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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM 20-F

(Mark One)    

o

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

or

ý

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

or

o

 

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

For the transition period from            to              

or

o

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-32749



FRESENIUS MEDICAL CARE AG & Co. KGaA
(Exact name of Registrant as specified in its charter)

FRESENIUS MEDICAL CARE AG & Co. KGaA
(Translation of Registrant's name into English)

Germany
(Jurisdiction of incorporation or organization)



Else-Kröner Strasse 1, 61352 Bad Homburg, Germany
(Address of principal executive offices)

Josef Dinger, +49 6172 608 2522, Josef.Dinger@FMC-AG.com,
Else-Kröner Strasse 1, 61352 Bad Homburg, Germany
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class   Name of each exchange on which registered
American Depositary Shares representing Ordinary Shares   New York Stock Exchange
Ordinary Shares, no par value   New York Stock Exchange(1)

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

           Securities registered or to be registered pursuant to Section 12(g) of the Act: None

           Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: 67/8% Senior Notes due 2017

           Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report:

Ordinary Shares, no par value: 301,446,779

           Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Security Act. ý Yes    o No

           If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. o Yes    ý No

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

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

           Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Date File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ý Yes    o No

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

Large accelerated filer ý   Accelerated filer o   Non-accelerated filer o

           Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

ý U.S. GAAP        o International Financial Reporting Standards as issued by        o Other
the International Accounting Standards Board

           If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

           o Item 17                o Item 18

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

o Yes                ý No

   


Table of Contents


TABLE OF CONTENTS

 
   
   
  Page  

INTRODUCTION

       

PART I

     

 

       

Item 1.

  N/A  

Identity of Directors, Senior Management and Advisors

    3  

Item 2.

  N/A  

Other Statistics and Expected Timetable

    3  

Item 3.

     

Key Information

    3  

Item 4.

     

Information on the Company

    13  

Item 4A.

  N/A  

Unresolved Staff Comments

    56  

Item 5.

     

Operating and Financial Review and Prospects

    56  

Item 6.

     

Directors, Senior Management and Employees

    83  

Item 7.

     

Major Shareholders and Related Party Transactions

    102  

Item 8.

     

Financial Information

    107  

Item 9.

     

The Offer and Listing Details

    108  

Item 10.

     

Additional Information

    110  

Item 11.

     

Quantitative and Qualitative Disclosures About Market Risk

    123  

Item 12.

     

Description of Securities other than Equity Securities

    127  

PART II

     

 

       

Item 13.

  N/A  

Defaults, Dividend Arrearages and Delinquencies

    129  

Item 14.

     

Material Modifications to the Rights of Security Holders and Use of Proceeds

    129  

Item 15A.

     

Disclosure Controls and Procedures

    129  

Item 15B.

     

Management's annual report on internal control over financial reporting

    129  

Item 15C.

     

Attestation report of the registered public accounting firm

    130  

Item 15D.

     

Changes in Internal Control over Financial Reporting

    130  

Item 16A.

     

Audit Committee Financial Expert

    130  

Item 16B.

     

Code of Ethics

    130  

Item 16C.

     

Principal Accountant Fees and Services

    130  

Item 16D.

  N/A  

Exemptions from the Listing Standards for Audit Committees

    131  

Item 16E.

     

Purchase of Equity Securities by the Issuer and Affiliated Purchaser

    131  

Item 16F.

  N/A  

Change in Registrant's Certifying Accountant

    132  

Item 16G.

     

Corporate Governance

    132  

PART III

     

 

       

Item 17.

  N/A  

Financial Statements

    143  

Item 18.

     

Financial Statements

    143  

Item 19.

     

Exhibits

    143  

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Certain Defined Terms

        In this report, (1) the "Company" refers to both Fresenius Medical Care AG prior to the transformation of legal form discussed in Item 4.A, "Information on the Company – History and Development of the Company – History" below and to Fresenius Medical Care AG & Co. KGaA after the transformation; (2) "we", "us" and "our" refers either to the Company or the Company and its subsidiaries on a consolidated basis both before and after the transformation, as the context requires; (3) "Fresenius Medical Care AG" and "FMC-AG" refers to the Company as a German stock corporation before the transformation of legal form and "FMC-AG & Co. KGaA" refers to the Company as a German partnership limited by shares after the transformation and (4) "FMCH" and "D-GmbH" refer, respectively, to Fresenius Medical Care Holdings, Inc., the holding company for our North American operations and to Fresenius Medical Care Deutschland GmbH, one of our German subsidiaries. In addition, "Fresenius SE" and "Fresenius SE & Co. KGaA" refers to Fresenius SE & Co. KGaA, a German partnership limited by shares resulting from the change of legal form of Fresenius SE (effective as of January 2011), a European Company (Societas Europaea) previously called Fresenius AG, a German stock corporation. Fresenius SE owns 100% of the share capital of our general partner and 94,380,382 of our ordinary shares as of February 19, 2014, 31.3% based on 301,491,605 outstanding shares, as reported herein (prior to the transformation of our legal form, it held approximately 51.8% of our voting shares). In this report, we use Fresenius SE to refer to that company as a partnership limited by shares, effective on and after January 28, 2011, as well as both before and after the conversion of Fresenius AG from a stock corporation into a European Company on July 13, 2007. The phrase "Fresenius SE and its subsidiaries" refers to Fresenius SE and all of the companies of the Fresenius SE group, other than FMC-AG & Co. KGaA and the subsidiaries of FMC-AG & Co. KGaA. Each of "Management AG", "FMC Management AG" and the "General Partner" refers to Fresenius Medical Care Management AG, FMC-AG & Co. KGaA's general partner and a wholly owned subsidiary of Fresenius SE. "Management Board" and "our Management Board" refer to the members of the management board of Management AG and, except as otherwise specified, "Supervisory Board" and "our Supervisory Board" refer to the supervisory board of FMC-AG & Co. KGaA. The term "North America Segment" refers to our North America operating segment. The term "International Segment" refers to our combined EMEALA (Europe, Middle East, Africa, and Latin America) and AP (Asia-Pacific) operating segments. All references in this report to the notes to our financial statements are to the Notes to Consolidated Financial Statements included in this report.


Forward-looking Statements

        This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in this report, the words "outlook", "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated, and future events and actual results, financial and otherwise, could differ materially from those set forth in or contemplated by the forward-looking statements contained elsewhere in this report. We have based these forward-looking statements on current estimates and assumptions made to the best of our knowledge. By their nature, such forward-looking statements involve risks, uncertainties, assumptions and other factors which could cause actual results, including our financial condition and profitability, to differ materially and be more negative than the results expressly or implicitly described in or suggested by these statements. Moreover, forward-looking estimates or predictions derived from third parties' studies or information may prove to be inaccurate. Consequently, we cannot give any assurance regarding the future accuracy of the opinions set forth in this report or the actual occurrence of the developments described herein. In addition, even if our future results meet the expectations expressed here, those results may not be indicative of our performance in future periods.

        These risks, uncertainties, assumptions, and other factors that could cause actual results to differ from our projected results include, among others, the following:

    changes in governmental and commercial insurer reimbursement for our complete products and services portfolio, including the expanded United States ("U.S.") Medicare reimbursement system for dialysis services;

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    changes in utilization patterns for pharmaceuticals and in our costs of purchasing pharmaceuticals;

    the outcome of ongoing government and internal investigations;

    risks relating to compliance with the myriad government regulations applicable to our business including, in the U.S., the Anti-Kickback Statute, the False Claims Act, the Stark Law and the Foreign Corrupt Practices Act, and comparable regulatory regimes in many of the 120 countries in which we supply dialysis services and/ or products;

    the influence of private insurers and managed care organizations;

    the impact of recently enacted and possible future health care reforms;

    product liability risks;

    the outcome of ongoing potentially material litigation;

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

    the impact of currency fluctuations;

    introduction of generic or new pharmaceuticals that compete with our pharmaceutical products;

    changes in raw material and energy costs or the ability to procure raw materials; as well as

    the financial stability and liquidity of our governmental and commercial payors.

        Important factors that could contribute to such differences are noted in Item 3D, "Key Information – Risk Factors" in Item 4, "Information on the Company," under "Business Overview," in Item 5, "Operating and Financial Review and Prospects" and in Note 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies" included in this 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.

        Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis of our financial statements. The actual accounting policies, the judgments made in the selection 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 our financial statements and the discussion under "Results of Operations" in Item 5 below, "Operating and Financial Review and Prospects." For a discussion of our critical accounting policies, see Item 5, "Operating and Financial Review and Prospects – Critical Accounting Policies" below in this report.

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PART I

Item 1.    Identity of Directors, Senior Management and Advisors

        Not applicable

Item 2.    Other Statistics and Expected Timetable

        Not applicable

Item 3.    Key Information

A.    Selected Financial Data

        The following table summarizes the consolidated financial information for our business for each of the years 2013 through 2009. We derived the selected financial information from our consolidated financial statements. We prepared our financial statements in accordance with accounting principles generally accepted in the United States of America and KPMG AG Wirtschaftsprüfungsgesellschaft ("KPMG"), an independent registered public accounting firm, audited these financial statements. All American Depositary Share ("ADS") and per ADS data reflect the two-for-one split of the ADSs representing our ordinary shares and the ADSs representing our previously outstanding preference shares, which was effective December 3, 2012. As a result of the split of our ADSs, the ratio of each class of ADSs was changed from one ADSs representing one share to two ADSs representing one share. (See Item4.A, "Information on the Company  – History and Development of the Company  – History"). All per ADS amounts in the table have been restated to reflect the ADS splits. You should read this information together with our consolidated financial statements and the notes to those statements appearing elsewhere in this report and the information under Item 5, "Operating and Financial Review and Prospects."

 
  2013   2012   2011   2010   2009  
 
  (in millions except share and per share amounts)
 

Statement of Operations Data:

                               

Net revenues(a)

 
$

14,610
 
$

13,800
 
$

12,570
 
$

11,844
 
$

11,047
 

Cost of revenues

    9,872     9,199     8,418     8,009     7,504  
                       

Gross profit

    4,738     4,601     4,152     3,835     3,543  

Selling, general and administrative

    2,391     2,223     2,002     1,823     1,698  

Gain on sale of dialysis clinics

    (9 )   (36 )   (5 )        

Research and development

    126     112     111     97     94  

Income from equity method investees

    (26 )   (17 )   (31 )   (9 )   (5 )

Other operating expenses

        100              
                       

Operating income

    2,256     2,219     2,075     1,924     1,756  

Investment gain

        140              

Interest expense, net

    409     426     297     280     300  
                       

Income before income taxes

    1,847     1,933     1,778     1,644     1,456  

Net income attributable to shareholders of FMC-AG & Co. KGaA

  $ 1,110   $ 1,187   $ 1,071   $ 979   $ 891  
                       
                       

Weighted average ordinary shares outstanding

    301,877,304     301,139,652     299,012,744     296,808,978     294,418,795  

Basic earnings per Ordinary share

 
$

3.65
 
$

3.89
 
$

3.54
 
$

3.25
 
$

2.99
 

Basic earnings per Ordinary ADS(b)

   
1.83
   
1.94
   
1.77
   
1.62
   
1.49
 

Fully diluted earnings per Ordinary share

    3.65     3.87     3.51     3.24     2.99  

Fully diluted earnings per Ordinary ADS(b)

    1.83     1.93     1.75     1.62     1.49  

Dividends declared and paid per Ordinary share (€)(c)

   
0.75
   
0.69
   
0.65
   
0.61
   
0.58
 

Dividends declared and paid per Ordinary share ($)(c)

    1.03     0.89     0.93     0.77     0.78  

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  2013   2012   2011   2010   2009  
 
  (in millions except share and per share amounts)
 

Balance Sheet Data at December 31:

                               

Working capital

  $ 2,733   $ 2,957   $ 1,432   $ 1,363   $ 2,118  

Total assets

    23,120     22,326     19,533     17,095     15,821  

Total long-term debt (excluding current portion)

    7,747     7,842     5,495     4,310     5,084  

Shareholders' equity

    9,485     9,207     8,061     7,524     6,798  

Capital Stock – Preference shares – Nominal Value(d)

        4     4     4     4  

Capital Stock – Ordinary shares – Nominal Value

    382     375     372     369     366  

(a)
The provision for bad debts relating to dialysis services which we presented as an operating expense before 2012 has been reclassified to a deduction from patient service revenue in accordance with US GAAP.

(b)
Basic earnings per Ordinary ADS and fully diluted earnings per Ordinary ADS have been restated to reflect a two-for-one split of our Ordinary ADSs outstanding effected on December 3, 2012, which changed the ratio from one ADSs representing one share to two ADSs representing one share.

(c)
Amounts shown for each year from 2013 to 2009 represent dividends declared and paid in each such year with respect to our operations in the year preceding payment. Our General Partner's Management Board has proposed dividends with respect to our operations in 2013 of €0.77 per Ordinary share . These dividends are subject to approval by our shareholders at our Annual General Meeting ("AGM") to be held on May 15, 2014.

(d)
As of June 28, 2013 all preference shares for capital stock were converted into ordinary shares. As of December 31, 2013 only one class of shares exists.

        We conduct our business on a global basis in various currencies, although our operations are located principally in the United States ("U.S") and Germany. We prepare our consolidated financial statements, from which we derived the selected financial data above, utilizing the U.S. dollar as our reporting currency. We have converted 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 respective period, as shown. For information regarding the exchange rates used in preparing our consolidated financial statements, see Item 11, "Quantitative and Qualitative Disclosures About Market Risk – Management of Foreign Exchange and Interest Rate Risks – Foreign Exchange Risks."

D.    Risk Factors

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


Risks Relating to Regulatory Matters.

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

        For the twelve months ended December 31, 2013, approximately 32% of our consolidated revenues resulted from Medicare and Medicaid reimbursement. Legislative changes or changes in government reimbursement practice may affect the reimbursement rates for the services we provide, as well as the scope of Medicare and Medicaid coverage. A decrease in Medicare or Medicaid reimbursement rates or covered services could have a material adverse effect on our business, financial condition and results of operations. For further information regarding Medicare and Medicaid reimbursement, see Item 4B, "Information on the Company – Business Overview – Regulatory and Legal Matters – Reimbursement" and Item 5, "Operating and Financial Review and Prospects – Overview."

The utilization of ESAs could materially impact our revenue and operating profit. An interruption of supply or our inability to obtain satisfactory terms for ESAs could reduce our revenues and operating profit.

        Erythropoietin stimulating agents, or ESAs, are produced in the U.S. by Amgen Inc., under the brand names Epogen® (epoeitin alfa) and Aranesp® (darbepoetin alfa). Under the Medicare end stage renal disease ("ESRD") prospective payment system ("ESRD PPS") effective January 1, 2011, payment for ESAs is generally included in the bundled rate; previously, it was reimbursed separately. Any of the following developments could materially adversely affect our business, financial condition and results of

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operations: (i) a reduction of the current overfill amount in ESA vials that we currently use (liquid medications, such as ESAs, typically include a small overfill amount to ensure that the fill volume can be extracted from the vial as administered to the patient), (ii) an interruption of supply of ESAs, or (iii) material increases in the utilization of or acquisition costs for ESAs.

If we do not comply with the many governmental regulations applicable to our business, we could be excluded from government healthcare reimbursement programs or our authority to conduct business could be terminated, either of which would result in a material decrease in our revenue.

        Our operations in both our dialysis care business and our products business are subject to extensive governmental regulation in virtually every country in which we operate. We are also subject to other laws of general applicability, including antitrust laws. The applicable regulations, which differ from country to country, cover areas that include:

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

    the operation of manufacturing facilities, laboratories and dialysis clinics;

    product labeling, advertising and other promotion;

    accurate reporting and billing for government and third-party reimbursement; and

    compensation of medical directors and other financial arrangements with physicians and other referral sources.

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

        The Company's medical devices and drug products are subject to detailed, rigorous and frequently changing regulation by the U.S. Food and Drug Administration ("FDA"), and numerous other national, supranational, federal and state authorities. These regulations include, among other things, regulations regarding product approvals, manufacturing practices, product labeling and promotion, quality control, quality assurance, and post-marketing safety reporting, including adverse event reporting and reporting of certain field actions. We cannot assure that all necessary regulatory approvals for new products or product improvements will be granted on a timely basis or at all. In addition, the Company's facilities and procedures and those of its suppliers are subject to periodic inspection by the FDA and other regulatory authorities. The FDA and comparable regulatory authorities outside the U.S. may suspend, revoke, or adversely amend the authority necessary for manufacture, marketing, or sale of our products and those of our suppliers. The Company and its suppliers must incur expense and spend time and effort to ensure compliance with these complex regulations, and if such compliance is not maintained, they could be subject to significant adverse administrative and judicial enforcement actions in the future. These possible enforcement actions could include warning letters, injunctions, civil penalties, seizures of the Company's products, and criminal prosecutions as well as dissemination of information to the public about such enforcement actions. These actions could result in, among other things, substantial modifications to the Company's business practices and operations; refunds; a total or partial shutdown of production while the alleged violation is remedied; and withdrawals or suspensions of current products from the market. Any of these events, in combination or alone, could disrupt the Company's business and have a material adverse effect on the Company's business, financial condition and results of operations. For a discussion of open FDA warning letters, see "Regulatory and Legal Matters – Regulatory Overview – Product Regulation – Medical Devices."

        We rely upon the Company's management structure, regulatory and legal resources and the effective operation of our compliance programs to direct, manage and monitor our operations to comply with government regulations. If employees were to deliberately, recklessly or inadvertently fail to adhere to these regulations, then our authority to conduct business could be terminated and our operations could be significantly curtailed. Any such terminations or reductions could materially reduce our sales. If we fail to identify in our diligence process or to promptly remediate any non-compliant business practices in companies that we acquire, we could be subject to penalties, claims for repayment or other sanctions. Any

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such terminations or reductions could materially reduce our sales, with a resulting material adverse effect on our business, financial condition and results of operations.

        By virtue of this regulatory environment, our business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, subpoenas, other inquiries, claims and litigation relating to the Company's compliance with applicable laws and regulations. We may not always be aware that an inquiry or action has begun, particularly in the case of "qui tam" or "whistle blower" actions brought by private plaintiffs under the False Claims Act, which are initially filed under seal. We are the subject of a number of governmental inquiries and civil suits by the federal government and private plaintiffs. For information about certain of these pending investigations and lawsuits, see Note 20 of the Notes to our Consolidated Financial Statements, "Commitments and Contingencies – Other Litigation and Potential Exposures."

We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.

        The U.S. Foreign Corrupt Practices Act ("FCPA") and similar worldwide anti-corruption laws generally prohibit companies and their intermediaries from making improper payments to public officials for the purpose of obtaining or retaining business. Our internal policies mandate compliance with these anti-corruption laws. We operate many facilities throughout the United States and other parts of the world. Our decentralized system has thousands of persons employed by many affiliated companies, and we rely on our management structure, regulatory and legal resources and effective operation of our compliance program to direct, manage and monitor the activities of these employees. Despite our training, oversight and compliance programs, we cannot assure you that our internal control policies and procedures always will protect us from deliberate, reckless or inadvertent acts of our employees or agents that contravene the Company's compliance policies or violate applicable laws. Our continued expansion, including in developing countries, could increase the risk of such violations in the future. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations or financial condition. The Company has received communications alleging certain conduct in certain countries outside the U.S. and Germany that may violate the FCPA or other anti-bribery laws. The Audit and Corporate Governance Committee of the Company's Supervisory Board is conducting an internal review with the assistance of independent counsel retained for such purpose. The Company voluntarily advised the U.S. Securities and Exchange Commission ("SEC") and the U.S. Department of Justice ("DOJ") that allegations have been made and of the Company's internal review. The Company's review and dialogue with the SEC and DOJ are ongoing. See "Item 15B. Management's annual report on internal control over financial reporting" and Note 20 of the Notes to our Consolidated Financial Statements, "Commitments and Contingencies – Other Litigation and Potential Exposures."

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

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

Proposals for healthcare reform, or relating to regulatory approvals, could decrease our revenues and operating profit.

        Many of the countries in which we operate have been considering proposals to modify their current healthcare systems to improve access to health care and to control costs. Policymakers in the U.S. and

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elsewhere are also considering reforms that could change the methodology used to reimburse providers of health care services, including dialysis. We cannot predict whether and when these reform proposals will be adopted in countries in which we operate or what impact they might have on us. In the U.S., automatic across-the-board spending cuts over nine fiscal years (2013-2021), projected to total $1.2 trillion for all Federal government programs went into effect on March 1, 2013. Medicare payments to providers and suppliers are subject to these reductions, but these reductions are limited to one adjustment of no more than 2 percent through 2021. Any decrease in spending or other significant changes in state funding in countries in which we operate, particularly significant changes in the U.S. Medicare and Medicaid programs, could reduce our sales and profitability and have a material adverse effect on our business, financial condition and results of operations.

        See Item 4, "Information on the Company – Business Overview – Regulatory and Legal Matters – Reimbursement" and "– Healthcare reform:" and Item 5, "Operating and Financial Review and Prospects – Financial Condition and Results of Operations – Overview" for information regarding the impact of the ESRD PPS on our business, our efforts to mitigate some of its effects, and the anticipated effects of the Patient Protection and Affordable Care Act ("ACA") on our business, as well as additional information regarding the legislation and other matters discussed above.

        In addition, there may be legislative or regulatory proposals that could affect FDA procedures or decision-making for approving medical device or drug products. Any such legislation or regulations, if enacted or promulgated, could result in a delay or denial of regulatory approval for our products. If any of our products do not receive regulatory approval, or there is a delay in obtaining approval, this also could have a material adverse effect on our business, financial condition and results of operations.

        In the United States, the ACA authorized state and federal health care exchanges to provide greater access to private health insurance coverage. These exchanges are scheduled to go into effect in 2014, and it is not yet known how the insurance coverage available through the exchanges will impact reimbursement for dialysis and vascular access services, if at all. There can be no assurance that we can achieve future price increases from private insurers and managed care organizations offering coverage through the federal and state health care exchanges that are comparable to those we have historically received. Any reductions in reimbursement from private insurers and managed care organizations could materially and adversely impact our operating results.

        Moreover, further changes in the U.S. healthcare reforms may be debated by Congress. Whether significant changes in policy will result is unknown. Changes, if any, that may result from these events could, depending on the details, have positive or adverse effects, possibly material, on our businesses and results of operations. Any significant healthcare reforms that substantially change the financing and regulation of the healthcare industry in countries in which we operate could reduce our sales and profitability and have a material adverse effect on our business, financial condition and results of operations.


Risks Relating to Our Business

A significant portion of our North America Segment profits is dependent on the services we provide to a minority of our patients who are covered by private insurance.

        Government reimbursement programs generally pay less than private insurance. Medicare only pays us 80% of the Medicare allowable amount (the patient, Medicaid or secondary insurance being responsible for the remaining 20%), and Medicaid rates are comparable. As a result, the payments we receive from private payors generate a substantial portion of the profits we report. We estimate that Medicare and Medicaid are the primary payors for approximately 76% of the patients to whom we provide care in North America but that for 2013, we derived 53% of our North America Segment Dialysis Care net revenues (amounting to 32% of our worldwide revenue) from Medicare and Medicaid. Therefore, if the private payors who pay for the care of the other 24% of our North America segment's patients reduce their payments for our services, or if we experience a material shift in our revenue mix toward Medicare or Medicaid reimbursement, then our revenue, cash flow and earnings would materially decrease.

        Over the last few years, we have generally been able to implement modest annual price increases for private insurers and managed care organizations, but government reimbursement has remained flat or has been increased at rates below typical consumer price index ("CPI") increases. Under the ESRD PPS, Medicare payment rates are updated annually based on the CPI of relevant market inputs, less an adjustment to account for productivity improvements (0.4% for 2013). Medicare will implement further

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reductions pursuant to the American Taxpayer Relief Act of 2012, to account for reduced drug utilizations. In 2014, Medicare's base payment rate will be reduced by $8.16 to account for this effect, and U.S. Centers for Medicare & Medicaid Services ("CMS") expects a total reduction, phased in over three to four years, of $29.93. See "Item 4. Information on the Company – Regulatory and Legal Matters – Reimbursement – U.S. – Budget Control Act and American Taxpayer Relief Act". There can be no assurance that we can achieve future price increases from private insurers and managed care organizations comparable to those we have historically received. With increased governmental reform and regulatory activity, reimbursement from private insurers may be subject to downward pressure in the coming years. The advent of the federal and state health care exchanges may also negatively impact reimbursement from private insurance. Any reductions in reimbursement from private insurers and managed care organizations could materially and adversely impact our operating results. Any reduction in our ability to attract private pay patients to utilize our dialysis services relative to historical levels could adversely impact our operating results. Any of the following events, among others, could have a material adverse effect on our operating results:

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

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

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

        Healthcare companies are typically subject to claims alleging negligence, product liability, breach of warranty, malpractice and other legal theories that may involve large claims and significant defense costs whether or not liability is ultimately imposed. Healthcare products may also be subject to recalls and patent infringement claims which, in addition to monetary penalties, may restrict our ability to sell or use our products. We cannot assure that such claims will not be asserted against us; for example, that significant adverse verdicts will not be reached against us for patent infringements or that large scale recalls of our products will not become necessary. In addition, the laws of some of the countries in which we operate provide legal rights to users of pharmaceutical products that could increase the risk of product liability claims. Product liability and patent infringement claims, other actions for negligence or breach of contract and product recalls or related sanctions could result in significant costs. These costs could have a material adverse effect on our business, financial condition and results of operations. See Note 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies."

        While we have been able to obtain liability insurance in the past to partially cover our business risks, we cannot assure that such insurance will be available in the future either on acceptable terms or at all. In addition, FMCH, our largest subsidiary, is partially self-insured for professional, product and general liability, auto liability and worker's compensation claims, up to pre-determined levels above which our third-party insurance applies. A successful claim in excess of the limits of our insurance coverage could have a material adverse effect on our business, results of operations and financial condition. Liability claims, regardless of their merit or eventual outcome, also may have a material adverse effect on our business and reputation, which could in turn reduce our sales and profitability.

        The Company is vigorously defending certain patent infringement lawsuits and certain wrongful death and personal injury lawsuits alleging inadequate labeling and warnings for certain of our dialysate concentrate products. See Note 20 of the Notes to Consolidated Financial Statements, "Legal and Regulatory Matters – Commercial Litigation". While we believe we have valid defenses to these claims, an adverse determination in any of these matters could have a material adverse effect on the Company's business, financial condition and results of operations.

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

        The healthcare industry has experienced significant consolidation in recent years, particularly in the dialysis services sector. Our ability to make future acquisitions depends, in part, on our available financial resources and could be limited by restrictions imposed by the United States or other countries' competition laws or under our credit documents. If we make future acquisitions, we may need to incur additional debt or assume significant liabilities, either of which might increase our financial leverage and cause the prices of our debt securities to decline. In addition, any financing that we might need for future acquisitions might be available to us only on terms that restrict our business. Acquisitions that we complete are also subject to risks relating to, among other matters, integration of the acquired businesses (including

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combining the acquired company's infrastructure and management information systems with ours, harmonization of its marketing, patient service and logistical procedures with ours and, potentially, reconciling divergent corporate and management cultures), possible non-realization of anticipated synergies from the combination, potential loss of key personnel or customers of the acquired companies, and the risk of assuming unknown liabilities not disclosed by the seller or not uncovered during due diligence. If we are not able to effect acquisitions on reasonable terms, there could be an adverse effect on our business, financial condition and results of operations.

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

We face specific risks from international operations.

        We operate dialysis clinics in approximately 45 countries and sell a range of products and services to customers in more than 120 countries. Our international operations are subject to a number of risks, including but not limited to the following:

    the economic situation in developing or other countries could deteriorate;

    fluctuations in exchange rates could adversely affect profitability;

    we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems;

    we could be negatively impacted by the ability of certain European Union member states and other countries to service their sovereign debt obligations;

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

    political, social or economic instability, especially in developing and newly industrializing countries, could disrupt our operations;

    some customers and governments could increase their payment cycles, with resulting adverse effects on our cash flow;

    some countries could impose additional or higher taxes or fees or restrict the import of our products;

    we could fail to receive or could lose required licenses, certifications or other regulatory approvals for the operation of subsidiaries or dialysis clinics, sale of products and services or acquisitions;

    civil unrest, turmoil, or outbreak of disease in one or more countries in which we have material operations or material product revenue;

    differing labor regulations and difficulty in staffing and managing geographically widespread operations;

    different or less robust regulatory regimes controlling the protection of our intellectual property; and

    transportation delays or interruptions.

        International growth and expansion into emerging markets, such as China, Eastern Europe, the Middle East and Africa, could cause us difficulty due to greater regulatory barriers than in the United States or Western Europe, the necessity of adapting to new regulatory systems, and problems related to entering new markets with different economic, social, and political systems and conditions. For example, unstable political conditions or civil unrest could negatively impact our operations and sales in a region or our ability to collect receivables or reimbursements or operate or execute projects in a region.

        Any one or more of these or other factors could increase our costs, reduce our revenues, or disrupt our operations, with possible material adverse effects on our business, financial condition and results of operations.

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We could be adversely affected if we experience shortages of components or material price increases from our suppliers.

        The Company's purchasing strategy is aimed at developing partnerships with strategic suppliers through long-term contracts and at the same time ensuring, where reasonably practicable, that it has at least two sources for all supply and price-critical primary products (dual sourcing, multiple sourcing). To prevent loss of suppliers, we monitor our supplier relationships on a regular basis. Suppliers which are integral to our procurement functions are subject to performance and risk analyses. Through constant market analyses, a demands-based design of supplier relationships and contracts, as well as the use of financial instruments, we seek to mitigate disruptive component shortages and potential price increases. If the Company is unable to counteract the risk of bottleneck situations at times of limited availability of components and other materials in spite of its purchasing strategy in combination with ongoing monitoring of market developments, this could result in delays in production and hence have an adverse effect on the Company's results of operations. Similarly, material price increases by suppliers could also adversely affect the Company's result of operations.

If physicians and other referral sources cease referring patients to our dialysis clinics or cease purchasing or prescribing our dialysis products, our revenues would decrease.

        Our dialysis services business is dependent upon patients choosing our clinics as the location for their treatments. Patients may select a clinic based, in whole or in part, on the recommendation of their physician. We believe that physicians and other clinicians typically consider a number of factors when recommending a particular dialysis facility or vascular access center to an ESRD patient, including, but not limited to, the quality of care at a clinic, the competency of a clinic's staff, convenient scheduling, and a clinic's location and physical condition. Physicians may change their facility recommendations at any time, which may result in the movement of new or existing patients to competing clinics, including clinics established by the physicians themselves. At most of our clinics, a relatively small number of physicians often account for the referral of all or a significant portion of the patient base. Our dialysis care business also depends on recommendations by hospitals, managed care plans and other healthcare institutions. If a significant number of physicians, hospitals or other healthcare institutions cease referring their patients to our clinics, this would reduce our dialysis care revenue and could materially adversely affect our overall operations.

        The decision to purchase or prescribe our dialysis products and other services or competing dialysis products and other services will be made in some instances by medical directors and other referring physicians at our dialysis clinics and by the managing medical personnel and referring physicians at other dialysis clinics, subject to applicable regulatory requirements. A decline in physician recommendations or recommendations from other sources for purchases of our products or ancillary services would reduce our dialysis product and other services revenue, and would materially adversely affect our business, financial condition and results of operations.

Our pharmaceutical product business could lose sales to generic drug manufacturers or new branded drugs.

        Our branded pharmaceutical product business is subject to significant risk as a result of competition from manufacturers of generic drugs and other new competing medicines or therapies. Through the end of 2013, we were obligated to make certain minimum annual royalty payments under certain of our pharmaceutical product license agreements, regardless of our annual sales of the licensed products. Thereafter, the Company is required to determine their minimum purchase requirements for the subsequent year on a yearly basis. Any of the expiration or loss of patent protection for one of our products, the "at-risk" launch by a generic manufacturer of a generic version of one of our branded pharmaceutical products or the launch of new branded drugs that compete with one or more of our products could result in the loss of a major portion of sales of that branded pharmaceutical product in a very short time period, which could materially and adversely affect our business, financial condition and results of operations.

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

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

Global economic conditions as well as further disruptions in financial markets may have an adverse effect on our businesses.

        Although there has been some improvement in the global economy and financial markets since the market deterioration of the global economy and tightening of the financial markets in 2008 and 2009, the overall global economic outlooks remains uncertain and current economic conditions could adversely affect our business and our profitability. Among other things, the potential decline in federal and state revenues that may result from such conditions may create additional pressures to contain or reduce reimbursements for our services from public payors around the world, including Medicare, Medicaid in the United States and other government sponsored programs in the United States and other countries around the world.

        Job losses or slow improvement in the unemployment rate in the United States may result in a smaller percentage of our patients being covered by an employer group health plan and a larger percentage being covered by lower paying Medicare and Medicaid programs. Employers and individuals who obtain insurance through exchanges established under the ACA might also begin to select more restrictive commercial plans with lower reimbursement rates. To the extent that payors are negatively impacted by a decline in the economy, we may experience further pressure on commercial rates, a further slowdown in collections and a reduction in the amounts we expect to collect.

        We depend on the financial markets for access to capital, as do our renal product customers and commercial healthcare insurers. Limited or expensive access to capital could make it more difficult for these customers to do business with us, or to do business generally, which could adversely affect our businesses. In addition, uncertainty in the financial markets could adversely affect the variable interest rates payable under our credit facilities or could make it more difficult to obtain or renew such facilities or to obtain other forms of financing in the future. Any or all of these factors, or other consequences of the continuation, or worsening, of domestic and global economic conditions which cannot currently be predicted, could continue to adversely affect our businesses and results of operations.

If we are unable to attract and retain skilled medical, technical and engineering personnel, we may be unable to manage our growth or continue our technological development.

        Our continued growth in the dialysis care business will depend upon our ability to attract and retain skilled employees, such as highly skilled nurses and other medical personnel. Competition for those employees is intense and the current nursing shortage has increased our personnel and recruiting costs. Moreover, we believe that future success in the provider business will be significantly dependent on our ability to attract and retain qualified physicians to serve as medical directors of our dialysis clinics. If we are unable to achieve that goal or if doing so requires us to bear increased costs this could adversely impact our growth and results of operations.

