Varian Medical Systems Achieves Strong Net Earnings, Sales, Net Orders, and Backlog for Fiscal Year 2001 | Varian

Varian Medical Systems Achieves Strong Net Earnings, Sales, Net Orders, and Backlog for Fiscal Year 2001

PALO ALTO, Calif.--(BUSINESS WIRE)--Nov. 1, 2001--Varian Medical Systems, Inc. (NYSE: VAR) today announced strong net earnings, sales, net orders, and year-end backlog for its fourth quarter and fiscal year 2001. The company announced its quarterly and annual results using both its historical accounting method and the newly-required Securities and Exchange Commission's Staff Accounting Bulletin No. 101 (SAB 101) method affecting the timing of revenue recognition.

"By any method of accounting, we have had another excellent quarter and a great year with real growth in earnings, sales, net orders, backlog, cash, and stockholders' equity," said Dick Levy, president and CEO of Varian Medical Systems.

During the quarter, the company changed from its historical accounting method in which revenue from hardware sales is recognized on shipment to the SAB 101 accounting method in which a portion of revenue from hardware sales is deferred until the company completes installations of equipment it has delivered. The company also wrote off its $5 million investment in the dpiX consortium, which will continue supplying amorphous silicon plates for its imaging products.

Results Under Historical Accounting

Using its historical accounting method and excluding the dpiX write-off, Varian Medical Systems achieved net earnings of $30 million ($0.87 per diluted share) for the fourth quarter of fiscal year 2001 versus a reported $23 million ($0.71 per diluted share) in the year-ago period. Fiscal year 2001 net earnings were $75 million ($2.19 per diluted share) versus net earnings of $53 million ($1.64 per diluted share) in fiscal 2000.

Including the one-time dpiX write-off, the company generated net earnings of $27 million ($0.77 per diluted share) for the fourth quarter and $72 million ($2.09 per diluted share) for the fiscal year.

Fourth quarter sales were a record $238 million, up 15 percent from the year-ago quarter; and sales for the fiscal year were $784 million, up 14 percent from fiscal 2000 totals. The company also reported record net orders of $247 million for the fourth quarter of fiscal 2001, up 13 percent from the year-ago quarter. Net orders for the fiscal year were $858 million, up 13 percent from fiscal 2000, with strong growth in the Oncology Systems business partially offset by declines in the X-Ray Products unit. The backlog stood at a record $547 million at year's end, 16 percent higher than the year-end total for fiscal 2000.

Oncology Systems

Under the historical accounting method, Oncology Systems sales of Clinac(R) accelerators, Ximatron(R) simulators, and ancillary products and services were $196 million for the fourth quarter, up 19 percent from the prior-year period. Sales for the fiscal year were $623 million, 17 percent higher than last fiscal year. Fourth-quarter net orders in the Oncology Systems business totaled $206 million, up 18 percent from the year-ago period. For the fiscal year, net orders were $699 million, up 17 percent from the prior year totals.

"I am particularly gratified that fourth quarter net orders and sales were up from the year-ago quarter in international markets as well as in North America which continues to be the primary growth driver for our company," said Levy. "During the quarter, this business completed the biggest shipment in our company's history on an order from the Ministry of Health in Brazil.

"Market conditions for Oncology Systems have been robust," Levy added. "Customers are embracing and implementing IMRT (intensity modulated radiation therapy) at a rapid pace, in part because of encouraging new increases in the reimbursement rate for this treatment. Our work to help cancer centers implement IMRT by making our systems easier to commission, learn, and use is paying off.

"Operations in the Oncology Systems business continued to improve. During the year, we shipped a record number of machines, reduced factory expenses as well as the costs of quality, and received the top scores on customer satisfaction surveys.

"Even before the terrorist attacks on September 11, our linear accelerator products for cargo inspection and sterilization were contributing to our sales growth," Levy said. "As might be expected, interest in these applications of our technology is intensifying."

