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| VARI > SEC Filings for VARI > Form 10-Q on 12-May-2009 | All Recent SEC Filings |
12-May-2009
Quarterly Report
Caution Regarding Forward-Looking Statements
Throughout this Report, and particularly in this Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations, there are forward-looking statements that are based upon our current expectations, estimates and projections and that reflect our beliefs and assumptions based upon information available to us at the date of this Report. In some cases, you can identify these statements by words such as "may," "might," "will," "should," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue," and other similar terms. These forward-looking statements include (but are not limited to) those relating to the timing and amount of anticipated restructuring and other related costs and related cost savings as well as anticipated orders, revenues, earnings and capital expenditures in fiscal year 2009.
We caution investors that forward-looking statements are only our current expectations about future events. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking statements. Some of the important factors that could cause our results to differ are discussed in Item 1A-Risk Factors in our Annual Report on Form 10-K for the fiscal year ended October 3, 2008. We encourage you to read that section carefully.
Other risks and uncertainties that could cause actual results to differ materially from those in our forward-looking statements include, but are not limited to, the following: when and how quickly global economic conditions improve, and whether conditions worsen before they improve, whether we will succeed in new product development, release, commercialization, performance and acceptance; whether we can achieve growth in sales for life science, environmental, energy and/or applied research and other applications; whether we can achieve sales growth in Europe, North America, Asia Pacific and/or Latin America; risks arising from the timing of shipments, installations and the recognition of revenues on certain research products, including nuclear magnetic resonance ("NMR") spectroscopy systems, magnetic resonance ("MR") imaging systems and fourier transform mass spectrometry ("FTMS") systems and superconducting magnets; the impact of shifting product mix on profit margins; competitive products and pricing; economic conditions in our various 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/or earnings; whether we will see continued investment in capital equipment, in particular given the global liquidity and credit crisis; whether we will see reduced demand from customers that operate in cyclical industries; whether the global liquidity and credit crisis will impact the collectability of accounts receivable from our customers; the extent and timing of government funding for research; our ability to successfully evaluate, negotiate, complete and integrate acquisitions, in particular given the greater difficulty to borrow in the current credit environment; the actual costs, timing and benefits of restructuring activities (such as the employee reductions and other actions announced on January 16, 2009 and our Northern California operations consolidation) and other efficiency improvement activities (such as our global procurement, lower-cost manufacturing and outsourcing initiatives); variability in our effective income tax rate (due to factors including the timing and amount of discrete tax events and changes to unrecognized tax benefits); the timing and amount of share-based compensation; and other risks detailed from time to time in our filings with the U.S. Securities and Exchange Commission (the "SEC"). We undertake no special obligation to update any forward-looking statements, whether in response to new information, future events or otherwise.
Results of Operations
Second Quarter of Fiscal Year 2009 Compared to Second Quarter of Fiscal Year 2008
Segment Results
For financial reporting purposes, our operations are grouped into two reportable business segments: Scientific Instruments and Vacuum Technologies. The following table presents comparisons of our sales and operating earnings for each of those segments and in total for the second quarters of fiscal years 2009 and 2008:
Fiscal Quarter Ended
April 3, March 28, Increase
2009 2008 (Decrease)
% of % of
$ Sales $ Sales $ %
(dollars in millions)
Sales by Segment:
Scientific Instruments $ 170.9 83.2 % $ 204.4 82.4 % $ (33.5 ) (16.4 )%
Vacuum Technologies 34.5 16.8 43.8 17.6 (9.3 ) (21.0 )
Total company $ 205.4 100.0 % $ 248.2 100.0 % $ (42.8 ) (17.2 )%
Operating Earnings by Segment:
Scientific Instruments $ 12.4 7.3 % $ 22.5 11.0 % $ (10.1 ) (44.8 )%
Vacuum Technologies 6.7 19.2 8.8 20.1 (2.1 ) (24.3 )
Total segments 19.1 9.3 31.3 12.6 (12.2 ) (39.0 )
General corporate (3.6 ) (1.7 ) (4.2 ) (1.7 ) 0.6 15.1
Total company $ 15.5 7.5 % $ 27.1 10.9 % $ (11.6 ) (42.8 )%
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Scientific Instruments. The decrease in Scientific Instruments sales was primarily attributable to lower sales volume of our analytical instruments products and the negative impact of the stronger U.S. dollar on reported revenues. The lower volume was primarily due to the impact of the continued global economic weakness on capital equipment spending. Sales from businesses acquired in fiscal year 2008 positively impacted reported sales by approximately 1%.
