SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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, TX 78230 (210) 524-9000
------------------------ ------------------------------------
(Address of principal executive offices (Registrant's telephone number)
and zip code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
None None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
------------------------------
(Title of Class)

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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

The aggregate market value of the voting stock held of record by non-affiliates
of the Registrant as of March 1, 1995 was approximately $97,965,000.

As of March 1, 1995, there were 44,040,696 shares of the Registrant's Common
Stock outstanding.

Portions of the following documents are incorporated by reference into the
designated parts of this Form 10-K: (a) Annual Report to Shareholders for the
fiscal year ended December 31, 1994 (in Parts I and II) and (b) Definitive
Proxy Statement dated March 28, 1995 (the "Proxy Statement") relating to the
Company's 1994 Annual Meeting of Shareholders (in Part III), which Registrant
intends to file not later than 120 days after the close of the Company's fiscal
year.
2
FORM 10-K TABLE OF CONTENTS

PART I PAGE

Item 1. Business.................................... 3

Item 2. Properties.................................. 9

Item 3. Legal Proceedings........................... 9

Item 4. Submission of Matters to a Vote
of Security Holders......................... 9

Item 4a. Executive Officers of the Registrant........ 9

PART II

Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............. 13

Item 6. Selected Financial Data..................... 13

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................. 13

Item 8. Financial Statements and
Supplementary Data.......................... 13

Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.................................. 13

PART III

Item 10. Directors and Executive Officers
of the Registrant........................... 14

Item 11. Executive Compensation...................... 14

Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 14

Item 13. Certain Relationships and Related
Transactions................................ 14

PART IV

Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................... 14

Signatures............................................. 18

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PART I

ITEM 1. BUSINESS

GENERAL

Kinetic Concepts, Inc. (the "Company" or "KCI") is a leading manufacturer
and distributor of specialized therapeutic surfaces and rental medical
equipment to health care providers worldwide. KCI is composed of four
operating groups: KCI Therapeutic Services, Inc., KCI Home Care, KCI
International, Inc., and KCI New Technologies, Inc.

KCI Therapeutic Services provides a complete line of therapeutic specialty
surfaces through a network of trained personnel who assist U.S. health care
professionals in the utilization of its products. The Company's specialized
products are designed to treat and prevent complications associated with
patient immobility and to assist in the reduction of severe pain suffered by
victims of cancer, serious burns, severe arthritis and other acute illnesses.
This division serves patients in not only acute and sub-acute facilities, but
also in extended care settings (i.e. skilled nursing facilities, residential
nursing facilities, etc.) KCI Therapeutic Services' strategy is to offer
products that are clinically efficacious and cost effective when compared to
traditional treatment methods.

In 1994, KCI Home Care ("KCHC") was created to support the increase in home
health care activity and reach out to its market through a broad-based durable
medical equipment dealer network. Providing products and services through the
dealer channel allows this division to meet the demands of the home care market
cost-effectively. KCHC products are designed to be easily transportable into a
patient's home and are reimbursable under Medicare.

KCI International offers KCI's complete product line in eight foreign
countries including Canada, Germany, France, the Netherlands, the United
Kingdom, Switzerland, Australia and Austria. In addition, relationships with
independent distributors in Latin America, the Middle East, Asia and Africa
allow KCI International to serve the demands of the growing global market.

KCI New Technologies ("NuTech") is focused on bringing unique,
cost-effective medical technologies to the marketplace. NuTech's first product
was PlexiPulse, an innovative foot-compression device that aids venous blood
flow.

Effective September 30 1994, the Company sold its Medical Services Division
to MEDIQ Incorporated. The Medical Services Division rented movable critical
care and life support equipment to health care providers. In addition, due to
continuing losses and adverse market conditions, the Company developed a plan
in 1994 to liquidate the assets of Medical Retro Design Inc., a subsidiary
that refurbished standard hospital beds and furniture.

The Company was incorporated on March 31, 1976 under the laws of the State
of Texas. The Company's principal executive offices are located at 8023
Vantage Drive, San Antonio, Texas 78230 and its telephone number is (210)
524-9000. As of December 31, 1994, the Company had approximately 1,938
employees. The Company's employees are not represented by labor unions and the
Company considers its employee relations to be good.

