0000891618-95-000441.txt : 19950809 0000891618-95-000441.hdr.sgml : 19950809 ACCESSION NUMBER: 0000891618-95-000441 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950808 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: VARIAN ASSOCIATES INC /DE/ CENTRAL INDEX KEY: 0000203527 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 942359345 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07598 FILM NUMBER: 95559690 BUSINESS ADDRESS: STREET 1: 3100 HANSEN WAY STREET 2: MAIL STOP E 224 CITY: PALO ALTO STATE: CA ZIP: 94304-1030 BUSINESS PHONE: 4154934000 MAIL ADDRESS: STREET 1: 3100 HANSEN WAY STREET 2: MAIL STOP E 224 CITY: PALO ALTO STATE: CA ZIP: 94304-1030 FORMER COMPANY: FORMER CONFORMED NAME: VARIAN DELAWARE INC DATE OF NAME CHANGE: 19761123 10-Q 1 FORM 10-Q FOR VARIAN ASSOCIATES, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSISTION PERIOD FROM TO ------------ ------------- COMMISSION FILE NUMBER: 1-7598 EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER: VARIAN ASSOCIATES, INC. STATE OR OTHER JURISDICTION OF IRS EMPLOYER INCORPORATION OR ORGANIZATION: IDENTIFICATION NO.: DELAWARE 94-2359345 Address of principal executive offices: 3050 Hansen Way, Palo Alto, California 94304-1000 Telephone No., including area code: (415) 493-4000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- An index of exhibits filed with this Form 10-Q is located on page 13. Number of shares of Common Stock, par value $1 per share, outatanding as of the close of business on July 28, 1995: 33,859,000 shares. 2 PART 1. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF EARNINGS UNAUDITED
THIRD QUARTER ENDED NINE MONTHS ENDED ---------------------------------------------------------------------------------------------------------------------- (DOLLARS IN THOUSANDS JUNE 30, JULY 1, JUNE 30, JULY 1, EXCEPT PER SHARE AMOUNTS) 1995 1994 1995 1994 ---------------------------------------------------------------------------------------------------------------------- SALES $ 458,907 $ 393,054 $ 1,350,403 $ 1,111,338 ------------ ------------ ------------ -------------- OPERATING COSTS AND EXPENSES Cost of sales 303,242 262,599 903,926 747,006 Research and development 26,421 19,513 72,470 59,418 Marketing 54,520 48,225 153,950 136,058 General and administrative 23,593 27,530 87,344 83,150 ------------ ------------ ------------ -------------- Total operating costs and expenses 407,776 357,867 1,217,690 1,025,632 ------------ ------------ ------------ -------------- OPERATING EARNINGS 51,131 35,187 132,713 85,706 Interest expense, net 748 (991) 2,258 1,136 ------------ ------------ ------------ -------------- EARNINGS BEFORE TAXES 50,383 36,178 130,455 84,570 Taxes on Earnings 18,640 13,750 48,270 32,140 ------------ ------------ ------------ -------------- NET EARNINGS $ 31,743 $ 22,428 $ 82,185 $ 52,430 ============ ============ ============ ============== Average Shares Outstanding Including Common Stock Equivalents 35,431 35,528 35,480 35,703 ============ ============ ============ ============== EARNINGS PER SHARE - FULLY DILUTED $ 0.90 $ 0.63 $ 2.32 $ 1.47 ============ ============ ============ ============== ---------------------------------------------------------------------------------------------------------------------- Dividends Declared Per Share $ 0.07 $ 0.06 $ 0.20 $ 0.17 Order Backlog $ 764,000 $ 803,500 ----------------------------------------------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements. -2- 3 VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS UNAUDITED
---------------------------------------------------------------------------------- JUNE 30, SEPTEMBER 30, (DOLLARS IN THOUSANDS EXCEPT PAR VALUES) 1995 1994 ---------------------------------------------------------------------------------- ASSETS CURRENT ASSETS Cash and cash equivalents $ 90,120 $ 78,872 Accounts receivable 378,462 338,448 Inventories Raw materials and parts 131,578 104,212 Work in process 65,763 60,296 Finished goods 28,591 14,668 ----------- ---------- Total Inventories 225,932 179,176 Other current assets 75,199 72,243 ----------- ---------- TOTAL CURRENT ASSETS 769,713 668,739 Property, Plant, and Equipment 602,524 574,402 Accumulated depreciation and amortization (364,334) (339,082) ----------- ---------- NET PROPERTY, PLANT, AND EQUIPMENT 238,190 235,320 Other Assets 61,181 58,364 ----------- ---------- TOTAL ASSETS $ 1,069,084 $ 962,423 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 32,968 $ 4,816 Accounts payable - trade 83,493 78,094 Accrued expenses 266,175 248,751 Product warranty 48,349 41,682 Advance payments from customers 61,264 58,440 ----------- ---------- TOTAL CURRENT LIABILITIES 492,249 431,783 Long-Term Debt 60,329 60,399 Deferred Taxes 20,773 20,788 ----------- ---------- TOTAL LIABILITIES 573,351 512,970 ----------- ---------- 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 33,833,000 shares at June 30, 1995 and 33,979,000 shares at September 30, 1994 33,833 33,979 Retained earnings 461,900 415,474 ----------- ---------- TOTAL STOCKHOLDERS' EQUITY 495,733 449,453 ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,069,084 $ 962,423 =========== ==========
