10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

Commission file number 333-184233-14

ACELITY L.P. INC.

(Exact name of registrant as specified in its charter)

Guernsey	98-1022387
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
12930 West Interstate 10 San Antonio, Texas	78249
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (210) 524-9000

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes X No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer			Accelerated filer
Non-accelerated filer	X	(Do not check if a smaller reporting company)	Smaller reporting company

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  

Yes No X

As of April 30, 2015, there were 341,410,891.610 Class A-1 and 717,038.800 Class A-2 partnership units outstanding, all of which were held by affiliates.   

TABLE OF CONTENTS

ACELITY L.P. INC.

			Page No.
PART I.	FINANCIAL INFORMATION		4
	Item 1.	Financial Statements	4
		Condensed Consolidated Balance Sheets	4
		Condensed Consolidated Statements of Operations	5
		Condensed Consolidated Statements of Comprehensive Loss	6
		Condensed Consolidated Statements of Cash Flows	7
		Notes to Condensed Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	25
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
	Item 4.	Controls and Procedures	33
PART II.	OTHER INFORMATION		33
	Item 1.	Legal Proceedings	33
	Item 1A.	Risk Factors	33
	Item 6.	Exhibits	34
	SIGNATURES		35

2

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes statements that express our opinions, expectations, beliefs, plans, objectives, assumptions or projections regarding future events or future results and therefore are, or may be deemed to be, “forward-looking statements.” The forward-looking statements are based on our current expectations and projections about future events. Discussions containing forward-looking statements may be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and elsewhere in this report. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “predicts,” “projects,” “potential,” “continue,” “expects,” “anticipates,” “aims,” “future,” “intends,” “plans,” “believes,” “estimates,” or the negative of those terms and other variations of them or by comparable terminology.

These forward-looking statements are only predictions, not historical facts, and involve certain risks and uncertainties, as well as assumptions. Actual results, levels of activity, performance, achievements and events could differ materially from those stated, anticipated or implied by such forward-looking statements. The factors that could contribute to such differences include those discussed under the caption “Risk Factors.” You should consider each of the risk factors and uncertainties under the caption “Risk Factors” in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2014, among other things, in evaluating our prospects and future financial performance. The occurrence of the events described in the risk factors could harm our business, results of operations and financial condition. These forward-looking statements are made as of the date of this report. Except as required under federal securities laws and the rules and regulations of the SEC, we do not have any intention to update any forward-looking statements to reflect events or circumstances arising after the date of this report, whether as a result of new information, future events or otherwise.

TRADEMARKS, SERVICE MARKS AND COPYRIGHTS

3M^® Tegaderm^® is a licensed trademark of 3M Company; GRAFTJACKET^® is a licensed trademark of Wright Medical Technology Inc; Novadaq^®, SPY^®, and SPY ELITE^® are licensed trademarks of Novadaq Technologies, Inc.; and Prontosan^® Wound Irrigation Solution is a licensed trademark of B. Braun Medical, Inc. Unless otherwise indicated, all other trademarks appearing in this report are proprietary to KCI Licensing, Inc., LifeCell Corporation or Systagenix Wound Management IP Co B.V., their affiliates and/or licensors. The absence of a trademark or service mark or logo from this report does not constitute a waiver of trademark or other intellectual property rights of KCI Licensing, Inc., Systagenix Wound Management IP Co B.V., or LifeCell Corporation, their affiliates and/or licensors.

DEFINED TERMS

The following terms are used in this Quarterly Report on Form 10-Q unless otherwise noted or indicated by the context.

• the terms the “Company,” “we,” “our,” and “us” refer to Acelity L.P. Inc. (“Acelity”) and its consolidated subsidiaries.

• the term “Merger” refers to the transaction completed on November 4, 2011 pursuant to which Kinetic Concepts, Inc. was merged with Chiron Merger Sub, Inc. (“Merger Sub”), a direct subsidiary of Chiron Holdings, Inc. (“Holdings”) and an indirect subsidiary of Acelity Guernsey L.P. Inc.

• the term “KCI” means Kinetic Concepts, Inc. and its subsidiaries.

• the term “LifeCell” means LifeCell Corporation and its subsidiaries.

• the term “Systagenix” means “Systagenix Wound Management B.V., its subsidiaries, and its former U.S.-based affiliate, Systagenix Wound Management (US), Inc.

3

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ACELITY L.P. INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

	March 31, 2015			December 31, 2014
	(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	250,509		$	183,541
Accounts receivable, net	365,124			370,483
Inventories, net	182,457			178,222
Deferred income taxes	70,515			63,025
Prepaid expenses and other	28,337			27,563
Total current assets	896,942			822,834
Net property, plant and equipment	277,653			288,048
Debt issuance costs, net	72,094			77,896
Deferred income taxes	30,466			31,692
Goodwill	3,378,298			3,378,298
Identifiable intangible assets, net	2,352,814			2,397,251
Other non-current assets	4,709			4,694
	$	7,012,976		$	7,000,713
Liabilities and Equity:
Current liabilities:
Accounts payable	$	55,946		$	51,827
Accrued expenses and other	395,514			343,484
Current installments of long-term debt	25,385			25,721
Income taxes payable	9,981			1,305
Deferred income taxes	103,135			113,658
Total current liabilities	589,961			535,995
Long-term debt, net of current installments and discount	4,774,787			4,815,290
Non-current tax liabilities	33,845			33,300
Deferred income taxes	799,334			792,157
Other non-current liabilities	165,909			163,258
Total liabilities	6,363,836			6,340,000
Equity:
General partner’s capital	—			—
Limited partners’ capital	666,285			670,787
Accumulated other comprehensive loss, net	(17,145		)	(10,074		)
Total equity	649,140			660,713
	$	7,012,976		$	7,000,713

See accompanying notes to condensed consolidated financial statements.

4

ACELITY L.P. INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(in thousands)

(unaudited)

	Three months ended March 31,
	2015			2014
Revenue:
Rental	$	172,839		$	164,977
Sales	271,211			277,658
Total revenue	444,050			442,635
Rental expenses	78,178			84,649
Cost of sales	73,414			81,390
Gross profit	292,458			276,596
Selling, general and administrative expenses	147,763			175,612
Research and development expenses	14,678			17,490
Acquired intangible asset amortization	45,877			50,689
Operating earnings	84,140			32,805
Interest income and other	147			95
Interest expense	(104,726		)	(102,195		)
Foreign currency gain	19,400			236
Derivative instruments loss	(3,348		)	(3		)
Loss from continuing operations before income tax expense (benefit)	(4,387		)	(69,062		)
Income tax expense (benefit)	144			(22,002		)
Loss from continuing operations	(4,531		)	(47,060		)
Earnings from discontinued operations, net of tax	—			677
Net loss	$	(4,531	)	$	(46,383	)

See accompanying notes to condensed consolidated financial statements.

5

ACELITY L.P. INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(unaudited)

	Three months ended March 31,
	2015			2014
Net loss	$	(4,531	)	$	(46,383	)
Unrealized investment gain, net of tax expense of $628 in 2014	—			1,003
Foreign currency translation adjustment, net of tax expense of $635 in 2015 and $62 in 2014	(7,071		)	290
Total comprehensive loss	$	(11,602	)	$	(45,090	)

See accompanying notes to condensed consolidated financial statements.

6

ACELITY L.P. INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited)
	Three months ended March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(4,531	)	$	(46,383	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt issuance costs and discount	9,968			9,668
Depreciation and other amortization	66,331			82,029
Amortization of fair value step-up in inventory	—			6,680
Provision for bad debt	1,827			4,101
Equity-based compensation expense	535			941
Deferred income tax benefit	(11,971		)	(44,674		)
Unrealized gain on derivative instruments	(315		)	(4,076		)
Unrealized loss (gain) on revaluation of cross currency debt	(32,429		)	241
Change in assets and liabilities:
Decrease in accounts receivable, net	5,362			20,806
Increase in inventories, net	(3,666		)	(7,302		)
Decrease (increase) in prepaid expenses and other	(774		)	17,546
Increase in accounts payable	4,363			6,473
Increase in accrued expenses and other	56,048			31,799
Increase in tax liabilities, net	11,525			4,997
Net cash provided by operating activities	102,273			82,846
Cash flows from investing activities:
Additions to property, plant and equipment	(10,491		)	(10,801		)
Increase in inventory to be converted into equipment for short-term rental	(3,356		)	(2,240		)
Dispositions of property, plant and equipment	678			377
Businesses acquired in purchase transactions, net of cash acquired	—			(4,613		)
Increase in identifiable intangible assets and other non-current assets	(1,821		)	(1,281		)
Net cash used by investing activities	(14,990		)	(18,558		)
Cash flows from financing activities:
Distribution to limited partners	(55		)	—
Settlement of profits interest units	(517		)	—
Repayments of long-term debt and capital lease obligations	(6,415		)	(6,635		)
Debt issuance costs	(6,256		)	—
Net cash used by financing activities	(13,243		)	(6,635		)
Effect of exchange rate changes on cash and cash equivalents	(7,072		)	38
Net increase in cash and cash equivalents	66,968			57,691
Cash and cash equivalents, beginning of period	183,541			206,949
Cash and cash equivalents, end of period	$	250,509		$	264,640

See accompanying notes to condensed consolidated financial statements

7

Notes to Condensed Consolidated Financial Statements

NOTE 1.Summary of Significant Accounting Policies

(a)Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP” or “the Codification”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, financial position and cash flows in conformity with GAAP. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our results for the interim periods presented. Certain prior period amounts have been reclassified to conform to the 2015 presentation.

On October 29, 2014, LifeCell entered into an agreement with Novadaq^® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY^® Elite System from LifeCell to Novadaq, effective November 30, 2014. In connection with the transfer, the parties agreed to terminate various distribution agreements entered into between 2010 and 2011. The results of the operations subject to the agreement, excluding the allocation of general corporate overhead, are presented as discontinued operations in the condensed consolidated statements of operations for all periods presented.

The Company has two reportable operating segments: Advanced Wound Therapeutics and Regenerative Medicine. We have two primary geographic regions: the Americas, which is comprised principally of the United States and includes Canada, Puerto Rico and Latin America; and EMEA/APAC, which is comprised of Europe, the Middle East, Africa and the Asia Pacific region.

The condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

(b)Derivative Financial Instruments and Fair Value Measurements

We use derivative financial instruments to manage the economic impact of fluctuations in interest rates. We do not use financial instruments for speculative or trading purposes. Periodically, we enter into interest rate protection agreements to modify the interest characteristics of our outstanding debt. Our interest rate derivatives have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period.

We also periodically use derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on our intercompany balances and corresponding cash flows and to manage our transactional currency exposures when our foreign subsidiaries enter into transactions denominated in currencies other than their local currency. We enter into foreign currency exchange contracts to manage these economic risks. These contracts are not designated as hedges; and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period. Although we use master netting agreements with our derivative counterparties, we do not offset derivative asset and liability positions in the condensed consolidated balance sheets.

All derivative instruments are recorded on the balance sheets at fair value. The fair values of our interest rate derivatives and foreign currency exchange contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly-quoted markets, which represent level 2 inputs as defined by the Codification.

8

(c)Concentration of Credit Risk

We have a concentration of credit risk with financial institutions related to our derivative instruments. As of March 31, 2015, Morgan Stanley, UBS and HSBC were the counterparties on our interest rate protection agreements consisting of interest rate swap agreements in notional amounts totaling $484.7 million each. We use master netting agreements with our derivative counterparties to reduce our risk and use multiple counterparties to reduce our concentration of credit risk.

We maintain cash and cash equivalents with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits bear minimal credit risk as they are maintained at financial institutions of reputable credit and generally may be redeemed upon demand.

(d)   Recently Adopted Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. ASU No. 2014-08 changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company adopted this update effective January 1, 2015. We do not anticipate that it will have a material effect on our results of operations, financial position or disclosures.

(e)   Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts”. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, “Property, Plant, and Equipment”, and intangible assets within the scope of Topic 350, “Intangibles-Goodwill and Other”) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In April 2015, the FASB voted to propose to defer the effective date of this ASU by one year. The Company is evaluating ASU No. 2014-09 to determine if it will have a material effect on our results of operations, financial position or disclosures.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In January 2015, the FASB issued ASU No. 2015-01, "Income Statement -Extraordinary and Unusual Items (Subtopic 225-20)." The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

9

On February 18, 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." This update provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)" The objective of this ASU is to simplify the presentation of debt issuance costs in the balance sheet by requiring the presentation of debt issuance costs as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The standard will be effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. As of March 31, 2015, the Company had $72.1 million of unamortized debt issuance costs recorded as a deferred charge.

(f)   Other Significant Accounting Policies

For further information on our significant accounting policies, see Note 1 of the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

NOTE 2.Acquisitions and Divestitures

Acquisitions

There were no significant acquisitions during the three months ended March 31, 2015.

Divestitures

SPY® Elite System

On October 29, 2014, LifeCell Corporation entered into an agreement with Novadaq^® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY^® Elite System from LifeCell to Novadaq, effective November 30, 2014.

The operating results of the SPY^® Elite System product portfolio included in discontinued operations are as follows (in thousands):

	Three months ended March 31,
	2014
Revenue	$	4,904
Earnings before income taxes	$	1,100
Income tax expense	$	423
Earnings from discontinued operations, net of tax	$	677

10

NOTE 3.Supplemental Balance Sheet Data

(a)Accounts Receivable, net

Accounts receivable consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Gross trade accounts receivable:
Billed trade accounts receivable	$	394,896		$	396,329
Unbilled receivables	32,408			39,293
Less:  Allowance for revenue adjustments	(62,117		)	(61,460		)
Gross trade accounts receivable	365,187			374,162
Less:  Allowance for bad debt	(11,668		)	(13,087		)
Net trade accounts receivable	353,519			361,075
Other receivables	11,605			9,408
	$	365,124		$	370,483

(b)       Inventories, net

Inventories consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Finished goods and tissue available for distribution	$	130,141		$	127,253
Goods and tissue in-process	5,877			6,887
Raw materials, supplies, parts and unprocessed tissue	72,855			67,567
	208,873			201,707
Less: Amounts expected to be converted into equipment for short-term rental	(10,871		)	(7,515		)
Reserve for excess and obsolete inventory	(15,545		)	(15,970		)
	$	182,457		$	178,222

11

NOTE 4.     Long-Term Debt

Long-term debt consists of the following (in thousands):

	March 31, 2015			December 31, 2014
Senior Dollar Term E-1 Credit Facility – due 2018	$	1,922,374		$	1,927,241
Senior Euro Term E-1 Credit Facility – due 2018	259,847			293,746
Senior Term E-2 Credit Facility– due 2016	314,555			315,351
10.5% Second Lien Senior Secured Notes due 2018	1,750,000			1,750,000
12.5% Senior Unsecured Notes due 2019	612,000			612,000
3.25% Convertible Senior Notes due 2015	101			101
Notional amount of debt	4,858,877			4,898,439
Senior Dollar Term E-1 Credit Facility Discount, net of accretion	(27,029		)	(24,241		)
Senior Euro Term E-1 Credit Facility Discount, net of accretion	(6,698		)	(7,376		)
Senior Term E-2 Credit Facility Discount, net of accretion	(3,297		)	(2,955		)
Second Lien Senior Secured Notes Discount, net of accretion	(19,131		)	(20,205		)
Senior Unsecured Notes Discount, net of accretion	(2,550		)	(2,651		)
Net discount on debt	(58,705		)	(57,428		)
Total debt, net of discount	4,800,172			4,841,011
Less:  Current installments	(25,385		)	(25,721		)
	$	4,774,787		$	4,815,290

Senior Secured Credit Facility

Our senior secured credit facility (the “Senior Secured Credit Facility”) includes a $200 million revolving credit facility (the “Revolving Credit Facility”). Amounts available under the Revolving Credit Facility are available for borrowing and reborrowing until maturity. At March 31, 2015 and December 31, 2014, no revolving credit loans were outstanding and we had outstanding letters of credit issued by banks which are party to the Senior Secured Credit Facility of $40.6 million and $39.0 million, respectively. In addition, we had $9.7 million and $11.4 million of letters of credit issued by a bank not party to the Senior Secured Credit Facility as of March 31, 2015 and December 31, 2014, respectively. The capacity of the Revolving Credit Facility is reduced for the $40.6 million and $39.0 million of letters of credit issued by banks which are party to the Senior Secured Credit Facility as of March 31, 2015 and December 31, 2014, respectively. The resulting availability under the Revolving Credit Facility was $159.4 million and $161.0 million at March 31, 2015 and December 31, 2014, respectively. Commitment fees accrue at a rate of 0.50% on the amounts available under the Revolving Credit Facility.

Interest. On March 10, 2015, we entered into Amendment No. 6 to our Senior Secured Credit Facility (“Amendment No. 6”). In connection with Amendment No. 6, certain applicable rates were modified so that (i) Dollar Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.50% or an adjusted base rate plus 2.50%, (ii) Euro Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.75% or an adjusted base rate plus 2.75%, and (iii) Term E-2 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.00% or an adjusted base rate plus 2.00%. The Eurocurrency rate shall be subject to a floor of 1.00%, and the adjusted base rate shall be subject to a floor of 2.00%.

Covenants

As a result of Amendment No. 6, the financial covenants were amended to remove the interest coverage ratio in its entirety and to set the total leverage ratio for any test period to be no greater than 8.25:1.00. In addition, certain other covenants were amended, including with respect to the incurrence of incremental facilities and asset sales. As of March 31, 2015, we were in compliance with all covenants under our credit agreement and indentures.

For further information on our long-term debt, see Note 5 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

12

NOTE 5.     Derivative Financial Instruments and Fair Value Measurements

We are exposed to credit loss in the event of nonperformance by counterparties to the extent of the fair values of the outstanding interest rate swap agreements, interest rate cap agreements and foreign currency exchange contracts, but we do not anticipate nonperformance by any of the counterparties. All derivative instruments are recorded on the balance sheets at fair value. We do not use financial instruments for speculative or trading purposes.

Interest Rate Protection

At March 31, 2015 and December 31, 2014, we were party to three interest rate swap agreements which are used to convert a portion of our outstanding variable rate debt to a fixed rate basis. These agreements have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period. The interest rate swap agreements have receive rates based on the higher of three-month USD LIBOR or 1.25% and pay rates based on fixed rates. Quarterly payments under the interest rate swap agreements are due on the last day of March, June, September and December. The aggregate notional amount decreases quarterly by amounts ranging from $1.7 million to $56.4 million until maturity.

The following table summarizes our interest rate swap agreements (dollars in thousands):

Effective Dates	Outstanding Notional Amount	Fixed Interest Rate
12/31/13-12/31/16	$484,667	2.256%
12/31/13-12/31/16	$484,667	2.249%
12/31/13-12/31/16	$484,667	2.250%

Foreign Currency Exchange Rate Mitigation

At March 31, 2015 and December 31, 2014, we had no outstanding foreign currency exchange contracts.

Fair Value Measurements

The Codification definesfair value as the exit price that would be received to sell an asset or paid to transfer a liability. The Fair Value Measurements and Disclosure topic of the Codification establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term obligations, excluding our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt, approximates fair value. The fair value of our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt was $2.503 billion and $2.559 billion, respectively, at March 31, 2015. The fair value of our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt was $2.501 billion and $2.584 billion, respectively, at December 31, 2014. The fair value of our long-term debt was estimated based upon open-market trades at or near year end.

All of our derivatives, as of the reporting date, use inputs considered as Level 2. The interest rate swap agreements are valued using a discounted cash flow model that takes into account the present value of the expected future cash flows under the terms of the agreements by using market information available as of the reporting date, including prevailing interest rates and related forward interest rate curves.

13

The following table sets forth the location and aggregate fair value amounts of all derivative instruments with credit-related contingent features (in thousands):

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
		March 31, 2015		December 31, 2014			March 31, 2015		December 31, 2014
Derivatives not designated as hedging instruments
Interest rate swap agreements	Prepaid expenses and other	$	—	$	—	Accrued expenses and other	$	13,799	$	13,936
Interest rate swap agreements	Other non-current assets	—		—		Other non-current liabilities	7,889		8,067
Total derivatives		$	—	$	—		$	21,688	$	22,003

The following table summarizes the amount of gain (loss) on derivatives not designated as hedging instruments (dollars in thousands):

	Three months ended March 31,
	2015			2014
Interest rate swap agreements	$	(3,348	)	$	(75	)
Foreign currency exchange contracts	—			72
	$	(3,348	)	$	(3	)

Certain of our derivative instruments contain provisions that require compliance with the restrictive covenants of our Senior Secured Credit Facility. For further information regarding the restrictive covenants of credit facilities, see Note 5 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

If we default under our credit facilities, the lenders could require immediate repayment of the entire outstanding principal balance. If those lenders require immediate repayment, we may not be able to repay them which could result in the foreclosure of substantially all of our assets. In these circumstances, the counterparties to the derivative instruments could request immediate payment or full collateralization on derivative instruments in net liability positions. Certain of our derivative counterparties are also parties to our Senior Secured Credit Facility.

