<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 26, 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
(650) 493-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, New York Stock Exchange
$1 par value Pacific Stock Exchange
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates as of December 1, 1997 was $1,735,425,000.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of December 1, 1997: 30,093,000 shares of $1 par value common
stock.
An index of exhibits filed with this Form 10-K is located on pages 15
through 16.
DOCUMENTS INCORPORATED BY REFERENCE:
<TABLE>
<CAPTION>
DOCUMENT DESCRIPTION 10-K PART
- -------------------- ---------
<S> <C>
Certain sections, identified by caption and page
number, of the Registrant's Annual Report to
Stockholders for the fiscal year ended
September 26, 1997 (the "Annual Report") ...................................... I, II, IV
Certain sections, identified by caption, of the Proxy Statement for the
Registrant's 1998 Annual Meeting of Stockholders (the "Proxy Statement")....... III
</TABLE>
<PAGE> 2
PART I
Item 1. Business
Varian Associates, Inc. together with its subsidiaries (hereinafter referred to
as "Varian", the "Company" or the "Registrant") is a high-technology enterprise
which was founded in 1948. It is engaged in the research, development,
manufacture, and marketing of products and services for health care, industrial,
scientific and industrial research, and environmental monitoring. The Company's
principal business segments are health care systems, instruments, and
semiconductor production equipment. Its foreign subsidiaries engage in some of
the aforementioned businesses and market the Company's products outside the
United States. As of September 26, 1997, Varian employed approximately 6,500
people worldwide.
The Company sells its products throughout the world and has 28 field sales
offices in the U.S. and 64 sales offices in other countries. In general, its
markets are quite competitive, characterized by the application of advanced
technology and by the development of new products and applications. Many of the
Company's competitors are large, well-known manufacturers, but there is no
competitor which competes across all of the Company's segments.
There were no material changes in the kinds of products produced or in the
methods of distribution since the beginning of the fiscal year other than the
completion of the sale of the Thin Film Systems operations as described under
the caption "Sale of Business and Discontinued Operation" on page 31 of the
Annual Report, which information is incorporated herein by reference. The
Company anticipates adequate availability of raw materials.
The Company's sales to customers outside of the U.S. for fiscal 1997 were $720
million. The profitability of such sales is subject to greater fluctuation than
U.S. sales because of generally higher marketing costs and changes in the
relative value of currencies. Additional information concerning the method of
accounting for Varian's foreign currency translation is set forth under the
headings "Foreign Currency Translation" and "Forward Exchange Contracts", on
pages 22 and 25-26, respectively, of the Annual Report, which information is
incorporated herein by reference.
The Company's operations are grouped into three segments. These segments, their
products, and the markets they serve are described in the following paragraphs.
The Health Care Systems business manufactures, sells, and services linear
accelerators, simulators for planning cancer treatments, brachytherapy systems,
and data management systems for radiation oncology centers. Sales for this class
of products and services were $340 million, $321 million, and $343 million for
fiscal 1997, 1996, and 1995, respectively. It also designs and manufactures a
wide range of X-ray generating tubes for the medical diagnostic imaging market
worldwide. Linear accelerators are used in cancer therapy and for industrial
radiographic applications. The Company's CLINAC(R) series of medical linear
accelerators, marketed to hospitals and clinics worldwide, generates therapeutic
X-rays and radiation beams for cancer treatment. LINATRON(R) linear accelerators
are used in industrial applications to X-ray heavy metallic structures for
quality control. The Company manufactures tubes for four primary medical X-ray
imaging applications: CT scanner; diagnostic radiographic/fluoroscopic; special
procedures; and mammography. During 1997, Varian received U.S. Food and Drug
Administration approval of new oncology products including a three-dimensional
cancer treatment planning system, and an advanced multileaf collimator used to
more precisely direct electron beams for cancer treatment. Backlog for the
Health Care Systems business amounted to $344 million and $341 million at the
end of fiscal 1997 and 1996, respectively.
2
<PAGE> 3
Item 1. (continued)
The Instruments business manufactures, sells, and services a variety of
scientific instruments for analyzing chemical substances including metals,
inorganic materials, organic compounds, polymers, natural substances, and
biochemicals. The products include liquid and gas chromatographs, gas
chromatograph/mass spectrometers, NMR spectrometers, ultraviolet visible near
infrared spectrometers, atomic absorption spectrometers, inductively coupled
plasma spectrometers, inductively coupled plasma/mass spectrometers, data
systems, and small, disposable tools used to prepare chemical samples for
analysis. Typical applications are found in biochemical and organic chemical
research, measurement of the chemical composition of mixtures, studies of the
chemical structure of pure compounds, quality control of manufactured materials,
chemical analysis of natural products, and environmental monitoring and
measurement. The major segments served are environmental laboratories;
pharmaceutical and chemical industries; chemical, life science, and academic
research; government laboratories; and specific areas of the health care
industry. The Instruments business also manufactures vacuum products and
accessories for industrial and scientific applications. Its vacuum products and
helium leak detectors are utilized in such applications as semiconductor and
automotive manufacturing, high-energy physics, surface analysis, space research,
and petrochemical refining. The Instruments business includes a facility which
fabricates circuit boards and sub-assemblies for customers inside and outside
the Company. Backlog for the Instruments business amounted to $132 million and
$110 million at the end of fiscal 1997 and 1996, respectively.
The Company's Semiconductor Equipment business manufactures, sells, and services
processing systems which are essential to making integrated circuits. Primary
products are ion implantation systems used in wafer fabrication facilities.
Sales for this class of products and services were $345 million, $474 million,
and $357 million for fiscal 1997, 1996, and 1995, respectively. In June, the
Company completed the sale of the Thin Film Systems unit, the smaller of its
Semiconductor Equipment operations, as described under the caption "Sale of
Business and Discontinued Operation" on page 31 of the Annual Report, which
information is incorporated herein by reference. Backlog for the Semiconductor
Equipment business amounted to $151 million and $203 million at the end of
fiscal 1997 and 1996, respectively.
Additional information regarding the Company's lines of business and
international operations are incorporated herein by reference from the
information provided under the headings "Industry Segments" and "Geographic
Segments" on pages 32-33 of the Annual Report.
The Company employs in-house patent attorneys, holds numerous patents in the
United States and in other countries, and has many patent applications pending
in the U.S. and in other countries. The Company considers the development of
patents through creative research and the maintenance of an active patent
program to be advantageous in the conduct of its business, but does not regard
the holding of any particular patent as essential to its operations. The Company
grants licenses to reliable manufacturers on various terms and enters into
cross-licensing arrangements with other parties. Information regarding Varian's
research and development costs is incorporated herein by reference from the
information provided under the heading "Research and Development" on page 23 of
the Annual Report.
The Company's operations are subject to various federal, state, and/or local
laws regulating the discharge of materials to the environment or otherwise
relating to the protection of the environment. 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 (see the information provided under
the
3
<PAGE> 4
Item 1. (continued)
headings "Management's Discussion and Analysis" and "Contingencies" on pages
13-16 and 30-31, respectively, of the Annual Report, which information is
incorporated herein by reference). The Company has established what it believes
to be adequate reserves for these matters. Based on information currently
available, management believes that the Company's compliance with laws which
have been adopted regulating the discharge of materials to the environment or
relating to the protection of the environment is otherwise not reasonably likely
to have a material adverse effect on the capital expenditures, earnings or
competitive position of the Company. Also, estimated capital expenditures for
environmental control facilities are not expected to be material in fiscal 1998,
nor are they expected to be material in fiscal 1999.
Executive Officers of the Registrant
The following table sets forth the names and ages of the Registrant's executive
officers, together with positions and offices held within the last five years by
such executive officers. Officers are appointed to serve until the meeting of
the Board of Directors following the next Annual Meeting of Stockholders and
until their successors have been elected and have qualified. Ages are as of
December 15, 1997.
<TABLE>
<CAPTION>
Name Age Position Term
- ---- --- -------- ----
<S> <C> <C> <C>
J. Tracy O'Rourke (Director) 62 Chairman of the Board and Chief Executive 1990-Present
Officer
Richard A. Aurelio 53 Executive Vice President 1992-Present
Allen J. Lauer 60 Executive Vice President 1990-Present
Richard M. Levy 59 Executive Vice President 1990-Present
Timothy E. Guertin 48 Corporate Vice President 1992-Present
President, Oncology Systems 1990-Present
Robert A. Lemos 56 Vice President, Finance and Chief Financial 1986-Present
Officer
Treasurer 1995-Present
Joseph B. Phair 50 Secretary 1991-Present
Vice President and General Counsel 1990-Present
Wayne P. Somrak 52 Vice President 1991-Present
Controller 1995-Present,
1985-1994
Treasurer 1995
</TABLE>
There is no family relationship between any of the executive officers.
4
<PAGE> 5
Item 2. Properties
The Company's executive offices and principal research and manufacturing
facilities are located in Palo Alto, California, on 45 acres of land held under
leaseholds which expire in the years 2012 through 2058. These facilities are
owned by the Company, and provide floor space totaling 641,316 square feet. The
following is a summary of the Company's properties at September 26, 1997:
<TABLE>
<CAPTION>
Land (Acres) Buildings (000's Sq. Ft.) Number of Buildings
--------------- --------------- ---------------
Owned Leased Owned Leased Owned Leased
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
United States 100 45 1,509 445 19 45
International 27 -- 351 325 6 69
----- ----- ----- ----- ----- -----
127 45 1,860 770 25 114
===== ===== ===== ===== ===== =====
</TABLE>
Utilization of facilities by segment is shown in the following table:
<TABLE>
<CAPTION>
Buildings (000's Sq. Ft.)
=============================================
Manufacturing, Administrative
and Research & Development
Marketing
U.S. Non-U.S. Total and Service Total
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Health Care Systems 540 43 583 180 763
Instruments 456 188 644 359 1,003
Semiconductor Equipment 284 52 336 118 454
Other Operations 46 -- 46 -- 46
----- ----- ----- ----- -----
Total Operations 1,326 283 1,609 657 2,266
===== ===== ===== =====
Other 364
-----
Total 2,630
</TABLE>
Other Operations includes manufacturing support.
The capacity of these facilities is sufficient to meet current demand. The
Company owns substantially all of the machinery and equipment in use in its
plants. It is the Company's policy to maintain its plants and equipment in
excellent condition and at a high level of efficiency.
5
<PAGE> 6
Item 2. (continued)
Manufacturing sites by geographical location are as follows:
Health Care Systems California, Illinois, South Carolina, Utah,
England, Finland, France, Switzerland
Instruments California, Colorado, Massachusetts,
Arizona, Australia, Italy
Semiconductor Equipment Massachusetts, Korea
Company-owned and staffed sales offices throughout the world are located in
North and South America: Argentina, Brazil, Venezuela, Canada, Mexico, United
States; Europe: Austria, Belgium, Denmark, France, Italy, the Netherlands,
Spain, Sweden, Switzerland, Finland, England, Scotland, Germany, India, Russia;
and Pacific Basin: Australia, People's Republic of China, Hong Kong, Japan,
Korea, Singapore, Taiwan and Thailand.
Item 3. Legal Proceedings
Information required by this Item is incorporated herein by reference from the
information provided under the heading "Contingencies" on pages 30-31 of the
Annual Report.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
The information required by this Item is incorporated herein by reference from
the information provided under the heading "Common Stock Prices (Unaudited)" on
page 34 of the Annual Report, and the information provided under the heading
"Long-Term Debt" on page 25 of the Annual Report.
The Company's common stock is listed on the New York and Pacific Stock Exchanges
under the trading symbol VAR.
There were 5,950 holders of record of the Company's common stock on December 1,
1997.
6
<PAGE> 7
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------------------------------------------------------------------------------------------------------------
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Sales $1,425.8 1,599.4 1,575.7 1,313.4 1,061.9
-------- ------- ------- ------- -------
Earnings from Continuing Operations
before Taxes $ 177.8 189.2 165.3 109.1 60.1
Taxes on earnings $ 62.2 67.1 59.5 41.5 22.8
-------- ------- ------- ------- -------
Earnings from Continuing Operations $ 115.6 122.1 105.8 67.6 37.3
Earnings from Discontinued Operations,
Net of Taxes $ -- -- 33.5 11.8 8.5
-------- ------- ------- ------- -------
NET EARNINGS $ 115.6 122.1 139.3 79.4 45.8
======== ======= ======= ======= =======
NET EARNINGS PER SHARE - FULLY DILUTED
Net Earnings Continuing Operations $ 3.66 3.81 3.01 1.90 1.03
Net Earnings Discontinued Operations $ -- -- 0.95 0.32 0.23
-------- ------- ------- ------- -------
NET EARNINGS PER SHARE $ 3.66 3.81 3.96 2.22 1.26
======== ======= ======= ======= =======
DIVIDENDS DECLARED PER SHARE $ 0.350 0.310 0.270 0.230 0.195
======== ======= ======= ======= =======
FINANCIAL POSITION AT YEAR END
Total assets $1,104.3 1,018.9 1,003.8 962.4 878.7
Long-term debt (excluding current portion) $ 73.2 60.3 60.3 60.4 60.5
</TABLE>
This selected financial data should be read in conjunction with the related
consolidated financial statements and notes thereto, incorporated herein by
reference pursuant to Item 8.
