SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission file number 1-9913
KINETIC CONCEPTS, INC.
_______________________________________________________________
(Exact name of registrant as specified in its charter)
Texas 74-1891727
____________________________ _________________________________
(State of Incorporation) (I.R.S. Employer Identification No.)
8023 Vantage Drive
San Antonio, Texas 78230 (210) 524-9000
___________________________ ______________________________
(Address of principal executive (Registrant's phone number)
offices and zip code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock: 42,628,564 shares as of October 1, 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
September 30, December 31,
1997 1996
------------- -----------
(unaudited)
Assets:
- -------
Current assets:
Cash and cash equivalents.............. $ 45,535 $ 59,045
Accounts and notes receivable, net..... 74,875 58,241
Inventories............................ 21,068 20,042
Prepaid expenses and other............. 10,653 6,860
------- -------
Total current assets................. 152,131 144,188
------- -------
Net property, plant and equipment........ 72,535 65,224
Notes receivable......................... 3,100 --
Goodwill, less accumulated amortization
of $13,202 in 1997 and $12,021 in 1996. 27,649 13,541
Other assets, less accumulated amorti-
zation of $2,942 in 1997 and $2,837 in
1996................................... 30,608 30,440
------- -------
$286,023 $253,393
======= =======
Liabilities and Shareholders' Equity:
- ------------------------------------
Current liabilities:
Accounts payable....................... $ 5,423 $ 3,974
Current installments of capital lease
obligations.......................... 137 118
Accrued expenses....................... 33,631 29,792
Income taxes payable................... 1,776 2,970
------- -------
Total current 40,967 36,854
------- -------
Capital lease obligations, net of current
installments........................... 340 396
Deferred income taxes, net............... 13,462 5,065
Other.................................... 208 --
------- -------
54,977 42,315
------- -------
Minority interest........................ 220 --
Shareholders' equity:
Common stock; issued and outstanding
42,486 in 1997 and 42,355 in 1996.... 42 42
Retained earnings...................... 235,579 210,816
Cumulative foreign currency translation
adjustment........................... (4,721) 555
Notes receivable from officers......... (74) (335)
------- -------
230,826 211,078
------- -------
$286,023 $253,393
======= =======
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
Revenue:
Rental and service..... $61,605 $56,638 $184,730 $167,523
Sales and other........ 14,694 11,332 39,781 32,306
------ ------ ------- -------
Total revenue........ 76,299 67,970 224,511 199,829
Rental expenses.......... 39,017 36,405 115,633 109,263
Cost of goods sold....... 6,065 3,856 16,077 11,685
------ ------ ------- -------
45,082 40,261 131,710 120,948
------ ------ ------- -------
Gross profit......... 31,217 27,709 92,801 78,881
Selling, general and
administrative expenses 15,052 14,080 44,196 38,791
------ ------ ------- -------
Operating earnings... 16,165 13,629 48,605 40,090
Net interest income...... 442 1,063 1,295 2,937
------ ------ ------- -------
Earnings before income
taxes and minority
interest........... 16,607 14,692 49,900 43,027
Income taxes............. 6,643 5,834 19,960 17,168
Minority interest........ 16 -- 37 --
------ ------ ------- -------
Net earnings......... $ 9,948 $ 8,858 $ 29,903 $ 25,859
====== ====== ======= =======
Earnings per common
and common equiva-
lent share........ $ 0.23 $ 0.19 $ 0.68 $ 0.56
====== ====== ======= =======
Shares used in earn-
ings per share
computations...... 44,091 45,553 43,772 45,923
====== ====== ======= =======
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Nine months ended
September 30,
----------------------
1997 1996
---------- ----------
Cash flows from operating activities:
Net earnings................................ $ 29,903 $ 25,859
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization........... 17,144 16,487
Provision for uncollectible accounts
receivable............................ 2,533 2,327
Change in assets and liabilities:
Increase in accounts receivable....... (17,599) (3,159)
Increase in inventories............... (598) (2,174)
Increase in prepaid and other assets.. (3,693) (4,696)
Increase in accounts payable.......... 77 1,460
Increase in accrued expenses.......... 2,145 2,604
Increase (decrease) in income taxes
payable............................. (1,194) 968
Increase in deferred income taxes..... 8,397 613
------- ------
Net cash provided by operating
activities........................ 37,115 40,289
------- ------
Cash flows from investing activities:
Additions to property, plant, and equipment. (19,794) (18,287)
Increase in inventory to be converted into
equipment for short-term rental........... (4,210) (850)
Dispositions of property, plant, and
equipment................................. 1,809 1,400
Business acquired in purchase transactions,
net of cash acquired...................... (16,903) --
Decrease (increase) in note receivable from
principal shareholder..................... (3,000) 10,000
Increase in other assets.................... (1,115) (961)
------- ------
Net cash used by investing
activities........................ (43,213) (8,698)
------- -------
Cash flows from financing activities:
Proceeds (repayments) of capital lease
obligations............................... (307) 488
Proceeds from the exercise of stock options. 3,864 4,694
Purchase and retirement of treasury stock... (4,133) (16,599)
Cash dividends paid to shareholders......... (4,789) (4,988)
Other....................................... 607 (147)
------- -------
Net cash used by financing
activities........................ (4,758) (16,552)
------- -------
Effect of exchange rate changes on cash and
cash equivalents............................ (2,654) (457)
------- -------
Net increase (decrease) in cash and cash
equivalents................................. (13,510) 14,582
Cash and cash equivalents, beginning of year.. 59,045 52,399
------- -------
Cash and cash equivalents, end of period...... $ 45,535 $ 66,981
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the first nine months for:
Interest.................................. 111 112
Income taxes.............................. 9,380 10,544
See accompanying notes to condensed consolidated financial statements.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- ----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) BASIS OF PRESENTATION
---------------------
The financial statements presented herein include the
accounts of Kinetic Concepts, Inc. and all subsidiaries (the
"Company"). The condensed consolidated financial statements
appearing in this quarterly report on Form 10-Q should be
read in conjunction with the financial statements and notes
thereto included in the Company's latest annual report.
Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted.
The foregoing financial information reflects all adjustments
(consisting only of normal recurring adjustments)which are,
in the opinion of management, necessary for a fair presentation
of the financial position and results of operations for the
interim periods presented. Interim period operating results are
not necessarily indicative of the results to be expected for the
full fiscal year.
(2) INVENTORY COMPONENTS
--------------------
Inventories are stated at the lower of cost (first-in,
first-out) or market (net realizable value). Inventories
are comprised of the following (in thousands):
September 30, December 31,
1997 1996
------------ ------------
Finished goods............ $ 8,414 $ 5,586
Work in progress.......... 3,333 1,893
Raw materials, supplies
and parts............... 18,081 17,113
------- -------
29,828 24,592
Less amounts expected to be
converted into equipment for
short-term rental......... 8,760 4,550
------- ------
Total inventories.... $ 21,068 $ 20,042
======= =======
(3) NOTES RECEIVABLE
----------------
Notes receivable includes a $3.0 million note received
from James R. Leininger, M.D., the principal shareholder and
chairman of the Company's Board of Directors, the proceeds of
which were used to finance a construction project for Home
Dome, L.L.C., a third party affiliated with Dr. Leininger. The
note carries a variable interest rate which will fluctuate
between 6.25% and 10.25% per annum, and requires quarterly
interest payments beginning May 3, 1997. Monthly principal
payments commence March 3, 1998 based on a 20-year note
amortization. The note has a final maturity date of February 3,
2002, at which time the entire amount of unpaid principal and
interest shall be due. The note is secured by 300,000 shares
of the Company's Common Stock and a mortgage on the property
under construction.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(4) ACQUISITIONS/DISPOSITIONS
-------------------------
On July 31, 1997, the Company acquired the outstanding
capital stock of Equi-Tron Mfg., Inc. located in Ontario, Canada,
for approximately $3.2 million in cash plus other consideration.
Equi-Tron Mfg., Inc. manufactures a line of products for bariatric
patients used primarily in the home care market. The operating
results of Equi-Tron Mfg., Inc. are not expected to have a
material impact on the Company's results of operations for 1997.
On April 18, 1997, the Company acquired 80% of the outstanding
capital stock of Ethos Medical Group, Ltd. located in Athlone,
Ireland, for approximately $2.3 million in cash plus other
consideration. Ethos manufactures the Keene Roto Rest(R) trauma bed
and other medical devices and rents specialty support surfaces
to caregivers throughout Ireland. Ethos Medical's operating results
are not expected to have a material impact on the Company's
results of operations for 1997.
On February 1, 1997, the Company acquired the assets of H.F.
Systems, Inc. of Los Angeles. H.F. Systems offers a complete
line of therapeutic specialty support surfaces primarily to the
California extended care marketplace. The Company acquired the
assets of H.F. Systems in a single transaction for approximately
$8.0 million in cash plus other consideration. H.F. Systems
will be integrated into Kinetic Concepts' extensive distribution
system and, as a result, the Company expects to benefit from the
elimination of certain redundant expenses. H.F. Systems recorded
revenue of approximately $7.0 million for 1996 and is not
expected to have a material impact on the Company's results of
operations for 1997.
On January 3, 1997 the Company purchased from Trac Medical,
Inc., a North Carolina corporation, all assets and technology
rights to the "Access" patient care device, an environmental
control system arm which is mountable on hospital beds. The
Company purchase price of the Access device was approximately
$2.0 million in cash plus other consideration.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(5) SHARES USED IN EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE COMPUTATIONS
--------------------------------------
The weighted average number of common and common equivalent
shares used in the computation of earnings per share is as follows
(in thousands):
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
------ ------ ------ ------
Average outstanding
common shares...... 42,447 43,966 42,318 44,209
Average common
equivalent shares-
dilutive effect of
option shares...... 1,644 1,587 1,454 1,714
------ ------ ------ ------
Shares used in
earnings per share
computations....... 44,091 45,553 43,772 45,923
====== ====== ====== ======
Earnings per common and common equivalent share are computed by
dividing net earnings by the weighted average number of common
and dilutive common equivalent shares outstanding during the
period. Dilutive common equivalent shares consist of stock options
(using the treasury stock method). Earnings per share computed on
a fully diluted basis is not presented as it is not significantly
different from earnings per share computed on a primary basis.
(6) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Company is party to several lawsuits generally incidental
to its business and is contesting certain adjustments proposed by
the Internal Revenue Service to prior years' tax returns. Provisions
have been made in the accompanying financial statements for estimated
exposures related to these lawsuits and adjustments. In the opinion
of management, the disposition of these items will not have a
material effect on the Company's financial statements.
(7) NEW PRONOUNCEMENTS
------------------
In February 1997, the Financial Accounting Standards Board
issued Statement No. 128, Earnings per Share, which is required to
be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. Under the new requirements
for calculating primary ("basic") earnings per share, the dilutive
effect of stock options will be excluded. The impact is expected to
result in an increase in basic earnings per share for the
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(7) NEW PRONOUNCEMENTS(continued)
-----------------------------
nine month periods ended September 30, 1997 and September 30, 1996
of $0.01 and $0.01 per share, respectively. The impact of Statement
128 on the calculation of fully diluted earnings per share for
these periods is not expected to be material.
