Varian Medical Systems, Inc. Reports Record Third Quarter Earnings, Sales, Net Orders, and Backlog for Fiscal 2001 | Varian

Varian Medical Systems, Inc. Reports Record Third Quarter Earnings, Sales, Net Orders, and Backlog for Fiscal 2001

PALO ALTO, Calif.--(BUSINESS WIRE)--July 25, 2001--Varian Medical Systems (NYSE:VAR) today reported net earnings of $19.5 million ($0.56 per diluted share) for the third quarter of fiscal 2001 versus net earnings of $14 million ($0.43 per diluted share) in the year-ago quarter. Sales for the quarter totaled $191 million, up 12 percent from the same period of the last fiscal year. Net orders for the quarter were $214 million, up 10 percent from the prior-year period, with strong growth in the Oncology Systems business partially offset by a decline in the X-ray Products business. At quarter's end, the backlog for the company was at a record $538 million, up 17 percent from the third quarter of last year.

"The prospect of achieving substantially better outcomes in the treatment of a broad array of cancers with intensity modulated radiation therapy (IMRT) is continuing to drive our oncology market and our business," said Richard M. Levy, president and CEO of Varian Medical Systems. "For 30 years, researchers have sought the 'magic bullet' that preferentially targets cancer cells with no damage to healthy tissue. IMRT is increasingly being perceived as a significant step closer to achieving this elusive goal. With continuing refinements in IMRT, we have legitimate reason to be optimistic about the future of cancer care using radiation therapy."

Shipments against the backlog were more concentrated in international markets during the third quarter than during the same period last year. This led to a strong quarter over quarter growth in international sales and relatively flat sales growth in North America for the same periods. However, net orders for the third quarter were up over the year ago quarter by 12 percent in North America and up by 7 percent in international markets.

"We continued to strengthen our balance sheet during the third quarter with cash levels reaching a record $182 million and days sales outstanding dropping by 16 days from the prior year period to 98 days, reflecting continuing success in the management of our receivables," Levy said.

Oncology Systems

Oncology Systems sales of Clinac(R) accelerators, Ximatron(R) simulators and ancillary products, software, and services for advanced radiotherapy, including SmartBeam(R) IMRT, totaled $152 million for the quarter, up 15 percent from the prior-year period. Third-quarter net orders in the Oncology Systems business totaled $181 million, up 18 percent from the prior year period.

"We are seeing a shift toward more sales of high-performance, fully integrated systems that will enable customers to commence offering patients IMRT," Levy said. "The prospect of reducing complications and improving outcomes for patients as well as new U.S. reimbursement rates for IMRT are encouraging customers to look more closely at accelerating purchasing plans for new systems and equipment upgrades."

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, down 4 percent from the year-ago quarter. The decline in sales was primarily due to the company's Snowbird tube. "Our successful effort to extend the operating life of this high-power CT scanning tube led to temporary lower demand for replacement tubes by a major OEM customer," said Levy. "However, CT scanners with this tube are in demand and we hope to see a rebound of sales during the fourth quarter. Year-to-date sales of X-ray products are up 4 percent, near the high end of the growth range for the x-ray tube market."

Ginzton Technology Center

The company's premier research facility, the Ginzton Technology Center, which focuses on incubating new technologies and businesses such as brachytherapy, reported $6 million in sales for the quarter, up $3 million from the year-ago quarter. Net orders for Ginzton Technology Center were $6 million for the quarter, up $1 million from the prior year period. The VariSource product for high-dose rate brachytherapy drove the growth in sales and net orders in most regions of the world.

Outlook

"Our strong third quarter results lead us to increase our estimates for fiscal year 2001," said Levy. "We now hope to achieve an increase approaching 30 percent in diluted earnings-per-share over the fiscal 2000 level of $1.64 per share, before accounting for any losses related to our $5 million equity investment in the dpiX flat panel consortium or the effect of the SEC Staff Accounting Bulletin No. 101 that the company is required to adopt in its fourth quarter of fiscal year 2001. It is now unlikely that the company will absorb any loss related to the dpiX investment during this fiscal year."

Investor Conference Call

Varian Medical Systems is scheduled to conduct its fiscal 2001 third quarter conference call at 2 p.m. PDT today. To hear a live webcast or replay of the call, visit the investor relations page on the company's Web site at www.varian.com. The replay will be available for 30 days.

