Varian Medical Systems Reports Record First Quarter Earnings, Sales, Net Orders, and Backlog | Varian

Varian Medical Systems Reports Record First Quarter Earnings, Sales, Net Orders, and Backlog

PALO ALTO, Calif.--(BUSINESS WIRE)--Jan. 24, 2001-- Net earnings grow 81 percent to $9.4 million ($0.28 per diluted share); sales rise 14 percent to $161 million; net orders rise 14 percent to $193 million; backlog reaches $505 million; company raises earnings target slightly for fiscal 2001.

Varian Medical Systems (NYSE:VAR) today reported record results for the fiscal 2001 first quarter ended December 29. Net earnings of $9.4 million ($0.28 per diluted share) rose sharply from $5.2 million ($0.17 per diluted share) for the first quarter of last year. First quarter sales were $161 million and net orders were $193 million - each up 14 percent from their respective levels for the same period last fiscal year. Backlog at the end of the quarter was $505 million, up 18 percent from the same time last year.

"Varian Medical Systems is maintaining strong growth momentum in earnings, sales, net orders, and backlog as a result of continuing demand for integrated radiotherapy systems and high-speed, high resolution X-ray imaging products," said Richard M. Levy, president and CEO of the company.

Customer requested delivery schedules resulted in strong quarter over quarter growth in international sales, while sales in North America were flat with the year-ago quarter when shipments were unusually high. However, North America generated 28 percent growth in net orders from the year-earlier quarter, while international net orders were about flat. "The overall order trend of rapid growth in North America and comparatively slower growth in international regions is continuing," Levy said.

Oncology Systems

Oncology Systems sales of Clinac(R) linear accelerators, Ximatron(R) simulators and ancillary products, software, and services for advanced radiotherapy including SmartBeam IMRT totaled $124 million for the first quarter, up 17 percent from the year-ago period. First quarter net orders in the Oncology Systems business totaled $150 million, also up 17 percent from the prior year period. "We have received our first orders for the new patient-friendly Silhouette Edition Clinac, which was introduced at ASTRO last October," said Levy.

"We have now installed Generation(TM) 6 systems, integrating all elements of radiotherapy from treatment planning to delivery to quality assurance to clinical administration, at 59 sites worldwide," Levy said. "This system is reportedly substantially increasing patient throughput at some clinics. In addition, more effective treatment technology and new U.S. reimbursement codes that put a premium on IMRT are creating an even more compelling case for purchases of new and upgraded radiotherapy systems."

X-ray Products

Sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $33 million for the quarter, up 10 percent from the year-ago quarter. "CT scanning tubes continued to be the strongest contributors to sales," Levy said.

Shortly after the close of the quarter, X-ray Products initiated an e-commerce site at http://sales.varian.com where manufacturers of medical and industrial imaging equipment and third party resellers can order replacement X-ray tubes online for delivery within 24 to 48 hours. "Initial experience with this new streamlined customer service is promising," said Levy.

Ginzton Technology Center

The company's premier research facility, the Ginzton Technology Center, which focuses on incubating new technologies and businesses such as brachytherapy, recorded sales of $4 million for the quarter, down $1 million from the year-ago quarter. Net orders for Ginzton Technology Center were $6 million for the quarter, up $2 million from the year-ago quarter. Net orders included a research contract for digital mammography sensor development that could lead to significant enhancements in the company's amorphous silicon flat-panel x-ray sensors.

Outlook

"Given the company's strong first quarter, favorable market environment and the ongoing expansion in our backlog, we continue to be confident that sales will grow by about $100 million or 14 percent over fiscal 2000 totals," said Levy. "With this top line growth and some additional leveraging of operating expenses, we hope to increase earnings per share by about 25 percent over our fiscal 2000 earnings of $1.64 per share, before accounting for the potential write-off of our $5 million investment in dpiX."

