Varian Medical Systems, Inc. Reports Third-Quarter Results | Varian

Varian Medical Systems, Inc. Reports Third-Quarter Results

Palo Alto, Calif. -- July 28, 1999 -- Varian Medical Systems, Inc. (NYSE: VAR) today reported substantial growth in net orders and sales for the third quarter with a record backlog driven by demand for the company's advanced cancer therapy systems and new high-power X-ray tube. In its first full quarter as a stand-alone medical business, the company reported third quarter pro-forma net earnings from continuing operations of $10.9 million ($0.36 per diluted share). The pro-forma net earnings exclude incremental costs related to the reorganization and the spin-off of the Varian instruments and semiconductor equipment businesses and assume a normalized 35 percent tax rate. Reported net earnings from continuing operations were $6.6 million ($0.21 per diluted share), including ongoing reorganization costs and an unusual, spin-related 56 percent effective tax rate.

Varian Medical Systems' net orders for the quarter were $162 million, up 19 percent from the comparable period of last year. Year-to-date totals for net orders reached $447 million, up 20 percent from the same period in fiscal 1998. Third-quarter revenues were $145 million, up 10 percent from the year-ago period, bringing revenues for the first nine months to $399 million, up 10 percent from the same period of the last fiscal year. At quarter end, the backlog for the company was a record $401 million, up 12 percent from last year.

"We are pleased with the earnings performance of the company in its first full quarter as a stand-alone medical business," said Richard M. Levy, CEO and president of Varian Medical Systems. "Our sales and net orders hit all-time highs for a third-quarter as customers moved to deploy the most advanced cancer treatment systems for IMRT (intensity modulated radiation therapy) and brachytherapy. Growth was particularly strong in the United States where pent-up demand for state-of-the art cancer care is mandating the installation of fully integrated, computerized treatment systems that target higher radiation doses at cancerous tumors while minimizing side effects."

"During the quarter, we successfully executed key elements of our growth strategy, including the acquisition of a treatment planning business for low dose rate brachytherapy," Levy added. "We finalized the contract to participate in the dpiX consortium for the development and production of flat panel amorphous silicon-based detectors and took steps to begin commercializing these products. We passed significant milestones with our 120 multi-leaf collimator for IMRT and a respiratory gating accessory for more precise treatments. In this quarter, the company also introduced a transportable version of its high dose rate brachytherapy system enabling it be shared among clinics. Finally, we made excellent progress with the roll-out of our new high power X-ray tube during the quarter."

Oncology Systems:

Third-quarter net orders for Clinac� accelerators, Ximatron� simulators and ancillary products and services as well as brachytherapy systems totaled $127 million, up 19 percent from the prior year. For the year to date, Oncology Systems' net orders were $354 million, up 27 percent.

Sales of Oncology Systems products for the third quarter totaled $114 million, up 13 percent from the year-ago period led by core products, particularly in high-energy Clinac accelerators. Year-to-date sales totaled $309 million, up 17 percent versus the corresponding period of last year.

X-ray Products

Net orders for X-ray products including tubes and digital imagers, totaled $35 million for the third quarter, up 22 percent from the prior-year period, driven primarily by a large order from a major customer for the company's recently introduced high-power, high throughput X-ray tube. Year to date, X-ray products' net orders were $91 million, down 4 percent from the corresponding period of last year.

Sales of X-ray products for the quarter were $30 million, essentially unchanged from the year-ago period. Sales for the first three quarters of this fiscal year totaled $90 million, down 7 percent from the first nine months of last year, reflecting first half declines from the prior year in the business.

Outlook

"Given the robust market and growth momentum as well as our record net orders and backlog, we are confident of hitting our high-single-digit revenue growth target for this fiscal year," Levy said. "The continuing strength in net orders is pointing to somewhat higher annual sales and earnings growth for next fiscal year."

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 ability to attract and retain key employees; the ability to collect amounts owed in a timely manner; 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; successful implementation by the Company and certain third parties of corrective action to address the impact of the year 2000; successful consolidation of the Company's X-ray tube manufacturing operation; the Company's ability to operate as a smaller and less diversified business entity; the ability to sell surplus assets in connection with the recently completed reorganization; the ability of the Company to realize anticipated cost savings from the reorganization; 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 the reorganization 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, Calif. is the world's leading manufacturer of integrated cancer therapy systems, which are treating an estimated 100,000 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 over 2,000 people who are located at manufacturing sites in North America and Europe and in its 34 sales and support offices around the world. In its most recent fiscal year ended October 2, 1998, Varian Medical Systems reported sales of $540 million. Additional information is available at www.varian.com/zh-hant/vms.

A summary of income and other financial information follows.