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. Statements concerning industry outlook, including market acceptance of or transition to new products or technology such as IMRT; growth drivers; our orders, sales, backlog, or earnings growth; future financial results and any statements using the terms "prospect," "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 anticipated. Such risks and uncertainties include demand for our products; our ability to develop and commercialize new products; the impact of competitive products and pricing; the effect of economic conditions and currency exchange rates; our ability to maintain or increase operating margins; our ability to meet demand for manufacturing capacity; the effect of environmental claims and expenses; our ability to protect our intellectual property; our reliance on sole or limited source suppliers; the impact of managed care initiatives or other healthcare reforms on capital expenditures and/or third-party reimbursement levels; our ability to meet FDA and other regulatory requirements or product clearances; the potential loss of key distributors; consolidation in the x-ray tubes market; the possibility that material product liability claims could harm future sales or require us to pay uninsured claims; our potential responsibility for additional liabilities arising out of the spin-off of segments of our former businesses; the effect on our revenue recognition of changes in accounting standards; and the other risks listed from time to time in our filings with the Securities and Exchange Commission. We assume no obligation to update or revise the forward-looking statements in this release because of new information, future events or otherwise.

Varian Medical Systems, Inc., (NYSE:VAR) of Palo Alto, Calif., is the world's leading manufacturer of integrated cancer therapy systems, which are used to treat 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 2,300 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)

Q3 QTR Q3 QTR Q3 YTD Q3 YTD
2001 2000 2001 2000
----- ----- ----- -----
Net orders $ 213.6 194.5 611.3 542.9
Oncology Systems 181.1 152.8 493.0 422.3
X-Ray Products 26.6 36.5 101.0 107.6
Ginzton Technology Center 5.9 5.2 17.3 13.0

Order backlog $ 538.3 461.4 538.3 461.4

Sales $ 191.4 170.7 545.6 481.7
Oncology Systems 151.9 132.7 427.1 369.4
X-Ray Products 33.1 34.4 103.0 99.3
Ginzton Technology Center 6.4 3.6 15.5 13.0

Gross margin 71.8 62.1 199.7 173.5
As a percent of sales 37.5% 36.3% 36.6% 36.0%
Operating expenses
Research and development 11.1 10.1 33.2 31.8
Selling, general and
administrative 31.4 28.9 98.0 91.1

Operating earnings before
reorganization expense/(income) 29.3 23.1 68.5 50.6

Reorganization expense/(income) (0.8) (0.1) (0.5) (0.1)

Operating earnings 30.1 23.2 69.0 50.7
As a percent of sales 15.7% 13.6% 12.6% 10.5%

Interest (income)/expense, net (0.8) 0.7 (1.5) 3.3

Earnings before taxes 30.9 22.5 70.5 47.4

Taxes on earnings 11.4 8.5 26.1 17.8

Earnings before cumulative effect
of change in accounting principle 19.5 14.0 44.4 29.6

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

Net earnings $ 19.5 14.0 44.5 29.6

Net earnings per share - basic:
Earnings before cumulative
effect of change in
accounting principle $ 0.59 0.45 1.36 0.96

Cumulative effect of change
in accounting principle, net
of tax - - - -
----- ----- ----- -----
Net earnings per share - basic $ 0.59 0.45 1.36 0.96
===== ===== ===== =====

Net earnings per share - diluted:
Earnings before cumulative
effect of change in
accounting principle $ 0.56 0.43 1.31 0.92

Cumulative effect of change
in accounting principle, net
of tax - - - -
----- ----- ----- -----
Net earnings per share -
diluted $ 0.56 0.43 1.31 0.92
===== ===== ===== =====

Shares used in the calculation of
net earnings per share:
Average shares outstanding -
basic 33.3 31.3 32.7 30.9
===== ===== ===== =====
Average shares outstanding -
diluted 34.8 32.9 34.0 32.3
===== ===== ===== =====

(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, June 29, 2001 September 29,
except par values) (Unaudited) 2000
--------- ---------
Assets
Current assets
Cash and cash equivalents $ 182,488 $ 83,321
Accounts receivable, net 210,200 226,442
Inventories 116,402 92,482
Other current assets 47,541 48,343
--------- ---------
Total current assets 556,631 450,588
--------- ---------

Property, plant and equipment 209,147 206,614
Accumulated depreciation
and amortization (132,350) (126,515)
--------- ---------
Net property, plant and equipment 76,797 80,099
--------- ---------

Other assets 70,894 71,863
--------- ---------
Total assets $ 704,322 $ 602,550
========= =========

Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 232 $ 616
Accounts payable - trade 44,899 41,351
Accrued expenses 117,375 128,391
Product warranty 20,972 19,975
Advance payments from customers 61,478 59,563
--------- ---------
Total current liabilities 244,956 249,896

Long-term accrued expenses and other 21,947 23,795
Long-term debt 58,500 58,500
--------- ---------
Total liabilities 325,403 332,191
--------- ---------

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
33,627,000 shares at June 29, 2001 and
31,769,000 shares at September 29, 2000 33,627 31,769
Capital in excess of par value 113,053 50,869
Retained earnings 232,239 187,721
--------- ---------
Total stockholders' equity 378,919 270,359
--------- ---------
Total liabilities and stockholders' equity $ 704,322 $ 602,550
========= =========

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