VIASYS Healthcare Inc. (NYSE:VAS), a leading healthcare technology
company, today reported results for the quarter ended September 30,
2006. All information is from continuing operations and inclusive
of the results of all acquisitions unless otherwise indicated.
Third Quarter Results Three MonthsEndedSeptember 30,2006 Three
MonthsEndedOctober 1,2005 %Change� Diluted EPS from Continuing
Operations $0.14� $0.13� Add Back: Special Items per share(1) 0.12�
0.07� Subtotal $0.26� $0.20� Add Back: Stock Compensation Expense
per share(1) 0.04� -� Adjusted Diluted EPS from Continuing
Operations $0.30� $0.20� 49.2% Revenues for the third quarter of
2006 increased to $144.7 million as compared to $126.9 million in
the comparable quarter last year. Excluding the impact of stock
compensation expense and special items(1), operating income
increased to $16.1 million as compared to $10.6 million in the same
period last year, and income from continuing operations after taxes
increased to $9.9 million, or $.30 per diluted share, compared to
$6.4 million, or $.20 per diluted share, for the same period last
year. Foreign currency translation had a positive impact of 1.1% on
revenues for the quarter. Including the impact of stock
compensation and special items(1), operating income was $9.6
million compared to $7.3 million in the same period last year, and
income from continuing operations after taxes was $4.6 million, or
$.14 per diluted share, as compared to $4.3 million, or $.13 per
diluted share, for the same period last year. September
Year-to-Date Results Nine MonthsEndedSeptember 30,2006 Nine
MonthsEndedOctober 1,2005 %Change� Diluted EPS from Continuing
Operations $0.52� $(0.70) Add Back: Special Items per share(1)
0.13� 1.28� Subtotal $0.65� $0.58� Add Back: Stock Compensation
Expense per share(1) 0.14� -� Adjusted Diluted EPS from Continuing
Operations $0.79� $0.58� 37.2% Revenues for year-to-date 2006
increased to $426.3 million as compared to $354.8 million in the
comparable quarter last year. Excluding the impact of stock
compensation expense and special items(1), operating income
increased to $43.1 million as compared to $28.5 million in the same
period last year, and income from continuing operations after taxes
increased to $26.1 million, or $.79 per diluted share, compared to
$18.0 million, or $.58 per diluted share, for the same period last
year. Foreign currency translation did not have a material impact
on revenues for the year-to-date period. Including the impact of
stock compensation and special items(1), operating income was $31.0
million compared to a loss of $14.3 million in the same period last
year, and income from continuing operations after taxes was $17.2
million, or $.52 per diluted share, as compared to a loss of $22.0
million, or a loss of $.70 per diluted share, for the same period
last year. Chairman, President and CEO Comments Randy Thurman,
Chairman, President and CEO, commented on VIASYS� performance: �Our
third quarter results reflect the continued strong global demand
for most VIASYS products and services. The excellent performance of
our core businesses continues to be complemented by the strategic
acquisitions completed in 2005 and 2006. In the third quarter,
total revenue growth was 14.0%, of which 11.5% resulted from our
core business and 2.5% resulted from the impact of our
acquisitions. Adjusted operating income from continuing operations
grew 52.6%. This quarterly performance contributed to the
year-to-date results which reflect 20.2% revenue growth, including
9.5% from our core business. Adjusted operating income from
continuing operations increased 51.1% year-to-date as compared to
the prior year. �Contributing to our growth in core revenue and
adjusted operating income are the success of VIASYS Clinical
Services, global demand for our ventilators, consistently strong
performance of our respiratory diagnostics portfolio, strong
international demand and the improved profitability of NeuroCare.
Acquisitions over the past few years have been fully integrated and
we believe that these new products and new channels will drive
continued solid global performance. �During the year we have faced
and successfully met certain challenges. We made the strategic
decision to expand into select international markets with excellent
long-term growth potential, knowing that average selling prices are
somewhat lower than our overall average. In addition, we
experienced increases in raw material costs across all of our
businesses, but which had a disproportionate impact on MedSystems
and Orthopedics. Higher raw material costs are a global dynamic
affecting most companies. Additionally, we have been affected by
price and volume pressures in Orthopedics, which we believe are
occurring industry-wide. Overall top line demand and operational
controls have allowed us to offset these issues and to deliver
expected earnings.� Further commenting on VIASYS� results, Mr.
Thurman said: �Yesterday we announced the acquisition of the
products of BioBeat Medical Ltd. (�BioBeat�) during the quarter. We
believe BioBeat brings to VIASYS best-in-class digital TCD
(transcranial doppler) technology. We will quickly integrate this
technology into our current vascular product portfolio, and we
believe that it provides VIASYS with significant opportunities in
the fast-growing vascular diagnostic market as well as certain
potential neuro therapeutic applications such as stroke treatment.
�I would also like to comment on the progress of our sleep
initiative. A dedicated management team has been appointed and, as
previously announced, the acquisition of Tiara Medical Systems
(�Tiara�) was completed earlier in the quarter. The integration of
Tiara is proceeding as planned. We believe that the combination of
Tiara�s portfolio, our existing products, our presence in sleep
centers and our relationships with pulmonologists and neurologists
provide a unique competitive advantage that will allow us to
compete effectively in the rapidly growing sleep therapy market.
