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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)


ý
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Quarter Ended June 29, 2002

or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 1-16121

VIASYS HEALTHCARE INC.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of
incorporation or organization)		   04-3505871
(I.R.S. Employer
Identification No.)

227 Washington Street
Conshohocken, Pennsylvania
(Address of principal executive offices)
 
19428
(Zip Code)

Registrant's telephone number, including area code: (610) 862-0800

        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 and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.

Class
   Outstanding at August 2, 2002
Common Stock, $.01 par value   26,059,730


Item 1—Financial Statements


VIASYS HEALTHCARE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 
   June 29,
2002
   December 29, 2001
  
 
   (Unaudited)
    
  
 
   (In thousands except share and per share amounts)

  
ASSETS              
Current Assets:              
  Cash and cash equivalents   $ 9,576   $ 14,968  
  Accounts receivable, less allowances of $6,958 and $7,365     73,185     78,210  
  Inventories:              
    Raw materials and supplies     50,581     39,173  
    Work in process     9,897     9,550  
    Finished goods     29,329     26,263  
  Deferred tax asset     17,344     17,200  
  Prepaid expenses     7,473     4,752  
   
 
 
      197,385     190,116  
   
 
 
Property, Plant and Equipment, at Cost     92,705     88,714  
  Less: Accumulated depreciation and amortization     62,068     58,644  
   
 
 
      30,637     30,070  
   
 
 
Goodwill, net     179,976     177,532  
Intangible Assets, net     6,686     6,215  
Other Assets     2,018     1,342  
   
 
 
    $ 416,702   $ 405,275  
   
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY              
Current Liabilities:              
  Notes payable   $ 29,307   $ 33,357  
  Accounts payable     22,095     20,656  
  Accrued payroll and employee benefits     10,338     13,527  
  Deferred revenue     10,129     8,426  
  Accrued installation and warranty costs     4,566     4,590  
  Accrued commissions     4,277     4,316  
  Other accrued expenses     14,596     15,725  
   
 
 
      95,308     100,597  
   
 
 
Deferred Income Taxes and Other Deferred Items     5,011     5,010  
   
 
 
Commitments and Contingency              
Stockholders' Equity:              
  Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued     —     —  
  Common stock, $.01 par value, 100,000,000 shares authorized; 26,059,730 and 26,037,362 shares issued     262     260  
  Capital in excess of par value     263,618     263,171  
  Retained earnings     48,650     39,259  
  Treasury Stock, 5,597 shares and 0 shares     (110 )   —  
  Deferred compensation     —     (158 )
  Accumulated other comprehensive income (loss)     3,963     (2,864 )
   
 
 
      316,383     299,668  
   
 
 
    $ 416,702   $ 405,275  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

2


VIASYS HEALTHCARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
   Three Months Ended
  
 
   June 29, 2002
   June 30, 2001
  
 
   (Unaudited)
(In thousands except per share amounts)

  
Revenues   $ 89,415   $ 88,832  
   
 
 
Costs and Operating Expenses:              
  Cost of revenues     46,597     46,481  
  Selling, general and administrative expenses     25,612     25,265  
  Research and development expenses     7,901     8,190  
  Restructuring and other unusual costs     2,232     783  
   
 
 
      82,342     80,719  
   
 
 
Operating Income     7,073     8,113  
Interest Income     57     34  
Interest Expense     (421 )   (483 )
Other Expense, Net     —     (132 )
   
 
 
Income Before Provision for Income Taxes     6,709     7,532  
Provision for Income Taxes     (2,536 )   (3,163 )
   
 
 
Net Income   $ 4,173   $ 4,369  
   
 
 
Earnings per Share:              
  Basic   $ .16   $ .17  
   
 
 
  Diluted   $ .16   $ .17  
   
 
 
Weighted Average Shares:              
  Basic     26,057     26,000  
   
 
 
  Diluted     26,775     26,000  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


VIASYS HEALTHCARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

 
   Six Months Ended
  
 
   June 29, 2002
   June 30, 2001
  
 
   (Unaudited)
  
 
   (In thousands except per share amounts)

  
Revenues   $ 181,287   $ 177,290  
   
 
 
Costs and Operating Expenses:              
  Cost of revenues     94,815     94,112  
  Selling, general and administrative expenses     51,489     51,714  
  Research and development expenses     15,870     15,080  
  Restructuring and other unusual costs     3,193     1,124  
   
 
 
      165,367     162,030  
   
 
 
Operating Income     15,920     15,260  
Interest Income     121     60  
Interest Expense     (917 )   (980 )
Other Expense, Net     —     (134 )
   
 
 
Income Before Provision for Income Taxes     15,124     14,206  
Provision for Income Taxes     (5,734 )   (5,966 )
   
 
 
Net Income   $ 9,390   $ 8,240  
   
 
 
Earnings per Share:              
  Basic   $ .36   $ .32  
   
 
 
  Diluted   $ .35   $ .32  
   
 
 