No collateral has been posted by us in the normal course of business. If the credit-related contingent features underlying these agreements were triggered on March 31, 2015, we could be required to settle or post the full amount as collateral to the respective agreement counterparties.

We did not have any measurements of financial assets or financial liabilities at fair value on a nonrecurring basis at March 31, 2015 or December 31, 2014.

NOTE 6. Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

	Accumulated Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balances at December 31, 2014	$	(10,074	)	$	(10,074	)
Foreign currency translation adjustment, net of taxes of $635	(7,071		)	(7,071		)
Balances at March 31, 2015	$	(17,145	)	$	(17,145	)

During the three months ended March 31, 2015, there were no reclassification adjustments out of accumulated other comprehensive loss to net loss.

14

NOTE 7.Commitments and Contingencies

Legal Proceedings

Intellectual Property Litigation

As the owner and exclusive licensee of patents, from time to time, we are a party to proceedings challenging these patents, including challenges in U.S. federal courts, foreign courts, foreign patent offices and the U.S. Patent and Trademark Office. Additionally, from time to time, we are a party to litigation we initiate against others we contend infringe these patents, which often results in counterclaims regarding the validity of such patents. At other times, we are party to litigation initiated by others who contend we infringe their patents. It is not possible to reliably predict the outcome of the proceedings described below. However, if we are unable to effectively enforce our intellectual property rights, third parties may become more aggressive in the marketing of competitive products around the world.

In August 2013, Vital Needs International, L.P. ("Vital Needs") filed a Demand for Arbitration with the American Arbitration Association seeking to recover in excess of $100 million in damages and legal fees against KCI entities based on a number of claims related to certain intellectual property rights sold by Vital Needs to KCI pursuant to a 2006 acquisition agreement. The arbitration hearing took place in January 2015, and the panel issued a favorable decision on April 10, 2015 ordering that Vital Needs take nothing by its claims.

In September 2013, LifeNet Health ("LifeNet") filed suit against LifeCell Corporation in the United States District Court for the Eastern District of Virginia, Norfolk Division. LifeNet alleges that two LifeCell products, Strattice and AlloDerm Ready to Use, infringe LifeNet’s U.S. Patent No. 6,569,200 ("the ‘200 Patent"). On November 18, 2014, a jury found that the ‘200 Patent was not invalid and was infringed and further awarded LifeNet a lump sum damages amount of $34.7 million. As a result of this decision, we recorded a liability of $34.7 million in the fourth quarter of 2014. We disagree with the result at this stage in the litigation and believe that LifeCell’s defenses to the claims are meritorious. LifeCell will continue to vigorously assert its defenses during the appeal stages of this litigation and intends to defend any further claims by LifeNet. LifeCell plans to appeal to the U.S. Federal Circuit Court of Appeals in Washington D.C. on multiple grounds.

Products Liability Litigation

LifeCell Corporation is a defendant in approximately 346 lawsuits filed by individuals alleging personal injury and seeking monetary damages for failed hernia repair procedures using LifeCell’s AlloDerm products. These cases have been consolidated for case management purposes in Middlesex County, New Jersey. The trial court has issued a pre-trial order incorporating the bellwether practice of trying the claims of some plaintiffs to determine the likelihood of settlement or to avoid relitigating common issues in every case. Following limited discovery, the parties have each selected two bellwether cases from which one case to be tried will be selected. Further discovery is proceeding on each of the four bellwether cases. Trial of the first bellwether case is currently scheduled for January 2016. Although it is not possible to reliably predict the outcome of the litigation, we believe that our defenses to these claims are meritorious and we will defend against these suits vigorously. Based on our existing insurance coverage and our defenses to these cases, we do not expect them to have a material impact on our results of operations or our financial position. Because discovery of damages has been limited to the four bellwether cases, we do not know the damages allegedly suffered by the remaining plaintiffs. As such, it is impossible to predict or estimate potential losses if our defenses to these cases are unsuccessful.

LifeCell Corporation has been named as a defendant in approximately 178 lawsuits in state and federal courts alleging personal injury and seeking monetary damages for failed gynecological procedures using a human tissue product processed by LifeCell and sold by one of LifeCell’s distributors, Boston Scientific, under the name Repliform. There are approximately 173 LifeCell cases filed in a consolidated docket in Middlesex County, Massachusetts. The cases are in the initial phase and no discovery has occurred. Three cases are pending in a multi-district federal case in West Virginia that is proceeding very slowly. The remaining cases are in Delaware and Minnesota. None of these cases are proceeding at this time. We intend to defend these suits vigorously, and do not expect them to have a material impact on our results of operations or our financial position. As these cases are in their early stages it is not possible to predict or estimate potential losses if our defenses to these cases are unsuccessful.

15

Other Litigation

In 2009, KCI received a subpoena from the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) seeking records regarding our billing practices under the local coverage policies of the four regional Durable Medical Equipment Medicare Administrative Contractors (“DME MACs”). KCI cooperated with the OIG's inquiry and provided substantial documentation to the OIG and the U.S. Attorneys' office in response to its request. The government's inquiry stemmed from the filing under seal of two 2008 qui tam actions against KCI by two former employees in the U.S. District Court, Central District of California, Western Division. These cases are captioned United States of America, ex rel. Steven J. Hartpence v. Kinetic Concepts, Inc. et al, and United States of America, ex rel. Geraldine Godecke v. Kinetic Concepts, Inc., et al. The complaints contend that KCI violated the Federal False Claims Act by billing in a manner that was not consistent with the Local Coverage Determinations issued by the DME MACs and seek recovery of monetary damages. Following the completion of the government's review and its decision declining to intervene in such suits, the live pleadings were ordered unsealed in 2011. After reviewing the allegations, KCI filed motions seeking the dismissal of the suits on multiple grounds.  In 2012, the Court granted KCI's motions dismissing all of the claims under the False Claims Act. The cases are on appeal in the U.S. Court of Appeals for the Ninth Circuit and oral argument was in July 2014 before a 3 member panel. On January 16, 2015, the Ninth Circuit entered an order scheduling oral argument en banc before the U.S. Court of Appeals for the Ninth Circuit. Oral argument en banc proceeded before the Ninth Circuit in March 2015, and we are awaiting their opinion. We believe that our defenses to the claims in the Hartpence and Goedecke cases are meritorious and that we have no liability under the False Claims Act for their allegations. However, it is not possible to predict the outcome of this litigation nor is it possible to estimate any damages that may be awarded if we are unsuccessful in the litigation.

We are a party to several additional lawsuits arising in the ordinary course of our business. Additionally, the manufacturing and marketing of medical products necessarily entails an inherent risk of product liability claims. We maintain multiple layers of product liability insurance coverage and we believe these policies and the amounts of coverage are appropriate and adequate.

Other Commitments and Contingencies

As a healthcare supplier, we are subject to extensive government regulation, including laws and regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement under various government programs. The marketing, billing, documenting and other practices are all subject to government oversight and review. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by us for payment of services rendered to customers.

We also are subject to routine pre-payment and post-payment audits of durable medical equipment (“DME”) claims submitted to Medicare Part B. These audits typically involve a complex medical review, by Medicare or its designated contractors and representatives, of documentation supporting the therapy provided by us. While Medicare requires us to obtain a comprehensive physician order prior to providing products and services, we are not required to obtain the written medical record in advance of therapy as long as the underlying medical records reported to us support the coverage criteria and medical necessity information included in such claim. Following a Medicare request for supporting documentation, we are obligated to procure and submit the underlying medical records retained by various clinical providers, medical facilities and prescribers. Obtaining these medical records in connection with a claims audit may be challenging and, in any event, all of these records are subject to further examination, interpretation and dispute by an auditing authority. Under standard Medicare procedures, we are entitled to demonstrate the sufficiency of documentation and the establishment of medical necessity, and we have the right to appeal any adverse determinations. If a determination is made that our records or the patients’ medical records are insufficient to meet medical necessity or Medicare reimbursement requirements for the claims, we could be subject to denial or overpayment demands for claims submitted for Medicare reimbursement. In the rare event that an audit results in major discrepancies of claims records which lacked proof of medical necessity, Medicare may be entitled to take additional corrective measures, including: extrapolation of the results of the audit across a wider population of claims, submitting recoupment demands for claims other than those examined in the audit, or placing the organization on a full prepayment review. These audits have increased over the last two years from being negligible to approximately 10% of our claims.  While eventually receiving payment on a high percent of the claims subject to these audits, payment timeliness may range from a few months up to a year resulting in increasing Medicare accounts receivable balances.

On June 30, 2014, KCI entered into a settlement agreement with Wake Forest  University Health Sciences to fully and finally resolve the historical patent and royalty disputes between them relating to negative pressure wound therapy. As of March 31, 2015, the accompanying consolidated balance sheet included $83.8 million under the caption “accrued expenses and other” and $105.7 million under the caption “other non-current liabilities” representing the net present value of payments under the Settlement Agreement discounted using our incremental borrowing rate as the discount rate. 

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NOTE 8.Segment Information

The Company is engaged in the rental and sale of advanced wound therapeutics and regenerative medicine products in over 75 countries worldwide through direct sales and indirect operations. We have two reportable operating segments which correspond to our two businesses: Advanced Wound Therapeutics and Regenerative Medicine. Our Advanced Wound Therapeutics business is conducted by KCI and its subsidiaries, including Systagenix, while our Regenerative Medicine business is conducted by LifeCell and its subsidiaries. In most countries where we operate, certain aspects of our two businesses are supported by the same administrative staff, systems and infrastructure and, as such, we have allocated these costs between the businesses based on allocation methods including headcount, revenue and other methods as deemed appropriate. We measure segment profit (loss) as operating earnings (loss), which is defined as income (loss) before interest and other income, interest expense, foreign currency gains and losses, derivative instruments gains and losses and income taxes. All intercompany transactions are eliminated in computing revenue and operating earnings (loss).

Information on segments and a reconciliation of consolidated totals are as follows (in thousands):

	Three months ended March 31,
	2015			2014
Revenue:
Advanced Wound Therapeutics	$	337,259		$	330,795
Regenerative Medicine	104,169			106,656
Other operations (1)	2,622			5,184
Total revenue	$	444,050		$	442,635
Operating earnings (loss):
Advanced Wound Therapeutics	$	112,885		$	85,669
Regenerative Medicine	34,019			29,908
Other operations (1)	447			671
Non-allocated costs:
General headquarter expense	(1,423		)	(1,590		)
Equity-based compensation	(535		)	(941		)
Business optimization and transaction-related expenses (2)	(15,376		)	(30,223		)
Acquired intangible asset amortization (3)	(45,877		)	(50,689		)
Total non-allocated costs	(63,211		)	(83,443		)
Total operating earnings	$	84,140		$	32,805

(1) Represents contract manufacturing operations conducted at our manufacturing facility in Gargrave, England.

(2) Represents restructuring-related expenses associated with our business optimization initiatives as well as management fees and costs associated with acquisition, disposition and financing activities.

(3) Represents amortization of acquired intangible assets related to our Merger in November 2011, our acquisition of Systagenix in October 2013 and other technology acquisitions.

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NOTE 9.Guarantor Condensed Consolidating Financial Statements

Our 10.5% Second Lien Notes and 12.5% Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, by us and each of our material 100% owned subsidiaries, other than the subsidiaries that are co-issuers of the notes, foreign subsidiaries and subsidiaries whose only assets are investments in foreign subsidiaries. The non-guarantor subsidiaries do not have any payment obligations under the 10.5% Second Lien Notes or 12.5% Unsecured Notes. Subject to the terms of the10.5% Second Lien Notes and 12.5% Unsecured Notes indentures, the guarantee of a subsidiary guarantor will terminate upon:

(1) a sale or other disposition (including by way of consolidation or merger) of the capital stock of such guarantor or the sale or disposition of all or substantially all the assets of such subsidiary guarantor (other than to the Company or a restricted subsidiary) otherwise permitted by the 10.5% Second Lien Notes or 12.5% Unsecured Notes indentures,

(2) the designation in accordance with the 10.5% Second Lien Notes or 12.5% Unsecured Notes indenture of the guarantor as an unrestricted subsidiary or the occurrence of any event after which the guarantor is no longer a restricted subsidiary,

(3) defeasance or discharge of the 10.5% Second Lien Notes or 12.5% Unsecured Notes, or

(4) upon the achievement of investment grade status by the 10.5% Second Lien Notes or 12.5% Unsecured Notes; provided that such guarantee shall be reinstated upon the reversion date.

In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the 10.5% Second Lien Notes and 12.5% Unsecured Notes indentures will not guarantee the 10.5% Second Lien Notes or 12.5% Unsecured Notes. As of March 31, 2015, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

As a result of the guarantee arrangements, we are presenting the following condensed consolidated balance sheets, statements of operations and comprehensive income (loss), and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.

18

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

March 31, 2015

(in thousands)

(unaudited)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	50,055		$	—	$	200,056	$	—		$	250,509
Accounts receivable, net	—		181,254			66,017		117,853		—			365,124
Inventories, net	—		106,137			116,069		93,585		(133,334		)	182,457
Deferred income taxes	—		58,059			10,594		1,862		—			70,515
Prepaid expenses and other	—		14,178			2,902		246,711		(235,454		)	28,337
Intercompany receivables	166		2,000,335			2,448,575		72,599		(4,521,675		)	—
Total current assets	564		2,410,018			2,644,157		732,666		(4,890,463		)	896,942
Net property, plant and equipment	—		301,139			68,201		142,645		(234,332		)	277,653
Debt issuance costs, net	—		72,094			—		—		—			72,094
Deferred income taxes	—		—			—		30,466		—			30,466
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		285,726			1,770,658		296,430		—			2,352,814
Other non-current assets	—		1,261			186		94,162		(90,900		)	4,709
Intercompany loan receivables	—		755,000			431,626		—		(1,186,626		)	—
Intercompany investments	656,463		409,245			319,910		—		(1,385,618		)	—
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976
Liabilities and Equity:
Current liabilities:
Accounts payable	$	—	$	17,307		$	12,703	$	25,936	$	—		$	55,946
Accrued expenses and other	—		286,332			233,481		67,683		(191,982		)	395,514
Intercompany payables	7,258		1,310,017			2,695,544		508,856		(4,521,675		)	—
Current installments of long-term debt	—		25,385			—		—		—			25,385
Income taxes payable	—		555			4,123		5,303		—			9,981
Deferred income taxes	—		—			103,135		—		—			103,135
Total current liabilities	7,258		1,639,596			3,048,986		607,778		(4,713,657		)	589,961
Long-term debt, net of current installments and discount	—		4,774,787			—		—		—			4,774,787
Non-current tax liabilities	—		9,852			6,276		17,717		—			33,845
Deferred income taxes	—		111,338			641,696		46,300		—			799,334
Other non-current liabilities	629		114,499			48,262		2,519		—			165,909
Intercompany loan payables	—		423,357			755,000		8,269		(1,186,626		)	—
Total liabilities	7,887		7,073,429			4,500,220		682,583		(5,900,283		)	6,363,836
Total equity	649,140		(355,706		)	1,466,656		776,706		(1,887,656		)	649,140
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976

19

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

December 31, 2014

(in thousands)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	41,027		$	1,499	$	140,617	$	—		$	183,541
Accounts receivable, net	—		179,872			67,355		123,256		—			370,483
Inventories, net	—		73,904			110,355		93,765		(99,802		)	178,222
Deferred income taxes	—		52,868			10,157		—		—			63,025
Prepaid expenses and other	—		11,106			6,851		247,606		(238,000		)	27,563
Intercompany receivables	166		1,854,033			2,432,299		48,267		(4,334,765		)	—
Total current assets	564		2,212,810			2,628,516		653,511		(4,672,567		)	822,834
Net property, plant and equipment	—		315,691			69,801		164,838		(262,282		)	288,048
Debt issuance costs, net	—		77,896			—		—		—			77,896
Deferred income taxes	—		—			—		31,692		—			31,692
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		299,575			1,788,661		309,015		—			2,397,251
Other non-current assets	—		1,161			186		94,247		(90,900		)	4,694
Intercompany loan receivables	—		760,000			429,856		—		(1,189,856		)	—
Intercompany investments	667,530		360,292			223,581		—		(1,251,403		)	—
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713
Liabilities and Equity:
Current liabilities:
Accounts payable	$	245	$	16,298		$	14,463	$	20,821	$	—		$	51,827
Accrued expenses and other	—		218,793			244,829		74,380		(194,518		)	343,484
Intercompany payables	6,441		1,181,383			2,634,149		512,792		(4,334,765		)	—
Current installments of long-term debt	—		25,721			—		—		—			25,721
Income taxes payable	—		—			—		1,305		—			1,305
Deferred income taxes	—		—			113,658		—		—			113,658
Total current liabilities	6,686		1,442,195			3,007,099		609,298		(4,529,283		)	535,995
Long-term debt, net of current installments and discount	—		4,815,290			—		—		—			4,815,290
Non-current tax liabilities	—		9,404			6,203		17,693		—			33,300
Deferred income taxes	—		106,440			637,777		47,940		—			792,157
Other non-current liabilities	695		113,368			48,172		1,023		—			163,258
Intercompany loan payables	—		420,294			760,000		9,562		(1,189,856		)	—
Total liabilities	7,381		6,906,991			4,459,251		685,516		(5,719,139		)	6,340,000
Total equity	660,713		(396,326		)	1,413,488		730,707		(1,747,869		)	660,713
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713

20

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	149,698		$	—		$	23,141		$	—		$	172,839
Sales	—			83,737			239,691			229,663			(281,880		)	271,211
Total revenue	—			233,435			239,691			252,804			(281,880		)	444,050
Rental expenses	21			75,873			3,467			41,365			(42,548		)	78,178
Cost of sales	43			89,496			159,253			87,974			(263,352		)	73,414
Gross profit (loss)	(64		)	68,066			76,971			123,465			24,020			292,458
Selling, general and administrative expenses	471			68,519			36,716			42,308			(251		)	147,763
Research and development expenses	—			5,617			4,896			4,165			—			14,678
Acquired intangible asset amortization	—			13,880			19,456			12,541			—			45,877
Operating earnings (loss)	(535		)	(19,950		)	15,903			64,451			24,271			84,140
Non-operating intercompany transactions	—			(1,682		)	30,849			(29,190		)	23			—
Interest income and other	—			16,762			3,063			103			(19,781		)	147
Interest expense	—			(107,782		)	(16,718		)	(7		)	19,781			(104,726		)
Foreign currency gain (loss)	—			35,006			(1,593		)	(14,013		)	—			19,400
Derivative instruments loss	—			(3,348		)	—			—			—			(3,348		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(535		)	(80,994		)	31,504			21,344			24,294			(4,387		)
Income tax expense (benefit)	—			415			141			(412		)	—			144
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(535		)	(81,409		)	31,363			21,756			24,294			(4,531		)
Equity in earnings (loss) of subsidiaries	(3,996		)	48,953			21,756			—			(66,713		)	—
Earnings (loss) from continuing operations	(4,531		)	(32,456		)	53,119			21,756			(42,419		)	(4,531		)
Earnings (loss) from discontinued operations, net of tax	—			—			—			—			—			—
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Total comprehensive income (loss)	$	(11,602	)	$	(39,527	)	$	46,048		$	14,685		$	(21,206	)	$	(11,602	)

21

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	135,764		$	—		$	29,213		$	—		$	164,977
Sales	—			65,869			202,032			208,466			(198,709		)	277,658
Total revenue	—			201,633			202,032			237,679			(198,709		)	442,635
Rental expenses	43			68,791			2,148			54,111			(40,444		)	84,649
Cost of sales	6			65,341			115,064			92,834			(191,855		)	81,390
Gross profit (loss)	(49		)	67,501			84,820			90,734			33,590			276,596
Selling, general and administrative expenses	893			79,282			46,653			48,887			(103		)	175,612
Research and development expenses	—			5,622			6,744			5,124			—			17,490
Acquired intangible asset amortization	—			16,425			20,172			14,092			—			50,689
Operating earnings (loss)	(942		)	(33,828		)	11,251			22,631			33,693			32,805
Non-operating intercompany transactions	—			(6,626		)	(8,282		)	(8,007		)	22,915			—
Interest income and other	—			17,200			9,828			30			(26,963		)	95
Interest expense	—			(112,016		)	(17,137		)	(5		)	26,963			(102,195		)
Foreign currency gain (loss)	—			(460		)	(46		)	742			—			236
Derivative instruments loss	—			(3		)	—			—			—			(3		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(942		)	(135,733		)	(4,386		)	15,391			56,608			(69,062		)
Income tax expense (benefit)	—			(79,988		)	31,834			26,152			—			(22,002		)
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(942		)	(55,745		)	(36,220		)	(10,761		)	56,608			(47,060		)
Equity in earnings (loss) of subsidiaries	(45,441		)	(50,750		)	(10,761		)	—			106,952			—
Earnings (loss) from continuing operations	(46,383		)	(106,495		)	(46,981		)	(10,761		)	163,560			(47,060		)
Earnings (loss) from discontinued operations, net of tax	—			—			677			—			—			677
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Total comprehensive income (loss)	$	(45,090	)	$	(105,202	)	$	(45,011	)	$	(9,468	)	$	159,681		$	(45,090	)

