<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 000-25393
----------------
VARIAN, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
Delaware 77-0501995
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
3120 Hansen Way, Palo Alto, California 94304-1030
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(650) 213-8000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [_] No
The number of shares of the Registrant's common stock outstanding as of
January 28, 2000 was 31,190,310.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Part I. Financial Information.................................................................. 3
Item 1. Financial Statements................................................................... 3
Consolidated Statements of Earnings.................................................... 3
Consolidated Balance Sheets............................................................ 4
Consolidated Condensed Statements of Cash Flows........................................ 5
Notes to the Consolidated Financial Statements......................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.. 12
Item 3. Quantitative and Qualitative Disclosure about Market Risk.............................. 18
Part II. Other Information...................................................................... 19
Item 6. Exhibits and Reports on Form 8-K....................................................... 19
</TABLE>
RISK FACTORS RELATING TO FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains "forward-looking" statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which provides a "safe harbor" for these types of statements. These forward-
looking statements are subject to risks and uncertainties that could cause
actual results of Varian, Inc. (the "Company") to differ materially from
management's current expectations. Those risks and uncertainties include,
without limitation: new product development and commercialization; demand and
acceptance for the Company's products; competitive products and pricing;
economic conditions in the Company's product and geographic markets; foreign
currency fluctuations; market investment in capital equipment; the lack of
recent operating history for the Company as a separate entity; increased
operating margins on higher sales; successful implementation by certain third
parties of corrective action to address the impact of the Year 2000; and other
risks detailed from time to time in the Company's filings with the Securities
and Exchange Commission.
2
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VARIAN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
-----------------
Dec. 31, Jan. 1,
1999 1999
-------- --------
<S> <C> <C>
Sales.................................................... $159,952 $133,296
Cost of sales............................................ 98,099 80,665
-------- --------
Gross profit............................................. 61,853 52,631
-------- --------
Operating expenses
Sales and marketing.................................... 29,805 30,096
Research and development............................... 6,982 7,163
General and administrative............................. 10,337 7,839
-------- --------
Total operating expenses............................... 47,124 45,098
-------- --------
Operating earnings....................................... 14,729 7,533
Interest expense (income), net........................... 691 (137)
-------- --------
Earnings before income taxes............................. 14,038 7,670
Income tax expense....................................... 5,615 3,411
-------- --------
Net earnings............................................. $ 8,423 $ 4,259
======== ========
Net earnings per share:
Basic.................................................. $ 0.27 $ 0.14
======== ========
Diluted................................................ $ 0.26 $ 0.14
======== ========
Shares used in per share calculations:
Basic.................................................. 30,775 30,423
======== ========
Diluted................................................ 32,423 30,587
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
3
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
<TABLE>
<CAPTION>
Dec. 31, Oct. 1,
1999 1999
----------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................... $ 37,054 $ 23,348
Accounts receivable, net................................ 148,924 151,437
Inventories............................................. 75,901 66,634
Deferred taxes.......................................... 25,481 25,508
Other current assets.................................... 8,839 8,405
-------- --------
Total current assets.................................... 296,199 275,332
Property, plant, and equipment, net....................... 77,750 83,654
Other assets.............................................. 65,912 66,090
-------- --------
Total assets.............................................. $439,861 $425,076
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt....................... $ 6,382 $ 6,717
Accounts payable........................................ 47,139 40,442
Accrued liabilities..................................... 123,551 116,128
-------- --------
Total current liabilities............................... 177,072 163,287
Long-term debt............................................ 48,157 51,221
Deferred taxes............................................ 8,447 8,453
Other liabilities......................................... 7,449 7,453
-------- --------
Total liabilities......................................... 241,125 230,414
-------- --------
Contingencies (Note 9)
Stockholders' equity
Preferred stock--par value $.01, authorized--1,000,000
shares; issued--none................................... -- --
Common stock--par value $.01, authorized--99,000,000
shares; issued and outstanding--31,013,578 shares at
Dec. 31, 1999 and 30,563,094 at Oct. 1, 1999........... 185,985 181,619
Retained earnings....................................... 21,466 13,043
Other comprehensive income (loss)....................... (8,715) --
-------- --------
Total stockholders' equity.............................. 198,736 194,662
-------- --------
Total liabilities and stockholders' equity................ $439,861 $425,076
======== ========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
4
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------
Dec. 31, 1999 Jan. 1, 1999
------------- ------------
<S> <C> <C>
Net cash provided by operating activities.......... $18,413 $ 952
------- -------
Investing activities
Purchase of property, plant, and equipment......... (5,466) (5,122)
------- -------
Net cash used in investing activities.............. (5,466) (5,122)
------- -------
Financing activities
Common stock option exercises...................... 4,367 --
Net issuance/(payment) of debt..................... (3,322) --
Net transfers from Varian Associates, Inc./Varian
Medical Systems, Inc.............................. -- 5,445
------- -------
Net cash provided by financing activities.......... 1,045 5,445
------- -------
Effects of exchange rate changes on cash........... (286) (1,275)
------- -------
Net increase in cash and cash equivalents.......... 13,706 --
Cash and cash equivalents at beginning of period... 23,348 --
------- -------
Cash and cash equivalents at end of period......... $37,054 $ --
======= =======
Supplemental cash flow information:
Income taxes paid.................................. $ 672 $ 53
======= =======
Interest paid...................................... $ 979 $ 14
======= =======
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
5
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Interim Consolidated Financial Statements
These interim consolidated financial statements of Varian, Inc. and its
subsidiary companies (collectively, the "Company") have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The year ended October 1, 1999 balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. These interim
consolidated financial statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Form 10-K
for the period ended October 1, 1999, which has been filed with the Securities
and Exchange Commission. In the opinion of the Company's management, the
interim consolidated financial statements include all normal recurring
adjustments necessary to present fairly the information required to be set
forth therein. The results of operations for the first quarter ended December
31, 1999 are not necessarily indicative of the results to be expected for a
full year or for any other periods.
