Kinetic Concepts Reports Second Quarter and First Half 2008 Financial Results
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SAN ANTONIO--(BUSINESS WIRE)--
Kinetic Concepts, Inc. (NYSE: KCI) today reported second quarter 2008 total revenue of $462.1 million, an increase of 17% from the second quarter of 2007. Total revenue for the first half of 2008 was $882.1 million, a 15% increase from the prior-year period. Foreign currency exchange movements favorably impacted total revenue for the second quarter and first six months of 2008 by 4% compared to the corresponding periods of the prior year.
In May 2008, KCI completed the acquisition of LifeCell Corporation ("LifeCell"). Net loss for the second quarter of 2008 on a GAAP basis, including purchase accounting adjustments and LifeCell transaction-related costs, was $2.7 million, compared to net earnings of $58.1 million for the same period one year ago. Net loss per diluted share for the second quarter of 2008, including purchase accounting adjustments and transaction-related costs, was $0.04, compared to net earnings per diluted share of $0.81 for the same period in the prior year.
For the first half of 2008 on a GAAP basis, net earnings were $65.2 million compared to $111.6 million from last year. Net earnings per diluted share for the first six months of 2008 were $0.90 compared to $1.57 from the same period one year ago.
In connection with the acquisition of LifeCell, KCI incurred incremental transaction-related expenses in the second quarter of approximately $71.1 million, related primarily to preliminary purchase accounting adjustments, which included the write-off of $61.6 million of in-process research and development, acquired intangible asset amortization of approximately $4.7 million and higher cost of sales of $3.2 million associated with the step-up of LifeCell inventory to fair value. In addition, KCI incurred incremental net interest expense during the second quarter of approximately $13.5 million associated with the financing of the transaction. The Company also recorded LifeCell revenue from the date of acquisition of $27.6 million in its consolidated second quarter results. For the full second quarter, LifeCell had total revenue of $58.3 million, an increase of $10.7 million, or 22% from the prior year.
Excluding the impact of the LifeCell acquisition and related transaction expenses on the Company's financial results, KCI's second quarter net earnings were $70.5 million, or $0.98 per diluted share, representing increases of approximately 21% compared to the year-ago period. Total revenue, excluding the impact of the LifeCell acquisition was $434.5 million, an increase of approximately 10% over the prior-year period. We have provided a detailed reconciliation of the Company's net earnings excluding the impact of the LifeCell acquisition, which is a non-GAAP financial measure, to GAAP-basis net earnings in the schedules to this press release. The Company believes this non-GAAP financial measure is useful to investors in comparing the operating results for the second quarter and first six months of 2008 to the comparable periods in 2007. When analyzing the Company's operating performance, investors should not consider this non-GAAP financial measure as a substitute for net earnings prepared in accordance with GAAP.
"We delivered solid second quarter financial performance, expanded our business portfolio through our acquisition of LifeCell and continued to improve operating efficiencies," said Catherine Burzik, President and Chief Executive Officer of KCI. "I also am pleased with LifeCell's second quarter results and the progress we've made on the integration. We are well-positioned for the future."
Revenue Recap - Second Quarter and First Half of 2008
Worldwide V.A.C. revenue was $353.2 million for the second quarter of 2008 and $686.2 million for the first half of 2008, representing increases of 11% and 13%, respectively, from the prior-year periods due primarily to increased rental and sales volumes for V.A.C. wound healing devices and related supplies. The growth in V.A.C. revenue stemmed from increased market penetration resulting in higher unit volume. Foreign currency exchange movements favorably impacted worldwide V.A.C. revenue by 3% and 4%, respectively, compared to the second quarter and first six months of the prior year.
Worldwide therapeutic support systems revenue was $81.3 million for the second quarter of 2008 and $168.3 million for the first six months of 2008, representing increases of 2% and 5%, respectively, from the corresponding periods of the prior year. Foreign currency exchange movements favorably impacted worldwide therapeutic support systems revenue by 6% and 5%, respectively, for the second quarter and first six months of 2008 compared to the same periods one year ago.