See accompanying notes to the consolidated financial statements. -3- 4 VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS UNAUDITED
NINE MONTHS ENDED --------------------------------------------------------------------------------------- JUNE 30, JULY 1, (DOLLARS IN THOUSANDS) 1995 1994 --------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Cash Provided by Operating Activities $ 68,659 $ 56,801 INVESTING ACTIVITIES Purchase of property, plant, and equipment (40,551) (41,001) Purchase of businesses, net of cash acquired (12,705) 250 Other, net 6,313 5,064 --------- -------- Net Cash Used by Investing Activities (46,943) (35,687) FINANCING ACTIVITIES Net borrowings on short-term obligations 28,152 15,996 Proceeds from common stock issued to employees 22,582 18,984 Purchase of common stock (51,719) (46,029) Other, net (6,838) (5,902) --------- -------- Net Cash Used by Financing Activities (7,823) (16,951) EFFECTS OF EXCHANGE RATE CHANGES ON CASH (2,645) (664) --------- -------- Net Increase in Cash and Cash Equivalents 11,248 3,499 Cash and Cash Equivalents at Beginning of Period 78,872 73,307 --------- -------- Cash and Cash Equivalents at End of Period $ 90,120 $ 76,806 ========= ========
See accompanying notes to the consolidated financial statements. -4- 5 VARIAN ASSOCIATES, INC. AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Unaudited (Dollars in Millions) NOTE 1: The consolidated financial statements include the accounts of Varian Associates, Inc. and its subsidiaries and have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. It is suggested that these financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest Form 10-K annual report. In the opinion of management, the consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein. The results of operations for the third quarter and nine months ended June 30, 1995, and July 1, 1994, are not necessarily indicative of the results to be expected for a full year or for any other periods. NOTE 2: Inventories are valued at the lower of cost or market (realizable value) using the last-in, first-out (LIFO) cost for the U.S. inventories of the Health Care Systems (except for X-ray Tube Products), Instruments, and Semiconductor Equipment segments. All other inventories are valued principally at average cost. Approximately half of total gross inventories are valued using the LIFO method. If the first-in, first-out (FIFO) method had been used for those operations valuing inventories on a LIFO basis, inventories would have been higher than reported by $50.2 at June 30, 1995, $49.0 at September 30, 1994, $51.4 at July 1, 1994, and $50.8 at October 1, 1993. NOTE 3: The Company enters into forward exchange contracts to mitigate the effects of operational (sales orders and purchase commitments) and balance sheet exposures to fluctuations in foreign currency exchange rates. When the Company's foreign exchange contracts hedge operational exposure, the effects of movements in currency exchange rates on these instruments are recognized in income when the related revenue and expenses are recognized. When foreign exchange contracts 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 3 (Continued) 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. At June 30, 1995, the Company had forward exchange contracts with maturities of twelve months or less to sell foreign currencies totaling $69.1 million ($0.5 million of Finnish marks, $11.6 million of British pounds, $1.5 million of Canadian dollars, $16.3 million of Deutsche marks, $15.7 million of French francs, $6.3 million of Italian lira, $14.1 million of Japanese yen, $2.2 million of Swedish krona and $0.9 million of Swiss francs,) and to buy foreign currencies totaling $15.0 million ( $10.8 million of British pounds and $4.2 million of Japanese yen). NOTE 4: In February 1990, a purported class action was brought by Panache Broadcasting of Pennsylvania, Inc. on behalf of all purchasers of electron tubes in the