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

Diverging views of fiscal authorities could require us to make additional tax payments.

        We are in dispute with the German tax authorities and the U.S. Internal Revenue Service (IRS) on certain tax deductions disallowed in past and current tax audits and from time to time with other

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jurisdictions. We are also subject to ongoing tax audits in the U.S., Germany and other jurisdictions. We have received notices of unfavorable adjustments and disallowances in connection with certain of these audits and we may be subject to additional unfavorable adjustments and disallowances. We are contesting, and in some cases appealing certain of the unfavorable determinations. If our objections, audit appeals or court claims are unsuccessful, we could be required to make additional tax payments, which could have a material adverse impact on our results of operations and operating cash flow in the relevant reporting period. See Item 5, "Operating and Financial Review and Prospects – B. Liquidity and Capital Resources – Liquidity" as well as Note 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies – Legal and Regulatory Matters."


Risks Relating to our Securities

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

        At December 31, 2013, we had consolidated debt of $8,417 million and consolidated total shareholders' equity of $9,485 million. Our debt could have significant consequences to our operations and our financial condition. For example, it could require us to dedicate a substantial portion of our cash flow from operations, as well as the proceeds of certain financings and asset dispositions, to payments on our indebtedness, thereby reducing the availability of our cash flow and such proceeds to fund working capital, capital expenditures and for other general corporate purposes.

        In October 2012, we entered into a syndicated Credit Agreement (the "2012 Credit Agreement"), which replaced our prior credit agreement. Our 2012 Credit Agreement, Senior Notes and Euro Notes include covenants that require us to maintain certain financial ratios or meet other financial tests. Under our 2012 Credit Agreement, we are obligated to maintain a minimum consolidated interest expense coverage ratio (ratio of EBITDA to net interest expense) and we are subject to a maximum consolidated leverage ratio (ratio of consolidated funded debt to consolidated EBITDA) as these terms are defined in the 2012 Credit Agreement.

        Our 2012 Credit Agreement and the indentures related to our Senior Notes include other covenants which, among other things, restrict or have the effect of restricting our ability to dispose of assets, incur debt, pay dividends and other restricted payments, create liens or make investments or acquisitions. These covenants may otherwise limit our activities. The breach of any of the covenants could result in a default and acceleration of the indebtedness under the credit agreement or the indentures, which could, in turn, create additional defaults and acceleration of the indebtedness under the agreements relating to our other long-term indebtedness which would have an adverse effect on our business, financial condition and results of operations.

Fresenius SE owns 100% of the shares in the General Partner of our Company and is able to exercise management control of FMC-AG & Co. KGaA.

        Fresenius SE owns approximately 31.3% of our outstanding ordinary shares as of February 19, 2014. Fresenius SE also owns 100% of the outstanding shares of Management AG, the General Partner of the Company. As the sole shareholder of the General Partner, Fresenius SE has the sole right to elect the supervisory board of the General Partner which, in turn, appoints the General Partner's Management Board. The Management Board of the General Partner is responsible for the management of the Company. Through its ownership of the General Partner, Fresenius SE is able to exercise de facto management control of FMC-AG & Co. KGaA, even though it owns less than a majority of our outstanding voting shares. Such de facto control limits public shareholder influence on management of the Company and precludes a takeover or change of control of the Company without Fresenius SE's consent, either or both of which could adversely affect the prices of our shares.

Because we are not organized under U.S. law, we are subject to certain less detailed disclosure requirements under U.S. federal securities laws.

        Under the pooling agreement that we have entered into for the benefit of non-related holders of our Ordinary shares (including, in each case, holders of American Depositary Receipts representing beneficial ownership of such shares), we have agreed to file quarterly reports with the SEC, to prepare annual and quarterly financial statements in accordance with U.S. generally accepted accounting principles ("G.A.A.P."), and to file information with the SEC with respect to annual and general meetings of our shareholders. The pooling agreement also requires that the supervisory board of Management AG, our General Partner, include at least two members who do not have any substantial business or professional

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relationship with Fresenius SE, Management AG or FMC-AG & Co. KGaA and its affiliates and requires the consent of those independent directors to certain transactions between us and Fresenius SE and its affiliates.

        We are a "foreign private issuer," as defined in the SEC's regulations, and consequently we are not subject to all of the same disclosure requirements applicable to domestic companies. We are exempt from the SEC's proxy rules, and our annual reports contain less detailed disclosure than reports of domestic issuers regarding such matters as management, executive compensation and outstanding options, beneficial ownership of our securities and certain related party transactions. Also, our officers, directors and beneficial owners of more than 10% of our equity securities are exempt from the reporting requirements and short – swing profit recovery provisions of Section 16 of the Exchange Act. We are also generally exempt from most of the governance rules applicable to companies listed on the New York Stock Exchange (including the obligation to maintain a compensation committee of independent directors), other than the obligation to maintain an audit committee in accordance with Rule 10A – 3 under the Exchange Act. These limits on available information about our company and exemptions from many governance rules applicable to U.S. domestic issuers may adversely affect the market prices for our securities.

Item 4.    Information on the Company

A.    History and Development of the Company

General

        Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA" or the "Company"), is a German partnership limited by shares (Kommanditgesellschaft auf Aktien or "KGaA"), formerly known as Fresenius Medical Care AG ("FMC-AG"), a German stock corporation (Aktiengesellschaft or "AG") organized under the laws of Germany.

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

History

        On September 30, 1996, we completed a series of transactions to consummate an Agreement and Plan of Reorganization entered into on February 4, 1996 by Fresenius SE (then Fresenius AG) and W.R. Grace & Co. which we refer to as the "Merger" elsewhere in this report. Pursuant to that agreement, Fresenius SE contributed Fresenius Worldwide Dialysis, its global dialysis business, including its controlling interest in Fresenius USA, Inc., in exchange for 105,630,000 FMC-AG Ordinary shares. Thereafter, we acquired:

    all of the outstanding common stock of W.R. Grace & Co., whose sole business at the time of the transaction consisted of National Medical Care, Inc., its global dialysis business, in exchange for 94,080,000 Ordinary shares; and

    the publicly-held minority interest in Fresenius USA, Inc., in exchange for 10,290,000 Ordinary shares.

        On February 10, 2006, the Company completed the transformation of its legal form under German law as approved by its shareholders during the Extraordinary General Meeting ("EGM") held on August 30, 2005. Upon registration of the transformation of legal form in the commercial register of the local court in Hof an der Saale, on February 10, 2006, Fresenius Medical Care AG's legal form was changed from a German AG to a partnership limited by shares with the name Fresenius Medical Care AG & Co. KGaA. The Company as a KGaA is the same legal entity under German law, rather than a successor to the stock corporation. Management AG, a subsidiary of Fresenius SE, which was the majority voting shareholder of FMC-AG prior to the transformation, is the general partner of FMC-AG & Co. KGaA. Shareholders in FMC-AG & Co. KGaA participated in all economic respects, including profits and capital, to the same extent and (except as modified by the first share conversion described below) with the same number of shares in FMC-AG & Co. KGaA as they held in FMC-AG prior to the transformation. Upon effectiveness of the transformation of legal form, the share capital of FMC-AG became the share

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capital of FMC-AG & Co. KGaA, and persons who were shareholders of FMC-AG became shareholders of the Company in its new legal form.

        Prior to the effectiveness of the transformation, and as approved by the EGM and by a separate vote of FMC-AG's former preference shareholders, 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, which was accepted by the holders of approximately 96% of the outstanding Preference shares. Preference shares that were not converted remained outstanding and became Preference shares of FMC-AG & Co. KGaA in the transformation. In 2013, all remaining Preference shares outstanding were converted into Ordinary shares in the mandatory conversion described below.

        Part of the Company's stated strategy is to expand and complement its existing business through acquisitions. See Item 4B, "Information on the Company – Business Overview – Our Strategy and Competitive Strengths." On March 31, 2006, the Company completed the acquisition of Renal Care Group, Inc. ("the RCG Acquisition"), a Delaware corporation with principal offices in Nashville, Tennessee, for an all cash purchase price, net of cash acquired, of approximately $4.2 billion including the concurrent repayment of approximately $657.8 million of indebtedness of RCG. In 2010, we acquired Asia Renal Care Ltd, a large dialysis and related services provider in our Asia-Pacific region, Kraevoy Nefrologocheskiy Centr, a private operator of dialysis clinics in Russia's Krasnodar region and Gambro AB's worldwide peritoneal dialysis business. In 2011, we acquired IDC, the dialysis service business of Euromedic International, with over 8,200 hemodialysis patients and 70 clinics in nine countries, principally in Central and Eastern Europe and, American Access Centers, which operates 28 free-standing vascular access centers in the U.S., which provided us with critical mass in our vascular access business. In 2012 we acquired 100% of the equity of Liberty Dialysis Holdings, Inc. ("Liberty Dialysis"), a Delaware corporation with principal offices in Mercer Island, Washington and the owner of all of the business of Liberty Dialysis, Inc. and 51% of Renal Advantage, Inc., for total cash consideration of $2,182 million consisting of $1,697 million cash, net of cash acquired and $485 million non-cash consideration (the "Liberty Acquisition"). Prior to entering into the merger agreement for the Liberty Acquisition, we owned 49% of Renal Advantage, Inc., and we also had a loan receivable from Renal Advantage Partners, LLC of $280 million which was retired as part of the transaction. Liberty Dialysis mainly provided dialysis services in the United States through the 263 clinics it owned (the "Acquired Clinics"). We accounted for the Liberty Acquisition as a business combination. Liberty Dialysis's results have been included in the Company's Consolidated Statement of Income since February 29, 2012.

        We have also expanded the renal pharmaceuticals portion of our product business. In 2006, we acquired Phoslo®, a phosphate binder. In 2008, we entered into license and distribution agreements to market and distribute intravenous iron products such as Venofer® and Ferinject® (outside of the U.S.) for dialysis treatment. In December 2010, we formed a new renal pharmaceutical company with one of the licensors, Galenica Ltd. "Galenica", named Vifor Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP"), to develop and distribute products to treat iron deficiency anemia and bone mineral metabolism for pre-dialysis and dialysis patients. We own 45% of the shares of VFMCRP. See the discussion of "Renal Pharmaceuticals" below.

        Effective December 3, 2012, we completed a two-for-one split of the ADSs representing our Ordinary shares and the ADSs representing our Preference shares. As a result of the ADSs split, the ratio of our ADSs to our Ordinary shares and Preference shares was changed from one ADS representing one share to one ADS representing one-half of a share. All ADS and per ADS amounts in the consolidated financial statements, the related notes and elsewhere in this report have been restated to reflect the ADS splits.

        On May 16, 2013, the Company's AGM and a separate Preference shareholder meeting adopted resolutions for the mandatory conversion of our Preference shares into Ordinary shares. The amendments to the Company's articles of association ("Articles of Association") effecting the conversion were registered with the commercial register at the local court in Hof an der Saale on June 28, 2013. All outstanding Preference shares were converted on a 1:1 basis to Ordinary shares and all remaining options to acquire Preference shares were converted into options to acquire Ordinary shares. On July 5, 2013, the Company received a €27,000 ($34,784) premium from the largest former preference shareholder, a financial institution located outside the United States, for the conversion of their preference shares to ordinary shares. In connection with the Preference share conversion, the listing of the Preference shares at the Frankfurt Stock Exchange was terminated and the New York Stock Exchange delisted the ADSs representing our Preference shares.

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        On May 20, 2013 we commenced and on August 14, 2013, we completed a share buy-back program. We purchased a total of 7,548,951 Ordinary shares on the Frankfurt Stock Exchange at a total cost of approximately €350 million (approximately US$500 million). The program was financed from cash flow and existing credit facilities. The repurchased shares will either be cancelled, thereby reducing our registered share capital, or used to satisfy our share delivery obligations upon exercise of stock options.

Capital Expenditures

        We invested, by operating segment and Corporate, the gross amounts shown in the table below during the twelve month periods ended December 31, 2013, 2012, and 2011.

 
  Actual  
 
  2013   2012   2011  
 
  (in millions)
 

Capital expenditures for property, plant and equipment

                   

North America

  $ 377   $ 299   $ 238  

International

    205     203     201  

Corporate

    166     173     159  
               

Total Capital Expenditures

  $ 748   $ 675   $ 598  
               
               

Acquisitions and Investments

                   

North America

  $ 461   $ 1,849   $ 824  

International

    100     35     1,186  

Corporate

    2     2     6  
               

Total Acquisitions and Investments

  $ 563   $ 1,886   $ 2,016  
               
               

        For additional information regarding our capital expenditures, see Item 4. B, "Business Overview – Acquisitions and Investments" and Item 5.B, "Operating and Financial Review and Prospects – Liquidity and Capital Resources"

B.    Business Overview

Our Business

        Based on publicly reported sales and number of patients treated, we are the world's largest kidney dialysis company, operating in both the field of dialysis products and the field of dialysis services. Our dialysis business is vertically integrated, providing dialysis treatment at our own dialysis clinics and supplying these clinics with a broad range of products. In addition, we sell dialysis products to other dialysis service providers. At December 31, 2013, we provided dialysis treatment to 270,122 patients in 3,250 clinics worldwide located in approximately 45 countries. In the U.S. we also provide inpatient dialysis services and other services under contract to hospitals. In 2013, we provided 40,456,900 million dialysis treatments, an increase of approximately 5% compared to 2012. We also develop and manufacture a full range of machines, systems and disposable products, which we sell to customers in more than 120 countries. For the year ended December 31, 2013, we had net revenues of $14.6 billion, a 6% increase (6% in constant currency, see item 5, "Operating and Financial Review and Prospects – Non U.S. GAAP Measures for Presentation – Constant Currency") over 2012 revenues. We derived 66% of our revenues in 2013 from our North America Segment and 34% from our International Segment, which include our operations in Europe (21%), Latin America (6%) and Asia-Pacific (7%). Our Ordinary shares are listed on the Frankfurt Stock Exchange and American Depositary Receipts evidencing our Ordinary shares on the New York Stock Exchange, and on February 19, 2014, we had a market capitalization of $22.1 billion.

        We use the insight we gain when treating patients in developing new and improved products. We believe that our size, our activities in both dialysis care and dialysis products and our concentration in specific geographic areas allow us to operate more cost-effectively than many of our competitors.

        We estimate the volume of the global dialysis market was approximately $75 billion for 2013, remaining unchanged compared to the previous year (4% increase in constant currency terms). Approximately $61 billion represents dialysis services, including the administration of dialysis drugs, and approximately $14 billion represents sales of dialysis products. The following table summarizes net

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revenues for our North America Segment and our International Segment in our major categories of activity, dialysis care and dialysis products for the three years ended December 31, 2013, 2012 and 2011.

 
  2013   2012   2011  
 
  (in millions)
 

North America

                   

Dialysis Care

  $ 8,772   $ 8,230   $ 7,113  

Dialysis Products

    834     801     813  
               

    9,606     9,031     7,926  

International

                   

Dialysis Care

    2,358     2,262     2,170  

Dialysis Products

    2,612     2,478     2,458  
               

    4,970     4,740     4,628  
               


Renal Industry Overview

        We offer life-maintaining and life-saving dialysis services and products in a market which is characterized by favorable demographic development. As a global market leader in dialysis products and dialysis services, FMC-AG & Co. KGaA considers it important to possess accurate and current information on the status and development of the global, regional and national markets.

        To obtain and manage this information, FMC-AG & Co. KGaA has developed an internal information tool called Market & Competitor Survey ("MCS"). The MCS is used within the Company as a tool to collect, analyze and communicate current, accurate and essential information on the dialysis market, developing trends, the market position of FMC-AG & Co. KGaA and those of its competitors. Country – by – country surveys are performed at the end of each calendar year which focus on the total number of patients treated for ESRD, the treatment modality selected, products used, treatment location and the structure of ESRD patient care providers. The survey has been refined over the years to facilitate access to more detailed information and to reflect changes in the development of therapies and products as well as changes to the structure of our competitive environment. The questionnaires are distributed to professionals in the field of dialysis who are in a position to provide ESRD-relevant country specific information themselves or who can coordinate appropriate input from contacts with the relevant know-how in each country. The surveys are then centrally validated and checked for consistency by cross-referencing them with the most recent sources of national ESRD information (e.g. registry data or publications if available) and with the results of surveys performed in previous years. All information received is consolidated at a global and regional level and analyzed and reported together with publicly available information published by our competitors. While we believe the information contained in our surveys and competitor publications to be reliable, we have not independently verified the data or any assumptions from which our MCS is derived or on which the estimates they contain are based, and we do not make any representation as to the accuracy of such information.

        Except as otherwise specified below, all patient and market data in this report have been derived using our MCS.

End-Stage Renal Disease

        ESRD is the stage of advanced chronic kidney disease characterized by the irreversible loss of kidney function and requires regular dialysis treatment or kidney transplantation to sustain life. A normally functioning human kidney removes waste products and excess water from the blood, which prevents toxin buildup, water overload and the eventual poisoning of the body. Most patients suffering from ESRD must rely on dialysis, which is the removal of toxic waste products and excess fluids from the body by artificial means. A number of conditions – diabetes, hypertension, glomerulonephritis and inherited diseases – can cause chronic kidney disease. The majority of people with ESRD acquire the disease as a complication of one or more of these primary conditions.

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        There are currently only two methods for treating ESRD: dialysis and kidney transplantation. Scarcity of compatible kidneys limits transplants. Therefore, most patients suffering from ESRD rely on dialysis.

        We estimate that at the end of 2013, there were approximately 3.20 million ESRD patients worldwide, of which approximately 675,000 were living with a transplanted kidney. For many years the number of donated organs worldwide has continued to be significantly lower than the number of patients on transplant waiting lists. 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 ten years. In both the U.S. and Germany, approximately 20% of all ESRD patients live with a functioning kidney transplant and approximately 80% require dialysis.

        There are two major dialysis methods commonly used today, hemodialysis ("HD") and peritoneal dialysis ("PD"). These are described below under "Dialysis Treatment Options for ESRD." Of the estimated 2.52 million dialysis patients treated in 2013, approximately 2.25 million received HD and about 269,000 received PD. Generally, an ESRD patient's physician, in consultation with the patient, chooses the patient treatment method, which is based on the patient's medical conditions and needs. The number of dialysis patients grew by approximately 7% in 2013.

        The present annual patient growth rate in North America, the largest dialysis market, is approximately 5% per year, while in many developing countries we see annual growth rates of near 10%. We believe that worldwide patient growth will continue at around 6% per year. At the end of 2013, there were approximately 568,000 patients in North America (including Mexico), approximately 341,000 dialysis patients in the 27 countries of the European Union (E.U.), approximately 298,000 patients in Europe (excluding the E.U. countries), the Middle East and Africa, approximately 252,000 patients in Latin America (excluding Mexico), and approximately 1,060,000 patients in Asia (including approximately 318,000 patients in Japan).

        Dialysis patient growth rates vary significantly from region to region. The U.S. and Japan, as well as Western and Central Europe, where patients with terminal kidney failure have had readily available access to treatment, usually dialysis, for many years, all experience below average increases in the number of patients. In contrast, growth rates in the economically weaker regions were above average, reaching double digit figures in some cases. This indicates that accessibility to treatment is still somewhat limited in these countries, but is gradually improving.

        We estimate that about 18% of worldwide patients are treated in the U.S., around 14% in E.U. and approximately 13% in Japan. The remaining 55% of all dialysis patients are distributed throughout approximately 120 countries in different geographical regions.

        We believe that the continuing growth in the number of dialysis patients is principally attributable to:

    increased general life expectancy and the overall aging of the general population;

    the continuing shortage of donor organs for kidney transplants;

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

    greater access to treatment in developing countries; and

    lifestyle choices such as obesity, lack of exercise and poor diet, causing increased prevalence of hypertension, diabetes and other illnesses that lead to ESRD, combined with better treatment and survival of patients with these conditions.

Dialysis Treatment Options for ESRD

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

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

        Patients can receive treatment at a clinic run by (1) a public center (government or government subsidiary owned/run), (2) a healthcare organization (non-profit organizations for public benefit purposes), (3) a private center (owned or run by individual doctors or a group of doctors) or (4) a company-owned clinic, including multi-clinic providers (owned or run by a company such as FMC-AG & Co. KGaA). There were approximately 6,100 Medicare-certified ESRD treatment clinics in the U.S. in 2013 with only around 1% of patients receiving care in public centers. In 2013, there were approximately 5,500 dialysis clinics in the E.U. treating dialysis patients. In the E.U., approximately 57% of dialysis patients received care through public centers, approximately 21% through private centers and approximately 22% through company-owned clinics, such as ours. In Latin America, private centers and company-owned clinics predominated, caring for over 85% of all dialysis patients. In Japan, nephrologists (doctors who specialize in the treatment of renal patients) cared for around 80% of the population in their private centers.

        Among company-owned clinics, the two largest providers are FMC-AG & Co. KGaA, caring for approximately 270,000 patients and DaVita, caring for approximately 166,000 patients at the end of 2013. All other company-owned clinics care for approximately 20,000 or less patients each.

        Of the approximately 2.52 million patients who received dialysis care in 2013, more than 89% were treated with hemodialysis. Hemodialysis patients represented about 92% of all dialysis patients in the U.S., approximately 97% of all dialysis patients in Japan, 92% in the E.U. and 86% in the rest of the world. Based on these data, it is clear that hemodialysis is the dominant therapy method worldwide.

        Peritoneal Dialysis.    Peritoneal dialysis removes toxins from the blood using the peritoneum, the membrane lining covering the internal organs located in the abdominal area, as a filter. Most peritoneal dialysis patients administer their own treatments in their own homes and workplaces, either by a treatment known as continuous ambulatory peritoneal dialysis ("CAPD" or "APD"), or by a treatment known as continuous cycling peritoneal dialysis ("CCPD"). In both of these treatments, a surgically implanted catheter provides access to the peritoneal cavity. Using this catheter, the patient introduces a sterile dialysis solution from a solution bag through a tube into the peritoneal cavity. The peritoneum operates as the filtering membrane and, after a specified dwell time, the solution is drained and disposed. A typical CAPD peritoneal dialysis program involves the introduction and disposal of dialysis solution four times a day. With CCPD, a machine pumps or "cycles" solution to and from the patient's peritoneal cavity while the patient sleeps. During the day, one and a half to two liters of dialysis solution remain in the abdominal cavity of the patient. The human peritoneum can be used as a dialyzer only for a limited period of time, ideally only if the kidneys are still functioning to some extent.

Our Strategy and Competitive Strengths

Company Strategy

        We focus our business activities on our patients' health and hence on the quality of treatment and our products with the objective of improving their quality of life and raising their life expectancy. Our aim is to maintain our position as the world's leading provider of dialysis treatment and products and to use that position as a basis for sustainable, profitable growth. In this way, we seek to continuously increase our corporate value and create added value for patients, healthcare systems and investors worldwide.

        Our strategy takes into account concrete, measurable growth targets as well as long-term trend forecasts in the dialysis market. The Management Board uses a number of different tools and indicators to evaluate our business performance, develop our strategy and make investment decisions. See Item 5. "Operating and Financial Review and Prospects." We not only expect the number of patients to increase but also the quality of services provided and of the products available to become even more important in the future. We think integrated care for kidney patients is another area that will continue to grow in the future. In response to this, we will not only focus our business on individual services or dialysis products, but also on combining the different areas of application related to dialysis, such as combining treatment concepts with dialysis drugs.

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Pillars for Strategic Growth

        We rely upon four pillars in order to devise measures to govern the Company's strategy and activities and enable us to devise measures whereby we can continue to perform successfully in a broader spectrum of the global dialysis market and achieve our growth and profitability objectives. Our four strategic pillars are described below:

    (1)    Continuous Growth and Expansion

        We are committed to shaping the development of the dialysis industry by giving more people access to life-saving dialysis treatment, as well as developing innovative products and therapies that improve our patients' quality of life. This includes our execution of strategic alliances with various healthcare institutions, which help to shape the development of the industry, while benefitting from the global growth of the market. To strengthen our market position, we have developed various approaches ranging from organic growth to the continuous assessment of acquisitions that create synergies with our existing products and services.

        To accomplish lasting, profitable growth we are also steering our business activities towards attractive future markets. This includes expanding our presence through public private partnerships ("PPP") in the dialysis business. We are already involved in several PPP initiatives in Europe, Africa, Asia and Australia with the intent to further expand these strategic alliances in the future.

    (2)    Development of New Business Areas

        Our main focus continues to be on comprehensive care for dialysis patients and dialysis-related treatments. In many regions, in addition to our products, dialysis treatments, and wide range of renal pharmaceuticals, we offer an increasing amount of additional services for patient care. These include laboratory and pharmacy services as well as services related to vascular access, an essential aspect of treatment for dialysis patients. With an integrated healthcare approach, we can further develop these and other services and meet the growing demand for comprehensive care of patients with kidney disease.

    (3)    Enhancing Products and Services

        Our sustainable growth strategy includes the development of innovative products and continuous improvement for dialysis treatments. We benefit from the vertically-integrated structure of our Company, which enables our Research & Development division to apply our experience as the world's largest provider of dialysis treatments to product development, and our technical department benefits from our daily practical experience as a provider of dialysis treatment and being directly in-touch with doctors, nurses and patients to keep track of and meet customer and patient needs.

        Our Global Research and Development department was reorganized in 2013, and we continue to operate a global network of local research and development sites. This network provides us with an advantage to familiarize ourselves with local requirements and respond to them quickly. However, chronic kidney failure is also a global problem, with demand for improved, high-quality yet cost-efficient products growing worldwide. The reorganization of our Research and Development department has leveraged synergies for product development that will continue into the future by providing a global focus and promoting the exchange of knowledge between regions. Our research also focuses on the vital aspects of the quality and safety of our products and services. This continued focus on quality makes us a reliable partner for patients, doctors, and care staff alike.

    (4)    Fostering Operational Excellence

        In a challenging economic environment, we also place importance on enhancing our profitability in the long term, while positioning and managing the Company more efficiently. In the future, we intend to further optimize and modernize our administrative structures and processes and make greater use of synergies, such as the establishment of our Global Manufacturing Operations and Global Research & Development divisions. This will enable us to meet the increased demand for our products and services and create a flexible environment which fosters rapid response to changes in the dialysis market. At the same time, we have benefited, and will continue to benefit, from our decentralized structure, allowing us to remain a reliable local partner in patient treatment by providing quick responses to customer specific needs, and changes to the local market and regulatory environment. We believe this flexibility coupled with our localized decision making structure helps us to gain access to new markets.

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Dialysis Care

Dialysis Services

        We provide dialysis treatment and related laboratory and diagnostic services through our network of 3,250 outpatient dialysis clinics, 2,133 of which are in the North America Segment (including Mexico) and 1,117 of which are in approximately 45 countries outside of North America. Our operations within the North America Segment generated 79% of our 2013 dialysis care revenue and our operations outside the North America Segment generated 21%. Our dialysis clinics are generally concentrated in areas of high population density. In 2013, we acquired a total of 50 existing clinics, opened 80 new clinics and sold or consolidated 40 clinics. The number of patients we treat at our clinics worldwide increased by about 5%, from 257,916 at December 31, 2012 to 270,122 at December 31, 2013. For 2013, dialysis services accounted for 76% of our total revenue.

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

    our reputation for quality patient care and treatment;

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

    our reputation for technologically advanced products for dialysis treatment.

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

        Each of our dialysis clinics is under the general supervision of a physician medical director. (See "Patients, Physician and Other Relationships.") Each dialysis clinic also has an administrator or clinical manager who supervises the day-to-day operations of the facility and the staff. The staff typically consists of registered nurses and licensed practical nurses. Our North America Segment clinics also employ patient care technicians, a social worker, a registered dietician, a unit clerk and biomedical technicians, while in some countries within our International Segment, the staff also includes technicians, social workers and dieticians.

        As part of the dialysis therapy, we provide a variety of services to ESRD patients at our dialysis clinics in the U.S. These services include administering EPO, a synthetic engineered hormone that stimulates the production of red blood cells. EPO is used to treat anemia, a medical complication that ESRD patients frequently experience. We administer EPO to most of our patients in the U.S. Amgen Inc. is the sole manufacturer of EPO in U.S. and any interruption of supply could materially adversely affect our business, financial condition and results of operations. Our current sourcing and supply contract with Amgen for EPO covers the period from January 1, 2012 to December 2014. Prior to January 1, 2011, when the ESRD PPS became effective, administration of EPO was separately billable under the composite rate payment system then in effect, and reimbursement for EPO represented a significant part of our dialysis care revenue. Since January 2011, ESAs such as EPO are included in the expanded ESRD PPS bundled rate. A material increase in our utilization or acquisition cost for EPO without an increase in the ESRD PPS bundled reimbursement rate could materially adversely affect our financial condition and results of operations.

        Our clinics also offer services for home dialysis patients, the majority of whom receive peritoneal dialysis treatment. For those patients, we provide materials, training and patient support services, including clinical monitoring, follow-up assistance and arranging for delivery of the supplies to the patient's residence. (See "– Regulatory and Legal Matters – Reimbursement – U.S." for a discussion of billing for these products and services.)

        We also provide dialysis services under contract to hospitals in the U.S. on an "as needed" basis for hospitalized ESRD patients and for patients suffering from acute kidney failure. Acute kidney failure can result from trauma or similar causes, and requires dialysis until the patient's kidneys recover their normal function. We service these patients either at their bedside, using portable dialysis equipment, or at the

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hospital's dialysis site. Contracts with hospitals provide for payment at negotiated rates that are generally higher than the Medicare reimbursement rates for chronic in-clinic outpatient treatments.

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

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

        In the more than 45 countries outside North America in which we currently operate or manage dialysis clinics we face legal, regulatory and economic environments varying significantly from country to country. These individual environments can affect all aspects of providing dialysis services including our legal status, the extent to which we can provide dialysis services, the way we have to organize these services and the system under which we are reimbursed. (See "– Regulatory and Legal Matters – Reimbursement – International (Including Germany and Other Non-U.S.)" for further discussion of reimbursement.) Our approach to managing this complexity utilizes local management to ensure the strict adherence to the individual country rules and regulations and international functional departments supporting country management with processes and guidelines enabling the delivery of the highest possible quality level of dialysis treatment. We believe that with this bi-dimensional organization we will be able to provide superior care to dialysis patients under the varying local frameworks leading to improved patient well-being and to lower social cost.

Other Services

    Laboratory Services

        We have full service laboratories that support the needs of our patients in the U.S. and we also provide laboratory testing for others in the U.S. through Spectra Laboratories ("Spectra"). Spectra provides blood, urine and other bodily fluid testing services to determine the appropriate individual dialysis therapy for a patient and to assist physicians in determining whether a dialysis patient's therapy regimen, diet and medicines remain optimal. In 2013, Spectra acquired Shiel Laboratories ("Shiel"). Shiel expands our laboratory services to include clinical anatomic pathology and molecular testing in the New York region.

    Pharmacy Services

        We offer pharmacy services, mainly in the U.S. These services include delivering renal medications and supplies to the homes of patients or to their dialysis clinic directly from renal pharmacists who are specially trained in treating and counseling patients living with kidney disease. We also actively support education and compliance with phosphate binders and other medications for bone and mineral metabolism.

    Vascular Access Surgery Services

        We have vascular access clinics mainly in the U.S. but we also operate clinics in Portugal and we have opened a new clinic in Taiwan. Dialysis requires access to the bloodstream, which is accomplished by catheters, grafts, or arteriovenious fistulas. Patients receiving hemodialysis need to have a vascular access site put in before their dialysis starts in order for our dialysis machines to filter their blood and return the newly clean blood into their bodies. Vascular access is necessary because human veins are too small; the surgery usually joins together an artery and a vein to create a vein strong enough to receive the hemodialysis needles. In addition, the vascular access centers provide services to address peripheral artery disease, which is common in dialysis patients.

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Acquisitions and Investments

        A significant factor in the growth in our revenue and operating earnings in prior years has been our ability to acquire healthcare businesses, particularly dialysis clinics, on reasonable terms. Worldwide, physicians own many dialysis clinics that are potential acquisition candidates for us. In the U.S., doctors might decide to sell their clinics to obtain relief from day-to-day administrative responsibilities and changing governmental regulations, to focus on patient care and to realize a return on their investment. Outside of the U.S., doctors might determine to sell to us and/or enter into joint ventures or other relationships with us to achieve the same goals and to gain a partner with extensive expertise in dialysis products and services. Privatization of health care in Eastern Europe and Asia could present additional acquisition opportunities.

        During 2013 and 2012, we had total acquisitions and investments of $496 million and $1,879 million, respectively. Of the total 2013 acquisitions and investments, FMCH made an investment-type loan granting a $200 million credit facility to a middle market dialysis provider (of which $170 was drawn as of December 31, 2013; see Note 8 of the Notes to the Consolidated Financial Statements "Other Assets and Notes Receivables"), we acquired a full-service clinical laboratory, and we continued to enhance our presence outside of the U.S. In 2012, the cash consideration amounted to $1,879 million, primarily for the Liberty Acquisition (see Note 2 of the Notes to the Consolidated Financial Statements, "Acquisition of Liberty Dialysis Holdings"). For further discussion of our 2013 acquisitions and investments, see "Information on the Company – History and Development of the Company – History," above and "– Our Strategy and Competitive Strengths – Cornerstones for Strategic Growth- (1) Continuous Growth and Expansion" and "Renal Pharmaceuticals" above.

Quality Assurance and Quality Management in Dialysis Care

        With regard to treatment quality, our clinics work in conformance with the generally accepted quality standards of the industry, particularly the KDOQI (Kidney Disease Outcomes Quality Initiative) guidelines from the United States, the European ERBP standard (European Renal Best Practice) and increasingly, the KDIGO (Kidney Disease: Improving Global Outcomes), an industry initiative for global clinical practice guidelines. Clinical data management systems are used to routinely collect certain medical parameters, which we evaluate in anonymized form in compliance with these guidelines.

        To evaluate the quality of our dialysis treatments, we use quality parameters that are generally recognized by the dialysis industry, such as hemoglobin values. In cooperation with responsible nephrologists, we aim to achieve a defined hemoglobin level for our patients. The kt/v value, which represents the volume of fluid completely cleared of urea during a single treatment divided by the volume of water a patient's body contains, 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. Albumin, a protein, is one quality parameter used to monitor a patient's general nutritional condition. Hospitalization days are another important indicator of the treatment quality, because they are particularly cost-intensive and can significantly reduce the quality of life of dialysis patients.

