Varian Medical Systems, Inc. Reports Strong Results for First Quarter of Fiscal 2000 | Varian

Varian Medical Systems, Inc. Reports Strong Results for First Quarter of Fiscal 2000

Palo Alto, Calif. – Strong demand for new radiotherapy systems that are achieving dramatic results in treating cancer drove Varian Medical Systems (NYSE: VAR) sales and net orders to record highs and resulted in net income of $5.2 million ($0.17 per diluted share) for the first quarter of fiscal 2000. The company today announced sales of $141 million, up 35 percent from an unusually low first quarter of last fiscal year. Net orders for the quarter were $169 million, up 30 percent from the prior-year period. While all business segments experienced double-digit sales gains versus the year-ago quarter, sales growth was most dramatic in the company’s Oncology Systems business for its SmartBeam® IMRT (intensity modulated radiation therapy) systems that are enabling physicians to target and treat tumors with unprecedented accuracy and effectiveness. The company is reporting escalating demand among U.S. hospitals for its IMRT products that are already showing very promising results in prostate cancer cases.

"Sales and net orders for our Oncology Systems business have grown significantly over the last two years," said Richard M. Levy, president and CEO of Varian Medical Systems. "The company is seeing a rapid shift, particularly in North America, toward IMRT systems that are showing the potential to transform radiotherapy and improve patient outcomes in prostate, breast, and head and neck cancers. The company is in the right place at the right time with the right technology to help save the lives of cancer patients.

"In addition to the growth in North American oncology business, the company achieved sales gains in international markets as well as in our X-ray Products and Ginzton Technology Center brachytherapy businesses," Levy added.

"The high sales volume and somewhat shorter shipping cycles contributed to the unusually strong results for the first quarter which is typically the slowest period of the fiscal year for the company. Some sales and profits that were anticipated for later in the year moved up to the first quarter."

Oncology Systems:

Oncology Systems sales of Clinac® accelerators, Ximatron® simulators and ancillary products, software, and services for advanced radiotherapy including SmartBeam IMRT totaled $106 million for the quarter, up 41 percent from the prior-year period. First-quarter net orders in the Oncology Systems business totaled $129 million, up 29 percent from the prior year. "This growth stems from a combination of factors, including a booming North American economy, greater latitude among health care providers to invest in promising new technologies, and a drive among caregivers to offer patients better treatment options," Levy explained.

X-ray Products

Sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $30 million for the quarter, up 13 percent from the year-ago quarter. The business generated significant growth in sales of its new X-ray tubes used in new sub-second CT scanners for high-resolution diagnostic imaging. Net orders for the X-ray Products business totaled $36 million for the first quarter, up 32 percent from the year-ago period.

Ginzton Technology Center

The company’s premier research facility, the Ginzton Technology Center, which focuses on incubating new technologies and businesses such as brachytherapy, recorded sales of $5 million for the quarter, up 68 percent from the year-ago quarter. The growth in sales stemmed from shipments of the new delivery systems for high dose rate brachytherapy and treatment planning software for low dose rate brachytherapy with seed implants. Net orders for Ginzton Technology Center were $4 million for the quarter, up 26 percent from the year-ago quarter.

Outlook

At quarter’s end, the backlog for the company was $428 million, up 13 percent from the first quarter of last year.

"There is demonstrated interest within the medical community in our SmartBeam IMRT treatment systems for some of the world’s most common and deadly cancers, and our growth initiatives are clearly succeeding beyond expectations," said Levy. "Accordingly, we are making slight upward adjustments in our sales and earnings growth expectations for fiscal 2000. At this early stage in the year, we project that fiscal 2000 sales could be 12-14 percent over fiscal 1999 levels. We expect that earnings could grow above fiscal 1999 pro forma levels of $1.28 per share by about one and half times the rate of revenue growth."

Varian Medical Systems is scheduled to conduct its fiscal 2000 first quarter conference call at 7:30 a.m. PST on Thursday, January 27. To hear a live webcast or replay of the call, visit the investor relations page on the company’s web site at www.varian.com

Forward Looking Statements:

Except for historical information, this news release contains 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 fluctuations; 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; the impact of managed care initiatives in the U.S. on capital expenditures and resulting pricing pressure on medical equipment; effectiveness of certain third parties’ corrective actions to address the impact of the year 2000; the Company’s potential responsibility for liabilities arising out of the reorganization which were not expressly assumed by the Company; the possibility that indemnification for certain liabilities arising out of or relating to the reorganization will not be available to the Company due to the indemnifying party's insolvency or legal prohibition; increased debt leverage resulting from their organization impacting the Company’s ability to obtain future financing for working capital, capital expenditures, product development, acquisitions, and general corporate purposes; the effect of increased debt leverage on cash flow, vulnerability to economic downturns and flexibility in responding to changing business and economic conditions; possible exposure to fraudulent conveyance allegations arising out of the reorganization; possible exposure to additional tax obligations in connection with the reorganization; and other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission.

