VIASYS Healthcare Inc. Reports Fourth Quarter and Full Year 2004 Resul

    Business Editors/Financial Analysts/Health Editors/Medical Editors

    CONSHOHOCKEN, Pa.--(BUSINESS WIRE)--Feb. 24, 2005--VIASYS Healthcare Inc. (NYSE:VAS), a leading healthcare technology company, today reported results for the quarter and fiscal year ended January 1, 2005. All information is from continuing operations unless otherwise indicated.

    Full Year Results

    Revenues for fiscal 2004 of $393.2 million were essentially equal to $394.9 million in fiscal 2003. Excluding restructuring expenses, income and expense related to litigation involving the commercialization of nitric oxide gas, and the write-off of purchased in-process research and development expenses in 2004, operating income decreased 37.5% to $27.7 million as compared to $44.4 million in the same period last year.(1) Excluding the impact of these items, income from continuing operations after taxes decreased 34.1% to $18.5 million, or $.59 per diluted share, compared to $28.0 million, or $.97 per diluted share, for the same period last year.(1) Foreign currency translation had a positive impact of 1.8% on revenues for the year ended January 1, 2005.
    Operating income, including restructuring expenses, income and expense related to litigation involving the commercialization of nitric oxide gas, and the write-off of purchased in-process research and development expenses in 2004, decreased 44.9% to $22.6 million compared to $41.1 million in the same period last year. On the same basis, income from continuing operations after taxes decreased 41.8% to $15.0 million, or to $.48 per diluted share, compared to $25.8 million, or $.89 per diluted share, for the same period last year. The Company had 2.5 million, or 8.6%, more diluted weighted average shares outstanding in fiscal year 2004 compared to fiscal year 2003, primarily because of the equity offering in the second quarter of 2003. This increase in the number of shares outstanding resulted in a decrease in earnings per diluted share of $.04.

    Fourth Quarter Results

    Revenues for the fourth quarter of 2004 decreased 3.2% to $110.7 million as compared to $114.3 million in the comparable period last year. Excluding the impact of restructuring expenses, litigation expense related to the commercialization of nitric oxide gas, and the write-off of purchased in-process research and development expenses in 2004, operating income decreased 17.2% to $13.1 million as compared to $15.8 million in the comparable period last year.(1) Excluding the impact of these items, income from continuing operations after taxes decreased 16.3% to $8.7 million, or $.28 per diluted share, compared to $10.4 million, or $.34 per diluted share, for the same period last year.(1) Foreign currency translation had a positive impact of 1.6% on revenues for the quarter.
    Including restructuring expenses, litigation expense related to the commercialization of nitric oxide gas, and the write-off of purchased in-process research and development expenses in 2004, operating income decreased 18.1% to $10.6 million compared to $12.9 million in the comparable period last year. On the same basis, income from continuing operations after taxes decreased 18.1% to $7.0 million, or to $.23 per diluted share, compared to $8.5 million, or $.27 per diluted share, for the same period last year.

