VIASYS HEALTHCARE INC - 10-Q Quarterly Report

QuickLinks -- Click here to rapidly navigate through this document

SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 September 28, 2002
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .

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 (IRS 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 (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 ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). 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 November 6, 2002
Common Stock, $.01 par value		26,211,003

Item 1—Financial Statements

VIASYS HEALTHCARE INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

			September 28, 2002			December 29, 2001
			(Unaudited) (In thousands except share and per share amounts)
ASSETS
Current Assets:
	Cash and cash equivalents		$	10,263		$	14,968
	Accounts receivable, less allowances of $7,260 and $6,981			71,911			75,013
	Inventories:
		Raw materials and supplies		47,567			36,466
		Work in process		9,620			7,510
		Finished goods		28,672			25,985
	Deferred tax asset			16,475			16,360
	Prepaid expenses			4,550			4,678

				189,058			180,980

Property, Plant and Equipment, at Cost				92,603			85,760
	Less: Accumulated depreciation and amortization			61,221			56,797

				31,382			28,963

Goodwill, net				154,017			151,816
Intangible Assets, net				7,308			6,215
Assets of discontinued operations				25,794			35,959
Other Assets				3,915			1,342

			$	411,474		$	405,275

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
	Notes payable		$	35,057		$	33,357
	Accounts payable			18,122			20,122
	Accrued payroll and employee benefits			12,390			12,828
	Deferred revenue			8,986			8,314
	Accrued installation and warranty costs			4,446			4,460
	Accrued commissions			2,733			4,020
	Other accrued expenses			12,463			14,963

				94,197			98,064

Liabilities of discontinued operations				1,771			2,533
Deferred Income Taxes and Other Deferred Items				4,998			5,010

				6,769			7,543
Commitments and Contingencies
Stockholders' Equity:
	Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued			—			—
	Common stock, $.01 par value, 100,000,000 shares authorized; 26,060,426 and 26,037,362 shares issued			261			260
	Capital in excess of par value			263,803			263,171
	Retained earnings			43,606			39,259
	Treasury Stock, 5,597 shares and 0 shares			(111	)		—
	Deferred compensation			—			(158	)
	Accumulated other comprehensive income (loss)			2,949			(2,864	)

				310,508			299,668

			$	411,474		$	405,275

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

VIASYS HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

			Three Months Ended
			September 28, 2002			September 29, 2001
			(Unaudited) (In thousands except per share amounts)
Revenues			$	86,675		$	82,375

Costs and Operating Expenses:
	Cost of revenues			47,038			43,253
	Selling, general and administrative expenses			25,724			23,606
	Research and development expenses			5,776			7,373
	Restructuring and other unusual costs			624			716

				79,162			74,948

Operating Income				7,513			7,427
Interest Income				222			42
Interest Expense				(559	)		(466	)
Other Expense, Net				—			103

Income from Continuing Operations before Income Taxes				7,176			7,106
Provision for Income Taxes				(2,530	)		(3,002	)

Income from Continuing Operations				4,646			4,104
Discontinued Operations (net of ($5,685) and $285 of tax)				(9,689	)		434

Net (Loss) Income			$	(5,043	)	$	4,538

Earnings (Loss) per Share:
	Basic:
		Continuing Operations		.18			.16
		Discontinued Operations		(.37	)		.01

			$	(.19	)	$	.17

	Diluted:
		Continuing Operations		.18			.16
		Discontinued Operations		(.37	)		.01

			$	(.19	)	$	.17

Weighted Average Shares:
	Basic			26,060			26,000

	Diluted			26,060			26,000

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

VIASIS HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

			Nine Months Ended
			September 28, 2002			September 29, 2001
			(Unaudited) (In thousands except per share amounts)
Revenues			$	257,446		$	248,877

Costs and Operating Expenses:
	Cost of revenues			136,952			131,891
	Selling, general and administrative expenses			74,263			71,438
	Research and development expenses			20,513			21,779
	Restructuring and other unusual costs			3,817			1,840

				235,545			226,948

Operating Income				21,901			21,929
Interest Income				343			102
Interest Expense				(1,476	)		(1,446	)
Other Expense, Net				—			(31	)

Income from Continuing Operations before Income Taxes				20,768			20,554
Provision for Income Taxes				(7,683	)		(8,669	)

Income from Continuing Operations				13,085			11,885
Discontinued Operations (net of ($5,104) and $584 of tax)				(8,738	)		893

Net Income			$	4,347		$	12,778

Earnings per Share:
	Basic:
	Continuing Operations			.50			.46
	Discontinued Operations			(.33	)		.03

			$	.17		$	.49

	Diluted:
		Continuing Operations		.49			.46
		Discontinued Operations		(.33	)		.03

			$	.16		$	.49

Weighted Average Shares:
	Basic			26,055			26,000

	Diluted			26,663			26,000

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

VIASYS HEALTHCARE INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

					Nine Months Ended
					September 28, 2002			September 29, 2001
					(Unaudited) (In thousands)
Operating Activities:
	Net income				$	4,347		$	12,778
	Adjustments to reconcile net income to net cash provided by operating activities:
		Income from discontinued operations				(769	)		(893	)
		Provision for writedown of assets held by discontinued operations				9,507			—
		Depreciation and amortization				7,441			9,630
		Provision for losses on accounts receivable				1,658			1,222
		Provision for writedown of assets				868			—
		Other noncash items				166			(141	)
		Changes in current accounts:
			Accounts receivable			2,749			(5,269	)
			Inventories			(14,733	)		(4,604	)
			Other current assets			(1,273	)		638
			Accounts payable			(2,223	)		(1,699	)
			Other current liabilities			(3,583	)		3,223
		Other				(270	)		—

