PALO ALTO, Calif., April 26 /PRNewswire-FirstCall/ -- Varian, Inc. today reported non-GAAP (adjusted) net earnings of $15.1 million, or $0.48 adjusted diluted earnings per share, for the second quarter of fiscal year 2006, compared to $13.1 million, or $0.37 adjusted diluted earnings per share, in the second quarter of fiscal year 2005. On a GAAP basis, net earnings in the second quarter of fiscal year 2006 were $11.2 million, or $0.36 diluted earnings per share, compared to $9.8 million, or $0.28 diluted earnings per share, in the second quarter of fiscal year 2005. The company’s GAAP net earnings and diluted earnings per share for the second quarter of fiscal year 2006 include $2.5 million, or $0.05 per diluted share, of share-based compensation expense recorded under the provisions of FAS 123(R). The company’s results for periods prior to fiscal year 2006 (including the second quarter and first six months of fiscal year 2005) do not include compensation expense relating to stock options or shares issued under the company’s employee stock purchase plan.
Revenues were $209.6 million in the second quarter of fiscal year 2006, representing a 6.4% increase from revenues of $197.0 million in the second quarter of fiscal year 2005. The growth was driven primarily by higher sales of vacuum products, such as turbomolecular pumps for life science applications, and certain information rich detection products, including mass spectrometers. In addition, the prior-year revenues do not include PL International Limited (Polymer Laboratories), which was acquired and became part of the Scientific Instruments segment in November 2005.
Adjusted operating profit margin was 10.9% in the second quarter of fiscal year 2006, compared to 9.6% in the prior-year quarter. The improvement in adjusted operating profit margin was primarily the result of sales volume leverage, a continued shift in product mix toward higher-margin products and lower Sarbanes-Oxley Act Section 404 compliance costs. On a GAAP basis, operating profit margin was 8.1% in the second quarter of fiscal year 2006 (which includes a 1.2% negative impact from FAS 123(R)), compared to 7.2% in the same quarter a year ago.
“I am pleased with our solid revenue growth, 20% increase in adjusted operating profit and 30% increase in adjusted diluted earnings per share,” said Garry W. Rogerson, President and Chief Executive Officer. “The focus on shifting our product mix toward higher-margin products through both our internal product development efforts and targeted acquisitions is continuing to work for us.”
Throughout this release, all revenues, operating profit, operating profit margin, net earnings and earnings per share are presented on a continuing operations basis (i.e., excluding the divested Electronics Manufacturing business) unless otherwise noted.
For a complete reconciliation of non-GAAP (adjusted) financial information used in this press release to the most directly comparable GAAP financial information, please refer to the attached Reconciliations of GAAP to Adjusted Results, Actual and Projected.
Results by Segment
Scientific Instruments revenues for the second quarter of fiscal year 2006 were $171.4 million, representing a 6.3% increase from revenues of $161.2 million in the second quarter of the prior year. Adjusted operating profit margin was 10.6% in the second quarter of fiscal year 2006, compared to 10.9% in the prior-year quarter. The segment’s adjusted operating profit margin was negatively impacted in the current-year quarter by integration costs related to recent acquisitions and higher than normal marketing costs. These items negated the adjusted operating profit margin gains made by the segment during the quarter. On a GAAP basis, operating profit margin was 8.2% in the second quarter of fiscal year 2006 (which includes a 0.5% negative impact from FAS 123(R)), compared to 7.8% in the same quarter a year ago.
Vacuum Technologies revenues increased 6.8% to $38.2 million in the second quarter of fiscal year 2006, compared to $35.8 million in the second quarter of fiscal year 2005. Vacuum Technologies’ adjusted operating profit margin was 19.6% in the second quarter of fiscal year 2006, compared to 16.6% in the second quarter of the prior year. On a GAAP basis, operating profit margin was 18.9% in the second quarter of fiscal year 2006 (which includes a 0.7% negative impact from FAS 123(R)), compared to 16.7% in the prior-year quarter.
For the combined segments, adjusted operating profit margin before unallocated corporate costs was 12.3% in the second quarter of fiscal year 2006, compared to 11.9% in the prior-year quarter. On a GAAP basis, operating profit margin before unallocated corporate costs was 10.1% in the second quarter of fiscal year 2006 (which includes a 0.5% negative impact of adopting FAS 123(R)), compared to 9.4% in the second quarter of fiscal year 2005.