U.S. against the Company and a joint-venture partner, alleging that the activities of their joint venture in the power-grid tube industry violated antitrust laws. The complaint seeks injunctive relief and unspecified damages which may be trebled under the antitrust laws. In February 1993, the U.S. District Court in Chicago granted the Company's motion to dismiss the complaint with leave to amend. Panache Broadcasting filed an amended complaint in March 1993. A Federal magistrate has recommended that the court grant in part and deny in part the Company's motion to dismiss that complaint. No determination has been made regarding the plaintiff's request to certify the purported class. The Company believes that it has meritorious defenses to the Panache lawsuit. In addition to the above-referenced matter, the Company is currently a defendant in a number of legal actions and could incur an uninsured liability in one or more of them. In the opinion of management, the outcome of the above litigation will not have a material adverse effect on the financial condition of the Company. The Company has also been named by the U.S. Environmental Protection Agency or third parties as a potentially responsible party under the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, at six sites to which Varian is alleged to have shipped manufacturing waste for disposal. The Company is also involved in various stages of environmental investigation and/or remediation under the direction of, or in consultation with, local and/or state agencies at certain current or former Company facilities. 6 7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4 (Continued) Uncertainty as to (a) the extent to which the Company caused, if at all, the conditions being investigated, (b) the extent of environmental contamination and risks, (c) the applicability of changing and complex environmental laws, (d) the number and financial viability of other potentially responsible parties, (e) the stage of the investigation and/or remediation, (f) the unpredictability of investigation and/or remediation costs (including as to when they will be incurred), (g) applicable clean-up standards,(h) the remediation (if any) which will ultimately be required, and (i) available technology make it difficult to assess the likelihood and scope of further investigation or remediation activities or to estimate the future costs of such activities if undertaken. In addition, the Company believes that it has rights to contribution and/or reimbursement from financially viable, potentially responsible parties and/or insurance companies, and has filed a lawsuit against 36 insurance companies with respect to most of the above-referenced sites. The Company has established reserves for these environmental matters, which reserves management believes are adequate. Based on information currently available, management believes that the costs of these matters are otherwise not reasonably likely to have a material adverse effect on the financial condition of the Company. NOTE 5: On June 12, 1995, the Company announced an agreement with Leonard Green & Partners, L.P., (LGP) under which the Company will sell its Electron Devices business to a company formed at the direction of LGP for approximately $200 million in cash, plus the assumption of certain liabilities. The transaction is subject to certain customary conditions and the arrangement of financing, and is expected to close in August 1995. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On July 20, Varian reported the highest third-quarter earnings in the Company's history. Net profits rose to $31.8 million, 42% above last year's $22.4 million. Earnings per share were $0.90 compared to $0.63 in the third quarter of 1994. Orders were $417 million versus $441 million in the year-ago period. For the quarter, order receipts rose 16% from the prior year when adjusted for the effect of a distribution agreement with Tokyo Electron Ltd. (TEL) which ended at the close of fiscal 1994. Third quarter sales climbed to $459 million, growing 17% over the $393 million of a year ago. Backlog of $764 million was down 5% from $804 million in the 1994 quarter. For the first nine months of fiscal 1995, orders were $1.35 billion versus 1994's $1.29 billion, an increase of 19% on a TEL-adjusted basis. Sales for the period reached $1.35 billion compared to last year's $1.11 billion. Earnings for the nine months were $82.2 million ($2.32/share) up 57% over the prior year's $52.4 million ($1.47/share). The higher results were due largely to continued