co.-Conn. 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. If events were to violate the
tax-free nature of the merger, the resulting liability would be the obligation
of our principal subsidiary, Fresenius Medical Care Holdings, Inc ("FMCH").
Subject to certain representations made by W.R. Grace & Co.-Conn, FMCH and
Fresenius AG, W.R. Grace & Co.-Conn. also agreed to indemnify us against any
such tax liability. W.R. Grace & Co.-Conn. has filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. If W.R. Grace & Co.-Conn.'s obligation
to indemnify us is 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
the merger is determined to be a taxable transaction, our business, financial
condition and results of operations could be adversely affected.

     Proceedings have been brought against W.R. Grace & Co. and FMCH by
plaintiffs claiming to be creditors of W.R. Grace & Co.-Conn., principally
alleging that the merger was a fraudulent conveyance, violated the uniform
fraudulent transfer act, and constituted a conspiracy. For additional
information with respect to these proceedings, with respect to which we have
requested indemnification from W.R. Grace & Co.-Conn, see "Item 8.A.7 -- Legal
Proceedings." If the merger is determined to be a fraudulent transfer, if
material damages are proved by the plaintiffs and we are not able to collect, in
whole or in part on the indemnity, a judgment could have a material adverse
effect on our business, financial condition and results of operations. We
believe that no fraudulent transfer or conspiracy occurred and we intend to
defend the cases vigorously.

WE ARE DEFENDANTS IN LITIGATION BY PRIVATE INSURANCE COMPANIES ALLEGING
INAPPROPRIATE BILLING PRACTICES

     Fresenius Medical Care Holdings, 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." Fresenius Medical Care
Holdings, National Medical Care and its subsidiaries believe that there are
substantial defenses to the claims asserted, have filed counterclaims and intend
to vigorously defend the lawsuits. Other private payors have contacted Fresenius
Medical Care Holdings 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 result of
operations since an adverse determination could result in substantial liability
or changes in our reimbursement arrangements with private insurers.

IF THE POSITION OF THE U.S. HEALTH CARE FINANCING ADMINISTRATION IN THE OBRA 93
DISPUTE IS ULTIMATELY UPHELD, WE COULD BE OBLIGATED TO REFUND UP TO $120 MILLION
TO MEDICARE

     Under the U.S. Omnibus Budget Reconciliation Act of 1993, as initially
interpreted by the U.S. Health Care Financing Administration, which administers
the Medicare and Medicaid programs, employer health plans were the primary payor
for ESRD dual-eligible patients -- i.e., patients age 65 and over who are
eligible for Medicare and covered by an employer health plan. The original
interpretation resulted in increased revenue for National Medical Care because,
during the 18-month period, the rate paid by the employer health plan was
generally in excess of the Medicare rate. In April 1995, the U.S. Health Care
Financing Administration announced a new interpretation of the U.S. Omnibus
Budget Reconciliation Act of 1993 which retroactively eliminated the 18-month
period in which the employer health plan was the primary payor for dual eligible
patients. National Medical Care has obtained a permanent injunction against the
retroactive implementation of this revised interpretation. Its motion for a
declaratory judgment against implementation on a going-forward basis, and the
government's motion for a declaratory judgment that the rule was validly applied
on a prospective basis, are both pending. It is not clear at this time whether
the government intends to appeal the rulings. As of July 1, 1995,
                                        5
<PAGE>   8

National Medical Care ceased to recognize the incremental revenue realized under
the original implementation, but continued to bill employer health plans as
primary payors until December 31, 1995. If the government should appeal and be
successful in reversing the rulings, thereby upholding the government's
retroactive implementation of its revised interpretation, National Medical Care
may be required to refund the payments received from employer health plans for
services provided after August 10, 1993 under the original implementation and to
rebill Medicare for the same services. This refunding and rebilling would result
in a net loss to National Medical Care of approximately $120 million for billing
through December 31, 1995.

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, 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 product
manufacturers may elect to limit or terminate their purchases of our dialysis
products so as to avoid purchasing products manufactured by a
                                        6
<PAGE>   9

competitor. 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 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.
Clinicians 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 clinicians 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.

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
                                        7
<PAGE>   10

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.

     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, 2000, our total
consolidated liabilities were $3.30 billion, including obligations with respect
to all our trust preferred securities of approximately $953 million, our total
consolidated assets were $5.98 billion and our stockholders' equity was $2.68
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 the acquisition and
development of additional projects, to compete effectively or to operate
successfully under adverse economic conditions.

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

                                        8
<PAGE>   11

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-Kroner-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 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 which we refer to as "our formation" elsewhere in
this report. Pursuant to that agreement, Fresenius AG contributed Fresenius
Worldwide Dialysis, its global dialysis business, including its controlling
interest in Fresenius USA, Inc., in exchange for 35,210,000 Fresenius Medical
Care Ordinary shares. Thereafter, we acquired:

     -  all of the outstanding common stock of W.R. Grace, whose sole business
        at the time of the transaction consisted of National Medical Care, Inc.,
        its global dialysis business, in exchange for 31,360,000 Ordinary
        shares; and

     -  the publicly-held minority interest in Fresenius USA, in exchange for
        3,430,000 Ordinary shares.

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

                                        9
<PAGE>   12

CAPITAL EXPENDITURES

     We invested, by business segment and geographical areas, the following
amounts during the three fiscal years ended December 31, 2000, 1999 and 1998 and
have budgeted the following amounts for the year 2001:

<TABLE>
<CAPTION>
                                                                     ACTUAL
                                                                 (IN MILLIONS)
                                                              --------------------    BUDGET
                                                              2000    1999    1998     2001
                                                              ----    ----    ----    ------
<S>                                                           <C>     <C>     <C>     <C>
Acquisitions
  North America.............................................  $116(a) $ 65    $170
  International
     Germany................................................    11      --      --
     Rest of World..........................................   161      46      95
                                                              ----    ----    ----     ----
       Total Acquisitions...................................  $288    $111    $265     $100(a)
                                                              ====    ====    ====     ====
Capital expenditures for property, plant and equipment
  North America.............................................  $113    $ 81    $ 75
  International
     Germany................................................    24      24      31
     Rest of World..........................................    91      55      53
                                                              ----    ----    ----     ----
       Total Capital Expenditures...........................  $228    $160    $159     $270
                                                              ====    ====    ====     ====
</TABLE>

---------------

(a) Excludes the acquisition of Everest Healthcare Services Corporation on
    January 5, 2001 for a purchase price of approximately $343 million. See
    "Business Overview -- Acquisitions."

     In North America major capital expenditures for the year 2001 are planned
for our manufacturing facility in Ogden, Utah. We have made a $65 million
capital commitment to construct two dialyzer assembly lines and two fiber
spinning lines. Production starts are scheduled between the fourth quarter of
2001 and the second quarter of 2002.

     Major capital expenditures in Japan scheduled for 2001 include a $14
million investment in a second fiber spinning line in Inukai. At our St. Wendel
plant in Germany we plan to build a dialyzer assembly line for production of the
new generation of FX-class dialyzers at an estimated cost of $10 million and we
plan to invest an additional $7 million in a fourth line to produce peritoneal
dialysis solutions. We finance our capital expenditures through cash flow from
operations or under the existing credit facilities.

     For information regarding recent acquisitions, see "Business Overview --
Acquisitions."

DISCONTINUED OPERATIONS

     Effective June 1, 1998, we classified our homecare/non-renal diagnostics
businesses as discontinued operations. Until 1998, through the homecare division
of National Medical Care, we provided intravenous infusion, respiratory
therapies and home medical equipment in the U.S. Through the diagnostic services
division of National Medical Care, we also provided non-renal diagnostic testing
at our own imaging clinics and on-site in physician offices, hospitals and
nursing homes. We sold our non-renal diagnostics business in June 1998 and our
homecare business in July 1998. We retained the assets belonging to the homecare
business and the operations associated with the delivery of intradialytic
parenteral nutrition therapy. For the year ended December 31, 1998, we recorded
net losses after tax of $9 million from operations of discontinued businesses
and $97 million from the disposal of these businesses.

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

                                        10
<PAGE>   13

treatment to over 91,900 patients at our 1,270 clinics located in 18 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 are able to use the
information we gain when treating patients in developing new and improved
products. We believe that our size, our activities in both dialysis care and
dialysis products and our concentration in specific geographic areas allow us to
operate more cost-effectively than many of our competitors. For the year ended
December 31, 2000, we had revenues of $4.2 billion, an increase of 9.4% over
1999 revenues. We derived 73% of our revenues in 2000 from our North America
operations and 27% 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, 2000, 1999 and 1998.

<TABLE>
<CAPTION>
                                                               2000      1999      1998
                                                              ------    ------    ------
                                                                    (IN MILLIONS)
<S>                                                           <C>       <C>       <C>
North America
  Dialysis Care.............................................  $2,608    $2,335    $2,114
  Dialysis Products.........................................     475       472       449
                                                              ------    ------    ------
                                                               3,083     2,807     2,563
International
  Dialysis Care.............................................     336       265       245
  Dialysis Products.........................................     782       768       698
                                                              ------    ------    ------
                                                               1,118     1,033       943
</TABLE>

RENAL INDUSTRY OVERVIEW

END-STAGE RENAL DISEASE

     End-stage renal disease 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
that 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 Health Care Financing Administration of the U.S.
Department of Health and Human Services, approximately 13,500 patients, or 4% of
the ESRD patient population, received kidney transplants in the U.S. during
1999. Transplantation rates vary from country to country in Europe. According to
the European Dialysis and Transplantation Association Registry Report for 1996,
2% of new ESRD patients age 15 or over received transplants as the first mode of
treatment in Europe in 1995. 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 and peritoneal dialysis. 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 the most recent data published by the Health Care Financing
Administration of the U.S. Department of Health and Human Services, the number
of patients in the U.S. who received dialysis for chronic ESRD grew from
approximately 66,000 in 1982 to approximately 259,500 at December 31, 1999, or a
compound annual rate of 8.4%. We believe that, over the next five to ten years,
the number of patients suffering from ESRD in the U.S. will continue to grow at
approximately the same rate. The United States Renal Data System (USRDS)
projections to 2010 suggest that the number of both dialysis and transplant
patients will reach levels double those in 1997. According to data from the
Health Care Financing Administration, the European Dialysis and Transplantation
Association and our own internal survey, the number of non-U.S. chronic dialysis

                                        11
<PAGE>   14

patients is growing at estimated annual rates of 7% for patients receiving
hemodialysis and 8% for patients receiving peritoneal dialysis. At the end of
1998, an estimated 920,000 patients were undergoing dialysis treatment.
According to our own market surveys, Japan is the second largest dialysis market
in the world with approximately 188,000 dialysis patients. In the rest of the
world, we estimate that at the end of 1998 there were approximately 225,000
dialysis patients in Europe, more than 100,000 patients in Asia (excluding
Japan) and around 90,000 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. In hemodialysis, the blood flows outside the body by
means of 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 by diffusion and ultrafiltration.
Dialysis solution flowing through the dialyzer carries away the waste products
and excess water, and the cleansed blood is returned to the patient. A
hemodialysis machine controls the movement of the blood and dialysis solution.
The 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.

     In addition to standard hemodialysis, hemofiltration is a treatment method
which cleanses an ESRD patient's blood without using dialysis solution. Blood
passes through a semipermeable membrane, which filters out solute particles.
Hemodialfiltration combines the advantages of hemofiltration and hemodialysis,
and provides high elimination rates for small and large molecular weight
substances.

     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. Hemodialysis is the only form of treatment, other than
transplantation, currently available to patients who have very low residual or
nonexistent renal function and whose blood is inadequately cleansed using
peritoneal dialysis.

     According to data from the Health Care Financing Administration, as of
December 31, 1999, there were approximately 3,740 Medicare-certified ESRD
treatment clinics in the U.S. Ownership of these clinics is fragmented. We
estimate that currently, the ten largest multi-facility dialysis providers,
including ourselves, treat approximately 68% of patients. We estimate that there
are approximately 4,200 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 Health Care Financing Administration, as of December 31,
1999, hemodialysis patients represented 88% of all dialysis patients in the U.S.
Our studies suggest that hemodialysis patients comprise 95% of the ESRD patient
population 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

                                        12
<PAGE>   15

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. 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.

     In both CAPD and CCPD the patient undergoes dialysis daily, and typically
does not experience the buildup of toxins and fluids which hemodialysis patients
experience on the days they are not treated. In addition, because the patient
need not make frequent visits to a hemodialysis clinic, and can administer the
solution exchanges at convenient, although more frequent, times, a patient on
peritoneal dialysis may experience much less disruption to his or her life than
a patient on hemodialysis. Some aspects of peritoneal dialysis, however, limit
its use as a long-term therapy for some patients. First, some patients cannot
make the required sterile connections of the peritoneal dialysis tubing to the
catheter, leading to excessive episodes of peritonitis. Peritonitis is a
bacterial infection of the peritoneum which can result in serious adverse health
consequences, including death. Second, treatment by current forms of peritoneal
dialysis may not be as effective as hemodialysis in removing wastes and fluids.

OUR STRATEGY

     Our objective is to focus on 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 revenue growth. Our dialysis services and product sales
businesses have grown faster than the market in terms of revenues over the past
five years, and we believe that we are well positioned to meet our objectives by
focusing on the following strategies:

     -  Continue to Provide High Standards of Patient Care.  We believe that our
        reputation for providing the highest standards of patient care is a
        competitive advantage. We believe that our proprietary Patient
        Statistical Profile database, which contains clinical and demographic
        data on approximately 73,400 U.S. dialysis patients, is the most
        comprehensive body of information about dialysis patients in the world.
        In 1998, we initiated our European clinical database to develop a
        comparable body of data from our European dialysis clinics. We believe
        that these databases provide a unique advantage in improving dialysis
        therapy and treatment outcomes, improving the quality and effectiveness
        of dialysis products and reducing mortality rates. By improving dialysis
        outcomes and overall ESRD patient care, we also may be able to contain
        hospitalization and other costs of ESRD treatment.

     -  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. During 2000, we acquired 99 clinics
        and opened 17 new clinics outside the U.S. By December 31, 2000, we
        treated approximately 24,000 patients outside the U.S., an increase of
        approximately 34% over the figure at December 31, 1999. To take
        advantage of the growing trend towards consolidation outside of the
        U.S., we envision making additional acquisitions in selected
        international markets.

       Consistent with this strategy, on June 19, 2000, we acquired
       substantially all of the international and non-continental U.S.
       operations of Total Renal Care Holdings, Inc. (now called DaVita),
       consisting of 87 dialysis clinics treating approximately 5,100 patients
       in Argentina, Italy, the United Kingdom, Puerto Rico and Hawaii.
       Completion of our acquisition of the Puerto Rico operations is subject to
       governmental approvals and third-party consents.

       Furthermore, on January 5, 2001, we acquired Everest Healthcare Services
       Corporation ("Everest"), Oak Park, Illinois through a merger of Everest
       into a subsidiary of Fresenius Medical Care at a purchase price of $343
       million, which includes assumed debt and the issuance of 2.25 million
       Preference shares.
                                        13
<PAGE>   16

       Everest owns, operates or manages approximately 70 clinic facilities
       providing therapy to approximately 6,800 patients in the eastern and
       central United States. Everest also conducts extracorporal blood services
       and acute dialysis businesses which provide acute dialysis, apheresis and
       hemoperfusion services to approximately 100 hospitals. We also expect to
       continue to enhance our presence in the U.S. by acquiring individual or
       small groups of dialysis clinics in selected markets, expanding existing
       clinics, and opening new clinics, although we will consider large
       acquisitions in the U.S. if suitable opportunities, such as Everest,
       become available to us.

     -  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 and
        diagnostic services, to both our own clinics and those of third parties.
        We estimate that our Spectra Renal Management division provides
        laboratory services for 40% of the dialysis patients in the U.S. We have
        developed disease state management methodologies, which involve total
        patient care for ESRD patients, that we believe are attractive to
        managed care payors. As part of our plans to develop disease state
        management, we have formed Optimal Renal Care, LLC, a joint venture with
        Southern California Permanente Medical Group, a subsidiary of Kaiser
        Permanente, Inc. which has the largest dialysis patient population of
        any managed care organization, and we have formed Renaissance Health
        Care as a joint venture with participating nephrologists.

     -  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.
        During the year ended December 31, 2000, we obtained approximately 18%
        of our product revenue from machine sales and 82% from sales of
        disposable products. These disposable products provide us with a
        continuing source of revenue from our installed base of dialysis
        equipment.

     -  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 approximately
        220 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. We intend to further
        improve our proprietary, highly automated manufacturing systems to
        continue to reduce product manufacturing costs, concurrently achieving a
        high level of quality control and reliability.

DIALYSIS CARE

DIALYSIS SERVICES

     We provide dialysis treatment and related laboratory and diagnostic
services at our approximately 1,270 outpatient dialysis clinics, 920 of which
are in the U.S. and 350 of which are in 17 countries outside of the U.S. Our
operations outside the U.S. generated 11% of our 2000 dialysis care revenue. We
currently operate dialysis clinics in Argentina, Australia, Brazil, China,
Colombia, Czech Republic, France, Germany, Hungary, Italy, Korea, Portugal,
Spain, Taiwan, Turkey, United Kingdom and Venezuela. Our dialysis clinics are
generally concentrated in areas of high population density. In 2000, we acquired
133 existing clinics, opened 67 new clinics and closed or sold 20 clinics. The
number of patients we treat at our clinics increased by about 15%, from
approximately 80,000 at December 31, 1999 to approximately 91,900 at December
31, 2000.

     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,
                                        14
<PAGE>   17

resulting in reduced mortality rates. In addition to our patient databases, we
believe that local physicians, hospitals and managed care plans refer their ESRD
patients to our clinics for treatment due to:

     -  our reputation for quality patient care and treatment;

     -  our extensive network of dialysis clinics, which enables physicians to
        refer their patients to conveniently located clinics; and

     -  our reputation for technologically advanced products for dialysis
        treatment.

     We treat approximately 26% of the dialysis patients in the U.S., and based
on publicly available reports we believe our next largest competitor treats
approximately 15% of U.S. dialysis patients. For the year 2000, dialysis
services accounted for 70% of our total revenue.

     At our clinics, we provide hemodialysis treatments at individual stations
through the use of dialysis machines. 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. Most of our clinics operate two or three patient shifts per
day.

     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 28% of dialysis care revenue in
our North America segment for the twelve months ended December 31, 2000. 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 Inc. covers the period from January 2001 to December 2001
with price guarantees and volume and outcome based discounts.

     We provide other services to ESRD patients in the U.S. including:

     -  administering vitamin D, iron, hepatitis vaccine and blood transfusions;

     -  intradyalitic parenteral nutrition, in which nutrients are added to the
        patient's blood during hemodialysis;

     -  clinical laboratory testing through Spectra Renal Management;

     -  doppler flow testing of the effectiveness of the patient's vascular
        access for dialysis; and

     -  electrocardiograms.

     The patient's attending physician must prescribe these tests and other
services.

     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.

                                        15
<PAGE>   18

Contracts with hospitals provide for payment at negotiated rates that are
generally higher than the Medicare reimbursement rates for chronic in-clinic
treatments.

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

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

LABORATORY SERVICES AND RENAL DIAGNOSTICS

     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 three
laboratories, located in New Jersey, Northern California, and Illinois. During
the year ended December 31, 2000, Spectra Renal Management performed
approximately 37 million tests for more than 100,000 dialysis patients across
the U.S. We plan to expand Spectra Renal Management into related markets such as
hospital dialysis units and physician office practices, working particularly
with nephrologists.

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 or joint venture 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 with us to achieve the same goals and
to gain a partner with extensive expertise in dialysis products and services.
While price is typically the key factor in securing acquisitions, we believe
that we will be an attractive acquiror or partner to many dialysis clinic owners
due to:

     -  our reputation for patient treatment;

     -  our proprietary Patient Statistical Profile and European Clinical Data
        databases;

     -  our comprehensive clinical and administrative systems, manuals and
        policies, and our ability to provide ancillary services for dialysis
        clinics and patients; and

     -  our reputation for technologically advanced products.

     We paid aggregate consideration, consisting of both cash and notes, for
acquisitions of new clinics of approximately $288 million in 2000 and
approximately $111 million in 1999.

     On June 19, 2000, we purchased substantially all of the international and
non-continental U.S. operations of Total Renal Care Holdings, Inc. for $145
million. These operations consist of 87 dialysis clinics treating approximately
5,100 patients in Argentina, Italy, the United Kingdom, Puerto Rico, and Hawaii.
Additionally, we made a $10 million non-refundable deposit, not included in the
purchase price noted above, towards the purchase of the Puerto Rico operations.
The purchase of the Puerto Rico operations is pending subject to regulatory
approval and third party consents.

                                        16
<PAGE>   19

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
through a merger of Everest into a subsidiary of Fresenius Medical Care at a
purchase price of $343 million, which includes assumed debt and the issuance of
2.25 million preference shares. Everest owns, operates or manages approximately
70 clinic facilities providing therapy to approximately 6,800 patients in the
eastern and central United States. Everest also conducts extracorporal blood
services and acute dialysis businesses which provide acute dialysis, apheresis
and hemoperfusion services to approximately 100 hospitals. We also expect to
continue to enhance our presence in the U.S. by acquiring individual or small
groups of dialysis clinics in selected markets, expanding existing clinics, and
opening new clinics, although we will consider large acquisitions in the U.S. if
suitable opportunities, such as Everest, become available to us.

     The U.S. health care industry has experienced significant consolidation in
recent years, particularly in the dialysis service sectors in which we compete,
resulting, in some cases, in increased acquisition prices. Moreover, because of
the ongoing consolidation in the dialysis services industry, the availability of
acquisitions may decrease. Our ability to make acquisitions also will depend, in
part, on our available financial resources and the limitations imposed under our
senior credit agreement and the indentures relating to our trust preferred
securities. These limitations are discussed under " Item 5. Operating and
Financial Review and Prospects". If we are not able to continue to effect
acquisitions in the dialysis care business on reasonable terms, there could be
an adverse impact on growth in our business and on our results of operations. We
regularly evaluate and hold discussions with various other health care companies
and other businesses regarding acquisitions and joint business ventures. In
2000, we completed new acquisitions and acquisitions of previously managed
clinics totaling 133 dialysis facilities providing care to approximately 7,594
patients. These acquisitions expand our presence in selected key geographic
areas.

QUALITY ASSURANCE IN DIALYSIS CARE

     At each of our U.S. dialysis clinics, a quality assurance committee is
responsible for reviewing quality of care reports that our Patient Statistical
Profile system generates, 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 2000, we
developed and implemented a number of programs to assist in achieving our
quality goals. Our Access Intervention Management Program (AIM) detects and
corrects arteriovenous access failure in hemodialysis treatment, which is the
major cause of hospitalization and morbidity. We also developed a
regionalization program to enhance peritoneal dialysis services. Throughout the
United States we initiated a pre-ESRD program to educate patients about
prevention, slowing kidney failure and treatment options. In 2000, we also
completed a patient satisfaction survey which again revealed a high level of
satisfaction among patients visiting our facilities.

     In the International segment our quality management program focuses on
consolidation and coordination of medical matters and activities in our
international dialysis clinics to ensure and improve the quality of renal care
offered in these clinics. These clinics receive quality control guidelines to
monitor factors such as water quality, anemia treatment, and laboratory
services, using indices that are accepted worldwide in the dialysis and
scientific communities. Our system includes review and report procedures for
assessing the progress and effectiveness of our quality control activities. We
coordinate the program with internal corporate audits and audits by third
parties such as regulatory authorities. Management uses the audit reports to
further improve our system by defining additional quality control objectives.

     During 2000, our continuous improvement efforts within the international
quality management group focused on the management of electronic data. We
implemented computerized tools to streamline the handling of customer
complaints. The documentation of our corporate management system was also put on
an electronic platform. Our organizational units successfully completed all
their regulatory audits in 2000. During 2000, additional clinics in Spain and
Italy were organized in line with the ISO 9002 quality standard, with 44
certified clinics at the end of 2000 compared to 37 clinics in 1999. In 2001, we
will continue to have our facilities in Italy, France, Turkey and Hungary
accredited under ISO standards.

                                        17
<PAGE>   20

PATIENT DATA COLLECTION AND ANALYSIS

     We engage in systematic efforts to measure, maintain and improve the
quality of the services at our dialysis clinics. Each clinic collects and
analyzes quality assurance and patient data, which our division and corporate
management regularly reviews.

     Our clinical laboratory results have been a critical element in the
development of our proprietary Patient Statistical Profile database, which
contains clinical, laboratory and demographic data on approximately 73,400
dialysis patients in the U.S. We use this database to assist physicians in
providing quality care to dialysis patients. In addition, our Patient
Statistical Profile database is a key resource in ongoing research, both within
our company and at outside research institutions, to decrease mortality rates
among dialysis patients and improve their quality of life.

     In 1998, we began developing our European clinical database. The database
includes a version in each relevant local language and takes into account the
different health care systems of the various European countries. Compilation and
use of the information in this database are designed to comply with applicable
European standards and restrictions relating to patient privacy.

SOURCES OF U.S. DIALYSIS CARE NET REVENUE

     The following table provides information for the years ended December 31,
2000, 1999 and 1998 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.

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                              --------------------------
                                                               2000      1999      1998
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Medicare ESRD program.......................................   59.1%     60.2%     57.0%
Private/alternative payors..................................   32.1%     30.3%     33.8%
Medicaid and other government sources.......................    4.2%      4.2%      4.1%
Hospitals...................................................    4.6%      5.3%      5.1%
                                                              ------    ------    ------
Total.......................................................  100.0%    100.0%    100.0%
                                                              ======    ======    ======
</TABLE>

     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. When Medicare assumes
responsibility as the primary payor, it pays for dialysis and specified related
services at 80% of the payment methodology commonly referred to as the Medicare
composite rate. In addition, subject to various restrictions and co-payment
limitations, Medicare pays separately for some dialysis-related diagnostic and
therapeutic services not included in the Medicare composite rate. A secondary
payor is responsible for paying any co-payment, which is typically 20%, other
approved services not paid by Medicare and the annual deductible. The secondary
payor is usually a Medicare supplemental insurer, a state Medicaid program or,
to a lesser extent, the patient or the patient's private insurer. Most of the
states in which we currently operate dialysis clinics provide Medicaid benefits
to qualified recipients to supplement their Medicare entitlement.

     Prior to the time at which Medicare becomes the primary payor for a
patient, another third-party payor, such as the patient's private insurer, or
the patient, pays for most dialysis treatments. ESRD patients under age 65 who
have employer health plan coverage must wait 33 months, which comprises a
three-month entitlement waiting period and an additional 30-month "coordination
of benefits period", before Medicare becomes the primary payor. During this
33-month period, the employer health plan is responsible for payment as primary
payor at its negotiated rate or, in the absence of a negotiated rate, at our
usual and customary rates, which generally are higher than the rates paid by
governmental payors, such as Medicare, and Medicare is the secondary payor. See
"-- Regulatory and Legal Matters -- Reimbursement -- U.S."

     We obtain a significant portion of our revenues for dialysis services from
reimbursement provided by non-governmental third-party payors. Some type of
managed care plan, including health maintenance organizations,

                                        18
<PAGE>   21

now furnishes a substantial portion of third-party health insurance in the U.S.
Non-governmental payors generally reimburse for dialysis treatments at higher
rates than governmental payors such as Medicare. However, managed care plans
have been more aggressive in contracting with a smaller number of selected
providers willing to furnish services for lower rates and subject to a variety
of service restrictions. For example, managed care plans and traditional
indemnity third-party payors increasingly are demanding alternative fee
structures, such as capitation arrangements. With capitation, a provider
receives a fixed payment per month for each enrolled patient and bears the risk
of loss if the costs of treating a patient exceed the fixed capitation payment.
These market forces have resulted in pressures to reduce the reimbursements we
receive for our services and products.

     Our ability to secure rates with indemnity and managed care plans has
largely been due to the relatively small number of ESRD patients enrolled by any
single health maintenance organization. Regulation has prohibited ESRD patients
from joining a health maintenance organization unless they are otherwise
eligible for Medicare coverage, due to their age or disability, and are members
of a managed care plan when they first experience kidney failure. The Health
Care Financing Administration has a pilot program underway for managed care
companies to treat Medicare ESRD patients under capitated contracts. If
successful, this program could result in the elimination of the regulation that
precludes ESRD patients from enrolling in managed care organizations. If
Medicare health maintenance organization enrollments increase and the number of
ESRD patients in managed care plans also increases, managed care plans' ability
to negotiate lower rates or reduce the services we provide to them may increase.
In addition, the health maintenance organization may have contracted with
another provider, or may have stricter controls on access to certain ancillary
services that we typically provide to ESRD patients. Any of these developments
could limit our future payments for such services.

     We have formed two joint ventures seeking to contract with managed care
organizations for the care of ESRD patients. Renaissance Health Care, Inc. is a
50/50 joint venture between us and participating nephrologists throughout the
U.S. Our other venture, Optimal Renal Care is a 50/50 joint venture between us
and Permanente Medical Group of Southern California. We believe a significant
increase in the number of patients enrolled in managed care plans might also
cause these plans to look more closely at outsourcing ESRD care to ESRD
companies such as our disease state management joint ventures.

     As managed care programs expand market share and gain greater bargaining
power in relation to health care providers, there will be increasing pressure to
reduce the payments for our services and products. These trends would accelerate
if future changes to the Medicare ESRD program require private payors to assume
a greater percentage of the cost of care given to dialysis patients. We are
presently seeking to expand the portion of our revenues attributable to
non-governmental private payors through such measures as our joint venture with
Southern California Permanente Medical Group. However, we believe that the
historically higher rates of reimbursement nongovernmental payors have paid may
not continue at these high levels. If substantially more patients join managed
care plans or managed care plans reduce reimbursements paid to us, our business
and results of operations could be adversely affected, possibly materially. See
"-- Regulatory and Legal Matters -- Reimbursement" and "Anti-Kickback Statutes,
False Claims Act, Stark Law, and Fraud and Abuse Laws."

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. Virtually all of our clinics maintain open staff privileges for
local nephrologists. Our ability to provide quality dialysis care and otherwise
meet the needs of local patients and physicians is central to our ability to
attract nephrologists to our clinics and to receive referrals from such
physicians.

     We market the availability, quality and other advantages of our dialysis
clinics to physicians through symposia and other professional meetings. We
supplement our marketing efforts through distribution of literature and
advertisements in professional journals.

     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
                                        19
<PAGE>   22

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.

     We have written agreements with the physicians who serve as Medical
Directors for our clinics. Our U.S. Medical Director agreements generally have
terms of three years, although some have terms of as long as five to ten years.
Our Medical Directors and other physicians under contract individually negotiate
their compensation, which generally depends upon competitive factors in the
local market, the physician's professional qualifications, experience and
responsibilities, the clinic's size and the services it provides. We fix the
aggregate compensation of Medical Directors and other physicians under contract
in advance for a period of one year or more, based in part on various efficiency
and quality incentives. We believe that compensation is paid at fair market
value. In some countries other than the U.S., Medical Director and physician
compensation may include a component based on some measure of the clinic's
financial performance.

     Virtually all of our agreements with our Medical Directors in the U.S., as
well as the typical contract under which we acquire existing dialysis clinics,
include noncompetition covenants covering specified activities within specified
geographic areas for specified periods of time. They do not prohibit the
physicians from providing direct patient care services at other locations. As
required by law, they also do not require a physician to refer patients to us or
particular clinics or to buy or use specific medical products. In certain
states, non-competition covenants may not be enforceable.

COMPETITION

     Dialysis Services.  The dialysis services industry is highly competitive.
Our major competitors in dialysis services include Gambro AB, Da Vita, Inc.
(formerly Total Renal Care), Baxter International Inc., Renal Care Group and the
Kuratorium fur 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. We
believe that we compete effectively in all of these areas. In particular, based
upon our knowledge and understanding of other providers of kidney dialysis, as
well as from information obtained from publicly available sources, we believe
that we are among the most cost-efficient providers of kidney dialysis services.
In addition, as a result of our large size relative to most other dialysis
service providers, we enjoy economies of scale in administrative functions such
as purchasing, billing, collections and data processing.

     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 and Renal Diagnostics.  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. In addition to laboratory services, Spectra Renal
Management competes in the imaging diagnostic market. While the main competitors
are local hospitals, Spectra Renal Management is competitive based upon the
quality and accessibility of its service.
                                        20
<PAGE>   23

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 approximately
100 countries. Most of our customers are dialysis clinics. For the year 2000,
dialysis products accounted for 30% of our total revenue.

     We manufacture a comprehensive line of kidney dialysis equipment and
related products for each of the hemodialysis and peritoneal dialysis markets.
Our products include:

     -  hemodialysis machines, peritoneal dialysis cyclers and related
        equipment;

     -  dialyzers;

     -  peritoneal dialysis solutions in flexible plastic bags;

     -  hemodialysis concentrates and solutions and granulate mixes;

     -  bloodlines and disposable tubing assemblies; and

     -  equipment for water treatment in dialysis clinics.

     We also distribute other manufacturers' products, including dialyzers,
special blood access needles, heparin, a drug used to prevent blood clotting,
and commodity supplies such as bandages, clamps and syringes.

OVERVIEW

     The following table shows the breakdown of our revenues for the last three
years from sales of dialysis products between hemodialysis products and
peritoneal dialysis products.

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------
                                                        2000               1999               1999
                                                  ----------------   ----------------   ----------------
                                                   TOTAL              TOTAL              TOTAL
                                                  PRODUCT    % OF    PRODUCT    % OF    PRODUCT    % OF
                                                  REVENUES   TOTAL   REVENUES   TOTAL   REVENUES   TOTAL
                                                  --------   -----   --------   -----   --------   -----
                                                                (U.S. DOLLARS IN MILLIONS)
<S>                                               <C>        <C>     <C>        <C>     <C>        <C>
Hemodialysis Products...........................  $1,060.3     84    $1,033.3     83       922.5     80
Peritoneal Dialysis Products....................     196.5     16       207.4     17       224.6     20
                                                  --------    ---    --------    ---    --------    ---
Total...........................................  $1,256.8    100    $1,240.7    100    $1,147.1    100
                                                  ========    ===    ========    ===    ========    ===
</TABLE>

HEMODIALYSIS PRODUCTS

     We offer a comprehensive hemodialysis product line, consisting of
hemodialysis machines, modular accessories for dialysis machines, polysulfone
dialyzers, bloodlines, dialysis solutions and concentrates, fistula needles,
connectors, devices for water treatment, data management systems, dialysis
chairs, machines and supplies for the reuse of dialyzers and other similar
supplies. We 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 introduced our first dialysis machine in 1980, and
our dialysis machines are currently in their fifth generation of development. We
sell our dialysis machines as Series 2008H 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;

                                        21
<PAGE>   24

     -  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;

     -  Additional 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. Our most recent module, the Blood
        Volume Monitor(TM) controls removal of excess fluid from the patient;

     -  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 for 15 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(R) 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; and

     -  Cost-efficient production of infusion solution during treatment with our
        ONLINEplus(TM) system for hemofiltration and hemodiafiltration with a
        special dialysis solution filter, DIASAFEplus(R), which provides
        ultrapure dialysis fluid.

     Dialyzers.  We manufacture dialyzers using hollow fiber polysulfone
membranes, a synthetic material. We are the leading worldwide producer of
polysulfone dialyzers. While competitors currently sell polysulfone membranes in
the market, we developed and are the only manufacturer with more than 15 years'
experience in applying the technology required to mass produce polysulfone
membranes. We believe that polysulfone offers the following superior performance
characteristics compared to other materials used in dialyzers:

     -  higher biological compatibility, resulting in reduced incidence of
        adverse reactions to the fibers;

     -  greater capacity to clear uremic toxins from patient blood during
        dialysis, permitting more thorough, more rapid dialysis, resulting in
        shorter treatment time; and

     -  a complete range of permeability, or membrane pore size, which permits
        dialysis at prescribed rates -- high flux, medium flux and low flux, as
        well as ultra flux for acute dialysis, and allows tailoring of dialysis
        therapy to individual patients.

                                        22
<PAGE>   25

     Our full line of polysulfone dialyzers includes the F70NR, F50NR and F7NR
series of single-use polysulfone dialyzers. We also distribute dialyzers
manufactured by others, primarily to our own dialysis clinics. In North America,
we sell dialyzer reprocessing and rinse machines. These machines cleanse
dialyzers after dialysis, permitting multiple usage for the same patient before
disposal of the dialyzer. Reuse of disposable dialyzers is utilized with patient
and physician consent, and enables hemodialysis providers to reduce operating
costs. We recently announced that we will increase production of single-use
dialyzers at our Ogden, Utah facility to meet demand for these products.

     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(R) connection system for introducing and
        draining dialysis solution into and from the abdominal cavity, using the
        same bag for introduction and drainage. Our A.N.D.Y.(R) and A.N.D.Y.
        Plus(R) systems, which include a special drainage bag and a snap-off
        Y-shaped piece connected to the Safe-Lock(R) connector at the catheter,
        provide protection from contamination in a dual-bag system;

     -  suitability for all peritoneal dialysis patients through the Inpersol(R)
        product line, which we acquired from Abbott Laboratories in 1993.
        Safe-Lock(R) 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(R), a new environmentally friendly plastic
        material for foils, tubings and other parts of peritoneal dialysis
        systems. Biofine(R) was developed by Fresenius AG and launched in 1997
        and has the following significant benefits:

       -- higher biocompatibility through avoidance of plasticisers, which can
          leach into dialysis solutions;

       -- lower gas permeability and less interaction with peritoneal dialysis
          solutions, permitting administration of a wide range of solutions,
          including bicarbonates;

       -- disposal with less harm to the environment. Biofine(R) is manufactured
          with less material and, when burned, releases only carbon dioxide and
          water, rather than dioxins and furans which are released during
          incineration of other foils. This should make our products more
          attractive, especially in Europe, where disposal of harmful plastics
          is highly regulated.

     -  the benefits of Biofine(R) with protection against contamination through
        our new Stay-Safe(R) system, launched in 1997. The system comprises
        tubing, connectors and a peritoneal dialysis solution double bag, made
        entirely from Biofine(R). 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
                                        23
<PAGE>   26

       introduction of new solution. The single switch also provides tight
       closure of the line and, to further reduce the possibility of
       contamination, the switch seals catheter access and surrounds the
       catheter adapter with disinfectant;

     -  higher solution bag volumes with our new 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(TM) 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(R), a variant on CCPD therapy we introduced in 1994. PD-PLUS(R)
        therapy provides a more tailored therapy than regular CCPD using a
        simpler nighttime cycler and, where necessary, includes one manual
        dialysis solution exchange during the day. We believe that PD-PLUS(R)
        therapy is less costly and easier to administer than typical CCPD. We
        also believe that PD-PLUS(R) therapy improves toxin removal by more than
        40% compared to CAPD. By increasing the effectiveness of peritoneal
        dialysis treatments, PD-PLUS(R) may also effectively prolong the time
        period during which a patient will be able to remain on peritoneal
        dialysis before requiring hemodialysis. PD-PLUS(R) therapy can only be
        performed using the Fresenius Freedom(TM) Cycler and special tubing
        using Safe-Lock(R) connectors; and

     -  IQcard(TM), for use with the Freedom(TM) Cycler PD-PLUS(R) 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(R), 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.

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<PAGE>   27

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 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. Our Schweinfurt and Walnut Creek facilities also provide training and
act as backups for the regional service centers. We also provide technical
training to employees of hospitals and other health care providers in the use of
our products. We believe our service organizations have a reputation for
reliability and high quality service.

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.

     In 1998, we restructured our Schweinfurt facility to create process units
dedicated to each of the main geographic regions in which we do business. This
market-focused structure enables us to more actively support our worldwide
equipment business with a high level of responsiveness to the needs of different
markets, while realizing economies of scale. The new multi-disciplinary teams
created within this structure have increased productivity, lowered manufacturing
costs by 6% in 1998, 7% in 1999 and 2% in 2000, and improved customer service.
In addition, we were able to increase output of 4008 series hemodialysis
machines by 30% from 9,000 machines in 1999 to 11,700 in 2000. Additionally, we
increased our output of the peritoneal dialysis cycler sleep safe from 200 units
in 1999 to 500 units in 2000. We have implemented just-in-time manufacturing
techniques at this facility and are currently able to produce a hemodialysis
machine in two weeks.

     We manufacture and assemble dialyzers and polysulfone membranes in our St.
Wendel, Germany and Ogden, Utah facilities and at production facilities of our
joint ventures in Belarus and Japan.

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<PAGE>   28

     In 1998, we significantly increased capacity at the St. Wendel facility by
optimizing production processes and by implementing flexible working hours and
in 1999, we further increased capacity by eliminating non-essential
manufacturing at that facility. In 2000 we added another polysulfone hollow
fiber spinning line to satisfy growing demand for the core component of our
dialyzers. Due, in part, to these changes, dialyzer and bloodline production
capacities increased by 6% in 1999 and 25% in 2000. We adapted various
production processes to meet the more technically complex requirements of newly
developed dialyzers. We are currently developing a fully-automated production
line to assure efficient production in future. We also enhanced Polysulfone
dialyzer production at our subsidiaries in France, Saudi Arabia and Belarus. Our
French facility is now the second facility after St. Wendel that can produce our
complete series of polysulfone dialyzers.

     The significant rise in demand for foils and tubings made of our
environmentally-friendly Biofine material led to a 77% increase in production of
our Biofine non-polyvinyl chloride foil and a 63% increase in tubing production.
Production of peritoneal dialysis solution bags and dry concentrates were
expanded by more than 50% and 35%, respectively. In 2000, we commenced
production of bloodline systems at our Antalya, Turkey facility, which will be
integrated into our European network in 2001. In our subsidiary in Japan we are
currently constructing a production plant for peritoneal dialysis solutions
which is currently scheduled to be operational in mid 2001.

     In the North America segment at our Ogden, Utah facility, we commenced
construction of an additional hollow-fiber spinning line in August 1999. This
was the first step in a five-year expansion plan for that facility. The Ogden
facility now operates as a fully integrated manufacturing and research and
development facility for polysulfone dialyzers. An additional dialyzer assembly
and fiber spinning line will be put into operation in 2001 and we recently
announced that we will increase production of single-use dialyzers at our Ogden,
Utah facility by 200% to meet demand for these products. Over the past four
years we have doubled employment at this facility to 960. The creation of
another 1,000 jobs is planned for the coming years. In 2000 we also constructed
a new manufacturing facility for liquid concentrates in Coppel, Texas.

     Each step in the manufacture of our products, from the initial processing
of raw materials through the final packaging of the completed product, is
carried out under controlled quality assurance procedures required by law and
under Good Manufacturing Practices or the Conformite Europeenne (CE)
certification process, as well as under comprehensive quality management
systems, such as the internationally recognized ISO 9000-9004 standards, which
are mandated by regulatory authorities in the countries in which we operate. In
addition, the St. Wendel and Schweinfurt facilities periodically undergo U.S.
Food and Drug Administration inspection. The St. Wendel facility was last
inspected in September 1998. The Schweinfurt facility was inspected by the U.S.
Food and Drug Administration and by the comparable German authority under the
ISO 9000 standard in mid-1999. No material adverse findings were noted at either
facility. Our facilities in Ogden, Utah and Reynosa, Mexico received ISO 9001
certification and approval for CE marking in 1999. In 2000 our facility in
Antalya, Turkey received approval for CE marking and our manufacturing facility
in Walnut Creek, California received ISO 9001 certification.

     Incoming raw materials for solutions undergo tests, such as, infrared,
ultraviolet and physical and chemical analyses to assure quality and
consistency. During the production cycle, sampling and testing take place in
accordance with established quality assurance procedures to ensure the finished
product's sterility, safety and potency. Pressure, temperature and time for
various processes are monitored to assure consistency of semi-finished goods.
Environmental conditions are monitored to assure that particulate and
bacteriological levels do not exceed specified maximums. We maintain continuing
quality control and Good Manufacturing Policies education and training programs
for our employees. See "Regulatory and Legal Matters."

ENVIRONMENTAL MANAGEMENT

     We conduct our operations with a commitment to environmental quality.
Several of our locations have been certified in accordance with ISO 14001, the
international standard for environmental management systems, and the European
Union Eco Audit, a more restrictive audit performed within the European Union.
In 1999, we integrated the existing environmental management systems in our
production plants in St. Wendel and Schweinfurt and our research and development
facilities in Bad Homburg, into our newly created and

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<PAGE>   29

implemented corporate environmental management system. An independent
certification body has certified the new system. We will also start the process
of securing ISO14001 certification for our operations in North America and thus
continue our global efforts to improve the environmental compatibility of our
products, production sites and dialysis clinics.

     We have also implemented a reporting system for the collection of
environmental data in our certified units enabling us to retrieve the relevant
performance indicators and to identify further improvement potential. For
example a survey of our European clinics showed significant saving possibilities
and provided input for further projects in the field of water consumption. The
results of this "Eco-controlling system" will enable us to establish future
targets which should result in savings in environmentally related costs of
approximately 40% during the next few years, combined with positive impacts for
environmental protection.

     Our research and development efforts also focus on environmental
compatibility. For example, our new generation of FX-class dialyzers reduce
weight and volume by 54% and 33% respectively and use an environmentally
improved material composition. Another important project in 2000 was the
development and integration of an environmental management system, based on ISO
14001, into our overall clinic quality management system. A current pilot
project is generating the first implementation experience, and in 2001 we plan
to expand the integration process of this EMS to all our dialysis clinics. We
initiated a total of 13 environmentally related projects in our production plant
in St. Wendel.

     Environmentally related efforts in the U.S. focus on continual waste
minimization programs involving solid, medical and hazardous waste. In dialysis
services, this has been accomplished via quarterly monitoring all medical waste
costs related to the generation of medical waste and proper segregation and
disposal. Regulatory compliance in the environmental area is accomplished
through our internal Environmental Health and Safety Compliance Audit Program
conducted at our locations. Furthermore, we have taken the initiative of
promoting environmentally friendly schemes in the community and intend to
dedicate even stronger focus on waste minimization initiatives in our dialysis
services and our production plant in Ogden, Utah.

SOURCES OF SUPPLY

     We purchase raw materials essential to our dialysis products business
worldwide from numerous suppliers and we have not encountered serious shortages
or delays in obtaining raw materials. To assure continuous high quality in the
International segment, we formed a purchasing consulting center in mid 1998.
This group coordinates supplies and enters into global contracts using
benchmarking and systematic analysis of market and price information. Its major
strategy has been to reach global commercial agreements with harmonized net
prices through economies of scale from standardization of parts or materials and
concentration of suppliers. We have supply agreements extending for up to 3
years for critical raw materials like polymers, granulates and plastics. These
agreements include dual sourcing, multi-plant agreements or approved second
sources to avoid the risk of bottlenecks in our supply chain. For key production
processes, we have the internal capability to benchmark suppliers and/or assume
manufacturing of key parts for internal needs.

     Of 51 supply projects started in 1998 and 29 projects started in 1999 we
have completed 42 fixed agreements. In 2000, we started 31 additional projects,
including projects for other Fresenius affiliates, mainly in the fields of
plastic granulates, packaging materials, injection mouldings, clinical materials
and consulting. An interactive information system connects all global projects
to insure standardization and monitoring by the purchasing consulting center.
Markets in 2000 were characterized by significant price-pressure, principally
for oil and paper, due to in part to the Dollar/euro exchange rate fluctuation.
We were able to partially offset this development through intensive negotiations
and the optimization of our supply distribution. In 2001 the purchasing
consulting center will focus on global contract pooling with external partners,
and we will initiate a strategic re-evaluation of all supplier sourcing
contracts. We have material purchase commitments of approximately $165 million
of materials of which $90 million is committed at December 31, 2000 for fiscal
year 2001. The terms of these agreements run 2-5 years.

     The Materials Management Department of our Dialysis Products Division in
the North America segment is responsible for planning and procuring of $220
million annually from 150 suppliers. It provides production plans

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<PAGE>   30

to our manufacturing locations and manages inventory levels in the distribution
network that delivers supplies to clinics and home patients.

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 $32 million in 2000, $32 million in
1999, and $31 million in 1998.

     We introduced the following new or enhanced products in 2000:

     -  FX-class and Optiflux dialyzers. Both of these dialyzers use
        polysulfone-based Helixone membranes, which significantly increase
        clearance. FX-class dialyzers provide simplified handling and more
        secure treatment and improve waste management, logistics and handling
        through weight reduction and environmentally improved materials.
        Optiflux polysulfone dialyzers deliver small and middle molecular
        weightsolute clearance. Both dialyzers have outstanding
        biocompatibility, continuing our efforts to provide patient care in the
        most biocompatible way.

     -  The 4008 3mix(TM) hemodialysis machine, which is capable of handing
        three different dialysis concentrate components instead of the usual
        two. The 4008 3mix(TM) permits selection of desired sodium and
        bicarbonate concentrations directly at the treatment site and provides a
        high standard of patient safety through enhanced conductivity monitoring
        and specifically coded connectors.

     -  The On-line Clearance Monitor, an options module for the 4008 series of
        dialysis machines, which provides immediate and online information on
        urea clearance and dialysis dose, providing a clear and visible picture
        of treatment efficacy and enabling immediate treatment adjustments to be
        made.

     -  The 2008K hemodialysis machine, introduced in the North American market,
        which provides innovative elements such as improved operator interface,
        an improved blood pump, level detector and heparin pump modules, and
        fluid removal measurement combined with a feedback control mechanism to
        monitor and avoid sudden declines in blood pressure and resulting
        complications.

     -  Our Infrared Data Acquisition, a receiver/ transmitter that can download
        data on completion of treatment to a hand-held computer. Data can then
        be transferred to a PC or PC-network for further processing or immediate
        treatment analysis.

     -  New or improved products for peritoneal dialysis, including:

       -  Stay-safe(R) balance, a more biocompatible peritoneal dialysis
          solution in a dual chamber bag. This product is pH-neutral, which may
          provide longer preservation of the peritoneum as a natural dialysis
          membrane.

       -  the Premier(TM) Plus Double Bag and the Premier(TM) Transfer Set

       -  upgrades to the Freedom(TM) Cycler PD+ and related software, and new
          therapy-planning software.

PATENTS, TRADEMARKS AND LICENSES

     As the owner of or licensee under patents and trademarks throughout the
world, we hold rights under 997 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. For dialysis
machines, patents include:

     -  the location for a filter device for sterile filtering dialysate in the
        dialysis machine circuit;

     -  the safety concept for the ultrafiltration device in a dialysis machine
        used for high flux dialysis;

     -  a process for the on-line preparation of substitution fluid in
        hemodiafiltration machines;

     -  conductivity sensor arrangements in the dialysis machine circuit;
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<PAGE>   31

     -  conductivity sensor devices, mathematical algorithms for using such
        devices;

     -  patents relating to controlled bicarbonate dialysis; and

     -  patents related to thermal balance during dialysis.

     The connector system for our biBag(TM) bicarbonate concentrate powder
container has been patented in the U.S., Norway and Europe while national
applications in Japan and Finland are still pending. Further pending patents
include the new generation of "DIASAFEplus"(R) filters.

     Competitors in Europe and Japan have filed oppositions to the patent family
covering Fresenius Medical Care Polysulfone(R) high flux membranes. Our patents
have been upheld in both Europe and Japan. We successfully defended an appeal in
the European Union, but an appeal by the Japanese competitor is still pending.
While we believe that these patents are valid in the relevant jurisdictions, a
successful opposition could have a material adverse effect on our business.

     Among our more significant patents, the patent for our polysulfone hollow
fiber expires in 2005 in Germany, 2007 in the United States, and at various
dates in 2005 in other jurisdictions. The patent for our in-line sterilization
method expires in 2010 in Germany, 2010 in the United States, and in 2010 in
other jurisdictions, and the patent for our biBag connector expires in 2013 in
Germany, 2013 in the United States, and in 2013 in other jurisdictions. We
believe that 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, we hold rights on the Safe-Lock(TM) system. For
our non-polyvinyl chloride film, known as Biofine(R), indicated for general use
in intravenous and peritoneal dialysis we have a grant patent in Germany as well
as pending patent applications in various countries. Further pending patents
describe a special film for a peelable, non-polyvinyl chloride multi chamber bag
for peritoneal dialysis solutions. Fresenius USA's intellectual property
includes the Inpersol(TM) trademark and rights to certain manufacturing know-how
Fresenius USA obtained from Abbott Laboratories, and a paid-up non-exclusive
global sublicense from Baxter, Inc. to certain CAPD and connector technology.

     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, but intellectual property is 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, licences 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.

     We believe that in the dialysis product market, companies compete primarily
on the basis of product performance, cost-effectiveness, reliability, assurance
of supply and service and continued technological innovation. We believe our
products are highly competitive in all of these areas. Dialysis centers acquired
by other product manufacturers may elect to limit or terminate their purchases
of our dialysis products in order to avoid purchasing products manufactured by a
competitor. We believe, however, that customers will continue to consider our
long-term customer relationships and reputation for product quality in making
product purchasing decisions, and we intend to compete vigorously for these
customers.

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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", and other fraud and abuse laws and
similar state statutes, as well as similar laws in other countries. It is
possible that applicable laws or regulations will be amended, or that
enforcement agencies or the courts will make interpretations inconsistent with
ours or the manner in which we conduct our business. Any one of these events
could have a material adverse effect on our business, reputation, financial
condition and results of operations. 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 enforcing them because enforcement has become a high priority for the
federal government and some states. We, and the health care industry in general,
will continue to be subject to extensive federal, state and foreign regulation,
and we cannot predict the full scope of these regulations.

     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.

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<PAGE>   33

PRODUCT REGULATION

U.S.

     In the U.S., the Food and Drug Administration and comparable state
regulatory agencies impose requirements on our subsidiaries that manufacture and
sell medical products and supplies under their jurisdiction. These rules
require:

     -  compliance with Good Manufacturing Practices in manufacturing medical
        products; and

     -  compliance with Food and Drug Administration rules regulating,

       -- product design;

       -- safety;

       -- advertising and labeling; and

       -- record-keeping and reporting of adverse events.

     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 cell separators) for
human use, we must satisfy mandatory procedures and safety and efficacy
requirements established by the Food and Drug Administration or comparable state
and foreign governmental agencies. These rules generally require that the Food
and Drug Administration approve products as safe and effective for their
intended use prior to being marketed. The Food and Drug Administration has
designated peritoneal dialysis solutions as drugs and, as such, they are subject
to additional Food and Drug Administration regulation under the Food, Drug and
Cosmetic Act of 1938.

     The approval process is expensive, time consuming and subject to
unanticipated delays. The Food and Drug Administration may also prohibit the
sale or importation of products, order product recalls or require post-
marketing testing and surveillance programs to monitor a product's effects. We
believe that we have filed for or obtained all necessary approvals for the
manufacture and sale of our products in jurisdictions in which those products
are currently produced or sold. We cannot assure that we will obtain necessary
regulatory approvals or clearances within reasonable time frames, if at all. Any
delay or failure to obtain regulatory approval or clearances could have a
materially adverse effect on our business, financial condition and results of
operations.

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 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.

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     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 July 1993, we obtained our
first certificates for successfully running full quality management systems
under the ISO 9001 standard.

     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. The European Union began to harmonize national regulations
comprehensively for the control of medical devices in Europe in 1993, when it
adopted its Medical Devices Directive. In 1995, Germany implemented this
directive when it adopted the Medical Devices Act (Medizinproduktegesetz), which
is similar in many ways to the German Drug Law. The European Union 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 Conformite Europeenne, 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.

     The Medical Devices Directive became mandatory on June 15, 1998. Our Series
4008, 4008B, 4008E dialysis machines and their therapy modifications, and our
PD-NIGHT(R) 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 subject virtually
all clinical laboratory testing facilities, including our facilities, to the
jurisdiction of Department of Health and Human Services. That act establishes
national standards for assuring the quality of laboratories based upon the
complexity of testing performed by a laboratory. Some of our operations also
subject us to federal laws governing the repackaging and dispensing of drugs and
the maintenance and tracking of certain life sustaining and life-supporting
equipment.

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

     Federal, state and local regulations require that we meet 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, and dispensing of controlled
substances. All of our operations 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 clinics, renal
diagnostic support business and laboratories must have Health Care Financing
Administration certification. All of our dialysis clinics and laboratories that
furnish Medicare services have the required certification.

     Some of our facilities and 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 we must meet to qualify for payments
under Medicare, Medicaid and other government reimbursement programs. Licenses
and approvals to operate these clinics and conduct certain professional
activities are customarily subject to periodic renewal and to revocation upon
failure to comply with the conditions under which they were granted.

     Occupational Safety and Health Administration regulations require employers
to provide employees who work with blood or other potentially infectious
materials with prescribed protections against blood-borne and air-borne
infection carriers. The regulatory requirements apply to all health care
facilities, including dialysis clinics, laboratories and renal diagnostic
support businesses, and require that employers determine which employees may be
exposed to blood or other potentially infectious materials and have in effect a
written exposure control plan. In addition, employers are required to provide
hepatitis B vaccinations, personal protective equipment, blood-borne infection
training, post-exposure evaluation and follow-up, waste disposal techniques and
procedures, engineering and work practice controls and other programs required
by the Occupational Safety and Health Administration for blood-borne and
air-borne infection carriers.

     Some states in which we operate have certificate of need 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 and the District
of Columbia and Puerto Rico that have certificate of need laws applicable to
dialysis clinics. These requirements may provide a barrier to entry to new
companies seeking to provide services in these states, but also may constrain
our own ability to expand our operations in these states.

Germany and Other Non-U.S.

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

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

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

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

REIMBURSEMENT

U.S.

     Dialysis Services.  Our dialysis clinics provide outpatient hemodialysis
treatment and related services for ESRD patients. In addition, some of our
clinics offer services for the provision of peritoneal dialysis and hemodialysis
treatment at home.

     The Medicare program is the primary source of revenue for the North America
segment's dialysis care business. For example, in 2000, approximately 59% of
dialysis care revenue in the U.S. or approximately 37% of our revenue worldwide
resulted from Medicare's ESRD program. As described below, the Medicare program
reimburses the North America segment for dialysis treatment and related
laboratory services in accordance with the Medicare composite rate for some
products and services rendered at our dialysis clinics. As described in the next
paragraph, other payment methodologies apply to Medicare reimbursement for other
products and services that we provide at our dialysis clinics and for products
that we sell and support services we furnish to ESRD patients receiving dialysis
treatment at home. 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 and recurring revenue per treatment.

     When Medicare assumes responsibility as primary payor, as described below
under "Coordination of Benefits," Medicare is responsible for payment of 80% of
the Medicare composite rate set by the Health Care Financing Administration for
dialysis treatments. The Medicare composite rate governs the Medicare
reimbursement available for a designated group of dialysis services, including
the dialysis treatment, supplies used for treatment, specified laboratory tests
and specified medications. The Medicare composite rate consists of labor and
nonlabor components with adjustments made for regional wage costs, subject to a
national payment rate schedule. The Medicare composite rate for 2001 was
increased by an average of 2.4% (as a result of set increases over the year),
with a new payment ceiling of $144 per treatment. Some exceptions are paid at a
higher rate based on specific criteria.

     Medicare reimburses us for home dialysis using two methods based on which
supplier is selected to provide dialysis supplies and equipment. In Method I
reimbursement, the dialysis clinic is designated as the supplier. Under Method
I, the clinic provides all dialysis treatment related services, including
equipment and supplies, and is reimbursed using a methodology based on the
Medicare composite rate. In Method II reimbursement, our dialysis products
division is designated as the direct supplier. Under Method II, our dialysis
products division provides the patient directly with all necessary equipment and
supplies and is reimbursed by Medicare subject to a capitated ceiling. Clinics
provide home support services to Method II patients and these services are
reimbursed at a monthly fee for service basis subject to a capitated ceiling.
The reimbursement rates under Method I and Method II differ, although both are
prospectively determined and are subject to adjustment from time to time by the
U.S. Congress.

     Some items and services that we furnish at our dialysis clinics are not
included in the Medicare composite rate and are eligible for separate Medicare
reimbursement, typically on the basis of established fee schedule amounts. These
items and services include specified drugs such as EPO, blood transfusions and
some diagnostic tests.

     Medicare payments are subject to change by legislation and pursuant to
deficit reduction measures. The Medicare composite rate was unchanged from
commencement of the Medicare ESRD program in 1972 until 1983. From 1983 through
December 1990, numerous congressional actions resulted in a net reduction of the
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average reimbursement rate from $138 per treatment in 1983 to approximately $125
per treatment in 1990. The U.S. 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.

     We cannot 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 dialysis services business. In
addition, because the demand for products is affected by Medicare reimbursement,
a decline in reimbursement rates could also adversely affect 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.

     Patients or their third-party insurance carriers, 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. Payment of these amounts -- typically the annual
deductible and 20% co-insurance -- is subject to the specific coverage policies
of the payors. The extent to which we are actually paid the full co-payment
amounts depends on the particular responsible party. Each third-party payor,
including Medicaid, makes payment under contractual or regulatory reimbursement
provisions which may or may not cover the full 20% co-payment or annual
deductible. Where the patient has no third-party insurance or the third party
insurance does not cover co-payment or deductibles and the patient is not
eligible for Medicaid, the patient is responsible for paying the co-payments or
the deductible. We frequently do not collect these amounts in full despite
reasonable collection efforts. Under an advisory opinion from the Office of the
Inspector General, subject to specified conditions, we and other similarly
situated providers may make contributions to a non-profit organization that has
volunteered to make premium payments for supplemental medical insurance and/or
medigap insurance on behalf of indigent ESRD patients, including 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, the Medicare composite rate paid to our dialysis clinics includes
payment for some routine tests. For those services, the dialysis clinics obtain
the services from a laboratory and pay the laboratory for the services. In
accordance with industry practice, Spectra Renal Management usually provides
composite rate 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 Medicare composite rate at the designated
frequencies. In October 1994, the Office of the Inspector General issued a
special fraud alert in which it stated its view that the industry practice of
providing tests covered by the Medicare 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 (Medicare
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, Spectra Renal Management performs laboratory tests for Medicare
beneficiaries that are not included in the Medicare composite rate and are
separately billable directly to Medicare. Medicare pays for these tests at 100%
of the Medicare fee schedule amounts, which are limited by national ceilings on
payment rates, called National Limitation Amounts. The U.S. Congress has
periodically reduced the fee schedule rates and the National Limitation Amounts
with the most recent reductions in the National Limitation Amounts occurring in
January 1998. (As part of the Balanced Budget Act of 1997, the U.S. Congress
lowered the National Limitation Amounts from 76% to 74% effective January 1,
1998.) The U.S. Congress has also approved a five year freeze on inflation
adjustments based on the Consumer Price Index for 1998-2002.

     Medicare insurers have aggressively implemented its Local Medical Review
Policies, which limit coverage for certain clinical laboratory services to an
established list of diagnosis codes supporting medical necessity. These policies
establish criteria under which laboratory tests will be considered medically
necessary only if the patient's condition is reflected in specified diagnosis
codes. They also establish rules limiting the frequency of certain laboratory
tests. Provisions in the Balanced Budget Act of 1997 require the Secretary of
Health and Human Services to adopt uniform coverage and payment policies for
laboratory testing by July 1, 1999. The
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adoption of additional coverage policies would reduce the number of covered
services and could materially affect our revenues. Laboratory tests are ordered
only by physicians based on their patients' needs.

     Intradyalitic parenteral nutrition.  Among its other services, Spectra
Renal Management administers intradyalitic parenteral nutrition, a form of
nutritional therapy, to chronic dialysis patients who suffer from
gastrointestinal malfunctions. The Medicare program covers these services under
the Medicare parenteral and enteral nutrition benefit, which requires extensive
documentation and individual physician certification of medical necessity for
each patient. Intradyalitic parenteral nutrition therapy has been shown to
increase the body content of vital, high biologic value proteins like albumin.
Deficiency of such proteins, on both a long-term and short-term basis, has been
shown to be associated with substantially higher risk of death among dialysis
patients.

     Spectra Renal Management has continued to provide intradyalitic parenteral
nutrition therapy to malnourished dialysis patients who meet current Medicare
coverage criteria. Analyses of data from our patient statistical profile
database, both internal and as published in peer-reviewed medical journals,
indicate that intradyalitic parenteral nutrition is effective in increasing
serum albumin levels -- a recognized measure of malnutrition -- and moderating
mortality risk for malnourished patients with certain low serum albumin levels.

     Under the corporate integrity agreement, we agreed to submit claims for
payment of intradialytic parenteral and other nutrition therapy in accordance
with the coverage criteria of the Health Care Financing Administration as in
effect from time to time.

     Erythropoetin.  In 1999, the Office of the Inspector General and the
Clinton Administration announced their intention to seek a 10% reduction in
Medicare reimbursement for EPO. Although this proposal was not enacted, 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 chronic dialysis treatment at a dialysis clinic
commences. During the first three months, considered to be a waiting period, the
patient or the patient's insurance company, Medicaid or a state renal program
are responsible for payment.

     Patients who have Medicare coverage and are also covered by an employer
group health plan are subject to a 30-month coordination period during which the
employer group health plan is the primary payor and Medicare the secondary
payor. During this coordination period the employer group health plan pays a
negotiated rate or, in the absence of such a rate, our standard rate or a rate
defined by the health plan documents. These 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.

     Patients who already are eligible for Medicare coverage based on age when
they become ESRD patients are dual eligible patients. If these patients have an
employer group health plan that is their primary payor for covered services then
these patients will have a 30 month coordination period. If Medicare is already
the primary payor when ESRD entitlement begins, Medicare remains the primary
payor, the employer group health plan is the secondary payor and no coordination
period will apply. All ESRD patients or patients over 65 who do not have a
health insurance retirement benefit plan can purchase Medigap plans.

     Possible Changes in Medicare.  Because the Medicare program represents a
substantial portion of the federal budget the U.S. Congress takes action
frequently to modify the Medicare program by refining the amounts payable to
health care providers. Future legislation or regulations could substantially
modify or reduce the amounts paid for our services and products. It is also
possible that future statutes or regulations may impose additional eligibility
requirements for participation in the federal and state health care programs.
Any such new legislation or regulations may adversely affect our businesses and
results of operations.

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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 more than 60% of the clinics providing dialysis care and services are
publicly owned, nearly 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 and Asia, privately owned clinics predominate,
constituting more than 60% of all clinics providing dialysis care. 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 possible 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 spending and these costs may be considered a target for
implementation of cost containment measures. Today,
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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

     Some of our operations are subject to U.S. 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. These laws include the anti-kickback statutes,
health care fraud statutes, the False Claims Act, the Stark Law, other U.S.
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 our dialysis clinics and other operations and
order diagnostic and therapeutic services from them. As is generally true in the
dialysis industry, at many dialysis facilities 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 clinic that is convenient to the patient
and at which the patient's nephrologist has staff privileges. Virtually all of
our clinics maintain open staff privileges for local nephrologists. Our ability
to provide quality dialysis care and to otherwise meet the needs of patients and
local physicians is central to our ability to expand our dialysis facilities.

     The U.S. federal government, many states and private third-party insurance
payors have made combating health care waste, fraud and abuse one of their
highest enforcement priorities, resulting in increasing resources devoted to
this problem. Consequently, the Office of the Inspector General and other
enforcement authorities are increasing scrutiny of arrangements between
physicians and health care providers for possible violations of the
anti-kickback statutes or other federal laws

ANTI-KICKBACK STATUTES

     The U.S. federal anti-kickback statutes establish 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 U.S.
federal health care programs. Sanctions for violations of the anti-kickback
statutes 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
statutes, 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 statutes.

FALSE CLAIMS ACT AND RELATED CRIMINAL PROVISIONS

     The False Claims Act imposes civil penalties for making 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 reimbursement. Moreover, private individuals may bring qui tam or
"whistle blower" suits against providers under the False Claims Act. In a
"whistle blower" action, the private plaintiff asserts the government's alleged
claims under the False Claims Act, which also authorizes the payment of a
portion of any recovery to the individual bringing suit. Private plaintiffs must
initially file a qui tam action under seal until the Department of Justice
reviews the action. A few federal district courts have recently interpreted the
False Claims Act as applying to claims for reimbursement that violate the
anti-kickback statutes under certain circumstances. The False Claims Act
generally provides for civil penalties of $5,000 to $10,000 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 item within a claim could be deemed to be a separate violation
of the

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False Claims Act. Criminal provisions that are similar to the False Claims Act
provide that if a corporation is convicted of presenting a claim or making a
statement that it knows to be false, fictitious or fraudulent to any federal
agency it may be fined not more than twice any pecuniary gain to the
corporation, or, in the alternative, no more than $500,000 per offense. Some
states also have enacted statutes similar to the False Claims Act which may
include criminal penalties, substantial fines, and treble damages.

THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

     The Health Insurance Portability and Accountability Act of 1996 was enacted
in August 1996 and substantively changed U.S. federal fraud and abuse laws. The
act:

     -  expanded the reach of fraud and abuse laws to all federal health care
        programs;

     -  established new bases for exclusions from government health programs and
        mandated minimum exclusion terms;

     -  created an additional exception to the anti-kickback penalties for
        risk-sharing arrangements;

     -  required the Secretary of Health and Human Services to issue advisory
        opinions;

     -  increased civil monetary penalties to $10,000 (formerly $2,000) per item
        or service and assessments to three times (formerly twice) the amount
        claimed;

     -  created a specific health care offense of health care fraud applicable
        to all payors and related health fraud crimes; and

     -  expanded investigative authority and sanctions applicable to health care
        fraud.

     The act 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.

BALANCED BUDGET ACT OF 1997

     The Balanced Budget Act of 1997 contained sweeping adjustments to both the
Medicare and Medicaid programs, and further expanded the fraud and abuse laws.
Specifically, the Act 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 the Secretary of Health and Human Services may deny entry into the
Medicare program to any provider or supplier convicted of any felony if entry is
deemed to be detrimental to the best interests of the Medicare program or its
beneficiaries.

     The Balanced Budget Act of 1997 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.

     Finally, the Balanced Budget Act of 1997 created a Medicare+Choice Program
that is designed to provide a variety of options to Medicare beneficiaries,
almost all of whom may enroll in a Medicare+Choice Plan. The options include
provider sponsored organizations, coordinated care plans, health maintenance
organizations with and without point of service options involving out-of-network
providers, and medical savings accounts offered as a demonstration project.

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STARK LAW

     The original Stark Law, known as "Stark I" was enacted as part of the U.S.
Omnibus Budget Reconciliation Act of 1989, and 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 certain exceptions apply. 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 also prohibits the entity receiving the referral from filing a
claim or billing for services arising out of the prohibited referral.

     Provisions of the U.S. Omnibus Budget Reconciliation Act of 1993, 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 to prohibit similar Medicaid Designated Health
Services referrals where a financial relationship exists. The provisions of
Stark II generally became effective on January 1, 1995. The additional
Designated Health Services include:

     -  physical therapy services;

     -  occupational therapy services;

     -  radiology services, including magnetic resonance imaging, computer axial
        tomography scans and ultrasound services;

     -  durable medical equipment and supplies;

     -  parenteral and enteral nutrients, equipment and supplies;

     -  home health services;

     -  outpatient prescription drugs; and

     -  inpatient and outpatient hospital services.

     Proposed regulations implementing Stark I and Stark II, published on
January 9, 1998, would specifically exempt EPO as a Designated Health Service if
it is provided to ESRD patients as part of a renal dialysis treatment plan.
Further, the proposed regulations discussing durable medical equipment would
exclude ESRD equipment and supplies from coverage as a Designated Health
Service. Outpatient prescription drugs and in-hospital treatments would also be
excluded because the ESRD benefit is distinguished under Medicare from the
durable medical equipment benefit.

     Several states in which we operate have enacted self-referral statutes
similar to the Stark Law. These 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
health care 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.

     Violations of numerous rules under the applicable 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, trigger various civil
monetary penalty provisions. 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.

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<PAGE>   43

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 the executive
branch are continuing to consider many health care proposals, some of which are
comprehensive and far-reaching in nature. Several states of the U.S. and many of
the countries in which we do business 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 health care industry financing and regulation, which could have a
material adverse effect on our business, financial condition and results of
operations.

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 Structure Chart

                                        41
<PAGE>   44

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."