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ITEM 1. BUSINESS (CONTINUED)

PRODUCTS

The Company's "Continuum of Care" represents a comprehensive product line
that provides innovative treatment for the immobile patient. Various types of
therapy are provided by the Company's products including Pressure Relief,
Kinetic Therapy and Pressure Reduction.

Pressure Relief

The Company's Pressure Relief products include the KinAir III,
TheraPulse, FluidAir Plus, HomeKair, HomeKair DMS, DynaPulse, First Step Plus,
and First Step Select. The KinAir III has been shown to provide effective skin
care therapy in the treatment of decubitus ulcers (pressure sores), burns and
post operative skin grafts and flaps, to help prevent the formation of
decubitus ulcers and certain other complications of immobility, and to be
effective in helping relieve severe pain in cancer, severe arthritis and AIDS
patients. The TheraPulse provides continuous pulsating action which gently
massages the skin to help promote capillary circulation in patients suffering
from severe pressure sores, burns, skin grafts or flaps, swelling or
circulation problems. The FluidAir Plus is an air-fluidized bead bed with a
built-in patient weighing system which supports the patient on a low-pressure
surface of air-fluidized silicon beads providing pressure relief for flap or
graft sites, burns, pressure ulcers and severe pain. The HomeKair and HomeKair
DMS are low-cost, low-service pressure relief products designed to be easily
transportable directly to a patient's home. The DynaPulse is a pulsating
mattress replacement system that helps prevent pressure ulcers in patients at
high risk for skin breakdown and can also be used to treat existing pressure
ulcers. The First Step Plus, plus a mattress overlay, is designed to provide
pressure relief and help prevent pressure sores in patients not normally
treated on specialty beds. The First Step Select, an extension of the Company's
low-end product line, offers an expanded selection of mattress overlays with
upgraded design features.

Kinetic Therapy

The Company's Kinetic Therapy products include the RotoRest, RotoRest Delta,
and BioDyne II. The RotoRest has been shown to improve the care of patients
suffering from multiple trauma, spinal cord injury, severe pulmonary
complications, respiratory failure and deep vein thrombosis (blood clots). The
RotoRest Delta is a specialty bed which offers 62 degrees of rotation and
upgraded design features, for the prevention of pneumonia and treatment of
pulmonary complications. The BioDyne II combines many of the therapeutic
benefits of the KinAir III and the RotoRest and is used by patients suffering
from pneumonia, coma, stroke, chronic neurological disorders and moderate
pulmonary complications.

Pressure Reduction

The TheraRest is a Pressure Reduction product. The TheraRest is a mattress
replacement that provides patient controlled firmness and vibration massage
to help prevent patient skin problems.

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ITEM 1. BUSINESS (CONTINUED)

Recently, the Company introduced the TriaDyne, AirWorks Plus and BariKare as
the latest additions to its Continuum. The TriaDyne was developed to provide
Kinetic Therapy to patients in the intensive care unit. TriaDyne's critical
care frame is narrow and more suited to an intensive care unit environment. It
offers a percussion feature that rapidly inflates and deflates selected
cushions to assist in loosening fluid in the lungs. It allows the patient to
be turned 40 degrees to each side and provides an industry-first feature of
simultaneously turning the patient's torso and lower body in opposite
directions, keeping the patient positioned in the middle of the bed. The
BariKare is an advanced patient care system for large and obese patients. It
allows the patient flexible positioning for comfort and therapy by converting
from a bed to a chair. AirWorks Plus is a low-cost mattress overlay which
provides pulsating air columns which assist in redistributing pressure for
better skin care.

PlexiPulse

The PlexiPulse is a non-invasive vascular assist device that aids venous return
by pumping blood from the lower extremities to help prevent deep vein
thrombosis and re-establish microcirculation.

PATENTS AND TRADEMARKS

The Company seeks patent protection in the United States and abroad. As of
December 31, 1994, the Company and its wholly-owned subsidiaries had thirty-two
(32) issued U.S. patents relating to its specialized beds, mattresses and
related products. The Company does not believe that its patents or licenses
would necessarily prevent a competitor from manufacturing or marketing products
which are similar in overall design or concept to most of its products. The
Company also has thirteen (13) pending U.S. Patent applications. Although the
Company will continue to seek patent protection for its technology and
products, it does not believe that such protection is essential to its success
and intends to rely on the quality of its product design and sales and
distribution system in order to advance and distinguish its products.

