<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transistion period from to
Commission File Number: 1-7598
Exact name of registrant as specified in its charter:
VARIAN ASSOCIATES, INC.
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State or other jurisdiction of IRS Employer
incorporation or organization: Identification No.:
DELAWARE 94-2359345
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Address of principal executive offices:
3050 Hansen Way, Palo Alto, California 94304-1000
Telephone No., including area code:
(415) 493-4000
Securities registered pursuant to Section 12(b)of the Act:
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<CAPTION>
Name of each exchange
Title of each class on which registered
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Common Stock, New York Stock Exchange
$1 par value Pacific Stock Exchange
Preferred Stock New York Stock Exchange
Purchase Rights Pacific Stock Exchange
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Securities registered pursuant to Section 12(g)of the Act:
None
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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
An index of exhibits filed with this Form 10-Q is located on page 13.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of January 28, 1994: 17,272,000 shares of $1 par
value common stock.
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PART 1. FINANCIAL INFORMATION
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
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<CAPTION>
First Quarter Ended
---------------------------
(Dollars in thousands December 31, January 1,
except per share amounts) 1993 1993
------------ ----------
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SALES $323,750 $291,332
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OPERATING COSTS AND EXPENSES
Cost of sales 219,645 200,419
Research and development 18,425 16,961
Marketing 41,707 40,760
General and administrative 24,097 21,955
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Total operating costs and expenses 303,874 280,095
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OPERATING EARNINGS 19,876 11,237
Interest expense, net 1,062 654
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EARNINGS BEFORE TAXES 18,814 10,583
Taxes on Earnings 7,150 4,020
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NET EARNINGS $ 11,664 $ 6,563
======== ========
Average Shares Outstanding Including
Common Stock Equivalents 17,822 18,460
======== ========
EARNINGS PER SHARE - FULLY DILUTED $ 0.65 $ 0.36
======== ========
OTHER DATA
Dividends Declared Per Share $ 0.10 $ 0.09
Order Backlog $737,500 $614,200
======== ========
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See accompanying notes to the consolidated financial statements.
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VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
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<CAPTION>
December 31, October 1,
(Dollars in thousands except par values) 1993 1993
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<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 64,696 $ 73,307
Accounts receivable 293,946 290,513
Inventories
Raw materials and parts 101,710 89,708
Work in process 55,256 44,705
Finished goods 18,463 27,000
--------- ---------
Total Inventories 175,429 161,413
Other current assets 69,253 65,793
--------- ---------
Total Current Assets 603,324 591,026
Property, Plant, and Equipment 550,566 544,316
Accumulated depreciation and amortization (323,818) (313,841)
--------- --------
Net Property, Plant, and Equipment 226,748 230,475
Other Assets 52,612 57,506
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TOTAL ASSETS $ 882,684 $ 879,007
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 46,159 $ 22,858
Accounts payable - trade 57,504 58,654
Accrued expenses 181,580 203,848
Product warranty 36,387 35,615
Advance payments from customers 63,291 61,282
--------- --------
Total Current Liabilities 384,921 382,257
Long-Term Debt 60,405 60,470
Deferred Taxes 21,361 21,361
--------- --------
Total Liabilities 466,687 464,088
--------- --------
Shareholders' Equity
Preferred stock
Authorized 1,000,000 shares,
par value $1, issued none - -
Common stock
Authorized 99,000,000 shares,
par value $1, issued and outstanding
17,251,000 shares at December 31, 1993
and 17,342,000 shares at October 1, 1993 17,251 17,342
Retained earnings 398,746 397,577
--------- --------
Total Shareholders' Equity 415,997 414,919
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 882,684 $879,007
========= ========
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See accompanying notes to the consolidated financial statements.
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VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
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First Quarter Ended
-------------------------
December 31, January 1,
(Dollars in thousands) 1993 1993
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OPERATING ACTIVITIES
Net Cash Used by Operating Activities $ (13,175) $ (13,410)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (8,788) (9,414)
Other, net 114 (2,069)
--------- ---------
Net Cash Used by Investing Activities (8,674) (11,483)
FINANCING ACTIVITIES
Net borrowings on short-term obligations 23,301 9,189
Purchase of common stock (14,406) (16,737)
Other, net 3,755 4,548
--------- ---------
Net Cash Provided/(Used) by Financing Activities 12,650 (3,000)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 588 2,313
--------- ---------
Net Decrease in Cash and Cash Equivalents (8,611) (25,580)
Cash and Cash Equivalents at Beginning of Period 73,307 66,743
--------- ---------
Cash and Cash Equivalents at End of Period $ 64,696 $ 41,163
========= =========
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See accompanying notes to the consolidated financial statements.
