Varian Medical Systems Reports Results for Third Quarter of Fiscal Year 2014 Third quarter net earnings per diluted share were $1.02 including impairment of equity investment; revenues increased 3 percent to $748 million

PALO ALTO, Calif., July 23, 2014 /PRNewswire/ -- Varian Medical Systems (NYSE: VAR) today is reporting net earnings of $1.02 per diluted share in the third quarter of fiscal year 2014.  Net earnings were negatively impacted by about $0.06 per diluted share due to an approximately $8 million impairment charge related to a portion of Varian's existing equity investment in Augmenix, a privately-held company developing minimally invasive hydrogels for radiotherapy.  Varian's company-wide revenues totaled $748 million for the third quarter of fiscal year 2014, up 3 percent from the year-ago quarter.  The company ended the third quarter with a $2.9 billion backlog, up 4 percent from the end of the third quarter of fiscal year 2013.

"Gross orders rose strongly in our Imaging Components and Particle Therapy businesses compared to the year-ago quarter, more than offsetting a 1 percent decline in Oncology Systems where weakness in Japan overshadowed double-digit orders growth in developing markets," said Dow R. Wilson, CEO of Varian Medical Systems.  "Company revenues were lighter than expected due to delays in proton revenue recognition as well as weakness in X-ray tubes sales.  However, gross margins were up for both Oncology Systems and Imaging Components."

The company finished the third quarter of fiscal year 2014 with $926 million in cash and cash equivalents and $480 million of debt.  Cash flow from operations for the fiscal third quarter was $86 million.  During the quarter, the company spent $103 million to repurchase approximately 1.3 million shares of its common stock.

Oncology Systems

Oncology Systems' third quarter revenues totaled $578 million, up 3 percent from the same quarter of fiscal year 2013.  Third-quarter gross orders were $620 million, down 1 percent versus the year-ago quarter.  Compared to the year-ago quarter, gross orders were about even in North America and down 2 percent outside North America.  Markets outside North America represented 54 percent of Oncology gross orders for the quarter. 

"Gross orders in Oncology Systems rose strongly in several emerging markets including Latin America, China, and Eastern Europe helping to partially offset weakness in Japan as well as UK where there were tough year-ago comparisons," Wilson said.  "Oncology services continued double digit gross order growth in the quarter, and were up 13 percent for the first three quarters."

Imaging Components

Imaging Components' third quarter revenues totaled $162 million, up 2 percent from the year-ago quarter and third quarter gross orders were also $162 million, up 12 percent from the year-ago quarter.

"Our X-ray tube and flat panel product lines each generated robust double-digit gross order growth during the quarter," Wilson said.  "X-ray tube revenues declined during the quarter as improvements in the quality and operating life of our tubes enabled customers to lower inventory levels.   Panels revenues grew by more than 10 percent with healthy demand from a broad spectrum of customers."

Other

The company's Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded third quarter revenues of $8 million, up 15 percent versus the year-ago quarter.  Gross orders for the Other category were $57 million for the third quarter, including an order for a ProBeam proton therapy system at the National Taiwan University in Taipei. 

Outlook

"Our fourth quarter revenue and EPS guidance range is tied to the timing of our proton therapy projects," said Wilson.  "We expect total company revenues for the fourth quarter of fiscal year 2014 to increase in the range of 7 to 15 percent and we expect net earnings per diluted share for the fourth quarter to be in the range of $1.14 to $1.29." 

Investor Conference Call

Varian Medical Systems is scheduled to conduct its third 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 13585004.  The telephone replay will be available through 5 p.m. PT, Friday, July 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 6,700 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™ radiosurgery system, TrueBeam™ 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.

FOR INFORMATION CONTACT:

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

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

A summary of earnings and other financial information follows.