Investor Conference Call

Varian Medical Systems will conduct its fiscal 2001 first quarter conference call at 5 p.m. ET today. To hear a live web cast or replay of the call, visit the investor relations page on the company's web site at www.varian.com

Forward Looking Statements:

Except for historical information, this news release contains "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995 which provides a "safe harbor" about future events, products and future financial performance that are based on the beliefs of, estimates made by and information currently available to our management. The outcome of the events described in these forward-looking statements is subject to risks and uncertainties. Actual results and the timing of certain events may differ significantly from those projected in these forward-looking statements and reported results should not be considered an indication of future performance due to the factors listed below and from time to time in our other filings with the Securities and Exchange Commission. For this purpose, statements concerning industry outlook, including market acceptance of or transition to new products or technology such as IMRT, brachytherapy, software, treatment techniques, and advanced x-ray products; growth drivers; Varian Medical Systems, Inc.'s ("VMS," "we" or "our") orders, sales, backlog, or earnings growth; future financial results and any statements using the terms "should," "will," "hope," or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those projected or management's current expectations. Such risks and uncertainties include, without limitation, market acceptance, demand for and possible obsolescence of our products; our ability to successfully develop and commercialize new products; the impact on our sales and margins of competitive products and pricing; the effect of general economic conditions and foreign currency exchange rates; consistent availability of electric power and natural gas for our California operations, our ability to increase operating margins on higher sales while controlling costs; our ability to maintain manufacturing capacity to meet demand, including the potential risk of earthquake damage to our existing facilities; the effect of environmental claims and clean-up expenses on our costs; our ability to protect our intellectual property and the related competitive advantages of our products; our reliance on sole source or a limited number of suppliers; the impact of managed care initiatives or other healthcare reforms in the U.S. on our capital expenditures and/or limitations on third party reimbursements and the resulting pressure on medical equipment pricing and user demand for our products; our ability to meet U.S. FDA and other domestic or foreign regulatory requirements or product clearances which might limit the products we can sell or subject us to fines or other regulatory actions; our use of distributors for a portion of our sales, the loss of which could reduce sales and harm our financial results; continued consolidation in the x-ray tubes market; the possibility that material product liability claims could harm our future sales, or require us to pay uninsured claims; the availability and adequacy of our insurance to cover future material liabilities, including any material product liability or product recall of General Electric manufactured products for which we provide customer service and have assumed such liabilities; our ability to attract and retain key employees in a highly competitive employment market; the affect which fluctuations in our operating results may have on the price of our common stock; the possibility that certain provisions of our Certificate of Incorporation and its stockholder rights plan might discourage a takeover and therefore limit the price of our common stock; our ability to meet time requirements for and implement conversion to the Euro currency in our business dealings and operations in certain European countries; the effect of price transparency on our business dealings in countries of the European Community following implementation of Euro currency regulations; the effect on our profit margins of product recycling and related regulatory requirements in European and other countries; our potential responsibility for additional tax obligations and other liabilities arising out of the spin-off of segments of our former businesses; and the effect on our revenue recognition of changes in accounting standards. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

Varian Medical Systems, Inc., (NYSE:VAR) of Palo Alto, California is the world's leading manufacturer of integrated cancer therapy systems, which are treating thousands of patients per day. The company is also a premier supplier of X-ray tubes and flat-panel digital subsystems for imaging in medical, scientific, and industrial applications. Varian Medical Systems employs approximately 2,400 people who are located at manufacturing sites in North America and Europe and in its 40 sales and support offices around the world. In its most recent fiscal year ended September 29, 2000, Varian Medical Systems reported sales of $690 million. Additional information is available on the company's investor relations web site at www.varian.com

A summary of income and other financial information follows:

Varian Medical Systems, Inc. and Subsidiary Companies
Consolidated Statements of Earnings
(Dollars and shares in millions, except per share amounts)
(Unaudited)