Note 2. Description of Business and Basis of Presentation
Varian, Inc., (the "Company") is a major supplier of scientific instruments
and consumables, vacuum technology products and services, and contract
electronics manufacturing services. These businesses primarily serve life
science, health care, semiconductor processing, communications, industrial,
and academic customers.
Until April 2, 1999, the business of the Company was operated as the
Instrument Business ("IB") of Varian Associates, Inc. ("VAI"). The interim
consolidated financial statements generally reflect IB's results of operations
and cash flows for the quarter ended January 1, 1999, and the Company's
results of operations and cash flows for the quarter ended December 31, 1999.
The interim consolidated financial results for the quarter ended January 1,
1999 were carved out from the interim financial statements of VAI using the
historical results of operations of IB and include the accounts of IB after
elimination of inter-business transactions. These interim consolidated
financial results also include allocations of certain VAI corporate expenses
(including legal, accounting, employee benefits, insurance services,
information technology services, treasury, and other corporate overhead) to
IB.
The Company's fiscal years reported are the 52-week periods ending on the
Friday nearest September 30. Fiscal year 2000 will comprise the 52-week period
ending September 29, 2000, and fiscal year 1999 comprised of the 52-week
period ended October 1, 1999. The fiscal quarters ended December 31, 1999, and
January 1, 1999 each comprise 13 weeks.
Note 3. Change in Functional Currency
Statement of Financial Accounting Standards ("SFAS") 52 sets forth
guidelines for determining the functional currency to be used for financial
reporting. Subsequent to becoming independent from VAI, the Company made
certain changes in the way it conducts business internationally. A majority of
business transactions are now conducted in the local currencies of the
respective subsidiaries. Accordingly, effective October 2, 1999, the Company
changed its functional currency from the U.S. dollar to the local currencies
of the respective subsidiaries as prescribed by FAS 52. Under FAS 52, when the
local currencies are determined to be the functional currency, assets and
liabilities are translated using current exchange rates at the balance sheet
date, and income and expense accounts are translated at average exchange rates
in effect during the period. Translation of assets and liabilities at a
current exchange rate results in periodic translation gains and losses that
are recorded in stockholders' equity as a component of other comprehensive
income. Upon adopting a local currency functional currency, the Company
recorded an initial translation loss of $6.6 million in the cumulative
translation adjustment component of other comprehensive income (see Note 7).
This loss principally related to translating property, plant, and equipment at
current exchange rates versus the historical exchange rates previously used.
6
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VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4. Balance Sheet Detail
<TABLE>
<CAPTION>
Dec. 31, Oct. 1,
1999 1999
(In thousands) -------- --------
<S> <C> <C>
INVENTORIES
Raw materials and parts.................................. $ 41,905 $ 36,149
Work in process.......................................... 6,212 5,487
Finished goods........................................... 27,784 24,998
-------- --------
$ 75,901 $ 66,634
======== ========
</TABLE>
Inventories are valued at the lower of cost or market (net realizable
value) using the last-in, first-out (LIFO) cost for certain U.S. inventories.
All other inventories are valued principally at average cost. If the first-in,
first-out (FIFO) method had been used for those operations valuing inventories
on a LIFO basis, inventories would have been higher than reported by $14.6
million at December 31, 1999 and $14.4 million at October 1, 1999.
Note 5. Forward Exchange Contracts
The Company's forward exchange contracts generally range from one to 12
months in original maturity. Forward exchange contracts outstanding as of
December 31, 1999 that hedge the balance sheet and certain purchase
commitments were effective December 31, 1999, and accordingly there were no
unrealized gains or losses associated with such contracts and the fair value
of these contracts approximates their notional values. Forward exchange
contracts that were outstanding as of December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
Notional Notional Value
Value Sold Purchased
(In thousands) ---------- --------------
<S> <C> <C>
Australian Dollar................................. $ -- $18,214
Japanese Yen...................................... 17,835 --
British Pound..................................... 6,149 11,299
Euro.............................................. 4,568 --
Canadian Dollar................................... 4,447 --
Swedish Krona..................................... -- 1,160
------- -------
Total........................................... $32,999 $30,673
======= =======
</TABLE>
Note 6. Net Earnings Per Share
Basic earnings per share are calculated based on net earnings and the
weighted-average number of shares outstanding during the reported period.
Diluted earnings per share include dilution from potential common stock shares
issuable pursuant to the exercise of outstanding stock options determined
using the treasury stock method.
For periods prior to April 3, 1999, pro forma earnings per share were
calculated assuming that the weighted-average number of shares outstanding
during the period equaled the number of shares of common stock outstanding as
of the Distribution on April 2, 1999. Also, for computing pro forma diluted
earnings per share, the additional shares issuable upon exercise of stock
options were determined using the treasury stock method based on the number of
replacement stock options issued as of the Distribution on April 2, 1999.
For the fiscal quarter ended December 31, 1999, options to purchase 345,186
potential common stock shares with exercise prices greater than the average
quarterly market value of such common stock were excluded from the calculation
of diluted earnings per share. For the fiscal quarter ended January 1, 1999,
options to purchase 3,030,355 potential common stock shares with exercise
prices greater than the market value on April 2, 1999 of such common stock
were excluded from the calculation of diluted earnings per share.