22

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	1,107			45,550			52,538			13,987			(6,378		)	106,804
Net cash provided (used) by operating activities	(3,424		)	13,094			105,657			35,743			(48,797		)	102,273
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(23,421		)	(2,285		)	588			11,949			(13,169		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(130		)	(1,820		)	129			—			(1,821		)
Net cash provided (used) by investing activities	—			(23,551		)	(4,105		)	717			11,949			(14,990		)
Cash flows from financing activities:
Distribution to limited partners	(55		)	—			—			—			—			(55		)
Settlement of profits interest units	(517		)	—			—			—			—			(517		)
Repayments of long-term debt and capital lease obligations	—			(6,446		)	—			31			—			(6,415		)
Debt issuance costs	—			(6,256		)	—			—			—			(6,256		)
Proceeds (payments) on intercompany loans	—			8,063			(6,770		)	(1,293		)	—			—
Proceeds (payments) on intercompany investments	3,996			24,124			(96,281		)	31,313			36,848			—
Net cash provided (used) by financing activities	3,424			19,485			(103,051		)	30,051			36,848			(13,243		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(7,072		)	—			(7,072		)
Net increase (decrease) in cash and cash equivalents	—			9,028			(1,499		)	59,439			—			66,968
Cash and cash equivalents, beginning of period	398			41,027			1,499			140,617			—			183,541
Cash and cash equivalents, end of period	$	398		$	50,055		$	—		$	200,056		$	—		$	250,509

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Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities	941			54,197			62,506			42,868			(31,283		)	129,229
Net cash provided (used) by operating activities	(45,442		)	(52,298		)	16,202			32,107			132,277			82,846
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(20,324		)	(2,031		)	(12,414		)	22,105			(12,664		)
Businesses acquired in purchase transactions, net of cash acquired	—			—			(4,500		)	(113		)	—			(4,613		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(29		)	(1,187		)	(65		)	—			(1,281		)
Net cash provided (used) by investing activities	—			(20,353		)	(7,718		)	(12,592		)	22,105			(18,558		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	—			(6,619		)	—			(16		)	—			(6,635		)
Proceeds (payments) on intercompany loans	—			36,602			(18,830		)	(17,772		)	—			—
Proceeds (payments) on intercompany investments	45,442			50,744			10,228			47,968			(154,382		)	—
Net cash provided (used) by financing activities	45,442			80,727			(8,602		)	30,180			(154,382		)	(6,635		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			38			—			38
Net increase (decrease) in cash and cash equivalents	—			8,076			(118		)	49,733			—			57,691
Cash and cash equivalents, beginning of period	398			87,771			118			118,662			—			206,949
Cash and cash equivalents, end of period	$	398		$	95,847		$	—		$	168,395		$	—		$	264,640

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the condensed consolidated financial statements and accompanying notes included in this report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in our “Risk Factors” (Part II, Item 1A.), including those previously disseminated in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

GENERAL

We are a leading global medical technology company devoted to the development and commercialization of innovative products and therapies designed to improve outcomes while helping to reduce the overall cost of patient care. Our primary businesses serve the advanced wound therapeutics and regenerative medicine markets and we are engaged in the rental and sale of our products throughout the United States and in over 75 countries worldwide through direct sales and indirect operations. We are owned by investment funds advised by Apax Partners and controlled affiliates of Canada Pension Plan Investment Board and the Public Sector Pension Investment Board and certain other co-investors.

Our Advanced Wound Therapeutics business is focused on the development and commercialization of advanced wound therapeutics devices and dressings and accounted for approximately $337.3 million or 76.0% of our global revenue in the first quarter of 2015. Our Advanced Wound Therapeutics business is primarily engaged in commercializing several technology platforms, including negative pressure wound therapy (“NPWT”), advanced dressings, negative pressure surgical management (“NPSM”) and epidermal harvesting. Our advanced wound therapeutics dressings are used for the management of chronic and acute wounds. Our Advanced Wound Therapeutics business is primarily conducted by KCI and its operating subsidiaries, including Systagenix. Key brands in our Advanced Wound Therapeutics business include the V.A.C. NPWT line of products, Prevena, ABThera, CelluTome, Promogran, Tielle, and Adaptic.

Our Regenerative Medicine business is primarily focused on the development and commercialization of regenerative and reconstructive acellular tissue matrices for use in general and reconstructive surgical procedures to repair soft tissue defects. Key brands within our product portfolio include our human tissue based AlloDerm and porcine tissue based Strattice in various configurations designed to meet the needs of patients and caregivers. In addition to our acellular tissue matrices, our Regenerative Medicine business markets autologous fat grafting solutions, such as Revolve, which complement our tissue matrix business. Regenerative medicine accounted for approximately $104.2 million or 23.5% of our global revenue in the first quarter of 2015.

Other revenue consists of contract manufacturing operations performed at our manufacturing facility in Gargrave, England and accounted for approximately $2.6 million or 0.5% of our global revenue in the first quarter of 2015.

Our customers include acute care hospitals, ambulatory surgical centers, and long-term care facilities, with whom we contract directly or through group purchasing organizations (“GPOs”). We bill these facilities directly for the rental and sale of our products. In the U.S. home care setting, we provide products and therapies to patients in the home and bill third-party payers, such as Medicare and private insurance, directly. Outside of the U.S., most of our revenue is generated in the acute care setting. Our sales and marketing organizations are focused on the training and education of care-givers on the proper application of our products and therapies, particularly with general, plastic and orthopedic surgeons, as well as wound ostomy care nurses. We also drive adoption of our products with the support of extensive clinical efficacy data, as well as the economic value proposition of our products to reduce the overall cost of care.

25

RESULTS OF OPERATIONS

We have two reportable operating segments which correspond to our two businesses: Advanced Wound Therapeutics and Regenerative Medicine. Our Advanced Wound Therapeutics business is conducted by KCI and its subsidiaries, including Systagenix, while our Regenerative Medicine business is conducted by LifeCell and its subsidiaries. Other revenue consists of contract manufacturing operations performed at our manufacturing facility in Gargrave, England. We have two primary geographic regions: the Americas, which is comprised principally of the United States and includes Canada, Puerto Rico and Latin America; and EMEA/APAC, which is comprised of Europe, the Middle East, Africa and the Asia Pacific region.

Historically, we have experienced a seasonal slowing of unit demand for our NPWT devices and related dressings beginning in the fourth quarter and continuing into the first quarter, which we believe has been caused by year-end clinical treatment patterns, such as the postponement of elective surgeries and increased discharges of individuals from the acute care setting around the winter holidays. We typically experience a slowing of demand for our advanced wound therapeutics dressings in the fourth quarter. Although we do not know if our historical experience will prove to be indicative of future periods, similar slow-downs may occur in subsequent periods.

Revenue for each of our geographic regions in which we operate is disclosed for each of our businesses. Certain prior period amounts have been reclassified to conform to the 2015 presentation.

Revenue by Operating Segment

The following table sets forth, for the periods indicated, business unit revenue as well as the percentage change in each line item, comparing the first quarter of 2015 to the first quarter of 2014 (dollars in thousands):

	Three months ended March 31,
	2015		2014		% Change
Advanced Wound Therapeutics revenue:
Rental	$	172,839	$	164,977	4.8	%
Sales	164,420		165,818		(0.8	)
Total – Advanced Wound Therapeutics	337,259		330,795		2.0
Regenerative Medicine revenue:
Sales	104,169		106,656		(2.3	)
Other revenue:
Sales	2,622		5,184		(49.4	)
Total consolidated revenue:
Rental	172,839		164,977		4.8
Sales	271,211		277,658		(2.3	)
Total consolidated revenue	$	444,050	$	442,635	0.3	%

The increase in total revenue for the first quarter of 2015 as compared to the prior-year period was due to higher Advanced Wound Therapeutics rental revenue, partially offset by lower Regenerative Medicine revenue and Advanced Wound Therapeutics sales revenue. Foreign currency exchange rate movements negatively impacted worldwide revenue by 3.9% compared to the prior-year period.

The increase in worldwide Advanced Wound Therapeutics revenue from the prior-year period was attributable primarily to increased NPWT volumes, partially offset by lower average pricing due to increased competition, healthcare reform and declining reimbursement. Foreign currency exchange rate movements negatively impacted worldwide Advanced Wound Therapeutics revenue during the first quarter of 2015 by 4.7% compared to the prior-year period.

26

The decline in worldwide Regenerative Medicine revenue from the prior-year period was due primarily to decreased volumes of abdominal wall repair procedures using biologics as some customers are choosing lower cost alternatives. Foreign currency exchange rate movements negatively impacted worldwide Regenerative Medicine revenue by 1.3% compared to the prior-year period.

Revenue by Geography

The following table sets forth, for the periods indicated, rental and sales revenue by geography as well as the percentage change in each line item, comparing the first quarter of 2015 to the first quarter of 2014 (dollars in thousands):

	Three months ended March 31,
	2015		2014		% Change
Americas revenue:
Rental	$	153,308	$	140,023	9.5	%
Sales	192,762		190,080		1.4
Total – Americas	346,070		330,103		4.8
EMEA/APAC revenue:
Rental	19,531		24,954		(21.7	)
Sales	78,449		87,578		(10.4	)
Total – EMEA/APAC	97,980		112,532		(12.9	)
Total consolidated revenue:
Rental	172,839		164,977		4.8
Sales	271,211		277,658		(2.3	)
Total consolidated revenue	$	444,050	$	442,635	0.3	%

Revenue Relationship

The following table sets forth, for the periods indicated, the percentage relationship of each item to total revenue in the period, as well as the changes in each line item:

	Three months ended March 31,
	2015		2014		Change
Advanced Wound Therapeutics revenue	76.0	%	74.7	%	130		bps
Regenerative Medicine revenue	23.5	%	24.1	%	(60	)	bps
Other revenue	0.5		1.2		(70	)	bps
Total consolidated revenue	100.0	%	100.0	%
Americas revenue	77.9	%	74.6	%	330		bps
EMEA/APAC revenue	22.1		25.4		(330	)	bps
Total consolidated revenue	100.0	%	100.0	%
Rental revenue	38.9	%	37.3	%	160		bps
Sales revenue	61.1		62.7		(160	)	bps
Total consolidated revenue	100.0	%	100.0	%

27

Rental Expenses

The following table presents rental expenses for the periods indicated as well as the percentage change in each line item, comparing the first quarter of 2015 to the first quarter of 2014 (dollars in thousands):

	Three months ended March 31,
	2015		2014		% Change
Rental expenses	$	78,178	$	84,649	(7.6	)%

Rental, or field, expenses are comprised of both fixed and variable costs including facilities, field service, sales force compensation and royalties associated with our rental products. Rental expenses during the first quarter of 2015 decreased from the prior-year period due primarily to a decrease in depreciation related to the fixed asset step up associated with purchase accounting, partially offset by an increase in operational expenses related to the sales force.

Cost of Sales

The following table presents cost of sales as well as the percentage change in each line item, comparing the first quarter of 2015 to the first quarter of 2014 (dollars in thousands):

	Three months ended March 31,
	2015		2014		% Change
Cost of sales	$	73,414	$	81,390	(9.8	)%

Cost of sales includes manufacturing costs, product costs and royalties associated with our “for sale” products. The decrease in cost of sales in the first quarter of 2015 compared to the prior-year period was due primarily to $6.7 million of additional cost of sales recorded in the first quarter of 2014 associated with the Systagenix acquisition purchase accounting adjustments related to the step up in value of inventory.

Gross Profit Margin

The following table presents the gross profit margin (calculated as gross profit divided by total revenue for the periods indicated):

	Three months ended March 31,
	2015		2014		% Change
Gross profit margin	65.9	%	62.5	%	340	bps

The gross profit margin increase during the first quarter of 2015 compared to the prior-year period was due primarily to $6.7 million of additional cost of sales recorded in the first quarter of 2014 related to the inventory step up and a decrease in depreciation expense related to the fixed asset step up associated with purchase accounting.

28

Selling, General and Administrative Expenses

The following table presents selling, general and administrative expenses and the percentage relationship to total revenue (dollars in thousands):

	Three months ended March 31,
	2015		2014		% Change
Selling, general and administrative expenses	$	147,763	$	175,612	(15.9	)%

Selling, general and administrative (“SG&A”) expenses generally include administrative labor, incentive and sales compensation costs, insurance costs, professional fees, depreciation, bad debt expense and information systems costs, but exclude rental sales force compensation costs. The decrease in SG&A is due primarily to lower selling-related costs and savings associated with our integration efforts. Salary-related expenses decreased due to lower employee headcount. Expenses associated with business optimization and integration activities also declined compared to the prior year period.

Research and Development Expenses

The following table presents research and development expenses and the percentage relationship to total revenue (dollars in thousands):

	Three months ended March 31,
	2015			2014			% Change
Research and development expenses	$	14,678		$	17,490		(16.1)%
As a percent of total revenue	3.3		%	4.0		%	(70	)	bps

Research and development expenses relate to our investments in clinical studies and the development of new and enhanced products and therapies. Our research and development efforts include the development of new and synergistic technologies across the continuum of wound care, including tissue regeneration, preservation and repair, as well as new applications of negative pressure technology. Our research and development program is also leveraging our core understanding of biological tissues in order to develop biosurgery products in our Regenerative Medicine business.

Acquired Intangible Asset Amortization

We have recorded identifiable intangible assets in connection with the 2011 merger, the 2013 Systagenix acquisition and various technology acquisitions. During the first quarters of 2015 and 2014, we recorded $45.9 million and $50.7 million, respectively, of amortization expense associated with these identifiable intangible assets.

Interest Expense

Interest expense increased to $104.7 million in the first quarter of 2015 compared to $102.2 million in the prior-year period due to accretion of the Wake Forest settlement liability related to the settlement and release agreement with Wake Forest entered into during the second quarter of 2014.

Foreign Currency Gain (Loss)

Foreign currency transaction gains were $19.4 million and $0.2 million during the first quarter of 2015 and 2014, respectively. The revaluation of the Term E-1 EURO loan to U.S. dollars represented a foreign currency transaction gain of $32.4 million during the first quarter of 2015 compared to a loss of $0.2 million in the prior-year period. Excluding the revaluation of the Term E-1 EURO loan to U.S. dollars, we recognized foreign currency exchange losses of $13.0 million during the first quarter of 2015 compared to a gain of $0.5 million in the prior-year period due to significant fluctuations in the Euro exchange rate.

.

29

Derivative Instruments Gain (Loss)

During the first quarter of 2015, we recorded a derivative instruments loss of $3.3 million million due primarily to fluctuations in the value of our interest rate derivative instruments. During the first quarter of 2014, the derivative instruments loss was not material.

Earnings (Loss) from Discontinued Operations

No gains or losses from discontinued operations were recorded in the first quarter of 2015. During the first quarter of 2014, we recorded a gain from discontinued operations, net of tax, of $0.7 million related to the disposition of our SPY assets.

LIQUIDITY AND CAPITAL RESOURCES

General

We require capital principally for working capital requirements, capital expenditures and debt service requirements. Additionally, from time to time, we may use capital for acquisitions and other investing and financing activities. Working capital is required principally to finance accounts receivable and inventory. Our working capital requirements vary from period-to-period depending on manufacturing volumes, the timing of shipments and the payment cycles of our customers and payers.

We may from time to time seek to retire or purchase our outstanding debt through cash purchases, open market purchases, privately negotiated transactions or otherwise. Such repurchases or exchanges, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.

Sources of Capital

Based upon the current level of operations, we believe our existing capital resources, as well as cash flows from operating activities and availability under our Revolving Credit Facility will be adequate to meet our anticipated cash requirements for at least the next twelve months. Cash flows related to discontinued operations were not material for the first quarter of 2014 and therefore have not been separately disclosed in the condensed consolidated statements of cash flows. We do not anticipate the absence of cash flows from discontinued operations to significantly affect our liquidity and capital resources. During the first quarters of 2015 and 2014, our primary source of capital was cash from operations. The following table summarizes the net cash provided and used by operating activities, investing activities and financing activities (in thousands):

	Three months ended March 31,
	2015			2014
Net cash provided by operating activities	$	102,273		$	82,846
Net cash used by investing activities	(14,990		)	(18,558		)
Net cash used by financing activities	(13,243		)	(6,635		)
Effect of exchange rates changes on cash and cash equivalents	(7,072		)	38
Net increase in cash and cash equivalents	$	66,968		$	57,691

As of March 31, 2015 and December 31, 2014, our principal sources of liquidity consisted of $250.5 million and $183.5 million, respectively, of cash and cash equivalents. We also had availability of $159.4 million and $161.0 million under our Revolving Credit Facility as of March 31, 2015 and December 31, 2014, respectively.

Capital Expenditures

During the first quarters of 2015 and 2014, we made capital expenditures of $10.5 million and $10.8 million, respectively. Capital expenditures during the first quarters of 2015 and 2014 related primarily to expanding the rental fleet and information technology projects and purchases.

30

Senior Secured Credit Facility

The following table sets forth the amounts owed under the Senior Secured Credit Facility, the effective interest rates on such outstanding amounts, and the amount available for additional borrowing thereunder, as of March 31, 2015 (dollars in thousands):

Senior Secured Credit Facility	Maturity Date	Effective Interest Rate			Amount Outstanding (1)		Amount Available for Additional Borrowing
Senior Revolving Credit Facility	November 2016	—	%		$	—	$	159,424	(2)
Senior Dollar Term E-1 Credit Facility	May 2018	5.00	%	(3)	1,895,345		—
Senior Euro Term E-1 Credit Facility	May 2018	5.67	%	(3)	253,149		—
Senior Term E-2 Credit Facility	November 2016	4.69	%	(3)	311,258		—
Total					$	2,459,752	$	159,424

_____________________

(1) Amount outstanding includes the original issue discount.

(2) At March 31, 2015, the amount available under the Revolving Credit Facility reflected a reduction of $40.6 million of letters of credit issued by banks which are party to the Senior Secured Credit Facility. In addition, we have $9.7 million of letters of credit issued by a bank not party to the Senior Secured Credit Facility.

(3) The effective interest rate includes the effect of the original issue discount. Excluding the original issue discount, our nominal interest rate as of March 31, 2015 was 4.50% on the Senior Dollar Term E-1 Credit Facility, 4.75% on the Senior Euro Term E-1 Credit Facility and 4.00% on the Senior Term E-2 Credit Facility.

On March 10, 2015, we entered into Amendment No. 6 to our Senior Secured Credit Facility (“Amendment No. 6”). In connection with Amendment No. 6, certain applicable rates were modified such that (i) Dollar Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.50% or an adjusted base rate plus 2.50%, (ii) Euro Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.75% or an adjusted base rate plus 2.75%, and (iii) Term E-2 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.00% or an adjusted base rate plus 2.00%. The Eurocurrency rate shall be subject to a floor of 1.00%, and the adjusted base rate shall be subject to a floor of 2.00%. Repayments of Dollar Term E-1 Loans, Euro Term E-1 Loans or Term E-2 Loans within 12 months of the effective date of Amendment No. 6 in connection with a repricing transaction will be subject to a 1.0% prepayment premium. As a result of Amendment No. 6, the financial covenants were amended to remove the interest coverage ratio in its entirety and to set the total leverage ratio for any test period to be no greater than 8.25:1.00. In addition, certain other covenants were amended, including with respect to the incurrence of incremental facilities and asset sales.

10.5% Second Lien Senior Secured Notes

In November 2011, we issued $1.750 billion aggregate principal amount of second lien senior secured notes due 2018 (the “10.5% Second Lien Notes”). Interest on the 10.5% Second Lien Notes accrues at the rate of 10.5% per annum and is payable semi-annually in cash on each May 1 and November 1 through the maturity date. The 10.5% Second Lien Notes were issued at a discount resulting in an effective interest rate of 10.87%.

12.5% Senior Unsecured Notes

In November 2011, we issued $750.0 million aggregate principal amount of senior unsecured notes due 2019 (the “12.5% Unsecured Notes”); $612.0 million of which are still outstanding. Interest on the 12.5% Unsecured Notes accrues at the rate of 12.50% per annum and is payable semi-annually in cash on each May 1 and November 1through the maturity date. The 12.5% Unsecured Notes were issued at a discount resulting in an effective interest rate of 12.62%.

Covenants

As of March 31, 2015, we were in compliance with all covenants under our credit agreement and indentures.

For further information on our long-term debt, see Note 5 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Interest Rate Protection

At March 31, 2015 and December 31, 2014, we were party to three interest rate swap agreements to convert $1.454 billion and $1.463 billion, respectively, of our outstanding variable rate debt to a fixed rate basis. The aggregate notional amount of the interest rate swaps decreases quarterly by amounts ranging from $1.7 million to $56.4 million until maturity. Our interest rate protection agreements have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period.

For further information on our interest rate protection agreements, see Note 5 of the notes to the condensed consolidated financial statements.

Contractual Obligations

There have been no material changes, outside of the ordinary course of business, in our outstanding contractual obligations since December 31, 2014.

Critical Accounting Estimates

For a description of our critical accounting estimates, please see our Annual Report on Form 10-K for the fiscal year ended December 31, 2014 under the heading Part II, Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates."