This market continues to be a focus of our growth and acquisition
strategy. �We believe that VIASYS has become a market leader in
each segment in which we compete. This is a result of our product
development initiatives, the global reach of our international
sales and distribution, the success of our direct sales and service
organizations and our focused acquisition strategy that has brought
products which complement and strengthen our core businesses.
Combined with our strong balance sheet, we believe these
initiatives and strategic focus position us to continue to create
excellent shareholder value. �Based on the year-to-date results and
the fourth quarter outlook, we are maintaining our previously
announced 2006 earnings guidance of $1.25 to $1.30 per diluted
share, excluding stock-based compensation expense. The stronger
than expected performance of Tiara, which we previously expected to
be dilutive, is partially offsetting the reduced fourth quarter
outlook for orthopedics. Including the impact of stock-based
compensation, we expect earnings in the range of $1.08 to $1.13 per
diluted share for the full year. In keeping with prior practice,
this guidance excludes the impact of any future acquisitions and
special items.� Segment Highlights � Third Quarter Respiratory Care
Revenues increased 21.1% to $94.3 million in the third quarter of
2006 compared to the third quarter of 2005. The quarter benefited
from sleep therapy product revenues as a result of the July
acquisition of Tiara and strong sales of our LTV1200 portable
mechanical ventilators. Also contributing to this increase were
strong sales of our AVEA ventilators and domestic pulmonary
function testing equipment, as well as increased revenue from
VIASYS Clinical Services. Operating income increased to $10.9
million from $8.4 million in the comparable period last year. This
increase was due to higher overall sales as well as an increase in
domestic sales of higher margin products such as LTV1200. These
increases were partially offset by the negative impact on gross
margin due to sales in international markets with lower average
selling prices. In addition, we recognized increased expenses due
to investments in the sales organization and recorded an in-process
research and development charge related to the acquisition of
Tiara. NeuroCare Revenues increased 4.8% to $30.9 million in the
third quarter of 2006 compared to the third quarter of 2005. The
increased revenues resulted from the ongoing strength in the sales
of our vascular products as well as increases in our
neurophysiology products such as the new LTM (long term monitoring)
and ambulatory EEG systems. These increases were partially offset
by lower consumables revenue due to a change from direct to
distributor sales in select countries subsequent to the Oxford
acquisition in 2005. Distributors receive discounted pricing to
fund local marketing and sales efforts. An operating loss of $0.2
million was incurred in the third quarter of 2006 compared to a
loss of $1.2 million in the same period last year. Included in the
current period loss were $1.8 million of in-process research and
development charges related to the BioBeat acquisition and $1.1
million of restructuring charges. Included in the third quarter
2005 loss was $0.2 million of restructuring charges. Excluding
these items, operating income in the third quarter of 2006 was $2.7
million as compared to a loss of $1.0 million in the same period
last year. This increase was mainly due to sales of higher margin
products and expense savings realized in the current period from
cost improvement initiatives and restructuring of our global
operations. MedSystems Revenues increased 9.6% to $8.8 million in
the third quarter of 2006 compared to the third quarter of 2005.
The increase was mainly due to higher sales of enteral delivery
products and in particular, contributions from our CORTRAK� and
NAVIGATOR� access systems. Also contributing to the increase were
higher sales of our airway management products. Operating income
was $1.6 million in the third quarter of 2006 and 2005. The margin
impact from the higher sales was offset by a less favorable product
mix and increases in costs related to petroleum-based raw
materials. Orthopedics Revenues declined 7.4% to $10.6 million in
the third quarter of 2006 compared to the third quarter of 2005.
This decrease was primarily due to weaker demand for orthopedic
implants as well as pricing pressures from our OEM customers.
Operating income was $1.8 million in the third quarter of 2006
compared to $3.0 million in the comparable period last year. The
impact of the lower sales volume was compounded by the impact on
gross margin of the pricing pressures. Corporate Corporate expenses
increased by $1.7 million in the third quarter of 2006 over the
comparable quarter of 2005 primarily due to stock-based
compensation expense recorded in the current period. Conference
Call VIASYS Healthcare Inc. will host an earnings release
conference call on Thursday November 2, 2006, at 5:00 PM Eastern
Time. 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 7917790. VIASYS
Healthcare Inc. is a global, research-based medical technology
company focused on respiratory, neurology, medical disposable and
orthopedic products. VIASYS products are marketed under
well-recognized trademarks, including, among others, AVEA�, BEAR�,
BIRD�, CORFLO�, CORPAK�, CORTRAK�, EME�, GRASON-STADLER�, JAEGER�,
LYRA�, MEDELEC�, MICROGAS�, NAVIGATOR�, NICOLET�, NicoletOne�,
PULMONETIC�, SENSORMEDICS�, TECA�, TECOMET�, VELA� and VMAX�.
