Varian Medical Systems Reports Strong Growth in Net Earnings, Operating Earnings, Revenues, and Backlog for Second Quarter of Fiscal Year 2008 | Varian

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Varian Medical Systems Reports Strong Growth in Net Earnings, Operating Earnings, Revenues, and Backlog for Second Quarter of Fiscal Year 2008

PALO ALTO, Calif., April 23 /PRNewswire-FirstCall/ -- Varian Medical Systems (NYSE: VAR) today reported net earnings of $0.56 per diluted share in the second quarter of fiscal year 2008 versus net earnings of $0.46 per diluted share in the year-ago quarter. Compared to the second quarter of last fiscal year, operating earnings rose by 19 percent and net earnings per diluted share rose by 22 percent. Revenues for the quarter were $528 million, up 19 percent from the second quarter of last fiscal year.

Net orders for the quarter were $519 million, down 2 percent from the year-ago quarter when the company acquired ACCEL, which had $68 million of orders including $47 million of backlog. Excluding the impact of ACCEL in both quarters, net orders rose 12 percent to $515 million.

Varian's backlog at the end of the quarter stood at $1.7 billion, up 15 percent from the end of the second quarter of fiscal 2007.

"Net orders grew in double digits during the quarter in both our X-Ray Products business and in our Oncology Systems business. We had an exceptionally strong start in orders for our new RapidArc™ product for fast, precise image-guided intensity modulated radiation therapy or IMRT," said Tim Guertin, president and CEO of Varian Medical Systems. "Strong revenue growth from higher shipment volumes contributed to robust growth in operating earnings."

The company ended the second quarter with $360 million in cash and $122 million of debt. During the quarter, the company spent $73 million to repurchase 1.5 million shares under its stock repurchase authorization.

Oncology Systems

Oncology Systems' second quarter revenues totaled $421 million, up 17 percent from the second quarter of last fiscal year. This business recorded second-quarter net orders of $413 million, up 11 percent from the same period last year. Net orders were up 15 percent in North America and up 6 percent in international markets.

The business generated more than 60 orders for its RapidArc radiotherapy product during the quarter. "This represents the strongest customer demand for any new oncology product in our history and reflects the need for faster, more user-friendly systems that enable clinics to offer more patients greater access to advanced image guided IMRT treatments with uncompromised quality," Guertin said. "With RapidArc, we are adding to the already-unsurpassed versatility and value of our Clinac® and Trilogy® accelerators, making it possible for clinics to choose from a broader variety of imaging, motion management, and dose delivery techniques in order to deliver an optimal treatment for each and every patient." Shipments of the RapidArc product are slated to begin by the end of this month.

Net orders for service and stereotactic radiosurgery products, including the Varian BrainLAB Novalis™ Tx product suite, and the On-Board Imager™ device also contributed to the growth of the Oncology Systems business during the quarter. Brachytherapy products also saw orders rise by 40 percent versus the year-ago quarter.

X-Ray Products

Revenues for the X-Ray Products business, including tubes and digital flat-panel detectors for filmless X-ray imaging, were $75 million for the second quarter of fiscal year 2008, up 14 percent from the year-ago quarter. Net orders for this business were $83 million, up 23 percent from the year-ago quarter.

"Growth in X-Ray Products net orders was strong in both major product lines during the quarter with particular strength in our flat panel detectors for filmless X-ray," said Guertin. Compared to the year-ago quarter, flat panel detector orders rose nearly 60 percent, including a multi-million dollar flat panel order from a customer that manufactures medical diagnostics equipment in China.

Other Businesses

The company's Security and Inspection Products business, ACCEL proton therapy and research instruments unit, and Ginzton Technology Center reported combined second quarter revenues of $32 million, up $13 million from the year-ago quarter. Net orders for the quarter were $22 million, down $66 million versus the year-ago quarter when the company acquired ACCEL.

"Due to timing, net orders for our security and inspection products were down slightly from the quarter, but the year-to-date total is up by more than 60 percent versus the same period last year," Guertin said. "Revenues from security products during the quarter and year to date were up by more than 100 percent versus the corresponding periods last fiscal year. This business is continuing to grow rapidly and the company has now opened a new manufacturing center for these products in Las Vegas.


