<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 April 1, 1994
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 it charter:
VARIAN ASSOCIATES, INC.
<TABLE>
<S> <C>
State or other jurisdiction of IRS Employer
incorporation or organization: Identification No.:
DELAWARE 94-2359345
</TABLE>
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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
------------------- --------------------
<S> <C>
Common Stock, New York Stock Exchange
$1 par value Pacific Stock Exchange
Preferred Stock New York Stock Exchange
Purchase Rights Pacific Stock Exchange
</TABLE>
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 15.
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of April 29, 1994: 34,380,000 shares of $1 par
value common stock.
1 of 17
<PAGE> 2
PART 1. FINANCIAL INFORMATION
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
------------------------- -----------------------
(Dollars in thousands April 1, April 2, April 1, April 2,
except per share amounts) 1994 1993 1994 1993
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
SALES $ 394,534 $ 325,304 $ 718,284 $ 616,636
---------- ---------- ---------- ----------
OPERATING COSTS AND EXPENSES
Cost of sales 264,762 216,692 484,407 417,111
Research and development 21,480 19,137 39,905 36,098
Marketing 46,126 44,059 87,833 84,819
General and administrative 31,523 29,072 55,620 51,027
---------- ---------- ---------- ----------
Total operating costs and expenses 363,891 308,960 667,765 589,055
---------- ---------- ---------- ----------
OPERATING EARNINGS 30,643 16,344 50,519 27,581
Interest expense, net 1,065 1,351 2,127 2,005
---------- ---------- ---------- ----------
EARNINGS BEFORE TAXES 29,578 14,993 48,392 25,576
Taxes on Earnings 11,240 5,700 18,390 9,720
---------- ---------- ---------- ----------
NET EARNINGS $ 18,338 $ 9,293 $ 30,002 $ 15,856
========== ========== ========== ==========
Average Shares Outstanding Including
Common Stock Equivalents (1) 35,697 36,508 35,742 36,730
========== ========== ========== ==========
EARNINGS PER SHARE - FULLY DILUTED (1) $ 0.51 $ 0.25 $ 0.84 $ 0.43
========== ========== ========== ==========
- - ----------------------------------------------------------------------------------------
Dividends Declared Per Share (1) $ 0.06 $ 0.05 $ 0.11 $ 0.10
Order Backlog $ 753,500 $ 612,200
- - ----------------------------------------------------------------------------------------
</TABLE>
(1) Note: Prior periods restated for two-for-one stock split effected in the
form of a stock dividend in Q2 FY94.
See accompanying notes to the consolidated financial statements.
-2-
<PAGE> 3
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
April 1, October 1,
(Dollars in thousands except par values) 1994 1993
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 65,036 $ 73,307
Accounts receivable 325,130 290,513
Inventories
Raw materials and parts 109,740 89,708
Work in process 59,988 44,705
Finished goods 21,294 27,000
--------- ----------
Total Inventories 191,022 161,413
Other current assets 68,004 65,793
--------- ----------
Total Current Assets 649,192 591,026
Property, Plant, and Equipment 557,591 544,316
Accumulated depreciation and amortization (330,019) (313,841)
--------- ---------
Net Property, Plant, and Equipment 227,572 230,475
Other Assets 52,444 57,506
--------- ---------
TOTAL ASSETS $ 929,208 $ 879,007
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable $ 49,276 $ 22,858
Accounts payable - trade 65,195 58,654
Accrued expenses 210,059 203,848
Product warranty 38,801 35,615
Advance payments from customers 65,955 61,282
-------- --------
Total Current Liabilities 429,286 382,257
Long-Term Debt 60,399 60,470
Deferred Taxes 21,355 21,361
-------- --------
Total Liabilities 511,040 464,088
--------- ---------
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 34,423,000 shares at April 1,1994 and
34,684,000 shares at October 1, 1993 (1) 34,423 17,342
Retained earnings 383,745 397,577
-------- --------
Total Shareholders' Equity 418,168 414,919
--------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 929,208 $ 879,007
========= =========
</TABLE>
(1) Outstanding shares have been adjusted on a retroactive basis for the
two-for-one stock split effected in the form of a stock dividend in Q2
FY94.
See accompanying notes to the consolidated financial statements.