In June 1997, the Financial Accounting Standards Board
("FASB") issued Statement No. 130, "Reporting Comprehensive Income"
which is effective for fiscal years beginning after December 15,
1997. This new pronouncement establishes standards for the
reporting and display of comprehensive income and its components
in a full set of general purpose financial statements. Under the
provisions of Statement No. 130, all revenue, expenses, gains
and losses recognized during the period are included in income,
regardless of whether they are considered to be results of
operations of the period. Items required by accounting standards
to be reported as direct adjustments to paid-in-capital, retained
earnings or other non-income equity accounts are not to be
included as components of comprehensive income. The Company plans
to adopt the provisions of Statement No. 130 effective with the
fiscal year beginning January 1, 1998, and estimates that any
impact on the Company's results of operations or financial
position will not be material.
Also, effective for periods beginning after December 15,1997,
the FASB issued Statement No. 131, "Disclosures about Segments
of an Enterprise and Related Information". This statement
establishes standards for the way that public companies report
information about operating segments in annual financial
statements as well as interim financial reports. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. Operating segments
are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance. The Company plans to adopt the
provisions of Statement No. 131 effective with the fiscal year
beginning January 1, 1998 and estimates that adoption of
these provisions will not have a material adverse impact on the
Company's financial position or results of operations.
(8) SUBSEQUENT EVENTS
-----------------
Subsequent to September 30, 1997, the Company consummated
the acquisition of substantially all of the assets of RIK Medical,
L.L.C. ("RIK"), a Delaware limited liability company. The Company
paid approximately $23.3 million for the acquisition plus an
earn-out of up to $2.0 million. RIK is a manufacturer of
non-powered therapeutic support surfaces based in Boulder,
Colorado. The RIK products incorporate several unique and
patented components and features.
ITEM 1. FINANCIAL STATEMENTS (CONTINUED)
- -----------------------------------------
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(8) SUBSEQUENT EVENTS(continued)
----------------------------
Subsequent to September 30, 1997, the Company and Fremont
Partners, L.P. and Richard C. Blum & Associates, L.P. (the
"Investors") entered into a Transaction Agreement (the
"Transaction Agreement") pursuant to which the Investors will
participate in the recapitalization (the "Recapitalization")
of the Company. The Transaction Agreement provides, among other
things, that the Investors would purchase in the aggregate
8,083,712 newly-issued shares of the Company's common stock,
$.001 par value per share, at a per Share price equal to $19.25
(the "Stock Purchase"). The proceeds of the Stock Purchase,
together with approximately $540.2 million of aggregate proceeds
from certain financings, will be used by the Company to
(i) purchase all of the Shares tendered to the Company pursuant
to the terms of that certain Offer to Purchase dated October 8,
1997 (the "Tender Offer") at a price of $19.25 per Share, net
to seller in cash and (ii) pay all related fees and expenses.
The Transaction Agreement provides that, among other things,
as soon as practicable after the consummation of the Stock Purchase,
the purchase of Shares pursuant to the Tender Offer, the
satisfaction of the other conditions set forth in the Transaction
Agreement, and in accordance with the requirements of the Delaware
General Corporation Law and the Revised Uniform Limited Partnership
Act of the State of Delaware (together, "Delaware Law") and the
Texas Business Corporation Act ("Texas Law"), the Investors will be
merged with and into the Company (the "Merger") with the Company as
the surviving corporation of the Merger. The consummation of
the Merger is subject to the satisfaction or waiver of certain
conditions including the approval of the Transaction Agreement and
the Merger by the requisite vote of the shareholders of the Company.
Under the Company's articles of incorporation and Texas Law, the
affirmative vote of the holders of two-thirds of the outstanding
Shares is required to approve the Transaction Agreement and the
Merger. If the Tender Offer is consummated, the Investors and
Dr. James Leininger will be able to effect the Merger without
the affirmative vote of any other shareholder.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- ------------------------------------------------
Results of Operations
Third Quarter of 1997 Compared to Third Quarter of 1996
- -------------------------------------------------------
The following table sets forth, for the periods indicated, the
percentage relationship of each item to total revenue as well as
the change in each line item as compared to the third quarter of
the prior year ($ in thousands):
Three Months Ended September 30,
-----------------------------------------
Variance
Revenue Relationship Increase (Decrease)
-------------------- -------------------
1997 1996 $ Pct
--------- -------- --------- -------
Revenue:
Rental and service....... 81% 83% $4,967 9%
Sales and other.......... 19% 17% 3,362 30%
--- --- -----
Total revenue.......... 100% 100% 8,329 12%
Rental expenses.......... 51% 54% 2,611 7%
Cost of goods sold....... 8% 5% 2,209 57%
--- --- -----
Gross profit........... 41% 41% 3,509 13%
Selling, general and
administrative expenses 20% 21% 972 7%
--- --- -----
Operating earnings..... 21% 20% 2,537 19%
Interest income, net..... 1% 2% (621) (58%)
--- --- -----
Earnings before income
taxes and minority
interest............. 22% 22% 1,916 13%
Income taxes............. 9% 9% 810 14%
Minority interest.... -% -% 16 -
--- --- -----
Net earnings......... 13% 13% $1,090 12%
=== === =====
The Company's revenue is derived from three primary markets. The
following table sets forth the amount of revenue derived from each of
these markets for the periods indicated ($ in millions):
Three months ended
September 30,
-------------------
1997 1996
------- -------
Domestic Specialty Surfaces...... $ 49.0 $ 46.0
International.................... 17.5 17.4
Medical Devices.................. 9.6 4.5
Other............................ .2 .1
------ ------
$ 76.3 $ 68.0
====== ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Total revenue in the third quarter of 1997 increased 12.3% to
$76.3 million, from $68.0 million in the third quarter of 1996.
