e20vfza

20-F/A 1 f01549e20vfza.htm AMENDMENT FILING TO 20-F e20vfza

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F/A

(Mark One)


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

SECURITIES EXCHANGE ACT OF 1934


þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006


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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from to


o	SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-32749

FRESENIUS MEDICAL CARE AG & Co. KGaA

(Exact name of Registrant as specified in its charter)

FRESENIUS MEDICAL CARE AG & Co. KGaA

(Translation of Registrant’s name into English)

Germany

(Jurisdiction of incorporation or organization)

Else-Kröner Strasse 1, 61352 Bad Homburg, Germany

(Address of principal executive offices)

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


Title of each class		Name of each exchange on which registered

American Depositary Shares representing Preference Shares		New York Stock Exchange
Preference Shares, no par value		New York Stock Exchange⁽¹⁾
American Depositary Shares representing Ordinary Shares		New York Stock Exchange
Ordinary Shares, no par value		New York Stock Exchange⁽¹⁾


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


	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:

	7⁷/8% USD Trust Preferred Securities due 2008

	7³/8% DM Trust Preferred Securities due 2008

	7⁷/8% USD Trust Preferred Securities due 2011

	7³/8% Euro Trust Preferred Securities due 2011

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: 1,237,145

Ordinary Shares, no par value: 97,149,891

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Security Act.

Yes þ No o

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes o No þ

Note — Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o

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

Item 17 o Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

The Current Report on form 20-F/A amends the Current Report on form 20-F filed on Friday, February 23, 2007, to correct the dates on the signature page and in the exhibits 12.1, 12.2, and 13.1.

TABLE OF CONTENTS


			Page

INTRODUCTION
PART I
Item 1.	N/A	Identity of Directors, Senior Management and Advisors		2
Item 2.	N/A	Offer Statistics and Expected Timetable		2
Item 3.		Key Information		2
Item 4		Information on the Company		11
Item 4A.	N/A	Unresolved Staff Comments		45
Item 5.		Operating and Financial Review and Prospects		45
Item 6.		Directors, Senior Management and Employees		70
Item 7.		Major Shareholders and Related Party Transactions		87
Item 8.		Financial Information		92
Item 9.		The Offer and Listing Details		95
Item 10.		Additional Information		98
Item 11.		Quantitative and Qualitative Disclosures About Market Risk		113
Item 12.	N/A	Description of Securities other than Equity Securities		116
PART II
Item 13.	N/A	Defaults, Dividend Arrearages and Delinquencies		116
Item 14.		Material Modifications to the Rights of Security Holders and Use of Proceeds		116
Item 15A.		Disclosure Controls and Procedures		116
Item 15B.		Management’s annual report on internal control over financial reporting		117
Item 15C.		Attestation report of the registered public accounting firm		117
Item 16A.		Audit Committee Financial Expert		117
Item 16B.		Code of Ethics		118
Item 16C.		Principal Accountant Fees and Services		118
Item 16D.		N/A Exemptions from the Listing Standards for Audit Committees		119
Item 16E.		Purchase of Equity Securities by the Issuer and Affiliated Purchaser		119
PART III
Item 17.	N/A	Financial Statements		119
Item 18.		Financial Statements		119
Item 19.		Exhibits		119
N/A means: Not applicable
Amended and Restated Deposit Agreement for Ordinary Bearer Shares
Amended and Restated Deposit Agreement for Preference Bearer Shares
Amendment No. 5, Dated as of October 19, 2006
Renewed Post-Closing Covenant Agreement
Amendment for Lease Agreement for Office Buildings
Amendment for Lease Agreement for Manufacturing Facilities
Amendment for Lease Agreement for Manufacturing Facilities
Amendment for Lease Agreement for Manufacturing Facilities
Amendment for Lease Agreement for Office Buildings
Sourcing & Supply Agreement
Certification Ben J. Lipps
Certification of Lawrence A. Rosen
Certification of Ben J. Lipps and Lawrence A. Rosen
Consent of Independent Registered Accounting Firm

INTRODUCTION

Forward Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We have based these forward-looking statements on current estimates and assumptions made to the best of our knowledge. By their nature, such forward-looking statements involve risks, uncertainties, assumptions and other factors which could cause actual results, including our financial condition and profitability, to differ materially and be more negative than the results expressly or implicitly described in or suggested by these statements. Moreover, forward-looking estimates or predictions derived from third parties’ studies or information may prove to be inaccurate. Consequently, we cannot give any assurance regarding the future accuracy of the opinions set forth in this report or the actual occurrence of the developments described herein. In addition, even if our future results meet the expectations expressed here, those results may not be indicative of our performance in future periods. These risks, uncertainties, assumptions, and other factors include, among others, the following:


	•	dependence on government reimbursements for dialysis services;

	•	a possible decline in EPO utilization or EPO reimbursement;

	•	the outcome of ongoing government investigations

	•	the influence of private insurers and managed care organizations and healthcare reforms;

	•	our ability to remain competitive in our markets;

	•	product liability risks and patent litigation;

	•	risks relating to the integration of acquisitions and our dependence on additional acquisitions;

	•	the impact of currency fluctuations; 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 “Risk Factors”, “Business Overview” in “Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 8.A.7. Legal Proceedings.” These risks and uncertainties include: general economic, currency exchange and other market conditions, litigation and regulatory compliance risks, changes in government reimbursement for our dialysis care and pharmaceuticals, the investigations by the Department of Justice, Eastern District of New York and the U.S. Attorney for the Eastern District of Missouri, and changes to pharmaceutical utilization patterns.

This report contains patient and other statistical data related to end-stage renal disease and treatment modalities, including estimates regarding the size of the patient population and growth in that population. These data have been included in reports published by organizations such as the Centers for Medicare and Medicaid Services of the U.S. Department of Health and Human Services, the Japanese Society for Dialysis Therapy and the German non-profit entity Quasi-Niere gGmbH and the journal Nephrology News & Issues. While we believe these surveys and statistical publications to be reliable, we have not independently verified the data or any assumptions on which the estimates they contain are based. All information not attributed to a source is derived from our internal documents or publicly available information such as annual reports of other companies in the healthcare industry and is unaudited. Market data not attributed to a specific source are our estimates.

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.

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 2006 through 2002. We derived the selected financial information from our consolidated financial statements. We prepared our financial statements in accordance with accounting principles generally accepted in the United States of America and KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, audited these financial statements. Statements of operations data for 2006 include the results of Renal Care Group, Inc., and related financing costs from April 1, 2006; balance sheet data at December 31, 2006 include the assets and liabilities of Renal Care Group, Inc. and the debt incurred to finance the acquisition of Renal Care Group, Inc. 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”.


		2006			2005		2004		2003		2002

		(In millions)
Statement of Operations Data:
Net revenues		$	8,499		$	6,772	$	6,228	$	5,528	$	5,084
Cost of revenues⁽¹⁾			5,621			4,564		4,266		3,793		3,494

Gross profit			2,878			2,208		1,962		1,735		1,590
Selling, general and administrative⁽¹⁾			1,549			1,218		1,059		928		848
Gain on sale of dialysis clinics			(40	)		—		—		—		—
Research and development			51			51		51		50		47

Operating income			1,318			939		852		757		695
Interest expense, net			351			173		183		211		226

Income before income taxes			967			766		669		546		469
	Net income	$	537		$	455	$	402	$	331	$	290

Weighted average of:
	Preference shares outstanding		1,191,792			26,789,816		26,243,059		26,191,011		26,185,178
	Ordinary shares outstanding		96,873,968			70,000,000		70,000,000		70,000,000		70,000,000
Basic earnings per Ordinary share		$	5.47		$	4.68	$	4.16	$	3.42	$	3.00
Fully diluted earnings per Ordinary share			5.44			4.64		4.14		3.42		3.00
Basic earnings per Preference share			5.55			4.75		4.23		3.49		3.06
Fully diluted earnings per Preference share			5.52			4.72		4.21		3.49		3.06
Basic earnings per Ordinary ADS			1.82			1.56		1.39		1.14		1.00
Fully diluted earnings per Ordinary ADS			1.81			1.55		1.38		1.14		1.00
Basic earnings per Preference ADS			1.85			1.58		1.41		1.16		1.02
Fully diluted earnings per Preference ADS			1.84			1.57		1.40		1.16		1.02
Dividends declared per Ordinary share (€)^(a)			1.41	^(b)		1.23		1.12		1.02		0.94
Dividends declared per Preference share (€) ^(a)			1.47	^(b)		1.29		1.18		1.08		1.00
Dividends declared per Ordinary share ($)^(a)			—			1.57		1.41		1.25		1.10
Dividends declared per Preference share ($) ^(a)			—			1.65		1.48		1.32		1.17


	2006		2005		2004		2003		2002

	(In millions)
Balance Sheet Data
Working capital	$	1,036	$	883	$	508	$	794	$	526
Total assets		13,045		7,983		7,962		7,503		6,780
Total long-term debt		5,083		1,895		1,824		2,354		2,234
Shareholders’ equity		4,870		3,974		3,635		3,244		2,807
Capital Stock — Preference shares — Nominal Value		3		74		70		70		70
Capital Stock — Ordinary shares — Nominal Value		303		229		229		229		229


(1)	Certain items in prior years have been reclassified to conform with the current periods presentation. The reclassifications include $125 million for 2005, $124 million for 2004, $94 million for 2003 and $66 million for 2002 relating to rents for clinics which were removed from selling, general and administrative expenses for the International segment and included in cost of revenue for dialysis care.

(a)	Amounts shown for each year from 2002 to 2006 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 Annual General Meeting.

(b)	Our general partner’s Management Board has proposed dividends for 2006 of €1.41 per Ordinary share and €1.47 per Preference share. These dividends are subject to approval by our shareholders at our Annual General Meeting to be held on May 15, 2006.

RISK FACTORS

Before you invest in our ordinary or preference shares, you should be aware that the occurrence of any of the events described in the following risk factors, elsewhere in or incorporated by reference into this report and other events that we have not predicted or assessed could have a material adverse effect on our results of operations, financial condition and business. If the events described below or other unpredicted events occur, then the trading price of our shares could decline and you may lose all or part of your investment.

Risks Relating to Litigation and Regulatory Matters.

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. We are also subject to other laws of general applicability, including antitrust laws. The applicable regulations, which differ from country to country, cover areas that include:


	•	the quality, safety and efficacy of medical and pharmaceutical products and supplies;

	•	the operation of manufacturing facilities, laboratories and dialysis clinics;

	•	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.

Failure to comply with one or more of these laws or regulations, may give rise to a number of legal consequences. These include, in particular, monetary and administrative penalties, increased costs for compliance with government orders, complete or partial exclusion from government reimbursement programs or complete or partial curtailment of our authority to conduct business. Any of these consequences could have a material adverse impact on our business, financial condition and results of operations.

The Company’s pharmaceutical products are subject to detailed, rigorous and continually changing regulation by the U.S. Food and Drug Administration (“FDA”), and numerous other national, supranational, federal and state authorities. These include, among other things, regulations regarding manufacturing practices, product labeling, quality control, quality assurance, advertising and post-marketing reporting, including adverse

event reports and field alerts due to manufacturing quality concerns. In addition to the Company’s facilities and procedures and those of its suppliers are subject to periodic inspection by the FDA and other regulatory authorities. The FDA may suspend, revoke, or adversely amend the authority necessary for manufacture, marketing, or sale of supplies. The Company and its suppliers must incur expense and spend time and effort to ensure compliance with these complex regulations, and if such compliance is not maintained, could be subject to significant adverse regulatory actions in the future. These possible regulatory actions could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of the Company’s products and criminal prosecution. These actions could result in, among other things, substantial modifications to the Company’s business practices and operations; refunds, recalls or seizures of the Company’s products; a total or partial shutdown of production in its suppliers’ facilities while the alleged violation is remedied; and withdrawals or suspensions of current products from the market. Any of these events, in combination or alone, could disrupt the Company’s business and have a material adverse effect on the Company’s revenues, profitability and financial condition.

Fresenius Medical Care Holdings, Inc. (“FMCH”), our principal North American subsidiary, is party to a corporate integrity agreement with the U.S. government. This agreement, which was signed on January 18, 2000 in conjunction with a settlement of claims previously asserted against FMCH, requires that FMCH maintain a comprehensive compliance program, including a staff of sufficient compliance personnel, 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 FMCH and its subsidiaries from participation in U.S. federal health care programs (in particular, Medicare and Medicaid) if there is a material breach of the agreement that FMCH does not cure within thirty days after FMCH receives written notice of the breach. We derive approximately 38% of our consolidated revenue from U.S. federal health care benefit programs. Consequently, if FMCH commits a material breach of the corporate integrity agreement that results in the exclusion of FMCH 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.

We rely upon our management structure, regulatory and legal resources and the effective operation of our compliance programs to direct, manage and monitor our operations to comply with government regulations and the corporate integrity agreement. If employees were to deliberately or inadvertently fail to adhere to these regulations, then our authority to conduct business could be terminated and our operations could be significantly curtailed. Such actions could also lead to claims for repayment or other sanctions. Any such terminations or reductions could materially reduce our sales, with a resulting material adverse effect on our business, financial condition and results of operations.

In 2004, FMCH and its Spectra Renal Management subsidiary and RCG received subpoenas from the U.S. Department of Justice, Eastern District of New York, in connection with a civil and criminal investigation, which requires production of a broad range of documents relating to our operations, with specific attention to documents relating to laboratory testing for parathyroid hormone (“PTH”) levels and vitamin D therapies. We are cooperating with the government’s requests for information. While we believe that we have complied with applicable laws relating to PTH testing and use of vitamin D therapies, an adverse determination in this investigation could have a material adverse effect on our business, financial condition, and results of operations.

On April 1, 2005, FMCH was served with a subpoena from the office of the United States Attorney for the Eastern District of Missouri in connection with a joint civil and criminal investigation of our company. On August 9, 2005, RCG was served with a similar subpoena. The subpoenas require production of a broad range of documents relating to our operations, including documents related to, among other things, clinical quality programs, business development activities, medical director compensation and physician relations, joint ventures and our anemia management program. The subpoenas cover the period from December 1, 1996 through the present. We are unable to predict whether proceedings might be initiated against us, when the investigation might be concluded or what the impact of this joint investigation might be on our business, financial condition and results of operations.

A change in U.S. government reimbursement for dialysis care could materially decrease our revenues and operating profit

For the twelve months ended December 31, 2006, approximately 38% of our consolidated revenues resulted from Medicare and Medicaid reimbursement. Legislative changes or changes in government reimbursement practice may affect the reimbursement rates for the services we provide, as well as the scope of Medicare and Medicaid coverage. A decrease in Medicare or Medicaid reimbursement rates or covered services could have a material adverse effect on our business, financial condition and results of operations. In December 2003, the Medicare Prescription Drug Modernization and Improvement Act was enacted. For information regarding the effects of this legislation on reimbursement rates, see Item 4.B, “Information on the Company — Business Overview Regulatory and Legal Matters — Reimbursement.”

A reduction in reimbursement for or a change in the utilization of EPO could materially reduce our revenue and operating profit. An interruption of supply or our inability to obtain satisfactory terms for EPO could reduce our revenues

Reimbursement and revenue from the administration of erythropoietin, or EPO, accounted for approximately 21% of total revenue in our North America segment for the year ended December 31, 2006. EPO is produced in the U.S. by a single source manufacturer, Amgen Inc. Our new contract with Amgen USA, Inc., a subsidiary of Amgen, Inc. covers the period from October 1, 2006 to December 31, 2011. Pricing is based on Amgen’s list price and is subject to change. An increase in Amgen’s price for EPO without a corresponding and timely increase in CMS’s reimbursement for EPO, a reduction of the current overfill amount in EPO vials which we currently use (liquid medications, such as EPO, typically include a small overfill amount to ensure that the fill volume can be extracted from the vial as administered to the patient), or an interruption of supply could reduce our revenues from, or increase our costs in connection with, the administration of EPO, which could materially adversely affect our business, financial condition and results of operations.

On April 1, 2006, the Centers for Medicare and Medical Services (“CMS”) implemented a new national policy for claims for EPO and Aranesp administered to ESRD patients in renal dialysis facilities. Specifically, CMS expects a 25% reduction in the dose administered to an ESRD patient whose hematocrit level reaches 39.0 (or hemoglobin of 13.0). If the dose is not reduced by 25%, CMS will pay the claim as if the dose reduction had occurred. See “Item 4.B, “Information on the Company — Business Overview Regulatory and Legal Matters — Reimbursement.” A decrease in EPO reimbursement or a change in EPO utilization, caused, for example, by CMS’ new anemia monitoring policy, could have a material adverse effect on our business, financial condition, and results of operations.

In addition in November 2006, the FDA issued an alert regarding a newly published clinical study showing that patients treated with an erythropoiesis-stimulating agent (ESA) such as EPO and dosed to a target hemoglobin concentration of 13.5 g/dL are at a significantly increased risk for serious and life threatening cardiovascular complications, as compared to use of the ESA to target a hemoglobin concentration of 11.3 g/dL. The alert recommended, among other things, that physicians and other healthcare professionals should consider adhering to dosing to maintain the recommended target hemoglobin range of 10 to 12 g/dL.

Managed care plans usually negotiate lower reimbursement rates than other health plans. As such plans grow, amounts paid for our services and products by non-governmental payors could decrease

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

The increasing consolidation in the commercial insurance sector in the United States has put us under increasing pressure to limit the rate of increase or even reduce the prices for our services and products. If managed care plans in the United States reduce reimbursements, our sales could decrease. This could have a material adverse effect on our financial condition and results of operations.

If our joint ventures violate the law, our business could be adversely affected.

A number of the dialysis centers we operate are owned by joint ventures in which we hold a controlling interest and one or more hospitals, physicians or physician practice groups hold a minority interest. The physician owners may also provide medical director services to those centers or other centers we own and operate. Substantially all of these joint ventures were acquired in the RCG Merger. While we have structured our joint ventures to comply with as many of the criteria as possible for safe harbor protection under the Federal Anti-Kickback Statute, our investments in these joint venture arrangements do not satisfy all elements of such safe harbor. While we have established comprehensive compliance policies, procedures and programs to ensure ethical and compliant joint venture business operations, if one or more of our joint ventures were found to be in violation of the Anti-Kickback Statute or the Stark Law, we could be required to restructure or terminate them. We also could be required to repay to Medicare amounts received by the joint ventures pursuant to any prohibited referrals, and we could be subject to monetary penalties. Imposition of any of these penalties could have a material adverse effect on our business, financial condition and results of operations.

Proposals for health care reform could decrease our revenues and operating profit

The U.S. federal and certain U.S. state governments have been considering proposals to modify their current health care systems to improve access to health care and control costs. See Item 4.B, “Information on the Company — Business Overview Regulatory and Legal Matters — Reimbursement — U.S.” for a discussion of the Medicare Prescription Drug Modernization and Improvement Act of 2003. Other countries, especially those in Western Europe, are also considering health care reform proposals that 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 intend to expand our international business. We cannot predict whether and when these reform proposals will be adopted in countries in which we operate or what impact they might have on us. Any decrease in spending or other significant changes in state funding in countries in which we operate, particularly significant changes in the U.S. Medicare and Medicaid programs, could reduce our sales and profitability and have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to our Business

A significant portion of our North American profits are dependent on the services we provide to a small portion of our patients who are covered by private insurance.

In recent reviews of dialysis reimbursement, the Medicare Payment Advisory Commission, also known as MedPAC, has noted that Medicare payments for dialysis services are less than the average costs that providers incur to provide the services. Since Medicaid rates are comparable to those of Medicare and because Medicare only pays us 80% of the Medicare allowable amount (the patient, Medicaid or secondary insurance being responsible for the remaining 20%), the amount we receive from Medicare and Medicaid is less than our average cost per treatment. As a result, the payments we receive from private payors both subsidize the losses we incur on services for Medicare and Medicaid patients and generate a substantial portion of the profits we report. We estimate that Medicare and Medicaid are the primary payors for approximately 80% of the patients to whom we provide care but that only 54% of our net revenues in 2006 were derived from Medicare and Medicaid. Therefore, if the private payors who pay for the care of the other 20% of our patients reduce their payments for our services, or if we experience a shift in our revenue mix toward Medicare or Medicaid reimbursement, then our revenue, cash flow and earnings would decrease, and our cash flow and profits would be disproportionately impacted.

Over the last few years, we have generally been able to implement modest annual price increases for private insurers and managed care organizations, but government reimbursement has remained flat or has been increased at rates below typical consumer price index (“CPI”) increases. There can be no assurance of similar future price increases to private insurers and managed care organizations. Any reductions in reimbursement from private insurers and managed care organizations could adversely impact our operating results. Any reduction in our ability to attract private pay patients to utilize our dialysis services relative to historical levels could adversely

impact our operating results. Any of the following events could have a material adverse effect on our operating results:


	•	a portion of our business that is currently reimbursed by private insurers or hospitals may become reimbursed by managed care organizations, which generally have lower rates for our services; or

	•	a portion of our business that is currently reimbursed by private insurers at rates based on our billed charges may become reimbursed under a contract at lower rates.

Our growth depends, in part, on our ability to continue to make acquisitions

The health care industry has experienced significant consolidation in recent years, particularly in the dialysis services sector. Our ability to make future acquisitions depends, in part, on our available financial resources and could be limited by restrictions imposed in the United States of America by the federal government or under our credit agreements. If we make future acquisitions, we may issue ordinary shares for non-cash consideration without first offering the shares to our existing shareholders, which could dilute the holdings of these shareholders. We may also need to borrow additional debt, assume significant liabilities or create additional expenses relating to intangible assets, any of which might reduce our reported earnings or our earnings per share and cause our stock price to decline. In addition, any financing that we might need for future acquisitions might be available to us only on terms that restrict our business. Acquisitions that we complete are also subject to risks relating to, among other matters, integration of the acquired businesses (including combining the acquired company’s infrastructure and management information systems with ours, harmonization of its marketing, patient service and logistical procedures with ours and, potentially, reconciling divergent corporate and management cultures), possible non-realization of anticipated synergies from the combination, potential loss of key personnel or customers of the acquired companies, and the risk of assuming unknown liabilities not disclosed by the seller or not uncovered during due diligence. If we are not able to effect acquisitions on reasonable terms, there could be an adverse effect on our business, financial condition and results of operations.

We also compete with other dialysis products and services companies in seeking suitable acquisition targets and the continuing consolidation of dialysis providers and combinations of dialysis providers with dialysis product manufacturers could affect future growth of our product sales. If we are not able to continue to effect acquisitions on reasonable terms, especially in the international area, this could have an adverse effect on our business, financial condition and results of operations.

Our competitors could develop superior technology or otherwise impact our product sales

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

Generic competition

Our branded pharmaceutical product business is subject to significant risk as a result of competition from manufacturers of generic drugs. Either the expiration or loss of patent protection for one of our products, or the “at-risk” launch by a generic manufacturer of a generic version of one of our branded pharmaceutical products, could result in the loss of a major portion of sales of that branded pharmaceutical product in a very short period, which can adversely affect our business.

If physicians prescribe Aranesp^® or similar anemia fighting medications for hemodialysis patients or physicians, we could be less profitable.

In addition to EPO^®, Amgen has developed and obtained FDA approval for another drug to treat anemia that is marketed as Aranesp^® (darbepoetin alfa). Similarly, Roche Laboratories has developed CERA^®, which is under

FDA review for use in the U.S. Aranesp and CERA are longer acting forms of bio-engineered proteins that, like EPO^®, can be used to treat anemia. EPO^® is usually administered in conjunction with each dialysis treatment. Aranesp^® and CERA^® can remain effective for two to four weeks. If physicians shift prescriptions from EPO^® to Aranesp^® or CERA^® for the treatment of dialysis patients, then our earnings could be materially and adversely affected by either of the following factors:


	•	the dosing volumes of CERA^® or Aranesp^® required to treat anemia in dialysis patients may be less than the corresponding volume of EPO^®, without an offsetting adjustment in relative reimbursement rates;

	•	our margins realized from the administration of Aranesp^® or CERA^® could be lower than the margins realized on the administration of EPO^®; or

	•	physicians could decide to administer Aranesp^® or CERA^® in their offices, and we would not recognize net revenue or profit from the administration of EPO^® or Aranesp^®.

We are exposed to products liability and other claims which could result in significant costs and liability which we may not be able to insure on acceptable terms in the future

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 and patent infringement claims. We cannot assure you that significant claims will not be asserted against us, that significant adverse verdicts will not be reached against us for patent infringements or that large scale recalls of our products will not become necessary. In addition, the laws of some of the countries in which we operate provide legal rights to users of pharmaceutical products that could increase the risk of product liability claims. Product liability and patent infringement claims, other actions for negligence or breach of contract and product recalls or related sanctions could result in significant costs. These costs could have a material adverse effect on our business, financial condition and results of operations. See Item 8.A.7, “Financial Information — Legal Proceedings.”

While we have been able to obtain liability insurance in the past, to cover our business risks, we cannot assure you that such insurance will be available in the future either on acceptable terms or at all. In addition, FMCH, our largest subsidiary, is partially self-insured for professional, product and general liability, auto liability and worker’s compensation claims, up to pre-determined levels above which our third-party insurance applies. A successful claim in excess of the limits of our insurance coverage could have a material adverse effect on our business, 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 sales 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 end-stage renal disease patient, including, but not limited to, the quality of care at a clinic, the competency of a clinic’s staff, convenient scheduling, and a clinic’s location and physical condition. Physicians may change their facility recommendations at any time, which may result in the transfer of our existing patients to competing clinics, including clinics established by the physicians themselves. At most of our clinics, a relatively small number of physicians account for the referral of all or a significant portion of the patient base. Our dialysis care business also depends on recommendations by hospitals, managed care plans and other health care institutions. If a significant number of physicians, hospitals or other health care institutions cease referring their patients to our clinics, this would reduce our dialysis care revenue and could materially adversely affect our overall operations.

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 recommendations from other sources for purchases of our products or ancillary services would reduce our dialysis product and other services revenue, and could 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 and the current nursing shortage in North America has increased our personnel and recruiting costs. 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. If we are unable to achieve that goal or if doing so requires us to bear increased costs this could adversely impact our growth and results of operations.

Our dialysis products business depends on the development of new products, technologies and treatment concepts to be competitive. Competition is also intense for skilled engineers and other technical research and development personnel. If we are unable to obtain and retain the services of key personnel, the ability of our officers and key employees to manage our growth would suffer and our operations could suffer in other respects. These factors could preclude us from integrating acquired companies into our operations, which could increase our costs and prevent us from realizing synergies from acquisitions. Lack of skilled research and development personnel could impair our technological development, which would increase our costs and impair our reputation for production of technologically advanced products.

We face specific risks from international operations

We operate dialysis clinics in over 25 countries and sell a range of equipment, products and services to customers in over 100 countries. Our international operations are subject to a number of risks, including the following:


	•	The economic situation in developing countries could deteriorate;

	•	Fluctuations in exchange rates could adversely affect profitability;

	•	We could face difficulties in enforcing and collecting accounts receivable under some countries’ legal systems;

	•	Local regulations could restrict our ability to obtain a direct ownership interest in dialysis clinics or other operations;

	•	Political and economic instability, especially in developing and newly industrializing countries, could disrupt our operations;

	•	Some customers and governments could have longer payment cycles, with resulting adverse effects on our cash flow; and

	•	Some countries could impose additional taxes or restrict the import of our products.

Any one or more of these factors 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.

Diverging views of the financial authorities could require us to make additional tax payments

We are subject to ongoing tax audits in the U.S., Germany and other jurisdictions. We have received notices of unfavorable adjustments and disallowances in connection with certain of these audits and, in 2005 and 2006, we paid $78 million and $99 million, respectively, in connection with tax audits in Germany and the U.S., respectively. We are contesting and, in some cases, appealing certain of these unfavorable determinations. We may be subject to additional unfavorable adjustments and disallowances in connection with ongoing audits. If our

objections and any final audit appeals are unsuccessful, we could be required to make additional tax payments. We are not currently able to determine the timing of these potential additional tax payments. If all potential additional tax payments were to become due contemporaneously, it could have a material adverse impact on our operating cash flow in the relevant reporting period.

Risks Relating to our Securities

The public market for our preference shares and our preference share ADSs is limited and highly illiquid. The delisting of our preference share ADSs would further reduce the market for our preference shares

Our preference shares are listed on the Frankfurt Stock Exchange and ADSs representing the preference shares are listed on the New York Stock Exchange (“NYSE”). However, as a result of the conversion and transformation, the number of our preference shares outstanding has been reduced from 27,762,179 shares outstanding at December 31, 2005, to 1,237,145 at December 31, 2006. As a result, the public market for our preference shares is limited and highly illiquid. At February 10, 2006, upon registration of the conversion and the transformation in the commercial register in Germany, the number of preference shares outstanding included 63,891 preference shares in the form of 191,673 American Depositary Shares. We have been advised by the NYSE that if the number of publicly-held FMC-AG & Co. KGaA preference share ADSs falls below 100,000, the preference share ADSs are likely to be delisted from the NYSE. Without a New York Stock Exchange or a Nasdaq Stock Market listing, the market for our preference share ADSs would be further reduced or eliminated.

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

We have a substantial amount of debt. At December 31, 2006, we have consolidated debt of $5.579 billion, including $1.254 billion of our trust preferred securities, and consolidated total shareholders’ equity of $4.870 billion, resulting in a ratio of total debt to equity of 1.15. Our substantial level of debt present the risk that we might not generate sufficient cash to service our indebtedness or that our leveraged capital structure could limit our ability to finance acquisitions and develop additional projects, to compete effectively or to operate successfully under adverse economic conditions.

Our 2006 Senior Credit Agreement, European Investment Bank Agreements, Euro Notes 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 fixed charge ratio (ratio of EBITDAR — consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) plus rent — to consolidated fixed charges) and subject to a maximum consolidated leverage ratio (ratio of consolidated funded debt to EBITDA).

Our 2006 Senior Credit Agreement and our indentures include other covenants which, among other things, restrict or have the effect of restricting our ability to dispose of assets, incur debt, pay dividends and other restricted payments, 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 and acceleration of the indebtedness under the credit agreement or the indentures, which could, in turn, create additional defaults and acceleration of the indebtedness under the agreements relating to our other long-term indebtedness which would have an adverse effect on our business, financial condition and results of operations.

Fresenius AG owns 100% of the shares in the general partner of our Company and is able to control our management and strategy

Fresenius AG owns approximately 36.6% of our voting ordinary shares and 100% of the outstanding shares of the general partner of the Company. As the sole shareholder of the general partner of the Company, Fresenius AG has the sole right to elect the supervisory board of the general partner which, in turn, elects the management board of the general partner. The management board of the general partner is responsible for the management of the Company. Through its ownership of the general partner, Fresenius AG is able to exercise control over the management and strategy of FMC-AG & Co. KGaA even though it owns less than a majority of our outstanding voting shares. Such control limits public shareholder influence on management of the Company

and precludes a takeover or change of control of the Company without Fresenius AG’s consent, either or both of which could adversely affect the prices of our shares.

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 the pooling agreement 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 SEC, to prepare annual and quarterly financial statements in accordance with U.S. generally accepted accounting principles, and to file information with the SEC with respect to annual and general meetings of our shareholders. These pooling agreements also require that the supervisory board of Fresenius Medical Care Management AG, our general partner, include at least two members who do not have any substantial business or professional relationship with Fresenius AG, Fresenius Medical Care Management AG or FMC-AG & Co. KGaA and its affiliates and requires the consent of those independent directors to certain transactions between us and Fresenius AG and its affiliates.

We are a “foreign private issuer,” as defined in the SEC’s regulations, and consequently we are not subject to all of the same disclosure requirements applicable to domestic companies. We are exempt from the SEC’s proxy rules, and our annual reports contain less detailed disclosure than reports of domestic issuers regarding such matters as management, executive compensation and outstanding options, beneficial ownership of our securities and certain related party transactions. Also, our officers, directors and beneficial owners of more than 10% of our equity securities are exempt from the reporting requirements and short-swing profit recovery provisions of Section 16 of the Securities Exchange Act of 1934. We are also generally exempt from most of the governance rule revisions recently adopted by the New York Stock Exchange, other than the obligation to maintain an audit committee in accordance with Rule 10A-3 under the Securities Exchange Act of 1934, as amended. These limits on available information about our company and exemptions from many governance rules applicable to U.S. domestic issuers 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 & Co. KGaA (“FMC-AG & Co. KGaA” or the “Company”), is a German partnership limited by shares (Kommanditgesellschaft auf Aktien), formerly known as Fresenius Medical Care AG (“FMC-AG”), a German stock corporation (Aktiengesellschaft) organized under the laws of Germany.

The Company was originally incorporated on August 5, 1996 as a stock corporation and transformed into a partnership limited by shares upon registration on February 10, 2006. FMC-AG & Co. KGaA is registered with the commercial register of the local court (Amtsgericht) of Hof an der Saale, Germany, under the registration number HRB 4019. Our registered office (Sitz) is Hof an der Saale, Germany. Our business address is Else-Kröner-Strasse 1, 61352 Bad Homburg, Germany, telephone ++49-6172-609-0.

History

The Company was originally created by the transformation of Sterilpharma GmbH (Gesellschaft mit beschränkter Haftung), a limited liability company under German law incorporated in 1975, into a stock corporation under German law (Aktiengesellschaft). A shareholder’s meeting on April 15, 1996 adopted the resolutions for this transformation and the commercial register registered the transformation on August 5, 1996.

On September 30, 1996, we completed a series of transactions to consummate an Agreement and Plan of Reorganization entered into on February 4, 1996 by Fresenius AG and W.R. Grace which we refer to as the “Merger” elsewhere in this report. Pursuant to that agreement, Fresenius AG contributed Fresenius Worldwide

Dialysis, its global dialysis business, including its controlling interest in Fresenius USA, Inc., in exchange for 35,210,000 FMC-AG Ordinary shares. Thereafter, we acquired:


	•	all of the outstanding common stock of W.R. Grace & Co., 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, Inc., in exchange for 3,430,000 Ordinary shares.

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

On February 10, 2006, the Company completed the transformation of its legal form under German law as approved by its shareholders during the Extraordinary General Meeting (“EGM”) held on August 30, 2005. Upon registration of the transformation of legal form in the commercial register of the local court in Hof an der Saale, on February 10, 2006, Fresenius Medical Care AG’s legal form was changed from a stock corporation (Aktiengesellschaft) to a partnership limited by shares (Kommanditgesellschaft auf Aktien) with the name Fresenius Medical Care AG & Co. KGaA. The Company as a KGaA is the same legal entity under German law, rather than a successor to the stock corporation. Fresenius Medical Care Management AG (“Management AG”), a subsidiary of Fresenius AG, the majority voting shareholder of FMC-AG prior to the transformation, is the general partner of FMC-AG & Co. KGaA. Shareholders in FMC-AG & Co. KGaA participate in all economic respects, including profits and capital, to the same extent and (except as modified by the share conversion described below) with the same number of ordinary and preference shares in FMC-AG & Co. KGaA as they held in FMC-AG prior to the transformation. Upon effectiveness of the transformation of legal form, the share capital of FMC-AG became the share capital of FMC-AG & Co. KGaA, and persons who were shareholders of FMC-AG became shareholders of the Company in its new legal form. In addition, the EGM approved the adjustment of the existing employee participation programs and agreed to the creation of a new level of authorized capital (Genehmigtes Kapital). As used in this report, (i) the “Company” refers to both FMC-AG prior to the transformation of legal form and FMC-AG & Co. KGaA after the transformation and (ii) “we,” “us,” and “our” refer to either the Company or the Company and its subsidiaries on a consolidated basis, as the context requires.

Prior to the effectiveness of the transformation, and as approved by the EGM and by a separate vote of the Company’s preference shareholders during a separate meeting of the preference shareholders held immediately following the EGM, the Company offered holders of its non-voting preference shares (including preference shares represented by American Depositary Shares (ADSs)) the opportunity to convert their shares into ordinary shares at a conversion ratio of one preference share plus a conversion premium of €9.75 per ordinary share. Holders of a total of 26,629,422 preference shares accepted the offer, resulting in an increase of 26,629,422 ordinary shares of FMC-AG & Co. KGaA (including 2,099,847 ADSs representing 699,949 ordinary shares of FMC-AG & Co. KGaA) outstanding. Immediately after the conversion and transformation of legal form, there were 96,629,422 ordinary shares outstanding. Former holders of preference shares who elected to convert their shares now hold a number of ordinary shares of FMC-AG & Co. KGaA equal to the number of preference shares they elected to convert. The 1,132,757 preference shares that were not converted remained outstanding and became preference shares of FMC-AG & Co. KGaA in the transformation. As a result, preference shareholders who elected not to convert their shares into ordinary shares hold the same number of non-voting preference shares in FMC-AG & Co. KGaA as they held in FMC-AG prior to the transformation. Persons who held ordinary shares in FMC-AG prior to the transformation hold the same number of voting ordinary shares in FMC-AG & Co. KGaA. The Company determined that the conversion of the Company’s preference shares had no impact on earnings for either the holders of ordinary or preference shares. Therefore, no reductions or benefits were recorded in the Company’s financial statements for the conversion other than the receipt of the conversion premium and the expenses incurred by the Company.

retirement of RCG stock options and including the concurrent repayment of approximately $657.8 million of indebtedness of RCG. During 2005, RCG provided dialysis and ancillary services to over 32,360 patients through more than 450 owned outpatient dialysis centers in 34 states within the United States, in addition to providing acute dialysis services to more than 200 hospitals.

The Company was required to divest a total of 105 renal dialysis centers, consisting of both former Company clinics (the “legacy clinics”) and former RCG clinics, in order to complete the RCG acquisition in accordance with a consent order issued by the United States Federal Trade Commission (“FTC”) on March 31, 2006. The Company sold 96 of such centers on April 7, 2006 to a wholly owned subsidiary of DSI Holding Company, Inc. (“DSI”) and sold DSI the remaining 9 centers effective as of June 30, 2006. Separately, in December 2006, the Company also sold the former laboratory business acquired in the RCG Acquisition receiving cash consideration of approximately $9.0 million. The Company received cash consideration of $515.7 million net of related expenses, for all centers divested and for the divested laboratory, subject to customary post-closing adjustments. The income of $40.2 million on the sale of the legacy clinics was recorded in income from operations. The Company will continue to treat patients in the same markets and will sell products to DSI under the terms of a supply agreement that continues through March 2009.

Capital Expenditures

We invested, by business segment and geographical areas, the following amounts, including $4,158 million for the RCG Acquisition and $76 million for the acquisition of Phoslo^® (See “Business Overview — Dialysis Care — Acquisitions,” below), during the twelve month periods ended December 31, 2006, 2005, and 2004 (Mexico has been reclassified from International segment to North America segment in 2005 for management purposes). We have budgeted $650 million for acquisitions and capital expenditures combined for 2007:


			Actual

			2006		2005		2004

			(in millions)
Acquisitions
	North America		$	4,295	$	77	$	65
	International			21		57		55

		Total Acquisitions	$	4,316	$	134	$	120

Capital expenditures for property, plant and equipment
	North America		$	306	$	176	$	166
	International			161		139		113

		Total Capital Expenditures	$	467	$	315	$	279

Other major areas of capital spending were for the maintenance of existing clinics and equipment for new clinics. In addition, expenditures were made for maintenance and expansion of production facilities in North America, Germany, Japan, and France and for the capitalization of machines provided to customers primarily in Europe. We finance our capital expenditures through cash flow from operations or under existing or new credit facilities.

For information regarding recent acquisitions, see Item 4 B. “Business Overview — Dialysis Care — Acquisitions.”


B.	Business Overview

Our Business

We are the world’s largest kidney dialysis company, operating in both the field of dialysis products and the field of dialysis services. Based on publicly reported sales and number of patients treated, we are the largest dialysis company in the world. (Source: Nephrology News & Issues, July 2006; company data of significant competitors.) Our dialysis business is vertically integrated, providing dialysis treatment at our own dialysis clinics

and supplying these clinics with a broad range of products. In addition, we sell dialysis products to other dialysis service providers. At December 31, 2006, we provided dialysis treatment to approximately 163,500 patients in 2,108 clinics worldwide located in over 25 countries. In the U.S. we also perform clinical laboratory testing and provide inpatient dialysis services and other services under contract to hospitals. In 2006, we provided 23.7 million dialysis treatments, an increase of approximately 20% compared to 2005. We also develop and manufacture a full range of equipment, systems and disposable products, which we sell to customers in over 100 countries. For the year ended December 31, 2006, we had net revenues of $8.5 billion, a 26% increase (25% in constant currency) over 2005 revenues. We derived 71% of our revenues in 2006 from our North America operations and 29% from our international operations.

We use the insight 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.

The following table summarizes net revenues for our North America segment and our International segment as well as our major categories of activity for the three years ended December 31, 2006, 2005 and 2004 (Mexico has been reclassified from the International segment to the North America segment in 2005 for management purposes. Prior years have been restated to reflect this reclassification.)


		2006		2005		2004

		(in millions)
North America
	Dialysis Care	$	5,464	$	4,054	$	3,802
	Dialysis Products		561		523		446

			6,025		4,577		4,248
International
	Dialysis Care		913		813		699
	Dialysis Products		1,561		1,382		1,281

			2,474		2,195		1,980

Renal Industry Overview

We offer life-maintaining and life-saving dialysis services and products in a market which is characterized by a favorable demographic development.

End-Stage Renal Disease

End-stage renal disease (“ESRD”) is the stage of advanced chronic kidney disease that is characterized by the irreversible loss of kidney function and requires regular dialysis treatment or kidney transplantation to sustain life. A normally functioning human kidney removes waste products and excess water from the blood, which prevents toxin buildup, water overload and the eventual poisoning of the body. 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. A number of conditions — diabetes, hypertension, glomerulonephritis and inherited diseases — can cause chronic kidney disease. The majority 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. Therefore, most patients suffering from ESRD rely on dialysis. According to data published by the Centers for Medicare and Medicaid Services (“CMS”) (formerly the Health Care Financing Administration) of the U.S. Department of Health and Human Services, 16,568 patients of the ESRD patient population received kidney transplants in the U.S. during 2004, an increase of approximately 6% over 2003. Based on the total number of patients treated with dialysis in the U.S., only about 5% received a kidney transplant in 2004. In Germany, based on information published by “QuaSi-Niere gGmbH” only 4% of all patients treated with dialysis received a kidney transplant in 2005. In both countries less than 30% of all ESRD

patients live with a functioning kidney transplant and more than 70% require dialysis (source: Centers for Medicare & Medicaid Services ESRD program highlights 2004; QuaSi-Niere gGmbH, Bericht 2005/2006).

There are two major dialysis methods commonly used today, hemodialysis (“HD”) and peritoneal dialysis (“PD”). These are described below under “Dialysis Treatment Options for ESRD.” We estimate the global ESRD patient population to have reached almost 2.0 million at the end of 2006. Of these patients, we estimate that almost 1.5 million were undergoing dialysis treatment, and approximately 475,000 people were living with kidney transplants. Of the estimated 1.5 million dialysis patients treated in 2006 approximately 1.37 million received HD and almost 165,000 received PD. 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. The number of dialysis patients grew by approximately 6% in 2006.

Based on data published by the CMS in 2005, the number of patients in the U.S. who received dialysis for chronic ESRD grew from approximately 186,822 in 1994 to 320,404 in 2004, a compound annual growth rate of approximately 6%. We believe that worldwide growth will continue at 6% per year. According to our own market surveys, Japan is the second largest dialysis market in the world. According to data published by the Japanese Society for Dialysis Therapy, approximately 248,166 dialysis patients were being treated in Japan at the end of 2004. In the rest of the world, we estimate that at the end of 2004 there were approximately 324,000 dialysis patients in Europe, nearly 200,000 patients in Asia (excluding Japan) and almost 170,000 patients in Latin America (including Mexico).

Patient growth rates vary significantly from region to region. A below average increase in the number of patients is experienced in the U.S., Western and Central Europe where, as reflected in high dialysis prevalence values, patients with terminal kidney failure have access to treatment, usually dialysis. In contrast, growth rates in the economically weaker regions continue to be around 10% and were thus far higher than average levels. We estimate that around 23% of all patients are treated in the U.S., approximately 18% in Japan and about 18% in the 25 countries of the European Union. The remaining 41% of all dialysis patients are distributed throughout more than 100 countries in different geographical regions.

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 makes life-prolonging dialysis available to a larger patient population;

	•	greater access to treatment in developing countries; and

	•	better treatment and survival of patients with hypertension, diabetes and other illnesses that lead to ESRD.

Dialysis Treatment Options for ESRD

Hemodialysis. Hemodialysis removes toxins and excess fluids from the blood in a process in which the blood flows outside the body through plastic tubes known as bloodlines into a specially designed filter, called a dialyzer. The dialyzer separates waste products and excess water from the blood. Dialysis solution flowing through the dialyzer carries away the waste products and excess water, and supplements the blood with solutes which must be added due to renal failure. The treated blood is returned to the patient. The hemodialysis machine pumps blood, adds anti-coagulants, regulates the purification process and controls the mixing of dialysis solution and the rate of its flow through the system. This machine can also monitor and record the patient’s vital signs.

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

According to the most recent data available from the CMS, there were more than 4,500 Medicare-certified ESRD treatment clinics in the U.S. in 2004. Ownership of these clinics is characterized by a relatively small

number of chain providers owning 70-75% of the clinics, of which we are one of the largest, and a large number of providers each owning 10 or fewer clinics. We estimate that there were approximately 4,000 dialysis clinics in the European Union at the end of 2004, of which about 50% are government-owned, approximately 40% are privately owned, and nearly 10% are operated by health care organizations. In Latin America, privately owned clinics predominate, comprising over 70% of all clinics providing dialysis care.

According to CMS, as of December 31, 2004, hemodialysis patients represented about 92% of all dialysis patients in the U.S. Japanese Society for Dialysis Therapy data indicate hemodialysis patients comprise approximately 96% of all dialysis patients in Japan, and, according to our most recent studies, hemodialysis patients comprise 90% in the European Union and 85% in the rest of the world. Hence, hemodialysis is the dominant therapy method worldwide.

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

Our Strategy

Growth Objectives

GOAL 10 is our long-term strategy for sustained growth through 2010. The strategy was implemented in the spring of 2005. Our GOAL 10 objectives are as follows:

GOAL 10 Objectives:


	2004		2005		2006		GOAL 2010

Revenue ($ in million)	$	6,228	$	6,772	$	8,499	$	Y11,500
Annual revenue growth at constant currency		10%		8%		25%		Y6–9%
Share of dialysis market*		Y12%		12.90%		15.5%		Y18%
Market volume* ($ in billion)	$	Y50	$	Y52,5	$	Y55	$	Y67
Annual net income growth**		21%		17%		24%		>10%


*	Company estimates


**	2005 excluding one-time effects and 2006 excluding one-time effects and FAS 123(R)

We increased our long-term revenue goals in 2006. Our aim now is to generate revenue of $11.5 billion by 2010 — $1.5 billion more than originally planned. We could reach our initial revenue goal for 2010 of $10 billion as early as 2008 due to a good operating development and the revenue contribution resulting from the RCG Acquisition. We expect to have an 18% share of the worldwide dialysis market in 2010; we had previously estimated it would be approximately 15%.

Growth Paths

GOAL 10 defines four paths that the Company intends to take in order to perform successfully in a broader spectrum of the global dialysis market and to achieve our growth and profitability objectives:


	Path 1: Organic Growth

In the coming years, we intend to achieve an annual organic sales growth in dialysis care of 5% to 6%. To meet this goal, we are further expanding our offer of integrated, innovative treatment concepts such as UltraCare and combining them, for example, with our dialysis drugs. With these measures, we want our portfolio to stand out from our competitors’. In addition, we plan to increase our growth in revenue by opening new dialysis clinics and to further increase the number of patients whose treatments are covered by private health insurance.

We also intend to continue to innovate with dialysis products. New high-quality products such as the 5008 therapy system and cost-effective manufacture are intended to contribute significantly to the further growth of our dialysis products sector.


	Path 2: Acquisitions

We intend to make attractive, targeted acquisitions broadening our network of dialysis clinics. In North America we want to expand our clinic network in particularly attractive regions. The acquisition of Renal Care Group is an excellent example of this type of expansion although future acquisitions in North America will have a smaller financial scope.

Outside North America, we intend to participate in the privatization process of healthcare systems and seek to achieve above-average growth in Eastern Europe and Asia; acquisitions will support these activities. In our clinic network outside North America, we continue to focus on improving our strategic position in selected markets.


	Path 3: Horizontal Expansion

We plan on opening up new growth opportunities in the dialysis market by expanding our product portfolio beyond patient care and dialysis products. To this end, in 2006 we increased our activities in some areas of dialysis medication and will continue to do so in the future. Initially, we will focus on drugs regulating patients’ mineral and blood levels, including iron and Vitamin D supplements as well as phosphate binders. High phosphate levels in the blood can lead to medium-term damage of patients’ bones and blood vessels. In 2006, we acquired the phosphate binder business of Nabi Biopharmaceuticals which should provide additional opportunities to pursue this remedy.


	Path 4: Home Therapies

Around 10% of all dialysis patients perform dialysis at home with the remaining 90% treated in clinics. Still, we aim to achieve a long-term leading global position in the relatively small field of home therapies, including peritoneal dialysis and home hemodialysis. To achieve this goal, we can combine our comprehensive and innovative product portfolio with our expertise in patient care.

We expect these strategic steps, expansion of our product portfolio horizontally through an increase of our dialysis drug activities (Path 3), further development of our home therapies (Path 4) and an organic growth in dialysis services, to average an annual revenue growth of about 6% to 9% , reaching approximately $11.5 billion in 2010. Our net income should increase by more than 10% a year, and our operating margin should exceed 15% in the medium term.

Dialysis Care

Dialysis Services

We provide dialysis treatment and related laboratory and diagnostic services through our network of 2,108 outpatient dialysis clinics, 1,560 of which are in the U.S. and 548 of which are in over 24 countries outside of the

U.S. Our operations outside North America generated 14% of our 2006 dialysis care revenue. Our International segment currently operates or manages dialysis clinics in Argentina, Australia, Brazil, China, Colombia, Chile, Czech Republic, Estonia, France, Germany, Hungary, Hong Kong, Italy, Singapore, Portugal, Poland, Romania, Slovakia, Slovenia, South Africa, Spain, Taiwan, Turkey, United Kingdom and Venezuela. Our dialysis clinics are generally concentrated in areas of high population density. In 2006, we acquired a total of 483 existing clinics, opened 83 new clinics and sold or consolidated 138 clinics. The number of patients we treat at our clinics worldwide increased by about 24%, from 131,485 at December 31, 2005 to 163,517 at December 31, 2006. For 2006, dialysis services accounted for 75% of our total revenue.

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


	•	our reputation for quality patient care and treatment;

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

	•	our reputation for technologically advanced products for dialysis treatment.

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

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

As part of the dialysis therapy, we provide a variety of services to ESRD patients in the U.S. at our dialysis clinics. These services include administering EPO, a synthetic engineered hormone 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 in the U.S. Revenues from EPO accounted for approximately 21% of total revenue in our North America segment for the year ended December 31, 2006. 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 U.S. and any interruption of supply could materially adversely affect our business, financial condition and results of operations. Our current contract with Amgen covers the period from October 2006 to December 2011. See “— Regulatory and Legal Matters — Reimbursement — U.S. — Erythropoietan (EPO).”

Our clinics also offer services for home dialysis patients, the majority of whom receive peritoneal dialysis treatment. For those patients, we provide materials, training and patient support services, including clinical monitoring, follow-up assistance and arranging for delivery of the supplies to the patient’s residence. 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. Contracts with hospitals provide for payment at negotiated rates that are generally higher than the Medicare

reimbursement rates for chronic in-clinic outpatient treatments. The acquisition of RCG, which provided acute dialysis services to over 200 hospitals at December 31, 2005, significantly increased our acute dialysis services.

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

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

In the over 24 countries outside the U.S. in which we currently operate or manage dialysis clinics we face legal, regulative and economic environments varying significantly from country to country. These individual environments can affect all aspects of providing dialysis services including our legal status, the extent to which we can provide dialysis services, the way we have to organize these services and the system under which we are reimbursed. See “— Regulatory and Legal Matters — Reimbursement — International (Including Germany and Other Non-U.S.)” for further discussion of reimbursement. Our approach to managing this complexity utilizes local management to ensure the strict adherence to the individual country rules and regulations and international functional departments supporting country management with processes and guidelines enabling the delivery of the highest possible quality level of dialysis treatment. We believe that with this bi-dimensional organization we will be able to provide superior care to dialysis patients under the varying local frameworks leading to improved patient well-being and to lower social cost.

Fresenius UltraCare^® Program

The UltraCare^® program of our North America dialysis services group combines our latest product technology with our highly trained and skilled staff to offer our patients what we believe is a superior level of care. The basis for this form of treatment is the Optiflux^® polysulfone single-use dialyzer. Optiflux^® dialyzers are combined with our 2008^tm Hemodialysis Delivery System series, which has advanced online patient monitoring and Ultra Pure Dialysate, all of which we feel improve mortality rates and increase the quality of patient care. (A study published in 2004 (Lowrie/Li/Ofsthun/ Lazarus, Nephrology Dialysis Transplantation, August 17, 2004) comparing single use and re-use dialyzers concluded that the abandonment of dialyzer re-use practice could lead to lower mortality rates and to an increase in the quality of patient care). UltraCare^® program also utilizes several systems to allow the tailoring of treatment to meet individual patient needs. Among the other capabilities of this system, staff will be alerted if toxin clearance is less than the target prescribed for the patient, and treatment can be adjusted accordingly. All of our legacy North American dialysis clinics have been certified for the UltraCare^® program.

Laboratory Services

We provide laboratory testing and marketing services in the U.S. through Spectra Laboratories (“Spectra”). Spectra provides blood, urine and other bodily fluid testing services to determine the appropriate individual dialysis therapy for a patient and to assist physicians in determining whether a dialysis patient’s therapy regimen, diet and medicines remain optimal. Spectra, the leading clinical laboratory provider in North America, provides testing for dialysis related treatments in its two operating laboratories located in New Jersey and Northern California. During the year ended December 31, 2006, Spectra performed nearly 45 million tests for approximately 146,000 dialysis patients in over 2,200 clinics across the U.S., including clinics that we own or operate. Due to Spectra’s capacity, after the RCG Acquisition we sold RCG’s RenaLab laboratory subsidiary to another U.S. renal services provider.

Acquisitions

A significant factor in the growth in our revenue and operating earnings in prior years has been our ability to acquire health care businesses, particularly dialysis clinics, on reasonable terms. Worldwide, physicians own many dialysis clinics that are potential acquisition candidates for us. In the U.S., doctors might determine to sell their clinics to obtain relief from day-to-day administrative responsibilities and changing governmental regulations, to focus on patient care and to realize a return on their investment. Outside of the U.S., doctors might determine to sell to us 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.

We paid aggregate cash consideration for acquisitions, primarily for dialysis clinics, of approximately $4,307 million in 2006, including $4,148 million for the RCG Acquisition, and $125 million in 2005.

We continued to enhance our presence outside the U.S. in 2006 by acquiring individual or small groups of dialysis clinics in selected markets, expanding existing clinics, and opening new clinics.

In addition, on November 14, 2006, we acquired PhosLo^® (calcium acetate) and the product’s related assets (excluding certain assets including cash and accounts receivable) from Nabi Biopharmaceuticals (“Nabi”). PhosLo^® is an oral application calcium acetate phosphate binder for treatment of hyperphosphatemia primarily in end-stage renal disease patients. Phosphates are not always removed sufficiently during dialysis, and phosphate binders can remedy this. We paid Nabi cash of $65.3 million, plus a $8 million milestone payment in December 2006 and a $2.5 million milestone payment in January 2007. We will pay an additional $10.5 million upon the successful completion of certain other milestones. The purchase price was allocated to technology with estimated useful lives of 15 years ($64.8 million), and in-process research and development project ($2.8 million) which was immediately expensed, goodwill ($7.3 million) and other net assets ($0.9 million)

We also acquired worldwide rights to a new product formulation currently under development, which we expect will be submitted for approval in the U.S. during 2007. Following the successful launch of this new product formulation, we will pay Nabi royalties on sales of the new product formulation commencing upon the first commercialization of the new product and continuing until November 13, 2016. Total consideration, consisting of initial payment, milestone payments and royalties will not exceed $150 million.

Quality Assurance in Dialysis Care

Our quality management activities are primarily focused on comprehensive development and implementation of an integrated Quality Management System (“IMS”). Our goals in this area include not only meeting quality requirements for our dialysis clinics and environmental concerns, but also managing the quality of our dialysis care. This approach results in a IMS structure that closely reflects existing corporate processes. We are also able to use the IMS to fulfill many legal and normative regulations covering service lines. In addition, the quality management system standard offers a highly flexible structure that allows us to adapt to future regulations. The most important of these include, among others, ISO 9001 and ISO 14001, which defines environmental management system requirements. The IMS fulfils the ISO-Norm 9001:2000 requirements for quality management systems and links it with the ISO-Norm 14001:1996 for environmental management systems. At the same time, the IMS conforms to the medical devices requirements of ISO-Norm 13485:2003.

