EX-99.1 CHARTER 2 r1q2006pr042506.htm KCI 1st Quarter Financial Results for 2006

Exhibit 99.1

Contacts:  Martin J. Landon – Investors
KCI
(210) 255-6494

Elliot Sloane – Media
Sloane & Company
(212) 446-1860

KINETIC CONCEPTS REPORTS FIRST QUARTER
2006 FINANCIAL RESULTS

 

First Quarter Highlights

      -  Net earnings increased 31% to $48.5 million
      -  Net earnings per diluted share increased 29% to $0.66 per share
      -  U.S. V.A.C. revenue increased 23% to $186.1 million
      -  Total revenue increased 14% to $319.2 million

San Antonio, Texas, April 25, 2006 – Kinetic Concepts, Inc. (NYSE: KCI) today reported first quarter 2006 total revenue of $319.2 million, an increase of 14% from the first quarter of 2005.  Foreign currency exchange movements negatively impacted total revenue for the first quarter of 2006 by 1% compared to the corresponding period of the prior year.


Net earnings for the first quarter of 2006 were $48.5 million, up 31%, compared to $37.2 million for the same period one year ago.  Net earnings per diluted share for the first quarter of 2006 were $0.66, compared to $0.51 for the same period in the prior year, an increase of 29%.


“Our first quarter results reflect physicians’ and patients’ increasing acceptance of KCI’s V.A.C. as the therapy of choice in dealing with difficult to heal wounds,” said Dennert O. Ware, President and Chief Executive Officer of KCI.  “We believe that our innovative and effective products, supported by our clinically-focused sales and service team and backed by industry leading medical research, help caregivers and payers achieve improved patient outcomes at a lower overall cost of care.”



Revenue Recap – First Quarter 2006


Domestic revenue for the first quarter of 2006 was $232.7 million, an increase of 18% from the prior-year period due primarily to increased rental and sales volumes for V.A.C. wound healing devices and related disposables.  International revenue of $86.6 million increased 5% compared to the prior-year period due to a $10.9 million, or 24%, increase in V.A.C. revenue, partially offset by a $6.8 million decline in surfaces revenue.  The decline in international surfaces revenue resulted from a large sale in the prior-year period to the Canadian Government of $5.1 million, impacting total international revenue growth by 7%.  The decline in international surfaces revenue also reflects an unfavorable currency exchange rate variance of approximately $1.8 million.  Foreign currency exchange movements negatively impacted total international revenue by 4% compared to the prior-year period.


Worldwide V.A.C. revenue was approximately $243.0 million for the first quarter of 2006, an increase of 23% from the prior-year period.  Foreign currency exchange movements negatively impacted worldwide V.A.C. revenue by 1% compared to the first quarter of the prior year.  The growth in V.A.C. revenue stemmed from volume increases driven by our continued focus on marketing and selling efforts, partially offset by lower homecare pricing.


Worldwide surfaces revenue was $76.3 million for the first quarter of 2006, a decrease of 7% from the prior-year period, 6% of which is attributable to the prior-year sale to the Canadian government as outlined above.  Foreign currency exchange movements unfavorably impacted worldwide surfaces revenue by 2% compared to the same period one year ago.  Domestic surfaces revenue for the first quarter of 2006 increased 1% from the prior-year period.



Stock-Based Compensation


During the first quarter of 2006, the Company recorded stock-based compensation expense totaling approximately $3.0 million before income taxes, or $.03 per diluted share, under the provisions of Statement of Financial Accounting Standards No. 123R.  Prior to 2006, the Company accounted for stock-based compensation under Accounting Principles Board Opinion No. 25.



Long –Term Debt


Total long-term debt outstanding at March 31, 2006 was $294.5 million. Subsequent to March 31, 2006, KCI reduced its senior debt by $25.0 million and wrote off approximately $370,000 of debt issuance costs.  This move reflects an ongoing strategy of reducing leverage while maintaining a strong liquidity position.