strong performances by the Company's Semiconductor Equipment and Health Care Systems businesses. Orders for Varian's Health Care Systems business rose 6% year-to-date. Sales for the nine months were up 15%, and operating margins improved. Backlog declined 5% from 1994's level. The X-ray Tube Products side of this business continued to experience strong demand for its high-end products, with particularly good interest from the Japanese market. Orders for the Company's Instruments business grew 3% during the nine-months on improved market conditions in the U.S. and the Far East, driven by strong demand for vacuum products. Sales were slightly higher for the year to date, reaching $276 million, a 3% increase over the year-ago period. Backlog declined 4% from the previous quarter. Instrument markets worldwide continue to be extremely competitive. Operating margins for this business declined from the year-ago period. Nine-month orders for Varian's Semiconductor Equipment business rose 54% over the year-ago period, after the previously noted adjustment for the dissolved Tokyo Electron Ltd. distribution agreement. Sales grew 49% over the 1994 level. Backlog rose 53% over the prior year on a TEL-adjusted basis. Operating margins continue in the double-digit range, reaching twice the level of those achieved in the first nine months of the prior year. The strong year-to-date demand for the Company's chip-making equipment was worldwide, with particularly heavy orders from Korea and other Pacific Rim nations. Interest in Varian's ion implantation products was especially strong, particularly for leading edge, medium-current systems and the new VIIsion high-current system. Varian's Electron Devices business posted higher orders and sales, up 4% and 9%, respectively, over the year-ago period while backlog rose 2%. Operating margins for this business improved modestly during the quarter. FINANCIAL CONDITION The Company's financial condition remained strong during the first nine months of fiscal 1995. Operating activities provided cash of $68.7 million in the first nine months of fiscal 1995 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED) compared to $56.8 million in the same period last year. Investing activities used $46.9 million in the first nine months of fiscal 1995, $12.7 million for the purchase of businesses, and the remainder used mainly for the purchase of property, plant and equipment. Investing activities in the same period last year used $35.7 million, mainly for the purchase of property, plant and equipment. Financing activities used $7.8 million and $17.0 million during the first nine months of 1995 and 1994, respectively. Total debt as a percentage of total capital increased to 15.8% at the end of the third quarter of fiscal 1995 as compared with 12.7% at fiscal year end. The ratio of current assets to current liabilities increased slightly to 1.56 to 1 at June 30, 1995, from 1.55 to 1 at fiscal year end, 1994. The Company has available $50 million in unused committed lines of credit. OUTLOOK Despite the favorable financial results described above, future revenue and profitability remain difficult to predict. The Company continues to face various risks associated with its business operations including uncertain general worldwide economic conditions, lingering worldwide recessionary conditions, new product acceptance, and uncertainty regarding possible legislation and private initiatives in the U.S. to control health care costs. Such conditions could affect the Company's future performance. On June 12, 1995, the Company announced an agreement with Leonard Green & Partners, L.P., (LGP) under which the Company will sell its Electron Devices business to a company formed at the direction of LGP for approximately $200 million in cash, plus the assumption of certain liabilities. The transaction is subject to certain customary conditions and the arrangement of financing, and is expected to close in August 1995. The Company anticipates that most of the proceeds from the sale will be used to repurchase outstanding shares of stock. As discussed in the Annual Report Form 10-K for the fiscal year ended September 30, 1994, the Company is involved in certain environmental matters. The Company has established reserves for these environmental matters, which reserves management believes are adequate. Based on information currently available, management continues to believe that the costs of these matters, individually or in the aggregate, are otherwise not reasonably likely to have a material adverse effect on the financial condition or results of operations of the Company. 