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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

For Annual and Transition Reports Pursuant to Sections 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 001-16121

VIASYS HEALTHCARE INC.
(Exact Name of Registrant as Specified in Its Charter)

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

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
None

        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 the filing requirements for at least the past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. o

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý    No o

        The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 27, 2003, was approximately $626,000,000 based upon the New York Stock Exchange Composite Tape of $20.95 per common share.

        As of March 5, 2004, the registrant had 30,657,712 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the registrant's definitive Proxy Statement for the Annual Meeting of Stockholders to be held on May 5, 2004, are incorporated by reference into Part III of this report. Copies of these documents can be obtained at no cost by calling the company's Investor Relations Department at (610) 862-0799 or by accessing the investor relations section of the company's website at www.viasyshealthcare.com.

Forward-looking Information

        The Private Securities Litigation Reform Act of 1995 (the "Act") provides a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may from time to time make written or oral statements that are "forward-looking," including statements contained in this report and other filings with the Securities and Exchange Commission, reports to our shareholders and news releases. All statements that express expectations, estimates, forecasts or projections are forward-looking statements within the meaning of the Act. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "projects," "forecasts," "may," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements. The forward-looking statements contained in this report include statements regarding our ability to find alternative suppliers for certain components, the effect of the expiration of our patents on our business, the expected time for shipments of our products to customers, the sufficiency of our facilities, our retention of all of our future earnings for use in our business, the effect of changes in foreign exchange rates on our business and the effect on our business of legal proceedings in which we are involved. We undertake no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

        A wide range of factors could materially affect our future performance and financial and competitive position, including the following:

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our projected growth of the neurocare market and the demand for respiratory technologies and critical care equipment and disposables;



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our ability to capitalize on our existing installed equipment base in the respiratory technologies, critical care, neurocare and medical and surgical product markets and our research, development and marketing expertise to expand our business;



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our ability to obtain and maintain regulatory approvals for our products in development, including 510(k) clearance under the Federal Food, Drug and Cosmetic Act;



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our ability to obtain a sufficient supply of raw materials from current suppliers, or, if necessary, in developing alternative sources of supply, including internal capability to produce raw materials or components, at prices competitive with our current sources;



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spending policies of our customers;



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government funding policies;



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reimbursement of patients' medical expenses by government healthcare programs and private health insurers;



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our ability to maintain a competitive position in our industry;



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our ability to increase our revenues and profits;



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our ability to realize the value of the goodwill recorded on our financial statements;



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our ability to adapt and respond to uncertain and difficult global market conditions, including fluctuations in currency exchanges rates and unforeseen changes in foreign governmental rules and regulations;



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our ability to develop brand recognition of our products and services;



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our ability to protect our intellectual property rights;



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our ability to maintain our rights to products and technology licensed from external sources;

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our ability to integrate acquisitions;



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our ability to introduce new products as planned; and



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market acceptance of our new products.

        This above list of factors is not exhaustive but merely illustrative of the many factors that may affect our future performance, financial and competitive position and the accuracy of our forward-looking statements. Accordingly, all forward-looking statements must be evaluated with the understanding of their inherent uncertainty.

Item 1. Business

Overview

        We are a healthcare technology company engaged in developing, manufacturing, marketing and servicing a variety of medical devices, instruments and medical and surgical products for use in the respiratory, critical care, neurocare and medical and surgical product markets. We were incorporated in Delaware in August 1995 as a wholly-owned subsidiary of Thermo Electron Corporation ("Thermo Electron" or "former parent company"). Our business was formed from the combination of a number of enterprises separately acquired or originated by Thermo Electron, including Bird Medical Systems, Bear Medical Technologies, SensorMedics and Nicolet Biomedical. On November 15, 2001 ("Spin-off Date"), as part of its reorganization plan, Thermo Electron spun off its equity interest in our company by distribution of a dividend to its stockholders of record as of November 7, 2001. References to our Company for periods before the Spin-off Date are to the combined businesses of our former parent company from which we were formed.

        Our businesses are combined into four segments through which we operate:

Our Respiratory Technologies group, which develops, manufactures, markets and services products for the diagnosis and treatment of pulmonary and sleep-related disorders, as well as providing services to support pharmaceutical companies and clinical research organizations.

Our Critical Care group, which develops, manufactures, markets and services life support products to treat respiratory insufficiency caused by illness, injury or premature birth.

Our NeuroCare group, which develops, manufactures, markets and services a comprehensive line of neurodiagnostic, vascular diagnostic and audiology testing systems.

Our Medical and Surgical Products group, which develops, manufactures and markets disposable medical products and specialty metal components for orthopedic products, medical-imaging equipment and cardio-vascular implants.

        We currently market our products in over 100 countries and our customers include hospitals, alternate care sites, clinical laboratories, private physicians and original equipment manufacturers. Our global revenues from continuing operations in 2003 totaled $394.9 million. Revenue, operating income from continuing operations and total assets by segment are set forth in the Notes to the Consolidated Financial Statements, which are included herein.

Our Strategy

        We focus our development and marketing activities on growth segments of the healthcare industry. We seek to capitalize on our research, development and marketing expertise, as well as our relationships with physicians and other medical caregivers in these markets to expand our business into high-value opportunities, including disposables, therapy and service-based products. We have augmented our internal research by in-licensing technologies. In addition to new in-licensing opportunities, we are working to enhance and extend our existing product lines into next-generation products and to develop new products to broaden our existing respiratory technologies, critical care,

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neurocare and medical and surgical product offerings. Products that we have recently introduced include:

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AVEA™ Mechanical Ventilator, a high-end mechanical ventilator for adult, pediatric and neonatal use which incorporates a unique Heliox blending system;



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VELA® Mechanical Ventilator, a conventional volume/pressure adult and pediatric ventilator;



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HiOx 80™, a disposable device that administers high levels of oxygen while minimizing oxygen consumption and providing improved patient mobility;



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Oxycon Mobile, a sports and occupation stress testing unit designed to be worn as the patient is engaged in physical activities;



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ORION®, PEGASUS®, Dorado and Delphinus CPAP's, systems for managing obstructive sleep apnea;



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TECOTEX®, an engineered three-dimensional surface texture for orthopedic implants; and



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AUDERA™, an integrated system for evaluating the hearing of patients of all ages.

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Principal Businesses and Products

Respiratory Technologies

        Our Respiratory Technologies group develops, manufactures, markets and services products for the diagnosis and treatment of respiratory, pulmonary and sleep-related disorders. These products are used in a variety of settings, from intensive care to homecare, but generally share a common diagnostic focus on breathing and the availability of oxygen throughout the body. We market our respiratory technology products throughout the world to a variety of customers including hospitals, clinics, private physicians and research centers under the brand names Erich Jaeger and SensorMedics. Our Respiratory Technologies business is comprised of the following product lines:

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Lung function testing, equipment used to diagnose pulmonary disorders;



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Sleep diagnostic and therapeutic, systems for the diagnosis and treatment of sleep-related disorders; and



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VIASYS Clinical Services, products and services to support pharmaceutical companies and clinical research organizations.

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Lung Function Testing Equipment

        Lung or pulmonary function testing equipment measures and analyzes breathing in order to evaluate the condition of the heart, lungs and metabolism. These instruments assist in the diagnosis of heart and lung disease and in the evaluation of a patient's fitness and metabolic condition. In pulmonary function testing, a patient typically breathes into a mouthpiece connected to a diagnostic instrument. This instrument measures the gas concentration, air flow and air volume and collects data on the level of exchange of oxygen and carbon dioxide in the patient's lungs.

        We market our lung function diagnostic equipment internationally under the SensorMedics and Erich Jaeger brand names. We offer a broad line of pulmonary function testing equipment, from basic spirometry products, which measure the rate and volume of breathing, to complete pulmonary function and metabolic systems, which measure a wide range of heart, lung and metabolic functions. Our principal pulmonary function testing products are:

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SensorMedics VMAX ® Spectra ("VMAX"), a portable pulmonary function and metabolic diagnostic system designed for use by healthcare providers. VMAX is a modular system that allows end-users to configure a system to their specific needs and to add diagnostic functions as those needs change. VMAX may be configured in a variety of ways, ranging from a simple spirometry system to a full-featured pulmonary function and metabolic diagnostic lab; and



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Erich Jaeger MasterScreen, a full-function, pulmonary function and metabolic diagnostic system for use primarily by healthcare providers. Our MasterScreen series of products are similar to the VMAX system, but are constructed in a single configuration with fully integrated features.

        We believe that through our combined SensorMedics and Erich Jaeger businesses we represent one of the largest global manufacturers of lung function testing instruments.

Sleep Diagnostic and Therapeutic Equipment

        Sleep diagnostic and therapeutic equipment measures a variety of respiratory and neurological functions to assist in the diagnosis, monitoring and treatment of sleep disorders, such as snoring and obstructive sleep apnea, a condition that causes a person to stop breathing intermittently during sleep.

        We market our sleep diagnostic and therapeutic testing systems under the SensorMedics and Erich Jaeger brand names. Our sleep diagnostic products range from basic sleep diagnostic systems that monitor one patient to a networked, modular, expandable sleep lab that can monitor multiple patients simultaneously. Our sleep therapy product line for homecare use includes continuous positive airway pressure, or CPAP, systems that assist breathing to allow for uninterrupted sleep. Our principal sleep diagnostic and therapeutic devices are:

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SOMNOTRACTPRO™, SOMNOSTARPRO™ and SLEEPSCREEN™, sleep diagnostic systems that monitor respiratory and neurological functions to assist in the diagnosis of sleep disorders; and



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ORION, PEGASUS, Dorado and Delphinus CPAPs, sleep therapy products which use a gentle stream of air to encourage a patient's airway to remain open while sleeping with various monitoring capabilities.

        We believe we hold a market leadership position in sleep diagnostics.

VIASYS Clinical Services ("VCS")

        Our clinical services business provides technology and services including VIAPAD, our proprietary electronic data capture device, to several major pharmaceutical and biotechnology companies and clinical research organizations. We assist these companies and organizations in the monitoring of subjects in clinical studies which investigate treatments for respiratory illnesses. VCS provides customers with high quality data during the clinical study, resulting in the need for fewer patients for their clinical studies and accelerated data capture. VCS' competence is true paperless data collection in

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clinical trials worldwide and reliable data capture with centralized data management and reporting for diagnostic and home monitoring equipment (including electronic diaries).

        We believe the clinical services market offers significant opportunity for growth within our respiratory technology group, as well as in other areas of our company, such as in our NeuroCare group.

Critical Care

        Our Critical Care group develops, manufactures, markets and services life support products to treat respiratory insufficiency caused by illness, injury or premature birth. These products are used in a variety of settings, from intensive care to homecare. We market our critical care products throughout the world to a variety of customers including hospitals, clinics, private physicians, research centers and original equipment manufacturers. Our Critical Care business is comprised of the following product lines:

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Mechanical ventilators, products for patients who need assistance with breathing; and



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Other Products, such as specialized ventilators, treatment devices, blenders and monitoring devices.

Mechanical Ventilators

        Mechanical ventilators are used by patients who are unable to breathe adequately without assistance due to disease or injury. These devices pump heated, humidified, oxygen-enriched air into the lungs at regulated pressures, volumes and times in order to approximate normal breathing or to modify breathing to treat disorders. They are typically configured either for adult, pediatric or neonatal use and are marketed globally under the BIRD®, BEAR®, EME®, SENSORMEDICS™ and VIASYS® Critical Care brand names. We believe our Critical Care business is a market leader in the pediatric and neonatal conventional ventilation markets, as well as the high frequency ventilator markets.

        Our principal mechanical ventilators are:

Other Products

        In addition, we offer high frequency oscillatory ventilators ("HFOV"), which are specialized ventilators designed to provide superior gas exchange within the lung, while protecting the patient's lung from damage that may be caused by the cyclic expansion and contraction characteristic of conventional ventilators and other types of high frequency ventilators. Our primary HFOV products which are marketed under the SensorMedics brand name are:

        3100A HFOV, for use in children and premature infants who suffer acute respiratory failure; and

        3100B HFOV, for use in adults for the treatment of acute respiratory distress syndrome ("ARDS").

