<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 MARCH 28, 1997
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: 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 17.
Number of shares of Common Stock, par value $1 per share, outstanding as of the
close of business on April 25, 1997: 30,462,000 shares.
<PAGE> 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
- ---------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS MARCH 28, MARCH 29, MARCH 28, MARCH 29,
EXCEPT PER SHARE AMOUNTS) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 338,187 $ 417,603 $ 660,146 $ 768,850
--------- --------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of sales 214,266 263,382 424,326 481,497
Research and development 29,200 27,278 55,582 51,795
Marketing 48,684 51,016 97,482 97,740
General and administrative 17,973 23,275 33,868 46,480
--------- --------- --------- ---------
Total Operating Costs and Expenses 310,123 364,951 611,258 677,512
--------- --------- --------- ---------
OPERATING EARNINGS 28,064 52,652 48,888 91,338
Interest expense (1,945) (2,069) (3,765) (3,331)
Interest income 560 1,014 1,287 3,496
--------- --------- --------- ---------
EARNINGS BEFORE TAXES 26,679 51,597 46,410 91,503
Taxes on earnings 9,330 18,570 16,240 32,940
========= ========= ========= =========
NET EARNINGS $ 17,349 $ 33,027 $ 30,170 $ 58,563
========= ========= ========= =========
AVERAGE SHARES OUTSTANDING INCLUDING
COMMON STOCK EQUIVALENTS 31,590 32,169 31,669 32,227
========= ========= ========= =========
NET EARNINGS PER SHARE $ 0.55 $ 1.03 $ 0.95 $ 1.82
========= ========= ========= =========
- ---------------------------------------------------------------------------------------------------
Dividends Declared Per Share $ 0.09 $ 0.08 $ 0.17 $ 0.15
Order Backlog $ 630,949 $ 716,172
- ---------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the consolidated financial statements
-2-
<PAGE> 3
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
MARCH 28, SEPTEMBER 27,
1997 1996
(DOLLARS IN THOUSANDS EXCEPT PAR VALUES) (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 85,894 $ 82,675
Accounts receivable 343,973 380,330
Inventories
Raw materials and parts 122,064 112,322
Work in process 55,798 53,682
Finished goods 34,548 23,878
----------- -----------
Total inventories 212,410 189,882
Other current assets 91,739 91,010
----------- -----------
TOTAL CURRENT ASSETS 734,016 743,897
----------- -----------
Property, Plant, and Equipment 486,803 473,852
Accumulated depreciation and amortization (277,357) (261,766)
----------- -----------
NET PROPERTY, PLANT, AND EQUIPMENT 209,446 212,086
----------- -----------
Other Assets 97,315 62,938
=========== ===========
TOTAL ASSETS $ 1,040,777 $ 1,018,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 44,036 $ 4,362
Accounts payable - trade 74,247 75,745
Accrued expenses 225,719 264,565
Product warranty 46,219 49,251
Advance payments from customers 59,225 56,071
----------- -----------
TOTAL CURRENT LIABILITIES 449,446 449,994
Long-Term Accrued Expenses 34,823 29,007
Long-Term Debt 79,186 60,258
Deferred Taxes 12,083 11,753
----------- -----------
TOTAL LIABILITIES 575,538 551,012
----------- -----------
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
30,493,000 shares at March 28, 1997 and 30,646,000 shares at
September 27, 1996 30,493 30,646
Retained earnings 434,746 437,263
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 465,239 467,909
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,040,777 $ 1,018,921
=========== ===========
</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>
FOR THE SIX MONTHS ENDED
- --------------------------------------------------------------------------------------------------
MARCH 28, MARCH 29,
(DOLLARS IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided/(Used) by Operating Activities $ 22,266 $ (26,751)
-------- ---------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (25,640) (34,730)
Purchase of businesses, net of cash acquired (25,697) --
Other, net 1,044 (3,490)
-------- ---------
Net Cash Used by Investing Activities (50,293) (38,220)
-------- ---------
FINANCING ACTIVITIES
Net borrowings on short-term obligations 33,673 54,363
Proceeds from long-term borrowings 25,000 --
Proceeds from common stock issued to employees 17,456 17,166
Purchase of common stock (45,093) (38,259)
Other, net (5,274) (4,434)
-------- ---------
Net Cash Provided by Financing Activities 25,762 28,836
-------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 5,484 1,171
-------- ---------
Net Increase/(Decrease) in Cash and Cash Equivalents 3,219 (34,964)
Cash and Cash Equivalents at Beginning of Period 82,675 122,728
-------- ---------
Cash and Cash Equivalents at End of Period $ 85,894 $ 87,764
======== =========
</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. The year ended
September 27, 1996 balance sheet data was derived from audited
financial statements, but does not include all disclosures required by
generally accepted accounting principles. 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 and six
months ended March 28, 1997, 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 $47.1 at March 28, 1997, and $46.8 at
September 27, 1996.