"Given the strong results from the second quarter and positive outlook in all of the major markets that we serve, we now believe that revenues for fiscal year 2008 could grow by 15 to 16 percent over fiscal year 2007 and that net earnings per diluted share for the fiscal year could be $2.09 to $2.11," Guertin said. "For the third quarter of this fiscal year, we believe that revenues could grow in the mid-teens versus the year-ago quarter and that net earnings per diluted share could be $0.45 to $0.47."

Investor Conference Call

Varian Medical Systems is scheduled to conduct its second quarter fiscal year 2008 conference call at 2 p.m. PT today. To hear a live webcast or replay of the call, visit the investor relations page on the company's web site at where it will be archived for a year. To access the call via telephone, dial 1-800-599-9795 from inside the U.S. or 1-617-786-2905 from outside the U.S. and enter confirmation code 16952454. The replay can be accessed by dialing 1-888-286-8010 from inside the U.S or 1-617-801-6888 from outside the U.S. and entering confirmation code 36929389. The telephone replay will be available through 5 p.m. PT, Friday, April 25, 2008.

Varian Medical Systems, Inc., of Palo Alto, California, is the world's leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, proton therapy, and brachytherapy. The company supplies informatics software for managing comprehensive cancer clinics, radiotherapy centers and medical oncology practices. Varian is a premier supplier of tubes and digital detectors for X-ray imaging in medical, scientific, and industrial applications and also supplies X-ray imaging products for cargo screening and industrial inspection. Varian Medical Systems employs approximately 4,600 people who are located at manufacturing sites in North America, Europe, and China and approximately 60 sales and support offices around the world. For more information, visit

Note regarding reconciliation:

For comparison purposes, the company makes reference to certain expenses and net earnings per diluted share results in the second quarter and year-to-date periods that are not consistent with GAAP. These results were reached by excluding non-cash share-based compensation expenses and related tax benefits. The company references those results to allow a better comparison of operational results in the current periods to the prior-year periods. The company's reference to these results should be considered in addition to results that are prepared under current accounting standards but should not be considered a substitute for results that are presented as consistent with GAAP.

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 growth drivers; the company's orders, revenues, backlog, or earnings growth; future financial results; market acceptance of or transition to new products or technology such as RapidArc therapy, image-guided radiation therapy (IGRT), stereotactic radiosurgery, filmless X-rays, proton therapy, and security and inspection, and any statements using the terms "possible," "believe," "expect," "could," "can," "grow" or similar statements are forward-looking statements that involve risks and uncertainties that could cause the company's actual results to differ materially from those anticipated. Such risks and uncertainties include demand for the company's products; the company's ability to develop and commercialize new products; the company's ability to meet demand for manufacturing capacity; the company's reliance on sole or limited-source suppliers; the impact of reduced or limited demand by sole purchasers of certain X-ray tubes; the company's ability to maintain or increase operating margins; the impact of competitive products and pricing; the effect of economic conditions and currency exchange rates; the effect of changes in accounting principles; the company's ability to meet Food and Drug Administration and other regulatory requirements for product clearances or to comply with Food and Drug Administration and other regulatory regulations or procedures; the ability to make strategic acquisitions and to successfully integrate the acquired operations into the company's business; the possibility that material product liability claims could harm future revenues or require the company to pay uninsured claims; the effect of environmental claims and expenses; the company's ability to protect the company's intellectual property; the impact of managed care initiatives, other health care reforms, and/or third-party reimbursement levels and credit availability for capital expenditures for cancer care; the potential loss of key distributors or key personnel; consolidation in the X-ray tubes market; the risk of operations interruptions due to terrorism, disease (such as Severe Acute Respiratory Syndrome and Avian Influenza) or other events beyond the company's control; and the other risks listed from time to time in the company's filings with the Securities and Exchange Commission, which by this reference are incorporated herein. The company assumes no obligation to update or revise the forward-looking statements in this release because of new information, future events, or otherwise.

  A summary of earnings and other financial information follows.

