Fresenius Medical Care AG & Co. KGaA

Annual Report • Mar 27, 2008

Innovations for life Fresenius Medical Care annual report 2007

Market Share in Major Product Groups 2007
(Internal estimates)	Position	Market share
Dialyzers	Number 1	> 40%
Dialysis machines	Number 1	> 50%
Hemodialysis concentrates	Number 1	28%
Tubing systems	Number 1	28%
Peritoneal dialysis products	Number 2	18%

More than three decades of experience in dialysis, innovative research, the global leader in dialysis services and products – that is Fresenius Medical Care. Patients with kidney disease can now look ahead with much more confidence thanks to our innovative technologies and treatment concepts. We give them a future, one that offers them the best-possible quality of life.

We use the increasing demand for modern dialysis methods to our advantage and work consistently to enhance the Company's growth. Together with our employees, we focus on pursuing strategies that will enable us to uphold our technological leadership. As a vertically integrated company, we offer products and services for the entire dialysis value chain. The highest medical standards are our benchmark. This is our commitment to our patients, our partners in the healthcare system and our investors, who trust in the reliable performance and the future of Fresenius Medical Care.

Our vision

Creating a future worth living. For people. Worldwide. Every day.

Key Figures 2007

\$ i mi lli n o ns	2 0 0 7	2 0 0 6	ha C n g e
N t e re e n e v u	9, 7 2 0	8, 4 9 9	1 4 %
ni b f i d E t st t a r n g s e o re n e re a n a x e s,
d d ( ) ci ti rti ti EB I TDA e p re a o n a n a m o a o n z	1, 9 4 3	1, 6 2 7	1 9 %
ni b f i d ( ) E EB IT t st t a r n g s e o re n e re a n a x e s	1, 5 8 0	1, 3 1 8	% 2 0
N t i e n c o m e	7 1 7	5 3 7	3 4 %
h fl f ti ivi ti N t ct e c a s o w r o m o p e ra n g a e s	1, 2 0 0	9 0 8	3 2 %
fl h 1 Fr e e c a s o w	6 5 1	4 5 8	4 2 %
pi al di ( t) C t t a e x p e n u re n e	5 4 9	4 5 0	2 2 %
C pi al di i cl di ui si ti t t a e x p e n u re n u n g a c q o n s	9 0 0	6 6 4, 7
d fr di Pr it st o c e e s o m v e u re s	3 0	5 1 6
s D a t a p e r h a r e
\$) ni rd in h ( E a r n g s p e r o a ry s a re	2. 4 3	1. 8 2	% 3 3
d d rd h ( ) Di vi in € e n p e r o a ry s a re	0. 5 4	0. 4 7	1 5 %
o s (i % ) K e y r a ti n
EB IT in m a rg	1 6. 3	1 5. 5
in EB I TDA m a rg	2 0. 0	1 9. 1
ui E t t ts q y o a ss e	3 9. 3	3 7. 3
O t h e r d a t a
pl (f ul l- al ) E ti ui ts m o e e s m e e q e n y v	6 1, 4 0 6	5 6, 8 0 3	8 %
ti P ts a e n	1 7 3, 8 6 3	1 6 3, 5 1 7	6 %
C li ni c s	2, 2 3 8	2, 1 0 8	6 %
(i illi s) Tr t ts e a m e n n m o n	2 6. 4	2 3. 7	11 %
1

Before acquisitions and dividends

Net revenue

\$ i lli mi n o ns
2 0 0 7	9, 7 2 0
2 0 0 6	8 4 9 9 ,

N e t	i n com e

\$ i mi lli n o ns
2 0 0 7	7 1 7
2 0 0 6	5 3 7

E a r n i n g s p e r s h \$ in	a r e
2 0 0 7	2. 4 3

All figures in this report are stated in U.S.-\$ and in conformity with U.S. GAAP, if not indicated otherwise.

Unless specified, all charts refer to fiscal year 2007. For more details please look to the 5-Year Summary at the end of the financial report.

Dear ladies and gentlemen, [Handschriftlich]

I am pleased to inform you once again that despite some significant challenges we delivered a highly successful financial year. We achieved record revenue and earnings.

Our revenue in 2007 increased by 14% to \$9.7 billion and our net income for the year saw even stronger growth, up by 34% to \$717 million. This means we have surpassed the goals we set ourselves at the beginning of 2007.

We experienced strong organic growth in our existing business activities in all regions and especially in the International business segment. Furthermore, we continued to enhance our business through targeted acquisitions, particularly in Asia. Among our most important acquisitions last year were a clinic chain in Taiwan and a production site in China. After North America, Europe and Latin America, we are now also the largest provider of dialysis services in Asia.

In 2007, we purchased the company Renal Solutions, Inc. (RSI) – a further promising acquisition and an important step towards expanding our technology leadership in the high-growth area of home dialysis. This affords us the opportunity to have a sustained leading position in products for home and acute dialysis. In addition, the combination of our dialysis technology and RSI's know-how makes it possible to develop innovative products such as a wearable artificial kidney.

At the same time, as these activities illustrate, we still have our sights set firmly on our groundbreaking growth strategy GOAL 10. This strategy defines four paths to further bolster our position in the future dialysis market: in addition to the aforementioned home dialysis, they include continued organic growth, the acquisition of clinics in rapidly growing or strategically interesting regions, and the horizontal expansion of our business model in the area of renal pharmaceuticals. This growth strategy will boost our success across a wider spectrum of the worldwide dialysis market and enable us, as the leading player, to grow even more strongly than the dialysis industry. In my view, we are on a promising path towards achieving our long-term goals.

As in the previous years, we would like to share our success with you, our shareholders. Therefore, we will propose a dividend increase of around 15% at the Annual General Meeting, raising the dividend to € 0.54 per ordinary share and to € 0.56 per preference share. This would be the eleventh consecutive dividend increase and would mean that the dividend has risen in every year in the history of our company.

In June 2007, we carried out the 1:3 share split resolved by the Annual General Meeting. The total value of the Company's shares for our shareholders remained unaffected. Our aim in carrying out the split was to promote trading in Fresenius Medical Care's shares and to make them attractive for a wider group of investors. I am firmly convinced that we have achieved these aims. The fact that the average daily trading volume of our shares rose by more than a quarter year-on-year just goes to prove this. For more information, please refer to the section "To our shareholders" beginning on page 33 of the corporate report.

As you can see, 2007 proved to be both a challenging and successful year for Fresenius Medical Care. But we are not resting on our position as the global leader in renal therapy. We intend to continue to offer our patients and partners first-rate dialysis therapies and products and thus uphold our leading position in the worldwide dialysis market – a market in which growth in patient numbers is outpacing the increase in personal and financial healthcare resources. We see it as our task to find a solution to this problem, so that we can continue to provide a growing number of people with high-quality treatment.

Our ability to innovate is therefore an essential – if not the most important – factor for the future success of our company. The motto for this annual report is therefore "Innovations for Life". On the first pages of the corporate report, we show you how Fresenius Medical Care embodies innovation and how this influences everyday life in our company. And all this with one goal in mind: to offer high-quality and affordable treatment for dialysis patients.

We have also set ourselves high financial targets for the current year. In 2008, we intend to boost our revenue by more than 7% to over \$10.4 billion. We expect net income to be between \$805 million and \$825 million. This would represent a substantial increase of 12% to 15% compared to 2007. Our detailed outlook on Fresenius Medical Care's expected business performance can be found from page 119 onwards of the corporate report.

Finally, I would like to extend my heartfelt thanks to you, the shareholders of Fresenius Medical Care, for your trust and support. I would also like to express my gratitude to our employees around the world, my colleagues on the Management Board and the members of the Supervisory Board. Together, we can continue to grow, shape the future and develop innovations for life as the world's leading dialysis company.

Dr.Ben Lipps Chief Executive Officer Chairman of the Management Board

Innovations for life	Technology Innovation: Polysulfone Fiber Production Product Innovation: Body Composition Monitor Therapy Innovation: Online-Hemodiafiltration Patient Care Innovation: Training for Dialysis Nurses Business Innovation: Renal Drugs	2 8 14 20 26
01.1–11	Our Year 2007	35
TO OUR SHARE HOLDERS	Management Board	36
	Report of the Supervisory Board	38
	Stock Market	42
	Share Development	43
	Share Split and Capital Increase from
	Company's Own Resources	45
	Dividend	46
	Capital Structure	47
	Shareholder Structure	48
	Investor Relations	49
	Corporate Governance	51
02.1–6	Operations and Business Environment	57
OUR FISCAL YEAR	Results of Operations, Financial Situation, Assets and Liabilities	79
	Non-financial Performance Indicators	92
	Risk Report	109
	Subsequent Events	117
	Outlook	119
03.1–3	Directorships	129
further information	Glossary Contacts and Calendar	132
		140

Things Worth Knowing about Polysulfone Fiber

As a prelude to each chapter of the annual report, one aspect of polysulfone fiber, which is used in our dialyzers, will be discussed briefly: the volume produced annually, the layout of the fibers inside the dialyzer, the diameter, the pore size and the transport mechanisms.

improving quality of life – No goal is more inspiring.

Each of our technological and therapeutic innovations helps make the lives of people around the globe who are dependent on dialysis more pleasant.

This is why most of our energy goes to this one goal, and it is this aspiration that has made us the technology leader in dialysis therapy and dialysis products. That does not mean we are satisfied, far from it. Even when you reach the top, there is always more to improve.

[Innovations for life ]

clEaning fibErs

a bundle of 10,000 hollow fibers on average makes up the core of the dialyzer, the artificial kidney. the fiber walls contain pores through which toxins are filtered from the patient's blood. the size of the pores matches the diameter of the toxic molecules.

technology innovation:

interview with:

Polysulfone Fiber Production M [Director Quality att Wybro Management ] w

It's sensational: Fresenius Medical Care's plant in Ogden, Utah, produced no less than 77 million miles of polysulfone fiber last year, enough to wrap 3,100 times around the world or more than 160 times back and forth between the earth and the moon. And what's more, the fiber is hollow. Fresenius Medical Care needs these hollow fibers to make dialyzers. Together with dialysis machines, these are the core component of renal replacement therapy. Of the 500 million dialyzers manufactured by Fresenius Medical Care so far, more than 200 million have been made in both, Ogden and St. Wendel, Germany.

The patient's blood runs through these fibers, where toxins and waste elements are filtered out. In this context, quality is a matter of life and death, not just in therapy, but as early as at the production stage. This is especially true as both the Company and the demand for dialyzers are continually growing. "The real challenge is to maintain our very high standards regarding quality while continuously ramping up production figures," says Matt Wybrow, who is in charge of quality management in Ogden. As management at Ogden has long realized, quality is not something that can be mandated from the executive suite. Rather, efforts must be made to ensure that staff at all levels develop a consistently high awareness of quality. "Here in Ogden, we have elaborated a condensed version of the Company's quality policy. We call it the ABCs of quality," says Wybrow. "A as in A team, that is to say the staff here in Ogden, B as in Best quality, C as in Continuously improve." The logic behind this bare-bones variant of Fresenius Medical Care's quality policy: "We want everyone here to embrace the message it contains and communicate it to others."

This continuous and joint search for better solutions is one of the reasons why Fresenius Medical Care has succeeded again and again in pushing the limits of production technology ever further. "One of our aims is to make the pores in the fiber wall a bit wider," says Wybrow. So what's so hard about that? "The catch is that there is an upper limit to pore size. If they are too wide, they will let through vital proteins that need to stay in the patient's blood, and not just the waste that we want to extract." In other words, it's about increasing the average size of the pores, but not the maximum size. How do you do that? "Basically, it means that you need to make the variation between your average and your actual pore size in the fiber wall as small as possible." This implies that the spinning process which is used to make the fiber needs to be even more precise. Conventional machinery proved to be inadequate for this, so engineers at Fresenius Medical Care's facilities in Ogden and in St. Wendel, Germany, set

Matt Wybrow

Matt Wybrow (52) is the Quality Systems Director of Fresenius Medical Care's Ogden plant, the Company's largest dialyzer manufacturing facility. Mr. Wybrow has been with Fresenius Medical Care for 25 years. He honed his skills as a Sterilization Engineer and was the Senior Manager of Technical Service before moving to his current position with the Quality department.

about designing their own equipment. They finally came up with a new production process. "Our Nano-Controlled Spinning (NCS) process enables us to make modern polysulfone fiber. And it has paid off: patient survival after two years increased by no less than 10%. This is what is so beautiful about our work: it's not just good for business, it actually saves people's lives," says Wybrow.

To say that NCS is an intricate process would be an understatement. After all, it involves spinning nozzles that mix two different polymers, one impermeable to water, the other permeable – and the two polymers are spun together to create a product with just the right size of pore. In addition, the molecules that make up the fiber need to have a certain surface structure so that they interact with the molecules in the blood as intended. And finally, the fiber is given a wave shape so that dialysis fluid can flow along and between them even when they are bundled closely together inside the dialyzer. And of course, throughout the process, the fiber needs to remain not just sterile, but antipyrogenic. "Antipyrogenic means that something is not just free of germs that might cause diseases, but that it is also virtually free of germ debris. It is this debris which causes fever, hence the term pyrogenic," explains Matt Wybrow, "and the last thing a dialysis patient needs is fever."

Improved production processes thus help make better products. The second part of the challenge in Ogden is to raise production figures without compromising quality. "We used to work on a trial-and-error basis: we would increase production output and wait to see what the statistics department would tell us about our quality. That simply took too long and caused too much waste, which is why we introduced what is known as Lean Six Sigma. This is a sophisticated quality management system that does not stop at department and hierarchy lines." However, the real innovation was not so much the management method itself: "What matters is the cultural change: this is both a top-down and a bottom-up process," says Wybrow. He considers this to be a special challenge: "We have always had good people here in production, and we wanted to involve them more. To make that happen, it is important to raise their job satisfaction and ensure that people feel valued, as well as improving communication channels." This also involved taking a closer look at basic and advanced training."Our managers now have more leeway in controlling production." This means that now, instead of waiting for someone to ask them for information, they post important figures on information boards that are visible to everyone on the production floor. Blue lights also alert staff to irregularities so that these can be fixed at the source.

It seems to be working: "In 2007, Ogden had a great year," says Wybrow, "we started a new product line and added two fiber lines and a dialyzer line, increasing overall capacity by 30%. Over the last ten years, we have reduced our error rate by 90%, while at the same time boosting quantity and quality."

[1 ] Fiber spinning line

[2 ] Cutting of fiber bundles

littlE porEs, largE impact

the core of a dialysis machine is the dialyzer, which holds several thousand strands of fiber. the patient's blood runs through the inside of these fibers, while so-called dialysis fluid flows along the outside in the opposite direction. waste and toxins leave the patient's blood through pores in the fiber's walls and are carried away by the dialysis fluid. a dialysis session will take mostly three to five hours. during this time, a patient's blood is pumped through the dialyzer several times, with up to 150 liters of dialysis fluid being pumped in the opposite direction.

Each fiber is about as thick as a human hair, but hollow inside so that blood can flow through. during production, the fibers are given a wave shape. this ensures that there is clearance between them even when they are bundled inside the dialyzer. this maximizes the fiber surface that the fluid flows along, which in turn increases treatment efficiency.

the fibers are made up of a combination of two polymers: polysulfone and polyvinylpyrridon. these two substances are spun together to form a material with pores of a precisely defined size. the pores' maximum size is determined by the size of albumin molecules which are to remain in the patient's bloodstream. their diameter must not exceed the size of these molecules, but otherwise should be as close to this as possible as it has been found that the larger the average size of the pores, the more successful dialysis is.

the most recent move to improve the quality of dialysis involves raising the average pore diameter from 3.1 to 3.3 nanometers (one nanometer is one millionth of a millimeter). in addition, the fiber's surface needs to have a certain nanostructure to ensure that the fiber and the patient's blood interact as intended. to enable this, the fiber's surface needs to be modeled at the level of individual molecules. fresenius medical care developed the production process for doing this as well as the attendant equipment.

mEmbranE

hollow fibErs

surfacE

product innovation:

body composition monitor Paul Chamney [researcher ]

interview with:

In 2007, Fresenius Medical Care brought the Body Composition Monitor (BCM ) onto the market. What is it for?	As its name suggests, the BCM analyzes the body's composition. To do so, it determines the amount of the substance that constitutes the largest part of our body, and that is water.
So the BCM tells me how much water is in my body?	Exactly. It shows your level of hydration, that is to say, the percentage of water compared to your body weight.
Why is that so important?	Having too little water in your body isn't just harmful, it can even be fatal. When we dehy drate, the function of body cells can be severely reduced. On the other hand, having too much water in your body can be just as dangerous. Overhydration means your heart muscle needs to pump harder and harder until it finally wears out.
Can't a doctor tell my state of hydration simply by weighing me?	No, unfortunately, it isn't so easy. Doctors use various methods to approximately determine the level of hydration. However, our research has shown that the results obtained in this way are all too often wide off the mark. Sometimes they are too high, sometimes too low. That in turn means that most of these methods are not just fruitless, but can be misleading.
Why is a company like Fresenius Medical Care involved in hydration measurement at all?	In healthy individuals, the kidneys regulate the body's liquid balance and discard excess fluid if necessary. If the kidney's function is impaired or even fails, excess fluid accumulates in the body tissue.
But doesn't dialysis remove excess water?	Usually it does. During dialysis, excess fluid is removed from the body, blood is filtered and returned. At the beginning of each dialysis session, the amount of water to be removed from the body is pre-set. The difficulty in practice is determining exactly the right amount to prevent both over- and underhydration effectively.
Why is this so difficult?	Theoretically, you could do it step by step, removing, say, one liter of fluid, then seeing how the patient feels, then one more liter and so on. Sometimes, it's actually done that way, but this can be quite an uncomfortable process for the patient, and it can yield incorrect results, too.

How can that be?

So, using the method just described, you could drain five liters of fluid and the patient would feel unwell even though there might still be, excess FLUID in THE body?

And the BCM does that?

That makes sense. So why hasn't anyone tried to invent something like the BCM before?

So how difficult is it to measure hydration with the BCM?

That really does sound simple. And then the dialysis machines can be programmed accordingly?

So do you expect the BCM to catch on quickly?

If you remove a certain amount of water, the patient may collapse from apparent dehydration, but in reality, he may still be overhydrated. That's because fluid in a body does not simply sit in a container, waiting to be drained. Rather, fluids are stored all over the body, so that the speed at which they can drain off varies widely.

Exactly. For the trial and error method to work, the patient would ideally have to sit through many hours of treatment, if not several days, which is clearly unfeasible. This is why nephrologists have long dreamt of determining absolute levels of hydration, and not only relative ones.

Yes. The BCM basically measures the body's electrical conductivity. In approximate terms, the more fluid there is in a body, the better it will conduct electricity.

The real breakthrough was determining the "normal" level of hydration. We did this using a sophisticated model of current flow through cells. We then compared the results with conductivity measurements obtained from several thousands of test participants, including world-class athletes. Over about eight years of hard work, we managed to put together an algorithm that converts conductivity measurements into absolute levels of hydration.

It's really quite simple. The doctor or nurse attaches one pair of electrodes to the patient's foot and another to the hand. They then switch on the BCM, which sends a very weak current through the patient's body, so weak that the patient doesn't feel a thing. This lasts for about ten seconds, then the BCM shows the results.

That's right. The machine is programmed with the amount of fluid to be removed from the body. Again, this is nothing new, but in the past, it was basically done following the "hit and miss" principle.

We would like to think that the BCM will indeed end up on most doctors' desks. In fact, our hope is that, in the future, doctors will not just measure your blood pressure as a matter of routine, but your hydration level, too. In this way they can help to prevent kidney damage. Our BCM machines allow combined analysis.

Paul Chamney

Paul Chamney (38) is a biomedical engineer. Together with his colleagues, he spent more than eight years developing the body composition monitor. Additionally, he continues to explore new therapy options to further improve dialysis treatment. Mr. Chamney spends every other week in Bad Homburg, his principal residence is Hertfordshire in the UK.

Blood is thicker than water

Comparing hydration levels with blood pressure readings can provide valuable support for diagnosis. However, in the past, it was only possible to determine a patient's relative level of hydration and not the absolute water content. Consequently, overhydration could not be treated effectively because there was always the risk of removing either too much or too little water from the patient's body. With Fresenius Medical Care's Body Composition Monitor, a patient's absolute hydration level can now be measured within the space of about ten seconds. All this involves is the placement of a pair of electrodes to a patient's hand and foot. Depending on the measurements generated, patients are assigned to one of the four quadrants in the diagram shown on the right.

Quadrant I
	Patients with values in the top left quadrant have high blood pressure in conjunction with low hydration. If the patient's fluid intake is in the normal range, these readings indicate that his kidneys are healthy, as excess fluid is removed successfully. The patient's high blood pressure therefore most likely has a different cause, such as high stress levels or arteriosclerosis. In this case, a nephrologist would probably advise the patient to consult a cardiologist.
Quadrant II
	Kidney disease usually leads to overhydration; the heart has to work harder, which in turn causes hypertension. The readings of patients with these symptoms are located in the top right quadrant. The BCM therefore also helps to guard against kidney disease: simultaneous high readings of blood pressure and hydration can be an early sign of an impaired kidney function; the physician can intervene early with strategies to remove overhydration reducing extra stress on the heart.
Quadrant III
	Measurements that are in the area marked "N" represent normal hydration. Patients with readings in the lower left quadrant have both low blood pressure and low hydration. Dialysis patients, by contrast, typically show higher readings in both blood pressure and hydration. However, as long as these values stay in the area marked "DX", patients' quality of live is significantly improved.
Quadrant IV
	Patients with readings in the lower right quadrant may in the past have been treated for kidney disease because they were obviously overhydrated. In fact, however, they might be suffering from a heart condi tion that can be much more dangerous than their kidney affliction. This would have gone unrecognized in the past because measuring blood pressure alone would have generated low values and the patient would have been considered healthy. However, low blood pressure in conjunction with overhydration can be a sign that the heart has worn out over the years as it has had to pump too much fluid. In these cases, low blood pressure can be a sign of heart failure. Here, again, the nephrologist may well refer the patient to a cardiologist. Thanks to the correct diagnosis, it should then be possible to lower the patient's hydration levels and thus relieve his heart of the excess strain (see case study on the right). The patient's heart can even recover sufficiently so that, even if it is not able to regain its former strength, at least the patient can enjoy increased freedom of movement.

Case Study: Patient with heart problems Patient: 73 years; male period of treatment: 2006 November – 2007 November

N: Reference population for healthy individuals

DX: Reference population for well managed dialysis patients

Patient's readings

Quadrant IV shows the measurements of a 73-year-old male dialysis patient with heart problems over the course of one year. Initially, the physician diagnosed extreme overhydration in conjunction with very low blood pressure using the BCM. Twelve months later, all the patient's readings are in the area considered normal for dialysis patients (DX). The success of the treatment not only freed the patient from the acute danger of heart failure, it also allowed him to recover a large part of his independence in everyday life.

the 5008 series is our newest generation of dialysis machines. it offers online-hemodiafiltration (online-hdf) as a standard feature. online-hdf is a particularly efficient form of dialysis.

Therapy innovation:

interview with:

Online-Hemodiafiltration Dr. José Vinhas [doctor ]

Sometimes, progress is invisible. "The patient can't tell we're applying this new technology," says Dr. José Vinhas, "at least not right away." Dr. Vinhas is Medical Director at Fresenius Medical Care's dialysis clinic in Setúbal, Portugal, and the new technology he is speaking of is Fresenius Medical Care's 5008 dialysis machine. On the face of it, it's just a normal dialysis machine. "And that's an advantage," comments Dr. Vinhas. "Patients can stick to their established routine. Nothing changes for them as far as the process is concerned. The progress is behind the front plate of the machine, so to speak."

Until now, renal replacement therapy has been dominated by conventional hemodialysis. "In conventional dialysis, the patient's blood runs along a semi-permeable membrane through which small molecules of metabolic waste can seep out into the dialysis solution which flows on the outside of the membrane in the opposite direction. The dialysis solution washes the waste and the toxins out of the bloodstream," explains Dr. Vinhas. This therapy prevents the build-up of urea, to name just one harmful substance, inside the patient's body. In healthy individuals, urea is discarded by the kidney. But when renal disease impairs this function, urea can rise to life-threatening levels, making dialysis an imperative.

Over the past decades, dialysis has become a firmly established practice. So why innovate? "While we can treat patients with kidney failure fairly well today, the illness still causes a lot of discomfort, and patients' life expectancy is much lower than that of healthy individuals. Dialysis patients are also often prone to other diseases, but are less able to fight them off successfully." Currently, the five-year survival rate among dialysis patients is only at about 30%. Besides diabetes, renal patients often suffer from cardiovascular problems. The reasons for this are not yet well known, but observational evidence suggests that conventional dialysis removes only part of those substances from the blood that may be harmful to the patient. "Fortunately, most toxins have a relatively small molecular weight and can be removed very effectively using conventional hemodialysis. For toxic substances with a middle molecular weight, however, this is not the case, and the dialysis industry has long been looking for effective methods to filter them out of the bloodstream as well," says Dr. Vinhas. These substances include toxins as well as organic waste, which make the heart work much harder simply because of their weight and bulk. As some vital substances such as hemoglobin, the red particles in the blood, also have middle to large molecular weight, researchers face a particular challenge. Any new therapy would ideally need to separate the "good" from the "bad" substances.

DR. José Vinhas

Dr. José Vinhas (54) is Medical Director at the Setúbal clinic in Portugal, which provides dialysis treatment to more than 160 patients three times per week. Dr. Vinhas heads a team of 34 nurses and technicians. The nephrologist has worked for Fresenius Medical Care since 1983, and shares the Company's vision of offering first-rate dialysis therapy.

A technology called hemodiafiltration, or HDF for short, does exactly that. It involves forcing the blood through a filter by applying considerable pressure. Sophisticated physical and chemical procedures ensure that vital molecules stay inside the bloodstream while the majority of harmful ones are discarded. So why has hemodiafiltration been used so tentatively? "Until now, HDF has involved using large amounts of special fluid, which is hugely expensive and also difficult to apply. In addition, hospitals needed to install and maintain special machines for HDF, which in some cases were impossible simply due to a lack of space," explains Dr. Vinhas.

Fresenius Medical Care's 5008 series represents a breakthrough in more than one respect. For one thing, it is a multi-functional machine, which can be used for conventional dialysis as well as for HDF. Secondly, the fluid required for HDF can now be prepared inside the machine even when it is in operation, hence the term "Online-HDF". "The 5008 is a great innovation because we can now do HDF without changing bags of liquid," enthuses Dr. Vinhas. In the U.S., Fresenius Medical Care is currently in the process of evaluation with the FDA (Food and Drug Administration) to introduce Online-HDF using the 2008 machine, which is marketed in this region, as a platform.

"We now have the technological basis to conduct clinical tests. Once the method has been validated and documented, I am sure market success will follow fast," says Dr. Vinhas confidently. "Online-HDF has the potential to further improve patients' lives and raise their life expectancy. This is why we want to apply it as often as we can – the sooner the better."

The 5008's designers not only hope that the machine will make patients feel better and live longer. They also want to make dialysis less onerous. "Being able to do conventional hemodialysis and Online-HDF on one machine means we may get to a point where we can also reduce what we call intradialytic complications. These include all kinds of discomfort patients might experience during a dialysis session, for example pruritus and muscle cramps." After all, despite the progress that has been made, kidney failure is unfortunately still a highly unpleasant condition. Luckily, however, the 5008 is bringing about a paradigm shift that may fundamentally change the destiny of these patients for the better.

A Complex Replacement for a Complex Organ

Kidneys fulfill many vital functions: they discard metabolic waste, regulate the body's water balance, play an important role in maintaining our electrolyte and acid-base balance, and influence blood pressure, among others. If the kidneys stop working, a patient's life is in danger.

Since the 1960s, renal patients have been treated with hemodialysis. Today, this is the most important renal replacement therapy as measured by the number of patients treated. It removes various waste substances from the patient's blood, foremost among them urea. In healthy patients, the kidney is responsible for breaking down this substance. When this organ fails, urea accumulates in the body, which can lead to fatal poisoning. In such cases, only a therapy that substitutes the kidney's function can help.

In hemodialysis, the patient's blood is passed through a filter called a dialyzer, also known as the artificial kidney, which cleans the blood of urea and other unwelcome substances. The filter is made up of several thousand hollow fibers, each of them almost as thin as a human hair. These serve as conduits for the patient's blood. The fibers have pores about the same size as the diameter of the molecules to be removed from the blood. So-called dialyzer fluid flows around the outside of the fibers in the opposite direction, picks up the waste substances and carries them off.

The dialyzer and the dialysis machine make up the therapy system. This is about the size of a refrigerator and requires a connection to the water and to the power supply. Another essential requisite for hemodialysis is what is known as the vascular access or shunt. This is the artificial connection point to the patient's blood vessels and is usually created in the lower arm. At the shunt, the tubing systems are connected through which blood will flow away from the patient and back. During treatment, the dialyzer machine automatically monitors the flow of the blood and the dialyzer fluid. It also tracks pressure ratios, temperature, dialyzer fluid composition, the pre-set dehydration level and the flow of the anticoagulant solution, heparin. Should the machine spot an erroneous value, it will notify the operator and, if necessary, interrupt the dialysis process.

A single dialysis treatment lasts about three to five hours and is usually performed three times a week. During a session, the patient's blood flows through the dialyzer nearly 15 times. This ensures that the blood is cleaned efficiently and that substances that develop in slow metabolic processes, for example, are also removed.

By far the greatest proportion of dialysis treatments is done at specialized dialysis clinics. Here, trained personnel monitor this complex process. About one patient in ten performs dialysis at home. Home dialysis usually takes the form of peritoneal dialysis, where the peritoneum, that is to say the abdominal membrane, serves as a filter. Less frequently, home hemodialysis is performed. This depends not just on an adequate room being available for the treatment, but also on having a person at hand that has been trained to assist in operating the machine.

Talent creation

At the Fresenius Medical Care Institute of Dialysis Nursing, nurses are trained to become dialysis experts. This ensures that patients are taken care of by qualified personnel in dialysis clinics.

Patient Care Innovation:

interview with:

Training for Dialysis Nurses Dr. Ofelia Sanchez [Academic Manager at the F.I.D.N. ] Margie Cosio [clinical manager of the dialysis unit ]

Suzie Burford

[Head of Clinical Research and Education Asia-Pacific ]

"They are more than just nurses," says Suzie Burford, Head of Clinical Research and Education at Fresenius Medical Care Asia-Pacific, of the first cohort of young women and men who began their training at the Fresenius Medical Care Institute of Dialysis Nursing (F.I.D.N.) in January 2008. What holds true for these first 25 students will doubtlessly also apply to the more than 300 trainees that the institute expects once it operates at full capacity in 2009. Dr. Ofelia Sanchez, Academic Manager F.I.D.N. Philippines, receives numerous applications from highly qualified nurses, but only the very best were chosen for the first cohort, as they will serve as an example for later cohorts. "All of them are already registered nurses with experience, but each one of them is passionate about doing more, learning more and acquiring specialized skills in dialysis patient care."

The institute was founded in 2006. Its mission is to train nurses with great potential for work on dialysis wards and particularly in the use of dialysis products and the application of modern patient care concepts. "Generally, there is a shortage of nurses with specialized dialysis training worldwide as there is very limited access to training in this specialized field," says Margie Cosio, Clinical Manager of the Model Dialysis Facility, where the nurses at F.I.D.N. complete their practical training. "With the number of patients in need of dialysis treatment increasing, we aspire to educate qualified nurses who can become leaders and set the standards also for future dialysis care," she adds.

Some countries have an abundance of highly qualified, well-trained, English-speaking nurses who, unfortunately, have limited or no access to advanced specialized training, and the Philippines is one of them; hence the idea to establish a training center there. "The F.I.D.N. provides an excellent opportunity for nurses with great potential to receive specialized training to further develop their career. The aim of the course is to ensure that our trainees

become adept in using the technology that is state-of-the-art internationally; this will open up great career opportunities for them," emphasizes Dr. Sanchez. A career in one of the more than 2,200 Fresenius Medical Care dialysis clinics, for example. The training is academically challenging: "The modules are rigorous, and the examinations are at university level; the course is extremely demanding but this ensures that the trainees become top-notch nurses that can handle pressure," says Dr. Sanchez.

Of course, Fresenius Medical Care provides a service to the public by training nurses; however, the institute is by no means a purely altruistic venture: "Clearly, the Company can benefit from our work. Trainees learn all that is needed to provide excellent patient care," says Burford, "and we know that it is the patients, first and foremost, who decide whether care is 'excellent' or not. If they are satisfied, they might also trust in one of our clinics in future."

"Our nurses are trained to be resourceful and to make their own decisions. They need to be able to help patients, they should understand scientific literature, but they also have to be trained to better analyze observational data and the general condition of patients," says Margie Cosio. "We think patients should not have to wait for someone to come to examine them and take their readings. Thanks to the comprehensive training program, we can save time, enhance treatment quality and, most importantly, improve the patients' well-being and how they experience the care."

The F.I.D.N.'s twelve-month program combines theory and practice, with the last eight months dedicated to clinical training. But even in this phase, nurses are continually accompanied by mentors, who provide advice and support. During this phase, the nurses have access to online education that further encourages clinical analysis and application. "We want the nurses to be able to effectively communicate in clinical decision-making processes," says Dr. Sanchez.

Interest in the F.I.D.N. and the training is huge, but places are limited. "So far, we have been able to pick the cream of the crop, and we reckon that this won't change," says Margie Cosio. She is convinced that in the long run, motivation and dedication will benefit all those involved. Dr. Sanchez thinks so too: "Our graduates will wear their qualification from F.I.D.N. proudly, because it will be recognized by the patients." But there is, she thinks, a part of the Filipino identity that they should preserve by all means: "The willingness to care and help is something these women and men have been brought up with. We certainly hope they never lose this part of their identity."

Dr. Ofelia M. Sanchez

Dr. Ofelia M. Sanchez (50) is Academic Manager at the F.I.D.N. on the Philippines. She can look back on almost 30 years as a practicing nurse. In addition to her academic career, she worked as a hospital nurse administrator and gained valuable experience in different areas including nephrology, neurology and cardiovascular nursing.

Margie Cosio

Margie Cosio (33) works as Clinical Manager of the Dialysis Unit. She is a certified renal nurse with seven years experience in dialysis (primarily peritoneal dialysis). Previously, she gained additional management experience (clinical and logistics) in a major hemodialysis program on the Philippines. Mrs. Cosio has been with Fresenius Medical Care since 2001.

From Registered Nurse to Dialysis Specialist within Twelve Months

The training program at the F.I.D.N. comprises two phases: academic training is first on the timetable, followed by practical training. In the academic program, the nurses undertake a "Foundations course in Dialysis", which lasts four weeks, studying the basics of dialysis. This is followed by a second course "Professional Dialysis Nursing", which lasts ten weeks, dedicated to clinical leadership combined with application of dialysis technologies and principles of practice (see the short syllabus). This program is then followed by clinical practice, which lasts eight to twelve months. During this time, the nurses are continually monitored by mentors and assessed for clinical competence.

The Professional Dialysis Nursing course comprises the following six modules:

1. Patient profile and care of patients with end-stage renal disease (ESRD)

Prevalence of chronic kidney disease, associated diseases and conditions, anemia, bone disease, cardiovascular disease and hormonal changes, psychological effects of and attitudes towards chronic illnesses, geriatric nephrology

2. Principles and application of dialysis

Efficiency and adequacy of hemodialysis, biochemistry analysis, fluid management, ideal weight determination, latest technologies associated with dialysis, problem-based learning

3. Pharmacology for professional practice

Interaction between drugs and the human body, especially in the treatment of kidney patients; antihypertensives and ESRD; pharmaceuticals including cardiac drugs, phosphate binders, vitamin D, antibiotics, iron and hemopoietic substances; use of anticoagulant drugs; professional responsibilities; problem-based learning; clinical decision-making; patient education

4. Professional practice and dialysis

Dialysis nursing practice, clinical leadership, physical assessment, cannulation and access management, infection control and hygiene precautions, practice models in ESRD, long-term care, supporting patients' partners, therapeutic communication, counseling, patient motivation

5. Clinical outcomes practice and ESRD

Constant quality improvement (CQI) in practice, evidence-based practice (EBP), reading and understanding research-based papers for clinical practice, clinical practice guidelines, clinical auditing in the dialysis environment, report writing

1. Clinical competencies and professional practice

Participants are examined in a total of 21 so-called clinical competencies comprising component skills and knowledge, including chronic hemodialysis, clinical assessment, hemodialysis for highly dependant patients, and peritoneal dialysis

thErapy support

in healthy people, excess phosphate as part of a balanced nutrition is removed by the kidneys. but in renal patients this function is impaired or has even completely failed. fresenius medical care has now added phoslo, a phosphate binding drug that regulates the phosphate level, to its portfolio.

Business Innovation:

interview with:

Renal drugs Dr.Wolfgang Hofmann [head of Renal Pharma international ] Oliver Maier

[corporate Strategist ]

Dr. Hofmann, Mr. Maier, Fresenius Medical Care has made an acquisition in a field that is not directly connected to dialysis technology. Why?

Is the patients' quality of life really that bad?

Don't physicians already do that? Why is Fresenius Medical Care getting involved here?

How does that fit in with the Company's strategy?

Dr. Hofmann: It is true that it has nothing to do with dialysis technology, but it has a lot to do with dialysis patients. PhosLo has been a part of our product offering since 2006. It's a so-called phosphate binder, and while it may not be an element of the dialysis process itself, it is part of the accompanying pharmaceutical treatment. In a normal metabolism, excess phosphate accumulates in the body and is discarded by the kidney. A diseased kidney cannot do that. We see a huge potential for improving the lives of patients with this and other indications.

Dr. Hofmann: Fresenius Medical Care makes first-class products, which are continually being improved. Of course patients also benefit from this. But let's be honest: the treatment of kidney patients is still far from being perfect. Remember, for instance, that 80% of them suffer from hypertension. This is why it is not enough to simply offer dialysis; what we also need to do is take care of concurrent diseases and symptoms, too.

Dr. Hofmann: Of course physicians do their best at all therapeutic levels. However, we as a healthcare company have the obligation to provide them with the best available tools. And there is another trend we need to take into account: in more and more countries, healthcare authorities are starting to contract out dialysis treatment as a package to one single provider. These packages, or tenders, include pre- and post-therapy care together with the required drugs. This is why we aim to provide the best comprehensive solutions in the field of dialysis, tested by ourselves.

Maier: Splendidly. We are already a fully vertically integrated provider, and what we are doing now is expanding our portfolio horizontally. In this context, dialysis drugs play an important role.

Dr. Hofmann: This horizontal expansion increases the value-added of our dialysis services. We are working on intelligent combinations of products, in other words on integrating them and not just accumulating individual products.

But aren't drugs a totally different kind of business?	Maier: That's absolutely right – and it's why we thought long and hard before making this decision. The question was, how can we develop our current business model, which is marked by high cash flow and profits? What makes sense from an operational point of view? What will help us to enhance our margins? What might fit in with our portfolio without changing our risk structure? After all, our business is characterized by a relatively low risk profile, and we want it to stay that way. Dr. Hofmann: Medical products are what we call a relationship business, one that relies on long-term customer relationships. Remember we take a highly comprehensive approach that covers dialysis clinics, water quality, and dialysis machines. Fresenius Medical Care offers all
	of these, and now drugs are increasingly becoming part of our product range, too.
Let me rephrase the question: isn't the drugs business a lot more cyclical and risky?	Maier: That is precisely why we decided to start by targeting drugs that are already on the market. These include PhosLo, OsvaRen, vitamin D, and also hematopoietic substances such as erythropoiesis-stimulating agents like Erythropoietin (EPO). As none of these drugs are new, selling them should leave our risk profile almost unchanged. In other words, the risk is limited.
But presumably, your strategy is about more than just buying up drug firms?	Maier: Absolutely! This is much more than mere risk diversification. What we aim to do is use our newly acquired competence in dialysis drugs to develop completely new therapies.
So it's not just about making better use of your clinic network?	Maier: That would be too easy – and it wouldn't fit in with our corporate culture. After all, we aspire to make things even better, and in dialysis, there is still a lot to be done. This is a gratifying task in that, as Dr. Hofmann suggested, we can significantly improve patients' quality of life.
So that's the medium-term outlook in a manner of speaking. How about the long term?	Dr. Hofmann: Unfortunately, as we said, there is still a lot of scope for improvement in the treatment of kidney patients. This ranges from hypertension, which afflicts a lot of patients, to pruritus, and hereditary kidney disease, which can also lead to dialysis. This is where we hope to make progress in the long run. Another tantalizing vision is to make the dialysis apparatus much smaller.
What would be the advantage of that?	Dr. Hofmann: Our dream is that one day, dialysis will no longer bind patients to one place where there is a water tap. If we can bring water consumption in a dialysis machine down from 120 liters today to five to ten liters, patients could carry the machine around with them.
Is that realistic?	Maier: In the long run, yes. There is still a lot of work to be done. But if you look at the progress that dialysis technology has made over the last thirty years, I think we all agree that this is more than just a pipe dream.

Oliver Maier

Oliver Maier (41) is in charge of Fresenius Medical Care's strategic corporate development. In addition, the former financial analyst has headed the Company's Investor Relations and Corporate Communications department for more than eight years, and has therefore actively accompanied Fresenius Medical Care's progression to become the world market leader in dialysis.

Dr. Wolfgang Hofmann

Wolfgang Hofmann (40), Head of Renal Pharmaceuticals International, studied business and medicine. He has first-hand experience of the challenges in the pharmaceutical industry, from sales and finance to the development of drugs. For the last two years, he has devoted his efforts to integrating Fresenius Medical Care's pharmaceutical activities into its core business of dialysis services and products.

Soft Heart – Hard Bones

Dialysis is a substitute for many important functions of the human kidney. Some of them, however, cannot be fully replaced. Chronic kidney patients therefore need to complement their therapy by taking medication which helps maintain their bodies' mineral balance and prevent anemia, for instance.

Phosphate is a vital mineral which is absorbed through everyday nutrition and is important for bone formation as well as the development of blood vessels and muscles. A high phosphate level, however, can have negative consequences. In healthy individuals, excess phosphate is therefore discarded through the kidneys. In chronic kidney patients, by contrast, it remains inside the blood, causing the parathyroid to produce increased amounts of so-called parathormone (what is known as secondary hyperparathyreoidism). An excess supply of parathormone metabolizes bone substance and releases phosphate and calcium into the blood. In dialysis patients, permanently high parathormone levels cause bone substance to be turned into connective tissue, making the body's bones soft and brittle.

The calcium released into the blood, in turn, accumulates in blood vessels and other tissues, which can lead to arteriosclerosis and cause damage to the vascular structure. This increases the risk of heart attacks and strokes. Dialysis alone cannot sufficiently reduce the phosphate level. For this reason, it is important to curb the supply of phosphate by introducing a special diet. However, food that is rich in protein is also rich in phosphate. It is therefore difficult to lower the intake of phosphate without simultaneously causing nutritional deficits.

This is why patients with kidney failure are administered drugs that are known as phosphate binders with their meals. These remove phosphate from food in the gastroenteral tract and bind it so that it is not resorbed into the bloodstream, but discarded. In this way, it is possible to control the phosphate levels of these patients and thus avoid severe complications. The more effective a phosphate binder is, the fewer pills the patient needs to take at meals. PhosLo has been a proven phosphate binder for years and is now part of Fresenius Medical Care's product offering.

In addition to PhosLo, the range of dialysis drugs includes iron supplements, vitamin D and calcimimetics. More information can be found in the Renal Pharmaceuticals section from page 102 onwards.

artery walls

Body cells that form the artery walls absorb too much phosphate from the blood. This changes the cells' metabolism, making them generate bone substance. This process is called calcification. The artery walls become hard and lose their elasticity. This can lead to cardiovascular disease, and even heart attacks.

Parathormone is produced in the parathyroid and plays a key role in the bones' metabolism. The release of parathormone into the blood is regulated mainly by the level of calcium in the blood. However, phosphate levels also influence production of this hormone. Dialysis patients have too much phosphate in their blood, causing too much parathormone to be produced and released. Consequently, bones become soft and break more easily.

Dialysis patients often have a permanently high phosphate level, which not only leads to an excess of parathormone being produced and released; it also causes a pathological enlargement of the parathyroid, which then produces increased amounts of the hormone. Patients thus affected can have a parathormone level that is twenty times higher than that of healthy individuals. In some cases, it can even become necessary to surgically remove the parathyroid. A phosphate binder can help prevent this from happening.

Parathormone causes bone substance to be degraded and calcium and phosphate to be released into the blood. In dialysis patients, this can turn the bone substance into connective tissue, with bones becoming soft and brittle. This condition is known as osteitis fibrosa.

Parathormone

parathyroid

Researchers, physicians, nurses, quality officers, operations managers, and corporate strategists all work to make life easier for patients worldwide.

We would therefore like to take the opportunity to thank them both individually and as representatives of their colleagues from around the world in the Company's various divisions. It is they who make Fresenius Medical Care the technology leader in dialysis therapy and dialysis products.

We would also like to thank the many individuals who have helped produce this annual report and thereby embraced our high standards.

Fresenius Medical Care produces about 250,000,000 kilometers (or 155,000,000 miles) of fiber each year. That is enough to cover the distance between the earth and the moon more than 660 times.

MOON Earth 660 × [380,000km]

[01.1–11 ] TO OUR SHAREHOLDERS

2007 was another successful year for us: Fresenius Medical Care's shares developed positively for the fifth year running and we further strengthened our position as the world's leading dialysis company.

01.1 Our Year 2007		35
01.2		36
Management Board
01.3		38
report of the supervisory board
01.4 stock market		42
01.5		43
share development
01.6 share split and capital increase from company's own resources		45
01.7 Dividend		46
01.8		47
capital structure
01.9		48
shareholder structure
01.10		49
investor relations
01.11	Group Management and Monitoring Structure	51
corporate governance	Shareholders	52
	General Meeting Supervisory Board	52 52
	General Partner	52
	Cooperation of General Partner and Supervisory Board	53
	Avoidance of Conflicts of Interest	53
	Compensation of Management Board and Supervisory Board	53
	Transparency of Our Reporting	53
	Information on Directors' Dealings and Shareholding Risk and Opportunities Management	53 54
	Financial Accounting and Reporting	54
	German Corporate Governance Code and Declaration
	of Compliance for 2007	54

01.1 Our Year 2007

[ January ]

Production capacity expanded. Fresenius Medical Care increases its production capacity for dialyzers at the St. Wendel plant in Germany by 40%. Thanks to an additional assembly line and expanding the Helixone fiber production, the plant will be able to produce 35 million dialyzers in the future instead of 25 million.

[ February ]

Quality improvement program launched.

Fresenius Medical Care North America presents the first research findings of the new "RightStart" program. The pilot program is designed to provide new dialysis patients with extensive information so that they can deal more confidently with their illness. It should also help to avoid complications and improve the quality of dialysis treatment.

[ March ]

Nurses honored. Fresenius Medical Care North America presents the Ernestine M. Lowrie Award for Clinical Leadership for the first time. The prize is given to dialysis nurses who show especially high commitment and dedication.

[ April ]

BMX bicycles donated. Employees of Fresenius Medical Care in North America collect \$8,000 to donate BMX bicycles to children with kidney disease. The 27 bicycles are available to the young patients at five special summer camps which offer them lifesaving dialysis treatment.

[ May ]

Foundation stone laid. At the end of May, Fresenius Medical Care starts building a new production facility in Stollberg, Saxony (Germany). The plant previously located in Thalheim moved to the new building and production capacity increased.

[ June ]

Share split completed. The share split resolved by the Annual General Meeting on May 15, 2007 is completed on June 18, 2007. Every ordinary share becomes three ordinary shares, and every preference share becomes three preference shares.

[ July ]

Flood crisis overcome. After weeks of rain, a Fresenius Medical Care clinic in Gloucester, England, is flooded. In a tremendous logistical effort, our patients are distribute among seven other dialysis centers so that their life-saving dialysis treatment can be continued.

[ August ]

New plant integrated. In the summer, Fresenius Medical Care starts production in its very first own plant in China. Bloodline systems and other reusable dialysis products are manufactured in Jiangsu Province for the Chinese market.

[ September ]

Accolade for IR work. Fresenius Medical Care receives numerous awards for its excellent investor relations work in the year under review. One of them is the Thomson Extel Pan-European IR Excellence Award in the Medtech & Services category. Further information can be found on page 49.

[ October ]

Record achieved. Fresenius Medical Care continues its three decades of success as the leading manufacturer of dialyzers, producing its 500 millionth dialyzer. Further information can be found in the "Technology Innovation" starting on page 2.

[ november ]

Treatment chairs modernized. Patients spend many hours each week undergoing dialysis. We therefore decided to make this valuable time less of a burden for them. As of now, every treatment chair in the U.S. will be equipped with a touch screen, with which patients can call up various kinds of entertainment. They can also access the Internet via the monitors.

[ December ]

Apprentice received prize. An apprentice at Fresenius Medical Care's plant in St. Wendel in Germany is nominated the best trainee in 2007 by Peter Müller, Minister-President of the German federal state of Saarland. He received the grade "very good" and thus is ranked first among the industrial mechanics specializing in instrument and precision engineering in Saarland.

from left to right: Dr. Rainer Runte, Mats Wahlstrom, Dr. Ben J. Lipps, Lawrence A. Rosen, Dr. Emanuele Gatti, Roberto Fusté, Rice Powell

01.2 management board

Dr. Ben J. Lipps

Chairman

Dr. Ben J. Lipps (67) has been Chief Executive Officer and Chairman of the Management Board of Fresenius Medical Care since 1999. From 1996 to 1999 he was CEO of Fresenius Medical Care North America and from 1985 to 1996 CEO of Fresenius USA. The American has worked in the field of dialysis for more than 35 years. After earning his master's and doctoral degrees in chemical engineering at the Massachusetts Institute of Technology, Dr. Lipps led the research team at DOW Chemical that developed the first commercial hollow-fiber artificial kidney at the end of the 1960s.

lawrence a. rosen

Finances

Lawrence A. Rosen (50) joined Fresenius Medical Care in November 2003 as Chief Financial Officer. Prior to that, he worked for Aventis S.A. in Strasbourg, France, and one of its predecessor companies, Hoechst AG, beginning in 1984. His last position was Group Senior Vice President for Corporate Finance and Treasury. The American holds a Master 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.

Roberto Fusté

Asia-Pacific

Roberto Fusté (56) is Chief Executive Officer for Asia-Pacific. After completing his studies in economic sciences at the University of Valencia, the Spaniard founded the company Nephrocontrol S.A. in 1983. Nephrocontrol was acquired by the Fresenius Group in 1991, where Mr. Fusté has worked since. Before being appointed to the Management Board of Fresenius Medical Care in 1999, Mr. Fusté held several senior positions within the Company in the Latin America and Asia-Pacific regions.

rice powell

Renal Therapy Group North America

Rice Powell (52) is Member of the Management Board as well as President and CEO for the Renal Therapy Group of Fresenius Medical Care in North America. He joined Fresenius Medical Care in 1997 and was appointed co-CEO and Member of the Management Board in January 2004. Mr. Powell has 30 years of experience in the healthcare industry. From 1978 to 1996 he held various positions within Baxter International Inc., Biogen Inc., and Ergo Sciences Inc. in the U.S.

dr. Rainer Runte

Law & Compliance

Dr. Rainer Runte (48) is Member of the Management Board for Law & Compliance at Fresenius Medical Care and has worked for the Fresenius Group for more than 17 years. Before that, he worked as a scientific assistant in the law department of the Johann Wolfgang Goethe University in Frankfurt and as an attorney in a firm specialized in economic law. Dr. Runte assumed the position of Senior Vice President for Law at Fresenius Medical Care in 1997 and was appointed to the Management Board in 2002.

Dr. Emanuele Gatti

Europe, Latin America, Middle East, and Africa

Dr. Emanuele Gatti (52) is Chief Executive Officer for Europe, Latin America, Middle East, and Africa. After completing his studies in bioengineering, Dr. Gatti lectured at several educational institutions in Milan, and continues to be involved in comprehensive research and development activities. He is currently a visiting professor and Chairman of the University Board at the Danube University in Krems in Austria. Dr. Gatti has been with the Company since 1989. Before being appointed to the Management Board of Fresenius Medical Care in 1997, he was responsible for the dialysis business in Southern Europe.

mats wahlstrom

Dialysis Services North America

Mats Wahlstrom (53) was appointed Member of the Management Board in early 2004. He is also co-CEO of Fresenius Medical Care North America and President and CEO of Fresenius Medical Services. Mr. Wahlstrom has 25 years of experience in the healthcare field and 22 years of experience in the renal field. Prior to joining Fresenius Medical Care in 2002, he held various positions at Gambro AB in Sweden, including President and CEO of Gambro U.S. as well as CFO of the Gambro Group.

You can find more information about the directorships of our Management Board members on page 131.

Report of the Supervisory Board of Fresenius Medical Care AG & Co. KGaA for the Fiscal Year 2007 01.3

The supervisory board was again centrally engaged in the year 2007 with new acquisitions but mainly with the expansion of manufacturing capacities at home and abroad, the issue of a \$500 million dollar bond and the expansion of the activities of the company in the area of home dialysis care.

Particulars

In the expired fiscal year, the Supervisory Board dealt intensively with the position and perspectives of the company and various special issues while performing the tasks assigned to it by statute and the Articles of Association. We regularly advised the management of the company i.e. the Managing Board of the general partner on the management of the company and supervised the management of the company. The management informed us regularly in written and oral reports, promptly and comprehensively on all material questions of company planning and strategy, the course of business, the situation of the group and the risk situation and risk management. We again reviewed, as in previous years, the business development of the companies acquired in the previous years and compared this with the plans and projections at the time of each acquisition.

