6-K 1 a2210394z6-k.htm 6-K

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of the
Securities Exchange Act of 1934
For the month of August 2012

FRESENIUS MEDICAL CARE AG & Co. KGaA

(Translation of registrant's name into English)

Else-Kröner Strasse 1
61346 Bad Homburg
Germany

(Address of principal executive offices)

        Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

        Form 20-F ý        Form 40-F o

        Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):             

        Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):             

        Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

        Yes o            No ý

        If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 –             .

   


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FRESENIUS MEDICAL CARE AG & Co. KGaA

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

Financial Condition and Results of Operations

        You should read the following discussion and analysis of the results of operations of Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA," or the "Company") and its subsidiaries in conjunction with our unaudited consolidated financial statements and related notes contained elsewhere in this report and our disclosures and discussions in our Annual Report on Form 20-F for the year ended December 31, 2011, as amended. In this Report, "FMC-AG & Co. KGaA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires.

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. When used in this report, the words "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and similar expressions are generally intended to identify forward looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated, 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;

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

    the outcome of ongoing government investigations;

    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; and

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

        Important factors that could contribute to such differences are noted in the "Overview" section below and in Note 11 of the Notes to Consolidated Financial Statements (Unaudited), "Commitments and

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

Contingencies" and in our Annual Report on Form 20-F for the year ended December 31, 2011 under "Risk Factors" and elsewhere in that 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 below under "Results of Operations". For a discussion of our critical accounting policies, see Item 5, "Operating and Financial Review and Prospects – Critical Accounting Policies" in our Annual Report on Form 20-F for the year ended December 31, 2011.

Overview

        We are engaged primarily in providing dialysis services and manufacturing and distributing products and equipment for the treatment of end-stage renal disease ("ESRD"). In the U.S., we also provide inpatient dialysis services and other services under contract to hospitals. We estimate that providing dialysis services and distributing dialysis products and equipment 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 continued revenue growth and success. In addition, the reimbursement and ancillary services utilization environment significantly influences our business. In the past we experienced, and after the implementation of the case-mix adjusted bundled prospective payment system ("ESRD PPS") in the U.S., also expect in the future, generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries. The majority of treatments are paid for by governmental institutions such as Medicare in the U.S. As a consequence of the pressure to decrease healthcare costs, reimbursement rate increases have historically been limited. Our ability to influence the pricing of our services is limited.

        With the enactment of Medicare Improvements for Patients and Providers Act of 2008 ("MIPPA") in 2008, Congress mandated the development of an expanded ESRD bundled payment system for services furnished on or after January 1, 2011. On July 26, 2010, Centers of Medicare and Medicaid Services ("CMS") published a final rule implementing the ESRD PPS for ESRD dialysis facilities in accordance with MIPPA. Under the prospective payment system, 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 Erythropoietin stimulating agents ("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 will be reimbursed under the ESRD PPS starting in January 2014 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 initial ESRD PPS base reimbursement rate was set at $229.63 per dialysis treatment. 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

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

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 is being phased in over four years with full implementation for all dialysis facilities on January 1, 2014. However, providers were required to elect in November 2010 whether to become fully subject to the new system starting in January 2011 or to participate in the phase-in. Nearly all of our U.S. dialysis facilities elected to be fully subject to the ESRD PPS effective January 1, 2011. As part of the base payment for 2011, CMS included a negative 3.1% adjustment for each facility in order to ensure a budget-neutral transition, the "Transition Adjuster", based on its estimation that only 43% of dialysis facilities would elect to participate fully in the ESRD PPS in 2011. In April 2011, however, CMS reduced the Transition Adjuster to zero percent for the remainder of 2011, based on the actual number of facilities that elected to fully participate in the ESRD PPS. CMS retained a zero percent Transition Adjuster for 2012 and has proposed the same for 2013.

        Beginning in 2012, 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. On November 10, 2011, CMS published a final rule finalizing the 2012 ESRD PPS rate. In the rule, CMS established the 2012 productivity adjusted market basket update at 2.1%, which was based on a market basket update of 3.0% less a productivity adjustment of 0.9%. Additionally, CMS set the 2012 wage index budget-neutrality adjusted base rate of $234.81 per treatment. CMS has proposed an adjusted base rate of $240.88 per treatment for 2013.

        The ESRD PPS's quality incentive program ("QIP"), initially focusing on anemia management and dialysis adequacy, affects payments starting January 1, 2012. Dialysis facilities that fail to achieve the established quality standards will have payments reduced by up to 2%, measured against performance in 2010 as an initial performance period. In the November 2011 final rule, CMS established the quality measures for payment year 2013, which will once again focus on anemia management and dialysis adequacy. The 2013 measures will be measured against performance in 2011. Commencing in 2014, 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. For 2015 and subsequent years, CMS has proposed to continue certain of the existing QIP clinical and reporting measures, expand the scope of certain existing measures and add new measures. The proposed clinical measures include anemic management, hypoglycaemia, vascular access type, hemodialysis adequacy (adult and pediatric patients) and peritoneal dialysis adequacy. The proposed reporting measures include patient satisfaction surveys, mineral metabolism reporting, anemic management reporting and infection reporting. For a discussion of the impact of ESRD PPS and the above implementation plan on our business, see Item 5, "Operating and Financial Review and Prospects – Financial Condition and Results of Operations" in our Annual Report on Form 20-F for the year ended December 31, 2011 and the discussion of our North America segment in "Results of Operations," below.

        The Patient Protection and Affordable Care Act was enacted in the U.S. on March 23, 2010 and subsequently amended by the Health Care and Educational Affordability Reconciliation Act (as amended, "ACA"). 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. 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

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

long-term modest favorable impact from potentially both the ACA's and CMS's integrated care and commercial insurance consumer protection provisions.

        On August 2, 2011 the U.S. Budget Control Act of 2011 ("Budget Control Act") was enacted, which raised the U.S.'s debt ceiling and put into effect a series of actions for deficit reduction. In addition, the Budget Control Act created a 12-member Congressional Joint Select Committee on Deficit Reduction that was tasked with proposing additional revenue and spending measures to achieve additional deficit reductions of at least $1.5 trillion over ten years, which could include reductions in Medicare and Medicaid. The Joint Congressional Committee failed to make recommendations to Congress by the November 23, 2011 deadline established by the Budget Control Act. As a result of this failure, and unless Congress acts in some other fashion, automatic across the board reductions in spending of $1.2 trillion over nine fiscal years (fiscal years 2013-2021) will be triggered on January 2, 2013. The President has stated that he will veto any legislation that would repeal the automatic budget cuts without a bipartisan solution to deficit reduction. Medicare payments to providers and suppliers would be subject to the triggered reductions, but any such reductions will be capped at 2% annually. Any such reductions would be independent of annual inflation update mechanisms, such as the market basket update pursuant to the ESRD PPS.

        Our plans to mitigate the impact of the ESRD PPS and the other legislative initiatives referenced above include two broad measures. First, we are working with medical directors and treating physicians to make clinical protocol changes used in treating patients consistent with the QIP and good clinical practices, and are negotiating pharmaceutical acquisition cost savings. In addition, we are seeking to achieve 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.

        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.

        Effective February 15, 2011, the Department of Veterans Affairs ("VA") adopted payment rules which reduce 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, non-contracted services, and volume of VA patients treated in our facilities and anticipate this to continue in the future.

        We have identified three operating segments, North America, International, and Asia-Pacific. For reporting purposes, we have aggregated the International and Asia-Pacific segments as "International." We aggregated these segments due to their similar economic characteristics. These characteristics include same services provided and same products sold, same type patient population, similar methods of distribution of products and services and similar economic environments. 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 operating segments are the same as those we apply in preparing our consolidated financial statements under accounting principles generally accepted in the U.S. ("U.S. GAAP"). Our management evaluates each segment using a measure that reflects all of the segment's controllable revenues and expenses.

        With respect to the performance of our business operations, our management believes the most appropriate measure in this regard is operating income which measures our source of earnings. Financing is a corporate function which segments do not control. Therefore, we do not include interest expense relating to financing as a segment measurement. We also regard income taxes to be outside the segments' control. Similarly, we do not allocate "corporate costs," which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc. because we believe that these costs are also not within the control of the individual segments. As of January 1, 2011, production of products, production asset management, quality management and procurement are centrally managed in

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

corporate by Global Manufacturing Operations. These corporate activities do not fulfill the definition of an operating segment. Products are transferred to the operating 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 13 – "Business Segment and Corporate Information" in the Notes to the unaudited Consolidated Financial Statements found elsewhere in this report). Capital expenditures for production are based on the expected demand of the operating segments and consolidated profitability considerations. In addition, certain revenues, acquisitions and intangible assets are not allocated to a segment but are accounted for as "corporate." Accordingly, all of these items are excluded from our analysis of segment results and are discussed below in the discussion of our consolidated results of operations.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

Results of Operations

        The following tables summarize our financial performance and certain operating results by principal business segment for the periods indicated. Inter-segment sales primarily reflect sales of medical equipment and supplies. We prepared the information using a management approach, consistent with the basis and manner in which our management internally disaggregates financial information to assist in making internal operating decisions and evaluating management performance.

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  
 
  (in millions)
  (in millions)
 

Total revenue

                         

North America

  $ 2,252   $ 1,973   $ 4,360   $ 3,900  

International

    1,171     1,163     2,307     2,217  

Corporate

    8     4     17     8  
                   

Totals

    3,431     3,140     6,684     6,125  
                   

Inter-segment revenue

                         

North America

    3     2     7     4  

International

                 
                   

Totals

    3     2     7     4  
                   

Total net revenue

                         

North America

    2,249     1,971     4,353     3,896  

International

    1,171     1,163     2,307     2,217  

Corporate

    8     4     17     8  
                   

Totals

    3,428     3,138     6,677     6,121  
                   

Amortization and depreciation

                         

North America

    79     67     151     135  

International

    43     43     86     83  

Corporate

    29     26     57     54  
                   

Totals

    151     136     294     272  
                   

Operating income

                         

North America

    431     348     779     661  

International

    207     203     402     374  

Corporate

    (49 )   (41 )   (89 )   (80 )
                   

Totals

    589     510     1,092     955  
                   

Investment gain

   
13
   
   
140
   
 

Interest income

    13     16     33     26  

Interest expense

    (117 )   (91 )   (236 )   (172 )

Income tax expense

    (172 )   (149 )   (309 )   (273 )
                   

Net Income

    326     286     720     536  

Less: Net Income attributable to Noncontrolling interests

    (37 )   (25 )   (60 )   (55 )
                   

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

  $ 289   $ 261   $ 660   $ 481  
                   

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

Three months ended June 30, 2012 compared to three months ended June 30, 2011

Consolidated Financials

Key Indicators for Consolidated Financial Statements
 
  For the three months ended
June 30,
  Change in %
 
 
2012
 
2011
  as reported   at constant
exchange rates(1)

Number of treatments

    9,672,567     8,384,473   15%    

Same market treatment growth in %

    3.7%     3.9%        

Revenue in $ million

    3,428     3,138   9%   13%

Gross profit as a % of revenue

    32.9%     32.8%        

Selling, general and administrative costs as a % of revenue

    15.7%     16.0%        

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

    289     261   11%    

(1)
For further information on "at constant exchange rates," see "Non-U.S. GAAP Measures – Constant currency" below.

        Treatments increased by 15% for the second quarter of 2012 as compared to the same period in 2011. The increase is due to our acquisition of Liberty Dialysis Holdings, Inc. ("LD Holdings"), the owner of Liberty Dialysis and a 51% stake in Renal Advantage Partners, LLC, which we completed on February 28, 2012 (the "Liberty Acquisition"), net of the divestitures (6%), contributions from other acquisitions (6%) and same market treatment growth (4%), partially offset by the effect of closed or sold clinics (1%).

        At June 30, 2012, we owned, operated or managed (excluding those managed but not consolidated in the U.S.) 3,123 clinics compared to 2,838 clinics at June 30, 2011. During the second quarter of 2012, we acquired 15 clinics (net of clinics divested in connection with the Liberty Acquisition discussed below), opened 21 clinics and combined or closed 32 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 14% to 256,456 at June 30, 2012 from 225,909 at June 30, 2011. Including 28 clinics managed but not consolidated in the U.S., the total number of patients was 258,680.

        Net revenue increased by 9% (13% at constant exchange rates) for the second quarter of 2012 over the comparable period in 2011, due to growth in dialysis care, partially offset by a decrease in dialysis product revenue.

        Net dialysis care revenue increased by 13% (16% at constant exchange rates) to $2,605 million for the second quarter of 2012 from $2,305 million in the same period of 2011, mainly due to contributions from acquisitions (14%), growth in same market treatments (4%), partially offset by a negative effect from exchange rate fluctuations (3%), the effect of closed or sold clinics (1%) and decreases in organic revenue per treatment (1%).

        Dialysis product revenue decreased by (1%) (an increase of 6% at constant exchange rates) to $823 million from $832 million in the same period of 2011, due to the negative effect of exchange rate fluctuations partially offset by increased sales of hemodialysis products, especially of machines, dialyzers and bloodlines.

        The increase in gross profit margin mainly reflects an increase in gross profit margin for North America. The increase in North America was due to a higher revenue per treatment rate associated with Medicare and expanded service offerings and increased product margins, as well as the impact of the Liberty Acquisition, which contributed higher gross margins, partially offset by higher personnel expenses.

        Selling, general and administrative ("SG&A") expenses increased to $540 million in the second quarter of 2012 from $502 million in the same period of 2011. SG&A expenses as a percentage of revenues decreased to 15.7% for the second quarter of 2012 in comparison with 16.0% during the same period of 2011 attributable to a decrease in International, partially offset by an increase in North America. The

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

decrease in International as a percentage of revenue was largely driven by favorable foreign exchange effects, reduced acquisition costs and business growth in Asia, partially offset by increased bad debt expense. The increase in North America as a percentage of revenue was mainly driven by higher personnel expenses and one time costs related to the Liberty Acquisition, partially offset by the impact from the Liberty Acquisition, which has lower SG&A expenses as a percentage of sales.

        We agreed to divest a total of 62 clinics in connection with the regulatory clearance of the Liberty Acquisition from the United States Federal Trade Commission ("FTC"). During the three months ended June 30, 2012, 12 clinics were sold including 9 FMC-AG & Co. KGaA clinics which resulted in a gain of $24 million, partially offset by the cost of the Liberty Acquisition. (See Note 2 – "Acquisition of Liberty Dialysis Holdings – Divestitures" in our Consolidated Financial Statements included in this Report).

        R&D expenses remained constant at $27 million in the second quarter of 2012 as compared to $27 million in the same period in 2011 and decreased as a percentage of revenue to 0.8% from 0.9%.

        Income from equity method investees decreased to $4 million for the second quarter of 2012 from $9 million for the same period of 2011 mainly due to reduced income from Vifor-Fresenius Medical Care Renal Pharma Ltd. ("VFMCRP"), our renal pharmaceuticals joint venture.

        Operating income increased to $589 million in the second quarter of 2012 from $510 million for the same period in 2011. Operating income margin increased to 17.2% for the second quarter of 2012 from 16.2% for the same period in 2011 mainly due to the gain from the sale of FMC-AG & Co. KGaA clinics, lower SG&A expense as a percentage of revenue and an increase in gross profit margin, partially offset by lower income from equity method investees, all as discussed above.

        The non-taxable investment gain of $127 million due to our acquisition of LD Holdings recorded in the first quarter of 2012 increased by $13 million in the second quarter of 2012 to a total of $140 million for the six months ended June 30, 2012. This increase is due to fair value re-measurements related to developments in the finalization of our acquisition accounting.

        Interest expense increased by 29% to $117 million for the second quarter of 2012 from $91 million for the same period in 2011 mainly as a result of increased debt.