X-Ray Products

Under the historical accounting method, sales in the X-Ray Products business, including tubes and amorphous silicon flat- panel digital imagers, were $36 million for the quarter, down 2 percent versus the year-ago quarter, and fiscal-year sales were $139 million, 2 percent higher than prior-year totals.

"In the fourth quarter, we continued to experience weakness in sales of our high power Snowbird CT scanning tube as a result of customer inventory adjustments stemming from our successful effort to extend the tube's operating life which now stands at more than 300,000 scans," said Levy. "We believe that the X-Ray Products business will continue to grow in the low single digits."

Ginzton Technology Center

Under the historical accounting method, the Ginzton Technology Center, which focuses on incubating new technologies and businesses such as brachytherapy, recorded sales of $6 million for the quarter versus $7 million in the particularly strong year-ago quarter. Sales for the fiscal year grew to $22 million versus a reported $20 million for last fiscal year.

Net orders for the fourth quarter totaled $7 million versus $5 million in the year-ago quarter, and $25 million for fiscal year 2001 versus $18 million last year. "This business generated strong growth in net orders within the international market for its VariSource high dose rate brachytherapy delivery system," said Levy.

SAB 101 Financial Results

The adoption of SAB 101 for all of fiscal 2001 required a restatement of Varian Medical Systems' previously reported financial results for each of the first three quarters of the fiscal year. Attached tables allow comparisons of the company's financial performance for fiscal 2001 and fiscal 2000 using both accounting methods. "Our growth rates for sales, backlog, and net earnings are essentially the same under both the historical and SAB 101 revenue recognition methods," Levy said. "The new SAB method has no effect on the ongoing growth, operations, or cash flow of our business."

Adjusted for SAB 101 accounting, the company reported fourth quarter sales of $226 million and fiscal 2001 sales of $774 million, about $10 million or 1 percent less than the total calculated for the year using the historical accounting method. SAB 101 revenues for Oncology Systems, the only business materially affected by the accounting transition, were $184 million for the fourth quarter and $614 million for the fiscal year.

Excluding one-time charges, the transition to SAB 101 reduced fiscal 2001 earnings per share by $0.11 from $2.19 per share on a historical basis to $2.08 per share. Including a $0.09 per share charge for the dpiX write-off, earnings before the cumulative effect of the accounting change were $1.99 per share. The SAB 101 results for fiscal 2001 also include a one-time $0.41 per share charge for the cumulative effect of change in accounting principle.

With the addition of shipments not yet recorded as revenue under SAB 101, the year-end backlog rose by $51 million over the historical accounting level to a reported $598 million.

Outlook

"Several factors point to continued strong performance in fiscal year 2002," said Levy. "We have a record backlog in our Oncology Systems business, particularly for the North American market. We have a stable, predictable business in field service on an expanding installed base of radiotherapy systems. There is a reliable revenue stream from glass X-ray tube products and from the aftermarket, and we are hopeful that customer inventory adjustments for our high-power CT scanning tube will be resolved in the new fiscal year. The increase in brachytherapy system orders should contribute to growth in our Ginzton Technology Center business. Finally, our pipeline of potential new products as well as emerging opportunities in the security industry could provide some longer-term growth opportunities."

"Barring unforeseen events in these uncertain times, we are estimating that revenues for fiscal year 2002 could grow in the low double digits over the fiscal 2001 total and that earnings could increase in the mid-teens over the fiscal 2001 level of $2.08 per share," said Levy. "We would expect similar growth rates for sales and earnings for the first quarter of the new fiscal year."

Varian Medical Systems will conduct a conference call on the fourth quarter and fiscal year 2001 results at 2 p.m. PST today. Listeners can access the call via the Internet on the "Investor Relations" page of the company 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. Statements concerning industry outlook, including market acceptance of or transition to new products or technology such as IMRT and applications such as cargo inspection and sterilization; growth drivers; our orders, sales, backlog, or earnings growth; future financial results and any statements using the terms "believe," "will," "hopeful," "continued," "should," "could," "expect," "estimating," 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 health care 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; the effect of changes in accounting standards; the risk of operations interruptions due to events beyond our control, 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, California, is the world's leading manufacturer of radiotherapy systems, which are treating thousands of cancer 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 some 2,600 people at some 40 sites around the world. In its most recent fiscal year ended September 28, 2001, Varian Medical Systems reported sales of $774 million. Additional information is available on the company's web site at www.varian.com

A summary of income and other financial information follows.