   Elisha Finney (650) 424-6803

   Spencer Sias (650) 424-5782

              Varian Medical Systems, Inc. and Subsidiaries
                   Consolidated Statements of Earnings

   (Dollars and shares in         Q2 QTR    Q2 QTR    Q2 YTD    Q2 YTD
   millions, except per share      2008      2007      2008      2007

   Net orders                    $  518.5     528.3   1,012.0     936.2
     Oncology Systems               413.1     372.6     798.8     702.8
     X-Ray Products                  83.0      67.5     158.1     135.0
     Other                           22.4      88.2      55.1      98.4

   Order backlog                 $1,724.9   1,506.3   1,724.9   1,506.3

   Revenues                      $  527.6     442.6     986.1     830.5
     Oncology Systems               421.2     358.4     781.5     674.9
     X-Ray Products                  74.8      65.5     144.9     127.9
     Other                           31.6      18.7      59.7      27.7

   Cost  of  revenues (1)        $  316.4     257.5     584.1     485.2

   Gross margin                     211.2     185.1     402.0     345.3
     As a percent of revenues        40.0%     41.8%     40.8%     41.6%

   Operating expenses
     Research and development (1)    32.2      28.4      61.2      55.4
     Selling, general and
      administrative (1)             75.9      70.2     153.4     133.4

   Operating earnings               103.1      86.5     187.4     156.5
     As a percent of revenues        19.5%     19.5%     19.0%     18.8%

   Interest income, net               1.5       2.0       3.1       4.5

   Earnings before taxes            104.6      88.5     190.5     161.0

   Taxes on earnings (1)             33.3      27.5      63.7      50.5

   Net earnings  (1)             $   71.3      61.0     126.8     110.5

       Net earnings per share -
        basic: (1)               $   0.57      0.48      1.02      0.86

       Net earnings per share -
        diluted: (1)             $   0.56      0.46      0.99      0.83

   Shares used in the calculation
    of net earnings per share:
   Average shares outstanding -
    basic                           125.2     128.2     125.0     128.7
   Average shares outstanding -
    diluted                         128.0     131.9     127.9     132.5

  (1) Includes amounts for total share-based compensation expense and its
      related tax benefits.
      (in millions, except per share amounts)

                                       Q2 QTR   Q2 QTR    Q2 YTD   Q2 YTD
                                        2008     2007      2008     2007

   Costs of revenues                 $    1.7      2.0       3.5      4.0
   Research & development                 1.1      1.2       2.1      2.5
   Selling, general &
    administrative                        6.4      8.9      13.0     16.5

   Total                                  9.2     12.1      18.6     23.0
   Taxes on earnings                     (3.1)    (4.1)     (6.2)    (7.8)

   Net earnings                      $    6.1      8.0      12.4     15.2

   Net earnings per diluted
    share - share-based
    compensation expense             $  0.050    0.060     0.100    0.114

   Net earnings per diluted
    share - excluding share-
    based compensation expense       $   0.61     0.52      1.09     0.95

                Varian Medical Systems, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

  (In thousands)                                March 28,      September 28,
                                                  2008            2007

  Current assets
      Cash and cash equivalents               $  360,056      $  263,246
      Accounts receivable, net                   521,924         507,040
      Inventories                                268,517         233,743
      Deferred tax assets and other              196,841         156,200
          Total current assets                 1,347,338       1,160,229

  Property, plant and equipment                  422,756         386,531
      Accumulated depreciation and
       amortization                             (227,283)       (214,877)
          Property, plant and
           equipment, net                        195,473         171,654

  Goodwill                                       215,676         205,553
  Other assets                                   158,454         146,939
  Total assets                                $1,916,941      $1,684,375

  Liabilities and Stockholders' Equity
  Current liabilities
      Accounts payable                        $  109,388      $   92,600
      Accrued expenses                           249,928         299,052
      Deferred revenues                          134,875         101,839
      Product warranty                            54,959          51,290
      Advance payments from customers            199,638         186,936
      Short-term borrowings                       73,000          41,000
      Current maturities of long-term debt         8,978           8,970
          Total current liabilities              830,766         781,687
  Other long-term liabilities                    138,174          40,847
  Long-term debt                                  40,270          40,386
          Total liabilities                    1,009,210         862,920

  Stockholders' Equity
  Common stock                                   125,507         125,215
  Capital in excess of par value                 371,947         311,411
  Retained earnings and accumulated other
   comprehensive loss                            410,277         384,829
          Total stockholders' equity             907,731         821,455
  Total liabilities and stockholders' equity  $1,916,941      $1,684,375

SOURCE: Varian Medical Systems

CONTACT: Elisha Finney, +1-650-424-6803,, or
Spencer Sias, +1-650-424-5782,, both of Varian Medical

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