				Net cash provided by continuing operating activities		3,885			14,885
				Net cash provided by discontinued operating activities		718			1,198

			Net cash provided by operating activities			4,603			16,083
Investing Activities:
	Purchases of property, plant and equipment					(9,774	)		(6,424	)
	Purchases of intangible assets					(1,810	)		(1,895	)
	Proceeds from sale of property, plant and equipment					601			922
	Advances to former affiliate, net					—			1,535
	Investing activities of discontinued operations					(381	)		(400	)

				Net cash used in investing activities		(11,364	)		(6,262	)
Financing Activities:
	Net transfer to former parent company					—			(2,948	)
	Increase (Decrease) in short-term borrowings					1,700			(7,394	)
	Deferred charges related to credit facility					(782	)		—
	Proceeds from issuance of common stock under option plans					522			—
	Financing activities of discontinued operations					—			(6,108	)
	Other, net					(42	)		250

				Net cash provided by (used in) financing activities		1,398			(16,200	)

Exchange Rate Effect on Cash and Cash Equivalents						658			170

Decrease in Cash and Cash Equivalents						(4,705	)		(6,209	)
Cash and Cash Equivalents at Beginning of Period						14,968			12,611

Cash and Cash Equivalents at End of Period					$	10,263		$	6,402

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

VIASYS HEALTHCARE INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

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 September 28, 2002, the results of operations for the three and nine month periods ended September 28, 2002 and September 29, 2001 and the statement of cash flows for the nine month periods ended September 28, 2002 and September 29, 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 Condensed 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. The year-to-date change in comprehensive income is primarily the result of the writedown of assets related to the discontinued operation in the third quarter of 2002 partially offset by the weakening of the dollar relative to the euro primarily in the second quarter of 2002.

	Three Months Ended					Nine Months Ended
	September 28, 2002			September 29, 2001		September 28, 2002		September 29, 2001
				(In thousands)
Net (Loss) Income	$	(5,043	)	$	4,538	$	4,347	$	12,778
Effect of Cumulative Translation Adjustment		(1,014	)		1,361		5,813		26

Comprehensive (Loss) Income	$	(6,057	)	$	5,899	$	10,160	$	12,804

4. Earnings per Share

The reconciliation of basic to diluted weighted average shares outstanding is as follows:

	Three Months Ended		Nine Months Ended
	September 28, 2002*	September 29, 2001	September 28, 2002	September 29, 2001
	(In thousands except per share amounts)
Basic Weighted Average Shares	26,060	26,000	26,055	26,000
Dilutive Effect of Stock Options Outstanding	—	—	608	—

Diluted Weighted Average Shares	26,060	26,000	26,663	26,000

*: Since the assumed issuance of common stock under stock incentive awards would not have been dilutive, the weighted average number of

shares used to compute diluted EPS is equal to the weighted average number of shares used in the basic EPS computation.

5. Business Segment Information

		Three Months Ended						Nine Months Ended
		September 28, 2002			September 29, 2001			September 28, 2002			September 29, 2001
					(In thousands)
Revenues from Continuing Operations:
	Respiratory Care	$	48,311		$	43,533		$	139,321		$	131,623
	Neurocare		22,353			22,447			69,553			66,240
	Medical and Surgical Products		16,011			16,395			48,572			51,014

		$	86,675		$	82,375		$	257,446		$	248,877

Operating Income from Continuing Operations:
	Respiratory Care	$	6,155		$	5,061		$	17,650		$	14,619
	Neurocare		908			868			2,027			1,266
	Medical and Surgical Products		2,290			3,045			8,004			8,927
	Corporate^(a)		(1,840	)		(1,547	)		(5,780	)		(2,883	)

Total Operating Income from Continuing Operations			7,513			7,427			21,901			21,929
	Interest and Other Expense, Net		(337	)		(321	)		(1,133	)		(1,375	)
	Provision for Income Taxes		(2,530	)		(3,002	)		(7,683	)		(8,669	)
	Income from Discontinued Operations, net		(9,689	)		434			(8,738	)		893

Net (Loss) Income		$	(5,043	)	$	4,538		$	4,347		$	12,778

		September 28, 2002		December 29, 2001
		(In thousands)
Goodwill:
	Respiratory Care^(b)	$	93,655	$	91,454
	Neurocare		52,509		52,509
	Medical and Surgical Products		7,853		7,853

		$	154,017	$	151,816

^(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 nine months ended September 28, 2002, the Company recorded $408,000 and $1,251,000, respectively, of restructuring costs related to the closure of a facility in Colorado and its consolidation with the main Neurocare facility in Wisconsin. Included in this amount is severance for 51 employees. The Company anticipates recording an estimated $300,000 for additional restructuring actions in 2002, which includes expenses related the closure of a Neurocare facility in Germany and its consolidation with our Jaeger facility and expenses related to the closure of the Colorado facility and its consolidation with the main Neurocare facility in Wisconsin.

2001 Plan

The 2001 restructuring actions included 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 office in France and has appointed a third party distributor. The Respir