UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year September 28, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from _________________ to _________________.
Commission file number 1-7598
VARIAN MEDICAL SYSTEMS, INC.
RETIREMENT PLAN
(Full title of the plan)
VARIAN MEDICAL SYSTEMS, INC.
(Name of issuer of the securities held pursuant to the plan)
3100 HANSEN WAY
PALO ALTO, CALIFORNIA 94304-1129
(Address of principal executive offices)
VARIAN MEDICAL SYSTEMS INC.
RETIREMENT PLAN
INDEX
Varian Medical Systems, Inc. Retirement Plan -- Pension Element: ............1
Report of Independent Accountants........................................2
Financial Statements.....................................................3
Statements of Net Assets Available for Benefits......................3
Statements of Changes in Net Assets Available for Benefits...........4
Notes to Financial Statements........................................5
Varian Medical Systems, Inc. Retirement Plan -- Profit Sharing Element: ....13
Report of Independent Accountants.......................................14
Financial Statements....................................................15
Statements of Net Assets Available for Benefits.....................15
Statements of Changes in Net Assets Available for Benefits..........16
Notes to Financial Statements.......................................17
Supplemental Schedule Furnished Pursuant to Requirements of the Employee
Retirement Income Security Act of 1974:.....................................25
Schedule H, Item 4i: Schedule of Assets Held for Investment Purposes
as of September 30, 2001 ...................................................25
VARIAN MEDICAL SYSTEMS, INC.
RETIREMENT PLAN -
PENSION ELEMENT
FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Retirement Committee of Varian Medical Systems, Inc.
Retirement Plan - Pension Element:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Varian Medical Systems, Inc. Retirement Plan - Pension Element (the "Pension
Element") at September 30, 2001 and 2000, and the changes in net assets
available for benefits for the years then ended in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Pension Element's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 27, 2002
2
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
SEPTEMBER 30,
---------------------
2001 2000
-------- --------
(IN THOUSANDS)
Interest in the Varian Associates, Inc. Retirement
and Profit Sharing Program Trust (Note 5) $224,796 $300,345
-------- --------
Net assets available for benefits $224,796 $300,345
======== ========
The accompanying notes are an integral part of these financial statements.
3
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED
SEPTEMBER 30,
------------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Additions to net assets attributed to:
Interest in Varian Associates, Inc. Retirement
and Profit Sharing Program Trust investment income $ -- $ 54,151
--------- ---------
Contributions:
Participant 270 318
Employer 4,643 4,760
--------- ---------
Total contributions 4,913 5,078
--------- ---------
Total additions 4,913 59,229
--------- ---------
Deductions from net assets attributed to:
Interest in Varian Associates, Inc. Retirement and
Profit Sharing Program Trust investment loss 56,115 --
Benefits paid to participants 24,247 36,679
Administrative expenses 100 27
--------- ---------
Total deductions 80,462 36,706
--------- ---------
Net increase (decrease) in net assets prior to
transfers to other plans (75,549) 22,523
Transfers to other plans (Note 1) -- (2,442)
--------- ---------
Net increase (decrease) in net assets (75,549) 20,081
Net assets available for benefits:
Beginning of year 300,345 280,264
--------- ---------
End of year $ 224,796 $ 300,345
========= =========
The accompanying notes are an integral part of these financial statements.
4
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following brief description of the Varian Medical Systems, Inc.
Retirement Plan (the "Plan") is provided for general information purposes
only. Participants should refer to the Plan and the Summary Plan
Description/Prospectus document for more detailed information.
In November 1998, the Board of Directors of Varian Associates, Inc. approved
a plan to reorganize into three publicly traded independent companies by
spinning off two of its businesses to stockholders in a tax free
distribution. On April 2, 1999, the distribution was consummated by spinning
off the instruments business, which renamed itself Varian, Inc., and the
semiconductor equipment business, which renamed itself Varian Semiconductor
Equipment Associates, Inc. Varian Associates, Inc. renamed itself Varian
Medical Systems, Inc. (the "Company"). The Plan remained with the Company.
The employees of the other two companies had the following options with
respect to their Plan balances: (i) transfer their entire Plan balance,
including any loans, to the new company retirement plan; (ii) choose a
distribution of their entire Plan balance and directly rollover the amount to
an IRA or another employer's tax-qualified plan; (iii) choose a distribution
of their entire Plan balance, or (iv) leave their account balance in the
Plan. Transfers out the Plan have been shown on the statement of changes in
net assets available for benefits as transfers to other plans.
The Plan was established to provide benefits to those employees of the
Company who elect to participate. The Plan consists of two distinct defined
contribution plan elements, the Varian Medical Systems, Inc. Retirement Plan
- Pension Element (the "Pension Element") and the Varian Medical Systems,
Inc. Retirement Plan - Profit Sharing Element (the "Profit Sharing Element").
The Plan is intended to comply with the applicable requirements of the
Internal Revenue Code and the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended. Contributions to the Pension
Element can come from participant after-tax contributions, Company matching
contributions, matching Employee Incentive Plan ("EIP") contributions and
matching Management Incentive Plan ("MIP") contributions. Contributions to
the Profit Sharing Element can come from participant before-tax
contributions, EIP bonus allocations, MIP bonus allocations, retirement
profit-sharing contributions and rollover contributions. Employees are
eligible to join the Plan immediately after they are hired by the Company.
FISCAL YEAR
The Plan's fiscal year ends on the Friday closest to September 30. For
presentation purposes, the financial statements are shown as ending September
30 although the fiscal years ended on September 28, 2001 and September 29,
2000, respectively.