Outlook
“With the strength in orders and increased backlog, we are well-positioned for both accelerated revenue growth and margin expansion in the second half of the fiscal year,” said Rogerson. “It was particularly encouraging to see a broad-based increase in vacuum products orders, which had been relatively flat for several quarters.”
Varian, Inc. updated its guidance for fiscal year 2006 and provided initial guidance for the third fiscal quarter. Adjusted diluted earnings per share are expected to be $1.95 plus or minus $0.05 for fiscal year 2006, compared to prior guidance of $1.94 plus or minus $0.06. Adjusted diluted earnings per share for the third quarter are expected to be $0.45 plus or minus $0.03. On a GAAP basis, diluted earnings per share are expected to be $1.49 plus or minus $0.05 for fiscal year 2006, and $0.33 plus or minus $0.03 for the third quarter.
The company’s GAAP diluted earnings per share for the third quarter of fiscal year 2006 and the full fiscal year are expected to include the following items:
-- Share-based compensation expense of approximately $0.05 for the third quarter and approximately $0.18 for the full year, -- Acquisition-related intangible amortization of approximately $0.05 for the third quarter and approximately $0.17 for the full year, -- Amortization of approximately $0.02 for the third quarter and approximately $0.09 for the full year related to inventory written up in connection with the acquisitions of Magnex Scientific Limited, Polymer Laboratories and IonSpec Corporation, and -- Acquisition-related in-process research and development charges of approximately $0.02 for the full year.
Varian, Inc. will be holding a conference call later today, April 26, 2006, at 2:00 p.m. Pacific time. The call may be heard via the Internet by going to www.varianinc.com, clicking on the Investors link at the right side of the page, and then clicking on the Webcasts link at the left side of the page.
Non-GAAP (Adjusted) Financial Measures
This press release includes non-GAAP (adjusted) financial measures for cost of sales, selling, general and administrative expenses, research and development expenses, purchased in-process research and development, operating profit, operating profit margins, income tax expense, net earnings and diluted earnings per share. These non-GAAP financial measures exclude share-based compensation expense, acquisition-related intangible and inventory write-up amortization and in-process research and development charges, restructuring and other related costs, defined benefit pension plan curtailment gains and settlement losses, and certain discrete income tax events. Reconciliations of each of these non-GAAP financial measures to the most directly comparable financial measures are detailed in the Reconciliations of GAAP to Adjusted Results attached to this press release. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.
We believe that excluding acquisition-related intangible and inventory write-up amortization and in-process research and development charges provides supplemental information and an alternative presentation useful to investors’ understanding of the company’s core operating results and trends. In addition, investors have indicated to us that they analyze the benefits of acquisitions based on the cash return on the investment made, and thus consider financial measures excluding acquisition-related intangible and inventory write-up amortization and in-process research and development charges as important, useful information.
We similarly believe that excluding share-based compensation expense, restructuring and other related costs (principally related to facility closures and employee terminations to improve operational efficiency), defined benefit pension plan curtailment gains and settlement losses, and certain discrete income tax events provides supplemental information and an alternative presentation useful to investors’ understanding of the company’s core operating results and trends, especially when comparing those results on a consistent basis to results for previous periods and anticipated results for future periods. Investors have indicated that they consider financial measures of our results of operations excluding share-based compensation expense, restructuring and other related costs, defined benefit pension plan curtailment gains and settlement losses, and certain discrete income tax events as important supplemental information useful to their understanding of our historical results and estimating of our future results.
We also believe that, in excluding share-based compensation expense, acquisition-related intangible and inventory write-up amortization and in- process research and development charges, restructuring and other related costs, defined benefit pension plan curtailment gains and settlement losses, and certain discrete income tax events, our non-GAAP financial measures provide investors with transparency into what is used by management to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods, to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.
In the case of defined benefit pension plan curtailment gains and settlement losses and certain discrete income tax events, we also consider these to be unusual events.
Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for or superior to, our financial measures prepared in accordance with GAAP.
