<PAGE> 1
UNITED STATES
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 29, 1995
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.
State or other jurisdiction of IRS Employer
incorporation or organization: Identification No.:
DELAWARE 94-2359345
Address of principal executive offices:
3050 Hansen Way, Palo Alto, California 94304-1000
Telephone No., including area code:
(415) 493-4000
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 preceeding 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.
YES X NO
--- ---
An index of exhibits filed with this Form 10-Q is located on page 14.
Number of shares of Common Stock, par value $1 per share, outstanding as of the
close of business on January 26, 1995: 31,075,000 shares.
<PAGE> 2
PART 1. FINANCIAL INFORMATION
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
- ------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS DECEMBER 29, DECEMBER 30,
EXCEPT PER SHARE AMOUNTS) 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C>
SALES $ 351,247 $ 346,142
------------ -------------
OPERATING COSTS AND EXPENSES
Cost of sales 218,115 230,902
Research and development 24,517 19,754
Marketing 46,724 42,821
General and administrative 23,205 23,442
------------ -------------
TOTAL OPERATING COSTS AND EXPENSES 312,561 316,919
------------ -------------
OPERATING EARNINGS 38,686 29,223
Interest (income)/expense, net (1,220) 930
------------ -------------
EARNINGS FROM CONTINUING
OPERATIONS BEFORE TAXES 39,906 28,293
Taxes on earnings 14,370 10,470
------------ -------------
EARNINGS FROM CONTINUING OPERATIONS $ 25,536 $ 17,823
DISCONTINUED OPERATIONS - NET OF TAXES - 2,927
============ =============
NET EARNINGS $ 25,536 $ 20,750
============ =============
AVERAGE SHARES OUTSTANDING INCLUDING
COMMON STOCK EQUIVALENTS 32,266 34,981
============ =============
EARNINGS PER SHARE - FULLY DILUTED
CONTINUING OPERATIONS $ 0.79 $ 0.51
DISCONTINUED OPERATIONS - 0.08
------------ -------------
NET EARNINGS PER SHARE $ 0.79 $ 0.59
============ =============
- ------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.07 $ 0.06
Order Backlog $ 725,403 $ 722,861
- ------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements.
-2-
<PAGE> 3
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
DECEMBER 29, SEPTEMBER 29,
(DOLLARS IN THOUSANDS EXCEPT PAR VALUES) 1995 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 71,626 $ 122,728
Accounts receivable 321,551 346,330
Inventories
Raw materials and parts 107,915 98,402
Work in process 65,639 52,616
Finished goods 23,397 20,684
-------------- -------------
Total Inventories 196,951 171,702
Other current assets 112,889 116,958
-------------- -------------
TOTAL CURRENT ASSETS 703,017 757,718
Property, Plant, and Equipment 442,207 431,303
Accumulated depreciation and amortization (246,934) (239,422)
-------------- -------------
NET PROPERTY, PLANT, AND EQUIPMENT 195,273 191,881
Other Assets 55,450 54,183
============== =============
TOTAL ASSETS $ 953,740 $ 1,003,782
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 30,098 $ 1,755
Accounts payable - trade 68,469 82,851
Accrued expenses 235,239 316,419
Product warranty 49,415 48,076
Advance payments from customers 58,686 51,600
-------------- -------------
TOTAL CURRENT LIABILITIES 441,907 500,701
Long-Term Accrued Expenses 26,874 29,026
Long-Term Debt 60,264 60,329
Deferred Taxes 19,299 18,797
-------------- -------------
TOTAL LIABILITIES 548,344 608,853
-------------- -------------
STOCKHOLDERS' 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
31,077,000 shares at December 29,1995 and 31,052,000 shares at
September 29, 1995 31,077 31,052
Retained earnings 374,319 363,877
-------------- -------------
TOTAL STOCKHOLDERS' EQUITY 405,396 394,929
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 953,740 $ 1,003,782
============== =============
</TABLE>
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>
FIRST QUARTER ENDED
- --------------------------------------------------------------------------------------------
DECEMBER 29, DECEMBER 30,
(DOLLARS IN THOUSANDS) 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Used by Operating Activities $ (48,660) $ (5,776)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (14,647) (12,135)
Purchase of businesses, net of cash acquired - (9,995)
Other, net (967) 708
--------- -----------
Net Cash Used by Investing Activities (15,614) (21,422)
FINANCING ACTIVITIES
Net borrowings on short-term obligations 28,343 41,597
Proceeds from common stock issued to employees 10,710 4,776
Purchase of common stock (23,592) (18,936)
Other, net (2,252) (2,090)
---------- -----------
Net Cash Provided by Financing Activities 13,209 25,347