7
<PAGE> 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this Item is incorporated herein by reference from
the information provided under the heading "Management's Discussion and
Analysis" on pages 13-16 of the Annual Report.
Item 8. Financial Statements and Supplementary Data
The information required by this Item is incorporated herein by reference from
the Report of Independent Accountants on page 35 of the Annual Report and the
Consolidated Financial Statements, Notes to the Consolidated Financial
Statements, and Supplementary Data on pages 18-34 of the Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
Part III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item with respect to the Company's executive
officers is incorporated herein by reference from the information under Item 1
of Part I of this Report. The information required by this Item with respect to
the Company's directors is incorporated herein by reference from the information
provided under the heading "Election of Directors" of the Proxy Statement which
will be filed with the Commission. The information required by Item 405 of
Regulation S-K is incorporated herein by reference from the information provided
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance" of
the Proxy Statement.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference from
the information provided under the heading "Certain Executive Officer
Compensation and Other Information" of the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference from
the information provided under the heading "Stock Ownership of Certain
Beneficial Owners" of the Proxy Statement.
8
<PAGE> 9
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference from
the information provided under the headings "Management Indebtedness and Certain
Transactions" and "Change in Control Arrangements" of the Proxy Statement.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements The following financial statements of
the Registrant and its subsidiaries, and Report of Independent
Accountants, are incorporated herein by reference from pages 18
through 33 and page 35 of the Annual Report:
Consolidated Financial Statements:
Consolidated Statements of Earnings for fiscal years 1997,
1996, and 1995
Consolidated Balance Sheets at fiscal year-end 1997 and
1996
Consolidated Statements of Stockholders' Equity for fiscal
years 1997, 1996, and 1995
Consolidated Statements of Cash Flows for fiscal years
1997, 1996, and 1995
Notes to the Consolidated Financial Statements
Report of Independent Accountants
(2) Financial Statement Schedule The following financial statement
schedule of the Registrant and its subsidiaries for fiscal years
1997, 1996, and 1995, and the related Report of Independent
Accountants are filed as a part of this Report and should be read in
conjunction with the Consolidated Financial Statements of the
Registrant and its subsidiaries which are incorporated herein by
reference.
<TABLE>
<CAPTION>
Schedule Page
-------- ----
<S> <C>
-- Report of Independent Accountants on Financial 13
Statement Schedule
II Valuation and Qualifying Accounts 14
</TABLE>
All other required schedules are omitted because of the absence of
conditions under which they are required or because the required
information is given in the financial statements or the notes
thereto.
9
<PAGE> 10
Item 14. (continued)
(3) Exhibits:
3-a Registrant's Restated Certificate of Incorporation
(incorporated herein by reference to the
Registrant's Form 10-K for the year ended September
27, 1996).
3-b Registrant's Bylaws (incorporated herein by
reference to the Registrant's Form 10-K for the
year ended October 2, 1992).
10.1 Registrant's Omnibus Stock Plan, as amended and
restated effective as of September 27, 1997.
10.2 Registrant's 1982 Non-Qualified Stock Option Plan
(incorporated herein by reference to Exhibit 4.6 to
the Registration Statement on Form S-8; File No.
33-33660).
10.4 Registrant's Management Incentive Plan
(incorporated herein by reference to Registrant's
Form 10-Q for the quarter ended March 31, 1995).
10.5 Registrant's Supplemental Retirement Plan
(incorporated herein by reference to Registrant's
Form 10-Q for the quarter ended June 30, 1995).
10.6 Registrant's form of Indemnity Agreement with
Directors and Executive Officers (incorporated
herein by reference to Registrant's Form
10-K for the year ended October 1, 1993).
10.7 Registrant's form of Change in Control Agreement
with Executive Officers other than the Chief
Executive Officer (incorporated herein by reference
to Registrant's Form 10-K for the year ended
October 1, 1993).
10.8 Registrant's Change in Control Agreement with J.
Tracy O'Rourke (incorporated herein by reference
to Registrant's Form 10-K for the year ended
October 1, 1993).
10.9 Description of Certain Compensatory Arrangements
between Registrant and Directors (incorporated
herein by reference to Registrant's Form 10-Q for
the quarter ended December 31, 1993).
10.10 Description of Certain Compensatory Arrangements
between Registrant and Executive Officers
(incorporated herein by reference to Registrant's
Form 10-K for the year ended September 30, 1994).
10
<PAGE> 11
Item 14. (continued)
10.11 Description of Certain Relocation Arrangements
between Registrant and Executive Officers
(incorporated herein by reference to Registrant's
Form 10-Q for the quarter ended December 30,
1994).
11 Computation of net earnings per share.
13 Registrant's 1997 Annual Report to Stockholders
(furnished for the information of the Securities
and Exchange Commission only and not deemed to be
filed except for those portions expressly
incorporated by reference herein).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney by directors of the Company
authorizing certain persons to sign this Annual
Report on Form 10-K on their behalf.
27 Financial Data Schedule for the fiscal year ended
September 26, 1997 (EDGAR filing only).
(b) Reports on Form 8-K:
A report on Form 8-K was filed on October 2, 1997, regarding the
Registrant's offer to purchase the radiotherapy service
operation of General Electric Company.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Varian Associates, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VARIAN ASSOCIATES, INC.
(Registrant)
Dated: December 10, 1997 By: /s/ Robert A. Lemos
--------------------
Robert A. Lemos
Vice President, Finance,
Chief Financial Officer,
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated below.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ J. Tracy O'Rourke Chairman of the Board and Chief Executive December 14, 1997
-------------------
J. Tracy O'Rourke Officer (Principal Executive Officer)
/s/ Robert A. Lemos Vice President, Finance, Chief Financial December 10, 1997
-------------------
Robert A. Lemos Officer and Treasurer (Principal Financial
Officer)
/s/ Wayne P. Somrak Vice President and Controller (Principal December 10, 1997
-------------------
Wayne P. Somrak Accounting Officer)
Ruth M. Davis * Director
Robert W. Dutton Director
Samuel Hellman * Director
Terry R. Lautenbach * Director
Angus A. MacNaughton * Director
David W. Martin, Jr. * Director
John G. McDonald Director
Wayne R. Moon * Director
Gordon E. Moore * Director
David E. Mundell * Director
Burton Richter * Director
Elizabeth E. Tallett * Director
Jon D.Tompkins Director
Richard W. Vieser * Director
By /s/ Robert A. Lemos December 10, 1997
-------------------
Robert A. Lemos,
Attorney-in-Fact **
</TABLE>
12
- --------
** By authority of powers of attorney filed herewith.
<PAGE> 13
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
Varian Associates, Inc.
Our report on the consolidated financial statements has been incorporated by
reference in this Form 10-K from page 35 of the 1997 Annual Report to
Stockholders of Varian Associates, Inc. and Subsidiaries. In connection with our
audits of such financial statements, we have also audited the related Financial
Statement Schedule listed in the index on page 9 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
-------------------------------
Coopers & Lybrand L.L.P.
San Jose, California
October 15, 1997
13
<PAGE> 14
SCHEDULE II
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS (1)
for the fiscal years ended 1997, 1996, and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
Balance at Charged to Deductions Balance at
Beginning Costs and ------------------------ End of
Description of Period Expenses Description Amount Period
-------- -------- ------------- -------- --------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL NOTES
& ACCOUNTS RECEIVABLE:
Write-offs
Fiscal Year Ended 1997 $ 2,309 $ 1,468 & Adjustments $ 1,062 $ 2,715
======== ======== ======== ========
Write-offs
Fiscal Year Ended 1996 $ 2,316 $ 876 & Adjustments $ 883 $ 2,309
======== ======== ======== ========
Write-offs
Fiscal Year Ended 1995 $ 2,422 $ 330 & Adjustments $ 436 $ 2,316
======== ======== ======== ========
ESTIMATED LIABILITY FOR
PRODUCT WARRANTY:
Actual
Warranty
Fiscal Year Ended 1997 $ 49,251 $ 42,994 Expenditures $ 54,625(2) $ 37,620
======== ======== ======== ========
Actual
Warranty
Fiscal Year Ended 1996 $ 48,076 $ 52,680 Expenditures $ 51,505 $ 49,251
======== ======== ======== ========
Actual
Warranty
Fiscal Year Ended 1995 $ 41,682 $ 61,954 Expenditures $ 55,560 $ 48,076
======== ======== ======== ========
</TABLE>
(1) As to column omitted the answer is "none."
(2) Includes a $5,226 deduction due to the sale of Thin Film Systems.
14
<PAGE> 15
INDEX OF EXHIBITS
Exhibit
Number
3-a Registrant's Restated Certificate of Incorporation (incorporated
herein by reference to the Registrant's Form 10-K for the year ended
September 27, 1996).
3-b Registrant's Bylaws (incorporated herein by reference to the
Registrant's Form 10-K for the year ended October 2, 1992).
10.1 Registrant's Omnibus Stock Plan, as amended and restated effective
as of September 27, 1997.
10.2 Registrant's 1982 Non-Qualified Stock Option Plan (incorporated
herein by reference to Exhibit 4.6 to the Registration Statement on
Form S-8; File No. 33-33660).
10.4 Registrant's Management Incentive Plan (incorporated herein by
reference to Registrant's Form 10-Q for the quarter ended March 31,
1995).
10.5 Registrant's Supplemental Retirement Plan (incorporated herein by
reference to Registrant's Form 10-Q for the quarter ended June 30,
1995).
10.6 Registrant's form of Indemnity Agreement with Directors and Executive
Officers (incorporated herein by reference to Registrant's Form 10-K
for the year ended October 1, 1993).
10.7 Registrant's form of Change in Control Agreement with Executive
Officers other than the Chief Executive Officer (incorporated herein
by reference to Registrant's Form 10-K for the year ended October 1,
1993).
10.8 Registrant's Change in Control Agreement with J. Tracy O'Rourke
(incorporated herein by reference to Registrant's Form 10-K for the
year ended October 1, 1993)
10.9 Description of Certain Compensatory Arrangements between Registrant
and Directors (incorporated herein by reference to Registrant's Form
10-Q for the quarter ended December 31, 1993).
10.10 Description of Certain Compensatory Arrangements between Registrant
and Description of Certain Compensatory Arrangements between
Registrant Executive Officers (incorporated herein by reference to
Registrant's Form 10-K for the year ended September 30, 1994).
15
<PAGE> 16
INDEX OF EXHIBITS
10.11 Description of Certain Relocation Arrangements between Registrant and
Executive Officers (incorporated herein by reference to Registrant's
Form 10-Q for the quarter ended December 30, 1994).
11 Computation of net earnings per share.
13 Registrant's 1997 Annual Report to Stockholders (furnished for the
information of the Securities and Exchange Commission only and not
deemed to be filed except for those portions expressly incorporated
by reference herein).
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants.
24 Power of Attorney by directors of the Company authorizing certain
persons to sign this Annual Report on Form 10-K on their behalf.
27 Financial Data Schedule for the fiscal year ended September 26, 1997
(EDGAR filing only).
16
<PAGE> 1
EXHIBIT 10.1
VARIAN ASSOCIATES, INC.
OMNIBUS STOCK PLAN
(as amended and restated effective as of September 27, 1997)
1. PURPOSE
The purpose of the Plan is to provide a vehicle under which a variety of
stock-based incentive and other awards may be granted to employees and directors
of the Company and its Subsidiaries to promote the Company's success.
2. DEFINITIONS
A. "Award" means any form of stock option, restricted stock, stock
appreciation right, long-term incentive award or other incentive award granted
under the Plan.
B. "Award Notice" means any written notice from the Company to a
Participant or agreement between the Company and a Participant that establishes
the terms applicable to an Award.