Meetings

Four meetings of the Supervisory Board took place in the fiscal year 2007. No member took part in less than half of the meetings. In addition, between meetings, important or urgent information was on several occasions provided in writing or in telephone conferences. In addition, the chairman of the Supervisory Board maintained close contact between meetings with the management. Selected presentations were delegated by the management to senior executives in order to give the Supervisory Board by this means the opportunity of getting to know top management outside the Managing Board.

Principal Topics discussed by the Supervisory Board

The Supervisory Board in 2007 dealt with the expansion of production capacities, namely for dialysis machines in the St. Wendel (Saarland, Germany), Ogden (Utah, USA) and Buzen (Japan) factories and for bags for peritoneal and acute dialysis in St. Wendel. In addition, a production line for peritoneal dialysis in China was acquired. Groups of dialysis clinics or shares in such groups were acquired in Taiwan, France, the United Kingdom and in the US states of Arizona and Wisconsin as the Supervisory Board noted with approval. In the USA, the company acquired a pharmaceutical service provider, MAX Well Medical Inc., which, inter alia, examines contra-indications for prescription medicines. The largest single investment was the acquisition of Renal Solutions Inc., which creates an important technology for the expansion of home hemodialysis and which is the basis for the development of a sustainable artificial kidney. The Extracorporeal Alliance Perfusion business was divested for strategic reasons.

In the area of financing, the Supervisory Board dealt with the successful issue of the \$500 million US dollar bond, with which existing bank loans and other short-term financial obligations were discharged. The Supervisory Board discussed the capital increase out of company funds and the share split (1:3), both of which were then passed by the ordinary General Meeting 2007. After consideration by the Supervisory Board, the preference shares of a US intermediate holding, Fresenius Medical Care Holdings, Inc., were redeemed and withdrawn and in this manner the costs of a separate stock exchange admission for these shares were saved.

Dr. gerd krick Chairman of the Supervisory Board The Supervisory Board again in a one and a half day strategy meeting in autumn together with the management discussed the medium and long-term perspectives of the company. The central issue was home hemodialysis, both the further development of its technological basis and the services associated with home care.

The Audit and Corporate Governance Committee

The Audit and Corporate Governance Committee held a total of four meetings and also held one video conference and several telephone conferences in the reporting year. It dealt with the annual and group financial statements, the proposed application of profits and the Report 20-F for the American Securities and Exchange Commission (SEC). The Audit and Corporate Governance Committee also discussed each of the quarterly reports with the management. Based on the Audit and Corporate Governance Committee's recommendation, the Supervisory Board issued the instructions to the auditor of the company's and the group's annual financial statements and discussed and determined the main issues in the audit with him. Risk management was again several times the subject of discussion. The management reported several times on the compliance situation of the company.

Representatives of the auditor participated in all meetings of the Audit and Corporate Governance Committee and reported in each case on the audit work and the audit review of the quarterly financial statements. In 2007, the Audit and Corporate Governance Committee was again intensively concerned with the checking of the company's internal controlling system according to the Sarbanes-Oxley Act ("SOX 404"). On February 19, 2008, the company received the unqualified audit certificate of KPMG Deutsche Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main for the implementation of the provisions of SOX 404 in 2007.

The Audit and Corporate Governance Committee also again checked the legal and business relations of the company with Fresenius SE and its affiliates. In that respect, it was confirmed that these relations correspond to those between unrelated third parties (at arms' length). Accordingly, the Supervisory Board noted with approval the purchase of operating equipment from a subsidiary, Fresenius Kabi in Schweinfurt.

The Audit and Corporate Governance Committee informed the entire Supervisory Board in each case of the results of its discussions.

Joint Committee

The Joint Committee which was established according to the Articles of Association in 2006 and the approval of which is required for certain significant transactions between the company and Fresenius SE or its affiliates, did not meet in 2007.

Ad-hoc-Committee for the implementation of the share split

For the resolution on the share split, passed at the ordinary General Meeting on May 15, 2007, the Supervisory Board formed an Ad-hoc-Committee consisting of Dr. Krick, Dr. Schenk and Prof. Fahrholz. It made the decision on the amount of the capital increase from company funds and the remaining conditional capital and the relevant amendments to the Articles of Association.

Corporate Governance

At its first meeting in the fiscal year 2007, the Supervisory Board again reviewed its efficiency and the flow of information between the Managing Board of the general partner and the Supervisory Board and between the latter and the Audit and Corporate Governance Committee.

The Audit and Corporate Governance Committee also meets regularly, after its personal meetings, with representatives of the auditors in the absence of members of the Managing Board of the general partner.

At its meeting on November 15, 2007, the Supervisory Board discussed and approved the new declaration of conformity of the company pursuant to Section 161 German Stock Corporation Act (AktG) to the German Corporate Governance Code. The said declaration applies in the version of December 2007 permanently accessible on the company's Internet site. The only exceptions from the recommendations of the Code are the (absence of) age limits for members of the Managing Board and the Supervisory Board and the remuneration of the Supervisory Board which contains no performance-oriented element.

Annual and Group Financial Statements

The bookkeeping, the annual financial statements and the management report of Fresenius Medical Care AG & Co. KGaA and the group financial statements and the group management report of Fresenius Medical Care AG & Co. KGaA for the fiscal year 2007 in each case were audited by KPMG Deutsche Treuhandgesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, Frankfurt am Main, auditors appointed by General Meeting resolution of May 15, 2007 and instructed by the Audit and Corporate Governance Committee of the Supervisory Board; they carry the unqualified audit certificate. The auditor's reports were presented to the Audit and Corporate Governance Committee and the Supervisory Board. The Audit and Corporate Governance Committee taking account of the audit report of the auditor of the annual and group financial statements and in discussion with the auditor, reviewed the annual and group financial statements and the management report and reported on same to the Supervisory Board.

The Supervisory Board reviewed the annual financial statements, the management report and the proposal for the application of the balance sheet profit, the group financial statements and the group management report, in each case for the fiscal year 2007. Even after the final outcome of its own review by the Supervisory Board, which itself like the Audit and Corporate Governance Committee, heard the representatives of the auditors of the annual and group financial statements who signed the audit report, no objections to the annual financial statements and management report of the company or against the group financial statements and group management report, arise. At its meeting on February 19, 2008, the Supervisory Board

approved the annual financial statements of Fresenius Medical Care AG & Co. KGaA for 2007, presented by the general partner. At this meeting, the draft of the report pursuant to form 20-F to be filed with the Securities and Exchange Commission (SEC), which, besides other information, contains the group annual financial statements according to US GAAP, was also discussed. The group financial statements according to IFRS were approved by the Supervisory Board at its meeting on March 13, 2008. The Supervisory Board also approved the general partner's proposal for the appropriation of profit, which provides for a dividend of €0.54 for common shares and €0.56 for preference shares.

Dependency Report

The general partner, Fresenius Medical Care Management AG has, in accordance with Section 312 German Stock Corporation Act, prepared a report for the fiscal year 2007 on relations with affiliated companies. The report contains the concluding declaration of the general partner that the company received reasonable consideration in the course of each of the legal transactions and measures listed in the report taking account of the circumstances known to the general partner at the time the legal transactions were conducted or the measures taken or not taken and that the company was not disadvantaged by the fact that measures were taken or not taken. The Supervisory Board and the Audit and Corporate Governance Committee reviewed the report. They share the opinion of the auditor who, on February 13, 2008, certified the report as follows:

"After our conscientious audit and assessment, we confirm that (1) the statements of fact in the report are correct, (2) the consideration of the company in the course of the transactions listed in the report was not unreasonably high or that disadvantages have been compensated, (3) the measures listed in the report are not the occasion for an assessment substantially different from that of the general partner".

The Supervisory Board thanks the members of the Managing Board of the general partner and all employees for their commitment and work contributed in 2007.

Bad Homburg v.d.H., March 13, 2008

The Supervisory Board

Dr. Gerd Krick

01.4 Stock Market

The stock markets did not develop uniformly in 2007. In the first half of the year, most of the indices rose, but in the subsequent six months their development was rather heterogeneous. The mortgage crisis in the U.S. in July 2007 led to corrective price adjustments in most of the stock markets. The rising oil price probably also had a negative impact on many indices.

The German DAX index proved resilient overall under these conditions. Beginning the year at 6,628 points, after a brief interim high it fell to its year low of 6,448 points in mid-March. Then it took a turn for the better, peaking on July 16. On this day, the DAX closed at 8,106 points, not only its high for the year, but also the highest level the index had ever achieved. During the subsequent mortgage crisis, the DAX fell by about 1,000 points, but had almost completely made up for this by the end of the year. It closed at 8,067 points, 22% higher than at the end of 2006. It was the fifth consecutive year of increases.

Shares in the different sectors again showed a varied performance in 2007. While the share prices of companies in the chemical industry and the automotive sector as well as those of European utilities rose, banks and financial service companies lagged far behind expectations due to the financial crisis in the U.S. The share prices of European pharmaceutical companies fell by 11% on average.

The other European stock markets developed less positively. The EURO STOXX index climbed by 7%, ending the year at 4,400 points. The French benchmark index, the CAC 40, rose in the course of the year by just 1%, while the FTSE 100 in London was up by 4%.

The Dow Jones index showed a positive trend overall. It closed the year at 13,265 points, up 6%. After gaining at the beginning of the year it also underwent a sharp price correction due to the mortgage crisis. Unlike many benchmark indices in Europe, however, the Dow Jones recovered, and even reached its all-time high of nearly 14,200 points in October. In Asia, the Japanese Nikkei index was one of the biggest losers, closing the year with 15,308 points, a 11% drop. Other Asian stock exchanges, however, experienced a boom. The HangSeng in Hong Kong rose by more than 39%, and the Shanghai Stock Exchange 180 Index rose by 152%. Due to their scant involvement in the U.S. mortgage market, these stock exchanges were virtually unaffected by the crisis.

Overall, most of the indexes recorded significant growth at the end of the year, although the first voices were being raised about a recession in the U.S. Subsequently, at the beginning of 2008, fears of a recession in the U.S. and conjectures about the global effects of a potential economic downswing in the U.S. became a determining factor for the predominantly falling prices on the world's stock markets.

01.5 Share Development

Fresenius Medical Care shares increased in value again in 2007 for the fifth consecutive year. The price of ordinary shares rose by about 9% to €36.69, outperforming the healthcare /pharmaceutical sector as a whole, which suffered a 10% decline. The price of the ordinary shares did not go up as strongly as the DAX 30, which climbed by 22%. Nevertheless, as a defensive share, we again held our ground in a market environment in which most investors favored cyclical shares. Fresenius Medical Care's ordinary shares reached their year low on July 18 at €33.05 and their year high on December 3 at €38.67.

The price of preference shares normally parallels that of the ordinary shares. However, our preference shares have been very illiquid since the completion of the conversion into ordinary shares in February 2006. As a result, any further statements on the price development would be speculative.

Share price developments hinge on many factors. In the first half of 2007, for example, the economies worldwide were robust. During this phase, Fresenius Medical Care's defensive share was probably less of an investment focus. As the year progressed, the price of the shares was influenced by conjectures regarding planned changes in the reimbursement schemes for dialysis treatment in the U.S., among others. As in 2006, the discussion centered on whether the costs for dialysis

of private patients in the U.S. should be reimbursed by the private health insurance companies for longer than they currently do, before the public health insurances Medicare and Medicaid cover these costs. This could have a positive effect on Fresenius Medical Care's revenue and earnings, as the reimbursements from private health insurers are normally higher. In the year under review, there was also a lively debate about the treatment of patients with anemia in the U.S. and about adequate medical treatment using erythropoesis stimulating agents (ESA) such as EPO. Since reimbursement for ESA constitutes a significant part of Fresenius Medical Care's total sales in North America, the discussion had an adverse term effect on the share price development.

In spite of these circumstances and the less favorable market environment for defensive shares, the price of Fresenius Medical Care's share developed very well. In part, this should be attributable to our very good operating performance in 2007.

The appreciation of the euro against the U.S. dollar again played an important role in the development of the share price. A strong euro constitutes an operational advantage for Fresenius Medical Care, as we maintain our financial accounting in U.S. dollars. However, compared to shares of other companies which do their accounting in euros, a strong euro can have an adverse

effect on our share. When our operational results are converted from U.S. dollars into euros, their value is lower if the euro is strong. Thus, the shares appear to be more expensive, but this is predominantly due to currency effects; the operating performance is relatively independent of exchange rates.

Our shares are traded on the New York Stock Exchange (NYSE) in the form of American Depositary Shares (ADS) and quoted in U.S. dollars. Three ADS used to represent one share. However, as the ADS did not participate in the share split carried out in June 2007 (which is discussed on the following page), the ratio of shares to ADS is now 1:1. The development of the ADS is generally tied to the development of the ordinary and preference shares. The ADS, which are quoted in U.S. dollars, ended the year with a higher price gain than the shares listed in Europe, because the exchange rates between U.S. dollars and euro do not play a role. In the course of the year, the price of the ordinary ADS increased by around 16% to nearly \$53. This demonstrates that our share price

developed even better based on the U.S. dollar than on a euro basis. However, it also goes to show just how the exchange rates discussed above can influence the development of the share price. The development of the exchange rate between the U.S. dollar and the euro should therefore be taken into account when assessing the share price. This reflects the actual price development even better.

Fresenius Medical Care's market capitalization increased again last year, standing at €10.88 billion on December 31, 2007, up by nearly €1.0 billion or 10% compared to 2006.

The average trading volume of our ordinary shares also grew to about 1.68 million per trading day. In the previous year – adjusted to the share split – 1.31 million were traded. Thus, the liquidity of the ordinary shares rose substantially. The trading volume of the preference shares was somewhat more than 3,300 per trading day.

Share Split and Capital Increase from Company's own resources 01.6

Fresenius Medical Care's strong business performance in recent years has led to a sharp increase in the share price. The price per ordinary share was one of the highest in Germany's DAX index. To promote more trading activity in Fresenius Medical Care shares and to increase the shares' attractiveness for a broader group of investors, a share split for both classes of shares (ordinary and preferred) in the ratio of 1:3 was proposed at the ordinary general meeting on May 15, 2007, in the course of an increase in share capital out of the Company's funds. The share split was carried out on June 18, 2007.

By converting capital reserves, the subscribed capital of Fresenius Medical Care AG & Co. KGaA was first raised by €43.3 million to €295.4 million. It was then divided into 291,701,520 ordinary shares and 3,720,822 preference shares. Since then, the new subscribed capital has been €1.00 per share. After the share split, every holder of an ordinary share held three ordinary shares and every holder of a preference share held three preference shares. As a result of the share split, the price level was reduced arithmetically without affecting the overall value for shareholders.

Following the share split, the ratio between Fresenius Medical Care's ordinary and preference ADS and the underlying ordinary and preference shares is 1:1 and no longer 1:3, meaning that one Fresenius Medical Care ordinary or preference ADS is the equivalent of one Fresenius Medical Care ordinary or preference share.

MARKET CAPITALIZATION
at December 31,	2007	2006	2005	2004	2003
Market capitalization € in millions	10,876	9,928	8,416	5,266	4,995
Market capitalization \$ in millions	16,010	13,075	9,929	7,173	6,309

BASIC DATA
	Ordinary shares	Preference shares
TICKER SYMBOLS
Frankfurt Stock Exchange	FME	FME3
New York Stock Exchange	FMS	FMS / P
SECURITY IDENTIFICATION NUMBERS
WKN	578 580	578 583
ISIN	D E 0005785802 D	E 0005785836
CUSIP No. (NYS E)	358029106	358029205
STOCK MARKETS
Germany	Frankfurt (Prime Standard)
United States	New York Stock Exchange (NYS	E)
Reuters: Xetra	FMEG.DE	FMEG_p.DE
Reuters: Frankfurt Stock Exchange	FMEG.F	FMEG_p.F
Bloomberg	FME GY	FME3 GY

01.7 Dividend

As a result of the Company's good performance in 2007, we will propose to the Annual General Meeting on May 20, 2008 the eleventh consecutive dividend increase: the dividend is set to increase to €0.54 from €0.47 per ordinary share and to €0.56 from €0.49 per preference share. The previous year's dividend was adjusted to the share split. The dividend increase of 15% is in keeping with our profit-oriented dividend policy of recent years. Based on the proposed dividend and the closing prices of our shares at the end of 2007, this would be equivalent to a dividend yield of 1.5% for our ordinary shares, the same as in the previous year.

If the Annual General Meeting accepts the proposal, total dividends of some €160 million will be distributed for 2007. Assuming an exchange rate of \$1.3705 to the euro at the end of the year under review, this represents total dividends of approximately \$219 million. Based on our net income of \$717 million, this is a payment rate of nearly a third, almost unchanged compared to the previous year.

01.8 Capital Structure

Fresenius Medical Care's subscribed capital amounted to €296.6 million as at December 31, 2007. There were 292.79 million ordinary shares outstanding, and approximately 3.78 million preference shares in circulation. As reported in the Share Split section starting on page 45, the number of shares outstanding tripled due to the 1:3 share split.

In the course of the business year 2007, some 1,403,562 options were exercised to management as part of the stock option plan. More information on the employee profit-sharing program can be found from page 95 onwards, and explanations of Standard & Poor's and Moody's ratings can be found from page 86 onwards.

Fresenius SE's stake in the authorized capital remained almost unchanged at around 36%. Fresenius SE held around 36.4% of the ordinary shares outstanding on the reporting date, corresponding to around 106.6 million shares. Approximately 186.2 million ordinary shares were held in free float.

48

01.9 Shareholder Structure

At the beginning of 2008, we again conducted a survey of our shareholder structure. The total number of outstanding ordinary shares was 296,564,670. With 36% or about 107 million ordinary shares, the holdings of Fresenius SE remained nearly unchanged compared to the previous year. In total we identified just under 400 investors. Based on the free float 189,961,076, i.e. without the shareholdings of Fresenius SE, we were able to attribute about 71% or 134 million shares to their owners. The fraction of non-identified shares was about 29% or nearly 56 million shares of the free float. The top 25 investors held about 22% of our ordinary shares.

Most of our free-float shares continue to be held in the Great Britain and the Republic of Ireland as well as the U.S.: 34% are held by investors in Great Britain and Ireland, 28% are held by U.S. and Canadian investors. Some 15% of our shareholders are located in Germany. Other European investors hold about 20%, a significant increase compared to 2006 with 14%.

The proportion of shares held in the U.S. and Canada remained nearly constant, all other regions experienced a slight decrease compared to previous year.

Number of identified shares
	2007		2006
	Shares	% of total	% of Free Float S	hares	% of total	% of Free Float
Total number of shares	296,564,670			294,994,596
Fresenius SE	106,603,594	36%		107,107,830	36%
Free Float	189,961,076	64%		187,886,766	64%
Identified Free Float	134,090,929	45%	71%	159,455,049	54%	85%
Institutional Investors	131,169,040	44%	69%	151,577,673	51%	81%
Private Investors	2,921,889	1%	2%	7,877,376	3%	4%
Non-identified shares	55,870,147	19%	29%	28,431,717	10%	15%

Regional distribution of identified free float
	2007		2006
	Shares		Shares
Great Britain & Ireland	44,963,400	34%	57,683,712	36%
U.S. and Canada	37,418,971	28%	43,441,134	27%
Germany	20,238,719	15%	27,155,802	17%
Rest of Europe	27,426,150	20%	23,052,915	14%
Rest of World	4,043,698	3%	8,121,486	6%
total	134,090,929	100%	159,455,049	100%

01.10 Investor Relations

Comprehensive, transparent and timely information about the capital markets remained at the center of our investor relations activities in the year under review. We provide market participants with extensive information to enable them to make a fair assessment of the Company's situation.

We issue detailed quarterly and annual reports with comprehensive segment reporting and extensive notes. We publish our reports promptly and fulfill the requirements of the various guidelines we are held to observe in both the U.S. and Germany. These include the German Corporate Governance Code, the Sarbanes-Oxley Act, and the regulations of Deutsche Börse and NYSE. More information on corporate governance can be found starting on page 51.

We broadcast our analyst conferences live on the Internet and offer Web casts of these meetings for replay online. With this service, we offer our shareholders the opportunity to participate in the publication of quarterly results. In addition, investors can send questions directly to our Web site. Our shareholders can also watch the speech given by the Chairman of the Management Board at the Annual General Meeting live on the Internet.

In 2007, we intensified our contact with financial analysts as well as with institutional and private investors worldwide. In a total of 880 one-on-ones with analysts and investors – 26% more than in 2006 – we presented Fresenius Medical Care and answered questions about our business development and the Company's future. In addition, we presented the Company and its perspectives at 18 roadshows and 21 investment conferences around the globe. Private investors also play an important role. For this reason, we were present several times as an active participant at events staged by the German Association for the Protection of Shareholders' Rights (Schutzgemeinschaft der Kapitalanleger, SdK), among others.

In September 2007, we staged a Capital Market Day in Waltham, Massachusetts. The focus of the conference was on specifying our "GOAL 10" growth strategy, which we first announced to the public in April 2005. In several presentations, we reported on the strategies we are following and on our perspectives to strengthen our position as the leading dialysis company by 2010. Further information on GOAL 10 can be found beginning on page 59.

A special focus of our activities last year was the expansion of our Internet presence. We restructured our Web site and redesigned the layout. Our new Web pages, launched in March 2008, can be found at www.fmc-ag.com. Added functions and compact and appealing information await interested users. We would very much like to hear your opinion and receive any suggestions on how we can further improve our Web site to meet your information needs even better.

The total number of page views was about 6.5 million, the number of session amounted to nearly 1 million. This illustrates the high demand for comprehensive information that is electronically accessible.

	2007	2006	2005	2004
One-on-ones	880	700	500	300
Roadshows	18	25	24	18
Investment conferences	21	13	10	8
Queries via the Internet	838	750	764	680

Investor Relations Key Figures

2007 was a highly successful year for the Investor Relations department. Our company received several awards for its investor relations work. The magazine "Capital" and the Deutsche Vereinigung für Finanzanalyse und Asset Management (DVFA) gave Fresenius Medical Care an award for the best IR work of all the companies in the DAX 30 index. The U.S. magazine "Institutional Investor" ranked our company number one in the "healthcare" category. Our annual report 2006 won first place in the DAX 30 in a competition held by "ManagerMagazin" and received several awards from

the U.S. League of American Communications Professionals (LACP). Furthermore, in London, our company was presented with the Thomson Extel Pan-European IR Excellence Award in the Medtech & Services category for its outstanding investor relations work.

If you would like to contact Fresenius Medical Care Investor Relations or find out about key dates in our financial calendar 2008, please take a look at page 140 of the corporate report or visit us at www.fmc-ag.com.

	2007		2006
	Ordinary P	reference O	rdinary P	reference
Authorized capital1 \$ in thousands	361,384	4,191	359,527	4,098
Number of shares1 millions	292.79	3.78	291.45	3.71
Closing price (Xetra trading)1
High €	38.67	36.78	36.29	33.62
Low €	33.05	31.32	27.49	25.07
Year-end €	36.69	35.39	33.66	31.67
Average daily trading volume Shares	1,676,946	3,333	1,311,126	34,950
Closing price (ADS – NYSE )
High \$	56.70	55.00	47.60	40.00
Low \$	43.69	40.25	34.49	31.00
Year-end \$	52.75	46.84	44.43	40.00
Market capitalization
Year-end € in billions	10.74	0.13	9.81	0.12
Total € in billions	10.87		9.93
Index weight
DAX %	0.86		0.90
Dividend1
Per share2 €	0.54	0.56	0.47	0.49
Dividend yield %	1.5	1.6	1.4	1.6
Distribution amount € in millions	160		139
Eamings per share (EPS )1
Number of shares3 millions	291.93	3.74	290.62	3.58
Earnings per share (EPS) \$	2.43	2.45	1.82	1.85
1 2006: Key figure data adaped for share split on June 18, 2007

KEY FIGURES OF FRESENIUS MEDICAL CARE SHARES

2007: Proposal for approval at the Annual General Meeting on May 20, 2008 3 Weighted average of outstanding shares

For a more detailed version please refer to the 5-Year Summary on page 118 in the financial report.

01.11 Corporate Governance

Group Management and Monitoring Structure

Fresenius Medical Care is listed on the stock market in the U.S. and in Germany. We are therefore subject to a number of regulations and recommendations regarding the management, administration and monitoring of the Company. In addition to mandatory requirements according to stock corporation or commercial law, we are subject to the regulations of Deutsche Börse and adhere voluntarily to most of the recommendations of the German Corporate Governance Code. At the same time, we are subject to the regulations connected to our listing in the U.S., in particular the Sarbanes-Oxley Act (SOX) and the Corporate Governance Code of the New York Stock Exchange. The Sarbanes-Oxley Act is a law for companies and their auditors aimed at improving disclosure. The extension of regulations for financial reporting and related internal control systems is designed to increase the trust of investors and other interested parties. We meet all of the current requirements set forth in this law.

As a non-U.S. company (a so-called foreign private issuer), we have to comply with the provisions of the Sarbanes-Oxley Act which require special risk management assessment activities under SOX section 404. We already voluntarily implemented these provisions ahead of time by December 31, 2005 and fulfilled them again in 2007.

Fresenius Medical Care's declaration concerning sig nificant differences between the systems of corporate governance in Germany and the U.S. – based on the listing standards of the New York Stock Exchange – can be accessed on the Internet at www.fmc-ag.com.

The Articles of Association of Fresenius Medical Care determine the responsibilities of the various elements of the Company and may also be found online.

The legal form of Fresenius Medical Care is that of a partnership limited by shares (Kommanditgesellschaft auf Aktien – KGaA). In this legal form, the most important elements of Fresenius Medical Care's governance are the General Meeting, the Supervisory Board and the general partner Fresenius Medical Care Management AG. In 2007, there were no significant changes to the Group management and monitoring structure.

Fresenius Medical Care continues to strive for a corporate governance that provides the highest transparency possible. The Management Board of the general partner manages the business of the Company. In addition to the Company's Supervisory Board, Fresenius Medical Care Management AG also has its own Supervisory Board that includes at least two independent members that are not connected to the Company in any other way. Furthermore, Fresenius Medical Care Management AG continues to guarantee the required independence of its Supervisory Board via a so-called pooling agreement, which Fresenius SE has also joined.

Shareholders

Shareholders exercise their rights by voting at the General Meeting. Each ordinary share of Fresenius Medical Care AG & Co. KGaA entitles the holder to one vote at these General Meetings. Our preference shares do not have any voting rights. To compensate for this, preference shareholders receive a preference in earnings distribution and a higher dividend. Shares with multiple or preference voting rights do not exist. As a matter of principle, the general partner or its sole shareholder Fresenius SE can exercise the voting rights connected with the shares it holds at the General Meeting. However, the general partner and its sole shareholder Fresenius SE are subject to various legal bans on voting on certain resolutions. These voting restrictions concern, among others, the election of the Supervisory Board members, ratification of the actions of the general partner and members of the Supervisory Board, and the selection of the auditors of the annual financial statements. This is to guarantee that the shareholders in the partnership limited by shares (KGaA) can solely decide on these matters, particularly those concerning control of the Management Board.

General Meeting

According to the basic principles of the German Corporate Governance Code, shareholders can exercise their voting rights themselves, by proxy via a representative of their choice, or by a company-nominated proxy acting on their instructions. Proxy voting instructions to a company nominee can be issued before and during the Annual General Meeting until the end of the open discussion period.

All documents and information about the meeting can be found on our Web site.

In the year under review, the ordinary general meeting of Fresenius Medical Care AG & Co. KGaA took place on May 15, 2007 in Frankfurt/ Main (Germany). More than 74% of the ordinary share capital and more than 5% of the preference share capital were represented. In 2006, about 60% of the ordinary share capital and more than 6% of the preference share capital were represented at the ordinary general meeting. We broadcast the speech of the Chairman of the Management Board live over the Internet for those shareholders unable to attend. The speech is available on our Web site at www.fmc-ag.com.

Supervisory Board

The Supervisory Board consists of six members. All six members are elected by the General Meeting according to the provisions of the German Stock Corporation Act (Aktiengesetz, AktG). This resolution of the General Meeting requires a majority of at least 75% of the votes cast. As described above, Fresenius SE is barred from voting on this issue.

The Supervisory Board appoints the members of the Management Board and advises and supervises them. Following clause 5.1.3 of the German Corporate Governance Code, the Supervisory Board has established rules of procedure. The coordination of and the direction of the Supervisory Board is the task of the Chairman of the Supervisory Board. Further information on the tasks and activities of Supervisory Board Committees as well as on efficiency evaluations is included in the Report of the Supervisory Board starting on page 38.

General Partner

The general partner – Fresenius Medical Care Management AG – represented by its Management Board is responsible for managing the Company and conducting the Company's business. Its actions and decisions are focused on the interests of the Company. The seven members of the Management Board of the general partner are introduced from page 36 onwards of this annual report.

Cooperation of General Partner and Supervisory Board

The general partner and the Supervisory Board of the Company work closely together in the Company's interest with a joint goal of creating a sustainable increase in company value in compliance with corporate governance principles and compliance regulations. The general partner regularly informs the Supervisory Board of the Company about all relevant issues regarding corporate planning and corporate strategy as well as the course of business and the Company's position including an assessment of the current risks.

Avoidance of Conflicts of Interest

In their decisions and in conjunction with their tasks and activities, the members of the management of the general partner and of the Supervisory Board of Fresenius Medical Care AG & Co. KGaA as well the Supervisory Board of Fresenius Medical Care Management AG do not pursue personal interests or give unjustified advantages to other people. Any sideline activities or business dealings with the Company are to be reported to the Supervisory Board immediately and must receive its approval. The Supervisory Board reports to the General Meeting about possible conflicts of interest and how to deal with them. There were no conflicts of interest among members of the Management Board or the Supervisory Board in the year under review.

Compensation of Management Board and Supervisory Board

Compensation for Management Board members is comprised of fixed and performance-related components. Since 2006, Fresenius Medical Care has disclosed the compensation of its Management Board members on an individual basis. Compensation for the Supervisory Board is governed by article 13 of the Articles of Association. Our Supervisory Board members receive a fixed compensation.

Further details on the compensation of the Management and Supervisory Boards as well as detailed information on the stock option programs can be found in the financial report of this annual report from page 35 onwards.

Transparency of Our Reporting

We attach special importance to informing our shareholders simultaneously and uniformly regarding regular financial reporting events. Ad hoc releases and our Web site play an essential role in these efforts. Institutional investors and private shareholders have equal and timely access to the information we release. All ad hoc releases as well as other news for investors and the media are also published on our Web site.

We keep our shareholders informed of key dates by means of a financial calendar that is published in the annual report, in quarterly reports and on the Web site of Fresenius Medical Care.

Information on Directors' Dealings and Shareholding

According to article 15a of the German Securities Trading Act (Wertpapierhandelsgesetz, WpHG), members of the Management and Supervisory Boards or other employees who assume management positions are required to inform the Company when buying or selling shares or financial instruments in Fresenius Medical Care in excess of €5,000 within a single year. During 2007, a total of ten disclosures were provided to us according to article 15a of the German Securities Trading Act, which we published on our Web site in keeping with the regulations as well as in the Annual Document.

Risk and Opportunities Management

To us, good corporate governance means managing the risks of our business responsibly and recognizing opportunities for future development in sufficient time. Therefore a comprehensive management system takes care of identifying risks and opportunities early, optimizing the risk profile and minimizing the costs related to these risks through timely intervention. Our risk management is an integral component of our day-to-day business and is reviewed on a regular basis by independent external auditors. Our compliance program also plays a significant role in ensuring that our employees adhere to national and international regulations. Further information on Fresenius Medical Care's compliance activities and risk and opportunities management can be found from pages 96 and 109 onwards.

Financial Accounting and Reporting

Fresenius Medical Care prepares its consolidated financial statements in accordance with the United States Generally Accepted Accounting Principles (U.S. GAAP) and publishes them within 90 days after the end of the fiscal year.

German Corporate Governance Code and Declaration of Compliance for 2007

The German Corporate Governance Code includes key recommendations for the management and monitoring of companies listed in Germany with the aim of making the rules for managing and monitoring companies in Germany more transparent for investors. The code is also intended to increase the trust of the public as well as employees and customers in the management and monitoring of listed stock corporations.

The majority of the guidelines, recommendations and suggestions in the code have been an integral and active part of Fresenius Medical Care's day-to-day operations since the founding of the Company.

Fresenius Medical Care submitted the Declaration of Compliance for the fiscal year required by article 161 of the German Stock Corporation Act in accordance with the recommendations of the German Corporate Governance Code as of June 14, 2007, and made it accessible to its shareholders. Fresenius Medical Care AG & Co. KGaA complies with the recommendations specified by the German Corporate Governance Code for 2007. The following recommendations are the only ones which have not been or are not being applied:

Code clause 5.1.2 and 5.4.1 "Age Limit Management and Supervisory Board"

According to clause 5.4.1, an age limit shall be specified for the members of the Supervisory Board. According to clause 5.1.2, the same shall apply for members of the Management Board. As in the past, Fresenius Medical Care will refrain from introducing an age limit for members of the Management and Supervisory Boards since this would limit the selection of qualified candidates.

Code clause 5.4.7 "Compensation Supervisory Board"

Based on the German Corporate Governance Code members of the Supervisory Board shall receive fixed as well as performance-related compensation. Performance-related compensation should also contain components based on the long-term performance of the Company. Currently, Fresenius Medical Care pays an annual fixed compensation to the members of the Supervisory Board only. In addition, we regularly consider the introduction of a performance-related compensation linked to the success of the Company for the members of the Supervisory Board.

In accordance with clause 3.10 of the Code, this and all former declarations of compliance are available on our corporate Web site at www.fmc-ag.com in the Investor Relations/ Corporate Governance section.

In the dialyzer, the patient's blood flows through approximately 10,000 nearly hair-thin, closely spaced fibers. The fibers are rinsed by a dialysis fluid that flows in the opposite direction.

[02.1– 6 ] OUR FISCAL YEAR

Record sales and earnings, nearly 174,000 patients, more than 2,200 clinics – 2007 was a highly successful year for Fresenius Medical Care, and we intend to continue this in the future.

02.1 Operations and Business Environment	Group Structure and Business Corporate Performance Measures, Objectives and Strategy Research and Development Economic Environment Sector-specific Conditions – Dialysis Market Events Significant for the Business Development Comparison of the Actual Business Results with Forecasts The Management's General Assessment of Business Performance	57 58 61 67 69 75 76 78
02.2	Results of Operations	79
Results of Operations, financial	Financial Situation	86
situation, assets and liabilities	Assets and Liabilities	90
02.3	Employees	92
Non-financial performance	Compliance	96
indicators	Procurement and Logistics	96
	Production Quality and Environmental Management	97 99
	Clinical Databases	102
	Renal Pharmaceuticals – Growth with Dialysis Drugs	102
	Continued Growth with Home Dialysis	105
	Holiday Dialysis International	106
	USA	106
02.4	Risk and Opportunities Management	109
Risk Report	Risk Areas	111
02.5	Economic and Business Environment	117
Subseq uent Events	Expansion of Business in Great Britain	117
	Introduction of a Bundled Rate for
	Hemodialysis Treatment in Portugal	117
	Refinancing of Trust Preferred Securities	118
	Overall Assessment of our Business Situation	118
02.6	Business Policy	119
Outlook	Markets	119
	Therapies, Products and Services Global Economy	119 119
	Sector-specific Conditions – Dialysis Market	120
	Business Performance of Fresenius Medical Care
	in 2008 and 2009	121
	Employees	123
	Legal Structure and Organization	124
	Procurement and Logistics	124
	Quality and Environmental Management	124
	Opportunities	125
	Long-term Revenue and Earnings Outlook until 2010	126
	General Statement on the Expected Development	126

02.1 OPERATIONS AND BUSINESS ENVIRONMENT

Group Structure and Business

Fresenius Medical Care is the world's leading vertically integrated provider of products and services for people with chronic kidney failure. At the end of 2007, more than 1.6 million patients regularly underwent dialysis. Fresenius Medical Care provided treatments to 173,863 patients in a network of 2,238 dialysis clinics in North America, Europe, Asia, Latin America, and Africa.

Fresenius Medical Care markets its wide range of products and services in more than 100 countries and runs a network of more than 30 manufacturing facilities on all continents. The Company's major important production sites as measured by production output are in the U.S., Germany, and Japan. We also operate plants in other European and Asian countries, as well as in Latin America. An overview of our major manufacturing facilities can be found in the "Production" section beginning on page 97. Fresenius Medical Care is headquartered in Bad Homburg v.d.H. near Frankfurt/ Main in Germany.

Fresenius Medical Care's activities are organized on a regional level and are divided into three operating segments: North America, International and Asia-Pacific. For reporting purposes, we have grouped the International and Asia-Pacific segments into the International segment due to similar economic conditions in the two operating segments. The similarity applies to the products sold, patient structures, methods of distributing

products and services, as well as the economic environment. Our North American headquarters is located in Waltham, Massachusetts, U.S., the International operating segment is based in Bad Homburg v.d.H., and the regional administrative headquarters for Asia-Pacific is in Hong Kong.

The Fresenius Medical Care Group has no major shareholdings.

Management and Control

Since February 2006, Fresenius Medical Care has taken on the legal form of a partnership limited by shares (Kommanditgesellschaft auf Aktien – KGaA). The corporate structure of the Fresenius Medical Care AG & Co. KGaA as well as the Company's management and supervisory structure are discussed in the corporate governance report starting on page 51.

Key Products, Services and Business Processes

Fresenius Medical Care provides dialysis services in its own dialysis clinics in more than 25 countries. In addition, we offer an extensive range of hemodialysis and peritoneal dialysis products in more than 100 countries, both within and outside of our own network of dialysis clinics. As such Fresenius Medical Care is a global company. Our most important products include dialyzers (artificial kidneys) and dialysis machines.

Fresenius medical care – Worldwide
	Fresenius Medical Care
Reporting segments	North america	International
Operating segments	North America	International	Asia-Pacific
	U.S. Canada Mexico	Europe Latin America Middle East Africa	Asia Australia

Major Markets and Competitive Position

Our key markets are North America and Europe, where we generate approximately 69% and 22% of our sales, respectively.

Fresenius Medical Care is the world's leading provider of dialysis services. We provide care for more of the dialysis patients worldwide and operate more dialysis clinics than any of our competitors.

Our dialysis products accounted for a market share of around 30% in 2007, which means that we are the unchallenged market leader in this area, too. The market share of our key products, dialyzers and dialysis machines was significantly higher with more than 40% and over 50%, respectively.

Further information on the dialysis market and the position of Fresenius Medical Care can be found in the "Sector-specific Conditions – Dialysis Market" section on page 69.

Legal and Economic Factors

Fresenius Medical Care provides life-saving products and therapies for chronically ill patients and is therefore only partially exposed to economic cycles. In this respect, we are different from manufacturers of consumer goods, for example, that are exposed to a more cyclical demand for their products.

The dialysis markets are continuing to grow on account of demographic factors, including the aging population and the increasing incidence of diabetes and hypertension, two illnesses which frequently precede the onset of end-stage renal disease (ESRD). The World Health Organization (WHO) expects the number of people with diabetes to more than double – from 171 million in the year 2000 to 366 million in 2030. In addition, the life expectancy of dialysis patients is increasing thanks to continual improvements in the quality of treatment and higher standards of living, also in developing countries.

Dialysis reimbursement structures differ from country to country, and often even within one country. In the U.S., costs for the majority of dialysis treatments are reimbursed by public healthcare programs such as Medicare. As a result, Fresenius Medical Care's business is impacted

by reimbursement rates and methods specified by government. Further information can be found starting on page 108 in the "Reimbursement Structure" section.

In 2007, the legal conditions for Fresenius Medical Care remained largely unchanged and therefore did not have a significant influence on the Company's operating business.

Accounting

Fresenius Medical Care reports on the basis of U.S. GAAP (United States Generally Accepted Accounting Principles) and in U.S. dollars.

Corporate Performance Measures, Objectives and Strategy

Control Criteria

The Management Board operates the Company using various key financial ratios and follows its growth strategy GOAL 10, which Fresenius Medical Care has been pursuing since the spring of 2005.

In our view, EBIT (earnings before interest and taxes) is one of the most useful yardsticks for measuring the profitability of the Company. Consequently, we control the activities of our business segments based on their EBIT. EBITDA (earnings before interest, taxes, depreciation and amortization) is another good indicator of Fresenius Medical Care's ability to achieve positive financial results.

Financing is in our opinion a central function on which the business segments have no control. Therefore, neither interest expenses resulting from financing activities nor tax expenses are included in the financial targets for the business segments.

Fresenius Medical Care evaluates its operating cash flow based on days sales outstanding (DSO). A high operating cash flow, for example, indicates that our customers are paying our invoices within a short period of time.

The debt/ EBITDA ratio is another important criterion for assessing corporate performance. This ratio compares the Company's debt to our EBITDA and other non-cash

charges. A low or decreasing debt/ EBITDA ratio indicates that we are in a position to service debt or to increase EBITDA. Fresenius Medical Care is active in the dialysis industry and has a strong position in global, growing, and non-cyclical markets. The dialysis industry is characterized by stable cash flows, as most customers of the company have a high credit rating. As a result, high and sustained cash flows that can be reliable calculated are generated. They permit an appropriate share of debt capital, that is, the use of a comprehensive mix of liabilities.

Details on the development of these financial indicators as well as other financial figures can be found in the "Results of Operations, Financial Situation, Assets and Liabilities" section starting on page 79.

In addition, we gear our corporate management toward operational ratios such as the ROIC (return on invested capital) and the ROOA (return on operating assets). The ROIC rose from 7.4% in 2006 to 8.4% in 2007. The ROOA also grew in the same period from 11.3% to 12.5%. Further operating ratios can be found in the "5-Year Summary" beginning on page 118 of the financial report.

Growth Strategy

GOAL 10 is the name of Fresenius Medical Care's strategy for sustained growth until 2010. The strategy was put into place in the spring of 2005. GOAL 10 defines four paths that we intend to follow in order to boost our success across a broader spectrum of the global dialysis market and achieve our growth objectives. As the market leader, we aim to continue to grow more strongly than the dialysis industry as a whole.

The following paths should lead us to sustained growth:

Path 1: Organic growth. In the coming years, we intend to achieve an annual organic revenue growth in dialysis care of 5% to 6%. To meet this goal, we are planning to open 70 to 80 dialysis clinics annually in the U.S. alone over the next three years. At the same time, we aim to boost our range of integrated, innovative treatment concepts such as UltraCare and Cardioprotective Hemodialysis and combine them with dialysis drugs, for example. In this way, we want to make our portfolio stand out against the competition and offer the best possible services. In addition, we plan to raise revenue by opening new dialysis clinics and further increasing the number of patients whose treatments are covered by private health insurance. Dialysis products will also make a substantial contribution to our organic revenue growth. Innovative, high-quality products such as the 5008 therapy system and cost-effective production will play a key role. Detailed information on our worldwide network of production sites can be found on page 97 in the "Production" section.

Path 2: Acquisitions. To increase our future profitability and optimize our global and regional presence, we are continuing to broaden our network of dialysis clinics by means of attractive acquisitions. The acquisition of Renal Care Group in North America was a major step in this direction. We plan to expand our clinic network in particularly promising regions, although investments in future acquisitions in North America should be on a smaller scale.

Outside North America, too, we want to partake in the privatization process of healthcare systems and continue our above-average growth in Eastern Europe and Asia, for example. In future, the number of dialysis clinics in Europe, the Middle East, and Africa should increase from 362 today to more than 500 in 2010. Acquisitions should play a supportive role here. We plan to provide care for more than 40,000 dialysis patients in this business region by 2010, compared to some 27,000 patients in 2007.

Path 3: Horizontal expansion. Dialysis drugs are the logical extension of our product portfolio, supplementing our dialysis services and products. Initially, we will focus on drugs that regulate the patients' mineral and blood levels, including phosphate binders, iron and vitamin D preparations, as well as calcimimetics. So far, we have mainly been involved in the area of phosphate binders and have integrated PhosLo into our product portfolio. As part of GOAL 10, we intend to tap further growth opportunities in other dialysis drug segments. A detailed report on our dialysis drugs activities can be found on page 102 in the "Renal Pharmaceuticals" section. Path 4: Home therapies. A relatively small percentage (11%) of dialysis patients performs dialysis at home. Most patients (about 89%) receive their treatments in dialysis clinics.

Nevertheless, we aim to assume a more important global position in the home therapies market in the long-term, including peritoneal dialysis and home hemodialysis. To achieve this goal, we intend to combine our comprehensive and innovative product portfolio with our expertise in patient care. In addition, we acquired Renal Solutions, Inc. More information on this acquisition and on our activities in home dialysis can be found from page 105 onwards in the "Home Dialysis" section.

Our strategy encompasses concrete and measurable growth objectives. At the same time, it takes into account long-term trends that we forecast for the dialysis market. In addition to a growth in patient numbers, we expect the quality of dialysis services and available products to become more important in future. Thus, compensation for dialysis care could depend in part on

certain quality criteria being achieved. More information on this can be found in the "Quality and Environmental Management" section from page 99 onwards.

Moreover, we are convinced that in future there will be a growing need for integrated care of kidney patients. As a result, our business in not only focusing on individual services and dialysis products, but we are also aiming to combine the different areas of application in the field of dialysis. For more details, see the "Disease Management" section beginning on page 106.

Growth Objectives

On our Capital Market Day in September 2007, we confirmed and specified our GOAL 10 objectives. Overall, through these strategic measures – the horizontal expansion of our product portfolio through dialysis drugs, the further development of our home therapies, and organic growth – we expect to boost our revenue by 7% to 9% on average per year to about \$11.5 billion in 2010. Net income should increase by over 10% a year.

Goal 10 objectives
	GOAL 10	2007	2006	2005	2004
Revenue (in \$ millions)	~11,500	9,720	8,499	6,772	6,228
Annual revenue growth at constant currency	~7–9%	12%	25%	8%	10%
Share of dialysis market1	~18%	16.8%	15.5%	12.9%	~12%
Market volume1 (\$ in billions)	~67	~58	~55	~52.5	~50
Annual net income growth2	>10%	25%	24%	17%	21%

Company estimates 2 2005 excluding one-time effects, 2006 excluding one-time effects and effects from SFAS 123R and 2007 excluding one-time effects

Financial prudence will guide us along all four paths of GOAL 10 to enable us to service our debt and make investments. The operating cash flow should comprise at least 10% of revenue. A continued increase in earnings and improved management of our current assets should contribute to this development. Furthermore, we are striving for a tax rate of less than 38% by 2010. Expenditures for investments and acquisitions as part of ordinary operating activities should be in the range of 7% to 10% of revenue.

Our GOAL 10 objectives can be found in the table on the previous page.

Research and Development

Fresenius Medical Care is highly innovative and fosters a corporate culture of innovation. We strive to continuously develop and refine dialysis therapies and products as an integral part of our growth strategy.

In 2007, research and development expenditures amounted to \$67 million, only slightly more than the \$60 million forecast for the year. As in the past, these expenditures were relatively low compared with other companies in the healthcare sector. They are, however, at 2.7% of our total dialysis product sales, well within the range typically observed in the dialysis industry and are sufficient considering that we continuously develop our dialysis products. We employed 355 people (fulltime equivalents) in our research and development (R&D) departments, roughly the same number as in 2006.

Fresenius Medical Care's innovativeness is reflected in the number of patents and patent applications to which we have the rights. At the end of 2007, we owned the rights to about 1,900 patents in around 300 patent families. Furthermore, our inventions in the year under review gave rise to 30 additional patent families, which will protect our innovations in important dialysis products and treatment methods in the future.

A Strong Innovation Culture Steeped in Tradition

The ability of a company and its R&D departments to innovate depends on many factors, some of which cannot be directly influenced. These include, for instance, the availability of qualified employees with a strong academic and vocational background at a specific location, societal acceptance of scientific and technical development work, and the local or regional healthcare system. Our international structure has a clear advantage in all of these areas. We recruit young talents in all of the countries in which we operate and maintain contact with the most important experts and opinion leaders in our field of activity.

Another key factor for a company's success is its innovation culture – a culture which is supported and prevails throughout our company. It determines the status of new and innovative products within the company and the degree to which employees in all business units are granted creative freedom and encouraged to think longterm. In this respect, Fresenius Medical Care can look back on a long pioneering tradition. It has successfully transferred its philosophy of continuously supporting

RESEARCH AND DEVELOPMENT EXPENDITURES
\$ in millions	2007	2006	2005	2004	2003
	67	51	51	51	50
NUMBER OF PATENTS AND PATENT APPLICATIONS	2007	2006	2005	2004	2003
	1,932	1,752	1,542	1,428	1,282

and promoting progressive ideas and approaches from the former medium-sized dialysis product manufacturer to the modern, international healthcare group it is today.

Today, Fresenius Medical Care offers a wide range of dialysis products and therapies. They are the result of long-term research and development activities carried out at a time when these products and treatment approaches were not yet required by the market or the Company and before their full potential could be foreseen. This includes methods for producing sterile and pyrogene-free dialysate, online hemofiltration and hemodiafiltration, as well as procedures to actively control the thermal energy balance and blood volume of dialysis patients during treatment. Today these are standard methods in the treatment of chronic kidney disease. Thanks to Fresenius Medical Care's innovation culture, the Company was able to participate in this development early on.

Our innovative culture is rooted in the responsibility for our patients on the one hand, and to our Company on the other. We strive to exploit all of the technological, medical, and economic possibilities available to improve the still strongly limited length and quality of life of dialysis patients. We do so by shaping the required processes as quickly and effectively as possible. To achieve these aims, we continuously reassess our processes and priorities in research and development. In addition, we compare our approaches in cooperation with other high-tech companies that work in different fields of technology. This collaboration benefits all participants and helps us to continuously check and improve our development processes and benchmark them against those of the market leaders in other technologically sophisticated industries.

Another component of our development and innovative culture are the annual innovation meetings and development conferences, at which employees from our worldwide R&D sites meet and exchange experience with one another and with representatives from the various market segments.

At these meetings, new ideas are propounded and new technologies are discussed. The meetings promote personal contact between the R&D staff within our international company and enable us to compare our internal projects with current market trends. This exchange goes beyond defined reporting lines and is in our eyes indispensable for creative and efficient research and development work.

Fresenius Medical Care's R&D department constantly observes medical advancements in the field of renal replacement treatment. All of our employees therefore keep track of the relevant scientific and technical literature as a matter of course. Furthermore, they have access to various training courses, depending on their professional background and qualifications. The members of our R&D departments participate actively in public research discourse, attend specialist scientific conferences, and seek and maintain direct and personal contact with customers and leading doctors in their area of expertise.

Fresenius Medical Care's innovative culture is one of the reasons why we can offer groundbreaking innovative products and methods for the different renal replacement treatments today and in future.

Full-time equivalents	2007	2006
	355	350

Development Focus: Body Composition Monitor (BCM)

In 2007, we launched the Body Composition Monitor (BCM), which is discussed in detail from page 8 onwards. It marks the culmination of many years of development work. The BCM can determine a patient's body composition (body water, fat-free body mass, and fat). It is essential to know these data, especially the percentage of body water, to assess the exact condition of dialysis patients and select the right treatment. Scientifically, there is no doubt that the hydration state (the water level) of kidney patients has an immediate influence on the state of their heart and vascular system and thus on their life expectancy, as cardiovascular diseases increase the mortality rate of dialysis patients considerably.

In dialysis treatment, both hyperhydration and dehydration should be avoided. Hyperhydration burdens and damages the cardiovascular system, while dehydration often leads to complications during treatment and impairs the quality of the patient's life even further. Studies confirm that there is insufficient knowledge of these important patient data in most cases at present.

The BCM fills this knowledge gap. It measures the impedance of the body at different frequencies. This method has been known for a long time and is used in other medical areas. The so-called bioimpedance analysis is not problematic. The real challenge is the physiological interpretation of the highly abstract physical indicators.

In the past, the available reference data were determined by independent methods that compare the results of bioimpedance analyses with the respective body compositions. Due to the low case numbers and because the measurement was performed primarily on healthy respondents, the values could not be transferred to kidney patients, or only to a very limited extent. So while dialysis patients were tested by means of bioimpedance analyses, the findings were imprecise or questionable at best. As a result, optimal care of these renal patients was not at all possible or only to a very limited degree.

With the BCM, Fresenius Medical Care has developed an appropriate, easy-to-operate, inexpensive state-ofthe-art measuring device. What is most important, however, is that users now have a comprehensive, clinically validated program for analyzing the data collected. The extremely valuable knowledge that underlies this development has been gathered over many years of intensive clinical work in cooperation with medical researchers boasting considerable experience in this area, and then verified on dialysis patients. Numerous scientific publications have been published on patients' experience with the device and the method so far. This is so promising that the necessary routine controls and the ability to influence the hyperhydration state of dialysis patients, which have so far been the domain of just a few acknowledged specialists, are within reach.

The importance of the subject and the potential of the BCM method – which has only been exploited to a small extent – suggest that this project, whose first step has been completed, may continue to be a focus of our R&D activities in the future.

Development Focus: 5008 Hemodialysis Machine

As in the previous years, the market launch of the 5008 hemodialysis machine which is portrayed from page 14 onwards was still largely at the center of our R&D department's activities in 2007. We continue to put our main focus on improving the reliability and operating behavior of the machine in clinical use and under increasingly varied conditions in international applications. In our efforts to continuously improve the product, we take into account the considerable influx of feedback from our own dialysis clinics and from other customers. This helps us to deal with the teething troubles which are unavoidable in a product with such complex technology, a product comparable, say, with a new midrange car. Moreover, we are constantly refining the 5008, focusing on therapeutic, technical, and economic aspects of the machine.