LifeCell tissue regeneration revenue for the full quarter ended June 30, 2008, was $58.3 million, representing an increase of 22% over the same period one year ago. KCI recorded $27.6 million of tissue regeneration revenue in its consolidated second quarter results. Product revenue from LifeCell's flagship reconstructive surgical products, AlloDerm(R) Regenerative Tissue Matrix and Strattice(R) Reconstructive Tissue Matrix, for the full quarter increased 28% to $53.0 million, compared to $41.4 million in the second quarter of 2007. Revenue from Strattice, which was launched in the first quarter of 2008, represented approximately 10% of total LifeCell revenue for the full three-month period.
North American revenue was $342.7 million for the second quarter and $652.1 million for the first six months of 2008, representing increases of 13% and 11%, respectively, from the prior year due to the LifeCell acquisition and increased rental and sales volumes for V.A.C. wound healing devices and related disposables, partially offset by a contraction in our therapeutic support systems business. North American V.A.C. revenue of $261.7 million for the second quarter and $511.9 million for the first half of 2008 increased 6% and 8%, respectively, compared to the same periods of the prior year due primarily to higher unit volume. North American revenue from therapeutic support systems was $53.4 million for the second quarter of 2008, a decrease of 5% from the prior-year period, due primarily to our focus on profitable growth and lower wound care surfaces sales. North American therapeutic support systems revenue for the first six months of 2008 was comparable to the prior year at $112.6 million. Higher rental revenue in the period from critical care products was offset by lower sales revenue from wound care surfaces in the first half of the year. LifeCell contributed $27.6 million to the North American revenue totals for both the second quarter and first half of 2008.
EMEA/APAC revenue of $119.4 million for the second quarter and $230.0 million for the first half of 2008 increased 28% and 29%, respectively, compared to the prior year due to higher V.A.C. revenue and favorable currency exchange rate variances. EMEA/APAC V.A.C. revenue of $91.5 million for the second quarter and $174.3 million for the first half of 2008 increased 31% and 32%, respectively, compared to the same periods of the prior year due primarily to higher rental and sales volume and favorable foreign currency exchange rate variances. Foreign currency exchange movements accounted for approximately 14% of the EMEA/APAC V.A.C. revenue increase for both the second quarter and first six months of 2008.
EMEA/APAC therapeutic support systems revenue was $27.9 million for the second quarter of 2008 and $55.7 million for the first half of 2008 which represented increases of 19% from the prior-year periods. Foreign currency exchange movements accounted for the majority of the year-to-year revenue increase.
Profit Margins
Gross profit for the second quarter and first six months of 2008 was $226.9 million and $435.9 million, respectively, representing increases of 19% and 21% from the same periods of the prior year. Gross profit margins improved approximately 120 basis points in the second quarter of 2008, compared to the year-ago period, due partially to the acquisition of LifeCell. Gross profit margins on LifeCell's tissue regeneration products were 70.1% for the quarter, excluding purchase accounting adjustments related to inventory. Excluding the impact of the LifeCell acquisition, gross margins for the quarter improved approximately 60 basis points year-over-year due primarily to lower selling and field service expenses as a percentage of revenue.
Operating earnings for the second quarter and first six months of 2008 were $43.2 million and $142.2 million, respectively, compared to $90.1 million and $173.3 million for the same periods one year ago. Excluding the impact of the LifeCell acquisition and related transaction expenses on the Company's financial results, operating earnings for the second quarter and first six months of 2008 were $106.2 million and $205.1 million, respectively, representing increases of 18% from the corresponding periods of one year ago. The operating earnings improvement for the second quarter, excluding the impact of the LifeCell acquisition and related transaction expenses, was due primarily to general and administrative expense operating efficiencies and lower management transition costs.
Balance Sheet
At June 30, 2008, total outstanding long-term debt was $1.69 billion, comprised of a senior secured term loan of $1.0 billion, due 2013 and $690.0 million of 3.25% convertible senior notes due 2015. Proceeds from these credit facilities were used to repay $68.0 million of outstanding debt under the previous credit facility, purchase all of the outstanding shares of LifeCell and pay related fees and expenses associated with the transaction.