9 10 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Varian Associates, Inc.: We have reviewed the consolidated balance sheet of Varian Associates, Inc. and subsidiary companies as of June 30, 1995, and the related consolidated statements of earnings for the quarters and nine months ended June 30, 1995 and July 1, 1994, and the condensed consolidated statements of cash flows for the nine months ended June 30, 1995 and July 1, 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the aforementioned financial statements for them to be in conformity with generally accepted accounting principles. /s/ Coopers & Lybrand L.L.P. ------------------------------ COOPERS & LYBRAND L.L.P. San Jose, California July 19, 1995 10 11 PART II. OTHER INFORMATION Item 6 Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 10.5 Registrant's Supplemental Retirement Plan, as amended and effective as of July 1, 1994. Exhibit 11 Computation of Earnings Per Share. Exhibit 15 Letter Regarding Unaudited Interim Financial Information. Exhibit 27 Financial Data Schedule (b) Reports on Form 8-K: A report on Form 8-K was filed on June 13, 1995, regarding the Registrant's agreement with Leonard Green & Partners, L.P., (LGP) under which the Company agreed to sell its Electron Devices business to a company formed at the direction of LGP. 11 12 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VARIAN ASSOCIATES, INC. ------------------------------ Registrant August 8, 1995 ------------------------------ Date /s/ Allen K. Jones ------------------------------ Allen K. Jones Vice President and Controller (Chief Accounting Officer) 12 13 INDEX OF EXHIBITS
Exhibit Number Page ------- ---- 10.5 Registrant's Supplemental Retirement Plan 14 11 Computation of Earnings Per Share 20 15 Letter Regarding Unaudited Interim Financial Information 21 27 Financial Data Schedule 22
13 EX-10.5 2 REGISTRANT'S SUPPLEMENTAL RETIREMENT PLAN 1 EXHIBIT 10.5 SUPPLEMENTAL RETIREMENT PLAN OF VARIAN ASSOCIATES, INC. (As Amended and Restated Effective July 1, 1994) SECTION 1. ESTABLISHMENT AND PURPOSE OF THE PLAN. The Plan was established by the Company effective October 1, 1983, and is amended and restated effective July 1, 1994. The purpose of the Plan is to provide deferred compensation consisting of (a) allocations that exceed the amounts that the Dollar Limitations permit to be allocated under the Retirement Program but that are otherwise calculated by reference to the Retirement Program and (b) allocations of Pension Contributions that would be made under the Retirement Program if the Retirement Program included in its definition of "Earnings" amounts representing Management Incentive Bonuses. SECTION 2. ELIGIBILITY AND PARTICIPATION. Participation in the Plan shall be limited to the following: (a) Participants in the Retirement Program (i) whose actual allocations of Pension Contributions under the Retirement Program are less than they would have been if Management Incentive Bonuses were included in the Retirement Program's definition of "Earnings" and (ii) who are Officers of the Company, or such other employees of the Company as are (A) designated by the Committee and (B) whose combined rate of annual salary and target Management Incentive Bonus is not less than two times the amount described in section (414)(q)(1)(C) of the Code, adjusted as prescribed by the Code to reflect changes in the cost of living; and (b) Participants in the Retirement Program whose actual allocations under the Retirement Program are restricted by a Dollar Limitation. SECTION 3. PLAN BENEFITS. (a) Reserve Account. The Company shall establish on its books a special unfunded Reserve Account for each Participant. As of each Valuation Date, the Company shall credit interest on the balance in each Reserve Account (not including any amounts credited under Subsections (b) 14 2 EXHIBIT 10.5 (CONTINUED) and (c) below during the calendar quarter then ending). The interest credited to the Reserve Account shall be at a rate equivalent to: (i) For periods prior to October 1, 1992, the return rate provided by the Retirement Program's Fixed Income Fund; (ii) For periods after September 30, 1992, but prior to July 1, 1994, the return rate provided by the Retirement Program's Interest Income Fund; and (iii) For periods after June 30, 1994, the return rate provided by the long term Applicable Federal Rate (AFR) compounded quarterly. (b) Pension Contributions. As of the Valuation Date coinciding with or next following the date when the Company