PALO ALTO, Calif., Oct. 26 /PRNewswire-FirstCall/ -- Strong demand for advanced radiation therapy products and filmless X-ray imaging components contributed to a year of strong growth in net earnings, revenues, and net orders, and another record year-ending backlog for Varian Medical Systems in fiscal year 2005. The company today reported net earnings of $61 million ($0.45 per diluted share) for the fourth quarter of fiscal year 2005, versus net earnings of $52 million ($0.37 per diluted share) in the year-ago fourth quarter. Net earnings for fiscal year 2005 rose 23 percent to $207 million ($1.50 per diluted share) versus net earnings of $168 million ($1.18 per diluted share) for fiscal year 2004.
Fourth-quarter revenues were $386 million, up 12 percent from the year-ago quarter, bringing revenues for fiscal year 2005 to $1.4 billion, 12 percent higher than total revenues for fiscal year 2004. Net orders were $488 million for the fourth quarter, up 18 percent from the year-ago quarter. Total net orders for fiscal year 2005 were $1.6 billion, up 14 percent from the fiscal year 2004 total. The backlog at year-end stood at $1.2 billion, 21 percent higher than at the end of fiscal year 2004.
“We are reporting growth in net orders and revenues from all business segments for the quarter and for the full fiscal year,” said Richard M. Levy, chairman and CEO of Varian Medical Systems. “We generated double-digit order growth in Europe, the Far East, and North America during the quarter; and annual orders grew in all regions of the world, with particular strength in Europe and the Far East. Our quarter-over-quarter revenue growth stemmed primarily from Europe and North America, and year-over-year revenues were up in all regions of the world.
“Gross margins for the quarter stayed essentially even with year-ago levels, while gross margins for the fiscal year reached an all-time high of 43 percent with contributions from all business segments,” Levy added. “The company’s operating earnings were 23 percent of revenues for the quarter and 22 percent of revenues for the full fiscal year.”
“The company generated record operating cash flow of $93 million for the quarter,” Levy said. The company ended the quarter with $382 million in cash and marketable securities after spending $46 million to repurchase 1.2 million shares of its common stock. At the end of the quarter, the company had a balance of 1.5 million shares in its existing repurchase authorization.
Oncology Systems
Oncology Systems’ fourth quarter revenues for Clinac(R) accelerators and ancillary products as well as software and services for radiotherapy totaled $322 million, up 12 percent from the fourth quarter of last fiscal year. Oncology Systems revenues for the fiscal year were $1.1 billion, up 10 percent from fiscal year 2004. This business recorded fourth-quarter net orders of $417 million, up 19 percent from the same period last year, and $1.3 billion for the fiscal year, up 14 percent from fiscal year 2004 totals. Net orders were up 10 percent in North America and up 33 percent in international markets for the quarter.
“Orders and shipments of new products for image-guided radiotherapy (IGRT) and stereotactic treatments as well as service contracts helped to drive the growth for this business during the quarter,” Levy said. “IGRT technology contributed to strengthened business in North America. As evidence of this strong demand, the company has booked orders for more than 275 On-Board Imager(TM) devices since introducing the product in March of 2004; and more than 110 of those IGRT installations are complete or in progress.” Varian’s Dynamic Targeting(R) IGRT technology adjusts for movements of tumors, making it possible to treat them with higher, more effective doses while protecting more of the surrounding healthy tissue.
X-Ray Products
Revenues for the X-Ray Products business, including tubes and amorphous silicon flat panel detectors for filmless X-ray imaging, were $51 million for the fourth quarter, up 14 percent from the year-ago quarter. For the full fiscal year 2005, revenues were a record $195 million, up 18 percent from fiscal year 2004.
“This business unit had an absolutely outstanding quarter and year,” Levy said. “Our new line of flat panel image detectors for filmless X-ray as well as our high-end X-ray tubes for CT scanners and industrial imaging drove exceptionally strong revenue growth in this business for the quarter and for the year,” Levy said. “Annual revenues from flat panel image detectors nearly doubled and contributed significantly to the 26 percent improvement in annual operating earnings for the X-ray Products business.”
Other
The company’s Ginzton Technology Center and its BrachyTherapy unit recorded combined fourth quarter revenues of $13 million, up $1 million from the year-ago quarter. Combined fiscal year 2005 revenues for this segment were $49 million, up by $9 million from fiscal year 2004 levels. Sales of high-dose-rate brachytherapy products for accelerated partial breast treatments led the growth in this business area.
Outlook
“Our record backlog and broad range of new products for cancer treatments and X-ray imaging have positioned the company for continued growth, and we are raising our guidance for revenues and earnings in fiscal year 2006,” Levy said. “For the year, we believe that total company revenues should increase by about 14 percent above the fiscal 2005 total. First-quarter revenues should grow by about 10 to 11 percent over the comparable period in fiscal year 2005, representing about 20 percent of fiscal year 2006 revenues in keeping with normal patterns for this business.
“Including the effects of expensing stock options, we believe that earnings per diluted share should be in the range of $1.54 to $1.57 for the full fiscal year 2006 and in the range of $0.23 and $0.24 for the first quarter. Excluding the impact of expensing stock options, growth in earnings per diluted share over comparable fiscal year 2005 periods should be in the range of 16 to 18 percent for the full fiscal year and in the range of 13 to 15 percent for the first quarter.”
