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Bio-Vascular Reports 4th Quarter and Fiscal 1996 Results; Earnings Reflect Plan To Spin Off Vital Images Subsidiary

ST. PAUL, Minn., Nov. 26 -- Bio-Vascular, Inc., (Nasdaq: BVAS) today reported financial results for the fourth quarter and fiscal year ended Oct. 31, 1996. In a separate news release today, the company also announced its decision to spin off its subsidiary, Vital Images, Inc. This decision requires the company to separate the financial results of the Surgical Business, technically classified as continuing operations, from the historical and future financial results of Vital Images, technically classified as discontinued operations.

Surgical Business fourth quarter revenue was $2,266,000, compared with last year's $3,380,000, reflecting the lack of Medicare reimbursement for lung volume reduction surgery and the corresponding decline in sales of Peri-Strips(R), the company's product used in these procedures. Peri-Strips revenue in the 1996 quarter declined $1,137,000 from the 1995 quarter, while revenue from the company's other Tissue-Guard(TM) products increased by 20 percent. Net income generated by the Surgical Business in the fourth quarter was $320,000, equal to 3 cents per share, compared with $736,000, or 8 cents per share, in the quarter last year.

For the year, Surgical Business revenue was $10,125,000, compared with $10,426,000 in 1995. The year-to-year decline of $1,214,000 in Peri-Strips revenue was significantly offset by an increase of $1,098,000 in revenue from the company's other Tissue-Guard products, primarily Dura-Guard(R). Surgical Business net income was $1,218,000, or 13 cents per share, in 1996, compared with net income of $1,660,000, or 20 cents per share, in 1995.

Vital Images' fourth quarter 1996 revenue was $253,000, compared with $1,808,000 in 1995, which included a one-time revenue contribution of $1,500,000 and a contribution of $1,322,000 to operating income from the licensing of its Voxel-Geo source code. Net loss of Vital Images for the quarter was $154,000, equal to 2 cents per share, compared to net income of $853,000, or 10 cents per share, in the fourth quarter of 1995.

For the year, revenue of Vital Images was $882,000, compared with $2,894,000 in 1995, which included the source code license. The decline in revenue for both the fourth quarter and fiscal year is a result of exiting markets outside Vital Images' strategic focus of medical imaging. Vital Images incurred a net loss of $1,048,000, compared to net income of $526,000 in 1995. Vital Images financial results are presented as discontinued operations in the first table below and are detailed in the second table.

Accounting treatment requires that the company estimate the losses of Vital Images through the expected date of distribution of Vital Images shares. These estimated losses are defined as loss on disposal and must be included in the calculation of net income. Therefore, the reported net loss of the company in the fourth quarter was $1,182,000, or 12 cents per share, compared to net income of $1,589,000, or 18 cents per share, in 1995. For the 1996 fiscal year, adding the loss on disposal results in a reported net loss of $1,178,000, also 12 cents per share, compared to 1995 net income of $2,186,000, equal to 27 cents per share.

John T. Karcanes, president and chief executive of Bio-Vascular, said, "In fiscal 1997, we believe we will be able to increase the revenue of the Surgical Business. We expect that our gross margin percentage will decline because of lower levels of production as we work down our inventories, and we plan to maintain selling, general and administrative expense at 1996 levels. To develop new products and markets, we are planning to significantly increase expenditures for research and development and for clinical studies that will have both near-term and long-term shareholder benefit. The company discussed these products and markets in today's separate news release on the spin-off of Vital Images. Considering all of these factors, the company believes it will be able to increase net income and earnings per share of the Surgical Business in fiscal 1997."

These forward-looking statements are influenced primarily by the company's analysis of current information concerning markets and competition for products of the Surgical Business, analysis of expected production and estimates of standard costs and overhead, along with planned department expense levels. All of the factors and judgments affecting this forward-looking statement are, by their nature, uncertain and involve risk. A change in any or all of these factors could cause the actual results to differ materially for the expected result.

Bio-Vascular, Inc., based in St. Paul, develops, manufactures and markets proprietary specialty medical products for use in thoracic, cardiac, neuro and vascular surgery. Its Vital Images subsidiary is a leading developer of 3-D volume rendering software for medical research, clinical diagnosis and surgical planning.

Reported results, which follow in table form, are presented consistent with the accounting treatment described above. Interest income has been retrospectively allocated between the Surgical Business and Vital Images based on a ratio established for the spin off.



Results of Surgical Business Continuing Operations
 (In thousands) Three Months Ended Year Ended
 Oct. 31, Oct. 31,
 1996 1995 1996 1995
 Net revenue $2,266 $3,380 $10,125 $10,426
 Cost of revenue 867 1,083 3,443 3,462
 Gross margin 1,399 2,297 6,682 6,964
 SG&A expense 1,177 1,284 5,202 4,199
 R&D expense 255 164 909 643
 Operating expenses 1,432 1,448 6,111 4,843
 Operating income (loss) $ (33) $ 849 $ 571 $2,122
 Other income 341 165 1,161 265

Earnings of continuing operations
 before income taxes 308 1,014 1,732 2,387
 Provision for income taxes (12) 278 514 727

Net income from continuing
 operations $ 320 $ 736 $1,218 $1,660

Results of Vital Images and Estimates of Losses through March 1997:

Discontinued Operations and Loss on Disposal, Respectively

Income (loss) from discontinued
 operations (net of tax benefit) (154) 853 (1,048) 526

Loss on disposal of Vital
 Images, including provision of
 $1,800,000 for losses during
 phase-out period (net of tax
 benefit of $452,000) (1,348) -- (1,348) --
 Net income (loss) $( 1,182) $1,589 $(1,178) $2,186
 EPS continuing operations $ .03 $ .08 $ .13 $ .20
 EPS discontinued operations $ (.02) $ .10 $ (.11) $ .06
 EPS loss on disposal $ (.14) $ -- $ (.14) $ --
 EPS $ (.12) $ .18 $ (.12) $ .27
 Weighted shares outstanding 9,465 8,888 9,433 8,172


Discontinued Operations Information
 (In thousands) Three Months Ended Year Ended
 Oct. 31, Oct. 31,
 1996 1995 1996 1995
 Net revenue $253 $1,808 $882 $2,894
 Cost of revenue 38 216 162 405
 Gross margin 215 1,592 720 2,489
 SG&A expense 334 239 1,617 814
 R&D expense 449 291 1,459 1,357
 Operating expense 783 530 3,076 2,171
 Operating income (loss) $(568) $1,062 $(2,356) $ 318
 Other income (expense) 138 -- 547 --

Income (loss) of discontinued
 operations before income taxes (430) 1,062 (1,809) 318
 Provision for income taxes (276) 209 (761) (208)

Net income (loss) from
 discontinued operations $ (154) $ 853 $(1,048) $ 526
 Income (loss) per share $ (.02) $ .10 $ (.11) $ .06
 Weighted shares outstanding 9,465 8,888 9,433 8,172

SOURCE Bio-Vascular, Inc.
 -0- 11/26/96

/CONTACT: Curt Swenson of Swenson/Falker Associates, Minneapolis, 612-371-0000 or M. Karen Gilles of Bio-Vascular, Inc., 612-603-3700/


CO: Bio-Vascular, Inc. ST: Minnesota IN: MTC SU: ERN

MR-KG -- MNTU005 -- 4147 11/26/96 07:52 EST
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Publication:PR Newswire
Date:Nov 26, 1996
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