C. "Board of Directors" means the Board of Directors of the Company.
D. "Code" means the Internal Revenue Code of 1986, as amended.
E. "Committee" means the Organization and Compensation Committee of the
Board of Directors, or such other committee designated by the Board of
Directors, which is authorized to administer the Plan under Section 3 hereof.
The Committee shall be comprised solely of Directors who are both (i)
non-employee directors under Rule 16b-3, and (ii) outside directors under
Section 162(m) of the Code.
F. "Common Stock" means common stock of the Company.
G. "Company" means Varian Associates, Inc.
H. "Director" means a member of the Board of Directors.
I. "Exchange Act" means the Securities Exchange Act of 1934, as amended.
J. "Fair Market Value" means, as of a specified date, the mean of the
high and the low sales price of the Common Stock on the composite tape for the
New York Stock Exchange-listed securities, or if not traded on that date, then
on the date last traded. If for any reason the Company's stock ceases to be
listed on the New York Stock Exchange, the Committee shall establish the method
for determining the Fair Market Value of the Common Stock.
K. "Key Employee" means any employee of the Company or a Subsidiary
whose performance the Committee determines can have a significant effect on the
success of the Company.
L. "Participant" means any individual to whom an Award is granted under
the Plan.
M. "Plan" means this Plan, which shall be known as the Varian
Associates, Inc. Omnibus Stock Plan.
1
<PAGE> 2
Exhibit 10.1 (continued)
N. "Return on Equity" means the Company's annual earnings expressed as a
percentage of the Company's annual average shareholders equity, as reported in
the Company's Annual Report to Stockholders.
O. "Return on Net Assets" means annual operating earnings expressed as a
percentage of annual average net assets. Return on Net Assets for a multi-year
performance period means the average of Return on Net Assets calculated
separately for each fiscal year of such multi-year period.
P. "Revenue Growth" means growth in revenues during a specified period
expressed as a percentage of revenues in a prior period.
Q. "Rule 16b-3" means Rule 16b-3 issued under the Exchange Act, or any
successor rule.
R. "Subsidiary" means a corporation or other business entity (i) of
which the Company directly or indirectly has an ownership interest of 50% or
more, or (ii) of which it has a right to elect or appoint 50% or more of the
board of directors or other governing body.
3. ADMINISTRATION
A. The Plan shall be administered by the Committee. The Committee shall
have the authority to:
(i) interpret and determine all questions of policy and
expediency pertaining to the Plan;
(ii) adopt such rules, regulations, agreements and
instruments as it deems necessary for its proper
administration;
(iii) select Key Employees to receive Awards;
(iv) determine the form and terms of Awards;
(v) determine the number of shares or other consideration
subject to Awards (within the limits prescribed in the
Plan);
(vi) determine whether Awards will be granted singly, in
combination, in tandem, in replacement of, or as
alternatives to, other grants under the Plan or any
other incentive or compensation plan of the Company, a
Subsidiary or an acquired business unit;
(vii) grant waivers of Plan or Award conditions (other than
Awards intended to qualify under Section 162(m) of the
Code);
(viii) accelerate the vesting, exercise or payment of Awards
(but with respect to Awards intended to qualify under
Section 162(m) of the Code, only as permitted under that
Section);
(ix) correct any defect, supply any omission, or reconcile
any inconsistency in the Plan, any Award or any Award
Notice;
(x) establish and administer Awards in addition to the types
specifically enumerated in Section 2.A. which the
Committee determines are consistent with the Plan's
purpose; and
2
<PAGE> 3
Exhibit 10.1 (continued)
(xi) take any and all other actions it deems necessary or
advisable for the proper administration of the Plan.
B. The Committee may adopt such Plan amendments, procedures,
regulations, subplans and the like as it deems are necessary to enable Key
Employees and Directors who are foreign nationals or employed outside the United
States to receive Awards.
C. The Committee may delegate its authority to grant and administer
Awards to a separate committee; however, only the Committee may grant and
administer Awards (i) with respect to persons who are subject to Section 16 of
the Exchange Act, and (ii) which are intended to qualify as performance-based
compensation under Section 162(m) of the Code.
4. ELIGIBILITY
A. Any Key Employee is eligible to become a Participant in the Plan.
B. Directors who are not employees of the Company or a Subsidiary shall
receive Awards in accordance with Section 7.
5. SHARES AVAILABLE
A. Subject to Section 15, the maximum number of shares of Common Stock
available for Award grants (including incentive stock options) during each
fiscal year shall be 5% of the total outstanding shares of the Company on the
last business day of the preceding fiscal year. The maximum number of shares of
Common Stock available for incentive stock option grants under the Plan is
6,000,000.
B. The shares of Common Stock available under the Plan may be authorized
and unissued shares or treasury shares.
6. TERM
The Plan as amended shall become effective as of September 27, 1997, and
shall continue in effect until terminated by the Board of Directors. However,
Awards under Section 10 which are intended to qualify under Section 162(m) of
the Code shall be conditional upon approval of Sections 2.P. and 10.C. of the
Plan by the Company's stockholders not later than the 1998 annual meeting of
stockholders.
7. AWARDS TO NON-EMPLOYEE DIRECTORS
Directors who are not employees of the Company or a Subsidiary shall
receive Awards in accordance with the following terms:
A. On the first business day following initial adoption of this Plan by
the Board of Directors, and thereafter on the first business day of each fiscal
year, each such director shall receive (i) a fully vested grant of 200 shares of
Common Stock, subject to payment to the Company of the aggregate par value of
such shares in cash, and (ii) a non-qualified stock option for 2,000 shares.
B. Options to such directors shall be subject to the following terms:
(i) the exercise price shall be equal to 100% of the Fair Market Value of the
shares on the date of the grant, payable in accordance with all the alternatives
stated in Sections 8.B.(ii) and (iii); (ii) the term of the options shall be 10
years; (iii) the options shall be exercisable beginning 12 months after the date
of the grant; and (iv) the options shall be subject to Section 13.
3
<PAGE> 4
Exhibit 10.1 (continued)
8. STOCK OPTIONS
A. Awards may be granted in the form of stock options. Stock options may
be incentive stock options within the meaning of Section 422 of the Code or
non-qualified stock options (i.e., stock options which are not incentive stock
options). During any fiscal year of the Company, no Participant shall be granted
options for more than 1,000,000 shares.
B. Subject to Section 8.C. relating to incentive stock options, options
shall be in such form and contain such terms as the Committee deems appropriate.
While the terms of options need not be identical, each option shall be subject
to the following terms:
(i) The exercise price shall be the price set by the
Committee but may not be less than 100% of the Fair
Market Value of the shares on the date of the grant.
(ii) The price shall be paid in cash (including check, bank
draft, or money order), or at the discretion of the
Committee, all or part of the purchase price may be paid
by delivery of the optionee's full recourse promissory
note, delivery of Common Stock already owned by the
Participant for at least 6 months and valued at its Fair
Market Value, or any combination of the foregoing
methods of payment, provided no less than the par value
of the stock is paid in cash. In the case of incentive
stock options, the terms of payment shall be determined
at the time of grant.
(iii) Promissory notes given as payment of the price, if
permitted by the Committee, shall contain such terms as
set by the Committee which are not inconsistent with the
following: the unpaid principal shall bear interest at a
rate set from time to time by the Committee; payments of
principal and interest shall be made no less frequently
than annually; no part of the note shall be payable
later than 10 years from the date of purchase of the
shares; and the optionee shall give such security as the
Committee deems necessary to ensure full payment.
(iv) The term of an option may not be greater than 10 years
from the date of the grant.
(v) Neither a person to whom an option is granted nor his
legal representative, heir, legatee or distributee shall
be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject
to such option unless and until he has exercised his
option.
C. The following special terms shall apply to grants of incentive stock
options:
(i) No incentive stock option shall be granted after the
10th anniversary of the date the Plan was initially
adopted by the Board of Directors.
(ii) Subject to Section 8.C.(iii), the price under each
incentive stock option shall not be less than 100% of
the Fair Market Value of the shares on the date of the
grant.
(iii) No incentive stock option shall be granted to any
employee who directly
4
<PAGE> 5
Exhibit 10.1 (continued)
or indirectly owns stock possessing more than 10% of the
total combined voting power of all classes of stock of
the Company, unless at the time of such grant the option
price is at least 110% of the Fair Market Value of the
stock subject to the option and such option is not
exercisable after the expiration of 5 years from the
date of the grant.
(iv) No incentive stock option shall be granted to a person
in his capacity as a Key Employee of a Subsidiary if the
Company has less than a 50% ownership interest in such
Subsidiary.
(v) The Fair Market Value (determined on the date(s) of
grant) of the shares subject to incentive stock options
which first become exercisable during any calendar year
shall not exceed $100,000 for any employee.
(vi) Options shall contain such other terms as may be
necessary to qualify the options granted therein as
incentive stock options pursuant to Section 422 of the
Code, or any successor statute.
9. RESTRICTED STOCK
A. Awards may be granted in the form of restricted stock. During any
fiscal year of the Company, no Participant shall be granted more than 25,000
shares of restricted stock.
B. Grants of restricted stock shall be awarded in exchange for
consideration equal to an amount from 0 to 50% of the aggregate Fair Market
Value of such stock, as determined by the Committee. The price, if any, of such
restricted stock shall be paid in cash, or at the discretion of the Committee,
all or part of the purchase price may be paid by delivery of the Participant's
full recourse promissory note, delivery of Common Stock already owned by the
Participant for at least 6 months and valued at its Fair Market Value, or any
combination of the foregoing methods of payment, provided no less than the par
value of the stock is paid in cash, or the Participant has rendered no less than
3 months' prior service to the Company.
C. Restricted stock awards shall be subject to such restrictions as the
Committee may impose including, if the Committee shall so determine,
restrictions on transferability and restrictions relating to continued
employment. For purposes of qualifying restricted stock as performance-based
compensation under Section 162(m) of the Code, the Committee may in its
discretion determine that grants of restricted stock shall be conditioned on the
achievement of pre-established Company goals for Return on Equity. The target
goals for Return on Equity and the number of shares which may be awarded upon
achievement of such target goals, shall be set by the Committee on or before the
latest date permissible so as to qualify under Section 162(m) of the Code. In
granting restricted stock which is intended to qualify under Section 162(m) of
the Code, the Committee shall follow any procedures determined by it to be
necessary or appropriate to ensure such qualification. No restricted stock award
intended to qualify under Section 162(m) of the Code shall be paid unless and
until the Committee certifies in writing that the pre-established performance
goals have been satisfied.
D. The Committee, in its discretion, may reduce or eliminate a
Participant's restricted stock award at any time before it is granted, whether
or not calculated on the basis of pre-established performance goals or formulas.
E. The Committee shall have the discretion to grant to a Participant
receiving restricted shares all or any of the rights of a stockholder while such
shares continue to be subject to restrictions.
5
<PAGE> 6
Exhibit 10.1 (continued)
10. LONG-TERM INCENTIVE AWARDS
A. Awards may be granted in the form of long-term incentive awards,
which shall be made on the basis of Company and/or business unit performance
goals and formulas determined by the Committee in its sole discretion. In the
discretion of the Committee, long-term incentive awards may be paid in cash
and/or shares of Common Stock having an equivalent value (based on Fair Market
Value on the date that a cash payment otherwise would have been made to the
Participant).
B. During any fiscal year of the Company, no Participant shall receive a
long-term incentive award of more than (i) 200% of that Participant's annual
base salary at the end of the applicable performance period, or (ii) $5,000,000,
whichever of these amounts is lower. In applying this limit, any shares of
Common Stock paid in satisfaction of a long-term incentive award shall be valued
at Fair Market Value on the date that the cash payment otherwise would have been
made to the Participant. Total aggregate long-term incentive awards for any
performance period shall not exceed five percent of the Company's pre-tax
operating earnings (before incentive compensation) for the last fiscal year of
the performance period. If total aggregate long-term incentive awards calculated
for a performance period would exceed this aggregate limitation, all long-term
incentive awards for that performance period shall be pro-rated on an equal
basis among all Participants according to a formula established by the
Committee.
C. For purposes of qualifying long-term incentive awards as
performance-based compensation under Section 162(m) of the Code, the Committee
may in its discretion determine that such awards shall be conditioned on the
achievement of pre-established Company and/or business unit goals for Return on
Net Assets and/or Revenue Growth, provided that any such goals for purposes of
an Award to the Company's Chief Executive Officer shall be Company goals for
Return on Net Assets and/or Revenue Growth. The target goals for Return on Net
Assets and/or Revenue Growth and the amounts which may be awarded upon
achievement of such target goals, shall be set by the Committee on or before the
latest date permissible so as to qualify under Section 162(m) of the Code. In
granting long-term incentive awards which are intended to qualify under Section
162(m) of the Code, the Committee shall follow any procedures determined by it
to be necessary or appropriate to ensure such qualification. No long-term
incentive award intended to qualify under Section 162(m) of the Code shall be
paid unless and until the Committee certifies in writing that the
pre-established performance goals have been satisfied.
