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Varian Medical Systems Inc. (VAR) filed Quarterly Report for the period ended 2011-12-30.
Varian Medical Systems Inc. has a market cap of $7.62 billion; its shares were traded at around $67.71 with a P/E ratio of 19.7 and P/S ratio of 2.9. Varian Medical Systems Inc. had an annual average earning growth of 17.4% over the past 10 years. GuruFocus rated Varian Medical Systems Inc. the business predictability rank of 4.5-star.
This is the annual revenues and earnings per share of VAR over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of VAR.
Highlight of Business Operations:
In the first quarter of fiscal year 2012, revenues increased 8% compared to the year-ago quarter and operating earnings decreased 6% as expected. Gross margin in the first quarter of fiscal year 2012 decreased 3.0 percentage points from a very high gross margin in the year-ago quarter due primarily to a product mix shift as well as the negative effect of revenues recognized for the proton therapy system at the Scripps Proton Therapy Center at a zero profit margin. In the first quarter of fiscal year 2012, net earnings per diluted share decreased 1% and the number of weighted average shares outstanding on a diluted basis decreased from the year-ago quarter primarily due to repurchases of shares of VMS common stock during fiscal year 2011.The decrease in Oncology Systems gross margin percentage was due to a decrease in Oncology Systems product gross margin, partially offset by a slight increase in Oncology Systems service contract gross margin. For the first quarter of fiscal year 2012, Oncology Systems product gross margin was 41.1%, compared to 45.0% in the first quarter of fiscal year 2011, due to a product mix shift driven by a decrease in the amount of revenues associated with product acceptances, which carry very high gross margins. Oncology Systems service contract gross margin was 52.6% in the first quarter of fiscal year 2012, compared to 52.5% in the first quarter of fiscal year 2011. The increase in service contract gross margin was primarily due to higher service contract volume.
The $4.8 million increase in selling, general and administrative expenses for the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011 was primarily attributable to: (a) a $2.6 million net increase in employee-related costs and headcount to support our growing business activities; (b) a $1.9 million increase in bad debt expense; (c) a $1.3 million decrease in net income recognized on our equity investment in dpiX Holding LLC (“dpiX Holding”); (d) a $1.0 million increase in product promotion expenses, which were primarily tied to growth in Oncology Systems revenue; (e) an unfavorable currency translation impact of $0.9 million as the foreign currency denominated selling, general and administrative expenses of our foreign operations were translated into U.S. dollars; and (f) a $0.8 million increase in depreciation expense primarily related to Palo Alto, California facility that was placed in service in the first quarter of fiscal year 2011. These increases were partially offset by a $5.0 million decrease in accruals for contingent liability.
In the first quarter of fiscal year 2012, we generated net cash from operating activities of $53 million, compared to $138 million in the first quarter of fiscal year 2011. The $85 million decrease in net cash from operating activities during the first quarter of fiscal year 2012 compared to the first quarter of fiscal year 2011 was driven primarily by a net decrease of operating cash flows of $75 million related to changes to working capital items between the two quarters, a decrease of $6 million in net earnings and a decrease in non-cash items of $4 million. The decrease of operating cash flows related to working capital items was primarily due to changes in accounts receivable, inventories and prepaid expenses and other current assets.
The Amended BofA Credit Facility may be used for: working capital, capital expenditures; permitted acquisitions; and other lawful corporate purposes. Borrowings under the Japanese Line of Credit can be used by VMS KK for refinancing certain intercompany debts, working capital, capital expenditures and other lawful corporate purposes. Borrowings under the Amended BofA Credit Facility (outside of the Japanese Line of Credit) accrue interest either: (i) based on LIBOR plus a margin of 0.75% to 1.25% based on a leverage ratio involving funded indebtedness and earnings before interest, taxes, depreciation and amortization (“EBITDA”) or (ii) based upon a base rate of either the federal funds rate plus 0.5% or BofA’s announced prime rate, whichever is greater, minus a margin of 0.5% to 0% based on a leverage ratio involving funded indebtedness and EBITDA (depending upon our instructions to BofA). We may select borrowing periods of one, two, three or six months for advances based on the LIBOR rate. Interest rates on advances based on the base rate are adjustable daily. Under the Amended BofA Credit Facility, we pay commitment fees at an annual rate of 0.2% to 0.3% based on a leverage ratio involving funded indebtedness and EBITDA. Borrowings under the Japanese Line of Credit accrue interest at the basic loan rate announced by the Bank of Japan plus a margin of 1.25% to 1.50% based on a leverage ratio involving funded indebtedness and EBITDA. The Amended BofA Credit Facility, as well as the Japanese Line of Credit, will expire on June 30, 2012, if not extended by mutual agreement of VMS and BofA. We expect to either negotiate a new credit facility or extend our existing credit facility before it expires.
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