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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to __________________
Commission file number 1-9913
KINETIC CONCEPTS, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1891727
(State of incorporation) (I.R.S. Employer Identification No.)
8023 Vantage Drive
San Antonio, TX 78230 (210) 524-9000
(Address of principal executive offices (Registrant's telephone number)
and zip code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of Class)
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 if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendments to this Form 10-K. [ ]
The aggregate market value of the voting stock held of record by non-
affiliates of the Registrant as of March 1, 1996 was approximately
$284,211,068.00.
As of March 1, 1996, there were 44,404,588 shares of the Registrant's
Common Stock outstanding.
Portions of the following documents are incorporated by reference into
the designated parts of this Form 10-K: (a) Annual Report to
Shareholders for the fiscal year ended December 31, 1995 (in Parts I
and II) and (b) Definitive Proxy Statement dated March 28, 1996 (the
"Proxy Statement") relating to the Company's 1995 Annual Meeting of
Shareholders (in Part III), which Registrant intends to file not later
than 120 days after the close of the Company's fiscal year.
FORM 10-K TABLE OF CONTENTS
PART I PAGE
Item 1. Business.................................... 3
Item 2. Properties.................................. 14
Item 3. Legal Proceedings........................... 14
Item 4. Submission of Matters to a Vote
of Security Holders......................... 15
Item 4a. Executive Officers of the Registrant........ 15
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............. 18
Item 6. Selected Financial Data..................... 18
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 18
Item 8. Financial Statements and
Supplementary Data.......................... 18
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...... 18
PART III
Item 10. Directors and Executive Officers
of the Registrant........................... 19
Item 11. Executive Compensation...................... 19
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................... 19
Item 13. Certain Relationships and Related
Transactions................................ 19
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K..................... 19
Signatures............................... 21
PART I
Item 1. Business
General
Kinetic Concepts, Inc. (the "Company" or "KCI") designs,
manufactures, markets and distributes therapeutic products,
primarily specialty hospital beds, mattress overlays and mattress
replacement systems, that treat and prevent the complications of
immobility. By preventing these complications or accelerating the
healing process, the Company's products and services can
significantly reduce the cost of patient care while improving
clinical outcomes.
From an initial base of specialty hospital beds designed for
and used almost exclusively in acute care hospitals, the Company
has broadened its existing product line and expanded its
distribution network to serve the extended and home care
settings. More recently, Kinetic Concepts has applied its
therapeutic expertise to develop innovative medical devices to
treat wounds and prevent deep vein thrombosis ("DVT"). The
Company has also developed a product line to aid in the care of
obese patients.
Founded by James R. Leininger, M.D., an emergency room
physician, to provide better care for his patients, the Company
was incorporated in Texas in 1976. The Company's executive
offices are located at 8023 Vantage Drive, San Antonio, Texas
78230, and its telephone number is (210) 524-9000.
The Company is organized into four operating divisions: KCI
Therapeutic Services, Inc. ("KCI Therapeutic Services" or
"KCTS"), KCI Home Care, KCI International, Inc. ("KCI
International") and KCI New Technologies, Inc. ("NuTech").
KCI Therapeutic Services. KCI Therapeutic Services provides
a complete line of therapeutic specialty support surfaces to
patients in acute and sub-acute facilities as well as extended-
care settings. This division consists of approximately 1000
personnel, many of which have a medical or clinical background.
Sales are generated by a sales force of more than 250 individuals
who are responsible for new accounts in addition to the
management and expansion of existing accounts. A portion of this
sales force is focused exclusively on either the extended care
market or the acute care market although the majority of the
sales force is responsible for sales across both settings.
KCI Therapeutic Services has a national 24-hour customer
service communications system which enhances its ability to
quickly and efficiently respond to its customers' needs 24 hours-
a-day, seven days-a-week. The Company distributes its specialty
patient support products to acute and extended care facilities
through a network of 147 domestic service centers. The KCTS
service centers are organized as profit centers and the general
managers who supervise the service centers are responsible for
both sales and service operations. Each center has an inventory
of beds and overlays which are delivered to the individual
hospitals on an as-needed basis. The service personnel also
assist in the placement of the patient on a support surface and
in the pick-up and maintenance of the beds, overlays, sheets and
accessories.
The KCTS sales and support staff is comprised of over 250
employees with medical or clinical backgrounds. The principal
responsibility of approximately 130 of these clinicians is making
product rounds and participating in treatment protocols. These
clinicians educate the hospital staff on issues related to
patient treatment, assist in the establishment of protocols and
accumulate outcome data related to the treatment of the patient.
The clinical staff makes approximately 150,000 patient rounds
annually. KCTS accounted for approximately 61% of the Company's
total revenue in 1995.
KCI Home Care. KCI Home Care rents and sells products that
address the unique demands of the home health care market. In
January 1995, KCI Home Care started a transition from a combined
direct/dealer distribution system to distributing its products
exclusively through independent dealers. The Company believes
that selling through independent dealers gives it access to a
larger patient population and improves the overall contribution
from this business segment despite a reduction in per patient
revenue. KCI Home Care accounted for approximately 6% of the
Company's total revenue in 1995.
KCI International. KCI International offers the Company's
complete product line in ten foreign countries including Germany,
Austria, the United Kingdom, Canada, France, the Netherlands,
Switzerland, Australia, Italy and Sweden. In 1996, the Swedish
offices will be expanded to serve all of Scandinavia. In
addition, relationships with independent distributors in Latin
America, the Middle East, Asia and Eastern Europe allow KCI
International to serve the demands of a growing global market.
KCI International accounted for approximately 25% of the
Company's total revenue in 1995.
NuTech. NuTech manufactures and markets the PlexiPulse and
PlexiPulse All-in-1 System through an independent sales
representative network and is in the process of developing a
dedicated sales force. NuTech accounted for approximately 7% of
the Company's total revenue in 1995.
On June 15, 1995, the Company sold its medical equipment
leasing company, KCI Financial Services ("KCIFS") for cash.
KCIFS served as the leasing agent for the Medical Services
Division, certain assets of which were sold in September 1994.
In addition, on March 27, 1995, the Company sold the assets of
Medical Retro Design, Inc. ("MRD), a subsidiary that refurbished
standard hospital beds and furniture.
Products
The Company's "Continuum of Care" provides innovative
products and therapies across multiple care settings. The
Company's products include Pressure Relief/Pressure Reduction
products, Kinetic Therapy products, Bariatric Care products and
medical devices.