-3-
<PAGE> 4
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six Months Ended
------------------------
April 1, April 2,
(Dollars in thousands) 1994 1993
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $ 14,046 $ 16,397
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (25,563) (19,235)
Other, net 3,123 (1,143)
--------- ---------
Net Cash Used by Investing Activities (22,440) (20,378)
FINANCING ACTIVITIES
Net borrowings on short-term obligations 26,418 830
Proceeds from long-term borrowings - 20,000
Proceeds from common stock issued to employees 16,124 12,395
Purchase of common stock (39,079) (40,516)
Other, net (3,843) (8,868)
---------- ---------
Net Cash Used by Financing Activities (380) (16,159)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 503 1,960
---------- ---------
Net Decrease in Cash and Cash Equivalents (8,271) (18,180)
Cash and Cash Equivalents at Beginning of Period 73,307 66,743
---------- ----------
Cash and Cash Equivalents at End of Period $ 65,036 $ 48,563
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE> 5
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 second quarter ended April 1, 1994, and April 2,
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 $50.8 at April 1, 1994, $50.8
at October 1, 1993, and $52.0 at April 2, 1993.
NOTE 3: The Company enters into forward exchange contracts to mitigate
the effects of operational (sales orders and purchase commitments)
and balance sheet exposures to fluctuations in foreign
currency exchange rates. When the Company's foreign exchange
contracts hedge operational exposure, the effects of movements in
currency exchange rates on these instruments are recognized in income
when the related revenue and expenses are recognized. When foreign
exchange contracts hedge balance sheet exposure, such effects are
recognized in income when the exchange rate changes. Because the
impact of movements in currency exchange rates on foreign exchange
contracts generally offsets the related impact on the underlying
-5-
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3: (Continued)
items being hedged, these instruments do not subject the Company to
risk that would otherwise result from changes in currency exchange
rates. At April 1, 1994, the Company had forward exchange
contracts with maturities of twelve months or less to sell foreign
currencies totalling $64.7 million (3.3 million Canadian dollars,
4.0 million Swiss francs, 12.1 million Deutsche marks, 6.0 million
Finnish marks, 97.0 million French Francs, 4.1 million British
pounds, 8.7 billion Italian lira, 2.2 billion Japanese yen and 20.0
million Swedish krona) and to buy foreign currencies totalling
$17.0 million (8.6 million British pounds and 445.0 million
Japanese yen).
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:
<TABLE>
<S> <C> <C>
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
</TABLE> =====
-6-
<PAGE> 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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.
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.
-7-
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6: (Continued)
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
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.
NOTE 7: All share and per share information has been restated to reflect a
two-for-one stock split, effected in the form of a stock dividend,
which was distributed in March 1994.
-8-
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
On April 21, Varian reported significantly higher orders, sales
and profits for the second quarter and first half of 1994 from
last year's comparable periods. Earnings per share also increased
in the second quarter, reaching $0.51 (adjusted for the 2-for-1
stock split distributed in March 1994) from $0.25 a year ago.
Net earnings for the quarter increased 97% to $18.3 million from
$9.3 million in the year-ago period. Orders of $413 million rose
29% over last year's $319 million. Second quarter sales totaled
$395 million, versus $325 million of a year ago. Backlog of $754
million was up 23% over the prior year.
In the first six months of 1994, Varian had net earnings of $30
million ($0.84 per share) which nearly doubled the prior year's
$15.9 million ($0.43 per share). First-half orders reached $853
million compared to 1993's $661 million. Sales rose to $718
million, from $617 million in 1993.
First-half orders continued to grow, with all four core businesses
contributing to this growth and experiencing higher profitability
during the quarter as well as the first six months of 1994.
Orders for Health Care Systems rose 16% for the half year, as the
business posted its fourth straight quarter of over $100 million
in bookings. First-half sales advanced 8%, pushing backlog to $297
million. The business also achieved better operating margins
relative to the year-ago period.
Demand for Varian's cancer therapy equipment remains strong, both
domestically and internationally. This reflects growing
appreciation of the cost-effectiveness of radiation therapy as
well as the enhanced treatment capabilities of Varian's products.
Orders for X-ray tube products also rose.
Instruments' orders registered a 13% gain during the second
quarter, and were up modestly from the first-half. Sales and
profits were also ahead of 1993 levels, while backlog rose 27%
over the prior year's mid-point.
The increase in Instruments' orders was led by the nuclear
magnetic resonance instrument business and the revitalized vacuum
products operation. New instruments and accessories designed to
match customer needs in several diverse markets also contributed
to the higher business levels.