During 1994, the Company successfully sought protection of three of its patents
in litigation against one of its primary competitors, Support Systems
International, Inc. ("SSI"). The case was settled when SSI agreed to pay
damages of $84.75 million. Many of the Company's specialized beds, products
and services are offered under trademarks and service marks, and the Company has
twenty-four (24) registered trademarks and service marks in the United States
Patent and Trademark Office.

RESEARCH AND DEVELOPMENT

The focus of the Company's research and development program has been to
make technological improvements to existing products and to develop and review
new products and programs that can be marketed through the Company's
distribution systems. In 1994, the Company introduced two new products which
it had developed: the TriaDyne and BariKare. The TriaDyne is a critical-care
bed which provides Kinetic Therapy for intensive-care patients. The BariKare is
an advanced patient-care system for large and obese patients. In 1995, the
Company will introduce various software systems to facilitate hospital
management. The Kinexus software program has been developed to establish a
consistent method for measuring the magnitude of a facility's prevalence and
incidence of pressure ulcers. The Odyssey program is a combination patient
risk assessment and

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ITEM 1. BUSINESS (CONTINUED)

wound management tool. It assists health care providers in assessing the
patient's risk of skin break-down, and documenting surface placements, topical
treatments as well as nutritional intake. The program provides management and
patient-specific wound outcome reports, which assist in evaluating the
appropriate level of investment for the most effective clinical results. Other
product enhancements were developed as well. Although expenditures for
research and development represent less than 2% of the Company's total
expenditures in 1994, the Company intends to continue to expand its research
and development efforts.

MANUFACTURING

The Company's manufacturing processes for its products include the
manufacture of certain components, the purchase of certain other components
from suppliers and the assembly of these components into a completed product.
The Company currently has sufficient bed frames and Gore-Tex fabric in inventory
which can be used to manufacture beds during the next year. Mechanical
components used on the Company's specialized beds such as blower units,
position controls, electrical displays and air flow controls consist of a
variety of customized subassemblies which are purchased from suppliers and
assembled by the Company. The Company believes it has an adequate source of
supply for each of the components used in its specialty beds.

DISTRIBUTION

KCI Therapeutic Services markets its products and services through an
extensive sales, service and distribution system. As of December 31, 1994,
KCI's system consisted of 1,938 persons, including approximately 280
professional sales representatives and 548 service personnel and nurses working
from approximately 200 service centers worldwide. KCI Therapeutic Services'
products are rented on a daily basis and are supported by sales and service
personnel who are available to assist customers 24 hours-a-day, 7 days-a-week.
The Company has a national 24-hour customer service communications system which
enhances its ability to quickly and efficiently respond to its customers'
needs.

KCI Home Care, which addresses the needs of home health care, reaches out
to its market through a broad-based durable medical equipment dealer network.
KCI New Technologies is focused on introducing new, cost-effective medical
technologies and developing their respective markets.

MARKET TRENDS AND STRATEGIES

For the past decade, the health care industry has experienced increased
pressure from a variety of sources to control costs and improve patient
outcomes. This pressure intensified in 1993 as our nation debated health care
reform. Although the events of 1994 would seem to indicate that legislative
reform of our health care system is unlikely at this time, it is apparent that
the health care industry will become more cost effective over time and demand
further improvements in patient outcomes.

Since 1987, the Company has been positioning itself to remain competitive
in an environment which demands accountability for patient outcomes at a lower
cost. The Company offers the most complete continuum of products in the
industry and controls overall patient costs by allowing the health care
provider to match the needs of a particular patient with the appropriate
product and therapy. In addition, the Company continues to search for new
therapies and technologies, making investments as appropriate, to improve
patient outcomes.

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ITEM 1. BUSINESS (CONTINUED)

The Company has also sponsored a number of medical studies which
demonstrate the clinical efficacy and cost effectiveness of its products. Over
the past several years, the Company has entered into a number of partnering
arrangements with its customers which allow its customers to obtain state of
the art medical technology while at the same time lowering their overall costs.
The Company believes that these types of arrangements will be necessary in
order to prosper in the health care industry in the 1990's.