Income Tax Rate
The effective income tax rate for the second quarter and first six months of 2008 was 109.4% and 50.3%, respectively, resulting from the impact of non-deductible costs associated with the LifeCell acquisition and related transaction costs. Excluding the impact of the LifeCell acquisition and related transaction expenses on the Company's financial results, the effective income tax rate for the second quarter and first six months of 2008 was 33.1% and 33.3%, respectively, which are slightly lower than the same periods in 2007.
Outlook
The following guidance is based on current information and expectations as of July 24, 2008 and includes LifeCell operations from the initial acquisition date of May 20, 2008 (in millions, except per share data):
% Change from 2007
--------------------------
2H 2008 FY 2008 2H 2008 FY 2008
--------------- --------------- ------------ -------------
Total
Revenue $1,035 - $1,065 $1,917 - $1,947 23% - 26% 19% - 21%
Diluted EPS
- GAAP
Basis $1.57 - $1.67 $2.47 - $2.57 (10)% - (4)% (25)% - (22)%
Weighted
Average
Shares
Outstanding 72.0 - 72.5 72.0 - 72.5
KCI 2008 Analyst Day Event
KCI plans to host an Analyst Day event on Thursday, October 30, 2008, at the Grand Hyatt in San Antonio. The event will include presentations by key opinion leaders in the field of advanced wound care, as well as presentations by KCI leaders. To learn more about the event, go to KCI's Investor Relations web site at http://www.kci1.com/investor/index.asp and click on the Analyst Day link.
Earnings Release Conference Call
As previously announced, we have scheduled an earnings release conference call for 8:30 a.m. Eastern Daylight Time today, Thursday, July 24, 2008. The dial-in numbers for this conference call are as follows:
Domestic Dial-in Number: 888-313-5249
International Dial-in Number: +706-679-5386
This call is also being webcast and can be accessed at the Kinetic Concepts, Inc. web site at http://www.kci1.com/investor/index.asp, and clicking on Webcast - Q2 2008 Kinetic Concepts, Inc. Earnings Conference Call. An archive of the web cast will be available until July 23, 2009 at http://www.kci1.com/investor/index.asp.
KCI's business outlook as of today is expected to be available on KCI's Investor Relations web site. KCI does not currently expect to update this business outlook until the release of KCI's next quarterly earnings announcement, notwithstanding subsequent developments.
Non-GAAP Financial Information
Within this release, we have included income statement items on a non-GAAP basis to exclude the impact of LifeCell's operations since we obtained majority ownership of LifeCell on May 20, 2008, and have also excluded other purchase accounting and transaction-related costs. These non-GAAP financial measures do not replace the presentation of our GAAP financial results. We have provided this supplemental non-GAAP information because it may provide meaningful information regarding our results on a basis that better facilitates comparisons between the periods presented. Management uses this non-GAAP financial information, along with GAAP information, for reviewing the operating results of its business segments and for analyzing potential future business trends. In addition, we believe some investors may use this information in a similar fashion. A reconciliation of our GAAP income statement for the periods presented to the non-GAAP financial information provided is included herein.
About KCI
Kinetic Concepts, Inc. (NYSE: KCI) is a leading global medical technology company devoted to the discovery, development, manufacture and marketing of innovative, high-technology therapies and products for the wound care, tissue regeneration and therapeutic support system markets. Headquartered in San Antonio, Texas, KCI's success spans more than three decades and can be traced to a history deeply rooted in innovation and a passion for significantly improving the healing - and the lives - of patients around the world.
KCI's three primary businesses include:
Advanced Wound Care - Includes KCI's proprietary Vacuum Assisted Closure(R), or V.A.C.(R) Therapy System, which has been clinically demonstrated to promote wound healing through unique mechanisms of action while reducing the overall cost of treating patients with complex wounds.
Tissue Regeneration - Represented by KCI's LifeCell business and includes tissue-based products for use in reconstructive, orthopedic and urogynecologic surgical procedures to repair soft tissue defects.
Therapeutic Support Systems - Includes specialty hospital beds, mattress replacement systems and overlays designed to address pulmonary complications associated with immobility, to reduce skin breakdown and assist caregivers in the safe and dignified handling of patients of size.