VIASYS is headquartered in Conshohocken, PA, and its businesses are
conducted through its Respiratory Care, NeuroCare, MedSystems and
Orthopedics 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 performance of our
recent acquisitions, their affect on earnings and whether they will
contribute to higher rates of revenue and earnings growth in the
future, our ability to achieve our stated goals, the outlook for
our businesses, our expectations for new product introductions, our
ability to create stockholder value, our belief regarding the
performance of our core businesses, our 2006 earnings guidance, our
prospects for continued growth, our ability to successfully execute
on our business strategies, our confidence in the Company�s future,
our ability to continue to gain market share in our strategic
products, our ability to continue to make strategic and accretive
acquisitions and our ability to compete in the sleep therapy
market. 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
integration of our recent acquisitions, the continued
implementation of the company�s restructuring plans, the
restructuring of our international organization, the headcount
reductions in our Neurocare business, the timing of pharmaceutical
trials by third parties, sales and marketing initiatives, our
ability to attract and retain talented sales personnel, the
commercialization of new products, the effectiveness of the
co-location of the former Critical Care and Respiratory
Technologies business segments, market factors, the continued
growth in the sleep therapy market, internal research and
development initiatives, partnered research and development
initiatives, competitive product development, changes in
governmental regulations and legislation, the continued
consolidation of certain of the industries in which we operate,
acceptance of our new products and services, patent protection and
litigation, a successful mergers and acquisitions strategy, the
ability to locate and acquire companies, businesses and products
that are strategic to the Company and accretive to earnings, and
the market for mergers and acquisitions. 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 December 31,
2005, 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) Stock Compensation and Special items - In
accordance with Regulation G of the Securities and Exchange
Commission, the table set forth below reconciles certain financial
measures used in this press release that were not calculated in
accordance with generally accepted accounting principles, or GAAP,
with the most directly comparable financial measure calculated in
accordance with GAAP. � Reconciliation of Non-GAAP Financial
Measures (In Thousands, Except Per Share Amounts) � Three Months
Ended September 30, 2006 Three Months Ended October 1, 2005 Change
Operating Income from Continuing Operations $ 9,574� $ 7,275�
Acquisition Related Costs (a) 187� 1,215� Restructuring Charges
1,456� 2,064� Acquired in-process research and development (b)
2,949� -� Stock Compensation Expense (c) 1,940� -� Adjusted
Operating Income from Continuing Operations $ 16,106� $ 10,554�
52.6% � Income from Continuing Operations $ 4,566� $ 4,316�
Acquisition Related Costs (net of income taxes of $(67) and $(431)
(a)) 120� 784� Restructuring Charges (net of income taxes of $(524)
and $(733)) 932� 1,331� Acquired in-process research and
development (b) 2,949� -� Stock Compensation Expense (net of income
taxes of $(656) (c)) 1,284� -� Adjusted Income from Continuing
Operations $ 9,851� $ 6,431� 53.2% � Diluted Earnings per Share
from Continuing Operations $ .14� $ .13� Acquisition Related Costs
per Share (a) -� .03� Restructuring Charges per Share .03� .04�
Acquired in-process research and development per share (b) .09� -�
Stock Compensation Expenses per Share (c) .04� -� Adjusted Earnings
per Share from Continuing Operations $ .30� $ .20� � (a) The third
quarter of 2006 was negatively impacted by $0.1 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.1
million of expenses to integrate companies acquired in 2005 and
2006. The third quarter of 2005 was negatively impacted by $0.7
million from stepping-up acquired inventory, as required by
generally accepted accounting principles. In addition, the Company
incurred $0.5 million of expenses to integrate the acquired
companies. � (b) In the third quarter of 2006, the Company recorded
a charge of $2.9 million to write-off in-process research and
development expenses in conjunction with our acquisitions, as
required under generally accepted accounting principles. � (c)
Effective January 1, 2006, we adopted the new accounting
pronouncement FAS123R, "Share Based Payments." In the third quarter
of 2006 we recorded $1.9 million of expense for stock compensation
made to employees, including charges resulting from the adoption of
FAS123R. This charge was not required to be recorded in the
comparable period of the prior year. Reconciliation of Non-GAAP
Financial Measures (In Thousands, Except Per Share Amounts) � Nine
Months Ended September 30, 2006 Nine Months Ended October 1, 2005
Change Operating Income from Continuing Operations $ 31,035� $
(14,310) Acquisition Related Costs (a) 461� 4,149� Restructuring
Charges 1,424� 3,765� Acquired in-process research and development
(b) 2,949� 34,909� Fees related to terminated transaction 440� -�
Stock Compensation Expense (c) 6,779� -� Adjusted Operating Income
