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Varian, Inc. Reports Record Sales and EPS From Continuing Operations
Palo Alto, CA, Nov. 2: Varian, Inc. (Nasdaq:VARI) today reported fourth quarter 2005 non-GAAP (pro forma) net earnings of $16.1 million, or $0.50 pro forma diluted earnings per share, compared to $14.5 million, or $0.41 pro forma diluted earnings per share, in the fourth quarter of fiscal year 2004. On a GAAP basis, net earnings in the fourth quarter of fiscal year 2005 were $14.6 million, or $0.46 diluted earnings per share, compared to $12.5 million, or $0.35 diluted earnings per share, in the fourth quarter of fiscal year 2004. Throughout this release, all revenues, operating profit, operating profit margin, net earnings, earnings per share, and cash flow are presented on a continuing operations basis unless otherwise noted.
Revenues were $198.1 million in the fourth quarter of fiscal year 2005, an increase of 6.1% compared to $186.7 million in the fourth quarter of fiscal year 2004. Sales grew in all major geographic regions, with growth from products for both life science and industrial applications. Pro forma operating profit margin was 11.7% in the fourth quarter of fiscal year 2005 compared to 11.6% in the prior-year quarter. On a GAAP basis, operating profit margin was 10.6% in the fourth quarter of fiscal year 2005 compared to 9.9% in the same quarter a year ago. Unallocated corporate costs in the current-year quarter included approximately $1.5 million related to implementing Sarbanes-Oxley Act Section 404, which negatively impacted operating profit margins by 0.7% of sales.
Free cash flow (defined as operating cash flow less net fixed asset purchases) was a record $27.0 million for the fourth quarter. For the full year, free cash flow was $56.1 million, which represents 120% of net earnings.
During the fourth quarter of fiscal year 2005, the company also repurchased 1,048,443 shares of its common stock, bringing the total repurchased for the fiscal year to 4,771,094 shares.
"This was another good year for Varian," said Garry W. Rogerson, President and Chief Executive Officer. "We achieved record revenues and EPS from continuing operations and generated excellent free cash flow. Particularly pleasing was the revenue growth, even stronger order growth, and margin expansion seen in Scientific Instruments. More importantly, we made good progress toward our long-term strategy and internal goals."
Fiscal year 2005 sales totaled $772.8 million, an increase of 6.7% compared to the $724.4 million reported in fiscal year 2004. Pro forma net earnings in fiscal year 2005 increased 12.1% to $55.3 million, compared to $49.3 million in the prior year. Pro forma diluted earnings per share increased 16.7% to $1.61 in fiscal year 2005, compared to $1.38 in fiscal year 2004. On a GAAP basis, net earnings were $46.7 million, or $1.36 diluted earnings per share, in fiscal year 2005 compared to $45.3 million, or $1.27 diluted earnings per share, in fiscal year 2004.
For a complete reconciliation of non-GAAP (pro forma) financial information used in this press release to the most directly comparable GAAP financial information, please refer to the attached Reconciliations of GAAP to Pro Forma Results -- Actual, Unaudited Condensed Consolidated Statements of Earnings, Unaudited Results of Operations, and of Operating Cash Flows, Investing Cash Flows, and Free Cash Flow -- Reconciliation of As Reported to Continuing Operations Basis.
In the second quarter of fiscal year 2005, the company's former Electronics Manufacturing business was sold to Jabil Circuit, Inc. Throughout this release, the historical results of the company from continuing operations exclude the historical results of the Electronics Manufacturing business prior to its disposition. Those results have been separately reported as discontinued operations in the company's Unaudited Condensed Consolidated Statement of Earnings.
Results by Segment
Scientific Instruments revenues for the fourth quarter of fiscal year 2005 were $163.7 million, representing an 8.0% increase from revenues of $151.6 million in the fourth quarter of the prior year. Sales increased in all major regions of the world with growth into both life science and industrial applications. Increased customer demand for our information rich detection products, including those obtained through the acquisitions of Magnex Scientific Limited in November 2004 and of product lines from Digilab LLC in September 2004, contributed to this increase. Pro forma operating profit margin was 11.5% in the fourth quarter of fiscal year 2005, compared to 11.1% in the prior-year quarter. The improvement in the segment's pro forma operating margin was primarily the result of sales volume leverage and the positive effect of efficiency improvements. On a GAAP basis, operating profit margin was 10.3% in the fourth quarter of fiscal year 2005 compared to 9.1% in the same quarter a year ago.
For the full year, revenues for Scientific Instruments grew 8.2% from $584.9 million to $632.9 million. Pro forma operating profit margin was 10.9% in fiscal year 2005 compared to 10.5% in fiscal year 2004. On a GAAP basis, operating profit margin was 8.0% in fiscal year 2005 and 9.2% in the prior year.
Vacuum Technologies revenues were $34.4 million in the fourth quarter of fiscal year 2005 and $35.1 million in the fourth quarter of fiscal year 2004. Growth of sales into life science applications in the current-year quarter was more than offset by a decrease in sales into industrial applications. Vacuum Technologies operating profit margin in the fourth quarter of fiscal year 2005 was 22.1% on both a pro forma and GAAP basis compared to 19.0% (pro forma) and 18.9% (GAAP) in the prior-year quarter. The margin improvement was primarily the result of a favorable product mix shift and manufacturing and quality improvements.
On an annual basis, revenues for Vacuum Technologies were $139.9 million in fiscal year 2005 compared to $139.5 million in fiscal year 2004. Operating profit margin was 18.2% in fiscal year 2005 and 16.9% in fiscal year 2004 on both a pro forma basis and a GAAP basis.
For the combined segments, pro forma operating profit margin before unallocated corporate costs was 13.3% in the fourth quarter of fiscal year 2005 compared to 12.6% in the prior-year quarter. On a GAAP basis, operating profit margin before unallocated corporate costs was 12.3% and 10.9% in the fourth quarter of fiscal years 2005 and 2004, respectively.
For the full year, pro forma operating profit margin before unallocated corporate costs was 12.2% compared to 11.7% in fiscal year 2004. On a GAAP basis, operating profit margin before unallocated corporate costs was 9.8% in fiscal year 2005 and 10.7% in fiscal year 2004.
Outlook
For the first time, Varian, Inc. provided fiscal year 2006 earnings per share guidance. "We believe the actions we have taken toward our longer-term internal goals, such as the LC/MS and magnetic resonance products we recently released and several other new products in the late stages of development, position us to accelerate pro forma earnings per share growth in fiscal year 2006," said Rogerson. "We expect pro forma diluted earnings per share for fiscal year 2006 to be approximately $1.94 plus or minus $0.06. For the first quarter, we expect pro forma diluted earnings per share to be approximately $0.42 plus or minus $0.03."
The company's GAAP results for the first quarter of fiscal year 2006 and the full fiscal year are expected to include the following items:
-- Acquisition-related intangible amortization of approximately $1.7 million for the first quarter and approximately $6.7 million for
the full year,
-- Amortization of approximately $0.5 million for the full year related to inventory written up in connection with the acquisition of
Magnex, and
-- Stock-based compensation expense, the amount of which cannot currently be estimated, but which is expected to be significant.
In the first quarter of fiscal year 2006, the company is required to adopt the provisions of FAS 123®, which requires that share-based payments (including employee stock options) be valued and expensed. The company is still assessing the impact of this new accounting standard. Due to the fact that this expense cannot yet be estimated, GAAP earnings guidance cannot be given for fiscal year 2006.
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