7
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
A reconciliation follows:
<TABLE>
<CAPTION>
Dec. 31, Jan. 1,
1999 1999
-------- -------
(In thousands except per share amounts)
<S> <C> <C>
Basic
Net earnings.............................................. $8,423 $4,259
Weighted average shares outstanding....................... 30,775 30,423
Net earnings per share.................................... $ 0.27 $ 0.14
====== ======
Diluted
Net earnings.............................................. $8,423 $4,259
Weighted average shares outstanding....................... 30,775 30,423
Net effect of dilutive stock options...................... 1,648 164
------ ------
Total shares.............................................. 32,423 30,587
Net earnings per share.................................... $ 0.26 $ 0.14
====== ======
</TABLE>
Note 7. Comprehensive Income (Loss)
Comprehensive income (loss) is comprised of net income and the currency
translation adjustment. Comprehensive income (loss) was ($0.3) million and
$4.3 million for the three months ended December 31, 1999 and January 1, 1999,
respectively.
Note 8. Debt and Credit Facilities
The Distribution Agreement provided for the division among the Company,
VSEA, and VMS of VAI's cash and debt as of April 2, 1999. Under the
Distribution Agreement, the Company was to assume 50% of VAI's term loans and
receive an amount of cash from VAI such that it would have net debt (defined
in the Distribution Agreement as the amount outstanding under the term loans
and notes payable, less cash and cash equivalents) equal to approximately 50%
of the net debt of the Company and VMS, subject to such adjustment as was
necessary to provide VMS with a net worth (as defined in the Distribution
Agreement) of between 40% and 50% of the aggregate net worth of the Company
and VMS, and subject to further adjustment to reflect the Company's
approximately 50% share of the estimated proceeds, if any, to be received by
VMS after the Distribution from the sale of VAI's long-term leasehold interest
at certain of its Palo Alto facilities, together with certain related
buildings and other corporate assets, and the Company's obligation for
approximately 50% of any estimated transaction expenses to be paid by VMS
after the Distribution (in each case reduced for estimated taxes payable or
tax benefits received from all sales and transaction expenses). Since the
amounts transferred immediately prior to the Distribution were based on
estimates, these and other adjustments may be required following the
Distribution. As a result of these adjustments, the Company may be required to
make cash payments to VMS and/or may be entitled to receive cash payments from
VMS. Adjustments through December 31, 1999, resulted in net cash payments from
VMS and an increase in stockholders' equity. The amount of any other required
adjustment cannot be estimated, but management believes that any further
adjustments will not have a material effect on the Company's financial
condition.
Note 9. Contingencies
Environmental Matters. In the Distribution Agreement, the Company and VSEA
each agreed to indemnify VMS for one-third of certain environmental
investigation and remediation costs (after adjusting for any insurance
proceeds and tax benefits recognized or realized by VMS for such costs), as
further described below.
8
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
VMS has been named by the U.S. Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, at
nine sites where VAI is alleged to have shipped manufacturing waste for
recycling, treatment, or disposal. VMS is also involved in various stages of
environmental investigation, monitoring, and/or remediation under the
direction of, or in consultation with, foreign, federal, state, and/or local
agencies at certain current VMS or former VAI facilities.
For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. As of December 31, 1999, it was nonetheless estimated that the
Company's share of the future exposure for environmental-related investigation
and remediation costs for these sites and facilities ranged in the aggregate
from $4.5 million to $10.5 million (without discounting to present value). The
time frame over which these costs are expected to be incurred varies with each
site and facility, ranging up to approximately 30 years as of December 31,
1999. No amount in the foregoing range of estimated future costs is believed
to be more probable of being incurred than any other amount in such range, and
the Company therefore accrued $4.5 million as of December 31, 1999.
As to other sites and facilities, sufficient knowledge has been gained to
be able to better estimate the scope and costs of future environmental
activities. As of December 31, 1999, it was estimated that the Company's share
of the future exposure for environmental-related investigation and remediation
costs for these sites and facilities ranged in the aggregate from $8.1 million
to $13.7 million (without discounting to present value). The time frame over
which these costs are expected to be incurred varies with each site and
facility, ranging up to approximately 30 years as of December 31, 1999. As to
each of these sites and facilities, it was determined that a particular amount
within the range of estimated costs was a better estimate of the future
environmental liability than any other amount within the range, and that the
amount and timing of these future costs were reliably determinable. Together,
these amounts totaled $9.4 million at December 31, 1999. The Company therefore
accrued $4.1 million as of December 31, 1999, which represents the best
estimate of its share of these future costs discounted at 4%, net of
inflation. This accrual is in addition to the $4.5 million described in the
preceding paragraph.
Claims for recovery of environmental investigation and remediation costs
already incurred, and to be incurred in the future, have been asserted against
various insurance companies and other third parties. VMS is now pursuing such
recovery claims for the benefit of itself, VSEA, and the Company. An insurance
company has agreed to pay a portion of VAI's (now VMS') future environmental-
related expenditures for which the Company has an indemnity obligation, and
the Company therefore has a $1.3 million receivable in Other Assets as of
December 31, 1999 for the Company's share of such recovery. The Company has
not reduced any environmental-related liability in anticipation of recovery
with respect to claims made against third parties.
The Company's management believes that its reserves for the foregoing and
certain other environmental-related matters are adequate, but as the scope of
its obligation becomes more clearly defined, these reserves may be modified
and related charges or credits against earnings may be made. Although any
ultimate liability arising from environmental-related matters described herein
could result in significant expenditures that, if aggregated and assumed to
occur within a single fiscal year, would be material to the Company's
financial statements, the likelihood of such occurrence is considered remote.
Based on information currently available and its best assessment of the
ultimate amount and timing of environmental-related events, the Company's
management believes that the costs of these environmental-related matters are
not reasonably likely to have a material adverse effect on the Company's
financial position or results of operations.
