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UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of Commission file number 001-09913 KINETIC CONCEPTS, INC.
the Securities Exchange Act of 1934
___________________________________________
Date of Report
May 13, 2003
Texas 74-1891727
(State of Incorporation) (I.R.S. Employer Identification No.)
8023 Vantage Drive
San Antonio, Texas 78230
Telephone Number: (210) 524-9000
Item 9. Regulation FD Disclosure (Information Furnished in this Item 9 is also Furnished Pursuant to Item 12).
Item 7. Financial Statements and Exhibits
(c) Exhibit
99.1 Kinetic Concepts, Inc. press release dated May 13, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
KINETIC CONCEPTS, INC.
(REGISTRANT)
By: /s/ Dennert O. Ware
Date: May 13, 2003 Dennert O. Ware
President and Chief Executive Officer
Exhibit 99.1
PRESS RELEASE
Contact: Martin J. Landon
(210) 255-6494
KINETIC CONCEPTS REPORTS
RECORD FINANCIAL RESULTS
FOR THE FIRST QUARTER OF 2003
San Antonio, Texas, May 13, 2003 - Kinetic Concepts, Inc. ("KCI") today reported first quarter 2003 net earnings of $16.9 million on revenue of $166.6 million, compared to prior-year net earnings of $8.4 million on revenue of $127.1 million. The first quarter 2003 results reflect overall revenue growth of 31.0% while net earnings doubled period-to-period. Operating earnings for the first three months of 2003 were $33.1 million, up 34.7% from the prior year. EBITDA for the quarter ended March 31, 2003 was $43.6 million, up 32.0% as compared to $33.0 million for the same period one year ago.
The following table presents a summary of reported results (dollars in thousands):
Three months ended
March 31,
2003 2002 %Change
Revenue $ 166,584 $ 127,141 31.0
Gross Profit $ 73,979 $ 55,746 32.7
Operating Earnings $ 33,073 $ 24,554 34.7
Net Earnings $ 16,927 $ 8,433 100.0
EBITDA $ 43,559 $ 32,997 32.0
"Our first quarter performance was on track with our high expectations," stated Dennert O. Ware, President and CEO of KCI. "We continued to focus on improving patient outcomes at a lower overall cost of care with advanced wound care technologies and the healthcare market responded with increased demand for our products. We were especially pleased to hear that our products were of assistance to people in need during the military action in Iraq. We are excited by the challenges and opportunities associated with this type of growth."
Reconciliation of EBITDA to Operating Earnings
KCI's credit agreements require us to meet certain financial ratios and measures. One such required measure is Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). This financial measure is reconciled to the attached financial statement summary as noted below.
Three months ended
March 31,
2003 2002
Operating Earnings $ 33,073 $ 24,554
Add: Depreciation 9,952 7,537
Amortization 134 896
Interest Income 400 10
EBITDA $ 43,559 $ 32,997
Revenue Growth
Revenue for the first quarter of 2003 was $166.6 million. Rental revenue for the first quarter of 2003 was $129.4 million, an increase of $28.0 million, or 27.6%, from a year ago. Sales revenue for the three months ended March 31, 2003 was $37.1 million, an increase of $11.4 million, or 44.4%, compared to the first quarter of 2002. Domestic rentals of $103.2 million increased $20.3 million, or 24.4%, due directly to increased use of V.A.C. wound-healing devices. International rentals of $24.7 million, on a constant exchange basis, were up $4.4 million, or 21.5%, from the prior year, with $3.4 million of the international
improvement coming from increased V.A.C. usage. Favorable foreign currency exchange movements added $3.4 million to the remaining rental revenue growth when compared to the prior-year quarter.
Worldwide surface rentals for the first quarter of 2003, on a comparable, constant-exchange basis, totaled $55.1 million, up 1.1%, from a year ago. Domestic surface rentals were down 1% compared to the prior year, as growth in the acute care setting was offset by lower unit volumes in the extended and home care markets. International surface rentals, on a constant exchange basis, increased $1.0 million, or 5.9%, from the prior-year period.
Domestic sales revenue of $24.1 million for the quarter increased $7.6 million, or 46.2%, from the prior year due primarily to increased V.A.C. platforms' rentals resulting in increased demand for associated disposables and dressing sales, which were partially offset by lower sales of vascular products. International sales of $12.4 million, on a constant exchange basis, increased $2.2 million, or 22.0%, from the prior-year period primarily due to increased demand for our V.A.C. platforms and related disposables. Favorable foreign currency exchange movements added $1.6 million to the remaining sales revenue improvement when compared to the prior-year quarter.
Operating Margins
Gross profit for the first quarter of 2003 was $74.0 million, an increase of $18.2 million, or 32.7%, from the prior-year period. Operating earnings for the first three-month period of 2003 were $33.1 million, an increase of $8.5 million from the same period one year ago directly attributable to the increase in revenue for the period, partially offset by higher operating costs and expenses. Operating expenses for the first quarter increased $30.9 million, or 30.1%, to $133.5 million, due primarily to higher selling and V.A.C. licensing fees of $7.1 million, higher field operating expenses of $5.7 million and higher cost of sales of $4.0 million. The total number of KCI employees at the end of the first quarter was 3,498, an increase of 486, or 16.1%, from a year ago and up 153, or 4.6%, from December 31, 2002.
