Exhibit 99.1
PRESS RELEASE
Contact: Martin J. Landon
(210) 255-6494
KINETIC CONCEPTS REPORTS
THIRD QUARTER AND NINE MONTH
FINANCIAL RESULTS FOR 2003
San Antonio, Texas, November 7, 2003 - Kinetic Concepts, Inc. ("KCI") today reported net revenue of $198.0 million for the third quarter of 2003, an increase of 31% over the third quarter of 2002. For the first nine months of 2003, net revenue was $547.9 million, up 32% from the first nine months of the prior year. Excluding the effects of foreign currency exchange, net revenue for the third quarter increased 28%, while revenue for the first nine months of 2003 was up 27% compared to the prior year.
During the third quarter of 2003, KCI completed a leveraged recapitalization, which resulted in recapitalization expenses totaling $86.3 million on a pretax basis and $53.9 million, net of income taxes. KCI reported a net loss of $34.3 million for the third quarter of 2003 compared to net earnings of $9.1 million for the third quarter of 2002. Net earnings for the first nine months of 2003 were $1.7 million, compared to net earnings of $29.1 million for the nine months ended September 30, 2002. Excluding recapitalization expenses, net earnings for the third quarter of 2003 would have increased 116% over the same period in the prior year to $19.7 million and net earnings for the nine months would have increased 91% over the same period in the prior year to $55.6 million.
Recapitalization expenses consisted primarily of compensation expense associated with the purchase of vested stock options of $67.5 million, a call premium and consent fee associated with the early redemption of the 9 5/8% senior subordinated notes due 2007 of $11.1 million, the write-off of unamortized loan issuance costs associated with the retired debt of $5.2 million and miscellaneous fees and expenses of approximately $2.5 million.
"Completing the recapitalization was significant because we were able to access the debt markets at a very favorable time and put in place a capital structure which will increase our financial flexibility going forward," stated Dennert O. Ware, President and CEO of KCI. "Excluding recapitalization expenses, gross profit increased 34% for the third quarter and operating profit grew 47%. Demand for our products was strong in the period and our management initiatives are producing operating improvements."
Recapitalization
On August 11, 2003, KCI issued an aggregate of $205.0 million of 7 3/8% senior subordinated notes due 2013. Concurrently with the issuance of the notes, KCI entered into a new senior credit facility, consisting of a $480.0 million seven-year term loan facility, and an undrawn $100.0 million six-year revolving credit facility. In addition, KCI issued $263.8 million of convertible preferred stock. Proceeds from these activities, along with approximately $53.4 million of cash on hand were used for the following purposes:
- to repay $208.2 million due under a previously existing senior credit facility;
- to redeem $200 million of 9 5/8% senior subordinated notes due 2007;
- to purchase for cash approximately $589.0 million of outstanding common stock and
vested stock options at a purchase price of $17.00 per share; and
- to pay fees and expenses associated with the transactions.
Revenue Recap
Revenue for the third quarter of 2003 was $198.0 million, an increase of 31% from the prior-year period. Domestic revenue for the period was $151.2 million, a 31% increase from 2002 due directly to increased rental and sales volumes for V.A.C. wound healing devices and related disposables. International revenue of $46.8 million increased 34% compared to the prior-year period. Excluding the effects of foreign currency exchange, international revenue increased 19% from the 2002 third quarter.
V.A.C. revenue was $127.6 million for the third quarter of 2003, an increase of 53% from the prior-year period. Domestic V.A.C. revenue of $105.9 million increased 49% compared to the prior year due primarily to increased rentals and sales volume. International V.A.C. revenue of approximately $21.8 million increased 73% from the prior-year period due to increased volume of rentals and sales in all markets.
Surface revenue was $70.4 million for the third quarter of 2003, an increase of 5% from the prior-year period due primarily to growth in international markets. International surface revenue for the 2003 quarter was $25.0 million, an increase of 11% from a year ago. Domestic surface revenue for the third quarter of 2003 was approximately $45.4 million, an increase of 1% from the prior-year period. During the quarter, domestic acute care revenue increased 4% to approximately $33.6 million, which was largely offset by fewer rentals in the extended care setting and decreased sales volume in the vascular product line.