EXHIBIT I

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

Comparison Basis Under Historical Accounting Method

Q4 QTR Q4 QTR Q4 YTD Q4 YTD
2001 2000 2001 2000

Net orders $ 246.9 219.2 858.2 762.1
Oncology Systems 206.4 174.8 699.4 597.1
X-Ray Products 33.1 39.0 134.1 146.6
Ginzton Technology
Center 7.4 5.4 24.7 18.4

Order backlog $ 547.1 472.6 547.1 472.6

Sales $ 238.2 208.0 783.8 689.7
Oncology Systems 196.3 164.5 623.4 533.9
X-Ray Products 35.7 36.6 138.7 135.9
Ginzton Technology
Center 6.2 6.9 21.7 19.9

Gross margin 93.2 83.6 292.9 257.1
As a percent
of sales 39.1% 40.2% 37.4% 37.3%
Operating expenses
Research and
development 10.4 10.3 43.6 42.1
Selling, general
and administrative 36.2 36.0 134.2 127.1
Operating earnings
before reorganization
expense/(income) 46.6 37.3 115.1 87.9

Reorganization
expense/(income) -- 0.3 (0.5) 0.2
Operating earnings 46.6 37.0 115.6 87.7
As a percent
of sales 19.6% 17.8% 14.7% 12.7%

Write-off of equity
investment 5.0 -- 5.0 --
Interest
(income)/expense, net (0.6) (0.5) (2.1) 2.8
Earnings before taxes 42.2 37.5 112.7 84.9

Taxes on earnings 15.0 14.1 41.1 31.9
Earnings before
cumulative effect
of change in accounting
principle 27.2 23.4 71.6 53.0

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

Net earnings $ 27.2 23.4 71.7 53.0
------- ------- ------- -------
Net earnings
per share - basic:
Earnings before
cumulative effect
of change in
accounting
principle $ 0.81 0.74 2.18 1.71

Cumulative
effect of change
in accounting
principle,
net of tax -- -- -- --
------- ------- ------- -------
Net earnings per
share - basic $ 0.81 0.74 2.18 1.71
======= ======= ======= =======
Net earnings per
share - diluted:
Earnings before
cumulative effect
of change in
accounting
principle $ 0.77 0.71 2.09 1.64
Cumulative effect
of change in
accounting
principle,
net of tax -- -- -- --
------- ------- ------- -------
Net earnings per
share - diluted $ 0.77 0.71 2.09 1.64
======= ======= ======= =======

Shares used in the
calculation
of net earnings
per share:
Average shares
outstanding - basic 33.7 31.6 32.9 31.1
======= ======= ======= =======
Average shares
outstanding
- diluted 35.1 33.2 34.2 32.4
======= ======= ======= =======
Supplemental
disclosure -
Results excluding
the effect of
the $5 million
investment
write-off
Net earnings $ 30.4 74.9
Net earnings per
share - basic $ 0.90 2.27
Net earnings per
share - diluted $ 0.87 2.19

* 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%.

EXHIBIT II

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

Comparison Basis Under SAB 101 Accounting Method

Q4 QTR Q4 QTR Q4 YTD Q4 YTD
2001 2000 2001 2000

Net orders $ 246.9 219.2 858.2 762.1
Oncology Systems 206.4 174.8 699.4 597.1
X-Ray Products 33.1 39.0 134.1 146.6
Ginzton Technology
Center 7.4 5.4 24.7 18.4

Order backlog $ 597.8 513.2 597.8 513.2

Sales $ 226.0 195.1 773.6 677.2
Oncology Systems 184.4 152.0 613.7 521.9
X-Ray Products 35.7 36.6 138.7 135.9
Ginzton Technology
Center 5.9 6.5 21.2 19.4