        In our EMEA region our quality management activities are primarily focused on comprehensive development and implementation of a Healthcare Services Management System as part of an Integrated Management System ("IMS"). Our goals in this area include not only meeting quality requirements for our dialysis clinics and environmental concerns, but also managing the quality of our dialysis care. This approach results in an IMS structure that closely reflects existing corporate processes. We are also able to use the IMS to fulfill many legal and normative regulations covering service lines. In addition, the IMS standard offers a highly flexible structure that allows us to adapt to future regulations. Our IMS fulfills the ISO-Norm 9001:2008 requirements for quality management systems and links it with the ISO-Norm 14001:2004 for environmental management systems. At the same time, the IMS conforms to the medical devices requirements of ISO-Norm 13485:2003.

        Our dialysis clinics' processes and documentation are regularly inspected by internal auditors and external parties. The underlying quality management system is certified and found to be in compliance with relevant regulations, requirements and company policies. Currently, dialysis clinics in 19 countries within our European region have quality management systems which are certified according to the quality management standard ISO 9001:2008.

        Additionally, we have a comprehensive program, NephroCare Excellence, in our European region. NephroCare is our service that provides complete life-saving treatments for renal failure at the point of

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care using advanced technologies and listening to and understanding our patients' needs to enable the best therapies, ensure a high-quality of care and empower patients. Our NephroCare Excellence program brings together in one comprehensive program all of our quality and efficiency standards as well as proven best practices from different countries. The program is designed to support more than 30 individual countries in introducing NephroCare's quality standards and tools to all clinics efficiently, systematically and within a defined timeframe. Our goal is to harmonize the routines in our network of clinics, to make sure that clinic employees identify with the values of NephroCare, and to foster awareness of the NephroCare brand and of our commitment to enabling affordable renal replacement therapy for the different healthcare authorities worldwide.

        The UltraCare® program of our North America Segment dialysis services group represents our commitment to deliver excellent care to patients through innovative programs, state-of-the art technology, continuous quality improvement and a focus on superior patient service. It combines our latest product technology with our highly trained and skilled staff to offer our patients what we believe is a superior level of care. The basis for this form of treatment is the Optiflux® polysulfone single-use dialyzer. Optiflux® single use dialyzers are combined with our 2008™ Hemodialysis Delivery System series, which has advanced online patient monitoring and Ultra Pure Dialysate, all of which we feel improve mortality rates and increase the quality of patient care. The UltraCare® program also utilizes several systems to allow the tailoring of treatment to meet individual patient needs. Among the other capabilities of this system, staff will be alerted if toxin clearance is less than the target prescribed for the patient, and treatment can be adjusted accordingly. The UltraCare® program also includes an annual training program for staff recertification. Additionally, the UltraCare® at Home™ emphasizes patient-centered care: offering the full range of treatment modalities coupled with superior customer service for patients desiring care in the home setting.

        At each of our North America Segment dialysis clinics, a quality assurance committee is responsible for reviewing quality of care data, setting goals for quality enhancement and monitoring the progress of quality assurance initiatives. We believe that we enjoy a reputation of providing high quality care to dialysis patients. In 2013, the Company continued to develop and implement programs to assist in achieving our quality goals. Our Access Intervention Management Program detects and corrects arteriovenous access failure in hemodialysis treatment and the percentage of patients who use catheters, which is the major cause of hospitalization and morbidity.

        Our principal focus of our research and development activities is the development of new products, technologies and treatment concepts to optimize treatment quality for dialysis patients. See Item 5.C, "Operating and Financial Review and Prospects – Research and Development."

Sources of U.S. Dialysis Care Net Revenue

        The following table provides information for the years ended December 31, 2013, 2012 and 2011 regarding the percentage of our U.S. dialysis treatment services net revenues from (a) the Medicare ESRD program, (b) private/alternative payors, such as commercial insurance and private funds, (c) Medicaid and other government sources and (d) hospitals.

 
  Year Ended December 31,  
 
  2013   2012   2011  

Medicare ESRD program

    49.4 %   48.0 %   46.2 %

Private / alternative payors

    42.6 %   42.6 %   42.8 %

Medicaid and other government sources

    3.3 %   4.5 %   5.9 %

Hospitals

    4.7 %   4.9 %   5.1 %
               

Total

    100.0 %   100.0 %   100.0 %
               
               

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

Patient, Physician and Other Relationships

        We believe that our success in establishing and maintaining dialysis clinics, both in the U.S. and in other countries, and vascular access centers in the U.S. depends significantly on our ability to obtain the acceptance of and referrals from local physicians, hospitals and managed care plans. In nearly all our

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dialysis clinics, local doctors, who specialize in the treatment of renal patients (nephrologists) act as practitioners. A dialysis patient generally seeks treatment at a conveniently located clinic at which the patient's nephrologist has staff privileges. Our ability to provide high-quality dialysis care and to fulfill the requirements of patients and doctors depends significantly on our ability to enlist nephrologists for our dialysis clinics and receive referrals from nephrologists, hospitals and general practitioners.

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

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

        A number of the dialysis and vascular access centers we operate are owned, or managed, by joint ventures in which we hold a controlling interest and one or more hospitals, physicians or physician practice groups hold a minority interest. We also have agreements with physicians to provide management and administrative services at vascular access centers in which physicians or physicians groups hold an ownership interest and agreements with physicians to provide professional services at vascular access centers. While we have structured our joint ventures to comply with many of the criteria for safe harbor protection under the U.S. Federal Anti-Kickback Statute, our investments in these joint venture arrangements and administrative service agreements do not satisfy all the elements of such safe harbors.

Competition

        Dialysis Services.    Our largest competitors in the North America Segment are DaVita HealthCare Partners, Inc., and US Renal Care,  Inc. and, in our International Segment, our largest competitors are Diaverum and Kuratorium für Heimdialyse in Europe, Zenjin-Kai and Showai-Kai in Asia-Pacific, and Baxter International Inc. and Diaverum in Latin America. Ownership of dialysis clinics in the U.S. consists of a large number of company-owned clinic providers, each owning ten or fewer clinics and a small number of larger company-owned, multi-clinic providers who own the majority of U.S. clinics, of which the Company and DaVita HealthCare Partners are the largest. Over the last decade the dialysis industry has been characterized by ongoing consolidations. Internationally, the dialysis services market is much more fragmented, with a higher degree of public ownership in many countries.

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

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

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

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

Dialysis Products

        Based on internal estimates prepared using our MCS, publicly available market data and our data of significant competitors, we are the world's largest manufacturer and distributor of equipment and related products for hemodialysis and the second largest manufacturer and distributer of peritoneal dialysis products, measured by publicly reported revenues. We sell our dialysis products directly and through distributors in more than 120 countries. Most of our customers are dialysis clinics. For the year 2013, dialysis products accounted for 24% of our total revenue.

        We produce a wide range of machines and disposables for HD, PD and acute dialysis:

    HD machines and PD cyclers

    Dialyzers, our largest product group

    PD solutions in flexible bags

    HD concentrates, solutions and granulates

    Bloodlines

    Systems for water treatment

        Our product business also includes adsorbers, which are specialized filters used in other extracorporeal therapies. In addition we sell products from other producers, including specific instruments for vascular access as well as other supplies, such as bandages, clamps and injections. We also include our PhosLo®, Phoslyra® and Venofer® iron products and sales of other renal pharmaceutical products as part of our dialysis product revenues. Our Body Composition Monitor is also sold as part of both our peritoneal and hemodialysis products. The Body Composition Monitor is used for home dialysis to determine a patient's body composition (water, body mass and fat) which assesses a patient's hydration state to assist in determining the patient's therapy

        The markets in which we sell our dialysis products are highly competitive. The three largest manufacturers of dialysis products accounted for approximately 64% of the worldwide market in 2013. As the market leader in dialysis products, we had an approximately 34% market share. We estimate that in 2013, we supplied approximately 42% of global dialyzer production and approximately 55% of all HD machines sold worldwide. We estimate that our market share for PD products sold worldwide in 2013 was 20%.

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Overview

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

 
  Year Ended December 31,  
 
  2013   2012   2011  
 
  Total
Product
Revenues
  % of
Total
  Total
Product
Revenues
  % of
Total
  Total
Product
Revenues
  % of
Total
 
 
  (in millions)
 

Hemodialysis Products

  $ 2,813     81   $ 2,649     80   $ 2,603     79  

Peritoneal Dialysis Products

    424     12     415     13     417     13  

Other

    243     7     245     7     268     8  
                           

Total

  $ 3,480     100   $ 3,309     100   $ 3,288     100  
                           
                           

Hemodialysis Products

        The reduction of risk factors for cardiovascular diseases is core to the development of dialysis systems and products at FMC-AG & Co. KGaA. Taking this challenge into account, we offer a comprehensive hemodialysis product line, including HD machines, modular components for dialysis machines, Polysulfone dialyzers, bloodlines, HD solutions and concentrates, needles, connectors, machines for water treatment, data administration systems, dialysis chairs, PhosLo® and Phoslyra® phosphate binders, Venofer® iron products, and other renal drug products. We continually strive to expand and improve the capabilities of our hemodialysis systems to offer an advanced treatment mode at reasonable cost.

        Dialysis Machines.    We sell our 4008, 5008, and 5008s Series HD dialysis machines in EMEALA and AP. In North America, we sell our 2008® Series machines, modeled on the 4008 Series. The 4008/2008 series is the most widely sold machine for hemodialysis treatment. The 2008T is the only hemodialysis machine currently available with the Clinical Data eXchangeTM ("CDX") feature. CDX allows machine users to toggle their 2008T monitor view to provide access to their medical information system and dialysis screen. In 2011 in North America, the 2008K@home hemodialysis machine was introduced, which features user interface enhancements and the WetAlertTM wireless wetness detector for identification of blood leaks. In our International Segment, the 4008S classic machine is a basic dialysis machine for performing conventional HD treatments with limited therapy options for budget-focused customers. Following the successful launch of the 5008 series, we concentrated on the continued improvement of the reliable operation of our model 5008 dialysis machine in clinical use and under increasingly varied conditions in international applications. These efforts for improvement have taken into account considerable feedback from our own dialysis clinics as well as from other customers while focusing on therapeutic, technical, and economic aspects of the machine. The 5008 series is intended to gradually replace most of the 4008 series in the coming years. The successor 5008 contains a number of newly developed technical components for revised and improved dialysis processes and is offering the most efficient therapy modality, ONLINE-Hemodiafiltration ("ONLINE HDF"), as a standard feature. Our latest machine software upgrades the 5008 Therapy System to the CorDiax product line for use with our FX CoreDiax dialyzers. Significant advances in the field of electronics enable highly complex treatment procedures to be controlled and monitored safely and clearly through dedicated interfaces. Our dialysis machines offer the following features and advantages:

    Volumetric dialysate balancing and ultrafiltration control system. This system provides for safe and more efficient use of highly permeable dialyzers, permitting efficient dialysis with controlled rates of fluid removal;

    Proven hydraulic systems, providing reliable operation and servicing flexibility;

    Compatibility with all manufacturers' dialyzers and a variety of bloodlines and dialysis solutions, permitting maximum flexibility in both treatment and disposable products usage;

    Modular design, which permits us to offer dialysis clinics a broad range of options to meet specific patient or regional treatment requirements and specialized modules that provide monitoring and response capability for selected biophysical patient parameters, such as body temperature and relative blood volume. Modular design also allows upgrading through module substitution without replacing the entire machine;

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    Sophisticated microprocessor controls, touchscreen interfaces, displays and/or readout panels that are adaptable to local language requirements;

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

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

    Clinical Data eXchange in the 2008T:

    The 2008T features an industrial grade computer inside the machine, as well as, an external keyboard and touchpad;

    The Medical Information System (MIS) and dialysis screens are accessible on the same monitor by simply pressing the CDX toggle key; and

    Clinicians no longer need to leave the patient station to gain access via standalone computers on the treatment floor or at nursing stations;

    Online data collection capabilities and computer interfacing with our Therapy Data Management System (TDMS) and/or Fresenius Medical Information System (FMiS) systems. Our systems enable users to:

    monitor and assess prescribed therapy;

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

    enter nursing records automatically at bedside;

    adapt to new data processing devices and trends;

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

    record and analyze trends in medical outcome factors in hemodialysis patients;

    The series 2008k@home, introduced in North America in 2011, a dialysis machine specifically developed for in home use with an intuitively designed user interface and the addition of the wetness detector for increased safety. The use of our most advanced technology and adaptability for in-home use makes this machine highly accessible for patients who would like more flexibility and control throughout their dialysis process; and

    In the series 5008 CorDiax, the most efficient therapy mode ONLINE HDF is standard.

        Dialyzers.    We manufacture our F-Series and premium FX class® series of dialyzers and our Optiflux® polysulfone single-use dialyzer using hollow fiber Fresenius Polysulfone® and Helixone® membranes from synthetic materials. We estimate that we are the leading worldwide producer of polysulfone dialyzers. In 2011, we introduced the new FX CorDiax dialyzer which contains the Helixone®plus high performance membrane. The Helixone®plus membrane selectively filters out toxins such as phosphates to reduce the risk of cardiovascular disease. It was improved in 2011 with the addition of improved performance characteristics and is characterized by a very high permeability to enable an increased removal of uremic toxins in the middle molecular weight range.

        We believe that Polysulfone offers the following superior performance characteristics compared to other materials used in dialyzers:

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

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

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

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        Other Dialysis Products.    We manufacture and distribute arterial, venous, single needle and pediatric bloodlines. We produce both liquid and dry dialysate concentrates. Liquid dialysate concentrate is mixed with purified water by the hemodialysis machine to produce dialysis solution, which removes the toxins and excess water from the patient's blood during dialysis. Dry concentrate, developed more recently, is less labor-intensive to use, requires less storage space and may be less prone to bacterial growth than liquid solutions. We also produce dialysis solutions in bags, including solutions for priming and rinsing hemodialysis bloodlines, as well as connection systems for central concentrate supplies and devices for mixing dialysis solutions and supplying them to hemodialysis machines. Other products include solutions for disinfecting and decalcifying hemodialysis machines, fistula needles, hemodialysis catheters, and products for acute renal treatment.

Peritoneal Dialysis Products

        We offer a full line of peritoneal dialysis systems and solutions which include both continuous ambulatory peritoneal dialysis ("CAPD") and continuous cycling peritoneal dialysis ("CCPD") also called automated peritoneal dialysis ("APD").

        CAPD Therapy:    We manufacture both systems and solutions for CAPD therapy. Our product range has a number of advantages for patients including:

    Fewer possibilities for touch contamination.  Our unique PIN and DISC technology was designed to reduce the number of steps in the fluid exchange process, which decreases the risk of infection, particularly in the disconnection step in which the patient connector is closed automatically without any direct touch intervention.

    Optimal biocompatibility.  Our PD stay safe Balance and stay safe Bicavera® solutions are pH neutral and have ultra-low glucose degradation product contents providing greater protection for the peritoneal membrane and allowing for the protection of residual renal function of the PD patients.

    Environmentally friendly material:  In our International Segment, our stay    •    safe® system is made of Biofine®, a material developed by Fresenius, which upon combustion is reduced to carbon dioxide and is PVC and plasticizer free. Biofine® requires less energy to manufacture, generates less waste and is easy to recycle.

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

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

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

    Personalized adapted APD.  The cycler allows patients to be treated using a modified version of APD where short dwell times with small fill volumes are used first to promote ultrafiltration and subsequently longer dwell times and larger fill volumes promote the removal of uremic toxins from the blood.

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

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

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      and simple ways of individualizing APD prescriptions to achieve better treatment results, including personalized adapted APD therapy.

    North American cycler portfolio:  This includes: (a) the Liberty® cycler introduced in 2008 incorporating many new operational and safety features with an innovative piston driven pumping cassette design, and user interface enhancements such as a color touch screen which guides the patient through the setup and treatment, (b) the Freedom® cyclers for low volume applications and acute markets, and (c) the Newton IQ® Cycler, which offers gentle gravity fills and drains as well as the option of pumping waste dialysate directly into the receptacle. The IQdrive® USB stick can provide actual treatment details and results to the physician for compliance monitoring and, when used with our North American PD cyclers, can upload the patient's prescription into the machine.

    Patient Management Software:  We have developed specific patient management software tools to support both CAPD and APD therapies in the different regions of the world. These include: PatientOnLine, IQsystem®, Pack-PD® and FITTness™. These tools can be used by physicians and nurses to design and monitor treatment protocols thus ensuring that therapy is optimized and that patient care is maximized. These different approaches aim to support physicians and nurses in better formulating treatments for a patient's individual needs; improving a patient's quality of life while safely extending their time on PD.

Renal Pharmaceuticals

        We registered Osvaren®, a phosphate binder with a reduced calcium component, within Europe in 2006. Osvaren® supports cardiovascular health through excellent phosphate binding with a reduced calcium component as well as supplementation with magnesium. We are in the process of developing a new flavored granulate formulation of Osvaren® which is expected to further increase patient acceptance. Osvaren® granulate is expected to be registered in Europe and other international markets in 2016. In international markets we are in the process of registering other patent free compounds used frequently in dialysis patients for use in our own clinics and for third party sales.

        Excess phosphates, which are ordinarily removed by healthy kidneys, can cause bone and heart problems. Phosphate binders reduce phosphate absorption. We acquired the rights to PhosLo®, a phosphate binder, in November 2006. We have received approval of PhosLo® in selected European countries. In October 2008, a competitor's generic phosphate binder that competes with PhosLo® was introduced in the U.S. market, which reduced our PhosLo® sales in 2009. In October 2009, we launched a competing authorized generic version of the PhosLo® existing gelcap formulation in the U.S. Since FDA approval in April 2011 of our drug application for Phoslyra®, the liquid formulation of PhosLo®, we have been selling and will continue to sell Phoslyra® in the U.S. market.

        In 2008, we entered into two separate and independent license and distribution agreements, one for certain countries in Europe and the Middle East (with Galenica AG and Vifor (International) AG) and one for the U.S. (with Luitpold Pharmaceuticals Inc. and American Regent, Inc.), to market and distribute intravenous iron products, such as Venofer® (iron sucrose) and Ferinject® (ferric carboxymaltose) (outside of the U.S.). Both drugs are used to treat iron deficiency anemia experienced by non-dialysis Chronic Kidney Disease ("CKD") patients as well as dialysis patients. Venofer® is the leading intravenous iron product worldwide. The first agreement concerns all commercialization activities for these intravenous iron products in the field of dialysis and became effective on January 1, 2009. In North America, a separate license agreement effective November 1, 2008 provides our subsidiary Fresenius USA Manufacturing Inc. ("FUSA") with exclusive rights to manufacture and distribute Venofer® to freestanding (non-hospital based) U.S. dialysis facilities and, in addition, grants FUSA similar rights for certain new formulations of the drug. The U.S. license agreement has a term of ten years and includes FUSA extension options. The international agreement has a term of 20 years.

        In 2009, we entered into separate agreements with AMGEN International to purchase Aranesp and Mimpara and to jointly communicate selected scientific and promotional topics to the physician community. Together with Amgen, we are working to foster new scientific understanding of CKD through the evaluation of our research database with the help of renowned academic advisory committees.

        In December 2010, we announced the expansion of our agreements with Galenica by forming a new renal pharmaceutical company, Vifor Fresenius Medical Care Renal Pharma, ("VFMCRP"), with the intention to develop and distribute products to treat iron deficiency anemia and bone mineral metabolism

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for pre-dialysis and dialysis patients. FMC-AG & Co. KGaA owns 45% of the company which is headquartered in Switzerland. Galenica contributed licenses (or the commercial benefit in the U.S.) to its Venofer® and Ferinject® products for use in the dialysis and pre-dialysis market (CKD stages III to V). Commercialization of both of these products outside the renal field will remain fully the responsibility of Galenica and its existing key affiliates or partners. Galenica also contributed to the new company exclusive worldwide rights for PA21 (excluding Japan, where PA21 will be developed through another partner), a novel iron-based phosphate binder. In July 2012, Galenica announced that PA21 had achieved its primary and secondary endpoint in its phase III trial and that regulatory submissions in the U.S., EU and Switzerland would move forward. On November 27, 2013 FMC and Galencia were notified by the FDA that Velphoro® (PA21) had received U.S. FDA approval for the treatment of hyperphosphatemia in CKD dialysis patients. FMC will market the product on behalf of VFMCRP and plans to launch Velphoro® in the first quarter of 2014. The initial product for the U.S. market will be supplied by an FDA approved, Vifor manufacturing facility while FMC works with a U.S. based contract manufacturer to move the manufacturing to the U.S. in late 2014 or early 2015. The expansion of our agreement in December 2010 allowed Galenica and the Company to work together in the development and commercialization of renal pharmaceuticals for CKD stages III to V in the U.S. and to continue their collaboration in CKD stage V in selected other countries. European antitrust authorities granted approval in October 2011, which allowed VFMCRP to proceed with the targeted expansion of its global operations on November 1, 2011. This approval brought to fruition an agreement that superseded an earlier agreement for certain countries in Europe and the Middle East. Furthermore, in 2012, FUSA renegotiated and further amended the contract originally signed in 2008 with Luitpold Pharmaceuticals, Inc. The original term length of the agreement remained the same.

        In September 2011, we closed an agreement with the Japanese company Toray for co-development in Europe of the compound TRK820 for chronic itch (uremic pruritus). Registration of this drug, which bears an orphan disease indication, is currently pending.

        We estimate that the worldwide market for dialysis drugs used to treat ESRD and CKD (currently vitamin D, iron, potassium binders and phosphate binders) in 2013 was more than $3.0 billion, remaining constant in comparison to the prior year. As part of our integration of new business areas strategy, we intend to continue to integrate the use of dialysis drugs with our existing product technology, dialysis treatment and vascular access.

        In an increasing number of countries, we are required by health care systems and reimbursement requirements to supply pharmaceuticals for many conditions as part of comprehensive treatment packages. See "Regulatory and Legal Matters – Reimbursement." We intend to continue to pursue development and commercialization partnerships with suppliers of branded and unbranded high quality pharmaceutical substances to cover this requirement. In addition, we will increasingly work toward the development of proprietary innovative pharmaceutical solutions that offer additional medical value to dialysis patients.

Customers, Marketing, Distribution and Service

        We sell most of our products to clinics, hospitals and specialized treatment clinics. With our comprehensive product line and years of experience in dialysis, we believe that we have been able to establish and maintain very close relationships with our global clinic customer base. Close interaction between our Sales and Marketing and Research and Development ("R&D") personnel enables us to integrate concepts and ideas that originate in the field into product development. We maintain a direct sales force of trained salespersons engaged in the sale of both hemodialysis and peritoneal dialysis products. Sales and Marketing engages in direct promotional efforts, including visits to physicians, clinical specialists, hospitals, clinics and dialysis clinics, and represents us at industry trade shows. We also sponsor medical conferences and scientific symposia as a means for disseminating scientific or technical information. Our clinical nurses provide clinical support, training and assistance to customers and assist our sales force. We also use outside distributors to provide sales coverage in countries that our internal sales force does not service.

        In our basic distribution system, we ship products from factories to central warehouses which are frequently located near the factories. From these central warehouses, we distribute our dialysis products to regional warehouses. We distribute home hemodialysis and peritoneal dialysis products to the patient at home, and ship hemodialysis products directly to dialysis clinics and other customers. Local sales forces, independent distributors, dealers and sales agents sell all our products.

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

Manufacturing Operations

        We operate state-of-the-art production facilities worldwide to meet the demand for machines, cyclers, dialyzers, solutions, concentrates, bloodlines, and disposable tubing assemblies and equipment for water treatment in dialysis clinics. We have invested significantly in developing proprietary processes, technologies and manufacturing equipment which we believe provide a competitive advantage in manufacturing our products. Our strategically located production and distribution centers help to reduce transport costs. We are using our facilities in St. Wendel, Germany and Ogden, Utah as centers of competence for development and manufacturing. For example, in St. Wendel we developed in-house an automatic bundling machine for processing polysulfone fibers. The machine automatically carries out all steps required to convert hollow fibers for dialyzer production and to create bundles with a fixed number of fibers – the core of the dialyzer. We integrated the first automatic bundling machine into production in 2008. Currently, we have twelve spinning lines that are equipped with these bundling machines.

        We produce and assemble hemodialysis machines and CCPD cyclers in our Schweinfurt, Germany and our Concord, California facilities. We also maintain facilities at our service and local distribution centers in Argentina, Egypt, France, The Netherlands, China, Brazil, and Russia for testing and calibrating dialysis machines manufactured or assembled elsewhere, to meet local end user market needs. We manufacture and assemble dialyzers and polysulfone membranes in our St. Wendel, Germany, L'Arbresle, France, Vrsac, Serbia and Inukai and Buzen, Japan facilities and at production facilities of our joint ventures in Belarus and Japan. At our Ogden, Utah facilities, we manufacture and assemble dialyzers and polysulfone membranes and manufacture PD solutions. We manufacture hemodialysis concentrate at various facilities worldwide, including France, Italy, Great Britain, Spain, Turkey, Serbia, Morocco, Argentina, Brazil, Columbia, Australia, Germany, Canada, Mexico and the U.S. PD products are manufactured in North America, Europe, Latin America, and Asia, with two of our largest plants for production of PD products in Germany and the U.S. In 2013, our worldwide dialyzer production increased 7% as compared to the same period in 2012 and our hemodialysis machines production increased by 3% in 2013 as compared to the same period in 2012. This was mainly driven by additional sales of the series 4008 machines. Additionally, our plant in Reynosa, Mexico is the world's largest (by volume) bloodline manufacturing facility and our facility in Jiangsu, China, which produces bloodlines also is in the pre-production phase of implementing their production line for dialyzers, which began in 2013. In addition, we are pursuing the approval process for manufacture of peritoneal dialysis solutions as well as hemodialysis concentrate in Jiangsu. Our facilities are inspected on a regular basis by national and/or international authorities.

        We have also expanded our dialyzer production capacities in the U.S. (Ogden, Utah), from 37 million to 48 million with an assembly line that went into production in 2012. Additionally, operations began in 2012 for several new production lines and a high-bay storage area. We are also expanding our operations for the production of FX-class premium dialyzers in France and China. The new production lines for FX dialyzers commenced in 2013, mainly in France. The production lines will provide an additional capacity of 18 million dialyzers on an annual basis.

        We operate a comprehensive quality management system in our production facilities. Raw materials delivered for the production of solutions are subjected to infra-red and ultra-violet testing as well as physical and chemical analysis to ensure their quality and consistency. During the production cycle, sampling and testing take place in accordance with applicable quality control measures to assure sterility, safety and effectiveness of the finished products. All process parameters e.g., pressure, temperature and time, required for the various processes are monitored to ensure consistency of unfinished products during the production process. Through monitoring of environmental conditions, particle and bacterial content are kept below permitted limits. We provide regular ongoing training for our employees in the areas of quality control and proper production practice. All production sites follow the Lean Manufacturing approach which in North America and our Schweinfurt plant includes the "Lean Six Sigma" management system. The focus of Lean Manufacturing and Six Sigma is continuous improvement of all manufacturing processes to achieve a very low error rate resulting in better quality production while shortening manufacturing time. Our IMS fulfils ISO 9001:2008 requirements for quality control systems in combination with the ISO norm 14001:2009 for environmental control systems. At the same time, our IMS

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conforms to the requirements for medical devices of ISO norm 13485:2003/AC 2002 and of the Medical Device Directive 93/42/EEC. We have implemented our IMS in all our European production sites. (See also "Regulatory and Legal Matters – Facilities and Operational Regulations" below). All of our production facilities have undergone annual ISO 13485:2003 Quality Systems inspections, maintaining all certifications, with no major non-conformances to the standard being noted.

Environmental Management

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

        We continually seek to improve our production processes for environmental compatibility, which frequently generates cost savings. Our environmentally certified production plants, dialysis clinics and research and development in the European region participate in the Corporate Environment Program, the purpose of which is to improve environmental awareness and ecological efficiency, comply with new environmental regulations and expand the number of units certified under the environmental management standard ISO 14001:2004.

        In some of our dialysis facilities, we establish, depending on the particular facility and circumstance, a priority environmental protection target on which our dialysis clinics concentrate for at least one year. Environmental performance in other dialysis facilities is used as the basis for comparisons and targets. Improvements are implemented on a site-by-site basis after evaluation of the site's performance.

        In our European clinics, we continue to introduce our environmental management system in dialysis clinics and we continue to monitor and assess the management system performance in clinics where it was previously implemented. Currently, dialysis clinics in 13 countries in our European region are certified according to the environmental management standard ISO 14001:2004. We are also working towards ISO 14001:2004 certification for our first dialysis clinic and manufacturing location in North America. We continued to roll out the integrated software solution e-con 5 for the management of eco-controlling data in over 600 clinics. This software is intended to reduce environmental management working time while increasing the eco-controlling data quality and possibilities for data analysis at the place of origin.

        In our North America Segment dialysis clinics, we implemented recycling programs for corrugated materials and hemodialysis machines. Use of heat exchangers enables us to obtain residual heat from water used for industrial purposes, which we use to heat fresh water for dialysis treatment. Our clinics in the North America Segment commenced a reusable sharp containers program in 2009, for which there are currently 137 clinics participating. Targeted environmental performance criteria in other locations include fresh water consumption and improved separation of waste.

Sources of Supply

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

        We focus on further optimizing procurement logistics and reducing purchasing costs. Supplemental raw material contracts for all manufacturers of semi-finished goods will enable us to improve purchasing terms for our complete network. We are continuously intensifying, where appropriate, our use of internet-based procurement tools by purchasing raw materials through special on-line auctions. Our sophisticated routing software enables us to distribute our supplies to best accommodate customer requests while maintaining operational efficiency. Additionally we have an automated replenishment control in our national warehouses that allows the warehouses to be refilled when their inventory reaches a preset defined minimum level and allows us to continue to improve our operational efficiency.

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Patents and Licenses

        As the owner of patents or licensee under patents throughout the world, we currently hold rights in 5,556 patents and patent applications in major markets. Patented technologies that relate to dialyzers include our generation of DiaSafeplus® filters and FX® dialyzers which are the subject of patents and pending patent applications.

        The patents protecting the connector-container system for our biBag bicarbonate concentrate powder container for the 4008 dialysis equipment series expired in 2013; while we expect there to be an impact, we believe the price pressure will be mitigated by our strategic advantages in manufacturing and distribution. The 5008 biBag connector, a substantial part of the connector container system, is covered by further patents and pending patent applications with expiry dates beyond 2020.

        A number of patents and pending patent applications relate to components of the more recent 5008 dialysis equipment series, including, for example, the pump technology, extracorporeal blood pressure measurement and connector system for a modified biBag bicarbonate concentrate container. A number of applications are pending for the North American 2008T HD machine including, for example, the CDX system for the display of medical information directly on the 2008T screen, a wireless wet detector for sensing line disconnect and a U. S. version of the biBag filling system. Applications are also pending relating to our new Liberty® peritoneal dialysis cycler which has a number of innovative attributes such as its multi-channel disposable cassette, dual piston pump and pneumatically locking door. Finally, a large number of new patent applications have been filed related to our new table top portable HD machine and wearable kidney devices in development.

        In 2011 we acquired Hema Metrics LLC's assets related to noninvasive optical measurement of absolute blood parameters (the CRIT-LINE system). We filed several new patent applications for improved blood chambers and related software developed since the acquisition.

        For PD, we hold protective rights for our polyolefine film, Biofine®, which is suitable for packaging intravenous and peritoneal dialysis fluids. Patents have been granted in Australia, Brazil, Canada, Germany, Europe, South Korea, Belarus and the United States. A further patent family describes and claims a special film for peelable, non-PVC, multi chamber bag for peritoneal dialysis solutions. These patents have been granted in Brazil, Europe, Germany, Japan, South Korea and the United States. However, oppositions against the patents in Europe are currently pending.

        We believe that our success will continue to depend significantly on our technology. As a standard practice, we obtain the legal protections we believe are appropriate for our intellectual property. Nevertheless, we are in a position to successfully market a material number of products for which patent protection has lapsed or where only particular features are patented. We believe that even after the expiration of some of our patents, our proprietary know how for the manufacturing of our products and our continuous efforts in obtaining targeted patent protection for newly developed upgraded products will continue to provide us with a competitive advantage. From time to time our patents may be infringed by third parties and in such case we will assert our rights. Initially registered patents may also be subject to invalidation or infringement claims made by competitors in formal proceedings (oppositions, trials, re-examinations, etc.) either in part or in whole. For information regarding patent-related legal proceedings, see Note 20, "Commitments and Contingencies – Legal and Regulatory Matters – Commercial Litigation" in our Consolidated Financial Statements. In addition, technological developments could suddenly and unexpectedly reduce the value of some of our existing intellectual property.

Trademarks

        Our principal trademarks are the name "Fresenius" and the "F" logo, for which we hold a perpetual, royalty-free license from Fresenius SE, our major shareholder and the sole shareholder of our general partner. See Item 7.B, "Related Party Transactions – Trademarks."

Competition

        Our competitors in the sale of hemodialysis and peritoneal dialysis products include Baxter International Inc. (which acquired the hemodialysis product business of Gambro AB in 2013), Asahi Kasei Medical Co. Ltd., Bellco S.r.l., B. Braun Melsungen AG, Nipro Corporation, Nikkiso Co., Ltd., NxStage Medical, Inc., Terumo Corporation, Kawasumi Laboratories Inc., Fuso Pharmaceuticals Industries Ltd., and Toray Industries, Inc.

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Risk Management

        We see risk management as the ongoing task of determining, analyzing and evaluating the spectrum of potential and actual risks in the Company and its environment and, where possible, taking corrective measures. Our risk management system, which is described in more detail below, provides us with a basis for doing so. It enables management to identify at an early stage risks that could jeopardize our growth or going concern, and to take steps to minimize any negative impact. As such, it is an important component of the Company's management and governance.