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
-5-
<PAGE> 6
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 (Continued)
exchange rate changes. Because the impact of movements in currency
exchange rates on foreign exchange contracts generally offsets the
related impact on the underlying items being hedged, these instruments
do not subject the Company to risk that would otherwise result from
changes in currency exchange rates. At March 28, 1997, the Company had
forward exchange contracts with maturities of twelve months or less to
sell foreign currencies totaling $81.9 million ($25.0 million of
Japanese yen, $14.8 million of French francs, $12.5 million of
Canadian dollars, $9.2 million of German marks, $4.3 million of
British pounds, $4.1 million of Dutch gilders, $3.7 million of Italian
lira, $2.4 million of Taiwan dollars, $2.0 million of Norwegian krone,
$1.3 million of Spanish pesetas, $1.1 million of Belgium francs, $1.0
million of Portuguese escudos and $0.5 million of Austrian
schillings,) and to buy foreign currencies totaling $6.6 million ($2.7
million of Swiss francs, $1.9 million of Japanese yen, $1.4 million of
Dutch gilders, and $0.6 million of Australian dollars).
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 management believes that the Company 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 (including the Panache lawsuit) will
not have a material adverse effect on the consolidated financial
statements of the Company.
-6-
<PAGE> 7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: (Continued)
The Company 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 eight sites where the Company 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 (including facilities disposed of in connection with the
Company's sale of its Electron Devices business during 1995).
For certain of these 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 March 28, 1997, the Company
nonetheless estimated that the Company's future exposure for
environmental related investigation and remediation costs for these
sites ranged in the aggregate from $8.8 million to $30.4 million. The
time frame over which the Company expects to incur such costs varies
with each site, ranging up to 29 years as of March 28, 1997.
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 accrued $8.8 million in estimated
environmental costs as of March 28, 1997. The amount accrued has not
been discounted to present value.
As to other facilities, the Company has gained sufficient knowledge to
be able to better estimate the scope and costs of future environmental
activities. As of March 28, 1997, the Company estimated that the
Company's future exposure for environmental related investigation and
remediation costs for these sites ranged in the aggregate from $63.1
million to $96.1 million. The time frame over which the Company
expects to incur such costs varies with each site, ranging up to 29
years as of March 28, 1997. As to each of these sites, management
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
totalled $67.5 million at March 28, 1997. The Company accordingly
accrued $29.3 million, which represents this best estimate of the
future costs discounted at 4%, net of inflation. This reserve is in
addition to the $8.8 million described above.
The foregoing amounts are only estimates of anticipated future
environmental related costs, and the amounts actually spent in the
years indicated may be greater or less than such estimates. The
aggregate range of cost estimates reflects various uncertainties
inherent in many environmental investigation and remediation
-7-
<PAGE> 8
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: (Continued)
activities and the large number of sites where the Company is
undertaking such investigation and remediation activities. The Company
believes that most of these cost ranges will narrow as investigation
and remediation activities progress.