Gross margin 86.8 76.5 287.0 250.9
As a percent of sales 38.4% 39.2% 37.1% 37.0%
Operating expenses
Research and
development 10.4 10.3 43.6 42.1
Selling, general
and administrative 36.0 36.0 134.0 127.1
Operating earnings
before
reorganization
expense/(income) 40.4 30.2 109.4 81.7

Reorganization
expense/(income) -- 0.3 (0.5) 0.2
Operating earnings 40.4 29.9 109.9 81.5
As a percent
of sales 17.9% 15.3% 14.2% 12.0%

Write-off of
equity investment 5.0 -- 5.0 --
Interest
(income)/expense, net (0.6) (0.5) (2.1) 2.8
Earnings before taxes 36.0 30.4 107.0 78.7

Taxes on earnings 12.9 11.4 39.0 29.5
Earnings before
cumulative effect
of change in
accounting principle 23.1 19.0 68.0 49.2

Cumulative effect
of change in
accounting principle,
net of tax (**) -- -- (13.7) --

Net earnings $ 23.1 19.0 54.3 49.2
------- ------- ------- -------
Net earnings per
share - basic:
Earnings before
cumulative effect
of change in
accounting
principle $ 0.69 0.60 2.06 1.58
Cumulative effect
of change in
accounting
principle,
net of tax (**) -- -- (0.41) --
------- ------- ------- -------
Net earnings per
share - basic $ 0.69 0.60 1.65 1.58
======= ======= ======= =======

Net earnings per
share - diluted:
Earnings before
cumulative effect
of change in
accounting principle $ 0.66 0.57 1.99 1.52
Cumulative effect
of change in
accounting principle,
net of tax (**) -- -- (0.41) --
------- ------- ------- -------

Net earnings per
share - diluted $ 0.66 0.57 1.58 1.52
======= ======= ======= =======

Shares used in the
calculation of net
earnings per share:
Average shares
outstanding - basic 33.7 31.6 32.9 31.1
======= ======= ======= =======
Average shares
outstanding - diluted 35.1 33.2 34.2 32.4
======= ======= ======= =======
Supplemental disclosure
- Results excluding
the effect of the $5
million investment
write-off and the
cumulative effect
of change in
accounting principle
related to SAB 101
Net earnings $ 26.3 71.3
Net earnings per
share - basic $ 0.78 2.16
Net earnings per
share - diluted $ 0.75 2.08

** Note: The cumulative effect of change in accounting principle
reflects the net effect of the Company's adoption in the first quarter
of fiscal year 2001of: (a) Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ($0.1 million income, net of tax); and (b) Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ($13.8 million charge, net of tax). The effective tax rate
used was 36.5%.

EXHIBIT III

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

Restated FY 2001 By Quarter Under SAB 101 Accounting Method

Q1 QTR 2001 Q2 QTR 2001 Q3 QTR 2001 Q4 QTR 2001

Net orders $ 193.2 204.5 213.6 246.9
Oncology Systems 150.4 161.5 181.1 206.4
X-Ray Products 37.0 37.4 26.6 33.1
Ginzton Technology
Center 5.8 5.6 5.9 7.4

Order backlog $ 545.0 549.4 576.9 597.8

Sales $ 161.4 200.0 186.2 226.0
Oncology Systems 124.6 157.7 147.0 184.4
X-Ray Products 32.9 37.0 33.1 35.7
Ginzton Technology
Center 3.9 5.3 6.1 5.9

Gross margin 56.4 75.3 68.5 86.8
As a percent
of sales 34.9% 37.6% 36.8% 38.4%
Operating expenses
Research and
development 11.2 10.9 11.1 10.4
Selling, general
and administrative 30.5 36.0 31.5 36.0
Operating earnings
before reorganization
expense/(income) 14.7 28.4 25.9 40.4