<TABLE>
<CAPTION>
                                                      CURRENTLY
                                                        OWNED
                                      FLOOR AREA      OR LEASED
                                     (APPROXIMATE    BY FRESENIUS
LOCATION                            SQUARE METERS)   MEDICAL CARE   LEASE EXPIRATION          USE
--------                            --------------   ------------   ----------------          ---
<S>                                 <C>              <C>            <C>                       <C>
Bad Homburg, Germany..............       5,374        leased        December 2006             Corporate headquarters and
                                                                                              administration
St. Wendel, Germany...............      49,732        leased        December 2006             Manufacture of polysulfone
                                                                                              membranes and dialyzers,
                                                                                              bloodlines, and peritoneal
                                                                                              dialysis solutions; research
                                                                                              and development
Schweinfurt, Germany..............      15,717        leased        December 2006             Manufacture of hemodialysis
                                                                                              machines and peritoneal
                                                                                              dialysis cyclers; research
                                                                                              and development
L'Arbresle, France................      13,524         owned                                  Manufacture of polysulfone
                                                                                              dialyzers and special filters
                                                                                              dry hemodialysis concentrates
Palazzo Pignano, Italy............      66,550         owned                                  Manufacture of bloodlines and
                                                                                              tubing
Nottinghamshire, United Kingdom...       5,110         owned                                  Manufacture of hemodialysis
                                                                                              concentrate solutions
Barcelona, Spain..................       2,000         owned                                  Manufacture of peritoneal
                                                                                              dialysis bags and
                                                                                              concentrates
Ankara, Turkey....................       1,000        leased        February 2009             Manufacture of liquid
                                                                                              hemodialysis concentrate
                                                                                              solutions
Tunisia...........................         491        leased        December 2020             Manufacture of liquid
                                                                                              hemodialysis concentrate
                                                                                              solutions
Buenos Aires, Argentina...........      10,100         owned                                  Manufacture of hemodialysis
                                                                                              concentrate solutions
Rio de Janeiro, Brazil............       1,159        leased        Month to Month            Manufacture of hemodialysis
                                                                                              concentrate solutions
Reynosa, Mexico...................      13,936         owned                                  Manufacture of bloodlines
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 28, 2003         Corporate headquarter and
                                                                                              administration --
                                                                                              Asia-Pacific
Milson Point, Australia...........         557        leased        30th June 2003 no         Administration
                                                                    renewal option
Smithfield, Australia.............       5,350         owned                                  Manufacture of hemodialysis
                                                                                              concentrate solutions
                                                                                              Warehouse
Auckland, New Zealand.............       2,043        leased        31st March 2001           Administration
Pusat, KL, Malaysia...............       4,060        leased        15 March 2002 with an     Administration
                                                                    additional extended
                                                                    2-year renewal option to
                                                                    15 March 2004 based on
                                                                    market rental rate
                                                                    prevail
</TABLE>

                                        42
<PAGE>   45

<TABLE>
<CAPTION>
                                                      CURRENTLY
                                                        OWNED
                                      FLOOR AREA      OR LEASED
                                     (APPROXIMATE    BY FRESENIUS
LOCATION                            SQUARE METERS)   MEDICAL CARE   LEASE EXPIRATION          USE
--------                            --------------   ------------   ----------------          ---
<S>                                 <C>              <C>            <C>                       <C>
Taipei, Taiwan....................       5,940        leased        December 2003             Administration
Tokyo, Japan......................       1,153        leased        January 1999 with 5-year  Administration
                                                                    renewal option
Inukai, Japan.....................
  -- Land                               24,084         owned                                  Manufacture of polysulfone
                                                                                              dialyzers and filters
  -- Building                            2,142         owned
Buzen, Japan......................      37,094         owned                                  Manufacture of peritoneal
                                                                                              dialyzers
Seoul, South Korea................       1,554        leased        Aug. 15 2001              Administration
Lexington, Massachusetts..........      18,581        leased        October 2007 with 5-year  Corporate headquarters and
                                                                    renewal option            administration -- North
                                                                                              America
Walnut Creek, California..........       7,897        leased        June 2002 with 5-year     Manufacture of Hemodialysis
                                                                    renewal option            machines and peritoneal
                                                                                              dialysis cyclers; research
                                                                                              and development
                                         1,625        leased                                  Warehouse Space -- Machine
                                                                                              components
Ogden, Utah.......................      41,807         owned                                  Manufacture polysulfone
                                                                                              membranes and dialyzers and
                                                                                              peritoneal dialysis
                                                                                              solutions; research and
                                                                                              development
Delran, New Jersey................       3,902        leased        October 2002 with 5-year  Manufacture of liquid
                                                                    renewal option            hemodialysis concentrate
                                                                                              solutions
Perrysburg, Ohio..................       3,252        leased        August 2008               Manufacture of dry
                                                                                              hemodialysis concentrates
Livingston, California............       2,973        leased        October 2001, with        Manufacture of liquid
                                                                    5-year renewal option     hemodialysis concentrates
Chicago, Illinois.................          63        leased        March 2005                Clinical laboratory testing
Freemont, California..............       6,688        leased        July 2003 with 3-year     Clinical laboratory testing
                                                                    renewal option
Rockleigh, New Jersey.............       7,897        leased        June 2005 with two        Clinical laboratory testing
                                                                    5-year renewal options
Miami, Florida....................         400        leased        Month to Month            Administration
Irving, Texas.....................       6,503        leased                                  Manufacture of liquid
                                                                                              hemodialysis solution
</TABLE>

---------------

(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-

                                        43
<PAGE>   46

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.

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

     -  intense competition;

     -  foreign exchange rate fluctuations;

     -  varying degrees of acceptance of new product introductions;

     -  changes in reimbursement rates;

     -  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.

OVERVIEW

     Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information issued by the U.S. Financial Accounting Standards Board. Commencing
with the period ended March 31, 1999, we identified three operating segments,
North America, International, and Asia Pacific, that we determined based upon
how we 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. Our
management board member responsible for the profitability and cash flow of each
segment's various businesses supervises the management of each operating
segment. The accounting policies of the operating segments are the same as those
we apply in preparing our consolidated financial statements under accounting
principles generally accepted in the United States of America.

     Our management evaluates each segment using a measure that reflects all of
the segment's controllable revenues and expenses. Our management believes the
most appropriate measure in this regard is earnings before interest and taxes,
or EBIT, which measures our source of earnings. Financing is a corporate
function which segments do not control. Therefore, we do not include interest
cost as a segment measurement. We also regard
                                        44
<PAGE>   47

taxes to be outside the segment's control. In addition to EBIT, our management
also believes that earnings before interest, taxes, depreciation and
amortization, or EBITDA, is helpful for investors as a measurement of the
segment's and our company's ability to generate cash and to service our
financing obligations. EBITDA is also the basis for determining compliance with
certain covenants contained in our senior credit agreement and the indentures
relating to our outstanding trust preferred securities.

     You should not consider 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.

     During 1998, we had discontinued operations because we divested our
homecare and non-renal diagnostics businesses. Our results of operations for
1998 also reflect an accounting change relating to start-up costs because in
that year we adopted Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities as issued by the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants. Where appropriate, we
have restated our quarterly financial information for 1998 to show the results
of discontinued operations and to reflect the cumulative effect of the
accounting change.

     We obtained approximately 40% of our worldwide revenue for 2000 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.

     Our discussions relating to our consolidated financial condition and
results of operations for 1999 reflect the effects of our agreement to settle
with the U.S. government and the resulting special charge for the settlement
costs (hereafter "the special charge"). The discussion of the disaggregated
results of operations of the North America segment excludes the effect of the
special charge.

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. We reorganized this
information and reclassified prior period information to conform with our
business segment reporting requirements and to distinguish between continuing
and discontinued operations and the cumulative effect of the accounting change
as previously noted.

                                        45
<PAGE>   48

                           FRESENIUS MEDICAL CARE AG

                                  SEGMENT DATA
                           (U.S. DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2000      1999      1998
                                                                ------    ------    ------
<S>                                                             <C>       <C>       <C>
Total revenue
  North America.............................................    $3,085    $2,811    $2,565
  International.............................................     1,155     1,076       986
                                                                ------    ------    ------
     Totals.................................................     4,240     3,887     3,551
                                                                ------    ------    ------
Inter-segment revenue
  North America.............................................         2         4         2
  International.............................................        37        43        43
                                                                ------    ------    ------
     Totals.................................................        39        47        45
                                                                ------    ------    ------
Total net revenue
  North America.............................................     3,083     2,807     2,563
  International.............................................     1,118     1,033       943
                                                                ------    ------    ------
     Totals.................................................     4,201     3,840     3,506
                                                                ------    ------    ------
EBITDA
  North America.............................................       646       611       549
  International.............................................       270       243       228
  Special charge for Settlement.............................        --      (601)       --
  Corporate.................................................        (2)      (10)       (9)
                                                                ------    ------    ------
     Totals.................................................       914       243       768
                                                                ------    ------    ------
Amortization and depreciation
  North America.............................................       223       217       215
  International.............................................        69        65        62
  Corporate.................................................         1         2         2
                                                                ------    ------    ------
     Totals.................................................       293       284       279
                                                                ------    ------    ------
EBIT
  North America.............................................       423       394       334
  International.............................................       201       178       165
  Special charge for Settlement.............................        --      (601)       --
  Corporate.................................................        (3)      (12)      (10)
                                                                ------    ------    ------
     Totals.................................................       621       (41)      489
                                                                ------    ------    ------
Interest income.............................................         9         8         8
Interest expense............................................      (195)     (226)     (228)
Interest expense on obligation related to Settlement........       (30)       --        --
Income tax (expense) benefit................................      (190)       12      (135)
Minority interest...........................................        (3)       (2)       (2)
Loss from discontinued operations, net......................        --        --      (106)
Cumulative effect of accounting change, net.................                  --        (7)
                                                                ------    ------    ------
Net income (loss)...........................................    $  212    $ (249)   $   19
                                                                ======    ======    ======
</TABLE>

                                        46
<PAGE>   49

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Net revenues for the year ended December 31, 2000 increased by 9% (12% at
constant exchange rates) to $4,201 million from $3,840 million for the
comparable period in 1999. Net income for the year was $212 million as compared
to a net loss of $249 million in 1999. The net loss of $249 million in 1999 was
a result of the special charge of $601 million ($419 million after tax) relating
to the Settlement. Excluding the effects of the special charge during 1999, net
income for the year 2000 increased by 24% (34% at constant exchange rates) or
$42 million.

     Earnings per Ordinary share in 2000 were $2.37 compared to a loss per
Ordinary share of $3.15 in the prior year. Excluding the effects of the special
charge, earnings per Ordinary share increased by 10% from $2.15 in 1999.

     At December 31, 2000 we owned, operated or managed 1,270 clinics compared
to 1,090 clinics at the end of 1999. During 2000, we acquired 133 clinics with a
total of 7,594 patients, opened 67 clinics and disposed of 20 clinics.

     The number of patients treated in clinics that we own, operate or manage
increased from approximately 80,000 in 1999 to 91,900 at the end of 2000.
Approximately 12,900,000 treatments were provided in the year 2000; an increase
of 13% from 11,400,000 treatments for the comparable period in 1999. Average
revenue per treatment remained stable at $228.

     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 IN 1999.

NORTH AMERICA SEGMENT

     Revenue.  Net revenue for the North America segment for 2000 grew by 10%
from $2,807 million to $3,083 million.

     Dialysis care revenue increased by 12% to $2,608 million, 9% attributable
to base business revenue growth and 3% to acquisitions. The increase in dialysis
care revenue resulted primarily from a $201 million (9%) increase in the number
of treatments, reflecting both base business growth and the impact of 1999 and
2000 acquisitions. Revenue was also favorably impacted by an increase in revenue
per treatment of approximately $72 million (3%) as a result of increased
Medicare reimbursement rates, higher revenue from disease state management
programs and higher revenues in other pharmaceuticals compared to 1999. For the
years 2000 and 1999 EPO represented approximately 28% of dialysis care revenue
or approximately 22% of total revenue.

     The 1.2% increase of the Medicare composite rate for dialyisis services
(59% of dialysis care revenue in 2000 resulted from Medicare's ESRD program)
generated an additional $9 million in revenue in 2000. We expect that an
additional 2.4% increase, approved in December 2000, will have a positive impact
on our revenues for 2001. Laboratory testing revenues increased as a result of
higher patient volume.

     At the end of 2000 approximately 67,900 patients were treated in the 920
clinics that we own, operate or manage in the North America segment, compared to
approximately 62,000 patients treated in 849 clinics at the end of 1999. The
average revenue per treatment excluding laboratory testing revenue increased
from $253 in 1999 to $261 in 2000. Including laboratory testing the average
revenue per treatment increased from $264 in 1999 to $272 in 2000.

     Dialysis products revenue increased 1% to $475 million. Dialysis product
volume revenue increased approximately $8 million or 2% as a result from
increased sales of hemodialysis products, partially offset by decreased sales of
peritoneal products. Product revenue growth was slightly (1%) affected by
decreasing prices. The consolidation process in the dialysis care business also
affected product business growth. As integrated product and service providers
acquire stand alone dialysis clinics, the external market for products
decreases. The lower revenue in peritoneal products is also a result of a
decreasing external market.

     EBITDA.  EBITDA for the North America segment grew by 6% due to increased
treatment volume, improved treatment rates, higher earnings in other
pharmaceuticals, increased earnings from laboratory testing

                                        47
<PAGE>   50

and net foreign currency transaction gains. These increases were partially
offset by costs to develop new therapies, costs to develop disease state
management methodologies, higher personnel costs due to the tight labor market
for medical personnel in the U.S. and an industry-wide price increase for
Epogen, the key drug in anemia management.

     Amortization and Depreciation.  Amortization and depreciation decreased
slightly as a percentage of revenue in 2000. This was mainly due to the impact
of internal revenue growth while amortization and depreciation has remained
fairly constant at $222 million.

     EBIT.  EBIT for the North America segment increased by 7% due to the
increase in EBITDA and the positive impact of the decreased percentage of
amortization and depreciation to revenue as previously mentioned.

INTERNATIONAL SEGMENT

     Revenue.  In 2000 the appreciation of the U.S. dollar against the euro
significantly impacted our International segment. Net revenue for the
International segment increased by 8% (19% at constant exchange rates) from
$1,033 million in 1999 to $1,118 million in 2000. Acquisitions, primarily Total
Renal Care, contributed $88 million, approximately $30 million in the European
region, $46 million in the Latin America region and $12 million in the Asia
Pacific region. Base business growth during the period was 10% at constant
exchange rates. Including the effects of acquisitions, Asia Pacific region
revenue increased $39 million or 29% (26% at constant exchange rates), and Latin
America region revenue increased $65 million or 44% (49% at constant exchange
rates). European region revenue decreased by 3% from $748 million in 1999 to
$728 million in 2000 (12% increase at constant exchange rates) due to the
appreciation of the U.S. dollar against the euro mentioned above.

     Total dialysis care revenue increased by 27% (40% at constant exchange
rates) from $265 million in 1999 to $336 million in 2000. Base business growth
consisted of approximately $27 million (10%) increase in the number of dialysis
care treatments, offset by approximately $35 million (13%) due to exchange rate
fluctuations. Average revenue per treatment increased by approximately 3% or $9
million before the impact of currency fluctuations. Acquisitions, primarily
Total Renal Care, contributed approximately $70 million (26%) to total dialysis
care revenue.

     At the end of 2000, approximately 24,000 patients were treated at 350
clinics that we own, operate or manage in the International segment compared to
18,000 patients treated at 241 clinics at the end of 1999.

     Total dialysis product revenue for 2000 increased by 2% (12% at constant
exchange rates) to $782 million. Product volume increased by approximately $121
million (16%) which was offset by lower average pricing of approximately $48
million (6%) due to the competitive nature of the market. The increase in
product revenues was further offset by approximately $78 million (10%) due to
exchange rate fluctuations. Acquisitions contributed approximately $18 million
(2%) to total product revenue.

     EBITDA.  EBITDA for the International segment for 2000 grew by 11% (25% at
constant exchange rates) from $243 million to $270 million primarily due to the
increased revenue noted above.

     EBIT.  EBIT for the International segment for 2000 increased by 13% (27% at
constant exchange rates) from $179 million to $201 million due to the increased
EBITDA mentioned above and stable depreciation and amortization as a percentage
of revenue.

CORPORATE

     We do not allocate "corporate costs" to our segments in calculating segment
EBIT and EBITDA. These corporate costs primarily relate to certain headquarter
overhead charges including accounting and finance, professional services, legal
fees, etc.

     Total corporate EBIT was $(3) million in 2000 compared to $(12) million in
1999. EBIT in 2000 was primarily affected by net foreign currency transaction
gains of $12 million related to intercompany financing. Excluding these net
gains, corporate costs would have increased by approximately $3 million,
resulting primarily from increased compensation expense relating to our
international stock option plan. For more information
                                        48
<PAGE>   51

regarding our international stock option plan, see "Item 6.E. Share Ownership --
Options to Purchase Our Securities -- Stock Option Plans."

THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS, EXCLUDING THE
EFFECTS OF THE SPECIAL CHARGE IN 1999.

     Cost of revenue and operating expenses.  Cost of revenue increased as a
percentage of revenue mainly due to costs to develop new therapies, costs to
develop disease state management methodologies, higher personnel cost in the
U.S. and an industry-wide price increase for EPO. However, the resulting
decrease of our gross profit margin was more than offset by decreased selling,
general and administrative expenses as a percentage of revenue, mainly due to
effective general cost controls and net foreign currency transaction gains.

     Interest.  Interest expense for 2000 remained relatively constant compared
to the same period in 1999. Interest expense related to the note payable
associated with the Settlement amounted to approximately $30 million. This
additional interest expense was offset by the reduced interest expense related
to lower other borrowings, resulting from the use of the $557 million net
proceeds received from the Preference share offerings completed during 2000. We
anticipate higher interest expense in 2001 due to the debt increase in
connection with the acquisition of Everest Healthcare Services Corporation (see
"Liquidity and Capital Resources.")

     Income Taxes.  The effective tax rate for the year decreased from 49.5% in
1999 to 46.9% in 2000 due to the capitalization of tax loss carry forwards and
because non-deductible amortization of goodwill relating to acquisitions was
lower, as a percentage of taxable income, for 2000 compared to the same period
in 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net revenues from continuing operations for the year ended December 31,
1999 increased by 10% (11% at constant exchange rates) to $3,840 million from
$3,506 million for the comparable period in 1998. Net loss for the year was $249
million, a decrease of $268 million from net income of $19 million for the
comparable period in 1998. The loss was a result of the special charge and
related costs of $601 million ($419 million after tax) relating to the
Settlement. Excluding the effects of the special charge net earnings from
continuing operations increased by 29% (32% at constant exchange rates) to $170
million from $132 million in 1998.

     The loss per Ordinary share from continuing operations was $3.15. Earnings
per Ordinary share from continuing operations would have been $2.15, excluding
the effects of the special charge, as compared to $1.62 for the same period in
the prior year. Income from continuing operations for 1998 was impacted by the
after tax effects of an accounting change of $7 million and losses on the sale
of discontinued businesses of $106 million. This resulted in net income of $19
million for 1998.

     At December 31, 1999 we owned, operated or managed 1,090 clinics compared
to 1,000 clinics at the end of 1998. During 1999 we acquired 36 clinics with a
total of 2,531 patients, opened 71 clinics and disposed of 17 clinics.

     The number of patients treated in clinics that we own, operate or manage
increased from 74,200 in 1998 to 80,000 at the end of 1999. Approximately
11,400,000 treatments were given in 1999; an increase of 9% from 10,450,000
treatments for the comparable period in 1998. The respective average revenue per
treatment increased from $226 in 1999 to $228 in 2000.

     The following discussions pertain to our business segments and the measures
we use to manage these segments. These discussions are based on continuing
operations unless otherwise indicated. THE NORTH AMERICA SEGMENT DISCUSSION
EXCLUDES THE EFFECTS OF THE SPECIAL CHARGE.

NORTH AMERICA SEGMENT

     Revenue.  Net revenue for the North America segment for 1999 grew by 10%
from $2,563 million to $2,807 million. This resulted from a 10% increase in
dialysis care revenue to $2,335 million and a 5% increase in dialysis products
revenue to $472 million. The increase in dialysis care revenue resulted
primarily from an 8% increase in treatments, the beneficial impact of the
extension of the Medicare Secondary Payor provision and

                                        49
<PAGE>   52

higher EPO utilization as compared to 1998. This growth was partially offset by
decreased laboratory testing revenues derived from lower laboratory testing
volume during 1999 as competitors consolidated laboratory activity. Acquisitions
contributed 2% of dialysis care revenue growth. The increase in dialysis product
revenue was due to increased sales of hemodialysis products, partially offset by
decreased sales of peritoneal dialysis products.

     At the end of 1999 approximately 62,000 patients were treated in 849
clinics that we own, operate or manage in the North America segment compared to
58,600 patients treated in 782 clinics at the end of 1998.

     EBITDA.  EBITDA for the North America segment prior to the effects of the
special charge grew by 11% due to the increase in our base business, improved
treatment rates, and increased ancillary services. Product revenue growth,
product mix and improvements in manufacturing efficiencies from increased
production volume also contributed to the increased EBITDA growth. However,
decreased EBITDA in laboratory testing partially offset this growth.

     Amortization and Depreciation.  Amortization and depreciation decreased
slightly as a percentage of revenue, in 1999. This was mainly due to the impact
of internal revenue growth while amortization and depreciation has remained
fairly constant.

     EBIT.  EBIT for the North America segment prior to the effects of the
special charge increased by 18% due to the increase in EBITDA and the positive
impact of the decreased rate of amortization and depreciation to revenue as
previously mentioned.

INTERNATIONAL SEGMENT

     Revenue.  Net revenue for the International segment during 1999 grew by 10%
(14% at constant exchange rates) from $943 million in 1998 to $1,033 million in
1999 as a result of a 4% (8% at constant exchange rates) increase in the
European region, 38% (28% at constant exchange rates) growth in the Asia Pacific
region and a 21% (40% at constant exchange rates) increase in the Latin America
region. Total dialysis care net revenue increased during 1999 by 8% (14% at
constant exchange rates) to $265 million. This increase is a result of base
business growth, as evidenced by the 12% increase in dialysis care treatments.
Total dialysis product net revenue for 1999 increased by 10% (14% at constant
exchange rates) to $769 million. Product volume increased by approximately $123
million which was offset by lower average pricing of approximately $28 million
(4%).

     At December 31, 1999 approximately 18,000 patients were treated in 241
clinics that we owned, operated or managed in the International segment compared
to 15,600 patients treated in 218 clinics at the end of 1998.

     EBITDA.  EBITDA for the International segment for 1999 grew by 7% (11% at
constant exchange rates) primarily as a result of the increased revenue noted
above. During the beginning of 1999 we elected to reduce shipments of equipment,
which would normally have higher EBITDA margins, to some Eastern European
countries due to the economic situation in that region, which partially offset
EBITDA growth in the International segment. We also reduced fiber shipments to
the North America segment during 1999 due to increased fiber production
capabilities in that segment, which also offset EBITDA growth.

     Amortization and Depreciation.  Amortization and depreciation, as a
percentage of revenue, decreased slightly for 1999. This is mainly due to the
impact of internal revenue growth while straight-line amortization of goodwill
associated with prior years' acquisitions has remained fairly constant.

     EBIT.  EBIT for the International segment for 1999 increased by 8% (12% at
constant exchange rates) as a result of the increased EBITDA mentioned above and
the positive impact of the decreased rate of amortization and depreciation to
revenue as previously mentioned.

THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS.

     Interest.  Interest expense for 1999, remained relatively constant compared
to the same period in 1998 as a result of similar levels of average debt
outstanding during the two periods.

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<PAGE>   53

     Income Taxes.  Excluding the effects of the Settlement, the effective tax
rate was 49.5% for 1999 and 50.2% for 1998. The tax benefit of the Settlement
was limited to $182 million, reflecting the non-deductibility of $101.2 million
in criminal fines included in the net settlement payments. The 1998 effective
income tax rate was reduced primarily by the use of net operating losses that
became realizable after the transfer of ownership of National Medical Care's
international business to the International business segment at the beginning of
1998. As a result of a reduction of the German federal corporate income tax rate
for undistributed earnings from 45% to 40% effective the first quarter of 1999,
our net deferred taxes and deferred income tax expense during 1999 were reduced
by approximately $1 million.

B.  LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     We generated cash from operating activities of $391 million in 2000 and
$355 million from continuing operations in the comparable period in 1999. A net
increase in our accounts receivable balance reduced net cash provided by
operating activities. The primary reason was a significant increase in days
sales outstanding resulting from slower payment patterns from third parties
outside of Germany, specifically from managed care plans in the U.S. Days sales
outstanding were also negatively impacted by the slowdown of the certification
process for newly opened clinics in the U.S. Furthermore acquisitions, mainly
outside Germany and the U.S., and base business growth in countries where we
experience higher days sales outstanding contributed to this increase. Cash on
hand was $65 million at December 31, 2000 compared to $35 million at December
31, 1999.

     On January 18, 2000, we executed definitive agreements with respect to the
Settlement. The agreements require net settlement payments totaling
approximately $427 million, of which $14 million had been paid prior to January
1, 2000. This net amount reflects payments to us of approximately $59 million
for Medicare receivables from the U.S. government. During the year 2000 after
court approval of the Settlement, we made payments of $387 million, including
initial cash payments of $286 million, and we received $54 million from the U.S.
government for our outstanding Medicare receivable claims for intradialytic
parenteral nutrition therapy rendered on or before December 31, 1999. We wrote
off $94 million of these receivables at December 31, 1999 in anticipation of the
final settlement.

     Under the definitive agreements with the U.S. government, we entered into a
note payable for the remainder of the settlement obligation. Installment
payments under the note will accrue interest at 6.3% on approximately $51
million of the obligation and at 7.5% annually on the balance, until paid in
full.

     The note is payable in six quarterly installments which began in April 2000
and end in July 2001. The first four quarterly installments have been paid in
the amount of approximately $35 million each, including interest at 7.5%. The
first three of these four payments were made in April, July and October 2000 and
the fourth installment was made in January 2001. The final two installments of
approximately $28 million each, including interest at 6.3%, will be paid in
April and July 2001. At December 31, 2000, the note payable balance was
approximately $86 million. The U.S. government has agreed to remit the balance
of our outstanding Medicare receivables in four quarterly payments of
approximately $5 million each, plus interest at 7.5%. We received the first
three quarterly payments in May, August and October 2000 and the final payment
in February 2001.

     We amended the letter of credit that National Medical Care delivered to the
U.S. government in 1996 from $150 million to $190 million and, under the
agreement, the letter of credit will be reduced as we continue to make
installment payments to the government. At December 31, 2000, the letter of
credit was reduced to $89 million.

     In December 1999, we and the lenders under our senior credit facility
amended the financial ratios in the senior credit facility to accommodate our
obligations under the settlement agreements and to enable us to continue in
compliance with our senior credit facility as we fulfill the settlement
obligations. On September 21, 2000 the National Medical Care Credit Agreement
was amended in order to increase the facility for accounts receivable
securitization and some other credit facilities. The lenders also agreed that
the proceeds of the Preference share offerings during 2000 did not trigger
repayment obligations on the term loan portion of the facility but may be used
for capital expenditures and acquisitions.

                                        51
<PAGE>   54

     On March 2, 2000, we issued 8,974,359 non-voting Preference shares to a
limited number of institutional and other accredited investors in exchange for
the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. Franconia's principal
asset at the time of this transaction was $350 million in cash. For financial
reporting purposes, the transaction, which generated net proceeds of $344
million, has been accounted for as a financing at fair value. The investors have
agreed not to effect sales or transfers of the Preference shares for a period of
24 months after issuance, except as permitted by the contribution agreement.
After this time, the investors will have the right to require, under specified
conditions, that we register the Preference shares for sale under the Securities
Act of 1933, as amended, and provide them with assistance in connection with
public offerings of their Preference shares outside the United States.

     On May 31, 2000, we paid a cash dividend of $51 million for 1999 in the
amount of E 0.75 on each Preference share, excluding the Preference shares
issued on March 2, 2000, and E 0.69 on each Ordinary share. In 1999 we paid
dividends per Preference share of E 0.64 and E 0.59 per Ordinary share for an
aggregate amount of $48 million. Our managing board and our supervisory board
have proposed dividends for 2001 of E 0.84 per Preference share and E 0.78 per
Ordinary share. These dividends are subject to approval by our shareholders at
our annual general meeting to be held on May 23, 2001. Under the terms of our
senior credit agreement we are restricted as to the level of dividends we may
pay in any calendar year, which was $78 million for 2000. Annual dividend
distributions by our subsidiary, National Medical Care, in any year, may not
exceed 50% of its consolidated net income of the preceding year as defined in
our senior credit agreement. These payment restrictions do not apply to any of
our other subsidiaries.

     On June 19, 2000, we purchased substantially all of the international and
non-continental U.S. operations business of Total Renal Care Holdings, Inc. for
$145 million. Additionally, we made a non-refundable deposit, not included in
the purchase price noted above, towards the purchase of the Puerto Rico
operations. The purchase of the Puerto Rico operations is pending, subject to
regulatory approval and third party consents.

     On July 26, 2000, we completed a public offering of 5,000,000 Preference
shares for net proceeds of approximately $185 million. In addition, on July 28,
2000, the underwriters of the public offering exercised options to purchase an
additional 750,000 Preference shares increasing the total net proceeds from the
public offering to approximately $213 million.

     On October 26, 2000, we increased our accounts receivable facility from
$360 million to $500 million, and extended its maturity to October 25, 2001.
Under the terms of the amended facility, the interest rate is based upon the
commercial paper rate, which was approximately 6.59% at December 31, 2000. At
December 31, 2000, we had received $445 million, and at December 31, 1999, $335
million, pursuant to sales of our receivables under the facility, which are
reflected as reductions to accounts receivable. Under the terms of the facility,
we sell new interests in accounts receivable as collections reduce previously
sold accounts receivable. We expense the cost related to these sales as we incur
them and record the costs as interest expense and related financing costs.

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
("Everest"), Oak Park, Illinois through a merger of Everest into a subsidiary of
the company for $343 million, including Everest's outstanding debt. One third of
the purchase price was paid through the issuance of 2,250,000 Preference shares
on January 5, 2001. The remaining part of the acquisition was financed out of
the proceeds of the Preference share offerings completed during 2000.

     Acquisitions during the year 2000 totaled $275 million (excluding
International segment non-cash acquisitions of $14 million), $116 million in the
North America segment and $159 million in the International segment.
Acquisitions for the comparable period in 1999 were $101 million (excluding
International segment non-cash acquisitions of $10 million), $65 million for the
North America segment and $36 million for the International segment. We believe
that an increasing percentage of our dialysis care growth will be derived from
worldwide markets and we envision making acquisitions in selected international
markets. In the U.S., we generally intend to continue to enhance our presence in
the market by focusing our expansion on the acquisition of individual or small
groups of clinics, expansion of existing clinics, and opening of new clinics.
Nevertheless, we will consider large acquisitions in the U.S. if suitable
opportunities, such as Everest, become available to us.

                                        52
<PAGE>   55

     In addition, capital expenditures for property, plant and equipment were
$228 million for the year 2000 and $160 million in 1999. In 2000, capital
expenditures in the North America segment were $113 million and $115 million for
the International segment. In 1999, capital expenditures in the North America
segment were $81 million and $79 million in the International segment. The
majority of our capital expenditures were used for improvements to existing
clinics, equipment for new clinics and expansion of production facilities.

     Total long-term debt, net of current portion at December 31, 2000,
increased to $658 million from $654 million at year-end 1999. We reduced our
short-term borrowings from related parties from $330 million to $218 million at
December 31, 2000. Short-term borrowings from third parties increased from $96
million in 1999 to $107 million in 2000. As of December 31, 2000, the unused
portion of our senior credit facility was approximately $698 million.

     In January 2000, dollar interest rate swap agreements with a notional
amount of $850 million expired as scheduled. In November 2000, we entered into
additional dollar interest rate swap agreements with a notional amount of $450
million. At the same time, a dollar interest rate collar agreement with a
notional amount of $150 million was closed out. As of December 31, 2000, the
notional volume of dollar interest rate hedging contracts totalled $1,050
million. Those swap agreements, which expire at various dates between 2003 and
2007, effectively fix our variable interest rate exposure on the majority of our
dollar-denominated revolving loans and outstanding obligations under the
accounts receivable securitization program at an interest rate of 6.52%. Under
our senior credit agreement, we have agreed to maintain at least $500 million of
interest rate protection. In March 2000, we entered into a yen interest rate
swap agreement with a notional amount of Japanese Yen 400 million, in line with
a yen-denominated floating-rate borrowing of our Japanese subsidiary. In
September 2000, both the bank borrowing and the notional amount of the interest
rate swap agreement were increased as scheduled to Yen 1,000 million. The bank
borrowing and the notional amount of the swap agreement will always coincide
until March 2009 when the bank debt is completely repaid and the swap expires.

     We believe that our existing credit facilities, cash generated from
operations and other current sources of financing are sufficient to meet our
foreseeable needs. If cash flows from operations or availability under existing
banking arrangements fall below expectations, we may have to consider other
alternatives to maintain sufficient liquidity. We cannot assure that we will be
able to do so on satisfactory terms, if at all.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     We generated cash from operating activities of continuing operations of
$355 million in 1999 and $268 million in the comparable period in 1998. Cash on
hand was $35 million at December 31, 1999 compared to $32 million, at December
31, 1998.

     In December 1999, we and the lenders under our senior credit facility,
amended certain covenants in the senior credit facility to accommodate our
obligations under the settlement agreements with the U.S. government and to
enable us to continue in compliance with the covenants upon consummation of the
settlement.

     We declared and paid dividends of E 0.64 and E 0.56 per Preference share in
1999 and 1998, respectively, and E 0.59 and E 0.51 per Ordinary share in 1999
and 1998, respectively. We paid aggregate dividends of $48 million and $45
million, including $1 million in arrearages for 1996, during the second quarter
of 1999 and 1998, respectively.

     We made acquisitions of $101 million in 1999 (excluding International
segment non-cash acquisitions of $10 million) and $223 million (excluding the
North America segment non-cash acquisitions of $42 million) in 1998. In 1999,
$65 million of acquisitions were made in North America and $36 million of
acquisitions (excluding the non-cash acquisitions) were made in the
International segment. In 1998, $128 million of acquisitions (excluding non-cash
acquisitions) were made in the North America segment and $94 million of
acquisitions were made in the International segment.

     In addition, capital expenditures for property, plant and equipment were
$160 million in 1999 and $159 million in 1998. In 1999, $81 million of capital
expenditures was made in the North America segment and $79 million of capital
expenditures were made in the International segment. In 1998, $75 million of
capital expenditures was made in the North America segment and $84 million of
capital expenditures was made in the
                                        53
<PAGE>   56

International segment. Capital expenditures were used for automation of
production processes and increased production capacity, internal expansion,
improvements, furnishings and equipment. We believe that an increasing
percentage of our dialysis care growth will be derived from worldwide markets
and we envision making acquisitions in selected international markets. In the
U.S., we generally intend to continue to enhance our presence in the market by
focusing our expansion on the acquisition of individual or small groups of
clinics, expansion of existing clinics, and opening of new clinics.
Nevertheless, we will consider large acquisitions in the U.S. if suitable
opportunities become available to us.

     On September 27, 1999, we increased our accounts receivable facility from
$331 million to $360 million, and extended its maturity to September 25, 2000.
Under the terms of the amended facility, the interest rate is based upon the
commercial paper rate, which was approximately 5.90% at December 31, 1999. At
December 31, 1999, we had received $335,000 and at December 31, 1998, $305,600,
pursuant to sales of our receivables under the facility, which are reflected as
reductions to accounts receivable. Under the terms of the facility, we sell new
interests in accounts receivable as collections reduce previously sold accounts
receivable. We expense the costs related to these sales as we incur them and
record the costs as interest expense and related financing costs.

     Managed care plans typically remit reimbursement more slowly than
traditional indemnity plans. As a result of an increase in the percentage of net
revenues we derive from managed care plans from 10% in 1998 to 12% in 1999 (an
increase in net revenues of approximately $45 million), there was an increase in
the days sales outstanding for third party payors. In addition, 1999 was the
first full year of the extension of Medicare Secondary Payor regulations that
increased the coverage period for commercial payors from 18 to 30 months thereby
increasing the average balance of receivables as commercial payors generally pay
at a higher rate than government payment programs. The increase in days
outstanding and the increase in the average receivable amount resulted in a
corresponding increase in our allowance for doubtful accounts as it is
calculated based on a percentage of gross accounts receivable. Any negative
impact to liquidity related to the increase in days sales outstanding is
mitigated by the increase in revenues and the higher reimbursement generally
received from third party payors.

     Total long-term debt net of current portion at December 31, 1999, decreased
to $654 million from $1,081 million at year-end 1998, primarily as a result of
an increase in short-term borrowings from related parties. Short-term borrowings
from related parties increased to $330 million at December 31, 1999 from $60
million at December 31, 1998, with interest rates from 7.06% to 7.44% and
maturities in less than 90 days. Other short-term borrowings decreased by
approximately $13 million from year-end 1998 to $96 million at year-end 1999.
Funds generated from operations were used to fund capital expenditures and
acquisitions as well as dividends. The remainder was used to reduce long-term
debt.

     If cash flows from operations or availability under existing banking
arrangements fall below expectations, or if we are unsuccessful in amending our
existing banking agreements, we may be required to consider other alternatives
to maintain sufficient liquidity.

RECENTLY ISSUED ACCOUNTING STANDARDS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for financial
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The statement also provides the
criteria for determining whether a derivative may be specifically designated as
a hedge of a particular exposure with the intent of measuring the effectiveness
of that hedge in the statement of operations. In June 2000, the Financial
Accounting Standards Board issued SFAS No. 138, which amended certain provisions
of SFAS 133, including amendments allowing foreign-currency denominated assets
and liabilities to qualify for hedge accounting, permitting the offsetting of
certain inter-entity foreign currency exposures that reduce the need for third
party derivatives and redefining the nature of interest rate risk to avoid
sources of ineffectiveness. We are adopting SFAS 133, and the corresponding
amendments under SFAS 138 effective as of January 1, 2001.

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<PAGE>   57

     After adoption, gains and losses in fair value of recognized assets and
liabilities and firm commitments of operating transactions as well as gains and
losses on derivative financial instruments designated as fair value hedges of
these recognized assets and liabilities and firm commitments will be recognized
currently in earnings.

     After adoption, changes in the value of foreign currency forward contracts
designated and qualifying as cash flow hedges of forecasted transactions will be
reported in accumulated other comprehensive income. These amounts will
subsequently be reclassified into earnings, as a component of the forecasted
transaction, in the same period as the forecasted transaction affects earnings.

     The adoption of SFAS 133, as amended by SFAS 138, results in the recording
of assets related to forward currency contracts of approximately $13,072. The
offset to this transition adjustment will be recorded to other comprehensive
income at an amount of $1,465 and to net income at an amount of $11,607. Because
of corresponding entries concerning the hedged items, the net effect on earnings
will be immaterial. Additionally, a liability for interest rate swaps of
approximately $25,146 will be recorded. The offset will be recorded to other
comprehensive income.

     In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
as well as examples of how the SEC staff applies revenue recognition guidance to
specific circumstances. In June 2000, SAB 101B was issued by the SEC further
delaying the implementation date for SAB 101 until the fourth quarter of the
fiscal year beginning after December 15, 1999. The impact of the adoption of SAB
101 is not significant.

     In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-014,
Accounting for Certain Sales Incentives, which establishes accounting for point
of sales coupons, rebates, and free merchandise. This EITF requires that an
entity report these sales incentives that reduce the price paid to be netted
directly against revenues. EITF 00-014 is effective no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The impact of the
adoption of EITF-00-14 is not significant.

     In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25.
The effects of applying this interpretation are required to be recognized on a
prospective basis from July 1, 2000. The application of this interpretation did
not have a material effect on our financial position or results of operations.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125. SFAS No. 140
provides the accounting and reporting standards for securitizations and other
transfers of financial assets and collateral. These standards are based on
consistent application of a financial-components approach that focuses on
control. This Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral for fiscal years
ending after December 15, 2000. There is no impact for the adoption of SFAS No.
140

EURO CONVERSION

     Germany, our country of domicile, is one of the eleven members of the
European Union who have adopted the euro as their currency. We have changed our
functional currency to euro effective January 1, 1999, but will continue using
the U.S. dollar as our reporting currency. In addition, at our general meeting
on June 2, 1999, our shareholders approved the currency conversion of our share
capital to euro from Deutsche Mark. All internal reporting entities situated in
the eleven member states are submitting their reports in euro. The euro
conversion may affect cross-border competition by creating cross-border price
transparency. In our business, patients may not have the luxury to "shop"
cross-border due to the nature of their illness, the type of reimbursement
program they are enrolled in and the fact that they maintain a medical
relationship with their supplier, a doctor or clinic.

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<PAGE>   58

CONTINGENCIES

     We are a plaintiff in litigation against the U.S. federal government with
respect to the implementation of the Omnibus Budget Reconciliation Act of 1993.
We are also a defendant in significant commercial insurance litigation relating
to the same alleged practices that were the subject of the recently settled
government investigations and in litigation alleging that the transactions in
which we were formed and acquired National Medical Care constituted a fraudulent
transfer. An adverse outcome in any of these matters could have a material
adverse effect on our business, financial condition and results of operations.
Because of the significant complexities and uncertainties associated with these
proceedings, we cannot provide either an estimate of the possible loss or range
of loss we may incur in respect of such matters, and a reserve based on any such
estimate cannot be reasonably made.

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.

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
220 employees working in research and development worldwide at December 31,
2000. 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 $31 million in 1998, $32 million in
1999, and $32 million in 2000. 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. We
expect that as our dialysis products business continues to expand
internationally, research and development activities will rely primarily on the
research and development activities conducted at St. Wendel, Bad Homburg, and
Schweinfurt, which will transfer the production technology they develop to our
production centers. 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

                                        56
<PAGE>   59

     Our scientific service and consulting activities during 2000 focused both
on product-related scientific issues and providing consultation to the
nephrology community on these issues.

     In order to promote the exchange of new ideas in nephrology and dialysis
and to strengthen our role in the international scientific community, we have
established the "International Exchange Program for Young Nephrologists". With
our financial support and close scientific cooperation young scientists
worldwide are given the opportunity to work at renowned European research
institutions. We closely work together with international nephrology experts in
writing treatment recommendations for the most important topics in chronic and
end-stage renal failure. In the beginning of 2000 we published a treatment
recommendation on renal anemia. This was followed by a publication on renal
osteodystrophy and cardiovascular risk factors in the journal "Nephrology,
Dialysis, and Transplantation" in autumn 2000. These recommendations will be
translated into different languages and distributed to our customers.
Recommendations on further topics, such as nutrition and vascular access will be
published in 2001.

D.  TREND INFORMATION

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

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

GENERAL

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

OUR SUPERVISORY BOARD

     Our supervisory board consists of six members who are elected by the
holders of Ordinary shares at our annual general meeting. Pursuant to the
pooling agreements described below under "Description of Pooling Agreements," 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, i.e.,
persons with no substantial business or professional relationship with us,
Fresenius AG or any affiliate of either.

     If and when either:

     -  Fresenius Medical Care AG itself has more than 500 employees; or

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

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

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

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<PAGE>   60

     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.

<TABLE>
<CAPTION>
                                                               AGE AS OF
                                                              DECEMBER 31,
NAME                                                              2000
----                                                          ------------
<S>                                                           <C>
Dr. Gerd Krick, Chairman....................................       62
Dr. Dieter Schenk, Deputy Chairman..........................       48
Prof. Dr. Bernd Fahrholz....................................       52
Dr. Theo Spettmann..........................................       56
Walter L. Weisman(1)........................................       65
Stephen M. Peck(1)..........................................       65
</TABLE>

     --------------------

     (1) Independent Director

     The term for each member of the supervisory board set forth above will
expire in 2001. Members of the supervisory board are eligible for reelection.

     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 Universitat 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 Norr Stiefenhofer Lutz since 1986. Dr. Schenk is also a member of the
supervisory board of Fresenius AG and a member and vice-chairman of the
supervisory board of Greiffenberger AG and a member of the supervisory boards of
Schmidt Bank KGaA and Feintechnik Eisfeld GmbH.

     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. Dr. Fahrholz is
also a member of the supervisory boards of ASTA Medica AG; BNP-Dresdner European
Bank AG; DEGI Deutsche Gesellschaft fur Immobilienfonds mbH; Deutsche
Hypothekenbank Frankfurt-Hamburg AG; Deutsche Schiffsbank AG (Chairman); Diskont
und Kredit AG; dresdnerbank investment management Kapitalanlagegesellschaft mbH;
Dresdner Bank Lateinamerika Aktiengesellschaft (Vice Chairman); Dresdner Capital
International Kapitalanlagegesellschaft mbH; Dresdner Kleinwort Benson North
America Inc.; Dynamit Nobel AG; Kommanditgesellschaft Allgemeine Leasing GmbH &
Co. (Chairman); Oldenburgische Landesbank AG; and 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 Sudzucker AG since 1988
and Spokesman of the management board of Sudzucker AG since 1995. Dr. Spettman
also sits on the supervisory boards of VK Muhlen AG, Karlsruher Versicherungen
AG, Gerling Indutrie Service AG, Scholler Holding GmbH & Co.KG and is spokesman
of the supervisory board of Berentzen-Group AG.

     WALTER L. WEISMAN has been a member of our supervisory board since 1996. He
is a private investor and a former Chairman and Chief Executive Officer of
American Medical International, Inc., which he joined in 1972, was elected
President in 1979 and served as Chief Executive Officer from 1985 to 1988. Mr.
Weisman is a Vice-Chairman of the Board of the California Institute of
Technology, Chairman of the Board of the Los Angeles

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<PAGE>   61

County Museum of Art, Chairman of the Board of the Sundance Institute, and a
trustee of the Kress Foundation and the Los Angeles Opera.

     STEPHEN M. PECK was elected to our supervisory board in 1999. He is a
private investor and a former managing and special partner of Weiss, Peck &
Greer which was founded in 1970. He served as Chief Investment Officer and
Director of Reliance Insurance Company, Inc. from January 1986 to July 1988. Mr.
Peck is a member of the Board of Directors of Harnischfeger Greyhound Lines,
Inc., OFFIT Investment Funds and Banyan Strategic Realty Trust Grand Union Co.
where he serves as Non-Executive Chairman of the Board. He also serves as a
member of the Advisory Boards of the Torrey Funds and Brown Simpson Asset
Management. Mr. Peck is presently Chairman of the Board of Trustees and the
Executive Committee of Mount Sinai-NYU Medical Center and Health System. He is a
member of the Board of Trustees of Mount Sinai School of Medicine, New York
University and The Jewish Theological Seminary.

MANAGEMENT BOARD

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

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

<TABLE>
<CAPTION>
                                             AGE AS OF                                             YEAR
                                            DECEMBER 31,                                           TERM
NAME                                            2000       POSITION                               EXPIRES
----                                        ------------   --------                               -------
<S>                                         <C>            <C>                                    <C>
Dr. Ben J. Lipps..........................        60       Chairman of the management board,       2001
                                                           Chief Executive Officer of our
                                                           Company
                                                           and Chief Executive Officer
                                                           for North America
Roberto Fuste.............................        48       Chief Executive Officer for Asia        2001
                                                           Pacific
Dr. Emanuele Gatti........................        45       Chief Executive Officer for Europe,     2005
                                                           Middle East, Africa and Latin America
</TABLE>

     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 FUSTE was appointed to our management board effective January
1, 1999. Mr. Fuste is responsible for the Asia-Pacific region within the
International segment, for which he assumed responsibility in 1998. Mr. Fuste
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, Middle East, Africa and
Latin America 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.

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<PAGE>   62

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

B.  COMPENSATION

COMPENSATION OF OUR MANAGEMENT BOARD AND OUR SUPERVISORY BOARD

     For the year ended December 31, 2000, we paid aggregate compensation to all
members of the management board of E 2,949,237. The aggregate fees paid to all
members of the supervisory board was E 315,000, including compensation to Dr.
Krick for his duties as Chairman of the supervisory board. We pay an annual
retainer fee of $40,000 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. Those
fees are described under "Item 7.B. Related Party Transactions."

     During 2000 we awarded 83,000 options under the FMC 98 Plan 2 at an
exercise price of E 47.64 to members of the management board. At December 31,
management board members held options to acquire 282,600 Preference shares of
which options to purchase 49,933 Preference shares were exercisable at a
weighted average exercise price of E 36.81.

     At December 31, 2000, 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 an audit committee or a
remuneration committee. Our Management Board carries out the functions usually
performed by audit and remuneration committees, and our Supervisory Board
reviews the compensation of the members of our Management Board.

D.  EMPLOYEES

     At December 31, 2000, we had 35,370 employees, as compared to 31,094 at
December 31, 1999 and 28,739 at December 31, 1998. They are employed in our
principal segments as follows: North America 24,403 employees and International
10,967. A decline in total employees from the divestiture of the U.S. homecare
and non-renal diagnostics businesses was offset by an increase due to dialysis
clinic acquisitions.

     The following table shows the average number of employees by segment and
our major category of activities for the last three fiscal years.

<TABLE>
<CAPTION>
                                                               2000      1999      1998
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
North America
  Dialysis Care.............................................  19,601    18,133    17,029
  Dialysis Products.........................................   3,616     3,420     3,402
                                                              ------    ------    ------
                                                              23,217    21,553    20,431
International
  Dialysis Care.............................................   5,807     4,173     3,883
  Dialysis Products.........................................   4,292     3,592     3,109
                                                              ------    ------    ------
                                                              10,099     7,765     6,992
</TABLE>

     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 relating to those facilities. We believe
our relations with our

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<PAGE>   63

employees are good. During the last two fiscal years, we have not suffered any
labor-related work disruptions. In addition, approximately 600 employees, or 2%
of our U.S. employees are covered by union agreements.

E.  SHARE OWNERSHIP

     As of December 31, 2000, 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 10,700 Preference shares (0.05% of total Preference
shares outstanding). At December 31, 2000 management board members held options
to acquire 282,600 Preference shares of which options to purchase 49,933
Preference shares were exercisable at a weighted average exercise price of
36.81. Those options expire at various dates between 2008 and 2010. 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

     We have adopted a 1996 Stock Incentive Plan ("FMC Plan") and a 1998 Stock
Incentive Plan ("FMC 98 Plan 1) for our key management and executive employees
and those of our subsidiaries. Under our stock incentive plans, eligible
employees generally have the right to acquire Preference shares or ADSs. Each
ADS represents one-third of a Preference share. A total of 1,333,333 Preference
shares are available for issuance pursuant to grants under our stock incentive
plans. The 1998 Stock Incentive Plan was amended in 1999 and 2000 to increase
the number of Preference shares available for issuance pursuant to grants under
that plan by 450,000 and 660,000, respectively, resulting in a total number of
shares available for issuance of 2,443,333 Preference shares, less the number of
Preference shares issued under the 1996 Stock Incentive Plan. Some eligible
employees have received initial grants intended to cover a three-year period;
other grants will be made annually.

     During 2000, there were no grants or awards under our 1996 Stock Incentive
Plan. At December 31, 2000, there were awards for 205,166 ADSs outstanding under
our 1996 Stock Incentive Plan with a weighted average exercise price of $76.03
per underlying Preference share. We do not expect to issue any additional awards
under our 1996 Stock Incentive Plan. During 2000, grants for 653,325 Preference
shares were issued under our 1998 Stock Incentive Plan at a weighted average
exercise price of E 46.74.

     Grants under our stock incentive plans are in the form of non-assignable
and non-transferable convertible bonds and a corresponding nonrecourse employee
loan, secured solely by the convertible bonds with respect to which it was made.
The grant of convertible bonds and corresponding employee loans to an eligible
employee is designed to be the functional equivalent of non-qualified employee
stock options. To accomplish this result, as more fully described below, amounts
due and payable on an employee loan are completely offset by amounts due and
payable on the convertible bonds with respect to which the employee loan was
made. Rulings from the U.S. Internal Revenue Service to this effect were
requested. A favorable response has been received with respect to our 1996 Stock
Incentive Plan and to our 1998 Stock Incentive Plan.

     The convertible bonds have a face amount equal to the calculated nominal
value of a Preference share multiplied by the number of Preference shares into
which the convertible bonds may be converted, either directly or as represented
by ADSs. The interest rate on the convertible bonds is a rate determined by our
management board, who administer our stock incentive plans. Conversion rights
over the convertible bonds generally vest over a three-year period from the date
of grant. Upon vesting, convertible bonds are convertible, subject to
satisfaction of all state regulatory and other legal requirements, as well as
the provisions of the applicable stock incentive plan, for a period of ten years
from the date of grant, unless the recipient's employment terminates prior to
that date. Generally, upon termination, the recipient or his or her
representative will have ninety days to exercise the conversion right. That
period is extended to one year in the case of death or disability. In the case
of termination for cause, conversion rights cease at the time of termination of
employment. Convertible bonds that are not converted within the prescribed time
are mandatorily redeemed for face value. Convertible bonds may be converted in
whole or in part; appropriate adjustment is made to the corresponding employee
loans for partial conversions.

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<PAGE>   64

     Employee loans have a principal amount equal to the face amount of the
convertible bonds with respect to which the employee loan was made, and bear
interest at the same rate as the convertible bonds. An employee loan is payable
on conversion of the convertible bonds with respect to which it was made, or
upon redemption of the convertible bonds. If the convertible bonds are redeemed,
the proceeds of the convertible bonds and the interest payable on the bond must
be applied against the repayment of the corresponding employee loan and interest
on the loan. Accordingly, for each grant, the terms of the convertible bonds and
the corresponding employee loan are designed to match in all respects, so that
the recipient of the grant receives nothing and pays nothing with respect to the
convertible bonds or the employee loan. We have the right to offset our
obligation on a convertible bond against the obligation on the related employee
loan; therefore, the convertible bond obligations and employee loan receivables
are not reflected in our consolidated financial statements.

     The conversion price of convertible bonds issued under our 1996 Stock
Incentive Plan and held by U.S. citizens or residents is the fair market value
of the ADS or Preference shares on the day of the grant. The conversion price of
convertible bonds issued under our 1998 Stock Incentive Plan and held by U.S.
citizens or residents is the fair market value of the Preference shares on the
day following the date of the grant. A portion of the amount paid on conversion
will be used to repay the corresponding employee loan, and interest payable with
respect to the employee loan will be offset by interest payable on the
convertible bonds.

     At the time of conversion, an employee who is a U.S. citizen or resident
will be subject to U.S. federal income taxes equal to the value of the ADSs or
Preference shares received and the amount paid for conversion of the convertible
bonds and may be required, as a condition to receiving the ADSs or Preference
shares, to remit to his or her employer company any required withholding and
payroll taxes. Employees may also be required to file with us or our designed
agent, as a protective measure, a form sufficient under German law to elect the
treaty benefit of no withholding on interest under the U.S.-German income tax
treaty. Under current German law, there would be no withholding tax imposed on
these interest payments.

     As of December 31, 2000, options for a total of 10,060 Preference shares
have been exercised under FMC 98 Plan 1.

     We have also adopted the Fresenius Medical Care AG Stock Option Plan of
June 10, 1998 ("FMC 98 Plan 2"). This plan, known as our International Plan, was
adopted for:

     -  members of management board and managerial staff of Fresenius Medical
        Care AG;

     -  members of management and managerial staff of our German affiliates,
        other than Fresenius AG and subsidiaries of Fresenius AG that are not
        also our subsidiaries; and

     -  managerial staff members of our non-German affiliates, other than
        subsidiaries of Fresenius AG that are not also our subsidiaries.

     We have reserved a total of 2,500,000 Preference shares for issuance upon
exercise of options under our International Plan, of which 500,000 Preference
shares have been reserved for issuance to members of our management board and
2,000,000 shares for other managerial staff.

     The exercise price of the options under the International Plan is equal to
the average of the official daily quotation prices of the Preference shares on
the Frankfurt Stock Exchange on the thirty (30) days of trading immediately
prior to the date of grant of the award. One third of an option granted under
the International Plan 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 our performance for
the full fiscal year preceding the grant date. The term of the International
Plan is five years, and not more than 20% of the total options available under
the International Plan may be issued in any one year. Options issued under the
International Plan expire 10 years from the date of grant.

     At our 2000 annual general meeting, our shareholders approved a resolution
allowing us to exclude from the calculation of the performance criteria under
the International Stock Option Plan the effects of the special charges we took
in 1999 in connection with the Settlement. Under the International Stock Option
Plan, 1999 performance criteria are used as both the comparative year to 1997
for options granted in 1998 and as the base year (which will

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<PAGE>   65

be compared to 2001) for options granted in 2000. The purpose of excluding the
special charges taken in 1999 is to avoid the distortions created by the special
charges for both purposes.

     The International Plan is administered by our management board, except that
the selection of award recipients and other determinations under the
International Plan relating to members of our management board are made by our
supervisory board. Subject to the vesting requirements of the International
Plan, options are exercisable only within 15 working days after publication of
our financial statements for the preceding quarter. Options under the
International Plan are not transferable.

     During 2000, we awarded options under the International Plan to purchase
321,204 Preference shares at a weighted average price of E 47.64 per share,
including options to purchase 83,000 shares awarded to members of the management
board. During 2000 a total of 7,333 options were exercised. At December 31,
2000, a total of 78,277 options were exercisable under the FMC 98 Plan 2.

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 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.

     As of December 31, 2000, a total of 182,006 Ordinary ADSs, each
representing one-third of an Ordinary share, were subject to rollover options as
described above at exercise prices ranging from $9.78 to $46.53 per Ordinary
Share, all currently exercisable. Members of our supervisory board and our
management board, as a group, held no rollover options.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  MAJOR SHAREHOLDERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF FRESENIUS MEDICAL CARE

     Our outstanding share capital consists of Ordinary shares and non-voting
Preference shares that are issued only in bearer form. Accordingly, unless we
receive information regarding acquisitions of our shares through a filing with
the Securities and Exchange Commission or through the German statutory
requirements referred to below, we have no way of determining who our
shareholders are or how many shares any particular shareholder owns except as
described below with respect to our shares held in 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.

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<PAGE>   66

     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, 2000, Fresenius AG owned the majority, 50.8%, of our Ordinary
shares. At December 31, 2000 Fresenius AG's Ordinary shares represented
approximately 40% of our total share capital. Morgan Guaranty Trust Company of
New York, our ADR depositary, informed us, that as of December 31, 2000
17,521,746 Ordinary ADSs, each representing one-third of an Ordinary share, were
held of record by 8,393 U.S. holders and 3,610,391 Preference ADSs, each
representing one-third of a Preference share, were held of record by 6 U.S.
holders. Ordinary shares and Preference shares of U.S. holders accounted for
approximately 8% of our Ordinary shares outstanding and 5% of our Preference
shares outstanding as of December 31, 2000. For more information regarding
American Depositary Receipts ("ADRs") 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.

     Fresenius AG has been informed that the Else Kroner-Fresenius-Stiftung owns
68% of the Fresenius AG Ordinary shares. The Else Kroner-Fresenius-Stiftung
serves to promote medical science, primarily in the fields of research and
treatment of illnesses, including the development of apparatuses and
preparations. It may promote only those research projects which make their
results generally accessible to the public. It further serves to promote the
education of physicians or of others concerned with the treatment and care of
sick persons, primarily those working in the field of dialysis, as well as to
promote the education of particularly gifted pupils and students.

     Fresenius AG has also been informed that AW Beteiligungsgesellschaft mbH,
which is controlled by Agrar Industrie Holding GmbH, owns 9% of the Fresenius AG
Ordinary shares. Pursuant to a pooling agreement relating to its shares, voting
power over the shares indirectly held by Agrar-Industrie Holding GmbH is held by
the Else Kroner-Fresenius-Stiftung.

     In addition, Neunte Herakles Beteiligungs-Gesellschaft mbH & Co. KG
informed Fresenius AG that it owns 9.97% of the Fresenius AG Ordinary shares.

B.  RELATED PARTY TRANSACTIONS

     In connection with the formation of Fresenius Medical Care, and the
combination of the dialysis businesses of Fresenius AG and W.R. Grace, Fresenius
AG and its affiliates and Fresenius Medical Care and its affiliates entered into
several agreements for the purpose of giving effect to the merger and defining
our ongoing relationship. Fresenius AG and W.R. Grace negotiated these
agreements. The information below summarizes the material aspects of certain
agreements, arrangements and transactions between Fresenius Medical Care and
Fresenius AG and their affiliates. Some of these agreements have been previously
filed with the Securities and Exchange Commission. The following descriptions
are not complete and are qualified in their entirety by reference to the
agreements, copies of which have been filed with the Securities and Exchange
Commission and the New York Stock Exchange. We believe that the leases, the
supply agreements and the services 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.

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<PAGE>   67

     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 16.8 million Deutsche mark (approximately E 8.6 million), which was
approximately $9.5 million as of December 31, 2000, 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.

     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.

                                        65
<PAGE>   68

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(R), 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(R) 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 as of September 30,
1996, resulting in terms of four and one-half to five years. Each supply
agreement may be terminated by the purchasing party after specified notice
period, subject to a compensation payment reflecting a portion of the relevant
fixed costs.

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

                                        66
<PAGE>   69

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 2000, Fresenius AG
charged us approximately $19.9 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 2000, we charged approximately $10.0 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

     During the year ended December 31, 2000, aggregate loans outstanding from
Fresenius AG amounted to $216 million, of which $209 million bore interest at
rates varying between 7.35% and 7.38%. The remaining loans bore interest at a
rate of approximately 4%. The borrowed funds were used for general corporate
purposes. Interest paid during 2000 was $18.6 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.

     Dresdner Bank AG was one of the joint global coordinators of a public
offering of Preference shares made during 2000 and received underwriting
commissions and fees of E11,1 million ($10,4 million). Kleinwort Benson Holdings
Inc. acquired 1,410,256 Preference shares in the Franconia transaction described
under "Item 5. Operating and Financial Review and Prospects -- Liquidity and
Capital Resources" and received a financing fee of approximately $589,900 in
connection with the transaction. Kleinwort Benson Holdings, Inc. subsequently
sold 1,111,000 of these shares at cost to an unaffiliated investor. An affiliate
of Dresdner Kleinwort Benson North America LLC is the New York Stock Exchange
specialist for the ADSs evidencing our Ordinary shares. Kleinwort Benson
Holdings Inc. and Dresdner Kleinwort Benson North America LLC are wholly owned
subsidiaries of Dresdner Bank AG. See "-- Security Ownership of Certain
Beneficial Owners of Fresenius AG." Dresdner Bank AG was one of four
co-arrangers of our principal credit agreement and is one of the managing agents
under that facility. Also, 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 Executive Manager of Dresdner Bank AG, is a member of the
supervisory board of Fresenius AG. Dresdner Bank AG also acts as custodian under
the deposit agreement for the ADSs evidencing the Ordinary shares and under the
deposit agreement for the ADSs evidencing the Preference shares.

     Westdeutsche Landesbank Girozentrale was one of the underwriters of the
public offering of Preference shares made in 2000. Mr. Gerhard Roggemann, a
member of the Managing Board of Westdeutsche Landesbank Girozentrale, is a
member of the supervisory board of Fresenius AG.

     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 Norr
Stiefenhofer Lutz, German counsel to Fresenius AG and Fresenius Medical Care in
connection with this offering of Preference shares, prior securities offerings
by us, and other matters. See "-- Security Ownership of Certain Beneficial
Owners of Fresenius AG." Dr. Alfred
                                        67
<PAGE>   70

Stiefenhofer, also a partner of Norr Stiefenhofer Lutz, is one of the executors
of the estate of Mrs. Else Kroner. The Else Kroner-Fresenius Stiftung, a
charitable foundation established under the will of Mrs. Kroner, owns the
majority of the voting shares of Fresenius AG.

PRODUCTS

     During 2000, we recognized $28.1 million of sales to Fresenius AG and its
affiliates. We made purchases from Fresenius AG in the amount of $25.5 million
during 2000.

ITEM 8.  FINANCIAL INFORMATION

     The information called for by this item commences 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 Insurer Litigation

     In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. The lawsuit alleges inappropriate billing
practices for nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
unspecified damages and costs. We believe that there are substantial defenses to
the claims asserted, and intend to vigorously defend both lawsuits. Other
private payors have contacted FMCH and may assert that NMC received excess
payment and, similarly, may join either lawsuit or file their own lawsuit
seeking reimbursement and other damages.

     FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.

     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 result of operations.

OBRA 93

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

     In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on
National Medical Care's dialysis business. The Health Care Financing
Administration further proposed that its new instruction be effective
retroactive to August 1993, the effective date off the Omnibus Budget
Reconciliation Act of 1993.
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<PAGE>   71

     National Medical Care ceased to recognize the incremental revenue realized
under the original instruction as of July 1, 1995, but it continued to bill
employer health plans as primary payors for patients affected by the Omnibus
Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1,
1996, National Medical Care commenced billing Medicare as the primary payor for
dual eligible ESRD patients affected by the act, and then began to re-bill in
compliance with the revised policy for services rendered between April 24 and
December 31, 1995.

     On May 5, 1995, National Medical Care filed a complaint in the U.S.
District Court for the District of Columbia (National Medical Care, Inc. and
Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center
v. Shalala, C.A. No. 95-0860 (WBB)) seeking to preclude the Health Care
Financing Administration from retroactively enforcing its April 24, 1995
implementation of the Omnibus Budget Reconciliation Act of 1993 provision
relating to the coordination of benefits for dual eligible ESRD patients. On May
9, 1995, National Medical Care moved for a preliminary injunction to preclude
the Health Care Financing Administration from enforcing its new policy
retroactively, that is, to billing for services provided between August 10, 1993
and April 23, 1995. On June 6, 1995, the court granted National Medical Care's
request for a preliminary injunction and in December of 1996, National Medical
Care moved for partial summary judgment seeking a declaration from the Court
that the Health Care Financing Administration's retroactive application of the
April 1995 rule was legally invalid. The Health Care Financing Administration
cross-moved for summary judgement on the grounds that the April 1995 rule was
validly applied prospectively. In January 1998, the court granted National
Medical Care's motion for partial summary judgment and entered a declaratory
judgment in favor of National Medical Care, holding the Health Care Financing
Administration's retroactive application of the April 1995 rule legally invalid.
Based on its finding, the Court also permanently enjoined the Health Care
Financing Administration from enforcing and applying the April 1995 rule
retroactively against National Medical Care. The Court took no action on the
Health Care Financing Administration's motion for summary judgement pending
completion of the outstanding discovery. On October 5, 1998, National Medical
Care filed its own motion for summary judgement requesting that the Court
declare the Health Care Financing Administration's prospective application of
the April 1995 rule invalid and permanently enjoin the Health Care Financing
Administration from prospectively enforcing and applying the April 1995 rule.
The Court has not yet ruled on the parties' motions. The Health Care Financing
Administration elected not to appeal the Court's June 1995 and January 1998
orders. The Health Care Financing Administration may, however, appeal all
rulings at the conclusion of the litigation. If the Health Care Financing
Administration should successfully appeal so that the revised interpretation
would be applied retroactively, National Medical Care may be required to refund
the payments received from employer health plans for services provided after
August 10, 1993 under the Health Care Financing Administration's original
implementation, and to re-bill Medicare for the same services, which could
result in a loss to National Medical Care of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
business, financial condition and results of operations would be materially
adversely affected.

Other Litigation and Potential Exposures

     From time to time, we are a party to or may be threatened with other
litigation arising in the ordinary course of our business. Management regularly
analyzes current information including, as applicable, our defenses and
insurance coverage and, as necessary, provides accruals for probable liabilities
for the eventual disposition of these matters. We do not expect the ultimate
outcome of these matters to materially affect our financial position, results of
operations or cash flows.

     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
U.S. anti-kickback statute, the False Claims Act, the Stark Law, 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

                                        69
<PAGE>   72

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 continuing inquiries, claims and
litigation relating to its compliance with applicable laws and regulations. We
may not always be aware that an inquiry or action has begun, particularly in the
case of "whistle blower" actions, which are initially filed under court seal.

     We operate a large number of facilities throughout the U.S. In such a
decentralized system, it is often difficult to maintain the desired level of
oversight and control over the thousands of individuals employed by many
affiliated companies. We rely upon our management structure, regulatory and
legal resources, and the effective operation of our compliance program to
direct, manage and monitor the activities of these employees. On occasion, we
may identify instances where employees, deliberately or inadvertently, have
submitted inadequate or false billings. Such persons' actions may subject us and
our subsidiaries to liability under the False Claims Act, among other laws, and
we cannot predict whether law enforcement authorities may use such information
to initiate further investigations of the business practices disclosed or any of
our other business activities.

     Physicians, hospitals and other participants in the health care industry
are also subject to a large number of lawsuits alleging professional negligence,
malpractice, product liability, worker's compensation or related claims, many of
which involve large claims and significant defense costs. We have been subject
to these suits due to the nature of our business and we expect that those types
of lawsuits may continue. Although we maintain insurance at a level which we
believes 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 our results of operations. Any claims,
regardless of their merit or eventual outcome, also may have a material adverse
effect on our reputation and business.

     Claims have also been asserted against us and lawsuits have been 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.

     On September 28, 2000, Mesquita, et al. v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed as a class action by
plaintiffs claiming to be creditors of Grace Chemicals against Grace Chemicals,
certain of our U.S. affiliates and other defendants, principally alleging that
the Merger was a fraudulent transfer, violated the uniform fraudulent transfer
act, and constituted a conspiracy. An amended complaint (Abner et al. v. W. R.
Grace & Company, et al.) and an additional class action (Woodward v. Sealed Air
Corporation, et al. USDC Boston, No. 01 10547 PBS), were filed subsequently with
substantially similar allegations. We have requested indemnification from Grace
Chemicals pursuant to the Merger agreement. If the Merger is determined to have
been a fraudulent transfer, if material damages are proved by the plaintiffs,
and if we are not able to collect, in whole or in part on the indemnity, a
judgment could have a material adverse effect on our business, financial
condition and our results of operations. We believe that no fraudulent transfer
or conspiracy occurred and we intend to defend the case vigorously.

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 E 0.12 per share and, if we declare dividends, holders of our Preference
shares must receive E 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.

                                        70
<PAGE>   73

     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.

     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. We paid dividends in Deutsche Mark in 1998 for 1997 and in 1999 for 1998,
and the payments have been translated into euros at the fixed exchange rate of
DM1.95583 to E 1. The Preference share dividend we paid in 1998 with respect to
1997 included a payment of DM0.20 (E 0.10) per share with respect to 1996.

<TABLE>
<CAPTION>
PER SHARE AMOUNT                                               2000      1999      1998
----------------                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Preference share............................................  E 0.75    E 0.64    E 0.56
Ordinary share..............................................  E 0.69    E 0.59    E 0.51
</TABLE>

     Our managing board and our supervisory board have proposed dividends for
2000 payable in 2001 of E 0.84 per Preference share and E 0.78 per Ordinary
share. These dividends are subject to approval by our shareholders at our annual
general meeting to be held on May 23, 2001. The 2.25 million Preference shares
we issued on January 5, 2001 in connection with our acquisition of Everest
Healthcare Services Corporation (see "Item 5.B. Operating and Financial Review
and Prospects -- Liquidity and Capital Resources") will also be eligible to
receive this dividend.

     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

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
("Everest"), Oak Park, Illinois through a merger of Everest into a subsidiary of
Fresenius Medical Care for $343 million, including Everest's outstanding debt.
One third of the purchase price was paid by issuing 2,250,000 preference shares
on January 5, 2001. The remaining portion of the acquisition price was financed
out of the proceeds from the capital offerings completed earlier in the year.

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
American Depositary Receipts ("ADRs") see "Item 10.B. Memorandum and articles of

                                        71
<PAGE>   74

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, American Depositary Shares ("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, American Depositary Shares, 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 Borse AG operates the Frankfurt Stock Exchange, which is the most
significant of the eight German stock exchanges. The Frankfurt Stock Exchange
accounted for approximately 85% of the turnover in exchange-traded shares in
Germany in 2000. As of December 31, 2000, the shares of 5,694 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, 905
were German companies and 4,789 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.

     Deutsche Borse 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.

     In November 1997, to improve the market quality of trading, Deutsche Borse
replaced the IBIS Trading system (Integriertes Borsenhandels- und
Informations-System) with Xetra (Exchange Electronic Trading). The Xetra market
model was developed in collaboration with market participants and essentially
comprises rules for price determination, prioritization of orders and the
provision of information for market participants.

     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 fur 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).

                                        72
<PAGE>   75

     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. Since January 4, 1999,
all shares on German stock exchanges trade in euro. For the years 1996, 1997 and
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).

<TABLE>
<CAPTION>
                                                                            PRICE PER
                                                                         ORDINARY SHARE
                                                                         ---------------
                                                                          HIGH      LOW
                                                                         ------    -----
<S>       <C>                                                            <C>       <C>
2001      March.......................................................    90.65    75.62
          February....................................................    90.36    84.53
          January.....................................................    88.50    77.99
2000      December....................................................    91.90    86.25
          November....................................................   103.00    94.62
          October.....................................................   102.50    93.77
          September...................................................   103.60    97.10
2000      Fourth Quarter..............................................   103.00    85.40
          Third Quarter...............................................   103.60    83.52
          Second Quarter..............................................    91.56    72.50
          First Quarter...............................................    91.00    72.40
1999      Fourth Quarter..............................................    88.70    61.67
          Third Quarter...............................................    73.97    57.50
          Second Quarter..............................................    58.80    47.20
          First Quarter...............................................    63.00    48.50
2000      Annual......................................................   103.60    72.40
1999      Annual......................................................    88.70    47.20
1998      Annual......................................................    73.37    30.73
1997      Annual......................................................    84.36    55.73
1996      Annual......................................................    74.60    57.32
</TABLE>

     The average daily trading volume of the Ordinary shares traded on the
Frankfurt Stock Exchange during 2000 was 162,151 shares. The foregoing numbers
are based on total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On April 3, 2001, the closing sales price per Ordinary share on the
Frankfurt Stock Exchange was E 76.19, equivalent to $67.39 per Ordinary share.

                                        73
<PAGE>   76

     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 years
1996, 1997 and 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.)

<TABLE>
<CAPTION>
                                                                           PRICE PER
                                                                        PREFERENCE SHARE
                                                                        ----------------
                                                                         HIGH      LOW
                                                                        ------    ------
<C>       <S>                                                           <C>       <C>
          March.......................................................
2001                                                                    56.90     49.50
          February....................................................  52.75     47.80
          January.....................................................  52.50     46.01
          December....................................................
2000                                                                    54.05     50.00
          November....................................................  58.00     50.00
          October.....................................................  57.00     49.11
          September...................................................  56.60     51.59
          Fourth Quarter..............................................
2000                                                                    58.00     49.11
          Third Quarter...............................................  56.60     42.60
          Second Quarter..............................................  51.00     42.00
          First Quarter...............................................  52.00     38.00
          Fourth Quarter..............................................
1999                                                                    43.50     34.01
          Third Quarter...............................................  42.20     34.00
          Second Quarter..............................................  36.00     31.00
          First Quarter...............................................  40.00     30.30
          Annual......................................................
2000                                                                    58.00     38.00
          Annual......................................................
1999                                                                    43.50     30.30
          Annual......................................................
1998                                                                    58.03     25.56
          Annual......................................................
1997                                                                    70.97     46.53
          Annual......................................................
1996                                                                    64.83     62.43
</TABLE>

     The average daily trading volume of the Preference shares traded on the
Frankfurt Stock Exchange during 2000 was 38,181 shares. The foregoing numbers
are based on total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On April 3, 2001, the closing sales price per Preference share on the
Frankfurt Stock Exchange was E 51.00, equivalent to $45.11 per Preference share.