To evaluate the quality of our dialysis treatments, we make use of quality parameters that are recognized by the dialysis industry, such as hemoglobin values, phosphate levels, Kt/ V values (the ratio of treatment length to toxic molecule filtration), albumin levels for assessment of nutritional condition and urea reduction ratio. The number of days a patient spends hospitalized is also an important indicator of treatment quality.

Our dialysis clinics’ processes and documentation are continuously inspected by internal auditors and external parties. The underlying quality management system is certified and found to be in compliance with relevant regulations, requirements and company policies. Newly developed system evaluation methods, allowing simpler performance comparisons, are used to identify additional improvement possibilities. Certification of our dialysis clinics was focused in 2006 on Eastern European countries, particularly in Czech Republic, Poland, and Turkey.

Our important quality assurance goals in 2007 are:


	•	Improvement of risk management systems in dialysis clinics.

	•	Extension of the matrix certification of the quality management system to Germany and Romania

	•	Extension of matrix certification of environmental management system to France.

At each of our North America dialysis clinics, a quality assurance committee is responsible for reviewing quality of care data, setting goals for quality enhancement and monitoring the progress of quality assurance initiatives. We believe that we enjoy a reputation of providing high quality care to dialysis patients. In 2006, the Company continued to develop and implement programs to assist in achieving our quality goals. Our Access Intervention Management Program detects and corrects arteriovenous access failure in hemodialysis treatment, which is the major cause of hospitalization and morbidity.

Sources of U.S. Dialysis Care Net Revenue

The following table provides information for the years ended December 31, 2006, 2005 and 2004 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,

	2006		2005		2004

Medicare ESRD program		54.5%		56.0%		58.3%
Private/ alternative payors		34.4%		31.6%		30.0%
Medicaid and other government sources		3.9%		4.2%		4.1%
Hospitals		7.2%		8.2%		7.6%

Total		100.0%		100.0%		100.0%

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

Patient, Physician and Other Relationships

We believe that our success in establishing and maintaining dialysis clinics, both in the U.S. and in other countries, depends significantly on our ability to obtain the acceptance of and referrals from local physicians, 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. In nearly all our dialysis clinics, local doctors, who specialize in the treatment of renal patients (nephrologists), act as practitioners. Our ability to provide high-quality dialysis care and to fulfill the requirements of patients and doctors depends significantly on our ability to enlist nephrologists for our dialysis clinics and receive referrals from nephrologists, hospitals and general practitioners.

Medicare ESRD program reimbursement regulations require that a medical director generally supervise treatment at a dialysis clinic. Generally, the medical director must be board certified or board eligible in internal medicine and have at least twelve months of training or experience in the care of patients at ESRD clinics. Our medical directors also maintain their own private practices. We have entered into written agreements with physicians who serve as medical directors in our clinics. In North America these agreements generally have an initial term between 5 to 10 years. The compensation of our medical directors and other contracted physicians is negotiated individually and depends in general on local factors such as competition, the professional qualification of the physician, their experience and their tasks as well as the size and the offered services of the clinic. The total annual compensation of the medical directors and the other contracted physicians is stipulated at least one year in advance and normally contains incentives in order to continue to improve efficiency and quality. We believe that the compensation of our medical directors is in line with the market.

Almost all contracts we enter into with our medical directors in the United States as well as the typical contracts which we obtain when acquiring existing clinics, contain non-competition clauses concerning certain activities in defined areas for a defined period to time. These clauses do not enjoin the physicians from performing patient services directly at other locations/areas. As prescribed by law we do not require physicians to send patients to us or to specific clinics or to purchase or use specific medical products or ancillary services.

Competition

Dialysis Services. Our major competitors in the U.S. are DaVita, Inc., Dialysis Clinic Inc. and Renal Advantage Inc. and in our International segment are Gambro AB and B. Braun Melsungen AG. Ownership of dialysis clinics in the U.S. consists of a large number of providers, each owning 10 or fewer clinics and a small number of larger multi-clinic providers. Over the last decade the dialysis industry has been characterized by ongoing consolidations. The 2005 Davita/ Gambro and 2006 Fresenius Medical Care/ RCG transactions are examples of this continuing consolidation process. Davita, Inc. acquired all of Gambro AB’s dialysis service clinics in the United States in 2005. We completed the RCG Acquisition for approximately $4.2 billion in cash at the end of the first quarter 2006.

Many of our dialysis clinics are in urban areas, where there frequently are many competing clinics in proximity to our clinics. We experience direct competition from time to time from former medical directors, former employees or referring physicians who establish their own clinics. Furthermore, other health care providers or product manufacturers, some of who have significant operations, may decide to enter the dialysis business in the future.

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

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

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

Dialysis Products

Based on internal estimates, publicly available market data and our data of significant competitors, we are the world’s largest manufacturer and distributor of equipment and related products for hemodialysis and the second largest manufacturer of peritoneal dialysis products, measured by publicly reported revenues. We sell our dialysis products directly and through distributors in over 100 countries. Most of our customers are dialysis clinics. For the year 2006, dialysis products accounted for 25% of our total revenue.

We produce a wide range of machines and disposables for hemodialysis (“HD”), peritoneal (“PD”) and acute dialysis:


	•	HD machines and PD cyclers

	•	Dialyzers, our largest product group

	•	PD solutions in flexible bags


	•	HD concentrates, solutions and granulates

	•	Bloodlines

	•	Systems for water treatment

Our product business also includes adsorbers, which are specialized filters used in other extracorporeal therapies. In addition we sell products from other producers, including others dialyzers, specific instruments for vascular access, heparin (an anticoagulant) as well as other supplies, such as bandages, clamps and injections.

Overview

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


	Year Ended December 31,

	2006				2005				2004

	Total				Total				Total
	Product		% of		Product		% of		Product		% of
	Revenues		Total		Revenues		Total		Revenues		Total

	(U.S. dollars in millions)
Hemodialysis Products	$	1,775.0		84	$	1,588.6		83	$	1,453.0		84
Peritoneal Dialysis Products		307.8		14		275.5		15		242.9		14
Adsorbers		38.8		2		40.9		2		30.9		2

Total	$	2,121.6		100	$	1,905.0		100	$	1,726.8		100

Hemodialysis Products

We offer a comprehensive hemodialysis product line. Products include HD machines, modular components for dialysis machines, polysulfone dialyzers, blood lines, solutions and concentrates, needles, connectors, machines for water treatment, data administration systems, dialysis chairs, equipment and accessories for the reuse of dialyzers and similar products. We continually strive to expand and improve the capabilities of our hemodialysis systems to offer an advanced treatment mode at reasonable cost.

Dialysis Machines. We sell our 2008^tm Series dialysis machines as 2008H and 2008K models in North America and 4008 Series models and recently introduced Series 5008 models in the rest of the world. The 2008/4008 series is the most widely sold machine for hemodialysis treatment. Overall, we have produced more than 250,000 units to date. The 5008 series was launched in June 2005 and during 2006, we focused on market-specific adjustments of the new machine. The 5008 series is intended to gradually replace most of the 4008 series in the coming years. The successor 5008 contains a number of newly developed technical components for revised and improved dialysis processes and is offering the most efficient therapy modality, ONLINE-Hemodiafilitration, as a standard. Significant advances in the field of electronics enables highly complex treatment procedures to be controlled and monitored safely and clearly through dedicated interfaces. In 2006, the 5008 Therapy System was awarded the renowned “The World’s First Innovation Award” and the “Red Dot Award for Product Design”.

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 efficient dialysis with controlled rates of fluid removal;

	•	Proven hydraulic systems, providing reliable operation and servicing flexibility;

	•	Compatibility with all manufacturers’ dialyzers and a wide variety of blood-lines and dialysis solutions, permitting maximum flexibility in both treatment and disposable products usage;


	•	Modular design, which permits us to offer dialysis clinics a broad range of options to meet specific patient or regional treatment requirements. Modular design also allows upgrading through module substitution without replacing the entire machine;

	•	Specialized modules that provide monitoring and response capability for selected bio-physical patient parameters, such as body temperature and relative blood volume. This concept, known as physiological dialysis, permits hemodialysis treatments with lower incidence of a variety of symptoms or side effects, which still occur frequently in standard hemodialysis.

	•	Sophisticated microprocessor controls, and display and readout panels that are adaptable to meet local language requirements;

	•	Battery backup, which continues operation of the blood circuit and all protective systems up to 20 minutes following a power failure;

	•	Online clearance, measurement of dialyzer clearance for quality assurance with On-Line Clearance Monitoring, providing immediate effective clearance information, real time treatment outcome monitoring, and therapy adjustment during dialysis without requiring invasive procedures or blood samples;

	•	In the series 5008 and 4008H, ONLINE-Hemodiafilitration;

	•	On-line data collection capabilities and computer interfacing with our FINESSE/ TDMS module and FDS08 system. Our systems enable us to:


	—	monitor and assess prescribed therapy;

	—	connect a large number of hemodialysis machines and peripheral devices, such as patient scales, blood chemistry analyzers and blood pressure monitors, to a personal computer network;

	—	enter nursing records automatically at bedside to register and document patient treatment records, facilitate billing, and improve record-keeping and staff efficiency;

	—	adapt to new data processing devices and trends;

	—	perform home hemodialysis with remote monitoring by a staff caregiver; and

	—	record and analyze trends in medical outcome factors in hemodialysis patients.

Dialyzers. We manufacture dialyzers using hollow fiber Fresenius Polysulfone^® and Helixone membranes, synthetic materials. We estimate that we are the leading worldwide producer of polysulfone dialyzers. We believe that polysulfone offers the following superior performance characteristics compared to other materials used in dialyzers:


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

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

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

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 systems and solutions which include both continuous ambulatory peritoneal dialysis (CAPD) and continuous cycling peritoneal dialysis (CCPD) also called automated peritoneal dialysis (APD).

CAPD Therapy: We manufacture both systems and solutions for CAPD therapy. Our product range offers the following advantages for patients including:


	•	Fewer possibilities for touch contamination. Our unique PIN and DISC technology was designed to reduce the number of steps in the fluid exchange process and by doing so has lessened the risk of infection, particularly in the disconnection step in which the patient connector is closed automatically without the need for manual intervention.

	•	Improved biocompatibility. The new balance and bicaVera^® solutions are pH neutral and have very low glucose degradation products providing greater protection for the peritoneal membrane.

	•	Environmentally friendly material: Our stay•safe^® system is made of Biofine^®, a material, developed by Fresenius, which upon combustion is reduced to carbon dioxide and water and does not contain any plasticizers.

APD Therapy: We have been at the forefront of the development of automated peritoneal dialysis machines since 1980. APD therapy differs from that of CAPD in that fluid is infused into the peritoneal cavity of patients while they sleep. The effectiveness of the therapy is dependant on the dwell time, the composition of the solution used, the volume of solution and the time of the treatment, usually 8-10 hours. APD offers a number of benefits to patients:


	•	Improved quality of life. The patient is treated at night and can lead a more normal life during the day without fluid exchange every few hours.

	•	Improved adequacy of dialysis. By adjusting the parameters of treatment it is possible to provide more dialysis to the patient compared to conventional CAPD therapy. This therapy offers important options to physicians such as improving the delivered dose of dialysis for certain patients.

Our automated peritoneal dialysis equipment incorporates microprocessor technology. This offers physicians the opportunity to program specific prescriptions for individual patients. Our APD equipment product line includes:


	•	sleep•safe: The sleep•safe machine has been used since 1999. It has automated connection technology thus further reducing the risk on touch contamination. Another key safety feature is the barcode recognition system for the types of solution bags used. This improves compliance and ensures that the prescribed dosage is administered to the patient. There is also a pediatric option for the treatment of infants.

	•	North American cycler portfolio: This includes the (a) Freedom^® and 90/2^® cyclers for pediatric and acute markets, (b) the Freedom^® Cycler PD+ with IQ card™ and (c) the Newton IQ^® Cycler. The credit card-sized IQcard™ can provide actual treatment details and results for compliance monitoring to the physician and, when used with the Newton IQ™ Cycler, can upload the patient’s prescription into the machine. The Newton IQ™ Cycler also pumps waste dialysate directly into a receptacle.

Patient Management Software: We have developed specific patient management software tools to support both CAPD and APD therapies in the different regions of the world. These include: PatientOnLine, Pack-PD^® and FITTness™. These tools can be used by physicians and nurses to design and monitor treatment protocols thus ensuring that therapy is optimized and that patient care is maximized.

Customers, Marketing, Distribution and Service

We sell most of our products to clinics, hospitals and specialized treatment clinics. With our comprehensive product line and years of experience in dialysis, we believe that we have been able to establish and maintain very close relationships with our clinic customer base on a global basis. Close interaction between our sales force and research and development personnel enables us to integrate concepts and ideas that originate in the field into product development. We maintain a direct sales force of trained salespersons engaged in the sale of both hemodialysis and peritoneal dialysis products. This sales force engages in direct promotional efforts, including visits to physicians, clinical specialists, hospitals, clinics and dialysis clinics, and represents us at industry trade shows. We also sponsor medical conferences and scientific symposia as a means for disseminating scientific or technical 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 distribute peritoneal dialysis products to the patient at home, and ship hemodialysis products directly to dialysis clinics and other customers. Local sales forces, independent distributors, dealers and sales agents sell all our products.

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

Manufacturing Operations

We operate state-of-the-art production facilities worldwide 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. The decentralized structure helps to reduce transport costs. We are using our facilities in St. Wendel, Germany and Ogden, Utah as centers of competence for development and manufacturing.

We produce and assemble hemodialysis machines and CCPD cyclers in our Schweinfurt, Germany and our Walnut Creek, California facilities. We also maintain facilities at our service and local distribution centers in Argentina, Egypt, France, Italy, The Netherlands, China, Brazil and Russia for testing and calibrating dialysis machines manufactured or assembled elsewhere, to meet local end user market needs. We manufacture and assemble dialyzers and polysulfone membranes in our St. Wendel, Germany, L’Arbresle, France and Inukai, Japan facilities and at production facilities of our joint ventures in Belarus, Saudi Arabia and Japan. At our Ogden, Utah facilities we manufacture and assemble dialyzers and polysulfone membranes and manufacture PD solutions. We manufacture hemodialysis concentrate at various facilities worldwide, including Italy, Great Britain, Spain, Turkey, Morocco, Argentina, Brazil, Columbia, Australia and the U.S. Our PD products are manufactured in North America, Europe, Latin America, Asia and Australia, with two of our largest plants for production of PD products in Mexico and Japan. Our facilities are inspected on a regular basis by national and/or international authorities.

In 2006, we supplied about 40% of global dialyzer production. Due to the ever-growing demand for dialyzers from Fresenius Medical Care, our production sites in all regions have reached their capacity limits. As a consequence, in 2006, we took the first steps to expand our production capacities for FX-class dialyzers in Germany and Japan. We intend to increase the production capacity at the St. Wendel facility alone by around ten million dialyzers a year by 2008. We also intend to significantly expand our dialyzer production capacities in the U.S. in the next two years, adding two production lines in our factory in Ogden, Utah. We expect annual production capacity there to increase from 27 million to 34 dialyzers.

In 2006, we manufactured more than 50% of all dialysis machines produced worldwide. We produce three times more dialysis machines than the second-largest manufacturer. Due to strong demand for our dialysis machines, we have increased production of components for these machines for the U.S. market by more than 20%. We have also increased our output outside of North America. In 2006, production of series 4008 and 5008 dialysis machine rose by more than 20% in these regions as well.

We operate a comprehensive quality management system in our production facilities. Raw materials delivered for the production of solutions are subjected to infra-red and ultra-violet testing as well as physical and chemical analysis to ensure their quality and consistency. During the production cycle, sampling and testing take place in accordance with applicable quality control measures to assure sterility, safety and effectiveness of the finished products. The pressure, temperature and time required for the various processes are monitored to ensure consistency of unfinished products during the production process. Through monitoring of environmental conditions, particle and bacterial content are kept below permitted limits. We provide regular ongoing training for our employees in the areas of quality control and proper production practice. We have developed an Integrated Management System (IMS) which fulfills ISO 9001:2000 requirements for quality control systems in combination with the ISO norm 14001:2004 for environmental control systems. At the same time, IMS conforms to the requirements for medical devices of ISO norm 13485:2003. See also Item 3. “Regulatory and Legal Matters — Facilities and Operational Regulations.”

Environmental Management

We have integrated environmental protection targets into our operations. To reach these goals, our QMS has been in use at our production facilities as well as at a number of dialysis clinics. QMS fulfils the requirements of quality management systems as well as environmental management. Our QMS fulfils the requirements of the ISO-Norm 14001:1996. Environmental targets are set, adhered to and monitored during all stages of the lives of our products, from their development to their disposal.

We continually seek to improve our production processes for environmental compatibility, which frequently generates cost savings. Our St. Wendel plant uses heat recovery systems to reduce steam usage thereby cutting natural gas consumption by 4%. We have also reduced our energy consumption by optimizing the use of lighting systems and air conditioning and improved logistics for truck transports.

In our dialysis facilities, we establish, depending on the facility and situation concerned, a priority environmental protection target on which our dialysis clinics concentrate for at least one year. Environmental performance in other dialysis facilities is used as the basis for comparisons and targets. Adjustments are implemented on a site-by-site basis after evaluation of the site’s performance. In our North America dialysis clinics, we have been able to reduce fresh water consumption by one third by means of a new system of production of purified water and to reduce energy costs at the same time. Use of heat exchangers enables us to obtain residual heat from water used for industrial purposes, which we use to heat fresh water used for dialysis treatment. Targeted environmental performance criteria in other locations include fresh water consumption and improved separation of waste.

Sources of Supply

Our purchasing policy combines worldwide sourcing of high-quality materials with the establishment of long-term relationships with our suppliers. Additionally, we carefully assess the reliability of all materials purchased to ensure that they comply with the rigorous quality and safety standards required for our dialysis products. An interactive information system links all our global projects to ensure that they are standardized and constantly monitored.

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

New Product Introductions

The field of dialysis products is mainly characterized by constant development and refinement of existing product groups and less by break-through innovations. Accordingly, in 2006 the Company introduced further improved solutions for peritoneal dialysis as well as software updates for hemodialysis and peritoneal dialysis machines, and made market specific adjustment to its new series 5008 hemodialysis machine. In addition, we continued research to further improve treatment quality. The actual expenditures on research and development were $51 million, slightly lower than originally planned (see Item 6.C., “Research and Development”).

Patents and Licenses

As the owner of patents or licensee under patents throughout the world, we currently hold rights in about 1,800 patents and patent applications in major markets. Patented technologies that relate to dialyzers include our in line sterilization method and sterile closures for in line sterilized medical devices. The generation of DiaSafeplus^® filters and FX^® dialyzers are also the subject of patents and pending patent applications.

The connector system for our biBag bicarbonate concentrate powder container for the 4008 dialysis equipment series has been patented in the United States, Norway, Finland, Japan and Europe.

A number of patents and pending patent applications relate to components of the new 5008 dialysis equipment series, including, for example, the pump technology, extracorporeal blood pressure measurement and connector system for a modified biBag bicarbonate concentrate.

Among Fresenius Medical Care AG & Co. KGaA’s more significant patents has been its polysulfone hollow fiber. This patent expired in 2005 in Germany and other countries. The patent is valid in the United States but expires in March 2007. The in line sterilization method patent will expire in 2010 in Germany, the United States and other countries. The patent for the 4008 biBag connector expires in 2013 in Germany, the United States, and other countries. The dates given represent the maximum patent life of the corresponding patents. We believe that even after expiration of these patents, our proprietary know how for the manufacture of these products and our continuous efforts in obtaining targeted patent protection for newly developed upgrade products will continue to constitute a competitive advantage.

For peritoneal dialysis, Fresenius Medical Care AG & Co. KGaA holds protective rights for our polyolefine film, Biofine^®, which is suitable for packaging intravenous and peritoneal dialysis fluids. This film is currently used only in non-U.S. markets. These patents have been granted in Australia, Brazil, Canada, Germany, Europe, Japan, South Korea, Belarus and the United States. However, in Japan, proceedings opposing the registration of the patents are pending. A further patent family describes a special film for a peelable, non-PVC, multi chamber bag for peritoneal dialysis solutions. Patents have been granted in Brazil, Europe, Germany, Japan, South Korea and the United States. However, proceedings against the registration of this patent are currently pending in Europe. A series of patents covering tubing sets for peritoneal dialysis expire in 2010 and 2012 in the United States.

We believe that our success will depend primarily on our technology. As a standard practice, we obtain the legal protections we believe are appropriate for our intellectual property. Nevertheless, we are in a position to successfully market a material number of products for which patent protection has lapsed or where only particular features have been patented. We expect that from time to time our patents will be infringed by third parties and that we will need to assert our rights. Initially registered patents may also be subject to invalidation claims made by competitors in formal proceedings (oppositions, trials, re-examinations, etc.) either in part or in whole. In addition, technological developments could suddenly and unexpectedly reduce the value of some of our existing intellectual property.

Trademarks

Our principal trademarks are the name “Fresenius” and the “F” logo, for which we hold a perpetual, royalty-free license from Fresenius AG, formerly our majority stockholder and now sole stockholder of our general partner. See Item 7B — “Related Party Transactions — Trademarks”.

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 Kasei Medical Co. Ltd., Bellco S.p.A., a subsidiary of the Sorin group, B. Braun Melsungen AG, Nipro Corporation Ltd., Nikkiso Co., Ltd., Terumo Corporation and Toray Medical Co., Ltd.

Risk Management

We have prepared guidelines for an extensive world-wide risk management program, aimed at assessing, analyzing, evaluating the spectrum of possible and actual developments and — if necessary — converting these into corrective measures.

Our risk management system for monitoring industry risks and individual markets relies in part on supervisory systems in our individual regions. Our management board receives status reports from the responsible risk managers twice yearly and immediate information regarding anticipated risks as the information is developed. We monitor and evaluate economic conditions in markets which are particularly important for us and overall global political, legal and economic developments and specific country risks. Our system covers industry risks and those of our operative and non-operative business. Our risk management system functions as part of our overall management information system, based on group-wide controlling and an internal monitoring system, which provides early recognition of risks. Financial reports provide monthly and quarterly information, including deviations from budgets and projections in a relatively short period, which also serve to identify potential risks.

As a company required to file reports under the Securities Exchange Act of 1934, we are subject to the provisions of the Sarbanes-Oxley Act of 2002. Section 404 of that act requires that we maintain internal controls over financial reporting, which is a process designed by, or under the supervision of, our chief executive and chief financial officers, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Since the beginning of 2003, a project team has been documenting and evaluating our world-wide internal auditing and controls to ensure that our internal controls and accounting comply with applicable rules and regulations. Our management’s report on its review of the effectiveness of our internal accounting controls as of December 31, 2006 is included in this report.

The functional capacity and effectiveness of our risk management system was audited as part of the audit of our annual financial statements for 2006, as required by German law. No special risks were ascertained in relation to our business as a whole, our internal organization or the external environment.

Regulatory and Legal Matters

Regulatory Overview

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

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


	•	failure to receive required licenses, certifications or other approvals for new facilities or products or significant delays in such receipt;

	•	complete or partial loss of various federal certifications, licenses, or other permits required under the laws of any state or other governmental authority by withdrawal, revocation, suspension, or termination or restrictions of such certificates and licenses by the imposition of additional requirements or conditions, or the initiation of proceedings possibly leading to such restrictions or the partial or complete loss of the required certificates, licenses or permits; and

	•	changes resulting from health care reform or other government actions that reduce reimbursement or reduce or eliminate coverage for particular services we provide.

We must comply with all U.S., German and other legal and regulatory requirements under which we operate, including the U.S. federal Medicare and Medicaid Fraud and Abuse Amendments of 1977, as amended, generally referred to as the “anti-kickback statute”, the federal False Claims Act, the federal restrictions on certain physician referrals, commonly known as the “Stark Law”, U.S. federal rules under the Health Insurance Portability and Accountability Act of 1996 that protect the privacy of patient medical records and prohibit inducements to patients to select a particular health care provider (commonly known as “HIPAA”) and other fraud and abuse laws and similar state statutes, as well as similar laws in other countries. Moreover, there can be no assurance that applicable laws, or the regulations thereunder, will not be amended, or that enforcement agencies or the courts will not make interpretations inconsistent with our own, any one of which could have a material adverse effect on our business, reputation, financial condition and results. Sanctions for violations of these statutes may include criminal or civil penalties, such as imprisonment, fines or forfeitures, denial of payments, and suspension or exclusion from the Medicare and Medicaid programs. In the U.S., some of these laws have been broadly interpreted by a number of courts, and significant government funds and personnel have been devoted to their enforcement because such enforcement has become a high priority for the federal government and some states. Our company, and the health care industry in general, will continue to be subject to extensive federal, state and foreign regulation, the full scope of which cannot be predicted. In addition, the U.S. Congress and federal and state regulatory agencies continue to consider modifications to federal health care laws that may create further restrictions.

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

Product Regulation

U.S.

In the U.S. numerous regulatory bodies, including the Food and Drug Administration (“FDA”) and comparable state regulatory agencies impose requirements on certain of our subsidiaries as a manufacturer and a seller of medical products and supplies under their jurisdiction. We are required to register with the FDA as a device manufacturer. As a result, we are subject to periodic inspection by the FDA for compliance with the FDA’s Quality System Regulation requirements and other regulations. These regulations require us to manufacture products in accordance with Good Manufacturing Practices (“GMP”) and that we comply with FDA requirements regarding the design, safety, advertising, labeling, record keeping and distribution of our products. Further, we are required to comply with various FDA and other agency requirements for labeling and promotion. The Medical Device Reporting regulations require that we provide information to the FDA whenever

there is evidence to reasonably suggest that a device may have caused or contributed to a death or serious injury or, if a malfunction were to occur, could cause or contribute to a death or serious injury. In addition, the FDA prohibits us from promoting a medical device for unapproved indications.

If the FDA believes that a company is not in compliance with applicable regulations, it can issue a warning letter, issue a recall order, institute proceedings to detain or seize products, impose operating restrictions, enjoin future violations and assess civil penalties against a company, its officers or its employees and can recommend criminal prosecution to the Department of Justice.

We cannot assure that all necessary regulatory approvals, including approvals for new products or product improvements, will be granted on a timely basis, if at all. Delays in or failure to receive approval, product recalls or warnings and other regulatory actions and penalties can materially affect operating results.

In addition, in order to clinically test, produce and market certain medical products and other disposables (including hemodialysis and peritoneal dialysis equipment and solutions, dialyzers, bloodlines and other disposables) for human use, we must satisfy mandatory procedures and safety and efficacy requirements established by the FDA or comparable state and foreign governmental agencies. After approval or clearance to market is given, the FDA, upon the occurrence of certain events, has the power to withdraw the clearance or require changes to a device, its manufacturing process, or its labeling or may require additional proof that regulatory requirements have been met. Such rules generally require that products be approved by the FDA as safe and effective for their intended use prior to being marketed. Our peritoneal dialysis solutions have been designated as drugs by the FDA and, as such, are subject to additional FDA regulation under the Food, Drug and Cosmetic Act of 1938, as amended.

International (Including Germany and Other Non-U.S).

Most countries maintain different regulatory regimes for pharmaceutical products and for medical devices. In almost every country, there are rules regarding the quality, effectiveness, and safety of products and regulating their testing, production, and distribution. Treaties or other international law and standards and guidelines under treaties or laws may supplement or supersede individual country regulations.

Drugs. Some of our products, such as peritoneal dialysis solutions, are considered pharmaceuticals and are, therefore subject to the specific drug law provisions in the various countries. 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) (“AMG”), which implements European Union requirements, is the primary regulation applicable to pharmaceutical products.

The provisions of the German Drug Law are comparable with the legal standards in other European countries. As in many other countries, the AMG provides that in principle a medicinal product may only be placed on the market if it has been granted a corresponding marketing authorization. Such marketing authorization is granted by the competent licensing authorities only if the quality, efficacy and safety of the medicinal product has been scientifically proven. The medicinal products marketed on the basis of a corresponding marketing authorization are subject to ongoing control by the competent authorities. The marketing authorization may also be subsequently restricted or made subject to specific requirements. It may be withdrawn or revoked if there was a reason for the refusal of the marketing authorization upon its grant or such a reason arises subsequently, or if the medicinal product is not an effective therapy or its therapeutic effect has been insufficiently proven according to the relevant state of scientific knowledge. Such a reason for refusal is, inter alia, found to exist if there is the well-founded suspicion that the medicinal product has not been sufficiently examined in accordance with the current state of scientific knowledge, that the medicinal product does not show the appropriate quality, or that there is the well-founded suspicion that the medicinal product, when properly used as intended, produces detrimental effects going beyond the extent justifiable according to the current state of knowledge of medicinal science. The marketing authorization can also be withdrawn or revoked in the case of incorrect or incomplete information supplied in the authorization documents, if the quality checks prescribed for the medicinal product were insufficient or have not been sufficiently carried out, or if the withdrawal or revocation is required to comply with a decision made by the European Commission or the Council of the

European Union. Instead of a withdrawal or revocation, it is also possible to order the suspension of the marketing authorization for a limited period.

The provisions of the AMG also contain special requirements for the manufacture of medicinal products. The production of medicinal products requires a corresponding manufacturing license which is granted by the competent authorities of the relevant Member State for a specific manufacturing facility and for specific medicinal products and forms of medicinal products. The manufacturing license is granted only if the manufacturing facility, production techniques and production processes comply with the principles and guidelines of good manufacturing practice (”GMP”) as well as the terms of the particular marketing authorization. A manufacturer of medicinal products must, inter alia, employ pharmacists, chemists, biologists, or physicians responsible for the quality, safety and efficacy of the medicinal products. The manufacturer must name several responsible persons: a Qualified Person possessing the expert knowledge specified by the AMG, a head of production, a head of quality control, and, if the manufacturer markets the medicinal products itself, a commissioner for the so-called graduated plan (Stufenplanbeauftragter) and an information officer. It is the responsibility of the Qualified Person to ensure that each batch of the medicinal products is produced and examined in compliance with the statutory provisions of the AMG. The commissioner for the graduated plan must, among other things, collect and assess any reported risks associated with the medicinal products and coordinate any necessary measures. The information officer is in charge of the scientific information relating to the medicinal products. All these persons may be held personally liable under German criminal law for any breach of the AMG.

International guidelines also govern the manufacture of medicinal products and, in many cases, overlap with national requirements. In particular, the Pharmaceutical Inspection Convention (“PIC”) an international treaty, contains rules binding most countries in which medicinal products are manufactured. Among other things, the PIC establishes requirements for GMP which are then adopted at the national level. Another international standard, which is non-binding for medicinal products, is the ISO 9000-9004 system for assuring quality management system requirements. This system has a broader platform than GMPs, which are more detailed. Compliance with the ISO Code entitles the manufacturer to utilize the CE certification of quality control. This system is primarily acknowledged outside the field of medicinal products, for example with respect to medical devices.

Medical Devices. In the past, medical devices were subject to less stringent regulation than medicinal products in some countries. In the last decade, however, statutory requirements have been increased. In the European Union, the requirements to be satisfied by medical devices are laid down in three European directives to be observed by all EU Member States, all Member States of the European Economic Area (EEA), as well as all future accession states: (1) Directive 90/385/EEC of June 20, 1990 relating to active implantable medical devices (“AIMDs”), as last amended (“AIMD Directive”), (2) Directive 93/42/EEC of June 14, 1993 relating to medical devices, as last amended (“MD Directive”), (3) Directive 98/79/EC of October 27, 1998 relating to in vitro diagnostic medical devices as last amended (“IVD Directive”). In addition, Directive 2001/95/EC of December 3, 2001, as last amended, concerning product safety should be noted. With regard to Directive 93/42/EEC, the Commission submitted a consultation draft on April 5, 2005. The amendments are intended to achieve improvements, for instance in the following areas: clinical assessment by specification of the requirements in more detail; monitoring of the devices after their placing on the market; and decision making by enabling the Commission to make binding decisions in case of contradictory opinions of states regarding the classification of a product as a medical device. This draft is still under review at December 31, 2006.

According to the directives relating to medical devices, the so-called CE mark (the abbreviation of Conformité Européenne signifying that the device complies with all applicable requirements of the European Union) shall serve as a general product passport for all Member States of the EU and the EEA. Upon receipt of a European Union certificate for the quality management system for a particular facility, we are able to mark products produced or developed in that facility as being in compliance with the EU requirements. A manufacturer having a European Union-certified full quality management system has to declare and document conformity of its products to the harmonized European directive. If able to do so, the manufacturer may put a ”CE” mark on the products. Products subject to these provisions that do not bear the ”CE” mark cannot be imported, sold or distributed within the European Union.

The right to affix the CE mark is granted to any manufacturer who has observed the conformity assessment procedure prescribed for the relevant medical device and submitted the EU conformity declaration before placing the medical device on the market. The conformity assessment procedures were standardized by Council Decision 93/465/EEC of July 22, 1993, which established modules for the various phases of the conformity assessment procedures intended to be used in the technical harmonization directives and the rules for the affixing and use of the CE conformity mark. The conformity assessment modules to be used differ depending on the class or type of the medical device to be placed on the market. The classification rules for medical devices are, as a general rule, based upon the potential risk of causing injury to the human body. Annex IX to the MD Directive (making a distinction between four product classes I, IIa, IIb, and III) and Annex II to the IVD Directive (including a list of the products from lists A and B) contain classification criteria for products and product lists that are, in turn, assigned to specific conformity assessment modules. AIMDs represent a product class of their own and are subject to the separate AIMD Directive. Special rules apply, for example, to custom-made medical devices, medical devices manufactured in-house, medical devices intended for clinical investigation or in vitro diagnostic medical devices intended for performance evaluation, as well as for diagnostic medical devices for in-house use, combination devices and products related to medical devices.

The conformity assessment procedures for Class I devices with a low degree of invasiveness in the human body (e.g. devices without a measuring function that are not subject to any sterilization requirements), can be made under the sole responsibility of the manufacturer by submitting a EU conformity declaration (a self-certification or self-declaration). For Class IIa devices, the participation of a so-called ”Notified Body” is binding for the production phase. Devices of classes IIb and III involving a high risk potential are subject to inspection by the Notified Body not only in relation to their manufacture (as for class IIa devices), but also in relation to their specifications. Class III is reserved for the most critical devices the marketing of which is subject to an explicit prior authorization with regard to their conformity. In this risk category, the manufacturer can make use of several different conformity assessment modules.

To maintain 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.

Our Series 4008, 4008B, 4008E dialysis machines and their therapy modifications, our 5008 dialysis machine and its accessories and devices, our PD-NIGHT cycler, our Sleep-safe cycler for automated PD treatment, the Multifiltrate system, and our other active 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 for newly developed products or product groups.

Environmental Regulation

The Company uses substances regulated under U.S. environmental laws, primarily in manufacturing and sterilization processes. While it is difficult to quantify, we believe the ongoing impact of compliance with environmental protection laws and regulations will not have a material impact on the Company’s financial position or results of operations.

Facilities and Operational Regulation

U.S.

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

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

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

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

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

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

International (Including Germany and Other Non-U.S.)

Most countries outside of the U.S. regulate operating conditions of dialysis clinics and hospitals and the manufacturing of dialysis products, medicinal products and medical devices.

We are subject to a broad spectrum of regulation in almost all countries. 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.

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

As a global dialysis care provider and supplier of dialysis and products, we are represented in more than 100 countries throughout the world facing the challenge of meeting the needs of patients in very different economic environments and health care systems.

The health care systems and rules for the reimbursement of the treatment of patients suffering from ESRD vary in the individual countries. In general, the government, frequently in coordination with private insurers, is responsible for the health care system by financing payments by taxes and other sources of income, social security contributions or a combination of such sources.

However, in a large number of developing countries, the government or charitable institutions grant only minor aid so that dialysis patients must bear all or a large part of their treatment expenses themselves. In some countries, dialysis patients do not receive treatment on a regular basis, but only if and to the extent available funds so allow.

U.S.

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

The Medicare program is the primary source of Dialysis Services revenues from dialysis treatment. For example, in 2006, approximately 55% of Dialysis Services revenues resulted from Medicare’s ESRD program. As a preliminary matter, in order to be eligible for reimbursement by Medicare, ESRD facilities must meet conditions of coverage established by CMS. CMS announced in 2006 that the agency will revise these requirements in 2007 as required by the Medicare Prescription Drug, Modernization and Improvement Act of 2003 (the “Medicare Modernization Act”). These changes may affect the eligibility of certain of the Company’s facilities to serve Medicare patients in the future but it is unclear at this time what new requirements will be imposed and whether all Company facilities will meet the new requirements.

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

Certain items and services that we furnish at our dialysis centers are not included in the Composite Rate and are eligible for separate Medicare reimbursement, typically on the basis of established fee schedule amounts. Such items are principally drugs such as EPO, vitamin D and iron.

The Medicare Modernization Act, enacted on December 8, 2003, made several significant changes to U.S. government payment for dialysis services and pharmaceuticals. These changes are reflected in a CMS regulation amending the final physician fee schedule for calendar year 2007 released by CMS on December 1, 2006. In the final rule, CMS stated that biologicals furnished in connection with renal dialysis services and separately billed by hospital-based and independent dialysis facilities will continue to be paid using the average sales price plus six percent methodology (“ASP+6%”) adopted in 2006. Second, CMS has increased to 15.1% the drug add-on adjustment to the composite payment rate. The 2006 rate adjustment was 14.5%. The drug add-

on adjustment was created to account for changes in the drug payment methodology enacted by the Medicare Modernization Act. Third, as part of a Medicare Modernization Act-mandated transition in how the wage index for dialysis facilities is calculated, the wage index adjustment has been updated to a 50/50 blend between an ESRD facility’s metropolitan statistical area (“MSA”)-based composite rate and its calendar year 2007 Office of Management and Budget revised core-based statistical area (CBSA) rate.

For the third year in a row, Congress has enacted legislation to update the ESRD composite rate. Unlike many other programs in Medicare, the ESRD composite rate is not automatically updated each year by law. As a result, an Act of Congress is required to make the annual change. The Medicare Modernization Act increased the 2005 composite rate by 1.6%. The Deficit Reduction Act (“DRA”) of February 1, 2006, further increased the composite rate by an additional 1.6% effective January 1, 2006. In December 2006, Congress enacted the Tax Relief and Health Care Act which included another 1.6% increase to the ESRD composite rate for the calendar year 2007.

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

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

Medicaid Rebate Program. We participate in the Federal Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs, and we make our pharmaceutical products available to authorized users of the Federal Supply Schedule (“FSS”) of the General Services Administration under an FSS contract negotiated by the Department of Veterans Affairs (“DVA”). In addition, federal law requires that any company that participates in the Medicaid rebate program extend comparable discounts to qualified purchasers under the PHS pharmaceutical pricing program. The PHS pricing program extends discounts comparable to the Medicaid rebates to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries.

Under the Medicaid rebate program, we pay a rebate to each state Medicaid program based upon sales of our pharmaceutical products that is reimbursed by those programs. Rebate calculations are complex and, in certain respects, subject to interpretation by us, governmental or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to the Centers for Medicare and Medicaid Services (“CMS”) at the Department of Health and Human Services (“DHHS”) of our current average manufacturer price and best price for our pharmaceutical products. The Veterans Health Care Act of 1992 (“VHCA”) imposes a

requirement that the prices we charge to agencies under the FSS be discounted off the average manufacturer price charged to non-federal customers.

Governmental agencies may make changes in program interpretations, requirements or conditions of participation, and retain the right to audit the accuracy of our computations of rebates and pricing, some of which may have or result in implications (such as recoupment) for amounts previously estimated or paid.business and have a material adverse effect on the Company’s revenues, profitability and financial condition.

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

First, payment for certain routine tests is included in the Composite Rate paid to our dialysis centers. As to such services, the dialysis centers obtain the services from a laboratory and pay the laboratory for such services. In accordance with industry practice, Spectra usually provides such testing services under capitation agreements with its customers pursuant to which it bills a fixed amount per patient per month to cover the laboratory tests included in the Composite Rate at the designated frequencies. In addition, in compliance with our Corporate Integrity Agreement, we provide an annual report on the costs associated with the composite rate tests, and have established that our Composite Rate is above those costs.

Second, laboratory tests performed by Spectra for Medicare beneficiaries that are not included in the Composite Rate are separately billable directly to Medicare. Such tests are paid at 100% of the Medicare fee schedule amounts, which are limited by national ceilings on payment rates, called National Limitation Amounts (“NLAs”). Congress has periodically reduced the fee schedule rates and the NLAs, with the most recent reductions in the NLAs occurring in January 1998. (As part of the Balanced Budget Act of 1997, Congress lowered the NLAs from 76% to 74% effective January 1, 1998.) Congress, as part of the Medicare Modernization Act of 2003, has also approved a five-year freeze on the inflation updates based on the Consumer Price Index (CPI) for 2004-2008.

Erythropoetin (EPO). EPO is used for anemia management of patients with renal disease. The administration of EPO is separately billable under the Medicare program, and accounts for 23% of our U.S. dialysis revenues.

Anemia severity is commonly monitored by measuring a patient’s hematocrit, a simple blood test that measures the proportion of red blood cells in a patient’s whole blood. Anemia may also be measured by evaluating a patient’s hemoglobin level. The amount of EPO that a patient requires varies by the several factors, including the severity of a patient’s anemia.

In 2005, CMS announced a new national monitoring policy for claims for Epogen and Aranesp for ESRD patients treated in renal dialysis facilities. The new policy took effect on April 1, 2006. As a result of this new policy, CMS expects a 25 percent reduction in the dosage of Epogen or Aranesp administered to ESRD patients whose hematocrit exceeds 39.0 (or hemoglobin exceeds 13.0). If the dosage is not reduced by 25 percent, payment is made by CMS as if the dosage reduction had occurred. This payment reduction may be appealed under the normal appeal process. In addition, effective April 1, 2006, CMS limited Epogen and Aranesp reimbursement to a maximum per patient per month aggregate dose of 500,000 IU for Epogen and 1500 mcg for Aranesp. CMS’s new Epogen and Aranesp monitoring policy has had a slightly negative impact on our operating results.

In addition, any of the following changes could adversely affect our business, and results of operations, possibly materially:


	•	future changes in the EPO reimbursement methodology and/or rate;

	•	inclusion of EPO in the Medicare composite rate without offsetting increases to such rate;

	•	reduction in the typical dosage per administration;

	•	increases in the cost of EPO without offsetting increases in the EPO reimbursement rate; or

	•	reduction by the manufacturer of EPO of the amount of overfill in the EPO vials.

In November 2006, the FDA issued an alert regarding a newly published clinical study showing that patients treated with an erythropoiesis-stimulating agent (ESA) such as EPO and dosed to a target hemoglobin concentration of 13.5 g/dL are at a significantly increased risk for serious and life threatening cardiovascular complications, as compared to use of the ESA to target a hemoglobin concentration of 11.3 g/dL. The alert recommended, among other things, that physicians and other healthcare professionals should consider adhering to dosing to maintain the recommended target hemoglobin range of 10 to 12 g/dL.

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

Patients who are covered by Medicare and are also covered by an employer group health plan (“EGHP”) are subject to a 30-month coordination period during which the EGHP is the primary payor and Medicare the secondary payor. During this coordination period the EGHP pays a negotiated rate or in the absence of such a rate, our standard rate or a rate defined by its plan documents. The EGHP payments are generally higher than the Medicare Composite Rate. EGHP insurance, when available, will therefore generally cover as the primary payor a total of 33 months, the 3-month waiting period plus the 30-month coordination period. In recent years, policy makers have recommended extending the coordination period to as long as five years. An extension of the coordination period would generally be favorable to us and other dialysis providers since it would extend the period during which providers would receive the generally higher payments by EGHPs prior to the commencement of primary Medicare coverage for dialysis treatment. Despite some support for extending the coordination period, it is unclear if such a proposal will be considered by the Congress any time soon.

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

International (Including Germany and Other Non-U.S.)

As a global company delivering dialysis care and dialysis products in more than 100 countries worldwide, 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, the “Bismarck system”, is based on mandatory employer and employee contributions dedicated to health care financing. The British model, the “Beveridge system”, provides a national health care system funded by taxes. 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 countries such as Japan, France, Belgium, Austria, Czech Republic, Poland, Hungary, Turkey and the Netherlands are based on the Bismarck system. Countries like Canada, Denmark, Finland, Portugal, Sweden, Taiwan and Italy established their national health services using the Beveridge system.

Ownership of health care providers and, more specifically dialysis care providers, varies within the different systems and from country-to-country. In Europe about 50% of the clinics providing dialysis care and services are publicly owned, about 35% are privately owned (including centers that we manage and operate) and

approximately 15% belong to a health care organization. It should be noted that health care organizations treating a significant patient population operate only in Germany and France. Publicly operated clinics care for almost 100% of the dialysis populations in Canada and more than 80% in Australia. Within Europe, nearly 100% of the dialysis population is treated in public clinics in the Netherlands, Finland and Belgium and to more than 75% in the United Kingdom while the majority of dialysis clinics are privately owned in Spain, Hungary and Portugal.

In Latin America privately owned clinics predominate, constituting more than 75% of all clinics providing dialysis care while in Asia, with the exception of Japan, publicly owned clinics are predominant. In the U.S., less than 3% of all dialysis clinics are publicly operated and in Japan only approximately 15%. 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. There are three main types of reimbursement modalities: budget transfer, fee for service and flat rate. In some cases, the reimbursement modality varies within the same country depending on the type of provider (public or private). Budget transfer is a reimbursement modality used mainly for public providers in most of the European countries where the funding is based on taxation and in some of the countries where it is based on social security (e.g. Spain, Czech Republic). Fee for service is the most common reimbursement modality for private providers in all European countries (with exceptions, Hungary where reimbursement to private providers is based on budget) and for public providers in countries where the funding system is based on social security payments. Germany is the only country in Europe in which the reimbursement modality is a flat weekly rate independent of both the type of provider and the type of dialysis therapy provided.

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

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

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

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

The U.S. Government, many individual States and private third-party risk insurers have declared the struggle against waste, misuse and fraud in the health care sector to be one of their primary tasks by making more and more resources available for this purpose. Therefore, the Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services and other enforcement agencies increasingly review agreements between physicians and service providers with regard to potential breaches of the Federal fraud abuse laws.

Anti-kickback Statutes

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

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

False Claims Act and Related Criminal Provisions

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

The Health Insurance Portability and Accountability Act of 1996

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

HIPAA included a health care fraud provision which prohibits knowingly and willfully executing a scheme or artifice to defraud any “health care benefit program,” which includes any public or private plan or contract affecting commerce under which any medical benefit, item, or service is provided to any individual, and includes

any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract. Penalties for violating this statute include freezing of assets and forfeiture of property traceable to commission of a health care fraud.

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

Balanced Budget Act of 1997

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

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

Stark Law

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

Provisions of OBRA 93, known as “Stark II,” amended Stark I to revise and expand upon various statutory exceptions, to expand the services regulated by the statute to a list of “Designated Health Services,” and expanded the reach of the statute to the Medicaid program. The provisions of Stark II generally became effective on January 1, 1995, with the first phase of Stark II regulations finalized on January 4, 2001. Most portions of the first phase regulations became effective in 2002. The additional Designated Health Services include: physical therapy, occupational therapy and speech language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The first phase of the final regulations implementing the Stark Law contains an exception for EPO and certain other dialysis-related outpatient prescription drugs furnished in or by an ESRD facility under many circumstances. In addition, the regulations made clear that services reimbursed by Medicare to a dialysis facility under the ESRD composite rate do not implicate the Stark Law. Further, the final Phase I regulations also adopted a definition of durable medical equipment which effectively excludes ESRD equipment and supplies from the category of Designated Health Services. Phase II of the final regulations to the Stark Law was released on March 26, 2004, and became effective on July 26, 2004. This phase of the regulations finalized all of the compensation exceptions to the Stark Law, including those for “personal services arrangements” and “indirect compensation arrangements.” In addition,

Phase II revised the exception for EPO and certain other dialysis-related outpatient prescription drugs furnished in or by an ESRD facility to include certain additional drugs.

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

Other Fraud and Abuse Laws

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

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

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

Health Care Reform

Health care reform is considered by many countries to be a national priority. In the U.S., members of Congress from both parties and officials from the executive branch continue to consider many health care proposals, some of which are comprehensive and far-reaching in nature. Several states are also currently considering health care proposals. We cannot predict what additional action, if any, the federal government or any state may ultimately take with respect to health care reform or when any such action will be taken. But with the recent change in the majority party in Congress and several high profile state-based proposals currently under consideration, chances for major changes in the health care industry in the U.S. are more likely now than in the recent past. Such health care reform may bring radical changes in the financing and regulation of the health care industry, which could have a material adverse effect on our business and the results of our operations.


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.”


D.	Property, plant and equipment

Property

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

Currently

Owned

Floor Area

or Leased

(Approximate

by Fresenius

Lease

Location

Square Meters)

Medical Care

Expiration

Use

Bad Homburg, Germany

15,646

leased

December 2016

Corporate headquarters and administration

St. Wendel, Germany

58,767

leased

December 2016

Manufacture of polysulfone membranes, dialyzers and peritoneal dialysis solutions; research and development

Schweinfurt, Germany

24,900

leased

December 2016

Manufacture of hemodialysis machines and peritoneal dialysis cyclers; research and development

Currently

Owned

Floor Area

or Leased

(Approximate

by Fresenius

Lease

Location

Square Meters)

Medical Care

Expiration

Use

Bad Homburg (OE)

10,304

leased

December 2016

Manufacture of hemodialysis concentrate solutions/ Technical Services/ Logistics services Amgen

Darmstadt

21,597

leased

November 2010

Regional Distribution Center Central Europe

Gernsheim, Germany

32,307

leased

December 2009

Regional Distribution A4/WE/AP/LA

Palazzo Pignano, Italy

19,990

owned

Manufacture of bloodlines and tubing

L’Arbresle, France

13,524

owned

Manufacture of polysulfone dialyzers, special filters and dry hemodialysis concentrates

Nottinghamshire, UK

5,110

owned

Manufacture of hemodialysis concentrate solutions

Vrsac, Serbia

2,642

owned

Production area, Laboratory, lobby, maintenance, administration, logistics

Barcelona, Spain

2,000

owned

Manufacture of hemodialysis concentrate solutions

Antalya, Turkey

8,676

leased

December 2022

Manufacture of bloodlines

Casablanca, Morocco

2,823

owned

Manufacture of hemodialysis concentrate solutions

Guadalajara, México

26,984

owned

Manufacture of peritoneal dialysis bags

Buenos Aires, Argentina

10,500

owned

Manufacture of hemodialysis concentrate solutions, dry hemodialysis concentrates, bloodlines and desinfectants

São Paulo, Brazil

8,566

owned

Manufacture of hemodialysis concentrate solutions, dry hemodialysis concentrates, peritoneal dialysis bags, intravenous solutions bags, peritoneal dialysis and blood lines sets

Bogotá, Colombia

11,825

owned

Manufacture of hemodialysis concentrate solutions, peritoneal dialysis bags, intravenous solutions, administration

Valencia, Venezuela

3,562

leased

May 2008

Head Office and Warehouse

Hong Kong

3,588

leased

November 2007 — November 2009

various leases of Warehouse facility

Smithfield, Australia

5,350

owned

Manufacture of hemodialysis concentrate

Altona VIC, Australia

2,400

leased

May 2009

Warehouse

Yongin, South Korea

2,645

leased

December 2009

Warehouse

Seoul, South Korea

2,425

leased

February 2007

Administration

Oita, Japan (Inukai Plant)

30,647

owned

Manufacture of polysulfone filters

Oita, Japan

7,925

owned

Warehouse and Building

Fukuoka, Japan (Buzen Plant)

37,092

owned

Manufacture of peritoneal dialysis bags

Saga, Japan

4,972

leased

March 2010

Warehouse

Waltham, Massachusetts

19,045

leased

April 2017 — July 2017 with a 10 year renewal and a second 5 year renewal option

Corporate headquarters and administration — North America

Lexington, Massachusetts

1,883

leased

December 2007

Corporate/FMS administration — North America

Lexington, Massachusetts

6,425

leased

October 2012 with 5 year renewal option

IT headquarters and administration — North America

Nashville, Tennessee

3,053

leased

April 2009

IT administration

Currently

Owned

Floor Area

or Leased

(Approximate

by Fresenius

Lease

Location

Square Meters)

Medical Care

Expiration

Use

Walnut Creek, California

9,522

leased

June 2012 with 5-year renewal option

Manufacture of Hemodialysis machines and peritoneal dialysis cyclers; research and development; warehouse space

Ogden, Utah

63,639

owned

Manufacture polysulfone membranes and dialyzers and peritoneal dialysis solutions; research and development

Ogden, Utah

13,008

leased

December 2010

Warehouse

Ogden, Utah

2,072

leased

December 2007

Warehouse

Oregon, Ohio

13,934

leased

April 2019

Manufacture of liquid hemodialysis concentrate solutions

Perrysburg, Ohio

3,252

leased

August 2008

Manufacture of dry hemodialysis concentrates

Livingston, California

6,689

leased

Lease A expires February 2007, Lease B expires October 2011 with a 5-year renewal option

Manufacture of liquid hemodialysis concentrates and resupply

Freemont, California

6,645

leased

August 2007 with 2-year renewal option

Clinical laboratory testing — 3 Buildings

Rockleigh, New Jersey

9,727

leased

May 2012

Clinical laboratory testing

Irving, Texas

6,506

leased

December 2010

Manufacture of liquid hemodialysis solution

Reynosa, Mexico

13,936

leased

June 2013

Manufacture of bloodlines

Reynosa, Mexico

4,645

owned

Warehouse

Redmond, Washington

1,944

leased

December 2008

Manufacture of Prosorba Columns

Province of Quebec, Canada

1,914

leased

April 2012

Plant Building #1 — Manufacture of dry and liquid concentrates

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 4. A.	*Unresolved Staff Comments*

Not applicable.


Item 5.	*Operating and Financial Review and Prospects*

You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG & Co. KGaA and its subsidiaries in conjunction with our historical consolidated financial statements and related notes contained elsewhere in this report. Some of the statements contained below, including those concerning future revenue, costs and capital expenditures and possible changes in our industry and competitive and financial conditions include forward-looking statements. We made these forward-looking statements based on the expectations and beliefs of the management of the Company’s General Partner concerning future events which may affect us, but we cannot assure that such events will occur or that the results will be as anticipated. Because such statements involve risks and uncertainties, actual results may differ materially from the results which the forward-looking statements express or imply. Such statements include the matters and are subject to the uncertainties that we described in the discussion in this report entitled “Introduction — Forward-Looking Statements.” (See also “Risk Factors.”)

Critical Accounting Policies

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

Recoverability of Goodwill and Intangible Assets

The growth of our business through acquisitions has created a significant amount of intangible assets, including goodwill, trade names and management contracts. At December 31, 2006, the carrying amount of goodwill amounted to $6,892 million (increased from $3,457 million at December 31, 2005 primarily due to the RCG Acquisition) and non-amortizable intangible assets amounted to $440 million representing in total approximately 56% of our total assets.

In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 142 Goodwill and Other Intangible Assets, we perform an impairment test of goodwill and non-amortizable intangible assets at least once a year for each reporting unit, or if we become aware of events that occur or if circumstances change that would indicate the carrying value might be impaired (See also Note 1g) in our consolidated financial statements).

To comply with the provisions of SFAS No. 142, the fair value of the reporting unit is compared to the reporting unit’s carrying amount. We estimate the fair value of each reporting unit using estimated future cash flows for the unit discounted by a weighted average cost of capital (“WACC”) specific to that unit. Estimating the discounted future cash flows involves significant assumptions, especially regarding future reimbursement rates and sales prices, treatments and sales volumes and costs. In determining discounted cash flows, the Company utilizes its three-year budget, projections for years 4 to 10 and a range of growth rates of 0% to 4% for all remaining years. The Company’s weighted average cost of capital consists of a basic rate of 6.83% for 2006. This basic rate is then adjusted by a percentage ranging from 0% to 9% for specific country risks within each reporting unit for determining the reporting unit’s fair value.

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

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

Legal Contingencies

We are party to litigation and subject to investigations relating to a number of matters as described in Item 8.A.7, “Legal Proceedings” in this report. The outcome of these matters may have a material effect on our financial position, results of operations or cash flows.

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

The filing of a suit or formal assertion of a claim or assessment, or the disclosure of any such suit or assertion, does not automatically indicate that accrual of a loss may be appropriate.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are a significant asset of ours and the allowance for doubtful accounts is a significant estimate made by management. Trade accounts receivable were $1,849 million and $1,470 million at December 31, 2006 and 2005, respectively, net of allowances for doubtful accounts of $207 million and $177 million at December 31, 2006 and 2005, respectively. The majority of our receivables relates to our dialysis service business in North America.

