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Varian Medical Systems Reports Results for Second Quarter of Fiscal Year 2014

Companies mentioned in this article: Varian Medical Systems

PALO ALTO, Calif., April 23, 2014 /PRNewswire/ -- Varian Medical Systems (NYSE: VAR) today is reporting net earnings of $0.88 per diluted share in the second quarter of fiscal year 2014, including a $0.16 charge per diluted share related to a previously announced settlement of patent litigation. Varian's company-wide revenues totaled $779 million for the second quarter of fiscal year 2014, up 1 percent from the year-ago quarter. Varian ended the second quarter with a $2.8 billion backlog, up 2 percent from the end of the second quarter of fiscal year 2013.

"Gross orders rose strongly in our imaging components and proton businesses on top of mid-single-digit gains in Oncology Systems," said Dow R. Wilson, CEO of Varian Medical Systems. "Revenues came in slightly ahead of expectations versus a strong year-ago comparison, and our overall growth strategy remained on track."

The company finished the second quarter of fiscal year 2014 with $939 million in cash and cash equivalents and $469 million of debt. Cash flow from operations for the fiscal second quarter was $126 million. During the quarter, the company spent $159 million to repurchase approximately 2 million shares of its common stock.

Oncology Systems
Oncology Systems' second quarter revenues totaled $603 million, up 4 percent from the same quarter of fiscal year 2013. Second-quarter gross orders were $613 million, up 6 percent versus the year-ago quarter, with a 3 percent gain in North America and a 9 percent gain outside North America. Markets outside North America represented 58 percent of Oncology gross orders for the second quarter of fiscal year 2014.

"Gross orders rose versus the year-ago quarter in North America with the help of good service growth. New multi-year agreements with large hospital systems also contributed to gains in Oncology products and services," Wilson said. "International orders increased with particular strength in Latin America and Australia that offset softness in Asia. Initiatives to expand our radiosurgery business and stimulate replacement of aging Siemens units gained traction during the quarter."

Imaging Components
During the second quarter, the company consolidated its X-Ray Products and Security and Inspection Products businesses into a single Imaging Components segment to conform to an organizational change. Second quarter revenues for Imaging Components were $169 million, up 2 percent from the year-ago quarter. Imaging Components second quarter gross orders were $205 million, up 14 percent from the year-ago quarter. "Strong panel business drove order and revenue growth for Imaging Components, offsetting weakness in the security and tube businesses," Wilson said. (For comparison purposes, a quarterly breakout of the Imaging Components segment financials for fiscal years 2014, 2013 and 2012 is attached.)

Other
The company's Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded second quarter revenues of $6 million versus $20 million in the year-ago quarter. Gross orders for the Other category were $60 million for the second quarter, up from less than $1 million in the year-ago quarter. The company recorded orders for proton installations at the Cincinnati Children's Hospital Medical Center in Ohio and at the Paul Scherrer Institute in Switzerland. "This business gained good momentum during the quarter," Wilson said.

Outlook
"The company is continuing to execute well, and our businesses remain on track to reach our fiscal year 2014 growth targets," said Wilson. "For the fiscal year, we continue to believe that total company revenues could increase by about six to eight percent over the prior fiscal year. We expect net earnings per diluted share for the fiscal year, including the $0.16 effect of the patent litigation settlement, to be in the range of $4.06 to $4.18. We expect total company revenues for the third quarter of fiscal year 2014 to increase in the range of five to six percent. We expect net earnings per diluted share for the third quarter to be in the range of $1.06 to $1.10."

Investor Conference Call
Varian Medical Systems is scheduled to conduct its second quarter fiscal year 2014 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/investor where it will be archived for a year. To access the call via telephone, dial 1-877-869-3847 from inside the U.S. or 1-201-689-8261 from outside the U.S. The replay can be accessed by dialing 1-877-660-6853 from inside the U.S. or 1-201-612-7415 from outside the U.S. and entering confirmation code 13578961. The telephone replay will be available through 5 p.m. PT, Friday, April 25, 2014.

Varian Medical Systems, Inc., of Palo Alto, California, is the world's leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, and brachytherapy. The company supplies informatics software for managing comprehensive cancer clinics, radiotherapy centers and medical oncology practices. Varian is a premier supplier of tubes, digital detectors, and image processing software and workstations for X-ray imaging in medical, scientific, and industrial applications and also supplies high-energy X-ray devices for cargo screening and non-destructive testing applications. Varian Medical Systems employs approximately 6,500 people who are located at manufacturing sites in North America, Europe, and China and approximately 70 sales and support offices around the world. For more information, visit http://www.varian.com or follow us on Twitter.

