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Varian, Inc. Reports First Quarter 2008 Results
Date:1/23/2008

- Sales Up 9%

- Non-GAAP and GAAP Operating Earnings Up 6%

- Non-GAAP Diluted EPS Up 15%, GAAP Diluted EPS Up 16%

PALO ALTO, Calif., Jan. 23 /PRNewswire-FirstCall/ -- Varian, Inc. (NasdaqGS: VARI) today reported first quarter 2008 revenues of $237.4 million, representing an increase of 8.9% over revenues of $217.9 million in the first quarter of fiscal year 2007. The increase was broad-based, with growth in sales of products for both life science and industrial (which includes environmental, food and energy) applications. Sales increased in all geographic regions, with particularly strong sales growth in Asia Pacific and Latin America.

Non-GAAP (adjusted) net earnings for the first quarter of fiscal year 2008 increased 13.8% to $21.5 million, or $0.70 diluted earnings per share, compared to $18.9 million, or $0.61 diluted earnings per share, in the first quarter of fiscal year 2007. On a GAAP basis, net earnings in the first quarter of fiscal year 2008 were $17.6 million, or $0.57 diluted earnings per share, compared to $15.4 million, or $0.49 diluted earnings per share, in the first quarter of fiscal year 2007.

Adjusted operating earnings increased 6.1% to $30.1 million in the first quarter of fiscal year 2008, compared to $28.4 million in the first quarter last year. Adjusted operating profit margin was 12.7% in the first quarter of fiscal year 2008, compared to 13.0% in the prior-year quarter. This decrease was primarily due to lower adjusted operating margins in the Vacuum Technologies segment in the current quarter compared to unusually strong results in the year-ago quarter. In addition, the sales growth in the first quarter of fiscal year 2008 was entirely attributable to the Scientific Instruments segment, which has lower adjusted operating margins than the Vacuum Technologies segment. On a GAAP basis, operating earnings were $24.1 million and operating profit margin was 10 71,712 72,588

Deferred profit 11,384 13,641

Accrued liabilities 161,574 159,109

------------ ------------

Total current liabilities 250,920 251,588

Long-term debt 18,750 18,750

Deferred taxes 4,028 4,050

Other liabilities 40,935 44,358

------------ ------------

Total liabilities 314,633 318,746

------------ ------------

Stockholders' equity

Preferred stock-par value $0.01,

authorized-1,000 shares; issued-none - -

Common stock-par value $0.01,

authorized-99,000 shares; issued and

outstanding- 30,430 shares at

December 28, 2007 and 30,345 shares

at September 28, 2007 362,328 351,330

Retained earnings 207,598 199,471

Accumulated other comprehensive income 68,112 67,286

------------ ------------

Total stockholders' equity 638,038 618,087

------------ ------------

Total liabilities and

stockholders' equity $952,671 $936,833

============ ============

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands, except par value amounts)

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

Cash flows from operating activities

Net earnings $17,584 $15,355

Adjustments to reconcile net earnings

to net cash provided by

operating activities:

Depreciation and amortization 6,834 6,793

Gain on disposition of property,

plant and equipment (222) (34)

Share-based compensation expense 1,719 2,845

Deferred taxes 765 (797)

Changes in assets and liabilities,

excluding effects of acquisitions:

Accounts receivable, net 13,773 10,068

Inventories (15,152) (5,663)

Prepaid expenses and other current assets 272 (1,084)

Other assets (24) 286

Accounts payable (1,372) (337)

Deferred profit (2,254) (125)

Accrued liabilities (3,319) (4,467)

Other liabilities (1,501) (448)

------------ ------------

Net cash provided by operating activities 17,103 22,392

------------ ------------

Cash flows from investing activities

Proceeds from sale of property, plant

and equipment 341 119

Purchase of property, plant

and equipment (3,459) (2,054)

Purchase of businesses, net of

cash acquired (9,987) (3,000)

------------ ------------

Net cash used in investing activities (13,105) (4,935)

------------ ------------

Cash flows from financing activities

Repayments of debt - (1,250)

Repurchase of common stock (15,102) (37,055)

Issuance of common stock 9,518 2,353

Excess tax benefit from share-based plans 2,390 1,173

Transfers to Varian Medical Systems,

Inc. (212) (207)

------------ ------------

Net cash used in financing activities (3,406) (34,986)

------------ ------------

Effects of exchange rate changes on

cash and cash equivalents 692 4,677

------------ ------------

Net increase (decrease) in cash and

cash equivalents 1,284 (12,852)