from Continuing Operations $ 43,088� $ 28,513� 51.1% � Income from
Continuing Operations $ 17,223� $ (22,014) Acquisition Related
Costs (net of income taxes of $(166) and $(1,473) (a)) 295� 2,676�
Restructuring Charges (net of income taxes of $(513) and $(1,337))
911� 2,428� Acquired in-process research and development (b) 2,949�
34,909� Fees related to terminated transaction (net of income taxes
of $(158)) 282� -� Stock Compensation Expense (net of income taxes
of ($2,291) (c)) 4,488� -� Adjusted Income from Continuing
Operations $ 26,147� $ 17,999� 45.3% � Diluted Earnings per Share
from Continuing Operations $ .52� $ (.70) Acquisition Related Costs
per Share (a) -� .08� Restructuring Charges per Share .03� .08�
Acquired in-process research and development per share (b) .09�
1.12� Fees related to terminated transaction per share .01� -�
Stock Compensation Expenses per Share (c) .14� -� Adjusted Earnings
per Share from Continuing Operations $ .79� $ .58� � (a) The
year-to-date period was negatively impacted by $0.1 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.4
million of expenses to integrate the acquired companies. The prior
year period was negatively impacted by $3.2 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.9
million of expenses to integrate the acquired companies. � (b) The
Company recorded a charge of $2.9 million and $34.9 million for the
nine month periods ending September 30, 2006 and October 1, 2005,
respectively, to write-off acquired in-process research and
development expenses in conjunction with our acquisitions, as
required under generally accepted accounting principles. � (c)
Effective January 1, 2006, we adopted the new accounting
pronouncement FAS123R, "Share Based Payments." For the year-to-date
period, we recorded $6.8 million of expense for stock compensation
made to employees, including charges resulting from the adoption of
FAS123R. This charge was not required to be recorded in the
comparable period of the prior year. � Three Months Ended
Consolidated Statements of Operations (unaudited) (In Thousands,
Except Per Share Amounts) September 30, 2006 October 1, 2005 �
Revenues $ 144,653� $ 126,899� � Operating Costs and Expenses: Cost
of revenues 76,034� 66,049� Selling, general and administrative
expense 45,870� 42,079� Purchased in-process research and
development expense 2,949� -� Research and development expense
8,770� 9,432� Restructuring charges 1,456� 2,064� 135,079� 119,624�
� � Operating Income 9,574� 7,275� Interest Expense, net (623)
(844) Other (Expense) Income, net (161) 261� � Income from
Continuing Operations Before Income Taxes 8,790� 6,692� Provision
for Income Taxes (4,224) (2,376) Income from Continuing Operations
4,566� 4,316� Income from Discontinued Operations (net of tax) -�
90� Net Income $ 4,566� $ 4,406� � Earnings per Share: Basic:
Continuing Operations $ .14� $ .14� Discontinued Operations -� -� $
.14� $ .14� Diluted: Continuing Operations $ .14� $ .13�
Discontinued Operations -� -� $ .14� $ .13� Weighted Average Shares
Outstanding: Basic 32,512� 31,526� � Diluted 33,359� 32,497� � �
Nine Months Ended Consolidated Statements of Operations (unaudited)
(In Thousands, Except Per Share Amounts) September 30, 2006 October
1, 2005 � Revenues $ 426,347� $ 354,775� � Operating Costs and
Expenses: Cost of revenues 223,865� 189,232� Selling, general and
administrative expense 139,738� 117,468� Purchased in-process
research and development expense 2,949� 34,909� Research and
development expense 27,337� 23,711� Restructuring charges 1,424�
3,765� 395,313� 369,085� � � Operating Income 31,034� (14,310)
Interest Expense, net (2,251) (587) Other Expense, net (217) (18) �
Income from Continuing Operations Before Income Taxes 28,566�
(14,915) Provision for Income Taxes (11,343) (7,099) Income (Loss)
from Continuing Operations 17,223� (22,014) Income from
Discontinued Operations (net of tax) -� 537� Net Income (Loss) $
17,223� $ (21,477) � Earnings (Loss) per Share: Basic: Continuing
Operations $ .53� $ (.70) Discontinued Operations -� .01� $ .53� $
(.69) Diluted: Continuing Operations $ .52� $ (.70) Discontinued
Operations -� .01� $ .52� $ (.69) Weighted Average Shares
Outstanding: Basic 32,307� 31,317� � Diluted 33,172� 31,317� � �
VIASYS Healthcare Inc. Revenues by Business Segment and Geography
(In thousands of dollars) � Three Months Ended Nine Months Ended
September 30, 2006 October 1, 2005 September 30, 2006 October 1,
2005 � Respiratory Care Domestic 50,480� 42,263� 145,311� 109,982�
International 43,775� 35,560� 129,304� 102,463� Total 94,255�
77,823� 274,615� 212,445� � � NeuroCare Domestic 18,791� 17,159�
54,839� 49,429� International 12,149� 12,376� 37,387� 38,781� Total
30,940� 29,535� 92,226� 88,210� � � MedSystems Domestic 6,648�
6,255� 19,682� 18,888� International 2,164� 1,785� 6,155� 4,848�
Total 8,812� 8,040� 25,837� 23,736� � � Orthopedics Domestic 8,998�
9,720� 28,080� 24,693� International 1,648� 1,781� 5,589� 5,691�
Total 10,646� 11,501� 33,669� 30,384� � � Total VIASYS Domestic
84,917� 75,397� 247,912� 202,992� International 59,736� 51,502�
178,435� 151,783� Total 144,653� 126,899� 426,347� 354,775� �
VIASYS Healthcare Inc. (NYSE:VAS), a leading healthcare technology
company, today reported results for the quarter ended September 30,
2006. All information is from continuing operations and inclusive
of the results of all acquisitions unless otherwise indicated.