Legal Proceedings. In the Distribution Agreement, the Company agreed to
reimburse VMS for one-third of certain costs and expenses (after adjusting for
any insurance proceeds and tax benefits recognized or realized
9
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
by VMS for such costs and expenses) that are paid after April 2, 1999 and
arise from actual or potential claims or legal proceedings relating to
discontinued, former or corporate operations of VAI. These shared liabilities
are generally managed by VMS, and expenses and losses (adjusted for any
insurance proceeds and tax benefits recognized or realized by VMS for such
costs and expenses) are generally borne one-third each by the Company, VMS,
and VSEA. Also, from time to time, the Company is involved in a number of its
own legal actions and could incur an uninsured liability in one or more of
them. While the ultimate outcome of all of the foregoing legal matters is not
determinable, management believes that these matters are not reasonably likely
to have a material adverse effect on the Company's financial position or
results of operations.
Note 10. Restructuring Charges
During the second quarter of fiscal year 1999, IB's management approved a
program to consolidate field sales and service organizations in Europe,
Australia and the United States so as to fall within the direct responsibility
of management at principal factories in those countries, in order to reduce
costs, simplify management structure, and benefit from the infrastructure
existing in those factories. This restructuring entailed consolidating certain
sales, service, and support operations. The consolidation resulted in exiting
of a product line, closing or downsizing of sales offices, and termination of
approximately 100 personnel. All restructuring activities are expected to be
completed within one year, except for future lease payments. The following
table sets forth certain details associated with this restructuring:
<TABLE>
<CAPTION>
Cash
Accrual at Payments Accrual at
October 1, and Other December 31,
1999 Reductions 1999
---------- ---------- ------------
(In thousands)
<S> <C> <C> <C>
Lease payments and other facility
expenses.................................. $1,244 $113 $1,131
Severance and other related employee
benefits.................................. 1,721 145 1,576
------ ---- ------
Total...................................... $2,965 $258 $2,707
====== ==== ======
</TABLE>
Note 11. Industry Segments
The Company's operations are grouped into three business segments:
Scientific Instruments, Vacuum Technologies, and Electronics Manufacturing.
Scientific Instruments is a supplier of instruments, consumable laboratory
supplies, and after sales support used in studying the chemical composition
and structure of myriad substances and for imaging. These products are tools
for scientists engaged in drug discovery, life sciences, genetic engineering,
health care, environmental analysis, quality control, and academic research.
Vacuum Technologies provides products and solutions to create, maintain,
contain, and measure an ultra-clean environment for complex industrial
processes and research. Vacuum Technologies products are used in semiconductor
manufacturing equipment, analytical instruments, industrial manufacturing, and
quality control. Electronics manufacturing provides contract manufacturing
services for technology companies with low-volume and high-mix requirements.
Transactions between segments are accounted for at cost and are not
included in sales. Accordingly, the following information is provided for
purposes of achieving an understanding of operations, but may not be
indicative of the financial results of the reported segments were they
independent organizations. In addition, comparisons of the Company's
operations to similar operations of other companies may not be meaningful.
10
<PAGE>
VARIAN, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Industry Segments
<TABLE>
<CAPTION>
Pretax
Sales Earnings
------------- ------------
Q1 00 Q1 99 Q1 00 Q1 99
(In millions) ------ ------ ----- -----
<S> <C> <C> <C> <C>
Scientific Instruments......................... $ 94.3 $ 89.7 $11.1 $ 6.8
Vacuum Technologies............................ 31.9 22.1 4.5 1.1
Electronics Manufacturing...................... 33.8 21.5 2.7 1.3
------ ------ ----- -----
Total industry segments........................ 160.0 133.3 18.3 9.2
General corporate.............................. -- -- (3.6) (1.6)
Interest (exp.)/inc., net...................... -- -- (0.7) 0.1
------ ------ ----- -----
Continuing operations.......................... $160.0 $133.3 $14.0 $ 7.7
====== ====== ===== =====
</TABLE>
Note 12. Recent Accounting Pronouncements
In June 1998, the Financial Accounting and Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires derivatives to be
measured at fair value and to be recorded as assets or liabilities on the
balance sheet. The accounting for gains or losses resulting from changes in
the fair values of those derivatives would be dependent upon the use of the
derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective for fiscal quarters and years beginning after June 15, 2000. The
Company will adopt SFAS 133 in the fourth quarter of fiscal year 2000 and is
in the process of determining the impact that adoption will have on the
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. SAB
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. SAB
101 is effective for the fiscal quarter beginning September 30, 2000, however
earlier adoption is permitted. The Company has not yet determined the impact,
if any, that adoption will have on the consolidated financial statements.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Until April 2, 1999, the business of Varian, Inc. (the "Company") was
operated as the Instruments Business ("IB") of Varian Associates, Inc.
("VAI"). IB included the business units that designed, manufactured, sold, and
serviced scientific instruments and vacuum technologies, and a business unit
that provided contract electronics manufacturing. VAI contributed IB to the
Company; then on April 2, 1999, VAI distributed to the holders of record of
VAI common stock on March 24, 1999 one share of common stock of the Company
for each share of VAI common stock outstanding on April 2, 1999 (the
"Distribution"). At the same time, VAI contributed its Semiconductor Equipment
business to Varian Semiconductor Equipment Associates, Inc. ("VSEA") and
distributed to the holders of record of VAI common stock on March 24, 1999 one
share of common stock of VSEA for each share of VAI common stock outstanding
on April 2, 1999. VAI retained its Health Care Systems business and changed
its name to Varian Medical Systems, Inc. ("VMS") effective as of April 3,
1999. These transactions were accomplished under the terms of an Amended and
Restated Distribution Agreement dated as of January 14, 1999 by and among the
Company, VAI, and VSEA (the "Distribution Agreement"). For purposes of
providing an orderly transition and to define certain ongoing relationships
between and among the Company, VMS, and VSEA after the Distribution, the
Company, VMS, and VSEA also entered into certain other agreements which
include an Employee Benefits Allocation Agreement, an Intellectual Property
Agreement, a Tax Sharing Agreement, and a Transition Services Agreement.