Scientific Instruments operating earnings for the second quarter of fiscal year 2009 included acquisition-related intangible amortization of $1.7 million and restructuring and other related costs of $6.2 million. In comparison, Scientific Instruments operating earnings for the second quarter of fiscal year 2008 included acquisition-related intangible amortization of $1.9 million, amortization of $0.1 million related to inventory written up to fair value in connection with the acquisition of certain assets and liabilities of Analogix, Inc. (the "Analogix Business") and restructuring and other related costs of $0.5 million. Excluding the impact of these items, operating earnings as a percentage of sales decreased slightly due to the negative impact of lower sales volume, largely offset by the positive impact of efficiency improvements implemented in recent years, the benefits from cost reduction activities implemented during the second quarter of fiscal year 2009 and the stronger U.S. dollar (which was unfavorable to reported sales but favorable to reported operating margins). Also, the second quarter of fiscal year 2008 included higher than usual costs related to new product introductions.
Vacuum Technologies. The decrease in Vacuum Technologies sales was driven mainly by lower sales volume of products for industrial applications, primarily due to the impact of the continued global economic weakness on capital equipment spending and by the negative impact of the stronger U.S. dollar on reported revenues.
Vacuum Technologies operating earnings for the second quarter of fiscal year 2009 included the impact of restructuring and other related costs of $0.8 million. Excluding the impact of these costs, the increase in Vacuum
Technologies operating earnings as a percentage of sales was primarily due to the positive impact of efficiency improvements implemented in recent years, the benefits from cost reduction activities implemented in the second quarter of fiscal year 2009 and the stronger U.S. dollar, partially offset by the negative impact of lower sales volume.
Consolidated Results
The following table presents comparisons of our sales and other selected
consolidated financial results for the second quarters of fiscal years 2009 and
2008:
Fiscal Quarter Ended
April 3, March 28, Increase
2009 2008 (Decrease)
% of % of
$ Sales $ Sales $ %
(dollars in millions, except per
share data)
Sales $ 205.4 100.0 % $ 248.2 100.0 % $ (42.8 ) (17.2 )%
Gross profit 89.5 43.6 112.9 45.5 (23.4 ) (20.7 )
Operating expenses:
Selling, general and
administrative 59.3 28.9 67.6 27.3 (8.3 ) (12.3 )
Research and development 14.7 7.2 18.2 7.3 (3.5 ) (18.9 )
Total operating expenses 74.0 36.1 85.8 34.6 (11.8 ) (13.7 )
Operating earnings 15.5 7.5 27.1 10.9 (11.6 ) (42.8 )
Impairment of private company
equity investment - - (3.0 ) (1.2 ) 3.0 100.0
Interest income 0.3 0.2 1.7 0.7 (1.4 ) (80.7 )
Interest expense (0.3 ) (0.2 ) (0.4 ) (0.2 ) 0.1 (22.9 )
Income tax expense (5.3 ) (2.5 ) (9.6 ) (3.8 ) 4.3 44.6
Net earnings $ 10.2 5.0 % $ 15.8 6.4 % $ (5.6 ) (35.5 )%
Net earnings per diluted share $ 0.35 $ 0.52 $ (0.17 )
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Sales. As discussed under the heading Segment Results above, sales by our Scientific Instruments and Vacuum Technologies segments in the second quarter of fiscal year 2009 decreased by 16.4% and 21.0%, respectively, compared to the prior-year quarter. On a consolidated basis, sales declined 17.2% in the second quarter of fiscal year 2009. This decrease was primarily related to lower sales volume of a broad range of our analytical instruments and vacuum products due to the impact of continued global economic weakness on capital equipment spending. Reported sales were also negatively impacted by the stronger U.S. dollar, which strengthened approximately 6% on a weighted-average basis compared to currencies in which we sell products and services. Sales from businesses acquired in fiscal year 2008 positively impacted reported sales by approximately 1%.