        Risk management is part of our integrated management system. The main objective is to identify potential risks as early as possible to assess their impact on business activities, where necessary, to take appropriate countermeasures. Opportunities are not covered by the implemented risk management system. The two pillars of our risk management are the corporate controlling function, which is used for the identification and steering of short-term risks, and the internal risk monitoring system, which is typically used for the identification and steering of mid- to long-term risks. In the monitoring system, regional risk managers are responsible for identifying, assessing, and managing potential as well as existing industry- and market-related risks in their region and reporting them to the regional chief financial officers. Twice a year, the regional chief financial officers send their aggregated risk management reports to the central risk management coordinator who consolidates the reports and presents them to the Management Board. The main focus lies with material risks that have a total negative impact of €25 million or more in relation to operating income. The risk management reports contain further information on potential risks. Our Management Board is informed directly and immediately of any newly identified significant risks. The effectiveness of the risk management system is monitored by the Audit and Corporate Governance Committee of the Supervisory Board.

        In addition to risk reporting, traditional reporting to management is an important tool for managing and controlling risks, as well as for taking preventive measures in a timely manner. Therefore, our Management Board is informed on a monthly basis about the industry situation, our operating and non-operating business and the outcome of analyses of our earnings and financial position, as well as of our assets position on a quarterly basis.

        Part of our risk management system is the Global Internal Audit department. The Global Internal Audit department is regularly informed about the results of the risk management system.This department audits a selected number of departments and subsidiaries worldwide each year. The department works according to the internationally accepted standards of the Institute of Internal Auditors. The scope of internal auditing is widespread and involves, among others, the effectiveness of controls over business processes, the reliability of financial reporting and compliance with accounting regulations and internal policies. The Company's locations and units to be audited are determined annually on the basis of a selection model taking various risks into consideration. This annual audit plan is reviewed by the Management Board and approved by the Audit and Corporate Governance Committee of the Supervisory Board. It comprises financial audits of individual balance sheet positions, as well as full audits of all business processes of subsidiaries or business units. All audit reports are presented to the Management Board.

        The Global Internal Audit department is also responsible for monitoring the implementation of measures documented in the reports. The Management Board is informed about the implementation status on a quarterly basis. The Audit and Corporate Governance Committee of the Supervisory Board is also informed of the audit results. In 2013, a total of 39 audits were carried out. These included full-scope audits-reviews of all business processes at the selected Company's sites.

        As a company required to file reports under the Exchange Act, we are subject to the provisions of the Sarbanes-Oxley Act of 2002 and related listing rules of the New York Stock Exchange applicable to foreign private issuers. For further information on this requirement, see Items 15.A. and 15.B, "Disclosure Controls and Procedures" and "Management's annual report on internal control over financial reporting."


Regulatory and Legal Matters

Regulatory Overview

        Our operations are subject to extensive governmental regulation by virtually every country in which we operate including, most notably, in the U.S., at the federal, state and local levels. Although these regulations differ from country to country, in general, non-U.S. regulations are designed to accomplish the same objectives as U.S. regulations governing the operation of dialysis clinics, vascular access centers,

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laboratories and manufacturing facilities, the provision of high quality health care for patients, compliance with labor and employment laws, the maintenance of occupational, health, safety and environmental standards and the provision of accurate reporting and billing for governmental payments and/or reimbursement. In the U.S., some states establish regulatory processes that must be satisfied prior to the establishment of new dialysis clinics and vascular access centers. Outside the U.S., each country has its own payment and reimbursement rules and procedures, and some countries prohibit ownership of healthcare providers or establish other regulatory barriers to direct ownership by foreign companies. In such jurisdictions, we may establish alternative contractual arrangements to provide services to those facilities.

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

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

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

    a non-appealable finding of material violations of U.S. healthcare laws; and

    changes resulting from healthcare reform or other government actions that restrict our operations, reduce reimbursement or reduce or eliminate coverage for particular products or services we provide.

        We must comply with all U.S., German and other legal and regulatory requirements under which we operate, including the U.S. federal Medicare and Medicaid Fraud and Abuse Amendments of 1977, as amended, generally referred to as the "Anti-Kickback Statute", the federal False Claims Act, the federal restrictions on certain physician referrals, commonly known as the "Stark Law", the U.S. Civil Monetary Penalties Law, including the prohibition on inducements to patients to select a particular healthcare provider, U.S. federal rules protecting the privacy and security of patient medical information, as promulgated under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and, as amended by the Health Information Technology for Economic and Clinical Health ("HITECH") Act (enacted as part of the American Recovery and Reinvestment Act of 2009), and other fraud and abuse laws and similar state statutes, as well as similar laws in other countries. The Patient Protection and Affordable Care Act (Pub.L. 111-148), as amended by the Health Care and Education Reconciliation Act (Pub.L. 111-152) (collectively, "ACA") enacted in the U.S. in 2010 and other recent laws expanded the reach of many of these laws and expanded federal enforcement authority. Moreover, there can be no assurance that applicable laws, or the regulations thereunder, will not be amended, or that enforcement agencies or the courts will not make interpretations inconsistent with our own, any one of which could have a material adverse effect on our business, reputation, financial condition and operating results. Sanctions for violations of these statutes may include criminal or civil penalties, such as imprisonment, fines or forfeitures, denial of payments, and suspension or exclusion from the Medicare and Medicaid programs. In the U.S., some of these laws have been broadly interpreted by a number of courts, and significant government funds and personnel have been devoted to their enforcement because such enforcement has become a high priority for the federal government and some states. Our company, and the healthcare industry in general, will continue to be subject to extensive federal, state and foreign regulation, the full scope of which cannot be predicted. In addition, the U.S. Congress and federal and state regulatory agencies continue to consider modifications to healthcare laws that may create further restrictions.

        We maintain a comprehensive worldwide compliance program under the overall supervision of our general counsel and chief compliance officer, who is a member of the General Partner's Management Board. The program includes a compliance staff, a written code of conduct applicable worldwide, training programs, regulatory compliance policies and procedures including corrective action for failure to follow policies, provisions for anonymous reporting of suspected violations of applicable laws or Company policies, and periodic internal audits of our compliance procedures. Nevertheless, we operate many facilities throughout the United States and other countries in which we do business. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies. We rely on our management structure, regulatory and legal resources, and the effective operation of our compliance program to direct, manage and monitor the

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activities of these employees. If our employees, deliberately or inadvertently, were to submit inadequate or incorrect billings to any federally-funded healthcare program, or engage in impermissible conduct with physicians or other referral sources or vendors with which we do business, the actions of such persons could subject us and our subsidiaries to liability under the Anti-Kickback Statute, the Stark Law or the False Claims Act, among other laws. See Note 20, "Legal and Regulatory Matters – Other Litigation and Potential Exposures" of the Notes to our audited consolidated financial statements.

Product Regulation

U.S.

        In the U.S. numerous regulatory bodies, including the Food and Drug Administration ("FDA") and comparable state regulatory agencies impose requirements on certain of our subsidiaries as a manufacturer and a seller of medical devices and drug products under their jurisdiction.

        Pharmaceuticals.    Some of the products our subsidiaries manufacture and/or distribute are subject to regulation under the Federal Food, Drug, and Cosmetic Act of 1938, as amended ("FDCA") and FDA's implementing regulations. They include our peritoneal dialysis and saline solutions, PhosLo® (calcium acetate), Phoslyra® (calcium acetate oral solution), Venofer® (iron sucrose injection, USP), and Velphoro (sucroferric oxyhydroxide). Many of these requirements are similar to those for devices, as described below. We are required to register as an establishment with the FDA, and comply with regulatory requirements governing product approvals, drug manufacturing, labelling promotion, distribution, post market safety reporting and recordkeeping. Our pharmaceutical products must be manufactured in accordance with current Good Manufacturing Practices ("cGMP"). We are required to provide information to the FDA whenever we become aware of a report of an adverse drug experience associated with the use of one of our drug products that is both serious and unexpected, as defined in FDA regulations and guidance. In addition, as with the marketing of our medical devices, in order to obtain marketing approval of our drug products we must satisfy mandatory procedures and safety and efficacy requirements. Furthermore, the FDA prohibits our products division from promoting our pharmaceutical products in a false or misleading manner or for unapproved indications and from otherwise misbranding or adulterating them. Finally, if the FDA believes that a company is not in compliance with applicable drug regulations, it has similar enforcement authorities as those discussed below with respect to medical devices.

        Medical Devices.    Our subsidiaries engaged in the manufacture of medical devices are required to register with the FDA as device manufacturers and submit listing information for devices in commercial distribution. As a manufacturer of medical devices, we are subject to requirements governing premarket approval and clearance, labelling and promotion, medical device adverse event reporting, manufacturing practices, reporting of corrections and removals, and recordkeeping, and we are subject to periodic inspection by the FDA for compliance with these requirements. With respect to manufacturing, we are subject to FDA's Quality System Regulation (21 C.F.R. Part 820), which requires us to manufacture products in accordance with cGMP, including standards governing product design. The medical device reporting regulations require that our products division report to the FDA whenever we receive or become aware of information that reasonably suggests that a device may have caused or contributed to a death or serious injury, or that a device has malfunctioned and a device or similar device would be likely to cause or contribute to a death or serious injury if the malfunction were to recur. In addition, the FDA prohibits our products division from promoting our manufactured products for unapproved or uncleared indications or in an otherwise false or misleading manner.

        In order to clinically test, produce and market certain medical products and other disposables (including hemodialysis and peritoneal dialysis equipment, dialyzers, bloodlines and other disposables) for human use, we must also satisfy mandatory procedures and safety and efficacy requirements established by the FDA or comparable foreign governmental agencies. In the U.S., unless 510(k)-exempt, medical devices generally require approval of a Premarket Approval Application ("PMA") or clearance of a Section 510(k) Premarket Notification ("510(k)") prior to commercial marketing. After approval or clearance to market is given, the FDA, upon the occurrence of certain events, has the authority to withdraw the approval or clearance or require changes to a device, its manufacturing process, or its labelling or may require additional proof that regulatory requirements have been met. Such rules generally require that products be approved or cleared by the FDA as safe and effective for their intended use prior to being marketed.

        PMA approval is based on a determination by FDA that the PMA contains sufficient valid scientific evidence to assure that the device is safe and effective for its intended use(s). Many medical devices do not

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require PMA approval by the FDA, but rather require 510(k) premarket clearance. For these devices, which are usually deemed to pose a moderate risk to patients, in order to obtain marketing clearance, the applicant must demonstrate that the device is as safe and effective or "substantially equivalent" to a legally marketed "predicate" device. Moreover, FDA regulations also require prior approval or clearance for certain modifications to a legally marketed device. In recent years, concerns have been raised that the 510(k) process cannot adequately ensure that medical devices cleared for marketing are safe and effective. At the same time, others have raised concerns that the 510(k) process and the FDA's device premarket review programs generally, are inefficient and unpredictable, and are stifling innovation. Since 2010, the FDA has been evaluating and making improvements to its device premarket review programs, in particular the 510(k) clearance process. The stated goal of these improvements is to achieve regulation that promotes both safety/effectiveness and innovation. Substantially, all of the dialysis products that we manufacture or distribute in the U.S., other than peritoneal dialysis solutions and renal pharmaceuticals, are marketed on the basis of 510(k) clearances. At the present time, regulatory and legislative changes to the 510(k) clearance process continue to be proposed, and we cannot predict whether or to what extent the 510(k) process will be significantly modified or what the effects, if any, of a modified review process for medical devices would be on our dialysis products business.

        If the FDA believes that a company is not in compliance with applicable laws and regulations, it can pursue various regulatory and enforcement actions, including, for example, issuing a warning letter mandating a recall, initiating seizure, or seeking injunction or consent decree. On September 15, 2010, the FDA issued a warning letter to us citing several cGMP deficiencies, in response to which we have been taking corrective action and are subject to re-inspections by the FDA. In any re-inspection the FDA is not limited to reviewing only the processes and procedures that triggered the re-inspection. We are engaged in ongoing remediation efforts and continued dialogue with the FDA regarding remediation.

        On April 6, 2011 the FDA issued to us a warning letter alleging that we marketed certain blood tubing sets without required premarket 510(k) clearance, in response to which we ceased marketing and distributing those blood tubing sets that were the subject of a January 2011 recall. We received 510(k) clearance of the blood tubing set product from the FDA on June 15, 2012 and subsequently recommenced marketing and distribution of these products. In addition, we have completed a comprehensive review of our 510(k) filings and submitted our findings to the FDA, and we continue to work with the FDA regarding effective submission strategies for certain product lines.

        On March 29, 2012, we issued an urgent product notification regarding our NaturaLyte® Liquid and Granuflo® powder product lines. The notification cautioned clinicians that inappropriate prescription of these dialysate products can lead to a high serum bicarbonate level in patients undergoing hemodialysis, which may cause serious adverse health consequences, including death. The FDA classified our voluntary corrective action as a Class I recall, which is the most serious type of recall and involves situations in which there is a reasonable probability that use of these products will cause serious adverse health consequences or death. Wrongful death and personal injury proceedings have been brought alleging various legal theories relating to these products, including that inadequate labelling and warnings caused harm to patients. See Note 19 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies – Commercial Litigation" included in this report.

        On March 6, 2013, the FDA issued a warning letter following a two week inspection of the Ogden, Utah facility. The warning letter alleges two violations of current Good Manufacturing Practice (cGMP) requirements. First, the FDA asserts Fresenius Medical Care North America ("FMCNA") did not conduct adequate design verification studies related to electron beam (E-Beam) sterilized polysulfone dialyzers. Second, the FDA alleges the corresponding design validation of these dialyzers is incomplete. FMCNA has responded to these allegations and is actively working with the FDA to resolve any issues.

        We cannot assure that all necessary regulatory clearances or approvals, including those for new products or product improvements, will be granted on a timely basis, if at all. Delays in or failure to receive clearance or approval, delays in or failures to carry out product recalls or corrective actions under warning letters or other regulatory enforcement actions may materially adversely affect operating results.

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

        The Company sells its dialysis products in over 120 countries. Most countries maintain different regulatory regimes for medicinal products and for medical devices. In almost every country, there are rules regarding the quality, effectiveness, and safety of products and regulating their testing, production, and

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distribution. Treaties or other international law and standards and guidelines under treaties or laws may supplement or supersede individual country regulations.

        Pharmaceuticals.    Some of our products, such as peritoneal dialysis solutions and PhosLo® and Phoslyra®, are considered medicinal products and are, therefore subject to the specific drug law provisions in the various countries. The European Union has issued a directive on medicinal products, No. 65/65/EWG (January 26, 1965), as amended. Each member of the European Union is responsible for conforming its law to comply with this directive. In Germany the German Drug Law (Arzneimittelgesetz) ("AMG"), which implements European Union requirements, is the primary regulation applicable to medicinal products.

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

        The provisions of the AMG and a statutory order, Arzneimittel- und Wirkstoffherstellungs-verordnung, also contain special requirements for the manufacture of medicinal products. The production of medicinal products requires a corresponding manufacturing license which is granted by the competent authorities of the relevant Member State for a specific manufacturing facility and for specific medicinal products and forms of medicinal products. The manufacturing license is granted only if the manufacturing facility, production techniques and production processes comply with the national drug law requirements, with the principles and guidelines of EU-good manufacturing practice ("EU-GMP") as well as the terms of the particular marketing authorization. A manufacturer of medicinal products must, inter alia, employ pharmacists, chemists, biologists, or physicians responsible for the quality, safety and efficacy of the medicinal products. The manufacturer must name several responsible persons: a Qualified Person (QP) for the release of the medicinal product into the market possessing the expert knowledge specified by the AMG, a head of production, a head of quality control, and, if the manufacturer markets the medicinal products itself, a commissioner for the so-called graduated plan (Stufenplanbeauftragter for Germany, a Qualified Person for Pharmacovigilance (QPP) for the European Union) and an information officer. It is the responsibility of the QP to ensure that each batch of the medicinal products is produced and examined in compliance with the statutory provisions of the AMG. The QPP must, among other things, collect and assess any reported risks associated with the medicinal products and coordinate any necessary measures according to German Drug Law. The QPP, residing within the European Economic Area, is responsible for pharmacovigilance and the establishment of a system for handling of all suspected adverse reactions that need to be reported. The information officer is in charge of the scientific information relating to the medicinal products. All these persons may be held personally liable under German criminal law for any breach of the AMG.

        International guidelines also govern the manufacture of medicinal products and, in many cases, overlap with national requirements. Material regulations concerning manufacture and registration related to medicinal products have been issued by the European Commission and the International Conference on Harmonization of Technical Requirements for Human Use ("ICH"). In particular, the Pharmaceutical Inspection Co-operation Scheme ("PIC/S") an international treaty, contains rules binding many countries in which medicinal products are manufactured. Among other things, the European Commission, PIC/S and

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ICH establish requirements for GMP which are then adopted at the national level. Another international standard, which is non-binding for medicinal products, is the ISO9001:2008 system for assuring quality management system requirements. This system has a broader platform than EU-GMP, which is more detailed and is primarily acknowledged outside the field of medicinal products, e.g., with respect to medical devices.

        Medical Devices.    In the past, medical devices were subject to less stringent regulation than medicinal products in some countries. In the last decade, however, statutory requirements have been increased. In the EU, the requirements to be satisfied by medical devices are laid down in three European directives to be observed by all Member States and all Member States of the European Economic Area ("EEA"), as well as all future accession states: (1) Directive 90/385/EEC of June 20, 1990 relating to active implantable medical devices ("AIMDs"), as last amended ("AIMD Directive"), (2) Directive 93/42/EEC of June 14, 1993 relating to medical devices, as last amended ("MD Directive"), and (3) Directive 98/79/EC of October 27, 1998 relating to in vitro diagnostic medical devices as last amended ("IVD Directive"). In addition, Directive 2001/95/EC of December 3, 2001, as last amended, concerning product safety should be noted. The MD Directive, has been amended, 2007/47/EC, with the intention to achieve improvements, including in the following areas: clinical assessment by specification of the requirements in more detail; monitoring of the devices after their placing on the market; and decision making by enabling the Commission to make binding decisions in case of contradictory opinions of states regarding the classification of a product as a medical device. In the future, the industry will face increasing requirements for medical devices. In September 2012, the first draft of a new regulation on medical devices was published by the European Commission. In October 2013, this draft, supplemented by additional amendments, was voted on by the European Parliament and subsequently published. It provided for further tightening of regulations for the manufacture of medical devices, as it applies to both manufacturers and accredited organizations within the EU ("Notified Bodies") for assessing product standards. The final regulation is expected to replace the MD Directive by approximately 2015.

        According to the directives relating to medical devices, the CE mark (the abbreviation of Conformité Européenne signifying that the device complies with all applicable requirements) shall serve as a general product passport for all Member States of the EU and the EEA. Upon receipt of a CE certificate for a product according to the applicable conformity assessment procedure, e.g. a certified full quality management system for medical devices according to ISO13485:2012, and the documented declaration and proof of conformity of our products to the harmonized European norms (Declaration of Conformity), we as the legal manufacturer are able to mark products as being in compliance with the European Community ("EC") requirements. If able to do so, the manufacturer has to put a "CE" mark on the products. Medical devices that do not bear the "CE" mark cannot be imported, sold or distributed within the EC.

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

        The conformity assessment procedures for Class I devices with a low degree of invasiveness in the human body (e.g. devices without a measuring function that are not subject to any sterilization requirements), can be made under the sole responsibility of the manufacturer by submitting an EC declaration of conformity (a self-certification or self-declaration). For Class IIa devices, the participation of a Notified Body is mandatory for the production phase. Devices of classes IIb and III involving a high risk potential are subject to inspection by the Notified Body not only in relation to their manufacture (as for class IIa devices), but also in relation to their specifications and design. Class III is reserved for the

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most critical devices the marketing of which is subject to an explicit prior authorization with regard to their conformity. In risk categories IIa, IIb and III, the manufacturer can make use of several different conformity assessment modules.

        To maintain the high quality standards and performance of our operations, we have subjected our entire European business to the most comprehensive procedural module, which is also the fastest way to launch a new product in the European Union. This module requires the certification of a full quality management system by a Notified Body charged with supervising the quality management system from design, manufacture, and distribution, to after sales service.

        Our Series 4008 dialysis machines and their therapy modifications, our 5008 dialysis machine and its accessories and devices, our Sleep-safe cycler for automated PD treatment, the multiFiltrate system, and our other active medical devices distributed in the European market, as well as our dialysis filters and dialysis tubing systems and accessories, all bear the "CE" mark. We expect to continue to obtain additional certificates for newly developed products or product groups.

        Sales of Dialysis Products to Iran.    The Company is committed to compliance with applicable export control and economic sanctions laws and regulations and has in place comprehensive policies and procedures in this regard. The Company has allocated significant resources to design, implement and maintain a robust compliance program specific to the Company's U.S. and non-U.S. activities. At the same time, the Company's dedication to providing its life-saving dialysis products to patients and sufferers of end-stage renal disease extends worldwide, including conducting humanitarian-related business with distributors in Iran in compliance with applicable law. In particular, the Company's product sales to Iran from Germany are not subject to the EU's restrictive measures against Iran established by EU Council Regulations No. 267/2012 of March 23, 2012 as last amended by the EU Council Regulation No. 42/2014 of January 20,2014, as the Company's products sold to Iran do not fall within the scope of the EU sanctions and none of the end users or any other person or organization involved is listed on the relevant EU sanctions lists. Because the Company's sales to Iran were made solely by its German subsidiaries and do not involve products of U.S. origin or incorporating U.S. content, the sales are not subject to the Iranian Transactions and Sanctions Regulations, 31 C.F.R Part 560 ("ITSR"), and are not eligible for licenses from the U.S. Treasury Department's Office of Foreign Assets Control ("OFAC") pursuant to the Trade Sanctions Reform and Export Enhancement Act of 2000. Also, ITSR § 560.215(a) is not applicable in the present case because the Company does not have a U.S. parent company and is not in any other way owned or controlled by a United States person, and the Company's affiliates involved in Iran-related transactions are not owned or controlled by a United States person. That the Company has a U.S. subsidiary does not cause the ITSR to apply to the Company's Iran-related transactions (because the sales by the Company's non-U.S. affiliates are outside the scope of ITSR §560.215(a)). In any case, OFAC's public guidance provides that sales of medical devices to Iran by non-U.S. companies are generally subject to humanitarian exceptions under U.S. sanctions targeting Iran.

        During the year ended December 31, 2013, the Company sold approximately $11.2 million of dialysis products to independent Iranian distributors and other foreign distributors for resale, processing and assembling in Iran. The products included fibre bundles, hemodialysis concentrates, dialysis machines and parts, and related disposable supplies. The sales of these products generated approximately $7.1 million in operating income. During 2013, we also paid approximately $25 thousand in transportation costs for which were mostly reimbursed by the distributors. All such sales were made by the Company's German subsidiaries. Based on information available to the Company, the Company believes that most if not all products were eventually sold to hospitals in Iran through state purchasing organizations affiliated with the Iranian Ministry of Health and were therefore sales to the "Government of Iran" as defined in ITSR § 560.304. In addition, during 2013, the Company received payments totalling €4.8 million for dialysis machines, spare parts and related disposable supplies sold to Iranian customers in 2010. The approval and notification procedures with the German Federal Central Bank (Deutsche Bundesbank) for receiving the payments under European Union sanctions law are conducted by the Company's German banks in close coordination with the Company. The Company's 2013 sales to Iran represent 0.10% of its total revenues. The Company has no subsidiaries, affiliates or offices, nor does it have any direct investment or own any assets, in Iran. In light of the humanitarian nature of its products and the patient communities that benefit from our products, the Company expects to continue selling dialysis products to Iran, provided such sales continue to be permissible under applicable export control and economic sanctions laws and regulations.

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Environmental Regulation

        We are subject to a broad range of federal, foreign, state and local laws and regulations relating to pollution and the protection of the environment. These laws regulate, among other things, the discharge of materials into the environment, the handling and disposal of wastes, remediation of contaminated sites and other matters relating to worker and consumer health, and safety and to the protection of the environment. In addition, the Company uses substances regulated under U.S. and European environmental laws, primarily in manufacturing and sterilization processes. Noncompliance with these regulations can result in significant fines or penalties or limitations on our operations. The applicable environmental, health and safety laws and regulations, and any changes to them or their enforcement, may require us to make material expenditures with respect to ongoing compliance with or remediation under these laws and regulations or require that we modify our products or processes in a manner that increases our costs or reduces revenues. While it is difficult to quantify, we believe the ongoing impact of compliance with environmental protection laws, rules and regulations will not have a material impact on the Company's financial position or results of operations.

        An Environmental Management System ("EMS") based on ISO 14001:2004 has been established in our main European production plants and in a high number of dialysis clinics in the European region. Compliance with environmental laws and regulations is a core objective of our EMS. Internal and external audits are organized and performed to verify compliance with the EMS requirements and applicable environmental laws and regulations.

Facilities and Operational Regulation

U.S.

        Federal, state and local regulations (implemented by CMS, FDA, the Occupational Health and Safety Administration ("OSHA"), the Drug Enforcement Administration, and state departments or boards of public health, public welfare, medicine, nursing, pharmacy, and medical assistance, among others) require us to meet various standards relating to, among other things, the management, licensing, safety, security and operation of facilities (including, e.g., laboratories, pharmacies, and clinics), personnel qualifications and licensing, the maintenance of proper records, equipment, and quality assurance programs, and the dispensing, storage, and administration of controlled substances. All of our operations in the U.S. are subject to periodic inspection by federal, state and local agencies to determine if the operations, premises, equipment, personnel and patient care meet applicable standards. To receive Medicare/Medicaid reimbursement, our dialysis clinics, vascular access centers, renal diagnostic support business and laboratories must be certified by CMS. While all of our entities that furnish Medicare or Medicaid services maintain and renew the required certifications, it is possible that any such entity could lose or be delayed in renewing a certification, which could have a material adverse effect on our business, financial condition, and results of operations.

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

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

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

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

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

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

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

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

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

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

Reimbursement

        As a global company delivering dialysis care and dialysis products, we are represented in more than 120 countries worldwide. Consequently, we face the challenge of addressing the needs of a wide variety of stakeholders, such as patients, customers and payors in very different economic environments and healthcare systems.

        Healthcare systems and reimbursement structures for ESRD treatment vary significantly by country. In general, the government (in some countries in coordination with private insurers) or social insurance programs pay for health care and finances their payments through taxes and other sources of government income, from social security contributions, or a combination of those sources. However, not all healthcare systems provide for dialysis treatment. In some developing countries, only limited subsidies from government, social insurances or charitable institutions are available, and dialysis patients must finance all or substantially all of the cost of their treatment out of pocket. Irrespective of the funding structure, in some countries patients in need of dialysis do not receive treatment on a regular basis but rather when the financial resources allow it.

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U.S.

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

        The Medicare and Medicaid programs are the largest single source of dialysis services revenues from dialysis treatment. Approximately 53% of North America Segment dialysis services revenues for 2013 (amounting to 32% of our worldwide revenue) were for services rendered patients covered by Medicare's ESRD program and Medicaid. In order to be eligible for reimbursement by Medicare, ESRD facilities must meet conditions for coverage established by CMS.

        Medicare pays as the primary insurer for Medicare-eligible individuals under some circumstances. For details, see "– Coordination of Benefits" below. For Medicare-primary patients, Medicare pays 80% of the prospective payment amount for the ESRD PPS items and services. The beneficiary or third-party insurance payors (including employer-sponsored health insurance plans, commercial insurance carriers and the Medicaid program) on behalf of the beneficiary are responsible for paying the beneficiary's cost-sharing obligations (typically the annual deductible and 20% co-insurance), subject to the specific coverage policies of such payors. Each third-party payor, including Medicaid, makes payment under contractual or regulatory reimbursement provisions that may or may not cover the full 20% co-payment or annual deductible. Where the beneficiary has no third-party insurance or the third-party insurance does not fully cover the co-payment or deductible, the beneficiary is responsible for paying the co-payments or the deductible, which we frequently cannot fully collect despite collection efforts. In some states, Medicaid does not fully cover the cost-sharing obligations of Medicare-Medicaid dually eligible individuals, and we are precluded from collecting directly from these beneficiaries. Under an advisory opinion from the Office of the Inspector General of the Department of Health and Human Services, subject to specified conditions, we and other similarly situated providers may make contributions to a non-profit organization that has created a program to subsidize premium payments for supplemental medical insurance and/or "Medigap" insurance on behalf of indigent ESRD patients, including some of our patients.

        Vascular Care.    Dialysis requires access to the bloodstream, which is accomplished by catheters, grafts, or arteriovenious fistulas. Fresenius Vascular Care, Inc. ("FVC") owns and/or manages a number of vascular access centers located in the U.S., which provide interventional services for the maintenance of ESRD patients' vascular access. Maintaining the patency of a patient's vascular access is an ongoing challenge and may occasionally require arthroplasty or other interventional services. In addition, the vascular access centers provide services to address peripheral artery disease, which is common in dialysis patients. For Medicare patients, who comprise the largest patient group served by FVC, these services are paid under Medicare's physician fee schedule. CMS, usually acting in response to recommendations from the American Medical Association's Relative Value Scale Update Committee, may revise the relative value units (a measure of the cost, complexity and risk of providing a specific healthcare service) and hence the payment rates of services paid under this fee schedule. In addition, all payment amounts under this fee schedule are subject to updates determined in part by the Medicare program sustainable growth rate ("SGR") provision. The SGR seeks to limit annual increases in Medicare program costs to no more than the annual increase in the nation's gross domestic product.

        Medicaid Rebate Program and Other Government Drug Pricing Program Requirements.    Manufacturers of certain drugs that are covered by the Medicaid program or that are reimbursed by the Medicare program are subject to various price determination and reporting requirements under federal statutes, including the Medicaid and Medicare statutes as well as the Public Health Service Act ("PHSA") and the Veterans Health Care Act ("VHCA"). Compliance with the Medicaid rebate statute, the VHCA, the Medicare statute, and Section 340B of the PHSA requires us to calculate and/or report a number of different pricing metrics (e.g., Average Manufacturer Price ("AMP"), Best Price ("BP"), Average Sales Price ("ASP"), Federal Ceiling Price ("FCP"), non-federal average manufacturer price ("Non-FAMP"), and 340B ceiling price) to federal authorities responsible for monitoring and enforcing drug manufacturer compliance with federal law and policy.

        We participate in the federal Medicaid rebate program established by the Omnibus Budget Reconciliation Act of 1990, as well as several state supplemental rebate programs. We make our pharmaceutical products available to authorized users of the Federal Supply Schedule ("FSS") of the General Services Administration under an FSS contract negotiated by the department of Veterans Affairs ("VA"). Under our license to market and distribute the IV Iron medication Venofer® to freestanding

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dialysis clinics, we also are considered, for statutory price reporting purposes, to be the manufacturer of Venofer® (when sold by us under one of our national drug codes ("NDCs")), which is reimbursed under Part B of the Medicare program. Our products also are subject to a federal requirement that any company participating in the Medicaid rebate or Medicare program extend discounts comparable to the rebates paid to State Medicaid agencies to qualified purchasers under the Public Health Services ("PHS") pharmaceutical pricing program managed by HHS (also known as the "340B program" by virtue of the section of the PHSA that created the program). The PHS pricing program extends these deep discounts on drugs to a variety of community health clinics and other entities that receive health services grants from the PHS, as well as hospitals that serve a disproportionate share of poor Medicare and Medicaid beneficiaries. ACA expanded the 340B program to include additional providers.

        Under the Medicaid rebate program, we pay a rebate to each state Medicaid program based upon sales of our covered outpatient drugs that are separately reimbursed by those programs. The ACA increased the minimum federal Medicare rebate percentages, effective January 1, 2010. Rebate calculations are complex and, in certain respects, subject to interpretations of law, regulation, or policy guidance by us, government or regulatory agencies and the courts. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current AMP and BP for our pharmaceutical products. The VHCA imposes a requirement that the prices we charge to certain federal entities under the FSS must be no greater than the FCP, which is determined by applying a statutory discount to the non-FAMP charged to non-federal customers. Because the amount the government pays to reimburse the cost of a drug under Part B of the Medicare program is ordinarily based on the drug's ASP, additional price calculation and reporting obligations are imposed on the manufacturers of Part B drugs under that program. Since Venofer® is a Part B drug (i.e., one ordinarily administered incident to a physician service), we are responsible for compiling and utilizing a wide range of sales data elements to determine the ASP of Venofer® marketed under our NDC, and reporting it to CMS. We are subject to specific ASP reporting obligations with respect to our Venofer® sales under a consent order issued by the Federal Trade Commission in October 2008 in connection with establishment of our licensing and distribution arrangements with Galenica and Luitpold (File No. 081-0146) described under "Business Overview – Dialysis Products – Renal Pharmaceuticals." The Medicare ESRD PPS system incorporated payment for Venofer® at most dialysis facilities starting January 1, 2011. Because a small fraction of dialysis facilities elected a four-year transition to the new system, Medicare paid separately for a gradually diminishing proportion of the use of the drug in these facilities until December 31, 2013.

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

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

        First, payment for most tests is included in the ESRD PPS bundled rate paid to dialysis centers. The centers obtain the laboratory services from laboratories and pay the laboratories for the services. In accordance with industry practice, Spectra usually provides such testing services under capitation agreements with its customers pursuant to which it bills a fixed amount per patient per month to cover the laboratory tests included in the ESRD PPS rate at the frequencies designated in the capitation agreement.

        Second, the few laboratory tests performed by Spectra for Medicare beneficiaries that are not included in the ESRD PPS bundled rate are billed separately to Medicare. Such tests are paid at 100% of the Medicare clinical laboratory fee schedule amounts, which vary across different geographic areas but which cannot exceed national ceilings on payment rates, called national limitation amounts ("NLAs"). Medicare updates the payment rates to reflect inflation by the change in consumer price index, subject to certain reductions. The ACA imposed a 1.75 percentage point reduction from the rate of change in the consumer price index for calendar years 2011 to 2015 together with a "productivity adjustment," expected to be slightly above 1 percentage point, applicable (with some restrictions) for years starting with 2011. In addition, the Middle Class Tax Relief and Job Creation Act of 2012 rebased payment amounts under the clinical laboratory fee schedule, reducing them by two percent effective January 1, 2013, and the sequester resulting from the Budget Control Act of 2011 produced an additional cut of two percent effective April 1, 2013.