Income Tax Rate


The effective income tax rate for the first quarter of 2006 was 32.1% compared to 34.5% for the same period in 2005.  The income tax rate reduction was partially attributable to a higher portion of taxable income being generated in lower tax jurisdictions.  The favorable resolution of a tax contingency resulted in an additional decrease in the effective income tax rate of 1.5%, which is applicable to only the first quarter of 2006.



Outlook


The following guidance is based on current information and expectations as of April 25, 2006:


KCI is reaffirming its projections for 2006 total revenue of $1.34 – $1.39 billion based on continued demand for its V.A.C. negative pressure wound therapy devices and related supplies.  The Company is also reaffirming its projections for net earnings per diluted share for 2006 of $2.59 – $2.69 per share, based upon a weighted average diluted share estimate of 73.5 – 74.5 million shares.



Earnings Release Conference Call


As previously announced, we have scheduled an earnings release conference call for 8:30 a.m. eastern daylight time today, Tuesday, April 25, 2006.  The dial-in numbers for this conference call are as follows:

Domestic Dial-in Number:

     800-901-5217

International Dial-in Number:

     +617-786-2964

Participant Code:

     79571134


This call is being webcast by CCBN and can be accessed at the Kinetic Concepts, Inc. web site at http://www.kci1.com/investor/index.asp, and clicking on Web cast – Q1 2006 Kinetic Concepts Earnings Call.  The webcast is also being distributed over CCBN's Investor Distribution Network to both institutional and individual investors.  Individual investors can listen to the call through CCBN's individual investor center at www.fulldisclosure.com and institutional investors can access the call via CCBN's password-protected event management site, StreetEvents (www.streetevents.com).  An archive of the webcast will be available at http://www.kci1.com/investor/index.asp until April 24, 2007.


KCI's business outlook as of today is expected to be available on KCI's Investor Relations web site.  It is currently expected that a business outlook update will not be announced until the release of KCI's next quarterly earnings announcement, notwithstanding subsequent developments.  However, although KCI undertakes no duty to update its business outlook, KCI may update the full business outlook or any portion thereof at any time.

 

 

 

About KCI


Kinetic Concepts, Inc. is a global medical technology company with leadership positions in advanced wound care and therapeutic surfaces.  We design, manufacture, market and service a wide range of proprietary products that can improve clinical outcomes and can help reduce the overall cost of patient care.  Our advanced wound care systems incorporate our proprietary Vacuum Assisted Closureâ, or V.A.C.â, technology, which has been demonstrated clinically to help promote wound healing and can help reduce the cost of treating patients with serious wounds.  Our therapeutic surfaces, including specialty hospital beds, mattress replacement systems and overlays, are designed to address pulmonary complications associated with immobility, to prevent skin breakdown and assist caregivers in the safe and dignified handling of obese patients.  We have an infrastructure designed to meet the specific needs of medical professionals and patients across all health care settings, including acute care hospitals, extended care facilities and patients' homes both in the United States and abroad.



Forward-Looking Statements

This press release contains forward-looking statements including, among other things, management's outlook, estimates of future performance, revenue and earnings growth objectives.  The forward-looking statements contained herein are based on our current expectations and are subject to a number of risks and uncertainties which could cause us to fail to achieve our current financial projections and other expectations, such as a change in the demand for the V.A.C. resulting from increased competition, a change in payer reimbursement policies, our ability to protect our intellectual property rights and general economic conditions. All information set forth in this release and its attachments is as of April 25, 2006.  We undertake no duty to update this information.  More information about potential factors that could cause our results to differ or adversely affect our business and financial results is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005, including, among other sections, under the captions, "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," which is on file with the SEC and available at the SEC's website at www.sec.gov.  Additional information will also be set forth in those sections in our Quarterly Report on Form 10-Q for the three months ended March 31, 2006, which will be filed with the SEC in early May 2006.