Revenue from the Company's domestic specialty surface business was
$49.0 million, up $3.0 million, or 6.6% from the third quarter of
1996. The increased revenue was derived from core business growth,
due primarily to higher patient therapy days, and the addition of
H.F. Systems, which the Company acquired in February 1997.
Revenue from the Company's international operations was $17.5
million, up approximately $100,000 or just under 1.0%, from the third
quarter of 1996. The international revenue increase reflects higher
therapy days in virtually all mid and lower-tier markets, e.g., the
Netherlands, Canada and Switzerland, which were largely offset by
softness in Germany and the United Kingdom and by unfavorable currency
exchange fluctuations of $2.0 million. Revenue from Ethos Medical Group
operations, which the Company acquired in April 1997, contributed
approximately $945,000 during the period.
Revenue from medical device operations increased $5.1 million, or
113.3%, to $9.6 million in the third quarter of 1997 due to the
continued success of The V.A.C. wound closure device and increased
rental revenue for the PlexiPulse foot/calf pump resulting from the
distribution agreement signed with Mediq/PRN at the beginning of
this year.
Rental, or field, expenses were 63.3% of total rental revenue in
the third quarter of 1997 compared to 64.3% in the third quarter of
1996. This relative decrease is primarily attributable to the increase
in rental revenue, as the majority of rental expenses are relatively
fixed, e.g. facility and service costs.
Cost of goods sold increased $2.2 million, or 57.3%, to $6.1
million in the third quarter of 1997 from $3.9 million in the third
quarter of 1996. Cost of goods sold has increased primarily due to
increased sales volumes and businesses acquired in 1997.
Gross profit increased $3.5 million, or 12.7%, to $31.2 million
in the third quarter of 1997 from $27.7 million in the third quarter of
1996 due to increased rental revenue as well as increased sales
volumes of disposables used with the Company's medical devices.
Selling, general and administrative expenses increased $1.0
million, or 6.9%, to $15.1 million in the third quarter of 1997 from
$14.1 million in the third quarter of 1996. The increase is due in part
to costs associated with certain key investments (e.g. improved
marketing and information systems) as well as increased legal and
professional fees. As a percentage of total revenue, selling, general
and administrative expenses were at 19.7% in the third quarter of 1997
as compared with 20.7% in the third quarter of 1996.
Operating earnings for the period increased 18.6% to $16.2
million compared to $13.6 million in the prior-year quarter resulting
largely from the revenue growth discussed above.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
Net interest income for the three months ended September 30, 1997
was approximately $400,000 compared to approximately $1.1 million in
the prior year. The decrease in interest income resulted from lower
invested cash balances due primarily to acquisition activities in the
first nine months of 1997.
The Company's effective income tax rate in the third quarter of
1997 was 40.0% compared to 39.7% in the third quarter of 1996.
Net earnings increased $1.1 million, or 12.3%, to $9.9 million
in the third quarter of 1997. This increase was due to the increase
in revenue as discussed above combined with controlled spending levels.
First Nine Months of 1997 Compared to First Nine Months of 1996
- ---------------------------------------------------------------
The following table sets forth, for the periods indicated,
the percentage relationship of each item to total revenue as well
as the change in each line item as compared to the first nine months
of the prior year ($ in thousands):
Nine Months Ended September 30,
----------------------------------------
Variance
Revenue Relationship Increase (Decrease)
-------------------- ------------------
1997 1996 $ Pct
--------- -------- -------- -------
Revenue:
Rental and service....... 82% 84% $17,207 11%
Sales and other.......... 18% 16% 7,475 23%
--- --- ------
Total revenue.......... 100% 100% 24,682 12%
Rental expenses.......... 52% 55% 6,370 6%
Cost of goods sold....... 7% 6% 4,392 38%
--- --- ------
Gross profit........... 41% 39% 13,920 18%
Selling, general and
administrative expenses 20% 19% 5,405 14%
--- --- ------
Operating earnings..... 21% 20% 8,515 21%
Interest income,net...... 1% 2% (1,642) (56%)
--- --- ------
Earnings before income
taxes and minority
interest............. 22% 22% 6,873 16%
Income taxes............. 9% 9% 2,792 16%
Minority interest...... -% -% 37 -
--- --- ------
Net earnings........... 13% 13% $ 4,044 16%
=== === ======
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
The Company's revenue is derived from three primary markets. The
following table sets forth the amount of revenue derived from each of
these markets for the periods indicated ($ in millions):
Nine months ended
September 30,
------------------
1997 1996
------- --------
Domestic Specialty Surfaces $146.9 $134.4
International.............. 51.3 51.6
Medical Devices............ 25.6 13.6
Other...................... .7 .2
----- -----
$224.5 $199.8
===== =====
Total revenue for the first nine months of 1997 increased by $24.7
million, or 12.4%, to $224.5 million. Revenue from the Company's domestic
specialty surface business was $146.9 million, up $12.5 million, or 9.3%,
from the nine months ended September 30, 1996 as all major product lines
grew. Revenue from the Company's international operations of $51.3
million declined less than 1.0% compared to the nine months ended
September 30,1996 despite unfavorable currency exchange rate fluctuations
of approximately $4.4 million for the period. Revenue from medical
device operations in the first nine months of 1997 was $25.6 million,
up $12.0 million, or 88.2%, primarily due to increased rental revenue
from both the V.A.C. wound closure device and the PlexiPulse foot/calf
pump.
Rental expenses were 62.6% of total rental revenue in the nine
months ended September 30, 1997 compared to 65.2% in the nine months of
1996. This decrease is primarily attributable to the increase in rental
revenue, as the majority of rental expenses are fixed, combined with
certain operating efficiencies associated with implementation of the
Genesis service delivery system and processes. Overall, rental expenses
increased $6.4 million, or 5.8% compared to the first nine months of
1996.