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        We also offer a variety of related products, including:

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INFANT FLOW®, a proprietary form of nasal CPAP (Continuous Positive Airway Pressure) and was added as a result of our acquisition of EME in October 2002;



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air/oxygen blenders, which regulate, in specific concentrations, the oxygen delivered by a mechanical ventilator or oxygen delivery device;



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ventilator accessories, such as air compressors, heated humidifiers and mounting stands; and



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monitoring devices that measure the volume of gas entering and exiting a patient's lungs during mechanical ventilation.

NeuroCare

        Our NeuroCare group develops, manufactures, markets and services a comprehensive line of neuro, vascular and audiology diagnostic systems that are used by physicians and medical technologists to assist in the diagnosis and monitoring of neurological, vascular, brain and auditory disorders. We market our portfolio of products globally to a variety of customers under brand names such as Grason-Stadler, Nicolet Biomedical and Nicolet Vascular. Our NeuroCare business is comprised of the following product lines:

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Electromyography and Evoked Potential, equipment that measures electrical activity in nerves and muscles;



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Electroencephalography, equipment that monitors and visually displays the electrical activity generated by nerve cells in the brain;



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Epilepsy Monitoring, equipment that enables a physician to assess the frequency and severity of epileptic and non-epileptic seizures over long time periods;



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Audiology, equipment that assesses hearing and balance disorders using a variety of testing techniques and assists in the placement of digital hearing aids and cochlear implants;



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Intra-Operative Monitoring, products that assist surgeons in preserving the functional integrity of a patient's circulatory and nervous systems during and after complex surgical procedures;



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Physiologic peripheral vascular diagnostics, products that assist healthcare professionals to detect, grade and track treatment of peripheral vascular disease; and



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Patient Management Software Solutions, systems that capture, communicate, archive and summarize patient results for remote viewing, billing and improved productivity.

Electromyography and Evoked Potential

        Electromyography, or EMG, is the measurement of electrical activity in the nerves and muscles. Evoked potential, or EP, is the monitoring of patient response to stimuli in order to evaluate the condition of specific nerve pathways. Physicians and technicians in the fields of neurology, physical medicine and rehabilitation use EMG and EP data to confirm the diagnosis of various diseases and disorders, including carpal tunnel syndrome, Lou Gehrig's (ALS) disease, multiple sclerosis and spinal cord injury. Our principal EMG and EP diagnostic products are the Nicolet Viking and Toennies Neuroscreen, which offer high quality signals to distinguish electrical impulses within the body from background noise.

Electroencephalography

        An electroencephalograph, or EEG, is a visual display of electrical activity generated by nerve cells in the brain. Placing electrodes on the scalp allows the brain's activity to be amplified and displayed in rising and falling potentials called brain waves. Physicians use EEGs primarily for the diagnosis of epilepsy and the monitoring of surgical and pharmaceutical treatments. Our principal EEG diagnostic product is the Nicolet AllianceWorks digital EEG system, which allows screening of brain wave abnormalities.

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Epilepsy Monitoring

        Our BMSI 6000 epilepsy monitoring system combines EEG data with digital video of a patient to enable a physician to assess the frequency and severity of epileptic and non-epileptic seizures over a multiple day period, typically three or four days. Our system helps the physician to locate the site of epileptic seizures in the brain for surgical intervention, to determine the proper dosage of drug therapies, or to determine other courses of treatment for a particular patient.

Audiology

        Audiology is the assessment of hearing, auditory performance and balance disorders using a variety of testing techniques, including the evaluation of the function of the ear and the measurement of neural responses to sound. We offer a broad range of audiology diagnostic instruments for middle ear testing in adults and children that we market under the Grason-Stadler and Nicolet Biomedical brand name. AUDIOSCREENER® is an infant hearing screener for early detection of hearing disorders that could affect the development of speech and language abilities in children. In 2003, we introduced an enhanced version of AUDERA, a device which assists physicians in fitting cochlear implants and hearing aids especially in children.

Intra-Operative Monitoring and Transcranial Doppler

        Our intra-operative monitoring products assist surgeons in preserving the functional integrity of a patient's circulatory and nervous systems during and after complex surgical procedures, such as vascular reconstruction and tumor removal. NeuroCare's primary products in this area are the Endeavor, a sophisticated 16-channel intra-operative monitoring system that provides simultaneous EEG, EP and EMG monitoring for use in the operating room and intensive care units, and our Pioneer and Companion transcranial Doppler systems, which monitor blood flow to the brain in a non-invasive manner.

Physiologic Peripheral Vascular Diagnostics

        Our physiologic testing systems include the VasoGuard and MicroLite, non-invasive products that use a variety of technologies to detect, grade and follow various peripheral vascular diseases. Noninvasive testing is cost-effective and speeds identification and location of disease thus reducing time spent on other more expensive and invasive tests. In addition, these technologies assist in optimizing therapies, such as medication, surgery or vascular stent placement.

        We also offer a variety of products related to our neurodiagnostic instruments, including:

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Medical pocket Dopplers, instruments that detect fetal heartbeats and blood flow in the peripheral vasculature; and



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Transcranial Doppler sonographs, instruments that measure blood flow in the brain.

Patient Management Software Solutions

        Our patient management software solutions are designed to improve the productivity of clinicians by providing data management and connectivity to hospital information systems. Customers are able to collect, archive, share and view patient information in local databases and networks. In addition, they may use the solutions to reduce errors and improve productivity by seamlessly sharing patient results across the hospital's clinical network.

        In contrast to many other neurodiagnostic instrument providers, VIASYS NeuroCare is a leader in providing in-field system repair service, and excels in training and applications support by staffing credentialed employees in all application areas. We believe that we are market leaders in the neurodiagnostic, peripheral vascular diagnostic and audiologist focused audio diagnostic market.

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Medical and Surgical Products

        Our Medical and Surgical group develops, manufactures and markets disposable products and specialty medical products. In 2003, we divested our patient monitoring and our polyurethane businesses. The Medical and Surgical group is now focused on medical disposable products, orthopedic and spinal implants as well as a number of components for various medical devices. We market our disposable products, such as our feeding tube systems, disposable airway management devices and surgical barrier control systems to hospitals, homecare, long-term care and industrial customers globally. We market our specialty products and materials, such as our surgical implant components, to original equipment manufacturers for inclusion in their products. Our Medical and Surgical Products business is comprised of the following businesses:

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MedSystems Disposables, medical disposable products for enteral feeding and respiratory therapy.



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Orthopedics, Specialty Products and Materials, a variety of high-tech metal components and materials for inclusion by original equipment manufacturers in their products. These components include titanium knee and steel hip implants as well as surface textures for orthopedic implants.

MedSystems Disposables

        In 2002, we created a strategic business unit called MedSystems through the combination of our Corpak and Stackhouse businesses. This strategic business unit develops, manufactures and markets a variety of disposable products, including:

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Specialty feeding tubes that supply nutrition to critically ill or compromised patients. The tubes run from the nose into either the stomach or small bowel and allow easily-digested nutrients to be delivered into a patient's digestive tract rather than into the blood stream. Our specially designed tubes can be placed into the small bowel at the patient's bedside resulting in reduced patient transport costs and quicker caloric goal achievement. We market this group of products under the Corflo brand name and we believe that we are the market leader in specialty long-term naso-gastric feeding tubes.



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Neonatal/Pediatric devices, such as:



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Closed suctioning systems that assist infants requiring mechanical ventilation by maintaining an open airway and ensuring that the lungs remain inflated. We market this product under the NeoLink® brand name.



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Farrell Gastric Relief Systems that eliminate gas and fluid buildup that is common in infants suffering from digestive complications, thereby allowing the delivery of nutrients into the stomach. We market this product under the Corflo brand name.



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Disposable respiratory accessories that assist a patient's breathing during surgery or trauma, which we market under the Pulmanex®brand name.



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Surgical barrier control systems that we market to hospitals globally under the Stackhouse brand name. Our principal surgical barrier control systems are:



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FreedomAir Surgical Helmets and ACS Surgical Face Shields that protect surgeons from contamination introduced into the operating room;



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VitalVac Surgical Smoke Evacuation Systems, which are air filtration systems that collect the smoke plume created from vaporizing tissue during laser surgery or electrosurgery; and



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Gowns, masks and caps used in industrial environments.

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Orthopedic, Specialty Products and Materials

        We develop, manufacture and market a variety of specialty products and materials for inclusion by original equipment manufacturers in their products, including:

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Surgical implant components, which are used in reconstructive spinal and trauma surgery, which we market to original equipment manufacturers that design and distribute orthopedic implants globally;



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Key components for a left ventricular assist device which is used to bridge the gap to heart transplant in cardio-vascular surgery; and



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Medical imaging components that reduce X-ray scatter, which allows for high resolution images in mammography and early detection of tumors.

VIASYS Customer Care

        VIASYS Customer Care provides warranty, technical support and long-term service contract options for our products. In addition, our customer care professionals provide the training, installation, contract administration, parts and product upgrades to support both our direct customers and our worldwide distributor network. We provide these services through an organization of 220 experienced biomedical engineers and technicians to ensure the highest level of quality and support to the care providers and patients who rely on our products.

New Products, Research and Development

        We seek to combine research and development spending with our significant knowledge base and key industry relationships to develop a robust pipeline of new products. We have a very active product development portfolio that we believe will be substantially more productive than past efforts due to the implementation of several disciplined processes. In 2002, we instituted a process that benchmarks each major research and development project against others throughout the company. We measure numerous parameters including relative risks, time to market, competitive landscape, resource constraints and return on invested capital. This benchmarking process helps senior management decide on the level of investment in a project and ensures that worthy projects are adequately funded while those with inadequate returns are reevaluated.

        Our Respiratory Technologies Group has broad initiatives to continue the growth of VCS, our clinical services business, improve our sleep diagnostic and therapy franchise, and develop applications for nitric oxide, a therapeutic gas with broad clinical efficacy. VCS leverages our competencies in respiratory medicine, pulmonary mechanics and telemedicine to assist in the management of pharmaceutical trials. We are adding both software and hardware engineering capabilities to the group in order to improve our value to the pharmaceutical and biotechnology industries and assist them in bringing better documented and better understood products to market faster than in the past. We are continuing to develop new products for the sleep therapy market. We expect to introduce a novel new patient interface in 2004 and are actively pursuing both humidification systems and new products in different modes of CPAP. We are also conducting research into potentially significant areas for utilization of nitric oxide. While we are in the early phases, clinical results on a relatively small number of patients have been promising and we intend to increase our focus in this area.

        Our Critical Care Group is working on a number of initiatives to enhance and expand the capabilities of our flagship mechanical ventilator platforms, AVEA and Vela. We intend to incorporate several new software modalities in the future and will continue to develop these product platforms as long term projects. We are also expanding the use of Heliox medical gas on our AVEA ventilator. AVEA is the only ventilator approved for use with Heliox gas in the United States. Heliox is a mixture of medical grade air and helium and its lighter than air qualities make the work of breathing easier for patients with obstructive breathing disorders such as Asthma or Chronic Obstructive Pulmonary Disease. In 2004, we expect to introduce a new generation of our patented Infant Flow noninvasive ventilation product.

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        Our NeuroCare Group is expected to launch a number of new products in 2004, including a much lighter and smaller system for Intra-Operative Monitoring ("IOM"). IOM systems are used to monitor the integrity of nerve pathways during an increasing number of surgical procedures. The use of this equipment requires an experienced technician; therefore it is not uncommon to move both the technician and equipment into numerous surgical suites. The new IOM system meets this emerging need with a full-featured, rugged and durable solution that is one-third lighter and smaller than conventional systems. In addition, we expect the group's investments in core EEG, EMG, sleep and information technologies will surface this year in multi-modality solutions that support the new dynamic workflow requirements of diagnostic clinicians. Advanced signal processing, clinical reporting, database and interfacing tools are expected to enhance the quality and access of patient information, reducing costs and improving productivity and quality of care. Advances in audio diagnostics have also been realized with the successful Audera system, which is expected to be enhanced this year with important new diagnostic test features. The vascular technologies group continues to advance with new state-of-the-art operating system platforms and signal processing advances for trans-cranial monitoring.