Q1 QTR 2001 Q1 QTR 2000
----------- -----------
Net orders $ 193.2 $ 169.0

Oncology Systems 150.4 128.9
X-Ray Products 37.0 35.7
Ginzton Technology Center 5.8 4.4

Order backlog $ 504.5 $ 428.0

Sales $ 161.4 $ 141.3
Oncology Systems 124.5 106.1
X-Ray Products 32.9 30.0
Ginzton Technology Center 4.0 5.2

Gross margin 56.5 50.4
As a percent of sales 35.0% 35.7%
Operating expenses
Research and
development 11.2 10.3
Selling, general
and administrative 30.6 30.2

Operating earnings 14.7 9.9
As a percent of sales 9.1% 7.0%

Interest (income)/expense,
net (0.2) 1.5

Earnings from
continuing operations
before taxes 14.9 8.4

Taxes on earnings 5.6 3.2

Earnings before cumulative
effect of change
in accounting principle 9.3 5.2

Cumulative effect of
accounting principle
change, net of tax (1) 0.1 --

Net earnings $ 9.4 $ 5.2

Net earnings
per share - basic
Earnings before cumulative
effect of change
in accounting principle $ 0.29 $ 0.17
Cumulative effect of
accounting principle
change, net of tax -- --
------- -------
Net earnings per
share - basic $ 0.29 $ 0.17
======= =======

Net earnings per
share - diluted
Earnings before cumulative
effect of change in
accounting principle $ 0.28 $ 0.17
Cumulative effect of
accounting principle
change, net of tax -- --
------- -------
Net earnings per
share - diluted $ 0.28 $ 0.17
======= =======

Shares used in the
calculation of net
earnings per share:
Average shares
outstanding - basic 32.1 30.6
======= =======
Average shares
outstanding - diluted 33.6 31.4
======= =======

(1) Note: The cumulative effect of accounting principle change
relates to the Company's adoption of Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," in the first quarter of fiscal year 2001. The estimated
effective tax rate used is 37.5%.

Varian Medical Systems, Inc. and Subsidiary Companies
Consolidated Balance Sheets

(Dollars in thousands,
except par values) December 29, September 29,
2000 2000
(Unaudited)
Assets
Current assets
Cash and
cash equivalents $ 103,565 $ 83,321
Accounts
receivable, net 212,015 226,442
Inventories 109,778 92,482
Other current
assets 49,912 48,343
--------- ---------
Total current
assets 475,270 450,588
--------- ---------

Property, plant and 209,655 206,614
equipment
Accumulated depreciation
and amortization (129,881) (126,515)
--------- ---------
Net property, plant
and equipment 79,774 80,099
--------- ---------

Other assets 73,304 71,863
--------- ---------
Total assets $ 628,348 $ 602,550
========= =========

Liabilities and
Stockholders' Equity
Current liabilities
Notes payable $ 448 $ 616
Accounts payable - trade 51,593 41,351
Accrued expenses 116,156 128,391
Product warranty 20,340 19,975
Advance payments
from customers 58,959 59,563
--------- ---------
Total current
liabilities 247,496 249,896
Long-term accrued
expenses 22,355 23,795
Long-term debt 58,500 58,500
--------- ---------
Total liabilities 328,351 332,191
--------- ---------

Stockholders' Equity
Preferred stock
Authorized 1,000,000 shares,
par value $1, issued none -- --
Common stock
Authorized 99,000,000 shares,
par value $1, issued and
outstanding
32,435,000 shares at
December 29, 2000 and
31,769,000 shares at
September 29, 2000 32,435 31,769
Capital in excess
of par value 70,394 50,869
Retained earnings 197,168 187,721
--------- ---------
Total stockholders'
equity 299,997 270,359
--------- ---------
Total liabilities and
stockholders' equity $ 628,348 $ 602,550
========= =========

CONTACT: Varian Medical Systems
Elisha Finney, 650/424-6803
elisha.finney@varian.com
or
Spencer Sias, 650/424-5782
spencer.sias@varian.com