The Company also maintains an extensive national accounts portfolio in the
specialty bed industry and expects to benefit from further consolidation of
providers and buying groups. At the same time, as shifts in reimbursement
policy have tended to move patients into lower cost environments, the Company
has continued to focus new efforts on the extended care and home care markets.

COMPETITION

The Company markets a complete line of specialty patient surfaces and
unique medical devices to acute care hospitals, extended care facilities and
home care patients all on an international level. The Company believes that
its comprehensive product offering will enable it to remain competitive as
market conditions change.

In the domestic acute care patient surfaces market, the Company competes
primarily with Hill-Rom, which offers a line of specialty patient surfaces.
The Company also competes against an ever increasing number of manufacturers
and distributors of lower cost alternatives to specialty beds such as inflatable
replacement mattresses and mattress overlays ("low cost products"). Indirectly,
the Company competes with more traditional methods of treatment which address
the complications of immobility, wound care and the management of pain
("traditional treatment methods").

The Company believes that the principal competitive factors in the acute
care markets are service and price as well as the ability of competitors to
enter into long-term preferred provider relationships with hospital buying
groups. The Company has developed programs which it believes will enable its
hospital customers to access, manage and maintain medical equipment on a more
cost-effective basis. Although the Company will not generate significant
revenue from these programs, it believes that the provision of these systems
will enable it to strengthen its relationships with the hospitals and provide
it with a competitive advantage.

The Company also competes in the domestic extended care and home care
specialty bed markets. These are diverse markets in which the Company competes
primarily with the distributors of various specialty beds and low cost
products. The Company believes that the principal competitive factor in this
market is the ability to identify and place patients on appropriate,
efficacious surfaces and collect the reimbursement funds which are available
with respect to the use of the products. The Company believes that the
patient features and serviceability of its HomeKair bed make it superior to the
specialty patient surfaces which are currently used to serve the home market.

The Company also competes in the international specialty patient surfaces
market primarily with Support Systems International, Inc., which is the largest
provider of specialty beds outside the United States, and with manufacturers
and

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ITEM 1. BUSINESS (CONTINUED)

distributors of specialty beds and low cost products and more traditional
treatment methods. The Company believes that the important competitive factors
in this market are product quality, medical efficacy and service capability.

GOVERNMENT REGULATION

The Company's business is subject to substantial regulation, principally by the
United States Food and Drug Administration and corresponding state agencies.
These regulations may result in delays in the introduction of and increased
costs for new products, interference with or mandated cessation of production
and marketing of products, or may have other adverse effects on the Company.

Medicare Part A

At present, cost plus reimbursement is still the primary government
reimbursement methodology in the extended care (nursing home) marketplace. As a
result, average rental prices to extended care providers have not been
substantially impacted by the Medicare reimbursement activities of the Health
Care Financing Administration ("HCFA"). HCFA has stated publicly, however, a
preference to see Part A coverage criteria begin to reflect provisions
consistent with Part B. Because of the nature and timing on any proposed
reimbursement changes are not presently known, it is not practicable to
estimate how the Company may be affected in the future.

Medicare Part B

HCFA is currently undertaking a comprehensive review of all reimbursement
coverage criteria and fee schedules for pressure relieving devices in the home.
In January of 1995, HCFA released revised support surface fee schedules which
represented a 2.5% increase in the amount paid by Medicare for both the
HomeKair bed and the HomeKair DMS. New support surface Part B coverage
policies and fee schedules are expected to be introduced mid-year 1995. The
impact of these policies on the Company's product utilization mix and future
reimbursement for these items is not known at this time.

The Company believes it is in substantial compliance with applicable FDA
regulations. In addition, the Company's operations are subject to federal,
state and local regulations with respect to environmental and safety matters,
including regulations concerning discharges into air and water and regulations
under the Federal Occupational Safety and Health Act. Such laws and
regulations, in the Company's opinion, have not materially affected its
operations.

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ITEM 2. PROPERTIES

The Company's corporate headquarters are currently located in a 170,000
square foot building in San Antonio, Texas which was purchased by the Company
in January, 1992. The Company utilizes 84,000 square feet of the building with
the remaining space being leased to unrelated entities.