D. The Committee, in its discretion, may reduce or eliminate a
Participant's long-term incentive award at any time before it is paid, whether
or not calculated on the basis of pre-established performance goals or formulas.
11. STOCK APPRECIATION RIGHTS
A. Awards may be granted in the form of stock appreciation rights. Stock
appreciation rights may be awarded in tandem with a stock option, in addition to
a stock option, or may be free-standing and unrelated to a stock option. During
any fiscal year of the Company, no Participant shall be granted stock
appreciation rights for more than 1,000,000 shares.
B. A stock appreciation right entitles the Participant to receive from
the Company an amount equal to the positive difference between (i) the Fair
Market Value of Common Stock on
6
<PAGE> 7
Exhibit 10.1 (continued)
the date of exercise of the stock appreciation right and (ii) the grant price or
some lesser amount as the Committee may determine either at the time of grant or
prior to the time of exercise.
C. Settlement of stock appreciation rights may be in cash, in shares of
Common Stock, or a combination thereof, as determined by the Committee.
12. DEFERRAL OF AWARDS
At the discretion of the Committee, payment of an Award, dividend
equivalent, or any portion thereof may be deferred until a time established by
the Committee. Deferrals shall be made in accordance with guidelines established
by the Committee to ensure that such deferrals comply with applicable
requirements of the Code and its regulations. Deferrals shall be initiated by
the delivery of a written, irrevocable election by the Participant to the
Committee or its nominee. Such election shall be made prior to the date
specified by the Committee. The Committee may also (A) credit interest on cash
payments that are deferred and set the rates of such interest and (B) credit
dividends or dividend equivalents on deferred payments denominated in the form
of shares.
13. EXERCISE OF STOCK OPTIONS UPON TERMINATION OF EMPLOYMENT OR SERVICES
A. Options granted under Section 7 shall be exercisable upon the
Participant's termination of service within the following periods only. Stock
options to other Participants may permit the exercise of options upon the
Participant's termination of employment within the following periods, or such
shorter periods as determined by the Committee at the time of grant:
(i) if on account of death, within 18 months of such event
by the person or persons to whom the Participant's
rights pass by will or the laws of descent or
distribution.
(ii) if on account of disability (as defined in Section
22(e)(3) of the Code or any successor statute),
non-qualified stock options may be exercised within 18
months of such termination and incentive stock options
within 12 months.
(iii) if on account of retirement (as defined from time to
time by Company policy), non-qualified stock options may
be exercised within 36 months of such termination and
incentive stock options within 3 months.
(iv) if on account of resignation, options may be exercised
within 1 month of such termination.
(v) if for cause (as defined from time to time by Company
policy), no unexercised option shall be exercisable to
any extent after termination.
(vi) if for any reason other than death, disability,
retirement, resignation, or cause, options may be
exercised within 3 months of such termination.
B. An unexercised option shall be exercisable only to the extent that
such option was exercisable on the date the Participant's employment or service
terminated. However, terms relating to the exercisability of options may be
amended by the Committee before or after such termination, except in respect to
options granted under Section 7.
C. In no case may an unexercised option be exercised to any extent by
anyone after expiration of its term.
7
<PAGE> 8
Exhibit 10.1 (continued)
14. NONASSIGNABILITY
The rights of a Participant under the Plan shall not be assignable by
such Participant, by operation of law or otherwise, except by will or the laws
of descent and distribution. During the lifetime of the person to whom a stock
option or similar right (including a stock appreciation right) is granted, he or
she alone may exercise it. No Participant may create a lien on any funds,
securities, rights or other property to which he or she may have an interest
under the Plan, or which is held by the Company for the account of the
Participant under the Plan.
15. ADJUSTMENT OF SHARES AVAILABLE
The Committee shall make appropriate and equitable adjustments in the
shares available for future Awards, the numerical limitations set forth in
Sections 8.A., 9.A. and 11.A., future Awards under Section 7.A., and the number
of shares covered by unexercised, unvested or unpaid Awards upon the subdivision
of the outstanding shares of Common Stock; the declaration of a dividend payable
in Common Stock; the declaration of a dividend payable in a form other than
Common Stock in an amount that has a material effect on the price of the shares
of Common Stock; the combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise) into a lesser number of shares
of Common Stock; a recapitalization; or a similar event.
16. PAYMENT OF WITHHOLDING TAXES
As a condition to receiving or exercising an Award, as the case may be,
the Participant shall pay to the Company or the employer Subsidiary the amount
of all applicable federal, state, local and foreign taxes required by law to be
paid or withheld relating to receipt or exercise of the Award. The Company shall
deduct such withholding taxes from any Award paid in cash.
17. AMENDMENTS
The Board of Directors may amend the Plan at any time and from time to
time. Rights and obligations under any Award granted before amendment of the
Plan shall not be materially altered or impaired adversely by such amendment,
except with consent of the person to whom the Award was granted.
18. REGULATORY APPROVALS AND LISTINGS
Notwithstanding any other provision in the Plan, the Company shall have
no obligation to issue or deliver certificates of Common Stock under the Plan
prior to (A) obtaining approval from any governmental agency which the Company
determines is necessary or advisable, (B) admission of such shares to listing on
the stock exchange on which the Common Stock may be listed and (C) completion of
any registration or other qualification of such shares under any state or
federal law or ruling of any governmental body which the Company determines to
be necessary or advisable.
8
<PAGE> 9
Exhibit 10.1 (continued)
19. NO RIGHT TO CONTINUED EMPLOYMENT OR GRANTS
Participation in the Plan shall not give any Key Employee any right to
remain in the employ of the Company or any Subsidiary. Further, the adoption of
this Plan shall not be deemed to give any Key Employee or other individual the
right to be selected as a Participant or to be granted an Award.
20. NO RIGHT, TITLE, OR INTEREST IN COMPANY ASSETS
No Participant shall have any rights as a stockholder of the Company
until he acquires an unconditional right under an Award to have shares of Common
Stock issued to him. To the extent any person acquires a right to receive
payments from the Company under this Plan, such rights shall be no greater than
the rights of an unsecured creditor of the Company.
21. GOVERNING LAW
The Plan shall be governed by and construed in accordance with the laws
of the State of Delaware.
9
<PAGE> 1
EXHIBIT 11
VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES
COMPUTATION OF NET EARNINGS PER SHARE IN ACCORDANCE
WITH INTERPRETIVE RELEASE NO. 34-9083
<TABLE>
<CAPTION>
(Shares in Thousands) 1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Actual weighted average shares outstanding for the period 30,451 31,024 33,648
Dilutive employee stock options 1,136 1,051 1,554
---------- ---------- ----------
Weighted average shares outstanding for the period 31,587 32,075 35,202
========== ========== ==========
(Dollars in millions, except per share amounts)
Net earnings from continuing operations $ 115.6 $ 122.1 $ 105.8
Net earnings from discontinued operations -- -- 33.5
---------- ---------- ----------
Net earnings applicable to fully diluted earnings per share $ 115.6 $ 122.1 $ 139.3
========== ========== ==========
Net earnings per share based on SEC interpretive release
No. 34-9083:
Net earnings from continuing operations $ 3.66 $ 3.81 $ 3.01
Net earnings from discontinued operations -- -- 0.95
---------- ---------- ----------
Net earnings per share - Fully Diluted(1) $ 3.66 $ 3.81 $ 3.96
========== ========== ==========
</TABLE>
(1) There is no significant difference between fully diluted net earnings
per share and primary net earnings per share.
<PAGE> 1
EXHIBIT 13
VARIAN ASSOCIATES, INC.
FY 1997 ANNUAL REPORT
TO STOCKHOLDERS
<PAGE> 2
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
In fiscal 1997, the Company earned $115.6 million compared to $122.1
million in 1996. Earnings per share of $3.66 declined from the prior year's
$3.81. As the result of the June sale of the Company's Thin Film Systems (TFS)
business, earnings for 1997 include a $33.2 million ($1.06/share) gain, net of
taxes, on the TFS sale, as well as a $4 million ($0.14/share) loss from the TFS
operation. Earnings per share for fiscal 1997 were $2.74 after adjusting for the
TFS divestiture. Fiscal 1997 orders totaled $1.546 billion, down 5% from 1996.
However, orders rose 2% on a TFS-adjusted basis. Sales declined 11% from the
previous year at $1.426 billion and declined 5% from the prior year's level
after adjusting for the TFS sale. Order backlog at year-end 1997 totaled $615
million compared to $619 million at the end of 1996.
In the fourth quarter of 1997, net earnings increased to $33.0 million,
up 13% from the year-ago's $29.2 million. Earnings per share of $1.06 were up
15% from the $0.92 earned in the final quarter of 1996. Orders for the fourth
quarter of fiscal 1997 rose 15% on a year-to-year basis to a record $469
million, and were up 32% from the third quarter. After adjustments for the June
sale of TFS, fourth-quarter orders rose 25% from the year-ago quarter and 38%
over the prior quarter. Fourth-quarter sales of $406 million declined 2% from
the year-ago period, but rose 13% from the prior quarter. On a TFS-adjusted
basis, sales were up 12% from the 1996 fourth quarter and 18% from the previous
three months.
The principal factors in the Company's fiscal year results were the
strong fourth-quarter posted by its Health Care Systems segment and the
generally good performance of its Semiconductor Equipment and Instruments
businesses. Although orders in the Company's Health Care Systems business fell
short of last year's all-time record of $203 million, fourth-quarter orders for
that segment were very strong, increasing 73% over the prior quarter. While the
sharpest improvement was posted in Health Care Systems, all three of Varian's
business segments contributed to the sequential orders growth.
The Company's Health Care Systems orders were flat for the year at $529
million versus the year-ago's $534 million. Full-year sales of $472 million rose
2% over the year-ago period. Record fourth-quarter sales of $158 million, rose
sharply from the third quarter, growing 43% above that period. Backlog for
Health Care Systems rose to $344 million, a new year-end high. Operating margins
for fiscal 1997 declined to $64 million from $68 million in fiscal 1996.
Fourth-quarter Health Care Systems operating margins improved modestly on a
year-to-year basis and were up significantly over the prior quarter.
Varian's Instruments business posted record full-year orders of $553
million, a 12% gain over the prior year, with all products contributing to the
higher bookings. Sales rose 10% to a new high of $527 million. For fiscal 1997,
operating earnings of $43 million increased over the prior year's $33 million.
Fourth-quarter Instruments orders and sales also set new records at $147 million
and $141 million, respectively. While analytical orders were up by nearly 10%,
the Company's Nuclear Magnetic Resonance and Vacuum Products lines accounted for
the majority of the fourth-quarter orders improvement. Backlog for this business
rose 20% to a record $132 million.
Fiscal 1997 orders for the Varian's Semiconductor Equipment segment
declined 30% to $438 million, and were off 17% after adjusting for the TFS
divestiture. Fourth quarter orders of $112 million rose 36% from the year-ago
quarter. On a TFS-adjusted basis, fourth quarter orders more than doubled the
prior year's quarter. Full-year sales declined 35% to $424 million, and were
down 28% on a TFS-adjusted basis. Sales of $107 million in the fourth-quarter
declined 27% from the year-ago period, but grew 12% over 1996 on a TFS-adjusted
basis. Backlog of $151 million was up 7% following the TFS adjustment. Although
fiscal 1997 operating earnings declined from fiscal 1996, fourth-quarter
operating margins improved over the year-ago quarter as well as the previous
three months.
For the Company overall, spending on research and development remained
level with the prior year , increasing $0.6 million to $110.8 million, or 8% of
revenue, compared with 7% of revenue in 1996 and 6% in 1995.
13
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The continuing operations effective tax rate for 1997 was 35.0%,
compared to 35.5% for 1996 and 36% for 1995. (See Notes to the Consolidated
Financial Statements.)
In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS 128, "Earnings per Share." SFAS 128 is effective for the first quarter of
the Company's fiscal year 1998. SFAS 128 requires the computation of earnings
per share under two methods, basic and diluted, 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.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. It is effective for the Company's fiscal year 1999. The
impact of its implementation on the consolidated financial statements of the
Company has not yet been determined.
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting
(referred to as the "management" approach) and also requires interim reporting
of segment information. It is effective for the Company's fiscal year 1999. The
Company has not determined the impact of its implementation on the reporting of
the Company's segment information.
