Varian Medical Systems, Inc. Reports Rapid Growth in Sales, Earnings, and Net Orders for Third Quarter of Fiscal 2000 | Varian

Varian Medical Systems, Inc. Reports Rapid Growth in Sales, Earnings, and Net Orders for Third Quarter of Fiscal 2000

PALO ALTO, Calif.--(BW HealthWire)--July 26, 2000-- Varian Medical Systems (NYSE:VAR) today reported net income of $14 million ($0.43 per diluted share) for the third quarter of fiscal 2000 versus pro-forma net earnings of $10.9 million ($0.36 per diluted share) in the year ago quarter. Sales for the quarter totaled $171 million, up 18 percent from the same period last fiscal year, and net orders for the quarter were $195 million, up 20 percent from the prior-year period.

''We have achieved solid growth in net orders and sales on the basis of strong demand for advanced radiotherapy systems, particularly in North America, and substantial increases in sales of our revolutionary new high power X-ray tube,'' said Richard M. Levy, president and CEO of Varian Medical Systems. ''For the first three quarters of the fiscal year, net orders and sales are each up 21 percent over the same period last year.

''We have grown operating earnings faster than sales in spite of the costly rollout of our new X-ray tube and weak European currencies that softened first-half demand for Oncology Systems in Europe,'' Levy said. ''Our profitable growth is an indicator of the increasing recognition of IMRT (Intensity Modulated Radiation Therapy) as a significant new contributor to cancer care and of Varian Medical Systems' successful implementation of this technology.''

The North American oncology business continued to be the dominant growth driver in the third quarter with sales up 52 percent over the year-ago quarter. For the third quarter, total company sales in North America rose 57 percent from the year-ago quarter, more than offsetting a 14 percent decline in total international sales for the same period.

Oncology Systems

Oncology Systems sales of Clinac® accelerators, Ximatron® simulators and ancillary products, software, and services for advanced radiotherapy, including SmartBeam™ IMRT, totaled $133 million for the quarter, were up 17 percent from the prior-year period. Third-quarter net orders in the Oncology Systems business totaled $153 million, up 23 percent from the prior year.

''IMRT is generating tremendous interest among radiation oncologists, particularly in North America, and it is beginning to attract attention in Western Europe and Japan. Attendance by radiation oncologists and physicists at our IMRT seminars in the U.S., Europe, and Asia has been excellent,'' said Levy. ''Clinicians are beginning to see better treatment outcomes and lower complication rates due to IMRT, which we believe is on its way to replacing conventional radiation therapy as a new treatment standard for some types of cancer.''

X-ray Products

Sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $34 million for the quarter, up 15 percent from the year-ago quarter. Sales of X-ray tubes for CT (computed tomography) scanners drove the growth in this business.

''We are now shipping production quantities of our high-power X-ray tube for CT scanning, about tripling sales of this product over the year-ago quarter,'' 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, reported $4 million in sales for the quarter, up from $1 million in the year-ago quarter. Net orders for Ginzton Technology Center were $5 million for the quarter, up $2 million from the year-ago quarter.

IMPAC Acquisition

During the quarter, Varian announced an agreement to acquire IMPAC Medical Systems, Inc., a leader in information systems for managing radiation and medical oncology and related areas, in order to offer customers a new, broad array of health care information products for clinical, administrative, outcomes, and decision support purposes. The company is continuing to fulfill information requests from the U.S. Department of Justice, with a goal of closing the transaction before the end of the fiscal year.

Outlook

At quarter's end, the backlog for the company was at a record $461 million, up 15 percent from the third quarter of last year.

''Our strong results for the first three quarters of this fiscal year have put the company in a position to achieve sales growth of between 15 and 16 percent over last fiscal year,'' said Levy. ''With this positive momentum and strong cost controls, we are raising our earnings expectations for the year. Excluding transaction costs related to the acquisition of IMPAC Medical Systems, we now expect that fully-diluted earnings per share could grow above fiscal 1999 pro forma levels of $1.28 per share by about 25 percent,'' he said.

Varian Medical Systems is scheduled to conduct its fiscal 2000 third quarter conference call at 7:30 a.m. PDT on Thursday, July 27, 2000. 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

Forward Looking Statements

Except for historical information, this news release contains forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those projected. Such risks and uncertainties include: product demand and market acceptance risks; the effect of general economic conditions and foreign currency exchange rates; the impact of competitive products and pricing; new product development and commercialization; the reliance on sole source suppliers; the Company's ability to increase operating margins on higher sales or otherwise control costs; the impact of managed care initiatives in the U.S. on capital expenditures and resulting pricing pressure on medical equipment; the ability of the Company to attract and retain key employees in a highly competitive employment market; the Company's ability to meet foreign and domestic regulatory requirements; the Company's potential responsibility for liabilities arising out of the reorganization which were not expressly assumed by the Company; the possibility that indemnification for certain liabilities arising out of or relating to the reorganization will not be available to the Company due to the indemnifying party's insolvency or legal prohibition; increased debt leverage resulting from their organization impacting the Company's ability to obtain future financing for working capital, capital expenditures, product development, acquisitions, and general corporate purposes; the effect of increased debt leverage on cash flow, vulnerability to economic downturns, and flexibility in responding to changing business and economic conditions; possible exposure to fraudulent conveyance allegations arising out of the reorganization; possible exposure to additional tax obligations in connection with the reorganization; the Company's failure to obtain regulatory approval of its pending or future acquisitions; difficulty in integrating acquired businesses into its business operations; transaction costs associated with the Company's acquisition of IMPAC Medical Systems, Inc.; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.