        Our Medical and Surgical Group is preparing to launch products to support its enteral feeding line. We believe, and independent clinical data supports, that enteral feeding has significant advantages over IV feeding for most patients including decreased infection rates, less expensive treatment, and reduced length of stay in the hospital. MedSystems also expects to introduce several products to revitalize our barrier protection systems, including a new helmet system for protecting physicians and patients in the surgical suite.

Raw Materials

        We believe we have a readily available supply of raw materials for all of our significant products from various sources and do not anticipate any difficulties in obtaining raw materials essential to our business. However, some components and raw materials, such as the beryllium copper strips included in our medical imaging components, are purchased from sole-source suppliers. We believe that we have the ability to locate, over time, alternative sources of supply at prices competitive with our current supplies or to develop the internal capability to produce such components, if necessary. We have not had a significant production delay that was primarily attributable to an outside supplier.

Government Regulation

United States

U.S. Food and Drug Administration ("FDA")

        In the United States, the testing, manufacture and sale of our products is subject to regulation by numerous governmental authorities, principally the FDA and corresponding state agencies. Pursuant to the Federal Food, Drug and Cosmetic Act and related regulations, the FDA regulates preclinical and clinical testing, development, manufacture, labeling, distribution and promotion of medical devices in the United States. If we do not comply with applicable requirements, we can be subject to, among other things:

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FDA warning letters;



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injunctions;



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fines;



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civil penalties;



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recall or seizure of products;



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total or partial suspension of production;



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operating restrictions/limitations on marketing;



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refusal of the government to grant premarket clearance or premarket approval for devices;



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withdrawal of marketing clearances or approvals; and

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criminal prosecution.

        Further, if our suppliers or companies we supply products to do not meet their regulatory requirements, we could also be adversely affected.

        A medical device may be marketed in the United States only if: (1) the FDA gives prior authorization; (2) the device is subject to a specific exemption; or (3) the device was marketed prior to May 28, 1976, the effective date of the Medical Device Amendments to the Federal Food, Drug and Cosmetic Act. Depending on the type of medical device, FDA authorization typically takes one of the following two forms:

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Premarket clearance pursuant to section 510(k) of the Federal Food, Drug and Cosmetic Act. Generally speaking, 510(k) premarket clearance requires that an applicant submit information which establishes that a proposed device is substantially equivalent to a legally marketed device. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness or constitute a major change in the intended use of the device, require new 510(k) clearances. We believe that it now usually takes from approximately three to six months from the date of submission to obtain 510(k) clearance, although it can take substantially longer, depending on the device and its proposed use.



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Premarket approval ("PMA"). For devices that are not exempt or eligible for 510(k) clearance, the PMA process may be utilized. A PMA application requires an applicant to prove the safety and effectiveness of the device to the FDA through clinical trials. The process of obtaining PMA approval is expensive and uncertain. We believe that FDA approval usually takes from one to three years after filing, but it can take longer, depending on the device.

        The FDA classifies medical devices in the following three categories, according to the level of patient risk associated with a device.

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Class I devices are non-critical products for which general regulatory controls are sufficient to provide reasonable assurance of safety and effectiveness. Most Class I devices are exempt from the requirement of 510(k) premarket clearance. The FDA must grant 510(k) premarket clearance prior to marketing a non-exempt Class I device in the United States.



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Class II devices are products for which general regulatory controls are insufficient to provide reasonable assurance of safety and effectiveness and which therefore need special regulatory controls such as compliance with FDA prescribed standards. The FDA must grant 510(k) premarket clearance prior to marketing a Class II device in the United States.



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Class III devices are products classified by the FDA as posing the greatest risk, such as life-sustaining, life-supporting or implantable devices, or devices that are not substantially equivalent to a legally marketed Class I or Class II device. The FDA generally must approve a PMA application prior to marketing a Class III device in the United States. Two of our principal products, the 3100A and 3100B HFOV, are Class III devices. The FDA has approved a PMA for use of the 3100A HFOV product in children in acute respiratory failure with no upper weight limit. The 3100B HFOV has been approved by the FDA for use in adults with ARDS.

        If human clinical trials of a device are required, whether to support a 510(k) or a PMA application, the sponsor of the trial, which is usually the manufacturer or the distributor of the device, must have an investigational device exemption ("IDE"), before beginning human clinical trials. If a device presents a significant risk to the patient, the FDA must approve the sponsor's IDE application before the clinical trial may start. An IDE application for a significant risk device must be supported by data, typically including the results of animal and laboratory testing. If the IDE application is approved by the FDA and one or more appropriate Institutional Review Boards ("IRB"), human clinical trials may begin at a specific number of investigational sites with a specific number of patients, as approved by the FDA. If the device presents a non-significant risk to the patient a sponsor may begin a clinical trial after obtaining approval for the study by the IRB at each clinical site without the need for FDA approval of an IDE application.

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        The Federal Food, Drug and Cosmetic Act regulates our quality control and manufacturing procedures by requiring us to demonstrate and maintain compliance with the Quality System Regulation ("QSR"). The QSR sets forth the FDA's current good manufacturing practices requirements, which cover the methods used in, and the facilities and controls used for, the design, manufacture, packaging, labeling, storage, installation and servicing of all finished devices intended for human use. The QSR covers quality management and organization, device design, buildings, equipment, purchase and handling of components, production and process controls, packaging and labeling control, device evaluation, distribution, installation, complaint handling, servicing and records. These requirements include, among other things, that:

•

We use written procedures to control all aspects of our product development, manufacturing processes, labeling, packaging, handling, storage, distribution, installation and servicing of medical devices;



•

We validate, by extensive and detailed testing, every aspect of each process, and our ability to produce devices which meet our manufacturing specifications;



•

We investigate any deficiencies in the manufacturing process or in the products produced; and



•

We maintain detailed recordkeeping relating to all personnel, processes and aspects of the operation.

        The FDA monitors compliance with the QSR and current good manufacturing practice requirements by conducting periodic inspections of manufacturing facilities. Violations of applicable regulations noted by the FDA during inspections of our manufacturing facilities could adversely affect the continued marketing of our products.

        The FDA enforces post-marketing controls that include the requirement to file medical device reports ("MDRs") when we become aware of information suggesting that any of our marketed products may have caused or contributed to a death, serious injury or serious illness. The FDA also requires the filing of an MDR when we become aware that any of our products has malfunctioned and that a recurrence of that malfunction would likely cause or contribute to a death, serious injury or serious illness. The FDA relies on MDRs to identify product problems and utilizes MDRs as one mechanism to determine whether it should exercise its enforcement powers.

        Other post-marketing requirements are applicable to our devices including, but not limited to, tracking for certain devices, as well as complaint handling, reporting of corrections and removals and repair, replacement or refund. Companies can also voluntarily conduct a recall of a problem product.

        Other FDA requirements govern product labeling and promotion and prohibit a manufacturer from marketing an approved device for unapproved indications, among other things. If the FDA believes that a manufacturer is not in compliance with the law, it can institute an enforcement action against the manufacturer, its officers and employees.

Other Regulations

        We are also subject to numerous federal, state and local laws relating to safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances.

International

        We derive 43% of our revenues from sales of products outside the United States. Sales of medical devices outside the United States are subject to foreign regulatory requirements that vary widely from country to country. These laws and regulations range from simple product registration requirements in some countries to complex clearance and production controls in others. As a result, the processes and time periods required to obtain foreign marketing approval may be longer or shorter than those necessary to obtain FDA approval or marketing clearance. These differences may affect the efficiency and timeliness of international market introduction of new products.

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        A medical device may only be marketed in the European Union (EU) if it complies with the Medical Devices Directive (MDD) and bears the CE mark as evidence of that compliance. To achieve this the medical devices in question must meet the "essential requirements" defined under the MDD relating to safety and performance and we, as manufacturer of the devices, must undergo a verification of our regulatory compliance by a third party standards certification provider, a so-called "Notified Body". The nature of the assessment depends upon the regulatory class of products concerned, which in turn determines the precise form of testing undertaken by the Notified Body. Similar to the system in the United States, medical devices in the EU are classified according to the risks posed by their use, with class I being low risk devices, class IIa medium risk, class IIb medium/high risk and class III being high risk devices. Our devices fall into the medium and high risk categories and require a higher level of regulatory assessment. As of January 3, 2004, our key respiratory technologies, critical care and neurocare products bore the CE mark.

        The requirements of the MDD must be complied with by the "manufacturer of the device" which is defined as the party responsible for the design, manufacture, packaging and labeling of the device before it is placed in the EU market, regardless of whether these operations are carried out by this entity or on its behalf. Therefore, where our specialty products are incorporated by original equipment manufacturers into their products, compliance with the MDD is their responsibility.

        Geographic information is discussed in the Notes to the Consolidated Financial Statements, which are included herein.

Third Party Reimbursement

        In the United States, health care providers that purchase medical devices generally rely on third party payors to reimburse all or a portion of the cost of the devices either directly or bundled as a component of a reimbursement for health care services. Examples of third party payors are Medicare, Medicaid, private health insurance plans and health maintenance organizations. Medicare is a federally funded program managed by the Centers for Medicare and Medicaid Services ("CMS"), through local fiscal intermediaries and carriers that administer coverage and reimbursement for certain health care items and services furnished to the elderly and disabled. Medicaid is an insurance program for the poor that is both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations that govern their individual program. Each payer has its own process and standards for determining whether it will cover and reimburse a procedure or particular product. Private payers often rely on the lead of the governmental payers in rendering coverage and reimbursement determinations. Therefore, achieving favorable Medicare coverage and reimbursement is usually a significant gating issue for successful introduction of a new product. The competitive position of some of our products will depend, in part, upon the extent of coverage and adequate reimbursement for such products and for the procedures in which such products are used. Prices at which we or our customers seek reimbursement for our products can be subject to challenge, reduction or denial by the government and other payors.

        The federal government and various state governments are currently considering proposals to reform the Medicare and Medicaid systems. We are unable to evaluate what legislation may be drafted and whether or when any such legislation will be enacted and implemented. Some of these proposals, if adopted, could have an adverse effect on our business, financial condition and results of operations.

        During the past several years, the major third party payors have substantially revised their reimbursement methodologies in an attempt to contain their health care reimbursement costs. Medicare reimbursement for inpatient hospital services is based on a fixed amount per admission based on the patient's specific diagnosis. As a result, any illness to be treated or procedure to be performed will be reimbursed only at a prescribed rate set by the government that is known in advance to the health care provider. If the treatment costs less, the provider keeps the overage; if it costs more, the provider cannot bill the patient for the difference. No separate payment is made in most cases for products such as our medical devices when they are furnished or used in connection with inpatient

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care. Many private third party payors and some state Medicaid programs have also adopted similar prospective payment systems.

        Third party payors have recently increased their emphasis on managed care, which has led to an increased emphasis on the use of cost-effective medical devices by health care providers. In addition, through their purchasing power, these payors often seek discounts, price reductions or other incentives from medical product suppliers.

        Reimbursement and health care payment systems in international markets vary significantly by country and include both government sponsored healthcare and private insurance. We have received international reimbursement approvals for many of our products and plan to seek international reimbursement approvals for other products. In contrast to the United States, Europe is a highly fragmented market, with a large number of distinct and uniquely structured healthcare delivery and payment systems. European health care systems are beginning to confront the same fiscal pressures and limitations that characterize the United States health care system and are increasingly adopting many of the same cost and utilization control mechanisms. To the extent that any of our products are not entitled to reimbursement in any international market, market acceptance of such products would be adversely affected.

        In addition to the foregoing Medicare coverage and reimbursement limitations, other aspects of the Medicare and Medicaid programs may negatively affect the Company. In 1977, Congress adopted the Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977, which have been strengthened by subsequent amendments and the creation of the Office of Inspector General ("OIG") to enforce compliance with the statute, as amended (the "Anti-Fraud and Abuse Law"). The Anti-Fraud and Abuse Law prohibits the knowing and willful offer, payment, solicitation, or receipt of any remuneration in any form as an inducement or reward for either the referral of patients or the arranging for reimbursable services. A violation of the statute is a felony and could result in civil penalties, including exclusion from the Medicare program, even if no criminal prosecution is initiated.