makes a "Pension Contribution" under the Retirement Program, the Company shall credit to a Participant's Reserve Account an amount determined as follows: (i) First, the hypothetical amount of the Participant's "Pension Contribution" since the preceding Valuation Date shall be calculated, based on the assumptions (A) that the Dollar Limitations do not apply and (B) in the case of a Participant described in Section 2(a), that any Management Incentive Bonuses received by the Participant since the preceding Valuation Date (or that would have been received if not deferred) are included in Earnings for purposes of determining "Pension Contributions" under the Retirement Program; (ii) Second, the amount calculated under Paragraph (i) above shall be reduced (but not below zero) since the preceding Valuation Date by the actual amount of the Participant's "Pension Contribution"; and (iii) The remainder (if any) shall be the amount credited to the Participant's Reserve Account under this Subsection (b). (c) Retirement Profit-Sharing Contributions. As of the Valuation Date coinciding with or next following the date when the Company makes a "Retirement Profit-Sharing Contribution" under the Retirement Program, the Company shall credit to a Participant's Reserve Account an amount determined as follows: (i) First, the hypothetical amount of the Participant's share of the "Retirement Profit-Sharing Contribution" shall be calculated, based on the assumption that the Dollar Limitations do not apply; (ii) Second, the amount calculated under Paragraph (i) above shall be reduced (but not below zero) by the actual amount of the Participant's share of the "Retirement Profit-Sharing Contribution"; and 15 3 EXHIBIT 10.5 (CONTINUED) (iii) The remainder (if any) shall be the amount credited to the Participant's Reserve Account under this Subsection (c). (d) Distributions. Following the termination of a Participant's employment with the Company and its subsidiaries, the Company shall pay to the Participant the balance credited to his or her Reserve Account. Payments from the Reserve Account shall be made in cash, at such time(s) and in such form (including a lump sum or periodic installments) as the Committee shall determine or redetermine in its sole discretion. Any unpaid balance remaining in a Reserve Account shall continue to be credited with interest at the rate specified in Subsection (a) above. In the event of a Participant's death before the entire Reserve Account has been distributed to him or her, the unpaid balance remaining in the Participant's Reserve Account shall be paid to his or her beneficiary or beneficiaries under the Retirement Program, at such time(s) and in such form as the Committee shall determine in its sole discretion. SECTION 4. NO FUNDING. The Plan shall be unfunded and shall represent an unsecured obligation of the Company. Benefits hereunder shall be paid only from the general assets of the Company, and the Participants shall have no rights to any segregated funds or property of the Company. SECTION 5. ADMINISTRATION. The Plan shall be administered by the Committee. The Committee shall make such rules, interpretations, and computations as it may deem appropriate. Any decision of the Committee with respect to the Plan, including (without limitation) any determination of eligibility to participate in the Plan and any calculation of benefits hereunder, shall be conclusive and binding on all persons. SECTION 6. CLAIMS AND REVIEW PROCEDURES. (a) Application for Benefits. Any application for benefits under the Plan shall be submitted to the Committee at the Company's principal office. Such application shall be in writing and on the prescribed form, if any, and shall be signed by the applicant. (b) Denial of Applications. In the event that any application for benefits is denied in whole or in part, the Committee shall notify the applicant in writing of the right to a review of the denial. Such written notice shall set forth, in a manner calculated to be understood by the applicant, specific reasons for the denial, specific references to the Plan provisions on which the denial was based, a description of any information or material necessary to perfect the application, an explanation of why such material is necessary, and an explanation of the Plan's review procedure. Such written notice shall be given to the applicant within 90 days after the Committee receives the application, unless special circumstances require an extension of time for processing the application. In no event shall such an extension exceed