Dialysis care revenues are recognized and billed at amounts estimated to be receivable under reimbursement arrangements with third party payors. Medicare and Medicaid programs are billed at pre-determined net realizable rates per treatment that are established by statute or regulation. Revenues for non-governmental payors where we have contracts or letters of agreement in place are recognized at the prevailing contract rates. The remaining non-governmental payors are billed at our standard rates for services and, in our North America segment, a contractual adjustment is recorded to recognize revenues based on historic reimbursement experience with those payors for which contracted rates are not predetermined. The contractual adjustment and the allowance for doubtful accounts are reviewed quarterly for their adequacy. No material changes in estimates were recorded for the contractual allowance in the periods presented.

The allowance for doubtful accounts is based on local payment and collection experience. We sell dialysis products directly or through distributors in over 100 countries and dialysis services in over 25 countries through owned or managed clinics. Most payors are government institutions or government-sponsored programs with significant variations between the countries and even between payors within one country in local payment and collection practices. Specifically, public health institutions in a number of countries outside the U.S. require a significant amount of time until payment is made. Payment differences are mainly due to the timing of the funding by the local, state or federal government to the agency that is sponsoring the program that purchases our services or products. The collection of accounts receivable from product sales to third party distributors or dialysis clinics is affected by the same underlying causes, since these buyers of our products are reimbursed as well by government institutions or government sponsored programs.

In our U.S. operations, the collection process is usually initiated 30 days after service is provided or upon the expiration of the time provided by contract. For Medicare and Medicaid, once the services are approved for payment, the collection process begins upon the expiration of a period of time based upon experience with Medicare and Medicaid. In all cases where co-payment is required the collection process usually begins within 30 days after service has been provided. In those cases where claims are approved for amounts less than anticipated or if claims are denied, the collection process usually begins upon notice of approval of the lesser amounts or upon denial of the claim. The collection process can be confined to internal efforts, including the accounting and sales staffs and, where appropriate, local management staff. If appropriate, external collection agencies may be engaged.

For our international operations, a significant number of payors are government entities whose payments are often determined by local laws and regulations. Depending on local facts and circumstances, the period of time to collect can be quite lengthy. In those instances where there are non-public payors, the same type of collection process is initiated as in the US.

Due to the number of our subsidiaries and different countries that we operate in, our policy of determining when a valuation allowance is required considers the appropriate local facts and circumstances that apply to an account. While payment and collection practices vary significantly between countries and even agencies within one country, government payors usually represent low credit risks. Accordingly, the length of time to collect does not, in and of itself, indicate an increased credit risk and it is our policy to determine when receivables should be classified as bad debt on a local basis taking into account local practices. In all instances, local review of accounts receivable is performed on a regular basis, generally monthly. When all efforts to collect a receivable, including the use of outside sources where required and allowed, have been exhausted, and after appropriate management review, a receivable deemed to be uncollectible is considered a bad debt and written off.

Estimates for the allowances for doubtful accounts receivable from the dialysis service business are mainly based on local payment and past collection history. Specifically, the allowances for the North American

operations are based on an analysis of collection experience, recognizing the differences between payors and aging of accounts receivable. From time to time, accounts receivable are reviewed for changes from the historic collection experience to ensure the appropriateness of the allowances. The allowances in the International segment and the products business are also based on estimates and consider various factors, including aging, creditor and past collection history. Write offs are taken on a claim by claim basis when the collection efforts are exhausted. A significant change in our collection experience, a deterioration in the aging of receivables and collection difficulties could require that we increase our estimate of the allowance for doubtful accounts. Any such additional bad debt charges could materially and adversely affect our future operating results.

If, in addition to our existing allowances, 1% of the gross amount of our trade accounts receivable as of December 31, 2006 were uncollectible through either a change in our estimated contractual adjustment or as bad debt, our operating income for 2006 would have been reduced by approximately 1%.

The following table shows the portion of major debtors or debtor groups of trade accounts receivable as at December 31, 2006. No single debtor other than U.S. Medicaid and Medicare accounted for more than 5% of total trade accounts receivable. Trade accounts receivable in the International segment are for a large part due from government or government-sponsored organizations that are established in the various countries within which we operate.


Composition of Trade Accounts Receivables
in %, December 31	2006		2005

U.S. Medicare and Medicaid Programs		22%		22%
U.S. Commercial Payors		26%		24%
U.S. Hospitals		4%		3%
Self-Pay of U.S. patients		1%		1%
Other U.S.		3%		4%
International product customers and dialysis payors		44%		46%

Total		100%		100%

Self-Insurance Programs

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

Financial Condition and Results of Operations

Overview

We are engaged primarily in providing dialysis services and manufacturing and distributing products and equipment for the treatment of end-stage renal disease. In the U.S., we also perform clinical laboratory testing. We estimate that providing dialysis services and distributing dialysis products and equipment represents an over $55 billion worldwide market with expected annual patient growth of 6%. Patient growth results from factors such as the aging population; increasing incidence of diabetes and hypertension, which frequently precede the onset of ESRD; improvements in treatment quality, which prolong patient life; and improving standards of living in developing countries, which make life-saving dialysis treatment available. Key to continued growth in revenue is our ability to attract new patients in order to increase the number of treatments performed each year. For that reason, we believe the number of treatments performed each year is a strong indicator of continued revenue growth and success. In addition, the reimbursement and ancillary services utilization environment significantly influences our business. In the past we experienced and also expect in the future generally stable reimbursements

for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries. The majority of treatments are paid for by governmental institutions such as Medicare in the United States. As a consequence of the pressure to decrease health care costs, reimbursement rate increases have been limited. Our ability to influence the pricing of our services is limited. Profitability depends on our ability to manage rising labor, drug and supply costs.

In the final rule, CMS stated that biologicals furnished in connection with renal dialysis services and separately billed by hospital-based and independent dialysis facilities will continue to be paid using the average sales price plus six percent methodology (“ASP+6%”) adopted in 2006. Second, CMS has increased to 15.1% the drug add-on adjustment to the composite payment rate. The 2006 rate was 14.5%. The drug add-on adjustment was created to account for changes in the drug payment methodology enacted by the Medicare Modernization Act. Third, as part of a Medicare Modernization Act-mandated transition in how the wage index for dialysis facilities is calculated, the wage index adjustment has been updated to a 50/50 blend between an ESRD facility’s MSA-based composite rate and its calendar year 2007 Office of Management and Budget revised core-based statistical area (CBSA) rate.

CMS has estimated that these changes will increase Medicare payments to all ESRD facilities by 0.5 percent in 2007 but that there will be some variance depending on the size and location of the facilities. In addition, CMS estimates that for-profit facilities will see an overall increase of 0.4 percent and non-profit facilities will receive 0.8 percent more in 2007. The Company’s estimates of these changes on its business are consistent with the CMS calculations. For the third year in a row, Congress has enacted legislation to update the ESRD composite rate. Unlike many other programs in Medicare, the ESRD composite rate is not automatically updated each year by law. As a result, an Act of Congress is required to make the annual change. As discussed in prior year reports, the Medicare Modernization Act increased the 2005 composite rate by 1.6%. The Deficit Reduction Act (“DRA”) of February 1, 2006, further increased the composite rate by an additional 1.6% effective January 1, 2006. For a discussion of the composite rate for reimbursement of dialysis treatments, see Item 4B, “Business Overview — Regulatory and Legal Matters — Reimbursement”.

In 2005, CMS announced a new national monitoring policy for claims for Epogen and Aranesp for ESRD patients treated in renal dialysis facilities. The new policy, as discussed in prior year reports, took effect on April 1, 2006. As a result of this new policy, CMS expects a 25 percent reduction in the dosage of Epogen or Aranesp administered to ESRD patients whose hematocrit exceeds 39.0 (or hemoglobin exceeds 13.0). If the dosage is not reduced by 25 percent, payment will be made by CMS as if the dosage reduction had occurred. This payment reduction may be appealed under the normal appeal process. In addition, effective April 1, 2006, CMS limited Epogen and Aranesp reimbursement to a maximum per patient per month aggregate dose of 500,000 IU for Epogen and 1500 mcg for Aranesp. In addition in November 2006, the FDA issued an alert regarding a newly published clinical study showing that patients treated with an erythropoiesis-stimulating agent (ESA) such as EPO and dosed to a target hemoglobin concentration of 13.5 g/dL are at a significantly increased risk for serious and life threatening cardiovascular complications, as compared to use of the ESA to target a hemoglobin concentration of 11.3 g/dL. The alert recommended, among other things, that physicians and other healthcare professionals should consider adhering to dosing to maintain the recommended target hemoglobin range of 10 to 12 g/dL. We normally maintain levels in the FDA recommend target hemoglobin range.

Our operations are geographically organized and accordingly we have identified three operating segments, North America, International, and Asia Pacific. For management purposes, the Company reclassified its Mexico operations from its International segment to its North American segment beginning January 1, 2005 and reclassified the operations and assets for the comparative year 2004. For reporting purposes, we have aggregated the International and Asia Pacific segments as “International.” We aggregated these segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, same type patient population, similar methods of distribution of products and services and similar economic

environments. Our Management Board member responsible for the profitability and cash flow of each segment’s various businesses supervises the management of each operating segment. The accounting policies of the operating segments are the same as those we apply in preparing our consolidated financial statements under accounting principles generally accepted in the United States (“U.S. GAAP”). Our management evaluates each segment using a measure that reflects all of the segment’s controllable revenues and expenses.

With respect to the performance of our business operations, our management believes the most appropriate measure in this regard is operating income which measures our source of earnings. Financing is a corporate function which segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. We also regard income taxes to be outside the segments’ control. Similarly, we do not allocate “corporate costs,” which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc. because we believe that these costs are also not within the control of the individual segments. Accordingly, all of these items are excluded from our analysis of segment results and, in the discussion of our 2006 results compared to 2005, are discussed separately below in the discussion of our consolidated results of operations and, in our discussion of our 2005 results compared to 2004, they are discussed separately under the heading “Corporate”.


A.	Results of Operations

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 prepared the information using a management approach, consistent with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance.


			For the years ended
			December 31,

			2006		2005		2004

			(in millions)
Total revenue
	North America		$	6,026	$	4,578	$	4,250
	International			2,534		2,250		2,019

		Totals		8,560		6,828		6,269

Inter-segment revenue
	North America			1		1		2
	International			60		55		39

		Totals		61		56		41

Total net revenue
	North America			6,025		4,577		4,248
	International			2,474		2,195		1,980

		Totals		8,499		6,772		6,228

Amortization and depreciation
	North America			187		140		129
	International			120		109		102
	Corporate			2		2		2

		Totals		309		251		233


			For the years ended
			December 31,

			2006			2005			2004

			(in millions)
Operating Income
	North America			965			644			587
	International			440			362			300
	Corporate			(87	)		(67	)		(35	)

		Totals		1,318			939			852

Interest income				21			18			14
Interest expense				(372	)		(191	)		(197	)
Income tax expense				(413	)		(309	)		(266	)
Minority interest				(17	)		(2	)		(1	)

Net income			$	537		$	455		$	402

Year ended December 31, 2006 compared to year ended December 31, 2005

Highlights

We successfully completed the acquisition of Renal Care Group, Inc. (the “RGC Acquisition”) in the first quarter of 2006 for a purchase price of $4,158 million for all of the outstanding common stock and the retirement of RCG stock options. The purchase price included the concurrent repayment of approximately $658 million indebtedness of RCG. During 2005, RCG provided dialysis and ancillary services to over 32,360 patients through more than 450 owned outpatient dialysis centers in 34 states within the United States, in addition to providing acute dialysis services to more than 200 hospitals.

We were required to divest a total of 105 renal dialysis centers, consisting of both former Company clinics (the “legacy clinics”) and former RCG clinics, in order to complete the RCG Acquisition in accordance with a consent order issued by the United States Federal Trade Commission (“FTC”) on March 30, 2006. The Company sold 96 of such centers on April 7, 2006 to a wholly-owned subsidiary of DSI Holding Company, Inc. (“DSI”) and sold DSI the remaining 9 centers effective as of June 30, 2006. In addition, we sold the laboratory business acquired in the RCG transaction. The Company received cash consideration of $516 million, net of related expenses, for the divested centers and the laboratory business.

To finance the RCG Acquisition, we entered into a new $4,600 million syndicated credit agreement (the “2006 Senior Credit Agreement”) with Bank of America, N.A. (“BofA”); Deutsche Bank AG New York Branch; The Bank of Nova Scotia, Credit Suisse, Cayman Islands Branch; JPMorgan Chase Bank, National Association; and certain other lenders (collectively, the “Lenders”) on March 31, 2006 which replaced the existing credit agreement (the “2003 Senior Credit Agreement”). See “Liquidity.”

On February 10, 2006, we completed and registered in the commercial register of the local court in Hof an der Saale the transformation of our legal form under German law from a stock corporation (Aktiengesellschaft) to a partnership limited by shares (Kommanditgesellschaft auf Aktien) with the name Fresenius Medical Care AG & Co. KGaA (“FMC-AG & Co. KGaA”). The transformation was approved by our shareholders during an Extraordinary General Meeting held on August 30, 2005 (“EGM”). The Company as a KGaA is the same legal entity under German law, rather than a successor to the AG. Fresenius Medical Care Management AG (“Management AG” or “General Partner”), a wholly-owned subsidiary of Fresenius AG, the majority voting shareholder of FMC-AG prior to the transformation, is the General Partner of FMC-AG & Co. KGaA. (See Note 2)

Revenues increased by 26% to $8,499 million (25% at constant rates) with organic growth at 10% and the RCG Acquisition, net of the Divestitures, contributing 15%. Operating income (EBIT) increased 38% excluding the gain from the divestiture of the clinics, the effects of the costs of an accounting change for stock options, the

restructuring costs and in-process R&D, and the costs of the transformation of legal form and preference share conversion. The following table provides a reconciliation to operating income.


	For the years ended December 31,

	2006			2005		Change in %

	(in millions)
Operating income	$	1,318		$	939		40	%
Transformation & Settlement		2			22
Restructuring costs and in-process R&D		35			—
Gain from FTC-related clinic divestment		(40	)		—
Stock option compensation expense (FAS 123(R))		14			—

Operating income excluding one time effects and FAS 123(R)	$	1,329		$	961		38	%

Net Income increased by 24% excluding the after tax loss from the divestiture, the costs of the accounting change, restructuring costs, in-process R&D, and the transformation costs. Including such items, net income increased by 18%. The following table provides a reconciliation to net income.


	For the years ended
	December 31,

	2006		2005		Change in %

	(in millions)
Net income	$	537	$	455		18	%
Transformation & Settlement		1		17
Restructuring costs and in-process R&D		23		—
Write-off FME prepaid financing fees		9		—
Loss from FTC-related clinic divestment		4		—
Stock option compensation expense (FAS 123(R))		10		—

Net income excluding one time effects and FAS 123(R)	$	584	$	472		24	%

Consolidated Financials

Key Indicators for Consolidated Financials


							Change in %

										at constant
	2006			2005			as reported			exchange rates

Number of treatments		23,739,733			19,732,753			20	%
Same market treatment growth in %		4.2	%		4.6	%
Revenue in $ million		8,499			6,772			26	%		25	%
Gross profit in % of revenue		33.9	%		32.6	%
Selling, general and administrative costs in % of revenue		18.2	%		18.0	%
Net income in $ million		537			455			18	%

Treatments increased by 20% mainly due to the RCG acquisition, net of the Divestitures, contributing 16%, same market treatment growth 4%, with additional growth of 1% from other acquisitions, reduced by approximately 1% due to closed or sold clinics. At December 31, 2006, we owned, operated, or managed 2,108 clinics as compared to 1,680 at December 31, 2005. In 2006, we acquired 378 clinics including the clinics acquired from RCG net of the Divestitures, opened 83 clinics and closed or sold 33 clinics, not including the Divestitures. The number of patients treated in clinics that we own, operate or manage increased by 24% to 163,517 at December 31, 2006 from 131,485 at December 31, 2005. Average revenue per treatment for world-wide dialysis services increased from $247 to $269 mainly due to worldwide improved reimbursement rates and the RCG Acquisition.

Net revenue increased by 26% (25% at constant rates) for the year ended December 31, 2006 over the comparable period in 2005 due to growth in revenue in both dialysis care and dialysis products and the effects of the acquisition of RCG net of the Divestitures.

Dialysis care revenue grew by 31% to $6,377 million (31% at constant exchange rates) in 2006 mainly due to the RCG acquisition net of the Divestitures (20%), growth in same market treatments (4%), higher revenue rates (6%), and other acquisitions (1%). Dialysis product revenue increased by 11% to $2,122 million (11% at constant exchange rates) in the same period.

Gross profit margin improved to 33.9% in 2006 from 32.6% for 2005. The increase is primarily a result of the effects of the acquisition of RCG (net of the Divestitures) which has higher margins, higher treatment rates in North America, sales growth in Europe and favorable operational performance in Latin America, partially offset by higher personnel expenses in North America and growth in regions with low gross profit margins. Depreciation and amortization expense for the period ended December 31, 2006 was $309 million compared to $251 million for the same period in 2005.

Selling, general and administrative costs increased from $1,218 million in 2005 to $1,548 million in the same period of 2006. Selling, general and administrative costs as a percentage of sales (“SG&A margin”) increased from 18.0% in the year ended December 31, 2005 to 18.2% in the same period of 2006. The percentage increase is mainly due to restructuring costs, the consolidation of RCG whose SG&A margin was higher, expenses for patent litigation, additional compensation expense incurred as a result of the adoption of the change for accounting for stock options, and higher personnel expenses in North America partially offset by economies of scale associated with growth in revenues and growth in regions with lower SG&A margins. In 2005, SG&A costs were impacted by higher one-time transformation costs for the change in the legal form of our Company.

Bad debt expense for 2006 was $177 million compared to $141 million in 2005, remaining at 2.1% of revenue, the same level as 2005.

Operating income increased from $939 million in 2005 to $1,318 million in 2006. Operating income as a percent of revenue (“operating income margin”) increased from 13.9% for the period ending December 31, 2005 to 15.5% for the same period in 2006 mainly as a result of the improvements in the segments operating margins (see discussion on segments below). The gain on sale of legacy clinics contributed $40 million (0.5%), which was more than offset by restructuring costs, in-process R&D, cost of transformation of the Company’s legal form, and additional compensation costs incurred as a result of adopting FAS123(R) in 2006. Included in operating income are corporate operating losses of $87 million in the year ended December 31, 2006 compared to $67 million for the same period of 2005. This increase in corporate operating losses includes approximately $14 million due to the adoption of FAS123(R) in 2006 for stock compensation and increased costs for patent litigation, partially offset by lower transformation costs.

Interest expense increased (95%) from $191 million for the twelve-month period ending December 31, 2005 to $372 million for the same period in 2006 mainly as a result of increased debt due to the RCG Acquisition and the write off of unamortized fees approximating $15 million related to our 2003 Credit Agreement which was replaced by the 2006 Credit Agreement in conjunction with the RCG Acquisition.

Income taxes increased to $413 million for 2006 from $309 million for the same period in 2005 mainly as a result of increased earnings and the tax on the gain of the divested legacy clinics. As a result of the differences of book and tax basis for the divested legacy clinics, we recorded a book gain of approximately $40 million while recording a tax expense of approximately $44 million on the transaction. This resulted in an increase of the effective tax rate of approximately 3% for the twelve-month period ending December 31, 2006. In addition, during 2006, the German tax authorities substantially finalized their tax audit for tax years 1998-2001. Some expenses reported during those years were disallowed resulting in the Company incurring additional tax expense during 2006. This resulted in a 1% impact on the effective tax rate for the twelve-month period ending December 31, 2006. Without the effects of these two items, the effective tax rate would have been 38.5% for 2006.

Net income for the period was $537 million compared to $455 million in 2005 despite the after tax effects of the $23 million restructuring costs and in-process R&D, the $10 million costs relating to the accounting change

for stock options, the $9 million write off of fees related to our 2003 Senior Credit Agreement, the $4 million net loss on the sale of the legacy clinics, and the $1 million costs related to the transformation.

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

North America Segment

Key Indicators for North America Segment


	2006			2005			Change in %

Number of treatments		16,877,911			13,471,158			25	%
Same market treatment growth in %		2.1	%		3.3	%
Revenue in $ million		6,025			4,577			32	%
Depreciation and amortization in $ million		187			140			34	%
Operating income in $ million		965			644			50	%
Operating income margin in %		16.0	%		14.1	%

Revenue

Treatments increased by 25% for the year ended December 31, 2006 as compared to the same period in 2005 mainly due to the RCG acquisition (23%), same market growth (2%), and other acquisitions (1%) partially offset by sold or closed clinics (1%). At December 31, 2006, 117,855 patients (a 32% increase over the same period in the prior year) were being treated in the 1,560 clinics that we own or operate in the North America segment, compared to 89,313 patients treated in 1,157 clinics at December 31, 2005. The North America segment’s average revenue per treatment increased from $294 in 2005 to $317 in 2006. In the U.S., average revenue per treatment increased from $297 for 2005 to $321 in 2006. The improvement in the revenue rate per treatment is primarily due to increases in improved commercial payor contracts, increases in the dialysis treatment reimbursement rates including the legislated 1.6% increase from Medicare, the transfer of Medicare drug profits for separately billable items into the composite rate and the effects of the RCG Acquisition.

Net revenue for the North America segment for 2006 increased by 32% because dialysis care revenue increased by 35% from $4,054 million to $5,464 million and products sales increased by 7% to $561 million in 2006 from $523 million in 2005.

Dialysis care revenue in year ended December 31, 2006 increased by 35%, driven by 25% as a result of the effects of the RCG acquisition combined with favorable treatment volume and dialysis treatment rates that resulted in organic revenue growth of 9% and the impact of other acquisitions of 1%. For 2006, the administration of EPO represented approximately 23% of total North America Dialysis Care revenue as compared to 24% in the prior year.

The Product revenue increase was driven mostly by increased sales volume of machines and dialyzers.

Operating income

Operating income increased by 50% from $644 million for 2005 to $965 million for the same period in 2006 due to increased treatments and a higher volume of products sold. Operating income margin increased from 14.1% for 2005 to 16.0% for the same period in 2006 mostly as a result of the improvement in revenue rates, increased treatment volume, effects of the RCG Acquisition net of Divestitures and increased product sales partially offset by higher personnel expenses. Cost per treatment increased from $254 in 2005 to $266 in 2006.

International Segment

Key Indicators for International Segment


							Change in %

							as			at constant
	2006			2005			reported			exchange rates

Number of treatments		6,861,822			6,261,595			10	%
Same market treatment growth in %		8.6	%		7.6	%
Revenue in $ million		2,474			2,195			13	%		12	%
Depreciation and amortization in $ million		120			109			9	%
Operating income in $ million		440			362			22	%
Operating income margin in %		17.8	%		16.5	%

Revenue

Treatments increased by 10% for year ended December 31, 2006 over the same period in 2005 mainly due to same market growth (9%) and acquisitions (3%), partially offset by sold or closed clinics (1%) and the effects of one less dialysis day (1%). As of December 31, 2006, 45,662 patients (an 8% increase over the same period in the prior year) were being treated at 548 clinics that we own, operate or manage in the International segment compared to 42,172 patients treated at 523 clinics at December 31, 2005. In 2006, the average revenue per treatment increased to $133 from $130 (increased to $133 at constant exchange rates) for 2005 primarily due increased reimbursement rates.

The 13% increase in net revenues for the International segment resulted from increases in both dialysis care and dialysis product revenues. The increase was due to organic growth during the period of 12% at constant exchange rates with a 1% increase due to acquisitions and 1% due to currency fluctuations, offset by 1% due to closed or sold clinics.

Total dialysis care revenue increased during 2006 by 12% (12% at constant exchange rates) to $913 million in 2006 from $813 million in the same period of 2005. This increase is primarily a result of organic growth of 11% and a 2% increase in contributions from acquisitions, partially offset by 1% due to closed or sold clinics.

Total dialysis product revenue for 2006 increased by 13% (12% at constant exchange rates) to $1,561 million from 1,382 million in 2005.

Including the effects of acquisitions, European region revenue increased 11% (11% at constant exchange rates), Latin America region revenue increased 24% (21% at constant exchange rates), and Asia Pacific region revenue increased 11% (11% at constant exchange rates).

Operating income

Operating income in the International Segment increased from $362 million in 2005 to $440 million for the same period in 2006 primarily as a result of an increase in treatment volume and in volume of products sold. Operating income margin increased from 16.5% in 2005 to 17.8% for the same period in 2006. The main causes for the margin increase were production efficiencies in Europe, accelerated purchases of product by German customers as a result of an increase by 3% of the German value added tax (VAT) in 2007, improvements in our operations in Latin America and Asia Pacific, collections on previously written off receivables, lower bad debt expense and the impact of restructuring costs in Japan in 2005. These effects were partially offset by income received in 2005 associated with the cancellation of a distribution agreement and with a patent litigation settlement.

Year ended December 31, 2005 compared to year ended December 31, 2004

Highlights

Earnings margins increased in both segments in 2005 resulting in a 0.5% increase in operating income margin which was partially offset by the one time effect of the $22 million of costs associated with the transformation of our legal form and the settlement and related legal fees of a shareholder suit relating to the transformation and conversion of our preference shares.

Cash flow provided from operations in 2005 decreased by approximately $158 million as compared to 2004 primarily as a result of income tax payments for prior periods of approximately $119 million made in Germany and the U.S. in 2005 and the effects of the difference in the reduction of days sales outstanding (“DSO”). There was a reduction of 2 DSO in 2005 versus 2004 as compared to 5 DSO reduction in 2004 versus 2003.

The tax payments were the result of a $78 million payment in Germany on a disputed tax assessment relating to deductions of write-downs taken in prior years and a $41 million payment in the US resulting from a tax assessment relating to the deductibility of payments made pursuant to the 2000 OIG settlement.

Consolidated Financials

Key Indicators for Consolidated Financials


							Change in %

							as			at constant
	2005			2004			reported			exchange rates

Number of treatments		19,732,753			18,794,109			5	%
Same store treatment growth in %		4.6	%		3.6	%
Revenue in $ million		6,772			6,228			9	%		8	%
Gross profit in % of revenue		32.6	%		31.5	%
Selling, general and administrative costs in % of revenue		18.0	%		17.0	%
Net income in $ million		455			402			13	%

Net revenue increased by 9% for the year ended December 31, 2005 over the comparable period in 2004 due to growth in revenue in both dialysis care and dialysis products. The 9% increase represents 7% organic growth combined with 1% of growth from acquisitions and 1% increase attributable to exchange rate effects due to the continued strengthening of various local currencies against the dollar.

Dialysis care revenue grew by 8% to $4,867 million (8% at constant exchange rates) mainly due to organic revenue growth resulting principally from 5% growth in same store treatments, 2% increase in revenue per treatment and 1% due to Acquisitions. Dialysis products revenue increased by 10% to $1,905 million (9% at constant exchange rates) driven by a volume increase and higher priced products.

Gross profit margin improved to 32.6% in 2005 from 31.5% for 2004. The increase is primarily a result of higher revenue rates, production efficiencies, and the effects in 2004 of a one time discount provided to a distributor in Japan, partially offset by higher personnel expenses, higher facility costs and one less treatment day in North America. Depreciation and amortization expense for 2005 was $251 million compared to $233 million for 2004.

Approximately 36% of the Company’s 2005 worldwide revenues, as compared to 38% in 2004, were paid by and subject to regulations under governmental health care programs, primarily Medicare and Medicaid, administered by the United States government.

Selling, general and administrative costs increased from $1,058 million in 2004 to $1,218 million in 2005. Selling, general and administrative costs as a percentage of sales increased from 17.0% in 2004 to 18.0% in 2005. The increase is mainly due to one time costs of $22 million for the transformation of our legal form and the settlement and related legal fees of the shareholder suit, increased delivery costs due to higher fuel prices for

Company-owned vehicles and higher transport and other third party commercial delivery costs, higher insurance costs, restructuring costs in Japan, and the favorable effects in 2004 of an indemnification payment received in 2004 related to a clinic in Asia Pacific. These effects were partially offset by foreign currency gains and a patent litigation settlement in the International segment as well as the one-time impact of compensation for cancellation of a distribution contract in Japan.

In 2005, 19.73 million treatments were provided. This represents an increase of 5.0% over 2004. Same store treatment growth was 4.6% with additional growth of 1.5% from acquisitions offset by the effects of sold and closed clinics (1.1%).

At December 31, 2005 we owned, operated or managed approximately 1,680 clinics compared to 1,610 clinics at the end of 2004. During 2005, we acquired 37 clinics, opened 65 clinics and consolidated 32 clinics. The number of patients treated in clinics that we own, operate or manage increased to approximately 131,450 at December 31, 2005 from approximately 124,400 at December 31, 2004. Average revenue per treatment for worldwide dialysis services increased to $247 from $240 mainly due to worldwide improved reimbursement.

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

North America Segment

Key Indicators for North America Segment


	2005			2004			Change in %

Number of treatments		13,471,158			12,998,661			4	%
Same store treatment growth in %		3.3	%		3.2	%
Revenue in $ million		4,577			4,248			8	%
Depreciation and amortization in $ million		140			129			9	%
Operating income in $ million		644			587			10	%
Operating income margin in %		14.1	%		13.8	%

Revenue

Net revenue for the North America segment for 2005 increased 8% as dialysis care revenue increased by 7% from $3,802 million to $4,054 million while dialysis products sales increased by 17%.

The 7% increase in dialysis care revenue in 2005 was driven by approximately 4% increase in treatments, a revenue rate per treatment increase of approximately 2% and approximately 1% resulting from Fin46(R). The 4% increase in treatments was the result of same store treatment growth of 3% and 1% increase resulting from acquisitions. For 2005, the administration of EPO represented approximately 21% of North America total revenue as compared to 23% in the prior year.

At the end of 2005, approximately 89,300 patients were being treated in the 1,155 clinics that we own, operate or manage in the North America segment, compared to approximately 86,350 patients treated in 1,135 clinics at the end of 2004. The average revenue per treatment increased from $288 in 2004 to $294 during 2005. In the U.S., average revenue per treatment increased from $289 in 2004 to $297 in 2005.

Dialysis products revenues increased by 17% due to continued strong demand for our dialysis machines and dialyzers.

DaVita

On October 5, 2005, DaVita Inc. (“DaVita”), the second largest provider of dialysis services in the U.S. and an important customer of ours, completed its acquisition of Gambro Healthcare, Inc., the third largest provider of dialysis services in the U. S., and agreed to purchase a substantial portion of its dialysis product supply requirements from Gambro Renal Products, Inc. during the next ten years.

Operating income

Operating income margin increased from 13.8% in 2004 to 14.1% in 2005. The primary drivers of this margin improvement during 2005 are higher revenues per treatment partially offset by higher personnel expenses, increased delivery costs due to higher fuel prices, higher bad debt expense, higher insurance costs and other increased costs. Accordingly, cost per treatment increased from $250 in 2004 to $254 in 2005.

International Segment

Key Indicators for International Segment


							Change in %

							as			at constant
	2005			2004			reported			exchange rates

Number of treatments		6,261,595			5,795,448			8	%
Same store treatment growth in %		7.6	%		4.1	%
Revenue in $ million		2,195			1,980			11	%		9	%
Depreciation and amortization in $ million		109			102			8	%
Operating income in $ million		362			300			21	%
Operating income margin in %		16.5	%		15.2	%

Revenue

The 11% increase in net revenues for the International segment resulted from increases in both dialysis care and dialysis products revenues. Organic growth during the period was 8% at constant exchange rates and acquisitions contributed approximately 1%. This increase was also attributable to a 2% exchange rate effect due to the continued strengthening of various local currencies against the dollar.

Total dialysis care revenue increased during 2005 by 16% (14% at constant exchange rates) to $813 million in 2005 from $699 million for 2004. This increase is a result of organic growth of 13%, a 2% increase in contributions from acquisitions and was partially offset by the 1% effects of sold or closed clinics and increased by approximately 2% due to exchange rate fluctuations. The 13% organic growth was driven by same store treatment growth of 8% and pricing mix resulting from increased average revenue per treatment and growth in countries that have higher reimbursement rates.

As of December 31, 2005, approximately 42,150 patients were being treated at 525 clinics that we own, operate or manage in the International segment compared to 38,050 patients treated at 475 clinics at December 31, 2004. In 2005, the average revenue per treatment increased from $121 to $130 ($127 at constant exchange rates) due to the strengthening of local currencies against the U.S. dollar and increased reimbursement rates partially offset by higher growth in countries with reimbursement rates below the average.

Total dialysis products revenue for 2005 increased by 8% (7% at constant exchange rates) to $1,382 million mainly driven by organic growth.

Including the effects of acquisitions, European region revenue increased 9% (9% at constant exchange rates), Latin America region revenue increased 27% (17% at constant exchange rates), and Asia Pacific region revenue increased 8% (5% at constant exchange rates).

Operating income

Our operating income increased from $300 million in 2004 to $362 million in 2005. The operating margin increased from 15.2% in 2004 to 16.5% in 2005. The increase in margin resulted mainly from production efficiencies in Europe, a reimbursement increase in Turkey, foreign exchange gains, lower bad debt expense, the one time effects of income associated with the cancellation of a distribution agreement in Japan, and settlement of a patent litigation, as well as the now favorable impact of a discount provided to a distributor in Japan in 2004. These effects were partially offset by restructuring costs in Japan and by the then favorable effects of an indemnification payment received in 2004 related to a clinic in Asia Pacific.

The following discussions pertain to our total Company costs.

Corporate

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

Total corporate operating loss was $67 million in 2005 compared to $35 million in the same period of 2004. The increase in operating loss was mainly due to the one-time costs of $22 million related to the transformation of our legal form and the settlement and related legal fees of the shareholder suit that sought to set aside the resolutions approving the transformation. Legal fees related to the Baxter patent litigation also contributed to this increase.

Interest

Interest expense for 2005 decreased 3% compared to the same period in 2004 due to a lower debt level resulting from the use of positive cash flows, and lower interest rates.

Income Taxes

The effective tax rate for 2005 was 40.3% compared to 39.7% in 2004.


B.	Liquidity and Capital Resources

Liquidity

We require capital primarily to acquire and develop free standing renal dialysis centers, to purchase property for new renal dialysis centers and production sites, equipment for existing or new renal dialysis centers and production centers and to finance working capital needs. At December 31, 2006, our working capital was $1,036 million; cash and cash equivalents $159 million; and our ratio of current assets to current liabilities was 1.4.

Our primary sources of liquidity have historically been cash from operations, cash from short-term borrowings as well as from long-term debt from third parties and from related parties and cash from issuance of equity securities and trust preferred securities. Cash from operations is impacted by the profitability of our business and the development of our working capital, principally receivables. The profitability of our business depends significantly on reimbursement rates. Approximately 75% of our revenues are generated by providing dialysis treatment, a major portion of which is reimbursed by either public health care organizations or private insurers. For the year ended December 31, 2006, approximately 38% of our consolidated revenues resulted from U.S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative and budgetary changes could affect all Medicare reimbursement rates for the services we provide, as well as the scope of Medicare coverage. A decrease in reimbursement rates could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. See “Financial Condition and Results of Operations — Overview,” above, for a discussion of recent Medicare reimbursement rate changes. Furthermore cash from operations depends on the collection of accounts receivable. We could face difficulties in enforcing and collecting accounts receivable under some countries’ legal systems. Some customers and governments may have longer payment cycles. Should this payment cycle lengthen, then this could have a material adverse effect on our capacity to generate cash flow.

Accounts receivable balances at December 31, 2006 and December 31 2005, net of valuation allowances, represented approximately 76 and 82 days of net revenue, respectively. This favorable development is mainly a result of extension of an electronic billing program and more favorable payment terms in payor contracts in the U.S. and our management effort to improve collection of receivables. The mix effect due to North America’s increased weight following the RCG Acquisition coupled with North America’s lower DSO is a further driver for the decrease of our DSO. The development of days sales outstanding by operating segment is shown in the table below.

Development of Days Sales Outstanding


	December 31,		December 31,
	2006		2005

North America		59		63
International		119		120

Total		76		82

2006 Senior Credit Agreement

We entered into a $4.6 billion syndicated credit facility (the “2006 Senior Credit Agreement”) with Bank of America, N.A. (“BofA”); Deutsche Bank AG New York Branch; The Bank of Nova Scotia, Credit Suisse, Cayman Islands Branch; JPMorgan Chase Bank, National Association; and certain other lenders (collectively, the “Lenders”) that closed on March 31, 2006 and replaced the existing credit facility (the “2003 Senior Credit Agreement”). The new credit facility consists of:


	•	a 5-year $1 billion revolving credit facility (of which up to $0.25 billion is available for letters of credit, up to $0.3 billion is available for borrowings in certain non-U.S. currencies, up to $0.15 billion is available as swing line loans in U.S. dollars, up to $0.25 billion is available as a competitive loan facility and up to $0.05 billion is available as swing line loans in certain non-U.S. currencies, the total of all of which cannot exceed $1 billion) which will be due and payable on March 31, 2011.

	•	a 5-year term loan facility (“Loan A”) of $1.85 billion also scheduled to mature on March 31, 2011. The 2006 Senior Credit Agreement requires 19 quarterly payments on Loan A of $30 million each that permanently reduce the term loan facility. The repayments began on June 30, 2006 and continue through December 31, 2010. The remaining amount outstanding is due on March 31, 2011.

	•	a 7-year term loan facility (“Loan B”) of $1.75 billion scheduled to mature on March 31, 2013. The 2006 Senior Credit Agreement requires 28 quarterly payments on Loan B that permanently reduce the term loan facility. The repayment began June 30, 2006. The first 24 quarterly payments will be equal to one quarter of one percent (0.25%) of the original principal balance outstanding, payments 25 though 28 will be equal to twenty-three and one half percent (23.5%) of the original principal balance outstanding with the final payment due on March 31, 2013, subject to an early repayment requirement on March 1, 2011 if the Trust Preferred Securities due June 15, 2011 are not repaid or refinanced or their maturity is not extended prior to that date.

Interest on the new credit facilities will be, at our option and depending on the interest periods chosen, at a rate equal to either (i) LIBOR plus an applicable margin or (ii) the higher of (a) BofA’s prime rate or (b) the Federal Funds rate plus 0.5%, plus an applicable margin.

The applicable margin is variable and depends on our Consolidated Leverage Ratio which is a ratio of our Consolidated Funded Debt less up to $0.03 billion cash and cash equivalents to Consolidated EBITDA (as these terms are defined in the 2006 Credit Agreement).

In addition to scheduled principal payments, indebtedness outstanding under the 2006 Senior Credit Agreement will be reduced by mandatory prepayments utilizing portions of the net cash proceeds from certain sales of assets, securitization transactions other than the Company’s existing accounts receivable facility and the

issuance of subordinated debt other than certain intercompany transactions, certain issuances of equity securities and excess cash flow.

We incurred fees of approximately $86 million in conjunction with the 2006 Senior Credit Agreement which will be amortized over the life of the credit agreement and wrote off approximately $15 million in unamortized fees related to our 2003 Senior Credit Agreement at March 31, 2006.

Other

We are also party to, through various direct and indirect subsidiaries, an Amended and Restated Subordinated Loan Note (the “Note”) entered into on March 31, 2006, with Fresenius AG (“FAG”) which amended the Subordinated Loan Note dated May 18, 1999. Under the Note, we or our subsidiaries may request and receive one or more advances (each an “Advance”) up to an aggregate amount of $400 million during the period ending March 31, 2011. The Advances may be repaid and reborrowed during the period but FAG is under no obligation to make an advance. Each advance is repayable in full one, two or three months after the date of the Advance or any other date as agreed to by the parties to the Advance or, if no maturity date is so agreed, the Advance will have a one month term. All Advances will bear interest at a variable rate per annum equal to LIBOR plus an applicable margin that is based upon the Consolidated Leverage Ratio, as defined in the 2006 Credit Agreement. Advances are subordinated to outstanding loans under the 2006 Credit Agreement and all of our other indebtedness. On December 31, 2006, the Company received an Advance of $3 million (€2 million) at 4.37% interest which matured on and was repaid on January 31, 2007.

Liquidity is also provided from short-term borrowings of up to $650 million ($460 million through October 18, 2006) generated by selling interests in our accounts receivable (“A/ R Facility”), which is available to us through October 18, 2007. The A/ R Facility is typically renewed annually and was most recently renewed and increased in October 2006. Renewal is subject to the availability of sufficient accounts receivable that meet certain criteria defined in the A/ R Facility agreement with the third party funding corporation. A lack of availability of such accounts receivable could preclude us from utilizing the A/ R Facility for our financial needs.

Additional long-term financing has been provided through our borrowings under various credit agreements with the European Investment Bank (“EIB”) in July 2005 and December 2006. The EIB is a not-for-profit long-term lending institution of the European Union and lends funds at favorable rates for the purpose of capital investment and R&D projects, normally for up to half of the funds required for such projects.

The July 2005 agreements consist of a term loan of €41 million and a revolving facility of €90 million which were granted to the Company to refinance certain R&D projects and to make investments in expansion and optimization of existing production facilities in Germany. Both have 8-year terms. The December 2006 term loan was granted to the Company for financing and refinancing of certain clinic refurbishing and improvement projects and allows distribution of proceeds in up to 6 separate tranches until June 2008. Each tranche will mature 6 years after the disbursement of proceeds for the respective tranche.

Currently all agreements with the EIB have variable interest rates that change quarterly with FMC — AG & Co. KGaA having options to convert the variable rates into fixed rates. All advances under all agreements can be denominated in certain foreign currencies including U.S. dollars. All loans under these agreements are secured by bank guarantees and have customary covenants.

We also issued euro denominated notes (“Euro Notes”) (Schuldscheindarlehen) on July 27, 2005 that provide long-term working capital through their maturity on July 27, 2009. The notes total €200 million with a €126 million tranche at a fixed interest rate of 4.57% and a €74 million tranche with a floating rate at EURIBOR plus applicable margin resulting in an interest rate of 5.49% at December 31, 2006. The proceeds were used to liquidate $155 million (€129 million) of Euro Notes issued in 2001 that were due in July 2005 and for working capital. The Euro Notes mature on July 27, 2009.

We are also party to letters of credit which have been issued under our 2006 Credit Agreement and by banks utilized by our subsidiaries.

From time to time, we have also issued long-term securities (“Trust Preferred Securities”) which require the payment of fixed annual distributions to the holders of the securities. The current outstanding Trust Preferred Securities are mandatorily redeemable in 2008 and 2011.

The obligations under the 2006 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the lenders. Our 2006 Senior Credit Agreement, EIB agreements, Euro Notes and the indentures relating to our trust preferred securities also include other covenants that require us to maintain certain financial ratios or meet other financial tests. Under our 2006 Senior Credit Agreement, we are obligated to maintain a minimum consolidated fixed charge ratio (ratio of consolidated EBITDAR (sum of EBITDA plus Rent expense under operation leases) to Consolidated Fixed Charges as these terms are defined in the 2006 Senior Credit Agreement) and a maximum consolidated leverage ratio (as described above). Other covenants in one or more of each of these agreements restrict or have the effect of restricting our ability to dispose of assets, incur debt, pay dividends (limited to $240 million in 2007, dividends paid in May 2006 were $154 million which was in compliance with the restrictions set forth in the 2006 Senior Credit Agreement) and make other restricted payments or create liens. In addition, we are limited as to the annual amounts of Consolidated Capital Expenditures we can incur ($600 million in 2006, exclusive of the RCG acquisition).

The breach of any of the covenants could result in a default under the 2006 Senior Credit Agreement, the European Investment Bank Agreements, the Euro Notes or the notes underlying our trust preferred securities, which could, in turn, create additional defaults under the agreements relating to our other long-term indebtedness. In default, the outstanding balance under the 2006 Senior Credit Agreement becomes due at the option of the Lenders. As of December 31, 2006, we are in compliance with all financial covenants under the 2006 Senior Credit Agreement and our other financing agreements.

The settlement agreement with the asbestos creditors committees on behalf of the W.R. Grace & Co. bankruptcy estate (see Item 8.A.7, “Financial Information — Legal Proceedings” in our Annual Report on Form 20-F for the year ended December 31, 2005) provides for payment by the Company of $115 million upon approval of the settlement agreement by the U.S. District Court, which has occurred, and confirmation of a W.R. Grace & Co. bankruptcy reorganization plan that includes the settlement. The $115 million obligation was included in the special charge we recorded in 2001 to address 1996 merger-related legal matters. The payment obligation is not interest-bearing.

In conjunction with a disputed tax assessment in Germany, in the fourth quarter 2005 we made a $78 million payment related to the tax audit for 1996 and 1997 to discontinue the accrual of additional non-tax deductible interest until the final resolution of the disputed assessment. Separately, during the third quarter, 2006, the German tax authorities substantially finalized their tax audit for tax years 1998-2001. This resulted in the Company incurring additional tax expense during the third quarter 2006 but had a minimal impact on the effective tax rate for the year ended December 31, 2006. The US Internal Revenue Service (IRS) has completed its examination of FMCH’s tax returns for the calendar years 1997 through 2001 and FMCH has executed a Consent to Assessment of Tax. As a result of the disallowance by the IRS of tax deductions taken by FMCH with respect to certain civil settlement payments made in connection with the 2000 resolution of the Office of the Inspector General and US Attorney’s Office investigation and certain other deductions, we paid an IRS tax and accrued interest assessment of approximately $99 million in the third quarter of 2006. We have filed claims for refunds with the IRS contesting the IRS’s disallowance of FMCH’s civil settlement payment deductions and plan to pursue recovery through IRS appeals and if necessary in the U.S. Federal courts of the tax and interest payment associated with such disallowance. An adverse determination in this litigation could have a material adverse effect on our financial condition and results of operations.

We may be subject to additional unfavorable adjustments and disallowances in connection with ongoing audits. If our objections and any final audit appeals are unsuccessful, we could be required to make additional Federal and state tax payments, including payments to state tax authorities reflecting the adjustments made in our Federal tax returns. With respect to other potential adjustments and disallowances of tax matters currently under

review or where tentative agreement has been reached, we do not anticipate that an unfavorable ruling would have a material impact on our results of operations. We are not currently able to determine the timing of these potential additional tax payments. If all potential additional tax payments and the Grace Chapter 11 Proceedings settlement payment were to occur contemporaneously, there could be a material adverse impact on our operating cash flow in the relevant reporting period. Nonetheless, we anticipate that cash from operations and, if required, our available liquidity will be sufficient to satisfy all such obligations if and when they come due.

Dividends

Consistent with prior years, we will continue to follow an earnings-driven dividend policy. Our General Partner’s Management Board will propose to the shareholders at the Annual General Meeting a dividend, with respect to 2006 and payable in 2007, of €1.41 per ordinary share (2005: €1.23) and €1.47 per preference share (2005: €1.29) for shareholder approval at the annual general meeting on May 15, 2006. The total expected dividend payment is approximately €139 million and we paid approximately $154 (€120) million in 2006 for dividends with respect to 2005. Our 2006 Senior Credit Agreement limits disbursements for dividends and certain other transactions relating to our own equity type instruments during 2007 to $240 million in total.

Analysis of Cash Flow

Year ended December 31, 2006 compared to year ended December 31, 2005

Operations

We generated cash from operating activities of $908 million in the year ended December 31, 2006 and $670 million in the comparable period in 2005, an increase of approximately 35% from the prior year. Cash flows were primarily generated by increased earnings and improvements in working capital efficiency. Cash flows were positively impacted principally by a reduction of days sales outstanding and the utilization of the $67 million tax receivable related to the RCG stock option program when making 2006 tax payments. In addition, the percentage increase was favorably impacted by tax payments in 2005 of $78 million in Germany and $41 million in the U.S. These effects were mostly offset by tax payments in 2006 of $99 million for tax audit adjustments related to the Company’s 2000 and 2001 US tax filings, $131 million related to the divestiture of clinics, as well as payments of $35 million related to the RCG Acquisition and payments for increased interest costs for the increased debt related to the RCG Acquisition. Cash flows were used mainly for investing (capital expenditures and acquisitions).

Investing

Cash used in investing activities increased from $422 million in 2005 to $4,241 million in the year ended December 31, 2006 mainly because of the payments for the acquisition of RCG of $4,148 million, partially offset by the cash receipts of $516 million related to the divestiture of the 105 clinics and divested laboratory business. Additionally, in the year ended December 31, 2006, we paid approximately $159 million cash ($145 million in the North America segment and $14 million in the International segment) for the PhosLo^® product business acquisition ($73 million) and other acquisitions consisting primarily of dialysis clinics. In the same period in 2005, we paid approximately $125 million ($77 million for the North American segment and $48 million for the International segment) cash for acquisitions consisting primarily of dialysis clinics.

Capital expenditures for property, plant and equipment net of disposals were $450 million in the year ended December 31, 2006 and $297 million in same period in 2005. In 2006, capital expenditures were $302 million in the North America segment and $148 million for the International segment. In 2005, capital expenditures were $168 million in the North America segment and $129 million for the International segment. The majority of our capital expenditures was used for the maintenance of existing clinics, equipping new clinics, and the maintenance and expansion of production facilities primarily in North America, Germany and France. Capital expenditures were approximately 5% of total revenue.

Financing

Net cash provided by financing was $3,382 million for 2006 compared to cash used in financing of $220 million 2005 mainly due to the $4,148 million required for the RCG acquisition less the $516 million proceeds from the divestiture of the 105 clinics and the laboratory business. Dividends in the amount of $154 million relating to 2005 were paid in the second quarter of 2006 compared to a similar payment of $137 million made in the second quarter of 2005 for 2004. Our external financing needs increased mainly due to the RCG acquisition and were partially offset by cash generated from operations. In addition, the conversion premium paid in connection with the conversion of preference shares to ordinary shares generated approximately $307 million cash. Cash on hand was $159 million at December 31, 2006 compared to $85 million at December 31, 2005.

Year ended December 31, 2005 compared to year ended December 31, 2004

Operations

We generated cash from operating activities of $670 million in the year ended December 31, 2005 and $828 million in the comparable period in 2004, a decrease of about 19% over the prior year. Cash flows were primarily generated by increase in net income and working capital improvements. Cash flows were impacted principally by a $78 million payment in Germany made to halt the accrual of non-deductible interest on a disputed tax assessment relating to deductions of write-downs taken in prior years and a $41 million payment in the US resulting from a tax assessment relating to the deductibility of payments made pursuant to the 2000 OIG settlement. In addition, less cash was generated in 2005 due to the effects of reducing days sales outstanding by two days as compared to the cash generated in 2004 by a five day reduction in days sales outstanding. Cash flows were used mainly for investing (capital expenditures and acquisitions), for payment of dividends and to pay down debt.

Investing

Cash used in investing activities increased from $365 million to $422 million mainly because of increased capital expenditures. In 2005, we paid approximately $125 million ($77 million for the North American segment and $48 million for the International segment) cash for acquisitions consisting primarily of dialysis clinics, the remaining 55% of shares outstanding of CardioVascular Resources (“CVR”) and direct costs relating to the Renal Care Group acquisition. In the same period in 2004, we paid approximately $104 million ($65 million for the North American segment and $39 million for the International segment) cash for acquisitions consisting primarily of dialysis clinics.

In addition, capital expenditures for property, plant and equipment net of disposals were $297 million in 2005 and $261 million in 2004. In 2005, capital expenditures were $168 million in the North America segment and $129 million for the International segment. In 2004, capital expenditures were $160 million in the North America segment and $101 million for the International segment. The majority of our capital expenditures was used for the replacement of assets in our existing clinics, equipping new clinics, the modernization and expansion of production facilities in North America, Germany, France and Italy and for the capitalization of machines provided to customers primarily in Europe. Capital expenditures were approximately 4% of total revenue.

Financing

Net cash used in financing was $220 million in 2005 compared to cash used in financing of $452 million in 2004. Reductions to our total external financing were less than the prior year due to lower cash from operating activities, higher capital expenditures and higher dividend payments partially offset by proceeds from exercises of stock options. Cash on hand was $85 million at December 31, 2005 compared to $59 million at December 31, 2004.

At December 31, 2005, aggregate loans outstanding from Fresenius AG amounted to approximately $18.8 million and bore interest at market rates at year-end. We had approximately $6 million in financing outstanding at December 31, 2004, from Fresenius AG including $3 million in loans and approximately

$3 million due May 2005 representing the balance due on the Company’s purchase of the Fresenius AG’s adsorber business in 2003. These loans were paid in 2005.

Obligations

The following table summarizes, as of December 31, 2006, our obligations and commitments to make future payments under our long-term debt, trust preferred securities and other long-term obligations, and our commitments and obligations under lines of credit and letters of credit.


			Payments due by period of

Contractual Cash Obligations	Total		1 Year		2-5 Years		Over 5 Years

in millions
Trust Preferred Securities	$	1,254	$	—	$	1,254	$	—
Long Term Debt		3,981		158		2,076		1,747
Capital Lease Obligations		8		2		4		2
Operating Leases		1,698		308		882		508
Unconditional Purchase Obligations		235		131		95		9
Other Long-term Obligations		16		10		6		—
Letters of Credit		85		85		—		—

	$	7,277	$	694	$	4,317	$	2,266


			Expiration per period of

Available Sources of Liquidity	Total		1 Year		2-5 Years		Over 5 Years

in millions
Accounts receivable facility^(a)	$	384	$	384	$	—	$	—
Unused Senior Credit Lines		932		—		932		—
Other Unused Lines of Credit		87		87		—		—

	$	1,403	$	471	$	932	$	—


(a)	Subject to availability of sufficient accounts receivable meeting funding criteria.

The amount of guarantees and other commercial commitments at December 31, 2006 is not significant.

Borrowings

Short-term borrowings of $65 million and $57 million at December 31, 2006, and 2005, respectively, represent amounts borrowed by certain of our subsidiaries under lines of credit with commercial banks. The average interest rates on these borrowings at December 31, 2006, and 2005 was 3.69% and 3.91%, respectively.

Excluding amounts available under the 2006 Senior Credit Agreement (as described under “Liquidity” above), at December 31, 2006, we had $87 million available under such commercial bank agreements. In some instances lines of credit are secured by assets of our subsidiary that is party to the agreement and may require our Guarantee. In certain circumstances, the subsidiary may be required to meet certain covenants.

We had short-term borrowings under our A/ R Facility at December 31, 2006, of $266 million and $94 million at December 2005. We pay interest to the bank investors, calculated based on the commercial paper rates for the particular tranches selected. The average interest rate at December 31, 2006 was 5.31%. Annual refinancing fees, which include legal costs and bank fees (if any), are amortized over the term of the facility.

On December 31, 2006, we received a short-term Advance of $3 million (€2 million) at 4.37% interest under our agreement with FAG. The loan matured on and was repaid on January 31, 2007.

We had a total of $3.6 billion outstanding from our 2006 Senior Credit Facility at December 31, 2006, with $0.168 billion under the revolving credit facility, $1.8 billion under Term Loan A and $1.7 billion under Term

Loan B. At December 31, 2005, we had a total outstanding of $470 million on the 2003 Senior Credit Facility with $46 million from the revolving credit facility and the balance under a term loan facility. The 2003 Credit Agreement was repaid in full upon consummation of the 2006 Senior Credit Facility. We also have $85 million in letters of credit outstanding which is not included in the $3.6 billion outstanding at December 31, 2006.

Under our EIB agreements, we had U.S. dollar borrowings under the July 2005 agreements of $49 million and $36 million under the term loan and the revolving facility, respectively, with both having an interest rate of 5.29% at December 31, 2006. There were no drawdowns on the December 2006 term loan at December 31, 2006.

At December 31, 2006 we had long-term borrowings outstanding related to Euro Notes issued in 2005 totaling $263 million (€200 million) with at €126 million tranche with a fixed interest rate of 4.57% and a tranche for €74 million with variable interest rates at EURIBOR plus applicable margin resulting in an interest rate of 5.49% at December 31, 2006.

Outlook

Below is a table showing our growth outlook for 2007 and 2008 based upon 2006 results.


	2007	2008

Revenue Growth	11% to $9.4 billion	6%-9%
Net Income*	18-21%	>10%
Acquisitions and capital expenditures	approximately $650 million	approximately $650 million
Effective tax rate	approximately 39%	approximately 39%
Debt/EBITDA	under 3.0	under 3.0
Dividend	continuing increases	continuing increases


*	For purposes of this outlook, 2006 net income was adjusted for one time effects (see the reconciliation of net income in Item 5.A. — Results of Operations — Highlights), except for stock option compensation expense (FAS 123(R)), to $574 million.