The Company conducts its manufacturing, shipping, receiving and storage
activities in a 153,000 square foot facility in San Antonio, Texas, which was
purchased by the Company in January, 1988. In 1989, the Company completed the
construction of a 17,000 square foot addition to the facility which is utilized
as office space. The Company also owns a 37,000 square foot building in San
Antonio, Texas which houses the Company's engineering center. In 1992, the
Company purchased a 35,000 square foot facility in San Antonio, Texas which is
used for storage. The Company maintains additional storage at two leased
facilities in San Antonio, Texas. In 1994, the Company purchased a facility in
San Antonio, Texas which will be used to provide housing for families of cancer
patients. The facility is built on 6.7 acres and consists of a 15,000 square
foot building and 2,500 square foot house.

The Company leases approximately 150 domestic distribution centers,
including each of its eight regional headquarters, which range in size from 600
to 19,600 square feet.

ITEM 3. LEGAL PROCEEDINGS

On February 21, 1992, Novamedix Limited filed a lawsuit against the Company
in the United States District Court for the Western District of Texas.
Novamedix holds the patent rights to the principal product which directly
competes with the PlexiPulse which is marketed by KCI New Technologies, Inc.
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 subsidiary claims. The Plaintiff seeks injunctive relief and
monetary damages. 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 result in a material
effect on the Company's financial statements.

The Company is party to several lawsuits generally incidental to its
business and is contesting adjustments proposed by the Internal Revenue Service
to prior years' tax returns. Provisions 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 items will
not have a material effect on the Company's financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of the Company's security holders during
the fourth fiscal quarter of 1994.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information is set forth below concerning the executive officers of
the Company, each of whom has been elected to serve until the 1995 annual
meeting of directors and until his successor is duly elected and qualified.

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ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Officer of Present Position with
the Company Company and/or Principal
Name Age Since Occupation Last Five Years
---- --- ----------- --------------------------

James R. Leininger, M.D. 50 1976 Chairman of the Board of
Directors since 1976;
President and Chief Executive
Officer from January 1990 to
November 1994; prior to
October 1986, Dr. Leininger
was also the Chairman of the
Emergency Department of the
Baptist Hospital System in
San Antonio, Texas.

Raymond R. Hannigan 55 1994 President and Chief Executive
Officer since November 1994;
from January 1991 to November
1994, Mr. Hannigan was the
President of the
International Division of
Sterling Winthrop Consumer
Health Group (a
pharmaceutical company with
operations in over 40
countries); from May 1989 to
January 1991, Mr. Hannigan
was the President of Sterling
Drug International.

Peter A. Leininger, M.D. 52 1980 Chief Administrative Officer
and Senior Vice President; in
1980, Dr. Leininger became a
member of the Company's Board
of Directors; prior to 1978,
Dr. Leininger maintained a
private medical practice and
functioned as the southeast
regional distributor for the
Company's products. Peter A.
Leininger, M.D. is the
brother of James R.
Leininger, M.D.

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ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Officer of Present Position with
the Company Company and/or Principal
Name Age Since Occupation Last Five Years
---- --- ----------- --------------------------

Bianca A. Rhodes 36 1993 Senior Vice President -
Finance and Chief Financial
Officer since September 1993;
from July 1992 to April
1993, Ms. Rhodes served as
Senior Vice President,
Finance, Chief Financial
Officer and Corporate
Treasurer of Intelogic Trace,
Inc., a national computer
services company; from 1990
to June 1992, Ms. Rhodes
served as Vice President,
Finance and Corporate
Treasurer of Intelogic Trace,
Inc.; prior to 1990, Ms.
Rhodes served as Corporate
Treasurer of Intelogic Trace,
Inc.

Dennis E. Noll 40 1993 Vice President, General
Counsel and Secretary since
January 1993; from February,
1992 to December, 1992, Mr.
Noll served as Senior
Corporate Counsel for the
Company; prior to February,
1992, Mr. Noll was a partner
with the law firm of Cox and
Smith Incorporated.