        The U.S. Department of Health and Human Services has issued regulations from time to time setting forth so-called "safe harbors," which would protect certain limited types of arrangements from prosecution under the statute. Failure to comply with each element of a particular safe harbor does not mean that an arrangement is per se in violation of the Anti-Fraud and Abuse Law. As the comments to the safe harbors indicate, the purpose of the safe harbors is not to describe all illegal conduct, but to set forth standards for certain non-violative arrangements. Nevertheless, if an arrangement implicates the Anti-Fraud and Abuse Law and full compliance with a safe harbor cannot be achieved, the Company risks greater scrutiny by the OIG and, potentially, civil and/or criminal sanctions. The Company believes its arrangements are in compliance with the federal Anti-Fraud and Abuse Law; however, no assurance can be given that regulatory authorities will not take a contrary position.

        Also, the federal Civil False Claims Act prohibits knowingly presenting (including "causing" the presentation of) a false, fictitious or fraudulent claim for payment to the United States. Actions under the Civil False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in very significant monetary penalties and treble damages. The federal government is using the Civil False Claims Act, and the threat of significant liability, in its investigations of health care providers, suppliers and manufacturers throughout the country for a wide variety of Medicare billing practices, and has obtained multi-million dollar settlements. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources in investigating healthcare providers', suppliers' and manufacturers' compliance with health care billing, coverage and reimbursement rules and fraud and abuse laws.

        In addition, federal law includes other provisions that specifically prohibit certain types of manipulative Medicare billing practices. Federal law also provides for minimum periods of exclusion from federal and state health care programs for certain offenses and frauds. Many states also have false claims and other health care fraud and abuse laws, which also may include civil and criminal penalties.

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Patents, Licenses and Trademarks

        We pursue patent protection of our technology, products and product improvements both in the United States and in selected foreign countries. We also rely on trade secrets and technological innovations to develop and maintain our competitive position. In an effort to protect our trade secrets, we generally require our employees, consultants and advisors to execute confidentiality and invention assignment agreements upon commencement of employment or consulting relationships with us.

        We have entered into a number of license and other arrangements under which we have obtained rights to manufacture and market some products or potential products. For instance, a number of the therapeutic-based products that we are developing incorporate proprietary technologies that we have licensed from third parties. Under our existing licenses, we are subject to commercialization and development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach a license agreement, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license, we may be required to license to the licensor any related intellectual property that we develop.

        We do not consider any patent or related group of patents to be of such importance that its expiration or termination would materially affect our business.

Competition

        The respiratory technologies, critical care, neurocare and medical and surgical product markets are highly competitive. We compete with many companies ranging from small start-up enterprises to companies that are larger and more established than us, with access to significant financial resources and greater name recognition, research and development experience and regulatory, manufacturing, and marketing capabilities. We compete in each of our markets primarily on the basis of reputation, product reliability and performance, product features and benefits, price and post-sale service and support.

        Our Respiratory Technologies and Critical Care segments compete with products from firms such as Siemens AG, Tyco Healthcare Group, Dragerwork AG and Respironics, Inc. The principal competitors of our NeuroCare segment include Bio-logic Systems Corporation, Shanghai Kohden Medical Instrument Corporation (formerly Nihen Koden Corporation), Teca-Oxford Instruments PLC, and Excel Tech Ltd. The principal competitors of our Medical and Surgical Products segment include the Ross Products Division of Abbott Laboratories, The Dow Chemical Company and J. P. Stevens Company.

Employees

        As of January 3, 2004, we had a total of 1,859 full-time employees, consisting of 1,475 employees based in the United States and 384 employees based outside of the United States. We have no collective bargaining agreements with our United States employees. Some of our operating locations outside the United States have work council agreements as mandated by law. The Company believes that it has good employee relations.

Available Information

        We maintain a website at www.viasyshealthcare.com and make available free of charge on this website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

        VIASYS also makes available on its website the charters of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee of its board of directors, and its Code of Conduct. Such information is also available in print to stockholders upon request.

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Risk Factors

Demand for some of our products depends on the capital spending policies of our customers and on government funding policies. Changes in these policies could negatively affect our business.

        A majority of our customers are hospitals. We also sell to laboratories, universities, healthcare providers and public and private research institutions. Many factors, including public policy spending provisions, available resources and economic cycles have a significant effect on the capital spending policies of these entities. These factors can have a significant effect on the demand for our products. For example, a reduction in funding to major government research supported agencies, such as the National Institutes of Health or the National Science Foundation, could adversely affect sales of our sleep diagnostic testing equipment.

We depend on third party reimbursement to our customers for market acceptance of our products. Our profitability would suffer if third party payors failed to provide appropriate levels of reimbursement for the purchase or use of our products or if any governmental or third party payor were to issue an adverse determination or restrictive coverage policy.

        Sales of medical products largely depend on the reimbursement of patients' medical expenses by government healthcare programs and private health insurers. The cost of some of our products, particularly our SensorMedics VMAX and Erich Jaeger MasterScreen pulmonary function and metabolic diagnostic systems, our epilepsy monitoring systems and our intra-operative monitoring systems is substantial. Without both favorable coverage determinations by, and the financial support of, government and third party insurers, the market for some of our products could be limited.

        Governments and private insurers in many countries closely examine medical products and devices incorporating new technologies to determine whether to cover and reimburse for the purchase or use of such products and devices and, if so, the appropriate level of reimbursement. We cannot be sure that third party payors will cover and reimburse customers for purchases of future products or that any such reimbursement will enable us to sell these products at profitable prices. We also cannot be sure that third party payors will maintain the current level of reimbursement to physicians and medical centers for use of our existing products. Adverse coverage determinations or any reduction in the amount of this reimbursement could harm our business.

        During the past several years, major third party payors have substantially revised their reimbursement methodologies in an attempt to contain their healthcare reimbursement costs. Third party payors have recently increased their emphasis on managed care, which has led to an increased emphasis on the use of cost-effective medical devices by healthcare providers. In addition, through their purchasing power, these payors often seek discounts, price reductions or other incentives from medical products suppliers.

        The federal government and private insurers continue to consider ways to change the manner in which healthcare services are provided and paid for in the United States. In the future, it is possible that the government may institute price controls and further limits on Medicare and Medicaid spending. These controls and limits could affect the payments we receive from sales of our products. Internationally, medical reimbursement systems vary significantly, with some medical centers having fixed budgets, regardless of the level of patient treatment and other countries requiring application for, and approval of, government or third party reimbursement. Even if we succeed in bringing new products to market, uncertainties regarding future healthcare policy, legislation and regulations, as well as private market practices, could affect our ability to sell our products in commercially acceptable quantities at profitable prices.

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We may need additional capital to sustain and expand our business, including the development of new products.

        We currently have cash and cash equivalents of $97.9 million and a $60.0 million revolving credit facility under which we have no outstanding debt as of January 3, 2004. Both cash and the credit facility are available to expand our business, either through acquisitions or development of new products. Our ability to access the credit facility is dependent on complying with the debt covenants that are part of that agreement. These covenants include a maximum ratio of debt to earnings before interest, taxes and depreciation and amortization ("EBITDA") of 2.5, a minimum ratio of EBITDA to interest expense of 4.0, maximum annual capital expenditures of $20 million and a minimum level of stockholders' equity. While we are in compliance with these restrictions and expect to be able to meet these requirements in the future, failure to satisfy any of the conditions would require us to renegotiate the facility on terms that may not be favorable or could require us to repay any outstanding balance. While we would attempt to find alternative sources to fund our operations from other financial institutions, we cannot assure you that we would be successful, or if we were successful that the new credit would be on terms that would be attractive in financing our business plans.

        In addition, we may need to seek capital beyond that available. Adequate funds for these purposes on terms favorable to us, whether through additional equity financing, debt financing or other sources, may not be available when needed and, if consummated, may result in significant dilution to existing stockholders. If we are unable to secure additional funding when required, we may be required to delay, scale back, and/or abandon some or all of our product development programs.

We face aggressive competition in many areas of our business and our business will be harmed if we fail to compete effectively.

        We encounter aggressive competition from numerous companies in many areas of our business. Although we believe that our products currently compete favorably with respect to these factors, we cannot give assurance that we can maintain our competitive position against our current and potential competitors. Many of our current and potential competitors have longer operating histories, greater name recognition and substantially greater financial, technical and marketing resources than we have. We may not be able to compete effectively with these competitors. To remain competitive, we must develop new products and periodically enhance our existing products. We anticipate that we may have to adjust the prices of many of our products to stay competitive. In addition, new competitors may emerge and entire product lines may be threatened by new technologies or market trends that reduce the value of these product lines.

A significant percentage of our total assets consist of goodwill from acquired companies and we may be unable to realize the value of this asset.

        VIASYS and its former parent company have paid substantial premiums over the fair value of the net assets of some of the companies that comprise our business. We have acquired significant intangible assets, including approximately $182.4 million of cost in excess of net assets of acquired companies, or goodwill, recorded on our balance sheet as of January 3, 2004. This represents approximately 36% of our total assets as of that date. Our ability to realize the value of this asset will depend on future cash flows of the acquired businesses. Cash flow, in turn, depends on how well we have identified these acquired businesses as desirable acquisition candidates and how well we can integrate these acquired businesses.

The complexity presented by international operations could negatively affect our business.

        International revenues account for a substantial portion of our revenues. International revenues from continuing operations, including export revenues from the United States, accounted for 43% of our total revenues in 2003 and 41% of our total revenues in 2002. While we plan to continue

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expanding our presence in international markets, our international operations present a number of risks, including the following:

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Foreign laws in a number of countries may limit our ability to properly maintain our distribution channels. For example, a number of foreign laws restrict our ability to terminate a distributor for taking actions that adversely affect our business, such as manufacturing and selling competing products.



•

The successful marketing of our products in some countries, including many European countries, may require us to establish a local presence. The revenues generated in these countries may not justify the expense of establishing and maintaining such a local presence.



•

Fluctuations in currency exchange rates have, on occasion, forced us to lower our prices, thereby reducing our margins for some of our respiratory and neurodiagnostic products.

Our competitive position is partially dependent on protecting our intellectual property, which can be difficult and expensive.

        We believe that the success of our business depends, in part, on obtaining patent protection for our products, defending our patents once obtained and preserving our trade secrets. Patent and trade secret protection is important to us because developing and marketing new technologies and products is time consuming and expensive. We own many U.S. and foreign patents and intend to apply for additional patents to cover our products. We may not receive enforceable patents from any pending or future patent applications owned by or licensed to us. The claims allowed under any issued patents may not be broad enough to protect our technology.

        Our competitive position is also dependent upon unpatented trade secrets. Trade secrets are difficult to protect. Our competitors may independently develop proprietary information and techniques that are substantially equivalent to ours or otherwise gain access to our trade secrets, such as through unauthorized or inadvertent disclosure of our trade secrets. Litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets and to determine the validity and scope of our proprietary rights. Any litigation could result in substantial expense and diversion of attention from our business and may not adequately protect our intellectual property rights.

        In addition, we may be sued by third parties claiming that our products infringe on the intellectual property rights of others. This risk is exacerbated by the fact that the validity and breadth of claims covered in medical technology patents involve complex legal and factual questions for which important legal principles are unresolved. Any litigation or claims against us, whether or not valid, could result in substantial costs, place a significant strain on our financial resources, divert management resources and harm our reputation. Such claims could result in awards of substantial damages, which could have a significant adverse impact on our operating results. In addition, intellectual property litigation or claims could force us to:

•

cease selling, incorporating or using any of our products that incorporate the challenged intellectual property, which would adversely affect our revenue;



•

obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms, if at all; or



•

redesign our products, which would be costly and time-consuming.

If we breach any of the agreements under which we license commercialization rights to products or technology from others, we could lose license rights that are important to our business.