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (37) 377
---------- -----------
Net Decrease in Cash and Cash Equivalents (51,102) (1,474)
Cash and Cash Equivalents at Beginning of Period 122,728 78,872
---------- -----------
Cash and Cash Equivalents at End of Period $ 71,626 $ 77,398
========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
-4-
<PAGE> 5
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
NOTES TO THE 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 29, 1995 and December 30, 1994 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 (net realizable
value) using the 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. 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 $46.5 at December 29, 1995, $45.6 at
September 29, 1995, $49.6 at December 30, 1994, and $49.0 at
September 30, 1994.
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
5
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 (Continued)
underlying items being hedged, these instruments do not subject the
Company to risk that would otherwise result from changes in currency
exchange rates. At December 29, 1995, the Company had forward
exchange contracts with maturities of twelve months or less to sell
foreign currencies totaling $54.8 million ($15.9 million of French
francs, $10.2 million of Japanese yen, $9.7 million of Canadian
dollars, $6.5 million of Italian lira, $6.2 million of British
pounds, $5.5 million of Deutsche marks and $0.8 million of Swiss
francs) and to buy foreign currencies totaling $22.9 million (
$8.3million of Swiss francs, $4.9 million of British pounds, $4.8
million of Japanese yen, $3.1 million of Italian lira, $1.3 million
of Australian dollars and $0.5 million of Swedish krona).
NOTE 4 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 in part and denied in part the Company's motion to
dismiss the complaint. Panache Broadcasting filed an amended
complaint in March 1993. In October 1995, the Court affirmed a
federal Magistrate's recommendation to grant in part and deny in part
the Company's motion to dismiss the amended complaint. Also in
October 1995, the Magistrate recommended denial of plaintiff's
request to certify the purported class and recommended certification
of a different and narrower class than that defined by plaintiff. The
Company is appealing that proposed class certification to the
District Court, and believes that it has meritorious defenses to
the Panache lawsuit.
In addition to the above-referenced matter, 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 eight sites to which Varian is alleged to
have shipped manufacturing waste for recycling or disposal. The
Company is also involved in various stages of environmental
investigation and/or remediation under the direction of, or in
consultation with, federal, state, and/or local agencies at certain
current or former Company facilities. Uncertainty as to (a) the
extent to which the Company caused,
6
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4: (Continued)
if at all, the conditions 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) that 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.
Nevertheless, the Company continues to estimate the amounts of these
future costs in periodically establishing reserves, based partly on
progress made in determining the magnitude of such costs, experience
gained from sites on which remediation is ongoing or has been
completed, and the timing and extent of remedial actions required by
the applicable governmental authorities. As of December 29, 1995,
the Company estimated that the present value of the Company's future
exposure for environmental related investigation and remediation
expenditures, including operating and maintenance costs, ranged from
approximately $33.6 million to $56.0 million. The time frame over
which the Company expects to incur such costs varies with each site,
ranging up to 30 years. Management believes that no amount in the
foregoing range of estimated future costs is more probable of being
incurred than any other amount in such range and therefore has
accrued $33.6 million in estimated environmental costs at December
29, 1995.
Although any ultimate liability arising from an environmental related
matter 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 condition, the
likelihood of such occurrence is considered remote. Based on
information currently available to management and its best assessment
of the ultimate amount and timing of environmental related events,
management believes that the costs of these environmental related
matters are not reasonably likely to have a material adverse effect
on the financial condition of the Company.