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VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unaudited
(Dollars in Millions)
NOTE 1: The consolidated financial statements include the accounts of
Varian Associates, Inc. and its subsidiaries and have been
prepared by the Company, 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. It is suggested that these financial statements
be read in conjunction with the financial statements and the notes
thereto included in the Company's latest Form 10-K annual report.
In the opinion of management, the 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,
1993, and January 1, 1993 are not necessarily indicative of the
results to be expected for a full year or for any other periods.
NOTE 2: Inventories are valued at the lower of cost or market (realizable
value) using last-in, first-out (LIFO) cost for the U.S.
inventories of the Health Care Systems (except for X-Ray Tube
Products), Instruments, and Semiconductor Equipment segments. All
other inventories are valued principally at average cost.
Approximately half of total gross inventories are valued using the
LIFO method. 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 $51.4 at
December 31, 1993, $50.8 at October 1, 1993, $52.0 at January 1,
1993, and $52.0 at September 28, 1992.
NOTE 3: The Company obtains forward exchange contracts to mitigate the
effects of operational and balance sheet exposure to fluctuations
in foreign currencies. Gains and losses due to rate fluctuations
on such transactions are recognized currently. At December 31,
1993, the Company had forward exchange contracts with maturities
of twelve months or less to sell foreign currencies totalling
$44.4 (4.4 million British pounds, 16.4 million Deutsche mark,
6.2 billion Italian lira, 25.5 million Swedish krona, 76.3 million
French francs and 945.0 million Japanese yen) and to buy foreign
currencies totalling $17.2 (5.2 million British pounds and 1.0
billion Japenese yen).
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<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4: In November 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) 112,
Employers' Accounting for Postemployment Benefits. It is
effective for the Company's fiscal year 1995. Its adoption will
not have a material effect on the financial statements of the
Company.
NOTE 5: During the first quarter of fiscal year 1994, the Company
adopted SFAS 109, "Accounting for Income Taxes". Adoption was
made on a retroactive basis, and resulted in a charge against
beginning retained earnings at September 28, 1991 of $6.9
million. The audited balance sheet at October 1, 1993 has been
restated to reflect adoption of this new standard. Adoption of
SFAS 109 did not have a material effect on income tax expense, as
previously reported, for any periods subsequent to fiscal 1991.
Significant components of deferred tax assets and liabilities as
of the beginning of fiscal 1994 are as follows:
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Assets:
Inventory $11.6
Product warranty 11.3
Deferred compensation 8.6
Estimated loss contingencies 6.3
Insurance 3.3
Other 7.3
-----
$48.4
=====
Liabilities:
Depreciation $22.0
Other (0.6)
-----
$21.4
=====
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NOTE 6: On September 21, 1988, Rodney Shields, who purports to be a
stockholder of the Company, filed a stockholder's derivative
action in the Superior Court of the State of California, County
of Santa Clara. The complaint alleged that the Company obtained
certain defense contracts by illegal means, overcharged the
government in connection with other defense contracts, and that
certain named individuals, including 17 present or former
directors or officers of the Company, breached their fiduciary
duties. On November 2, 1993, the California Court of Appeal
issued a writ of mandate directing entry of summary judgment in
favor of all defendants. Mr. Shields did not seek further
judicial review of that writ, and a judgment of dismissal was
entered by the Superior Court on December 27, 1993.
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<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6: (Continued)
In February 1990 a purported class action was brought by Panache
Broadcasting of Pennsylvania, Inc. on behalf of all purchasers of
electron tubes in the U.S. against the Company and a
joint-venture partner, alleging that the activities of their
joint venture in the power-grid tube industry violated antitrust
laws. The complaint seeks injunctive relief and unspecified
damages which may be trebled under the antitrust laws. In
February 1993, the U.S. District Court in Chicago granted the
Company's motion to dismiss the complaint with leave to amend.
Panache Broadcasting filed an amended complaint in March 1993.