        We license rights to products and technology that are important to our business and we expect to enter into additional licenses in the future. Although the products and technology that we currently license account for less than 5% of our total annual revenues, we expect that this percentage will increase as we develop and introduce additional licensed products to the market. For instance, a

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number of the therapy-based products that we are developing incorporate proprietary technologies that we have licensed from third parties. Under these licenses, we are subject to commercialization and development, sublicensing, royalty, insurance and other obligations. If we fail to comply with any of these requirements, or otherwise breach a license agreement, the licensor may have the right to terminate the license in whole or to terminate the exclusive nature of the license. In addition, upon the termination of the license, we may be required to license to the licensor any related intellectual property that we develop.

Our ability to market and sell our products depends upon receipt of domestic and foreign regulatory approval of our products and manufacturing operations. Our failure to obtain or maintain regulatory approvals and compliance could negatively affect our business.

        Our products and manufacturing operations are subject to extensive regulation in the United States by the FDA and by similar regulatory agencies in many other countries in which we do business. The principal risks that we face in obtaining and maintaining the regulatory approvals necessary to market our products include:

•

The approval process for medical devices in the United States and abroad can be lengthy, expensive and require extensive preclinical and clinical trials. As a result, we may expend substantial resources in developing and testing a new product but fail to obtain the necessary approvals or clearances to market or manufacture the product on a timely basis or at all.



•

When we modify a medical device for which we have received marketing approval, we must determine whether the modification requires us to seek new regulatory approvals. If the FDA or other regulatory agency does not agree with our determination, we may be prohibited from marketing the modified device until we receive the requisite regulatory approval or clearance. In addition, the FDA actively enforces regulations prohibiting marketing of devices for indications or uses that have not been cleared or approved by the FDA.



•

The FDA and foreign regulatory agencies require us to comply with an array of manufacturing and design controls and testing, quality control, storage and documentation procedures. Because our business is geographically dispersed in the United States and abroad, compliance with these procedures is difficult and costly.

        If we fail to comply with applicable regulations, we could be subject to a number of enforcement actions, including warning letters, fines, product seizures, recalls, injunctions, total or partial suspension of production, operating restrictions or limitations on marketing, refusal of the government to grant new clearances or approvals, withdrawal of marketing clearances or approvals and civil and criminal penalties. Companies may also voluntarily conduct a recall of a problem product. For a summary of government regulations applicable to our business, see "Business—Government Regulation."

We may be unable to successfully develop and/or commercialize our new and existing products.

        We have undertaken a substantial internal development strategy under which we anticipate developing a number of therapy and service-based products. This strategy represents a departure from our traditional business model and we may not have sufficient expertise and experience necessary to successfully implement this new strategy and develop these new products. Furthermore, the successful development and commercialization of these new products will depend upon our ability to obtain regulatory approvals, as discussed above. If we are unable to obtain these regulatory approvals, we will be unable to market and sell our products, which will negatively affect our business. Even if we are able to obtain regulatory approval for our products we may have difficulty in bringing these products to market. In addition, once our products are brought to market, their shipment may be delayed or the products may have to be discontinued based on design, mechanical, software, regulatory or other issues. These matters may adversely affect our business and reputation.

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Our dependence on suppliers for materials could impair our ability to manufacture our products.

        Outside vendors, some of which are sole-source suppliers, provide key components and raw materials that we use in the manufacture of our products, such as the beryllium copper strips included in our medical imaging components. Although we believe that alternative sources for these components and raw materials are available, any supply interruption in a limited or sole-source component or raw material could harm our ability to manufacture the affected product until we identify and qualify a new source of supply. In addition, an uncorrected defect or supplier's variation in a component or raw material, either unknown to us or incompatible with our manufacturing process, could harm our ability to manufacture the affected product. We may not be able to find a sufficient alternative supplier in a reasonable time period, or on commercially reasonable terms, if at all, which could impair our ability to produce and supply our products. If we cannot obtain a necessary component, we may need to find, test and obtain regulatory approval for a replacement component, which would cause significant delays that could seriously harm our business and operating results.

Anti-takeover provisions in our charter documents and under Delaware law could prevent or delay transactions that our stockholders may favor.

        Provisions of our charter and by-laws may discourage, delay or prevent a merger or acquisition that our stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. For example, these provisions:

•

authorize the issuance of "blank check" preferred stock without any need for action by stockholders;



•

provide for a classified board of directors with staggered three-year terms;



•

require supermajority stockholder approval to effect various amendments to our charter and by-laws;



•

eliminate the ability of stockholders to call special meetings of stockholders;



•

prohibit stockholder action by written consent; and



•

establish advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.

        In addition, our board of directors has adopted a stockholder rights plan intended to protect stockholders in the event of an unfair or coercive offer to acquire our company and to provide our board of directors with adequate time to evaluate unsolicited offers. This rights plan may have anti-takeover effects. The rights plan would cause substantial dilution to a person or group that attempts to acquire us on terms that our board of directors does not believe are in the best interests of us and our stockholders and may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares.

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Executive Officers of the Company

        Our executive officers are as follows:

Randy H. Thurman; Chairman of the Board and Chief Executive Officer

        Mr. Thurman has served as Chief Executive Officer since April 2001 and became Chairman of the Board upon the public offering in November 2001. From 1996 to April 2001, Mr. Thurman served as Chairman and Chief Executive Officer of Strategic Reserves LLC, a privately held company providing funding and strategic direction to healthcare technology companies. From 1993 to 1996, Mr. Thurman was Chairman and CEO of Corning Life Sciences Inc., which was a global leader in clinical laboratory testing, pharmaceutical research and esoteric reference testing. Concurrent with the aforementioned positions, Mr. Thurman served as Chairman of the Board of Enzon Pharmaceuticals from 1994 to 2001 (Nasdaq: ENZN). From 1984 to 1993, Mr. Thurman held various positions at Rhone-Poulenc Rorer Pharmaceuticals, Inc., a global pharmaceutical company, ultimately as its President. Mr. Thurman also serves as Lead Director of Valeant Pharmaceuticals International (NYSE: VRX) and as a director of Closure Medical Corporation (Nasdaq: CLSR).

Stephen P. Connelly; President and Chief Operating Officer

        Mr. Connelly joined VIASYS Healthcare Inc. in September 2001. Prior to becoming President and Chief Operating Officer in November 2002, Mr. Connelly served as Group President of VIASYS International and as Group President of VIASYS Medical and Surgical Products. Previously at Rhone-Poulenc Rorer Pharmaceuticals, Inc., Mr. Connelly held the following positions: Senior Vice President, North and South America; Senior Vice President, RPR Japan & Asia; President, Dermik Laboratories; Vice President, Hospital Marketing and Sales; Vice President, Pharmaceutical Marketing and Sales; and Director, Product Management.

Martin P. Galvan; Senior Vice President, Chief Financial Officer, Director of Investor Relations and Secretary

        Mr. Galvan joined VIASYS Healthcare Inc. in June 2001. From 1999 to 2001, Mr. Galvan was Chief Financial Officer for Rodel Inc. From 1979 to 1998, Mr. Galvan held several positions at Rhone-Poulenc Rorer Pharmaceuticals, Inc., including Vice President, Finance Worldwide; President & General Manager, RPR Mexico & Central America; Vice President, Finance, Europe/Asia Pacific and Chief Financial Officer, United Kingdom & Ireland.

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Frank J. McCaney; Senior Vice President, Business Development

        Mr. McCaney had been with VIASYS Healthcare Inc. since 1998 as Vice President of Global Marketing and Business Development. Mr. McCaney is currently Senior Vice President of Business Development and has principal responsibility for coordinating all merger and acquisition activity, a position he has held since April 2001. From October 1998 to April 2001, Mr. McCaney served as Vice President, Global Marketing. Mr. McCaney was instrumental in taking VIASYS public in 2001, being a contributor to the meetings with investment groups. Mr. McCaney is also the head of the VIASYS Technical Advisory Board.

Matthew M. Bennett; Corporate Vice President and General Counsel

        Mr. Bennett joined VIASYS Healthcare Inc. in October 2003 from the law firm Morgan, Lewis and Bockius LLP. While at Morgan, Lewis and Bockius LLP, Mr. Bennett represented VIASYS Healthcare Inc. since its spin-off in 2001. Mr. Bennett has experience in all areas of business and finance law. He has represented companies in the medical devices, pharmaceuticals and life sciences areas. Mr. Bennett's previous experience also includes working as a litigator at Stradley Ronon Stevens & Young LLP and as a clerk for the Superior Court of New Jersey.

Rebecca A. Mabry; Corporate Vice President, Global Marketing

        Ms. Mabry originally joined VIASYS Healthcare Inc. in 1983. In November 2002, she was named Corporate Vice President, Global Marketing. Ms. Mabry held various marketing positions within the SensorMedics and Bird business units of the company. Prior to her current position, she was Product Specialist and Marketing Manager for SensorMedics Corporation. From 1993 until 1996, Ms. Mabry was Marketing Manager, Advanced Product Development and Director of Marketing/Strategic Planning for Bird Products Corporation. From April 1996 to May 1998, Ms. Mabry was Vice President, Marketing with Healthdyne Technologies before rejoining Bird Products Corporation.

Gary F. Mathern; Corporate Vice President, Human Resources

        Mr. Mathern joined VIASYS Healthcare Inc. in June 2001. From 1995 to 2001, Mr. Mathern was a human resources consultant to various start-up companies. From 1986 to 1995, Mr. Mathern was Senior Vice President at QVC, Inc., a televised shopping service. From 1984 to 1986, Mr. Mathern served as Executive Director of Human Resources for CIT—Alcatel Inc.

Lori J. Cross; Group President, NeuroCare

        Ms. Cross joined VIASYS Healthcare Inc. in November 2003. Her background is a combination of R&D, manufacturing, sales, marketing and senior level international executive management. Ms. Cross joined VIASYS from General Electric- Datex-Ohmeda, Inc. where from 1998 to November 2003 she was President of Datex-Ohmeda U.S., responsible for the Anesthesia and Drug Delivery and Ventilation business areas and the U.S. Anesthesia Care selling organization. From 1997 to 1998, Ms. Cross was General Manager, Global Information Solutions business for Datex-Engstrom in Karlsruhe, Germany and held previous positions in Smith & Nephew Dyonics and Baxter Edwards.

Thomas I. Kuhn; Group President, MedSystems

        Mr. Kuhn originally joined VIASYS Healthcare Inc. in 1983. He served as President of Corpak from 1992 to 2002 and currently holds the title of Group President, MedSystems. He served as Controller from 1983 to 1985; Vice President, Operations from 1987 to 1989; and Senior Vice President from 1989 to 1992.

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William V. Murray; Group President, Respiratory Technologies

        Mr. Murray joined VIASYS Healthcare Inc. in July 2003. Prior to joining VIASYS Healthcare Inc., from October 1985 to July 2003 Mr. Murray worked for Medtronic Inc. From 1992 to 2003, Mr. Murray held a variety of key general management positions. Most recently, from 2002 to 2003 Mr. Murray was Vice President and General Manager of EP Systems with Medtronic. From 1998 to 2002, Mr. Murray was Vice President and General Manager of the $1.5 billion pacemaker business. Early in his career, Mr. Murray was an IC Design Engineer and also held various positions of greater responsibility in the Engineering and Product Development departments.

Giulio A. Perillo; Group President, Operations and Corporate Quality

        Mr. Perillo joined VIASYS Healthcare Inc. in March 2003 as Corporate Vice President, Operations Management & Systems. In October 2003, he was named Group President, Operations and Corporate Quality. Prior to joining VIASYS Healthcare Inc., Mr. Perillo worked for Cardinal Health Inc. as Vice President and General Manager for Cardinal Health's contract pharmaceutical and development business. From 1998 to 2000, Mr. Perillo was President of Omnicare Pharmaceutics. From 1997 to 1998, he held the position of President & Chief Operating Officer of USA Detergents Inc. From 1994 to 1997, Mr. Perillo was Vice President and General Manager of Conteon Bio-Services, a global plasma collection company and, from 1990 to 1994 he was Vice President, Worldwide Manufacturing for Rhone-Poulenc Rorer Pharmaceuticals, Inc.