Debt covenant disclosure — EBITDA

EBITDA (earnings before interest, taxes, depreciation and amortization) was approximately $1,627 million, 19.1% of sales for 2006, $1,190 million, 17.6% of sales for 2005, and $1,085 million, 17.4% of sales for 2004. EBITDA is the basis for determining compliance with certain covenants contained in our 2006 Credit Agreement, our Euro Notes 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 U.S. GAAP or to cash flow from operations, investing activities or financing activities. In additions, not all funds depicted by EBITDA are available for management’s discretionary use. For example, a substantial portion of such funds are subject to contractual restrictions and functional requirements for debt service, to fund necessary capital expenditures and to meet other commitments from time to time as described in more detail elsewhere in this report. EBITDA, as

calculated, may not be comparable to similarly titled measures reported by other companies. A reconciliation of cash flow provided by operating activities to EBITDA is calculated as follows:


	For the years ended December 31,

	2006			2005			2004
in thousands
Total EBITDA	$	1,626,825		$	1,190,370		$	1,084,931
Settlement of shareholder proceedings		(888	)		7,335			—
Interest expense (net of interest income)		(351,246	)		(173,192	)		(183,746	)
Income tax expense, net		(413,489	)		(308,748	)		(265,415	)
Change in deferred taxes, net		10,904			(3,675	)		34,281
Changes in operating assets and liabilities		58,294			(45,088	)		141,979
Tax payments related to divestitures and acquisitions		(63,517	)		—			—
Compensation Expense		16,610			1,363			1,751
Cash inflow from Hedging		10,908			—			14,514
Other items, net		13,429			1,939			(452	)

Net cash provided by operating activities	$	907,830		$	670,304		$	827,843

Recently Issued Accounting Standards

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. FAS 157 becomes effective beginning with our first quarter 2008 fiscal period. We are currently evaluating the impact of this standard on our Consolidated Financial Statements.

In June, 2006, the FASB issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 Accounting for Income Taxes (“FAS 109”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FAS 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold of more-likely-than-not and a measurement attribute for the financial statement recognition and measurement of all tax positions taken or expected to be taken in a tax return. The enterprise must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The enterprise should presume that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. If the threshold is met, the tax position is then measured to determine the amount of benefit to recognize in the financial statements.

The recognition threshold of more-likely-than-not must continue to be met in each subsequent reporting period to support continued recognition of the tax benefit. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. FIN 48 is effective for all fiscal years beginning after December 15, 2006. The Company is in the process of determining the potential impact of FIN 48, if any, on the Company’s consolidated financial statements.

C. Research and Development

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. Our research and development activities are geared towards offering patients new products and therapies in the area of dialysis and other extracorporeal therapies to improve their quality of life and increase their life expectancy. The quality and safety of our systems are a central focus of our research. Additionally, the research and development efforts 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, and our technical department benefits from our daily practical experience as a provider of dialysis treatment and close contact with doctors, nurses and patients to keep track of and meet customer and patient needs. To maintain and further enhance a continuous stream of product innovations, we have over 350 full time equivalents working in research and development worldwide at December 31, 2006.

Research and development expenditures were $51 million in 2006, $51 million in 2005, and $51 million in 2004. For information regarding recent product introductions, see Item 4.B., “Information on the Company — Business Overview — New Product Introductions.”

Approximately two-thirds of our research and development activities are based in Germany and one third in North America. We intend to continue to maintain our central research and development operations for disposable products at our St. Wendel, Germany facility and for durable products at our Schweinfurt and Bad Homburg, Germany facilities. Local activities will continue to focus on cooperative efforts with those facilities to develop new products and product modifications for local markets.

In 2006, our research and development activities included further development of products and processes for both hemodialysis and peritoneal dialysis and research aimed at leveraging our core competencies to provide extracorporeal therapies to treat other diseases

In 2005, we introduced our model 5008, a new generation of hemodialysis machine. This machine contains a large number of newly developed technical components and enhanced processes, with a modern, ergonomic design and a large user-friendly touch screen. With the aid of major advances in electronics and interfaces, controlling the highly complex processes involved in performing and monitoring, treatment has become safer and easier. Early and comprehensive testing during the development and trial phases helped us minimize the adjustments that are the norm for new products and to concentrate on special market requirements. These market-specific adjustments were at the center of our R&D activities during 2006 for this machine.

Hemodiafiltration (“HDF”), a process for treating chronic and acute kidney failure conceived over 20 years ago, is not yet an established therapy method but has a long tradition at Fresenius Medical Care. The Company has developed and marketed groundbreaking HDF systems. The use of this technology in clinical practice lagged behind expectations because large, cost-intensive quantities of sterile infusion solution had to be used for treatment. We believed that this technology would improve patients’ quality of life and developed a sterilization method with which large amounts of sterile, pyrogene-free infusion solution could be produced “online”, that is, by the dialysis machine itself and at significantly lower costs. Usage of online-HDF has steadily increased in the last two years, and many scientific studies have been published which show that there is a high probability that the mortality rate of patients treated with online-HDF is lower than that of patients treated using standard dialysis. We regard this development as confirmation of our convictions and forecasts.

These new findings have heightened interest in online-HDF and have had an impact on our development activities. Online-HDF became standard practice in our 5008 machine, and we are presently working to further refine online-HDF so that this treatment method will become even more widespread in the future.

A number of factors determine whether or not peritoneal dialysis is suitable for a patient. Many of these factors are directly linked to the products used for the treatment. Special design details as well as the simple and safe handling of the tubes and connectors used in transferring the peritoneal dialysis solutions into the abdominal cavity reduce the risk of bacterial contamination, which could, for example, lead to peritonitis. Peritonitis can restrict the effectiveness of the peritoneum, the body’s own membrane used in peritoneal dialysis treatment, or render it unsuitable for use in further treatments. In addition, the composition of the solutions as well as the buffer systems used can influence the long-term success of peritoneal dialysis treatment. We actively conduct research in these areas and are able to build on our broad technological experience.

Hemodialysis and peritoneal dialysis are increasingly viewed as being complementary treatment methods. Another focus of our worldwide development activities in 2006 was the “Global Cycler” project. The aim is to

offer high-quality Automated Peritoneal Dialysis at optimized costs. The use of a common technological platform for this project is an important step in this direction.

The dialyzer is extremely important in hemodialysis treatments, as it filters toxins and excess water from the blood. We are constantly working to further improve the efficacy of membranes and dialyzers, and our research is focused on the development of a new series of dialyzers that offer a highly diffusive and convective removal of substances from the patient’s blood. Our new dialyzer series is based on further advances in the production technology for its Fresenius Polysulfone membrane. This technology allows the production of all membrane components, which are ultimately responsible for the performance of the dialyzer, at a level of precision that was previously not possible. As a result, the membranes can be adapted to individual treatment modes.

Conventional dialyzers and filters are characterized by their non-specific removal of substances dissolved in the patients’ blood — all substances up to a defined molecular weight pass through the membrane. In 2006, we intensified our research on dialysis membranes that work more selectively. For example, we are conducting research on membranes with specific properties which can remove targeted substances from patients’ blood. In addition, we are working on membranes which can release pharmaceutical agents into the blood of patients — the “pharma tech” approach. Moreover, special membrane properties can be achieved by attaching appropriate ligands — special molecules — to the membrane surface. All of these activities are still in early development stages; the general medical approach has to be tested first. But we are convinced that future membranes will have functional qualities of this type. In the search for promising possibilities, we benefit from our experience as a leading membrane developer and membrane manufacturer.

Another focus of our development activities is alternative anticoagulants, which temporarily restrict blood clotting. Coagulation should be reduced during the extracorporeal cycle — i.e., while the patient’s blood is being cleansed, but not during recirculation in the patient’s body. Our research in this area is focused on the use of citrate as an alternative to heparin to interrupt clotting, followed by the controlled addition of calcium at the end of extracorporeal circulation to neutralize the effects of citrate and restore coagulability.

Another focal point of our R&D activities is the development of machines and methods for the treatment for acute kidney failure and addressing multi-organ failure. In 2006, we intensified our activities in this area, concentrating on classical acute dialysis. We are currently researching therapy concepts which differ from the above-mentioned classical methods in that the aim is targeted intervention in the disease process, for example, in cases of multiorgan failure. The procedures being investigated include apheresis techniques and the use of certain adsorbers.

Acute liver failure has a special status among acute illnesses due to the highly complex function of the liver as the main detoxification organ. While “artificial kidneys” can sustain life for many years even in cases of complete kidney failure, there is no such therapy available for liver failure, due to the complexity of the liver functions. Current extracorporeal treatments are limited to a small part of the organ’s detoxification spectrum, whereas a natural liver performs many other tasks in addition to detoxification. It synthesizes (produces) numerous compounds that are important for the organism and releases various substances into the bloodstream, including different blood coagulation factors and proteins such as albumin. Liver replacement therapies used today cannot cover most of the functions of the liver and are therefore unsatisfactory.

In the past years, progress has been made in the development of a “bioartificial liver,” in which living hepatocytes (liver cells), are arranged in an appropriate device and around which the patient’s blood flows, taking over all the functions of a natural liver. One problem with this system is the limited availability of suitable hepatocytes. Obtaining hepatocytes with the help of adult stem cell techniques is the current focus of our research activities in this area.


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

As a partnership limited by shares, under the German Stock Corporation Act, our corporate bodies are our general partner, our supervisory board and our general meeting of shareholders. Our sole general partner is Fresenius Medical Care Management AG (“Management AG”), a wholly-owned subsidiary of Fresenius AG. Management AG is required to devote itself exclusively to the management of Fresenius Medical Care AG & Co. KGaA.

For a detailed discussion of the legal and management structure of Fresenius Medical Care AG & Co. KGaA, including the more limited powers and functions of the supervisory board compared to those of the general partner, see Item 6C, below, “Directors, Senior Management and Employees — Board Practices — The Legal Structure of Fresenius Medical Care AG & Co. KGaA.”

The general partner has a Supervisory Board and a Management Board. These two boards are separate and no individual may simultaneously be a member of both boards.

The General Partner’s Supervisory Board

The Supervisory Board of Management AG consists of six members who are elected by Fresenius AG as the sole shareholder of Management AG. Pursuant to pooling agreements for the benefit of the public holders of our ordinary shares and the holders of our preference shares, at least one-third (but no fewer than two) of the members of the general partner’s Supervisory Board are required to be independent directors as defined in the pooling agreements, i.e., persons with no substantial business or professional relationship with us, Fresenius AG, the general partner, or any affiliate of any of them.

Each of the members of the general partner’s Supervisory Board was also a member of the supervisory board of FMC-AG at the time of registration of the transformation of legal form. Their terms of office as members of the Supervisory Board of Management AG will expire at the end of the general meeting of shareholders of Fresenius Medical Care AG & Co. KGaA in which the shareholders discharge the Supervisory Board for the fourth fiscal year following the year in which the Management AG supervisory board member was elected by Fresenius AG, but not counting the fiscal year in which such member’s term begins. Members of the general partner’s Supervisory Board may be removed only by a resolution of Fresenius AG, as sole shareholder of the general partner. Neither our shareholders nor the separate supervisory board of FMC-AG & Co. KGaA has any influence on the appointment of the Supervisory Board of the general partner.

The general partner’s Supervisory Board ordinarily acts by simple majority vote and the Chairman has a tie-breaking vote in case of any deadlock. The principal function of the general partner’s Supervisory Board is to appoint and to supervise the general partner’s Management Board in its management of the Company, 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 of the members of the Supervisory Board of Management AG and their ages as of December 31, 2006.


	Age as of
	December 31,
Name	2006

Dr. Ulf M. Schneider, Chairman		41
Dr. Dieter Schenk, Deputy Chairman		54
Dr. Gerd Krick⁽¹⁾		68
Walter L. Weisman⁽¹⁾⁽²⁾		71
John Gerhard Kringel⁽¹⁾⁽²⁾		67
William P. Johnston⁽¹⁾⁽²⁾(since August 30, 2006)		62
Prof. Dr. Bernd Fahrholz⁽¹⁾(until August 30, 2006)		59


	(1)	Members of the Audit Committee

	(2)	Independent director for purposes of our pooling agreement

Dr. ULF M. SCHNEIDER has been Chairman of the Supervisory Board of Management AG from April 15, 2005. He was member of the Fresenius Medical Care AG Supervisory Board from May 2004 and Chairman of the Supervisory Board until the effective date of the transformation when he resigned as a result of the Company’s transformation to a KGaA. He was Chief Financial Officer of FMC-AG from November 2001 until May 2003. On March 7, 2003, Dr. Schneider announced his resignation from the FMC-AG Management Board to become Chairman of the Management Board of Fresenius AG, effective May 28, 2003. Previously he was Group Finance Director for Gehe UK plc., a pharmaceutical wholesale and retail distributor, in Coventry, United Kingdom. He has held several senior executive and financial positions since 1989 with Gehe’s majority shareholder, Franz Haniel & Cie. GmbH, Duisburg, a diversified German multinational company. Dr. Schneider is Chairman of the Supervisory Board of Fresenius Kabi AG, HELIOS Kliniken GmbH, Eufets AG and Fresenius Medical Care Groupe France S.A.S., France. He is member of the Supervisory Board of Fresenius Kabi Austria GmbH, Austria, Fresenius Kabi Espana S.A., Spain and Fresenius HemoCare Nederlands B.V., Netherlands. Dr. Schneider is member of the Board of Directors of FHC (Holdings), Ltd., Great Britain.

DR. DIETER SCHENK has been a member of the Supervisory Board of Management AG since April 8, 2005 and Vice Chairman of the Supervisory Board of Management AG since April 15, 2005 and was Vice Chairman of the Supervisory Board of FMC-AG from 1996 until the transformation of legal form. He is also a member/ Vice Chairman of the Supervisory Board of FMC-AG & Co. KGaA. He is an attorney and tax advisor and has been a partner in the law firm of Nörr Stiefenhofer Lutz since 1986. Dr. Schenk is also a member of the Supervisory Board of Fresenius AG. He also serves as a member and chairman of the Supervisory Board of Gabor Shoes AG, a member and vice-chairman of the Supervisory Boards of Greiffenberger AG and TOPTICA Photonics AG.

DR. GERD KRICK has been a member of the Supervisory Board of Management AG since December 28, 2005 and was Chairman of the Supervisory Board of FMC-AG from January 1, 1998 until the transformation of legal form. He is also Chairman of the Supervisory Board of FMC-AG & Co. KGaA and member of the Supervisory Board of Fresenius AG. He was Chairman of the Fresenius AG Management Board from 1992 to May 2003 at which time he became chairman of its Supervisory 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 FMC-AG. Dr. Krick is a member of the Board of Directors of Adelphi Capital Europe Fund, of the Supervisory Board of Allianz Private Krankenversicherungs AG, of the Advisory Board of HDI Haftpflichtverband der deutschen Industrie V.a.G. and of the Board of Trustees of the Danube University, Krems until April 30, 2006. He is also the Chairman of the Supervisory Board of Vamed AG.

JOHN GERHARD KRINGEL has been a member of the Supervisory Board of Management AG since December 28, 2005 and was a member of the Supervisory Board of FMC-AG from October 20, 2004, when his appointment to fill a vacancy was approved by the local court, until the transformation of legal form. His election to the Supervisory Board was approved by the shareholders of FMC-AG at the Annual General Meeting held May 24, 2005. He is also a member of the Supervisory Board of FMC-AG & Co. KGaA. He has the following other mandates: Natures View, LLC, Alpenglow Development, LLC, Justice, LLC and River Walk, LLC. Mr. Kringel spent 18 years with Abbott Laboratories prior to his retirement as Senior Vice President, Hospital Products, in 1998. Prior to Abbot Laboratories, he spent three years as Executive Vice President of American Optical Corporation, a subsidiary of Warner Lambert Co. and ten years in the U.S. Medical Division of Corning Glassworks. He is Advisory Board member of Visionary Medical Device Fund.

Dr. WALTER L. WEISMAN has been a member of the Supervisory Board of Management AG since December 28, 2005 and was a member of the Supervisory Board of FMC-AG from 1996 until the transformation of legal form. He is also a member of the Supervisory Board of FMC-AG & Co. KGaA. He is a private investor and a former Chairman and Chief Executive Officer of American Medical International, Inc. Mr. Weisman is on the board of Maguire Properties, Inc. (Vice-Chairman), and Occidental Petroleum Corporation. He is Vice-

Chairman of the Board of Trustees for the California Institute of Technology, life trustee and past Chairman of the Board of Trustees of the Los Angeles County Museum of Art, Chairman of the Board of Trustees of the Sundance Institute, and Deputy Chairman of the Board of Trustees of the Samuel H. Kress Foundation.

WILLIAM P. JOHNSTON was elected the Supervisory Board of Management AG on August 30, 2006. He was the former Chairman of the Board of Directors of Renal Care Group, Inc. Mr. Johnston is a Senior Advisor of The Carlyle Group since June 2006. He is also a member of the Board of Directors, the Chairman of the Compliance Committee and member of the audit committee of The Hartford Mutual Funds, Inc. since May 2006. He is a member of the Board of Directors and Audit Committee of Multiplan, Inc. from July 2006. Mr. Johnston is a member of the Board of Directors and the Investment Committee of Georgia O’Keeffe Museum.

PROF. DR. BERND FAHRHOLZ has been a member of the Supervisory Board of Management AG since April 8, 2005 until August 30, 2006 and was a member of the Supervisory Board of FMC-AG from 1998 until the transformation of legal form. He is also a member of the Supervisory Board of FMC-AG & Co. KGaA. He is partner in the law firm of Dewey Ballantine, LLP, and from 2004 until September 30, 2005 was a partner in the law firm of Nörr Stiefenhofer Lutz. He was a member of the Management Board of Dresdner Bank AG since 1998 and was Chairman from April 2000 until he resigned in March of 2003. He also served as the deputy chairman of the Management Board of Allianz AG and chairman of the Supervisory Board of Advance Holding AG until March 25, 2003. He served on the Supervisory Boards of BMW AG until May 13, 2004 and Heidelberg Cement AG until May 6, 2004. Prof. Fahrholz is Chairman of the Supervisory Board of SMARTRAC N.V. and member of the Supervisory Board of Finanzhaus Rothman AG.

The General Partner’s Management Board

Each member of the Management Board of Management AG is appointed by the Supervisory Board of Management AG 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, positions and terms of office of the members of the Management Board of Management AG and their ages as of December 31, 2006. Each of the members of the general partner’s Management Board listed below held the same position on the Management Board of Fresenius Medical Care AG until the transformation of legal form.


	Age as of			Year
	Dec 31,			Term
Name	2006		Position	Expires

Dr. Ben J. Lipps		66	Chairman of the Management Board, Chief Executive Officer of FMC-AG & Co. KGaA		2008
Roberto Fusté		54	Chief Executive Officer for Asia Pacific		2011
Dr. Emanuele Gatti		51	Chief Executive Officer for Europe, Middle East, Africa and Latin America		2010
Lawrence Rosen		49	Chief Financial Officer		2011
Dr. Rainer Runte		47	General Counsel and Chief Compliance Officer		2010
Rice Powell		51	Co-Chief Executive Officer, Fresenius Medical Care North America and President Products & Hospital Group		2011
Mats Wahlstrom		52	Co-Chief Executive Officer, Fresenius Medical Care North America and President Fresenius Medical Services North America		2011

DR. BEN J. LIPPS became Chairman of the Management Board of Management AG and Chief Executive Officer of the Company on December 21, 2005. He held such positions in FMC-AG from May 1, 1999 until the transformation of legal form and was Vice Chairman of the Management Board from September until May 1999. He was Chief Executive Officer of Fresenius Medical Care North America until February 2004. He was

President, Chief Executive Officer, Chief Operating Officer and a director of Fresenius USA from October 1989 through February 2004, and served in various capacities with Fresenius USA’s predecessor from 1985 through 1989. He has been active in the field of dialysis for more than 35 years. After earning his master’s and doctoral degrees at the Massachusetts Institute of Technology in chemical engineering, Dr. Lipps led the research team that developed the first commercial Hollow Fiber Artificial Kidney at the end of the 1960s. With that, the triumphal procession of the artificial kidney — the dialyzer — commenced. Before joining the Fresenius Group in 1985, Dr. Lipps held several research management positions, among them with DOW Chemical.

DR. EMANUELE GATTI became a member of the Management Board of Management AG and Chief Executive Officer for Europe, Latin America, Middle East and Africa on December 21, 2005. He held such positions in FMC-AG from May 1997 until the transformation of legal form. After completing his studies in bioengineering, Dr. Gatti lectured at several biomedical institutions. He continues to be involved in comprehensive research and development activities focusing on dialysis and blood purification, biomedical signal analysis, medical device safety and health care economics. Dr. Gatti has been with the company since 1989. Before being appointed to the Management Board in 1997, he was responsible for the dialysis business in Southern Europe.

ROBERTO FUSTÉ became a member of the Management Board of Management AG and Chief Executive Officer for Asia-Pacific on December 21, 2005. He held such positions in FMC-AG from January 1, 1999 until the transformation of legal form. After finishing his studies in economic sciences at the University of Valencia, he founded the company Nephrocontrol S.A. in 1983. In 1991, Nephrocontrol was acquired by the Fresenius Group, where Mr. Fusté has since worked. Before being appointed to the Management Board of FMC-AG in 1999, Mr. Fusté held several senior positions within the company in Europe and the Asia-Pacific region.

DR. RAINER RUNTE became a member of the Management Board of Management AG and General Counsel and Chief Compliance Office on December 21, 2005. He was been a Member of the Management Board for Law & Compliance of FMC-AG from January 1, 2004 until the transformation of legal form, and has worked for the Fresenius group for 14 years. Previously he served as scientific assistant to the law department of the Johann Wolfgang Goethe University in Frankfurt and as an attorney in a law firm specialized in economic law. Dr. Runte took the position as Senior Vice President for Law of Fresenius Medical Care in 1997 and was appointed as deputy member of the Management Board in 2002.

LAWRENCE A. ROSEN became a member of the Management Board of Management AG and Chief Financial Officer on April 8, 2005. He held such positions in FMC-AG from November 1, 2003 until the transformation of legal form. Prior to that, he worked for Aventis S.A., Strasbourg, France, and its predecessor companies, including Hoechst AG, beginning in 1984. His last position was Group Senior Vice President for Corporate Finance and Treasury. He holds a Masters of Business Administration (MBA) from the University of Michigan and a Bachelor of Science in Economics from the State University of New York at Brockport.

RICE POWELL became a member of the Management Board of Management AG on December 21, 2005. He was a member of the Management Board of FMC-AG from February 2004 until the transformation of legal form and is Co-Chief Executive Officer of Fresenius Medical Care North America. He is also a member of the Management Board for the Products & Hospital Group of Fresenius Medical Care in North America. Since 1997 he has been the President of Renal Products division of Fresenius Medical Care in North America including the Extracorporal Therapy and Laboratory Services. He has more than 25 years of experience in the healthcare industry. From 1978 to 1996 he held various positions within Baxter International Inc. (USA), Biogen Inc. (USA) and Ergo Sciences Inc. (USA).

MATS WAHLSTROM became a member of the Management Board of Management AG on December 21, 2005. He was member of the Management Board of FMC-AG from February 2004 until the transformation of legal form and is Co-Chief Executive Officer of Fresenius Medical Care North America. He has nearly 20 years of experience in the renal field. From 1983 to 1999, Mats Wahlstrom held various positions at Gambro AB (Sweden), including President and CEO of Gambro in North America as well as CFO of the Gambro Group. In November 2002 he joined Fresenius Medical Care as President of Fresenius Medical Care’s services division in North America.

The business address of all members of our Management Board and Supervisory Board is Else-Kröner-Strasse 1, 61352 Bad Homburg, Germany.

The Supervisory Board of FMC-AG & Co. KGaA

The Supervisory Board of FMC-AG & Co. KGaA consists of six members who are elected by the shareholders of FMC-AG KGaA in a general meeting. Fresenius AG, as the sole shareholder of Management AG, the general partner, is barred from voting for election of the Supervisory Board of FMC-AG & Co. KGaA but will, nevertheless retain significant influence over the membership of the FMC-AG & Co. KGaA Supervisory Board in the foreseeable future. See Item 6C, below, “Directors, Senior Management and Employees — Board Practices — The Legal Structure of FMC-AG & Co. KGaA.”

The current Supervisory Board of FMC-AG & Co. KGaA consists of six persons, five of whom are members of the Supervisory Board of our General Partner. For information regarding the names, ages, terms of office and business experience of those members of the Supervisory Board of FMC-AG & Co. KGaA, see “The General Partner’s Supervisory Board,” above. Their terms of office as members of the Supervisory Board of FMC-AG KGaA will expire at the end of the general meeting of shareholders of FMC-AG KGaA, in which the shareholders discharge the Supervisory Board for the fourth fiscal year following the year in which they were elected, but not counting the fiscal year in which such member’s term begins. Members of the FMC-AG KGaA Supervisory Board may be removed only by a resolution of the shareholder of FMC-AG KGaA with a majority of three quarters of the votes cast at such general meeting. Fresenius AG is barred from voting on such resolutions. The Supervisory Board of FMC-AG KGaA ordinarily acts by simple majority vote and the Chairman has a tie-breaking vote in case of any deadlock.

The principal functions of the Supervisory Board of FMC-AG & Co. KGaA are to oversee the management of the Company but, in this function, the supervisory board of a partnership limited by shares has less power and scope for influence than the supervisory board of a stock corporation. The Supervisory Board of FMC-AG & Co. KGaA is not entitled to appoint the general partner or its executive bodies, nor may it subject the general partner’s management measures to its consent or issue rules of procedure for the general partner. Only the Supervisory Board of Management AG, elected solely by Fresenius AG, has the authority to appoint or remove members of the general partner’s Management Board. See Item 6C, below, “Directors, Senior Management and Employees — Board Practices — The Legal Structure of FMC-AG & Co. KGaA.” Among other matters, the Supervisory Board of FMC-AG & Co. KGaA will, together with the general partner, fix the agenda for the annual general meeting and make recommendations with respect to approval of the company’s annual financial statements and dividend proposals. The Supervisory Board of FMC-AG & Co. KGaA will also propose nominees for election as members of its Supervisory Board and propose the company’s auditors for approval by shareholders.


B.	Compensation

Compensation of the Management Board of Management AG

The following compensation report of Fresenius Medical Care AG & Co. KGaA summarizes the principles applied to the determination of the compensation of the management board members of Fresenius Medical Care Management AG as general partner of Fresenius Medical Care AG & Co. KGaA and explains the amount and structure of the management board compensation.

The compensation report is based mainly on the recommendations of the German Corporate Governance Code and also provides the information which is part of the notes (§ 285 German Commercial Code) and the consolidated notes (§ 314 German Commercial Code) or the management report (§ 289 German Commercial Code) and the consolidated management report (§ 315 German Commercial Code) according to the German Act on the Disclosure of Management Board Compensation.

Compensation Report of the Management Board

The basis for the Compensation of the management board was, in its structure and amount, determined by the supervisory board of Fresenius Medical Care Management AG.

The objective of the compensation system is to enable the members of the management board to participate in the development of the business in accordance with their tasks and performance and the successes in the structuring of the financial and economic situation of the company taking account of its comparable environment.

The compensation of the management board is, as a whole, performance oriented and consists in the fiscal year 2006 of three elements:


	•	non-performance-related compensation (basic salary)

	•	performance-related compensation (variable bonus)

	•	long-term incentive elements (stock options, convertible bonds)

Furthermore, in the period under report, there are valid pension commitments applicable to two members of the management board.

The composition of the individual elements is as follows:

The non-performance-related compensation was paid in the fiscal year 2006 in twelve monthly installments as non-performance-related basic salary. In addition, the members of the management board received additional benefits consisting mainly of insurance premiums, the private use of company cars, special payments such as foreign supplements, rent supplements and refunds of charges and contributions to pension and health insurance.

The performance-related compensation will be granted for the fiscal year 2006 as a variable bonus. The amount of the bonus in each case depends on the achievement of the individual and collective targets. For the total performance-related compensation, the maximum achievable bonus is fixed. The targets are measured on consolidated net income and operating income (EBIT) and cash flow, but are partially subject to a comparison with the previous year’s figures and can for another part be derived from a comparison of budgeted and actually achieved figures. Furthermore, the targets are divided into group level targets and those to be achieved in individual regions. The regional targets also include in some cases special components which are for a three-year-period and therefore only for the fiscal years 2006, 2007 and 2008 and link a special bonus component to the achievement of extraordinary financial targets in connection with special integration measures such as e. g. in connection with the acquisition of Renal Care Group, Inc. in the USA. These special components require an extraordinary increase in earnings. The special bonus component thereby consists in equal parts of cash payments and a share price related compensation based on the company’s ordinary shares. Once the annual targets are achieved, the cash is paid after the end of the respective fiscal year; the share price-related compensation to be granted yearly in these cases is subject to a three-year-vesting-period. The payment of this share price-related compensation corresponds to the share price of Fresenius Medical Care AG & Co. KGaA’s ordinary shares on exercise, and is, for that reason, included in the long-term incentive compensation elements.

For the fiscal year 2006, the amount of the cash compensation of the management board of Fresenius Medical Care Management AG consists of the following:


					Performance		Cash Compensation
	Non-Performance				Related		(without long-term
	Related Compensation				Compensation		incentive components)

	Salary^(1),(2)		Other⁽³⁾		Bonus^(1),(2)
	($000’s)		($000’s)		($000’s)		($000’s)
Dr. Ben Lipps		1,050		189		2,043		3,282
Roberto Fusté		370		221		421		1,012
Dr. Emanuele Gatti		584		48		1,177		1,809
Rice Powell		700		20		1,267		1,987
Lawrence A. Rosen		424		105		935		1,464
Dr. Rainer Runte		414		39		760		1,213
Mats Wahlstrom		800		17		1,448		2,265
Total:		4,342		639		8,051		13,032


(1)	Up to February 9, 2006 payment by Fresenius Medical Care AG

(2)	From February 9, 2006 payment by Fresenius Medical Care Management AG as general partner in Fresenius Medical Care AG & Co. KGaA

(3)	Includes, insurance premiums, private use of company cars, contributions to pension and health insurance and other benefits.

As elements of long-term incentives in the fiscal year 2006, stock options on the basis of the Stock Option Plan 2006 were granted. The principles of the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 implemented newly determined in the year under report, are described in more detail in Item 6.E Share Ownership under the heading “Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006” (see below).

As of January 1, 2006, there were three employee participation plans secured by conditional capital in the company then still named Fresenius Medical Care AG, which entitled their participants to convertible bonds or stock options. In 2006, no further options could be issued under these plans.

In the course of the transformation of legal form of Fresenius Medical Care AG into Fresenius Medical Care AG & Co. KGaA, all management board members and each to the full extent exercised their right to convert their convertible bonds and stock options up to that time convertible into non-voting bearer preference shares into those convertible into bearer ordinary shares. A comparable absolute option value was thereby ensured by a conversion formula applied equally for all participants. Hereinto, the convertible bonds and stock options were reduced in number in the same proportion for all participants while, on the other hand, the exercise price for the convertible bonds and stock options converted was increased. Financially, this placed the beneficiaries into the same position as they were without the conversion of the non-voting bearer preference shares into bearer ordinary shares. Because this did not concern the conversion of bearer preference shares into bearer ordinary shares, no conversion premium was payable.

In connection with the successful employee participation programs of the past fiscal years, Fresenius Medical Care AG & Co. KGaA implemented the above-mentioned stock option plan 2006 in accordance with the approval resolution by the general meeting of May 9, 2006. Under this stock option plan 2006, a total of 762,730 stock options were issued in the year under report with effect as of July 31, 2006, 132,800 of which were granted to the members of the management board. As per December 4, 2006, the second possible issue date, no stock options were allotted to members of the management board.

For the fiscal year 2006, the number and value of stock options issued and the value of the share price-related compensation is shown in the following table:


	Components with Long-term
	Incentive Effect

					Share-price Related
	Stock Options				Compensation

	Number		Value		Value
			($000’s)		($000’s)
Dr. Ben Lipps		33,200		1,237		993
Roberto Fusté		16,600		619		0
Dr. Emanuele Gatti		16,600		619		360
Rice Powell		16,600		619		568
Lawrence A. Rosen		16,600		619		401
Dr. Rainer Runte		16,600		619		392
Mats Wahlstrom		16,600		619		648
Total:		132,800		4,951		3,362

The values of the stock options granted to members of the management board in the financial year 2006 stated above correspond to their fair value at the time of their having been granted, namely a value of $39.08 (€29.67) per stock option. The exercise price for the stock options granted is $120.48 (€91.48).

At the end of the fiscal year 2006, the members of the management board held a total of 548,197 stock options.

On the basis of the financial targets achieved in the fiscal year 2006, rights to share price-related compensation at a value of a total of $3,362,000 were earned. The number of shares will be determined by the supervisory board on the basis of the current share price.

The components with long-term incentive effect can be exercised only after the expiry of the vesting period. The value is recognized over the vesting period as expense in the respective fiscal year. The expenses attributable to the fiscal year 2006 are stated in the following table and are included in the overall compensation of the management board of Fresenius Medical Care Management AG.


	Cash Compensation		Expenses 2006		Compensation (including
	(without long-term		for Long-term		Long-term Incentive
	incentive components)		Incentive Components		Components) Total
($000’s)
Dr. Ben Lipps		3,282		483		3,765
Roberto Fusté		1,012		265		1,277
Dr. Emanuele Gatti		1,809		265		2,074
Rice Powell		1,987		224		2,211
Lawrence A. Rosen		1,464		246		1,710
Dr. Rainer Runte		1,213		264		1,477
Mats Wahlstrom		2,265		278		2,543
Total:		13,032		2,025		15,057

The non-performance-related compensation elements and the basic structures of the performance-related compensation elements are agreed in the service agreements with the individual management board members. The stock options are granted by the supervisory board on a yearly basis.

Commitments to Members of the Management Board for the Event of the Ending of their Appointment

There are individual contractual pension commitments for the management board members Dr. Emanuele Gatti and Lawrence A. Rosen. With regard to these pension commitments, Fresenius Medical Care as of December 31, 2006 had pension obligations of $1,699,000. The additions related to the service costs portion of the pension reserves in the year under report amount to $569,000. The pension commitments provide a pension and survivor benefits, depending on the amount of the most recent basic salary, from the 65th year of life, or, in

the case of leaving because of professional or occupational incapacity, from the time of leaving active work. The starting percentage of 30% increases with every year of service by 1.5 percentage points, whereby the maximum attainable amount is 45%. 30% of the gross amount of any later income from an occupation of the management board member is credited against the pension. With the management board member Dr. Ben Lipps an individual agreement exists instead of a pension provision, to the effect that, taking account of a competitive restriction after the ending of the service agreement between him and Fresenius Medical Care Management AG, he can, for a period of ten years, act in a consultative capacity for the company. The consideration to be granted by Fresenius Medical Care Management AG in return would amount per annum in value to approximately 46% of the non-performance related compensation elements paid to him in the fiscal year 2006.

The management board members Dr. Emanuele Gatti, Rice Powell and Mats Wahlstrom have been granted benefits (severance payments, calculated on the basis of guaranteed simple annual income, based on the relevant basic salary) by individual agreements for the event that their employment with Fresenius Medical Care Management AG should end. One half of any additional compensation payments which the said management board members would be entitled to in connection with existing post-contractual non-competition agreements would be set-off against these compensation payments. The service agreements of management board members contain no express provisions for the case of a change of control.

Miscellaneous

In the fiscal year 2006, no loans or advance payments of future compensation components were made to members of the management board of Fresenius Medical Care Management AG. No member of the management board received in the fiscal year 2006 payments or commitments from third parties in relation to his work as management board member.

Fresenius Medical Care Management AG undertook, to the extent legally admissible, to indemnify the members of the management board against claims against them arising out of their work for the company and its affiliates, if such claims exceed their responsibilities under German law.

To secure such obligations, the company concluded a Directors’ & Officers’ insurance with an appropriate excess. The indemnity applies for the time in which each member of the management board is in office and for claims in this connection after the ending of the membership of the management board in each case.

Compensation of the Supervisory Board of Fresenius Medical Care & Co KGaA and Supervisory Board of Management AG

Our supervisory board consists of six members, five of whom are also members of the supervisory board of Management AG, our general partner. Management AG has one additional supervisory board member who is not a member of our supervisory board. Each member of our supervisory board is paid an annual retainer fee of $80,000. The Chairman is paid twice that amount and the Deputy Chairman 150% of that amount. Supervisory Board members are reimbursed for their reasonable travel and accommodation expenses, including value added tax, incurred with respect to their duties as Supervisory Board members. Supervisory board members who serve on committees receive an additional retainer of $30,000 per year ($50,000 per year in the case of committee chairs). In accordance with our by-laws, we pay 50% of the fees directly to the board member for the five supervisory board members who are also members of the Management AG board and 100% of the sixth (unaffiliated) member’s compensation directly to him. For the year ended December 31, 2006, we paid $421,000 in the aggregate directly to our board members. In addition, under the management agreement with our general partner, the general partner pays the remaining 50% of the retainer fees of five members of our supervisor board and 100% of the fees payable to its sixth board member (who is unaffiliated with FMC-AG & Co. KGaA or its the Supervisory Board). By agreement, we reimburse Management AG for 100% of all fees it incurs (including compensation paid to the general partner’s supervisory board), which were $382,000 in the aggregate. 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.


C.	Board Practices

For information relating to the terms of office of the Management Board and the Supervisory Board of the general partner, Fresenius Medical Care Management AG, (“Management AG”) and of the Supervisory Board of FMC-AG & Co. KGaA, and the periods in which the members of those bodies have served in office, see Item 6.A. above. We do not have a compensation committee. Prior to the transformation, the Supervisory Board of FMC-AG performed the functions usually performed by the remuneration committee, and those functions, including review of the compensation of the members of the general partner’s Management Board, are now performed by the general partner’s Supervisory Board. The current audit committee of the Management AG Supervisory Board consists of Dr. Gerd Krick, Walter Weisman, William P. Johnston and John Gerhard Kringel, all of whom are independent directors for audit committee purposes. The primary function of the audit committee is to assist the general partner’s Supervisory Board in fulfilling its oversight responsibilities, primarily through:


	•	overseeing management’s conduct or our financial reporting process and the internal accounting and financial control systems and auditing of our financial statements;

	•	monitoring our internal controls risk program;

	•	monitoring the independence and performance of our outside auditors;

	•	providing an avenue of communication among the outside auditors, management and the Supervisory Board;

	•	retaining the services of our independent auditors (subject to the approval by our shareholders at our Annual General Meeting) and approval of their fees; and

	•	pre-approval of all audit and non-audit services performed by KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft, the accounting firm which audits our consolidated financial statements.

In connection with the settlement of the shareholder proceedings contesting the resolutions of the Extraordinary General Meeting (“EGM”) held August 30, 2005 that approved the transformation, the conversion of our preference shares into ordinary shares and related matters, we, together with Fresenius AG and our general partner, Management AG, established two additional committees. These committees are:


	•	A joint committee (the “Joint Committee”) (gemeinsamer Ausschuss) of the supervisory boards of Management AG and FMC-AG & Co. KGaA consisting of two members designated by each supervisory board to advise and decide on certain extraordinary management measures, including


	•	transactions between us and Fresenius AG with a value in excess of 0.25% of our consolidated revenue, and

	•	acquisitions and sales of significant participations and parts of our business, the spin-off of significant parts of our business, initial public offerings of significant subsidiaries and similar matters. A matter is “significant” for purposes of this approval requirement if 40% of our consolidated revenues, our consolidated balance sheet total assets or consolidated profits, determined by reference to the arithmetic average of the said amounts shown in our audited consolidated accounts for the previous three fiscal years, are affected by the matter.


	•	An Audit and Corporate Governance Committee within the Supervisory Board of FMC-AG & Co. KGaA consisting of three members, at least two of whom shall be persons with no significant business, professional or personal connection with FMC-AG & Co. KGaA or any of our affiliates, apart from membership on our supervisory board or the supervisory board of Management AG or Fresenius AG. The Audit and Corporate Governance Committee will be responsible for reviewing the report of our general partner on relations with related parties and for reporting to the overall supervisory board thereon.

Governance Matters

American Depositary Shares representing our Ordinary shares and our Preference shares are listed on the New York Stock Exchange (“NYSE”). However, because we are a “foreign private issuer,” as defined in the rules of the Securities and Exchange Commission, we are exempt from the governance rules set forth in Section 303A of the NYSE’s Listed Companies Manual, except for the obligation to maintain an audit committee in accordance with Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and the obligation to notify the NYSE if any of our executive officers becomes aware of any material non-compliance with any applicable provisions of Section 303A. Instead, the NYSE requires that we disclose the significant ways in which our corporate practices differ from those applicable to U.S. domestic companies under NYSE listing standards. You can review a summary of the most significant differences by going to “Corporate Governance” on the Investor Relations page of our web site, www.fmc-ag.com.

The Legal Structure of FMC-AG & Co. KGaA

A partnership limited by shares, or KGaA is a mixed form of entity under German corporate law, which has elements of both a partnership and a corporation. Like a stock corporation, the share capital of a KGaA is held by its shareholders. The KGaA and the stock corporation are the only legal forms provided by German law for entities whose shares trade on the stock exchange. A KGaA is similar to a limited partnership because there are two groups of owners, the general partner on the one hand, and the KGaA shareholders on the other hand. The general partner of FMC-AG & Co. KGaA is Management AG, a wholly-owned subsidiary of Fresenius AG.

A KGaA’s corporate bodies are its general partner, its supervisory board and the general meeting of shareholders. A KGaA may have one or more general partners who conduct the business of the KGaA. However, unlike a stock corporation, in which the supervisory board appoints the management board, the supervisory board of a KGaA has no influence on appointment of the managing body — the general partner. Likewise, the removal of the general partner from office is subject to very strict conditions, including the necessity of a court decision. The general partner(s) may, but are not required to, purchase shares of the KGaA. The general partner(s) are personally liable for the liabilities of the KGaA in relations with third parties subject, in the case of corporate general partners, to applicable limits on liability of corporations generally.

KGaA shareholders exercise influence in the general meeting through their voting rights but, in contrast to a stock corporation, the general partner of a KGaA has a veto right with regard to material resolutions. The members of the supervisory board of a KGaA are elected by the general meeting as in a stock corporation. However, since the supervisory board of a KGaA has less power than the supervisory board of a stock corporation, the indirect influence exercised by the KGaA shareholders on the KGaA via the supervisory board is also less significant than in a stock corporation. For example, the supervisory board is not usually entitled to issue rules of procedure for management or to specify business management measures that require the supervisory board’s consent. The status of the general partner or partners in a KGaA is stronger than that of the shareholders based on: (i) the management powers of the general partners, (ii) the existing veto rights regarding material resolutions adopted by the general meeting and (iii) the independence of the general partner from the influence of the KGaA shareholders as a collective body.

After formation, the articles of association of a KGaA may be amended only through a resolution of the general meeting adopted by a qualified 75% majority and with the consent of the general partner. Therefore, neither group of owners (i.e., the KGaA shareholders and the general partners) can unilaterally amend the articles of association without the consent of the other group. Fresenius AG will, however, continue to be able to exert significant influence over amendments to the articles of association of FMC-AG & Co. KGaA through its ownership of a significant percentage of the Company’s ordinary shares after the transformation, since such amendments require a 75% vote of the shares present at the meeting rather than three quarters of the outstanding shares.

Fresenius AG’s control of the Company through ownership of the general partner is conditioned upon its ownership of a substantial amount of the Company’s share capital. See “The Articles of Association of FMC-AG & Co. KGaA — Organization of the Company,” below.

Management and Oversight

The management structure of FMC-AG & Co. KGaA is illustrated as follows (percentage ownership amounts refer to ownership of the Company’s total share capital of all classes):

General Partner

Management AG, a stock corporation and a wholly owned subsidiary of Fresenius AG, is the sole general partner of FMC-AG & Co. KGaA and will conduct its business and represent it in external relations. Use of a stock corporation as the legal form of the general partner enables the Company to maintain a management structure substantially similar to FMC-AG’s management structure prior to the transformation. The internal corporate governance structure of the general partner is substantially similar to the prior structure at FMC-AG. In particular, the general partner has substantially the same provisions in its articles of association concerning the relationship between the general partner’s management board and the general partner’s supervisory board and, subject to applicable statutory law, substantially the same rules of procedure for its executive bodies. Management AG was incorporated on April 8, 2005 and registered with the commercial register in Hof an der Saale on May 10, 2005. The registered share capital of Management AG is €1.5 million.

The general partner has not made a capital contribution to the Company and, therefore, will not participate in its assets or its profits and losses. However, the general partner will be compensated for all outlays in connection with conducting the business of the Company, including the remuneration of members of the management board and the supervisory board. See “— The Articles of Association of FMC-AG & Co. KGaA — Organization of the Company” below. FMC-AG & Co. KGaA itself will bear all expenses of its administration. Management AG will devote itself exclusively to the management of FMC-AG & Co. KGaA. The general partner will receive annual compensation amounting to 4% of its capital for assuming the liability and the management of FMC-AG & Co. AG & Co. KGaA. This payment of €60,000 per annum constitutes a guaranteed return on Fresenius AG’s investment in the share capital of Management AG. This payment is required for tax reasons, to avoid a constructive dividend by the general partner to Fresenius AG in the amount of reasonable compensation for undertaking liability for the obligations of Fresenius Medical Care AG & Co. KGaA. FMC AG & Co. KGaA will also reimburse the general partner for the remuneration paid to the members of its management board and its supervisory board.

The statutory provisions governing a partnership, including a KGaA, provide in principle that the consent of the KGaA shareholders at a general meeting is required for transactions that are not in the ordinary course of business. However, as permitted by statute, the articles of association of FMC-AG & Co. KGaA permit such decisions to be made by Management AG as general partner without the consent of the FMC-AG & Co. KGaA

shareholders. This negation of the statutory restrictions on the authority of Management AG as general partner is intended to replicate governance arrangements in FMC-AG by retaining for the management board of the general partner the level of operating flexibility that existed prior to the transformation. The shareholders of FMC-AG did not have any such veto right regarding determinations of the management board. This does not affect the general meeting’s right of approval with regard to measures of unusual significance, such as a sale of a substantial part of a company’s assets, as developed in German Federal Supreme Court decisions.

The relationship between the supervisory board and management board of Management AG is substantially similar to the governance provisions at FMC-AG prior to the transformation. In particular, under the articles of association of Management AG, the same transactions are subject to the consent of the supervisory board of Management AG as previously required the consent of the supervisory board of FMC-AG. These transactions include, among others:


	•	The acquisition, disposal and encumbrance of real property if the value or the amount to be secured exceeds a specified threshold (€5 million);

	•	The acquisition, formation, disposal or encumbrance of an equity participation in other enterprises if the value of the transaction exceeds a specified threshold (€5 million);

	•	The adoption of new or the abandonment of existing lines of business or establishments;

	•	Conclusion, amendment and termination of affiliation agreements; and

	•	Certain inter-company legal transactions.

The members of the management board of Management AG are the same persons who constituted the Management Board of FMC-AG at the effective time of the transformation. Five of the six members of the supervisory board of FMC-AG & Co. KGaA are also members of the supervisory board of Management AG. The Company and Fresenius AG have entered into a pooling agreement requiring that at least one-third (and not less than two) members of the general partner’s supervisory board be “independent directors” — i.e., persons without a substantial business or professional relationship with the Company, Fresenius AG, or any affiliate of either, other than as a member of the supervisory board of the Company or the general partner. See Item 10B “Additional Information — Articles of Association — Description of the Pooling Arrangements.”

Supervisory Board

The supervisory board of a KGaA is similar in certain respects to the supervisory board of a stock corporation. Like the supervisory board of a stock corporation, the supervisory board of a KGaA is under an obligation to oversee the management of the business of the Company. The supervisory board is elected by the KGaA shareholders at the general meeting. Shares in the KGaA held by the general partner or its affiliated companies are not entitled to vote for the election of the supervisory board members of the KGaA. Accordingly, Fresenius AG will not be entitled to vote its shares for the election of FMC-AG & Co. KGaA’s supervisory board.

Although Fresenius AG will not be able to vote in the election of FMC-AG & Co. KGaA’s supervisory board, Fresenius AG will nevertheless retain influence on the composition of the supervisory board of FMC-AG & Co. KGaA. Because (i) five of the six former members of the FMC-AG supervisory board continued in office as five of the six initial members of the supervisory board of FMC-AG & Co. KGaA (except for Dr. Ulf M. Schneider) and (ii) in the future, the FMC-AG & Co. KGaA supervisory board will propose future nominees for election to its supervisory board (subject to the right of shareholders to make nominations), Fresenius AG is likely to retain influence over the selection of the supervisory board of FMC-AG & Co. KGaA. In addition, under our articles of association, a resolution for the election of members of the supervisory board requires the affirmative vote of 75% of the votes cast at the general meeting. Such a high vote requirement could be difficult to achieve, which could result in the need to apply for court appointment of members to the supervisory board after the end of the terms of the members in office at the effective time of the transformation. Any such application would be made by the general partner on behalf of FMC-AG & Co. KGaA.

The supervisory board of FMC-AG & Co. KGaA has less power and scope for influence than the supervisory board of the Company as a stock corporation. The supervisory board of FMC-AG & Co. KGaA is not entitled to appoint the general partner or its executive bodies. Nor may the supervisory board subject the management measures of the general partner to its consent, or issue rules of procedure for the general partner. Management of the Company will be conducted by the management board of the general partner and only the supervisory board of the general partner (all of whose members will be elected solely by Fresenius AG) has the authority to appoint or remove them. FMC-AG & Co. KGaA supervisory board will represent FMC-AG & Co. KGaA in transactions with the general partner.

FMC-AG & Co. KGaA shareholders will approve FMC-AG & Co. KGaA’s annual financial statements at the general meeting. Except for making a recommendation to the general meeting regarding such approval, this matter is not within the competence of the supervisory board.

General Meeting

The general meeting is the resolution body of the KGaA shareholders. Among other matters, the general meeting of a KGaA approves its annual financial statements. The internal procedure of the general meeting corresponds to that of the general meeting of a stock corporation. The agenda for the general meeting is fixed by the general partner and the KGaA supervisory board except that the general partner cannot propose nominees for election as members of the KGaA supervisory board or proposals for the Company auditors.

The supervisory board of a KGaA is, in principle, elected by all shareholders of the KGaA at the general meeting. Although Fresenius AG, as sole shareholder of the general partner of the Company is not entitled to vote its shares in the election of the supervisory board of FMC-AG & Co. KGaA, Fresenius AG will retain a degree of influence on the composition of the supervisory board of FMC-AG & Co. KGaA (See “The Supervisory Board,” above.)

The transformation itself did not affect voting rights or required votes at the general meeting. Fresenius AG, which owned approximately 50.8% of the voting ordinary shares of the Company prior to the transformation, will not have a voting majority at the general meeting of FMC-AG & Co. KGaA due to the conversion of preference shares into ordinary shares. However, under German law, resolutions may be adopted by the vote of a majority of the shares present at the meeting. Therefore, based on Fresenius AG’s ownership of approximately 36.8% of the Company’s voting ordinary shares after the transformation, as long as less than approximately 73.5% of the Company’s ordinary shares are present at a meeting, Fresenius AG will continue to possess a controlling vote on most matters presented to the shareholders, other than election of the supervisory board and the matters subject to a ban on voting as set forth below, at least until the Company issues additional ordinary shares in a capital increase in which Fresenius AG does not participate.

Fresenius AG is subject to various bans on voting at general meetings due to its ownership of the general partner. Fresenius AG is banned from voting on resolutions concerning the election and removal from office of the FMC-AG & Co. KGaA supervisory board, ratification or discharge of the actions of the general partner and members of the supervisory board, the appointment of special auditors, the assertion of compensation claims against members of the executive bodies, the waiver of compensation claims, and the selection of auditors of the annual financial statements.

Certain matters requiring a resolution at the general meeting will also require the consent of the general partner, such as amendments to the articles of association, consent to inter-company agreements, dissolution of the Company, mergers, a change in the legal form of the partnership limited by shares and other fundamental changes. The general partner therefore has a veto right on these matters. Annual financial statements are subject to approval by both the KGaA shareholders and the general partner.

The Articles of Association of FMC — AG & Co. KGaA

The articles of association of FMC-AG & Co. KGaA are based on the articles of association of Fresenius Medical Care AG, particularly with respect to capital structure, the supervisory board and the general meeting. Other provisions of the articles of association, such as those dealing with management of FMC-AG & Co. KGaA,

have been adjusted to the new KGaA legal form. Certain material provisions of the articles of association are explained below, especially variations from the articles of association of FMC-AG. The following summary is qualified in its entirety by reference to the complete form of articles of association of FMC-AG & Co. KGaA, an English translation of which is on file with the SEC.

Organization of the Company

The provisions relating to the management board in FMC-AG’s articles of association have been replaced in the articles of association of FMC-AG & Co. KGaA by new provisions relating to the general partner of FMC-AG & Co. KGaA. The general partner is Management AG with its registered office in Hof an der Saale, Germany.

Under the articles of association, possession of the power to control management of the Company through ownership of the general partner is conditioned upon ownership of a specific minimum portion of the Company’s share capital. Under German law, Fresenius AG could significantly reduce its holdings in the Company’s share capital while at the same time retaining its control over the Company through ownership of the general partner. Under the Company’s prior legal structure as a stock corporation, a shareholder had to hold more than 50% of the Company’s voting ordinary shares to exercise a controlling influence. If half the Company’s total share capital had been issued as preference shares (the maximum permissible by law), such controlling interest would represent more than 25% of the Company’s total share capital. This minimum threshold for control of more than 25% of the total share capital of a stock corporation is the basis for a provision in the articles of association FMC-AG & Co. KGaA requiring that a parent company within the group hold an interest of more than 25% of the share capital of FMC-AG & Co. KGaA. As a result, the general partner will be required to withdraw from FMC-AG & Co. KGaA if its shareholder no longer holds, directly or indirectly, more than 25% of the Company’s share capital. The effect of this provision is that the parent company within the group may not reduce its capital participation in FMC-AG & Co. KGaA below such amount without causing the withdrawal of the general partner. The articles of association also permit a transfer of all shares in the general partner to the Company, which would have the same effect as withdrawal of the general partner.

The articles of association also provide that the general partner must withdraw if the shares of the general partner are acquired by a person who does not make an offer under the German Takeover Act to acquire the shares of the Company’s other shareholders within three months of the acquisition of the general partner. The consideration to be offered to shareholders must include any portion of the consideration paid for the general partner’s shares in excess of the general partner’s equity capital, even if the parties to the sale allocate the premium solely to the general partner’s shares. The Company’s articles of association provide that the general partner can be acquired only by a purchaser who at the same time acquires more than 25% of FMC-AG & Co. KGaA’s share capital. These provision would therefore trigger a takeover offer at a lower threshold than the German Takeover Act, which requires that a person who acquires at least 30% of a company’s shares make an offer to all shareholders. The provisions will enable shareholders to participate in any potential control premium payable for the shares of the general partner, although the obligations to make the purchase offer and extend the control premium to outside shareholders could also discourage an acquisition of the general partner, thereby discouraging a change of control.

In the event that the general partner withdraws from FMC-AG & Co. KGaA as described above or for other reasons, the articles of association provide for continuation of the Company as a so-called “unified KGaA” (Einheits-KGaA), i.e., a KGaA in which the general partner is a wholly-owned subsidiary of the KGaA. Upon the coming into existence of a “unified KGaA,” the shareholders of FMC-AG & Co. KGaA would ultimately be restored to the status as shareholders in a stock corporation, since the shareholding rights in the general partner would be exercised by FMC-AG & Co. KGaA’s supervisory board pursuant to the articles of association. If the KGaA is continued as a “unified KGaA,” an extraordinary or the next ordinary general meeting would vote on a change in the legal form of the partnership limited by shares into a stock corporation. In such a case, the change of legal form back to the stock corporation would be facilitated by provisions of the articles of association requiring only a simple majority vote and that the general partner consent to the transformation of legal form.

The provisions of the articles of association of FMC-AG & Co. KGaA on the general meeting correspond for the most part to the provisions of FMC-AG’s articles of association. Under the amendments to the German Stock Corporation Act through the Act on Corporate Integrity and Modernization of the Law on Shareholder Claims, the articles provide that from the outset of the general meeting the chairperson may place a reasonable time limit on the shareholders’ right to speak and ask questions, insofar as is permitted by law.

The articles of association provide that to the extent legally required, the general partner must declare or refuse its consent to resolutions adopted by the meeting directly at the general meeting.

Annual Financial Statement and Allocation of Profits

The articles of association of FMC AG & Co. KGaA on rendering of accounts require that the annual financial statement and allocation of profits of FMC-AG & Co. KGaA be submitted for approval to the general meeting of FMC-AG & Co. KGaA.

Corresponding to the articles of FMC-AG, the articles of association of FMC-AG & Co. KGaA provide that Management AG is authorized to transfer up to a maximum of half of the annual surplus of FMC-AG & Co. KGaA to other retained earnings when setting up the annual financial statements.