The Company evaluates its liability for environmental related
investigation and remediation in light of the liability and financial
wherewithal of potentially responsible parties and insurance
companies with respect to which the Company believes that it has
rights to contribution, indemnity and/or reimbursement.
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.
In 1992, the Company filed a lawsuit
7
<PAGE> 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4: (Continued)
against 36 insurance companies with respect to most of the
above-referenced sites. The Company received certain settlements
during 1995 and 1996 and has an $8.8 million receivable in Other
Current Assets at December 29, 1995.
8
<PAGE> 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
On January 18, the Company reported new first-quarter sales and profit
records from continuing operations, and the best quarterly orders in the
Company's history in the period ended December 29, 1995. Orders were $436
million compared to $433 million in the first three months of fiscal 1995.
First-quarter sales of $351 million increased only slightly from the year-ago's
$346 million, prior to adjustments for an equipment distribution agreement with
Tokyo Electron Ltd. (TEL) that was terminated at the end of fiscal 1994.
However, when adjusted for TEL products, sales increased 14% from the prior year
quarter. Net earnings from continuing operations for the quarter were $25.5
million versus the year-ago's $17.8 million. Earnings per share rose 55% to $.79
from $.51 in 1995's first quarter, establishing a new high for the period.
Backlog climbed to an all-time record of $725 million. The higher results were
attributed primarily to a strong performance by the Company's Semiconductor
Equipment business and a continuing rebound in the Company's Instruments
business. Over half of the Company's orders for the quarter came from outside
the United States, with particularly strong activity in the Pacific Rim for all
three of the Company's businesses. The strong international demand was a key
factor in pushing orders in the Semiconductor Equipment segment past the $200
million mark for the first time, as well as in the record Instruments bookings.
First-quarter orders for the Company's Semiconductor Equipment business
rose to $209 million and reflect strong demand in the U.S. as well as the Far
East. Sales were flat, and backlog grew 7%. However, after adjusting for the
discontinuance of the previously mentioned TEL resale arrangement, sales were up
40% and backlog grew 31% from the prior year's quarter. Operating margins for
this business more than doubled from the first quarter of 1995. Demand for ion
implantation systems was particularly strong, as was interest in the Company's
thin-film products. Unlike 1995, when a single $70 million order accounted for
a large share of the total bookings, the 1996 activity was more broadly
distributed.
Although the Company's Health Care Systems business posted its eleventh
consecutive quarter with orders of more than $100 million, bookings for this
segment declined 20% from the year-ago period. The decline primarily reflects
the inordinately large number of bookings received in the final quarter of 1995.
Sales were 9% below the prior year's first quarter. Backlog declined slightly to
$304 million from $310 million at the end of the first quarter of 1995. However,
backlog rose from $293 million in 1995's fourth quarter. Operating margins were
moderately below the year-ago period due to the lower shipments. Cost
containment pressures in the health care industry had a delaying effect on
shipments during the quarter, particularly for the Company's cancer therapy
products. Orders remain good for both of the Company's health care lines, and
backlog for the Oncology Systems unit is at an all time high. The Company
continued to expand its health care role outside the U.S., particularly in the
oncology systems sector where orders grew 70% during the quarter, and has new
products under development which are designed to increase treatment
effectiveness, enhance productivity, and broaden the application of radiation
therapy to a wider array of diseases and disorders. The Company is also moving
to develop new products and broaden its X-ray tube offerings.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The Instruments business' orders grew 18% over the year-ago quarter to a
new high of $129 million, and sales increased by 13%. Backlog also rose 7% from
the previous quarter and 12% from the prior year to a record $119 million.