The Company employs approximately 7,000 people and we market our products throughout the United States and in 18 primary countries internationally. For more information about KCI, and how its products are changing the practice of medicine, visit www.kci1.com.
Forward-Looking Statements
This press release contains forward-looking statements including, among other things, management's outlook, estimates of future performance, revenue, earnings per share, growth objectives and weighted average shares outstanding. The forward-looking statements contained herein are based on our current expectations and are subject to a number of risks and uncertainties that could cause us to fail to achieve our current financial projections and other expectations, such as changes in the demand for the V.A.C. resulting from increased competition, the seasonal slowing of V.A.C. unit growth in the fourth and first quarter of each year, changes in payer reimbursement policies and our ability to protect our intellectual property rights. All information set forth in this release and its attachments is as of July 24, 2008. We undertake no duty to update this information. More information about potential factors that could cause our results to differ or adversely affect our business and financial results is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007 and in our quarterly report on Form 10-Q for the quarterly period ended March 31, 2008, including, among other sections, under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." These reports are on file with the SEC and available at the SEC's website at www.sec.gov. Additional information will also be set forth in those sections in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2008, which will be filed with the SEC in early August 2008.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(unaudited)
Three months ended June Six months ended June 30,
30,
-------------------------- ---------------------------
% %
2008 2007 Change 2008 2007 Change
--------- --------- ------ --------- --------- -------
Revenue:
Rental $303,349 $283,345 7.1% $601,188 $549,029 9.5%
Sales 158,775 113,307 40.1 280,952 216,439 29.8
--------- --------- --------- ---------
Total
revenue 462,124 396,652 16.5 882,140 765,468 15.2
Rental expenses 185,319 171,365 8.1 360,593 335,305 7.5
Cost of sales 49,922 35,156 42.0 85,678 68,847 24.4
--------- --------- --------- ---------
Gross profit 226,883 190,131 19.3 435,869 361,316 20.6
Selling, general
and
administrative
expenses 100,731 88,621 13.7 196,078 166,834 17.5
Research and
development
expenses 16,680 11,397 46.4 31,395 21,204 48.1
Acquired
intangible
asset
amortization 4,654 - - 4,654 - -
In-process
research and
development 61,571 - - 61,571 - -
--------- --------- --------- ---------
Operating
earnings 43,247 90,113 (52.0) 142,171 173,278 (18.0)
Interest income
and other 2,157 1,516 42.3 4,162 2,880 44.5
Interest expense (14,574) (4,131) 252.8 (15,702) (8,222) 91.0
Foreign currency
gain (loss) (1,874) (187) 902.1 513 (452) -
--------- --------- --------- ---------
Earnings
before
income
taxes 28,956 87,311 (66.8) 131,144 167,484 (21.7)
Income taxes 31,667 29,239 8.3 65,900 55,856 18.0
--------- --------- --------- ---------
Net earnings
(loss) $ (2,711) $ 58,072 -% $ 65,244 $111,628 (41.6)%
========= ========= ========= =========
Net earnings
(loss) per
share:
Basic $ (0.04) $ 0.82 - $ 0.91 $ 1.58 (42.4)%
========= ========= ========= =========
Diluted $ (0.04) $ 0.81 - $ 0.90 $ 1.57 (42.7)%
========= ========= ========= =========
Weighted
average
shares
outstanding:
Basic 71,771 70,802 71,718 70,576
========= ========= ========= =========
Diluted 71,771 71,427 72,141 71,257
========= ========= ========= =========
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (1)
For the Three Months ended June 30,
(in thousands, except per share data)
(unaudited)
2008
-------------------------------------
Purchase
Accounting
and
LifeCell Transaction
GAAP Operations Costs
--------- ---------- ------------
Revenue:
Rental $303,349 $ - $ -
Sales 158,775 27,603 -
--------- ---------- ------------
Total revenue 462,124 27,603 -
Rental expenses 185,319 - -
Cost of sales 49,922 8,254 3,163
--------- ---------- ------------
Gross profit 226,883 19,349 (3,163)
Selling, general and
administrative expenses 100,731 8,447 1,735 (3)
Research and development expenses 16,680 2,693 -
Acquired intangible asset
amortization 4,654 - 4,654
In-process research and
development 61,571 - 61,571
--------- ---------- ------------
Operating earnings (loss) 43,247 8,209 (71,123)
Interest income and other 2,157 543 -
Interest expense (14,574) (13,996) -
Foreign currency loss (1,874) - -
--------- ---------- ------------
Earnings (loss) before income
taxes 28,956 (5,244) (71,123)
Income taxes (benefit) 31,667 (1,943) (1,263)(4)
--------- ---------- ------------
Net earnings (loss) $ (2,711) $ (3,301) $(69,860)
========= ========== ============
Net earnings (loss) per
share:
Basic $ (0.04)
=========
Diluted $ (0.04)
=========
Weighted average shares
outstanding:
Basic 71,771
=========
Diluted 71,771
=========
2008
----------------
Excluding
LifeCell
Operations,
Purchase
Accounting and
Transaction 2007 %
Costs (non- GAAP
GAAP) Change (2)
---------------- --------- ----------
Revenue:
Rental $ 303,349 $283,345 7.1%
Sales 131,172 113,307 15.8
---------------- ---------
Total revenue 434,521 396,652 9.5
Rental expenses 185,319 171,365 8.1
Cost of sales 38,505 35,156 9.5
---------------- ---------
Gross profit 210,697 190,131 10.8
Selling, general and
administrative expenses 90,549 88,621 2.2
Research and development expenses 13,987 11,397 22.7
Acquired intangible asset
amortization - - -
In-process research and
development - - -
---------------- ---------
Operating earnings (loss) 106,161 90,113 17.8
Interest income and other 1,614 1,516 6.5
Interest expense (578) (4,131) (86.0)
Foreign currency loss (1,874) (187) -
---------------- ---------
Earnings (loss) before income
taxes 105,323 87,311 20.6
Income taxes (benefit) 34,873 29,239 19.3
---------------- ---------
Net earnings (loss) $ 70,450 $ 58,072 21.3%
================ =========
Net earnings (loss) per
share:
Basic $ 0.98 $ 0.82 19.5%
================ =========
Diluted $ 0.98 $ 0.81 21.0%
================ =========
Weighted average shares
outstanding:
Basic 71,771 70,802
================ =========
Diluted 72,107 71,427
================ =========
-----------------------------------------------------------
(1) These non-GAAP financial measures do not replace the presentation
of our GAAP financial results. See the "Non-GAAP Financial
Information" section of this press release for further discussion of
our non-GAAP financial information.
(2) The percentage change reflects the percentage variance between the
2008 non-GAAP results, excluding LifeCell operations, purchase
accounting and transaction costs, and the 2007 GAAP results.
(3) Includes costs associated with the retention of key LifeCell
employees and integration-related professional fees.
(4) The tax adjustment includes the impact of the nondeductible in-
process research and development write-off and other tax-related
amounts.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (1)
For the Six Months ended June 30,
(in thousands, except per share data)
(unaudited)
2008
--------------------------------------
Purchase
Accounting
and
LifeCell Transaction
GAAP Operations Costs
Revenue:
Rental $601,188 $ - $ -
Sales 280,952 27,603 -
--------- ----------- ------------
Total revenue 882,140 27,603 -
Rental expenses 360,593 - -
Cost of sales 85,678 8,254 3,163
--------- ----------- ------------
Gross profit 435,869 19,349 (3,163)
Selling, general and
administrative expenses 196,078 8,447 1,735 (3)
Research and development
expenses 31,395 2,693 -
Acquired intangible asset
amortization 4,654 - 4,654
In-process research and
development 61,571 - 61,571
--------- ----------- ------------
Operating earnings (loss) 142,171 8,209 (71,123)
Interest income and other 4,162 543 -
Interest expense (15,702) (13,996) -
Foreign currency gain (loss) 513 - -
