Varian Medical Systems, Inc. Reports Record Second Quarter Earnings, Sales, Net Orders, and Backlog | Varian

Varian Medical Systems, Inc. Reports Record Second Quarter Earnings, Sales, Net Orders, and Backlog

PALO ALTO, Calif.--(BUSINESS WIRE)--April 25, 2001--

Net earnings climb 50 percent to $15.6 million; sales grow 14 percent

to $193 million; net orders rise 14 percent to $205 million;

backlog up 18 percent to $516 million; company raises
earnings target slightly for fiscal 2001

Varian Medical Systems (NYSE:VAR) today is reporting record second-quarter results for fiscal 2001 with net earnings of $15.6 million, or $0.45 per diluted share, up 41 percent from $0.32 per diluted share in the year-ago period. The company announced second quarter sales of $193 million, up 14 percent from the same period of last fiscal year. Net orders for the quarter were $205 million, also up 14 percent from the prior-year period. At quarter's end, the backlog for the company was at a record $516 million, up 18 percent from the second quarter of last year.

"North American demand for radiation therapy systems continues to drive growth in net orders and backlog for the company as clinics invest in new and updated systems for rapid delivery of advanced radiotherapy, including SmartBeam(R) IMRT (intensity modulated radiation therapy)," said Richard M. Levy, president and chief executive officer of Varian Medical Systems. "The X-ray Products tube business and Ginzton Technology Center's brachytherapy business are also contributing to the company's growth."

"Since becoming a stand-alone medical company, we have strengthened our balance sheet and doubled stockholders' equity," Levy added. "Cash levels are now at a record $152 million, partially because we have been able to bring our average collection time down substantially."

Shipments against the backlog were more concentrated in Europe during the second quarter. This led to a higher sales mix over the prior year period in the international market versus a lower sales mix for the same period in North America. However, net orders in North America grew by 34 percent for the quarter versus the year-ago period, while international orders declined by 7 percent for the same period. International markets continued to be affected during the period by weak currencies leading to soft pricing and longer order cycles.

Oncology Systems

Oncology Systems sales, which include Clinac(R) accelerators, Ximatron(R) simulators and ancillary products, and services for advanced radiotherapy including SmartBeam IMRT, totaled $151 million for the quarter, up 15 percent from the prior-year period. Second-quarter net orders in the Oncology Systems business totaled $162 million, up 15 percent from the prior year.

"Clearly, this business is sustaining its ongoing growth on the strength of a continuing favorable North American climate for advanced radiotherapy systems," said Levy. "Clinics are seeking cost effective systems to plan and deliver more sophisticated treatments, incorporate effective quality assurance, and maintain or build their patient load. We believe the new technology embodied in our integrated Generation 6(TM) system meets this need, and customer interest in these systems has been high. We also are seeing the first signs that some customers may accelerate purchase plans in response to the January adoption of higher hospital reimbursement rates for IMRT in the U.S."

X-ray Products

Second-quarter sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $37 million, up 6 percent from the year-ago quarter. This business reported increased sales from most lines in its broad array of X-ray tubes for mammography, radiography, and CT scanning. It also initiated low volume shipments of a new anode-grounded high power CT scanning tube for an airport baggage inspection system. "This is a potential new application area for our high-power CT scanning tube technology," said Levy.

During the quarter, this business consolidated production of amorphous silicon flat panel imagers from Tempe, Arizona into its Salt Lake City facility to reduce costs, improve quality control, and develop enhanced processes for potential volume manufacturing.

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 $5 million for the quarter, up by $1 million over the year-ago quarter. The sales gains stemmed from growth in the brachytherapy treatment planning business as well as some new research contracts involving digital imaging with amorphous silicon flat panels. Net orders for Ginzton Technology Center were $6 million, up by $2 million from the year-ago quarter, largely due to higher domestic and international orders for the company's delivery and treatment planning systems for brachytherapy.

Outlook

"We have had a good second quarter and first half that has raised our earnings expectations for the fiscal year," said Levy. "We continue to believe that we can achieve sales growth of about $100 million or 14 percent over fiscal year 2000. We are now aiming to grow earnings per share for fiscal 2001 by about 27 percent above our fiscal 2000 earnings of $1.64 per share, before accounting for any losses related to our $5 million equity investment in the dpiX flat panel consortium. Based on dpiX's current forecast, we don't anticipate absorbing any losses until the fourth quarter. For the third quarter, we again expect about a 14 percent increase in sales with earnings per share approaching 18 percent growth above the third quarter of last year."