During 1997, the Company adopted the AICPA's SOP 96-1, "Environmental
Remediation Liabilities." As a result of the adoption of SOP 96-1, the Company
increased the reserve for environmental liabilities by $8.8 million.
See Summary of Significant Accounting Policies in Notes to the
Consolidated Financial Statements.
FINANCIAL CONDITION
The Company's financial condition remained strong during 1997. Operating
activities provided cash of $44.9 million compared to $87.4 million in 1996.
Investing activities in 1997 provided $49.7 million inclusive of $145.5 million
in proceeds from the sale of TFS, offset by the purchase of businesses of $34.3
million and the purchase of property, plant, and equipment of $55.1 million .
Investing activities in the same period last year used $73.4 million, mainly for
the purchase of $67.7 million in property and equipment and the purchase of a
business for $4.4 million. Financing activities in 1997 used $40.0 million with
$56.5 million used to buy back shares of the Company's stock, including shares
purchased to offset the issuance of stock to employees, and $10.4 million used
for payment of dividends, offset by $25.0 million of additional long-term
borrowings. Financing activities in 1996 used $56.6 million, with $49.5 million
used to buy back shares of the Company's stock, including shares purchased to
offset the issuance of stock to employees, and $9.3 million used for payment of
dividends.
Total debt as a percent of total capital increased to 14.9% from 12.1% a
year ago. Cash and cash equivalents of $142.3 million exceeded short- and
long-term debt of $91.9 million at fiscal year-end 1997. The ratio of current
assets to current liabilities was 1.75 and 1.65 at fiscal year-end 1997 and
1996, respectively. Quarterly dividends were increased from $0.08 to $0.09 per
share in the second quarter of fiscal 1997. The Company has $50 million
available in unused committed lines of credit.
On June 20, 1997, the Company completed the sale of TFS. Total proceeds
received from the sale were $145.5 million in cash. A $51.5 million reserve was
recorded to cover, among other items, retained liabilities, transaction costs,
employee terminations, facilities separation costs, indemnification obligations,
litigation expense, and other contingencies. The gain on the sale was $33.2
million (net of income taxes of $17.8 million).
ENVIRONMENTAL MATTERS
The Company's operations are subject to various federal, state, and/or
local laws regulating the discharge of materials to the environment or otherwise
relating to the protection of the environment. This includes discharges to soil,
water, and air, and the generation, handling, storage, transportation, and
disposal of waste and hazardous substances. These laws have the effect of
increasing costs and potential
14
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
liabilities associated with the conduct of such operations. 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 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, and the sale of TFS during
1997). Expenditures for environmental investigation and remediation amounted to
$2.3 million in 1997 compared with $5.2 million in 1996.
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 September 26, 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 $17.4 million to $44.7 million. The
time frame over which the Company expects to incur such costs varies with each
site, ranging up to 30 years as of September 26, 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 $17.4
million in estimated environmental costs as of September 26, 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 September 26, 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 $46.5 million to $72.0 million. The
time frame over which the Company expects to incur such costs varies with each
site, ranging up to 30 years as of September 26, 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 totaled $54.2
million at September 26, 1997. The Company accordingly accrued $22.8 million,
which represents this best estimate of the future costs discounted at 4%, net of
inflation. This reserve is in addition to the $17.4 million described above.
At September 26, 1997, the Company's reserve for environmental
liabilities, based upon future environmental related costs estimated by the
Company as of that date, was calculated as follows:
<TABLE>
<CAPTION>
(Dollars in millions)
Total
Recurring Non- Anticipated
Year Costs Recurring Costs Future costs
--------- --------------- ------------
<S> <C> <C> <C>
1998 $2.2 $2.2 $4.4
1999 2.4 1.8 4.2
2000 2.4 0.3 2.7
2001 2.4 0.2 2.6
2002 2.2 0.0 2.2
Thereafter 53.2 2.3 55.5
----- ---- -----
Total costs $64.8 $6.8 $71.6
Less imputed interest(at 7%) (31.4)
-----
Reserve amount $40.2
=====
</TABLE>
15
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
The amounts set forth in the foregoing table 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
environmental 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 where 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 fiscal 1995, 1996,and 1997 from defendants in that lawsuit, and has a
$0.5 million receivable in Other Current Assets at September 26, 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 therefore has a $5.5
million receivable in Other Assets at September 26, 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.
FORWARD LOOKING INFORMATION
Except for historical information, this Management's Discussion and
Analysis contains forward looking statements that involve risks and
uncertainties that could cause actual results to differ materially from those
projected. Such risks and uncertainties include: product demand and market
acceptance risks; the effect of general economic conditions and foreign currency
fluctuations; the impact of competitive products and pricing; new product
development and commercialization; the timing of renewed growth in worldwide
health care and semiconductor equipment demand; the impact of managed care
initiatives in the United States; the continued improvement of the various
instruments markets the Company serves; the ability to increase operating
margins on higher sales; and other risks detailed from time to time in the
Company's filings with the Securities and Exchange Commission.
16
<PAGE> 6
Exhibit 13
CONSOLIDATED STATEMENTS OF EARNINGS
Varian Associates, Inc. and Subsidiary Companies
<TABLE>
<CAPTION>
Fiscal Years
---------------------------------------------
(Dollars in thousands except 1997 1996 1995
per share amounts) ----------- ----------- -----------
<S> <C> <C> <C>
SALES $ 1,425,824 $ 1,599,361 $ 1,575,742
----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Cost of sales 902,733 995,668 1,024,539
Research and development 110,750 110,140 90,964
Marketing 199,167 200,333 187,148
General and administrative 83,249 103,128 106,170
----------- ----------- -----------
Total operating costs and expenses 1,295,899 1,409,269 1,408,821
----------- ----------- -----------
OPERATING EARNINGS 129,925 190,092 166,921
Interest expense (7,783) (6,375) (6,936)
Interest income 4,604 5,526 5,315
Gain on Sale of Thin Film Systems 51,039 -- --
----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE TAXES 177,785 189,243 165,300
Taxes on earnings 62,225 67,180 59,510
----------- ----------- -----------
EARNINGS FROM CONTINUING OPERATIONS $ 115,560 $ 122,063 $ 105,790
EARNINGS FROM DISCONTINUED OPERATIONS
NET OF TAXES -- -- 33,496
----------- ----------- -----------
NET EARNINGS $ 115,560 $ 122,063 $ 139,286
=========== =========== ===========
NET EARNINGS PER SHARE - FULLY DILUTED
Continuing operations $ 3.66 $ 3.81 $ 3.01
Discontinued operations -- -- 0.95
----------- ----------- -----------
NET EARNINGS PER SHARE $ 3.66 $ 3.81 $ 3.96
=========== =========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
-18-
<PAGE> 7
CONSOLIDATED BALANCE SHEETS
Varian Associates, Inc. and Subsidiary Companies
<TABLE>
<CAPTION>
Fiscal Year-End
----------------------------
(Dollars in thousands except par values) 1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 142,298 $ 82,675
Accounts receivable 418,978 380,330
Inventories 159,598 189,882
Other current assets 92,596 91,010
----------- -----------
Total Current Assets 813,470 743,897
----------- -----------
Property, Plant, and Equipment 460,251 473,852
Accumulated depreciation and amortization (264,612) (261,766)
----------- -----------
Net Property, Plant, and Equipment 195,639 212,086
----------- -----------
Other Assets 95,224 62,938
----------- -----------
TOTAL ASSETS $ 1,104,333 $ 1,018,921
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 18,668 $ 4,362
Accounts payable - trade 83,771 75,745
Accrued expenses 269,067 264,565
Product warranty 37,620 49,251
Advance payments from customers 55,184 56,071
----------- -----------
Total Current Liabilities 464,310 449,994
Long-Term Accrued Expenses 35,752 29,007
Long-Term Debt 73,186 60,258
Deferred Taxes 6,508 11,753
----------- -----------
Total Liabilities 579,756 551,012
----------- -----------
Commitments and Contingencies
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 30,108,000 shares (1997), 30,646,000
shares (1996) 30,108 30,646
Retained earnings 494,469 437,263
----------- -----------
Total Stockholders' Equity 524,577 467,909
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,104,333 $ 1,018,921
=========== ===========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
-19-
<PAGE> 8
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Varian Associates, Inc. and Subsidiary Companies
<TABLE>
<CAPTION>
Capital in Treasury
(Dollars in thousands except Common Excess of Retained Stock
per share amounts) Stock Par Value Earnings at Cost Total
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCES, FISCAL YEAR-END, 1994 $ 33,979 $ -- $ 415,474 $ -- $ 449,453
Net earnings for the year -- -- 139,286 -- 139,286
Issuance of stock under omnibus
stock, stock option, and employee
stock purchase plans (including
tax benefit of $10,548) 1,445 41,059 -- -- 42,504
Purchase of common stock -- -- -- (227,372) (227,372)
Retirement of treasury stock (4,372) (41,059) (181,941) 227,372 --
Dividends declared
($0.27 per share) -- -- (8,942) -- (8,942)
--------- --------- --------- --------- ---------
BALANCES, FISCAL YEAR-END, 1995 31,052 -- 363,877 -- 394,929
Net earnings for the year -- -- 122,063 -- 122,063
Issuance of stock under omnibus
stock, stock option, and employee
stock purchase plans (including
tax benefit of $10,084) 1,213 38,623 -- -- 39,836
Purchase of common stock -- -- -- (79,296) (79,296)
Retirement of treasury stock (1,619) (38,623) (39,054) 79,296 --
Dividends declared
($0.31 per share) -- -- (9,623) -- (9,623)
--------- --------- --------- --------- ---------
BALANCES, FISCAL YEAR-END, 1996 30,646 -- 437,263 -- 467,909
Net earnings for the year -- -- 115,560 -- 115,560
Issuance of stock under omnibus
stock, stock option, and employee
stock purchase plans (including
tax benefit of $8,299) 1,221 45,261 -- -- 46,482
Purchase of common stock -- -- -- (94,730) (94,730)
Retirement of treasury stock (1,759) (45,261) (47,710) 94,730 --
Dividends declared
($0.35 per share) -- -- (10,644) -- (10,644)
--------- --------- --------- --------- ---------
BALANCES, FISCAL YEAR-END, 1997 $ 30,108 $ -- $ 494,469 $ -- $ 524,577
========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
-20-
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
Varian Associates, Inc. and Subsidiary Companies
<TABLE>
<CAPTION>
Fiscal Years
---------------------------------------
(Dollars in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities $ 44,939 $ 87,437 $ 127,938
--------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sale of property, plant, and equipment 2,220 4,781 4,394
Proceeds from sale of Businesses 145,500 -- 191,347
Purchase of property, plant, and equipment (55,087) (67,736) (65,404)
Purchase of businesses, net of cash acquired (34,272) (4,396) (12,686)
Other (8,685) (5,999) 7,985
--------- --------- ---------
Net Cash Provided (Used) by Investing Activities 49,676 (73,350) 125,636
--------- --------- ---------
FINANCING ACTIVITIES
Net borrowings (payments) on short-term obligations 2,305 2,607 (3,061)
Proceeds from long-term borrowings 25,000 -- --
Principal payments on long-term debt (71) (71) (70)
Proceeds from common stock issued to employees 38,183 29,752 31,956
Purchase of common stock (94,730) (79,296) (227,372)
Dividends paid (10,399) (9,341) (8,819)
Other (245) (282) (123)
--------- --------- ---------
Net Cash Used by Financing Activities (39,957) (56,631) (207,489)
--------- --------- ---------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH 4,965 2,491 (2,229)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 59,623 (40,053) 43,856
Cash and Cash Equivalents at Beginning of Fiscal Year 82,675 122,728 78,872
--------- --------- ---------
Cash and Cash Equivalents at End of Fiscal Year $ 142,298 $ 82,675 $ 122,728
========= ========= =========
DETAIL OF NET CASH PROVIDED BY OPERATING ACTIVITIES
Net Earnings $ 115,560 122,063 $ 139,286
Adjustments to reconcile net earnings to
net cash provided by operating activities
Depreciation 45,649 42,918 49,997
Gain on sale of businesses (51,039) -- (40,965)
Deferred taxes (9,703) 1,113 (27,083)
Changes in assets and liabilities:
Accounts receivable (61,312) (38,677) (37,595)
Inventories (5,586) (17,415) (33,009)
Other current assets 3,770 17,847 (19,362)
Accounts payable - trade 10,479 (6,516) 10,711
Accrued expenses (24,859) (40,658) 53,187
Product warranty (2,666) 1,137 10,678
Advance payments from customers 3,633 5,411 (6,159)
Long-term accrued expenses 11,251 (19) 29,026
Other 9,762 233 (774)
--------- --------- ---------
Net Cash Provided by Operating Activities $ 44,939 $ 87,437 $ 127,938
========= ========= =========
</TABLE>
See accompanying Notes to the Consolidated Financial Statements.