Varian Medical Systems, Inc. and Subsidiaries
 Condensed Consolidated Statements of Earnings
 (Unaudited)



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


Q3 QTR

2014


Q3 QTR

2013 (1)


Q3 YTD

2014


Q3 YTD

2013 (1)




Gross orders

$

840.2


773.1


2,373.3


2,182.5




  Oncology Systems


620.4


627.2


1,766.7


1,712.9




  Imaging Components

 


162.3


144.6


488.7


466.9




  Other

 


57.5


1.3


117.9


2.7
















Net orders


810.5


726.5


2,238.1


2,081.5




  Oncology Systems


591.7


582.0


1,640.4


1,614.0




  Imaging Components

 


161.4


143.1


480.7


464.7




  Other

 


57.4


1.4


117.0


2.8




Order Backlog


2,869.4


2,752.8


2,869.4


2,752.8




Revenues


747.7


726.2


2,237.7


2,173.0




  Oncology Systems


578.2


561.3


1,722.7


1,667.4




  Imaging Components

 


161.8


158.2


492.0


474.6




  Other


7.7


6.7


23.0


31.0




Cost of revenues


424.0


415.7


1,276.1


1,251.8




Gross margin


323.7


310.5


961.6


921.2




  As a percent of revenues


43.3%


42.8%


43.0%


42.4%




Operating expenses












  Research and development 


57.0


53.4


175.7


151.4




  Selling, general and administrative 


124.2


102.4


348.8


321.9




  Litigation Settlement 


-


-


25.1


-




Operating earnings


142.5


154.7


412.0


447.9




  As a percent of revenues


19.1%


21.3%


18.4%


20.6%




Interest income, net


1.3


1.1


2.3


2.4




Earnings before taxes


143.8


155.8


414.3


450.3




Taxes on earnings


36.7


43.0


116.5


129.4




Net earnings

$

107.1


112.8


297.8


320.9




  As a percent of revenues


14.3%


15.5%


13.3%


14.8%
















Net earnings per share – basic

$

1.03


1.04


2.85


2.95
















 Net earnings per share – diluted


1.02


1.03


2.81


2.90




Shares used in the calculation of net earnings per share:    












Average shares outstanding - basic


103.6


108.2


104.6


108.7




Average shares outstanding - diluted


104.9


109.8


105.9


110.5














 

(1)

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

 

 

 

     Varian Medical Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets






(In thousands)


June 27,  


September 27,

2014

     2013  (1)

(Unaudited)


Assets





Current assets





    Cash and cash equivalents

$

925,987

$

1,117,861

    Short-term investment


60,777


62,700

    Accounts receivable, net


747,346


698,254

    Inventories                                       


586,071


535,223

    Deferred tax assets and other                                


304,575


290,745

Total current assets                                       


2,624,756


2,704,783






Property, plant and equipment                                            


762,307


715,991

    Accumulated depreciation and amortization                    


(433,661)


(400,660)

Property, plant and equipment, net                         


328,646


315,331






Goodwill


236,130


225,335

Other assets                                                   


285,343


223,025

Total assets                                              

$

3,474,875

$

3,468,474






Liabilities and Stockholders' Equity





Current liabilities                                                       





    Accounts payable                                             

$

173,359

$

194,272

    Accrued expenses                                             


315,325


320,884

    Deferred revenues                                             


418,267


389,479

    Advance payments from customers                              


174,843


160,644

    Product warranty                                                        


48,562


39,050

   Short-term borrowings                              


29,582


-

   Current maturities of long-term debt                              


50,000


56,250

Total current liabilities                                  


1,209,938


1,160,579

Other long-term liabilities


150,024


144,048

Long-term debt                                                            


400,000


450,000

Total liabilities                                          


1,759,962


1,754,627






Stockholders' Equity





Common stock


103,140


106,491

Capital in excess of par value


661,140


637,084

Retained earnings and accumulated other comprehensive loss 


950,633


970,272

Total stockholders' equity                                 


1,714,913


1,713,847

Total liabilities and stockholders' equity              

$

3,474,875

$

3,468,474

 

(1)

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

 

 

SOURCE Varian Medical Systems



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