The Company has moved to dismiss that complaint. No
determination has been made regarding the plaintiffs' request to
certify the purported class. The Company believes that it has
meritorious defenses to the Panache lawsuit.
In addition to the above-referenced matters, the Company is
currently a defendant in a number of legal actions and could
incur an uninsured liability in one or more of them. In the
opinion of management, the outcome of the above litigation will
not have a material adverse effect on the financial condition of
the Company.
The Company has also 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 six sites to which
Varian is alleged to have shipped manufacturing waste for
disposal. The Company is also involved in various stages of
environmental investigation and/or remediation under the
direction of, or in consultation with, local and/or state
agencies at certain current or former Company facilities.
Uncertainty as to (a) the extent to which the Company caused, if
at all, the condition being investigated, (b) the extent of
environmental contamination and risks, (c) the applicability of
changing and complex environmental laws, (d) the number and
financial viability of other potentially responsible parties,
(e) the stage of the investigation and/or remediation, (f) the
unpredictability of investigation and/or remediation costs
(including as to when they will be incurred), (g) applicable
clean-up standards, (h) the remediation (if any) which will
ultimately be required, and (i) available technology 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. In addition, the Company
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6: (Continued)
believes that it has rights to contribution and/or reimbursement
from financially viable, potentially responsible parties and/or
insurance companies, and has filed a lawsuit against 36 insurance
companies with respect to most of the above-referenced sites.
The Company has established reserves for these environmental
matters, which reserves management believes are adequate. Based
on information currently available, management believes that the
costs of these matters are otherwise not reasonably likely to
have a material adverse effect on the financial condition of the
Company.
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<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On January 20, Varian reported higher sales and a sharp rise in profits for the
first quarter of 1994, versus last year's first period. Orders were the
highest for any quarter in the Company's history.
Net earnings for the quarter increased 77% to $11.7 million from $6.6 million
in the year-ago period. Earnings per share of $.65 were 81% above the prior
year's $.36.
Orders of $440 million rose 29% over last year's $342 million. First-quarter
sales totaled $324 million, 11% above the $291 million of a year ago. Backlog
of $738 million was up by over $100 million from both the previous quarter and
the year-ago period.
Year-to-year earnings improvements were posted by three of the four core
businesses, all of which benefited from improved manufacturing and lower cost
structure. Two of the businesses, Health Care Systems and Semiconductor
Equipment, accounted for most of the orders growth, as both set new quarterly
records.
Orders for Health Care Systems advanced strongly during the period, reaching a
level that was 21% above the prior year's total. Sales rose as well, even
though this is traditionally the slowest shipment period of the year for this
business. Backlog also reached a new high, climbing 9% over 1993's first
quarter to $295 million. The business also achieved better operating margins
relative to the year-ago period. Demand in Health Care's domestic markets was
strong, driven by interest in new-generation cancer therapy systems and a major
new contract to supply X-ray tubes to a large U.S. systems manufacturer.
Instruments' orders increased modestly from the strong first quarter of a year
ago. Sales fell slightly as did operating margins, but backlog grew 15% over
the prior year's level. Varian's Vacuum Products unit has completed its
turnaround and is now benefiting from the strength of the semiconductor
equipment market, where it is a major supplier of pumps, gauges, and leak
detectors.
Semiconductor Equipment orders of $171 million were more than double those of a
year ago and exceeded the previous quarterly record by $68 million. Sales rose
62% over 1993's similar quarter, while backlog was twice that year's level at
$188 million. The business posted its fourth consecutive quarterly profit as
it continues its recovery from a loss in last year's first period. The
increase in equipment orders is being driven by the new sub-micron
semiconductor fabrication facilities being constructed in most markets outside
of Japan, particularly in the U.S. and Korea.
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Orders, sales, and backlog for Varian's fourth core business, Electron Devices,
declined from the same period in 1993. Operating profits, on the other hand,
improved as a result of continuing cost reductions and enhanced manufacturing
performance.
In November 1992, the FASB issued SFAS 112, Employer's Accounting for
Postemployment Benefits. It is effective for the Company's fiscal year 1995.
Its adoption will not have a material effect on the financial statements of the
Company.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first quarter of
fiscal 1994. Operating activities consumed $13.2 million in the first quarter
of fiscal 1994 compared to $13.4 million in the same period last year.