 

 


KINETIC CONCEPTS, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Earnings

 

(in thousands, except per share data)

 

(unaudited)

 

 

 

 

          Three months ended March 31,             

 

 

 

 

%     

 

 

     2006    

     2005    

   Change  

 

Revenue:

 

 

 

 

    Rental

$ 226,977 

$ 195,936 

15.8 %  

 

   Sales

92,268 

84,036 

9.8      

 

 

_______ 

_______ 

 

 

      Total revenue

319,245 

279,972 

14.0 % 

 

 

 

 

 

 

Rental expenses

140,417 

127,111 

10.5      

 

Cost of goods sold

21,735 

20,781 

4.6      

 

 

_______ 

_______ 

 

 

      Gross profit

157,093 

132,080 

18.9 % 

 

 

 

 

 

 

Selling, general and administrative expenses

74,737 

60,156 

24.2      

 

Research and development expenses

7,411 

6,210 

19.3      

 

 

_______ 

_______ 

 

 

      Operating earnings

74,945 

65,714 

14.0 % 

 

 

 

 

 

 

Interest income and other

982 

520 

88.8      

 

Interest expense

(4,741)

(7,460)

36.4      

 

Foreign currency gain (loss)

267 

(2,018)

-      

 

 

_______ 

_______ 

 

 

      Earnings before income taxes

71,453 

56,756 

25.9 % 

 

 

 

 

 

 

Income taxes

22,936 

19,581 

17.1      

 

 

_______ 

_______ 

 

 

      Net earnings

$   48,517 

$   37,175 

30.5 % 

 

 

_______ 

_______ 

 

 

      Net earnings per share:

 

 

 

 

         Basic

$       0.69 

$       0.54 

27.8 % 

 

 

_______ 

_______ 

 

 

          Diluted

$       0.66 

$       0.51 

29.4 % 

 

 

_______ 

_______ 

 

 

      Weighted average shares outstanding:

 

 

 

 

         Basic

70,667 

68,822 

 

 

 

_______ 

_______ 

 

 

         Diluted

73,275 

72,875 

 

 

 

_______ 

_______ 

 

 



 

KINETIC CONCEPTS, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 

 

 

 

 

March 31,

 

December 31,

 

      2006      

 

        2005        

 

 

 

 

Assets:

 

 

 

Current assets:

 

 

 

   Cash and cash equivalents

$  136,503   

 

$  123,383   

   Accounts receivable, net

287,564   

 

281,890   

   Inventories, net

31,520   

 

28,429   

   Deferred income taxes

25,666   

 

26,447   

   Prepaid expenses and other current assets

21,702   

 

16,908   

 

_______   

 

_______   

          Total current assets

502,955   

 

477,057   

 

_______   

 

_______   

 

 

 

 

Net property, plant and equipment

191,130   

 

192,243   

Debt issuance costs, less accumulated amortization

 

 

 

    of $13,024 in 2006 and $12,709 in 2005

7,231   

 

7,545   

Deferred income taxes

7,250   

 

6,895   

Goodwill

49,369   

 

49,369   

Other non-current assets, less accumulated amortization

 

 

 

    of $9,413 in 2006 and $9,310 in 2005

29,305   

 

29,002   

 

_______   

 

_______   

 

$ 787,240   

 

$ 762,111   

 

_______   

 

_______   

Liabilities and Shareholders’ Equity:

 

 

 

Current liabilities:

 

 

 

   Accounts payable

$   39,806   

 

$   43,853   

   Accrued expenses and other

131,973   

 

170,695   

   Current installments of long-term debt

2,308   

 

1,769   

   Income taxes payable

26,546   

 

18,619   

 

_______   

 

_______   

          Total current liabilities

200,633   

 

234,936   

 

_______   

 

_______   

 

 

 

 

Long-term debt, net of current installments

292,187   

 

292,726   

Deferred income taxes

27,356   

 

30,622   

Other non-current liabilities

11,414   

 

12,361   

 

_______   

 

_______   

 

531,590   

 

570,645   

 

 

 

 

 

 

 

 

Shareholders' equity:

 

 

 

   Common stock; authorized 225,000 at 2006 and 2005;

 

 

 

      issued and outstanding 71,227 at 2006 and 70,307 at 2005

71   

 

70   

   Preferred stock; authorized 50,000 at 2006 and 2005;

 

 

 

      issued and outstanding 0 at 2006 and 2005

-   

 

-   

   Additional paid-in capital

563,325   

 

557,468   

   Deferred compensation

-   

 

(6,880)  

   Retained deficit

(317,399)  

 