    Chairman, President and CEO Comments

    Randy Thurman, Chairman, President and CEO, commented on VIASYS' performance: "2004 was a transition year for VIASYS. We restructured the Company and completed our three-year program of upgrading all major product platforms across each strategic business unit as well as upgrading leadership throughout the Company. We created a leaner and more efficient business and management structure and believe we are now poised to grow VIASYS to greater profitability.
    "The fourth quarter of 2004 met our internal expectations and each of our business units performed consistently with these expectations. During the fourth quarter we completed substantially all of the restructuring initiated in the third quarter of 2004 and launched a number of new products, particularly in the NeuroCare business. These investments in our future resulted in costs that had a negative impact on short-term earnings.
    "Entering 2005, we are a highly focused company and a leader in each of our product segments. We consolidated the Respiratory Technologies and Critical Care businesses into a new Respiratory Care business with global leadership positions in the pulmonary function, sleep diagnostics and ventilator markets. Our new pulmonary function diagnostic platform, VMax(R) Encore, has been launched and our AVEA(R) and VELA(R) ventilators continue their success in the acute and sub-acute markets. Our growth strategies in Respiratory Care include sleep therapy, clinical services and new segments of critical care. Our recent settlement of litigation pertaining to the LYRA(TM) sleep mask allows us to continue to sell LYRA(TM) in its present form and clears the way for its global introduction. We intend to vigorously market LYRA(TM) and to explore future product enhancements. With Respiratory Care revenues of nearly one quarter of a billion dollars, we are a major competitor in this important therapeutic segment.
    "NeuroCare closed 2004 marked by the recent introduction of new products across each line of business, the completion of a significant acquisition and the recruitment of a new leadership team. We believe we have emerged as the leader across each segment of our business including EMG, EEG, IOM, vascular and audio diagnostics. Our new flagship platform, NicoletOne(TM), is the most comprehensive and innovative neurodiagnostic system of its kind. We believe the positive customer response to our products is an early indicator that our turnaround has been a success and that NeuroCare will emerge as a near-term and long-term asset to VIASYS.
    "MedSystems has positioned itself as a leader in proprietary disposables and medical access systems with the development of a new product, the CORTRAK(TM) system, and the acquisition of Navion's NAVIGATOR(R) BIONAVIGATION(R) system. The CORTRAK(TM) system aids in the placement of enteral feeding tubes, and the NAVIGATOR(R) facilitates correct placement of peripherally inserted central catheters and central venous catheters. This is a segment of our business that we are committed to grow through internal investments as well as acquisitions.
    "Tecomet is highly respected as an innovator and specialized supplier to the orthopedic and other medical industry segments. It is a consistent performer financially, and we expect this business to accelerate its growth with new products and new leadership.
    "Two areas of our business that contribute more than half our revenue are International and Customer Care. International accounts for approximately 40% of our total revenue and provides a global distribution channel for our existing and acquired products. Customer Care assures VIASYS customers are receiving the highest quality support for our products and provides an annuity-like revenue stream from our growing, global installed base.
    "I would also like to comment on our balance sheet and its potential to drive shareholder value. We begin 2005 with no debt, significant cash for a company of our size and strong cash flow from operations. We expect to utilize our financial capacity to make strategic acquisitions and investments in core operations in order to grow the earnings power of VIASYS.
    "Lastly, we expect total revenues for 2005 to be in the range of $420.0 million to $430.0 million. Income from continuing operations after taxes is expected to range between $.90 to $.94 per diluted share, excluding the impact of acquisitions and expensing stock options under SFAS 123R."

    Respiratory Technologies

    Revenues increased 6.6% to $32.8 million in the fourth quarter of 2004 compared to the fourth quarter of 2003. Excluding the positive impact of foreign currency translation revenues increased 2.3%. This increase was primarily due to significant international sales in our VIASYS Clinical Services business as a result of the initiation of new clinical trials, strong domestic sales of therapeutic gas and pulmonary function testing products, as well as strong international sales of our sleep therapy products. Operating income decreased 13.9% to $2.4 million as compared to $2.8 million in the comparable period last year. This decrease was mainly due to charges related to the restructuring initiated in the third quarter of 2004 as well as higher expenses related to investments in our field sales and service organizations. Partially offsetting these expenses was the absence of legal expenses of $1.5 million incurred in the fourth quarter of 2003 in connection with our suit against INO Therapeutics as well as savings from the restructuring program.

    Critical Care

    Revenues decreased 12.8% to $37.7 million in the fourth quarter of 2004 compared to the fourth quarter of 2003. The decrease was due to lower sales of established ventilators as a result of a large $6.1 million international tender, which occurred in the fourth quarter of 2003, partially offset by increased domestic sales of our VELA ventilator in the fourth quarter of 2004. Operating income decreased 51.3% to $5.2 million as compared to $10.8 million in the comparable period last year. This decrease was primarily due to reduced gross margin from the lower sales; costs incurred to consolidate the California manufacturing operations; and higher expenses related to ongoing investments in our sales force and the expansion of our service organization in support of the larger installed base. Partially offsetting these increased expenses were spending reductions in marketing and research and development.

    NeuroCare

    Revenues decreased 7.6% to $24.0 million in the fourth quarter of 2004 compared to the fourth quarter of 2003. The sales decrease was primarily due to lower sales volume of existing EEG and IOM products, partially offset by higher sales of our new EEG and IOM products, NicoletOne(TM) and ENDEAVOR(TM) CR, respectively, and sales resulting from the acquisition of Taugagreining. Operating income decreased 30.1% to $1.7 million as compared to $2.4 million in the comparable period last year. The decrease in operating income was mainly due to reduced gross margin on lower sales, costs related to the restructuring plan initiated in the third quarter of 2004, and the write-off of purchased in-process research and development expenses in the fourth quarter of 2004 related to the acquisition of Taugagreining, partially offset by lower sales commission expense due to lower sales.