--------- ----------- ------------
Earnings (loss) before
income taxes 131,144 (5,244) (71,123)
Income taxes (benefit) 65,900 (1,943) (1,263)(4)
--------- ----------- ------------
Net earnings (loss) $ 65,244 $ (3,301) $(69,860)
========= =========== ============
Net earnings per share:
Basic $ 0.91
=========
Diluted $ 0.90
=========
Weighted average shares
outstanding:
Basic 71,718
=========
Diluted 72,141
=========
2008
--------------
Excluding
LifeCell
Operations,
Purchase
Accounting
and
Transaction
Costs (non- 2007 %
GAAP) GAAP Change (2)
Revenue:
Rental $ 601,188 $ 549,029 9.5%
Sales 253,349 216,439 17.1
-------------- -----------
Total revenue 854,537 765,468 11.6
Rental expenses 360,593 335,305 7.5
Cost of sales 74,261 68,847 7.9
-------------- -----------
Gross profit 419,683 361,316 16.2
Selling, general and
administrative expenses 185,896 166,834 11.4
Research and development
expenses 28,702 21,204 35.4
Acquired intangible asset
amortization - - -
In-process research and
development - - -
-------------- -----------
Operating earnings (loss) 205,085 173,278 18.4
Interest income and other 3,619 2,880 25.7
Interest expense (1,706) (8,222) (79.3)
Foreign currency gain (loss) 513 (452) -
-------------- -----------
Earnings (loss) before
income taxes 207,511 167,484 23.9
Income taxes (benefit) 69,106 55,856 23.7
-------------- -----------
Net earnings (loss) $ 138,405 $ 111,628 24.0%
============== ===========
Net earnings per share:
Basic $ 1.93 $ 1.58 22.2%
============== ===========
Diluted $ 1.92 $ 1.57 22.3%
============== ===========
Weighted average shares
outstanding:
Basic 71,718 70,576
============== ===========
Diluted 72,141 71,257
============== ===========
-----------------------------------------------------------
(1) These non-GAAP financial measures do not replace the presentation
of our GAAP financial results. See the "Non-GAAP Financial
Information" section of this press release for further discussion of
our non-GAAP financial information.
(2) The percentage change reflects the percentage variance between the
2008 non-GAAP results, excluding LifeCell operations, purchase
accounting and transaction costs, and the 2007 GAAP results.
(3) Includes costs associated with the retention of key LifeCell
employees and integration-related professional fees.
(4) The tax adjustment includes the impact of the nondeductible in-
process research and development write-off and other tax-related
amounts.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(in thousands)
June 30, December 31,
2008 2007
-------------- --------------
(unaudited)
Assets:
Current assets:
Cash and cash equivalents $ 102,598 $ 265,993
Accounts receivable, net 397,803 356,965
Inventories, net 129,614 50,341
Deferred income taxes 54,556 41,504
Prepaid expenses and other 66,503 31,176
-------------- --------------
Total current assets 751,074 745,979
Net property, plant and equipment 280,321 228,471
Debt issuance costs, less accumulated
amortization of $2,960 at 2008 and $218
at 2007 60,411 2,456
Deferred income taxes 8,325 8,743
Goodwill 1,335,404 48,897
Other non-current assets, less
accumulated amortization of $15,742 at
2008 and $10,678 at 2007 507,080 23,039
-------------- --------------
$ 2,942,615 $ 1,057,585
============== ==============
Liabilities and Shareholders' Equity:
Current liabilities:
Accounts payable $ 57,672 $ 50,804
Accrued expenses and other 212,716 212,874
Current installments of long-term debt 100,000 -
-------------- --------------
Total current liabilities 370,388 263,678
Long-term debt, net of current
installments 1,590,000 68,000
Non-current tax liabilities 39,620 31,313
Deferred income taxes 160,989 9,921
Other non-current liabilities 7,331 7,653
-------------- --------------
Total liabilities 2,168,328 380,565
Shareholders' equity:
Common stock; authorized 225,000 at
2008 and 2007, issued and outstanding
72,569 at 2008 and 72,153 at 2007 73 72
Preferred stock; authorized 50,000 at
2008 and 2007; issued and outstanding
0 at 2008 and 2007 - -