Third Quarter Results -0- *T Three Months Three Months Ended Ended
% September 30, October 1, Change 2006 2005 ---------------
-------------- -------------- Diluted EPS from Continuing
Operations $0.14 $0.13 Add Back: Special Items per share(1) 0.12
0.07 --------------- -------------- Subtotal $0.26 $0.20 Add Back:
Stock Compensation Expense per share(1) 0.04 - ---------------
-------------- Adjusted Diluted EPS from Continuing Operations
$0.30 $0.20 49.2% =============== ============== *T Revenues for
the third quarter of 2006 increased to $144.7 million as compared
to $126.9 million in the comparable quarter last year. Excluding
the impact of stock compensation expense and special items(1),
operating income increased to $16.1 million as compared to $10.6
million in the same period last year, and income from continuing
operations after taxes increased to $9.9 million, or $.30 per
diluted share, compared to $6.4 million, or $.20 per diluted share,
for the same period last year. Foreign currency translation had a
positive impact of 1.1% on revenues for the quarter. Including the
impact of stock compensation and special items(1), operating income
was $9.6 million compared to $7.3 million in the same period last
year, and income from continuing operations after taxes was $4.6
million, or $.14 per diluted share, as compared to $4.3 million, or
$.13 per diluted share, for the same period last year. September
Year-to-Date Results -0- *T Nine Months Nine Months Ended Ended %
September 30, October 1, Change 2006 2005 ---------------
-------------- -------------- Diluted EPS from Continuing
Operations $0.52 $(0.70) Add Back: Special Items per share(1) 0.13
1.28 --------------- -------------- Subtotal $0.65 $0.58 Add Back:
Stock Compensation Expense per share(1) 0.14 - ---------------
-------------- Adjusted Diluted EPS from Continuing Operations
$0.79 $0.58 37.2% =============== ============== *T Revenues for
year-to-date 2006 increased to $426.3 million as compared to $354.8
million in the comparable quarter last year. Excluding the impact
of stock compensation expense and special items(1), operating
income increased to $43.1 million as compared to $28.5 million in
the same period last year, and income from continuing operations
after taxes increased to $26.1 million, or $.79 per diluted share,
compared to $18.0 million, or $.58 per diluted share, for the same
period last year. Foreign currency translation did not have a
material impact on revenues for the year-to-date period. Including
the impact of stock compensation and special items(1), operating
income was $31.0 million compared to a loss of $14.3 million in the
same period last year, and income from continuing operations after
taxes was $17.2 million, or $.52 per diluted share, as compared to
a loss of $22.0 million, or a loss of $.70 per diluted share, for
the same period last year. Chairman, President and CEO Comments
Randy Thurman, Chairman, President and CEO, commented on VIASYS'
performance: "Our third quarter results reflect the continued
strong global demand for most VIASYS products and services. The
excellent performance of our core businesses continues to be
complemented by the strategic acquisitions completed in 2005 and
2006. In the third quarter, total revenue growth was 14.0%, of
which 11.5% resulted from our core business and 2.5% resulted from
the impact of our acquisitions. Adjusted operating income from
continuing operations grew 52.6%. This quarterly performance
contributed to the year-to-date results which reflect 20.2% revenue
growth, including 9.5% from our core business. Adjusted operating
income from continuing operations increased 51.1% year-to-date as
compared to the prior year. "Contributing to our growth in core
revenue and adjusted operating income are the success of VIASYS
Clinical Services, global demand for our ventilators, consistently
strong performance of our respiratory diagnostics portfolio, strong
international demand and the improved profitability of NeuroCare.
Acquisitions over the past few years have been fully integrated and
we believe that these new products and new channels will drive
continued solid global performance. "During the year we have faced
and successfully met certain challenges. We made the strategic
decision to expand into select international markets with excellent
long-term growth potential, knowing that average selling prices are
somewhat lower than our overall average. In addition, we
experienced increases in raw material costs across all of our
businesses, but which had a disproportionate impact on MedSystems
and Orthopedics. Higher raw material costs are a global dynamic
affecting most companies. Additionally, we have been affected by
price and volume pressures in Orthopedics, which we believe are
occurring industry-wide. Overall top line demand and operational
controls have allowed us to offset these issues and to deliver
expected earnings." Further commenting on VIASYS' results, Mr.
Thurman said: "Yesterday we announced the acquisition of the
products of BioBeat Medical Ltd. ("BioBeat") during the quarter. We
believe BioBeat brings to VIASYS best-in-class digital TCD
(transcranial doppler) technology. We will quickly integrate this
technology into our current vascular product portfolio, and we
believe that it provides VIASYS with significant opportunities in
the fast-growing vascular diagnostic market as well as certain
potential neuro therapeutic applications such as stroke treatment.
"I would also like to comment on the progress of our sleep
initiative. A dedicated management team has been appointed and, as
previously announced, the acquisition of Tiara Medical Systems
("Tiara") was completed earlier in the quarter. The integration of
Tiara is proceeding as planned. We believe that the combination of
Tiara's portfolio, our existing products, our presence in sleep
centers and our relationships with pulmonologists and neurologists
provide a unique competitive advantage that will allow us to
compete effectively in the rapidly growing sleep therapy market.
This market continues to be a focus of our growth and acquisition
strategy. "We believe that VIASYS has become a market leader in
each segment in which we compete. This is a result of our product
development initiatives, the global reach of our international
sales and distribution, the success of our direct sales and service
organizations and our focused acquisition strategy that has brought
products which complement and strengthen our core businesses.