                                        74
<PAGE>   77

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:

<TABLE>
<CAPTION>
                                                                          PRICE PER
                                                                        ORDINARY ADS}
                                                                        --------------
                                                                        HIGH      LOW
                                                                        -----    -----
<C>       <S>                                                           <C>      <C>
          March.......................................................
2001                                                                    27.85    22.26
          February....................................................  27.80    25.90
          January.....................................................  27.94    24.31
          December....................................................
2000                                                                    27.87    25.44
          November....................................................  29.37    26.62
          October.....................................................  29.87    26.37
          September...................................................  30.19    27.25
          Fourth Quarter..............................................
2000                                                                    29.87    25.44
          Third Quarter...............................................  30.19    25.62
          Second Quarter..............................................  28.19    22.56
          First Quarter...............................................  29.25    23.00
          Fourth Quarter..............................................
1999                                                                    29.87    21.69
          Third Quarter...............................................  26.00    16.37
          Second Quarter..............................................  21.19    15.81
          First Quarter...............................................  24.25    18.56
          Annual......................................................
2000                                                                    30.19    22.56
          Annual......................................................
1999                                                                    29.87    15.81
          Annual......................................................
1998                                                                    26.87    12.50
          Annual
1997..                                                                  31.50    20.44
          Annual......................................................
1996                                                                    31.88    21.13
</TABLE>

     On April 3, 2001, the closing sales price per Ordinary ADS on the NYSE was
$22.70.

                                        75
<PAGE>   78

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

<TABLE>
<CAPTION>
                                                                          PRICE PER
                                                                        PREFERENCE ADS
                                                                        --------------
                                                                        HIGH      LOW
                                                                        -----    -----
<S>       <C>                                                           <C>      <C>
2001      March.......................................................  17.49    15.00
          February....................................................  16.10    14.80
          January.....................................................  16.50    14.75
2000      December....................................................  16.50    14.75
          November....................................................  16.25    14.37
          October.....................................................  16.50    14.25
          September...................................................  15.69    14.69
2000      Fourth Quarter..............................................  16.50    14.25
          Third Quarter...............................................  16.44    13.25
          Second Quarter..............................................  15.62    13.50
          First Quarter...............................................  16.91    13.50
1999      Fourth Quarter..............................................  14.50    12.19
          Third Quarter...............................................  14.25    11.25
          Second Quarter..............................................  13.94    11.44
          First Quarter...............................................  16.75    12.50
2000      Annual......................................................  16.91    13.25
1999      Annual......................................................  16.75    11.25
1998      Annual......................................................  21.00    12.25
1997      Annual......................................................  26.75    18.00
1996      Annual......................................................  27.75    25.88
</TABLE>

     On April 3, 2001, the closing sales price per Preference ADS on the NYSE
was $15.30.

ITEM 10.  ADDITIONAL INFORMATION

B.  MEMORANDUM AND 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-Kroner-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.
                                        76
<PAGE>   79

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).

     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.

     At our annual shareholder meeting on June 2, 1999 we requested and received
approval from our shareholders, to convert the denomination of our share capital
from Deutsche mark (DM) to Euro (E) to prepare for the transition by the
European Community to Euro which began January 1, 1999. The exchange rate for DM
to E was set at DM 1.95583 to E 1. As a result, the per share nominal value
changed from DM 5 per share to approximately E 2.55646 per share. For
convenience, shareholders approved an increase to the calculated nominal value
to E 2.56 resulting in a capital stock increase of E 279,789.57. The increase in
value of capital stock was offset by a conversion of reserves into share capital
(Kapitalerhohung aus Gesellschaftsmitteln). No new shares were issued for this
revaluation.

     At that meeting, our shareholders also approved a change in the dividend
premium for the Preference shares from a percentage of the nominal value per
share to an absolute amount. If dividends are declared, the Preference
shareholder will receive E 0.06 per share more than the dividend for an Ordinary
share, but no less than E 0.12 per share.

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

                                        77
<PAGE>   80

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.

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.

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.

FRESENIUS MEDICAL CARE HOLDINGS CLASS D PREFERRED SHARES

     Our subsidiary, Fresenius Medical Care Holdings, distributed its Class D
Preferred Shares exclusively to W.R. Grace common shareholders in connection
with our formation. The Class D Preferred Shares trade over-the-counter only in
the United States under the symbol FSMEP.OB.

     Holders of Fresenius Medical Care Holdings Class D Preferred Shares may be
entitled to a one-time special dividend if (but only if) conditions specified in
the Fresenius Medical Care Holdings certificate of incorporation are met. The
Class D Preferred Shares are not entitled to receive any dividends other than
this special dividend. In particular, the Fresenius Medical Care Holdings Class
D Preferred Shares are not entitled to any dividend that we may pay on our
Preference shares or our ADSs.

     The special dividend is payable only if the cumulative adjusted cash flow
to our ordinary shareholders (defined as our net income plus depreciation and
amortization) from January 1, 1997 through December 31, 2001 exceeds US$3.7
billion. If our cumulative adjusted cash flow meets that threshold, 44.8% of any
amount exceeding US$3.7 billion will be distributed as a special dividend on the
Fresenius Medical Care Holdings Class D Preferred Shares. Fresenius Medical Care
Holdings must make a public announcement of the amount, if any, of the special
dividend by May 1, 2002. Payment of a special dividend on the Class D Preferred
Shares that is earned, if any, would commence in October 2002. For the period
from January 1, 1997 through the end of 2000, our cumulative adjusted cash flow
for the purpose of the Class D Preferred Shares special dividend calculation was
approximately US$1.2 billion. Based upon our cumulative adjusted cash flow at
December 31, 2000 and its historical trend, we believe that it is unlikely that
Fresenius Medical Care Holdings will pay any special dividend. We do not have
any obligation to contribute any amount to Fresenius Medical Care Holdings to
enable it to pay any special dividend.
                                        78
<PAGE>   81

     The Class D Preferred Shares are redeemable at Fresenius Medical Care
Holdings' sole option after the date it makes its public announcement of the
amount of the special dividend (if any) in 2002. The redemption price is the
greater of the liquidation preference (10 cents per Class D Preferred Share) and
any unpaid special dividend amount. Fresenius Medical Care Holdings is not,
however, required to redeem the Class D Preferred Shares.

     This description of the material terms of the Fresenius Medical Care
Holdings Class D Preferred Shares is not complete and is qualified in its
entirety by the terms of Fresenius Medical Care Holdings' certificate of
incorporation. Fresenius Medical Care Holdings' certificate of incorporation is
on file with the Securities and Exchange Commission, and you may obtain a copy
as described under "Item 10.H. Documents on Display."

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 ADR 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.

     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

                                        79
<PAGE>   82

       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.

     -  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
                                        80
<PAGE>   83

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

     -  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 holdersinstruct. 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. See "Description of Capital Stock -- Voting Rights" for a
description of these 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.

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

                                        81
<PAGE>   84

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.

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 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 2001 out of profits earned in or before 2000,
German corporations are required to withhold German tax on dividends in an
amount equal to 25% of the gross amount paid to resident and non-resident
stockholders. A partial refund of this 25% 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
                                        82
<PAGE>   85

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 2001 is partially refunded under the
Income Tax Treaty, effectively reducing the withholding tax to 15% of the gross
amount of the dividend. In addition, since the German imputation system provides
German resident individual stockholders with a tax credit in respect of
dividends paid by German corporations in 2001, the Income Tax Treaty provides
that Qualified Holders (other than 10% Holders) are entitled to an additional
refund equal to 5% of the gross amount of the respective dividend. For United
States federal income tax purposes, the benefit resulting from this additional
5% treaty refund is treated as a refund received by the Qualified Holder with
respect to German corporate taxes equal to 5.88% of the gross amount of the
respective dividend, subject to a German withholding tax of 0.88% (15% of
5.88%). Qualified Holders are not entitled to the dividends received deduction
for United States federal income tax purposes with respect to dividends paid by
non-United States corporations.

     Thus, for each $100 of gross dividend paid by Fresenius Medical Care AG in
2001 to a Qualified Holder (other than a 10% Holder), the dividend after partial
refund of the 25% withholding tax under the Income Tax Treaty will be subject to
a German withholding tax of $15. If the Qualified Holder also applies for the
additional 5% treaty refund, German withholding tax is effectively reduced to
$10; the cash received per $100 of gross dividend is $90. For United States
federal income tax purposes, the Qualified Holder is generally treated as
receiving a total dividend of $105.88 (to the extent paid out of current or
accumulated earnings and profits of Fresenius Medical Care AG as determined for
United States federal income tax purposes), consisting of the $100 gross
dividend and the deemed refund of German corporate tax of $5.88. The notional
$105.88 dividend is deemed to have been subject to German withholding tax of
$15.88. Thus, for each $100 of gross dividend, the Qualified Holder will include
$105.88 in gross income and may be entitled to a foreign tax credit of $15.88,
subject to applicable limitations of United States federal income tax law.

     In the case of a 10% Holder, the 25% German withholding tax on dividends
paid in 2001 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 2001 in the amount of 20% 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 2001. Consequently, Qualified Holders will no longer be entitled to the
additional 5% treaty refund with respect to such dividends. However, the German
withholding tax will be 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% (LOGO) 25%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.

                                        83
<PAGE>   86

REFUND PROCEDURES

     To claim the refund reflecting the current reduction of the German
withholding tax from 25% 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 fur 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 25% to 15% (to 5% for 10% Holders), the
additional 5% 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 deutsche
marks. 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
                                        84
<PAGE>   87

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

     The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the Fresenius Medical Care shares (1) are part of the
business property of a permanent establishment located in Germany or (2) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.

     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.

GERMAN CAPITAL TAX (VERMOGENSTEUER)

     The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (Vermogensteuer) with respect to the Fresenius Medical
Care shares. As a result of a judicial decision, the German capital tax
(Vermogensteuer) presently is not imposed.

OTHER GERMAN TAXES

     There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt, purchase, holding or sale of Fresenius
Medical Care shares.

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.

                                        85
<PAGE>   88

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 at Seven World
Trade Center, 13th Floor, New York, New York 10048 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. As a foreign private
issuer, we are not obligated to file registration statements and reports with
the Securities and Exchange Commission in electronic form; however, commencing
with our report on Form 6-K filed November 20, 2000 we have voluntarily chosen
to do so. Accordingly, our report for the nine months ended September 30, 2000
and our reports for subsequent periods may be obtained from any source
authorized to store and make available electronically filed reports.

     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-Kroner-Strasse 1, 61352 Bad Homburg.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

                                        86
<PAGE>   89

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 located principally in Germany and the
United States. 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 consolidated 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, lendings and 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 purposes of
hedging foreign currency exposures. We have not used such instruments for
purposes other than hedging.

                                        87
<PAGE>   90

     The table below provides information about our foreign exchange forward
contracts at December 31, 2000. The information is provided in U.S. dollar
equivalent amounts. The table presents the notional amounts, the weighted
average contractual foreign currency exchange rates, and the fair values of the
contracts, which show the unrealized net gain (loss) on existing contracts as of
December 31, 2000. All contracts expire within 36 months after the reporting
date.

<TABLE>
<CAPTION>
                                                                    FOREIGN CURRENCY RISK AT DECEMBER 31, 2000
                                                                 (USD IN THOUSANDS EXCEPT AVERAGE CONTRACT RATES)
                                                              ------------------------------------------------------
                                                                                                       FAIR VALUE AT
                                                                                                        DECEMBER 31
                 FOREIGN CURRENCY FORWARDS                      2001      2002      2003      TOTAL        2000
                 -------------------------                    --------   -------   -------   -------   -------------
<S>                                                           <C>        <C>       <C>       <C>       <C>
PURCHASES OF CURRENCIES AGAINST U.S. DOLLAR
  euro
    Notional Amount.........................................    51,509   321,273   116,856   489,638      22,172
    Average Contract Rate...................................    0.8820    0.9172    0.8998
Singapore Dollar
    Notional Amount.........................................       800                           800           2
    Average Contract Rate...................................    1.7235
                                                              --------   -------   -------   -------      ------
Total.......................................................    52,309   321,273   116,856   490,438      22,174
                                                              ========   =======   =======   =======      ======
Sales of currencies against U.S. dollar
  Canadian Dollar
    Notional Amount.........................................     4,000                         4,000          77
    Average Contract Rate...................................    1.4699
  Euro
    Notional Amount.........................................     2,501                         2,501          (2)
    Average Contract Rate...................................    0.9300
  Singapore Dollar
    Notional Amount.........................................       335                           335          (1)
    Average Contract Rate...................................    1.7255
                                                              --------   -------   -------   -------      ------
Total.......................................................     6,836         0         0     6,836          74
                                                              ========   =======   =======   =======      ======
Other sales of currencies against euro
  British Pound
    Notional Amount.........................................    19,942     3,955              23,897       1,261
    Average Contract Rate...................................    0.5942    0.5960
  Japanese Yen
    Notional Amount.........................................    11,163     4,634              15,797       1,633
    Average Contract Rate...................................   92.9869   95.1100
  Swiss Franc
    Notional Amount.........................................     8,230       675               8,905          44
    Average Contract Rate...................................    1.5057    1.4910
  Australian Dollar
    Notional Amount.........................................      7763                         7,763         160
    Average Contract Rate...................................    1.6459
  New Zealand Dollar
    Notional Amount.........................................     2,947                         2,947         (12)
    Average Contract Rate...................................    2.1246
  Singapore Dollar
    Notional Amount.........................................     1,696                         1,696          63
    Average Contract Rate...................................    1.5516
                                                              --------   -------   -------   -------      ------
Total.......................................................    51,741     9,264         0    61,005       3,149
                                                              ========   =======   =======   =======      ======
Other purchases of currencies against euro
  Swiss Franc
    Notional Amount.........................................     6,756                         6,756         (87)
    Average Contract Rate...................................    1.5014
  Japanese Yen
    Notional Amount.........................................     4,607                         4,607         (38)
    Average Contract Rate...................................  106.0397
  Australian Dollar
    Notional Amount.........................................       612                           612          (3)
    Average Contract Rate...................................    1.6714
                                                              --------   -------   -------   -------      ------
Total.......................................................    11,975         0         0    11,975        (128)
                                                              ========   =======   =======   =======      ======
</TABLE>

                                        88
<PAGE>   91

     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 ("E") in the foreign
exchange markets since the beginning of 1999, the table includes the respective
rates for the euro/Dollar quotations which were applied to calculate the
respective 1999 Deutsche Mark/Dollar values, using a fixed conversion rate of DM
1.95583 = E 1.

<TABLE>
<CAPTION>
                                         YEAR'S     YEAR'S     YEAR'S     YEAR'S
YEAR ENDING DECEMBER 31,                  HIGH       LOW      AVERAGE     CLOSE
------------------------                --------   --------   --------   --------
<S>                                     <C>        <C>        <C>        <C>        <C>
1996..................................    0.6979     0.6395     0.6650     0.6432   ($ per DM)
1997..................................    0.6468     0.5299     0.5764     0.5580   ($ per DM)
1998..................................    0.6256     0.5395     0.5685     0.5977   ($ per DM)
1999..................................    0.6028     0.5121     0.5449     0.5136   ($ per DM)
1999..................................    1.1790     1.0015     1.0658     1.0046   ($ per E)
2000..................................    0.5311     0.4219     0.4722     0.4758   ($ per DM)
2000..................................    1.0388     0.8252     0.9236     0.9305   ($ per E)
</TABLE>

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.

     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, 2000. 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 ($733 million outstanding as of December 31, 2000),
loans extended to us by Fresenius AG ($209 million outstanding as of December
31, 2000), and the drawdowns under our receivables financing facility (drawn as
of December 31, 2000, $445 million) to a fixed interest rate of 6.52%. 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
November 29, 2003 and November 29, 2007. At December 31, 2000, the fair value of
these agreements is $(24.62) million.

                                        89
<PAGE>   92

     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, 2000
                           (U.S. DOLLARS IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                                                  FAIR VALUE
                                                                                                                   DEC. 31,
                                                         2001   2002   2003   2004   2005   THEREAFTER   TOTALS      2000
                                                         ----   ----   ----   ----   ----   ----------   ------   ----------
<S>                                                      <C>    <C>    <C>    <C>    <C>    <C>          <C>      <C>
PRINCIPAL PAYMENTS ON SENIOR CREDIT AGREEMENT..........  $150   150    433      0      0          0      $  733      $733
  Variable interest rate = 7.63%.......................
INTEREST RATE SWAP AGREEMENTS
  Notional amount......................................                600    250               200       1,050       (25)
  Average fixed pay rate = 6.52%.......................                6.58%  6.32%            6.61%
  Receive rate = 3-month $LIBOR........................
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
  SECURITIES OF SUBSIDIARIES FRESENIUS MEDICAL CARE
  CAPITAL TRUSTS
  Fixed interest rate = 9%.............................                                         360         360       346
  Fixed interest rate = 7.875%.........................                                         450         450       410
  Fixed interest rate = 7.375% (denominated in DM).....                                         143         143       143
</TABLE>

     Our subsidiary FMC Japan has entered into a Yen interest rate swap
agreement with a commercial bank for a notional amount of JPY 1,000 million as
of December 31, 2000. This swap changes FMC Japan's interest rate exposure on
its variable-rate bank loan (JPY 1,000 million outstanding as of December 31,
2000) to a fixed interest rate of 3.10%. The Yen interest rate swap agreement
expires on March 13, 2009. At December 31, 2000, the fair value of this
agreement is $(0.53) million. The terms of the Yen interest rate swap agreement,
especially the notional amounts outstanding at any specific point of time, match
the terms of the bank loan which has been borrowed from the same bank that is
counterparty in the swap agreement. The bank borrowing and the notional amount
of the swap agreement will always coincide until March 2009 when the the bank
debt is completely repaid and the swap expires.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable

                                        90
<PAGE>   93

                                    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.  [RESERVED]

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-3, Registration No. 333-12190, filed June 26, 2000).

     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   Declaration of Trust Establishing Fresenius Medical Care Capital
Trust, dated November 22, 1996. (Incorporated by reference to Exhibit 2.2 to
FMC's Annual Report on Form 20-F for the year ended December 31, 1996, filed
April 7, 1997).

     2.6   Amended and Restated Declaration of Trust of Fresenius Medical Care
Capital Trust, dated November 27, 1996. (Incorporated by reference to Exhibit
2.3 to FMC's Annual Report on Form 20-F for the year ended December 31, 1996,
filed April 7, 1997).

     2.7   Senior Subordinated Indenture dated November 27, 1996, among
Fresenius Medical Care AG, State Street Bank and Trust Company (as successor to
Fleet National Bank) as Trustee and the Subsidiary Guarantors

                                        91
<PAGE>   94

named therein (Incorporated by reference to Exhibit 2.4 to FMC's Annual Report
on Form 20-F for the year ended December 31, 1996, filed April 7, 1997).

     2.9   Guarantee Agreement dated November 27, 1996, between Fresenius
Medical Care AG and State Street Bank and Trust Company (as successor to Fleet
National Bank) as Trustee. (Incorporated by reference to Exhibit 2.5 to FMC's
Annual Report on Form 20-F for the year ended December 31, 1996, filed April 7,
1997).

     2.10 Agreement as to Expenses and Liabilities between Fresenius Medical
Care AG and Fresenius Medical Care Capital Trust dated November 27, 1996.
(Incorporated by reference to Exhibit 2.6 to FMC's Annual Report on Form 20-F
for the year ended December 31, 1996, filed April 7, 1997).

     2.11 Pledge and Security Agreement dated November 27, 1996 between
Fresenius Medical Care AG and State Street Bank and Trust Company (as successor
to Fleet National Bank). (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).

     2.12 First Supplemental Indenture dated as of February 19, 1998 to Senior
Subordinated Indenture dated November 27, 1996, among Fresenius Medical Care AG,
State Street Bank and Trust Company (as successor to Fleet National Bank) as
Trustee and the Subsidiary Guarantors named therein (Incorporated by reference
to Exhibit 1.3 to FMC's Annual Report on Form 20-F for the year ended December
31, 1997, filed March 27, 1998).

     2.13 Second Supplemental Indenture dated as of November 30, 1998 among
Fresenius Medical Care AG, FMC Trust Finance S.a.r.l. Luxembourg, State Street
Bank and Trust Company, as Trustee, and the Subsidiary Guarantors named therein.
(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).

     2.14 Amendment No. 1 dated as of November 30, 1998 to Amended and Restated
Declaration of Trust of Fresenius Medical Care Capital Trust. (Incorporated by
reference to Exhibit 1.3 to FMC's Annual Report on Form 20-F for the year ended
December 31, 1998, filed March 24, 1999).

     2.15 Amendment to Guarantee Agreement dated as of November 30, 1998 between
Fresenius Medical Care AG and State Street Bank and Trust Company, as successor
trustee to Fleet National Bank, with respect to Fresenius Medical Care Capital
Trust. (Incorporated by reference to Exhibit 1.4 to FMC's Annual Report on Form
20-F for the year ended December 31, 1998, filed March 24, 1999).

     2.16 Amendment to Pledge and Security Agreement dated as of November 30,
1998 between Fresenius Medical Care AG and State Street Bank and Trust Company
as successor trustee and collateral agent to Fleet National Bank, with respect
to Fresenius Medical Care Capital Trust. (Incorporated by reference to Exhibit
1.5 to FMC's Annual Report on Form 20-F for the year ended December 31, 1998,
filed March 24, 1999).

     2.17 Amendment to Intercreditor and Subordination Agreement dated as of
November 30, 1998 between State Street Bank and Trust Company, as successor
trustee and collateral agent to Fleet National Bank and NationsBank, N.A., as
paying agent under the NMC Credit Agreement, with respect to Fresenius Medical
Care Capital Trust. (Incorporated by reference to Exhibit 1.6 to FMC's Annual
Report on Form 20-F for the year ended December 31, 1998, filed March 24, 1999).

     2.18 Senior Subordinated Indenture (U.S. Dollar denominated) dated as of
February 19, 1998, among Fresenius Medical Care AG, FMC Trust Finance S.a.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).

     2.19 Senior Subordinated Indenture (DM denominated) dated as of February
19, 1998, among Fresenius Medical Care AG, FMC Trust Finance S.a.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).

     2.20 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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<PAGE>   95

     2.21 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).

     2.22 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).

     2.23 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).

     2.24 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).

     2.25 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).

     2.26 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).

     2.27 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).

     2.28 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).

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

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

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

     4.4   Primary Guarantee dated July 31, 1996. (Incorporated by reference to
FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.5   Secondary Guarantee dated July 31, 1996. (Incorporated by reference
to FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.6   Letter Agreement dated July 31, 1996. (Incorporated by reference to
FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.7   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.)

                                        93
<PAGE>   96

     4.8   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.)

     4.9   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).

     4.10 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).

     4.11 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).

     4.12 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).

     4.13 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).

     4.14 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).

     4.15 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).

     4.16 Technology License Agreement (Biofine(TM)) 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).

     4.17 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).

     4.18 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).

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

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

     4.21 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).

     4.22 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).

                                        94
<PAGE>   97

     4.23 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)

     4.24 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).

     4.25 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).

     4.26 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).

     4.27 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).

     4.28 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).

     4.29 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).

     4.30 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).

     4.31 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).
                                        95
<PAGE>   98

     4.32 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).

     4.33 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).

     4.34 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).

     4.35 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).

     4.36 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).

     4.37 Amended and Restated Transfer and Administration Agreement dated as of
October 26, 2000 among Compass US Acquisition LLC, NMC Funding Corporation,
National Medical Care, Inc., Enterprise Funding Corporation, the Bank Investors
listed therein, Westdeutsche Landesbank Girozentrale, New York Branch, as an
administrative agent and Bank of America N.A., as an administrative agent.
(Incorporated by reference to FMCH's Annual Report on Form 10-K, for the year
ended December 31, 2000, filed April 2, 2001).

     4.38 Subordinated Loan Note dated as of May 18, 1999, among National
Medical Care, Inc and Certain Subsidiaries with Fresenius AG as lender.
(Incorporated by reference to FMCH's Quarterly Report on Form 10-Q, for the
three months ended September 30, 1999, filed November 22, 1999).

     4.39 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).

     4.40 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).

     4.41 Product Purchase Agreement effective January 1, 2000 between Amgen,
Inc. and National Medical Care, Inc. (Incorporated by reference to FMCH's Annual
Report on Form 10-K, for the year ended December 31, 1999, filed March 30,
2000).

     4.42 Amendment to Product Purchase Agreement effective January 1, 2000
between Amgen, Inc. and National Medical Care, Inc. (Incorporated by reference
to FMCH's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000,
filed August 9, 2000).

                                        96
<PAGE>   99

     4.43 Plea Agreement dated January 13, 2000 by and among Lifechem, Inc., the
United States Department of Justice and the United States Attorney for the
District of Massachusetts. (Incorporated by reference to Exhibit 10.6 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.44 Plea Agreement dated January 13, 2000 by and among NMC Medical
Products, Inc., the United States Department of Justice and the United States
Attorney for the District of Massachusetts. (Incorporated by reference to
Exhibit 10.7 to FMCH's Current Report on Form 8-K dated January 21, 2000).

     4.45 Plea Agreement dated January 13, 2000 by and among NMC Homecare, Inc.,
the United States Department of Justice and the United States Attorney for the
District of Massachusetts. (Incorporated by reference to Exhibit 10.8 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.46 Letter Agreement dated January 17, 2000 by and among FMCH, the United
States Department of Justice and the United States Attorney for the District of
Massachusetts. (Incorporated by reference to Exhibit 10.9 to FMCH's Current
Report on Form 8-K dated January 21, 2000).

     4.47 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).

     4.48 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, Lifechem, Inc., NMC Medical Products, Inc., National
Medical Care, Inc., FMCH and Jay A. Buford, Russell J. Davis and William L.
Schoff. (Incorporated by reference to Exhibit 10.2 to FMCH's Current Report on
Form 8-K dated January 21, 2000).

     4.49 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, NMC Homecare, Inc., National Medical Care, Inc., FMCH
Ven-A-Care of the Florida Keys, Inc. and Dana R. Austin. (Incorporated by
reference to Exhibit 10.3 to FMCH's Current Report on Form 8-K dated January 21,
2000).

     4.50 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, Clinical Diagnostic Systems, Inc., NMC Diagnostic
Services, Inc., Bio-Medical Applications Management Company, Inc., National
Medical Care, Inc. and FMCH. (Incorporated by reference to Exhibit 10.4 to
FMCH's Current Report on Form 8-K dated January 21, 2000).

     4.51 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, National Medical Care, Inc., FMCH, Gregory S. Price
and Richard Bradford. (Incorporated by reference to Exhibit 10.5 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.52 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).

     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
Wirtschaftsprufungsgesellschaft.

                                        97
<PAGE>   100

                                   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: April 5, 2001

                                      FRESENIUS MEDICAL CARE
                                      AKTIENGESELLSCHAFT

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

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

                                          /s/ JOSEF DINGER
                                      By:
                                      ------------------------------------------

                                         Name: Josef Dinger
                                         Title: Senior Vice President
                                            Controlling and Corporate Accounting

                                        98
<PAGE>   101

                         INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................   F-2
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................   F-3
Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................   F-4
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................   F-5
Consolidated Statement of Shareholders' Equity for the years
  ended December 31, 2000, 1999 and 1998....................   F-6
Notes to Consolidated Financial Statements..................   F-7
Financial Statement Schedule................................   S-1
</TABLE>

                                       F-1
<PAGE>   102

                          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, 2000 and 1999 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, 2000. 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, 2000 and 1999, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2000, 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.

Frankfurt am Main, Germany

March 23, 2001, except as to paragraphs 16 and 17 of Note 18, as to which the
date is April 5, 2001

/s/ KPMG
Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft

                                       F-2
<PAGE>   103

                           FRESENIUS MEDICAL CARE AG

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                            2000          1999          1998
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
Net revenue:
  Dialysis Care........................................  $2,944,625    $2,599,688    $2,358,577
  Dialysis Products....................................   1,256,713     1,240,741     1,147,099
                                                         ----------    ----------    ----------
                                                          4,201,338     3,840,429     3,505,676
Cost of revenue:
  Dialysis Care........................................   2,040,627     1,776,604     1,614,266
  Dialysis Products....................................     693,966       686,551       628,672
                                                         ----------    ----------    ----------
                                                          2,734,593     2,463,155     2,242,938
Gross profit...........................................   1,466,745     1,377,274     1,262,738
Operating expenses:
  Selling, general and administrative..................     813,997       784,572       742,610
  Research and development.............................      31,935        32,488        31,150
  Special charge for Settlement........................          --       601,000            --
                                                         ----------    ----------    ----------
Operating income (loss)................................     620,813       (40,786)      488,978
Other (income) expense:
  Interest income......................................      (9,411)       (8,094)       (8,641)
  Interest expense.....................................     195,569       226,218       228,182
  Interest expense on obligation related to
     Settlement........................................      29,947            --            --
                                                         ----------    ----------    ----------
Income (loss) from continuing operations before income
  taxes, minority interest and cumulative effect of
  accounting change....................................     404,708      (258,910)      269,437
Income tax expense (benefit)...........................     189,772       (12,744)      135,366
Minority interest......................................       2,861         2,378         2,454
                                                         ----------    ----------    ----------
Income (loss) from continuing operations before
  cumulative effect of accounting change...............     212,075      (248,544)      131,617
Loss from discontinued operations, net.................          --            --      (105,897)
Cumulative effect of accounting change, net............          --            --        (6,589)
                                                         ----------    ----------    ----------
Net income (loss)......................................  $  212,075    $ (248,544)   $   19,131
                                                         ==========    ==========    ==========
Basic income (loss) from continuing operations before
  cumulative effect of accounting change per Ordinary
  share................................................  $     2.37    $    (3.15)   $     1.62
                                                         ==========    ==========    ==========
Fully diluted income (loss) from continuing operations
  before cumulative effect of accounting change per
  Ordinary share.......................................  $     2.36    $    (3.15)   $     1.62
                                                         ==========    ==========    ==========
Basic income (loss) per Ordinary share.................  $     2.37    $    (3.15)   $     0.20
                                                         ==========    ==========    ==========
Fully diluted income (loss) per Ordinary share.........  $     2.36    $    (3.15)   $     0.20
                                                         ==========    ==========    ==========
Basic income (loss) from continuing operations before
  cumulative effect of accounting change per Preference
  share................................................  $     2.43    $    (3.15)   $     1.78
                                                         ==========    ==========    ==========
Fully diluted income (loss) from continuing operations
  before cumulative effect of accounting change per
  Preference share.....................................  $     2.42    $    (3.15)   $     1.78
                                                         ==========    ==========    ==========
Basic income (loss) per Preference share...............  $     2.43    $    (3.15)   $     0.36
                                                         ==========    ==========    ==========
Fully diluted income (loss) per Preference share.......  $     2.42    $    (3.15)   $     0.36
                                                         ==========    ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-3
<PAGE>   104

                           FRESENIUS MEDICAL CARE AG
                          CONSOLIDATED BALANCE SHEETS
                         AT DECEMBER 31, 2000 AND 1999
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Assets
Current assets:
  Cash and cash equivalents.................................  $   64,577    $   34,760
  Trade accounts receivable, less allowance for doubtful
     accounts of $111,185 in 2000 and $101,262 in 1999......     753,674       667,739
  Accounts receivable from related parties..................      46,117        49,129
  Inventories...............................................     320,234       301,302
  Prepaid expenses and other current assets.................     214,526       179,392
  IDPN accounts receivable..................................       5,189        53,962
  Deferred taxes............................................     177,094       254,925
                                                              ----------    ----------
  Total current assets......................................   1,581,411     1,541,209
Property, plant and equipment, net..........................     738,993       642,121
Intangible assets, including goodwill, net..................   3,475,056     3,438,756
Deferred taxes..............................................      27,205        25,121
Non-current IDPN accounts receivable........................          --         5,189
Other assets................................................     156,288        99,987
                                                              ----------    ----------
Total assets................................................  $5,978,953    $5,752,383
                                                              ==========    ==========
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable..........................................  $  203,374    $  193,120
  Accounts payable to related parties.......................      77,823        89,453
  Accrued expenses and other current liabilities............     391,640       415,061
  Accrued Settlement........................................          --       386,815
  Note payable related to Settlement........................      85,920            --
  Short-term borrowings.....................................     106,592        96,383
  Short-term borrowings from related parties................     218,333       330,000
  Current portion of long-term debt and capital lease
     obligations............................................     168,231       147,484
  Income tax payable........................................     117,572        78,438
  Deferred taxes............................................      20,967        33,438
                                                              ----------    ----------
  Total current liabilities.................................   1,390,452     1,770,192
Long-term debt and capital lease obligations, less current
  portion...................................................     657,832       653,776
Accrued Settlement..........................................          --        85,920
Other liabilities...........................................      31,464        24,686
Pension liabilities.........................................      69,970        61,578
Deferred taxes..............................................     176,487       168,037
Company-obligated mandatorily redeemable preferred
  securities of subsidiary Fresenius Medical Care Capital
  Trusts Holding solely Company-guaranteed debentures of
  subsidiary................................................     952,727       964,103
Minority interest...........................................      21,271        21,774
                                                              ----------    ----------
  Total liabilities.........................................   3,300,203     3,750,066
Shareholders' equity:
Preference shares, no par, E 2.56 nominal value, 45,497,700
  shares authorized, 23,765,093 issued and outstanding......      63,644        27,623
Ordinary shares, no par, E 2.56 nominal value, 70,000,000
  shares authorized, issued and outstanding.................     229,494       229,494
Additional paid-in capital..................................   2,634,606     2,097,480
Retained deficit............................................     (56,024)     (216,870)
Accumulated other comprehensive loss........................    (192,970)     (135,410)
                                                              ----------    ----------
  Total shareholders' equity................................   2,678,750     2,002,317
                                                              ----------    ----------
  Total liabilities and shareholders' equity................  $5,978,953    $5,752,383
                                                              ==========    ==========
</TABLE>

          See accompanying notes to consolidated financial statements

                                       F-4
<PAGE>   105

                           FRESENIUS MEDICAL CARE AG

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                2000         1999         1998
                                                              ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>
Operating Activities:
  Net income (loss).........................................  $ 212,075    $(248,544)   $  19,131
  Adjustments to reconcile net income (loss) to cash flows
    provided by (used in) operating activities:
    Cumulative effect of accounting change..................         --           --        6,589
    Depreciation and amortization...........................    292,854      284,208      278,984
    Loss from discontinued operations.......................         --           --      105,897
    Write-off of IDPN accounts receivable...................         --       94,349           --
    Change in deferred taxes, net...........................     76,934      (89,925)      23,586
    (Gain) loss on sale of fixed assets.....................       (289)         991          213
    Compensation expense related to stock options...........      3,980           --           --
  Changes in assets and liabilities, net of amounts from
    businesses acquired or disposed of:
    Trade accounts receivable, net..........................   (174,333)    (136,262)    (160,051)
    Inventories.............................................    (23,007)     (15,754)     (39,304)
    Prepaid expenses, other current and non-current
      assets................................................     (8,285)     (36,718)     (37,295)
    Accounts receivable from/ payable to related parties....    (18,801)     (14,946)       3,174
    Accounts payable, accrued expenses and other current and
      non-current liabilities...............................    (20,689)     488,696       (6,336)
    Income taxes payable....................................     50,827       28,662       73,669
                                                              ---------    ---------    ---------
      Net cash provided by operating activities of
        continuing operations...............................    391,266      354,757      268,257
                                                              ---------    ---------    ---------
      Net cash used in operating activities of discontinued
        operations..........................................         --       (3,782)        (257)
                                                              ---------    ---------    ---------
      Net cash provided by operating activities.............    391,266      350,975      268,000
                                                              ---------    ---------    ---------
Investing Activities:
  Purchases of property, plant and equipment................   (228,037)    (160,276)    (158,695)
  Proceeds from sale of property, plant and equipment.......     20,724        7,130       26,179
  Acquisitions and investments, net of cash acquired........   (274,530)    (101,326)    (222,935)
  Proceeds from disposition of businesses...................         --           --       82,500
                                                              ---------    ---------    ---------
    Net cash used in investing activities of continuing
      operations............................................   (481,843)    (254,472)    (272,951)
                                                              ---------    ---------    ---------
    Net cash used in investing activities of discontinued
      operations............................................         --           --       (7,315)
                                                              ---------    ---------    ---------
    Net cash used in investing activities...................   (481,843)    (254,472)    (280,266)
                                                              ---------    ---------    ---------
Financing Activities:
  Proceeds from short-term borrowings.......................     38,416       79,580       54,954
  Repayments of short-term borrowings.......................    (32,609)     (80,946)     (44,795)
  Proceeds from short-term borrowings from related
    parties.................................................     26,000      270,000       60,000
  Repayments of short-term borrowings from related
    parties.................................................   (141,000)          --      (66,428)
  Proceeds from long-term debt..............................    255,224       26,895       60,150
  Principal payments of long-term debt and capital lease
    obligations.............................................   (221,739)    (310,476)    (640,497)
  Payments on obligation related to Settlement..............   (386,815)          --           --
  Retirement of convertible investment securities...........         --      (47,664)     (61,725)
  Proceeds from issuance of mandatorily redeemable preferred
    securities..............................................         --           --      597,810
  Proceeds from issuance of Preference shares...............    556,958           --           --
  Proceeds from increase of accounts receivable
    securitization program..................................    111,402       29,400      105,600
  Proceeds from exercise of stock options...................        885        1,719        1,047
  Dividends paid............................................    (51,229)     (48,404)     (49,214)
  Distributions on convertible investment securities........         --           --       (2,752)
  Change in minority interest...............................        139          578          717
                                                              ---------    ---------    ---------
    Net cash provided by (used in) financing activities of
      continuing operations.................................    155,632      (79,318)      14,867
                                                              ---------    ---------    ---------
    Net cash used in financing activities of discontinued
      operations............................................         --           --       (2,107)
                                                              ---------    ---------    ---------
    Net cash provided by (used in) financing activities.....    155,632      (79,318)      12,760
                                                              ---------    ---------    ---------
Effect of exchange rate changes on cash and cash
  equivalents...............................................    (35,238)     (14,292)      (6,445)
                                                              ---------    ---------    ---------
Cash and Cash Equivalents:
  Net increase (decrease) in cash and cash equivalents......     29,817        2,893       (5,951)
  Cash and cash equivalents at beginning of period..........     34,760       31,867       37,818
                                                              ---------    ---------    ---------
  Cash and cash equivalents at end of period................  $  64,577    $  34,760    $  31,867
                                                              =========    =========    =========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-5
<PAGE>   106

                           FRESENIUS MEDICAL CARE AG

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                       (IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
                          PREFERENCE SHARES        ORDINARY SHARES                                               ACCUMULATED
                        ---------------------   ----------------------   CONVERTIBLE   ADDITIONAL   RETAINED        OTHER
                         NUMBER OF    NO PAR     NUMBER OF     NO PAR    INVESTMENT     PAID IN     EARNINGS    COMPREHENSIVE
                          SHARES       VALUE      SHARES       VALUE     SECURITIES     CAPITAL     (DEFICIT)       LOSS
                        -----------   -------   -----------   --------   -----------   ----------   ---------   -------------
<S>                     <C>           <C>       <C>           <C>        <C>           <C>          <C>         <C>
Balance at December
 31, 1997.............   9,023,341    $27,623   70,000,000    $229,494    $ 67,584     $2,098,776   $108,875      $ (86,387)
Proceeds from exercise
 of options...........          --        --            --          --          --         1,047          --             --
Retirement of
 convertible
 investment
 securities...........          --        --            --          --     (67,584)           --          --             --
Distributions on
 convertible
 investment
 securities...........          --        --            --          --          --            --      (2,752)            --
Distributions to
 Fresenius AG.........          --        --            --          --          --        (4,062)         --             --
Dividends paid........          --        --            --          --          --            --     (45,176)            --
Comprehensive income:
Net income............          --        --            --          --          --            --      19,131             --
Foreign currency
 translation
 adjustment...........          --        --            --          --          --            --          --         10,397
Comprehensive
 income...............          --        --            --          --          --            --          --             --
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 1998.............   9,023,341    27,623    70,000,000     229,494    $     --     $2,095,761   $ 80,078      $ (75,990)
Proceeds from exercise
 of options...........          --        --            --          --                     1,719          --             --
Dividends paid........                                                                               (48,404)
Comprehensive loss:
Net loss..............          --        --            --          --                        --    (248,544)            --
Foreign currency
 translation
 adjustment...........          --        --            --          --                        --          --        (59,420)
Comprehensive loss....          --        --            --          --                        --          --             --
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 1999.............   9,023,341    $27,623   $70,000,000   $229,494    $     --     $2,097,480   $(216,870)    $(135,410)
Issuance of Preference
 shares...............  14,724,359    35,980                                             532,302
Proceeds from exercise
 of options...........      17,393        41                                                 844
Compensation expense
 related stock
 options..............                                                                     3,980
Dividends paid........                                                                               (51,229)
Comprehensive income:
Net income............                                                                               212,075
Foreign currency
 translation
 adjustment...........                                                                                              (57,560)
Comprehensive
 income:..............
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 2000.............  23,765,093    $63,644   $70,000,000   $229,494    $     --     $2,634,606   $(56,024)     $(192,970)
                        ===========   =======   ===========   ========    ========     ==========   =========     =========

<CAPTION>

                          TOTAL
                        ----------
<S>                     <C>
Balance at December
 31, 1997.............  $2,445,965
Proceeds from exercise
 of options...........       1,047
Retirement of
 convertible
 investment
 securities...........     (67,584)
Distributions on
 convertible
 investment
 securities...........      (2,752)
Distributions to
 Fresenius AG.........      (4,062)
Dividends paid........     (45,176)
Comprehensive income:
Net income............      19,131
Foreign currency
 translation
 adjustment...........      10,397
                        ----------
Comprehensive
 income...............      29,528
                        ----------
Balance at December
 31, 1998.............  $2,356,966
Proceeds from exercise
 of options...........       1,719
Dividends paid........     (48,404)
Comprehensive loss:
Net loss..............    (248,544)
Foreign currency
 translation
 adjustment...........     (59,420)
                        ----------
Comprehensive loss....    (307,964)
                        ----------
Balance at December
 31, 1999.............  $2,002,317
Issuance of Preference
 shares...............     568,282
Proceeds from exercise
 of options...........         885
Compensation expense
 related stock
 options..............       3,980
Dividends paid........     (51,229)
Comprehensive income:
Net income............     212,075
Foreign currency
 translation
 adjustment...........     (57,560)
                        ----------
Comprehensive
 income:..............     154,515
                        ----------
Balance at December
 31, 2000.............  $2,678,750
                        ==========
</TABLE>

          See accompanying notes to consolidated financial statements
                                       F-6
<PAGE>   107

                           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. Fresenius
Medical Care AG ("FMC AG") 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, Fresenius Medical
Care AG 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 Fresenius
Medical Care AG Ordinary shares. Thereafter, FMC 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., its global dialysis business, in exchange for Ordinary
           shares; and

     (ii)   the publicly-held minority interest of Fresenius USA, Inc., in
            exchange for Ordinary shares.

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. All significant intercompany
transactions and balances have been eliminated. The equity method of accounting
is used for investments in associated companies (20% to 50% owned). All other
investments are accounted for at cost.

     For business combinations accounted for under the purchase method, all
assets acquired and liabilities assumed are recorded at fair value. An excess of
the purchase price over the fair value of net assets acquired is capitalized as
goodwill and amortized over the estimated period of benefit on a straight-line
basis.

B)  CLASSIFICATIONS

     Certain items in prior years' consolidated financial statements have been
reclassified to conform with the current year's presentation.

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)  INVENTORIES

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

                                       F-7
<PAGE>   108

E)   PROPERTY, PLANT AND EQUIPMENT

     Property, plant, and equipment are stated at cost. 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. The cost and accumulated depreciation of
assets sold or otherwise disposed are removed from the accounts, and any
resulting gain or loss is included in income when the assets are disposed.

     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 11
years and 3 to 15 years for machinery and equipment with a weighted average life
of 7 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 2000, 1999, and 1998 was, $1,205, $224, and
$221, respectively.

F)   INTANGIBLE ASSETS

     The Company has adopted the following useful lives and amortizes intangible
assets using the straight-line method: goodwill -- 20 to 40 years with weighted
average life of 37 years; tradename and patents -- 6 to 40 years with weighted
average life of 33 years; patient relationships, distribution rights and other
intangible assets -- over the estimated period to be benefited, generally from 5
to 40 years with a weighted average life of 8 years.

G)  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes derivative financial instruments including forward
currency contracts and interest rate swaps.

     Forward currency contracts -- Gains and losses on forward currency
contracts that are designated and effective as hedges of existing assets or
liabilities are included in the carrying amount of those hedged items. Foreign
currency forward contracts hedging firm commitments are deferred and recognized
along with the effects of the hedged transaction. Gains and losses on other
forward currency contracts not qualifying for hedge accounting are recognized as
selling, general and administrative expenses or cost of revenues in the period
in which the gain or loss occurs.

     Interest rate swaps -- Interest rate agreements that are designated as a
hedge of a debt or other long-term obligations are accounted for on an accrual
basis. That is, the interest payable and interest 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 on 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. 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 timing of the gain or loss on
the interest rate swap would be matched with the offsetting gain or loss of the
related item. For information regarding the adoption of SFAS 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 138, see
"Accounting Changes."

H)  FOREIGN CURRENCY TRANSLATION

     For purposes of these consolidated financial statements, the U.S. dollar is
the reporting currency. The Company follows the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation.
Substantially all assets and liabilities of the Company and all non-U.S.
subsidiaries are

                                       F-8
<PAGE>   109

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 earnings and are included in
other comprehensive income.

     Gains and losses resulting from the translation of intercompany borrowings,
which are not considered equity investments, are included in selling, general
and administrative expense. Transaction gains (losses) amounted to $18,370,
$2,299 and $366 for 2000, 1999 and 1998, respectively.

I)   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 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.

     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.

J)   RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses are expensed as incurred.

K)  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. Prior to the German tax law change in 2000, deferred taxes
in Germany were calculated using the "undistributed earnings" tax rate. (see
Note 12)

L)   IMPAIRMENT

     In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews the carrying value of its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. The Company considers various
valuation factors including discounted cash flows, fair values and replacement
costs to assess any impairment of goodwill and other long lived assets.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

M)  DEBT ISSUANCE COSTS

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

N)  SELF INSURANCE PROGRAMS

     A major subsidiary of the Company is self-insured for professional, product
and general liability, auto and worker's compensation claims up to predetermined
amounts above which third party insurance applies. Estimates are made for both
reported and incurred but not reported claims.
                                       F-9
<PAGE>   110

O)  USE OF ESTIMATES

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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.

P)  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.

     A significant percentage of the Company's health care services revenues are
paid by and subject to regulations under governmental programs, primarily
Medicare and Medicaid, health care programs administered by the United States
government.

Q)  EARNINGS PER PREFERENCE SHARE AND ORDINARY SHARE

     Basic net income (loss) per Preference share and basic net income (loss)
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 convertible investment securities (see Note 16) and awards granted
under the FMC stock incentive plans (see Note 17), are potentially dilutive
equity instruments.

R)   STOCK OPTION PLANS

     The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded only if the current market price of the underlying stock
exceeds the exercise price on the measurement date. For stock incentive plans
which are performance based, the Company recognizes compensation expense over
the vesting periods, based on the then current market values of the underlying
stock. In addition, the Company has adopted the disclosure only provisions
required by SFAS No. 123, Accounting for Stock-Based Compensation.

S)   RECENT PRONOUNCEMENTS AND ACCOUNTING CHANGES

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for financial
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The statement also provides the
criteria for determining whether a derivative may be specifically designated as
a hedge of a particular exposure with the intent of measuring the effectiveness
of that hedge in the statement of operations. In June 2000, the Financial
Accounting Standards Board issued SFAS No. 138, which amended certain provisions
of SFAS 133, including allowing foreign-currency denominated assets and
liabilities to qualify for hedge accounting, permitting the offsetting of
certain inter-entity foreign currency exposures that reduce the need for third
party derivatives and redefining the nature of interest rate risk to avoid
sources of ineffectiveness. The Company is adopting SFAS 133, and the
corresponding amendments under SFAS 138 effective as of January 1, 2001.

                                       F-10
<PAGE>   111

     After adoption, gains and losses in fair value of recognized assets and
liabilities and firm commitments of operating transactions as well as gains and
losses on derivative financial instruments designated as fair value hedges of
these recognized assets and liabilities and firm commitments will be recognized
currently in earnings.

     After adoption, changes in the value of foreign currency forward contracts
designated and qualifying as cash flow hedges of forecasted transactions will be
reported in accumulated other comprehensive income. These amounts will
subsequently be reclassified into earnings, as a component of the forecasted
transaction, in the same period as the forecasted transaction affects earnings.

     The adoption of SFAS 133, as amended by SFAS 138, results in the recording
of assets related to forward currency contracts of approximately $13,072. The
offset to this transition adjustment will be recorded to other comprehensive
income at an amount of $1,465 and to net income at an amount of $11,607. Because
of corresponding entries concerning the hedged items, the net effect on earnings
will be immaterial. Additionally, a liability for interest rate swaps of
approximately $25,146 will be recorded. The offset will be recorded to other
comprehensive income.

     In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
as well as examples of how the SEC staff applies revenue recognition guidance to
specific circumstances. In June 2000, SAB 101B was issued by the SEC further
delaying the implementation date for SAB 101 until the fourth quarter of the
fiscal year beginning after December 15, 1999. The impact of the adoption of SAB
101 is not significant.

     In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-014,
Accounting for Certain Sales Incentives, which establishes accounting for point
of sales coupons, rebates, and free merchandise. This EITF requires that an
entity report these sales incentives that reduce the price paid to be netted
directly against revenues. EITF 00-014 is effective no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The impact of the
adoption of EITF-00-14 is not significant.

     In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25.
The effects of applying this interpretation are required to be recognized on a
prospective basis from July 1, 2000. The application of this interpretation did
not have a material effect on our financial position or results of operations.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125. SFAS No. 140
provides the accounting and reporting standards for securitizations and other
transfers of financial assets and collateral. These standards are based on
consistent application of a financial-components approach that focuses on
control. This Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral for fiscal years
ending after December 15, 2000. There is no impact for the adoption of SFAS No.
140

     In April 1998, Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities ("SOP 98-5"), was issued by the Accounting Standards
Executive Committee (AcSEC) of the AICPA and was adopted by the Company,
effective January 1, 1998. SOP 98-5 requires that the costs of start-up
activities, including organization costs, which have been previously
capitalized, should be expensed as incurred. As a result of the adoption of SOP
98-5, deferred start-up activities in the amount of $11,279 as of January 1,
1998, have been recognized as a cumulative effect of a change in accounting, net
of related tax benefit of $4,690, in the consolidated statements of earnings for
the year ended December 31, 1998. Costs for start-up activities are expensed as
incurred beginning in 1998.

                                       F-11
<PAGE>   112

2.   SPECIAL CHARGE FOR SETTLEMENT

     On January 18, 2000, Fresenius Medical Care Holdings, Inc. ("FMCH"),
National Medical Care, Inc. 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").

     Under the Settlement with the U.S. government, FMCH made initial cash
payments of approximately $286 million and entered into a note payable for the
remainder of the payment obligations. Interest on installment payments to the
U.S. government will accrue at 6.3% on approximately $51 million of the
obligation and at 7.5% annually on the balance, until paid in full. The note
payable to the U.S. government and the amounts due to the Company for the
outstanding Medicare receivables have been classified in the balance sheet based
on their expected settlement dates.

     Under the terms of the note payable, the remaining obligation is payable in
six quarterly installments that began in April 2000 and end in July 2001. The
first four quarterly installments were paid in the amount of approximately $35
million each, including interest at 7.5%. The first three of these four payments
were made in April, July and October 2000 and the fourth installment was made in
January 2001. The final two installments of approximately $28 million each,
including interest at 6.3%, will be paid in April and July 2001, respectively.
In addition, the Company received approximately $59 million from the U.S.
government related to the Company's claims for outstanding Medicare receivables.
The Company received $54 million in 2000 and a final payment of $5 million in
February 2001.

     In connection with the Settlement, the Company amended the letter of credit
that National Medical Care delivered to the U.S. government in 1996 from $150
million to $190 million and, under the Settlement, the letter of credit will be
reduced as installment payments are made to the Government. At December 31,
2000, the letter of credit was reduced to $89 million.

3.   RELATED PARTY TRANSACTIONS

A)  SHARED SERVICES

     Fresenius AG, the majority shareholder, historically provided services to
and incurred costs on behalf of the Company. The Company entered into service
agreements with Fresenius AG and certain affiliates of Fresenius AG to continue
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, treasury services, and accounting and reporting. In the opinion of
management, such expenses are indicative of the actual expenses that would have
been incurred if the Company had been operating as an independent entity.

     For the years 2000, 1999 and 1998, amounts charged from Fresenius AG to FMC
under the terms of the agreement are $19,947, $16,387 and $21,298, respectively.
FMC also provides certain services to FAG and certain affiliates of FAG,
including research and development, plant administration, patent administration
and warehousing. FMC charged amounts of $9,984, $6,821 and $5,233 for services
rendered to Fresenius AG in 2000, 1999 and 1998, respectively.

     Related party transactions pertaining to services performed between
affiliated entities are recorded as accounts receivable or payable to related
parties. At December 31, 2000 and 1999 FMC had accounts receivable from related
parties of $46,117 and $49,129, respectively. The FMC accounts payable to
related parties at December 31, 2000 and 1999 were $77,823 and $89,453,
respectively.

     Under operating lease agreements entered into in conjunction with the
formation of Fresenius Medical Care, FMC will pay Fresenius AG approximately
DM 16,800 (E 8,590) per year. The lease amounts escalate annually, based upon
published indices in Germany. Converted to USD, this amounts to approximately,
$9,472, $10,642 and $10,101 during 2000, 1999 and 1998, respectively. The leases
expire in 2005 with options for renewal.

                                       F-12
<PAGE>   113

B)  FINANCING PROVIDED BY FRESENIUS AG

     At December 31, 2000, the Company had short-term loans outstanding of
$215,934, of which $209,000 bore interest at rates varying between 7.35% and
7.38%. The remaining loans bore interest at a rate of approximately 4%. At
December 31, 1999, the Company had short-term loans outstanding of $330,000 at
varying interest rates between 7.06% and 7.44%. The funds were used primarily to
reduce long-term debt. At December 31, 2000, the loans were due at various dates
throughout the first quarter of 2001 and have subsequently been extended to
various dates through June 6, 2001. Interest expense on these borrowings was,
$18,571, $13,037 and $1,096 for the years 2000, 1999 and 1998, respectively.

C)   PRODUCTS

     During the years ended December 31, 2000, 1999, and 1998, the Company
recognized sales of $28,076, $28,563 and $13,237, respectively, to non-FMC
businesses of Fresenius AG. During 2000, 1999 and 1998, the Company made
purchases from Fresenius AG and affiliates in the amount of $25,547, $30,056 and
$29,822, 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 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 $580, $107, and $254 in 2000, 1999 and 1998, 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 a total of $10,438 in underwriting discounts and
commissions.

     The Chairman of the Company's Supervisory Board and former Chief Executive
Officer of FMC are members of the Management Board of Fresenius AG, the majority
holder of FMC's Ordinary shares.

4.   ACQUISITIONS

     The Company acquired certain health care facilities and clinical
laboratories for a total consideration of $288,144, $110,788, and $264,740 in
2000, 1999 and 1998, respectively. In 2000, consideration consisted of cash of
$274,530 and notes for $13,614. Acquisitions in 2000 include the purchase of
substantially all of the international and non-continental U.S. operations of
Total Renal Care Holdings, Inc. ("TRC"). The purchase price for these operations
was $145,000. Additionally the Company agreed to acquire TRC's Puerto Rico
operations. That acquisition is subject to regulatory approval and third party
consents. In connection with the Puerto Rico acquisition the Company paid a $10
million non-refundable deposit. In 1999, consideration consisted of cash of
$101,326 and notes for $9,462. In 1998, the consideration consisted of cash of
$222,935 and convertible investment securities of $41,805. These 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 $196,000, $94,000 and $243,000 for 2000, 1999 and 1998, respectively.

5.   DISCONTINUED OPERATIONS

     Effective June 1, 1998, the Company classified its Homecare/Non-renal
Diagnostics businesses as discontinued operations. The sale of the Non-renal
Diagnostics business was completed on June 26, 1998 while the sale of the
Homecare business was completed on July 29, 1998. In connection with the sale of
Homecare, the Company retained the assets and the operations associated with the
delivery of IDPN and recorded, for accounting purposes, its activity as part of
discontinued operations for the periods through June 30, 1998.
                                       F-13
<PAGE>   114

Subsequent to June 30, 1998, the Company has recorded no IDPN revenues and any
incidental expenses have been included in continuing operations. Since it has
exited this business, the Company provides those services only to existing
physicians' patients for whom this therapy is prescribed. The Company has
recorded net after tax losses of $9,000 from operations of discontinued
businesses and $97,000 from the disposal of these businesses for the year ended
December 31, 1998. The net loss on the disposal of these businesses and their
results of operations have been accounted for as discontinued operations.

     IDPN receivables of $153,500 which had been included in the retained assets
of discontinued operations were resolved as part of the settlement agreements
with the U.S. Government relating to the OIG investigations (see Note 2). As a
result, a $94,300 write off was taken against these receivables. The remaining
receivables have been classified separately on the balance sheet and were
collected from the U.S. Government.

Discontinued Operations -- Results of Operations

     The revenue and results of operations of the discontinued operations in
1998 were as follows:

<TABLE>
<CAPTION>
                                                                1998
                                                              ---------
<S>                                                           <C>
Net revenue.................................................  $ 120,940
Cost of revenue.............................................     73,950
                                                              ---------
  Gross profit..............................................     46,990
Selling, general and administrative.........................     61,202
                                                              ---------
Loss from operations of discontinued businesses before
  income tax benefit........................................    (14,212)
Income tax benefit..........................................     (5,543)
                                                              ---------
Loss from operations of discontinued businesses.............     (8,669)
                                                              ---------
Loss on disposal before income tax benefit..................   (140,000)
Income tax benefit..........................................    (42,772)
                                                              ---------
Loss on disposal............................................    (97,228)
Loss from discontinued operations...........................  $(105,897)
                                                              =========
</TABLE>

6.   SALE OF ACCOUNTS RECEIVABLE

     National Medical Care, Inc. ("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 125. The amount of
the accounts receivable facility was last amended on October 26, 2000, when the
Company increased the accounts receivable facility to $500,000, and extended its
maturity to October 25, 2001.

     At December 31, 2000 and 1999, $445,000 and $335,000, 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 6.59% at year-end 2000. Under the
terms of the agreement, new interests in accounts receivable are sold 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.

                                       F-14
<PAGE>   115

7.   INVENTORIES

     As of December 31, inventories consisted of the following

<TABLE>
<CAPTION>
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Raw materials and purchased components......................  $ 73,244    $ 61,624
Work in process.............................................    22,231      21,834
Finished goods..............................................   160,358     168,193
Health care supplies........................................    64,401      49,651
                                                              --------    --------
  Inventories...............................................  $320,234    $301,302
                                                              ========    ========
</TABLE>

     Under the terms of certain (unconditional) purchase agreements, the Company
is obligated to purchase approximately $165,000 of materials, of which $90,000
is committed at December 31, 2000 for fiscal year 2001. The terms of these
agreements run 2 to 5 years. Inventories as of December 31, 2000 include
approximately $25,800 of 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 2000, revenues
from EPO accounted for approximately 22% of total revenue in the North America
segment and approximately 23% of dialysis care revenue world-wide.

8.   PROPERTY, PLANT AND EQUIPMENT

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

<TABLE>
<CAPTION>
                                                                   2000          1999
                                                                ----------    ----------
<S>                                                             <C>           <C>
Land and improvements.......................................    $   21,477    $    9,717
Buildings and improvements..................................       386,568       336,782
Machinery and equipment.....................................       691,607       620,024
Machinery, equipment and rental equipment under capitalized
  leases....................................................        17,507        24,001
Construction in progress....................................        90,184        48,832
                                                                ----------    ----------
                                                                 1,207,343     1,039,356
Accumulated depreciation and amortization...................      (468,350)     (397,235)
                                                                ----------    ----------
Property, plant and equipment, net..........................    $  738,993    $  642,121
                                                                ==========    ==========
</TABLE>

     Depreciation and amortization expense for property, plant and equipment
amounted to $130,278, $131,623, and $130,628 for the years ended December 31,
2000, 1999, and 1998, respectively.

     Included in property, plant and equipment as of December 31, 2000, 1999 and
1998 were $36,853, $36,015 and $36,996, 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 sold during the life of the lease.

     Accumulated depreciation related to machinery, equipment and rental
equipment under capital leases was $7,358, $14,330 and $10,785 at December 31,
2000, 1999 and 1998, respectively.

                                       F-15
<PAGE>   116

9.   INTANGIBLE ASSETS

     As of December 31, intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                                                 2000          1999
                                                              ----------    ----------
<S>                                                           <C>           <C>
Goodwill....................................................  $3,252,335    $3,114,063
Patient relationships.......................................     198,147       180,067
Patents.....................................................     252,336       252,923
Distribution rights.........................................       7,619         4,349
Other.......................................................     387,589       354,400
                                                              ----------    ----------
                                                               4,098,026     3,905,802
Accumulated amortization....................................    (622,970)     (467,046)
                                                              ----------    ----------
  Intangible assets, net....................................  $3,475,056    $3,438,756
                                                              ==========    ==========
</TABLE>

     Amortization expense for intangible assets amounted to $160,604, $151,735,
and $147,616 for the years ended December 31, 2000, 1999, and 1998,
respectively.

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

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

<TABLE>
<CAPTION>
                                                                2000        1999
                                                              --------    --------
<S>                                                           <C>         <C>
Accrued operating expenses..................................  $ 49,012    $ 68,599
Accrued legal and compliance costs..........................     3,314      12,991
Accrued insurance...........................................    47,074      54,518
Accrued salaries and wages..................................    87,016      75,163
Accounts receivable credit balances.........................    38,215      48,932
Accrued interest............................................    26,926      25,429
Accrued restructuring.......................................     3,450       2,472
Accrued physician compensation..............................    17,649      17,721
Bonus and incentive plan compensation.......................     2,489       2,746
Withholding tax and VAT.....................................    24,138      17,294
Commissions.................................................    12,231      10,406
Deferred income.............................................     6,764       5,770
Bonuses and rebates.........................................     7,331       9,303
Accrued other costs related to Settlement...................     4,986      20,577
Other.......................................................    61,045      43,140
                                                              --------    --------
Total accrued expenses and other current liabilities........  $391,640    $415,061
                                                              ========    ========
</TABLE>

11. DEBT AND CAPITAL LEASE OBLIGATIONS

     Short-term borrowings from third parties of $106,592, and $96,383 at
December 31, 2000, and 1999, 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, 2000, and 1999 was
6.0% and 4.6%, respectively. For information regarding short-term borrowings
from affiliates, see Note 3b.

     Excluding amounts available under the senior credit agreement (as described
below), at December 31, 2000, FMC had $24,291 available under such commercial
bank agreements. These lines of credit are generally secured by the Company's
accounts receivable and contain various covenants including, but not limited to,
requirements for maintaining defined levels of working capital, net worth,
capital expenditures and various financial ratios.

                                       F-16
<PAGE>   117

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

<TABLE>
<CAPTION>
                                                                2000         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
Senior credit agreement.....................................  $ 732,500    $ 738,150
Capital leases..............................................      6,808        8,067
Other.......................................................     86,755       55,043
                                                              ---------    ---------
                                                                826,063      801,260
Less current maturities.....................................   (168,231)    (147,484)
                                                              ---------    ---------
                                                              $ 657,832    $ 653,776
                                                              =========    =========
</TABLE>

SENIOR CREDIT AGREEMENT

     The Company is party to a bank agreement dated September 27, 1996
(hereafter "senior credit agreement") with the Bank of America, N.A., The Bank
of Nova Scotia, The Chase Manhattan Bank, Dresdner 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 an aggregate of $2,000,000 through two credit facilities:

     -  a revolving credit facility of up to $1,000,000 (of which up to $250,000
        is available for letters of credit, up to $450,000 is available for
        borrowings in certain non-U.S. currencies, up to $50,000 is available as
        swing lines in U.S. dollars and up to $20,000 is available as swing
        lines in certain non-U.S. currencies) for up to seven years expiring on
        September 30, 2003

     -  a term loan facility of $1,000,000 for up to seven years, also expiring
        September 30, 2003. The terms of the senior credit agreement relating to
        the term loan facility require payments that permanently reduce the term
        loan facility. The repayment began in the fourth quarter of 1999 and
        will continue quarterly until the final maturity of the agreement in
        2003.

     Loans under this senior credit agreement bear interest at a base rate
determined in accordance with the agreement, or at LIBOR, plus in either case an
applicable margin. A fee is payable to the Lenders equal to a percentage per
annum (initially 0.375%) of the portion of the senior credit agreement not used.

     In addition to scheduled principal payments, the senior credit agreement
will be 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. Prepayments are permitted at any time without penalty,
except in certain defined periods. The senior credit agreement contains
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 is restricted as to the level of
dividends that can be paid in any calendar year, which was $78,000 in 2000. The
Company's dividend distribution in 2000 was $51,229. Dividends from Fresenius
Medical Care Holdings, Inc., a wholly owned subsidiary, are limited as a result
of a restriction on dividends from its subsidiary, National Medical Care, Inc,
and its subsidiaries. The restriction limits National Medical Care dividends to
50% of its consolidated net income of the preceding year. National Medical Care
had losses in 1999 as a result of a special charge (see Note 2) and losses in
1998 from discontinued operations (see Note 5).

     In December 1999, the Company amended certain covenants including, among
other things, financial ratios contained in its senior credit facility that
would have been affected by the impact of the Settlement (see Note 2). At
December 31, 2000 the Company was in compliance with all such covenants.

     On September 21, 2000 the senior credit agreement was amended in order to
increase the facility for accounts receivable securitization and some other
facilities. The Lenders also agreed that the proceeds of the Preference share
offerings during 2000 (see Note 16) did not trigger repayment obligations on the
term loan, but may be used for capital expenditures and acquisitions.

     At December 31, 2000, the Company had approximately $698,000 of additional
borrowing capacity available under the revolving credit facility of the senior
credit agreement, including approximately $103,000 for additional letters of
credit. No further borrowings are available under the term loan facility.

                                       F-17
<PAGE>   118

     On January 18, 2000, the Company increased the amount of the letter of
credit that National Medical Care delivered to the U.S. Government in 1996 from
$150,000 to $190,000. Under the Settlement agreement, the letter of credit will
be reduced as installment payments are made to the government. At December 31,
2000, the letter of credit was $89,000.

     Aggregate annual payments applicable to the senior credit agreement, term
loan, capital leases and other borrowings for the five years subsequent to
December 31, 2000 (excluding borrowings underlying the Company's trust preferred
securities (see Note 14) are:

<TABLE>
<S>                                                           <C>
2001........................................................  $168,231
2002........................................................   159,474
2003........................................................   439,950
2004........................................................     8,100
2005........................................................     7,632
Thereafter..................................................    42,676
                                                              --------
                                                              $826,063
                                                              ========
</TABLE>

12. INCOME TAXES

     Income (loss) from continuing operations before income taxes, minority
interest, and cumulative effect of accounting change is attributable to the
following geographic locations:

<TABLE>
<CAPTION>
                                                               2000        1999         1998
                                                             --------    ---------    --------
<S>                                                          <C>         <C>          <C>
Germany....................................................  $106,475    $  93,653    $ 70,877
United States..............................................   220,176     (408,060)    118,574
Other......................................................    78,058       55,497      79,986
                                                             --------    ---------    --------
                                                             $404,708    $(258,910)   $269,437
                                                             ========    =========    ========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Current:
  German corporation and trade income taxes.................  $ 66,754    $ 43,876    $ 23,990
  United States income taxes................................    23,132      12,088      54,600
  Other income taxes........................................    29,971      28,797      22,246
                                                              --------    --------    --------
                                                               119,857      84,761     100,836
                                                              --------    --------    --------
Deferred:
  Germany...................................................   (14,902)        791      15,281
  United States.............................................    81,553     (92,907)     16,800
  Other income taxes........................................     3,264      (5,389)      2,449
                                                              --------    --------    --------
                                                                69,915     (97,505)     34,530
                                                              --------    --------    --------
                                                              $189,772    $(12,744)   $135,366
                                                              ========    ========    ========
</TABLE>

     In 2000, the German government enacted new tax legislation which, among
other changes, will reduce the Company's statutory corporate tax rate for German
companies from 40% on retained earnings and 30% on distributed earnings to a
uniform 25%, effective for the Company's year beginning January 1, 2001. In
1999, various changes to the German corporation tax law were made effective,
including the reduction of the tax rate applied to undistributed earnings from
45% to 40%. The effects of the reductions in the tax rate and other tax law
changes on the deferred tax assets and liabilities of the Company's German
companies were recognized in the year of enactment and resulted in deferred tax
benefit for 2000 and 1999 of $2,227 and $850, respectively.

     Prior to the 2000 tax law changes becoming effective, German corporation
tax law applied a splitrateimputation system to the income taxation of a
corporation and its shareholders. Upon distribution of
                                       F-18
<PAGE>   119

retained earnings in the form of a dividend, shareholders subject to German tax
received a credit for corporation taxes paid by the corporation on such
distributed earnings. In addition, the corporation received a tax refund to the
extent such earnings had been initially subjected to a corporation income tax in
excess of 30%. The tax refund was also distributable to the shareholder.

     In general, prior to 2001 retained (undistributed) German corporate income
was initially subject to a federal corporation income tax currently at a rate of
40% for 2000 (40% for 1999 and 45% for 1998) plus a surcharge of 5.5% for each
year on federal corporate taxes payable. Giving effect to the surcharge, the
federal corporate tax rate was 42.2% for 2000 (42.2% in 1999 and 47.475% in
1998). Upon distribution of certain retained earnings generated in Germany to
stockholders, the corporate income tax rate on the earnings was adjusted to 30%,
plus a solidarity surcharge of 5.5%, for a total of 31.65% for each year, by
means of a refund for taxes previously paid. Under the new German corporate tax
system, during a 15 year transition period beginning on January 1, 2001, the
Company will continue to receive a refund or pay additional taxes on the
distribution of retained earnings which existed as of December 31, 2000.

     The income tax expense reflects the actual amount of distribution of that
year's earnings of the German operations. As such, the refund of tax described
above is reflected in the income tax expense reconciliation presented below.

     For the years ended December 31, 2000, 1999, and 1998 income tax expense
differed from the amounts computed by applying the German federal corporation
income tax rate of 42.2% for both 2000 and 1999 and 47.475% for 1998 to income
before income taxes, minority interest and cumulative effect of accounting
change as a result of the following:

<TABLE>
<CAPTION>
                                                               2000        1999         1998
                                                             --------    ---------    --------
<S>                                                          <C>         <C>          <C>
Computed "expected" income tax (benefit) expense at the
  undistributed earnings rate..............................  $170,786    $(109,260)   $127,929
Dividend distributions credit..............................    (9,077)          --          --
Trade income taxes, net of German federal corporation
  income tax benefit.......................................    12,688        8,758       8,351
Amortization of non-tax deductible goodwill................    28,380       28,057      30,999
Foreign tax rate differential..............................   (20,811)      (2,687)    (27,799)
Non-deductible portion of special charge for Settlement....        --       71,622          --
Other......................................................     7,805       (9,234)     (4,114)
                                                             --------    ---------    --------
Provision for income taxes.................................  $189,772    $ (12,744)   $135,366
                                                             ========    =========    ========
Effective tax rate.........................................      46.9%        -4.9%       50.2%
                                                             ========    =========    ========
</TABLE>

                                       F-19
<PAGE>   120

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

<TABLE>
<CAPTION>
                                                                2000         1999
                                                              ---------    ---------
<S>                                                           <C>          <C>
Deferred tax assets:
Accounts receivable, primarily due to allowance for doubtful
  accounts..................................................  $  28,083    $  27,844
Inventory, primarily due to additional costs capitalized for
  tax purposes, and inventory reserve accounts..............     23,479       21,427
Accrued expenses and other liabilities for financial
  accounting purposes, not currently tax deductible.........    119,439      141,123
Capital leases, principally due to capitalization of costs
  for tax purposes..........................................        955        1,839
Settlement..................................................      5,302       92,469
Net operating loss carryforwards............................     30,546       21,807
Other.......................................................      5,821        1,895
                                                              ---------    ---------
Total deferred tax assets...................................  $ 213,625    $ 308,404
Less: valuation allowance...................................     (9,292)      (6,360)
                                                              ---------    ---------
Net deferred tax assets.....................................  $ 204,333    $ 302,044
                                                              ---------    ---------
Deferred tax liabilities:
Accounts receivable, primarily due to allowance for doubtful
  accounts..................................................  $   3,526    $   4,553
Inventory, primarily due to inventory reserve accounts for
  tax purposes..............................................      5,329        6,262
Accrued expenses and other liabilities deductible for tax
  prior to financial accounting recognition.................     31,037       40,365
Plant and equipment, principally due to differences in
  depreciation..............................................    154,605      169,813
Other.......................................................      2,991        2,480
                                                              ---------    ---------
Total deferred tax liabilities..............................    197,488      223,473
                                                              ---------    ---------
Net deferred tax asset......................................  $   6,845    $  78,571
                                                              =========    =========
</TABLE>

     During 2000 and 1999, the valuation allowance increased by $2,932 and
$1,020, respectively, primarily attributable to losses, principally arising in
Japan, and partially offset by utilization of operating losses.

     At December 31, 2000 the Company had approximately $83,607 of net operating
losses, of which $3,568 will expire in 2001, $4,395 in 2002, $5,002 in 2003,
$4,387 in 2004, $13,746 in 2005, $14,336 in 2018, $3,812 in 2019 and $3,352 in
2020. Substantially all of the remaining $31,009 of net operating losses are not
subject to an expiration period.

     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 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, 2000.

     Provision has not been made for additional taxes on approximately $102,000
undistributed earnings of foreign subsidiaries. The majority of these earnings
have been, and will continue to be, reinvested. The earnings could become
subject to additional tax if remitted or deemed remitted as dividends. The
Company estimates that the distribution of these earnings would result in $6,396
of additional withholding and corporation income taxes.