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        Erythropoietin stimulating agents.    ESAs, including Epogen®, and Aranesp® are used for anemia management of patients with renal disease. ESAs are included in the bundled payment under the ESRD PPS.

        The amount of ESA that is appropriate for a patient varies by several factors, including the severity of the patient's anemia and the patient's clinical response to the ESA. Anemia severity is commonly monitored by measuring a patient's hematocrit, an indicator of the proportion of red blood cells in a patient's whole blood, or by evaluating a patient's hemoglobin level. Until recently, product labels for ESAs recommended dosing to achieve and maintain hemoglobin levels within the range of 10 to 12 grams/deciliter (g/dl) in patients with ESRD. In 2011 the FDA recommended more conservative dosing guidelines for ESAs, including EPO, when used to achieve a normal or nearly normal hemoglobin level in ESRD patients, due to the increased risks of cardiovascular events such as stroke, thrombosis and death. The recommendation is to initiate ESA treatment when the patient's hemoglobin level is less than 10 g/dcl and reduce or interrupt the dose of ESA if the patient's hemoglobin level approaches or exceeds 11 g/dcl. The recommendation, which was added to the "black-box" warning on ESA packages and the package insert, states that for each patient, therapy should be individualized, using the lowest ESA dose possible to reduce the need for red blood cell transfusions.

        Any of the following changes relating to ESAs could adversely affect our business, and results of operations, possibly materially:

    an interruption in the supply of ESAs;

    material increases in utilization or the cost of ESAs without offsetting increases in the ESRD PPS reimbursement rate; or

    reduction by the manufacturer of ESAs of the amount of overfill in the ESA vials.

        Medicare's ESRD Prospective Payment System.    With the enactment of the Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA"), Congress mandated the development of an expanded ESRD bundled payment system for services furnished on or after January 1, 2011. Under the ESRD PPS, CMS reimburses dialysis facilities with a single payment for each dialysis treatment, inclusive of (i) all items and services included in the former composite rate, (ii) oral vitamin D analogues, oral levocarnitine (an amino acid derivative) and all ESAs and other pharmaceuticals (other than vaccines) furnished to ESRD patients that were previously reimbursed separately under Part B of the Medicare program, (iii) most diagnostic laboratory tests and (iv) certain other items and services furnished to individuals for the treatment of ESRD. ESRD-related drugs with only an oral form, including PhosLo®, are expected to be reimbursed under the ESRD PPS starting in January 2016 with an adjusted payment amount to be determined by the Secretary of Health and Human Services to reflect the additional cost to dialysis facilities of providing these medications. The base ESRD PPS payment is subject to case mix adjustments that take into account individual patient characteristics (e.g., age, body surface area, body mass, time on dialysis) and certain co-morbidities. The base payment is also adjusted for (i) certain high cost patient outliers due to unusual variations in medically necessary care, (ii) disparately high costs incurred by low volume facilities relative to other facilities, (iii) provision of home dialysis training and (iv) wage-related costs in the geographic area in which the provider is located.

        The ESRD PPS payment amounts are subject to annual adjustment based on increases in the costs of a "market basket" of certain healthcare items and services less a productivity adjustment. On November 22, 2013, CMS issued the final rule regarding the 2014 ESRD PPS rate pursuant to which the base rate was reduced from $240.36 to $239.02 for 2014. This change reflects (a) an increase in the ESRD bundled market basket of 3.2%, reduced by an estimated multifactor productivity adjustment of 0.4%; (b) the application of a wage index budget neutrality factor and a home dialysis training add-on budget neutrality factor; and (c) the application of a portion ($8.16) of an overall reduction in reimbursement under the ESRD PPS mandated by the American Taxpayer Relief Act of 2012 ("American Taxpayer Relief" or "ATRA") to account for a decrease in the historical utilization of certain ESRD-related drugs and biologicals from 2007 to 2012.See "– Budget Control Act and American Taxpayer Relief Act" below.

        In addition, payments to Medicare providers, including dialysis facilities and vascular access centers, are subject to automatic across-the-board spending cuts, or sequestration, for years 2013 to 2023, pursuant to the Budget Control Act of 2011, as amended by the Bipartisan Budget Act of 2013, unless Congress changes the law. For Medicare, sequestration is limited to two percent of Medicare's payments, except in FY 2023 when the cap will be raised to 2.9 percent for the first half of the year and lowered to 1.11 percent for the second half of the year.

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        The ESRD PPS's quality incentive program ("QIP"), initially focusing on anemia management and dialysis adequacy, began affecting payments for dialysis services in 2012. Dialysis facilities that fail to achieve the established quality standards have payments for a particular year reduced by up to 2 percent, based on a year's performance. In the November 2011 final rule, CMS established the quality measures for payment year 2013, which focus on anemia management and dialysis adequacy. For the 2014 payment year, CMS has adopted four additional measures to determine whether dialysis patients are receiving high quality care. The new measures include (i) prevalence of catheter and A/V fistula use; (ii) reporting of infections to the Centers for Disease Control and Prevention; (iii) administration of patient satisfaction surveys; and (iv) monthly monitoring of phosphorus and calcium levels. The 2014 QIP payment adjustment will be based on performance in 2012. For payment year 2015, CMS has continued all of the 2014 QIP measures except URR dialysis adequacy, expanded the scope of infection reporting and mineral metabolism reporting, and added four new measures. Payment year 2015 measures consist of three new clinical measures (hemodialysis adequacy (adult patients), hemodialysis adequacy (pediatric patients) and peritoneal dialysis adequacy), and one new reporting measure (anemia management reporting). For payment year 2016, CMS has continued all of the 2015 QIP measures and added two new clinical measures (proportion of patients with hypercalcemia and dialysis-related infections reported to the Center for Disease Control and Prevention's National Health Safety Network by ESRD facilities treatment patients on an in-center basis).

        The ESRD PPS resulted in a lower Medicare reimbursement rate on average as a result of the above measures by CMS, at nearly all of our U.S. dialysis facilities that elected to be fully subject to the ESRD PPS starting on January 1, 2011. We mitigated the impact of the ESRD PPS with two broad measures. First, we worked with medical directors and treating physicians to make clinical protocol changes used in treating patients consistent with the QIP and good clinical practices, and we negotiated pharmaceutical acquisition cost savings. In addition, we have achieved greater efficiencies and better patient outcomes by introducing new initiatives to improve patient care upon initiation of dialysis, increase the percentage of patients using home therapies and achieve additional cost reductions in our clinics. For information regarding the impact of ESRD PPS and the above implementation plan on our business, see the discussion of our North America Segment in Item 5, "Operating and Financial Review and Prospects – Financial Condition and Results of Operations."

        Any significant decreases in Medicare reimbursement rates could have material adverse effects on our provider business and, because the demand for products is affected by Medicare reimbursement, on our products business. To the extent that increases in operating costs that are affected by inflation, such as labor and supply costs, are not fully reflected in a compensating increase in reimbursement rates, our business and results of operations may be adversely affected.

        On February 4, 2013, CMS announced plans to test a new Comprehensive ESRD Care Model and issued a solicitation for applications. CMS initially proposed to work with up to 15 healthcare provider groups comprised of dialysis clinics and nephrologists, also known as ESRD Seamless Care Organizations ("ESCOs"), to test a new system of payment and care delivery that seeks to deliver better health outcomes for ESRD patients while lowering CMS's costs. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and reimburse CMS a share of any such increases. Organizations must apply and be approved by CMS to participate in the program. In August 2013, we submitted an application to participate in the program as an ESCO. Following submission of our application, CMS announced that it would suspend review of all applications and reopen its request for application in the winter of 2014 to solicit additional participation and respond to stakeholder feedback. At such time, we will review CMS' revisions and determine whether to apply to the revised program.

        Effective February 15, 2011, the Department of Veterans Affairs ("VA") adopted payment rules which reduced its payment rates for non-contracted dialysis services to coincide with those of the Medicare program. As a result of the enactment of these new rules, we have experienced variability in our aggregated VA reimbursement rates for contracted and non-contracted services. In addition, we may also experience reductions in the volume of VA patients treated in our facilities.

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

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        Patients who are covered by Medicare and are also covered by an employer group health plan ("EGHP") are subject to a 30-month coordination period during which the EGHP is the primary payor and Medicare the secondary payor. During this coordination period the EGHP pays a negotiated rate or in the absence of such a rate, our standard rate or a rate defined by its plan documents. The EGHP payments are generally higher than the Medicare payment. EGHP insurance, when available, will therefore generally cover as the primary payor a total of 33 months, the 3-month waiting period plus the 30-month coordination period. Any significant decreases in EGHP reimbursement rates could have material adverse effects on our provider business and, because the demand for products is affected by provider reimbursement, on our products business.

        Budget Control Act and American Taxpayer Relief Act.    On August 2, 2011, the U.S. Budget Control Act of 2011 ("Budget Control Act") was enacted, raising the U.S.'s debt ceiling and putting into effect a series of actions for deficit reduction. Automatic across-the-board spending cuts over nine fiscal years (2013-2021), projected to total $1.2 trillion for all Federal government programs, were scheduled to go into effect on January 2, 2013. Pursuant to the American Taxpayer Relief Act, which was enacted on January 3, 2013, these reductions went into effect on March 1, 2013. These reductions would be limited to one adjustment of no more than two percent through 2021. Reductions to Medicare payments under Budget Control Act's cuts are independent of annual inflation update mechanisms, such as the market basket update pursuant to the ESRD PPS. In addition to delaying the Budget Control Act's automatic spending reductions for several months, the American Taxpayer Relief Act also directed CMS to reduce the ESRD PPS payment rate, effective January 1, 2014, to account for changes in the utilization of certain drugs and biologicals that are included in the ESRD PPS. In making such reduction, the law requires CMS to use the most recently available pricing data for such drugs and biologicals. On November 22, 2013, CMS issued the final rule regarding the 2014 ESRD PPS rate. The base rate per treatment was reduced from $240.36 to $239.02 for 2014. This change reflects (a) an increase in the ESRD bundled market basket of 3.2%, reduced by an estimated multifactor productivity adjustment of 0.4%; (b) the application of a wage index budget neutrality factor and a home dialysis training add-on budget neutrality factor; and (c) the application of a portion ($8.16) per treatment of a reduction in reimbursement to account for a decrease in the historical utilization of certain ESRD-related drugs and biologicals from 2007 to 2012. As set forth in the November 2013 final rule, CMS will phase in the ATRA reduction, which CMS estimates will total $29.93 per treatment, over three to four years. CMS intends that the portion of the drug utilization adjustment mandated by ATRA that will be applied in 2014 and 2015 will largely offset the net market basket increases in average payments to ESRD facilities, resulting in essentially unchanged reimbursement rates from 2013 to 2015. In 2016, CMS will re-evaluate whether to apply the balance of the drug utilization adjustment mandated by ATRA over the subsequent one or two years.

        Possible future legislation.    In the current legislative environment, increases in government spending may need to be accompanied by corresponding offsets. For example, the Budget Control Act did not address reductions in physician payments mandated by the sustainable growth rate ("SGR"). The Middle Class Tax Relief and Job Creation Act of 2012 delayed implementation of these reductions until December 31, 2012 and the American Taxpayer Relief Act further delayed them until December 31, 2013. A cut of approximately 20.1 percent in physician fees will ensue unless Congress acts, as it has in the past, to prevent it. In order to reduce or eliminate SGR physician payment reductions and not adversely affect deficit reduction, Congress would have to reduce other spending (or raise revenues). In addition, budget and debt ceiling deliberations may result in further reductions in spending. We cannot predict whether other reductions in Medicare or Medicaid spending would be required.

        Possible Changes in Statutes or Regulations.    Further legislation or regulations may be enacted in the future that could substantially modify or reduce the amounts paid for services and products offered by us and our subsidiaries. It is also possible that statutes may be adopted or regulations may be promulgated in the future that impose additional eligibility requirements for participation in the federal and state healthcare programs. Such new legislation or regulations could, depending upon the detail of the provisions, have positive or adverse effects, possibly material, on our businesses and results of operations. See "Risk Factors – Risks Relating to Litigation and Regulatory Matters – Proposals for healthcare reform could decrease our revenues and operating profit," and "– Healthcare Reform" below.

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

        As a global company delivering dialysis care and dialysis products in more than 120 countries worldwide, we face the challenge of addressing the needs of dialysis patients and customers in widely varying economic and healthcare environments.

        In the major European and British Commonwealth countries, healthcare systems are generally based on one of two funding models. The "Bismarck system", is based on mandatory employer and employee contributions dedicated to healthcare financing. The "Beveridge system", provides a national healthcare system financed by taxes. The healthcare systems of countries such as Germany, Japan, France, Belgium, Austria, Czech Republic, Poland, Hungary, Turkey and the Netherlands are based on the Bismarck-type system. Countries such as the United Kingdom, Canada, Denmark, Finland, Portugal, Sweden and Italy established their national health services using the Beveridge-type system. For information on the distribution of clinic ownership in various countries in which we operate, see "Renal Industry Overview – Dialysis Treatment Options for ESRD," above. However, during the last decade, healthcare financing under many social security systems has also been significantly subsidized with tax money.

        In Asia-Pacific, tax-based funding is available in Australia, New Zealand, Hong Kong, Macau, Malaysia, South Korea, Taiwan and Thailand. Japan and the Philippines run a Bismarck-style system. Singaporeans contribute to a mandatory medical savings plan that can be used to cover hospital costs and may receive a limited amount of tax-based subsidies to cover catastrophic illnesses. China aims for universal coverage by 2020 by enrolling patients in various mixed social insurance and taxation-based schemes. Most other countries provide little or no funding for ESRD patients.

        Remuneration for ESRD treatment widely differs between countries. There are three main types of reimbursement modalities: national budget allocation, reimbursement based on fee-for-service and a flat periodic rate. In some cases, the reimbursement modalities also vary within the same country depending on the type of healthcare provider (public or private). Budget allocation is a reimbursement modality used mainly for public providers in most of the European countries where the funding is based on taxation and in some of the countries where it is based on social security. Fee for service is still the most common reimbursement modality for private providers in all European and Asia-Pacific countries (with exceptions, such as Germany, where reimbursement to private providers is based on a weekly flat rate) and for public providers in countries where the funding system is based on social security payments.

        Treatment components included in the base reimbursement rate may vary from country-to-country or even within countries, depending on the structure and cost allocation principles. In the highly integrated reimbursement models for dialysis, also often referred to as "bundled" reimbursement, (applicable e.g., in Portugal, Ukraine, Taiwan and South Korea) the dialysis reimbursement rate covers all – or almost all – treatment-related components, including the dialysis session, laboratory services and ESAs. Under such reimbursement models, the amount of reimbursement can depend on the fulfilment of specified treatment results and quality control parameters by the dialysis services that are provided. In such systems, the therapeutic goals include, among others, the adequacy of dialysis, targets for haemoglobin levels, bone metabolism status, water quality as well as outcome measures such as mortality rate and hospitalization days. Countries with a relatively low integration of the treatment components in the base reimbursement (such as the Czech Republic, the United Kingdom and Germany) dedicate correspondently diverse additional payments for other services rendered to dialysis patients arising from different budgets (or payment streams), depending on the national healthcare regulations.

        Where treatment is reimbursed on a fee-for-service basis, reimbursement rates are sometimes allocated in accordance with the type of treatment performed. We believe that it is difficult to judge reimbursement based on an average global reimbursement amount because the services and costs for which reimbursement is provided in any such average global amount would likely bear little relation to the actual reimbursement system in any one country. Generally, in European countries with established dialysis programs, reimbursements range from $100 to more than $300 per treatment. In Asia-Pacific, reimbursement rates can be significantly lower. However, a comparison from country to country would not be meaningful if made in the absence of a detailed analysis of the cost components reimbursed, services rendered and the structure of the dialysis clinic in each country being compared.

        Healthcare expenditures are consuming an ever-increasing portion of gross domestic product worldwide. In the developed economies of Europe, Asia and Latin America, healthcare spending is in the range of 5%-15% of gross domestic product. In many countries, dialysis costs consume a disproportionately high portion of the healthcare budget. In South Korea and Japan, patients contribute

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co-payments of up to 10 percent of the treatment costs unless they live below the poverty line. Other countries, such as Hong Kong and Thailand, have adopted "Peritoneal Dialysis First" policies to reduce dialysis treatment costs. In times of increasing financial constraints, e.g., the current Eurozone financial crisis, these costs among others may be considered a target for implementation of cost containment measures.

        However, past experiences have shown that legislators are often willing to combine austerity measure with a healthcare regulation reform. This offers significant chances for industrialized integrated medical service providers to take up more responsibilities in the care cycle towards outcome-based reimbursement models.

        Today, there is increasing awareness of the correlation between the quality of care delivered in the dialysis unit and the total healthcare expenses incurred by the dialysis patient. Accordingly, developments in reimbursement policies might include higher reimbursement rates for practices which are believed to improve the overall state of health of the ESRD patient and reduce the need for additional medical treatment, thereby reducing overall healthcare costs for dialysis patients. There can be no assurance, however, that any such reimbursement will be adopted.


Anti-Kickback Statutes, False Claims Act, Health Insurance Portability and Accountability Act of 1996, Civil Monetary Penalties Law, Stark Law and Other Fraud and Abuse Laws in the United States

        Some of our operations are subject to federal and state statutes and regulations governing financial relationships between healthcare providers and potential referral sources and reimbursement for services and items provided to Medicare and Medicaid patients. Such laws include the Anti-Kickback Statute, the False Claims Act, the Stark Law, and other federal healthcare fraud and abuse laws and similar state laws.

        The U.S. Government, many individual states and private third-party risk insurers have devoted increasing resources to combat fraud, waste, and abuse in the healthcare sector. The Office of the Inspector General of HHS ("OIG"), state Medicaid fraud control units, and other enforcement agencies have dedicated substantial resources to their efforts to detect agreements between physicians and service providers that may violate fraud and abuse laws. In its most recent Work Plan for Fiscal Year 2014, the OIG has scheduled an ESRD-related review on: (i) Medicare payments for and utilization of renal dialysis services and related drugs under the ESRD PPS to determine how the acquisition costs for certain drugs have changed in comparison to inflation-adjusted government estimates and (ii) the extent, nature, and outcomes of Medicare's survey and certification process of dialysis facilities and whether the survey process falls short in identifying poorly performing facilities.

        Recent health reform legislation has also enhanced the government's ability to pursue actions against potential violators, by expanding the government's investigative authority, expanding criminal and administrative penalties, by increasing funding for enforcement and providing the government with expanded opportunities to pursue actions under the federal Anti-Kickback Statute, the False Claims Act, and the Stark Law. For example, ACA narrowed the public disclosure bar under the False Claims Act, allowing increased opportunities for whistleblower litigation. In addition, the legislation modified the intent standard under the federal Anti-Kickback Statute, making it easier for prosecutors to prove that alleged violators had met the requisite knowledge requirement. ACA also requires providers and suppliers to report any Medicare or Medicaid overpayment and return the overpayment on the later of 60 days of identification of the overpayment or the date the cost report is due (if applicable), or all claims associated with the overpayment will become false claims. The ACA also provides that any claim submitted from an arrangement that violates the Anti-Kickback Statute is a false claim. Also, final regulations promulgating recent "sunshine" legislation were issued in early February 2013, requiring pharmaceutical and medical device manufacturers to record any payments made to physicians and teaching hospitals, requiring information collection to begin August 1, 2013 and reporting of data to CMS by March 31, 2014.

Anti-Kickback Statutes

        The federal Anti-Kickback Statute establishes criminal prohibitions against and civil penalties for the knowing and willful solicitation, receipt, offer or payment of any remuneration, whether direct or indirect, in return for or to induce the referral of patients or the ordering or purchasing of items or services payable in whole or in part under Medicare, Medicaid or other federal healthcare programs. Sanctions for violations of the Anti-Kickback Statute include criminal and civil penalties, such as imprisonment and/or criminal fines of up to $25,000 per violation, and civil penalties of up to $50,000 per violation and up to

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three times the amount received from the healthcare program, and exclusion from the Medicare or Medicaid programs and other federal programs.

        The OIG has the authority to promulgate regulations referred to as "safe harbors" that define certain business relationships and arrangements that would not be subject to civil sanction or criminal enforcement under the Anti-Kickback Statute. Failure to comply with a safe harbor provision does not make the activity illegal. Rather, the safe harbors set forth specific criteria that, if fully met, will assure the entities involved of not being prosecuted criminally or civilly for the arrangement under the Anti-Kickback Statute.

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

False Claims Act and Related Criminal Provisions

        The federal False Claims Act (the "False Claims Act") imposes civil penalties for knowingly making or causing to be made false claims with respect to governmental programs, such as Medicare and Medicaid, for services billed but not rendered, or for misrepresenting actual services rendered, in order to obtain higher reimbursement. Under the interpretation of certain courts, claims submitted for services furnished in violation of the Anti-Kickback Statute or Stark Law could also violate the False Claims Act. Moreover, private individuals may bring qui tam or "whistle blower" suits against providers under the False Claims Act, which authorizes the payment of 15-30% of any recovery to the individual bringing suit. Such actions are initially required to be filed under seal pending their review by the Department of Justice. The False Claims Act generally provides for the imposition of civil penalties of $5,500 to $11,000 per claim and for treble damages, resulting in the possibility of substantial financial penalties for small billing errors that are replicated in a large number of claims, as each individual claim could be deemed to be a separate violation of the False Claims Act. Some states also have enacted statutes similar to the False Claims Act which may include criminal penalties, substantial fines, and treble damages.

The Health Insurance Portability and Accountability Act of 1996 ("HIPAA")

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

        HIPAA includes a healthcare fraud provision prohibiting knowingly and willfully executing a scheme or artifice to defraud any "healthcare benefit program," which includes any public or private plan or contract affecting commerce under which any medical benefit, item, or service is provided to any individual, and includes any individual or entity who is providing a medical benefit, item, or service for which payment may be made under the plan or contract. Penalties for violating this statute include criminal penalties, exclusion from the Medicare and Medicaid programs, freezing of assets and forfeiture of property traceable to commission of a healthcare fraud.

        Pursuant to HIPAA, HHS has promulgated regulations that (1) establish national standards for certain electronic healthcare transactions, (2) restrict the use and disclosure of certain individually identifiable patient health information, and (3) regulate the security of the electronic systems maintaining such information (the "HIPAA Regulations"). Health insurance payers and healthcare providers like us must comply with the HIPAA Regulations. Violations of the HIPAA Regulations may result in civil monetary penalties and criminal sanctions.

        Many U.S. states also have enacted healthcare privacy and data security breach laws governing patient information, medical records and personal information, including sensitive information such as financial and identity data. The HIPAA privacy regulations ("Privacy Rule") and the HIPAA security regulations ("Security Rule") establish minimum U.S. federal standards for protecting the privacy and security of protected health information ("PHI"). These federal regulations pre-empt conflicting U.S. state laws, but

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they do not pre-empt U.S. state laws that are more stringent or more protective of individual privacy or the security of personal health information. In such instances, we would need to comply with both the Privacy and Security Rules and U.S. state privacy law. In addition, almost all U.S. states now require notification to affected individuals and state authorities, as well as the media in certain cases, in the event of a breach of the security of personal information (including personal health information in a few states), often with significant financial penalties for noncompliance.

        The Health Information Technology for Economic and Clinical Health Act ("HITECH Act"), enacted as part of the American Recovery and Reinvestment Act of 2009 ("ARRA"), required changes to HIPAA Privacy and Security Rules that, among other things, (i) require HIPAA covered entities to provide patients (as well as HHS and in some cases the media) with notifications in the event of a breach in the security of their unsecured PHI; (ii) reinforce the standard for "minimum necessary" uses and disclosures of PHI by a covered entity; (iii) restrict certain uses of PHI for marketing purposes (by expanding the definition of marketing activities requiring authorization); (iv) prohibit certain sales of PHI; (v) require granting individual requests to restrict disclosures of PHI to insurers in certain circumstances; (vi) apply the Security Rule and certain portions of the Privacy Rule to "business associates" of covered entities; and (vii) enhance an individuals' right to access PHI in electronic form. HHS issued modifications to the HIPAA Regulations, effective March 26, 2013, implementing these changes. The HITECH Act also provides for rules requiring HIPAA covered entities to provide patients with an accounting of disclosures (within the past 3 years) of PHI for purposes of payment, treatment, and healthcare operations. HHS may issue those regulations in the coming year. The HITECH Act also includes measures to strengthen enforcement of HIPAA and increased applicable penalties for HIPAA violations. Penalties are now tiered and range from $100 to $50,000 per violation with an annual cap for the same violation of $25,000 to $1,500,000. The HHS Office for Civil Rights ("OCR") has increased enforcement activities and has recently levied large penalties for violations. In addition, as mandated by the HITECH Act, OCR has been conducting audits to assess compliance by covered entities and their business associates with the HIPAA Privacy and Security Rules and the security breach notification standards.

Civil Monetary Penalties Law

        Individuals or entities who have, among other things, (1) directly submitted, or caused to be submitted, claims which are improper or false; (2) arranged or contracted with an individual or entity that the person knows or should know is excluded from participation in federal healthcare programs; or (3) offered or transferred remuneration to an individual to influence such individual in order to receive healthcare services from a particular healthcare provider; or (4) offered or received kickbacks may also be subject to monetary penalties or exclusion under the Civil Monetary Penalties Law ("CMPL") at the discretion of the OIG. Penalties are generally not more than $10,000 for each item or service. However, under the CMPL, violators of the federal Anti-Kickback Statute provisions may also be subject to additional civil money penalties of $50,000 per violation. Violators are also subject to an assessment of up to three times the amount claimed for each item or service in lieu of damages sustained by the United States or a state agency because of such claim, or damages of up to three times the total amount of remuneration offered, paid, solicited, or received. In addition, any person or entity who violates this section may be excluded from participation in the federal or state healthcare programs.

Stark Law

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

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        Provisions of OBRA 1993, known as "Stark II," amended the Stark Law to revise and expand upon various statutory exceptions, expanded the services regulated by the statute to a list of "Designated Health Services," and expanded the reach of the statute to the Medicaid program. The provisions of Stark II generally became effective on January 1, 1995. The additional Designated Health Services, in addition to clinical laboratory services, include: physical therapy, occupational therapy and speech language pathology services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The first phase of Stark regulations was finalized on January 4, 2001. Most portions of the first phase regulations became effective in 2002. The first phase of the final regulations implementing the Stark Law (the "Phase I regulations") contains an exception for Epogen® and certain other dialysis-related outpatient prescription drugs furnished in or by an ESRD facility under many circumstances. In addition, the regulations made clear that services reimbursed by Medicare to a dialysis facility under the ESRD composite rate do not implicate the Stark Law. Further, the final Phase I regulations also adopted a definition of durable medical equipment which effectively excludes ESRD equipment and supplies from the category of Designated Health Services. Phase II of the Stark regulations was published on March 26, 2004, and became effective on July 26, 2004. This phase of the regulations finalized all of the compensation exceptions to the Stark Law, including those for "personal services arrangements" and "indirect compensation arrangements." In addition, Phase II revised the exception for Epogen® and certain other dialysis-related outpatient prescription drugs furnished in or by an ESRD facility to include certain additional drugs. Our dialysis facilities, laboratory testing facilities and certain of our vascular access centers perform and bill for Designated Health Services and those providers' financial arrangements with referring physicians are subject to the Stark Law.

        On September 5, 2007, CMS published Phase III of the Stark regulations. While this rulemaking was intended to be the final phase of the Stark rulemaking process, CMS continues to address the Stark Law as part of its annual rulemaking process for reimbursement under the Medicare Part B Physician Fee Schedule or under the Inpatient Prospective Payment System.

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

Other Fraud and Abuse Laws

        Our operations are also subject to a variety of other federal and state fraud and abuse laws, principally designed to ensure that claims for payment to be made with public funds are complete, accurate and fully comply with all applicable program rules, and to prevent remuneration in exchange for referrals or purchases of items which may be reimbursed by the government or which may lead to overutilization, corruption of healthcare provider judgment, or a lack of transparency in costs or charges. Failure to remain in compliance with any of these rules by any of our subject businesses could result in a material adverse effect on our business, financial condition or results of operations.


Healthcare Reform

        ACA contains broad healthcare system reforms, including (i) provisions to facilitate access to affordable health insurance for all Americans, (ii) expansion of the Medicaid program, (iii) an industry fee on pharmaceutical companies starting in 2011 based on sales of brand name pharmaceuticals to government healthcare programs, (iv) a 2.3% excise tax on manufacturers' medical device sales starting in 2013, (v) increases in Medicaid prescription drug rebates effective January 1, 2010, (vi) commercial insurance market reforms that protect consumers, such as bans on lifetime and annual limits, coverage of pre-existing conditions, and limits on waiting periods, (vii) provisions encouraging integrated care, efficiency and coordination among providers and (viii) provisions for reduction of healthcare program waste and fraud. ACA's medical device excise tax, Medicaid drug rebate increases and annual pharmaceutical industry fees will adversely impact our product business earnings and cash flows. We expect modest favorable impact from ACA's integrated care and commercial insurance consumer protection provisions.

        ACA also contains the Physician Payment Sunshine Act (section 6002) ("PPSA"). On February 8, 2013, CMS issued final regulations under the PPSA that require applicable pharmaceutical, medical device, biological, and medical supply manufacturers to report annually to the Secretary of Health and

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Human Services (HHS) certain "payments or other transfers of value" to physicians and teaching hospitals. The PPSA also requires applicable manufacturers to report certain information regarding the ownership or investment interests held by physicians or the immediate family members of physicians in such entities. The first reports will be due March 31, 2014 for the initial reporting period (August – December 2013), and thereafter for each calendar year. The report must include, among other things, information about the amount of the payment, the date on which the payment was made, the form of payment, and the nature of the payment (e.g., consulting fees, compensation for services, gifts, entertainment and research).

        Although the constitutionality of ACA was, in large part, upheld by the U.S. Supreme Court in June 2012, the law has continued to be strongly opposed by many members of Congress. Proposals have been advanced in Congress to repeal ACA in whole or in part, to reduce its scope and scale, to delay it, or to defund it. We cannot predict which Congressional proposals, if any, will be adopted or, if any proposals are adopted, what the effect would be.

        The U.S. Supreme Court decision affirmed the right of individual states to elect to participate or not in ACA's Medicaid expansion. A large number of states are expected to forego the expansion, at least initially. As a result, the decrease in the number of uninsured individuals will be smaller than originally expected. We cannot predict whether additional states will agree to participate in the expansion in future years.

        CMS and the Department of Health and Human Services have not yet finalized all of the rules and regulations implementing the provisions of ACA. As a result, further regulations may be promulgated in the future that could substantially change the Medicare and Medicaid reimbursement systems, or that impose additional eligibility requirements for participation in the federal and state healthcare programs. Moreover, such regulations could alter the current responsibilities of third-party insurance payors (including employer-sponsored health insurance plans, commercial insurance carriers and the Medicaid program) including, without limitation, with respect to cost-sharing obligations. Such new regulations could, depending upon the detail of the provisions, have positive or adverse effects, possibly material, on our businesses and results of operations.

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C.    Organizational Structure

        The following chart shows our organizational structure and our significant subsidiaries as of December 31, 2013. Fresenius Medical Care Holdings, Inc. conducts its business as "Fresenius Medical Care North America."

GRAPHIC

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D.    Property, plant and equipment

Property

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

Location   Floor Area
(Approximate
Square Meters)
  Currently
Owned or
Leased by
Fresenius
Medical Care
  Lease Expiration   Use

St. Wendel, Germany          

    87,122   leased   December 2016   Manufacture of polysulfone membranes, dialyzers and peritoneal dialysis solutions; research and development

Suzhou, China (Changshu Plant)

    83,808   owned       Manufacture of hemodialysis bloodline sets / AV fistula set

Ogden, Utah          

    74,322   owned       Manufacture polysulfone membranes and dialyzers and peritoneal dialysis solutions; research and development

Schweinfurt, Germany          

    38,100   leased   December 2016   Manufacture of hemodialysis machines and peritoneal dialysis cyclers; research and development

Fukuoka, Japan (Buzen Plant)

    37,092   owned       Manufacture of peritoneal dialysis bags and dialyzers

Biebesheim, Germany

    33,500   leased   December 2023   Central distribution Europe, Asia Pacific and Latin America

Waltham, Massachusetts

    27,982   leased   April 2017 with a 10 year and a second 5 year renewal option   North American corporate headquarters

Fukuoka, Japan (Buzen Plant) – Site Area for future expansion

    27,943   owned       Manufacture of peritoneal dialysis bags and dialyzers

Guadalajara, México

    26,984   owned       Manufacture of peritoneal dialysis bags

Canosa Sannita (Chieti), Italy

    22,500   owned       Manufacture of PD bags and warehouse

Buenos Aires, Argentina

    20,000   owned       Manufacture of hemodialysis concentrate solutions, dry hemodialysis concentrates, bloodlines and disinfectants

Palazzo Pignano, Italy

    19,990   owned       Manufacture of bloodlines and tubing, office

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Location   Floor Area
(Approximate
Square Meters)
  Currently
Owned or
Leased by
Fresenius
Medical Care
  Lease Expiration   Use

Rockleigh, New Jersey

    19,974   leased   May 31, 2028   Clinical laboratory testing

Bad Homburg, Germany

    18,700   leased   December 2016   Corporate headquarters and administration

L'Arbresle, France

    18,001   owned       Manufacture of polysulfone dialyzers, special filters, dry & liquid hemodialysis concentrates, empty pouches

Concord, California

    16,495   leased   October 2028   Manufacture of Hemodialysis machines and peritoneal
dialysis cyclers; research and development; warehouse space

São Paulo, Brazil

    15,474   owned       Manufacture of hemodialysis concentrate solutions, dry hemodialysis concentrates, peritoneal dialysis bags, intravenous solutions bags, peritoneal dialysis and blood lines sets

Bad Homburg (OE), Germany

    10,304   leased   December 2016   Manufacture of hemodialysis concentrate solutions / technical services / logistics services

Bad Homburg, Germany

    4,556   leased   December 2014   Administration building FMC GmbH Central Europe

        We lease most of our dialysis clinics, manufacturing, laboratory, warehousing and distribution and administrative and sales facilities in the U.S. and other countries on terms which we believe are customary in the industry. We own those dialysis clinics and manufacturing facilities that we do not lease.