-21-
<PAGE> 10
Exhibit 13
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year
The Company's fiscal years reported are the 52- or 53- week periods which ended
on the Friday nearest September 30.
Principles of Consolidation
The consolidated financial statements include those of the Company and its
subsidiaries. Significant intercompany balances, transactions, and stock
holdings have been eliminated in consolidation. Investments in
less-than-majority-owned affiliated companies are stated at equity in the net
assets of these companies.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Foreign Currency Translation
For non-U.S. operations, the U.S. dollar is the functional currency. Monetary
assets and liabilities of foreign subsidiaries are translated into U.S. dollars
at current exchange rates. Nonmonetary assets such as inventories and property,
plant, and equipment are translated at historical rates. Income and expense
items are translated at effective rates of exchange prevailing during each year,
except that inventories and depreciation charged to operations are translated at
historical rates. The aggregate exchange loss included in general and
administrative expenses for 1997, 1996, and 1995 was $5.9 million, $1.1 million,
and $0.8 million, respectively.
Revenue Recognition
Sales and related cost of sales are recognized primarily upon shipment of
products. Sales and related cost of sales under long-term contracts to
commercial customers and the U.S. Government are recognized primarily as units
are delivered.
Statements of Cash Flows
The Company considers currency on hand, demand deposits, and all highly liquid
investments with an original maturity of three months or less to be cash and
cash equivalents. The carrying amounts of cash and cash equivalents approximate
estimated fair value because of the short maturities of those financial
instruments.
Accounts Receivable
Accounts receivable are stated net of allowances for doubtful accounts of $2.7
million at the end of fiscal year 1997 and $2.3 million at the end of fiscal
year 1996.
Financial instruments that potentially expose the Company to concentrations of
credit risk consist principally of trade accounts receivable. Concentrations of
credit risk with respect to trade accounts receivable are limited due to the
large number of customers comprising the Company's customer base and their
dispersion across many different industries and geographies. The Company
performs ongoing credit evaluations of its customers and generally does not
require collateral from its customers.
Inventories
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 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
22
<PAGE> 11
Notes to the Consolidated Financial Statements (continued)
used for those operations valuing inventories on a LIFO basis, inventories would
have been higher than reported by $48.4 million in fiscal 1997, $46.8 million in
fiscal 1996, and $45.6 million in fiscal 1995. The main components of
inventories are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
------ ------
<S> <C> <C>
Raw materials and parts $ 97.2 $112.3
Work in process 37.4 53.7
Finished goods 25.0 23.9
------ ------
Total Inventories $159.6 $189.9
====== ======
</TABLE>
The Company's inventories include high technology parts and components that may
be specialized in nature or subject to rapid technological obsolescence. While
the Company has programs to minimize the required inventories on hand and
considers technological obsolescence in estimating the required allowance to
reduce recorded amounts to market values, such estimates could change in the
future.
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost. Major improvements are
capitalized, while maintenance and repairs are expensed currently. Plant and
equipment are depreciated over their estimated useful lives using the
straight-line method for financial reporting purposes and accelerated methods
for tax purposes. Leasehold improvements are amortized using the straight-line
method over their estimated useful lives, or the remaining term of the lease,
whichever is less. When assets are retired or otherwise disposed of, the assets
and related accumulated depreciation are removed from the accounts. Gains or
losses resulting from retirements or disposals are included in earnings from
continuing operations.
The main components of property, plant, and equipment are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
------ ------
<S> <C> <C>
Land and land leaseholds $ 12.0 $ 11.3
Buildings 159.1 160.4
Machinery and equipment 277.9 291.7
Construction in progress 11.3 10.5
------ ------
Total Property, Plant, and Equipment $460.3 $473.9
====== ======
</TABLE>
Environmental Liabilities
Liabilities are recorded when environmental assessments and/or remedial efforts
are probable, and the costs can be reasonably estimated. Generally, the timing
of these accruals coincides with completion of a feasibility study or the
Company's commitment to a formal plan of action.
During 1997, the Company adopted the AICPA's SOP 96-1, "Environmental
Remediation Liabilities." As a result of the adoption of SOP 96-1, the Company
increased the reserve for environmental liabilities by $8.8 million.
Taxes on Earnings
The Company's provision for income taxes comprises its estimated tax liability
currently payable and the change in its deferred income taxes. Deferred tax
assets and liabilities are recognized for the expected tax consequences of
temporary differences between the tax bases of assets and liabilities and their
reported amounts.
Research and Development
Company-sponsored research and development costs related to both present and
future products are expensed currently. Costs related to research and
development contracts are included in inventory and charged to cost of sales
upon recognition of related revenue. Total expenditures on research and
development for fiscal 1997, 1996, and 1995, were $115.5 million, $116.5
million, and $94.7 million, respectively, of which $4.7 million, $6.4 million,
and $3.7 million, respectively, were funded by customers.
23
<PAGE> 12
Notes to the Consolidated Financial Statements (continued)
Computation of Net Earnings Per Share (Shares in thousands)
Earnings-per-share computations are based on the weighted average common shares
outstanding and common share equivalents (dilutive stock options). The average
number of common shares and common share equivalents used in the computation of
earnings per share in fiscal 1997, 1996, and 1995, was 31,587, 32,075, and
35,202, respectively. There is no significant difference between fully diluted
earnings per share and primary earnings per share.
Reclassification
Certain amounts in prior years have been reclassified to conform with the 1997
presentation. These reclassifications did not change previously reported total
assets, liabilities, stockholders' equity or earnings from continuing
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
Earnings per Share
In February 1997, the Financial Accounting Standards Board (FASB) issued SFAS
128, "Earnings per Share." SFAS 128 is effective for the first quarter of the
Company's fiscal year 1998. SFAS 128 requires the computation of earnings per
share under two methods, basic and diluted, 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.
Reporting Comprehensive Income
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income." SFAS
130 establishes standards for reporting and display of comprehensive income and
its components in a full set of general-purpose financial statements. It is
effective for the Company's fiscal year 1999. The impact of its implementation
on the consolidated financial statements of the Company has not yet been
determined.
Disclosures About Segments of an Enterprise and Related Information
In June 1997, the FASB issued SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information." SFAS 131 changes current practice under
SFAS 14 by establishing a new framework on which to base segment reporting
(referred to as the "management" approach) and also requires interim reporting
of segment information. It is effective for the Company's fiscal year 1999. The
Company has not determined the impact of its implementation on the reporting of
the Company's segment information.
ACCRUED EXPENSES
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
------ ------
<S> <C> <C>
Taxes, including taxes on earnings $ 33.5 $ 35.3
Payroll and employee benefits 90.3 108.8
Environmental 4.4 3.2
Estimated loss contingencies 59.2 34.0
Deferred income 22.6 23.7
Other 59.1 59.6
------ ------
Total Accrued Expenses $269.1 $264.6
====== ======
</TABLE>
24
<PAGE> 13
Notes to the Consolidated Financial Statements (continued)
SHORT-TERM DEBT
Short-term notes payable and the current portion of long-term debt amounted to
$18.7 million and $4.4 million at the end of fiscal years 1997 and 1996,
respectively. The weighted average interest rates on short-term borrowings were
5.6% and 3.7% at the end of fiscal years 1997 and 1996, respectively. Total debt
is subject to limitations included in long-term debt agreements.
At fiscal year-end 1997, the Company had total unused committed lines of credit
amounting to $50 million.
LONG-TERM ACCRUED EXPENSES
Long-term accrued expenses are comprised of accruals for environmental costs not
expected to be expended within the next year. The current portion is recorded
within Accrued Expenses.
LONG-TERM DEBT
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Unsecured term loan, 7.29% due in semiannual
installments of $6.0 payable fiscal 1998-2002 $60.0 $60.0
Unsecured term loan, 7.21% due in semiannual
installments of $2.5 payable fiscal 2003-2007 25.0 --
Other debt 0.3 0.4
----- -----
Long-term borrowings 85.3 60.4
----- -----
Less current portion 12.1 0.1
===== =====
Long-term Debt $73.2 $60.3
===== =====
</TABLE>
The unsecured term loans contain covenants that limit future borrowings and
require the Company to maintain certain levels of working capital and operating
results. For fiscal year 1997, the Company was in compliance with all
restrictive covenants of the loan agreements, including a restriction on payment
of cash dividends. At September 26, 1997, approximately $103.9 million of
retained earnings were unrestricted for payment of cash dividends.
The annual maturities of long-term debt (in millions) for fiscal years 1998
through 2002, are as follows: $12.1, $12.1, $12.1, $12.0 and $12.0.
Interest paid (in millions) on short and long-term debt was $7.6, $6.4, and
$6.9, in fiscal 1997, 1996, and 1995, respectively.
Based on rates currently available to the Company for debt with similar terms
and remaining maturities, the carrying amounts of long-term debt and notes
payable approximate estimated fair value.
FORWARD EXCHANGE CONTRACTS
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 revenues 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 items being hedged, these instruments do not subject the Company to
risk that would otherwise result from changes in currency exchange rates. Gains
and losses on hedges of existing assets or liabilities are included in the
carrying amounts of those assets or liabilities and are ultimately recognized in
income as part of those carrying amounts. Gains and losses related to qualifying
hedges of firm commitments also are deferred and are
25
<PAGE> 14
Notes to the Consolidated Financial Statements (continued)
recognized in income or as adjustments of carrying amounts when the hedged
transaction occurs. Any deferred gains or losses are included in Accrued
Expenses in the balance sheet. If a hedging instrument is sold or terminated
prior to maturity, gains and losses continue to be deferred until the hedged
item is recognized in income. If a hedging instrument ceases to qualify as a
hedge, any subsequent gains and losses are recognized currently in income. At
fiscal year-end 1997, the Company had forward exchange contracts with maturities
of twelve months or less to sell foreign currencies totaling $88.9 million
($36.0 million of Japanese yen, $14.1 million of French francs, $10.7 million of
Canadian dollars, $5.5 million of British pounds, $5.1 million of Italian lira,
$4.5 million of German marks, $3.2 million of Spanish pesetas, $2.7 million of
Norwegian krone, $2.0 million of Belgian francs, $1.9 million of Dutch guilders,
$1.7 million of Taiwan dollars, $0.9 million of Finnish marks, $0.4 million of
Portuguese escudos, and $0.2 million of Korean won) and to buy foreign
currencies totaling $31.3 million ($8.8 million of British pounds, $8.8 million
of German marks, $5.7 million of Australian dollars, $3.2 million of Swiss
francs, $1.7 million of Japanese yen, $1.3 million of Canadian dollars, $1.0
million of Swedish krona, and $0.8 million of French francs). The face values of
these foreign exchange contracts approximate estimated fair value based on the
quoted market prices of these foreign currencies.
OMNIBUS STOCK AND EMPLOYEE STOCK PURCHASE PLANS (SHARES IN THOUSANDS)
Prior to fiscal 1991, the Company had in place the 1982 Non-Qualified Stock
Option Plan under which options are still exercisable. During fiscal 1991, the
Company adopted the Omnibus Stock Plan (the Plan) under which shares of common
stock can be issued to officers, directors, and key employees. The maximum
number of shares of common stock available for awards under the Plan during each
fiscal year (including incentive stock options) is 5% of the total outstanding
shares of the Company on the last business day of the preceding fiscal year. The
maximum number of shares of the common stock available for incentive stock
option grants under the Plan is 6,000. The exercise price for incentive and
nonqualified stock options granted under the Plan may not be less than 100% of
the fair market value at the date of the grant. Options granted will be
exercisable at such times and be subject to such restrictions and conditions as
determined by the Organization and Compensation Committee of the Company's Board
of Directors, but no option shall be exercisable later than ten years from the
date of grant. Options granted are generally exercisable in cumulative
installments of one-third each year, commencing one year following date of
grant, and expire if not exercised within seven or ten years from date of grant.
Restricted stock grants may be awarded at prices ranging from 0% to 50% of the
fair market value of the stock and may be subject to restrictions on
transferability and continued employment as determined by the Organization and
Compensation Committee.
