SecProbe.io

CORRESP
1
filename1.htm

corresp

Board of Management

VIA EDGAR AND FAX (202) 772-9217

Jim B. Rosenberg

Senior Assistant Chief Accountant

Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549

June 16, 2005

    Re:

    Fresenius Medical Care Corporation

    Form 20-F for fiscal year ended December 31, 2004

    File No. 1-14444

Dear Mr. Rosenberg,

On behalf of Fresenius Medical Care AG (the “Company”), we submit this letter in response to
comments from the Staff of the Securities and Exchange Commission (the “Commission”) received by
letter dated May 26, 2005 relating to the Company’s Form 20-F for the year ended December 31, 2004
(File No. 1-14444), which was filed on March 1, 2005 (the “ Form 20-F”). As requested by the
Staff, the Company is filing this letter today as correspondence on EDGAR. Also enclosed are Item
5 and Note 19 of the Notes to Consolidated Financial Statements, as proposed to be amended in
response to the Staff’s comments. Because the Company has not provided all of the expanded
disclosure suggested by the Staff’s comments, we are providing this letter to the Staff in advance
of filing an amendment to the Form 20-F, as specifically requested by the May 26 letter.

For the convenience of the Staff, we are also sending via fax a copy of this letter and the
proposed amendments to Item 5 and to Note 19, each of which is marked to show the changes we have
made. For ease of reference, the page numbering of each item matches the page numbering of such
item in the Company’s Form 20-F, as originally filed. Where added disclosure on a page carried
over to a new page, the “spillover” is contained on additional pages with the same page number plus the suffix .1, .2, etc.

To assist the Staff’s review of the Company’s responses, the Staff’s comments have been repeated in
bold type below, and the Company’s response to each comment appears immediately following the
applicable comment. Capitalized terms used herein and not otherwise defined have the meanings
ascribed to them in the Form 20-F.

Form 20-F for fiscal year ended December 31, 2004

    Fresenius Medical Care AG

61346 Bad Homburg

Germany

Telephone:  +49-6172-609-2255

Telefax:  +49-6172-609-2280

    Board of Management: Dr. Ben Lipps (President and CEO),

Roberto Fusté, Dr. Emanuele Gatti, Rice Powell, Lawrence A. Rosen,

Dr. Rainer Runte, Mats Wahlstrom

Supervisory Board: Dr. Gerd Krick (Chairman)

    Registered Office

Hof, Germany

Commercial Register No. HRB 2460

Item 5. Operating and Financial Review and Prospects

Critical Accounting Policies

Allowance for Doubtful Accounts, page 35

    1.

Please consider expanding your disclosures regarding Accounts Receivable and
Allowance for Doubtful Accounts to include the following:

    a)

State if your billings system generates contractual adjustments based
on fee schedules for the patient’s insurance plan for each patient encounter or if
an estimate of contractual allowances is made. If an estimate is made, state what
factors are considered in determining the estimate.

See item 1. c) below.

    b)

Disclose your policy for collecting co-payments.

See item 1. c) below.

    c)

State if you use specific identification for account write-offs of
accounts receivable.

In response to the Staff’s comments with respect to items a), b) and c), the Company
has expanded its disclosures; such expanded disclosures are included in the enclosed proposed
amendment of Item 5, “Operating and Financial Review and Prospects,” under the
caption “Critical Accounting Policies — Accounts Receivable and Allowance for
Doubtful Accounts” on page 36 and 36.1.

    d)

For each period presented, quantify and disclose the amount of
changes in estimates of prior period contractual adjustments that you recorded
during the current period. For example for 2004, this amount would represent the
amount of the difference between estimates of contractual adjustments for services
provided in 2003 and the amount of the new estimate or settlement amount that was
recorded during 2004.

The Company has considered its disclosures of changes of estimates for contractual
adjustments and respectfully submits to the Staff that after consideration of the
comment raised, it has not expanded the disclosure by providing quantitative
information. Billings are normally made at standard rates and when the contractual
rates are known, an allowance for the differences is made. When there is
uncertainty as to the contracted amounts, the allowance is established based upon
past history and experience with the contracting party in question. Significant
variances between recorded accounts receivable, net of contractual allowances, and
actual payments received are reviewed by management and appropriate action
initiated as required. Accordingly, the Company does not capture this type of
information on an aggregated basis in a format suggested in the Staff’s comment.

    e)

Quantify and disclose the reasonably possible effects that a change
in estimate of unsettled amounts from 3rd party payors as of the latest
balance sheet date could have on financial position and operations.

In response to the Staff’s comments with respect to this item, the Company has added
disclosure to provide a sensitivity analysis of the possible effects that a change
in estimate could have on the results of operations; such expanded disclosures are
also included in the proposed amendment of Item 5, “Operating and Financial Review
and Prospects,” under the caption “Critical Accounting Policies — Accounts
Receivable and Allowance for Doubtful Accounts” on page 36.1 which is enclosed
herewith.

    f)

Disclose in a comparative tabular format, the payor mix
concentrations and related aging of accounts receivable. The aging schedule may be
based on management’s own reporting criteria (i.e. unbilled, less than 30 days, 30
to 60 days etc.) or some other reasonable presentation. At a minimum, the
disclosure should indicate the past due amounts and a breakdown by payor
classification (i.e. Medicare, Medicaid, Managed care and other, and Self-pay). We
would expect self-pay to be separately classified from any other grouping. If your
billing system does not have the capacity to provide an aging schedule of your
receivables, disclose that fact and clarify how this affects your ability to
estimate your allowance for bad debts.