The interim consolidated financial statements generally reflect IB's
results of operations and cash flows for the quarter ended January 1, 1999,
and the Company's results of operations and cash flows for the quarter ended
December 31, 1999. The interim consolidated financial results for the quarter
ended January 1, 1999 were carved out from the interim financial statements of
VAI using the historical results of operations of IB and include the accounts
of IB after elimination of inter-business transactions. These interim
consolidated financial results also include allocations of certain VAI
corporate expenses (including legal, accounting, employee benefits, insurance
services, information technology services, treasury, and other corporate
overhead) to IB. These amounts have been allocated to IB on the basis that is
considered by management to reflect most fairly or reasonably the utilization
of the services provided to or the benefit obtained by IB. Typical measures
and activity indicators used for allocation purposes include headcount, sales
revenue, and payroll expense. The Company's management believes that the
methods used to allocate these amounts are reasonable. However, these
allocations are not necessarily indicative of the amounts that would have been
or that will be recorded by the Company on a stand-alone basis.
This discussion and analysis of financial condition and results of
operations is based upon and should be read in conjunction with the interim
consolidated financial statements of the Company and the notes thereto, as
well as the Instruments Business of Varian Associates, Inc. Combined Financial
Statements and the Notes thereto, and the information contained under the
headings "Business," "Risk Factors," and "Management's Discussion and Analysis
of Financial Condition and Results of Operations," in the Company's
registration statement on Form 10K filed with the Securities and Exchange
Commission.
The Company's fiscal years reported are the 52-week periods ending on the
Friday nearest September 30. Fiscal year 2000 will comprise the 52-week period
ending September 29, 2000, and fiscal year 1999 comprised of the 52-week
period ended October 1, 1999. The fiscal quarters ended December 31, 1999 and
January 1, 1999 each comprise 13 weeks.
12
<PAGE>
Results of Operations
First Quarter of Fiscal Year 2000 Compared to First Quarter of Fiscal Year
1999
Sales. Sales were $160.0 million in the first quarter of fiscal year 2000,
an increase of 20.0% from sales of $133.3 million in the first quarter of
fiscal year 1999. Sales by the Scientific Instruments, Vacuum Technologies,
and Electronics Manufacturing segments increased by 5.1%, 44.1%, and 57.3%,
respectively.
Geographically, sales in North America of $91.0 million, Europe of $44.2
million and the rest of the world of $24.7 million in the first quarter of
fiscal year 2000 represented increases of 31.5%, 3.0%, and 16.8% respectively,
as compared to the first quarter of fiscal year 1999. The significant increase
in North America was largely due to the strong sales growth of the Electronics
Manufacturing segment, the sales of which are all in North America. The
increased sales in the rest of the world were primarily the result of improved
economic conditions in the Asian market.
Orders in the first quarter of fiscal year 2000 were $171.9 million,
compared to $138.5 million in the first quarter of fiscal year 1999. All
segments contributed to the orders growth.
Gross Profit. Gross profit was $61.9 million (representing 38.7% of sales)
in the first quarter of fiscal year 2000, compared to $52.6 million
(representing 39.5% of sales) in the first quarter of fiscal year 1999. The
decline in gross profit as a percent of sales resulted from a shift in sales
mix among the Company's segments. Individually, each of the three segments had
higher gross margin percentages.
Sales and Marketing. Sales and marketing expenses were $29.8 million
(representing 18.6% of sales) in the first quarter of fiscal year 2000,
compared to $30.1 million (representing 22.6% of sales) in the first quarter
of fiscal year 1999. The decline in sales and marketing expenses as a percent
of sales resulted from a combination of cost savings from the restructuring
and reorganization activities begun in the second quarter of fiscal year 1999,
the lower sales and marketing expense ratio of the segments with higher year-
to-year sales growth, and the overall leverage of higher sales.
Research and Development. Research and development expenses were $7.0
million (representing 4.4% of sales) in the first quarter of fiscal year 2000,
compared to research and development expenses of $7.2 million (representing
5.4% of sales) in the first quarter of fiscal year 1999. This decrease in
research and development expenses resulted primarily from the timing of
research and development spending.
General and Administrative. General and administrative expenses were $10.3
million (representing 6.5% of sales) in the first quarter of fiscal year 2000,
compared to $7.8 million (representing 5.9% of sales) in the first quarter of
fiscal year 1999. These expenses are difficult to compare on a year-to-year
basis because the expenses reported for the first quarter of fiscal year 1999
were based on the allocation of shared expenses of VAI.
Net Interest Expense. Net interest expense was $0.7 million (representing
0.4% of sales) for the first quarter of fiscal year 2000. Prior to the
Distribution on April 2, 1999, no debt had been allocated to the Company. See
"Liquidity and Capital Resources" below.
Taxes on Earnings. The effective income tax rate was 40.0% for the first
quarter of fiscal year 2000, compared to 44.5% for the first quarter of fiscal
year 1999. The fiscal year 1999 rate is higher because the Company realized a
larger proportion of high tax-rate, foreign country income in fiscal year 1999
(due primarily to restructuring and related charges incurred in lower tax-rate
countries) than it anticipates for fiscal year 2000.
Net Earnings. The increase in net earnings to $8.4 million ($0.26 diluted
net earnings per share) in the first quarter of fiscal year 2000, compared to
net earnings of $4.3 million ($0.14 diluted net earnings per share) in the
first quarter of fiscal year 1999, was primarily the result of revenue growth
significantly exceeding operating expense growth.