Recently Issued Accounting Standards

See note 1(e) of the notes to condensed consolidated financial statements included in this report for a discussion of recently issued accounting standards.

32

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to various market risks, including fluctuations in interest rates and variability in currency exchange rates. There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014. For a description of our policies, procedures and internal processes governing our management of market risk and the use of financial instruments to manage our exposure to such risk, please see our Annual Report for the fiscal year ended December 31, 2014 under the heading “Quantitative and Qualitative Disclosures About Market Risk.”

ITEM 4.CONTROLS AND PROCEDURES

Disclosure Controls and Procedures. Our management, with the participation of the principal executive officer and our principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of such period, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act and are effective in ensuring that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting (as such term is defined by paragraph (d) of Rule 13a-15) under the Exchange Act, during the first fiscal quarter of 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Incorporated in this Item 1, by reference, are the legal proceedings described in Note 7 of the notes to condensed consolidated financial statements included in this report under the heading "Commitments and Contingencies: Legal Proceedings."

ITEM 1A.RISK FACTORS

There have been no material changes from the risk factors disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

33

ITEM 6.EXHIBITS

A list of all exhibits filed or included as part of this quarterly report on Form 10-Q is as follows:
Exhibit Number	Description
3.1	Declaration of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.3 to our Registration Statement on Form S-4 filed on October 1, 2012).
3.2	Certificate of Registration of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.4 to our Registration Statement on Form S-4 filed on October 1, 2012).
3.3	Amended and Restated Limited Partnership Agreement of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.3 to our Registration Statement on Form S-4 filed on October 1, 2012).
†31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
†31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
†32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
	†      Exhibit filed herewith.

34

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 May 1, 2015.

	ACELITY L.P. INC.
	(REGISTRANT)
Date: May 1, 2015	By:	/s/ Joseph F. Woody
		Joseph F. Woody
		Principal Executive Officer
		(Duly Authorized Officer)
Date: May 1, 2015	By:	/s/ Thomas W. Casey
		Thomas W. Casey
		Principal Financial Officer
		(Duly Authorized Officer)

35

EXHIBITS

Exhibit Number	Description
3.1	Declaration of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.3 to our Registration Statement on Form S-4 filed on October 1, 2012).
3.2	Certificate of Registration of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.4 to our Registration Statement on Form S-4 filed on October 1, 2012).
3.3	Amended and Restated Limited Partnership Agreement of Centaur Guernsey L.P. Inc. (filed as Exhibit 3.3 to our Registration Statement on Form S-4 filed on October 1, 2012).
†31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
†31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
†32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 dated May 1, 2015.
	†      Exhibit filed herewith.

36

EX-31.1

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

(PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Joseph F. Woody, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Acelity L.P. Inc.

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

   (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

   (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

   (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

   (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

   (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

   (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ JOSEPH F. WOODY

Joseph F. Woody

Chief Executive Officer

May 1, 2015

EX-31.2

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

(PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002)

I, Thomas W. Casey, certify that:

1.   I have reviewed this Quarterly Report on Form 10-Q of Acelity L.P. Inc.;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

   (a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

   (b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

   (c)   Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

   (d)   Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.   The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

   (a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

   (b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ THOMAS W. CASEY

Thomas W. Casey

Chief Financial Officer

May 1, 2015

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES‑OXLEY ACT OF 2002

     In connection with the Quarterly Report of Acelity L.P. Inc. (the "Company") on Form 10-Q for the quarter ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Joseph F. Woody, as Chief Executive Officer of the Company and Thomas W. Casey, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes‑Oxley Act of 2002, to the best of their knowledge, respectively, that (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JOSEPH F. WOODY

Joseph F. Woody

Chief Executive Officer

May 1, 2015

/s/ THOMAS W. CASEY

Thomas W. Casey

Chief Financial Officer

May 1, 2015

XML

Commitments and Contingencies (Details) (USD $)	12 Months Ended
	Dec. 31, 2014	Mar. 31, 2015	Aug. 01, 2013
Loss Contingencies [Line Items]
Demand for Arbitration, Requested Damages			$ 100,000,000
Other non-current liabilities	163,258,000	165,909,000
LifeNet [Member]
Loss Contingencies [Line Items]
Litigation Settlement, Expense	34,700,000
Other non-current liabilities	34,700,000
Wake Forest Settlement [Member]
Loss Contingencies [Line Items]
Other non-current liabilities		105,700,000
Accrued Liabilities and Other Liabilities		$ 83,800,000
Alloderm [Member] | LifeCell Corporation [Member] | Damages from Product Defects [Member]
Loss Contingencies [Line Items]
Number of pending lawsuits		346
Repliform [Member] | LifeCell Corporation [Member] | Damages from Product Defects [Member]
Loss Contingencies [Line Items]
Number of pending lawsuits		178
Cases Filed in Consolidated Docket [Member] | Repliform [Member] | LifeCell Corporation [Member] | Damages from Product Defects [Member]
Loss Contingencies [Line Items]
Number of pending lawsuits		173

XML

Acquisitions and Divestitures (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Divestitures [Line Items]
Earnings (loss) from discontinued operations, net of tax	$ 0	$ 677
SPY Elite System [Member]
Divestitures [Line Items]
Disposal Group, Including Discontinued Operation, Revenue		4,904
Disposal Group, Including Discontinued Operation, Operating Income (Loss)		1,100
Discontinued Operation, Tax Effect of Discontinued Operation		423
Earnings (loss) from discontinued operations, net of tax		$ 677

XML

Guarantor Condensed Consolidating Financial Statements - Condensed Consolidated Cash Flow (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities:
Net earnings (loss)	$ (4,531)	$ (46,383)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	106,804	129,229
Net cash provided (used) by operating activities	102,273	82,846
Cash flows from investing activities
Net additions to property, plant and equipment	(13,169)	(12,664)
Businesses acquired in purchase transaction, net of cash acquired	0	(4,613)
Decrease (increase) in identifiable intangible assets and other non-current assets	(1,821)	(1,281)
Net cash provided (used) by investing activities	(14,990)	(18,558)
Cash flows from financing activities:
Distribution to limited partners	(55)	0
Settlement of profits interest units	(517)	0
Repayments of long-term debt and capital lease obligations	(6,415)	(6,635)
Debt issuance costs	(6,256)	0
Proceeds (payments) on intercompany loans	0	0
Proceeds (payments) on intercompany investments	0	0
Net cash provided (used) by financing activities	(13,243)	(6,635)
Effect of exchange rate changes on cash and cash equivalents	(7,072)	38
Net increase (decrease) in cash and cash equivalents	66,968	57,691
Cash and cash equivalents, beginning of period	183,541	206,949
Cash and cash equivalents, end of period	250,509	264,640
Parent Company [Member]
Cash flows from operating activities:
Net earnings (loss)	(4,531)	(46,383)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	1,107	941
Net cash provided (used) by operating activities	(3,424)	(45,442)
Cash flows from investing activities
Net additions to property, plant and equipment	0	0
Businesses acquired in purchase transaction, net of cash acquired		0
Decrease (increase) in identifiable intangible assets and other non-current assets	0	0
Net cash provided (used) by investing activities	0	0
Cash flows from financing activities:
Distribution to limited partners	(55)
Settlement of profits interest units	(517)
Repayments of long-term debt and capital lease obligations	0	0
Debt issuance costs	0
Proceeds (payments) on intercompany loans	0	0
Proceeds (payments) on intercompany investments	3,996	45,442
Net cash provided (used) by financing activities	3,424	45,442
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase (decrease) in cash and cash equivalents	0	0
Cash and cash equivalents, beginning of period	398	398
Cash and cash equivalents, end of period	398	398
Kinetic Concepts, Inc. and KCI USA, Inc. Borrower [Member]
Cash flows from operating activities:
Net earnings (loss)	(32,456)	(106,495)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	45,550	54,197
Net cash provided (used) by operating activities	13,094	(52,298)
Cash flows from investing activities
Net additions to property, plant and equipment	(23,421)	(20,324)
Businesses acquired in purchase transaction, net of cash acquired		0
Decrease (increase) in identifiable intangible assets and other non-current assets	(130)	(29)
Net cash provided (used) by investing activities	(23,551)	(20,353)
Cash flows from financing activities:
Distribution to limited partners	0
Settlement of profits interest units	0
Repayments of long-term debt and capital lease obligations	(6,446)	(6,619)
Debt issuance costs	(6,256)
Proceeds (payments) on intercompany loans	8,063	36,602
Proceeds (payments) on intercompany investments	24,124	50,744
Net cash provided (used) by financing activities	19,485	80,727
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase (decrease) in cash and cash equivalents	9,028	8,076
Cash and cash equivalents, beginning of period	41,027	87,771
Cash and cash equivalents, end of period	50,055	95,847
Guarantor Subsidiaries [Member]
Cash flows from operating activities:
Net earnings (loss)	53,119	(46,304)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	52,538	62,506
Net cash provided (used) by operating activities	105,657	16,202
Cash flows from investing activities
Net additions to property, plant and equipment	(2,285)	(2,031)
Businesses acquired in purchase transaction, net of cash acquired		(4,500)
Decrease (increase) in identifiable intangible assets and other non-current assets	(1,820)	(1,187)
Net cash provided (used) by investing activities	(4,105)	(7,718)
Cash flows from financing activities:
Distribution to limited partners	0
Settlement of profits interest units	0
Repayments of long-term debt and capital lease obligations	0	0
Debt issuance costs	0
Proceeds (payments) on intercompany loans	(6,770)	(18,830)
Proceeds (payments) on intercompany investments	(96,281)	10,228
Net cash provided (used) by financing activities	(103,051)	(8,602)
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase (decrease) in cash and cash equivalents	(1,499)	(118)
Cash and cash equivalents, beginning of period	1,499	118
Cash and cash equivalents, end of period	0	0
Non-Guarantor Subsidiaries [Member]
Cash flows from operating activities:
Net earnings (loss)	21,756	(10,761)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	13,987	42,868
Net cash provided (used) by operating activities	35,743	32,107
Cash flows from investing activities
Net additions to property, plant and equipment	588	(12,414)
Businesses acquired in purchase transaction, net of cash acquired		(113)
Decrease (increase) in identifiable intangible assets and other non-current assets	129	(65)
Net cash provided (used) by investing activities	717	(12,592)
Cash flows from financing activities:
Distribution to limited partners	0
Settlement of profits interest units	0
Repayments of long-term debt and capital lease obligations	31	(16)
Debt issuance costs	0
Proceeds (payments) on intercompany loans	(1,293)	(17,772)
Proceeds (payments) on intercompany investments	31,313	47,968
Net cash provided (used) by financing activities	30,051	30,180
Effect of exchange rate changes on cash and cash equivalents	(7,072)	38
Net increase (decrease) in cash and cash equivalents	59,439	49,733
Cash and cash equivalents, beginning of period	140,617	118,662
Cash and cash equivalents, end of period	200,056	168,395
Eliminations [Member]
Cash flows from operating activities:
Net earnings (loss)	(42,419)	163,560
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	(6,378)	(31,283)
Net cash provided (used) by operating activities	(48,797)	132,277
Cash flows from investing activities
Net additions to property, plant and equipment	11,949	22,105
Businesses acquired in purchase transaction, net of cash acquired		0
Decrease (increase) in identifiable intangible assets and other non-current assets	0	0
Net cash provided (used) by investing activities	11,949	22,105
Cash flows from financing activities:
Distribution to limited partners	0
Settlement of profits interest units	0
Repayments of long-term debt and capital lease obligations	0	0
Debt issuance costs	0
Proceeds (payments) on intercompany loans	0	0
Proceeds (payments) on intercompany investments	36,848	(154,382)
Net cash provided (used) by financing activities	36,848	(154,382)
Effect of exchange rate changes on cash and cash equivalents	0	0
Net increase (decrease) in cash and cash equivalents	0	0
Cash and cash equivalents, beginning of period	0	0
Cash and cash equivalents, end of period	$ 0	$ 0

XML

Supplemental Balance Sheet Data

3 Months Ended

Mar. 31, 2015

Balance Sheet Related Disclosures [Abstract]

Supplemental Balance Sheet Data

Supplemental Balance Sheet Data

(a)Accounts Receivable, net

Accounts receivable consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Gross trade accounts receivable:
Billed trade accounts receivable	$	394,896		$	396,329
Unbilled receivables	32,408			39,293
Less:  Allowance for revenue adjustments	(62,117		)	(61,460		)
Gross trade accounts receivable	365,187			374,162
Less:  Allowance for bad debt	(11,668		)	(13,087		)
Net trade accounts receivable	353,519			361,075
Other receivables	11,605			9,408
	$	365,124		$	370,483

(b)       Inventories, net

Inventories consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Finished goods and tissue available for distribution	$	130,141		$	127,253
Goods and tissue in-process	5,877			6,887
Raw materials, supplies, parts and unprocessed tissue	72,855			67,567
	208,873			201,707
Less: Amounts expected to be converted into equipment for short-term rental	(10,871		)	(7,515		)
Reserve for excess and obsolete inventory	(15,545		)	(15,970		)
	$	182,457		$	178,222

XML

Derivative Financial Instruments and Fair Value Measurements - Derivative Financial Instruments (Details) (USD $)	Mar. 31, 2015	Dec. 31, 2014
Interest Rate Protection [Abstract]
Collateral posted	0
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member]
Interest Rate Protection [Abstract]
Number of interest rate agreements held	3	3
Derivative, quarterly interest payments, receive rates, maximum	1.25%
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Interest Rate Swap - 2.256%, effective December 31, 2013 [Member]
Derivative [Line Items]
Derivative, Notional Amount	484,667,000
Interest Rate Protection [Abstract]
Fixed Interest Rate	2.256%
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Interest Rate Swap - 2.249%, effective December 31, 2013 [Member]
Derivative [Line Items]
Derivative, Notional Amount	484,667,000
Interest Rate Protection [Abstract]
Fixed Interest Rate	2.249%
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Interest Rate Swap - 2.250%, effective December 31, 2013 [Member]
Derivative [Line Items]
Derivative, Notional Amount	484,667,000
Interest Rate Protection [Abstract]
Fixed Interest Rate	2.25%
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Minimum [Member]
Interest Rate Protection [Abstract]
Notional amount decreases by quarter	1,700,000
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Maximum [Member]
Interest Rate Protection [Abstract]
Notional amount decreases by quarter	56,400,000
Not Designated as Hedging Instrument [Member] | Foreign Currency Exchange Contracts [Member]
Foreign Currency Exchange Risk Mitigation [Abstract]
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Notional Amount	0	0
Senior Secured Credit Facility [Member]
Derivative [Line Items]
Long-term Debt, Fair Value	2,503,000,000	2,501,000,000
Fixed Rate Long-Term Debt [Member]
Derivative [Line Items]
Long-term Debt, Fair Value	2,559,000,000	2,584,000,000

XML

Long-Term Debt (Details) (USD $)	3 Months Ended	1 Months Ended
	Mar. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Long-term debt, gross	$ 4,858,877,000	4,858,877,000	$ 4,898,439,000
Less: Discount, net of accretion	(58,705,000)	(58,705,000)	(57,428,000)
Long-term Debt	4,800,172,000	4,800,172,000	4,841,011,000
Less: Current installments	(25,385,000)	(25,385,000)	(25,721,000)
Long-term debt, net of current installments and discount	4,774,787,000	4,774,787,000	4,815,290,000
Revolving Credit Facility [Member] | Senior Revolving Credit Facility - due 2016 [Member]
Senior Secured Credit Facilities [Abstract]
Credit facility, maximum borrowing capacity	200,000,000.000	200,000,000.000
Line of Credit Facility, Amount Outstanding	0	0	0
Letters of credit, amount outstanding	40,600,000	40,600,000	39,000,000
Credit facility, remaining borrowing capacity	159,400,000	159,400,000	161,000,000
Credit facility, unused capacity, commitment fee percentage	0.50%
Term Credit Facilities [Member] | Senior Dollar Term E-1 Credit Facility Due 2018 [Member]
Debt Instrument [Line Items]
Long-term debt, gross	1,922,374,000	1,922,374,000	1,927,241,000
Less: Discount, net of accretion	(27,029,000)	(27,029,000)	(24,241,000)
Term Credit Facilities [Member] | Senior Euro Term E-1 Credit Facility Due 2018 [Member]
Debt Instrument [Line Items]
Long-term debt, gross	259,847,000	259,847,000	293,746,000
Less: Discount, net of accretion	(6,698,000)	(6,698,000)	(7,376,000)
Term Credit Facilities [Member] | Senior Term E-2 Credit Facility Due 2016 [Member] [Member]
Debt Instrument [Line Items]
Long-term debt, gross	314,555,000	314,555,000	315,351,000
Less: Discount, net of accretion	(3,297,000)	(3,297,000)	(2,955,000)
Senior Secured Notes [Member] | 10.5% Second Lien Senior Secured Notes due 2018 [Member]
Debt Instrument [Line Items]
Long-term debt, gross	1,750,000,000	1,750,000,000	1,750,000,000
Less: Discount, net of accretion	(19,131,000)	(19,131,000)	(20,205,000)
Senior Unsecured Notes [Member] | 12.5% Senior Unsecured Notes due 2019 [Member]
Debt Instrument [Line Items]
Long-term debt, gross	612,000,000	612,000,000	612,000,000
Less: Discount, net of accretion	(2,550,000)	(2,550,000)	(2,651,000)
Convertible Senior Notes [Member] | 3.25% Convertible Senior Notes due 2015 [Member]
Debt Instrument [Line Items]
Long-term debt, gross	101,000	101,000	101,000
Banks Which Are Not Party To Senior Secured Credit Facility [Member] | Senior Revolving Credit Facility - due 2016 [Member]
Senior Secured Credit Facilities [Abstract]
Letters of credit, amount outstanding	$ 9,700,000	9,700,000	$ 11,400,000
Eurocurrency Rate [Member] | Dollar Term E-1 Facility, Euro Term E-1 Facility and Dollar Term E-2 Facility [Member] | Minimum [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		1.00%
Eurocurrency Rate [Member] | Dollar Term E-1 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		3.50%
Eurocurrency Rate [Member] | Euro Term E-1 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		3.75%
Eurocurrency Rate [Member] | Dollar Term E-2 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		3.00%
Base Rate [Member] | Dollar Term E-1 Facility, Euro Term E-1 Facility and Dollar Term E-2 Facility [Member] | Minimum [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		2.00%
Base Rate [Member] | Dollar Term E-1 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		2.50%
Base Rate [Member] | Euro Term E-1 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		2.75%
Base Rate [Member] | Dollar Term E-2 Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Basis Spread on Variable Rate		2.00%
First Effective Financial Statement Date [Member] | Senior Secured Credit Facility [Member]
Senior Secured Credit Facilities [Abstract]
Debt Instrument, Covenant Compliance, Debt to EBITDA Ratio, Maximum	8.25	8.25

XML

Derivative Financial Instruments and Fair Value Measurements - Fair Value and Balance Sheet Locations (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 0	$ 0
Derivative liability, fair value	21,688	22,003
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Prepaid expenses and other [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	0	0
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Other non-current assets [Member]
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	0	0
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Accrued expenses and other [Member]
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	13,799	13,936
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member] | Other non-current liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	$ 7,889	$ 8,067

XML

Derivative Financial Instruments and Fair Value Measurements - Gain (Loss) on Derivatives (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Derivative Instruments, Gain (Loss) [Line Items]
Derivative instruments gain (loss)	$ (3,348)	$ (3)
Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative instruments gain (loss)	(3,348)	(3)
Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative instruments gain (loss)	(3,348)	(75)
Not Designated as Hedging Instrument [Member] | Foreign Currency Exchange Contracts [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative instruments gain (loss)	$ 0	$ 72

XML

Acquisitions and Divestitures Acquisitions and Divestitures

3 Months Ended

Mar. 31, 2015

Business Combinations and Discontinued Operations [Abstract]

Acquisitions and Divestitures

Acquisitions and Divestitures

Acquisitions

There were no significant acquisitions during the three months ended March 31, 2015.

Divestitures

SPY® Elite System

On October 29, 2014, LifeCell Corporation entered into an agreement with Novadaq^® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY^® Elite System from LifeCell to Novadaq, effective November 30, 2014.