Pressure Relief/Pressure Reduction. The Company's Pressure
Relief products include a variety of framed beds and overlays
such as the KinAir III, TheraPulse, FluidAir Plus, HomeKair,
HomeKair DMS, DynaPulse, FirstStep Plus, FirstStep Select and
AirWorks Plus. The KinAir III has been shown to provide effective
skin care therapy in the treatment of pressure sores, burns and
post operative skin grafts and flaps, and to help prevent the
formation of pressure sores and certain other complications of
immobility. The TheraPulse provides continuous pulsating action
which gently massages the skin to help promote capillary and
lymphatic circulation in patients suffering from severe pressure
sores, burns, skin grafts or flaps, swelling or circulation
problems. The FluidAir Plus is an air-fluidized bead bed with a
built-in patient weighing system which supports the patient on a
low-pressure surface of air-fluidized silicon beads providing
pressure relief for skin grafts or flaps, burns and pressure
sores. The HomeKair bed and HomeKair DMS overlay are low-cost
pressure relief products designed to be easily transportable
directly to a patient's home. The DynaPulse is a pulsating
mattress replacement system that helps prevent pressure ulcers in
patients at high risk for skin breakdown and can also be used to
treat existing pressure ulcers. The FirstStep is an overlay
designed to provide pressure relief and help prevent pressure
sores in patients not normally treated on specialty beds. The
First Step Select, an extension of the Company's low-end product
line, offers an expanded selection of overlays with upgraded
design features. AirWorks Plus is a low-cost overlay which
provides pulsating air columns which assist in redistributing
pressure for better skin care.
Kinetic Therapy. The U.S. Center for Disease Control defines
Kinetic Therapy as lateral rotation of at least 40 degrees on
each side. The Company believes Kinetic Therapy is essential to
the prevention or effective treatment of pneumonia in immobile
patients. The Company's Kinetic Therapy products include the
TriaDyne, RotoRest, RotoRest Delta, BioDyne II and Q2 Plus. The
TriaDyne, introduced in mid-1995, provides patients in acute care
settings with three distinct therapies on an air suspension
surface. The TriaDyne applies Kinetic Therapy by rotating the
patient up to 40 degrees to each side and provides an industry-
first feature of simultaneously turning the patient's torso and
lower body in opposite directions while keeping the patient
positioned in the middle of the bed. The TriaDyne can also
provide percussion therapy to the patient's chest to loosen
mucous buildup in the lungs and pulsating therapy to promote
capillary circulation. The TriaDyne is built on Stryker
Corporation's critical care frame, which is narrow and more
suited to an ICU environment. The TriaDyne offers several other
novel features not available on other products. The RotoRest
Delta is a specialty bed which can rotate a patient up to a 62
degree angle on each side for the treatment of pulmonary
complications and prevention of pneumonia. The RotoRest has been
shown to improve the care of patients suffering from multiple
trauma, spinal cord injury, severe pulmonary complications,
respiratory failure and DVT. The BioDyne II combines many of the
therapeutic benefits of the KinAir III and the RotoRest and is
used by patients suffering from pneumonia, coma, stroke and
chronic neurological disorders.
Bariatric Care. The Company markets a line of therapeutic
support surfaces and aids for patients suffering from obesity, a
market that had previously been underserved. These products not
only provide the proper support needed by obese patients, but
also enable nurses to care for these patients in a dignified
manner. Moreover, treating obese patients is also a significant
staffing issue for many health care facilities because moving and
handling these patients increases the risk of worker's
compensation claims by nurses. The use of the Company's Bariatric
products enables hospital staff to treat and move obese patients
in a safer manner while utilizing fewer hospital personnel. The
most advanced product in this line is the BariKare, which can
serve as a chair, bed or X-ray table. This product is used
generally for patients weighing from 300 to 500 pounds but can be
used for patients who weigh up to 850 pounds. The Company
believes that the BariKare is the most advanced product of its
type available today.
Medical Devices. The Company also rents and sells various
products manufactured by the Company other than patient support
surfaces. These products include the PlexiPulse, PlexiPulse All-
in-1 System and The V.A.C.
The PlexiPulse and PlexiPulse All-in-1 System are non-
invasive vascular assist devices that aid venous return by
pumping blood from the lower extremities to help prevent DVT and
reestablish microcirculation. The pumping action is created by
compressing specific parts of the foot or calf with specially
designed inflatable cuffs that are connected to a separate pump
unit. The cuffs are wrapped around the foot and/or calf and are
inflated in timed increments by the pump. The inflation
compresses a group of veins in the lower limbs and boosts the
velocity of blood flowing back toward the heart. This increased
velocity has been proven to significantly decrease formation of
DVT in non-ambulatory post-surgical and post-trauma patients. The
PlexiPulse is effective in preventing DVT, reducing edema and
improving lower limb blood circulation.
The Company also markets The V.A.C., a non-invasive, active
wound closure therapy that utilizes negative pressure. The V.A.C.
promotes healing in wounds, pressure ulcers and grafts that
frequently do not respond to conventional treatment. Treatment
protocols with The V.A.C. call for a proprietary foam material to
be fitted and placed in or on top of a wound and covered with an
airtight, occlusive dressing. The foam is attached to a separate
vacuum pump. When activated, the vacuum pump creates a negative
pressure in the wound that draws the tissue together. This vacuum
action stimulates blood flow on the surface of the wound, reduces
edema and decreases bacterial colonization, all of which
stimulate healing. The dressing material is replaced every 48
hours and fitted to accommodate the decreasing size of the wound
over time. This is a significant improvement over the traditional
method for treating wounds which requires the nursing staff to
clean and dress the wound every 8 to 12 hours.
Product Support -- The Clinical Advantage
Kinetic Concepts believes that it has a clinical advantage
in the patient support surface market. The Company's Clinical
Advantage program includes a variety of support services and a
growing database of clinical and patient outcome studies.
Clinical service to acute care and extended care facilities
begins with the placement of the patient on a Company product.
Trained Company clinicians make more than 150,000 regular patient
contacts annually. This staff is comprised of over 250 employees
with medical or clinical backgrounds; the sole responsibility of
approximately 130 of these clinicians is making patient rounds
and participating in treatment protocols. The Company's clinical
staff also offers comprehensive product training and education to
nurses. This direct patient and nurse contact enables the Company
to assist the hospital in collecting valuable data. In order to
effectively collect and process the data, the Company has
developed Odyssey and Genesis, two proprietary software programs.
