PALO ALTO, Calif.--(BW HealthWire)--Nov. 4, 1999--Strong demand for advanced radiotherapy systems led to growth in net orders and sales at Varian Medical Systems, Inc. (NYSE:VAR news) for the fourth quarter and the fiscal year ended October 1, 1999. Reported net earnings from continuing operations, including incremental expenses for reorganization and an unusual, spin-related 55 percent effective tax rate due to the company's April 2, 1999 spin-off of its Semiconductor Equipment and Instruments businesses, were $14 million ($0.45 per diluted share) for the fourth quarter and $8 million ($0.27 per diluted share) for the fiscal year.
Pro-forma net earnings from continuing operations, which exclude incremental costs and gains on asset sales related to the spin-off and assume a normalized 35 percent tax rate, were $21 million ($0.68 per diluted share) for the fourth quarter, our second full quarter as a stand-alone medical business. The pro-forma net earnings were $39 million ($1.28 per share) for fiscal year 1999.
Fourth quarter sales were a record $192 million, up 7 percent from the fourth quarter of last year. Fiscal-year sales totaled $590 million, up 9 percent from the prior year. Net orders reached a record $191 million for the quarter, up 10 percent from net orders in the same period last year. Net orders for the fiscal year were $638 million, up 17 percent. At year's end, the backlog was $400 million, up 14 percent from last year.
''Fiscal year 1999 was a revolutionary year in our history,'' said Richard M. Levy, CEO and president of Varian Medical Systems. ''We achieved record net orders and sales while simultaneously executing a successful separation into three companies. We have built a staff to support a stand-alone medical business and consolidated both office and manufacturing space. On top of that, we have installed new Y2K compliant enterprise software that will enable the company to streamline operations. With this work behind us, we can sharpen our focus on accelerating sales and earnings growth in the new fiscal year.
''We ended the year with a typically strong fourth quarter in which we had continuing healthy demand for our advanced integrated radiotherapy systems which enable clinics and hospitals to deliver high resolution IMRT (intensity modulated radiation therapy),'' Levy added. ''The strong sales growth improved operating earnings.''
Oncology Systems
Oncology Systems sales totaled $155 million for the quarter, up 9 percent from the prior-year quarter. Sales for the year were $459 million, up 13 percent from last fiscal year. The strong growth was driven by sales of integrated capital equipment and software products as clinics and hospitals equipped themselves to begin treating patients with advanced radiotherapy including IMRT. Sales were particularly strong in North America and Asia.
Fourth-quarter net orders in the Oncology Systems business totaled $156 million, up 13 percent from the same quarter of the prior year. For the fiscal year, net orders were $504 million, up 22 percent from fiscal year 1998.
X-ray Products
Sales in the X-ray Products business, including tubes and amorphous silicon flat-panel digital imagers, were $34 million for the quarter, down 4 percent from the year-ago quarter, and fiscal-year sales were $123 million, down 6 percent from the prior year. The business is continuing to experience the effects of market consolidation in the industry which affects both sales of new equipment to original equipment manufacturers as well as the aftermarket for replacement tubes.
Net orders for the X-ray Products business totaled $32 million for the fourth quarter, down 6 percent from the year-ago period. For the year, orders were $123 million, down 4 percent from fiscal year 1998 totals.
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 $2.5 million for the quarter versus $1.4 million in the year-ago quarter and a fiscal year 1999 total of $8 million versus $5 million last fiscal year.
Earlier this week, Varian Medical Systems announced an agreement with Cordis Corporation, a Johnson and Johnson company (NYSE:JNJ - news), pending FDA clearance, to develop, supply, and service brachytherapy components and equipment for patients with coronary artery disease. The promising new brachytherapy treatment complements angioplasty procedures that help prevent coronary artery re-blockage, ''restenosis.''
Outlook
''The stage is set for another good year,'' Levy said. ''Based on the strong orders and backlog, the company has a positive outlook for the new fiscal year with expectations of double digit growth in sales for Oncology due to the increasing adoption of IMRT. X-ray Products should see modest growth from rising sales of our new high power CT scanning tube. Our overall goal is low double-digit sales growth for fiscal 2000 with EPS growth approaching one and one-half times the rate of sales growth.''
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; fluctuations in the market for capital equipment, successful implementation by the Company and certain third parties of corrective action to address the impact of the year 2000; the Company's ability to operate as a smaller and less diversified business entity; 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 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.
A summary of income and other financial information follows.
Varian Medical Systems, Inc., (NYSE:VAR - news) 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 1, 1999, Varian Medical Systems reported sales of $590 million.For more information on Varian Medical Systems, visit the company's web site at: www.varian.com/vms.