    Medical and Surgical Products

    Revenues increased 13.2% to $16.1 million in the fourth quarter of 2004 compared to the fourth quarter of 2003. This increase was primarily driven by additional sales in our orthopedics business and enteral feeding tube product line. Operating income increased 58.4% to $2.5 million as compared to $1.6 million in the comparable period last year. This increase was primarily due to higher gross margin resulting from the increased sales, manufacturing efficiencies from the higher sales volume and lower research and development expenses. These increases were partially offset by higher selling, general and administrative expenses.

    Corporate Expenses

    Corporate expenses decreased by $3.4 million in the fourth quarter of 2004 over the comparable quarter of 2003 primarily due to savings from the restructuring initiated in the third quarter of 2004 and a reduction in incentive pay, partially offset by restructuring expense and higher professional fees related to compliance with Sarbanes-Oxley.

    Effective Tax Rate

    Our effective tax rate increased to 36.7% in the fourth quarter of 2004 as compared to 30.7% in the fourth quarter of 2003. A portion of the increase was due to a non-deductible in-process research and development charge in the fourth quarter of 2004. In addition, the fourth quarter 2003 effective tax rate was also lower because of an adjustment to reduce the 2003 year-to-date effective tax rate from 35.5% to 34.0%, as a result of increased benefits related to export sales and tax credits.

    Net Income

    Net income, including discontinued operations, was $6.8 million or $.22 per diluted share in the fourth quarter of 2004 and $7.8 million or $.25 per diluted share in the fourth quarter of 2003.

    VIASYS Healthcare Inc. will host an earnings release conference call on Thursday, February 24, at 5:00 PM EST. The call will be simultaneously webcast on the investor information page of our website, www.viasyshealthcare.com. The call will be archived on our website and will also be available for two weeks via phone at 877-519-4471, access code 5616007.

    VIASYS Healthcare Inc. is a global, research-based medical technology company focused on respiratory, neurocare and medical and surgical products. VIASYS products are marketed under well-recognized trademarks including among others VMAX(R), LYRA(TM), AVEA(R), VELA(R), NicoletOne(TM), VIKING QUEST(TM), ENDEAVOR(TM) CR, SENSORMEDICS(R), CORPAK(R), GRASON-STADLER(R), BIRD(R), BEAR(R), NICOLET(R), JAEGER(TM), TOENNIES(TM) and EME(R). VIASYS is headquartered in Conshohocken, PA, and its businesses are conducted through its Respiratory Care, NeuroCare and Medical and Surgical business units. More information can be found at http://www.viasyshealthcare.com

    This press release includes certain forward-looking statements within the meaning of the "Safe Harbor" provisions of the Private Securities Litigation Reform Act of 1995 regarding, among other things, the impact of our restructuring plan on our future performance and our recovery of the associated costs, the viability of the markets in which we compete and our competitive position in those markets, our outlook for our businesses, the impact of new products on our results, our expectations for new product introductions and our expected margins from such products, our ability to continue to offer our customers products responsive to their needs, our expectations regarding revenues for the full year and our prospects for continued growth. These statements may be identified by words such as "expect," "anticipate," "estimate," "project," "intend," "plan," "believe," and other words and terms of similar meaning. Such forward-looking statements are based on current expectations and involve inherent risks and uncertainties, including important factors that could delay, divert, or change any of them, and could cause actual outcomes and results to differ materially from current expectations. These factors include, among other things, the implementation of the company's restructuring plans, timing of pharmaceutical trials by third parties, sales and marketing initiatives, the commercialization of new products, timing and effectiveness of the co-location of business segments, integration of the Company's recent acquisition, market factors, internal research and development initiatives, partnered research and development initiatives, competitive product development, changes in governmental regulations and legislation, patent protection and litigation, and a successful mergers and acquisitions strategy. For further details and a discussion of these and other risks and uncertainties, please see our Annual Report on Form 10-K for the year ended January 3, 2004, which is on file with the Securities and Exchange Commission. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise

(1) These measures are not calculated under generally accepted accounting principles (GAAP). In accordance with Regulation G of the Securities and Exchange Commission, a table reconciling these amounts to the most comparable GAAP number is shown below.