                                       F-20
<PAGE>   121

INTRAPERIOD TAX ALLOCATION

     Income tax expense was allocated among the following items as follows:

<TABLE>
<CAPTION>
                                                                2000        1999        1998
                                                              --------    --------    --------
<S>                                                           <C>         <C>         <C>
Continuing operations.......................................  $189,772    $(12,744)   $135,366
Operations of discontinued operations.......................        --          --      (5,543)
Disposal of discontinued businesses.........................        --          --     (42,772)
                                                              --------    --------    --------
Total income tax expense....................................  $189,772    $(12,744)   $ 87,051
                                                              ========    ========    ========
</TABLE>

13. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

     Plan benefits are generally based on employee years of service and final
salary. Consistent with normal business custom in the Federal Republic of
Germany, FMC's pension obligations in Germany are unfunded. In the United
States, substantially all U.S. employees are covered by National Medical Care's
non-contributory, defined benefit pension plan. Each year, National Medical Care
contributes to this plan at least the minimum amount required by law. Plan
assets consist principally of publicly traded common stock, fixed income
securities and cash equivalents. In addition, National Medical Care also
sponsors a supplemental executive retirement plan to provide certain key
executives with benefits in excess of normal pension benefits.

     The following 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.

<TABLE>
<CAPTION>
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Change in benefit obligation:
Benefit obligation at beginning of year....................  $111,753    $111,832    $ 88,713
Translation loss (gain)....................................    (1,748)     (3,611)      1,432
Service cost...............................................    11,465      10,040       8,905
Interest cost..............................................     8,148       7,300       6,418
Amendments.................................................        --          (5)         --
Transfer of plan participants..............................        (6)      3,706          28
Actuarial loss (gain)......................................     5,940     (15,826)      9,400
Divestitures...............................................        --          --      (1,717)
Benefits paid..............................................    (3,103)     (1,683)     (1,347)
                                                             --------    --------    --------
Benefit obligation at end of year..........................  $132,451    $111,753    $111,832
                                                             ========    ========    ========
Change on plan assets:
Fair value of plan assets at beginning of year.............  $ 86,794    $ 77,019    $ 65,088
Actual return on plan assets...............................    (2,098)     11,179      13,218
Benefits paid..............................................    (2,748)     (1,404)     (1,287)
                                                             --------    --------    --------
Fair value of plan assets at end of year...................  $ 81,948    $ 86,794    $ 77,019
                                                             ========    ========    ========
Funded Status:.............................................  $(50,503)   $(24,961)   $(34,813)
Unrecognized net gain......................................   (12,593)    (31,441)    (11,821)
Unrecognized prior service cost............................        (4)         (4)         --
Unrecognized transition obligation.........................       226         326         475
                                                             --------    --------    --------
Accrued benefit costs......................................  $(62,875)   $(56,079)   $(46,159)
                                                             ========    ========    ========
</TABLE>

                                       F-21
<PAGE>   122

<TABLE>
<CAPTION>
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Weighted -- average assumptions as of December 31,
Discount rate..............................................     7.30%       7.28%       6.59%
Expected return of plan assets.............................     9.70%       9.70%       9.70%
Rate of compensation increase..............................     4.90%       4.60%       4.60%
Components of net period benefit cost:
Service cost...............................................  $ 11,465    $ 10,040    $  8,905
Interest cost..............................................     8,148       7,300       6,418
Expected return on plan assets.............................    (8,345)     (7,401)     (6,430)
Amortization of transition obligation......................        75          87          56
Amortization unrealized losses.............................        --          61          --
Amortization of prior service cost.........................        (1)         (1)         --
Recognized net (gain)/loss.................................    (2,429)       (520)       (857)
Curtailment net gain.......................................        --          --      (1,717)
                                                             --------    --------    --------
Net periodic benefit costs.................................  $  8,913    $  9,566    $  6,375
                                                             ========    ========    ========
</TABLE>

     In addition to the principal pension plans, certain of the Company's other
subsidiaries offer separate retirement plans. The total accrued pension cost for
these plans was $7,095, $5,499, and $3,600 at December 31, 2000, 1999 and 1998,
respectively. The Company does not provide any postretirement benefits to its
employees other than those provided under its pension plans and supplemental
executive retirement plan.

DEFINED CONTRIBUTION PLANS

     National Medical Care and FUSA sponsor defined contribution plans. Total
contributions for the years ended December 31, 2000, 1999 and 1998 were $8,786,
$7,298 and $7,195, respectively.

14. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

     In November 1996, the Company, through Fresenius Medical Care Capital Trust
(the "1996 Trust"), a statutory business trust organized under the laws of the
State of Delaware, issued $360,000 of 9% Trust Preferred Securities (the "Trust
Securities"). FMC owns all of the common securities of the 1996 Trust. The sole
asset of the Trust is $360,500 aggregate principal amount of 9% Senior
Subordinated Debentures due 2006 of FMC Trust Finance S.a.r.l. Luxembourg, a
wholly owned subsidiary of the Company ("Luxco"), and related guarantees by the
Company, Fresenius Medical Care Deutschland GmbH ("D-GmbH") and Fresenius
Medical Care Holdings, Inc. ("FMCH"); D-GmbH and FMCH being the "Subsidiary
Guarantors". (See Note 23 "Supplemental Condensed Combining Information.") The
Trust Securities are guaranteed by FMC through a series of undertakings by the
Company and the Subsidiary Guarantors.

     The Trust Securities entitle the holders to distributions payable at an
annual rate of 9% of the stated amount and are mandatorily redeemable on
December 1, 2006. The holders of the Trust Securities are entitled upon
liquidation of the 1996 Trust to a distribution equal to the stated amount of
the Trust Securities. Except in limited circumstances, the holders of the Trust
Securities have no voting rights.

     Luxco has the right to redeem the 9% Senior Subordinated Debenture, in
whole or in part, at any time or from time to time after December 1, 2001, at
specified redemption prices plus accrued and unpaid interest. In connection with
any such redemption, the 1996 Trust must redeem a like amount of Trust
Securities.

     In February 1998, the Company, through Fresenius Medical Care Capital Trust
II ("Trust II") and Fresenius Medical Care Capital Trust III ("Trust III", and
collectively with Trust II, "the 1998 Trusts"), statutory business trusts
created under the laws of the State of Delaware, issued $450,000 of 7 7/8 USD
Trust Preferred Securities (the "Trust II Securities") and DM 300,000 of 7 7/8
DM Trust Preferred Securities (the "Trust III Securities" and, together with the
Trust II Securities, the "Trust Preferred Securities"). FMC owns all of the
common securities of the 1998 Trusts. The sole asset of Trust II is $450,450
aggregate principal amount of Luxco 7 3/8 USD Senior Subordinated Debentures due
2008 and related guarantees by the Subsidiary Guarantors. The sole asset of

                                       F-22
<PAGE>   123

Trust III is DM 300,300 aggregate principal amount of Luxco 7 3/8 DM Senior
Subordinated Debentures due 2008 and related guarantees by the Subsidiary
Guarantors. (See Note 23 "Supplemental Condensed Combining Information.") The
Trust Preferred Securities are guaranteed by FMC through a series of
undertakings by the Company and the Subsidiary Guarantors.

     The Trust II and Trust III Securities entitle the holders to distributions
payable at the annual rate of 7 7/8 and 7 3/8, respectively, of the stated
amount, and are mandatorily redeemable on February 1, 2008. The holders of the
Trust Preferred Securities are entitled, upon liquidation of the 1998 Trusts, to
a distribution equal to the stated amount of the Trust Preferred Securities. The
Senior Subordinated Debentures issued by Luxco to the 1998 Trusts are not
redeemable prior to February 1, 2008, except under specified circumstances.
Except in limited circumstances, the holders of the Trust Preferred Securities
have no voting rights.

15. MINORITY INTERESTS

     At December 31, minority interests were as follows:

<TABLE>
<CAPTION>
                                                               2000       1999
                                                              -------    -------
<S>                                                           <C>        <C>
FMCH Preferred Stock:
Preferred Stock, $100 par value
  6% Cumulative; 40,000 shares authorized; 36,460
     outstanding............................................  $ 3,646    $ 3,646
  8% Cumulative Class A; 50,000 shares authorized; 16,176
     outstanding............................................    1,618      1,618
  8% Noncumulative Class B; 40,000 shares authorized; 21,483
     outstanding............................................    2,148      2,148
Preferred Stock, $0.10 par value
  Noncumulative Class D; 100,000,000 shares authorized;
     89,062,316 outstanding.................................    8,906      8,906
                                                              -------    -------
Sub-total FMCH minority interest............................   16,318     16,318
Other minority interest.....................................    4,953      5,456
                                                              -------    -------
Total minority interest.....................................  $21,271    $21,774
                                                              =======    =======
</TABLE>

     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 Fresenius Medical Care
Holdings for each share of stock previously held. The Class D Preferred stock
entitles 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 exceeds $3.7 billion. If cumulative adjusted cash flow meets that
threshold, 44.8% of any amount exceeding $3.7 billion will be distributed as a
special dividend on the Fresenius Medical Care Holdings Class D Preferred
Shares. Fresenius Medical Care Holdings must make a public announcement of the
amount, if any, of the special dividend by May 1, 2002. Payment of a special
dividend on the Class D Preferred Shares would commence in October 2002. For the
period from January 1, 1997 through the end of 2000, cumulative adjusted cash
flow for the purpose of the Class D Preferred Shares special dividend
calculation was approximately $1.2 billion. Based upon the Company's cumulative
adjusted cash flow at December 31, 2000 and its historical trend, the Company
believes that it is unlikely that any special dividend will be paid. The Company
has no obligation to contribute any amount to Fresenius Medical Care Holdings to
enable it to pay any special dividend.

16. SHAREHOLDERS' EQUITY

     By resolution of the general meeting on June 10, 1998, our share capital
was conditionally increased by up to DM 12,500, divided into 2,500,000 new
non-voting Preference shares. This conditional capital increase may be effected
only upon exercise of subscription rights granted under the FMC 98 Plan 2.

     The Company requested and received approval from its shareholders at the
annual shareholder meeting on June 2, 1999, to change the currency of the
Company's share capital from Deutsche Mark (DM) to euro to prepare for the
transition by the European Community to euro which began January 1, 1999 and is
scheduled for completion by mid 2002. The exchange rate for DM to euro was set
at DM 1.95583 to E 1. As a result, the per share nominal value of the Company's
Preference shares and Ordinary shares changed from DM 5 per share to

                                       F-23
<PAGE>   124

E 2.55646 per share. For convenience, shareholders approved an increase to the
nominal value to E 2.56 resulting in a Capital Stock increase of E 280 ($290).
The increase in value of capital stock was offset by a decrease in additional
paid-in-capital. No new shares were issued for this revaluation. The effect of
the conversion has been recognized retroactively in the shareholders' equity
accounts on the balance sheets as of December 31, 1997 and in the consolidated
financial statements. Shareholders' equity accounts have been restated to
reflect the reclassification of an amount equal to the nominal value of the
increase in Ordinary shares from additional paid in capital.

     In addition, the Company's shareholders approved a change in the dividend
premium for the Preference shares from a percentage of the nominal value per
share to an absolute amount. If dividends are declared, the Preference
shareholder will receive E 0.06 per share more than the dividend for an Ordinary
share, but no less than E 0.12 per share. In another matter approved by the
shareholders, the Company's shares have been changed to no par value.

     On March 2, 2000, the Company issued 8,974,359 non-voting Preference shares
to a limited number of institutional and other accredited investors in exchange
for the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. For financial reporting
purposes, the transaction, which generated net proceeds of approximately
$344,000, has been accounted for as a financing at fair value. The investors
have agreed not to effect sales or transfers of the Preference shares for a
period of 24 months after issuance except as permitted by the contribution
agreement. After this period, the investors will have rights to require, under
specific conditions, that the Company register these Preference shares for sale
under the Securities Act of 1933, as amended, and that the Company provide
assistance to them in connection with public offerings of their Preference
shares outside the United States.

     After giving effect to the issuance of 8,974,359 non-voting Preference
shares in the Franconia transaction the remaining Approved Capital II amounted
to E 29,533.

     By resolution of the annual general meeting on May 30, 2000, the
authorization of the remaining Approved Capital I and Approved Capital II
described above was revoked, however, the management board, with the approval of
the supervisory board, was authorized to increase share capital by a maximum
amount of:

     -  E 30,720,000, corresponding to 12,000,000 Preference shares, by issuing
        new non-voting Preference shares for cash, new Approved Capital I.

     -  E 20,480,000, 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.

     The authorizations of Approved Capital I and Approved Capital II are
effective until May 29, 2005. Statutory preemptive rights will generally be
available in connection with the issuance of Preference shares utilizing
Approved Capital I, except for fractional amounts required to provide for a
round issue amount and a subscription ratio without fractional amounts. The
Company 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 the shares on the stock exchange.

     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.

     On July 26, 2000, the Company completed a public offering of 5,000,000
Preference shares for net proceeds of approximately $185 million. In addition,
on July 28, 2000, the underwriters of the public offering exercised options to
purchase an additional 750,000 Preference shares, resulting in total net
proceeds from the public offering of approximately $213 million.

     At December 31, 2000, after giving effect to the issuance of 5,750,000
Preference shares in the offering described above the remaining Approved Capital
II amounted to E 5,760. After giving effect to the issuance of
                                       F-24
<PAGE>   125

2,250,000 Preference shares in the Everest acquisition (see Note 22), no
additional Preference shares are available for issuance under Approved Capital
II.

     Cash dividends of $51,229 for 1999 in the amount of E 0.75 on each
Preference share, excluding the Preference shares issued on March 2, 2000, and
E 0.69 on each Ordinary share, were paid on May 31, 2000.

     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 senior credit agreement
(see Note 11).

     In accordance with a contribution agreement between the Company and
Fresenius AG, which was entered into in connection with the Agreement and Plan
of Reorganization (See Note 1), the Company distributed $4,062 during the year
ending December 31, 1998, to Fresenius AG. These funds represented earnings of
the former Fresenius Worldwide Division (FWD), prior to the contribution of FWD
by Fresenius AG to the Company, as part of the formation of the FMC. These
earnings were not distributed at the time of the formation of FMC due to the
application of local generally accepted accounting principles in determining the
amount of pre-formation earnings and the legal requirement of a shareholder
declaration to remit those earnings. In anticipation of a determination of the
amount and a positive shareholder declaration, an estimate of the amount that
would be due was made. The estimated amount was loaned by the Company to
Fresenius AG with any distribution of earnings to be utilized to reduce the
receivable from Fresenius AG. During 1998, the $4,062 distribution of earnings
was subsequently applied against the receivable by the Company.

     In connection with certain acquisitions made during 1997, a subsidiary of
the Company issued convertible investment securities (Wandel-GenuSSrechte) with
a nominal value of $67,584. The convertible investment securities, which were
non-voting, carried a cumulative dividend rate between 6.12% and 6.25% payable
only out of legally available earnings of FMC AG and were redeemable ten years
from the date of issuance. The Company and the convertible investment security
holders also entered into agreements which permitted the Company to exchange,
and under certain circumstances permitted the convertible investment security
holders to request that the Company exchange, the convertible investment
securities solely at the Company's option, for cash or for Preference shares or
other specified securities of equal value. As the Company had the unilateral
ability to exchange the convertible investment securities for Preference shares
and the Preference shares represent permanent equity, the Company had classified
the convertible investment securities within shareholders' equity. During the
year ended December 31, 1998, a decision was made to redeem a portion of these
securities for cash rather than exchange such securities for Preference shares.
A total of approximately $61,725 nominal amount of these securities was redeemed
during the year ended December 31, 1998. Approximately $5,859 nominal amount of
these securities remained outstanding at year-end 1998. At December 31, 1998, it
was the intent of the Company to redeem the remaining securities for cash during
1999 and therefore the Company reclassified such amounts as liabilities. These
securities were subsequently redeemed for cash during the fourth quarter of
1999.

                                       F-25
<PAGE>   126

     The following table is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations. Stock options granted
under the FMC 1998 Plan 2 are subject to performance criteria. At December 31,
1999, the performance criteria for the 1998 and 1999 stock options granted had
not been met. Therefore, the stock options granted have been excluded from the
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 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.

<TABLE>
<CAPTION>
                                                         2000           1999           1998
                                                      -----------    -----------    -----------
<S>                                                   <C>            <C>            <C>
Numerators:
Income (loss) from continuing operations before
  cumulative effect of accounting change............  $   212,075    $  (248,544)   $   131,617
less:
  Distributions on convertible investment
     securities.....................................           --             --         (2,752)
  Dividend arrearages on Preference shares for 1996,
     declared and paid in 1998......................           --             --           (974)
  Preference on Preference shares...................       (1,056)            --           (513)
                                                      -----------    -----------    -----------
Income (loss) available to Preference shares only...       (1,056)            --         (1,487)
Income (loss) from continuing operations before
  cumulative effect of accounting change available
  to all class of shares............................  $   211,019    $  (248,544)   $   127,378
                                                      ===========    ===========    ===========
Loss from discontinued operations, net..............           --             --       (105,897)
Cumulative effect of accounting change..............           --             --         (6,589)
Denominators:
Weighted average number of:
  Ordinary shares outstanding.......................   70,000,000     70,000,000     70,000,000
  Preference shares outstanding.....................   19,002,118      9,023,341      9,023,341
                                                      -----------    -----------    -----------
  Total weighted average shares outstanding.........   89,002,118     79,023,341     79,023,341
  Potentially dilutive Preference shares............      302,824             --          2,522
                                                      -----------    -----------    -----------
  Total weighted average shares outstanding assuming
     dilution.......................................   89,304,942     79,023,341     79,025,863
  Total weighted average Preference shares
     outstanding assuming dilution..................   19,304,942      9,023,341      9,025,863
Basic income (loss) from continuing operations
  before cumulative effect of accounting change per
  Ordinary share....................................  $      2.37    $     (3.15)   $      1.62
Plus Preference and declared dividend arrearages per
  Preference share..................................         0.06           0.00           0.16
                                                      -----------    -----------    -----------
Basic income (loss) from continuing operations
  before cumulative effect of accounting change per
  Preference share..................................  $      2.43    $     (3.15)   $      1.78
                                                      ===========    ===========    ===========
Fully diluted income (loss) from continuing
  operations before cumulative effect of accounting
  change per Ordinary share.........................         2.36          (3.15)          1.62
Plus Preference and declared dividend arrearages per
  Preference share assuming dilution................         0.06           0.00           0.16
                                                      -----------    -----------    -----------
Fully diluted income (loss) from continuing
  operations before cumulative effect of accounting
  change per Preference share.......................  $      2.42    $     (3.15)   $      1.78
                                                      ===========    ===========    ===========
Basic and fully diluted loss from discontinued
  operations per Ordinary and Preference share......         0.00           0.00          (1.34)
Basic and fully diluted accumulative effect of
  accounting change per Ordinary and Preference
  share.............................................         0.00           0.00          (0.08)
</TABLE>

                                       F-26
<PAGE>   127

17. STOCK OPTIONS

     In connection with the formation of Fresenius Medical Care 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").

     The resulting total number of shares issuable upon exercise of options
under the FMC Rollover Plan at the formation of FMC, September 30, 1996, was
approximately 333,000. No additional Ordinary shares are available for granting
of options under the FMC Rollover Plan. The Ordinary shares issuable upon
exercise of FMC Rollover options were issued to Fresenius AG which is holding
the shares pending exercise of the options. Fresenius AG has agreed, with
respect to the Ordinary shares underlying options related to W.R. Grace common
stock, to not exercise voting power over such Ordinary shares and to return any
dividends paid. Upon exercise of any of the FMC Rollover options, the exercise
price will be paid to the Company and Fresenius AG will deliver the Ordinary
shares to the option holder. Upon cancellation or expiration without exercise of
options formerly relating to W.R. Grace common stock, the underlying Ordinary
shares held by Fresenius AG will be transferred to FMC at no cost to it. Upon
cancellation or expiration without exercise of options formerly relating to FUSA
common stock, the underlying Ordinary shares will revert to Fresenius AG.

     During the year ended December 31, 2000, 34,337 FMC Rollover Plan options
were exercised by employees. In connection therewith, Fresenius AG transferred
11,446 Ordinary shares to employees and remitted $247 to the Company. During the
same period, 7,643 options were canceled. At December 31, 2000, the $247 has
been accounted for as a capital contribution within additional paid in capital.
Rollover plan options for 182,006 Ordinary ADSs were exercisable as of December
31, 2000 at an weighted average exercise price of $7.88.

FMC Plan

     Immediately prior to the formation of Fresenius Medical Care, FMC adopted a
stock incentive plan (the "FMC Plan") for FMC's key management and executive
employees. Under the FMC Plan, eligible employees will have the right to acquire
Preference shares of the Company. Awards under the FMC Plan are evidenced by a
non-transferable convertible bond and corresponding non-recourse loan to the
employee, secured solely by the bond with which it 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 the Company's consolidated financial
statements. The bonds mature in ten years and are generally fully convertible
after three or five years. Each convertible bond, which is DM denominated,
entitles the holder thereof, upon payment of a conversion price equal to the
fair market value of the Preference shares on the award date, to convert the
bond into a number of ADSs representing Preference shares equal to the face
amount of the bond divided by the Preference shares' nominal value (DM5 per
Preference share).

     The following table shows the number of Preference shares available and the
average price range (in $) for the FMC Plan.

<TABLE>
<CAPTION>
                                                                                    AVERAGE
                                                                   SHARES         PRICE RANGE
                                                              ----------------    ------------
                                                               (IN THOUSANDS)
<S>                                                           <C>                 <C>
FMC Plan
Balance at December 31, 1997................................        827           $55.59-78.33
  Forfeited.................................................        723            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 1998................................        104            55.59-78.33
  Forfeited.................................................         10            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 1999................................         94            55.59-78.33
                                                                    ---           ------------
  Forfeited.................................................         26            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 2000................................         68           $55.59-78.33
                                                                    ===           ============
Exercisable at December 31, 2000............................         68           $55.59-78.33
                                                                    ===           ============
</TABLE>

                                       F-27
<PAGE>   128

FMC 98 Plan 1 and Plan 2

     During 1998, the Company adopted two new 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. Grants for these rights (the "Grants") under FMC 98 Plan
1 will be evidenced by a non-transferable convertible bond and corresponding
non-recourse loan to the employee, secured solely by the bond with which it 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 three years. Each convertible bond, which
is DM denominated, entitles the holder thereof, upon payment of a conversion
price equal to the fair market value of the Preference shares one day after the
grant date, to convert the bond into a number of Preference shares equal to the
face amount of the bond divided by the Preference shares' nominal value (DM5 per
Preference share). FMC 98 Plan 1 was subsequently amended 1999 and 2000 to
increase the number of Preference shares available for issuance pursuant to
grants under FMC 98 Plan 1 by 450,000 and 660,000 shares, respectively. 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 award. One
third of an option vests on each of the second, third and fourth anniversary 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 Settlement (see Note 2) was excluded from the
Company's performance criteria relative to the EBIT growth requirements in the
plan. The term of FMC 98 Plan 2 is five years and not more than 20% of the total
options available under the plan may be issued in any year. 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.

                                       F-28
<PAGE>   129

     The following table shows the number of Preference shares available and the
average price range (in $ and E) for FMC 98 Plan1 and FMC 98 Plan2.

<TABLE>
<CAPTION>
                                                                          AVERAGE         AVERAGE
                                                         SHARES         PRICE RANGE     PRICE RANGE
                                                    ----------------    ------------    ------------
                                                     (IN THOUSANDS)
<S>                                                 <C>                 <C>             <C>
FMC 98 Plan 1
Balance at December 31, 1997....................            --
  Granted.......................................         1,024          E42.44-56.24    $39.49-52.33
                                                         -----          ------------    ------------
Balance at December 31, 1998....................         1,024           42.44-56.24     39.49-52.33
                                                         -----          ------------    ------------
  Granted.......................................           572                 32.90           30.61
  Forfeited.....................................           140           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
Balance at December 31, 1999....................         1,456           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
  Granted.......................................           653           40.70-49.00     37.87-45.59
  Exercised.....................................            10           32.90-42.44     30.61-39.49
  Forfeited.....................................           303           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
Balance at December 31, 2000....................         1,796          E32.90-56.24    $30.61-52.33
                                                         =====          ============    ============
Exercisable at December 31, 2000................           660          E32.90-56.24    $30.61-52.33
                                                         =====          ============    ============
FMC 98 Plan 2
Balance at December 31, 1997....................            --
  Granted.......................................           258          E      44.66    $      41.56
                                                         -----          ------------    ------------
Balance at December 31, 1998....................           258                 44.66           41.56
                                                         -----          ------------    ------------
  Granted.......................................           297                 32.41           30.16
  Forfeited.....................................             5           32.41-44.66     30.16-41.56
Balance at December 31, 1999....................           550           32.41-44.66     30.16-41.56
                                                         -----          ------------    ------------
  Granted.......................................           321                 47.64           44.33
  Exercised.....................................             7                 44.66           41.56
  Forfeited.....................................            40           32.41-47.64     30.16-44.33
                                                         -----          ------------    ------------
Balance at December 31, 2000....................           824          E32.41-47.64    $30.16-44.33
                                                         =====          ============    ============
Exercisable at December 31, 2000................            78          E      44.66    $      41.56
                                                         =====          ============    ============
</TABLE>

     Proceeds totaling $638 from exercise of 17,393 shares under FMC 98 Plan 1
and FMC 98 Plan 2 in 2000 were recorded as a capital contribution.

FAIR VALUE STOCK OPTIONS

     The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $16.76, $13.06 and $14.20, respectively, on the date of
the grant using the Black-Scholes option-pricing model with the weighted-average
assumptions presented below.

<TABLE>
<CAPTION>
                                                               2000         1999         1998
                                                             ---------    ---------    ---------
<S>                                                          <C>          <C>          <C>
Weighted-average assumptions:
  Expected dividend yield..................................      1.50%        1.00%        1.75%
  Risk-free interest rate..................................      5.50%        5.56%        4.26%
  Expected volatility......................................     40.00%       35.00%       35.00%
  Expected life of option..................................  5.3 years    5.3 years    5.3 years
</TABLE>

                                       F-29
<PAGE>   130

     The Company applies APB Opinion No. 25 in accounting for stock compensation
and, accordingly, recognized compensation expense of approximately $3,980 for
stock options granted in 2000,1999 and 1998. No compensation cost has been
recognized in 1998 and 1997 for stock options in the consolidated financial
statements. Prior to 1998, no stock options had been granted which would have
resulted in significant compensation costs under SFAS No. 123. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
                                                                2000        1999        1998
                                                              --------    ---------    -------
<S>                                                           <C>         <C>          <C>
Net income (loss)
  As reported...............................................  $212,075    $(248,544)   $19,131
  Effect of FMC Plan benefit (expense)......................      (295)        (247)     1,726
  Effect of FMC 98 Plans (expense)..........................    (3,581)      (2,253)    (2,967)
  Effect of 1999 option grants..............................        25         (615)
  Effect of 2000 option grants..............................    (4,242)
                                                              --------    ---------    -------
  Pro forma.................................................  $203,982    $(251,659)   $17,890
Basic net income (loss) per:
  Ordinary share
     As reported............................................  $   2.37    $   (3.15)   $  0.20
     Pro forma..............................................  $   2.28    $   (3.19)   $  0.18
  Preference share
     As reported............................................  $   2.43    $   (3.15)   $  0.36
     Pro forma..............................................  $   2.34    $   (3.19)   $  0.34
Fully diluted net income (loss) per:
  Ordinary share
     As reported............................................  $   2.36    $   (3.15)   $  0.20
     Pro forma..............................................  $   2.27    $   (3.19)   $  0.18
  Preference share
     As reported............................................  $   2.42    $   (3.15)   $  0.36
     Pro forma..............................................  $   2.33    $   (3.19)   $  0.34
</TABLE>

     The Company revised its estimates of compensation costs for the FMC Plan
due to the large amount of forfeitures and cancellations that occurred in 1998.
This resulted in a significant reduction in the pro forma compensation cost for
1998 relating to the FMC Plan. The pro forma compensation cost relating to
options still outstanding at December 31, 1998 was $348. This amount has been
included in determining the total compensation benefit for the FMC Plan for
1998.

18. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

     The Company leases buildings and machinery and equipment under various
lease agreements expiring on dates through 2010. Rental expense recorded for
operating leases for the years ended December 31, 2000, 1999, and 1998 was
$192,910, $160,624, and $122,459, respectively.

     In September 2000, FMCH entered into an amended operating lease agreement
with a bank that covers approximately $65,165 of equipment in its dialyzer
manufacturing facility in Ogden, Utah. The agreement has a basic term expiration
date of January 1, 2010, renewal options and a purchase option at the greater of
20% of the original cost or the fair market value.

                                       F-30
<PAGE>   131

     Future minimum rental payments under noncancelable operating leases for the
five years succeeding December 31, 2000 are:

<TABLE>
<S>                                                           <C>
2001........................................................  $129,883
2002........................................................   109,491
2003........................................................    96,331
2004........................................................   122,673
2005........................................................    57,534
Thereafter..................................................   110,935
                                                              --------
                                                              $626,847
                                                              ========
</TABLE>

LEGAL PROCEEDINGS

Commercial Insurer Litigation

     In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. The lawsuit alleges inappropriate billing
practices for nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
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 both lawsuits. Other private payors have contacted FMCH and
may assert that NMC received excess payment and, similarly, may join either
lawsuit or file their own lawsuit seeking reimbursement and other damages.

     FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.

     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 result of operations.

OBRA 93

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

     In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on
National Medical Care's dialysis business. The Health Care Financing
Administration further proposed that its new instruction be effective
retroactive to August 1993, the effective date off the Omnibus Budget
Reconciliation Act of 1993.

     National Medical Care ceased to recognize the incremental revenue realized
under the original instruction as of July 1, 1995, but it continued to bill
employer health plans as primary payors for patients affected by the Omnibus
Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1,
1996, National Medical Care commenced billing Medicare as the primary payor for
dual eligible ESRD patients affected by the

                                       F-31
<PAGE>   132

act, and then began to re-bill in compliance with the revised policy for
services rendered between April 24 and December 31, 1995.

     On May 5, 1995, National Medical Care filed a complaint in the U.S.
District Court for the District of Columbia (National Medical Care, Inc. and
Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center
v. Shalala, C.A. No. 95-0860 (WBB)) seeking to preclude the Health Care
Financing Administration from retroactively enforcing its April 24, 1995
implementation of the Omnibus Budget Reconciliation Act of 1993 provision
relating to the coordination of benefits for dual eligible ESRD patients. On May
9, 1995, National Medical Care moved for a preliminary injunction to preclude
the Health Care Financing Administration from enforcing its new policy
retroactively, that is, to billing for services provided between August 10, 1993
and April 23, 1995. On June 6, 1995, the court granted National Medical Care's
request for a preliminary injunction and in December of 1996, National Medical
Care moved for partial summary judgment seeking a declaration from the Court
that the Health Care Financing Administration's retroactive application of the
April 1995 rule was legally invalid. The Health Care Financing Administration
cross-moved for summary judgement on the grounds that the April 1995 rule was
validly applied prospectively. In January 1998, the court granted National
Medical Care's motion for partial summary judgment and entered a declaratory
judgment in favor of National Medical Care, holding the Health Care Financing
Administration's retroactive application of the April 1995 rule legally invalid.
Based on its finding, the Court also permanently enjoined the Health Care
Financing Administration from enforcing and applying the April 1995 rule
retroactively against National Medical Care. The Court took no action on the
Health Care Financing Administration's motion for summary judgement pending
completion of the outstanding discovery. On October 5, 1998, National Medical
Care filed its own motion for summary judgement requesting that the Court
declare the Health Care Financing Administration's prospective application of
the April 1995 rule invalid and permanently enjoin the Health Care Financing
Administration from prospectively enforcing and applying the April 1995 rule.
The Court has not yet ruled on the parties' motions. The Health Care Financing
Administration elected not to appeal the Court's June 1995 and January 1998
orders. The Health Care Financing Administration may, however, appeal all
rulings at the conclusion of the litigation. If the Health Care Financing
Administration should successfully appeal so that the revised interpretation
would be applied retroactively, National Medical Care may be required to refund
the payments received from employer health plans for services provided after
August 10, 1993 under the Health Care Financing Administration's original
implementation, and to re-bill Medicare for the same services, which could
result in a loss to National Medical Care of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
business, financial condition and results of operations would be materially
adversely affected

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 ultimate
outcome of these matters is not expected to materially affect the Company's
financial position, results of operations or cash flows.

     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 U.S. anti-kickback statute, the False Claims
Act, the Stark Law, 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 continuing inquiries,
claims and

                                       F-32
<PAGE>   133

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 a large number of 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
affiliate companies. The Company relies upon its management structure,
regulatory and legal resources, and the effective operation of its compliance
program to direct, manage and monitor the activities of these employees. On
occasion, the Company may identify instances where employees, deliberately or
inadvertently, have submitted inadequate or false billings. The actions of such
persons may subject the Company and its subsidiaries to liability under the
False Claims Act, among other laws, and the Company cannot predict whether law
enforcement authorities may use such information to initiate further
investigations of the business practices disclosed or any of its other business
activities.

     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.

Contingent Non-NMC Liabilities of W. R. Grace & Co. (Now Known as Fresenius
Medical Care Holdings, Inc.)

     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. ("Grace") and Fresenius AG. In connection
with the Merger, W.R. Grace & Co.-Conn. ("Grace Chemicals") agreed to indemnify
the Company and NMC against all liabilities of the Company and its successors,
whether relating to events occurring before or after the Merger, other than
liabilities arising from or relating to NMC operations. The Company may be
contingently liable for certain liabilities with respect to pre-Merger matters
that are not related to NMC operations. Grace Chemicals has filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. If Grace Chemicals'
indemnity obligation is terminated or limited as a result of this bankruptcy
proceeding, and the Company is held liable for pre-Merger obligations of Grace
Chemicals, the Company's business, financial condition, and results of
operations may be adversely affected.

     On September 28, 2000, Mesquita, et al. v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed by plaintiffs claiming to
be creditors of Grace Chemicals as a class action against Grace Chemicals,
certain U.S. affiliates of the Company, and other defendants, principally
alleging that the Merger was a fraudulent transfer, violated the uniform
fraudulent transfer act, and constituted a conspiracy. An amended complaint
(Abner et al. v. W. R. Grace & Company, et al.) and an additional class action
(Woodward v. Sealed Air Corporation, et al, USDC Boston, No. 01 10547 PBS), were
filed subsequently with substantially similar allegations. The Company has
requested indemnification from Grace Chemicals pursuant to the Merger agreement.
If the Merger is determined to have been a fraudulent transfer, if material
damages are proved by the plaintiffs, and if the Company is not able to collect,
in whole or in part on the indemnity, a judgment could have a material adverse
effect on the Company's business, financial condition and results of operations.
We believe that no fraudulent transfer or conspiracy occurred and we intend to
defend the case vigorously.

                                       F-33
<PAGE>   134

     Were events to violate the tax-free nature of the Merger, the resulting tax
liability would be the obligation of the Company. Subject to representations by
Grace Chemicals, the Company and Fresenius AG, Grace Chemicals has agreed to
indemnify the Company for such a tax liability. If the Company was not able to
collect on the indemnity, the tax liability would have a material adverse effect
on the Company's business, the financial condition of the Company and the
results of operations.

19. 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.

FOREIGN EXCHANGE RISK MANAGEMENT

     The Company conducts business on a global basis in several international
currencies. As such, it is exposed to movements in foreign currency exchange
rates. The Company enters into foreign exchange forward and option contracts to
reduce certain currency exposures. The Company hedges only those currency
exposures associated with certain nonfunctional currency assets and liabilities.

     Gains and losses on the contracts are included in selling, general and
administrative expenses and offset foreign exchange gains or losses from the
revaluation of intercompany balances or other assets and liabilities denominated
in currencies other than the functional currency of the reporting entity. The
Company's forward currency contracts generally range from 1 to 36 months in
original maturity. Foreign exchange contracts outstanding, their unrealized
gains and losses and the related credit exposure of all contracts with
unrealized gains as of December 31, 2000 are summarized as follows:

<TABLE>
<CAPTION>
                                                              CONTRACT    UNREALIZED      CREDIT
                                                               AMOUNT     GAIN/(LOSS)    EXPOSURE
                                                              --------    -----------    --------
<S>                                                           <C>         <C>            <C>
Purchases of currencies against U.S. dollar.................  $490,438      $22,174      $22,174
Sales of currencies against U.S. dollar.....................     6,836           74           77
Sales of other currencies against euro......................    61,005        3,149        3,180
Purchases of other currencies against euro..................    11,975         (128)           1
                                                              --------      -------      -------
Total.......................................................  $570,254      $25,269      $25,432
                                                              ========      =======      =======
</TABLE>

     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.

                                       F-34
<PAGE>   135

     Interest rate hedging contracts outstanding as of December 31, 2000 and
1999 are summarized in the following table.

<TABLE>
<CAPTION>
                                                          2000                      1999
                                                 ----------------------    ----------------------
                                                  NOTIONAL      CREDIT      NOTIONAL      CREDIT
                                                   AMOUNT      EXPOSURE      AMOUNT      EXPOSURE
                                                 ----------    --------    ----------    --------
<S>                                              <C>           <C>         <C>           <C>
U.S. dollar interest rate swaps................  $1,050,000      $ 0       $1,350,000    $ 3,766
Forward starting dollar interest rate
  derivatives..................................  $        0      $ 0       $  250,000    $ 7,612
Yen interest rate swap.........................  $    8,703      $ 0       $        0    $     0
</TABLE>

     The notional amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of credit exposure. The amounts
exchanged are determined by reference to the notional amounts and the other
terms of the derivatives.

     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.

     The Company had receive-variable/pay-fixed swaps with nominal amounts of
$1,050,000 and Japanese Yen 1,000,000 with average pay rates of 6.52% and 3.10%,
respectively, as of December 31, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 2000 and 1999. 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.

<TABLE>
<CAPTION>
                                                          2000                    1999
                                                  --------------------    --------------------
                                                  CARRYING      FAIR      CARRYING      FAIR
                                                   AMOUNT      VALUE       AMOUNT      VALUE
                                                  --------    --------    --------    --------
<S>                                               <C>         <C>         <C>         <C>
Nonderivatives
Assets
  Cash and cash equivalents.....................  $ 64,577    $ 64,577    $ 34,760    $ 34,760
  Receivables...................................   753,674     753,674     667,739     667,739
  IDPN receivables..............................     5,189       5,189      59,151      59,151
Liabilities
  Accounts payable..............................   281,197     281,197     282,573     282,573
  Income taxes payable..........................   117,572     117,572      78,438      78,438
  Debt..........................................   826,063     826,063     801,260     801,260
  Trust Preferred Securities....................   952,727     897,827     964,103     944,044
Derivatives:
  Foreign exchange contracts....................    12,197      25,269      (4,384)    (14,783)
  U.S. dollar interest rate hedges..............         0     (24,619)          0       9,242
  Yen interest rate hedges......................         0        (527)          0           0
</TABLE>

     The carrying amounts in the table are included in the statement of
financial position under the indicated captions, except for derivative asset
amounts, which are included in other assets.

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 statement of financial position, which are reasonable estimates
of fair value due to the relatively short period to maturity of the

                                       F-35
<PAGE>   136

instruments. This approach applies to cash and cash equivalents, receivables,
accounts payable and income taxes payable.

     Because the Company's long-term bank debt represents borrowings 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 credit
agreement.

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

     The fair value of derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts at the reporting
date, thereby taking into account the current unrealized gains or losses of open
contracts. Dealer quotes are available for all of the Company's derivatives.

20. BUSINESS SEGMENT INFORMATION

     Effective January 1, 1998, Fresenius Medical Care AG (1) reorganized its
reporting structure to conform to the manner in which the Company is managed and
(2) adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 establishes the standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, and geographic areas. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. FMC's chief operating decision maker is the Chief
Executive Officer. The accounting policies of the operating segments are the
same as those the Company uses in preparing its consolidated financial
statements.

     Commencing with the period ended March 31, 1999, 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 principal senior bank credit
agreement and indentures relating to the Trust Preferred Securities. Management
has excluded the effects of the special charge in the calculation of EBIT and
EBITDA in 1999.

     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.

     Approximately 40% of the Company's worldwide revenue is derived from
sources subject to regulations under U.S. governmental programs.

                                       F-36
<PAGE>   137

     Information pertaining to the Company's two business segments is set forth
below:

<TABLE>
<CAPTION>
                                                NORTH
                                               AMERICA      INTERNATIONAL    CORPORATE      TOTAL
                                              ----------    -------------    ---------    ----------
<S>                                           <C>           <C>              <C>          <C>
2000
  Net revenue external customers............  $3,083,095     $1,118,243      $     --     $4,201,338
  Inter-segment revenue.....................       2,226         36,677       (38,903)
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   3,085,321      1,154,920       (38,903)     4,201,338
                                              ----------     ----------      --------     ----------
  EBITDA....................................     645,549        269,943        (1,825)       913,667
  Depreciation and amortization.............    (222,495)       (68,733)       (1,626)      (292,854)
                                              ----------     ----------      --------     ----------
  EBIT......................................     423,054        201,210        (3,451)       620,813
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,571,069      1,375,526        32,358      5,978,953
  Capital expenditures and
     acquisitions(1)........................     228,177        274,290           100        502,567
1999
  Net revenue external customers............  $2,807,186     $1,033,243      $     --     $3,840,429
  Inter-segment revenue.....................       4,195         42,853       (47,048)            --
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   2,811,381      1,076,096       (47,048)     3,840,429
                                              ----------     ----------      --------     ----------
  EBITDA....................................     611,478        243,373       (10,429)       844,422
  Depreciation and amortization.............    (217,584)       (64,674)       (1,950)      (284,208)
                                              ----------     ----------      --------     ----------
  EBIT......................................     393,894        178,699       (12,379)       560,214
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,653,058      1,064,108        35,217      5,752,383
  Capital expenditures and
     acquisitions(2)........................     146,498        114,774           330        261,602
1998
  Net revenue external customers............  $2,562,603     $  943,073      $     --     $3,505,676
  Inter-segment revenue.....................       2,159         43,476       (45,635)            --
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   2,564,762        986,549       (45,635)     3,505,676
                                              ----------     ----------      --------     ----------
  EBITDA....................................     548,986        227,789        (8,813)       767,962
  Depreciation and amortization.............    (214,940)       (62,362)       (1,682)      (278,984)
                                              ----------     ----------      --------     ----------
  EBIT......................................     334,046        165,427       (10,495)       488,978
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,630,168        961,972        87,279      5,679,419
  Capital expenditures and
     acquisitions(3)........................     202,983        177,886           761        381,630
</TABLE>

---------------

(1) International acquisitions exclude $13,614 of non-cash acquisitions for 2000

(2) International acquisitions exclude $9,462 of non-cash acquisitions for 1999

(3) North America acquisitions exclude $41,805 of non-cash acquisitions for 1998

                                       F-37
<PAGE>   138

<TABLE>
<CAPTION>
                                                              2000        1999         1998
                                                            --------    ---------    ---------
<S>                                                         <C>         <C>          <C>
Reconciliation of measures to consolidated totals.
  Total EBITDA of reporting segments......................  $915,492    $ 854,851    $ 776,775
  Total depreciation and amortization.....................  (292,854)    (284,208)    (278,984)
  Special charge for Settlement...........................        --     (601,000)          --
  Corporate expenses......................................    (1,825)     (10,429)      (8,813)
  Interest expense........................................  (195,569)    (226,218)    (228,182)
  Interest expense on obligation related to Settlement....   (29,947)          --           --
  Interest income.........................................     9,411        8,094        8,641
                                                            --------    ---------    ---------
  Total income (loss) from continuing operations before
     income taxes, minority interest and cumulative effect
     of accounting change.................................  $404,708    $(258,910)   $ 269,437
                                                            ========    =========    =========
  Total EBIT of reporting segments........................   624,264      572,593      499,473
  Special charge for Settlement...........................        --     (601,000)          --
  Corporate expenses......................................    (3,451)     (12,379)     (10,495)
  Interest expense........................................  (195,569)    (226,218)    (228,182)
  Interest expense on obligation related to Settlement....   (29,947)          --           --
  Interest income.........................................     9,411        8,094        8,641
                                                            --------    ---------    ---------
  Total income (loss) from continuing operations before
     income taxes, minority interest and cumulative effect
     of accounting change.................................  $404,708    $(258,910)   $ 269,437
                                                            ========    =========    =========
Depreciation and amortization
  Total depreciation and amortization of reporting
     segments.............................................   291,228      282,258      277,302
  Corporate depreciation and amortization.................     1,626        1,950        1,682
                                                            --------    ---------    ---------
  Total depreciation and amortization.....................  $292,854    $ 284,208    $ 278,984
                                                            ========    =========    =========
</TABLE>

     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:

<TABLE>
<CAPTION>
                                                          UNITED STATES     REST OF
                                              GERMANY      AND CANADA      THE WORLD       TOTAL
                                              --------    -------------    ----------    ----------
<S>                                           <C>         <C>              <C>           <C>
2000
Net revenue external customers..............  $193,857     $3,083,095       $924,386     $4,201,338
Long -- lived assets........................    79,670        520,614        294,997        895,281
1999
Net revenue external customers..............  $213,209     $2,807,186       $820,034     $3,840,429
Long -- lived assets........................    83,384        483,872        180,041        747,297
1998
Net revenue external customers..............  $203,886     $2,562,603       $739,187     $3,505,676
</TABLE>

                                       F-38
<PAGE>   139

21. SUPPLEMENTARY CASH FLOW INFORMATION

     The following additional information is provided with respect to the
Consolidated Financial Statement of Cash Flows:

<TABLE>
<CAPTION>
                                                               2000        1999        1998
                                                             --------    --------    --------
<S>                                                          <C>         <C>         <C>
Supplementary cash flow information Cash paid for
  interest.................................................  $222,826    $215,836    $207,944
                                                             --------    --------    --------
Cash paid for income taxes, net............................  $ 44,715    $ 27,954    $ (1,250)
                                                             --------    --------    --------
Supplementary schedule of non-cash investing and financing
  activities Issuance of debt..............................  $ 13,613       9,462          --
                                                             --------    --------    --------
  Issuance of convertible investment securities for
     acquisitions..........................................        --    $     --    $ 41,805
                                                             --------    --------    --------
Supplemental disclosures of cash flow information
  Details for acquisitions:
  Assets acquired..........................................  $346,378    $124,598    $286,413
  Liabilities assumed......................................    52,843      13,186      14,331
  Notes issued in connection with acquisition..............    13,613       9,462      41,805
                                                             --------    --------    --------
  Cash paid................................................   279,922     101,950     230,277
  Less cash acquired.......................................     5,392         624       7,342
                                                             --------    --------    --------
  Net cash paid for acquisitions...........................  $274,530    $101,326    $222,935
                                                             ========    ========    ========
</TABLE>

22. SUBSEQUENT EVENTS

     On January 5, 2001, the Company acquired Everest Healthcare Services
Corporation ("Everest"), Oak Park, Illinois through a merger of Everest into a
subsidiary of the Company for $343 million including Everest's outstanding debt.
One third of the purchase price was paid by the issuance of 2,250,000 Preference
shares on January 5, 2001. The remainder of the purchase price was paid using
the proceeds from the Preference share offerings completed during 2000.

23. SUPPLEMENTAL CONDENSED COMBINING INFORMATION

     FMC Trust Finance S.a.r.l. Luxembourg, a wholly-owned subsidiary of FMC AG,
has assumed or issued senior subordinated debt securities which were fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by FMC AG and by D-GmbH, a wholly-owned subsidiary of FMC AG, and by
FMCH, a substantially wholly-owned subsidiary of FMC AG (D-GmbH and FMCH being
the "Guarantor Subsidiaries"). The following is combining financial information
for the Company as of December 31, 2000 and 1999 and for the years ended
December 31, 2000, 1999 and 1998, segregated between FMC AG, D-GmbH, FMCH and
each of the Company's other businesses (the "Non-Guarantor Subsidiaries"). For
purposes of the condensed combining information, FMC AG 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.

     Additionally, as discussed in Note 11, dividends from Fresenius Medical
Care Holdings, Inc., a wholly owned subsidiary, are limited 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.

                                       F-39
<PAGE>   140

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 2000
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                        <C>         <C>        <C>         <C>             <C>          <C>
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
  interests..............................    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 interests.........    212,075     5,526      105,250       180,044      (287,959)      214,936
Minority interests.......................         --        --           --            --         2,861         2,861
                                           ---------   --------   ---------    ----------     ---------    ----------
Net income...............................  $ 212,075   $ 5,526    $ 105,250    $  180,044     $(290,820)   $  212,075
                                           =========   ========   =========    ==========     =========    ==========
</TABLE>

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 1999
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                        <C>         <C>        <C>         <C>             <C>          <C>
Net revenue..............................  $      --   $556,354   $      --    $3,733,213     $(449,138)   $3,840,429
Cost of revenue..........................         --   348,923           --     2,548,748      (434,516)    2,463,155
                                           ---------   --------   ---------    ----------     ---------    ----------
  Gross profit...........................         --   207,431           --     1,184,465       (14,622)    1,377,274
                                           ---------   --------   ---------    ----------     ---------    ----------
Operating expenses:
  Selling, general and administrative....     13,701    74,149           --       701,719        (4,998)      784,572
  Research and development...............         --    24,527           --         7,961            --        32,488
  Special charge for settlement of
    investigations and related costs.....         --        --           --       601,000            --       601,000
                                           ---------   --------   ---------    ----------     ---------    ----------
  Operating (loss) income................    (13,701)  108,754           --      (126,215)       (9,624)      (40,786)
                                           ---------   --------   ---------    ----------     ---------    ----------
Other (income) expense:
  Interest, net..........................        171     5,604       58,382       153,967            --       218,124
  Other, net.............................    188,727    56,364      291,998            --      (537,089)           --
                                           ---------   --------   ---------    ----------     ---------    ----------
Income (loss) before income taxes and
  minority interests.....................   (202,599)   46,786     (350,380)     (280,182)      527,465      (258,910)
  Income tax expense (benefit)...........     36,562    43,654      (23,353)      (24,309)      (45,298)      (12,744)
                                           ---------   --------   ---------    ----------     ---------    ----------
Income (loss) before minority
  interests..............................   (239,161)    3,132     (327,027)     (255,873)      572,763      (246,166)
Minority interests.......................         --        --           --            --         2,378         2,378
                                           ---------   --------   ---------    ----------     ---------    ----------
Net (loss) income........................  $(239,161)  $ 3,132    $(327,027)   $ (255,873)    $ 570,385    $ (248,544)
                                           =========   ========   =========    ==========     =========    ==========
</TABLE>

                                       F-40
<PAGE>   141

<TABLE>
<CAPTION>
                                                              FOR THE YEAR ENDED DECEMBER 31, 1998
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                        <C>         <C>        <C>         <C>             <C>          <C>
Net revenue..............................  $      --   $500,794   $      --    $3,366,884     $(362,002)   $3,505,676
Cost of revenue..........................         --   295,748           --     2,305,855      (358,664)    2,242,938
                                           ---------   --------   ---------    ----------     ---------    ----------
  Gross profit...........................         --   205,046           --     1,061,029        (3,338)    1,262,738
                                           ---------   --------   ---------    ----------     ---------    ----------
Operating expenses:
  Selling, general and administrative....      8,043    87,945           --       648,527        (1,905)      742,610
  Research and development...............         --    24,902           --         6,248            --        31,150
                                           ---------   --------   ---------    ----------     ---------    ----------
  Operating (loss) income................     (8,043)   92,199           --       406,255        (1,433)      488,978
                                           ---------   --------   ---------    ----------     ---------    ----------
Other (income) expense:
  Interest, net..........................     (2,683)    5,461       54,693       162,070            --       219,541
  Other, net.............................   (172,085)   49,804      (84,653)           --       206,934            --
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income from continuing operations
    before income taxes, minority
    interests and cumulative effect of
    accounting change....................    166,725    36,934       29,960       244,185      (208,367)      269,437
Income tax expense.......................     28,431    37,570      (21,877)      115,468       (24,226)      135,366
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income (loss) from continuing
    operations before minority interests
    and cumulative effect of accounting
    change...............................    138,294      (636)      51,837       128,717      (184,141)      134,071
Minority interests.......................         --        --           --            --         2,454         2,454
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income (loss) from continuing
    operations before cumulative effect
    of accounting change.................    138,294      (636)      51,837       128,717      (186,595)      131,617
                                           ---------   --------   ---------    ----------     ---------    ----------
Discontinued operations
  Loss from operations of discontinued
    businesses, net......................     (8,669)       --       (8,669)       (8,669)       17,338        (8,669)
  Loss on disposal of discontinued
    businesses, net......................    (97,228)       --      (97,228)      (97,228)      194,456       (97,228)
                                           ---------   --------   ---------    ----------     ---------    ----------
  Loss from discontinued operations,
    net..................................   (105,897)       --     (105,897)     (105,897)      211,794      (105,897)
                                           ---------   --------   ---------    ----------     ---------    ----------
Cumulative effect of accounting change,
  net....................................     (6,589)     (706)      (4,890)       (5,883)       11,479        (6,589)
Net income (loss)........................  $  25,808   $(1,342)   $ (58,950)   $   16,937     $  36,678    $   19,131
                                           =========   ========   =========    ==========     =========    ==========
</TABLE>

                                       F-41
<PAGE>   142

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31, 2000
                                              -----------------------------------------------------------------------------
                                                                 GUARANTOR
                                                               SUBSIDIARIES
                                                           ---------------------   NON-GUARANTOR    COMBINING     COMBINED
                                                FMC AG      D-GMBH       FMCH      SUBSIDIARIES    ADJUSTMENT      TOTAL
                                              ----------   --------   ----------   -------------   -----------   ----------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                           <C>          <C>        <C>          <C>             <C>           <C>
Current assets:
  Cash and cash equivalents.................  $      137   $   100    $       --    $   64,340     $       --    $   64,577
  Trade accounts receivable, less allowance
    for doubtful accounts...................          --    72,775            --       680,899             --       753,674
  Accounts receivable from related
    parties.................................     132,463   193,640        51,487       531,874       (863,347)       46,117
  Inventories...............................          --    67,988            --       286,199        (33,953)      320,234
  Prepaid expenses and other current
    assets..................................       2,539    20,237            --       190,326          1,424       214,526
  IDPN accounts receivable..................          --        --            --         5,189             --         5,189
  Deferred taxes............................         388     1,945            --       156,732         18,029       177,094
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current assets....................     135,527   356,685        51,487     1,915,559       (877,847)    1,581,411
Property, plant and equipment, net..........         205    49,460            --       705,353        (16,025)      738,993
Intangible assets, including goodwill,
  net.......................................         789     6,006            --     3,468,261             --     3,475,056
Loans to related parties....................      78,206        --       185,529       827,099     (1,090,834)           --
Deferred taxes..............................          --     3,011            --        13,949         10,245        27,205
Other assets................................   2,681,199    12,119     2,589,842       117,641     (5,244,513)      156,288
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total assets..............................  $2,895,926   $427,281   $2,826,858    $7,047,862     $(7,218,974)  $5,978,953
                                              ==========   ========   ==========    ==========     ===========   ==========
Current liabilities:
  Accounts payable..........................  $      506   $16,356    $       --    $  186,512     $       --    $  203,374
  Accounts payable to related parties.......     113,406   180,997       257,566       372,978       (847,124)       77,823
  Accrued expenses and other current
    liabilities.............................       9,740    52,916            --       328,395            589       391,640
  Note payable related to settlement........          --        --            --        85,920             --        85,920
  Short-term borrowings.....................         627       465            --       105,500             --       106,592
  Short-term borrowings from related
    parties.................................          --        --            --       218,333             --       218,333
  Current portion of long-term debt and
    capital lease obligations...............          --       516            --       167,715             --       168,231
  Income taxes payable......................      87,277        --            --        30,295             --       117,572
  Deferred taxes............................         223     6,102            --        11,902          2,740        20,967
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current liabilities...............     211,779   257,352       257,566     1,507,550       (843,795)    1,390,452
Long term debt and capital lease
  obligations, less current portion.........       4,206     1,882       843,322       915,479     (1,107,057)      657,832
Other liabilities...........................          --     3,688            --        23,312          4,464        31,464
Pension liabilities.........................         327    24,682            --        44,961             --        69,970
Deferred taxes..............................         864     5,238            --       170,385             --       176,487
Company obligated mandatorily redeemable
  preferred securities of subsidiary
  Fresenius Medical Care Capital Trusts
  holding solely Company guaranteed
  debentures of subsidiary..................          --        --            --       952,727             --       952,727
Minority interest...........................          --        --        16,318            --          4,953        21,271
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total liabilities.......................     217,176   292,842     1,117,206     3,614,414     (1,941,435)    3,300,203
Shareholders' equity:.......................   2,678,750   134,439     1,709,652     3,433,448     (5,277,539)    2,678,750
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total liabilities and shareholders'
    equity..................................  $2,895,926   $427,281   $2,826,858    $7,047,862     $(7,218,974)  $5,978,953
                                              ==========   ========   ==========    ==========     ===========   ==========
</TABLE>

                                       F-42
<PAGE>   143

<TABLE>
<CAPTION>
                                                                          AT DECEMBER 31, 1999
                                              -----------------------------------------------------------------------------
                                                                 GUARANTOR
                                                               SUBSIDIARIES
                                                           ---------------------   NON-GUARANTOR    COMBINING     COMBINED
                                                FMC AG      D-GMBH       FMCH      SUBSIDIARIES    ADJUSTMENT      TOTAL
                                              ----------   --------   ----------   -------------   -----------   ----------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                           <C>          <C>        <C>          <C>             <C>           <C>
Current assets:
  Cash and cash equivalents.................  $      155   $    37    $       --    $   34,568     $       --    $   34,760
  Trade accounts receivable, less allowance
    for doubtful accounts...................          --    81,686            --       586,053             --       667,739
  Accounts receivable from related
    parties.................................     135,878   226,351        32,586       351,445       (697,131)       49,129
  Inventories...............................          --    61,951            --       270,379        (31,028)      301,302
  Prepaid expenses and other current
    assets..................................       8,691    11,094            --       159,607             --       179,392
  IDPN accounts receivable..................          --        --            --        53,962             --        53,962
  Deferred taxes............................         703     4,079            --       233,832         16,311       254,925
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current assets....................     145,427   385,198        32,586     1,689,846       (711,848)    1,541,209
Property, plant and equipment, net..........         236    51,473            --       600,084         (9,672)      642,121
Intangible assets, including goodwill,
  net.......................................       1,124     2,894            --     3,434,738             --     3,438,756
Loans to related parties....................     127,155        --       185,529       987,963     (1,300,647)           --
Deferred taxes..............................          11     3,667            --        14,471          6,972        25,121
Non-current IDPN accounts receivable........          --        --            --         5,189             --         5,189
Other assets................................   1,947,133    10,460     2,428,224        66,320     (4,352,150)       99,987
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total assets..............................  $2,221,086   $453,692   $2,646,339    $6,798,611     $(6,367,345)  $5,752,383
                                              ==========   ========   ==========    ==========     ===========   ==========
Current liabilities:
  Accounts payable..........................  $       30   $16,923    $       --    $  176,167     $       --    $  193,120
  Accounts payable to related parties.......     151,914   205,213       181,857       393,142       (842,673)       89,453
  Accrued expenses and other current
    liabilities.............................       4,879    45,343            --       363,265          1,574       415,061
  Short-term accrued settlement.............          --        --            --       386,815             --       386,815
  Short-term borrowings.....................         960        26            --        95,397             --        96,383
  Short-term borrowings from related
    parties.................................          --        --            --       330,000             --       330,000
  Current portion of long-term debt and
    capital lease obligations...............          --     2,754            --       144,730             --       147,484
  Income taxes payable......................      49,064        --            --        29,374             --        78,438
  Deferred taxes............................      13,898     9,188            --         9,165          1,187        33,438
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current liabilities...............     220,745   279,447       181,857     1,928,055       (839,912)    1,770,192
Long term debt and capital lease
  obligations, less current portion.........       4,541       635       842,421       961,284     (1,155,105)      653,776
Long-term accrued settlement................          --        --            --        85,920             --        85,920
Other liabilities...........................         290     3,794            --        16,331          4,271        24,686
Pension liabilities.........................          --    23,819            --        37,759             --        61,578
Deferred taxes..............................       1,182     6,862            --       159,993             --       168,037
Company obligated mandatorily redeemable
  preferred securities of subsidiary
  Fresenius Medical Care Capital Trusts
  holding solely Company guaranteed
  debentures of subsidiary..................          --        --            --       964,103             --       964,103
Minority interest...........................          --        --        16,318            --          5,456        21,774
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total liabilities.......................     226,758   314,557     1,040,596     4,153,445     (1,985,290)    3,750,066
Shareholders' equity:.......................   1,994,328   139,135     1,605,743     2,645,166     (4,382,055)    2,002,317
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total liabilities and shareholders'
    equity..................................  $2,221,086   $453,692   $2,646,339    $6,798,611     $(6,367,345)  $5,752,383
                                              ==========   ========   ==========    ==========     ===========   ==========
</TABLE>

                                       F-43
<PAGE>   144

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31, 2000
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                             <C>         <C>        <C>         <C>             <C>          <C>
Operating activities:
  Net income (loss)...........................  $ 212,075   $ 5,526    $ 105,250     $ 180,044     $(290,820)   $212,075
  Adjustments to reconcile net income (loss)
    to net cash and cash equivalents 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 tax....................    (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 and 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
    settlement................................         --        --           --      (386,815)           --    (386,815)
  Proceeds from issuance of preference
    shares....................................    556,958        --           --            --            --     556,958
  Proceeds from increase of accounts
    receivable securitization program.........         --        --           --       111,402            --     111,402
  Proceeds from exercise of options...........        885        --           --            --            --         885
  Capital increase of
    Non-Guarantor-Subsidiaries................         --        --           --       312,352      (312,352)         --
  Dividends paid..............................    (51,229)       --           --        (6,385)        6,385     (51,229)
  Changes in minority interest................         --        --         (520)           --           659         139
                                                ---------   --------   ---------     ---------     ---------    --------
      Net cash provided by (used in) financing
        activities............................    500,037      (299)         381       183,355      (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
                                                =========   ========   =========     =========     =========    ========
</TABLE>

                                       F-44
<PAGE>   145

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31, 1999
                                                -------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                                ---------   --------   ---------   -------------   ----------   ---------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                             <C>         <C>        <C>         <C>             <C>          <C>
Operating Activities:
  Net income (loss)...........................  $(239,161)  $ 3,132    $(327,027)    $(255,873)    $ 570,385    $(248,544)
  Adjustments to reconcile net (loss) income
    to net cash and cash equivalents provided
    by (used in) operating activities:
  Equity affiliate loss.......................    305,430        --      291,998            --      (597,428)          --
    Depreciation and amortization.............      2,981    22,330           --       264,005        (5,108)     284,208
    Write-off of IDPN accounts receivable.....         --        --           --        94,349            --       94,349
    Change in deferred tax....................     (3,276)      119           --       (81,956)       (4,812)     (89,925)
    Loss on sale of fixed assets..............        163        --           --           828            --          991
  Changes in assets and liabilities, net of
    amounts from businesses acquired or
    disposed of:
    Trade accounts receivable, net............         --   (18,485)          --      (117,777)           --     (136,262)
    Inventories...............................         --      (562)          --       (22,145)        6,953      (15,754)
    Prepaid expenses and other current and
      non-current assets......................     (5,578)   (4,062)       1,491       (35,243)        6,674      (36,718)
    Accounts receivable from/ payable to
      related parties.........................    (30,345)   (6,391)      56,560       (35,540)          770      (14,946)
    Accounts payable, accrued expenses and
      other current and non-current
      liabilities.............................      1,340    28,778           --       455,438         3,140      488,696
    Income taxes payable......................     23,936        --      (23,353)       28,079            --       28,662
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash provided by (used in) operating
        activities of continuing operations...     55,490    24,859         (331)      294,165       (19,426)     354,757
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash used in operating activities of
        discontinued operations...............         --        --           --        (3,782)           --       (3,782)
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash provided by (used in) operating
        activities............................     55,490    24,859         (331)      290,383       (19,426)     350,975
                                                ---------   --------   ---------     ---------     ---------    ---------
Investing Activities:
  Purchases of property, plant and
    equipment.................................       (326)  (23,611)          --      (140,208)        3,869     (160,276)
  Proceeds from sale of property, plant and
    equipment.................................         92     1,065           --         5,973            --        7,130
  Acquisitions and investments, net of cash
    acquired..................................     (9,002)       --           --      (100,288)        7,964     (101,326)
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash used in investing activities...     (9,236)  (22,546)          --      (234,523)       11,833     (254,472)
                                                ---------   --------   ---------     ---------     ---------    ---------
Financing activities:
  Short-term borrowings, net..................     (3,595)     (456)          --       272,685            --      268,634
  Long-term debt and capital lease
    obligations, net..........................      4,817    (1,836)         851      (286,948)         (465)    (283,581)
  Retirement of convertible investment
    securities................................         --        --           --       (47,664)           --      (47,664)
  Proceeds from increase of accounts
    receivable securitization program.........         --        --           --        29,400            --       29,400
  Proceeds from exercise of FMC Rollover
    options...................................      1,719        --           --            --            --        1,719
  Capital Increase of
    Non-Guarantor-Subsidiaries................         --        --           --         8,556        (8,556)          --
  Dividends paid..............................    (48,404)       --           --       (15,516)       15,516      (48,404)
  Changes in minority interest................         --        --         (520)           --         1,098          578
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash (used in) provided by financing
        activities............................    (45,463)   (2,292)         331       (39,487)        7,593      (79,318)
                                                ---------   --------   ---------     ---------     ---------    ---------
Effect of exchange rate changes on cash and
  cash equivalents............................     (1,665)       (6)          --       (12,621)           --      (14,292)
Cash and Cash Equivalents:
Net (decrease) increase in cash and cash
  equivalents.................................       (874)       15           --         3,752            --        2,893
Cash and cash equivalents at beginning of
  period......................................      1,029        22           --        30,816            --       31,867
                                                ---------   --------   ---------     ---------     ---------    ---------
Cash and cash equivalents at end of period....  $     155   $    37    $      --     $  34,568     $      --    $  34,760
                                                =========   ========   =========     =========     =========    =========
</TABLE>

                                       F-45
<PAGE>   146

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31, 1998
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                             <C>         <C>        <C>         <C>             <C>          <C>
Operating Activities:
  Net income (loss)...........................  $  25,808   $(1,342)   $ (58,950)  $     16,937    $  36,678    $ 19,131
  Adjustments to reconcile net income to net
    cash and cash equivalents provided by
    (used in) operating activities:
  Equity affiliate income.....................    (93,715)       --      (84,653)            --      178,368          --
    Cumulative effect of accounting change....      6,589       706        4,890          5,883      (11,479)      6,589
    Depreciation and amortization.............      2,908    22,099           --        253,977           --     278,984
    Loss from operations of discontinued
      businesses..............................      8,669        --        8,669          8,669      (17,338)      8,669
    Loss on disposition of businesses.........     97,228        --       97,228         97,228     (194,456)     97,228
    Change in deferred tax....................     19,383      (834)          --          5,755         (718)     23,586
    Loss on sale of fixed assets..............         --        --           --            213           --         213
  Changes in assets and liabilities, net of
    amounts from businesses acquired or
    disposed of:
    Trade accounts receivable, net............     (2,650)  (11,891)          --       (145,510)          --    (160,051)
    Inventories...............................         --       160           --        (39,615)         151     (39,304)
    Prepaid expenses and other current and
      non-current assets......................    (10,717)   (5,696)     (13,671)        (7,673)         462     (37,295)
    Accounts receivable from/ payable to
      related parties.........................    (90,095)   23,543       68,622          1,104           --       3,174
    Accounts payable, accrued expenses and
      other current and non-current
      liabilities.............................     (2,330)    5,654           --         (9,660)          --      (6,336)
    Income taxes payable......................     12,131    (4,027)     (21,877)        87,442           --      73,669
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash (used in) provided by operating
        activities of continuing operations...    (26,791)   28,372          258        274,750       (8,332)    268,257
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in operating activities of
        discontinued operations...............         --        --           --           (257)          --        (257)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash (used in) provided by operating
        activities............................    (26,791)   28,372          258        274,493       (8,332)    268,000
                                                ---------   --------   ---------   -------------   ---------    --------
Investing Activities:
  Purchases of property, plant and
    equipment.................................       (126)  (30,372)          --       (129,424)       1,227    (158,695)
  Proceeds from sale of property, plant and
    equipment.................................        617     2,776           --         22,786           --      26,179
  Acquisitions and investments, net of cash
    acquired..................................   (100,805)      (16)    (250,000)      (153,208)     281,094    (222,935)
  Proceeds from disposition of businesses.....         --        --           --         82,500           --      82,500
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities of
        continuing operations.................   (100,314)  (27,612)    (250,000)      (177,346)     282,321    (272,951)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities of
        discontinued operations...............         --        --           --         (7,315)          --      (7,315)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities...   (100,314)  (27,612)    (250,000)      (184,661)     282,321    (280,266)
                                                ---------   --------   ---------   -------------   ---------    --------
</TABLE>

                                       F-46
<PAGE>   147

<TABLE>
<CAPTION>
                                                                  FOR THE YEAR ENDED DECEMBER 31, 1998
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
<S>                                             <C>         <C>        <C>         <C>             <C>          <C>
Financing activities:
  Short-term borrowings, net..................      4,481       505           --         (1,255)          --       3,731
  Long-term debt and capital lease
    obligations, net..........................    172,483    (2,754)     250,000     (1,000,076)          --    (580,347)
  Retirement of convertible investment
    securities................................         --        --           --        (61,725)          --     (61,725)
  Proceeds from issuance of mandatorily
    redeemable preferred securities...........         --        --           --        597,810           --     597,810
  Proceeds from increase of accounts
    receivable securization program...........         --        --           --        105,600           --     105,600
  Proceeds from exercise of FMC Rollover
    options...................................      1,047        --           --             --           --       1,047
  Capital Increase of Non-Guarantor
    Subsidiaries..............................         --        --           --        275,226     (275,226)         --
  Dividends paid..............................    (45,176)       --           --         (4,038)          --     (49,214)
  Distributions on convertible investment
    securities................................         --        --           --         (2,752)          --      (2,752)
  Changes in minority interest................         --        --         (520)            --        1,237         717
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash provided by (used in) financing
        activities of continuing operations...    132,835    (2,249)     249,480        (91,210)    (273,989)     14,867
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in financing activities of
        discontinued operations...............         --        --           --         (2,107)          --      (2,107)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash provided by (used in) financing
        activities............................    132,835    (2,249)     249,480        (93,317)    (273,989)     12,760
                                                ---------   --------   ---------   -------------   ---------    --------
Effect of exchange rate changes on cash and
  cash equivalents:...........................     (4,794)       29          262         (1,942)          --      (6,445)
Cash and cash equivalents:
Net (decrease) increase in cash and cash
  equivalents.................................        936    (1,460)          --         (5,427)          --      (5,951)
Cash and cash equivalents at beginning of
  period......................................         93     1,482           --         36,243           --      37,818
                                                ---------   --------   ---------   -------------   ---------    --------
Cash and cash equivalents at end of period....  $   1,029   $    22    $      --   $     30,816    $      --    $ 31,867
                                                =========   ========   =========   =============   =========    ========
</TABLE>

                                       F-47
<PAGE>   148

                                                                     SCHEDULE II

                           FRESENIUS MEDICAL CARE AG

                       VALUATIONS AND QUALIFYING ACCOUNTS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                              (REDUCTION)
                                                BALANCE AT     CHARGE TO     DEDUCTIONS/     BALANCE
                                                BEGINNING      COSTS AND     WRITE-OFFS/     AT END
                                                OF PERIOD      EXPENSES      RECOVERIES     OF PERIOD
                                                ----------    -----------    -----------    ---------
<S>                                             <C>           <C>            <C>            <C>
Allowance for doubtful accounts:
  Year ended December 31, 2000................   $101,262       $69,967        $60,048      $111,181
  Year ended December 31, 1999................     78,167        46,418         23,323       101,262
  Year ended December 31, 1998................     75,653        56,426         53,912        78,167
</TABLE>

                                       S-1
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1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                   FORM 20-F

[ ]   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, 2000

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934
                        COMMISSION FILE NUMBER: --------
                            ------------------------

                   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)

                            ------------------------

               ELSE-KRONER 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      New York Stock Exchange
    Shares

    Preference Shares, no par value                         New York Stock Exchange(1)

    American Depositary Shares representing                 New York Stock Exchange
    Ordinary Shares

    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: 9% TRUST PREFERRED SECURITIES, 7 7/8% USD TRUST PREFERRED
SECURITIES; 7 3/8% DM TRUST PREFERRED SECURITIES

     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 23,765,093

     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 [ ]

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

                          Item 17 [ ]     Item 18 [X]
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
1 Not for trading, but only in connection with the registration of American
  Depositary Shares representing such shares.
2

                               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................   43
Item  6.           Directors, Senior Management and Employees..................   57
Item  7.           Major Shareholders and Related Party Transactions...........   63
Item  8.           Financial Information.......................................   68
Item  9.           The Offer and Listing Details...............................   71
Item 10.           Additional Information......................................   76
Item 11.           Quantitative and Qualitative Disclosures About Market
                   Risk........................................................   86
Item 12.           Description of Securities other than Equity Securities......   90

PART II
Item 13.           Defaults, Dividend Arrearages and Delinquencies.............   91
Item 14.           Material Modifications to the Rights of Security Holders and
                   Use of Proceeds.............................................   91
Item 15.           [Reserved]..................................................   91
Item 16.           [Reserved]..................................................   91

PART III
Item 17.           Financial Statements........................................   91
Item 18.           Financial Statements........................................   91
Item 19.           Exhibits....................................................   91
i
3

                                  INTRODUCTION

INTERNATIONAL DISCLOSURE STANDARDS

     On September 28, 1999, the United States Securities and Exchange Commission
adopted international disclosure standards for foreign private issuers that
became mandatory for annual reports relating to fiscal years ending on or after
September 30, 2000.

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".