The Company believes that its reserves are adequate, but as the scope
of its obligations becomes more clearly defined, these reserves may be
modified and related charges 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 to management 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
consolidated financial statements 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 against 36 insurance companies with respect to most of
the above-referenced sites. The Company received certain cash
settlements during 1995 and 1996 from defendants in that lawsuit, and
has a $0.5 million receivable in Other Current Assets at March 28,
1997. The Company has also reached an agreement with another insurance
company under which the insurance company has agreed to pay a portion
of the Company's past and future environmental related expenditures,
and the Company has accordingly recorded a $6.2 million receivable in
Other Assets at March 28, 1997. Although the Company intends to
aggressively pursue additional insurance recoveries, the Company has
not reduced any liability in anticipation of recovery with respect to
claims made against third parties.
NOTE 5: In February 1997, the Financial Accounting Standards Board issued
SFAS 128, "Earnings per Share". SFAS 128 is effective for the
Company's fiscal year 1998. SFAS 128 requires a revised presentation
and calculation of Earnings per Share and that prior periods be
restated to conform to that revised presentation and calculation.
Early adoption of SFAS 128 is not permitted. The impact of its
implementation on the consolidated financial statements of the
Company has not yet been determined.
-8-
<PAGE> 9
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6: Certain prior year balances have been reclassified to conform with
the current year financial statement presentation. This
reclassification has no effect on net income.
NOTE 7: On May 7, 1997, the Company entered into a definitive agreement to
sell its Thin Film Systems business to Novellus Systems, Inc. for $150
million in cash, subject to regulatory approval. A gain is expected to
result from this sale.
-9-
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On April 17, 1997, the Company reported lower orders, sales, and net
earnings for the second quarter of fiscal 1997, compared to the year-ago's
second quarter performance. Earnings per share of $.55 also fell below the
previous year's $1.03 per share. Net earnings for the second quarter were $17.4
million compared to the prior year's $33.0 million. Second-quarter orders of
$376 million were down 13% from the $430 million in the year-ago quarter. Sales
of $338 million in the second quarter rose 5% from the first quarter, but were
off 19% from last year's $418 million. Backlog of $631 million remained
virtually flat with the first quarter, but was well below the year-ago's $716
million. Net earnings for the first six months of fiscal 1997 were $30.2
million, down 48% from the $58.6 million of 1996's first half. Earnings per
share of $.95 for the first six months of fiscal 1997 were also 48% below last
year's $1.82 per share. Orders of $723 million were 17% below last year's $866
million. First-half sales of $660 million were also below the year-ago's $769
million. While the lower first-half results primarily reflect an expected
worldwide slowdown in demand for semiconductor manufacturing equipment, they
were also affected by a brief strike at an Australian instrument factory, some
shipment stretch-outs in the health care sector, and the strong U.S. dollar,
which together had a negative effect on results.
First-half orders of $217 million for the Company's Semiconductor
Equipment business were off 48% from the prior year's first six months, although
second-quarter bookings improved over the first quarter's. Year-to-date second
quarter sales of $200 million also declined from the year-ago's $325 million.
Backlog of $202 million, while off sharply from the prior year's $324 million,
increased sequentially from the previous quarter. The revenue decline resulted
in reduced operating profits for this business for both the quarter and the
half, compared to 1996. However, second-quarter operating profit improved over
the year's first period and remained in the double-digit range.
Year to date orders for the Company's Health Care Systems business rose
to $230 million, with second-quarter bookings up 12% over the first period. A
recovery in the X-ray tube sector accounted for most of the sequential
improvement. First-half bookings in the Oncology Systems sector rose at a
double-digit pace. Sales for the first half of fiscal 1997 totaled $205 million,
down 3% from last year's first six months. Second-quarter shipments, although up
10% sequentially at $107 million, were off 8% from the year-ago quarter. Backlog
rose $36 million over 1996 to $334 million. Operating margins for this business
declined significantly from 1996 levels during the quarter and first six months,
with both product sectors contributing to the decline. Lower revenue was the
principal factor in the margin decline. Second quarter margins improved
sequentially over the prior quarter.