13
<PAGE>
Segments. Scientific Instruments sales of $94.3 million in the first
quarter of fiscal year 2000 increased 5.1% compared to the first quarter of
fiscal year 1999 sales of $89.7 million. Earnings from operations in the first
quarter of fiscal year 2000 of $11.1 million (11.8% of sales) increased from
$6.8 million (7.5% of sales) in the first quarter of fiscal year 1999. The
increase in earnings resulted from a shift in mix to products with higher
gross margins, and from lower operating expenses as a percent of sales
primarily due to cost savings from restructuring and reorganization activities
begun in the second quarter of fiscal 1999.
Vacuum Technologies sales of $31.9 million in the first quarter of fiscal
year 2000 increased 44.1% compared to the first quarter of fiscal year 1999
sales of $22.1 million. This increase in sales was primarily due to the
recovery of the Asian economies and the improved demand from semiconductor
equipment manufacturers and users. Earnings from operations in the first
quarter of fiscal year 2000 of $4.5 million (14.2% of sales) increased from
$1.1 million (4.8% of sales) in the first quarter of fiscal year 1999. This
earnings improvement was primarily the result of the significantly higher
sales.
Electronics Manufacturing sales in the first quarter of fiscal year 2000 of
$33.8 million increased 57.3% compared to the first quarter of fiscal year
1999 sales of $21.5 million. The increase in sales was principally due to
improved demand from customers who had been impacted by the Asian economic
weakness in the prior year and the movement of small to medium size
manufacturing companies to outsource their manufacturing. Much of this
increased demand came from customers in the communications and medical
equipment market. Earnings from operations in the first quarter of $2.7
million (7.9% of sales) increased from $1.3 million (6.0% of sales) in the
first quarter of fiscal year 1999. The increase in earnings from operations
was primarily the result of the significantly higher sales.
Liquidity and Capital Resources
VAI Cash and Debt Allocations. The Distribution Agreement provided for the
division among the Company, VSEA, and VMS of VAI's cash and debt as of April
2, 1999. Under the Distribution Agreement, the Company was to assume 50% of
VAI's term loans and receive an amount of cash from VAI such that it would
have net debt (defined in the Distribution Agreement as the amount outstanding
under the term loans and notes payable, less cash and cash equivalents) equal
to approximately 50% of the net debt of the Company and VMS, subject to such
adjustment as was necessary to provide VMS with a net worth (as defined in the
Distribution Agreement) of between 40% and 50% of the aggregate net worth of
the Company and VMS, and subject to further adjustment to reflect the
Company's approximately 50% share of the estimated proceeds, if any, to be
received by VMS after the Distribution from the sale of VAI's long-term
leasehold interest at certain of its Palo Alto facilities, together with
certain related buildings and other corporate assets, and the Company's
obligation for approximately 50% of any estimated transaction expenses to be
paid by VMS after the Distribution (in each case reduced for estimated taxes
payable or tax benefits received from all sales and transaction expenses).
Since the amounts transferred immediately prior to the Distribution were based
on estimates, these and other adjustments may be required following the
Distribution. As a result of these adjustments, the Company may be required to
make cash payments to VMS and/or may be entitled to receive cash payments from
VMS. Adjustments through December 31, 1999, resulted in net cash payments from
VMS and an increase in stockholders' equity. The amount of any other required
adjustment cannot be estimated, but management believes that any further
adjustments will not have a material effect on the Company's financial
condition.
Cash and Cash Equivalents. The Company generated $18.4 million of cash from
operations in the first quarter of fiscal year 2000, which compares to $1.0
million in the first quarter of fiscal year 1999. The increase in operating
cash resulted from improved net earnings and a reduction in working capital
requirements for the quarter. The Company used $ 5.5 million of cash for the
acquisition of capital equipment in the first quarter of fiscal year 2000,
which compares to $5.1 million in the first quarter of fiscal year 1999.
The Company's current business strategy contemplates possible acquisitions
and/or facility expansions. Either of these possibilities could utilize free
cash currently being generated by the Company.
14
<PAGE>
The Distribution Agreement provides that the Company is responsible for
certain litigation to which VAI was a party, and further provides that the
Company will indemnify VMS and VSEA for one-third of the costs, expenses, and
other liabilities relating to certain discontinued, former, and corporate
operations of VAI, including certain environmental liabilities (see
"Environmental Matters" and "Legal Proceedings" below).
The Company's liquidity is affected by many other factors, some based on
the normal ongoing operations of the business and others related to the
uncertainties of the industry and global economies. Although the Company's
cash requirements will fluctuate based on the timing and extent of these
factors, management believes that cash generated from operations, together
with the Company's borrowing capability, will be sufficient to satisfy
commitments for capital expenditures and other cash requirements for fiscal
year 2000.
Environmental Matters
The Company's operations are subject to various foreign, federal, state,
and/or local laws regulating the discharge of materials into the environment
or otherwise relating to the protection of the environment. This includes
discharges into soil, water and air, and the generation, handling, storage,
transportation, and disposal of waste and hazardous substances. In addition,
several countries are reviewing proposed regulations that would require
manufacturers to dispose of their products at the end of their useful life.
These laws could increase costs and potential liabilities associated with the
conduct of the Company's operations.
In addition, under the Distribution Agreement, the Company and VSEA each
agreed to indemnify VMS for one-third of certain environmental investigation
and remediation costs (after adjusting for any insurance proceeds and tax
benefits recognized or realized by VMS for such costs), as further described
below.
VMS has been named by the U.S. Environmental Protection Agency or third
parties as a potentially responsible party under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended, at
nine sites where VAI is alleged to have shipped manufacturing waste for
recycling, treatment, or disposal. VMS is also involved in various stages of
environmental investigation, monitoring, and/or remediation under the
direction of, or in consultation with, foreign, federal, state, and/or local
agencies at certain current VMS or former VAI facilities.