Reconciliation of Non-GAAP Financial Measures (In Thousands, Except Per Share Amounts)

Three Months Three Months Ended Ended January 1, January 3, 2005 2004 Change ------------ ------------ ------- Operating Income from Continuing Operations $ 10,588 $ 12,928 (18.1%) Purchased In-Process Research and Development Expenses (a) 386 - Restructuring Charges 2,058 1,336 Litigation Expenses (b) 32 1,517 ------------ ------------ Adjusted Operating Income from Continuing Operations $ 13,064 $ 15,781 (17.2%) ============ ============

Income from Continuing Operations $ 6,977 $ 8,519 (18.1%) Purchased In-Process Research and Development Expenses (net of income taxes of $0) (a) 386 - Restructuring Charges (net of income taxes of ($731) and ($454)) 1,327 882 Litigation Expenses (net of income taxes of ($11) and ($516)) (b) 21 1,001 ------------ ------------ Adjusted Income from Continuing Operations $ 8,711 $ 10,402 (16.3%) ============ ============

Diluted Earnings per Share from Continuing Operations $ 0.23 $ 0.27 Purchased In-Process Research and Development Expenses per Share (a) 0.01 - Restructuring Charges per Share 0.04 0.03 Litigation Expenses per Share (b) - 0.04 ------------ ------------ Adjusted Earnings per Share $ 0.28 $ 0.34 ============ ============

(a) In the fourth quarter of 2004, the Company recorded a charge of $.4 million ($.4 million, net of tax) to write-off in-process research and development expenses in conjunction with the acquisition of substantially all of the assets of Taugagreining, hf. as required under generally accepted accounting principles.

(b) In the fourth quarter of 2004 and 2003, the Company incurred legal fees in conjunction with the Company's suit against INO Therapeutics regarding nitric oxide gas.

Reconciliation of Non-GAAP Financial Measures (In Thousands, Except Per Share Amounts)

Twelve Months Twelve Months Ended Ended January 1, January 3, 2005 2004 Change ------------- ------------- ------- Operating Income from Continuing Operations $ 22,603 $ 41,052 (44.9%) Purchased In-Process Research and Development Expenses (a) 386 - Restructuring Charges 9,044 1,797 Litigation Expenses (b) 1,680 1,517 Legal Settlement (c) (6,000) - ------------- ------------- Adjusted Operating Income from Continuing Operations $ 27,713 $ 44,366 (37.5%) ============= =============

Income from Continuing Operations $ 15,036 $ 25,838 (41.8%) Purchased In-Process Research and Development Expenses (net of income taxes of $0) (a) 386 - Restructuring Charges (net of income taxes of ($3,211) and ($616)) 5,833 1,181 Litigation Expenses (net of income taxes of ($596) and ($516)) (b) 1,084 1,001 Litigation Settlement (net of income taxes of $2,130) (c) (3,870) - ------------- ------------- Adjusted Income from Continuing Operations $ 18,469 $ 28,020 (34.1%) ============= =============

Diluted Earnings (Loss) per Share from Continuing Operations $ 0.48 $ 0.89 Purchased In-Process Research and Development Expenses per Share(a) 0.01 - Restructuring Charges per Share 0.19 0.04 Litigation Expenses per Share (b) 0.03 0.04 Litigation Settlement per Share(c) (0.12) - ------------- ------------- Adjusted Earnings per Share $ 0.59 $ 0.97 ============= =============

(a) In the fourth quarter of 2004, the Company recorded a charge of $.4 million ($.4 million, net of tax) to write-off in-process research and development expenses in conjunction with the acquisition of substantially all of the assets of Taugagreining, hf. as required under generally accepted accounting principles.

(b) During the twelve months ended January 1, 2005 and January 3, 2004, the Company incurred legal fees in conjunction with the Company's suit against INO Therapeutics regarding nitric oxide gas.

(c) In the second quarter of 2004, the Company settled its litigation with INO Therapeutics and received a payment of $6.0 million in connection with the dismissal of the litigation.