Option activity under the Plans is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Beginning of fiscal year 3,877 $ 31.08 3,809 23.36 3,999 $ 18.77
Granted 1,089 48.89 1,159 48.57 1,111 36.25
Terminated or expired (224) 45.75 (62) 40.24 (116) 28.49
Exercised (1,000) 28.58 (1,029) 21.78 (1,185) 19.55
------ ------- ------ ------- ------ -------
End of fiscal year 3,742 $ 36.43 3,877 31.08 3,809 $ 23.36
------ ------- ------ ------- ------ -------
Shares exercisable 1,935 $ 26.58 1,869 $ 20.12 2,030 $ 17.66
Available shares
remaining 667 456 703
</TABLE>
26
<PAGE> 15
Notes to the Consolidated Financial Statements (continued)
During fiscal years 1997, 1996, and 1995, 55, 69, and 63 shares, respectively,
were awarded under restricted stock grants at no cost to the employees. The
restricted stock grants vest generally over a three year period. Compensation
expense from restricted stock was $2.7 million, $2.6 million, and $2.0 million,
in fiscal years 1997, 1996, and 1995, respectively. The Employee Stock Purchase
Plan (ESPP) covers substantially all employees in the United States and Canada.
The participants' purchase price is the lower of 85% of the closing market price
on the first trading day of the fiscal quarter or the first trading day of the
next fiscal quarter. The discount is treated as equivalent to the cost of
issuing stock for financial reporting purposes. During fiscal 1997, 1996, and
1995, 163 shares, 111 shares, and 205 shares were issued under the ESPP for $6.9
million, $4.7 million, and $7.0 million, respectively. At fiscal year-end 1997,
the Company had a balance of 2,851 shares reserved for ESPP.
The following tables summarize information concerning outstanding and
exercisable options at the end of fiscal 1997.
<TABLE>
<CAPTION>
Options Outstanding
------------------------------------------------------
Weighted Average
Range of Number Remaining Contractual Weighted Average
Exercise prices Outstanding Life (in years) Exercise Price
----- ------ ------
<S> <C> <C> <C>
$10.91-10.91 394 2.4 $10.91
15.16-19.50 433 1.7 18.49
21.41-25.35 425 3.3 25.29
32.81-36.00 593 4.1 35.97
36.12-48.31 901 8.1 47.79
48.38-61.31 996 9.1 49.08
----- ------ ------
Total 3,742 5.9 $36.43
----- ------ ------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
-------------------------------
Range of exercise Number Weighted Average
Prices Exercisable Exercise Price
----- ------
<S> <C> <C>
$10.91-10.91 394 $10.91
15.16-19.50 433 18.49
21.41-25.35 425 25.29
32.81-36.00 359 35.97
36.12-48.31 287 47.15
48.38-61.31 37 52.47
----- ------
Total 1,935 $26.58
----- ------
</TABLE>
The Company has adopted the disclosure provision of SFAS No. 123, "Accounting
for Stock-Based Compensation." Accordingly, the Company applies APB Opinion 25
and related Interpretations in accounting for its stock option plans. If the
Company had elected, beginning in fiscal 1996, to recognize compensation cost
based on the fair value of the options granted at grant date as prescribed by
SFAS No. 123, net earnings and net earnings per share would have been reduced to
the pro forma amounts shown below:
<TABLE>
<CAPTION>
(Dollars in thousands except per share amounts) 1997 1996
----------- -----------
<S> <C> <C>
Net Earnings - as reported $ 115,560 $ 122,063
Net Earnings - pro forma $ 109,433 $ 119,271
Net Earnings per share - as reported $ 3.66 $ 3.81
Net Earnings per share - pro forma $ 3.45 $ 3.70
</TABLE>
27
<PAGE> 16
Notes to the Consolidated Financial Statements (continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
Employee Stock Options Employee Stock Purchase Plan
------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Expected dividend yield 0.8% 0.8% 0.8% 0.8%
Risk-free interest rate 6.4% 6.0% 5.3% 5.1%
Expected volatility 21.0% 21.0% 21.0% 21.0%
Expected life (in years):
Employees 4 4 .25 .25
Executive Officers 7 7 .25 .25
</TABLE>
The weighted average estimated fair values of employee stock options granted
during fiscal 1997 and 1996 were $14.65 and $13.93 per share, respectively. The
weighted average estimated fair values of Employee Stock Purchase Plan options
issued during fiscal 1997 and 1996 were $11.77 and $9.06 per share,
respectively.
The above pro forma disclosures are not likely to be representative of the
effects on net earnings and net earnings per share in future years, because they
do not take into consideration pro forma compensation expense related to grants
made prior to the Company's fiscal year 1996.
RETIREMENT PLANS
The Company has defined contribution retirement plans covering substantially all
of its United States and Canadian employees. The Company's major obligation is
to contribute an amount based on a percentage of each participant's base pay.
The Company also contributes 5% of its consolidated earnings from continuing
operations before taxes, as adjusted for discretionary items, as retirement plan
profit sharing. Participants are entitled, upon termination or retirement, to
their portion of the retirement fund assets, which are held by a third-party
trustee. In addition, a number of the Company's foreign subsidiaries have
defined benefit retirement plans for regular full-time employees. Total pension
expense for all plans amounted to $20.6 million, $23.6 million, and $21.1
million, for fiscal 1997, 1996, and 1995, respectively.
TAXES ON EARNINGS
Taxes on earnings from continuing operations are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Current
U.S. federal $48.4 $42.3 $60.6
Non-U.S 16.0 13.8 14.8
State and local 7.5 9.9 11.2
----- ----- -----
Total current 71.9 66.0 86.6
----- ----- -----
Deferred
U.S. federal (10.4) 0.6 (26.6)
Non-U.S .7 0.6 (0.5)
----- ----- -----
Total deferred (9.7) 1.2 (27.1)
----- ----- -----
Taxes on Earnings $62.2 $67.2 $59.5
===== ===== =====
</TABLE>
28
<PAGE> 17
Notes to the Consolidated Financial Statements (continued)
Significant items making up deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Assets:
Product warranty $11.9 $16.2
Deferred compensation 7.0 10.1
Special provisions 34.8 23.1
Inventory adjustments 20.3 20.7
Deferred income 5.6 5.9
Deferred state taxes 2.4 --
State income tax 1.6 1.7
Other 5.3 4.5
----- -----
88.9 82.2
----- -----
Liabilities:
Accelerated depreciation 10.5 13.6
Unconsolidated affiliates 5.8 8.0
Other 2.6 0.3
----- -----
18.9 21.9
----- -----
Net Deferred Tax Asset $70.0 $60.3
===== =====
</TABLE>
The classification of the net deferred tax asset on the Consolidated Balance
Sheet is as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996
----- -----
<S> <C> <C>
Net current deferred tax asset (included in Other
Current Assets) $76.5 $72.1
Net long-term deferred tax liability (6.5) (11.8)
----- -----
Net Deferred Tax Asset $70.0 $60.3
===== =====
</TABLE>
The effective tax rate on continuing operations differs from the U.S. federal
statutory tax rate as a result of the following:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory income tax rate 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit 2.7 3.4 4.4
Foreign taxes, net 2.0 0.4 (1.2)
Foreign Sales Corporation (2.3) (2.8 (2.4)
Other (2.5) (0.5) 0.2
---- ---- ----
Effective Tax Rate 35.0% 35.5% 36.0%
==== ==== ====
</TABLE>
Income taxes paid are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Federal income taxes paid, net $41.9 $63.6 $35.1
State income taxes paid, net 4.0 9.8 11.7
Foreign income taxes paid, net 18.3 21.2 24.0
----- ----- -----
Total Paid $64.2 $94.6 $70.8
===== ===== =====
</TABLE>
29
<PAGE> 18
Notes to the Consolidated Financial Statements (continued)
LEASE COMMITMENTS
At fiscal year-end 1997, the Company was committed to minimum rentals under
noncancellable operating leases for fiscal years 1998 through 2002 and
thereafter, as follows, in millions: $8.3, $6.7, $4.6, $2.9, $1.9, and $4.1.
Rental expense for fiscal years 1997, 1996, and 1995, in millions, was $17.1,
$18.4, and $18.6, respectively.
CONTINGENCIES
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. 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.
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, and the sale of TFS during
1997). Expenditures for environmental investigation and remediation amounted to
$2.3 million in 1997 compared with $5.2 million in 1996, and $2.3 million in
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 September 26, 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 $17.4 million to $44.7 million. The
time frame over which the Company expects to incur such costs varies with each
site, ranging up to 30 years as of September 26, 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 $17.4
million in estimated environmental costs as of September 26, 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
September 26, 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 $46.5 million to $72.0 million. The time frame over which
the Company expects to incur such costs varies with each site, ranging up to 30
years as of September 26, 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 totaled $54.2 million at September 26,
1997. The Company accordingly accrued $22.8 million, which represents this best
estimate of the future costs discounted at 4%, net of inflation.
This reserve is in addition to the $17.4 million described above.
30
<PAGE> 19
Notes to the Consolidated Financial Statements (continued)
At September 26, 1997, the Company's reserve for environmental liabilities,
based upon future environmental related costs estimated by the Company as of
that date, was calculated as follows:
(Dollars in millions)
<TABLE>
<CAPTION>
Total
Recurring Anticipated
Year Costs Non-Recurring Costs Future costs
----- ----- -----
<S> <C> <C> <C>
1998 $ 2.2 $2.2 $ 4.4
1999 2.4 1.8 4.2
2000 2.4 0.3 2.7
2001 2.4 0.2 2.6
2002 2.2 0.0 2.2
Thereafter 53.2 2.3 55.5
----- ----- ------
Total costs $64.8 $ 6.8 $ 71.6
Less imputed interest (at 7%) (31.4)
------
Reserve amount $ 40.2
======
</TABLE>
The amounts set forth in the foregoing table 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 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 where 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, 1996 and 1997 from
defendants in that lawsuit, and has a $0.5 million receivable in Other Current
Assets at September 26, 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 therefore has a $5.5 million receivable in Other Assets at September
26, 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.
Sale of Business and Discontinued Operation
On June 20, 1997, the Company completed the sale of its Thin Film Systems
operations (a product line of the Semiconductor Equipment segment). Total
proceeds received from the sale were $145.5 million in cash. A $51.5 million
reserve was recorded to cover, among other items, retained liabilities,
transaction costs, employee terminations,
31
<PAGE> 20
Notes to the Consolidated Financial Statements (continued)
facilities separation costs, indemnification obligations, litigation expense and
other contingencies. The gain on the sale was $33.2 million (net of income taxes
of $17.8 million).
On August 11, 1995, the Company completed the sale of the Electron Devices
business segment (not including the Tempe Electronics Center). The Tempe
facility was retained as part of the Instruments business segment. The
transaction was accounted for as a discontinued operation. The Company received
$191.3 million net proceeds in cash. The gain on the sale was $25.3 million (net
of income taxes of $15.6 million). Summary operating results of discontinued
operations, excluding the above gain, are as follows:
<TABLE>
<CAPTION>
(Dollars in millions) 1995
------
<S> <C>
Sales $205.1
------
Earnings Before Taxes 13.2
Taxes on Earnings 5.0
------
Net Earnings from Discontinued Operations
Before Gain on Sale $ 8.2
======
</TABLE>
INDUSTRY SEGMENTS
The Company's operations are grouped into three business segments: Health Care
Systems, Instruments, and Semiconductor Equipment. Indirect and common costs
have been allocated through the use of estimates. Accordingly, the following
information is provided for purposes of achieving an understanding of
operations, but may not be indicative of the financial results of the reported
segments were they independent organizations. In addition, comparisons of the
Company's operations to similar operations of other companies may not be
meaningful.
The Health Care Systems business includes linear accelerators used for cancer
therapy, industrial testing, and inspection, as well as cancer treatment
planning systems and data management systems for medical facilities. It also
designs and manufactures a broad range of X-ray generating tubes for the medical
diagnostic imaging market worldwide. The Instruments business consists of
analytical instruments widely used in the fields of chemistry, environmental
monitoring, biology, life sciences, and metallurgy. It also manufactures high
vacuum pumps, instrumentation, gauges, components, and printed circuit boards.
The Semiconductor Equipment business includes systems used for semiconductor
wafer fabrication. Included in Eliminations and Other are certain insignificant
support operations.
The Company operates various manufacturing and marketing operations outside the
United States. For 1997, no single country outside the United States accounted
for more than 10% of total sales. Sales to customers located in Korea were
$177.9 million, and $183.8 million in fiscal 1996 and 1995, respectively. For
fiscal 1997, 1996 and 1995, no single country outside the United States
accounted for more than 10% of total assets. Sales between geographic areas are
accounted for at cost plus prevailing markups arrived at through negotiations
between independent profit centers. Related profits are eliminated in
consolidation.