The 5008 still has to compare with its predecessor, the 4008, the world's most popular and successful hemodialysis machine. Our customers' very positive response to the 5008 makes us confident that with the new model Fresenius Medical Care can maintain its position as the world's leading manufacturer of dialysis machines.

With the development of the 5008, we have raised the status of Online-hemodiafiltration (HDF) from an exclusive technology for just a few users to a standard feature. In Online-HDF, the machine produces the required amounts of sterile and pyrogene-free infusion solution from standard bicarbonate dialysate. The decision to pursue this concept proved to be the right one: a growing number of clinical studies on the advantages of hemodiafiltration show that the method can lead to a 30% to 35% decrease in the mortality rate of kidney patients. Hardly any other single measure in the field of renal replacement therapy has been shown to have such a clear influence on patients' survival. Fresenius Medical Care as one of the first providers of commercially available Online-HDF machines sees this as a confirmation of its long-term innovation and product development policy. As Online-HDF becomes increasingly widespread as a standard treatment, our R&D work will center on improving technical aspects of this treatment method.

A key feature of the 4008 machine was the systematic introduction and use of intelligent physiological controls and measuring procedures to monitor the course of the treatment: these include body temperature regulation (by means of the Blood Temperature Monitor, or BTM), automatic regulation of weight loss through ultrafiltration (by means of the Blood Volume Monitor, or BVM), and online measurement of the dialysis dose achieved (by means of the Online Clearance Monitor, or OCM). These procedures can be found in the 5008, some in an improved form. In the reporting year, the R&D department focused mainly on the necessary adjustments and technological improvements.

Improving the technological safety of dialysis machines is another development area. As with all extracorporeal treatment methods (i.e, that take place outside of the body), dialysis involves a number of risks, such as blood loss or air infusion. These can cause accidents or even death. The minimum requirements for the safety of dialysis machines are specified by national, European, and international standards. But we go even further: As part of our continuous efforts to improve our products,

we work on developing additional methods and devices to reduce the risk of patients being harmed by technological error or human failure.

Development Focus: Membrane Technology

Progress in the quality of hemodialysis also depends on the availability of the necessary dialyzers and membrane types for a certain type of treatment or for a specific patient group. For many years now, Fresenius Medical Care has defined the state-of-the-art in this area, in particular with the Fresenius Polysulfone membrane in its different variants. More details can also be found in "Technology Innovation" from page 2 onwards. Today's hollow fiber dialyzers are effective and technologically sound to a degree that was considered a bold vision not too long ago. In spite of this high level of development, it is still possible to adapt membranes and even complete dialyzers to special new therapy variants and to further improve their efficiency. Our R&D departments also deal with this as part of their long-term product care and refinement efforts.

Conventional dialyzers and filters are characterized by their non-specific removal of substances that are dissolved in the patients' blood. All substances up to a defined molecular weight pass through the membrane at a rate that depends on the molecular weight of the material in question, among other factors. This approach shows how relatively sketchy medical knowledge of the biochemical causes of acute and chronic uremia (urea poisoning) resulting from kidney failure still is.

But advancements made in recent years in research on so-called uremic toxins give hope that membranes might be developed with specific properties that can filter targeted substances from patients' blood. The acquisition of the U.S. company Renal Solutions, Inc. in the year under review will enable further synergies to be tapped between our R&D departments. Renal Solutions is an internationally recognized and exclusive specialist in the field of dialysis regeneration using enzyme-based sorbent systems. The main aim of these systems is to reduce the amount of water needed for

hemodialysis treatment from about 120 liters at present to around five or six liters. In addition, the adsorber cartridge assumes the function of the costly water-processing unit, enabling the system to use drinking water. Apart from the ecological and financial implications of these improvements, this makes it possible to decrease the size of hemodialysis machines significantly. The long-term use of such sorbent systems is of particular interest to the R&D department because they hold the prospect of removing specific toxins from patients' blood. Further information on the acquisition of Renal Solutions can be found from page 75 onwards.

We are also working on membranes which can release pharmaceutical agents into patients' blood, grouped under the term "pharma tech". By attaching appropriate ligands – special molecules – to the membrane surface, we enable these membranes to take on special properties. The work is still at an early stage; we have to test the technical implementation of these membranes and verify the general medical approach. However, we are convinced that future membranes will have functional qualities of this type.

Development Focus: Peritoneal Dialysis

Peritoneal dialysis (PD) has gained in importance in recent years. While earlier either exclusively hemodialysis (HD) or exclusively peritoneal dialysis were promoted and applied in certain countries or by certain users, today these two kinds of treatment complement one another.

Fresenius Medical Care welcomes this development, which we anticipated at an early stage with our balanced product policy. Encompassing individually adapted and biocompatible peritoneal dialysis solutions in toxicologically and ecologically compatible packaging systems, our product portfolio has always covered the full range of applications and is well positioned. In addition, Fresenius Medical Care offers various types of high-quality, high-performance machines for automated peritoneal dialysis (APD) – so-called cyclers. The R&D department is currently working on a global

cycler. The goal is to offer high-quality APD at an optimized cost worldwide. The use of a common technological platform for this project is an important step in this direction.

Development Focus: Further Extracorporeal Methods

The extracorporeal treatment of blood is one of Fresenius Medical Care's core competencies. Apart from its wide-ranging applications in the area of chronic hemodialysis, this technology is of fundamental importance for the treatment of acute kidney failure, liver failure, sepsis, and multi-organ failure. For this reason, Fresenius Medical Care has worked for many years on developing processes, machines, and disposable products to treat these illnesses. As they are predominantly acute and immediately life-threatening, these diseases are normally treated in the intensive care units of specialized hospitals. This environment poses special challenges to manufacturers of medical equipment in terms of the size, immediate availability, and operational guidance, among others, of the products.

With regard to traditional treatment methods, Fresenius Medical Care is strongly represented with devices that have been successfully launched and are constantly improved and refined by the R&D department. Its number one task, however, is to develop machines and methods that help reduce the still drastically high mortality rates of people with these illnesses. This requires close cooperation with clinical and academic research institutes, as the mortality rate can only be reduced with the help of new findings about pathophysiological and biochemical processes.

An example of this is the Microspheres-Based Detoxification System (MDS), which has been discussed in depth in scientific literature. Fresenius Medical Care is developing this system together with the Center for Biomedical Technology at the Danube University Krems. The MDS is specially geared to the treatment of sepsis and multi-organ failure. Characteristics of sepsis and the multi-organ failure that frequently ensues are, among others, the temporally dynamic emergence of pro- and anti-inflammatory messenger substances (substances in the blood which either reinforce or repress an existing massive inflammatory reaction). While removing pro-inflammatory substances promises to improve the clinical picture, anti-inflammatory messenger substances should not be removed. Treatment approaches which non-specifically remove all of these messenger substances have not led to a significant and generally reproducible improvement in the mortality rate of the patients in question.

The MDS uses an innovative extracorporeal circuit in which a certain amount of blood plasma is constantly removed from the patient's blood via a membrane and introduced into a secondary circuit. In this circuit, specific adsorbers in the form of microspheres are added to the plasma, which contains messenger substances that are important for these patients. The direct contact between the adsorber material in this suspension and the blood plasma causes materials to be removed much more effectively. The use of specific adsorbers would enable the targeted removal of individual substances without the loss of other materials that might be important for the patient's survival. In a second step, a suitable filter prevents the adsorber microspheres from entering the blood of the patient, ensuring that they remain in the extracorporeal circuit.

We hope to significantly improve the situation of these patients with this treatment by potentially adapting flexibly to the dynamic course of the illness. The development of MDS is a prime example of successful cooperation between university and industry which may have a direct impact on medical progress. Our collaboration with Danube University Krems is not just limited to clinical and technological projects of this kind: Fresenius Medical Care is involved in teaching, participates in further education course and on various advisory boards.

Liver failure plays a special role in the area of acute organ failure. While it is possible to offer patients with acute and chronic kidney failure a proven therapy with artificial kidneys, the situation with regard to liver failure is considerably more difficult and nebulous. This is due to the highly complex detoxification function of the liver, which artificial organ systems so far have only been able to perform to a limited extent. The liver is not only an important detoxification organ; it also synthesizes (produces) a number of substances which are vital for the body, including proteins such as albumin and blood clotting factors. As the human organ with the most comprehensive ability to regenerate itself, the liver can partially compensate the problems that occur during treatment of liver failure due to the organ's complex function. Therefore, to cure a patient, it can be sufficient to support the liver function partially and only for a limited period using an extracorporeal method. Still, the number of cases of acute and chronic liver failure is rising. This is partly due to the increasing incidence of viral liver infections (predominantly Hepatitis B and C), as well as to intoxication from drug and alcohol abuse.

For some years now, Fresenius Medical Care has used the Prometheus system, an extracorporeal method, to temporarily support the liver function. In addition to special filters and adsorbers, this system uses the proven 4008 technology for circulation outside the body. In conjunction with this therapy system, we are currently conducting a multicentric international Prometheus European Liver Disease Outcome Study.

In addition to the methods mentioned above, there are a number of promising approaches for treating liver failure in which the complex liver function is reproduced by living cells in an extracorporeal system. The challenge is to get living cells in a suitable quality and quantity rather than developing the extracorporeal systems. Therefore we are currently focusing our R&D activities in this area on obtaining cells by means of suitable stem cell technologies, working exclusively with adult stem cells. We are carrying out this work in close cooperation with internationally renowned academic institutions.

We are continuing our cooperation with the University of Turin in the field of both liver and kidney stem cells based on some very exciting results from basic research activities which may open up avenues for new treatment therapies in the distant future (long-term).

Research Cooperation / Research Promotion

An important aspect of our research and development work on innovative solutions for the treatment of kidney patients is the close cooperation between our researchers and the users of our products in our clinics. A close relationship with the clinics is a prerequisite for successful research for and with suitably qualified clinical partners. Doctors, nurses, and patients tell us what they think about the results of our research and development, which helps us greatly, as we primarily gauge the success of our innovations on the basis of day-to-day practical experience. In this way, Fresenius Medical Care benefits from its position as a vertically integrated dialysis company.

Moreover, we maintain close contact with universities and research institutes in our area of expertise. Our collaboration with Danube University Krems in Austria on extracorporeal methods is an excellent example. We also have close contact with research institutes in the U.S., for example the Renal Research Institute (RRI). Together we tackle fundamental issues in dialysis treatment, including the multiple causes of kidney disease, the specific problems in treating children with renal problems, as well as special subjects such as the mineralization of dialysis patients' bones or the effects of kidney illnesses on the natural acid-base equilibrium in the human body.

We generally carry out our research and development projects with our own staff and research departments. So far, we have only involved external parties in research and development to a limited extent. When we cooperate with universities and other scientific institutions in Germany and abroad, we use various financing models, some of which are publicly funded.

Economic Environment

General Economic Development

In 2007, the positive economic development of the previous year continued, although the dynamics weakened as the year progressed. In their Fall Report, the leading German research institutes expected Germany's gross domestic product (GDP) to increase by 3.2%, a slightly lower growth rate than in the year before with 3.6%.

This slight decline was primarily due to increasing economic risks, above all to rising oil prices. In the course of the year, the price of crude oil soared to nearly \$100 a barrel. Another factor was the subprime mortgage crisis in the U.S. To minimize their risks, lending institutions had sold mortgage loans with poor credit standing to other banks in the past. However, the buyers did not perform a detailed risk analysis. The revaluation of the acquired risks led to a crisis of confidence in the business relationships between the banks. As a result, the financial markets suffered from insufficient liquidity, which could only be overcome through intervention by the European Central Bank (ECB) and the U.S. Federal Reserve (Fed).

As in the years before, the economic situation varied in different countries. The United States' GDP grew less robustly than in most other regions, with China posting the highest growth. The level of growth in industrialized countries differed depending on which phase of the business cycle their economies were in. While in the U.S. financial policy was more moderate, it was more restrictive in Europe to counter inflationary tendencies at an early stage. Still, the financial reins were not tightened significantly in the year under review. Inflation expectations did not change, and as a result the key interest rates remained more or less constant. Wages in industrial countries continued to be moderate.

Exchange Rate Development

Furthermore, the global economy was marked by fluctuating exchange rates. The U.S. dollar was significantly devalued by 12% compared with the euro and by 6% compared with the yen as of December 31, 2007, while the euro-yen exchange rate remained more constant.

Particularly, the U.S. dollar and the euro are important for Fresenius Medical Care. From a reporting point of view, a strong euro is advantageous for us, as our functional currency is U.S. dollars. Demand for the majority of our dialysis products is greatest within the euro and the U.S. dollar zones. Our production sites are predominantly decentralized to enable us to meet this demand. Our plants in the U.S., Japan, and Europe help protect us from currency fluctuations, thus minimizing transaction risks, as costs and revenue are generated in the same currency. However, the area of dialysis care yields much higher revenues. In 2007, we achieved about three-quarters of our total revenue in this segment. Dialysis care is generally provided locally and thus in the respective currency zone.

More information on the development of the exchange rate between the euro and the U.S. dollar can be found in the "Management of Foreign Exchange and Interest Rate Risks" section beginning on page 31 in the financial report.

United States

Growth in the U.S. continued to slow down, with GDP increasing by only 1.9%. The main reasons for this were the moderate rise in private consumption and relatively low investments in equipment. U.S. exports increased, however, due to the weak dollar, while imports decreased. On account of the subprime mortgage crisis, the Federal Reserve cut the key interest rate from 5.25% to 4.25%. This did not lead to significantly higher inflation: the inflation rate was down to 2.6% in 2007, compared to over 3.0% in the previous year.

Europe

While economic growth in Europe abated somewhat, it was still higher than in the U.S. The GDP in the euro zone increased by 2.6%, developing at only a slightly lower rate than in the previous year. Private consumption stagnated at the beginning of the year, imports and exports also remained roughly the same. Fixed-asset investments continued to send positive signals, while unit labor costs only increased at a moderate rate. On the whole, the economy in Europe was significantly more robust compared to prior years. The European Central Bank countered possible inflation risks by increasing the key interest rate from 3.5% to 4.0%.

GROSS DOMESTIC PRODUCT
Expected change over previous year in %	2008	2007	2006
United States	2.1	1.9	2.9
Germany	2.2	2.6	2.9
Euro zone	2.1	2.6	2.8
Great Britain	2.3	2.9	2.8
New EU member states	5.3	6.0	6.4
EU 27	2.4	2.9	3.1
Russia	7.0	7.5	6.7
Japan	1.7	2.0	2.2
China and Hong Kong	10.5	11.0	11.1
East Asia	5.0	5.5	5.2
Latin America	4.5	5.0	5.2
Worldw ide	3.0	3.2	3.6

Source: Projektgruppe Gemeinschaftsdiagnose "Aufschwung legt Pause ein. Gemeinschaftsdiagnose Herbst 2007"; Essen; October 16, 2007

In Germany, the beginning of the year was marked by lower private spending due to the VAT increase. In the course of the year, economic development was chiefly influenced by the price of crude oil and the strong euro. Still, the general economic conditions remained positive and the investment climate cheerful. The GDP rose by 2.6% in 2007. The number of unemployed continued to fall (though less than in the previous year), reaching 3.4 million at the end of 2007.

In Great Britain, growth remained at the previous year's level of 2.9%. The young members of the European Union can look back on a very positive economic development. The gross domestic product in these countries rose by 6.0% in 2007. Russia also continued to achieve robust growth. Driven by strong domestic demand and ongoing high foreign investments, Russia's GDP climbed by 7.5% while inflation decreased.

Asia

The economic development in Japan remained diffuse in 2007. It was characterized by lower consumer spending and public investments, a strong yen, and falling retail prices. The economy weakened overall; the gross domestic product grew by 2.0%.

China continued to grow, with its gross domestic product soaring by 11.0%. Exports and investments were the most important contributors to this development. Investments grew strongly despite the increase of central bank interest rates. According to the research institutes, inflation in China (which rose primarily due to food prices) does not give cause for concern. The economies of the remaining East Asian countries grew by 5.5%.

Latin America

Latin America also posted economic growth. The GDP was up 5.0%, almost reaching the previous year's level. As a crude oil producer and energy provider, the region continued to profit from the high crude oil prices and the stable domestic demand. Monetary conditions remained stable, and the inflation rate was 4.0%, as expected. In Mexico, however, economic conditions deteriorated due to the country's dependency on the development of the U.S. economy.

Further information can be found from page 76 in the "Comparison of the Actual Business Results with Forecasts" section.

Sector-Specific Conditions – Dialysis Market

If not indicated otherwise, data are based on internal estimates.

Patients – A Global Approach

End-stage renal disease (ESRD) has a global dimension: Patients in more than 140 countries receive renal replacement therapy in the form of dialysis or transplantation.

The country prevalence values (the relative number of patients treated for ESRD) vary significantly, spanning a range from far less than 100 to more than 1,500 patients per million population (p.m.p.). The vast majority of ESRD patients (95%) are treated in only 60 countries. Analyzing these 60 countries with regard to their economic strength, using the gross national product per capita as a reference, three prevalence-wealth categories can be established: The 20 countries with the

Dialysis Patients by Region
	2007	Change
North America	420,000	~4%
Europe / Middle East/Africa	490,000	~5%
Asia-Pacific	555,000	~7%
Latin America	175,000	~8%
Worldw ide	1,640,000	~6%

greatest economic power, including the U.S., Japan and Germany, show an average ESRD prevalence of considerably more than 1,000 p.m.p., and in none of these countries is the prevalence lower than 700 p.m.p. The 20 countries with a moderate economic performance have an average prevalence of approximately 500 p.m.p. In the countries with less economic power about 100 p.m.p. receive treatment. The relatively low prevalence value in these countries suggests that the economic situation still plays a significant role regarding accessibility to ESRD treatment.

Patients – Regional Development

By the end of 2007, the number of ESRD patients undergoing dialysis treatment had reached 1.64 million worldwide. Of these patients, around 21% were treated in the U.S., 18% in the European Union and 17% in Japan. The remaining 44% of all dialysis patients were distributed among more than 110 countries in different geographical regions. The number of dialysis patients increased by approximately 6% in 2007 and met our expected growth rate.

Significant regional differences remained: A belowaverage increase in patient numbers was experienced in the U.S. and Japan, as well as in Western and Central Europe. In all these regions, the prevalence of terminal kidney failure is already relatively high and patients generally have secured access to treatment, usually dialysis. Annual growth rates in the economically weaker regions, however, were above average, with values of up to 10%. The relatively high growth in these areas indicates that accessibility to treatment is still somewhat limited, albeit gradually improving.

Patients – Treatment Mode Development

By the end of 2007, the total number of patients treated for terminal kidney failure had reached more than 2.1 million. Of the about 1.64 million that underwent dialysis treatment, 1.46 million were treated with hemodialysis and about 180,000 received peritoneal dialysis. Approximately 500,000 kidney patients live with a transplanted kidney. Thus, in a global comparison of treatment methods, hemodialysis clearly dominates. More than 89% of all dialysis patients were treated with this method in 2007. Within the group of the 15 largest dialysis countries accounting for more than three quarters of the world dialysis population, hemodialysis is the predominant treatment method in all countries except in Mexico.

In addition to these two dialysis therapies, a third option in treating patients with terminal kidney failure is kidney transplantation. However, the number of donated organs worldwide has continued to be significantly lower than the number of patients on transplant waiting lists. Consequently, less than one quarter of the global ESRD population lives with a donor organ. Despite ongoing efforts by many regional initiatives to increase awareness of and willingness for kidney donation, the distribution of patients between the various treatment modes has remained nearly unchanged over the past few years.

Xenotransplantation – the use of animal organs to replace human organs – is not likely, in our opinion, to affect this development in the near future. Due to a variety of remaining unsolved problems, this method cannot be considered an alternative to well-known treatment methods. Among the difficulties xenotransplantation faces are the uncontrolled transfer of retroviruses and other potentially dangerous pathogens from animals to humans, the suppression of immune rejection reactions in the body, and the open question concerning the adequate functioning of animal organs in the human body. Apart from that, not every dialysis patient would be suitable for xenotransplantation; even if there were an unlimited supply of organs, many patients suffer from such severe co-morbid conditions that xenotransplantation is very unlikely to become the treatment of choice for them. Given all these circumstances, xenotransplantation is far from becoming a routine organ replacement therapy.

Dialysis Provider Business

In the last year, the majority of all hemodialysis patients were treated in around 26,500 dialysis centers worldwide, which is an average of some 55 patients per center. Clear differences exist in the organizational structures of dialysis center operations, depending on whether a country's health system is predominantly private or public.

Number of patients treated
U.S.	1%		71%	28%
European Union		60%	15%	25%
Japan	20%			80%
Worldwide	36%	24%		40%
Public Private companies	Private individuals
		58%	21%	21%
Dialysis Clinic Operators in Eastern Europe Number of patients treated 2007 2000			75% 8%	17%

There are about 5,000 dialysis centers in both the U.S. and the European Union. Whereas about 1% of these dialysis centers are publicly operated in the U.S., the share in the European Union is about 60%.

In Japan, however, private nephrologists play a key role, running about 80% of all facilities. In Eastern Europe, the last few years have seen a significant increase in the number of company-owned clinics, possibly reflecting the fact that private companies are more efficient when it comes to modernization and capacity extension than the respective government bodies.

In the U.S., this transformation process towards private companies is nearly finished. Fresenius Medical Care and the second-largest competitor DaVita now provide dialysis care to approximately two-thirds of all dialysis patients in the U.S. Fresenius Medical Care confirmed its leading position in 2007 and has a market share of about 34%.

The dialysis market outside the U.S. is much more fragmented. Here Fresenius Medical Care is also the largest dialysis provider and market leader, with more than 52,000 patients in over 25 countries, thus ranking as the third-largest global dialysis company, even if the North American dialysis business is not included in the calculation.

As in previous years, many healthcare systems continued to face increasing cost pressure in order to reduce welfare system expenditure while simultaneously striving to improve treatment standards for patients. Under these conditions, reliable product supply, patient education, quality and innovative approaches toward optimizing patient care constitute key success factors for market participants. A vertically integrated dialysis provider like Fresenius Medical Care, offering not only the entire product spectrum in the dialysis sector but also highquality treatment in dialysis clinics worldwide, has excellent opportunities to continually expand its position in the current and future dialysis market. In 2007,

Number of patients treated
Fresenius Medical Care	173,863
DaVita	107,000
Kuratorium für Dialyse	18,000
Dialysis Clinic International	13,000
Diaverum	13,000

U.S.	34%	66%
European Union	7%	93%
Other regions	3%	97%

Fresenius Medical Care Other providers

Fresenius Medical Care continued to uphold its clear leadership as the largest private provider of dialysis care worldwide, treating more than 173,000 dialysis patients in more than 2,200 clinics.

Dialysis reimbursement systems differ from country to country, and often also vary within the countries. Among the factors determining reimbursement are regional conditions, the type of treatment provided, regulatory issues and the type of the care provider. The establishment of reimbursement structures based on treatment quality remains a focus of discussions. The goal of this reimbursement method is to uphold the treatment quality while maintaining the current level of costs for the treatment of a dialysis patient. Fresenius Medical Care has been active in numerous countries with differing healthcare systems and reimbursement schemes for many years now. Our international experience puts us in a position to offer support to national health systems in their endeavors to customize structures, adapt our business according to local needs and regulations, and to act profitably in different healthcare environments.

Dialysis Product Business

The value of the global dialysis market grew by approximately 5% to about \$58 billion in 2007. According to our estimates, the dialysis product market reached a value of some \$9.5 billion. The key products offered in this market include dialyzers, hemodialysis machines,

concentrates and solutions, as well as special peritoneal dialysis products. The three largest suppliers of dialysis products together held a worldwide market share of nearly 70% in 2007. With a market share of approximately 30%, Fresenius Medical Care was the market leader, followed by Baxter and Gambro. The market share of the other, mainly Japanese product providers was in the single-digit percentage area for each provider.

The largest single product group in this market is dialyzers, of which about 165 million were needed by dialysis patients worldwide in 2007. The fact that about 75 million of these dialyzers were produced by Fresenius Medical Care in the reporting year underlines our leadership in this market.

Dialyzers can be categorized as cellulose-based or synthetic depending on the material used for the production of the dialysis membrane. The trend towards the use of dialyzers containing membranes made from synthetic material prevailed in 2007. At the end of 2007, the share of synthetic-membrane dialyzers in the dialyzer market was about 80%. Cutbacks in the production capacity for cellulose-based dialyzers suggest that sales of synthetic dialyzers will further increase in the years to come. Our pioneering work in the development and production of synthetic dialyzers laid the foundations and defined the course that is now being followed by other major competitors.

Market Position in Major Product Groups 2007

	Rank 1	Rank 2	Rank 3
Dialyzers	Fresenius Medical Care	Gambro	Asahi
Dialysis machines	Fresenius Medical Care	Nikkiso	Gambro
Hemodialysis concentrates	Fresenius Medical Care	Fuso	Gambro
Tubing systems	Fresenius Medical Care	Gambro	Kawasumi
Peritoneal dialysis products	Baxter	Fresenius Medical Care	Gambro

Dialysis machines constitute another key segment of Fresenius Medical Care's product business, in which we also hold a leading position. Of about 55,000 new dialysis machines sold in 2007, more than 50% were produced by Fresenius Medical Care. The introduction of the new generation of hemodialysis machines in 2005, the 5008 series in the international markets, contributed to that development. Thanks to its innovative user interface and technologies that set new standards in dialysis, the 5008 found a high level of acceptance the first two and a half years it was on the market. The new machine not only reinforces our strong market position, but also provides excellent prospects for future market share growth.

In the U.S., Fresenius Medical Care's most important business region, our market share in these two product groups – dialyzers and dialysis machines – exceeded 70% of the independent market. We define the independent market as all dialysis clinics that do not belong to a major U.S. wide dialysis care provider, such as Fresenius Medical Care or DaVita.

Sales of our 2008K dialysis machine grew by more than 14% in 2007. This dialysis machine is the leading dialysis system in the U.S.; we have sold more than 15,000 of these machines there. Again, dialyzers also outpaced average growth in the U.S., where we achieved record figures by selling approximately 30 million Optiflux dialyzers. At the end of 2007, more than three quarters of all hemodialysis patients in the U.S. on single-use have been provided with single-use dialyzers from Fresenius Medical Care.

The number of peritoneal dialysis patients grew by about 6% to some 180,000 worldwide; the number of patients treated with our products remained constant at about 32,500. Worldwide, we hold an 18% share of that market, which is still dominated by Baxter. Our market share in the U.S. was 29%. Further information on our position in the home therapies market, which comprises peritoneal dialysis and home hemodialysis, can be found in the "Home Dialysis" section beginning on page 105.

Events Significant for the Business Development

Acquisitions

We discussed the acquisition of Renal Care Group (RCG) in the U.S. at length in last year's annual report. RCG's revenue and earnings have been included in Fresenius Medical Care's consolidated statements of income and consolidated statements of cash flows since April 1, 2006. As a result, our revenue and earnings for the first three months of 2007 were influenced by the first-time consolidation of RCG.

Our largest acquisition in 2007 was the takeover of Renal Solutions, Inc. (RSI). With RSI, we acquired the so-called SORB cartridge, a technology for advancing home hemodialysis and creating a platform for the development of a potential wearable artificial kidney. The acquisition agreement provided for total consideration of up to \$190 million, consisting of \$100 million at closing, \$60 million after the first year, and up to \$30 million in milestone payments over the next three years. RSI had approximately \$10 million of net debt

outstanding at closing. Further information on RSI can be found in the "Research and Development" section from page 61 onwards and in "Home Dialysis" starting on page 105 as well as in Note 3 of the financial report.

At the beginning of the year, we acquired a majority stake of 51% in the Taiwanese dialysis clinic operator Jiate Excelsior Co. Ltd. with a purchase price of \$38 million. The acquisition contributed about \$85 million to our revenue in 2007. This transaction makes Fresenius Medical Care the leading provider of dialysis services in Asia. With a prevalence rate of more than 2,000 patients per million population, Taiwan is the country with the second-highest incidence of chronic kidney failure worldwide, after Japan. At the end of 2006, there were about 48,000 dialysis patients in Taiwan, with the number of patients growing by around 6% a year.

In July 2007, we also acquired a production site in Jiangsu, China, from the Taiwanese company Bioteque Corp. The plant makes bloodline systems and other non-reusable dialysis products for the Chinese market. In addition, it offers excellent opportunities to produce liquid and single-use products for the Chinese market as well as for other countries in the region.

Divestments

In the second quarter of 2007, we sold the perfusion business of our subsidiary Fresenius Medical Care Extracorporeal Alliance (FMCEA) in the U.S. to Specialty Care Services Group. With this step, Fresenius Medical Care divested itself of an area which does not belong to our core business. We will now be able to concentrate even more on the worldwide dialysis market, in which higher margins can be achieved. In 2006, the revenue generated by the perfusion business totaled about \$110 million. Its consolidation in Fresenius Medical Care ended on May 9, 2007.

Financing

At the beginning of the third quarter of 2007, we successfully placed Senior Notes due 2017 amounting to \$500 million. The coupon is 6 7/8%. We used the proceeds to reduce indebtedness under the Company's senior secured bank credit facility and other, short-term debt. The Senior Notes were issued by FMC Finance III

S.A., a wholly-owned subsidiary of Fresenius Medical Care AG & Co. KGaA. They are guaranteed by Fresenius Medical Care AG & Co. KGaA, Fresenius Medical Care Holdings, Inc., and Fresenius Medical Care Deutschland GmbH.

In addition, we carried out a share split in June 2007. Details can be found in the "Share Split" section from page 45 onwards.

Economic and Business Environment

The general economic and business environment as well as the legal conditions in our industry remained virtually unchanged in 2007. Consequently, there were no major changes in our area of operations. Dialysis remains a medically indispensable and life-saving treatment for kidney patients. Apart from a kidney transplant, there is no direct alternative to dialysis therapy. Our company is therefore active in a market that is largely unaffected by economic fluctuations. This is a major difference compared to many other industries and is reflected in the stable development of our revenue and earnings. Furthermore, the devaluation of the U.S. dollar over the euro and other important currencies did not have a significant impact on the business activities of Fresenius Medical Care in 2007.

Moreover, we can serve and take advantage of the entire value chain in dialysis due to our vertically integrated business model, which encompasses both dialysis services and dialysis products. Our market is characterized by a relatively constant growth in patient numbers, even in difficult economic times. As an essential component of patient care, dialysis services are not susceptible to economic fluctuations. The same applies to dialysis products, as the majority of dialysis-related supplies are disposables. They account for about 26% of our total revenue. However, even our company would not be able to completely free itself from the effects of longterm global economic downturns.

Summary

There were no further major events in 2007 with a significant influence on the operating business or the legal structure of Fresenius Medical Care.

In the year under review, Fresenius Medical Care continued its extraordinarily positive development, achieving records in revenue and earnings. We increased our operating margin over the previous year – an indicator of the growing profitability of our company. All segments and regions contributed to the positive business performance.

Comparison of the Actual Business Results with Forecasts

Fresenius Medical Care can look back on an exceptionally successful business year. We reached or partially exceeded our targets for 2007. We achieved record sales and earnings.

At the beginning of 2007, we expected revenue of about \$9.4 billion, 11% more than in 2006. When the half-year results were announced, we raised our forecast for the full year to more than \$9.5 billion due to the Company's excellent operating performance up to that point. In fact, our revenue amounted to more than \$9.7 billion, well above the target.

Originally, we expected our net income for 2007 to be \$675 to \$695 million, which would have meant a growth of 18% to 21% on a comparable basis. We also raised this forecast when the half-year results were announced in August to between \$685 and \$705 million. When the nine-month results were released in October 2007, we slightly adjusted this forecast to the upper end of the spectrum. At the end of 2007, the net income totaled \$717 million, significantly higher than the target. As expected, there were no one-time effects in 2007.

The effective tax rate was 38.5% in the year under review, corresponding to our target of about 39%.

The expected continuous development of the dividend is reflected by our dividend proposal. Pending approval by the General Meeting, the dividend per ordinary share will increase by 15% to €0.54. More information on this can be found in the "Dividend" section from page 46 onwards.

At the beginning of the year, we expected our capital expenditures and acquisition spending to total approximately \$650 million. In total, capital expenditure and acquisitions amounted to about \$807 million including the acquisition of Renal Solutions, Inc. (RSI). RSI was not taken into account in the original planning for 2007. Without RSI, our capital expenditures and acquisition spending would have been at about \$687 million and therefore within the scope of the outlook.

The operating cash flow – driven by earnings performance and ongoing good management of accounts receivable – was expected to be within the target range of 9% to 11% of total revenue. At the end of the year, the operating cash flow amounted to about \$1.2 billion or approximately 12% of total revenue, thus exceeding our expectations.

According to our forecast, the debt/ EBITDA ratio was to fall by the end of 2007 to less than three times the earnings before interest, tax, depreciation and amortization (EBITDA). We already reached this target in the middle of the year. The debt/ EBITDA ratio was 2.84 at the end of 2007.

In 2007, the number of people employed by Fresenius Medical Care (full-time equivalents) increased to 61,406. The continued strong organic growth of the dialysis services business in North America and the acquisitions in Asia were key contributing factors. We anticipated having more than 60,000 employees by the end of 2007.

Research and development expenditures – which strengthen and enhance Fresenius Medical Care's future – were about \$67 million, within our expectations. The field of dialysis products is generally characterized by the ongoing development of existing product groups. One of the key innovations was the Body Composition Monitor (BCM), which reached market maturity in the year under review. Details on this product can be found from page 8 onwards in the "Product Innovation" section.

General economic conditions were as follows: The economic situation in the U.S. and Europe, our most important core markets, improved. We recorded aboveaverage growth rates in Asia and Latin America. However, the dialysis business of Fresenius Medical Care is less dependent on economic cycles than other industries.

The dialysis market developed much as we expected: the market volume was up by approximately 5%; the number of patients grew by around 6%; hemodialysis remained by far the most important method used to treat chronic kidney failure. In terms of the distribution of dialysis patients according to treatment method, there were no significant changes compared to the previous year.

	Results 2007	Objectives raised O August 2007	bjectives announced February 2007
Revenue	\$9.7 billion	>\$9.5 billion	+11% to \$9.4 billion
Net income	\$717 million	\$685 – \$705 million	\$675 – \$695 million
Capital expenditures and acquisitions	\$807 million	–	~ \$650 million
Debt/EBITDA ratio	2.84	–	Below 3.0

The Management's General Assessment of Business Performance

2007 was an exceptionally successful year for our company. Revenue and earnings climbed to record levels. We achieved and clearly surpassed all of the main goals we had set ourselves at the beginning of the year. Both the North America and the International segment contributed to this development with their dialysis products and services.

Our company grew more strongly than the dialysis industry as a whole and was able to further expand its share of the market as a result. By means of targeted strengthening of our clinic network in Asia, we are now the largest provider of dialysis services in this region, too.

We were able to uphold our leading position in North America, by far our biggest market, and our revenue also rose significantly in Europe and Latin America.

Fresenius Medical Care's profitability continued to increase in the year under review. We were able to further improve the operating margin (EBIT margin) in North America and in the International segment. Our net income grew at an even higher rate than the operating result.

With the acquisition of Renal Solutions, Inc. we further strengthened the technological capabilities in our company to put us in a leading position in the area of home therapies, particularly home hemodialysis. This is another step towards achieving the GOAL 10 growth goals we announced in 2005.

	Results 2007	Objectives 2007 Objective (after raising in August)	reached
Revenue	\$9.7 billion	>\$9.5 billion	✓
Net income	\$717 million	\$685 – \$705 million	✓
Capital expenditures and acquisitions	\$807 million	~ \$650 million	✓
Debt/EBITDA ratio	2.84	Below 3.0	✓
Employees (full-time equivalents)	61,406	More than 60,000	✓
Dividend	Proposal +15% per ordinary share	Continuous increase	✓
Research and development expenditures	\$67 million	~\$60 million	✓
Product innovations	BCM and OsvaRen introduced	Further expansion of product and service range	✓

Objectives and Results for 2007

RESULTS OF OPERATIONS, FINANCIAL SITUATION, ASSETS AND LIABILITIES 02.2

On March 31, 2006, Fresenius Medical Care completed the acquisition of Renal Care Group (RCG). Since April 1, 2006, RCG's business activities have been included in our consolidated financial statements and consolidated statements of cash flows. RCG was therefore for the first time in 2007 fully consolidated for a full year. Additional analyses of this transaction and information on other acquisitions can be found in Note 3 of the financial report.

Results of Operations

Revenue

Fresenius Medical Care's revenue increased considerably by 14% to \$9.72 billion in the 2007 fiscal year. Currencyadjusted growth was 12%. The acquisition of RCG, net of acquisition-related divestitures, contributed 4% to the revenue increase, other acquisitions 2% and organic growth 6%.

As a vertically integrated dialysis company, Fresenius Medical Care offers a full range of dialysis products as well as dialysis services in the form of high-quality treatments in dialysis centers around the world. Dialysis care accounts for 74% of the total revenue (2006: 75%).We achieved 26% of our revenue with dialysis products in 2007 (2006: 25%).

Our worldwide dialysis care business grew by 13% to \$7.21 billion in 2007. In constant currency, revenue increased by 12%. The acquisition of RCG, net of acquisition-related divestitures, accounted for 5% of the revenue growth, same market treatment growth for 4%, higher revenue per treatment and other acquisitions each for 2%, and exchange rate effects for 1%. Sold and closed clinics reduced the revenue growth (–1%).

The core of our dialysis services is providing high-quality treatments in our dialysis clinics. Therefore, to raise our revenue from dialysis care it is essential that we increase the number of dialysis treatments performed. At the

end of 2007, we operated over 2,200 dialysis clinics, 6% more than at the end of 2006. The number of dialysis patients treated by Fresenius Medical care totaled nearly 174,000 as of December 31, 2007, also a 6% increase over the previous year. The number of treatments in the year 2007 grew by 11% to about 26.44 million. The disproportionate increase in the number of treatments compared to the growth in clinics and patients is due to the consolidation of RCG as of March 31, 2006.

The revenue we achieved with dialysis products rose by 18% (12% in constant currency), totaling \$2.51 billion. The main reasons for the increase were the higher sales of hemodialysis machines, dialyzers and concentrates, as well as the acquisition of the phosphate binder PhosLo at the end of 2006. Including revenue with our own dialysis clinics, the revenue with dialysis products also rose by 18%, reaching \$3.28 billion.

Both segments – North America and International – contributed to the revenue growth. The revenue in North America rose by 11% to \$6.66 billion. Revenue growth in the International segment was even higher at 24%, or 15% at constant currency, with the total revenue amounting to \$3.06 billion.

As in the previous years, we achieved by far the largest share of our revenue in North America with dialysis care. Dialysis products continued to dominate in the International segment, accounting for about 60% of our revenue.

North America is the most important business region for Fresenius Medical Care. In 2007, we achieved about 69% of our total revenue in this region, compared to around 71% in 2006.

Revenue from dialysis care in North America increased by about 10% to approximately \$6.0 billion. This corresponds to 90% of the revenue generated in this segment. The dialysis care growth in 2007 was due, among other things, to the RCG acquisition, net of acquisition-related divestitures (contributing 6%), same market treatment growth (contributing 3%), and other acquisitions (contributing 1%). In addition, revenue per treatment increased by 2%. Sold or closed clinics, as well as the sale of our perfusion business, partially offset revenue growth (– 2%).

The average revenue per treatment in the U.S. – our largest market – increased from \$321 to \$327 in 2007. The primary reasons were the improved commercial payor rates, the 1.6% increase in Medicare's composite rate, an increase in the drug add-on adjustment and the effects of the RCG acquisition. This development was

partially offset by decreased utilization of and reduced reimbursement rates for EPO.

Dialysis products also developed extremely well. In the North America segment, it comprises products for hemodialysis and peritoneal dialysis. Revenue with dialysis products grew by 18% to \$661 million. The continued high sales of the 2008 dialysis machine conceived for the U.S. market, dialysis concentrates, and the phosphate binder PhosLo were contributing factors.

Patients
Number	2007	2006	Change
North America	121,431	117,855	3%
Europe/ Middle East/Africa	26,902	25,078	7%
Latin America	17,741	16,924	5%
Asia-Pacific	7,789	3,660	113%
Total	173,863	163,517	6%

Treatments
in millions	2007	2006	Change
North America	18.45	16.88	9%
Europe/ Middle East/Africa	4.07	3.76	8%
Latin America	2.71	2.55	6%
Asia-Pacific	1.21	0.55	121%
Total	26.44	23.74	11%

Clinics
Number	2007	2006	Change
North America	1,602	1,560	3%
Europe/ Middle East/Africa	362	342	6%
Latin America	169	166	2%
Asia-Pacific	105	40	163%
Total	2,238	2,108	6%

The International segment comprises all business regions except North America. In 2007, Fresenius Medical Care achieved about 31% of its total revenue in this segment. Revenue grew by 24% (15% in constant currency) to \$3.06 billion. The share of revenue generated by the different regions within the International segment changed slightly from the previous year. Due to the acquisitions made at the beginning of the year, the Asia-Pacific region accounted for around 18% of the International segment's revenue, compared to 15% in 2006.

In the International segment, dialysis care revenue increased by 33% (23% in constant currency) to \$1.21 billion. As a result, we generated more than \$1 billion with dialysis services outside of North America for the first time. On account of the ongoing high demand for dialysis machines of the 4008 and 5008 series, as well as for dialyzers and products for peritoneal dialysis, dialysis product revenue rose by 18%, totaling \$1.85 billion (10% in constant currency).

The biggest business region in the International segment is Europe / Middle East/Africa. Revenue in this region rose by 20% to \$2.12 billion. Currency-adjusted revenue growth was 9%. The substantial difference between the growth rates is due to the fact that Fresenius Medical Care prepares financial statements in dollars but conducts much of its business in this region in euros. Last year, the exchange rate between the dollar and the euro changed significantly in favor of the euro, resulting in strongly varying growth rates. The region accounted for 22% of total revenue.

2007	2006 C	hange O	rganic C growth	urrency trans- A lation effects D	cquisitions/ S ivestments	hare in total revenue
6,663	6,025	11%	5%		6%	69%
3,057	2,474	24%	9%	9%	6%	31%
9,720	8,499	14%	6%	3%	5%	100%
		Revenue Development by Segments

Revenue by Region
\$ in millions	2007	2006	Change
North America	6,663	6,025	11%
Europe / Middle East/Africa	2,116	1,770	20%
Latin America	400	327	22%
Asia-Pacific	541	377	44%
Total	9,720	8,499	14%

Revenue by Region 2007
North America	69%	4% 5%	Latin America Asia-Pacific
		22%	Europe / Middle East/ Africa

As a result of our good business performance in Europe, we underlined and expanded our position as the region's largest provider of dialysis care and dialysis products. As of December 31, 2007, we provided dialysis care to almost 27,000 patients in 362 dialysis facilities, 7% more than twelve months before.

In 2007, our revenue from dialysis care in Europe was around \$761 million, 23% up on the previous year. Adjusted for currency effects, revenue rose by 12%. Revenue with dialysis products amounted to \$1.36 billion, a growth of 17% (currency-adjusted 8%).

We can also look back on a continued good business performance in Latin America. Revenue grew by 22% to \$400 million, and by 14% in constant currency. Latin American revenue accounted for 4% of our total revenue. Dialysis care revenue rose by 21% (14% in constant currency) to \$263 million. We generated \$137 million with dialysis products, an increase of 24% over 2006 (15% in constant currency). At the end of 2007, we treated around 18,000 patients in the 169 dialysis clinics in this business region.

The largest percentage increase was recorded in the Asia-Pacific region, primarily due to acquisitions. Revenue in this region rose by 44%, totaling around \$541 million. In constant currency, revenue growth was 40%. This region accounted for 5% of Fresenius Medical Care's total revenue.

In the Asia-Pacific region, revenue with dialysis products increased by 19% (15% in constant currency) to \$354 million in 2007. Dialysis care revenue showed particularly strong growth due to acquisitions, increasing by 134% (133% in constant currency) to about \$187 million.

The volume of orders is not a significant factor for Fresenius Medical Care on account of its business model. Up to three-fourths of our business consists of regular services. In addition, most of our product business concerns single-use products, so that it is hardly influenced by project-related orders which could lead to significant changes in the order volume in the reporting period. As a result, Fresenius Medical Care does not report on the basis of this financial ratio.

Revenue by Segments
\$ in millions	2007	2006	Change
North America
Dialysis products	661	561	18%
Dialysis services	6,002	5,464	10%
Total	6,663	6,025	11%
International
Dialysis products	1,846	1,561	18%
Dialysis services	1,211	913	33%
Total	3,057	2,474	24%
Worldwide
Dialysis products	2,507	2,122	18%
Dialysis services	7,213	6,377	13%
Total	9,720	8,499	14%

Earnings

EBITDA. Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) increased by 19% to \$1.94 billion in 2007 (2006: \$1.63 billion).

Operating Income (EBIT). Operating income (Earnings before Interest and Taxes – EBIT) also increased in 2007, up 20% to \$1.58 billion. The operating margin, or EBIT margin rose from 15.5% in 2006 to 16.3% in 2007. The percentage increase was mainly a result of increased gross margins and the decrease in selling, general and administrative costs (SG&A) as a percentage of revenue.

The operating income for 2006 was influenced by the \$40 million gain from acquisition-related divestitures, integration costs in connection with the RCG acquisition, in-process R&D, as well as costs in connection with the transformation of our legal form, totaling \$37 million. Excluding these one-time effects, the operating margin also would have been 15.5% in 2006.

In the North America segment, operating income was \$1.13 billion in 2007, up 17% against the previous year. EBIT in 2006 was \$965 million. The operating income margin rose by 16.0% in 2006 to 17.0% in the year under review. The increase was mainly due to higher revenue per treatment rates and higher volume of products sold, partially offset by higher personnel expenses as well as decreased utilization of and reduced reimbursement rates for EPO, as well as by the gain from acquisition-related divestitures totaling \$40 million, integration costs for the RCG acquisition of \$31 million, and in-process R&D amounting to \$3 million, all in 2006. Excluding the one-time effects, operating income for the North America segment would have been \$958 million in 2006, and the operating margin at 15.9%.

In the International segment, comprising all regions outside of North America, we also achieved substantial earnings growth. Operating income rose by 24% to \$544 million (2006: \$440 million). The operating margin remained constant at approximately 17.8% mainly due

2007	2006	Change
		17%
		24%
		8%
1,580	1,318	20%
	1,130 544 (94)	965 440 (87)

impact of one-time items
\$ in millions	2007	2006	Change
Operating income (EBIT)	1,580	1,318	20%
Cost of restructuring, transformation and in-process R&D	–	37
Gain from divestiture	–	(40)
Operating income (EBIT) before one-time items	1,580	1,315	20%

to disproportionately higher growth in the dialysis care business, offset by operational improvements.

Corporate costs for our central administration rose slightly in 2007. They are not included in the calculation of the EBITDA and the EBIT (the operating income) of the International and North America reporting segments. Fresenius Medical care believes that these costs are not within the control of the individual segments. They relate mainly to overhead charges such as accounting and finance as well as other staff functions. The total corporate operating costs amounted to \$94 million in 2007 compared to \$87 million in 2006. The increase was mainly a result of exchange rate effects. In constant currency, operating costs for the central administration amounted to \$88 million.

Earnings before taxes increased by 25% to \$1.21 billion, compared to \$967 million in the previous year. Excluding one-time effects, earnings before taxes amounted to \$978 million in 2006.

Net Income. Net income rose to \$717 million, up by 34% over 2006 (\$537 million).

In 2006, net income was influenced by the after-tax effects of expenses totaling \$9 million from the complete write-off of deferred financing fees related to our

Abbreviated Statement of Income
\$ in millions	2007	2006	Change
Net revenue	9,720	8,499	14%
Cost of revenue	6,364	5,621	13%
Gross profit	3,356	2,878	17%
In % of revenue	34.5	33.9
Operating income (EBIT)	1,580	1,318	20%
Interest (net)	371	351	6%
Earnings before income taxes	1,209	967	25%
Net income	717	537	34%

A detailed representation can be found in the consolidated financial statements in the financial report from page 43 onwards.

impact of one-time items
\$ in millions	2007	2006	Change
Net income	717	537	34%
Cost of restructuring, transformation
and in-process R&D	–	24
Write-off FME prepaid financing fees	–	9
Loss from divestiture	–	4
Net income before one-time items	717	574	25%

Previous Senior Credit Agreement, \$4 million net loss on acquisition-related divestitures, costs of \$22 million for the integration of RCG, as well as \$1 million of inprocess R&D and \$1 million costs related to the transformation of Fresenius Medical Care's legal form. Excluding these costs, net income for 2006 totals \$574 million, and the net income increase in 2007 is 25%.

Development of Other Major Items of the Income Statement

Gross Profit. The gross profit in 2007 was \$3.36 billion, 17% higher than in the previous year (\$2.88 billion). The gross profit margin increased from 33.9% to 34.5% in the same period. This was mainly due to increased revenue per treatment rates. The effects were partially offset by higher personnel costs, by decreased utilization of and reduced reimbursement rates for EPO in North America, by higher growth in the International segment's dialysis care business, which show a lower gross profit margin, as well as by renal pharma sales growth, which also has lower margins.

Selling, general and administrative (SG&A) costs grew by 10% to \$1.71 billion (2006: \$1.55 billion). SG&A as a percentage of sales decreased to 17.6% in 2007 (2006: 18.2%). The positive effect of the economies of scale in the International segment was partially offset by higher personnel expenses. In addition, 2006 was negatively impacted by the effects of charges of \$32 million related to the integration of the RCG acquisition, \$3 million for in-process R&D and \$2 million for the transformation of the Company's legal form.

Depreciation and amortization expense for 2007 totaled \$363 million after \$309 million the year before.

Net Interest Expense. Net interest expense in 2007 amounted to \$371 million compared to \$351 million in the 2006 fiscal year. The increase was primarily a result of increased debt due to the RCG acquisition.

The write-off of fees related with the early retirement of debt incurred under the Senior Credit Agreements had an impact of \$15 million in 2006. More information on this can be found in Note 10 in the financial report on page 70.

Tax Rate. Income tax expense amounted to \$466 million compared to \$413 million in the previous year. This corresponds to an effective tax rate of 38.5% after 42.8% in 2006. The higher tax rate in 2006 was primarily a result of tax charges related to the gain from divested clinics in the U.S. Excluding this effect, there would be an effective tax rate of 39.8% for 2006. In addition, the 2006 tax rate was impacted by additional tax expense in connection with a tax audit in Germany.

Earnings per Share. Earnings per share (EPS) are calculated in accordance with U.S. GAAP using the weighted average number of outstanding shares. Earnings per ordinary share are calculated by dividing net income less preference amounts by the weighted average number of outstanding shares during the fiscal year. In accordance with our Articles of Association, preference shares receive a premium dividend of €0.02 per share. Based on the average exchange rate of the euro and the U.S. dollar during 2007, this equals \$0.02, resulting in a total preference dividend payment of \$0.1 million. This must be subtracted from net income to determine earnings per ordinary share. In 2007, an average of 295.67 million shares was outstanding, comprised of 291.93 ordinary shares and approximately 3.74 million preference shares.

Based on our 2007 net income of \$717 million, earnings per ordinary share grew to \$2.43, an increase of 33% compared to \$1.82 in the previous year. Considering the additional preference dividend of \$0.02, we were able to increase earnings per preference share to \$2.45 from \$1.85 in 2006, also representing an increase of 33%.

Value Added Statement

The value added statement shows Fresenius Medical Care's total output in 2007. All goods and services purchased as well as depreciation and amortization are subtracted. The value added of Fresenius Medical Care amounted to \$4.8 billion in 2007 (2006: \$4.1 billion), an increase of 17% over the previous year. Our employees accounted for \$3.19 billion or 67% of this, followed by governments at 10%. About \$400 million or 8% went to lenders, while shareholders and minority interests received \$245 million (around 5%). The Company retained \$498 million for reinvestments.

Financial Situation

Financial Management Policies and Goals

Ensuring our financial flexibility is key to the financing strategy of Fresenius Medical Care. We achieve this by means of a broad selection of financial instruments and a broad investors. The maturity profile is characterized by a wide spread of maturities with a large proportion of medium- to long-term financing.

In addition, sufficient financial cushion is assured by only partly drawn revolving syndicated credit lines. Market capacity, financing costs, investor diversification, flexibility, qualification requirements and maturities are all taken into consideration when selecting financial instruments. At the same time, we seek to optimize our financing costs.

Financing

Detailed information on financing can be found in the financial report in the "Liquidity and Capital Resources" section from page 19 onwords as well as in Note 9 and Note 10.

Rating

In 2007, the rating agencies Moody's and Standard & Poor's changed the outlook on the corporate credit rating for the Company and rate Fresenius Medical Care as shown on the following page.

The rating agencies justify the current ratings and the improved outlook with better credit metrics as well as the successful integration of the Renal Care Group. Furthermore, the rating decisions are based on the

2007		2006
9,796	100%	8,522	100%
(4,635)	–47%	(4,108)	–48%
5,161	53%	4,414	52%
(363)	–4%	(309)	–4%
4,798	49%	4,105	48%
3,189	67%	2,767	67%
466	10%	413	10%
400	8%	372	9%
245	5%	191	5%
498	10%	362	9%
4,798	100%	4,105	100%

Assuming that the proposal for the allocation of profits for 2007 is accepted.

constant improvement in operating performance and the Company's ability to generate predictable and stable cash flows.

In addition to the corporate credit rating, the main financing instruments of Fresenius Medical Care have also been rated by Moody's and Standard & Poor's. The respective details can be found on our Web site in the section Investor Relations/ Credit Relations.

Effect of Off-Balance-Sheet Financing Instruments on the Financial Position and Assets and Liabilities

Fresenius Medical Care is not involved in any off-balance-sheet transactions that could have or will have a significant effect on its financial position, expenses or earnings, profitability, liquidity, investments, assets or capitalization.