Investing activities used $8.7 million and $11.5 million in the first quarters
of fiscal 1994 and 1993, respectively, mainly for the purchase of property,
plant, and equipment. Long-term financing arrangements were unchanged from
fiscal 1993 year end. The ratio of current assets to current liabilities of
1.57 held constant from year end. The Company has available $50 million in
unused lines of credit.
OUTLOOK
Despite the favorable financial results described above, future revenue and
profitability remain difficult to predict. The Company continues to face
various risks associated with its business operations including uncertain
general worldwide economic conditions and lingering worldwide recessionary
conditions (particularly in Europe and Japan). Such conditions could affect
the Company's future performance.
As discussed in the Annual Report Form 10-K for the fiscal year ended October
1, 1993, the Company is involved in certain environmental matters. The Company
has established reserves for these environmental matters, which reserves
management believes are adequate. Based on information currently available,
management continues to believe that the costs of these matters, individually
or in the aggregate, are otherwise not reasonably likely to have a material
adverse effect on the financial condition or results of operations of the
Company.
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<PAGE> 11
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Varian Associates, Inc.:
We have reviewed the consolidated balance sheet of Varian Associates, Inc. and
subsidiary companies as of December 31, 1993, and the related consolidated
statements of earnings and the condensed consolidated statements of cash flows
for the quarters ended December 31, 1993 and January 1, 1993. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the aforementioned financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand
------------------------
COOPERS & LYBRAND
San Jose, California
January 20, 1994
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<PAGE> 12
PART II. OTHER INFORMATION
Item 1 Legal Proceedings
On September 21, 1988, Rodney Shields, who purports to be a stockholder of the
Company, filed a stockholder's derivative action in the Superior Court of the
State of California, County of Santa Clara. The complaint alleged that the
Company obtained certain defense contracts by illegal means, overcharged the
government in connection with other defense contracts, and that certain named
individuals, including 17 present or former directors or officers of the
Company, breached their fiduciary duties. On November 2, 1993, the California
Court of Appeal issued a writ of mandate directing entry of summary judgment in
favor of all defendants. Mr. Shields did not seek further judicial review of
that writ, and a judgment of dismissal was entered by the Superior Court on
December 27, 1993.
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Item 6 Exhibits and Reports on Form 8-K
- - ------ --------------------------------
(a) Exhibit 11-Computation of Earnings Per Share.
(b) Exhibit 15-Letter Regarding Unaudited Interim Financial Information.
(c) Reports on Form 8-K:
There were no reports on Form 8-K filed for the first quarter ended December 31, 1993.
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SIGNATURE
Pursuant to the requirements 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 ASSOCIATES, INC.
----------------------------
Registrant
February 10, 1994
----------------------------
Date
/s/ Wayne P. Somrak
----------------------------
Wayne P. Somrak
Vice President and Controller
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<PAGE> 13
INDEX OF EXHIBITS
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Exhibit
Number Page
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11 Computation of Earnings Per Share 14
15 Letter Regarding Unaudited Interim Financial Information 15
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<PAGE> 1
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
UNAUDITED
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<CAPTION>
First Quarter Ended
-----------------------------
Dec 31, Jan 1,
(Shares in Thousands) 1993 1993
--------- --------
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Actual weighted average shares outstanding for the period 17,277 18,040
Dilutive employee stock options 545 420
------ ------
Weighted average shares outstanding for the period 17,822 18,460
======= =======
(Dollars in thousands, except per share amounts)
Earnings applicable to fully diluted earnings per share $11,664 $ 6,563
======= =======
Earnings per share based on SEC interpretive release
No. 34-9083:
Earnings per share - Fully Diluted (1) $0.65 $0.36
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(1) There is no significant difference between fully diluted earnings per share
and primary earnings per share.
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<PAGE> 1
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Varian Associates, Inc.
Registrations on Forms S-8 and S-3
We are aware that out report dated January 20, 1994 on our review of the
interim financial infomation of Varian Associates, Inc. for the quarter ended
December 31, 1993 included in this Form 10-Q is incorporated by reference in
the Company's registration statements on Forms S-8, Registration Statement
Numbers 33-46000, 33-33661, 33-33660, and 2-95139 and Forms S-8 and S-3,
Registration Statement Number 33-40460. Pursuant to Rule 436(c) under the
Securities Act of 1933 this report should not be considered a part of the
registration statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand
---------------------
COOPERS & LYBRAND
San Jose, California
February 9, 1994
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