Cash and cash equivalents at

beginning of period 196,396 154,155

------------ ------------

Cash and cash equivalents at end of period $197,680 $141,303

============ ============

VARIAN, INC. AND SUBSIDIARY COMPANIES

RECONCILIATION OF GAAP TO ADJUSTED RESULTS - ACTUAL

UNAUDITED RESULTS OF OPERATIONS

(In thousands)

First Quarter FY 2008 and First Quarter FY 2007

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

TOTAL COMPANY

------------

Cost of Sales

U.S. GAAP as reported $130,129 $118,239

Adjustments:

Share-based compensation expense (109) (108)

Acquisition-related intangible

amortization (1,391) (1,346)

Acquisition-related inventory

write-up amortization (480) (271)

Restructuring and other related costs (488) -

------------ ------------

As adjusted $127,661 $116,514

============ ============

Selling, General and Administrative

U.S. GAAP as reported $65,980 $61,201

Adjustments:

Share-based compensation expense (1,414) (2,609)

Acquisition-related intangible

amortization (438) (901)

Restructuring and other related costs (1,193) (115)

------------ ------------

As adjusted $62,935 $57,576

============ ============

Research and Development

U.S. GAAP as reported $17,180 $15,610

Adjustments:

Share-based compensation expense (115) (128)

Restructuring and other related costs (320) -

------------ ------------

As adjusted $16,745 $15,482

============ ============

VARIAN, INC. AND SUBSIDIARY COMPANIES

RECONCILIATION OF GAAP TO ADJUSTED RESULTS - ACTUAL

UNAUDITED RESULTS OF OPERATIONS

(In thousands, except margin data)

First Quarter FY 2008 and First Quarter FY 2007

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

TOTAL COMPANY (Continued)

------------------------

Operating Earnings

U.S. GAAP as reported $24,142 $22,888

Adjustments:

Share-based compensation expense 1,638 2,845

Acquisition-related intangible

amortization 1,829 2,247

Acquisition-related inventory

write-up amortization 480 271

Restructuring and other related costs 2,001 115

------------ ------------

As adjusted $30,090 $28,366

============ ============

Operating Margins

U.S. GAAP as reported 10.2 % 10.5 %

Adjustments:

Share-based compensation expense 0.7 1.3

Acquisition-related intangible

amortization 0.8 1.0

Acquisition-related inventory

write-up amortization 0.2 0.1

Restructuring and other related costs 0.8 0.1

------------ ------------

As adjusted 12.7 % 13.0 %

============ ============

Income Tax Expense

U.S. GAAP as reported $8,046 $8,268

Tax impact of adjustments:

Share-based compensation expense 533 1,023

Acquisition-related intangible

amortization 639 789

Acquisition-related inventory

write-up amortization 167 95

Restructuring and other related costs 698 40

------------ ------------

As adjusted $10,083 $10,215

============ ============

VARIAN, INC. AND SUBSIDIARY COMPANIES

RECONCILIATION OF GAAP TO ADJUSTED RESULTS - ACTUAL

UNAUDITED RESULTS OF OPERATIONS

(In thousands, except per share data)

First Quarter FY 2008 and First Quarter FY 2007

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

TOTAL COMPANY (Continued)

------------------------

Net Earnings

U.S. GAAP as reported $17,584 $15,355

Adjustments:

Share-based compensation expense 1,105 1,822

Acquisition-related intangible

amortization 1,190 1,458

Acquisition-related inventory

write-up amortization 313 176

Restructuring and other related costs 1,303 75

------------ ------------

As adjusted $21,495 $18,886

============ ============

Diluted Earnings Per Share

U.S. GAAP as reported $0.57 $0.49

Adjustments:

Share-based compensation expense 0.04 0.06

Acquisition-related intangible

amortization 0.04 0.05

Acquisition-related inventory

write-up amortization 0.01 0.01

Restructuring and other related costs 0.04 -

------------ ------------

As adjusted $0.70 $0.61

============ ============

VARIAN, INC. AND SUBSIDIARY COMPANIES

RECONCILIATION OF GAAP TO ADJUSTED RESULTS - ACTUAL

UNAUDITED RESULTS OF OPERATIONS

(In thousands, except margin data)

First Quarter FY 2008 and First Quarter FY 2007

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

SCIENTIFIC INSTRUMENTS SEGMENT

------------------------------

Operating Earnings

U.S. GAAP as reported $19,802 $18,867

Adjustments:

Share-based compensation expense 846 1,030

Acquisition-related intangible

amortization 1,829 2,247

Acquisition-related inventory

write-up amortization 480 271

Restructuring and other related costs 2,001 115

------------ ------------

As adjusted $24,958 $22,530

============ ============

Operating Margins

U.S. GAAP as reported 10.1 % 10.7 %

Adjustments:

Share-based compensation expense 0.4 0.5

Acquisition-related intangible

amortization 1.0 1.2

Acquisition-related inventory

write-up amortization 0.2 0.2

Restructuring and other related costs 1.0 0.1

------------ ------------

As adjusted 12.7 % 12.7 %

============ ============

VACUUM TECHNOLOGIES SEGMENT

---------------------------

Operating Earnings

U.S. GAAP as reported $7,733 $8,385

Adjustments:

Share-based compensation expense 149 723

------------ ------------

As adjusted $7,882 $9,108

============ ============

Operating Margins

U.S. GAAP as reported 19.1 % 20.4 %

Adjustments:

Share-based compensation expense 0.4 1.8

------------ ------------

As adjusted 19.5 % 22.2 %

============ ============

GENERAL (UNALLOCATED) CORPORATE

-------------------------------

Operating Earnings

U.S. GAAP as reported $(3,393) $(4,365)

Adjustments:

Share-based compensation expense 643 1,092

------------ ------------

As adjusted $(2,750) $(3,273)

============ =============

For Information Contact:

Investor Relations

Varian, Inc.

650.424.5471

ir@varianinc.com

.2% in the first quarter of fiscal year 2008, compared to $22.9 million and 10.5% in the same quarter a year ago.

Adjusted income tax expense was $10.1 million (a 31.9% effective tax rate) in the first quarter of fiscal year 2008, compared to $10.2 million (a 35.1% effective tax rate) in the prior-year quarter. The lower effective tax rate in the first quarter of fiscal year 2008 reflects the positive outcome of tax uncertainties during the quarter. The effective tax rate for the full fiscal year 2008 is expected to be approximately 34.5% to 35.5%. On a GAAP basis, income tax expense was $8.1 million (a 31.4% effective tax rate) in the first quarter of fiscal year 2008, compared to $8.3 million (a 35.0% 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 with record orders, sales, and earnings for any first quarter," said Garry W. Rogerson, President and Chief Executive Officer. "We accomplished this even though we incurred higher costs relating to sales commissions on strong orders, new product introductions and other initiatives in our Scientific Instruments segment, all of which should benefit us later in the year."

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.

Results by Segment

Scientific Instruments revenues for the first quarter of fiscal year 2008 were $197.0 million, representing an increase of 11.4% over revenues of $176.9 million in the first quarter of the prior fiscal year. Adjusted operating profit margin was 12.7% in the first quarters of both fiscal years 2008 and 2007. On a GAAP basis, operating profit margin was 10.1% in the first quarter of fiscal year 2008, compared to 10.7% in the same quarter a year ago.

Vacuum Technologies revenues decreased 1.6% to $40.4 million in the first quarter of fiscal year 2008, compared to $41.1 million in the first quarter of fiscal year 2007. Adjusted operating profit margin was 19.5% in the first quarter of fiscal year 2008, compared to an unusually high 22.2% in the first quarter of the prior fiscal year. On a GAAP basis, operating profit margin was 19.1% in the first quarter of fiscal year 2008, compared to 20.4% in the prior-year quarter.

Webcast Conference Call

Varian, Inc. will be providing a live webcast (in listen-only mode) of its investor conference call to review its first quarter results later today, January 23, 2008, at 2:00 p.m. Pacific time. The call may be heard via the Internet by going to http://www.varianinc.com, clicking on the Investors link at the top of the right side of the page, and then clicking on the Live Webcast link.

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, 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 restructuring and other related costs. Reconciliations of each of these non-GAAP financial measures to the most directly comparable GAAP 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 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 as important, useful information.

We similarly believe that excluding share-based compensation expense and restructuring and other related costs (principally related to facility closures and employee terminations to improve operational efficiency) 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 and restructuring and other related costs 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 restructuring and other related costs, 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.