a period of 90 days from the end of the 16 4 EXHIBIT 10.5 (CONTINUED) initial 90-day period. If such an extension is required, written notice thereof shall be furnished to the applicant before the end of the initial 90-day period. Such notice shall indicate the special circumstances requiring an extension of time and the date by which the Committee expects to render a decision. If written notice is not given to the applicant within the period prescribed by this Section 6(b), the application shall be deemed to have been denied for purposes of Section 6(c) upon the expiration of such period. (c) Request for Review. Any person whose application for benefits is denied in whole or in part (or such person's duly authorized representative) may appeal the denial by submitting to the Committee a request for a review of such application within 90 days after receiving written notice of denial. The Committee shall give the applicant or such representative an opportunity to review pertinent documents (except legally privileged materials) in preparing such request for review and to submit issues and comments in writing. The request for review shall be in writing and shall be addressed to the Committee at the Company's principal office. The request for review shall set forth all of the ground on which it is based, all facts in support of the request, and any other matters which the applicant deems pertinent. The Committee may require the applicant to submit such additional facts, documents, or other material as it may deem necessary or appropriate in making its review. (d) Decision on Review. The Committee shall act upon each request for review within 60 days after receipt thereof, unless special circumstances require an extension of time for processing, but in no event shall the decision on review be rendered more that 120 days after the Committee receives the request for review. If such an extension is required, written notice thereof shall be furnished to the applicant before the end of the initial 60-day period. The Committee shall give prompt, written notice of its decision to the applicant and to the Company. In the event that the Committee confirms the denial of the application for benefits in whole or in part, such notice shall set forth, in a manner calculated to be understood by the applicant, the specific reasons for such denial and specific references to the Plan provisions on which the decision is based. To the extent that the Committee overrules the denial of the application for benefits, such benefits shall be paid to the applicant. (e) Rules and Procedures. The Committee shall adopt such rules and procedures, consistent with ERISA and the Plan, as it deems necessary or appropriate in carrying out its responsibilities under this Section 6. (f) Exhaustion of Administrative Remedies. No legal or equitable action for benefits under the Plan shall be brought unless and until the claimant (i) has submitted a written application for benefits in accordance with Section 6(a), (ii) has been notified that the application is denied, (iii) has filed a written request for a review of the application in accordance with Section 6(c), and (iv) has been notified in writing that the Committee has affirmed the denial of the application; provided, however, that an action may be brought after the Committee has failed to act on the claim within the time prescribed in Section 6(b) and Section 6(d), respectively. 17 5 EXHIBIT 10.5 (CONTINUED) SECTION 7. AMENDMENT AND TERMINATION. The Company expects to continue the Plan indefinitely. Future conditions, however, cannot be foreseen, and the Company shall have the authority to amend or terminate the Plan at any time. In the event of an amendment or termination of the Plan, the amount of a Participant's benefits hereunder shall not be less than the amount to which the Participant would have been entitled if his or her employment had terminated immediately prior to such amendment or termination. The Plan may be amended by the Board of Directors or by the Committee. SECTION 8. EMPLOYMENT RIGHTS. Nothing in the Plan shall be deemed to give any person a right to remain in the employ of the Company or of any of its subsidiaries. The Company and its subsidiaries reserve the right to terminate any person's employment, with or without cause. SECTION 9. NO ASSIGNMENT. The rights of any person to payments or benefits under the Plan shall not be transferable nor be made subject to option or assignment, either by voluntary or involuntary assignment or by operation of law, including (without