The operating results of the SPY^® Elite System product portfolio included in discontinued operations are as follows (in thousands):

	Three months ended March 31,
	2014
Revenue	$	4,904
Earnings before income taxes	$	1,100
Income tax expense	$	423
Earnings from discontinued operations, net of tax	$	677

XML

Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Other Comprehenisve Income Loss, Net of Tax [Line Items]
Other Comprehensive Income (Loss), Foreign Currency Translation Gain (Loss) Arising During Period, Tax	$ 635	$ 62
Accumulated other comprehensive income (loss), net	(17,145)		(10,074)
Foreign currency translation adjustment, net of taxes of $635	(7,071)	290
Accumulated Translation Adjustment [Member]
Other Comprehenisve Income Loss, Net of Tax [Line Items]
Other Comprehensive Income (Loss), Reclassification Adjustment on Derivatives Included in Net Income, before Tax	0
Accumulated other comprehensive income (loss), net	(17,145)		(10,074)
Foreign currency translation adjustment, net of taxes of $635	(7,071)
Accumulated Other Comprehensive Income (Loss) [Member]
Other Comprehenisve Income Loss, Net of Tax [Line Items]
Accumulated other comprehensive income (loss), net	(17,145)		(10,074)
Foreign currency translation adjustment, net of taxes of $635	$ (7,071)

XML

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Current assets:
Cash and cash equivalents	$ 250,509	$ 183,541
Accounts receivable, net	365,124	370,483
Inventories, net	182,457	178,222
Deferred income taxes	70,515	63,025
Prepaid expenses and other	28,337	27,563
Total current assets	896,942	822,834
Net property, plant and equipment	277,653	288,048
Debt issuance costs, net	72,094	77,896
Deferred income taxes	30,466	31,692
Goodwill	3,378,298	3,378,298
Identifiable intangible assets, net	2,352,814	2,397,251
Other non-current assets	4,709	4,694
Total assets	7,012,976	7,000,713
Current liabilities:
Accounts payable	55,946	51,827
Accrued expenses and other	395,514	343,484
Current installments of long-term debt	25,385	25,721
Income taxes payable	9,981	1,305
Deferred income taxes	103,135	113,658
Total current liabilities	589,961	535,995
Long-term debt, net of current installments and discount	4,774,787	4,815,290
Non-current tax liabilities	33,845	33,300
Deferred income taxes	799,334	792,157
Other non-current liabilities	165,909	163,258
Total liabilities	6,363,836	6,340,000
Equity:
General partner’s capital	0	0
Limited partners’ capital	666,285	670,787
Accumulated other comprehensive loss, net	(17,145)	(10,074)
Total equity	649,140	660,713
Total liabilities and shareholders' equity	$ 7,012,976	$ 7,000,713

XML

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities:
Net loss	$ (4,531)	$ (46,383)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of debt issuance costs and discount	9,968	9,668
Depreciation and other amortization	66,331	82,029
Amortization of fair value step-up in inventory	0	6,680
Provision for bad debt	1,827	4,101
Equity-based compensation expense	535	941
Deferred income tax benefit	(11,971)	(44,674)
Unrealized gain on derivative instruments	(315)	(4,076)
Unrealized loss (gain) on revaluation of cross currency debt	(32,429)	241
Change in assets and liabilities:
Decrease in accounts receivable, net	5,362	20,806
Increase in inventories, net	(3,666)	(7,302)
Decrease (increase) in prepaid expenses and other	(774)	17,546
Increase in accounts payable	4,363	6,473
Increase in accrued expenses and other	56,048	31,799
Increase in tax liabilities, net	11,525	4,997
Net cash provided (used) by operating activities	102,273	82,846
Cash flows from investing activities
Additions to property, plant and equipment	(10,491)	(10,801)
Increase in inventory to be converted into equipment for short-term rental	(3,356)	(2,240)
Dispositions of property, plant and equipment	678	377
Businesses acquired in purchase transactions, net of cash acquired	0	(4,613)
Increase in identifiable intangible assets and other non-current assets	(1,821)	(1,281)
Net cash provided (used) by investing activities	(14,990)	(18,558)
Cash flows from financing activities:
Distribution to limited partners	(55)	0
Settlement of profits interest units	(517)	0
Repayments of long-term debt and capital lease obligations	(6,415)	(6,635)
Debt issuance costs	(6,256)	0
Net cash provided (used) by financing activities	(13,243)	(6,635)
Effect of exchange rate changes on cash and cash equivalents	(7,072)	38
Net increase (decrease) in cash and cash equivalents	66,968	57,691
Cash and cash equivalents, beginning of period	183,541	206,949
Cash and cash equivalents, end of period	$ 250,509	$ 264,640

XML

Guarantor Condensed Consolidating Financial Statements - Condensed Consolidated Balance Sheet (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 250,509	$ 183,541	$ 264,640	$ 206,949
Accounts receivable, net	365,124	370,483
Inventories, net	182,457	178,222
Deferred income taxes	70,515	63,025
Prepaid expenses and other	28,337	27,563
Intercompany receivables	0	0
Total current assets	896,942	822,834
Net property, plant and equipment	277,653	288,048
Debt issuance costs, net	72,094	77,896
Deferred income taxes	30,466	31,692
Goodwill	3,378,298	3,378,298
Identifiable intangible assets, net	2,352,814	2,397,251
Other non-current assets	4,709	4,694
Intercompany loan receivables	0	0
Intercompany investments	0	0
Total assets	7,012,976	7,000,713
Current liabilities:
Accounts payable	55,946	51,827
Accrued expenses and other	395,514	343,484
Intercompany payables	0	0
Current installments of long-term debt	25,385	25,721
Income taxes payable	9,981	1,305
Deferred income taxes	103,135	113,658
Total current liabilities	589,961	535,995
Long-term debt, net of current installments and discount	4,774,787	4,815,290
Non-current tax liabilities	33,845	33,300
Deferred income taxes	799,334	792,157
Other non-current liabilities	165,909	163,258
Intercompany loan payables	0	0
Total liabilities	6,363,836	6,340,000
Equity:
Total equity	649,140	660,713
Total liabilities and shareholders' equity	7,012,976	7,000,713
Parent Company [Member]
Current assets:
Cash and cash equivalents	398	398	398	398
Accounts receivable, net	0	0
Inventories, net	0	0
Deferred income taxes	0	0
Prepaid expenses and other	0	0
Intercompany receivables	166	166
Total current assets	564	564
Net property, plant and equipment	0	0
Debt issuance costs, net	0	0
Deferred income taxes	0	0
Goodwill	0	0
Identifiable intangible assets, net	0	0
Other non-current assets	0	0
Intercompany loan receivables	0	0
Intercompany investments	656,463	667,530
Total assets	657,027	668,094
Current liabilities:
Accounts payable	0	245
Accrued expenses and other	0	0
Intercompany payables	7,258	6,441
Current installments of long-term debt	0	0
Income taxes payable	0	0
Deferred income taxes	0	0
Total current liabilities	7,258	6,686
Long-term debt, net of current installments and discount	0	0
Non-current tax liabilities	0	0
Deferred income taxes	0	0
Other non-current liabilities	629	695
Intercompany loan payables	0	0
Total liabilities	7,887	7,381
Equity:
Total equity	649,140	660,713
Total liabilities and shareholders' equity	657,027	668,094
Kinetic Concepts, Inc. and KCI USA, Inc. Borrower [Member]
Current assets:
Cash and cash equivalents	50,055	41,027	95,847	87,771
Accounts receivable, net	181,254	179,872
Inventories, net	106,137	73,904
Deferred income taxes	58,059	52,868
Prepaid expenses and other	14,178	11,106
Intercompany receivables	2,000,335	1,854,033
Total current assets	2,410,018	2,212,810
Net property, plant and equipment	301,139	315,691
Debt issuance costs, net	72,094	77,896
Deferred income taxes	0	0
Goodwill	2,483,240	2,483,240
Identifiable intangible assets, net	285,726	299,575
Other non-current assets	1,261	1,161
Intercompany loan receivables	755,000	760,000
Intercompany investments	409,245	360,292
Total assets	6,717,723	6,510,665
Current liabilities:
Accounts payable	17,307	16,298
Accrued expenses and other	286,332	218,793
Intercompany payables	1,310,017	1,181,383
Current installments of long-term debt	25,385	25,721
Income taxes payable	555	0
Deferred income taxes	0	0
Total current liabilities	1,639,596	1,442,195
Long-term debt, net of current installments and discount	4,774,787	4,815,290
Non-current tax liabilities	9,852	9,404
Deferred income taxes	111,338	106,440
Other non-current liabilities	114,499	113,368
Intercompany loan payables	423,357	420,294
Total liabilities	7,073,429	6,906,991
Equity:
Total equity	(355,706)	(396,326)
Total liabilities and shareholders' equity	6,717,723	6,510,665
Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	0	1,499	0	118
Accounts receivable, net	66,017	67,355
Inventories, net	116,069	110,355
Deferred income taxes	10,594	10,157
Prepaid expenses and other	2,902	6,851
Intercompany receivables	2,448,575	2,432,299
Total current assets	2,644,157	2,628,516
Net property, plant and equipment	68,201	69,801
Debt issuance costs, net	0	0
Deferred income taxes	0	0
Goodwill	732,138	732,138
Identifiable intangible assets, net	1,770,658	1,788,661
Other non-current assets	186	186
Intercompany loan receivables	431,626	429,856
Intercompany investments	319,910	223,581
Total assets	5,966,876	5,872,739
Current liabilities:
Accounts payable	12,703	14,463
Accrued expenses and other	233,481	244,829
Intercompany payables	2,695,544	2,634,149
Current installments of long-term debt	0	0
Income taxes payable	4,123	0
Deferred income taxes	103,135	113,658
Total current liabilities	3,048,986	3,007,099
Long-term debt, net of current installments and discount	0	0
Non-current tax liabilities	6,276	6,203
Deferred income taxes	641,696	637,777
Other non-current liabilities	48,262	48,172
Intercompany loan payables	755,000	760,000
Total liabilities	4,500,220	4,459,251
Equity:
Total equity	1,466,656	1,413,488
Total liabilities and shareholders' equity	5,966,876	5,872,739
Non-Guarantor Subsidiaries [Member]
Current assets:
Cash and cash equivalents	200,056	140,617	168,395	118,662
Accounts receivable, net	117,853	123,256
Inventories, net	93,585	93,765
Deferred income taxes	1,862	0
Prepaid expenses and other	246,711	247,606
Intercompany receivables	72,599	48,267
Total current assets	732,666	653,511
Net property, plant and equipment	142,645	164,838
Debt issuance costs, net	0	0
Deferred income taxes	30,466	31,692
Goodwill	162,920	162,920
Identifiable intangible assets, net	296,430	309,015
Other non-current assets	94,162	94,247
Intercompany loan receivables	0	0
Intercompany investments	0	0
Total assets	1,459,289	1,416,223
Current liabilities:
Accounts payable	25,936	20,821
Accrued expenses and other	67,683	74,380
Intercompany payables	508,856	512,792
Current installments of long-term debt	0	0
Income taxes payable	5,303	1,305
Deferred income taxes	0	0
Total current liabilities	607,778	609,298
Long-term debt, net of current installments and discount	0	0
Non-current tax liabilities	17,717	17,693
Deferred income taxes	46,300	47,940
Other non-current liabilities	2,519	1,023
Intercompany loan payables	8,269	9,562
Total liabilities	682,583	685,516
Equity:
Total equity	776,706	730,707
Total liabilities and shareholders' equity	1,459,289	1,416,223
Eliminations [Member]
Current assets:
Cash and cash equivalents	0	0	0	0
Accounts receivable, net	0	0
Inventories, net	(133,334)	(99,802)
Deferred income taxes	0	0
Prepaid expenses and other	(235,454)	(238,000)
Intercompany receivables	(4,521,675)	(4,334,765)
Total current assets	(4,890,463)	(4,672,567)
Net property, plant and equipment	(234,332)	(262,282)
Debt issuance costs, net	0	0
Deferred income taxes	0	0
Goodwill	0	0
Identifiable intangible assets, net	0	0
Other non-current assets	(90,900)	(90,900)
Intercompany loan receivables	(1,186,626)	(1,189,856)
Intercompany investments	(1,385,618)	(1,251,403)
Total assets	(7,787,939)	(7,467,008)
Current liabilities:
Accounts payable	0	0
Accrued expenses and other	(191,982)	(194,518)
Intercompany payables	(4,521,675)	(4,334,765)
Current installments of long-term debt	0	0
Income taxes payable	0	0
Deferred income taxes	0	0
Total current liabilities	(4,713,657)	(4,529,283)
Long-term debt, net of current installments and discount	0	0
Non-current tax liabilities	0	0
Deferred income taxes	0	0
Other non-current liabilities	0	0
Intercompany loan payables	(1,186,626)	(1,189,856)
Total liabilities	(5,900,283)	(5,719,139)
Equity:
Total equity	(1,887,656)	(1,747,869)
Total liabilities and shareholders' equity	$ (7,787,939)	$ (7,467,008)

XML

Segment Information (Tables)

3 Months Ended

Mar. 31, 2015

Segment Reporting [Abstract]

Reconciliation of Revenue and Operating Earnings (Loss) from Segments to Consolidated

Information on segments and a reconciliation of consolidated totals are as follows (in thousands):

	Three months ended March 31,
	2015			2014
Revenue:
Advanced Wound Therapeutics	$	337,259		$	330,795
Regenerative Medicine	104,169			106,656
Other operations (1)	2,622			5,184
Total revenue	$	444,050		$	442,635
Operating earnings (loss):
Advanced Wound Therapeutics	$	112,885		$	85,669
Regenerative Medicine	34,019			29,908
Other operations (1)	447			671
Non-allocated costs:
General headquarter expense	(1,423		)	(1,590		)
Equity-based compensation	(535		)	(941		)
Business optimization and transaction-related expenses (2)	(15,376		)	(30,223		)
Acquired intangible asset amortization (3)	(45,877		)	(50,689		)
Total non-allocated costs	(63,211		)	(83,443		)
Total operating earnings	$	84,140		$	32,805

(1) Represents contract manufacturing operations conducted at our manufacturing facility in Gargrave, England.

(2) Represents restructuring-related expenses associated with our business optimization initiatives as well as management fees and costs associated with acquisition, disposition and financing activities.

(3) Represents amortization of acquired intangible assets related to our Merger in November 2011, our acquisition of Systagenix in October 2013 and other technology acquisitions.

XML

Guarantor Condensed Consolidating Financial Statements - Condensed Consolidated Statement of Operations and Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Condensed Income Statements, Captions [Line Items]
Rental	$ 172,839	$ 164,977
Sales	271,211	277,658
Total revenue	444,050	442,635
Rental expenses	78,178	84,649
Cost of sales	73,414	81,390
Gross profit (loss)	292,458	276,596
Selling, general and administrative expenses	147,763	175,612
Research and development expenses	14,678	17,490
Acquired intangible asset amortization	45,877	50,689
Operating earnings (loss)	84,140	32,805
Non-operating intercompany transactions	0	0
Interest income and other	147	95
Interest expense	(104,726)	(102,195)
Foreign currency gain (loss)	19,400	236
Derivative instruments loss	(3,348)	(3)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(4,387)	(69,062)
Income tax expense (benefit)	144	(22,002)
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(4,531)	(47,060)
Equity in earnings (loss) of subsidiaries	0	0
Earnings (loss) from continuing operations	(4,531)	(47,060)
Earnings (loss) from discontinued operations, net of tax	0	677
Net earnings (loss)	(4,531)	(46,383)
Total comprehensive income (loss)	(11,602)	(45,090)
Parent Company [Member]
Condensed Income Statements, Captions [Line Items]
Rental	0	0
Sales	0	0
Total revenue	0	0
Rental expenses	21	43
Cost of sales	43	6
Gross profit (loss)	(64)	(49)
Selling, general and administrative expenses	471	893
Research and development expenses	0	0
Acquired intangible asset amortization	0	0
Operating earnings (loss)	(535)	(942)
Non-operating intercompany transactions	0	0
Interest income and other	0	0
Interest expense	0	0
Foreign currency gain (loss)	0	0
Derivative instruments loss	0	0
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(535)	(942)
Income tax expense (benefit)	0	0
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(535)	(942)
Equity in earnings (loss) of subsidiaries	(3,996)	(45,441)
Earnings (loss) from continuing operations	(4,531)	(46,383)
Earnings (loss) from discontinued operations, net of tax	0	0
Net earnings (loss)	(4,531)	(46,383)
Total comprehensive income (loss)	(11,602)	(45,090)
Kinetic Concepts, Inc. and KCI USA, Inc. Borrower [Member]
Condensed Income Statements, Captions [Line Items]
Rental	149,698	135,764
Sales	83,737	65,869
Total revenue	233,435	201,633
Rental expenses	75,873	68,791
Cost of sales	89,496	65,341
Gross profit (loss)	68,066	67,501
Selling, general and administrative expenses	68,519	79,282
Research and development expenses	5,617	5,622
Acquired intangible asset amortization	13,880	16,425
Operating earnings (loss)	(19,950)	(33,828)
Non-operating intercompany transactions	(1,682)	(6,626)
Interest income and other	16,762	17,200
Interest expense	(107,782)	(112,016)
Foreign currency gain (loss)	35,006	(460)
Derivative instruments loss	(3,348)	(3)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(80,994)	(135,733)
Income tax expense (benefit)	415	(79,988)
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(81,409)	(55,745)
Equity in earnings (loss) of subsidiaries	48,953	(50,750)
Earnings (loss) from continuing operations	(32,456)	(106,495)
Earnings (loss) from discontinued operations, net of tax	0	0
Net earnings (loss)	(32,456)	(106,495)
Total comprehensive income (loss)	(39,527)	(105,202)
Guarantor Subsidiaries [Member]
Condensed Income Statements, Captions [Line Items]
Rental	0	0
Sales	239,691	202,032
Total revenue	239,691	202,032
Rental expenses	3,467	2,148
Cost of sales	159,253	115,064
Gross profit (loss)	76,971	84,820
Selling, general and administrative expenses	36,716	46,653
Research and development expenses	4,896	6,744
Acquired intangible asset amortization	19,456	20,172
Operating earnings (loss)	15,903	11,251
Non-operating intercompany transactions	30,849	(8,282)
Interest income and other	3,063	9,828
Interest expense	(16,718)	(17,137)
Foreign currency gain (loss)	(1,593)	(46)
Derivative instruments loss	0	0
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	31,504	(4,386)
Income tax expense (benefit)	141	31,834
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	31,363	(36,220)
Equity in earnings (loss) of subsidiaries	21,756	(10,761)
Earnings (loss) from continuing operations	53,119	(46,981)
Earnings (loss) from discontinued operations, net of tax	0	677
Net earnings (loss)	53,119	(46,304)
Total comprehensive income (loss)	46,048	(45,011)
Non-Guarantor Subsidiaries [Member]
Condensed Income Statements, Captions [Line Items]
Rental	23,141	29,213
Sales	229,663	208,466
Total revenue	252,804	237,679
Rental expenses	41,365	54,111
Cost of sales	87,974	92,834
Gross profit (loss)	123,465	90,734
Selling, general and administrative expenses	42,308	48,887
Research and development expenses	4,165	5,124
Acquired intangible asset amortization	12,541	14,092
Operating earnings (loss)	64,451	22,631
Non-operating intercompany transactions	(29,190)	(8,007)
Interest income and other	103	30
Interest expense	(7)	(5)
Foreign currency gain (loss)	(14,013)	742
Derivative instruments loss	0	0
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	21,344	15,391
Income tax expense (benefit)	(412)	26,152
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	21,756	(10,761)
Equity in earnings (loss) of subsidiaries	0	0
Earnings (loss) from continuing operations	21,756	(10,761)
Earnings (loss) from discontinued operations, net of tax	0	0
Net earnings (loss)	21,756	(10,761)
Total comprehensive income (loss)	14,685	(9,468)
Eliminations [Member]
Condensed Income Statements, Captions [Line Items]
Rental	0	0
Sales	(281,880)	(198,709)
Total revenue	(281,880)	(198,709)
Rental expenses	(42,548)	(40,444)
Cost of sales	(263,352)	(191,855)
Gross profit (loss)	24,020	33,590
Selling, general and administrative expenses	(251)	(103)
Research and development expenses	0	0
Acquired intangible asset amortization	0	0
Operating earnings (loss)	24,271	33,693
Non-operating intercompany transactions	23	22,915
Interest income and other	(19,781)	(26,963)
Interest expense	19,781	26,963
Foreign currency gain (loss)	0	0
Derivative instruments loss	0	0
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	24,294	56,608
Income tax expense (benefit)	0	0
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	24,294	56,608
Equity in earnings (loss) of subsidiaries	(66,713)	106,952
Earnings (loss) from continuing operations	(42,419)	163,560
Earnings (loss) from discontinued operations, net of tax	0	0
Net earnings (loss)	(42,419)	163,560
Total comprehensive income (loss)	$ (21,206)	$ 159,681

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Summary of Significant Accounting Policies (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015 segment	Dec. 31, 2014
Accounting Policies [Line Items]
Debt issuance costs, net	$ 72,094	$ 77,896
Basis of Presentation and Principles of Consolidation [Abstract]
Number of reportable operating segments	2
Number of primary geographic regions	2
Credit Concentration Risk [Member] | Interest Rate Swap [Member]
Accounting Policies [Line Items]
Derivative, Notional Amount	$ 484,700

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(a)Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP” or “the Codification”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, financial position and cash flows in conformity with GAAP. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our results for the interim periods presented. Certain prior period amounts have been reclassified to conform to the 2015 presentation.

On October 29, 2014, LifeCell entered into an agreement with Novadaq^® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY^® Elite System from LifeCell to Novadaq, effective November 30, 2014. In connection with the transfer, the parties agreed to terminate various distribution agreements entered into between 2010 and 2011. The results of the operations subject to the agreement, excluding the allocation of general corporate overhead, are presented as discontinued operations in the condensed consolidated statements of operations for all periods presented.