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. 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 industrial applications and/or stronger growth in sales for life science applications; whether we can achieve continued sales growth in Europe and Asia Pacific and/or stronger growth in sales in the U.S.; risks arising from the timing of shipments, installations and the recognition of revenue on certain magnet-based products, including nuclear magnetic resonance (NMR), magnetic resonance (MR) imaging and fourier-transform mass spectrometer (FTMS) systems and superconducting magnets; 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 continued 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 evaluate, negotiate and integrate acquisitions; the actual costs, timing and benefits of restructuring activities (such as our Northern California facility consolidation) and other efficiency improvement activities (such as our global procurement and outsourcing initiatives); the timing and amount of discrete tax events; the timing and amount of share-based compensation; 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 products, laboratory consumable supplies, software, training and support through its global distribution and support systems. Varian, Inc. employs approximately 3,900 people worldwide and operates manufacturing facilities in North America, Europe and Asia Pacific. Varian, Inc. had fiscal year 2007 sales of $921 million, 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: http://www.varianinc.com.

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF EARNINGS

(In thousands, except per share amounts)

First Quarter FY 2008 and First Quarter FY 2007

Fiscal Quarter Ended

------------------------------

December 28, December 29,

2007 2006

------------ ------------

Sales $237,431 $217,938

Cost of sales 130,129 (1) 118,239 (7)

------------ ------------

Gross profit 107,302 99,699

------------ ------------

Operating expenses

Selling, general and administrative 65,980 (2) 61,201 (8)

Research and development 17,180 (3) 15,610 (9)

------------ ------------

Total operating expenses 83,160 76,811

------------ ------------

Operating earnings 24,142 (4) 22,888 (10)

Interest income (expense)

Interest income 1,937 1,269

Interest expense (449) (534)

------------ ------------

Total interest income, net 1,488 735

------------ ------------

Earnings before income taxes 25,630 23,623

Income tax expense 8,046 (5) 8,268 (11)

------------ ------------

Net earnings $17,584 (6) $15,355 (12)

============ ============

Net earnings per diluted share $0.57 (6) $0.49 (12)

============ ============

Diluted shares outstanding 30,900 31,058

============ ============

NON-GAAP (ADJUSTED) FINANCIAL MEASURES (see also attached reconciliations of GAAP to Adjusted results for each of these measures):

(1) $127,661 on an adjusted basis excluding $1,391 in acquisition-related

intangible amortization, $480 in acquisition-related inventory write-

up amortization, $488 in restructuring and other related costs and

$109 in share-based compensation expense.

(2) $62,935 on an adjusted basis excluding $438 in acquisition-related

intangible amortization, $1,193 in restructuring and other related

costs and $1,414 in share-based compensation expense.

(3) $16,745 on an adjusted basis excluding $320 in restructuring and

other related costs and $115 in share-based compensation expense.

(4) $30,090 on an adjusted basis excluding the adjustments described in

items (1) - (3) above.

(5) $10,083 on an adjusted basis excluding the tax impact of the

adjustments described in items (1) - (3) above.

(6) $21,495 and $0.70 per diluted share, respectively, on an adjusted

basis excluding the adjustments (net of related tax effects)

described in items (1) - (3) above.

(7) $116,514 on an adjusted basis excluding $1,346 in acquisition-related

intangible amortization, $271 in acquisition-related inventory write-

up amortization and $108 in share-based compensation expense.

(8) $57,576 on an adjusted basis excluding $901 in acquisition-related

intangible amortization, $115 in restructuring and other related

costs and $2,609 in share-based compensation expense.

(9) $15,482 on an adjusted basis excluding $128 in share-based

compensation expense.

(10) $28,366 on an adjusted basis excluding the adjustments described in

items (7) - (9) above.

(11) $10,215 on an adjusted basis excluding the tax impact of the

adjustments described in items (7) - (9) above.

(12) $18,886 and $0.61 per diluted share, respectively, on an adjusted

basis excluding the adjustments (net of related tax effects)

described in items (7) - (9) above.

VARIAN, INC. AND SUBSIDIARY COMPANIES

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands, except par value amounts)

December 28, September 28,

2007 2007

------------ ------------

ASSETS

Current assets

Cash and cash equivalents $197,680 $196,396

Accounts receivable, net 175,431 187,429

Inventories 157,843 140,533

Deferred taxes 38,288 38,068

Prepaid expenses and

other current assets 17,114 17,332

------------ ------------

Total current assets 586,356 579,758

Property, plant and equipment, net 108,715 110,792

Goodwill and intangible assets, net 237,202 225,332

Other assets 20,398 20,951

------------ ------------

Total assets $952,671 $936,833

============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of long-term debt $6,250 $6,250

Accounts payable
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SOURCE Varian, Inc.
Copyright©2008 PR Newswire.
All rights reserved

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