Combined with our strong balance sheet, we believe these
initiatives and strategic focus position us to continue to create
excellent shareholder value. "Based on the year-to-date results and
the fourth quarter outlook, we are maintaining our previously
announced 2006 earnings guidance of $1.25 to $1.30 per diluted
share, excluding stock-based compensation expense. The stronger
than expected performance of Tiara, which we previously expected to
be dilutive, is partially offsetting the reduced fourth quarter
outlook for orthopedics. Including the impact of stock-based
compensation, we expect earnings in the range of $1.08 to $1.13 per
diluted share for the full year. In keeping with prior practice,
this guidance excludes the impact of any future acquisitions and
special items." Segment Highlights - Third Quarter Respiratory Care
Revenues increased 21.1% to $94.3 million in the third quarter of
2006 compared to the third quarter of 2005. The quarter benefited
from sleep therapy product revenues as a result of the July
acquisition of Tiara and strong sales of our LTV1200 portable
mechanical ventilators. Also contributing to this increase were
strong sales of our AVEA ventilators and domestic pulmonary
function testing equipment, as well as increased revenue from
VIASYS Clinical Services. Operating income increased to $10.9
million from $8.4 million in the comparable period last year. This
increase was due to higher overall sales as well as an increase in
domestic sales of higher margin products such as LTV1200. These
increases were partially offset by the negative impact on gross
margin due to sales in international markets with lower average
selling prices. In addition, we recognized increased expenses due
to investments in the sales organization and recorded an in-process
research and development charge related to the acquisition of
Tiara. NeuroCare Revenues increased 4.8% to $30.9 million in the
third quarter of 2006 compared to the third quarter of 2005. The
increased revenues resulted from the ongoing strength in the sales
of our vascular products as well as increases in our
neurophysiology products such as the new LTM (long term monitoring)
and ambulatory EEG systems. These increases were partially offset
by lower consumables revenue due to a change from direct to
distributor sales in select countries subsequent to the Oxford
acquisition in 2005. Distributors receive discounted pricing to
fund local marketing and sales efforts. An operating loss of $0.2
million was incurred in the third quarter of 2006 compared to a
loss of $1.2 million in the same period last year. Included in the
current period loss were $1.8 million of in-process research and
development charges related to the BioBeat acquisition and $1.1
million of restructuring charges. Included in the third quarter
2005 loss was $0.2 million of restructuring charges. Excluding
these items, operating income in the third quarter of 2006 was $2.7
million as compared to a loss of $1.0 million in the same period
last year. This increase was mainly due to sales of higher margin
products and expense savings realized in the current period from
cost improvement initiatives and restructuring of our global
operations. MedSystems Revenues increased 9.6% to $8.8 million in
the third quarter of 2006 compared to the third quarter of 2005.
The increase was mainly due to higher sales of enteral delivery
products and in particular, contributions from our CORTRAK(R) and
NAVIGATOR(R) access systems. Also contributing to the increase were
higher sales of our airway management products. Operating income
was $1.6 million in the third quarter of 2006 and 2005. The margin
impact from the higher sales was offset by a less favorable product
mix and increases in costs related to petroleum-based raw
materials. Orthopedics Revenues declined 7.4% to $10.6 million in
the third quarter of 2006 compared to the third quarter of 2005.
This decrease was primarily due to weaker demand for orthopedic
implants as well as pricing pressures from our OEM customers.
Operating income was $1.8 million in the third quarter of 2006
compared to $3.0 million in the comparable period last year. The
impact of the lower sales volume was compounded by the impact on
gross margin of the pricing pressures. Corporate Corporate expenses
increased by $1.7 million in the third quarter of 2006 over the
comparable quarter of 2005 primarily due to stock-based
compensation expense recorded in the current period. Conference
Call VIASYS Healthcare Inc. will host an earnings release
conference call on Thursday November 2, 2006, at 5:00 PM Eastern
Time. 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 7917790. VIASYS
Healthcare Inc. is a global, research-based medical technology
company focused on respiratory, neurology, medical disposable and
orthopedic products. VIASYS products are marketed under
well-recognized trademarks, including, among others, AVEA(R),
BEAR(R), BIRD(R), CORFLO(R), CORPAK(R), CORTRAK(R), EME(R),
GRASON-STADLER(R), JAEGER(TM), LYRA(R), MEDELEC(R), MICROGAS(R),
NAVIGATOR(R), NICOLET(R), NicoletOne(TM), PULMONETIC(TM),
SENSORMEDICS(R), TECA(R), TECOMET(TM), VELA(R) and VMAX(R). VIASYS
is headquartered in Conshohocken, PA, and its businesses are
conducted through its Respiratory Care, NeuroCare, MedSystems and
Orthopedics 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 performance of our
recent acquisitions, their affect on earnings and whether they will
contribute to higher rates of revenue and earnings growth in the
future, our ability to achieve our stated goals, the outlook for
our businesses, our expectations for new product introductions, our
ability to create stockholder value, our belief regarding the
performance of our core businesses, our 2006 earnings guidance, our
prospects for continued growth, our ability to successfully execute