Odyssey is sold to hospitals to enable them to standardize
the information collected on wound treatment protocols. With
Odyssey, health care providers can institute a comprehensive
wound care management system within their facility. Facilities
use Odyssey to collect data on their wound patients and
periodically send statistical information to Kinetic Concepts for
processing. When processed and returned to the facility, Odyssey
can generate reports comparing each individual patient's healing
progress with those of similar patients on an internal, regional
or national basis. This information enables each facility to
tailor the protocols of its wound management system to the
specific needs of its patients.
Genesis is being developed and will be implemented so that
the Company's staff clinicians can assist customers in tracking
patient outcomes. The Company's clinicians make regular rounds to
evaluate patients being treated with Kinetic Concepts' products.
At the hospital's direction, information related to the use of
the Company's products will be entered into a central database on
a daily basis. Information in the database can then be analyzed
to determine the effectiveness of specific treatment protocols
when compared against a larger sample. When sufficient
statistical data is collected, the database will assist
physicians in determining treatment protocols based upon the
range of outcome for certain patient conditions.
The Company also has an active program of sponsoring
independent clinical research. The Company believes that it has
the most comprehensive collection of clinical research supporting
the medical efficacy of its products of any company in its
industry. These studies support the cost-effectiveness of the
Company's products and provide the necessary clinical outcome
data demanded by today's health care providers.
The Company believes that the evolving health care
marketplace is moving toward a prospective reimbursement system
which will require actuarial information to predict patient
outcomes in order to develop appropriate pricing structures. This
valuable patient data and clinical research is central to the
Company's marketing effort of demonstrating patient outcomes.
Competition
The Company believes that the principal competitive factors
within the patient support surfaces marketplace are product
efficacy, clinical outcomes, service and price. The Company
believes that a national presence with full distribution
capabilities is important to serve large, sophisticated national
and regional health care group purchasing organizations ("GPOs")
and providers.
The Company contracts with both proprietary and voluntary
GPOs. Proprietary GPOs own all of the hospitals which they
represent and, as a result, can insure complete compliance with
an executed national agreement. Voluntary GPOs negotiate
contracts on behalf of member hospital organizations but cannot
insure that their members will comply with the terms of an
executed national agreement. Approximately 46% of the Company's
total revenue during 1995 was generated under national agreements
with GPOs.
The Company competes on a national level with Hill-Rom and
on a regional and local level with numerous other companies. In
certain international markets, the Company competes principally
with Hill-Rom. NuTech competes primarily with Kendall
International in the foot and leg compression market.
Market Outlook
The Company believes that it is well positioned to take
advantage of the following factors affecting the market for
health care products and services:
Increased pressure on health care providers to control costs
and improve patient outcomes. The pressure to control health care
costs intensified during 1993 as a result of the health care
reform debate and continues as Congress attempts to slow the rate
of growth of health care costs as part of an effort to balance
the federal budget. While the exact amount and nature of the
health care budget cuts are not final, the Company believes that
health care providers will continue to experience increased cost
control pressures.
Accelerating migration of patients from acute care
facilities into extended and home care settings. Prompted by cost
reduction pressures from government reimbursement programs,
private insurers and managed care organizations, health care is
now readily available in a wide variety of settings with a broad
variety of cost structures. The role of traditional hospitals has
been somewhat reduced to specific acute care functions such as
emergency and specialty units. Most rehabilitation now occurs in
extended care settings which currently account for approximately
9% of all U.S. health care expenditures. U.S. expenditures on
this market segment are currently in excess of $85 billion and
have grown at an average rate of approximately 10% per year since
1990.
The home has also gained tremendous importance in health
care. Costs associated with treating a patient in the home are
typically 40% to 70% less than if the patient were treated in a
hospital or nursing home. Total U.S. expenditures on home health
care are in excess of $20 billion annually and have grown at an
average rate of approximately 19% per year since 1990. The
accelerating migration of patients from acute care facilities
into extended and home care settings has created demand for
products which conform to the physical constraints of these
settings and match the relative acuity levels and cost
structures.
Consolidation of health care providers and national and
regional group purchasing organizations. Consolidation of health
care providers and national and regional group purchasing
organizations within the health care industry has greatly
increased the number of patients whose care is covered by a
national organization which, in turn, has resulted in greater
purchasing leverage for national health care provider
organizations. In order to minimize costs, these organizations
actively seek to place patients in the most cost effective care
setting. Serving a national account generally requires that a
vendor provide goods and services suitable for all care settings
across a broad regional or national area.
Growing demand for clinically proven and cost effective
therapies. Cost containment efforts have spread across all
aspects of the health care industry. Both private and government
reimbursement programs are moving toward systems which feature
prospective payments. Under this system, health care providers
receive a payment determined by historical cost to cover all
expenses associated with a specific illness. Expenses that exceed
the amount reimbursed must be borne by the provider. The risk of
bearing these expenses has prompted providers to demand
documentation that a product or procedure will deliver the
desired clinical outcome at a cost savings over traditional
therapies.
Patient demographics. U.S. Census Bureau statistics indicate
that the 65-and-over age group is the fastest growing population
segment and is expected to exceed 40 million by the year 2010.
Management of wounds and circulatory problems is crucial for
elderly patients. These patients frequently suffer from
deteriorating physical conditions and their wound problems are
often exacerbated by incontinence and poor nutrition.
Obesity is increasingly being recognized as a serious
medical complication. In 1994, approximately 650,000 patients in
U.S. hospitals had a principal or secondary diagnosis of obesity.
Obese patients tend to have limited mobility and thus are at risk
for circulatory problems and skin breakdown. Treating obese
patients is also a significant staffing issue for many health
care facilities and a cause of worker's compensation claims among
nurses.
Growth in international markets. Health care systems in
established economies are increasingly seeking methods to provide
improved care at a reduced cost and are thereby becoming aware of
the benefits of therapeutic patient support surfaces. The
delivery of improved levels of health care is also growing in
certain emerging economies.
Emergence of disease state niche markets. The industry trend
toward consolidation has yielded additional leverage to national
health care provider networks and these networks are beginning to
request packages of products and services that offer total
solutions to specific diseases such as diabetes or cancer. The
process of bundling disease state packages may create niche
markets for providers of specialty products and services. Those
providers with the appropriate logistical capabilities may have
the opportunity to serve these growing niche markets on a
national scale.