Edward Pulwer; Group President, Critical Care

        Mr. Pulwer originally joined VIASYS Healthcare Inc. in 1983. In November 2002, Mr. Pulwer was promoted to Group President, Critical Care from Group President, Respiratory Technologies, a position he held since July 2001.    After holding several sales marketing positions with SensorMedics, Mr. Pulwer served as their General Manager from 1999 to 2001 and Vice President of Sales from 1996 to 1999. Prior to joining VIASYS Healthcare Inc., from 1977 to 1983 Mr. Pulwer spent six years as Group Product Manager for Respiratory Care products at American Hospital Supply Corporation–Scientific Products Division, which is currently a Cardinal Health Company.

Mahboob H. Raja; Group President, International

        Mr. Raja originally joined VIASYS Healthcare Inc. in 1992. In April 2003, Mr. Raja was named Group President, International. He was named Vice President, European Sales in October 2001. Prior to that, Mr. Raja held several positions for Nicolet Biomedical. He was named Vice President, Worldwide Sales & Marketing in 2000; Vice President, International Sales from 1999 to 2000; Managing Director, International Sales from 1997 to 1999; and worked in sales from 1992 to 1997.

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Item 2.    Properties

        We own or lease properties in the United States and internationally, which generally consist of administrative and sales offices, manufacturing, assembly and distribution facilities, and warehouse facilities. We believe our current facilities will be sufficient to meet our needs for the foreseeable future and that additional space will be available at a reasonable cost to meet our needs in the future.

Item 3.    Legal Proceedings

        In February 2004, we reached agreement with INO Therapeutics, Inc. and AGA AB on the material terms of a settlement of litigation directed to the sale and use of nitric oxide gas and devices. The settlement terms were approved by the appropriate senior management or boards of directors of the parties to the litigation. We expect that the final settlement documents will be executed during the first half of 2004. Following dismissal of the litigation, we anticipate receiving payments in 2004 totaling approximately $7.5 million. We also expect INO and AGA will submit future purchase orders for nitric oxide devices totaling approximately $6.3 million. When completed, the final settlement documents will include provisions regarding the development and distribution of nitric oxide gas, the transfer of certain VIASYS nitric oxide technology, the payment of royalties to us upon our achieving certain milestones, the license of rights to intellectual property and the acknowledgment by the parties of certain nitric oxide intellectual property rights.

        Other than as described above there are no material pending legal proceedings to which we or any of our subsidiaries is a party or of which any of our properties are subject.

Item 4.    Submission of Matters to a Vote of Security Holders

        None.

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PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issue Purchases of Equity Securities

        VIASYS common stock began trading on a when-issued basis on the New York Stock Exchange, Inc. under the symbol "VAS" on November 7, 2001. The high and low closing prices of our common stock as reported in the consolidated transaction reporting system are as follows:

COMMON STOCK MARKET PRICE

        As of March 5, 2004, we estimate that we had approximately 7,693 holders of record of our common stock. The closing market price on the New York Stock Exchange for our common stock on March 5, 2004 was $21.62.

Item 6.    Selected Financial Data

*

The years 2001, 2000 and 1999 included goodwill amortization expense, net of tax, of $4,114, $3,900 and $3,689, respectively. In accordance with the adoption of SFAS No. 142, amortization of goodwill ceased on December 30, 2001. This data should be read in conjunction with the consolidated financial statements, including the accompanying notes, included elsewhere in this report on Form 10-K.

**

The Company has no current intention to pay dividends in the future.

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Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Critical Accounting Policies

        The Company has identified a number of its accounting polices that it has determined to be critical. These critical accounting policies primarily relate to financial statement assertions that are based on the estimates and assumptions of management and the effect of changing those estimates and assumptions could have a material effect on our financial statements. The following is a summary of those critical accounting policies.

Revenue Recognition

        We derive revenues primarily from the sale of products and to a lesser extent the provision of services and rental equipment. Revenue from the sale of products is recognized when title is transferred to the customer. Where installation either is essential to functionality or is not deemed inconsequential or perfunctory, such as equipment sales under contracts that require us to install the product at the customer location, revenue is recognized when the equipment has been delivered to and installed at the customer location. Revenues for products sold where installation is not essential to functionality and is deemed inconsequential or perfunctory, such as revenue from customer installable products, is recognized upon transfer of title with estimated installation costs accrued.

        Our service revenues are derived from parts and supplies, in-house and field repairs, service contracts and customer education. We sell service contracts on our products when the warranty period expires. We recognize revenues from these service contracts ratably over the terms of the contracts due to the lack of historical data available regarding the timing of when the actual services were provided. In the future, we may compile this information which could cause us to recognize service revenue over a different period.

Inventory

        We write-down the value of our inventory by our estimate of the difference between the cost of the inventory and its net realizable value. Our estimate takes into account projected sales of the inventory on hand and the age of the inventory in stock. In addition, we assess the value of older model products when new product introductions may reduce their net realizable value. If actual future demand or market conditions are less favorable than those projected by management, additional inventory write-downs may be required. The provision for write-down of inventory is recorded in cost of revenues.

Goodwill Impairment

        We adopted the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," effective December 30, 2001. SFAS No. 142 requires companies to perform a transitional test and an annual test to determine whether there was any impairment of goodwill. These tests involve determining the estimated fair value of the Company's reporting units by measuring the net present value of their future cash flows. If the net present value of estimated cash flows is less than the book value of the reporting unit we would perform additional analysis, which could result in the write-down of goodwill.

        We determined our reporting units for purposes of assessing goodwill impairment under SFAS No. 142 by evaluating our four operating segments: Respiratory Technologies, Critical Care, NeuroCare and Medical and Surgical Products. Each of these operating segments is comprised of several components. While the components of Respiratory Technologies, Critical Care and NeuroCare have similar economic characteristics, products and services, production processes, customers and methods of distribution, the components of the Medical and Surgical Products segment do not. Therefore, the components have been aggregated at the operating segment level for Respiratory Technologies, Critical

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Care and NeuroCare and each of these segments was treated as a reporting unit. Since the components of Medical and Surgical Products cannot be aggregated, each component was treated as a separate reporting unit.

        As part of the impairment testing, the Company allocated its goodwill to its reporting units. Goodwill from an acquisition that is specifically associated with a single reporting unit is recorded on the books of that reporting unit. However, when goodwill from a transaction is associated with multiple reporting units it is allocated to the reporting units based upon relative revenues at the time of the acquisition.

        We performed the annual test in 2003 and have determined that there is no impairment of goodwill. In performing this test, we used our internal operating and capital budgets, which are based on such assumptions as new product introductions, growth in sales of existing products, margin improvements, operating cost control, savings from past restructuring efforts, equipment replacement dates and building capacity needs. We discounted our estimated cash flows using our estimated cost of capital. If any of our assumptions change, such as an increase of our cost of capital, it could result in an impairment of goodwill, which would require a charge to earnings.

Stock-Based Compensation

        Stock options are granted to key employees and non-employee directors. Upon vesting, an option becomes exercisable, meaning, an employee or director can purchase a share of the Company's common stock at a price that is equal to the closing share price on the day of grant.

        SFAS No. 123, "Accounting for Stock-Based Compensation," permits companies either to continue accounting for stock options under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees," or to adopt a fair-value-based method to measure compensation cost. Under APB No. 25, which we have elected to continue using, there is no compensation cost if, on the date of grant, the option's exercise price is equal to or greater than the share price. Under SFAS No. 123, an option's fair value is estimated on the date of grant, and the value is expensed evenly over the vesting period. If we had accounted for stock-based compensation under the SFAS No. 123 fair-value-based method, net income would have been reduced by $4.5 million, $4.2 million and $1.5 million for 2003, 2002 and 2001, respectively.

        In order to estimate an option's fair value under SFAS No. 123, we use the Black-Scholes option valuation model. The option valuation model requires a number of assumptions, including future stock price volatility and expected option life (the amount of time until the options are exercised or expire). Expected option life is based on actual exercise activity from previous option grants. Volatility is calculated based upon stock price movements over a period of time. Additionally, our share price on the day of grant influences the option value. The higher the share price, as compared to the grant price, the more the option is worth. Changes in the option value after the day of grant are not reflected in expense. Any change in these assumptions could significantly impact the values calculated by the option valuation model and, consequently, the pro forma effects disclosed in the Nature of Operations and Summary of Significant Accounting Policies note to the consolidated financial statements.

Operations

        In September 2003, we decided to sell certain assets of our Thermedics Polymer business ("Thermedics"). The consolidated financial statements have been restated to present Thermedics, which was divested in October 2003, as well as Medical Data Electronics ("MDE"), which was divested in April 2003, as discontinued operations.

        We derive revenues primarily from the sale of products and to a lesser extent the provision of services and rental of equipment. When complex installation is required, revenue from products is recognized upon completion of the installation. In all other situations, revenue is recognized when title

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is transferred and there is no further obligation to the customer. Our service revenues are derived from parts and supplies, in-house and field repairs, service contracts and customer training. We sell service contracts on our products that cover the products for periods after the warranty expires. We recognize revenues from these service contracts ratably over the terms of the contracts. We rent our products, primarily in the Critical Care and Respiratory Technologies segments, to hospitals and other customers for periods ranging from two weeks to over a year. We recognize rental revenues ratably over the term of the rental contract.

        The Respiratory Technologies segment develops, manufactures, markets, services and rents products for the diagnosis and treatment of respiratory, pulmonary and sleep-related disorders. The Critical Care segment develops, manufactures, markets, services and rents products to treat respiratory insufficiency caused by illness, injury or premature birth. The NeuroCare segment develops, manufactures, markets and services a comprehensive line of neurodiagnostic, vascular diagnostic and audiology testing systems. The Medical and Surgical Products segment develops, manufactures and markets disposable medical products and specialty metal components for orthopedic products, medical-imaging equipment and cardio-vascular implants.

Results of Operations

        The following table sets forth line items from our consolidated statements of income as percentages of total revenues for the periods indicated:

Year Ended January 3, 2004 Compared with Year Ended December 28, 2002

Revenues

        Revenues increased $52.5 million, or 15.3%, to $394.9 million. Of this increase, $16.9 million was contributed by Respiratory Technologies, $35.6 million by Critical Care and $1.9 million by Medical and Surgical Products. These increases were partially offset by a decrease of $1.9 million in NeuroCare. The revenue increase resulted primarily from $57.3 million in sales of new products, principally in the Critical Care segment. Our clinical services business contributed $4.6 million of increased revenue, while the weakening of the dollar against the euro contributed $13.4 million. Partially offsetting these increases was a reduction in sales in our base business primarily due to the replacement of mature products by new products.

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Cost of Revenues and Gross Margin

        Cost of revenues increased $31.2 million, or 17.2%, over 2002 to $212.8 million. Gross margin percentage decreased 0.9 percentage points to 46.1% from 47.0% in 2002. This decrease was due to several factors, including reengineering costs related to AVEA. In addition, market conditions in 2003 lead to the write-off of inventory we acquired as a result of the spin-off from our former parent company. Also contributing to the decrease were increased sales of lower margin products and higher installation and warranty expense. Partially offsetting the decreases in gross margin percentage were increased sales of new higher margin products.

        The provision for excess and obsolete inventory was $4.2 million in 2003 compared with $4.4 million in 2002. Reserved inventory is scrapped, sold or utilized as repair parts. Sales of reserved product and the gross margin thereon were not significant in 2003 and 2002.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased $17.5 million, or 18.3%, over 2002 to $112.9 million. As a percentage of revenues, selling, general and administrative expenses were 28.6% in 2003 compared with 27.9% in 2002. The increase was due to negative currency impacts as a result of the weakening of the dollar against the euro, incremental investment in NeuroCare's sales force and marketing, higher incentive compensation and increased legal expenses, mainly due to the litigation with INO Therapeutics. Selling, general and administrative expenses also increased due to the inclusion of a full year of expenses for EME and SciMed, which were companies acquired in the fourth quarter of 2002.

Research and Development Expenses

        Research and development expense was $26.5 million in both 2003 and 2002. As a percentage of revenues, research and development expense was 6.7% in 2003 compared with 7.7% in 2002.

Restructuring Costs

        We incurred $1.8 million and $5.7 million of restructuring costs in 2003 and 2002, respectively. The 2003 restructuring costs were incurred in our NeuroCare, Critical Care and Respiratory Technologies segments.