        For information regarding plans to expand our facilities and related capital expenditures, see "Item 4.A. History and Development of the Company – Capital Expenditures."

Item 4A.    Unresolved Staff Comments

        Not applicable.

Item 5.    Operating and Financial Review and Prospects

        You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG & Co. KGaA and its subsidiaries in conjunction with our historical consolidated financial statements and related notes contained elsewhere in this report. Some of the statements contained below, including those concerning future revenue, costs and capital expenditures and possible changes in our industry and competition and financial conditions include forward-looking statements. We made these forward-looking statements based on the expectations and beliefs of the management of the Company's General Partner concerning future events which may affect us, but we cannot assure that such events will occur or that the results will be as anticipated. Because such statements involve risks and uncertainties, actual results may differ materially from the results which the forward-looking statements express or imply. Such statements include the matters and are subject to the uncertainties that we described in the discussion in this report entitled "Introduction – Forward-Looking Statements." See also Item 3.D., "Key Information – Risk Factors."

        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.

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Critical Accounting Policies

        The Company's reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that are the basis for our financial statements. The critical accounting policies, the judgments made in the creation and application of these policies, and the sensitivities of reported results to changes in accounting policies, assumptions and estimates are factors to be considered along with the Company's financial statements, and the discussion below 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 and other non-amortizable intangible assets such as trade names and management contracts. At December 31, 2013, the carrying amount of goodwill amounted to $11,658 million and non-amortizable intangible assets amounted to $218 million representing in total approximately 51% of our total assets.

        In accordance with current accounting standards, 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 1e) in the Notes to Consolidated Financial Statements.

        To comply with the provisions of the accounting standards for impairment testing, the fair value of the reporting unit is compared to the reporting unit's carrying amount. As we are subject to the International Financial Reporting Standards requirements, which utilizes the two-step approach, we do not follow the qualitative assessment within ASC 350-20-35. 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 reporting unit. Estimating the future cash flows involves significant assumptions, especially regarding future reimbursement rates and sales prices, treatments and sales volumes and costs. In determining cash flows, the Company utilizes for every reporting unit, its three-year budget, projections for years 4 to 10 and a representative growth rate for all remaining years. Projections for up to ten years are possible due to the non-discretionary nature of the healthcare services we provide, the need for products utilized to provide such services and the availability of government reimbursement for a substantial portion of our services. The Company's WACC consisted of a basic rate of 6.17% for 2013. This basic rate is then adjusted by a weighted average country risk rate and, if appropriate, by a factor to reflect higher risks associated with the cash flows from recent material acquisitions until they are appropriately integrated within each reporting unit.

        If the fair value of the reporting unit is less than its carrying value, a second step would be performed which compares the implied 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 cash flows. Future adverse changes in a reporting unit's economic environment could affect the country-specific rate and therefore the discount rate. An increase in interest rates could impact the basic rate and accordingly our WACC. These changes 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 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies." 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.

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        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 substantial asset of ours and the allowance for doubtful accounts is based upon a significant estimate made by management. Trade accounts receivable were $3,037 million and $3,019 million at December 31, 2013 and 2012, respectively, net of allowances for doubtful accounts of $413 million and $329 million, respectively.

        We sell dialysis products directly or through distributors in more than 120 countries and we provide dialysis services in approximately 45 countries through clinics we own or manage. 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.

        Receivables are recognized and billed at amounts estimated to be collectable under government reimbursement programs and reimbursement arrangements with third party payors. U.S. Medicare and Medicaid government programs are billed at pre-determined net realizable rates per treatment that are established by statute or regulation. Revenues for non-governmental payors with which we have contracts or letters of agreement in place are recognized at the prevailing contract rates. The remaining non-governmental payors are billed at our standard rates for services and, in our North America Segment, a contractual adjustment is recorded to recognize revenues based on historic reimbursement. 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 collectability of accounts receivable is reviewed locally on a regular basis, generally monthly.

        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.

        Public health institutions in a number of countries outside the U.S. require a significant amount of time until payment is made because a substantial number of payors are government entities whose payments are often determined by local laws and regulations and budget constraints. Depending on local facts and circumstances, the period of time to collect can be quite lengthy. In those instances where there are commercial 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 individual 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 to moderate credit risks. It is our policy to determine when receivables should be classified as bad debt on a local basis taking into account local payment practices and local collection experience. A valuation allowance is calculated locally if specific circumstances indicate that amounts will not be collectible.

        In our International Segment and North America Segment product division, for receivables overdue by more than one year, an additional valuation allowance is recorded based on an individual country risk, since we believe that the length of time to collect does indicate an increased credit risk.

        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.

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        In the Consolidated Statement of Income, expenses from our allowance for doubtful accounts is presented either as a deduction from revenue or as operating expense depending on the source of the receivable. For our dialysis care business, we determine an allowance for patient services provided where all or a portion of the amounts billed or billable cannot be determined to be collectible at the time services are performed, e.g., when we provide treatment to a patient when such treatment is not covered by an insurance program or a reimbursement arrangement regardless of the patient's ability to pay. This allowance is shown as a reduction to our Consolidated Statements of Income line item Dialysis Care. All of our other receivables are evaluated with the changes in the allowance for doubtful accounts recorded as an operating expense.

        Write offs are taken on a claim-by-claim basis when the collection efforts are exhausted. Due to the fact that a large portion of our reimbursement is provided by public health care organizations and private insurers, we expect that most of our accounts receivable will be collectible. However, we have experienced some collection delays with distributors in a few Asia-Pacific countries. See "B. Liquidity and Capital Resources – Operations," below, for a discussion of days sales outstanding developments in 2013. A significant change in our collection experience, 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, 2013 were uncollectible through either a change in our estimated contractual adjustment or as bad debt, our operating income for 2013 would have been reduced by approximately 1.5%.

        The following tables show the portion and aging of trade accounts receivable of major debtors or debtor groups at December 31, 2013 and 2012. No single debtor other than U.S. Medicaid and Medicare accounted for more than 5% of total trade accounts receivable in either year. Amounts pending approval from third party payors represented less than 3% at December 31, 2013.

        Aging of Net Trade Accounts Receivable by Major Payor Groups:

 
  At December 31, 2013  
 
  current   overdue by
up to
3 months
  overdue
more than
3 months up
to 6 months
  overdue
more than
6 months
up to 1 year
  overdue by
more than
1 year
  Total   % of net
trade A/R
 
 
  (in millions)
 

U.S. Government Healthcare Programs

  $ 534   $ 106   $ 45   $ 118   $ 13   $ 816     27  

U.S. Commercial Payors

    239     140     41     36     13     469     16  

U.S. Hospitals

    87     34     3     3     3     130     4  

Self-Pay of U.S. patients

    1     4     0     1     1     7     0  

Other North America

    6     0     0     0     0     6     0  

International product customers and dialysis payors

   
953
   
266
   
120
   
136
   
134
   
1,609
   
53
 
                               

Total

  $ 1,820   $ 550   $ 209   $ 294   $ 164   $ 3,037     100  
                               
                               

 

 
  At December 31, 2012  
 
  current   overdue by
up to
3 months
  overdue
more than
3 months up
to 6 months
  overdue
more than
6 months
up to 1 year
  overdue by
more than
1 year
  Total   % of net
trade A/R
 
 
  (in millions)
 

U.S. Government Healthcare Programs

  $ 473   $ 89   $ 47   $ 36   $ 27   $ 672     22  

U.S. Commercial Payors

    292     175     42     35     21     565     19  

U.S. Hospitals

    107     33     4     3     2     149     5  

Self-Pay of U.S. patients

    1     11     6     2     2     22     1  

Other North America

    7     2     0     0     0     9     0  

International product customers and dialysis payors

   
901
   
279
   
124
   
113
   
185
   
1,602
   
53
 
                               

Total

  $ 1,781   $ 589   $ 223   $ 189   $ 237   $ 3,019     100  
                               
                               

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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 Key Performance Indicators used for Internal Management

        The Management Board oversees our Company by setting strategic and operational targets and measuring various financial key performance indicators used for internal management determined in U.S. dollar based on accounting principles generally accepted in the U.S. ("U.S. GAAP"). These key performance indicators do not differ between the operating segments. Each operating segment is evaluated based on target figures that reflect revenue and expenses the operating segments control. See "Financial Condition and Results of Operations- Overview" below for a discussion of exclusion of certain costs from operating segment results.


U.S. GAAP-based measures

Revenue

        For our operating segments, revenue is a financial key performance indicator. The number of treatments performed each year is an indicator of revenue generation. For further information regarding revenue recognition and measurement, refer to Note 1 of the Notes to Consolidated Financial Statements, "The Company and Basis of Presentation – Summary of Significant Accounting Policies – Revenue Recognition and Allowance for Doubtful Accounts". Revenue is also benchmarked based on movement at Constant Exchange Rates. See the "Non-U.S. GAAP Measures" below.

Operating Income

        Operating income is used to measure the profitability of the operating segments and therefore is also a financial key performance indicator.

Operating Income Margin

        Operating income margin, the ratio of operating income to revenue, represents the percentage of profit earned on revenue generated and is another financial key performance indicator for each segment.

Growth in Net Income

        On a consolidated level, the percentage growth in net income (net income attributable to shareholders of FMC-AG & Co. KGaA), which compares current period to prior period net income, is an additional financial key performance indicators used for internal management of the Company.

Growth in Basic Earnings per Share

        Percentage growth in basic earnings per shares is a financial key performance indicator to evaluate our profitability. This indicator helps to manage our overall performance. Basic earnings per share is calculated by dividing net income attributable to shareholders by the weighted-average number of ordinary shares outstanding during the year. Prior to the conversion of preference shares to ordinary shares during the second quarter of 2013, basic earnings per share was computed according to the "two-class method" by dividing net income attributable to shareholders, less preference amounts, by the weighted average number of ordinary and preference shares outstanding during the year. Additionally, we compute a percentage growth in adjusted basic earnings per share for use in our management incentive program targets.

Capital Expenditures

        Capital expenditures for property, plant, and equipment ("CapEx") is an indicator used by our internal management. We manage our CapEx using a detailed coordination and evaluation process. The

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Management Board sets this CapEx budget. Before CapEx projects are approved, our internal Acquisition Investment Committee (AIC) examines the individual projects and measures the potential return on these expenditures and their expected yield. The CapEx projects are evaluated based on commonly used methods such as the net present value and internal interest rate methods, as well as payback periods.


Non-U.S. GAAP Measures

EBITDA

        EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately $2,904 million, 19.9% of revenues for 2013, $2,821 million, 20.4% of revenues for 2012 and $2,632 million, 20.9% of revenues for 2011. EBITDA is the basis for determining compliance with certain covenants contained in our 2012 Credit Agreement, Euro Notes, EIB agreements, and the indentures relating to our senior notes. 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 EBITDA to cash flow provided by (used in) operating activities, which we believe to be the most directly comparable U.S. GAAP financial measure, is calculated as follows:

Reconciliation of EBITDA to net cash provided by (used in) operating activities

 
  For the years ended
December 31,
 
 
  2013   2012   2011  
 
  (in millions)
 

Total EBITDA

  $ 2,904   $ 2,821   $ 2,632  

Interest expense (net of interest income)

    (409 )   (426 )   (297 )

Income tax expense, net

    (592 )   (605 )   (601 )

Change in deferred taxes, net

    16     75     159  

Changes in operating assets and liabilities

    137     169     (378 )

Stock compensation expense

    14     26     29  

Other items, net

    (35 )   (21 )   (98 )
               

Net cash provided by (used in) operating activities

  $ 2,035   $ 2,039   $ 1,446  
               
               

        The ratio of debt to EBITDA is a key financial performance indicator used for overseeing the Company. To determine the total debt to EBITDA ratio, financial liabilities are compared to EBITDA. We believe this ratio provides more reliable information regarding the extent to which we are able to meet our payment obligations than considering only the total amount of financial liabilities.

Cash flow measures

        Our consolidated statement of cash flows indicates how we generated and used cash and cash equivalents. When used in conjunction with the other primary financial statements, it provides information that helps us evaluate the changes in our net assets and our financial structure (including our liquidity and solvency). The net cash provided by (used in) operating activities is used to assess whether our business can generate the cash required to make replacement and expansion investments. Net cash provided by (used in) operating activities is impacted by the profitability of our business and development of working capital, principally receivables. The financial key performance indicator of net cash provided by (used in) operating activities in percentage of revenue shows the percentage of our revenue that is available in terms of financial resources.

        Free cash flow is the cash flow provided by (used in) operating activities after capital expenditures for property, plant and equipment but before acquisitions and investments. The key performance indicator used by management is free cash flow in percentage of revenue. This represents the percentage of revenue that is available for acquisitions, dividends to shareholders, or the reduction of debt financing.

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Significant Cash Flow key performance indicators

 
  For the years ended December 31,  
 
  2013   2012   2011  
 
  (in millions)
 

Revenue

  $ 14,610   $ 13,800   $ 12,571  

Net cash provided by (used in) operating activities

    2,035     2,039     1,446  

Capital expenditures

    (748 )   (675 )   (598 )

Proceeds from sale of property, plant and equipment

    20     9     28  

Capital expenditures, net

    (728 )   (666 )   (570 )

Free cash flow

    1,307     1,373     876  

Net cash provided by (used in) operating activities in % of revenue

    13.9 %   14.8 %   11.5 %

Free cash flow in % of revenue

    8.9 %   10.0 %   7.0 %


Non-U.S. GAAP Measures for Presentation

Constant Currency

        Changes in revenue include the impact of changes in foreign currency exchange rates. We use the non-GAAP financial measure at Constant Exchange Rates or Constant Currency in our filings to show changes in our revenue without giving effect to period-to-period currency fluctuations. Under U.S. GAAP, revenues received in local (non-U.S. dollar) currency are translated into U.S. dollars at the average exchange rate for the period presented. Once we translate the current period local currency revenues for the Constant Currency, we then calculate the change, as a percentage, of the current period revenues using the prior period exchange rates versus the prior period revenues. This resulting percentage is a non-GAAP measure referring to a percentage change at Constant Currency.

        We believe that revenue growth is a key indication of how a company is progressing from period to period and that the non-GAAP financial measure Constant Currency is useful to investors, lenders, and other creditors because such information enables them to gauge the impact of currency fluctuations on a company's revenue from period to period. However, we also believe that the usefulness of data on Constant Currency period-over-period changes is subject to limitations, particularly if the currency effects that are eliminated constitute a significant element of our revenue and significantly impact our performance. We therefore limit our use of Constant Currency period-over-period changes to a measure for the impact of currency fluctuations on the translation of local currency revenue into U.S. dollars. We do not evaluate our results and performance without considering both Constant Currency period-over-period changes in non-U.S. GAAP revenue on the one hand and changes in revenue prepared in accordance with U.S. GAAP on the other. We caution the readers of this report to follow a similar approach by considering data on Constant Currency period-over-period changes only in addition to, and not as a substitute for or superior to, changes in revenue prepared in accordance with U.S. GAAP. We present the fluctuation derived from U.S. GAAP revenue next to the fluctuation derived from non-GAAP revenue. Because the reconciliation of non-GAAP to U.S. GAAP measures is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.


Financial Condition and Results of Operations

Overview

        We are engaged primarily in providing renal dialysis services including pharmacy services and vascular access surgery services (together, the "Expanded Services") and manufacturing and distributing products for the treatment of End-Stage Renal Disease ("ESRD"). In the U.S. the Company also provides laboratory testing services, and inpatient dialysis services as well as other services under contract to hospitals. We estimate that providing dialysis services and distributing dialysis products represents a worldwide market of approximately $75 billion with expected annual worldwide market growth of around 4%, adjusted for currency. Patient growth results from factors such as the aging population and increased life expectancies; shortage of donor organs for kidney transplants; increasing incidence and better treatment of and survival of patients with 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

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continued revenue growth and success. In addition, the reimbursement and ancillary services utilization environment significantly influences our business. 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 healthcare costs, reimbursement rate increases have been historically and are expected in the future to be limited. With the exception of (i) the implementation of the ESRD prospective payment system ("ESRD PPS") in the U.S. in January 2011, (ii) the U.S. federal government Sequestration cuts and (iii) commencing on January 1, 2014, the phased-in reductions to the ESRD PPS rate over three to four years to account for the decline in utilization of certain drugs and biologicals associated with dialysis, (see discussion of the American Taxpayer Relief Act of 2012 below) we experienced and also expect in the future to experience generally stable reimbursements for dialysis services globally. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries.

        With the enactment in the U.S. of the Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA"), Congress mandated the development of an expanded ESRD PPS for services furnished on or after January 1, 2011. Under the ESRD PPS, CMS reimburses dialysis facilities with a single payment for each dialysis treatment, inclusive of (i) all items and services included in the pre-2011 ESRD composite rate, (ii) oral vitamin D analogues, oral levocarnitine (an amino acid derivative) and all erythropoietin stimulating agents ("ESAs") and other pharmaceuticals (other than vaccines and certain other oral drugs) furnished to ESRD patients that were previously reimbursed separately under Part B of the Medicare program, (iii) most diagnostic laboratory tests and (iv) certain other items and services furnished to individuals for the treatment of ESRD. ESRD-related drugs with only an oral form, including our phosphate binder PhosLo®, are expected to be reimbursed under the ESRD PPS starting in January 2016 with an adjusted payment amount to be determined by the Secretary of Health and Human Services to reflect the additional cost to dialysis facilities of providing these medications. The base ESRD PPS payment is subject to case mix adjustments that take into account individual patient characteristics (e.g., age, body surface area, body mass, time on dialysis) and certain co-morbidities. The base payment is also adjusted for (i) certain high cost patient outliers due to unusual variations in medically necessary care, (ii) disparately high costs incurred by low volume facilities relative to other facilities, (iii) provision of home dialysis training and (iv) wage-related costs in the geographic area in which the provider is located.

        The ESRD PPS payment amount is subject to annual adjustment based on increases in the costs of a "market basket" of certain healthcare items and services less a productivity adjustment. The 2013 ESRD PPS base rate is $240.36 per treatment. This amount reflects a productivity adjusted market basket update of 2.3%, which was based on a market basket update over 2012 reimbursement rates of 2.9% less a productivity adjustment of 0.6%, and a wage index budget-neutrality adjustment factor of 1.000613 applied to the 2012 ESRD PPS base rate of $234.81 per treatment.

        The 2011 ESRD PPS resulted in a lower Medicare reimbursement rate on average at our U.S. dialysis facilities. We mitigated the impact of the ESRD PPS with two broad measures. First, we worked with medical directors and treating physicians to find efficiencies consistent with the ESRD PPS's quality incentive program ("QIP") and good clinical practices, and we negotiated pharmaceutical acquisition cost savings. In addition, we achieved greater efficiencies and better patient outcomes by introducing new initiatives to improve patient care upon initiation of dialysis, increase the percentage of patients using home therapies and achieve additional cost reductions in our clinics.

        The ESRD PPS's QIP began affecting payments starting January 1, 2012. Dialysis facilities that fail to achieve the established quality standards could have payments reduced by up to 2%. Performance on specified measures in a fiscal year affects payments two fiscal years later. For instance, the payments we receive during 2014 will be affected by our performance measures from 2012. Based on our performance from 2010 through 2012, the QIP's impact on our results through 2014 is immaterial. The initial QIP measures for 2010 and 2011 focused on anemia management and dialysis adequacy (Urea Reduction Ratio or URR). For 2012 reporting (affecting payments in 2014), CMS adopted four additional measures: prevalence of catheter and A/V fistula use, reporting of infections to the Centers for Disease Control and Prevention, administration of patient satisfaction surveys and monthly monitoring of phosphorus and calcium levels. For payment year 2015, CMS has continued all of the 2014 QIP measures except URR dialysis adequacy, expanded the scope of infection reporting and mineral metabolism reporting, and added four new measures. Payment year 2015 measures consist of three new clinical measures (hemodialysis adequacy (adult patients), hemodialysis adequacy (pediatric patients) and peritoneal dialysis adequacy), and one new reporting measure (anemia management reporting). For payment year 2016, CMS has continued all of the 2015 QIP measures and added two new clinical measures (proportion of patients with

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hypercalcemia and dialysis-related infections reported to the Center for Disease Control and Prevention's National Health Safety Network by ESRD facilities treatment patients on an in-center basis).

        The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2011 (collectively, "ACA") implements broad healthcare system reforms, including (i) provisions to facilitate access to affordable health insurance for all Americans, (ii) expansion of the Medicaid program, (iii) an industry fee on pharmaceutical companies that began in 2011 based on sales of brand name pharmaceuticals to government healthcare programs, (iv) a 2.3% excise tax on manufacturers' medical device sales starting in 2013, (v) increases in Medicaid prescription drug rebates effective January 1, 2010, (vi) commercial insurance market reforms that protect consumers, such as bans on lifetime and annual limits, coverage of pre-existing conditions, limits on administrative costs, and limits on waiting periods, (vii) provisions encouraging integrated care, efficiency and coordination among providers and (viii) provisions for reduction of healthcare program waste and fraud. ACA does not modify the dialysis reimbursement provisions of MIPPA, except to change the annual update provision by substituting a productivity adjustment to the market basket rate of increase for a MIPPA provision that specified a one percentage point reduction in the market basket rate of increase. ACA's medical device excise tax, Medicaid drug rebate increases and annual pharmaceutical industry fees will adversely impact our product business earnings and cash flows. We expect modest favorable impact from ACA's integrated care and commercial insurance consumer protection provisions.

        On August 2, 2011, the Budget Control Act ("BCA") was enacted, raising the U.S.'s debt ceiling and putting into effect a series of actions for deficit reduction. Pursuant to the American Taxpayer Relief Act of 2012 ("ATRA"), automatic across-the-board spending cuts over nine fiscal years (2013-2021), projected to total $1.2 trillion for all U.S. Federal government programs required under the BCA became effective as of March 1, 2013 and were implemented on April 1, 2013 for CMS reimbursement to providers. The Bipartisan Budget Act of 2013 extended the cuts to mandatory spending programs such as Medicare for an additional two years. The reduction in Medicare payments to providers and suppliers is limited to one adjustment of no more than 2% through 2022 (the "Sequestration"), rising to 2.9 percent for the first half of FY 2023 and dropping to 1.11 percent for the second half of FY 2023. The impact of the Sequestration based on our dialysis care revenue from Medicare since the implementation date resulted in a decrease of approximately $56 million in operating income for the year ended December 31, 2013. The Medicare reimbursement reduction is independent of annual inflation update mechanisms, such as the market basket update pursuant to the ESRD PPS.

        The American Taxpayer Relief Act of 2012 ("ATRA") also directed CMS to reduce the ESRD PPS payment rate, effective January 1, 2014, to account for changes in the utilization of certain drugs and biologicals that are included in the ESRD PPS. In making such reduction, the law requires CMS to use the most recently available pricing data for such drugs and biologicals. On November 22, 2013, CMS issued the final rule regarding the 2014 ESRD PPS rate. The base rate per treatment was reduced from $240.36 to $239.02 for 2014. This change reflects (a) a bundled market basket increase of 3.2%, reduced by an estimated multifactor productivity adjustment of 0.4%; (b) the application of a wage index budget neutrality factor and a home dialysis training add-on budget neutrality factor; and (c) the application of a portion ($8.16) per treatment of a reduction in to account for a decrease in the historical utilization of certain ESRD-related drugs and biologicals from 2007 to 2012. As set forth in the November 2013 final rule, CMS will phase in the ATRA reduction, which CMS estimates will total $29.93 per treatment, over three to four years. CMS intends that the portion of the drug utilization adjustment mandated by ATRA that will be applied in 2014 and 2015 will largely offset the net market basket increases in average payments to ESRD facilities as a whole resulting in essentially unchanged reimbursement rates from 2013 to 2015. In 2016, CMS will re-evaluate whether to apply the balance of the drug utilization adjustment mandated by ATRA over the subsequent one or two years.

        Any significant decreases in Medicare reimbursement rates could have material adverse effects on our provider business and, because the demand for dialysis products is affected by Medicare reimbursement, on our products business. To the extent that increases in operating costs that are affected by inflation, such as labor and supply costs, are not fully reflected in a compensating increase in reimbursement rates, our business and results of operations may be adversely affected.

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        On February 4, 2013, CMS announced plans to test a new Comprehensive ESRD Care Model and issued a solicitation for applications. As currently proposed, CMS will work with up to 15 healthcare provider groups comprised of dialysis clinics and nephrologists, also known as ESRD Seamless Care Organizations ("ESCOs"), to test a new system of payment and care delivery that seeks to deliver better health outcomes for ESRD patients while potentially lowering CMS's costs. ESCOs that achieve the program's minimum quality thresholds and generate reductions in CMS's cost of care above certain thresholds for the ESRD patients covered by the ESCO will receive a share of the cost savings. ESCOs that include dialysis chains with more than 200 facilities are required to share in the risk of cost increases and reimburse CMS a share of any such increases. Organizations must apply and be approved by CMS to participate in the program. In August 2013, we submitted an application to participate in the program as an ESCO. Following submission of our application, CMS announced that it would suspend review of all applications and reopen its request for application in the winter of 2014 to solicit additional participation and respond to stakeholder feedback. At such time, we will review CMS' revisions and determine whether to apply to the revised program.

        We have identified three operating segments, North America Segment, EMEALA, and Asia-Pacific, which were determined based upon how we manage our businesses. All segments are primarily engaged in providing dialysis care services and the distribution of products and equipment for the treatment of ESRD. For reporting purposes, we have aggregated the EMEALA and Asia-Pacific operating segments as the "International Segment." We aggregated these operating segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, the same type of patient population, similar methods of distribution of products and services and similar economic environments. Our 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 segments are the same as those we apply in preparing our consolidated financial statements under 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 that the most appropriate measure in this regard is operating income which measures our source of earnings. We do not include the effects of certain transactions, such as the investment gain resulting from our 2012 acquisition of Liberty Dialysis Holdings, Inc. (the "Liberty Acquisition") nor income taxes as we believe these items to be outside the segments' control. Financing is a corporate function which our segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. Similarly, we do not allocate certain costs, which relate primarily to certain headquarters overhead charges, including accounting and finance, global research and development, etc. ("Corporate"), because we believe that these costs are also not within the control of the individual segments. Production of products, production asset management, quality management and procurement are centrally managed at Corporate by Global Manufacturing Operations. These Corporate activities do not fulfill the definition of a segment. Products are transferred to the segments at cost; therefore no internal profit is generated. The associated internal revenues for the product transfers and their elimination are recorded as Corporate activities (See Note 24 of the Notes to Consolidated Financial Statements "Segment and Corporate Information" found elsewhere in this report). Capital expenditures for production are based on the expected demand of the segments and consolidated profitability considerations. In addition, certain revenues, investments, and intangible assets, as well as any related expenses, are not allocated to a segment but accounted for as Corporate. Accordingly, all of these items are excluded from our analysis of segment results and are discussed below in our consolidated results of operations.

A.    Results of Operations

        The following tables summarize our financial performance and certain operating results by principal reporting segment and Corporate for the periods indicated. Inter-segment sales primarily reflect sales of medical equipment and supplies. We prepared the information using a management approach, consistent

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with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance.

 
  2013   2012   2011  
 
  (in millions)
 

Total revenue

                   

North America

  $ 9,613   $ 9,041   $ 7,935  

International

    4,970     4,740     4,628  

Corporate

    34     29     17  
               

Totals

    14,617     13,810     12,580  
               

Inter-segment revenue

                   

North America

    7     10     9  

International

             
               

Totals

    7     10     9  
               

Total net revenue

                   

North America

    9,606     9,031     7,926  

International

    4,970     4,740     4,628  

Corporate

    34     29     17  
               

Totals

    14,610     13,800     12,571  
               

Operating income

                   

North America

    1,624     1,615     1,435  

International

    858     809     807  

Corporate

    (226 )   (205 )   (167 )
               

Totals

    2,256     2,219     2,075  
               

Investment gain

        140      

Interest income

    39     44     60  

Interest expense

    (448 )   (470 )   (357 )

Income tax expense

    (592 )   (605 )   (601 )

Net Income

    1,255     1,328     1,177  

Less: Net Income attributable to Noncontrolling interests

    (145 )   (141 )   (106 )
               

Net Income attributable to shareholders of FMC-AG & Co. KGaA

  $ 1,110   $ 1,187   $ 1,071  
               
               

Year ended December 31, 2013 compared to year ended December 31, 2012

Highlights

        Revenues increased by 6% to $14,610 million (6% at constant exchange rates) mainly due to organic growth of 5% and contributions from acquisitions of 2%, partially offset by the effect of closed or sold clinics of 1%.

        Operating income increased 2%.

        Net income attributable to shareholders of FMC-AG & Co. KGaA decreased by 6% to $1,110 million. However excluding the 2012 investment gain of $140 million related to the Liberty Acquisition, net income attributable to shareholders of FMC-AG & Co. KGaA increased 6% from $1,047 in 2012.

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Consolidated Financials

Key Indicators for Consolidated Financial Statements
 
   
   
  Change in %
 
  2013   2012   as
reported
  at Constant
Exchange
Rates(1)

Revenue in $ million

    14,610     13,800   6%   6%

Number of treatments

    40,456,900     38,588,184   5%    

Same market treatment growth in %

    3.6%     3.8%        

Gross profit as a % of revenue

    32.4%     33.3%        

Selling, general and administrative costs as a % of revenue

    16.4%     16.1%        

Operating income in $ million

    2,256     2,219   2%    

Operating income margin in %

    15.4%     16.1%        

Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million

    1,110     1,187   (6%)    

Basic earnings per share in $

    3.65     3.89   (6%)    

(1)
For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" above.

        Net dialysis care revenue increased by 6% to $11,130 million (7% at Constant Exchange Rates) for the year ended December 31, 2013 from $10,492 million in the same period of 2012, mainly due to growth in same market treatments (4%), contributions from acquisitions (3%), and increases in organic revenue per treatment (1%), partially offset by the effect of closed or sold clinics (1%) and the negative impact of exchange rate fluctuations (1%).

        Treatments increased by 5% for the twelve months ended December 31, 2013 as compared to the same period in 2012. The increase is due to same market treatment growth (4%) and acquisitions (3%), partially offset by the effect of closed or sold clinics (2%).

        At December 31, 2013, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,250 clinics compared to 3,160 clinics at December 31, 2012. During 2013, we acquired 50 clinics, opened 80 clinics and combined or closed 40 clinics. The number of patients treated in clinics that we own, operate or manage (excluding patients of clinics managed but not consolidated in the U.S.) increased by 5% to 270,122 at December 31, 2013 from 257,916 at December 31, 2012.

        Dialysis product revenue increased by 5% (5% increase at Constant Exchange Rates) to $3,480 million as compared to $3,308 million in the same period of 2012. The increase was driven by increased sales of hemodialysis products, especially of dialyzers, machines, solutions and concentrates, and bloodlines as well as products for acute care and peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals. There was no material impact from foreign exchange effects.

        The decrease in gross profit margin to 32.4% from 33.3% reflects a decrease in the North America Segment, partially offset by an increase in the International Segment. The decrease in the North America Segment was due to higher personnel expense, the 2012 impact of special collection efforts in the prior year, lower commercial payor mix coupled with price reductions from commercial contracting, increased revenue in the Expanded Services at lower than average margins, and the impact of the U.S. Sequestration. These decreases were partially offset by reduced pharmaceutical utilization and the updated Medicare reimbursement rate which came into effect in 2013. The increase in the International Segment was due to favorable foreign currency exchange effects and lower manufacturing costs driven by decreases in labor costs, facilities operating costs and cost for raw materials, partially offset by price pressure on products and business growth in China, however at lower margins.

        SG&A expenses increased to $2,391 million in the year ended December 31, 2013 from $2,223 million in the same period of 2012. SG&A expenses as a percentage of sales increased to 16.4% for the twelve months of 2013 in comparison with 16.1% in the same period of 2012 due to an increase in the International Segment an unfavorable impact from Corporate and a slight increase in the North America Segment. The increase in the International Segment was mainly driven by higher bad debt expense in Asia-Pacific, unfavorable foreign exchange effects including devaluation of the Venezuelan Bolivar due to

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a hyperinflationary economy and various cost increases, partially offset by a gain on the sale of real estate in Colombia. The increase at Corporate was due to increased legal and consulting expenses attributable in significant part to the internal investigation we are conducting (see Note 20 of the Notes to Consolidated Financial Statements), partially offset by lower compensation expenses.

        For the twelve months ended 2013, we had an $8 million gain from the sale of FMC-AG & Co. KGaA dialysis clinics in our North America Segment and a $1 million gain in the International Segment as compared to a $36 million gain in the same period of the prior year mainly in connection with divestitures required for regulatory clearance of the Liberty Acquisition, which occurred in the first quarter of 2012. (See Note 2 of the Notes to Consolidated Financial Statements, "Acquisition of Liberty Dialysis Holdings, Inc. – Divestitures" included in this report).

        Research and development ("R&D") expenses increased to $126 million for the year ended December 31, 2013 as compared to $112 million in the same period in 2012. This increase was driven by major product developments as well as the expansion of strategic projects during the year.

        Income from equity method investees increased to $26 million for the twelve months ended December 31, 2013 from $17 million for the same period of 2012 due to increased income from the VFMCRP renal pharmaceuticals joint venture.

        In 2012, other operating expense was $100 million due to charges incurred in connection with the amendment of our agreement with Luitpold Pharmaceuticals and American Regent, Inc. regarding Venofer®.

        Operating income increased to $2,256 million for the year ended December 31, 2013 from $2,219 million for the same period in 2012. Operating income margin decreased to 15.4% for the year ended December 31, 2013 as compared to 16.1% for the same period in 2012 as a result of the decrease in gross profit margin, higher SG&A as a percentage of revenue and a lower gain on the sale of FMC-AG & Co. KGaA clinics, partially offset by the effect of the other operating expense in 2012, all as discussed above.

        The non-taxable investment gain for 2012 of $140 million was due to the fair valuation of our investment in Renal Advantage Partners, LLC at the time of the 2012 Liberty Acquisition.