(365,916)  

   Accumulated other comprehensive income

9,653   

 

6,724   

 

_______   

 

_______   

          Shareholders' equity

255,650   

 

191,466   

 

_______   

 

_______   

 

$ 787,240   

 

$ 762,111   

 

_______   

 

_______   



 

KINETIC CONCEPTS, INC. AND SUBSIDIARIES

 

Condensed Consolidated Statements of Cash Flows

 

(in thousands)

 

(unaudited)

 

 

 

 

 

      Three months ended March 31,

 

 

        2006     

 

     2005     

 

Cash flows from operating activities:

 

 

 

 

   Net earnings

$   48,517    

 

$   37,175    

 

   Adjustments to reconcile net earnings to net cash provided

 

 

 

 

      by operating activities:

 

 

 

 

         Depreciation and amortization

18,634    

 

16,911    

 

         Provision for uncollectible accounts receivable

2,841    

 

4,203    

 

         Amortization of deferred gain on sale of headquarters facility

(268)   

 

(268)   

 

         Write-off of deferred debt issuance costs

-    

 

1,421    

 

         Stock-based compensation expense

2,998    

 

74    

 

         Tax benefit related to exercise of stock options

-    

 

8,825    

 

         Excess tax benefit from share-based payment arrangements

(14,417)   

 

(8,825)   

 

         Change in assets and liabilities:

 

 

 

 

               Increase in accounts receivable, net

(7,621)   

 

(4,640)   

 

               Decrease (increase) in inventories, net

(2,902)   

 

2,001    

 

               Decrease (increase) in current deferred income taxes, net

781    

 

(1,117)   

 

               Increase in prepaid expenses and other current assets

(5,284)   

 

(3,483)   

 

               Decrease in accounts payable

(3,958)   

 

(3,777)   

 

               Decrease in accrued expenses and other

(39,120)   

 

(29,001)   

 

               Increase in income taxes payable

23,164    

 

19,275    

 

               Increase (decrease) in deferred income taxes, net

(3,450)   

 

724    

 

 

_______    

 

_______    

 

                  Net cash provided by operating activities

19,915    

 

39,498    

 

 

_______    

 

_______    

 

Cash flows from investing activities:

 

 

 

 

   Additions to property, plant and equipment

(14,552)   

 

(14,268)   

 

   Increase in inventory to be converted into equipment

 

 

 

 

      for short-term rental

(1,800)   

 

(1,200)   

 

   Dispositions of property, plant and equipment

395    

 

465    

 

   Increase in other non-current assets

(436)   

 

(264)   

 

 

_______    

 

_______    

 

                  Net cash used by investing activities

(16,393)   

 

(15,267)   

 

 

_______    

 

_______    

 

Cash flows from financing activities:

 

 

 

 

   Proceeds from (repayments of) long-term debt, capital lease and

 

 

 

 

      other obligations

52    

 

(75,003)   

 

   Excess tax benefit from share-based payment arrangements

14,417    

 

-    

 

   Proceeds from exercise of stock options

5,728    

 

1,798    

 

   Purchase of immature shares for minimum tax withholdings

(11,192)   

 

-    

 

   Proceeds from purchase of stock in ESPP

19    

 

-    

 

 

_______    

 

_______    

 

                  Net cash provided (used) by financing activities

9,024    

 

(73,205)   

 

 

_______    

 

_______    

 

Effect of exchange rate changes on cash and cash equivalents

    574    

 

    (1,168)   

 

 

_______    

 

_______    

 

Net increase (decrease) in cash and cash equivalents

13,120    

 

(50,142)   

 

Cash and cash equivalents, beginning of period

 123,383    

 

 124,366    

 

 

_______    

 

_______    

 

Cash and cash equivalents, end of period

$  136,503    

 

$  74,224    

 

 

_______    

 

_______    

 

Cash paid during the three months for:

 

 

 

 

   Interest

$      2,725    

 

$     3,807    

 

   Income taxes, net of refunds

$      2,168    

 

$     2,178    

 

 

 

 

 

 



 

KINETIC CONCEPTS, INC. AND SUBSIDIARIES

Supplemental Revenue Data

(in thousands)

(unaudited)

 

 

                   Three months ended March 31,                       

 

 

 

 

 

 

 

              Variance             

 

 

    2006      

 

    2005      

 

 

       $       

 

    %    

 

Total Revenue:

 

 

 

 

 

 

 

 

 

  V.A.C.

