FRESENIUS MEDICAL CARE HOLDINGS INC /NY/, 10-Q, 2000-11-13

FRESENIUS MEDICAL CARE HOLDINGS INC /NY/
10-Q, 2000-11-13
SURGICAL & MEDICAL INSTRUMENTS & APPARATUS

Previous: GOODYEAR TIRE & RUBBER CO /OH/, SC 13G/A, EX-99, 2000-11-13

Next: FRESENIUS MEDICAL CARE HOLDINGS INC /NY/, 10-Q, EX-4.12, 2000-11-13

<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2000
------------------

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM ____________________TO__________________

COMMISSION FILE NUMBER: 1-3720

FRESENIUS MEDICAL CARE HOLDINGS, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEW YORK 13-3461988
---------------------------------------------- ------------------------
(State or Other Jurisdiction of Incorporation) (I.R.S. Employer ID No.)

95 HAYDEN AVENUE, LEXINGTON, MA 02420
--------------------------------------- ----------
(Address of Principal Executive Office) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 781-402-9000
----------------------------------------------------------------

--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)

Indicated by check whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---

1
<PAGE> 2

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of the date hereof,
90,000,000 shares of common stock, par value $1.00 per share, are outstanding,
all of which are held by Fresenius Medical Care AG.

2
<PAGE> 3

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

TABLE OF CONTENTS

PART I: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS PAGE

Unaudited Consolidated Statements of Operations................ 4
Unaudited Consolidated Statements of Comprehensive Income...... 5
Unaudited Consolidated Balance Sheets......................... 6
Unaudited Consolidated Statements of Cash Flows............... 7
Notes to Unaudited Consolidated Financial Statements.......... 9

ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 17

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................... 22

PART II: OTHER INFORMATION

ITEM 1: Legal Proceedings............................................. 23
ITEM 6: Exhibits and Reports on Form 8-K.............................. 26

3
<PAGE> 4

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

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

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- -------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Health care services................................ $ 669,614 $ 587,314 $ 1,940,284 $ 1,714,051
Medical supplies.................................... 125,080 124,536 360,249 368,405
----------- ----------- ----------- -----------
794,694 711,850 2,300,533 2,082,456
----------- ----------- ----------- -----------
EXPENSES
Cost of health care services........................ 457,381 392,763 1,306,030 1,145,943
Cost of medical supplies............................ 86,630 84,963 257,333 253,763
General and administrative expenses................. 67,066 71,328 208,503 204,880
Provision for doubtful accounts..................... 17,301 5,669 44,608 25,398
Depreciation and amortization....................... 55,576 53,931 165,732 162,019
Research and development............................ 1,001 1,067 3,199 3,104
Interest expense, net and related financing cost
including $28,459 and $23,250 for the three
months and $82,444 and $64,795 for the nine
months ended, respectively of interest with
affiliates........................................ 46,892 49,524 143,279 152,154
Interest expense on settlement of investigation,
net............................................... 7,951 -- 21,802 --
Special charge for settlement of investigation and
related costs..................................... -- 590,000 -- 590,000
----------- ---------- ---------- -----------
739,798 1,249,245 2,150,486 2,537,261
----------- ---------- ---------- -----------

INCOME (LOSS) BEFORE INCOME TAXES ..................... 54,896 (537,395) 150,047 (454,805)
PROVISION BENEFIT FOR INCOME TAXES..................... 27,227 (150,190) 74,114 (106,631)
----------- ----------- ----------- -----------

NET INCOME (LOSS)...................................... $ 27,669 $ (387,205) $ 75,933 $ (348,174)
=========== =========== =========== ===========
Basic and fully dilutive earnings per share
Net Income (loss)................................... $ 0.31 $ (4.30) $ 0.84 $ (3.87)

</TABLE>

See accompanying Notes to Unaudited, Consolidated Financial Statements.

4
<PAGE> 5

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

UNAUDITED, CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2000 1999 2000 1999
------- -------- ------- --------

<S> <C> <C> <C> <C>
NET INCOME (LOSS)................................ $ 27,669 $(387,205) $ 75,933 $(348,174)

Other comprehensive income
Foreign currency translation adjustments...... (115) (138) 26 (611)
-------- --------- -------- ---------
Total other comprehensive income.............. (115) (138) 26 (611)
-------- --------- -------- ---------
COMPREHENSIVE INCOME (LOSS)...................... $ 27,554 $(387,343) $ 75,959 $(348,785)
-------- --------- -------- ---------
</TABLE>

<PAGE> 6

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
----------- -----------
ASSETS (UNAUDITED)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents...................... $ 8,881 $ 12,563
Accounts receivable, less allowances of $75,176
and $63,012................................. 381,639 295,235
Inventories.................................... 181,261 183,112
Deferred income taxes.......................... 151,819 219,454
Other current assets........................... 163,727 130,771
IDPN accounts receivable....................... 10,378 53,962
----------- -----------
Total Current Assets........................ 897,705 895,097
----------- -----------
Properties and equipment, net..................... 438,892 428,793
----------- -----------
Other Assets:
Excess of cost over the fair value of net
assets acquired and other intangible assets,
net of accumulated amortization of $529,073
and $424,704................................ 3,244,737 3,265,491
Other assets and deferred charges.............. 53,573 49,998
Non-current IDPN accounts receivable........... -- 5,189
----------- -----------
Total Other Assets.......................... 3,298,310 3,320,678
----------- -----------
Total Assets...................................... $ 4,634,907 $ 4,644,568
=========== ===========
LIABILITIES AND EQUITY
----------------------
Current Liabilities:
Note payable for settlement of investigation... $ 120,014 $ --
Current portion of long-term debt and
capitalized lease obligations............... 151,505 142,110
Current portion of borrowing from affiliates... 634,146 372,949
Accounts payable............................... 116,141 133,337
Accrued settlement............................. -- 386,815
Accrued liabilities............................ 240,929 291,358
Net accounts payable to affiliates............. 17,989 12,361
Accrued income taxes........................... 21,692 12,433
----------- -----------
Total Current Liabilities................... 1,302,416 1,351,363

Long-term debt.................................... 671,153 615,065
Non-current borrowings from affiliates............ 786,865 788,506
Capitalized lease obligations..................... 969 1,190
Deferred income taxes............................. 122,636 134,310
Accrued settlement................................ -- 85,920
Other liabilities................................. 53,885 46,153
----------- -----------
Total Liabilities.............................. 2,937,924 3,022,507
----------- -----------
Equity:
Preferred stock, $100 par value................ 7,412 7,412
Preferred stock, $.10 par value ............... 8,906 8,906
Common stock, $1 par value; 300,000,000 shares
authorized; outstanding 90,000,000............. 90,000 90,000
Paid in capital................................... 1,942,387 1,943,034
Retained deficit.................................. (352,160) (427,703)
Accumulated comprehensive income.................. 438 412
----------- -----------
Total Equity................................... 1,696,983 1,622,061
----------- -----------
Total Liabilities and Equity....................... $ 4,634,907 $ 4,644,568
=========== ===========
</TABLE>

See accompanying Notes to Unaudited, Consolidated Financial Statements.

