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Varian, Inc. Reports Third Quarter 2006
Results
Palo Alto, CA, July 26: Varian, Inc. (NASDAQ:VARI)
today reported revenues of $209.7 million in the third quarter of fiscal year
2006, representing an increase of 12.3% over revenues of $186.8 million in the
third quarter of fiscal year 2005. The growth in sales was broad-based, with
double-digit increases in life science and industrial applications for both the
Scientific Instruments and Vacuum Technologies segments.
Non-GAAP (adjusted) net earnings were $17.7 million, or $0.57 adjusted diluted
earnings per share, for the third quarter of fiscal year 2006, compared to $12.9
million, or $0.38 adjusted diluted earnings per share, in the third quarter of
fiscal year 2005. On a GAAP basis, net earnings in the third quarter of fiscal
year 2006 were $14.5 million, or $0.46 diluted earnings per share, compared to
$10.5 million, or $0.31 diluted earnings per share, in the third quarter of
fiscal year 2005. The company's GAAP net earnings and diluted earnings per share
for the third quarter of fiscal year 2006 include $1.8 million, or $0.04 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 third quarter and first nine 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.
Adjusted operating earnings increased 30.6% to $23.8 million in the third
quarter of fiscal year 2006, compared to $18.3 million in the same quarter a
year ago. Adjusted operating profit margin was 11.4% in the third quarter of
fiscal year 2006, compared to 9.8% in the prior-year quarter. The improvements
in adjusted operating earnings and adjusted operating profit margin were
primarily the result of sales volume leverage, a mix shift toward higher-margin
products and lower Sarbanes-Oxley Act Section 404 compliance costs. On a GAAP
basis, operating earnings were $18.9 million and operating profit margin was
9.0% in the third quarter of fiscal year 2006 (including negative impacts of
$1.8 million and 0.9%, respectively, from FAS 123(R)), compared to $11.9 million
and 6.4%, respectively, in the same quarter a year ago.
Adjusted income tax expense was $6.4 million (a 26.6% effective tax rate) in the
third quarter of fiscal year 2006, compared to $6.7 million (a 34.0% effective
tax rate) in the prior-year quarter. The lower effective tax rate for the third
quarter of fiscal year 2006 reflects the positive outcome of tax uncertainties
during the quarter. As a result, the effective tax rate for the full fiscal year
2006 on an adjusted basis is now anticipated to be approximately 33.0%. On a
GAAP basis, income tax expense was $4.7 million (a 24.6% effective tax rate) in
the third quarter of fiscal year 2006, compared to $2.7 million (a 20.4%
effective tax rate) in the same quarter a year ago.
"Our balanced approach of focusing on a broad array of applications, product
lines and geographies positioned us to deliver another solid financial
performance," said Garry W. Rogerson, President and Chief Executive Officer.
"This approach continued to allow us to take advantage of shifting areas of
demand strength in industrial and life science applications and in different
geographies."
Throughout this release, all revenues, operating earnings, 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 third quarter of fiscal year 2006 were
$170.3 million, representing a 12.0% increase from revenues of $152.0 million in
the third quarter of the prior year. The prior-year revenues do not include
sales from PL International Limited (Polymer Laboratories), which was acquired
and became part of the company's Scientific Instruments segment in November
2005. Polymer Laboratories generated revenues of approximately $24 million for
the twelve months ended September 30, 2005. Adjusted operating profit margin was
10.9% in the third quarter of fiscal year 2006, compared to 10.6% in the
prior-year quarter. The increase in the segment's adjusted operating profit
margin was primarily the result of sales volume leverage and a mix shift toward
higher-margin products. On a GAAP basis, operating profit margin was 8.6% in the
third quarter of fiscal year 2006 (which includes a 0.4% negative impact from
FAS 123(R)), compared to 6.6% in the same quarter a year ago.
Vacuum Technologies revenues increased 13.5% to $39.5 million in the third
quarter of fiscal year 2006, compared to $34.8 million in the third quarter of
fiscal year 2005. Vacuum Technologies' adjusted operating profit margin was
22.3% in the third quarter of fiscal year 2006, compared to 16.3% in the third
quarter of the prior year. The improvement in adjusted operating profit margin
was primarily attributable to sales volume leverage, increased sales of
higher-margin products and continued efficiency improvements. On a GAAP basis,
operating profit margin was 21.6% in the third quarter of fiscal year 2006
(which includes a 0.7% negative impact from FAS 123(R)), compared to 16.3% in
the prior-year quarter.
For the combined segments, adjusted operating profit margin before unallocated
corporate costs was 13.1% in the third quarter of fiscal year 2006, compared to
11.7% in the prior-year quarter. On a GAAP basis, operating profit margin before
unallocated corporate costs was 11.1% in the third quarter of fiscal year 2006
(which includes a 0.5% negative impact of adopting FAS 123(R)), compared to 8.4%
in the third quarter of fiscal year 2005.
Outlook
Varian, Inc. increased its guidance for the full fiscal year 2006. Adjusted
diluted earnings per share are now expected to be $2.02 plus or minus $0.04 for
fiscal year 2006, compared to prior guidance of $1.95 plus or minus $0.05. On a
GAAP basis, diluted earnings per share are expected to be $1.55 plus or minus
$0.04 for fiscal year 2006.
The company's GAAP diluted earnings per share for the full fiscal year 2006 are
expected to include the following items:
-- Share-based compensation expense of approximately $0.17,
-- Acquisition-related intangible amortization of approximately $0.18,
-- Amortization of approximately $0.10 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.
Varian, Inc. will be holding a conference call later today, July 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 bottom of 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 earnings,
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, effective tax rate, share-based compensation expense and
certain amortization expenses for the 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; 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 the NASDAQ Global Select Market under the symbol,
"VARI." Further information is available on the company's Web site:
www.varianinc.com.
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