Caution Regarding Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended, including those relating to anticipated earnings per share, share-based compensation expense and certain amortization expenses for the third quarter and full fiscal year 2006. These forward- looking statements are based on management’s current expectations, are not guarantees of future performance, and involve certain risks and uncertainties that could cause the company’s actual results to differ materially from management’s current expectations and the forward-looking statements made in this press release. Those risks and uncertainties include, but are not limited to, the following: whether we will succeed in new product development, commercialization, performance and acceptance; whether we can achieve continued growth in sales for both life science and industrial applications; risks arising from the timing of shipments, installations and the recognition of revenues on fourier-transform mass spectrometers (FTMS) and certain magnetic resonance (MR) products, including nuclear magnetic resonance (NMR) and MR imaging systems and superconducting magnets; whether we can increase margins on newer MR products; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in the company’s product and geographic markets; whether we will see continued and timely delivery of key raw materials and components by suppliers; foreign currency fluctuations that could adversely impact revenue growth and earnings; whether we will see sustained or improved market investment in capital equipment; whether we will see reduced demand from customers that operate in cyclical industries; the impact of any delay or reduction in government funding for research; our ability to successfully integrate acquisitions; the timing and amount of discrete tax events; the timing and amount of share-based compensation expense; whether the actual cost of complying with the requirements of Section 404 of the Sarbanes-Oxley Act will exceed our current estimates; and other risks detailed from time to time in the company’s filings with the Securities and Exchange Commission. We disclaim any intent or obligation to update publicly any forward-looking statements, whether in response to new information, future events or otherwise.
About Varian, Inc.
Varian, Inc. is a leading worldwide supplier of scientific instruments and vacuum technologies for life science and industrial applications. The company provides complete solutions, including instruments, vacuum components, laboratory consumable supplies, software, training and support through its global distribution and support systems. Varian, Inc. employs approximately 3,700 people and operates manufacturing facilities in 14 locations in North America, Europe and the Pacific Rim. Varian, Inc. had fiscal year 2005 sales of $773 million (excluding the divested Electronics Manufacturing business), and its common stock is traded on Nasdaq under the symbol, “VARI.” Further information is available on the company’s Web site: www.varianinc.com.
For Information Contact: Investor Relations Varian, Inc. 650-213-8000, Ext. 3752 ir@varianinc.com VARIAN, INC. AND SUBSIDIARY COMPANIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (In thousands, except per share amounts) Second Quarter FY 2006 and Second Quarter FY 2005 Fiscal Quarter Ended March 31, April 1, 2006(A) 2005 Sales $209,626 $197,009 Cost of sales 116,676 (1) 113,082 (7) Gross profit 92,950 83,927 Operating expenses Selling, general and administrative 61,347 (2) 55,583 (8) Research and development 14,683 (3) 14,233 Total operating expenses 76,030 69,816 Operating earnings 16,920 (4) 14,111 (9) Interest income (expense) Interest income 880 1,333 Interest expense (504) (558) Total interest income, net 376 775 Earnings from continuing operations before income taxes 17,296 14,886 Income tax expense 6,054 (5) 5,061 (10) Earnings from continuing operations 11,242 (6) 9,825 (11) Discontinued operations Earnings from operations of disposed Electronics Manufacturing business, net of taxes -- 1,975 Gain on sale of Electronics Manufacturing business, net of taxes -- 70,085 Earnings from discontinued operations -- 72,060 Net earnings $11,242 $81,885 Net earnings per diluted share Continuing operations $0.36 (6) $0.28 (11) Discontinued operations -- 2.01 Net earnings $0.36 $2.29 Diluted shares outstanding 31,412 35,687 Note (A): The results for the fiscal quarter ended March 31, 2006 reflect share-based compensation expense as a result of the adoption of FAS 123(R) on a prospective basis in the first quarter of fiscal year 2006. Accordingly, the results for prior periods (including the fiscal quarter ended April 1, 2005) do not reflect such expense.
