• 02.1
  Operations and Business Environment
• 02.2
  Results of Operations, financial Situation, Assets and Liabilities
• 02.3
  Non-financial Performance Indicators
• 02.4
  Risk Report
• 02.5
  Subsequent Events
• 02.6
  Outlook

02.1

Operations and Business Environment

GROUP STRUCTURE AND BUSINESS

Fresenius Medical Care is the world’s leading vertically integrated provider of products and services for people with chronic kidney failure. When the kidney function of patients with this disease fails, dialysis takes over the vital task of cleansing the blood. In healthy people toxins are discarded via the urine and surplus water is removed from the body. However, as patient’s kidneys can no longer fulfill these tasks they require dialysis treatment. At the end of 2008, about 1.770 million patients regularly underwent dialysis worldwide. Fresenius Medical Care provided treatments to 184,086 patients in a network of 2,388 dialysis clinics in North America, Europe, Asia, Latin America, and Africa.

Fresenius Medical Care runs a network of more than 30 manufacturing facilities on all continents. The Company’s most important production sites in terms of production output are in the U.S., Germany, and Japan. We also operate plants in other European and Asian countries, as well as in Latin America. An overview of our major manufacturing facilities can be found in the section „production”. Fresenius Medical Care’s headquarters are in Bad Homburg v.d.H. near Frankfurt / Main in Germany.

Fresenius Medical Care’s activities are organized on a regional level and divided into three operating segments: North America, International, and Asia-Pacific. For reporting purposes, the International and Asia-Pacific segments are grouped into the International segment as they are subject to similar economic conditions. This not only applies to the products sold, patient structures, and methods of distributing products and services, but also the economic environment. Our North American headquarters are located in Waltham, Massachusetts, U.S., the International operating segment is based in Bad Homburg v.d.H., and the regional administrative headquarters for Asia-Pacific are in Hong Kong.

MANAGEMENT AND CONTROL

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

KEY PRODUCTS, SERVICES AND BUSINESS PROCESSES

Fresenius Medical Care provides dialysis services in its own dialysis clinics in more than 30 countries. The most important products in the dialysis product business are dialyzers (artifical kidneys) and dialysis machines. Our dialysis products are used in both, hemodialysis and peritoneal dialysis, within and outside our own network of dialysis clinics. We offer our product and services range in more than 115 countries worldwide and are therefore a global acting company.

MAJOR MARKETS AND COMPETITIVE POSITION

Our key markets are North America and Europe, where we generate approximately 66 % and 24 % of our sales, respectively. Fresenius Medical Care is the world’s leading provider of dialysis services, with a market share of about 14 % based on revenue. We provide care for most dialysis patients worldwide and operate more dialysis clinics than any of our competitors.

Our dialysis products accounted for a market share of around 32 % in 2008, which means that we are the unchallenged market leader in this area, too. The market share of our key products, dialyzers and dialysis machines, was significantly higher with more than 45 % and over 55 %, respectively. Further information on the dialysis market and the position of Fresenius Medical Care can be found in the section „Sector-Specific Conditions – Dialysis Market”.

LEGAL AND ECONOMIC FACTORS

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

Furthermore, the dialysis market is continuing to grow on account of demographic factors, including the aging population and the increasing incidence of diabetes and hypertension, which frequently precede the onset of end-stage renal disease (ESRD). In recent years, forecasts regarding the occurrence of these two diseases have been continually adjusted upwards. The “International Diabetes Federation” expects the number of people with diabetes to almost double – from 194 million in 2003 to 380 million in 2025. In addition, the life expectancy of dialysis patients is increasing thanks to continual improvements in the quality of treatment and higher standards of living, also in developing countries.

Dialysis reimbursement structures differ from country to country, and often even within one country. In the U.S., costs for the majority of dialysis treatments are reimbursed by public healthcare programs such as Medicare. As a result, Fresenius Medical Care’s business is impacted by reimbursement rates and methods specified by government. Further information can be found in the section „New Reimbursement Models”.

In 2008, the legal conditions for Fresenius Medical Care remained largely unchanged and therefore did not have a significant influence on the company’s operating business.

ACCOUNTING

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