Articles of Association of Management AG

The articles of association of Management AG are based essentially on FMC-AG’s articles of association. In particular, the provisions of its articles of association on relations between the management board and the supervisory board have been incorporated into the articles of association of Management AG. The amount of Management AG’s share capital is €1,500,000, issued as 1,500,000 registered shares without par value. By law, notice of any transfer of Management AG’s shares must be provided to the management board of Management AG in order for the transferee to be recognized as a new shareholder by Management AG.


D.	Employees

At December 31, 2006, we had 56,803 employees, as compared to 47,521 at December 31, 2005 and 44,526 at December 31, 2004. They are employed in our principal segments as follows: North America 37,541 employees and International 19,262. The following table shows the number of employees by segment and our major category of activities for the last three fiscal years.


		2006		2005		2004

North America
	Dialysis Care		31,431		24,737		23,389
	Dialysis Products		6,110		5,392		5,229

			37,541		30,129		28,618

International
	Dialysis Care		11,663		10,626		9,608
	Dialysis Products		7,599		6,766		6,300

			19,262		17,392		15,908

	Total Company		56,803		47,521		44,526

We are members of the Chemical Industry Employers Association for most sites in Germany and we are bound by union agreements negotiated with the respective union representatives in those sites. We generally apply the principles of the Association and the related union agreements for those sites where we are not members. We are also party to additional shop agreements negotiated with works councils at individual facilities that relate to those facilities. In addition, approximately 3% of our U.S. employees are covered by collective bargaining agreements. During the last three fiscal years, we have not suffered any labor-related work disruptions.


E.	Share ownership

As of December 31, 2006, no member of the Supervisory Board or the Management Board beneficially owned 1% or more of our outstanding Ordinary shares or our outstanding Preference shares. At December 31, 2006 Management Board members of the General Partner held options to acquire 548,197 ordinary shares of which options to purchase 322,188 ordinary shares were exercisable at a weighted average exercise price of €55.08. Those options expire at various dates between 2008 and 2014.

Options to Purchase Our Securities

Stock Option and Other Share Based Plans

Incentive plan

During the fiscal year 2006, Fresenius Medical Care Management AG granted performance related compensation to the members of its management board in the form of a variable bonus. A special bonus component (award) for some of the management board members consists in equal parts of cash payments and a share price related compensation based on Fresenius Medical Care AG & Co. KGaA’s ordinary shares. The amount of the award in each case depends on the achievement of certain performance targets. The targets are measured on operating income and cash flow. These performance targets relate to a three-year-period comprising the fiscal years 2006, 2007 and 2008 only. Once the annual targets are achieved, the cash portion of the award is paid after the end of the respective fiscal year and the share price-related compensation part is granted but subject to a three-year-vesting-period. The payment of the share price-related compensation part corresponds to the share price of Fresenius Medical Care AG & Co. KGaA’s ordinary shares on exercise, i.e. at the end of the vesting period, and is also made in cash. The expense incurred under this plan for 2006 was $3,362.

Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006

On May 9, 2006, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (the “2006 Plan”) was established by resolution of our annual general meeting with a conditional capital increase up to €12,800 subject to the issue of up to five million no par value bearer ordinary shares with a nominal value of €2.56 each. Under the 2006 Plan, up to five million options can be issued, each of which can be exercised to obtain one ordinary share, with up to one million options designated for members of the Management Board of the General Partner, up to one million options designated for members of management boards of our direct or indirect subsidiaries and up to three million options designated for our managerial staff members and such affiliates. With respect to participants who are members of the General Partner’s Management Board, its Supervisory Board has sole authority to grant stock options and exercise other decision making powers under the 2006 Plan (including decisions regarding certain adjustments and forfeitures). The General Partner has such authority with respect to all other participants in the 2006 Plan.

Options under the 2006 Plan can be granted the last Monday in July and/or the first Monday in December. The exercise price of options granted under the 2006 Plan shall be the average closing price on the Frankfurt Stock Exchange of our ordinary shares during the 30 calendar days immediately prior to each grant date. Options granted under the 2006 Plan have a seven-year term but can be exercised only after a three-year vesting period. The vesting of options granted is subject to satisfaction of success targets measured over a three-year period from the grant date. For each such year, the success target is achieved if our adjusted basic income per ordinary share (“EPS”), as calculated in accordance with the 2006 Plan, increases by at least 8% year over year during the vesting period, beginning with EPS for the year of grant as compared to EPS for the year preceding such grant. Calculation of EPS under the 2006 Plan excludes, among other items, the costs of the transformation of our legal form and the conversion of preference shares into ordinary shares. For each grant, one-third of the options granted are forfeited for each year in which EPS does not meet or exceed the 8% target. The success target for 2006 was met but the options that vested will not be exercisable until expiration of the full 3-year vesting period. Vesting of the portion or portions of a grant for a year or years in which the success target is met does not occur until completion of the entire three-year vesting period. Upon exercise of vested options, we have the right to issue ordinary shares we own or we purchase in the market in place of increasing capital by the issuance of new shares.

During 2006, we awarded 772,280 options, including 132,800 to members of the Management Board of the General Partner, at a weighted average exercise price of $120.68 (€91.63), a weighted average fair value of $39.05 (€29.65) each and a total fair value of $30,158, which will be amortized on a straight line basis over the three year vesting period. For information regarding options granted to each member of the general partner’s management board, see “Compensation of Management Board and our Supervisory Board — Remuneration Report.”

Options granted under the 2006 Plan to US participants are non-qualified stock options under the United States Internal Revenue Code of 1986, as amended. Options under the 2006 Plan are not transferable by a participant or a participant’s heirs, and may not be pledged, assigned, or otherwise disposed of.

At December 31, 2006, we had awards outstanding under the terms of various stock-based compensation plans, including the 2001 plan. Under the 2001 plan, convertible bonds with a principal of up to €10,240 were issued to the members of the Management Board and other employees of the Company representing grants for up to 4 million non-voting Preference shares. The convertible bonds have a par value of €2.56 and bear interest at a rate of 5.5%. Except for the members of the Management Board, eligible employees were able to purchase the bonds by issuing a non-recourse note with terms corresponding to the terms of and secured by the bond. We have the right to offset our obligation on a bond against the employee’s obligation on the related note; therefore, the convertible bond obligations and employee note receivables represent stock options we issued and are not reflected in the consolidated financial statements. The options expire in ten years and one third of each grant can be exercised beginning after two, three or four years from the date of the grant. Bonds issued to Board members who did not issue a note to us are recognized as a liability on our balance sheet.

Upon issuance of the option, the employees had the right to choose options with or without a stock price target. The conversion price of options subject to a stock price target becomes the stock exchange quoted price of the Preference shares upon the first time the stock exchange quoted price exceeds the initial value by at least 25%. The initial value (“Initial Value”) is the average price of the Preference shares during the last 30 trading days prior to the date of grant. In the case of options not subject to a stock price target, the number of convertible bonds awarded to the eligible employee would be 15% less than if the employee elected options subject to the stock price target. The conversion price of the options without a stock price target is the Initial Value. Each option entitles the holder thereof, upon payment the respective conversion price, to acquire one Preference share. Up to 20% of the total amount available for the issuance of awards under the 2001 plan may be issued each year through May 22, 2006. Effective May 2006, no further grants could be issued under the 2001 plan and no options were granted under the 2001 plan during 2006.

During 1998, we adopted two stock incentive plans (“FMC98 Plan 1” and “FMC98 Plan 2”) for our key management and executive employees. These stock incentive plans were replaced by the 2001 plan and no options have been granted since 2001. Under these plans eligible employees had the right to acquire our Preference shares. Options granted under these plans have a ten-year term, and one third of them vest on each of the second, third and fourth anniversaries of the award date. Each Option can be exercised for one Preference share.

At December 31, 2006, the Management Board members of the General Partner, held 548,197 stock options for ordinary shares and employees of the Company held 2,525,659 stock options for ordinary shares with an average remaining contractual life of 6.73 years and 122,697 stock options for preference shares with an average remaining contractual life of 5.52 years with 70,952 exercisable preference options at a weighted average exercise price of $57.12 and 959,323 exercisable ordinary options at a weighted average exercise price of $77.84.

Item 7. Major Shareholders and Related Party Transactions

A. Major Shareholders

Security Ownership of Certain Beneficial Owners of Fresenius Medical Care

Our outstanding share capital consists of Ordinary shares and non-voting Preference shares that are issued only in bearer form. Accordingly, unless we receive information regarding acquisitions of our shares through a filing with the Securities and Exchange Commission or through the German statutory requirements referred to

below, we have no way of determining who our shareholders are or how many shares any particular shareholder owns except as described below with respect to our shares held in American Depository Receipt (“ADR”) form. Because we are a foreign private issuer under the rules of the Securities and Exchange Commission, our directors and officers are not required to report their ownership of our equity securities or their transactions in our equity securities pursuant to Section 16 of the Exchange Act. Under the German Securities Exchange Law (Wertpapierhandelsgesetz), however, persons who discharge managerial responsibilities within an issuer of shares are obliged to notify the issuer and the German Federal Financial Supervisory Authority of their own transactions in shares of the issuer. This obligation also applies to persons who are closely associated with the persons discharging managerial responsibility. Additionally, 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. Effective as of January 20, 2007, the relevant thresholds will be 3%, 5%, 10%, 15%, 20%, 25%, 30%, 50% and 75% and the notification obligations will also apply to option agreements (excluding the 3% threshold).

We have been informed that as of December 31, 2006, Fresenius AG owned 36.6%, of our Ordinary shares. JPMorgan Chase Bank, our former ADR depositary, informed us, that as of December 31, 2006, 1,526,326 Ordinary ADSs, each representing one-third of an Ordinary share, were held of record by 5,644 U.S. holders and there were no Preference ADSs, each representing one-third of a Preference share, held of record by any U.S. holders. Ordinary shares and Preference shares held directly by U.S. holders accounted for less than 1% of our Ordinary shares outstanding and less than 1% of our Preference shares outstanding as of December 31, 2005. For more information regarding ADRs and ADSs see “Item 10.B. Memorandum and Articles of Association — Description of American Depositary Receipts.”

Security Ownership of Certain Beneficial Owners of Fresenius AG

Fresenius AG’s share capital consists of ordinary shares and non-voting preference shares. Both classes of shares are issued only in bearer form. Accordingly, Fresenius AG has no way of determining who its shareholders are or how many shares any particular shareholder owns. However, under the German Securities Exchange Law, holders of voting securities of a German company listed on the official market (amtlicher Handel) of a German stock exchange or a corresponding trading segment of a stock exchange within the European Union are obligated to notify the company of certain levels of holdings, as described above.

Based on the most recent information available, Else Kröner-Fresenius Foundation owns approximately 60% of the Fresenius AG Ordinary shares. According to Allianz Lebensversicherungs AG, they hold between 5%-10% of the Fresenius AG Ordinary shares.

B. Related party transactions

In connection with the formation of Fresenius Medical Care AG, and the combination of the dialysis businesses of Fresenius AG and W.R. Grace & Co. in the second half 1996, 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 & Co. negotiated these agreements. The information below summarizes the material aspects of certain agreements, arrangements and transactions between Fresenius Medical Care and Fresenius AG and their affiliates. Some of these agreements have been previously filed with the Securities and Exchange Commission. The following descriptions are not complete and are qualified in their entirety by reference to the agreements, copies of which have been filed with the Securities and Exchange Commission and the New York Stock Exchange. We believe that the leases, the supply agreements and the service agreements are no less favorable to us and no more favorable to Fresenius AG than would have been obtained in arm’s-length bargaining between independent parties. The trademark and other intellectual property agreements summarized below were negotiated by Fresenius AG and W.R. Grace & Co., and, taken independently, are not necessarily indicative of market terms.

Dr. Dieter Schenk, Vice Chairman of the Supervisory Board of our general partner and of the Supervisory Board of FMC-AG & Co. KGaA, is also a member of the Supervisory Board of Fresenius AG, and Dr. Ulf M. Schneider, Chairman of the Supervisory Board of our general partner and a former member of the Supervisory Board of FMC-AG, is Chairman of the Management Board and CEO of Fresenius AG.

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 & Co. KGaA 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 & Co. KGaA 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 in the second half 1996. Fresenius AG or its affiliates have leased part of the real property to us, directly, and transferred the remainder of that real property to two limited partnerships. Fresenius AG is the sole limited partner of each partnership, and the sole shareholder of the general partner of each partnership. These limited partnerships, as landlords, have leased the properties to us and to Fresenius AG, as applicable, for use in our respective businesses. The aggregate annual rent payable by us under these leases is approximately €13.2 million, which was approximately $16.6 million as of December 31, 2006, exclusive of maintenance and other costs, and is subject to escalation, based upon the German consumer-price-index determined by the Federal Statistical Office. 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.”

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


	•	to use the “Fresenius Medical Care” mark in the then current National Medical Care non-renal business if it is used as part of “Fresenius Medical Care” together with one or more descriptive words, such as “Fresenius Medical Care Home Care” or “Fresenius Medical Care Diagnostics”;

	•	to use the “F” logo mark in the National Medical Care non-renal business, with the consent of Fresenius AG. That consent will not be unreasonably withheld if the mark using the logo includes one or more additional descriptive words or symbols; and

	•	to use “Fresenius Medical Care” as a trade name in both the renal business and the National Medical Care non-renal business.

We and our affiliates have the right to use “Fresenius Medical Care” as a trade name in other medical businesses only with the consent of Fresenius AG. Fresenius AG may not unreasonably withhold its consent. In the U.S. and Canada, Fresenius AG will not use “Fresenius” or the “F” logo as a trademark or service mark, except that it is permitted to use “Fresenius” in combination with one or more additional words such as “Pharma Home Care” as a service mark in connection with its home care business and may use the “F” logo as a service mark with the consent of our principal German subsidiary. Our subsidiary will not unreasonably withhold its

consent if the service mark includes one or more additional descriptive words or symbols. Similarly, in the U.S. and Canada, Fresenius AG has the right to use “Fresenius” as a trade name, but not as a mark, only in connection with its home care and other medical businesses other than the renal business and only in combination with one or more other descriptive words, provided that the name used by Fresenius AG is not confusingly similar to our marks and trade names. After the expiration of Fresenius AG’s ten-year covenant not to compete with us, Fresenius AG may use “Fresenius” in its corporate names if it is used in combination with one or more additional descriptive word or words, provided that the name used by Fresenius AG is not confusingly similar to the Fresenius Medical Care marks or corporate or trade names.

Other Intellectual Property

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

Supply Agreements

We produce most of our products in our own facilities. However, Fresenius AG manufactures some of our products for us, principally dialysis concentrates, at facilities that Fresenius AG retained. These facilities are 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. During 2006, we sold products for $36.0 million to Fresenius AG and its non-FMC-AG & Co. KGaA affiliates and we made purchases of $52.5 million from Fresenius AG and its non-FMC-AG & Co. KGaA affiliates.

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

The parties may modify existing or enter into additional supply agreements, arrangements and transactions. Any future modifications, agreements, arrangements and transactions will be negotiated between the parties and

will be subject to the approval provisions of the pooling agreements and the regulatory provisions of German law regarding dominating enterprises.

Services Agreement

We obtain administrative and other services from Fresenius AG headquarters and from other divisions and subsidiaries of Fresenius AG. These services relate to, among other things, data processing, financial and management accounting and audit, human resources, risk management, quality control, production management, research and development, marketing and logistics. For 2006, Fresenius AG charged us approximately $37.1 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 2006, we charged approximately $9.0 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

At December 31, 2006, aggregate loans outstanding from Fresenius AG amounted to approximately $2.9 million which bore interest at market rates at year-end. Interest paid during 2006 was $0.2 million.

Other Interests

Dr. Gerd Krick, chairman of the Supervisory Board of FMC-AG & Co. KGaA and member of the supervisory board of Management AG, was a member of the administration board of Dresdner Bank, Luxembourg, S.A., a subsidiary of Dresdner Bank AG. See “— Security Ownership of Certain Beneficial Owners of Fresenius AG.” Dresdner Bank AG, through its New York and Cayman branches, was a documentation agent and was one of the joint lead arrangers and book managers under 2003 Senior Credit Agreement. It was also one of four co-arrangers of our prior principal credit agreement and one of the managing agents under that facility. Dr. Dieter Schenk, Vice Chairman of the Supervisory Boards of Management AG and of FMC-AG Co. KGaA and a member of the Supervisory Board of Fresenius AG, is a partner in the law firm of Nörr Stiefenhofer Lutz, which has provided legal services to Fresenius AG and Fresenius Medical Care. During 2006, Nörr Stiefenhofer Lutz was paid approximately $1.6 million for these services. See “— Security Ownership of Certain Beneficial Owners of Fresenius AG.” Dr. Schenk is one of the executors of the estate of the late Mrs. Else Kröner. Else Kröner-Fresenius-Stiftung, a charitable foundation established under the will of the late Mrs. Kröner, owns the majority of the voting shares of Fresenius AG. Dr. Schenk is also the Chairman of the administration board of Else Kröner-Fresenius-Stiftung.

Under the articles of association of FMC-AG & Co. KGaA, we will pay Fresenius AG a guaranteed return on its capital investment in our general partner. See “The Legal Structure of FMC-AG & Co. KGaA,” above.

Products

During 2006, we sold products for $36.0 million to Fresenius AG and its non-FMC-AG & Co KGaA affiliates. We made purchases from Fresenius AG and its non-FMC-AG & Co KGaA affiliates in the amount of $52.5 million during 2006.

General Partner Reimbursement

Management AG, the Company’s General Partner, is a 100% wholly-owned subsidiary of Fresenius AG. The Company’s Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company’s business, including compensation of the members of the General Partner’s supervisory board and the General Partner’s management board. The aggregate amount

reimbursed to Management AG for 2006 was approximately $7.5 million for its management services during 2006 including $0.075 million as compensation for their exposure to risk as General Partner. The Company’s Articles of Association fix this compensation at 4% of the amount of the General Partner’s invested capital (€1.5 million).

Item 8. Financial information

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


8.A.7.	Legal Proceedings

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

Commercial Litigation

We were formed as a result of a series of transactions we completed pursuant to the Merger. At the time of the Merger, a W.R. Grace & Co. subsidiary known as W.R. Grace & Co.-Conn. had, and continues to have, significant liabilities arising out of product-liability related litigation (including asbestos-related actions), pre-Merger tax claims and other claims unrelated to NMC, which was W.R. Grace & Co.’s dialysis business prior to the Merger. In connection with the Merger, W.R. Grace & Co.-Conn. agreed to indemnify us, FMCH, and NMC against all liabilities of W.R. Grace & Co., whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC’s operations. W.R. Grace & Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Grace Chapter 11 Proceedings”) on April 2, 2001.

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

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

On April 4, 2003, FMCH filed a suit in the United States District Court for the Northern District of California, Fresenius USA, Inc., et al., v. Baxter International Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that it does not infringe on patents held by Baxter International Inc. and its subsidiaries and affiliates (“Baxter”), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against it for alleged infringement of Baxter’s patents. In general, the alleged patents concern touch screens, conductivity alarms, power failure data storage, and balance chambers for hemodialysis machines.

Baxter filed counterclaims against FMCH seeking monetary damages and injunctive relief, and alleging that it willfully infringed on Baxter’s patents. On July 17, 2006, the court entered judgement in favor of FMCH finding that all the asserted claims of the Baxter patents are invalid, as obvious and/or anticipated in light of prior act. On February 13, 2007, the court granted Baxter’s motion to set aside the jury’s verdict in favor of FMCH and retry certain aspects of the case. We will appeal the court’s rulings. An adverse judgment in any new trial could have a material adverse impact on our business, financial condition and results of operations.

Fresenius Medical Care AG & Co. KGaA’s Australian subsidiary, Fresenius Medical Care Australia Pty Limited (hereinafter referred to as “Fresenius Medical Care Australia”) and Gambro Pty Limited and Gambro AB (hereinafter referred to as “the Gambro Group”) are in litigation regarding infringement and damages with respect to the Gambro AB patent protecting intellectual property in relation to a system for preparation of dialysis or replacement fluid, the Gambro bicart device in Australia (“the Gambro Patent”). As a result of the commercialisation of a system for the preparation of dialysis fluid based on the Fresenius Medical Care Bibag device in Australia, the Australian courts concluded that Fresenius Medical Care Australia infringed the Gambro Patent. The parties are still in legal dispute with respect to the issue of potential damages related to the patent infringement. As the infringement proceedings have solely been brought in the Australian jurisdiction any potential damages to be paid by Fresenius Medical Care Australia will be limited to the potential losses of the Gambro Group caused by the patent infringement in Australia.

Other Litigation and Potential Exposures

RCG has been named as a nominal defendant in a second amended complaint filed September 13, 2006 in the Chancery Court for the State of Tennessee Twentieth Judicial District at Nashville against former officers and directors of RCG which purports to constitute a class action and derivative action relating to alleged unlawful actions and breaches of fiduciary duty in connection with the RCG Acquisition and in connection with alleged improper backdating and/or timing of stock option grants. The amended complaint is styled Indiana State District Council of Laborers and Hod Carriers Pension Fund, on behalf of itself and all others similarly situated and derivatively on behalf of RCG, Plaintiff, vs. RCG, Gary Brukardt, William P. Johnston, Harry R. Jacobson, Joseph C. Hutts, William V. Lapham, Thomas A. Lowery, Stephen D. McMurray, Peter J. Grua, C. Thomas Smith, Ronald Hinds, Raymond Hakim and R. Dirk Allison, Defendants. The complaint seeks damages against former officers and directors and does not state a claim for money damages directly against RCG. We anticipate that the individual defendants may seek to claim indemnification from RCG. We are unable at this time to assess the merits of any such claim for indemnification.

FMCH and its subsidiaries, including RCG (prior to the RCG Acquisition), received a subpoena from the U.S. Department of Justice, Eastern District of Missouri, in connection with a joint civil and criminal investigation. FMCH received its subpoena in April 2005. RCG received its subpoena in August 2005. The subpoenas require production of a broad range of documents relating to the FMCH’s and RCG’s operations, with specific attention to documents related to clinical quality programs, business development activities, medical director compensation and physician relationships, joint ventures and anemia management programs, RCG’s supply company, pharmaceutical and other services that RCG provides to patients, RCG’s relationships to pharmaceutical companies, and RCG’s purchase of dialysis equipment from FMCH. We are cooperating with the government’s requests for information. An adverse determination in this investigation could have a material adverse effect on our business, financial condition and results of operations.

In October 2004, FMCH and its subsidiaries, including RCG (prior to the RCG Acquisition), received subpoenas from the U.S. Department of Justice, Eastern District of New York in connection with a civil and criminal investigation, which requires production of a broad range of documents relating to our operations and those of RCG, with specific attention to documents relating to laboratory testing for parathyroid hormone (“PTH”) levels and vitamin D therapies. We are cooperating with the government’s requests for information. While we believe that we have complied with applicable laws relating to PTH testing and use of vitamin D therapies, an adverse determination in this investigation could have a material adverse effect on our business, financial condition, and results of operations.

In May 2006, RCG received a subpoena from the U.S. Department of Justice, Southern District of New York in connection with an investigation into RCG’s administration of its stock option programs and practices, including the procedure under which the exercise price was established for certain of the option grants. The subpoena requires production of a broad range of documents relating to the RCG stock option program prior to the RCG Acquisition. We are cooperating with the government’s requests for information. The outcome and impact of this investigation cannot be predicted at this time.

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

We, like other health care providers, conduct our operations under intense government regulation and scrutiny. We must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. We must also comply with the Anti-Kickback Statute, the False Claims Act, the Stark Statute, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from our interpretations or the manner in which it conducts its business. 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, our business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, investigative demands, subpoenas, other inquiries, claims and litigation relating to our compliance with applicable laws and regulations. We may not always be aware that an inquiry or action has begun, particularly in the case of “whistle blower” actions, which are initially filed under court seal.

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

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

We have also had claims asserted against us and have had lawsuits filed against us relating to alleged patent infringements or 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. When appropriate, we have asserted our own claims, and claims for indemnification. A successful claim against us or any of our subsidiaries could have a material adverse effect upon us and the results of our operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on our reputation and business.

Accrued Special Charge for Legal Matters

At December 31, 2001, we recorded a pre-tax special charge of $258 million to reflect anticipated expenses associated with the defense and resolution of pre-Merger tax claims, Merger-related claims, and commercial

insurer claims (see Note 8 and Note 19 to the consolidated financial statements in this report). The costs associated with the Settlement Agreement and settlements with insurers have been charged against this accrual. With the exception of the proposed $115 million payment under the Settlement Agreement, all other matters included in the special charge have been resolved. While we believe that our remaining accruals reasonably estimate our currently anticipated costs related to the continued defense and resolution of this matter, no assurances can be given that our actual costs incurred will not exceed the amount of this accrual.


8.A.8.	Dividend Policy

We generally pay annual dividends on both our preference shares and our ordinary shares in amounts that we determine on the basis of the Company’s prior year unconsolidated earnings of Fresenius Medical Care AG & Co. KGaA as shown in the statutory financial statements that we prepare under German law on the basis of the accounting principles of the German Commercial Code (Handelsgesetzbuch or HGB), subject to authorization by a resolution to be passed at our general meeting of shareholders. Under our articles of association, the minimum dividend payable on the preference shares is €0.12 per share and, if we declare dividends, holders of our preference shares must receive €0.06 per share more than the dividend on an ordinary share. Under German law, we must, in all cases, pay the annual dividend declared on our preference shares before we pay dividends declared on our ordinary shares.

The general partner 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 remit dividends to the depositary bank (Depotbank) on behalf of the shareholders.

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

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


Per Share Amount	2006		2005		2004		2003

Preference share		€1.29		€1.18		€1.08		€1.00
Ordinary share		€1.23		€1.12		€1.02		€0.94

We have announced that the general partner’s Management Board and our Supervisory Board have proposed dividends for 2006 payable in 2007 of €1.47 per preference share and €1.41 per ordinary share. These dividends are subject to approval by our shareholders at our Annual General Meeting to be held on May 15, 2006.

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”.


Item 9.	*The Offer and Listing Details*


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

Trading Markets

The principal trading market for the ordinary shares and the preference shares is the Frankfurt Stock Exchange. All ordinary shares and preference shares have been issued in bearer form. Accordingly, we have no way of determining who our holders of ordinary and preference shares are or how many shares any particular

shareholder owns, with the exception of the number of shares held in ADR form in the United States. For more information regarding ADRs see “Item 10.B. Memorandum and articles of association — Description of American Depositary Receipts.” However, under the German Securities trading Act, 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”. Additionally, persons discharging managerial responsibilities and affiliated persons are obliged to notify the supervising authority and the Company of trades in their shares. The ordinary shares of Fresenius Medical Care AG had been listed on the Frankfurt Stock Exchange since October 2, 1996, the preference since November 25, 1996. Trading in the ordinary shares and preference shares of FMC-AG & Co. KGaA on the Frankfurt Stock Exchange commenced on February 13, 2006.

Our shares are listed on the Official Market (Amtlicher Markt) of the Frankfurt Stock Exchange and on the sub-segment Prime Standard of the Official Market. The Prime Standard is a sub-segment of the Official Market with additional post-admission obligations. Admission to the Prime Standard requires the fulfillment of the following transparency criteria: publication of quarterly reports; preparation of financial statements in accordance with international accounting standards (IAS or US-GAAP); publication of a company calendar; convening of at least one analyst conference per year; publication of ad-hoc messages (i.e., certain announcements of material developments and events) in English. Companies aiming to be listed in this segment have to apply for admission. Listing in the Prime Standard is a prerequisite for inclusion of shares in the selection indices of the Frankfurt Stock Exchange, such as the DAX, the index of 30 major German stocks.

Since October 1, 1996, ADSs each representing one-third of an Ordinary share (the “Ordinary ADSs”), have been listed and traded on the New York Stock Exchange (“NYSE”) under the symbol FMS. Since November 25, 1996, ADSs, each representing one-third of a Preference share (the “Preference ADSs”), have been listed and traded on the NYSE under the symbol FMS/ P. Upon completion of the transformation and the conversion, 191,673 preference ADSs remained outstanding. Accordingly, while the preference ADSs remain listed on the New York Stock Exchange, we expect that the trading market for the preference ADSs will by highly illiquid. In addition, the New York Stock Exchange has advised us that if the number of publicly held preference ADSs falls below 100,000, that preference ADSs are likely to be delisted. The Depositary for both the Ordinary ADSs and the Preference ADSs is Bank of New York. (the “Depositary”) which is expected to be effective February 26, 2006.

Trading on the Frankfurt Stock Exchange

Deutsche Börse AG operates the Frankfurt Stock Exchange, which is the most significant of the seven German stock exchanges. As of December 31, 2005, the most recent figures available, the shares of 8,032 companies traded on the official market, regulated market and the regulated unofficial market of the Frankfurt Stock Exchange.

Trading on the floor of the Frankfurt Stock Exchange begins every business day at 9:00 a.m. and ends at 8:00 p.m., Central European Time (“CET”). In floor trading, specialists are responsible for price determination and quotation for the shares supported by them. The order book in which all buy and sell orders are compiled serves as their basis. Thereby, only one Specialist is in charge of each security. In Frankfurt, for Prime and General Standard Instruments, ten investment firms serve as Specialist, also spending liquidity. Since early 2005 a performance measurement for price determination on the floor was launched. It includes minimum requirements and therefore ensures


	•	permanent quotation during trading hours

	•	best price execution (in terms of spread and speed)

	•	full execution.

Our shares are traded on Xetra (Exchange Electronic Trading) in addition to being traded on the Frankfurt floor. The trading hours for Xetra are between 9:00 a.m. and 5:30 p.m. CET. Only brokers and banks that have been admitted to Xetra by the Frankfurt Stock Exchange may trade on the system. Private investors can trade on Xetra through their banks and brokers.

Deutsche Börse AG publishes information for all traded securities on the Internet, webpage http://www.deutsch-boerse.com.

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 Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), an independent federal authority, is responsible for the general supervision of securities trading pursuant to provisions of the German Securities Trading Act (Wertpapierhandelsgesetz) and other laws.

The table below sets forth for the periods indicated, the high and low closing sales prices in euro for the Ordinary shares and the Preference shares on the Frankfurt Stock Exchange, as reported by the Frankfurt Stock Exchange Xetra system. Since January 4, 1999, all shares on German stock exchanges trade in euro.


		Price per				Price per
		ordinary share (€)				preference share (€)

		High		Low		High		Low

2007	January		105.30		101.00		100.00		95.80
2006	December		108.10		99.40		101.50		92.80
	November		106.50		101.20		99.00		93.40
	October		108.90		100.40		100.60		92.20
	September		103.60		99.20		96.80		91.00
	August		103.50		94.30		97.00		87.50
2006	Fourth Quarter		108.90		99.40		101.50		92.20
	Third Quarter		103.60		88.70		97.00		81.90
	Second Quarter		100.00		82.50		95.10		75.10
	First Quarter		99.20		85.80		94.00		75.90
2005	Fourth Quarter		89.45		74.25		79.31		63.50
	Third Quarter		76.41		69.54		65.70		56.39
	Second Quarter		70.67		60.53		57.60		43.90
	First Quarter		68.23		57.37		48.95		41.60
2006	Annual		108.90		82.50		101.50		75.10
2005	Annual		89.45		57.37		79.31		41.60
2004	Annual		63.63		49.46		45.45		33.73
2003	Annual		57.00		38.00		41.00		28.50
2002	Annual		73.00		19.98		53.90		15.17

The average daily trading volume of the Ordinary shares and the Preference shares traded on the Frankfurt Stock Exchange during 2006 were 437.042 shares and 11,650 shares, respectively. The foregoing numbers are based on total yearly turnover statistics supplied by the Frankfurt Stock Exchange. On February 19, 2007, the closing sales price per Ordinary share and per Preference share on the Frankfurt Stock Exchange were €110.85 per Ordinary share and €106.00 per Preference share.

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 and the Preference ADSs on the NYSE:


		Price per				Price per
		ordinary ADS ($)				preference ADS ($)

		High		Low		High		Low

2007	January⁽¹⁾		45.30		43.69		41.00		41.00
2006	December		47.60		44.20		40.00		38.50
	November		45.50		44.20		38.50		38.50
	October		45.80		42.10		38.50		38.00
	September		44.00		42.20		38.00		38.00
	August		44.50		40.40		38.00		33.30
2006	Fourth Quarter		47.60		42.10		40.00		38.00
	Third Quarter		44.50		37.80		38.00		33.30
	Second Quarter		41.40		34.50		34.80		33.30
	First Quarter		40.00		34.90		34.80		31.00
2005	Fourth Quarter		35.22		29.71		31.20		25.30
	Third Quarter		31.49		27.90		26.75		22.90
	Second Quarter		28.45		26.05		22.80		19.50
	First Quarter		29.94		25.09		21.40		18.16
2006	Annual		47.60		34.50		40.00		31.00
2005	Annual		35.22		25.09		31.20		18.16
2004	Annual		27.23		20.41		19.15		13.86
2003	Annual		23.54		13.20		16.68		9.85
2002	Annual		21.60		6.70		15.70		4.90

(1) Preference Shares had only one trade during January 2007.

On February 16, 2007, the closing sales price on the NYSE per ordinary ADS was $47.80 and on February 6, 2006 (the last trading date for which information was available), the closing price per Preference ADS on the NYSE was $44.30.


Item 10.	*Additional information*


B.	Articles of Association

FMC-AG & Co. KGaA is a partnership limited by shares (Kommanditgesellschaft auf Aktien) organized under the laws of Germany. FMC-AG & Co. KGaA is registered with the commercial register of the local court (Amtsgericht) of Hof an der Saale, Germany under HRB 4019. Our registered office (Sitz) is Hof an der Saale, Germany. Our business address is Else-Kröner-Strasse 1, 61352 Bad Homburg, Germany, telephone +49-6172-609-0.

The following summary of the material provisions of our Articles of Association is qualified in its entirety by reference to the complete text of our Articles of Association, a copy of which has been filed with the Securities and Exchange Commission.

Corporate Purposes

Under our articles of association, our business purposes are:


	•	the development, production and distribution of as well as the trading in health care products, systems and procedures, including dialysis;


	•	the projecting, planning, establishment, acquisition and operation of health care businesses, including, dialysis centers, also in separate enterprises or through third parties as well as the participation in such dialysis centers;

	•	the development, production and distribution of other pharmaceutical products and the provision of services in this field;

	•	the provision of advice in the medical and pharmaceutical areas as well as scientific information and documentation;

	•	the provision of laboratory services for dialysis and non-dialysis patients and homecare medical services.

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

General Information Regarding Our Share Capital

As of February 10, 2006, our share capital consists of €250,271,178.24, divided into 96,629,422 ordinary shares without par value (Stückaktien) and 1,132,422 non-voting preference shares without par value (Stückaktien). Our share capital has been fully paid in. The relative rights and privileges of our ordinary shares and our preference shares did not change as a result of the conversion and transformation.

All shares of FMC-AG & Co. KGaA are in bearer form. Our shares are deposited as share certificates in global form (Sammelurkunden) with Clearstream Banking AG, Frankfurt am Main. Shareholders are not entitled to have their shareholdings issued in certificated form. All shares of FMC-AG & Co. KGaA are freely transferable, subject to any applicable restrictions imposed by the United States Securities Act of 1933, as amended, or other applicable laws.

General provisions on Increasing the Capital of Stock Corporations and Partnerships Limited by Shares

Under the German Stock Corporation Act, the capital of a stock corporation or of a partnership limited by shares may be increased by a resolution of the general meeting, passed with a majority of three quarters of the capital represented at the vote, unless the Articles of Association of the stock corporation or the partnership limited by shares provide for a different majority.

In addition, the general meeting of a stock corporation or a partnership limited by shares may create authorized capital (also called approved capital). The resolution creating authorized capital requires the affirmative vote of a majority of three quarters of the capital represented at the vote and may authorize the management board to issue shares up to a stated amount for a period of up to five years. The nominal value of the authorized capital may not exceed half of the capital at the time of the authorization.

In addition, the general meeting of a stock corporation or of a partnership limited by shares may create conditional capital for the purpose of issuing (i) shares to holders of convertible bonds or other securities which grant a right to shares, (ii) shares as consideration in the case of a merger with another company, or (iii) shares offered to management or employees. In each case, the authorizing resolution requires the affirmative vote of a majority of three quarters of the capital represented at the vote. The nominal value of the conditional capital may not exceed half or, in the case of conditional capital created for the purpose of issuing shares to management and employees 10%, of the company’s capital at the time of the resolution.

In a partnership limited by shares all resolutions increasing the capital of the partnership limited by shares also require the consent of the general partner for their effectiveness.

Voting Rights

Each ordinary share entitles the holder thereof to one vote at general meetings of shareholders of FMC-AG & Co. KGaA. Resolutions are passed at an ordinary general or an extraordinary general meeting of our shareholders by a majority of the votes cast, unless a higher vote is required by law or our articles of association (such as the provisions in the FMC-AG & Co. KGaA articles of association relating to the election of our

supervisory board). By statute, Fresenius AG as shareholder of the general partner is not entitled to vote its ordinary shares in the election or removal of members of the supervisory board, the ratification of the acts of the general partners and members of the supervisory board, the appointment of special auditors, the assertion of compensation claims against members of the executive bodies arising out of the management of the Company, the waiver of compensation claims and the appointment of auditors. In the case of resolutions regarding such matters Fresenius AG’s voting rights may not be exercised by any other person.

Our preference shares do not have any voting rights, except as described in this paragraph. If we do not pay the minimum annual dividend payable on the preference shares for any year in the following year, and we do not pay both the dividend arrearage and the dividend payable on the preference shares for such 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 most matters affecting their preferential rights, such as changes in the rate of the preferential dividend. Any such vote requires the affirmative vote of 75% of the votes cast in a meeting of holders of preference shares.

Dividend Rights

The general partner and our supervisory board will propose any dividends for approval at the annual general meeting of shareholders. Usually, shareholders vote on a recommendation made by management (i.e., the general partner) and the supervisory board as to the amount of dividends to be paid. Any dividends are paid once a year, generally, immediately following our annual general meeting.

Under German law, dividends may only be paid from our balance sheet profits as determined by our unconsolidated annual financial statements (Bilanzgewinn) as approved by our annual general meeting of shareholders and the general partner. Unlike our consolidated annual financial statements, which are prepared on the basis of accounting principles generally accepted in the United States of America (U.S. GAAP), the unconsolidated annual financial statements referred to above are prepared on the basis of the accounting principles of the German Commercial Code (Handelsgesetzbuch or HGB). Since our ordinary shares and our preference shares that 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 electronic version of the German Federal Gazette (elektronischer Bundesanzeiger). If dividends are declared, preference shareholders will receive €0.06 per share more than the dividend payable on our ordinary shares, but not less than €0.12 per share. Under German law, we must pay the annual dividend for our preference shares prior to paying any dividends on the ordinary shares. If the profit shown on the balance sheet in one or more fiscal years is not adequate to permit distribution of a dividend of €0.12 per preference share, the shortfall without interest must be made good out of the profit on the balance sheet in the following fiscal year or years after distribution of the minimum dividend on the preference shares for that year or years and prior to the distribution of a dividend on the ordinary shares. The right to this payment is an integral part of the profit share of the fiscal year from which the shortfall in the preference share dividend is made good. The preferential dividend rights of our preference shares will not change as a result of the transformation of legal form.

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.”

Liquidation Rights

Our company may be dissolved by a resolution of our general shareholders’ meeting passed with a majority of three quarters of our share capital represented at such general meeting and the approval of the general partner. In accordance with the German Stock Corporation Act (Aktiengesetz), in such a case, any liquidation proceeds remaining after paying all of our liabilities will be distributed among our shareholders in proportion to the total

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number of shares held by each shareholder. Our preference shares are not entitled to a preference in liquidation. Liquidation rights did not change as a result of the transformation of legal form.

Pre-emption Rights

Under the German Stock Corporation Act (Aktiengesetz), each shareholder in a stock corporation or partnership limited by shares has a preferential right to subscribe for any issue by that company of shares, debt instruments convertible into shares, e.g. convertible bonds or option bonds, and participating debt instruments, e.g. profit participation rights or participating certificates, in proportion to the number of shares held by that shareholder in the existing share capital of the company. Such pre-emption rights are freely assignable. These rights may also be traded on German stock exchanges within a specified period of time prior to the expiration of the subscription period. Our general shareholders’ meeting may exclude pre-emption rights by passing a resolution with a majority of at least three quarters of our share capital represented at the general meeting at which the resolution to exclude the pre-emption rights is passed. In addition, an exclusion of pre-emption rights requires a report by the general partner justifying the exclusion by explaining why the interest of FMC-AG & Co. KGaA in excluding the pre-emption rights outweighs our shareholders’ interests in receiving such rights. However, such justification is not required for any issue of new shares if:


	•	we increase our share capital against contributions in cash;

	•	the amount of the capital increase does not exceed 10% of our existing share capital; and

	•	the issue price of the new shares is not significantly lower than the price for the shares quoted on a stock exchange.

Exclusion of Minority Shareholders

Under the provisions of Sections 327a et seq. of the German Stock Corporation Act concerning squeeze-outs, a shareholder who owns 95% of the issued share capital (a “principal shareholder”) may request that the annual shareholders’ meeting of a stock corporation or a partnership limited by shares resolve to transfer the shares of the other minority shareholders to the principal shareholder in return for adequate cash compensation. In a partnership limited by shares, the consent of the general partner(s) is not necessary for the effectiveness of the resolution. The amount of cash compensation to be paid to the minority shareholders must take account of the issuer’s financial condition at the time the resolution is passed. The full value of the issuer, which is normally calculated using the capitalization of earnings method (Ertragswertmethode), is decisive for determining the compensation amount.

In addition to the provisions for squeeze-outs of minority shareholders, Sections 319 et seq. of the German Stock Corporation Act provides for the integration of stock corporations. In contrast to the squeeze-out of minority shareholders, integration is only possible when the future principal company is a stock corporation with a stated domicile in Germany. A partnership limited by shares can not be integrated into another company.

General Meeting

Our annual general meeting must be held within the first eight months of each fiscal year at the location of FMC-AG & Co. KGaA’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. To attend the general meeting and exercise voting rights after the registration of the transformation, shareholders must register for the general meeting and prove ownership of shares. The relevant reporting date is the beginning of the 21st day prior to the general meeting.

Amendments to the Articles of Association

An amendment to our articles of association requires both a voting majority of 75% of the shares entitled to vote represented at the general meeting and the approval of the general partner.

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Description of American Depositary Receipts

General

The Bank of New York, a New York banking corporation, is the depositary (expected to occur on February 26, 2006) for our ordinary shares and preference shares. Each American Depositary Share (ADS) represents an ownership interest in one-third of one ordinary share or one-third of one preference share. The deposited shares are deposited with a custodian, as agent of the depositary, under the deposit agreements among ourselves, the depositary and all of the ADS holders of the applicable class from time to time. 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 may be evidenced by certificates called American depositary receipts or ADRs. ADSs may also be uncertificated. Under our deposit agreements, ADSs will be issued in uncertificated form unless the person entitled to delivery specifically requested ADSs in certificated form. If an ADS are issued in uncertificated form, owners will receive periodic statements from the depositary showing their ownership interest in ADSs.

The depositary’s office is located at 101 Barclay Street, New York, NY 10286, U.S.A.

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 ADS 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 ADS 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 agreements. The deposit agreements and the ADSs are governed by New York law.

As of December 31, 2006, we had 1,526,325 preference share ADSs outstanding. Accordingly, while the preference share ADSs remain listed on the New York Stock Exchange, we expect that the trading market for the preference share ADSs will by highly illiquid. In addition, the New York Stock Exchange has advised us that if the number of publicly held preference share ADSs falls below 100,000 preference share ADSs are likely to be delisted.

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 share ADSs and preference share ADSs. For more complete information, investors should read the entire applicable deposit agreements 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, located at 100 F Street N.E., Washington, D.C. 20549.

Share Dividends and Other Distributions

We may make different 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 fees and 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 ADS 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 fees and expenses In addition, before making a distribution the depositary will deduct any taxes

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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 deliver additional ADSs to represent the distributed shares, unless the number of ordinary shares or preference shares represented by our ADSs is adjusted in connection with the distribution. 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 ADS holders otherwise entitled to receive fractional ADSs.

• Rights to receive additional shares. In the case of a distribution of pre-emption rights to subscribe for ordinary shares or preference shares, or other subscription rights, if we provide satisfactory evidence that the depositary may lawfully distribute the rights, the depositary may arrange for ADS 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 ADS holders will receive nothing.

We have no obligation to file a registration statement under the U.S. Securities Act of 1933, as amended (the “Securities Act”) in order to make any rights available to ADS 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;

	•	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 U.S. dollars will be distributed by checks drawn on a bank in the United States for whole dollars and cents (fractional cents will be rounded to the nearest whole cent).

The depositary may choose any practical method of distribution for any specific ADS 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 ADS 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 ADS 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 deliver 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. ADS holders thus have no direct ownership interest in the shares and only have the rights that are contained in the deposit agreements. 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.”

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name of the person entitled to them. The ADR or ADRs will evidence the number of ADSs to which the person making the deposit is entitled.

All ADSs issued will, unless specifically requested to the contrary, be uncertificated and held through the depositary’s book-entry direct registration system (“DRS”), 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 ADS holder can request that the ADSs not be held through the depositary’s DRS and that an ADR be issued to evidence those ADSs. ADRs will be delivered at the depositary’s principal New York office or any other location that it may designate as its transfer office.

Profile is a required feature of DRS which allows a participant in The Depository Trust Company (“DTC”), claiming to act on behalf of a registered holder of ADSs, to direct the depositary to register a transfer of those ADSs to DTC or its nominee and to deliver those ADSs to the DTC account of that DTC participant without receipt by the depositary of prior authorization from the ADS registered holder to register that transfer.

In connection with and in accordance with the arrangements and procedures relating to DRS/ Profile, the parties to the Deposit Agreement understand that the depositary will not verify, determine or otherwise ascertain that the DTC participant which is claiming to be acting on behalf of an ADS registered holder in requesting registration of transfer and delivery described in the paragraph above has the actual authority to act on behalf of the ADS registered holder (notwithstanding any requirements under the Uniform Commercial Code). In the Deposit Agreement, the parties agree that the depositary’s reliance on and compliance with instructions received by the depositary through the DRS/ Profile System and in accordance with the Deposit Agreement, shall not constitute negligence or bad faith on the part of 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 ordinary shares or preference shares represented by the ADSs turned in to the account the investor directs within Clearstream Banking AG, the central German clearing firm.

The depositary may restrict the withdrawal of deposited securities only 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

Upon each deposit of shares, receipt of related delivery documentation and compliance with the other provisions of the deposit agreement, including the payment of the fees and charges of the depositary and any taxes or other fees or charges owing, the depositary will issue an ADR or ADRs of the applicable class in the name of the person entitled to them. The ADR or ADRs will evidence the number of ADSs to which the person making the deposit is entitled.

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The depositary may restrict the withdrawal of deposited securities only 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.

Fees and Expenses

ADS holders will be charged a fee for each issuance of ADSs, including issuances resulting from distributions of shares, rights and other property, and for each surrender of ADSs in exchange for deposited securities. The fee in each case is $5.00 for each 100 ADSs (or any portion thereof) issued or surrendered.

The following additional charges shall be incurred by the ADS holders, by any party depositing or withdrawing shares or by any party surrendering ADRs or to whom ADRs are issued (including, without limitation, issuance pursuant to a stock dividend or stock split declared by the Company or an exchange of stock regarding the ADRs or the deposited securities or a distribution of ADRs), whichever is applicable:


	•	a fee of $0.02 or less per ADS (or portion thereof) for any cash distribution made pursuant to the deposit agreement;

	•	a fee of $0.02 per ADS (or portion thereof) per year for services performed by the depositary in administering our ADR program (which fee shall be assessed against holders of ADRs as of the record date set by the depositary not more than once each calendar year and shall be payable in the manner described in the next succeeding provision);

	•	any other charge payable by any of the depositary, any of the depositary’s agents, including, without limitation, the custodian, or the agents of the depositary’s agents in connection with the servicing of our shares or other deposited securities (which charge shall be assessed against registered holders of our

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ADRs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions);

• a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto;

• stock transfer or other taxes and other governmental charges;

• cable, telex and facsimile transmission and delivery charges incurred at your request;

• transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities;

• expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and

• such fees and expenses as are incurred by the depositary or its agents in connection with servicing the deposited securities.

We will pay all other charges and expenses of the depositary and any agent of the depositary (except the custodian) pursuant to agreements from time to time between us and the depositary. The fees described above may be amended from time to time.

Payment of Taxes

ADR holders must pay any tax or other governmental charge payable by the custodian or the depositary on any ADS or ADR, deposited security or distribution. If an ADS holder owes any tax or other governmental charge, the depositary may (i) deduct the amount thereof from any cash distributions, or (ii) sell deposited securities and deduct the amount owing from the net proceeds of such sale. In either case the ADS holder remains liable for any shortfall. Additionally, if any tax or governmental charge is unpaid, the depositary may also refuse to effect any registration, registration of transfer, split-up or combination of deposited securities or withdrawal of deposited securities (except under limited circumstances mandated by securities regulations). If any tax or governmental charge is required to be withheld on any non-cash distribution, the depositary may sell the distributed property or securities to pay such taxes and distribute any remaining net proceeds to the ADS holders entitled thereto.

Limitations on Obligations and Liability

Limits on our Obligations and the Obligations of the Depositary; Limits on Liability to Holders of ADSs

The deposit agreement expressly limits our obligations and the obligations of the depositary. It also limits our liability and the liability of the depositary. We and the depositary:


	•	are only obligated to take the actions specifically set forth in the deposit agreement without negligence or bad faith;

	•	are not liable if we are or it is prevented or delayed by law or circumstances beyond our control from performing our or its obligations under the deposit agreement;

	•	are not liable if we or it exercises discretion permitted under the deposit agreement;

	•	have no obligation to become involved in a lawsuit or other proceeding related to the ADSs or the deposit agreement on your behalf or on behalf of any other person;

	•	may rely upon any documents we believe or it believes in good faith to be genuine and to have been signed or presented by the proper person.

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In the deposit agreement, we and the depositary agree to indemnify each other under certain circumstances.

Requirements for Depositary Actions

Before the depositary will deliver or register a transfer of an ADS, make a distribution on an ADS, or permit withdrawal of shares, the depositary may require:


	•	payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

	•	satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

	•	compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

The depositary may refuse to deliver ADSs or register transfers of ADSs generally when the transfer books of the depositary or our transfer books are closed or at any time if the depositary or we think it advisable to do so.

Shareholder communications; inspection of register of holders of ADSs

The depositary will make available for your inspection at its office all communications that it receives from us as a holder of deposited securities that we make generally available to holders of deposited securities. The depositary will send you copies of those communications if we ask it to. You have a right to inspect the register of holders of ADSs, but not for the purpose of contacting those holders about a matter unrelated to our business or the ADSs.

Description of The Pooling Arrangements

Prior to the transformation of legal form, FMC-AG, Fresenius AG and the independent directors (as defined in the pooling agreements referred to below) of FMC-AG were parties to two pooling agreements for the benefit of the holders of our ordinary shares and the holders of our preference shares (other than Fresenius AG and its affiliates). Upon consummation of the conversion and the transformation, we entered into pooling arrangements that we believe provide similar benefits for the holders of the ordinary shares and preference shares of FMC-AG & Co. KGaA. The following is a summary of the material provisions of the pooling arrangements which we have entered into with Fresenius AG and our independent directors.

General

The pooling arrangements have been entered into for the benefit of all persons who, from time to time, beneficially own our ordinary shares, including owners of ADSs evidencing our ordinary shares, other than Fresenius AG and its affiliates or their agents and representatives, and persons from time to time beneficially owning our preference shares, including (if the preference ADSs are eligible for listing on the New York Stock Exchange), ADSs evidencing our preference shares, other than Fresenius AG and its affiliates or their agents and representatives. Beneficial ownership is determined in accordance with the beneficial ownership rules of the SEC.

Independent Directors

Under the pooling arrangements, no less than one-third of the supervisory board of Management AG, the general partner of FMC-AG & Co. KGaA, must be independent directors, and there must be at least two independent directors. Independent directors are persons without a substantial business or professional relationship with us, Fresenius AG, or any affiliate of either, other than as a member of the supervisory board of FMC-AG & Co. KGaA or as a member of the supervisory board of Management AG. If an independent director resigns, is removed, or is otherwise unable or unwilling to serve in that capacity, a new person will be appointed to serve as an independent director in accordance with the provisions of our articles of association, the articles of association of the general partner, and the pooling arrangements, if as a result of the resignation or removal the number of independent directors falls below the required minimum. The provisions of the pooling agreement

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relating to independent directors are in addition to the functions of the joint committee established in connection with the transformation of our legal form and conversion of our preference shares.

Extraordinary Transactions

Under the pooling arrangements, we and our affiliates on the one hand, and Management AG and Fresenius AG and their affiliates on the other hand, must comply with all provisions of German law regarding: any merger, consolidation, sale of all or substantially all assets, recapitalization, other business combination, liquidation or other similar action not in the ordinary course of our business, any issuance of shares of our voting capital stock representing more than 10% of our total voting capital stock outstanding on a fully diluted basis, and any amendment to our articles of association which adversely affects any holder of ordinary shares or preference shares, as applicable.

Interested Transactions

We and Management AG and Fresenius AG have agreed that while the pooling arrangements are in effect, a majority of the independent directors must approve any transaction or contract, or any series of related transactions or contracts, between Fresenius AG or any of its affiliates, on the one hand, and us or our controlled affiliates, on the other hand, which involves aggregate payments in any year in excess of €5 million for each individual transaction or contract, or a related series of transactions or contracts. However, approval is not required if the transaction or contract, or series of related transactions or contracts, has been described in a business plan or budget that a majority of independent directors has previously approved. In any year in which the aggregate amount of transactions that require approval, or that would have required approval in that year but for the fact that such payment or other consideration did not exceed €5 million, has exceeded €25 million, a majority of the independent directors must approve all further interested transactions involving more than €2.5 million. However, approval is not required if the transaction or contract, or series of related transactions or contracts, has been described in a business plan or budget that a majority of independent directors has previously approved.

Listing of American Depositary Shares; SEC Filings

During the term of the pooling agreement, Fresenius AG has agreed to use its best efforts to exercise its rights as the direct or indirect holder of the general partner interest in Fresenius Medical Care KGaA to cause us to, and we have agreed to:


	•	maintain the effectiveness of (i) the deposit agreement for the ordinary shares, or a similar agreement, and to assure that the ADSs evidencing the ordinary shares are listed on either the New York Stock Exchange or the Nasdaq Stock Market and (ii), while the preference ADSs are eligible for listing on the New York Exchange or the Nasdaq Stock Market, the deposit agreement for the preference shares, or a similar agreement, and to assure that, if eligible for such listing, the ADSs evidencing the preference shares are listed on either the New York Stock Exchange or the Nasdaq Stock Market;

	•	file all reports, required by the New York Stock Exchange or the Nasdaq Stock Market, as applicable, the Securities Act, the Securities Exchange Act of 1934, as amended, and all other applicable laws;

	•	prepare all financial statements required for any filing in accordance with generally accepted accounting principles of the U.S. (“U.S. GAAP”);

	•	on an annual basis, prepare audited consolidated financial statements including, without limitation, a balance sheet, a statement of income and retained earnings, and a statement of changes in financial position, and all appropriate notes, all in accordance U.S. GAAP, and, on a quarterly basis, prepare and furnish consolidated financial statements prepared in accordance with U.S. GAAP;

	•	furnish materials with the SEC with respect to annual and special shareholder meetings under cover of Form 6-K and make the materials available to the depositary for distribution to holders of ordinary share ADSs and, if we maintain a preference share ADS facility, to holders of preference share ADSs at any time that holders of preference shares are entitled to voting rights; and

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	•	make available to the depositary for distribution to holders of ADSs representing our ordinary shares and, if we maintain a preference share ADS facility, ADSs representing our preference shares on an annual basis, a copy of any report prepared by the supervisory board or the supervisory board of the general partner and provided to our shareholders generally pursuant to Section 314(2) of the German Stock Corporation Act, or any successor provision. These reports concern the results of the supervisory board’s examination of the managing board’s report on our relation with affiliated enterprises.

Term

The pooling arrangements will terminate if:


	•	Fresenius AG or its affiliates acquire all our voting capital stock;

	•	Fresenius AG’s beneficial ownership of our outstanding share capital is reduced to less than 25%;

	•	Fresenius AG or an affiliate of Fresenius AG ceases to own the general partner interest in FMC-AG & Co. KGaA; or

	•	we no longer meet the minimum threshold for obligatory registration of the ordinary shares or ADSs representing our ordinary shares and the preference shares or ADSs representing our preference shares, as applicable, under Section 12(g)(1) of the Securities Exchange Act of 1934, as amended, and Rule 12g-1 thereunder.