    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 growth
     drivers; the company's future
     orders, revenues, backlog, or
     earnings growth; future financial
     results; market acceptance of or
     transition to new products or
     technology such as our Edge(TM)
     radiosurgery system, TrueBeam(TM)
     and radiographic flat panel
     detectors, image-guided radiation
     therapy, stereotactic
     radiosurgery, filmless X-rays,
     proton therapy, and security and
     inspection, and any statements
     using the terms "could," "should,"
     "believe," "expect," "continue,"
     "maintain," "outlook," "targets,"
     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 global
     economic conditions; the impact of
      the Affordable Health Care for
      America Act (including excise
     taxes on medical devices) and any
     further healthcare reforms
     (including changes to Medicare and
     Medicaid), and/or changes in
     third-party reimbursement levels;
     currency exchange rates and tax
     rates; demand for the company's
     products; the company's ability to
     develop, commercialize, and deploy
     new products such as the TrueBeam
     platform; the company's ability to
     meet Food and Drug Administration
     (FDA) and other regulatory
     requirements for product
     clearances or to comply with FDA
     and other regulatory regulations
     or procedures; changes in the
     regulatory environment, including
     with respect to FDA requirements;
     challenges associated with the
     successful commercialization of
     the company's particle therapy
     business; the effect of adverse
     publicity; the company's reliance
     on sole or limited-source
     suppliers; the impact of reduced
     or limited demand by purchasers of
     certain X-ray products, including
     those located in Japan; the
     company's ability to maintain or
     increase margins; the impact of
     competitive products and pricing;
     the potential loss of key
     distributors or key personnel;
     challenges to public tender awards
     and the loss of such awards or
     other orders; and the other risks
     listed from time to time in the
     company's filings with the
     Securities and Exchange
     Commission, which by this
     reference are incorporated herein.
     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
     Subsidiaries
      Condensed
      Consolidated
      Statements
      of
      Earnings
     (Unaudited)



                        Q2 QTR          Q2 QTR            Q2 YTD          Q2 YTD

                          2014          2013 (1)            2014          2013 (1)

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

       Gross
       orders                   $877.7             757.7         1,533.1           1,409.4

         Oncology
         Systems                 613.0             576.9         1,146.3           1,085.7

         Imaging
         Components              205.0             180.1           326.4             322.3

        Other                     59.7               0.7            60.4               1.4


       Net
       orders                    818.6             735.8         1,427.6           1,355.0

         Oncology
         Systems                 559.1             555.1         1,048.7           1,032.0

         Imaging
         Components              200.6             180.0           319.3             321.6

        Other                     58.9               0.7            59.6               1.4


       Order
       Backlog                 2,806.6           2,752.6         2,806.6           2,752.6


      Revenues                   778.5             768.4         1,490.0           1,446.8

         Oncology
         Systems                 603.1             581.8         1,144.5           1,106.1

         Imaging
         Components              169.0             166.4           330.2             316.4

        Other                      6.4              20.2            15.3              24.3


       Cost
       of
       revenues                  450.2             448.8           852.1             836.1


       Gross
       margin                    328.3             319.6           637.9             610.7

         As
         a
         percent
         of
         revenues                 42.2%             41.6%           42.8%             42.2%


       Operating
       expenses

         Research
         and
         development              60.7              50.9           118.7              98.0

         Selling,
         general
         and
         administrative          115.0             113.0           224.6             219.5

         Litigation
         Settlement       25.1                -             25.1                -


       Operating
       earnings                  127.5             155.7           269.5             293.2

         As
         a
         percent
         of
         revenues                 16.4%             20.3%           18.1%             20.3%


       Interest
       income,
       net                         0.6               0.6             1.0               1.3

       Earnings
       before
       taxes                     128.1             156.3           270.5             294.5

       Taxes
       on
       earnings                   35.4              43.5            79.8              86.4

       Net
       earnings                  $92.7             112.8           190.7             208.1

         As
         a
         percent
         of
         revenues                 11.9%             14.7%           12.8%             14.4%


       Net
       earnings
       per
       share
       -
       basic                     $0.89              1.04            1.82              1.91


        Net
        earnings
        per
        share
        -
        diluted                   0.88              1.02            1.79              1.88


       Shares
       used
       in
       the
       calculation
       of
       net
       earnings
       per
       share:

       Average
       shares
       outstanding
       -
       basic                     104.2             108.8           105.0             109.0

       Average
       shares
       outstanding
       -
       diluted                   105.4             110.7           106.4             110.9

                             Prior period
                             numbers have been
                             recast to conform
                             to the segment
        (1)                  reporting change.