Liquidity Analysis

Comprehensive information on liquidity can be found in the "Liquidity and Capital Resources" section of the financial report on page 19.

Dividends

Fresenius Medical Care will propose to the Annual General Meeting the eleventh consecutive dividend increase. For 2007, a dividend of €0.54 per ordinary share (2006: €0.47) and €0.56 per preference share (2006: €0.49) is proposed. This represents an increase of 15% and 14% respectively. The total distribution would be approximately €160 million (2006: €139 million). Further information on the dividends can be found in the "To Our Shareholders" section on page 46.

Investments and Acquisitions

In 2007, Fresenius Medical Care paid \$900 million for investments and acquisitions. Of this amount, \$807 million were cash transactions.

A total of \$549 million were net capital expenditures after \$450 million in 2006. The majority of this amount was invested in our dialysis care activities (\$324 million), used to equip new clinics and to maintain existing ones. In addition, \$160 million were used for the maintenance and expansion of production sites, mainly in North America, Germany and Japan. A further \$96 million were spent for our sales and distribution activities, primarily to capitalization of dialysis machines provided to our customers, mainly in the International segment. Some \$31 million resulted from the sale of property, plant and equipment.

Capital expenditures comprised about 6% of our total revenue. The North America segment accounted for \$315 million and the International segment for about \$234 million.

Of the net capital expenditures, 56% were invested in our dialysis services activities and 44% in our dialysis products business. About 53% of the net capital expenditures were used for expanding existing facilities, and 47% were used for the maintenance of existing production sites and dialysis clinics.

About 57% of all capital expenditures were in North America, compared to 67% a year earlier. Europe accounted for 33% while the Asia-Pacific region received 6% and the Latin America region 4%.

We spent \$258 million for acquisitions in 2007. \$62 million thereof were spent in the North America segment and \$76 million in the International segment, in both primarily for the acquisition of clinics. In addition, \$120 million were spent for the acquisition of Renal Solutions, Inc. (RSI). Excluding RSI, acquisition expenditure totaled about \$138 million in 2007.

Rating	Outlook
	Stable
Ba2	Positive
	BB

Overall, around \$777 million were spent for capital expenditures and acquisitions in 2007, taking into account divestitures. This was a much lower amount than in the previous year, in which we spent approximately \$4.2 billion, particularly due to the RCG acquisition.

Cash Flow Analysis

Fresenius Medical Care's cash flow statement shows a sustained development. Operating cash flow was \$1.2 billion in 2007, after \$908 million based on the figures reported in 2006. Payments amounting to \$64 million for taxes and \$35 million for other costs, both in connection with the RCG acquisition, as well as tax payments of \$99 million related to Fresenius Medical Care's 2000 and 2001 U.S. tax filings, had a negative effect on our cash flow in 2006. Excluding these onetime effects, cash flow totaled \$1.106 billion in the 2006 fiscal year. The cash flow increase of \$94 million

over the cash flow adjusted for one-time effects was primarily due to the higher earnings, partially offset by a lower decrease in days sales outstanding (DSO) in 2007 compared to 2006 (2007: 2 days; 2006: 6 days).

A detailed description of further factors can be found in the financial report in the "Liquidity and Capital Resources" section beginning on page 19.

We were able to reduce the DSO in North America by one day to 58 days by the end of 2007; outside North America, the DSO fell by nine days to 110 days. We reduced the total DSO by two days to 74 days. This positive development was due, among other things, to the extension of an electronic billing program, more favorable payment terms in payor contracts in the U.S., and our management's effort to improve collection of receivables.

Investments and Acquisitions by Segment
\$ in millions	2007		2006 Thereof property, T plant and equipment and intangible assets	hereof T acquisitions	hereof C divestitures	hange	% of total
North America	347	4,079	315	62	30	(3,731)	45%
International	310	162	234	76	–	147	40%
Corporate	120	–	–	120	–	120	15%
Total	777	4,241	549	258	30	(3,464)	100%

We were able to finance all of the investments and acquisitions made in 2007, as well as the dividends paid to our shareholders, from the operating cash flow.

Expenditure for investment activities amounted to \$777 million in 2007, compared to \$4.241 billion in the previous year (\$609 million excluding the RCG acquisition). In 2007, \$549 million went to net capital expenditure net of disposals.

This resulted in a free cash flow before acquisitions and dividends of \$651 million after \$458 million in 2006. Excluding one-time effects, the free cash flow amounted to \$656 million. Payments for acquisitions net of divestitures of \$30 million amounted to \$228 million and for dividends to \$188 million. The resulting free

cash flow after acquisition payments and dividend distribution totaled \$235 million. Excluding the acquisition of RSI, the free cash flow after acquisition and dividend payments amounts to \$355 million. Thus, it increased significantly compared to the previous year's figure of \$145 million excluding the net payment for the RCG acquisition of \$3.632 billion. This development is mainly a result of the improvement of the operating cash flow discussed above. Moreover, as mentioned above, tax payments and other payments in connection with the RCG acquisition in 2006 had a negative impact on the cash flow. Excluding these one-time payments in 2006, the free cash flow after acquisition and dividend payments would have only increased slightly, by \$12 million, due to higher net capital expenditures (see the previous section "Investments and Acquisitions" on page 87 ).

Abbreviated Statement of Cash Flow

\$ in millions	2007	2006	Change
Cash at the beginning of the year	159	85	87%
Cash from operating activities	1,200	908	32%
Cash (used in) investing activities	(777)	(4,241)
Cash (used in) from financing activities	(341)	3,383
Effect of exchange rate changes on cash	4	24	–85%
Cash at the end of the year	245	159	54%
Free cash flow	651	458	42%

A detailed representation can be found in the consolidated financial statements in the financial report from page 43 onwards.

Days Sales Outstanding

in days	2007	2006	Change
North America	58	59	–1
International	110	119	–9
total	74	76	–2

Operating Cash Flow

\$ in millions

2007	1,200
2006	908

Assets and Liabilities

Balance Sheet and Asset Situation

The Company's total assets increased from \$13.04 billion to \$14.17 billion in year-to-year terms. In constant currency, the total assets grew by \$783 million or 6%.

Non-current assets amounted to \$10.3 billion, representing about 73% of total assets and thus remaining virtually unchanged compared to the previous year (74%). In constant currency, non-current assets grew by 5% to \$10.14 billion. This is mainly due to additions of goodwill from business combinations and capital expenditures.

Non-current assets include goodwill of \$7.25 billion. Thereof goodwill of \$3.4 billion is related to the acquisition of RCG, and goodwill of \$2.11 billion is related to the founding of Fresenius Medical Care in 1996. Property, plant and equipment rose by 19% or \$331 million

to \$2.05 billion, primarily as a result of investments of \$584 million and exchange rate effects of \$69 million less depreciation of \$329 million. More information on this can be found in the "Investments and Acquisitions" section.

Current assets rose by 13% to \$3.86 billion (8% in constant currency). This currency-adjusted increase is mainly due to higher trade accounts receivable, an increase in cash and cash equivalents and an increase in inventories.

Shareholders' equity rose by 14% to \$5.58 billion compared to \$4.87 billion in 2006. This increase was mainly due to the net income of \$717 million, exchange rate effects of \$137 million and proceeds from the exercise of stock options totaling \$46 million. The dividend distribution for 2006 of \$188 million partially offset this increase. The equity ratio increased slightly by two percentage points to 39% in 2007.

Balance Sheet Structure

A detailed representation can be found in the consolidated financial statements in the financial report from page 43 onwards.

Fresenius Medical Care has a strong position in global, growing and non-cyclical markets of the dialysis industry. The dialysis industry is characterized by stable cash flows; most of the Company's customers have a high credit rating. As a result, high, stable, plannable and sustained cash flows are achieved. This gives rise to an appropriate share of leveraged capital, i.e. the use of a balanced mix of financial liabilities.

77% of our debt is denominated in U.S. dollars. Shortterm debt amounted to \$974 million (including the short-term portion of Trust Preferred Securities) after \$496 million at the end of 2006. The medium- to long-term debt amounted to \$4.67 billion, compared to \$5.08 billion in 2006.

The Group has no significant accruals. The largest single accrual is for the settlement of fraudulent conveyance claims and all other legal matters in connection with the National Medical Care transaction in 1996 resulting from the bankruptcy of W.R. Grace. This accrual amounts to \$115 million. Please see Note 8 of the financial report for details.

The net debt to equity ratio including minorities (gearing) decreased from 1.1 in 2006 to 1.0 in the year under review. The return on equity after taxes rose to 12.9% (2006: 11.8%).

Debt / EBITDA Ratio

The ratio of debt to Earnings before Interest, Taxes and Amortization (EBITDA) was 2.84 at the end of 2007 after 3.23 in the previous year. The decline resulted from the EBITDA increase.

Currency and Interest Risk Management

On December 31, 2007, the nominal value of all foreign currency hedging contracts was \$708 million. The nominal value of interest rate hedging contracts amounted to \$3.919 billion. Further information can be found in the risk report from page 109 onwards and in Note 19 on the financing instruments in the financial report on page 99.

92

02.3 NON-FINANCIAL PERFORMANCE INDICATORS

Employees

At the end of 2007, Fresenius Medical Care employed 61,406 people (full-time equivalents), 4,603 or 8% more than in the previous year. This increase was mainly due to the strong organic growth of our dialysis care business in North America, the acquisition of Excelsior in Taiwan, and the purchase of a production site in China. As in the previous years, no employees were laid off due to factory closures or similar measures. On the contrary, the number of employees has grown by an average of 8% per year since the Company was founded in 1996.

The highest percentage rise was in the Asia-Pacific region due to strong growth and expansion of our business. At the end of 2007, we nearly doubled the number of employees to about 3,100 people in this area due to growth and expansion in this region. Due to the expansion of our clinic network, for example in the U.S., Great Britain and Turkey, we also increased the number of our employees in Europe and North America.

At the end of the year, we employed about 3,268 people in Germany, accounting for some 5% of our total workforce, the same percentage as in 2006. This illustrates Fresenius Medical Care's high degree of internationalization.

Fresenius Medical Care is a young company. The average age of our employees in Germany was 40.1 years in 2007, roughly the same as in the previous year. The fluctuation rate in Germany was very low at 2.3%; the year before it was 2.8%.

Fresenius Medical Care's personnel costs totaled \$3.13 billion in 2007, about 15% more than in 2006 (\$2.72 billion). Personnel costs comprised about 32% of the revenue and remained unchanged compared to 2006 The average cost per employee was about \$50.8 thousand in 2007 (2006: \$47.9 thousand).

With an increase of 34% the net income grew at a higher rate than the number of employees, which increased by 8%. Therefore, Fresenius Medical Care further increased efficiency in the year under review.

Employees
Full-time equivalents
2007	61,406
2006	56,803
2005	47,521
2004	44,526
2003	41,097

Employees by Region
Full-time equivalents	2007	2006	Change
North America	39,161	37,541	4%
Europe/ Middle East/ Africa	13,401	12,443	8%
Latin America	5,749	5,206	10%
Asia-Pacific	3,095	1,613	92%
total	61,406	56,803	8%

Human Resources Marketing and Development

Recruiting and training employees are two important aspects of our human resources activities. Only by continuously developing our personnel we can position ourselves as an attractive employer and ensure that the Company will have a sufficient number of suitable experts in the future.

An important instrument in target-oriented human resources development is the analysis of potential for improvement. To this end, we conducted employee surveys in North America and in a few European countries. The response rate was over 30% in North America alone, a good result given the fact that it was the first region-wide employee survey we had carried out there. Fresenius Medical Care's quality focus was rated particularly high. Our staff has embraced our high quality standards, enabling us to offer high quality products and services to our patients and customers. The main area where improvement is needed, according to the survey, is in employee communication. The respondents wanted to be informed in more detail about important strategic steps. On a more individual level, they also requested better opportunities for further education. These findings will be taken into account in our future human resources work.

The Internet is becoming increasingly important for recruitment. In 2007, 2,800 unsolicited job applications were sent in online, compared to 2,500 the previous year. In the year under review, we analyzed the Human Resources section of our Web site in depth. In 2008, we plan to revise and tailor it more to the information needs of potential candidates. Fresenius Medical Care presents itself at graduate conventions and cooperates extensively with selected academic institutions to recruit staff effectively. In addition, we offer student internships and provide research support for degree theses. Through these efforts, we seek to early attract prospective junior managers to our company.

Another focus of our human resources work is ongoing further education and training for our employees. As mentioned in last year's annual report, we encourage our staff to earn additional qualifications to enable them to embark on careers as specialists and project managers in addition to classical management roles. In 2007, we continued our longstanding cooperation with the international business academy INSEAD (in Fontainebleau and Singapore) and other international business schools. Within the framework of this cooperation, top international managers from different subgroups of companies attend a strategic management seminar and exchange opinions.

in %	2007	2006
30 and younger	18%	17%
31–40	31%	33%
41–50	35%	35%
Older than 50	16%	15%
Average age	40.1 years	40.2 years

The Fresenius Medical Care Institute of Dialysis Nursing offers further innovative opportunities for human resources development. This institute is presented at length from page 20 onwards.

Vocational Training

Vocational training is and always will be important to us. At the end of 2007, the Fresenius Group employed around 1,300 apprentices in 34 different occupations throughout Germany and more than 20 students from vocational colleges. In the reporting year, we grew the number of apprenticeship training positions at all our production sites by more than 30% over the previous year. We consider this as an important commitment; we even train young people well beyond our own needs and thus fulfill our obligations to society. Last year, we

were able to hire a large part of the trainees who wanted to remain with the Company.

To cultivate an entrepreneurial mindset and social skills of our apprentices, we carried out a company-wide business game for the first time in 2007, which met with a positive response. Thirteen teams took part. For one year, the trainees managed a fictitious company that produced and marketed MP3 players. This presented a major challenge as they had to make all decisions themselves, e.g. regarding investments, increasing storage capacities, hiring staff, marketing measures, etc.

We intend to step up our marketing activities in and with schools to get even more young people interested in receiving vocational training at the Fresenius Group.

Qualified Occupations

We will be approaching both pupils and teachers. Pupils are invited to come to our production sites to get an idea of corporate life and to attend application training classes, while teachers are offered various courses in our "SchuleWirtschaft" (SchoolBusiness) workshop. The working group "SchuleWirtschaft" forms an interface between schools and businesses across Germany. The main aim of the group is to promote and expand cooperation between schools and companies. Teachers gain practically oriented insights into business contexts and operational processes which they can incorporate in classes. By attending job orientation seminars, pupils become better prepared for entering the professional world. At the end of November, we held an open day on vocational training for the first time at the Group headquarters in Bad Homburg. We provided information to the many visitors to the event on the training programs and courses offered by our group of companies, and were able to present Fresenius Medical Care as an attractive provider of vocational training for young people.

Profit Sharing

One key element of our economic success is our employees' high level of identification with the Company. This is partly because they participate in the success of Fresenius Medical Care. The amount of profit-sharing bonuses is linked to the operating result (EBIT) of the Fresenius Group, offering a value-oriented incentive. In 2007, each entitled employee received €1,444 as part

of the program. Two-thirds of the bonus amount was paid to the employees in the form of shares; they could then opt to take the final third in either cash or shares. Those who opted for shares were awarded bonus shares.

Stock Option Plan

Via stock option plans, management participates in the Company's economic success and in the development of the Fresenius Medical Care share. The stock option program implemented in 2006 is directly linked to the Company's success. Managerial staff members will receive up to fifteen million options for ordinary bearer shares over the next five years, which are exercisable after a period of three years, if the adjusted earnings per share (EPS) hurdle of 8% is reached in every year of the waiting period. If this hurdle is achieved in only one or two years, the options are reduced accordingly. If the hurdle is not achieved at all, the options are cancelled. The stock option program 2006 enables managers to participate in the Company's financial opportunities and risks and offers them an internationally competitive remuneration system.

In 2007, some 550 managerial staff had the opportunity to participate in Fresenius Medical Care's future success through this program. Further information on the stock option plan can be found in the financial report from page 83 onwards (Note 15).

Profit Sharing
Year1	2007	2006	2005	2004	2003
Bonus in €	1,444	1,000	1,000	1,000	1,050
Number of eligible employees	2,483	2,436	2,298	2,101	1,768

Profit sharing is paid retroactively and reflects the Fresenius Group EBIT for the previous year.

Compliance

For us, compliance means adhering to defined ethical and legal guidelines as part of our business activities. An integral part of our corporate culture is to voluntarily follow our compliance guidelines. Fresenius Medical Care's compliance program is one of the most demanding in our industry. We have implemented it in all of our business regions. Thus, our guidelines apply in every country where we have subsidiaries.

We continued our compliance training activities in 2007. As part of this training, local compliance officers were given the opportunity to exchange experiences at meetings in their business region. These officers are key to the success of the compliance program, as the chart below shows. They ensure that the Company adheres to the same high ethical and legal standards around the world and that each employee is fully informed about our code of conduct and its goals. At the same time, they are responsible for related training and ensuring compliance with the guidelines. Compliance officers act as contacts for our employees and can be reached via special telephone numbers, by e-mail or in person.

We worked intensively on the introduction of a comprehensive electronic learning initiative in the year under review. In the future, participating compliance officers will receive part of their training via the Internet. The

advantage is that every participant can decide individually when the lesson should take place, thus reducing related travel expenses. Initially, we will test the electronic learning project in Europe, the Middle East and Africa in 2008.

Procurement and Logistics

The procurement of high-quality raw materials and semi-finished products as well as the punctual delivery of our products to customers such as patients, dialysis clinics and hospitals are vital for the success of Fresenius Medical Care.

Our objective is to buy the materials we need in top quality and at favorable conditions. To this end, we continuously analyze the international procurement markets and pool the needs of Fresenius Medical Care worldwide as far as possible. Cross-functional, crosscompany and cross-regional teams define appropriate purchasing strategies for the individual products. The procurement departments enter into outline agreements with suppliers and coordinate queries from internal departments and external partners.

In 2007, we further intensified cooperation between the different procurement departments within Fresenius Medical Care. In the European market, we focused on

ensuring constant exchange between different departments at regular meetings and formulating uniform procurement guidelines. By realigning responsibilities, we managed to further harmonize procurement processes and enhance their efficiency.

Our purchasing policy, strategy, and goals are now geared more clearly to the requirements of a growing global company. In addition, we conducted surveys on customer satisfaction to tailor our service portfolio more to the needs of our customers. We identified potential for improvement in the following areas: intensifying global cooperation, realigning investment goods procurement, and harmonizing purchasing systems. We intend to concentrate more on these issues in the years to come.

In the U.S., we integrated the phosphate binder business which we acquired in 2006 into our logistics system. We can now provide our customers there with PhosLo in addition to our other dialysis products. Further information on PhosLo can be found from page 26 onwards in the "Business Innovation" section. We anticipate that the "Lean Six Sigma" project we launched last year will bring about further improvements and cut costs. Lean Six Sigma is a management system used to analyze and better coordinate all logistics procedures. We successfully integrated Lean Six Sigma into the production processes of our U.S. factory in Ogden, Utah, last year, which enabled us to further improve the manufacturing quality in this plant as described in the following "Production" section.

In 2007, the cost of diesel and gasoline increased again – in the U.S., for example, prices soared by over 100% compared to 2004. By continually improving our distribution and warehousing logistics, we have been able to offset the higher costs of fuel partially, but not completely. In North America as a whole, we processed about 475,000 orders with a total weight of 250,000 tons.

A steady supply is most important for our peritoneal dialysis (PD) patients. Only if we can provide these patients with the necessary PD solutions and disposables in time and in sufficient quality they can undergo the treatment they need. In the U.S., we opened our 14th regional distribution center in 2007. These centers are located in areas where a high percentage of patients live. Our 280 drivers can reach more than half of them within two hours and three-quarters within four hours. The products needed for treatment can be delivered to 95% of our PD patients within six hours.

For the third year running, we awarded our three best suppliers in the U.S. at our Suppliers' Day. Each year, we determine our top suppliers based on parameters such as reliability, speed, quality, and of course price.

As expected, the price of crude oil rose in 2007. In the same period, however, we were unable to achieve further savings on plastic granulates, a primary product for dialyzers. The cost of material was slightly higher than in the previous year despite increasing purchasing quantities and pooling needs.

Production

One of our top priorities in 2007 was to strengthen our global network of production sites. Due to the continuously growing demand for Fresenius Medical Care's products, our plants in all regions have reached their capacity limits. As a result, we have expanded our manufacturing capacities in existing factories and have also acquired new production sites.

In the summer of 2007, for example, we acquired a production site in Jiangsu, China, from the Taiwanese company Bioteque Corp. The plant produces bloodlines and other non-reusable dialysis products for the Chinese market. In addition, the facility offers opportunities to manufacture liquid and other disposable products for the Chinese market and other countries in the region. Hence we are in an excellent position to participate in the dynamic Asian growth market.

An example of the expansion of our capacities is our plant in St. Wendel, Germany. In the year under review, we undertook extensive measures to increase the site's production capacity for dialyzers. A total of €36 million will be invested in the plant in 2007 and 2008. By adding a new production line and increasing the volume of Helixone fibers for FX-Class dialyzers, the annual capacity will increase by 40% – from 25 million to 35 million single-use dialyzers. The new production line is expected to start operating in spring 2008. The expansion of the St. Wendel facility follows recent significant expansion projects in Ogden, Utah, and Buzen, Japan. As a result of these two projects, we expect to increase our total annual production capacity by about 11 million dialyzers worldwide. Furthermore, we are planning to

enlarge the training workshop in St. Wendel to twice its current size. We intend to train even more young people to cover the constantly growing demand for qualified employees.

The examples cited above underline the fact that Fresenius Medical Care has a global network of facilities on all continents. Each production site is primarily determined by the product it makes. In the case of highly complex dialysis machines, for instance, our decades of experience have shown that a central facility is most suitable. Our analyses reveal that the benefits of concentrating our know-how in this product group outweigh the cost of transporting the machines to our international markets. Therefore, hemodialysis machines are manufactured mainly at two sites: in Schweinfurt,

Germany, and in Walnut Creek, California. While the German plant manufactures components as well as dialysis machines, the U.S. plant is specialized in the production of dialysis machines.

Other products are manufactured directly in the regions where demand is particularly strong. As the global leader in dialysis, we possess the necessary expertise to develop efficient production processes that are aligned to each specific product type.

Concentrates for hemodialysis are produced at various sites around the world, including Great Britain, Spain, Turkey, Morocco, Argentina, Brazil, Colombia, Australia, Germany, and the U.S.

We operate two of our largest plants for single-use products for peritoneal dialysis in Mexico and Japan. Our extensive product portfolio also includes peritoneal dialysis machines, bloodlines and water preparation equipment, which are manufactured decentrally in our factories in North America, Europe, Latin America, Asia, and Australia. The BCM, which is discussed in detail starting on page 8, has been in series production at our Schweinfurt plant since 2007.

Demand for our products is primarily in regions with the euro and U.S. dollar currency. Our factories are predominantly decentralized to enable us to meet this demand and significantly reduce transport costs. As an additional advantage, our plants in the U.S., Japan and Europe help protect us from currency fluctuations thus minimizing transaction risks, as costs and revenue are generated in the same currency.

We produced about 75 million dialyzers and fiber bundles in 2007, some 10 million more than in the previous year. In the year under review, our market share of the total volume of 165 million dialyzers produced worldwide was significantly more than 40%, compared to a share of just 40% the year before. Fresenius Medical Care is therefore the clear leader in the dialyzer market.

Our company is also number one in another second important product group, dialysis machines. Fresenius Medical Care manufactured more than 50% of all dialysis machines worldwide in the year under review. Production of the 5008 series alone nearly doubled in 2007 compared to the previous year, and the number of components made for the U.S. market grew again by a double-digit percentage figure. The most widespread dialysis machine in the world, the 4008, also continued its success story, with an increase in sales of about 7%. As a result, we were able to place our new generation of dialysis machines on the market without a decline in the sales of our 4008 series.

As we announced in 2006, we are gearing our manufacturing processes – primarily in North America, where we have a total of eight production sites – to the "Lean Six Sigma" management system. The system is also used in Schweinfurt. Lean Six Sigma is used to analyze and coordinate all production processes. Our aim is to achieve even better production results while shortening manufacturing times.

The focus of Lean Six Sigma is to achieve a very low error rate. At our U.S. plant in Ogden, Utah, the error rate fell from 43 complaints per million dialyzers in 2003 to about 26 complaints in the year under review. In other words, only every 40 thousandth dialyzer was faulty. Such concentration on quality while constantly increasing our production output is an important guarantor of the safety of our products and the success of Fresenius Medical Care. More information on this can be found on page 2 in section "Technology Innovation".

Quality and Environmental Management

Fresenius Medical Care developed the Integrated Management System (IMS) to meet its own high quality standards. As a provider of products and services for the treatment of kidney failure, we bear a particular responsibility for our patients and for upholding our level of quality. The IMS complies with the legal and normative guidelines for our products and services, while at the same time focuses on established operational workflows. It fulfils the ISO 9001:2000 requirements for quality management systems in combination with the ISO 14001:2004 standard for environmental management systems. At the same time, it conforms to the special requirements for medical devices of the ISO 13485:2003 standard.

We have already implemented the IMS in our European production sites; our facilities in Ogden (Utah), Walnut Creek (California), and Reynosa (Mexico) are certified according to ISO 13485. Furthermore, the number of dialysis clinics that work with the IMS is also growing steadily – the system was introduced in 40 facilities in 2007 alone. This has boosted the share of all clinics in Europe that meet the quality management standard ISO 9001:2000 from about 65% to more than 70%. The number of our clinics that are certified according to the environmental management standard 14001:2004 has also continued to grow: More than 100 of our European dialysis clinics now meet the standard. In the year under review, we focused on certifying clinics in Turkey, Italy and Spain.

To be able to perform the large number of audits needed to verify the effective implementation of the IMS in the future, we have stepped up our auditor training

activities. In 2007, some 20 additional employees were qualified to carry out audits in accordance with IMS requirements. We pay special attention to ensure that managing care staff is integrated into the audit process in the individual countries to accompany inspections of hygiene requirements in our dialysis clinics. In this way, we are consistently developing our audit concept, which requires the incorporation of experts.

Another focus of our quality management last year was on continuously improving internal processes. We reworked our planning, implementation and monitoring processes to enable us to carry out our projects within the specified time period and cost framework. The reworked processes also allow us to recognize possible deviations. In addition, we further improved our market monitoring system. With this tight-knit network, we can identify and, above all, avoid possible product risks for patients and users at an early stage.

In the field of environmental management, we completed our first environmental program for the entire European region. All important decision makers from our research and development departments, production, sales and dialysis care participated in the development of this program. In conjunction with the program, specific environmental goals were defined that are to be achieved by 2010. They include:

• specifying environmentally relevant performance indicators for all participating production sites,
• further improving energy efficiency and avoiding emissions,
• carrying out of a feasibility study on the use of alternative energy generation methods at a sample production site,
• improving the recycling rate from 70% at present to 85% in 2010,
• further training our employees and raising their awareness of environmental protection and environmental management, and
• optimizing eco-controlling in the rapidly growing number of dialysis clinics in Europe.

At our plant in St. Wendel (Germany) we have been taking measures to conserve energy and resources for years now. In 2007, we continued to make processes

more environmentally compatible, resulting in lower costs in most cases. For example, we started using gas burners for steam generation. As a result, we managed to reduce the use of heating gas substantially and cut back nitric oxide emissions by 40%. We introduced environmentally friendly methods at other European production sites as well. By slightly changing the design of the bloodline systems manufactured at our plant in Italy, for example, we were not only able to reduce packaging material, but also to cut down on the use of raw materials in production by about 7%.

At our U.S. production site in Ogden, Utah, we reduced fresh water usage by 40%, primarily by improving the production processes for manufacturing dialyzers. Up to 90% of the polycarbonate waste is recycled. This is a significant contribution to waste reduction, as the plant in Ogden is our largest dialyzer production facility.

The potential to conserve resources is particularly high in our more than 1,600 clinics in the U.S. Nearly 900 of them already employ reusable collection boxes for medical waste. As a result, we were able to avoid the disposal of 600,000 cardboard boxes last year. The separation of domestic waste also has a significant impact: more than 2,500 tons of cardboard packaging and paper were recycled.

As in the previous year, we stepped up the use of heat exchangers in environmental management. They enable us to obtain residual heat from process water, which can then be used to heat up fresh water for dialysis treatment. In this way, we can recover about threefourths of the heat that was previously unused and thus reduce energy consumption in our clinics considerably as well as cutting costs.

Another central aspect of our quality management activities is preparing drugs for approval and submitting applications. The approval of drugs is subject to national and international regulations. The aim is to speed up product approval to keep the time between development, clinical testing and market launch to a minimum. To meet this goal, the so-called mutual recognition procedure plays a key role. This directive allows for an accelerated approval of medical products in European

countries if they have already been approved by another EU member state. Another path is the so-called decentralized procedure, whereby an application for the approval of a product is submitted in several member states at the same time. As a reference approval in another EU state is not needed and the procedure can be carried out simultaneously in all countries, this is usually faster than the mutual recognition procedure.

In 2007, we focused our activities in this area on dialysis drugs, particularly the phosphate binder PhosLo in the year under review. More than 40 approvals were granted for the different dialysis drugs. Furthermore, we expanded our product range of PD solutions and obtained approval for these products.

To evaluate the quality of our dialysis treatments, we use quality parameters that are generally recognized by the dialysis industry, such as hemoglobin values. The human body primarily uses hemoglobin to transport oxygen from the lungs to the tissue that needs it. In

cooperation with the responsible nephrologists we aim to have a larger number of patients with a hemoglobin level of at least 11 grams per deciliter blood – just under the hemoglobin level of a healthy person. Further indicators used in evaluating our treatment quality include, for example, the phosphate level and the socalled Kt/ V value, which gives an indication of the filtering performance of a treatment by establishing the ratio of the length of treatment and the filtration rate of certain toxic molecules. Another quality indicator is albumin, a protein used to monitor a patient's general nutritional condition. The number of days the patient has to spend in hospital is also an important indicator of the treatment quality: hospital days are particularly cost-intensive and can significantly reduce the quality of life of dialysis patients.

In 2007, we were able to further improve the quality of our dialysis treatment based on these parameters. Hospital days per patient per year, for example, decreased again.

Quality Data For the final quarter	U.S.		Europe / Middle East/Africa
	2007	20061	2007	2006
Kt/ V > 1.2	95%	95%	93%	93%
Hemoglobin ≥ 11g/dl	80%	83%	72%	72%
Albumin ≥ 3.5 g/dl2	80%	80%	86%	85%
Hospitalization days per patient per year3	9.9	10.1	9.6	9.8

¹ 2006: Excluding clinics of the former Renal Care Group 2

International Standard BCR CRM470 ³ Hospitalization data for U.S. without former RCG facilities

Clinical Databases

The European Clinical Database (EuCliD) is one of our most important instruments for ensuring the quality of dialysis treatment. Using EuCliD, we record the treatment data of about 22,500 dialysis patients. On this basis, we can efficiently compare the treatment quality of individual dialysis clinics and identify weak points more readily. EuCliD is therefore a significant component of our integrated quality management system and also assists nephrologists in providing comprehensive patient care.

In 2007, we fully implemented the new version of the EuCliD software in our Portuguese, Italian and Slovenian clinics. The conversion process has begun in Spain, Turkey, Great Britain and France, and in these countries more than 100 facilities already work with the current software for documenting and analyzing data. We plan to introduce the newest EuCliD version Europe-wide by the end of 2008. A total of 300 (previous year: 280) and thus about 85% of our European dialysis clinics are connected to the database.

In the 2006 annual report, we already provided information about the planned development and deployment of eCube, the new clinical information and billing system in the U.S. This adaptable Web- and workflowenabled system is expected to further increase clinical and billing productivity. The use of eCube should reduce the days sales outstanding from 58 days in 2007 to below 55 days.

Furthermore, eCube should enable Group-wide quality improvement initiatives, enhance clinical outcomes and reduce hospitalizations. The system also has enhanced analytics capabilities, facilitates statistical and data analysis and provides easier access to information for our caregivers and physicians. The deployment to eCube was fully on track in the year under review. The full system roll-out in all our dialysis clinics in the U.S. is expected to be completed in 2009.

Renal Pharmaceuticals – Growth With Dialysis Drugs

In the Growth Paths section starting on page 59, we discuss how we intend to continue to grow in the future. Dialysis drugs (or renal pharmaceuticals) figure prominently in our plans to horizontally expand our portfolio beyond patient care and dialysis products.

The drugs normally used to treat kidney patients counteract anemia and regulate patients' mineral and blood levels. The spectrum of dialysis preparations includes so-called erythropoesis-stimulating agents (ESA), phosphate binders, iron compounds, vitamin D and calcimimetics.

Recombinant, or artificially produced, human erythropoietin (EPO) belongs to the group of ESA. Human EPO is prescribed to dialysis patients suffering from anemia. In the U.S., the pharmaceutical and biotech company Amgen has the exclusive patent and marketing rights to this recombinant hormone. More information on this can be found from page 108 onwards in the "Erythropoietin" section.

Phosphate binders improve bone mineralization. Excess phosphate consumed with food is normally removed by the kidneys in a process that can only partially be replaced by dialysis in patients with chronic kidney failure. Too much phosphate in the blood can result in a number of adverse effects including bone disease, thyroid problems and vascular calcification. The risk of such damage in end-stage renal disease patients can be lowered by regularly administering phosphate binders.

Calcimimetics are administered when the parathyroid gland is overactive, as is often the case with dialysis patients. They also have a positive effect on the calcium level in patients' bones.

Vitamin D preparations are also important for dialysis patients. The human body needs vitamin D, which is further processed in the kidneys, to be able to absorb sufficient calcium from food. When the kidneys are diseased, not enough vitamin D can be created to enable adequate calcium absorption. As a consequence, the body does not absorb enough calcium from food. In order to compensate, the body retrieves the lacking vital mineral from its largest calcium depot, the bones. This results in bone decalcification, i.e. bone mineralization is critically disrupted. Administering vitamin D can counteract this effect.

Iron compounds support blood formation, a task normally performed by the kidneys.

We estimate that the worldwide market volume of dialysis drugs excluding ESA amounted to more than \$2.2 billion in 2007. We aim to achieve a significant share of this segment and generate revenue of about \$400 million by 2010.

The acquisition of PhosLo and OsvaRen in 2006 was a first step in this direction. For details, see the "Business Innovation" section beginning on page 26. PhosLo is a calcium acetate phosphate binder for oral application in chronic renal disease patients. The safety and efficacy of the drug was validated by two medical studies conducted in 2007. The findings of the CARE-2 (Calcium Acetate Renagel Evaluation) study were presented by Dr. Wajeh Qunibi of the University of Texas Health Science Center, San Antonio, at the American Society of Nephrology's Renal Week 2007 in San Fransciso.

The study compared two groups of hemodialysis patients: one was treated with PhosLo and the other with selevamer. It showed that there are no significant differences in aortic or mitral valve calcification between hemodialysis patients treated with PhosLo and those treated with sevelamer if LDL is kept at constant levels. Previous findings from the same study had already shown that there was no difference in overall cardiovascular calcification in both treatment groups. The new findings also showed that the daily calcium intake from the use of calcium acetate as a phosphate binder for one year did not contribute to the progression of cardiovascular calcification in hemodialysis patients.

PhosLo's safety and efficacy was further validated by the results of the Dialysis Clinical Outcomes Revisited (DCOR) trial, the first interventional outcomes study published in Kidney International in November 2007. The DCOR trial clearly demonstrated that there were no statistically significant differences in the all-cause or cardiovascular mortality among 2,100 hemodialysis patients randomized to sevelamer or calcium-based phosphate binders (CBPB). Additionally, a review of the laboratory data in DCOR demonstrated that the CBPB group had significantly better serum phosphorus and intact parathyroid hormone compared to the sevelamer group (p<0.01).

At the beginning of 2007, we submitted an application to the Food and Drug Administration (FDA) to extend the PhosLo label indication to include chronic kidney disease (CKD) pre-dialysis (Stage 4, see GFR in the glossary on page 137 ). In October 2007, the FDA's Cardiovascular and Renal Drugs Advisory Committee recommended that the FDA extend the use of phosphate binders to pre-dialysis patients with hyperphosphatemia. This will allow us to work with the FDA on the regulatory pathway to achieve this important label extension. In future, therefore, we should be able to market the preparation to treat patients whose kidneys are severely damaged and who in all probability will need a dialysis therapy or an organ transplant in the near future. There are approximately 400,000 patients with Stage 4 CKD in the U.S. PhosLo would provide nephrologists with a further option for treating Stage 4 chronic renal patients and enable them to remedy the higher phosphate values earlier than has been possible so far. Until now, the drug has mostly been administered to Stage 5 dialysis patients in the U.S.

Another focus of our renal pharmaceutical activities was the regulatory approval of PhosLo and OsvaRen in European countries apart from Germany. OsvaRen combines two substances known to support bone health, calcium acetate and magnesium carbonate, and at the same time optimizes the calcium level. In 2007, we applied for approval of OsvaRen in almost all European Union members states and intend to introduce the drug in all EU countries in 2008, provided we receive permission within the framework of the mutual recognition process. We also applied for approval of PhosLo in selected countries and intend to start market introduction in 2008.

In the 2006 annual report, we announced that we entered into a cooperation with Amgen in Europe at the beginning of 2007 and had reached an agreement on a joint research project. In the scope of this agreement, Fresenius Medical Care and Amgen will facilitate a working group of European scientific experts in the renal field. The working group will analyze practices in the treatment of chronic kidney disease and will publish their findings for improved therapeutic options. The focus of the first research efforts will be on anemia and bone mineral disease affecting patients with kidney failure.

We also reached an agreement with Amgen concerning the marketing of the drug Aranesp (darbepoetin alfa) in Europe. Aranesp belongs to the ESA group and is administered to patients with chronic kidney disease for the treatment of anemia. Fresenius Medical Care will support Amgen in providing nephrologists and other dialysis experts with scientific information on the treatment of anemia. Amgen remains solely responsible for the product. The new agreement runs for three years.

In addition to research and data analysis, we centered our activities on setting up a highly effective worldwide sales and marketing organization for our dialysis drugs. The aim is to build business units in Europe, North America, and Asia which can meet current and future requirements and, beyond that, actively participate in the development of the "Renal Pharmaceuticals" business and help develop new products.

Our overall aim is to further boost our integrated treatment offering with dialysis drugs. We are convinced that the need for integrated solutions for the treatment of kidney patients will continue to grow worldwide. To achieve optimum treatment results, a therapy is needed which is tailored to patients' individual needs. That is why we pursue the integrated "Pharma Tech" approach, combining the use of dialysis drugs with our existing range of product technology and services. As a result, we can cover the entire dialysis therapy and value chain even better, without significantly changing our business model and the risks connected with it.

For the future, we are planning to offer integrated therapy systems encompassing drugs and dialysis systems, as well as special administration forms which are better suited to dialysis patients and their specific needs and are easier to take. They will help us to achieve greater therapeutic success in the medium term.

Future: integrated dialysis therapies

today

Most dialysis drugs are administered separately; therapies and dialysis products randomly exist side by side. Partnerships & Acquisitions

Building a base of sales with partnerships and acquisition of rights to core drugs.

Development

Improved forms of administration and combinations of pharmaceuticals adapted to dialysis patients' needs.

future of Pharma Tech

Integrated treatment with dialysis machines and pharmaceuticals.

Continued Growth with Home Dialysis

Among the home dialysis therapies are peritoneal dialysis and home hemodialysis. In 2007, about 11% of all dialysis patients worldwide received peritoneal dialysis treatment. In the recent past, home hemodialysis has been a niche market – only about 0.5% of all patients worldwide received this treatment at the end of 2007.

By the end of 2007, we treated about 32,500 peritoneal dialysis patients and more than 3,500 home hemodialysis patients, making us the world's largest provider in the area of home hemodialysis. Around half of all home hemodialysis patients use our dialysis machines and dialyzers.

We expect the need for home dialysis to increase substantially, most likely driven by growing patient numbers and rising cost pressure. We estimate that a total of more than 200,000 patients worldwide will be treated with home hemodialysis or peritoneal dialysis by 2010. Home hemodialysis should also become more important in the future. We expect its market share – with growing availability of adequate therapy options – to increase to around 4% in North America in the next ten years.

In 2007, Fresenius Medical Care took an important step in this direction. With the acquisition of the U.S. company Renal Solutions, Inc. (RSI), we acquired a key technology for the expansion of home hemodialysis: SORB technology.

RSI's SORB technology purifies tap water to dialysate quality and allows dialysate to be regenerated. This reduces the water volume required for a typical hemodialysis treatment from 120 liters (37 gallons) of reverse osmosis water to just 6 liters (1.5 gallons) of drinking water per treatment. The space and water-saving technology is therefore particularly suitable for home

hemodialysis. The SORB cartridge has a proven track record on the dialysis market with over six million units sold. RSI holds key patents and other intellectual property worldwide related to the SORB technology.

The combination of Fresenius Medical Care's leading hemodialysis technology and the SORB technology of RSI will provide a platform for the development of superior home products and therapies. In addition, the significant reduction of dialysate through SORB technology is a major step towards miniaturization – a prerequisite for the wearable kidney concept, which is discussed in the "Research and Development" section from page 61 onwards.

The acquisition agreement provides for total consideration of up to \$204 million.

With the Continuum program, which we launched in 2004, we intend to further enhance the attractiveness of our range of products and services for home dialysis. We provide our patients with excellent products and comprehensive training programs to make home dialysis easier and safer. Continuum is a fully integrated program. In the future, patients will not only be able to just choose between hemodialysis and peritoneal dialysis, but their first decision will be whether they would like to be dialyzed in a clinic or at home.

While home dialysis requires more responsibility on the part of the patient, it gives patients more say in how to allocate their time. We want to provide information to doctors, care personnel and healthcare decision makers, but primarily to patients, and convince them that home dialysis is a safe, flexible, cost-effective option for the treatment of patients with end-stage renal disease who do not have comorbid illnesses. Fresenius Medical Care's many years of experience and safe, high-quality products are arguments in our favor.

Holiday Dialysis International

The name HDI – Holiday Dialysis International – represents our special service we offer to dialysis patients worldwide. People with kidney disease, and especially those regularly receiving dialysis, are generally considered to be relatively immobile. They have little opportunity to travel abroad or go on business trips to other countries. This is where Fresenius Medical Care comes in: we use our global presence to provide a free and professional worldwide booking service for dialysis care, either within our own network or in cooperation with external certified providers. The program restores mobility by giving dialysis patients the life-saving dialysis treatment they need in nearly every corner of the globe.

Fresenius Medical Care also offers patients on cruises the high-quality dialysis treatment they are accustomed to. HDI ensures that the dialysis machines, dialyzers, water preparation systems and other related equipment used on ships meet our high quality standards to ensure that patients "on the go" receive the customary topnotch treatment they get at home.

Due to the large number of patients who want to travel to the Canary Islands, HDI has reinforced its presence there by signing exclusive agreements with three holiday clinics in Gran Canaria, Fuerteventura and Lanzarote. We plan to extend this offer to Tenerife in 2008.

In the past year, the number of patients using HDI's services exceeded 2,000, over 10% more than in the previous year. Furthermore, HDI organized 14 cruises for dialysis patients in the Mediterranean and Scandinavian region in the course of 2007.

USA

Laboratory Services

Nephrologists rely on extensive laboratory tests to decide on the appropriate dialysis therapy for every patient. The quality of the test results has a significant impact on both the quality of the treatment and that of our patients' lives. In 2007, our subsidiary Spectra Laboratories provided laboratory services to approximately 150,000 dialysis patients, an increase of 3% over 146,000 patients in the previous year.

Spectra Laboratories is also the laboratory of choice for independent clinics and therefore the largest clinical laboratory for dialysis-related services in North America. With more than 49 million tests performed in 2007 – compared with 45 million in 2006 – our subsidiary accounted for a market share of about 46% in the year under review.

In 2007, we relocated Spectra's west coast laboratory operations from multiple sites to a single location in Milpitas, California. This enables us to offer our customers faster, real-time solutions to their queries. Furthermore, Spectra Laboratories opened an environmental laboratory in Rockleigh, New Jersey, in spring 2007. The laboratory is specialized in testing the purity of water used in the preparation of dialysis solution, which is a major prerequisite for good patient outcomes in dialysis.

As part of our deep commitment to performance and service, Spectra Laboratories adheres to the rigorous regulatory standards of the industry. This includes the voluntary pursuit of accreditations from organizations such as the Joint Commission on Accreditation of Healthcare Organizations and College of American Pathologists.

Commercial Disease Management

We stepped up our activities in disease management (DM) in 2007. DM goes beyond usual dialysis treatment, dealing with many additional aspects of end-stage renal disease (ESRD). This includes diabetes, cardiac disease and circulatory complaints often seen in dialysis patients, as well as the care of vascular accesses, which in most cases are located on the patient's forearm.

The advantage of DM is its integrated approach: it covers patient education, preventive measures, the coordination of health services and the active treatment of additional, co-morbid diseases to avoid unnecessary hospital visits for our patients and to reduce costs for our payers.

For around ten years now, Fresenius Medical Care has been involved in disease management with a program called Renaissance Health Care. We operate the largest DM program for privately insured kidney patients in the U.S. and develop solutions tailored to individual patient and payer needs. We provided disease care management services to approximately 4,000 patients by the end of 2007 through national or regional contracts with private health insurers.

During 2007, we continued our rollout and expansion of our contract with Health Management Corporation (HMC) in their Virginia and Georgia regions. HMC is the DM subsidiary of Anthem/ Wellpoint and is one of the largest private U.S. health insurers, with 34 million members. In 2008, additional regions will be added for Anthem/ Wellpoint's patients with end-stage renal disease (ESRD). In 2007 we entered into an important new contract with Blue Care Network, which is owned by Blue Cross of Michigan, with over 2 million members, to provide our disease care management services to their members with renal disease. This contract will commence in early 2008.

CMS ESRD DM Demo Project (Medicare Advantage Special Needs Health Plan)

Since 2006, we have been carrying out a demonstration project with ESRD patients on behalf of the Center for Medicare and Medicaid Services (CMS) via our subsidiary Fresenius Medical Care Health Plan (FMCHP). The CMS oversees the U.S. public health insurance programs Medicare and Medicaid. The demonstration project is scheduled to run for four years and is slated for completion in December 2009. Medicare pays a comprehensive monthly risk adjusted fee to Fresenius Medical Care for all the medical services received by each patient enrolled in this Special Needs Health Plan, rather than reimbursing us for every individual procedure.

FMCHP enrolls the patients in this innovative treatment model which has developed a health plan especially geared to ESRD patients that combines a unique benefit package with comprehensive DM services of Renaissance Health Care and the high-quality UltraCare dialysis treatment in our clinic network. As planned, we extended the demonstration project in the year under review. It is now also being carried out in San Diego (California), Huntsville (Alabama) and the state of Connecticut, in addition to our original markets in Texas, Pennsylvania and Massachusetts. A total of approximately 1,000 patients were covered by the demonstration project by the end of 2007. In addition, FMCHP has received approval from CMS to expand the demonstration project health plan into several other regions, which may include new markets in Minnesota, Texas, California, Illinois, New York, Rhode Island and Tennessee in 2008 and 2009.

We presented the first interim results of the demonstration project in the reporting year. The average costs per Medicare ESRD patient in the U.S. amounted to \$80,900 in 2006; nearly a third of this sum was spent on hospital stays. Our demonstration project health plan reduced average patient costs by 11%, largely from reduced hospital admissions.

We therefore achieved a medical loss ratio (MLR) of about 89%. The MLR is the percentage of premium revenue that a managed care plan uses to provide medical care to its members.

Moreover, the quality objectives of the demonstration program were achieved and in some cases even surpassed. The number of necessary hospitalizations fell significantly. There was an average of 1.7 hospitalizations per patient per year in the year of the demonstration project, a 15% improvement versus USRDS baseline admissions for ESRD patients.

Despite the good interim results, the final outcome regarding Special Needs Health Plans for ESRD will be determined by the CMS after the four-year project ends in 2009. We are convinced that this comprehensive treatment and reimbursement concept will result in improved outcomes for our patients. It will lower healthcare costs and make it possible for dialysis companies such as Fresenius Medical Care to create even more value. As a vertically integrated dialysis care provider, we are well positioned to profit from the future development of DM and Integrated Special Needs Health Plan programs.

Reimbursement Structure

Terminal kidney failure is one of the few chronic illnesses whose treatment is covered by public health insurance in the U.S. More than 80% of all U.S. dialysis patients are financed by Medicare and Medicaid, the American healthcare programs that manage the medical care of the elderly and people with low income who do not have private health insurance. Changes to the reimbursement levels or reimbursement methods of Medicare and Medicaid can therefore have a significant effect on our business in North America.

The focus was on the following issues in 2007:

• On April 1, 2007, the composite rate for Medicare patients for each dialysis treatment was raised by 1.6% over the previous year. This was the third increase in a row; in 2005 and in 2006 the com posite rate was also put up by 1.6%. Overall, these changes had a slightly positive effect on the business development of Fresenius Medical Care.
• The amount reimbursed for separately billable dialysis drugs such as erythropoietin (EPO, see the next section) dropped in the year under review. The average sales price (ASP) plus 6% was the basis for reimbursement. As the ASP for this drug decreased, reimbursements for EPO fell in the reporting year.

Furthermore, there were intense discussions about a possible extension of the MSP (Medicare Secondary Payment). The debate centered on whether private health insurers should incur the costs for patients they insure over a longer time period. Until now, the period has been 30 months. No changes had been agreed on by the end of 2007.

Erythropoietin

The hormone erythropoietin (EPO) stimulates red blood cell production. Since dialysis patients can no longer produce this endogenous hormone themselves, EPO is administered during dialysis treatment to prevent patients from contracting anemia. The recombinant or artificially produced hormone EPO is one of the most important drugs used in dialysis treatment. We are the largest buyer of this drug in the dialysis sector. The pharmaceutical and biotechnology company Amgen holds the exclusive patent and marketing rights for erythropoietin in the U.S.

In 2006, we entered into a long-term sourcing and supply agreement with Amgen that runs until December 31, 2011. We believe that the large number of patients under the care of Fresenius Medical Care and the resulting economies of scale are accounted for in the agreement.

The protein EPOGEN produced by Amgen has proved to be clinically effective and safe in more than ten years and has led to significant improvements in the treatment of dialysis patients with anemia.

In the year under review, there was a comprehensive debate in the U.S. on the treatment of dialysis patients with anemia. This often involves measuring patients' hemoglobin value as a basis for providing adequate medical care using erythropoesis-stimulating (bloodforming) agents such as EPO. The recommended target hemoglobin range for dialysis patients is 10 to 12 g/dl. This level was deemed appropriate by various U.S. authorities in the course of the year and remained unchanged.

02.4 RISK REPORT

Risk and Opportunities Management

With its worldwide activities, Fresenius Medical Care is naturally exposed to a variety of risks which are directly related to the Company's business. Only by managing these risks we can take advantage of the opportunities they offer. As a provider of life-saving products and therapies, we are only marginally exposed to economic cycles, a key difference between us and, for example, a manufacturer of consumer goods. At the same time, our technical experience and our broad market knowledge provide a sound basis for detecting risks as early and as reliably as possible.

Fresenius Medical Care sees risk management as the ongoing task of determining, analyzing and evaluating the range of potential and actual developments, and, if possible, taking corrective measures. Our extensive risk management system, the principles of which are set by internal guidelines, is an important component of corporate control. It enables management to identify and reduce risks that could threaten the Company's existence or growth at an early stage, thereby minimizing their impact as far as possible.

Risk management is part of our integrated management information system and is based on Group-wide controlling as well as an internal monitoring system. Regional monitoring systems form the backbone of our risk management system and identify all inherent industry and market-specific risks. Status reports are presented to the Management Board by the responsible risk managers

twice a year. They provide qualitative and quantitative appraisals of the likelihood of risks that have been identified as potentially harmful to the Company as well as the potential extent of the possible damage. In addition, the Board is immediately and directly informed of any newly identified risks. Efficient reporting is essential for controlling and monitoring risks as well as for taking precautionary measures. Therefore, the Management of Fresenius Medical Care receives information on a monthly and quarterly basis about the state of the healthcare industry, our operative and non-operative business, as well as analyses of our asset, financial and earnings position.

The purpose of Fresenius Medical Care's opportunities management is to closely observe individual markets and recognize trends early on, among others. We identify opportunities based on comprehensive quantitative and qualitative analyses of market data, research plans and general health trends. The close cooperation between our strategy and planning departments and those responsible for M&A activities enables us to identify opportunities worldwide at an early stage. We anticipate general economic, market-specific, regional and local trends as early as possible and adjust our business model accordingly. As discussed in the "Dialysis Market" section starting on page 69, health systems and reimbursement criteria differ from country to country. Opportunities for the future development of Fresenius Medical Care arise from the general positioning of our company as a technologically leading provider on the dialysis market with innovative products and therapies.

	PRODUCT BUSINESS			PROVIDER BUSINESS
Realization Processes	Design and Development	Manufacturing	Sales	Development	Dialysis Treatment	Extended Services
Support Processes (Examples)	Purchasing		Validation		Storage and Logistics
Planning Processes (Examples)	Responsibilities and Authorities		Resource Management		Communication
Evaluation Processes (Examples)	Product and Service Data		System Data (Audits)		Customer Satisfaction
Improvement Processes (Examples)	Preventive Action		Corrective Action		Management Review

Risk management System

Source: Internal data

In connection with our 2005 initiated long-term growth strategy GOAL 10 ( see page 59 ), we actively acknowledge opportunities that arise. Our company objectives are discussed in the "Outlook" section beginning on page 119.