Operating margins improved as well. All major product lines contributed to the
higher orders. The growth was also broad-based geographically with particular
strength in Europe and the Pacific Rim. New product development efforts are
sharply focused on providing innovations that reduce time, improve results, and
increase productivity.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first
quarter of fiscal 1996. Operating activities used cash of $48.7 million in the
first quarter of fiscal 1996 compared to $5.8 million in the same period last
year. Investing activities used $15.6 million in the first quarter of fiscal
1996, of which $14.6 million was used for the purchase of property, plant and
equipment. Investing activities in the same period last year used $21.4
million, $10.0 million for the purchase of businesses and the remainder used
mainly for the purchase of property, plant and equipment. Financing activities
provided $13.2 million and $25.3 million during the first quarter of 1996 and
1995, respectively. Total debt as a percentage of total capital increased to
18.3% at the end of the first quarter of fiscal 1996 as compared with 13.6% at
fiscal year end, 1995. The ratio of current assets to current liabilities
increased to 1.59 to 1 at December 29, 1995, from 1.51 to 1 at fiscal year end,
1995. The Company has available $50 million in unused committed lines of credit.
10
<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 29, 1995, and the related consolidated
statements of earnings and the condensed consolidated statements of cash flows
for the quarters ended December 29, 1995 and December 30, 1994. 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 L.L.P.
---------------------------
COOPERS & LYBRAND L.L.P.
San Jose, California
January 17, 1996
11
<PAGE> 12
PART II. OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 11 Computation of Earnings Per Share.
Exhibit 15 Letter Regarding Unaudited Interim Financial
Information.
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the first quarter ended
December 29, 1995.
12
<PAGE> 13
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 8, 1996
------------------------------
Date
/s/ Wayne P. Somrak
------------------------------
Wayne P. Somrak
Vice President and Controller
(Chief Accounting Officer)
13
<PAGE> 14
INDEX OF EXHIBITS
Exhibit
Number
- -------
11 Computation of Earnings Per Share
15 Letter Regarding Unaudited Interim Financial Information
27 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
UNAUDITED
<TABLE>
<CAPTION>
FIRST QUARTER ENDED
DEC 29, DEC 30,
(SHARES IN THOUSANDS) 1995 1994
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Actual weighted average shares outstanding for the period 31,079 33,869
Dilutive employee stock options 1,187 1,112
---------- ----------
Weighted average shares outstanding for the period 32,266 34,981
========== ==========
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- ---------------------------------------------------------
Earnings from continuing operations 25,536 17,823
Earnings from discontinued operations - 2,927
---------- ----------
Earnings applicable to fully diluted earnings per share $ 25,536 $ 20,750
========== ==========
Earnings per share based on SEC interpretive release
No. 34-9083:
Earnings from continuing operations 0.79 0.51
Earnings from discontinued operations - 0.08
---------- -----------
Earnings per share - Fully Diluted (1) $ 0.79 $ 0.59
========== ===========
</TABLE>
(1) There is no significant difference between fully diluted earnings per share
and primary earnings per share.
<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 January 17, 1996 on our review of the interim
financial information of Varian Associates, Inc. for the quarter ended December
29, 1995 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 L.L.P.
-----------------------------
Coopers & Lybrand L.L.P.
San Jose, California
February 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1996
<PERIOD-START> SEP-30-1995
<PERIOD-END> DEC-29-1995
<CASH> 71,626
<SECURITIES> 0
<RECEIVABLES> 323,875
<ALLOWANCES> 2,324
<INVENTORY> 196,951
<CURRENT-ASSETS> 703,017
<PP&E> 442,207
<DEPRECIATION> 246,934
<TOTAL-ASSETS> 953,740
<CURRENT-LIABILITIES> 441,907
<BONDS> 0
0
0
<COMMON> 31,077
<OTHER-SE> 374,319
<TOTAL-LIABILITY-AND-EQUITY> 953,740
<SALES> 351,247
<TOTAL-REVENUES> 351,247
<CGS> 218,115
<TOTAL-COSTS> 312,561
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (1,220)
<INCOME-PRETAX> 39,906
<INCOME-TAX> 14,370
<INCOME-CONTINUING> 25,536
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,536
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.79
</TABLE>