                                        1
4

                                     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 1996 through 2000. 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 Wirtschaftsprufungsgesellschaft, 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".
2000         1999(A)       1998(B)        1997         1996(C)
                                  -----------   -----------   -----------   -----------   -----------
                                            (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net revenues....................  $     4,201   $     3,840   $     3,506   $     2,974   $     1,419
Cost of revenues................        2,734         2,463         2,243         1,886           860
                                  -----------   -----------   -----------   -----------   -----------
Gross profit....................        1,467         1,377         1,263         1,088           559
Selling, general and
  administrative................          814           785           743           675           344
Research and development........           32            32            31            22            14
Special charge for Settlement...           --           601            --            --            --
                                  -----------   -----------   -----------   -----------   -----------
Operating income (loss).........          621           (41)          489           391           201
Interest expense, net...........          216           218           220           184            56
Earnings (loss) before income
  taxes.........................          405          (259)          269           207           145
Income (loss) from continuing
  operations before cumulative
  effect of accounting change...          405          (249)          132           104            89
Net income (loss)...............  $       212   $      (249)  $        19   $        90   $        88
                                  ===========   ===========   ===========   ===========   ===========
Weighted average of:
  Preference shares
     outstanding................   19,002,118     9,023,341     9,023,341     6,506,917       517,808
  Ordinary shares outstanding...   70,000,000    70,000,000    70,000,000    70,000,000    43,907,500
Basic income (loss) from
  continuing operations per
  Ordinary share................  $      2.37   $     (3.15)  $      1.62   $      1.34   $      2.00
Fully diluted income (loss) from
  continuing operations per
  Ordinary share................         2.36         (3.15)         1.62          1.34          2.00
Basic income (loss) per Ordinary
  share.........................         2.37         (3.15)         0.20          1.16          1.96
Fully diluted income (loss) per
  Ordinary share................         2.36         (3.15)         0.20          1.16          1.96
Basic income (loss) from
  continuing operations per
  Preference share..............         2.43         (3.15)         1.78          1.39          2.07
2
5
2000         1999(A)       1998(B)        1997         1996(C)
                                  -----------   -----------   -----------   -----------   -----------
                                            (IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Fully diluted income (loss) from
  continuing operations per
  Preference share..............         2.42         (3.15)         1.78          1.39          2.07
Basic income (loss) per
  Preference share..............         2.43         (3.15)         0.36          1.21          2.03
Fully diluted income (loss) per
  Preference share..............         2.42         (3.15)         0.36          1.21          2.03
Basic and fully diluted net
  income (loss) per Ordinary
  ADS...........................         0.79         (1.05)         0.07          0.39          0.66
Basic and fully diluted net
  income (loss) per Preference
  ADS...........................         0.81         (1.05)         0.12          0.40          0.68
Dividends declared per Ordinary
  share (E)(a)..................         0.78(b)        0.69         0.59          0.51            --
Dividends declared per
  Preference share (E)(a).......         0.84(b)        0.75         0.64          0.56          0.10
Dividends declared per Ordinary
  share ($)(a)..................           --(b)        0.64         0.61          0.55            --
Dividends declared per
  Preference share ($)(a).......           --(b)        0.69         0.66          0.61          0.11
BALANCE SHEET DATA
Working capital.................  $       191   $      (229)  $       448   $       548   $       408
Total assets....................        5,979         5,752         5,679         5,541         5,093
Total long-term debt(c).........        1,611         1,618         2,070         2,001         1,806
Shareholders' equity (net
  assets).......................        2,679         2,002         2,357         2,446         2,156
Capital Stock -- Preference
  shares -- Nominal Value.......           64            28            28            28            18
Capital Stock -- Ordinary shares
  -- Nominal Value..............          229           229           229           229           229
---------------

(A) Reflects the impact of the special charge relating to the settlement
    agreement reached 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 "Item 5.B. Operating and Financial Review and Prospects
    -- Liquidity and Capital Resources" and in Note 2 of the Notes to our
    Consolidated Financial Statements.

(B) Includes the effect of an accounting change. See Note 1 of the Notes to our
    Consolidated Financial Statements

(C) Includes the results of Fresenius Medical Care Holdings for the period
    subsequent to September 30, 1996.

(a) Amounts shown for each year 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
    2000 of E0.84 per Preference share and E0.78 per Ordinary share. The 2.25
    million Preference shares issued on January 5, 2001 in connection with the
    acquisition of Everest Healthcare Services Corporation (see "Item 5.B.
    Operating and Financial Review and Prospects -- Liquidity and Capital
    Resources") will also be eligible receive this dividend. These dividends are
    subject to approval by our shareholders at our annual general meeting to be
    held on May 23, 2001.

(c) Total long-term debt represents long-term debt and capital lease
    obligations, less current portions and (i) at December 31, 1996 and 1997,
    the mandatorily redeemable preferred securities of Fresenius Medical Care
    Capital Trust, and (ii) at December 31, 1998, 1999 and 2000, the mandatorily
    redeemable preferred securities of Fresenius Medical Care Capital Trust,
    Fresenius Medical Care Capital Trust II, and Fresenius Medical Care Capital
    Trust III.

                                        3
6

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 40% 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, 2000 approximately 40% of our
consolidated revenues resulted from 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 Medicare
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 28% of dialysis care revenue in our North America
segment for the twelve months ended December 31, 2000. EPO is produced by a
single source manufacturer, Amgen Inc. Our current contract with Amgen Inc.
covers the period from January 2001 to December 2001 with price guarantees and
volume and outcome based discounts. 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, administration of EPO,
which could materially adversely affect our business, financial condition and
results of operations.

                                        4
7

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 and other claims and, in connection
with the merger, W.R. Grace & Co.-Conn. 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. If events were to violate the
tax-free nature of the merger, the resulting liability would be the obligation
of our principal subsidiary, Fresenius Medical Care Holdings, Inc ("FMCH").
Subject to certain representations made by W.R. Grace & Co.-Conn, FMCH and
Fresenius AG, W.R. Grace & Co.-Conn. also agreed to indemnify us against any
such tax liability. W.R. Grace & Co.-Conn. has filed for reorganization under
Chapter 11 of the U.S. Bankruptcy Code. If W.R. Grace & Co.-Conn.'s obligation
to indemnify us is 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
the merger is determined to be a taxable transaction, our business, financial
condition and results of operations could be adversely affected.

     Proceedings have been brought against W.R. Grace & Co. and FMCH by
plaintiffs claiming to be creditors of W.R. Grace & Co.-Conn., principally
alleging that the merger was a fraudulent conveyance, violated the uniform
fraudulent transfer act, and constituted a conspiracy. For additional
information with respect to these proceedings, with respect to which we have
requested indemnification from W.R. Grace & Co.-Conn, see "Item 8.A.7 -- Legal
Proceedings." If the merger is determined to be a fraudulent transfer, if
material damages are proved by the plaintiffs and we are not able to collect, in
whole or in part on the indemnity, a judgment could have a material adverse
effect on our business, financial condition and results of operations. We
believe that no fraudulent transfer or conspiracy occurred and we intend to
defend the cases vigorously.

WE ARE DEFENDANTS IN LITIGATION BY PRIVATE INSURANCE COMPANIES ALLEGING
INAPPROPRIATE BILLING PRACTICES

     Fresenius Medical Care Holdings, 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." Fresenius Medical Care
Holdings, National Medical Care and its subsidiaries believe that there are
substantial defenses to the claims asserted, have filed counterclaims and intend
to vigorously defend the lawsuits. Other private payors have contacted Fresenius
Medical Care Holdings 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 result of
operations since an adverse determination could result in substantial liability
or changes in our reimbursement arrangements with private insurers.

IF THE POSITION OF THE U.S. HEALTH CARE FINANCING ADMINISTRATION IN THE OBRA 93
DISPUTE IS ULTIMATELY UPHELD, WE COULD BE OBLIGATED TO REFUND UP TO $120 MILLION
TO MEDICARE

     Under the U.S. Omnibus Budget Reconciliation Act of 1993, as initially
interpreted by the U.S. Health Care Financing Administration, which administers
the Medicare and Medicaid programs, employer health plans were the primary payor
for ESRD dual-eligible patients -- i.e., patients age 65 and over who are
eligible for Medicare and covered by an employer health plan. The original
interpretation resulted in increased revenue for National Medical Care because,
during the 18-month period, the rate paid by the employer health plan was
generally in excess of the Medicare rate. In April 1995, the U.S. Health Care
Financing Administration announced a new interpretation of the U.S. Omnibus
Budget Reconciliation Act of 1993 which retroactively eliminated the 18-month
period in which the employer health plan was the primary payor for dual eligible
patients. National Medical Care has obtained a permanent injunction against the
retroactive implementation of this revised interpretation. Its motion for a
declaratory judgment against implementation on a going-forward basis, and the
government's motion for a declaratory judgment that the rule was validly applied
on a prospective basis, are both pending. It is not clear at this time whether
the government intends to appeal the rulings. As of July 1, 1995,
                                        5
8

National Medical Care ceased to recognize the incremental revenue realized under
the original implementation, but continued to bill employer health plans as
primary payors until December 31, 1995. If the government should appeal and be
successful in reversing the rulings, thereby upholding the government's
retroactive implementation of its revised interpretation, National Medical Care
may be required to refund the payments received from employer health plans for
services provided after August 10, 1993 under the original implementation and to
rebill Medicare for the same services. This refunding and rebilling would result
in a net loss to National Medical Care of approximately $120 million for billing
through December 31, 1995.

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, 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 product
manufacturers may elect to limit or terminate their purchases of our dialysis
products so as to avoid purchasing products manufactured by a
                                        6
9

competitor. 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 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.
Clinicians 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 clinicians 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.

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
                                        7
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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.

     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, 2000, our total
consolidated liabilities were $3.30 billion, including obligations with respect
to all our trust preferred securities of approximately $953 million, our total
consolidated assets were $5.98 billion and our stockholders' equity was $2.68
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 the acquisition and
development of additional projects, to compete effectively or to operate
successfully under adverse economic conditions.

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

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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-Kroner-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 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 which we refer to as "our formation" elsewhere in
this report. Pursuant to that agreement, Fresenius AG contributed Fresenius
Worldwide Dialysis, its global dialysis business, including its controlling
interest in Fresenius USA, Inc., in exchange for 35,210,000 Fresenius Medical
Care Ordinary shares. Thereafter, we acquired:

     -  all of the outstanding common stock of W.R. Grace, whose sole business
        at the time of the transaction consisted of National Medical Care, Inc.,
        its global dialysis business, in exchange for 31,360,000 Ordinary
        shares; and

     -  the publicly-held minority interest in Fresenius USA, in exchange for
        3,430,000 Ordinary shares.

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

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CAPITAL EXPENDITURES

     We invested, by business segment and geographical areas, the following
amounts during the three fiscal years ended December 31, 2000, 1999 and 1998 and
have budgeted the following amounts for the year 2001:
ACTUAL
                                                                 (IN MILLIONS)
                                                              --------------------    BUDGET
                                                              2000    1999    1998     2001
                                                              ----    ----    ----    ------
Acquisitions
  North America.............................................  $116(a) $ 65    $170
  International
     Germany................................................    11      --      --
     Rest of World..........................................   161      46      95
                                                              ----    ----    ----     ----
       Total Acquisitions...................................  $288    $111    $265     $100(a)
                                                              ====    ====    ====     ====
Capital expenditures for property, plant and equipment
  North America.............................................  $113    $ 81    $ 75
  International
     Germany................................................    24      24      31
     Rest of World..........................................    91      55      53
                                                              ----    ----    ----     ----
       Total Capital Expenditures...........................  $228    $160    $159     $270
                                                              ====    ====    ====     ====
---------------

(a) Excludes the acquisition of Everest Healthcare Services Corporation on
    January 5, 2001 for a purchase price of approximately $343 million. See
    "Business Overview -- Acquisitions."

     In North America major capital expenditures for the year 2001 are planned
for our manufacturing facility in Ogden, Utah. We have made a $65 million
capital commitment to construct two dialyzer assembly lines and two fiber
spinning lines. Production starts are scheduled between the fourth quarter of
2001 and the second quarter of 2002.

     Major capital expenditures in Japan scheduled for 2001 include a $14
million investment in a second fiber spinning line in Inukai. At our St. Wendel
plant in Germany we plan to build a dialyzer assembly line for production of the
new generation of FX-class dialyzers at an estimated cost of $10 million and we
plan to invest an additional $7 million in a fourth line to produce peritoneal
dialysis solutions. We finance our capital expenditures through cash flow from
operations or under the existing credit facilities.

     For information regarding recent acquisitions, see "Business Overview --
Acquisitions."

DISCONTINUED OPERATIONS

     Effective June 1, 1998, we classified our homecare/non-renal diagnostics
businesses as discontinued operations. Until 1998, through the homecare division
of National Medical Care, we provided intravenous infusion, respiratory
therapies and home medical equipment in the U.S. Through the diagnostic services
division of National Medical Care, we also provided non-renal diagnostic testing
at our own imaging clinics and on-site in physician offices, hospitals and
nursing homes. We sold our non-renal diagnostics business in June 1998 and our
homecare business in July 1998. We retained the assets belonging to the homecare
business and the operations associated with the delivery of intradialytic
parenteral nutrition therapy. For the year ended December 31, 1998, we recorded
net losses after tax of $9 million from operations of discontinued businesses
and $97 million from the disposal of these businesses.

B.  BUSINESS OVERVIEW

OUR BUSINESS

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

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treatment to over 91,900 patients at our 1,270 clinics located in 18 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 are able to use the
information we gain when treating patients in developing new and improved
products. We believe that our size, our activities in both dialysis care and
dialysis products and our concentration in specific geographic areas allow us to
operate more cost-effectively than many of our competitors. For the year ended
December 31, 2000, we had revenues of $4.2 billion, an increase of 9.4% over
1999 revenues. We derived 73% of our revenues in 2000 from our North America
operations and 27% 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, 2000, 1999 and 1998.
2000      1999      1998
                                                              ------    ------    ------
                                                                    (IN MILLIONS)
North America
  Dialysis Care.............................................  $2,608    $2,335    $2,114
  Dialysis Products.........................................     475       472       449
                                                              ------    ------    ------
                                                               3,083     2,807     2,563
International
  Dialysis Care.............................................     336       265       245
  Dialysis Products.........................................     782       768       698
                                                              ------    ------    ------
                                                               1,118     1,033       943
RENAL INDUSTRY OVERVIEW

END-STAGE RENAL DISEASE

     End-stage renal disease 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
that 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 Health Care Financing Administration of the U.S.
Department of Health and Human Services, approximately 13,500 patients, or 4% of
the ESRD patient population, received kidney transplants in the U.S. during
1999. Transplantation rates vary from country to country in Europe. According to
the European Dialysis and Transplantation Association Registry Report for 1996,
2% of new ESRD patients age 15 or over received transplants as the first mode of
treatment in Europe in 1995. 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 and peritoneal dialysis. 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 the most recent data published by the Health Care Financing
Administration of the U.S. Department of Health and Human Services, the number
of patients in the U.S. who received dialysis for chronic ESRD grew from
approximately 66,000 in 1982 to approximately 259,500 at December 31, 1999, or a
compound annual rate of 8.4%. We believe that, over the next five to ten years,
the number of patients suffering from ESRD in the U.S. will continue to grow at
approximately the same rate. The United States Renal Data System (USRDS)
projections to 2010 suggest that the number of both dialysis and transplant
patients will reach levels double those in 1997. According to data from the
Health Care Financing Administration, the European Dialysis and Transplantation
Association and our own internal survey, the number of non-U.S. chronic dialysis

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patients is growing at estimated annual rates of 7% for patients receiving
hemodialysis and 8% for patients receiving peritoneal dialysis. At the end of
1998, an estimated 920,000 patients were undergoing dialysis treatment.
According to our own market surveys, Japan is the second largest dialysis market
in the world with approximately 188,000 dialysis patients. In the rest of the
world, we estimate that at the end of 1998 there were approximately 225,000
dialysis patients in Europe, more than 100,000 patients in Asia (excluding
Japan) and around 90,000 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. In hemodialysis, the blood flows outside the body by
means of 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 by diffusion and ultrafiltration.
Dialysis solution flowing through the dialyzer carries away the waste products
and excess water, and the cleansed blood is returned to the patient. A
hemodialysis machine controls the movement of the blood and dialysis solution.
The 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.

     In addition to standard hemodialysis, hemofiltration is a treatment method
which cleanses an ESRD patient's blood without using dialysis solution. Blood
passes through a semipermeable membrane, which filters out solute particles.
Hemodialfiltration combines the advantages of hemofiltration and hemodialysis,
and provides high elimination rates for small and large molecular weight
substances.

     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. Hemodialysis is the only form of treatment, other than
transplantation, currently available to patients who have very low residual or
nonexistent renal function and whose blood is inadequately cleansed using
peritoneal dialysis.

     According to data from the Health Care Financing Administration, as of
December 31, 1999, there were approximately 3,740 Medicare-certified ESRD
treatment clinics in the U.S. Ownership of these clinics is fragmented. We
estimate that currently, the ten largest multi-facility dialysis providers,
including ourselves, treat approximately 68% of patients. We estimate that there
are approximately 4,200 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 Health Care Financing Administration, as of December 31,
1999, hemodialysis patients represented 88% of all dialysis patients in the U.S.
Our studies suggest that hemodialysis patients comprise 95% of the ESRD patient
population 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

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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. 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.

     In both CAPD and CCPD the patient undergoes dialysis daily, and typically
does not experience the buildup of toxins and fluids which hemodialysis patients
experience on the days they are not treated. In addition, because the patient
need not make frequent visits to a hemodialysis clinic, and can administer the
solution exchanges at convenient, although more frequent, times, a patient on
peritoneal dialysis may experience much less disruption to his or her life than
a patient on hemodialysis. Some aspects of peritoneal dialysis, however, limit
its use as a long-term therapy for some patients. First, some patients cannot
make the required sterile connections of the peritoneal dialysis tubing to the
catheter, leading to excessive episodes of peritonitis. Peritonitis is a
bacterial infection of the peritoneum which can result in serious adverse health
consequences, including death. Second, treatment by current forms of peritoneal
dialysis may not be as effective as hemodialysis in removing wastes and fluids.

OUR STRATEGY

     Our objective is to focus on 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 revenue growth. Our dialysis services and product sales
businesses have grown faster than the market in terms of revenues over the past
five years, and we believe that we are well positioned to meet our objectives by
focusing on the following strategies:

     -  Continue to Provide High Standards of Patient Care.  We believe that our
        reputation for providing the highest standards of patient care is a
        competitive advantage. We believe that our proprietary Patient
        Statistical Profile database, which contains clinical and demographic
        data on approximately 73,400 U.S. dialysis patients, is the most
        comprehensive body of information about dialysis patients in the world.
        In 1998, we initiated our European clinical database to develop a
        comparable body of data from our European dialysis clinics. We believe
        that these databases provide a unique advantage in improving dialysis
        therapy and treatment outcomes, improving the quality and effectiveness
        of dialysis products and reducing mortality rates. By improving dialysis
        outcomes and overall ESRD patient care, we also may be able to contain
        hospitalization and other costs of ESRD treatment.

     -  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. During 2000, we acquired 99 clinics
        and opened 17 new clinics outside the U.S. By December 31, 2000, we
        treated approximately 24,000 patients outside the U.S., an increase of
        approximately 34% over the figure at December 31, 1999. To take
        advantage of the growing trend towards consolidation outside of the
        U.S., we envision making additional acquisitions in selected
        international markets.

       Consistent with this strategy, on June 19, 2000, we acquired
       substantially all of the international and non-continental U.S.
       operations of Total Renal Care Holdings, Inc. (now called DaVita),
       consisting of 87 dialysis clinics treating approximately 5,100 patients
       in Argentina, Italy, the United Kingdom, Puerto Rico and Hawaii.
       Completion of our acquisition of the Puerto Rico operations is subject to
       governmental approvals and third-party consents.

       Furthermore, on January 5, 2001, we acquired Everest Healthcare Services
       Corporation ("Everest"), Oak Park, Illinois through a merger of Everest
       into a subsidiary of Fresenius Medical Care at a purchase price of $343
       million, which includes assumed debt and the issuance of 2.25 million
       Preference shares.
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       Everest owns, operates or manages approximately 70 clinic facilities
       providing therapy to approximately 6,800 patients in the eastern and
       central United States. Everest also conducts extracorporal blood services
       and acute dialysis businesses which provide acute dialysis, apheresis and
       hemoperfusion services to approximately 100 hospitals. We also expect to
       continue to enhance our presence in the U.S. by acquiring individual or
       small groups of dialysis clinics in selected markets, expanding existing
       clinics, and opening new clinics, although we will consider large
       acquisitions in the U.S. if suitable opportunities, such as Everest,
       become available to us.

     -  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 and
        diagnostic services, to both our own clinics and those of third parties.
        We estimate that our Spectra Renal Management division provides
        laboratory services for 40% of the dialysis patients in the U.S. We have
        developed disease state management methodologies, which involve total
        patient care for ESRD patients, that we believe are attractive to
        managed care payors. As part of our plans to develop disease state
        management, we have formed Optimal Renal Care, LLC, a joint venture with
        Southern California Permanente Medical Group, a subsidiary of Kaiser
        Permanente, Inc. which has the largest dialysis patient population of
        any managed care organization, and we have formed Renaissance Health
        Care as a joint venture with participating nephrologists.

     -  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.
        During the year ended December 31, 2000, we obtained approximately 18%
        of our product revenue from machine sales and 82% from sales of
        disposable products. These disposable products provide us with a
        continuing source of revenue from our installed base of dialysis
        equipment.

     -  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 approximately
        220 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. We intend to further
        improve our proprietary, highly automated manufacturing systems to
        continue to reduce product manufacturing costs, concurrently achieving a
        high level of quality control and reliability.

DIALYSIS CARE

DIALYSIS SERVICES

     We provide dialysis treatment and related laboratory and diagnostic
services at our approximately 1,270 outpatient dialysis clinics, 920 of which
are in the U.S. and 350 of which are in 17 countries outside of the U.S. Our
operations outside the U.S. generated 11% of our 2000 dialysis care revenue. We
currently operate dialysis clinics in Argentina, Australia, Brazil, China,
Colombia, Czech Republic, France, Germany, Hungary, Italy, Korea, Portugal,
Spain, Taiwan, Turkey, United Kingdom and Venezuela. Our dialysis clinics are
generally concentrated in areas of high population density. In 2000, we acquired
133 existing clinics, opened 67 new clinics and closed or sold 20 clinics. The
number of patients we treat at our clinics increased by about 15%, from
approximately 80,000 at December 31, 1999 to approximately 91,900 at December
31, 2000.

     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,
                                        14
17

resulting in reduced mortality rates. In addition to our patient databases, we
believe that local physicians, hospitals and managed care plans refer their ESRD
patients to our clinics for treatment due to:

     -  our reputation for quality patient care and treatment;

     -  our extensive network of dialysis clinics, which enables physicians to
        refer their patients to conveniently located clinics; and

     -  our reputation for technologically advanced products for dialysis
        treatment.

     We treat approximately 26% of the dialysis patients in the U.S., and based
on publicly available reports we believe our next largest competitor treats
approximately 15% of U.S. dialysis patients. For the year 2000, dialysis
services accounted for 70% of our total revenue.

     At our clinics, we provide hemodialysis treatments at individual stations
through the use of dialysis machines. 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. Most of our clinics operate two or three patient shifts per
day.

     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 28% of dialysis care revenue in
our North America segment for the twelve months ended December 31, 2000. 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 Inc. covers the period from January 2001 to December 2001
with price guarantees and volume and outcome based discounts.

     We provide other services to ESRD patients in the U.S. including:

     -  administering vitamin D, iron, hepatitis vaccine and blood transfusions;

     -  intradyalitic parenteral nutrition, in which nutrients are added to the
        patient's blood during hemodialysis;

     -  clinical laboratory testing through Spectra Renal Management;

     -  doppler flow testing of the effectiveness of the patient's vascular
        access for dialysis; and

     -  electrocardiograms.

     The patient's attending physician must prescribe these tests and other
services.

     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.

                                        15
18

Contracts with hospitals provide for payment at negotiated rates that are
generally higher than the Medicare reimbursement rates for chronic in-clinic
treatments.

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

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

LABORATORY SERVICES AND RENAL DIAGNOSTICS

     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 three
laboratories, located in New Jersey, Northern California, and Illinois. During
the year ended December 31, 2000, Spectra Renal Management performed
approximately 37 million tests for more than 100,000 dialysis patients across
the U.S. We plan to expand Spectra Renal Management into related markets such as
hospital dialysis units and physician office practices, working particularly
with nephrologists.

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 or joint venture 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 with us to achieve the same goals and
to gain a partner with extensive expertise in dialysis products and services.
While price is typically the key factor in securing acquisitions, we believe
that we will be an attractive acquiror or partner to many dialysis clinic owners
due to:

     -  our reputation for patient treatment;

     -  our proprietary Patient Statistical Profile and European Clinical Data
        databases;

     -  our comprehensive clinical and administrative systems, manuals and
        policies, and our ability to provide ancillary services for dialysis
        clinics and patients; and

     -  our reputation for technologically advanced products.

     We paid aggregate consideration, consisting of both cash and notes, for
acquisitions of new clinics of approximately $288 million in 2000 and
approximately $111 million in 1999.

     On June 19, 2000, we purchased substantially all of the international and
non-continental U.S. operations of Total Renal Care Holdings, Inc. for $145
million. These operations consist of 87 dialysis clinics treating approximately
5,100 patients in Argentina, Italy, the United Kingdom, Puerto Rico, and Hawaii.
Additionally, we made a $10 million non-refundable deposit, not included in the
purchase price noted above, towards the purchase of the Puerto Rico operations.
The purchase of the Puerto Rico operations is pending subject to regulatory
approval and third party consents.

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19

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
through a merger of Everest into a subsidiary of Fresenius Medical Care at a
purchase price of $343 million, which includes assumed debt and the issuance of
2.25 million preference shares. Everest owns, operates or manages approximately
70 clinic facilities providing therapy to approximately 6,800 patients in the
eastern and central United States. Everest also conducts extracorporal blood
services and acute dialysis businesses which provide acute dialysis, apheresis
and hemoperfusion services to approximately 100 hospitals. We also expect to
continue to enhance our presence in the U.S. by acquiring individual or small
groups of dialysis clinics in selected markets, expanding existing clinics, and
opening new clinics, although we will consider large acquisitions in the U.S. if
suitable opportunities, such as Everest, become available to us.

     The U.S. health care industry has experienced significant consolidation in
recent years, particularly in the dialysis service sectors in which we compete,
resulting, in some cases, in increased acquisition prices. Moreover, because of
the ongoing consolidation in the dialysis services industry, the availability of
acquisitions may decrease. Our ability to make acquisitions also will depend, in
part, on our available financial resources and the limitations imposed under our
senior credit agreement and the indentures relating to our trust preferred
securities. These limitations are discussed under " Item 5. Operating and
Financial Review and Prospects". If we are not able to continue to effect
acquisitions in the dialysis care business on reasonable terms, there could be
an adverse impact on growth in our business and on our results of operations. We
regularly evaluate and hold discussions with various other health care companies
and other businesses regarding acquisitions and joint business ventures. In
2000, we completed new acquisitions and acquisitions of previously managed
clinics totaling 133 dialysis facilities providing care to approximately 7,594
patients. These acquisitions expand our presence in selected key geographic
areas.

QUALITY ASSURANCE IN DIALYSIS CARE

     At each of our U.S. dialysis clinics, a quality assurance committee is
responsible for reviewing quality of care reports that our Patient Statistical
Profile system generates, 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 2000, we
developed and implemented a number of programs to assist in achieving our
quality goals. Our Access Intervention Management Program (AIM) detects and
corrects arteriovenous access failure in hemodialysis treatment, which is the
major cause of hospitalization and morbidity. We also developed a
regionalization program to enhance peritoneal dialysis services. Throughout the
United States we initiated a pre-ESRD program to educate patients about
prevention, slowing kidney failure and treatment options. In 2000, we also
completed a patient satisfaction survey which again revealed a high level of
satisfaction among patients visiting our facilities.

     In the International segment our quality management program focuses on
consolidation and coordination of medical matters and activities in our
international dialysis clinics to ensure and improve the quality of renal care
offered in these clinics. These clinics receive quality control guidelines to
monitor factors such as water quality, anemia treatment, and laboratory
services, using indices that are accepted worldwide in the dialysis and
scientific communities. Our system includes review and report procedures for
assessing the progress and effectiveness of our quality control activities. We
coordinate the program with internal corporate audits and audits by third
parties such as regulatory authorities. Management uses the audit reports to
further improve our system by defining additional quality control objectives.

     During 2000, our continuous improvement efforts within the international
quality management group focused on the management of electronic data. We
implemented computerized tools to streamline the handling of customer
complaints. The documentation of our corporate management system was also put on
an electronic platform. Our organizational units successfully completed all
their regulatory audits in 2000. During 2000, additional clinics in Spain and
Italy were organized in line with the ISO 9002 quality standard, with 44
certified clinics at the end of 2000 compared to 37 clinics in 1999. In 2001, we
will continue to have our facilities in Italy, France, Turkey and Hungary
accredited under ISO standards.

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PATIENT DATA COLLECTION AND ANALYSIS

     We engage in systematic efforts to measure, maintain and improve the
quality of the services at our dialysis clinics. Each clinic collects and
analyzes quality assurance and patient data, which our division and corporate
management regularly reviews.

     Our clinical laboratory results have been a critical element in the
development of our proprietary Patient Statistical Profile database, which
contains clinical, laboratory and demographic data on approximately 73,400
dialysis patients in the U.S. We use this database to assist physicians in
providing quality care to dialysis patients. In addition, our Patient
Statistical Profile database is a key resource in ongoing research, both within
our company and at outside research institutions, to decrease mortality rates
among dialysis patients and improve their quality of life.

     In 1998, we began developing our European clinical database. The database
includes a version in each relevant local language and takes into account the
different health care systems of the various European countries. Compilation and
use of the information in this database are designed to comply with applicable
European standards and restrictions relating to patient privacy.

SOURCES OF U.S. DIALYSIS CARE NET REVENUE

     The following table provides information for the years ended December 31,
2000, 1999 and 1998 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,
                                                              --------------------------
                                                               2000      1999      1998
                                                              ------    ------    ------
Medicare ESRD program.......................................   59.1%     60.2%     57.0%
Private/alternative payors..................................   32.1%     30.3%     33.8%
Medicaid and other government sources.......................    4.2%      4.2%      4.1%
Hospitals...................................................    4.6%      5.3%      5.1%
                                                              ------    ------    ------
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. When Medicare assumes
responsibility as the primary payor, it pays for dialysis and specified related
services at 80% of the payment methodology commonly referred to as the Medicare
composite rate. In addition, subject to various restrictions and co-payment
limitations, Medicare pays separately for some dialysis-related diagnostic and
therapeutic services not included in the Medicare composite rate. A secondary
payor is responsible for paying any co-payment, which is typically 20%, other
approved services not paid by Medicare and the annual deductible. The secondary
payor is usually a Medicare supplemental insurer, a state Medicaid program or,
to a lesser extent, the patient or the patient's private insurer. Most of the
states in which we currently operate dialysis clinics provide Medicaid benefits
to qualified recipients to supplement their Medicare entitlement.

     Prior to the time at which Medicare becomes the primary payor for a
patient, another third-party payor, such as the patient's private insurer, or
the patient, pays for most dialysis treatments. ESRD patients under age 65 who
have employer health plan coverage must wait 33 months, which comprises a
three-month entitlement waiting period and an additional 30-month "coordination
of benefits period", before Medicare becomes the primary payor. During this
33-month period, the employer health plan is responsible for payment as primary
payor at its negotiated rate or, in the absence of a negotiated rate, at our
usual and customary rates, which generally are higher than the rates paid by
governmental payors, such as Medicare, and Medicare is the secondary payor. See
"-- Regulatory and Legal Matters -- Reimbursement -- U.S."

     We obtain a significant portion of our revenues for dialysis services from
reimbursement provided by non-governmental third-party payors. Some type of
managed care plan, including health maintenance organizations,

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21

now furnishes a substantial portion of third-party health insurance in the U.S.
Non-governmental payors generally reimburse for dialysis treatments at higher
rates than governmental payors such as Medicare. However, managed care plans
have been more aggressive in contracting with a smaller number of selected
providers willing to furnish services for lower rates and subject to a variety
of service restrictions. For example, managed care plans and traditional
indemnity third-party payors increasingly are demanding alternative fee
structures, such as capitation arrangements. With capitation, a provider
receives a fixed payment per month for each enrolled patient and bears the risk
of loss if the costs of treating a patient exceed the fixed capitation payment.
These market forces have resulted in pressures to reduce the reimbursements we
receive for our services and products.

     Our ability to secure rates with indemnity and managed care plans has
largely been due to the relatively small number of ESRD patients enrolled by any
single health maintenance organization. Regulation has prohibited ESRD patients
from joining a health maintenance organization unless they are otherwise
eligible for Medicare coverage, due to their age or disability, and are members
of a managed care plan when they first experience kidney failure. The Health
Care Financing Administration has a pilot program underway for managed care
companies to treat Medicare ESRD patients under capitated contracts. If
successful, this program could result in the elimination of the regulation that
precludes ESRD patients from enrolling in managed care organizations. If
Medicare health maintenance organization enrollments increase and the number of
ESRD patients in managed care plans also increases, managed care plans' ability
to negotiate lower rates or reduce the services we provide to them may increase.
In addition, the health maintenance organization may have contracted with
another provider, or may have stricter controls on access to certain ancillary
services that we typically provide to ESRD patients. Any of these developments
could limit our future payments for such services.

     We have formed two joint ventures seeking to contract with managed care
organizations for the care of ESRD patients. Renaissance Health Care, Inc. is a
50/50 joint venture between us and participating nephrologists throughout the
U.S. Our other venture, Optimal Renal Care is a 50/50 joint venture between us
and Permanente Medical Group of Southern California. We believe a significant
increase in the number of patients enrolled in managed care plans might also
cause these plans to look more closely at outsourcing ESRD care to ESRD
companies such as our disease state management joint ventures.

     As managed care programs expand market share and gain greater bargaining
power in relation to health care providers, there will be increasing pressure to
reduce the payments for our services and products. These trends would accelerate
if future changes to the Medicare ESRD program require private payors to assume
a greater percentage of the cost of care given to dialysis patients. We are
presently seeking to expand the portion of our revenues attributable to
non-governmental private payors through such measures as our joint venture with
Southern California Permanente Medical Group. However, we believe that the
historically higher rates of reimbursement nongovernmental payors have paid may
not continue at these high levels. If substantially more patients join managed
care plans or managed care plans reduce reimbursements paid to us, our business
and results of operations could be adversely affected, possibly materially. See
"-- Regulatory and Legal Matters -- Reimbursement" and "Anti-Kickback Statutes,
False Claims Act, Stark Law, and Fraud and Abuse Laws."

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. Virtually all of our clinics maintain open staff privileges for
local nephrologists. Our ability to provide quality dialysis care and otherwise
meet the needs of local patients and physicians is central to our ability to
attract nephrologists to our clinics and to receive referrals from such
physicians.

     We market the availability, quality and other advantages of our dialysis
clinics to physicians through symposia and other professional meetings. We
supplement our marketing efforts through distribution of literature and
advertisements in professional journals.

     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
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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.

     We have written agreements with the physicians who serve as Medical
Directors for our clinics. Our U.S. Medical Director agreements generally have
terms of three years, although some have terms of as long as five to ten years.
Our Medical Directors and other physicians under contract individually negotiate
their compensation, which generally depends upon competitive factors in the
local market, the physician's professional qualifications, experience and
responsibilities, the clinic's size and the services it provides. We fix the
aggregate compensation of Medical Directors and other physicians under contract
in advance for a period of one year or more, based in part on various efficiency
and quality incentives. We believe that compensation is paid at fair market
value. In some countries other than the U.S., Medical Director and physician
compensation may include a component based on some measure of the clinic's
financial performance.

     Virtually all of our agreements with our Medical Directors in the U.S., as
well as the typical contract under which we acquire existing dialysis clinics,
include noncompetition covenants covering specified activities within specified
geographic areas for specified periods of time. They do not prohibit the
physicians from providing direct patient care services at other locations. As
required by law, they also do not require a physician to refer patients to us or
particular clinics or to buy or use specific medical products. In certain
states, non-competition covenants may not be enforceable.

COMPETITION

     Dialysis Services.  The dialysis services industry is highly competitive.
Our major competitors in dialysis services include Gambro AB, Da Vita, Inc.
(formerly Total Renal Care), Baxter International Inc., Renal Care Group and the
Kuratorium fur 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. We
believe that we compete effectively in all of these areas. In particular, based
upon our knowledge and understanding of other providers of kidney dialysis, as
well as from information obtained from publicly available sources, we believe
that we are among the most cost-efficient providers of kidney dialysis services.
In addition, as a result of our large size relative to most other dialysis
service providers, we enjoy economies of scale in administrative functions such
as purchasing, billing, collections and data processing.

     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 and Renal Diagnostics.  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. In addition to laboratory services, Spectra Renal
Management competes in the imaging diagnostic market. While the main competitors
are local hospitals, Spectra Renal Management is competitive based upon the
quality and accessibility of its service.
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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 approximately
100 countries. Most of our customers are dialysis clinics. For the year 2000,
dialysis products accounted for 30% of our total revenue.

     We manufacture a comprehensive line of kidney dialysis equipment and
related products for each of the hemodialysis and peritoneal dialysis markets.
Our products include:

     -  hemodialysis machines, peritoneal dialysis cyclers and related
        equipment;

     -  dialyzers;

     -  peritoneal dialysis solutions in flexible plastic bags;

     -  hemodialysis concentrates and solutions and granulate mixes;

     -  bloodlines and disposable tubing assemblies; and

     -  equipment for water treatment in dialysis clinics.

     We also distribute other manufacturers' products, including dialyzers,
special blood access needles, heparin, a drug used to prevent blood clotting,
and commodity supplies such as bandages, clamps and syringes.

OVERVIEW

     The following table shows the breakdown of our revenues for the last three
years from sales of dialysis products between hemodialysis products and
peritoneal dialysis products.
YEAR ENDED DECEMBER 31,
                                                  ------------------------------------------------------
                                                        2000               1999               1999
                                                  ----------------   ----------------   ----------------
                                                   TOTAL              TOTAL              TOTAL
                                                  PRODUCT    % OF    PRODUCT    % OF    PRODUCT    % OF
                                                  REVENUES   TOTAL   REVENUES   TOTAL   REVENUES   TOTAL
                                                  --------   -----   --------   -----   --------   -----
                                                                (U.S. DOLLARS IN MILLIONS)
Hemodialysis Products...........................  $1,060.3     84    $1,033.3     83       922.5     80
Peritoneal Dialysis Products....................     196.5     16       207.4     17       224.6     20
                                                  --------    ---    --------    ---    --------    ---
Total...........................................  $1,256.8    100    $1,240.7    100    $1,147.1    100
                                                  ========    ===    ========    ===    ========    ===
HEMODIALYSIS PRODUCTS

     We offer a comprehensive hemodialysis product line, consisting of
hemodialysis machines, modular accessories for dialysis machines, polysulfone
dialyzers, bloodlines, dialysis solutions and concentrates, fistula needles,
connectors, devices for water treatment, data management systems, dialysis
chairs, machines and supplies for the reuse of dialyzers and other similar
supplies. We 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 introduced our first dialysis machine in 1980, and
our dialysis machines are currently in their fifth generation of development. We
sell our dialysis machines as Series 2008H 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;

                                        21
24

     -  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;

     -  Additional 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. Our most recent module, the Blood
        Volume Monitor(TM) controls removal of excess fluid from the patient;

     -  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 for 15 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(R) 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; and

     -  Cost-efficient production of infusion solution during treatment with our
        ONLINEplus(TM) system for hemofiltration and hemodiafiltration with a
        special dialysis solution filter, DIASAFEplus(R), which provides
        ultrapure dialysis fluid.

     Dialyzers.  We manufacture dialyzers using hollow fiber polysulfone
membranes, a synthetic material. We are the leading worldwide producer of
polysulfone dialyzers. While competitors currently sell polysulfone membranes in
the market, we developed and are the only manufacturer with more than 15 years'
experience in applying the technology required to mass produce polysulfone
membranes. We believe that polysulfone offers the following superior performance
characteristics compared to other materials used in dialyzers:

     -  higher biological compatibility, resulting in reduced incidence of
        adverse reactions to the fibers;

     -  greater capacity to clear uremic toxins from patient blood during
        dialysis, permitting more thorough, more rapid dialysis, resulting in
        shorter treatment time; and

     -  a complete range of permeability, or membrane pore size, which permits
        dialysis at prescribed rates -- high flux, medium flux and low flux, as
        well as ultra flux for acute dialysis, and allows tailoring of dialysis
        therapy to individual patients.

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25

     Our full line of polysulfone dialyzers includes the F70NR, F50NR and F7NR
series of single-use polysulfone dialyzers. We also distribute dialyzers
manufactured by others, primarily to our own dialysis clinics. In North America,
we sell dialyzer reprocessing and rinse machines. These machines cleanse
dialyzers after dialysis, permitting multiple usage for the same patient before
disposal of the dialyzer. Reuse of disposable dialyzers is utilized with patient
and physician consent, and enables hemodialysis providers to reduce operating
costs. We recently announced that we will increase production of single-use
dialyzers at our Ogden, Utah facility to meet demand for these products.

     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(R) connection system for introducing and
        draining dialysis solution into and from the abdominal cavity, using the
        same bag for introduction and drainage. Our A.N.D.Y.(R) and A.N.D.Y.
        Plus(R) systems, which include a special drainage bag and a snap-off
        Y-shaped piece connected to the Safe-Lock(R) connector at the catheter,
        provide protection from contamination in a dual-bag system;

     -  suitability for all peritoneal dialysis patients through the Inpersol(R)
        product line, which we acquired from Abbott Laboratories in 1993.
        Safe-Lock(R) 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(R), a new environmentally friendly plastic
        material for foils, tubings and other parts of peritoneal dialysis
        systems. Biofine(R) was developed by Fresenius AG and launched in 1997
        and has the following significant benefits:

       -- higher biocompatibility through avoidance of plasticisers, which can
          leach into dialysis solutions;

       -- lower gas permeability and less interaction with peritoneal dialysis
          solutions, permitting administration of a wide range of solutions,
          including bicarbonates;

       -- disposal with less harm to the environment. Biofine(R) is manufactured
          with less material and, when burned, releases only carbon dioxide and
          water, rather than dioxins and furans which are released during
          incineration of other foils. This should make our products more
          attractive, especially in Europe, where disposal of harmful plastics
          is highly regulated.

     -  the benefits of Biofine(R) with protection against contamination through
        our new Stay-Safe(R) system, launched in 1997. The system comprises
        tubing, connectors and a peritoneal dialysis solution double bag, made
        entirely from Biofine(R). 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
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       introduction of new solution. The single switch also provides tight
       closure of the line and, to further reduce the possibility of
       contamination, the switch seals catheter access and surrounds the
       catheter adapter with disinfectant;

     -  higher solution bag volumes with our new 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(TM) 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(R), a variant on CCPD therapy we introduced in 1994. PD-PLUS(R)
        therapy provides a more tailored therapy than regular CCPD using a
        simpler nighttime cycler and, where necessary, includes one manual
        dialysis solution exchange during the day. We believe that PD-PLUS(R)
        therapy is less costly and easier to administer than typical CCPD. We
        also believe that PD-PLUS(R) therapy improves toxin removal by more than
        40% compared to CAPD. By increasing the effectiveness of peritoneal
        dialysis treatments, PD-PLUS(R) may also effectively prolong the time
        period during which a patient will be able to remain on peritoneal
        dialysis before requiring hemodialysis. PD-PLUS(R) therapy can only be
        performed using the Fresenius Freedom(TM) Cycler and special tubing
        using Safe-Lock(R) connectors; and

     -  IQcard(TM), for use with the Freedom(TM) Cycler PD-PLUS(R) 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(R), 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.

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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 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. Our Schweinfurt and Walnut Creek facilities also provide training and
act as backups for the regional service centers. We also provide technical
training to employees of hospitals and other health care providers in the use of
our products. We believe our service organizations have a reputation for
reliability and high quality service.

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.

     In 1998, we restructured our Schweinfurt facility to create process units
dedicated to each of the main geographic regions in which we do business. This
market-focused structure enables us to more actively support our worldwide
equipment business with a high level of responsiveness to the needs of different
markets, while realizing economies of scale. The new multi-disciplinary teams
created within this structure have increased productivity, lowered manufacturing
costs by 6% in 1998, 7% in 1999 and 2% in 2000, and improved customer service.
In addition, we were able to increase output of 4008 series hemodialysis
machines by 30% from 9,000 machines in 1999 to 11,700 in 2000. Additionally, we
increased our output of the peritoneal dialysis cycler sleep safe from 200 units
in 1999 to 500 units in 2000. We have implemented just-in-time manufacturing
techniques at this facility and are currently able to produce a hemodialysis
machine in two weeks.

     We manufacture and assemble dialyzers and polysulfone membranes in our St.
Wendel, Germany and Ogden, Utah facilities and at production facilities of our
joint ventures in Belarus and Japan.

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     In 1998, we significantly increased capacity at the St. Wendel facility by
optimizing production processes and by implementing flexible working hours and
in 1999, we further increased capacity by eliminating non-essential
manufacturing at that facility. In 2000 we added another polysulfone hollow
fiber spinning line to satisfy growing demand for the core component of our
dialyzers. Due, in part, to these changes, dialyzer and bloodline production
capacities increased by 6% in 1999 and 25% in 2000. We adapted various
production processes to meet the more technically complex requirements of newly
developed dialyzers. We are currently developing a fully-automated production
line to assure efficient production in future. We also enhanced Polysulfone
dialyzer production at our subsidiaries in France, Saudi Arabia and Belarus. Our
French facility is now the second facility after St. Wendel that can produce our
complete series of polysulfone dialyzers.

     The significant rise in demand for foils and tubings made of our
environmentally-friendly Biofine material led to a 77% increase in production of
our Biofine non-polyvinyl chloride foil and a 63% increase in tubing production.
Production of peritoneal dialysis solution bags and dry concentrates were
expanded by more than 50% and 35%, respectively. In 2000, we commenced
production of bloodline systems at our Antalya, Turkey facility, which will be
integrated into our European network in 2001. In our subsidiary in Japan we are
currently constructing a production plant for peritoneal dialysis solutions
which is currently scheduled to be operational in mid 2001.

     In the North America segment at our Ogden, Utah facility, we commenced
construction of an additional hollow-fiber spinning line in August 1999. This
was the first step in a five-year expansion plan for that facility. The Ogden
facility now operates as a fully integrated manufacturing and research and
development facility for polysulfone dialyzers. An additional dialyzer assembly
and fiber spinning line will be put into operation in 2001 and we recently
announced that we will increase production of single-use dialyzers at our Ogden,
Utah facility by 200% to meet demand for these products. Over the past four
years we have doubled employment at this facility to 960. The creation of
another 1,000 jobs is planned for the coming years. In 2000 we also constructed
a new manufacturing facility for liquid concentrates in Coppel, Texas.

     Each step in the manufacture of our products, from the initial processing
of raw materials through the final packaging of the completed product, is
carried out under controlled quality assurance procedures required by law and
under Good Manufacturing Practices or the Conformite Europeenne (CE)
certification process, as well as under comprehensive quality management
systems, such as the internationally recognized ISO 9000-9004 standards, which
are mandated by regulatory authorities in the countries in which we operate. In
addition, the St. Wendel and Schweinfurt facilities periodically undergo U.S.
Food and Drug Administration inspection. The St. Wendel facility was last
inspected in September 1998. The Schweinfurt facility was inspected by the U.S.
Food and Drug Administration and by the comparable German authority under the
ISO 9000 standard in mid-1999. No material adverse findings were noted at either
facility. Our facilities in Ogden, Utah and Reynosa, Mexico received ISO 9001
certification and approval for CE marking in 1999. In 2000 our facility in
Antalya, Turkey received approval for CE marking and our manufacturing facility
in Walnut Creek, California received ISO 9001 certification.

     Incoming raw materials for solutions undergo tests, such as, infrared,
ultraviolet and physical and chemical analyses to assure quality and
consistency. During the production cycle, sampling and testing take place in
accordance with established quality assurance procedures to ensure the finished
product's sterility, safety and potency. Pressure, temperature and time for
various processes are monitored to assure consistency of semi-finished goods.
Environmental conditions are monitored to assure that particulate and
bacteriological levels do not exceed specified maximums. We maintain continuing
quality control and Good Manufacturing Policies education and training programs
for our employees. See "Regulatory and Legal Matters."

ENVIRONMENTAL MANAGEMENT

     We conduct our operations with a commitment to environmental quality.
Several of our locations have been certified in accordance with ISO 14001, the
international standard for environmental management systems, and the European
Union Eco Audit, a more restrictive audit performed within the European Union.
In 1999, we integrated the existing environmental management systems in our
production plants in St. Wendel and Schweinfurt and our research and development
facilities in Bad Homburg, into our newly created and

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implemented corporate environmental management system. An independent
certification body has certified the new system. We will also start the process
of securing ISO14001 certification for our operations in North America and thus
continue our global efforts to improve the environmental compatibility of our
products, production sites and dialysis clinics.

     We have also implemented a reporting system for the collection of
environmental data in our certified units enabling us to retrieve the relevant
performance indicators and to identify further improvement potential. For
example a survey of our European clinics showed significant saving possibilities
and provided input for further projects in the field of water consumption. The
results of this "Eco-controlling system" will enable us to establish future
targets which should result in savings in environmentally related costs of
approximately 40% during the next few years, combined with positive impacts for
environmental protection.

     Our research and development efforts also focus on environmental
compatibility. For example, our new generation of FX-class dialyzers reduce
weight and volume by 54% and 33% respectively and use an environmentally
improved material composition. Another important project in 2000 was the
development and integration of an environmental management system, based on ISO
14001, into our overall clinic quality management system. A current pilot
project is generating the first implementation experience, and in 2001 we plan
to expand the integration process of this EMS to all our dialysis clinics. We
initiated a total of 13 environmentally related projects in our production plant
in St. Wendel.

     Environmentally related efforts in the U.S. focus on continual waste
minimization programs involving solid, medical and hazardous waste. In dialysis
services, this has been accomplished via quarterly monitoring all medical waste
costs related to the generation of medical waste and proper segregation and
disposal. Regulatory compliance in the environmental area is accomplished
through our internal Environmental Health and Safety Compliance Audit Program
conducted at our locations. Furthermore, we have taken the initiative of
promoting environmentally friendly schemes in the community and intend to
dedicate even stronger focus on waste minimization initiatives in our dialysis
services and our production plant in Ogden, Utah.

SOURCES OF SUPPLY

     We purchase raw materials essential to our dialysis products business
worldwide from numerous suppliers and we have not encountered serious shortages
or delays in obtaining raw materials. To assure continuous high quality in the
International segment, we formed a purchasing consulting center in mid 1998.
This group coordinates supplies and enters into global contracts using
benchmarking and systematic analysis of market and price information. Its major
strategy has been to reach global commercial agreements with harmonized net
prices through economies of scale from standardization of parts or materials and
concentration of suppliers. We have supply agreements extending for up to 3
years for critical raw materials like polymers, granulates and plastics. These
agreements include dual sourcing, multi-plant agreements or approved second
sources to avoid the risk of bottlenecks in our supply chain. For key production
processes, we have the internal capability to benchmark suppliers and/or assume
manufacturing of key parts for internal needs.

     Of 51 supply projects started in 1998 and 29 projects started in 1999 we
have completed 42 fixed agreements. In 2000, we started 31 additional projects,
including projects for other Fresenius affiliates, mainly in the fields of
plastic granulates, packaging materials, injection mouldings, clinical materials
and consulting. An interactive information system connects all global projects
to insure standardization and monitoring by the purchasing consulting center.
Markets in 2000 were characterized by significant price-pressure, principally
for oil and paper, due to in part to the Dollar/euro exchange rate fluctuation.
We were able to partially offset this development through intensive negotiations
and the optimization of our supply distribution. In 2001 the purchasing
consulting center will focus on global contract pooling with external partners,
and we will initiate a strategic re-evaluation of all supplier sourcing
contracts. We have material purchase commitments of approximately $165 million
of materials of which $90 million is committed at December 31, 2000 for fiscal
year 2001. The terms of these agreements run 2-5 years.

     The Materials Management Department of our Dialysis Products Division in
the North America segment is responsible for planning and procuring of $220
million annually from 150 suppliers. It provides production plans

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to our manufacturing locations and manages inventory levels in the distribution
network that delivers supplies to clinics and home patients.

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 $32 million in 2000, $32 million in
1999, and $31 million in 1998.

     We introduced the following new or enhanced products in 2000:

     -  FX-class and Optiflux dialyzers. Both of these dialyzers use
        polysulfone-based Helixone membranes, which significantly increase
        clearance. FX-class dialyzers provide simplified handling and more
        secure treatment and improve waste management, logistics and handling
        through weight reduction and environmentally improved materials.
        Optiflux polysulfone dialyzers deliver small and middle molecular
        weightsolute clearance. Both dialyzers have outstanding
        biocompatibility, continuing our efforts to provide patient care in the
        most biocompatible way.

     -  The 4008 3mix(TM) hemodialysis machine, which is capable of handing
        three different dialysis concentrate components instead of the usual
        two. The 4008 3mix(TM) permits selection of desired sodium and
        bicarbonate concentrations directly at the treatment site and provides a
        high standard of patient safety through enhanced conductivity monitoring
        and specifically coded connectors.

     -  The On-line Clearance Monitor, an options module for the 4008 series of
        dialysis machines, which provides immediate and online information on
        urea clearance and dialysis dose, providing a clear and visible picture
        of treatment efficacy and enabling immediate treatment adjustments to be
        made.

     -  The 2008K hemodialysis machine, introduced in the North American market,
        which provides innovative elements such as improved operator interface,
        an improved blood pump, level detector and heparin pump modules, and
        fluid removal measurement combined with a feedback control mechanism to
        monitor and avoid sudden declines in blood pressure and resulting
        complications.

     -  Our Infrared Data Acquisition, a receiver/ transmitter that can download
        data on completion of treatment to a hand-held computer. Data can then
        be transferred to a PC or PC-network for further processing or immediate
        treatment analysis.

     -  New or improved products for peritoneal dialysis, including:

       -  Stay-safe(R) balance, a more biocompatible peritoneal dialysis
          solution in a dual chamber bag. This product is pH-neutral, which may
          provide longer preservation of the peritoneum as a natural dialysis
          membrane.

       -  the Premier(TM) Plus Double Bag and the Premier(TM) Transfer Set

       -  upgrades to the Freedom(TM) Cycler PD+ and related software, and new
          therapy-planning software.

PATENTS, TRADEMARKS AND LICENSES

     As the owner of or licensee under patents and trademarks throughout the
world, we hold rights under 997 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. For dialysis
machines, patents include:

     -  the location for a filter device for sterile filtering dialysate in the
        dialysis machine circuit;

     -  the safety concept for the ultrafiltration device in a dialysis machine
        used for high flux dialysis;

     -  a process for the on-line preparation of substitution fluid in
        hemodiafiltration machines;

     -  conductivity sensor arrangements in the dialysis machine circuit;
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     -  conductivity sensor devices, mathematical algorithms for using such
        devices;

     -  patents relating to controlled bicarbonate dialysis; and

     -  patents related to thermal balance during dialysis.

     The connector system for our biBag(TM) bicarbonate concentrate powder
container has been patented in the U.S., Norway and Europe while national
applications in Japan and Finland are still pending. Further pending patents
include the new generation of "DIASAFEplus"(R) filters.

     Competitors in Europe and Japan have filed oppositions to the patent family
covering Fresenius Medical Care Polysulfone(R) high flux membranes. Our patents
have been upheld in both Europe and Japan. We successfully defended an appeal in
the European Union, but an appeal by the Japanese competitor is still pending.
While we believe that these patents are valid in the relevant jurisdictions, a
successful opposition could have a material adverse effect on our business.

     Among our more significant patents, the patent for our polysulfone hollow
fiber expires in 2005 in Germany, 2007 in the United States, and at various
dates in 2005 in other jurisdictions. The patent for our in-line sterilization
method expires in 2010 in Germany, 2010 in the United States, and in 2010 in
other jurisdictions, and the patent for our biBag connector expires in 2013 in
Germany, 2013 in the United States, and in 2013 in other jurisdictions. We
believe that 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, we hold rights on the Safe-Lock(TM) system. For
our non-polyvinyl chloride film, known as Biofine(R), indicated for general use
in intravenous and peritoneal dialysis we have a grant patent in Germany as well
as pending patent applications in various countries. Further pending patents
describe a special film for a peelable, non-polyvinyl chloride multi chamber bag
for peritoneal dialysis solutions. Fresenius USA's intellectual property
includes the Inpersol(TM) trademark and rights to certain manufacturing know-how
Fresenius USA obtained from Abbott Laboratories, and a paid-up non-exclusive
global sublicense from Baxter, Inc. to certain CAPD and connector technology.

     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, but intellectual property is 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, licences 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.

     We believe that in the dialysis product market, companies compete primarily
on the basis of product performance, cost-effectiveness, reliability, assurance
of supply and service and continued technological innovation. We believe our
products are highly competitive in all of these areas. Dialysis centers acquired
by other product manufacturers may elect to limit or terminate their purchases
of our dialysis products in order to avoid purchasing products manufactured by a
competitor. We believe, however, that customers will continue to consider our
long-term customer relationships and reputation for product quality in making
product purchasing decisions, and we intend to compete vigorously for these
customers.

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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", and other fraud and abuse laws and
similar state statutes, as well as similar laws in other countries. It is
possible that applicable laws or regulations will be amended, or that
enforcement agencies or the courts will make interpretations inconsistent with
ours or the manner in which we conduct our business. Any one of these events
could have a material adverse effect on our business, reputation, financial
condition and results of operations. 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 enforcing them because enforcement has become a high priority for the
federal government and some states. We, and the health care industry in general,
will continue to be subject to extensive federal, state and foreign regulation,
and we cannot predict the full scope of these regulations.

     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.

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PRODUCT REGULATION

U.S.

     In the U.S., the Food and Drug Administration and comparable state
regulatory agencies impose requirements on our subsidiaries that manufacture and
sell medical products and supplies under their jurisdiction. These rules
require:

     -  compliance with Good Manufacturing Practices in manufacturing medical
        products; and

     -  compliance with Food and Drug Administration rules regulating,

       -- product design;

       -- safety;

       -- advertising and labeling; and

       -- record-keeping and reporting of adverse events.

     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 cell separators) for
human use, we must satisfy mandatory procedures and safety and efficacy
requirements established by the Food and Drug Administration or comparable state
and foreign governmental agencies. These rules generally require that the Food
and Drug Administration approve products as safe and effective for their
intended use prior to being marketed. The Food and Drug Administration has
designated peritoneal dialysis solutions as drugs and, as such, they are subject
to additional Food and Drug Administration regulation under the Food, Drug and
Cosmetic Act of 1938.

     The approval process is expensive, time consuming and subject to
unanticipated delays. The Food and Drug Administration may also prohibit the
sale or importation of products, order product recalls or require post-
marketing testing and surveillance programs to monitor a product's effects. We
believe that we have filed for or obtained all necessary approvals for the
manufacture and sale of our products in jurisdictions in which those products
are currently produced or sold. We cannot assure that we will obtain necessary
regulatory approvals or clearances within reasonable time frames, if at all. Any
delay or failure to obtain regulatory approval or clearances could have a
materially adverse effect on our business, financial condition and results of
operations.

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 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.

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     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 July 1993, we obtained our
first certificates for successfully running full quality management systems
under the ISO 9001 standard.

     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. The European Union began to harmonize national regulations
comprehensively for the control of medical devices in Europe in 1993, when it
adopted its Medical Devices Directive. In 1995, Germany implemented this
directive when it adopted the Medical Devices Act (Medizinproduktegesetz), which
is similar in many ways to the German Drug Law. The European Union 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 Conformite Europeenne, 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.

     The Medical Devices Directive became mandatory on June 15, 1998. Our Series
4008, 4008B, 4008E dialysis machines and their therapy modifications, and our
PD-NIGHT(R) 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 subject virtually
all clinical laboratory testing facilities, including our facilities, to the
jurisdiction of Department of Health and Human Services. That act establishes
national standards for assuring the quality of laboratories based upon the
complexity of testing performed by a laboratory. Some of our operations also
subject us to federal laws governing the repackaging and dispensing of drugs and
the maintenance and tracking of certain life sustaining and life-supporting
equipment.

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

     Federal, state and local regulations require that we meet 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, and dispensing of controlled
substances. All of our operations 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 clinics, renal
diagnostic support business and laboratories must have Health Care Financing
Administration certification. All of our dialysis clinics and laboratories that
furnish Medicare services have the required certification.

     Some of our facilities and 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 we must meet to qualify for payments
under Medicare, Medicaid and other government reimbursement programs. Licenses
and approvals to operate these clinics and conduct certain professional
activities are customarily subject to periodic renewal and to revocation upon
failure to comply with the conditions under which they were granted.

     Occupational Safety and Health Administration regulations require employers
to provide employees who work with blood or other potentially infectious
materials with prescribed protections against blood-borne and air-borne
infection carriers. The regulatory requirements apply to all health care
facilities, including dialysis clinics, laboratories and renal diagnostic
support businesses, and require that employers determine which employees may be
exposed to blood or other potentially infectious materials and have in effect a
written exposure control plan. In addition, employers are required to provide
hepatitis B vaccinations, personal protective equipment, blood-borne infection
training, post-exposure evaluation and follow-up, waste disposal techniques and
procedures, engineering and work practice controls and other programs required
by the Occupational Safety and Health Administration for blood-borne and
air-borne infection carriers.

     Some states in which we operate have certificate of need 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 and the District
of Columbia and Puerto Rico that have certificate of need laws applicable to
dialysis clinics. These requirements may provide a barrier to entry to new
companies seeking to provide services in these states, but also may constrain
our own ability to expand our operations in these states.

Germany and Other Non-U.S.

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

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

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

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

REIMBURSEMENT

U.S.

     Dialysis Services.  Our dialysis clinics provide outpatient hemodialysis
treatment and related services for ESRD patients. In addition, some of our
clinics offer services for the provision of peritoneal dialysis and hemodialysis
treatment at home.

     The Medicare program is the primary source of revenue for the North America
segment's dialysis care business. For example, in 2000, approximately 59% of
dialysis care revenue in the U.S. or approximately 37% of our revenue worldwide
resulted from Medicare's ESRD program. As described below, the Medicare program
reimburses the North America segment for dialysis treatment and related
laboratory services in accordance with the Medicare composite rate for some
products and services rendered at our dialysis clinics. As described in the next
paragraph, other payment methodologies apply to Medicare reimbursement for other
products and services that we provide at our dialysis clinics and for products
that we sell and support services we furnish to ESRD patients receiving dialysis
treatment at home. 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 and recurring revenue per treatment.

     When Medicare assumes responsibility as primary payor, as described below
under "Coordination of Benefits," Medicare is responsible for payment of 80% of
the Medicare composite rate set by the Health Care Financing Administration for
dialysis treatments. The Medicare composite rate governs the Medicare
reimbursement available for a designated group of dialysis services, including
the dialysis treatment, supplies used for treatment, specified laboratory tests
and specified medications. The Medicare composite rate consists of labor and
nonlabor components with adjustments made for regional wage costs, subject to a
national payment rate schedule. The Medicare composite rate for 2001 was
increased by an average of 2.4% (as a result of set increases over the year),
with a new payment ceiling of $144 per treatment. Some exceptions are paid at a
higher rate based on specific criteria.

     Medicare reimburses us for home dialysis using two methods based on which
supplier is selected to provide dialysis supplies and equipment. In Method I
reimbursement, the dialysis clinic is designated as the supplier. Under Method
I, the clinic provides all dialysis treatment related services, including
equipment and supplies, and is reimbursed using a methodology based on the
Medicare composite rate. In Method II reimbursement, our dialysis products
division is designated as the direct supplier. Under Method II, our dialysis
products division provides the patient directly with all necessary equipment and
supplies and is reimbursed by Medicare subject to a capitated ceiling. Clinics
provide home support services to Method II patients and these services are
reimbursed at a monthly fee for service basis subject to a capitated ceiling.
The reimbursement rates under Method I and Method II differ, although both are
prospectively determined and are subject to adjustment from time to time by the
U.S. Congress.

     Some items and services that we furnish at our dialysis clinics are not
included in the Medicare composite rate and are eligible for separate Medicare
reimbursement, typically on the basis of established fee schedule amounts. These
items and services include specified drugs such as EPO, blood transfusions and
some diagnostic tests.

     Medicare payments are subject to change by legislation and pursuant to
deficit reduction measures. The Medicare composite rate was unchanged from
commencement of the Medicare ESRD program in 1972 until 1983. From 1983 through
December 1990, numerous congressional actions resulted in a net reduction of the
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average reimbursement rate from $138 per treatment in 1983 to approximately $125
per treatment in 1990. The U.S. 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.

     We cannot 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 dialysis services business. In
addition, because the demand for products is affected by Medicare reimbursement,
a decline in reimbursement rates could also adversely affect 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.

     Patients or their third-party insurance carriers, 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. Payment of these amounts -- typically the annual
deductible and 20% co-insurance -- is subject to the specific coverage policies
of the payors. The extent to which we are actually paid the full co-payment
amounts depends on the particular responsible party. Each third-party payor,
including Medicaid, makes payment under contractual or regulatory reimbursement
provisions which may or may not cover the full 20% co-payment or annual
deductible. Where the patient has no third-party insurance or the third party
insurance does not cover co-payment or deductibles and the patient is not
eligible for Medicaid, the patient is responsible for paying the co-payments or
the deductible. We frequently do not collect these amounts in full despite
reasonable collection efforts. Under an advisory opinion from the Office of the
Inspector General, subject to specified conditions, we and other similarly
situated providers may make contributions to a non-profit organization that has
volunteered to make premium payments for supplemental medical insurance and/or
medigap insurance on behalf of indigent ESRD patients, including 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, the Medicare composite rate paid to our dialysis clinics includes
payment for some routine tests. For those services, the dialysis clinics obtain
the services from a laboratory and pay the laboratory for the services. In
accordance with industry practice, Spectra Renal Management usually provides
composite rate 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 Medicare composite rate at the designated
frequencies. In October 1994, the Office of the Inspector General issued a
special fraud alert in which it stated its view that the industry practice of
providing tests covered by the Medicare 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 (Medicare
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, Spectra Renal Management performs laboratory tests for Medicare
beneficiaries that are not included in the Medicare composite rate and are
separately billable directly to Medicare. Medicare pays for these tests at 100%
of the Medicare fee schedule amounts, which are limited by national ceilings on
payment rates, called National Limitation Amounts. The U.S. Congress has
periodically reduced the fee schedule rates and the National Limitation Amounts
with the most recent reductions in the National Limitation Amounts occurring in
January 1998. (As part of the Balanced Budget Act of 1997, the U.S. Congress
lowered the National Limitation Amounts from 76% to 74% effective January 1,
1998.) The U.S. Congress has also approved a five year freeze on inflation
adjustments based on the Consumer Price Index for 1998-2002.

     Medicare insurers have aggressively implemented its Local Medical Review
Policies, which limit coverage for certain clinical laboratory services to an
established list of diagnosis codes supporting medical necessity. These policies
establish criteria under which laboratory tests will be considered medically
necessary only if the patient's condition is reflected in specified diagnosis
codes. They also establish rules limiting the frequency of certain laboratory
tests. Provisions in the Balanced Budget Act of 1997 require the Secretary of
Health and Human Services to adopt uniform coverage and payment policies for
laboratory testing by July 1, 1999. The
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adoption of additional coverage policies would reduce the number of covered
services and could materially affect our revenues. Laboratory tests are ordered
only by physicians based on their patients' needs.

     Intradyalitic parenteral nutrition.  Among its other services, Spectra
Renal Management administers intradyalitic parenteral nutrition, a form of
nutritional therapy, to chronic dialysis patients who suffer from
gastrointestinal malfunctions. The Medicare program covers these services under
the Medicare parenteral and enteral nutrition benefit, which requires extensive
documentation and individual physician certification of medical necessity for
each patient. Intradyalitic parenteral nutrition therapy has been shown to
increase the body content of vital, high biologic value proteins like albumin.
Deficiency of such proteins, on both a long-term and short-term basis, has been
shown to be associated with substantially higher risk of death among dialysis
patients.

     Spectra Renal Management has continued to provide intradyalitic parenteral
nutrition therapy to malnourished dialysis patients who meet current Medicare
coverage criteria. Analyses of data from our patient statistical profile
database, both internal and as published in peer-reviewed medical journals,
indicate that intradyalitic parenteral nutrition is effective in increasing
serum albumin levels -- a recognized measure of malnutrition -- and moderating
mortality risk for malnourished patients with certain low serum albumin levels.

     Under the corporate integrity agreement, we agreed to submit claims for
payment of intradialytic parenteral and other nutrition therapy in accordance
with the coverage criteria of the Health Care Financing Administration as in
effect from time to time.

     Erythropoetin.  In 1999, the Office of the Inspector General and the
Clinton Administration announced their intention to seek a 10% reduction in
Medicare reimbursement for EPO. Although this proposal was not enacted, 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 chronic dialysis treatment at a dialysis clinic
commences. During the first three months, considered to be a waiting period, the
patient or the patient's insurance company, Medicaid or a state renal program
are responsible for payment.

     Patients who have Medicare coverage and are also covered by an employer
group health plan are subject to a 30-month coordination period during which the
employer group health plan is the primary payor and Medicare the secondary
payor. During this coordination period the employer group health plan pays a
negotiated rate or, in the absence of such a rate, our standard rate or a rate
defined by the health plan documents. These 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.

     Patients who already are eligible for Medicare coverage based on age when
they become ESRD patients are dual eligible patients. If these patients have an
employer group health plan that is their primary payor for covered services then
these patients will have a 30 month coordination period. If Medicare is already
the primary payor when ESRD entitlement begins, Medicare remains the primary
payor, the employer group health plan is the secondary payor and no coordination
period will apply. All ESRD patients or patients over 65 who do not have a
health insurance retirement benefit plan can purchase Medigap plans.

     Possible Changes in Medicare.  Because the Medicare program represents a
substantial portion of the federal budget the U.S. Congress takes action
frequently to modify the Medicare program by refining the amounts payable to
health care providers. Future legislation or regulations could substantially
modify or reduce the amounts paid for our services and products. It is also
possible that future statutes or regulations may impose additional eligibility
requirements for participation in the federal and state health care programs.
Any such new legislation or regulations may adversely affect our businesses and
results of operations.

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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 more than 60% of the clinics providing dialysis care and services are
publicly owned, nearly 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 and Asia, privately owned clinics predominate,
constituting more than 60% of all clinics providing dialysis care. 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 possible 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 spending and these costs may be considered a target for
implementation of cost containment measures. Today,
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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

     Some of our operations are subject to U.S. 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. These laws include the anti-kickback statutes,
health care fraud statutes, the False Claims Act, the Stark Law, other U.S.
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 our dialysis clinics and other operations and
order diagnostic and therapeutic services from them. As is generally true in the
dialysis industry, at many dialysis facilities 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 clinic that is convenient to the patient
and at which the patient's nephrologist has staff privileges. Virtually all of
our clinics maintain open staff privileges for local nephrologists. Our ability
to provide quality dialysis care and to otherwise meet the needs of patients and
local physicians is central to our ability to expand our dialysis facilities.

     The U.S. federal government, many states and private third-party insurance
payors have made combating health care waste, fraud and abuse one of their
highest enforcement priorities, resulting in increasing resources devoted to
this problem. Consequently, the Office of the Inspector General and other
enforcement authorities are increasing scrutiny of arrangements between
physicians and health care providers for possible violations of the
anti-kickback statutes or other federal laws

ANTI-KICKBACK STATUTES

     The U.S. federal anti-kickback statutes establish 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 U.S.
federal health care programs. Sanctions for violations of the anti-kickback
statutes 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
statutes, 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 statutes.

FALSE CLAIMS ACT AND RELATED CRIMINAL PROVISIONS

     The False Claims Act imposes civil penalties for making 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 reimbursement. Moreover, private individuals may bring qui tam or
"whistle blower" suits against providers under the False Claims Act. In a
"whistle blower" action, the private plaintiff asserts the government's alleged
claims under the False Claims Act, which also authorizes the payment of a
portion of any recovery to the individual bringing suit. Private plaintiffs must
initially file a qui tam action under seal until the Department of Justice
reviews the action. A few federal district courts have recently interpreted the
False Claims Act as applying to claims for reimbursement that violate the
anti-kickback statutes under certain circumstances. The False Claims Act
generally provides for civil penalties of $5,000 to $10,000 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 item within a claim could be deemed to be a separate violation
of the

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False Claims Act. Criminal provisions that are similar to the False Claims Act
provide that if a corporation is convicted of presenting a claim or making a
statement that it knows to be false, fictitious or fraudulent to any federal
agency it may be fined not more than twice any pecuniary gain to the
corporation, or, in the alternative, no more than $500,000 per offense. Some
states also have enacted statutes similar to the False Claims Act which may
include criminal penalties, substantial fines, and treble damages.

THE HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT OF 1996

     The Health Insurance Portability and Accountability Act of 1996 was enacted
in August 1996 and substantively changed U.S. federal fraud and abuse laws. The
act:

     -  expanded the reach of fraud and abuse laws to all federal health care
        programs;

     -  established new bases for exclusions from government health programs and
        mandated minimum exclusion terms;

     -  created an additional exception to the anti-kickback penalties for
        risk-sharing arrangements;

     -  required the Secretary of Health and Human Services to issue advisory
        opinions;

     -  increased civil monetary penalties to $10,000 (formerly $2,000) per item
        or service and assessments to three times (formerly twice) the amount
        claimed;

     -  created a specific health care offense of health care fraud applicable
        to all payors and related health fraud crimes; and

     -  expanded investigative authority and sanctions applicable to health care
        fraud.

     The act 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.

BALANCED BUDGET ACT OF 1997

     The Balanced Budget Act of 1997 contained sweeping adjustments to both the
Medicare and Medicaid programs, and further expanded the fraud and abuse laws.
Specifically, the Act 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 the Secretary of Health and Human Services may deny entry into the
Medicare program to any provider or supplier convicted of any felony if entry is
deemed to be detrimental to the best interests of the Medicare program or its
beneficiaries.

     The Balanced Budget Act of 1997 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.