For certain of these sites and facilities, various uncertainties make it
difficult to assess the likelihood and scope of further investigation or
remediation activities or to estimate the future costs of such activities if
undertaken. As of December 31, 1999, it was nonetheless estimated that the
Company's share of the future exposure for environmental-related investigation
and remediation costs for these sites and facilities ranged in the aggregate
from $4.5 million to $10.5 million (without discounting to present value). The
time frame over which these costs are expected to be incurred varies with each
site and facility, ranging up to approximately 30 years as of December 31,
1999. No amount in the foregoing range of estimated future costs is believed
to be more probable of being incurred than any other amount in such range, and
the Company therefore accrued $4.5 million as of December 31, 1999.
As to other sites and facilities, sufficient knowledge has been gained to
be able to better estimate the scope and costs of future environmental
activities. As of December 31, 1999, it was estimated that the Company's share
of the future exposure for environmental-related investigation and remediation
costs for these sites and facilities ranged in the aggregate from $8.1 million
to $13.7 million (without discounting to present value). The time frame over
which these costs are expected to be incurred varies with each site and
facility, ranging up to approximately 30 years as of December 31, 1999. As to
each of these sites and facilities, it was determined that a particular amount
within the range of estimated costs was a better estimate of the future
environmental liability than any other amount within the range, and that the
amount and timing of these future costs were reliably determinable. Together,
these amounts totaled $9.4 million at December 31, 1999. The Company therefore
accrued $4.1 million as of December 31, 1999, which represents the best
estimate of its share of these future costs discounted at 4%, net of
inflation. This accrual is in addition to the $4.5 million described in the
preceding paragraph.
15
<PAGE>
Claims for recovery of environmental investigation and remediation costs
already incurred, and to be incurred in the future, have been asserted against
various insurance companies and other third parties. VMS is now pursuing such
recovery claims for the benefit of itself, VSEA, and the Company. An insurance
company has agreed to pay a portion of VAI's (now VMS') future environmental-
related expenditures for which the Company has an indemnity obligation, and
the Company therefore has a $1.3 million receivable in Other Assets as of
October 1, 1999 for the Company's share of such recovery. The Company has not
reduced any environmental-related liability in anticipation of recovery with
respect to claims made against third parties.
The Company's management believes that its reserves for the foregoing and
certain other environmental-related matters are adequate, but as the scope of
its obligation becomes more clearly defined, these reserves may be modified,
and related charges or credits against earnings may be made. Although any
ultimate liability arising from environmental-related matters described herein
could result in significant expenditures that, if aggregated and assumed to
occur within a single fiscal year, would be material to the Company's
financial statements, the likelihood of such occurrence is considered remote.
Based on information currently available and its best assessment of the
ultimate amount and timing of environmental-related events, the Company's
management believes that the costs of these environmental-related matters are
not reasonably likely to have a material adverse effect on the Company's
financial position or results of operations.
Legal Proceedings
In the Distribution Agreement, the Company agreed to reimburse VMS for one-
third of certain costs and expenses (after adjusting for any insurance
proceeds and tax benefits recognized or realized by VMS for such costs and
expenses) that are paid after April 2, 1999 and arise from actual or potential
claims or legal proceedings relating to discontinued, former, or corporate
operations of VAI. These shared liabilities are generally managed by VMS, and
expenses and losses (adjusted for any insurance proceeds and tax benefits
recognized or realized by VMS for such costs and expenses) are generally borne
one-third each by the Company, VMS, and VSEA. Also, from time to time, the
Company is involved in a number of its own legal actions and could incur an
uninsured liability in one or more of them. While the ultimate outcome of all
of the foregoing legal matters is not determinable, management believes that
these matters are not reasonably likely to have a material adverse effect on
the Company's financial position or results of operations.
Year 2000
General. The "Year 2000" problem refers to computer programs and other
equipment with embedded microprocessors ("non-IT systems") which use only the
last two digits to refer to a year, and which therefore might not properly
recognize a year that begins with "20" instead of the familiar "19." As a
result, those computer programs and non-IT systems might be unable to operate
or process accurately certain date-sensitive data before or after January 1,
2000.
State of Readiness. The Company completed a comprehensive assessment of
potential Year 2000 problems with respect to (1) the Company's internal
systems, (2) the Company's products, and (3) significant third parties with
which the Company does business.
The Company assessed potential Year 2000 problems in internal systems,
including enterprise information systems, enterprise networking and
telecommunications, factory-specific information systems, non-IT systems,
computers and packaged software, and facilities systems. The Company has not
experienced any significant Year 2000 problems in its internal systems.
The Company assessed potential year 2000 problems in its current and
previously sold products. With respect to current products, the Company
believes that all of its current products are Year 2000 capable; however, that
conclusion is based in substantial part on Year 2000 assurances or warranties
from suppliers of computers, software, and non-IT systems which are integrated
into or sold with the Company's products. With respect to previously sold
products, the Company did not assess year 2000 preparedness of every product
it ever sold.
16
<PAGE>
Rather it focused its assessments on products that were still under written
warranties or were still relatively early in their useful life, were more
likely to be dependent on non-IT systems that were not Year 2000 capable,
and/or could not be easily upgraded with readily available externally utilized
computers and packaged software. Where the Company identified previously sold
products that were not Year 2000 capable, the Company in some cases developed
and offered to sell upgrades or retrofits, identified corrective measures
which the customer could itself undertake, or identified for the customer
other suppliers of upgrades or retrofits. There could still be instances where
the Company will be required to repair and/or upgrade such products at its own
expense, but no such instances have been reported.
The Company assessed potential Year 2000 problems of third parties with
which the Company has material relationships, primarily suppliers of products
or services. This assessment identified and prioritized critical suppliers and
reviewed those suppliers' written assurances on their own assessments and
correction of Year 2000 problems. There still could be instances where the
Company experiences supply interruption of services or products related to
Year 2000 problems of third parties, but no such interruptions have been
reported.