Weighted Average Shares:              
  Basic     26,052     26,000  
   
 
 
  Diluted     26,860     26,000  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

4


VIASYS HEALTHCARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 
   Six Months Ended
  
 
   June 29, 2002
   June 30, 2001
  
 
   (Unaudited)
(In thousands)

  
Operating Activities:              
  Net income   $ 9,390   $ 8,240  
  Adjustments to reconcile net income to net cash provided by operating activities:              
    Depreciation and amortization     4,780     6,916  
    Provision for losses on accounts receivable     940     567  
    Provision for writedown of assets     868     —  
    Other noncash items     187     (143 )
    Changes in current accounts:              
      Accounts receivable     5,605     (942 )
      Inventories     (13,608 )   (6,620 )
      Other current assets     (2,366 )   907  
      Accounts payable     1,241     (728 )
      Other current liabilities     (2,777 )   2,821  
    Other     51     —  
   
 
 
      Net cash provided by operating activities     4,311     11,018  

Investing Activities:
 
 
 
 
 
 
 
  Purchases of property, plant and equipment     (5,517 )   (4,200 )
  Purchases of intangible assets     (857 )   (1,015 )
  Proceeds from sale of property, plant and equipment     391     1,048  
  Advances to former affiliate, net     —     (220 )
   
 
 
      Net cash used in investing activities     (5,983 )   (4,387 )

Financing Activities:
 
 
 
 
 
 
 
  Net transfer to former parent company     —     (7,061 )
  Decrease in short-term borrowings     (4,050 )   (6,588 )
  Deferred charges related to credit facility     (734 )   —  
  Proceeds from issuance of common stock under option plans     339     —  
  Other, net     (28 )   —  
   
 
 
      Net cash used in financing activities     (4,473 )   (13,649 )
   
 
 
Exchange Rate Effect on Cash and Cash Equivalents     753     (677 )
   
 
 
Decrease in Cash and Cash Equivalents     (5,392 )   (7,695 )
Cash and Cash Equivalents at Beginning of Period     14,968     12,611  
   
 
 
Cash and Cash Equivalents at End of Period   $ 9,576   $ 4,916  
   
 
 

The accompanying notes are an integral part of these condensed consolidated financial statements.

5


VIASYS HEALTHCARE INC

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.    General

        The interim condensed consolidated financial statements presented have been prepared by VIASYS Healthcare Inc., (the "Company") are unaudited and, in the opinion of management, reflect all adjustments of a normal recurring nature necessary for a fair statement of the financial position at June 29, 2002, the results of operations for the three and six month periods ended June 29, 2002 and June 30, 2001 and the statement of cash flows for the six month periods ended June 29, 2002 and June 30, 2001. Interim results are not necessarily indicative of results for a full year.

        The condensed consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the annual financial statements and notes of the Company. The condensed consolidated financial statements and notes included herein should be read in conjunction with the financial statements and notes included in the Company's Consolidated Financial Statements on Form 10-K, as filed with the Securities and Exchange Commission.

        Through November 15, 2001, the Company operated as a wholly-owned subsidiary of Thermo Electron Corporation ("Thermo Electron" or "former parent company"). In February 2001, the Thermo Electron board of directors declared a dividend of all of its equity interest in the Company. The dividend was distributed on November 15, 2001, (the "Spinoff Date") to Thermo Electron Stockholders of record on November 7, 2001. The distribution was on the basis of 0.1461 share of Company common stock for each share of Thermo Electron common stock outstanding.

2.    Classification

        Certain prior year amounts have been reclassified to conform to the current year presentation.

3.    Comprehensive Income

        Comprehensive income combines net income and foreign currency translation adjustments, which is the only component of the accumulated other comprehensive income (loss) that is presented as a separate component of stockholders' equity in the accompanying balance sheet. During the second quarter of 2002 and 2001, comprehensive income was $10,953,000 and $3,778,000, respectively. For the first six months of 2002 and 2001, comprehensive income was $16,217,000 and $6,904,000, respectively. The increase in comprehensive income is primarily the result of the weakening of the dollar relative to the euro primarily in the second quarter of 2002.

6


4.    Earnings per Share

        Basic and diluted earnings per share were calculated as follows:

 
   Three Months Ended
   Six Months Ended
 
   June 29, 2002
   June 30, 2001
   June 29, 2002
   June 30, 2001
 
   (In thousands except per share amounts)
Basic:                        
  Net Income   $ 4,173   $ 4,369   $ 9,390   $ 8,240
   
 
 
 
  Basic Weighted Average Shares     26,057     26,000     26,052     26,000
   
 
 
 
  Basic Earnings per Share(a)   $ .16   $ .17   $ .36   $ .32
   
 
 
 
Diluted:                        
  Net Income   $ 4,173   $ 4,369   $ 9,390   $ 8,240
   
 
 
 
  Basic Weighted Average Shares     26,057     26,000     26,052     26,000
  Effect of Stock Options Outstanding     718     —     808     —
   
 
 
 
  Diluted Weighted Average Shares     26,775     26,000     26,860     26,000
   
 
 
 
  Diluted Earnings per Share(a)   $ .16   $ .17   $ .35   $ .32
   
 
 
 
(a)
The sum of the quarterly earnings per share may not equal the year to date due to rounding.