Amendment

Fresenius AG and a majority of the independent directors may amend the pooling arrangements, provided, that beneficial owners of 75% of the ordinary shares held by shareholders other than Fresenius AG and its affiliates at a general meeting of shareholders and 75% of the preference shares at a general meeting of preference shareholders, as applicable, approve such amendment.

Enforcement; Governing Law

The pooling arrangements are governed by New York law and may be enforced in the state and federal courts of New York. The Company and Fresenius AG have confirmed their intention to abide by the terms of the pooling arrangements as described above.

Directors and Officers Insurance

Subject to any mandatory restrictions imposed by German law, FMC-AG has obtained and FMC-AG & Co. KGaA will continue to maintain directors and officers insurance in respect of all liabilities arising from or relating to the service of the members of the supervisory board and our officers. We believe that our acquisition of that insurance is in accordance with customary and usual policies followed by public corporations in the U.S.


C.	Material contracts

For information regarding certain of our material contracts, see “Item 7.B. Major Shareholders and Related Party Transactions — Related Party Transactions.” For a description of our stock option plans, see “Item 6.E. Directors, Senior Management and Employees — Share Ownership — Options to Purchase our Securities.” For a description of our 2006 Senior Credit Agreement, see “Item 5B. Operating and Financial Review and Prospects — Liquidity and Capital Resources.” Our material agreements also include the agreements that FMCH and certain of its subsidiaries entered into with the U.S. government when we settled a U.S. government investigation. Our Report on Form 6-K filed with the SEC on January 27, 2000 contains a description of the agreements comprising the settlement, including the plea agreements and a corporate integrity agreement in Part II, Item 5 — “Other Events — OIG Investigation,” which is incorporated herein by reference.

Our material agreements include the settlement agreement that we, FMCH and NMC entered into with the Official Committee of Asbestos Injury Claimants, and the Official Committee of Asbestos Property Damage Claimants of W.R. Grace & Co. A description which appears in Item 8.A.7 — “ Financial Information Legal

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Proceedings” and the merger agreement among us, FMCH and RCG. For a description of the RCG acquisition, see Item 5.B., Operating and Financial Review and Prospects — Liquidity and Financial Resource — Outlook.”


D.	Exchange controls

Exchange Controls and Other Limitations Affecting Security Holders.

At the present time, Germany does not restrict the export or import of capital, except for investments in areas like Iraq, Serbia, Montenegro or Sierra Leone. However, for statistical purposes only, every resident individual or corporation residing in Germany must report to the German Federal Bank (Deutsche Bundesbank), subject only to certain immaterial exceptions, any payment received from or made to an individual or a corporation resident outside of Germany if such payment exceeds €12,500. In addition, residents must report any claims against, or any liabilities payable to, non-residents individuals or corporations, if such claims or liabilities, in the aggregate €5 million at the end of any month.

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


E.	Taxation

U.S. and German Tax Consequences of Holding ADSs

The discussion below is not a complete analysis of all of the potential U.S. federal and German tax consequences of holding ADSs of FMC-AG & Co. KGaA. In addition, the U.S. federal and German tax consequences to particular U.S. holders, such as insurance companies, tax-exempt entities, investors holding ADSs through partnerships or other fiscally transparent entities, investors liable for the alternative minimum tax, investors that hold ADSs as part of a straddle or a hedge, investors whose functional currency is not the U.S. dollar, financial institutions and dealers in securities, and to non-U.S. holders may be different from that discussed herein. Investors should consult their tax advisors with respect to the particular United States federal and German tax consequences applicable to holding ADSs of FMC-AG & Co.KGaA.

Tax Treatment of Dividends

Currently, German corporations are required to withhold tax on dividends paid to resident and non-resident shareholders. The required withholding rate applicable is 20% plus a solidarity surcharge of 5.5% thereon, equal to 1.1% of the gross dividend (i.e., 5.5% of the 20% tax). Accordingly, a total German withholding tax of 21.1% of the gross dividend is required. A partial refund of this withholding tax can be obtained by U.S. holders under the U.S.-German Tax Treaty. For U.S. federal income tax purposes, U.S. holders are taxable on dividends paid by German corporations subject to 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 U.S. federal income tax depend on whether the U.S. holder is a corporation owning at least 10% of the voting stock of the German corporation.

In the case of any U.S. holder, other than a U.S. corporation owning our ADSs representing at least 10% of our outstanding voting stock, the German withholding tax is partially refunded under the U.S.-German Tax Treaty to reduce the withholding tax to 15% of the gross amount of the dividend. Thus, for each $100 of gross dividend that we pay to a U.S. holder, other than a U.S. corporation owning our ADSs representing at least 10% of our outstanding voting stock, the dividend after partial refund of $6.10 of the $21.10 withholding tax under the U.S.-German Tax Treaty will be subject to a German withholding tax of $15. For U.S. foreign tax credit purposes, the U.S. holder would report dividend income of $100 (to the extent paid out of current and accumulated earnings and profits) and foreign taxes paid of $15, for purposes of calculating the foreign tax credit or the deduction for taxes paid.

Subject to certain exceptions, dividends received by a non-corporate U.S. holder will be subject to a maximum U.S. federal income tax rate of 15%. The lower rate applies to dividends only if the ADSs in respect of which such dividend is paid have been held for at least 61 days during the 121 day period beginning 60 days

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before the ex-dividend date. Periods during which you hedge a position in our ADSs or related property may not count for purposes of the holding period test. The dividends would also not be eligible for the lower rate if you elect to take dividends into account as investment income for purposes of limitations on deductions for investment income. U.S. holders should consult their own tax advisors regarding the availability of the reduced dividend rate in light of their own particular circumstances.

In the case of a corporate U.S. holder owning our ADSs representing at least 10% of our outstanding voting stock, the 21.1% German withholding tax is reduced under the U.S.-German Tax Treaty to 5% of the gross amount of the dividend. Such a corporate U.S. holder may, therefore, apply for a refund of German withholding tax in the amount of 16.1% of the gross amount of the dividends. A corporate U.S. holder will generally not be eligible for the dividends-received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.

Subject to certain complex limitations, a U.S. holder is generally entitled to a foreign tax credit equal to the portion of the withholding tax that cannot be refunded under the U.S.-German Tax Treaty.

Dividends paid in Euros to a U.S. holder of ADSs will be included in income in a dollar amount calculated by reference to the exchange rate in effect on the date the dividends, including the deemed refund of German corporate tax, are included in income by such a U.S. holder. If dividends paid in Euros are converted into dollars on the date included in income, U.S. holders generally should not be required to recognize foreign currency gain or loss in respect of the dividend income.

Under the U.S.-German Tax Treaty the refund of German tax, including the withholding tax, Treaty payment and solidarity surcharge, will not be granted when the ADSs are part of the business property of a U.S. holder’s permanent establishment located in Germany or are part of the assets of an individual U.S. holder’s fixed base located in Germany and used for the performance of independent personal services. But then withholding tax and solidarity surcharge may be credited against German income tax liability.

Refund Procedures

To claim a refund under the U.S.-German Tax Treaty, the U.S. holder must submit 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 refund are made on a special German claim for refund form, which must be filed with the German tax authorities: Bundeszentralamt fúr Steuern, 53221 Bonn-Beuel, Germany. The claim 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, or from the Office of International Operations, Internal Revenue Service, 1325 K Street, N.W., Washington, D.C. 20225, Attention: Taxpayer Service Division, Room 900 or can be downloaded from the homepage of the Bundesamt für Finanzen (www.bzst.bund.de).

U.S. holders must also submit to the German tax authorities certification of their last filed U.S. federal income tax return. Certification is obtained from the office of the Director of the Internal Revenue Service Center by filing a request for certification with the Internal Revenue Service Center, Foreign Certificate Request, P.O. Box 16347, Philadelphia, PA 19114-0447. Requests for certification are to be made in writing and must include the U.S. holder’s name, address, phone number, 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 back to the U.S. holder for filing with the German tax authorities.

U.S. holders of ADSs who receive a refund attributable to reduced withholding taxes under the U.S.-German Tax Treaty may be required to recognize foreign currency gain or loss, which will be treated as ordinary income or loss, to the extent that the dollar value of the refund received by the U.S. holders differs from the dollar equivalent of the refund on the date the dividend on which such withholding taxes were imposed was received by the depositary or the U.S. holder, as the case may be.

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Taxation of Capital Gains

Under the U.S.-German Tax Treaty, a U.S. holder who is not a resident of Germany for German tax purposes will not be liable for German tax on capital gains realized or accrued on the sale or other disposition of ADSs unless the ADSs are part of the business property of a permanent establishment located in Germany or are part of the assets of a fixed base of an individual located in Germany and used for the performance of independent personal services.

Upon a sale or other disposition of the ADSs, a U.S. holder will recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between the amount realized and the U.S. holder’s tax basis in the ADSs. Such gain or loss will generally be capital gain or loss if the ADSs are held by the U.S. holder as a capital asset, and will be long-term capital gain or loss if the U.S. holder’s holding period for the ADSs exceeds one year. Individual U.S. holders are generally taxed at a maximum 15% rate on net long-term capital gains.

Gift and Inheritance Taxes

The U.S.-Germany estate, inheritance and gift tax treaty provides that an individual whose domicile is determined to be in the U.S. for purposes of such treaty will not be subject to German inheritance and gift tax, the equivalent of the U.S. federal estate and gift tax, on the individual’s death or making of a gift unless the ADSs are part of the business property of a permanent establishment located in Germany or 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 U.S., 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.

Such treaty also provides a credit against U.S. 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 ADSs are subject to German inheritance or gift tax and U.S. federal estate or gift tax.

Other German Taxes

There are no German transfer, stamp or other similar taxes that would apply to U.S. holders who purchase or sell ADSs.

United States Information Reporting and Backup Withholding

Dividends and payments of the proceeds on a sale of ADSs, paid within the United States or through U.S.-related financial intermediaries are subject to information reporting and may be subject to backup withholding unless you (1) are a corporation or other exempt recipient or (2) provide a taxpayer identification number and certify (on Internal Revenue Service Form W-9) that no loss of exemption from backup withholding has occurred.

Non-U.S. shareholders are not U.S. persons generally subject to information reporting or backup withholding. However, a non-U.S. holder may be required to provide a certification (generally on Internal Revenue Service Form W-8BEN) of its non-U.S. status in connection with payments received in the United States or through a U.S.-related financial intermediary.

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 100 F Street N.E., Washington, D.C. 20549 or at the Securities and Exchange Commission’s regional offices 233 Broadway, New York, New York 10279 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The public may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy and information statements and

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other information regarding registrants that file electronically with the Securities and Exchange Commission. The Securities and Exchange Commission’s World Wide Web address is http://www.sec.gov.

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

We prepare annual and quarterly reports, which are then distributed to our shareholders. Our annual reports contain financial statements examined and reported upon, with opinions expressed by our independent auditors. Our consolidated financial statements 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,

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


Item 11.	*Quantitative and Qualitative Disclosures About Market Risk*

Market Risk

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


	•	changes in reimbursement rates;

	•	intense competition;

	•	foreign exchange rate fluctuations;

	•	varying degrees of acceptance of new product introductions;

	•	technological developments in our industry;

	•	uncertainties in litigation or investigative proceedings and regulatory developments in the health care sector; and

	•	the availability of financing.

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Reimbursement Rates

We obtained approximately 38% of our worldwide revenue for 2006 from sources subject to regulations under U.S. government health care programs. In the past, U.S. budget deficit reduction and health care reform measures have changed the reimbursement rates under these programs, including the Medicare composite rate, the reimbursement rate for EPO, and the reimbursement rates for other dialysis and non-dialysis related services and products, as well as other material aspects of these programs, and they may change in the future.

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

Inflation

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

Management of Foreign Exchange and Interest Rate Risks

We are primarily exposed to market risk from changes in foreign exchange rates and changes in interest rates. In order to manage the risks from these foreign exchange rate and interest rate fluctuations, we enter into various hedging transactions with highly rated financial institutions as authorized by the Management Board of the General Partner. We do not use 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 include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.

Foreign Exchange Risk

We conduct our business on a global basis in various currencies, although our operations are located principally in the United States and Germany. For financial reporting purposes, we have chosen the U.S. dollar as our reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar 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, purchases, lendings and borrowings, including intercompany borrowings. We have significant amounts of sales of products invoiced in euro from our European manufacturing facilities to our other international operations. This exposes our subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures we enter into foreign exchange forward contracts and, on a small scale, foreign exchange options. Our policy, which has been consistently followed, is that financial derivatives be used only for purposes of hedging foreign currency exposures. We have not used such instruments for purposes other than hedging.

In connection with intercompany loans in foreign currency, we normally use foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans.

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The Company is exposed to potential losses in the event of non-performance by counterparties to financial instruments. We do not expect any counterparty to fail to meet its obligations as the counterparties are highly rated financial institutions. The current credit exposure of foreign exchange derivatives is represented by the fair value of those contracts with a positive fair value at the reporting date. The table below provides information about our foreign exchange forward contracts at December 31, 2006. The information is provided in U.S. dollar equivalent amounts. The table presents the notional amounts by year of maturity, the fair values of the contracts, which show the unrealized net gain (loss) on existing contracts as of December 31, 2006, and the credit risk inherent to those contracts with positive market values as of December 31, 2006. All contracts expire within 16 months after the reporting date.

Foreign Currency Risk Management

December 31, 2006

(in thousands)

Nominal Amount


							Fair			Credit
	2007		2008		Total		Value			Risk

Purchase of EUR against USD	$	611,607		16,858	$	628,465	$	1,256		$	2,590
Sale of EUR against USD		8,258		—		8,258		(99	)		6
Purchase of EUR against others		306,845		30,775		337,620		1,718			4,675
Sale of EUR against others		32,014		—		32,014		(192	)		10
Others		58,650		17,185		75,835		(70	)		1,719

Total	$	1,017,374		64,818	$	1,082,192	$	2,613		$	9,000

A summary of the high and low exchange rates for the euro to U.S. dollars and the average exchange rates for the last five years is set forth below.


	Year’s		Year’s		Year’s		Year’s
Year ending December 31,	High		Low		Average		Close

2002 $ per €		1.0487		0.8578		0.9454		1.0487
2003 $ per €		1.2630		1.0377		1.1312		1.2630
2004 $ per €		1.3633		1.1802		1.2439		1.3621
2005 $ per €		1.3507		1.1667		1.2442		1.1797
2006 $ per €		1.3331		1.1826		1.2558		1.3170

Interest Rate Risk

We are exposed to changes in interest rates that affect our variable-rate based borrowings and the fair value of parts of our fixed rate borrowings. We enter into debt obligations and into accounts receivable financings to support our general corporate purposes including capital expenditures and working capital needs. Consequently, we enter into derivatives, particularly interest rate swaps, to (a) protect interest rate exposures arising from borrowings and our accounts receivable securitization programs at floating rates by effectively swapping them into fixed rates and (b) hedge the fair value of parts of our fixed interest rate borrowing.

We entered into interest rate swap agreements with various commercial banks in the notional amount of $3.165 billion as of December 31, 2006. These dollar interest rate swaps, which expire at various dates between 2007 and 2012, effectively fix our variable interest rate exposure on the majority of our U.S. dollar-denominated borrowings at an average interest rate of 4.50% plus applicable margin. At December 31, 2006, the fair value of these agreements is $60.275 million.

We also entered into interest rate swap agreements to hedge the risk of changes in the fair value of fixed interest rate borrowings effectively converting the fixed interest payments on Fresenius Medical Care Capital Trust II trust preferred securities denominated in U.S. dollars into variable interest rate payments. The interest rate swap agreements are reported at fair value in the balance sheet. The reported amount of the hedged portion of the fixed rate trust preferred securities includes an adjustment representing the change in fair value attributable to

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the interest rate risk being hedged. Changes in the fair value of interest rate swap contracts and trust preferred securities offset each other in the income statement. At December 31, 2006, the notional volume of these swaps was $450 million.

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

Dollar Interest Rate Exposure

December 31, 2006

(in millions)


																							Fair Value
																							Dec. 31,
		2007			2008			2009			2010			2011			Thereafter			Totals			2006

Principal payments on Senior Credit Agreement			137			137			137			137			1,367			1,650		$	3,565		$	3,565
	Variable interest rate = 6,52%
Accounts receivable securitization programs			266																	$	266		$	266
	Variable interest rate = 5.36%
Interest rate swaps
	Notional amount		350			615			450			250			1,000			500		$	3,165		$	60
	Average fixed pay rate = 4.50%		5.29	%		4.69	%		4.84	%		4.28	%		4.10	%		4.31	%		4.50	%
	Receive rate = 3-month $LIBOR
Company obligated mandatorily redeemable preferred securities of subsidiaries Fresenius Medical Care Capital Trusts
	Fixed interest rate = 7.875 %/issued in 1998					435														$	435		$	472
	Fixed interest rate = 7.375 %/issued in 1998 (denominated in DEM)					202														$	202		$	207
	Fixed interest rate = 7.875 %/issued in 2001														223					$	223		$	233
	Fixed interest rate = 7.375 %/issued in 2001 (denominated in EUR)														394					$	394		$	435
Interest rate swaps
	Notional amount					450														$	450		$	(15	)
	Average fixed receive rate = 3.50%					3.50	%														3.50	%
	Pay rate = 6-month $LIBOR

Item 12. Description of Securities other than Equity Securities

Not applicable

PART II


Item 13.	*Defaults, Dividend Arrearages and Delinquencies*

None


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

Not applicable


Item 15A.	*Disclosure Controls and Procedures*

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

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internal controls, or in factors that could significantly affect internal controls, subsequent to the date the Chief Executive Officer and Chief Financial Officer completed their evaluation.


Item 15B.	*Management’s annual report on internal control over financial reporting*

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act rules 13a-15(f). The Company’s internal control over financial reporting is a process designed by or under the supervision of the Company’s chief executive officer and chief financial officer, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

As of December 31, 2006, management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management has determined that the Company’s internal control over financial reporting as of December 31, 2006 is effective.

The Company’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that accurately and fairly reflect transactions and dispositions of assets in reasonable detail; (2) provide reasonable assurances that the Company’s transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that the Company’s receipts and expenditures are being made only in accordance with authorizations of management; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

Because of its inherent limitation, internal control over financial reporting, no matter how well designed, cannot provide absolute assurance of achieving financial reporting objectives and may not prevent or detect misstatements. Therefore, even if the internal control over financial reporting is determined to be effective it can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting, as well as the effectiveness of internal control over financial reporting as of December 31, 2006, have been audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, as stated in their report included on page F-3.

Item 15C. Attestation report of the registered public accounting firm

The attestation report of KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft with respect to Management’s Report on Internal Control Over Financial Reporting appears at page F-3.


Item 15D.	*Changes in Internal Control over Financial Reporting*

There have been no changes in the Company’s internal control over financial reporting that occurred during fiscal year 2006, which have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 16A. Audit Committee Financial Expert

Our general partner’s Supervisory Board has determined that Dr. Walter L. Weisman and William P. Johnston qualify as independent audit committee financial experts in accordance with the provisions of Item 16A.

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Item 16B. Code of Ethics

In 2003, our Management Board adopted through our worldwide compliance program a code of ethics, titled the Code of Business Conduct, which as adopted applied to members of the Management Board, including its chairman and the responsible member for Finance & Controlling, other senior officers and all Company employees. After the transformation of legal form, our Code of Business Conduct applies to the members of the Management Board of our general partner and all Company employees, including senior officers. A copy of our Code of Business Conduct is available on our web site at:

http//www.fmc-ag.com/internet/fmc/fmcag/agintpub.nsf/ Content/ Compliance.

Item 16C. Principal Accountant Fees and Services

In the annual general meeting held on May 9, 2006, our shareholders appointed KPMG Deutsche Treuhand-Gesellschaft AG Wirtschaftsprüfungsgesellschaft (KPMG), Berlin and Frankfurt am Main, to serve as our independent auditors for the 2006 fiscal year. KPMG billed the following fees to us for professional services in each of the last two fiscal years:


	2006		2005

Audit fees	$	7,659	$	7,203
Audit related fees		296		485
Tax fees		582		649

Total	$	8,537	$	8,337

“Audit Fees” are the aggregate fees billed by KPMG for the audit of our consolidated and annual financial statements, reviews of interim financial statements and attestation services that are provided in connection with statutory and regulatory filings or engagements. Fees related to the audit of internal control are included in Audit Fees. “Audit-Related Fees” are fees charged by KPMG for assurance and related services that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit Fees.” This category comprises fees billed for comfort letters, consultation on accounting issues, the audit of employee benefit plans and pension schemes, agreed-upon procedure engagements and other attestation services subject to regulatory requirements. “Tax Fees” are fees for professional services rendered by KPMG for tax compliance, tax advice on actual or contemplated transactions, tax consulting associated with international transfer prices, and expatriate employee tax services.

Audit Committee’s pre-approval policies and procedures

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

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

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During 2006, the total fees paid to the audit committee were €0.137 million.

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

Not applicable

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

We did not purchase any of our equity securities during the fiscal year covered by this report. On January 6, 2006, we commenced a conversion offer to holders of our preference shares, pursuant to which such holders were offered the opportunity to convert their preference shares into ordinary shares at a conversion ratio of one preference shares plus a conversion premium of €9.75 per share for one ordinary share. The conversion offer expired on February 3, 2006. We accepted 26,629,422 preference shares tendered for conversion (including 699,949 preference shares evidenced by 2,099,847 American Depositary Shares) for conversion. On February 10, 2006, the conversion of the preference shares was registered in the commercial register.

PART III


Item 17.	*Financial Statements*

Not applicable. See “Item 18. Financial Statements.”


Item 18.	*Financial Statements*

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


Item 19.	*Exhibits*

Pursuant to the provisions of the Instructions for the filings of Exhibits to Annual Reports on Form 20-F, Fresenius Medical Care AG & Co. KGaA (the “Registrant”) is filing the following exhibits:

1.1 Articles of Association (Satzung) of the Registrant. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Report on Form 6-K/ A for the six months ended June 30, 2006 filed August 11, 2006).

2.1 Amended and Restated Deposit Agreement between The Bank of New York and Fresenius Medical Care AG & Co. KGaA dated as of February 26, 2007 relating to Ordinary Share ADSs (Incorporated by reference to Exhibit 3.a. to the Registration Statement on Form F-6, Registration No. 333-140664, filed February 13, 2007).

2.2 Amended and Restated Deposit Agreement between The Bank of New York and Fresenius Medical Care AG & Co. KGaA dated as of February 26, 2007 relating to Preference Share ADSs (Incorporated by reference to Exhibit 3.a. to the Registration Statement on Form F-6, Registration No. 333-140730, filed February 15, 2007).

2.3 Pooling Agreement dated February 13, 2006 by and between Fresenius AG, Fresenius Medical Care Management AG and the individuals acting from time to time as Independent Directors. (Incorporated by reference to Exhibit 2.3 to the Registrant’s Annual Report on Form 20-F for the year ended December 31, 2005, filed March 2, 2006).

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

2.5 Senior Subordinated Indenture (DM denominated) dated as of February 19, 1998, among Fresenius Medical Care AG, FMC Trust Finance S.à.r.l. Luxembourg, State Street Bank and Trust Company, as Trustee,

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and the Subsidiary Guarantors named therein. (Incorporated by reference to Exhibit 2.7 to the FMC-AG’s Annual Report on Form 20-F for the year ended December 31, 1997, filed March 27, 1998).

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2.26 First Supplemental Indenture dated as of December 23, 2004 among FMC-AG, FMC Trust Finance S.à.r.l. Luxembourg, US Bank, National Association, successor to State Street Bank and Trust Company, as Trustee, and the Subsidiary Guarantors named therein (incorporated by reference to Exhibit No. 2.27 to the Annual Report of FMC — AG for the year ended December 31, 2004 filed March 1, 2005).

2.27 First Supplemental Indenture dated as of December 23, 2004 among FMC-AG, FMC Trust Finance S.à.r.l. Luxembourg-III, US Bank, National Association, successor to State Street Bank and Trust Company, as Trustee, and the Subsidiary Guarantors named therein (incorporated by reference to Exhibit No. 2.28 to the Annual Report of FMC — AG for the year ended December 31, 2004 filed March 1,2005).

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

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

2.30 Amendment dated as of October 20, 2005 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 10.2 to FMC-AG’s Report on Form 6-K, for the nine months ended September 30, 2005, filed November 3, 2005).

2.31 Third Amended and Restated Transfer and Administrative agreement dated as of October 23, 2003 among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Asset One Securitization, LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (incorporated by reference to Exhibit 2.29 to FMC-AG’s Annual Report on Form 20-F for the year ended December 31, 2003).

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2.32 Amendment No. 1 dated as of March 31, 2004 to Third Amended and Restated Transfer and Administration Agreement dated as of October 23, 2003, among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Asset One Securitization, LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (incorporated by reference to Exhibit 2.30 to FMC-AG’s Report on Form 6-K dated May 12, 2004).

2.33 Amendment No. 2 dated as of October 21, 2004 to the Third Amended and Restated Transfer and Administrative Agreement dated as of October 23, 2003 among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Asset One Securitization, LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (incorporated by reference to Exhibit 2.30 to FMC-AG’s Report on Form 6-K dated November 12, 2004).

2.34 Amendment No. 3 dated as of January 1, 2005 to the Third Amended and Restated Transfer and Administrative Agreement dated as of October 23, 2003 among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (incorporated by reference to Exhibit 10.2 to FMC-AG’s Report on Form 6-K for the three months ended March 31, 2005, filed May 5, 2005).

2.35 Amendment No. 4 dated as of October 20, 2005 to the Third Amended and Restated Transfer and Administrative Agreement dated as of October 23, 2003 among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (incorporated by reference to Exhibit 10.1 to FMC-AG’s Report on Form 6-K for the nine months ended September 30, 2005 filed November 3, 2005).

2.36 Amendment No. 5 dated as of October 19, 2006 to the Third Amended and Restated Transfer and Administrative Agreement dated as of October 23, 2003 among NMC Funding Corporation, National Medical Care, Inc., Paradigm Funding LLC, Liberty Street Funding Corp., Giro Multifunding Corporation, and the Bank Investors listed therein, and WestLB AG, New York Branch, as administrative agent and agent (field herewith).

2.37 Bank Credit Agreement dated as of March 31, 2006 among the Registrant, Fresenius Medical Care Holdings, Inc., and certain subsidiaries of the Registrant as Borrowers and Guarantors, Bank of America N.A., as Administrative Agent, Deutsche Bank AG New York Branch, as Sole Syndication Agent, The Bank of Nova Scotia, Credit Suisse, Cayman Islands Branch, and JPMorgan Chase Bank, National Association, as Co-Documentation Agents and the Lenders named therein (incorporated by reference to Exhibit No. 4.1 to the Form 6-K of the Registrant for the three months ended March 31, 2006 filed May 17, 2006).(1)

2.38 Term Loan Credit Agreement dated as of March 31, 2006 among and the Registrant, Fresenius Medical Care Holdings, Inc., and certain subsidiaries of the Registrant as Borrowers and Guarantors, Bank of America N.A., as Administrative Agent, Deutsche Bank AG New York Branch, as Sole Syndication Agent, The Bank of Nova Scotia, Credit Suisse, Cayman Islands Branch, and JPMorgan Chase Bank, National Association, as Co-Documentation Agents and the Lenders named therein (incorporated by reference to Exhibit 4.2 to the Form 6-K of the Registrant for the three month period ended March 31, 2006 filed May 17, 2006).(1)

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

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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 FMC-AG, W.R. Grace & Co. and Fresenius USA, Inc., dated August 2, 1996).

4.4 Renewed Post-Closing Covenants Agreement effective January 1, 2007 between Fresenius AG and FMC-AG & Co. KGaA. (Incorporated by reference to Exhibit 10.11 to FMC-AG’s Registration Statement on Form F-1, filed on November 4, 1996).

4.5 Amendment for Lease Agreement for Office Buildings dated December 19, 2006 by and between Fresenius AG and Fresenius Medical Care Deutschland GmbH. (Incorporated by reference to Exhibit 10.3 to FMC-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

4.6 Amendment for Lease Agreement for Manufacturing Facilities dated December 19, 2006 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-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

4.7 Amendment for Lease Agreement for Manufacturing Facilities dated December 19, 2006 by and between Fresenius Immobilien-Verwaltungs-GmbH & Co. Objekt St. Wendel KG and Fresenius Medical Care Deutschland GmbH. (Incorporated by reference to Exhibit 10.4 to FMC-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

4.8 Amendment for Lease Agreement for Manufacturing Facilities dated December 19, 2006 by and between Fresenius AG and Fresenius Medical Care Deutschland GmbH (Ober-Erlenbach). (Incorporated by reference to Exhibit 10.5 to FMC-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

4.9 Trademark License Agreement dated September 27, 1996 by and between Fresenius AG and FMC-AG. (Incorporated by reference to Exhibit 10.8 to FMC-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

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

4.11 Cross-License Agreement dated September 27, 1996 by and between Fresenius AG and FMC-AG. (Incorporated by reference to Exhibit 10.10 to FMC-AG’s Registration Statement on Form F-1, Registration No. 333-05922, filed November 16, 1996).

4.12 Amendment for Lease Agreement for Office Buildings dated December 19, 2006 by and between Fresenius AG and Fresenius Medical Care Deutschland GmbH (Daimler Str.). (Incorporated by reference to Exhibit 2.8 to FMC-AG’s Annual Report on Form 20-F for the year ended December 31, 1996, filed April 7, 1997).

4.13 FMC — AG 1996 Stock Incentive Plan, (incorporated by reference to FMC-AG’s Registration Statement on Form S-8, dated October 1, 1996).

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

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

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

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4.17 Stock Option Plan 2006 of Fresenius Medical Care AG & Co. KGaA (Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 6-K/A for the six-month period ended June 30, 2006 filed August 11, 2006).

4.18 Sourcing and Supply Agreement dated October 13, 2006, by and among Amgen, Inc., Amgen USA, Inc., and Fresenius Medical Care Holdings, Inc. (Filed herewith)(1)

4.19 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).

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

4.21 Amended and Restated Subordinated Loan Note dated as of March 31, 2006, among National Medical Care, Inc. and certain of its subsidiaries as borrowers and Fresenius AG as lender (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Form 6-K for the three month period ended March 31, 2006 filed May 17, 2006).(1)

4.22 Merger Agreement dated as of May 3, 2005 among FMC-AG, FMCH, Florence Acquisition, Inc. and Renal Care Group, Inc. (incorporated by reference to Exhibit 10.1 to FMC-AG’s Report on Form 6-K for the three months ended March 31, 2005 filed May 5, 2005).

4.23 Agreement Containing Consent Orders, United States of America before Federal Trade Commission, In the Matter of Fresenius AG, File No. 051-0154. (Incorporated by reference to Exhibit 10.1 to the Registrant’s Form 6-K for the three-month period ended March 31, 2006 filed May 17, 2006).

4.24 Complaint, United States of America before Federal Trade Commission, In the Matter of Fresenius AG. (Incorporated by reference to Exhibit 10.2 to the Registrant’s Form 6-K for the three-month period ended March 31, 2006 filed May 17, 2006).

4.25 Decision and Order, United States of America before Federal Trade Commission, In the Matter of Fresenius AG. (Incorporated by reference to Exhibit 10.3 to the Registrant’s Form 6-K for the three-month period ended March 31, 2006 filed May 17, 2006).

4.26 Order to Maintain Assets, United States of America before Federal Trade Commission, In the Matter of Fresenius AG. (Incorporated by reference to Exhibit 10.4 to the Registrant’s Form 6-K for the three-month period ended March 31, 2006 filed May 17, 2006).

8.1 List of Significant Subsidiaries. Our significant subsidiaries are identified in “Item 4.C. Information on the Company — Organizational Structure.”

11.1 Code of Business Conduct for the Registrant last revised in December 2003 (incorporated by reference to Exhibit 11.1 to FMC-AG’s Annual Report on Form 20-F for the year ended December 31, 2003).

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

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

13.1 Certification of Chief Executive Officer and Chief Financial Officer of the general partner of the Registrant Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith). (This Exhibit is furnished herewith, but not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that we explicitly incorporate it by reference.)

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14.1 Consent of KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft


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

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

125

SIGNATURES

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

DATE: February 26, 2007


	Fresenius Medical Care AG & Co. KGaA,
	a partnership limited by shares, represented by:

	fresenius medical care management ag,
	its general partner


	By:	/s/ Dr. Ben J: Lipps



	Name: Dr. Ben J. Lipps


	Title:	Chief Executive Officer and


	Chairman of the Management Board


	By:	/s/ Lawrence A. Rosen



	Name: Lawrence A. Rosen


	Title:	Chief Financial Officer

126

INDEX OF FINANCIAL STATEMENTS


	Page

Audited Consolidated Financial Statements
Management’s Annual Report on Internal Control over Financial Reporting		F-2
Report of Independent Registered Public Accounting Firm		F-3
Report of Independent Registered Public Accounting Firm on Management’s Assessment on Internal Control		F-4
Consolidated Statements of Income for the years ended December 31, 2006, 2005 and 2004		F-6
Consolidated Balance Sheets as of December 31, 2006 and 2005		F-7
Consolidated Statements of Cash Flows for the years ended December 31, 2006, 2005 and 2004		F-8
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2006, 2005 and 2004		F-9
Notes to Consolidated Financial Statements		F-10
Financial Statement Schedule		S-1

F-1

MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL

OVER FINANCIAL REPORTING

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act rules 13a-15(f). The Company’s internal control over financial reporting is a process designed by or under the supervision of the Company’s chief executive officer and chief financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

Management’s assessment of the effectiveness of the Company’s internal control over financial reporting, as well as the effectiveness of internal control over financial reporting as of December 31, 2006 have been audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, as stated in their report included on page F-4.

Date: February 16, 2007


	Fresenius Medical Care AG & Co. KGaA,
	a partnership limited by shares, represented by:

	fresenius medical care management ag, its
	General Partner

	By: /s/ DR. BEN LIPPS


	Name:	Dr. Ben Lipps
	Title:	Chief Executive Officer and Chairman of the Management Board


	By: /s/ LAWRENCE A. ROSEN


	Name:	Lawrence Rosen
	Title:	Chief Financial Officer

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Supervisory Board

Fresenius Medical Care AG & Co. KGaA:

We have audited the accompanying consolidated balance sheets of Fresenius Medical Care AG & Co. KGaA and subsidiaries (“Fresenius Medical Care” or the “Company”) as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 Fresenius Medical Care as of December 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As described in Notes 1, 11 and 15 to the consolidated financial statements, Fresenius Medical Care adopted FASB Statement No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans and FASB Statement No. 123 (revised), “Share-Based Payment” in 2006.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Fresenius Medical Care’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated February 16, 2007 expressed an unqualified opinion on management’s assessment of, and the effective operation of, internal control over financial reporting.

Frankfurt am Main, Germany

February 16, 2007

/s/ KPMG Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON MANAGEMENT’S ASSESSMENT ON INTERNAL CONTROL

The Supervisory Board

Fresenius Medical Care AG & Co. KGaA:

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, that Fresenius Medical Care AG & Co. KGaA and subsidiaries (“Fresenius Medical Care” or the “Company”) maintained effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Fresenius Medical Care’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that Fresenius Medical Care maintained effective internal control over financial reporting as of December 31, 2006, is fairly stated, in all material respects, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Also, in our opinion, Fresenius Medical Care maintained, in all material respects, effective internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

F-4

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Fresenius Medical Care as of December 31, 2006 and 2005, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2006, and our report dated February 16, 2007 expressed an unqualified opinion on those consolidated financial statements.

Frankfurt am Main, Germany

February 16, 2007

/s/ KPMG

Deutsche Treuhand-Gesellschaft

Aktiengesellschaft

Wirtschaftsprüfungsgesellschaft

F-5

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

Consolidated Statements of Income

For the years ended December 31, 2006, 2005 and 2004

(in thousands, except share data)


		2006			2005			2004

Net revenue:
	Dialysis Care	$	6,377,390		$	4,866,833		$	4,501,197
	Dialysis Products		2,121,648			1,904,986			1,726,805

			8,499,038			6,771,819			6,228,002
Costs of revenue:
	Dialysis Care		4,538,234			3,583,781			3,356,271
	Dialysis Products		1,083,248			979,900			909,932

			5,621,482			4,563,681			4,266,203

Gross profit			2,877,556			2,208,138			1,961,799
Operating expenses:
	Selling, general and administrative		1,548,369			1,218,265			1,058,090
	Gain on Sale of dialysis clinics		(40,233	)		—			—
	Research and development		51,293			50,955			51,364

Operating income			1,318,127			938,918			852,345
Other (income) expense:
	Interest income		(20,432	)		(18,187	)		(13,418	)
	Interest expense		371,678			191,379			197,164


Income before income taxes and minority interest			966,881			765,726			668,599
Income tax expense			413,489			308,748			265,415
Minority interest			16,646			2,026			1,186

Net income		$	536,746		$	454,952		$	401,998


Basic income per ordinary share		$	5.47		$	4.68		$	4.16

Fully diluted income per ordinary share		$	5.44		$	4.64		$	4.14

See accompanying notes to consolidated financial statements.

F-6

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

Consolidated Balance Sheets

At December 31, 2006 and 2005

(in thousands, except share data)


		2006			2005

Assets
Current assets:
	Cash and cash equivalents	$	159,010		$	85,077
	Trade accounts receivable, less allowance for doubtful accounts of $207,293 in 2006 and $176,568 in 2005		1,848,695			1,469,933
	Accounts receivable from related parties		143,349			33,884
	Inventories		523,929			430,893
	Prepaid expenses and other current assets		443,854			261,590
	Deferred taxes		293,079			179,561

	Total current assets		3,411,916			2,460,938

Property, plant and equipment, net			1,722,392			1,215,758
Intangible assets			661,365			585,689
Goodwill			6,892,161			3,456,877
Deferred taxes			62,722			35,649
Other assets			294,125			228,189

	Total assets	$	13,044,681		$	7,983,100

Liabilities and shareholders’ equity
Current liabilities:
	Accounts payable	$	316,188		$	201,317
	Accounts payable to related parties		236,619			107,938
	Accrued expenses and other current liabilities		1,194,939			838,768
	Short-term borrowings		331,231			151,113
	Short-term borrowings from related parties		4,575			18,757
	Current portion of long-term debt and capital lease obligations		160,135			126,269
	Income tax payable		116,059			120,138
	Deferred taxes		15,959			13,940

	Total current liabilities		2,375,705			1,578,240

Long-term debt and capital lease obligations, less current portion			3,829,341			707,100
Other liabilities			149,684			112,418
Pension liabilities			112,316			108,702
Deferred taxes			378,487			300,665
Company-obligated mandatorily redeemable preferred securities of subsidiary Fresenius Medical Care Capital Trusts holding solely Company-guaranteed debentures of subsidiaries			1,253,828			1,187,864
Minority interest			75,158			14,405

	Total liabilities		8,174,519			4,009,394
Shareholders’ equity:
Preference shares, no par value, €2.56 nominal value, 4,118,960 shares authorized, 1,237,145 issued and outstanding			3,373			74,476
Ordinary shares, no par value, €2.56 nominal value, 127,916,240 shares authorized, 97,149,891 issued and outstanding			302,615			229,494
Additional paid-in capital			3,211,193			2,837,144
Retained earnings			1,358,397			975,371
Accumulated other comprehensive loss			(5,416	)		(142,779	)

	Total shareholders’ equity		4,870,162			3,973,706

	Total liabilities and shareholders’ equity	$	13,044,681		$	7,983,100

See accompanying notes to consolidated financial statements.

F-7

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

Consolidated Statements of Cash Flows

For the years ended December 31, 2006, 2005 and 2004

(in thousands, except share data)


				2006			2005			2004

Operating Activities:
	Net income			$	536,746		$	454,952		$	401,998
	Adjustments to reconcile net income to cash and cash equivalents provided by (used in) operating activities:
		Settlement of shareholder proceedings			(888	)		7,335			—
		Depreciation and amortization			308,698			251,452			232,585
		Change in minority interest			24,333			—			—
		Change in deferred taxes, net			10,904			(3,675	)		34,281
		Loss on sale of fixed assets and investments			5,742			3,965			735
		Compensation expense related to stock options			16,610			1,363			1,751
		Cash inflow from Hedging			10,908			—			14,514
	Changes in assets and liabilities, net of amounts from businesses acquired:
		Trade accounts receivable, net			(31,276	)		(63,574	)		(7,886	)
		Inventories			(42,553	)		(9,811	)		27,245
		Prepaid expenses, other current and non-current assets			(21,629	)		(41,036	)		70,033
		Accounts receivable from / payable to related parties			(4,875	)		9,596			(22,686	)
		Accounts payable, accrued expenses and other current and non-current liabilities			182,877			148,735			36,157
		Income tax payable			(24,250	)		(88,998	)		39,116
		Tax payments related to divestitures and acquisitions			(63,517	)		—			—

			Net cash provided by operating activities		907,830			670,304			827,843

Investing Activities:
	Purchases of property, plant and equipment				(467,193	)		(314,769	)		(278,732	)
	Proceeds from sale of property, plant and equipment				17,658			17,427			18,358
	Acquisitions and investments, net of cash acquired				(4,307,282	)		(125,153	)		(104,493	)
	Proceeds from divestitures				515,705			—			—

		Net cash used in investing activities			(4,241,112	)		(422,495	)		(364,867	)

Financing Activities:
	Proceeds from short-term borrowings				56,562			44,655			70,484
	Repayments of short-term borrowings				(55,789	)		(75,493	)		(86,850	)
	Proceeds from short-term borrowings from related parties				269,920			56,381			55,539
	Repayments of short-term borrowings from related parties				(285,430	)		(42,632	)		(80,000	)
	Proceeds from long-term debt and capital lease obligations (net of debt issuance costs of $85,828 in 2006)				4,007,450			426,531			369,369
	Repayments of long-term debt and capital lease obligations				(973,885	)		(331,407	)		(840,131	)
	Increase (decrease) of accounts receivable securitization program				172,000			(241,765	)		177,767
	Proceeds from exercise of stock options				53,952			79,944			3,622
	Proceeds from conversion of preference shares into ordinary shares				306,759			—			—
	Dividends paid				(153,720	)		(137,487	)		(122,106	)
	Change in minority interest				(15,130	)		1,506			389

		Net cash provided by (used in) financing activities			3,382,689			(219,767	)		(451,917	)

Effect of exchange rate changes on cash and cash equivalents					24,526			(1,931	)		(520	)

Cash and Cash Equivalents:
	Net increase in cash and cash equivalents				73,933			26,111			10,539
	Cash and cash equivalents at beginning of period				85,077			58,966			48,427

	Cash and cash equivalents at end of period			$	159,010		$	85,077		$	58,966

See accompanying notes to consolidated financial statements.

F-8

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

Consolidated Statement of Shareholders’ Equity

For the years ended December 31, 2006, 2005 and 2004

(in thousands, except share data)


																		Accumulated Other
																		Comprehensive Income (Loss)
		Preference Shares						Ordinary Shares
												Additional			Retained			Foreign
		Number of			No Par			Number of		No Par		Paid in			Earnings			Currency			Cash Flow
		Shares			Value			Shares		Value		Capital			(Deficit)			Translation			Hedges			Pensions			Total

Balance at December 31, 2003			26,213,979		$	69,616			70,000,000	$	229,494	$	2,741,362		$	378,014		$	(146,246	)	$	4,847		$	(33,407	)	$	3,243,680
Proceeds from exercise of options and related tax effects			82,107			262							3,360															3,622
Compensation expense related to stock options													1,751															1,751
Dividends paid																(122,106	)											(122,106	)
Comprehensive income (loss)
	Net income															401,998												401,998
	Other comprehensive income (loss) related to:
	Cash flow hedges, net of related tax effects																					(29,011	)					(29,011	)
	Foreign currency translation																		144,784									144,784
	Minimum pension liability, net of related tax effects																								(9,902	)		(9,902	)

Comprehensive income																												507,869

Balance at December 31, 2004			26,296,086		$	69,878			70,000,000	$	229,494	$	2,746,473		$	657,906		$	(1,462	)	$	(24,164	)	$	(43,309	)	$	3,634,816
Proceeds from exercise of options and related tax effects			1,466,093			4,598							81,973															86,571
Compensation expense related to stock options													1,363															1,363
Dividends paid																(137,487	)											(137,487	)
Settlement of shareholder proceedings													7,335															7,335
Comprehensive income (loss)
	Net income															454,952												454,952
	Other comprehensive income (loss) related to:
	Cash flow hedges, net of related tax effects																					43,128						43,128
	Foreign currency translation																		(104,723	)								(104,723	)
	Minimum pension liability, net of related tax effects																								(12,249	)		(12,249	)

Comprehensive income																												381,108

Balance at December 31, 2005			27,762,179		$	74,476			70,000,000	$	229,494	$	2,837,144		$	975,371		$	(106,185	)	$	18,964		$	(55,558	)	$	3,973,706
Proceeds from exercise of options and related tax effects			104,388			334			520,469		1,684		51,568															53,586
Proceeds from conversion of preference shares into ordinary shares			(26,629,422	)		(71,437	)		26,629,422		71,437		306,759															306,759
Compensation expense related to stock options													16,610															16,610
Dividends paid																(153,720	)											(153,720	)
Settlement of shareholder proceedings													(888	)														(888	)
Comprehensive income (loss)
	Net income															536,746												536,746
	Other comprehensive income (loss) related to:
	Cash flow hedges, net of related tax effects																					18,223						18,223
	Foreign currency translation																		114,494									114,494
	Adjustments relating to pension obligations																								4,646			4,646

Comprehensive income																												674,109

Balance at December 31, 2006			1,237,145		$	3,373			97,149,891	$	302,615	$	3,211,193		$	1,358,397		$	8,309		$	37,187		$	(50,912	)	$	4,870,162

See accompanying notes to consolidated financial statements.

F-9

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share data)


1.	The Company and Summary of Significant Accounting Policies

The Company

Fresenius Medical Care AG & Co. KGaA (“FMC-AG & Co. KGaA” or the “Company”), a German partnership limited by shares (Kommanditgesellschaft auf Aktien), formerly Fresenius Medical Care AG (“FMC-AG”), a German stock corporation (Aktiengesellschaft), is the world’s largest kidney dialysis company, operating in both the field of dialysis services and the field of dialysis products for the treatment of end-stage renal disease. The Company’s dialysis business is vertically integrated, providing dialysis treatment at dialysis clinics it owns or operates and supplying these clinics with a broad range of products. In addition, the Company sells dialysis products to other dialysis service providers. In the United States, the Company also performs clinical laboratory testing and provides inpatient dialysis services and other services under contract to hospitals. For information regarding the transformation of the Company’s legal form from a stock corporation into a partnership limited by shares and the related conversion of preference shares into ordinary shares, see Note 2, Transformation of Legal Form and Conversion of Preference Shares.

On March 31, 2006, the Company completed its acquisition of Renal Care Group, Inc. (“RCG”) for an all cash purchase price approximating $4,157,619. See Note 3 Acquisitions and Divestitures for a discussion of this transaction.

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 companies in which the Company has legal or effective control. In addition, the Company consolidates variable interest entities (“VIEs”) for which it is deemed the primary beneficiary. The equity method of accounting is used for investments in associated companies (20% to 50% owned). Minority interest represents the proportionate equity interests of owners in the Company’s consolidated entities that are not wholly owned. All significant intercompany transactions and balances have been eliminated.

The Company enters into various arrangements with certain dialysis clinics to provide management services, financing and product supply. Some of these clinics are VIEs. Under FIN 46R these clinics are consolidated if the Company is determined to be the primary beneficiary. These VIEs in which the Company is the primary beneficiary, generated approximately $76,616 and $59,361 in revenue in 2006 and 2005, respectively. The interest held by the other shareholders in these consolidated VIEs is reported as minority interest in the consolidated balance sheet at December 31, 2006 and 2005.


b)	*Classifications*

Certain items in the prior year’s consolidated financial statements have been reclassified to conform with the current period’s presentation. The reclassifications include $124,527 and $124,086 for 2005 and 2004, respectively, relating to rents for clinics which were removed from selling, general and administrative expenses for the International Segment and included in its cost of revenue for Dialysis Care for consistency with the Company’s other operating segment.

F-10

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


c)	*Cash and Cash Equivalents*

Cash and cash equivalents comprise cash funds and all short-term, liquid investments with original maturities of up to three months.


d)	*Allowance for Doubtful Accounts*

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


e)	*Inventories*

Inventories are stated at the lower of cost (determined by using the average or first-in, first-out method) or market value (see Note 5). Costs included in inventories are based on invoiced costs and/or production costs as applicable. Included in production costs are material, direct labor and production overhead, including depreciation charges.


f)	*Property, Plant and Equipment*

Property, plant, and equipment are stated at cost less accumulated depreciation (see Note 6). Significant improvements are capitalized; repairs and maintenance costs that do not extend the useful lives of the assets are charged to expense as incurred. Property and equipment under capital leases are stated at the present value of future minimum lease payments at the inception of the lease, less accumulated depreciation. Depreciation on property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets ranging from 5 to 50 years for buildings and improvements with a weighted average life of 17 years and 3 to 15 years for machinery and equipment with a weighted average life of 13 years. Equipment held under capital leases and leasehold improvements is 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 2006, 2005, and 2004 was $5,651, $1,828, and $1,611, respectively.


g)	*Other Intangible Assets and Goodwill*

Intangible assets such as non-compete agreements, technology, distribution rights, patents, licenses to treat, tradenames, management contracts, software, acute care agreements, lease agreements, and licenses acquired in a purchase method business combination are recognized and reported apart from goodwill (see Note 7).

Goodwill and identifiable intangibles with indefinite useful lives are not amortized but tested for impairment annually or when an event becomes known that could trigger an impairment. The Company identified trade names and certain qualified management contracts as intangible assets with indefinite useful lives. Intangible assets with finite useful lives are amortized over their respective useful lives to their residual values. The Company amortizes non-compete agreements over their useful lives ranging from 7 to 25 years with an average useful life of 8 years. Technology is amortized over its useful life of 15 years. All other intangible assets are amortized over their individual estimated useful lives between 3 and 40 years. Intangible assets with finite useful lives are evaluated for impairment when events have occurred that may give rise to an impairment.

F-11

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

To perform the annual impairment test of goodwill, the Company identified its reporting units and determined their carrying value by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units. In a first step, the Company compares the fair value of each reporting unit to the reporting unit’s carrying amount. Fair value is determined using a discounted cash flow approach based upon the cash flow expected to be generated by the reporting unit.

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

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


h)	*Derivative Financial Instruments*

Derivative financial instruments which primarily include foreign currency forward contracts and interest rate swaps are recognized as assets or liabilities at fair value in the balance sheet (see Note 19). Changes in the fair value of derivative financial instruments classified as fair value hedges and in the corresponding underlyings are recognized periodically in earnings. The effective portion of changes in fair value of cash flow hedges is recognized in accumulated other comprehensive income (loss) in shareholders’ equity. The non-effective portion of cash flow hedges is recognized in earnings immediately.


i)	*Foreign Currency Translation*

For purposes of these consolidated financial statements, the U.S. dollar is the reporting currency. Substantially all assets and liabilities of the parent company and all non-U.S. subsidiaries are translated at year-end exchange rates, while revenues and expenses are translated at average exchange rates. Adjustments for foreign currency translation fluctuations are excluded from net earnings and are reported in accumulated other comprehensive income (loss). In addition, the translation adjustments of certain intercompany borrowings, which are considered foreign equity investments, are reported in accumulated other comprehensive income (loss).


j)	*Revenue Recognition Policy*

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

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

A minor portion of International product revenues are generated from arrangements which give the customer, typically a health care provider, the right to use dialysis machines. In the same contract the customer agrees to purchase the related treatment disposables at a price marked up from the standard price list. FMC-AG &

F-12

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Co. KGaA does not recognize revenue upon delivery of the dialysis machine but recognizes revenue, including the mark-up, on the sale of disposables.


k)	*Research and Development expenses*

Research and development expenses are expensed as incurred.


l)	*Income Taxes*

Deferred tax assets and liabilities are recognized for the future consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. A valuation allowance is recorded to reduce the carrying amount of the deferred tax assets unless it is more likely than not that such assets will be realized (see Note 16).


m)	*Impairment*

The Company reviews the carrying value of its long-lived assets or asset groups with definite useful lives to be held and used for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by a comparison of the carrying value of an asset to the future net cash flow directly associated with the asset. If assets are considered to be impaired, the impairment recognized is the amount by which the carrying value exceeds the fair value of the asset. The Company uses the present value techniques to assess fair value.

Long-lived assets to be disposed of by sale are reported at the lower of carrying value or fair value less cost to sell and depreciation is ceased. Long-lived assets to be disposed of other than by sale are considered to be held and used until disposal.


n)	*Debt Issuance Costs*

Costs related to the issuance of debt are amortized over the term of the related obligation (see Note 10).


o)	*Self-Insurance Programs*

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


p)	*Use of Estimates*

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

F-13

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


q)	*Concentration of Risk*

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

Approximately 38%, 36%, and 38% of the Company’s worldwide revenues were earned and subject to regulations under governmental health care programs, Medicare and Medicaid, administered by the United States government in 2006, 2005, and 2004, respectively.

See Note 5 for concentration of supplier risks.


r)	*Legal Contingencies*

From time to time, during the ordinary course of the Company’s operations, the Company is party to litigation and arbitration and is subject to investigations relating to various aspects of its business (see Note 18). The Company regularly analyzes current information about such claims for probable losses and provides accruals for such matters, including the estimated legal expenses, as appropriate. The Company utilizes its internal legal department as well as external resources for these assessments. In making the decision regarding the need for loss accrual, the Company considers the degree of probability of an unfavorable outcome and its ability to make a reasonable estimate of the amount of loss.

The filing of a suit or formal assertion of a claim or assessment, or the disclosure of any such suit or assertion, does not necessarily indicate that accrual of a loss is appropriate.


s)	*Earnings per Ordinary share and Preference share*

Basic earnings per ordinary share and basic earnings per preference 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 is computed by dividing net income less preference amounts by the weighted average number of ordinary shares and preference shares outstanding during the year. Basic earnings per preference share is derived by adding the preference per preference share to the basic earnings per share. Diluted earnings per share include the effect of all potentially dilutive instruments on ordinary shares and preference shares that would have been outstanding during the year.

The awards granted under the Company’s stock incentive plans (see Note 15), are potentially dilutive equity instruments.

The conversion of the Company’s preference shares into ordinary shares had no impact on the earnings (or loss) per share available to holders of ordinary shares and preference shares. See Note 2.


t)	*Employee Benefit Plans*

As of December 31, 2006, the Company adopted the recognition provisions of Financial Accounting Standards Board (“FASB”) Statement No. 158, Employer’s Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“FAS 158”). The Company recognized the underfunded status of its defined benefit plans, measured as the difference between plan assets at fair value and the benefit obligation, as a liability as of December 31, 2006. Changes in the funded status of a plan, net of tax, resulting from actuarial gains or losses and prior service costs or credits that are not recognized as components of the net periodic benefit cost will be recognized through accumulated other

F-14

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

comprehensive income in the year in which they occur. In addition, FAS 158 requires measurement of the funded status of all plans as of year-end balance sheet date no later than 2008. The Company already uses December 31 as the measurement date when measuring the funded status of all plans.


u)	*Stock Option Plans*

Effective January 1, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard No. 123R (revised 2004), Share-Based Payment (“FAS 123(R)”) using the modified prospective transition method (see Note 16). Under this transition method, compensation cost recognized in 2006 includes applicable amounts of: (a) compensation cost of all stock-based payments granted prior to, but not yet vested as of, January 1, 2006 (based on the grant-date fair value estimated in accordance with the original provisions of FAS No. 123 and previously presented in the Company’s pro forma footnote disclosures), and (b) compensation cost for all stock-based payments subsequent to January 1, 2006 (based on the grant-date fair value estimated in accordance with the new provisions of FAS 123(R)). Compensation costs for prior periods have been recognized using the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees.


v)	*Recent Pronouncements*

In September 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”), which establishes a framework for reporting fair value and expands disclosures about fair value measurements. FAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

F-15

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


2.	Transformation of Legal Form and Conversion of Preference Shares

On February 10, 2006, the Company completed and registered in the commercial register of the local court in Hof an der Saale, the transformation of its legal form under German law from a stock corporation (Aktiengesellschaft) to a partnership limited by shares (Kommanditgesellschaft auf Aktien) with the name Fresenius Medical Care AG & Co. KGaA (“FMC-AG & Co. KGaA”). The transformation was approved by its shareholders during an Extraordinary General Meeting held on August 30, 2005 (“EGM”). The Company as a KGaA is the same legal entity under German law, rather than a successor to the AG. Fresenius Medical Care Management AG (“Management AG” or “General Partner”), a wholly-owned subsidiary of Fresenius AG, the majority voting shareholder of FMC-AG prior to the transformation, is the General Partner of FMC-AG & Co. KGaA. Management AG assumed the management of the Company through its position as General Partner. Management AG was formed for the sole purpose of serving as the General Partner of FMC-AG & Co. KGaA and managing the business of FMC-AG & Co. KGaA. Management AG has the same duty to FMC-AG & Co. KGaA as the management board of a stock corporation has to the corporation. The management board of Management AG must carefully conduct the business of FMC-AG & Co KGaA and is liable for any breaches of its obligations. The supervisory board of Management AG, elected by Fresenius AG, must carefully supervise the management board of Management AG in the conduct of the business of FMC-AG & Co. KGaA. The supervisory board of FMC-AG & Co. KGaA, which is elected by the Company’s shareholders (other than Fresenius AG), oversees the management of the business of the Company, but has less power and scope for influence than the supervisory board of a stock corporation. The FMC AG & Co. KGaA supervisory board does not appoint the Company’s General Partner, and the General Partner’s management measures are not subject to its consent.