6
<PAGE> 7

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

UNAUDITED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (loss)............................................ $ 75,933 $ (348,174)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization............................. 165,732 162,019
Provision for doubtful accounts........................... 44,608 25,398
Deferred income taxes..................................... 55,961 (151,208)
Loss on disposal of properties and equipment.............. 512 363

Changes in operating assets and liabilities, net of effects of
purchase acquisitions and foreign exchange:
Increase in accounts receivable.............................. (147,976) (81,110)
Decrease (increase) in inventories........................... 2,847 (1,739)
Increase in other current assets............................. (30,944) (28,322)
Decease in IDPN accounts receivable.......................... 48,773 --
Decrease in other assets and deferred charges................ 6,403 1,832
(Decrease) increase in accounts payable...................... (17,271) 12,407
Increase in accrued income taxes............................. 9,259 37,505
(Decrease) increase in accrued liabilities................... (50,973) 545,397
Increase in other long-term liabilities...................... 7,732 14,602
Net changes due to/from affiliates........................... 5,628 3,038
Other, net................................................... 1,016 (7,261)
----------- -----------
Net cash provided by operating activities....................... 177,240 184,747
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures......................................... (64,739) (54,096)
Payments for acquisitions, net of cash acquired.............. (105,125) (64,744)
----------- -----------
Net cash used in investing activities........................... (169,864) (118,840)
----------- -----------
Cash flows from Financing Activities:
Payments on settlement of investigation...................... (352,721) --
Net increase in borrowings from affiliates................... 259,556 131,907
Cash dividends paid.......................................... (390) (390)
Proceeds on issuance of debt................................. -- 37
Proceeds from receivable financing facility.................. 17,800 29,400
Net increase (decrease) on debt and capitalized leases....... 65,262 (205,682)
Other net.................................................... (647) (94)
----------- -----------
Net cash used in financing activities........................... (11,140) (44,822)
----------- -----------

Effects of changes in foreign exchange rates.................... 82 (544)
----------- -----------
Change in cash and cash equivalents............................. (3,682) 20,541
----------- -----------
Cash and cash equivalents at beginning of period................ 12,563 6,579
----------- -----------
Cash and cash equivalents at end of period...................... $ 8,881 $ 27,120
=========== ===========
</TABLE>

See accompanying Notes to Unaudited, Consolidated Financial Statements

<PAGE> 8

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND SUBSIDIARIES

UNAUDITED, CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2000 1999
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest........................................... $ 159,968 $ 152,281
Income taxes paid, net............................. 9,356 7,968

Details for Acquisitions:
Assets acquired.................................... 105,745 64,765
Liabilities assumed................................ 620 21
--------- ---------
Net cash paid for acquisitions..................... $ 105,125 $ 64,744
========= =========

See accompanying Notes to Unaudited Consolidated Financial Statements

<PAGE> 9

FRESENIUS MEDICAL CARE HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

NOTES TO UNAUDITED, CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)

NOTE 1. THE COMPANY

Fresenius Medical Care Holdings, Inc., a New York corporation ("the
Company") is a subsidiary of Fresenius Medical Care AG, a German corporation
("FMC" or "Fresenius Medical Care"). The Company conducts its operations through
five principal subsidiaries, National Medical Care, Inc., a Delaware corporation
("NMC"); Fresenius USA Marketing Inc., and Fresenius USA Manufacturing Inc.,
Delaware corporations and Fresenius USA Inc., a Massachusetts corporation
(collectively, "Fresenius USA" or "FUSA") and SRC Holding Company, Inc., a
Delaware corporation ("SRC").

The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, NMC, FUSA, and SRC and those
financial statements where the Company controls professional corporations in
accordance with Emerging Issues Task Force Issue 97-2.

The Company is primarily engaged in (i) providing kidney dialysis
services, clinical laboratory testing and renal diagnostic services, and (ii)
manufacturing and distributing products and equipment for dialysis treatment.

BASIS OF PRESENTATION

BASIS OF CONSOLIDATION

The consolidated financial statements in this report at September 30,
2000 and 1999 and for the three and nine month periods then ended are unaudited
and should be read in conjunction with the consolidated financial statements in
the Company's 1999 report on Form 10-K. Such interim financial statements
reflect all adjustments that, in the opinion of management, are necessary for a
fair presentation of the results of the interim periods presented. Certain
amounts in the prior periods' consolidated financial statements have been
reclassified to conform to the current periods' basis of presentation.

The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results of operations
for the fiscal year ending December 31, 2000.

All intercompany transactions and balances have been eliminated in
consolidation.

EARNINGS PER SHARE

SFAS No. 128, Earnings per Share, requires the presentation of basic
earnings per share and diluted earnings per share. Basic earnings per share are
computed by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding during the year. Diluted
earnings per share includes the effect of all dilutive potential common shares
that were outstanding during the year. The number of shares used to compute
basic and diluted earnings per share was 90,000 in all periods as there were no
potential common shares and no adjustments to income to be considered for
purposes of the diluted earnings per shares calculation.

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------
2000 1999 2000 1999
------ ------ ------ ------
The weighted average number of shares of
Common Stock were as follows........... 90,000 90,000 90,000 90,000
====== ====== ====== ======

<PAGE> 10

Income (loss) used in the computation of earnings per share is as follows:

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- --------------------
2000 1999 2000 1999
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
CONSOLIDATED

Net Income (loss)........................ $ 27,669 $(387,205) $75,933 $(348,174)

Dividends paid on preferred stocks....... (130) (130) (390) (390)
-------- --------- ------- ---------
Income (loss) used in per share
computation of earnings................ $ 27,539 $(387,335) $75,543 $(348,564)
======== ========= ======= =========
Basic and fully dilutive earnings per
share.................................. $ 0.31 $ (4.30) $ 0.84 $ (3.87)
======== ========= ======= =========
</TABLE>

NEW PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as "derivatives") and for
hedging activities. This statement requires that an entity recognizes all
derivatives as either assets or liabilities in the balance sheet and measure
those instruments at fair value. The statement also sets forth the criteria for
determining whether a derivative may be specifically designated as a hedge of a
particular exposure with the intent of measuring the effectiveness of that hedge
in the statement of operations.

In June 1999, the Financial Accounting Standards Board issued SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities, which amended
the effective date of SFAS No. 133. The amended SFAS No. 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 2000. The Company
is currently reviewing the impact of SFAS No. 137 on its results of operations.

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

In May 2000, the Emerging Issues Task Force ("EITF") issued EITF
00-014, Accounting for Certain Sales Incentives, which establishes accounting
for point of sales coupons, rebates, and free merchandise. This EITF requires
that an entity report these sales incentives that reduce the price paid to be
netted directly against revenues. EITF 00-014 is effective no later than the
fourth quarter of fiscal year beginning after December 15, 1999. The Company is
currently reviewing the impact of EITF 00-014 on its results of operations.