Varian Medical Systems, Inc., (NYSE:VAR-news) 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 2,300 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 October 1, 1999, Varian Medical Systems reported sales of $590 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
(In millions, except per share amounts)
(Unaudited)

ACTUAL RESULTS OF OPERATIONS
Q3 QTR 2000 Q3 QTR 1999 Q3 YTD 2000 Q3 YTD 1999

Net Orders $ 194.5 161.7 542.9 447.1
Oncology Systems 152.8 124.3 422.3 348.5
X-Ray Products 36.5 34.5 107.6 90.9
Ginzton Technology
Center 5.2 2.9 13.0 7.7

Order Backlog $ 461.4 400.8 461.4 400.8

Sales $ 170.7 144.5 481.7 398.8
Oncology Systems 132.7 113.3 369.4 303.5
X-Ray Products 34.4 29.9 99.3 89.5
Ginzton Technology
Center 3.6 1.3 13.0 5.8

Gross Margin 62.1 51.3 173.5 133.5
As a percent
of Sales 36.3% 35.5% 36.0% 33.5%
Operating Expenses
Selling, General and
Administrative 28.8 25.1 91.0 82.8
Research and Development 10.1 9.3 31.8 29.8

Operating Earnings Before
Reorganization Expenses 23.2 16.9 50.7 20.9
As a percent of Sales 13.6% 11.7% 10.5% 5.2%

Reorganization Expenses - 0.4 - 31.4
Operating Earnings (Loss) 23.2 16.5 50.7 (10.5)

Interest Expense, Net 0.7 1.5 3.3 3.9

Earnings (Loss) From
Continuing Operations
Before Taxes 22.5 15.0 47.4 (14.4)
Taxes on Earnings 8.5 8.4 17.8 (8.8)

Earnings (Loss) from
Continuing Operations 14.0 6.6 29.6 (5.6)

Loss from Discontinued
Operations -
Net of Taxes - - - (31.2)

Net Earnings (Loss) $ 14.0 6.6 29.6 (36.8)

Average Shares
Outstanding - Basic 31.3 30.4 30.9 30.1
Average Shares
Outstanding - Diluted 32.9 30.6 32.3 30.1

Net Earnings (Loss)
Per Share - Basic
Continuing Operations $ 0.45 0.22 0.96 (0.19)
Discontinued Operations - - - (1.03)
Net Earnings (Loss)
Per Share 0.45 0.22 0.96 (1.22)

Net Earnings (Loss)
Per Share - Diluted
Continuing Operations 0.43 0.21 0.92 (0.19)
Discontinued Operations - - - (1.03)
Net Earnings (Loss)
Per Share $ 0.43 0.21 0.92 (1.22)

======================================================================
PRO FORMA RESULTS OF OPERATIONS (a) Q3 QTR 1999
------------------------------- --------------
Net Earnings (Third Quarter 1999) $ 10.9
Net Earnings Per Share - Basic $ 0.36
Net Earnings Per Share - Diluted $ 0.36
======================================================================

(a) Note: The Pro Forma results of operations for third quarter
fiscal year 1999 presents results without $0.4 million of
reorganization expenses and $1.4 million of incremental non-recurring
expenses related to the spin-off of the corporation's instruments and
semiconductor equipment businesses on April 2, 1999. The tax rate for
this presentation is assumed to be 35%. The above Pro Forma
information does not purport to represent what operations would have
been, or to project operating results for the future.

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

(Dollars in thousands, except par values)
June 30, 2000 October 1, 1999
(Unaudited)
Assets
Current assets
Cash and cash equivalents $ 29,170 $ 25,126
Accounts receivable 220,610 233,785
Inventories 101,003 78,324
Other current assets 45,573 45,011
--------------- -------------
Total current assets 396,356 382,246
--------------- -------------

Property, plant, and equipment 203,940 200,386
Accumulated depreciation
and amortization (123,088) (120,138)
--------------- --------------
Net property, plant, and equipment 80,852 80,248
--------------- --------------

Other assets 74,506 76,689
--------------- --------------
Total assets $ 551,714 $ 539,183
=============== ==============

Liabilities and Stockholders' Equity
Current liabilities
Notes payable $ 726 $ 35,587
Accounts payable - trade 32,774 40,141
Accrued expenses 112,905 121,165
Product warrant 19,389 18,152
Advance payments from customers 63,972 54,757
------------- -------------
Total current liabilities 229,766 269,802
Long-term accrued expenses 24,667 25,890
Long-term debt 58,500 58,500
------------- --------------
Total liabilities 312,933 354,192
------------- --------------

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
31,499,000 shares at June 30, 2000 and
30,563,000 shares at October 1, 1999 31,499 30,563
Capital in excess of par value 43,344 20,185
Retained earnings 163,938 134,243
------------- -------------
Total stockholders' equity 238,781 184,991
------------- -------------
Total liabilities and
stockholders' equity $ 551,714 $ 539,183
============= ============

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