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Varian Reports Q1 Fiscal 2009 Results

Varian, Inc. (Varian) has reported revenues of $208.2 million for the first quarter of fiscal 2009, down 12.3%, compared with the revenues of $237.4 million in the year-ago quarter. It has also reported GAAP net earnings of $13.04 million, or $0.45 per diluted per share, for the first quarter of fiscal 2009, compared with $17.58 million, or $0.57 per diluted per share, in the year-ago quarter.

Non-GAAP (adjusted) diluted earnings per share for the first quarter of fiscal year 2009 decreased 18.2% to $0.54 (including $0.05 of share-based compensation expense), against $0.66 (including $0.04 of share-based compensation expense) in the first quarter of fiscal year 2008. On a GAAP basis, diluted earnings per share in the first quarter of fiscal year 2009 were $0.45, against $0.57 in the first quarter of fiscal year 2008.

Adjusted operating profit margin was 11.4% in the first quarter of fiscal year 2009, against 12.0% in the prior-year quarter. On a GAAP basis, operating profit margin was 9.6% in the first quarter of fiscal year 2009, against 10.2% in the same quarter a year ago.

Free cash flow, which is defined as operating cash flow less net fixed asset purchases, was $15.2 million, or 116% of GAAP net earnings, in the first quarter of fiscal year 2009.

As previously announced, sales were below expectations in the first quarter primarily due to lower revenues from research products (in particular, NMR and imaging systems). Despite order weakness late in the quarter, in particular for certain vacuum and analytical products, total company orders exceeded sales for the quarter. Adjusted operating margins held up well, even on lower revenues, due to the positive impact of efficiency improvements implemented in recent years and favorable foreign currency movements.

“With respect to our research products sales, we have said many times that the timing of revenues on these products is impacted by factors such as laboratory readiness and access to customer sites, duration of installations and availability of key components and installation personnel,” said Garry W. Rogerson, president and chief executive officer.

“Although we entered the first quarter with a strong backlog and saw solid orders for these research products during the quarter, delays due to some of these factors, compounded by the shorter working month and customer shutdowns in December, were responsible for a large portion of our decrease in revenues, and all of the decrease in earnings, in the first quarter. We expect to recognize these revenues during the remainder of the fiscal year.”

“We believe the broader weakness in orders that we experienced during December was primarily due to the deterioration of global economic conditions and, to a lesser extent, the timing and extent of customer shutdowns and the shorter working month,” said Rogerson.

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 2009 were $171.8 million, a decrease of 12.8% from the first quarter of the prior fiscal year. Adjusted operating profit margin was 11.7% in the first quarter of fiscal year 2009, against 12.2% in the first quarter of the prior fiscal year. On a GAAP basis, operating profit margin was 9.6% in the first quarter of fiscal year 2009, against 10.1% in the same quarter a year ago.

Vacuum Technologies revenues were $36.4 million in the first quarter of fiscal year 2009, a decrease of 9.9% from the first quarter of fiscal year 2008. Adjusted operating profit margin was 19.6% in the first quarter of fiscal year 2009, against 19.1% in the first quarter of the prior fiscal year. On a GAAP basis, operating profit margin was 19.3% in the first quarter of fiscal year 2009, against 19.1% in the prior-year quarter.

Outlook

“In light of global economic conditions and continued order weakness, particularly in applications such as traditional energy, raw materials and heavy industry, we are expecting lower revenues and are therefore revising our fiscal year 2009 outlook,” said Rogerson. “We caution, however, that that we are providing this revision in the context of unprecedented economic uncertainties. Our revised earnings per share outlook is therefore necessarily broad and qualified by our limited visibility over the remaining three quarters of our fiscal year.”

Adjusted diluted earnings per share for fiscal year 2009 are projected to be between $2.15 and $2.55 (including about $0.18 of share-based compensation expense). On a GAAP basis, diluted earnings per share are expected to be between $1.60 and $2.09 for fiscal year 2009. Compared to adjusted diluted earnings per share, the company’s GAAP diluted earnings per share for fiscal year 2009 are expected to include the following items:

Acquisition-related intangible amortization of about $0.17

Acquisition-related inventory write-up amortization of about $0.01, and

Restructuring and other related costs of about $0.28 to $0.37.

“Our product, application and geographic diversity continue to position us well, in particular with the prospect of increased global governmental spending on research and other applications we serve,” said Rogerson. “In addition, the cost reduction plan we announced on January 16, 2009, combined with the positive impact of efficiency improvement activities implemented in recent years and recent favorable foreign currency movements, should help us to maintain solid adjusted operating margins and cash flow from operations even on lower revenues. We will continue to monitor the economic situation and make the appropriate business decisions to remain successful throughout this challenging period, position ourselves for profitable growth with an economic recovery, and deliver on our long-term strategic plan.”