The Company has considered its disclosures for payor mix concentrations and related
aging of accounts receivables. The Company respectfully submits to the Staff that
it believes that an aging schedule will not provide useful disclosure to the reader
due to the number of countries in which the Company provides services and due to
the fact that there is a significant number of local, state and federal
governmental agencies that reimburse the Company for its services, the timing of
which is significantly different from agency to agency, and country to country.
Accordingly, we believe that the requested disclosure would not provide meaningful
information about debtor quality. The disclosure in our Form 20-F describes that
aging of receivables is considered for specific payor groups in our determination
of a need to recognize a valuation allowance.

In addition, the Company respectfully submits to the Staff that it believes that
the expanded disclosures the Company intends to provide in the proposed amendment
to Item 5 in response to other items commented on by the Staff adequately describe
the nature of its customers and its ability to estimate the collectibility of its
accounts receivables.

    g)

If you have amounts that are pending approval from third party payors
(i.e. Medicaid Pending), please disclose the balances of such amounts, where they
have been classified in your aging buckets, and what payor classification they
have been grouped with. If amounts are classified outside of self-pay, tell us why
this classification is appropriate, and disclose the historical percentage of
amounts that get reclassified into self-pay.

In response to the Staff’s comment, the Company has considered its disclosures for
amounts relating to pending approval from third party payors. The Company
respectfully submits that these amounts represent approximately 1.0% of gross accounts receivable and thus do not warrant separate
disclosure.

B. Liquidity and Capital Resources

Liquidity, page 48

    2.

State the steps you take in collecting accounts receivable. Disclose your
policy with respect to determining when a receivable is recorded as a bad debt and when
a write off is recorded. Clarify the threshold (amount and age) for account balance
write-offs.

In response to the Staff’s comment, the Company has expanded the disclosure of its
“Allowance for Doubtful Accounts” under “Critical Accounting Policies” to include the
steps taken in collecting accounts receivables as shown on page 36 in the proposed amendment to
Item 5, which is enclosed herewith.

We have not repeated our collection policies under “Liquidity and Capital Resources”
but discuss within the “Liquidity” section the importance of our ability to collect
our receivables in general terms and added the disclosure of day’s sales outstanding
after considering the Staff’s comment #3. We believe that the expanded disclosure
presented in other sections of Item 5 and in response to the Staff’s comment #3 will
enable the reader of the liquidity section to clearly understand the importance of the
Company’s ability to timely collect its receivables without being repetitive.

    3.

Disclose the day’s sales outstanding for each period presented. Disclose the
reasons for significant changes from the prior period.

In response to the Staff’s comment, the Company has added additional disclosure in the
“Financial Condition and Results of Operations — B. Liquidity and Capital Resources —
Liquidity” section regarding day’s sales outstanding and the reasons for significant
changes, as shown in the proposed amendment to Item 5, which is enclosed herewith.
Please see page 48.1.

Results of Operations, page 39

    4.

We noted your presentation of EBITDA in your discussion of the results of
operations and your disclosures in Note 19 to the financial statements.

    a)

Please move your discussion of EBITDA in Management’s
Discussion and Analysis to an “other data” section as to not give undue
prominence to this non-GAAP measure as it appears it is not an operating
measure. Please consider revising the presentation to comply with Item 10(e) of
Regulation S-K, including the appropriate reconciliation to a non-operating performance
measure. In addition, please note the guidance in the Frequently Asked
Questions Regarding the Use of Non-GAAP Financial Measures found on our website
at www.sec.gov/divisions/corphin/faqs/nongaapfaq.htm, specifically questions 8
and 12.

In response to the Staff’s comment, the Company has removed EBITDA discussions
from “Financial Condition and Results of Operations — Overview” and segment
operations sections and removed the EBITDA line item from the related operating segment
key figures tables in the “Operating and Financial Review and
Prospects”. Please see pages 38, 39, 41, 42, 43, 45, 46, and 47.

As EBITDA is a key element in the determination of certain ratios relating to
covenants for most of the Company’s borrowings, the Company has added a brief
discussion entitled “EBITDA” at the end of the Section titled “Financial
Condition and Results of Operations — B. Liquidity and Capital Resources —
Analysis of Cash Flow” in Item 5. The Company has also added a table at the end
of the “EBITDA” section that contains a reconciliation of total EBITDA to its
most directly related comparable financial measure, net cash provided by
operating activities. Please see page 51.

    b)

It does not appear that your inclusion in Note 19 to the
financial statements complies with Item 10(e) of Regulation S-K. It appears
that your segment measure is operating income, and that EBITDA is considered
supplemental information which is presented as a liquidity measure.

In response to the Staff’s comment, the Company has reviewed Note 19 and has
revised it to remove references to EBITDA and omitted reconciliation tables that
are no longer required. The Company has amended Note 19, which is marked and
enclosed herewith. Please see pages F-34, F-35 and F-36.

As requested by the Staff, the Company hereby acknowledges that: (i) the Company is
responsible for the adequacy and accuracy of the disclosure in the filings; (ii) Staff
comments or changes to disclosure in response to Staff comments in the filings reviewed by
the Staff do not foreclose the Commission from taking any action with respect to the filing;
and (ii) the Company may not assert Staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United States.

Please direct any questions or comments regarding the proposed amendment to the Form 20-F,
this letter or any other related matters to Robert A. Grauman, with Baker and McKenzie LLP
at (212) 891-3587, Charles F. Niemeth at (212) 891-3586 or Kimberly V. Loies at (312)
861-8315. In addition, please send any additional written comments by facsimile to Mr.
Grauman at (212) 310-1687 and to Charles F. Niemeth at (212) 310-1886. Thank you for your
consideration.

Sincerely,

/s/ LAWRENCE ROSEN

Lawrence Rosen

Chief Financial Officer

Enclosures

cc:          Dr. Ben J. Lipps