United States
Varian, Inc. Reports Record Sales For Fourth Quarter and Fiscal Year 2003
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PALO ALTO, Calif., Nov. 5, 2003 Varian, Inc. (Nasdaq: VARI) today announced record sales for the fourth quarter and fiscal year ended October 3, 2003, driven by strong revenue growth in the company's Scientific Instruments segment as well as higher Vacuum Technologies and Electronics Manufacturing sales. Pro forma net earnings for these same periods also set records for the company; however, GAAP net earnings were down. (Pro forma results for all periods exclude acquisition-related intangible amortization. For a complete reconciliation of 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, Reconciliation of Unaudited Results of Operations and Reconciliation of Projected Results of Operations.) "Varian, Inc.'s fourth-quarter revenues increased almost 15% compared to the year-ago fourth quarter, which is encouraging in two respects," said Allen J. Lauer, Chairman and Chief Executive Officer. "The growth was truly global in nature, and it was fueled by continued good demand for our life science products coupled with stronger demand for products for industrial and chemical analysis applications." Revenues for the fourth quarter of fiscal year 2003 were a record $238.6 million, representing an increase of 14.9% from the $207.7 million reported for the fourth quarter of fiscal year 2002. Pro forma net earnings were $15.5 million, or $0.44 pro forma diluted earnings per share, in the fourth quarter of fiscal year 2003, compared to $14.8 million, or $0.42 pro forma diluted earnings per share, in the fourth quarter of fiscal year 2002, excluding the items set forth in the attached Reconciliation. On a GAAP basis, net earnings in the fourth quarter of fiscal year 2003 were $11.8 million, or $0.34 diluted earnings per share, compared to $14.5 million, or $0.41 diluted earnings per share, in the fourth quarter of fiscal year 2002. The fourth quarter of fiscal year 2003 was a 14-week quarter compared to 13 weeks for the fourth quarter of fiscal year 2002. During the fourth quarter of fiscal year 2003, the company incurred restructuring costs totaling $3.8 million, which was slightly higher than the anticipated range of $3.0 million to $3.5 million previously announced. These costs related to activities undertaken by the company in the Scientific Instruments and Vacuum Technologies segments which are expected to improve efficiency and more closely align employee skill sets to the company's evolving product mix. The fourth quarter of fiscal year 2003 also included costs of $1.1 million for settling a patent infringement suit related to the Vacuum Technologies segment. Fiscal year 2003 revenues totaled a record $847.7 million, an increase of 8.7% compared to the $779.9 million reported for fiscal year 2002. Pro forma net earnings in fiscal year 2003 were $56.4 million, or $1.61 pro forma diluted earnings per share, compared to $53.5 million, or $1.53 pro forma diluted earnings per share, in fiscal year 2002, excluding the items set forth in the attached Reconciliation. On a GAAP basis, net earnings for fiscal year 2003 were $49.1 million, or $1.40 diluted earnings per share, compared to $51.6 million, or $1.48 diluted earnings per share, in fiscal year 2002. Results by Segment Scientific Instruments revenues for the fourth quarter of fiscal year 2003 were $156.8 million, representing a 16.5% increase over revenues of $134.6 million in the fourth quarter of the prior year. The segment's operating profit margin for the fourth quarter of fiscal year 2003 was 10.8% on a pro forma basis and 8.1% on a GAAP basis. For fiscal year 2003, segment revenues grew to $552.0 million, an increase of 11.8% over fiscal year 2002 sales of $493.9 million. Fiscal year 2003 operating profit margin was 10.9% on a pro forma basis and 9.4% on a GAAP basis. "Scientific Instruments' strong performance was primarily driven by internal growth stemming from the multiple new instruments and consumable supplies it has introduced in its established product lines and in lines acquired over one year ago," said Lauer. "It is also encouraging that industrial demand began to increase during the fourth quarter. Varian, Inc. is well positioned to take advantage of this improving environment since Scientific Instruments has continued to introduce new products for chemical analysis applications while still growing its life science-focused products. We anticipate that pro forma and GAAP operating margins for the first quarter of fiscal year 2004 will improve sequentially. Vacuum Technologies revenues of $30.7 million rose 4.2% in the fourth quarter of fiscal year 2003 compared to revenues of $29.5 million in the fourth quarter of fiscal year 2002. Sequentially, revenues grew 7.4% in the fiscal 2003 fourth quarter over the fiscal 2003 third quarter. Segment revenues in fiscal year 2003 were $116.8 million, representing an increase of 5.1% over fiscal year 2002 revenues of $111.1 million. Vacuum Technologies' operating profit margin in the fourth quarter of fiscal 2003 was 12.4% on a pro forma basis and 7.9% on a GAAP basis. For fiscal year 2003, operating profit margin for the Vacuum Technologies segment was 12.8% on a pro forma basis and 11.2% on a GAAP basis. "Vacuum Technologies revenues reached a two-year high in the fourth quarter supported by new strength in certain industrial applications," said Lauer. "While operating margins were lower than prior-year quarters, they increased sequentially from the third quarter. We anticipate that pro forma operating margins should continue to improve over the next few quarters." Electronics Manufacturing revenues were $51.1 million in the fourth quarter of fiscal year 2003, up 17.3% from revenues of $43.6 million in the fourth quarter of fiscal year 2002. The pro forma and GAAP operating profit margin for Electronics Manufacturing was 10.9% in the fourth quarter of fiscal year 2003. Segment revenues increased to $178.9 million in fiscal year 2003, representing a 2.3% increase over fiscal year 2002 revenues of $174.9 million. Fiscal year 2003 operating profit margin was 11.9% on a pro forma basis and 11.6% on a GAAP basis. "About $5 million in revenue growth during the quarter came from new customers obtained through the acquisition of the assets of Comtel Electronics, Inc. in the third quarter of fiscal year 2003," said Lauer. "The remaining increase reflects stronger demand from the business' established medical equipment, industrial, and communications customers. We expect pro forma and GAAP operating margins to be in the 10-11% range for the next few quarters." Outlook "Varian, Inc. is even more efficient and productive as a result of the restructuring activities undertaken during fiscal year 2003," said Lauer. "These efficiencies, when combined with the potential of our new products, should enable the company to take full advantage of any rebounding economic environment. During the fourth quarter, all of our businesses experienced some renewed demand from industrial applications, which is encouraging as we move into fiscal year 2004. "As part of the company's continuing drive to improve profitability, a project has begun to combine three factories in Southern California into a center of excellence for our consumable supplies business. It is anticipated that this project will be completed during the fourth quarter of fiscal year 2004. While the project will result in one-time charges of approximately $4 million, mostly in the fourth quarter, it should have a positive effect on margins and profitability beginning in fiscal year 2005. About $2 million of the total costs will be non-cash charges." For the first time, Varian, Inc. provided fiscal year 2004 earnings per share guidance. "Sales for the first quarter of fiscal year 2004 should increase over the year-ago quarter," said Lauer, "but be down sequentially from the fourth quarter of fiscal year 2003, which is our usual seasonal pattern. Then as fiscal year 2004 progresses, sales should move up sequentially quarter-by-quarter. Pro forma diluted earnings per share for the first quarter of fiscal year 2004 should be in the $0.38 to $0.41 range, and for the full fiscal year should improve between 10% and 15% over fiscal year 2003 pro forma diluted earnings per share of $1.61, excluding the items set forth in the attached Reconciliation. On a GAAP basis, diluted earnings per share for the first quarter of fiscal year 2004 should be in the $0.36 to $0.39 range, and for the full fiscal year 2004 should increase between 17% and 23% over the fiscal year 2003 GAAP diluted earnings per share of $1.40." Varian, Inc. will be holding a conference call with securities analysts and investors later today, November 5, 2003, at 2:00 p.m. Pacific time. Interested investors are invited to listen to the call by going to www.varianinc.com and clicking on the Investors tab at the top of the screen. Non-GAAP (Pro Forma) Financial Measures In addition to financial measures prepared in accordance with generally accepted accounting principles (GAAP), this press release includes certain non-GAAP (pro forma) financial measures such as operating profit, operating margins, net earnings and diluted earnings per share. These non-GAAP financial measures exclude acquisition-related intangible amortization, restructuring costs, in-process R&D charges, costs to settle a patent infringement lawsuit, and acquisition transition costs. These items are excluded because they are not indicative of on-going business activities or normal operating costs. We believe that these non-GAAP financial measures provide to investors meaningful supplemental information for use in further analyzing on a consistent basis the company's core operating results, especially when comparing those results to results for previous periods or forecasts. These non-GAAP financial measures also supplement what is used by management to measure and forecast financial results, to compare current period results to that of prior periods, to compare results against that of other companies, and in making financial and operating decisions. These non-GAAP financial measures may be different from those used by other companies and should not be considered to be a substitute for, or superior to, financial information prepared in accordance with GAAP. To reconcile non-GAAP financial measures used in this press release to the most directly comparable GAAP financial measures, see the Reconciliations of GAAP to Pro Forma Results, Reconciliation of Unaudited Results of Operations and Reconciliation of Projected Results of Operations attached to this press release. 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 future operating profit margins, anticipated restructuring costs in fiscal 2004, and anticipated diluted earnings per share for the first quarter of fiscal year 2004 and the full fiscal year. 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, particularly in life science applications; whether we can achieve continued growth in sales in life science applications; risks arising from the timing of shipments, installations, and the recognition of revenues on leading-edge NMR systems; whether we will see continued demand for vacuum products and for electronics manufacturing services; 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 be able to successfully integrate acquired businesses; whether we will see reduced demand from customers that operate in cyclical industries; whether government funding for research might decline; the actual cost of anticipated restructuring activities and their impact on future costs; 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 major supplier of scientific instruments, vacuum technologies, and specialized contract electronics manufacturing services. These businesses serve a broad range of life science and industrial customers worldwide. The company manufactures in 15 locations in North America, Europe, and the Pacific Rim and employs some 4,300 people. Varian, Inc. had fiscal year 2003 sales of $848 million. Additional information about Varian, Inc. is available at www.varianinc.com.
VARIAN, INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF QUARTERLY EARNINGS
AND RECONCILIATION OF GAAP TO PRO FORMA RESULTS
(In thousands, except per share amounts)
Fiscal Quarter Ended Fiscal Quarter Ended
October 3, 2003 September 27, 2002
GAAP Pro Forma GAAP Pro Forma
Sales $238,648 $238,648 $207,654 $207,654
Cost of sales 149,437 149,437 127,182 127,182
Gross profit 89,211 89,211 80,472 80,472
Operating expenses
Sales and marketing 39,761 39,761 35,968 35,968
Research and development 11,625 11,625 10,719 10,719
General and administrative 19,448 13,827(1) 10,706 10,268(2)
Total operating expenses 70,834 65,213 57,393 56,955
Operating earnings 18,377 23,998 23,079 23,517
Interest expense, net 164 164 467 467
Earnings before income taxes 18,213 23,834 22,612 23,050
Income tax expense 6,374 8,321 8,140 8,298
Net earnings $11,839 $15,513 $14,472 $14,752
Net earnings per diluted share $0.34 $0.44 $0.41 $0.42
Diluted shares outstanding 35,207 35,207 35,118 35,118
SUMMARY OF RECONCILING ITEMS:
(1) Excludes $738 in acquisition-related intangible amortization, $3,783
in restructuring costs and $1,100 in patent suit settlement costs.
(2) Excludes $438 in acquisition-related intangible amortization.
VARIAN, INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF ANNUAL EARNINGS
AND RECONCILIATION OF GAAP TO PRO FORMA RESULTS
(In thousands, except per share amounts)
Fiscal Year Ended Fiscal Year Ended
October 3, 2003 September 27, 2002
GAAP Pro Forma GAAP Pro Forma
Sales $847,739 $847,739 $779,893 $779,893
Cost of sales 525,893 525,424(1) 484,200 484,200
Gross profit 321,846 322,315 295,693 295,693
Operating expenses
Sales and marketing 144,089 144,089 132,304 132,304
Research and development 45,653 45,653 39,918 39,918
General and administrative 55,499 44,797(2) 39,509 37,948(3)
Purchased in-process research
and development -- -- 890 --(4)
Total operating expenses 245,241 234,539 212,621 210,170
Operating earnings 76,605 87,776 83,072 85,523
Interest expense, net 995 995 1,905 1,905
Earnings before income taxes 75,610 86,781 81,167 83,618
Income tax expense 26,463 30,373 29,540 30,102
Net earnings $49,147 $56,408 $51,627 $53,516
Net earnings per diluted share $1.40 $1.61 $1.48 $1.53
Diluted shares outstanding 35,057 35,057 34,928 34,928
SUMMARY OF RECONCILING ITEMS:
(1) Excludes $469 in acquisition transition costs.
(2) Excludes $2,647 in acquisition-related intangible amortization,
$6,918 in restructuring costs, $1,100 in patent suit settlement costs
and $37 in acquisition transition costs.
(3) Excludes $1,561 in acquisition-related intangible amortization.
(4) Excludes $890 relating to a purchased in-process research and
development charge.
VARIAN, INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEET
(In thousands, except par value amounts)
Oct. 3, Sept. 27,
2003 2002
ASSETS
Current assets
Cash and cash equivalents $135,791 $65,145
Accounts receivable, net 165,049 168,958
Inventories 125,649 116,252
Deferred taxes 26,464 30,644
Other current assets 17,788 16,084
Total current assets 470,741 397,083
Property, plant, and equipment, net 120,088 105,871
Goodwill 126,411 115,922
Intangible assets, net 16,762 12,153
Other assets 3,050 3,575
Total assets $737,052 $634,604
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $2,811 $3,321
Accounts payable 61,209 52,086
Deferred profit 14,385 20,952
Accrued liabilities 141,938 122,819
Total current liabilities 220,343 199,178
Long-term debt 36,273 37,635
Deferred taxes 12,454 8,191
Other liabilities 10,413 9,879
Total liabilities 279,483 254,883
Stockholders' equity
Preferred stock-par value $.01,
authorized-1,000 shares; issued-none -- --
Common stock-par value $.01,
authorized-99,000 shares; issued and
outstanding-34,181 shares at Oct. 3, 2003
and 33,951 shares at Sept. 27, 2002 252,630 251,904
Retained earnings 193,566 144,419
Accumulated other comprehensive gain (loss) 11,373 (16,602)
Total stockholders' equity 457,569 379,721
Total liabilities and stockholders' equity $737,052 $634,604
VARIAN, INC. AND SUBSIDIARY COMPANIES
UNAUDITED CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(In thousands)
Fiscal Quarter Ended Fiscal Year Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2003 2002 2003 2002
Cash flows from operating
activities
Net earnings $11,839 $14,472 $49,147 $51,627
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 6,650 5,771 24,082 21,331
Loss (gain) on disposition of
property, plant, and equipment 31 213 (93) 307
Purchased in-process research
and development -- -- -- 890
Tax benefit from stock option
exercises 559 4,688 1,911 6,086
Deferred taxes 5,870 140 8,735 (1,554)
Changes in assets and
liabilities, excluding effects
of acquisitions:
Accounts receivable, net 3,542 (10,330) 17,628 (2,783)
Inventories 9,187 3,618 1,332 8,190
Other current assets 4,010 355 6,595 (2,594)
Other assets 423 (103) 677 1,517
Accounts payable 33 5,034 5,351 869
Deferred profit (2,302) (2,608) (6,715) (752)
Accrued liabilities (2,198) 6,381 12,629 (2,540)
Other liabilities (258) (44) 318 (25)
Net cash provided by operating
activities 37,386 27,587 121,597 80,569
Cash flows from investing
activities
Proceeds from sale of property,
plant, and equipment 115 71 588 463
Purchase of property, plant, and
equipment (11,095) (6,357) (26,656) (21,598)
Purchase of businesses, net of
cash acquired (1,427) (2,113) (25,013) (55,438)
Net cash used in investing
activities (12,407) (8,399) (51,081) (76,573)
Cash flows from financing
activities
Net repayment of debt (2,823) (562) (2,707) (6,019)
Repurchase of common stock -- (1,581) (10,368) (1,581)
Issuance of common stock 3,584 3,784 9,184 10,739
Net transfers to Varian Medical
Systems, Inc. (162) (529) (901) (2,882)
Net cash provided by (used in)
financing activities 599 1,112 (4,792) 257
Effects of exchange rate changes
on cash and cash equivalents (925) (336) 4,922 1,013
Net increase in cash and cash
equivalents 24,653 19,964 70,646 5,266
Cash and cash equivalents at
beginning of period 111,138 45,181 65,145 59,879
Cash and cash equivalents at
end of period $135,791 $65,145 $135,791 $65,145
VARIAN, INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF UNAUDITED RESULTS OF OPERATIONS
(In millions, except margin and per share data)
Fiscal Quarter Ended Fiscal Year Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2003 2002 2003 2002
TOTAL COMPANY
Operating Profit
U.S. GAAP as reported $18.4 $23.1 $76.6 $83.1
Pro forma adjustments:
Acquisition-related
intangible amortization 0.7 0.4 2.7 1.5
Restructuring costs 3.8 -- 6.9 --
Patent suit settlement costs 1.1 -- 1.1 --
Acquisition transition costs -- -- 0.5 --
In-process R&D charge -- -- -- 0.9
Pro forma as presented $24.0 $23.5 $87.8 $85.5
Operating Margins
U.S. GAAP as reported 7.7% 11.1% 9.0% 10.7%
Pro forma adjustments:
Acquisition-related intangible
amortization 0.3 0.2 0.4 0.2
Restructuring costs 1.6 -- 0.8 --
Patent suit settlement costs 0.5 -- 0.1 --
Acquisition transition costs -- -- 0.1 --
In-process R&D charge -- -- -- 0.1
Pro forma as presented 10.1% 11.3% 10.4% 11.0%
Net Earnings
U.S. GAAP as reported $11.8 $14.5 $49.1 $51.6
Pro forma adjustments:
Acquisition-related
intangible amortization 0.5 0.3 1.8 1.0
Restructuring costs 2.5 -- 4.5 --
Patent suit settlement costs 0.7 -- 0.7 --
Acquisition transition costs -- -- 0.3 --
In-process R&D charge -- -- -- 0.9
Pro forma as presented $15.5 $14.8 $56.4 $53.5
Diluted Earnings Per Share
U.S. GAAP as reported $0.34 $0.41 $1.40 $1.48
Pro forma adjustments:
Acquisition-related
intangible amortization 0.01 0.01 0.05 0.03
Restructuring costs 0.07 -- 0.13 --
Patent suit settlement costs 0.02 -- 0.02 --
Acquisition transition costs -- -- 0.01 --
In-process R&D charge -- -- -- 0.02
Pro forma as presented $0.44 $0.42 $1.61 $1.53
VARIAN, INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF UNAUDITED RESULTS OF OPERATIONS
(In millions, except margin data)
Fiscal Quarter Ended Fiscal Year Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2003 2002 2003 2002
SCIENTIFIC INSTRUMENTS SEGMENT
Operating Profit
U.S. GAAP as reported $12.7 $14.4 $51.7 $54.4
Pro forma adjustments:
Acquisition-related
intangible amortization 0.7 0.5 2.6 1.5
Restructuring costs 3.5 -- 5.7 --
In-process R&D charge -- -- -- 0.9
Pro forma as presented $16.9 $14.9 $60.0 $56.8
Operating Margins
U.S. GAAP as reported 8.1% 10.7% 9.4% 11.0%
Pro forma adjustments:
Acquisition-related
intangible amortization 0.5 0.3 0.5 0.3
Restructuring costs 2.2 -- 1.0 --
In-process R&D charge -- -- -- 0.2
Pro forma as presented 10.8% 11.0% 10.9% 11.5%
VACUUM TECHNOLOGIES SEGMENT
Operating Profit
U.S. GAAP as reported $2.4 $4.7 $13.0 $16.8
Pro forma adjustments:
Acquisition-related
intangible amortization -- -- 0.1 0.1
Restructuring costs 0.3 -- 0.8 --
Patent suit settlement costs 1.1 -- 1.1 --
Pro forma as presented $3.8 $4.7 $15.0 $16.9
Operating Margins
U.S. GAAP as reported 7.9% 16.0% 11.2% 15.1%
Pro forma adjustments:
Acquisition-related
intangible amortization -- -- 0.1 0.1
Restructuring costs 0.9 -- 0.7 --
Patent suit settlement costs 3.6 -- 0.8 --
Pro forma as presented 12.4% 16.0% 12.8% 15.2%
VARIAN, INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF UNAUDITED RESULTS OF OPERATIONS
(In millions, except margin data)
Fiscal Quarter Ended Fiscal Year Ended
Oct. 3, Sept. 27, Oct. 3, Sept. 27,
2003 2002 2003 2002
ELECTRONICS MANUFACTURING SEGMENT
Operating Profit
U.S. GAAP as reported $5.6 $5.4 $20.8 $17.8
Pro forma adjustment:
Acquisition transition costs -- -- 0.5 --
Pro forma as presented $5.6 $5.4 $21.3 $17.8
Operating Margins
U.S. GAAP as reported 10.9% 12.5% 11.6% 10.2%
Pro forma adjustment:
Acquisition transition costs -- -- 0.3 --
Pro forma as presented 10.9% 12.5% 11.9% 10.2%
VARIAN, INC. AND SUBSIDIARY COMPANIES
RECONCILIATION OF PROJECTED RESULTS OF OPERATIONS
Range of Projected Results
Fiscal Quarter Fiscal Year
Ending Ending
January 2, 2004 October 1, 2004
TOTAL COMPANY
Projected Diluted Earnings per Share
Projected U.S. GAAP $0.36 - $0.39 $1.64 - $1.72
Pro forma adjustments:
Projected acquisition-related
intangible amortization $0.01 $0.06
Projected restructuring costs $0.01 $0.07
Projected pro forma $0.38 - $0.41 $1.77 - $1.85
# # # Contact: Laurie Alire of Varian, Inc. |