For geographic reporting purposes, we use four regions-North America (excluding Mexico), Europe (including the Middle East and Africa), Asia Pacific (including India) and Latin America (including Mexico). Sales by geographic region in the second quarters of fiscal years 2009 and 2008 were as follows:
Fiscal Quarter Ended
April 3, March 28, Increase
2009 2008 (Decrease)
% of % of
$ Sales $ Sales $ %
(dollars in millions)
Geographic Region
North America $ 66.4 32.4 % $ 72.7 29.3 % $ (6.3 ) (8.6 )%
Europe 77.9 37.9 105.0 42.3 (27.1 ) (25.8 )
Asia Pacific 48.4 23.5 53.8 21.7 (5.4 ) (10.0 )
Latin America 12.7 6.2 16.7 6.7 (4.0 ) (23.8 )
Total company $ 205.4 100.0 % $ 248.2 100.0 % $ (42.8 ) (17.2 )%
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Sales volume decreased in all geographic regions for both Scientific Instruments and Vacuum Technologies products primarily due to the impact of the continued global economic weakness on capital equipment spending. In addition, reported sales outside North America were unfavorably impacted by the strengthening of the U.S. dollar compared to the second quarter of fiscal year 2008.
Gross Profit. Gross profit for the second quarter of fiscal year 2009 reflects the impact of $1.5 million in amortization expense relating to acquisition-related intangible assets and $2.3 million in restructuring and other related costs. In comparison, gross profit for the second quarter of fiscal year 2008 reflects the impact of $1.5 million in amortization expense relating to acquisition-related intangible assets, amortization of $0.1 million related to inventory written up to fair value primarily in connection with the acquisition of the Analogix Business and $0.2 million in restructuring and other related costs. Excluding the impact of these items, the decrease in gross profit as a percentage of sales was primarily due to the negative impact of lower sales volume, partially offset by the stronger U.S. dollar (which was favorable to reported gross profit margins but unfavorable to reported sales), the positive impact of efficiency improvements (such as those resulting from lower-cost manufacturing and outsourcing initiatives, global procurement initiatives, and facility relocations/closures) implemented in recent years, and the benefits from cost reduction activities implemented in the second quarter of fiscal year 2009.
Selling, General and Administrative. Selling, general and administrative expenses for the second quarter of fiscal year 2009 included $0.2 million in amortization expense relating to acquisition-related intangible assets and $3.8 million in restructuring and other related costs. In comparison, selling, general and administrative expenses for the second quarter of fiscal year 2008 included $0.4 million in amortization expense relating to acquisition-related intangible assets and $0.2 million in restructuring and other related costs. Excluding the impact of these items, the slight decrease in selling, general and administrative expenses as a percentage of sales was primarily due to the favorable impact of the stronger U.S. dollar and the cost savings achieved from restructuring activities implemented in recent years, partially offset by the negative impact of lower sales volume.
Research and Development. Research and development expenses for the second quarter of fiscal year 2009 reflect the impact of restructuring and other related costs of $0.9 million. In comparison, research and development expenses for the second quarter of fiscal year 2008 reflect the impact of restructuring and other related costs of $0.2 million. Excluding the impact of these items, the decrease in research and development expenses as a percentage of sales was primarily due to the favorable impact of the stronger U.S. dollar in the second quarter of fiscal year 2009 and higher costs associated with new product introductions in the second quarter of fiscal year 2008.