Internal Controls for Financial Reporting

We are listed on the New York Stock Exchange and we are required to adhere to the requirements of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires the Management Board of companies listed in the U.S. to take responsibility for implementing and adhering to an appropriate internal control system to guarantee reliable financial reporting. As a non-U.S. company or "foreign private issuer", we were required to comply with Section 404 of the Sarbanes-Oxley Act beginning on December 31, 2006. Fresenius Medical Care met the requirements one year earlier, on December 31, 2005.

Our internal controls ensure compliance with applicable accounting standards for our financial reporting. The system is based on mechanisms such as automated and manual controls, as well as on the separation of functions and the adherence to guidelines and operational mandates. Furthermore, the assessments carried out by management ensure that risks directly related to financial reporting are identified and that controls are in place to manage these risks. Apart from that, we stay abreast of changes in accounting standards and continuously train people responsible for the preparation of financial information.

The Committee of Sponsoring Organizations of the Treadway Commission's "Internal Control Integrated Framework (COSO framework)" forms the basis for evaluating the effectiveness of our internal control system for financial reporting. Following the COSO

coso framework

Source: http://www.coso.org/publications/executive_summary_integrated_framework.htm

framework, our internal financial reporting control system is divided into five levels and evaluated accordingly. The control environment, risk evaluation, control activities, information and communication paths, as well as the monitoring of the internal control system are documented, tested and assessed. Our review of the internal control system for financial reporting follows the guidelines published on May 23, 2007 by the Securities and Exchange Commission (SEC) for the evaluation of the internal control system for financial reporting by management.

Regional project teams coordinate the evaluation of the internal control systems. Management assesses the effectiveness of the internal control system for each fiscal year and publishes its findings in the Annual Report. External advisers are consulted as needed. A steering committee led by our Chief Financial Officer meets regularly to discuss changes and new requirements of the Sarbanes-Oxley Act as well as potential weak points in our system, and to implement further measures. In addition, the Audit Committee of the Supervisory Board reviews the results of the Management Board's assessment on a regular basis.

As of December 31, 2007, management assessed the effectiveness of the Company's internal control system for financial reporting. Based on this assessment, management determined that the Company's internal control system for financial reporting was effective as of December 31, 2007. The effectiveness of the internal control system for financial reporting as of December 31, 2007, has been audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, and confirmed in all material aspects. For further details, see page 108 of the financial report.

Risk Areas

The main risk areas for the business activities of the Fresenius Medical Care Group are as follows:

Risks Due to Economic Conditions

Fresenius Medical Care is generally only to a smaller extent affected by economic developments in corresponding markets, because the demand for our products and services remains relatively stable. As a result, changes in demand due to economic conditions have generally only a somewhat small influence on the risk situation of individual business units. However, our international business is influenced by fluctuations in foreign currency exchange rates. We therefore carefully monitor and assess the development of the global economy as well as political, legal and financial conditions. The predominately international markets of the Fresenius Medical Care Group also make it essential for us to conduct continuous, intensive analyses of country-specific risks.

Risks Related to the General Economic Environment

At present, the development of the global economy presents no substantial danger to Fresenius Medical Care. In 2008, we expect the global economy to develop positively. We anticipate that the growth rate will be only slightly lower than in the reporting year. Further information can be found in the "Outlook" section from page 119 onwards.

Risks in the Healthcare Industry

Risks related to changes in the healthcare market are of major importance to Fresenius Medical Care. The main risks are the development of new products and therapies by competitors, the financing of healthcare systems, and reimbursement in the healthcare sector.

Risks are actively minimized by closely monitoring the market, especially the products of our competitors and the introduction of new dialysis-related products. As part of our active risk management, Fresenius Medical Care maintains strategic business units that help us to anticipate and quickly react to new market conditions. Their main activity is to identify, analyze and internally communicate on a regular basis all activities that could affect the dialysis market and the Group's business. In addition, close ties with the medical and scientific communities enable us to quickly identify and capitalize on technological innovation. This involvement also keeps us up-to-date on alternative treatment methods and enables us to evaluate and, if necessary, adjust our corporate strategy. Consequently, we continuously analyze and evaluate trends and review improvements in research and development. The development of new and innovative products will remain a decisive factor in the dialysis market in the foreseeable future.

Since we operate in a highly regulated environment, changes in the law, such as those relating to reimbursement, can have a major economic and strategic impact on the Group's business success. This is especially true in the United States, where about 91% of our sales are generated with dialysis services, the majority of which are financed by the public health insurance programs Medicare and Medicaid. Regulatory changes outside our most important market could also have a significant impact on the Company. For this reason, we not only carefully monitor regulatory planning and changes, but also actively work together with government healthcare agencies. Details on the reimbursement system in the public Medicare / Medicaid program in the U.S. can be found in the USA section beginning on page 106.

Risks Associated with Operating Activities

We counter potential risks in production, products and services using preventive and quality assurance measures.

Procurement. Substantial requirements are placed on suppliers to control the risk of low-quality raw materials, consumable goods and other external products. This includes demanding external certification, performing our own inspections of suppliers and sample products, as well as regular quality control checks. Fresenius Medical Care demands high-quality and safe products that are proven to be adequate for their purpose from certified suppliers that meet the Group's specifications and requirements and have a proven track record. These suppliers are constantly re-evaluated using a supplier assessment system.

We monitor any market-related dependencies of major suppliers and do our best to prevent these. Our strategy calls for a primary and back-up source for every product and raw material required. Where this is not possible, we minimize the risk by entering into long-term contracts to ensure a steady supply and price advantages while avoiding price fluctuations. Fresenius Medical Care is also exposed to general price changes in raw materials. Continuous market analyses are conducted in an effort to anticipate such price movements and quickly counteract any potential negative impact. Further information on procurement processes can be found on page 96.

Production. Compliance with internal and legal product and manufacturing regulations is ensured by our Integrated Management System in accordance with ISO 9001, ISO 13485 and Good Manufacturing Practice (GMP) requirements, and implemented according to written process and work instructions. Regular audits are carried out by authorized quality management staff at each of our production sites to ensure adherence to guidelines. The audits include all areas and aspects affecting quality, from management and administration to development, production and customer satisfaction. In 2006, our production site for dialyzers in St. Wendel successfully passed an FDA (Food and Drug Administration) GMP Audit conducted by TÜV Süd Product Service Munich under the mutual recognition agreement between the European Union and the U.S. We have also introduced Lean Six Sigma in some of our plants. This is a management system used to analyze and better coordinate all production processes to permanently reduce the error rate. We intend to achieve even better production results and to further improve the quality of our products and production processes.

Major Customers. In addition to a number of stateowned and public health insurance carriers, private health insurers and companies are among Fresenius Medical Care's customers. The largest private company is DaVita, which is also the world's second-largest provider in the dialysis services sector.

Fresenius Medical Care achieved about 1% of its total revenue with DaVita in 2007. Therefore we assess the risk arising from relationships with major customers to be relatively small.

Services. The medical services we provide to patients at our dialysis clinics present inherent risks. In this context, operational risks include, for example, in the area of hygiene. We counteract these with strict organizational and operational procedures, ongoing personnel training and patient-oriented methods. Our ISO 9001 certified clinic quality management system is linked with our Integrated Management System (IMS) as detailed on page 99. The ISO 9001 certificate attests to Good Dialysis Practice. In the U.S., we have successfully implemented the standards outlined in the Kidney Disease Outcome Quality Initiative (KDOQI) and the Center for Medicare and Medicaid Services (CMS) clinical performance measures using our internal quality enhancement program. In addition to internal assessments of treatment data, annual internal audits of our processes provide a solid foundation for continuous improvement. Our clinic quality management system is also audited each year by external certification institutes such as the

German TÜV or Medicare (CMS) and CMS Networks throughout the U.S. As a consequence, quality flaws and risks can be identified quickly and remedied in a timely manner.

The IMS also covers environmental management, as manufacturing dialysis products requires the use of environmental resources and running dialysis centers produces clinical waste. An environmental management system, certified under the ISO 14001 standard, has therefore been implemented in production sites and dialysis clinics to help protect the environment and resources while identifying potential savings for raw materials. Please see the "Quality and Environmental Management" section starting on page 99 for further details.

Debtors. The risk of late or non-payment is reduced by evaluating the credit standing of new customers and reviewing the credit limits of our existing ones. Outstanding payments are monitored while assessing the possibility of default. Please see page 7 of the financial report for further details on accounts receivable and allowances for doubtful accounts.

Other Operative Risks. Potential risks, such as those arising from the construction of new production sites or the introduction of new technologies, are countered through careful planning and continual progress reviews. When building new production sites, we use internal milestones which are monitored constantly. Further risk management measures limit the effect of environmental factors on dialysis services. Many of our own dialysis clinics have emergency generators that allow the continuation of life-saving dialysis treatments even in the case of a complete power failure. Furthermore, in the U.S., for example, a Fresenius Medical Care emergency team steps in during natural disasters such as hurricanes to professionally coordinate relief efforts and enable dialysis treatment for patients in the affected regions.

Other Risks

We counter potential risks outside the operative business using the quality control measures in the following areas:

Strategy. Fresenius Medical Care has developed a long-term growth strategy, GOAL 10, which is explained on page 59. The Management Board and Supervisory Board as well as the senior management of Fresenius Medical Care meet regularly to discuss, review and – if necessary – redefine the growth strategy of the Company.

GOAL 10 also includes the horizontal expansion of Fresenius Medical Care in the field of dialysis-related drugs. Although renal drugs such as PhosLo have a proven track record in the treatment of dialysis patients, they may still have an impact on the risk exposure of Fresenius Medical Care.

Research and Development. Failing to achieve goals or achieving goals later than anticipated is an inherent risk in the development of new products and therapies. Comprehensive, cost-intensive preclinical and clinical studies are necessary before a new product can receive regulatory approval. Fresenius Medical Care counteracts risks in research and development projects by regularly analyzing and assessing development trends and reviewing the progress of the projects. Furthermore, we ensure that the legal regulations governing clinical and chemical-pharmaceutical research and development are strictly adhered to. Our dialysis products research team develops new products and technologies in close cooperation with representatives from the medical and scientific community. In case a marketable product emerges or is nearing completion, commercial relationships are evaluated. For further details on the risk on xenotransplantation please see the "Dialysis Market" section beginning on page 69.

Personnel Risks. Fresenius Medical Care has developed guidelines and codes of conduct for its employees worldwide to establish authoritative standards for our internal and external communication. With these guidelines and our compliance program, we aim to fulfil

our own expectations and those of our partners, while aligning our business activities to recognized standards as well as local laws and regulations. Further details on our compliance program can be found on page 96.

Employees who are entrusted with confidential or insider information are under obligation to comply with relevant guidelines and handle the information responsibly.

Our success depends to a large extent on the dedication, motivation and abilities of our employees. The risk of a shortage of qualified personnel is counteracted by pre-emptive measures, such as employee development programs and comprehensive recruiting. We offer our employees performance-related pay and attractive social benefits. Further details can be found on page 95.

In addition, we have launched several initiatives to further increase job satisfaction among clinical staff and to improve motivation and retention of qualified staff in our clinics. The initiatives involve implementing improvement measures where they are needed, based on a thorough satisfaction analysis. To deal with the general shortage of trained clinical personnel, we use targeted marketing programs to locate qualified and motivated personnel for our clinics and thus ensure a high standard of treatment quality. Comprehensive training programs such as the F.I.D.N., which is discussed from page 20 onwards, also counteract a possible shortage of clinic personnel. Risks in the area of personnel marketing are seen as being insignificant due to risk management strategies.

Acquisitions and Investments. Potential financial risks arising from acquisitions and capital expenditures are identified early on by performing careful, in-depth reviews with the help of external and internal professionals. Potential acquisitions and investments are analyzed at regular intervals by an internal committee (AIC – Acquisition Investment Committee) using internal guidelines based on various key factors such as performance ratios, cash flow and Return on Invested Capital (ROIC). The efficiency of acquisitions and investments is also monitored on the basis of these key figures.

IT Risks. Fresenius Medical Care uses the latest hardware and software to reduce potential risks from information technology (IT). Our IT infrastructure is highly reliable and stable. Potential IT risks are covered by a detailed disaster recovery plan, which is tested and improved on a regular basis. Fresenius Medical Care operates three geographically separated data centers with associated disaster recovery plans, thus further reducing the potential impact of a disaster at any one site. We use a mirrored infrastructure for critical systems, including clinical systems and communication servers. To avoid organizational risks such as manipulation or unauthorized access to sensitive data and programs, we use access protection by means of passwords. In addition, internal procedures must be observed that govern authorization assignment and are monitored to ensure that they comply with section 404 of the Sarbanes-Oxley Act. Operational and security audits are renewed annually.

Legal Risks. Risks associated with litigation are constantly identified, assessed and communicated within our organization. Fresenius Medical Care is involved in various legal proceedings resulting from our business operations. For details on ongoing proceedings and further information on the legal risks that Fresenius Medical Care is exposed to, please refer to Note 18 on page 94 of the financial report.

Financial Risks. We actively manage foreign currency and interest rate exposures that result from our business activities. Risk management is based on strategies defined in close cooperation with the Management Board. These include, for example, guidelines covering all steps and levels of the risk management process. They define responsibilities for the determination of risks, the careful use of financial instruments for hedging purposes, and for accurate financial reporting. In order to manage the risks from foreign exchange rate and interest rate fluctuations we also use derivative financial instruments. These, however, are restricted to hedging exposures in relation to underlying transactions. Transactions for the purpose of trading or speculation are not allowed. All transactions are conducted with highly rated financial institutions as approved by the Management Board.

We use interest rate hedging instruments to reduce the impact of interest rate increases from our floating-rate financial liabilities. We also apply such instruments to hedge the fair value of parts of our fixed-rate borrowings. The aggregate nominal value of the respective hedge contracts was \$3.919 billion as of December 31, 2007. Hence we are hedged to a large extent against interest rate fluctuations. As of December 31, 2007, 80% of the Group's financial debt was protected against increases in interest rates either by fixed-rate borrowings or by interest rate hedges. Only 20% was exposed to interest rate risk.

Parameters for Acquisition and Investment Decisions (Excerpt)

Internal interest rate	> FME discount rate1
Internal interest rate	> 15%
Amortization period	≤ 10 years
EBITDA multiplier	≤ 5.5
Incremental capital	> 0 (only applies to investment decisions)

¹ The discount rate level varies depending on the region or country in which the acquisition or investment is made.

Our foreign exchange exposures primarily result from transactions such as sales and purchases in foreign currencies between Group companies located in different regions and currency areas. Most of the transaction exposures arise from sales of products from Group companies in the euro zone to other international business units. The foreign exchange risks are therefore related to changes of the euro against various other currencies. To hedge those risks we generally use foreign exchange forward contracts. The aggregate nominal value of foreign exchange derivatives as of December 31, 2007 was \$708 million. Please see page 19 of the financial report ("Liquidity and Capital Resources") for further details.

Overall Risk

The Management Board's evaluation of general risk is based on Fresenius Medical Care's risk management system, which is subject to regular external reviews and scrutiny from management. The effectiveness of the risk management system is monitored and improved if necessary as part of the Group-wide review of the Integrated Management System. The Management Board will continue to expand the risk management system as well as the review of the related management system to identify, examine and evaluate potential risks even more quickly for a timely and appropriate response.

Potential risks include factors partly or wholly out of our control, which we regularly analyze, such as the overall development of national and global economies. They also include factors within our control – such as operating risks – which can be anticipated and analyzed early on by our risk management system and counteractive measures introduced if necessary.

Based on the general principles for estimating risk factors described from page 109 onwards, we currently assume that none of these risks will lead to a long-term and significant impairment of the asset, financial and earnings position of Fresenius Medical Care. Furthermore, no material changes in risks were identified compared to 2006. We have established a structure which will allow us to quickly identify developing risk situations.

Information on external rating agencies' rating of the company can be found from page 86 onwards in the "Results of Operations, Financial Situation, Assets and Liabilities" section.

02.5 SUBSEQUENT EVENTS

Economic and Business Environment

No significant events took place between the closing date of December 31, 2007 and the annual report's printing date of March 17, 2008. There have been no fundamental changes in the economic and business environment in our field of activity. Dialysis continues to be a medically indispensable and life-saving treatment for acute or chronic kidney failure to which there is still no direct treatment alternative with the exception of kidney transplantation. Therefore, Fresenius Medical Care is active in a relative stable business area and less strongly exposed to economic cycles.

We are currently not planning any major changes in Fresenius Medical Care's organizational structure, administration, legal form or with regard to personnel which could lead to a significant impairment of the asset, financial and earnings situation of our company.

The following events have occurred since the beginning of 2008:

Expansion of Business in Great Britain

At the beginning of 2008, the National Health System (NHS) in the United Kingdom authorized us to take over the management of 12 renal units that provide dialysis treatment for more than 400 patients across the north of England. In the course of this collaboration, which is initially set to run about seven years, patients will remain under the care of their NHS physicians, while benefiting from our proven experience and expertise in hemodialysis.

This pioneering program – part of the British government's involvement in independent sector partnerships to deliver more choice and faster treatment to NHS patients – will see new renal dialysis units developed and existing hospital facilities extended. While new

satellite centers will increase capacity, the investment will also result in the installation of state-of-the-art equipment and the latest technology, as well as the improvement of staff training and education.

Introduction of a Bundled Rate for Hemodialysis Treatment in Portugal

At the beginning of 2008, the Portuguese Ministry of Health and Anadial, the national association of privately run dialysis centers, agreed on a new reimbursement model for ambulatory care to hemodialysis patients. The new model "Comprehensive Price Payment" is an integrated and quality-driven approach that bundles a variety of dialysis related services and products. That requires the implementation and functioning of an integrated disease management model in order to achieve, simultaneously, health benefits, quality improvement and system rationalization. Including the new additional services in this reimbursement model, the Company expects the reimbursement rate to increase by about 50%.

The new reimbursement structure will provide for payment of a national reimbursement rate per week per patient. The main characteristic is that the amount of this reimbursement will directly depend on the fulfillment of certain treatment results and quality control parameters with the dialysis services provided. The therapeutic goals include, among others, the adequacy of dialysis, targets for hemoglobin levels, bone metabolism status, water quality as well as outcome measures such as mortality rate and hospitalization days. These goals mirror the good practices guidelines, both national and international, for dialysis care to patients, which will serve as support for contractual monitoring. The establishment of auditing, information, monitoring, attendance and evaluation mechanisms is a pre-requisite for a participating dialysis provider.

Refinancing of Trust Preferred Securities

At the beginning of February, we refinanced our Trust Preferred Securities from the Capital Trust II and III. They were mandatorily redeemable after a period of ten years, and expired on February 1, 2008. The holders of trust preferred securities are entitled to distributions at a fixed annual rate of the stated amount. The stated amount of Capital Trust II was \$450 million, with a fixed interest rate of 7 7/8%; the stated amount of Capital Trust III totaled DM 300 million, with an interest rate of 7 3/ 8%. The refinancing was carried out within the framework of Fresenius Medical Care's credit agreement. Therefore, the structure of the debts changed only slightly and the asset structure remained fairly stable. Since the interest rates were fairly similar, there were no significant changes in the consolidated statements of income. Further information on the Company's short- and long-term debts as well as its Trust Preferred Securities can be found on pages 68, 70 and 79 of the financial report.

Overall Assessment of Our Business Situation

Fresenius Medical Care's business development met our expectations in the first weeks of 2008.

As discussed in the Outlook section that follows, there is a continued high demand for our dialysis products and services worldwide. Overall, the Management Board continued to assess the Company's business development as positive when this annual report was compiled. From today's perspective, we expect to increase our revenue and earnings as forecast, and achieve the other performance ratios as planned. As this report goes to press, the current development of our business is basically in line with our expectations.

02.6 OUTLOOK

Business Policy

Fresenius Medical Care is the world's leading dialysis company. We intend to bolster this position in the years to come by expanding our activities in dialysis-related business areas such as dialysis drugs, among others. We plan to maintain our vertically integrated business model in future. At present, the Company does not plan any major changes to its business policy.

Markets

We already offer a wide range of dialysis products and services in over 100 countries and are thus active in all key markets. Due to differences in the regional and regulatory framework, in some countries we only offer dialysis products and do not operate our own dialysis clinics. If the regulations in these countries were to change, this would open up new dialysis service markets for us. More information can be found in the Opportunities section from page 125 onwards.

From today's perspective, we do not expect the dialysis industry to change significantly in 2008 and 2009. Consolidation in the industry and the trend towards privatization in the healthcare sector, as observed for several years now, should continue. The two major providers Fresenius Medical Care and DaVita hold about two thirds of the U.S. market. Therefore, and in light of potential restriction due to anti-trust reasons, we would expect acquisitions in this market to be on a smaller scale than in the past. Consolidation in the international market, however, is at an early stage. In these regions, we therefore expect acquisitions to play a more important role in the development of markets.

Therapies, Products and Services

Researching new treatment methods and developing new products are long-term processes. The activities discussed in detail in the "Research and Development" section from page 61 onwards will remain the focus of our work. These include further developing dialysis membranes and other products for dialysis. Our aim is to continuously improve the treatment quality and thus the quality of our patients' lives. In addition, we will concentrate on extracorporeal methods related to dialysis such as the treatment of liver disease and the area of acute medicine.

General trends in medical technology can also be observed in the dialysis industry. New technological methods and materials make it possible to reduce the size, weight, and energy consumption of individual components and thus entire machines, as well as to integrate fundamentally new functionalities into medical technology. We expect more focused activities to reduce the dimensions of dialysis products in the longterm. In 2007, Fresenius Medical Care took a step in this direction by acquiring Renal Solutions, Inc. In the years to come, the development of innovative solutions for home hemodialysis will be a top priority. This could culminate in a wearable artificial kidney.

We plan to spend more than \$80 million on research and development in 2008, at least 20% more than in 2007. The main reason for this higher spending is the acquisition of Renal Solutions, Inc., which is discussed beginning on page 75. As has already been forecast, annual research and development expenditures should increase as a result by about \$10 million. The number of employees in R&D was at 355 full-time equivalents at the end of 2007 and is expected to grow slightly. In 2009, we expect research and development expenditure and the number of employees to remain at a similar level to 2008.

Global Economy

General Economic Development in 2008

In their fall report, the economic research institutes forecast a global economic growth of 3.0%. This is based on the assumption that the price of crude oil will not exceed \$80 per barrel for a sustained period, that the mortgage crisis in the U.S. will not affect any other countries, and that the exchange rates between the U.S. dollar, the euro, and the yen will largely remain stable. The growth forecasts of selected countries and regions are listed on page 68. Should the conditions upon which this outlook is based change significantly, these growth rates might not be completely accurate. Potential contributing factors might include rising crude oil prices, less stable exchange rates, or a recession in the U.S. The reduction of interest rates to 3.0 by the Fed at the beginning of 2008 might also change the economic framework.

USA. The United States' gross domestic product is expected to increase by 2.1% – a slightly higher growth rate than in the year under review. U.S. exports should grow faster than imports, which would cause the current account deficit to fall. While private spending and the domestic economic situation will probably remain tense, higher inflation is not anticipated.

Europe. In the euro zone, the economy is also forecast to grow at a rate of 2.1%. Experts believe the appreciation of the euro will put a damper on exports and thus slow down the economy, without, however, leading to an economic downswing. Due to the high utilization of production capacity today, expansion investments are expected to increase and companies should remain profitable on the whole, while unemployment will probably decrease at a lower rate than in the year under review. The level of inflation should only slightly overshoot the 2% mark.

The economic research institutes expect the German gross domestic product to increase by 2.2%. Due to a less dynamic global economy and the strong euro, private spending should remain the driving force. On account of interest rate hikes in 2007 accompanied by poorer financing conditions, company investments should not increase significantly.

The British economy is expected to continue to grow, albeit at a slightly lower rate. A growth of 2.3% is forecast for 2008. Higher interest rates should curb private spending to a certain extent. In addition, consumers' willingness and thus propensity to save should increase again. The economic growth of the new European Union member states is expected to continue unabated at 5.3%, primarily due to construction investments and private spending.

Asia. According to forecasts, China will continue to achieve an extremely dynamic growth of more than 10% and will thus remain one of the world's most important drivers for economic expansion. However, measures to curtail inflation such as price stops for administrative prices coupled with weaker foreign demand could slow down economic development in China. The Japanese economy is anticipated to grow by about 1.7%, mainly due to domestic demand.

Latin America. Economic growth in Latin America is expected to remain at a high level; the gross domestic product should increase by 4.5%. Due to the ongoing strong demand for raw materials, Mexico in particular should be able to profit from the economic upswing in the U.S.

General Economic Development in 2009

We expect the economic development forecast for 2008 to continue in 2009. In general, however, Fresenius Medical Care is relatively unaffected by global economic cycles. Demand for our life-saving products and therapies for kidney patients is comparatively stable.

Sector-Specific Conditions – Dialysis Market

Fresenius Medical Care expects the number of dialysis patients worldwide to grow by 5% to 7% in 2008. Significant regional differences should remain: we expect a below-average increase in patient numbers in the U.S., Japan, and Western and Central Europe. In these regions, the prevalence of terminal kidney failure is already relatively high and patients generally have secured access to treatment, mainly dialysis. In economically weaker regions we expect annual growth rates to remain above average, with values of up to 10%; some countries have even higher growth rates.

The average worldwide growth rate in the number of patients should also continue to be between 5% and 7% in 2009 and 2010. As a global trend we expect that the increase in high blood pressure and diabetes in the population to contribute to a sustained growth in the number of dialysis patients, so that numbers may reach nearly 2.0 million by 2010.

The annual growth rates and the differences between economically strong regions and developing nations indicate a shift in the regional distribution of patients in future. Consequently, a higher proportion of patients will undergo dialysis treatment in Asia, Latin America, Eastern Europe, the Middle East and Africa. This opens up huge potential for the entire spectrum of dialysis services and products, as more than 80% of the world population lives in these regions.

We do not expect significant changes in the distribution of dialysis treatment modalities in 2008 to 2010. Hemodialysis will remain the treatment of choice, accounting for about 90% of all dialysis therapies. Peritoneal dialysis should be the preferred treatment for about 10% of all dialysis patients.

If the market volume continues to grow by 5% per year, it will amount to nearly \$61 billion in 2008 and almost \$64 billion in 2009.

We also intend to uphold our market leadership in the most important product groups such as dialyzers and dialysis machines.

As a dialysis company, we operate in a very heterogeneous market with varying national and, in some cases,

regional regulations for both dialysis products and patient care. Our key market in terms of revenue will remain the United States. Changes in the sector-specific conditions can have a major impact on the business performance of Fresenius Medical Care. Details of the reimbursement structure for patient care by the public health insurance programs can be found in the chapter "Reimbursement" from page 108 onwards.

Business Performance of Fresenius Medical Care in 2008 and 2009

Exchange Rates

Fresenius Medical Care's outlook for 2008 is based on an anticipated exchange rate of \$1.47 to the euro. This exchange rate, in turn, is based on the year-end annual exchange rate in 2007, which was \$1.47 to the euro. In our forecast we also take other exchange rates into account such as yen to U.S. dollar and yen to euro.

Revenue

We intend to further increase our revenue in 2008 and expect a revenue growth of more than 7% to more than \$10.4 billion. We forecast a revenue growth of 4% in North America, significantly more than 10% in Europe, and of at least 15% in the Asia-Pacific region. If these forecasts are met, the growth rates in all of these regions should once again be above the estimated expected average market growth of 5%.

We aspire to continue this positive development in 2009. We expect the revenue growth at constant currencies to be between 7% and 9%, again exceeding the estimated average market growth of 5%.

Ex pected Growth in number of patients in 20081
North America	3–4%
Europe / Middle East/Africa	4–6%
Latin America	7–9%
Asia-Pacific	7–9%
Worldw ide	5–7%
1 Internal estimates

Net Income

In 2008, our net income should be between \$805 and \$825 million, an increase of 12% to 15%. At the time this annual report was printed, we did not expect any one-time items to have a significant impact on the net income in 2008.

In accordance with the aims of our GOAL 10 growth strategy – which is discussed in detail from page 59 onwards – the net income should increase in the long term, and grow by more than 10% in 2009.

Earnings per Share

The earnings per share should also see a double-digit increase. For 2008, we expect the earnings per share to grow – parallel to the net income – by more than 12%. In 2009, the earnings per share should rise by more than 10%.

Dividend

We will continue to pursue a long-term profit-oriented dividend policy. Pending approval of the proposed annual dividend increase by the Annual General Meeting on May 20, 2008, the dividend will increase for the eleventh consecutive year since the Company's foundation in 1996. During this period, the dividend per ordinary share rose from €0.17 to €0.54 for the fiscal year 2007. This represents an annual dividend growth of about 11%. We intend to continue this development in 2008 and 2009. In these two years, the dividend payout ratio should remain at the previous year's level of nearly one third of net income.

Capital Expenditures and Acquisitions

We intend to use approximately 10% of our revenue for capital expenditures and acquisitions in 2008. We expect to spend \$650 to \$750 million on capital expenditures and \$150 to \$250 million on acquisitions in 2008. In 2009, we aim to spend about 8% of our revenue on capital expenditures and acquisitions.

	Results 2007	Goals 2008	Goals 2009
Revenue growth	\$9.7 billion	7% to \$10.4 billion	7%–9%
Net income growth	\$717 million	12%–15% to \$805–\$825 million	More than 10%
Earnings per share	\$2.43	M ore than 12% M	ore than 10%
Dividend	Dividend increase of 15% per ordinary share proposed	Continuous increase	Continuous increase
Capital expenditures and acquisitions	\$807 million	\$650–\$750 million on capital expenditures \$150–\$250 million on acquistions	~ 8% of revenue
Tax rate	38.8%	38%–39%	38%–39%
Debt/EBITDA ratio	2.84	Below 2.8	Below 2.8
Employees1	61,406	More than 65,000	More than 68,000
Reasearch and development expenditures	\$67 million	More than \$80 million	More than \$80 million
Product innovations	BCM and OsvaRen introduced	Further expansion of product and service range	Further expansion of product and service range

¹ Full-time equivalents

We plan to invest most of this amount – as in the previous years – in North America and Europe, our largest business regions. As well as continuously modernizing our dialysis clinics and production facilities, capital expenditures will be uses mainly for the continued growth of our business. In this way, we will be able to meet the strong demand for our dialysis products by expanding our global production capacities. In dialysis services, we will use capital expenditure to open new clinics. Additionally, investments will be used to further rationalize production processes and to improve patient data management and accounting.

Furthermore, we intend to make targeted acquisitions and to strengthen our worldwide business. To this end, we plan to acquire dialysis clinics and extend our offer in the area of dialysis drugs in accordance with our growth strategy.

Taxes

For 2008, we expect the effective tax rate to be between 38% and 39%. This should not be exceeded in 2009. In the long term, we intend to lower it to 38%.

Cash Flow

The target range for the operating cash flow in 2008 and 2009 is 10% to 12% of revenue. We expect the continued focus on working capital management to contribute to this. With a forecast revenue of \$10.4 billion, the operating cash flow would be between approximately \$1.0 and \$1.25 billion.

Debt / EBITDA Ratio

Fresenius Medical Care takes the debt/ EBITDA ratio as a guideline in its long-term financial planning. The debt/ EBITDA ratio was 2.84 at the end of 2007. We intend to further reduce this to below 2.8 by the end of 2008, and expect a further decrease in 2009.

Financing

So far we have a sufficient financial cushion – consisting of only partly utilized bilateral and syndicated credit facilities and the accounts receivable facility – which we intend to preserve in the next years. We aim to keep committed and unutilized credit facilities to a minimum of 10% to 15% of our debt portfolio.

We will focus our financing activities in the coming years on reducing subordinated debt. In this respect we have not refinanced the subordinated trust-preferred securities Capital Trust II und III maturing in February 2008 by issuing new subordinated debt, but used our existing senior credit facilities instead.

Additionally, we intend to change the portion of traditional bank financing more towards financing instruments issued in capital markets. Our mid-term target regarding our debt portfolio is to have senior and unsecured debt instruments only.

The capital market transactions arranged in 2007 completely cover our refinancing needs for 2008. The refinancing needs for the years 2009 and 2010 are also limited and can be covered by our cash flows and by using existing credit facilities. Generally, we expect to have sufficient financing to achieve our goals in the future and to continue to promote the growth of the Company.

Employees

We want to continuously grow internationally, boost sales of our dialysis products, and provide dialysis care to an increasing number of patients. Fresenius Medical Care therefore expects the number of employees (fulltime equivalents) to keep on growing, too, particularly in dialysis clinics and at production sites. We anticipate that by the end of 2008, we will have more than 65,000 employees. That would mean an increase of approximately 6% compared to the end of 2007. In 2009, we expect our workforce to grow to more than 68,000. Revenue should again rise at a higher rate than the number of employees.

In keeping with our growth strategy, we see particularly promising opportunities in Asia and Eastern Europe. Employee numbers in these regions should therefore increase substantially. Nevertheless, we do not anticipate any major changes in the worldwide distribution of our employees – most of our staff will continue to work in North America.

We will remain highly committed to vocational training for young people in Germany. In the years to come, we intend to continue to qualify apprentices beyond our own demand and thus fulfill our responsibility to society.

Legal Structure and Organization

Fresenius Medical Care has been a partnership limited by shares (Kommanditgesellschaft auf Aktien, KGaA) since 2006. We are not planning to make any further changes to the legal form in the foreseeable future.

As described in the "Group Structure and Business" section starting on page 57, Fresenius Medical Care's activities are organized into three operating segments: "North America", "International", and "Asia-Pacific". For reporting purposes, we have aggregated the "International" and "Asia-Pacific" segments into the "International" segment as the economic conditions in the two segments are very similar. We expect this organizational structure to remain stable in 2008 and 2009.

On account of our decentralized organization, we can react to market requirements with the greatest possible flexibility. This principle of "entrepreneur in the enterprise" with clearly defined responsibilities has enjoyed a good track record for many years now and we will therefore adhere to it.

Procurement and Logistics

In 2008, we intend to further optimize Group-wide cooperation in the procurement process and work together more closely across borders. Procurement alliances across various sectors will allow us to further increase purchasing volumes and secure better conditions from our suppliers. To be able to gauge our success more precisely, one approach is to introduce a Europe-wide controlling system and thus improve the key data-based procurement process.

In addition, we intend to offer our logistics services to third parties. In this way, we can improve the utilization of our trucks in the U.S. and reduce the number of empty runs. Furthermore, we will introduce Lean Six Sigma to further areas of logistics in this region.

On account of the high demand for crude oil and other energies, the price situation is not likely to ease in 2008 and 2009, so that prices will probably stay at a constantly high level. We expect price increases for electricity and intermediate products that are dependent on crude oil. The prices of other finished goods such as cardboard and other packaging materials should remain relatively stable.

Quality and Environmental Management

As a large number of our dialysis clinics are already certified according to ISO 9001:2000 and ISO 14001:2004, one of our top priorities is to continue to comply with certification requirements. Our aim is to guarantee that these quality management standards are met in nearly 250 clinics.

In addition, we plan to certify 50 further clinics, above all in Italy and France, in accordance with both standards. We also intend to introduce and certify the Integrated Management System (IMS) in South Africa and Serbia. Our need for employees who can perform internal audits based on IMS requirements remains at a high level, especially in Eastern Europe. We will continue to promote their training in future.

Furthermore, we plan to install a comprehensive data management system in Europe to make the audit process even more efficient and enable effective ecocontrolling. New guidelines should help us conserve resources in our usage of water and dialysis fluids. In 2008 and beyond, we will work on implementing the general goals of our European environmental management system (see page 99 ).

Opportunities

As mentioned on page 57 in the "Group Structure and Business section", some demographic factors have a decisive impact on Fresenius Medical Care's growth opportunities. These include the aging population and the increasing incidence of diabetes and hypertension, two illnesses which frequently precede the onset of end-stage renal disease (ESRD). Due to these developments, there is a growing need for dialysis products and services. We intend to make a significant contribution to covering this need by supplying renal patients with high-quality products and services. At the same time, we will persevere to achieve our goal of operating for profit.

Fresenius Medical Care can benefit as further markets open up, particularly in Eastern Europe and Asia. While we already sell dialysis products in most of these markets via distributors or our own sales organizations, we only provide dialysis services in our own clinics in some of them. This is partly due to legal restrictions and to the fact that the necessary economic conditions often do not exist – for instance, appropriate reimbursement structures or functioning health systems.

In Japan, new opportunities for Fresenius Medical Care could arise from changes in the legal framework. If the regulations for operating dialysis clinics in this country change so that private companies such as Fresenius Medical Care can run their own clinics, this would open up significant new growth potential. Japan is the biggest market in Asia with about 280,000 dialysis patients, representing more than half of all dialysis patients in Asia. In addition, populous countries such as China and India will provide further growth opportunities in the long term. Therefore, we intend to strengthen our presence in India's eight largest cities by offering dialysis services there.

Germany is the fourth-largest market worldwide in terms of the number of dialysis patients treated. Due to the quality of our products, we have an excellent market position there. Whereas previously only doctors in private practice, hospitals, and nonprofit organizations were allowed to operate dialysis clinics, Fresenius Medical Care can now run dialysis clinics in medical care centers. Medical care centers are facilities managed by doctors with different areas of expertise: they are either salaried physicians or physicians under contract to the statutory healthcare insurance. We consider ourselves as partners for our customers when it comes to setting up new structures in the German health system, and we will take advantage of any opportunities available to strengthen our business in the long term through our involvement. At the end of 2007, we participated in 2 medical care centers.

Another field of business that provides excellent longterm growth opportunities in our view is the area of dialysis drugs. Integrating the phosphate binder PhosLo into our product portfolio in fall 2006 was an important first step. Besides phosphate binders, dialysis drugs include Vitamin D, iron preparations and calcimimetics. We estimate that the dialysis-related market size for these four product groups totals more than \$2.2 billion.

Further opportunities come from researching and developing new ways of treating renal patients. The development of a wearable artificial kidney is conceivable in the long run. Research is still in its infancy, however, and it is unlikely that significant patient groups can be treated in the short and medium term. Fresenius Medical Care has taken an initial step with the acquisition of Renal Solutions, which is discussed on page 75. Should such systems be developed, their use would open up considerable potential for Fresenius Medical Care in terms of dialysis products and services connected with home dialysis.

Furthermore, Fresenius Medical Care can benefit from a number of opportunities arising from its business performance. These include an optimized procurement process and cost-efficient production.

Long-Term Revenue and Earnings Outlook until 2010

With GOAL 10, which we announced back in 2005, we intend to achieve revenue of about \$11.5 billion in 2010. Profitability should grow stronger than revenue, with the net income expected to increase by more than 10% a year. Our aim is to attain a global market share of 18%.

Further information on our corporate strategy GOAL 10 for taking advantage of growth opportunities can be found from page 59 onwards.

General Statement on the Expected Development

Fresenius Medical Care's prospects for the coming years are positive. At present, all regions are expected to contribute to the revenue and earnings growth.

In 2008, we aspire to strengthen our market position in all of the segments and to consistently pursue our growth plans. This includes building new clinics and targeting the acquisition of dialysis clinics in all regions, bolstering our home dialysis activities, and continuing our strong involvement in the area of dialysis drugs.

In addition, we intend to further reduce Fresenius Medical Care's debit/ EBITDA ratio and thus create room for additional growth.

This outlook takes into account all factors known at the time of preparing the financial statements that could affect our business in 2008 and beyond. Major risks are discussed in the risk report starting on page 111. Fresenius Medical Care will do everything in its power to reach or – if possible – exceed its goals.

The fiber is almost as thin as a human hair. It is hollow inside so that blood can flow through it.

[03.1– 3 ] FURTHER INFORMATION

03.1	Fresenius Medical Care AG & Co. KGaA	129
Directorships	Fresenius Medical Care Management AG	131
03.2	Products and Services of Fresenius Medical Care	132
glossary	Healthcare and Dialysis-related Terms	135
03.3 Contacts and Calendar	Contacts Financial Calendar 2008 Important Fairs 2008 Imprint	140 140 140 140

directorships 03.1

fresenius medical care ag & co. kgaA

Supervisory Board

Dr. Gerd Krick

Chairman Königstein, Germany

Supervisory Board

Fresenius SE (Chairman) Fresenius Medical Care Management AG VAMED AG, Österreich (Chairman) Allianz Private Krankenversicherungs-AG

Advisory Board

HDI Haftpflichtverband der deutschen Industrie V.a.G.

Board of Directors

Adelphi Capital Europe Fund, Cayman Islands (until December 31, 2007)

Dr. Dieter Schenk

Vice Chairman Attorney and Tax Advisor Munich, Germany

Supervisory Board

Fresenius SE (Vice Chairman) Fresenius Medical Care Management AG (Vice Chairman) Gabor Shoes AG (Chairman) Greiffenberger AG (Vice Chairman) NSL Consulting AG (Chairman) TOPTICA Photonics AG (Chairman)

Dr. Walter L. Weisman

Former President and Chief Executive Officer of American Medical International, Inc. Los Angeles, U.S.

Supervisory Board Fresenius Medical Care Management AG

Management Board

Maguire Properties, Inc. (Vice Chairman and Lead Director) Occidental Petroleum Corporation

Board of Trustees

California Institute of Technology (Vice Chairman) Los Angeles County Museum of Art ("Life Trustee") Sundance Institute (Chairman) Samuel H. Kress Foundation (Vice Chairman)

John Gerhard Kringel

Former Senior Vice President of Abbott Laboratories, Inc. Durango, Colorado, U.S.

Supervisory Board

Fresenius Medical Care Management AG

Other

Natures View, LLC Alpenglow Development, LLC Justice, LLC River Walk, LLC Visionary Medical Device Fund (Advisory Board member)

William P. Johnston

Former Chairman of the Board of Directors of Renal Care Group, Inc. Nashville, Tennessee, U.S.

Supervisory Board Fresenius Medical Care Management AG

Other

The Carlyle Group (Senior Advisor) The Hartford Mutual Funds, Inc. (Member of Board of Directors) LifeCare Holdings, Inc. (Member of Board of Directors) Multiplan, Inc. (Member of Board of Directors) Georgia O'Keeffe Museum (Member of Board und Investment Committee) HCR-Manor Care, Inc. (Member of Board of Directors) (since February 2008)

Supervisory Board Supervisory Board Committee

Audit and corporate governance Committee Dr.Walter L. Weisman (Chairman) John Gerhard Kringel Dr. Gerd Krick William P. Johnston Prof.Dr. Bernd Fahrholz

Prof. Dr. Bernd Fahrholz

Attorney Frankfurt am Main, Germany

Supervisory Board SMARTRAC N. V. (Chairman)

fresenius medical care management ag General partner of Fresenius Medical Care AG & Co. KGaA

Supervisory Board

Dr. Ulf M. Schneider

Chairman Frankfurt am Main, Germany

Management Board

Fresenius SE (Chairman)

Supervisory Board

Fresenius Kabi AG (Chairman) HELIOS Kliniken GmbH (Chairman) Eufets AG (Chairman) Fresenius Kabi Austria GmbH, Austria Fresenius Kabi Espana S.A., Spain Fresenius Medical Care Groupe France S.A.S., France (Chairman) Fresenius HemoCare Nederlands B.V., the Netherlands

Board of Directors FHC (Holdings), Ltd., Great Britain

Dr. Dieter Schenk Vice Chairman Munich, Germany

Dr. Gerd Krick Königstein, Germany

Dr. Walter L. Weisman Los Angeles, U.S.

John Gerhard Kringel Durango, Colorado, U.S.

William P. Johnston Nashville, Tennessee, U.S.

Management Board

Dr. Ben Lipps

Chairman Boston, Massachusetts, U.S.

Management Board Fresenius SE

Dr. Emanuele Gatti

Chief Executive Officer for Europe, Latin America, Middle East and Africa Bad Homburg v.d.H., Germany

Supervisory Board

Centre d'Hémodialyse du Languedoc Méditerranéen S.A.S. Centre Néphrologique d'Occitanie S.A.S. Fresenius Medical Care Magyarország Kft. Fresenius Medical Care Dializis Center Kft. Fresenius Medical Care Groupe France S.A.S.

Board of Trustees Danube University Krems, Austria (Chairman)

Roberto Fusté

Chief Executive Officer for Asia-Pacific Hong Kong, China

Dr. Rainer Runte

General Counsel and Chief Compliance Officer Bad Homburg v.d.H., Germany

Supervisory Board

Fresenius Medical Care Groupe France S.A.S. Fresenius Medical Care SGPS, S.A. Fresenius Medical Care Japan, K.K. Fresenius-Kawasumi Co., Ltd.

Lawrence A. Rosen

Chief Financial Officer Bad Homburg v.d.H., Germany

Rice Powell

Co-Chief Executive Officer Fresenius Medical Care North America and President and CEO of "Renal Therapy Group (RTG)" Boston, Massachusetts, U.S.

Mats Wahlstrom

Co-Chief Executive Officer Fresenius Medical Care North America and President and CEO of "Medical Services" Boston, Massachusetts, U.S.

03.2 Glossary

Products and Services of Fresenius Medical Care

Unless otherwise indicated, all trademarks mentioned in the 2007 Annual Report of Fresenius Medical Care have been registered in the respective countries and are subject to the trademark rights of Fresenius Medical Care. They are either owned or used under license by Fresenius Medical Care and its affiliates.

5008 Therapy System

This therapy system offers advantages for both patients and caregivers. The innovative, user-friendly interface makes the preparation of the dialysis treatment more efficient and guarantees simple and safe data processing.

A.N.D.Y.·Disc

A peritoneal dialysis double-bag system (fluid and drainage bags) with lactate-buffered peritoneal dialysis fluid. The technology can be used safely and easily by the patient.

Balance

Lactate-buffered peritoneal dialysis solution in a twocompartment bag with stay·safe technology. After mixing the contents of the two compartments, the ready-to-use solution has a physiological pH and a considerably reduced amount of glucose degradation products.

BCM – Body Composition Monitor

Based on bio-impedance spectrometry, this device can be used to assess the body composition and thus the level of overhydration of dialysis patients.

Bibag

Dry bicarbonate concentrate for online production of liquid bicarbonate concentrate used in bicarbonate hemodialysis with our hemodialysis machines of the 4008 and 5008 series.

BicaVera

Physiological peritoneal dialysis solution. The twocompartment bag combined with stay·safe technology is safe and easy to handle. The PD solution, buffered with pure bicarbonate, ensures optimum biocompatibility. After mixing the contents of the two compartments, the ready-to-use solution has a physiological pH and a considerably reduced amount of glucose degradation products.

Biofine

PVC-free, biocompatible material for producing foils, tubing and other components for peritoneal dialysis.

Blood Pressure Monitor (BPM)

Module for hemodialysis machines for fully automated blood pressure monitoring.

Blood Temperature Monitor (BTM)

Module for hemodialysis machines to measure blood temperature. It can be used to control the body temperature of a dialysis patient, for example.

Blood Volume Monitor (BVM)

Module for hemodialysis machines to measure relative blood volume and control fluid removal from the patient to avoid complications during dialysis treatment.

Cardioprotective Hemodialysis

An integrated hemodialysis therapy developed by Fresenius Medical Care that deals with cardiovascular disease in dialysis patients.

Ci-Ca System

Multifiltrate that combines integrated regional citrateanticoagulation and continuous renal replacement therapy without the need for systemic anticoagulants, thereby reducing the risk of bleeding.

Continuum – Dialysis without Boundaries

Comprehensive program of Fresenius Medical Care to emphasize home dialysis – including home hemodialysis and peritoneal dialysis – for patients and healthcare professionals.

DALI

First method for the direct adsorption of lipoproteins from whole blood. Apheresis treatment for patients, whose LDL cholesterol levels cannot be lowered through medication alone.

DIASAFEplus

Filter which produces ultrapure dialysis fluid during hemodialysis.

DISC

Controls all procedures during Continuous Ambulatory Peritoneal Dialysis (CAPD) with a simple turn. Thus operating errors are virtually eliminated.

EuCliD

European Clinical Database. Clinical database for ensuring the quality of dialysis treatment. The database records the treatment data of dialysis patients and allows an efficient comparison of treatment quality among individual dialysis clinics.

Fresenius Polysulfone Dialyzer

Dialyzer with capillaries made from Fresenius Polysulfone.

FX-Class Dialyzer

A new class of dialyzer with increased performance and outstanding biocompatibility. The improved performance of FX dialyzers was realized with an innovative dialyzer concept, comprising improvements of individual components, including the Helixone membrane.

GENIUS

Innovative hemodialysis therapy system based on a single-pass batch system. The dialysate is prepared in one batch before treatment and adjusted to the needs of the individual patient.

Granudial

Dry acid and bicarbonate concentrates for the offline production of liquid concentrates for bicarbonate hemodialysis.

Helixone

An advanced high-flux membrane for FX-Class dialyzers based on the Fresenius Polysulfone membrane. The size and distribution of pores in Helixone have been optimized to enable the removal of larger uremic toxins such as β2-microglobulin.

ICare Monitoring System

Web-based system for monitoring nocturnal dialysis treatment from a central location and comparing actual with predefined data as the patient sleeps. The system reacts to any deviations from the defined data by contacting the patient immediately, using the emergency information provided.

IQcard

Used with the Fresenius Freedom Cycler PD+ to monitor every minute of automated peritoneal dialysis therapy. The data stored by the IQcard can be used to optimize the patient's therapy as well as for research purposes.

Liberty Cycler

Innovative device for automated peritoneal dialysis marketed exclusively in the U.S. The Liberty Cycler automatically regulates the exchange of used and fresh dialysis fluid.

MultiBic

A bicarbonate-buffered solution for hemofiltration.

MultiFiltrate

Multifunctional acute dialysis machine used for therapy in intensive care.

On-line Clearance (OLC) / On-line Clearance Monitor (OCM)

Optional quality assurance component for hemodialysis machines to measure online the effective in-vivo dialyzer clearance.

ONLINEplus System

A system for our 4008 and 5008 series hemodialysis machines to perform online hemodiafiltration and online hemofiltration. The infusion fluid is prepared conveniently and cost-efficiently by filtering dialysate.

Optiflux

A dialyzer generation for the U.S. market, featuring improved clearance rates and outstanding biocompatibility.

PatientOnLine

The PD therapy manager is a software tool to administer patient data and evaluate treatment results to find the best therapy for peritoneal dialysis patients.

PhosLo

A calcium acetate phosphate binder for oral application in end-stage renal disease patients.

PIN

Automatic, inline-closing procedure in Continuous Ambulatory Peritoneal Dialysis (CAPD) that minimizes the risk of contamination during bag disconnection.

PlasmaFlux

Capillary membrane filter used to separate plasma from other blood components.

Prometheus

Novel extracorporeal blood purification system for patients with hepatic failure.

Sleep·safe

Automated peritoneal dialysis system offering the full range of peritoneal dialysis options and a maximum of safety and comfort for the patient, physician and nursing staff.

Stay·safe

Biocompatible, safe and environmentally-friendly peritoneal dialysis system using Biofine as well as PIN and DISC technology, i.e. without the need for breaking cones and clamps.

UltraCare

Innovative and integrated treatment concept in Fresenius Medical Care's North American dialysis clinics combining, for example, the On-line Clearance Monitor, ultrapure dialysis fluid and the use of disposable highflux Polysulfone dialyzers.

Ultraflux

Filters for acute dialysis treatment.

Healthcare and Dialysis-Related Terms

Acute Kidney Failure

Acute loss of renal function. There is a good chance of recovery of renal function if the cause of the acute kidney failure can be eliminated. Depending on the severity of renal function loss, intermittent or continuous dialysis treatment may be necessary.

Adequacy

The term refers to the quality of dialysis treatment. To measure adequacy, tests are performed to see if enough fluid and substances have been removed from the patient's blood.

Albumin

A protein that can be used to monitor a patient's nutritional condition.

Anemia

Reduced oxygen transport capacity of the blood, measured as reduced hemoglobin content in the blood.

Anticoagulant

An agent (e.g. heparin) that prevents the clotting of blood (see Blood Coagulation).

Apheresis

Process of obtaining blood from a donor or a patient to separate or remove certain components (thrombocytes, plasma) before reinfusing the remainder.

Arterio-Venous (AV) Fistula

A direct surgically created connection between an artery and a vein in a patient. This connection forms a large blood vessel with an increased blood flow, providing access for hemodialysis.

Artery

A blood vessel that carries blood from the heart to the body.

Automated Peritoneal Dialysis (APD)

Machine (cycler) supported version of peritoneal dialysis treatment usually performed at night.

Biocompatibility

Ability of a material, system or solution to perform without an undesired, clinically significant response from the host.

Bioimpedance

Procedure for measuring the water content of the body. Alternating voltage electrodes measure the relationship between the alternating current and the alternating voltage flowing through the body.

Blood

Fluid circulating in the body composed of plasma and cells (red blood cells, white blood cells, platelets, etc.). The main function of blood is to transport oxygen, nutrients and hormones to tissues and to remove waste products (such as carbon dioxide and urea). Blood also regulates the water and electrolyte balance and helps fight off contaminants as part of the immune system.

Blood Cells, Red (Erythrocytes)

Cells responsible for transporting oxygen from the lungs into the body. They are created with the help of erythropoietin, a hormone produced in the kidneys.

Blood Cells, White (Leukocytes)

Cells that defend the human body against infection. They are involved in allergic reactions and destroy damaged, old and dead cells in the body.

Blood Coagulation

A complex process during which blood forms solid clots. It is an important part of hemostasis whereby a damaged blood vessel wall is covered by a fibrin clot that stops hemorrhaging and helps repair the damaged vessel. Disorders in coagulation can lead to increased hemorrhaging and/or thrombosis and embolism. During dialysis treatment, blood coagulation is inhibited with anticoagulants such as heparin.

Bloodlines

System of tubes connecting a patient's blood circulation with a dialyzer during extracorporeal dialysis treatment.