# # #

Varian Medical Systems, Inc., (NYSE:VAR) of Palo Alto, California is the world’s leading manufacturer of integrated cancer therapy systems, which are treating 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 2,300 people who are located at manufacturing sites in North America and Europe and in its 40 sales and support offices around the world. In its most recent fiscal year ended October 1, 1999, Varian Medical Systems reported sales of $590 million. Additional information is available on the company’s investor relations web site at www.varian.com

A summary of income and other financial information follows:

Varian Medical Systems, Inc. and Subsidiary Companies

Consolidated Statements of Earnings

(Dollars and shares in millions except per share amounts)

(Unaudited)

           
           
           
   

Q1 QTR

 

Q1 QTR

 
   

FY 00

 

FY 99

 
Net Orders

$

169.0

 

130.2

 
Oncology Systems  

128.9

 

99.7

 
X-Ray Products  

35.7

 

27.0

 
Ginzton Technology Center  

4.4

 

3.5

 
           
Order Backlog

$

428.0

 

377.6

 
           
Sales

$

141.3

 

105.0

 
Oncology Systems  

106.1

 

75.3

 
X-Ray Products  

30.0

 

26.6

 
Ginzton Technology Center  

5.2

 

3.1

 
           
Gross Margin  

50.4

 

32.8

 
As a percent of Sales  

35.7%

 

31.2%

 
Operating Expenses          
Selling, General and administrative  

30.2

 

23.6

 
Research and development  

10.3

 

9.4

 
           
           
Operating Earnings (Loss) Before          
Reorganization Expenses  

9.9

 

(0.2)

 
As a percent of Sales  

7.0%

 

-0.2%

 
           
Reorganization Expenses  

0.0

 

3.5

 
Operating Earnings (Loss)  

9.9

 

(3.7)

 
           
Interest Expense, Net  

1.5

 

1.2

 
           
Earnings (Loss) From Continuing Operations          
Before Taxes  

8.4

 

(4.9)

 
           
Taxes on earnings  

3.2

 

(2.9)

 
           
Earnings (Loss) from Continuing Operations  

5.2

 

(2.0)

 
           
Earnings (Loss) from Discontinued Operations -          
Net of Taxes  

0.0

 

(0.4)

 
           
Net Earnings (Loss)

$

5.2

 

(2.4)

 
           
Average Shares Outstanding - Basic  

30.6

 

29.8

 
Average Shares Outstanding - Diluted  

31.4

 

29.8

 
           
Net Earnings (Loss) Per Share - Basic          
Continuing Operations

$

0.17

 

(0.07)

 
Discontinued Operations  

0.00

 

(0.01)

 
Net Earnings (Loss) Per Share  

0.17

 

(0.08)

 
           
Net Earnings (Loss) Per Share - Diluted          
Continuing Operations  

0.17

 

(0.07)

 
Discontinued Operations  

0.00

 

(0.01)

 
Net Earnings (Loss) Per Share

$

0.17

 

(0.08)

 
           

Varian Medical Systems, Inc. and Subsidiary Companies

Consolidated Balance Sheets

         
   

December 31,

 

October 1,

   

1999

 

1999

(Dollars in thousands, except par values)  

(Unaudited)

   
         
Assets        
Current assets        
Cash and cash equivalents

$

19,294

$

25,126

Accounts receivable  

200,117

 

233,785

Inventories  

92,751

 

78,324

Other current assets  

48,936

 

45,011

Total current assets  

361,098

 

382,246

         
Property, plant, and equipment  

200,631

 

200,386

Accumulated depreciation and amortization  

(120,893)

 

(120,138)

Net property, plant, and equipment  

79,738

 

80,248

         
Other Assets  

76,119

 

76,689

Total assets

$

516,955

$

539,183

         
Liabilities and Stockholders' Equity        
Current liabilities        
Notes payable

$

20,585

$

35,587

Accounts payable - trade  

36,497

 

40,141

Accrued expenses  

113,250

 

121,165

Product warranty  

18,812

 

18,152

Advance payments from customers  

51,615

 

54,757

Total current liabilities  

240,759

 

269,802

Long-term accrued expenses  

25,029

 

25,890

Long-term debt  

58,500

 

58,500

Total liabilities  

324,288

 

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      
30,702,000 shares at December 31, 1999 and 30,563,000 shares at        
October 1, 1999  

30,702

 

30,563

Capital in excess of par value  

22,494

 

20,185

Retained earnings  

139,471

 

134,243

Total stockholders' equity  

192,667

 

184,991

Total liabilities and stockholder's equity

$

516,955

$

539,183