Upon effectiveness of the transformation of legal form, the share capital of FMC-AG became the share capital of FMC-AG & Co. KGaA, and persons who were shareholders of FMC-AG became shareholders of the Company in its new legal form. As used in the notes to these financial statements, the “Company” refers to both FMC-AG prior to the transformation of legal form and FMC-AG & Co. KGaA after the transformation.

Prior to registration of the transformation of legal form, the Company offered holders of its non-voting preference shares (including preference shares represented by American Depositary Shares (“ADSs”)) the opportunity to convert their shares into ordinary shares at a conversion ratio of one preference share plus a conversion premium of €9.75 per ordinary share. Holders of a total of 26,629,422 preference shares accepted the offer, resulting in an increase of 26,629,422 ordinary shares of FMC-AG & Co. KGaA (including 2,099,847 ADSs representing 699,949 ordinary shares of FMC-AG & Co. KGaA) outstanding. The Company received a total of $306,759 in premiums from the holders upon the conversion of their preference shares, net of costs of $1,897. Immediately after the conversion and transformation of legal form, there were 96,629,422 ordinary shares outstanding. Former holders of preference shares who elected to convert their shares now hold a number of ordinary shares of FMC-AG & Co. KGaA equal to the number of preference shares they elected to convert. The 1,132,757 preference shares that were not converted remained outstanding and became preference shares of FMC-AG & Co. KGaA in the transformation. As a result, preference shareholders who elected not to convert their shares into ordinary shares hold the same number of non-voting preference shares in FMC-AG & Co. KGaA as they held in FMC-AG prior to the transformation. Shareholders who held ordinary shares in FMC-AG prior to the transformation hold the same number of voting ordinary shares in FMC-AG & Co. KGaA.

The Company determined that the conversion of the Company’s preference shares had no impact on earnings for either the holders of ordinary or preference shares, therefore, no reductions or benefits in the Company’s financial statements were recorded. Several ordinary shareholders challenged the resolutions adopted at the EGM approving the conversion of the preference shares into ordinary shares, the adjustment of the employee participation programs, the creation of authorized capital and the transformation of the legal form of

F-16

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

the Company, with the objective of having the resolutions declared null and void. On December 19, 2005, the Company and the claimants agreed to a settlement with the participation of Fresenius AG and Management AG, and all proceedings were terminated.

Pursuant to the settlement, Management AG undertook to (i) make an ex gratia payment to the ordinary shareholders of the Company (other than Fresenius AG), of €0.12 for every share issued as an ordinary share on August 30, 2005 and (ii) to pay to ordinary shareholders who, at the EGM of August 30, 2005, voted against the conversion proposal, an additional €0.69 per ordinary share. Ordinary shareholders who were shareholders at the close of business on the day of registration of the conversion and transformation with the commercial register were entitled to a payment under (i) above. Ordinary shareholders who voted against the conversion resolution in the extraordinary general meeting on August 30, 2005, as evidenced by the voting cards held by the Company, were entitled to a payment under (ii) above, but only in respect of shares voted against the conversion resolution. The right to receive payment under (ii) has lapsed as to any shareholder who did not make a written claim for payment with the Company by February 28, 2006.

The Company also agreed to bear court fees and shareholder legal expenses in connection with the settlement. The total costs of the settlement were estimated to be $7,335. A further part of the settlement agreement and German law require that these costs be borne by Fresenius AG and the General Partner, Management AG. Under U.S. GAAP, however, these costs must be reflected by the entity benefiting from the actions of its controlling shareholder. As a result, the Company recorded the estimated settlement costs as an expense in Selling, General and Administrative expense and a contribution in Additional Paid in Capital in Shareholders’ Equity in the fourth quarter of 2005. The actual total costs of all ex gratia payments and all payments to shareholders who voted against the conversion proposal and who filed written claims in a timely fashion incurred in the settlement were $6,447. The difference of $888 was recorded as a reduction of “Selling, general and administrative expense” and “Additional paid in capital within Shareholders’ Equity in 2006.


3.	Acquisitions and Divestitures

RCG Acquisition

On March 31, 2006, the Company completed the acquisition of Renal Care Group, Inc. (“RCG” and the “RCG Acquisition”), a Delaware corporation with principal offices in Nashville, Tennessee, for an all cash purchase price, net of cash acquired, of $4,157,619 for all of the outstanding common stock and the retirement of RCG stock options. The purchase price included the concurrent repayment of $657,769 indebtedness of RCG. During 2005, RCG provided dialysis and ancillary services to over 32,360 patients through more than 450 owned outpatient dialysis centers in 34 states within the United States, in addition to providing acute dialysis services to more than 200 hospitals. The operations of RCG are included in the Company’s consolidated statements of income and cash flows from April 1, 2006.

F-17

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition. This preliminary allocation of the purchase price is based upon the best information available to management. Any adjustments to the preliminary allocation, net of related income tax effects, will be recorded with a corresponding adjustment to goodwill.

The preliminary purchase price allocation is as follows:


Assets held for sale	$	330,092
Other current assets		413,937
Property, plant and equipment		301,498
Intangible assets and other assets		149,485
Goodwill		3,381,901
Accounts payable, accrued expenses and other current liabilities		(276,184	)
Income tax payable and deferred taxes		(63,939	)
Long-term debt and capital lease obligations		(3,882	)
Other liabilities		(75,289	)

Total allocation of acquisition cost	$	4,157,619

Divestitures

The Company was required to divest a total of 105 renal dialysis centers, consisting of both former Company clinics (the “legacy clinics”) and former RCG clinics, in order to complete the RCG Acquisition in accordance with a consent order issued by the United States Federal Trade Commission (“FTC”) on March 31, 2006. The Company sold 96 of such centers on April 7, 2006 to a wholly-owned subsidiary of DSI Holding Company, Inc. (“DSI”) and sold DSI the remaining 9 centers effective as of June 30, 2006. Separately, in December 2006, the Company also sold the former laboratory business acquired in the RCG Acquisition receiving cash consideration of $9,012. The Company received cash consideration of $515,705, net of related expenses, for all centers divested and for the divested laboratory, subject to customary post-closing adjustments. Pre-tax income of $40,233 on the sale of the legacy clinics was recorded in income from operations. Due to basis differences, tax expense of $44,605 was recorded, resulting in a net loss on sale of $4,372.

The Company will continue to treat patients in the same markets and will sell products to DSI under the terms of a supply agreement that continues through March 2009.

Pro Forma Financial Information

The following unaudited financial information, on a pro forma basis, reflects the consolidated results of operations as if the RCG Acquisition and the divestitures described above had been consummated at the beginning of 2006 and 2005. The pro forma information includes adjustments primarily for eliminations, amortization of intangible assets, interest expense on acquisition debt, and income taxes. The pro forma financial information is not necessarily indicative of the results of operations as it would have been had the transactions been consummated at the beginning of the respective periods. The proforma earnings are lower than the Company’s reported earnings for the respective periods as the proforma earnings reflect the full debt financing of the RCG Acquisition and the related interest expense but do not include the cost savings and economies of scale that are expected to be achieved in conjunction with the acquisition.

F-18

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


Unaudited		2006		2005

Pro forma net revenue		$	8,809,573	$	7,983,941
Pro forma net income			536,223		449,481
Pro forma net income per ordinary share:
	Basic		5.47		4.62
	Fully Diluted		5.43		4.59

Other Acquisitions

The Company made other acquisitions for dialysis centers in the normal course of its operations in 2006 totaling $92,013 of which $85,805 was paid in cash, and in 2005 totaling $134,444 of which $125,153 was paid in cash. In addition, on November 14, 2006, the Company acquired the worldwide rights to the PhosLo^® phosphate binder product business and its related assets of Nabi Biopharmaceuticals. PhosLo^® is an oral application calcium acetate phosphate binder for treatment of hyperphosphatemia primarily in end-stage renal disease patients. The Company paid cash of $65,277 including related direct costs of $277 plus a $8,000 milestone payment in December 2006 and a $2,500 milestone payment in 2007. An additional milestone payment of $10,500 is expected to be paid over the next two to three years, contingent upon the achievement of certain performance criteria. The purchase price was allocated to technology with estimated useful lives of 15 years ($64,800), and in-process research and development project ($2,750) which is immediately expensed, goodwill ($7,327) and other net assets ($900).

In connection with the transaction, the Company also acquired worldwide rights to a new product formulation currently under development, which the Company expects will be submitted for approval in the U.S. during 2007. Following the successful launch of this new product formulation, the Company will pay Nabi Biopharmaceuticals royalties on sales of the new product formulation commencing upon the first commercialization of the new product and continuing until November 13, 2016. Total consideration, consisting of initial payment, milestone payments and royalties will not exceed $150,000.

The assets and liabilities of all acquisitions were recorded at their estimated fair values at the dates of the acquisitions and are included in the Company’s financial statements and operating results from the effective date of acquisition.


4.	Related Party Transactions


a)	*Service Agreements*

The Company is party to service agreements with Fresenius AG, prior to the transformation its majority shareholder and currently sole stockholder of its General Partner and its largest shareholder with 36.6% ownership of the Company’s voting shares, and certain affiliates of Fresenius AG to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, IT services, tax services and treasury services. For the years 2006, 2005, and 2004, amounts charged by Fresenius AG to the Company under the terms of the agreements are $37,104, $36,190, and $30,779, respectively. The Company also provides certain services to Fresenius AG and certain affiliates of Fresenius AG, including research and development, central purchasing, patent administration and warehousing. The Company charged $9,001, $7,460 and $10,766, for services rendered to Fresenius AG in 2006, 2005, and 2004, respectively.

Under operating lease agreements for real estate entered into with Fresenius AG, the Company paid Fresenius AG $16,593, $15,655 and $14,835, during 2006, 2005, and 2004, respectively. The majority of the leases expire in 2016 and contain renewal options.

F-19

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The Company’s Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company’s business, including remuneration of the members of the General Partner’s supervisory board and the General Partner’s management board. The aggregate amount reimbursed to Management AG for 2006 was $7,480 for its management services during 2006 including $75 as compensation for their exposure to risk as General Partner. The Company’s Articles of Association set the compensation for assuming unlimited liability at 4% of the amount of the General Partner’s invested capital (€1,500).


b)	*Products*

During the years ended December 31, 2006, 2005, and 2004, the Company sold products for $36,039, $31,708, and $35,085, respectively, to Fresenius AG and affiliates. During 2006, 2005, and 2004, the Company made purchases from Fresenius AG and affiliates in the amount of $52,507, $43,007, and $36,122, respectively.


c)	*Financing Provided by Fresenius AG*

The Company is provided short-term financing by its parent Fresenius AG. The balance outstanding at December 31, 2006 and 2005 was $2,897 and $18,757, respectively (see Note 9).


d)	*Other*

The Chairman of the Company’s Supervisory Board is also the Chairman of the Supervisory Board of Fresenius AG, the largest holder of the Company’s ordinary shares and sole shareholder of the Company’s General Partner. He is also a member of the Supervisory Board of the Company’s General Partner.

The Vice Chairman of the Company’s Supervisory Board is a member of the Supervisory Board of Fresenius AG and Vice Chairman of the Supervisory Board of the Company’s General Partner. He is also a partner in a law firm which provided services to the Company. The Company paid the law firm approximately $1,620, $1,710, and $1,383, in 2006, 2005, and 2004, respectively.

In May 2004, Dr. Ulf M. Schneider, the former Chief Financial Officer of the Company, President and CEO of Fresenius AG and the Chairman of its Management Board was elected as a member of the Company’s Supervisory Board. Under German law, after a transformation of legal form the members of a company’s supervisory board remain in office for the remainder of their terms as members of its supervisory board if the supervisory board of the company in its new legal form is formed in the same way and with the same composition. Dr. Schneider resigned from the Company’s supervisory board effective upon entry of the transformation in the commercial register, but continues to serve as Chairman of the supervisory board of the Company’s General Partner.


5.	Inventories

As of December 31, 2006 and 2005, inventories consisted of the following:


		2006		2005

Raw materials and purchased components		$	108,584	$	93,889
Work in process			41,272		33,073
Finished goods			269,496		223,356
Health care supplies			104,577		80,575

	Inventories	$	523,929	$	430,893

F-20

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Under the terms of certain unconditional purchase agreements, the Company is obligated to purchase approximately $235,098 of materials, of which $130,878 is committed at December 31, 2006 for 2007. The terms of these agreements run 1 to 6 years.

Inventories as of December 31, 2006 and 2005 include $46,131 and $26,754, respectively, of Erythropoietin (“EPO”), which is supplied by a single source supplier in the United States. In October 2006, the Company entered into a five-year exclusive sourcing and supply agreement with its EPO supplier. Revenues from EPO accounted for approximately 21%, 21%, and 23% of total revenue in the North America segment for 2006, 2005, and 2004 respectively. Delays, stoppages, or interruptions in the supply of EPO could adversely affect the operating results of the Company.

6. Property, Plant and Equipment

As of December 31, 2006 and 2005, property, plant and equipment consisted of the following:


	2006			2005

Land and improvements	$	32,492		$	26,564
Buildings and improvements		1,123,691			812,841
Machinery and equipment		1,844,299			1,381,427
Machinery, equipment and rental equipment under capitalized leases		17,044			13,468
Construction in progress		255,994			117,331

		3,273,520			2,351,631
Accumulated depreciation		(1,551,128	)		(1,135,873	)

Property, plant and equipment, net	$	1,722,392		$	1,215,758

Depreciation expense for property, plant and equipment amounted to $265,488, $211,103, and $199,732 for the years ended December 31, 2006, 2005, and 2004, respectively.

Included in property, plant and equipment as of December 31, 2006 and 2005 were $187,504 and $131,195, respectively, of peritoneal dialysis cycler machines which the Company leases to customers with end-stage renal disease on a month-to-month basis and hemodialysis machines which the Company leases to physicians under operating leases. Accumulated depreciation related to machinery, equipment and rental equipment under capital leases was $7,884 and $7,115 at December 31, 2006 and 2005, respectively.


7.	Other Intangible Assets and Goodwill

In connection with the Company’s RCG Acquisition (see Note 3), the Company performed a detailed review of the identification of intangible assets related to its dialysis clinic operations in the United States. As part of this review, the Company considered the conditions for recognition as an intangible asset apart from goodwill and practices in the dialysis care industry. The amortizable intangible assets acquired included $64,000 for non-compete agreements, $3,500 for acute care agreements and $2,010 for lease agreements.

As a result of the detailed review of the identification of intangible assets related to the RCG acquisition, the Company concluded that its past practice to identify certain intangible assets separate from goodwill should be revisited and adjusted certain amounts, primarily with respect to patient relationships that had been identified as separate intangible assets in prior business combinations. Additionally, the Company identified non-compete agreements as separate intangible assets. In connection with the adjustments, the carrying amount of goodwill increased by $ 35,240, other intangible assets and deferred tax liabilities decreased by $ 37,319 and $2,079 respectively, as of the beginning of the current year.

F-21

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

This accounting treatment did not result in a material understatement of the Company’s results of operations or shareholders’ equity in prior periods.

As of December 31, 2006 and 2005, the carrying value and accumulated amortization of intangible assets other than goodwill consisted of the following:


	December 31, 2006					December 31, 2005

	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
	Amount		Amortization			Amount		Amortization

Amortizable Intangible Assets
Non-compete Agreements	$	203,123	$	(118,553	)	$	—	$	—
Technology		64,800		(406	)		—		—
Patient relationships		—		—			164,188		(114,192	)
Other		305,509		(233,099	)		205,406		(108,517	)

	$	573,432	$	(352,058	)	$	369,594	$	(222,709	)


	Carrying		Carrying
	Amount		Amount

Non-amortizable Intangible Assets
Tradename	$	222,122	$	220,935
Management contracts		217,869		217,869

	$	439,991	$	438,804

Total Intangible Assets	$	661,365	$	585,689

The related amortization expenses are as follows:

Amortization Expense


2004	$	32,853

2005	$	40,349

2006	$	43,210

Estimated Amortization Expense


2007	$	40,577

2008	$	38,438

2009	$	35,927

2010	$	34,138

2011	$	33,765

F-22

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Goodwill

Changes in the carrying amount of goodwill are mainly a result of acquisitions and the impact of foreign currency translations. During the year 2006, the Company’s acquisitions consisted primarily of the RCG and PhosLo^® acquisitions (see Note 3). The reduction in Goodwill in 2005 results mainly from resolution of tax exposures established on acquisitions. The segment detail is as follows:


		North
		America			International			Total

Balance as of January 1, 2005			3,035,697		$	409,455		$	3,445,152
	Goodwill acquired		49,410			22,715			72,125
	Reclassifications		(8,882	)		(390	)		(9,272	)
	Foreign Currency Translation Adjustment		108			(51,236	)		(51,128	)

Balance as of December 31, 2005		$	3,076,333		$	380,544		$	3,456,877

	Goodwill acquired RCG (excl. divestitures)		3,381,901			—			3,381,901
	Goodwill acquired other		68,106			36,843			104,949
	Goodwill disposed of		(119,942	)		—			(119,942	)
	Reclassification from Patient Relationships		35,240			—			35,240
	Other Reclassifications		(3,603	)		(424	)		(4,027	)
	Foreign Currency Translation Adjustment		(40	)		37,203			37,163

Balance as of December 31, 2006		$	6,437,995		$	454,166		$	6,892,161


8.	Accrued Expenses and Other Current Liabilities

As at December 31, 2006 and 2005 accrued expenses and other current liabilities consisted of the following:


	2006		2005

Accrued salaries and wages	$	283,859	$	214,873
Unapplied cash and receivable credits		148,985		73,897
Accrued insurance		124,422		75,545
Special charge for legal matters		115,000		117,541
Other		522,672		356,912

Total accrued expenses and other current liabilities	$	1,194,938	$	838,768

In 2001, the Company recorded a $258,159 special charge to address legal matters relating to transactions pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996 by and between W.R. Grace & Co. and Fresenius AG (the “Merger”), estimated liabilities and legal expenses arising in connection with the W.R. Grace & Co. Chapter 11 proceedings (the “Grace Chapter 11 Proceedings”) and the cost of resolving pending litigation and other disputes with certain commercial insurers. During the second quarter of 2003, the court supervising the Grace Chapter 11 Proceedings approved a definitive settlement agreement entered into among the Company, the committee representing the asbestos creditors and W.R. Grace & Co. Under the settlement agreement, the Company will pay $115,000 upon plan confirmation (see Note 18). With the exception of the proposed $115,000 payment under the Settlement Agreement, all other matters included in the special charge have been resolved.

F-23

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The other item in the table above includes accruals for interest, withholding tax, value added tax, legal and compliance costs, physician compensation, commissions, short-term portion of pension liabilities, bonuses and rebates, and lease liabilities.


9.	Short-Term Borrowings and Short-Term Borrowings from Related Parties

As of December 31, 2006 and 2005, short-term borrowings and short-term borrowings from related parties consisted of the following:


	2006		2005

Borrowings under lines of credit	$	65,231	$	57,113
Accounts receivable facility		266,000		94,000

Short-term borrowings		331,231		151,113
Short-term borrowings from related parties		4,575		18,757

Short-term borrowings including related parties	$	335,806	$	169,870

Short-term Borrowings

Lines of Credit

Short-term borrowings of $65,231 and $57,113 at December 31, 2006 and 2005, 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, 2006 and 2005 were 3.69% and 3.91%, respectively.

Excluding amounts available under the 2006 Senior Credit Agreement (see Note 10 below), at December 31, 2006, the Company had $87,337 available under such commercial bank agreements. In some instances, lines of credit are secured by assets of the Company’s subsidiary that is party to the agreement or may require the Company’s guarantee. In certain circumstances, the subsidiary may be required to meet certain covenants.

Accounts Receivable Facility

The Company has an asset securitization facility (the “AR Facility”) which is typically renewed in October of each year and was most recently renewed and increased in October 2006. The AR Facility currently provides borrowings up to a maximum of $650,000 ($460,000 through October 18, 2006). Under the AR Facility, certain receivables are sold to NMC Funding Corporation (“NMC Funding”), a wholly-owned subsidiary. NMC Funding then assigns undivided ownership interests in the accounts receivable to certain bank investors. Under the terms of the AR Facility, NMC Funding retains the right to recall all transferred interests in the accounts receivable assigned to the banks under the facility. As the Company has the right at any time to recall the then outstanding interests, the receivables remain on the Consolidated Balance Sheet and the proceeds from the transfer of undivided interests are recorded as short-term borrowings.

At December 31, 2006 there are outstanding short-term borrowings under the AR Facility of $266,000. NMC Funding pays interest to the bank investors, calculated based on the commercial paper rates for the particular tranches selected. The average interest rate at December 31, 2006 was 5.31%. Annual refinancing fees, which include legal costs and bank fees (if any), are amortized over the term of the facility.

F-24

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Short-term Borrowings from related parties

In conjunction with the RCG Acquisition (see Note 3), on March 31, 2006, the Company, through various direct and indirect subsidiaries, entered into an Amended and Restated Subordinated Loan Note (the “Note”) with Fresenius AG which amended the Subordinated Loan Note dated May 18, 1999. Under the Note, the Company or its subsidiaries may request and receive one or more advances (each an “Advance”) up to an aggregate amount of $400,000 during the period ending March 31, 2011. The Advances may be repaid and re-borrowed during the period but Fresenius AG is under no obligation to make an Advance. Each Advance is repayable in full one, two or three months after the date of the Advance or any other date as agreed to by the parties to the Advance or, if no maturity date is so agreed, the Advance will have a one-month term.

All Advances bear interest at a variable rate per annum equal to LIBOR plus an applicable margin that is based upon the Company’s consolidated leverage ratio, as defined in the Company’s 2006 Senior Credit Agreement (See Note 10). Advances are subordinated to outstanding loans under the 2006 Senior Credit Agreement and all other indebtedness of the Company.

Advances were made on March 31, 2006 in the amount of $240,000 with an interest rate of 5.7072% in conjunction with the RCG Acquisition (see Note 3) and were fully repaid in April and May 2006.

On September 29, 2006, the Company received an Advance of $10,000 at 5.3% interest which was repaid on October 4, 2006. On September 30, 2006, the Company received an Advance of $18,357 (€14,500) at 4.242% interest which was repaid on October 31, 2006. On December 31, 2006, the Company received an Advance of $2,897 (€2,200) at 4.37% interest which matured on and was repaid on January 31, 2007.

In 2006, the Company retired short-term loans from Fresenius AG with an outstanding balance of $18,757 at December 31, 2005 and in 2005, approximately $3,000 which was outstanding at December 31, 2004. Interest expense on these borrowings was $191, $501, and $129, for the years 2006, 2005, and 2004, respectively. The average interest rates for these borrowings were 3.00%, 2.85% and 3.36% at December 31, 2006, 2005, and 2004, respectively.


10.	Long-term Debt and Capital Lease Obligations

At December 31, 2006 and 2005, long-term debt and capital lease obligations consisted of the following:


	2006			2005

Senior Credit Agreement	$	3,564,702		$	470,700
Euro Notes		263,400			235,940
EIB Agreements		84,618			48,806
Capital lease obligations		8,286			4,596
Other		68,470			73,327

		3,989,476			833,369
Less current maturities		(160,135	)		(126,269	)

	$	3,829,341		$	707,100

2006 Senior Credit Agreement

The Company entered into a new $4,600,000 syndicated credit agreement (the “2006 Senior Credit Agreement”) with Bank of America, N.A. (“BofA”); Deutsche Bank AG New York Branch; The Bank of Nova Scotia, Credit Suisse, Cayman Islands Branch; JPMorgan Chase Bank, National Association; and certain other

F-25

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

lenders (collectively, the “Lenders”) on March 31, 2006 which replaced the existing credit agreement (the “2003 Senior Credit Agreement”).

The following table shows the available and outstanding amounts under the 2006 Senior Credit Agreement at December 31, 2006 and under the 2003 Senior Credit Agreement at December 31, 2005:


	Maximum Amount Available				Balance Outstanding
	December 31,				December 31,

	2006		2005		2006		2005

Revolving Credit	$	1,000,000	$	750,000	$	67,827	$	45,700
Term Loan A/ A-1		1,760,000		425,000		1,760,000		425,000
Term Loan B		1,736,875		—		1,736,875		—

	$	4,496,875	$	1,175,000	$	3,564,702	$	470,700

In addition, at December 31, 2006, $84,733 and at December 31, 2005, $80,486 were utilized as letters of credit which are not included as part of the balances outstanding at those dates.

The 2006 Senior Credit Agreement consists of:


	•	a 5-year $1,000,000 revolving credit facility (of which up to $250,000 is available for letters of credit, up to $300,000 is available for borrowings in certain non-U.S. currencies, up to $150,000 is available as swing line loans in U.S. dollars, up to $250,000 is available as a competitive loan facility and up to $50,000 is available as swing line loans in certain non-U.S. currencies, the total of which cannot exceed $1,000,000) which will be due and payable on March 31, 2011.

	•	a 5-year term loan facility (“Loan A”) of $1,850,000, also scheduled to mature on March 31, 2011. The 2006 Senior Credit Agreement requires 19 quarterly payments on Loan A of $30,000 each that permanently reduce the term loan facility which began June 30, 2006 and continue through December 31, 2010. The remaining amount outstanding is due on March 31, 2011.

	•	a 7-year term loan facility (“Loan B”) of $1,750,000 scheduled to mature on March 31, 2013. The terms of the 2006 Senior Credit Agreement require 28 quarterly payments on Loan B that permanently reduce the term loan facility. The repayment began June 30, 2006. The first 24 quarterly payments will be equal to one quarter of one percent (0.25%) of the original principal balance outstanding, payments 25 through 28 will be equal to twenty-three and one half percent (23.5%) of the original principal balance outstanding with the final payment due on March 31, 2013, subject to an early repayment requirement on March 1, 2011 if the Trust Preferred Securities due June 15, 2011 are not repaid or refinanced or their maturity is not extended prior to that date.

Interest on these facilities will be, at the Company’s option, depending on the interest periods chosen, at a rate equal to either (i) LIBOR plus an applicable margin or (ii) the higher of (a) BofA’s prime rate or (b) the Federal Funds rate plus 0.5%, plus an applicable margin.

The applicable margin is variable and depends on the Company’s Consolidated Leverage Ratio which is a ratio of its Consolidated Funded Debt less up to $30,000 cash and cash equivalents to Consolidated EBITDA (as these terms are defined in the 2006 Senior Credit Agreement).

F-26

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The obligations under the 2006 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favour of the lenders. The 2006 Senior Credit Agreement contains other affirmative and negative covenants with respect to the Company and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of the Company and investments by the Company, and require the Company to maintain certain financial ratios defined in the agreement. Additionally, the 2006 Senior Credit Agreement provides for a limitation on dividends and other restricted payments which is $240,000 for dividends paid in 2007, and increases in subsequent years. The Company paid dividends of $153,720 in May of 2006 which was in compliance with the restrictions set forth in the 2006 Senior Credit Agreement. In default, the outstanding balance under the 2006 Senior Credit Agreement becomes immediately due and payable at the option of the Lenders. As of December 31, 2006, the Company is in compliance with all financial covenants under the 2006 Senior Credit Agreement.

The Company incurred fees of approximately $85,828 in conjunction with the 2006 Senior Credit Agreement which will be amortized over the life of this agreement and wrote off approximately $14,735 in unamortized fees related to its prior 2003 Senior Credit Agreement in 2006.

Euro Notes

On July 27, 2005, the Company issued new euro denominated notes (“Euro Notes”) (Schuldscheindarlehen) totaling $263,400 (€200,000) with a €126,000 tranche at a fixed interest rate of 4.57% and a €74,000 tranche with a floating rate at EURIBOR plus applicable margin resulting in an interest rate of 5.49% at December 31, 2006. The proceeds were used to liquidate $155,000 (€128,500) of Euro Notes issued in 2001 that were due in July 2005 and for working capital. The Euro Notes mature on July 27, 2009.

European Investment Bank Agreements

The Company entered into various credit agreements with the European Investment Bank (“EIB”) in July 2005 and December 2006 amounting to €131,000 and €90,000. The EIB is a not-for-profit long-term lending institution of the European Union and lends funds at favorable rates for the purpose of capital investment and R&D projects, normally for up to half of the funds required for such projects.

The July 2005 agreements consist of a term loan of €41,000 and a revolving facility of €90,000 which were granted to the Company to refinance certain R&D projects and to make investments in expansion and optimization of existing production facilities in Germany. Both have 8-year terms. The December 2006 term loan was granted to the Company for financing and refinancing of certain clinic refurbishing and improvement projects and allows distribution of proceeds in up to 6 separate tranches until June 2008. Each tranche will mature 6 years after the disbursement of proceeds for the respective tranche.

The Company had U.S. dollar borrowings under the July 2005 agreements of $48,806 and $35,812 under the term loan and the revolving facility, respectively, with both having an interest rate of 5.29% at December 31, 2006. There were no drawdowns on the December 2006 term loan at December 31, 2006.

Currently all agreements with the EIB have variable interest rates that change quarterly with FMC-AG & Co. KGaA having options to convert the variable rates into fixed rates. All advances under all agreements can be denominated in certain foreign currencies including U.S. dollars. All loans under these agreements are secured by bank guarantees and have customary covenants.

F-27

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Annual Payments

Aggregate annual payments applicable to the 2006 Senior Credit Agreement, Euro Notes, capital leases and other borrowings (excluding the Company’s trust preferred securities, see Note 12) for the five years subsequent to December 31, 2006 are:


2007	$	160,135
2008		151,808
2009		412,150
2010		145,198
2011		1,370,789
Thereafter		1,749,396

	$	3,989,476


11.	Employee Benefit Plans

General

Fresenius Medical Care & Co. KGaA recognizes pension costs and related pension liabilities for current and future benefits to current and former employees of the Company. The Company’s pension plans are structured differently according to the legal, economic and financial circumstances in each country. The Company currently has two types of plans, defined benefit and defined contribution plans. In general plan benefits in defined benefit plans are based on all or a portion of the employees’ years of services and final salary. Plan benefits in defined contribution plans are usually determined by the employer but may be limited by legislation.

Upon retirement under defined benefit plans, the Company is required to pay defined benefits to former employees when the defined benefits become due. Defined benefit plans may be funded or unfunded. The Company has two major defined benefit plans, one funded plan in North America and an unfunded plan in Germany.

Actuarial assumptions generally determine benefit obligations under defined benefit plans. The actuarial calculations require the use of estimates. The main factors used in the actuarial calculations affecting the level of the benefit obligations are: assumptions on life expectancy, the discount rate, salary and pension level trends. Under the Company’s funded plans, assets are set aside to meet future payment obligations. An estimated return on the plan assets is recognized as income in the respective period. Actuarial gains and losses are generated when there are variations in the actuarial assumptions and differences between the actual and the estimated return on plan assets for that year. A company’s pension liability is impacted by these actuarial gains or losses.

In the case of the Company’s funded plan, the defined benefit obligation is offset against plan assets. A pension liability is recognized in the balance sheet if the defined benefit obligation exceeds the fair value of plan assets. A pension asset is recognized (and reported under other assets in the balance sheet) if the fair value of plan assets exceeds the defined benefit obligation and if the Company has a right of reimbursement against the fund or a right to reduce future payments to the fund.

Under defined contribution plans, the Company pays defined contributions during the employee’s service life which satisfies all obligations of the Company to the employee. The Company has a defined contribution plan in North America.

F-28

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Defined Benefit Pension Plans

During the first quarter of 2002, the Company’s North America subsidiary, Fresenius Medical Care Holdings, Inc. (“FMCH”) curtailed its defined benefit and supplemental executive retirement plans. Under the curtailment amendment for substantially all employees eligible to participate in the plan, benefits have been frozen as of the curtailment date and no additional defined benefits for future services will be earned. The Company has retained all employee benefit obligations as of the curtailment date. Each year FMCH contributes at least the minimum amount required by the Employee Retirement Income Security Act of 1974, as amended. There was no minimum funding requirement for FMCH for the defined benefit plan in 2006. FMCH voluntarily contributed $10,982 during 2006.

The benefit obligation for all defined benefit plans at December 31, 2006, is $334,375 which consists of the benefit obligation of $226,458 for the North America funded plan and the benefit obligation of $107,917 for the German unfunded plan. The funded status at December 31, 2006, is determined by reducing the benefit obligation for the North American plan by the fair value of its plan’s assets of $220,367 and adding the benefit obligation of the German plan, which is unfunded. At December 31, 2006, the benefit obligation and the accumulated benefit obligation exceed the fair value of the plan assets for all pension plans of the Company.

The following table shows the changes in benefit obligations, the changes in plan assets, and the funded status of the pension plans. Benefits paid as shown in the changes in benefit obligations represent payments made from both the funded and unfunded plans while the benefits paid as shown in the changes in plan assets include only benefit payments from the Company’s funded benefit plan.


	2006			2005			2004

Change in benefit obligation:
Benefit obligation at beginning of year	$	320,975		$	288,862		$	241,240
Foreign currency translation		10,843			(11,233	)		4,939
Service cost		8,113			5,103			4,269
Interest cost		16,945			15,927			14,816
Transfer of plan participants		(728	)		(36	)		(261	)
Actuarial (gain) loss		(16,194	)		27,170			28,165
Benefits paid		(5,579	)		(4,818	)		(4,306	)

Benefit obligation at end of year	$	334,375		$	320,975		$	288,862

Change of plan assets:
Fair value of plan assets at beginning of year	$	196,013		$	166,952		$	135,247
Actual return on plan assets		18,128			7,481			9,642
Employer contributions		10,982			25,627			25,633
Benefits paid		(4,756	)		(4,047	)		(3,570	)

Fair value of plan assets at end of year	$	220,367		$	196,013		$	166,952

Funded status at year end	$	114,008		$	124,962		$	121,910

The pension liability recognized under FAS 158 as of December 31, 2006, is equal to the amount shown as 2006 funded status at end of year in the table above and includes a current portion of $1,692 which is recognized as a current liability in the line item “accrued expenses and other current liabilities” in the balance sheet. The non-current portion of $112,316 is recorded as non-current pension liability in the balance sheet. Total pension liability includes $6,091 relating to the North America plan and $107,917 for the German plan. Approximately 87% of the beneficiaries are located in North America with 13% located in Germany.

F-29

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The pension liability recognized as of December 31, 2006, 2005 and 2004, was calculated as follows:


	2006			2005			2004

Funded status at end of year	$	114,008		$	124,962		$	121,910
Unrecognized net loss		(84,104	)		(108,440	)		(85,945	)
Unrecognized prior service cost		—			(795	)		—
Additional Minimum Liability		65,664			92,975			72,160
Effect of adoption of FAS 158		18,440			—			—

Total Pension Liability at December 31,	$	114,008		$	108,702		$	108,125

The following table shows the calculation of the Additional Minimum Liability:


		2006		2005		2004

Fair value of plan assets		$	220,367	$	196,013	$	166,952
Accumulated benefit obligation			315,935		304,715		213,995

Minimum Liability			95,568		108,702		47,043
Accrued/(prepaid) benefit costs			29,904		15,727		(25,117	)

Additional Minimum Liability		$	65,664	$	92,975	$	72,160

	Thereof intangible assets			$	795	$	—

	Thereof accumulated other comprehensive income			$	92,180	$	72,160

The pre-tax changes of other comprehensive income relating to pension liabilities during the year 2006 are provided in the following table:


									Foreign
									Currency
	January 1,		Additions/			Adjustment			Translation		December 31,
	2006		Releases			FAS 158			Adjustment		2006

Additional Minimum Liability	$	92,180	$	(28,189	)	$	(65,664	)	$	1,673	$	—
Actuarial losses		—		—			84,104			—		84,104

Adjustments related to pension liabilities ⁽¹⁾	$	92,180	$	(28,189	)	$	18,440		$	1,673	$	84,104


(1)	See Note 21 for the tax effects on other comprehensive income recognized during 2006.

The actuarial loss expected to be amortized from other comprehensive income into net periodic pension cost over the next year is $5,109.

The adoption of the recognition provisions of FAS 158 as of December 31, 2006, results in the following adjustments of the related amounts in the consolidated balance sheet line items.


	Before Adoption of						After Adoption of
	Statement 158			Adjustments			Statement 158

Deferred tax assets	$	26,058		$	7,134		$	33,192
Accrued expenses and other current liabilities		—			1,692			1,692
Pension liabilities		95,568			16,748			112,316
Accumulated other comprehensive loss		(39,606	)		(11,306	)		(50,912	)

F-30

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The following weighted-average assumptions were utilized in determining benefit obligations as of December 31:


	2006			2005			2004

Discount rate		5.52	%		5.22	%		5.62	%
Rate of compensation increase		4.18	%		4.22	%		4.25	%

Defined benefit pension plans gave rise to net periodic benefit cost of $19,201 comprising the following components:


	2006			2005			2004

Components of net periodic benefit cost:
Service cost	$	8,113		$	5,103		$	4,269
Interest cost		16,945			15,927			14,816
Expected return on plan assets		(15,361	)		(13,163	)		(10,219	)
Amortization unrealized losses		8,420			6,753			4,712
Amortization of prior service cost		846			210			—
Settlement loss		238			—			—

Net periodic benefit costs	$	19,201		$	14,830		$	13,578

The discount rates for all plans are derived from an analysis and comparison of yields of portfolios of highly rated equity and debt instruments with maturities that mirror the plan’s benefit obligation. The Company discount rate is the weighted average of these plans based upon their benefit obligations at December 31, 2006. The following weighted-average assumptions were used in determining net periodic benefit cost for the year ended December 31:


	2006			2005			2004

Discount rate		5.16	%		5.61	%		6.00	%
Expected return of plan assets		7.50	%		7.50	%		7.50	%
Rate of compensation increase		4.18	%		4.22	%		4.25	%

Expected benefit payments for the next five years and in the aggregate for the five years thereafter are as follows:


2007	$	6,568
2008		7,619
2009		8,476
2010		9,701
2011		10,488
2012-2016		73,048

The Company uses December 31 as the measurement date in determining the funded status of all plans.

Plan Investment Policy and Strategy

For the North America funded plan, the Company periodically reviews the assumption for long-term expected return on pension plan assets. As part of the assumptions review, independent consulting actuaries determine a range of reasonable expected investment returns for the pension plan as a whole based on their analysis of expected future returns for each asset class weighted by the allocation of the assets. The range of

F-31

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

returns developed relies both on forecasts, which include the actuarial firm’s expected long-term rates of return for each significant asset class or economic indicator, and on broad-market historical benchmarks for expected return, correlation, and volatility for each asset class. As a result, the Company’s expected rate of return on pension plan assets was 7.5% for 2006.

The investment policy, utilizing a target investment allocation of 36% equity and 64% long-term U.S. bonds, considers that there will be a time horizon for invested funds of more than 5 years. The total portfolio will be measured against a policy index that reflects the asset class benchmarks and the target asset allocation. The Plan policy does not allow investments in securities of the Company or other related party securities. The performance benchmarks for the separate asset classes include: S&P 500 Index, Russell 2000 Growth Index, MSCI EAFE Index, Lehman U.S. Long Government/ Credit bond Index and the HFRI Fund of Funds Index. The Company expects to contribute $1,016 to Plan Assets during 2007.

The following schedule describes FMCH’s allocation for its plans:


		Allocation in			Allocation in			Target allocation
		2006 in %			2005 in %			in %

Categories of plan assets
	Equity securities		38	%		44	%		36	%
	Debt securities		62	%		56	%		64	%

Total			100	%		100	%		100	%

Defined Contribution Plans

Most FMCH employees are eligible to join a 401(k) savings plan. Employees can deposit up to 75% of their pay up to a maximum of $15.5 if under 50 years old ($20.5 if 50 or over) under this savings plan. The Company will match 50% of the employee deposit up to a maximum Company contribution of 3% of the employee’s pay. The Company’s total expense under this defined contribution plan for the years ended December 31, 2006, 2005 and 2004 was $19,900, $15,242, and $15,528, respectively.


12.	Mandatorily Redeemable Trust Preferred Securities

The Company issued Trust Preferred Securities through Fresenius Medical Care Capital Trusts, statutory trusts organized under the laws of the State of Delaware. FMC-AG & Co. KGaA owns all of the common securities of these trusts. The sole asset of each trust is a senior subordinated note of FMC-AG & Co. KGaA or a wholly-owned subsidiary of FMC-AG & Co. KGaA. FMC-AG & Co. KGaA, Fresenius Medical Care Deutschland GmbH (“D-GmbH”) and FMCH have guaranteed payment and performance of the senior subordinated notes to the respective Fresenius Medical Care Capital Trusts. The Trust Preferred Securities are guaranteed by FMC-AG & Co. KGaA through a series of undertakings by the Company and FMCH and D-GmbH.

The Trust Preferred Securities entitle the holders to distributions at a fixed annual rate of the stated amount and are mandatorily redeemable after 10 years. Earlier redemption at the option of the holders may also occur upon a change of control followed by a rating decline or defined events of default including a failure to pay interest. Upon liquidation of the trusts, the holders of Trust Preferred Securities are entitled to a distribution equal to the stated amount. The Trust Preferred Securities do not hold voting rights in the trust except under limited circumstances.

F-32

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The indentures governing the notes held by the Fresenius Medical Care Capital Trusts contain affirmative and negative covenants with respect to the Company and its subsidiaries and other payment restrictions. Some of the covenants limit the Company’s indebtedness and its investments, and require the Company to maintain certain ratios defined in the agreement. As of December 31, 2006, the Company is in compliance with all financial covenants under all Trust Preferred Securities agreements.

The Trust Preferred Securities outstanding as of December 31, 2006 and 2005 are as follows:


								Mandatory
	Year		Stated		Interest			Redemption
	Issued		Amount		Rate			Date		2006		2005

Fresenius Medical Care Capital Trust II		1998	$	450,000		7⁷/8	%		February 1, 2008		434,942		431,762
Fresenius Medical Care Capital Trust III		1998		DM 300,000		7³/8	%		February 1, 2008		202,011		180,951
Fresenius Medical Care Capital Trust IV		2001	$	225,000		7⁷/8	%		June 15, 2011		223,300		222,917
Fresenius Medical Care Capital Trust V		2001		€300,000		7³/8	%		June 15, 2011		393,575		352,234

										$	1,253,828	$	1,187,864


13.	Shareholders’ Equity

Capital Stock

As of December 31, 2006, the Company’s capital stock (Grundkapital) consisted of 1,237,145 preference shares without par value and with a nominal amount of €2.56 per share totaling $3,373 and 97,149,891 ordinary shares without par value with a nominal amount of €2.56 per share totaling $302,615. The General Partner has no equity interest in the Company and, therefore, does not participate in either the assets or the profits and losses of the Company. However, the General Partner is compensated for all outlays in connection with conducting the Company’s business, including the remuneration of members of the management board and the supervisory board (see Note 4).

As of December 31, 2005 and 2004, the Company’s capital stock consisted of 27,762,179 and 26,296,086 preference shares without par value, respectively, with a nominal amount of €2.56 per share, totaling $74,476 and $69,878, respectively, and of 70,000,000 ordinary shares without par value with a nominal amount of €2.56 per share totaling $229,494 in 2005 and $229,494 in 2004, respectively.

The general meeting of a partnership limited by shares may approve Authorized Capital (genehmigtes Kapital). The resolution creating Authorized Capital requires the affirmative vote of a majority of three quarters of the capital represented at the vote and may authorize the management board to issue shares up to a stated amount for a period of up to five years. The nominal value of the Authorized Capital may not exceed half of the capital stock at the time of the authorization.

In addition, the general meeting of a a partnership limited by shares may create Conditional Capital (bedingtes Kapital) for the purpose of issuing (i) shares to holders of convertible bonds or other securities which grant a right to shares, (ii) shares in the preparation of a merger with another company, or (iii) shares offered to management or employees. In each case, the authorizing resolution requires the affirmative vote of a majority of three quarters of the capital represented at the vote. The nominal value of the Conditional Capital may not exceed half or, in the case of Conditional Capital created for the purpose of issuing shares to management and employees, 10% of the company’s capital at the time of the resolution.

All resolutions increasing the capital of a partnership limited by shares also require the consent of the General Partner for their effectiveness.

F-33

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Authorized Capital

By resolution of the Company’s general meeting of shareholders on May 23, 2001 and May 24, 2005, the Company’s management board was authorized, with the approval of the supervisory board, to increase under certain conditions the Company’s share capital through the issue of preference shares. Such authorizations were effective until May 22, 2006 and May 23, 2010, respectively, but were revoked at the EGM on August 30, 2005, as they were no longer appropriate due to the proposed conversion of the Company’s preference shares into ordinary shares, such revocation becoming effective upon registration of the Approved Capital referred to below.

In connection with revocation of the prior resolutions providing for authorized capital, by resolution of the EGM of shareholders on August 30, 2005, Management AG was authorized, with the approval of the supervisory board, to increase, on one or more occasions, the Company’s share capital until August 29, 2010 by a maximum amount of €35,000 through issue of new ordinary shares against cash contributions, Authorized Capital I. The General Partner is entitled, subject to the approval of the supervisory board, to decide on the exclusion of statutory pre-emption rights of the shareholders. However, such an exclusion of pre-emption rights will be permissible for fractional amounts. Additionally, the newly issued shares may be taken up by certain credit institutions determined by the General Partner if such credit institutions are obliged to offer the shares to the shareholders (indirect pre-emption rights).

In addition, by resolution of the EGM of shareholders on August 30, 2005, the General Partner was authorized, with the approval of the supervisory board, to increase, on one or more occasions, the share capital of the Company until August 29, 2010 by a maximum amount of €25,000 through the issue of new ordinary shares against cash contributions or contributions in kind, Authorized Capital II. The General Partner is entitled, subject to the approval of the supervisory board, to decide on an exclusion of statutory pre-emption rights of the shareholders. However, such exclusion of pre-emption rights will be permissible only if (i) in case of a capital increase against cash contributions, the nominal value of the issued shares does not exceed 10% of the nominal share value of the Company’s share capital and the issue price for the new shares is at the time of the determination by the General Partner not significantly lower than the stock exchange price in Germany of the existing listed shares of the same type and with the same rights or, (ii) in case of a capital increase against contributions in kind, the purpose of such increase is to acquire an enterprise, parts of an enterprise or an interest in an enterprise.

The Company’s Authorized Capital I and Authorized Capital II became effective upon registration with the commercial register of the local court in Hof an der Saale on February 10, 2006.

Conditional Capital

By resolution of the Company’s general meeting of shareholders on May 9, 2006, the Company’s share capital was conditionally increased by up to €12,800 corresponding to 5 million ordinary shares with no par value and a nominal value of €2.56. This Conditional Capital increase can only be effected by the exercise of stock options under the Company’s Stock Option Plan 2006 with each stock option awarded exercisable for one ordinary share (see Note 15). The Company has the right to deliver ordinary shares that it owns or purchases in the market in place of increasing capital by issuing new shares.

Through the Company’s other employee participation programs, consisting of employee stock option programs and an international employee participation scheme, the Company has issued convertible bonds and stock option/subscription rights (Bezugsrechte) to employees and the members of the Management Board of the General Partner and employees and members of management of affiliated companies that entitle these persons to receive preference shares. Conditional capital available for such purposes was €14,939 at December 31, 2005. At December 31, 2005 options representing 4,102,539 non-voting preference shares were outstanding from all plans.

F-34

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

With the implementation of the conversion of preference shares into ordinary shares, these other programs have been adjusted to the effect that the conversion rights and subscription rights of plan participants who elected to adjust their rights apply to ordinary shares. The electing participants in those programs have been put in the same economic position in which they would have been without the implementation of the conversion of preference shares into ordinary shares. Participants who did not elect to adjust their rights are still entitled to receive preference shares under the employee participation programs.

As a result, conditional capital in the amount of €14,939 divided into conditional capital for the issue of up to 2,849,318 ordinary shares and up to 2,986,203 preference shares, became effective upon registration with the commercial register of the local court in Hof an der Saale on February 10, 2006. However, as a result of the adjustment of the employee participation programs, preference shares can be issued for 234,311 convertible bonds and options and ordinary shares can be issued for 2,849,318 convertible bonds and options. At December 31, 2006, 122,697 convertible bonds or options for preference shares remained outstanding with a remaining average term of 5.52 years and 3,073,856 convertible bonds or options for ordinary shares remained outstanding with a remaining average term of 6.73 years under these programs. For the year ending December 31, 2006, 104,388 options for preference shares and 520,469 options for ordinary shares had been exercised under these employee participation plans and €36,952 ($46,524) remitted to the Company.

Conditional Capital available for all programs at December 31, 2006 is €26,139 ($34,426) which includes €12,800 ($16,858) for the 2006 Plan and €13,339 ($17,568) for all other plans.

Dividends

Under German law, the amount of dividends available for distribution to shareholders is based upon the unconsolidated retained earnings of Fresenius Medical Care AG & Co. KGaA as reported in its balance sheet determined in accordance with the German Commercial Code (Handelsgesetzbuch).

If no dividends on the Company’s preference shares are declared for two consecutive years after the year for which the preference shares are entitled to dividends, then the holders of such preference shares would be entitled to the same voting rights as holders of ordinary shares until all arrearages are paid. In addition, the payment of dividends by FMC-AG & Co. KGaA is subject to limitations under the 2006 Senior Credit Agreement (see Note 10).

Cash dividends of $153,720 for 2005 in the amount of €1.29 per preference share and €1.23 per ordinary share were paid on May 10, 2006.

Cash dividends of $137,487 for 2004 in the amount of €1.18 per preference share and €1.12 per ordinary share were paid on May 25, 2005.

Cash dividends of $122,106 for 2003 in the amount of €1.08 per preference share and €1.02 per ordinary share were paid on May 28, 2004.

F-35

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


14.	Earnings Per Share

The following table is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations and shows the basic and fully diluted income per ordinary and preference share for the years ending December 31:


		2006		2005		2004

Numerators:
Net income		$	536,746	$	454,952	$	401,998
less:
	Dividend Preference on Preference shares		90		2,000		1,959

Income available to all class of shares		$	536,656	$	452,952	$	400,039

Denominators:
Weighted average number of:
	Ordinary shares outstanding		96,873,968		70,000,000		70,000,000
	Preference shares outstanding		1,191,792		26,789,816		26,243,059

	Total weighted average shares outstanding		98,065,760		96,789,816		96,243,059
	Potentially dilutive Ordinary shares		557,883
	Potentially dilutive Preference shares		46,992		779,330		421,908

	Total weighted average ordinary shares outstanding assuming dilution		97,431,851		70,000,000		70,000,000
	Total weighted average Preference shares outstanding assuming dilution		1,238,784		27,569,146		26,664,967
Basic income per Ordinary share		$	5.47	$	4.68	$	4.16
Plus preference per Preference share			0.08		0.07		0.07

Basic income per Preference Share		$	5.55	$	4.75	$	4.23

Fully diluted income per Ordinary share		$	5.44	$	4.64	$	4.14
Plus preference per Preference share			0.08		0.08		0.07

Fully diluted income per Preference share		$	5.52	$	4.72	$	4.21


15.	Stock Options

Effective January 1, 2006, the Company adopted the provisions of FAS 123(R) using the modified prospective transition method (see Note 1u). As a result of the adoption of this standard, the Company incurred compensation costs of $14,258 which would not have been recognized under its previous accounting policy in accordance with APB Opinion No. 25 and is included in its total compensation expense of $16,610 for the period ending December 31, 2006. Compensation expense for 2005 and 2004 was $1,363 and $1,751, respectively. There were no capitalized compensation costs in any of the three years presented. The Company also recorded a related deferred income tax of $4,599, $273 and $0 for the years ending December 31, 2006, 2005, and 2004, respectively.

F-36

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The following table illustrates the effect on net income and earnings per share for the years ending December 31, 2005 and 2004 if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock based employee compensation.


			2005			2004

Net income:
	As reported		$	454,952		$	401,998
	Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			1,090			1,751
	Deduct: Total stock-based employee compensation expense determined under fair value method for all awards, net of related tax effects			(8,302	)		(7,559	)

	Pro forma		$	447,740		$	396,190

Basic earnings per:
	Ordinary share
		As reported	$	4.68		$	4.16
		Pro forma	$	4.61		$	4.10
	Preference share
		As reported	$	4.75		$	4.23
		Pro forma	$	4.68		$	4.17
Fully diluted earnings per:
	Ordinary share
		As reported	$	4.64		$	4.14
		Pro forma	$	4.57		$	4.08
	Preference share
		As reported	$	4.72		$	4.21
		Pro forma	$	4.64		$	4.15

Stock Option and other Share Based Plans

At December 31, 2006, the Company has awards outstanding under the various stock-based compensation plans.

Incentive plan

F-37

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006

On May 9, 2006, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (the “2006 Plan”) was established by resolution of the Company’s annual general meeting with a conditional capital increase up to €12,800 subject to the issue of up to five million no par value bearer ordinary shares with a nominal value of €2.56 each. Under the 2006 Plan, up to five million options can be issued, each of which can be exercised to obtain one ordinary share, with up to one million options designated for members of the Management Board of the General Partner, up to one million options designated for members of management boards of direct or indirect subsidiaries of the Company and up to three million options designated for managerial staff members of the Company and such affiliates. With respect to participants who are members of the General Partner’s Management Board, its Supervisory Board has sole authority to grant stock options and exercise other decision making powers under the 2006 Plan (including decisions regarding certain adjustments and forfeitures). The General Partner has such authority with respect to all other participants in the 2006 Plan.

Options under the 2006 Plan can be granted the last Monday in July and/or the first Monday in December. The exercise price of options granted under the 2006 Plan shall be the average closing price on the Frankfurt Stock Exchange of Company’s ordinary shares during the 30 calendar days immediately prior to each grant date. Options granted under the 2006 Plan have a seven-year term but can be exercised only after a three-year vesting period. The vesting of options granted is subject to satisfaction of success targets measured over a three-year period from the grant date. For each such year, the success target is achieved if the Company’s adjusted basic income per ordinary share (“EPS”), as calculated in accordance with the 2006 Plan, increases by at least 8% year over year during the vesting period, beginning with EPS for the year of grant as compared to EPS for the year preceding such grant. Calculation of EPS under the 2006 Plan excludes, among other items, the costs of the transformation of the Company’s legal form and the conversion of preference shares into ordinary shares. For each grant, one-third of the options granted are forfeited for each year in which EPS does not meet or exceed the 8% target. The success target for 2006 was met. Vesting of the portion or portions of a grant for a year or years in which the success target is met does not occur until completion of the entire three-year vesting period. Upon exercise of vested options, the Company has the right to issue ordinary shares it owns or that it purchases in the market in place of increasing capital by the issuance of new shares.

During 2006, the Company awarded 772,280 options, including 132,800 to members of the Management Board of the General Partner, at a weighted average exercise price of $120.68 (€91.63), a weighted average fair value of $39.05 (€29.65) each and a total fair value of $30,158, which will be amortized on a straight line basis over the three year vesting period.

Fresenius Medical Care 2001 International Stock Option Plan

Under the Fresenius Medical Care 2001 International Stock Incentive Plan (the “2001 Plan”), options in the form of convertible bonds with a principal of up to €10,240 were issued to the members of the Management Board and other employees of the Company representing grants for up to 4 million non-voting preference shares. The convertible bonds have a par value of €2.56 and bear interest at a rate of 5.5%. Except for the members of the Management Board, eligible employees may purchase the bonds by issuing a non-recourse note with terms corresponding to the terms of and secured by the bond. The Company has the right to offset its obligation on a bond against the employee’s obligation on the related note; therefore, the convertible bond obligations and employee note receivables represent stock options issued by the Company and are not reflected in the

F-38

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

consolidated financial statements. The options expire ten years from issuance and can be exercised beginning two, three or four years after issuance. Compensation costs related to awards granted under this plan are amortized on a straight-line basis over the vesting period for each separately vesting portion of the awards. Bonds issued to Management Board members who did not issue a note to the Company are recognized as a liability on the Company’s balance sheet. Options granted in 2005 and 2004 had weighted average exercise prices of $82.13 (€62.36) and $59.01 (€44.81), weighted average fair values of $22.32 (€18.70) and $15.76 (€12.92), and total fair values of $23,312 (€19,535) and $16,074 (€13,184), respectively.