Additional paid-in capital 670,598 644,347
Retained earnings (deficit) 58,063 (7,181)
Accumulated other comprehensive income 45,553 39,782
-------------- --------------
Shareholders' equity 774,287 677,020
-------------- --------------
$ 2,942,615 $ 1,057,585
============== ==============
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six months ended June 30,
-------------------------
2008 2007
------------- -----------
Cash flows from operating activities:
Net earnings $ 65,244 $ 111,628
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation, amortization and other 49,738 41,839
Provision for bad debt 3,819 3,107
Amortization of deferred gain on sale of
headquarters facility (535) (535)
Write-off of deferred debt issuance costs 860 292
Share-based compensation expense 12,629 11,278
Excess tax benefit from share-based
payment arrangements (254) (9,666)
Write-off of in-process research and
development 61,571 -
Change in assets and liabilities, net of
business acquired:
Increase in accounts receivable, net (12,137) (17,975)
Increase in inventories, net (11,921) (6,873)
Increase in prepaid expenses and other (29,256) (10,066)
Increase (decrease) in deferred income
taxes, net 23,810 (12,268)
Decrease in accounts payable (10,107) (4,035)
Increase (decrease) in accrued expenses
and other (29,778) 3,223
Increase in tax liabilities, net 4,836 20,586
------------- -----------
Net cash provided by operating
activities 128,519 130,535
------------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (43,247) (28,042)
Increase in inventory to be converted into
equipment for short-term rental (18,400) (13,400)
Dispositions of property, plant and
equipment 2,251 773
Business acquired in purchase transaction,
net of cash acquired (1,745,969) -
Purchase of investments - (31,000)
Maturities of investments - 19,000
Increase in other non-current assets (2,141) (400)
------------- -----------
Net cash used by investing activities (1,807,506) (53,069)
------------- -----------
Cash flows from financing activities:
Repayments of long-term debt, capital lease
and other obligations (96) (25,364)
Excess tax benefit from share-based payment
arrangements 254 9,666
Proceeds from exercise of stock options 2,330 8,699
Purchase of immature shares for minimum tax
withholdings (819) (1,872)
Proceeds from purchase of stock in ESPP and
other 2,346 2,142
Acquisition financing:
Proceeds from senior credit facility 1,000,000 -
Proceeds from convertible senior notes 690,000 -
Repayment of long-term debt (68,000) -
Proceeds from convertible debt warrant 102,458 -
Purchase of convertible debt hedge (151,110) -
Payment of debt issuance costs (60,697) -
------------- -----------
Net cash provided (used) by financing
activities 1,516,666 (6,729)
------------- -----------
Effect of exchange rate changes on cash and
cash equivalents (1,074) 2,155
------------- -----------
Net increase (decrease) in cash and cash
equivalents (163,395) 72,892
Cash and cash equivalents, beginning of
period 265,993 107,146
------------- -----------
Cash and cash equivalents, end of period $ 102,598 $ 180,038
============= ===========
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Supplemental Revenue Data
(in thousands)
(unaudited)
Three months ended June 30,
-----------------------------------
Variance
----------------
2008 2007 (1) $ %
-------- --------- -------- -------
Total Revenue:
-----------------------------------
V.A.C.
Rental $234,464 $216,740 $17,724 8.2 %
Sales 118,780 100,567 18,213 18.1
-------- --------- --------
Total V.A.C. 353,244 317,307 35,937 11.3
Therapeutic Support Systems
Rental 68,885 66,605 2,280 3.4
Sales 12,392 12,740 (348) (2.7)
-------- --------- --------
Total Therapeutic Support
Systems 81,277 79,345 1,932 2.4
LifeCell sales 27,603 - 27,603 -
Total rental revenue 303,349 283,345 20,004 7.1
Total sales revenue 158,775 113,307 45,468 40.1
-------- --------- --------
Total Revenue $462,124 $396,652 $65,472 16.5 %
======== ========= ========
North America Revenue:
-----------------------------------
V.A.C.