        Income tax expense increased to $172 million for the second quarter of 2012 from $149 million for the same period in 2011. The effective tax rate increased to 34.6% from 34.2% for the same period of 2011 as a result of a higher tax resulting from a different tax basis for the gain from the divestiture of FMC-AG & Co. KGaA clinics in the U.S. in connection with the Liberty Acquisition, partially offset by the effect of the non-taxable investment gain.

        Net income attributable to shareholders of FMC-AG & Co. KGaA for the second quarter of 2012 increased to $289 million from $261 million for the same period in 2011 as a result of the combined effects of the items discussed above.

        We employed 84,194 people (full-time equivalents) as of June 30, 2012 compared to 77,081 as of June 30, 2011, an increase of 9.2%, primarily due to overall growth in our business and acquisitions.

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

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


North America Segment

Key Indicators for North America Segment
 
  For the three months ended
June 30,
   
 
  Change in %
 
  2012   2011

Number of treatments

    6,141,414     5,379,508   14%

Same market treatment growth in %

    3.6%     3.2%    

Revenue in $ million

    2,249     1,971   14%

Depreciation and amortization in $ million

    79     67   19%

Operating income in $ million

    431     348   24%

Operating income margin in %

    19.2%     17.7%    

Revenue

        Treatments increased by 14% for the second quarter of 2012 as compared to the same period in 2011 mostly due to the Liberty Acquisition, net of the divestitures (10%), other acquisitions (1%) and same market growth (4%), partially offset by the effect of closed or sold clinics (1%). At June 30, 2012, 164,058 patients (a 17% increase over June 30, 2011) were being treated in the 2,046 clinics that we own or operate in the North America segment, compared to 139,906 patients treated in 1,826 clinics at June 30, 2011. Average North America revenue per treatment, before bad debt expense, was $344 for the second quarter of 2012 and $340 for the same period in 2011. In the U.S., the average revenue per treatment was $351 for the second quarter of 2012 in comparison to $348 for the same period in 2011. The increase was influenced by a number of factors. In the quarter, we saw an increase due to further development of our expanded service offerings, the updated Medicare reimbursement rate which came into effect in January 2012 and benefits associated with our Liberty Acquisition. This improvement was partially offset by reduced pharmaceutical utilization in non-bundled commercial treatments, a reduction in the rates we charge the Veterans Administration and a reduction in treatment rates for certain bundled commercial payors.

        Net revenue for the North America segment for the second quarter of 2012 increased in comparison to the same period of 2011 as a result of a 15% increase in net dialysis care revenue to $2,043 million from $1,772 million and a 3% increase in dialysis product revenue to $206 million from $199 million as compared to the same period in 2011.

        The net dialysis care revenue increase was driven by contributions from acquisitions (15%), growth in same market treatments (4%), partially offset by decreases in organic revenue per treatment (2%) and the effect of closed or sold clinics (2%).

        The dialysis product revenue increase was driven by increased sales of hemodialysis products, particularly machines and bloodlines, partially offset by decreased sales of dialyzers.

Operating Income

        Operating income increased to $431 million for the second quarter of 2012 from $348 million for the same period in 2011. Operating income margin increased to 19.2% for the second quarter of 2012 from 17.7% for the same period in 2011, mainly due to the gain from the sale of FMC-AG & Co. KGaA clinics, increases in Medicare reimbursement and the further development of our expanded service offerings, the positive impact of the Liberty Acquisition, including divestiture gains, partially offset by higher personnel expenses and the costs related to the Liberty Acquisition. The cost per treatment for North America decreased to $275 for the second quarter of 2012 from $277 in the same period of 2011.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011


International Segment

Key Indicators for International Segment
 
  For the three months ended
June 30,
  Change in %
 
 
2012
 
2011
  as reported   at constant
exchange rates(1)

Number of treatments

    3,531,153     3,004,965   18%    

Same market treatment growth in %

    3.9%     5.2%        

Revenue in $ million

    1,171     1,163   1%   11%

Depreciation and amortization in $ million

    43     43   0%    

Operating income in $ million

    207     203   2%    

Operating income margin in %

    17.7%     17.5%        

(1)
For further information on "at constant exchange rates," see "Non-U.S. GAAP Measures – Constant currency" below.

Revenue

        Treatments increased by 18% in the second quarter of 2012 over the same period in 2011 mainly due to contributions from acquisitions (14%) and same market growth (4%). As of June 30, 2012, we had 92,398 patients (a 7% increase over June 30, 2011) being treated at the 1,077 clinics that we own, operate or manage in the International segment compared to 86,003 patients treated at 1,012 clinics at June 30, 2011. Average revenue per treatment for the second quarter of 2012 decreased to $159 in comparison with $178 for the same period of 2011 due to the weakening of local currencies against the U.S. dollar ($17) as well as decreased reimbursement rates and changes in country mix ($2).

        Net revenues for the International segment for the second quarter of 2012 increased by 1% (11% increase at constant exchange rates) as compared to the same period in 2011 as a result of an increase in dialysis care revenue, partially offset by decreased dialysis product revenues. Organic growth was 6% and acquisitions contributed 5%. This was nearly offset by the negative effect of exchange rate fluctuations.

        Including the effects of acquisitions, European region revenue decreased 3% (9% increase at constant exchange rates), Latin America region revenue increased 9% (20% increase at constant exchange rates), and Asia-Pacific region revenue increased 6% (8% increase at constant exchange rates).

        Total dialysis care revenue for the International segment increased during the second quarter of 2012 by 5% (16% increase at constant exchange rates) to $562 million from $534 million in the same period of 2011. This increase is a result of contributions from acquisitions 12%, growth in same market treatments for the period 4% and growth in organic revenue per treatment 1%, partially offset by the negative effect of exchange rate fluctuations of (11%) and the effect of closed or sold clinics (1%).

        Total dialysis product revenue for the second quarter of 2012 decreased by (3%) (6% increase at constant exchange rates) to $609 million from $629 million in the same period of 2011. The decrease in product revenue was driven by exchange rate fluctuations (9%), partially offset with organic growth (6%). Growth at constant exchange rates was driven by increased sales of hemodialysis products, especially of machines, dialyzers, bloodlines and peritoneal dialysis products as well as increased renal pharmaceuticals sales.

Operating Income

        Operating income increased by 2% to $207 million for the second quarter of 2012 from $203 million for the same period in 2011. Operating income margin increased to 17.7% for the second quarter of 2012 from 17.5% for the same period in 2011 due to favorable foreign exchange effects and business growth in Asia, partially offset by increased bad debt expense and growth in areas with lower margins.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

Six months ended June 30, 2012 compared to six months ended June 30, 2011

Consolidated Financials

Key Indicators for Consolidated Financial Statements
 
  For the six months ended
June 30,
  Change in %
 
 
2012
 
2011
  as reported   at constant
exchange rates(1)

Number of treatments

    18,885,213     16,559,315   14%    

Same market treatment growth in %

    3.8%     4.1%        

Revenue in $ million

    6,677     6,121   9%   12%

Gross profit as a % of revenue

    32.9%     32.3%        

Selling, general and administrative costs as a % of revenue

    16.4%     16.1%        

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

    660     481   37%    

(1)
For further information on "at constant exchange rates," see "Non-U.S. GAAP Measures – Constant currency" below.

        Treatments increased by 14% for the six months ended June 30, 2012 as compared to the same period in 2011. The increase is due to the Liberty Acquisition, net of the divestitures (5%), other acquisitions (5%), same market treatment growth contributed (4%) and an increase in the dialysis treatment days (1%), partially offset by the effect of closed or sold clinics (1%).

        Net revenue increased by 9% (12% at constant exchange rates) for the six months ended June 30, 2012 over the comparable period in 2011 due to growth in both dialysis care and dialysis products revenues.

        Dialysis care revenue increased by 12% to $5,082 million (14% at constant exchange rates) in the six-month period ended June 30, 2012 from $4,537 million in the same period of 2011, mainly due to contributions from acquisitions (11%), growth in same market treatments (4%) and an increase in the dialysis treatment days (1%), partially offset by the negative effect of exchange rate fluctuations (2%), decreases in organic revenue per treatment (1%) and the effect of closed or sold clinics (1%).

        Dialysis product revenue increased by 1% to $1,595 million (increased by 6% at constant exchange rates) from $1,584 million in the same period of 2011, driven by increased sales of hemodialysis products, especially of machines, dialyzers and bloodlines as well as peritoneal dialysis products, partially offset by lower sales of renal pharmaceuticals.

        The increase in gross profit margin mostly reflects an increase in gross profit margin in North America. The increase in North America was due to a higher revenue rate associated with Medicare and expanded service offerings as well as the impact from the Liberty Acquisition, which contributed higher gross margins, partially offset by higher personnel expenses.

        SG&A expenses increased to $1,092 million in the six-month period ended June 30, 2012 from $986 million in the same period of 2011. SG&A expenses as a percentage of sales increased to 16.4% in the first six months of 2012 from 16.1% in the same period of 2011 as a result of an increase in North America, partially offset by a decrease in the International segment. The increase in North America was a result of one-time costs related to the Liberty Acquisition and higher personnel expenses, partially offset by the impact of the Liberty Acquisition, which has lower SG&A expenses as a percentage of sales, lower charitable donations. The decrease in International was driven by foreign exchange effects, business growth in Asia, mainly China, partially offset by increased bad debt expense.

        For the six months ended 2012, we had a $33 million gain 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. This gain was partially offset by the cost of the acquisition. Income tax expense related to the sale of these clinics of approximately $22 million has been recorded in the line item "Income tax

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

expense," resulting in a net gain of approximately $12 million. (See Note 2 – "Acquisition of Liberty Dialysis Holdings – Divestitures" in our Consolidated Financial Statements included in this Report).

        Research and development ("R&D") expenses increased to $55 million in the six-month period ended June 30, 2012 as compared to $53 million in the same period in 2011.

        Income from equity method investees decreased to $9 million for the six months ended June 30, 2012 from $16 million for the same period of 2011 due to reduced income from the VFMCRP renal pharmaceuticals joint venture.

        Operating income increased to $1,092 million in the six-month period ended June 30, 2012 from $955 million for the same period in 2011. Operating income margin increased to 16.4% for the six-month period ended June 30, 2012 as compared to 15.6% for the same period in 2011 as a result of the increase in gross profit margin and the gain on the sale of FMC-AG & Co. KGaA clinics, partially offset by higher SG&A as a percentage of revenue and lower income from equity method investees.

        The non-taxable investment gain related to our acquisition of LD Holdings for the six months ended June 30, 2012 was $140 million. The increase from $127 million in the first quarter of 2012 is a result of fair value re-measurement due to developments in the finalization of our acquisition accounting.

        Interest expense increased by 37% to $236 million for the six months ended June 30, 2012 from $172 million for the same period in 2011 mainly as a result of increased debt. Interest income increased to $33 million for the six months ended June 30, 2012 from $26 million for the same period in 2011 as a result of favorable impact from the interest component related to the hedging of intercompany loans.

        Income tax expense increased to $309 million for the six-month period ended June 30, 2012 from $273 million for the same period in 2011. The effective tax rate decreased to 30.1% from 33.8% for the same period of 2011, as a result of a nontaxable investment gain and higher tax from the divestiture of FMC-AG & Co. KGaA clinics in connection with the Liberty Acquisition.

        Net income attributable to FMC-AG & Co. KGaA for the six months ended June 30, 2012 increased to $660 million from $481 million for the same period in 2011 as a result of the combined effects of the items discussed above.

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


North America Segment

Key Indicators for North America Segment
 
  For the six months ended
June 30,
   
 
  Change in %
 
  2012   2011

Number of treatments

    11,887,400     10,621,160   12%

Same market treatment growth in %

    3.5%     3.5%    

Revenue in $ million

    4,353     3,896   12%

Depreciation and amortization in $ million

    151     135   12%

Operating income in $ million

    779     661   18%

Operating income margin in %

    17.9%     17.0%    

Revenue

        Treatments increased by 12% for the six months ended June 30, 2012 as compared to the same period in 2011 mostly due to the Liberty Acquisition, net of divestitures (7%) same market growth (4%), contributions from other acquisitions (1%) and changes in dialysis treatment days (1%), partially offset by the effect of closed or sold clinics (1%). Average North America revenue per treatment was $345 for the six months ended June 30, 2012 and $340 in the same period in 2011. In the U.S., the average revenue per treatment was $352 for the six months ended June 30, 2012 and $348 for the same period in 2011. The

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

increase was mainly attributable to further development of our expanded service offerings and an increase in Medicare reimbursement from the updated Medicare reimbursement rate and removal of the Transition Adjustor which both came into effect in January 2012. This improvement was partially offset by reduced pharmaceutical utilization in non-bundled commercial treatments and a reduction in the rates we charge the Veterans Administration.

        Net revenue for the North America segment for the first six months of 2012 increased as a result of an increase in dialysis care revenue by 13% to $3,960 million from $3,501 million in the same period of 2011 partially offset by a decrease in dialysis product revenue by 1% to $393 million from $395 million in the first six months of 2011.

        The dialysis care revenue increase was driven by contributions from acquisitions (11%), same market treatment growth (4%) and an increase in dialysis treatment days (1%), partially offset by decreases in organic revenue per treatment (2%) and the effect of closed or sold clinics (1%).

        The dialysis product revenue decrease was driven by lower sales of renal pharmaceuticals, partially offset by higher sales of hemodialysis products.

Operating Income

        Operating income increased to $779 million for the six-month period ended June 30, 2012 from $661 million for the same period in 2011. Operating income margin increased to 17.9% for the six months ended June 30, 2012 from 17.0% for the same period in 2011, primarily due to the gain from sale of FMC-AG & Co. KGaA clinics, higher revenue per treatment rate associated with Medicare and expanded service offerings, positive impact from the Liberty Acquisition, including divestiture gains, partially offset by higher personnel expenses, costs related to the Liberty Acquisition as well as lower income from equity method investees due to income from the Vifor joint venture. Cost per treatment for North America decreased to $277 for the first six months of 2012 from $279 in the same period of 2011. Cost per treatment in the U.S. decreased to $283 for the first six months of 2012 from $285 in the same period of 2011.


International Segment

Key Indicators for International Segment
 
  For the six months ended
June 30,
  Change in %
 
 
2012
 
2011
  as reported   at constant
exchange rates

Number of treatments

    6,997,813     5,938,155   18%    

Same market treatment growth in %

    4.3%     5.4%        

Revenue in $ million

    2,307     2,217   4%   11%

Depreciation and amortization in $ million

    86     83   3%    

Operating income in $ million

    402     374   7%    

Operating income margin in %

    17.4%     16.9%        

Revenue

        Treatments increased by 18% in the six months ended June 30, 2012 over the same period in 2011 mainly due to contributions from acquisitions (14%) and same market growth (4%) and an increase in dialysis treatment days (1%), partially offset by the effect of closed or sold clinics (1%). Average revenue per treatment for the six months ended June 30, 2012 decreased to $160 in comparison with $175 for the same period of 2011 due to the weakening of local currencies against the U.S. dollar ($12) and decreased reimbursement rates and changes in country mix ($3).

        Net revenues for the International segment for the six months ended June 30, 2012 increased by 4% (11% increase at constant exchange rates) as compared to the same period in 2011 as a result of an increase in dialysis care. Organic growth during the period was 6% and acquisitions during the period contributed 5%, partially offset by the negative effect of exchange rate fluctuations 7%.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

        Including the effects of acquisitions, European region revenue increased 1% (10% increase at constant exchange rates), Latin America region revenue increased 15% (23% increase at constant exchange rates), and Asia-Pacific region revenue increased 6% (7% increase at constant exchange rates).

        Total dialysis care revenue for the International segment increased during the six months ended June 30, 2012 by 8% (16% increase at constant exchange rates) to $1,122 million from $1,037 million in the same period of 2011. This increase is a result of contributions from acquisitions (11%), same market treatment growth (4%), increases in organic revenue per treatment (1%) as well as an increase in dialysis treatment days (1%), partially offset by the negative effect of exchange rate fluctuations (8%) and the effect of closed or sold clinics (1%).