on our business strategies, our confidence in the Company's future,
our ability to continue to gain market share in our strategic
products, our ability to continue to make strategic and accretive
acquisitions and our ability to compete in the sleep therapy
market. 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
integration of our recent acquisitions, the continued
implementation of the company's restructuring plans, the
restructuring of our international organization, the headcount
reductions in our Neurocare business, the timing of pharmaceutical
trials by third parties, sales and marketing initiatives, our
ability to attract and retain talented sales personnel, the
commercialization of new products, the effectiveness of the
co-location of the former Critical Care and Respiratory
Technologies business segments, market factors, the continued
growth in the sleep therapy market, internal research and
development initiatives, partnered research and development
initiatives, competitive product development, changes in
governmental regulations and legislation, the continued
consolidation of certain of the industries in which we operate,
acceptance of our new products and services, patent protection and
litigation, a successful mergers and acquisitions strategy, the
ability to locate and acquire companies, businesses and products
that are strategic to the Company and accretive to earnings, and
the market for mergers and acquisitions. 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 December 31,
2005, 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. -0- *T (1) Stock Compensation and Special items - In
accordance with Regulation G of the Securities and Exchange
Commission, the table set forth below reconciles certain financial
measures used in this press release that were not calculated in
accordance with generally accepted accounting principles, or GAAP,
with the most directly comparable financial measure calculated in
accordance with GAAP. Reconciliation of Non-GAAP Financial Measures
(In Thousands, Except Per Share Amounts) Three Months Three Months
Ended Ended September 30, October 1, 2006 2005 Change -------------
------------- ------ Operating Income from Continuing Operations
$9,574 $7,275 Acquisition Related Costs (a) 187 1,215 Restructuring
Charges 1,456 2,064 Acquired in-process research and development
(b) 2,949 - Stock Compensation Expense (c) 1,940 - -------------
------------- Adjusted Operating Income from Continuing Operations
$16,106 $10,554 52.6% ============= ============= Income from
Continuing Operations $4,566 $4,316 Acquisition Related Costs (net
of income taxes of $(67) and $(431) (a)) 120 784 Restructuring
Charges (net of income taxes of $(524) and $(733)) 932 1,331
Acquired in-process research and development (b) 2,949 - Stock
Compensation Expense (net of income taxes of $(656) (c)) 1,284 -
------------- ------------- Adjusted Income from Continuing
Operations $9,851 $6,431 53.2% ============= ============= Diluted
Earnings per Share from Continuing Operations $.14 $.13 Acquisition
Related Costs per Share (a) - .03 Restructuring Charges per Share
.03 .04 Acquired in-process research and development per share (b)
.09 - Stock Compensation Expenses per Share (c) .04 - -------------
------------- Adjusted Earnings per Share from Continuing
Operations $.30 $.20 ============= ============= (a) The third
quarter of 2006 was negatively impacted by $0.1 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.1
million of expenses to integrate companies acquired in 2005 and
2006. The third quarter of 2005 was negatively impacted by $0.7
million from stepping-up acquired inventory, as required by
generally accepted accounting principles. In addition, the Company
incurred $0.5 million of expenses to integrate the acquired
companies. (b) In the third quarter of 2006, the Company recorded a
charge of $2.9 million to write-off in-process research and
development expenses in conjunction with our acquisitions, as
required under generally accepted accounting principles. (c)
Effective January 1, 2006, we adopted the new accounting
pronouncement FAS123R, "Share Based Payments." In the third quarter
of 2006 we recorded $1.9 million of expense for stock compensation
made to employees, including charges resulting from the adoption of
FAS123R. This charge was not required to be recorded in the
comparable period of the prior year. *T -0- *T Reconciliation of
Non-GAAP Financial Measures (In Thousands, Except Per Share
Amounts) Nine Months Nine Months Ended Ended September 30, October
1, 2006 2005 Change ------------- ------------- ------ Operating
Income from Continuing Operations $31,035 $(14,310) Acquisition
Related Costs (a) 461 4,149 Restructuring Charges 1,424 3,765
Acquired in-process research and development (b) 2,949 34,909 Fees
related to terminated transaction 440 - Stock Compensation Expense
(c) 6,779 - ------------- ------------- Adjusted Operating Income
from Continuing Operations $43,088 $28,513 51.1% =============
============= Income from Continuing Operations $17,223 $(22,014)
Acquisition Related Costs (net of income taxes of $(166) and
$(1,473) (a)) 295 2,676 Restructuring Charges (net of income taxes
of $(513) and $(1,337)) 911 2,428 Acquired in-process research and
development (b) 2,949 34,909 Fees related to terminated transaction
(net of income taxes of $(158)) 282 - Stock Compensation Expense
(net of income taxes of ($2,291) (c)) 4,488 - -------------
------------- Adjusted Income from Continuing Operations $26,147
$17,999 45.3% ============= ============= Diluted Earnings per
Share from Continuing Operations $.52 $(.70) Acquisition Related
Costs per Share (a) - .08 Restructuring Charges per Share .03 .08
Acquired in-process research and development per share (b) .09 1.12
Fees related to terminated transaction per share .01 - Stock