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

<PAGE> 11

NOTE 2. INVENTORIES

SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Inventories:
Raw materials.................................... $ 44,098 $ 41,045

Manufactured goods in process.................... 11,488 8,748

Manufactured and purchased inventory available
for sale....................................... 80,725 90,748
-------- --------
136,311 140,541

Health care supplies............................. 44,950 42,571
-------- --------
Total....................................... $181,261 $183,112
======== ========

NOTE 3. DEBT

SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Notes payable and long-term debt to outside
parties consists of:

NMC Credit Facility ............................... $807,900 $738,150
Note payable for settlement of investigation....... 120,014 --
Third-party debt, primarily bank borrowings at
various interest rates with various maturities.. 14,467 17,454
-------- --------
942,381 755,604
Less amounts classified as current ................ 271,228 140,539
-------- --------
$671,153 $615,065
======== ========

SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
Non current borrowings from affiliates
consists of:

Fresenius Medical Care AG non-current borrowings
primarily at interest rates approximating
7.42 - 7.75%................................... $ 209,000 $ 42,949

Fresenius AG non-current borrowing at interest
rates approximating 7.42 - 7.46%.............. 209,850 330,000
Fresenius Medical Care Trust Finance S.a.r.l. at
interest rates of 8.43% and 9.25% ............. 786,524 786,524
Franconia Acquisition, LLC at interest rates
approximating 6.89 - 6.91%..................... 214,624 --
Other.............................................. 1,013 1,982
---------- ----------
1,421,011 1,161,455
Less amounts classified as current ................ 634,146 372,949
---------- ----------
Total.............................................. $ 786,865 $ 788,506
========== ==========

Franconia Acquisition, LLC is a wholly owned subsidiary of Fresenius
Medical Care AG. In March 2000, the Company entered into demand notes payable to
Franconia Acquisition, LLC totaling $344.2 million. The balance due at September
30, 2000 is $214.6 million and bears interest at rates approximating 6.89% to
6.91%.

11
<PAGE> 12

NOTE 4. SPECIAL CHARGE FOR SETTLEMENT OF INVESTIGATION AND RELATED COSTS

On January 18, 2000, the Company, NMC and certain affiliated
companies executed definitive agreements (the "Settlement Agreements") with the
United States Government (the "Government") to settle (i) matters concerning
violations of federal laws and (ii) NMC's claims with respect to outstanding
Medicare receivables for nutrition therapy (collectively, the "Settlement").

Under the Settlement with the Government, the Company entered into a
note payable for the settlement payment obligations to the Government. Interest
on installment payments to the Government will accrue at 6.3% on $51.2 million
of the obligation and at 7.5% annually on the balance, until paid in full.

In February 2000, the Company made initial payments to the Government
totaling $286.4 million. The remaining obligations will be paid in six quarterly
installments which began in April 2000 and will end in July 2001. The first four
quarterly installments will be made in the amount of $35.4 million including
interest at 7.5%. The first two of these four payments were made in April and
July 2000 to the Government totaling $70.8 million including interest. The
remaining two installments of $27.8 million including interest at 6.3% will be
made in April and July 2001, respectively.

In addition, the Company will receive approximately $59.2 million from
the Government related to the Company's claims for outstanding Medicare
receivables. In March 2000, the Company received an initial payment from the
Government of $38.4 million. The remaining balance will be received by the
Company in four quarterly payments which began in May 2000 and will end February
2001. Each quarterly payment from the Government will be for principal of $5.2
million plus interest at 7.5%. The first two quarterly payments from the
Government were received in May and August 2000 totaling $10.4 million plus
interest.

NOTE 5. COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

COMMERCIAL INSURER LITIGATION

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

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

Although the ultimate outcome on the Company of these proceedings
cannot be predicted at this time, an adverse result could have a material
adverse effect on the Company's business, financial condition and result of
operations.

12
<PAGE> 13

OBRA 93

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

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

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

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

13
<PAGE> 14

OTHER LITIGATION AND POTENTIAL EXPOSURES

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

The Company, like other health care providers, conducts its operations
under intense government regulation and scrutiny. The Company must comply with
regulations which relate to or govern the safety and efficacy of medical
products and supplies, the operation of manufacturing facilities, laboratories
and dialysis clinics, and environmental and occupational health and safety. The
Company must also comply with the U.S. anti-kickback statute, the False Claims
Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable
laws or regulations may be amended, or enforcement agencies or courts may make
interpretations that differ from the Company's or the manner in which the
Company conduct its business. In the U.S., enforcement has become a high
priority for the federal government and some states. In addition, the provisions
of the False Claims Act authorizing payment of a portion of any recovery to the
party bringing the suit encourage private plaintiffs to commence "whistle
blower" actions. By virtue of this regulatory environment, as well as our
corporate integrity agreement with the government, the Company expects that its
business activities and practices will continue to be subject to extensive
review by regulatory authorities and private parties, and continuing inquiries,
claims and litigation relating to its compliance with applicable laws and
regulations. The Company may not always be aware that an inquiry or action has
begun, particularly in the case of "whistle blower" actions, which are initially
filed under court seal.

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

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

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

CONTINGENT NON-NMC LIABILITIES OF W. R. GRACE & CO. (NOW KNOWN AS
FRESENIUS MEDICAL CARE HOLDINGS, INC.)

The Company was formed as a result of a series of transactions pursuant
to the Agreement and Plan of Reorganization (the "Merger") dated as of February
4, 1996 by and between W.R. Grace & Co. ("Grace") and Fresenius AG. In
connection with the Merger, W.R. Grace & Co.-Conn. ("Grace Chemicals") agreed to
indemnify the Company and NMC against all liabilities of the Company and its
successors, whether relating to events occurring before or after the Merger,
other than liabilities arising from or relating to NMC operations. The Company
remains contingently liable for certain liabilities with respect to pre-Merger
matters that are not related to NMC operations. The Company believes that in
view of the nature of the non-NMC liabilities and Grace Chemicals' current
financial position, the risk of significant loss from non-NMC liabilities is
remote.

14
<PAGE> 15

On September 28, 2000, MESQUITA, ET AL. V. W.R. GRACE & COMPANY, ET
AL. (Sup. Court of Calif., S.F. County, #315465) was filed as class action
against Grace Chemicals, the Company, and other defendants, alleging that the
Merger was a fraudulent conveyance, violated the uniform fraudulent transfer
act, denuded the assets of Grace, and constituted a conspiracy to denude the
assets of Grace from plaintiffs in asbestos litigation. The Company believes
that the Merger did not violate any of these provisions. The Company has
requested indemnification from Grace Chemicals pursuant to the Merger agreement.
If the Company were to be found liable, and if the Company was not able to
collect on the indemnity, it would have a material adverse effect on the
Company's business, the financial condition of the Company and the results of
operations.

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

<PAGE> 16

NOTE 6. INDUSTRY SEGMENTS INFORMATION

The Company's reportable segments are Dialysis Services and Dialysis
Products. For purposes of segment reporting, the Dialysis Services Division and
Spectra Renal Management are combined and reported as Dialysis Services. These
divisions are aggregated because of their similar economic classifications.
These include the fact that they are both health care service providers whose
services are provided to a common patient population, and both receive a
significant portion of their net revenue from Medicare and other government and
non-government third party payors. The Dialysis Products segment reflects the
activity of the Dialysis Products Division only.

The table below provides information for the three and nine months ended
September 30, 2000 and 1999 pertaining to the Company's two industry segments.