Three Months Ended ----------------------------- Consolidated Statements of Income (unaudited) (In Thousands, Except Per Share Amounts) January 1, 2005 January 3, 2004

Revenues $ 110,681 $ 114,308

Operating Costs and Expenses: Cost of revenues 62,262 61,344 Selling, general and administrative expense 30,190 31,662 Purchased in-process research and development expense 386 - Research and development expense 5,197 7,038 Restructuring charges 2,058 1,336 --------------- --------------- 100,093 101,380 --------------- ---------------

Operating Income 10,588 12,928 --------------- --------------- Interest Income (Expense), net 466 67 Other Expense, net (38) (709) --------------- ---------------

Income from Continuing Operations Before Income Taxes 11,016 12,286 Provision for Income Taxes (4,039) (3,767) --------------- --------------- Income from Continuing Operations 6,977 8,519 Loss from Discontinued Operations (net of tax) (205) (756) --------------- --------------- Net Income $ 6,772 $ 7,763 =============== ===============

Earnings (Loss) per Share: Basic: Continuing Operations $ .23 $ .28 Discontinued Operations (.01) (.02) --------------- --------------- $ .22 $ .26 =============== =============== Diluted: Continuing Operations $ .23 $ .27 Discontinued Operations (.01) (.02) --------------- --------------- $ .22 $ .25 =============== =============== Weighted Average Shares Outstanding: Basic 31,006 30,282

Diluted 31,435 31,028

Twelve Months Ended ------------------- Consolidated Statements of Income (unaudited) (In Thousands, Except Per Share Amounts) January 1, 2005 January 3, 2004

Revenues $ 393,202 $ 394,947

Operating Costs and (Income) Expenses: Cost of revenues 218,870 212,787 Selling, general and administrative expense 124,847 112,856 Purchased in-process research and development expense 386 - Research and development expense 23,452 26,455 Restructuring charges 9,044 1,797 Legal settlement (6,000) - --------------- --------------- 370,599 353,895 --------------- --------------- Operating Income 22,603 41,052 --------------- --------------- Interest Income (Expense), net 977 (656) Other Expense, net (69) (1,252) --------------- ---------------

Income from Continuing Operations Before Income Taxes 23,511 39,144 Provision for Income Taxes (8,475) (13,306) --------------- --------------- Income from Continuing Operations 15,036 25,838 Loss from Discontinued Operations (net of tax) (205) (4,252) --------------- --------------- Net Income $ 14,831 $ 21,586 =============== ===============

Earnings (Loss) per Share: Basic: Continuing Operations $ .49 $ .91 Discontinued Operations (.01) (.15) --------------- --------------- $ .48 $ .76 =============== =============== Diluted: Continuing Operations $ .48 $ .89 Discontinued Operations (.01) (.14) --------------- --------------- $ .47 $ .75 =============== =============== Weighted Average Shares Outstanding: Basic 30,809 28,284

Diluted 31,403 28,905

VIASYS Healthcare Inc. Revenues by Business Segment and Geography (In thousands of dollars)

Three Months Ended Twelve Months Ended --------------------- --------------------- January 1, January 3, January 1, January 3, 2005 2004 2005 2004 ---------- ---------- ---------- ----------

Respiratory Technologies Domestic 16,409 13,800 56,390 53,347 International 16,432 17,012 59,554 60,781 ---------- ---------- ---------- ---------- Total 32,841 30,812 115,944 114,128 ---------- ---------- ---------- ----------

Critical Care Domestic 18,226 19,736 63,325 60,562 International 19,507 23,538 68,960 72,335 ---------- ---------- ---------- ---------- Total 37,733 43,274 132,285 132,897 ---------- ---------- ---------- ----------

NeuroCare Domestic 13,849 17,027 52,404 60,214 International 10,183 8,992 32,652 31,750 ---------- ---------- ---------- ---------- Total 24,032 26,019 85,056 91,964 ---------- ---------- ---------- ----------

Medical and Surgical Products Domestic 12,382 11,453 48,119 47,142 International 3,693 2,750 11,798 8,816 ---------- ---------- ---------- ---------- Total 16,075 14,203 59,917 55,958 ---------- ---------- ---------- ----------

Total VIASYS Continuing Operations Domestic 60,866 62,016 220,238 221,265 International 49,815 52,292 172,964 173,682 ---------- ---------- ---------- ---------- Total 110,681 114,308 393,202 394,947 ========== ========== ========== ==========

--30--TG/ph*

CONTACT: VIASYS Healthcare Inc., Conshohocken Investor Contact: Martin P. Galvan, 610-862-0800

KEYWORD: PENNSYLVANIA INDUSTRY KEYWORD: MEDICAL PHARMACEUTICAL MEDICAL DEVICES BIOTECHNOLOGY BANKING CONFERENCE CALLS EARNINGS SOURCE: VIASYS Healthcare Inc.

Copyright Business Wire 2005