• 05.1
  Statements of Income
• 05.2
  Balance Sheets
• 05.3
  Statements of Cash Flows
• 05.4
  Statements of Shareholders’ Equity
• 05.5
  Notes
• 05.6
  Management’s Annual Report on Internal Control over Financial Reporting
• 05.7
  Report of Independent Registered Public Accounting Firm
• 05.8
  Auditors’ Report: Report of Independent Registered Public Accounting Firm

05.5

Notes to Consolidated Financial Statements

9. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS

At December 31, 2008 and 2007, long-term debt and capital lease obligations consisted of the following:

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SENIOR DEBT

The Company’s senior debt consists mainly of borrowings related to its 2006 Senior Credit Agreement, its Senior Notes, its Euro Notes and borrowings under its European Investment Bank Agreements as follows:

2006 SENIOR CREDIT AGREEMENT

The Company entered into a $4,600,000 syndicated credit agreement (the “2006 Senior Credit Agreement”) with Bank of America, N.A. (“BofA”); Deutsche Bank AG New York Branch; The Bank of Nova Scotia; Credit Suisse, Cayman Islands Branch; JPMorgan Chase Bank, National Association; and certain other lenders (collectively, the “Lenders”) on March 31, 2006 which replaced its prior credit agreement.

The 2006 Senior Credit Agreement consists of:

• a 5-year $1,000,000 revolving credit facility (of which up to $250,000 is available for letters of credit, up to $300,000 is available for borrowings in certain non-U.S. currencies, up to $150,000 is available as “swing line” loans in U.S. dollars, up to $250,000 is available as a competitive loan facility and up to $50,000 is available as “swing line” loans in certain non-U.S. currencies, the total of which cannot exceed $1,000,000) which will be due and payable on March 31, 2011.
• a 5-year term loan facility (“Term Loan A”) of $1,850,000, also scheduled to mature on March 31, 2011. The 2006 Senior Credit Agreement requires 19 quarterly payments on Term Loan A of $30,000 each that permanently reduce the term loan facility which began June 30, 2006 and continue through December 31, 2010. The remaining amount outstanding is due on March 31, 2011. As a result of the voluntary repayment made in July 2007 from the proceeds of the issuance of senior notes (see “Senior Notes”) which reduced the principal balance outstanding, the quarterly payments were reduced to $29,430 beginning with the payment for September 30, 2008.
• a 7-year term loan facility (“Term Loan B”) of $1,750,000 scheduled to mature on March 31, 2013. The terms of the 2006 Senior Credit Agreement require 28 quarterly payments on Term Loan B that permanently reduce the term loan facility. The repayment began June 30, 2006. The first 24 quarterly payments are $4,375 and payments 25 through 28 are $411,250 with the final payment of the remaining balance due on March 31, 2013, subject to an early repayment requirement on March 1, 2011 if the Trust Preferred Securities due June 15, 2011 are not repaid or refinanced or their maturity is not extended prior to that date. As a result of the voluntary repayment made in July 2007 from the proceeds of the issuance of senior notes (see “Senior Notes”) the balance of the remaining payments of $4,375 were reduced to $4,036 beginning with the September 30, 2008 payment, and payments 25 through 28 were reduced to $379,396.

Interest on these facilities will be, at the Company’s option, depending on the interest periods chosen, at a rate equal to either (i) LIBOR plus an applicable margin or (ii) the higher of (a) BofA’s prime rate or (b) the Federal Funds rate plus 0.5 %, plus an applicable margin.

The applicable margin is variable and depends on the Company’s Consolidated Leverage Ratio which is a ratio of its Consolidated Funded Debt less up to $30,000 cash and cash equivalents to Consolidated EBITDA (as these terms are defined in the 2006 Senior Credit Agreement).

In addition to scheduled principal payments, indebtedness outstanding under the 2006 Senior Credit Agreement will be reduced by mandatory prepayments utilizing portions of the net cash proceeds from certain sales of assets, securitization transactions other than the Company’s existing A/R Facility, the issuance of subordinated debt other than certain intercompany transactions, certain issuances of equity and excess cash flow.

Obligations under the 2006 Senior Credit Agreement are secured by pledges of capital stock of certain material subsidiaries in favor of the lenders. The 2006 Senior Credit Agreement contains affirmative and negative covenants with respect to the Company and its subsidiaries and other payment restrictions. Certain of the covenants limit indebtedness of the Company and investments by the Company, and require the Company to maintain certain financial ratios defined in the agreement. Additionally, the 2006 Senior Credit Agreement provides for a limitation on dividends and other restricted payments which is $280,000 for dividends in 2009, and increases in subsequent years. The Company paid dividends of $252,395 in May of 2008 which was in compliance with the restrictions set forth in the 2006 Senior Credit Agreement. In default, the outstanding balance under the 2006 Senior Credit Agreement becomes immediately due and payable at the option of the Lenders. As of December 31, 2008, the Company is in compliance with all covenants under the 2006 Senior Credit Agreement.