     Finally, the Balanced Budget Act of 1997 created a Medicare+Choice Program
that is designed to provide a variety of options to Medicare beneficiaries,
almost all of whom may enroll in a Medicare+Choice Plan. The options include
provider sponsored organizations, coordinated care plans, health maintenance
organizations with and without point of service options involving out-of-network
providers, and medical savings accounts offered as a demonstration project.

                                        39
42

STARK LAW

     The original Stark Law, known as "Stark I" was enacted as part of the U.S.
Omnibus Budget Reconciliation Act of 1989, and 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 certain exceptions apply. 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 also prohibits the entity receiving the referral from filing a
claim or billing for services arising out of the prohibited referral.

     Provisions of the U.S. Omnibus Budget Reconciliation Act of 1993, 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 to prohibit similar Medicaid Designated Health
Services referrals where a financial relationship exists. The provisions of
Stark II generally became effective on January 1, 1995. The additional
Designated Health Services include:

     -  physical therapy services;

     -  occupational therapy services;

     -  radiology services, including magnetic resonance imaging, computer axial
        tomography scans and ultrasound services;

     -  durable medical equipment and supplies;

     -  parenteral and enteral nutrients, equipment and supplies;

     -  home health services;

     -  outpatient prescription drugs; and

     -  inpatient and outpatient hospital services.

     Proposed regulations implementing Stark I and Stark II, published on
January 9, 1998, would specifically exempt EPO as a Designated Health Service if
it is provided to ESRD patients as part of a renal dialysis treatment plan.
Further, the proposed regulations discussing durable medical equipment would
exclude ESRD equipment and supplies from coverage as a Designated Health
Service. Outpatient prescription drugs and in-hospital treatments would also be
excluded because the ESRD benefit is distinguished under Medicare from the
durable medical equipment benefit.

     Several states in which we operate have enacted self-referral statutes
similar to the Stark Law. These 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
health care 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.

     Violations of numerous rules under the applicable 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, trigger various civil
monetary penalty provisions. 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.

                                        40
43

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 the executive
branch are continuing to consider many health care proposals, some of which are
comprehensive and far-reaching in nature. Several states of the U.S. and many of
the countries in which we do business 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 health care industry financing and regulation, which could have a
material adverse effect on our business, financial condition and results of
operations.

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 Structure Chart

                                        41
44

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
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
Reynosa, Mexico...................      13,936         owned                                  Manufacture of bloodlines
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 28, 2003         Corporate headquarter and
                                                                                              administration --
                                                                                              Asia-Pacific
Milson Point, Australia...........         557        leased        30th June 2003 no         Administration
                                                                    renewal option
Smithfield, Australia.............       5,350         owned                                  Manufacture of hemodialysis
                                                                                              concentrate solutions
                                                                                              Warehouse
Auckland, New Zealand.............       2,043        leased        31st March 2001           Administration
Pusat, KL, Malaysia...............       4,060        leased        15 March 2002 with an     Administration
                                                                    additional extended
                                                                    2-year renewal option to
                                                                    15 March 2004 based on
                                                                    market rental rate
                                                                    prevail
42
45
CURRENTLY
                                                        OWNED
                                      FLOOR AREA      OR LEASED
                                     (APPROXIMATE    BY FRESENIUS
LOCATION                            SQUARE METERS)   MEDICAL CARE   LEASE EXPIRATION          USE
--------                            --------------   ------------   ----------------          ---
Taipei, Taiwan....................       5,940        leased        December 2003             Administration
Tokyo, Japan......................       1,153        leased        January 1999 with 5-year  Administration
                                                                    renewal option
Inukai, Japan.....................
  -- Land                               24,084         owned                                  Manufacture of polysulfone
                                                                                              dialyzers and filters
  -- Building                            2,142         owned
Buzen, Japan......................      37,094         owned                                  Manufacture of peritoneal
                                                                                              dialyzers
Seoul, South Korea................       1,554        leased        Aug. 15 2001              Administration
Lexington, Massachusetts..........      18,581        leased        October 2007 with 5-year  Corporate headquarters and
                                                                    renewal option            administration -- North
                                                                                              America
Walnut Creek, California..........       7,897        leased        June 2002 with 5-year     Manufacture of Hemodialysis
                                                                    renewal option            machines and peritoneal
                                                                                              dialysis cyclers; research
                                                                                              and development
                                         1,625        leased                                  Warehouse Space -- Machine
                                                                                              components
Ogden, Utah.......................      41,807         owned                                  Manufacture polysulfone
                                                                                              membranes and dialyzers and
                                                                                              peritoneal dialysis
                                                                                              solutions; research and
                                                                                              development
Delran, New Jersey................       3,902        leased        October 2002 with 5-year  Manufacture of liquid
                                                                    renewal option            hemodialysis concentrate
                                                                                              solutions
Perrysburg, Ohio..................       3,252        leased        August 2008               Manufacture of dry
                                                                                              hemodialysis concentrates
Livingston, California............       2,973        leased        October 2001, with        Manufacture of liquid
                                                                    5-year renewal option     hemodialysis concentrates
Chicago, Illinois.................          63        leased        March 2005                Clinical laboratory testing
Freemont, California..............       6,688        leased        July 2003 with 3-year     Clinical laboratory testing
                                                                    renewal option
Rockleigh, New Jersey.............       7,897        leased        June 2005 with two        Clinical laboratory testing
                                                                    5-year renewal options
Miami, Florida....................         400        leased        Month to Month            Administration
Irving, Texas.....................       6,503        leased                                  Manufacture of liquid
                                                                                              hemodialysis solution
---------------

(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-

                                        43
46

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.

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

     -  intense competition;

     -  foreign exchange rate fluctuations;

     -  varying degrees of acceptance of new product introductions;

     -  changes in reimbursement rates;

     -  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.

OVERVIEW

     Effective January 1, 1998, we adopted Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information issued by the U.S. Financial Accounting Standards Board. Commencing
with the period ended March 31, 1999, we identified three operating segments,
North America, International, and Asia Pacific, that we determined based upon
how we 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. Our
management board member responsible for the profitability and cash flow of each
segment's various businesses supervises the management of each operating
segment. The accounting policies of the operating segments are the same as those
we apply in preparing our consolidated financial statements under accounting
principles generally accepted in the United States of America.

     Our management evaluates each segment using a measure that reflects all of
the segment's controllable revenues and expenses. Our management believes the
most appropriate measure in this regard is earnings before interest and taxes,
or EBIT, which measures our source of earnings. Financing is a corporate
function which segments do not control. Therefore, we do not include interest
cost as a segment measurement. We also regard
                                        44
47

taxes to be outside the segment's control. In addition to EBIT, our management
also believes that earnings before interest, taxes, depreciation and
amortization, or EBITDA, is helpful for investors as a measurement of the
segment's and our company's ability to generate cash and to service our
financing obligations. EBITDA is also the basis for determining compliance with
certain covenants contained in our senior credit agreement and the indentures
relating to our outstanding trust preferred securities.

     You should not consider 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.

     During 1998, we had discontinued operations because we divested our
homecare and non-renal diagnostics businesses. Our results of operations for
1998 also reflect an accounting change relating to start-up costs because in
that year we adopted Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities as issued by the Accounting Standards Executive Committee of
the American Institute of Certified Public Accountants. Where appropriate, we
have restated our quarterly financial information for 1998 to show the results
of discontinued operations and to reflect the cumulative effect of the
accounting change.

     We obtained approximately 40% of our worldwide revenue for 2000 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.

     Our discussions relating to our consolidated financial condition and
results of operations for 1999 reflect the effects of our agreement to settle
with the U.S. government and the resulting special charge for the settlement
costs (hereafter "the special charge"). The discussion of the disaggregated
results of operations of the North America segment excludes the effect of the
special charge.

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. We reorganized this
information and reclassified prior period information to conform with our
business segment reporting requirements and to distinguish between continuing
and discontinued operations and the cumulative effect of the accounting change
as previously noted.

                                        45
48

                           FRESENIUS MEDICAL CARE AG

                                  SEGMENT DATA
                           (U.S. DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31,
                                                                --------------------------
                                                                 2000      1999      1998
                                                                ------    ------    ------
Total revenue
  North America.............................................    $3,085    $2,811    $2,565
  International.............................................     1,155     1,076       986
                                                                ------    ------    ------
     Totals.................................................     4,240     3,887     3,551
                                                                ------    ------    ------
Inter-segment revenue
  North America.............................................         2         4         2
  International.............................................        37        43        43
                                                                ------    ------    ------
     Totals.................................................        39        47        45
                                                                ------    ------    ------
Total net revenue
  North America.............................................     3,083     2,807     2,563
  International.............................................     1,118     1,033       943
                                                                ------    ------    ------
     Totals.................................................     4,201     3,840     3,506
                                                                ------    ------    ------
EBITDA
  North America.............................................       646       611       549
  International.............................................       270       243       228
  Special charge for Settlement.............................        --      (601)       --
  Corporate.................................................        (2)      (10)       (9)
                                                                ------    ------    ------
     Totals.................................................       914       243       768
                                                                ------    ------    ------
Amortization and depreciation
  North America.............................................       223       217       215
  International.............................................        69        65        62
  Corporate.................................................         1         2         2
                                                                ------    ------    ------
     Totals.................................................       293       284       279
                                                                ------    ------    ------
EBIT
  North America.............................................       423       394       334
  International.............................................       201       178       165
  Special charge for Settlement.............................        --      (601)       --
  Corporate.................................................        (3)      (12)      (10)
                                                                ------    ------    ------
     Totals.................................................       621       (41)      489
                                                                ------    ------    ------
Interest income.............................................         9         8         8
Interest expense............................................      (195)     (226)     (228)
Interest expense on obligation related to Settlement........       (30)       --        --
Income tax (expense) benefit................................      (190)       12      (135)
Minority interest...........................................        (3)       (2)       (2)
Loss from discontinued operations, net......................        --        --      (106)
Cumulative effect of accounting change, net.................                  --        (7)
                                                                ------    ------    ------
Net income (loss)...........................................    $  212    $ (249)   $   19
                                                                ======    ======    ======
46
49

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     Net revenues for the year ended December 31, 2000 increased by 9% (12% at
constant exchange rates) to $4,201 million from $3,840 million for the
comparable period in 1999. Net income for the year was $212 million as compared
to a net loss of $249 million in 1999. The net loss of $249 million in 1999 was
a result of the special charge of $601 million ($419 million after tax) relating
to the Settlement. Excluding the effects of the special charge during 1999, net
income for the year 2000 increased by 24% (34% at constant exchange rates) or
$42 million.

     Earnings per Ordinary share in 2000 were $2.37 compared to a loss per
Ordinary share of $3.15 in the prior year. Excluding the effects of the special
charge, earnings per Ordinary share increased by 10% from $2.15 in 1999.

     At December 31, 2000 we owned, operated or managed 1,270 clinics compared
to 1,090 clinics at the end of 1999. During 2000, we acquired 133 clinics with a
total of 7,594 patients, opened 67 clinics and disposed of 20 clinics.

     The number of patients treated in clinics that we own, operate or manage
increased from approximately 80,000 in 1999 to 91,900 at the end of 2000.
Approximately 12,900,000 treatments were provided in the year 2000; an increase
of 13% from 11,400,000 treatments for the comparable period in 1999. Average
revenue per treatment remained stable at $228.

     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 IN 1999.

NORTH AMERICA SEGMENT

     Revenue.  Net revenue for the North America segment for 2000 grew by 10%
from $2,807 million to $3,083 million.

     Dialysis care revenue increased by 12% to $2,608 million, 9% attributable
to base business revenue growth and 3% to acquisitions. The increase in dialysis
care revenue resulted primarily from a $201 million (9%) increase in the number
of treatments, reflecting both base business growth and the impact of 1999 and
2000 acquisitions. Revenue was also favorably impacted by an increase in revenue
per treatment of approximately $72 million (3%) as a result of increased
Medicare reimbursement rates, higher revenue from disease state management
programs and higher revenues in other pharmaceuticals compared to 1999. For the
years 2000 and 1999 EPO represented approximately 28% of dialysis care revenue
or approximately 22% of total revenue.

     The 1.2% increase of the Medicare composite rate for dialyisis services
(59% of dialysis care revenue in 2000 resulted from Medicare's ESRD program)
generated an additional $9 million in revenue in 2000. We expect that an
additional 2.4% increase, approved in December 2000, will have a positive impact
on our revenues for 2001. Laboratory testing revenues increased as a result of
higher patient volume.

     At the end of 2000 approximately 67,900 patients were treated in the 920
clinics that we own, operate or manage in the North America segment, compared to
approximately 62,000 patients treated in 849 clinics at the end of 1999. The
average revenue per treatment excluding laboratory testing revenue increased
from $253 in 1999 to $261 in 2000. Including laboratory testing the average
revenue per treatment increased from $264 in 1999 to $272 in 2000.

     Dialysis products revenue increased 1% to $475 million. Dialysis product
volume revenue increased approximately $8 million or 2% as a result from
increased sales of hemodialysis products, partially offset by decreased sales of
peritoneal products. Product revenue growth was slightly (1%) affected by
decreasing prices. The consolidation process in the dialysis care business also
affected product business growth. As integrated product and service providers
acquire stand alone dialysis clinics, the external market for products
decreases. The lower revenue in peritoneal products is also a result of a
decreasing external market.

     EBITDA.  EBITDA for the North America segment grew by 6% due to increased
treatment volume, improved treatment rates, higher earnings in other
pharmaceuticals, increased earnings from laboratory testing

                                        47
50

and net foreign currency transaction gains. These increases were partially
offset by costs to develop new therapies, costs to develop disease state
management methodologies, higher personnel costs due to the tight labor market
for medical personnel in the U.S. and an industry-wide price increase for
Epogen, the key drug in anemia management.

     Amortization and Depreciation.  Amortization and depreciation decreased
slightly as a percentage of revenue in 2000. This was mainly due to the impact
of internal revenue growth while amortization and depreciation has remained
fairly constant at $222 million.

     EBIT.  EBIT for the North America segment increased by 7% due to the
increase in EBITDA and the positive impact of the decreased percentage of
amortization and depreciation to revenue as previously mentioned.

INTERNATIONAL SEGMENT

     Revenue.  In 2000 the appreciation of the U.S. dollar against the euro
significantly impacted our International segment. Net revenue for the
International segment increased by 8% (19% at constant exchange rates) from
$1,033 million in 1999 to $1,118 million in 2000. Acquisitions, primarily Total
Renal Care, contributed $88 million, approximately $30 million in the European
region, $46 million in the Latin America region and $12 million in the Asia
Pacific region. Base business growth during the period was 10% at constant
exchange rates. Including the effects of acquisitions, Asia Pacific region
revenue increased $39 million or 29% (26% at constant exchange rates), and Latin
America region revenue increased $65 million or 44% (49% at constant exchange
rates). European region revenue decreased by 3% from $748 million in 1999 to
$728 million in 2000 (12% increase at constant exchange rates) due to the
appreciation of the U.S. dollar against the euro mentioned above.

     Total dialysis care revenue increased by 27% (40% at constant exchange
rates) from $265 million in 1999 to $336 million in 2000. Base business growth
consisted of approximately $27 million (10%) increase in the number of dialysis
care treatments, offset by approximately $35 million (13%) due to exchange rate
fluctuations. Average revenue per treatment increased by approximately 3% or $9
million before the impact of currency fluctuations. Acquisitions, primarily
Total Renal Care, contributed approximately $70 million (26%) to total dialysis
care revenue.

     At the end of 2000, approximately 24,000 patients were treated at 350
clinics that we own, operate or manage in the International segment compared to
18,000 patients treated at 241 clinics at the end of 1999.

     Total dialysis product revenue for 2000 increased by 2% (12% at constant
exchange rates) to $782 million. Product volume increased by approximately $121
million (16%) which was offset by lower average pricing of approximately $48
million (6%) due to the competitive nature of the market. The increase in
product revenues was further offset by approximately $78 million (10%) due to
exchange rate fluctuations. Acquisitions contributed approximately $18 million
(2%) to total product revenue.

     EBITDA.  EBITDA for the International segment for 2000 grew by 11% (25% at
constant exchange rates) from $243 million to $270 million primarily due to the
increased revenue noted above.

     EBIT.  EBIT for the International segment for 2000 increased by 13% (27% at
constant exchange rates) from $179 million to $201 million due to the increased
EBITDA mentioned above and stable depreciation and amortization as a percentage
of revenue.

CORPORATE

     We do not allocate "corporate costs" to our segments in calculating segment
EBIT and EBITDA. These corporate costs primarily relate to certain headquarter
overhead charges including accounting and finance, professional services, legal
fees, etc.

     Total corporate EBIT was $(3) million in 2000 compared to $(12) million in
1999. EBIT in 2000 was primarily affected by net foreign currency transaction
gains of $12 million related to intercompany financing. Excluding these net
gains, corporate costs would have increased by approximately $3 million,
resulting primarily from increased compensation expense relating to our
international stock option plan. For more information
                                        48
51

regarding our international stock option plan, see "Item 6.E. Share Ownership --
Options to Purchase Our Securities -- Stock Option Plans."

THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS, EXCLUDING THE
EFFECTS OF THE SPECIAL CHARGE IN 1999.

     Cost of revenue and operating expenses.  Cost of revenue increased as a
percentage of revenue mainly due to costs to develop new therapies, costs to
develop disease state management methodologies, higher personnel cost in the
U.S. and an industry-wide price increase for EPO. However, the resulting
decrease of our gross profit margin was more than offset by decreased selling,
general and administrative expenses as a percentage of revenue, mainly due to
effective general cost controls and net foreign currency transaction gains.

     Interest.  Interest expense for 2000 remained relatively constant compared
to the same period in 1999. Interest expense related to the note payable
associated with the Settlement amounted to approximately $30 million. This
additional interest expense was offset by the reduced interest expense related
to lower other borrowings, resulting from the use of the $557 million net
proceeds received from the Preference share offerings completed during 2000. We
anticipate higher interest expense in 2001 due to the debt increase in
connection with the acquisition of Everest Healthcare Services Corporation (see
"Liquidity and Capital Resources.")

     Income Taxes.  The effective tax rate for the year decreased from 49.5% in
1999 to 46.9% in 2000 due to the capitalization of tax loss carry forwards and
because non-deductible amortization of goodwill relating to acquisitions was
lower, as a percentage of taxable income, for 2000 compared to the same period
in 1999.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     Net revenues from continuing operations for the year ended December 31,
1999 increased by 10% (11% at constant exchange rates) to $3,840 million from
$3,506 million for the comparable period in 1998. Net loss for the year was $249
million, a decrease of $268 million from net income of $19 million for the
comparable period in 1998. The loss was a result of the special charge and
related costs of $601 million ($419 million after tax) relating to the
Settlement. Excluding the effects of the special charge net earnings from
continuing operations increased by 29% (32% at constant exchange rates) to $170
million from $132 million in 1998.

     The loss per Ordinary share from continuing operations was $3.15. Earnings
per Ordinary share from continuing operations would have been $2.15, excluding
the effects of the special charge, as compared to $1.62 for the same period in
the prior year. Income from continuing operations for 1998 was impacted by the
after tax effects of an accounting change of $7 million and losses on the sale
of discontinued businesses of $106 million. This resulted in net income of $19
million for 1998.

     At December 31, 1999 we owned, operated or managed 1,090 clinics compared
to 1,000 clinics at the end of 1998. During 1999 we acquired 36 clinics with a
total of 2,531 patients, opened 71 clinics and disposed of 17 clinics.

     The number of patients treated in clinics that we own, operate or manage
increased from 74,200 in 1998 to 80,000 at the end of 1999. Approximately
11,400,000 treatments were given in 1999; an increase of 9% from 10,450,000
treatments for the comparable period in 1998. The respective average revenue per
treatment increased from $226 in 1999 to $228 in 2000.

     The following discussions pertain to our business segments and the measures
we use to manage these segments. These discussions are based on continuing
operations unless otherwise indicated. THE NORTH AMERICA SEGMENT DISCUSSION
EXCLUDES THE EFFECTS OF THE SPECIAL CHARGE.

NORTH AMERICA SEGMENT

     Revenue.  Net revenue for the North America segment for 1999 grew by 10%
from $2,563 million to $2,807 million. This resulted from a 10% increase in
dialysis care revenue to $2,335 million and a 5% increase in dialysis products
revenue to $472 million. The increase in dialysis care revenue resulted
primarily from an 8% increase in treatments, the beneficial impact of the
extension of the Medicare Secondary Payor provision and

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higher EPO utilization as compared to 1998. This growth was partially offset by
decreased laboratory testing revenues derived from lower laboratory testing
volume during 1999 as competitors consolidated laboratory activity. Acquisitions
contributed 2% of dialysis care revenue growth. The increase in dialysis product
revenue was due to increased sales of hemodialysis products, partially offset by
decreased sales of peritoneal dialysis products.

     At the end of 1999 approximately 62,000 patients were treated in 849
clinics that we own, operate or manage in the North America segment compared to
58,600 patients treated in 782 clinics at the end of 1998.

     EBITDA.  EBITDA for the North America segment prior to the effects of the
special charge grew by 11% due to the increase in our base business, improved
treatment rates, and increased ancillary services. Product revenue growth,
product mix and improvements in manufacturing efficiencies from increased
production volume also contributed to the increased EBITDA growth. However,
decreased EBITDA in laboratory testing partially offset this growth.

     Amortization and Depreciation.  Amortization and depreciation decreased
slightly as a percentage of revenue, in 1999. This was mainly due to the impact
of internal revenue growth while amortization and depreciation has remained
fairly constant.

     EBIT.  EBIT for the North America segment prior to the effects of the
special charge increased by 18% due to the increase in EBITDA and the positive
impact of the decreased rate of amortization and depreciation to revenue as
previously mentioned.

INTERNATIONAL SEGMENT

     Revenue.  Net revenue for the International segment during 1999 grew by 10%
(14% at constant exchange rates) from $943 million in 1998 to $1,033 million in
1999 as a result of a 4% (8% at constant exchange rates) increase in the
European region, 38% (28% at constant exchange rates) growth in the Asia Pacific
region and a 21% (40% at constant exchange rates) increase in the Latin America
region. Total dialysis care net revenue increased during 1999 by 8% (14% at
constant exchange rates) to $265 million. This increase is a result of base
business growth, as evidenced by the 12% increase in dialysis care treatments.
Total dialysis product net revenue for 1999 increased by 10% (14% at constant
exchange rates) to $769 million. Product volume increased by approximately $123
million which was offset by lower average pricing of approximately $28 million
(4%).

     At December 31, 1999 approximately 18,000 patients were treated in 241
clinics that we owned, operated or managed in the International segment compared
to 15,600 patients treated in 218 clinics at the end of 1998.

     EBITDA.  EBITDA for the International segment for 1999 grew by 7% (11% at
constant exchange rates) primarily as a result of the increased revenue noted
above. During the beginning of 1999 we elected to reduce shipments of equipment,
which would normally have higher EBITDA margins, to some Eastern European
countries due to the economic situation in that region, which partially offset
EBITDA growth in the International segment. We also reduced fiber shipments to
the North America segment during 1999 due to increased fiber production
capabilities in that segment, which also offset EBITDA growth.

     Amortization and Depreciation.  Amortization and depreciation, as a
percentage of revenue, decreased slightly for 1999. This is mainly due to the
impact of internal revenue growth while straight-line amortization of goodwill
associated with prior years' acquisitions has remained fairly constant.

     EBIT.  EBIT for the International segment for 1999 increased by 8% (12% at
constant exchange rates) as a result of the increased EBITDA mentioned above and
the positive impact of the decreased rate of amortization and depreciation to
revenue as previously mentioned.

THE FOLLOWING DISCUSSIONS PERTAIN TO OUR TOTAL COMPANY COSTS.

     Interest.  Interest expense for 1999, remained relatively constant compared
to the same period in 1998 as a result of similar levels of average debt
outstanding during the two periods.

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     Income Taxes.  Excluding the effects of the Settlement, the effective tax
rate was 49.5% for 1999 and 50.2% for 1998. The tax benefit of the Settlement
was limited to $182 million, reflecting the non-deductibility of $101.2 million
in criminal fines included in the net settlement payments. The 1998 effective
income tax rate was reduced primarily by the use of net operating losses that
became realizable after the transfer of ownership of National Medical Care's
international business to the International business segment at the beginning of
1998. As a result of a reduction of the German federal corporate income tax rate
for undistributed earnings from 45% to 40% effective the first quarter of 1999,
our net deferred taxes and deferred income tax expense during 1999 were reduced
by approximately $1 million.

B.  LIQUIDITY AND CAPITAL RESOURCES

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

     We generated cash from operating activities of $391 million in 2000 and
$355 million from continuing operations in the comparable period in 1999. A net
increase in our accounts receivable balance reduced net cash provided by
operating activities. The primary reason was a significant increase in days
sales outstanding resulting from slower payment patterns from third parties
outside of Germany, specifically from managed care plans in the U.S. Days sales
outstanding were also negatively impacted by the slowdown of the certification
process for newly opened clinics in the U.S. Furthermore acquisitions, mainly
outside Germany and the U.S., and base business growth in countries where we
experience higher days sales outstanding contributed to this increase. Cash on
hand was $65 million at December 31, 2000 compared to $35 million at December
31, 1999.

     On January 18, 2000, we executed definitive agreements with respect to the
Settlement. The agreements require net settlement payments totaling
approximately $427 million, of which $14 million had been paid prior to January
1, 2000. This net amount reflects payments to us of approximately $59 million
for Medicare receivables from the U.S. government. During the year 2000 after
court approval of the Settlement, we made payments of $387 million, including
initial cash payments of $286 million, and we received $54 million from the U.S.
government for our outstanding Medicare receivable claims for intradialytic
parenteral nutrition therapy rendered on or before December 31, 1999. We wrote
off $94 million of these receivables at December 31, 1999 in anticipation of the
final settlement.

     Under the definitive agreements with the U.S. government, we entered into a
note payable for the remainder of the settlement obligation. Installment
payments under the note will accrue interest at 6.3% on approximately $51
million of the obligation and at 7.5% annually on the balance, until paid in
full.

     The note is payable in six quarterly installments which began in April 2000
and end in July 2001. The first four quarterly installments have been paid in
the amount of approximately $35 million each, including interest at 7.5%. The
first three of these four payments were made in April, July and October 2000 and
the fourth installment was made in January 2001. The final two installments of
approximately $28 million each, including interest at 6.3%, will be paid in
April and July 2001. At December 31, 2000, the note payable balance was
approximately $86 million. The U.S. government has agreed to remit the balance
of our outstanding Medicare receivables in four quarterly payments of
approximately $5 million each, plus interest at 7.5%. We received the first
three quarterly payments in May, August and October 2000 and the final payment
in February 2001.

     We amended the letter of credit that National Medical Care delivered to the
U.S. government in 1996 from $150 million to $190 million and, under the
agreement, the letter of credit will be reduced as we continue to make
installment payments to the government. At December 31, 2000, the letter of
credit was reduced to $89 million.

     In December 1999, we and the lenders under our senior credit facility
amended the financial ratios in the senior credit facility to accommodate our
obligations under the settlement agreements and to enable us to continue in
compliance with our senior credit facility as we fulfill the settlement
obligations. On September 21, 2000 the National Medical Care Credit Agreement
was amended in order to increase the facility for accounts receivable
securitization and some other credit facilities. The lenders also agreed that
the proceeds of the Preference share offerings during 2000 did not trigger
repayment obligations on the term loan portion of the facility but may be used
for capital expenditures and acquisitions.

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     On March 2, 2000, we issued 8,974,359 non-voting Preference shares to a
limited number of institutional and other accredited investors in exchange for
the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. Franconia's principal
asset at the time of this transaction was $350 million in cash. For financial
reporting purposes, the transaction, which generated net proceeds of $344
million, has been accounted for as a financing at fair value. The investors have
agreed not to effect sales or transfers of the Preference shares for a period of
24 months after issuance, except as permitted by the contribution agreement.
After this time, the investors will have the right to require, under specified
conditions, that we register the Preference shares for sale under the Securities
Act of 1933, as amended, and provide them with assistance in connection with
public offerings of their Preference shares outside the United States.

     On May 31, 2000, we paid a cash dividend of $51 million for 1999 in the
amount of E 0.75 on each Preference share, excluding the Preference shares
issued on March 2, 2000, and E 0.69 on each Ordinary share. In 1999 we paid
dividends per Preference share of E 0.64 and E 0.59 per Ordinary share for an
aggregate amount of $48 million. Our managing board and our supervisory board
have proposed dividends for 2001 of E 0.84 per Preference share and E 0.78 per
Ordinary share. These dividends are subject to approval by our shareholders at
our annual general meeting to be held on May 23, 2001. Under the terms of our
senior credit agreement we are restricted as to the level of dividends we may
pay in any calendar year, which was $78 million for 2000. Annual dividend
distributions by our subsidiary, National Medical Care, in any year, may not
exceed 50% of its consolidated net income of the preceding year as defined in
our senior credit agreement. These payment restrictions do not apply to any of
our other subsidiaries.

     On June 19, 2000, we purchased substantially all of the international and
non-continental U.S. operations business of Total Renal Care Holdings, Inc. for
$145 million. Additionally, we made a non-refundable deposit, not included in
the purchase price noted above, towards the purchase of the Puerto Rico
operations. The purchase of the Puerto Rico operations is pending, subject to
regulatory approval and third party consents.

     On July 26, 2000, we completed a public offering of 5,000,000 Preference
shares for net proceeds of approximately $185 million. In addition, on July 28,
2000, the underwriters of the public offering exercised options to purchase an
additional 750,000 Preference shares increasing the total net proceeds from the
public offering to approximately $213 million.

     On October 26, 2000, we increased our accounts receivable facility from
$360 million to $500 million, and extended its maturity to October 25, 2001.
Under the terms of the amended facility, the interest rate is based upon the
commercial paper rate, which was approximately 6.59% at December 31, 2000. At
December 31, 2000, we had received $445 million, and at December 31, 1999, $335
million, pursuant to sales of our receivables under the facility, which are
reflected as reductions to accounts receivable. Under the terms of the facility,
we sell new interests in accounts receivable as collections reduce previously
sold accounts receivable. We expense the cost related to these sales as we incur
them and record the costs as interest expense and related financing costs.

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
("Everest"), Oak Park, Illinois through a merger of Everest into a subsidiary of
the company for $343 million, including Everest's outstanding debt. One third of
the purchase price was paid through the issuance of 2,250,000 Preference shares
on January 5, 2001. The remaining part of the acquisition was financed out of
the proceeds of the Preference share offerings completed during 2000.

     Acquisitions during the year 2000 totaled $275 million (excluding
International segment non-cash acquisitions of $14 million), $116 million in the
North America segment and $159 million in the International segment.
Acquisitions for the comparable period in 1999 were $101 million (excluding
International segment non-cash acquisitions of $10 million), $65 million for the
North America segment and $36 million for the International segment. We believe
that an increasing percentage of our dialysis care growth will be derived from
worldwide markets and we envision making acquisitions in selected international
markets. In the U.S., we generally intend to continue to enhance our presence in
the market by focusing our expansion on the acquisition of individual or small
groups of clinics, expansion of existing clinics, and opening of new clinics.
Nevertheless, we will consider large acquisitions in the U.S. if suitable
opportunities, such as Everest, become available to us.

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     In addition, capital expenditures for property, plant and equipment were
$228 million for the year 2000 and $160 million in 1999. In 2000, capital
expenditures in the North America segment were $113 million and $115 million for
the International segment. In 1999, capital expenditures in the North America
segment were $81 million and $79 million in the International segment. The
majority of our capital expenditures were used for improvements to existing
clinics, equipment for new clinics and expansion of production facilities.

     Total long-term debt, net of current portion at December 31, 2000,
increased to $658 million from $654 million at year-end 1999. We reduced our
short-term borrowings from related parties from $330 million to $218 million at
December 31, 2000. Short-term borrowings from third parties increased from $96
million in 1999 to $107 million in 2000. As of December 31, 2000, the unused
portion of our senior credit facility was approximately $698 million.

     In January 2000, dollar interest rate swap agreements with a notional
amount of $850 million expired as scheduled. In November 2000, we entered into
additional dollar interest rate swap agreements with a notional amount of $450
million. At the same time, a dollar interest rate collar agreement with a
notional amount of $150 million was closed out. As of December 31, 2000, the
notional volume of dollar interest rate hedging contracts totalled $1,050
million. Those swap agreements, which expire at various dates between 2003 and
2007, effectively fix our variable interest rate exposure on the majority of our
dollar-denominated revolving loans and outstanding obligations under the
accounts receivable securitization program at an interest rate of 6.52%. Under
our senior credit agreement, we have agreed to maintain at least $500 million of
interest rate protection. In March 2000, we entered into a yen interest rate
swap agreement with a notional amount of Japanese Yen 400 million, in line with
a yen-denominated floating-rate borrowing of our Japanese subsidiary. In
September 2000, both the bank borrowing and the notional amount of the interest
rate swap agreement were increased as scheduled to Yen 1,000 million. The bank
borrowing and the notional amount of the swap agreement will always coincide
until March 2009 when the bank debt is completely repaid and the swap expires.

     We believe that our existing credit facilities, cash generated from
operations and other current sources of financing are sufficient to meet our
foreseeable needs. If cash flows from operations or availability under existing
banking arrangements fall below expectations, we may have to consider other
alternatives to maintain sufficient liquidity. We cannot assure that we will be
able to do so on satisfactory terms, if at all.

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

     We generated cash from operating activities of continuing operations of
$355 million in 1999 and $268 million in the comparable period in 1998. Cash on
hand was $35 million at December 31, 1999 compared to $32 million, at December
31, 1998.

     In December 1999, we and the lenders under our senior credit facility,
amended certain covenants in the senior credit facility to accommodate our
obligations under the settlement agreements with the U.S. government and to
enable us to continue in compliance with the covenants upon consummation of the
settlement.

     We declared and paid dividends of E 0.64 and E 0.56 per Preference share in
1999 and 1998, respectively, and E 0.59 and E 0.51 per Ordinary share in 1999
and 1998, respectively. We paid aggregate dividends of $48 million and $45
million, including $1 million in arrearages for 1996, during the second quarter
of 1999 and 1998, respectively.

     We made acquisitions of $101 million in 1999 (excluding International
segment non-cash acquisitions of $10 million) and $223 million (excluding the
North America segment non-cash acquisitions of $42 million) in 1998. In 1999,
$65 million of acquisitions were made in North America and $36 million of
acquisitions (excluding the non-cash acquisitions) were made in the
International segment. In 1998, $128 million of acquisitions (excluding non-cash
acquisitions) were made in the North America segment and $94 million of
acquisitions were made in the International segment.

     In addition, capital expenditures for property, plant and equipment were
$160 million in 1999 and $159 million in 1998. In 1999, $81 million of capital
expenditures was made in the North America segment and $79 million of capital
expenditures were made in the International segment. In 1998, $75 million of
capital expenditures was made in the North America segment and $84 million of
capital expenditures was made in the
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International segment. Capital expenditures were used for automation of
production processes and increased production capacity, internal expansion,
improvements, furnishings and equipment. We believe that an increasing
percentage of our dialysis care growth will be derived from worldwide markets
and we envision making acquisitions in selected international markets. In the
U.S., we generally intend to continue to enhance our presence in the market by
focusing our expansion on the acquisition of individual or small groups of
clinics, expansion of existing clinics, and opening of new clinics.
Nevertheless, we will consider large acquisitions in the U.S. if suitable
opportunities become available to us.

     On September 27, 1999, we increased our accounts receivable facility from
$331 million to $360 million, and extended its maturity to September 25, 2000.
Under the terms of the amended facility, the interest rate is based upon the
commercial paper rate, which was approximately 5.90% at December 31, 1999. At
December 31, 1999, we had received $335,000 and at December 31, 1998, $305,600,
pursuant to sales of our receivables under the facility, which are reflected as
reductions to accounts receivable. Under the terms of the facility, we sell new
interests in accounts receivable as collections reduce previously sold accounts
receivable. We expense the costs related to these sales as we incur them and
record the costs as interest expense and related financing costs.

     Managed care plans typically remit reimbursement more slowly than
traditional indemnity plans. As a result of an increase in the percentage of net
revenues we derive from managed care plans from 10% in 1998 to 12% in 1999 (an
increase in net revenues of approximately $45 million), there was an increase in
the days sales outstanding for third party payors. In addition, 1999 was the
first full year of the extension of Medicare Secondary Payor regulations that
increased the coverage period for commercial payors from 18 to 30 months thereby
increasing the average balance of receivables as commercial payors generally pay
at a higher rate than government payment programs. The increase in days
outstanding and the increase in the average receivable amount resulted in a
corresponding increase in our allowance for doubtful accounts as it is
calculated based on a percentage of gross accounts receivable. Any negative
impact to liquidity related to the increase in days sales outstanding is
mitigated by the increase in revenues and the higher reimbursement generally
received from third party payors.

     Total long-term debt net of current portion at December 31, 1999, decreased
to $654 million from $1,081 million at year-end 1998, primarily as a result of
an increase in short-term borrowings from related parties. Short-term borrowings
from related parties increased to $330 million at December 31, 1999 from $60
million at December 31, 1998, with interest rates from 7.06% to 7.44% and
maturities in less than 90 days. Other short-term borrowings decreased by
approximately $13 million from year-end 1998 to $96 million at year-end 1999.
Funds generated from operations were used to fund capital expenditures and
acquisitions as well as dividends. The remainder was used to reduce long-term
debt.

     If cash flows from operations or availability under existing banking
arrangements fall below expectations, or if we are unsuccessful in amending our
existing banking agreements, we may be required to consider other alternatives
to maintain sufficient liquidity.

RECENTLY ISSUED ACCOUNTING STANDARDS

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for financial
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The statement also provides the
criteria for determining whether a derivative may be specifically designated as
a hedge of a particular exposure with the intent of measuring the effectiveness
of that hedge in the statement of operations. In June 2000, the Financial
Accounting Standards Board issued SFAS No. 138, which amended certain provisions
of SFAS 133, including amendments allowing foreign-currency denominated assets
and liabilities to qualify for hedge accounting, permitting the offsetting of
certain inter-entity foreign currency exposures that reduce the need for third
party derivatives and redefining the nature of interest rate risk to avoid
sources of ineffectiveness. We are adopting SFAS 133, and the corresponding
amendments under SFAS 138 effective as of January 1, 2001.

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     After adoption, gains and losses in fair value of recognized assets and
liabilities and firm commitments of operating transactions as well as gains and
losses on derivative financial instruments designated as fair value hedges of
these recognized assets and liabilities and firm commitments will be recognized
currently in earnings.

     After adoption, changes in the value of foreign currency forward contracts
designated and qualifying as cash flow hedges of forecasted transactions will be
reported in accumulated other comprehensive income. These amounts will
subsequently be reclassified into earnings, as a component of the forecasted
transaction, in the same period as the forecasted transaction affects earnings.

     The adoption of SFAS 133, as amended by SFAS 138, results in the recording
of assets related to forward currency contracts of approximately $13,072. The
offset to this transition adjustment will be recorded to other comprehensive
income at an amount of $1,465 and to net income at an amount of $11,607. Because
of corresponding entries concerning the hedged items, the net effect on earnings
will be immaterial. Additionally, a liability for interest rate swaps of
approximately $25,146 will be recorded. The offset will be recorded to other
comprehensive income.

     In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
as well as examples of how the SEC staff applies revenue recognition guidance to
specific circumstances. In June 2000, SAB 101B was issued by the SEC further
delaying the implementation date for SAB 101 until the fourth quarter of the
fiscal year beginning after December 15, 1999. The impact of the adoption of SAB
101 is not significant.

     In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-014,
Accounting for Certain Sales Incentives, which establishes accounting for point
of sales coupons, rebates, and free merchandise. This EITF requires that an
entity report these sales incentives that reduce the price paid to be netted
directly against revenues. EITF 00-014 is effective no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The impact of the
adoption of EITF-00-14 is not significant.

     In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25.
The effects of applying this interpretation are required to be recognized on a
prospective basis from July 1, 2000. The application of this interpretation did
not have a material effect on our financial position or results of operations.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125. SFAS No. 140
provides the accounting and reporting standards for securitizations and other
transfers of financial assets and collateral. These standards are based on
consistent application of a financial-components approach that focuses on
control. This Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral for fiscal years
ending after December 15, 2000. There is no impact for the adoption of SFAS No.
140

EURO CONVERSION

     Germany, our country of domicile, is one of the eleven members of the
European Union who have adopted the euro as their currency. We have changed our
functional currency to euro effective January 1, 1999, but will continue using
the U.S. dollar as our reporting currency. In addition, at our general meeting
on June 2, 1999, our shareholders approved the currency conversion of our share
capital to euro from Deutsche Mark. All internal reporting entities situated in
the eleven member states are submitting their reports in euro. The euro
conversion may affect cross-border competition by creating cross-border price
transparency. In our business, patients may not have the luxury to "shop"
cross-border due to the nature of their illness, the type of reimbursement
program they are enrolled in and the fact that they maintain a medical
relationship with their supplier, a doctor or clinic.

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CONTINGENCIES

     We are a plaintiff in litigation against the U.S. federal government with
respect to the implementation of the Omnibus Budget Reconciliation Act of 1993.
We are also a defendant in significant commercial insurance litigation relating
to the same alleged practices that were the subject of the recently settled
government investigations and in litigation alleging that the transactions in
which we were formed and acquired National Medical Care constituted a fraudulent
transfer. An adverse outcome in any of these matters could have a material
adverse effect on our business, financial condition and results of operations.
Because of the significant complexities and uncertainties associated with these
proceedings, we cannot provide either an estimate of the possible loss or range
of loss we may incur in respect of such matters, and a reserve based on any such
estimate cannot be reasonably made.

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.

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
220 employees working in research and development worldwide at December 31,
2000. 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 $31 million in 1998, $32 million in
1999, and $32 million in 2000. 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. We
expect that as our dialysis products business continues to expand
internationally, research and development activities will rely primarily on the
research and development activities conducted at St. Wendel, Bad Homburg, and
Schweinfurt, which will transfer the production technology they develop to our
production centers. 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

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     Our scientific service and consulting activities during 2000 focused both
on product-related scientific issues and providing consultation to the
nephrology community on these issues.

     In order to promote the exchange of new ideas in nephrology and dialysis
and to strengthen our role in the international scientific community, we have
established the "International Exchange Program for Young Nephrologists". With
our financial support and close scientific cooperation young scientists
worldwide are given the opportunity to work at renowned European research
institutions. We closely work together with international nephrology experts in
writing treatment recommendations for the most important topics in chronic and
end-stage renal failure. In the beginning of 2000 we published a treatment
recommendation on renal anemia. This was followed by a publication on renal
osteodystrophy and cardiovascular risk factors in the journal "Nephrology,
Dialysis, and Transplantation" in autumn 2000. These recommendations will be
translated into different languages and distributed to our customers.
Recommendations on further topics, such as nutrition and vascular access will be
published in 2001.

D.  TREND INFORMATION

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

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

GENERAL

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

OUR SUPERVISORY BOARD

     Our supervisory board consists of six members who are elected by the
holders of Ordinary shares at our annual general meeting. Pursuant to the
pooling agreements described below under "Description of Pooling Agreements," 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, i.e.,
persons with no substantial business or professional relationship with us,
Fresenius AG or any affiliate of either.

     If and when either:

     -  Fresenius Medical Care AG itself has more than 500 employees; or

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

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

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

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

     The table below provides the names and ages of the members of our
supervisory board.
AGE AS OF
                                                              DECEMBER 31,
NAME                                                              2000
----                                                          ------------
Dr. Gerd Krick, Chairman....................................       62
Dr. Dieter Schenk, Deputy Chairman..........................       48
Prof. Dr. Bernd Fahrholz....................................       52
Dr. Theo Spettmann..........................................       56
Walter L. Weisman(1)........................................       65
Stephen M. Peck(1)..........................................       65
--------------------

     (1) Independent Director

     The term for each member of the supervisory board set forth above will
expire in 2001. Members of the supervisory board are eligible for reelection.

     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 Universitat 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 Norr Stiefenhofer Lutz since 1986. Dr. Schenk is also a member of the
supervisory board of Fresenius AG and a member and vice-chairman of the
supervisory board of Greiffenberger AG and a member of the supervisory boards of
Schmidt Bank KGaA and Feintechnik Eisfeld GmbH.

     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. Dr. Fahrholz is
also a member of the supervisory boards of ASTA Medica AG; BNP-Dresdner European
Bank AG; DEGI Deutsche Gesellschaft fur Immobilienfonds mbH; Deutsche
Hypothekenbank Frankfurt-Hamburg AG; Deutsche Schiffsbank AG (Chairman); Diskont
und Kredit AG; dresdnerbank investment management Kapitalanlagegesellschaft mbH;
Dresdner Bank Lateinamerika Aktiengesellschaft (Vice Chairman); Dresdner Capital
International Kapitalanlagegesellschaft mbH; Dresdner Kleinwort Benson North
America Inc.; Dynamit Nobel AG; Kommanditgesellschaft Allgemeine Leasing GmbH &
Co. (Chairman); Oldenburgische Landesbank AG; and 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 Sudzucker AG since 1988
and Spokesman of the management board of Sudzucker AG since 1995. Dr. Spettman
also sits on the supervisory boards of VK Muhlen AG, Karlsruher Versicherungen
AG, Gerling Indutrie Service AG, Scholler Holding GmbH & Co.KG and is spokesman
of the supervisory board of Berentzen-Group AG.

     WALTER L. WEISMAN has been a member of our supervisory board since 1996. He
is a private investor and a former Chairman and Chief Executive Officer of
American Medical International, Inc., which he joined in 1972, was elected
President in 1979 and served as Chief Executive Officer from 1985 to 1988. Mr.
Weisman is a Vice-Chairman of the Board of the California Institute of
Technology, Chairman of the Board of the Los Angeles

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County Museum of Art, Chairman of the Board of the Sundance Institute, and a
trustee of the Kress Foundation and the Los Angeles Opera.

     STEPHEN M. PECK was elected to our supervisory board in 1999. He is a
private investor and a former managing and special partner of Weiss, Peck &
Greer which was founded in 1970. He served as Chief Investment Officer and
Director of Reliance Insurance Company, Inc. from January 1986 to July 1988. Mr.
Peck is a member of the Board of Directors of Harnischfeger Greyhound Lines,
Inc., OFFIT Investment Funds and Banyan Strategic Realty Trust Grand Union Co.
where he serves as Non-Executive Chairman of the Board. He also serves as a
member of the Advisory Boards of the Torrey Funds and Brown Simpson Asset
Management. Mr. Peck is presently Chairman of the Board of Trustees and the
Executive Committee of Mount Sinai-NYU Medical Center and Health System. He is a
member of the Board of Trustees of Mount Sinai School of Medicine, New York
University and The Jewish Theological Seminary.

MANAGEMENT BOARD

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

     The table below provides names, ages, positions and terms of office of the
members of our management board.
AGE AS OF                                             YEAR
                                            DECEMBER 31,                                           TERM
NAME                                            2000       POSITION                               EXPIRES
----                                        ------------   --------                               -------
Dr. Ben J. Lipps..........................        60       Chairman of the management board,       2001
                                                           Chief Executive Officer of our
                                                           Company
                                                           and Chief Executive Officer
                                                           for North America
Roberto Fuste.............................        48       Chief Executive Officer for Asia        2001
                                                           Pacific
Dr. Emanuele Gatti........................        45       Chief Executive Officer for Europe,     2005
                                                           Middle East, Africa and Latin America
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 FUSTE was appointed to our management board effective January
1, 1999. Mr. Fuste is responsible for the Asia-Pacific region within the
International segment, for which he assumed responsibility in 1998. Mr. Fuste
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, Middle East, Africa and
Latin America 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.

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

B.  COMPENSATION

COMPENSATION OF OUR MANAGEMENT BOARD AND OUR SUPERVISORY BOARD

     For the year ended December 31, 2000, we paid aggregate compensation to all
members of the management board of E 2,949,237. The aggregate fees paid to all
members of the supervisory board was E 315,000, including compensation to Dr.
Krick for his duties as Chairman of the supervisory board. We pay an annual
retainer fee of $40,000 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. Those
fees are described under "Item 7.B. Related Party Transactions."

     During 2000 we awarded 83,000 options under the FMC 98 Plan 2 at an
exercise price of E 47.64 to members of the management board. At December 31,
management board members held options to acquire 282,600 Preference shares of
which options to purchase 49,933 Preference shares were exercisable at a
weighted average exercise price of E 36.81.

     At December 31, 2000, 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 an audit committee or a
remuneration committee. Our Management Board carries out the functions usually
performed by audit and remuneration committees, and our Supervisory Board
reviews the compensation of the members of our Management Board.

D.  EMPLOYEES

     At December 31, 2000, we had 35,370 employees, as compared to 31,094 at
December 31, 1999 and 28,739 at December 31, 1998. They are employed in our
principal segments as follows: North America 24,403 employees and International
10,967. A decline in total employees from the divestiture of the U.S. homecare
and non-renal diagnostics businesses was offset by an increase due to dialysis
clinic acquisitions.

     The following table shows the average number of employees by segment and
our major category of activities for the last three fiscal years.
2000      1999      1998
                                                              ------    ------    ------
North America
  Dialysis Care.............................................  19,601    18,133    17,029
  Dialysis Products.........................................   3,616     3,420     3,402
                                                              ------    ------    ------
                                                              23,217    21,553    20,431
International
  Dialysis Care.............................................   5,807     4,173     3,883
  Dialysis Products.........................................   4,292     3,592     3,109
                                                              ------    ------    ------
                                                              10,099     7,765     6,992
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 relating to those facilities. We believe
our relations with our

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employees are good. During the last two fiscal years, we have not suffered any
labor-related work disruptions. In addition, approximately 600 employees, or 2%
of our U.S. employees are covered by union agreements.

E.  SHARE OWNERSHIP

     As of December 31, 2000, 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 10,700 Preference shares (0.05% of total Preference
shares outstanding). At December 31, 2000 management board members held options
to acquire 282,600 Preference shares of which options to purchase 49,933
Preference shares were exercisable at a weighted average exercise price of
36.81. Those options expire at various dates between 2008 and 2010. 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

     We have adopted a 1996 Stock Incentive Plan ("FMC Plan") and a 1998 Stock
Incentive Plan ("FMC 98 Plan 1) for our key management and executive employees
and those of our subsidiaries. Under our stock incentive plans, eligible
employees generally have the right to acquire Preference shares or ADSs. Each
ADS represents one-third of a Preference share. A total of 1,333,333 Preference
shares are available for issuance pursuant to grants under our stock incentive
plans. The 1998 Stock Incentive Plan was amended in 1999 and 2000 to increase
the number of Preference shares available for issuance pursuant to grants under
that plan by 450,000 and 660,000, respectively, resulting in a total number of
shares available for issuance of 2,443,333 Preference shares, less the number of
Preference shares issued under the 1996 Stock Incentive Plan. Some eligible
employees have received initial grants intended to cover a three-year period;
other grants will be made annually.

     During 2000, there were no grants or awards under our 1996 Stock Incentive
Plan. At December 31, 2000, there were awards for 205,166 ADSs outstanding under
our 1996 Stock Incentive Plan with a weighted average exercise price of $76.03
per underlying Preference share. We do not expect to issue any additional awards
under our 1996 Stock Incentive Plan. During 2000, grants for 653,325 Preference
shares were issued under our 1998 Stock Incentive Plan at a weighted average
exercise price of E 46.74.

     Grants under our stock incentive plans are in the form of non-assignable
and non-transferable convertible bonds and a corresponding nonrecourse employee
loan, secured solely by the convertible bonds with respect to which it was made.
The grant of convertible bonds and corresponding employee loans to an eligible
employee is designed to be the functional equivalent of non-qualified employee
stock options. To accomplish this result, as more fully described below, amounts
due and payable on an employee loan are completely offset by amounts due and
payable on the convertible bonds with respect to which the employee loan was
made. Rulings from the U.S. Internal Revenue Service to this effect were
requested. A favorable response has been received with respect to our 1996 Stock
Incentive Plan and to our 1998 Stock Incentive Plan.

     The convertible bonds have a face amount equal to the calculated nominal
value of a Preference share multiplied by the number of Preference shares into
which the convertible bonds may be converted, either directly or as represented
by ADSs. The interest rate on the convertible bonds is a rate determined by our
management board, who administer our stock incentive plans. Conversion rights
over the convertible bonds generally vest over a three-year period from the date
of grant. Upon vesting, convertible bonds are convertible, subject to
satisfaction of all state regulatory and other legal requirements, as well as
the provisions of the applicable stock incentive plan, for a period of ten years
from the date of grant, unless the recipient's employment terminates prior to
that date. Generally, upon termination, the recipient or his or her
representative will have ninety days to exercise the conversion right. That
period is extended to one year in the case of death or disability. In the case
of termination for cause, conversion rights cease at the time of termination of
employment. Convertible bonds that are not converted within the prescribed time
are mandatorily redeemed for face value. Convertible bonds may be converted in
whole or in part; appropriate adjustment is made to the corresponding employee
loans for partial conversions.

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     Employee loans have a principal amount equal to the face amount of the
convertible bonds with respect to which the employee loan was made, and bear
interest at the same rate as the convertible bonds. An employee loan is payable
on conversion of the convertible bonds with respect to which it was made, or
upon redemption of the convertible bonds. If the convertible bonds are redeemed,
the proceeds of the convertible bonds and the interest payable on the bond must
be applied against the repayment of the corresponding employee loan and interest
on the loan. Accordingly, for each grant, the terms of the convertible bonds and
the corresponding employee loan are designed to match in all respects, so that
the recipient of the grant receives nothing and pays nothing with respect to the
convertible bonds or the employee loan. We have the right to offset our
obligation on a convertible bond against the obligation on the related employee
loan; therefore, the convertible bond obligations and employee loan receivables
are not reflected in our consolidated financial statements.

     The conversion price of convertible bonds issued under our 1996 Stock
Incentive Plan and held by U.S. citizens or residents is the fair market value
of the ADS or Preference shares on the day of the grant. The conversion price of
convertible bonds issued under our 1998 Stock Incentive Plan and held by U.S.
citizens or residents is the fair market value of the Preference shares on the
day following the date of the grant. A portion of the amount paid on conversion
will be used to repay the corresponding employee loan, and interest payable with
respect to the employee loan will be offset by interest payable on the
convertible bonds.

     At the time of conversion, an employee who is a U.S. citizen or resident
will be subject to U.S. federal income taxes equal to the value of the ADSs or
Preference shares received and the amount paid for conversion of the convertible
bonds and may be required, as a condition to receiving the ADSs or Preference
shares, to remit to his or her employer company any required withholding and
payroll taxes. Employees may also be required to file with us or our designed
agent, as a protective measure, a form sufficient under German law to elect the
treaty benefit of no withholding on interest under the U.S.-German income tax
treaty. Under current German law, there would be no withholding tax imposed on
these interest payments.

     As of December 31, 2000, options for a total of 10,060 Preference shares
have been exercised under FMC 98 Plan 1.

     We have also adopted the Fresenius Medical Care AG Stock Option Plan of
June 10, 1998 ("FMC 98 Plan 2"). This plan, known as our International Plan, was
adopted for:

     -  members of management board and managerial staff of Fresenius Medical
        Care AG;

     -  members of management and managerial staff of our German affiliates,
        other than Fresenius AG and subsidiaries of Fresenius AG that are not
        also our subsidiaries; and

     -  managerial staff members of our non-German affiliates, other than
        subsidiaries of Fresenius AG that are not also our subsidiaries.

     We have reserved a total of 2,500,000 Preference shares for issuance upon
exercise of options under our International Plan, of which 500,000 Preference
shares have been reserved for issuance to members of our management board and
2,000,000 shares for other managerial staff.

     The exercise price of the options under the International Plan is equal to
the average of the official daily quotation prices of the Preference shares on
the Frankfurt Stock Exchange on the thirty (30) days of trading immediately
prior to the date of grant of the award. One third of an option granted under
the International Plan 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 our performance for
the full fiscal year preceding the grant date. The term of the International
Plan is five years, and not more than 20% of the total options available under
the International Plan may be issued in any one year. Options issued under the
International Plan expire 10 years from the date of grant.

     At our 2000 annual general meeting, our shareholders approved a resolution
allowing us to exclude from the calculation of the performance criteria under
the International Stock Option Plan the effects of the special charges we took
in 1999 in connection with the Settlement. Under the International Stock Option
Plan, 1999 performance criteria are used as both the comparative year to 1997
for options granted in 1998 and as the base year (which will

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be compared to 2001) for options granted in 2000. The purpose of excluding the
special charges taken in 1999 is to avoid the distortions created by the special
charges for both purposes.

     The International Plan is administered by our management board, except that
the selection of award recipients and other determinations under the
International Plan relating to members of our management board are made by our
supervisory board. Subject to the vesting requirements of the International
Plan, options are exercisable only within 15 working days after publication of
our financial statements for the preceding quarter. Options under the
International Plan are not transferable.

     During 2000, we awarded options under the International Plan to purchase
321,204 Preference shares at a weighted average price of E 47.64 per share,
including options to purchase 83,000 shares awarded to members of the management
board. During 2000 a total of 7,333 options were exercised. At December 31,
2000, a total of 78,277 options were exercisable under the FMC 98 Plan 2.

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 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.

     As of December 31, 2000, a total of 182,006 Ordinary ADSs, each
representing one-third of an Ordinary share, were subject to rollover options as
described above at exercise prices ranging from $9.78 to $46.53 per Ordinary
Share, all currently exercisable. Members of our supervisory board and our
management board, as a group, held no rollover options.

ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  MAJOR SHAREHOLDERS

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF FRESENIUS MEDICAL CARE

     Our outstanding share capital consists of Ordinary shares and non-voting
Preference shares that are issued only in bearer form. Accordingly, unless we
receive information regarding acquisitions of our shares through a filing with
the Securities and Exchange Commission or through the German statutory
requirements referred to below, we have no way of determining who our
shareholders are or how many shares any particular shareholder owns except as
described below with respect to our shares held in 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.

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     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, 2000, Fresenius AG owned the majority, 50.8%, of our Ordinary
shares. At December 31, 2000 Fresenius AG's Ordinary shares represented
approximately 40% of our total share capital. Morgan Guaranty Trust Company of
New York, our ADR depositary, informed us, that as of December 31, 2000
17,521,746 Ordinary ADSs, each representing one-third of an Ordinary share, were
held of record by 8,393 U.S. holders and 3,610,391 Preference ADSs, each
representing one-third of a Preference share, were held of record by 6 U.S.
holders. Ordinary shares and Preference shares of U.S. holders accounted for
approximately 8% of our Ordinary shares outstanding and 5% of our Preference
shares outstanding as of December 31, 2000. For more information regarding
American Depositary Receipts ("ADRs") 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.

     Fresenius AG has been informed that the Else Kroner-Fresenius-Stiftung owns
68% of the Fresenius AG Ordinary shares. The Else Kroner-Fresenius-Stiftung
serves to promote medical science, primarily in the fields of research and
treatment of illnesses, including the development of apparatuses and
preparations. It may promote only those research projects which make their
results generally accessible to the public. It further serves to promote the
education of physicians or of others concerned with the treatment and care of
sick persons, primarily those working in the field of dialysis, as well as to
promote the education of particularly gifted pupils and students.

     Fresenius AG has also been informed that AW Beteiligungsgesellschaft mbH,
which is controlled by Agrar Industrie Holding GmbH, owns 9% of the Fresenius AG
Ordinary shares. Pursuant to a pooling agreement relating to its shares, voting
power over the shares indirectly held by Agrar-Industrie Holding GmbH is held by
the Else Kroner-Fresenius-Stiftung.

     In addition, Neunte Herakles Beteiligungs-Gesellschaft mbH & Co. KG
informed Fresenius AG that it owns 9.97% of the Fresenius AG Ordinary shares.

B.  RELATED PARTY TRANSACTIONS

     In connection with the formation of Fresenius Medical Care, and the
combination of the dialysis businesses of Fresenius AG and W.R. Grace, Fresenius
AG and its affiliates and Fresenius Medical Care and its affiliates entered into
several agreements for the purpose of giving effect to the merger and defining
our ongoing relationship. Fresenius AG and W.R. Grace negotiated these
agreements. The information below summarizes the material aspects of certain
agreements, arrangements and transactions between Fresenius Medical Care and
Fresenius AG and their affiliates. Some of these agreements have been previously
filed with the Securities and Exchange Commission. The following descriptions
are not complete and are qualified in their entirety by reference to the
agreements, copies of which have been filed with the Securities and Exchange
Commission and the New York Stock Exchange. We believe that the leases, the
supply agreements and the services 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.

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     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 16.8 million Deutsche mark (approximately E 8.6 million), which was
approximately $9.5 million as of December 31, 2000, 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.

     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.

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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(R), 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(R) 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 as of September 30,
1996, resulting in terms of four and one-half to five years. Each supply
agreement may be terminated by the purchasing party after specified notice
period, subject to a compensation payment reflecting a portion of the relevant
fixed costs.

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

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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 2000, Fresenius AG
charged us approximately $19.9 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 2000, we charged approximately $10.0 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

     During the year ended December 31, 2000, aggregate loans outstanding from
Fresenius AG amounted to $216 million, of which $209 million bore interest at
rates varying between 7.35% and 7.38%. The remaining loans bore interest at a
rate of approximately 4%. The borrowed funds were used for general corporate
purposes. Interest paid during 2000 was $18.6 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.

     Dresdner Bank AG was one of the joint global coordinators of a public
offering of Preference shares made during 2000 and received underwriting
commissions and fees of E11,1 million ($10,4 million). Kleinwort Benson Holdings
Inc. acquired 1,410,256 Preference shares in the Franconia transaction described
under "Item 5. Operating and Financial Review and Prospects -- Liquidity and
Capital Resources" and received a financing fee of approximately $589,900 in
connection with the transaction. Kleinwort Benson Holdings, Inc. subsequently
sold 1,111,000 of these shares at cost to an unaffiliated investor. An affiliate
of Dresdner Kleinwort Benson North America LLC is the New York Stock Exchange
specialist for the ADSs evidencing our Ordinary shares. Kleinwort Benson
Holdings Inc. and Dresdner Kleinwort Benson North America LLC are wholly owned
subsidiaries of Dresdner Bank AG. See "-- Security Ownership of Certain
Beneficial Owners of Fresenius AG." Dresdner Bank AG was one of four
co-arrangers of our principal credit agreement and is one of the managing agents
under that facility. Also, 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 Executive Manager of Dresdner Bank AG, is a member of the
supervisory board of Fresenius AG. Dresdner Bank AG also acts as custodian under
the deposit agreement for the ADSs evidencing the Ordinary shares and under the
deposit agreement for the ADSs evidencing the Preference shares.

     Westdeutsche Landesbank Girozentrale was one of the underwriters of the
public offering of Preference shares made in 2000. Mr. Gerhard Roggemann, a
member of the Managing Board of Westdeutsche Landesbank Girozentrale, is a
member of the supervisory board of Fresenius AG.

     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 Norr
Stiefenhofer Lutz, German counsel to Fresenius AG and Fresenius Medical Care in
connection with this offering of Preference shares, prior securities offerings
by us, and other matters. See "-- Security Ownership of Certain Beneficial
Owners of Fresenius AG." Dr. Alfred
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Stiefenhofer, also a partner of Norr Stiefenhofer Lutz, is one of the executors
of the estate of Mrs. Else Kroner. The Else Kroner-Fresenius Stiftung, a
charitable foundation established under the will of Mrs. Kroner, owns the
majority of the voting shares of Fresenius AG.

PRODUCTS

     During 2000, we recognized $28.1 million of sales to Fresenius AG and its
affiliates. We made purchases from Fresenius AG in the amount of $25.5 million
during 2000.

ITEM 8.  FINANCIAL INFORMATION

     The information called for by this item commences 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 Insurer Litigation

     In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. The lawsuit alleges inappropriate billing
practices for nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
unspecified damages and costs. We believe that there are substantial defenses to
the claims asserted, and intend to vigorously defend both lawsuits. Other
private payors have contacted FMCH and may assert that NMC received excess
payment and, similarly, may join either lawsuit or file their own lawsuit
seeking reimbursement and other damages.

     FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.

     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 result of operations.

OBRA 93

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

     In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on
National Medical Care's dialysis business. The Health Care Financing
Administration further proposed that its new instruction be effective
retroactive to August 1993, the effective date off the Omnibus Budget
Reconciliation Act of 1993.
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     National Medical Care ceased to recognize the incremental revenue realized
under the original instruction as of July 1, 1995, but it continued to bill
employer health plans as primary payors for patients affected by the Omnibus
Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1,
1996, National Medical Care commenced billing Medicare as the primary payor for
dual eligible ESRD patients affected by the act, and then began to re-bill in
compliance with the revised policy for services rendered between April 24 and
December 31, 1995.

     On May 5, 1995, National Medical Care filed a complaint in the U.S.
District Court for the District of Columbia (National Medical Care, Inc. and
Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center
v. Shalala, C.A. No. 95-0860 (WBB)) seeking to preclude the Health Care
Financing Administration from retroactively enforcing its April 24, 1995
implementation of the Omnibus Budget Reconciliation Act of 1993 provision
relating to the coordination of benefits for dual eligible ESRD patients. On May
9, 1995, National Medical Care moved for a preliminary injunction to preclude
the Health Care Financing Administration from enforcing its new policy
retroactively, that is, to billing for services provided between August 10, 1993
and April 23, 1995. On June 6, 1995, the court granted National Medical Care's
request for a preliminary injunction and in December of 1996, National Medical
Care moved for partial summary judgment seeking a declaration from the Court
that the Health Care Financing Administration's retroactive application of the
April 1995 rule was legally invalid. The Health Care Financing Administration
cross-moved for summary judgement on the grounds that the April 1995 rule was
validly applied prospectively. In January 1998, the court granted National
Medical Care's motion for partial summary judgment and entered a declaratory
judgment in favor of National Medical Care, holding the Health Care Financing
Administration's retroactive application of the April 1995 rule legally invalid.
Based on its finding, the Court also permanently enjoined the Health Care
Financing Administration from enforcing and applying the April 1995 rule
retroactively against National Medical Care. The Court took no action on the
Health Care Financing Administration's motion for summary judgement pending
completion of the outstanding discovery. On October 5, 1998, National Medical
Care filed its own motion for summary judgement requesting that the Court
declare the Health Care Financing Administration's prospective application of
the April 1995 rule invalid and permanently enjoin the Health Care Financing
Administration from prospectively enforcing and applying the April 1995 rule.
The Court has not yet ruled on the parties' motions. The Health Care Financing
Administration elected not to appeal the Court's June 1995 and January 1998
orders. The Health Care Financing Administration may, however, appeal all
rulings at the conclusion of the litigation. If the Health Care Financing
Administration should successfully appeal so that the revised interpretation
would be applied retroactively, National Medical Care may be required to refund
the payments received from employer health plans for services provided after
August 10, 1993 under the Health Care Financing Administration's original
implementation, and to re-bill Medicare for the same services, which could
result in a loss to National Medical Care of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
business, financial condition and results of operations would be materially
adversely affected.

Other Litigation and Potential Exposures

     From time to time, we are a party to or may be threatened with other
litigation arising in the ordinary course of our business. Management regularly
analyzes current information including, as applicable, our defenses and
insurance coverage and, as necessary, provides accruals for probable liabilities
for the eventual disposition of these matters. We do not expect the ultimate
outcome of these matters to materially affect our financial position, results of
operations or cash flows.

     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
U.S. anti-kickback statute, the False Claims Act, the Stark Law, 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

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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 continuing inquiries, claims and
litigation relating to its compliance with applicable laws and regulations. We
may not always be aware that an inquiry or action has begun, particularly in the
case of "whistle blower" actions, which are initially filed under court seal.

     We operate a large number of facilities throughout the U.S. In such a
decentralized system, it is often difficult to maintain the desired level of
oversight and control over the thousands of individuals employed by many
affiliated companies. We rely upon our management structure, regulatory and
legal resources, and the effective operation of our compliance program to
direct, manage and monitor the activities of these employees. On occasion, we
may identify instances where employees, deliberately or inadvertently, have
submitted inadequate or false billings. Such persons' actions may subject us and
our subsidiaries to liability under the False Claims Act, among other laws, and
we cannot predict whether law enforcement authorities may use such information
to initiate further investigations of the business practices disclosed or any of
our other business activities.

     Physicians, hospitals and other participants in the health care industry
are also subject to a large number of lawsuits alleging professional negligence,
malpractice, product liability, worker's compensation or related claims, many of
which involve large claims and significant defense costs. We have been subject
to these suits due to the nature of our business and we expect that those types
of lawsuits may continue. Although we maintain insurance at a level which we
believes 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 our results of operations. Any claims,
regardless of their merit or eventual outcome, also may have a material adverse
effect on our reputation and business.

     Claims have also been asserted against us and lawsuits have been 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.

     On September 28, 2000, Mesquita, et al. v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed as a class action by
plaintiffs claiming to be creditors of Grace Chemicals against Grace Chemicals,
certain of our U.S. affiliates and other defendants, principally alleging that
the Merger was a fraudulent transfer, violated the uniform fraudulent transfer
act, and constituted a conspiracy. An amended complaint (Abner et al. v. W. R.
Grace & Company, et al.) and an additional class action (Woodward v. Sealed Air
Corporation, et al. USDC Boston, No. 01 10547 PBS), were filed subsequently with
substantially similar allegations. We have requested indemnification from Grace
Chemicals pursuant to the Merger agreement. If the Merger is determined to have
been a fraudulent transfer, if material damages are proved by the plaintiffs,
and if we are not able to collect, in whole or in part on the indemnity, a
judgment could have a material adverse effect on our business, financial
condition and our results of operations. We believe that no fraudulent transfer
or conspiracy occurred and we intend to defend the case vigorously.

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 E 0.12 per share and, if we declare dividends, holders of our Preference
shares must receive E 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.

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     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.

     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. We paid dividends in Deutsche Mark in 1998 for 1997 and in 1999 for 1998,
and the payments have been translated into euros at the fixed exchange rate of
DM1.95583 to E 1. The Preference share dividend we paid in 1998 with respect to
1997 included a payment of DM0.20 (E 0.10) per share with respect to 1996.
PER SHARE AMOUNT                                               2000      1999      1998
----------------                                              ------    ------    ------
Preference share............................................  E 0.75    E 0.64    E 0.56
Ordinary share..............................................  E 0.69    E 0.59    E 0.51
Our managing board and our supervisory board have proposed dividends for
2000 payable in 2001 of E 0.84 per Preference share and E 0.78 per Ordinary
share. These dividends are subject to approval by our shareholders at our annual
general meeting to be held on May 23, 2001. The 2.25 million Preference shares
we issued on January 5, 2001 in connection with our acquisition of Everest
Healthcare Services Corporation (see "Item 5.B. Operating and Financial Review
and Prospects -- Liquidity and Capital Resources") will also be eligible to
receive this dividend.

     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

     On January 5, 2001, we acquired Everest Healthcare Services Corporation
("Everest"), Oak Park, Illinois through a merger of Everest into a subsidiary of
Fresenius Medical Care for $343 million, including Everest's outstanding debt.
One third of the purchase price was paid by issuing 2,250,000 preference shares
on January 5, 2001. The remaining portion of the acquisition price was financed
out of the proceeds from the capital offerings completed earlier in the year.

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
American Depositary Receipts ("ADRs") see "Item 10.B. Memorandum and articles of

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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, American Depositary Shares ("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, American Depositary Shares, 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 Borse AG operates the Frankfurt Stock Exchange, which is the most
significant of the eight German stock exchanges. The Frankfurt Stock Exchange
accounted for approximately 85% of the turnover in exchange-traded shares in
Germany in 2000. As of December 31, 2000, the shares of 5,694 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, 905
were German companies and 4,789 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.

     Deutsche Borse 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.

     In November 1997, to improve the market quality of trading, Deutsche Borse
replaced the IBIS Trading system (Integriertes Borsenhandels- und
Informations-System) with Xetra (Exchange Electronic Trading). The Xetra market
model was developed in collaboration with market participants and essentially
comprises rules for price determination, prioritization of orders and the
provision of information for market participants.

     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 fur 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).

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     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. Since January 4, 1999,
all shares on German stock exchanges trade in euro. For the years 1996, 1997 and
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
                                                                         ------    -----
2001      March.......................................................    90.65    75.62
          February....................................................    90.36    84.53
          January.....................................................    88.50    77.99
2000      December....................................................    91.90    86.25
          November....................................................   103.00    94.62
          October.....................................................   102.50    93.77
          September...................................................   103.60    97.10
2000      Fourth Quarter..............................................   103.00    85.40
          Third Quarter...............................................   103.60    83.52
          Second Quarter..............................................    91.56    72.50
          First Quarter...............................................    91.00    72.40
1999      Fourth Quarter..............................................    88.70    61.67
          Third Quarter...............................................    73.97    57.50
          Second Quarter..............................................    58.80    47.20
          First Quarter...............................................    63.00    48.50
2000      Annual......................................................   103.60    72.40
1999      Annual......................................................    88.70    47.20
1998      Annual......................................................    73.37    30.73
1997      Annual......................................................    84.36    55.73
1996      Annual......................................................    74.60    57.32
The average daily trading volume of the Ordinary shares traded on the
Frankfurt Stock Exchange during 2000 was 162,151 shares. The foregoing numbers
are based on total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On April 3, 2001, the closing sales price per Ordinary share on the
Frankfurt Stock Exchange was E 76.19, equivalent to $67.39 per Ordinary share.