        Total dialysis product revenue for the six months ended June 30, 2012 remained fairly flat (7% increase at constant exchange rates) at $1,185 million compared to $1,180 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 and dialyzers as well as peritoneal dialysis products, renal pharmaceuticals as well as products for acute care treatments, mostly offset by exchange rate fluctuations of 7%.

Operating Income

        Operating income increased by 7% to $402 million for the six months ended June 30, 2012 from $374 million for the same period in 2011. Operating income margin increased to 17.4% for the six months ended June 30, 2012 from 16.9% for the same period in 2011 due to favorable foreign exchange effects and business growth in Asia, partially offset by impact of increased bad debt expense and lower margin sales in the Middle East.

Liquidity and Capital Resources

Six months ended June 30, 2012 compared to six months ended June 30, 2011

Liquidity

        Our primary sources of liquidity have historically been cash from operations, cash from borrowings from third parties and related parties, as well as cash from issuance of debt and equity securities. We require this capital primarily to finance working capital needs, to fund acquisitions and joint ventures, to develop free-standing renal dialysis centers, to purchase equipment for existing or new renal dialysis centers and production sites, to repay debt and to pay dividends.

        At June 30, 2012, we had cash and cash equivalents of $677 million. For information regarding utilization and availability under our Amended 2006 Senior Credit Agreement, see Note 7, "Long-term Debt and Capital Lease Obligations" in our Consolidated Financial Statements included in this Report.

Operations

        In the first six months of 2012 and 2011, we generated net cash from operations of $932 million and $487 million, respectively. Cash from operations 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 (especially payments in relation to disallowed tax deductions and legal proceedings). The increase in the first six months of 2012 versus 2011 was mainly a result of a 3 day decrease in days sales outstanding ("DSO") as compared to a 6 day increase in the same period of 2011 and a lower increase in inventory level.

        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 six months ended June 30, 2012, approximately 31% 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

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

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. In the past we experienced, and after the implementation of the ("ESRD PPS") in the U.S., also expect in the future, generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries.

        Our working capital, which is defined as current assets less current liabilities, was $193 million at June 30, 2012 which decreased from $1,432 million at December 31, 2011, mainly as a result of an increase in the current portion of long-term debt due to the reclassification of our Amended 2006 Senior Credit Agreement, which matures on March 31, 2013. At June 30, 2012, the obligations under the Amended 2006 Senior Credit Agreement represented $2.668 billion of our debt. We anticipate that the obligations under this agreement will be refinanced prior to maturity (see Note 7). Our ratio of current assets to current liabilities was 1.0 at June 30, 2012.

        We intend to continue to address our current cash and financing requirements by the generation of cash from operations, 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 from operations depends on the collection of accounts receivable. 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 June 30, 2012 and December 31, 2011, net of valuation allowances, represented DSO of approximately 77 and 80, 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 related to significant acquisitions made during the periods presented. The development of DSO by reporting segment is shown in the table below:

 
  June 30,
2012
  December 31,
2011
 

North America days sales outstanding

    54     55  
           

International days sales outstanding

    120     121  
           

FMC-AG & Co. KGaA average days sales outstanding

    77     80  
           

        DSO decreased for both the North American and International segments between December 31, 2011 and June 30, 2012. The North American segment's DSO decrease is due to timing differences of receipts. The International segment's DSO decrease reflects significant cash collections from Spain, mostly offset by slight payment delays, particularly in countries with budget deficits and growth in China. 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, albeit slightly more slowly in the International segment in the immediate future.

        There are a number of tax and other items we have identified that will or could impact our financial results and cash flows from operations in the future as follows:

        We filed claims for refunds contesting the Internal Revenue Service's ("IRS") disallowance of civil settlement payment deductions taken by Fresenius Medical Care Holdings, Inc. ("FMCH") in prior year tax returns. As a result of a settlement agreement with the IRS, we received a partial refund in September 2008 of $37 million, inclusive of interest and preserved our right to pursue claims in the United States

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

courts for refunds of all other disallowed deductions. On December 22, 2008, we filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. The court has denied motions for summary judgment by both parties and the litigation is proceeding towards trial scheduled to begin August 6, 2012.

        We are subject to ongoing and future tax audits in the U.S., Germany and other jurisdictions. We have received notices of unfavorable adjustments and disallowances in connection with certain of the audits, 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.

        W.R. Grace & Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Grace Chapter 11 Proceedings") on April 2, 2001. The settlement agreement with the asbestos creditors committees on behalf of the W.R. Grace & Co. bankruptcy estate (see Note 11 of the Notes to Consolidated Financial Statements, "Commitments and Contingencies – Legal Proceedings – Commercial Litigation") provides for payment by us of $115 million upon approval of the settlement agreement by the U.S. District Court, which has occurred, and confirmation by the U.S. District Court of a W.R. Grace & Co. bankruptcy reorganization plan that includes the settlement. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the plan of reorganization. These confirmation orders were affirmed by the U.S. District Court on January 31, 2012. Multiple parties have appealed to the Third Circuit Court of Appeals and the plan of reorganization will not be implemented until the appeals are finally resolved. The $115 million obligation was included in the special charge we recorded in 2001 to address 1996 merger-related legal matters. See Note 11 – "Commitments and Contingencies – Legal Proceedings – Accrued Special Charge for Litigation" in our Consolidated Financial Statements included in this Report. The payment obligation is not interest-bearing.

Investing

        We used net cash of $1,794 million and $1,353 million in investing activities in the six-month periods ended June 30, 2012 and 2011, respectively.

        Capital expenditures for property, plant and equipment, net of disposals were $274 million and $231 million in the first six months of 2012 and 2011, respectively. In the first six months of 2012, capital expenditures were $132 million in the North America segment, $80 million for the International segment and $62 million at Corporate. Capital expenditures in the first six months of 2011 were $104 million in the North America segment, $72 million for the International segment and $55 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, North America and France and capitalization of machines provided to our customers, primarily in the International segment. Capital expenditures were approximately 4% of total revenue in the first six months of 2012 and 2011.

        We invested approximately $1,748 million cash in the first six months of 2012, primarily through the $1,455 million acquisition of Liberty, net of divestitures ($1,730 million in the North America segment (see Note 2 – "Acquisition of Liberty Dialysis Holdings"), $17 million in the International segment and $1 million at Corporate). In the first six months of 2011, we invested approximately $1,122 million cash through the acquisition of International Dialysis Centers, the dialysis service business of Euromedic International, loans provided to Renal Advantage Partners LLC, the parent company of Renal Advantage, Inc., a provider of dialysis services, and investments in majority owned joint ventures ($358 million in the North America segment, $759 in the International segment and $5 million at Corporate).

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

        We anticipate capital expenditures of approximately $0.7 billion and expect to make acquisitions of approximately $1.8 billion net of divestitures in 2012, including all acquisitions to date, see the Notes to Consolidated Financial Statements included in the report. See "Outlook" below.

Financing

        Net cash provided by financing was $1,089 million in the first six months of 2012 compared to net cash provided by financing of $742 million in the first six months of 2011, respectively.

        In the six-month period ended June 30, 2012, cash was provided by the issuance of senior notes and short-term borrowings, partially offset by, repayment of long-term debt, the accounts receivable facility, borrowings from related parties as well as the payment of dividends. For further information on the issuance of senior notes in 2012, see below. In the first six months of 2011, cash was provided by the issuance of $1,062 million in senior notes in February 2011, drawings under our revolving credit facility, short-term borrowings and short-term borrowings from related parties and drawings under the accounts receivable facility, partially offset by the repayment of the Trust Preferred Securities, repayment of long-term debt and the payment of dividends.

        On May 11, 2012, we paid a dividend with respect to 2011 of €0.69 per ordinary share (for 2010 paid in 2011: €0.65) and €0.71 per preference share (for 2010 paid in 2011: €0.67). The total dividend payment was € 210 million ($272 million) as compared with €197 million ($281 million) in the prior year.

        On January 26, 2012, Fresenius Medical Care US Finance II, Inc. ("US Finance II"), a wholly-owned subsidiary, issued $800 million aggregate principal amount of senior unsecured notes with a coupon of 5 5/8% (the "5 5/8% Senior Notes") at par and $700 million aggregate principal amount of senior unsecured notes with a coupon of 5 7/8% (the "5 7/8% Senior Notes") at par (together, the "Dollar-denominated Senior Notes"). In addition, FMC Finance VIII S.A. ("Finance VIII"), a wholly-owned subsidiary, issued €250 million aggregate principal amount ($329 million at date of issuance) of senior unsecured notes with a coupon of 5.25% (the "Euro-denominated Senior Notes") at par. Both the 5 5/8% Senior Notes and the Euro-denominated Senior Notes are due July 31, 2019 while the 5 7/8% Senior Notes are due January 31, 2022. US Finance II and Finance VIII may redeem the Dollar-denominated Senior Notes and Euro-denominated Senior Notes, respectively, at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the applicable indenture. The holders of the Dollar-denominated Senior Notes and the Euro-denominated Senior Notes have a right to request that the respective issuers of the notes repurchase the applicable issue of notes at 101% of principal plus accrued interest upon the occurrence of a change in control of FMC-AG & Co. KGaA followed by a decline in the rating of the respective notes. We used the net proceeds of approximately $1,807 million for acquisitions, including the acquisition of Liberty Dialysis Holdings, Inc., which closed on February 28, 2012, to refinance indebtedness and for general corporate purposes. The Dollar-denominated Senior Notes and the Euro-denominated Senior Notes are guaranteed on a senior basis jointly and severally by us, Fresenius Medical Care Holdings, Inc. ("FMCH") and Fresenius Medical Care Deutschland GmbH ("D-GmbH") (together, the "Guarantor Subsidiaries").

Non-U.S. GAAP Measures

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" 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. When we use the term "constant currency," it means that we have translated local currency revenues for the current reporting period into U.S. dollars using the same average foreign currency exchange rates for the conversion of revenues into U.S. dollars that we used to translate local currency revenues for the comparable reporting period of the prior year. We then calculate the change, as a percentage, of the current period revenues using the prior period exchange rates versus the prior period

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Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011

revenues. This resulting percentage is a non-GAAP measure referring to a change as a percentage "at constant exchange rates."

        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 is inherent in the disclosure, we believe that a separate reconciliation would not provide any additional benefit.

Debt covenant disclosure – EBITDA

        EBITDA (earnings before interest, tax, depreciation and amortization expenses) was approximately $1,386 million, 20.8% of revenues for the six-month period ended June 30, 2012, and $1,227 million, 20.0% of revenues for the same period of 2011. EBITDA is the basis for determining compliance with certain covenants contained in our Amended 2006 Senior 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 operating activities, which we believe to be the most directly comparable U.S. GAAP financial measure, is calculated as follows:


Reconciliation of measures for consolidated totals

 
  For the six months
ended June 30,
 
 
  2012   2011  
 
  ($ in millions)
 

Total EBITDA

  $ 1,386   $ 1,227  

Interest expense (net of interest income)

    (203 )   (146 )

Income tax expense, net

    (309 )   (273 )

Change in deferred taxes, net

    65     53  

Changes in operating assets and liabilities

    27     (329 )

Stock compensation expense

    13     15  

Other items, net

    (47 )   (60 )
           

Net cash provided by operating activities

  $ 932   $ 487  
           

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Interim Report of Financial Condition and Results of Operations
for the three and six months ended June 30, 2012 and 2011


Balance Sheet Structure

        Total assets as of June 30, 2012 increased to $21.7 billion compared to $19.5 billion at December 31, 2011. Current assets as a percent of total assets decreased to at 28% at June 30, 2012 compared to 29% as of December 31, 2011. The equity ratio, the ratio of our equity divided by total liabilities and shareholders' equity, decreased to 39% at June 30, 2012 from 41% at December 31, 2011.


Outlook

        We confirm our outlook for the full year 2012 as depicted in the table below:

 
  2012
 
  ($ in millions)

Net Revenues(1)

  ~ $14,000

Net Income attributable to shareholders of FMC-AG & Co. KGaA(1),(2)

  ~ $1,140

Debt/EBITDA Ratio

  <3.0

Capital Expenditures

  ~ $0.7 billion

Acquisitions, net of divestitures

  ~ $1,800

(1)
We are defining the ~ sign as a +/-0-2% deviation from the respective numbers.

(2)
The net income attributable to shareholders of FMC-AG & Co. KGaA does not include the year-to-date investment gain in the amount of approximately $140 million. In addition, the amount of the gain is subject to finalization of the Liberty acquisition accounting.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Statements of Income
(unaudited)
(in thousands, except share data)

 
  For the three months ended
June 30,
  For the six months ended
June 30,
 
 
  2012   2011   2012   2011  

Revenue:

                         

Dialysis Care

  $ 2,675,422   $ 2,361,563   $ 5,219,481   $ 4,646,879  

Less: Patient service bad debt provision

    70,303     56,429     137,162     108,966  
                   

Net Dialysis Care

    2,605,119     2,305,134     5,082,319     4,537,913  

Dialysis Products

    822,854     832,489     1,594,409     1,583,561  
                   

    3,427,973     3,137,623     6,676,728     6,121,474  

Costs of revenue:

                         

Dialysis Care

    1,913,947     1,705,846     3,745,073     3,381,797  

Dialysis Products

    387,152     402,771     735,272     762,784  
                   

    2,301,099     2,108,617     4,480,345     4,144,581  

Gross profit

    1,126,874     1,029,006     2,196,383     1,976,893  

Operating (income) expenses:

                         

Selling, general and administrative

    539,616     501,559     1,092,448     985,795  

Gain on sale of dialysis clinics

    (24,647 )       (33,961 )    

Research and development

    26,938     26,783     55,460     52,932  

Income from equity method investees

    (3,858 )   (8,880 )   (9,355 )   (16,462 )
                   

Operating income

    588,825     509,544     1,091,791     954,628  

Other (income) expense:

                         

Investment gain

    (12,915 )       (139,600 )    

Interest income

    (12,496 )   (15,579 )   (32,802 )   (26,000 )

Interest expense

    116,691     90,183     235,877     172,169  
                   

Income before income taxes

    497,545     434,940     1,028,316     808,459  

Income tax expense

    172,241     148,856     309,318     273,260  
                   

Net income

    325,304     286,084     718,998     535,199  

Less: Net income attributable to noncontrolling interests

    35,967     25,323     59,163     53,737  
                   

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

  $ 289,337   $ 260,761   $ 659,835   $ 481,462  
                   

Basic income per ordinary share

  $ 0.95   $ 0.86   $ 2.17   $ 1.59  
                   

Fully diluted income per ordinary share

  $ 0.94   $ 0.86   $ 2.15   $ 1.58  
                   

   

See accompanying notes to unaudited consolidated financial statements.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Statements of Comprehensive Income
(unaudited)
(in thousands, except share data)

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  

Net Income

  $ 325,304   $ 286,084   $ 718,998   $ 535,199  
                   

Gain (loss) related to cash flow hedges

    12,525     (1,855 )   8,242     2,129  

Actuarial gain (loss) on defined benefit pension plans

    4,370     1,782     8,743     3,565  

Gain (loss) related to foreign currency translation

    (168,412 )   47,405     (47,616 )   166,358  

Income tax (expense) benefit related to components of other comprehensive income

    (4,977 )   (4,696 )   (23,958 )   (8,847 )
                   

Other comprehensive income (loss), net of tax

    (156,494 )   42,636     (54,589 )   163,205  
                   

Total comprehensive income

  $ 168,810   $ 328,720   $ 664,409   $ 698,404  

Comprehensive income attributable to noncontrolling interests

    35,212     26,080     59,249     54,762  
                   

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

  $ 133,598   $ 302,640   $ 605,160   $ 643,642  
                   

   