Liquidity and Capital Resources
Operating cash flow for the first quarter of 2003 was $205.1 million as compared to $775,000 for the prior-year period. During the first quarter of 2003, the Company received $175 million from the previously announced settlement of an anti-trust lawsuit. Excluding the litigation settlement, operating cash flow for the first quarter of 2003 was $30.1 million, which is more indicative of the actual performance of the business. This increase was due primarily to higher earnings for the period and improved working capital management. Working capital changes, excluding the litigation settlement, generated $1.0 million of cash in the first quarter of 2003 compared to cash usage of $19.2 million in the prior-year period. Accounts receivable increased $5.1 million during the three months ended March 2003, compared to an $11.0 million increase during the first quarter of last year. Accounts receivable days outstanding improved 9.1% to 85.2 days compared to 93.7 days in the prior year. Inventory declined $3.1 million during the period, compared to an increase of approximately $400,000 in the 2002 quarter. Cash flows used for investing activities were $17.8 million for the first quarter of 2003, down approximately $2.8 million, or 13.6%, from $20.6 million in the prior year. The year-to-year change was due primarily to a business acquisition completed in the first quarter of 2002 for $3.7 million, partially offset by increased net capital expenditures of $1.8 million.
As of March 31, 2003, total interest-bearing debt was $414.9 million, down $107.0 million from year-end 2002. In January, the Company used a portion of the $175.0 million litigation settlement proceeds to pay down debt under the Senior Credit Facility. Net of cash, total interest-bearing debt at March 31, was $277.7 million, a decrease of $189.7 million from the prior year, due to the settlement payment, improved receivable collections, an increase in taxes payable related to tax liabilities for the litigation settlement, and improved working capital management including inventory and licensing fee payments. Liquidity under the revolving credit facility at March 31, 2003 was $39.1 million.
Earnings Release Conference Call
We have scheduled an earnings release conference call for 10 a.m. central daylight savings time, Tuesday, May 13, 2003. A webcast recording of the call may be accessed on our website at:
http://www.kci1.com/investor/index.asp after 12:00 noon, on Tuesday, May 13, 2003. Click on: Webcast - Q1 2003 Kinetic Concepts Earnings Call.
Kinetic Concepts, Inc. develops and markets innovative therapeutic healing systems that address skin breakdown, circulatory problems and pulmonary complications associated with patient immobility and chronic wounds. The Company's healing systems include specialty beds, mattress replacement systems, negative pressure wound therapy and related medical devices. Kinetic Concepts serves hospitals, long-term care facilities and patients in home care settings both in the U.S. and abroad.
This press release contains forward-looking statements including, but not limited to, projections of future revenue and operating results, market penetration and the financial condition of the Company. The forward-looking statements contained herein are based on the Company's current expectations and are subject to a number of risks and uncertainties which could cause the Company to fail to achieve its current financial projections, including a change in the demand for the V.A.C. Certain risk factors that may impact the forward-looking statements set forth herein are detailed from time-to-time in the Company's Securities and Exchange Commission filings.
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
Selected Consolidated Financial Data
(Unaudited)
(in thousands)
Three months ended
March 31,
2003 2002
Consolidated Statement of Earnings Data:
Revenue:
Rental and service $ 129,442 $ 101,415
Sales and other 37,142 25,726
Total revenue 166,584 127,141
Operating expenses 133,511 102,587
________ ________
Operating earnings 33,073 24,554
Other expense 5,990 10,842
Earnings before income taxes 27,083 13,712
Income taxes 10,156 5,279
Net earnings $ 16,927 $ 8,433
Consolidated Statement of Cash Flow Data: |
||
Depreciation and amortization (1) |
$ 10,086 |
$ 8,433 |
Cash interest expense |
$ 7,599 |
$ 9,729 |
Interest income |
$ 400 |
$ 10 |
EBITDA (2) |
$ 43,559 |
$ 32,997 |
Net capital expenditures |
$ 17,474 |
$ 15,627 |
March 31, |
December 31, |
|
Consolidated Balance Sheet Data: |
2003 |
2002 |
Interest bearing debt |
$ 414,850 |
$ 521,850 |
Total assets |
$ 539,595 |
$ 618,059 |
(1) Excluding amortization of loan issuance costs
(2) Including interest income, as defined in Senior Credit Agreement
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
SUPPLEMENTAL REVENUE DATA
(Unaudited)
(in thousands)
Three months ended |
||
March 31, |
||
2003 |
2002 |
|
Domestic V.A.C. Revenue |
$ 82,380 |
$ 54,630 |
International V.A.C. Revenue |
15,824 |
7,864 |
Total V.A.C. |
$ 98,204 |
$ 62,494 |
Domestic Surfaces/Other |
$ 44,829 |
$ 44,725 |
International Surfaces/Other |
23,551 |
19,922 |
Total Surfaces/Other |
$ 68,380 |
$ 64,647 |
Grand Total V.A.C./Surfaces |
$ 166,584 |
$ 127,141 |
Domestic Rentals |
$ 103,150 |
$ 82,897 |
Domestic Sales |
24,059 |
16,458 |
Total Domestic |
$ 127,209 |
$ 99,355 |
International Rentals |
$ 26,292 |
$ 18,518 |
International Sales |
13,083 |
9,268 |
Total International |
$ 39,375 |
$ 27,786 |
Domestic - Acute |
$ 59,696 |
$ 50,630 |
Domestic - Extended |
21,614 |
16,727 |
Domestic - Home/Other |
45,899 |
31,998 |
Total Domestic |
$ 127,209 |
$ 99,355 |