Investor Conference Call

Varian Medical Systems will conduct its fiscal 2001 second 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 "aiming," "believe," "can," "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)

Q2 QTR Q2 QTR Q2 YTD Q2 YTD
2001 2000 2001 2000

Net orders $ 204.5 179.4 397.7 348.4
Oncology Systems 161.5 140.6 311.9 269.5
X-Ray Products 37.4 35.4 74.4 71.1
Ginzton Technology Center 5.6 3.4 11.4 7.8

Order backlog $ 516.2 437.5 516.2 437.5

Sales $ 192.8 169.7 354.2 311.0
Oncology Systems 150.7 130.6 275.2 236.7
X-Ray Products 37.0 34.9 69.9 64.9
Ginzton Technology Center 5.1 4.2 9.1 9.4

Gross margin 71.4 61.0 127.9 111.4
As a percent of sales 37.1% 35.9% 36.1% 35.8%
Operating expenses
Research and development 10.9 11.4 22.1 21.7
Selling, general and
administrative 36.0 32.0 66.6 62.2

Operating earnings before
reorganization expenses 24.5 17.6 39.2 27.5

Reorganization expenses 0.3 -- 0.3 --

Operating earnings 24.2 17.6 38.9 27.5
As a percent of sales 12.5% 10.4% 11.0% 8.8%

Interest (income)/expense,
net (0.5) 1.1 (0.7) 2.6

Earnings before taxes 24.7 16.5 39.6 24.9

Taxes on earnings 9.1 6.1 14.7 9.3

Earnings before cumulative
effect of change in
accounting principle 15.6 10.4 24.9 15.6

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

Net earnings $ 15.6 10.4 25.0 15.6

Net earnings per share -
basic
Earnings before cumulative
effect of change in
accounting principle $ 0.48 0.33 0.77 0.51

Cumulative effect of
change in accounting
principle, net of tax -- -- -- --
------- ------- ------- -------
Net earnings per share -
basic $ 0.48 0.33 0.77 0.51
======= ======= ======= =======

Net earnings per share -
diluted
Earnings before cumulative
effect of change in
accounting principle $ 0.45 0.32 0.74 0.49

Cumulative effect of
change in accounting
principle, net of tax -- -- -- --
------- ------- ------- -------
Net earnings per share -
diluted $ 0.45 0.32 0.74 0.49
======= ======= ======= =======

Shares used in the
calculation of net
earnings per share:
Average shares
outstanding - basic 32.7 30.9 32.4 30.8
======= ======= ======= =======
Average shares
outstanding - diluted 34.4 32.5 33.9 31.8
======= ======= ======= =======

(a) Note: The cumulative effect of change in accounting principle
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 was 37.5%.

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

(Dollars in thousands, March 30, September 29,
except par values) 2001 2000
(Unaudited)

Assets
Current assets
Cash and cash equivalents $ 151,657 $ 83,321
Accounts receivable, net 207,569 226,442
Inventories 109,890 92,482
Other current assets 50,908 48,343
--------- ---------
Total current assets 520,024 450,588
--------- ---------

Property, plant and equipment 208,018 206,614
Accumulated depreciation
and amortization (128,613) (126,515)
--------- ---------
Net property, plant and equipment 79,405 80,099
--------- ---------

Other assets 71,255 71,863
--------- ---------
Total assets $ 670,684 $ 602,550
========= =========

Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 428 $ 616
Accounts payable - trade 45,130 41,351
Accrued expenses 120,470 128,391
Product warranty 20,844 19,975
Advance payments from customers 66,898 59,563
--------- ---------
Total current liabilities 253,770 249,896
Long-term accrued expenses and other 21,941 23,795
Long-term debt 58,500 58,500
--------- ---------
Total liabilities 334,211 332,191
--------- ---------

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 33,006,000
shares at March 30, 2001 and
31,769,000 shares at September 29, 2000 33,006 31,769
Capital in excess of par value 90,750 50,869
Retained earnings 212,717 187,721
--------- ---------
Total stockholders' equity 336,473 270,359
--------- ---------
Total liabilities and
stockholders' equity $ 670,684 $ 602,550
========= =========

--30--kc/sf*
CONTACT: Varian Medical Systems, Inc.
Elisha Finney, 650/424-6803
elisha.finney@varian.com
Spencer Sias, 650/424-5782
spencer.sias@varian.com