See accompanying notes to unaudited consolidated financial statements.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Balance Sheets
At June 30, 2012 and December 31, 2011
(in thousands, except share data)

 
  June 30,
2012
  December 31,
2011
 
 
  (unaudited)
  (audited)
 

Assets

             

Current assets:

             

Cash and cash equivalents

  $ 677,378   $ 457,292  

Trade accounts receivable less allowance for doubtful accounts of $305,918 in 2012 and $299,751 in 2011

    2,932,835     2,798,318  

Accounts receivable from related parties

    206,500     111,008  

Inventories

    1,033,346     967,496  

Prepaid expenses and other current assets

    942,903     1,035,366  

Deferred taxes

    270,382     325,539  
           

Total current assets

    6,063,344     5,695,019  

Property, plant and equipment, net

   
2,798,792
   
2,629,701
 

Intangible assets

    729,287     686,652  

Goodwill

    11,164,974     9,186,650  

Deferred taxes

    87,856     88,159  

Investment in equity method investees

    603,616     692,025  

Other assets and notes receivables

    296,541     554,644  
           

Total assets

  $ 21,744,410   $ 19,532,850  
           

Liabilities and shareholders' equity

             

Current liabilities:

             

Accounts payable

  $ 515,404   $ 541,423  

Accounts payable to related parties

    188,083     111,226  

Accrued expenses and other current liabilities

    1,727,294     1,704,273  

Short-term borrowings and other financial liabilities

    102,980     98,801  

Short-term borrowings from related parties

    52,212     28,013  

Current portion of long-term debt and capital lease obligations

    3,085,803     1,589,776  

Income tax payable

    165,878     162,354  

Deferred taxes

    32,842     26,745  
           

Total current liabilities

    5,870,496     4,262,611  

Long-term debt and capital lease obligations, less current portion

   
5,542,925
   
5,494,810
 

Other liabilities

    258,032     236,628  

Pension liabilities

    294,412     290,493  

Income tax payable

    175,535     189,000  

Deferred taxes

    589,851     587,800  
           

Total liabilities

    12,731,251     11,061,342  

Noncontrolling interests subject to put provisions

   
540,980
   
410,491
 

Shareholders' equity:

             

Preference shares, no par value, €1.00 nominal value, 7,066,522 shares authorized, 3,970,050 issued and outstanding

    4,458     4,452  

Ordinary shares, no par value, €1.00 nominal value, 385,396,450 shares authorized, 300,684,487 issued and outstanding

    372,317     371,649  

Additional paid-in capital

    3,354,192     3,362,633  

Retained earnings

    5,036,687     4,648,585  

Accumulated other comprehensive (loss) income

    (540,442 )   (485,767 )
           

Total FMC-AG & Co. KGaA shareholders' equity

    8,227,212     7,901,552  

Noncontrolling interests not subject to put provisions

    244,967     159,465  

Total equity

    8,472,179     8,061,017  
           

Total liabilities and equity

  $ 21,744,410   $ 19,532,850  
           

See accompanying notes to unaudited consolidated financial statements.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Statements of Cash Flows
For the six months ended June 30, 2012 and 2011
(unaudited)
(in thousands)

 
  For the six months
ended June 30,
 
 
  2012   2011  

Operating Activities:

             

Net income

  $ 718,998   $ 535,199  

Adjustments to reconcile net income to net cash provided by operating activities:

             

Depreciation and amortization

    294,251     272,273  

Change in deferred taxes, net

    64,934     53,336  

(Gain) loss on sale of investments

    (33,978 )   (115 )

(Gain) loss on sale of fixed assets

    1,004     (818 )

Investment (gain)

    (139,600 )    

Compensation expense related to stock options

    12,949     14,631  

Cash inflow (outflow) from hedging

    (14,074 )   (58,581 )

Changes in assets and liabilities, net of amounts from businesses acquired:

             

Trade accounts receivable, net

    (12,498 )   (263,509 )

Inventories

    (64,821 )   (120,325 )

Prepaid expenses, other current and non-current assets

    114,903     (78,091 )

Accounts receivable from related parties

    (101,405 )   (2,164 )

Accounts payable to related parties

    82,647     6,108  

Accounts payable, accrued expenses and other current and non-current liabilities

    17,328     155,153  

Income tax payable

    (47,012 )   (26,534 )

Dividend income from equity method investees

    38,334      
           

Net cash provided by (used in) operating activities

    931,960     486,563  
           

Investing Activities:

             

Purchases of property, plant and equipment

    (277,423 )   (238,384 )

Proceeds from sale of property, plant and equipment

    3,664     8,088  

Acquisitions and investments, net of cash acquired, and purchases of intangible assets

    (1,748,179 )   (1,122,458 )

Proceeds from divestitures

    228,206      
           

Net cash provided by (used in) investing activities

    (1,793,732 )   (1,352,754 )
           

Financing Activities:

             

Proceeds from short-term borrowings and other financial liabilities

    57,332     69,252  

Repayments of short-term borrowings and other financial liabilities

    (67,162 )   (99,760 )

Proceeds from short-term borrowings from related parties

    38,907     146,494  

Repayments of short-term borrowings from related parties

    (13,743 )    

Proceeds from long-term debt and capital lease obligations (net of debt issuance costs and other hedging costs of $156,406 in 2012 and $72,926 in 2011)

    2,028,913     1,660,189  

Repayments of long-term debt and capital lease obligations

    (555,746 )   (211,568 )

Redemption of trust preferred securities

        (653,760 )

Increase (decrease) of accounts receivable securitization program

    (82,500 )   130,000  

Proceeds from exercise of stock options

    22,748     31,741  

Dividends paid

    (271,733 )   (280,649 )

Distributions to noncontrolling interests

    (79,334 )   (61,735 )

Contributions from noncontrolling interests

    11,763     12,290  
           

Net cash provided by (used in) financing activities

    1,089,445     742,494  
           

Effect of exchange rate changes on cash and cash equivalents

    (7,587 )   50,080  
           

Cash and Cash Equivalents:

             

Net increase (decrease) in cash and cash equivalents

    220,086     (73,617 )

Cash and cash equivalents at beginning of period

    457,292     522,870  
           

Cash and cash equivalents at end of period

  $ 677,378   $ 449,253  
           

   

See accompanying notes to unaudited consolidated financial statements.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Consolidated Statement of Shareholders' Equity
For the six months ended June 30, 2012 (unaudited) and
year ended December 31, 2011 (audited)
(in thousands, except share data)

 
  Preference Shares   Ordinary Shares    
   
   
  Total
FMC-AG &
Co. KGaA
shareholders'
equity
   
   
 
 
   
   
  Accumulated
Other
comprehensive
income (loss)
  Noncontrolling
interests not
subject to put
provisions
   
 
 
  Number of
shares
  No par
value
  Number of
shares
  No par
value
  Additional
paid in
capital
  Retained
earnings
  Total
Equity
 

Balance at December 31, 2010

    3,957,168   $ 4,440     298,279,001   $ 369,002   $ 3,339,781   $ 3,858,080   $ (194,045 ) $ 7,377,258   $ 146,653   $ 7,523,911  

Proceeds from exercise of options and related tax effects

    8,523     12     1,885,921     2,647     85,887             88,546         88,546  

Compensation expense related to stock options

                    29,071             29,071         29,071  

Dividends paid

                        (280,649 )       (280,649 )       (280,649 )

Purchase/ sale of noncontrolling interests

                    (5,873 )           (5,873 )   9,662     3,789  

Contributions from/ to noncontrolling interests

                                    (59,066 )   (59,066 )

Changes in fair value of noncontrolling interests subject to put provisions

                    (86,233 )           (86,233 )       (86,233 )

Net income

                        1,071,154         1,071,154     63,251     1,134,405  

Other comprehensive income (loss)

                            (291,722 )   (291,722 )   (1,035 )   (292,757 )
                                                         

Comprehensive income

                                779,432     62,216     841,648  
                                           

Balance at December 31, 2011

    3,965,691   $ 4,452     300,164,922   $ 371,649   $ 3,362,633   $ 4,648,585   $ (485,767 ) $ 7,901,552   $ 159,465   $ 8,061,017  
                                           

Proceeds from exercise of options and related tax effects

    4,359     6     519,565     668     20,810             21,484         21,484  

Compensation expense related to stock options

                    12,949             12,949         12,949  

Dividends paid

                        (271,733 )       (271,733 )       (271,733 )

Purchase/ sale of noncontrolling interests

                    (2,027 )           (2,027 )   91,944     89,917  

Contributions from/ to noncontrolling interests

                                    (38,417 )   (38,417 )

Changes in fair value of noncontrolling interests subject to put provisions

                    (40,173 )           (40,173 )       (40,173 )

Net income

                        659,835         659,835     31,714     691,549  

Other comprehensive income (loss)

                            (54,675 )   (54,675 )   261     (54,414 )
                                                         

Comprehensive income

                                605,160     31,975     637,135  
                                           

Balance at June 30, 2012

    3,970,050   $ 4,458     300,684,487   $ 372,317   $ 3,354,192   $ 5,036,687   $ (540,442 ) $ 8,227,212   $ 244,967   $ 8,472,179  
                                           

   

See accompanying notes to unaudited consolidated financial statements.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements
(unaudited)
(in thousands, except share and per share data)

1.     The Company and Basis of Presentation

The Company

        Fresenius Medical Care AG & Co. KGaA ("FMC-AG & Co. KGaA" or the "Company"), a German partnership limited by shares (Kommanditgesellschaft auf Aktien), is the world's largest kidney dialysis company, operating in both the field of dialysis services and the field of dialysis products for the treatment of end-stage renal disease ("ESRD"). The Company's dialysis business is vertically integrated, providing dialysis treatment at dialysis clinics it owns or operates and supplying these clinics with a broad range of products. In addition, the Company sells dialysis products to other dialysis service providers. In the United States, the Company also provides inpatient dialysis services and other services under contract to hospitals.

        In this report, "FMC-AG & Co. KGaA," or the "Company," "we," "us" or "our" refers to the Company or the Company and its subsidiaries on a consolidated basis, as the context requires.


Basis of Presentation

        The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").

        The consolidated financial statements at June 30, 2012 and for the three- and six-month periods ended June 30, 2012 and 2011 contained in this report are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company's 2011 Annual Report on Form 20-F. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Such financial statements reflect all adjustments that, in the opinion of management, are necessary for a fair presentation of the results of the periods presented. All such adjustments are of a normal recurring nature.

        The accounting policies applied in the accompanying consolidated financial statements are the same as those applied in the consolidated financial statements as at and for the year ended December 31, 2011, contained in the Company's 2011 Annual Report on Form 20-F, except for the update noted below:

        Certain items in the prior periods's comparative consolidated financial statements have been reclassified to conform to the current period's presentation. Revenues have been restated to reflect the retrospective adoption of Accounting Standards Update 2011-07, Health Care Entities. Specifically, bad debt expense in the amount of $56,429 and $108,966 was reclassified from selling general and administrative ("SG&A") as a reduction of revenue for the three and six months ended June 30, 2011, respectively. In addition, freight expense in the amount of $36,492 and $71,167 was reclassified from SG&A to cost of revenue to harmonize the presentation for all business segments for the three and six months ended June 30, 2011, respectively.

        The results of operations for the six-month period ended June 30, 2012 are not necessarily indicative of the results of operations for the year ending December 31, 2012.

2.     Acquisition of Liberty Dialysis Holdings

        On February 28, 2012, the Company acquired 100% of the equity of Liberty Dialysis Holdings, Inc. ("LD Holdings"), the owner of Liberty Dialysis and owner of a 51% stake in Renal Advantage Partners, LLC (the "Liberty Acquisition"). The Company accounted for this transaction as a business combination, subject to finalization of the acquisition accounting which will be finalized when certain information arranged to be obtained has been received. LD Holdings mainly provides dialysis services in the United States through the 263 clinics it owns (the "Acquired Clinics"). As the Company expressly discloses in the Form 20-F (see Item 4B, "Information on the Company – Business Overview – Our Strategy and Competitive Strengths,") it is part of the Company's stated strategy to expand and complement its existing business through acquisitions. Generally, these acquisitions do not change the Company's business model and are easy to integrate without disruption to its existing business, requiring

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

little or no realignment of its structures. The Liberty Acquisition is consistent in this regard as it involves the acquisition of dialysis clinics, a business in which the Company is already engaged and, therefore, merely supplements its existing business.

        Total consideration for the Liberty Acquisition was $2,177,804, consisting of $1,681,418 cash, net of cash acquired and $496,386 non-cash consideration. Accounting standards for business combinations require previously held equity interests to be fair valued with the difference to book value to be recognized as a gain or loss in income. Prior to the Liberty Acquisition, the Company had a 49% equity investment in Renal Advantage Partners, LLC, the fair value of which, $201,915, is included as non-cash consideration. The estimated fair value has been determined based on the discounted cash flow method, utilizing an approximately 13% discount rate. In addition to the Company's investment, it also had a loan receivable from Renal Advantage Partners, LLC of $279,793, at a fair value of $282,784, which was retired as part of the transaction. Finally, $11,687 of assumed obligations from the acquisition is still outstanding and will be repaid during 2012 bringing the total non-cash consideration in the Liberty Acquisition to $496,386.

        The following table summarizes the estimated fair values of assets acquired and liabilities assumed at the date of the acquisition. This preliminary acquisition accounting is based upon the best information available to management. The information is still preliminary due to difficulties in obtaining the required information as of June 30, 2012. Any adjustments to acquisition accounting, net of related income tax effects, will be recorded with a corresponding adjustment to goodwill:

Assets held for sale

  $ 153,360  

Trade accounts receivable

    156,380  

Other current assets

    44,637  

Property, plant and equipment

    174,400  

Intangible assets and other assets

    102,921  

Goodwill

    1,967,135  

Accounts payable, accrued expenses and other current liabilities

    (124,366 )

Income tax payable and deferred taxes

    (36,098 )

Short-term borrowings and other financial liabilities and long-term debt and capital lease obligations

    (69,065 )

Other liabilities

    (26,400 )

Noncontrolling interests (subject and not subject to put provisions)

    (165,100 )
       

Total acquisition cost

  $ 2,177,804  
       

Less, at fair value, non-cash contributions

       

Investment at acquisition date

    (201,915 )

Long-term Notes Receivable

    (282,784 )

Obligations assumed in connection with acquisition

    (11,687 )
       

Total non-cash items

  $ (496,386 )
       

Net Cash paid

  $ 1,681,418  
       

        It is currently estimated that amortizable intangible assets acquired in this acquisition will have weighted average useful lives of 6-8 years.

        Goodwill, in the amount of $1,967,135 was acquired as part of the Liberty Acquisition and is allocated to the North America Segment. Goodwill is an asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. Goodwill arises principally due to the fair value placed on acquiring an established stream of future cash flows versus building a similar franchise. Of the goodwill recognized in this acquisition, approximately $436,000 is expected to be deductible for tax purposes and amortized over a 15 year period.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        The noncontrolling interests acquired as part of the acquisition are stated at estimated fair value, subject to finalization of the acquisition accounting, based upon utilized implied multiples used in conjunction with the Liberty Acquisition, as well as the Company's overall experience and contractual multiples typical for such arrangements.

        The results of Liberty Dialysis Holdings, Inc. have been included in the consolidated statement of income since February 29, 2012. Revenue and operating income of Liberty Dialysis Holdings, Inc. amount to $295,568 and $72,668 before taxes, respectively. This amount for operating income does not include synergies and the operating income of subsidiaries that supply products to the acquired entities nor does it exclude the effect of divested FMC-AG & Co. KGaA clinics.