The following table shows the available and outstanding amounts under the 2006 Senior Credit Agreement at December 31, 2008 and 2007, respectively:

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In addition, at December 31, 2008, $111,994 and at December 31, 2007, $87,140 were utilized as letters of credit which are not included as part of the balances outstanding at those dates.

In June 2007, the 2006 Senior Credit Agreement was amended in order to enable the Company to issue $500,000 in Senior Notes (see “Senior Notes” below). Furthermore, on January 31, 2008, it was amended to increase certain types of permitted borrowings and to remove all limitations on capital expenditures.

In July 2007, the Company voluntarily repaid portions of the term loans outstanding utilizing a portion of the proceeds from the issuance of senior notes (see “Senior Notes” below). Under the terms of the 2006 Senior Credit Agreement, advance payments on the term loans are applied first against the next four quarterly payments due with any amounts in excess of the four quarterly payments applied on a pro-rata basis against any remaining payments. As a result of the advance payments on the Term Loans, no payments were made or were due for either Term Loan A or B until the third quarter of 2008 at which time quarterly payments were resumed.

SENIOR NOTES

In July 2007, FMC Finance III S.A. (“Finance III”), a wholly-owned subsidiary of the Company, issued $500,000 aggregate principal amount of 6 7/8 % senior notes due 2017 (the “Senior Notes”) at a discount resulting in an effective interest rate of 7 1/8 %. The Senior Notes are guaranteed on a senior basis jointly and severally by the Company and by its subsidiaries Fresenius Medical Care Holdings, Inc. (“FMCH”) and Fresenius Medical Care Deutschland GmbH (“D-GmbH”). Finance III may redeem the Senior Notes at any time at 100 % of principal plus accrued interest and a premium calculated pursuant to the terms of the indenture. The holders have a right to request that Finance III repurchase the Senior Notes at 101 % of principal plus accrued interest upon the occurrence of a change of control followed by a decline in the rating of the Senior Notes. The proceeds, net of discounts, investment bank fees and other offering related expenses, were $484,024, of which $150,000 was used to reduce Term Loan a and $150,000 to reduce Term Loan B under the Company’s 2006 Senior Credit Agreement (see 2006 Senior Credit Agreement above). The remaining $184,024 was applied to the then outstanding balance under its short-term A/R Facility. The discount is being amortized over the life of the Senior Notes.

EURO NOTES

In July 2005, FMC Finance IV Luxembourg issued euro denominated notes (“Euro Notes”) (Schuldscheindarlehen) totaling $278,340 (€200,000) with a €126,000 tranche at a fixed interest rate of 4.57 % and a €74,000 tranche with a floating rate at euribor plus applicable margin resulting in an interest rate of 6.87 % at December 31, 2008. The Euro Notes, guaranteed by the Company, mature on July 27, 2009 and are included in the short term portion of longterm debt in our balance sheet at December 31, 2008.

EUROPEAN INVESTMENT BANK AGREEMENTS

The Company entered into various credit agreements with the European Investment Bank ("EIB") in 2005 and 2006 totaling €221,000. The EIB is a not-for-profit long-term lending institution of the European Union and lends funds at favorable rates for the purpose of capital investment and R & D projects, normally for up to half of the funds required for such projects.

The Company uses the funds to refinance certain R & D projects, to make investments in expansion and optimization of existing production facilities in Germany, and for financing and refinancing of certain clinic refurbishing and improvement projects. Currently all agreements with the EIB have variable interest rates that change quarterly, with FMC-AG & Co. KGaA having options to convert the variable rates into fixed rates. All advances under all agreements can be denominated in certain foreign currencies including U.S. dollars.

The Company has three credit facilities available at December 31, 2008 under these agreements as follows:

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At December 31, 2008, the Company had no borrowings outstanding under the revolving credit facility, $48,806 under the Loan 2005 facility and $125,253 under the Loan 2006 facility which was drawn down during 2008. The Company’s U.S. dollar borrowings under the Loan 2005 agreement had an interest rate of 2.03 % and the Euro borrowings under the Loan 2006 agreement had an interest rate of 4.77 % at December 31, 2008.

Borrowings under these agreements are secured by bank guarantees, which are in place for Loan 2005 and Loan 2006 and have customary covenants. Borrowings under the Revolving Credit facility are subject to obtaining a bank guarantee at the time of the borrowings.

ANNUAL PAYMENTS

Aggregate annual payments applicable to the 2006 Senior Credit Agreement, Senior Notes, Euro Notes, EIB agreements, capital leases and other borrowings (excluding the Company’s trust preferred securities, seeNote 11) for the five years subsequent to December 31, 2008 are:

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