Cost of goods sold increased $4.4 million, or 37.6%, to $16.1
million for the nine months ended September 30, 1997 from $11.7 million
for the nine months of 1996. This increase is primarily due to increased
sales volumes and lower margin sales associated primarily with business
acquisitions made in 1997.
Gross profit increased $13.9 million, or 17.6%, to $92.8 million in
the nine months ended September 30, 1997 due to the increase in revenue,
controlled growth in rental expenses and improved sales volumes.
Selling, general and administrative expenses increased $5.4 million,
or 13.9%, to $44.2 million in the first nine months of 1997 from $38.8
million in the first nine months of 1996. Key investments in marketing
programs and information systems as well as higher legal and professional
fees accounted for the majority of this increase.
Operating earnings for the period increased $8.5 million, or 21.2%,
to $48.6 million compared to $40.1 million in the prioryear resulting
largely from the above-mentioned revenue growth.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
Net interest income for the nine months ended September 30, 1997
was $1.3 million compared to $2.9 million in the prior year. The
decrease in interest income resulted from lower invested cash balances
due to acquisition activities in 1997 and the early payment in October
1996 of all remaining notes receivable from Mediq/PRN.
The Company's effective income tax rate in the first nine months
ended September 30, 1997 was 40.0%, compared to 39.9% in the first nine
months of 1996.
Net earnings increased $4.0 million, or 15.6%, to $29.9 million
in the first nine months of 1997 from $25.9 million in the first nine
months of 1996. This increase was due to the relative decrease in
rental expenses and the change in revenue as discussed above.
Financial Condition
- -------------------
The change in revenue and expenses experienced by the Company
during the nine months ended September 30, 1997 and other factors
resulted in changes to the Company's balance sheet as follows:
Cash and cash equivalents were $45.5 million at September 30,
1997, a decrease of $13.5 million from December 1996. The cash
decrease is primarily attributable to business/asset acquisitions
totaling $16.9 million and a temporary increase in accounts receivable
resulting from a recent billing systems conversion, offset by lower
spending for repurchases of common stock.
Accounts receivable at September 30, 1997 were $74.9 million, a
$16.6 million or 28.6%, increase from year-end. On January 2, 1997,
the Company converted to a new billing and accounts receivable system.
Implementation activities had a negative timing impact on collections
for the period. The Company expects receivable balances to decrease
over time. Business acquisition activities during the first nine months
of 1997 have also increased accounts receivable by approximately $2.4
million.
Inventory at September 30, 1997 increased 5.1% to $21.1 million
from $20.0 million at December 31, 1996 primarily due to the recent
acquisition of Ethos Medical Group, which had inventory of approximately
860,000.
Prepaid expenses increased $3.8 million, or 55.3%, to $10.7 million
for the nine months ended September 30, 1997 as compared to the year
ended December 31, 1996. This change primarily resulted from payment
timing differences in insurance, product development, commissions and
vacation accruals related to business acquisitions during 1997 which are
amortized over the year.
Net property, plant and equipment at September 30, 1997 increased
11.2% to $72.5 million from $65.2 million at December 31, 1996 due
in part to asset acquisitions such as H.F. Systems. Capital expenditures
were $22.2 million during the first nine months of 1997 as the Company
invested in new products for its rental fleet and new computer systems.
Depreciation and amortization for the first nine months of 1997
totaled $17.1 million, up 4.0% from the same period in 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
Financial Condition (continued)
- ------------------------------
Notes receivable consisted of a $3.0 million note received from
James R. Leininger, M.D., the Company's principal shareholder and
chairman of the Board of Directors. The note is secured by a Deed of
Trust/Security Agreement, Vendor's Lien and 300,000 shares of KCI
Common Stock. The note bears interest at market rates and has a final
maturity of February 3, 2002.
Goodwill increased $14.1 million during the period, to $27.6
million, due primarily to the Company's four business acquisitions in
the period.
Accrued expenses at September 30, 1997 increased $3.8 million,
or 12.9%, to $33.6 million from December 31, 1996. Accruals for
payments in connection with the H.F. Systems acquisition earn-out
along with increases in insurance claim reserves, vacation and payroll
tax accruals accounted for the majority of this increase.
Deferred income taxes were $13.5 million at September 30, 1997,
an increase of $8.4 million from December 31, 1996. The increase is
primarily attributable to tax deferral strategies implemented from
December of 1996 through the second quarter of 1997.
Market Trends
- -------------
The health care industry continues to face various challenges,
including increased pressure on health care providers to control
costs, the accelerating migration of patients from acute care
facilities into extended care (e.g. skilled nursing facilities
and rehabilitation centers) and home care settings, the
consolidation of health care providers and national and regional
group purchasing organizations and the growing demand for clinically
proven therapies which lower the total cost of providing care.
In an effort to reduce the federal deficit and lower overall
federal health care expenditures, President Clinton recently signed
into law the Balanced Budget Act of 1997 (the "BBA"). The BBA
contains a number of provisions which will impact the federal
reimbursement of health care and reduce projected payments under the
Medicare system by $115 billion over the next five years. The majority
of the savings are scheduled for the fourth and fifth years of this
plan. The provisions include (i)a reduction exceeding $30 billion
in the level of payments made to acute care hospitals under Medicare
Part A over the next five years (which will be funded primarily through
a reduction in future consumer price index increases); (ii) a change on
July 1, 1998 in the manner in which skilled nursing facilities ("SNFs")
are reimbursed from a cost-based system to a prospective payment system
under which the SNFs will receive an all inclusive, casemix-adjusted per
diem payment for each of their Medicare patients; and (iii) a five-year
freeze on consumer price index updates for Medicare Part B services
in the home and the implementation of competitive bidding trials for five
categories of home care products.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Market Trends(continued)
- ------------------------
Less than 10% of the Company's revenue is received directly from
the Medicare system. However, many of the health care providers who
pay the Company for its products are reimbursed, either directly or
indirectly, by the Federal government under the Medicare system for
the use of those products. The Company does not believe that the changes
introduced by the BBA will have a material impact on our hospital
customers or the dealers we partner with in home health care.