Restructuring Activities. We have committed to several restructuring plans in order to improve operational efficiencies, centralize functions, reallocate resources and reduce operating costs. From the respective inception dates of these plans through April 3, 2009, we have incurred a total of $13.4 million in restructuring expense and a total of $7.7 million in other costs related directly to those plans (comprised primarily of employee retention and relocation costs and accelerated depreciation of assets disposed upon the closure of facilities).
The following table sets forth changes in our aggregate liability relating to all restructuring plans during the second quarter of fiscal year 2009:
Employee- Facilities-
Related Related Total
(in thousands)
Balance at January 2, 2009 $ 2,211 $ 888 $ 3,099
Charges to (reversals of) expense, net 6,577 (317 ) 6,260
Cash payments (4,560 ) (182 ) (4,742 )
Foreign currency impacts and other adjustments 22 (40 ) (18 )
Balance at April 3, 2009 $ 4,250 $ 349 $ 4,599
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Fiscal Year 2009 Second Quarter Plan. During the second quarter of fiscal year 2009, we committed to a plan to reduce our cost structure, primarily through headcount reductions, due to continuing uncertainties in the global economic environment. The plan involves the elimination of approximately 240 regular employees (primarily in North America and Europe and to a lesser extent Asia Pacific and Latin America) and 80 temporary positions in both the Scientific Instruments and Vacuum Technologies segments. In addition, the plan includes the closure of one small R&D/manufacturing facility in North America (Lake Forest, California) and two sales offices in Europe (Sweden and Switzerland). We expect these activities to be completed during fiscal year 2009.
Restructuring and other related costs to be incurred in connection with this plan are currently estimated to be between $8.5 million and $10.5 million, of which between $8.0 million and $9.5 million is expected to impact the Scientific Instruments segment and between $0.5 million and $1.0 million is expected to impact the Vacuum Technologies segment. The restructuring costs include one-time termination benefits for employees whose positions are being eliminated of between $7.5 million and $9.0 million and lease termination costs of between $0.1 million and $0.2 million (including future lease payments on vacated facilities). Other restructuring-related costs include employee retention and relocation costs of between $0.3 million and $1.0 million and facility-related relocation costs and accelerated depreciation of fixed assets to be disposed upon the closure of facilities of between $0.1 million and $0.3 million. Costs relating to restructuring activities recorded under this plan have been included in cost of sales, selling, general and administrative expenses and research and development expenses.
The following table sets forth changes in our restructuring liability relating to the foregoing plan during the second quarter of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception of the plan:
Employee- Facilities-
Related Related Total
(in thousands)
Balance at January 2, 2009 $ - $ - $ -
Charges to expense, net 6,353 - 6,353
Cash payments (3,643 ) - (3,643 )
Foreign currency impacts and other adjustments 67 - 67
Balance at April 3, 2009 $ 2,777 $ - $ 2,777
Total expense since inception of plan
(in millions)
Restructuring expense $ 6.4
Other restructuring-related costs $ 0.3
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The restructuring expense of $6.4 million recorded during the second quarter of fiscal year 2009 related to employee termination benefits, of which $5.7 million impacted the Scientific Instruments segment and $0.7 million impacted the Vacuum Technologies segment. We also incurred $0.3 million in other restructuring-related costs during the quarter, which impacted the Scientific Instruments segment and were comprised of $0.1 million in employee-related costs and a $0.2 million non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities. Most of these costs are expected to be settled during fiscal year 2009, although certain one-time termination benefits are expected to be settled in fiscal year 2010.