Research and Development
The focus of the Company's research and development program
has been to develop new products and make technological
improvements to existing products. Since January 1994, the
Company has introduced a number of new products including: the
TriaDyne, the BariKare, the PlexiPulse All-in-1 System and The
V.A.C., a product developed from technology licensed to the
Company. Expenditures for research and development represented
approximately 2% of the Company's total expenditures in 1995. The
Company intends to continue its research and development efforts.
Manufacturing
The Company's manufacturing processes for its specialty
beds, mattress overlays, mattress replacement systems and medical
devices include the manufacture of certain components, the
purchase of certain other components from suppliers and the
assembly of these components into a completed product. Mechanical
components such as blower units, electrical displays and air flow
controls consist of a variety of customized subassemblies which
are purchased from suppliers and assembled by the Company. The
Company believes it has an adequate source of supply for each of
the components used to manufacture its products.
Patents and Trademarks
The Company seeks patent protection in the United States and
abroad. As of December 31, 1995, the Company had 36 issued U.S.
patents relating to its specialized beds, mattresses and related
products. The Company also has 18 pending U.S. Patent
applications. During 1994, the Company successfully sought
protection of three of its patents in litigation against SSI. The
jury in this case found that three of the Company's patents on
the BioDyne and TheraPulse beds were valid and that SSI had
willfully infringed those patents. The case was settled prior to
the damages phase of the trial when SSI agreed to pay the Company
damages of $84.75 million and remove its Restcue bed from the
U.S. market.
Many of the Company's specialized beds, products and
services are offered under trademarks and service marks. The
Company has 25 registered trademarks and service marks in the
United States Patent and Trademark Office.
Employees
As of December 31, 1995, the Company had approximately 2,016
employees. The Company's employees are not represented by labor
unions and the Company considers its employee relations to be
good.
Government Regulation
United States. The Company's products are subject to
regulation by numerous governmental authorities, principally the
FDA and corresponding state and foreign regulatory agencies.
Pursuant to the Federal Food, Drug, and Cosmetic Act, and the
regulations promulgated thereunder, the FDA regulates the
clinical testing, manufacture, labeling, distribution and
promotion of medical devices. Noncompliance with applicable
requirements can result in, among other things, fines,
injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for
devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.
In the United States, medical devices are classified into
one of three classes (Class I, II or III) on the basis of the
controls deemed necessary by the FDA to reasonably ensure their
safety and effectiveness. Class I devices are subject to general
controls (e.g., labeling, premarket notification, and adherence
to GMPs) and Class II devices are subject to general and special
controls (e.g., performance standards, postmarket surveillance,
patient registries, and FDA guidelines). Generally, Class III
devices are those devices which must receive premarket approval
by the FDA to ensure their safety and effectiveness (e.g., life-
sustaining, life- supporting and implantable devices, or new
devices which have been found not to be substantially equivalent
to legally marketed devices). All of the Company's current
products have been classified as Class I or Class II devices.
Before a new device can be introduced in the market, the
manufacturer must generally file an application for and obtain
FDA clearance of a 510(k) notification or approval of a Premarket
Approval ("PMA") Application. A 510(k) clearance will be granted
if the submitted information establishes that the proposed device
is "substantially equivalent" to a legally marketed Class I or
Class II medical device or to certain Class III devices. The FDA
recently has been requiring a more rigorous demonstration of
substantial equivalence than in the past.
All devices manufactured or distributed by the Company are
subject to pervasive and continuing regulation by the FDA and
certain state agencies, including record keeping requirements and
mandatory reporting of certain adverse experiences resulting from
use of the devices. Labeling and promotional activities are
subject to scrutiny by the FDA and, in certain circumstances, by
the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for
unapproved uses.
Fraud and Abuse Laws. The Company is subject to federal and
state laws pertaining to health care fraud and abuse. In
particular, certain federal and state laws prohibit
manufacturers, suppliers, and providers from giving or receiving
kickbacks or other remuneration in connection with the purchase
or rental of health care items and services. The federal Medicare
and Medicaid anti-kickback statute provides both civil and
criminal penalties for, among other things, offering or paying
any remuneration to induce someone to refer patients to for, or
to purchase, lease, or order (or arrange for or recommend the
purchase, lease, or order of), any item or service for which
payment may be made by Medicare or certain federally-funded state
health care programs (e.g., Medicaid). This statute also
prohibits soliciting or receiving any remuneration in exchange
for engaging in any of these activities. The prohibition applies
whether the remuneration is provided directly or indirectly,
overtly or covertly, in cash or in kind. Violations of the law
can result in numerous sanctions, including criminal fines,
imprisonment, and exclusion from participation in the Medicare
and Medicaid programs.
These provisions have been broadly interpreted to apply to
certain relationships between manufacturers/suppliers, such as
the Company, and hospitals, skilled nursing facilities ("SNFs"),
and other potential purchasers or sources of referral. Under
current law, courts and the Office of Inspector General ("OIG")
of the United States Department of Health and Human Services
("HHS") have stated, among other things, that the law is violated
where even one purpose (as opposed to a primary or sole purpose)
of a particular arrangement is to induce purchases or patient
referrals.
The OIG has taken recent actions which suggest that
relationships between manufacturers/suppliers of DME or medical
supplies and SNFs (or other providers) currently may be under
scrutiny. In May 1995, the OIG announced an enforcement
initiative, "Operation Restore Trust," that targeted
investigation of fraud and abuse in a number of states (i.e.,
California, Florida, Illinois, New York, and Texas), focusing
specifically on the long-term care, home health, and DME
industries. Furthermore, in August 1995, the OIG issued a Special
Fraud Alert describing certain relationships between SNFs and
suppliers that the OIG viewed as abusive under the statute.
Several states also have anti-remuneration or other similar
laws that may restrict the payment or receipt of remuneration in
connection with the purchase or rental of medical supplies. State
laws vary in scope and have been infrequently interpreted by
courts and regulatory agencies, but may apply regardless of
whether Medicaid or Medicaid funds are involved.
The Company is also subject to federal and state laws
prohibiting the presentation (or the causing to be presented) of
claims for payment (by Medicare, Medicaid, or other third party
payers) that are determined to be false, fraudulent, or for an
item or service that was not provided as claimed. In one recent
case, a major DME manufacturer paid more than $4 million to
settle allegations that it had "caused to be presented" false
Medicare claims through advice that its sales force allegedly
gave to customers concerning the appropriate reimbursement coding
for its products.