Instruments business orders for the first half of fiscal 1997 rose to
$263 million, due to record second-quarter bookings of $129 million.
Second-quarter sales also achieved a new record at $131 million, climbing 11%
over the year-ago quarter.
-10-
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Year-to-date sales of $253 million rose 10% over the same period last year.
Backlog of $121 million was flat with the year-ago level. Operating margins for
this business rose for both the second quarter and the year-to-date as compared
to the same periods last year. Most of the Company's instrument product lines
contributed to the higher orders, sales, and earnings, as did its Tempe
Electronics Center contract manufacturing operation.
FINANCIAL CONDITION
The Company's financial condition remained strong during the first six
months of fiscal 1997. Operating activities provided cash of $22.3 million in
the first-half of fiscal 1997 and used $26.8 million in the same period last
year. Investing activities during the first six months of fiscal 1997 used $50.3
million, $25.7 million for the purchase of a business and $25.6 million for the
purchase of property, plant and equipment. Investing activities in the same
period last year used $38.2 million of which $34.7 million was used for the
purchase of property, plant and equipment. Financing activities in the
first-half of fiscal 1997 provided $25.8 million, which included $25.0 million
in long-term borrowing. Financing activities provided $28.8 million in the first
six months of fiscal 1996. Total debt as a percentage of total capital increased
to 20.94% at the end of the second quarter of fiscal 1997 as compared with
12.13% at fiscal year end, 1996. The ratio of current assets to current
liabilities was 1.63 to 1 at March 28, 1997, compared to
1.65 to 1 at fiscal year end, 1996. The Company has available $50 million in
unused committed lines of credit.
On May 7, 1997, the Company entered into a definitive agreement to sell
its Thin Film Systems business to Novellus Systems, Inc. for $150 million in
cash, subject to regulatory approval. A gain is expected to result from this
sale.
The Company 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
eight sites where the Company 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 (including facilities disposed of in connection with
the Company's sale of its Electron Devices business during 1995).
For certain of these 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 March 28, 1997, the Company nonetheless estimated that the
Company's future exposure for environmental related investigation and
remediation costs for these sites ranged in the aggregate from $8.8 million to
$30.4 million. The time frame over which the Company expects to incur such costs
varies with each site, ranging up to 29 years as of March 28, 1997. 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
accrued $8.8 million in estimated environmental costs as of March 28, 1997. The
amount accrued has not been discounted to present value.
-11-
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
As to other facilities, the Company has gained sufficient knowledge to
be able to better estimate the scope and costs of future environmental
activities. As of March 28, 1997, the Company estimated that the Company's
future exposure for environmental related investigation and remediation costs
for these sites ranged in the aggregate from $63.1 million to $96.1 million. The
time frame over which the Company expects to incur such costs varies with each
site, ranging up to 29 years as of March 28, 1997. As to each of these sites,
management 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 totalled $67.5 million at
March 28, 1997. The Company accordingly accrued $29.3 million, which represents
this best estimate of the future costs discounted at 4%, net of inflation. This
reserve is in addition to the $8.8 million described above.
The foregoing amounts are only estimates of anticipated future
environmental related costs, and the amounts actually spent in the years
indicated may be greater or less than such estimates. The aggregate range of
cost estimates reflects various uncertainties inherent in many environmental
investigation and remediation activities and the large number of sites where the
Company is undertaking such investigation and remediation activities. The
Company believes that most of these cost ranges will narrow as investigation and
remediation activities progress.
The Company believes that its reserves are adequate, but as the scope
of its obligations becomes more clearly defined, these reserves may be modified
and related charges 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
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, 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 consolidated
financial statements of the Company.