Rental $189,338 $181,987 $ 7,351 4.0 %
Sales 72,359 65,288 7,071 10.8
-------- --------- --------
Total V.A.C. 261,697 247,275 14,422 5.8
Therapeutic Support Systems
Rental 46,017 47,645 (1,628) (3.4)
Sales 7,365 8,347 (982) (11.8)
-------- --------- --------
Total Therapeutic Support
Systems 53,382 55,992 (2,610) (4.7)
LifeCell sales 27,603 - 27,603 -
Total North America rental 235,355 229,632 5,723 2.5
Total North America sales 107,327 73,635 33,692 45.8
-------- --------- --------
Total - North America Revenue $342,682 $303,267 $39,415 13.0 %
======== ========= ========
EMEA/APAC Revenue:
-----------------------------------
V.A.C.
Rental $ 45,126 $ 34,753 $10,373 29.8 %
Sales 46,421 35,279 11,142 31.6
-------- --------- --------
Total V.A.C. 91,547 70,032 21,515 30.7
Therapeutic Support Systems
Rental 22,868 18,960 3,908 20.6
Sales 5,027 4,393 634 14.4
-------- --------- --------
Total Therapeutic Support
Systems 27,895 23,353 4,542 19.4
Total EMEA/APAC rental 67,994 53,713 14,281 26.6
Total EMEA/APAC sales 51,448 39,672 11,776 29.7
-------- --------- --------
Total - EMEA/APAC Revenue $119,442 $ 93,385 $26,057 27.9 %
======== ========= ========
-----------------------------------
(1) Prior year amounts have been reclassified to conform to our
current year presentation.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Supplemental Revenue Data
(in thousands)
(unaudited)
Six months ended June 30,
------------------------------------
Variance
-----------------
2008 2007 (1) $ %
-------- --------- --------- -------
Total Revenue:
----------------------------------
V.A.C.
Rental $456,561 $415,599 $ 40,962 9.9 %
Sales 229,647 190,271 39,376 20.7
-------- --------- ---------
Total V.A.C. 686,208 605,870 80,338 13.3
Therapeutic Support Systems
Rental 144,627 133,430 11,197 8.4
Sales 23,702 26,168 (2,466) (9.4)
-------- --------- ---------
Total Therapeutic Support
Systems 168,329 159,598 8,731 5.5
LifeCell sales 27,603 - 27,603 -
Total rental revenue 601,188 549,029 52,159 9.5
Total sales revenue 280,952 216,439 64,513 29.8
-------- --------- ---------
Total Revenue $882,140 $765,468 $116,672 15.2 %
======== ========= =========
North America Revenue:
----------------------------------
V.A.C.
Rental $370,183 $350,075 $ 20,108 5.7 %
Sales 141,736 124,137 17,599 14.2
-------- --------- ---------
Total V.A.C. 511,919 474,212 37,707 8.0
Therapeutic Support Systems
Rental 98,323 96,141 2,182 2.3
Sales 14,300 16,556 (2,256) (13.6)
-------- --------- ---------
Total Therapeutic Support
Systems 112,623 112,697 (74) (0.1)
LifeCell sales 27,603 - 27,603 -
Total North America rental 468,506 446,216 22,290 5.0
Total North America sales 183,639 140,693 42,946 30.5
-------- --------- ---------
Total - North America Revenue $652,145 $586,909 $ 65,236 11.1 %
======== ========= =========
EMEA/APAC Revenue:
----------------------------------
V.A.C.
Rental $ 86,378 $ 65,524 $ 20,854 31.8 %
Sales 87,911 66,134 21,777 32.9
-------- --------- ---------
Total V.A.C. 174,289 131,658 42,631 32.4
Therapeutic Support Systems
Rental 46,304 37,289 9,015 24.2
Sales 9,402 9,612 (210) (2.2)
-------- --------- ---------
Total Therapeutic Support
Systems 55,706 46,901 8,805 18.8
Total EMEA/APAC rental 132,682 102,813 29,869 29.1
Total EMEA/APAC sales 97,313 75,746 21,567 28.5
-------- --------- ---------
Total - EMEA/APAC Revenue $229,995 $178,559 $ 51,436 28.8 %
======== ========= =========
----------------------------------
(1) Prior year amounts have been reclassified to conform to our
current year presentation.
Source: Kinetic Concepts, Inc.
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