Compensation Expenses per Share (c) .14 - -------------
------------- Adjusted Earnings per Share from Continuing
Operations $.79 $.58 ============= ============= (a) The
year-to-date period was negatively impacted by $0.1 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.4
million of expenses to integrate the acquired companies. The prior
year period was negatively impacted by $3.2 million from
stepping-up acquired inventory, as required by generally accepted
accounting principles. In addition, the Company incurred $0.9
million of expenses to integrate the acquired companies. (b) The
Company recorded a charge of $2.9 million and $34.9 million for the
nine month periods ending September 30, 2006 and October 1, 2005,
respectively, to write-off acquired in-process research and
development expenses in conjunction with our acquisitions, as
required under generally accepted accounting principles. (c)
Effective January 1, 2006, we adopted the new accounting
pronouncement FAS123R, "Share Based Payments." For the year-to-date
period, we recorded $6.8 million of expense for stock compensation
made to employees, including charges resulting from the adoption of
FAS123R. This charge was not required to be recorded in the
comparable period of the prior year. *T -0- *T Three Months Ended
------------------------------------- Consolidated Statements of
Operations (unaudited) (In Thousands, Except Per Share Amounts)
September 30, 2006 October 1, 2005 Revenues $144,653 $126,899
Operating Costs and Expenses: Cost of revenues 76,034 66,049
Selling, general and administrative expense 45,870 42,079 Purchased
in-process research and development expense 2,949 - Research and
development expense 8,770 9,432 Restructuring charges 1,456 2,064
------------------ ------------------ 135,079 119,624
------------------ ------------------ Operating Income 9,574 7,275
------------------ ------------------ Interest Expense, net (623)
(844) Other (Expense) Income, net (161) 261 ------------------
------------------ Income from Continuing Operations Before Income
Taxes 8,790 6,692 Provision for Income Taxes (4,224) (2,376)
------------------ ------------------ Income from Continuing
Operations 4,566 4,316 Income from Discontinued Operations (net of
tax) - 90 ------------------ ------------------ Net Income $4,566
$4,406 ================== ================== Earnings per Share:
Basic: Continuing Operations $.14 $.14 Discontinued Operations - -
------------------ ------------------ $.14 $.14 ==================
================== Diluted: Continuing Operations $.14 $.13
Discontinued Operations - - ------------------ ------------------
$.14 $.13 ================== ================== Weighted Average
Shares Outstanding: Basic 32,512 31,526 Diluted 33,359 32,497 *T
-0- *T Nine Months Ended -------------------------------------
Consolidated Statements of Operations (unaudited) (In Thousands,
Except Per Share Amounts) September 30, 2006 October 1, 2005
Revenues $426,347 $354,775 Operating Costs and Expenses: Cost of
revenues 223,865 189,232 Selling, general and administrative
expense 139,738 117,468 Purchased in-process research and
development expense 2,949 34,909 Research and development expense
27,337 23,711 Restructuring charges 1,424 3,765 ------------------
------------------ 395,313 369,085 ------------------
------------------ Operating Income 31,034 (14,310)
------------------ ------------------ Interest Expense, net (2,251)
(587) Other Expense, net (217) (18) ------------------
------------------ Income from Continuing Operations Before Income
Taxes 28,566 (14,915) Provision for Income Taxes (11,343) (7,099)
------------------ ------------------ Income (Loss) from Continuing
Operations 17,223 (22,014) Income from Discontinued Operations (net
of tax) - 537 ------------------ ------------------ Net Income
(Loss) $17,223 $(21,477) ================== ==================
Earnings (Loss) per Share: Basic: Continuing Operations $.53 $(.70)
Discontinued Operations - .01 ------------------ ------------------
$.53 $(.69) ================== ================== Diluted:
Continuing Operations $.52 $(.70) Discontinued Operations - .01
------------------ ------------------ $.52 $(.69)
================== ================== Weighted Average Shares
Outstanding: Basic 32,307 31,317 Diluted 33,172 31,317 *T -0- *T
VIASYS Healthcare Inc. Revenues by Business Segment and Geography
(In thousands of dollars) Three Months Ended Nine Months Ended
--------------------------- --------------------------- September
30, October 1, September 30, October 1, 2006 2005 2006 2005
------------- ------------- ------------- ------------- Respiratory
Care Domestic 50,480 42,263 145,311 109,982 International 43,775
35,560 129,304 102,463 ------------- ------------- -------------
------------- Total 94,255 77,823 274,615 212,445 -------------
------------- ------------- ------------- NeuroCare Domestic 18,791
17,159 54,839 49,429 International 12,149 12,376 37,387 38,781
------------- ------------- ------------- ------------- Total
30,940 29,535 92,226 88,210 ------------- -------------
------------- ------------- MedSystems Domestic 6,648 6,255 19,682
18,888 International 2,164 1,785 6,155 4,848 -------------
------------- ------------- ------------- Total 8,812 8,040 25,837
23,736 ------------- ------------- ------------- -------------
Orthopedics Domestic 8,998 9,720 28,080 24,693 International 1,648
1,781 5,589 5,691 ------------- ------------- -------------
------------- Total 10,646 11,501 33,669 30,384 -------------
------------- ------------- ------------- Total VIASYS Domestic
84,917 75,397 247,912 202,992 International 59,736 51,502 178,435
151,783 ------------- ------------- ------------- -------------
Total 144,653 126,899 426,347 354,775 ============= =============
============= ============= *T
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