7

5.    Business Segment Information

 
   Three Months Ended
   Six Months Ended
  
 
   June 29,
2002
   June 30,
2001
   June 29,
2002
   June 30,
2001
  
 
   (In thousands)

  
Revenues:                          
  Respiratory Care   $ 44,042   $ 44,241   $ 91,010   $ 88,089  
  Neurocare     24,167     22,367     47,200     43,794  
  Medical and Surgical Products     21,206     22,224     43,077     45,407  
   
 
 
 
 
    $ 89,415   $ 88,832   $ 181,287   $ 177,290  
   
 
 
 
 
Income Before Provision for Income Taxes:                          
  Respiratory Care   $ 5,307   $ 5,517   $ 11,495   $ 9,558  
  Neurocare     430     141     1,119     398  
  Medical and Surgical Products     3,582     3,209     7,246     6,640  
  Corporate(a)     (2,246 )   (754 )   (3,940 )   (1,336 )
   
 
 
 
 
  Total Operating Income     7,073     8,113     15,920     15,260  
  Interest and Other Expense, Net     (365 )   (581 )   (796 )   (1,054 )
   
 
 
 
 
    $ 6,709   $ 7,532   $ 15,124   $ 14,206  
   
 
 
 
 

 
 
June 29,
2002
 
December 29,
2001
 
   (In thousands)
Goodwill:            
  Respiratory Care(b)   $ 93,898   $ 91,454
  Neurocare     52,509     52,509
  Medical and Surgical Products     33,569     33,569
   
 
    $ 179,976   $ 177,532
   
 
(a)
Primarily general and administrative expenses.

(b)
The change in the balance of goodwill is as a result of the foreign currency translation adjustment.

6.    Restructuring and Other Unusual Costs

2002 Plan

        For the three and six months ended June 29, 2002, the Company recorded $843,000 of restructuring costs related to the closure of a facility in Colorado and its consolidation with the main Neurocare facility in Wisconsin. The Company may take an estimated $700,000 for additional restructuring actions in 2002, which includes $225,000 for the closure of a Neurocare facility in Germany and its consolidation with our Jaeger facility and $475,000 for the closure of the Colorado facility and its consolidation with the main Neurocare facility in Wisconsin. Included in the $475,000 is severance for 51 employees. These costs will be charged to restructuring costs, and the cash outlays will occur, over the remainder of 2002.

2001 Plan

        The 2001 restructuring actions include headcount reductions and consolidation of facilities. Included is the closure of the Neurocare segment's operating facility in New Hampshire and its consolidation with existing operations in Wisconsin. This segment has also vacated a sales and service

8


office in France and has appointed a third party distributor. The Respiratory Care segment has closed five sales and service operations in Germany and Austria and has consolidated operations into an existing facility in Germany. Also included is severance for 154 employees across all functions, of which 152 had been severed as of June 29, 2002. The Company expects the 2001 Plan restructuring actions to be substantially complete by the end of 2002.

        During 2001, the Company recorded restructuring and other unusual costs of $3,965,000 associated with this plan. Restructuring and unusual costs consist of cash costs, including $3,697,000 of severance, $97,000 for abandoned facilities and $171,000 of other costs.

        For the three and six month periods ended June 29, 2002, the Company recorded restructuring and other unusual costs associated with this plan of $1,389,000 and $2,350,000, respectively. Year to date restructuring and unusual costs consist of cash costs, including $489,000 of severance, $1,537,000 for abandoned facilities and $324,000 of other costs. The costs related to abandoned facilities include a non-cash charge of $868,000 that was recorded to write down the book value of our New Hampshire facility to its estimated net realizable value. This facility is currently held for sale.

        The following table summarizes accrued restructuring costs, which are included in other accrued expenses in the accompanying balance sheet.

 
   Severance
   Employee
Retention
   Abandoned
Facilities
   Other
   Total
  
 
   (In thousands)

  
2001 Restructuring Plan                                
  Costs accrued in 2001(a)   $ 3,697   $ —   $ 97   $ 171   $ 3,965  
  2001 Payments     (1,462 )   —     (51 )   (106 )   (1,619 )
  Currency translation     (31 )   —     —     —     (31 )
   
 
 
 
 
 
Balance at December 29, 2001   $ 2,204   $ —   $ 46   $ 65   $ 2,315  
   
 
 
 
 
 
  Costs accrued in 2002(b)     489     57     1,537     267     2,350  
  Non-cash writedown of asset     —     —     (868 )   —     (868 )
  2002 Payments     (2,128 )   (57 )   (278 )   (237 )   (2,700 )
  Currency translation     199     —     —     —     199  
   
 
 
 
 
 
Balance at June 29, 2002   $ 764   $ —   $