Included in the total of United States sales are export sales of $313 million in
fiscal 1997, $496 million in fiscal 1996, and $420 million in fiscal 1995. Sales
under prime contracts from the U.S. Government were approximately $14 million in
fiscal 1997, $15 million in fiscal 1996, and $22 million in fiscal 1995.
32
<PAGE> 21
Exhibit 13
INDUSTRY SEGMENTS
<TABLE>
<CAPTION>
Pretax Identifiable Capital
Sales Earnings Assets Expenditures Depreciation
-------------------- ---------------------- -------------------- -------------------- --------------------
(Dollars in millions) 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Health Care Systems $ 472 $ 464 $ 482 $ 64 $ 68 $ 90 $ 326 $ 282 $ 254 $ 11 $ 13 $ 16 $ 13 $ 12 $ 11
Instruments 527 481 432 43 33 18 307 248 235 19 19 21 14 13 12
Semiconductor Equipment 424 650 659 70 135 99 175 262 227 12 24 15 11 11 9
Eliminations & Other 3 4 3 (12) (12) (11) 10 10 9 2 1 -- 1 1 1
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total Industry
Segments 1,426 1,599 1,576 165 224 196 818 802 725 44 57 52 39 37 33
General Corporate -- -- -- 16 (34) (29) 286 217 279 12 12 10 7 6 6
Interest, Net -- -- -- (3) (1) (2) -- -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Continuing Operations $1,426 $1,599 $1,576 $ 178 $ 189 $ 165 $1,104 $1,019 $1,004 $ 56 $ 69 $ 62 $ 46 $ 43 $ 39
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
General Corporate Pretax Earnings for 1997 include the gain on the sale of
Thin Film Systems of $51 million.
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
Sales to Intergeographic
Unaffiliated Sales to Total Pretax Identifiable
Customers Affiliates Sales Earnings Assets
------------------ ------------------ ---------------------- -------------------- --------------------
(Dollars in 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995 1997 1996 1995
millions) ---- ------ ------ ---- ---- ---- ------ ------ ------ ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States $995 $1,152 $1,175 $246 $256 $217 $1,241 $1,408 $1,392 $157 $200 $165 $565 $514 $496
International 429 444 398 60 61 54 489 505 452 20 36 42 243 278 220
Eliminations
& Other 2 3 3 (306) (317) (271) (304) (314) (268) (12) (12) (11) 10 10 9
---- ------ ------ ---- ---- ---- ------ ------ ------ ---- ---- ---- ---- ---- ----
Total Geographic
Segments 1,426 1,599 1,576 -- -- -- 1,426 1,599 1,576 165 224 196 818 802 725
General Corporate -- -- -- -- -- -- -- -- -- 16 (34) (29) 286 217 279
Interest, Net -- -- -- -- -- -- -- -- -- (3) (1) (2) -- -- --
------ ------ ------ ------ ------ ------ ------- ------- ------- ------- ------- ------- ------- ------- -------
Continuing
Operations $1,426 $1,599 $1,576 $-- $-- $-- $1,426 $1,599 $1,576 $178 $189 $165 $1,104 $1,019 $1,004
====== ====== ====== ====== ====== ====== ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Total sales is based on the location of the operation furnishing goods and
services. International sales based on final destination of products sold are
$720 million, $918 million, and $797 million, in 1997, 1996, and 1995,
respectively.
General Corporate Pretax Earnings for 1997 include the gain on the sale of Thin
Film Systems of $51 million.
33
<PAGE> 22
Exhibit 13
Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- ---------------------------------------------
(Dollars in millions except First Second Third Fourth Total First Second Third Fourth Total
per share amounts) Quarter Quarter Quarter Quarter Year Quarter Quarter Quarter Quarter Year
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 322.0 338.1 359.9 405.8 1,425.8 $ 351.2 417.7 417.0 413.5 1,599.4
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Gross Profit $ 111.9 123.9 132.4 154.9 523.1 $ 133.1 154.2 157.1 159.3 603.7
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Net Earnings $ 12.8 17.4 52.4 33.0 115.6 $ 25.5 33.1 34.3 29.2 122.1
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Net Earnings Per Share -
Fully Diluted $ 0.41 0.55 1.67 1.06 3.66 $ 0.79 1.03 1.07 0.92 3.81
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The four quarters for net earnings per share may not add for the year because of
the different number of shares outstanding during the year.
Third quarter 1997 net earnings includes a $33.2 million ($1.06 per share) after
tax gain on the sale of the Thin Film Systems operations.
Common Stock Prices (Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- ---------------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------ ------ ------ ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common Stock
High $51 7/8 59 1/2 56 1/4 62 1/8 $53 7/8 52 5/8 62 7/8 52 3/8
Low $44 1/8 49 47 1/8 52 5/8 $42 1/2 43 1/4 49 1/4 40 1/2
Dividends Declared
Per Share $ 0.08 0.09 0.09 0.09 $ 0.07 0.08 0.08 0.08
</TABLE>
34
<PAGE> 23
Exhibit 13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Varian Associates, Inc.
We have audited the accompanying consolidated balance sheets of Varian
Associates, Inc. and its subsidiaries as of September 26, 1997 and September 27,
1996, and the related consolidated statements of earnings, stockholders' equity,
and cash flows for each of the three fiscal years in the period ended September
26, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Varian
Associates, Inc. and its subsidiaries as of September 26, 1997, and September
27, 1996, and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended September 26, 1997, in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- -------------------------------
COOPERS & LYBRAND L.L.P.
San Jose, California
October 15, 1997
-35-
<PAGE> 1
EXHIBIT 21
VARIAN ASSOCIATES, INC.
SUBSIDIARIES OF THE REGISTRANT
FISCAL 1997
<TABLE>
<CAPTION>
ORGANIZED UNDER PERCENTAGE OF VOTING
LAWS OF SECURITIES OWNED
--------------- --------------------
<S> <C> <C>
VARIAN ASSOCIATES, INC. (REGISTRANT):
Varian Sample Preparation Products, Inc. California 100%
Varian Associates Limited California 100%
Varian Inter-American Corp. California 100%
Varian Investment Corporation California 100%
Varian Realty Inc. California 100%
Varian Asia, Ltd. Delaware 100%
Varian China, Ltd. Delaware 100%
Varian Biosynergy, Inc. Delaware 100%
Varian Technologies, Inc. Delaware 100%
Varian Japan Holdings, Ltd. Delaware 100%
Varian Pacific, Inc. Delaware 100%
Varian Instruments of Puerto Rico, Inc. Delaware 100%
Varian Ltd. Delaware 100%
Varian Argentina, Ltd. Delaware 100%
Varian India Pvt., Ltd. Delaware 100%
Mansfield Insurance Company Vermont 100%
Varian Australia Pty., Ltd. Australia 100%
Varian Holdings (Australia) Pty. Limited Australia 100%
Varian Gesellschaft m.b.H Austria 100%
Varian Belgium, N.V. Belgium 100%
Varian Industria E Comercia Limitada Brazil 100%
Intralab Instrumentacao Analytica Ltda. Brazil 100%
Varian Canada, Inc. Canada 100%
Varian AS Denmark 100%
Varian - TEM Limited England 100%
Varian S.A. France 100%
Varian Medical France S.A.S France 100%
Varian - Dosetek OY Finland 100%
Varian GmbH Germany 100%
Varian S.p.A. Italy 100%
Varian Japan K.K. Japan 100%
Varian Technologies Korea, Ltd. Korea 100%
Varian, S.A. Mexico 100%
Varian AB Sweden 100%
Varian International AG Switzerland 100%
Varian Nederland B.V. The Netherlands 100%
Varian FSC B.V. The Netherlands 100%
Varian Technologies, C.A. Venezuela 100%
Varian Iberica, S.L. Spain 70%
Varian Korea, Ltd. Korea 61%
Nippon Oncology Systems, Ltd. Japan 49%
</TABLE>
All of the above subsidiaries are included in the Company's consolidated
financial statements. The names of certain consolidated subsidiaries have been
omitted because, considered in the aggregate as a single subsidiary, they would
not consitute a significant subsidiary.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Varian Associates, Inc. on Forms S-8 (Nos. 33-46000, 33-33661, 33-33660,
2-95139, and 33-1425) and Forms S-8 and S-3 (No. 33-40460) of our reports dated
October 15, 1997, on our audits of the consolidated financial statements and
financial statement schedule of Varian Associates, Inc. as of September 26, 1997
and September 27, 1996 and for each of the three fiscal years in the period
ended September 26, 1997, which reports are included or incorporated by
reference in this Form 10-K.
/s/ Coopers & Lybrand L.L.P.
-------------------------------
Coopers & Lybrand L.L.P.
San Jose, California
December 18, 1997
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
The undersigned directors of Varian Associates, Inc., a Delaware
corporation ("Company"), hereby constitute and appoint Robert A. Lemos and
Joseph B. Phair, and each of them with full power to act without the other, the
undersigned's true and lawful attorney-in-fact, with full power of substitution
and resubstitution, for the undersigned and in the undersigned's name, place and
stead in the undersigned's capacity as a director of the Company, to execute in
the name and on behalf of the undersigned of the Company's Annual Report on Form
10-K for the fiscal year ended September 26, 1997 ("Report"), under the
Securities and Exchange Act of 1934, as amended, and to file such Report, with
exhibits thereto and other documents in connection therewith and any and all
amendments thereto, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact, and each of them, full power and authority to do and
perform each and every act and thing necessary or desirable to be done and to
take any other action of any type whatsoever in connection with the foregoing
which, in the opinion of such attorney-in-fact, may be of benefit to, in the
best interest of, or legally required of, the undersigned, it being understood
that the documents executed by such attorney-in-fact on behalf of the
undersigned pursuant to this Power of Attorney shall be in such form and shall
contain such terms and conditions as such attorney-in-fact may approve in such
attorney-in-fact's discretion. This Power of Attorney may be executed in any
number of counterparts, all of which together shall constitute one and the same
Power of Attorney.
IN WITNESS WHEREOF, I have hereunto set my hand this __ day of
_________________ , 1997.
/s/ Ruth M. Davis
- ------------------------------- -------------------------------
Ruth M. Davis Robert W. Dutton
/s/ Samuel Hellman /s/ Terry R. Lautenbach
- ------------------------------- -------------------------------
Samuel Hellman Terry R. Lautenbach
/s/ Angus A. MacNaughton /s/ David W. Martin
- ------------------------------- -------------------------------
Angus A. MacNaughton David W. Martin, Jr.
/s/ Wayne R. Moon
- ------------------------------- -------------------------------
John G. McDonald Wayne R. Moon
/s/ Gordon E. Moore /s/ David E. Mundell
- ------------------------------- -------------------------------
Gordon E. Moore David E. Mundell
/s/ Burton Richter /s/ Elizabeth E. Tallett
- ------------------------------- -------------------------------
Burton Richter Elizabeth E. Tallett
/s/ Richard W. Vieser
- ------------------------------- -------------------------------
Jon D. Tompkins Richard W. Vieser
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM VARIAN
ASSOCIATES, INC., AND SUBSIDARY COMPANIES, CONSOLIDATED BALANCE SHEETS,
CONSOLIDATED STATEMENTS OF EARNINGS AND NOTES TO THE CONSOLIDATED FINANCIAL
STATEMENTS, ALL CONTAINED WITHIN EXHIBIT 13, REGISTRANTS 1997 ANNUAL REPORT TO
STOCKHOLDERS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-26-1997
<PERIOD-START> SEP-28-1996
<PERIOD-END> SEP-26-1997
<CASH> 142,298
<SECURITIES> 0
<RECEIVABLES> 421,693
<ALLOWANCES> 2,715
<INVENTORY> 159,598
<CURRENT-ASSETS> 813,470
<PP&E> 460,251
<DEPRECIATION> 264,612
<TOTAL-ASSETS> 1,104,333
<CURRENT-LIABILITIES> 464,310
<BONDS> 0
0
0
<COMMON> 30,108
<OTHER-SE> 494,469
<TOTAL-LIABILITY-AND-EQUITY> 1,104,333
<SALES> 1,425,824
<TOTAL-REVENUES> 1,425,824
<CGS> 902,733
<TOTAL-COSTS> 1,295,899
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,783
<INCOME-PRETAX> 177,785
<INCOME-TAX> 62,225
<INCOME-CONTINUING> 115,560
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115,560
<EPS-PRIMARY> 0
<EPS-DILUTED> 3.66
</TABLE>