        Interest expense decreased by 5% to $448 million for the twelve months ended December 31, 2013 from $470 million for the same period in 2012 due to a decrease in the average debt level during the year, lower interest rates due to the expiration of interest rates swaps at the end of the first quarter of 2012, as well as the 2012 effect of one-time costs related to the new Credit Agreement. Interest income decreased to $39 million for the twelve months ended December 31, 2013 from $44 million for the same period in 2012 mainly as a result of lower interest income from high interest-bearing notes receivables.

        Income tax expense decreased to $592 million for the year ended December 31, 2013 from $605 million for the same period in 2012. The effective tax rate increased to 32.0% from 31.3% for the same period of 2012, as a result of a non-taxable investment gain in 2012.

        Net income attributable to noncontrolling interests for the twelve months ended December 31, 2013 increased to $145 million from $141 million for the same period of 2012 primarily due to losses attributable to noncontrolling interests in the International Segment in 2012.

        Net income attributable to shareholders of FMC-AG & Co. KGaA for the twelve months ended December 31, 2013 decreased 6% to $1,110 million from $1,187 million for the same period in 2012 as a result of the combined effects of the items discussed above. Excluding the investment gain in the amount of $140 million as noted above the net income attributable to shareholders of FMC-AG & Co. KGaA for the twelve months ended December 31, 2013 increased 6% to $1,110 million from $1,047 million for the same period in 2012.

        Basic earnings per share decreased by 6% for the twelve months ended December 31, 2013 to $ 3.65 as compared with $ 3.89 in 2012 due to the decrease in net income attributable to shareholders of FMC-AG & Co. KGaA above. The average weighted number of shares outstanding for the period was approximately 303.8 million in 2013 (305.1 million in 2012). The decrease in the number of shares outstanding was the result the share buyback program completed during the year, partially offset by stock options exercised.

        We employed 90,690 people (full-time equivalents) as of December 31, 2013 compared to 86,153 as of December 31, 2012, an increase of 5%, primarily due to overall growth in our business and acquisitions.

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        The following discussions pertain to the North America Segment and the International Segment and the measures we use to manage these segments.


North America Segment

Key Indicators for North America Segment
 
  2013   2012   Change in %

Revenue in $ million

    9,606     9,031   6%

Number of treatments

    25,656,357     24,412,416   5%

Same market treatment growth in %

    3.5%     3.6%    

Operating income in $ million

    1,624     1,615   1%

Operating income margin in %

    16.9%     17.9%    

Revenue

        Net dialysis care revenue increased for the year ended December 31, 2013 by 7% to $8,772 million from $8,230 million in the same period of 2012. This increase was driven by same market treatment growth (4%) and contributions from acquisitions (3%).

        Treatments increased by 5% for the year ended December 31, 2013 as compared to the same period in 2012 mostly due to same market treatment growth (4%) and acquisitions (2%), partially offset by the effect of closed or sold clinics (1%). At December 31, 2013, 171,440 patients (a 4% increase over December 31, 2012) were being treated in the 2,133 clinics that we own or operate in the North America Segment, compared to 164,554 patients treated in 2,082 clinics at December 31, 2012. Average North America Segment revenue per treatment, which includes Canada and Mexico, before bad debt expense, was $352 for the year ended December 31, 2013 and $348 in the same period in 2012. In the U.S., the average revenue per treatment was $359 for the year ended December 31, 2013 and $355 for the same period in 2012. The increase in the U.S. was mainly attributable to further development of our Expanded Services and the updated Medicare reimbursement rate which came into effect in 2013, partially offset by the effects of the 2012 increase in revenue from special collection efforts for services performed in prior years, the unfavorable impact of the U.S. Sequestration, and unfavorable commercial payor mix coupled with price reductions from commercial contracting.

        Dialysis product revenue increased for the year ended December 31, 2013 by 4% to $834 million from $801 million in the first twelve months of 2012. This increase was driven by higher sales of dialyzers, partially offset by lower sales of peritoneal dialysis products and machines.

Operating Income

        Operating income increased to $1,624 million for the year ended December 31, 2013 from $1,615 million for the same period in 2012. Operating income margin decreased to 16.9% for the year ended December 31, 2013 from 17.9% for the same period in 2012, due to higher personnel expense, the effects of the 2012 impact of special collection efforts in prior years, the impact of the U.S. Sequestration, a lower commercial payor mix coupled with price reductions from commercial contracting, and increased revenue in the Expanded Services at lower than average margins. Further, the margin was impacted by the lower gain on the sale of FMC-AG & Co. KGaA clinics related to the Liberty Acquisition resulting from fewer clinics sold in 2013 as compared to 2012 and increased legal costs. These effects were partially offset by the effects of 2012 charges incurred in connection with the amendment of our agreement with Luitpold Pharmaceuticals and American Regent, Inc. regarding Venofer®, the updated Medicare reimbursement rate which came into effect in 2013, reduced pharmaceutical utilization, and the effect of one-time costs related to the Liberty Acquisition. Cost per treatment for the North America Segment increased to $287 for the year ended December 31, 2013 as compared to $278 the same period of 2012. Cost per treatment in the U.S. increased to $293 for the year ended December 31, 2013 from $283 in the same period of 2012.

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International Segment

Key Indicators for International Segment
 
   
   
  Change in %
 
  2013   2012   as reported   at Constant
Exchange
Rates(1)

Revenue in $ million

    4,970     4,740   5%   6%

Number of treatments

    14,800,543     14,175,768   4%    

Same market treatment growth in %

    3.8%     4.0%        

Operating income in $ million

    858     809   6%    

Operating income margin in %

    17.3%     17.1%        

(1)
For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" above.

Revenue

        Including the effects of acquisitions, European region revenue increased 5% (3% at Constant Exchange Rates) to $3,023 million, Latin America region revenue increased 5% (15% at Constant Exchange Rates) to $843 million, and Asia-Pacific region revenue increased 6% (8% at Constant Exchange Rates) to $1,104 million.

        Net dialysis care revenue for the International Segment increased during the year ended December 31, 2013 by 4% (7% at Constant Exchange Rates) to $2,358 million from $2,262 million in the same period of 2012. This increase is a result of same market treatment growth (4%), contributions from acquisitions (3%) and increases in organic revenue per treatment (2%), partially offset by the negative effect of exchange rate fluctuations (3%) and the effect of closed or sold clinics (2%).

        Treatments increased by 4% for the year ended December 31, 2013 over the same period in 2012 mainly due to same market treatment growth (4%) and contributions from acquisitions (2%), partially offset by the effect of closed or sold clinics (2%). As of December 31, 2013, we had 98,682 patients (a 6% increase over December 31, 2012) being treated at the 1,117 clinics that we own, operate or manage in the International Segment compared to 93,362 patients treated at 1,078 clinics at December 31, 2012. Average revenue per treatment for the year ended December 31, 2013 decreased to $159 from $160 in comparison with the same period of 2012 due to increased reimbursement rates and changes in country mix ($4), offset by weakening of local currencies against the U.S. dollar ($5).

        Dialysis product revenue for the year ended December 31, 2013 increased by 5% (5% increase at Constant Exchange Rates) to $2,612 million compared to $2,478 million in the same period of 2012. The 5% increase in product revenue was driven by increased sales of hemodialysis products, especially of machines, solutions and concentrates, dialyzers, and bloodlines as well as products for acute care treatments and peritoneal dialysis, partially offset by lower sales of renal pharmaceuticals.

Operating Income

        Operating income increased to $858 million for the year ended December 31, 2013 as compared to $809 million for the same period in 2012. Operating income margin increased to 17.3% for the year ended December 31, 2013 from 17.1% for the same period in 2012 mainly due to a gain on the sale of real estate in Colombia, and lower manufacturing costs driven by decreases in labor costs, facilities operating costs and cost for raw materials, partially offset by higher bad debt expense in Asia-Pacific.

Inflationary Accounting

        As we are subject to foreign exchange risk, we monitor the economic conditions of the countries in which we operate. Venezuela has been considered a hyperinflationary economy since 2010, most recently reaffirmed by the International Practices Task Force in May 2013. Effective January 1, 2013 our operations in Venezuela were still considered to be operating in a hyperinflationary economy, as the Venezuelan economy had a three-year cumulative inflation rate of approximately 100%. We use a blend of the National Consumer Price Index and the Consumer Price Index to determine whether Venezuela is a hyperinflationary economy. As a result, the financial statements of our subsidiaries operating in Venezuela continue to use the U.S. dollar as their functional currency. However, in 2013, the Venezuelan government

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revalued the Bolivar. Consequently, we recorded a pre-tax loss of $15 million for the twelve months ended December 31, 2013.

Year ended December 31, 2012 compared to year ended December 31, 2011

Consolidated Financials

Highlights

        Revenues increased by 10% to $13,800 million (12% at constant exchange rates) mainly due to contributions from acquisitions of 8% and organic growth of 5%, partially offset by the effect of closed or sold clinics 1%.

        Operating income increased 7%.

        Net Income attributable to shareholders of FMC-AG & Co. KGaA increased by 11%.

        In 2012, we also successfully completed the Liberty Acquisition, renegotiated one of our credit facilities and issued senior notes.

Key Indicators for Consolidated Financial Statements
 
   
   
  Change in %
 
  2012   2011   as
reported
  at Constant
Exchange
Rates(1)

Revenue in $ million

    13,800     12,571   10%   12%

Number of treatments

    38,588,184     34,388,422   12%    

Same market treatment growth in %

    3.8%     3.9%        

Gross profit as a % of revenue

    33.3%     33.0%        

Selling, general and administrative costs as a % of revenue

    16.1%     15.9%        

Operating income in $ million

    2,219     2,075   7%    

Operating income margin in %

    16.1%     16.5%        

Net income attributable to shareholders of FMC-AG & Co. KGaA in $ million

    1,187     1,071   11%    

Basic earnings per share in $

    3.89     3.54   10%    

(1)
For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" above.

        Net dialysis care revenue increased by 13% to $10,492 million (15% at Constant Exchange Rates) for the year ended December 31, 2012 from $9,283 million in the same period of 2011, mainly due to contributions from acquisitions (12%), growth in same market treatments (4%), partially offset by the negative effect of exchange rate fluctuations (2%) and the effect of closed or sold clinics (1%).

        Treatments increased by 12% for the twelve months ended December 31, 2012 as compared to the same period in 2011. The increase is due to acquisitions (9%), including the effect of the Liberty Acquisition (6%) and same market treatment growth (4%), partially offset by the effect of closed or sold clinics (1%).

        At December 31, 2012, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,160 clinics compared to 2,898 clinics at December 31, 2011. During 2012, we acquired 276 clinics, opened 65 clinics and combined or closed 79 clinics. The number of patients treated in clinics that we own, operate or manage (excluding patients of clinics managed but not consolidated in the U.S.) increased by 11% to 257,916 at December 31, 2012 from 233,156 at December 31, 2011. Including 32 clinics managed but not consolidated in the U.S., the total number of patients was 260,282.

        Dialysis product revenue increased by 1% (5% increase at constant exchange rates) to $3,308 million compared to $3,288 million in the same period of 2011. The increase at constant currency was driven by increased sales of hemodialysis products, especially of machines, bloodlines and dialyzers as well as peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals.

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        The increase in gross profit margin mostly reflects an increase in gross profit margin in the North America Segment, partially offset by a decrease in the International Segment. The increase in the North America Segment was due to higher revenue rate associated with Medicare, special collection efforts for services performed in prior years and the impact of the Liberty Acquisition, which contributed higher gross margins, partially offset by higher personnel expenses. The decrease in the International Segment was mainly due to lower margin sales in the dialysis care business.

        Selling, general and administrative ("SG&A") expenses increased to $2,223 million for the year ended December 31, 2012 from $2,002 million in the same period of 2011. SG&A expenses as a percentage of sales increased to 16.1% for the year ended December 31, 2012 from 15.9% in the same period of 2011 as a result of an increase in the North America Segment and in Corporate. The increase in the North America Segment was a result of higher personnel expense, and one-time costs related to the Liberty Acquisition, partially offset by the impact of that acquisition due to LD Holdings' lower SG&A expenses as a percentage of revenue. The increase in Corporate was mainly driven by a $10 million charitable donation to the American Society of Nephrology to establish a research fellowship program and increased legal costs.

        In the year ended December 31, 2012, we had a $36 million gain from the sale of dialysis clinics, including $33 million from the sale of 24 FMC-AG & Co. KGaA clinics, in connection with regulatory clearance of the Liberty Acquisition, which occurred in the first quarter of 2012. (See Note 2 of the Notes to Consolidated Financial Statements, "Acquisition of Liberty Dialysis Holdings – Divestitures" included in this report.)

        Research and development ("R&D") expenses increased slightly to $112 million for the year ended December 31, 2012 as compared to $111 million in the same period in 2011.

        Income from equity method investees decreased to $17 million for the twelve months ended December 31, 2012 from $31 million for the same period of 2011 due to reduced income from the VFMCRP renal pharmaceuticals joint venture.

        Other operating expense was $100 million due to charges incurred in connection with the amendment of our agreement with Luitpold Pharmaceuticals and American Regent, Inc. regarding Venofer®. (See Note 4 of the Notes to Consolidated Financial Statements, "Inventories" found elsewhere in this report.)

        Operating income increased to $2,219 million for the year ended December 31, 2012 from $2,075 million for the same period in 2011. Operating income margin decreased to 16.1% for the year ended December 31, 2012 as compared to 16.5% for the same period in 2011 as a result of the charge incurred for the amendment to the agreement regarding Venofer® and higher SG&A as a percentage of revenue, partially offset by the increase in gross profit margin and the gain on the sale of FMC-AG & Co. KGaA clinics, all as discussed above.

        For the twelve months ended December 31, 2012, we recognized a non-taxable investment gain of $140 million related to the Liberty Acquisition as a result of a fair valuation of our investment in Renal Advantage Partners, LLC at the time of the acquisition.

        Interest expense increased by 32% to $470 million for the twelve months ended December 31, 2012 from $357 million for the same period in 2011 mainly as a result of increased debt incurred to finance the Liberty Acquisition. Interest income decreased to $44 million for the twelve months ended December 31, 2012 from $60 million for the same period in 2011.

        Income tax expense increased to $605 million for the year ended December 31, 2012 from $601 million for the same period in 2011. The effective tax rate decreased to 31.3% from 33.8% for the same period of 2011, as a result of the nontaxable investment gain noted above.

        Net income attributable to FMC-AG & Co. KGaA for the twelve months ended December 31, 2012 increased 11% to $1,187 million from $1,071 million for the same period in 2011 as a result of the combined effects of the items discussed above.

        Basic earnings per share rose by 10% in 2012 to $3.89 compared with $3.54 in 2011. The average weighted number of shares outstanding in 2012 was approximately 305.1 million (303.0 million in 2011). The increase in the number of shares outstanding was the result of stock options exercises.

        We employed 86,153 people (full-time equivalents) as of December 31, 2012 compared to 79,159 as of December 31, 2011, an increase of 8.8%, primarily due to overall growth in our business and acquisitions.

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        The following discussions pertain to the North America Segment and the International Segment and the measures we use to manage these segments.


North America Segment

Key Indicators for North America Segment
 
  2012   2011   Change in %

Revenue in $ million

    9,031     7,926   14%

Number of treatments

    24,412,416     21,608,620   13%

Same market treatment growth in %

    3.6%     3.2%    

Operating income in $ million

    1,615     1,435   13%

Operating income margin in %

    17.9%     18.1%    

Revenue

        Net dialysis care revenue increased for the year ended December 31, 2012 by 16% to $8,230 million from $7,113 million in the same period of 2011. This increase was driven by contributions from acquisitions (13%), same market treatment growth (4%) and the impact of the special collection efforts (1%), partially offset by the effect of closed or sold clinics (1%) and higher bad debt expense (1%).

        Treatments increased by 13% for the twelve months ended December 31, 2012 as compared to the same period in 2011 mostly due to the Liberty Acquisition, net of divestitures (7%), same market growth (4%) and contributions from other acquisitions (3%), partially offset by the effect of closed or sold clinics (1%). At December 31, 2012, 164,554 patients (a 16% increase over December 31, 2011) were being treated in the 2,082 clinics that we own or operate in the North America Segment, compared to 142,319 patients treated in 1,838 clinics at December 31, 2011. Average North America Segment revenue per treatment, which includes Canada and Mexico, before bad debt expense, was $348 for the twelve months ended December 31, 2012 and $340 in the same period in 2011. In the U.S., the average revenue per treatment was $355 for the twelve months ended December 31, 2012 and $348 for the same period in 2011. The increase was mainly attributable to further development of our expanded service offerings, a modest increase in commercial rates, the impact of the increase in Medicare reimbursement from the updated Medicare reimbursement rate and removal of the Transition Adjuster which occurred in the first quarter of 2011 as well as increased revenue due to the special collection efforts for services performed in prior years. This improvement was partially offset by reduced pharmaceutical utilization in non-bundled commercial treatments.

        The dialysis product revenue decreased for the year ended December 31, 2012 to $801 million from $813 million in the same period of 2011. This decrease was driven by lower sales of renal pharmaceuticals, machines and dialyzers, partially offset by higher sales of bloodlines and other hemodialysis products. The decrease in machines and dialyzers was mainly caused by the Liberty Acquisition, which resulted in the conversion of third party sales into internal sales.

Operating Income

        Operating income increased to $1,615 million for the year ended December 31, 2012 from $1,435 million for the same period in 2011. Operating income margin decreased to 17.9% for the year ended December 31, 2012 from 18.1% for the same period in 2011, primarily due to higher personnel expenses, the $100 million impact of the amendment of the agreement regarding Venofer® and costs related to the Liberty Acquisition, partially offset by higher revenue per treatment rate associated with Medicare, the positive impact of the Liberty Acquisition, including acquisition-related divestiture gains and special collection efforts for services performed in prior years. Cost per treatment for the North America Segment increased to $278 for the year ended December 31, 2012 from $276 in 2011. Cost per treatment in the U.S. increased to $283 for the year ended December 31, 2012 from $282 in the same period of 2011.

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International Segment

Key Indicators for International Segment  
 
   
   
  Change in %  
 
 
2012
 
2011
  as reported   at Constant
Exchange Rates(1)
 

Revenue in $ million

    4,740     4,628     2%     9%  

Number of treatments

    14,175,768     12,779,802     11%        

Same market treatment growth in %

    4.0%     5.4%              

Operating income in $ million

    809     807     0%        

Operating income margin in %

    17.1%     17.4%              

(1)
For further information on Constant Exchange Rates, see "Non-U.S. GAAP Measures for Presentation – Constant Currency" above.

Revenue

        Including the effects of acquisitions, European region revenue decreased 2% (6% increase at constant exchange rates) to $2,893, Latin America region revenue increased 15% (24% at constant exchange rates) to $804, and Asia-Pacific region revenue increased 6% (7% at constant exchange rates) to $1,043.

        Net dialysis care revenue for the International Segment increased for the year ended December 31, 2012 by 4% (11% increase at constant exchange rates) to $2,262 million from $2,170 million in the same period of 2011. This increase is a result of contributions from acquisitions (7%), same market treatment growth (4%) and increases in organic revenue per treatment (2%), partially offset by the negative effect of exchange rate fluctuations (7%) and the effect of closed or sold clinics (2%).

        Treatments increased by 11% in the twelve months ended December 31, 2012 over the same period in 2011 mainly due to contributions from acquisitions (8%) and same market growth (4%), partially offset by the effect of closed or sold clinics (1%). As of December 31, 2012, we had 93,362 patients (a 3% increase over December 31, 2011) being treated at the 1,078 clinics that we own, operate or manage in the International Segment compared to 90,837 patients treated at 1,060 clinics at December 31, 2011. Average revenue per treatment for the twelve months ended December 31, 2012 decreased to $160 in comparison with $170 for the same period of 2011 due to the weakening of local currencies against the U.S. dollar ($11), partially offset by slightly increased reimbursement rates and changes in country mix ($1).

        Dialysis product revenue for the year ended December 31, 2012 increased by 1% (7% increase at constant exchange rates) at $2,478 million compared to $2,458 million in the same period of 2011. The 7% increase in product revenue at constant currency was driven by increased sales of hemodialysis products, especially of machines, dialyzers, bloodlines and products for acute care as well as peritoneal dialysis products.

Operating Income

        Operating income remained relatively flat at $809 million compared to $807 million for the same period in 2011. Operating income margin decreased to 17.1% for the twelve months ended December 31, 2012 from 17.4% for the same period in 2011 mainly due to lower margin sales in our dialysis care business, partially offset by favorable foreign currency exchange effects and business growth in Asia, mainly China.

B.    Liquidity and Capital Resources

        Our primary sources of liquidity are typically cash provided by operating activities, cash provided by short-term borrowings from third parties and related parties, as well as proceeds from the issuance of long-term debt and equity securities. We require this capital primarily to finance working capital needs, fund acquisitions and joint ventures, develop free-standing renal dialysis centers, purchase equipment for existing or new renal dialysis centers and production sites, repay debt, pay dividends, and repurchase shares (see "Financing" section below).

        At December 31, 2013, we had cash and cash equivalents of $683 million. For information regarding utilization and availability of cash under our principal credit facility (the "2012 Credit Agreement"), see

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Note 11 of the Notes to Consolidated Financial Statements, "Long-term Debt and Capital Lease Obligations and Long-Term Debt from Related Parties – 2012 Credit Agreement," included in this report.

Net Cash Provided By (Used In) Operating Activities

        In 2013, 2012, 2011, net cash provided by operating activities was $2,035 million, $2,039 million and $1,446 million, respectively. Cash provided by operating activities is impacted by the profitability of our business, the development of our working capital, principally receivables, and cash outflows that occur due to a number of specific items as discussed below. The slight decrease in 2013 versus 2012 was mainly a result of a $100 million payment, partially offset by the favorable effects of other working capital items including repayments received, both of which were associated with the amendment to the license agreement relating to our iron product Venofer®.

        The profitability of our business depends significantly on reimbursement rates. Approximately 76% of our revenues are generated by providing dialysis services, a major portion of which is reimbursed by either public health care organizations or private insurers. For the twelve months ended December 31, 2013, approximately 32% of our consolidated revenues were attributable to U.S. federal health care benefit programs, such as Medicare and Medicaid reimbursement. Legislative changes could affect Medicare reimbursement rates for a significant portion of the services we provide, as well as the scope of Medicare coverage. A decrease in reimbursement rates or the scope of coverage could have a material adverse effect on our business, financial condition and results of operations and thus on our capacity to generate cash flow. With the exception of (i) the implementation of the ESRD PPS in the U.S. in January 2011, (ii) the U.S. federal government Sequestration cuts and (iii) commencing January 1, 2014, the phased-in reductions to the ESRD PPS rate over three to four years to account for the decline in utilization of certain drugs and biologicals associated with dialysis, we have experienced and also expect in the future to experience generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries.

        Our working capital, which is defined as current assets less current liabilities, was $2,733 million at December 31, 2013 which decreased from $2,957 million at December 31, 2012. The change is primarily the result of an increase accrued expenses and other current liabilities, as well as an increase in the amount reclassified from long-term debt to the current portion of long-term debt as a result of larger quarterly payments becoming due under the 2012 Credit Agreement, the reclassification of the Euro tranche of our European Investment Bank ("EIB") Agreements for amounts which were due and paid in February 2014 and for Euro Notes due in 2014, and a reclassification of a loan with a related party from long-term debt to short-term borrowings, partially offset by a reduction in accounts payable driven by the payment of the $100 million Venofer® agreement amendment fee incurred in 2012. Our ratio of current assets to current liabilities was 1.77 at December 31, 2013.

        We intend to continue to address our current cash and financing requirements using cash provided by operating activities, our existing and future credit agreements, and the issuance of debt securities. In addition, when funds are required for acquisitions or to meet other needs, we expect to successfully complete long-term financing arrangements, such as the issuance of senior notes, see "Financing" below. We aim to preserve financial resources with a minimum of $300 to $500 million of committed and unutilized credit facilities.

        Cash provided by operating activities depends on the collection of accounts receivable. Commercial customers and governments generally have different payment cycles. A lengthening of their payment cycles could have a material adverse effect on our capacity to generate cash flow. In addition, we could face difficulties in enforcing and collecting accounts receivable under some countries' legal systems and due to the economic conditions in some countries. Accounts receivable balances at December 31, 2013 and December 31, 2012, net of valuation allowances, represented DSO of approximately 73 and 76, respectively.

        DSO by segment is calculated by dividing the segment's accounts receivable, as converted to U.S. dollars using the average exchange rate for the period presented, less any value added tax included in the receivables, by the average daily sales for the last twelve months of that segment, as converted to U.S. dollars using the average exchange rate for the period. Receivables and sales are adjusted for amounts

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related to significant acquisitions made during the periods presented. The development of DSO by reporting segment is shown in the table below:

 
  December 31,
2013
  December 31,
2012
 

North America Segment days sales outstanding

    53     55  
           
           

International Segment days sales outstanding

    110     115  
           
           

FMC-AG & Co. KGaA average days sales outstanding

    73     76  
           
           

        The decrease in the North America Segment is due to continued strong cash performance across all payor groups. The International Segment's DSO decrease reflects increased collections in Europe, partially offset by unfavorable DSO development in Asia-Pacific. Due to the fact that a large portion of our reimbursement is provided by public health care organizations and private insurers, we expect that most of our accounts receivable will be collectible. However, we have experienced some collection delays with distributors in a few Asia-Pacific countries.

        We are subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions. As a result of a tax audit we identified a tax item relating to civil settlement payment deductions taken by FMCH in prior year tax returns that will or could impact our financial results in the future (see Note of the Notes to the Consolidated Financial Statements 20 "Commitments and Contingencies-Other Litigation and Potential Exposures" for further details on this tax matter).We have also received notices of unfavorable adjustments and disallowances in connection with certain of the audits, including those described above. 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 tax payments, including payments to state tax authorities reflecting the adjustments made in our federal tax returns in the U.S. With respect to other potential adjustments and disallowances of tax matters currently under review, we do not anticipate that an unfavorable ruling could have a material impact on our results of operations. We are not currently able to determine the timing of these potential additional tax payments.

Net Cash Provided By (Used In) Investing Activities

        We used net cash of $1,206 million, $2,281 million and $2,346 million in investing activities in 2013, 2012 and 2011, respectively.

        Capital expenditures for property, plant and equipment, net of proceeds from sales of property, plant and equipment were $728 million, $666 million and $570 million in 2013, 2012 and 2011, respectively. In 2013, capital expenditures were $374 million in the North America Segment, $189 million for the International Segment and $165 million at Corporate. Capital expenditures in 2012 were $298 million in the North America Segment, $195 million for the International Segment and $173 million at Corporate. In 2011, capital expenditures were $237 million in the North America Segment, $175 million for the International Segment and $158 million at Corporate. The majority of our capital expenditures was used for maintaining existing clinics, equipping new clinics, maintenance and expansion of production facilities, primarily in Germany, the North America Segment, France and China and capitalization of machines provided to our customers, primarily in the International Segment. Capital expenditures were approximately 5% of total revenue in 2013, 2012 and 2011.

        In addition to the capital expenditures discussed above, we invested approximately $496 million cash in 2013, $412 million in the North America Segment, $82 million in the International Segment and $2 million at Corporate. In the North America Segment this included, an investment-type loan made by FMCH granting a $200 million credit facility to a middle market dialysis provider in the third quarter of 2013 (of which $170 was drawn as of December 31, 2013; see Note 8 of the Notes to the Consolidated Financial Statements "Other Assets and Notes Receivables"), as well as the acquisition of a full-service clinical laboratory. In the International Segment this mainly included acquisitions of dialysis clinics. In 2012, we invested approximately $1,879 in cash, $1,849 million in the North America Segment, primarily through the $1,697 million ($1,466 million net of divestitures) acquisition of Liberty (see Note 2 of the Notes to the Consolidated Financial Statements, "Acquisition of Liberty Dialysis Holdings"), $28 million in the International Segment and $2 million at Corporate. In 2011, we invested approximately $1,785 million in cash ($818 million in the North America Segment, $960 million in the International Segment, and $7 million at Corporate), primarily for the acquisitions of International Dialysis Centers, the dialysis

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service business of Euromedic International, and American Access Care Holdings, LLC, which operates vascular access centers, loans provided to, as well as the purchase of a 49% ownership interest in Renal Advantage Partners LLC, the parent company of Renal Advantage, Inc., a provider of dialysis services, and payments for the extension of the activities of VFMCRP. We received $18 million, $264 million and $10 million in conjunction with divestitures in 2013, 2012 and 2011, respectively.

        We anticipate capital expenditures of approximately $0.9 billion and expect to make acquisitions of approximately $0.4 billion in 2014. See "Outlook" below.

Net Cash Provided By (Used In) Financing Activities

        Net cash used in financing activities was $808 million in 2013 compared to net cash provided by financing activities of $468 million in 2012 and $793 million in 2011.

        In 2013, cash was used in the purchase of our shares through a share buyback program, the repayment of portions of long-term debt and short-term borrowings, the payment of dividends, and distributions to noncontrolling interests, partially offset by proceeds from long-term and short-term borrowings, proceeds from the draw-down under our Accounts Receivable facility, proceeds the exercise of stock options and proceeds of a premium paid for the conversion of preference shares into ordinary shares by the largest former holder of preference shares, a European financial institution. In 2012, cash was provided by the issuance of senior notes, refinancing of the then-current Amended 2006 Senior Credit Agreement by the 2012 Credit Agreement, exercises of stock options, proceeds from short-term borrowings and short term borrowings from related parties as well as contributions from noncontrolling interests, partially offset by the repayment of long-term debt, reduction of the amount outstanding under our accounts receivable securitization program, the payment of dividends, distributions to noncontrolling interests as well as the repayment of short-term borrowings and short-term borrowings from related parties. In 2011, cash was provided by the issuance of senior notes in February 2011, September 2011, and October 2011, short-term borrowings and short-term borrowings from related parties, partially offset by repayment of long-term debt, the repayment of the Trust Preferred Securities, the repayment of short-term borrowings and short-term borrowings from related parties as well as the payment of dividends

        On May 16, 2013, we held our AGM and a separate Preference Shareholder Meeting during which resolutions on the conversion of our preference shares to ordinary shares were passed. The preference share conversion was effected on June 28, 2013 with 3,975,533 preference shares in the amount of €3.9 million ($4.5 million) converted on a 1:1 basis to ordinary shares. On July 5, 2013, the Company received a €27 million ($35 million) premium from the largest former preference shareholder, a European financial institution, for the conversion of their preference shares to ordinary shares. This amount was recorded as an increase in equity as of June 30, 2013 and the payment was received during the third quarter of 2013.

        Additionally, our share buy-back program started on May 20, 2013 and was completed on August 14, 2013. We repurchased 7,548,951 shares in the amount of €385 million ($505 million). These shares are restricted treasury stock which means there are no associated dividends or voting rights. These treasury shares will be used solely to either reduce our registered share capital by cancellation of the acquired shares, or to fulfill our employee participation programs.

        On May 17, 2013, we paid a dividend with respect to 2012 of €0.75 per ordinary share (for 2011 paid in 2012: €0.69; for 2010 paid in 2011: €0.65) and €0.77 per then-outstanding preference shares (for 2011 paid in 2012: €0.71; for 2010 paid in 2011: €0.67). The total dividend payment was €230 million ($296 million), €210 million ($272 million) and €197 million ($281 million) in 2013, 2012 and 2011, respectively.

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        The following table summarizes the Company's available sources of liquidity at December 31, 2013:

 
   
  Expiration per period of  
Available Sources of Liquidity in millions
  Total   less than
1 Year
  1 - 3 Years   3 - 5 Years   Over
5 Years
 

Accounts receivable facility(a)

  $ 383   $   $ 383   $   $  

Revolving Credit Facility of the Credit Agreement 2012(b)

    1,073             1,073      

Other Unused Lines of Credit

    233     233              
                       

  $ 1,689   $ 233   $ 383   $ 1,073   $  
                       
                       

(a)
Subject to availability of sufficient accounts receivable meeting funding criteria. At December 31, 2013, the Company had letters of credit outstanding in the amount of $66 million which reduces the availability under the Accounts Receivable Facility to the amount shown in this table.

(b)
At December 31, 2013, the Company had letters of credit outstanding in the amount of $9 million which reduces the availability under the Revolving Credit Facility to the amount shown in this table.

        The amount of guarantees and other commercial commitments at December 31, 2013 was not significant.

        At December 31, 2013, we had short-term borrowings, excluding the current portion of long-term debt, other financial liabilities and short-term borrowings from related parties, in the total amount of $159 million.

        The following table summarizes, as of December 31, 2013, our obligations and commitments to make future payments under our long-term debt and other long-term obligations, and our commitments and obligations under lines of credit and letters of credit.

 
   
  Payments due by period of  
Contractual Obligations and Commitments (a) in millions
  Total   less than
1 Year
  1 - 3 Years   3 - 5 Years   Over
5 Years
 

Long-term Debt(b)

  $ 10,151   $ 852   $ 1,932   $ 4,088   $ 3,279  

Capital Lease Obligations

    26     2     5     3     16  

Operating Leases

    3,226     610     981     633     1,002  

Unconditional Purchase Obligations for inventory

    613     337     200     44     32  

Other Long-term Obligations(c)

    285     212     61     9     3  

Letters of Credit

    75         66     9      
                       

  $ 14,376   $ 2,013   $ 3,245   $ 4,786   $ 4,332  
                       
                       

(a)
Our pension liabilities are not included in the table of contractual obligations and commitments. The regular or special funding of our pension plans may adversely affect our liquidity in the future periods. The liability recognized in our consolidated financial statements may fluctuate significantly in future periods due to changes in assumptions, in particular the discount rate, rate of future compensation increases and pension progression. Actual results could differ from assumptions due to changing market, economic and governmental regulatory conditions, thereby resulting in an increase or decrease of the liability. Employer contributions expected to be paid to the defined benefit plans during fiscal year 2014 are $42.6 million. For additional information regarding our pension plans and expected payments for the next ten years, see Item 18. Financial Statements – Note 12 of the Notes to the Consolidated Financial Statements, "Employee Benefit Plans" in this report.

(b)
Includes expected interest payments which 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.

(c)
Other Long-term Obligations consist mainly of production asset acquisition commitments.