Blood Platelets ( Thrombocytes)

The part of blood responsible for healing wounds. Blood platelets form clots and release substances into the blood to generate the body's healing response.

Blood Pressure

Pressure exerted by the blood on the walls of the blood vessels. Unless indicated otherwise, blood pressure is understood to mean arterial blood pressure, i.e. the pressure in the large arteries, such as the brachial artery (in the arm). The arterial pressure is higher than the pressure of the blood in other vessels.

Buffer

Substance that reduces pH changes that occur in a system during the introduction of an acid or a base.

Catheter

A flexible tube inserted through the skin into a blood vessel or cavity to draw out body fluid or infuse fluid. In peritoneal dialysis a catheter is used to infuse dialysis solution into the abdominal cavity and drain it out again.

CE Certification

Proof of compliance with European Union directives for medical devices.

Chronic Kidney Disease

Slow and progressive loss of kidney function over several years, often resulting in permanent kidney failure. Since the renal function cannot be recovered, the patient has to be treated with renal replacement therapy, i.e. kidney transplantation or dialysis.

Clearance

A quantitative parameter to describe dialysis performance in terms of uremic toxin removal.

Composite Rate

Medicare reimbursement rate for dialysis treatment.

Continuous Ambulatory Peritoneal Dialysis (CAPD)

A type of peritoneal dialysis treatment where the dialysis solution is exchanged manually, generally four times a day.

Dialysate

Fluid used in the process of dialysis.

Dialysis

Form of renal replacement therapy where a semipermeable membrane – in peritoneal dialysis the peritoneum of the patient, in hemodialysis the membrane of the dialyzer – is used to selectively filter solute from the patient's blood into the dialysate.

Dialyzer

Special filter used in hemodialysis for removing toxic substances and excess water from the blood. The dialyzer is sometimes referred to as the "artificial kidney".

Dialyzer Membrane

Semipermeable barrier in the dialyzer to separate the blood from the dialysate.

Diffusion

An exchange in the chemical concentration of two fluids that are divided by a semipermeable membrane. The molecules move from one fluid to the other, with metabolic toxins being transferred through the membrane into the dialysate.

Disease Management

Integrated concept of patient care that takes into account all medical aspects of an illness.

Dry Weight

Targeted optimal body weight of the patient, achieved by removing excess water during dialysis.

Dwell Time

In peritoneal dialysis, this is the amount of time the dialysis solution remains in the patient's abdominal cavity during an exchange.

End-Stage Renal Disease (ESRD)

Terminal kidney failure accompanied by long-term complications such as renal anemia, hypertension and other cardiovascular problems, as well as bone disease, loss of appetite and malnutrition (see also "Chronic Kidney Failure").

Erythropoietin (EPO)

Hormone that stimulates red blood cell production.

Erythropoiesis-Stimulating Agents (ESA)

Recombinant human EPO that is commonly prescribed to patients on dialysis who suffer from anemia.

Extracorporeal

Situated or occurring outside the body.

FDA

The U.S. Food and Drug Administration.

Glomerular filtration rate (GFR)

The U.S. National Kidney Foundation categorizes kidney disease into five stages based on the glomerular filtration rate (GFR). The GFR indicates the volume of liquid that the kidneys filter from the blood per minute (primary urine). This ranges from more than 90 ml/min in healthy kidneys (stage 1) to less than 15 ml/min (stage 5) when dialysis or a kidney transplant is needed. Persons with stage 4 chronic kidney disease (CKD) have advanced kidney damage (GFR of 15 to 29 ml/min); it is highly likely that these patients will need dialysis or a kidney transplant in the near future.

Health Maintenance Organization (HMO)

Special form of private health insurance in the U.S. where the insured are members and treatment is provided by contract physicians (or member physicians) of the organization.

Hemodiafiltration (HDF)

Special type of ESRD treatment combining the advantages of hemodialysis and hemofiltration. High elimination rates are achieved for substances with small and large weight molecules via diffusive and convective mechanisms respectively.

Hemodialysis (HD)

ESRD treatment method where the patient's blood flows outside the body through disposable bloodlines into a special filter, the dialyzer. The dialysis solution carries away waste products and excess water, and the cleaned blood is returned to the patient. The process is controlled by a hemodialysis machine that pumps blood, adds anticoagulants, regulates the purification process, and controls the mixing of the dialysis solution and its flow rate through the system. A patient typically receives three treatments per week, lasting from three to six hours each.

Hemofiltration (HF)

A type of ESRD treatment that does not use dialysate. The solutes are removed using convective forces to filter plasma water through a semipermeable membrane. Substitution fluid is used to replace the volume removed by filtration.

Hemoglobin

Substance in red blood cells that carries oxygen around the body.

Heparin

Universal anticoagulant substance that is administered during hemodialysis to inhibit blood coagulation during the dialysis treatment.

High-Flux Dialyzers

Dialyzers containing highly permeable membranes that allow for the effective removal of water and large uremic toxins such as β2-microglobulin.

Hypervolaemia

Increased blood volume.

Incidence

Number of patients who are newly diagnosed with a specific disease during a certain period of time.

ISO

International Standards Organization.

Kidney

Two kidneys are located at the rear of the abdominal cavity, one each on the right and left side of the spinal column. These vital organs are approximately 11cm long and weigh only 160 grams each. The kidneys ensure a regulated acid-base balance by filtering excreta and producing urine. Approximately 1,700 liters of blood normally pass through the kidneys every 24 hours.

Kidney Transplantation

A surgical procedure to implant a kidney from a donor.

Kt / V

Indicator to evaluate treatment quality. It is calculated by dividing the product of urea clearance (K) and the length of treatment (dialysis time, t) by the filtration rate of certain toxic molecules (the urea distribution volume in the patient, V).

Low-Flux Dialyzers

Dialyzers with low permeability, e.g. for water.

Medicare / Medicaid

A program developed by the federal U.S. Social Security Administration that reimburses health insurances and providers of medical services for medical care to individuals over 65, with ESRD or the disabled.

Medicare Modernization Act (MMA)

Reform of Medicare, the public health insurance system providing medical care for the elderly as well as dialysis patients without private insurance. The reform affects the composite payment rates for the treatment of endstage renal disease patients and became effective in 2005.

Membrane Permeability

An indication of the "openness" of a dialyzer membrane for blood or dialysis fluid constituents.

Osmosis

Passage of water from the blood through a semipermeable membrane. In osmosis, as opposed to diffusion, molecules move only in one direction.

Dialysis treatment method using the patient's peritoneum, i.e. the tissue that covers the inner surface of the abdominal cavity and the abdominal organs, as the dialyzing membrane for blood purification. A sterile dialysis solution is introduced and removed through a catheter that has been surgically implanted into the patient's abdominal cavity. The solution absorbs toxins and excess water. Most treatments are supported by a machine, the cycler, and are administered by the patients in their home or workplace several times a day or during the night.

Plasma

Liquid part of the blood containing water, proteins and other substances such as electrolytes and hormones. Blood cells are not part of the plasma.

Polysulfone

A polymer used to produce dialyzer membranes. It is characterized by extreme thermal stability, chemical resistance and blood compatibility.

Prevalence

Number of all patients who suffer from a specific disease during a certain period of time.

Transplantation

Taking an organ or tissue from the body and grafting it into another area of the same body or into another individual.

Ultrafiltration

The convective transport of solutes through a dialyzer or hemofilter membrane due to a decrease in hydrostatic pressure.

Ultrafiltration Rate

Rate of fluid removal from the patient's blood circulation measured in ml/min. This rate has to be chosen carefully. If the rate is too high, the cardiovascular stability of the patient is put at risk; if it is too low, the patient's excess water cannot be removed.

Vascular Access (Shunt)

Method to connect a patient's blood circulation to the dialyzer. The vascular access must enable sufficient blood flow and connection to the dialyzer as often as necessary, normally three times a week. Adequate vascular access is a prerequisite for hemodialysis. The early recognition of problems during vascular access is essential for the blood to flow.

Vein

A blood vessel that carries blood to the heart.

Xenotransplantation

Transplantation of tissues or organs from one species to another.

03.3 Contacts and Calendar

Fresenius Medical Care

61346 Bad Homburg v.d.H. Germany Tel. + 49 6172 609 0 http://www.fmc-ag.com

Investor Relations Oliver Maier

Tel. + 49 6172 609 25 25 Fax + 49 6172 609 23 01 E-mail: ir@fmc-ag.com

North America Investor Relations

Terry L. Morris Tel. + 1 800 948 25 38 Fax + 1 615 345 56 05 E-mail: ir@fmc-ag.com

Public Relations

Joachim Weith Tel. + 49 6172 609 21 01 Fax + 49 6172 609 22 94 E-mail: pr@fmc-ag.com

Transfer Agent

The Bank of New York

P.O. Box 11258 Church Street Station New York, NY 10286-1258 USA Tel. + 1 888 269 2377 (toll-free number in the U.S.) Tel. + 1 201 680 6825 E-mail: shareowners@bankofny.com http://www.stockbny.com

Contacts Financial Calendar 2008

Report on the first quarter 2008	April 30, 2008
Annual General Meeting	May 20, 2008
Payment of dividend1	May 21, 2008
Report on the first half 2008	July 30, 2008
Report on the first nine months 2008	November 4, 2008
1 Subject to the approval of the Annual General Meeting

Important Fairs 2008

45th ERA-EDTA Congress May 10–13, 2008 (European Renal Association – European Dialysis and Transplant Association) Stockholm, Sweden

12th ISPD Congress June 21–24, 2008 (International Society for Peritoneal Dialysis) Istanbul, Turkey

41st Annual Meeting of the ASN November 4–9, 2008

(American Society of Nephrology) Philadelphia, Pennsylvania, U.S.

Imprint

Subject to change.

This annual report is also available in German and may be obtained from the Company upon request. Dieser Geschäftsbericht liegt auch in deutscher Sprache vor.

Annual reports, interim reports, and further information on the Company are also available on our Web site: http://www.fmc-ag.com.

Printed reports can be ordered online, by phone or in writing from Investor Relations.

Published by	Fresenius Medical Care AG & Co. KGaA
Editorial office	Investor Relations
Editorial deadline	March 17, 2008
Copy editing	Textpertise, Heike Virchow
Concept and design	häfelinger + wagner design, Munich
Photographers	Matthias Ziegler
B	ecker Lacour (products and cover pages)
Produced by	G. Peschke Druckerei GmbH, Munich

This report contains forward-looking statements that are based on plans, projections and estimates and subject to various risks and uncertainties. Actual results could differ materially from those described in these forward-looking statements due to certain factors. The risks and uncertainties are detailed in Fresenius Medical Care AG & Co. KGaA's reports filed with the U.S. Securities and Exchange Commission. We do not undertake any obligation to update any forward-looking statements in this report.

The title, text, and illustrations are subject to copyright. Reproduction in whole or in part requires the prior written authorization of Fresenius Medical Care AG & Co. KGaA.

Fresenius Medical Care AG & Co. KGaA Registered seat and commercial register: Hof an der Saale (Germany), HRB 4019 Chairman of the Supervisory Board: Dr. Gerd Krick General partner: Fresenius Medical Care Management AG Registered seat and commercial register: Hof an der Saale (Germany), HRB 3894 Management Board: Dr. Ben Lipps (Chairman), Roberto Fusté, Dr. Emanuele Gatti, Rice Powell, Lawrence A. Rosen, Dr. Rainer Runte, Mats Wahlstrom Chairman of the Supervisory Board: Dr. Ulf M. Schneider

Poly s ulfone Fiber

The picture on the cover page shows fibers through which the patient's blood flows. Each fiber is only a quarter of a millimeter thick – not much more than a human hair.

FResenius Medical caRe Financial RepoRt 2007 innovations FoR liFe

Key FiGuRes 2007

Operating data
\$ in millions	2007	2006	change
net revenue	9,720	8,499	14 %
earnings before interest and taxes,
depreciation and amortization (ebitda)	1,943	1,627	19 %
earnings before interest and taxes (ebit)	1,580	1,318	20 %
net income	717	537	34 %
net cash flow from operating activities	1,200	908	32 %
Free cash flow1	651	458	42 %
capital expenditure (net)	549	450	22 %
capital expenditure including acquisitions	900	4,766
proceeds from divestitures	30	516
data per share
earnings per ordinary share (\$)	2.43	1.82	33 %
dividend per ordinary share (€)	0.54	0.47	15 %
Key ratiOs (in %)
ebit margin	16.3	15.5
ebitda margin	20.0	19.1
equity to assets	39.3	37.3
Other data
employees (full-time equivalents)	61,406	56,803	8 %
patients	173,863	163,517	6 %
clinics	2,238	2,108	6 %
treatments (in millions)	26.4	23.7	11 %

before acquisitions and dividends

net revenue

\$ in millions
2007	9,720
2006	8,499

net inCOMe
\$ in millions
2007	717
2006	537

earnings per share

in \$
2007 2006	2.43 1.82

all figures in this report are stated in u.s.-\$ and in conformity with u.s. Gaap, if not indicated otherwise.

unless specified, all charts refer to fiscal year 2007. For more details please look to the 5-year summary at the end of the financial report.

04.1–7 Operating and Financial Review and Prospects	Critical Accounting Policies Financial Condition and Results of Operations Results of Operations Liquidity and Capital Resources Recently Issued Accounting Standards Quantitative and Qualitative Disclosures about Market Risk Compensation of Management Board and Supervisory Board	5 10 13 19 28 30 35
05.1–8 Consolidated Financial Statements	Consolidated Statements of Income Consolidated Balance Sheets Consolidated Statements of Cash Flows Consolidated Statements of Shareholders' Equity Notes to Consolidated Financial Statements Management's Report on Internal Control over Financial Reporting Report of Independent Registered Public Accounting Firm Auditors' Report	43 44 46 48 50 106 108 110
06.1–5 Further Info rmation	Financial Glossary Regional Organization Major Subsidiaries 5-Year Summary Index	113 115 116 118 120

Things Worth Knowing about Polysulfone Fiber

As a prelude to each chapter of the annual report, one aspect of polysulfone fiber, which is used in our dialyzers, will be discussed briefly: the volume produced annually, the layout of the fibers inside the dialyzer, the diameter, the pore size and the transport mechanisms.

2

Fresenius Medical Care filed an annual report under Form 20-F with the Securities and Exchange Commission (SEC) with additional information on the Company. Fresenius Medical Care's annual report on Form 20-F may be obtained from the Company or by shareholders in the United States by writing to: The Bank of New York / P.O. Box 11258/ Church Street Station/ New York, NY 10286-1258/ USA / Tel. +1 (888) 269 2377 (toll-free number in the U.S.).

The audited financial statements of the Group's holding company, Fresenius Medical Care AG & Co. KGaA, will be submitted electronically to the electronic German Federal Gazette (Bundesanzeiger) who files these financial statements with the Company Register. These financial statements can be obtained from the Company.

The audited consolidated financial statements in accordance with §315 a Commercial Code (HGB) in conjunction with Article 58(5) of the Introductory Act to the German Commercial Code (EGHGB) will be submitted electronically to the electronic German Federal Gazette (Bundesanzeiger) who files these consolidated financial statements with the Company Register. These financial statements can be obtained from the Company.

The publications can be also accessed on www.fmc-ag.com.

The fiber is a semi-permeable membrane. It works much in the same way as a fine sieve: small molecules in the blood (usually metabolic toxins) are filtered through pores in the fiber and then carried away by the dialysis fluid. Vital molecules (for example blood cells and important proteins) are normally larger and therefore remain in the blood.

[04.1–7 ] Operating and financial review and prospects

04.1 Critical Acco unting Po licies	Recoverability of Goodwill and Intangible Assets Legal Contingencies Accounts Receivable and Allowance for Doubtful Accounts Self-insurance Programs	5 6 7 9
04.2 Financial Condition and Results of Operations	Overview	10
04.3 Results of Operations	Highlights Consolidated Financials North America Segment International Segment	14 14 17 18
04.4 Liquidity and Capital Resources	Liquidity Other Dividends Analysis of Cash Flow Obligations Borrowings Debt Covenant Disclosure – EBITDA	19 20 24 24 26 26 28
04.5 Recently Issued Acco unting Standards		28
04.6 Quantitative and Qualitative Disclosures Abo ut Market Risk	Market Risk	30
04.7 Com pensation of Management Board and Supervisory Board	Report of the Management Board of Fresenius Medical Care Management AG , Our General Partner Compensation of the Supervisory Board	35 40

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 "Outlook" and "Risk Report" in the corporate report as well as in Note 18 "Legal Proceedings" in the financial report.

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.

Critical Accounting Policies 04.1

The Company's reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis for our financial statements. The critical accounting policies, the judgements made in the creation and application of these policies, and the sensitivities of reported results to changes in accounting policies, assumptions and estimates are factors to be considered along with the Company's financial statements, and the discussion in "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, 2007, the carrying amount of goodwill amounted to \$7,246 million and non-amortizable intangible assets amounted to \$443 million representing in total approximately 54% 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 7.34% for 2007. This basic rate is then adjusted by a percentage ranging from 0% to 7% 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 Note 18 "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 \$2,027 million and \$1,849 million at December 31, 2007 and 2006, respectively, net of allowances for doubtful accounts of \$248 million and \$207 million at December 31, 2007 and 2006, 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 nongovernmental 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 more than 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 U.S.

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, 2007 were uncollectible through either a change in our estimated contractual adjustment or as bad debt, our operating income for 2007 would have been reduced by approximately 1%.

The following tables show the portion and aging of trade accounts receivable of major debtors or debtor groups at December 31, 2007 and December 31, 2006. No single debtor other than U.S. Medicaid and Medicare accounted for more than 5% of total trade accounts receivable in either year. 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. Amounts pending approval from third party payors represent less than 1% at December 31, 2007.

Aging of net trade accounts receivable by major payor groups:

Co mposition of Trade accounts receivables
December 31,	2007	2006
U.S. Medicare and Medicaid programs	20%	22%
U.S. commercial payors	26%	26%
U.S. hospitals	6%	4%
Self-pay of U.S. patients	1%	1%
Other U.S.	–	3%
International product customers and dialysis payors	47%	44%
TOTAL	100%	100%

Self-Insurance Programs

Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, FMCH, our largest subsidiary, is partially self-insured for professional liability claims. For all other coverages we assume responsibility for incurred claims up to predetermined amounts above which third party insurance applies. Reported liabilities for the year represent estimated future payments 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 04.2

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 \$58 billion worldwide market with expected annual world-wide 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.

For calendar year 2008, CMS increased the drug add-on adjustment by \$0.69, bringing the drug add-on adjustment to 15.5 percent of the total per-treatment prospective payment. The composite rate, unlike many other payment rates in Medicare is not automatically updated each year. As a result, this portion of the payment rate does not receive an annual update in the absence of a statutory change. Although Congress provided for updates ranging from 1.6 to 2.4 percent to the composite rate in the previous five years, Congress has not yet enacted legislation to update the composite rate for the calendar year 2008. CMS updated the wage index adjustment applicable to ESRD facilities to a 25/75 blend between adjustments based on old metropolitan statistical areas ("MSAs") and those based on new core-based statistical areas ("CBSAs"). In 2009, CMS expects to complete the transition from the MSA definition to the CBSA definition, and facilities will be paid according to the CBSA rate.

Certain other items and services that we furnish at our dialysis centers are not included in the composite rate and are eligible for separate Medicare reimbursement. The most significant of these items are drugs or biologicals, such as erythropoietin-stimulating agents ("ESAs"), vitamin D analogs, and iron, which are reimbursed at 106% of the average sales price as reported to CMS by the manufacturer. Products and support services furnished to ESRD patients receiving dialysis treatment at home are also reimbursed separately under a reimbursement structure comparable to the in-center composite rate. Although these reimbursement methodologies limit the allowable charge per treatment, they provide us with predictable per treatment revenues.

CMS has estimated that these changes will increase Medicare payments to all ESRD facilities by 0.5 percent in 2008 but that there will be some variation 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 0.9 percent more in 2008. The Company's estimates of the effects of these changes on its business are consistent with the CMS calculations.

In March 2007, at the request of the FDA, the manufacturer of Epogen and Aranesp added a "blackbox" safety warning (FDA's highest level of safety warning) to its package label dosing instructions. In April 2007, the National Kidney Foundation amended its anemia management guidelines for anemia management ("K/ DOQI").

In July, 2007, CMS announced a revision to the national monitoring policy for ESA's, to be effective January 1, 2008. The revision reduces the monthly aggregate maximum dose from 500,000 IU to 400,000 IU for Epogen and from 1500 mcg to 1200 mcg for Aranesp. The revision continues the original monthly 25% dose reduction requirement in payment in instances where a patient's hemoglobin level persists above 13.0 g/dL for less than three monthly billing cycles and, in addition, it further reduces payment by 50% of the reported dose if the hemoglobin level persists above 13.0 g/dLfor three months or more. In November 2007, the FDA announced revisions to product labeling, including a change to the dosing recommendations for anemic patients with chronic renal failure to explicitly advise clinicians to maintain hemoglobin levels within the range of 10 to 12g/dL. In addition, warnings were strengthened regarding possible adverse events when ESAs are administered to achieve higher hemoglobin levels.

We believe our policies on billing for ESAs comply with CMS policies. We have recommended to our treating physicians that they review and understand the package label insert and the K/ DOQI guidelines as they make their anemia management decisions.

We have identified three operating segments, North America, International, and Asia Pacific. For reporting purposes, we have aggregated the International and Asia Pacific segments as "International". We aggregated these segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, same type patient population, similar methods of distribution of products and services and similar economic environments. The general partner's 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 are discussed below in the discussion of our consolidated results of operations.

Results of Operations 04.3

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.

Segment DATA
\$ in millions	2007	2006
Total revenue
North America	6,664	6,026
International	3,134	2,534
TOTAL	9,798	8,560
inter-segment revenue
North America	1	1
International	77	60
TOTAL	78	61
Total net revenue
North America	6,663	6,025
International	3,057	2,474
TOTAL	9,720	8,499
Amortization and depreciation
North America	220	187
International	141	120
Corporate	2	2
TOTAL	363	309
Operating income
North America	1,130	965
International	544	440
Corporate	(94)	(87)
TOTAL	1,580	1,318
Interest income	29	21
Interest expense	(400)	(372)
Income tax expense	(466)	(413)
Minority interest	(26)	(17)
net inco me	717	537

Highlights

Revenues increased by 14% to \$9,720 million (12% at constant rates) mainly due to organic growth at 6%, the RCG Acquisition, net of acquisition-related divestitures, which occurred by the end of the first quarter of 2006, contributing 4% and other acquisitions contributing 2%. Operating income (EBIT) increased 20%.

Net Income increased by 34%.

We successfully issued \$500 million 6 7/8% Senior Notes due 2017 to refinanct debt.

Effective June 15, 2007, we completed a three-for-one share split of our ordinary shares and our preference shares, as approved by our shareholders at the Annual General Meeting held on May 15, 2007.

On November 26, 2007, the Company completed the acquisition of 100% of the common shares of Renal Solutions, Inc. (RSI) an Indiana corporation with principal offices in Warrendale, PA. for total consideration of up to \$204 million. RSI holds key patents and other intellectual property worldwide related to sorbent-based technology (SORB) which allows dialysate to be regenerated, an important step in advancing home hemodialysis and helping to create a potential platform for eventual development of a wearable kidney.

Consolidated Financials

Key Indicators for consolidated financials
	2007	2006	Change as reported	Change at constant exchange rates
Number of treatments	26,442,421	23,739,733	11%
Same market treatment growth	3.9%	4.2%
Revenue in \$ million	9,720	8,499	14%	12%
Gross profit in % of revenue	34.5%	33.9%
Selling, general and administrative costs in % of revenue	17.6%	18.2%
Net income in \$ million	717	537	34%

We provided 26,442,421 treatments during the year ended December 31, 2007, an increase of 11% over the same period in 2006. Same market treatment growth contributed 4%, the RCG Acquisition, net of the acquisition-related divestitures, contributed 4%, and additional growth from other acquisitions contributed 4%, partially offset by the combined effects of sold or closed clinics (1%).

At December 31, 2007, we owned, operated or managed (excluding those managed in the U.S.) 2,238 clinics compared to 2,108 clinics at December 31, 2006. During 2007, we acquired 84 clinics, opened 76 clinics and combined or closed 30 clinics. The number of patients treated in clinics that we own, operate or manage (excluding those managed in the U.S.) increased by 6% to 173,863 at December 31, 2007 from 163,517 at December 31, 2006. Including 33 clinics managed in the U.S., the total number of patients was 175,705.

Net revenue increased by 14% (12% at constant rates) for the year ended December 31, 2007 over 2006 due to growth in revenue in both dialysis care and dialysis products and the net effects of the RCG Acquisition.

Dialysis care revenue grew by 13% to \$7,213 million (12% at constant exchange rates) in 2007 mainly due to the RCG Acquisition net of acquisition-related divestitures (5%), growth in same market treatments (4%), increased revenue per treatment (2%), other acquisitions (2%) and exchange rate fluctuations (1%), partially offset by sold or closed clinics (1%).

Dialysis product revenue increased by 18% to \$2,507 million (12% at constant exchange rates) in the same period mainly as a result of increased sales of hemodialysis machines, dialyzers, concentrates, and the PhosLo business which we acquired in late 2006.

The increase in gross profit margin is primarily a result of higher revenue per treatment rates, partially offset by higher personnel expenses and by decreased utilization of and reduced reimbursement rates for EPO in North America, higher growth in lower gross margin dialysis care business in the International segment and growth in lower margin renal pharma sales.

Selling, general and administrative ("SG&A") costs increased to \$1,709 million in 2007 from \$1,548 million in 2006. SG&A costs as a percentage of sales decreased to 17.6% in 2007 from 18.2% in 2006. The positive effect of the economies of scale in the International segment was partially offset by higher personnel expenses. In addition, 2006 was negatively impacted by the effects of charges of \$32 million related to the integration of the RCG Acquisition, \$3 million for in-process R&D and the transformation of the Company's legal form (\$2 million). Bad debt expense for 2007 was \$202 million as compared to \$177 million in 2006, representing 2.1% of sales for both 2007 and 2006.

Operating income increased to \$1,580 million in 2007 from \$1,318 million in 2006. Operating income margin increased to 16.3% for 2007 from 15.5% for 2006 due to increased gross margins as noted above and the decrease in SG&A as a percentage of sales as noted above, partially offset by effects of a \$40 million gain in 2006 from the acquisition-related divestitures. The gain from the acquisition-related divestitures and the costs in connection with the RCG integration and transformation of our legal form, had no net effect on the operating income margin for 2006.

Interest income increased to \$29 million in 2007 as compared to \$21 million in 2006 to a large extent as a result of interest income related to the collection of overdue accounts receivable.

Interest expense increased 8% to \$400 million during 2007 from \$372 million for 2006 mainly as a result of increased debt due to the RCG Acquisition which was consummated at the end of March 2006. The write-off of fees related to the early retirement of debt incurred under Senior Credit Agreements had an impact of \$5 million and \$15 million for 2007 and 2006, respectively.

Income tax expense increased to \$466 million for 2007 from \$413 million for 2006. In August 2007, the German corporate tax rate was reduced from 25% to 15% which resulted in a deferred tax benefit in the second half of 2007 of \$4.3 million. This benefit was offset by the effect of additional tax expense recognized as a result of ongoing tax audits. The effective tax rate for 2007 was 38.5% compared to 42.8% for 2006, a decrease mainly due to the impact of tax charges in 2006 related to the gain from the RCG acquisition-related divestitures and a tax audit in Germany.

Minority interest increased by \$9 million as a result of a number of joint ventures acquired in connection with the RCG Acquisition in 2006 and additional Asia-Pacific acquisitions in 2007 that are not wholly-owned.

Net income for 2007 increased to \$717 million from \$537 million for 2006 mainly as a result of the effects of the items mentioned above. The twelve-month period ended December 31, 2006 was affected by the after-tax effect of \$9 million of charges from the write-off of deferred financing fees related to the previous senior credit agreement, \$4 million net loss on the sale of acquisition-related divestitures, \$22 million costs for the integration of RCG, \$1 million for in-process R&D and \$1 million costs for the transformation of legal form. Excluding these costs for the prior year, net income in 2007 increased by 25% to \$717 million from \$574 million in 2006.

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

North America Segment

Key indicators for No rth America Segment
	2007	2006	Change
Number of treatments	18,451,381	16,877,911	9%
Same market treatment growth	2.9%	2.1%
Revenue in \$ million	6,663	6,025	11%
Depreciation and amortization in \$ million	220	187	18%
Operating income in \$ million	1,130	965	17%
Operating income margin	17.0%	16.0%

Revenue

Treatments increased by 9% for 2007 as compared to 2006 mainly due to the RCG Acquisition (6%), same market growth (3%), and other acquisitions (1%) partially offset by the combined effect of sold or closed clinics (1%). At December 31, 2007, 121,431 patients (a 3% increase over the same period in the prior year) were being treated in the 1,602 clinics that we own or operate in the North America segment, compared to 117,855 patients treated in 1,560 clinics at December 31, 2006. The average revenue per treatment for 2007 increased to \$323 from \$ 317 in 2006. In the U.S., the average revenue per treatment increased to \$327 for 2007 from \$321 for 2006. The improvement in the revenue rate per treatment is primarily due to improved commercial payor rates, a 1.6% increase in the Medicare composite rate, an increase in the drug add-on adjustment and the effects of the RCG Acquisition, partially offset by decreased utilization of and reduced reimbursement rates for EPO.

Net revenue for the North America segment for 2007 increased as a result of increases in dialysis care revenue by 10% to \$6,002 million from \$5,464 million in 2006 and dialysis product revenue by 18% to \$661 million from \$561 million in 2006.

The 10% increase in dialysis care revenue was driven by an 6% increase as a result of the effects of the RCG Acquisition, net of acquisition-related divestitures, by same market treatment growth of 3% and 1% resulting from other acquisitions partially offset by sold or closed clinics and the divestiture of the perfusion business (2%). In addition, revenue per treatment improved 2%. The administration of EPO represented approximately 21% and 23% of total North America dialysis care revenue for 2007 and 2006, respectively.

The product revenue increase was driven mostly by a higher sales volume of hemodialysis machines, concentrates, and sales of the phosphate binding drug PhosLo which was acquired in late 2006.

Operating Income

Operating income increased by 17% to \$1,130 million for 2007 from \$965 million for 2006. Operating income margin increased to 17.0% for 2007 as compared to 16.0% for 2006 primarily due to increased revenue per treatment and a higher volume of products sold, partially offset by higher personnel costs, by decreased utilization of and reduced reimbursement rates for EPO, and the effects in 2006 of a \$40 million gain from the acquisition-related divestitures as well as \$31 million costs for the integration of the RCG Acquisition and \$3 million for in-process R&D. Excluding the gain from the acquisition-related divestitures and the costs in connection with the integration of RCG, operating income margin would have been 15.9% for 2006. Cost per treatment increased to \$267 in 2007 from \$266 in 2006.

International Segment

2007	2006	Change as reported	Change at constant exchange rates
7,991,040	6,861,822	16%
6.2%	8.6%
3,057	2,474	24%	15%
141	120	18%
544	440	24%
17.8%	17.8%

Key indicators for International segment

Revenue

Treatments increased by 16% in 2007 over 2006 mainly due to same market growth (6%), and acquisitions (11%), partially offset by sold or closed clinics (1%). As of December 31, 2007, 52,432 patients (a 15% increase over the prior year) were being treated at 636 clinics that we own, operate or manage in the International segment compared to 45,662 patients treated at 548 clinics at December 31, 2006. The average revenue per treatment increased to \$152 from \$133 due to increased reimbursement rates and changes in country mix (\$8) and the strengthening of local currencies against the U.S. dollar (\$11).

The increase in net revenues for the International segment for 2007 over 2006 resulted from increases in both dialysis care and dialysis product revenues. Acquisitions contributed approximately 6% and organic growth during the period was 9% at constant exchange rates. Exchange rate fluctuations contributed 9%.

Including the effects of acquisitions, European region revenue increased 20% (9% at constant exchange rates), Latin America region revenue increased 22% (14% at constant exchange rates), and Asia Pacific region revenue increased 44% (40% at constant exchange rates).

Total dialysis care revenue for the International segment increased during 2007 by 33% (23% at constant exchange rates) to \$1,211 million from \$913 million for 2006. This increase is a result of same market treatment growth of 6% and an 11% increase in contributions from acquisitions. An increase in revenue per treatment contributed 6% and exchange rate fluctuations contributed approximately 10%.

Total dialysis product revenue for 2007 increased by 18% (10% at constant exchange rates) to \$1,846 million mostly due to increased dialyzer and peritoneal-dialysis product sales and increased hemodialysis machine sales.

Operating Income

Operating income increased by 24% to \$544 million primarily as a result of an increase in treatment volume, acquisitions and in volume of products sold. Operating income margin remained at approximately 17.8% mainly due to disproportionately higher growth in the dialysis care business which has lower than average margins offset by operational improvements.

Liquidity and Capital Resources 04.4

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 sites, to finance working capital needs and to repay debt. At December 31, 2007, we had cash and cash equivalents of \$245 million, and our ratio of current assets to current liabilities was 1.3. Our working capital was \$833 million which decreased from \$1.036 billion at December 31, 2006. The decrease was mainly the result of the reclassification of \$670 million of Trust Preferred Securities, which were redeemed on February 1, 2008, to short-term. This was partially offset by using part of the proceeds of the issuance of our Senior Notes in July 2007 to pay down short-term debt related to our accounts receivable facility as described below. The proceeds were also used to voluntarily prepay indebtedness, which was applied primarily to the current portion of the term loans, under our 2006 Senior Credit Agreement. The Company redeemed \$678 million of Trust Preferred Securities on February 1, 2008 when they came due by utilizing funds available under its existing credit facilities.

Our primary sources of liquidity have historically been cash from operations, cash from shortterm borrowings as well as from long-term debt from third parties and from related parties and cash from issuance of equity and debt 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 74% 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 2007, approximately 36% of our consolidated revenues resulted from U.S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative changes could affect Medicare reimbursement rates for all 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 "Overview" beginning on page 10 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, 2007 and December 31, 2006, net of valuation allowances, represented approximately 74 and 76 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 development of days sales outstanding ("DSO") by operating segment is shown in the table below.

Development of days sales outstanding
in days, December 31,	2007	2006
North America	58	59
International	110	119
TOTAL	74	76

2006 Senior Credit Agreement and Senior Notes

For information concerning the 2006 Credit Agreement and the Senior Notes refer to Note 10 of the consolidated financial statements.

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 SE ("FSE") 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 FSE 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. During 2007, we received advances ranging from €2.2 million to €30.9 million which carried interest at rates between 4.37% and 5.105% per annum.

Liquidity is also provided from short-term borrowings of up to \$650 million (\$85 million through December 31, 2007) generated by selling interests in our accounts receivable ("A / R Facility"), which is available to us through October 16, 2008. The A / R Facility is typically renewed annually and was most recently increased in October 2006 and renewed in October 2007. 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.

On July 2, 2007, FMC Finance III S.A., a wholly-owned subsidiary of the Company, issued \$500 million aggregate principal amount of 6 7/8% senior notes due 2017 (the "Senior Notes") at a discount resulting in an effective interest rate of 7 1/8%. The Senior Notes are guaranteed on a senior basis jointly and severally by the Company and by our subsidiaries Fresenius Medical Care Holdings, Inc. ("FMCH") and Fresenius Medical Care Deutschland GmbH ("D-GmbH"). We may redeem the Senior Notes at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the indenture. The holders have a right to request that we repurchase the Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control followed by a decline in the rating of the Senior Notes. The proceeds, net of discounts, bank fees and other offering related expenses totaling approximately \$484 million, were used to reduce \$150 million of Term Loan A indebtedness and \$150 million of Term Loan B indebtedness under our 2006 Senior Credit Agreement (see Note 10 for the discussion of our 2006 Senior Credit Agreement). The remaining \$184 million was applied to the outstanding balance under our short-term accounts receivable facility. The discount is being amortized over the life of the Senior Notes.

Additional long-term financing has been provided through our borrowings under various credit agreements with the European Investment Bank ("EIB") entered into 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 multi-currency loan facilities have been granted in the amount of €221 million. The Company will use the funds to refinance certain R&D projects, to make investments in expansion and optimization of existing production facilities in Germany, and for financing and refinancing of certain clinic refurbishing and improvement projects. 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. Under these agreements at December 31, 2007, the Company had only U.S. dollar borrowings in the amount of \$48.8 million with an interest rate of 4.92%.

FMC Finance IV Luxembourg issued euro denominated notes ("Euro Notes") (Schuldscheindarlehen) in July 2005 that provide long-term financing for general corporate purposes. 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 6.56% at December 31, 2007. The Euro Notes, guaranteed by the Company, 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 issuers of the Trust Preferred Securities are statutory trusts organized in Delaware and wholly owned by the Company. Each trust's sole asset is a senior subordinated promissory note issued by us or by a wholly-owned subsidiary. The Company, D-GmbH and FMCH have guaranteed payment and performance of the senior subordinated notes and the Trust Preferred Securities are guaranteed by a series of undertakings by the Company and FMCH and D-GmbH. On February 1, 2008, the Company redeemed Trust Preferred Securities in the amount of \$678 million that came due that day. The remaining balance of \$664 million is mandatorily redeemable in 2011.

Our obligations under the 2006 Credit Agreement are secured by pledges of capital stock of certain material subsidiaries, including FMCH and D-GmbH, in favor of the lenders. Our 2006 Senior Credit Agreement, EIB agreements, Euro Notes, Senior 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 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 (ratio of consolidated funded debt to consolidated EBITDA as these terms are defined in the 2006 Senior Credit Agreement). 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 and make other restricted payments, create liens or engage in sale-lease backs.

The breach of any of the covenants could result in a default under the 2006 Senior Credit Agreement, the EIB agreements, the Euro Notes, the Senior 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 Senior Credit Agreement becomes due at the option of the lenders under that agreement. As of December 31, 2007, 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 Note 18 "Legal Proceedings" in this report) 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.

During the third quarter 2006, the German tax authorities substantially finalized their tax audit for tax years 1998–2001. We believe that we have resolved the outstanding issues at the audit level, subject to review and approval by the appropriate level within the taxing authority. Except for the refund claims discussed below, the U.S. 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 U.S. 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 contesting the IRS's disallowance of FMCH's civil settlement payment deductions and are pursuing recovery through IRS appeals and, if necessary, in the Federal courts of the tax and interest payment associated with such disallowance. In addition, the IRS has issued its report on its completed tax audit for the years 2002 through 2004. The audit report includes disallowance of a material amount of deductions taken during the audit period for remuneration related to intercompany mandatorily redeemable preferred securities. The Company has filed a protest over the disallowed deductions and will avail itself of all remedies. An adverse determination with respect to any of the disputed disallowances could have a material adverse effect on our cash flows, tax expenses, net income and earnings per share.

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 the audits. We are contesting, including appealing, certain of these unfavorable determinations. 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

Following our earnings-driven dividend policy, our General Partner's Management Board will propose to the shareholders at the Annual General Meeting on May 20, 2008, a dividend with respect to 2007 and payable in 2008, of €0.54 per ordinary share (2006: €0.47) and €0.56 per preference share (2006: €0.49). The total expected dividend payment is approximately €160 million and we paid €139 million (\$188 million) in 2007 with respect to 2006.

Our 2006 Senior Credit Agreement limits disbursements for dividends and other payments for the acquisition of our equity securities (and rights to acquire them, such as options or warrants) during 2008 to \$260 million in total.

Analysis of Cash Flow

Operations

We generated cash from operating activities of \$1,200 million in 2007 and \$908 million in 2006, an increase of approximately 32% from the prior year. The increase in cash flows was primarily generated by increased earnings partially offset by a lower reduction of DSO in 2007 as compared to 2006 (2007: 2 days versus 2006: 6 days). Payments of \$64 million for taxes and \$35 million for other costs, both related to the RCG Acquisition, and a tax payment \$99 million related to the Company's 2000 and 2001 U.S. tax filings, had a negative impact on cash generated from operations in 2006. ( See "Results of Operations" above and the discussion under "Other" above ). Cash flows were used mainly for investing ( capital expenditures and acquisitions) and to pay down debt.

Investing

Net cash used in investing activities was \$777 million in 2007 compared to \$4,241 million (including the RCG Acquisition) in 2006. In 2007, we paid approximately \$138 million cash (\$62 million in the North America segment and \$76 million in the International segment) for acquisitions consisting primarily of dialysis clinics. In addition, we paid approximately \$120 million in conjunction with the acquisition of Renal Solutions Inc. We also received \$30 million in conjunction with divestitures. In 2006, we paid \$159 million cash for acquisitions, exclusive of the RCG Acquisition, (\$145 in the North American segment and \$14 million for the International segment) for the Phoslo product business (\$73 million) and other acquisitions consisting primarily of dialysis clinics. In addition, in 2006 we paid \$4,148 million for the acquisition of RCG, partially offset by the cash receipts of \$516 million from acquisition related divestitures.

Capital expenditures for property, plant and equipment net of disposals were \$549 million in 2007 and \$450 million in 2006. In 2007, capital expenditures were \$315 million in the North America segment, and \$234 million for the International segment. In 2006, capital expenditures were \$302 million in the North America segment and \$148 million for the International segment. The majority of our capital expenditures was used for equipping new clinics, maintaining existing clinics, maintenance and expansion of production facilities, primarily in North America, Germany and Japan, and capitalization of machines provided to our customers, primarily in the International segment. Capital expenditures were approximately 6% of total revenue.

Financing

Net cash used in financing was \$341 million for 2007 compared to cash provided by financing of \$3,382 million for 2006. In 2007, cash used was for payment of dividends during the period of \$188 million (\$154 million in 2006) and for repayments of long-term debt, capital lease obligations and our A / R Facility partially offset by proceeds from the issuance of our Senior Notes of \$484 million. In 2006, \$4,148 million required for the RCG Acquisition, less the \$516 million proceeds from the divestiture of 105 clinics and the laboratory business, was provided by increased debt from the Senior Credit agreement and \$307 million generated by the conversion of preference to ordinary shares. Cash on hand was \$245 million at December 31, 2007 compared to \$159 million at December 31, 2006.

Obligations

The following table summarizes, as of December 31, 2007, our obligations and commitments to make future payments under our long-term debt, trust preferred securities and other longterm obligations, and our commitments and obligations under lines of credit and letters of credit.

Contractual Cash Obligations

\$ in millions	Total		Payments due by period of
		1 Year	2–5 Years	over 5 Years
Trust Preferred Securities1	1,512	725	788	–
Long-term debt2	5,156	322	3,744	1,090
Capital lease obligations	14	3	8	3
Operating leases	1,943	358	1,021	564
Unconditional purchase obligations	296	188	108	–
Other long-term obligations	19	18	1	–
Letters of Credit	87	87	–	–
TOTAL	9,027	1,700	5,669	1,657

Interest payments are determined on these debt instruments until their respective maturity dates and based on their applicable balances and fixed interest rates for each period presented. We redeemed \$670 million of Trust Preferred Securities on February 1, 2008, primarily by utilizing funds available under our existing credit facilities.

Interest payments are based upon the principal repayment schedules and fixed interest rates or estimated variable interest rates considering the applicable interest rates (e.g. Libor, Prime), the applicable margins, and the effects of related interest rate swaps.

Available So urces of Liquidity
\$ in millions	Total		Expiration per period of
		1 Year	2–5 Years	over 5 Years
Accounts receivable facility1	565	565	–	–
Unused Senior Credit lines	875	–	875	–
Other unused lines of credit	99	99	–	–
TOTAL	1,539	664	875	–

Subject to availability of sufficient accounts receivable meeting funding criteria.

The amount of guarantees and other commercial commitments other than unconditional purchase obligations at December 31, 2007 is not significant.

Borrowings

Short-term borrowings of \$132 million and \$65 million at December 31, 2007, and 2006, 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, 2007, and 2006 was 4.36% and 3.69%, respectively.

Excluding amounts available under the 2006 Senior Credit Agreement ( as described under "Liquidity" above), at December 31, 2007, we had \$99 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, 2007, of \$85 million and \$266 million at December 2006. 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, 2007 was 5.44%. Annual refinancing fees, which include legal costs and investment bank fees (if any ), are amortized over the term of the facility.

At December 31, 2007, we had a \$2 million (€2 million) advance with an interest rate of 4.1% from Fresenius SE. On December 31, 2006, we had received a short-term Advance of \$3 million (€2 million) at 4.37% interest under our agreement with Fresenius SE. The 2006 advance matured on and was repaid on January 31, 2007.

We had a total of \$3.17 billion outstanding from our 2006 Senior Credit Facility at December 31, 2007, with \$0.04 billion under the revolving credit facility, \$1.55 billion under Term Loan A and \$1.58 billion under Term Loan B. We had a total of \$3.56 billion outstanding from our 2006 Senior Credit Facility at December 31, 2006, with \$0.06 billion under the revolving credit facility, \$1.76 billion under Term Loan A and \$1.74 billion under Term Loan B. We also have \$87 million in letters of credit outstanding which is not included in the \$3.17 billion outstanding at December 31, 2007.

We had \$500 million aggregate principal amount of Senior Notes outstanding with an interest rate of 6 7/8% due 2017 issued at a discount resulting in an effective interest rate of 7 1/8%.

Under our EIB agreements, we had U.S. dollar borrowings under one of the term loan agreements of \$49 million with an interest rate of 4.92% at December 31, 2007. There were no loans outstanding under the revolving credit agreement at December 31, 2007.

At December 31, 2007 we had long-term borrowings outstanding related to Euro Notes issued in 2005 totaling \$294 million (€200 million) from a €126 million tranche with a fixed interest rate of 4.57% and a €74 million tranche with variable interest rates at EURIBOR plus applicable margin resulting in an interest rate of 6.56% at December 31, 2007.

Debt covenant disclosure – EBITDA

EBITDA (earnings before interest, taxes, depreciation and amortization) was approximately \$1,944 million, 20.0% of revenues for 2007, \$1,627 million, 19.1% of revenues for 2006, and \$1,190 million, 17.6% of revenues for 2005. EBITDA is the basis for determining compliance with certain covenants contained in our 2006 Credit Agreement, Senior Notes, Euro Notes, EIB, 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 addition, 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:

Reconciliation of MEASURES FOR CONSOLIDATED TOTALS
\$ in thousands	2007	2006
Total EBITDA	1,943,451	1,626,825
Settlement of shareholder proceedings	–	(888)
Interest expense (net of interest income)	(371,047)	(351,246)
Income tax expense, net	(465,652)	(413,489)
Change in deferred taxes, net	1,177	10,904
Change in operating assets and liabilities	46,876	58,294
Tax payments related to divestitures and acquisitions	–	(63,517)
Compensation expense	24,208	16,610
Cash inflow from hedging	–	10,908
Other items, net	20,561	13,429
Net cash pro vided by o perat ing Activities	1,199,574	907,830

Recently Issued Accounting Standards 04.5

In December 2007, the Financial Accounting Standards Board ("FASB") issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 ("FAS 160"), which establishes a framework for reporting of noncontrolling or minority interests, the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. FAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

In December 2007, FASB issued FASB Statement of Financial Accounting Standards No. 141 (revised), Business Combinations. This Statement replaces FASB Statement No. 141, Business Combinations and retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.

In general, the main points of this Statement are that the assets acquired, liabilities assumed and non-controlling interests in the acquiree are stated at fair value as of the date of acquisition, that assets acquired and liabilities assumed arising from contractual contingencies are recognized as of the acquisition date, measured at their acquisition-date fair values and that contingent consideration is recognized at the acquisition date, measured at its fair value at that date.

This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this Statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

In February 2007, FASB issued FASB Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 ("FAS 159"), which permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

The fair value option:

• May be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method;
• is irrevocable (unless a new election date occurs); and
• is applied only to entire instruments and not to portions of instruments.

This Statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Company has decided not to adopt the provisions of this standard for its Consolidated Financial Statements.

In September 2006, 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 adopted this standard as of January 1, 2008 and is still determining its impact on our Consolidated Financial Statements.

Quantitative and Qualitative Disclosures About Market Risk 04.6

Market Risk

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

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

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

Reimbursement Rates

We obtained approximately 36% of our worldwide revenue for 2007 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. Nongovernmental 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 and purchases. 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.

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, 2007. 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, 2007, and the credit risk inherent to those contracts with positive market values as of December 31, 2007. All contracts expire within 16 months after the reporting date.

\$ in millions, December 31,		Nominal amount		Fair value	Credit risk
	2008	2009	Total
Purchase of EUR against USD	238	21	259	9	9
Sale of EUR against USD	19	–	19	(1)	–
Purchase of EUR against others	323	17	340	7	9
Sale of EUR against others	35	–	35	–	–
Others	52	3	55	(1)	1
Total	667	41	708	14	19

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 high	Year's low	Year's average	Year's close
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
2007 \$ per €	1.4874	1.2893	1.3705	1.4721

Foreign Exchange Sensitivity Analysis. In order to estimate and quantify the transaction risks from foreign currencies, the Company considers the cash flows reasonably expected for the three months following the reporting date as the relevant assessment basis for a sensitivity analysis. For this analysis, the Company assumes that all foreign exchange rates in which the Company had unhedged positions as of the reporting date would be negatively impacted by 10%. By multiplying the calculated unhedged risk positions with this factor, the maximum possible negative impact of the foreign exchange transaction risks on the Company's results of operations would be \$8 million.

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 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 enter into interest rate swap agreements that are designated as cash flow hedges effectively converting the major part of variable interest rate payments due on our 2006 Senior Credit Agreement denominated in U.S. dollars into fixed interest rate payments. Those swap agreements, all of which expire at various dates between 2008 and 2012, in the notional amount of \$3.47 billion, including \$650 million that will become effective March 31, 2008, effectively fix the Company's variable interest rate exposure on the majority of its U.S. dollardenominated revolving loans at an average interest rate of 4.43% plus an applicable margin. During the first quarter 2008, interest rate swap agreements with notional amounts of \$515 million will expire. Interest payable and interest receivable under the swap agreements are accrued and recorded as an adjustment to interest expense at each reporting date. At December 31, 2007, the negative fair value of these agreements is \$35 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 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, 2007, the notional volume of these swaps was \$450 million.

The following table presents principal amounts and related weighted average interest rates by year of maturity for interest rate swaps and for our significant debt obligations.

Interest Rate Sensitivity Analysis. For purposes of analyzing the impact of changes in the relevant reference interest rates on the Company's results of operations, the Company calculates the portion of financial debt which bears variable interest and which has not been hedged by means of interest rate swaps or options against rising interest rates, plus the portion of financial debt which bears fixed interest rates and which has been converted into floating rate debt by using interest rate swaps. For this particular part of its liabilities, the Company assumes an increase in the reference rates of 0.5% compared to the actual rates as of reporting date. The corresponding additional annual interest expense is then compared to the Company's net income. This analysis shows that an increase of 0.5% in the relevant reference rates would have an effect of less than 1% on the consolidated net income of the Company.

Do llar Interest Rate exposure
\$ in millions	2008	2009	2010	2011	2012 T	hereafter T	otal D	Fair value ec. 31, 07
FLOATING RATE \$ DEBT
Principal payments on Senior Credit Agreement Variable interest rate = 6.13%	67	134	134	1,310	1,142	379	3,166	3,166
Accounts receivable securitization programs Variable interest rate = 5.44%	85						85	85
EIB loans Variable interest rate = 4.92%						49	49	49
FLOATING RATE € DEBT
Euro Notes 2005/2009 Variable interest rate = 6.563%		109					109	109
FIXED RATE \$ DEBT
Company obligated mandatorily redeemable preferred securities of subsidiaries Fresenius Medical Care Capital Trusts
Fixed interest rate = 7.875%/issued in 1998	444						444	456
Fixed interest rate = 7.875%/issued in 2001				224			224	233
Senior Notes 2007/ 2017; Fixed interest rate = 6.875%						492	492	496
FIXED RATE € DEBT
Company obligated mandatorily redeemable preferred securities of subsidiaries Fresenius Medical Care Capital Trusts Fixed interest rate = 7.375%/
issued in 1998 (denominated in DEM)	226						226	226
Fixed interest rate = 7.375%/ issued in 2001 (denominated in EUR )				440			440	455
Euro Notes 2005 / 2009 Fixed interest rate = 4.57%		185					185	184
INTEREST RATE DERIVATIVES
\$ payer swaps notional amount	615	450	250	1,000	1,150	–	3,465	(35)
Average fixed pay rate = 4.43%	4.69%	4.84%	4.28%	4.10%	4.45%		4.43%
Receive rate = 3-month \$LIBOR
\$ receiver swaps notional amount	450	–	–	–	–	–	450	(6)
Average fixed receive rate = 3.50%	3.50%						3.50%
Pay rate = 6-month \$ LIBOR

All variable interest rates dipicted above are as of December 31, 2007

Compensation of Management Board and Supervisory Board 04.7

Report of the Management Board of FRESENIUS MEDICAL CARE Management AG, our General Partner

The compensation report of Fresenius Medical Care AG & Co. KGaA summarizes the principles applied for 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 amounts and structure of the management board compensation.

The compensation report is based on the recommendations of the German Corporate Governance Code and also includes the disclosures in accordance with the Commercial Code extended by the Act on the Disclosure of Management Board Compensation.

I. Compensation of the Management Board

The basis for the compensation of the management board was, in its structure and respective 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 relative to their duties and performance and the successes in managing the economic and financial position of the Company taking into account its comparable environment.

The compensation of the management board is, as a whole, performance oriented and consists of three elements in fiscal year 2007:

• non-performance related compensation (basic salary )
• performance related compensation ( variable bonus)
• components with long-term incentive effect (share options, share-based compensation with cash settlement)

Furthermore, three members of the management board had pension commitments in the reporting period.