Costs. The Company estimates that it had incurred approximately $1.7
million as of December 31, 1999 to assess and correct Year 2000 problems.
Based on its assessment and experience to date, the Company does not expect
that it will incur any significant additional costs as a result of Year 2000
problems. However, there can be no assurance that the Company will not incur
costs with respect to Year 2000 problems not yet experienced or reported.
Risks. If the Company experiences Year 2000 problems not yet experienced,
the Company's operations could be adversely impacted. If the Company's
previously sold or current products experience Year 2000 problems, the Company
could experience warranty or similar claims by users of products and could
incur higher warranty and service costs. If the significant third parties with
which the Company does business have not adequately corrected Year 2000
problems, the Company could experience interruptions in the supply of key
components or services from those parties. However, management does not
currently believe that such risks are reasonably likely to have a material
adverse effect on the Company's business, results of operations, or financial
condition.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting and Standards Board issued Statement
of Financial Accounting Standards ("SFAS") 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 requires derivatives to be
measured at fair value and to be recorded as assets or liabilities on the
balance sheet. The accounting for gains or losses resulting from changes in
the fair values of those derivatives would be dependent upon the use of the
derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective for fiscal quarters and years beginning after June 15, 2000. The
Company will adopt SFAS 133 in the fourth quarter of fiscal year 2000 and is
in the process of determining the impact that adoption will have on the
consolidated financial statements.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which provides
guidance on the recognition, presentation and disclosure of revenue in
financial statements filed with the Securities and Exchange Commission. SAB
101 outlines the basic criteria that must be met to recognize revenue and
provides guidance for disclosures related to revenue recognition policies. SAB
101 is effective for the fiscal quarter beginning September 30, 2000, however
earlier adoption is permitted. The Company has not yet determined the impact,
if any, that adoption will have on the consolidated financial statements.
17
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Foreign Currency Exchange Risk. The Company typically hedges its currency
exposures associated with certain assets and liabilities denominated in non-
functional currencies and with anticipated foreign currency cash flows. As a
result, the effect of an immediate 10% change in exchange rates would not be
material to the Company's financial condition or results of operations. The
Company's forward exchange contracts have generally ranged from one to 12
months in original maturity, and no forward exchange contract has had an
original maturity greater than one year. Forward exchange contracts
outstanding as of December 31, 1999 that hedge the balance sheet and certain
purchase commitments were effective December 31, 1999, and accordingly there
were no unrealized gains or losses associated with such contracts and the fair
value of these contracts approximates their notional values.
Forward Exchange Contracts Outstanding as of December 31, 1999
<TABLE>
<CAPTION>
Notional Notional Value
Value Sold Purchased
(In thousands) ---------- --------------
<S> <C> <C>
Australian Dollar................................. $ -- $18,214
Japanese Yen...................................... 17,835 --
British Pound..................................... 6,149 11,299
Euro.............................................. 4,568 --
Canadian Dollar................................... 4,447 --
Swedish Krona..................................... -- 1,160
------- -------
Total........................................... $32,999 $30,673
======= =======
</TABLE>
Interest Rate Risk
The Company has no material exposure to market risk for changes in interest
rates. The Company invests primarily in short-term U.S. Treasury securities,
and changes in interest rates would not be material to the Company's financial
condition or results of operations. The Company primarily enters into debt
obligations to support general corporate purposes, including working capital
requirements, capital expenditures, and acquisitions. At December 31, 1999 the
Company's debt obligations had fixed interest rates.
The estimated fair value of the Company's debt obligations approximates the
principal amounts reflected below on rates currently available to the Company
for debt with similar terms and remaining maturities.
Although payments under certain of the Company's operating leases for its
facilities are tied to market indices, the Company is not exposed to material
interest rate risk associated with its operating leases.
Debt Obligations
Principal Amounts and Related Weighted Average Interest Rates By Year of
Maturity
<TABLE>
<CAPTION>
Nine Months Fiscal Years
Ended Sep. 29, --------------------------------------
2000 2001 2002 2003 2004 2005 Thereafter Total
(In thousands) -------------- ------ ------ ------ ------ ------ ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term debt
(including current
portion)............... $3,382 $6,420 $6,464 $3,003 $2,770 $2,500 $30,000 $54,539
Average interest rate... 6.6% 6.9% 6.9% 6.3% 6.7% 7.2% 6.8% 6.8%
</TABLE>
18
<PAGE>
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required to be filed by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K filed during the quarter ended December 31, 1999:
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
VARIAN, INC.
(Registrant)
/s/ G. Edward McClammy
By: _________________________________
G. Edward McClammy
Vice President and Chief
Financial Officer
(Duly Authorized Officer and
Principal Financial
Officer)
Date: February 11, 2000
20
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
27.1 Financial Data Schedule.
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARIAN,
INC.'S DECEMBER 31, 1999 FORM 10Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-29-2000
<PERIOD-START> OCT-02-1999
<PERIOD-END> DEC-31-1999
<CASH> 37,054
<SECURITIES> 0
<RECEIVABLES> 148,924
<ALLOWANCES> 0
<INVENTORY> 75,901
<CURRENT-ASSETS> 296,199
<PP&E> 194,521
<DEPRECIATION> 116,771
<TOTAL-ASSETS> 439,861
<CURRENT-LIABILITIES> 177,072
<BONDS> 0
0
0
<COMMON> 310
<OTHER-SE> 198,426
<TOTAL-LIABILITY-AND-EQUITY> 439,861
<SALES> 159,952
<TOTAL-REVENUES> 159,952
<CGS> 98,099
<TOTAL-COSTS> 145,223
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 691
<INCOME-PRETAX> 14,038
<INCOME-TAX> 5,615
<INCOME-CONTINUING> 8,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,423
<EPS-BASIC> 0.27
<EPS-DILUTED> 0.26
</TABLE>