Other Laws. The Company also is subject to numerous federal,
state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially
hazardous substances. There can be no assurance that the Company
will not be required to incur significant costs to comply with
such laws and regulations in the future or that such laws or
regulations will not have a material adverse effect upon the
Company's ability to do business.
International. Sales of medical devices outside of the
United States are subject to regulatory requirements that vary
widely from country to country. Premarket clearance or approval
of medical devices is required by certain countries. The time
required to obtain clearance or approval for sale in a foreign
country may be longer or shorter than that required for clearance
or approval by the FDA and the requirements may vary. Failure to
comply with applicable regulatory requirements can result in loss
of previously received approvals and other sanctions and could
have a material adverse effect on the Company's business,
financial condition or results of operations. There can be no
assurance that the FDA's failure to grant requests for
Certificates for Products for Export pending a satisfactory
resolution of the Warning Letter will not have a material adverse
effect upon the Company's ability to export its products.
Reimbursement
The Company's products are rented and sold principally to
hospitals, SNFs and DME suppliers who receive reimbursement for
the products and services they provide from various public and
private third-party payors, including the Medicare and Medicaid
programs and private insurance plans. As a result, demand for the
Company's products is dependent in part on the reimbursement
policies of these payors. The manner in which reimbursement is
sought and obtained for any of the Company's products varies
based upon the type of payor involved and the setting in which
the product is furnished and utilized by patients.
Medicare. Medicare is a federally-funded program that
reimburses the costs of health care furnished primarily to the
elderly and disabled. Medicare is composed of two parts: Part A
and Part B. The Medicare program has established guidelines for
the coverage and reimbursement of certain equipment, supplies and
support services. In general, in order to be reimbursed by
Medicare, a health care item or service furnished to a Medicare
beneficiary must be reasonable and necessary for the diagnosis or
treatment of an illness or injury or to improve the functioning
of a malformed body part. This has been interpreted to mean that
the item or service must be safe and effective, not experimental
or investigational (except under certain limited circumstances
involving devices furnished pursuant to an FDA-approved clinical
trial), and appropriate. Specific Medicare guidelines have not
currently been established addressing under what circumstances,
if any, Medicare coverage would be provided for the use of the
PlexiPulse or The V.A.C.
The methodology for determining the amount of Medicare
reimbursement of the Company's products varies based upon, among
other things, the setting in which a Medicare beneficiary
receives health care items and services. Most of the Company's
products are furnished in a hospital, SNF or the beneficiary's
home.
Hospital Setting. With the establishment of the prospective
payment system in 1983, acute care hospitals are now generally
reimbursed by Medicare for inpatient operating costs based upon
prospectively determined rates. Under the prospective payment
system, acute care hospitals receive a predetermined payment rate
based upon the Diagnosis-Related Group ("DRG") which is assigned
to each Medicare beneficiary who is a hospital inpatient,
regardless of the actual cost of the services provided. Certain
additional or "outlier" payments may be made to a hospital for
cases involving unusually long lengths of stay or high costs.
However, outlier payments based upon length of stay are gradually
being phased out and will be eliminated effective with fiscal
year 1998. Furthermore, pursuant to regulations issued in 1991,
and subject to a ten-year transition period, the capital costs of
acute care hospitals (such as the cost of purchasing or renting
the Company's specialty beds) are also reimbursed by Medicare
pursuant to an add-on to the DRG-based payment amount.
Accordingly, acute care hospitals generally do not receive direct
Medicare reimbursement under PPS for the distinct costs incurred
in purchasing or renting the Company's products. Rather,
reimbursement for these costs is deemed to be included within the
DRG-based payments made to hospitals for the treatment of
Medicare-eligible inpatients who utilize the products. Since PPS
rates are predetermined, and generally paid irrespective of a
hospital's actual costs in furnishing care, acute care hospitals
have incentives to lower their inpatient operating costs by
utilizing equipment and supplies that will reduce the length of
inpatient stays, decrease labor, or otherwise lower their costs.
Certain specialty hospitals (e.g., long-term care,
rehabilitation and childrens hospitals) also use the Company's
products. Such specialty hospitals currently are exempt from the
prospective payment system and, subject to certain cost ceilings,
are reimbursed by Medicare on a reasonable cost basis for
inpatient operating and capital costs incurred in treating
Medicare beneficiaries. Consequently, long-term care hospitals
may receive separate Medicare reimbursement for reasonable costs
incurred in purchasing or renting the Company's products.
Skilled Nursing Facility Setting. SNFs which purchase or
rent the Company's products may be reimbursed directly under
Medicare Part A for some portion of their incurred costs.
Generally speaking, only the costs of treatment during the first
100 days of a qualifying spell of illness are subject to Medicare
reimbursement. The costs incurred by SNFs in furnishing care to
Medicare beneficiaries are categorized as either routine costs or
ancillary costs. Routine costs are those costs which are incurred
for items and services routinely furnished to all patients (e.g.,
general nursing services, items stocked in gross supply).
Ancillary costs are considered those costs which are incurred for
items or services ordered to treat a condition of a specific
patient and which are not generally furnished to most patients.
Ancillary costs are not subject to the routine cost limits. Given
the current routine cost limits, SNFs may be more inclined to
purchase or rent products which are reimbursed by Medicare as
ancillary items or services than if these products were
reimbursed as routine items or services. At present, the
Company's specialty beds are classified under Medicare Part A as
ancillary items. HCFA currently interprets the definition of
ancillary items to include certain support surfaces such as low
air loss mattress replacements, bed overlay systems and air
fluidized therapy. Neither The V.A.C. nor the PlexiPulse have yet
been classified as ancillary items when furnished in a SNF
setting.
Home Setting. The Company's products are also furnished to
Medicare beneficiaries in the home settings. Medicare reimburses
beneficiaries, or suppliers accepting assignment, for the
purchase or rental of DME for use in the beneficiary's home or a
home for the aged (as opposed to use in a hospital or skilled
nursing facility setting). Provided that various Medicare
coverage criteria are met, certain of the Company's products,
including air fluidized beds, air-powered flotation beds and
alternating air mattresses, are reimbursed in the home setting
under the DME category known as "Capped Rental Items." Pursuant
to the fee schedule payment methodology for this category,
Medicare pays a monthly rental fee (for a period not to exceed
fifteen months) equal to 80% of the lesser of the supplier's
actual rental charge or the established fee schedule amount for
the item. Guidelines concerning under what circumstances, if any,
The V.A.C. or the PlexiPulse will be covered and reimbursed by
DME have not been established.