Reorganization
expense/(income) -- 0.3 (0.8) --
Operating earnings 14.7 28.1 26.7 40.4
As a percent
of sales 9.1% 14.0% 14.4% 17.9%

Write-off of
equity investment -- -- -- 5.0
Interest
(income)/expense,
net (0.2) (0.5) (0.8) (0.6)
Earnings before
taxes 14.9 28.6 27.5 36.0

Taxes on earnings 5.4 10.6 10.1 12.9
Earnings before
cumulative effect
of change in
accounting principle 9.5 18.0 17.4 23.1

Cumulative effect
of change in
accounting principle,
net of tax (**) (13.7) -- -- --

Net (loss)/earnings $ (4.2) 18.0 17.4 23.1
--------- ------- ------- -------

Net earnings per
share - basic:
Earnings before
cumulative effect
of change in
accounting principle $ 0.30 0.55 0.52 0.69
Cumulative effect
of change in
accounting principle,
net of tax (**) (0.43) -- -- --
--------- ------- ------- -------

Net earnings per
share - basic $ (0.13) 0.55 0.52 0.69
========= ======= ======= =======
Net earnings per
share - diluted:
Earnings before
cumulative effect
of change in
accounting principle $ 0.28 0.52 0.50 0.66
Cumulative effect
of change in
accounting principle,
net of tax (**) (0.40) -- -- --
--------- ------- ------- -------
Net earnings per
share - diluted $ (0.12) 0.52 0.50 0.66
========= ======= ======= =======
Shares used in
the calculation
of net earnings
per share:
Average shares
outstanding - basic 32.1 32.7 33.3 33.7
========= ======= ======= =======
Average shares
outstanding - diluted 33.6 34.4 34.8 35.1
========= ======= ======= =======
Supplemental disclosure
- Results excluding
the effect of the
$5 million investment
write-off
Net earnings
(fourth quarter 2001) $ 26.3
Net earnings per
share - basic $ 0.78
Net earnings per
share - diluted $ 0.75

** Note: The cumulative effect of change in accounting principle
reflects the net effect of the Company's adoption in the first quarter
of fiscal year 2001of: (a) Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ($0.1 million income, net of tax); and (b) Staff
Accounting Bulletin No. 101 "Revenue Recognition in Financial
Statements" ($13.8 million charge, net of tax). The effective tax rate
used was 36.5%.

EXHIBIT IV

VARIAN MEDICAL SYSTEMS REPORTS STRONG NET EARNINGS,
SALES, NET ORDERS, AND BACKLOG FOR FISCAL YEAR 2001

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

(Dollars in thousands)
Sept. 28, Sept. 29,
2001 2000
(With SAB 101) (Without SAB 101)

Assets
Current assets
Cash and cash equivalents $ 218,961 $ 83,321
Accounts receivable, net 227,794 226,442
Inventories 111,777 92,482
Other current assets 60,971 48,343
---------- ----------
Total current assets 619,503 450,588
---------- ----------
Property, plant and equipment 209,105 206,614
Accumulated depreciation
and amortization (133,279) (126,515)
---------- ----------
Net property, plant
and equipment 75,826 80,099
---------- ----------
Other assets 63,870 71,863
---------- ----------
Total assets $ 759,199 $ 602,550
========== ==========

Liabilities and
Stockholders' Equity
Current liabilities
Notes payable $ 174 $ 616
Accounts payable - trade 44,839 41,351
Accrued expenses 149,424 128,391
Product warranty 23,975 19,975
Advance payments
from customers 66,942 59,563
---------- ----------
Total current liabilities 285,354 249,896
Long-term accrued
expenses and other 20,949 23,795
Long-term debt 58,500 58,500
---------- ----------
Total liabilities 364,803 332,191
---------- ----------
Stockholders' Equity
Common stock 33,680 31,769
Capital in excess of par value 121,592 50,869
Retained earnings 239,124 187,721
---------- ----------
Total stockholders' equity 394,396 270,359
---------- ----------
Total liabilities and
stockholders' equity $ 759,199 $ 602,550
========== ==========

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