        Our 2012 Credit Agreement, Euro Notes and Senior Notes include covenants that require us to maintain certain financial ratios or meet other financial tests. Under our 2012 Credit Agreement, we are obligated to maintain a minimum consolidated interest expense coverage ratio (ratio of EBITDA to net interest expense) and a maximum consolidated leverage ratio (ratio of consolidated funded debt to consolidated EBITDA) as these terms are defined in the 2012 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 in any of the instruments or agreements governing our long-term debt – 2012 Credit Agreement, the Euro Notes or the Senior Notes – could, in turn, create additional

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defaults under one or more of the other instruments or agreements. In default, the outstanding balance under the 2012 Credit Agreement becomes due at the option of the lenders under that agreement, and the "cross default" provisions in our other long-term debt permit the lenders to accelerate the maturity of the debt upon such a default as well. As of December 31, 2013, we were in compliance with all covenants under the 2012 Credit Agreement and our other financing agreements. For information regarding our 2012 Credit Agreement, Euro Notes and Senior Notes, see Note 11 of the Notes to Consolidated Financial Statements, "Long-Term Debt and Capital Lease Obligations, and Long-Term Debt from Related Parties."

        Although we are not immune from the global financial crisis, we believe that we are well positioned to continue to grow our business while meeting our financial obligations as they come due. Due to the non-discretionary nature of the healthcare services we provide, the need for products utilized to provide such services and the availability of government reimbursement for a substantial portion of our services, our business is generally not cyclical. A substantial portion of our accounts receivable are generated by governmental payers. While payment and collection practices vary significantly between countries and even between agencies within one country, government payors usually represent low to moderate, credit risks. However, limited or expensive access to capital could make it more difficult for our customers to do business with us, or to do business generally, which could adversely affect our business by causing our customers to reduce or delay their purchases of our dialysis products. See "Results of Operations" above. If the current conditions in the credit and equity markets continue, or worsen, they could also increase our financing costs and limit our financial flexibility.

        Our General Partner's Management Board will propose to the shareholders at the Annual General meeting on May 15, 2014, a dividend with respect to 2013 and payable in 2014, of €0.77 per ordinary share (for 2012 paid in 2013: €0.75). The total expected dividend payment is approximately €232 million (approximately $320 million based upon the December 31, 2013 spot rate) compared to dividends of €230 million ($296 million) paid in 2013 with respect to 2012. The 2012 Credit Agreement provides for a limitation on dividends and other restricted payments which is €330 million ($455 million based upon the December 31, 2013 spot rate) for dividends to be paid in 2014, and increases in subsequent years.

        Our 2014 principal financing needs are the W.R Grace bankruptcy settlement payment of $115 million (paid on February 3, 2014) (See Note 20 of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies"), payments for our EIB loans, which were paid in February 2014, Euro Notes due in 2014, as well as the quarterly payments under our 2012 Credit Agreement Term Loan facility. These payments as well as our dividend payment of approximately $320 in May 2014, capital expenditures, and acquisition payments are expected to be covered by our cash flows, by using existing credit facilities and if required additional debt financing. We currently have sufficient flexibility under our debt covenants to meet our financing needs in the near future. Generally, we believe that we will have sufficient financing to achieve our goals in the future and to continue to promote our growth.


Outlook

        Below is a table showing our growth outlook for 2014:

 
  2014

Revenue

  ~ $15.2 billion

Operating income

  ~ $2.2 billion

Operating income margin

  ~ 14,5%

Net income(1)

  $1.0 - $1.05 billion

Net income growth(1)

  decrease 5 - 10%

Basic earnings per share growth(1)

  based on development of net income

Capital Expenditures

  ~ $0.9 billion

Acquisitions and investments

  ~ $0.4 billion

Net cash provided by (used in) operating activities

  > $1.5 billion

Net cash provided by (used in) operating activities in % of revenue

  > 10%

Free cash flow in % of revenue

  > 4%

Debt/EBITDA Ratio

  £ 3.0

Employees(2)

  ~ 92,000

Research and development expenses

  ~ $140 million

(1)
Net income attributable to shareholders of FMC AG & Co. KGaA

(2)
Full-time equivalents.

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        The Company initiated a global efficiency program designed to enhance the Company's performance over a multi-year period which should lead to sustainable savings. Potential cost savings before income taxes of up to $60 million generated from this program are not included in the Outlook for 2014.

        In addition to the consolidated financial statements prepared in accordance with U.S. GAAP included in this report, we are subject to home country reporting requirements in Germany. These require that we provide an assessment of the probability and impact of certain risks and uncertainties that could materially affect our outlook. A summary of such risk assessment is set forth below.

        Although we believe our fiscal year 2014 outlook is based on reasonable assumptions, it is subject to risks and uncertainties that may materially impact the achievement of the outlook. In the following table, we have listed certain risks and the corresponding risk factor (or other discussion of such risks) within this report as well as our assessment of the reasonable probability and potential impact of these known risks on our 2014 results. The risks and their related risk factors or other disclosure headings have been paired together to provide further information on the risks as well as provide an indication of their location in this report. The assessment below should be read together with the discussions of such risks and uncertainties contained in Item 3, Key Information – D. "Risk Factors" and Item 11, Quantitative and Qualitative Disclosures About Market Risk – "Management of Foreign Exchange and Interest Rate Risks." Our Litigation risk represents an assessment of material litigation currently known or threatened and is discussed in Note 20 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies" found elsewhere in this report. These assessments by their nature do not purport to be a prediction or assurance as to the eventual resolution of such risks. As with all forward-looking statements,

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actual results may vary materially. See "Forward-looking Statements" immediately following the Table of Contents to this report.

Risk to our 2014 outlook
  Risk Factor (or other related disclosure) within the report   Probability   Impact

Regulatory Environment

  If we do not comply with the many governmental regulations applicable to our business, we could be excluded from government healthcare reimbursement programs or our authority to conduct business could be terminated, either of which would result in a material decrease in our revenue.   Low   Medium

Quality

 

If we do not comply with the many governmental regulations applicable to our business, we could be excluded from government healthcare reimbursement programs or our authority to conduct business could be terminated, either of which would result in a material decrease in our revenue.

 

Low

 

Medium

Erythropoietin stimulating agents (ESAs)

 

The utilization of ESAs could materially impact our revenue and operating profit. An interruption of supply or our inability to obtain satisfactory terms for ESAs could reduce our revenues and operating profit.

 

Low

 

Medium

Reimbursement by private insurers

 

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

 

Low

 

Medium

Procurement

 

We could be adversely affected if we experience shortages of components or material price increases from our suppliers

 

Low

 

Low

Corruption

 

We operate in many different jurisdictions and we could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar worldwide anti-corruption laws.

 

Medium

 

Medium

Currencies and interests

 

Foreign currency and interest rate exposure. See Item 11, Quantitative and Qualitative Disclosures About Market Risk – "Management of Foreign Exchange and Interest Rate Risks"

 

High

 

Medium

Litigation

 

Legal and Regulatory Matters (See Note 20 of the Notes to the Consolidated Financial Statements, "Commitments and Contingencies – Legal and Regulatory Matters")

 

Low

 

Low

Taxes

 

Diverging views of fiscal authorities could require us to make additional tax payments.

 

Medium

 

Low

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Balance Sheet Structure

        Total assets as of December 31, 2013 increased to $23.1 billion compared to $22.3 billion at December 31, 2012. Current assets as a percent of total assets remained constant at 27% at December 31, 2013 as compared to December 31, 2012. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, remained flat at 41% as compared to December 31, 2012.

C.    Research and Development

        As a leading global dialysis company, we focus our R&D strategy on three essential objectives: first, to continuously enhance the quality of life of patients with chronic kidney disease using innovative products and treatment concepts; second, to offer our patients and purchasers of our products high-quality services while keeping our prices as low as possible; and third, to continue to expand our position as the dialysis market leader. Due to our vertical integration, our research and development department can apply our experience as the world's largest provider of dialysis treatments to product development, and our technical department benefits from our daily practical experience as a provider of dialysis treatment and being directly in-touch with doctors, nurses and patients to keep track of and meet customer and patient needs. In addition, our research and development units are usually located at production sites, enabling direct exchange of ideas with our production staff. We conduct annual internal R&D conferences which our employees attend every year. In addition, our employees visit research events worldwide and participate actively in scientific discourse. This not only enables them to inject new concepts into their work, but also strengthens our reputation in the international professional community. We also maintain close contacts with universities and research institutions. We are cooperating closely with the University of Michigan (on a longitudinal study of chronic kidney patients), Danube University Krems in Krems, Austria (on extracorporeal methods), and the Renal Research Institute ("RRI") in the United States. RRI was founded in 1997 as a joint venture between Fresenius Medical Care North America and the Beth Israel Medical Center, a hospital in New York. Together, we are researching the fundamental issues of dialysis treatment, including the causes that lead to kidney failure, the particular features of treating children with ESRD, and issues such as the mineralization of dialysis patients' bones or the effects of kidney diseases on the natural acid-base balance in the human body.

        During 2013, we restructured our research and development activities with an international focus. This included expanding the Management Board to include a member responsible for global research and development activities. This focus enables us to accelerate development timelines, promote an exchange of knowledge and technology, enhance our process efficiency, and better manage risks and the related costs.

        The task of our research and development group, which employs approximately 552 full time equivalents, is to continually develop and improve our products and treatments. Our largest research and development department is in our European region with approximately 350 employees, most of whom work at our Schweinfurt and Bad Homburg locations. Smaller teams also work in St. Wendel, Germany and in Bucharest, Romania, where an R&D competency center specializing in software development has been established and in Krems, specializing in sorbent technology. Apart from R&D in Europe, we have research and development departments in the North America and the Asia-Pacific regions. All of these units are closely connected and cooperate on many projects.


Four trends for our continued strategic development

    Technological developments – focused on information technology, technologies to gradually reduce the size of our products and simplify their use, and the integration of various treatment elements to create holistic therapy systems. We are also continuing to develop sorbent technology for recycling tap water, as large amounts of water are required for hemodialysis treatment.

    Home hemodialysis systems – with increased demand as a result of sustained growth in patient numbers. As a result, our aim is continued integration of these systems for home hemodialysis, while maintaining treatment quality. Our research and development involves making these systems smaller and easier to transport, as well as significantly reducing the amount of water required.

    Concomitant diseases – as patients with chronic kidney failure age, the likelihood of developing illness such as severe cardiac and vascular condition increases. Based on their growing prevalence and new scientific insights, these are increasingly a focal point of our research and development in the form of diagnostic and therapy systems.

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    Rising cost of healthcare – impacted by an aging population, the spread of chronic illness, and the aspiration to offer new or improved technologies in patient care. We continue to abide by the principle that innovations must not only be of a high quality, but must be affordable for patients to benefit from them.


Clinical Research

        During 2013, we performed clinical studies to examine the automatic regulation of the electrolyte balance of the human body, which is important to the functioning of the entire body. In hemodialysis, where dialysis solution is continuously being produced by a dialysis machine, it is possible to influence these processes favorably by adapting the dialysis solution accordingly. We are currently performing clinic tests on such a procedure. In addition we are focusing on PD and overhydration, proving that active fluid management can increase a patient's survival rate, reduce the number and duration of hospital stays, and improve the maintenance of the residual renal function. We are also assessing the benefits of a low-sodium PD solution for patients with high blood pressure, a typical illness concurrent with dialysis.

        Research and development expenditures amounted to $126 million in 2013, compared to $112 million and $111 million in 2012 and 2011, respectively. Our 2013 expenditures focused on continuously enhancing and improving our products and treatment concepts for our patients and users, implementing further technological developments, and remaining active in relevant areas of clinical research such as chronic kidney failure.


Outlook

        We intend to continue investing in developing and improving life-sustaining products and treatment concepts in the years to come, thus improving the quality of life for as many patients as possible with financially viable, environmentally-friendly innovations based on strategic technology platforms. We plan to spend approximately $140 million on research and development in 2014.

D.    Trend information

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

F.     Tabular Disclosure of contractual obligations

        The information required by this item may be found under Item 5B, "– Liquidity and Capital Resources – Financing."

Item 6.    Directors, Senior Management and Employees

A.    Directors and senior management

General

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

        For a detailed discussion of the legal and management structure of Fresenius Medical Care AG & Co. KGaA, including the more limited powers and functions of the Supervisory Board compared to those of the general partner, see Item 16.G, below, "Governance – The Legal Structure of Fresenius Medical Care AG & Co. KGaA."

        Our General Partner has a supervisory board and a management board. These two boards are separate and no individual may simultaneously be a member of both boards. A person may, however, serve on both the supervisory board of our General Partner and on our Supervisory Board.


The General Partner's Supervisory Board

        The supervisory board of Management AG consists of six members who are elected by Fresenius SE (acting through its general partner, Fresenius Management SE), the sole shareholder of Management AG.

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Pursuant to a pooling agreement for the benefit of the public holders of our shares, at least one-third (but no fewer than two) of the members of the General Partner's supervisory board are required to be independent directors as defined in the pooling agreement, i.e., persons with no substantial business or professional relationship with us, Fresenius SE, the general partner, or any affiliate of any of them.

        Unless resolved otherwise by the general meeting of shareholders, the terms of each of the members of the supervisory board of Management AG will expire at the end of the general meeting of shareholders held during the fourth fiscal year following the year in which the Management AG supervisory board member was elected by Fresenius SE, but not counting the fiscal year in which such member's term begins. Fresenius SE, as the sole shareholder of Management AG, is at any time entitled to re-appoint members of the Management AG supervisory board. The most recent election of members of the General Partner's supervisory board took place in July 2011. Members of the General Partner's supervisory board may be removed only by a resolution of Fresenius SE in its capacity as sole shareholder of the General Partner. Neither our shareholders nor the separate Supervisory Board of FMC AG & Co. KGaA has any influence on the appointment of the supervisory board of the General Partner.

        The General Partner's supervisory board ordinarily acts by simple majority vote and the Chairman has a tie-breaking vote in case of any deadlock. The principal function of the general partner's supervisory board is to appoint and to supervise the General Partner's management board in its management of the Company, and to approve mid-term planning, dividend payments and matters which are not in the ordinary course of business and are of fundamental importance to us.

        The table below provides the names of the members of the supervisory board of Management AG and their ages as of January 1, 2014.

Name
  Age as of
January 1,
2014
 
Dr. Ulf M. Schneider, Chairman(1)     48  
Dr. Dieter Schenk, Vice Chairman(4)     61  
Dr. Gerd Krick(1)(2)     75  
Mr. Rolf A. Classon(3)(4)     68  
Dr. Walter L. Weisman(1)(2)(3)     78  
Mr. William P. Johnston(1)(2)(3)(4)     69  

(1)
Members of the Human Resources Committee of the supervisory board of Management AG

(2)
Members of the Audit and Corporate Governance Committee of FMC-AG & Co. KGaA

(3)
Independent director for purposes of our pooling agreement

(4)
Member of the Regulatory and Reimbursement Assessment Committee of the supervisory board of Management AG

        DR. ULF M. SCHNEIDER has been Chairman of the Supervisory Board of Management AG, the Company's General Partner, since April 2005. He is also Chairman of the Management Board of Fresenius Management SE, the general partner of Fresenius SE & Co. KGaA, and Chairman or member of the Board of a number of other Fresenius SE group companies. Additionally, he was Group Finance Director for Gehe UK plc., a pharmaceutical wholesale and retail distributor, in Coventry, United Kingdom. He has also held several senior executive and financial positions since 1989 with Gehe's majority shareholder, Franz Haniel & Cie. GmbH, Duisburg, a diversified German multinational company.

        DR. DIETER SCHENK has been Vice Chairman of the Supervisory Board of Management AG since 2005 and is also Vice Chairman of the Supervisory Board of FMC AG & Co. KGaA and a member of the Supervisory Board of Fresenius Management SE. He is an attorney and tax advisor and has been a partner in the law firm of Noerr LLP (formerly Nörr Stiefenhofer Lutz) since 1986. Additionally, he also serves as the Chairman of the Supervisory Board of Gabor Shoes AG and TOPTICA Photonics AG and as a Vice-Chairman of the Supervisory Board of Greiffenberger AG. Dr. Schenk is also Chairman of the Advisory Board of Else Kröner-Fresenius-Stiftung, the sole shareholder of Fresenius Management SE, which is the sole general partner of Fresenius SE & Co. KGaA.

        DR. GERD KRICK has been a member of the Supervisory Board of Management AG since December 2005 and the Chairman of the Company's Supervisory Board since February 2006. He is the Chairman of the Supervisory Board of Fresenius Management SE and of Fresenius SE & Co. KGaA and is also Chairman of the Board of Vamed AG, Austria.

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        MR. ROLF A. CLASSON has been a member of the Supervisory Board of Management AG since July 7, 2011 and a member of the Company's Supervisory Board since May 12, 2011. Mr. Classon is the Chairman of the Board of Directors for Auxilium Pharmaceuticals, Inc. and Tecan Group Ltd. Additionally, Mr. Classon is the Chairman of the Board of Directors for Hill-Rom Holdings, Inc.

        DR. WALTER L. WEISMAN has been a member of the Supervisory Board of Management AG since December 2005 and also serves on the Company's Supervisory Board. Additionally, he is the former Chairman and Chief Executive Officer of American Medical International, Inc., and was a member of the Board of Directors of Occidental Petroleum Corporation until May 4, 2012. He is also a Senior Trustee of the Board of Trustees for the California Institute of Technology, a Life Trustee of the Board of Trustees of the Los Angeles County Museum of Art, a Trustee of the Oregon Shakespeare Festival and Chairman of the Board of Trustees of the Sundance Institute.

        MR. WILLIAM P. JOHNSTON has been a member of the Supervisory Board of Management AG since August 2006 and also serves on the Company's Supervisory Board. Mr. Johnston has been an Operating Executive of The Carlyle Group since June 2006. He is also a member of the Board of Directors of The Hartford Mutual Funds, Inc. and HCR-Manor Care, Inc.


The General Partner's Management Board

        Each member of the Management Board of Management AG is appointed by the Supervisory Board of Management AG for a maximum term of five years and is eligible for reappointment thereafter. Their terms of office expire in the years listed below.

        The table below provides names, positions and terms of office of the members of the Management Board of Management AG and their ages as of January 1, 2014.

Name
  Age as of
January 1,
2014
  Position   Year term
expires
 
Rice Powell     58   Chief Executive Officer and Chairman of the Management Board     2017  
Michael Brosnan     58   Chief Financial Officer     2017  
Roberto Fusté     61   Chief Executive Officer for Asia Pacific     2016  
Dr. Emanuele Gatti     58   Chief Executive Officer for Europe, Middle East, Africa and Latin America and Chief Strategist for FMC-AG & Co. KGaA     2015  
Ronald Kuerbitz     54   Chief Executive Officer, Fresenius Medical Care North America     2015  
Dr. Rainer Runte     54   Chief Administrative Officer for Global Law, Compliance, Intellectual Property and Corporate Business Development and Labor Relations Director for Germany     2014  
Dr. Olaf Schermeier     41   Chief Officer of Global Research & Development     2017  
Kent Wanzek     54   Head of Global Manufacturing Operations     2017  

        RICE POWELL has been with the Company since 1997. He became Chairman and Chief Executive Officer of the Management Board of Management AG effective January 1, 2013. He is also a member of the Board of Administration of Vifor Fresenius Medical Care Renal Pharma, Ltd., Switzerland. He was the Chief Executive Officer and director of Fresenius Medical Care North America until December 31, 2012. Mr. Powell has over 30 years of experience in the healthcare industry, which includes various positions with Baxter International Inc., Biogen Inc., and Ergo Sciences Inc.

        MICHAEL BROSNAN has been with the Company since 1998. He is a member of the Management Board and Chief Financial Officer of Management AG. He is member of the Board of Administration of Vifor Fresenius Medical Care Renal Pharma, Ltd., Switzerland. He was a member of the Board of Directors of Fresenius Medical Care North America. Prior to joining Fresenius Medical Care, Mr. Brosnan held senior financial positions at Polaroid Corporation and was an audit partner at KPMG.

        ROBERTO FUSTÉ has been with the Company since 1991 and his present positions include member of the Management Board of Management AG and Chief Executive Officer for Asia Pacific. Additionally,

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he founded the company Nephrocontrol S.A. in 1983. In 1991, Nephrocontrol was acquired by the Fresenius Group, where Mr. Fusté has since worked. Mr. Fusté has also held several senior positions within the Company in Europe and the Asia Pacific region.

        DR. EMANUELE GATTI has been with the Company since 1989. His present positions include member of the Management Board of Management AG, Chief Executive Officer and Global Chief Strategist for Europe, Latin America, Middle East and Africa. Dr. Gatti also became president of Italienische Handelskammer für Deutschland e.V, a private company, in May, 2012. Additionally, Dr. Gatti has lectured at several biomedical institutions. He continues to be involved in comprehensive research and development activities focusing on dialysis and blood purification, biomedical signal analysis, medical device safety and healthcare economics.

        RONALD KUERBITZ has been with the Company since 1997. He became a member of the Management Board of Management AG and Chief Executive Officer of Fresenius Medical Care North America on January 1, 2013. Mr. Kuerbitz is a member of the board of directors for Fresenius Medical Care Holdings, Inc. and member of the board of directors for Specialty Care Services Group, LLC. Mr. Kuerbitz has more than 20 years of experience in the health care field, having held positions in law, compliance, business development, government affairs and operations.

        DR. RAINER RUNTE has been with the Company since 1991. He is a member of the Management Board of Management AG since December 2005 and is Chief Administrative Officer for Global Law, Compliance, Intellectual Property, and Corporate Business Development and is also Labor Relations Director for Germany. Furthermore, he is a member of the Board of Administration of Vifor Fresenius Medical Care Renal Pharma Ltd., Switzerland. Previously, he served as scientific assistant to the law department of the Johann Wolfgang Goethe University in Frankfurt and as an attorney in a law firm specialized in economic law.

        DR OLAF SCHERMEIER was appointed Chief Executive Officer for Global Research and Development on March 1, 2013. Previously, he served as President of Global Research and Development for Draeger Medical, Lübeck, Germany. Dr. Schermeier has many years of experience in various areas of the health care industry, among others at Charite-clinic and Biotronik, Germany.

        KENT WANZEK has been with the Company since 2003. He is a member of the Management Board of Management AG with responsibility for Global Manufacturing Operations and prior to joining the Management Board was in charge of North American Operations for the Renal Therapies Group at Fresenius Medical Care North America since 2004. Additionally, Mr. Wanzek held several senior executive positions with companies in the healthcare industry, including Philips Medical Systems, Perkin-Elmer, Inc. and Baxter Healthcare Corporation.

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


The Supervisory Board of FMC-AG & Co. KGaA

        The Supervisory Board of FMC-AG & Co. KGaA consists of six members who are elected by the shareholders of FMC-AG & Co. KGaA in a general meeting. The most recent Supervisory Board elections occurred in May of 2011. Fresenius SE, as the sole shareholder of Management AG, the general partner, is barred from voting for election of the Supervisory Board of FMC-AG & Co. KGaA, but it nevertheless has and will retain significant influence over the membership of the FMC-AG & Co. KGaA Supervisory Board in the foreseeable future. See Item 16.G, below, "Governance – The Legal Structure of FMC-AG & Co. KGaA."

        The current Supervisory Board of FMC-AG & Co. KGaA consists of six persons, five of whom – Messrs. Krick (Chairman), Schenk (Vice-Chairman), Classon, Johnston, and Weisman – are also members of the supervisory board of our General Partner. For information regarding those members of the Supervisory Board of FMC-AG & Co. KGaA, see "The General Partner's Supervisory Board," above. The sixth member of the Supervisory Board of FMC-AG & Co. KGaA is Prof. Dr. Bernd Fahrholz. Information regarding his age, term of office and business experience is as follows:

        PROF. DR. BERND FAHRHOLZ, age 66 was a member of the Supervisory Board of Management AG from April 2005 until August 2006 and was a member of the Supervisory Board of FMC-AG from 1998 until the transformation of legal form to KGaA and has been a member of the Supervisory Board of FMC-AG & Co. KGaA since the transformation. He is Vice Chairman of our Audit and Corporate

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Governance Committee. Additionally, he was of counsel and a partner in several large law firms. He also is the Chairman of the Supervisory Board of SMARTRAC N.V.

        The terms of office of the aforesaid members of the Supervisory Board of FMC-AG & Co. KGaA will expire at the end of the general meeting of shareholders of FMC-AG & Co. KGaA, in which the shareholders discharge the Supervisory Board held during the fourth fiscal year following the year in which they were elected, but not counting the fiscal year in which such member's term begins. Fresenius SE, as sole shareholder of our general partner, does not participate in the vote on discharge of the Supervisory Board. Members of the FMC-AG & Co. KGaA Supervisory Board may be removed only by a resolution of the shareholders of FMC-AG & Co. KGaA with a majority of three quarters of the votes cast at such general meeting. Fresenius SE is barred from voting on such resolutions. The Supervisory Board of FMC-AG & Co. KGaA ordinarily acts by simple majority vote and the Chairman has a tie-breaking vote in case of any deadlock.

        The principal function of the Supervisory Board of FMC-AG & Co. KGaA is to oversee the management of the Company but, in this function, the supervisory board of a partnership limited by shares has less power and scope for influence than the supervisory board of a stock corporation. The Supervisory Board of FMC-AG & Co. KGaA is not entitled to appoint the General Partner or its executive bodies, nor may it subject the general partner's management measures to its consent or issue rules of procedure for the general partner. Only the supervisory board of Management AG, elected solely by Fresenius SE, has the authority to appoint or remove members of the General Partner's Management Board. See Item 16.G, below, "Governance – The Legal Structure of FMC-AG & Co. KGaA." Among other matters, the Supervisory Board of FMC-AG & Co. KGaA will, together with the general partner, fix the agenda for the AGM and make recommendations with respect to approval of the Company's financial statements and dividend proposals. The Supervisory Board of FMC-AG & Co. KGaA will also propose nominees for election as members of its Supervisory Board. The Audit and Corporate Governance Committee also recommends to the Supervisory Board a candidate as the Company's auditors to audit our German statutory financial statements to be proposed by the Supervisory Board to our shareholders for approval and, as required by the SEC and NYSE audit committee rules, retains the services of our independent auditors to audit our U.S. GAAP financial statements.

B.    Compensation

Report of the Management Board of Management AG, our General Partner

        The compensation report of FMC-AG & Co. KGaA summarizes the main elements of the compensation system for the members of the Management Board of Fresenius Medical Care Management AG as general partner of FMC-AG & Co. KGaA and in this regard notably explains the amounts and structure of the compensation paid to the Management Board. Furthermore, the principles and the amount of the remuneration of the Supervisory Board are described. The compensation report is part of the management report of the annual financial statements and the annual consolidated group financial statements of FMC-AG & Co. KGaA as of December 31, 2013. The compensation report is prepared on the basis of the recommendations of the German Corporate Governance Code and also includes the disclosures as required pursuant to the applicable statutory regulations, notably in accordance with the German Commercial Code (HGB).

Compensation of the Management Board

        The entire Supervisory Board of Fresenius Medical Care Management AG is responsible for determining the compensation of the Management Board. The Supervisory Board is assisted in this task by a personnel committee, the Human Resources Committee. In the fiscal year, the Human Resources Committee was composed of Dr. Ulf M. Schneider (Chairman), Dr. Gerd Krick (Vice Chairman), Mr. William P. Johnston and Dr. Walter L. Weisman. See Item 16G, "Corporate Governance."

        The current Management Board compensation system was last approved by resolution of the General Meeting of FMC-AG & Co. KGaA on May 12, 2011 with a majority of 99.71% of the votes cast. Furthermore, this compensation system is reviewed by an independent external compensation expert at the beginning of each fiscal year.

        The objective of the compensation system is to enable the members of the Management Board to participate reasonably in the sustainable development of the Company's business and to reward them based on their duties and performance as well as their success in managing the Company's economic and financial position giving due regard to the peer environment.

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        The amount of the total compensation of the members of the Management Board is measured taking particular account of relevant reference values of other DAX-listed companies and similar companies of comparable size and performance in the relevant industry sector.

        The compensation of the Management Board is, as a whole, performance-based and consisted of three components in the fiscal year:

    non-performance-based compensation (fixed compensation and fringe benefits)

    short-term performance-based compensation (one-year variable compensation)

    components with long-term incentive effects (multi-year variable compensation, consisting of stock options and share-based compensations with cash settlement)

        The individual components are designed on the basis of the following criteria:

        In the fiscal year, the fixed compensation paid in Germany was divided in twelve instalments, while the fixed compensation paid in the U.S. was divided in twenty-four instalments as base salary. Moreover, the members of the Management Board received additional benefits consisting mainly of payment for insurance premiums, the private use of company cars, special payments such as foreign supplements, rent supplements, reimbursement of fees for the preparation of tax returns and reimbursement of certain other charges and additional contributions to pension and health insurance.

        Performance-based compensation will also be awarded for the fiscal year as a short-term cash component (one-year variable compensation) and as components with long-term incentive effects (stock options and share-based compensations with cash settlement). The share-based compensations with cash settlement consist of phantom stocks and of the Share Based Award.

        The amount of the one-year variable compensation and of the Share Based Award depends on the achievement of the following individual and common targets:

    Net income growth

    Free cash flow (Net cash provided by (used in) operating activities after Capital Expenditures, before Acquisitions and Investments) in percent of revenue

    Operating income margin

        The level of achievement of these targets is derived from the comparison of target amounts and actual results. Furthermore, targets are divided into Group level targets and those to be achieved in individual regions. Lastly, the various target parameters are weighted differently by their relative share in the aggregate amount of variable compensation depending on the respective (regional and/or sectoral) areas of responsibility assumed by the members of the Management Board.

        The respective minimum level of Net income growth to be achieved was at least 6% in the fiscal year, with the maximum bonus payable upon achievement of Net income growth of 15%. Furthermore, the members of the Management Board assuming Group functions and the members of the Management Board with regional responsibilities were also evaluated by reference to the development of free cash flow within the Group or in the relevant regions, respectively, during the fiscal year, with the targets being within a range of rates between 3% and 6% of the respective free cash flow in percent of revenue. For Board members without Group functions, growth of regional operating income margins within the fiscal year was compensated within individual targets ranging between 13% and 18.5%, reflecting the particularities of the respective Board responsibilities.

        The targets are, as a rule, weighted differently depending on whether the Management Board member exercises Group functions – these are Mr. Rice Powell, Mr. Michael Brosnan and Dr. Rainer Runte – or whether the Management Board member is responsible for regional earnings – these are Mr. Roberto Fusté, Dr. Emanuele Gatti and Mr. Ronald Kuerbitz – or takes on specific Management Board responsibilities without Group functions – these are Mr. Kent Wanzek for Global Manufacturing Operations and Dr. Olaf Schermeier for Research & Development. For members of the Management Board with Group functions, Net income growth accounts for 80% and is thus weighted higher than for the other Board members, where Net income growth accounts for 60%. For members of the Management Board without Group functions, a further 20% is based upon the evaluation of the operating income margin. Achievement of the target for free cash flow in percent of revenue is weighted at 20% for all members of the Management Board equally.

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        Multiplying the level of target achievement by the respective fixed compensation and another fixed multiplier provides a total amount, of which a 75% share is paid out in cash to the Management Board members (one-year variable compensation) after approval of the annual financial statements for the fiscal year. Since the maximum level of target achievement is set at 120%, the Management Board's maximum achievable one-year variable compensation is limited. The Management Board's maximum achievable and minimum one-year variable compensation in the fiscal year are as follows:

 
  Amounts of the short-term
performance-related cash
compensation (annual bonus)
 
 
  Minimum   Maximum  
 
  2013   2013  
 
  in thousands
 

Rice Powell

  $ 281   $ 2,475  

Michael Brosnan

  $ 163   $ 1,435  

Roberto Fusté

  $ 164   $ 1,446  

Dr. Emanuele Gatti

  $ 216   $ 1,928  

Ron Kuerbitz

  $ 191   $ 1,683  

Dr. Rainer Runte

  $ 127   $ 1,157  

Dr. Olaf Schermeier(1)

  $ 93   $ 877  

Kent Wanzek

  $ 117   $ 1,030  

(1)
pro rata temporis

        The remaining share, amounting to 25% of the total amount calculated according to the key data above, is granted to the members of the Management Board in the form of the Share Based Award, which is included in components with long-term incentive effects. The Share Based Award is subject to a three- or four-year waiting period, although a shorter period may apply in special cases (e.g. professional incapacity, entry into retirement, non-renewal by the Company of expired service agreements). The amount of the cash payment of the Share Based Award is based on the share price of FMC-AG & Co. KGaA ordinary shares upon exercise after the three- or four-year waiting period.

        In determining the variable compensation, it is ensured that performance-based components with long-term incentive effects (i.e. the Share Based Award as well as the stock option and phantom stock components described below) are granted in amounts which constitute at least 50% of the sum of one-and multi-year variable components. Should this turn out not to be the case mathematically, the Management Board members' contracts provide that the portion of variable compensation payable as one-year variable compensation shall be reduced and the portion payable as the Share Based Award correspondingly increased, in order to meet this requirement. The components with long-term incentive effects also contain a limitation possibility for cases of extraordinary developments. The Supervisory Board may also grant a discretionary bonus for extraordinary performance.

        In addition, a special bonus component applied in some cases for fiscal years 2006, 2007 and 2008 which was linked to the achievement of targets measured only over this three-year period but whose payment was also subject, in part, to a waiting period of several years through 2012. This bonus component also included special components linked to the achievement of extraordinary financial targets related to special integration measures (e.g. in connection with the acquisition of Renal Care Group in the U.S.) and thus required the achievement of an extraordinary increase in earnings. The present report also reflects those payments based on this earlier bonus component but exercised and paid only in the previous fiscal year (see table "Expenses for Long-term Incentive Components").

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        For the fiscal year and the previous year, the amount of cash compensation payments to members of the Management Board without components with long-term incentive effects consisted of the following:

 
  Amount of Cash Payments  
 
  Non-Performance Related
Compensation
  Performance
Related
Compensation
  Cash Compensation
(without long-term
Incentive
Components)
 
 
  Salary   Other(1)   Bonus    
   
 
 
  2013   2012   2013