Medicaid. The Medicaid program is a cooperative
federal/state program that provides medical assistance benefits
to qualifying low income and medically-needy persons. State
participation in Medicaid is optional and each state is given
discretion in developing and administering its own Medicaid
program, subject to certain federal requirements pertaining to
payment levels, eligibility criteria and minimum categories of
services. The Medicaid program finances approximately 50% of all
care provided in skilled nursing facilities nationwide. The
Company sells or rents its products to SNFs for use in furnishing
care to Medicaid recipients. SNFs, or the Company, may seek and
receive Medicaid reimbursement directly from states for the
incurred costs. However, the method and level of reimbursement,
which generally reflects regionalized average cost structures and
other factors, varies from state to state.
Private Payors. Many private payors, including indemnity
insurers, employer group health insurance programs and managed
care plans, presently provide coverage for the purchase and
rental of the Company's products. The scope of coverage and
payment policies varies among private payors. Furthermore, many
such payors are investigating or implementing methods for
reducing health care costs, such as the establishment of
capitated or prospective payment systems.
Uncertainty of Health Care Reform. There are widespread
efforts to control health care costs in the U.S. and worldwide.
Various federal and state legislative initiatives regarding
health care reform and similar issues continue to be at the
forefront of social and political discussion. For example, the
United States Congress is currently considering various
legislative proposals to reform the Medicare and Medicaid
programs. Some current proposals call for reduced payments to
hospitals under the prospective payment system, limitations on
payment for and recognition of ancillary items or services,
establishment of a prospective payment system for Medicare
reimbursement of SNF costs, freezes in DME fee schedule payment
amounts, and the establishment of a "block grant" program that
would give states greater discretion in designing and
administering state Medicaid programs. If enacted into law, any
of these proposals could affect future demand for and
reimbursement of the Company's products. The Company believes
that government and private efforts to contain or reduce health
care costs are likely to continue. These trends may lead third-
party payors to deny or limit reimbursement for the Company's
products, which could negatively impact the pricing and
profitability of, or demand for, the Company's products.
Item 2. Properties
The Company's corporate headquarters are currently located
in a 170,000 square foot building in San Antonio, Texas which was
purchased by the Company in January 1992. The Company utilizes
84,000 square feet of the building with the remaining space being
leased to unrelated entities.
The Company conducts its manufacturing, shipping, receiving
and storage activities in a 153,000 square foot facility in San
Antonio, Texas, which was purchased by the Company in January
1988. In 1989, the Company completed the construction of a 17,000
square foot addition to the facility which is utilized as office
space. The Company also owns a 37,000 square foot building in San
Antonio, Texas which houses the Company's engineering center. In
1992, the Company purchased a 35,000 square foot facility in San
Antonio, Texas which is used for storage. The Company maintains
additional storage at two leased facilities in San Antonio,
Texas. In 1994, the Company purchased a facility in San Antonio,
Texas which will be used to provide housing for families of
cancer patients. The facility is built on 6.7 acres and consists
of a 15,000 square foot building and 2,500 square foot house.
The Company leases approximately 150 domestic distribution
centers, including each of its eight regional headquarters, which
range in size from 600 to 19,600 square feet.
Item 3. Legal Proceedings
On February 21, 1992, Novamedix Limited ("Novamedix") filed
a lawsuit against the Company in the United States District Court
for the Western District of Texas. Novamedix holds the patent
rights to the principal product which directly competes with the
PlexiPulse. The suit alleges that the PlexiPulse infringes
several patents held by Novamedix, that the Company breached a
confidential relationship with Novamedix and a variety of
ancillary claims. Novamedix seeks injunctive relief and monetary
damages. Discovery in this case has been substantially completed.
Although it is not possible to predict the outcome of this
litigation or the damages which could be awarded, the Company
believes that its defenses to these claims are meritorious and
that the litigation will not have a material adverse effect on
the Company's business, financial condition or results of
operations.
On August 16, 1995, the Company filed a civil antitrust
lawsuit against Hillenbrand Industries, Inc. and one of its
subsidiaries, Hill-Rom. The suit was filed in the United States
District Court for the Western District of Texas. The suit
alleges that Hill-Rom used its monopoly power in the standard
hospital bed business to gain an unfair advantage in the
specialty hospital bed business. Specifically, the allegations
set forth in the suit include a claim that Hill-Rom required
hospitals and purchasing groups to agree to exclusively rent
specialty beds in order to receive substantial discounts on
products over which they have monopoly power -- hospital beds and
head wall units. The suit further alleges that Hill-Rom engaged
in activities which constitute predatory pricing and refusals to
deal. Hill-Rom has filed an answer denying the allegations in the
suit. Although discovery is just beginning and it is not possible
to predict the outcome of this litigation or the damages which
might be awarded, the Company believes that its claims are
meritorious.
The Company is a party to several lawsuits arising in the
ordinary course of its business and is contesting adjustments
proposed by the Internal Revenue Service to prior years' tax
returns. Provisions have been made in the Company's financial
statements for estimated exposures related to these lawsuits and
adjustments. In the opinion of management, the disposition of
these matters will not have a material adverse effect on the
Company's business, financial condition or results of operations.
The manufacturing and marketing of medical products
necessarily entails an inherent risk of product liability claims.
The Company currently has certain product liability claims
pending for which provision has been made in the Company's
financial statements. Management believes that resolution of
these claims will not have a material adverse effect on the
Company's business, financial condition or results of operations.
The Company has not experienced any significant losses due to
product liability claims and currently maintains umbrella
liability insurance coverage.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of the Company's security
holders during the fourth fiscal quarter of 1995.
Item 4a. Executive Officers of the Registrant
Certain information is set forth below concerning the
executive officers of the Company, each of whom has been elected
to serve until the 1996 annual meeting of directors and until his
successor is duly elected and qualified. The executive officers
of the Company and their ages and positions as of March 1, 1996
are as follows:
Name Age Position
Raymond R. Hannigan 56 Director, President and
Chief Executive Officer
Peter A. Leininger, M.D. 53 Director and Executive Vice
President
Bianca A. Rhodes 37 Senior Vice President,
Finance and Chief Financial
Officer
Dennis E. Noll 41 Senior Vice President,
General Counsel and
Secretary
Frank DiLazzaro 37 President, KCI
International
Christopher M. Fashek 46 President, KCI Therapeutic
Services
Daniel R. Puchek 43 President, NuTech
Joshua H. Levine 37 Vice President and General
Manager, KCI Home Care
John H. Vrzalik, Sr 53 Vice President, Engineering
Martin J. Landon 36 Vice President, Accounting
and Corporate Controller
Michael J. Burke 48 Vice President,
Manufacturing
Scott S. Brooks 47 Vice President, National
Accounts
Larry P. Baker 42 Vice President, Corporate
Services
George P. Peace 40 Vice President, Information
Systems
Raymond R. Hannigan joined the Company as its President and
Chief Executive Officer in November 1994 and has served as a
director of the Company since 1994. From January 1991 to November
1994, Mr. Hannigan was the President of the International
Division of Sterling Winthrop Consumer Health Group (a
pharmaceutical company with operations in over 40 countries), a
wholly-owned subsidiary of Eastman Kodak. From May 1989 to
January 1991, Mr. Hannigan was the President of Sterling Drug
International.
Peter A. Leininger, M.D., joined the Company as its Vice
President, Medical in 1978, became Chief Administrative Officer
and Senior Vice President of the Company in January 1994 and was
named Executive Vice President in September 1995. Dr. Peter
Leininger became a member of the Company's Board of Directors in
1980. Prior to 1978, Dr. Peter Leininger maintained a private
medical practice and functioned as the southeast regional
distributor for the Company's products. Peter A. Leininger, M.D.
is the brother of James R. Leininger, M.D.
Bianca A. Rhodes joined the Company as its Senior Vice
President, Finance and Chief Financial Officer in September 1993.
From July 1992 to April 1993, Ms. Rhodes served as Senior Vice
President, Finance, Chief Financial Officer and Corporate
Treasurer of Intelogic Trace, Inc. (a national computer services
company). From 1990 to June 1992, Ms. Rhodes served as Vice
President, Finance and Corporate Treasurer of Intelogic Trace,
Inc. and prior to 1990, Ms. Rhodes served as Corporate Treasurer
of Intelogic Trace, Inc.
Dennis E. Noll joined the Company in February 1992 as its
Senior Corporate Counsel and was appointed Vice President,
General Counsel and Secretary in January 1993. Mr. Noll was
promoted to Senior Vice President in September 1995. Prior to
joining the Company in February 1992, Mr. Noll was a shareholder
of the law firm of Cox & Smith Incorporated.
Frank DiLazzaro joined the Company in 1988 as General
Manager, KCI Medical Canada. Mr. DiLazzaro served as Vice
President, KCI International, Inc. from June 1989 to December
1992. Mr. DiLazzaro has served as President, KCI International,
Inc. since January 1993 and was Vice President, Marketing from
April 1993 to September 1995.
Christopher M. Fashek joined the Company in February 1995 as
President, KCTS. Prior to joining the Company, he served as
General Manager, Sterling Winthrop, New Zealand since February
1993, and served as Vice President Sales of Sterling Health USA
from 1989 until February 1993.
Daniel R. Puchek joined the Company as its Vice President,
KCI International in 1987 and became Vice President, Corporate
Development in February 1991. In August 1991, Mr. Puchek began
serving as President, NuTech.
Joshua H. Levine joined the Company in November 1992, as
Senior Director, was promoted to National Sales Manager, Home
Care Business in November 1993, and became Vice President and
General Manager, KCI Home Care in July 1994. From April 1991 to
November 1992, Mr. Levine served as Area Business Development
Manager, Oncology Division for CareMark, Inc. (a home infusion
company). Prior to April 1991, Mr. Levine was District Manager
of the Company.
John H. Vrzalik, Sr. joined the Company in 1977, was
promoted to Vice President, Engineering in 1979 and has served in
that position since that time.
Martin J. Landon joined the Company in May 1994 as Senior
Director of Corporate Development and was promoted to Vice
President, Accounting and Corporate Controller in October 1994.
From 1987 to May 1994, Mr. Landon worked for Intelogic Trace,
Inc., most recently serving as Vice President, Chief Financial
Officer.
Michael J. Burke joined the Company in September 1995 as
Vice President, Manufacturing. Prior to joining the Company, Mr.
Burke worked for Sterling Winthrop, Inc., a Division of Eastman
Kodak Company, for 25 years, most recently serving as General
Manager, Sterling Health HK/China since 1992.
Scott S. Brooks, Vice President, National Accounts, joined
the Company in June 1990 as Director of Sales and Marketing of
KCI Medical Services. From April 1991 to March 1993, Mr. Brooks
served as Regional Vice President of KCI Therapeutic Services,
Inc. From April 1993 to February 1994, Mr. Brooks served as Vice
President, National Accounts of the Company. From March 1994 to
March 1995, Mr. Brooks served as the President of Medical Retro
Design, a subsidiary of the Company. Prior to June 1990, Mr.
Brooks served as Vice President of Simmons Healthcare.
Larry P. Baker joined the Company in 1987 as the Director of
Human Resources. Since 1993, Mr. Baker has held the position of
Vice President, Corporate Services.
George P. Peace joined the Company in November 1994 as Vice
President of Information Systems. From October 1992 to October
1994, Mr. Peace served as Vice President of Information Systems
of La Quinta Inns Inc. Prior to October 1992, Mr. Peace served
as Director of Information Systems Operations of La Quinta Inns
Inc.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters
The Company's common stock trades on The NASDAQ Stock Market
under the symbol: KNCI. The range of the high and low bid prices
of the Company's Common Stock for each of the quarters during the
1995 and 1994 fiscal years is contained on the inside back cover
of the Company's 1995 Annual Report to Shareholders under the
caption "Investor Information" and is hereby incorporated by
reference.
The Company's Board of Directors declared quarterly cash
dividends on the Company's common stock in 1995 and 1994. The
cash dividends totaled $.15 per common share in each of 1995 and
1994. The Company's Board of Directors will consider future
dividends on a quarterly basis. The Company's credit agreement
contains certain covenants which limit the Company's ability to
declare and pay cash dividends.
As of March 1, 1996, the approximate number of holders of
record of the Company's Common Stock was 456.