The Company has two reportable operating segments: Advanced Wound Therapeutics and Regenerative Medicine. We have two primary geographic regions: the Americas, which is comprised principally of the United States and includes Canada, Puerto Rico and Latin America; and EMEA/APAC, which is comprised of Europe, the Middle East, Africa and the Asia Pacific region.

The condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

(b)Derivative Financial Instruments and Fair Value Measurements

We use derivative financial instruments to manage the economic impact of fluctuations in interest rates. We do not use financial instruments for speculative or trading purposes. Periodically, we enter into interest rate protection agreements to modify the interest characteristics of our outstanding debt. Our interest rate derivatives have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period.

We also periodically use derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on our intercompany balances and corresponding cash flows and to manage our transactional currency exposures when our foreign subsidiaries enter into transactions denominated in currencies other than their local currency. We enter into foreign currency exchange contracts to manage these economic risks. These contracts are not designated as hedges; and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period. Although we use master netting agreements with our derivative counterparties, we do not offset derivative asset and liability positions in the condensed consolidated balance sheets.

All derivative instruments are recorded on the balance sheets at fair value. The fair values of our interest rate derivatives and foreign currency exchange contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly-quoted markets, which represent level 2 inputs as defined by the Codification.

(c)Concentration of Credit Risk

We have a concentration of credit risk with financial institutions related to our derivative instruments. As of March 31, 2015, Morgan Stanley, UBS and HSBC were the counterparties on our interest rate protection agreements consisting of interest rate swap agreements in notional amounts totaling $484.7 million each. We use master netting agreements with our derivative counterparties to reduce our risk and use multiple counterparties to reduce our concentration of credit risk.

We maintain cash and cash equivalents with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits bear minimal credit risk as they are maintained at financial institutions of reputable credit and generally may be redeemed upon demand.

(d)   Recently Adopted Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. ASU No. 2014-08 changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company adopted this update effective January 1, 2015. We do not anticipate that it will have a material effect on our results of operations, financial position or disclosures.

(e)   Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts”. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, “Property, Plant, and Equipment”, and intangible assets within the scope of Topic 350, “Intangibles-Goodwill and Other”) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In April 2015, the FASB voted to propose to defer the effective date of this ASU by one year. The Company is evaluating ASU No. 2014-09 to determine if it will have a material effect on our results of operations, financial position or disclosures.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In January 2015, the FASB issued ASU No. 2015-01, "Income Statement -Extraordinary and Unusual Items (Subtopic 225-20)." The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

On February 18, 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." This update provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)" The objective of this ASU is to simplify the presentation of debt issuance costs in the balance sheet by requiring the presentation of debt issuance costs as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The standard will be effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. As of March 31, 2015, the Company had $72.1 million of unamortized debt issuance costs recorded as a deferred charge.

(f)   Other Significant Accounting Policies

For further information on our significant accounting policies, see Note 1 of the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Condensed Consolidated Statements of Operations (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Revenue:
Rental	$ 172,839	$ 164,977
Sales	271,211	277,658
Total revenue	444,050	442,635
Rental expenses	78,178	84,649
Cost of sales	73,414	81,390
Gross profit (loss)	292,458	276,596
Selling, general and administrative expenses	147,763	175,612
Research and development expenses	14,678	17,490
Acquired intangible asset amortization	45,877	50,689
Operating earnings (loss)	84,140	32,805
Interest income and other	147	95
Interest expense	(104,726)	(102,195)
Foreign currency gain	19,400	236
Derivative instruments loss	(3,348)	(3)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(4,387)	(69,062)
Income tax expense (benefit)	144	(22,002)
Earnings (loss) from continuing operations	(4,531)	(47,060)
Earnings from discontinued operations, net of tax	0	677
Net earnings (loss)	$ (4,531)	$ (46,383)

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Acquisitions and Divestitures (Tables)

3 Months Ended

Mar. 31, 2015

Business Combinations and Discontinued Operations [Abstract]

Schedule of Disposal Groups, Including Discontinued Operations, Income Statement, Balance Sheet and Additional Disclosures [Table Text Block]

The operating results of the SPY^® Elite System product portfolio included in discontinued operations are as follows (in thousands):

	Three months ended March 31,
	2014
Revenue	$	4,904
Earnings before income taxes	$	1,100
Income tax expense	$	423
Earnings from discontinued operations, net of tax	$	677

XML

Document And Entity Information	3 Months Ended
	Mar. 31, 2015	Apr. 30, 2015
Document Information [Line Items]
Entity Registrant Name	ACELITY L.P. INC.
Entity Central Index Key	0001557939
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q1
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2015
Class A-1 Partnership Units [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		341,410,891.610
Class A-2 Partnership Units [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		717,038.800

XML

Supplemental Balance Sheet Data (Tables)

3 Months Ended

Mar. 31, 2015

Balance Sheet Related Disclosures [Abstract]

Schedule of Accounts Receivable, Net

Accounts receivable consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Gross trade accounts receivable:
Billed trade accounts receivable	$	394,896		$	396,329
Unbilled receivables	32,408			39,293
Less:  Allowance for revenue adjustments	(62,117		)	(61,460		)
Gross trade accounts receivable	365,187			374,162
Less:  Allowance for bad debt	(11,668		)	(13,087		)
Net trade accounts receivable	353,519			361,075
Other receivables	11,605			9,408
	$	365,124		$	370,483

Schedule of Inventories, Net

Inventories consist of the following (in thousands):

	March 31, 2015			December 31, 2014
Finished goods and tissue available for distribution	$	130,141		$	127,253
Goods and tissue in-process	5,877			6,887
Raw materials, supplies, parts and unprocessed tissue	72,855			67,567
	208,873			201,707
Less: Amounts expected to be converted into equipment for short-term rental	(10,871		)	(7,515		)
Reserve for excess and obsolete inventory	(15,545		)	(15,970		)
	$	182,457		$	178,222

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Condensed Consolidated Statements of Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Net loss	$ (4,531)	$ (46,383)
Unrealized investment gain, net of tax expense of $628 in 2014	0	1,003
Foreign currency translation adjustment, net of tax expense of $635 in 2015 and $62 in 2014	(7,071)	290
Total comprehensive income (loss)	$ (11,602)	$ (45,090)

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Accumulated Other Comprehensive Income (Loss)

3 Months Ended

Mar. 31, 2015

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Comprehensive Income (Loss) Note

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

	Accumulated Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balances at December 31, 2014	$	(10,074	)	$	(10,074	)
Foreign currency translation adjustment, net of taxes of $635	(7,071		)	(7,071		)
Balances at March 31, 2015	$	(17,145	)	$	(17,145	)

During the three months ended March 31, 2015, there were no reclassification adjustments out of accumulated other comprehensive loss to net loss.

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Derivative Financial Instruments and Fair Value Measurements

3 Months Ended

Mar. 31, 2015

Derivative Financial Instruments and Fair Value Measurements Disclosure [Abstract]

Derivative Financial Instruments and Fair Value Measurements

 Derivative Financial Instruments and Fair Value Measurements

We are exposed to credit loss in the event of nonperformance by counterparties to the extent of the fair values of the outstanding interest rate swap agreements, interest rate cap agreements and foreign currency exchange contracts, but we do not anticipate nonperformance by any of the counterparties. All derivative instruments are recorded on the balance sheets at fair value. We do not use financial instruments for speculative or trading purposes.

Interest Rate Protection

At March 31, 2015 and December 31, 2014, we were party to three interest rate swap agreements which are used to convert a portion of our outstanding variable rate debt to a fixed rate basis. These agreements have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period. The interest rate swap agreements have receive rates based on the higher of three-month USD LIBOR or 1.25% and pay rates based on fixed rates. Quarterly payments under the interest rate swap agreements are due on the last day of March, June, September and December. The aggregate notional amount decreases quarterly by amounts ranging from $1.7 million to $56.4 million until maturity.

The following table summarizes our interest rate swap agreements (dollars in thousands):

Effective Dates	Outstanding Notional Amount	Fixed Interest Rate
12/31/13-12/31/16	$484,667	2.256%
12/31/13-12/31/16	$484,667	2.249%
12/31/13-12/31/16	$484,667	2.250%

Foreign Currency Exchange Rate Mitigation

At March 31, 2015 and December 31, 2014, we had no outstanding foreign currency exchange contracts.

Fair Value Measurements

The Codification definesfair value as the exit price that would be received to sell an asset or paid to transfer a liability. The Fair Value Measurements and Disclosure topic of the Codification establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and long-term obligations, excluding our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt, approximates fair value. The fair value of our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt was $2.503 billion and $2.559 billion, respectively, at March 31, 2015. The fair value of our borrowings under our Senior Secured Credit Facility and fixed rate long-term debt was $2.501 billion and $2.584 billion, respectively, at December 31, 2014. The fair value of our long-term debt was estimated based upon open-market trades at or near year end.

All of our derivatives, as of the reporting date, use inputs considered as Level 2. The interest rate swap agreements are valued using a discounted cash flow model that takes into account the present value of the expected future cash flows under the terms of the agreements by using market information available as of the reporting date, including prevailing interest rates and related forward interest rate curves.

The following table sets forth the location and aggregate fair value amounts of all derivative instruments with credit-related contingent features (in thousands):

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
		March 31, 2015		December 31, 2014			March 31, 2015		December 31, 2014
Derivatives not designated as hedging instruments
Interest rate swap agreements	Prepaid expenses and other	$	—	$	—	Accrued expenses and other	$	13,799	$	13,936
Interest rate swap agreements	Other non-current assets	—		—		Other non-current liabilities	7,889		8,067
Total derivatives		$	—	$	—		$	21,688	$	22,003

The following table summarizes the amount of gain (loss) on derivatives not designated as hedging instruments (dollars in thousands):

	Three months ended March 31,
	2015			2014
Interest rate swap agreements	$	(3,348	)	$	(75	)
Foreign currency exchange contracts	—			72
	$	(3,348	)	$	(3	)

Certain of our derivative instruments contain provisions that require compliance with the restrictive covenants of our Senior Secured Credit Facility. For further information regarding the restrictive covenants of credit facilities, see Note 5 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

If we default under our credit facilities, the lenders could require immediate repayment of the entire outstanding principal balance. If those lenders require immediate repayment, we may not be able to repay them which could result in the foreclosure of substantially all of our assets. In these circumstances, the counterparties to the derivative instruments could request immediate payment or full collateralization on derivative instruments in net liability positions. Certain of our derivative counterparties are also parties to our Senior Secured Credit Facility.

No collateral has been posted by us in the normal course of business. If the credit-related contingent features underlying these agreements were triggered on March 31, 2015, we could be required to settle or post the full amount as collateral to the respective agreement counterparties.

We did not have any measurements of financial assets or financial liabilities at fair value on a nonrecurring basis at March 31, 2015 or December 31, 2014.

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Guarantor Condensed Consolidating Financial Statements (Tables)

3 Months Ended

Mar. 31, 2015

Guarantor Condensed Consolidating Financial Statements [Abstract]

Guarantor and Non-Guarantor Balance Sheet

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

March 31, 2015

(in thousands)

(unaudited)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	50,055		$	—	$	200,056	$	—		$	250,509
Accounts receivable, net	—		181,254			66,017		117,853		—			365,124
Inventories, net	—		106,137			116,069		93,585		(133,334		)	182,457
Deferred income taxes	—		58,059			10,594		1,862		—			70,515
Prepaid expenses and other	—		14,178			2,902		246,711		(235,454		)	28,337
Intercompany receivables	166		2,000,335			2,448,575		72,599		(4,521,675		)	—
Total current assets	564		2,410,018			2,644,157		732,666		(4,890,463		)	896,942
Net property, plant and equipment	—		301,139			68,201		142,645		(234,332		)	277,653
Debt issuance costs, net	—		72,094			—		—		—			72,094
Deferred income taxes	—		—			—		30,466		—			30,466
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		285,726			1,770,658		296,430		—			2,352,814
Other non-current assets	—		1,261			186		94,162		(90,900		)	4,709
Intercompany loan receivables	—		755,000			431,626		—		(1,186,626		)	—
Intercompany investments	656,463		409,245			319,910		—		(1,385,618		)	—
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976
Liabilities and Equity:
Current liabilities:
Accounts payable	$	—	$	17,307		$	12,703	$	25,936	$	—		$	55,946
Accrued expenses and other	—		286,332			233,481		67,683		(191,982		)	395,514
Intercompany payables	7,258		1,310,017			2,695,544		508,856		(4,521,675		)	—
Current installments of long-term debt	—		25,385			—		—		—			25,385
Income taxes payable	—		555			4,123		5,303		—			9,981
Deferred income taxes	—		—			103,135		—		—			103,135
Total current liabilities	7,258		1,639,596			3,048,986		607,778		(4,713,657		)	589,961
Long-term debt, net of current installments and discount	—		4,774,787			—		—		—			4,774,787
Non-current tax liabilities	—		9,852			6,276		17,717		—			33,845
Deferred income taxes	—		111,338			641,696		46,300		—			799,334
Other non-current liabilities	629		114,499			48,262		2,519		—			165,909
Intercompany loan payables	—		423,357			755,000		8,269		(1,186,626		)	—
Total liabilities	7,887		7,073,429			4,500,220		682,583		(5,900,283		)	6,363,836
Total equity	649,140		(355,706		)	1,466,656		776,706		(1,887,656		)	649,140
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

December 31, 2014

(in thousands)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	41,027		$	1,499	$	140,617	$	—		$	183,541
Accounts receivable, net	—		179,872			67,355		123,256		—			370,483
Inventories, net	—		73,904			110,355		93,765		(99,802		)	178,222
Deferred income taxes	—		52,868			10,157		—		—			63,025
Prepaid expenses and other	—		11,106			6,851		247,606		(238,000		)	27,563
Intercompany receivables	166		1,854,033			2,432,299		48,267		(4,334,765		)	—
Total current assets	564		2,212,810			2,628,516		653,511		(4,672,567		)	822,834
Net property, plant and equipment	—		315,691			69,801		164,838		(262,282		)	288,048
Debt issuance costs, net	—		77,896			—		—		—			77,896
Deferred income taxes	—		—			—		31,692		—			31,692
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		299,575			1,788,661		309,015		—			2,397,251
Other non-current assets	—		1,161			186		94,247		(90,900		)	4,694
Intercompany loan receivables	—		760,000			429,856		—		(1,189,856		)	—
Intercompany investments	667,530		360,292			223,581		—		(1,251,403		)	—
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713
Liabilities and Equity:
Current liabilities:
Accounts payable	$	245	$	16,298		$	14,463	$	20,821	$	—		$	51,827
Accrued expenses and other	—		218,793			244,829		74,380		(194,518		)	343,484
Intercompany payables	6,441		1,181,383			2,634,149		512,792		(4,334,765		)	—
Current installments of long-term debt	—		25,721			—		—		—			25,721
Income taxes payable	—		—			—		1,305		—			1,305
Deferred income taxes	—		—			113,658		—		—			113,658
Total current liabilities	6,686		1,442,195			3,007,099		609,298		(4,529,283		)	535,995
Long-term debt, net of current installments and discount	—		4,815,290			—		—		—			4,815,290
Non-current tax liabilities	—		9,404			6,203		17,693		—			33,300
Deferred income taxes	—		106,440			637,777		47,940		—			792,157
Other non-current liabilities	695		113,368			48,172		1,023		—			163,258
Intercompany loan payables	—		420,294			760,000		9,562		(1,189,856		)	—
Total liabilities	7,381		6,906,991			4,459,251		685,516		(5,719,139		)	6,340,000
Total equity	660,713		(396,326		)	1,413,488		730,707		(1,747,869		)	660,713
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	149,698		$	—		$	23,141		$	—		$	172,839
Sales	—			83,737			239,691			229,663			(281,880		)	271,211
Total revenue	—			233,435			239,691			252,804			(281,880		)	444,050
Rental expenses	21			75,873			3,467			41,365			(42,548		)	78,178
Cost of sales	43			89,496			159,253			87,974			(263,352		)	73,414
Gross profit (loss)	(64		)	68,066			76,971			123,465			24,020			292,458
Selling, general and administrative expenses	471			68,519			36,716			42,308			(251		)	147,763
Research and development expenses	—			5,617			4,896			4,165			—			14,678
Acquired intangible asset amortization	—			13,880			19,456			12,541			—			45,877
Operating earnings (loss)	(535		)	(19,950		)	15,903			64,451			24,271			84,140
Non-operating intercompany transactions	—			(1,682		)	30,849			(29,190		)	23			—
Interest income and other	—			16,762			3,063			103			(19,781		)	147
Interest expense	—			(107,782		)	(16,718		)	(7		)	19,781			(104,726		)
Foreign currency gain (loss)	—			35,006			(1,593		)	(14,013		)	—			19,400
Derivative instruments loss	—			(3,348		)	—			—			—			(3,348		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(535		)	(80,994		)	31,504			21,344			24,294			(4,387		)
Income tax expense (benefit)	—			415			141			(412		)	—			144
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(535		)	(81,409		)	31,363			21,756			24,294			(4,531		)
Equity in earnings (loss) of subsidiaries	(3,996		)	48,953			21,756			—			(66,713		)	—
Earnings (loss) from continuing operations	(4,531		)	(32,456		)	53,119			21,756			(42,419		)	(4,531		)
Earnings (loss) from discontinued operations, net of tax	—			—			—			—			—			—
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Total comprehensive income (loss)	$	(11,602	)	$	(39,527	)	$	46,048		$	14,685		$	(21,206	)	$	(11,602	)

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	135,764		$	—		$	29,213		$	—		$	164,977
Sales	—			65,869			202,032			208,466			(198,709		)	277,658
Total revenue	—			201,633			202,032			237,679			(198,709		)	442,635
Rental expenses	43			68,791			2,148			54,111			(40,444		)	84,649
Cost of sales	6			65,341			115,064			92,834			(191,855		)	81,390
Gross profit (loss)	(49		)	67,501			84,820			90,734			33,590			276,596
Selling, general and administrative expenses	893			79,282			46,653			48,887			(103		)	175,612
Research and development expenses	—			5,622			6,744			5,124			—			17,490
Acquired intangible asset amortization	—			16,425			20,172			14,092			—			50,689
Operating earnings (loss)	(942		)	(33,828		)	11,251			22,631			33,693			32,805
Non-operating intercompany transactions	—			(6,626		)	(8,282		)	(8,007		)	22,915			—
Interest income and other	—			17,200			9,828			30			(26,963		)	95
Interest expense	—			(112,016		)	(17,137		)	(5		)	26,963			(102,195		)
Foreign currency gain (loss)	—			(460		)	(46		)	742			—			236
Derivative instruments loss	—			(3		)	—			—			—			(3		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(942		)	(135,733		)	(4,386		)	15,391			56,608			(69,062		)
Income tax expense (benefit)	—			(79,988		)	31,834			26,152			—			(22,002		)
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(942		)	(55,745		)	(36,220		)	(10,761		)	56,608			(47,060		)
Equity in earnings (loss) of subsidiaries	(45,441		)	(50,750		)	(10,761		)	—			106,952			—
Earnings (loss) from continuing operations	(46,383		)	(106,495		)	(46,981		)	(10,761		)	163,560			(47,060		)
Earnings (loss) from discontinued operations, net of tax	—			—			677			—			—			677
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Total comprehensive income (loss)	$	(45,090	)	$	(105,202	)	$	(45,011	)	$	(9,468	)	$	159,681		$	(45,090	)

Guarantor and Non-Guarantor Statement of Cash Flows

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	1,107			45,550			52,538			13,987			(6,378		)	106,804
Net cash provided (used) by operating activities	(3,424		)	13,094			105,657			35,743			(48,797		)	102,273
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(23,421		)	(2,285		)	588			11,949			(13,169		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(130		)	(1,820		)	129			—			(1,821		)
Net cash provided (used) by investing activities	—			(23,551		)	(4,105		)	717			11,949			(14,990		)
Cash flows from financing activities:
Distribution to limited partners	(55		)	—			—			—			—			(55		)
Settlement of profits interest units	(517		)	—			—			—			—			(517		)
Repayments of long-term debt and capital lease obligations	—			(6,446		)	—			31			—			(6,415		)
Debt issuance costs	—			(6,256		)	—			—			—			(6,256		)
Proceeds (payments) on intercompany loans	—			8,063			(6,770		)	(1,293		)	—			—
Proceeds (payments) on intercompany investments	3,996			24,124			(96,281		)	31,313			36,848			—
Net cash provided (used) by financing activities	3,424			19,485			(103,051		)	30,051			36,848			(13,243		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(7,072		)	—			(7,072		)
Net increase (decrease) in cash and cash equivalents	—			9,028			(1,499		)	59,439			—			66,968
Cash and cash equivalents, beginning of period	398			41,027			1,499			140,617			—			183,541
Cash and cash equivalents, end of period	$	398		$	50,055		$	—		$	200,056		$	—		$	250,509

