Kinetic Concepts, Inc. (“KCI”) today reported 2001 net earnings of $23.9 million on revenue of $455.9 million, compared to prior-year net earnings of $9.1 million on revenue of $352.0 million. The 2001 results reflect overall revenue growth of approximately 29.5% while net earnings improved 161.8%. Operating earnings for the 2001 year were $87.7 million, up $22.0 million, or 33.5%, from the prior year.

For the fourth quarter, KCI reported net earnings of $7.4 million on revenue of $126.7 million compared to net earnings of $4.6 million on revenue of $101.3 million for the last quarter of the prior year. The 2001 results represent increases of 61.0% and 25.0%, respectively for net earnings and revenue in the period. EBITDA for the quarter ended December 2001 totaled $32.9 million, up 13.1% as compared to $29.1 million for the same period one year ago. Compared to the third quarter of 2001, revenue for the three-months ended December was up 7.8% and net earnings improved 8.8%.

The following table presents a summary of reported results (dollars in thousands):

Effective December 2000, the Company began reporting international results on a current-month basis. Historically, the Company had presented international results using a one-month lag. As a result of this change, the 2000 fiscal fourth quarter and year included a 13th monthly period for the international segment which increased reported revenue, operating earnings and EBITDA by approximately $8.0 million, $1.1 million and $1.8 million, respectively.

“2001 was an exciting year for the Company”, stated Dennert O. Ware, President and CEO of KCI. “We experienced hyper-growth in our wound healing business associated with the V.A.C., which resulted in many changes, both in our people and in the management of our processes. Our 2001 results indicate that we are moving down the right path for long-term success and we are fully energized to take advantage of the opportunities that lay before us.”

Revenue Growth — Q4
Total revenue for the fourth quarter of 2001 was $126.7 million.

Rental revenue for the last quarter of the year was $99.8 million, an increase of $21.9 million, or 28.1%, from a year ago. Domestic rentals of $81.2 million increased $23.7 million, or 41.1%, resulting primarily from increased use of the V.A.C. wound-healing device, particularly in the home care setting. International rentals of $17.7 million, on a constant exchange basis, were $1.7 million below the prior year, which included the 13th international period. Excluding the 13th international month, fourth quarter 2001 rental revenue, on a constant exchange basis, grew $2.9 million, or 20.0%, from a year ago.

Sales revenue for the three months ended December was $26.8 million, an increase of $3.5 million, or 14.9%, compared to the last quarter of 2000. Domestic sales revenue of $17.2 million for the quarter increased $4.4 million, or 34.1%, from the prior year due to increased V.A.C. disposable and dressing sales partially offset by lower sales of vascular products and dressings. International sales of $9.2 million, on a constant exchange basis, were approximately $800,000 below the prior year, including the 13th international period. Excluding the 13th international month, fourth quarter 2001 sales revenue, on a constant exchange basis, increased $1.4 million, or 18.4% compared to the prior year.

Operating Margins
Gross profit for the fourth quarter of 2001 was $57.1 million, an increase of $13.7 million, or 31.7%, from the prior-year period. Operating expenses for the fourth quarter increased $22.5 million, or 27.8%, to $103.5 million for the last quarter of 2001 due primarily to higher selling, service and licensing fee expenses of approximately $14.9 million and other expenses related directly to higher sales volumes of the V.A.C. Higher labor costs were the direct result of sales force investments made to meet the demand for V.A.C. and staffing increases related to billing third-party payers for home placements. Total headcount at the end of 2001 was 2,806, an increase of 461, or 19.7%, from December 31, 2000.

Operating earnings for the three months ended December 2001 were $23.1 million, an increase of $2.9 million, or 14.1% from the fourth quarter of 2000. Excluding the 13th international period, fourth quarter 2001 operating earnings increased $4.0 million, or 20.8%, from the prior year due to the increase in revenue for the period.

Year To Date Results
Total revenue for 2001 was $455.9 million, an increase of $103.9 million, or 29.5%, from the prior year. Domestic revenue for 2001 of $354.1 million was $97.5 million, or 38.0%, higher than in the prior year related directly to growth in V.A.C.-related revenue. Revenue from domestic surfaces grew $3.5 million, or 2.1%, year-to-year while revenue from vascular devices and supplies declined $2.3 million, or 14.4%. International revenue of $96.4 million for 2001, on a constant exchange basis, increased 11.8% from the prior year. Excluding the 13th international period, 2001 international revenue increased $16.6 million, or 20.8%, due to growth in V.A.C. placements and higher surface rentals. Rental revenue for 2001 of $361.6 million, increased $87.3 million, or 31.8%, due primarily to higher unit demand for the V.A.C. Sales revenue for the 2001 year of $94.3 million increased $16.6 million, or 21.4%, as compared to the prior year due primarily to increased sales of V.A.C.-related dressings and disposable canisters.

Gross profit for 2001 of $202.5 million increased $56.5 million, or 38.7%, from the prior year. Gross profit margin for 2001 was 44.4%, up from 41.5% in the prior year. Operating profit for the year of $87.7 million increased $22.0 million, or 33.5%, from a year ago due to the increase in revenue for the year. Selling, general and administrative expenses for the year 2001 were $114.8 million, up $34.5 million, or 43.0%, from the prior period due primarily to increased labor, incentive compensation, marketing, provisions for uncollectible accounts and research and development costs associated with the V.A.C. growth. Operating profit margin of 19.2% for 2001 improved from 18.7% for the prior year.

Liquidity and Capital Resources
Operating cash flows for 2001 were $29.9 million compared to $41.1 million for the prior year, a decrease of $11.2 million, or 27.0%. This decrease was due primarily to increased working capital requirements, namely accounts receivable and inventory. Total accounts receivable increased 33.4% from the prior year-end to $121.4 million at the end of 2001. Inventory of $40.2 million was 69.7% higher than at the end of 2000 due primarily to V.A.C. related product additions. Cash flows used for investing activities were $48.3 million in 2001, up from $32.0 million in the prior year and consisted primarily of V.A.C. related capital investments and increased bariatric product investments.

In order to adequately fund the increase in capital expenditures and working capital requirements related to the increase in V.A.C. revenue, the Company restructured its existing senior secured credit facility with its lenders during the second quarter of 2001 by issuing a $95 million Term Loan D due March 31, 2006. The new Term Loan D amortizes at 1% per year through December 2005, with the balance due at the end of March 2006. Proceeds from the new loan were used to pay down short-term loan amortization under the Company's Term Loan A, pay off the remaining outstanding balance on the acquisition facility and reduce outstanding loans under the Company's revolving credit facility. As of December 31, 2001, total interest-bearing debt was $506.6 million, up $17.9 million from the prior year-end, and liquidity under the revolving credit facility was approximately $34.1 million.

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.