        The fair valuation of the Company's investment at the time of the Liberty Acquisition resulted in a non-taxable gain of approximately $139,600 and is presented in the separate line item "Investment Gain" in the Consolidated Statement of Income. The retirement of the loan receivable resulted in a benefit of $8,501 which was recognized in interest income.


Divestitures

        In connection with the FTC consent order relating to the Liberty Acquisition, the Company agreed to divest a total of 62 renal dialysis centers. For the six months ended June 30, 2012, 24 of the 61 clinics sold were FMC-AG & Co. KGaA clinics. The sale of these clinics resulted in a $33,490 gain, partially offset by the cost of the acquisition, $24,233 of which was recognized in the second quarter of 2012.

        For the six months ended June 30, 2012, the income tax expense related to the sale of these clinics of approximately $21,900 has been recorded in the line item "Income tax expense," resulting in a net gain of approximately $11,590.


Pro Forma Financial Information

        The following financial information, on a pro forma basis, reflects the consolidated results of operations as if the Liberty Acquisition and the divestitures described above had been consummated on January 1, 2011. The pro forma information includes adjustments primarily for elimination of the investment gain and the gain from the retirement of debt. The pro-forma financial information is not necessarily indicative of the results of operations as it would have been had the transactions been consummated on January 1, 2011.

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  

Pro forma net revenue

  $ 3,420,560   $ 3,295,786   $ 6,782,198   $ 6,428,592  

Pro forma net income attributable to the shareholders FMC-AG & Co. KGaA

    266,093     261,603     529,400     479,681  

Pro forma income per ordinary share

                         

Basic

  $ 0.87   $ 0.86   $ 1.74   $ 1.59  

Fully diluted

  $ 0.87   $ 0.86   $ 1.73   $ 1.58  

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

3.     Sources of Revenue, Bad Debt Provision and Allowance for Doubtful Accounts

a)    Sources of Revenue

        Below is a table showing the sources of our U.S. patient service revenue (net of contractual allowance and discounts) for the six months ended June 30, 2012 and 2011.

 
  For the six months
ended June 30,
 
 
  2012   2011  

Medicare ESRD program

  $ 1,926,433   $ 1,805,775  

Private/alternative payors

    1,775,378     1,499,652  

Medicaid and other government sources

    194,154     111,674  

Hospitals

    201,709     192,844  
           

Total patient service revenue

  $ 4,097,674   $ 3,609,945  
           

b)    Bad Debt Provision

        The Company's Dialysis Care revenues represent dialysis services rendered in the process of dialysis treatment. In the U.S, this revenue is recorded based upon contractual rates with third party payors during the period the health care services are provided. The Company estimates a provision for dialysis care doubtful accounts which is based upon the payment terms applicable to the related contractual agreements and historical payment patterns. The Company's major sources of revenues include third-party payors, including federal and state agencies (including Medicare and Medicaid programs), managed care health plans and commercial insurance companies.

        Based on historical collection experience, a significant portion of net Dialysis Care revenues related to patients without adequate insurance coverage, patient co-payments and deductibles for patients who have third party health care coverage are ultimately uncollectible. For this reason a provision for doubtful accounts related to the uninsured portion of patient accounts is recorded to adjust net Dialysis Care revenue and related accounts receivable to estimated net collectible amounts.

c)     Allowance for Doubtful Accounts

        Accounts Receivables are reduced by an allowance for doubtful accounts to reduce the carrying value of such receivables to their estimated net realizable value. The sufficiency of the allowance for doubtful accounts is estimated based upon management's detailed periodic assessment of historical write-offs and recoveries by major payor groups, trends in federal, state and private employer health care coverage and other collection trends. A significant portion of the allowance for doubtful accounts relate to amounts due directly from patients without adequate insurance coverage, patient co-payment and deductible amounts from patients who have health care coverage. Although outcomes vary, the Company attempts to collect amounts due from all patients, including co-payments and deductibles due from patients with insurance. Account balances are written off and deducted from the allowance for doubtful accounts after all reasonable collection efforts have been performed. Additions to the allowance for doubtful accounts are made by means of the provision for doubtful accounts. The amount of the provision for doubtful accounts is based upon management's historical collection experience and expected net collections from net patient service revenue during the period.

4.     Related Party Transactions

        The Company's parent, Fresenius SE & Co. KGaA, is a German partnership limited by shares resulting from the change of legal form effective January 28, 2011, of Fresenius SE, a European Company (Societas Europaea), and which, prior to July 13, 2007, was called Fresenius AG, a German stock corporation. In these Consolidated Financial Statements, Fresenius SE refers to that company as a partnership limited by shares, effective on and after January 28, 2011, as well as both before and after the

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

conversion of Fresenius AG from a stock corporation into a European Company. Fresenius SE owns 100% of the share capital of Fresenius Medical Care Management AG, the Company's general partner ("General Partner"). From November 16, 2011 until February 29, 2012, Fresenius SE purchased 3.5 million ordinary shares of FMC-AG & Co. KGaA. Fresenius SE, the Company's largest shareholder, owns approximately 31.4% of the Company's voting shares as of June 30, 2012.

a)    Service and Lease Agreements

        The Company is party to service agreements with Fresenius SE and certain of its affiliates (collectively the "Fresenius SE Companies") to receive services, including, but not limited to: administrative services, management information services, employee benefit administration, insurance, information technology services, tax services and treasury management services. During the six-month periods ended June 30, 2012 and 2011, amounts charged by Fresenius SE to the Company under the terms of these agreements were $38,418 and $34,251, respectively. The Company also provides certain services to the Fresenius SE Companies, including research and development, central purchasing and warehousing. The Company charged $3,184 and $3,144 for services rendered to the Fresenius SE Companies during the first six months of 2012 and 2011 respectively.

        Under real estate operating lease agreements entered into with the Fresenius SE Companies, which are leases for the corporate headquarters in Bad Homburg, Germany and production sites in Schweinfurt and St. Wendel, Germany, the Company paid the Fresenius SE Companies $12,660 and $12,910 during the six-month periods ended June 30, 2012 and 2011, respectively. The majority of the leases expire in 2016 and contain renewal options.

        The Company's Articles of Association provide that the General Partner shall be reimbursed for any and all expenses in connection with management of the Company's business, including remuneration of the members of the General Partner's supervisory board and the General Partner's management board. The aggregate amount reimbursed to the General Partner was $6,453 and $6,108, respectively, for its management services during the six-month periods ended June 30, 2012 and 2011.

b)    Products

        For the first six months of 2012 and 2011, the Company sold products to the Fresenius SE Companies for $12,646 and $9,812 respectively. During the same periods, the Company made purchases from the Fresenius SE Companies in the amount of $24,488 and $25,989, respectively.

        In addition to the purchases noted above, the Company currently purchases heparin supplied by APP Pharmaceuticals Inc. ("APP Inc."), through an independent group purchasing organization ("GPO"). APP Inc. is wholly-owned by Fresenius Kabi AG, a wholly-owned subsidiary of Fresenius SE. The Company has no direct supply agreement with APP Inc. and does not submit purchase orders directly to APP Inc. During the six-month periods ended June 30, 2012 and 2011, Fresenius Medical Care Holdings, Inc. ("FMCH") acquired approximately $8,565 and $12,869, respectively, of heparin from APP Inc. through the GPO contract, which was negotiated by the GPO at arm's length on behalf of all members of the GPO.

c)     Financing Provided by and to Fresenius SE and the General Partner

        As of June 30, 2012, the Company had borrowings outstanding with Fresenius SE of €26,100 ($32,860 as of June 30, 2012) at an interest rate of 1.632%, due and repaid on July 2, 2012.

        As of June 30, 2012, the Company had loans of CNY 110,982 ($17,463 as of June 30, 2012) outstanding with a subsidiary of Fresenius SE at a weighted average interest rate of 6.15%, due on April 14, 2013 and May 23, 2014.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        On August 19, 2009, the Company borrowed €1,500 ($1,889 as of June 30, 2012) from the General Partner at 1.335%. The loan repayment, originally due on August 19, 2010, was originally extended until August 19, 2011 and has been further extended until August 20, 2012 at an interest rate of 3.328%.

5.     Inventories

        As of June 30, 2012 and December 31, 2011, inventories consisted of the following:

 
  June 30,
2012
  December 31,
2011
 

Finished goods

  $ 652,414   $ 610,569  

Raw materials and purchased components

    175,440     163,030  

Health care supplies

    131,687     133,769  

Work in process

    73,805     60,128  
           

Inventories

  $ 1,033,346   $ 967,496  
           

6.     Short-Term Borrowings, Other Financial Liabilities and Short-Term Borrowings from Related Parties

        As of June 30, 2012 and December 31, 2011, short-term borrowings, other financial liabilities and short-term borrowings from related parties consisted of the following:

 
  June 30,
2012
  December 31,
2011
 

Borrowings under lines of credit

  $ 99,360   $ 91,899  

Other financial liabilities

    3,620     6,902  
           

Short-term borrowings and other financial liabilities

    102,980     98,801  

Short-term borrowings from related parties (see Note 4.c.)

    52,212     28,013  
           

Short-term borrowings, Other financial liabilities and Short-term borrowings from related parties

  $ 155,192   $ 126,814  
           

7.     Long-term Debt and Capital Lease Obligations

        As of June 30, 2012 and December 31, 2011, long-term debt and capital lease obligations consisted of the following:

 
  June 30,
2012
  December 31,
2011
 

Amended 2006 Senior Credit Agreement

  $ 2,668,137   $ 2,795,589  

Senior Notes

    4,663,343     2,883,009  

Euro Notes

    244,718     258,780  

European Investment Bank Agreements

    340,878     345,764  

Accounts receivable facility

    452,000     534,500  

Capital lease obligations

    15,984     17,993  

Other

    243,668     248,951  
           

    8,628,728     7,084,586  

Less current maturities

    (3,085,803 )   (1,589,776 )
           

  $ 5,542,925   $ 5,494,810  
           

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)


Amended 2006 Senior Credit Agreement

        The following table shows the available and outstanding amounts under the Amended 2006 Senior Credit Agreement at June 30, 2012 and December 31, 2011:

 
  Maximum
Amount Available
  Balance
Outstanding
 
 
  June 30,
2012
  December 31,
2011
  June 30,
2012
  December 31,
2011
 

Revolving Credit

  $ 1,200,000   $ 1,200,000   $ 374,950   $ 58,970  

Term Loan A

    1,155,000     1,215,000     1,155,000     1,215,000  

Term Loan B

    1,138,187     1,521,619     1,138,187     1,521,619  
                   

  $ 3,493,187   $ 3,936,619   $ 2,668,137   $ 2,795,589  
                   

        In addition, at June 30, 2012 and December 31, 2011, the Company had letters of credit outstanding in the amount of $160,984 and $180,766, respectively, which are not included above as part of the balance outstanding at those dates but which reduce available borrowings under the revolving credit facility.


Senior Notes

Senior Notes Issued January 2012

        On January 26, 2012, Fresenius Medical Care US Finance II, Inc. ("US Finance II"), a wholly-owned subsidiary of the Company, issued $800,000 aggregate principal amount of senior unsecured notes with a coupon of 55/8% (the "55/8% Senior Notes") at par and $700,000 aggregate principal amount of senior unsecured notes with a coupon of 57/8% (the "57/8% Senior Notes") at par (together, the "Dollar-denominated Senior Notes"). In addition, FMC Finance VIII S.A. ("Finance VIII"), a wholly-owned subsidiary of the Company, issued €250,000 aggregate principal amount ($328,625 at date of issuance) of senior unsecured notes with a coupon of 5.25% (the "Euro-denominated Senior Notes") at par. Both the 55/8% Senior Notes and the Euro-denominated Senior Notes are due July 31, 2019 while the 57/8% Senior Notes are due January 31, 2022. US Finance II and Finance VIII may redeem the Dollar-denominated Senior Notes and Euro-denominated Senior Notes, respectively, at any time at 100% of principal plus accrued interest and a premium calculated pursuant to the terms of the applicable indenture. The holders of the Dollar-denominated Senior Notes and the Euro-denominated Senior Notes have a right to request that the respective issuers of the notes repurchase the applicable issue of notes at 101% of principal plus accrued interest upon the occurrence of a change of control of the Company followed by a decline in the rating of the respective notes. The Company used the net proceeds of approximately $1,807,139 for acquisitions, including the acquisition of Liberty Dialysis Holdings, Inc., which closed on February 28, 2012, to refinance indebtedness and for general corporate purposes. The Dollar-denominated Senior Notes and the Euro-denominated Senior Notes are guaranteed on a senior basis jointly and severally by the Company, Fresenius Medical Care Holdings, Inc. ("FMCH") and Fresenius Medical Care Deutschland GmbH ("D-GmbH") (together, the "Guarantor Subsidiaries").

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

8.     Earnings Per Share

        The following table contains reconciliations of the numerators and denominators of the basic and diluted earnings per share computations for the three- and six-month periods ended June 30, 2012 and 2011:

 
  For the three months
ended June 30,
  For the six months
ended June 30,
 
 
  2012   2011   2012   2011  

Numerators:

                         

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

  $ 289,337   $ 260,761   $ 659,835   $ 481,462  

less:

                         

Dividend preference on Preference shares

    25     28     51     55  
                   

Income available to all classes of shares

  $ 289,312   $ 260,733   $ 659,784   $ 481,407  
                   

Denominators:

                         

Weighted average number of:

                         

Ordinary shares outstanding

    300,415,725     298,559,749     300,310,425     298,427,098  

Preference shares outstanding

    3,966,600     3,958,515     3,966,301     3,957,978  
                   

Total weighted average shares outstanding

    304,382,325     302,518,264     304,276,726     302,385,076  

Potentially dilutive Ordinary shares

    2,405,628     2,336,573     2,372,829     2,095,345  

Potentially dilutive Preference shares

    18,019     21,174     18,145     20,432  
                   

Total weighted average Ordinary shares outstanding assuming dilution

    302,821,353     300,896,322     302,683,254     300,522,443  

Total weighted average Preference shares outstanding assuming dilution

   
3,984,619
   
3,979,689
   
3,984,446
   
3,978,410
 

Basic income per Ordinary share

 
$

0.95
 
$

0.86
 
$

2.17
 
$

1.59
 

Plus preference per Preference shares

    0.01     0.01     0.01     0.02  
                   

Basic income per Preference share

  $ 0.96   $ 0.87   $ 2.18   $ 1.61  
                   

Fully diluted income per Ordinary share

  $ 0.94   $ 0.86   $ 2.15   $ 1.58  

Plus preference per Preference shares

    0.01     0.00     0.01     0.01  
                   

Fully diluted income per Preference share

  $ 0.95   $ 0.86   $ 2.16   $ 1.59  
                   

9.     Employee Benefit Plans

        The Company currently has two principal pension plans, one for German employees, the other covering employees in the United States, the latter of which was curtailed in 2002. Plan benefits are generally based on years of service and final salary. As there is no legal requirement in Germany to fund defined benefit plans, the Company's pension obligations in Germany are unfunded. Each year FMCH, a wholly-owned subsidiary of the Company and its principal North American subsidiary, contributes to the plan covering United States employees at least the minimum required by the Employee Retirement Income Security Act of 1974, as amended.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        The following table provides the calculations of net periodic benefit cost for the three- and six-month periods ended June 30, 2012 and 2011.

