Varian Medical Systems Reports Record Earnings, Sales, Net Orders, and Backlog for Fiscal Year 2000 | Varian

Varian Medical Systems Reports Record Earnings, Sales, Net Orders, and Backlog for Fiscal Year 2000

PALO ALTO, Calif.--(BUSINESS WIRE)--Nov. 1, 2000--Strong demand for new, more effective cancer treatment systems and x-ray products led to record earnings, sales, net orders, and year-ending backlog in fiscal 2000 for Varian Medical Systems (NYSE:VAR). The company today reported net income of $25 million ($0.74 per diluted share) for the fourth quarter of fiscal year 2000, versus pro forma net income of $21 million ($0.68 per diluted share) in the year ago period. Net income for fiscal year 2000 was $54 million ($1.67 per diluted share) versus pro forma net income of $39 million ($1.28 per diluted share) in fiscal 1999. Fourth-quarter sales were a record $208 million, up 9 percent from the strong year-ago quarter, bringing sales for the fiscal year to $690 million, up $100 million or 17 percent higher than fiscal 1999 totals.

The company also reported record net orders, which reached $219 million for the fourth quarter, up 15 percent from the year ago quarter, and $762 million for fiscal 2000, up 19 percent from the fiscal 1999 total. The backlog stood at a record $473 million at year's end, 18 percent higher than the year-end total for fiscal 1999. Annual sales growth in North America more than offset a 5 percent decline in total international sales. Gains in Latin America and the Far East were offset by a decline in European sales. Total international orders, however, grew by 10 percent over fiscal 1999 levels.

"Fiscal 2000, our first complete year as a stand-alone medical device company, has been outstanding by almost every measure," said Richard M. Levy, Varian Medical Systems' president and CEO. "We have set records for sales, net orders, and backlog; improved our overall gross margin; and grown earnings substantially over the pro forma levels of fiscal 1999. We increased stockholders' equity over last fiscal year by $87 million, and increased cash by $58 million. We have achieved this without adding significantly to our energetic and committed workforce."

Oncology Systems

Oncology Systems sales of Clinac� accelerators, Ximatron� simulators and ancillary products and services totaled $165 million for the quarter, up 6 percent from the strong prior-year period. Sales for the year were $534 million, 16 percent higher than last fiscal year. "This business set records in sales, net orders, and backlog, and drove margins higher for the overall company," said Levy. "This strong growth stems in part from a transition to more clinically efficient and precise treatment systems for radiotherapy, including IMRT (intensity modulated radiation therapy) which is showing great potential to improve cancer outcomes.

"We have moved forward with important product introductions, including our eye-catching Silhouette Edition Clinac which gives us a new capability to replace older competitive machines in existing small treatment rooms," Levy added. "Last week we generated considerable excitement at the annual meeting of the American Society for Therapeutic Radiology and Oncology where we unveiled the new See and Treat Cancer Care System� that interfaces GE Medical Systems imaging products with Varian's integrated treatment system. We also demonstrated respiratory gating applications that add an important new dimension to treatment precision. We believe these products together with new software offerings, including upgrades in treatment planning tools, will support faster and easier transitions to advanced radiotherapy techniques, and should lead to long term sustained growth for this business. We are in a very exciting time for radiation oncology."

Fourth-quarter net orders in the Oncology Systems business totaled $175 million, up 12 percent from the year ago period. For the fiscal year, net orders were $597 million, up 18 percent from the prior year totals.

X-ray Products

Sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $37 million for the quarter, up 8 percent versus the year-ago quarter, and fiscal-year sales were $136 million, 10 percent higher than prior year totals. "We are gratified with a return to growth this year in the X-ray Products business," said Levy. "Demand for faster CT scanners capable of collecting digital images in less than a second contributed to solid growth in sales of our new high-powered x-ray tubes. On the other hand, margins in this business declined as a result of a sales mix shift toward the newer CT tubes."

Ginzton Technology Center

The company's premier research facility, the Ginzton Technology Center that focuses on incubating new technologies and businesses such as brachytherapy, recorded sales of $7 million for the quarter versus $3 million in the year-ago quarter and a fiscal year total of $20 million versus $8 million last fiscal year. Net orders for the fourth quarter totaled $5 million versus $4 million in the year-ago period. For the year, Ginzton net orders totaled $18 million versus $12 million in fiscal 1999.

"About half of the sales growth in this business unit stems from our acquisition in fiscal 1999 of Multimedia Medical Systems' brachytherapy treatment planning business," Levy said. "Most of the growth in this business is occurring in North America where we have expanded our sales force to serve the market for brachytherapy planning and delivery systems."

IMPAC Medical Systems Acquisition

In June, the company announced an agreement to acquire IMPAC Medical Systems of Mountain View, California, to offer customers a broader array of health care information products and data management tools for clinical and administrative support. The companies originally expected the transaction to close before the end of the fiscal year, but this has been delayed by continued information requests and review by the U.S. Department of Justice. No date has been set for closing the transaction and the government review is continuing. As of the end of the fourth quarter, Varian had incurred $1.6 million of an estimated $6 million it expects to record as an operating expense at the close of the transaction. In the meantime, Varian is continuing to explore other acquisitions as part of its growth strategy.

Outlook

"Our strong performance for fiscal 2000, coupled with a record backlog, have positioned the company for another year of solid growth," said Levy. "While it's early in the new fiscal year, we have reason to be optimistic that sales will grow by about 14 percent over fiscal 2000 totals. With this top line growth, we hope to increase earnings per share by one and a half times the rate of sales growth, before accounting for the IMPAC acquisition or the potential write-off of our full $5 million investment in dpiX which supplies our amorphous silicon plates for flat panel imagers."

Varian Medical Systems will conduct a conference call on the fourth quarter and fiscal year 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 which provides a "safe harbor" for these types of statements. For this purpose, statements concerning industry outlook, including transition to new products or technology such as IMRT, software, treatment techniques, and advanced X-ray products; growth drivers; the Company's sales or earnings growth; future financial results and any statements using the terms "anticipates," "believes," "expects," or similar statements are 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 Company's ability to expand manufacturing capacity to meet demand; the impact of managed care initiatives in the U.S. on capital expenditures and/or limitations on physicians' reimbursements 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 spin-off of segments of our former business which were not expressly assumed by the Company; the possibility that indemnification for certain liabilities arising out of or relating to the spin-off will not be available to the Company due to the indemnifying party's insolvency or legal prohibition; the Company's ability to obtain future financing for working capital, capital expenditures, product development, acquisitions, and general corporate purposes; possible exposure to fraudulent conveyance allegations arising out of the spin-off; possible exposure to additional tax obligations in connection with the spin-off; and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission.

A summary of income and other financial information follows.

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 2,300 people at some 40 sites 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 web site at www.varian.com

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

ACTUAL RESULTS OF OPERATIONS
Q4 QTR Q4 QTR Q4 YTD Q4 YTD
2000 1999 2000 1999

Net Orders $ 219.2 191.2 762.1 638.3
Oncology Systems 174.8 155.7 597.1 504.2
X-Ray Products 39.0 31.6 146.6 122.5
Ginzton Technology
Center 5.4 3.9 18.4 11.6

Order Backlog $ 472.6 400.2 472.6 400.2

Sales $ 208.0 191.6 689.7 590.4
Oncology Systems 164.5 155.3 533.9 458.8
X-Ray Products 36.6 33.8 135.9 123.3
Ginzton Technology
Center 6.9 2.5 19.9 8.3

Gross Margin 83.6 76.5 257.1 210.0
As a percent of Sales 40.2% 39.9% 37.3% 35.6%
Operating Expenses
Selling, General and
Administrative 34.0 33.3 125.1 116.1
Research and Development 10.3 10.1 42.1 39.9

Operating Earnings Before
Reorganization Expenses 39.3 33.1 89.9 54.0
As a percent of Sales 18.9% 17.3% 13.0% 9.1%

Reorganization Expenses 0.3 (1.7) 0.2 29.7
Operating Earnings 39.0 34.8 89.7 24.3

Interest (Income)/Expense,
Net (0.5) 2.2 2.8 6.1

Earnings From Continuing
Operations Before Taxes 39.5 32.6 86.9 18.2

Taxes on Earnings 14.8 18.8 32.6 10.0

Earnings from Continuing
Operations 24.7 13.8 54.3 8.2

Loss from Discontinued
Operations - Net of Taxes -- (1.2) -- (32.4)

Net Earnings (Loss) $ 24.7 12.6 54.3 (24.2)

Average Shares
Outstanding - Basic 31.6 30.5 31.1 30.2
Average Shares
Outstanding - Diluted 33.2 31.0 32.4 30.5

Net Earnings (Loss)
Per Share - Basic
Continuing Operations $ 0.78 0.46 1.75 0.27
Discontinued Operations -- (0.05) -- (1.07)
Net Earnings (Loss)
Per Share 0.78 0.41 1.75 (0.80)

Net Earnings (Loss)
Per Share - Diluted
Continuing Operations 0.74 0.45 1.67 0.27
Discontinued Operations -- (0.04) -- (1.06)
Net Earnings (Loss)
Per Share $ 0.74 0.41 1.67 (0.79)

======================================================================

PRO FORMA RESULTS OF OPERATIONS (a) Q4 QTR 1999 Q4 YTD 1999
------------------------------- -------------- ----------------
Net Earnings (Fourth Quarter 1999) $ 21.0 $ 39.1
Net Earnings Per Share - Basic $ 0.69 $ 1.29
Net Earnings Per Share - Diluted $ 0.68 $ 1.28

(a) Note: The Pro Forma results of operations relate to the
spin-offs of the corporation's instruments and semiconductor equipment
businesses on April 2, 1999. The Pro Forma results of operations for
fourth quarter fiscal year 1999 present results without a net gain of
$1.7 million from gains on asset sales partially offset by
reorganization related expenses, and $1.2 million of incremental
non-recurring expenses related to the spin-offs. The Pro Forma results
of operations for fiscal year 1999 present results without $29.7
million of reorganization expenses and $12.1 million of incremental
non-recurring expenses related to the spin-offs. 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)

September 29, October 1,
2000 1999
---------------------------------------------------------------------
Assets
Current assets
Cash and cash
equivalents $ 83,321 $ 25,126
Accounts receivable 226,442 233,785
Inventories 92,482 78,324
Other current assets 49,931 45,011
--------- ---------
Total current assets 452,176 382,246
--------- ---------

Property, plant, and equipment 206,614 200,386
Accumulated depreciation
and amortization (126,515) (120,138)
--------- ---------
Net property, plant,
and equipment 80,099 80,248
--------- ---------

Other assets 71,863 76,689
--------- ---------
Total assets $ 604,138 $ 539,183
========= =========

Liabilities and
Stockholders' Equity
Current liabilities
Notes payable $ 616 $ 35,587
Accounts payable - trade 40,961 40,141
Accrued expenses 129,133 121,165
Product warranty 19,975 18,152
Advance payments from customers 59,563 54,757
--------- ---------
Total current liabilities 250,248 269,802
Long-term accrued expenses 23,795 25,890
Long-term debt 58,500 58,500
--------- ---------
Total liabilities 332,543 354,192
--------- ---------

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 31,769,000
shares at September 29, 2000 and
30,563,000 shares at October 1, 1999 31,769 30,563
Capital in excess of par value 50,869 20,185
Retained earnings 188,957 134,243
--------- ---------
Total stockholders' equity 271,595 184,991
--------- ---------
Total liabilities and stockholders' equity $ 604,138 $ 539,183
========= =========

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