Scott S. Brooks 46 1993 President, Medical Retro
Design since March 1994; from
April 1993 to February 1994,
Mr. Brooks served as Vice
President, National Accounts
of the Company; from April
1991 to March 1993; Mr.
Brooks served as Regional
Vice President of KCI
Therapeutic Services, Inc.;
from June 1990 to April 1991,
Mr. Brooks served as Director
of Sales and Marketing of KCI
Medical Services; prior to
June 1990, Mr. Brooks served
as Vice President of Simmons
Healthcare, a subsidiary of
the Company.

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ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)

Officer of Present Position with
the Company Company and/or Principal
Name Age Since Occupation Last Five Years
---- --- ----------- --------------------------

Frank DiLazzaro 36 1993 President, KCI International,
Inc. since January 1993 and
Vice President, Marketing
since April 1993; from June
1989 to December 1992,
Mr. DiLazzaro served as
Vice President, KCI
International, Inc.; prior to
June 1989, Mr. DiLazzaro
served as General Manager KCI
Medical Canada.

Daniel Puchek 42 1987 President, KCI New
Technologies, Inc.; from
February 1989 to August 1991,
Mr. Puchek served as Vice
President, Corporate
Development; prior to 1989,
Mr. Puchek served as Vice
President, KCI International,
Inc.

Robert A. Wehrmeyer, Jr. 38 1988 President, KCI Financial
Services; from January 1993
to September 1994, Mr.
Wehrmeyer served as
President, KCI Medical
Services and Senior Vice
President; from June 1990 to
December 1992, Mr. Wehrmeyer
served as Senior Vice
President - Administration,
General Counsel and
Secretary; from March 1988 to
May 1990, Mr. Wehrmeyer
served as Vice President -
Legal, General Counsel and
Secretary; prior to March
1988, Mr. Wehrmeyer was
Corporate Counsel and
Secretary of the Company.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock trades on The NASDAQ Stock Market under the
symbol: KNCI. The range of the high and low bid prices of the Company's Common
Stock for each of the quarters during the 1994 and 1993 fiscal years is
contained on the inside back cover of the Company's 1994 Annual Report to
Shareholders under the caption "Investor Information" and is hereby
incorporated by reference.

The Company's Board of Directors declared quarterly cash dividends on
the Company's common common stock in 1994 stock in 1994 and common and
preferred stock in 1993. The cash dividends totaled $.15 per common share in
each quarter of 1994 and 1993. The Company's Board of Directors will consider
future dividends on a quarterly basis. The Company's credit agreement contains
certain covenants which limit the Company's ability to declare and pay cash
dividends.

As of March 1, 1995, the approximate number of holders of record of the
Company's Common Stock was 538.

ITEM 6. SELECTED FINANCIAL DATA

Incorporated in this Item 6, by reference, is that portion of the Company's
1994 Annual Report to Shareholders appearing on page 7 under the caption
"Selected Consolidated Financial Data."

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Incorporated in this Item 7, by reference, is that portion of the Company's
1994 Annual Report to Shareholders appearing on pages 8 to 12 under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Incorporated in this Item 8, by reference, are the Consolidated Balance
Sheets and related Consolidated Statements of Earnings, Cash Flows, Capital
Accounts and notes thereto and Independent Auditors' Report appearing on pages
13 to 24 in the Company's 1994 Annual Report to Shareholders.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING MATTERS
AND FINANCIAL DISCLOSURE

Within the twenty-four month period prior to the date of Registrant's most
recent financial statements, no Form 8-K recording a change of accountants due
to a disagreement on any matter of accounting principles, practices or
financial statement disclosures has been filed with the Commission.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Incorporated in this Item 10, by reference, are those portions of the
Company's definitive Proxy Statement appearing on pages 1 to 3 therein under
the caption "Election of Directors" and on page 23 therein under the caption
"Timeliness of Certain SEC Filings." See also the information in Item 4a of
Part I of this Report.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated in this Item 11, by reference, is that portion of the
Company's definitive Proxy Statement appearing on pages 7 to 9 under the
caption "Executive Compensation."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated in this Item 12, by reference, is that portion of the
Company's definitive Proxy Statement appearing on pages 6 and 7 under the
caption "Securities Holdings of Principal Shareholders, Directors and
Officers."