 
  Three months
ended June 30,
  Six months
ended June 30,
 
 
  2012   2011   2012   2011  

Components of net periodic benefit cost:

                         

Service cost

  $ 2,645   $ 2,735   $ 5,337   $ 5,357  

Interest cost

    6,446     6,139     12,938     12,175  

Expected return on plan assets

    (3,825 )   (4,275 )   (7,650 )   (8,550 )

Amortization of unrealized losses

    4,370     1,801     8,743     3,601  
                   

Net periodic benefit costs

  $ 9,636   $ 6,400   $ 19,368   $ 12,583  
                   

10.   Noncontrolling Interests Subject to Put Provisions

        The Company has potential obligations to purchase the noncontrolling interests held by third parties in certain of its consolidated subsidiaries. These obligations are in the form of put provisions and are exercisable at the third-party owners' discretion within specified periods as outlined in each specific put provision. If these put provisions were exercised, the Company would be required to purchase all or part of third-party owners' noncontrolling interests at the appraised fair value at the time of exercise. The methodology the Company uses to estimate the fair values of the noncontrolling interest subject to put provisions assumes the greater of net book value or a multiple of earnings, based on historical earnings, development stage of the underlying business and other factors. The estimated fair values of the noncontrolling interests subject to these put provisions can also fluctuate and the implicit multiple of earnings at which these noncontrolling interest obligations may ultimately be settled could vary significantly from our current estimates depending upon market conditions.

        As of June 30, 2012 and December 31, 2011 the Company's potential obligations under these put options are $540,980 and $410,491, respectively, of which, at June 30, 2012, $149,815 were exercisable. One put option was exercised for a total consideration of $3,087 during the first six months of 2012.

        Following is a roll forward of noncontrolling interests subject to put provisions for the six months ended June 30, 2012 and the year ended December 31, 2011:

 
  June 30,
2012
  December 31,
2011
 

Beginning balance as of January 1, 2012 and 2011

  $ 410,491   $ 279,709  

Contributions to noncontrolling interests

    (25,880 )   (43,104 )

Purchase/ sale of noncontrolling interests

    85,113     37,786  

Contributions from noncontrolling interests

    3,809     7,222  

Changes in fair value of noncontrolling interests

    40,173     86,233  

Net income

    27,449     42,857  

Other comprehensive income (loss)

    (175 )   (212 )
           

Ending balance as of June 30, 2012 and December 31, 2011

  $ 540,980   $ 410,491  
           

11.   Commitments and Contingencies

Legal Proceedings

        The Company is routinely involved in numerous claims, lawsuits, regulatory and tax audits, investigations and other legal matters arising, for the most part, in the ordinary course of its business of providing healthcare services and products. Legal matters that the Company currently deems to be

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

material are described below. For the matters described below in which the Company believes a loss is both reasonably possible and estimable, an estimate of the loss or range of loss exposure is provided. For the other matters described below, the Company believes that the loss probability is remote and/or the loss or range of possible losses cannot be reasonably estimated at this time. The outcome of litigation and other legal matters is always difficult to predict accurately and outcomes that are not consistent with the Company's view of the merits can occur. The Company believes that it has valid defenses to the legal matters pending against it and is defending itself vigorously. Nevertheless, it is possible that the resolution of one or more of the legal matters currently pending or threatened could have a material adverse effect on its business, results of operations and financial condition.

Commercial Litigation

        The Company was originally formed as a result of a series of transactions it completed pursuant to the Agreement and Plan of Reorganization dated as of February 4, 1996, by and between W.R. Grace & Co. and Fresenius SE (the "Merger"). At the time of the Merger, a W.R. Grace & Co. subsidiary known as W.R. Grace & Co.-Conn. had, and continues to have, significant liabilities arising out of product-liability related litigation (including asbestos-related actions), pre-Merger tax claims and other claims unrelated to National Medical Care, Inc. ("NMC"), which was W.R. Grace & Co.'s dialysis business prior to the Merger. In connection with the Merger, W.R. Grace & Co.-Conn. agreed to indemnify the Company, FMCH, and NMC against all liabilities of W.R. Grace & Co., whether relating to events occurring before or after the Merger, other than liabilities arising from or relating to NMC's operations. W.R. Grace & Co. and certain of its subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code (the "Grace Chapter 11 Proceedings") on April 2, 2001.

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

        In 2003, the Company reached agreement with the asbestos creditors' committees on behalf of the W.R. Grace & Co. bankruptcy estate and W.R. Grace & Co. in the matters pending in the Grace Chapter 11 Proceedings for the settlement of all fraudulent conveyance and tax claims against it and other claims related to the Company that arise out of the bankruptcy of W.R. Grace & Co. Under the terms of the settlement agreement as amended (the "Settlement Agreement"), fraudulent conveyance and other claims raised on behalf of asbestos claimants will be dismissed with prejudice and the Company will receive protection against existing and potential future W.R. Grace & Co. related claims, including fraudulent conveyance and asbestos claims, and indemnification against income tax claims related to the non-NMC members of the W.R. Grace & Co. consolidated tax group upon confirmation of a W.R. Grace & Co. bankruptcy reorganization plan that contains such provisions. Under the Settlement Agreement, the Company will pay a total of $115,000 without interest to the W.R. Grace & Co. bankruptcy estate, or as otherwise directed by the Court, upon plan confirmation. No admission of liability has been or will be made. The Settlement Agreement has been approved by the U.S. District Court. In January and February 2011, the U.S. Bankruptcy Court entered orders confirming the plan of reorganization and the confirmation orders were affirmed by the U.S. District Court on January 31, 2012. Multiple parties have appealed to the Third Circuit Court of Appeals and the plan of reorganization will not be implemented until the appeals are finally resolved.

        Subsequent to the Merger, W.R. Grace & Co. was involved in a multi-step transaction involving Sealed Air Corporation ("Sealed Air," formerly known as Grace Holding, Inc.). The Company is engaged in litigation with Sealed Air to confirm its entitlement to indemnification from Sealed Air for all losses and expenses incurred by the Company relating to pre-Merger tax liabilities and Merger-related claims. Under

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Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

the Settlement Agreement, upon final confirmation of a plan of reorganization that satisfies the conditions of the Company's payment obligation, this litigation will be dismissed with prejudice.

        On April 4, 2003, FMCH filed a suit in the U. S. District Court for the Northern District of California, styled Fresenius USA, Inc., et al., v. Baxter International Inc., et al., Case No. C 03-1431, seeking a declaratory judgment that FMCH does not infringe patents held by Baxter International Inc. and its subsidiaries and affiliates ("Baxter"), that the patents are invalid, and that Baxter is without right or authority to threaten or maintain suit against FMCH for alleged infringement of Baxter's patents. In general, the asserted patents concern the use of touch screen interfaces for hemodialysis machines. Baxter filed counterclaims against FMCH seeking more than $140,000 in monetary damages and injunctive relief, and alleging that FMCH willfully infringed on Baxter's patents. On July 17, 2006, the court entered judgment on a jury verdict in favor of FMCH finding all asserted claims of Baxter patents invalid as obvious and/or anticipated in light of prior art.

        On February 13, 2007, the court granted Baxter's motion to set aside the jury's verdict in favor of FMCH and reinstated the patents and entered judgment of infringement. Following a trial on damages, the court entered judgment on November 6, 2007 in favor of Baxter on a jury award of $14,300. On April 4, 2008, the court denied Baxter's motion for a new trial, established a royalty payable to Baxter of 10% of the sales price for continuing sales of FMCH's 2008K hemodialysis machines and 7% of the sales price of related disposables, parts and service beginning November 7, 2007, and enjoined sales of the touchscreen-equipped 2008K machine effective January 1, 2009. The Company appealed the court's rulings to the United States Court of Appeals for the Federal Circuit ("Federal Circuit"). In October 2008, the Company completed design modifications to the 2008K machine that eliminate any incremental hemodialysis machine royalty payment exposure under the District Court order. On September 10, 2009, the Federal Circuit reversed the district court's decision and determined that the asserted claims in two of the three patents at issue are invalid. As to the third patent, the Federal Circuit affirmed the district court's decision; however, the Court also vacated the injunction and award of damages. These issues were remanded to the District Court for reconsideration in light of the invalidity ruling on most of the claims. As a result, FMCH is no longer required to fund the court-approved escrow account set up to hold the royalty payments ordered by the district court. Funds of $70,000 were contributed to the escrow fund. Upon remand, the district court reduced the post verdict damages award to $10,000 and $61,000 of the escrowed funds was returned to FMCH. In the parallel reexamination of the last surviving patent, the U.S. Patent and Trademark Office and the Board of Patent Appeals and Interferences ruled that the remaining Baxter patent is invalid. On May 17, 2012 the Federal Circuit affirmed the U.S Patent and Trademark Office's ruling and invalidated the final remaining Baxter patent. Baxter has requested a rehearing by the Federal Circuit.

Other Litigation and Potential Exposures

        Renal Care Group, Inc. ("RCG"), which the Company acquired in 2006, is named as a nominal defendant in a complaint originally filed September 13, 2006 in the Chancery Court for the State of Tennessee Twentieth Judicial District at Nashville styled Indiana State District Council of Laborers and Hod Carriers Pension Fund v. Gary Brukardt et al. Following the trial court's dismissal of the complaint, plaintiff's appeal in part, and reversal in part by the appellate court, the cause of action purports to be a class action on behalf of former shareholders of RCG and seeks monetary damages only against the individual former directors of RCG. The individual defendants, however, may have claims for indemnification and reimbursement of expenses against the Company.

        On July 17, 2007, resulting from an investigation begun in 2005, the United States Attorney filed a civil complaint in the United States District Court for the Eastern District of Missouri (St. Louis) against Renal Care Group, Inc., its subsidiary RCG Supply Company, and FMCH in its capacity as RCG's current corporate parent. The complaint seeks monetary damages and penalties with respect to issues arising out of the operation of RCG's Method II supply company through 2005, prior to FMCH's acquisition of RCG in 2006. The complaint is styled United States of America ex rel. Julie Williams et al. vs. Renal Care Group, Renal Care Group Supply Company and FMCH. On August 11, 2009, the Missouri District Court

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Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

granted RCG's motion to transfer venue to the United States District Court for the Middle District of Tennessee (Nashville). On March 22, 2010, the Tennessee District Court entered judgment against defendants for approximately $23,000 in damages and interest under the unjust enrichment count of the complaint but denied all relief under the six False Claims Act counts of the complaint. On June 17, 2011, the District Court entered summary judgment against RCG for $82,643 on one of the False Claims Act counts of the complaint. On June 23, 2011, the Company appealed to the United States Court of Appeals for the Sixth Circuit. Although the Company cannot provide any assurance of the outcome, the Company believes that RCG's operation of its Method II supply company was in compliance with applicable law, that no relief is due to the United States, that the decisions made by the District Court on March 22, 2010 and June 17, 2011 will be reversed, and that its position in the litigation will ultimately be sustained.

        On November 27, 2007, the United States District Court for the Western District of Texas (El Paso) unsealed and permitted service of two complaints previously filed under seal by a qui tam relator, a former FMCH local clinic employee. The first complaint alleged that a nephrologist unlawfully employed in his practice an assistant to perform patient care tasks that the assistant was not licensed to perform and that Medicare billings by the nephrologist and FMCH therefore violated the False Claims Act. The second complaint alleged that FMCH unlawfully retaliated against the relator by constructively discharging her from employment. The United States Attorney for the Western District of Texas declined to intervene and to prosecute on behalf of the United States. On March 30, 2010, the District Court issued final judgment in favor of the defendants on all counts based on a jury verdict rendered on February 25, 2010 and on rulings of law made by the Court during the trial. The plaintiff appealed from the District Court judgment. On July 30, 2012, the Court of Appeals affirmed the District Court's judgment in the Company's favor.

        On February 15, 2011, a qui tam relator's complaint under the False Claims Act against FMCH was unsealed by order of the United States District Court for the District of Massachusetts and served by the relator. The United States has not intervened in the case United States ex rel. Chris Drennen v. Fresenius Medical Care Holdings, Inc., 2009 Civ. 10179 (D. Mass.). The relator's complaint, which was first filed under seal in February 2009, alleges that the Company seeks and receives reimbursement from government payors for serum ferritin and hepatitis B laboratory tests that are medically unnecessary or not properly ordered by a physician. FMCH has filed a motion to dismiss the complaint. On March 6, 2011, the United States Attorney for the District of Massachusetts issued a Civil Investigative Demand seeking the production of documents related to the same laboratory tests that are the subject of the relator's complaint. FMCH has cooperated fully in responding to the additional Civil Investigative Demand, and will vigorously contest the relator's complaint.

        On June 29, 2011, FMCH received a subpoena from the United States Attorney for the Eastern District of New York ("E.D.N.Y."). On December 6, 2011, a single Company facility in New York received a subpoena from the OIG that was substantially similar to the one issued by the U.S. Attorney for the E.D.N.Y. These subpoenas are part of a criminal and civil investigation into relationships between retail pharmacies and outpatient dialysis facilities in the State of New York and into the reimbursement under government payor programs in New York for medications provided to patients with ESRD. Among the issues encompassed by the investigation is whether retail pharmacies may have provided or received compensation from the New York Medicaid program for pharmaceutical products that should be provided by the dialysis facilities in exchange for the New York Medicaid payment to the dialysis facilities. The Company has cooperated in the investigation.

        The Company has received communications alleging certain conduct that may violate the U.S. Foreign Corrupt Practices Act ("FCPA") and other anti-bribery laws. In response to the allegations, the Audit and Corporate Governance Committee of the Company's Supervisory Board is conducting an internal review with the assistance of counsel retained for such purpose. The Company has voluntarily advised the U.S. Securities and Exchange Commission and the U.S. Department of Justice that allegations have been made and of the Company's internal review. The Company is fully committed to FCPA compliance. It cannot predict the outcome of its review.

        The Company filed claims for refunds contesting the Internal Revenue Service's ("IRS") disallowance of FMCH's civil settlement payment deductions taken by FMCH in prior year tax returns. As a result of a

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

settlement agreement with the IRS, the Company received a partial refund in September 2008 of $37,000, inclusive of interest and preserved our right to pursue claims in the United States Courts for refunds of all other disallowed deductions. On December 22, 2008, the Company filed a complaint for complete refund in the United States District Court for the District of Massachusetts, styled as Fresenius Medical Care Holdings, Inc. v. United States. The court has denied motions for summary judgment by both parties and the litigation is proceeding towards trial scheduled to begin August 6, 2012.

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

        The Company, like other healthcare providers, conducts its operations under intense government regulation and scrutiny. It must comply with regulations which relate to or govern the safety and efficacy of medical products and supplies, the operation of manufacturing facilities, laboratories and dialysis clinics, and environmental and occupational health and safety. The Company must also comply with the laws of the United States, including the federal Anti-Kickback Statute, the federal False Claims Act, the federal Stark Law, and other federal and state fraud and abuse laws. Applicable laws or regulations may be amended, or enforcement agencies or courts may make interpretations that differ from the Company's interpretations or the manner in which it conducts its business. Enforcement has become a high priority for the federal government and some states. In addition, the provisions of the False Claims Act authorizing payment of a portion of any recovery to the party bringing the suit encourage private plaintiffs to commence "qui tam" or "whistle blower" actions. In May 2009, the scope of the False Claims Act was expanded and additional protections for whistle blowers and procedural provisions to aid whistle blowers' ability to proceed in a False Claims Act case were added. By virtue of this regulatory environment, the Company's business activities and practices are subject to extensive review by regulatory authorities and private parties, and continuing audits, investigative demands, subpoenas, other inquiries, claims and litigation relating to the Company's compliance with applicable laws and regulations. The Company may not always be aware that an inquiry or action has begun, particularly in the case of "whistle blower" actions, which are initially filed under court seal.

        The Company operates many facilities throughout the United States and other parts of the world. In such a decentralized system, it is often difficult to maintain the desired level of oversight and control over the thousands of individuals employed by many affiliated companies. The Company relies upon its management structure, regulatory and legal resources, and the effective operation of its compliance program to direct, manage and monitor the activities of these employees. On occasion, the Company may identify instances where employees or other agents deliberately, recklessly or inadvertently contravene the Company's policies or violate applicable law. The actions of such persons may subject the Company and its subsidiaries to liability under the Anti-Kickback Statute, the Stark Law, the False Claims Act and the Foreign Corrupt Practices Act, among other laws and comparable laws of other countries.