LESS
DIALYSIS DIALYSIS INTERSEGMENT
SERVICES PRODUCTS SALES TOTAL
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
NET REVENUES
Three Months Ended 9/30/00 $ 673,536 $ 183,431 $ 62,273 $ 794,694
Three Months Ended 9/30/99 590,778 180,176 59,104 711,850

Nine Months Ended 9/30/00 $ 1,951,863 $ 536,788 $ 188,118 $ 2,300,533
Nine Months Ended 9/30/99 1,724,749 526,017 168,310 2,082,456

OPERATING EARNINGS
Three Months Ended 9/30/00 $ 104,975 $ 31,997 -- $ 136,972
Three Months Ended 9/30/99 100,684 31,176 -- 131,860

Nine Months Ended 9/30/00 $ 307,671 $ 88,342 -- $ 396,013
Nine Months Ended 9/30/99 284,150 90,851 -- 375,001

TOTAL ASSETS 9/30/00 $ 2,131,009 $ 634,992 -- $ 2,766,001
12/31/99 1,817,751 644,112 -- 2,461,863
</TABLE>

The table below provides the reconciliations of reportable segment operating
earnings to the Company's consolidated totals.

THREE MONTHS ENDED NINE MONTHS ENDED
SEGMENT RECONCILIATION SEPTEMBER 30, SEPTEMBER 30,
---------------------- ---------------------------- -----------------------------
2000 1999 2000 1999
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES:

Total operating earnings for reportable segments $ 136,972 $ 131,860 $ 396,013 $ 375,001
Corporate G&A (including foreign exchange)...... (26,232) (28,664) (77,686) (84,548)
Research and development expense................ (1,001) (1,067) (3,199) (3,104)
Net interest expense............................ (54,843) (49,524) (165,081) (152,154)
Special charge for settlement of investigation
and related costs........................... -- (590,000) -- (590,000)
---------- ---------- ----------- ----------
Income (loss) before income taxes............... $ 54,896 $ (537,395) $ 150,047 $ (454,805)
========== ========== =========== ==========
</TABLE>

<PAGE> 17

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

The following is a discussion of the financial condition and results of
operations of the Company. The discussion should be read in conjunction with the
financial statements included elsewhere in this document.

This section contains certain forward-looking statements that are
subject to various risks and uncertainties. Such statements include, without
limitation, discussions concerning the outlook of the Company, government
reimbursement, future plans and management's expectations regarding future
performance. Actual results could differ materially from those contained in
these forward-looking statements due to certain factors including, without
limitation, changes in business, economic and competitive conditions, regulatory
reforms, foreign exchange rate fluctuations, uncertainties in litigation or
investigative proceedings, the realization of anticipated tax deductions, and
the availability of financing. These and other risks and uncertainties, which
are more fully described elsewhere in this Item 2 and in the Company's reports
filed from time to time with the Commission, could cause the Company's results
to differ materially from the results that have been or may be projected by or
on behalf of the Company.

RESULTS OF OPERATIONS

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

THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
-------- ------- ------- --------
<S> <C> <C> <C> <C>
NET REVENUES
Dialysis Services............................ $ 674 $ 591 $ 1,952 $ 1,725
Dialysis Products............................ 183 180 537 526
Intercompany Eliminations.................... (62) (59) (188) (169)
--------- --------- --------- ---------
Total Net Revenues.............................. $ 795 $ 712 $ 2,301 $ 2,082
========= ========= ========= =========

Operating Earnings:
Dialysis Services............................ $ 105 $ 101 $ 308 $ 284
Dialysis Products............................ 32 31 88 91
--------- --------- --------- ---------
Total Operating Earnings........................ 137 132 396 375
--------- --------- --------- ---------

Other Expenses:
General Corporate............................ $ 26 $ 28 $ 78 $ 85
Research & Development....................... 1 1 3 3
Interest Expense, Net........................ 47 50 143 152
Interest Expense on Settlement, Net.......... 8 -- 22 --
Special Charge for Settlement of
Investigation and Related Costs............ -- 590 -- 590
--------- --------- --------- ---------
Total Other Expenses............................ 82 669 246 830
--------- --------- --------- ---------

Earnings Before Income Taxes.................... 55 (537) 150 (455)
Provision (benefit) for Income Taxes............ 27 (150) 74 (107)
--------- --------- --------- ---------
Net Income (loss)............................... $ 28 $ (387) $ 76 $ (348)
========= ========= ========= =========
</TABLE>

<PAGE> 18

THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999

Net revenues from operations for the third quarter of 2000 increased by
12% ($83 million) over the comparable period in 1999. Net earnings from
operations for the third quarter of 2000 increased by $415 million over the
comparable period in 1999 as a result of increased operating earnings ($5
million), reduced corporate expense, and reduced expense relating to the special
charge for settlement of investigation and related costs ($412 million, after
income tax) recorded in 1999, partially offset by increased interest expense.
Excluding the effect of the special charge for settlement of investigation and
related costs, net earnings from operations increased by 12% over the comparable
period in 1999.

DIALYSIS SERVICES

Dialysis Services net revenues for the third quarter of 2000 increased
by 14% ($83 million) over the comparable period in 1999, primarily as a result
of a 10% increase in the number of treatments provided, the impact of increased
Medicare reimbursement rates, improved anemia management (higher EPO
utilization), consolidation of previously managed locations, higher revenues in
other ancillary services and increased laboratory testing revenues. The
treatment increase was a result of base business growth and the impact of 1999
and 2000 acquisitions. The laboratory testing revenues increased as a result of
higher patient volume.

Dialysis Services operating earnings for the third quarter of 2000
increased by 4% ($4 million) over the comparable period of 1999 primarily due to
increases in treatment volume, the impact of increased Medicare reimbursement
rates, higher earnings in other ancillary services, and increased earnings from
laboratory testing. These increases were partially offset by higher personnel
costs, increased provisions for doubtful accounts, and higher equipment lease
expenses.

DIALYSIS PRODUCTS

Dialysis Products net revenues for the third quarter of 2000 increased
by 2% ($3 million) over the comparable period of 1999. This is primarily due to
increased sales of machines ($10 million) partially offset by decreased sales of
bloodlines ($2 million), peritoneal products ($4 million), and other products
($1 million).

Dialysis Products operating earnings for the third quarter of 2000
increased by 3% ($1 million) over the comparable period of 1999. This is
primarily the result of improvements in gross margin.

SPECIAL CHARGE FOR SETTLEMENT OF INVESTIGATION AND RELATED COSTS

On January 18, 2000, the Company, NMC and certain affiliated companies
executed definitive agreements (the "Settlement Agreements") with the United
States Government ("the Government") to settle (i) matters concerning violations
of federal laws and (ii) NMC's claims with respect to outstanding Medicare
receivables for nutrition therapy (collectively, the "Settlement").

As a result of the Settlement, the Company recorded in September 1999,
a special pre-tax charge of $590 million ($412 million net of income taxes )
which included (i) a charge of approximately $485 million for settlement payment
obligations to the government; (ii) a reserve of approximately $80 million for
the resolution of the Company's IDPN accounts receivable; and (iii) a reserve
for other related costs of $25 million. (See Note 4 - "Special Charge for
Settlement of Investigation and Related Costs").