limitation) bankruptcy, garnishment, attachment, or other creditor's process. Any act in violation of this Section 9 shall be void. SECTION 10. APPLICABLE LAW. The validity, interpretation, construction, and performance of the Plan shall be governed by ERISA, and by the laws of the State of California to the extent that they have not been preempted by ERISA. SECTION 11. DEFINITIONS. (a) "Code" means the Internal Revenue Code of 1986, as amended. Reference to a specific section of the Code shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. (b) "Committee" means the Organization and Compensation Committee of the Company's Board of Directors. (c) "Company" means Varian Associates, Inc., a Delaware corporation. 18 6 EXHIBIT 10.5 (CONTINUED) (d) "Dollar Limitation" means (i) the limitation described in section 401(a)(17) of the Code and (ii) the limitation described in section 415(c)(1)(A) of the Code, adjusted in each case as prescribed by the Code. (e) "Earnings" shall have the meaning given to such term in the Retirement Program, except that Earnings for purposes of the Plan shall not be subject to the limitation described in section 401(a)(17) of the Code, as adjusted as prescribed by the Code. (f) "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific section of ERISA shall include such section, any valid regulation promulgated thereunder, and any comparable provision of any future legislation amending, supplementing or superseding such section. (g) "Management Incentive Bonus" means a bonus payment under the Varian Associates, Inc. Management Incentive Plan, as amended from time to time. (h) "Participant" means an individual who is eligible to participate in the Plan pursuant to Section 2(a) and/or Section 2(b) and Subsection (d) above. (i) "Plan" means this Supplemental Retirement Plan of Varian Associates, Inc., as amended from time to time. (j) "Reserve Account" means the unfunded bookkeeping account described in Section 3(a). (k) "Retirement Program" means the Varian Associates, Inc. Retirement and Profit-Sharing Program, as amended from time to time. (l) "Valuation Date" means the last day of each calendar quarter. 19 EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 COMPUTATION OF EARNINGS PER SHARE IN ACCORDANCE WITH INTERPRETIVE RELEASE NO. 34-9083 UNAUDITED
THIRD QUARTER ENDED NINE MONTHS ENDED JUNE 30, JULY 1, JUNE 30, JULY 1, (SHARES IN THOUSANDS) 1995 1994 1995 1994 ----------------------------------------------------------------------------------------------------------------- Actual weighted average shares outstanding for the period 33,894 34,354 33,854 34,465 Dilutive employee stock options 1,537 1,174 1,626 1,238 ---------- ---------- ---------- ----------- Weighted average shares outstanding for the period 35,431 35,528 35,480 35,703 ========== ========== ========== =========== (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------------------------------------------------------- Earnings applicable to fully diluted earnings per share $ 31,743 $ 22,428 $ 82,185 $ 52,430 ========== ========== ========== =========== Earnings per share based on SEC interpretive release No. 34-9083: Earnings per share - Fully Diluted (1) $ 0.90 $ 0.63 $ 2.32 $ 1.47 ========== ========== ========== ===========
(1) There is no significant difference between fully diluted earnings per share and primary earnings per share. - 20 - EX-15 4 LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFO 1 EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 RE: Varian Associates, Inc. Registrations on Forms S-8 and S-3 We are aware that our report dated July 19, 1995 on our review of the interim financial information of Varian Associates, Inc. for the three-month and nine-month periods ended June 30, 1995, included in this Form 10-Q is incorporated by reference in the Company's registration statements on Forms S-8, Registration Statement Numbers 33-46000, 33-33661, 33-33660, and 2-95139 and Forms S-8 and S-3, Registration Statement Number 33-40460. Pursuant to Rule 436(c) under the Securities Act of 1933 this report should not be considered a part of the registration statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ Coopers & Lybrand L.L.P. ---------------------------- Coopers & Lybrand L.L.P San Jose, California August 8, 1995 21 EX-27 5 FINANCIAL DATA SCHEDULE
5 1000 9-MOS SEP-29-1995 OCT-01-1994 JUN-30-1995 90,120 0 380,910 2,448 225,932 769,713 602,524 364,334 1,069,084 492,249 0 33,833 0 0 461,900 1,069,084 1,350,403 1,350,403 903,926 1,217,690 0 0 2,258 130,455 48,270 82,185 0 0 0 82,185 0 2.32