However, the changes to the Medicare system introduced by the BBA may
have an impact on the manner in which the Company's extended care
customers make purchasing decisions. Because the Company has focused
on providing clinically efficacious and cost effective products, it
believes it is well positioned for the changes in extended care
reimbursement introduced by the BBA. Although these changes may impact
revenue in the short term as the Company's extended care customers begin
to understand the impact of the changes on their respective businesses,
the Company does not believe that any of the changes introduced by the
BBA will have a material adverse impact on its business.
The Company's market continues to increase based upon demographic
trends as most of the Company's patients are over 50 years old.
Further, its broad product line and national distribution system
enable it to compete effectively in the changing healthcare environment.
More recently, sales have increased as a portion of the Company's
revenue. The Company believes this trend will continue because certain
U.S. health care providers are purchasing products that are less
expensive and easier to maintain such as medical devices and related
disposables, mattress overlays and mattress replacement systems. In
addition, international health care providers tend to purchase products
more often than U.S. health care providers.
Legal Proceedings
- -----------------
On February 21, 1992, Novamedix Limited ("Novamedix") filed a
lawsuit against the Company in the United States District Court for
the Western District of Texas. Novamedix manufactures the
principal product which directly competes with the PlexiPulse. The
suit alleges that the PlexiPulse infringes several patents held by
Novamedix, that the Company breached a confidential relationship
with Novamedix and a variety of ancillary claims. Novamedix seeks
injunctive relief and monetary damages. Initial discovery in this
case has been substantially completed. Although it is not possible
to predict the outcome of this litigation or the damages which could
be awarded, the Company believes that its defenses to these
claims are meritorious and that the litigation will not have a material
adverse effect on the Company's business, financial condition or
results of operations.
On August 16, 1995, the Company filed a civil antitrust lawsuit
against Hillenbrand Industries, Inc. and one of its subsidiaries,
Hill-Rom. The suit was filed in the United States District Court for
the Western District of Texas. The suit alleges that Hill-Rom used its
monopoly power in the standard hospital bed business to gain an unfair
advantage in the specialty hospital bed business. Specifically, the
allegations set forth in the suit include a claim that Hill-Rom
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- -----------------------------------------------------------
Legal Proceedings (continued)
- -----------------------------
required hospitals and purchasing groups to agree to exclusively rent
specialty beds in order to receive substantial discounts on products
over which they have monopoly power -- hospital beds and head wall
units. The suit further alleges that Hill-Rom engaged in
activities which constitute predatory pricing and refusals to deal.
Hill-Rom has filed an answer denying the allegations in the suit.
Although discovery has not been completed and it is not possible to
predict the outcome of this litigation or the damages which might be
awarded, the Company believes that its claims are meritorious.
On October 31, 1996 the Company received a counterclaim which
had been filed by Hillenbrand Industries, Inc. in the antitrust
lawsuit which the Company filed in 1995. The counterclaim alleges
that the Company's antitrust lawsuit and other actions were designed
to enable KCI to monopolize the bed market. Although it is not
possible to predict the outcome of this litigation, the Company
believes that the counterclaim is without merit.
On December 26, 1996, Hill-Rom, a subsidiary of Hillenbrand
Industries, Inc., filed a lawsuit against the Company alleging
that the Company's TriaDyne bed infringes a patent issued to HillRom
December 24, 1996. This suit was filed in the United States
District Court for the District of South Carolina. Substantive
discovery in the case has not begun. Based upon its preliminary
investigation, the Company believes that its defenses to the lawsuit
are meritorious and that this lawsuit will not have a material adverse
impact on the marketing of the TriaDyne bed.
The Company is a party to several lawsuits arising in the ordinary
course of its business and is contesting adjustments proposed by the
Internal Revenue Service to prior years' tax returns. To the extent
management believes reserves are justified, reserves, have been made in
the Company's financial statements for estimated exposures related
to these lawsuits and adjustments. In the opinion of management, the
disposition of these matters will not have a material adverse effect on
the Company's business, financial condition or results of operations.
The manufacturing and marketing of medical products necessarily
entails an inherent risk of product liability claims. The Company
currently has certain product liability claims pending for
which provision has been made in the Company's financial statements.
Management believes that resolution of these claims will not have a
material adverse effect on the Company's business, financial condition
or results of operations. The Company has not experienced any
significant losses due to product liability claims and currently
maintains adequate liability insurance coverage.
Liquidity and Capital Resources
- -------------------------------
During the nine months ended September 30, 1997, the Company
generated net cash provided by operating activities of $37.1 million
compared to $40.3 million in the prior year period. The majority of this
decrease was attributable to the temporary increase in accounts
receivable, which increased $16.6 million from year-end 1996. The
Company also made four business acquisitions during the period for an
aggregate purchase price of approximately $16.9 million in cash.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- ------------------------------------------------------------
Liquidity and Capital Resources (continued)
- ------------------------------------------
At September 30, 1997, cash and cash equivalents totaling $45.5
million were available for general corporate purposes. Additionally,
the Company maintains a Credit Agreement with a bank as an agent
for itself and certain other financial institutions. The Credit
Agreement currently permits borrowings of up to $50 million. At
September 30, 1997, the entire amount of the Credit Agreement was
unused. Furthermore, in connection with the recapitalization the
Company is negotiating with the same bank as agent for itself
and certain other financial institutions to secure two (2) credit
facilities each in the amount of $50 million. The first facility
will in effect replace the existing revolving credit facility and
extend the commitment from said banks beyond the next twelve
months. The second facility will be for the express purpose of
financing acquisitions. The Company expects these facilities to be
secured before the end of the year. The Company believes that current
cash reserves combined with operating cash flows and available credit
facilities (either currently existing or to be secured)during the next
twelve month period will be sufficient to provide for new investments,
e.g., business acquisitions, technology or equipment, and any working
capital needed during the period.