                                        73
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     The table below sets forth for the periods indicated, the high and low
closing sales prices in euro for the Preference shares on the Frankfurt Stock
Exchange, as reported by the Frankfurt Stock Exchange. As all shares on German
stock exchanges trade in euro since January 4, 1999, share prices for the years
1996, 1997 and 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
                                                                        ------    ------
March.......................................................
2001                                                                    56.90     49.50
          February....................................................  52.75     47.80
          January.....................................................  52.50     46.01
          December....................................................
2000                                                                    54.05     50.00
          November....................................................  58.00     50.00
          October.....................................................  57.00     49.11
          September...................................................  56.60     51.59
          Fourth Quarter..............................................
2000                                                                    58.00     49.11
          Third Quarter...............................................  56.60     42.60
          Second Quarter..............................................  51.00     42.00
          First Quarter...............................................  52.00     38.00
          Fourth Quarter..............................................
1999                                                                    43.50     34.01
          Third Quarter...............................................  42.20     34.00
          Second Quarter..............................................  36.00     31.00
          First Quarter...............................................  40.00     30.30
          Annual......................................................
2000                                                                    58.00     38.00
          Annual......................................................
1999                                                                    43.50     30.30
          Annual......................................................
1998                                                                    58.03     25.56
          Annual......................................................
1997                                                                    70.97     46.53
          Annual......................................................
1996                                                                    64.83     62.43
The average daily trading volume of the Preference shares traded on the
Frankfurt Stock Exchange during 2000 was 38,181 shares. The foregoing numbers
are based on total yearly turnover statistics supplied by the Frankfurt Stock
Exchange. On April 3, 2001, the closing sales price per Preference share on the
Frankfurt Stock Exchange was E 51.00, equivalent to $45.11 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
                                                                        -----    -----
March.......................................................
2001                                                                    27.85    22.26
          February....................................................  27.80    25.90
          January.....................................................  27.94    24.31
          December....................................................
2000                                                                    27.87    25.44
          November....................................................  29.37    26.62
          October.....................................................  29.87    26.37
          September...................................................  30.19    27.25
          Fourth Quarter..............................................
2000                                                                    29.87    25.44
          Third Quarter...............................................  30.19    25.62
          Second Quarter..............................................  28.19    22.56
          First Quarter...............................................  29.25    23.00
          Fourth Quarter..............................................
1999                                                                    29.87    21.69
          Third Quarter...............................................  26.00    16.37
          Second Quarter..............................................  21.19    15.81
          First Quarter...............................................  24.25    18.56
          Annual......................................................
2000                                                                    30.19    22.56
          Annual......................................................
1999                                                                    29.87    15.81
          Annual......................................................
1998                                                                    26.87    12.50
          Annual
1997..                                                                  31.50    20.44
          Annual......................................................
1996                                                                    31.88    21.13
On April 3, 2001, the closing sales price per Ordinary ADS on the NYSE was
$22.70.

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     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
                                                                        -----    -----
2001      March.......................................................  17.49    15.00
          February....................................................  16.10    14.80
          January.....................................................  16.50    14.75
2000      December....................................................  16.50    14.75
          November....................................................  16.25    14.37
          October.....................................................  16.50    14.25
          September...................................................  15.69    14.69
2000      Fourth Quarter..............................................  16.50    14.25
          Third Quarter...............................................  16.44    13.25
          Second Quarter..............................................  15.62    13.50
          First Quarter...............................................  16.91    13.50
1999      Fourth Quarter..............................................  14.50    12.19
          Third Quarter...............................................  14.25    11.25
          Second Quarter..............................................  13.94    11.44
          First Quarter...............................................  16.75    12.50
2000      Annual......................................................  16.91    13.25
1999      Annual......................................................  16.75    11.25
1998      Annual......................................................  21.00    12.25
1997      Annual......................................................  26.75    18.00
1996      Annual......................................................  27.75    25.88
On April 3, 2001, the closing sales price per Preference ADS on the NYSE
was $15.30.

ITEM 10.  ADDITIONAL INFORMATION

B.  MEMORANDUM AND 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-Kroner-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.
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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).

     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.

     At our annual shareholder meeting on June 2, 1999 we requested and received
approval from our shareholders, to convert the denomination of our share capital
from Deutsche mark (DM) to Euro (E) to prepare for the transition by the
European Community to Euro which began January 1, 1999. The exchange rate for DM
to E was set at DM 1.95583 to E 1. As a result, the per share nominal value
changed from DM 5 per share to approximately E 2.55646 per share. For
convenience, shareholders approved an increase to the calculated nominal value
to E 2.56 resulting in a capital stock increase of E 279,789.57. The increase in
value of capital stock was offset by a conversion of reserves into share capital
(Kapitalerhohung aus Gesellschaftsmitteln). No new shares were issued for this
revaluation.

     At that meeting, our shareholders also approved a change in the dividend
premium for the Preference shares from a percentage of the nominal value per
share to an absolute amount. If dividends are declared, the Preference
shareholder will receive E 0.06 per share more than the dividend for an Ordinary
share, but no less than E 0.12 per share.

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

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80

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.

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.

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.

FRESENIUS MEDICAL CARE HOLDINGS CLASS D PREFERRED SHARES

     Our subsidiary, Fresenius Medical Care Holdings, distributed its Class D
Preferred Shares exclusively to W.R. Grace common shareholders in connection
with our formation. The Class D Preferred Shares trade over-the-counter only in
the United States under the symbol FSMEP.OB.

     Holders of Fresenius Medical Care Holdings Class D Preferred Shares may be
entitled to a one-time special dividend if (but only if) conditions specified in
the Fresenius Medical Care Holdings certificate of incorporation are met. The
Class D Preferred Shares are not entitled to receive any dividends other than
this special dividend. In particular, the Fresenius Medical Care Holdings Class
D Preferred Shares are not entitled to any dividend that we may pay on our
Preference shares or our ADSs.

     The special dividend is payable only if the cumulative adjusted cash flow
to our ordinary shareholders (defined as our net income plus depreciation and
amortization) from January 1, 1997 through December 31, 2001 exceeds US$3.7
billion. If our cumulative adjusted cash flow meets that threshold, 44.8% of any
amount exceeding US$3.7 billion will be distributed as a special dividend on the
Fresenius Medical Care Holdings Class D Preferred Shares. Fresenius Medical Care
Holdings must make a public announcement of the amount, if any, of the special
dividend by May 1, 2002. Payment of a special dividend on the Class D Preferred
Shares that is earned, if any, would commence in October 2002. For the period
from January 1, 1997 through the end of 2000, our cumulative adjusted cash flow
for the purpose of the Class D Preferred Shares special dividend calculation was
approximately US$1.2 billion. Based upon our cumulative adjusted cash flow at
December 31, 2000 and its historical trend, we believe that it is unlikely that
Fresenius Medical Care Holdings will pay any special dividend. We do not have
any obligation to contribute any amount to Fresenius Medical Care Holdings to
enable it to pay any special dividend.
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81

     The Class D Preferred Shares are redeemable at Fresenius Medical Care
Holdings' sole option after the date it makes its public announcement of the
amount of the special dividend (if any) in 2002. The redemption price is the
greater of the liquidation preference (10 cents per Class D Preferred Share) and
any unpaid special dividend amount. Fresenius Medical Care Holdings is not,
however, required to redeem the Class D Preferred Shares.

     This description of the material terms of the Fresenius Medical Care
Holdings Class D Preferred Shares is not complete and is qualified in its
entirety by the terms of Fresenius Medical Care Holdings' certificate of
incorporation. Fresenius Medical Care Holdings' certificate of incorporation is
on file with the Securities and Exchange Commission, and you may obtain a copy
as described under "Item 10.H. Documents on Display."

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 ADR 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.

     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

                                        79
82

       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.

     -  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
                                        80
83

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

     -  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 holdersinstruct. 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. See "Description of Capital Stock -- Voting Rights" for a
description of these 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.

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

                                        81
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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.

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 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 2001 out of profits earned in or before 2000,
German corporations are required to withhold German tax on dividends in an
amount equal to 25% of the gross amount paid to resident and non-resident
stockholders. A partial refund of this 25% 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
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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 2001 is partially refunded under the
Income Tax Treaty, effectively reducing the withholding tax to 15% of the gross
amount of the dividend. In addition, since the German imputation system provides
German resident individual stockholders with a tax credit in respect of
dividends paid by German corporations in 2001, the Income Tax Treaty provides
that Qualified Holders (other than 10% Holders) are entitled to an additional
refund equal to 5% of the gross amount of the respective dividend. For United
States federal income tax purposes, the benefit resulting from this additional
5% treaty refund is treated as a refund received by the Qualified Holder with
respect to German corporate taxes equal to 5.88% of the gross amount of the
respective dividend, subject to a German withholding tax of 0.88% (15% of
5.88%). Qualified Holders are not entitled to the dividends received deduction
for United States federal income tax purposes with respect to dividends paid by
non-United States corporations.

     Thus, for each $100 of gross dividend paid by Fresenius Medical Care AG in
2001 to a Qualified Holder (other than a 10% Holder), the dividend after partial
refund of the 25% withholding tax under the Income Tax Treaty will be subject to
a German withholding tax of $15. If the Qualified Holder also applies for the
additional 5% treaty refund, German withholding tax is effectively reduced to
$10; the cash received per $100 of gross dividend is $90. For United States
federal income tax purposes, the Qualified Holder is generally treated as
receiving a total dividend of $105.88 (to the extent paid out of current or
accumulated earnings and profits of Fresenius Medical Care AG as determined for
United States federal income tax purposes), consisting of the $100 gross
dividend and the deemed refund of German corporate tax of $5.88. The notional
$105.88 dividend is deemed to have been subject to German withholding tax of
$15.88. Thus, for each $100 of gross dividend, the Qualified Holder will include
$105.88 in gross income and may be entitled to a foreign tax credit of $15.88,
subject to applicable limitations of United States federal income tax law.

     In the case of a 10% Holder, the 25% German withholding tax on dividends
paid in 2001 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 2001 in the amount of 20% 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 2001. Consequently, Qualified Holders will no longer be entitled to the
additional 5% treaty refund with respect to such dividends. However, the German
withholding tax will be 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% (LOGO) 25%) of the gross dividend amount. Under the
Income Tax Treaty, Qualified Holders are entitled to a full refund of this
surtax.

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REFUND PROCEDURES

     To claim the refund reflecting the current reduction of the German
withholding tax from 25% 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 fur 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 25% to 15% (to 5% for 10% Holders), the
additional 5% 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 deutsche
marks. 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
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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

     The United States-Germany estate tax treaty provides that an individual
whose domicile is determined to be in the United States for purposes of such
treaty will not be subject to German inheritance and gift tax (the equivalent of
the United States federal estate and gift tax) on the individual's death or
making of a gift unless the Fresenius Medical Care shares (1) are part of the
business property of a permanent establishment located in Germany or (2) are
part of the assets of a fixed base of an individual located in Germany and used
for the performance of independent personal services. An individual's domicile
in the United States, however, does not prevent imposition of German inheritance
and gift tax with respect to an heir, donee or other beneficiary who is
domiciled in Germany at the time the individual died or the gift was made.

     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.

GERMAN CAPITAL TAX (VERMOGENSTEUER)

     The Income Tax Treaty provides that a Qualified Holder will not be subject
to German capital tax (Vermogensteuer) with respect to the Fresenius Medical
Care shares. As a result of a judicial decision, the German capital tax
(Vermogensteuer) presently is not imposed.

OTHER GERMAN TAXES

     There are no German transfer, stamp or other similar taxes that would apply
to Qualified Holders upon receipt, purchase, holding or sale of Fresenius
Medical Care shares.

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.

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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 at Seven World
Trade Center, 13th Floor, New York, New York 10048 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. As a foreign private
issuer, we are not obligated to file registration statements and reports with
the Securities and Exchange Commission in electronic form; however, commencing
with our report on Form 6-K filed November 20, 2000 we have voluntarily chosen
to do so. Accordingly, our report for the nine months ended September 30, 2000
and our reports for subsequent periods may be obtained from any source
authorized to store and make available electronically filed reports.

     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-Kroner-Strasse 1, 61352 Bad Homburg.

ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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 located principally in Germany and the
United States. 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 consolidated 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, lendings and 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 purposes of
hedging foreign currency exposures. We have not used such instruments for
purposes other than hedging.

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     The table below provides information about our foreign exchange forward
contracts at December 31, 2000. The information is provided in U.S. dollar
equivalent amounts. The table presents the notional amounts, the weighted
average contractual foreign currency exchange rates, and the fair values of the
contracts, which show the unrealized net gain (loss) on existing contracts as of
December 31, 2000. All contracts expire within 36 months after the reporting
date.
FOREIGN CURRENCY RISK AT DECEMBER 31, 2000
                                                                 (USD IN THOUSANDS EXCEPT AVERAGE CONTRACT RATES)
                                                              ------------------------------------------------------
                                                                                                       FAIR VALUE AT
                                                                                                        DECEMBER 31
                 FOREIGN CURRENCY FORWARDS                      2001      2002      2003      TOTAL        2000
                 -------------------------                    --------   -------   -------   -------   -------------
PURCHASES OF CURRENCIES AGAINST U.S. DOLLAR
  euro
    Notional Amount.........................................    51,509   321,273   116,856   489,638      22,172
    Average Contract Rate...................................    0.8820    0.9172    0.8998
Singapore Dollar
    Notional Amount.........................................       800                           800           2
    Average Contract Rate...................................    1.7235
                                                              --------   -------   -------   -------      ------
Total.......................................................    52,309   321,273   116,856   490,438      22,174
                                                              ========   =======   =======   =======      ======
Sales of currencies against U.S. dollar
  Canadian Dollar
    Notional Amount.........................................     4,000                         4,000          77
    Average Contract Rate...................................    1.4699
  Euro
    Notional Amount.........................................     2,501                         2,501          (2)
    Average Contract Rate...................................    0.9300
  Singapore Dollar
    Notional Amount.........................................       335                           335          (1)
    Average Contract Rate...................................    1.7255
                                                              --------   -------   -------   -------      ------
Total.......................................................     6,836         0         0     6,836          74
                                                              ========   =======   =======   =======      ======
Other sales of currencies against euro
  British Pound
    Notional Amount.........................................    19,942     3,955              23,897       1,261
    Average Contract Rate...................................    0.5942    0.5960
  Japanese Yen
    Notional Amount.........................................    11,163     4,634              15,797       1,633
    Average Contract Rate...................................   92.9869   95.1100
  Swiss Franc
    Notional Amount.........................................     8,230       675               8,905          44
    Average Contract Rate...................................    1.5057    1.4910
  Australian Dollar
    Notional Amount.........................................      7763                         7,763         160
    Average Contract Rate...................................    1.6459
  New Zealand Dollar
    Notional Amount.........................................     2,947                         2,947         (12)
    Average Contract Rate...................................    2.1246
  Singapore Dollar
    Notional Amount.........................................     1,696                         1,696          63
    Average Contract Rate...................................    1.5516
                                                              --------   -------   -------   -------      ------
Total.......................................................    51,741     9,264         0    61,005       3,149
                                                              ========   =======   =======   =======      ======
Other purchases of currencies against euro
  Swiss Franc
    Notional Amount.........................................     6,756                         6,756         (87)
    Average Contract Rate...................................    1.5014
  Japanese Yen
    Notional Amount.........................................     4,607                         4,607         (38)
    Average Contract Rate...................................  106.0397
  Australian Dollar
    Notional Amount.........................................       612                           612          (3)
    Average Contract Rate...................................    1.6714
                                                              --------   -------   -------   -------      ------
Total.......................................................    11,975         0         0    11,975        (128)
                                                              ========   =======   =======   =======      ======
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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 ("E") in the foreign
exchange markets since the beginning of 1999, the table includes the respective
rates for the euro/Dollar quotations which were applied to calculate the
respective 1999 Deutsche Mark/Dollar values, using a fixed conversion rate of DM
1.95583 = E 1.
YEAR'S     YEAR'S     YEAR'S     YEAR'S
YEAR ENDING DECEMBER 31,                  HIGH       LOW      AVERAGE     CLOSE
------------------------                --------   --------   --------   --------
1996..................................    0.6979     0.6395     0.6650     0.6432   ($ per DM)
1997..................................    0.6468     0.5299     0.5764     0.5580   ($ per DM)
1998..................................    0.6256     0.5395     0.5685     0.5977   ($ per DM)
1999..................................    0.6028     0.5121     0.5449     0.5136   ($ per DM)
1999..................................    1.1790     1.0015     1.0658     1.0046   ($ per E)
2000..................................    0.5311     0.4219     0.4722     0.4758   ($ per DM)
2000..................................    1.0388     0.8252     0.9236     0.9305   ($ per E)
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.

     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, 2000. 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 ($733 million outstanding as of December 31, 2000),
loans extended to us by Fresenius AG ($209 million outstanding as of December
31, 2000), and the drawdowns under our receivables financing facility (drawn as
of December 31, 2000, $445 million) to a fixed interest rate of 6.52%. 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
November 29, 2003 and November 29, 2007. At December 31, 2000, the fair value of
these agreements is $(24.62) 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, 2000
                           (U.S. DOLLARS IN MILLIONS)
FAIR VALUE
                                                                                                                   DEC. 31,
                                                         2001   2002   2003   2004   2005   THEREAFTER   TOTALS      2000
                                                         ----   ----   ----   ----   ----   ----------   ------   ----------
PRINCIPAL PAYMENTS ON SENIOR CREDIT AGREEMENT..........  $150   150    433      0      0          0      $  733      $733
  Variable interest rate = 7.63%.......................
INTEREST RATE SWAP AGREEMENTS
  Notional amount......................................                600    250               200       1,050       (25)
  Average fixed pay rate = 6.52%.......................                6.58%  6.32%            6.61%
  Receive rate = 3-month $LIBOR........................
COMPANY OBLIGATED MANDATORILY REDEEMABLE PREFERRED
  SECURITIES OF SUBSIDIARIES FRESENIUS MEDICAL CARE
  CAPITAL TRUSTS
  Fixed interest rate = 9%.............................                                         360         360       346
  Fixed interest rate = 7.875%.........................                                         450         450       410
  Fixed interest rate = 7.375% (denominated in DM).....                                         143         143       143
Our subsidiary FMC Japan has entered into a Yen interest rate swap
agreement with a commercial bank for a notional amount of JPY 1,000 million as
of December 31, 2000. This swap changes FMC Japan's interest rate exposure on
its variable-rate bank loan (JPY 1,000 million outstanding as of December 31,
2000) to a fixed interest rate of 3.10%. The Yen interest rate swap agreement
expires on March 13, 2009. At December 31, 2000, the fair value of this
agreement is $(0.53) million. The terms of the Yen interest rate swap agreement,
especially the notional amounts outstanding at any specific point of time, match
the terms of the bank loan which has been borrowed from the same bank that is
counterparty in the swap agreement. The bank borrowing and the notional amount
of the swap agreement will always coincide until March 2009 when the the bank
debt is completely repaid and the swap expires.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable

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                                    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.  [RESERVED]

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-3, Registration No. 333-12190, filed June 26, 2000).

     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   Declaration of Trust Establishing Fresenius Medical Care Capital
Trust, dated November 22, 1996. (Incorporated by reference to Exhibit 2.2 to
FMC's Annual Report on Form 20-F for the year ended December 31, 1996, filed
April 7, 1997).

     2.6   Amended and Restated Declaration of Trust of Fresenius Medical Care
Capital Trust, dated November 27, 1996. (Incorporated by reference to Exhibit
2.3 to FMC's Annual Report on Form 20-F for the year ended December 31, 1996,
filed April 7, 1997).

     2.7   Senior Subordinated Indenture dated November 27, 1996, among
Fresenius Medical Care AG, State Street Bank and Trust Company (as successor to
Fleet National Bank) as Trustee and the Subsidiary Guarantors

                                        91
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named therein (Incorporated by reference to Exhibit 2.4 to FMC's Annual Report
on Form 20-F for the year ended December 31, 1996, filed April 7, 1997).

     2.9   Guarantee Agreement dated November 27, 1996, between Fresenius
Medical Care AG and State Street Bank and Trust Company (as successor to Fleet
National Bank) as Trustee. (Incorporated by reference to Exhibit 2.5 to FMC's
Annual Report on Form 20-F for the year ended December 31, 1996, filed April 7,
1997).

     2.10 Agreement as to Expenses and Liabilities between Fresenius Medical
Care AG and Fresenius Medical Care Capital Trust dated November 27, 1996.
(Incorporated by reference to Exhibit 2.6 to FMC's Annual Report on Form 20-F
for the year ended December 31, 1996, filed April 7, 1997).

     2.11 Pledge and Security Agreement dated November 27, 1996 between
Fresenius Medical Care AG and State Street Bank and Trust Company (as successor
to Fleet National Bank). (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).

     2.12 First Supplemental Indenture dated as of February 19, 1998 to Senior
Subordinated Indenture dated November 27, 1996, among Fresenius Medical Care AG,
State Street Bank and Trust Company (as successor to Fleet National Bank) as
Trustee and the Subsidiary Guarantors named therein (Incorporated by reference
to Exhibit 1.3 to FMC's Annual Report on Form 20-F for the year ended December
31, 1997, filed March 27, 1998).

     2.13 Second Supplemental Indenture dated as of November 30, 1998 among
Fresenius Medical Care AG, FMC Trust Finance S.a.r.l. Luxembourg, State Street
Bank and Trust Company, as Trustee, and the Subsidiary Guarantors named therein.
(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).

     2.14 Amendment No. 1 dated as of November 30, 1998 to Amended and Restated
Declaration of Trust of Fresenius Medical Care Capital Trust. (Incorporated by
reference to Exhibit 1.3 to FMC's Annual Report on Form 20-F for the year ended
December 31, 1998, filed March 24, 1999).

     2.15 Amendment to Guarantee Agreement dated as of November 30, 1998 between
Fresenius Medical Care AG and State Street Bank and Trust Company, as successor
trustee to Fleet National Bank, with respect to Fresenius Medical Care Capital
Trust. (Incorporated by reference to Exhibit 1.4 to FMC's Annual Report on Form
20-F for the year ended December 31, 1998, filed March 24, 1999).

     2.16 Amendment to Pledge and Security Agreement dated as of November 30,
1998 between Fresenius Medical Care AG and State Street Bank and Trust Company
as successor trustee and collateral agent to Fleet National Bank, with respect
to Fresenius Medical Care Capital Trust. (Incorporated by reference to Exhibit
1.5 to FMC's Annual Report on Form 20-F for the year ended December 31, 1998,
filed March 24, 1999).

     2.17 Amendment to Intercreditor and Subordination Agreement dated as of
November 30, 1998 between State Street Bank and Trust Company, as successor
trustee and collateral agent to Fleet National Bank and NationsBank, N.A., as
paying agent under the NMC Credit Agreement, with respect to Fresenius Medical
Care Capital Trust. (Incorporated by reference to Exhibit 1.6 to FMC's Annual
Report on Form 20-F for the year ended December 31, 1998, filed March 24, 1999).

     2.18 Senior Subordinated Indenture (U.S. Dollar denominated) dated as of
February 19, 1998, among Fresenius Medical Care AG, FMC Trust Finance S.a.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).

     2.19 Senior Subordinated Indenture (DM denominated) dated as of February
19, 1998, among Fresenius Medical Care AG, FMC Trust Finance S.a.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).

     2.20 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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     2.21 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).

     2.22 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).

     2.23 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).

     2.24 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).

     2.25 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).

     2.26 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).

     2.27 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).

     2.28 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).

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

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

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

     4.4   Primary Guarantee dated July 31, 1996. (Incorporated by reference to
FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.5   Secondary Guarantee dated July 31, 1996. (Incorporated by reference
to FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.6   Letter Agreement dated July 31, 1996. (Incorporated by reference to
FMC's Registration Statement on Form F-4, filed on August 2, 1996.)

     4.7   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.)

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96

     4.8   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.)

     4.9   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).

     4.10 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).

     4.11 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).

     4.12 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).

     4.13 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).

     4.14 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).

     4.15 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).

     4.16 Technology License Agreement (Biofine(TM)) 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).

     4.17 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).

     4.18 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).

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

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

     4.21 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).

     4.22 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).

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     4.23 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)

     4.24 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).

     4.25 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).

     4.26 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).

     4.27 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).

     4.28 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).

     4.29 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).

     4.30 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).

     4.31 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).
                                        95
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     4.32 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).

     4.33 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).

     4.34 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).

     4.35 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).

     4.36 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).

     4.37 Amended and Restated Transfer and Administration Agreement dated as of
October 26, 2000 among Compass US Acquisition LLC, NMC Funding Corporation,
National Medical Care, Inc., Enterprise Funding Corporation, the Bank Investors
listed therein, Westdeutsche Landesbank Girozentrale, New York Branch, as an
administrative agent and Bank of America N.A., as an administrative agent.
(Incorporated by reference to FMCH's Annual Report on Form 10-K, for the year
ended December 31, 2000, filed April 2, 2001).

     4.38 Subordinated Loan Note dated as of May 18, 1999, among National
Medical Care, Inc and Certain Subsidiaries with Fresenius AG as lender.
(Incorporated by reference to FMCH's Quarterly Report on Form 10-Q, for the
three months ended September 30, 1999, filed November 22, 1999).

     4.39 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).

     4.40 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).

     4.41 Product Purchase Agreement effective January 1, 2000 between Amgen,
Inc. and National Medical Care, Inc. (Incorporated by reference to FMCH's Annual
Report on Form 10-K, for the year ended December 31, 1999, filed March 30,
2000).

     4.42 Amendment to Product Purchase Agreement effective January 1, 2000
between Amgen, Inc. and National Medical Care, Inc. (Incorporated by reference
to FMCH's Quarterly Report on Form 10-Q, for the quarter ended June 30, 2000,
filed August 9, 2000).

                                        96
99

     4.43 Plea Agreement dated January 13, 2000 by and among Lifechem, Inc., the
United States Department of Justice and the United States Attorney for the
District of Massachusetts. (Incorporated by reference to Exhibit 10.6 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.44 Plea Agreement dated January 13, 2000 by and among NMC Medical
Products, Inc., the United States Department of Justice and the United States
Attorney for the District of Massachusetts. (Incorporated by reference to
Exhibit 10.7 to FMCH's Current Report on Form 8-K dated January 21, 2000).

     4.45 Plea Agreement dated January 13, 2000 by and among NMC Homecare, Inc.,
the United States Department of Justice and the United States Attorney for the
District of Massachusetts. (Incorporated by reference to Exhibit 10.8 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.46 Letter Agreement dated January 17, 2000 by and among FMCH, the United
States Department of Justice and the United States Attorney for the District of
Massachusetts. (Incorporated by reference to Exhibit 10.9 to FMCH's Current
Report on Form 8-K dated January 21, 2000).

     4.47 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).

     4.48 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, Lifechem, Inc., NMC Medical Products, Inc., National
Medical Care, Inc., FMCH and Jay A. Buford, Russell J. Davis and William L.
Schoff. (Incorporated by reference to Exhibit 10.2 to FMCH's Current Report on
Form 8-K dated January 21, 2000).

     4.49 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, NMC Homecare, Inc., National Medical Care, Inc., FMCH
Ven-A-Care of the Florida Keys, Inc. and Dana R. Austin. (Incorporated by
reference to Exhibit 10.3 to FMCH's Current Report on Form 8-K dated January 21,
2000).

     4.50 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, Clinical Diagnostic Systems, Inc., NMC Diagnostic
Services, Inc., Bio-Medical Applications Management Company, Inc., National
Medical Care, Inc. and FMCH. (Incorporated by reference to Exhibit 10.4 to
FMCH's Current Report on Form 8-K dated January 21, 2000).

     4.51 Settlement Agreement and Release dated January 18, 2000 by and among
United States of America, National Medical Care, Inc., FMCH, Gregory S. Price
and Richard Bradford. (Incorporated by reference to Exhibit 10.5 to FMCH's
Current Report on Form 8-K dated January 21, 2000).

     4.52 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).

     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
Wirtschaftsprufungsgesellschaft.

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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: April 5, 2001

                                      FRESENIUS MEDICAL CARE
                                      AKTIENGESELLSCHAFT

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

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

                                          /s/ JOSEF DINGER
                                      By:
                                      ------------------------------------------

                                         Name: Josef Dinger
                                         Title: Senior Vice President
                                            Controlling and Corporate Accounting

                                        98
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                         INDEX OF FINANCIAL STATEMENTS
PAGE
                                                              ----
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................   F-2
Consolidated Statements of Operations for the years ended
  December 31, 2000, 1999 and 1998..........................   F-3
Consolidated Balance Sheets as of December 31, 2000 and
  1999......................................................   F-4
Consolidated Statements of Cash Flows for the years ended
  December 31, 2000, 1999 and 1998..........................   F-5
Consolidated Statement of Shareholders' Equity for the years
  ended December 31, 2000, 1999 and 1998....................   F-6
Notes to Consolidated Financial Statements..................   F-7
Financial Statement Schedule................................   S-1
F-1
102

                          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, 2000 and 1999 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, 2000. 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, 2000 and 1999, and the results of their operations and their
cash flows for each of the years in the three-year period ended December 31,
2000, 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.

Frankfurt am Main, Germany

March 23, 2001, except as to paragraphs 16 and 17 of Note 18, as to which the
date is April 5, 2001

/s/ KPMG
Deutsche Treuhand-Gesellschaft
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft

                                       F-2
103

                           FRESENIUS MEDICAL CARE AG

                     CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                       (IN THOUSANDS, EXCEPT SHARE DATA)
2000          1999          1998
                                                         ----------    ----------    ----------
Net revenue:
  Dialysis Care........................................  $2,944,625    $2,599,688    $2,358,577
  Dialysis Products....................................   1,256,713     1,240,741     1,147,099
                                                         ----------    ----------    ----------
                                                          4,201,338     3,840,429     3,505,676
Cost of revenue:
  Dialysis Care........................................   2,040,627     1,776,604     1,614,266
  Dialysis Products....................................     693,966       686,551       628,672
                                                         ----------    ----------    ----------
                                                          2,734,593     2,463,155     2,242,938
Gross profit...........................................   1,466,745     1,377,274     1,262,738
Operating expenses:
  Selling, general and administrative..................     813,997       784,572       742,610
  Research and development.............................      31,935        32,488        31,150
  Special charge for Settlement........................          --       601,000            --
                                                         ----------    ----------    ----------
Operating income (loss)................................     620,813       (40,786)      488,978
Other (income) expense:
  Interest income......................................      (9,411)       (8,094)       (8,641)
  Interest expense.....................................     195,569       226,218       228,182
  Interest expense on obligation related to
     Settlement........................................      29,947            --            --
                                                         ----------    ----------    ----------
Income (loss) from continuing operations before income
  taxes, minority interest and cumulative effect of
  accounting change....................................     404,708      (258,910)      269,437
Income tax expense (benefit)...........................     189,772       (12,744)      135,366
Minority interest......................................       2,861         2,378         2,454
                                                         ----------    ----------    ----------
Income (loss) from continuing operations before
  cumulative effect of accounting change...............     212,075      (248,544)      131,617
Loss from discontinued operations, net.................          --            --      (105,897)
Cumulative effect of accounting change, net............          --            --        (6,589)
                                                         ----------    ----------    ----------
Net income (loss)......................................  $  212,075    $ (248,544)   $   19,131
                                                         ==========    ==========    ==========
Basic income (loss) from continuing operations before
  cumulative effect of accounting change per Ordinary
  share................................................  $     2.37    $    (3.15)   $     1.62
                                                         ==========    ==========    ==========
Fully diluted income (loss) from continuing operations
  before cumulative effect of accounting change per
  Ordinary share.......................................  $     2.36    $    (3.15)   $     1.62
                                                         ==========    ==========    ==========
Basic income (loss) per Ordinary share.................  $     2.37    $    (3.15)   $     0.20
                                                         ==========    ==========    ==========
Fully diluted income (loss) per Ordinary share.........  $     2.36    $    (3.15)   $     0.20
                                                         ==========    ==========    ==========
Basic income (loss) from continuing operations before
  cumulative effect of accounting change per Preference
  share................................................  $     2.43    $    (3.15)   $     1.78
                                                         ==========    ==========    ==========
Fully diluted income (loss) from continuing operations
  before cumulative effect of accounting change per
  Preference share.....................................  $     2.42    $    (3.15)   $     1.78
                                                         ==========    ==========    ==========
Basic income (loss) per Preference share...............  $     2.43    $    (3.15)   $     0.36
                                                         ==========    ==========    ==========
Fully diluted income (loss) per Preference share.......  $     2.42    $    (3.15)   $     0.36
                                                         ==========    ==========    ==========
See accompanying notes to consolidated financial statements
                                       F-3
104

                           FRESENIUS MEDICAL CARE AG
                          CONSOLIDATED BALANCE SHEETS
                         AT DECEMBER 31, 2000 AND 1999
                       (IN THOUSANDS, EXCEPT SHARE DATA)
2000          1999
                                                              ----------    ----------
Assets
Current assets:
  Cash and cash equivalents.................................  $   64,577    $   34,760
  Trade accounts receivable, less allowance for doubtful
     accounts of $111,185 in 2000 and $101,262 in 1999......     753,674       667,739
  Accounts receivable from related parties..................      46,117        49,129
  Inventories...............................................     320,234       301,302
  Prepaid expenses and other current assets.................     214,526       179,392
  IDPN accounts receivable..................................       5,189        53,962
  Deferred taxes............................................     177,094       254,925
                                                              ----------    ----------
  Total current assets......................................   1,581,411     1,541,209
Property, plant and equipment, net..........................     738,993       642,121
Intangible assets, including goodwill, net..................   3,475,056     3,438,756
Deferred taxes..............................................      27,205        25,121
Non-current IDPN accounts receivable........................          --         5,189
Other assets................................................     156,288        99,987
                                                              ----------    ----------
Total assets................................................  $5,978,953    $5,752,383
                                                              ==========    ==========
Liabilities and shareholders' equity
Current liabilities:
  Accounts payable..........................................  $  203,374    $  193,120
  Accounts payable to related parties.......................      77,823        89,453
  Accrued expenses and other current liabilities............     391,640       415,061
  Accrued Settlement........................................          --       386,815
  Note payable related to Settlement........................      85,920            --
  Short-term borrowings.....................................     106,592        96,383
  Short-term borrowings from related parties................     218,333       330,000
  Current portion of long-term debt and capital lease
     obligations............................................     168,231       147,484
  Income tax payable........................................     117,572        78,438
  Deferred taxes............................................      20,967        33,438
                                                              ----------    ----------
  Total current liabilities.................................   1,390,452     1,770,192
Long-term debt and capital lease obligations, less current
  portion...................................................     657,832       653,776
Accrued Settlement..........................................          --        85,920
Other liabilities...........................................      31,464        24,686
Pension liabilities.........................................      69,970        61,578
Deferred taxes..............................................     176,487       168,037
Company-obligated mandatorily redeemable preferred
  securities of subsidiary Fresenius Medical Care Capital
  Trusts Holding solely Company-guaranteed debentures of
  subsidiary................................................     952,727       964,103
Minority interest...........................................      21,271        21,774
                                                              ----------    ----------
  Total liabilities.........................................   3,300,203     3,750,066
Shareholders' equity:
Preference shares, no par, E 2.56 nominal value, 45,497,700
  shares authorized, 23,765,093 issued and outstanding......      63,644        27,623
Ordinary shares, no par, E 2.56 nominal value, 70,000,000
  shares authorized, issued and outstanding.................     229,494       229,494
Additional paid-in capital..................................   2,634,606     2,097,480
Retained deficit............................................     (56,024)     (216,870)
Accumulated other comprehensive loss........................    (192,970)     (135,410)
                                                              ----------    ----------
  Total shareholders' equity................................   2,678,750     2,002,317
                                                              ----------    ----------
  Total liabilities and shareholders' equity................  $5,978,953    $5,752,383
                                                              ==========    ==========
See accompanying notes to consolidated financial statements

                                       F-4
105

                           FRESENIUS MEDICAL CARE AG

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                                 (IN THOUSANDS)
2000         1999         1998
                                                              ---------    ---------    ---------
Operating Activities:
  Net income (loss).........................................  $ 212,075    $(248,544)   $  19,131
  Adjustments to reconcile net income (loss) to cash flows
    provided by (used in) operating activities:
    Cumulative effect of accounting change..................         --           --        6,589
    Depreciation and amortization...........................    292,854      284,208      278,984
    Loss from discontinued operations.......................         --           --      105,897
    Write-off of IDPN accounts receivable...................         --       94,349           --
    Change in deferred taxes, net...........................     76,934      (89,925)      23,586
    (Gain) loss on sale of fixed assets.....................       (289)         991          213
    Compensation expense related to stock options...........      3,980           --           --
  Changes in assets and liabilities, net of amounts from
    businesses acquired or disposed of:
    Trade accounts receivable, net..........................   (174,333)    (136,262)    (160,051)
    Inventories.............................................    (23,007)     (15,754)     (39,304)
    Prepaid expenses, other current and non-current
      assets................................................     (8,285)     (36,718)     (37,295)
    Accounts receivable from/ payable to related parties....    (18,801)     (14,946)       3,174
    Accounts payable, accrued expenses and other current and
      non-current liabilities...............................    (20,689)     488,696       (6,336)
    Income taxes payable....................................     50,827       28,662       73,669
                                                              ---------    ---------    ---------
      Net cash provided by operating activities of
        continuing operations...............................    391,266      354,757      268,257
                                                              ---------    ---------    ---------
      Net cash used in operating activities of discontinued
        operations..........................................         --       (3,782)        (257)
                                                              ---------    ---------    ---------
      Net cash provided by operating activities.............    391,266      350,975      268,000
                                                              ---------    ---------    ---------
Investing Activities:
  Purchases of property, plant and equipment................   (228,037)    (160,276)    (158,695)
  Proceeds from sale of property, plant and equipment.......     20,724        7,130       26,179
  Acquisitions and investments, net of cash acquired........   (274,530)    (101,326)    (222,935)
  Proceeds from disposition of businesses...................         --           --       82,500
                                                              ---------    ---------    ---------
    Net cash used in investing activities of continuing
      operations............................................   (481,843)    (254,472)    (272,951)
                                                              ---------    ---------    ---------
    Net cash used in investing activities of discontinued
      operations............................................         --           --       (7,315)
                                                              ---------    ---------    ---------
    Net cash used in investing activities...................   (481,843)    (254,472)    (280,266)
                                                              ---------    ---------    ---------
Financing Activities:
  Proceeds from short-term borrowings.......................     38,416       79,580       54,954
  Repayments of short-term borrowings.......................    (32,609)     (80,946)     (44,795)
  Proceeds from short-term borrowings from related
    parties.................................................     26,000      270,000       60,000
  Repayments of short-term borrowings from related
    parties.................................................   (141,000)          --      (66,428)
  Proceeds from long-term debt..............................    255,224       26,895       60,150
  Principal payments of long-term debt and capital lease
    obligations.............................................   (221,739)    (310,476)    (640,497)
  Payments on obligation related to Settlement..............   (386,815)          --           --
  Retirement of convertible investment securities...........         --      (47,664)     (61,725)
  Proceeds from issuance of mandatorily redeemable preferred
    securities..............................................         --           --      597,810
  Proceeds from issuance of Preference shares...............    556,958           --           --
  Proceeds from increase of accounts receivable
    securitization program..................................    111,402       29,400      105,600
  Proceeds from exercise of stock options...................        885        1,719        1,047
  Dividends paid............................................    (51,229)     (48,404)     (49,214)
  Distributions on convertible investment securities........         --           --       (2,752)
  Change in minority interest...............................        139          578          717
                                                              ---------    ---------    ---------
    Net cash provided by (used in) financing activities of
      continuing operations.................................    155,632      (79,318)      14,867
                                                              ---------    ---------    ---------
    Net cash used in financing activities of discontinued
      operations............................................         --           --       (2,107)
                                                              ---------    ---------    ---------
    Net cash provided by (used in) financing activities.....    155,632      (79,318)      12,760
                                                              ---------    ---------    ---------
Effect of exchange rate changes on cash and cash
  equivalents...............................................    (35,238)     (14,292)      (6,445)
                                                              ---------    ---------    ---------
Cash and Cash Equivalents:
  Net increase (decrease) in cash and cash equivalents......     29,817        2,893       (5,951)
  Cash and cash equivalents at beginning of period..........     34,760       31,867       37,818
                                                              ---------    ---------    ---------
  Cash and cash equivalents at end of period................  $  64,577    $  34,760    $  31,867
                                                              =========    =========    =========
See accompanying notes to consolidated financial statements
                                       F-5
106

                           FRESENIUS MEDICAL CARE AG

                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
                       (IN THOUSANDS, EXCEPT SHARE DATA)
PREFERENCE SHARES        ORDINARY SHARES                                               ACCUMULATED
                        ---------------------   ----------------------   CONVERTIBLE   ADDITIONAL   RETAINED        OTHER
                         NUMBER OF    NO PAR     NUMBER OF     NO PAR    INVESTMENT     PAID IN     EARNINGS    COMPREHENSIVE
                          SHARES       VALUE      SHARES       VALUE     SECURITIES     CAPITAL     (DEFICIT)       LOSS
                        -----------   -------   -----------   --------   -----------   ----------   ---------   -------------
Balance at December
 31, 1997.............   9,023,341    $27,623   70,000,000    $229,494    $ 67,584     $2,098,776   $108,875      $ (86,387)
Proceeds from exercise
 of options...........          --        --            --          --          --         1,047          --             --
Retirement of
 convertible
 investment
 securities...........          --        --            --          --     (67,584)           --          --             --
Distributions on
 convertible
 investment
 securities...........          --        --            --          --          --            --      (2,752)            --
Distributions to
 Fresenius AG.........          --        --            --          --          --        (4,062)         --             --
Dividends paid........          --        --            --          --          --            --     (45,176)            --
Comprehensive income:
Net income............          --        --            --          --          --            --      19,131             --
Foreign currency
 translation
 adjustment...........          --        --            --          --          --            --          --         10,397
Comprehensive
 income...............          --        --            --          --          --            --          --             --
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 1998.............   9,023,341    27,623    70,000,000     229,494    $     --     $2,095,761   $ 80,078      $ (75,990)
Proceeds from exercise
 of options...........          --        --            --          --                     1,719          --             --
Dividends paid........                                                                               (48,404)
Comprehensive loss:
Net loss..............          --        --            --          --                        --    (248,544)            --
Foreign currency
 translation
 adjustment...........          --        --            --          --                        --          --        (59,420)
Comprehensive loss....          --        --            --          --                        --          --             --
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 1999.............   9,023,341    $27,623   $70,000,000   $229,494    $     --     $2,097,480   $(216,870)    $(135,410)
Issuance of Preference
 shares...............  14,724,359    35,980                                             532,302
Proceeds from exercise
 of options...........      17,393        41                                                 844
Compensation expense
 related stock
 options..............                                                                     3,980
Dividends paid........                                                                               (51,229)
Comprehensive income:
Net income............                                                                               212,075
Foreign currency
 translation
 adjustment...........                                                                                              (57,560)
Comprehensive
 income:..............
                        -----------   -------   -----------   --------    --------     ----------   ---------     ---------
Balance at December
 31, 2000.............  23,765,093    $63,644   $70,000,000   $229,494    $     --     $2,634,606   $(56,024)     $(192,970)
                        ===========   =======   ===========   ========    ========     ==========   =========     =========
TOTAL
                        ----------
Balance at December
 31, 1997.............  $2,445,965
Proceeds from exercise
 of options...........       1,047
Retirement of
 convertible
 investment
 securities...........     (67,584)
Distributions on
 convertible
 investment
 securities...........      (2,752)
Distributions to
 Fresenius AG.........      (4,062)
Dividends paid........     (45,176)
Comprehensive income:
Net income............      19,131
Foreign currency
 translation
 adjustment...........      10,397
                        ----------
Comprehensive
 income...............      29,528
                        ----------
Balance at December
 31, 1998.............  $2,356,966
Proceeds from exercise
 of options...........       1,719
Dividends paid........     (48,404)
Comprehensive loss:
Net loss..............    (248,544)
Foreign currency
 translation
 adjustment...........     (59,420)
                        ----------
Comprehensive loss....    (307,964)
                        ----------
Balance at December
 31, 1999.............  $2,002,317
Issuance of Preference
 shares...............     568,282
Proceeds from exercise
 of options...........         885
Compensation expense
 related stock
 options..............       3,980
Dividends paid........     (51,229)
Comprehensive income:
Net income............     212,075
Foreign currency
 translation
 adjustment...........     (57,560)
                        ----------
Comprehensive
 income:..............     154,515
                        ----------
Balance at December
 31, 2000.............  $2,678,750
                        ==========
See accompanying notes to consolidated financial statements
                                       F-6
107

                           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. Fresenius
Medical Care AG ("FMC AG") 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, Fresenius Medical
Care AG 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 Fresenius
Medical Care AG Ordinary shares. Thereafter, FMC 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., its global dialysis business, in exchange for Ordinary
           shares; and

     (ii)   the publicly-held minority interest of Fresenius USA, Inc., in
            exchange for Ordinary shares.

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. All significant intercompany
transactions and balances have been eliminated. The equity method of accounting
is used for investments in associated companies (20% to 50% owned). All other
investments are accounted for at cost.

     For business combinations accounted for under the purchase method, all
assets acquired and liabilities assumed are recorded at fair value. An excess of
the purchase price over the fair value of net assets acquired is capitalized as
goodwill and amortized over the estimated period of benefit on a straight-line
basis.

B)  CLASSIFICATIONS

     Certain items in prior years' consolidated financial statements have been
reclassified to conform with the current year's presentation.

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)  INVENTORIES

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

                                       F-7
108

E)   PROPERTY, PLANT AND EQUIPMENT

     Property, plant, and equipment are stated at cost. 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. The cost and accumulated depreciation of
assets sold or otherwise disposed are removed from the accounts, and any
resulting gain or loss is included in income when the assets are disposed.

     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 11
years and 3 to 15 years for machinery and equipment with a weighted average life
of 7 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 2000, 1999, and 1998 was, $1,205, $224, and
$221, respectively.

F)   INTANGIBLE ASSETS

     The Company has adopted the following useful lives and amortizes intangible
assets using the straight-line method: goodwill -- 20 to 40 years with weighted
average life of 37 years; tradename and patents -- 6 to 40 years with weighted
average life of 33 years; patient relationships, distribution rights and other
intangible assets -- over the estimated period to be benefited, generally from 5
to 40 years with a weighted average life of 8 years.

G)  DERIVATIVE FINANCIAL INSTRUMENTS

     The Company utilizes derivative financial instruments including forward
currency contracts and interest rate swaps.

     Forward currency contracts -- Gains and losses on forward currency
contracts that are designated and effective as hedges of existing assets or
liabilities are included in the carrying amount of those hedged items. Foreign
currency forward contracts hedging firm commitments are deferred and recognized
along with the effects of the hedged transaction. Gains and losses on other
forward currency contracts not qualifying for hedge accounting are recognized as
selling, general and administrative expenses or cost of revenues in the period
in which the gain or loss occurs.

     Interest rate swaps -- Interest rate agreements that are designated as a
hedge of a debt or other long-term obligations are accounted for on an accrual
basis. That is, the interest payable and interest 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 on 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. 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 timing of the gain or loss on
the interest rate swap would be matched with the offsetting gain or loss of the
related item. For information regarding the adoption of SFAS 133 Accounting for
Derivative Instruments and Hedging Activities, as amended by SFAS 138, see
"Accounting Changes."

H)  FOREIGN CURRENCY TRANSLATION

     For purposes of these consolidated financial statements, the U.S. dollar is
the reporting currency. The Company follows the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 52, Foreign Currency Translation.
Substantially all assets and liabilities of the Company and all non-U.S.
subsidiaries are

                                       F-8
109

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 earnings and are included in
other comprehensive income.

     Gains and losses resulting from the translation of intercompany borrowings,
which are not considered equity investments, are included in selling, general
and administrative expense. Transaction gains (losses) amounted to $18,370,
$2,299 and $366 for 2000, 1999 and 1998, respectively.

I)   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 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.

     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.

J)   RESEARCH AND DEVELOPMENT EXPENSES

     Research and development expenses are expensed as incurred.

K)  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. Prior to the German tax law change in 2000, deferred taxes
in Germany were calculated using the "undistributed earnings" tax rate. (see
Note 12)

L)   IMPAIRMENT

     In accordance with Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, the Company reviews the carrying value of its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of assets may not be recoverable. The Company considers various
valuation factors including discounted cash flows, fair values and replacement
costs to assess any impairment of goodwill and other long lived assets.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by
the asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.

M)  DEBT ISSUANCE COSTS

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

N)  SELF INSURANCE PROGRAMS

     A major subsidiary of the Company is self-insured for professional, product
and general liability, auto and worker's compensation claims up to predetermined
amounts above which third party insurance applies. Estimates are made for both
reported and incurred but not reported claims.
                                       F-9
110

O)  USE OF ESTIMATES

     The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
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.

P)  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.

     A significant percentage of the Company's health care services revenues are
paid by and subject to regulations under governmental programs, primarily
Medicare and Medicaid, health care programs administered by the United States
government.

Q)  EARNINGS PER PREFERENCE SHARE AND ORDINARY SHARE

     Basic net income (loss) per Preference share and basic net income (loss)
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 convertible investment securities (see Note 16) and awards granted
under the FMC stock incentive plans (see Note 17), are potentially dilutive
equity instruments.

R)   STOCK OPTION PLANS

     The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded only if the current market price of the underlying stock
exceeds the exercise price on the measurement date. For stock incentive plans
which are performance based, the Company recognizes compensation expense over
the vesting periods, based on the then current market values of the underlying
stock. In addition, the Company has adopted the disclosure only provisions
required by SFAS No. 123, Accounting for Stock-Based Compensation.

S)   RECENT PRONOUNCEMENTS AND ACCOUNTING CHANGES

     The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging
Activities, which establishes accounting and reporting standards for financial
derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. The statement also provides the
criteria for determining whether a derivative may be specifically designated as
a hedge of a particular exposure with the intent of measuring the effectiveness
of that hedge in the statement of operations. In June 2000, the Financial
Accounting Standards Board issued SFAS No. 138, which amended certain provisions
of SFAS 133, including allowing foreign-currency denominated assets and
liabilities to qualify for hedge accounting, permitting the offsetting of
certain inter-entity foreign currency exposures that reduce the need for third
party derivatives and redefining the nature of interest rate risk to avoid
sources of ineffectiveness. The Company is adopting SFAS 133, and the
corresponding amendments under SFAS 138 effective as of January 1, 2001.

                                       F-10
111

     After adoption, gains and losses in fair value of recognized assets and
liabilities and firm commitments of operating transactions as well as gains and
losses on derivative financial instruments designated as fair value hedges of
these recognized assets and liabilities and firm commitments will be recognized
currently in earnings.

     After adoption, changes in the value of foreign currency forward contracts
designated and qualifying as cash flow hedges of forecasted transactions will be
reported in accumulated other comprehensive income. These amounts will
subsequently be reclassified into earnings, as a component of the forecasted
transaction, in the same period as the forecasted transaction affects earnings.

     The adoption of SFAS 133, as amended by SFAS 138, results in the recording
of assets related to forward currency contracts of approximately $13,072. The
offset to this transition adjustment will be recorded to other comprehensive
income at an amount of $1,465 and to net income at an amount of $11,607. Because
of corresponding entries concerning the hedged items, the net effect on earnings
will be immaterial. Additionally, a liability for interest rate swaps of
approximately $25,146 will be recorded. The offset will be recorded to other
comprehensive income.

     In December 1999, the United States Securities and Exchange Commission
("SEC") issued Staff Accounting Bulletin 101, Revenue Recognition in Financial
Statements ("SAB 101"). SAB 101 provides the SEC staff's views in applying
generally accepted accounting principles to selected revenue recognition issues,
as well as examples of how the SEC staff applies revenue recognition guidance to
specific circumstances. In June 2000, SAB 101B was issued by the SEC further
delaying the implementation date for SAB 101 until the fourth quarter of the
fiscal year beginning after December 15, 1999. The impact of the adoption of SAB
101 is not significant.

     In May 2000, the Emerging Issues Task Force ("EITF") issued EITF 00-014,
Accounting for Certain Sales Incentives, which establishes accounting for point
of sales coupons, rebates, and free merchandise. This EITF requires that an
entity report these sales incentives that reduce the price paid to be netted
directly against revenues. EITF 00-014 is effective no later than the fourth
quarter of the fiscal year beginning after December 15, 1999. The impact of the
adoption of EITF-00-14 is not significant.

     In March 2000, the Financial Accounting Standards Board issued Financial
Accounting Standards Board Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion 25.
The effects of applying this interpretation are required to be recognized on a
prospective basis from July 1, 2000. The application of this interpretation did
not have a material effect on our financial position or results of operations.

     In September 2000, the Financial Accounting Standards Board issued SFAS No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, which replaces SFAS No. 125. SFAS No. 140
provides the accounting and reporting standards for securitizations and other
transfers of financial assets and collateral. These standards are based on
consistent application of a financial-components approach that focuses on
control. This Statement also provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. SFAS No. 140 is effective for transfers after March 31, 2001 and is
effective for disclosures about securitizations and collateral for fiscal years
ending after December 15, 2000. There is no impact for the adoption of SFAS No.
140

     In April 1998, Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities ("SOP 98-5"), was issued by the Accounting Standards
Executive Committee (AcSEC) of the AICPA and was adopted by the Company,
effective January 1, 1998. SOP 98-5 requires that the costs of start-up
activities, including organization costs, which have been previously
capitalized, should be expensed as incurred. As a result of the adoption of SOP
98-5, deferred start-up activities in the amount of $11,279 as of January 1,
1998, have been recognized as a cumulative effect of a change in accounting, net
of related tax benefit of $4,690, in the consolidated statements of earnings for
the year ended December 31, 1998. Costs for start-up activities are expensed as
incurred beginning in 1998.

                                       F-11
112

2.   SPECIAL CHARGE FOR SETTLEMENT

     On January 18, 2000, Fresenius Medical Care Holdings, Inc. ("FMCH"),
National Medical Care, Inc. 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").

     Under the Settlement with the U.S. government, FMCH made initial cash
payments of approximately $286 million and entered into a note payable for the
remainder of the payment obligations. Interest on installment payments to the
U.S. government will accrue at 6.3% on approximately $51 million of the
obligation and at 7.5% annually on the balance, until paid in full. The note
payable to the U.S. government and the amounts due to the Company for the
outstanding Medicare receivables have been classified in the balance sheet based
on their expected settlement dates.

     Under the terms of the note payable, the remaining obligation is payable in
six quarterly installments that began in April 2000 and end in July 2001. The
first four quarterly installments were paid in the amount of approximately $35
million each, including interest at 7.5%. The first three of these four payments
were made in April, July and October 2000 and the fourth installment was made in
January 2001. The final two installments of approximately $28 million each,
including interest at 6.3%, will be paid in April and July 2001, respectively.
In addition, the Company received approximately $59 million from the U.S.
government related to the Company's claims for outstanding Medicare receivables.
The Company received $54 million in 2000 and a final payment of $5 million in
February 2001.

     In connection with the Settlement, the Company amended the letter of credit
that National Medical Care delivered to the U.S. government in 1996 from $150
million to $190 million and, under the Settlement, the letter of credit will be
reduced as installment payments are made to the Government. At December 31,
2000, the letter of credit was reduced to $89 million.

3.   RELATED PARTY TRANSACTIONS

A)  SHARED SERVICES

     Fresenius AG, the majority shareholder, historically provided services to
and incurred costs on behalf of the Company. The Company entered into service
agreements with Fresenius AG and certain affiliates of Fresenius AG to continue
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, treasury services, and accounting and reporting. In the opinion of
management, such expenses are indicative of the actual expenses that would have
been incurred if the Company had been operating as an independent entity.

     For the years 2000, 1999 and 1998, amounts charged from Fresenius AG to FMC
under the terms of the agreement are $19,947, $16,387 and $21,298, respectively.
FMC also provides certain services to FAG and certain affiliates of FAG,
including research and development, plant administration, patent administration
and warehousing. FMC charged amounts of $9,984, $6,821 and $5,233 for services
rendered to Fresenius AG in 2000, 1999 and 1998, respectively.

     Related party transactions pertaining to services performed between
affiliated entities are recorded as accounts receivable or payable to related
parties. At December 31, 2000 and 1999 FMC had accounts receivable from related
parties of $46,117 and $49,129, respectively. The FMC accounts payable to
related parties at December 31, 2000 and 1999 were $77,823 and $89,453,
respectively.

     Under operating lease agreements entered into in conjunction with the
formation of Fresenius Medical Care, FMC will pay Fresenius AG approximately
DM 16,800 (E 8,590) per year. The lease amounts escalate annually, based upon
published indices in Germany. Converted to USD, this amounts to approximately,
$9,472, $10,642 and $10,101 during 2000, 1999 and 1998, respectively. The leases
expire in 2005 with options for renewal.

                                       F-12
113

B)  FINANCING PROVIDED BY FRESENIUS AG

     At December 31, 2000, the Company had short-term loans outstanding of
$215,934, of which $209,000 bore interest at rates varying between 7.35% and
7.38%. The remaining loans bore interest at a rate of approximately 4%. At
December 31, 1999, the Company had short-term loans outstanding of $330,000 at
varying interest rates between 7.06% and 7.44%. The funds were used primarily to
reduce long-term debt. At December 31, 2000, the loans were due at various dates
throughout the first quarter of 2001 and have subsequently been extended to
various dates through June 6, 2001. Interest expense on these borrowings was,
$18,571, $13,037 and $1,096 for the years 2000, 1999 and 1998, respectively.

C)   PRODUCTS

     During the years ended December 31, 2000, 1999, and 1998, the Company
recognized sales of $28,076, $28,563 and $13,237, respectively, to non-FMC
businesses of Fresenius AG. During 2000, 1999 and 1998, the Company made
purchases from Fresenius AG and affiliates in the amount of $25,547, $30,056 and
$29,822, 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 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 $580, $107, and $254 in 2000, 1999 and 1998, 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 a total of $10,438 in underwriting discounts and
commissions.

     The Chairman of the Company's Supervisory Board and former Chief Executive
Officer of FMC are members of the Management Board of Fresenius AG, the majority
holder of FMC's Ordinary shares.

4.   ACQUISITIONS

     The Company acquired certain health care facilities and clinical
laboratories for a total consideration of $288,144, $110,788, and $264,740 in
2000, 1999 and 1998, respectively. In 2000, consideration consisted of cash of
$274,530 and notes for $13,614. Acquisitions in 2000 include the purchase of
substantially all of the international and non-continental U.S. operations of
Total Renal Care Holdings, Inc. ("TRC"). The purchase price for these operations
was $145,000. Additionally the Company agreed to acquire TRC's Puerto Rico
operations. That acquisition is subject to regulatory approval and third party
consents. In connection with the Puerto Rico acquisition the Company paid a $10
million non-refundable deposit. In 1999, consideration consisted of cash of
$101,326 and notes for $9,462. In 1998, the consideration consisted of cash of
$222,935 and convertible investment securities of $41,805. These 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 $196,000, $94,000 and $243,000 for 2000, 1999 and 1998, respectively.

5.   DISCONTINUED OPERATIONS

     Effective June 1, 1998, the Company classified its Homecare/Non-renal
Diagnostics businesses as discontinued operations. The sale of the Non-renal
Diagnostics business was completed on June 26, 1998 while the sale of the
Homecare business was completed on July 29, 1998. In connection with the sale of
Homecare, the Company retained the assets and the operations associated with the
delivery of IDPN and recorded, for accounting purposes, its activity as part of
discontinued operations for the periods through June 30, 1998.
                                       F-13
114

Subsequent to June 30, 1998, the Company has recorded no IDPN revenues and any
incidental expenses have been included in continuing operations. Since it has
exited this business, the Company provides those services only to existing
physicians' patients for whom this therapy is prescribed. The Company has
recorded net after tax losses of $9,000 from operations of discontinued
businesses and $97,000 from the disposal of these businesses for the year ended
December 31, 1998. The net loss on the disposal of these businesses and their
results of operations have been accounted for as discontinued operations.

     IDPN receivables of $153,500 which had been included in the retained assets
of discontinued operations were resolved as part of the settlement agreements
with the U.S. Government relating to the OIG investigations (see Note 2). As a
result, a $94,300 write off was taken against these receivables. The remaining
receivables have been classified separately on the balance sheet and were
collected from the U.S. Government.

Discontinued Operations -- Results of Operations

     The revenue and results of operations of the discontinued operations in
1998 were as follows:
1998
                                                              ---------
Net revenue.................................................  $ 120,940
Cost of revenue.............................................     73,950
                                                              ---------
  Gross profit..............................................     46,990
Selling, general and administrative.........................     61,202
                                                              ---------
Loss from operations of discontinued businesses before
  income tax benefit........................................    (14,212)
Income tax benefit..........................................     (5,543)
                                                              ---------
Loss from operations of discontinued businesses.............     (8,669)
                                                              ---------
Loss on disposal before income tax benefit..................   (140,000)
Income tax benefit..........................................    (42,772)
                                                              ---------
Loss on disposal............................................    (97,228)
Loss from discontinued operations...........................  $(105,897)
                                                              =========
6.   SALE OF ACCOUNTS RECEIVABLE

     National Medical Care, Inc. ("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 125. The amount of
the accounts receivable facility was last amended on October 26, 2000, when the
Company increased the accounts receivable facility to $500,000, and extended its
maturity to October 25, 2001.

     At December 31, 2000 and 1999, $445,000 and $335,000, 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 6.59% at year-end 2000. Under the
terms of the agreement, new interests in accounts receivable are sold 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.

                                       F-14
115

7.   INVENTORIES

     As of December 31, inventories consisted of the following
2000        1999
                                                              --------    --------
Raw materials and purchased components......................  $ 73,244    $ 61,624
Work in process.............................................    22,231      21,834
Finished goods..............................................   160,358     168,193
Health care supplies........................................    64,401      49,651
                                                              --------    --------
  Inventories...............................................  $320,234    $301,302
                                                              ========    ========
Under the terms of certain (unconditional) purchase agreements, the Company
is obligated to purchase approximately $165,000 of materials, of which $90,000
is committed at December 31, 2000 for fiscal year 2001. The terms of these
agreements run 2 to 5 years. Inventories as of December 31, 2000 include
approximately $25,800 of 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 2000, revenues
from EPO accounted for approximately 22% of total revenue in the North America
segment and approximately 23% of dialysis care revenue world-wide.

8.   PROPERTY, PLANT AND EQUIPMENT

     As of December 31, property, plant and equipment consisted of the
following:
2000          1999
                                                                ----------    ----------
Land and improvements.......................................    $   21,477    $    9,717
Buildings and improvements..................................       386,568       336,782
Machinery and equipment.....................................       691,607       620,024
Machinery, equipment and rental equipment under capitalized
  leases....................................................        17,507        24,001
Construction in progress....................................        90,184        48,832
                                                                ----------    ----------
                                                                 1,207,343     1,039,356
Accumulated depreciation and amortization...................      (468,350)     (397,235)
                                                                ----------    ----------
Property, plant and equipment, net..........................    $  738,993    $  642,121
                                                                ==========    ==========
Depreciation and amortization expense for property, plant and equipment
amounted to $130,278, $131,623, and $130,628 for the years ended December 31,
2000, 1999, and 1998, respectively.

     Included in property, plant and equipment as of December 31, 2000, 1999 and
1998 were $36,853, $36,015 and $36,996, 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 sold during the life of the lease.

     Accumulated depreciation related to machinery, equipment and rental
equipment under capital leases was $7,358, $14,330 and $10,785 at December 31,
2000, 1999 and 1998, respectively.

                                       F-15
116

9.   INTANGIBLE ASSETS

     As of December 31, intangible assets consisted of the following:
2000          1999
                                                              ----------    ----------
Goodwill....................................................  $3,252,335    $3,114,063
Patient relationships.......................................     198,147       180,067
Patents.....................................................     252,336       252,923
Distribution rights.........................................       7,619         4,349
Other.......................................................     387,589       354,400
                                                              ----------    ----------
                                                               4,098,026     3,905,802
Accumulated amortization....................................    (622,970)     (467,046)
                                                              ----------    ----------
  Intangible assets, net....................................  $3,475,056    $3,438,756
                                                              ==========    ==========
Amortization expense for intangible assets amounted to $160,604, $151,735,
and $147,616 for the years ended December 31, 2000, 1999, and 1998,
respectively.

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     As at December 31, accrued expenses and other current liabilities consisted
of the following:
2000        1999
                                                              --------    --------
Accrued operating expenses..................................  $ 49,012    $ 68,599
Accrued legal and compliance costs..........................     3,314      12,991
Accrued insurance...........................................    47,074      54,518
Accrued salaries and wages..................................    87,016      75,163
Accounts receivable credit balances.........................    38,215      48,932
Accrued interest............................................    26,926      25,429
Accrued restructuring.......................................     3,450       2,472
Accrued physician compensation..............................    17,649      17,721
Bonus and incentive plan compensation.......................     2,489       2,746
Withholding tax and VAT.....................................    24,138      17,294
Commissions.................................................    12,231      10,406
Deferred income.............................................     6,764       5,770
Bonuses and rebates.........................................     7,331       9,303
Accrued other costs related to Settlement...................     4,986      20,577
Other.......................................................    61,045      43,140
                                                              --------    --------
Total accrued expenses and other current liabilities........  $391,640    $415,061
                                                              ========    ========
11. DEBT AND CAPITAL LEASE OBLIGATIONS

     Short-term borrowings from third parties of $106,592, and $96,383 at
December 31, 2000, and 1999, 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, 2000, and 1999 was
6.0% and 4.6%, respectively. For information regarding short-term borrowings
from affiliates, see Note 3b.

     Excluding amounts available under the senior credit agreement (as described
below), at December 31, 2000, FMC had $24,291 available under such commercial
bank agreements. These lines of credit are generally secured by the Company's
accounts receivable and contain various covenants including, but not limited to,
requirements for maintaining defined levels of working capital, net worth,
capital expenditures and various financial ratios.

                                       F-16
117

     As of December 31, long-term debt and capital lease obligations consisted
of the following:
2000         1999
                                                              ---------    ---------
Senior credit agreement.....................................  $ 732,500    $ 738,150
Capital leases..............................................      6,808        8,067
Other.......................................................     86,755       55,043
                                                              ---------    ---------
                                                                826,063      801,260
Less current maturities.....................................   (168,231)    (147,484)
                                                              ---------    ---------
                                                              $ 657,832    $ 653,776
                                                              =========    =========
SENIOR CREDIT AGREEMENT

     The Company is party to a bank agreement dated September 27, 1996
(hereafter "senior credit agreement") with the Bank of America, N.A., The Bank
of Nova Scotia, The Chase Manhattan Bank, Dresdner 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 an aggregate of $2,000,000 through two credit facilities:

     -  a revolving credit facility of up to $1,000,000 (of which up to $250,000
        is available for letters of credit, up to $450,000 is available for
        borrowings in certain non-U.S. currencies, up to $50,000 is available as
        swing lines in U.S. dollars and up to $20,000 is available as swing
        lines in certain non-U.S. currencies) for up to seven years expiring on
        September 30, 2003

     -  a term loan facility of $1,000,000 for up to seven years, also expiring
        September 30, 2003. The terms of the senior credit agreement relating to
        the term loan facility require payments that permanently reduce the term
        loan facility. The repayment began in the fourth quarter of 1999 and
        will continue quarterly until the final maturity of the agreement in
        2003.

     Loans under this senior credit agreement bear interest at a base rate
determined in accordance with the agreement, or at LIBOR, plus in either case an
applicable margin. A fee is payable to the Lenders equal to a percentage per
annum (initially 0.375%) of the portion of the senior credit agreement not used.

     In addition to scheduled principal payments, the senior credit agreement
will be 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. Prepayments are permitted at any time without penalty,
except in certain defined periods. The senior credit agreement contains
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 is restricted as to the level of
dividends that can be paid in any calendar year, which was $78,000 in 2000. The
Company's dividend distribution in 2000 was $51,229. Dividends from Fresenius
Medical Care Holdings, Inc., a wholly owned subsidiary, are limited as a result
of a restriction on dividends from its subsidiary, National Medical Care, Inc,
and its subsidiaries. The restriction limits National Medical Care dividends to
50% of its consolidated net income of the preceding year. National Medical Care
had losses in 1999 as a result of a special charge (see Note 2) and losses in
1998 from discontinued operations (see Note 5).

     In December 1999, the Company amended certain covenants including, among
other things, financial ratios contained in its senior credit facility that
would have been affected by the impact of the Settlement (see Note 2). At
December 31, 2000 the Company was in compliance with all such covenants.

     On September 21, 2000 the senior credit agreement was amended in order to
increase the facility for accounts receivable securitization and some other
facilities. The Lenders also agreed that the proceeds of the Preference share
offerings during 2000 (see Note 16) did not trigger repayment obligations on the
term loan, but may be used for capital expenditures and acquisitions.

     At December 31, 2000, the Company had approximately $698,000 of additional
borrowing capacity available under the revolving credit facility of the senior
credit agreement, including approximately $103,000 for additional letters of
credit. No further borrowings are available under the term loan facility.

                                       F-17
118

     On January 18, 2000, the Company increased the amount of the letter of
credit that National Medical Care delivered to the U.S. Government in 1996 from
$150,000 to $190,000. Under the Settlement agreement, the letter of credit will
be reduced as installment payments are made to the government. At December 31,
2000, the letter of credit was $89,000.

     Aggregate annual payments applicable to the senior credit agreement, term
loan, capital leases and other borrowings for the five years subsequent to
December 31, 2000 (excluding borrowings underlying the Company's trust preferred
securities (see Note 14) are:
2001........................................................  $168,231
2002........................................................   159,474
2003........................................................   439,950
2004........................................................     8,100
2005........................................................     7,632
Thereafter..................................................    42,676
                                                              --------
                                                              $826,063
                                                              ========
12. INCOME TAXES

     Income (loss) from continuing operations before income taxes, minority
interest, and cumulative effect of accounting change is attributable to the
following geographic locations:
2000        1999         1998
                                                             --------    ---------    --------
Germany....................................................  $106,475    $  93,653    $ 70,877
United States..............................................   220,176     (408,060)    118,574
Other......................................................    78,058       55,497      79,986
                                                             --------    ---------    --------
                                                             $404,708    $(258,910)   $269,437
                                                             ========    =========    ========
Income tax expense (benefit) for the years ended December 31, consisted of
the following:
2000        1999        1998
                                                              --------    --------    --------
Current:
  German corporation and trade income taxes.................  $ 66,754    $ 43,876    $ 23,990
  United States income taxes................................    23,132      12,088      54,600
  Other income taxes........................................    29,971      28,797      22,246
                                                              --------    --------    --------
                                                               119,857      84,761     100,836
                                                              --------    --------    --------
Deferred:
  Germany...................................................   (14,902)        791      15,281
  United States.............................................    81,553     (92,907)     16,800
  Other income taxes........................................     3,264      (5,389)      2,449
                                                              --------    --------    --------
                                                                69,915     (97,505)     34,530
                                                              --------    --------    --------
                                                              $189,772    $(12,744)   $135,366
                                                              ========    ========    ========
In 2000, the German government enacted new tax legislation which, among
other changes, will reduce the Company's statutory corporate tax rate for German
companies from 40% on retained earnings and 30% on distributed earnings to a
uniform 25%, effective for the Company's year beginning January 1, 2001. In
1999, various changes to the German corporation tax law were made effective,
including the reduction of the tax rate applied to undistributed earnings from
45% to 40%. The effects of the reductions in the tax rate and other tax law
changes on the deferred tax assets and liabilities of the Company's German
companies were recognized in the year of enactment and resulted in deferred tax
benefit for 2000 and 1999 of $2,227 and $850, respectively.

     Prior to the 2000 tax law changes becoming effective, German corporation
tax law applied a splitrateimputation system to the income taxation of a
corporation and its shareholders. Upon distribution of
                                       F-18
119

retained earnings in the form of a dividend, shareholders subject to German tax
received a credit for corporation taxes paid by the corporation on such
distributed earnings. In addition, the corporation received a tax refund to the
extent such earnings had been initially subjected to a corporation income tax in
excess of 30%. The tax refund was also distributable to the shareholder.

     In general, prior to 2001 retained (undistributed) German corporate income
was initially subject to a federal corporation income tax currently at a rate of
40% for 2000 (40% for 1999 and 45% for 1998) plus a surcharge of 5.5% for each
year on federal corporate taxes payable. Giving effect to the surcharge, the
federal corporate tax rate was 42.2% for 2000 (42.2% in 1999 and 47.475% in
1998). Upon distribution of certain retained earnings generated in Germany to
stockholders, the corporate income tax rate on the earnings was adjusted to 30%,
plus a solidarity surcharge of 5.5%, for a total of 31.65% for each year, by
means of a refund for taxes previously paid. Under the new German corporate tax
system, during a 15 year transition period beginning on January 1, 2001, the
Company will continue to receive a refund or pay additional taxes on the
distribution of retained earnings which existed as of December 31, 2000.

     The income tax expense reflects the actual amount of distribution of that
year's earnings of the German operations. As such, the refund of tax described
above is reflected in the income tax expense reconciliation presented below.

     For the years ended December 31, 2000, 1999, and 1998 income tax expense
differed from the amounts computed by applying the German federal corporation
income tax rate of 42.2% for both 2000 and 1999 and 47.475% for 1998 to income
before income taxes, minority interest and cumulative effect of accounting
change as a result of the following:
2000        1999         1998
                                                             --------    ---------    --------
Computed "expected" income tax (benefit) expense at the
  undistributed earnings rate..............................  $170,786    $(109,260)   $127,929
Dividend distributions credit..............................    (9,077)          --          --
Trade income taxes, net of German federal corporation
  income tax benefit.......................................    12,688        8,758       8,351
Amortization of non-tax deductible goodwill................    28,380       28,057      30,999
Foreign tax rate differential..............................   (20,811)      (2,687)    (27,799)
Non-deductible portion of special charge for Settlement....        --       71,622          --
Other......................................................     7,805       (9,234)     (4,114)
                                                             --------    ---------    --------
Provision for income taxes.................................  $189,772    $ (12,744)   $135,366
                                                             ========    =========    ========
Effective tax rate.........................................      46.9%        -4.9%       50.2%
                                                             ========    =========    ========
F-19
120

     The tax effects of the temporary differences that give rise to deferred tax
assets and liabilities at December 31 are presented below:
2000         1999
                                                              ---------    ---------
Deferred tax assets:
Accounts receivable, primarily due to allowance for doubtful
  accounts..................................................  $  28,083    $  27,844
Inventory, primarily due to additional costs capitalized for
  tax purposes, and inventory reserve accounts..............     23,479       21,427
Accrued expenses and other liabilities for financial
  accounting purposes, not currently tax deductible.........    119,439      141,123
Capital leases, principally due to capitalization of costs
  for tax purposes..........................................        955        1,839
Settlement..................................................      5,302       92,469
Net operating loss carryforwards............................     30,546       21,807
Other.......................................................      5,821        1,895
                                                              ---------    ---------
Total deferred tax assets...................................  $ 213,625    $ 308,404
Less: valuation allowance...................................     (9,292)      (6,360)
                                                              ---------    ---------
Net deferred tax assets.....................................  $ 204,333    $ 302,044
                                                              ---------    ---------
Deferred tax liabilities:
Accounts receivable, primarily due to allowance for doubtful
  accounts..................................................  $   3,526    $   4,553
Inventory, primarily due to inventory reserve accounts for
  tax purposes..............................................      5,329        6,262
Accrued expenses and other liabilities deductible for tax
  prior to financial accounting recognition.................     31,037       40,365
Plant and equipment, principally due to differences in
  depreciation..............................................    154,605      169,813
Other.......................................................      2,991        2,480
                                                              ---------    ---------
Total deferred tax liabilities..............................    197,488      223,473
                                                              ---------    ---------
Net deferred tax asset......................................  $   6,845    $  78,571
                                                              =========    =========
During 2000 and 1999, the valuation allowance increased by $2,932 and
$1,020, respectively, primarily attributable to losses, principally arising in
Japan, and partially offset by utilization of operating losses.