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities	941			54,197			62,506			42,868			(31,283		)	129,229
Net cash provided (used) by operating activities	(45,442		)	(52,298		)	16,202			32,107			132,277			82,846
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(20,324		)	(2,031		)	(12,414		)	22,105			(12,664		)
Businesses acquired in purchase transactions, net of cash acquired	—			—			(4,500		)	(113		)	—			(4,613		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(29		)	(1,187		)	(65		)	—			(1,281		)
Net cash provided (used) by investing activities	—			(20,353		)	(7,718		)	(12,592		)	22,105			(18,558		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	—			(6,619		)	—			(16		)	—			(6,635		)
Proceeds (payments) on intercompany loans	—			36,602			(18,830		)	(17,772		)	—			—
Proceeds (payments) on intercompany investments	45,442			50,744			10,228			47,968			(154,382		)	—
Net cash provided (used) by financing activities	45,442			80,727			(8,602		)	30,180			(154,382		)	(6,635		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			38			—			38
Net increase (decrease) in cash and cash equivalents	—			8,076			(118		)	49,733			—			57,691
Cash and cash equivalents, beginning of period	398			87,771			118			118,662			—			206,949
Cash and cash equivalents, end of period	$	398		$	95,847		$	—		$	168,395		$	—		$	264,640

XML

Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Schedule of Long-term Debt Instruments

Long-term debt consists of the following (in thousands):

	March 31, 2015			December 31, 2014
Senior Dollar Term E-1 Credit Facility – due 2018	$	1,922,374		$	1,927,241
Senior Euro Term E-1 Credit Facility – due 2018	259,847			293,746
Senior Term E-2 Credit Facility– due 2016	314,555			315,351
10.5% Second Lien Senior Secured Notes due 2018	1,750,000			1,750,000
12.5% Senior Unsecured Notes due 2019	612,000			612,000
3.25% Convertible Senior Notes due 2015	101			101
Notional amount of debt	4,858,877			4,898,439
Senior Dollar Term E-1 Credit Facility Discount, net of accretion	(27,029		)	(24,241		)
Senior Euro Term E-1 Credit Facility Discount, net of accretion	(6,698		)	(7,376		)
Senior Term E-2 Credit Facility Discount, net of accretion	(3,297		)	(2,955		)
Second Lien Senior Secured Notes Discount, net of accretion	(19,131		)	(20,205		)
Senior Unsecured Notes Discount, net of accretion	(2,550		)	(2,651		)
Net discount on debt	(58,705		)	(57,428		)
Total debt, net of discount	4,800,172			4,841,011
Less:  Current installments	(25,385		)	(25,721		)
	$	4,774,787		$	4,815,290

XML

Guarantor Condensed Consolidating Financial Statements

3 Months Ended

Mar. 31, 2015

Guarantor Condensed Consolidating Financial Statements [Abstract]

Guarantor Condensed Consolidating Financial Statements

Guarantor Condensed Consolidating Financial Statements

Our 10.5% Second Lien Notes and 12.5% Unsecured Notes are fully and unconditionally guaranteed, jointly and severally, by us and each of our material 100% owned subsidiaries, other than the subsidiaries that are co-issuers of the notes, foreign subsidiaries and subsidiaries whose only assets are investments in foreign subsidiaries. The non-guarantor subsidiaries do not have any payment obligations under the 10.5% Second Lien Notes or 12.5% Unsecured Notes. Subject to the terms of the10.5% Second Lien Notes and 12.5% Unsecured Notes indentures, the guarantee of a subsidiary guarantor will terminate upon:

(1) a sale or other disposition (including by way of consolidation or merger) of the capital stock of such guarantor or the sale or disposition of all or substantially all the assets of such subsidiary guarantor (other than to the Company or a restricted subsidiary) otherwise permitted by the 10.5% Second Lien Notes or 12.5% Unsecured Notes indentures,

(2) the designation in accordance with the 10.5% Second Lien Notes or 12.5% Unsecured Notes indenture of the guarantor as an unrestricted subsidiary or the occurrence of any event after which the guarantor is no longer a restricted subsidiary,

(3) defeasance or discharge of the 10.5% Second Lien Notes or 12.5% Unsecured Notes, or

(4) upon the achievement of investment grade status by the 10.5% Second Lien Notes or 12.5% Unsecured Notes; provided that such guarantee shall be reinstated upon the reversion date.

In the event of a bankruptcy, liquidation or reorganization of any non-guarantor subsidiary, such non-guarantor subsidiary will pay the holders of its debt and other liabilities, including its trade creditors, before it will be able to distribute any of its assets to us. In the future, any non-U.S. subsidiaries, immaterial subsidiaries and subsidiaries that we designate as unrestricted subsidiaries under the 10.5% Second Lien Notes and 12.5% Unsecured Notes indentures will not guarantee the 10.5% Second Lien Notes or 12.5% Unsecured Notes. As of March 31, 2015, there were no restrictions on the ability of subsidiary guarantors to transfer funds to the parent company.

As a result of the guarantee arrangements, we are presenting the following condensed consolidated balance sheets, statements of operations and comprehensive income (loss), and statements of cash flows of the issuer, the guarantor subsidiaries and the non-guarantor subsidiaries.

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

March 31, 2015

(in thousands)

(unaudited)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	50,055		$	—	$	200,056	$	—		$	250,509
Accounts receivable, net	—		181,254			66,017		117,853		—			365,124
Inventories, net	—		106,137			116,069		93,585		(133,334		)	182,457
Deferred income taxes	—		58,059			10,594		1,862		—			70,515
Prepaid expenses and other	—		14,178			2,902		246,711		(235,454		)	28,337
Intercompany receivables	166		2,000,335			2,448,575		72,599		(4,521,675		)	—
Total current assets	564		2,410,018			2,644,157		732,666		(4,890,463		)	896,942
Net property, plant and equipment	—		301,139			68,201		142,645		(234,332		)	277,653
Debt issuance costs, net	—		72,094			—		—		—			72,094
Deferred income taxes	—		—			—		30,466		—			30,466
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		285,726			1,770,658		296,430		—			2,352,814
Other non-current assets	—		1,261			186		94,162		(90,900		)	4,709
Intercompany loan receivables	—		755,000			431,626		—		(1,186,626		)	—
Intercompany investments	656,463		409,245			319,910		—		(1,385,618		)	—
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976
Liabilities and Equity:
Current liabilities:
Accounts payable	$	—	$	17,307		$	12,703	$	25,936	$	—		$	55,946
Accrued expenses and other	—		286,332			233,481		67,683		(191,982		)	395,514
Intercompany payables	7,258		1,310,017			2,695,544		508,856		(4,521,675		)	—
Current installments of long-term debt	—		25,385			—		—		—			25,385
Income taxes payable	—		555			4,123		5,303		—			9,981
Deferred income taxes	—		—			103,135		—		—			103,135
Total current liabilities	7,258		1,639,596			3,048,986		607,778		(4,713,657		)	589,961
Long-term debt, net of current installments and discount	—		4,774,787			—		—		—			4,774,787
Non-current tax liabilities	—		9,852			6,276		17,717		—			33,845
Deferred income taxes	—		111,338			641,696		46,300		—			799,334
Other non-current liabilities	629		114,499			48,262		2,519		—			165,909
Intercompany loan payables	—		423,357			755,000		8,269		(1,186,626		)	—
Total liabilities	7,887		7,073,429			4,500,220		682,583		(5,900,283		)	6,363,836
Total equity	649,140		(355,706		)	1,466,656		776,706		(1,887,656		)	649,140
	$	657,027	$	6,717,723		$	5,966,876	$	1,459,289	$	(7,787,939	)	$	7,012,976

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Balance Sheet

December 31, 2014

(in thousands)

	Acelity L.P. Inc. Parent Company		Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets:
Current assets:
Cash and cash equivalents	$	398	$	41,027		$	1,499	$	140,617	$	—		$	183,541
Accounts receivable, net	—		179,872			67,355		123,256		—			370,483
Inventories, net	—		73,904			110,355		93,765		(99,802		)	178,222
Deferred income taxes	—		52,868			10,157		—		—			63,025
Prepaid expenses and other	—		11,106			6,851		247,606		(238,000		)	27,563
Intercompany receivables	166		1,854,033			2,432,299		48,267		(4,334,765		)	—
Total current assets	564		2,212,810			2,628,516		653,511		(4,672,567		)	822,834
Net property, plant and equipment	—		315,691			69,801		164,838		(262,282		)	288,048
Debt issuance costs, net	—		77,896			—		—		—			77,896
Deferred income taxes	—		—			—		31,692		—			31,692
Goodwill	—		2,483,240			732,138		162,920		—			3,378,298
Identifiable intangible assets, net	—		299,575			1,788,661		309,015		—			2,397,251
Other non-current assets	—		1,161			186		94,247		(90,900		)	4,694
Intercompany loan receivables	—		760,000			429,856		—		(1,189,856		)	—
Intercompany investments	667,530		360,292			223,581		—		(1,251,403		)	—
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713
Liabilities and Equity:
Current liabilities:
Accounts payable	$	245	$	16,298		$	14,463	$	20,821	$	—		$	51,827
Accrued expenses and other	—		218,793			244,829		74,380		(194,518		)	343,484
Intercompany payables	6,441		1,181,383			2,634,149		512,792		(4,334,765		)	—
Current installments of long-term debt	—		25,721			—		—		—			25,721
Income taxes payable	—		—			—		1,305		—			1,305
Deferred income taxes	—		—			113,658		—		—			113,658
Total current liabilities	6,686		1,442,195			3,007,099		609,298		(4,529,283		)	535,995
Long-term debt, net of current installments and discount	—		4,815,290			—		—		—			4,815,290
Non-current tax liabilities	—		9,404			6,203		17,693		—			33,300
Deferred income taxes	—		106,440			637,777		47,940		—			792,157
Other non-current liabilities	695		113,368			48,172		1,023		—			163,258
Intercompany loan payables	—		420,294			760,000		9,562		(1,189,856		)	—
Total liabilities	7,381		6,906,991			4,459,251		685,516		(5,719,139		)	6,340,000
Total equity	660,713		(396,326		)	1,413,488		730,707		(1,747,869		)	660,713
	$	668,094	$	6,510,665		$	5,872,739	$	1,416,223	$	(7,467,008	)	$	7,000,713

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	149,698		$	—		$	23,141		$	—		$	172,839
Sales	—			83,737			239,691			229,663			(281,880		)	271,211
Total revenue	—			233,435			239,691			252,804			(281,880		)	444,050
Rental expenses	21			75,873			3,467			41,365			(42,548		)	78,178
Cost of sales	43			89,496			159,253			87,974			(263,352		)	73,414
Gross profit (loss)	(64		)	68,066			76,971			123,465			24,020			292,458
Selling, general and administrative expenses	471			68,519			36,716			42,308			(251		)	147,763
Research and development expenses	—			5,617			4,896			4,165			—			14,678
Acquired intangible asset amortization	—			13,880			19,456			12,541			—			45,877
Operating earnings (loss)	(535		)	(19,950		)	15,903			64,451			24,271			84,140
Non-operating intercompany transactions	—			(1,682		)	30,849			(29,190		)	23			—
Interest income and other	—			16,762			3,063			103			(19,781		)	147
Interest expense	—			(107,782		)	(16,718		)	(7		)	19,781			(104,726		)
Foreign currency gain (loss)	—			35,006			(1,593		)	(14,013		)	—			19,400
Derivative instruments loss	—			(3,348		)	—			—			—			(3,348		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(535		)	(80,994		)	31,504			21,344			24,294			(4,387		)
Income tax expense (benefit)	—			415			141			(412		)	—			144
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(535		)	(81,409		)	31,363			21,756			24,294			(4,531		)
Equity in earnings (loss) of subsidiaries	(3,996		)	48,953			21,756			—			(66,713		)	—
Earnings (loss) from continuing operations	(4,531		)	(32,456		)	53,119			21,756			(42,419		)	(4,531		)
Earnings (loss) from discontinued operations, net of tax	—			—			—			—			—			—
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Total comprehensive income (loss)	$	(11,602	)	$	(39,527	)	$	46,048		$	14,685		$	(21,206	)	$	(11,602	)

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Operations and Comprehensive Income (Loss)

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue:
Rental	$	—		$	135,764		$	—		$	29,213		$	—		$	164,977
Sales	—			65,869			202,032			208,466			(198,709		)	277,658
Total revenue	—			201,633			202,032			237,679			(198,709		)	442,635
Rental expenses	43			68,791			2,148			54,111			(40,444		)	84,649
Cost of sales	6			65,341			115,064			92,834			(191,855		)	81,390
Gross profit (loss)	(49		)	67,501			84,820			90,734			33,590			276,596
Selling, general and administrative expenses	893			79,282			46,653			48,887			(103		)	175,612
Research and development expenses	—			5,622			6,744			5,124			—			17,490
Acquired intangible asset amortization	—			16,425			20,172			14,092			—			50,689
Operating earnings (loss)	(942		)	(33,828		)	11,251			22,631			33,693			32,805
Non-operating intercompany transactions	—			(6,626		)	(8,282		)	(8,007		)	22,915			—
Interest income and other	—			17,200			9,828			30			(26,963		)	95
Interest expense	—			(112,016		)	(17,137		)	(5		)	26,963			(102,195		)
Foreign currency gain (loss)	—			(460		)	(46		)	742			—			236
Derivative instruments loss	—			(3		)	—			—			—			(3		)
Earnings (loss) from continuing operations before income taxes (benefit) and equity in earnings (loss) of subsidiaries	(942		)	(135,733		)	(4,386		)	15,391			56,608			(69,062		)
Income tax expense (benefit)	—			(79,988		)	31,834			26,152			—			(22,002		)
Earnings (loss) from continuing operations before equity in earnings (loss) of subsidiaries	(942		)	(55,745		)	(36,220		)	(10,761		)	56,608			(47,060		)
Equity in earnings (loss) of subsidiaries	(45,441		)	(50,750		)	(10,761		)	—			106,952			—
Earnings (loss) from continuing operations	(46,383		)	(106,495		)	(46,981		)	(10,761		)	163,560			(47,060		)
Earnings (loss) from discontinued operations, net of tax	—			—			677			—			—			677
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Total comprehensive income (loss)	$	(45,090	)	$	(105,202	)	$	(45,011	)	$	(9,468	)	$	159,681		$	(45,090	)

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2015
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(4,531	)	$	(32,456	)	$	53,119		$	21,756		$	(42,419	)	$	(4,531	)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities	1,107			45,550			52,538			13,987			(6,378		)	106,804
Net cash provided (used) by operating activities	(3,424		)	13,094			105,657			35,743			(48,797		)	102,273
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(23,421		)	(2,285		)	588			11,949			(13,169		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(130		)	(1,820		)	129			—			(1,821		)
Net cash provided (used) by investing activities	—			(23,551		)	(4,105		)	717			11,949			(14,990		)
Cash flows from financing activities:
Distribution to limited partners	(55		)	—			—			—			—			(55		)
Settlement of profits interest units	(517		)	—			—			—			—			(517		)
Repayments of long-term debt and capital lease obligations	—			(6,446		)	—			31			—			(6,415		)
Debt issuance costs	—			(6,256		)	—			—			—			(6,256		)
Proceeds (payments) on intercompany loans	—			8,063			(6,770		)	(1,293		)	—			—
Proceeds (payments) on intercompany investments	3,996			24,124			(96,281		)	31,313			36,848			—
Net cash provided (used) by financing activities	3,424			19,485			(103,051		)	30,051			36,848			(13,243		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			(7,072		)	—			(7,072		)
Net increase (decrease) in cash and cash equivalents	—			9,028			(1,499		)	59,439			—			66,968
Cash and cash equivalents, beginning of period	398			41,027			1,499			140,617			—			183,541
Cash and cash equivalents, end of period	$	398		$	50,055		$	—		$	200,056		$	—		$	250,509

Condensed Consolidating Parent Company, Co-Issuers,

Guarantor and Non-Guarantor Statement of Cash Flows

(in thousands)

(unaudited)

	For the three months ended March 31, 2014
	Acelity L.P. Inc. Parent Company			Kinetic Concepts, Inc. and KCI USA, Inc. Borrower			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	(46,383	)	$	(106,495	)	$	(46,304	)	$	(10,761	)	$	163,560		$	(46,383	)
Adjustments to reconcile net loss to net cash provided (used) by operating activities	941			54,197			62,506			42,868			(31,283		)	129,229
Net cash provided (used) by operating activities	(45,442		)	(52,298		)	16,202			32,107			132,277			82,846
Cash flows from investing activities:
Net additions to property, plant and equipment	—			(20,324		)	(2,031		)	(12,414		)	22,105			(12,664		)
Businesses acquired in purchase transactions, net of cash acquired	—			—			(4,500		)	(113		)	—			(4,613		)
Decrease (increase) in identifiable intangible assets and other non-current assets	—			(29		)	(1,187		)	(65		)	—			(1,281		)
Net cash provided (used) by investing activities	—			(20,353		)	(7,718		)	(12,592		)	22,105			(18,558		)
Cash flows from financing activities:
Repayments of long-term debt and capital lease obligations	—			(6,619		)	—			(16		)	—			(6,635		)
Proceeds (payments) on intercompany loans	—			36,602			(18,830		)	(17,772		)	—			—
Proceeds (payments) on intercompany investments	45,442			50,744			10,228			47,968			(154,382		)	—
Net cash provided (used) by financing activities	45,442			80,727			(8,602		)	30,180			(154,382		)	(6,635		)
Effect of exchange rate changes on cash and cash equivalents	—			—			—			38			—			38
Net increase (decrease) in cash and cash equivalents	—			8,076			(118		)	49,733			—			57,691
Cash and cash equivalents, beginning of period	398			87,771			118			118,662			—			206,949
Cash and cash equivalents, end of period	$	398		$	95,847		$	—		$	168,395		$	—		$	264,640

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Legal Proceedings

Intellectual Property Litigation

As the owner and exclusive licensee of patents, from time to time, we are a party to proceedings challenging these patents, including challenges in U.S. federal courts, foreign courts, foreign patent offices and the U.S. Patent and Trademark Office. Additionally, from time to time, we are a party to litigation we initiate against others we contend infringe these patents, which often results in counterclaims regarding the validity of such patents. At other times, we are party to litigation initiated by others who contend we infringe their patents. It is not possible to reliably predict the outcome of the proceedings described below. However, if we are unable to effectively enforce our intellectual property rights, third parties may become more aggressive in the marketing of competitive products around the world.

In August 2013, Vital Needs International, L.P. ("Vital Needs") filed a Demand for Arbitration with the American Arbitration Association seeking to recover in excess of $100 million in damages and legal fees against KCI entities based on a number of claims related to certain intellectual property rights sold by Vital Needs to KCI pursuant to a 2006 acquisition agreement. The arbitration hearing took place in January 2015, and the panel issued a favorable decision on April 10, 2015 ordering that Vital Needs take nothing by its claims.

In September 2013, LifeNet Health ("LifeNet") filed suit against LifeCell Corporation in the United States District Court for the Eastern District of Virginia, Norfolk Division. LifeNet alleges that two LifeCell products, Strattice and AlloDerm Ready to Use, infringe LifeNet’s U.S. Patent No. 6,569,200 ("the ‘200 Patent"). On November 18, 2014, a jury found that the ‘200 Patent was not invalid and was infringed and further awarded LifeNet a lump sum damages amount of $34.7 million. As a result of this decision, we recorded a liability of $34.7 million in the fourth quarter of 2014. We disagree with the result at this stage in the litigation and believe that LifeCell’s defenses to the claims are meritorious. LifeCell will continue to vigorously assert its defenses during the appeal stages of this litigation and intends to defend any further claims by LifeNet. LifeCell plans to appeal to the U.S. Federal Circuit Court of Appeals in Washington D.C. on multiple grounds.

Products Liability Litigation

LifeCell Corporation is a defendant in approximately 346 lawsuits filed by individuals alleging personal injury and seeking monetary damages for failed hernia repair procedures using LifeCell’s AlloDerm products. These cases have been consolidated for case management purposes in Middlesex County, New Jersey. The trial court has issued a pre-trial order incorporating the bellwether practice of trying the claims of some plaintiffs to determine the likelihood of settlement or to avoid relitigating common issues in every case. Following limited discovery, the parties have each selected two bellwether cases from which one case to be tried will be selected. Further discovery is proceeding on each of the four bellwether cases. Trial of the first bellwether case is currently scheduled for January 2016. Although it is not possible to reliably predict the outcome of the litigation, we believe that our defenses to these claims are meritorious and we will defend against these suits vigorously. Based on our existing insurance coverage and our defenses to these cases, we do not expect them to have a material impact on our results of operations or our financial position. Because discovery of damages has been limited to the four bellwether cases, we do not know the damages allegedly suffered by the remaining plaintiffs. As such, it is impossible to predict or estimate potential losses if our defenses to these cases are unsuccessful.

LifeCell Corporation has been named as a defendant in approximately 178 lawsuits in state and federal courts alleging personal injury and seeking monetary damages for failed gynecological procedures using a human tissue product processed by LifeCell and sold by one of LifeCell’s distributors, Boston Scientific, under the name Repliform. There are approximately 173 LifeCell cases filed in a consolidated docket in Middlesex County, Massachusetts. The cases are in the initial phase and no discovery has occurred. Three cases are pending in a multi-district federal case in West Virginia that is proceeding very slowly. The remaining cases are in Delaware and Minnesota. None of these cases are proceeding at this time. We intend to defend these suits vigorously, and do not expect them to have a material impact on our results of operations or our financial position. As these cases are in their early stages it is not possible to predict or estimate potential losses if our defenses to these cases are unsuccessful.