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

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Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

The Company has also had claims asserted against it and has had lawsuits filed against it relating to alleged patent infringements or businesses that it has acquired or divested. These claims and suits relate both to operation of the businesses and to the acquisition and divestiture transactions. The Company has, when appropriate, asserted its own claims, and claims for indemnification. A successful claim against the Company or any of its subsidiaries could have a material adverse effect upon its business, financial condition, and the results of its operations. Any claims, regardless of their merit or eventual outcome, could have a material adverse effect on the Company's reputation and business.

Accrued Special Charge for Legal Matters

        At December 31, 2001, the Company recorded a pre-tax special charge of $258,159 to reflect anticipated expenses associated with the defense and resolution of pre-Merger tax claims, Merger-related claims, and commercial insurer claims. The costs associated with the Settlement Agreement and settlements with insurers have been charged against this accrual. With the exception of the proposed $115,000 payment under the Settlement Agreement in the Grace Chapter 11 Proceedings, all other matters included in the special charge have been resolved. While the Company believes that its remaining accrual reasonably estimates its currently anticipated costs related to the continued defense and resolution of this matter, no assurances can be given that its actual costs incurred will not exceed the amount of this accrual.

12.   Financial Instruments

        As a global supplier of dialysis services and products in more than 120 countries throughout the world, the Company is faced with a concentration of credit risks due to the nature of the reimbursement systems which are often provided by the governments of the countries in which the Company operates. Changes in reimbursement rates or the scope of coverage could have a material adverse effect on the Company's business, financial condition and results of operations and thus on its capacity to generate cash flow. In the past the Company experienced and, after the implementation of the bundled reimbursement system in the U.S., also expects in the future generally stable reimbursements for dialysis services. This includes the balancing of unfavorable reimbursement changes in certain countries with favorable changes in other countries. Due to the fact that a large portion of the Company's reimbursement is provided by public health care organizations and private insurers, the Company expects that most of its accounts receivables will be collectable, albeit somewhat more slowly in the International segment in the immediate future, particularly in countries which continue to be severely affected by the global financial crisis.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)


Non-derivative Financial Instruments

        The following table presents the carrying amounts and fair values of the Company's non-derivative financial instruments at June 30, 2012, and December 31, 2011.

 
   
  June 30, 2012   December 31, 2011  
 
  Fair Value
Hierarchy
  Carrying
Amount
  Fair
Value
  Carrying
Amount
  Fair
Value
 

Non-derivatives

                               

Assets

                               

Cash and cash equivalents

    1   $ 677,378   $ 677,378   $ 457,292   $ 457,292  

Accounts Receivable

    2     3,139,335     3,139,335     2,909,326     2,909,326  

Long-term Notes Receivable(1)

    3             234,490     233,514  

Liabilities

                               

Accounts payable

    2     703,487     703,487     652,649     652,649  

Short-term borrowings

    2     102,980     102,980     98,801     98,801  

Short-term borrowings from related parties

    2     52,212     52,212     28,013     28,013  

Long term debt, excluding Amended 2006 Senior Credit Agreement, Euro Notes and Senior Notes

    2     1,052,530     1,052,530     1,147,209     1,147,209  

Amended 2006 Senior Credit Agreement

    2     2,668,137     2,655,855     2,795,589     2,774,951  

Senior Notes

    2     4,663,343     4,852,192     2,883,009     2,989,307  

Euro Notes

    2     244,718     249,956     258,780     265,655  

Noncontrolling interests subject to put provisions

    3     540,980     540,980     410,491     410,491  

(1)
As of February 28, 2012, the loan to Renal Advantage Partners LLC and Liberty Dialysis, Inc. has been retired.

        The carrying amounts in the table are included in the consolidated balance sheet under the indicated captions or in the case of long-term debt, in the captions shown in Note 7.

        The significant methods and assumptions used in estimating the fair values of non-derivative financial instruments are as follows:

        Cash and cash equivalents are stated at nominal value which equals the fair value.

        Short-term financial instruments such as accounts receivable, accounts payable and short-term borrowings are valued at their carrying amounts, which are reasonable estimates of the fair value due to the relatively short period to maturity of these instruments.

        The valuation of long-term notes receivable is determined using significant unobservable inputs. They are valued using a constructed index based upon similar instruments with comparable credit ratings, terms, tenor, interest rates and that are within the Company's industry. The Company tracked the prices of the constructed index from the note issuance date to the reporting date to determine fair value.

        The fair values of major long-term financial liabilities are calculated on the basis of market information. Instruments for which market quotes are available are measured using these quotes. The fair values of the other long-term financial liabilities are calculated at the present value of the respective future cash flows. To determine these present values, the prevailing interest rates and credit spreads for the Company as of the balance sheet date are used.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        The valuation of noncontrolling interests subject to put provisions is determined using significant unobservable inputs. See Note 10 for a discussion of the Company's methodology for estimating the fair value of these noncontrolling interests subject to put obligations.

        Currently, there is no indication that a decrease in the value of the Company's financing receivables is probable. Therefore, the allowances on credit losses of financing receivables are immaterial.


Derivative Financial Instruments

        The Company is exposed to market risk from changes in foreign exchange rates and interest rates. In order to manage the risk of currency exchange rate and interest rate fluctuations, the Company enters into various hedging transactions by means of derivative instruments with highly rated financial institutions as authorized by the Company's General Partner. On a quarterly basis the Company performs an assessment of its counterparty credit risk. The Company currently considers this risk to be low. The Company's policy, which has been consistently followed, is that financial derivatives be used only for the purpose of hedging foreign currency and interest rate exposure.

        In certain instances, the Company enters into derivative contracts that do not qualify for hedge accounting but are utilized for economic purposes ("economic hedges"). The Company does not use financial instruments for trading purposes.

        The Company established guidelines for risk assessment procedures and controls for the use of financial instruments. They include a clear segregation of duties with regard to execution on one side and administration, accounting and controlling on the other.

Foreign Exchange Risk Management

        The Company conducts business on a global basis in various currencies, though a majority of its operations are in Germany and the United States. For financial reporting purposes, the Company has chosen the U.S. dollar as its reporting currency. Therefore, changes in the rate of exchange between the U.S. dollar and the local currencies in which the financial statements of the Company's international operations are maintained affect its results of operations and financial position as reported in its consolidated financial statements.

        The Company's exposure to market risk for changes in foreign exchange rates relates to transactions such as sales and purchases. The Company has significant amounts of sales of products invoiced in euro from its European manufacturing facilities to its other international operations and, to a lesser extent, sales of products invoiced in other non-functional currencies. This exposes the subsidiaries to fluctuations in the rate of exchange between the euro and the currency in which their local operations are conducted. For the purpose of hedging existing and foreseeable foreign exchange transaction exposures the Company enters into foreign exchange forward contracts and, on a small scale, foreign exchange options. As of June 30, 2012 the Company had no foreign exchange options.

        Changes in the fair value of the effective portion of foreign exchange forward contracts designated and qualifying as cash flow hedges of forecasted product purchases and sales are reported in accumulated other comprehensive income (loss) ("AOCI"). Additionally, in connection with intercompany loans in foreign currency, the Company uses foreign exchange swaps thus assuring that no foreign exchange risks arise from those loans, which, if they qualify for cash flow hedge accounting, are also reported in AOCI. These amounts recorded in AOCI are subsequently reclassified into earnings as a component of cost of revenues for those contracts that hedge product purchases or as an adjustment of interest income/expense for those contracts that hedge loans, in the same period in which the hedged transaction affects earnings. The notional amounts of foreign exchange contracts in place that are designated and qualify as cash flow hedges totaled $644,837 and $1,278,764 at June 30, 2012 and December 31, 2011, respectively.

        The Company also enters into derivative contracts for forecasted product purchases and sales and for intercompany loans in foreign currency that do not qualify for hedge accounting but are utilized for economic hedges as defined above. In these cases, the change in value of the economic hedge is recorded

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

in the income statement and usually offsets the change in value recorded in the income statement for the underlying asset or liability. The notional amounts of economic hedges that do not qualify for hedge accounting totaled $1,300,655 and $2,149,440 at June 30, 2012 and December 31, 2011, respectively.

Interest Rate Risk Management

        The Company enters into derivatives, particularly interest rate swaps and to a certain extent, interest rate options, to protect against the risk of rising interest rates. These interest rate derivatives are designated as cash flow hedges and have been entered into in order to effectively convert payments based on variable interest rates into payments at a fixed interest rate. The euro-denominated interest rate swaps expire in 2016 and have an interest rate of 1.73%. Interest payable and receivable under the swap agreements is accrued and recorded as an adjustment to interest expense.

        As of June 30, 2012 and December 31, 2011, the notional amount of the euro-denominated interest rate swaps in place was €100,000 and €200,000 ($125,900 and $258,780 as of June 30, 2012 and December 31, 2011, respectively). As of June 30, 2012 the Company had no U.S. dollar-denominated interest rate swaps and at December 31, 2011 the notional amount was $2,650,000.

Derivative Financial Instruments Valuation

        The following table shows the carrying amounts of the Company's derivatives at June 30, 2012 and December 31, 2011.

 
  June 30, 2012   December 31, 2011  
 
  Assets(2)   Liabilities(2)   Assets(2)   Liabilities(2)  

Derivatives in cash flow hedging relationships(1)

                         

Current

                         

Foreign exchange contracts

    2,739     (23,259 )   4,117     (24,908 )

Interest rate contracts

                (130,579 )

Non-current

                         

Foreign exchange contracts

    141         742     (3,706 )

Interest rate contracts

        (3,989 )       (1,076 )
                   

Total

  $ 2,880   $ (27,248 ) $ 4,859   $ (160,269 )
                   

Derivatives not designated as hedging instruments(1)

                         

Current

                         

Foreign exchange contracts

    15,184     (20,967 )   56,760     (37,242 )

Non-current

                         

Foreign exchange contracts

    1,244     (1,307 )   1,382     (1,459 )
                   

Total

  $ 16,428   $ (22,274 ) $ 58,142   $ (38,701 )
                   

(1)
As of June 30, 2012 and December 31, 2011, the valuation of the Company's derivatives was determined using Significant Other Observable Inputs (Level 2) in accordance with the fair value hierarchy levels established in U.S. GAAP.

(2)
Derivative instruments are marked to market each reporting period resulting in carrying amounts being equal to fair values at the reporting date.

        The carrying amounts for the current portion of derivatives indicated as assets in the table above are included in Prepaid expenses and other current assets in the Consolidated Balance Sheets while the current portion of those indicated as liabilities are included in Accrued expenses and other current liabilities. The non-current portions indicated as assets or liabilities are included in the Consolidated Balance Sheets in Other assets or Other liabilities, respectively.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        The significant methods and assumptions used in estimating the fair values of derivative financial instruments are as follows:

        The fair value of interest rate swaps is calculated by discounting the future cash flows on the basis of the market interest rates applicable for the remaining term of the contract as of the balance sheet date. To determine the fair value of foreign exchange forward contracts, the contracted forward rate is compared to the current forward rate for the remaining term of the contract as of the balance sheet date. The result is then discounted on the basis of the market interest rates prevailing at the balance sheet date for the applicable currency.

        The Company includes its own credit risk for financial instruments deemed liabilities and counterparty-credit risks for financial instruments deemed assets when measuring the fair value of derivative financial instruments.


The Effect of Derivatives on the Consolidated Financial Statements

 
  Amount of
Gain or
(Loss) Recognized in OCI
on Derivatives
(Effective Portion)
for the six months
ended June 30,
   
  Amount of (Gain) or
Loss Reclassified
from AOCI in
Income
(Effective Portion)
for the six months
ended June 30,
 
 
  Location of (Gain) or
Loss Reclassified from
AOCI in Income
(Effective Portion)
 
Derivatives in Cash Flow
Hedging Relationships
  2012   2011   2012   2011  

Interest rate contracts

  $ (4,913 ) $ 6,916   Interest income/expense   $ 10,527   $ 2,562  

Foreign exchange contracts

    8,883     (7,945 ) Costs of Revenue     (7,261 )   396  

Foreign exchange contracts

              Interest income/expense     1,006     200  
                       

  $ 3,970   $ (1,029 )     $ 4,272   $ 3,158  
                       

 

 
   
  Amount of
(Gain) or Loss
Recognized in Income
on Derivatives
for the six months
ended June 30,
   
   
 
 
  Location of (Gain) or Loss
Recognized in Income
on Derivative
   
   
 
Derivatives not Designated
as Hedging Instruments
  2012   2011    
   
 

Foreign exchange contracts

  Selling, general and administrative expense   $ (1,458 ) $ (24,714 )            

Foreign exchange contracts

  Interest income/expense     3,066     5,559              
                           

      $ 1,608   $ (19,155 )            
                           

        For foreign exchange derivatives, the Company expects to recognize $11,518 of losses deferred in accumulated other comprehensive income at June 30, 2012, in earnings during the next twelve months.

        For foreign exchange hedges, the amount of ineffectiveness in the hedging relationship is reflected as a gain in earnings. This amount totaled $226 at June 30, 2012. In the prior year, there was no ineffectiveness.

        The Company expects to incur additional interest expense of $18,734 over the next twelve months which is currently deferred in accumulated other comprehensive income. This amount reflects the projected amortization of the settlement amount of the terminated swaps and the current fair value of the additional interest payments resulting from the remaining interest rate swap maturing in 2016 at June 30, 2012.

        As of June 30, 2012, the Company had foreign exchange derivatives with maturities of up to 41 months and interest rate swaps with maturities of up to 52 months.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

13.   Business Segment and Corporate Information

        The Company has identified three business segments, North America, International, and Asia Pacific, which were determined based upon how the Company manages its businesses. All segments are primarily engaged in providing dialysis care services and the distribution of products and equipment for the treatment of ESRD. In the U.S., the Company is engaged in providing inpatient dialysis services and other services under contract to hospitals. The Company has aggregated the International and Asia Pacific operating segments as "International." The segments are aggregated due to their similar economic characteristics. These characteristics include the same services provided and products sold, the same type patient population, similar methods of distribution of products and services and similar economic environments.

        Management evaluates each segment using a measure that reflects all of the segment's controllable revenues and expenses. Management believes that the most appropriate measure in this regard is operating income which measures the Company's source of earnings. Financing is a corporate function, which the Company's segments do not control. Therefore, the Company does not include interest expense relating to financing as a segment measure. Similarly, the Company does not allocate "corporate costs," which relate primarily to certain headquarters overhead charges, including accounting and finance, professional services, etc., because the Company believes that these costs are also not within the control of the individual segments. As of January 1, 2011, production of products, production asset management, quality management and procurement is centrally managed in Corporate by Global Manufacturing Operations. These corporate activities do not fulfill the definition of an operating segment. Products are transferred to the operating 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. Capital expenditures for production are based on the expected demand of the operating 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 are accounted for as "Corporate." The Company also regards income taxes to be outside the segment's control.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

        Information pertaining to the Company's business segments for the three- and six-month periods ended June 30, 2012 and 2011 is set forth below.