The company expects that the annual impact of stock option expensing will be in the range of $0.19 to $0.22 per diluted share in fiscal year 2006. About 40 percent of the impact will occur in the first quarter of the fiscal year when most of the company’s stock options are typically awarded. The impact of stock options expensing will be footnoted on a quarterly basis on the profit and loss tables attached to the company’s earnings releases.
Investor Conference Call
Varian Medical Systems is scheduled to conduct its 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 www.varian.com where it will be archived for a year. To access the call via telephone, dial 1-800-591-6942 from inside the U.S. or 1-617-614-4909 from outside the U.S. and enter confirmation code 64921762. The replay 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 45760068. The telephone replay will be available through 5 p.m. PT, October 28, 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 3,570 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 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 technology such as IMRT or IGRT; growth drivers; the company’s orders, revenues, backlog, or earnings growth; future financial results and any statements using the terms “should,” “believe,” “expect,” 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 tubes; the impact of managed care initiatives or other health care reforms on capital expenditures and/or third-party reimbursement levels; 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) or 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. The company assumes no obligation to update or revise the forward-looking statements in this release because of new information, future events, or otherwise.
A summary of earnings 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) (Dollars and shares in millions, except per share amounts) Q4 YTD Q4 YTD Q4 YTD Q4 YTD 2005 2004 2005 2004 (As Adjusted)(1) (As Adjusted)(1) Net orders $488.3 412.4 1,591.0 1,397.6 Oncology Systems 416.7 351.0 1,335.2 1,170.4 X-Ray Products 56.3 48.0 204.1 184.0 Other 15.3 13.4 51.7 43.2 Order backlog $1,179.0 970.5 1,179.0 970.5 Revenues $386.2 344.8 1,382.6 1,235.5 Oncology Systems 322.0 287.6 1,138.5 1,030.5 X-Ray Products 51.4 45.1 195.2 165.4 Other 12.8 12.1 48.9 39.6 Gross margin 165.8 148.0 593.0 518.2 As a percent of revenues 42.9% 42.9% 42.9% 41.9% Operating expenses Research and development 21.6 18.3 82.1 72.1 Selling, general and administrative 54.4 50.3 205.9 189.4 Operating earnings 89.8 79.4 305.0 256.7 As a percent of revenues 23.2% 23.0% 22.1% 20.8% Interest income, net (1.1) (0.4) (3.3) (1.3) Earnings before taxes 90.9 79.8 308.3 258.0 Taxes on earnings 29.9 27.9 101.7 90.3 Net earnings (2) $61.0 51.9 206.6 167.7 Net earnings per share - basic (2): $0.47 0.38 1.56 1.23 Net earnings per share - diluted (2): $0.45 0.37 1.50 1.18 Shares used in the calculation of net earnings per share: Average shares outstanding - basic 130.8 135.2 132.4 136.0 Average shares outstanding - diluted 136.0 140.5 137.8 142.2
(1) Certain amounts for the fourth quarter and the twelve 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 fourth quarter and twelve 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 fourth quarter of fiscal years 2005 and 2004 would have been reduced by $4.6 M and $4.8 M, respectively, and net earnings for the twelve months of fiscal years 2005 and 2004 would have been reduced by $23.4 M and $20.3 M, respectively. Net earnings per basic share for the fourth quarter of fiscal years 2005 and 2004 would have been $0.43 and $0.35, respectively, and net earnings per diluted share would have been $0.41 and $0.34, respectively. Net earnings per basic share for the twelve months of fiscal years 2005 and 2004 would have been $1.38 and $1.08 , respectively, and net earnings per diluted share would have been $1.33 and $1.04, respectively.
Varian Medical Systems, Inc. and Subsidiary Companies Consolidated Balance Sheets (In thousands) September 30, October 1, 2005 2004 (Unaudited) (As Adjusted) (1) Assets Current assets Cash and cash equivalents $243,086 $132,870 Short-term marketable securities 135,356 219,078 Accounts receivable, net 351,899 288,663 Inventories 164,873 144,389 Other current assets 121,681 110,584 Total current assets 1,016,895 895,584 Property, plant and equipment 296,862 254,712 Accumulated depreciation and amortization (182,322) (169,335) Net property, plant and equipment 114,540 85,377 Long-term marketable securities 3,679 40,970 Goodwill 121,389 112,653 Other non-current assets 60,899 46,056 Total assets $1,317,402 $1,180,640 Liabilities and Stockholders’ Equity Current liabilities Accounts payable $71,007 $59,639 Accrued expenses 315,287 255,519 Product warranty 39,407 40,654 Advance payments from customers 115,543 100,277 Current maturities of long term debt 2,689 5,250 Total current liabilities 543,933 461,339 Long-term accrued expenses and other 57,124 41,889 Long-term debt 57,318 53,250 Total liabilities 658,375 556,478 Stockholders’ Equity Common stock 130,715 134,045 Capital in excess of par value 150,466 132,875 Retained earnings and accumulated other comprehensive loss 377,846 357,242 Total stockholders’ equity 659,027 624,162 Total liabilities and stockholders’ equity $1,317,402 $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, the Company has revised the classification of auction rate securities in the amount of $106,600 from cash and cash equivalents to short-term marketable securities to conform to the September 30, 2005 balance sheet presentation.
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.
CONTACT: Elisha Finney, +1-650-424-6803, or elisha.finney@varian.com, orSpencer Sias, +1-650-424-5782, or spencer.sias@varian.com, both of VarianMedical Systems, Inc.
Web site: http://www.varian.com/