Upon issuance of the option, the employees had the right to choose options with or without a stock price target. The conversion price of options subject to a stock price target corresponds to the stock exchange quoted price of the preference shares upon the first time the stock exchange quoted price exceeds the initial value by at least 25%. The initial value (“Initial Value”) is the average price of the preference shares during the last 30 trading days prior to the date of grant. In the case of options not subject to a stock price target, the number of convertible bonds awarded to the eligible employee would be 15% less than if the employee elected options subject to the stock price target. The conversion price of the options without a stock price target is the Initial Value. Each option entitles the holder thereof, upon payment of the respective conversion price, to acquire one preference share. Effective May 2006, no further grants can be issued under the 2001 Plan and no options were granted under the 2001 Plan during 2006.

In connection with the conversion of the Company’s preference shares into ordinary shares, holders of options to acquire preference shares had the opportunity to convert their options so that they would be exercisable to acquire ordinary shares. Holders of 3,863,470 options converted resulting in 2,849,318 options for ordinary shares (see Note 2). Holders of 234,311 options elected not to convert.

F-39

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

At December 31, 2006, the Management Board members of the General Partner, held 548,197 stock options for ordinary shares and employees of the Company held 2,525,659 stock options for ordinary shares and 122,697 stock options for preference shares. The table below provides reconciliations for options outstanding at December 31, 2006, as compared to December 31, 2005 taking in consideration the conversion, options exercised and forfeited.


				Weighted		Weighted
				Average		Average
Reconciliation of options for preference shares				Exercise		Exercise
converted to options for ordinary shares		Options		Price		Price

		(in thousands)		€		$
Balance at December 31, 2005			4,103		47.88		63.06
	Forfeited prior to conversion		5		41.00		54.00

	Eligible for conversion		4,098		47.94		63.13
	Options not converted		235		49.18		64.77

	Options converted		3,863
	Reduction due to impact of conversion ratios		1,014

Balance of options outstanding after conversion into ordinary shares as of February 10, 2006			2,849		64.22		84.59

	Granted		772		91.63		120.68
	Exercised		520		61.39		80.85
	Forfeited		27		68.94		90.79

Balance at December 31, 2006 options for ordinary shares			3,074		61.18		80.57


Reconciliation of options for preference shares

Balance of options not converted as of February 10, 2006		235	49.18	64.77

	Exercised	104	49.82	65.61
	Forfeited	8	50.61	66.66

Balance at December 31, 2006 options for preference shares		123	48.56	63.96

The following table provides a summary of fully vested options outstanding and exercisable for both preference and ordinary shares at December 31, 2006:

Fully Vested Outstanding and Exercisable Options

Weighted

Average

Remaining

Weighted

Contractual

Average

Aggregate

Number of

Life in

Exercise

Intrinsic

Options

Years

Price

Value

(in thousands)

€

US-$

€

US-$

Options for preference shares

3.63

43.37

57.12

3,734

4,918

Options for ordinary shares

959

4.86

59.10

77.84

40,167

52,900

At December 31, 2006, there was $36,397 of total unrecognized compensation costs related to non-vested options granted under all plans. These costs are expected to be recognized over a weighted-average period of 1.7 years.

F-40

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

During the years ended December 31, 2006, 2005, and 2004, the company received $46,524, $79,944 and $3,622, respectively, from the exercise of stock options. The intrinsic value of options exercised for the twelve-month periods ending December 31, 2006, 2005, and 2004, were $27,270 $25,338, and $799, respectively. A related tax benefit to the Company of $7,428 for the year ending December 31, 2006 was recorded as cash provided from financing activities; prior to the adoption of FAS 123(R) such tax benefits related to the exercise of options were included in cash flows provided by operating activities. For 2005 and 2004, this amounted to $6,471 and $0, respectively.

Fair Value Information

The Company used the binomial option-pricing model in determining the fair value of the awards under the 2006 Plan. Option valuation models require the input of highly subjective assumptions including expected stock price volatility. The Company’s assumptions are based upon its past experiences, market trends and the experiences of other entities of the same size and in similar industries. The Company’s stock options have characteristics that vary significantly from traded options and changes in subjective assumptions can materially affect the fair value of the option. The assumptions used to determine the fair value of the 2006 grants are as follows:


Weighted-average assumptions:	2006

Expected dividend yield		1.64%
Risk-free interest rate		3.78%
Expected volatility		30.03%
Expected life of options		7 years
Exercise price		91.63€	(US-$120,68)

Prior to the adoption of the 2006 Plan, the Black-Scholes option-pricing model was utilized in estimating the fair values of options that have no vesting restrictions. The assumptions used to determine the fair value are as follows:


Weighted-average assumptions:	2005		2004

Expected dividend yield		2.88%		2.87%
Risk-free interest rate		2.76%		3.50%
Expected volatility		40.00%		40.00%
Expected life of options		5.3 years		5.3 years


16.	Income Taxes

Income before income taxes and minority interest is attributable to the following geographic locations:


	2006		2005		2004

Germany	$	167,258	$	109,407	$	86,702
United States		645,360		512,697		447,197
Other		154,263		143,622		134,700

	$	966,881	$	765,726	$	668,599

F-41

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Income tax expense (benefit) for the years ended December 31, 2006, 2005, and 2004, consisted of the following:


		2006			2005			2004

Current:
	Germany	$	107,609		$	40,386		$	55,034
	United States		150,550			206,551			129,445
	Other		57,462			48,133			40,316

			315,621			295,070			224,796

Deferred:
	Germany		(15,219	)		(12,990	)		5,147
	United States		118,800			27,391			34,958
	Other		(5,713	)		(723	)		513

			97,868			13,678			40,619

		$	413,489		$	308,748		$	265,415

In 2006, 2005 and 2004, the Company is subject to German federal corporation income tax at a base rate of 25% plus a solidarity surcharge of 5.5% on federal corporation taxes payable.

Certain provisions of the German Tax Law were reviewed during 2006. These revisions did not have a material impact on the Company’s results for 2006 and are not expected to have a material impact on future earnings.

A reconciliation between the expected and actual income tax expense is shown below. The expected corporate income tax expense is computed by applying the German corporation tax rate (including the solidarity surcharge) and the effective trade tax rate on income before income taxes and minority interest. The respective combined tax rates are 38.47%, 38.44%, and 38.18% for the fiscal years ended December 31, 2006, 2005, and 2004.


	2006			2005			2004

Expected corporate income tax expense	$	371,959		$	294,345		$	255,271
Tax free income		(33,912	)		(18,442	)		(15,570	)
Foreign tax rate differential		(3,013	)		(8,431	)		15,734
Non-deductible expenses		17,055			27,757			9,426
Taxes for prior years		41,332			20,509			10,267
Tax on divestitures		29,128			0			0
Other		(9,060	)		(6,990	)		(9,713	)

Actual income tax expense	$	413,489		$	308,748		$	265,415

Effective tax rate		42.8	%		40.3	%		39.7	%

F-42

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

The tax effects of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2006 and 2005, are presented below:


	2006			2005

Deferred tax assets:
Accounts receivable, primarily due to allowance for doubtful accounts	$	42,753		$	26,018
Inventory, primarily due to additional costs capitalized for tax purposes, and inventory reserve accounts		32,512			29,628
Plant, equipment, intangible assets and other non current assets, principally due to differences in depreciation and amortization		45,949			37,905
Accrued expenses and other liabilities for financial accounting purposes, not currently tax deductible		253,730			159,339
Net operating loss carryforwards		37,965			44,249
Derivatives		8,313			3,735
Other		10,978			5,266

Total deferred tax assets	$	432,200		$	306,140
Less: valuation allowance		(41,231	)		(46,146	)

Net deferred tax assets	$	390,969		$	259,994

Deferred tax liabilities:
Accounts receivable, primarily due to allowance for doubtful accounts	$	10,398		$	9,266
Inventory, primarily due to inventory reserve accounts for tax purposes		6,994			6,040
Accrued expenses and other liabilities deductible for tax prior to financial accounting recognition		30,714			15,945
Plant, equipment and intangible assets, principally due to differences in depreciation and amortization		302,187			256,663
Derivatives		33,831			21,582
Other		45,491			49,893

Total deferred tax liabilities		429,615			359,389

Net deferred tax liabilities	$	38,646		$	99,395

The valuation allowance decreased by $4,915 in 2006 and increased by $1,582 in 2005.

The expiration of net operating losses is as follows:


2007	$	12,551
2008		5,524
2009		5,755
2010		9,724
2011		11,113
2012		6,537
2013		2,123
2014 and thereafter		1,305
Without expiration date		61,822

Total	$	116,454

F-43

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more-likely-than-not the Company will realize the benefits of these deductible differences, net of the existing valuation allowances at December 31, 2006.

The Company provides for income taxes on the cumulative earnings of foreign subsidiaries that will not be reinvested. During the year 2006, the Company provided for $1,350 of deferred tax liabilities associated with earnings that are likely to be distributed in 2007. Provision has not been made for additional taxes on $1,114,643 undistributed earnings of foreign subsidiaries as these earnings are considered permanently reinvested.

Dividends from German subsidiaries are 95% tax-exempt, i.e. 5% of dividend income is taxable for corporate tax purposes and 5% of capital gains from the disposal of foreign and domestic shareholdings is subject to the combined corporate income and trade tax rate (tax is therefore about 2% on the capital gain). This includes any gains resulting from the reversal of previous write-downs. Capital losses on the disposal of such shareholding and write-down on the cost of investment are not tax deductible whereas, by contrast, 5% of the income from reversing write-downs is subject to taxation. Management does not anticipate that these rules will result in significant additional income tax expense in future fiscal years.


17.	Operating Leases

The Company leases buildings and machinery and equipment under various lease agreements expiring on dates through 2050. Rental expense recorded for operating leases for the years ended December 31, 2006, 2005 and 2004 was $414,137, $334,947, and $322,939, respectively.

Future minimum rental payments under noncancelable operating leases for the five years succeeding December 31, 2006 and thereafter are:


2007	$	308,084
2008		272,995
2009		237,973
2010		202,458
2011		168,712
Thereafter		507,516

	$	1,697,738


18.	Legal Proceedings

Commercial Litigation

The Company was originally formed as a result of a series of transactions it completed pursuant to the Merger. At the time of the Merger, a W.R. Grace & Co. subsidiary known as W.R. Grace & Co.-Conn. had, and continues to have, significant liabilities arising out of product-liability related litigation (including asbestos-related actions), pre-Merger tax claims and other claims unrelated to National Medical Care (“NMC”), which was W.R. Grace & Co.’s dialysis business prior to the Merger. In connection with the Merger, W.R. Grace & Co.-Conn. agreed to indemnify the Company, FMCH, and NMC against all liabilities of W.R. Grace & Co.,

F-44

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC’s operations. W.R. Grace & Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Grace Chapter 11 Proceedings”) on April 2, 2001.

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

In 2003, the Company reached agreement with the asbestos creditors’ committees on behalf of the W.R. Grace & Co. bankruptcy estate and W.R. Grace & Co. in the matters pending in the Grace Chapter 11 Proceedings for the settlement of all fraudulent conveyance and tax claims against it and other claims related to the Company that arise out of the bankruptcy of W.R. Grace & Co. Under the terms of the settlement agreement as amended (the “Settlement Agreement”), fraudulent conveyance and other claims raised on behalf of asbestos claimants will be dismissed with prejudice and the Company will receive protection against existing and potential future W.R. Grace & Co. related claims, including fraudulent conveyance and asbestos claims, and indemnification against income tax claims related to the non-NMC members of the W.R. Grace & Co. consolidated tax group upon confirmation of a W.R. Grace & Co. final bankruptcy reorganization plan that contains such provisions. Under the Settlement Agreement, the Company will pay a total of $115,000 to the W.R. Grace & Co. bankruptcy estate, or as otherwise directed by the Court, upon plan confirmation. No admission of liability has been or will be made. The Settlement Agreement has been approved by the U.S. District Court. Subsequent to the Merger, W.R. Grace & Co. was involved in a multi-step transaction involving Sealed Air Corporation (“Sealed Air,” formerly known as Grace Holding, Inc.). The Company is engaged in litigation with Sealed Air to confirm its entitlement to indemnification from Sealed Air for all losses and expenses incurred by the Company relating to pre-Merger tax liabilities and Merger-related claims. Under the Settlement Agreement, upon confirmation of a plan that satisfies the conditions of the Company’s payment obligation, this litigation will be dismissed with prejudice.

On April 4, 2003, FMCH filed a suit in the U. S. District Court for the Northern District of California, Fresenius USA, Inc., et al., v. Baxter International Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that FMCH does not infringe on patents held by Baxter International Inc. and its subsidiaries and affiliates (“Baxter”), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against FMCH for alleged infringement of Baxter’s patents. In general, the alleged patents concern touch screens, conductivity alarms, power failure data storage, and balance chambers for hemodialysis machines. Baxter filed counterclaims against FMCH seeking monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter’s patents. On July 17, 2006, the court entered judgement in favor of FMCH finding that all the asserted claims of the Baxter patents are invalid as obvious and/or anticipated in light of prior art. On February 13, 2007, the court granted Baxter’s motion to set aside the jury’s verdict in favor of FMCH and retry certain aspects of the case. We will appeal the court’s rulings. An adverse judgment in any new trial could have a material adverse impact on our business, financial condition and results of operations.

F-45

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Care Bibag device in Australia, the Australian courts concluded that Fresenius Medical Care Australia infringed the Gambro Patent. The parties are still in legal dispute with respect to the issue of potential damages related to the patent infringement. As the infringement proceedings have solely been brought in the Australian jurisdiction any potential damages to be paid by Fresenius Medical Care Australia will be limited to the potential losses of the Gambro Group caused by the patent infringement in Australia.

Other Litigation and Potential Exposures

RCG has been named as a nominal defendant in a second amended complaint filed September 13, 2006 in the Chancery Court for the State of Tennessee Twentieth Judicial District at Nashville against former officers and directors of RCG which purports to constitute a class action and derivative action relating to alleged unlawful actions and breaches of fiduciary duty in connection with the RCG Acquisition and in connection with alleged improper backdating and/or timing of stock option grants. The amended complaint is styled Indiana State District Council of Laborers and Hod Carriers Pension Fund, on behalf of itself and all others similarly situated and derivatively on behalf of RCG, Plaintiff, vs. RCG, Gary Brukardt, William P. Johnston, Harry R. Jacobson,, Joseph C. Hutts, William V. Lapham, Thomas A. Lowery, Stephen D. McMurray, Peter J. Grua, C. Thomas Smith, Ronald Hinds, Raymond Hakim and R. Dirk Allison, Defendants. The complaint seeks damages against former officers and directors and does not state a claim for money damages directly against RCG. The Company anticipates that the individual defendants may seek to claim indemnification from RCG. The Company is unable at this time to assess the merits of any such claim for indemnification.

FMCH and its subsidiaries, including RCG (prior to the RCG Acquisition), received subpoenas from the U.S. Department of Justice, Eastern District of Missouri, in connection with a joint civil and criminal investigation. FMCH received its subpoena in April 2005. RCG received its subpoena in August 2005. The subpoenas require production of a broad range of documents relating to FMCH’s and RCG’s operations, with specific attention to documents related to clinical quality programs, business development activities, medical director compensation and physician relationships, joint ventures, anemia management programs, RCG’s supply company, pharmaceutical and other services that RCG provides to patients, RCG’s relationships to pharmaceutical companies, and RCG’s purchase of dialysis equipment from FMCH. The Company is cooperating with the government’s requests for information. An adverse determination in this investigation could have a material adverse effect on the Company’s business, financial condition and results of operations.

In October 2004, FMCH and its subsidiaries, including RCG (prior to the RCG Acquisition), received subpoenas from the U.S. Department of Justice, Eastern District of New York in connection with a civil and criminal investigation, which requires production of a broad range of documents relating to FMCH’s and RCG’s operations, with specific attention to documents relating to laboratory testing for parathyroid hormone (“PTH”) levels and vitamin D therapies. The Company is cooperating with the government’s requests for information. While the Company believes that it has complied with applicable laws relating to PTH testing and use of vitamin D therapies, an adverse determination in this investigation could have a material adverse effect on the Company’s business, financial condition, and results of operations.

In May 2006, RCG received a subpoena from the U.S. Department of Justice, Southern District of New York in connection with an investigation into RCG’s administration of its stock option programs and practices, including the procedure under which the exercise price was established for certain of the option grants. The subpoena requires production of a broad range of documents relating to the RCG stock option program prior to the RCG Acquisition. The Company is cooperating with the government’s requests for information. The outcome and impact of this investigation cannot be predicted at this time.

F-46

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

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

The Company, like other health care providers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. The Company must also comply with the Anti-Kickback Statute, the False Claims Act, the Stark Statute, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company’s or the manner in which it conducts its business. 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 the Company’s corporate integrity agreement with the U.S. federal government, the Company’s business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, investigative demands, subpoenas, other inquiries, claims and litigation relating to the Company’s compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of “whistle blower” actions, which are initially filed under court seal.

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

Physicians, hospitals and other participants in the health care industry are also subject to a large number of lawsuits alleging professional negligence, malpractice, product liability, worker’s compensation or related claims, many of which involve large claims and significant defense costs. The Company has been and is currently subject to these suits due to the nature of its business and expects that those types of lawsuits may continue. Although the Company maintains insurance at a level which it believes to be prudent, it cannot assure that the coverage limits will be adequate or that insurance will cover all asserted claims. A successful claim against the Company or any of its subsidiaries in excess of insurance coverage could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could 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 alleged patent infringements or 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, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Company or any of its subsidiaries could have a material adverse effect upon it and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company’s reputation and business.

F-47

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Accrued Special Charge for Legal Matters

At December 31, 2001, the Company recorded a pre-tax special charge of $258,159 to reflect anticipated expenses associated with the defense and resolution of pre-Merger tax claims, Merger-related claims, and commercial insurer claims. The costs associated with the Settlement Agreement and settlements with insurers have been charged against this accrual. With the exception of the proposed $115,000 payment under the Settlement Agreement, all other matters included in the special charge have been resolved. While the Company believes that its remaining accrual reasonably estimates its currently anticipated costs related to the continued defense and resolution of this matter, no assurances can be given that its actual costs incurred will not exceed the amount of this accrual (see Note 8).


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 highly rated financial institutions as authorized by the Company’s General Partner. The Company does not use financial instruments for trading purposes.

The Company established guidelines for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.

Foreign Exchange Risk Management

The Company conducts business on a global basis in various currencies, though its operations are mainly in Germany and the United States. For financial reporting purposes, the Company has chosen the U.S. dollar as its reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of the Company’s international operations are maintained affect its results of operations and financial position as reported in its consolidated financial statements.

The Company’s exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases, and lending and borrowings, including intercompany borrowings. The Company has significant amounts of sales of products invoiced in euro from its European manufacturing facilities to its other international operations. This exposes the subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures the Company enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. The Company’s policy, which has been consistently followed, is that financial derivatives be used only for the purpose of hedging foreign currency exposure. As of December 31, 2006 the Company had no foreign exchange options.

In connection with intercompany loans in foreign currency the Company normally uses foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans.

Changes in the fair value of foreign exchange forward contracts designated and qualifying as cash flow hedges of forecasted product purchases and sales are reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings as a component of cost of revenues, in the same period in which the hedged transaction affects earnings. After tax gains of $1,210 ($2,527 pretax) for the year ended December 31, 2006 are deferred in accumulated other comprehensive income and will mainly be reclassified into

F-48

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

earnings during 2007. During 2006, the Company reclassified after tax gains of $72 ($99 pretax) from accumulated other comprehensive income (loss) into the statement of operations.

The notional amounts of foreign exchange forward contracts in place to hedge exposures from operational business totaled $351,729 with a fair value of $2,195 as of December 31, 2006.

Changes in the fair value of foreign currency forward contracts designated and qualifying as cash flow hedges associated with foreign currency denominated intercompany financing transactions are reported in accumulated other comprehensive income (loss). These amounts are subsequently reclassified into earnings as a component of selling, general and administrative expenses and interest expense in the same period in which the hedged transactions affect earnings.

In connection with foreign currency denominated intercompany loans, the Company also entered into foreign exchange swaps with a notional amount of $730,855 having a fair value of approximately $418 as of December 31, 2006. No hedge accounting is applied to these foreign exchange contracts. Accordingly, the respective foreign exchange swaps are recognized as assets or liabilities and changes in their fair values are recognized against earnings thus offsetting the changes in fair values of the underlying intercompany loans denominated in foreign currency.

As of December 31, 2006, the Company had foreign exchange derivatives with maturities of up to 16 months.

The Company is exposed to potential losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparty to fail to meet its obligations as the counterparties are highly rated financial institutions. The current credit exposure of foreign exchange derivatives is represented by the fair value of those contracts with a positive fair value at the reporting date.

Interest Rate Risk Management

The Company enters into derivatives, particularly interest rate swaps, to (a) protect interest rate exposures arising from long-term debt and short-term borrowings and accounts receivable securitization programs at floating rates by effectively swapping them into fixed rates or (b) hedge the fair value of parts of its fixed interest rate borrowings.

Cash Flow Hedges of Variable Rate Debt

The Company enters into interest rate swap agreements that are designated as cash flow hedges effectively converting the major part of variable interest rate payments due on the Company’s 2006 Senior Credit Agreement denominated in U.S. dollars into fixed interest rate payments. Those swap agreements in the notional amount of $3,165,000, which expire at various dates between 2007 and 2012, effectively fix the Company’s variable interest rate exposure on the majority of its U.S. dollar-denominated revolving loans at an average interest rate of 4.50% plus applicable margin. After tax gains of $36,050 ($57,732 pretax) for the year ended December 31, 2006, were deferred in accumulated other comprehensive loss. Interest payable and interest receivable under the swap agreements are accrued and recorded as an adjustment to interest expense at each reporting date. There are losses of $1,342 ($2,182 pretax) due to hedge ineffectiveness.

Fair Value Hedges of Fixed Rate Debt

The Company enters into interest rate swap agreements that are designated as fair value hedges to hedge the risk of changes in the fair value of fixed interest rate borrowings effectively converting the fixed interest payments on Fresenius Medical Care Capital Trust II trust preferred securities (see note 12) denominated in U.S. dollars

F-49

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

into variable interest rate payments. Since the critical terms of the interest rate swap agreements are identical to the terms of Fresenius Medical Capital Trust II trust preferred securities, the hedging relationship is highly effective and no ineffectiveness is recognized in earnings. The interest rate swap agreements are reported at fair value in the balance sheet. The reported amount of the hedged portion of the fixed rate trust preferred securities includes an adjustment representing the change in fair value attributable to the interest rate risk being hedged. Changes in the fair value of interest rate swap contracts and trust preferred securities offset each other in the income statement. At December 31, 2006, the notional volume of these swaps was $450,000.

The Company is exposed to potential losses in the event of nonperformance by counterparties to financial instruments but does not expect any counterparty to fail to meet its obligations as the counterparties are highly rated financial institutions. The current credit exposure of interest rate derivatives is represented by the fair value of those contracts with a positive fair value at the reporting date.

Fair Value of Financial Instruments

The following table presents the carrying amounts and fair values of the Company’s financial instruments at December 31, 2006 and 2005.


		2006						2005

		Carrying						Carrying
		Amount			Fair Value			Amount			Fair Value

Non-derivatives
Assets
	Cash and cash equivalents	$	159,010		$	159,010		$	85,077		$	85,077
	Receivables		1,848,695			1,848,695			1,469,933			1,469,933
Liabilities
	Accounts payable		552,807			552,807			309,255			309,255
	Long term debt, excluding Euro-Notes		3,726,076			3,726,076			597,429			597,429
	Trust Preferred Securities		1,253,828			1,331,802			1,187,864			1,285,319
	Euro-Notes		263,400			266,480			235,940			236,326
Derivatives
	Foreign exchange contracts		2,613			2,613			(2,939	)		(2,939	)
	Dollar interest rate hedges		45,217			45,217			21,830			21,830
	Yen interest rate hedges		(75	)		(75	)		(201	)		(201	)

The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions, except for derivatives, which are included in other assets or other liabilities.

Estimation of Fair Values

The significant methods and assumptions used in estimating the fair values of financial instruments are as follows:

Short-term financial instruments are valued at their carrying amounts included in the consolidated balance sheet, which are reasonable estimates of fair value due to the relatively short period to maturity of the instruments. This approach applies to cash and cash equivalents, receivables, accounts payable and income taxes payable and short-term borrowings.

Long-term bank debt is valued at its carrying amount because the actual drawings under the facility carry interest at a variable rate which reflects actual money market conditions, plus specific margins which represent

F-50

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

Company-related performance ratios as well as the entire set of terms and conditions including covenants as determined in the 2006 Senior Credit Agreement.

The fair values of the Trust Preferred Securities and the Euro Notes are based upon market quotes.


20.	Other Comprehensive Income (Loss)

The changes in the components of other comprehensive income (loss) for the years ended December 31, 2006, 2005, and 2004 are as follows:


		Year Ended December 31, 2006							Year Ended December 31, 2005									Year Ended December 31, 2004

				Tax								Tax									Tax
		Pretax		Effect			Net		Pretax			Effect			Net			Pretax			Effect		Net

Other comprehensive (loss) income relating to cash flow hedges:
	Changes in fair value of cash flow hedges during the period	$	25,513	$	(9,300	)	$	16,213	$	72,440		$	(28,653	)	$	43,787		$	(36,192	)	$	13,638	$	(22,554	)
	Reclassification adjustments		3,280		(1,270	)		2,010		(1,243	)		584			(659	)		(9,906	)		3,449		(6,457	)

Total other comprehensive (loss) income relating to cash flow hedges			28,793		(10,570	)		18,223		71,197			(28,069	)		43,128			(46,098	)		17,087		(29,011	)
Foreign-currency translation adjustment			114,494		—			114,494		(104,723	)		—			(104,723	)		144,784			—		144,784
Adjustments related to pension obligations			8,074		(3,428	)		4,646		(19,996	)		7,747			(12,249	)		(16,507	)		6,605		(9,902	)

Other comprehensive income (loss)		$	151,361	$	(13,998	)	$	137,363	$	(53,522	)	$	(20,322	)	$	(73,844	)	$	82,179		$	23,692	$	105,871


21.	Business Segment Information

The Company has identified three business segments, North America, International, and Asia Pacific, which were determined based upon how the Company manages its businesses. All segments are primarily engaged in providing dialysis services and manufacturing and distributing products and equipment for the treatment of end-stage renal disease. In the U.S., the Company also engages in performing clinical laboratory testing and providing inpatient dialysis services, and other services under contract to hospitals. 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 services provided and the same products sold, the same type patient population, similar methods of distribution of products and services and similar economic environments.

Management evaluates each segment using a measure that reflects all of the segment’s controllable revenues and expenses. Management believes that the most appropriate measure in this regard is operating income which measures the Company’s source of earnings. Financing is a corporate function, which the Company’s segments do not control. Therefore, the Company does not include interest expense relating to financing as a segment measure. Similarly, the Company does not allocate “corporate costs” which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc., because the Company believes that these costs are also not within the control of the individual segments. The Company also regards income taxes to be outside the segment’s control.

F-51

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


		North						Segment
		America			International			Total			Corporate			Total

2006
	Net revenue external customers	$	6,025,314		$	2,473,724		$	8,499,038		$	—		$	8,499,038
	Inter-segment revenue		1,281			60,043			61,324			(61,324	)		—

	Total net revenue		6,026,595			2,533,767			8,560,362			(61,324	)		8,499,038

	Depreciation and amortization		(186,826	)		(119,938	)		(306,764	)		(1,934	)		(308,698	)

	Operating Income		964,609			440,552			1,405,161			(87,034	)		1,318,127

	Segment assets⁽¹⁾		10,196,844			2,744,833			12,941,677			103,004			13,044,681
	Capital expenditures and acquisitions⁽²⁾		4,599,276			175,062			4,774,338			137			4,774,475
2005
	Net revenue external customers	$	4,577,379		$	2,194,440		$	6,771,819		$	—		$	6,771,819
	Inter-segment revenue		1,327			54,449			55,776			(55,776	)		—

	Total net revenue		4,578,706			2,248,889			6,827,595			(55,776	)		6,771,819

	Depreciation and amortization		(139,747	)		(109,812	)		(249,559	)		(1,893	)		(251,452	)

	Operating Income		643,917			362,134			1,006,051			(67,133	)		938,918

	Segment assets		5,634,985			2,216,630			7,851,615			131,485			7,983,100
	Capital expenditures and acquisitions⁽³⁾		252,822			187,030			439,852			70			439,922
2004
	Net revenue external customers	$	4,248,216		$	1,979,786		$	6,228,002		$	—		$	6,228,002
	Inter-segment revenue		1,602			39,004			40,606			(40,606	)		—

	Total net revenue		4,249,818			2,018,790			6,268,608			(40,606	)		6,228,002

	Depreciation and amortization		(128,532	)		(102,137	)		(230,669	)		(1,917	)		(232,586	)

	Operating Income		587,400			300,291			887,691			(35,346	)		852,345

	Segment assets		5,539,631			2,366,277			7,905,908			55,633			7,961,541
	Capital expenditures and acquisitions⁽⁴⁾		230,150			152,820			382,970			255			383,225


(1)	Segment assets of North America include the goodwill of RCG of $3,381,901 as of December 31, 2006.

(2)	North America and International acquisitions exclude $2,500 and $6,208 of non-cash acquisitions for 2006. North America acquisitions include $4,148,200 at December 31, 2006 of the total $4,157,619 purchase price of RCG.

(2)	North America and International acquisitions exclude $260 and $9,031, respectively, of non-cash acquisitions for 2005.

(4)	International acquisitions exclude $15,479 of non-cash acquisitions for 2004.

F-52

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

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		Rest of the
	Germany		States		World		Total

2006
Net revenue external customers	$	288,047	$	6,025,314	$	2,185,677	$	8,499,038
Long-lived assets		144,877		8,274,104		1,080,301		9,499,282
2005
Net revenue external customers	$	288,923	$	4,577,379	$	1,905,517	$	6,771,819
Long-lived assets		157,362		4,372,453		906,220		5,436,035
2004
Net revenue external customers	$	288,526	$	4,248,216	$	1,691,260	$	6,228,002
Long-lived assets		169,981		4,277,319		956,860		5,404,160


22.	Supplementary Cash Flow Information

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


		2006		2005			2004

Supplementary cash flow information:
	Cash paid for interest	$	378,233	$	180,853		$	201,380

	Cash paid for income taxes	$	423,514	$	380,764		$	198,983

	Cash inflow for income taxes from stock option exercises	$	7,428	$	—		$	—

Supplemental disclosures of cash flow information:
	Details for acquisitions:
	Assets acquired	$	4,784,713	$	149,189		$	148,324
	Liabilities assumed		348,898		18,161			12,957
	Minorities		56,300		(5,017	)		—
	Notes assumed in connection with acquisition		8,708		9,291			15,479

	Cash paid		4,370,807		126,754			119,888
	Less cash acquired		63,525		1,601			15,395

	Net cash paid for acquisitions	$	4,307,282	$	125,153		$	104,493


23.	Supplemental Condensed Combining Information

FMC Trust Finance S.à.r.l. Luxembourg and FMC Trust Finance S.à.r.l. Luxembourg-III, each of which is a wholly-owned subsidiary of FMC-AG & Co. KGaA, are the obligors on senior subordinated debt securities which are fully and unconditionally guaranteed, jointly and severally, on a senior subordinated basis, by FMC-AG & Co. KGaA and by Fresenius Medical Care Deutschland GmbH (“D-GmbH”), a wholly-owned subsidiary of FMC-AG & Co. KGaA, and by FMCH, a substantially wholly-owned subsidiary of FMC-AG & Co. KGaA (D-GmbH and FMCH being “Guarantor Subsidiaries”). In December 2004, the Company assumed the obligations of its wholly owned subsidiaries as the issuer of senior subordinated notes denominated in euro and Deutschmark held by Fresenius Medical Care Capital Trust III and Fresenius Medical Care Capital Trust V, respectively (see Note 12). The following combining financial information for the Company is as of

F-53

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)

December 31, 2006 and 2005 and for the year ended December 31, 2006, 2005 and 2004, segregated between the Company, D-GmbH, FMCH and each of the Company’s other businesses (the “Non-Guarantor Subsidiaries”). For purposes of the condensed combining information, FMC-AG & Co. KGaA 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.


		For the year ended December 31, 2006

					Guarantor Subsidiaries
		FMC-AG &									Non-Guarantor			Combining			Combined
		Co. KGaA			D-GmbH			FMCH			Subsidiaries			Adjustment			Total

Net revenue		$	—		$	1,750,605		$	—		$	8,242,843		$	(1,494,410	)	$	8,499,038
Cost of revenue			—			1,297,157			—			5,804,814			(1,480,489	)		5,621,482

	Gross profit		—			453,448			—			2,438,029			(13,921	)		2,877,556

Operating (income) expenses:
	Selling, general and administrative		98,761			145,700			16,829			1,345,974			(58,895	)		1,548,369
	Gain on sale of legacy clinics		—			—			—			(40,233	)		—			(40,233	)
	Research and development		—			36,801			—			14,492			—			51,293

Operating (loss) income			(98,761	)		270,947			(16,829	)		1,077,563			44,974			1,318,127

Other (income) expense:
	Interest, net		23,228			13,108			186,988			126,338			1,584			351,246
	Other, net		(728,116	)		160,094			(448,408	)		—			1,016,430			—

Income (loss) before income taxes and minority interest			606,127			97,745			244,591			991,458			(973,040	)		966,881
	Income tax expense (benefit)		69,381			101,042			(81,527	)		379,268			(54,675	)		413,489

Income (loss) before minority interest			536,746			(3,297	)		326,118			612,190			(918,365	)		553,392
Minority interest			—			—			—			—			16,646			16,646

Net income (loss)		$	536,746		$	(3,297	)	$	326,118		$	612,190		$	(935,011	)	$	536,746

F-54

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


		For the Year Ended December 31, 2005

					Guarantor
					Subsidiaries
		FMC-AG &								Non-Guarantor		Combining			Combined
		Co. KGaA			D-GmbH		FMCH			Subsidiaries		Adjustment			Total

Net revenue		$	—		$	1,059,401	$	—		$	7,010,734	$	(1,298,316	)	$	6,771,819
Cost of revenue			—			664,871		—			5,058,548		(1,284,265	)		4,439,154

	Gross profit		—			394,530		—			1,952,186		(14,051	)		2,332,665

Operating (income) expenses:
	Selling, general and administrative		(14,805	)		135,899		—			1,075,777		145,921			1,342,792
	Research and development		3,271			32,702		—			14,982		—			50,955

Operating income (loss)			11,534			225,929		—			861,427		(159,972	)		938,918

Other (income) expense:
	Interest, net		35,391			11,750		51,981			112,199		(38,129	)		173,192
	Other, net		(525,497	)		131,392		(294,649	)		—		688,754			—

Income (loss) before income taxes and minority interest			501,640			82,787		242,668			749,228		(810,597	)		765,726
	Income tax expense (benefit)		46,688			79,606		(20,792	)		286,629		(83,383	)		308,748

Income (loss) before minority interest			454,952			3,181		263,460			462,599		(727,214	)		456,978
Minority interest			—			—		—			—		2,026			2,026

Net income (loss)		$	454,952		$	3,181	$	263,460		$	462,599	$	(729,240	)	$	454,952


		For the Year Ended December 31, 2004

					Guarantor Subsidiaries
		FMC-AG &									Non-Guarantor		Combining			Combined
		Co. KGaA			D-GmbH			FMCH			Subsidiaries		Adjustment			Total

Net revenue		$	—		$	967,981		$	—		$	7,086,578	$	(1,826,557	)	$	6,228,002
Cost of revenue			—			618,147			—			5,344,614		(1,820,644	)		4,142,117

	Gross profit		—			349,834			—			1,741,964		(5,913	)		2,085,885

Operating (income) expenses:
	Selling, general and administrative		98,025			144,952			—			1,068,900		(129,701	)		1,182,176
	Research and development		2,455			33,610			—			15,299					51,364

Operating (loss) income			(100,479	)		171,272			—			657,764		123,788			852,345

Other (income) expense:
	Interest, net		36,777			13,367			62,189			104,768		(33,355	)		183,746
	Other, net		(592,166	)		101,430			(286,567	)		—		777,303			—

Income (loss) before income taxes and minority interest			454,909			56,475			224,378			552,997		(620,160	)		668,599
	Income tax expense (benefit)		52,912			58,815			(24,876	)		237,413		(58,849	)		265,415

Income (loss) before minority interest			401,998			(2,340	)		249,254			315,584		(561,311	)		403,184
Minority interest			—			—			—			—		1,186			1,186

Net income (loss)		$	401,998		$	(2,340	)	$	249,254		$	315,584	$	(562,497	)	$	401,998

F-55

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


			At December 31, 2006

					Guarantor
					Subsidiaries
			FMC-AG &						Non-Guarantor			Combining			Combined
			Co. KGaA		D-GmbH		FMCH		Subsidiaries			Adjustment			Total

Current assets:
	Cash and cash equivalents		$	22	$	34	$	—	$	158,954		$	—		$	159,010
	Trade accounts receivable, less allowance for doubtful accounts			—		122,987		—		1,725,708			—			1,848,69
	Accounts receivable from related parties			1,483,462		835,512		290,288		1,830,293			(4,296,206	)		143,349
	Inventories			—		130,967		—		457,426			(64,464	)		523,929
	Prepaid expenses and other current assets			18,455		20,633		50		408,850			(4,134	)		443,854
	Deferred taxes			1,586		—		—		262,476			29,017			293,079

		Total current assets		1,503,525		1,110,133		290,338		4,843,707			(4,335,787	)		3,411,916
Property, plant and equipment, net				174		97,244		—		1,678,511			(53,537	)		1,722,392
Intangible assets				70		13,969		—		647,326			—			661,365
Goodwill				—		3,207		—		6,888,954			—			6,892,161
Deferred taxes				—		11,825		—		40,429			10,468			62,722
Other assets				5,105,547		869,630		5,998,241		(1,532,867	)		(10,146,426	)		294,125

		Total assets	$	6,609,316	$	2,106,008	$	6,288,579	$	12,566,060		$	(14,525,282	)	$	13,044,681

Current liabilities:
	Accounts payable		$	306	$	20,399	$	—	$	295,483		$	—		$	316,188
	Accounts payable to related parties			351,450		642,878		926,178		3,496,135			(5,180,022	)		236,619
	Accrued expenses and other current liabilities			17,617		91,634		8,450		1,064,412			12,826			1,194,939
	Short-term borrowings			—		—		—		331,231			—			331,231
	Short-term borrowings from related parties			954,896		9,155		—		(950,321	)		(9,155	)		4,575
	Current portion of long-term debt and capital lease obligations			744		263		137,500		21,628			—			160,135
	Income tax payable			40,551		—		—		63,929			11,579			116,059
	Deferred taxes			—		6,174		—		15,982			(6,197	)		15,959

		Total current liabilities		1,365,564		770,503		1,072,128		4,338,479			(5,170,969	)		2,375,705
Long term debt and capital lease obligations, less current portion				329,918		395		2,367,731		4,853,043			(3,721,746	)		3,829,341
Long term borrowings from related parties				4,153		204,453		—		—			(208,606	)		—
Other liabilities				18,872		9,462		—		112,350			9,000			149,684
Pension liabilities				2,580		107,357		—		2,379			—			112,316
Deferred taxes				18,067				—		309,140			51,280			378,487

Company obligated mandatorily redeemable preferred securities of subsidiary Fresenius Medical Care Capital Trusts holding solely Company-guaranteed debentures of subsidiary				—		—		—		1,253,828			—			1,253,828
Minority interest				—		—		7,412		67,746			—			75,158

		Total liabilities		1,739,154		1,092,170		3,447,271		10,936,965			(9,041,041	)		8,174,519
Shareholders’ equity:				4,870,162		1,013,838		2,841,308		1,629,095			(5,484,241	)		4,870,162

	Total liabilities and shareholders’ equity		$	6,609,316	$	2,106,008	$	6,288,579	$	12,566,060		$	(14,525,282	)	$	13,044,681

F-56

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


			At December 31, 2005

					Guarantor
					Subsidiaries
			FMC-AG &						Non-Guarantor			Combining			Combined
			Co. KGaA		D-GmbH		FMCH		Subsidiaries			Adjustment			Total

Current assets:
	Cash and cash equivalents		$	1	$	26	$	—	$	82,558		$	2,492		$	85,077
	Trade accounts receivable, less allowance for doubtful accounts			—		108,426		—		1,361,507			—			1,469,933
	Accounts receivable from related parties			852,926		338,097		216,337		1,248,942			(2,622,418	)		33,884
	Inventories			—		113,359		—		371,638			(54,104	)		430,893
	Prepaid expenses and other current assets			17,399		12,329		13		231,734			115			261,590
	Deferred taxes			—		—		—		163,975			15,586			179,561

		Total current assets		870,326		572,237		216,350		3,460,354			(2,658,329	)		2,460,938
Property, plant and equipment, net				157		86,386		—		1,174,252			(45,037	)		1,215,758
Intangible assets				970		12,220		—		572,499			—			585,689
Goodwill				—		3,227		—		3,453,650			—			3,456,877
Deferred taxes				—		4,562		—		27,994			3,093			35,649
Other assets				4,552,128		811,728		3,812,542		(829,742	)		(8,118,467	)		228,189

		Total assets	$	5,423,581	$	1,490,360	$	4,028,892	$	7,859,007		$	(10,818,740	)	$	7,983,100

Current liabilities:
	Accounts payable		$	19	$	13,401	$	—	$	187,897		$	—		$	201,317
	Accounts payable to related parties			1,059,718		160,884		882,439		1,397,213			(3,392,316	)		107,938
	Accrued expenses and other current liabilities			22,205		92,545		775		731,208			(7,965	)		838,768
	Short-term borrowings			33		—		—		151,080			—			151,113
	Short-term borrowings from related parties			18,757		1,752		—		—			(1,752	)		18,757
	Current portion of long-term debt and capital lease obligations			968		826		100,000		24,475			—			126,269
	Income tax payable			15,106		—		—		81,593			23,439			120,138
	Deferred taxes			2,489		3,735		—		34,266			(26,550	)		13,940

		Total current liabilities		1,119,295		273,143		983,214		2,607,732			(3,405,144	)		1,578,240
Long term debt and capital lease obligations, less current portion				294,131		590		561,229		651,297			(800,147	)		707,100
Long term borrowings from related parties				3,720		180,951		—		—			(184,671	)		—
Other liabilities				419		5,013		—		89,112			17,874			112,418
Pension liabilities				2,578		75,880		—		42,680			(12,436	)		108,702
Deferred taxes				29,732				—		235,538			35,395			300,665
Company obligated mandatorily redeemable preferred securities of subsidiary Fresenius Medical Care Capital Trusts holding solely Company-guaranteed debentures of subsidiary				—		—		—		1,187,864			—			1,187,864
Minority interest				—		—		7,412		—			6,993			14,405

		Total liabilities		1,449,875		535,577		1,551,855		4,814,223			(4,342,136	)		4,009,394
Shareholders’ equity:				3,973,706		954,783		2,477,037		3,044,784			(6,476,604	)		3,973,706

		Total liabilities and shareholders’ equity	$	5,423,581	$	1,490,360	$	4,028,892	$	7,859,007		$	(10,818,740	)	$	7,983,100

F-57

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


					For the Year Ended December 31, 2006

								Guarantor
								Subsidiaries
					FMC-AG &									Non-Guarantor			Combining			Combined
					Co. KGaA			D-GmbH			FMCH			Subsidiaries			Adjustment			Total

Operating Activities:
	Net income (loss)				$	536,746		$	(3,297	)	$	326,118		$	612,190		$	(935,011	)	$	536,745
	Adjustments to reconcile net income to cash and cash equivalents provided by (used in) operating activities:
			Equity affiliate income			(451,099	)		—			(448,408	)		—			899,507			—
			Settlement of shareholder proceedings			—			—			—			—			(888	)		(888	)
			Depreciation and amortization			1,934			30,715			—			290,425			(14,376	)		308,698
			Change in minority interest			—			—			—			—			24,333			24,333
			Change in deferred taxes, net			(14,072	)		(14	)		—			32,927			(7,937	)		10,904
			Loss (Gain) on investments			24,660			—			—			—			(24,660	)		—
			Write-up of loans from related parties			(1,695	)		—			—			—			1,695			—
			Loss on sale of fixed assets			—			—			—			5,742			—			5,742
			Compensation expense related to stock options			16,610			—			—			—			—			16,610
			Cash inflow from hedging			10,908			—			—			—			—			10,908
Changes in assets and liabilities, net of amounts from businesses acquired:
		Trade accounts receivable, net				—			(9,094	)		—			(22,182	)		—			(31,276	)
		Inventories				—			(4,210	)		—			(44,067	)		5,724			(42,553	)
		Prepaid expenses and other current and non-current assets				10,123			(4,566	)		28,936			(15,204	)		(40,918	)		(21,629	)
		Accounts receivable from / payable to related parties				3,993			106,552			40,739			(192,257	)		36,098			(4,875	)
		Accounts payable, accrued expenses and other current and non-current liabilities				(8,113	)		8,726			7,675			158,132			16,457			182,877
		Income tax payable				22,585			—			(81,527	)		24,568			10,124			(24,250	)
		Tax payments related to divestitures and acquisitions				—			—			—			(63,517	)		—			(63,517	)

				Net cash provided by (used in) operating activities		152,580			124,812			(126,467	)		786,757			(29,852	)		907,830

Investing Activities:
	Purchases of property, plant and equipment					(137	)		(31,267	)		—			(454,524	)		18,735			(467,193	)
	Proceeds from sale of property, plant and equipment					846			395			—			16,417			—			17,658
	Disbursement of loans to related parties					(361,156	)		134			(2,879,204	)		—			3,240,226			—
	Acquisitions and investments, net of cash acquired					(22,671	)		(793	)		—			(4,314,968	)		31,150			(4,307,282	)
	Proceeds from disposal of businesses					—			—			—			515,705			—			515,705

				Net cash (used in) provided by investing activities		(383,118	)		(31,531	)		(2,879,204	)		(4,237,370	)		3,290,111			(4,241,112	)

Financing activities:
	Short-term borrowings, net					(17,239	)		(92,397	)		—			94,899			—			(14,737	)
	Long-term debt and capital lease obligations, net					27,769			(879	)		1,756,191			4,490,710			(3,240,226	)		3,033,565
	Increase of accounts receivable securitization program					—			—			—			172,000			—			172,000
	Proceeds from exercise of stock options					46,528			—			—			7,424			—			53,952
	Proceeds from conversion of preference shares into ordinary shares					306,759			—			—			—			—			306,759
	Dividends paid					(153,720	)		—			—			(4,184	)		4,184			(153,720	)
	Capital increase (decrease)					—			—			1,250,000			(1,226,202	)		(23,798	)		—
	Change in minority interest					—			—			(520	)		(14,610	)		—			(15,130	)

				Net cash provided by (used in) financing activities		210,097			(93,276	)		3,005,671			3,520,037			(3,259,840	)		3,382,689

Effect of exchange rate changes on cash and cash equivalents						20,459			3			—			4,483			(419	)		24,526

Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents						18			8			—			73,907			—			73,933
Cash and cash equivalents at beginning of period						1			26			—			85,050			—			85,077

Cash and cash equivalents at end of period					$	19		$	34		$	—		$	158,957		$	—		$	159,010

F-58

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


					For the Year Ended December 31, 2005

								Guarantor
								Subsidiaries
					FMC-AG &									Non-Guarantor			Combining			Combined
					Co. KGaA			D-GmbH			FMCH			Subsidiaries			Adjustment			Total

Operating Activities:
	Net income (loss)				$	454,952		$	3,181		$	263,460		$	462,599		$	(729,240	)	$	454,952
	Adjustments to reconcile net income to cash and cash equivalents provided by (used in) operating activities:
			Equity affiliate income			(228,488	)		—			(294,649	)		—			523,137			—
			Settlement of shareholder proceedings												—			7,335			7,335
			Depreciation and amortization			1,893			31,967			—			232,749			(15,157	)		251,452
			Change in deferred taxes, net			7,836			(528	)		—			(5,138	)		(5,845	)		(3,675	)
			(Gain) loss on investments			(48,373	)		—			—			—			48,373			—
			Write-up of loans from related parties			(17,276	)		—			—			—			17,276			—
			Loss on sale of fixed assets			—			284			—			3,681			—			3,965
			Compensation expense related to stock options			1,363			—			—			—			—			1,363
			Cash inflow from hedging			—			(1,339	)		—			1,339			—			—
Changes in assets and liabilities, net of amounts from businesses acquired:
		Trade accounts receivable, net				—			(14,645	)		—			(48,929	)					(63,574	)
		Inventories				—			(4,507	)		—			(7,069	)		1,765			(9,811	)
		Prepaid expenses and other current and non-current assets				4,738			4,490			3,320			(119,397	)		65,813			(41,036	)
		Accounts receivable from / payable to related parties				(72,755	)		(26,544	)		37,235			16,225			55,435			9,596
		Accounts payable, accrued expenses and other current and non-current liabilities				8,749			33,639			234			104,596			1,517			148,735
		Income tax payable				(100,380	)		—			(20,792	)		31,883			291			(88,998	)

				Net cash provided by (used in) operating activities		12,259			25,998			(11,192	)		672,539			(29,300	)		670,304

Investing Activities:
	Purchases of property, plant and equipment					(90	)		(27,649	)		—			(311,157	)		24,127			(314,769	)
	Proceeds from sale of property, plant and equipment					—			1,417			—			16,010			—			17,427
	Disbursement of loans to related parties					(64,349	)		125			25,512			—			38,712			—
	Acquisitions and investments, net of cash acquired					(49,087	)		—			—			(99,938	)		23,872			(125,153	)

				Net cash (used in) provided by investing activities		(113,526	)		(26,107	)		25,512			(395,085	)		86,711			(422,495	)

Financing Activities:
	Short-term borrowings, net					17,298			1,151			—			(35,538	)		—			(17,089	)
	Long-term debt and capital lease obligations, net					137,766			—			(13,800	)		9,870			(38,712	)		95,124
	Increase of accounts receivable securitization program					—			(1,045	)		—			(240,720	)		—			(241,765	)
	Proceeds from exercise of stock options					80,366			—			—			(422	)		—			79,944
	Dividends paid					(137,487	)		—			—			(5,320	)		5,320			(137,487	)
	Capital increase (decrease) of Non-Guarantor-Subsidiaries					—			—			—			23,872			(23,872	)		—
	Change in minority interest					—			—			(520	)		—			2,026			1,506

				Net cash provided by (used in) financing activities		97,943			106			(14,320	)		(248,258	)		(55,238	)		(219,767	)

Effect of exchange rate changes on cash and cash equivalents						1,173			(3	)		—			(3,420	)		319			(1,931	)

Cash and Cash Equivalents:
Net (decrease) increase in cash and cash equivalents						(2,151	)		(6	)		—			25,776			2,492			26,111
Cash and cash equivalents at beginning of period						2,152			32			—			56,782			—			58,966

Cash and cash equivalents at end of period					$	1		$	26		$	—		$	82,558		$	2,492		$	85,077

F-59

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(in thousands, except share data)


					For the Year Ended December 31, 2004

								Guarantor
								Subsidiaries
					FMC-AG &									Non-Guarantor			Combining			Combined
					Co. KGaA			D-GmbH			FMCH			Subsidiaries			Adjustment			Total

Operating Activities:
	Net income (loss)				$	401,998		$	(2,340	)	$	249,254		$	315,583		$	(562,497	)	$	401,998
	Adjustments to reconcile net income to cash and cash equivalents provided by (used in) operating activities:
			Equity affiliate income			(400,655	)		—			(286,567	)		—			687,222			—
			Depreciation and amortization			1,917			28,034			—			214,661			(12,027	)		232,585
			Change in deferred taxes, net			636			(4,241	)		—			34,379			3,507			34,281
			Loss (gain) on investments			72,100			—			—			9,287			(81,387	)		—
			(Gain) loss on sale of fixed assets			—			(301	)		—			1,036			—			735
			Compensation expense related to stock options			1,751			—			—			—			—			1,751
			Cash inflow from hedging			2,928			116			—			11,470			—			14,514
Changes in assets and liabilities, net of amounts from businesses acquired:
		Trade accounts receivable, net				—			(2,142	)		—			(5,744	)		—			(7,886	)
		Inventories				—			9,870			—			16,214			1,161			27,245
		Prepaid expenses and other current and non-current assets				(3,039	)		5,870			658			119,533			(52,989	)		70,033
		Accounts receivable from / payable to related parties				(4,471	)		4,882			37,235			(39,766	)		(20,566	)		(22,686	)
		Accounts payable, accrued expenses and other current and non-current liabilities				1,680			(3,935	)		(1,788	)		38,838			1,362			36,157
		Income tax payable				24,353			—			(24,876	)		39,639			—			39,116

				Net cash provided by (used in) operating activities		99,198			35,813			(26,084	)		755,130			(36,214	)		827,843

Investing Activities:
	Purchases of property, plant and equipment					(251	)		(36,332	)		—			(259,097	)		16,948			(278,732	)
	Proceeds from sale of property, plant and equipment					—			1,617			—			16,741			—			18,358
	Disbursement of loans to related parties					29,666			108			454,404			—			(484,178	)		—
	Acquisitions and investments, net of cash acquired					(4,146	)		—			—			(103,863	)		3,516			(104,493	)

				Net cash provided by (used in) investing activities		25,269			(34,607	)		454,404			(346,219	)		(463,714	)		(364,867	)

Financing activities:
	Short-term borrowings, net					(25	)		—			—			(40,802	)		—			(40,827	)
	Long-term debt and capital lease obligations, net					(2,073	)		(1,471	)		(427,800	)		(523,596	)		484,178			(470,762	)
	Increase of accounts receivable securitization program					—			—			—			177,767			—			177,767
	Proceeds from exercise of stock options					3,622			—			—			—			—			3,622
	Dividends paid					(122,106	)		—			—			(16,870	)		16,870			(122,106	)
	Capital Increase (decrease) of Non-Guarantor-Subsidiaries					—			—			—			3,480			(3,480	)		—
	Change in minority interest					—			—			(520	)		(276	)		1,185			389

				Net cash (used in) provided by financing activities		(120,582	)		(1,471	)		(428,320	)		(400,297	)		498,753			(451,917	)

Effect of exchange rate changes on cash and cash equivalents						(1,736	)		—			—			41			1,175			(520	)

Cash and Cash Equivalents:
Net increase (decrease) in cash and cash equivalents						2,149			(265	)		—			8,655			—			10,539
Cash and cash equivalents at beginning of period						3			300			—			48,124			—			48,427

Cash and cash equivalents at end of period					$	2,152		$	35		$	—		$	56,779		$	—		$	58,966

F-60

FRESENIUS MEDICAL CARE AG & CO. KGaA

(Formerly Fresenius Medical Care AG)

Financial Statement Schedule

(in thousands, except share data)


				(Addition)		(Reduction)
		Balance at		Charge to		Deductions/		Balance at
		Beginning		Costs and		Write-offs/		End of
		of Period		Expenses		Recoveries		Period

Allowance for doubtful accounts:
	Year ended December 31, 2006	$	176,568	$	177,285	$	146,560	$	207,293
	Year ended December 31, 2005	$	179,917	$	140,799	$	144,148	$	176,568
	Year ended December 31, 2004	$	166,385	$	131,257	$	117,725	$	179,917

S-1


		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 deliver additional ADSs to represent the distributed shares, unless the number of ordinary shares or preference shares represented by our ADSs is adjusted in connection with the distribution. 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 ADS holders otherwise entitled to receive fractional ADSs.

	•	Rights to receive additional shares. In the case of a distribution of pre-emption rights to subscribe for ordinary shares or preference shares, or other subscription rights, if we provide satisfactory evidence that the depositary may lawfully distribute the rights, the depositary may arrange for ADS 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:


		ADRs as of the record date or dates set by the depositary and shall be payable at the sole discretion of the depositary by billing such registered holders or by deducting such charge from one or more cash dividends or other cash distributions);

	•	a fee for the distribution of securities (or the sale of securities in connection with a distribution), such fee being in an amount equal to the fee for the execution and delivery of ADSs which would have been charged as a result of the deposit of such securities (treating all such securities as if they were shares) but which securities or the net cash proceeds from the sale thereof are instead distributed by the depositary to those holders entitled thereto;

	•	stock transfer or other taxes and other governmental charges;

	•	cable, telex and facsimile transmission and delivery charges incurred at your request;

	•	transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities;

	•	expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars; and

	•	such fees and expenses as are incurred by the depositary or its agents in connection with servicing the deposited securities.