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (see also attached reconciliations of GAAP to Adjusted results for each of these measures:
(1) $114,140 on an adjusted basis excluding $1,062 in acquisition-related intangible amortization, $1,366 in acquisition-related inventory write-up amortization and $108 in share-based compensation expense. (2) $58,179 on an adjusted basis excluding $813 in acquisition-related intangible amortization, $165 in restructuring and other related costs and $2,190 in share-based compensation expense. (3) $14,528 on an adjusted basis excluding $155 in share-based compensation expense. (4) $22,779 on an adjusted basis excluding the adjustments described in items (1) - (3) above. (5) $8,104 on an adjusted basis excluding the tax impact of the adjustments described in items (1) - (3) above. (6) $15,051 and $0.48 per share, respectively, on an adjusted basis excluding the adjustments (net of related tax effects) described in items (1) - (3) above. (7) $110,523 on an adjusted basis excluding $1,010 in acquisition-related intangible amortization and $1,549 in acquisition-related inventory write-up amortization. (8) $53,249 on an adjusted basis excluding $620 in acquisition-related intangible amortization and $1,714 in restructuring and other related costs. (9) $19,004 on an adjusted basis excluding the adjustments described in items (7) and (8) above. (10) $6,725 on an adjusted basis excluding the tax impact of the adjustments described in items (7) and (8) above. (11) $13,054 and $0.37 per share, respectively, on an adjusted basis excluding the adjustments (net of related tax effects) described in items (7) and (8) above. VARIAN, INC. AND SUBSIDIARY COMPANIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (In thousands, except per share amounts) First Six Months FY 2006 and First Six Months FY 2005 Six Months Ended March 31, April 1, 2006 (A) 2005 Sales $405,363 $387,950 Cost of sales 226,492 (1) 223,360 (8) Gross profit 178,871 164,590 Operating expenses Selling, general and administrative 117,923 (2) 109,484 (9) Research and development 28,622 (3) 27,073 Purchased in-process research and development 756 (4) 700 (10) Total operating expenses 147,301 137,257 Operating earnings 31,570 (5) 27,333 (11) Interest income (expense) Interest income 1,975 2,292 Interest expense (1,041) (1,129) Total interest income, net 934 1,163 Earnings from continuing operations before income taxes 32,504 28,496 Income tax expense 11,603 (6) 6,927 (12) Earnings from continuing operations 20,901 (7) 21,569 (13) Discontinued operations Earnings from operations of disposed Electronics Manufacturing business, net of taxes -- 5,169 Gain on sale of Electronics Manufacturing business, net of taxes -- 70,085 Earnings from discontinued operations -- 75,254 Net earnings $20,901 $96,823 Net earnings per diluted share Continuing operations $0.66 (7) $0.60 (13) Discontinued operations -- 2.11 Net earnings $0.66 $2.71 Diluted shares outstanding 31,649 35,673 Note (A): The results for the six months ended March 31, 2006 reflect share-based compensation expense as a result of the adoption of FAS 123(R) on a prospective basis in the first quarter of fiscal year 2006. Accordingly, the results for prior periods (including the six months ended April 1, 2005) do not reflect such expense.
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (see also attached reconciliations of GAAP to Adjusted results for each of these measures:
(1) $220,895 on an adjusted basis excluding $2,086 in acquisition-related intangible amortization, $3,314 in acquisition-related inventory write-up amortization and $197 in share-based compensation expense. (2) $112,245 on an adjusted basis excluding $1,550 in acquisition-related intangible amortization, $165 in restructuring and other related costs and $3,963 in share-based compensation expense. (3) $28,360 on an adjusted basis excluding $262 in share-based compensation expense. (4) $0 on an adjusted basis excluding $756 related to an acquisition-related in-process research and development charge. (5) $43,863 on an adjusted basis excluding the adjustments described in items (1) - (4) above. (6) $15,679 on an adjusted basis excluding the tax impact of the adjustments described in items (1) - (3) above. (7) $29,118 and $0.92 per share, respectively, on an adjusted basis excluding the adjustments (net of related tax effects) described in items (1) - (4) above. (8) $218,299 on an adjusted basis excluding $1,870 in acquisition-related intangible amortization and $3,191 in acquisition-related inventory write-up amortization. (9) $103,832 on an adjusted basis excluding $1,277 in acquisition-related intangible amortization, $2,898 in restructuring and other related costs and a pension settlement loss of $1,477. (10) $0 on an adjusted basis excluding $700 related to an acquisition-related in-process research and development charge. (11) $38,746 on an adjusted basis excluding the adjustments described in items (8) - (10) above. (12) $13,569 