OTHER EXPENSES

The Company's other expenses for the third quarter of 2000 increased by
4% ($3 million) over the comparable period of 1999. General corporate expenses
decreased by $2 million and operating interest expense decreased by $3 million
primarily due to the change in the mix of debt instruments at September 30, 2000
versus September 30, 1999. The decreases in general corporate and operating
interest expenses for the third quarter of 2000 were offset by the $8 million of
interest expense related to the settlement of the OIG investigation in February
2000.

INCOME TAX RATE

The Company has recorded an income tax provision of $27 million in the
third quarter of 2000 as compared to an income tax benefit of $150 million in
the third quarter of 1999. The income tax provision in 2000 is higher than the
statutory tax rate primarily due to the non-deductible merger goodwill. The
income tax benefit in 1999 is lower than the statutory tax rate primarily due to
the tax effect of the special charge for the Settlement and related costs.

18
<PAGE> 19

NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999

Net revenues from operations for the first nine months of 2000
increased by 10% ($219 million) over the comparable period in 1999. Net earnings
from operations for the first nine months of 2000 increased by $424 million
over the comparable period in 1999 as a result of increased operating earnings
($21 million), reduced corporate expenses and reduced expense related to the
special charge for settlement of investigation and related costs ($412 million,
after income tax ) recorded in the third quarter 1999 and partially offset by
increases to interest expense. Excluding the effect of the special charge for
the settlement of investigation and related costs, net earnings from operations
increased by 19% over the comparable period in 1999.

DIALYSIS SERVICES

Dialysis Services net revenues for the first nine months of 2000
increased by 13% ($227 million) over the comparable period in 1999, primarily as
a result of a 9% increase in the number of treatments provided, the impact of
increased Medicare reimbursement rates, improved anemia management (higher EPO
utilization), consolidation of previously managed locations, higher revenues in
other ancillary services, and increased laboratory testing revenues. The
treatment increase was a result of base business growth and the impact of 1999
and 2000 acquisitions. The laboratory testing revenues increased as a result of
higher patient volume.

Dialysis Services operating earnings for the first nine months of 2000
increased by 9% ($24 million) over the comparable period of 1999 primarily due
to the increase in treatment volume, the impact of increased Medicare
reimbursement rates, higher earnings in other ancillary services, and increased
earnings from laboratory testing offset by higher personnel costs, increased
provisions for doubtful accounts, and higher equipment lease expense.

DIALYSIS PRODUCTS

Dialysis Products net revenues for the first nine months of 2000
increased by 2% ($11 million) over the comparable period of 1999. This is
primarily due to increased sales of dialyzers ($4 million), machines ($8
million), concentrates ($3 million) and other products ($4 million), partially
offset by decreased sales of peritoneal products ($9 million).

Dialysis Products operating earnings for the first nine months of 2000
decreased by 3% ($3 million) over the comparable period of 1999. This is a
result of higher freight and distribution expenses as well as higher sales and
marketing costs partially offset by improvements in gross margin.

SPECIAL CHARGE FOR SETTLEMENT OF INVESTIGATION AND RELATED COSTS

OTHER EXPENSES

The Company's other expenses for the first nine months of 2000
increased by 3% ($6 million) over the comparable period of 1999. General
corporate expenses decreased by $7 million and operating interest expense
decreased by $9 million primarily due to the change in the mix of debt
instruments at September 30, 2000 versus September 30, 1999. The decreases in
general corporate and operating interest expenses for the first nine months of
2000 were offset by the $22 million of interest expense related to the
settlement of the OIG investigation in February 2000.

INCOME TAX RATE

The Company has recorded an income tax provision of $74 million for the
nine months ended September 30, 2000 as compared to an income tax benefit of
$107 million for the nine months ended September 30, 1999. The income tax
provision in 2000 is higher than the statutory tax rate primarily due to the
non-deductible merger goodwill. The income tax benefit in 1999 is lower than the
statutory tax rate primarily due to the tax effect of the special charge for the
Settlement and related costs.

19
<PAGE> 20

LIQUIDITY AND CAPITAL RESOURCES

For 1999 and 2000, the Company's cash requirements, including
acquisitions, have been funded by cash generated from operations.

Net cash flows provided by operating activities during the first nine
months of 2000 totaled $178 million compared to $185 million in the first nine
months of 1999. This net decrease is due primarily to a $12 million increase in
earnings, (before the effect of the special charge), $51 million add back of
non-cash items, and the collection of $49 million for the IDPN accounts
receivable. These increases in cash from net income adjusted for non-cash items
and the collection of IDPN receivable were offset by a $120 million change in
other working capital primarily related to increases in accounts receivable and
decreases in accounts payable, accrued income taxes, and accrued liabilities.
The increase in accounts receivable balances is primarily due to the increase in
days sales outstanding resulting from slower payment patterns from third
parties, specifically from managed care plans as well as the impact of new
acquisitions. The decrease in accounts payable is primarily due to timing of
disbursements and the decrease in accrued liabilities is primarily due to timing
of payments for physician compensation, unreconciled payments, and compliance
and legal reserve costs. Cash on hand was $9 million at September 30, 2000
compared to $27 million at September 30, 1999.

Under the final settlement with the government, the Company is required
to make net settlement payments totaling approximately $427 million, of which
$14 million had previously been paid prior to 2000. This net amount includes
approximately $59.2 million for Medicare receivables from the Government. During
the first nine months of 2000, the Company has made initial payments to the
Government totaling $353 million and has received $49 million from the
Government for the Company's outstanding Medicare receivables for the
intradialytic parenteral nutrition therapy relating to the Settlement.

Under the definitive agreements with the Government, the Company
entered into a note payable for the settlement payment obligations to the
Government. Interest on installment payments to the Government will accrue at
6.3% on $51.2 million of the obligation and at 7.5% annually on the balance,
until paid in full.

Under the terms of the note payable, the remaining obligations will be
paid in six quarterly installments which began April 2000 and will end July
2001. The first and second quarterly installments of $35.4 million including
interest of 7.5% were made in April and July 2000 respectively. The next two
quarterly installments will also be made in the amount of $35.4 million
including interest at 7.5%. The remaining two installments of $27.8 million
including interest at 6.3% will be made in April and July 2001, respectively.
The Government will remit the balance of the Company's outstanding Medicare
receivables in four quarterly payments of $5.2 million plus interest at 7.5%.
The first and second quarterly receipts from the Government was received in May
and August 2000, respectively, totaling $10.4 million plus interest.

Net cash flows used in investing activities of operations during the
first nine months of 2000 totaled $170 million compared to $119 million in the
first nine months of 1999. The Company funded its acquisitions and capital
expenditures primarily through cash flows from operations and intercompany
borrowings. Acquisitions totaled $105 million and $65 million in 2000 and 1999,
respectively, net of cash acquired. Capital expenditures of $65 million and $54
million were made for internal expansion, improvements, new furnishings and
equipment in 2000 and 1999, respectively. The Company intends to continue to
enhance its presence in the U.S. by focusing its expansion on the acquisition of
clinics, expansion of existing clinics, and opening of new clinics.

Net cash flows used in financing activities of operations during the
first nine months of 2000 totaled $11 million compared to net cash flows used of
$45 million in the first nine months of 1999. During the first nine months of
2000, the Company made payments to the government totaling $353 million for the
Settlement. Additionally, the net increase in borrowings from affiliates of $260
million is due primarily to an intercompany note payable entered into with
Franconia Acquisition, LLC ($214 million), a wholly-owned subsidiary of FMC, and
additional increases on other intercompany borrowings. The net increase in notes
payable to outside parties of $65 million is primarily a result of the increase
in the Company's credit facility of $70 million a portion of which was used to
finance future acquisitions during the third quarter of 2000.

CONTINGENCIES

The Company is a plaintiff in litigation against the federal government
with respect to the implementation of OBRA 93 and is a defendant in significant
commercial insurance litigation. An adverse outcome in any of these matters,
could have a material adverse effect on the Company's business, financial
condition and results of operations. Because of the significant complexities and

20
<PAGE> 21

uncertainties associated with these proceedings, neither an estimate of the
possible loss or range of loss the Company may incur in respect of such matters
nor a reserve based on any such estimate can be reasonably made. See - Note 5,
"Commitments and Contingencies".

The Company believes that its existing credit facilities, cash
generated from operations and other current sources of financing are sufficient
to meet its foreseeable needs. If cash flows from operations or availability
under existing banking arrangements fall below expectations, the Company may be
required to consider other alternatives to maintain sufficient liquidity. There
can be no assurance that the Company will be able to do so on satisfactory
terms, if at all. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."

IMPACT OF INFLATION

A substantial portion of the Company's net revenue is subject to
reimbursement rates which are regulated by the federal government and do not
automatically adjust for inflation. Non-governmental payors also are exerting
downward pressure on reimbursement levels. Increased operating costs that are
subject to inflation, such as labor and supply costs, without a compensating
increase in reimbursement rates, may adversely affect the Company's business and
results of operations.

21
<PAGE> 22

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risks due to changes in interest rates
and foreign currency rates. As part of its market risk management strategy, the
Company enters into transactions involving derivative financial instruments with
investment grade financial institutions as authorized by the management board.
These instruments, primarily interest rate swaps and foreign exchange contracts,
are used as a means of hedging exposure to interest rate and foreign currency
fluctuations in connection with debt obligations and purchase commitments. The
execution of these transactions is coordinated with the Company's parent
company, Fresenius Medical Care AG, which has established guidelines for risk
assessment procedures and controls. The Company does not hold or issue
derivative instruments for trading or speculative purposes.

Hedge accounting is applied if the derivative reduces the risk of the
underlying hedged item and is designated at inception as a hedge. Additionally,
changes in the value of the derivative must result in payoffs that are highly
correlated to the changes in value of the hedged item. Derivatives are measured
for effectiveness both at inception and on an ongoing basis.

The Company enters into foreign exchange contracts that are designated
as, and effective as, hedges for product purchases. Also, since the Company
carries a substantial amount of floating rate debt, the Company uses interest
rate swaps to synthetically change certain variable-rate debt obligations to
fixed-rate obligations, as well as options to mitigate the impact of interest
rate fluctuations.

At September 30, 2000, the fair value of the Company's interest rate
agreements, which consisted of three swaps and one collar, is approximately $2.9
million. The agreements are for a total notional amount of $750 million, with
maturity dates ranging from December 2003 through January 2005.

In September 2000, the Company terminated a number of its foreign
exchange contracts and recorded a net loss of approximately $1.2 million in
operations.

At September 30, 2000, the fair value of the Company's foreign exchange
contracts, which consisted entirely of forward agreements, is approximately $0.1
million. The Company had outstanding contracts covering the purchase of
approximately 27.0 million Euros ("EUR") at an average contract price of $0.8862
per EUR, for delivery between October 2000 and October 2001. In addition, the
Company's Canadian subsidiary, whose functional currency is the Canadian Dollar
("CAD"), had outstanding contracts covering the purchase of 7.0 million United
States Dollars ("USD") at an average contract price of 1.4677 CAD per USD, for
delivery between October 2000 and April 2001.

22
<PAGE> 23

PART II

OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

COMMERCIAL INSURER LITIGATION

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

OBRA 93

On May 5, 1995, NMC filed a complaint in the U.S. District Court for
the District of Columbia (National Medical Care, Inc.

23
<PAGE> 24

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

OTHER LITIGATION AND POTENTIAL EXPOSURES

From time to time, the Company is a party to or may be threatened with
other arising in the ordinary course of its business. Management regularly
analyzes current information including, as applicable, the Company's defenses
and insurance coverage and, as necessary, provides accruals for probable
liabilities for the eventual disposition of these matters. The ultimate outcome
of these matters is not expected to materially affect the Company's financial
position, results of operations or cash flows.

The Company, like other health care providers, conducts its operations
under intense government regulation and scrutiny. The Company must comply with
regulations which relate to or govern the safety and efficacy of medical
products and supplies, the operation of manufacturing facilities, laboratories
and dialysis clinics, and environmental and occupational health and safety. The
Company must also comply with the U.S. anti-kickback statute, the False Claims
Act, the Stark Law, and other federal and state fraud and abuse laws. Applicable
laws or regulations may be amended, or enforcement agencies or courts may make
interpretations that differ from the Company's or the manner in which the
Company conduct its business. In the U.S., enforcement has become a high
priority for the federal government and some states. In addition, the provisions
of the False Claims Act authorizing payment of a portion of any recovery to the
party bringing the suit encourage private plaintiffs to commence "whistle
blower" actions. By virtue of this regulatory environment, as well as our
corporate integrity agreement with the government, the Company expects that its
business activities and practices will continue to be subject to extensive
review by regulatory authorities and private parties, continuing inquiries,
claims and litigation relating to its compliance with applicable laws and
regulations. The Company may not always be aware that an inquiry or action has
begun, particularly in the case of "whistle blower" actions, which are initially
filed under court seal.

24
<PAGE> 25

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

On September 28, 2000, MESQUITA, ET AL. V. W. R. GRACE & COMPANY, ET
AL. (Sup. Court of Calif., S.F. County, #315465) was filed as class action
against Grace Chemicals, the Company, and other defendants, alleging that the
Merger was a fraudulent conveyance, violated the uniform fraudulent transfer
act, denuded the assets of Grace, and constituted a conspiracy to denude the
assets of Grace from plaintiffs in asbestos litigation. The Company believes
that the Merger did not violate any of these provisions. The Company has
requested indemnification from Grace Chemicals pursuant to the Merger agreement.
If the Company were to be found liable, and if the Company was not able to
collect on the indemnity, it would have a material adverse effect on the
Company's business, the financial condition of the Company and the results of
operations.

25
<PAGE> 26

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Exhibit 2.1 Agreement and Plan of Reorganization dated as of February 4,
1996 between W.R. Grace & Co. and Fresenius AG (incorporated
herein by reference to Appendix A to the Joint Proxy
Statement-Prospectus of Fresenius Medical Care AG, W.R. Grace
& Co. and Fresenius USA, Inc. dated August 2, 1996 and filed
with the Commission on August 5, 1996).

Exhibit 2.2 Distribution Agreement by and among W.R. Grace & Co., W.R.
Grace & Co.-Conn. and Fresenius AG dated as of February 4,
1996 (incorporated herein by reference to Exhibit A to
Appendix A to the Joint Proxy Statement-Prospectus of
Fresenius Medical Care AG, W.R. Grace & Co. and Fresenius
USA, Inc. dated August 2, 1996 and filed with the Commission
on August 5, 1996).

Exhibit 2.3 Contribution Agreement by and among Fresenius AG, Sterilpharma
GmbH and W.R. Grace & Co.-Conn. dated February 4, 1996
(incorporated herein by reference to Exhibit E to Appendix A
to the Joint Proxy-Statement Prospectus of Fresenius Medical
Care AG, W.R. Grace & Co. and Fresenius USA, Inc. dated
August 2, 1996 and filed with the Commission on August 5,
1996).

Exhibit 3.1 Certificate of Incorporation of Fresenius Medical Care
Holdings, Inc. (f/k/a W.R. Grace & Co.) under Section 402 of
the New York Business Corporation Law dated March 23, 1988
(incorporated herein by reference to the Form 8-K of the
Company filed on May 9, 1988).

Exhibit 3.2 Certificate of Amendment of the Certificate of Incorporation
of Fresenius Medical Care Holdings, Inc. (f/k/a W.R. Grace &
Co.) under Section 805 of the New York Business Corporation
Law dated May 25, 1988 (changing the name to W.R. Grace &
Co., incorporated herein by reference to the Form 8-K of the
Company filed on May 9, 1988).

Exhibit 3.3 Certificate of Amendment of the Certificate of Incorporation
of Fresenius Medical Care Holdings, Inc. (f/k/a W.R. Grace &
Co.) under Section 805 of the New York Business Corporation
Law dated September 27, 1996 (incorporated herein by reference
to the Form 8-K of the Company filed with the Commission on
October 15, 1996).

Exhibit 3.4 Certificate of Amendment of the Certificate of Incorporation
of Fresenius Medical Care Holdings, Inc. (f/k/a W.R. Grace &
Co.) under Section 805 of the New York Business Corporation
Law dated September 27, 1996 (changing the name to Fresenius
National Medical Care Holdings, Inc., incorporated herein by
reference to the Form 8-K of the Company filed with the
Commission on October 15, 1996).

Exhibit 3.5 Certificate of Amendment of the Certificate of Incorporation
of Fresenius Medical Care Holdings, Inc. under Section 805 of
the New York Business Corporation Law dated June 12, 1997
(changing name to Fresenius Medical Care Holdings, Inc.,
incorporated herein by reference to the Form 10-Q of the
Company filed with the Commission on August 14, 1997).

Exhibit 3.6 Amended and Restated By-laws of Fresenius Medical Care
Holdings, Inc. (incorporated herein by reference to the Form
10-Q of the Company filed with the Commission on August 14,
1997).

Exhibit 4.1 Credit Agreement dated as of September 27, 1996 among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates, as Guarantors,
the Lenders named therein, NationsBank, N.A., as paying agent
and The Bank of Nova Scotia, The Chase Manhattan Bank,
Dresdner Bank AG and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agents (incorporated herein by
reference to the Form 6-K of Fresenius Medical Care AG filed
with the Commission on October 15, 1996).

26
<PAGE> 27

Exhibit 4.2 Amendment dated as of November 26, 1996 (amendment to the
Credit Agreement dated as of September 27, 1996, incorporated
herein by reference to the Form 8-K of Registrant filed with
the Commission on December 16, 1996).

Exhibit 4.3 Amendment No. 2 dated December 12, 1996 (second amendment
to the Credit Agreement dated as of September 27, 1996,
incorporated herein by reference to the Form 10-K of
Registrant filed with the Commission on March 31, 1997).

Exhibit 4.4 Amendment No. 3 dated June 13, 1997 to the Credit Agreement
dated as of September 27, 1996, among National Medical Care,
Inc. and Certain Subsidiaries and Affiliates, as Borrowers,
Certain Subsidiaries and Affiliates, as Guarantors, the
Lenders named therein, NationsBank, N.A., as paying agent and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner
Bank AG and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agents, as previously amended
(incorporated herein by reference to the Form 10-Q of the
Registrant filed with the Commission on November 14, 1997).

Exhibit 4.5 Amendment No. 4, dated August 26, 1997 to the Credit Agreement
dated as of September 27, 1996, among National Medical Care,
Inc. and Certain Subsidiaries and Affiliates, as Borrowers,
Certain Subsidiaries and Affiliates, as Guarantors, the
Lenders named therein, NationsBank, N.A., as paying agent and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner
Bank AG and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agents, as previously amended
(incorporated herein by reference to the Form 10-Q of
Registrant filed with Commission on November 14, 1997).

Exhibit 4.6 Amendment No. 5 dated December 12, 1997 to the Credit
Agreement dated as of September 27, 1996, among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates, as Guarantors,
the Lenders named therein, NationsBank, N.A., as paying agent
and The Bank of Nova Scotia, The Chase Manhattan Bank,
Dresdner Bank AG and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agents, as previously amended
(incorporated herein by reference to the Form 10-K of
Registrant filed with Commission on March 23, 1998).

Exhibit 4.7 Form of Consent to Modification of Amendment No. 5 dated
December 12, 1997 to the Credit Agreement dated as of
September 27, 1996 among National Medical Care, Inc. and
Certain Subsidiaries and Affiliates, as Borrowers, Certain
Subsidiaries and Affiliates, as Guarantors, the Lenders named
therein, NationsBank, N.A., as paying agent and The Bank of
Nova Scotia, The Chase Manhattan Bank, Dresdner Bank AG and
Bank of America, N.A. (formerly known as NationsBank, N.A.),
as Managing Agents (incorporated herein by reference to the
Form 10-K of Registrant filed with Commission on March 23,
1998).

Exhibit 4.8 Amendment No. 6 dated effective September 30, 1998 to the
Credit Agreement dated as of September 27, 1996, among
National Medical Care, Inc. and Certain Subsidiaries and
Affiliates, as Borrowers, Certain Subsidiaries and Affiliates,
as Guarantors, the Lenders named therein, NationsBank, as
paying agent and The Bank of Nova Scotia, The Chase Manhattan
Bank, N.A., Dresdner Bank AG and Bank of America, N.A.
(formerly known as NationsBank, N.A.), as Managing Agents, as
previously amended (incorporated herein by reference to the
Form 10-Q of Registrant filed with Commission on November 12,
1998).

Exhibit 4.9 Amendment No. 7 dated as of December 31, 1998 to the Credit
Agreement dated as of September 27, 1996 among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates Guarantors ,
the Lenders named therein, Nations Bank, N.A. as paying agent
and The Bank of Nova Scotia, The Chase Manhattan Bank,
Dresdner Bank A. G. and Bank of America, N.A. (formerly known
as NationsBank, N.A.). as Managing Agents, (incorporated
herein by reference to the Form 10-K of registrant filed with
Commission on March 9, 1999).

Exhibit 4.10 Amendment No. 8 dated as of June 30, 1999 to the Credit
Agreement dated as of September 27, 1996 among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates Guarantors, the
Lenders named therein, NationsBank, N.A. as paying agent and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner
Bank A.G. and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agent (incorporated herein by
reference to the Form 10-K of registrant filed with Commission
on March 30, 2000).

27
<PAGE> 28

Exhibit 4.11 Amendment No. 9 dated as of December 15, 1999 to the Credit
Agreement dated as of September 27, 1996 among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates Guarantors, the
Lenders named therein, NationsBank, N.A. as paying agent and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner
Bank A.G. and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agent (incorporated herein by
reference to the Form 10-K of registrant filed with Commission
on March 30, 2000).

Exhibit 4.12 Amendment No. 10 dated as of September 21, 2000 to the Credit
Agreement dated as of September 27, 1996 among National
Medical Care, Inc. and Certain Subsidiaries and Affiliates, as
Borrowers, Certain Subsidiaries and Affiliates Guarantors, the
Lenders named therein, NationsBank, N.A. as paying agent and
The Bank of Nova Scotia, The Chase Manhattan Bank, Dresdner
Bank A.G. and Bank of America, N.A. (formerly known as
NationsBank, N.A.), as Managing Agent, filed herewith.

Exhibit 4.13 Fresenius Medical Care AG 1998 Stock Incentive Plan as
amended effective as of August 3, 1998 (incorporated herein by
reference to the Form 10-Q of Registrant filed with Commission
on May 14, 1998).

Exhibit 4.14 Senior Subordinated Indenture dated November 27, 1996,
among Fresenius Medical Care AG, State Street Bank and Trust
Company, as successor to Fleet National Bank, as Trustee and
the Subsidiary Guarantors named therein (incorporated herein
by reference to the Form 10-K of Registrant filed with the
Commission on March 31, 1997).

Exhibit 4.15 Senior Subordinated Indenture dated as of February 19,
1998, among Fresenius Medical Care AG, State Street Bank and
Trust Company as Trustee and Fresenius Medical Care Holdings,
Inc., and Fresenius Medical Care AG, as Guarantors with
respect to the issuance of 7 7/8% Senior Subordinated Notes
due 2008 (incorporated herein by reference to the Form 10-K of
Registrant filed with Commission on March 23, 1998).

Exhibit 4.16 Senior Subordinated Indenture dated as of February 19,
1998 among FMC Trust Finance S.a.r.l. Luxemborg, as Insurer,
State Street Bank and Trust Company as Trustee and Fresenius
Medical Care Holdings, Inc., and Fresenius Medical Care AG, as
Guarantors with respect to the issuance of 7 3/8% Senior
Subordinated Notes due 2008 (incorporated herein by reference
to the Form 10-K of Registrant filed with Commission on March
23, 1998).

Exhibit 10.1 Employee Benefits and Compensation Agreement dated September
27, 1996 by and among W.R. Grace & Co., National Medical
Care, Inc., and W.R. Grace & Co.-- Conn. (incorporated herein
by reference to the Registration Statement on Form F-1 of
Fresenius Medical Care AG, as amended (Registration No.
333-05922), dated November 22, 1996 and the exhibits thereto).

Exhibit 10.2 Purchase Agreement, effective January 1, 1995, between
Baxter Health Care Corporation and National Medical Care,
Inc., including the addendum thereto (incorporated by
reference to the Form SE of Fresenius Medical Care dated July
29, 1996 and the exhibits thereto).

Exhibit 10.3* Product Purchase Agreement effective January 1, 2000 between
Amgen, Inc. and National Medical Care, Inc. (incorporated
herein by reference to the Form 10-Q of Registrant filed with
Commission on May 12, 2000).

Exhibit 10.4* Amendment to Product Purchase Agreement between Amgen, Inc.
and National Medical Care, Inc. (amending Appendix A),
(incorporated herein by reference to the Form 10-Q of
Registrant filed with Commission on August 9, 2000).

Exhibit 10.5 Primary Guarantee dated July 31, 1996 (incorporated by
reference to the Registrant's Registration Statement on Form
S-4 (Registration No. 333-09497) dated August 2, 1996 and the
exhibits thereto).

Exhibit 10.6 Secondary Guarantee dated July 31, 1996 (incorporated by
reference to the Registrant's Registration Statement on Form
S-4 (Registration No. 333-09497) dated August 2, 1996 and the
exhibits thereto).

Exhibit 10.7 Receivables Purchase Agreement dated August 28, 1997
between National Medical Care, Inc. and NMC Funding
Corporation (incorporated herein by reference to the Form 10-Q
of the Registrant filed with the Commission on November 14,
1997).

28
<PAGE> 29

Exhibit 10.8 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 herein by
reference to the Form 10-Q of Registrant filed with Commission
on November 12, 1998).

Exhibit 10.9 Amended and Restated Transfer and Administration
Agreement dated as September 27, 1999 among Compass US
Acquisition, LLC, NMC Funding Corporation, National Medical
Care, Inc., Enterprise Funding Corporation, the Bank Investors
listed therein, Westdeutsche Landesbank Girozentrale, New York
Branch, as an administrative agent and Bank of America, N.A.,
as an administrative agent (incorporated herein by reference
to the Form 10-K of registrant filed with Commission on March
30, 2000).

Exhibit 10.10 Employment Agreement dated January 1, 1992 by and between Ben
J. Lipps and Fresenius USA, Inc. (incorporated herein by
reference to the Annual Report on Form 10-K of Fresenius USA,
Inc., for the year ended December 31, 1992).

Exhibit 10.11 Modification to FUSA Employment Agreement effective as
of January 1, 1998 by and between Ben J. Lipps and Fresenius
Medical Care AG (incorporated herein by reference to the Form
10-Q of Registrant filed with Commission on May 14, 1998).

Exhibit 10.12 Employment Agreement dated October 23, 1998 by and between
Roger G. Stoll and National Medical Care, Inc. (incorporated
herein by reference to the Form 10-K of Registrant filed with
Commission on March 9, 1999).

Exhibit 10.13 Employment Agreement dated March 15, 2000 by and between
Jerry A. Schneider and National Medical Care, Inc
(incorporated herein by reference to the Form 10-Q of
Registrant filed with Commission on May 12, 2000).

Exhibit 10.14 Employment Agreement dated March 15, 2000 by and between
Ronald J. Kuerbitz and National Medical Care, Inc.
(incorporated herein by reference to the Form 10-Q of
Registrant filed with Commission on May 12, 2000).

Exhibit 10.15 Employment Agreement dated March 15, 2000 by and between J.
Michael Lazarus and National Medical Care, Inc. (incorporated
herein by reference to the Form 10-Q of Registrant filed with
Commission on May 12, 2000).

Exhibit 10.16 Subordinated Loan Note dated as of May 18, 1999, among
National Medical Care, Inc. and certain Subsidiaries with
Fresenius AG as lender (incorporated herein by reference to
the Form 10-Q of Registrant filed with Commission on November
22, 1999).

Exhibit 11 Statement re: Computation of Per Share Earnings.

Exhibit 27 Financial Data Schedule

(b) Reports on Form 8-K

The Company filed no current reports on 8-K during the quarter for which
this report is filed.

* Confidential treatment has been requested as to certain portions of this
Exhibit.

<PAGE> 30

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Fresenius Medical Care Holdings, Inc.

DATE: NOVEMBER 13, 2000 /s/ Ben J. Lipps
------------------ -------------------------------------
NAME: Ben J. Lipps
TITLE: President (Chief Executive
Officer)

DATE: NOVEMBER 13, 2000 /s/ Jerry A. Schneider
------------------ -------------------------------------
NAME: Jerry A. Schneider
TITLE: Chief Financial Officer