 

 

 

 

 

 

 

 

 

     Rental

$ 165,432 

 

$ 132,776 

 

 

$  32,656 

 

24.6 %

 

     Sales

77,522 

 

64,726 

 

 

12,796 

 

19.8    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

         Total V.A.C.

242,954 

 

197,502 

 

 

45,452 

 

23.0    

 

 

 

 

 

 

 

 

 

 

 

  Therapeutic surfaces/other

 

 

 

 

 

 

 

 

 

     Rental

61,545 

 

63,160 

 

 

(1,615)

 

(2.6)   

 

     Sales

14,746 

 

19,310 

 

 

(4,564)

 

(23.6)   

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

         Total therapeutic surfaces/other

76,291 

 

82,470 

 

 

(6,179)

 

(7.5)   

 

 

 

 

 

 

 

 

 

 

 

  Total rental revenue

226,977 

 

195,936 

 

 

31,041 

 

15.8    

 

  Total sales revenue

92,268 

 

84,036 

 

 

8,232 

 

9.8    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

       Total Revenue

$ 319,245 

 

$ 279,972 

 

 

$  39,273 

 

14.0 %

 

 

_______ 

 

_______ 

 

 

_______ 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

USA Revenue:

 

 

 

 

 

 

 

 

 

  V.A.C.

 

 

 

 

 

 

 

 

 

     Rental

$ 138,742 

 

$ 112,149 

 

 

$  26,593 

 

23.7 %

 

     Sales

47,345 

 

39,414 

 

 

7,931 

 

20.1    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

          Total V.A.C.

186,087 

 

151,563 

 

 

34,524 

 

22.8    

 

 

 

 

 

 

 

 

 

 

 

  Therapeutic surfaces/other

 

 

 

 

 

 

 

 

 

     Rental

39,593 

 

38,957 

 

 

636 

 

1.6    

 

     Sales

6,970 

 

7,005 

 

 

(35)

 

(0.5)   

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

         Total therapeutic surfaces/other

46,563 

 

45,962 

 

 

601   

 

1.3    

 

 

 

 

 

 

 

 

 

 

 

  Total USA rental

178,335 

 

151,106 

 

 

27,229 

 

18.0    

 

  Total USA sales

54,315 

 

46,419 

 

 

7,896 

 

17.0    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

       Total – USA Revenue

$ 232,650 

 

$ 197,525 

 

 

$  35,125 

 

17.8 %

 

 

_______ 

 

_______ 

 

 

_______ 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

International Revenue:

 

 

 

 

 

 

 

 

 

  V.A.C.

 

 

 

 

 

 

 

 

 

     Rental

$   26,690 

 

$   20,627 

 

 

$    6,063 

 

29.4 %

 

     Sales

30,177 

 

25,312 

 

 

4,865 

 

19.2    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

         Total V.A.C.

56,867 

 

45,939 

 

 

10,928 

 

23.8    

 

 

 

 

 

 

 

 

 

 

 

  Therapeutic surfaces/other

 

 

 

 

 

 

 

 

 

     Rental

21,952 

 

24,203 

 

 

(2,251)

 

(9.3)   

 

     Sales

7,776 

 

12,305 

 

 

(4,529)

 

(36.8)   

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

         Total therapeutic surfaces/other

29,728 

 

36,508 

 

 

(6,780)

 

(18.6)   

 

 

 

 

 

 

 

 

 

 

 

  Total International rental

48,642 

 

44,830 

 

 

3,812 

 

8.5    

 

  Total International sales

37,953 

 

37,617 

 

 

336 

 

0.9    

 

 

_______ 

 

_______ 

 

 

______ 

 

 

 

       Total – International Revenue

$   86,595 

 

$   82,447 

 

 

$  4,148 

 

5.0 %

 

 

_______ 

 

_______ 

 

 

_______