The design of the individual components is based on the following criteria:

The non-performance-related compensation was paid in twelve monthly installments as basic salary in fiscal year 2007. 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 additional contributions to pension and health insurance.

The performance-related compensation will also be granted for fiscal year 2007 as a variable bonus. The amount of the bonus in each case depends on the achievement of individual and common targets. For the total performance-related compensation, the maximum achievable bonus is fixed. The targets are measured on revenue growth, consolidated net income and operating income ( EBIT ) as well as the development of cash flow, are in part subject to a comparison with the previous year's figures and can for another part be derived from the comparison of budgeted and actually achieved figures. Furthermore, 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 for a three-year period, fiscal years 2006, 2007 and 2008, that link a special bonus component to the achievement of extraordinary financial targets connected to special integration measures, e. g. in connection with the acquisition of

Renal Care Group in the U.S. The special components require an extraordinary increase in earnings. These special bonus components thereby consist in equal parts of cash payments and a share-based compensation based on the development of the stock exchange price of 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-based compensation also to be granted yearly in these cases is subject to a three-year vesting period. The amount of cash payment of this share-based compensation corresponds to the share price of Fresenius Medical Care AG & Co KGaA ordinary shares on exercise, and is, for that reason, attributed to the long-term incentive compensation components.

For fiscal years 2007 and 2006 the amount of the cash payment of the management board of Fresenius Medical Care Management AG consisted of the following:

\$ in thousands		Non-performance related compensation			Performance related compensation		Cash compensation (without long-term incentive components)
	Salary		Other3		Bonus
	2007	20061,2	2007	20061,2	2007	20061,2	2007	20061,2
Dr.Ben Lipps	1,050	1,050	315	189	2,257	2,043	3,622	3,282
Roberto Fusté	480	370	251	221	624	421	1,355	1,012
Dr. Emanuele Gatti	637	584	63	48	1,530	1,177	2,230	1,809
Rice Powell	700	700	46	20	1,541	1,267	2,287	1,987
Lawrence A. Rosen	548	424	115	105	1,197	935	1,860	1,464
Dr. Rainer Runte	452	414	41	39	979	760	1,472	1,213
Mats Wahlstrom	800	800	47	17	1,761	1,448	2,608	2,265
Total	4,667	4,342	878	639	9,889	8,051	15,434	13,032

Up to February 9, 2006 payment by Fresenius Medical Care AG.

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

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

In fiscal year 2007 stock options based on the Stock Option Plan 2006 were granted as components with long-term incentive effect. The principles of the Stock Option Plan 2006 which was newly implemented in the previous fiscal year, are described in more detail in Note 15 "Stock Options" under the heading "Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006". As of January 1, 2007, the Company had three further Employee Participation Programs secured by conditional capital which entitled their participants to convertible bonds or stock options and under which however, no further options could be issued.

In connection with these 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 on May 9, 2006. In the course of the share split of three-for-one resolved by the Annual General Meeting on May 15, 2007, the Stock Option Plan 2006 was also amended. A total of 2,395,962 stock options were granted under the Stock Option Plan 2006 on July 30, 2007, of which 398,400 were granted to the members of the management board. At December 3, 2007, the second possible grant date of fiscal year 2007, no stock options were issued to members of the management board.

For fiscal years 2007 and 2006 the number and value of stock options issued and also the value of the share-based compensation is shown in the following table. The data contained therein take into account the share split resolved by the general meeting on May 15, 2007 and implemented by the company with effect as of June 15, 2007.

		Stock options			Share-based compensation with cash settlement		Total
		Number V		alue \$ in thousands	Value \$ in thousands		Value \$ in thousands
	2007	2006	2007	2006	2007	2006	2007	2006
Dr.Ben Lipps	99,600	99,600	1,318	1,237	1,243	993	2,561	2,230
Roberto Fusté	49,800	49,800	659	619	–	–	659	619
Dr. Emanuele Gatti	49,800	49,800	659	619	366	360	1,025	979
Rice Powell	49,800	49,800	659	619	841	568	1,500	1,187
Lawrence A. Rosen	49,800	49,800	659	619	649	401	1,308	1,020
Dr. Rainer Runte	49,800	49,800	659	619	535	392	1,194	1,011
Mats Wahlstrom	49,800	49,800	659	619	961	648	1,620	1,267
Total	398,400	398,400	5,272	4,951	4,595	3,362	9,867	8,313

Components with long-term Incentive Effects

The stated values of the stock options granted to members of the management board in fiscal year 2007 correspond to their fair value at the time of grant, namely a value of \$13.23 (€9.71) (2006: \$13.03/€9.89) per stock option. The exercise price for the stock options granted is \$46.22 (€33.91) (2006: \$40.16/€30.49).

At the end of fiscal year 2007, the members of the management board held a total of 1,922,628 stock options ( December 31, 2006: 1,644,591 stock options).

On the basis of the financial targets achieved in fiscal year 2007, additional rights for sharebased compensation with cash settlement amounting to \$4,595,000 (2006: \$3,362,000) were earned. The number of shares will be determined by the supervisory board on the basis of the current share price.

\$ in thousands	Cash compensation (without long-term incentive components)		Total compensation Components with (including long-term long-term incentive effect incentive components)
	Value		Value		Value
	2007	2006	2007	20061	2007	20061
Dr.Ben Lipps	3,622	3,282	2,561	2,230	6,183	5,512
Roberto Fusté	1,355	1,012	659	619	2,014	1,631
Dr. Emanuele Gatti	2,230	1,809	1,025	979	3,255	2,788
Rice Powell	2,287	1,987	1,500	1,187	3,787	3,174
Lawrence A. Rosen	1,860	1,464	1,308	1,020	3,168	2,484
Dr. Rainer Runte	1,472	1,213	1,194	1,011	2,666	2,224
Mats Wahlstrom	2,608	2,265	1,620	1,267	4,228	3,532
Total	15,434	13,032	9,867	8,313	25,301	21,345

The amount of the total compensation of the management board of Fresenius Medical Care Management AG for fiscal years 2007 and 2006 consisted of:

The prior year figures 2006 are adjusted to the presentation format for the year 2007, reflecting grant date fair value. In 2006 total compensation included the expense recognized in the fiscal year.

The components with long-term incentive effect can be exercised only after the expiry of the specified vesting period. Their value is recognized over the vesting period as expense in the respective fiscal year. The expenses attributable to fiscal years 2007 and 2006 are stated in the following table.

\$ in thousands	Expense for long-term incentive components with equity instruments		Expense for long-term incentive components by share-based compensation with cash settlement		Total expense for share-based compensation
	2007	2006	2007	2006	2007	2006
Dr.Ben Lipps	769	483	379	–	1,148	483
Roberto Fusté	384	265	–	–	384	265
Dr. Emanuele Gatti	384	265	133	–	517	265
Rice Powell	378	224	224	–	602	224
Lawrence A. Rosen	398	246	147	–	545	246
Dr. Rainer Runte	384	264	144	–	528	264
Mats Wahlstrom	378	278	256	–	634	278
Total	3,075	2,025	1,283	–	4,358	2,025

The non-performance related compensation components and the basic structures of the performance-related compensation components are agreed in the service agreements with the individual management board members. The stock options are granted annually by the supervisory board to members of the management board.

II. Commitments to Members of the Management Board for the Event of the Termination of their Appointment

There are individual contractual pension commitments for the management board members Roberto Fusté, Dr. Emanuele Gatti and Lawrence A. Rosen. With regard to these pension commitments, Fresenius Medical Care as of December 31, 2007 has pension obligations of \$3,192,997 ( at December 31, 2006: \$1,698,544). The additions t o pension obligations in fiscal year 2007 amounted to \$1,530,166 (2006: \$568,514). Each of the pension commitments provides a pension and survivor benefit, depending on the amount of the most recent basic salary, from the 65th year of life, or, in the case of termination because of professional or occupational incapacity, from the time of ending active work. The starting percentage of 30% increases with every year of service by 1.5 percentage points, 45% being the attainable maximum. 30% of the gross amount of any later income from an occupation of the management board member is set-off against the pension.

With the chairman of the management board, Dr. Ben Lipps, there is an individual agreement, instead of a pension provision, to the effect that, taking account of a competitive restriction after the ending of the employment contract/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 annually by Fresenius Medical Care Management AG in return would amount to approximately 46% of the non-performance related compensation components paid to him in the fiscal year 2007.

The management board members Dr. Emanuele Gatti, Rice Powell and Mats Wahlstrom have been granted benefits (severance, 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 prohibitions of competitive activity would be set-off against these severance payments. The employment contracts of management board members contain no express provisions for the case of a change of control.

III. Miscellaneous

In fiscal year 2007, no loans or advance payments of future compensation components were made to members of the management board of Fresenius Medical Care Management AG.

As far as legally permitted, Fresenius Medical Care Management AG undertook 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.

Former members of the management board did not receive any compensation in fiscal year 2007.

Compensation of the Supervisory Board

The compensation of the Supervisory Board of FMC-AG & Co. KGaA is regulated in §13 of its statute.

Corresponding to this regulation the Company reimburses the Supervisory Board members for expenses incurred from their duties as Supervisory Board members, including value added tax.

Each member of the supervisory board shall receive a fixed fee of \$80,000 per annum for each full fiscal year, payable in four equal instalments at the end of each calendar quarter. In the event that the general meeting, taking into consideration the annual results, resolves a higher remuneration by a three fourths majority of the votes cast, such higher remuneration shall be payable.

The chairman of the supervisory board shall receive additional remuneration in the amount of \$80,000 and his deputy additional remuneration in the amount of \$40,000. As a member of a committee, a supervisory board member shall receive, in addition, \$30,000 per year, or as chairman of a committee, \$50,000 per year, payable in each case in four equal installments at the end of each calendar quarter.

To the extent that a member of the supervisory board is at the same time member of the supervisory board of the General Partner Fresenius Mediacal Care Management AG and receives remuneration for his services as member of the supervisory board of the Management AG, the remuneration will be reduced to half of it. The same shall apply in relation to additional remuneration of the Chairman and his deputy if such person is, at the same time, the chairman or his deputy, respectively, of the supervisory board of the Management AG. If the deputy of the chairman of the supervisory board of the Company is at the same time chairman of the supervisory board of the Management AG he shall not receive additional remuneration for his services as deputy of the chairman of the Company.

In 2007 the aggregate compensation fees to all members of the Supervisory Board of FMC-AG & Co. KGaA was \$598,584 and the aggregate compensation fees to all members of the Audit Committee was \$ 167,498.

As regulated in §7 of the Company's statute the aggregate compensation fees to the members of the Supervisory Board of the General Partner Management AG of \$478,754 were charged to FMC-AG & Co. KGaA.

Transport Mechanism I Diffusion

When substances are found in different concentrations in two fluids – in this case blood and dialysate – the molecules usually equalize the difference in concentration by passing through the semi-permeable membrane from blood into the dialysate.

[05.1– 8 ] CONSOLIDATED FINANCIAL STATEMENTS

05.1 Consolidated Statements of Incom e		43
05.2 Consolidated Balance Sheets		44
05.3 Consolidated Statements of Cash Flows		46
05.4 Consolidated Statements of Shareholders' Eq uity		48
05.5 No tes to Consolidated Financial Statements	1. The Company, Basis of Presentation and Summary of Significant Accounting Policies 2. Transformation of Legal Form	50
	and Conversion of Preference Shares	57
	3. Acquisitions	59
	4. Related Party Transactions	62
	5. Inventories	63
	6. Property, Plant and Equipment	64
	7. Intangible Assets and Goodwill	65
	8. Accrued Expenses and Other Current Liabilities 9. Short-term Borrowings	67
	and Short-term Borrowings from Related Parties	68
	10. Long-term Debt and Capital Lease Obligations	70
	11. Employee Benefit Plans	74
	12. Mandatorily Redeemable Trust Preferred Securities	79
	13. Shareholders' Equity	80
	14. Earnings per Share	83
	15. Stock Options	83
	16. Income Taxes	88
	17. Operating Leases 18. Legal Proceedings	93 94
	19. Financial Instruments	99
	20. Other Comprehensive Income (Loss)	103
	21. Business Segment Information	104
	22. Supplementary Cash Flow Information	105
05.6 Management's Report on Internal Control over Financial Reporting		106
05.7 Report of Independent Registered Public Acco unting Firm		108
05.8 Auditors' Report		110

05.1 Consolidated Statements of Income

Co nsolidated Statements of Income
\$ in thousands, except share data	Note	2007	2006
Net revenue
Dialysis care	1i	7,213,000	6,377,390
Dialysis products		2,507,314	2,121,648
	21	9,720,314	8,499,038
Co sts of revenue
Dialysis care		5,130,287	4,538,234
Dialysis products		1,234,232	1,083,248
		6,364,519	5,621,482
Gross profit		3,355,795	2,877,556
Operating expenses
Selling, general and administrative		1,709,150	1,548,369
Gain on sale of dialysis clinics		–	(40,233)
Research and development	1j	66,523	51,293
Operat ing inco me		1,580,122	1,318,127
Other (income) expense
Interest income		(28,588)	(20,432)
Interest expense		399,635	371,678
Income before income taxes and minority interest		1,209,075	966,881
Income tax expense	1k, 16	465,652	413,489
Minority interest		26,293	16,646
Net inco me		717,130	536,746
Basic inco me per o rdinary share		2.43	1.82
Full y diluted inco me per o rdinary share		2.42	1.81

Co nsolidated Balance Sheets
\$ in thousands, except share data at December 31	Note	2007	2006
ASSETS
Current Assets
Cash and cash equivalents	1b	244,690	159,010
Trade accounts receivable, less allowance for doubtful
accounts of \$247,800 in 2007 and \$207,293 in 2006		2,026,865	1,848,695
Accounts receivable from related parties		99,626	143,349
Inventories	5	636,234	523,929
Prepaid expenses and other current assets		495,630	443,854
Deferred taxes	1k,16	356,427	293,079
Total current assets		3,859,472	3,411,916
Property, plant and equipment, net	1e,6	2,053,793	1,722,392
Intangible assets	1f,7	689,956	661,365
Goodwill	1f,7	7,245,589	6,892,161
Deferred taxes	1k,16	83,615	62,722
Other assets		237,840	294,125
Total assets		14,170,265	13,044,681

Co nsolidated Balance Sheets
\$ in thousands, except share data at December 31	Note	2007	2006
LIABILITIES and ShareholderS' EQUITY
Current liabilities
Accounts payable		329,919	316,188
Accounts payable to related parties		201,049	236,619
Accrued expenses and other current liabilities	8	1,352,013	1,194,939
Short-term borrowings	9	217,497	331,231
Short-term borrowings from related parties	9	2,287	4,575
Current portion of long-term debt and capital lease obligations	10	84,816	160,135
Company-obligated mandatorily redeemable preferred securities
of subsidiary Fresenius Medical Care Capital Trusts holding solely Company-guaranteed debentures of subsidiaries – current portion	12	669,787	–
Income tax payable	1k, 16	146,536	116,059
Deferred taxes	1k, 16	22,589	15,959
Total current liabilities		3,026,493	2,375,705
Long-term debt and capital lease obligations, less current portion	10	4,004,013	3,829,341
Other liabilities		193,604	149,684
Pension liabilities	11	111,352	112,316
Income tax payable	1k, 16	111,280	–
Deferred taxes	1k, 16	378,497	378,487
Company-obligated mandatorily redeemable preferred securities
of subsidiary Fresenius Medical Care Capital Trusts holding solely
Company-guaranteed debentures of subsidiaries	12	663,995	1,253,828
Minority interest		105,814	75,158
Total liabilities		8,595,048	8,174,519
Shareholders' equity
Preference shares, no par value, €1.00 nominal value, 12,356,880
shares authorized, 3,778,087 issued and outstanding		4,191	4,098
Ordinary shares, no par value, €1.00 nominal value, 373,436,220
shares authorized, 292,786,583 issued and outstanding		361,384	359,527
Additional paid-in capital		3,221,644	3,153,556
Retained earnings		1,887,120	1,358,397
Accumulated other comprehensive income (loss)	20	100,878	(5,416)
Total sharehol ders' equity	13	5,575,217	4,870,162
Total liabilities and sharehol ders' equity		14,170,265	13,044,681

\$ in thousands	Note	2007	2006
Operating Activities
Net income		717,130	536,746
Adjustments to reconcile net income to net cash
provided by operating activities:
Settlement of shareholder proceedings		–	(888)
Depreciation and amortization	21	363,330	308,698
Change in minority interest		43,237	24,333
Change in deferred taxes, net		1,177	10,904
Loss on sale of fixed assets and investments		3,616	5,742
Compensation expense related to stock options	1t,15	24,208	16,610
Cash inflow from hedging		–	10,908
Changes in assets and liabilities, net of amounts from businesses acquired:
Trade accounts receivable, net		(62,735)	(31,276)
Inventories	5	(72,825)	(42,553)
Prepaid expenses, other current and non-current assets		(11,680)	(21,629)
Accounts receivable from/payable to related parties		(22,265)	(4,875)
Accounts payable, accrued expenses and other current and
non-current liabilities		113,960	182,877
Income tax payable	1k,16	102,421	(24,250)
Tax payments related to divestitures and acquisitions		–	(63,517)
Net cash pro vided by o perat ing activities		1,199,574	907,830

Co nsolidated Statements of Cash Flows
\$ in thousands	Note	2007	2006
Investing Activities
Purchases of property, plant and equipment	1e, 6, 21	(579,641)	(467,193)
Proceeds from sale of property, plant and equipment	1e, 6, 21	31,070	17,658
Acquisitions and investments, net of cash acquired	21, 22	(257,877)	(4,307,282)
Proceeds from divestitures		29,495	515,705
Net cash used in investing activities		(776,953)	(4,241,112)
Financing Activities
Proceeds from short-term borrowings	9	96,995	56,562
Repayments of short-term borrowings	9	(107,793)	(55,789)
Proceeds from short-term borrowings from related parties	9	43,554	269,920
Repayments of short-term borrowings from related parties	9	(46,071)	(285,430)
Proceeds from long-term debt and capital lease obligations
(net of debt issuance costs of \$16,703 in 2007 and \$ 85,828 in 2006)	10	516,762	4,007,450
Repayments of long-term debt and capital lease obligations		(486,513)	(973,885)
(Decrease) Increase of accounts receivable securitization program		(181,000)	172,000
Proceeds from exercise of stock options	15	46,934	53,952
Proceeds from conversion of preference shares into ordinary shares		–	306,759
Repurchase of preferred stock		(7,660)	–
Dividends paid	13	(188,407)	(153,720)
Distributions to minority interest		(27,469)	(15,130)
Net cash (used in) pro vided by financing activities		(340,668)	3,382,689
Eff ect of exchange rat e changes o n cash and
cash equival ents		3,727	24,526
Cash and Cash Equivalents
Net increase in cash and cash equivalents		85,680	73,933
Cash and cash equivalents at beginning of period		159,010	85,077
Cash and cash equival ents at end of perio d		244,690	159,010

Consolidated Statements of Shareholders' Equity 05.4

\$ in thousands	Note P	reference shares		Ordinary shares
	N	umber of N shares	o par value N	umber of N shares	o par value
Bala nce at December 31, 2005		83,286,537	90,740	210,000,000	270,501
Proceeds from exercise of options and
related tax effects	15	313,164	395	1,561,407	1,989
Proceeds from conversion of preference
shares into ordinary shares	2	(79,888,266)	(87,037)	79,888,266	87,037
Compensation expense related to stock
options	15
Dividends paid	13
Settlement of shareholder proceedings
Comprehensive income (loss)
Net income
Other comprehensive income (loss) related to:
Cash flow hedges, net of related
tax effects	20
Foreign currency translation	20
Adjustments relating to pension obligations, net of related tax effects	11, 20
Comprehensive income
Effect of adoption of SFAS 158
Bala nce at December 31, 2006		3,711,435	4,098	291,449,673	359,527
Proceeds from exercise of options and
related tax effects	15	66,652	93	1,336,910	1,857
Compensation expense related
to stock options	15
Dividends paid	13
Comprehensive income (loss)
Net income
Other comprehensive income (loss) related to:
Cash flow hedges, net of related
tax effects	20
Foreign currency translation	20
Adjustments relating to pension obligations, net of related tax effects	11, 20
Comprehensive income
Bala nce at December 31, 2007		3,778,087	4,191	292,786,583	361,384

(55,558) 15,952 (11,306) (50,912) 23,299 (27,613) 3,973,706 53,586 306,759 16,610 (153,720) (888) 536,746 18,223 114,494 15,952 685,415 (11,306) 4,870,162 45,830 24,208 (188,407) 717,130 (54,053) 137,048 23,299 823,424 5,575,217 2,779,873 51,202 306,759 16,610 (888) 3,153,556 43,880 24,208 3,221,644 15 2 15 13 20 20 11, 20 15 15 13 20 20 11, 20 Balance at December 31, 2005 Proceeds from exercise of options and related tax effects Proceeds from conversion of preference shares into ordinary shares Compensation expense related to stock options Dividends paid Settlement of shareholder proceedings Comprehensive income (loss) Net income Other comprehensive income (loss) related to: Cash flow hedges, net of related tax effects Foreign currency translation Adjustments relating to pension obligations, net of related tax effects Comprehensive income Effect of adoption of SFAS 158 Balance at December 31, 2006 Proceeds from exercise of options and related tax effects Compensation expense related to stock options Dividends paid Comprehensive income (loss) Net income Other comprehensive income (loss) related to: Cash flow hedges, net of related tax effects Foreign currency translation Adjustments relating to pension obligations, net of related tax effects Comprehensive income Balance at December 31, 2007 975,371 (153,720) 536,746 1,358,397 (188,407) 717,130 1,887,120 (106,185) 114,494 8,309 137,048 145,357 18,964 18,223 37,187 (54,053) (16,866) Consolidated Statements of Shareholders' Equity \$ in thousands Note Additional Retained Accumulated other comprehensive income (loss) Total paid in earnings capital Foreign Cash flow Pensions currency hedges translation

Notes to Consolidated Financial Statements 05.5

In thousands, except share data

The Company, Basis of Presentation and Summary of Significant Accounting Policies 1.

The Company

Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA" or the "Company"), a German partnership limited by shares (Kommanditgesellschaft auf Aktien), 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 ("ESRD"). 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.

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").

All share and per share amounts have been adjusted to reflect the three-for-one stock split for both ordinary and preference shares which became effective upon registration in the commercial register on June 15, 2007.

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. Clinics that are VIEs in which the Company has been determined to be the primary beneficiary generated approximately \$96,385 and \$76,616 in revenue in 2007 and 2006 respectively.

b) 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.

c) Allowance for Doubtful Accounts. Estimates for the allowances for accounts receivable from the dialysis care 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.

d) 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.

e) 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 11 years and 3 to 15 years for machinery and equipment with a weighted average life of 10 years. Equipment held under capital leases and leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the asset. The Company capitalizes interest on borrowed funds during construction periods. Interest capitalized during 2007 and 2006 was \$5,323 and \$5,651 respectively.

f) Intangible Assets and Goodwill. Intangible assets such as non-compete agreements, technology, distribution rights, patents, licenses to treat, trade names, 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 average useful life of 8 years. Technology is amortized over its useful life of 15 years. All other intangible assets are amortized over their weighted average useful lives of 7 years. The average useful life of all amortizable intangible assets is 7 years. Intangible assets with finite useful lives are evaluated for impairment when events have occurred that may give rise to an impairment.

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 or other methods, if appropriate.

g) 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.

h) 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).

i) 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 the Company's standard rates for services net of contractual allowances to reflect the estimated amounts to be received under reimbursement arrangements with these payors.

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. Sales are stated net of discounts and rebates.

A minor portion of International Segment product revenues is 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 & Co. KGaA does not recognize revenue upon delivery of the dialysis machine but recognizes revenue, including the mark-up, on the sale of disposables.

Any tax assessed by a governmental authority that is incurred as a result of a revenue transaction is reported on a net basis, i.e., excluded from revenues.

j) Research and Development expenses. Research and development expenses are expensed as incurred.

k) Income Taxes. The Company adopted FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 Accounting for Income Taxes ("FAS 109") as of January 1, 2007. 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 as well as on consolidation procedures affecting net income and tax loss carryforwards which are more likely than not to be utilized. 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).

It is the Company's policy to recognize interest and penalties related to its tax positions as income tax expense.

l) 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 flows 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 a discounted cash flow approach or other methods, if appropriate, 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.

m) Debt Issuance Costs. Costs related to the issuance of debt are amortized over the term of the related obligation (see Note 10).

n) Self-Insurance Programs. Under the insurance programs for professional, product and general liability, auto liability and worker's compensation claims, the Company's largest subsidiary is partially self-insured for professional liability claims. For all other coverages, the Company assumes responsibility for incurred claims up to predetermined amounts above which third party insurance applies. Reported liabilities for the year represent estimated future payments 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.

o) 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.

p) 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 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 2007 and 2006 respectively.

See Note 5 for concentration of supplier risks.

q) 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 and consulting services in connection with these matters, 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.

r) 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.

s) Employee Benefit Plans. As of December 31, 2006, the Company adopted the recognition provisions of 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. 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 comprehensive income in the year in which they occur. Actuarial gains or losses and prior service costs are subsequently recognized as components of net periodic benefit cost pursuant to the recognition and amortization provisions of those standards. The Company uses December 31 as the measurement date when measuring the funded status of all plans.

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.

Adjustments Resulting from FAS 158

\$ in thousands	Before adoption of Statement 158	Adjustments	After adoption of 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)

t) Stock Option Plans. Effective January 1, 2006, the Company adopted the provisions of FASB Statement No. 123R (revised 2004), Share-Based Payment ("FAS 123(R)") using the modified prospective transition method (see Note 15). 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 grantdate 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.

u) Recent Pronouncements. In December 2007, the FASB issued FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements – an amendment of ARB No. 51 ("FAS 160"), which establishes a framework for reporting of noncontrolling or minority interests, the portion of equity in a subsidiary not attributable, directly or indirectly, to a parent. FAS 160 is effective for financial statements issued for fiscal years beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

In December 2007, FASB issued FASB Statement No. 141(revised), Business Combinations. This Statement replaces FASB Statement No. 141, Business Combinations and retains the fundamental requirements in Statement 141 that the acquisition method of accounting (which Statement 141 called the purchase method) be used for all business combinations and for an acquirer to be identified for each business combination. This Statement defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.

In general, the main points of this Statement are that the assets acquired, liabilities assumed and non-controlling interests in the acquired company are stated at fair value as of the date of acquisition, that assets acquired and liabilities assumed arising from contractual contingencies are recognized as of the acquisition date, measured at their acquisition-date fair values and that contingent consideration is recognized at the acquisition date, measured at its fair value at that date.

This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. The effective date of this Statement is the same as that of the related FASB Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements. The Company is currently evaluating the impact of this standard on its Consolidated Financial Statements.

In February 2007, FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of FASB Statement No. 115 ("FAS 159"), which gives the Company the irrevocable option to measure eligible items at fair value at specified election dates. A business entity shall report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date.

The fair value option:

• May be applied instrument by instrument, with a few exceptions,
• such as investments otherwise accounted for by the equity method;
• is irrevocable (unless a new election date occurs); and
• is applied only to entire instruments and not to portions of instruments.

This Statement is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of FASB Statement No. 157, Fair Value Measurements. The Company has decided not to adopt the provisions of this standard for its Consolidated Financial Statements.

In September 2006, FASB issued FASB Statement 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 adopted this standard as of January 1, 2008 and is still determining its impact on its results of operations.

Transformation of Legal Form and Conversion of Preference Shares 2.

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. 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 SE, formerly known as Fresenius AG (see Note 4) and 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 its shareholder, Fresenius SE, 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 SE), oversees the management of the business of the Company by Management AG, 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 €3.25 per ordinary share. Holders of a total of 79,888,266 preference shares accepted the offer, resulting in an increase of 79,888,266 ordinary shares of FMC-AG & Co. KGaA (including 6,299,541 ADSs representing 2,099,847 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 289,888,266 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 3,398,271 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 nonvoting 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 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 SE 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 SE ), of €0.04 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 €0.23 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 EGM 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. A further part of the settlement agreement and German law require that these costs be borne by Fresenius SE 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 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.

Acquisitions 3.

The Company made acquisitions, mostly of dialysis centers, in the normal course of its operations in 2007 totaling \$147,987. Included in this amount is the acquisition of a Schweinfurt production line from a Fresenius SE subsidiary for \$5,646. Total cash paid for acquisitions in 2007 was \$138,023. In 2006, acquisitions totaled \$92,013 (excluding the RCG and Phoslo Acquisitions described below) of which \$85,805 was paid in cash. In addition, on November 26, 2007, the Company completed the acquisition of all the common stock of Renal Solutions, Inc. ("RSI"), an Indiana corporation with principal offices in Warrendale, PA. The RSI acquisition agreement provides for total consideration of up to \$203,665, consisting of \$20,000 previously advanced to RSI in the form of a loan, \$99,854 paid at closing, \$60,000 payable after the first year which was recorded as a liability at closing, \$3,572 receivable related to a working capital adjustment and up to \$30,000 in milestone payments over the next three years, contingent upon the achievement of certain performance criteria. The Company recorded a liability of \$27,384 representing the net present value of the \$30,000 milestone payments as it was deemed beyond reasonable doubt that the future performance criteria will be achieved. The purchase price was allocated to goodwill (\$159,385), intangible assets (\$34,480) and other net assets (\$9,800). RSI holds key patents and other intellectual property worldwide related to sorbent-based technology ("SORB"). SORB technology purifies potable water to dialysate quality and allows dialysis for up to 8 hours with only 6 liters of potable water through a process of dialysate regeneration and toxin adsorption. This regeneration capability significantly reduces the water volume requirement for a typical hemodialysis treatment and is an important step in advancing home hemodialysis and helping to create a potential platform for eventual development of a wearable kidney.

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 \$4,157,684 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. The operations of RCG are included in the Company's consolidated statements of income and cash flows from April 1, 2006; therefore, the 2007 results are not comparable with the results for 2006.

The final purchase price allocation is as follows:

Purchase Price Allocation
\$ in thousands
Assets held for sale	330,092
Other current assets	414,006
Property, plant and equipment	301,498
Intangible assets and other assets	149,486
Goodwill	3,389,907
Accounts payable, accrued expenses and other current liabilities	(289,378)
Income tax payable and deferred taxes	(58,756)
Long-term debt and capital lease obligations	(3,882)
Other liabilities	(75,289)
Total cat io n of acquisitio n co st	4,157,684

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 was required to divest a total of 105 renal dialysis centers, consisting of both former Company clinics (the "legacy clinics") and former RCG clinics. The Company sold 96 of such centers on April 7, 2006 to DSI Renal, 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 following financial information, on a pro forma basis, reflects the consolidated results of operations as if the RCG Acquisition and the related clinic divestitures had been consummated at the beginning of 2006. 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.

Pro Forma Data

\$ in thousands, except per share data, unaudited	2006
Pro forma net revenue	8,809,573
Pro forma net income	536,223
Pro forma net income per ordinary share
Basic	1.82
Fully diluted	1.81

Phoslo Acquisition

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 will 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 2009. 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 Consolidated Financial Statements and operating results from the effective date of acquisition.

Related Party Transactions 4.

a) Service Agreements

The Company is party to service agreements with Fresenius SE, the sole stockholder of its General Partner and its largest shareholder with 36.4% ownership of the Company's voting shares, and certain affiliates of Fresenius SE that are not also subsidiaries of the Company to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, IT services, tax services and treasury services. ( As used in these Notes to Consolidated Financial Statements, "Fresenius SE" refers to Fresenius SE, a European Company ( Societas Europaea ) previously called Fresenius AG, a German stock corporation which, prior to the transformation of the Company's legal form, held approximately 51.8% of the Company's voting shares, and refers to that company both before and after the conversion of Fresenius AG from a stock corporation into a European Company on July 13, 2007.) For the years 2007 and 2006 amounts charged by Fresenius SE to the Company under the terms of these agreements are \$44,143 and \$37,104 respectively. The Company also provides certain services to Fresenius SE and certain affiliates of Fresenius SE, including research and development, central purchasing, patent administration and warehousing. The Company charged \$9,784 and \$9,001 for services rendered to Fresenius SE in 2007 and 2006 respectively.

Under operating lease agreements for real estate entered into with Fresenius SE, the Company paid Fresenius SE \$19,211 and \$16,593 during 2007 and 2006 respectively. The majority of the leases expire in 2016 and contain renewal options.

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 2007 and 2006 was \$10,348 and \$7,480 for its management services during those years and included \$82 and \$75 as compensation for their exposure to risk as General Partner for 2007 and 2006 respectively. The Company's Articles of Association set the annual 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, 2007 and 2006 the Company sold products to Fresenius SE for \$34,133 and \$36,039 respectively. During 2007 and 2006 the Company made purchases from Fresenius SE in the amount of \$52,280 and \$52,507 respectively.

c) Financing Provided by Fresenius SE

The Company receives short-term financing from Fresenius SE. There was \$2,897 owed at December 31, 2007, while financing provided by Fresenius SE amounted to \$1,678 at December 31, 2006 (see Note 9).

d) Other

The Chairman of the Company's Supervisory Board is also the Chairman of the Supervisory Board of Fresenius SE. 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 SE 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 \$969 and \$1,620 in 2007 and 2006 respectively.

Inventories 5.

As of December 31, 2007 and 2006, inventories consisted of the following:

Inventories
\$ in thousands	2007	2006
Raw materials and purchased components	136,013	108,584
Work in process	51,829	41,272
Finished goods	350,478	269,496
Health care supplies	97,914	104,577
TOTAL	636,234	523,929

Under the terms of certain unconditional purchase agreements, the Company is obligated to purchase approximately \$313,519 of materials, of which \$187,687 is committed at December 31, 2007 for 2008. The terms of these agreements run 1 to 5 years.

Inventories as of December 31, 2007 and 2006 include \$30,999 and \$46,131 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% and 23% of total dialysis care revenue in the North America segment for 2007 and 2006 respectively. Delays, stoppages, or interruptions in the supply of EPO could adversely affect the operating results of the Company.

Property, Plant and Equipment 6.

As of December 31, 2007 and 2006, property, plant and equipment consisted of the following:

Acquisition And Manufacturing Cost

\$ in thousands	Balance at Jan. 1, 2007	Currency change	Changes in A consolidation group	dditions R	eclassi- D fications	isposals	Balance at Dec. 31, 2007
Land and improvements	32,492	2,235	(97)	5,546	321	(706)	39,791
Buildings and improvements	1,123,691	31,814	1,134	148,535	85,764	(42,211)	1,348,727
Machinery and equipment	1,844,299	109,925	43,729	271,441	90,432	(168,408)	2,191,418
Machinery, equipment and rental equipment under capital leases	17,044	1,874	(28)	4,657	1,945	(3,959)	21,533
Construction in progress	255,994	7,004	96	153,634	(179,048)	(2,536)	235,144
TOTAL	3,273,520	152,852	44,834	583,813	(586)	(217,820)	3,836,613

Depreciation /Amortization

\$ in thousands	Balance at Jan. 1, 2007	Currency	Changes in A change consolidation group	dditions R	eclassi- D fications	isposals	Balance at Dec. 31, 2007
Land and improvements	31	–	–	–	39	(70)	–
Buildings and improvements	471,238	11,997	(500)	117,123	(615)	(32,788)	566,455
Machinery and equipment	1,071,975	71,281	14,295	209,541	(82)	(158,689)	1,208,321
Machinery, equipment and rental equipment under capital leases	7,884	939	(4)	1,931	30	(2,736)	8,044
Construction in progress	–	–	–	–	–	–	–
TOTAL	1,551,128	84,217	13,791	328,595	(628)	(194,283)	1,782,820

Net Book Value
\$ in thousands	Dec. 31, 2007	Dec. 31, 2006
Land and improvements	39,791	32,461
Buildings and improvements	782,272	652,453
Machinery and equipment	983,097	772,324
Machinery, equipment and rental equipment under capital leases	13,489	9,160
Construction in progress	235,144	255,994
TOTAL	2,053,793	1,722,392

Depreciation expense for property, plant and equipment amounted to \$328,595 and \$265,488 for the years ended December 31, 2007 and 2006 respectively.

Included in property, plant and equipment as of December 31, 2007 and 2006 were \$275,537 and \$187,504, 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 \$8,044 and \$7,884 at December 31, 2007 and 2006, respectively.

7. Intangible Assets and Goodwill

As of December 31, 2007 and 2006, the carrying value and accumulated amortization of intangible assets consisted of the following:

Acquisition Co sts
\$ in thousands	Balance at Jan. 1, 2007	Currency	Changes in A change consolidation group	dditions R	eclassi- D fications	isposals	Balance at Dec. 31, 2007
Amortizable Intangible Assets
Non-compete agreements	203,123	929	7,274	887	(5)	(103)	212,105
Technology	64,800	–	34,480	736	–	–	100,016
Other	305,509	15,219	11,517	6,720	(9,874)	(18,783)	310,308
TOTAL	573,432	16,148	53,271	8,343	(9,879)	(18,886)	622,429
No n-Amortizable
Intangible Assets
Tradename	255,432	1,418	–	–	–	–	256,850
Management contracts	239,777	13	1,601	–	–	–	241,391
TOTAL	495,209	1,431	1,601	–	–	–	498,241
Total Inta ngible Assets	1,068,641	17,579	54,872	8,343	(9,879)	(18,886)	1,120,670
goo dwill	7,332,223	59,337	271,550	17,719	10,701	233	7,691,763

Depreciation / Amortization

\$ in thousands	Balance at Jan. 1, 2007	Currency	Changes in A change consolidation group	dditions R	eclassi- D fications	isposals	Balance at Dec. 31, 2007
Amortizable Intangible Assets
Non-compete agreements	118,553	289	–	10,820	–	(103)	129,559
Technology	406	–	–	4,466	–	–	4,872
Other	233,099	10,161	203	18,717	(2,522)	(18,783)	240,875
TOTAL	352,058	10,825	203	34,003	(2,522)	(19,261)	375,306
No n-Amortizable Intangible Assets Tradename	33,310	190	–	–	–	–	33,500
Management contracts	21,908	–	–	–	–	–	21,908
TOTAL	55,218	190	–	–	–	–	55,408
Total Inta ngible Assets	407,276	11,015	203	34,003	(2,522)	(19,261)	430,714
goo dwill	440,062	3,606	–	–	2,506	–	446,174

Net Book Value

\$ in thousands	Dec. 31, 2007	Dec. 31, 2006
Amortizable Intangible Assets
Non-compete agreements	82,546	84,570
Technology	95,144	64,394
Other	69,433	72,410
TOTAL	247,123	221,374
Tradename	223,350	222,122
No n-Amortizable Intangible Assets
Management contracts	219,483	217,869
TOTAL	442,833	439,991
Total Inta ngible Assets	689,956	661,365
Goo dwill	7,245,589	6,892,161

The related amortization expenses amounted to \$34,003 and \$43,210 for the years 2007 and 2006.

Estimated Amortization Expenses

\$ in thousands	2008	2009	2010	2011	2012
	32,345	28,306	26,902	25,737	24,179

Goodwill

Changes in the carrying amount of goodwill are mainly a result of acquisitions and the impact of foreign currency translations. During the year 2007, the Company's acquisitions consisted primarily of RSI and of clinics in the normal course of operations (see Note 3). During 2006, the Company's acquisitions consisted primarily of the RCG Acquisition. The segment detail is as follows:

Goo dwill
\$ in thousands	North America I	nternational	Corporate	Total
Bala nce as of January 1, 2006	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
Bala nce as of December 31, 2006	6,437,995	454,166	–	6,892,161
Goodwill acquired	52,674	59,491	159,385	271,550
Reclassifications	17,952	8,195	–	26,147
Foreign currency translation adjustment	(146)	55,877	–	55,731
Bala nce as of December 31, 2007	6,508,475	577,729	159,385	7,245,589

Accrued Expenses and Other Current Liabilities 8.

As at December 31, 2007 and 2006 accrued expenses and other current liabilities consisted of the following:

Accrued expenses and other Current Liabilities
\$ in thousands	2007	2006
Accrued salaries and wages	331,931	283,859
Unapplied cash and receivable credits	173,424	148,985
Accrued insurance	146,377	124,422
Special charge for legal matters	115,000	115,000
Other	585,281	522,673
Total	1,352,013	1,194,939

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 SE (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 committees representing the asbestos creditors and W.R. Grace & Co. Under the settlement agreement, the Company will pay \$115,000, without interest, 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.

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 accrued rents.

Short-Term Borrowings and Short-Term Borrowings from Related Parties 9.

As of December 31, 2007 and 2006, short-term borrowings and short-term borrowings from related parties consisted of the following:

Short-term borrowings
\$ in thousands	2007	2006
Borrowings under lines of credit	132,497	65,231
Accounts receivable facility	85,000	266,000
Sho rt-term bo rro wings	217,497	331,231
Short-term borrowings from related parties	2,287	4,575
Sho rt-term bo rro wings including relat ed parties	219,784	335,806

Short-term Borrowings

Lines of Credit. Short-term borrowings of \$132,497 and \$65,231 at December 31, 2007 and 2006, 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, 2007 and 2006 were 4.36% and 3.69%, respectively.

Excluding amounts available under the 2006 Senior Credit Agreement (see Note 10 below) at December 31, 2007, the Company had \$99,285 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 in October 2007. The AR Facility currently provides borrowings up to a maximum of \$650,000. Under the AR Facility, certain receivables are sold to NMC Funding Corporation ("NMC Funding"), a wholly-owned subsidiary. NMC Funding then assigns percentage 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 percentage ownership interests are recorded as short-term borrowings.

At December 31, 2007 there are outstanding short-term borrowings under the AR Facility of \$85,000. 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, 2007 was 5.44%. Annual refinancing fees, which include legal costs and bank fees (if any ), are amortized over the term of the facility.

Short-term Borrowings from related parties

From time to time during each of the years presented, the Company received advances under the existing loan agreements with Fresenius SE for those years. During the year ended December 31, 2007, the Company received advances ranging from €2,200 to €30,900 with interest rates ranging from 4.37% to 5.105%. At December 31, 2007, there were no advances outstanding with Fresenius SE. On December 31, 2007, the Company had advances outstanding with a Fresenius SE subsidiary in the amount of €1,554 (\$2,287) with an interest rate of 4.1%. On December 31, 2006, the Company received an advance from Fresenius SE in the amount 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 SE with an outstanding balance of \$18,757 which was outstanding at December 31, 2005. Annual interest expense on the borrowings during the years presented was \$506 and \$191 for the years 2007 and 2006 respectively.

Long-term Debt and Capital Lease Obligations 10.

At December 31, 2007 and 2006, long-term debt and capital lease obligations consisted of the following:

Lo ng-term debt and Capital Lease Obligations
\$ in thousands	2007	2006
2006 Senior Credit Agreement	3,166,114	3,564,702
Senior Notes	491,569	–
Euro Notes	294,420	263,400
EIB agreements	48,806	84,618
Capital lease obligations	14,027	8,286
Other	73,893	68,470
	4,088,829	3,989,476
Less current maturities	(84,816)	(160,135)
	4,004,013	3,829,341

The Company's senior debt consists mainly of borrowings related to its 2006 Senior Credit Agreement, its Senior Notes, its Euro Notes and borrowings under its European Investment Bank Agreements as follows:

2006 Senior Credit Agreement

The Company entered into a \$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 lenders ( collectively, the "Lenders") on March 31, 2006 which replaced the Prior Credit Agreement.

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 ("Term Loan A") of \$1,850,000, also scheduled to mature on March 31, 2011. The 2006 Senior Credit Agreement requires 19 quarterly payments on Term 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 ("Term 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 Term 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).

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

The obligations under the 2006 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor 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 \$260,000 for dividends paid in 2008, and increases in subsequent years. The Company paid dividends of \$188,407 in May of 2007 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, 2007, 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 are being amortized over the life of this agreement and wrote off approximately \$14,735 in unamortized fees related to its prior senior credit agreement in 2006.

The following table shows the available and outstanding amounts under the 2006 Senior Credit Agreement at December 31, 2007 and 2006, respectively:

Available and Outstanding Credits
\$ in thousands, December 31,	2007	2006
Maximum Amount Available
Revolving credit	1,000,000	1,000,000
Term Loan A	1,550,000	1,760,000
Term Loan B	1,578,125	1,736,875
Total	4,128,125	4,496,875
Balance Outstanding
Revolving credit	37,989	67,827
Term Loan A	1,550,000	1,760,000
Term Loan B	1,578,125	1,736,875
Total	3,166,114	3,564,702

In addition, at December 31, 2007, \$87,140 and at December 31, 2006, \$84,733 were utilized as letters of credit which are not included as part of the balances outstanding at those dates.

On July 2, 2007, the Company voluntarily repaid portions of the term loans outstanding utilizing a portion of the proceeds from the issuance of senior notes (see Senior Notes below). Under the terms of the 2006 Senior Credit Agreement, advance payments on the term loans are applied first against the next four quarterly payments due with any amounts in excess of the four quarterly payments applied on a pro-rata basis against any remaining payments. As a result of the advance payments on the Term Loans, no payments will be made or will be due for either Term Loan A or B until the third quarter of 2008.

In June 2007, the 2006 Senior Credit Agreement was amended in order to enable the Company to issue \$500 million in Senior Notes (see below). Furthermore, on January 31, 2008, it was amended to increase certain types of permitted borrowings and to remove all limitations on capital expenditures.

Senior Notes

On July 2, 2007, FMC Finance III S.A. ("Finance III"), a wholly-owned subsidiary of the Company, issued \$500,000 aggregate principal amount of 6 7/8% senior notes due 2017 (the "Senior Notes") at a discount resulting in an effective interest rate of 7 1/8%. The Senior Notes are guaranteed on a senior basis jointly and severally by the Company and by its subsidiaries Fresenius Medical Care Holdings, Inc. ("FMCH") and Fresenius Medical Care Deutschland GmbH ("D-GmbH"). Finance III may redeem the Senior Notes at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms

of the indenture. The holders have a right to request that Finance III repurchase the Senior Notes at 101% of principal plus accrued interest upon the occurrence of a change of control followed by a decline in the rating of the Senior Notes. The proceeds, net of discounts, investment bank fees and other offering related expenses, were \$484,024, of which \$150,000 was used to reduce Term Loan A and \$150,000 to reduce Term Loan B under the Company's 2006 Senior Credit Agreement (see 2006 Senior Credit Agreement above ). The remaining \$184,024 was applied to the then outstanding balance under its short-term AR Facility. The discount is being amortized over the life of the Senior Notes.

Euro Notes

In July 2005, FMC Finance IV Luxembourg issued euro denominated notes ("Euro Notes") ( Schuldscheindarlehen) totaling \$294,420 (€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 6.56% at December 31, 2007. The Euro Notes, guaranteed by the Company, mature on July 27, 2009.

European Investment Bank Agreements

The Company entered into various credit agreements with the European Investment Bank ("EIB") in 2005 and 2006 totaling €221,000. 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 Company will use the funds to refinance certain R&D projects, to make investments in expansion and optimization of existing production facilities in Germany, and for financing and refinancing of certain clinic refurbishing and improvement projects. 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.

The Company has three credit facilities available at December 31, 2007 under these agreements as follows:

• €90,000 multi-currency revolving credit facility expiring in 2013.
• €41,000 multi-currency term-loan credit facility expiring in 2013 which was fully drawn down in U.S. dollars in the amount of \$48,806 in September 2005.
• €90,000 multi-currency term-loan credit facility expiring in 2014.

At December 31, 2007, the Company had no borrowings outstanding under the revolving credit facility (\$35,812 at December 31, 2006) and no borrowings outstanding under the second term loan. The Company's U.S. dollar borrowings under these agreements are still outstanding and had an interest rate of 4.92% at December 31, 2007.

Borrowings under these agreements are secured by bank guarantees and have customary covenants.

Annual Payments

Aggregate annual payments applicable to the 2006 Senior Credit Agreement, Senior Notes, Euro Notes, EIB agreements, capital leases and other borrowings ( excluding the Company's trust preferred securities, see Note 12) for the five years subsequent to December 31, 2007 are:

Annual Payments
\$ in thousands	2008	2009	2010	2011	2012 T	hereafter	Total
	84,816	471,453	145,133	1,318,561	1,143,899	933,398	4,097,260

Employee Benefit Plans 11.

General

FMC-AG & Co. KGaA recognizes pension costs and related pension liabilities for current and future benefits to qualified current and former employees of the Company. The Company's pension plans are structured differently according to the legal, economic and fiscal 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 determined by the amount of contribution by the employee and the employer, both of which may be limited by legislation, and the returns earned on the investment of those contributions.

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. The 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 the fair value of 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.

Defined Benefit Pension Plans

During the first quarter of 2002, FMCH, the Company's North America subsidiary, 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 2007. FMCH voluntarily contributed \$1,173 during 2007. Expected funding for 2008 is \$853.

The benefit obligation for all defined benefit plans at December 31, 2007, is \$331,649 (2006: \$334,375) which consists of the benefit obligation of \$218,009 (2006: \$226,458) for the North America funded plan and the benefit obligation of \$113,640 (2006: \$107,917) for the German unfunded plan. The benefit obligation includes \$218,009 (2006: \$220,367) which is funded by plan assets and \$113,640 (2006: \$114,008) which is unfunded.

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.

Funded status of Employee Benefit Plans
\$ in thousands	2007	2006
Change in benefit obligation
Benefit obligation at beginning of year	334,375	320,975
Foreign currency translation	12,193	10,843
Service cost	8,835	8,113
Interest cost	18,506	16,945
Transfer of plan participants	670	(728)
Actuarial (gain) loss	(36,637)	(16,194)
Benefits paid	(6,293)	(5,579)
Benefit o bligat io n at end of year	331,649	334,375
Change of plan assets
Fair value of plan assets at beginning of year	220,367	196,013
Actual return on plan assets	12,276	18,128
Employer contributions	1,173	10,982
Benefits paid	(5,235)	(4,756)
Fair val ue of pla n assets at end of year	228,581	220,367
Funded stat us at year end	103,068	114,008

The net amount recognized at December 31, 2007, consists of Balance Sheet items of a pension liability of \$113,640 and an asset of \$10,572. The pension liability includes a current portion of \$2,288 (2006: \$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 \$111,352 (2006: \$112,316) is recorded as non-current pension liability in the balance sheet. The total pension liability relates to the German plan. At December 31, 2007, total prepaid pension costs in the amount of \$10,572 relate to the North America plan and are recorded within other assets in the balance sheet. Approximately 86% of the beneficiaries are located in North America with the majority of the remaining 14% located in Germany.

The accumulated benefit obligation for all defined benefit pension plans was \$312,459 and \$315,935 at December 31, 2007 and 2006, respectively. The accumulated benefit obligation for all defined benefit pension plans with an obligation in excess of plan assets was \$96,659 and \$315,935 at December 31, 2007 and 2006, respectively; the related plan assets had a fair value of \$220,367 at December 31, 2006.

The pre-tax changes in the table below for 2007 reflect actuarial losses (gains) in other comprehensive income relating to pension liabilities. The pre-tax changes in the table below for 2006 reflect actuarial losses (gains) in other comprehensive income relating to pension liabilities and changes to additional minimum liability. As of December 31, 2007, there are no cumulative effects of prior service costs included in other comprehensive income.

Other Comprehensive Income (Loss) related to Pension Liabilities

\$ in thousands	Actuarial losses A (gains)	dditional minimum liability
Adjustment relat ed to pensio ns at January 1, 2006	–	92,180
Additions	–	–
Releases	–	(28,189)
Adjustment FAS 158	84,104	(65,664)
Foreign currency translation adjustment	–	1,673
Adjustments relat ed to pensio ns at December 31, 2006	84,104	–
Additions	(32,551)	–
Releases	(5,163)	–
Foreign currency translation adjustment	1,985	–
Adjustments relat ed to pensio ns at December 31, 2007	48,375	–

The actuarial loss expected to be amortized from other comprehensive income into net periodic pension cost over the next year is \$1,599.

The discount rates for all plans are based upon yields of portfolios of highly rated equity and debt instruments with maturities that mirror the plan's benefit obligation. The Company's discount rate is the weighted average of these plans based upon their benefit obligations at December 31, 2007. The following weighted-average assumptions were utilized in determining benefit obligations as of December 31:

Weighted Average ASsumptions for benefit OBLIGATI	ONS
	2007	2006
Discount rate	6.16%	5.52%
Rate of compensation increase	4.16%	4.18%

The defined benefit pension plans' net periodic benefit costs are comprised of the following components for each of the years ended December 31:

Co mponents of net periodic benefit cost
\$ in thousands	2007	2006
Service cost	8,835	8,113
Interest cost	18,506	16,945
Expected return on plan assets	(16,362)	(15,361)
Amortization unrealized losses	5,163	8,420
Amortization of prior service cost	–	846
Settlement loss	–	238
Net perio dic benefit co sts	16,142	19,201

The following weighted-average assumptions were used in determining net periodic benefit cost for the year ended December 31:

Weighted average assumptions for net periodic benefit cost
	2007	2006
Discount rate	5.52%	5.16%
Expected return of plan assets	7.50%	7.50%
Rate of compensation increase	4.18%	4.18%

Expected benefit payments for the next five years and in the aggregate for the five years thereafter are as follows:

Expected benefit payments
\$ in thousands	2008	2009	2010	2011	2012	2013 through 2017
	7,903	8,862	10,031	10,720	11,875	82,413

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 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 2007.

The investment policy, utilizing a target investment allocation of 36% equity and 64% longterm 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 following schedule describes FMCH's allocation for its plans:

Categories of plan assets
	Allocation 2007	Allocation 2006	Target allocation
Equity securities	32%	38%	36%
Debt securities	68%	62%	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, 2007 and 2006 was \$23,534 and \$19,900 respectively.

Mandatorily Redeemable Trust Preferred Securities 12.