on an adjusted basis excluding ($3,000) related to a tax credit due to a change in tax law and the tax impact of the adjustments described in items (8) and (9) above. (13) $26,340 and $0.74 per share, respectively, on an adjusted basis excluding the adjustments (net of related tax effects) described in items (8) - (10) above. VARIAN, INC. AND SUBSIDIARY COMPANIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (In thousands) March 31, September 30, 2006 2005 ASSETS Current assets Cash and cash equivalents $116,442 $188,494 Accounts receivable, net 156,328 154,525 Inventories 134,165 114,427 Deferred taxes 25,453 26,842 Prepaid expenses and other current assets 15,813 21,744 Total current assets 448,201 506,032 Property, plant and equipment, net 108,121 102,290 Goodwill 178,097 149,934 Intangible assets, net 40,038 28,245 Other assets 13,439 9,494 Total assets $787,896 $795,995 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities Current portion of long-term debt $2,500 $2,500 Accounts payable 69,633 61,435 Deferred profit 12,672 11,587 Accrued liabilities 148,367 165,626 Total current liabilities 233,172 241,148 Long-term debt 26,250 27,500 Deferred taxes 7,123 5,888 Other liabilities 20,277 21,937 Total liabilities 286,822 296,473 Total stockholders’ equity 501,074 499,522 Total liabilities and stockholders’ equity $787,896 $795,995 VARIAN, INC. AND SUBSIDIARY COMPANIES UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) Fiscal Quarter Ended Six Months Ended March 31, April 1, March 31, April 1, 2006 2005 2006 2005 Cash flows from operating activities Net earnings $11,242 $81,885 $20,901 $96,823 Adjustments to reconcile net earnings to net cash provided by operating activities: Gain on sale of Electronics Manufacturing business -- (70,085) -- (70,085) Depreciation and amortization 6,044 7,113 12,388 14,317 Loss (gain) on disposition of property, plant and equipment 169 (113) 258 (44) Purchased in-process research and development -- -- 756 700 Share-based compensation expense 2,453 225 4,422 265 Tax benefit from stock option exercises 1,386 2,600 3,242 3,500 Excess tax benefit from share-based compensation expense (1,386) (A) -- (3,185) (A) -- Deferred taxes (252) -- (897) (3,000) Changes in assets and liabilities, excluding effects of acquisitions and divestitures: Accounts receivable, net (8,588) (6,042) 2,909 15,872 Inventories (11,309) (465) (14,937) (802) Prepaid expenses and other current assets 2,029 4,626 3,833 4,420 Other assets 175 (66) 148 (676) Accounts payable 4,824 1,234 8,673 (7,622) Deferred profit (901) (990) 530 (1,510) Accrued liabilities 771 (14,597) (12,641) (21,579) Other liabilities (1,302) (118) (255) (534) Net cash provided by operating activities 5,355 (A) 5,207 26,145 (A) 30,045 Cash flows from investing activities Proceeds from sale of property, plant and equipment 171 314 634 391 Purchase of property, plant and equipment (3,850) (6,094) (7,924) (12,611) Purchase of businesses, net of cash acquired (17,225) (1,000) (68,529) (26,198) Proceeds from sale of short-term investments -- 20,000 -- 35,000 Purchase of short-term investments -- -- -- (10,000) Proceeds from sale of Electronics Manufacturing business, net of transaction costs and taxes -- 189,946 -- 189,946 Net cash (used in) provided by investing activities (20,904) 203,166 (75,819) 176,528 Cash flows from financing activities Repayments of debt -- (4,606) (1,250) (5,856) Repurchase of common stock (22,898) (33,590) (38,160) (33,590) Issuance of common stock 6,587 6,448 15,563 10,244 Excess tax benefit from share-based compensation expense 1,386 (A) -- 3,185 (A) -- Transfers to Varian Medical Systems, Inc. (105) (215) (236) (621) Net cash used in financing activities (15,030) (A) (31,963) (20,898) (A) (29,823) Effects of exchange rate changes on cash and cash equivalents 332 (3,034) (1,480) 6,184 Net (decrease) increase in cash and cash equivalents (30,247) 173,376 (72,052) 182,934 Cash and cash equivalents at beginning of period 146,689 169,540 188,494 159,982 Cash and cash equivalents at end of period $116,442 $342,916 $116,442 $342,916 Note (A): Net cash flows from operating activities for the fiscal quarter and six months ended March 31, 2006 reflect the reclassification of the excess tax benefit from share-based compensation expense to financing activities as a result of the adoption of FAS 123(R) on a prospective basis in the first quarter of fiscal year 2006. Accordingly, net cash flows from operating activities for prior periods (including the fiscal quarter and six months ended April 1, 2005) do not reflect such reclassification. VARIAN, INC. AND SUBSIDIARY COMPANIES RECONCILIATION OF GAAP TO ADJUSTED RESULTS - ACTUAL UNAUDITED RESULTS OF OPERATIONS (In thousands) Second Quarter FY 2006 and Second Quarter FY 2005 and First Six Months FY 2006 and First Six Months FY 2005 Fiscal Quarter Ended Six Months Ended March 31, April 1, March 31, April 1, 2006 2005 2006 2005 TOTAL COMPANY Cost of Sales U.S. GAAP as reported $116,67