                                                               Varian Medical Systems, Inc. and Subsidiaries

                                                                   Condensed Consolidated Balance Sheets


    (In thousands)                                                                                           March 28,   September 27,
    -------------

                                                                2014                                           2013  (1)

                                                             (Unaudited)
                                                             ----------

    Assets

    Current assets

        Cash and cash equivalents                                                                              $938,997     $1,117,861

        Short-term investment                                                                                    79,444         62,700

        Accounts receivable, net                                                                                786,029        698,254

        Inventories                                                                                             561,194        535,223

        Deferred tax assets and other                                                                           312,640        290,745

    Total current assets                                                                                      2,678,304      2,704,783
                                                                                                              ---------      ---------


    Property, plant and equipment                                                                               750,109        715,991

        Accumulated depreciation and amortization                                                              (424,267)      (400,660)

    Property, plant and equipment, net                                                                          325,842        315,331
                                                                                                                -------        -------


    Goodwill                                                                                                    226,829        225,335

    Other assets                                                                                                244,863        223,025

    Total assets                                                                                             $3,475,838     $3,468,474
                                                                                                             ==========     ==========


    Liabilities and Stockholders' Equity

    Current liabilities

        Accounts payable                                                                                       $170,364       $194,272

        Accrued expenses                                                                                        370,525        320,884

        Deferred revenues                                                                                       418,247        389,479

        Advance payments from customers                                                                         169,905        160,644

        Product warranty                                                                                         49,445         39,050

       Current maturities of long-term debt                                                                      56,250         56,250
                                                                                                                 ------         ------

    Total current liabilities                                                                                 1,234,736      1,160,579

    Other long-term liabilities                                                                                 149,586        144,048

    Long-term debt                                                                                              412,500        450,000

    Total liabilities                                                                                         1,796,822      1,754,627
                                                                                                              ---------      ---------


    Stockholders' Equity

    Common stock                                                                                                104,019        106,491

    Capital in excess of par value                                                                              650,684        637,084

    Retained earnings and accumulated other comprehensive loss                                                  924,313        970,272

    Total stockholders' equity                                                                                1,679,016      1,713,847
                                                                                                              ---------      ---------

    Total liabilities and stockholders' equity                                                               $3,475,838     $3,468,474
                                                                                                             ==========     ==========

    (1)       The condensed consolidated
              balance sheet as of
              September 27, 2013 was
              derived from audited
              financial statements as
              of that date.

                                  Varian Medical Systems, Inc. and Subsidiaries

                                                Imaging Components

                                                   (Unaudited)



                                                                FY 2014
                                                                -------

                       (In Millions)                      Q114     Q214                  FY 2014
                                                          ----     ----                  -------

    Gross Orders                                                  $121.4  205.0                    326.4

    Net Orders                                                     118.7  200.6                    319.3

    Revenues                                                       161.2  169.0                    330.2

    Gross Margin                                                   $66.6   70.2                    136.8

                                                          %         41.3   41.5                     41.4

    Operating Earnings                                             $40.7   42.2                     82.9




                                                                FY 2013
                                                                -------

                       (In Millions)                        Q113   Q213   Q313  Q413     FY 2013
                                                          ----     ----   ----  ----     -------

    Gross Orders                                                  $142.2  180.1    144.6     201.3 668.2

    Net Orders                                                     141.6  180.0    143.1     201.2 665.9

    Revenues                                                       150.0  166.4    158.2     167.3 641.9

    Gross Margin                                                   $61.2   70.4     64.8      71.7 268.1

                                                          %         40.8   42.3     41.0      42.8  41.8

    Operating Earnings                                             $35.2   43.5     40.2      46.7 165.6




                                                                FY 2012
                                                                -------

                       (In Millions)                      Q112     Q212   Q312  Q412     FY 2012
                                                          ----     ----   ----  ----     -------

    Gross Orders                                                  $120.9  174.6    126.5     174.4 596.4

    Net Orders                                                     120.5  174.5    126.2     174.3 595.5

    Revenues                                                       128.1  139.8    152.4     160.1 580.4

    Gross Margin                                                   $50.4   58.9     66.2      66.9 242.4

                                                          %         39.3   42.1     43.4      41.8  41.8

    Operating Earnings                                             $28.4   34.0     39.0      41.1 142.5


FOR INFORMATION CONTACT:

Elisha Finney (650) 424-6803
elisha.finney@varian.com

Spencer Sias (650) 424-5782
spencer.sias@varian.com

SOURCE Varian Medical Systems