Other Litigation

In 2009, KCI received a subpoena from the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) seeking records regarding our billing practices under the local coverage policies of the four regional Durable Medical Equipment Medicare Administrative Contractors (“DME MACs”). KCI cooperated with the OIG's inquiry and provided substantial documentation to the OIG and the U.S. Attorneys' office in response to its request. The government's inquiry stemmed from the filing under seal of two 2008 qui tam actions against KCI by two former employees in the U.S. District Court, Central District of California, Western Division. These cases are captioned United States of America, ex rel. Steven J. Hartpence v. Kinetic Concepts, Inc. et al, and United States of America, ex rel. Geraldine Godecke v. Kinetic Concepts, Inc., et al. The complaints contend that KCI violated the Federal False Claims Act by billing in a manner that was not consistent with the Local Coverage Determinations issued by the DME MACs and seek recovery of monetary damages. Following the completion of the government's review and its decision declining to intervene in such suits, the live pleadings were ordered unsealed in 2011. After reviewing the allegations, KCI filed motions seeking the dismissal of the suits on multiple grounds.  In 2012, the Court granted KCI's motions dismissing all of the claims under the False Claims Act. The cases are on appeal in the U.S. Court of Appeals for the Ninth Circuit and oral argument was in July 2014 before a 3 member panel. On January 16, 2015, the Ninth Circuit entered an order scheduling oral argument en banc before the U.S. Court of Appeals for the Ninth Circuit. Oral argument en banc proceeded before the Ninth Circuit in March 2015, and we are awaiting their opinion. We believe that our defenses to the claims in the Hartpence and Goedecke cases are meritorious and that we have no liability under the False Claims Act for their allegations. However, it is not possible to predict the outcome of this litigation nor is it possible to estimate any damages that may be awarded if we are unsuccessful in the litigation.

We are a party to several additional lawsuits arising in the ordinary course of our business. Additionally, the manufacturing and marketing of medical products necessarily entails an inherent risk of product liability claims. We maintain multiple layers of product liability insurance coverage and we believe these policies and the amounts of coverage are appropriate and adequate.

Other Commitments and Contingencies

As a healthcare supplier, we are subject to extensive government regulation, including laws and regulations directed at ascertaining the appropriateness of reimbursement, preventing fraud and abuse and otherwise regulating reimbursement under various government programs. The marketing, billing, documenting and other practices are all subject to government oversight and review. To ensure compliance with Medicare and other regulations, regional carriers often conduct audits and request patient records and other documents to support claims submitted by us for payment of services rendered to customers.

We also are subject to routine pre-payment and post-payment audits of durable medical equipment (“DME”) claims submitted to Medicare Part B. These audits typically involve a complex medical review, by Medicare or its designated contractors and representatives, of documentation supporting the therapy provided by us. While Medicare requires us to obtain a comprehensive physician order prior to providing products and services, we are not required to obtain the written medical record in advance of therapy as long as the underlying medical records reported to us support the coverage criteria and medical necessity information included in such claim. Following a Medicare request for supporting documentation, we are obligated to procure and submit the underlying medical records retained by various clinical providers, medical facilities and prescribers. Obtaining these medical records in connection with a claims audit may be challenging and, in any event, all of these records are subject to further examination, interpretation and dispute by an auditing authority. Under standard Medicare procedures, we are entitled to demonstrate the sufficiency of documentation and the establishment of medical necessity, and we have the right to appeal any adverse determinations. If a determination is made that our records or the patients’ medical records are insufficient to meet medical necessity or Medicare reimbursement requirements for the claims, we could be subject to denial or overpayment demands for claims submitted for Medicare reimbursement. In the rare event that an audit results in major discrepancies of claims records which lacked proof of medical necessity, Medicare may be entitled to take additional corrective measures, including: extrapolation of the results of the audit across a wider population of claims, submitting recoupment demands for claims other than those examined in the audit, or placing the organization on a full prepayment review. These audits have increased over the last two years from being negligible to approximately 10% of our claims.  While eventually receiving payment on a high percent of the claims subject to these audits, payment timeliness may range from a few months up to a year resulting in increasing Medicare accounts receivable balances.

On June 30, 2014, KCI entered into a settlement agreement with Wake Forest  University Health Sciences to fully and finally resolve the historical patent and royalty disputes between them relating to negative pressure wound therapy. As of March 31, 2015, the accompanying consolidated balance sheet included $83.8 million under the caption “accrued expenses and other” and $105.7 million under the caption “other non-current liabilities” representing the net present value of payments under the Settlement Agreement discounted using our incremental borrowing rate as the discount rate.

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Segment Information

3 Months Ended

Mar. 31, 2015

Segment Reporting [Abstract]

Segment Reporting Disclosure

Segment Information

The Company is engaged in the rental and sale of advanced wound therapeutics and regenerative medicine products in over 75 countries worldwide through direct sales and indirect operations. We have two reportable operating segments which correspond to our two businesses: Advanced Wound Therapeutics and Regenerative Medicine. Our Advanced Wound Therapeutics business is conducted by KCI and its subsidiaries, including Systagenix, while our Regenerative Medicine business is conducted by LifeCell and its subsidiaries. In most countries where we operate, certain aspects of our two businesses are supported by the same administrative staff, systems and infrastructure and, as such, we have allocated these costs between the businesses based on allocation methods including headcount, revenue and other methods as deemed appropriate. We measure segment profit (loss) as operating earnings (loss), which is defined as income (loss) before interest and other income, interest expense, foreign currency gains and losses, derivative instruments gains and losses and income taxes. All intercompany transactions are eliminated in computing revenue and operating earnings (loss).

Information on segments and a reconciliation of consolidated totals are as follows (in thousands):

	Three months ended March 31,
	2015			2014
Revenue:
Advanced Wound Therapeutics	$	337,259		$	330,795
Regenerative Medicine	104,169			106,656
Other operations (1)	2,622			5,184
Total revenue	$	444,050		$	442,635
Operating earnings (loss):
Advanced Wound Therapeutics	$	112,885		$	85,669
Regenerative Medicine	34,019			29,908
Other operations (1)	447			671
Non-allocated costs:
General headquarter expense	(1,423		)	(1,590		)
Equity-based compensation	(535		)	(941		)
Business optimization and transaction-related expenses (2)	(15,376		)	(30,223		)
Acquired intangible asset amortization (3)	(45,877		)	(50,689		)
Total non-allocated costs	(63,211		)	(83,443		)
Total operating earnings	$	84,140		$	32,805

(1) Represents contract manufacturing operations conducted at our manufacturing facility in Gargrave, England.

(2) Represents restructuring-related expenses associated with our business optimization initiatives as well as management fees and costs associated with acquisition, disposition and financing activities.

(3) Represents amortization of acquired intangible assets related to our Merger in November 2011, our acquisition of Systagenix in October 2013 and other technology acquisitions.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

Basis of Presentation and Principles of Consolidation

Basis of Presentation and Principles of Consolidation

The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP” or “the Codification”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information necessary for a fair presentation of results of operations, financial position and cash flows in conformity with GAAP. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our results for the interim periods presented. Certain prior period amounts have been reclassified to conform to the 2015 presentation.

On October 29, 2014, LifeCell entered into an agreement with Novadaq^® Technologies Inc. (“Novadaq”) to transfer all marketing and distribution rights to the SPY^® Elite System from LifeCell to Novadaq, effective November 30, 2014. In connection with the transfer, the parties agreed to terminate various distribution agreements entered into between 2010 and 2011. The results of the operations subject to the agreement, excluding the allocation of general corporate overhead, are presented as discontinued operations in the condensed consolidated statements of operations for all periods presented.

The Company has two reportable operating segments: Advanced Wound Therapeutics and Regenerative Medicine. We have two primary geographic regions: the Americas, which is comprised principally of the United States and includes Canada, Puerto Rico and Latin America; and EMEA/APAC, which is comprised of Europe, the Middle East, Africa and the Asia Pacific region.

The condensed consolidated financial statements appearing in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

Derivative Financial Instruments and Fair Value Measurements

Derivative Financial Instruments and Fair Value Measurements

We use derivative financial instruments to manage the economic impact of fluctuations in interest rates. We do not use financial instruments for speculative or trading purposes. Periodically, we enter into interest rate protection agreements to modify the interest characteristics of our outstanding debt. Our interest rate derivatives have not been designated as hedging instruments, and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period.

We also periodically use derivative financial instruments to manage the economic impact of fluctuations in currency exchange rates on our intercompany balances and corresponding cash flows and to manage our transactional currency exposures when our foreign subsidiaries enter into transactions denominated in currencies other than their local currency. We enter into foreign currency exchange contracts to manage these economic risks. These contracts are not designated as hedges; and as such, we recognize the fair value of these instruments as an asset or liability with income or expense recognized in the current period. Although we use master netting agreements with our derivative counterparties, we do not offset derivative asset and liability positions in the condensed consolidated balance sheets.

All derivative instruments are recorded on the balance sheets at fair value. The fair values of our interest rate derivatives and foreign currency exchange contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly-quoted markets, which represent level 2 inputs as defined by the Codification.

Concentration of Credit Risk

Concentration of Credit Risk

We have a concentration of credit risk with financial institutions related to our derivative instruments. As of March 31, 2015, Morgan Stanley, UBS and HSBC were the counterparties on our interest rate protection agreements consisting of interest rate swap agreements in notional amounts totaling $484.7 million each. We use master netting agreements with our derivative counterparties to reduce our risk and use multiple counterparties to reduce our concentration of credit risk.

We maintain cash and cash equivalents with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. These deposits bear minimal credit risk as they are maintained at financial institutions of reputable credit and generally may be redeemed upon demand.

Recently Adopted Accounting Standards

Recently Adopted Accounting Standards

In April 2014, the FASB issued ASU No. 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”. ASU No. 2014-08 changes the requirements for reporting discontinued operations and requires additional disclosures about discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations - that is, a major effect on the organization’s operations and financial results should be presented as discontinued operations. Examples include a disposal of a major geographic area, a major line of business, or a major equity method investment. Additionally, the ASU requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The Company adopted this update effective January 1, 2015. We do not anticipate that it will have a material effect on our results of operations, financial position or disclosures.

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. This ASU affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, “Revenue Recognition-Construction-Type and Production-Type Contracts”. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, “Property, Plant, and Equipment”, and intangible assets within the scope of Topic 350, “Intangibles-Goodwill and Other”) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU. For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. In April 2015, the FASB voted to propose to defer the effective date of this ASU by one year. The Company is evaluating ASU No. 2014-09 to determine if it will have a material effect on our results of operations, financial position or disclosures.

In August 2014, the FASB issued ASU 2014-15, “Presentation of Financial Statements — Going Concern (Subtopic 205-40).” The new guidance addresses management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management’s evaluation should be based on relevant conditions and events that are known and reasonably knowable at the date that the financial statements are issued. The standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In January 2015, the FASB issued ASU No. 2015-01, "Income Statement -Extraordinary and Unusual Items (Subtopic 225-20)." The objective of this ASU is to simplify the income statement presentation requirements in Subtopic 225-20 by eliminating the concept of extraordinary items. Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. Eliminating the extraordinary classification simplifies income statement presentation by altogether removing the concept of extraordinary items from consideration. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

On February 18, 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." This update provides a revised consolidation model for all reporting entities to use in evaluating whether they should consolidate certain legal entities. All legal entities will be subject to reevaluation under this revised consolidation model. The revised consolidation model, among other things, (i) modifies the evaluation of whether limited partnerships and similar legal entities are variable interest entities ("VIEs") or voting interest entities, (ii) eliminates the presumption that a general partner should consolidate a limited partnership, and (iii) modifies the consolidation analysis of reporting entities that are involved with VIEs through fee arrangements and related party relationships. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2015, including interim periods within that reporting period. Early application is permitted. The Company is evaluating this update, however we do not anticipate that the adoption of this guidance will have a material impact on our results of operations, financial position or disclosures.

In April 2015, the FASB issued ASU 2015-03, "Interest - Imputation of Interest (Subtopic 835-30)" The objective of this ASU is to simplify the presentation of debt issuance costs in the balance sheet by requiring the presentation of debt issuance costs as a deduction from the carrying amount of the related debt liability instead of a deferred charge. The standard will be effective for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. As of March 31, 2015, the Company had $72.1 million of unamortized debt issuance costs recorded as a deferred charge.

Other Significant Accounting Policies

Other Significant Accounting Policies

For further information on our significant accounting policies, see Note 1 of the notes to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Segment Information (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015 segment		Mar. 31, 2014
Segment Reporting Information [Line Items]
Number of reportable operating segments	2
Number of Global Business Units	2
Total revenue	$ 444,050		$ 442,635
Operating earnings (loss)	84,140		32,805
Non-allocated costs:
General headquarter expense	(1,423)		(1,590)
Equity-based compensation	(535)		(941)
Business optimization and transaction-related expenses	(15,376)	[1]	(30,223)	[1]
Acquired intangible asset amortization	(45,877)	[2]	(50,689)	[2]
Total non-allocated costs	(63,211)		(83,443)
Advanced Wound Therapeutics [Member]
Segment Reporting Information [Line Items]
Total revenue	337,259		330,795
Operating earnings (loss)	112,885		85,669
Regenerative Medicine [Member]
Segment Reporting Information [Line Items]
Total revenue	104,169		106,656
Operating earnings (loss)	34,019		29,908
Other Segments [Member]
Segment Reporting Information [Line Items]
Total revenue	2,622	[3]	5,184	[3]
Operating earnings (loss)	$ 447	[3]	$ 671	[3]
Minimum [Member]
Segment Reporting Information [Line Items]
Minimum number of countries in which the entity has operations	75

[1] Represents restructuring-related expenses associated with our business optimization initiatives as well as management fees and costs associated with acquisition, disposition and financing activities.

[2] Represents amortization of acquired intangible assets related to our Merger in November 2011, our acquisition of Systagenix in October 2013 and other technology acquisitions.

[3] Represents contract manufacturing operations conducted at our manufacturing facility in Gargrave, England.

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Accumulated Other Comprehensive Income (Loss) (Tables)

3 Months Ended

Mar. 31, 2015

Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

The components of accumulated other comprehensive loss are as follows (in thousands):

	Accumulated Foreign Currency Translation Adjustment			Accumulated Other Comprehensive Income (Loss)
Balances at December 31, 2014	$	(10,074	)	$	(10,074	)
Foreign currency translation adjustment, net of taxes of $635	(7,071		)	(7,071		)
Balances at March 31, 2015	$	(17,145	)	$	(17,145	)

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Supplemental Balance Sheet Data - Accounts Receivable, Net (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Billed trade accounts receivable	$ 394,896	$ 396,329
Unbilled receivables	32,408	39,293
Less: Allowance for revenue adjustments	(62,117)	(61,460)
Gross trade accounts receivable	365,187	374,162
Less: Allowance for bad debt	(11,668)	(13,087)
Net trade accounts receivable	353,519	361,075
Other receivables	11,605	9,408
Accounts receivable, net	$ 365,124	$ 370,483

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Condensed Consolidated Statements of Comprehensive Income (Loss) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Unrealized investment gain, net of tax expense of $628 in 2014	$ 0	$ (628)
Foreign currency translation adjustment, net of tax expense of $635 in 2015 and $62 in 2014	$ 635	$ 62

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Long-Term Debt

3 Months Ended

Mar. 31, 2015

Debt Disclosure [Abstract]

Long-Term Debt

Long-Term Debt

Long-term debt consists of the following (in thousands):

	March 31, 2015			December 31, 2014
Senior Dollar Term E-1 Credit Facility – due 2018	$	1,922,374		$	1,927,241
Senior Euro Term E-1 Credit Facility – due 2018	259,847			293,746
Senior Term E-2 Credit Facility– due 2016	314,555			315,351
10.5% Second Lien Senior Secured Notes due 2018	1,750,000			1,750,000
12.5% Senior Unsecured Notes due 2019	612,000			612,000
3.25% Convertible Senior Notes due 2015	101			101
Notional amount of debt	4,858,877			4,898,439
Senior Dollar Term E-1 Credit Facility Discount, net of accretion	(27,029		)	(24,241		)
Senior Euro Term E-1 Credit Facility Discount, net of accretion	(6,698		)	(7,376		)
Senior Term E-2 Credit Facility Discount, net of accretion	(3,297		)	(2,955		)
Second Lien Senior Secured Notes Discount, net of accretion	(19,131		)	(20,205		)
Senior Unsecured Notes Discount, net of accretion	(2,550		)	(2,651		)
Net discount on debt	(58,705		)	(57,428		)
Total debt, net of discount	4,800,172			4,841,011
Less:  Current installments	(25,385		)	(25,721		)
	$	4,774,787		$	4,815,290

Senior Secured Credit Facility

Our senior secured credit facility (the “Senior Secured Credit Facility”) includes a $200 million revolving credit facility (the “Revolving Credit Facility”). Amounts available under the Revolving Credit Facility are available for borrowing and reborrowing until maturity. At March 31, 2015 and December 31, 2014, no revolving credit loans were outstanding and we had outstanding letters of credit issued by banks which are party to the Senior Secured Credit Facility of $40.6 million and $39.0 million, respectively. In addition, we had $9.7 million and $11.4 million of letters of credit issued by a bank not party to the Senior Secured Credit Facility as of March 31, 2015 and December 31, 2014, respectively. The capacity of the Revolving Credit Facility is reduced for the $40.6 million and $39.0 million of letters of credit issued by banks which are party to the Senior Secured Credit Facility as of March 31, 2015 and December 31, 2014, respectively. The resulting availability under the Revolving Credit Facility was $159.4 million and $161.0 million at March 31, 2015 and December 31, 2014, respectively. Commitment fees accrue at a rate of 0.50% on the amounts available under the Revolving Credit Facility.

Interest. On March 10, 2015, we entered into Amendment No. 6 to our Senior Secured Credit Facility (“Amendment No. 6”). In connection with Amendment No. 6, certain applicable rates were modified so that (i) Dollar Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.50% or an adjusted base rate plus 2.50%, (ii) Euro Term E-1 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.75% or an adjusted base rate plus 2.75%, and (iii) Term E-2 Loans bear interest at a rate equal to, at KCI’s election, a Eurocurrency rate plus 3.00% or an adjusted base rate plus 2.00%. The Eurocurrency rate shall be subject to a floor of 1.00%, and the adjusted base rate shall be subject to a floor of 2.00%.

Covenants

As a result of Amendment No. 6, the financial covenants were amended to remove the interest coverage ratio in its entirety and to set the total leverage ratio for any test period to be no greater than 8.25:1.00. In addition, certain other covenants were amended, including with respect to the incurrence of incremental facilities and asset sales. As of March 31, 2015, we were in compliance with all covenants under our credit agreement and indentures.

For further information on our long-term debt, see Note 5 of the notes to the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2014.

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Supplemental Balance Sheet Data - Inventories, Net (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Dec. 31, 2014
Inventory [Line Items]
Finished goods and tissue available for distribution	$ 130,141	$ 127,253
Goods and tissue in-process	5,877	6,887
Raw materials, supplies, parts and unprocessed tissue	72,855	67,567
Inventories, gross	208,873	201,707
Less: Amounts expected to be converted into equipment for short-term rental	(10,871)	(7,515)
Reserve for excess and obsolete inventory	(15,545)	(15,970)
Inventories, net	$ 182,457	$ 178,222

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Derivative Financial Instruments and Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2015

Derivative [Line Items]

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value

The following table sets forth the location and aggregate fair value amounts of all derivative instruments with credit-related contingent features (in thousands):

	Asset Derivatives					Liability Derivatives
	Balance Sheet Location	Fair Value				Balance Sheet Location	Fair Value
		March 31, 2015		December 31, 2014			March 31, 2015		December 31, 2014
Derivatives not designated as hedging instruments
Interest rate swap agreements	Prepaid expenses and other	$	—	$	—	Accrued expenses and other	$	13,799	$	13,936
Interest rate swap agreements	Other non-current assets	—		—		Other non-current liabilities	7,889		8,067
Total derivatives		$	—	$	—		$	21,688	$	22,003

Not Designated as Hedging Instrument [Member]

Derivative [Line Items]

Schedule of Derivative Instruments, Gain (Loss) in Statement of Financial Performance

The following table summarizes the amount of gain (loss) on derivatives not designated as hedging instruments (dollars in thousands):

	Three months ended March 31,
	2015			2014
Interest rate swap agreements	$	(3,348	)	$	(75	)
Foreign currency exchange contracts	—			72
	$	(3,348	)	$	(3	)

Not Designated as Hedging Instrument [Member] | Interest Rate Swap [Member]

Derivative [Line Items]

Schedule of Notional Amounts of Outstanding Derivative Positions

The following table summarizes our interest rate swap agreements (dollars in thousands):

Effective Dates	Outstanding Notional Amount	Fixed Interest Rate
12/31/13-12/31/16	$484,667	2.256%
12/31/13-12/31/16	$484,667	2.249%
12/31/13-12/31/16	$484,667	2.250%