Fiscal Year 2009 First Quarter Plan. During the first quarter of fiscal year 2009, we committed to a separate plan to reduce our employee headcount in order to reduce operating costs and increase margins. The plan involves the termination of approximately 35 employees, mostly located in Europe. The restructuring costs related to this plan primarily consist of one-time termination benefits which are expected to be settled by the end of fiscal year 2010. This restructuring plan did not involve any non-cash components. Costs relating to restructuring activities recorded under this plan have been included in cost of sales, selling, general and administrative expenses and research and development expenses.
The following table sets forth changes in our restructuring liability relating to the foregoing plan during the second quarter of fiscal year 2009:
Employee- Facilities-
Related Related Total
(in thousands)
Balance at January 2, 2009 $ 760 $ - $ 760
Charges to expense, net 32 - 32
Cash payments (527 ) - (527 )
Foreign currency impacts and other adjustments (27 ) - (27 )
Balance at April 3, 2009 $ 238 $ - $ 238
Total expense since inception of plan
(in millions)
Restructuring expense $ 1.3
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Fiscal Year 2007 Plan. During the third quarter of fiscal year 2007, we committed to a plan to combine and optimize the development and assembly of most of our nuclear magnetic resonance ("NMR") and mass spectrometry products, to further centralize related administration and other functions and to reallocate certain resources toward more rapidly growing product lines and geographies. As part of the plan, we are creating an information rich detection ("IRD") center in Walnut Creek, California, where NMR operations are being integrated with mass spectrometry operations already located in Walnut Creek. Merging our IRD talent base into this single location will capitalize on our strength in NMR and mass spectrometry and enhance our ability to develop innovative IRD solutions that are more powerful, complementary, routine and user-friendly. Underscoring our commitment to IRD and the benefits that a combined location and organization will provide, we are investing in a new 45,000 square foot building and a substantial remodel of an existing building there to house the IRD center.
As a result of the plan, a number of employee positions have been or will be relocated or eliminated and certain facilities have been, or will be, consolidated. These actions primarily impact the Scientific Instruments segment and involve the elimination of between approximately 40 and 60 positions. We expect these activities to be completed during fiscal year 2009.
Restructuring and other related costs associated with this plan include one-time employee termination benefits, employee retention payments, costs to relocate facilities (including decommissioning costs, moving costs and temporary facility/storage costs), accelerated depreciation of fixed assets to be disposed as a result of facilities actions and lease termination costs.
The following table sets forth changes in our restructuring liability relating to the foregoing plan during the second quarter of fiscal year 2009 as well as total restructuring expense and other restructuring-related costs recorded since the inception of the plan:
Employee- Facilities-
Related Related Total
(in thousands)
Balance at January 2, 2009 $ 1,451 $ 530 $ 1,981
Charges to (reversals of) expense, net 192 (317 ) (125 )
Cash payments (390 ) (182 ) (572 )
Foreign currency impacts and other adjustments (18 ) (31 ) (49 )
Balance at April 3, 2009 $ 1,235 $ - $ 1,235
Total expense since inception of plan
(in millions)
Restructuring expense $ 3.9
Other restructuring-related costs $ 6.7
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The net reversals of restructuring expense of $0.1 million recorded during the second quarter of fiscal year 2009 were primarily due to the early cancellation of our lease agreement for a vacated facility partially offset by additional employee termination benefits. We also incurred $0.5 million in other restructuring-related costs during the quarter, which were comprised of $0.3 million in employee retention costs and $0.2 million in facilities-related costs including decommissioning costs and a non-cash charge for accelerated depreciation of assets to be disposed upon the closure of facilities.
Restructuring Cost Savings. The following table sets forth the estimated annual cost savings for each plan, when they were initiated, as well as where those cost savings were expected to be realized:
Restructuring Plan Estimated Annual Cost Savings Fiscal Year 2007 Plan (Scientific Instruments - to combine and optimize the development and assembly on certain products and to centralize functions and reallocate resources to rapidly growing product lines) $3 million - $5 million . . . |
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