 
  North
America
  International   Segment
Total
  Corporate   Total  

Three months ended June 30, 2012

                               

Net revenue external customers

  $ 2,248,692   $ 1,170,902   $ 3,419,594   $ 8,379   $ 3,427,973  

Inter-segment revenue

    3,088         3,088     (3,088 )    
                       

Net revenue

    2,251,780     1,170,902     3,422,682     5,291     3,427,973  
                       

Depreciation and amortization

    (79,113 )   (42,914 )   (122,027 )   (28,850 )   (150,877 )
                       

Operating income

    431,084     207,223     638,307     (49,482 )   588,825  
                       

Income (loss) from equity method investees

    8,338     62     8,400     (4,542 )   3,858  

Capital expenditures, acquisitions and investments

   
101,463
   
60,934
   
162,397
   
35,985
   
198,382
 

Three months ended June 30, 2011

                               

Net revenue external customers

  $ 1,970,990   $ 1,162,448   $ 3,133,438   $ 4,185   $ 3,137,623  

Inter-segment revenue

    1,815         1,815     (1,815 )    
                       

Net revenue

    1,972,805     1,162,448     3,135,253     2,370     3,137,623  
                       

Depreciation and amortization

    (66,555 )   (42,822 )   (109,377 )   (26,912 )   (136,289 )
                       

Operating income

    348,457     203,144     551,601     (42,057 )   509,544  
                       

Income (loss) from equity method investees

    8,849     31     8,880         8,880  

Capital expenditures, acquisitions and investments

   
74,555
   
797,637
   
872,192
   
32,692
   
904,884
 

Six months ended June 30, 2012

                               

Net revenue external customers

  $ 4,353,276   $ 2,306,991   $ 6,660,267   $ 16,461   $ 6,676,728  

Inter-segment revenue

    6,540         6,540     (6,540 )    
                       

Net revenue

    4,359,816     2,306,991     6,666,807     9,921     6,676,728  
                       

Depreciation and amortization

    (151,129 )   (85,841 )   (236,970 )   (57,281 )   (294,251 )
                       

Operating Income

    778,917     402,135     1,181,052     (89,261 )   1,091,791  
                       

Income (loss) from equity method investees

    11,320     129     11,449     (2,094 )   9,355  

Segment assets

   
13,788,169
   
5,695,843
   
19,484,012
   
2,260,398
   
21,744,410
 

thereof investments in equity method investees

    246,161     360,169     606,330     (2,714 )   603,616  

Capital expenditures, acquisitions and investments(1)

   
1,862,044
   
99,820
   
1,961,864
   
63,738
   
2,025,602
 

Six months ended June 30, 2011

                               

Net revenue external customers

  $ 3,895,741   $ 2,217,681   $ 6,113,422   $ 8,052   $ 6,121,474  

Inter-segment revenue

    3,509         3,509     (3,509 )    
                       

Net revenue

    3,899,250     2,217,681     6,116,931     4,543     6,121,474  
                       

Depreciation and amortization

    (134,782 )   (83,171 )   (217,953 )   (54,320 )   (272,273 )
                       

Operating Income

    660,563     374,154     1,034,717     (80,089 )   954,628  
                       

Income (loss) from equity method investees

    16,367     95     16,462         16,462  

Segment assets

   
11,415,424
   
5,541,670
   
16,957,094
   
2,095,540
   
19,052,634
 

thereof investments in equity method investees

    339,230     5,756     344,986         344,986  

Capital expenditures, acquisitions and investments(2)

   
462,425
   
838,413
   
1,300,838
   
60,004
   
1,360,842
 

(1)
North America acquisitions exclude $496,386 of non-cash acquisitions and International acquisitions exclude $3,415 of non-cash acquisitions for 2012.

(2)
North America and International acquisitions exclude $6,000 and $1,731, respectively, of non-cash acquisitions for 2011.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

14.   Supplementary Cash Flow Information

        The following additional information is provided with respect to the consolidated statements of cash flows:

 
  Six months
ended June 30,
 
 
  2012   2011  

Supplementary cash flow information:

             

Cash paid for interest

  $ 155,263   $ 117,966  
           

Cash paid for income taxes(1)

  $ 229,128   $ 242,776  
           

Cash inflow for income taxes from stock option exercises

  $ 3,277   $ 4,980  
           

Supplemental disclosures of cash flow information:

             

Details for acquisitions:

             

Assets acquired

  $ (2,337,691 ) $ (874,302 )

Liabilities assumed

    226,377     37,555  

Noncontrolling interest subject to put provisions

    87,201      

Noncontrolling interest

    95,418     1,441  

Obligations assumed in connection with acquisition

    15,102     1,731  
           

Cash paid

    (1,913,593 )   (833,575 )

Less cash acquired

    170,301     12,435  
           

Net cash paid for acquisitions

  $ (1,743,292 ) $ (821,140 )
           

(1)
Net of tax refund.

15.   Supplemental Condensed Combining Information

        FMC Finance III, a former wholly-owned subsidiary of the Company, issued 67/8% Senior Notes due 2017 in July 2007. On June 20, 2011, Fresenius Medical Care US Finance, Inc. ("US Finance") acquired substantially all of the assets of FMC Finance III and assumed its obligations, including the 67/8% Senior Notes and the related indenture. The 67/8% senior notes are fully and unconditionally guaranteed, jointly and severally on a senior basis, by the Company and by the Guarantor Subsidiaries. The 67/8% Senior Notes and related guarantees were issued in an exchange offer registered under the Securities Act of 1933. The financial statements in this report present the financial condition, results of operations and cash flows of the Company, on a consolidated basis as of June 30, 2012 and December 31, 2011 and for the six-month periods ended June 30, 2012 and 2011. The following combining financial information for the Company is as of June 30, 2012 and December 31, 2011 and for the six-month periods ended June 30, 2012 and 2011, segregated between US Finance as issuer, the Company, D-GmbH and FMCH as guarantors, and the Company's other businesses (the "Non-Guarantor Subsidiaries"). For purposes of the condensed combining information, the Company and the Guarantors carry their investments under the equity method. Other (income) expense includes income (loss) related to investments in consolidated subsidiaries recorded under the equity method for purposes of the condensed combining information. In addition, other (income) expense includes income and losses from profit and loss transfer agreements as well as dividends received.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

 
  For the six months ended June 30, 2012  
 
  Issuer   Guarantors    
   
   
 
 
  FMC
US Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total
 

Net revenue

  $   $   $ 928,262   $   $ 7,183,245   $ (1,434,779 ) $ 6,676,728  

Cost of revenue

            587,675         5,317,223     (1,424,553 )   4,480,345  
                               

Gross profit

            340,587         1,866,022     (10,226 )   2,196,383  
                               

Operating expenses (income):

                                           

Selling, general and administrative(1)

        5,066     104,788     68,031     836,598     34,649     1,049,132  

Research and development

            34,134         21,326         55,460  
                               

Operating (loss) income

        (5,066 )   201,665     (68,031 )   1,008,098     (44,875 )   1,091,791  
                               

Other (income) expense:

                                           

Investment gain

                    (139,600 )       (139,600 )

Interest, net

    (3,412 )   103,541     1,741     72,356     28,849         203,075  

Other, net

        (817,512 )   130,561     (505,714 )       1,192,665      
                               

Income (loss) before income taxes

    3,412     708,905     69,363     365,327     1,118,849     (1,237,540 )   1,028,316  

Income tax expense (benefit)

    1,250     49,070     58,233     (55,383 )   394,507     (138,359 )   309,318  
                               

Net Income (loss)

    2,162     659,835     11,130     420,710     724,342     (1,099,181 )   718,998  

Net Income attributable to noncontrolling interests

                        59,163     59,163  
                               

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

  $ 2,162   $ 659,835   $ 11,130   $ 420,710   $ 724,342   $ (1,158,344 ) $ 659,835  
                               

(1)
Selling, general and administrative is presented net of Gain on Sale of dialysis clinics and net of income from equity method investees.

 
  For the six months ended June 30, 2011  
 
  Issuer   Guarantors    
   
   
 
 
  FMC
US Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total
 

Net revenue

  $   $   $ 934,792   $   $ 6,567,892   $ (1,381,210 ) $ 6,121,474  

Cost of revenue

            584,172         4,919,388     (1,358,979 )   4,144,581  
                               

Gross profit

            350,620         1,648,504     (22,231 )   1,976,893  
                               

Operating expenses (income):

                                           

Selling, general and administrative(1)

    2     36,236     97,705     (52,627 )   890,695     (2,678 )   969,333  

Research and development

            34,212         18,720         52,932  
                               

Operating (loss) income

    (2 )   (36,236 )   218,703     52,627     739,089     (19,553 )   954,628  
                               

Other (income) expense:

                                           

Interest, net

    (1,936 )   40,063     3,809     62,721     47,235     (5,723 )   146,169  

Other, net

        (611,365 )   144,905     (332,306 )       798,766      
                               

Income (loss) before income taxes

    1,934     535,066     69,989     322,212     691,854     (812,596 )   808,459  

Income tax expense (benefit)

    715     53,604     60,749     (3,982 )   291,583     (129,409 )   273,260  
                               

Net Income (loss)

    1,219     481,462     9,240     326,194     400,271     (683,187 )   535,199  

Net Income attributable to noncontrolling interests

                        53,737     53,737  
                               

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

  $ 1,219   $ 481,462   $ 9,240   $ 326,194   $ 400,271   $ (736,924 ) $ 481,462  
                               

(1)
Selling, general and administrative is presented net of income from equity method investees.

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

 
  For the six months ended June 30, 2012  
 
  Issuer   Guarantors    
   
   
 
 
  FMC
US Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total
 

Net Income

  $ 2,162   $ 659,835   $ 11,130   $ 420,710   $ 724,342   $ (1,099,181 ) $ 718,998  
                               

Gain (loss) related to cash flow hedges

        (5,916 )   (9 )   11,725     2,442         8,242  

Actuarial gain (loss) on defined benefit pension plans

        8     94     4,268     4,373         8,743  

Gain (loss) related to foreign currency translation

        26,112     18,886         (94,106 )   1,492     (47,616 )

Income tax (expense) benefit related to components of other comprehensive income

        3,427     (51 )   (7,993 )   (19,341 )       (23,958 )
                               

Other comprehensive income (loss), net of tax

        23,631     18,920     8,000     (106,632 )   1,492     (54,589 )
                               

Total comprehensive income

  $ 2,162   $ 683,466   $ 30,050   $ 428,710   $ 617,710   $ (1,097,689 ) $ 664,409  

Comprehensive income attributable to noncontrolling interests

                        59,249     59,249  
                               

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

  $ 2,162   $ 683,466   $ 30,050   $ 428,710   $ 617,710   $ (1,156,938 ) $ 605,160  
                               

 

 
  For the six months ended June 30, 2011  
 
  Issuer   Guarantors    
   
   
 
 
  FMC
US Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total
 

Net Income

  $ 1,219   $ 481,462   $ 9,240   $ 326,194   $ 400,271   $ (683,187 ) $ 535,199  
                               

Gain (loss) related to cash flow hedges

        (14,138 )   (69 )   23,882     (7,546 )       2,129  

Actuarial gain (loss) on defined benefit pension plans

                1,783     1,782         3,565  

Gain (loss) related to foreign currency translation

        62,628     15,159         89,180     (609 )   166,358  

Income tax (expense) benefit related to components of other comprehensive income

        5,215     20     (10,795 )   (3,287 )       (8,847 )
                               

Other comprehensive income (loss), net of tax

        53,705     15,110     14,870     80,129     (609 )   163,205  
                               

Total comprehensive income

  $ 1,219   $ 535,167   $ 24,350   $ 341,064   $ 480,400   $ (683,796 ) $ 698,404  

Comprehensive income attributable to noncontrolling interests

                        54,762     54,762  
                               

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

  $ 1,219   $ 535,167   $ 24,350   $ 341,064   $ 480,400   $ (738,558 ) $ 643,642  
                               

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FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

 
  At June 30, 2012
 
  Issuer   Guarantors    
   
   
 
  FMC US
Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total

Current assets:

                                         

Cash and cash equivalents

  $ 1   $ 88,425   $ 427   $   $ 590,150   $ (1,625)   $ 677,378

Trade accounts receivable, less allowance for doubtful accounts

            152,609         2,780,226         2,932,835

Accounts receivable from related parties

    1,269,897     3,770,059     1,215,051     2,373,986     7,494,977     (15,917,470)     206,500

Inventories

            269,616         884,407     (120,677)     1,033,346

Prepaid expenses and other current assets

        78,691     34,694     150     827,826     1,542     942,903

Deferred taxes

        137             273,750     (3,505)     270,382
                             

Total current assets

    1,269,898     3,937,312     1,672,397     2,374,136     12,851,336     (16,041,735)     6,063,344

Property, plant and equipment, net

        588     178,956         2,727,691     (108,443)     2,798,792

Intangible assets

        630     53,875         674,782         729,287

Goodwill

            52,337         11,112,637         11,164,974

Deferred taxes

        37,657     1,283         107,532     (58,616)     87,856

Other assets

        10,135,096     654,872     11,083,662     (6,781,098)     (14,192,375)     900,157
                             

Total assets

  $ 1,269,898   $ 14,111,283   $ 2,613,720   $ 13,457,798   $ 20,692,880   $ (30,401,169)   $ 21,744,410
                             

Current liabilities:

                                         

Accounts payable

  $   $ 1,447   $ 32,752   $   $ 481,205   $   $ 515,404

Accounts payable to related parties

        1,593,625     1,261,800     3,132,166     10,232,255     (16,031,763)     188,083

Accrued expenses and other current liabilities

    29,770     23,316     119,203     349,723     1,194,954     10,328     1,727,294

Short-term borrowings

        63             102,917         102,980

Short-term borrowings from related parties

                    (1,621)     53,833     52,212

Current portion of long-term debt and capital lease obligations

        729,143         1,173,207     1,183,453         3,085,803

Income tax payable

        114,053             65,973     (14,148)     165,878

Deferred taxes

            10,958         62,703     (40,819)     32,842
                             

Total current liabilities

    29,770     2,461,647     1,424,713     4,655,096     13,321,839     (16,022,569)     5,870,496

Long term debt and capital lease obligations, less current portion

    1,174,863     346,304             7,509,431     (3,487,673)     5,542,925

Long term borrowings from related parties

        3,064,575     193,582     408,942     (1,836,817)     (1,830,282)    

Other liabilities

        5,371     12,963         215,232     24,466     258,032

Pension liabilities

        5,922     148,930         139,560         294,412

Income tax payable

    2,268     252             59,020     113,995     175,535

Deferred taxes

                    611,342     (21,491)     589,851
                             

Total liabilities

    1,206,901     5,884,071     1,780,188     5,064,038     20,019,607     (21,223,554)     12,731,251

Noncontrolling interests subject to put provisions

                    540,980         540,980

Total FMC-AG & Co. KGaA shareholders' equity

    62,997     8,227,212     833,532     8,393,760     (112,674)     (9,177,615)     8,227,212

Noncontrolling interests not subject to put provisions

                    244,967         244,967
                             

Total equity

    62,997     8,227,212     833,532     8,393,760     132,293     (9,177,615)     8,472,179
                             

Total liabilities and equity

  $ 1,269,898   $ 14,111,283   $ 2,613,720   $ 13,457,798   $ 20,692,880   $ (30,401,169)   $ 21,744,410
                             

48


Table of Contents


FRESENIUS MEDICAL CARE AG & Co. KGaA

Notes to Consolidated Financial Statements — (Continued)
(unaudited)
(in thousands, except share and per share data)

 
  At December 31, 2011
 
  Issuer   Guarantors    
   
   
 
  FMC US
Finance
  FMC - AG &
Co. KGaA
  D-GmbH   FMCH   Non-Guarantor
Subsidiaries
  Combining
Adjustment
  Combined
Total

Current assets:

                                         

Cash and cash equivalents

  $ 1   $ 2   $ 144   $   $ 457,145   $   $ 457,292

Trade accounts receivable, less allowance for doubtful accounts

            143,313         2,655,005         2,798,318

Accounts receivable from related parties

    1,273,649     3,507,671     1,058,327     700,929     4,214,468     (10,644,036)     111,008

Inventories

            224,601         857,521     (114,626)     967,496

Prepaid expenses and other current assets

        195,428     16,973     50     834,932     (12,017)     1,035,366

Deferred taxes

        32,466             266,164     26,909     325,539
                             

Total current assets

    1,273,650     3,735,567     1,443,358     700,979     9,285,235     (10,743,770)     5,695,019

Property, plant and equipment, net

        356     175,798         2,560,913     (107,366)     2,629,701

Intangible assets

        266  <