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, 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, 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. The Company redeemed the securities due on February 1, 2008, primarily with funds obtaind under its existing credit facilities.

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 indentures. As of December 31, 2007, the Company is in compliance with all financial covenants under all Trust Preferred Securities agreements.

The Trust Preferred Securities outstanding as of December 31, 2007 and 2006 are as follows:

trust preferred securities
in thousands and except stated amounts in \$	Year issued	Stated amount I	nterest rate	Mandatory redemption date	2007	2006
Fresenius Medical Care Capital Trust II	1998	\$ 450,000	7 7/8%	Feb. 1, 2008	443,985	434,942
Fresenius Medical Care Capital Trust III	1998	DM 300,000	7 3/8%	Feb. 1, 2008	225,802	202,011
Fresenius Medical Care Capital Trust IV	2001	\$ 225,000	7 7/8%	Jun. 15, 2011	223,684	223,300
Fresenius Medical Care Capital Trust V	2001	€ 300,000	7 3/8%	Jun. 15, 2011	440,311	393,575
total					1,333,782	1,253,828

13. Shareholders' Equity

Capital Stock

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).

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 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 as the consideration in 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.

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 preemption 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 Annual General Meeting of shareholders ("AGM") on May 9, 2006, as amended by the AGM on May 15, 2007, resolving a three-for-one share split, the Company's share capital was conditionally increased by up to €15,000 corresponding to 15 million ordinary shares with no par value and a nominal value of €1.00. 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, 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 or, following the conversion offer in 2005 (see Note 2), ordinary shares. At December 31, 2007, 275,426 convertible bonds or options for preference shares remained outstanding with a remaining average term of 4.6 years and 9,973,441 convertible bonds or options for ordinary shares remained outstanding with a remaining average term of 5.96 years under these programs. For the year ending December 31, 2007, 66,652 options for preference shares and 1,336,910 options for ordinary shares had been exercised under these employee participation plans and €27,889 (\$38,757) remitted to the Company.

As the result of the Company's three-for-one stock split for both preference and ordinary shares on June 15, 2007, and with the approval of the shareholders as the Annual General Meeting on May 15, 2007, the Company's Conditional Capital was increased by €4,454 (\$6,557). Conditional Capital available for all programs at December 31, 2007 is €29,228 (\$43,027) which includes €15,000 (\$22,08282) for the 2006 Plan and €14,228 (\$20,945) 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 \$188,407 for 2006 in the amount of €0.49 per preference share and €0.47 per ordinary share were paid on May 16, 2007.

Cash dividends of \$153,720 for 2005 in the amount of €0.43 per preference share and €0.41 per ordinary share were paid on May 10, 2006.

Earnings Per Share 14.

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:

Reconciliation of basic and diluted earnings per share
\$ in thousands, except per share data	2007	2006
NUMERAT ORS
Net income	717,130	536,746
less
Dividend preference on preference shares	103	90
inco me availa ble to cla ss o F shares	717,027	536,656
Denominators
Weighted average number of
Ordinary shares outstanding	291,929,141	290,621,904
Preference shares outstanding	3,739,470	3,575,376
Total weighted average shares outstanding	295,668,611	294,197,280
Potentially dilutive ordinary shares	1,079,683	1,673,649
Potentially dilutive preference shares	127,324	140,976
Total weighted average ordinary shares outstanding assuming dilution	293,008,824	292,295,553
Total weighted average preference shares outstanding assuming dilution	3,866,794	3,716,352
Basic income per ordinary share	2.43	1.82
Plus preference per preference share	0.02	0.03
Basic income per preference share	2.45	1.85
Fully diluted income per ordinary share	2.42	1.81
Plus preference per preference share	0.02	0.03
Fully diluted income per preference share	2.44	1.84

Stock Options 15.

In connection with its stock option program, the Company incurred compensation expense of \$24,208 and \$16,610 for the years ending December 31, 2007 and 2006 respectively. There were no capitalized compensation costs in any of the three years presented. The Company also recorded a related deferred income tax of \$6,880 and \$4,599 for the years ending December 31, 2007 and 2006 respectively. Effective January 1, 2006, the Company adopted the provisions of FAS 123( R ) using the modified prospective transition method (see Note 1t). As a result of the adoption of this standard, the Company incurred compensation costs of \$14,258 for 2006, which would not have been recognized under its previous accounting policy in accordance with APB Opinion No. 25.

Stock Options and other Share-Based Plans

At December 31, 2007, the Company has awards outstanding under various stock-based compensation plans.

Incentive plan

In 2006, Fresenius Medical Care Management AG adopted a three-year performance related compensation plan for fiscal years 2006, 2007 and 2008, for 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 by reference to revenue increases, operating income, net income, and cash flow development. Once the annual targets are achieved, the cash portion of the award is paid after the end of the respective fiscal year. The share-based compensation portion of the award is granted but subject to a three-year vesting period beginning after the respective fiscal year in which the target has been met and is amortized over the same threeyear vesting period. The payment of the share-based compensation portion 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 share-based compensation is revalued each reporting period during the vesting period to reflect the market value of the stock as of the reporting date with any changes in value recorded in the reporting period. The initial share-based compensation incurred under this plan for target years 2007 and 2006 was \$4,595 and \$3,362, respectively.

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

On May 9, 2006, as amended on May 15, 2007, the Fresenius Medical Care AG & Co. KGaA Stock Option Plan 2006 (the "Amended 2006 Plan") was established by resolution of the Company's AGM with a conditional capital increase up to €15,000 subject to the issue of up to fifteen million no par value bearer ordinary shares with a nominal value of €1.00 each. Under the 2006 Plan, up to fifteen million options can be issued, each of which can be exercised to obtain one ordinary share, with up to three million options designated for members of the Management Board of the General Partner, up to three million options designated for members of management boards of direct or indirect subsidiaries of the Company and up to nine million options designated for managerial staff members of the Company and such subsidiaries. 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 Amended 2006 Plan (including decisions regarding certain adjustments and forfeitures). The General Partner has such authority with respect to all other participants in the Amended 2006 Plan.

Options under the Amended 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 Amended 2006 Plan shall be the average closing price on the Frankfurt Stock Exchange of the Company's ordinary shares during the 30 calendar days immediately prior to each grant date. Options granted under the Amended 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 Amended 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 Amended 2006 Plan excluded, 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, onethird of the options granted are forfeited for each year in which EPS does not meet or exceed the 8% target. The success target for 2007 and 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 2007, the Company awarded 2,395,962 options, including 398,400 options granted to members of the Management Board of the General Partner, at a weighted average exercise price of \$46.22 (€33.91), a weighted average fair value of \$13.23 (€9.71) each and a total fair value of \$31,709, which will be amortized on a straight line basis over the three-year vesting period.

During 2006, the Company awarded 2,316,840 options, including 398,400 to members of the Management Board of the General Partner, at a weighted average exercise price of \$40.23 (€30.54), a weighted average fair value of \$13.02 (€9.88) each and a total fair value of \$30,158, which will be amortized on a straight line basis over the three-year vesting period.

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.

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 originally had a par value of €2.56 and bear interest at a rate of 5.5%. In connection with the share split, the principal amount was adjusted in the same proportion as the share capital out of the capital increase and the par value of the convertible bonds was adjusted to €0.85 without affecting the interest rate. 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 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 straightline 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 had a weighted average exercise price of \$27.38 (€20.79), weighted average fair value of \$7.44 (€6.23), and total fair value of \$23,312 (€19,535).

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.

At December 31, 2007, the Management Board members of the General Partner, held 1,922,628 stock options for ordinary shares and employees of the Company held 8,050,813 stock options for ordinary shares and 275,426 stock options for preference shares, under the various stock-based compensation plans of the Company. The Table below provides reconciliations for options outstanding at December 31, 2007, as compared to December 31, 2006.

reconciliation of options outstanding
	Options	Weighted average exercise price
Options of Ordinary shares	(in thousands)	in €	in \$
Bala nce at December 31, 2006	9,222	20.39	30.02
Granted	2,396	33.91	49.92
Excercised	1,337	20.18	29.71
Forfeited	308	27.64	40.69
Bala nce at December 31, 2007	9,973	26.64	39.22
Options for preference shares
Bala nce at December 31, 2006	368	16.19	23.83
Exercised	67	15.10	22.23
Forfeited	26	19.23	28.31
Bala nce at December 31, 2007	275	16.16	23.79

The following table provides a summary of fully vested options outstanding and exercisable for both preference and ordinary shares at December 31, 2007:

Fully Vested outstanding and exercisable Options
	Options	Weighted	Weighted average exercise price A			ggregate intrinsic value
	(in thousands)	average remaining contractual life in years	in €	in \$	in €	in \$
OPTI ONS
For preference shares	202	3.58	14.77	21.74	4,158	6,122
For ordinary shares	3,335	4.88	20.40	30.03	54,326	79,973

At December 31, 2007, there were \$47,152 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 1.6 years.

During the years ended December 31, 2007 and 2006 the company received cash of \$38,757 and \$46,524 respectively, from the exercise of stock options. The intrinsic value of options exercised for the twelve-month periods ending December 31, 2007 and 2006 were \$27,591 and \$27,270 respectively. A related tax benefit to the Company of \$8,177 and \$7,428 for the years ending December 31, 2007 and 2006, respectively, was recorded as cash provided from financing activities.

Fair Value Information

The Company used a 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. Expected volatility is based on historical volatility of the Company's shares. To incorporate the effects of expected early exercise in the model, an early exercise of vested options was assumed as soon as the share price exceeds 200% of the exercise price. 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 2007 and 2006 grants are as follows:

Weighted-average Assumptions
	2007	2006
Expected dividend yield	1.93%	1.64%
Risk-free interest rate	4.19%	3.78%
Expected volatility	27.13%	30.03%
Expected life of options	7 years	7 years
Exercise price in €	33.91	30.54
Exercise price in \$	46.22	40.23

Income Taxes 16.

Income before income taxes and minority interest is attributable to the following geographic locations:

Income before income taxes
\$ in thousands	2007	2006
Germany	225,963	167,258
United States	781,868	645,360
Other	201,244	154,263
TOTAL	1,209,075	966,881

Income tax expense (benefit) for the years ended December 31, 2007 and 2006 consisted of the following:

Expense (Benefit) for Income Taxes
\$ in thousands	2007	2006
Current
Germany	124,598	107,609
United States	283,350	150,550
Other	75,534	57,462
	483,482	315,621
Deferred
Germany	(11,377)	(15,219)
United States	4,052	118,800
Other	(10,505)	(5,713)
	(17,830)	97,868
total	465,652	413,489

In 2007 and 2006 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. The German Business Tax Reform Act (Unternehmensteuerreformgesetz 2008) was enacted in the third quarter 2007 resulting in a reduction of the corporate income tax rate from 25% to 15% for German companies. This reduction together with technical changes to trade tax rules will reduce the Company's German entities' combined corporate income tax rate effective as of January 1, 2008. Deferred tax assets and liabilities for German entities which will be realized in 2008 and beyond, were revalued to reflect the new enacted tax rate. The revaluation of deferred tax assets and liabilities resulted in a deferred tax benefit of \$4,257 which has been included in operations for the year ended December 31, 2007.

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% for the fiscal years ended December 31, 2007 and 2006.

Reconciliation of income Taxes
\$ in thousands	2007	2006
Expected corporate income tax expense	465,131	371,959
Tax free income	(50,131)	(33,912)
Foreign tax rate differential	(5,434)	(3,013)
Non-deductible expenses	5,081	17,055
Taxes for prior years	41,868	41,332
Tax on divestitures	–	29,128
Change of German tax rate	(4,257)	–
Other	13,394	(9,060)
Actual inco me ta x expense	465,652	413,489
Eff ective Tax rat e	38.5%	42.8%

The tax effects of the temporary differences that give rise to deferred tax assets and liabilities at December 31, 2007 and 2006, are presented below:

Deferred income tax assets and liabilities
\$ in thousands	2007	2006
Deferred tax assets
Accounts receivable, primarily due to allowance for doubtful accounts	37,572	42,753
Inventory, primarily due to additional costs capitalized
for tax purposes, and inventory reserve accounts	42,301	32,512
Plant, equipment, intangible assets and other non current assets,
principally due to differences in depreciation and amortization	50,829	45,949
Accrued expenses and other liabilities for financial accounting
purposes, not currently tax deductible	321,665	253,730
Net operating loss carryforwards	64,792	37,965
Derivatives	22,260	8,313
Other	10,716	10,978
Total deferred ta x assets	550,135	432,200
Less valuation allowance	(51,326)	(41,231)
Net deferred ta x assets	498,809	390,969
Deferred tax Liabilities
Accounts receivable, primarily due to allowance for doubtful accounts	13,630	10,398
Inventory, primarily due to inventory reserve accounts for tax purposes	6,306	6,994
Accrued expenses and other liabilities deductible for tax
prior to financial accounting recognition	4,286	30,714
Plant, equipment and intangible assets, principally due to differences
in depreciation and amortization	400,408	302,187
Derivatives	14,636	33,831
Other	20,587	45,491
Total deferred ta x liabilities	459,853	429,615
net deferred ta x ASSE TS (liabilities)	38,956	(38,646)

The valuation allowance increased by \$10,095 in 2007 and decreased by \$4,915 in 2006.

The expiration of net operating losses is as follows:

	Net operating loss carryforwards \$ in thousands
2008	2009	2010	2011	2012	2013	2014	2015	2016	2017 W and thereafter	ithout T expiration date	otal
17,283	6,914	5,191	9,926	19,889	13,945	15,164	14,861	9,679	11,809	61,839	186,500

In assessing the realizability of deferred tax assets, management considers whether it is morelikely-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, 2007.

The Company provides for income taxes on the cumulative earnings of foreign subsidiaries that will not be reinvested. During the year 2007, the Company provided for \$1,600 of deferred tax liabilities associated with earnings that are likely to be distributed in 2008. Provision has not been made for additional taxes on \$1,642,215 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 shareholdings 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.

The Company adopted FASB Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109 Accounting for Income Taxes ("FAS 109") as of January 1, 2007. FIN 48 prescribes a two step approach to the 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. If the threshold is met, the tax position is measured at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement and is recognized in the financial statements. The implementation of this interpretation had no impact on the assets and liabilities of the Company.

FMC-AG & Co. KGaA companies are subject to tax audits in Germany and the U.S. on a regular basis and on-going tax audits in other jurisdictions. In Germany, the tax audit for the years 1998 until 2001 is substantially finalized with all results of this tax audit sufficiently recognized in the financial statements as of December 31, 2006. Fiscal years 2002 through 2005 are currently under audit and fiscal years 2006 and 2007 are open to audit. The Company filed a lawsuit against the decision of the tax authority regarding the disallowance of certain deductions taken for fiscal year 1997 and has included the related unrecognized tax benefit in the total unrecognized tax benefit noted below.

In the U.S., except for refund claims the Company has filed relative to the disallowance of tax deductions with respect to certain civil settlement payments for 2000 and 2001, the federal tax audit for the years 1999 through 2001 is completed. The tax has been paid and all results are recognized in the financial statements as of December 31, 2006. The unrecognized tax benefit relating to these deductions is included in the total unrecognized tax benefit noted below. The Federal tax audit for the years 2002 through 2004 has been completed and the IRS has issued its report. The audit report includes disallowance of a material amount of deductions taken during the audit period for interest expense related to intercompany mandatorily redeemable preferred securities. The Company has filed a protest over the disallowed deductions and will avail itself of all remedies. An adverse determination with respect to any of the disputed disallowances could have a material adverse effect on our cash flows, tax expenses, net income and earnings per share.

Fiscal years 2005 and 2006 are currently under audit. There are a number of state audits in progress and various years are open to audit in various states. All expected results have been recognized in the financial statements.

Subsidiaries of FMC-AG & Co. KGaA in a number of countries outside of Germany and the U.S. are also subject to tax audits. The Company estimates that the effects of such tax audits are not material to these consolidated financial statements.

Upon adoption of FIN 48, the Company had \$302,552 of unrecognized tax benefits including the amounts relating to the tax audit items for Germany and the U.S. noted above. The following table shows the reconciliation of the beginning and ending amounts of unrecognized tax benefits:

\$ in thousands 2007 Balance at January 1, 2007 Increases in unrecognized tax benefits prior periods Decreases in unrecognized tax benefits prior periods Increases in unrecognized tax benefits current period Changes related to settlements with tax authorities Reductions as a result of a lapse of the statute of limitations Foreign currency translation Balance at December 31, 2007 302,552 29,236 (9,965) 14,893 (2,960) 20,294 354,050 unrecognized tax benefits (net of interest)

The vast majority of these unrecognized tax benefits would reduce the effective tax rate if recognized. The Company is currently not in a position to forecast the timing and magnitude of changes in the unrecognized tax benefits.

During the year ended December 31, 2007 the Company recognized \$15,612 in interest and penalties. The Company had \$78,355 for the payment of interest and penalties accrued at December 31, 2007.

Operating Leases 17.

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, 2007 and 2006 was \$461,490 and \$414,137 respectively.

Future minimum rental payments under noncancelable operating leases for the five years succeeding December 31, 2007 and thereafter are:

Future Minimum Rental Payments
\$ in thousands	2008	2009	2010	2011	2012 T	hereafter	Total
	357,597	318,634	277,100	233,088	192,928	563,574	1,942,921

–

Legal Proceedings 18.

Commercial Litigation

The Company was originally formed as a result of a series of transactions it completed pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996, by and between W.R. Grace & Co. and Fresenius SE, (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, Inc. ("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., 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. bankruptcy reorganization plan that contains such provisions. Under the Settlement Agreement, the Company will pay a total of \$115,000 without interest 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, styled 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 the use of touch screen interfaces for hemodialysis machines. Baxter filed counterclaims against FMCH seeking more than \$140,000 in monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter's patents. On July 17, 2006, the court entered judgment on a jury verdict 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 reinstated the patents and its prior infringement findings. Following a retrial on damages, the court entered judgment on November 6, 2007 in favor of Baxter on a jury award of \$14,300. We intend to appeal the court's rulings.

FMC AG & Co. KGaA's Australian subsidiary, Fresenius Medical Care Australia Pty Limited ("Fresenius Medical Care Australia") and Gambro Pty Limited and Gambro AB (together "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 commercialization 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 was 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 was 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 sought damages against former officers and directors and did not state a claim for money damages directly against RCG. On August 30, 2007, this suit was dismissed by the trial court without leave to amend. Plaintiff subsequently appealed and the matter remains pending in the appellate court of Tennessee.

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.

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 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. The Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Attorney's office for the Eastern District of Texas have also confirmed that they are participating in the review of the anemia management program issues raised by the U.S. Attorney's office for the Eastern District of Missouri. On July 17, 2007, the U.S. Attorney's office filed a civil complaint against RCG and FMCH in its capacity as RCG's current corporate parent in United States District Court, Eastern District of Missouri. The complaint seeks monetary damages and penalties with respect to issues arising out of the operation of RCG's Method II supply company through 2005, prior to the date of FMCH's acquisition of RCG. The complaint is styled United States of America ex rel. Julie Williams et al. vs. Renal Care Group, Renal Care Group Supply Company and FMCH. The Company believes that RCG's operation of its Method II supply company was in compliance with applicable law and will defend this litigation vigorously. We will continue to cooperate in the ongoing investigation. An adverse determination in this investigation or litigation or any settlement arising out of this investigation or litigation could result in significant financial penalties, and any adverse determination in any litigation arising out of the 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 required production of a broad range of documents relating to the RCG stock option program prior to the RCG Acquisition.

The Company cooperated with the government's requests for information and believes that we have completed the requested document production. The outcome and impact of this investigation cannot be predicted at this time.

In August 2007, the Sheet Metal Workers National Pension Fund filed a complaint in the United States District Court for the Central District of California, Western Division ( Los Angeles), alleging that Amgen, Inc., the Company and Davita Inc., marketed Amgen's products, Epogen and Aranesp, to hemodialysis patients for uses not approved by the FDA and thereby caused a putative class of commercial insurers to pay for unnecessary prescriptions of these products. Motions have been filed to consolidate this case with others against Amgen alone in a single case under the federal rules for multidistrict litigation. FMCH intends to contest and defend this litigation vigorously. An adverse determination in this litigation could have a material adverse effect on the Company's business, financial condition and results of operations.

On November 27, 2007, the United States District Court for the Western District of Texas ( El Paso) unsealed and permitted service of two complaints previously filed under seal by a qui tam relator, a former FMCH local clinic employee. (Qui tam is a legal provision under the United States False Claims Act, which allows for private individuals to bring suit on behalf of the U.S. federal government, as far as such individuals believe to have knowledge of presumable fraud committed by third parties.) The first complaint alleges that a nephrologist unlawfully employed in his practice an assistant to perform patient care tasks that the assistant was not licensed to perform and that Medicare billings by the nephrologist and FMCH therefore violated the False Claims Act. The second complaint alleges that FMCH unlawfully retaliated against the relator by discharging her from employment constructively. The United States Attorney for the Western District of Texas has declined to intervene and to prosecute on behalf of the United States. Counsel for the nephrologist has asserted that a criminal investigation of the relator's allegations is continuing. FMCH has received no other notice of the pendency of any criminal investigation related to this matter. FMCH intends to defend vigorously against the allegations in the two complaints. The outcome of this litigation, or of any related investigation, cannot be predicted at this time.

From time to time, the Company is a party to or may be threatened with other litigation or arbitration, 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 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 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 its business, financial condition, 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.

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.

Financial Instruments 19.

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. 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, 2007 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 \$3,979 (\$6,528 pretax) for the year ended December 31, 2007 are deferred in accumulated other comprehensive income and will mainly be reclassified into earnings during 2008. During 2007, the Company reclassified after tax gains of \$1,924 (\$2,537 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 \$322,031 with a fair value of \$7,147 as of December 31, 2007.

In connection with foreign currency denominated intercompany loans, the Company also entered into foreign exchange swaps with a notional amount of \$385,994 having a fair value of approximately \$6,489 as of December 31, 2007. 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, 2007, 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 amounting to \$19,485.

Interest Rate Risk Management

The Company enters into derivatives, particularly interest rate swaps and to a certain extent, interest options, to (a) protect interest rate exposures arising from long-term debt and shortterm borrowings at floating rates by effectively swapping them into fixed rates or (b) hedge the fair value of parts of its fixed interest rate borrowings.

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 amounting to \$62.

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, all of which expire at various dates between 2008 and 2012, in the notional amount of \$3,465,000, including \$650,000 that will become effective March 31, 2008, 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 4.43% plus an applicable margin. During the first quarter 2008, interest rate swap agreements with notional amounts of \$515,000 will expire. After tax losses of \$20,817 (\$34,686 pretax ) for the year ended December 31, 2007, were deferred in accumulated other comprehensive income. Interest payable and interest receivable under the swap agreements are accrued and recorded as an adjustment to interest expense.

Fair Value Hedges of Fixed Rate Debt

The Company entered 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 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 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, 2007, the notional volume of these swaps which, along with the underlying trust preferred securities matured on February 1, 2008, was \$450,000.

Fair Value of Financial Instruments

The following table presents the carrying amounts and fair values of the Company's financial instruments at December 31, 2007 and 2006.

Carrying amount and fair value of financial instruments
\$ in thousands	2007	2006
	Carrying amount	Fair value	Carrying amount	Fair value
NON-Derivatives
ASSETS
Cash and cash-equivalents	244,690	244,690	159,010	159,010
Receivables	2,026,865	2,026,865	1,848,695	1,848,695
LIABILITIES
Accounts payable	530,968	530,968	552,807	552,807
Long-term debt, excluding Euro and Senior Notes	3,302,840	3,302,840	3,726,076	3,726,076
Trust Preferred Securities	1,333,782	1,364,188	1,253,828	1,331,802
Euro Notes	294,420	292,466	263,400	266,480
Senior Notes	491,569	496,035	–	–
Derivatives
Foreign exchange contracts	13,636	13,636	2,613	2,613
Dollar interest rate hedges	(40,735)	(40,735)	45,217	45,217
Yen interest rate hedges	(32)	(32)	(75)	(75)

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:

Cash and cash equivalents are stated at nominal value which equals the fair value.

Short-term financial instruments like accounts receivable and payable and short-term borrowings are valued at their carrying amounts, which are reasonable estimates of the fair value due to the relatively short period to maturity of these instruments.

The fair value of Senior Notes and trust preferred securities are based on market prices and quotes as of the balance sheet date. The fair values of other fixed-rate financial liabilities, for which market quotes are not available, are calculated as present value of the respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Company as of the balance sheet date are used.

The fair values of financial liabilities with floating interest rates approximate their carrying amounts as the interest rates for these liabilities are predominantly updated every three months with interest rates reflecting actual market conditions at the time of update.

Derivatives consisting of interest rate swaps and foreign exchange forward contracts are valued as follows:

The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of reporting date.

To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of balance sheet date. The result is then discounted on the basis of the market interest rates prevailing at the balance sheet date for the respective currency.

Other Comprehensive Income ( Loss) 20.

The changes in the components of other comprehensive income (loss) for the years ended December 31, 2007 and 2006 are as follows:

\$ in thousands		2007			2006
	Pretax T	ax effect	Net	Pretax T	ax effect	Net
other comprehensive (LOss) income relating to cash flow hedges
Changes in fair value of cash flow hedges during the period	(83,919)	32,961	(50,958)	25,513	(9,300)	16,213
Reclassification adjustments	(4,455)	1,360	(3,095)	3,280	(1,270)	2,010
Total her co mprehensive (LOss) inco me relat ing cash flo w hedges	(88,374)	34,321	(54,053)	28,793	(10,570)	18,223
Foreign-currency translation adjustment	137,048	–	137,048	114,494	–	114,494
Adjustments related to pension obligations	35,729	(12,430)	23,299	8,074	(3,428)	4,646
Other Co mprehensive inco me (Lo ss)	84,403	21,891	106,294	151,361	(13,998)	137,363

Business Segment Information 21.

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.

\$ in thousands	North America I	nternational S	egment total	Corporate	Total
2007
Net revenue	6,663,221	3,057,030	9,720,251	63	9,720,314
Inter-segment revenue	516	77,492	78,008	(78,008)	–
Total net revenue	6,663,737	3,134,522	9,798,259	(77,945)	9,720,314
Depreciation and amortization	(220,210)	(140,968)	(361,178)	(2,151)	(363,329)
perat ing inco me	1,129,801	544,214	1,674,015	(93,894)	1,580,121
Segment assets1	10,586,316	3,330,955	13,917,271	252,994	14,170,265
Capital expenditures and acquisitions2	396,705	320,507	717,212	120,306	837,518
2006
Net revenue	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)
perat ing inco me	964,609	440,552	1,405,161	(87,034)	1,318,127
	10,196,844	2,744,833	12,941,677	103,004	13,044,681
Segment assets1

Segment assets of North America include the goodwill of RCG of \$3,381,901 as of December 31, 2007 and 2006.

2 International and Corporate acquisitions exclude \$9,964 and \$83,812, respectively, of non-cash acquisitions for 2007.

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.

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:

\$ in thousands		2007		2006
	Net revenue	Long-lived N assets	et revenue L	ong-lived assets
Germany	308,603	195,846	288,047	144,877
North America	6,663,221	8,471,870	6,025,314	8,274,104
Rest of the world	2,748,490	1,558,364	2,185,677	1,080,301
Total	9,720,314	10,226,080	8,499,038	9,499,282

Supplementary Cash Flow Information 22.

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

Supplementary Cash flow Information
\$ in thousands	2007	2006
Supplementary Cash Flow Information
Cash paid for interest	407,882	378,233
Cash paid for income taxes	349,058	423,514
Cash inflow for income taxes from stock option exercises	8,177	7,428
Supplemental disclosure of cash flow information
Details for acquisitions
Assets acquired	(431,289)	(4,784,713)
Liabilities assumed	47,779	348,898
Minorities	13,040	56,300
Notes assumed in connection with acquisition	93,775	8,708
Cash paid	(276,695)	(4,370,807)
Less cash acquired	18,818	63,525
Net cash paid fo r acquisitio ns	(257,877)	(4,307,282)

Management's Report on Internal Control over Financial Reporting 05.6

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, 2007, 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). Management's assessment follows the guidance for management on the evaluation of internal controls over financial reporting released by the Securities and Exchange Commission on May 23, 2007. Based on this assessment, management has determined that the Company's internal control over financial reporting is effective as of December 31, 2007.

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.

The effectiveness of the Company's internal control over financial reporting as of December 31, 2007, has been audited by KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft, an independent registered public accounting firm, as stated in their report see page 110 of Financial Report.

February 19, 2008 Fresenius Medical Care AG & Co. KGaA, a partnership limited by shares, represented by: Fresenius Medical Care Management AG, its general partner

Dr. Ben Lipps Lawrence Rosen Chief Executive Officer and Chief Financial Officer Chairman of the Management Board

Report of Independent Registered Public Accounting Firm 05.7

To the Supervisory Board of Fresenius Medical Care AG & Co. KGAA

We have audited the internal control over financial reporting of Fresenius Medical Care AG  & Co. KGaA and subsidiaries ("Fresenius Medical Care" or the "Company") as of December 31, 2007, 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, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express 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, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk 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 U.S. 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 U.S. 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, Fresenius Medical Care maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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, 2007 and 2006, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2007, and our report dated February 19, 2008 expressed an unqualified opinion on those consolidated financial statements.

Frankfurt am Main, Germany February 19, 2008

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Auditors' Report: Report of Independent Registered Public Accounting Firm 05.8

To the Supervisory Board of 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, 2007 and 2006, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements 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, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

As described in Notes 1 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, 2007, 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 19, 2008 expressed an unqualified opinion on the effective operation of internal control over financial reporting.

Frankfurt am Main, Germany February 19, 2008

KPMG Deutsche Treuhand-Gesellschaft Aktiengesellschaft Wirtschaftsprüfungsgesellschaft

Transport Mechanism II Convection

During dialysis, Pressure builds up in the blood and dialysate, with the pressure in the blood being higher than in the dialysate. As a result, water flows from the blood via the membrane into the dialysate, thus removing excess fluid. In addition, dissolved substances in the blood with a higher molecular weight are also filtered out. This is called convection. The method purifies the blood of larger toxin molecules in particular.

[06.1– 5 ] FURTHER INFORMATION

06.1 Finan ossar 06.2 onal Organizati o n 06.3 Major u bsidiaries 06.4 5-Year S ummar 06.5 Index

06.1 Financial Glossary

American Depositary Receipt ( ADR)

Physical certificate proving ownership in one or several American Depositary Shares (ADS). The terms ADS (see "American Depositary Share") and ADR are often used interchangeably. Fresenius Medical Care's ordinary and preference shares are listed on the New York Stock Exchange (NYSE) in the form of ADRs.

American Depositary Share (ADS)

Share certificate traded at U.S. exchanges, representing (parts of ) shares of a foreign company.

Days Sales Outstanding (DSO)

Indicates the average number of days it takes for a receivable to be paid. A shorter DSO results in less interest for the creditor and a lower risk of default.

Debt / EBITDA ratio

Important indicator in corporate management. It compares a company's debt to earnings before interest, tax, depreciation and amortization and other noncash charges.

Dividend

Portion of a company's profits. The profit to be distributed divided by the number of outstanding shares shows the dividend per share. The dividend is paid to shareholders usually once a year in the form of cash, stock or tangible assets.

EBIT (Earnings Before Interest and Taxes)

This is used to assess the company's earnings position. More precisely, it is the operating result before earnings from financial activities and investments.

EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization)

Corresponds to cash flow before taxes.

Free Cash Flow

Net cash from operating activities less net capital expenditures ( purchases of property, plant and equipment as well as intangible assets, less acquisitions and dividends).

Free Float

The proportion of a company's listed shares that are freely available for trading.

Gross Domestic Product (GDP )

Total value of goods and services produced in a national economy over a particular period of time, usually one year.

Kommanditgesellschaft auf Aktien (KGaA)

A German legal form meaning 'partnership limited by shares'. An entity with its own legal identity in which at least one general partner has full liability (personally liable shareholder, or 'Komplementäraktionär' ), while the other shareholders have an interest in the capital stock divided into shares without being personally liable for the debts of the company.

Market Capitalization

Number of shares multiplied by the share price.

Net Operating Profit Adjusted for Taxes (NOPAT )

Earnings before interest and taxes (EBIT) less taxes. It shows the profit a company would achieve in the event of pure equity financing. In contrast to EBIT, NOPAT does not take into account the tax savings which a company generates as a result of high debt.

No-Par Share

Stock issued without a nominal value.

Operating Margin

Earnings before interest and taxes (EBIT) divided by revenues.

Ordinary and Preference Shares

The capital stock of the Company consists of ordinary and preference shares, both of which are bearer shares. Preference shares are non-voting, but are entitled to a dividend exceeding that of ordinary shares. The distribution of the minimum dividend on preference shares takes precedence over the distribution of a dividend on ordinary shares.

Return On Invested Capital (ROIC)

The return on a Company's adjusted invested capital or the NOPAT divided by average invested capital. Invested capital consists of current and noncurrent assets plus accumulated goodwill amortization less cash and cash equivalents, deferred tax assets, accounts payable (including those due to related parties), accrued expenses and other liabilities (including income tax accruals).

Return On Operating Assets ( ROOA )

EBIT divided by average operating assets. Operating assets consist of cash and cash equivalents, accounts receivable (including those due from related parties), inventories, prepaid expenses and other current assets, noncurrent assets, less noncurrent deferred tax assets and accounts payable (including those due to related parties).

Revenue

The amount of money a company actually receives from its activities, mostly from sales of products and/or services to customers.

Sarbanes-Oxley Act (SOX)

A law aimed at corporations and their auditors designed to improve financial accounting. The intention of SOX is to strengthen the confidence of shareholders and other stakeholders by extending regulations which relate to financial reporting and internal monitoring systems. SOX requirements include strict obligations for a company's management regarding the provision of complete and correct information.

Securities and Exchange Commission (SEC)

A federal agency that regulates and monitors the U.S. financial markets.

Share index

Indicates the development of the stock market as a whole and/or of individual groups of shares ( e.g. DAX, MDAX, TecDAX, SDAX). Share indices act as a guide for investors to help them identify trends in the stock market. The index calculation is based on a weighted value for the average development of the stock corporations that make up the index. Share indices can be calculated as price indices or performance indices.

U.S. GAAP

United States Generally Accepted Accounting Principles.

Working Capital

Current assets less current liabilities. The higher the working capital, the more secure a company's liquidity position.

06.2 Regional Organization

EUR OPE / MIDDLE EAST / AFRICA				NORTH AMERICA		AsiA-Pacific
	Germany 100% FMC Deutschland GmbH Bad Homburg v.d.H.	100% ZA	Russia O Fresenius S.P. Moscow	H	USA 100% Fresenius Medical Care oldings Inc., New York	A S	ustralia 100% FMC Australia Pty. Ltd. ydney
	France 100% FMC France S.A.S. Fresnes	P	Slovakia 100% FMC Slovensko spol. s.r.o. ieštany	L	100% National Medical Care Inc. exington, Massachusetts		China 100% FMC (Shanghai) Co. Ltd. Shanghai
N	Great Britain 100% FMC (UK) Ltd. ottinghamshire	S Z	lovenia 100% FMC Slovenija d.o.o. rece	W	100% Fresenius USA Inc. alnut Creek, California	70%	Japan Fresenius-Kawasumi Co. Ltd. Tokyo
P	Italy 100% FMC Italia S.p.A. alazzo Pignano, Cremona		Czech Republic 100% FMC Cˇ eská Republica spol. s.r.o., Prague		100% Renal Care Group, Inc. Delaware	H	Hong Kong 100% FMC Hong Kong Ltd. ong Kong
S	pain 100% NMC of Spain S.A. Madrid		Hungary 100% FMC Dializis Center Egészs. Kft., Budapest	Z	Mexico 100% FMC de Mexico S.A. de C.V. apopan Jalisco		Philippines 100% FMC Philippines Inc. Manila
	South Africa 100% FMC South Africa (Pty.) Ltd. Johannesburg	D	enmark 100% FMC Danmark A.S. Albertslund			S	Singapore 100% FMC Singapore Pte. Ltd. ingapore
H	Turkey 100% Fresenius Medikal izmetler A.S., Istanbul		Finland 100% FMC Suomi OY Helsinki	LATIN	AMERICA	S	South Korea 100% FMC Korea Ltd. eoul
A	Belgium 100% FMC Belgium N.V. ntwerp	L 95%	ebanon FMC Lebanon S.a.r.l. Beirut		Argentina 100% FMC Argentina S.A. Buenos Aires	T	Taiwan 100% FMC Taiwan Co. Ltd. aipei
	Morocco 100% FMC Maroc S.A. Casablanca		The Netherlands 100% FMC Nederland B.V. Nieuwkuijk	S	Colomb ia 100% FMC Colombia S.A. anta Fé de Bogotà	N	India 100% FMC India Pvt. Ltd. ew Delhi
S	erbia 100% FMC Srbija d.o.o. Vrsac	A	ustria 100% FMC Austria GmbH Vienna	S	Brazil 100% FMC Ltda. ão Paulo		Indonesia 100% P.T. FMC Indonesia Jakarta
P	Poland 100% FMC Polska S.A. oznan	S	weden 100% FMC Sverige AB Sollentuna	S	Chile 100% Pentafarma S.A. antiago de Chile		Malaysia 100% FMC Malaysia Sdn. Bhd. Kuala Lumpur
N	Portugal 100% NMC Centro Médico acional S.A., Lisbon		Switzerland 100% FMC (Schweiz) AG Stans	V	Venezuela 100% FMC de Venezuela C.A. alencia	L	Pakistan 100% FMC Pakistan Ltd. ahore
	Rom ania 100% FMC Romania S.r.l. Bucharest	E	stonia 100% Renculus OÜ Tartu	L	Peru 100% FMC del Peru S.A. ima		Thailand 100% FMC (Thailand) Ltd. Bangkok

Production Selling Dialysis Care

Some percentage of subsidiaries represent direct and indirect shareholdings.

06.3 Major Subsidiaries

Major subsidiaries 2007
\$ in millions, except employees		Ownership1 R in%	evenue2 N	et income / E (-loss)2	quity2 E	mployees3
Name and location
EUR	OPe/middle east/africa
Germany	FMC Deutschland GmbH, Bad Homburg v. d. H.	100	1,494.2	0.0	1,571.6	3,014
France	FMC France S.A.S., Fresnes	100	109.5	4.3	22.2	154
	SMAD S.A., L'Arbresle	100	118.2	7.7	44.6	348
Great Britain	FMC (UK) Ltd., Nottinghamshire	100	121.8	3.8	40.4	222
Italy	FMC Italia S.p.A., Palazzo Pignano, Cremona	100	119.3	3.8	51.1	170
	SIS-TER S.p.A., Palazzo Pignano, Cremona	100	71.5	1.6	13.2	275
Spain	FMC Espana S.A., La Roca del Vallès	100	99.1	9.7	39.9	105
	NMC of Spain S.A., Madrid	100	15.9	(2.9)	64.9	1,384
South Africa	FMC South Africa (Pty.) Ltd., Johannesbourg	100	18.1	1.2	7.5	186
Turkey	Fresenius Medikal Hizmetler A.S., Istanbul	100	114.4	9.2	41.7	216
Belgium	FMC Belgium N.V., Antwerp	100	34.8	2.7	10.2	61
Marocco	FMC Maroc S.A., Casablanca	100	13.5	0.0	2.9	43
Serbia	FMC Srbija d.o.o., Vrsac	100	45.3	5.0	22.4	327
Poland	FMC Polska S.A., Poznan	100	34.6	3.5	12.7	65
Portugal	FMC Portugal S.A., Moreira	100	44.6	1.7	12.6	36
	NMC Centro Médico Nacional S.A., Lisbon	100	65.1	1.3	35.0	675
Romania	FMC Romania S.r.l., Bucharest	100	33.6	6.3	14.0	56
Slovakia	FMC Slovensko spol s.r.o., Pieštany	100	16.5	2.8	10.1	21
Slovenia	FMC Slovenija d.o.o., Zrece	100	6.6	0.5	3.1	12
	Nefrodial d.o.o., Zrece	100	12.0	0.7	1.7	91
Czech Republic	FMC Cˇ eská Republika spol. s ro., Prague	100	35.1	4.4	25.3	48
Hungary	FMC Hungary Ltd., Budapest	100	28.9	5.1	36.5	75
	FMC Dializis Center Egészs. Kft., Budapest	100	46.0	1.5	1.9	579
Denmark	FMC Danmark A.S., Albertslund	100	11.2	0.7	2.9	19
Finland	FMC Suomi OY, Helsinki	100	15.5	1.6	4.7	20
Lebanon	FMC Lebanon S.a.r.l., Beirut	95	3.7	(0.4)	0.0	11
The Netherlands	FMC Nederland B.V., Nieuwkuijk	100	25.0	1.3	4.6	34
Austria	FMC Austria GmbH, Vienna	100	20.4	0.6	3.0	20
Russia	ZAO Fresenius S.P., Moscow	100	43.1	3.8	12.2	134
Sweden	FMC Sverige AB, Sollentuna	100	20.5	0.6	5.6	23
Switzerland	FMC (Schweiz) AG, Stans	100	28.8	1.3	7.7	42
Estonia	Renculus OÜ, Tartu	100	1.7	0.1	0.5	12

\$ in millions, except employees		Ownership1 R in%	evenue2 N	et income/ E (-loss)2	quity2 E	mployees3
Name and location
North America
USA	Fresenius Medical Care Holdings Inc., New York	100	6,663.2	418.4	4,413.0	38,179
Mexico	FMC de Mexico S.A. de C.V., Zapopan Julisco4	100	68.1	(4.5)	37.3	982
Latin America
Argentina	FMC Argentina S.A., Buenos Aires	100	125.4	6.6	55.2	2,434
Colombia	FMC Colombia S.A., Santa Fé de Bogota	100	90.9	6.0	79.3	1,045
Brazil	FMC Ltda., São Paulo	100	91.1	9.1	82.1	447
Chile	Pentafarma S.A., Santiago de Chile	100	10.2	(1.0)	(1.1)	52
Venezuela	FMC de Venezuela C.A., Valencia	100	27.1	3.6	15.3	531
Peru	FMC del Peru S.A., Lima	100	4.1	0.4	1.3	17
Asia-Pacific
Australia	FMC Australia Pty. Ltd., Sydney	100	74.2	(0.6)	14.0	226
Japan	FMC Japan K.K., Tokio	100	50.3	(1.8)	8.8	719
	Fresenius-Kawasumi Co. Ltd., Tokio	70	25.7	3.3	21.7	77
China	FMC (Shanghai) Co. Ltd., Shanghai	100	41.6	2.2	7.2	113
Hong Kong	FMC Hong Kong Ltd., Hong Kong	100	23.9	(2.5)	44.7	39
Singapore	FMC Singapore Pte. Ltd., Singapore	100	6.6	0.3	3.1	48
Taiwan	FMC Taiwan Co. Ltd., Taipei	100	44.0	1.2	14.5	90
	Jiate Excelsior Co. Ltd., Taipei	51	29.8	7.9	31.0	819
India	FMC India Pvt. Ltd., New Dehli	100	1.2	0.0	0.3	17
Indonesia	P.T. FMC Indonesia, Jarkata	100	5.3	(0.4)	0.6	30
Malaysia	FMC Malaysia Sdn. Bhd., Kuala Lumpur	100	11.2	2.3	7.8	34
Philippines	FMC Philippines Inc., Manila	100	7.7	1.3	3.9	27
	FMC Renalcare Corp., Manila	100	0.0	(0.2)	0.2	15
South Korea	FMC Korea Ltd., Seoul	100	80.9	1.8	43.3	130
	NephroCare Korea Inc., Seoul	100	1.7	0.2	0.5	4
Thailand	FMC Thailand Ltd., Bangkok	100	8.5	1.0	6.2	58
Pakistan	FMC Pakistan (Private) Ltd., Lahore	100	1.1	(0.1)	0.2	14

Direct and indirect interest

These figures comply with the financial statements prepared in accordance with the specific generally accepted accounting principles of each country and do not reflect the amounts included in the Consolidated Financial Statements. Shareholders` equity and earnings are translated at the year-end current rate, and sales are translated at the average rate of the year. Shareholders' equity per Dec. 31, 2007

³ Full-time equivalents per Dec. 31, 2007

Included in US-GAAP-closing of Fresenius Medical Care Holdings Inc.

06.4 5-Year Summary

\$ in thousands, except share data	2007	2006	2005	2004	2003
Statements of Earnings
Net revenue	9,720,314	8,499,038	6,771,819	6,228,002	5,527,509
Cost of revenue1	6,364,519	5,621,482	4,563,681	4,266,203	3,792,534
Gross profit1	3,355,795	2,877,556	2,208,138	1,961,799	1,734,975
Selling, general and administrative expenses1	1,709,150	1,548,369	1,218,265	1,058,090	927,853
Gain on sale of legacy clinics	–	(40,233)	–	–	–
Research and development expenses	66,523	51,293	50,955	51,364	49,687
Operating income (EBIT)	1,580,122	1,318,127	938,918	852,345	757,435
Interest expenses, net	371,047	351,246	173,192	183,746	211,759
Income before income taxes and minority interests	1,209,075	966,881	765,726	668,599	545,676
Income tax expense, net	465,652	413,489	308,748	265,415	212,714
Minority interest	26,293	16,646	2,026	1,186	1,782
Net income	717,130	536,746	454,952	401,998	331,180
Income per ordinary share	2.43	1.82	1.56	1.39	1.14
Income per preference share	2.45	1.85	1.58	1.41	1.16
Earnings before interest and taxes,
depreciation and amortization (EBITDA )	1,943,451	1,626,825	1,190,370	1,084,931	973,813
Personnel expenses	3,189,348	2,766,599	2,174,719	2,011,890	1,755,981
Depreciation	329,327	265,488	211,103	199,732	180,952
Amortization	34,003	43,210	40,439	32,853	35,425
Before one-time costs2
EBITDA	1,943,451	1,623,503	1,212,764	1,084,931	973,813
EBIT	1,580,122	1,314,805	961,312	852,345	757,435
Net income	717,130	574,386	471,556	401,998	331,180
Earnings per share	2.43	1.95	1.62	1.39	1.14
Balance Sheet
Current assets	3,859,472	3,411,916	2,460,938	2,445,970	2,206,128
Non-current assets	10,310,793	9,632,765	5,522,162	5,515,571	5,297,192
Total assets	14,170,265	13,044,681	7,983,100	7,961,541	7,503,320
Short-term debt	974,387	495,941	296,139	655,093	209,782
Other current liabilities	2,052,106	1,879,764	1,282,101	1,282,760	1,202,699
Current liabilities	3,026,493	2,375,705	1,578,240	1,937,853	1,412,481
Long-term debt	4,668,008	5,083,169	1,894,964	1,824,330	2,353,941
Other non-current liabilities	900,547	715,645	536,190	564,542	493,218
Non-current liabilities	5,568,555	5,798,814	2,431,154	2,388,872	2,847,159
Total liabilities	8,595,048	8,174,519	4,009,394	4,326,725	4,259,640
Shareholders' equity	5,575,217	4,870,162	3,973,706	3,634,816	3,243,680
Total liabilities and sharehol ders' equity	14,170,265	13,044,681	7,983,100	7,961,541	7,503,320
Total debt incl. accounts receivable securitization program	5,642,395	5,579,110	2,191,103	2,479,423	2,721,721
Working capital3	1,924,365	1,649,603	1,296,378	1,285,295	1,141,583
Credit Rating
Standard & Poor's4
Corporate credit rating	BB	BB	BB+	BB+	BB+
Subordinated debt	B+	B+	BB–	BB–	BB–
Moody's
Corporate credit rating	Ba2	Ba2	Ba2	Ba1	Ba1
Subordinated debt	B1	B1	B1	Ba2	Ba2

\$93.9 million for 2003 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.

In 2006 excluding restructuring costs and in-process R&D, one-time costs associated with the transformation of legal form, the gain from the sale of dialysis clinics, and the write-off of deferred financing costs related to the 2003 senior credit facility but including costs related to the change of accounting principals for stock options (FAS 123 R) of \$ 14.3 million pre-tax and \$ 9.7 million after tax; in 2005 before one-time costs for the transformation of legal form and the settlement and related legal fees of the shareholders suit. Effective January 1, 2006 the Company adopted the provisions of FAS 123 R using the modified prospective transition method (see Note 1t and 15).

³ Current assets less current liabilities (excluding current debt and accruals for special charge included in acrrued expenses and other current liabilities starting in 2003).

827,843 (260,374) 567,469 (104,493) – 19.74 14.22 26.80 19.15 210,000,000 78,729,177 109,429 0.37 0.39 44,526 17.4 13.7 21.4 6.3 7.5 11.8 18.4 11.1 13.5 2.3 0.7 5.9 13.3 45.7 18.8 124,400 1,610 670,304 (297,342) 372,962 (125,153) – 29.67 26.28 35.03 31.20 210,000,000 80,369,448 120,497 0.41 0.43 47,521 17.6 13.9 12.6 7.4 8.0 12.6 19.3 11.4 14.5 1.8 0.5 6.9 9.9 49.8 19.7 131,450 1,680 1,199,574 (548,571) 651,003 (257,877) 29,495 36,69 35,39 52,75 46,84 291,929,141 3,739,470 160,200 0.54 0.56 61,406 20.0 16.3 32.9 6.4 8.4 12.5 21.7 12.9 14.4 2.8 1.0 5.2 12.3 39.3 26.4 173,863 2,238 754,019 (276,434) 477,585 (92,190) – 18.80 13.32 23.35 16.00 210,000,000 78,573,033 99,585 0.34 0.36 41,097 17.6 13.7 14.0 3.4 7.2 11.4 16.8 10.2 13.2 2.8 0.8 4.6 13.6 43.2 17.8 119,250 1,560 907,830 (449,535) 458,295 (4,307,282) 515,705 33.66 31.67 44.43 40.00 290,621,904 3,575,376 138,800 0.47 0.49 56,803 19.1 15.5 17.0 10.2 7.4 11.3 20.0 11.8 16.0 3.2 1.1 4.6 10.7 37.3 23.7 163,517 2,108 \$ in thousands, except share data 2007 2006 2005 2004 2003 Cash Flow Net cash provided by operating activities Capital expenditure, net Free cash flow Acquisitions and investments, net of cash acquired Proceeds from divestitures Share data Year-end share price Frankfurt, Xetra (€) Ordinary shares Preference shares Year-end ADS share price New York (\$) Ordinary shares Preference shares Average number of ordinary shares Average number of preference shares Total dividend amount (€ in thousands) Dividend per ordinary share (€)5 Dividend per preference share (€)5 Employees Full-time equivalents Operational ratios (in%) EBITDA margin6 EBIT margin6 EPS growth Organic revenue growth (currency-adjusted) Return on invested capital (ROIC)7 Return on operating assets (ROOA) Return on equity before taxes7 Return on equity after taxes7 Cash flow return on invested capital (CFROIC)7 Leverage ratio (total debt/ EBITDA) Gearing ((total debt – cash)/ equity) EBITDA / Interest expenses Cash from operating activities in percent of revenue Equity ratio (equity /total assets) Dialysis Care Data Treatments (millions) Patients Clinics 5-Year Summary

Standard & Poor's lowered the corporate credit rating to 'BB' and the subordinated debt rating to 'B+' relates to completion of the Renal Care Group acquisition in 2006.

⁵ 2007: Proposal for approval at the Annual General Meeting on May 20, 2008.

6 2006: EBITDA margin of 19.1% and EBIT margin of 15.5% before restructuring costs and in-process R&D, before one-time costs associated with the transformation of legal form, and the gain from the sale of dialysis clinics but including one time costs related to the change of accounting principles for stock options (FAS 123 R) of \$ 14.3 million; in 2005 EBITDA margin of 17.9% and EBIT margin of 14.2% before one-time costs for the transformation of legal form and the settlement and related legal fees of the shareholders suit. 2006: Pro forma including RCG, after FTC mandated divestitures, excluding restructuring costs and in process R&D, excluding gain from divested clinics and excluding the write-off

of deferred financing costs related to the 2003 senior credit facility.

4

8 Correction of non-cash charges of \$41.0 million in 2007, \$35.0 million pro forma incl. RCG, after FTC mandated divestitures, excluding restructuring costs and in-process R&D and excl. gain from divested clinics in 2006; correction of non-cash charges of \$14.0 million in 2005, \$12.7 million in 2004 and \$12.5 million in 2003.

06.5 Index

A	Accounting Policies and Standards Acquisitions Auditors' Report	5, 28, 50 59 110
b	Balance Sheet	44
C	Cash Flow Compensation Report Consolidation Principles Conversion of Preference Shares Currency Exposure	24, 46, 105 35 50 57 31, 100
D	Debt and Liabilities Depreciation/ Amortization Dividends	19, 26, 45, 67, 68, 70 13, 64, 66, 104 24, 82
E	Earnings per Share EBITDA	83 28
F	Financial Instruments	99
G	Goodwill	5, 51, 65
I	Interest / Interest Rate Exposure Inventories Investing	32, 101 63 25, 104

L	Leases Legal Proceedings Liquidity	70, 93 6, 94 19, 26
M	Market Risks	30, 99
N	Net Income	13, 14
O	Operating Result Other Comprehensive Income (Loss)	13, 15, 18, 104 77, 103
P	Pension Plans Property, Plant and Equipment	74 64
R	Rating Revenue	118 13, 104
S	Segment Information Shareholders' Equity Statement of Income Stock Options	13, 17, 104 45, 48, 80 43 35, 55, 83
T	Taxes Transformation of Legal Form Trust Preferred Securities	88 57 22, 79, 101

Polysulfone Fiber

The picture on the cover page shows a bundle of thousands of fibers which are found in every dialyzer, the core of the artificial kidney.