Varian Medical Systems, Inc.
Consolidated Statement of Earnings
(Dollars and shares in millions except per share amounts)
(Unaudited)

Historical Historical
Fiscal Year 1999 Fiscal Year 1998

Q3 QTR Q3 YTD Q3 QTR Q3 YTD
FY 99 FY 99 FY 98 FY 98
Net Orders $ 161.7 447.1 135.7 372.4
Order Backlog $ 400.8 400.8 357.7 357.7

Sales $ 144.5 398.8 131.5 362.0
Gross Margin 49.2 130.5 45.4 120.6
As a percent of Sales 34.0% 32.7% 34.5% 33.3%
Operating Expenses
Marketing 13.9 44.7 11.8 38.3
Research and development 9.3 29.8 8.0 29.5
General and administrative 9.1 35.1 13.0 38.3

Operating Earnings Before
Reorganization Expenses 16.9 20.9 12.6 14.5
As a percent of Sales 11.7% 5.2% 9.6% 4.0%

Reorganization Expenses 0.4 31.4 0.0 0.0
Operating Earnings 16.5 (10.5) 12.6 14.5

Interest Expense, Net 1.5 3.9 0.6 2.2

Earnings From Continuing Operations
Before Taxes 15.0 (14.4) 12.0 12.3

Taxes on earnings 8.4 (8.8) 3.2 3.3

Earnings from Continuing Operations 6.6 (5.6) 8.8 9.0

Earnings from Discontinued Operations -
Net of Taxes 0.0 (31.2) 9.7 52.2

Net Earnings $ 6.6 (36.8) 18.5 61.2

Average Shares Outstanding - Basic 30.4 30.1 29.8 30.0
Average Shares Outstanding - Diluted 30.6 30.1 30.3 30.6

Net Earnings Per Share - Basic
Continuing Operations $ 0.22 (0.19) 0.29 0.30
Discontinued Operations 0.00 (1.03) 0.33 1.74
Net Earnings Per Share 0.22 (1.22) 0.62 2.04

Net Earnings Per Share - Diluted
Continuing Operations 0.21 (0.19) 0.29 0.29
Discontinued Operations 0.00 (1.03) 0.32 1.71
Net Earnings Per Share $ 0.21 (1.22) 0.61 2.00

Varian Medical Systems, Inc.
Consolidated Statement of Earnings
(Dollars and shares in millions except per share amounts)
(Unaudited)

Historical Pro Forma

Q3 QTR Q3 QTR
FY 99 FY 99

Net Orders $ 161.7 $ 161.7
Order Backlog $ 400.8 $ 400.8

Sales $ 144.5 $ 144.5
Gross Margin 49.2 49.9
As a percent of Sales 34.0% 34.5%
Operating Expenses
Marketing 13.9 13.9
Research and development 9.3 9.3
General and administrative 9.1 8.4

Operating Earnings Before Reorganization Expenses 16.9 18.3
As a percent of Sales 11.7% 12.7%

Reorganization Expenses 0.4 0.0
Operating Earnings 16.5 18.3

Interest Expense, Net 1.5 1.5

Pretax Earnings 15.0 16.8

Taxes on earnings 8.4 5.9

Net Earnings from Continuing Operations $ 6.6 $ 10.9

Average Shares Outstanding - Basic 30.4 30.4
Average Shares Outstanding - Diluted 30.6 30.6

Net Earnings Per Share - Basic $ 0.22 $ 0.36

Net Earnings Per Share - Diluted $ 0.21 $ 0.36

Note: The Pro Forma column presents third quarter fiscal year 1999 results
without reorganization expenses of $0.4 million, and $1.4 million of
incremental non-recurring expenses related to the spin. The tax rate for this
presentation is assumed to be 35%. The $1.4 million non-recurring expenses
related to the spin include $0.6 million of costs related to the previously
announced closure of the Arlington Heights x-ray tube facility, $ 0.5 million
of spin related move expense, and $0.3 million of costs related to splitting
the computer systems as a result of the spin. 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

July 2, October 2,
1999 1998
(Dollars in thousands except par values) (Unaudited)

ASSETS
Current Assets
Cash and cash equivalents 26,203 149,667
Accounts receivable - Trade 171,952 383,536
Accounts receivable - Other 10,210 9,060
Inventories
Raw materials and parts 56,508 132,341
Work in process 17,530 43,189
Finished goods 18,874 28,934
Total inventories 92,912 204,464
Other current assets 59,602 93,054
Net assets held for sale 11,043 -
Total Current Assets 371,922 839,781

Property, Plant, and Equipment 192,497 509,089
Accumulated depreciation and amortization (118,380) (294,867)
Net Property, Plant, and Equipment 74,117 214,222

Other Assets 75,221 164,292
TOTAL ASSETS 521,260 1,218,295

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable 50,862 46,842
Accounts payable - trade 33,355 76,166
Accrued expenses 108,854 282,647
Product warranty 15,609 44,153
Advance payments from customers 59,896 55,081
Total Current Liabilities 268,576 504,889
Long-Term Accrued Expenses 27,936 44,771
Long-Term Debt 58,500 111,090
Total Liabilities 355,012 660,750

Stockholders' Equity
Preferred stock
Authorized 1,000,000 shares, par value $1, issue - -
Common stock
Authorized 99,000,000 shares, par value $1,
issued and outstanding 30,432,000 shares at
July 2, 1999 and 29,743,000 shares at
October 2, 1998 30,432 29,743
Retained earnings 135,816 527,802
Total Stockholders' Equity 166,248 557,545
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 521,260 1,218,295

FOR INFORMATION CONTACT:
Elisha Finney, Varian Medical Systems
1.650. 424.6803
Elisha.Finney@corp.varian.com

Spencer Sias, Varian Medical Systems
1.650.424.5782
Spencer.Sias@os.varian.com