-9-
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Semiconductor Equipment orders rose to $306 million during the
first six months. Sales were 71% ahead of the year-ago period.
Backlog rose for the fourth quarter in a row, increasing 119% over
the prior year period to $193 million. Some moderation in demand
is likely during the second-half of fiscal 1994.
First-half orders for the Electron Devices business were slightly
ahead of last year, while sales and backlog were modestly lower.
Aggressive downsizing in this business over the last several years
has allowed improved operating margins despite slow market
conditions.
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
six months of fiscal 1994. Operating activities provided $14.1
million in the first-half of fiscal 1994 compared to $16.4 million
in the same period last year. Investing activities used $22.4
million and $20.4 million in the first half of fiscal years 1994
and 1993, respectively, mainly for the purchase of property,
plant, and equipment. Financing activities used cash of $0.4
million in the first half of fiscal year 1994, compared to $16.2
million in the same period last year. Net borrowings of $26.4
million increased total debt as a percentage of total capital to
20.8% at the end of the second quarter of fiscal year 1994 as
compared with 16.7% at the end of fiscal year 1993. The ratio of
current assets to current liabilities decreased slightly to 1.51
at April 2, 1994, from 1.55 at fiscal year end, 1993. 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, lingering worldwide recessionary conditions
(particularly in Europe and Japan), and uncertainty regarding
proposed legislation and private initiatives in the U.S. to
control health care costs. Such conditions could affect the
Company's future performance.
-10-
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
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.
-11-
<PAGE> 12
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 April 1, 1994, and the related
consolidated statements of earnings and the condensed consolidated
statements of cash flows for the quarters and semi-annual periods ended
April 1, 1994 and April 2, 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
April 20, 1994
-12-
<PAGE> 13
PART II. OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Stockholders held on February 17, 1994,
the stockholders of the Company voted on the election of five directors to
the Company's Board of Directors for three-year terms. The voting on each
such nominee for director was as follows:
<TABLE>
<CAPTION>
Votes Votes Votes Broker
Nominee For Against Withheld Abstentions Nonvotes1
<S> <C> <C> <C> <C>
Ruth M. Davis 13,785,781 0 34,842 0
David W. Martin, Jr. 13,699,279 0 34,842 0
J. Tracy O'Rourke 13,785,322 0 34,842 0
Donald O. Pederson 13,792,089 0 34,842 0
Richard W. Vieser 13,785,711 0 34,842 0
</TABLE>
1 Pursuant to the Rules of the New York Stock Exchange, this election of
directors constituted a routine matter, and therefore brokers were
permitted to vote without receipt of instructions from clients.
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 second
quarter ended April 1, 1994.
-13-
<PAGE> 14
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
May 12, 1994
------------------------------
Date
/s/ Wayne P. Somrak
------------------------------
Wayne P. Somrak
Vice President and Controller
-14-
<PAGE> 15
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Page
- - ---------- ---------
<S> <C> <C>
11 Computation of Earnings Per Share 16
15 Letter Regarding Unaudited Interim Financial Information 17
</TABLE>
-15-
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
UNAUDITED
<TABLE>
Second Quarter Ended Six Months Ended
Apr 1, Apr 2, Apr 1, Apr 2,
(Shares in Thousands) 1994 1993 1994 1993
<S> <C> <C> <C> <C>
Actual weighted average shares outstanding
for the period (1) 34,486 35,662 34,522 35,866
Dilutive employee stock options (1) 1,211 846 1,220 864
Weighted average shares outstanding for
the period (1) 35,697 36,508 35,742 36,730
(Dollars in thousands, except per share amounts)
Earnings applicable to fully diluted earnings per share $ 18,338 $ 9,293 $ 30,002 $ 15,856
Earnings per share based on SEC interpretive release
No. 34-9083:
Earnings per share - Fully Diluted (1) (2) $ 0.51 $ 0.25 $ 0.84 $ 0.43
</TABLE>
(1) Prior periods restated for two-for-one stock split effected in the form of
a stock dividend in March 1994.
(2) There is no significant difference between fully diluted earnings per share
and primary earnings per share.
-16-
<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 our report dated April 20, 1994 on our review of the
interim financial information of Varian Associates, Inc. for the quarter
ended April 1, 1994 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
May 11, 1994
-17-