     At December 31, 2000 the Company had approximately $83,607 of net operating
losses, of which $3,568 will expire in 2001, $4,395 in 2002, $5,002 in 2003,
$4,387 in 2004, $13,746 in 2005, $14,336 in 2018, $3,812 in 2019 and $3,352 in
2020. Substantially all of the remaining $31,009 of net operating losses are not
subject to an expiration period.

     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 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, 2000.

     Provision has not been made for additional taxes on approximately $102,000
undistributed earnings of foreign subsidiaries. The majority of these earnings
have been, and will continue to be, reinvested. The earnings could become
subject to additional tax if remitted or deemed remitted as dividends. The
Company estimates that the distribution of these earnings would result in $6,396
of additional withholding and corporation income taxes.

                                       F-20
121

INTRAPERIOD TAX ALLOCATION

     Income tax expense was allocated among the following items as follows:
2000        1999        1998
                                                              --------    --------    --------
Continuing operations.......................................  $189,772    $(12,744)   $135,366
Operations of discontinued operations.......................        --          --      (5,543)
Disposal of discontinued businesses.........................        --          --     (42,772)
                                                              --------    --------    --------
Total income tax expense....................................  $189,772    $(12,744)   $ 87,051
                                                              ========    ========    ========
13. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PENSION PLANS

     Plan benefits are generally based on employee years of service and final
salary. Consistent with normal business custom in the Federal Republic of
Germany, FMC's pension obligations in Germany are unfunded. In the United
States, substantially all U.S. employees are covered by National Medical Care's
non-contributory, defined benefit pension plan. Each year, National Medical Care
contributes to this plan at least the minimum amount required by law. Plan
assets consist principally of publicly traded common stock, fixed income
securities and cash equivalents. In addition, National Medical Care also
sponsors a supplemental executive retirement plan to provide certain key
executives with benefits in excess of normal pension benefits.

     The following 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.
2000        1999        1998
                                                             --------    --------    --------
Change in benefit obligation:
Benefit obligation at beginning of year....................  $111,753    $111,832    $ 88,713
Translation loss (gain)....................................    (1,748)     (3,611)      1,432
Service cost...............................................    11,465      10,040       8,905
Interest cost..............................................     8,148       7,300       6,418
Amendments.................................................        --          (5)         --
Transfer of plan participants..............................        (6)      3,706          28
Actuarial loss (gain)......................................     5,940     (15,826)      9,400
Divestitures...............................................        --          --      (1,717)
Benefits paid..............................................    (3,103)     (1,683)     (1,347)
                                                             --------    --------    --------
Benefit obligation at end of year..........................  $132,451    $111,753    $111,832
                                                             ========    ========    ========
Change on plan assets:
Fair value of plan assets at beginning of year.............  $ 86,794    $ 77,019    $ 65,088
Actual return on plan assets...............................    (2,098)     11,179      13,218
Benefits paid..............................................    (2,748)     (1,404)     (1,287)
                                                             --------    --------    --------
Fair value of plan assets at end of year...................  $ 81,948    $ 86,794    $ 77,019
                                                             ========    ========    ========
Funded Status:.............................................  $(50,503)   $(24,961)   $(34,813)
Unrecognized net gain......................................   (12,593)    (31,441)    (11,821)
Unrecognized prior service cost............................        (4)         (4)         --
Unrecognized transition obligation.........................       226         326         475
                                                             --------    --------    --------
Accrued benefit costs......................................  $(62,875)   $(56,079)   $(46,159)
                                                             ========    ========    ========
F-21
122
2000        1999        1998
                                                             --------    --------    --------
Weighted -- average assumptions as of December 31,
Discount rate..............................................     7.30%       7.28%       6.59%
Expected return of plan assets.............................     9.70%       9.70%       9.70%
Rate of compensation increase..............................     4.90%       4.60%       4.60%
Components of net period benefit cost:
Service cost...............................................  $ 11,465    $ 10,040    $  8,905
Interest cost..............................................     8,148       7,300       6,418
Expected return on plan assets.............................    (8,345)     (7,401)     (6,430)
Amortization of transition obligation......................        75          87          56
Amortization unrealized losses.............................        --          61          --
Amortization of prior service cost.........................        (1)         (1)         --
Recognized net (gain)/loss.................................    (2,429)       (520)       (857)
Curtailment net gain.......................................        --          --      (1,717)
                                                             --------    --------    --------
Net periodic benefit costs.................................  $  8,913    $  9,566    $  6,375
                                                             ========    ========    ========
In addition to the principal pension plans, certain of the Company's other
subsidiaries offer separate retirement plans. The total accrued pension cost for
these plans was $7,095, $5,499, and $3,600 at December 31, 2000, 1999 and 1998,
respectively. The Company does not provide any postretirement benefits to its
employees other than those provided under its pension plans and supplemental
executive retirement plan.

DEFINED CONTRIBUTION PLANS

     National Medical Care and FUSA sponsor defined contribution plans. Total
contributions for the years ended December 31, 2000, 1999 and 1998 were $8,786,
$7,298 and $7,195, respectively.

14. MANDATORILY REDEEMABLE TRUST PREFERRED SECURITIES

     In November 1996, the Company, through Fresenius Medical Care Capital Trust
(the "1996 Trust"), a statutory business trust organized under the laws of the
State of Delaware, issued $360,000 of 9% Trust Preferred Securities (the "Trust
Securities"). FMC owns all of the common securities of the 1996 Trust. The sole
asset of the Trust is $360,500 aggregate principal amount of 9% Senior
Subordinated Debentures due 2006 of FMC Trust Finance S.a.r.l. Luxembourg, a
wholly owned subsidiary of the Company ("Luxco"), and related guarantees by the
Company, Fresenius Medical Care Deutschland GmbH ("D-GmbH") and Fresenius
Medical Care Holdings, Inc. ("FMCH"); D-GmbH and FMCH being the "Subsidiary
Guarantors". (See Note 23 "Supplemental Condensed Combining Information.") The
Trust Securities are guaranteed by FMC through a series of undertakings by the
Company and the Subsidiary Guarantors.

     The Trust Securities entitle the holders to distributions payable at an
annual rate of 9% of the stated amount and are mandatorily redeemable on
December 1, 2006. The holders of the Trust Securities are entitled upon
liquidation of the 1996 Trust to a distribution equal to the stated amount of
the Trust Securities. Except in limited circumstances, the holders of the Trust
Securities have no voting rights.

     Luxco has the right to redeem the 9% Senior Subordinated Debenture, in
whole or in part, at any time or from time to time after December 1, 2001, at
specified redemption prices plus accrued and unpaid interest. In connection with
any such redemption, the 1996 Trust must redeem a like amount of Trust
Securities.

     In February 1998, the Company, through Fresenius Medical Care Capital Trust
II ("Trust II") and Fresenius Medical Care Capital Trust III ("Trust III", and
collectively with Trust II, "the 1998 Trusts"), statutory business trusts
created under the laws of the State of Delaware, issued $450,000 of 7 7/8 USD
Trust Preferred Securities (the "Trust II Securities") and DM 300,000 of 7 7/8
DM Trust Preferred Securities (the "Trust III Securities" and, together with the
Trust II Securities, the "Trust Preferred Securities"). FMC owns all of the
common securities of the 1998 Trusts. The sole asset of Trust II is $450,450
aggregate principal amount of Luxco 7 3/8 USD Senior Subordinated Debentures due
2008 and related guarantees by the Subsidiary Guarantors. The sole asset of

                                       F-22
123

Trust III is DM 300,300 aggregate principal amount of Luxco 7 3/8 DM Senior
Subordinated Debentures due 2008 and related guarantees by the Subsidiary
Guarantors. (See Note 23 "Supplemental Condensed Combining Information.") The
Trust Preferred Securities are guaranteed by FMC through a series of
undertakings by the Company and the Subsidiary Guarantors.

     The Trust II and Trust III Securities entitle the holders to distributions
payable at the annual rate of 7 7/8 and 7 3/8, respectively, of the stated
amount, and are mandatorily redeemable on February 1, 2008. The holders of the
Trust Preferred Securities are entitled, upon liquidation of the 1998 Trusts, to
a distribution equal to the stated amount of the Trust Preferred Securities. The
Senior Subordinated Debentures issued by Luxco to the 1998 Trusts are not
redeemable prior to February 1, 2008, except under specified circumstances.
Except in limited circumstances, the holders of the Trust Preferred Securities
have no voting rights.

15. MINORITY INTERESTS

     At December 31, minority interests were as follows:
2000       1999
                                                              -------    -------
FMCH Preferred Stock:
Preferred Stock, $100 par value
  6% Cumulative; 40,000 shares authorized; 36,460
     outstanding............................................  $ 3,646    $ 3,646
  8% Cumulative Class A; 50,000 shares authorized; 16,176
     outstanding............................................    1,618      1,618
  8% Noncumulative Class B; 40,000 shares authorized; 21,483
     outstanding............................................    2,148      2,148
Preferred Stock, $0.10 par value
  Noncumulative Class D; 100,000,000 shares authorized;
     89,062,316 outstanding.................................    8,906      8,906
                                                              -------    -------
Sub-total FMCH minority interest............................   16,318     16,318
Other minority interest.....................................    4,953      5,456
                                                              -------    -------
Total minority interest.....................................  $21,271    $21,774
                                                              =======    =======
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 Fresenius Medical Care
Holdings for each share of stock previously held. The Class D Preferred stock
entitles 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 exceeds $3.7 billion. If cumulative adjusted cash flow meets that
threshold, 44.8% of any amount exceeding $3.7 billion will be distributed as a
special dividend on the Fresenius Medical Care Holdings Class D Preferred
Shares. Fresenius Medical Care Holdings must make a public announcement of the
amount, if any, of the special dividend by May 1, 2002. Payment of a special
dividend on the Class D Preferred Shares would commence in October 2002. For the
period from January 1, 1997 through the end of 2000, cumulative adjusted cash
flow for the purpose of the Class D Preferred Shares special dividend
calculation was approximately $1.2 billion. Based upon the Company's cumulative
adjusted cash flow at December 31, 2000 and its historical trend, the Company
believes that it is unlikely that any special dividend will be paid. The Company
has no obligation to contribute any amount to Fresenius Medical Care Holdings to
enable it to pay any special dividend.

16. SHAREHOLDERS' EQUITY

     By resolution of the general meeting on June 10, 1998, our share capital
was conditionally increased by up to DM 12,500, divided into 2,500,000 new
non-voting Preference shares. This conditional capital increase may be effected
only upon exercise of subscription rights granted under the FMC 98 Plan 2.

     The Company requested and received approval from its shareholders at the
annual shareholder meeting on June 2, 1999, to change the currency of the
Company's share capital from Deutsche Mark (DM) to euro to prepare for the
transition by the European Community to euro which began January 1, 1999 and is
scheduled for completion by mid 2002. The exchange rate for DM to euro was set
at DM 1.95583 to E 1. As a result, the per share nominal value of the Company's
Preference shares and Ordinary shares changed from DM 5 per share to

                                       F-23
124

E 2.55646 per share. For convenience, shareholders approved an increase to the
nominal value to E 2.56 resulting in a Capital Stock increase of E 280 ($290).
The increase in value of capital stock was offset by a decrease in additional
paid-in-capital. No new shares were issued for this revaluation. The effect of
the conversion has been recognized retroactively in the shareholders' equity
accounts on the balance sheets as of December 31, 1997 and in the consolidated
financial statements. Shareholders' equity accounts have been restated to
reflect the reclassification of an amount equal to the nominal value of the
increase in Ordinary shares from additional paid in capital.

     In addition, the Company's shareholders approved a change in the dividend
premium for the Preference shares from a percentage of the nominal value per
share to an absolute amount. If dividends are declared, the Preference
shareholder will receive E 0.06 per share more than the dividend for an Ordinary
share, but no less than E 0.12 per share. In another matter approved by the
shareholders, the Company's shares have been changed to no par value.

     On March 2, 2000, the Company issued 8,974,359 non-voting Preference shares
to a limited number of institutional and other accredited investors in exchange
for the investors' interests in Franconia Acquisition LLC, an entity formed to
acquire dialysis clinics and other related businesses. For financial reporting
purposes, the transaction, which generated net proceeds of approximately
$344,000, has been accounted for as a financing at fair value. The investors
have agreed not to effect sales or transfers of the Preference shares for a
period of 24 months after issuance except as permitted by the contribution
agreement. After this period, the investors will have rights to require, under
specific conditions, that the Company register these Preference shares for sale
under the Securities Act of 1933, as amended, and that the Company provide
assistance to them in connection with public offerings of their Preference
shares outside the United States.

     After giving effect to the issuance of 8,974,359 non-voting Preference
shares in the Franconia transaction the remaining Approved Capital II amounted
to E 29,533.

     By resolution of the annual general meeting on May 30, 2000, the
authorization of the remaining Approved Capital I and Approved Capital II
described above was revoked, however, the management board, with the approval of
the supervisory board, was authorized to increase share capital by a maximum
amount of:

     -  E 30,720,000, corresponding to 12,000,000 Preference shares, by issuing
        new non-voting Preference shares for cash, new Approved Capital I.

     -  E 20,480,000, 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.

     The authorizations of Approved Capital I and Approved Capital II are
effective until May 29, 2005. Statutory preemptive rights will generally be
available in connection with the issuance of Preference shares utilizing
Approved Capital I, except for fractional amounts required to provide for a
round issue amount and a subscription ratio without fractional amounts. The
Company 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 the shares on the stock exchange.

     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.

     On July 26, 2000, the Company completed a public offering of 5,000,000
Preference shares for net proceeds of approximately $185 million. In addition,
on July 28, 2000, the underwriters of the public offering exercised options to
purchase an additional 750,000 Preference shares, resulting in total net
proceeds from the public offering of approximately $213 million.

     At December 31, 2000, after giving effect to the issuance of 5,750,000
Preference shares in the offering described above the remaining Approved Capital
II amounted to E 5,760. After giving effect to the issuance of
                                       F-24
125

2,250,000 Preference shares in the Everest acquisition (see Note 22), no
additional Preference shares are available for issuance under Approved Capital
II.

     Cash dividends of $51,229 for 1999 in the amount of E 0.75 on each
Preference share, excluding the Preference shares issued on March 2, 2000, and
E 0.69 on each Ordinary share, were paid on May 31, 2000.

     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 senior credit agreement
(see Note 11).

     In accordance with a contribution agreement between the Company and
Fresenius AG, which was entered into in connection with the Agreement and Plan
of Reorganization (See Note 1), the Company distributed $4,062 during the year
ending December 31, 1998, to Fresenius AG. These funds represented earnings of
the former Fresenius Worldwide Division (FWD), prior to the contribution of FWD
by Fresenius AG to the Company, as part of the formation of the FMC. These
earnings were not distributed at the time of the formation of FMC due to the
application of local generally accepted accounting principles in determining the
amount of pre-formation earnings and the legal requirement of a shareholder
declaration to remit those earnings. In anticipation of a determination of the
amount and a positive shareholder declaration, an estimate of the amount that
would be due was made. The estimated amount was loaned by the Company to
Fresenius AG with any distribution of earnings to be utilized to reduce the
receivable from Fresenius AG. During 1998, the $4,062 distribution of earnings
was subsequently applied against the receivable by the Company.

     In connection with certain acquisitions made during 1997, a subsidiary of
the Company issued convertible investment securities (Wandel-GenuSSrechte) with
a nominal value of $67,584. The convertible investment securities, which were
non-voting, carried a cumulative dividend rate between 6.12% and 6.25% payable
only out of legally available earnings of FMC AG and were redeemable ten years
from the date of issuance. The Company and the convertible investment security
holders also entered into agreements which permitted the Company to exchange,
and under certain circumstances permitted the convertible investment security
holders to request that the Company exchange, the convertible investment
securities solely at the Company's option, for cash or for Preference shares or
other specified securities of equal value. As the Company had the unilateral
ability to exchange the convertible investment securities for Preference shares
and the Preference shares represent permanent equity, the Company had classified
the convertible investment securities within shareholders' equity. During the
year ended December 31, 1998, a decision was made to redeem a portion of these
securities for cash rather than exchange such securities for Preference shares.
A total of approximately $61,725 nominal amount of these securities was redeemed
during the year ended December 31, 1998. Approximately $5,859 nominal amount of
these securities remained outstanding at year-end 1998. At December 31, 1998, it
was the intent of the Company to redeem the remaining securities for cash during
1999 and therefore the Company reclassified such amounts as liabilities. These
securities were subsequently redeemed for cash during the fourth quarter of
1999.

                                       F-25
126

     The following table is a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations. Stock options granted
under the FMC 1998 Plan 2 are subject to performance criteria. At December 31,
1999, the performance criteria for the 1998 and 1999 stock options granted had
not been met. Therefore, the stock options granted have been excluded from the
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 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.
2000           1999           1998
                                                      -----------    -----------    -----------
Numerators:
Income (loss) from continuing operations before
  cumulative effect of accounting change............  $   212,075    $  (248,544)   $   131,617
less:
  Distributions on convertible investment
     securities.....................................           --             --         (2,752)
  Dividend arrearages on Preference shares for 1996,
     declared and paid in 1998......................           --             --           (974)
  Preference on Preference shares...................       (1,056)            --           (513)
                                                      -----------    -----------    -----------
Income (loss) available to Preference shares only...       (1,056)            --         (1,487)
Income (loss) from continuing operations before
  cumulative effect of accounting change available
  to all class of shares............................  $   211,019    $  (248,544)   $   127,378
                                                      ===========    ===========    ===========
Loss from discontinued operations, net..............           --             --       (105,897)
Cumulative effect of accounting change..............           --             --         (6,589)
Denominators:
Weighted average number of:
  Ordinary shares outstanding.......................   70,000,000     70,000,000     70,000,000
  Preference shares outstanding.....................   19,002,118      9,023,341      9,023,341
                                                      -----------    -----------    -----------
  Total weighted average shares outstanding.........   89,002,118     79,023,341     79,023,341
  Potentially dilutive Preference shares............      302,824             --          2,522
                                                      -----------    -----------    -----------
  Total weighted average shares outstanding assuming
     dilution.......................................   89,304,942     79,023,341     79,025,863
  Total weighted average Preference shares
     outstanding assuming dilution..................   19,304,942      9,023,341      9,025,863
Basic income (loss) from continuing operations
  before cumulative effect of accounting change per
  Ordinary share....................................  $      2.37    $     (3.15)   $      1.62
Plus Preference and declared dividend arrearages per
  Preference share..................................         0.06           0.00           0.16
                                                      -----------    -----------    -----------
Basic income (loss) from continuing operations
  before cumulative effect of accounting change per
  Preference share..................................  $      2.43    $     (3.15)   $      1.78
                                                      ===========    ===========    ===========
Fully diluted income (loss) from continuing
  operations before cumulative effect of accounting
  change per Ordinary share.........................         2.36          (3.15)          1.62
Plus Preference and declared dividend arrearages per
  Preference share assuming dilution................         0.06           0.00           0.16
                                                      -----------    -----------    -----------
Fully diluted income (loss) from continuing
  operations before cumulative effect of accounting
  change per Preference share.......................  $      2.42    $     (3.15)   $      1.78
                                                      ===========    ===========    ===========
Basic and fully diluted loss from discontinued
  operations per Ordinary and Preference share......         0.00           0.00          (1.34)
Basic and fully diluted accumulative effect of
  accounting change per Ordinary and Preference
  share.............................................         0.00           0.00          (0.08)
F-26
127

17. STOCK OPTIONS

     In connection with the formation of Fresenius Medical Care 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").

     The resulting total number of shares issuable upon exercise of options
under the FMC Rollover Plan at the formation of FMC, September 30, 1996, was
approximately 333,000. No additional Ordinary shares are available for granting
of options under the FMC Rollover Plan. The Ordinary shares issuable upon
exercise of FMC Rollover options were issued to Fresenius AG which is holding
the shares pending exercise of the options. Fresenius AG has agreed, with
respect to the Ordinary shares underlying options related to W.R. Grace common
stock, to not exercise voting power over such Ordinary shares and to return any
dividends paid. Upon exercise of any of the FMC Rollover options, the exercise
price will be paid to the Company and Fresenius AG will deliver the Ordinary
shares to the option holder. Upon cancellation or expiration without exercise of
options formerly relating to W.R. Grace common stock, the underlying Ordinary
shares held by Fresenius AG will be transferred to FMC at no cost to it. Upon
cancellation or expiration without exercise of options formerly relating to FUSA
common stock, the underlying Ordinary shares will revert to Fresenius AG.

     During the year ended December 31, 2000, 34,337 FMC Rollover Plan options
were exercised by employees. In connection therewith, Fresenius AG transferred
11,446 Ordinary shares to employees and remitted $247 to the Company. During the
same period, 7,643 options were canceled. At December 31, 2000, the $247 has
been accounted for as a capital contribution within additional paid in capital.
Rollover plan options for 182,006 Ordinary ADSs were exercisable as of December
31, 2000 at an weighted average exercise price of $7.88.

FMC Plan

     Immediately prior to the formation of Fresenius Medical Care, FMC adopted a
stock incentive plan (the "FMC Plan") for FMC's key management and executive
employees. Under the FMC Plan, eligible employees will have the right to acquire
Preference shares of the Company. Awards under the FMC Plan are evidenced by a
non-transferable convertible bond and corresponding non-recourse loan to the
employee, secured solely by the bond with which it 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 the Company's consolidated financial
statements. The bonds mature in ten years and are generally fully convertible
after three or five years. Each convertible bond, which is DM denominated,
entitles the holder thereof, upon payment of a conversion price equal to the
fair market value of the Preference shares on the award date, to convert the
bond into a number of ADSs representing Preference shares equal to the face
amount of the bond divided by the Preference shares' nominal value (DM5 per
Preference share).

     The following table shows the number of Preference shares available and the
average price range (in $) for the FMC Plan.
AVERAGE
                                                                   SHARES         PRICE RANGE
                                                              ----------------    ------------
                                                               (IN THOUSANDS)
FMC Plan
Balance at December 31, 1997................................        827           $55.59-78.33
  Forfeited.................................................        723            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 1998................................        104            55.59-78.33
  Forfeited.................................................         10            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 1999................................         94            55.59-78.33
                                                                    ---           ------------
  Forfeited.................................................         26            55.59-78.33
                                                                    ---           ------------
Balance at December 31, 2000................................         68           $55.59-78.33
                                                                    ===           ============
Exercisable at December 31, 2000............................         68           $55.59-78.33
                                                                    ===           ============
F-27
128

FMC 98 Plan 1 and Plan 2

     During 1998, the Company adopted two new 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. Grants for these rights (the "Grants") under FMC 98 Plan
1 will be evidenced by a non-transferable convertible bond and corresponding
non-recourse loan to the employee, secured solely by the bond with which it 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 three years. Each convertible bond, which
is DM denominated, entitles the holder thereof, upon payment of a conversion
price equal to the fair market value of the Preference shares one day after the
grant date, to convert the bond into a number of Preference shares equal to the
face amount of the bond divided by the Preference shares' nominal value (DM5 per
Preference share). FMC 98 Plan 1 was subsequently amended 1999 and 2000 to
increase the number of Preference shares available for issuance pursuant to
grants under FMC 98 Plan 1 by 450,000 and 660,000 shares, respectively. 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 award. One
third of an option vests on each of the second, third and fourth anniversary 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 Settlement (see Note 2) was excluded from the
Company's performance criteria relative to the EBIT growth requirements in the
plan. The term of FMC 98 Plan 2 is five years and not more than 20% of the total
options available under the plan may be issued in any year. 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.

                                       F-28
129

     The following table shows the number of Preference shares available and the
average price range (in $ and E) for FMC 98 Plan1 and FMC 98 Plan2.
AVERAGE         AVERAGE
                                                         SHARES         PRICE RANGE     PRICE RANGE
                                                    ----------------    ------------    ------------
                                                     (IN THOUSANDS)
FMC 98 Plan 1
Balance at December 31, 1997....................            --
  Granted.......................................         1,024          E42.44-56.24    $39.49-52.33
                                                         -----          ------------    ------------
Balance at December 31, 1998....................         1,024           42.44-56.24     39.49-52.33
                                                         -----          ------------    ------------
  Granted.......................................           572                 32.90           30.61
  Forfeited.....................................           140           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
Balance at December 31, 1999....................         1,456           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
  Granted.......................................           653           40.70-49.00     37.87-45.59
  Exercised.....................................            10           32.90-42.44     30.61-39.49
  Forfeited.....................................           303           32.90-56.24     30.61-52.33
                                                         -----          ------------    ------------
Balance at December 31, 2000....................         1,796          E32.90-56.24    $30.61-52.33
                                                         =====          ============    ============
Exercisable at December 31, 2000................           660          E32.90-56.24    $30.61-52.33
                                                         =====          ============    ============
FMC 98 Plan 2
Balance at December 31, 1997....................            --
  Granted.......................................           258          E      44.66    $      41.56
                                                         -----          ------------    ------------
Balance at December 31, 1998....................           258                 44.66           41.56
                                                         -----          ------------    ------------
  Granted.......................................           297                 32.41           30.16
  Forfeited.....................................             5           32.41-44.66     30.16-41.56
Balance at December 31, 1999....................           550           32.41-44.66     30.16-41.56
                                                         -----          ------------    ------------
  Granted.......................................           321                 47.64           44.33
  Exercised.....................................             7                 44.66           41.56
  Forfeited.....................................            40           32.41-47.64     30.16-44.33
                                                         -----          ------------    ------------
Balance at December 31, 2000....................           824          E32.41-47.64    $30.16-44.33
                                                         =====          ============    ============
Exercisable at December 31, 2000................            78          E      44.66    $      41.56
                                                         =====          ============    ============
Proceeds totaling $638 from exercise of 17,393 shares under FMC 98 Plan 1
and FMC 98 Plan 2 in 2000 were recorded as a capital contribution.

FAIR VALUE STOCK OPTIONS

     The per share weighted-average fair value of stock options granted during
2000, 1999 and 1998 was $16.76, $13.06 and $14.20, respectively, on the date of
the grant using the Black-Scholes option-pricing model with the weighted-average
assumptions presented below.
2000         1999         1998
                                                             ---------    ---------    ---------
Weighted-average assumptions:
  Expected dividend yield..................................      1.50%        1.00%        1.75%
  Risk-free interest rate..................................      5.50%        5.56%        4.26%
  Expected volatility......................................     40.00%       35.00%       35.00%
  Expected life of option..................................  5.3 years    5.3 years    5.3 years
F-29
130

     The Company applies APB Opinion No. 25 in accounting for stock compensation
and, accordingly, recognized compensation expense of approximately $3,980 for
stock options granted in 2000,1999 and 1998. No compensation cost has been
recognized in 1998 and 1997 for stock options in the consolidated financial
statements. Prior to 1998, no stock options had been granted which would have
resulted in significant compensation costs under SFAS No. 123. Had the Company
determined compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's net income would have been
reduced to the pro forma amounts indicated below:
2000        1999        1998
                                                              --------    ---------    -------
Net income (loss)
  As reported...............................................  $212,075    $(248,544)   $19,131
  Effect of FMC Plan benefit (expense)......................      (295)        (247)     1,726
  Effect of FMC 98 Plans (expense)..........................    (3,581)      (2,253)    (2,967)
  Effect of 1999 option grants..............................        25         (615)
  Effect of 2000 option grants..............................    (4,242)
                                                              --------    ---------    -------
  Pro forma.................................................  $203,982    $(251,659)   $17,890
Basic net income (loss) per:
  Ordinary share
     As reported............................................  $   2.37    $   (3.15)   $  0.20
     Pro forma..............................................  $   2.28    $   (3.19)   $  0.18
  Preference share
     As reported............................................  $   2.43    $   (3.15)   $  0.36
     Pro forma..............................................  $   2.34    $   (3.19)   $  0.34
Fully diluted net income (loss) per:
  Ordinary share
     As reported............................................  $   2.36    $   (3.15)   $  0.20
     Pro forma..............................................  $   2.27    $   (3.19)   $  0.18
  Preference share
     As reported............................................  $   2.42    $   (3.15)   $  0.36
     Pro forma..............................................  $   2.33    $   (3.19)   $  0.34
The Company revised its estimates of compensation costs for the FMC Plan
due to the large amount of forfeitures and cancellations that occurred in 1998.
This resulted in a significant reduction in the pro forma compensation cost for
1998 relating to the FMC Plan. The pro forma compensation cost relating to
options still outstanding at December 31, 1998 was $348. This amount has been
included in determining the total compensation benefit for the FMC Plan for
1998.

18. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES

     The Company leases buildings and machinery and equipment under various
lease agreements expiring on dates through 2010. Rental expense recorded for
operating leases for the years ended December 31, 2000, 1999, and 1998 was
$192,910, $160,624, and $122,459, respectively.

     In September 2000, FMCH entered into an amended operating lease agreement
with a bank that covers approximately $65,165 of equipment in its dialyzer
manufacturing facility in Ogden, Utah. The agreement has a basic term expiration
date of January 1, 2010, renewal options and a purchase option at the greater of
20% of the original cost or the fair market value.

                                       F-30
131

     Future minimum rental payments under noncancelable operating leases for the
five years succeeding December 31, 2000 are:
2001........................................................  $129,883
2002........................................................   109,491
2003........................................................    96,331
2004........................................................   122,673
2005........................................................    57,534
Thereafter..................................................   110,935
                                                              --------
                                                              $626,847
                                                              ========
LEGAL PROCEEDINGS

Commercial Insurer Litigation

     In 1997, FMCH, NMC, and certain named NMC subsidiaries were served with a
civil complaint filed by Aetna Life Insurance Company in the U.S. District Court
for the Southern District of New York. The lawsuit alleges inappropriate billing
practices for nutritional therapy, diagnostic and clinical laboratory tests and
misrepresentations. In April 1999, Aetna amended its complaint to include its
affiliate, Aetna U.S. Healthcare, Inc., as an additional plaintiff, and to make
certain other limited changes in its pleading. The amended complaint seeks
unspecified damages and costs. In February 2000, FMCH was served with a similar
complaint filed by Connecticut General Life Insurance Company, Equitable Life
Assurance Society for the United States, Cigna Employee Benefits Services, Inc.
and Guardian Life Insurance Company of America, Inc. (Connecticut General Life
Insurance Company et al v. National Medical Care et al, 00-Civ-0932) seeking
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 both lawsuits. Other private payors have contacted FMCH and
may assert that NMC received excess payment and, similarly, may join either
lawsuit or file their own lawsuit seeking reimbursement and other damages.

     FMCH has filed counterclaims against the plaintiffs in these matters based
on inappropriate claim denials and delays in claim payments.

     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 result of operations.

OBRA 93

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

     In April 1995, the Health Care Financing Administration issued a new
instruction, reversing its original instruction in a manner that would
substantially diminish the positive effect of the original instruction on
National Medical Care's dialysis business. The Health Care Financing
Administration further proposed that its new instruction be effective
retroactive to August 1993, the effective date off the Omnibus Budget
Reconciliation Act of 1993.

     National Medical Care ceased to recognize the incremental revenue realized
under the original instruction as of July 1, 1995, but it continued to bill
employer health plans as primary payors for patients affected by the Omnibus
Budget Reconciliation Act of 1993 through December 31, 1995. As of January 1,
1996, National Medical Care commenced billing Medicare as the primary payor for
dual eligible ESRD patients affected by the

                                       F-31
132

act, and then began to re-bill in compliance with the revised policy for
services rendered between April 24 and December 31, 1995.

     On May 5, 1995, National Medical Care filed a complaint in the U.S.
District Court for the District of Columbia (National Medical Care, Inc. and
Bio-Medical Applications of Colorado, Inc. d/b/a Northern Colorado Kidney Center
v. Shalala, C.A. No. 95-0860 (WBB)) seeking to preclude the Health Care
Financing Administration from retroactively enforcing its April 24, 1995
implementation of the Omnibus Budget Reconciliation Act of 1993 provision
relating to the coordination of benefits for dual eligible ESRD patients. On May
9, 1995, National Medical Care moved for a preliminary injunction to preclude
the Health Care Financing Administration from enforcing its new policy
retroactively, that is, to billing for services provided between August 10, 1993
and April 23, 1995. On June 6, 1995, the court granted National Medical Care's
request for a preliminary injunction and in December of 1996, National Medical
Care moved for partial summary judgment seeking a declaration from the Court
that the Health Care Financing Administration's retroactive application of the
April 1995 rule was legally invalid. The Health Care Financing Administration
cross-moved for summary judgement on the grounds that the April 1995 rule was
validly applied prospectively. In January 1998, the court granted National
Medical Care's motion for partial summary judgment and entered a declaratory
judgment in favor of National Medical Care, holding the Health Care Financing
Administration's retroactive application of the April 1995 rule legally invalid.
Based on its finding, the Court also permanently enjoined the Health Care
Financing Administration from enforcing and applying the April 1995 rule
retroactively against National Medical Care. The Court took no action on the
Health Care Financing Administration's motion for summary judgement pending
completion of the outstanding discovery. On October 5, 1998, National Medical
Care filed its own motion for summary judgement requesting that the Court
declare the Health Care Financing Administration's prospective application of
the April 1995 rule invalid and permanently enjoin the Health Care Financing
Administration from prospectively enforcing and applying the April 1995 rule.
The Court has not yet ruled on the parties' motions. The Health Care Financing
Administration elected not to appeal the Court's June 1995 and January 1998
orders. The Health Care Financing Administration may, however, appeal all
rulings at the conclusion of the litigation. If the Health Care Financing
Administration should successfully appeal so that the revised interpretation
would be applied retroactively, National Medical Care may be required to refund
the payments received from employer health plans for services provided after
August 10, 1993 under the Health Care Financing Administration's original
implementation, and to re-bill Medicare for the same services, which could
result in a loss to National Medical Care of approximately $120 million
attributable to all periods prior to December 31, 1995. Also, in this event, the
business, financial condition and results of operations would be materially
adversely affected

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 ultimate
outcome of these matters is not expected to materially affect the Company's
financial position, results of operations or cash flows.

     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 U.S. anti-kickback statute, the False Claims
Act, the Stark Law, 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 continuing inquiries,
claims and

                                       F-32
133

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 a large number of 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
affiliate companies. The Company relies upon its management structure,
regulatory and legal resources, and the effective operation of its compliance
program to direct, manage and monitor the activities of these employees. On
occasion, the Company may identify instances where employees, deliberately or
inadvertently, have submitted inadequate or false billings. The actions of such
persons may subject the Company and its subsidiaries to liability under the
False Claims Act, among other laws, and the Company cannot predict whether law
enforcement authorities may use such information to initiate further
investigations of the business practices disclosed or any of its other business
activities.

     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.

Contingent Non-NMC Liabilities of W. R. Grace & Co. (Now Known as Fresenius
Medical Care Holdings, Inc.)

     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. ("Grace") and Fresenius AG. In connection
with the Merger, W.R. Grace & Co.-Conn. ("Grace Chemicals") agreed to indemnify
the Company and NMC against all liabilities of the Company and its successors,
whether relating to events occurring before or after the Merger, other than
liabilities arising from or relating to NMC operations. The Company may be
contingently liable for certain liabilities with respect to pre-Merger matters
that are not related to NMC operations. Grace Chemicals has filed for
reorganization under Chapter 11 of the U.S. Bankruptcy Code. If Grace Chemicals'
indemnity obligation is terminated or limited as a result of this bankruptcy
proceeding, and the Company is held liable for pre-Merger obligations of Grace
Chemicals, the Company's business, financial condition, and results of
operations may be adversely affected.

     On September 28, 2000, Mesquita, et al. v. W. R. Grace & Company, et al.
(Sup. Court of Calif., S.F. County, #315465) was filed by plaintiffs claiming to
be creditors of Grace Chemicals as a class action against Grace Chemicals,
certain U.S. affiliates of the Company, and other defendants, principally
alleging that the Merger was a fraudulent transfer, violated the uniform
fraudulent transfer act, and constituted a conspiracy. An amended complaint
(Abner et al. v. W. R. Grace & Company, et al.) and an additional class action
(Woodward v. Sealed Air Corporation, et al, USDC Boston, No. 01 10547 PBS), were
filed subsequently with substantially similar allegations. The Company has
requested indemnification from Grace Chemicals pursuant to the Merger agreement.
If the Merger is determined to have been a fraudulent transfer, if material
damages are proved by the plaintiffs, and if the Company is not able to collect,
in whole or in part on the indemnity, a judgment could have a material adverse
effect on the Company's business, financial condition and results of operations.
We believe that no fraudulent transfer or conspiracy occurred and we intend to
defend the case vigorously.

                                       F-33
134

     Were events to violate the tax-free nature of the Merger, the resulting tax
liability would be the obligation of the Company. Subject to representations by
Grace Chemicals, the Company and Fresenius AG, Grace Chemicals has agreed to
indemnify the Company for such a tax liability. If the Company was not able to
collect on the indemnity, the tax liability would have a material adverse effect
on the Company's business, the financial condition of the Company and the
results of operations.

19. 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.

FOREIGN EXCHANGE RISK MANAGEMENT

     The Company conducts business on a global basis in several international
currencies. As such, it is exposed to movements in foreign currency exchange
rates. The Company enters into foreign exchange forward and option contracts to
reduce certain currency exposures. The Company hedges only those currency
exposures associated with certain nonfunctional currency assets and liabilities.

     Gains and losses on the contracts are included in selling, general and
administrative expenses and offset foreign exchange gains or losses from the
revaluation of intercompany balances or other assets and liabilities denominated
in currencies other than the functional currency of the reporting entity. The
Company's forward currency contracts generally range from 1 to 36 months in
original maturity. Foreign exchange contracts outstanding, their unrealized
gains and losses and the related credit exposure of all contracts with
unrealized gains as of December 31, 2000 are summarized as follows:
CONTRACT    UNREALIZED      CREDIT
                                                               AMOUNT     GAIN/(LOSS)    EXPOSURE
                                                              --------    -----------    --------
Purchases of currencies against U.S. dollar.................  $490,438      $22,174      $22,174
Sales of currencies against U.S. dollar.....................     6,836           74           77
Sales of other currencies against euro......................    61,005        3,149        3,180
Purchases of other currencies against euro..................    11,975         (128)           1
                                                              --------      -------      -------
Total.......................................................  $570,254      $25,269      $25,432
                                                              ========      =======      =======
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.

                                       F-34
135

     Interest rate hedging contracts outstanding as of December 31, 2000 and
1999 are summarized in the following table.
2000                      1999
                                                 ----------------------    ----------------------
                                                  NOTIONAL      CREDIT      NOTIONAL      CREDIT
                                                   AMOUNT      EXPOSURE      AMOUNT      EXPOSURE
                                                 ----------    --------    ----------    --------
U.S. dollar interest rate swaps................  $1,050,000      $ 0       $1,350,000    $ 3,766
Forward starting dollar interest rate
  derivatives..................................  $        0      $ 0       $  250,000    $ 7,612
Yen interest rate swap.........................  $    8,703      $ 0       $        0    $     0
The notional amounts of derivatives do not represent amounts exchanged by
the parties and, thus, are not a measure of credit exposure. The amounts
exchanged are determined by reference to the notional amounts and the other
terms of the derivatives.

     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.

     The Company had receive-variable/pay-fixed swaps with nominal amounts of
$1,050,000 and Japanese Yen 1,000,000 with average pay rates of 6.52% and 3.10%,
respectively, as of December 31, 2000.

FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following table presents the carrying amounts and fair values of the
Company's financial instruments at December 31, 2000 and 1999. 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.
2000                    1999
                                                  --------------------    --------------------
                                                  CARRYING      FAIR      CARRYING      FAIR
                                                   AMOUNT      VALUE       AMOUNT      VALUE
                                                  --------    --------    --------    --------
Nonderivatives
Assets
  Cash and cash equivalents.....................  $ 64,577    $ 64,577    $ 34,760    $ 34,760
  Receivables...................................   753,674     753,674     667,739     667,739
  IDPN receivables..............................     5,189       5,189      59,151      59,151
Liabilities
  Accounts payable..............................   281,197     281,197     282,573     282,573
  Income taxes payable..........................   117,572     117,572      78,438      78,438
  Debt..........................................   826,063     826,063     801,260     801,260
  Trust Preferred Securities....................   952,727     897,827     964,103     944,044
Derivatives:
  Foreign exchange contracts....................    12,197      25,269      (4,384)    (14,783)
  U.S. dollar interest rate hedges..............         0     (24,619)          0       9,242
  Yen interest rate hedges......................         0        (527)          0           0
The carrying amounts in the table are included in the statement of
financial position under the indicated captions, except for derivative asset
amounts, which are included in other assets.

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 statement of financial position, which are reasonable estimates
of fair value due to the relatively short period to maturity of the

                                       F-35
136

instruments. This approach applies to cash and cash equivalents, receivables,
accounts payable and income taxes payable.

     Because the Company's long-term bank debt represents borrowings 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 credit
agreement.

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

     The fair value of derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts at the reporting
date, thereby taking into account the current unrealized gains or losses of open
contracts. Dealer quotes are available for all of the Company's derivatives.

20. BUSINESS SEGMENT INFORMATION

     Effective January 1, 1998, Fresenius Medical Care AG (1) reorganized its
reporting structure to conform to the manner in which the Company is managed and
(2) adopted SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information. SFAS No. 131 establishes the standards for reporting
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports
issued to stockholders. It also establishes standards for related disclosures
about products and services, and geographic areas. Operating segments are
defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or decision making group, in deciding how to allocate resources
and in assessing performance. FMC's chief operating decision maker is the Chief
Executive Officer. The accounting policies of the operating segments are the
same as those the Company uses in preparing its consolidated financial
statements.

     Commencing with the period ended March 31, 1999, 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 principal senior bank credit
agreement and indentures relating to the Trust Preferred Securities. Management
has excluded the effects of the special charge in the calculation of EBIT and
EBITDA in 1999.

     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.

     Approximately 40% of the Company's worldwide revenue is derived from
sources subject to regulations under U.S. governmental programs.

                                       F-36
137

     Information pertaining to the Company's two business segments is set forth
below:
NORTH
                                               AMERICA      INTERNATIONAL    CORPORATE      TOTAL
                                              ----------    -------------    ---------    ----------
2000
  Net revenue external customers............  $3,083,095     $1,118,243      $     --     $4,201,338
  Inter-segment revenue.....................       2,226         36,677       (38,903)
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   3,085,321      1,154,920       (38,903)     4,201,338
                                              ----------     ----------      --------     ----------
  EBITDA....................................     645,549        269,943        (1,825)       913,667
  Depreciation and amortization.............    (222,495)       (68,733)       (1,626)      (292,854)
                                              ----------     ----------      --------     ----------
  EBIT......................................     423,054        201,210        (3,451)       620,813
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,571,069      1,375,526        32,358      5,978,953
  Capital expenditures and
     acquisitions(1)........................     228,177        274,290           100        502,567
1999
  Net revenue external customers............  $2,807,186     $1,033,243      $     --     $3,840,429
  Inter-segment revenue.....................       4,195         42,853       (47,048)            --
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   2,811,381      1,076,096       (47,048)     3,840,429
                                              ----------     ----------      --------     ----------
  EBITDA....................................     611,478        243,373       (10,429)       844,422
  Depreciation and amortization.............    (217,584)       (64,674)       (1,950)      (284,208)
                                              ----------     ----------      --------     ----------
  EBIT......................................     393,894        178,699       (12,379)       560,214
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,653,058      1,064,108        35,217      5,752,383
  Capital expenditures and
     acquisitions(2)........................     146,498        114,774           330        261,602
1998
  Net revenue external customers............  $2,562,603     $  943,073      $     --     $3,505,676
  Inter-segment revenue.....................       2,159         43,476       (45,635)            --
                                              ----------     ----------      --------     ----------
  Total net revenue.........................   2,564,762        986,549       (45,635)     3,505,676
                                              ----------     ----------      --------     ----------
  EBITDA....................................     548,986        227,789        (8,813)       767,962
  Depreciation and amortization.............    (214,940)       (62,362)       (1,682)      (278,984)
                                              ----------     ----------      --------     ----------
  EBIT......................................     334,046        165,427       (10,495)       488,978
                                              ----------     ----------      --------     ----------
  Segment assets............................   4,630,168        961,972        87,279      5,679,419
  Capital expenditures and
     acquisitions(3)........................     202,983        177,886           761        381,630
---------------

(1) International acquisitions exclude $13,614 of non-cash acquisitions for 2000

(2) International acquisitions exclude $9,462 of non-cash acquisitions for 1999

(3) North America acquisitions exclude $41,805 of non-cash acquisitions for 1998

                                       F-37
138
2000        1999         1998
                                                            --------    ---------    ---------
Reconciliation of measures to consolidated totals.
  Total EBITDA of reporting segments......................  $915,492    $ 854,851    $ 776,775
  Total depreciation and amortization.....................  (292,854)    (284,208)    (278,984)
  Special charge for Settlement...........................        --     (601,000)          --
  Corporate expenses......................................    (1,825)     (10,429)      (8,813)
  Interest expense........................................  (195,569)    (226,218)    (228,182)
  Interest expense on obligation related to Settlement....   (29,947)          --           --
  Interest income.........................................     9,411        8,094        8,641
                                                            --------    ---------    ---------
  Total income (loss) from continuing operations before
     income taxes, minority interest and cumulative effect
     of accounting change.................................  $404,708    $(258,910)   $ 269,437
                                                            ========    =========    =========
  Total EBIT of reporting segments........................   624,264      572,593      499,473
  Special charge for Settlement...........................        --     (601,000)          --
  Corporate expenses......................................    (3,451)     (12,379)     (10,495)
  Interest expense........................................  (195,569)    (226,218)    (228,182)
  Interest expense on obligation related to Settlement....   (29,947)          --           --
  Interest income.........................................     9,411        8,094        8,641
                                                            --------    ---------    ---------
  Total income (loss) from continuing operations before
     income taxes, minority interest and cumulative effect
     of accounting change.................................  $404,708    $(258,910)   $ 269,437
                                                            ========    =========    =========
Depreciation and amortization
  Total depreciation and amortization of reporting
     segments.............................................   291,228      282,258      277,302
  Corporate depreciation and amortization.................     1,626        1,950        1,682
                                                            --------    ---------    ---------
  Total depreciation and amortization.....................  $292,854    $ 284,208    $ 278,984
                                                            ========    =========    =========
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
                                              --------    -------------    ----------    ----------
2000
Net revenue external customers..............  $193,857     $3,083,095       $924,386     $4,201,338
Long -- lived assets........................    79,670        520,614        294,997        895,281
1999
Net revenue external customers..............  $213,209     $2,807,186       $820,034     $3,840,429
Long -- lived assets........................    83,384        483,872        180,041        747,297
1998
Net revenue external customers..............  $203,886     $2,562,603       $739,187     $3,505,676
F-38
139

21. SUPPLEMENTARY CASH FLOW INFORMATION

     The following additional information is provided with respect to the
Consolidated Financial Statement of Cash Flows:
2000        1999        1998
                                                             --------    --------    --------
Supplementary cash flow information Cash paid for
  interest.................................................  $222,826    $215,836    $207,944
                                                             --------    --------    --------
Cash paid for income taxes, net............................  $ 44,715    $ 27,954    $ (1,250)
                                                             --------    --------    --------
Supplementary schedule of non-cash investing and financing
  activities Issuance of debt..............................  $ 13,613       9,462          --
                                                             --------    --------    --------
  Issuance of convertible investment securities for
     acquisitions..........................................        --    $     --    $ 41,805
                                                             --------    --------    --------
Supplemental disclosures of cash flow information
  Details for acquisitions:
  Assets acquired..........................................  $346,378    $124,598    $286,413
  Liabilities assumed......................................    52,843      13,186      14,331
  Notes issued in connection with acquisition..............    13,613       9,462      41,805
                                                             --------    --------    --------
  Cash paid................................................   279,922     101,950     230,277
  Less cash acquired.......................................     5,392         624       7,342
                                                             --------    --------    --------
  Net cash paid for acquisitions...........................  $274,530    $101,326    $222,935
                                                             ========    ========    ========
22. SUBSEQUENT EVENTS

     On January 5, 2001, the Company acquired Everest Healthcare Services
Corporation ("Everest"), Oak Park, Illinois through a merger of Everest into a
subsidiary of the Company for $343 million including Everest's outstanding debt.
One third of the purchase price was paid by the issuance of 2,250,000 Preference
shares on January 5, 2001. The remainder of the purchase price was paid using
the proceeds from the Preference share offerings completed during 2000.

23. SUPPLEMENTAL CONDENSED COMBINING INFORMATION

     FMC Trust Finance S.a.r.l. Luxembourg, a wholly-owned subsidiary of FMC AG,
has assumed or issued senior subordinated debt securities which were fully and
unconditionally guaranteed, jointly and severally, on a senior subordinated
basis, by FMC AG and by D-GmbH, a wholly-owned subsidiary of FMC AG, and by
FMCH, a substantially wholly-owned subsidiary of FMC AG (D-GmbH and FMCH being
the "Guarantor Subsidiaries"). The following is combining financial information
for the Company as of December 31, 2000 and 1999 and for the years ended
December 31, 2000, 1999 and 1998, segregated between FMC AG, D-GmbH, FMCH and
each of the Company's other businesses (the "Non-Guarantor Subsidiaries"). For
purposes of the condensed combining information, FMC AG 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.

     Additionally, as discussed in Note 11, dividends from Fresenius Medical
Care Holdings, Inc., a wholly owned subsidiary, are limited 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.

                                       F-39
140
FOR THE YEAR ENDED DECEMBER 31, 2000
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
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
  interests..............................    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 interests.........    212,075     5,526      105,250       180,044      (287,959)      214,936
Minority interests.......................         --        --           --            --         2,861         2,861
                                           ---------   --------   ---------    ----------     ---------    ----------
Net income...............................  $ 212,075   $ 5,526    $ 105,250    $  180,044     $(290,820)   $  212,075
                                           =========   ========   =========    ==========     =========    ==========
FOR THE YEAR ENDED DECEMBER 31, 1999
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
Net revenue..............................  $      --   $556,354   $      --    $3,733,213     $(449,138)   $3,840,429
Cost of revenue..........................         --   348,923           --     2,548,748      (434,516)    2,463,155
                                           ---------   --------   ---------    ----------     ---------    ----------
  Gross profit...........................         --   207,431           --     1,184,465       (14,622)    1,377,274
                                           ---------   --------   ---------    ----------     ---------    ----------
Operating expenses:
  Selling, general and administrative....     13,701    74,149           --       701,719        (4,998)      784,572
  Research and development...............         --    24,527           --         7,961            --        32,488
  Special charge for settlement of
    investigations and related costs.....         --        --           --       601,000            --       601,000
                                           ---------   --------   ---------    ----------     ---------    ----------
  Operating (loss) income................    (13,701)  108,754           --      (126,215)       (9,624)      (40,786)
                                           ---------   --------   ---------    ----------     ---------    ----------
Other (income) expense:
  Interest, net..........................        171     5,604       58,382       153,967            --       218,124
  Other, net.............................    188,727    56,364      291,998            --      (537,089)           --
                                           ---------   --------   ---------    ----------     ---------    ----------
Income (loss) before income taxes and
  minority interests.....................   (202,599)   46,786     (350,380)     (280,182)      527,465      (258,910)
  Income tax expense (benefit)...........     36,562    43,654      (23,353)      (24,309)      (45,298)      (12,744)
                                           ---------   --------   ---------    ----------     ---------    ----------
Income (loss) before minority
  interests..............................   (239,161)    3,132     (327,027)     (255,873)      572,763      (246,166)
Minority interests.......................         --        --           --            --         2,378         2,378
                                           ---------   --------   ---------    ----------     ---------    ----------
Net (loss) income........................  $(239,161)  $ 3,132    $(327,027)   $ (255,873)    $ 570,385    $ (248,544)
                                           =========   ========   =========    ==========     =========    ==========
F-40
141
FOR THE YEAR ENDED DECEMBER 31, 1998
                                           --------------------------------------------------------------------------
                                                            GUARANTOR
                                                           SUBSIDIARIES
                                                       --------------------   NON-GUARANTOR   COMBINING     COMBINED
                                            FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                           ---------   --------   ---------   -------------   ----------   ----------
                                                               (IN THOUSANDS, EXCEPT SHARE DATA)
Net revenue..............................  $      --   $500,794   $      --    $3,366,884     $(362,002)   $3,505,676
Cost of revenue..........................         --   295,748           --     2,305,855      (358,664)    2,242,938
                                           ---------   --------   ---------    ----------     ---------    ----------
  Gross profit...........................         --   205,046           --     1,061,029        (3,338)    1,262,738
                                           ---------   --------   ---------    ----------     ---------    ----------
Operating expenses:
  Selling, general and administrative....      8,043    87,945           --       648,527        (1,905)      742,610
  Research and development...............         --    24,902           --         6,248            --        31,150
                                           ---------   --------   ---------    ----------     ---------    ----------
  Operating (loss) income................     (8,043)   92,199           --       406,255        (1,433)      488,978
                                           ---------   --------   ---------    ----------     ---------    ----------
Other (income) expense:
  Interest, net..........................     (2,683)    5,461       54,693       162,070            --       219,541
  Other, net.............................   (172,085)   49,804      (84,653)           --       206,934            --
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income from continuing operations
    before income taxes, minority
    interests and cumulative effect of
    accounting change....................    166,725    36,934       29,960       244,185      (208,367)      269,437
Income tax expense.......................     28,431    37,570      (21,877)      115,468       (24,226)      135,366
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income (loss) from continuing
    operations before minority interests
    and cumulative effect of accounting
    change...............................    138,294      (636)      51,837       128,717      (184,141)      134,071
Minority interests.......................         --        --           --            --         2,454         2,454
                                           ---------   --------   ---------    ----------     ---------    ----------
  Income (loss) from continuing
    operations before cumulative effect
    of accounting change.................    138,294      (636)      51,837       128,717      (186,595)      131,617
                                           ---------   --------   ---------    ----------     ---------    ----------
Discontinued operations
  Loss from operations of discontinued
    businesses, net......................     (8,669)       --       (8,669)       (8,669)       17,338        (8,669)
  Loss on disposal of discontinued
    businesses, net......................    (97,228)       --      (97,228)      (97,228)      194,456       (97,228)
                                           ---------   --------   ---------    ----------     ---------    ----------
  Loss from discontinued operations,
    net..................................   (105,897)       --     (105,897)     (105,897)      211,794      (105,897)
                                           ---------   --------   ---------    ----------     ---------    ----------
Cumulative effect of accounting change,
  net....................................     (6,589)     (706)      (4,890)       (5,883)       11,479        (6,589)
Net income (loss)........................  $  25,808   $(1,342)   $ (58,950)   $   16,937     $  36,678    $   19,131
                                           =========   ========   =========    ==========     =========    ==========
F-41
142
AT DECEMBER 31, 2000
                                              -----------------------------------------------------------------------------
                                                                 GUARANTOR
                                                               SUBSIDIARIES
                                                           ---------------------   NON-GUARANTOR    COMBINING     COMBINED
                                                FMC AG      D-GMBH       FMCH      SUBSIDIARIES    ADJUSTMENT      TOTAL
                                              ----------   --------   ----------   -------------   -----------   ----------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
Current assets:
  Cash and cash equivalents.................  $      137   $   100    $       --    $   64,340     $       --    $   64,577
  Trade accounts receivable, less allowance
    for doubtful accounts...................          --    72,775            --       680,899             --       753,674
  Accounts receivable from related
    parties.................................     132,463   193,640        51,487       531,874       (863,347)       46,117
  Inventories...............................          --    67,988            --       286,199        (33,953)      320,234
  Prepaid expenses and other current
    assets..................................       2,539    20,237            --       190,326          1,424       214,526
  IDPN accounts receivable..................          --        --            --         5,189             --         5,189
  Deferred taxes............................         388     1,945            --       156,732         18,029       177,094
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current assets....................     135,527   356,685        51,487     1,915,559       (877,847)    1,581,411
Property, plant and equipment, net..........         205    49,460            --       705,353        (16,025)      738,993
Intangible assets, including goodwill,
  net.......................................         789     6,006            --     3,468,261             --     3,475,056
Loans to related parties....................      78,206        --       185,529       827,099     (1,090,834)           --
Deferred taxes..............................          --     3,011            --        13,949         10,245        27,205
Other assets................................   2,681,199    12,119     2,589,842       117,641     (5,244,513)      156,288
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total assets..............................  $2,895,926   $427,281   $2,826,858    $7,047,862     $(7,218,974)  $5,978,953
                                              ==========   ========   ==========    ==========     ===========   ==========
Current liabilities:
  Accounts payable..........................  $      506   $16,356    $       --    $  186,512     $       --    $  203,374
  Accounts payable to related parties.......     113,406   180,997       257,566       372,978       (847,124)       77,823
  Accrued expenses and other current
    liabilities.............................       9,740    52,916            --       328,395            589       391,640
  Note payable related to settlement........          --        --            --        85,920             --        85,920
  Short-term borrowings.....................         627       465            --       105,500             --       106,592
  Short-term borrowings from related
    parties.................................          --        --            --       218,333             --       218,333
  Current portion of long-term debt and
    capital lease obligations...............          --       516            --       167,715             --       168,231
  Income taxes payable......................      87,277        --            --        30,295             --       117,572
  Deferred taxes............................         223     6,102            --        11,902          2,740        20,967
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current liabilities...............     211,779   257,352       257,566     1,507,550       (843,795)    1,390,452
Long term debt and capital lease
  obligations, less current portion.........       4,206     1,882       843,322       915,479     (1,107,057)      657,832
Other liabilities...........................          --     3,688            --        23,312          4,464        31,464
Pension liabilities.........................         327    24,682            --        44,961             --        69,970
Deferred taxes..............................         864     5,238            --       170,385             --       176,487
Company obligated mandatorily redeemable
  preferred securities of subsidiary
  Fresenius Medical Care Capital Trusts
  holding solely Company guaranteed
  debentures of subsidiary..................          --        --            --       952,727             --       952,727
Minority interest...........................          --        --        16,318            --          4,953        21,271
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total liabilities.......................     217,176   292,842     1,117,206     3,614,414     (1,941,435)    3,300,203
Shareholders' equity:.......................   2,678,750   134,439     1,709,652     3,433,448     (5,277,539)    2,678,750
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total liabilities and shareholders'
    equity..................................  $2,895,926   $427,281   $2,826,858    $7,047,862     $(7,218,974)  $5,978,953
                                              ==========   ========   ==========    ==========     ===========   ==========
F-42
143
AT DECEMBER 31, 1999
                                              -----------------------------------------------------------------------------
                                                                 GUARANTOR
                                                               SUBSIDIARIES
                                                           ---------------------   NON-GUARANTOR    COMBINING     COMBINED
                                                FMC AG      D-GMBH       FMCH      SUBSIDIARIES    ADJUSTMENT      TOTAL
                                              ----------   --------   ----------   -------------   -----------   ----------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
Current assets:
  Cash and cash equivalents.................  $      155   $    37    $       --    $   34,568     $       --    $   34,760
  Trade accounts receivable, less allowance
    for doubtful accounts...................          --    81,686            --       586,053             --       667,739
  Accounts receivable from related
    parties.................................     135,878   226,351        32,586       351,445       (697,131)       49,129
  Inventories...............................          --    61,951            --       270,379        (31,028)      301,302
  Prepaid expenses and other current
    assets..................................       8,691    11,094            --       159,607             --       179,392
  IDPN accounts receivable..................          --        --            --        53,962             --        53,962
  Deferred taxes............................         703     4,079            --       233,832         16,311       254,925
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current assets....................     145,427   385,198        32,586     1,689,846       (711,848)    1,541,209
Property, plant and equipment, net..........         236    51,473            --       600,084         (9,672)      642,121
Intangible assets, including goodwill,
  net.......................................       1,124     2,894            --     3,434,738             --     3,438,756
Loans to related parties....................     127,155        --       185,529       987,963     (1,300,647)           --
Deferred taxes..............................          11     3,667            --        14,471          6,972        25,121
Non-current IDPN accounts receivable........          --        --            --         5,189             --         5,189
Other assets................................   1,947,133    10,460     2,428,224        66,320     (4,352,150)       99,987
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total assets..............................  $2,221,086   $453,692   $2,646,339    $6,798,611     $(6,367,345)  $5,752,383
                                              ==========   ========   ==========    ==========     ===========   ==========
Current liabilities:
  Accounts payable..........................  $       30   $16,923    $       --    $  176,167     $       --    $  193,120
  Accounts payable to related parties.......     151,914   205,213       181,857       393,142       (842,673)       89,453
  Accrued expenses and other current
    liabilities.............................       4,879    45,343            --       363,265          1,574       415,061
  Short-term accrued settlement.............          --        --            --       386,815             --       386,815
  Short-term borrowings.....................         960        26            --        95,397             --        96,383
  Short-term borrowings from related
    parties.................................          --        --            --       330,000             --       330,000
  Current portion of long-term debt and
    capital lease obligations...............          --     2,754            --       144,730             --       147,484
  Income taxes payable......................      49,064        --            --        29,374             --        78,438
  Deferred taxes............................      13,898     9,188            --         9,165          1,187        33,438
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total current liabilities...............     220,745   279,447       181,857     1,928,055       (839,912)    1,770,192
Long term debt and capital lease
  obligations, less current portion.........       4,541       635       842,421       961,284     (1,155,105)      653,776
Long-term accrued settlement................          --        --            --        85,920             --        85,920
Other liabilities...........................         290     3,794            --        16,331          4,271        24,686
Pension liabilities.........................          --    23,819            --        37,759             --        61,578
Deferred taxes..............................       1,182     6,862            --       159,993             --       168,037
Company obligated mandatorily redeemable
  preferred securities of subsidiary
  Fresenius Medical Care Capital Trusts
  holding solely Company guaranteed
  debentures of subsidiary..................          --        --            --       964,103             --       964,103
Minority interest...........................          --        --        16,318            --          5,456        21,774
                                              ----------   --------   ----------    ----------     -----------   ----------
    Total liabilities.......................     226,758   314,557     1,040,596     4,153,445     (1,985,290)    3,750,066
Shareholders' equity:.......................   1,994,328   139,135     1,605,743     2,645,166     (4,382,055)    2,002,317
                                              ----------   --------   ----------    ----------     -----------   ----------
  Total liabilities and shareholders'
    equity..................................  $2,221,086   $453,692   $2,646,339    $6,798,611     $(6,367,345)  $5,752,383
                                              ==========   ========   ==========    ==========     ===========   ==========
F-43
144
FOR THE YEAR ENDED DECEMBER 31, 2000
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
Operating activities:
  Net income (loss)...........................  $ 212,075   $ 5,526    $ 105,250     $ 180,044     $(290,820)   $212,075
  Adjustments to reconcile net income (loss)
    to net cash and cash equivalents 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 tax....................    (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 and 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
    settlement................................         --        --           --      (386,815)           --    (386,815)
  Proceeds from issuance of preference
    shares....................................    556,958        --           --            --            --     556,958
  Proceeds from increase of accounts
    receivable securitization program.........         --        --           --       111,402            --     111,402
  Proceeds from exercise of options...........        885        --           --            --            --         885
  Capital increase of
    Non-Guarantor-Subsidiaries................         --        --           --       312,352      (312,352)         --
  Dividends paid..............................    (51,229)       --           --        (6,385)        6,385     (51,229)
  Changes in minority interest................         --        --         (520)           --           659         139
                                                ---------   --------   ---------     ---------     ---------    --------
      Net cash provided by (used in) financing
        activities............................    500,037      (299)         381       183,355      (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-44
145
FOR THE YEAR ENDED DECEMBER 31, 1999
                                                -------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT     TOTAL
                                                ---------   --------   ---------   -------------   ----------   ---------
                                                                    (IN THOUSANDS, EXCEPT SHARE DATA)
Operating Activities:
  Net income (loss)...........................  $(239,161)  $ 3,132    $(327,027)    $(255,873)    $ 570,385    $(248,544)
  Adjustments to reconcile net (loss) income
    to net cash and cash equivalents provided
    by (used in) operating activities:
  Equity affiliate loss.......................    305,430        --      291,998            --      (597,428)          --
    Depreciation and amortization.............      2,981    22,330           --       264,005        (5,108)     284,208
    Write-off of IDPN accounts receivable.....         --        --           --        94,349            --       94,349
    Change in deferred tax....................     (3,276)      119           --       (81,956)       (4,812)     (89,925)
    Loss on sale of fixed assets..............        163        --           --           828            --          991
  Changes in assets and liabilities, net of
    amounts from businesses acquired or
    disposed of:
    Trade accounts receivable, net............         --   (18,485)          --      (117,777)           --     (136,262)
    Inventories...............................         --      (562)          --       (22,145)        6,953      (15,754)
    Prepaid expenses and other current and
      non-current assets......................     (5,578)   (4,062)       1,491       (35,243)        6,674      (36,718)
    Accounts receivable from/ payable to
      related parties.........................    (30,345)   (6,391)      56,560       (35,540)          770      (14,946)
    Accounts payable, accrued expenses and
      other current and non-current
      liabilities.............................      1,340    28,778           --       455,438         3,140      488,696
    Income taxes payable......................     23,936        --      (23,353)       28,079            --       28,662
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash provided by (used in) operating
        activities of continuing operations...     55,490    24,859         (331)      294,165       (19,426)     354,757
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash used in operating activities of
        discontinued operations...............         --        --           --        (3,782)           --       (3,782)
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash provided by (used in) operating
        activities............................     55,490    24,859         (331)      290,383       (19,426)     350,975
                                                ---------   --------   ---------     ---------     ---------    ---------
Investing Activities:
  Purchases of property, plant and
    equipment.................................       (326)  (23,611)          --      (140,208)        3,869     (160,276)
  Proceeds from sale of property, plant and
    equipment.................................         92     1,065           --         5,973            --        7,130
  Acquisitions and investments, net of cash
    acquired..................................     (9,002)       --           --      (100,288)        7,964     (101,326)
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash used in investing activities...     (9,236)  (22,546)          --      (234,523)       11,833     (254,472)
                                                ---------   --------   ---------     ---------     ---------    ---------
Financing activities:
  Short-term borrowings, net..................     (3,595)     (456)          --       272,685            --      268,634
  Long-term debt and capital lease
    obligations, net..........................      4,817    (1,836)         851      (286,948)         (465)    (283,581)
  Retirement of convertible investment
    securities................................         --        --           --       (47,664)           --      (47,664)
  Proceeds from increase of accounts
    receivable securitization program.........         --        --           --        29,400            --       29,400
  Proceeds from exercise of FMC Rollover
    options...................................      1,719        --           --            --            --        1,719
  Capital Increase of
    Non-Guarantor-Subsidiaries................         --        --           --         8,556        (8,556)          --
  Dividends paid..............................    (48,404)       --           --       (15,516)       15,516      (48,404)
  Changes in minority interest................         --        --         (520)           --         1,098          578
                                                ---------   --------   ---------     ---------     ---------    ---------
      Net cash (used in) provided by financing
        activities............................    (45,463)   (2,292)         331       (39,487)        7,593      (79,318)
                                                ---------   --------   ---------     ---------     ---------    ---------
Effect of exchange rate changes on cash and
  cash equivalents............................     (1,665)       (6)          --       (12,621)           --      (14,292)
Cash and Cash Equivalents:
Net (decrease) increase in cash and cash
  equivalents.................................       (874)       15           --         3,752            --        2,893
Cash and cash equivalents at beginning of
  period......................................      1,029        22           --        30,816            --       31,867
                                                ---------   --------   ---------     ---------     ---------    ---------
Cash and cash equivalents at end of period....  $     155   $    37    $      --     $  34,568     $      --    $  34,760
                                                =========   ========   =========     =========     =========    =========
F-45
146
FOR THE YEAR ENDED DECEMBER 31, 1998
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
Operating Activities:
  Net income (loss)...........................  $  25,808   $(1,342)   $ (58,950)  $     16,937    $  36,678    $ 19,131
  Adjustments to reconcile net income to net
    cash and cash equivalents provided by
    (used in) operating activities:
  Equity affiliate income.....................    (93,715)       --      (84,653)            --      178,368          --
    Cumulative effect of accounting change....      6,589       706        4,890          5,883      (11,479)      6,589
    Depreciation and amortization.............      2,908    22,099           --        253,977           --     278,984
    Loss from operations of discontinued
      businesses..............................      8,669        --        8,669          8,669      (17,338)      8,669
    Loss on disposition of businesses.........     97,228        --       97,228         97,228     (194,456)     97,228
    Change in deferred tax....................     19,383      (834)          --          5,755         (718)     23,586
    Loss on sale of fixed assets..............         --        --           --            213           --         213
  Changes in assets and liabilities, net of
    amounts from businesses acquired or
    disposed of:
    Trade accounts receivable, net............     (2,650)  (11,891)          --       (145,510)          --    (160,051)
    Inventories...............................         --       160           --        (39,615)         151     (39,304)
    Prepaid expenses and other current and
      non-current assets......................    (10,717)   (5,696)     (13,671)        (7,673)         462     (37,295)
    Accounts receivable from/ payable to
      related parties.........................    (90,095)   23,543       68,622          1,104           --       3,174
    Accounts payable, accrued expenses and
      other current and non-current
      liabilities.............................     (2,330)    5,654           --         (9,660)          --      (6,336)
    Income taxes payable......................     12,131    (4,027)     (21,877)        87,442           --      73,669
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash (used in) provided by operating
        activities of continuing operations...    (26,791)   28,372          258        274,750       (8,332)    268,257
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in operating activities of
        discontinued operations...............         --        --           --           (257)          --        (257)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash (used in) provided by operating
        activities............................    (26,791)   28,372          258        274,493       (8,332)    268,000
                                                ---------   --------   ---------   -------------   ---------    --------
Investing Activities:
  Purchases of property, plant and
    equipment.................................       (126)  (30,372)          --       (129,424)       1,227    (158,695)
  Proceeds from sale of property, plant and
    equipment.................................        617     2,776           --         22,786           --      26,179
  Acquisitions and investments, net of cash
    acquired..................................   (100,805)      (16)    (250,000)      (153,208)     281,094    (222,935)
  Proceeds from disposition of businesses.....         --        --           --         82,500           --      82,500
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities of
        continuing operations.................   (100,314)  (27,612)    (250,000)      (177,346)     282,321    (272,951)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities of
        discontinued operations...............         --        --           --         (7,315)          --      (7,315)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in investing activities...   (100,314)  (27,612)    (250,000)      (184,661)     282,321    (280,266)
                                                ---------   --------   ---------   -------------   ---------    --------
F-46
147
FOR THE YEAR ENDED DECEMBER 31, 1998
                                                ------------------------------------------------------------------------
                                                                 GUARANTOR
                                                                SUBSIDIARIES
                                                            --------------------   NON-GUARANTOR   COMBINING    COMBINED
                                                 FMC AG      D-GMBH      FMCH      SUBSIDIARIES    ADJUSTMENT    TOTAL
                                                ---------   --------   ---------   -------------   ----------   --------
                                                                   (IN THOUSANDS, EXCEPT SHARE DATA)
Financing activities:
  Short-term borrowings, net..................      4,481       505           --         (1,255)          --       3,731
  Long-term debt and capital lease
    obligations, net..........................    172,483    (2,754)     250,000     (1,000,076)          --    (580,347)
  Retirement of convertible investment
    securities................................         --        --           --        (61,725)          --     (61,725)
  Proceeds from issuance of mandatorily
    redeemable preferred securities...........         --        --           --        597,810           --     597,810
  Proceeds from increase of accounts
    receivable securization program...........         --        --           --        105,600           --     105,600
  Proceeds from exercise of FMC Rollover
    options...................................      1,047        --           --             --           --       1,047
  Capital Increase of Non-Guarantor
    Subsidiaries..............................         --        --           --        275,226     (275,226)         --
  Dividends paid..............................    (45,176)       --           --         (4,038)          --     (49,214)
  Distributions on convertible investment
    securities................................         --        --           --         (2,752)          --      (2,752)
  Changes in minority interest................         --        --         (520)            --        1,237         717
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash provided by (used in) financing
        activities of continuing operations...    132,835    (2,249)     249,480        (91,210)    (273,989)     14,867
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash used in financing activities of
        discontinued operations...............         --        --           --         (2,107)          --      (2,107)
                                                ---------   --------   ---------   -------------   ---------    --------
      Net cash provided by (used in) financing
        activities............................    132,835    (2,249)     249,480        (93,317)    (273,989)     12,760
                                                ---------   --------   ---------   -------------   ---------    --------
Effect of exchange rate changes on cash and
  cash equivalents:...........................     (4,794)       29          262         (1,942)          --      (6,445)
Cash and cash equivalents:
Net (decrease) increase in cash and cash
  equivalents.................................        936    (1,460)          --         (5,427)          --      (5,951)
Cash and cash equivalents at beginning of
  period......................................         93     1,482           --         36,243           --      37,818
                                                ---------   --------   ---------   -------------   ---------    --------
Cash and cash equivalents at end of period....  $   1,029   $    22    $      --   $     30,816    $      --    $ 31,867
                                                =========   ========   =========   =============   =========    ========
F-47
148

                                                                     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, 2000................   $101,262       $69,967        $60,048      $111,181
  Year ended December 31, 1999................     78,167        46,418         23,323       101,262
  Year ended December 31, 1998................     75,653        56,426         53,912        78,167
S-1