Varian Medical Systems Reports Growth in Earnings, Revenues, Net Orders, Backlog for Third Quarter of Fiscal 2005 | Varian

Varian Medical Systems Reports Growth in Earnings, Revenues, Net Orders, Backlog for Third Quarter of Fiscal 2005

PALO ALTO, Calif., July 27 /PRNewswire-FirstCall/ -- Varian Medical Systems (NYSE: VAR) today is reporting results for the third quarter of fiscal 2005 with net earnings of $0.37 per diluted share, up 23 percent from $0.30 per diluted share for the year-ago period. Net earnings were $51 million versus $43 million for the year-ago period. The company achieved third quarter revenues of $347 million, up 14 percent versus the year-ago quarter. Net orders for the third quarter were $373 million, up 14 percent from the year-ago period. Backlog at the end of the quarter stood at $1,077 million, up 19 percent from the same time last fiscal year.

"The company had a solid quarter with gains in net orders and revenues helped by accelerating adoption of our new technologies in radiation therapy and X-ray imaging," said Richard M. Levy, the company's chairman and CEO. "Demand for new, more precise, and cost effective cancer treatment technology, including image-guided radiation therapy (IGRT) and stereotactic radiotherapy, is robust and adoption is proceeding at an unprecedented pace."

The company generated quarterly operating cash flow of $49 million and ended the quarter with $343 million in cash and marketable securities. During the quarter, the company spent $64 million to buy back 1.8 million shares of company stock.

Oncology Systems

Oncology Systems' revenues from ClinacĀ® accelerators as well as accessories, software, and services for radiation therapy totaled $286 million for the third quarter, up 13 percent from the year-ago period. Third-quarter net orders in the Oncology Systems business totaled $318 million, up 16 percent from the year-ago period.

"We performed at the high end of our long-term expectations of 10-15 percent growth in the global Oncology Systems business," Levy said. For the trailing 12-months, Oncology Systems' global net order growth rate was 15 percent. For the quarter, net orders were up 27 percent in international markets and up 7 percent in North America.

"Adoption of our new products for image-guided radiotherapy (IGRT) and stereotactic radiosurgery accelerated during the quarter with increasing percentages of new machine orders incorporating these advanced capabilities," Levy said. As of the end of the quarter, 80 of Varian's IGRT-enabled treatment machines with on-board imaging devices were operating or being installed around the world.

X-Ray Products and Other

Revenues for the X-Ray Products business, including tubes and amorphous silicon flat panel digital imagers, were $49 million for the third quarter, up 20 percent from the year-ago quarter. "Sales of our high-power tubes for CT scanners and our emerging line of flat panel image detectors have paced the growth of this segment," Levy said.

The company's Ginzton Technology Center, together with its BrachyTherapy operations, recorded combined third quarter revenues of $12 million, up 20 percent from the year-ago quarter. Gains stemmed primarily from shipments of treatment planning software and afterloaders for high-dose-rate brachytherapy.

Outlook

"Our performance for the first three quarters of the fiscal year continues to lead us to expect that earnings per diluted share for fiscal year 2005 should be about 26 percent over our earnings of $1.18 per diluted share in fiscal year 2004," said Levy. "Backlog grew at a substantially faster rate than revenues during the quarter and for the year to date as a result of longer delivery schedules and revenue deferrals related to new product rollouts. From analyzing this backlog, we expect that revenues for fiscal year 2005 will rise by about 12 percent over the fiscal 2004 total.

"Early estimates of fiscal year 2006 growth indicate that total company revenues should increase by about 13 percent over the total for fiscal year 2005," Levy added. "Before the effects of option expensing under SFAS 123R beginning in the first quarter of next fiscal year, earnings per diluted share for fiscal 2006 should grow at a mid-teens rate over the totals for fiscal year 2005."

Investor Conference Call

Varian Medical Systems is scheduled to conduct its third quarter fiscal year 2005 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://www.varian.com/ where it will be archived for a year. To access the call via telephone, dial 1-800-688-0836 from inside the U.S. or 1-617-614-4072 from outside the U.S. and enter confirmation code 25056984. The replay of the conference call 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 68559077. The telephone replay will be available through 5 p.m. PT, Friday, July 29, 2005.

Varian Medical Systems, Inc., of Palo Alto, California is the world's leading manufacturer of integrated cancer therapy systems, which are used to treat 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 3,500 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 investor relations web site at http://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 technologies; growth drivers; the company's orders, revenues, backlog, or earnings growth; future financial results and any statements using the terms "expect," "should," 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 impact of competitive products and pricing; the effect of economic conditions and currency exchange rates; the company's ability to maintain or increase operating margins; the company's ability to meet demand for manufacturing capacity; the effect of environmental claims and expenses; the company's ability to protect the company's intellectual property; the company's reliance on sole or limited-source suppliers; the impact of reduced or limited demand by sole purchasers of certain X-ray tube products; the impact of managed care initiatives or other health care reforms on capital expenditures and/or third- party reimbursement levels; the impact of third-party reimbursement levels on orders and revenues; the company's ability to meet FDA and other regulatory requirements or product clearances; the potential loss of key distributors or key personnel; consolidation in the X-ray tubes market; the possibility that material product liability claims could harm future revenues or require us to pay uninsured claims; the ability to make strategic acquisitions and to successfully integrate the acquired operations into the company's business; the effect of changes in accounting principles; the risk of operations interruptions due to terrorism, disease, such as Severe Acute Respiratory Syndrome, and 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. We assume no obligation to update or revise the forward- looking statements in this release because of new information, future events, or otherwise.

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
        (Dollars and shares in millions, except per share amounts)
                               (Unaudited)

  (Dollars and shares      Q3 QTR    Q3 QTR        Q3 YTD       Q3 YTD
   in millions, except      2005      2004          2005         2004
   per share amounts)             (As Adjusted)(1)          (As Adjusted)(1)

  Net orders               $373.4      328.5       1,102.7       985.2
    Oncology Systems        318.2      275.1         918.5       819.4
    X-Ray Products           44.1       42.2         147.8       136.0
    Other                    11.1       11.2          36.4        29.8

  Order backlog          $1,076.8      902.9       1,076.8       902.9

  Revenues                 $346.6      303.1         996.4       890.7
    Oncology Systems        285.8      252.2         816.5       742.9
    X-Ray Products           49.2       41.3         143.8       120.3
    Other                    11.6        9.6          36.1        27.5

  Gross margin              151.9      131.0         427.2       370.2
    As a percent of
     revenues               43.8%      43.2%         42.9%       41.6%

  Operating expenses
    Research and
     development             21.9       17.7          60.5        53.8
    Selling, general and
     administrative          54.7       47.7         151.5       139.1

  Operating earnings         75.3       65.6         215.2       177.3
    As a percent of
     revenues               21.7%      21.6%         21.6%       19.9%

  Interest income, net       (1.1)      (0.2)         (2.2)       (0.9)

  Earnings before taxes      76.4       65.8         217.4       178.2

  Taxes on earnings          25.3       23.1          71.8        62.4

  Net earnings(2)           $51.1       42.7         145.6       115.8

    Net earnings per
     share - basic:(2)      $0.39       0.31          1.10        0.85

    Net earnings per
     share - diluted:(2)    $0.37       0.30          1.05        0.81

  Shares used in the
   calculation of net
   earnings per share:
    Average shares
     outstanding - basic    131.9      136.6         133.0       136.4
    Average shares
     outstanding - diluted  136.9      143.1         138.4       142.8

  (1) Certain amounts for the third quarter and the first nine months of
      fiscal year 2004 have been adjusted to reflect the Company's change
      from the last-in, first-out ("LIFO") method to the first-in, first-out
      ("FIFO") method of accounting for inventories. For the third quarter
      and the first nine months of fiscal year 2004, this change had no
      impact on net earnings per basic share and net earnings per diluted
      share.

  (2) If the Company had elected to recognize stock compensation costs based
      on the fair value of options granted on their grant dates as
      prescribed by SFAS No. 123, net earnings for the third quarter of
      fiscal years 2005 and 2004 would have been reduced by $7.3M and $5.1M,
      respectively, and net earnings for the first nine months of fiscal
      years 2005 and 2004 would have been reduced by $18.8M and $15.5M,
      respectively.  Net earnings per basic share for the third quarter of
      fiscal years 2005 and 2004 would have been $0.33 and $0.28,
      respectively, and net earnings per diluted share would have been $0.32
      and $0.26, respectively.  Net earnings per basic share for the first
      nine months of fiscal years 2005 and 2004 would have been $0.95 and
      $0.74, respectively, and net earnings per diluted share would have
      been $0.92 and $0.70, respectively.


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

  (In thousands)                                  July 1,      October 1,
                                                   2005          2004
                                                (Unaudited) (As Adjusted)(1)

  Assets
  Current assets
    Cash and cash equivalents                    $181,054      $132,870
    Short-term marketable securities              125,212       219,078
    Accounts receivable, net                      318,227       288,663
    Inventories                                   186,262       144,389
    Other current assets                          121,349       110,584
      Total current assets                        932,104       895,584

  Property, plant and equipment                   278,441       254,712
    Accumulated depreciation and amortization    (179,685)     (169,335)
      Net property, plant and equipment            98,756        85,377

  Long-term marketable securities                  36,349        40,970
  Goodwill                                        122,240       112,653
  Other non-current assets                         57,110        46,056
  Total assets                                 $1,246,559    $1,180,640

  Liabilities and Stockholders' Equity
  Current liabilities
    Accounts payable                              $66,398       $59,639
    Accrued expenses                              293,719       255,519
    Product warranty                               38,321        40,654
    Advance payments from customers               119,507       100,277
    Current maturities of long term debt            2,603         5,250
      Total current liabilities                   520,548       461,339
  Long-term accrued expenses and other             41,165        41,889
  Long-term debt                                   53,180        53,250
      Total liabilities                           614,893       556,478

  Stockholders' Equity
  Common stock                                    131,242       134,045
  Capital in excess of par value                  141,007       132,875
  Retained earnings and accumulated other
   comprehensive loss                             359,417       357,242
      Total stockholders' equity                  631,666       624,162
  Total liabilities and stockholders' equity   $1,246,559    $1,180,640

  (1) Amounts as of October 1, 2004 have been derived from audited financial
      statements as of that date except that certain amounts have been
      adjusted to reflect the Company's change from the LIFO method to the
      FIFO method of accounting for inventories.  In addition, auction rate
      securities in the amount of $106,600 have been reclassified from cash
      and cash equivalents to short-term marketable securities to conform to
      the July 1, 2005 balance sheet presentation.

SOURCE: Varian Medical Systems, Inc.

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