-0-
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
Q4 QTR YTD Q4 QTR YTD
FY 99 FY 99 FY 98 FY 98
Net Orders $ 191.2 638.3 174.1 546.5
Oncology Systems 155.7 504.2 137.5 413.6
X-Ray Products 31.6 122.5 33.7 128.0
Ginzton Technology Center 3.9 11.6 2.9 4.9
Order Backlog $ 400.2 400.2 352.4 352.4
Sales $ 191.6 590.4 179.5 541.5
Oncology Systems 155.3 458.8 142.8 405.3
X-Ray Products 33.8 123.3 35.3 131.2
Ginzton Technology Center 2.5 8.3 1.4 5.0
Gross Margin 76.5 210.0 72.9 195.2
As a percent of Sales 39.9% 35.6% 40.6% 36.0%
Operating Expenses
Selling, General and
administrative 33.3 116.1 39.2 117.5
Research and development 10.1 39.9 9.8 39.3
Operating Earnings Before
Reorganization Expenses 33.1 54.0 23.9 38.4
As a percent of Sales 17.3% 9.1% 13.3% 7.1%
Reorganization Expenses (1.7) 29.7 0.0 0.0
Operating Earnings 34.8 24.3 23.9 38.4
Interest Expense, Net 2.2 6.1 0.2 2.4
Earnings From Continuing
Operations
Before Taxes 32.6 18.2 23.7 36.0
Taxes on earnings 18.8 10.0 6.5 9.9
Earnings from Continuing
Operations 13.8 8.2 17.2 26.1
Earnings from Discontinued
Operations -
Net of Taxes (1.2) (32.4) (4.6) 47.7
Net Earnings $ 12.6 (24.2) 12.6 73.8
Average Shares Outstanding
- Basic 30.5 30.2 29.7 29.9
Average Shares Outstanding
- Diluted 31.0 30.5 30.0 30.4
Net Earnings Per Share
- Basic
Continuing Operations $ 0.46 0.27 0.58 0.87
Discontinued Operations (0.05) (1.07) (0.15) 1.60
---------------- ----------------
Net Earnings Per Share 0.41 (0.80) 0.43 2.47
================ ================
Net Earnings Per Share
- Diluted
Continuing Operations 0.45 0.27 0.57 0.86
Discontinued Operations (0.04) (1.06) (0.15) 1.57
---------------- ----------------
Net Earnings Per Share $ 0.41 (0.79) 0.42 2.43
================ ================
Varian Medical Systems, Inc.
Consolidated Statement of Earnings
(Dollars and shares in millions, except per share amounts)
(Unaudited)
Historical Pro Forma
Q4 QTR Q4 QTR
FY 99 FY 99
Net Orders $ 191.2 $ 191.2
Order Backlog $ 400.2 $ 400.2
Sales $ 191.6 $ 191.6
Gross Margin 76.5 76.8
As a percent of Sales 39.9% 40.1%
Operating Expenses
Selling, General and
administrative 33.3 32.4
Research and
development 10.1 10.1
------- -------
Operating Earnings Before
Reorganization Expenses 33.1 34.3
As a percent of
Sales 17.3% 17.9%
Reorganization Expenses (1.7) 0.0
------- -------
Operating Earnings 34.8 34.3
Interest Expense, Net 2.2 2.1
------- -------
Pretax Earnings 32.6 32.2
Taxes on earnings 18.8 11.2
------- -------
Net Earnings from
Continuing Operations $ 13.8 $ 21.0
======= =======
Average Shares
Outstanding - Basic 30.5 30.5
Average Shares
Outstanding - Diluted 31.0 31.0
Net Earnings Per Share
- Basic $ 0.46 $ 0.69
Net Earnings Per Share
- Diluted $ 0.45 $ 0.68
Note: The Pro Forma column presents fourth quarter fiscal year
1999 results without a net gain of $1.7 million resulting from
gains on asset sales partially offset by reorganization related
expenses, and $1.2 million of incremental non-recurring
expenses related to the spin. The tax rate for this
presentation is assumed to be 35%. The $1.2 million
non-recurring expenses related to the spin include $0.4 million
of costs related to the previously announced closure of the
Arlington Heights x-ray tube facility, $ 0.4 million of spin
related move expense, and $0.4 million of spin related employee
retention expense. 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
October 1, October 2,
1999 1998
(Dollars in thousands
except par values)
ASSETS
Current Assets
Cash and cash equivalents $ 25,126 $ 149,667
Accounts receivable 233,785 392,596
Inventories 78,324 204,464
Other current assets 46,301 93,054
----------- -----------
Total Current Assets 383,536 839,781
----------- -----------
Property, Plant, and Equipment 200,386 509,089
Accumulated depreciation and
amortization (120,138) (294,867)
----------- -----------
Net Property, Plant,
and Equipment 80,248 214,222
----------- -----------
Other Assets 76,689 164,292
=========== ===========
TOTAL ASSETS $ 540,473 $ 1,218,295
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 35,587 $ 46,842
Accounts payable - trade 40,141 76,166
Accrued expenses 121,165 282,647
Product warranty 18,152 44,153
Advance payments from customers 54,757 55,081
----------- -----------
Total Current Liabilities 269,802 504,889
Long-Term Accrued Expenses 25,890 44,771
Long-Term Debt 58,500 111,090
----------- -----------
Total Liabilities 354,192 660,750
----------- -----------
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
30,563,000 shares at October 1,
1999 and 29,743,000 shares at
October 2, 1998 30,563 29,743
Retained earnings 155,718 527,802
----------- -----------
Total Stockholders' Equity 186,281 557,545
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 540,473 $ 1,218,295
=========== ===========
Contact:
Varian Medical Systems, Inc.
Elisha Finney, 650/424-6803
elisha.finney@varian.com
Spencer Sias, 650/424-5782
spencer.sias@varian.com
www.varian.com/vms