Revenue for the first nine months of 2003 was $547.9 million, up 32% from a year ago. Domestic revenue for the nine-month period was $416.9 million, up 30% from the prior year due to increased V.A.C sales and rentals. International revenue through September 2003 was $131.0 million, an increase of 40% from the prior-year period.
V.A.C. related revenue for the nine months ended September 2003 was $339.3 million, an increase of 56% from the prior year. Surface revenue for the nine-month period increased 5% to $208.6 million.
Liquidity
As of September 30, 2003, total debt was $684.3 million. Total cash at September 30, 2003 was $41.1 million and the revolving credit facility was undrawn. Borrowing availability under the revolving credit facility at September 30, 2003 was $88.7 million, net of $11.3 million in outstanding letters of credit.
Non-GAAP Financial Information
Throughout this press release, we have presented income statement items on an adjusted basis to exclude the impact of the recapitalization completed in the third quarter of 2003 on the three and nine-month periods ended September 30, 2003. These adjusted non-GAAP financial measures do not replace the presentation of our GAAP financial results. We have provided this supplemental non-GAAP information because it provides meaningful information regarding our results on a consistent and comparable basis for the periods presented. Management uses this non-GAAP financial information for reviewing the operating results of its business segments and for analyzing potential future business trends in connection with its budget process. In addition, we believe investors utilize this information to evaluate period-to-period results and to understand potential future operating results. A reconciliation of our GAAP income statement for the periods presented to the non-GAAP financial informati on provided is included herein.
We also use earnings before interest, taxes, depreciation and amortization ("EBITDA") as a measure of leverage capacity and debt service ability. EBITDA should not be considered as a measure of financial performance under GAAP. In addition, our definitions of EBITDA and Adjusted EBITDA are not necessarily comparable to similarly titled measures reported by other companies. EBITDA is a key liquidity measure but should not be considered as an acceptable alternative to cash flows from operating activities, net income or operating income, all as determined in accordance with GAAP. A reconciliation of EBITDA and Adjusted EBITDA to cash flows from operating activities has been provided in the supplemental financial data which accompanies this press release.
Earnings Release Conference Call
We have scheduled an earnings release conference call for 10 a.m. central standard time on Friday, November 7, 2003. A webcast recording of the call may be accessed on our website athttp://www.kci1.com/investor/index.asp after 12:00 noon on Friday, November 7, 2003. Click on: Webcast - Q3 2003 Kinetic Concepts Earnings Call.
Kinetic Concepts, Inc. is a global medical device company with leadership positions in (a) advanced wound care and (b) therapeutic surfaces that treat and prevent complications resulting from patient immobility. We design, manufacture, market and service a wide range of proprietary products that can significantly improve clinical outcomes while reducing the overall costs of patient care by promoting the healing process or preventing complications. We have an infrastructure designed to meet the specific needs of medical professionals and patients across all health care settings including acute care hospitals, extended care facilities and patients' homes both in the United States and abroad.
This press release contains forward-looking statements including, but not limited to, our management's ability to produce consistent operating improvements. The forward-looking statements contained herein are based on our current expectations and are subject to a number of risks and uncertainties which could cause us to fail to achieve our current financial projections, such as a change in the demand for the V.A.C. resulting from increased competition or a change in payer reimbursement policies. Certain risk factors that may impact the forward-looking statements set forth herein are detailed from time-to-time in the Company's Securities and Exchange Commission filings.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||||||||
Condensed Consolidated Statement of Earnings (Loss) | |||||||||
(in thousands, except per share data) | |||||||||
(unaudited) | |||||||||
Three months ended September 30, | |||||||||
2003 | |||||||||
2003 | Excluding | ||||||||
2003 | Recapitalization | Recapitalization | 2002 | % Change | |||||
Revenue: | |||||||||
Rental and service | $ 151,159 | $ - | $ 151,159 | $ 116,051 | 30 % | ||||
Sales and other | 46,883 | - | 46,883 | 34,836 | 35 % | ||||
_______ | _______ | _______ | _______ | ||||||
Total revenue | 198,042 | - | 198,042 | 150,887 | 31 % | ||||
_______ | _______ | _______ | _______ | ||||||
Rental expenses | 92,518 | - | 92,518 | 70,272 | 32 % | ||||
Cost of goods sold | 18,052 | - | 18,052 | 15,263 | 18 % | ||||
_______ | _______ | _______ | _______ | ||||||
110,570 | - | 110,570 | 85,535 | 29 % | |||||
_______ | _______ | _______ | _______ | ||||||
Gross profit | 87,472 | - | 87,472 | 65,352 | 34 % | ||||
Selling, general and administrative expenses | 48,701 | - | 48,701 | 38,954 | 25 % | ||||
Recapitalization expense | 69,955 | 69,955 | - | - | nm | ||||
_______ | _______ | _______ | _______ | ||||||
Operating earnings (loss) | (31,184) | (69,955) | 38,771 | 26,398 | 47 % | ||||
Interest income | 186 | - | 186 | 169 | 10 % | ||||
Interest expense | (25,334) | (16,302) | (9,032) | (10,185) | nm | ||||
Foreign currency gain (loss) | 1,527 | - | 1,527 | (395) | nm | ||||
_______ | _______ | _______ | _______ | ||||||
Earnings (loss) before income taxes (benefit) | (54,805) | (86,257) | 31,452 | 15,987 | 97 % | ||||
Income taxes (benefit) | (20,552) | (32,346) | 11,794 | 6,884 | 71 % | ||||
_______ | _______ | _______ | _______ | ||||||
Net earnings (loss) | $ (34,253) | (53,911) | $ 19,658 | $ 9,103 | 116 % | ||||
______ | _______ | _______ | _______ | ||||||
Less: Preferred stock dividends, net | (3,427) | - | (3,427) | - | |||||
_______ | _______ | _______ | _______ | ||||||
Net earnings (loss) to common shareholders | $ (37,680) | $ (53,911) | $ 16,231 | $ 9,103 | |||||
______ | _______ | _______ | _______ | ||||||
Basic earnings (loss) per common share | $ (0.74) | $ (1.05) | $ 0.32 | $ 0.13 | |||||
______ | _______ | _______ | _______ | ||||||
Diluted earnings (loss) per common share | $ (0.74) | $ (1.05) | $ 0.25 | $ 0.12 | |||||
______ | _______ | _______ | _______ | ||||||
Average common shares: | |||||||||
Basic (weighted average | |||||||||
outstanding shares) | 51,139 | 51,139 | 51,139 | 70,928 | |||||
______ | _______ | _______ | _______ | ||||||
Diluted (weighted average | |||||||||
outstanding shares) | 51,139 | 51,139 | 66,082 | 77,664 | |||||
______ | _______ | _______ | _______ | ||||||
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||||||||
Condensed Consolidated Statement of Earnings (Loss) | |||||||||
(in thousands, except per share data) | |||||||||
(unaudited) | |||||||||
Nine months ended September 30, | |||||||||
2003 | |||||||||
2003 | Excluding | ||||||||
2003 | Recapitalization | Recapitalization | 2002 | % Change | |||||
Revenue: | |||||||||
Rental and service | $ 421,455 | $ - | $ 421,455 | $ 325,061 | 30 % | ||||
Sales and other | 126,467 | - | 126,467 | 90,714 | 39 % | ||||
_______ | _______ | _______ | _______ | ||||||
Total revenue | 547,922 | - | 547,922 | 415,775 | 32 % | ||||
_______ | _______ | _______ | _______ | ||||||
Rental expenses | 259,808 | - | 259,808 | 199,326 | 30 % | ||||
Cost of goods sold | 46,410 | - | 46,410 | 36,632 | 27 % | ||||
_______ | _______ | _______ | _______ | ||||||
306,218 | - | 306,218 | 235,958 | 30 % | |||||
_______ | _______ | _______ | _______ | ||||||
Gross profit | 241,704 | - | 241,704 | 179,817 | 34 % | ||||
Selling, general and administrative expenses | 134,096 | - | 134,096 | 102,717 | 31 % | ||||
Recapitalization expense | 69,955 | 69,955 | - | - | nm | ||||
_______ | _______ | _______ | _______ | ||||||
Operating earnings (loss) | 37,653 | (69,955) | 107,608 | 77,100 | 40 % | ||||
Interest income | 933 | - | 933 | 278 | 236 % | ||||
Interest expense | (41,562) | (16,302) | (25,260) | (30,877) | nm | ||||
Foreign currency gain | 5,683 | - | 5,683 | 2,053 | 177 % | ||||
_______ | _______ | _______ | _______ | ||||||
Earnings (loss) before income taxes (benefit) | 2,707 | (86,257) | 88,964 | 48,554 | 83 % | ||||
Income taxes (benefit) | 1,015 | (32,346) | 33,361 | 19,422 | 72 % | ||||
_______ | _______ | _______ | _______ | ||||||
Net earnings (loss) | $ 1,692 | $ (53,911) | $ 55,603 | $ 29,132 | 91 % | ||||
_______ | _______ | _______ | _______ | ||||||
Less: Preferred stock dividends, net | (3,427) | - | (3,427) | - | |||||
_______ | _______ | _______ | _______ | ||||||
Net earnings (loss) to common shareholders | $ (1,735) | $ (53,911) | $ 52,176 | $ 29,132 | |||||
_______ | _______ | _______ | _______ | ||||||
Basic earnings (loss) per common share | $ (0.03) | $ (0.84) | $ 0.81 | $ 0.41 | |||||
_______ | _______ | _______ | _______ | ||||||
Diluted earnings (loss) per common share | $ (0.03) | $ (0.84) | $ 0.71 | $ 0.38 | |||||
_______ | _______ | _______ | _______ | ||||||
Average common shares: | |||||||||
Basic (weighted average | |||||||||
outstanding shares) | 64,398 | 64,398 | 64,398 | 70,927 | |||||
_______ | _______ | _______ | _______ | ||||||
Diluted (weighted average | |||||||||
outstanding shares) | 64,398 | 64,398 | 73,021 | 77,674 | |||||
_______ | _______ | _______ | _______ | ||||||
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||
(in thousands) | |||
September 30, | December 31, | ||
2003 | 2002 | ||
(unaudited) | |||
Assets: | |||
Current assets: | |||
Cash and cash equivalents | $ 41,128 | $ 54,485 | |
Accounts receivable, net | 170,639 | 152,896 | |
Accounts receivable - other | - | 175,000 | |
Inventories, net | 31,026 | 37,934 | |
Prepaid expenses and other current assets | 16,428 | 9,760 | |
_______ | _______ | ||
Total current assets | 259,221 | 430,075 | |
_______ | _______ | ||
Net property, plant and equipment | 131,172 | 105,549 | |
Goodwill | 48,796 | 46,357 | |
Other assets, net | 49,648 | 36,078 | |
_______ | _______ | ||
$ 488,837 | $ 618,059 | ||
_______ | _______ | ||
Liabilities and Shareholders' Deficit: | |||
Current liabilities: | |||
Accounts payable and accrued expenses | $ 106,632 | $ 72,712 | |
Current installments of long-term obligations | 4,950 | 30,550 | |
Income taxes payable | - | 14,615 | |
Income taxes payable - other | - | 66,838 | |
Other current liabilities | 4,716 | 1,498 | |
_______ | _______ | ||
Total current liabilities | 116,298 | 186,213 | |
_______ | _______ | ||
Long-term debt, net of current installments | 679,300 | 491,300 | |
Other liabilities | 17,700 | 20,982 | |
_______ | _______ | ||
813,298 | 698,495 | ||
Preferred stock | 255,655 | - | |
Shareholders' deficit | (580,116) | (80,436) | |
_______ | _______ | ||
$ 488,837 | $ 618,059 | ||
_______ | _______ | ||
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||
(in thousands) | |||
(unaudited) | |||
Nine months ended September 30, | |||
2003 | 2002 | ||
Cash flows from operating activities: | |||
Net earnings | $ 1,692 | $ 29,132 | |
Adjustments to reconcile net earnings to net cash provided | |||
by operating activities: | |||
Depreciation | 32,228 | 24,176 | |
Amortization | 2,263 | 2,883 | |
Provision for uncollectible accounts receivable | 5,132 | 6,946 | |
Amortization of deferred gain on sale/leaseback of headquarters facility | (782) | (171) | |
Write-off of deferred loan fees | 5,233 | - | |
Non-cash accrual of recapitalization expenses | 8,907 | - | |
Non-cash amortization of stock award to directors | 92 | - | |
Change in assets and liabilities net of effects from | |||
purchase of subsidiaries and recapitalization expenses | 98,252 | (10,121) | |
_______ | ______ | ||
Net cash provided by operating activities | 153,017 | 52,845 | |
_______ | ______ | ||
Cash flows from investing activities: | |||
Net capital expenditures | (54,259) | (38,844) | |
Proceeds from sale of headquarters facility | - | 17,924 | |
Business acquisitions, net of cash acquired | (2,224) | (3,596) | |
Increase in other assets | (1,299) | (842) | |
_______ | ______ | ||
Net cash used by investing activities | (57,782) | (25,358) | |
_______ | ______ | ||
Cash flows from financing activities: | |||
Proceeds from (repayment of) notes payable, long term, | |||
capital lease and other obligations | (116,100) | 16,700 | |
Proceeds from exercise of stock options | 903 | 8 | |
Recapitalization: | |||
Payoff of long term debt and bonds | (408,226) | - | |
Proceeds from issuance of new debt and bonds | 685,000 | - | |
Proceeds from issuance of preferred stock | 258,017 | - | |
Purchase of common stock | (509,597) | - | |
Loan issuance cost | (19,781) | - | |
_______ | ______ | ||
Net cash provided (used) by financing activities | (109,784) | 16,708 | |
_______ | ______ | ||
Effect of exchange rate changes on cash and cash equivalents | 1,192 | 513 | |
_______ | ______ | ||
Net increase (decrease) in cash and cash equivalents | (13,357) | 44,708 | |
Cash and cash equivalents, beginning of period | 54,485 | 199 | |
_______ | ______ | ||
Cash and cash equivalents, end of period | $ 41,128 | $ 44,907 | |
_______ | ______ | ||
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||||||
Reconciliation of EBITDA and Adjusted EBITDA to Cash Flow from Operations | |||||||
(in thousands) | |||||||
(unaudited) | |||||||
Three months ended September 30, | Nine months ended September 30, | ||||||
2003 | 2002 | 2003 | 2002 | ||||
Net earnings (loss) | $ (34,253) | $ 9,103 | $ 1,692 | $ 29,132 | |||
Income tax expense (benefit) | (20,552) | 6,884 | 1,015 | 19,422 | |||
Interest expense (1) | 25,334 | 10,185 | 41,562 | 30,877 | |||
Depreciation | 11,699 | 8,690 | 32,228 | 24,176 | |||
Amortization (2) | 175 | 127 | 479 | 1,146 | |||
______ | ______ | _______ | _______ | ||||
EBITDA | (17,597) | 34,989 | 76,976 | 104,753 | |||
Recapitalization (3) | 69,955 | - | 69,955 | - | |||
______ | ______ | _______ | _______ | ||||
Adjusted EBITDA | 52,358 | 34,989 | 146,931 | 104,753 | |||
Provision for uncollectible accounts receivable | 1,605 | 2,085 | 5,132 | 6,946 | |||
Amortization of deferred gain/leaseback on | |||||||
headquarters facility | (261) | (171) | (782) | (171) | |||
Write-off of deferred loan fees | 5,233 | - | 5,233 | - | |||
Non-cash accrual-recapitalization expenses | 8,907 | - | 8,907 | - | |||
Non-cash amortization-stock award to directors | 92 | - | 92 | - | |||
Amortization of loan issuance costs | 626 | 579 | 1,784 | 1,737 | |||
Recapitalization (3) | (69,955) | - | (69,955) | - | |||
Income tax benefit (expense) | 20,552 | (6,884) | (1,015) | (19,422) | |||
Interest expense (1) | (25,334) | (10,185) | (41,562) | (30,877) | |||
Change in assets and liabilities net of effects | |||||||
from purchase of subsidiaries and | |||||||
recapitalization expenses | (39,511) | 8,505 | 98,252 | (10,121) | |||
______ | ______ | _______ | _______ | ||||
Net cash provided (used) by operating activities | $ (45,688) | $ 28,918 | $ 153,017 | $ 52,845 | |||
______ | ______ | _______ | _______ | ||||
(1) Amounts for 2003 include an aggregate of $16,302 in expense for the call premium and consent fee paid in connection
with the redemption of our 9.625% senior subordinated notes due 2007 combined with the write off of unamortized
loan issuance costs associated with the previous senior credit facilities.
(2) Net of amortization of loan issuance costs, which is included in interest expense.
(3) Non-routine costs associated with the execution of the recapitalization.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES | |||||||||||
SUPPLEMENTAL REVENUE DATA | |||||||||||
(Unaudited) | |||||||||||
(in thousands) | |||||||||||
Three months endedSeptember 30, | Nine months ended September 30, | ||||||||||
2003 | 2002 | % Change | 2003 | 2002 | % Change | ||||||
Domestic V.A.C. Revenue | $ 105,861 | $ 71,130 | 49 % | $282,651 | $ 187,041 | 51 % | |||||
International V.A.C. Revenue | 21,781 | 12,556 | 73 % | 56,628 | 30,374 | 86 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Total V.A.C. | $ 127,642 | $ 83,686 | 53 % | $ 339,279 | $ 217,415 | 56 % | |||||
Domestic Surfaces/Other | $ 45,368 | $ 44,743 | 1 % | $ 134,249 | $ 134,848 | nm | |||||
International Surfaces/Other | 25,032 | 22,458 | 11 % | 74,394 | 63,512 | 17 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Total Surfaces/Other | $ 70,400 | $ 67,201 | 5 % | $ 208,643 | $ 198,360 | 5 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Grand Total V.A.C./Surfaces | $ 198,042 | $ 150,887 | 31 % | $ 547,922 | $ 415,775 | 32 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Domestic Rentals | $ 120,255 | $ 93,072 | 28 % | $ 334,333 | $ 262,899 | 27 % | |||||
Domestic Sales | 30,974 | 22,801 | 36 % | 82,567 | 58,990 | 40 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Total Domestic | $ 151,229 | $ 115,873 | 31 % | $ 416,900 | $ 321,889 | 30 % | |||||
International Rentals | $ 30,904 | $ 22,979 | 34 % | $ 87,122 | $ 62,162 | 40 % | |||||
International Sales | 15,909 | 12,035 | 32 % | 43,900 | 31,724 | 38 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Total International | $ 46,813 | $ 35,014 | 34 % | $ 131,022 | $ 93,886 | 40 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Domestic - Acute | $ 67,089 | $ 56,061 | 20 % | $ 188,928 | $ 160,482 | 18 % | |||||
Domestic - Extended | 25,601 | 19,719 | 30 % | 70,114 | 54,937 | 28 % | |||||
Domestic - Home/Other | 58,539 | 40,093 | 46 % | 157,858 | 106,470 | 48 % | |||||
_______ | _______ | _______ | _______ | ||||||||
Total Domestic | $ 151,229 | $ 115,873 | 31 % | $ 416,900 | $ 321,889 | 30 % | |||||
_______ | _______ | _______ | _______ | ||||||||