Subsequent to September 30, 1997, the Company used approximately
$23.3 million of its available cash to effect the purchase of
substantially all of the assets of RIK Medical.
At September 30, 1997, the Company was committed to purchase
approximately $1.1 million of inventory associated with new
products over the remainder of this year. The Company did not have
any other material purchase commitments.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) EXHIBITS
A list of all exhibits filed or included as part of this
quarterly report on Form 10-Q is as follows:
Exhibit Description
------- -----------
3.1 Restatement of Articles of Incorporation
(filed as Exhibit 3.2 to the Company's
Registration Statement on Form S-1, as
amended (Registration No. 33-21353), and
incorporated herein by reference).
3.2 Restated By-Laws of the Company (filed as
Exhibit 3.3 to the Company's Reistration
Statement on Form S-1 as amended
(Registration No. 33-21353), and incorporated
herein by reference).
4.1 Specimen Common Stock Certificate of the
Company (filed as Exhibit 4.1 to
the Annual Report on Form 10-K
for the year ended December 31,
1988, and incorporated herein by
reference).
10.1 Agreement dated September 29, 1987, by and
between the Company and Hill-Rom Company, Inc.
(filed as Exhibit 10.7 to the Company's
Registration Statement on Form S-1, as amended
(Registration No. 33-21353), and incorporated
herein by reference).
10.2 Employment and Non-Competition Agreement
dated December 26, 1986, by and between the
Company and James R. Leininger, M.D. (filed as
Exhibit 10.10 to the Company's Registration
Statement on Form S-1, as amended (Registration
No. 33-21353), and incorporated herein by
reference).
10.3 Contract dated September 30, 1985, by and
between Ryder Truck Rental, Inc. and the
Company regarding the rental of delivery trucks
(filed as Exhibit 10.23 to the Company's
Registration Statement on Form S-1, as amended
(Registration No. 33-21353), and incorporated
herein by reference).
10.4 1988 Kinetic Concepts, Inc. Directors Stock
Option Plan (filed as Exhibit 10.26 to the
Company's Registration Statement on Form S-1,
as amended (Registration No. 33-21353), and
incorporated herein by reference).
10.5 Kinetic Concepts, Inc. Employee Stock
Ownership Plan and Trust dated January 1, 1989
(filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989, and incorporated herein by
reference).
EXHIBITS (continued)
--------------------
10.6 1987 Key Contributor Stock Option Plan, as
amended, dated October 27, 1989 (filed as
Exhibit 10.9 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1989,
and incorporated herein by reference).
10.7 Amendment No. 1 to Asset Purchase Agreement
dated September 30, 1994 by and among Kinetic
Concepts, Inc., a Texas corporation, KCI
Therapeutic Services, Inc., a Delaware
corporation, MEDIQ Incorporated, a Delaware
corporation, PRN Holdings, Inc., a Delaware
corporation and MEDIQ/PRN Life Support Services-
I, Inc., a Delaware corporation
(filed as Exhibit 2.2 to the Company's Form 8K dated
October 17, 1994, and incorporated herein by reference).
10.17 Credit Agreement dated as of May 8, 1995 by
and among the Company and Bank of America
National Trust and Savings Association, as
Agent (filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended March 31, 1995, and incorporated herein
by reference).
10.18 Purchasing Agreement, dated February 1, 1994,
between the Company, KCI Therapeutic Services,
Inc. and Voluntary Hospitals of America,
Inc.(filed as Exhibit 10.18 to the Company's
Amended Annual Report on Form 10K/A, dated
January 23, 1996, for the year ended December
31, 1994, and incorporated herein by
reference).
10.19 Rental/Purchasing Agreement, dated April 1,
1993 between the Company, KCI Therapeutic
Services, Inc. and AmHS Purchasing Partners,
L.P. (filed as Exhibit 10.19 to the Company's
Amended Annual Report on Form 10-K/A, dated
January 23, 1996, for the year ended December
31, 1994, and incorporated herein by
reference).
10.20 KCI Management 1994 Incentive Program (filed
as Exhibit 10.20 to the Company's Amended
Annual Report on Form 10-K/A, dated January
23, 1996, for the year ended December 31,
1994, and incorporated herein by reference).
10.21 KCI Employee Benefits Trust Agreement (filed
as Exhibit 10.21 to the Company's Amended
Annual Report on Form 10-K/A, dated January
23, 1996, for the year ended December 31,
1994, and incorporated herein by reference).
EXHIBITS (continued)
--------------------
10.22 Letter, dated September 19, 1994, from the
Company to Raymond R. Hannigan outlining the
terms of his employment (filed as Exhibit
10.22 to the Company's Amended Annual Report
on Form 10-K/A, dated January 23, 1996, for
the year ended December 31, 1994, and
incorporated herein by reference).
10.23 Letter, dated November 22, 1994, from the
Company to Christopher M. Fashek outlining the
terms of his employment (filed as Exhibit
10.23 to the Company's Amended Annual Report
on Form 10-K/A, dated January 23, 1996, for
the year ended December 31, 1994, and
incorporated herein by reference).