        The restructuring plan in NeuroCare included the termination of 55 employees from general and administrative, service and manufacturing. The plan was carried out in the third and fourth quarters of 2003 and severance of $0.6 million was expensed and paid. The annual savings expected to be realized as a result of this plan are approximately $3.5 million beginning in 2004, much of which will be reinvested into more productive areas in NeuroCare, such as sales and research and development.

        The restructuring plan in our Critical Care segment will eliminate redundant functions in the United Kingdom through a reduction in staffing of 48 employees across all functions. As of January 3, 2004, $0.9 million of retention payments have been expensed and paid for approximately 45 employees. Severance for the remaining employees will be expensed and paid in the first quarter of 2004. We expect to realize annual savings beginning in 2004 of approximately $2.0 million in personnel costs due to the reduction in force.

        Restructuring plans in our Respiratory Technologies segment include the closure of a machine shop and the reduction in the number of customer service positions in Germany. Due to German labor regulations, certain positions cannot be eliminated immediately. Therefore, 24 positions will be eliminated over the next five years. As of January 3, 2004, 7 of these positions have been eliminated and $0.2 million of severance has been paid. Retention expense for the remaining 17 employees will be recorded ratably over their remaining employment and total approximately $1.6 million. As of January 3, 2004, approximately $0.1 million of this amount has been accrued. The annual savings are

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expected to total approximately $1.3 million, which will be realized ratably over the next five years as the positions are terminated.

        Restructuring expenses in 2002 included a non-cash charge of $1.1 million to write-down the value of a vacated facility in our NeuroCare segment. Other restructuring expenses in 2002 included $2.3 million for the consolidation of manufacturing facilities in New Hampshire and Colorado with our main NeuroCare manufacturing facility in Wisconsin. Associated with these consolidations were employee terminations, retention bonuses, employee relocations, recruiting costs and facility closing costs, as well as inventory and asset relocations. We also incurred restructuring costs of $0.3 million related to employee terminations in our Medical and Surgical Products segment. Additional restructuring costs included $0.4 million for the cost of exiting long-term leases in Europe and $1.1 million for the severance of former executives.

Provision for Income Taxes

        Our effective tax rate was 34.0% in 2003 compared to 37.9% in 2002. The effective tax rate in 2003 was less than the statutory federal income tax rate of 35.0% primarily because of the tax benefit attributable to U.S. export sales and U.S. research and development tax credits. These benefits were partially offset by the impact of state income taxes. The effective tax rate in 2002 exceeded the statutory federal income tax rate of 35.0% primarily because of the impact of state income taxes and the nondeductible purchased in-process research and development ("IPRD") associated with our acquisition of EME, partially offset by the tax benefit attributable to U.S. export sales. The impact of IPRD on our 2002 effective tax rate was 0.9 percentage points.

Discontinued Operations

        On October 3, 2003, we sold substantially all of the assets of Thermedics, which was reported in the Medical and Surgical Products segment. As part of the sale, we recorded a loss on disposal, including expenses, of approximately $2.6 million, after taxes in discontinued operations. Discontinued operations include an after-tax write-down of MDE of $1.0 million and $14.3 million in 2003 and 2002, respectively.

Segment Information

        The following table shows revenues contributed by each of our operating segments, expressed in absolute dollars (in thousands) and as percentages of total revenues for the periods presented:

Respiratory Technologies

        Revenues increased $16.9 million, or 17.4%, over 2002 to $114.1 million. The increase is attributable to a $9.8 million favorable impact from foreign currency and increased revenue of $4.6 million in our clinical services business. In addition, there were increased sales of nitric oxide and sleep therapy products. Operating income increased 13.2% over 2002 due to the increased revenues, partially offset by increased legal expenses related to our litigation with INO Therapeutics, an inventory write-off of a discontinued product line, increased incentive compensation and higher installation and warranty expense.

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Critical Care

        Revenues increased $35.6 million, or 36.6%, over 2002 to $132.9 million. The increase resulted from the sale of new products, including AVEA, Vela and Infant Flow, which totaled $48.7 million. In addition, increased sales of our earlier model T-Bird ventilators to Asia in the second quarter due to the SARS outbreak contributed $2.5 million to the increase. Partially offsetting these increases were lower volume and pricing pressures on some of our mature product lines. Operating income more than doubled due to the increased volume.

NeuroCare

        Revenues decreased $1.9 million, or 2.0%, over 2002 to $92.0 million. This decrease was a result of lower sales of our EMG and EEG products, partially offset by increased sales of our audiology and peripheral vascular products. Operating income decreased 4.3% primarily due to the revenue decrease, incremental investment in the sales force and marketing, and SciMed expenses, a business which was acquired in 2002. Partially offsetting these increases was a reduction in restructuring and research and development expenses as well as savings from efficiencies obtained in our restructuring efforts.

Medical and Surgical Products

        Revenues increased $1.9 million, or 3.5%, over 2002 to $56.0 million. This increase is a result of higher sales in our medical disposable and orthopedic implant businesses. Partially offsetting these increases were decreased sales of our medical imaging and heart device components. Operating income decreased 13.0%. The decrease was primarily due to an inventory write-off for a discontinued product line and lower sales of higher margin products in our specialty metals business.

Year Ended December 28, 2002 Compared with Year Ended December 29, 2001

Revenues

        Revenues increased 6.2% in 2002 to $342.5 million. Of this increase $9.0 million was contributed by Respiratory Technologies, $6.1 million from Critical Care, $3.8 million from NeuroCare and $1.1 million from Medical and Surgical Products. Our revenue increases were driven by a number of factors including increased volume, sales of new products, the weakening of the dollar against the euro and a fourth quarter acquisition. Offsetting these increases were a higher percentage of products sold to lower price markets, primarily homecare and international, and decreased sales to Latin America caused by the economic climate in that region.

Cost of Revenues and Gross Margin

        Cost of revenues increased 7.0% over 2001 to $181.6 million. Gross margin percentage decreased 0.3 percentage points to 47.0% from 47.3% in 2001. Our decrease in gross margin percentage points was due to a combination of factors including a higher percentage of total sales to lower price channels, and the consolidation of some our manufacturing operations in 2002 which temporarily resulted in duplicate labor costs. We also recorded additional write-downs of inventory in 2002 based on our projections of a higher percentage of our future sales coming from new products, which in some cases will displace sales of older products. Increases in property and earthquake insurance, which are included in manufacturing overhead, also had an impact on gross margin. In addition, a larger percentage of our total labor costs were attributable to health insurance benefits in 2002 and we expect the increase in health insurance premiums to continue. Offsetting these decreases were synergies achieved in our manufacturing operations, partially due to the consolidations of our manufacturing operations in 2001, a weakening of the dollar against the euro and the impact of the licensing revenue related to Pulmonetics.

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        The provision for excess and obsolete inventory was $4.4 million in 2002 compared with $2.6 million in 2001. Reserved inventory is scrapped, sold or utilized as repair parts. Sales of reserved product and the gross margin thereon were not significant in 2002.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses increased 2.4% over 2001 to $95.4 million. As a percentage of revenues, selling, general and administrative expenses were 27.9% in 2002 compared with 28.9% in 2001. Increases in selling, general and administrative expenses were due to the inclusion of EME expenses from their acquisition in October 2002 and the impact of the first full year of being an independent public company. This included the establishment of a separate and independent corporate function and all the associated costs such as a management team, a board of directors, annual report preparation, printing and mailing, as well as legal, audit and listing fees. In addition, increases in all insurance expenses, including our first full year of Directors and Officers liability insurance, contributed to the increase in selling, general and administrative expenses. We expect this increase in insurance expense to continue in the near-term. Offsetting these increases were the absence of goodwill amortization, reduced expenses from the termination of the corporate services arrangement with Thermo Electron and lower incentive compensation expense.

Research and Development Expenses

        Research and development expense decreased 9.1% to $26.5 million. As a percentage of revenues, research and development expense was 7.7% in 2002 compared with 9.0% in 2001. The decrease can be attributed to the movement of several large projects from the development stage into commercialization and a reimbursement from the European Union for a completed research and development project at Erich Jaeger. In addition, a large payment to a third party contract research organization in 2001 did not recur in 2002.

Restructuring Costs

        We incurred $5.7 million in restructuring costs in both 2002 and 2001. Restructuring expenses in 2002 included a non-cash charge of $1.1 million to write-down the value of a vacated facility in our NeuroCare segment. Other restructuring expenses in 2002 included $2.3 million for the consolidation of manufacturing facilities in New Hampshire and Colorado with our main NeuroCare manufacturing facility in Wisconsin. Associated with these consolidations were employee terminations, retention bonuses, employee relocations, recruiting costs, facility closing costs, as well as inventory and asset relocations. We also incurred restructuring costs of $0.2 million related to employee terminations in our Medical and Surgical Products segment. Additional restructuring costs included $0.4 million for the cost of exiting long-term leases in Europe and $1.1 million for the severance of former executives. In 2001, restructuring expenses were primarily employee severance costs connected with the consolidation of our European facilities and expense reduction programs in the U.S. Also included in these expenses was a retention program put in place by our former parent company and the termination of former executives.

Purchased In-Process Research and Development

        The Company recorded $0.9 million in expense for purchased in-process research and development ("IPRD") related to the acquisition of EME and engaged an internationally recognized independent appraiser in order to determine the fair value of in-process technology. The approach used to identify IPRD distinguishes IPRD from developed technology based upon whether "technological feasibility" has been achieved. The technological feasibility of a product is established when the enterprise has completed all planning, designing, testing, and sampling activities that are necessary to establish that the product can be produced to meet its design specifications including functions, applications, and technical performance requirements. The value assigned to these projects was determined using a discounted cash flow approach.

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        As of the acquisition date, significant development efforts were underway related to developing two new technologies. Both projects were finalized by the end of 2003. The additional cost to complete these projects totaled approximately $0.6 million.

Provision for Income Taxes

        Our effective tax rate was 37.9% in 2002 compared to 42.4% in 2001. The reduction in tax rate is attributable to the adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," on December 30, 2001. The adoption eliminates goodwill amortization in calculating pre-tax income. Because most of our goodwill amortization is nondeductible, the impact of implementing SFAS No. 142 is a reduction in our effective tax rate. The effective tax rate in 2002 exceeded the statutory federal income tax rate of 35.0% primarily because of the impact of state income taxes and the nondeductible purchased IPRD associated with our acquisition of EME, partially offset by the tax benefit attributable to export sales. The impact of IPRD on our 2002 effective tax rate was 0.9 percentage points. The effective tax rate in 2001 exceeded the statutory federal income tax rate primarily because of the impact of state income taxes and nondeductible amortization of goodwill, partially offset by the tax benefit attributable to export sales.

Discontinued Operations

        In the third quarter of 2002, we decided to exit the patient monitoring business and divest our MDE business unit. We recorded a $22.5 million ($14.3 million after-tax) charge to write-down the value of MDE. MDE, which was previously reported in the Medical and Surgical Products segment, is now recorded as a discontinued operation in all years presented.

Segment Information

Respiratory Technologies

        Revenues increased 10.2% to $97.2 million. This increase was a result of increased volume across all product lines as well as a weakening of the dollar against the euro. Also increasing revenues were sales of new products such as the VMAX Spectra, which was launched in late 2001, and the ORION CPAP and HiOx 80, both launched in 2002. In addition, VIASYS Clinical Services ("VCS"), our clinical service business, had significant revenue gains. Operating income increased to $12.4 million primarily due to increased gross profits on higher sales. Also contributing to the increase, were lower research and development expenses due to the movement of several large 2001 research projects, such as the VMAX Spectra, into commercialization in 2002, and lower restructuring costs in 2002. Offsetting these increases in operating income were increased selling, general and administrative expenses due to additional commissions on increased sales, higher insurance expense, and an increase in the provision for bad debts offset by the absence of goodwill amortization and lower incentive compensation expense.