Item 6. Selected Financial Data
Incorporated in this Item 6, by reference, is that portion
of the Company's 1995 Annual Report to Shareholders appearing on
page 12 under the caption "Selected Consolidated Financial Data."
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Incorporated in this Item 7, by reference, is that portion
of the Company's 1995 Annual Report to Shareholders appearing on
pages 13 to 18 under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Item 8. Financial Statements and Supplementary Data
Incorporated in this Item 8, by reference, are the
Consolidated Balance Sheets and related Consolidated Statements
of Earnings, Cash Flows, Capital Accounts and notes thereto and
Independent Auditors' Report appearing on pages 19 to 32 in the
Company's 1995 Annual Report to Shareholders.
Item 9. Changes in and Disagreements with Accountants on
Accounting Matters and Financial Disclosure
Within the twenty-four month period prior to the date of
Registrant's most recent financial statements, no Form 8-K
recording a change of accountants due to a disagreement on any
matter of accounting principles, practices or financial statement
disclosures has been filed with the Commission.
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated in this Item 10, by reference, are those
portions of the Company's definitive Proxy Statement appearing on
pages 2 to 5 therein under the caption "Election of Directors"
and on page 17 therein under the caption "Timeliness of Certain
SEC Filings." See also the information in Item 4a of Part I of
this Report.
Item 11. Executive Compensation
Incorporated in this Item 11, by reference, is that portion
of the Company's definitive Proxy Statement appearing on pages 8
to 10 under the caption "Executive Compensation."
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Incorporated in this Item 12, by reference, is that portion
of the Company's definitive Proxy Statement appearing on pages 6
and 8 under the caption "Securities Holdings of Principal
Shareholders, Directors and Officers."
Item 13. Certain Relationships and Related Transactions
In August 1995, the Company loaned $10.0 million to James R.
Leininger, M.D., the principal shareholder and chairman of the
Company's Board of Directors. The note was secured by a Stock
Pledge Agreement covering one million shares of common stock of
Kinetic Concepts, Inc. Interest accrued at the rate of 7.94% per
annum. In January 1996, upon completion of the secondary stock
offering by Dr. Leininger and certain other related selling
shareholders, the note and all accrued interest was paid in full.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following consolidated financial statements,
incorporated herein by reference to the Company's 1995
Annual Report to Shareholders, are filed as a part of
this report:
Consolidated Balance Sheets as of December 31, 1995
and 1994
Consolidated Statements of Earnings for the three
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995, 1994 and 1993
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K (Continued)
Consolidated Statements of Capital Accounts for the
three years ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
The following consolidated financial statement schedules
for each of the years in the three-year period ended
December 31, 1995 are filed as part of this Report:
Independent Auditors' Report
Schedule VIII - Valuation and Qualifying Accounts -
Years ended December 31, 1995, 1994 and 1993
All other schedules have been omitted as the required
information is not present or is not present in amounts
sufficient to require submission of the schedule, or
because the information required is included in the
financial statements and notes thereto.
3. Exhibits
The following exhibits are filed as a part of this Report:
Exhibit Description
11.1 Earnings Per Share Computation.
13.1 Kinetic Concepts, Inc. 1995 Annual Report to
Shareholders (furnished for the information of
the Commission and not deemed to be "filed",
except for those portions expressly
incorporated herein by reference).
21.1 Subsidiary Listing.
23.1 Consent by KPMG Peat Marwick dated March 28,
1996 to incorporation by reference of their reports
dated February 6, 1996 in Registration
Statements on Form S-8 previously filed by the
Company.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last
quarter of the period covered by this report.
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 March 28, 1996.
KINETIC CONCEPTS, INC.
By: /s/ JAMES R. LEININGER,M.D.
___________________________
James R. Leininger, M.D.
Chairman of the
Board of Directors
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Registration Statement has been signed
below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Signatures Title Date
/s/ JAMES R. LEININGER, M.D. Chairman of the March 28, 1996
____________________________ Board of Directors
James R. Leininger, M.D.
/s/ RAYMOND R. HANNINGAN Chief Executive March 28, 1996
___________________________ Officer and
Raymond R. Hannigan President
/s/ BIANCA A. RHODES Chief Financial March 28, 1996
___________________________ Officer and Senior
Bianca A. Rhodes Vice President
(Principal Accounting
Officer)
/s/ PETER A. LEININGER, M.D. Director March 28, 1996
___________________________
Peter A. Leininger, M.D.
/s/ SAM A. BROOKS Director March 28, 1996
___________________________
Sam A. Brooks
/s/ FRANK A. EHMANN Director March 28, 1996
___________________________
Frank A. Ehmann
/s/ BERNHARD T. MITTEMEYER,M.D. Director March 28, 1996
______________________________
Bernhard T. Mittemeyer, M.D.
Independent Auditors' Report
The Board of Directors and Shareholders
Kinetic Concepts, Inc.:
Under date of February 6, 1996, we reported on the consolidated
balance sheets of Kinetic Concepts, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related consolidated
statements of earnings, capital accounts, and cash flows for each
of the years in the three-year period ended December 31, 1995, as
contained in the 1995 annual report to shareholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the annual report on Form 10-K for
the year 1995. In connection with our audits of the
aforementioned consolidated financial statements, we also have
audited the related financial statement schedule as listed in
Item 14(a)(2) of Form 10-K. This financial statement schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG PEAT MARWICK LLP
_________________________
KPMG Peat Marwick LLP
San Antonio, Texas
February 6, 1996
Schedule VIII
KINETIC CONCEPTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Three years ended December 31, 1995
Additions Additions 12/31/93
Balance Charged Charged Balance
at to Costs to Other at End of
Description Beginning and Accounts Deductions Period
of Period Expenses
___________ __________ ________ ________ __________ _________
Allowance for
doubtful
accounts $6,975 $5,330 $ - $4,805 $7,500
Additions Additions 12/31/94
Balance Charged Charged Balance
at to Costs to Other at End of
Description Beginning and Accounts Deductions Period
of Period Expenses
___________ __________ _________ _________ ____________ _________
Allowance for
doubtful
accounts $7,500 $1,429 $ - $ 329 $8,600
Additions Additions 12/31/95
Balance Charged Charged Balance
at to Costs to Other at End of
Description Beginning and Accounts Deductions Period
of Period Expenses
____________ __________ _________ _________ __________ _________
Allowance for
doubtful
accounts $8,600 $1,883 $ - $4,306 $6,177