10.24 Option Agreement, dated November 21, 1994,
between Dr. James R. Leininger, Cecilia
Leininger and Raymond R. Hannigan (filed as
Exhibit 10.24 to the Company's Amended Annual
Report on Form 10-K/A, dated January 23, 1996,
for the year ended December 31, 1994, and
incorporated herein by reference).
10.25 Option Agreement, dated August 23, 1995,
between Dr. James R. Leininger, Cecilia
Leininger and Bianca A. Rhodes (filed as
Exhibit 10.25 to the Company's Amended Annual
Report on Form 10-K/A, dated January 23, 1996,
for the year ended December 31, 1994,
and incorporated herein by reference).
10.26 Stock Purchase Agreement dated June 15, 1995
among KCI Financial Services, Inc., Kinetic
Concepts, Inc., Cura Capital Corporation, MG
Acquisition Corporation and the Principal
Shareholders of Cura Capital Corporation
(filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10.27 Promissory Note dated August 21, 1995 in the
principal amount of $10,000,000 payable to
James R. Leininger, M.D. to the order of
Kinetic Concepts, Inc., a Texas corporation
(filed as Exhibit 2.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and incorporated
herein by reference).
10.28 Stock Pledge Agreement dated August 21, 1995
by and between James R. Leininger, M.D. and
Kinetic Concepts, Inc., a Texas corporation
(filed as Exhibit 2.3 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, and incorporated
herein by reference).
EXHIBITS (continued)
--------------------
10.29 Executive Committee Stock Ownership Plan
(filed as Exhibit 10 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, and incorporated herein
by reference).
10.30 Deferred Compensation Plan (filed as Exhibit
99.2 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
10.31 Kinetic Concepts, Inc. Senior Executive Stock
Option Plan (filed as Exhibit 10.31 to the
Company's Annual Report on Form 10-K for the
year ended December 31, 1996 and incorporated
herein by reference).
10.32 Form of Option Instrument with respect to
Senior Executive Stock Option Plan (filed as
Exhibit 10.32 to the Company's Annual Report
on Form 10-K for the year ended December 31,
1996 and incorporated herein by reference).
10.33 Asset Purchase Agreement dated January 3,
1997 by and among Trac Medical, Inc., a North
Carolina corporation, Terry Williams, David
Mattis, George Parrish and KCI Therapeutic
Services, Inc., a Delaware corporation(filed
as Exhibit 10.33 to the Company's Quarterly
Report on Form 10-Q for the quarter ended
March 31, 1997 and incorporated herein by
reference).
10.34 Asset Purchase Agreement dated January 27,
1997 by and among Hydrothermic Floatation
Systems, Inc., a California corporation, Y.
Jeremy Levy and KCI Therapeutic Services,
Inc., a Delaware corporation (filed as Exhibit
10.34 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997
and incorporated herein by reference).
10.35 Agreement for the sale and purchase of 80% of
the issued share capital of Ethos Medical
Group Limited by KCI International, Inc. dated
April 18, 1997 (filed as Exhibit 10.35 to the
Company's Quarterly Report on Form 10Q for the
quarter ended June 30, 1997 and incorporated
herein by reference.)
*10.36 Asset Purchase Agreement made as of July 31,
1997 between KCI Equi-Tron, Inc. as Purchaser
and James H. Alexander, Elleanor Alexander and
Scott Alexander as vendors.
10.37 Transaction Agreement, dated as of October 2,
1997, among Fremont Purchaser II, Inc., RCBA
Purchaser I, L.P. and the Company (filed as
Exhibit (c)(1) to the Company's Schedule 13E3
dated October 8, 1997, and incorporated herein
by reference.)
EXHIBITS (continued)
-------------------
10.38 Kinetic Concepts, Inc. Management Equity Plan
(filed as Exhibit (c)(4) to the Company's
Schedule 13E-3 dated October 8, 1997, and
incorporated herein by reference.)
10.39 Management Equity Agreement for Raymond R.
Hannigan, dated October 2, 1997 (filed as
Exhibit (c)(6) to the Company's Schedule 13E3
dated October 8, 1997, and incorporated herein
by reference.)
10.40 Offer to Purchase, dated October 8, 1997
(filed as Exhibit (d)(1) to the Company's
Schedule 13E-3 dated October 8, 1997, and
incorporated herein by reference.)
11.1 Earnings Per Share Computation (filed as
Exhibit 11.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996
and incorporated herein by reference).
13.1 Kinetic Concepts, Inc. 1996 Annual Report to
Shareholders (furnished for the information of
the Commission and not deemed to be "filed,"
except for those portions expressly
incorporated herein by reference)(filed as
Exhibit 13.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996
and incorporated herein by reference).
16.1 Letter from KPMG Peat Marwick LLP to the
Securities and Exchange Commission regarding
agreement with statements made by Registrant
under Item 9 of its Form 10-K dated March 28,
1997 (filed as Exhibit 16.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1996 and incorporated herein by
reference).
22.1 List of Subsidiaries (filed as Exhibit 22.1
to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and
incorporated herein by reference).
*27.1 Financial Data Schedule.
Note: (*) Exhibits filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the
quarter for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
KINETIC CONCEPTS, INC.
(REGISTRANT)
By: /s/ JAMES R. LEININGER, M.D.
-----------------------------------
James R. Leininger, M.D.
Chairman of the Board
By: /s/ RAYMOND R. HANNIGAN
-----------------------------------
Raymond R. Hannigan
President and Chief Executive Officer
By: /s/ MARTIN J. LANDON
-----------------------------------
Martin J. Landon
Vice President, Accounting and
Corporate Controller
Date: October 28, 1997