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

There are no relationships or transactions of this nature required to be
disclosed by this item.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

The following consolidated financial statements, incorporated herein by
reference to the Company's 1994 Annual Report to Shareholders, are
filed as a part of this report:

Consolidated Balance Sheets as of December 31, 1994 and 1993

Consolidated Statements of Earnings for the three years ended
December 31, 1994, 1993 and 1992

Consolidated Statements of Cash Flows for the three years ended
December 31, 1994, 1993 and 1992

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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

Consolidated Statements of Capital Accounts for the three
years ended December 31, 1994, 1993 and 1992

Notes to Consolidated Financial Statements

Independent Auditors' Report

2. Financial Statement Schedules

The following consolidated financial statement schedules for each of
the years in the three-year period ended December 31, 1994 are filed as
part of this Report:

Independent Auditors' Report

Schedule VIII - Valuation and Qualifying Accounts - Years ended
December 31, 1994, 1993 and 1992

All other schedules have been omitted as the required information is
not present or is not present in amounts sufficient to require
submission of the schedule, or because the information required is
included in the financial statements and notes thereto.

3. Exhibits

The following exhibits are filed as a part of this Report:

Exhibit Description
------- -----------

2.1 Asset Purchase Agreement dated August 23, 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. (Incorporated by reference to Exhibit
2.1 to the Registrant's Form 8-K dated October 17, 1994).

2.2 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.
(Incorporated by reference to Exhibit 2.2 to the Registrant's
Form 8-K dated October 17, 1994).

2.3 Promissory Note dated September 30, 1994 in the principal
amount of $2,000,000 payable by PRN Holdings, Inc., a
Delaware corporation, to the order of KCI Therapeutic
Services, Inc., a Delaware corporation. (Incorporated by
reference to Exhibit 99.1 to the Registrant's Form 8-K dated
October 17, 1994).

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16
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

2.4 Promissory Note dated September 30, 1994 in the principal
amount of $2,956,957 payable by MEDIQ/PRN Life Support
Services-I, Inc., a Delaware corporation, to the order of KCI
Therapeutic Services, Inc., a Delaware corporation.
(Incorporated by reference to Exhibit 99.2 to the
Registrant's Form 8-K dated October 17, 1994).

2.5 Promissory Note dated September 30, 1994 in the principal
amount of $3,000,000 payable by PRN Holdings, Inc., a
Delaware corporation, to the order of KCI Therapeutic
Services, Inc., a Delaware corporation. (Incorporated by
reference to Exhibit 99.3 to the Registrant's Form 8-K dated
October 17, 1994).

2.6 Promissory Note dated September 30, 1994 in the principal
amount of $5,000,000 payable by PRN Holdings, Inc., a
Delaware corporation, to the order of KCI Therapeutic
Services, Inc., a Delaware corporation. (Incorporated by
reference to Exhibit 99.4 to the Registrant's
Form 8-K dated October 17, 1994).

2.7 Promissory Note dated September 30, 1994 in the principal
amount of $5,835,707 payable by MEDIQ/PRN Life Support
Services-I, Inc., a Delaware corporation, to the order of KCI
Therapeutic Services, Inc., a Delaware corporation.
(Incorporated by reference to Exhibit 99.5 to the
Registrant's Form 8-K dated October 17, 1994).

2.8 Negative Covenants 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. (Incorporated by reference to
Exhibit 99.6 to the Registrant's Form 8-K dated October 17,
1994).

2.9 Guaranty Agreement dated September 30, 1994 made by PRN
Holdings, Inc., a Delaware corporation, in favor of KCI
Therapeutic Services, Inc., a Delaware corporation.
(Incorporated by reference to Exhibit 99.7 to the
Registrant's Form 8-K dated October 17, 1994).

2.10 Guaranty Agreement dated September 30, 1994 made by MEDIQ
Incorporated, a Delaware corporation, in favor of KCI
Therapeutic Services, Inc., a Delaware corporation.
(Incorporated by reference to Exhibit 99.8 to the
Registrant's Form 8-K dated October 17, 1994).

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17
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(CONTINUED)

2.11 Collateral Transfer of Note (Security Agreement) dated
September 30, 1994 by MEDIQ Incorporated, a Delaware
corporation, for the benefit of KCI Therapeutic Services,
Inc., a Delaware corporation. (Incorporated by reference to
Exhibit 99.9 to the Registrant's Form 8-K dated October 17,
1994).