Critical Care

        Revenues increased 6.7% to $97.3 million. This increase was driven by the acquisition of EME in the fourth quarter of 2002 and by sales of our new products, AVEA and Vela, in the second half of 2002. In the case of AVEA, the sales were primarily to international distributors for use as demonstration equipment to solicit new orders. In addition, we shipped a higher percentage of sales to lower price markets. Operating income decreased 15.2% to $12.3 million. The decrease was due primarily to a larger percentage of our sales being made to lower price channels and write-downs on excess and obsolete inventory. These write-downs were based on lower sales projections for certain older model products. The decrease in operating income was also due to higher selling, general and administrative expenses due to the inclusion of EME expenses in the fourth quarter, increased insurance expense, and an increased provision for bad debts offset by the absence of goodwill amortization and lower incentive compensation in 2002. Also contributing to the decrease in operating

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income were increased research and development expenses in the first three quarters of 2002 due to AVEA and Vela.

NeuroCare

        Revenues increased 4.2% to $93.9 million due to the introduction of several new products during 2002 including Audera and AUDIOscreener. Offsetting this increase was a decrease in sales to Latin America, traditionally a strong market for the segment and a decrease in the sales of older product lines being replaced by Audera and AUDIOscreener. Operating income more than doubled in 2002 to $4.0 million primarily due to lower selling, general and administrative expenses resulting from our restructuring efforts and the absence of goodwill amortization in 2002. In addition, our research and development expense decreased due to lower overhead expense attributable to the consolidation of research facilities in Wisconsin. In addition, we licensed technologies from third parties for two of our new products, as opposed to internally developing the technology.

Medical and Surgical Products

        Revenue from continuing operations decreased 1.9% to $54.1 million. The decrease was due to a number of factors including lower sales of clean suits to a large semiconductor manufacturer. The decrease was partially offset by increases in sales of enteral feeding tubes, other disposable medical products and orthopedic implants. Operating income increased 22.3% to $10.7 million as a result of restructuring efforts, as well as the absence of goodwill amortization in 2001. Offsetting these factors were higher selling, general and administrative expenses due to increased insurance.

Liquidity and Capital Resources

        Cash generated from operating activities was $46.2 million for 2003. Our primary source of cash was net income of $21.6 million and non-cash charges totaling $16.2 million. Also contributing to the increased cash was a reduction in inventory of $11.8 million as a result of a reduction in our build-to-ship time, therefore requiring less inventory to be held. Cash flow was also positively impacted by increases in accounts payable and accrued expenses, which was offset by an increase in accounts receivable resulting from high December sales.

        Cash provided by investing activities was $9.2 million for 2003. The cash provided was primarily attributable to the disposition of MDE and Thermedics. Cash expended for 2002 acquisitions in 2003 was $3.5 million. The payments made in 2003 included the installment payment for SciMed of $1.8 million and $1.7 million for the working capital settlement and additional expenses for EME. Expenditures for the purchase of property, plant and equipment totaled $6.0 million. In addition, we purchased $3.9 million of licenses and custom software used in our products.

        Net cash provided by financing activities consists primarily of $72.4 million in proceeds from the issuance of common stock under the follow-on offering completed in June 2003 and our stock option plans, partially offset by repayments of $47.3 million under our revolving credit facility.

        Our consolidated working capital was $210.9 million at January 3, 2004, compared to $105.3 million at December 28, 2002. Our cash and cash equivalents totaled $97.9 million at January 3, 2004 and $15.0 million at December 28, 2002.

        We currently have a three year, $60.0 million revolving credit facility (the "Facility") with a syndicate of seven banks, which expires in May 2005. Under the Facility, there are options under which we can borrow funds that determine the interest rate charged. These options include borrowings at LIBOR plus a spread or at the prime rate plus a spread. Under the LIBOR option, the interest rate depends on the term selected which can be no more than one year, and is fixed for that term. Under the prime rate option, the interest rate fluctuates based on the prime rate during the period which any amount is outstanding under that option. In July 2003, we repaid the full amount outstanding under the Facility and no amount was outstanding at January 3, 2004.

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        Our ability to access the credit facility is dependent on complying with the debt covenants that are part of that agreement. The covenants include a maximum ratio of debt to earnings before interest taxes and depreciation and amortization (EBITDA) of 2.5, a minimum ratio of EBITDA to interest expense of 4.0, maximum annual capital expenditures of $20.0 million and a minimum level of stockholders' equity. We believe that the credit facility and cash flow from operations will generate capital resources sufficient to meet the capital requirements of our business for at least the next twelve months. While we are currently in compliance with the debt covenants under the credit facility and expect to be able to meet the requirements in the future, failure to satisfy any of the conditions would require us to renegotiate the facility on terms that may not be as favorable and could require us to repay any outstanding principal balance.

        Our ability to maintain the existing credit facility or to obtain other debt or equity financing will depend on a number of factors, including market conditions, our operating performance and investor interest. As a result, we cannot assure that we will have sufficient capital resources and we may be required to revise our business plan to reduce expenditures, including curtailment of our growth strategies, product development strategies and acquisition strategies.

        Beyond the next twelve months, our capital requirements will depend on many factors, including the rate of our sales growth, market acceptance of our new products, research and development spending, the success of our product development efforts, capital spending policies of our customers, government spending policies and general economic conditions. Our expected capital expenditures in 2004 are $10 million. Although we are not a party to any binding agreement or letter of intent with respect to a potential material acquisition transaction, we may enter into acquisitions or strategic arrangements in the future that may require us to seek additional debt or equity financing.

        Contractual Obligations—The table below sets forth amounts due under the credit facility which expires in May 2005, as well as purchase obligations and future minimum annual rentals attributable to noncancellable operating leases:

Relationship with Former Parent Company

        In connection with the spin-off distribution, we entered into a transition services agreement under which Thermo Electron's corporate staff provided us with certain administrative services. In return, we paid Thermo Electron a fee equal to 0.6% of our consolidated revenues for the period from November 16, 2001 through December 29, 2001, 0.4% for the first quarter of 2002 and 0.1% for the second quarter of 2002, plus out-of-pocket and third party expenses.

        We were party to a corporate services arrangement with Thermo Electron through November 15, 2001 under which Thermo Electron's corporate staff provided certain administrative services, including certain legal advice and services, risk management, certain employee benefit administration, tax advice and preparation of tax returns, centralized cash management and certain financial and other services, for which we have paid Thermo Electron annually an amount equal to 0.8% of our consolidated revenues. Effective April 2001, the fee under this agreement was reduced to 0.6% through the Spin-off Date. For these services we were charged $2.1 million in 2001. These amounts were recorded as selling, general and administrative expenses.

Recent Accounting Pronouncements

        See Note 1 to the Consolidated Financial Statements for a complete description of the effect of recent accounting pronouncements.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

        We are exposed to market risk from changes in interest rates and foreign currency exchange rates, which could affect our future results of operations and financial condition. We manage our exposure to these risks through our regular operating and financing activities.

        We generally view our investment in international subsidiaries with a functional currency other than our reporting currency as long-term. Our investment in international subsidiaries is sensitive to fluctuations in currency exchange rates. The functional currencies of our international subsidiaries are denominated principally in the Euro, Sterling and Yen. The effect of a change in currency exchange rates on our net investment in international subsidiaries is reflected in the "Accumulated other comprehensive income "component of stockholder equity. A 10% reduction in year-end 2003 functional currency exchange rates, relative to the U.S. dollar, would result in a $12.9 million reduction of stockholder equity.

        Our cash, cash equivalents and variable-rate short-term obligations are sensitive to changes in interest rates. Interest rate changes would result in a change in interest income and expense due to the difference between the current interest rates on cash, cash equivalents and the variable-rate short-term obligations and the rate that these financial instruments may adjust to in the future. Our market risk exposure for interest rates is immaterial.

Item 8. Financial Statements and Supplementary Data

        Our Consolidated Financial Statements as of January 3, 2004, and Supplementary Data required by this item are attached to this report on Form 10-K beginning on page F-1 and incorporated herein by reference.

Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.

        On May 9, 2002, the Board of Directors of VIASYS Healthcare Inc. (the "Company") and its Audit Committee decided to no longer engage Arthur Andersen LLP ("Andersen") as the Company's independent auditors and to engage Ernst & Young LLP to serve as the Company's independent public accountants for 2002.

        Andersen's reports on the Company's consolidated financial statements for the 2001 and 2000 fiscal years did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. During the Company's 2001 and 2000 fiscal years and through May 9, 2002 (the date of the Company's change in independent public accountants), there were no disagreements with Andersen on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen's satisfaction, would have caused them to make reference to the subject matter in connection with their report on the Company's consolidated financial statements for such periods; and there were no reportable events of the type listed in Item 304(a)(1)(v) of Regulation S-K.

        The Company filed a Form 8-K on May 16, 2002 to report these events and filed an amendment to the Form 8-K that is consistent with this amendment to the Annual Report. The Company was unable to refurnish a copy of the amendment to the Form 8-K to Andersen prior to its filing with the Securities and Exchange Commission, as Andersen has ceased operations. Accordingly, Andersen did not provide us with a letter to file as an exhibit to the amendment to the Form 8-K.

        Since the Spin-off Date and prior to engaging Ernst & Young LLP, the Company did not consult Ernst & Young LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's consolidated financial statements, or any other matters or reportable events listed in Items 304(a)(2)(i) and (ii) of Regulation S-K.

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Item 9A. Controls and Procedures

        (a) An evaluation of the effectiveness of the design and operation of the Company's disclosure controls and procedures as of the end of the period covered by this report was carried out by the Company under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures as of the end of the period covered by this report are functioning effectively to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. A control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

        (b) No change in our internal control over financial reporting occurred during the fourth fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART III

Item 10. Directors and Executive Officers of the Registrant

        (a) Identification of Directors

        Information with respect to the members of the Board of Directors of the Company is set forth under the caption "Election of Directors" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

        (b) Identification of Executive Officers

        Information with respect to the executive officers of the Company is set forth under the caption "Executive Officers of the Company" contained in Part I, Item I of this report, which information is incorporated herein by reference.

(c)

Section 16(a) Beneficial Ownership Compliance

        Information with respect to the Section 16(a) compliance of the directors and executive officers of the Company is set forth under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 11. Executive Compensation

        Information required under this item is set forth under the caption "Executive Compensation" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

        Information with respect to security ownership of certain beneficial owners and management set forth under the caption "Stock Ownership" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

        The table below provides information as of January 3, 2004, with respect to compensation plans under which equity compensation is authorized, as well as individual compensatory arrangements.

Equity Compensation Plan Information

40

Item 13. Certain Relationships and Related Transactions

        Information required under this item is set forth under the caption "Relationship with Affiliates" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

Item 14. Principal Accounting Fees and Services

        Information required under this item is set forth under the caption "Principal Accounting Fees and Services" in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A, which information is incorporated herein by reference.

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PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)

1. Consolidated Financial Statements

        The following consolidated financial statements and reports of independent auditors are included herein:

2.

Financial Statement Schedule:

        Schedule II: Valuation and Qualifying Accounts

        All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the financial statements or in the notes thereto.

3.

Reports on Form 8-K and Exhibits

(b)

Reports on Form 8-K

        None.

(c)

Exhibits

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*

Incorporated by reference to the same-numbered exhibit to the Company's Registration Statement on Form 10, No. 001-16121.

**

Filed herewith.

†

Compensation related contract.

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SCHEDULE II

Valuation and Qualifying Accounts
(In thousands)

(a)

Primarily the effect of currency translation.

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        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated, as of March 15, 2004.

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders of VIASYS Healthcare Inc.

        We have audited the accompanying consolidated balance sheets of VIASYS Healthcare Inc. as of January 3, 2004 and December 28, 2002, and the related consolidated statements of income, cash flows and changes in stockholders' equity for each of the three years in the period ended January 3, 2004. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VIASYS Healthcare Inc. at January 3, 2004 and December 28, 2002, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 3, 2004, in conformity with accounting principles generally accepted in the United States.

        As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill in accordance with SFAS No. 142.

Philadelphia, Pennsylvania
February 13, 2004

F-1

VIASYS HEALTHCARE INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements.

F-2

VIASYS HEALTHCARE INC.

CONSOLIDATED STATEMENTS OF INCOME

See accompanying notes to consolidated financial statements.

F-3

VIASYS HEALTHCARE INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS