Financial: Varian Associates Reports Lower Q1 Results - Company Financial Information

Edge: Work-Group Computing Report, Jan 25, 1999

Varian Associates, Inc., Thursday announced lower orders and sales and a small operating profit for the first quarter of fiscal 1999, before a $3.6 million charge for reorganization costs. The company said its results trailed the year-ago quarter due to a variety of factors, including continued slow demand and an unprofitable quarter for its semiconductor equipment operations, unfavorable foreign currency results, and some shipment slippages due to supplier and customer delays.

Varian's health care and instruments operations were profitable but at levels that were below the year-ago quarter. First-quarter orders for the total company amounted to $306 million, down 20% from the prior year's $385 million. Sales for the quarter were $282 million, off 18% from 1998's $345 million. Backlog for the quarter of $571 million was 11% below the year-ago total. The lower revenues resulted in operating earnings of $1.0 million before the reorganization charge. After the charge, the company had a net loss of $2.4 million ($.08/share) compared to net earnings of $19.7 million ($.64/share) in the first quarter of 1998. While marketing, general, and administrative (MG&A) costs of $100 million included $3.6 million for the planned reorganization, they were still 1% below the prior year's MG&A total due to lower administrative and research and development spending. Chairman and Chief Executive J. Tracy O'Rourke attributed the quarterly orders decline to the lingering slump in demand for semiconductor manufacturing equipment as that industry continues to suffer from slow market conditions world wide. He noted, however, that the company's health care and instruments segments both had higher bookings than in the year-ago period. O'Rourke said the quarter's sales were adversely affected by customer-requested delivery delays in the Health Care Systems segment and production material shipment delays in one of the company's Instruments product lines. Operations Health Care Systems: first-quarter orders totaled $125 million, up 4% from the prior year, with higher bookings for cancer therapy equipment more than offsetting lower orders for X-ray tube products. Sales of $105 million were up 7% from the year-ago quarter, with oncology equipment again accounting for the growth. Backlog for this business totaled $375 million, up 2% from the prior year and 7% from the previous quarter. Operating profit for this segment was down substantially from the 1998 quarter due to lower gross margins and higher MG&A costs. O'Rourke said he expects this business to record continued sales growth in the quarters immediately ahead. However, he cautioned that earnings will be affected by transaction costs and cost allocations related to the anticipated spin off of Varian's Semiconductor Equipment and Instruments segments this spring and the resulting treatment of those activities as discontinued operations for the remaining health care business. Instruments: orders for the first quarter rose 4% over the prior year to $135 million, with Varian's analytical products accounting for most of the gain. Sales of $130 million were down 5% from the year-ago period, due primarily to lower shipments in the vacuum products and nuclear magnetic resonance product lines. O'Rourke said the former was hurt by the chip industry slowdown, while shipments in the latter were limited by the previously mentioned supplier delays. Operating margins for this business declined from the year-ago quarter due to the lower volume. However, backlog rose 10% from the opening quarter of 1998 due to strong demand for the company's analytical instrument offerings. O'Rourke said he expects this business to enjoy continued sales growth in the current year. However, he said earnings may be reduced depending on the timing and extent of restructuring plans that are currently being developed. Semiconductor Equipment: first-quarter orders for the company's chip manufacturing equipment of $50 million were off 58% from the year-ago period, but slipped just 2% below those of the prior quarter. While sales of $47 million were also off sharply, falling 57% from the year-ago quarter, shipments rose 13% from the previous period. Backlog totaled $81 million, down 48% from the end of 1998's first quarter, but was up marginally on a sequential basis. O'Rourke said this segment sustained a significant operating loss in the first quarter, but noted that it was more than 30% better than the pre-restructuring loss of the previous quarter. While the slowing orders decline and sales gains over the fourth quarter are encouraging, O'Rourke said the timing and extent of an eventual industry rebound for this segment is still unclear. Consequently, he said the near-term outlook for this business is one of continued low sales and operating losses until the expected market rebound occurs. Reorganization Remains On Schedule O'Rourke said the reorganization which will transform Varian Associates into three separate public companies is progressing according to plan. A definitive proxy statement was filed with the Securities and Exchange Commission last week and has been mailed to stockholders. The proposal will be presented for shareholder approval at the company's annual meeting of stockholders on Feb. 18, 1999. With stockholder approval and a favorable ruling from the Internal Revenue Service, he said spin off of the Semiconductor Equipment and Instruments segments should be accomplished in early April. A summary of income and other financial information follows.