2.12 Press Release dated September 30, 1994. (Incorporated by
reference to Exhibit 99.10 to the Registrant's Form 8-K dated
October 17, 1994).

11.1 Earnings Per Share Computation.

13.1 Kinetic Concepts, Inc. 1994 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).

21.1 Subsidiary Listing.

23.1 Consent by KPMG Peat Marwick LLP dated March 29, 1995 to
incorporation by reference of their reports dated February
14, 1995 in Registration Statements on Form S-8 previously
filed by the Company.

(b) Reports on Form 8-K

The Company filed a report on Form 8-K on October 17, 1994 with
respect to the sale of its Medical Services Division. The following
financial statements were included as part of this Form 8-K:

Proforma Condensed Divested Balance Sheet - June 30, 1994

Proforma Condensed Divested Statement of Earnings for the six
months ended June 30, 1994

Proforma Condensed Divested Statement of Earnings for the year
ended December 31, 1993

Notes to Proforma Condensed Divested Financial Statements

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18
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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, in the City of San
Antonio, State of Texas on March 29, 1995.

KINETIC CONCEPTS, INC.

By: JAMES R. LEININGER, M.D.
-------------------------------
James R. Leininger, M.D.
Chairman of the Board of
Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Registration Statement has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

Signatures Title Date
---------- ----- ----

JAMES R. LEININGER, M.D. Chairman of the Board of March 29, 1995
---------------------------- Directors
James R. Leininger, M.D.

RAYMOND R. HANNIGAN Chief Executive Officer and March 29, 1995
---------------------------- President
Raymond R. Hannigan

BIANCA A. RHODES Chief Financial Officer and March 29, 1995
---------------------------- Senior Vice President
Bianca A. Rhodes (Principal Accounting
Officer)

PETER A. LEININGER, M.D. Director March 29, 1995
----------------------------
Peter A. Leininger, M.D.

SAM A. BROOKS Director March 29, 1995
----------------------------
Sam A. Brooks

FRANK A. EHMANN Director March 29, 1995
----------------------------
Frank A. Ehmann

BERNHARD T. MITTEMEYER, M.D. Director March 29, 1995
----------------------------
Bernhard T. Mittemeyer, M.D.

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19
Independent Auditors' Report

The Board of Directors and Shareholders
Kinetic Concepts, Inc.:

Under date of February 14, 1995, we reported on the consolidated balance
sheets of Kinetic Concepts, Inc. and subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of earnings, capital accounts,
and cash flows for each of the years in the three-year period ended December
31, 1994, as contained in the 1994 annual report to shareholders. These
consolidated financial statements and our report thereon are incorporated by
reference in the annual report on Form 10-K for the year 1994. In connection
with our audits of the aforementioned consolidated financial statements, we also
have audited the related financial statement schedule as listed in Item 14(a)(2)
of Form 10-K. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG Peat Marwick LLP

San Antonio, Texas
February 14, 1995
20
Schedule VIII

KINETIC CONCEPTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)

Three years ended December 31, 1994

Additions
----------------------- 12/31/92
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
---------------------- ------------ ---------- ---------- ---------- ----------

Allowance for doubtful
accounts $ 2,600 $ 5,335 $ - $ 960 $ 6,975
======== ======== ======== ======== ========

Additions
----------------------- 12/31/93
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
---------------------- ------------ ---------- ---------- ---------- ----------

Allowance for doubtful
accounts $ 6,975 $ 5,330 $ - $ 4,805 $ 7,500
======== ======== ======== ======== ========

Additions
----------------------- 12/31/94
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Description Period Expenses Accounts Deductions Period
---------------------- ------------ ---------- ---------- ---------- ----------

Allowance for doubtful
accounts $ 7,500 $ 1,429 $ - $ 329 $ 8,600
======== ======== ======== ======== ========

21
EXHIBIT INDEX

Exhibit Description
------- -----------

2.12 Press Release dated September 30, 1994. (Incorporated by
reference to Exhibit 99.10 to the Registrant's Form 8-K dated
October 17, 1994).

11.1 Earnings Per Share Computation.

21.1 Subsidiary Listing.

27 Financial Data Schedule