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KCI Reports 2008 Results

Kinetic Concepts, Inc. (KCI) has reported total revenue of $1.878 billion for the full year 2008, up 17%, compared with the total revenue of $1.610 billion in the previous year-end. It has also reported net earnings of $173.9 million, or $2.42 per diluted share, for the full year 2008, compared with the net earnings of $237.1 million, or $3.31 per diluted share, in the previous year-end.

Fourth Quarter Highlights

Total revenue increased 14% to $492.5 million, including $68.0 million of LifeCell revenue

Net earnings were $52.1 million compared to $66.5 million one year ago

Net earnings per diluted share were $0.74 compared to $0.92 one year ago

LifeCell acquisition-related costs and expenses reduced net earnings by $11.4 million, or $0.16 per diluted share

Restructuring charges reduced net earnings by $5.7 million, or $0.08 per diluted share

Full Year Highlights

LifeCell acquisition-related costs and expenses reduced net earnings by $92.1 million, or $1.28 per diluted share

Restructuring charges reduced net earnings by $5.7 million, or $0.08 per diluted share

Foreign currency exchange rate movements negatively impacted total revenue by 4% for the fourth quarter of 2008 compared to the same period a year ago. For the full year of 2008, foreign currency exchange rate movements favorably impacted revenue by 1% compared to the prior year.

Net earnings for the fourth quarter of 2008 were $52.1 million compared to $66.5 million for the same period last year due primarily to expenses associated with our acquisition of LifeCell, higher debt interest costs and certain restructuring charges. Net earnings per diluted share for the fourth quarter of 2008 were $0.74 compared to $0.92 per diluted share for the same period in the prior year. The decrease in reported net earnings and net earnings per diluted share is due to after-tax acquisition-related costs and expenses of $11.4 million, or $0.16 per diluted share, associated with our acquisition of LifeCell in the second quarter of 2008. In addition, restructuring charges in the quarter were approximately $5.7 million, net of income taxes, or $0.08 per diluted share.

Net earnings per diluted share on a non-GAAP basis, excluding acquisition-related costs and expenses and restructuring charges, were $3.78, an increase of 14% over the prior year.

“In addition to growing our business in 2008, we made significant progress in key areas of strategic importance for the company: R&D innovation, global expansion and diversification,” said Catherine Burzik, president and chief executive officer of KCI. “We launched the first of our new V.A.C. dressings, Simplace, in December and are on track with a number of new product launches planned for 2009. Additionally, we made progress toward regulatory approval of VAC therapy in the large Japanese market, and we made progress toward reimbursement of V.A.C. Therapy for home use in Germany, where we already have a significant hospital presence. Lastly, we made a very important step toward diversification of our business with the acquisition of the leading regenerative medicine company, LifeCell. LifeCell’s xeno-based Strattice dermal matrix had a very strong initial year in the US market. We achieved CE marking for Strattice in December and are now on the market in the UK and Germany. We expect Strattice to be an outstanding growth platform for the future of the company.”

Revenue Recap – fourth quarter and full year of 2008

North American revenue was $389.3 million for the fourth quarter and $1.428 billion for the full year of 2008, representing increases of 20% and 17%, respectively, from the prior periods due to revenue associated with the LifeCell acquisition and increased rental and sales volumes for V.A.C. Therapy wound healing devices and related disposables.

North American V.A.C. Therapy revenue of $267.3 million for the fourth quarter and $1.049 billion for the full year of 2008 increased approximately 2% and 6%, respectively, compared to the same periods of the prior year due primarily to higher rental and sales unit volumes. A number of factors impacted North American V.A.C. Therapy revenue growth including increased competitive activity, lower hospital census, institutional budget constraints, shorter average treatment periods and reduced purchase levels of disposables. V.A.C. Therapy order demand in the fourth quarter exceeded unit volume growth as average treatment periods have declined due to improved treatment protocols, faster healing times and wound mix, primarily in the acute care setting. Rental unit volume increased approximately 5% in the fourth quarter of 2008 compared to the same quarter a year ago, partially offset by lower realized pricing due primarily to changes in payer mix.

LifeCell revenue was $68.0 million for the quarter and $156.8 million for the year-to-date period post acquisition. LifeCell revenue for the fourth quarter of 2008 represented an increase of approximately 29% over the same period one year ago due primarily to growth in its core challenging hernia repair and breast reconstruction applications.

North American revenue from Therapeutic Support Systems (“TSS”) was $54.0 million for the fourth quarter and $221.7 million for the full year of 2008, representing decreases of 12% and 4%, respectively, from the prior-year periods due primarily to the loss of a large GPO contract announced earlier this year, and lower demand in the fourth quarter due primarily to economic constraints and reduced capital availability to hospitals.

EMEA/APAC revenue of $103.2 million for the fourth quarter of 2008 decreased approximately 6% from the prior-year period due to unfavorable currency exchange rate movements. On a non-GAAP basis, excluding currency exchange rate movements, EMEA/APAC revenue grew approximately 7% from the prior-year period due primarily to increased V.A.C. Therapy rental unit volume and associated disposable sales.

For the full year, EMEA/APAC revenue of $450.2 million increased 17% from 2007. On a non-GAAP basis, excluding currency exchange rate movements, EMEA/APAC revenue increased approximately 11% compared to the prior year.

EMEA/APAC V.A.C. Therapy revenue of $80.1 million for the fourth quarter decreased 2% compared to the prior-year period due to unfavorable currency exchange rate movements. On a non-GAAP basis, excluding currency exchange rate movements, the fourth quarter EMEA/APAC V.A.C. Therapy revenue increased approximately 11% from the year-ago period due primarily to higher unit volume. For the full year of 2008, EMEA/APAC V.A.C. Therapy revenue of $344.7 million increased 20% from the prior year due to higher V.A.C. Therapy unit demand. Foreign currency exchange rate movements favorably impacted 2008 EMEA/APAC V.A.C. Therapy revenue by 5% compared to the prior year.

Worldwide V.A.C. Therapy revenue was $347.5 million for the fourth quarter of 2008 and $1.394 billion for the full year of 2008, an increase of 1% and 9%, respectively, from the corresponding periods in 2007 due primarily to increased rental and sales volumes for V.A.C. Therapy wound healing devices and related supplies, resulting from increased market penetration. In the fourth quarter of 2008, foreign currency exchange rate movements negatively impacted worldwide V.A.C. Therapy revenue by 4% compared to the prior year period. For the full year of 2008, foreign currency exchange rate movements favorably impacted worldwide V.A.C. Therapy revenue by 1% compared to the prior year.

Worldwide TSS revenue was $77.0 million for the fourth quarter and $327.1 million for the full year of 2008, representing decreases of 13% and 1%, respectively, compared to the corresponding periods of the prior year. Foreign currency exchange rate movements unfavorably impacted worldwide TSS revenue by 5% for the fourth quarter, while for the year, foreign currency exchange rate movements favorably impacted TSS revenue by 2% compared to 2007.

Profit Margins

Gross profit for the fourth quarter and full year of 2008 was $246.9 million and $934.4 million, respectively, representing increases of 15% and 20% from the same respective periods of the prior year.