-12-
<PAGE> 13
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 against 36 insurance companies
with respect to most of the above-referenced sites. The Company received certain
cash settlements during 1995 and 1996 from defendants in that lawsuit, and has a
$0.5 million receivable in Other Current Assets at March 28, 1997. The Company
has also reached an agreement with another insurance company under which the
insurance company has agreed to pay a portion of the Company's past and future
environmental related expenditures, and the Company has accordingly recorded a
$6.2 million receivable in Other Assets at March 28, 1997. Although the Company
intends to aggressively pursue additional insurance recoveries, the Company has
not reduced any liability in anticipation of recovery with respect to claims
made against third parties.
-13-
<PAGE> 14
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 March 28, 1997, and the related consolidated
statements of earnings for the quarters and semi-annual periods ended March 28,
1997 and March 29, 1996, and the condensed consolidated statements of cash flows
for the semi-annual periods ended March 28, 1997 and March 29, 1996. These
financial statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews, 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
May 8, 1997
-14-
<PAGE> 15
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 20, 1997, 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 Broker
Nominee For Withheld Abstentions Nonvotes(1)
- ------- ---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Ruth M. Davis 25,781,936 188,200 0
David W. Martin, Jr. 25,795,560 174,756 0
J. Tracy O'Rourke 25,796,380 173,756 0
Jon D. Tompkins 25,779,075 191,061 0
Richard W. Vieser 25,784,980 185,156 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) Exhibits:
Exhibit 11 Computation of Earnings Per Share.
Exhibit 15 Letter Regarding Unaudited Interim Financial Information.
Exhibit 27 Financial Data Schedule (EDGAR filing only).
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed for the second quarter
ended March 28, 1997.
-15-
<PAGE> 16
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 9, 1997
-----------------------------
Date
/s/ Wayne P. Somrak
-----------------------------
Wayne P. Somrak
Vice President and Controller
(Chief Accounting Officer)
-16-
<PAGE> 17
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
- ------
<S> <C>
11 Computation of Earnings Per Share
15 Letter Regarding Unaudited Interim Financial Information
27 Financial Data Schedule (EDGAR filing only)
</TABLE>
-17-
<PAGE> 1
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
UNAUDITED
<TABLE>
<CAPTION>
SECOND QUARTER ENDED SIX MONTHS ENDED
MARCH 28, MARCH 29, MARCH 28, MARCH 29,
(SHARES IN THOUSANDS) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actual weighted average shares outstanding for the period 30,532 31,076 30,619 31,078
Dilutive employee stock options 1,058 1,093 1,050 1,149
------- ------- ------- -------
Weighted average shares outstanding for the period 31,590 32,169 31,669 32,227
======= ======= ======= =======
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- -----------------------------------------------
Earnings applicable to fully diluted earnings per share $17,349 $33,027 $30,170 $58,563
======= ======= ======= =======
Earnings per share based on SEC interpretive release
No. 34-9083:
Earnings per share - Fully Diluted(1) $ 0.55 $ 1.03 $ .95 $ 1.82
======= ======= ======= =======
</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 May 8, 1997 on our reviews of the interim
financial information of Varian Associates, Inc. for the quarters and
semi-annual periods ended March 28, 1997 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
May 9,1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> MAR-28-1997
<CASH> 85,894
<SECURITIES> 0
<RECEIVABLES> 346,362
<ALLOWANCES> 2,389
<INVENTORY> 212,410
<CURRENT-ASSETS> 734,016
<PP&E> 486,803
<DEPRECIATION> 277,357
<TOTAL-ASSETS> 1,040,777
<CURRENT-LIABILITIES> 449,446
<BONDS> 0
0
0
<COMMON> 30,493
<OTHER-SE> 434,746
<TOTAL-LIABILITY-AND-EQUITY> 1,040,777
<SALES> 660,146
<TOTAL-REVENUES> 660,146
<CGS> 424,326
<TOTAL-COSTS> 611,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,765
<INCOME-PRETAX> 46,410
<INCOME-TAX> 16,240
<INCOME-CONTINUING> 30,170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,170
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.95
</TABLE>
