Varian Medical Systems Reports Robust Growth for Third Quarter of Fiscal Year 2006 | Varian

Varian Medical Systems Reports Robust Growth for Third Quarter of Fiscal Year 2006

PALO ALTO, Calif., July 26 /es/es/es/es/es/es/es/PRNewswire-FirstCall/es/es/es/es/es/es/es/ -- Varian Medical Systems (NYSE: VAR) today is reporting strong growth in net earnings, revenues, net orders and backlog for the third quarter of fiscal year 2006.

"Compared to the same period last fiscal year, third-quarter revenues grew 14 percent to $396 million, net orders rose 19 percent to $443 million, and the quarter-ending backlog increased 22 percent to $1.3 billion," said Tim Guertin, president and CEO of Varian Medical Systems. "Excluding option expensing and a one-time tax benefit from repatriation of foreign earnings, third quarter net earnings per diluted share grew by a very strong 24 percent over the year-ago quarter."

The company generated net earnings of $66 million or $0.49 per diluted share for the quarter. Excluding stock option expenses totaling $0.05 per diluted share, and the one-time tax benefit of $0.08 per diluted share, net earnings for the third quarter were $62 million or $0.46 per diluted share (including a $0.02 tax benefit from the release of tax reserves related to the lapse of the statute of limitations in certain domestic jurisdictions). Net earnings for the third quarter of fiscal year 2005 were $51 million or $0.37 per diluted share.

"New products for image-guided radiation therapy (IGRT) for cancer, stereotactic radiosurgery, filmless X-rays, and security and inspection contributed to significant growth in net orders in all of our business segments," Guertin added.

The company generated strong cash flow from operations in the third quarter, ending the period with $371 million in cash and marketable securities. During the period, $75 million was spent to repurchase 1.5 million shares of common stock and $9 million was invested in the dpiX consortium to build a new semiconductor fab for the thin film transistor arrays used in digital image detectors for filmless X-rays.

Oncology Systems

Oncology Systems' third quarter revenues totaled $331 million, up 14 percent from the third quarter of last fiscal year. This business recorded third quarter net orders of $374 million, up 15 percent from the same period last year with 14 percent growth in North America and 17 percent growth in international markets.

"We believe we have expanded our share in radiation oncology and enhanced our leadership in IGRT," Guertin said. "We now have shipped more than 250 of our On-board Imager® device for image-guided treatments. Our IGRT technology has been embraced by customers and is clearly moving into mainstream adoption. Doctors around the world are using our IGRT products to treat primary and metastatic cancers in virtually every part of the body, including the lung, prostate, breast, brain, liver, head and neck, and pancreas," Guertin said.

"Higher ramp-up costs to support rapid growth for the On-Board Imager device, a larger mix of international shipments, and an in increase in revenue deferrals pending completion of installations, contributed to a decline in gross margin for this business and the company during the quarter," said Guertin. "This was largely offset on our bottom line by slower growth in selling expenses and a lower corporate tax rate due to higher earnings in international jurisdictions."

X-Ray Products

Revenues for the X-Ray Products business, including X-ray tubes and flat panel digital image detectors for filmless X-rays, were $56 million for the third quarter, up 15 percent from the year-ago quarter. The X-Ray Products business recorded third quarter net orders of $61 million, up 37 percent from the same period last year, driven by dramatic growth in the flat panel product line.

"Revenues from shipments of our digital image detectors more than doubled versus the year-ago period, driven by accelerated demand for filmless imaging medical diagnostics, dental CT scanning, and veterinary care," Guertin said. "This business has continued to ramp up at a tremendous rate and new construction to expand manufacturing capacity for this product line is on schedule."

Other Businesses

The company's Security and Inspection Products business and the Ginzton Technology Center reported combined third quarter revenues of $9 million, up slightly from the total for the same period last fiscal year. "Net orders for the security and inspection business almost doubled in this third quarter versus the year-ago period," Guertin said.

Outlook

"For fiscal year 2006, we continue to believe that total company revenues should increase by about 14 percent above the fiscal 2005 total," Guertin said. "We are raising our expectations for growth in net earnings per diluted share for fiscal year 2006 to 18 to 19 percent over the fiscal year 2005 total, excluding the impact of expensing stock options and the one-time repatriation tax benefit.

"Very preliminary estimates for fiscal year 2007 indicate that total company revenue should increase in the low-double digits over the total for fiscal year 2006," Guertin added. "Net earnings per diluted share for fiscal year 2007 should grow at a mid-teens rate over the totals for fiscal year 2006 excluding the impact of stock option expensing and the one-time repatriation tax benefit."

The company expects that the annual impact of stock option expensing will be in the range of $0.19 to $0.22 per diluted share for both fiscal year 2006 and fiscal 2007.

Change in Accounting and Tax Benefits

GAAP results for the third quarter of fiscal 2006 include the impact from adoption in the first quarter of 2006 of SFAS 123® that requires expensing of stock options and other share-based payments. The company included in its cost of revenues and operating expenses total share-based compensation expenses of approximately $10 million ($7 million net of tax on earnings or $0.05 per diluted share).

During the quarter, the company decided to repatriate $120 million in earnings from foreign operations, achieving a one-time net tax benefit of $10 million or $0.08 per diluted share under the Jobs Creation Act of 2004. Net earnings for the quarter also included an additional benefit of approximately $3 million or $0.02 per diluted share from the release of tax reserves related to the lapse of the statute of limitations in certain domestic jurisdictions.

For comparison purposes, the fiscal 2005 third quarter and year-to-date results have been adjusted to reflect a segment reporting change initiated at the beginning of fiscal year 2006. Oncology Systems results for fiscal year 2005 have been adjusted to include the company's BrachyTherapy unit and exclude the company's Security and Inspection Products business while the fiscal year 2005 results for the Other category have been adjusted to include the Security and Inspection Products business and exclude the BrachyTherapy unit.

Investor Conference Call

Varian Medical Systems is scheduled to conduct its third quarter fiscal year 2006 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 http:/es/es/es/es/es/es/es//es/es/es/es/es/es/es/www.varian.com/es/es/es/es/es/es/es/ where it will be archived for a year. To access the call via telephone, dial 1-866-543-6403 from inside the U.S. or 1-617-213-8896 from outside the U.S. and enter confirmation code 60793673. 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 14211991. The telephone replay will be available through 5 p.m. PT, Friday, July 28, 2006. Additionally, certain non-GAAP information will be presented on the conference call. A reconciliation of such non-GAAP information to GAAP may be found on the investor relations page of the company's web site.

Varian Medical Systems, Inc., of Palo Alto, California is the world's leading manufacturer of medical technology for treating cancer with radiotherapy and neurological conditions with radiosurgery. 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 3,600 people who are located at manufacturing sites in North America and Europe and in its 56 sales and support offices around the world. Additional information is available on the company's web site at http:/es/es/es/es/es/es/es//es/es/es/es/es/es/es/www.varian.com/es/es/es/es/es/es/es/.

Note regarding reconciliation:

For comparison purposes, the company makes reference to certain net earnings and net earnings per diluted share results in the third quarter that are not consistent with GAAP. These results were reached by excluding non-cash, share-based compensation expenses (which would have been consistent with GAAP if presented in prior quarters, but which are now inconsistent with GAAP due to changes in accounting standards) and a one-time tax benefit from the repatriation of foreign earnings under the Jobs Creation Act of 2004. The company references those results to allow a better comparison of results in the current period to those in prior 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 market acceptance of or transition to new products or technology image-guided radiation therapy (IGRT), stereotactic radiosurgery, filmless X-rays, and security and inspection; growth drivers; the company's orders, revenues, backlog, or earnings growth; future financial results and any statements using the terms "should," "believe," "expect," 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 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 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 reduced or limited demand by sole purchasers of certain X-ray tubes; the impact of managed care initiatives, other health care reforms, and/es/es/es/es/es/es/es/or third-party reimbursement levels on capital expenditures for cancer care; the potential loss of key distributors or key personnel; consolidation in the X-ray tubes market; the ability to make strategic acquisitions and to successfully integrate the acquired operations into the company's business; 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.

  FOR INFORMATION CONTACT:

  Elisha Finney (650) 424-6803
  elisha.finney@varian.com

  Spencer Sias (650) 424-5782
  spencer.sias@varian.com



          Varian Medical Systems, Inc. and Subsidiary Companies
                   Consolidated Statements of Earnings
                               (Unaudited)

  (Dollars and shares
    in millions, except
    per share amounts)    Q3 QTR       Q3 QTR      Q3 YTD        Q3 YTD
                           2006         2005        2006          2005
  Net orders              $443.3        373.4      1,274.4      1,102.7
    Oncology Systems       373.9        324.5      1,065.3        938.2
    X-Ray Products          60.5         44.1        173.9        147.8
    Other                    8.9          4.8         35.2         16.7

  Order backlog         $1,309.6      1,076.8      1,309.6      1,076.8

  Revenues                $395.7        346.6      1,143.8        996.4
    Oncology Systems       330.5        288.9        953.3        830.0
    X-Ray Products          56.4         49.2        169.3        143.8
    Other                    8.8          8.5         21.2         22.6

  Cost of revenues (1)    $233.1        194.7        671.3        569.2

  Gross margin             162.6        151.9        472.5        427.2
    As a percent
     of revenues           41.1%        43.8%        41.3%        42.9%

  Operating expenses
    Research and
     development (1)        25.5         21.9         72.7         60.5
    Selling, general and
     administrative (1)     64.4         54.7        187.8        151.5

  Operating earnings        72.7         75.3        212.0        215.2
    As a percent of
     revenues              18.4%        21.7%        18.5%        21.6%

  Interest income, net       2.6          1.1          6.8          2.2

  Earnings before taxes     75.3         76.4        218.8        217.4

  Taxes on earnings (1)      9.6         25.3         56.1         71.8

  Net earnings (1)         $65.7         51.1        162.7        145.6

    Net earnings per
     share - basic: (1)    $0.50         0.39         1.24         1.10

    Net earnings per
     share - diluted: (1)  $0.49         0.37         1.20         1.05

  Shares used in the
   calculation of net
   earnings per share:
    Average shares
     outstanding - basic   131.1        131.9        131.3        133.0
    Average shares
     outstanding - diluted 135.3        136.9        135.9        138.4

  (1)  Includes the following amounts for expensing stock options and other
       share-based payments (referred to as "SFAS 123R") and a  tax benefit
       related to the repatriation of foreign earnings.
       (in millions, except per share amounts)

                           Q3 QTR        Q3 QTR      Q3 YTD       Q3 YTD
                            2006          2005        2006         2005
  Costs of revenues         $1.8           --          4.8           --
  Research & development     1.1           --          3.2           --
  Selling, general
   & administrative          7.4           --         22.0           --
  Total                     10.3           --         30.0           --
  Taxes on
   earnings - SFAS 123R     (3.4)          --        (10.3)          --
  Taxes on
   earnings -
   repatriation            (10.2)          --        (10.2)          --
  Net earnings             $(3.3)          --          9.5           --

    Net earnings per
     share - basic        $(0.02)          --         0.07           --
    Net earnings per
     share - diluted      $(0.03)          --         0.06           --



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

  (In thousands)                                  June 30,    September 30,
                                                    2006          2005
                                                 (Unaudited)
  Assets
  Current assets
    Cash and cash equivalents                     $324,711       $243,086
    Short-term marketable securities                46,269        135,356
    Accounts receivable, net                       396,049        351,899
    Inventories                                    196,583        164,873
    Other current assets                           133,181        121,681
      Total current assets                       1,096,793      1,016,895

  Property, plant and equipment                    314,709        296,862
    Accumulated depreciation and amortization     (191,214)      (182,322)
      Net property, plant and equipment            123,495        114,540

  Long-term marketable securities                       --          3,679
  Goodwill                                         121,389        121,389
  Other non-current assets                          75,171         60,899
  Total assets                                  $1,416,848     $1,317,402

  Liabilities and Stockholders' Equity
  Current liabilities
    Accounts payable                               $76,122        $71,007
    Accrued expenses                               300,343        315,287
    Product warranty                                40,609         39,407
    Advance payments from customers                133,458        115,543
    Current maturities of long term debt             7,951          2,689
      Total current liabilities                    558,483        543,933
  Long-term accrued expenses and other              56,820         57,124
  Long-term debt                                    49,409         57,318
      Total liabilities                            664,712        658,375

  Stockholders' Equity
  Common stock                                     130,547        130,715
  Capital in excess of par value                   244,827        150,466
  Retained earnings and accumulated other
   comprehensive loss                              376,762        377,846
      Total stockholders' equity                   752,136        659,027
  Total liabilities and stockholders' equity    $1,416,848     $1,317,402

SOURCE: Varian Medical Systems

CONTACT: Elisha Finney, +1-650-424-6803, elisha.finney@varian.com, or
Spencer Sias, +1-650-424-5782,
spencer.sias@varian.com, both of Varian Medical
Systems

Web site: http:/es/es/es/es/es/es/es//es/es/es/es/es/es/es/www.varian.com/es/es/es/es/es/es/es/