ADMINISTRATION
The Company is the designated administrator of the Plan. The Company has
contracted with Fidelity Institutional Retirement Services Company
("Fidelity") to maintain the Plan's individual participant accounts and with
Fidelity Management Trust Company ("Fidelity Trust") to act as the custodian
and trustee. The Company currently pays certain administrative expenses on
behalf of the Plan, except for loan fees paid by Plan participants who elect
to receive a Plan loan. Brokerage commissions and other charges incurred in
connection with investment transactions are paid from Plan assets. The
Pension Element's investments, as well as the investments of the Profit
Sharing Element, are maintained in the Varian Associates, Inc.
5
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Retirement and Profit Sharing Program Trust ("Master Trust"), a trust
established pursuant to a trust agreement between the Company and Fidelity
Trust.
CONTRIBUTIONS AND PARTICIPANTS' ACCOUNTS
Participants in the Plan may make a minimum contribution of 1% of their base
pay (as defined) up to a maximum of 15% of their base pay, subject to
statutory annual limitations. Employees of the Company may elect to have
their EIP bonus allocation paid out in cash or deposited directly to their
Plan accounts in 10% increments, subject to statutory annual limitations. All
participant contributions may be made on either a before-tax or after-tax
basis and are subject to statutory annual limitations and Plan rules.
Effective October 2, 1999, new Plan participants must complete one year of
service before making any after-tax contributions to the Plan.
Upon completion of one year of service with the Company, participants are
entitled to receive Company contributions. The Company's matching
contribution is 100% of participants' before or after tax deposits, up to a
maximum of 6% of participants' eligible base pay. Contributions for Company
EIP matching contributions are 6% of participants' EIP allocations. The
Company may make a discretionary retirement profit-sharing contribution to
the Profit Sharing Element for participants who have completed one year of
service and were employed on the last day of the fiscal year or died during
the fiscal year. Participants' portions of the Company's retirement
profit-sharing contributions are based on the percentages of their eligible
base salary to the total eligible base pay for all participants during the
Profit Sharing Element year. No discretionary Company retirement
profit-sharing contributions were made in fiscal year 2001 and 2000.
Each participant's account is credited with the participant's contributions
and allocations of the Company's contributions and Plan earnings and charged
with an allocation of certain administrative expenses. Allocations are based
on participant earnings or account balances, as defined. The benefit to which
a participant is entitled is the benefit that can be provided from the
participant's vested account.
Participants are immediately fully vested in their contributions and Company
contributions.
Contributions made to the Plan are allocated among twenty-two investment
funds, including the Varian Medical Systems Stock Fund, offered by the Plan
in 1% increments according to the participant's direction. Participants may
transfer account balances and the investment of their future contributions
among these funds.
PARTICIPANT LOANS
Loans are available to participants who are either active employees or on a
leave of absence. Participants are eligible to request a loan from the Plan
ranging from $1,000 to the lesser of 50% of the participant's Plan assets or
$50,000. Loan balances are also subject to certain other limitations as
provided by the Plan. Loan balances are collateralized by the balance in the
participant's account and bear interest at a fixed rate of prime plus 1% at
the date requested. The interest rates on loans outstanding at September 30,
2001 and 2000 range from 7.75% to 10.5% and 8.75% to 10.5%, respectively.
Principal and interest is paid ratably through payroll deductions generally
over five years. Upon employment termination, the entire loan balance becomes
immediately due and payable.
6
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
PAYMENT OF BENEFITS
Upon termination of service on account of death, disability or retirement, a
participant or beneficiary may elect to receive either a lump sum amount
equal to the value of their account or annual installments over a period of
years.
HARDSHIP DISTRIBUTIONS
Participants are allowed to withdraw funds from the Profit Sharing Element in
case of hardship. Withdrawals may be made no more than once a month and must
be at least $500 (or such lesser amount as is available for withdrawal).
Withdrawals are subject to restrictions as to amount, frequency and intended
use of the proceeds. The normal form of payment is cash.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Pension Element are prepared utilizing the
accrual basis of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
administrator and trustee to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements. Such
estimates include those regarding fair value. Actual results may differ from
those estimates.
RISKS AND UNCERTAINTIES
The Plan provides participants with various investment options in mutual
funds which are invested in a combination of stocks, bonds, fixed income
securities and other investment securities. Investment securities are exposed
to various risks, such as those associated with interest rates, market
conditions and credit worthiness of the securities' issuers. Due to the level
of risk associated with certain investment securities, it is at least
reasonably possible that changes in risks in the near term could materially
affect participants' account balances and the amounts reported in the
financial statements.
INVESTMENTS
Investments of the Plan are held by Fidelity Trust and are invested in the
investment options available in the Plan based solely upon instructions
received from Plan participants.
Investments of the Master Trust held in money market and mutual funds are
valued at fair value as determined by quoted market prices. Investments of
the Master Trust held in the Interest Income Fund and the Varian Medical
Systems Stock Fund are stated at net asset value,
7
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
as determined by the investment manager, based on the fair value of the
underlying securities. The carrying amounts of the investments approximate
fair value. Purchases and sales of securities held in the Master Trust are
recorded on a trade-date basis. Participant loans are valued at cost which
approximate fair value. The Master Trust presents in its investment income
(loss) the net appreciation (depreciation) in the fair value of its
investments, which consists of the realized gains or losses and the
unrealized appreciation (depreciation) on these investments.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
3. INCOME TAXES
The Pension Element obtained its current determination letter on December 4,
2001, in which the Internal Revenue Service stated that the Pension Element
design is in compliance with the applicable requirements of the Internal
Revenue Code. The Pension Element has been subsequently amended; however, the
Company believes that the Pension Element is designed and is currently being
operated in compliance with the applicable requirements of the Internal
Revenue Code and that the Master Trust, which forms a part of the Plan, is
exempt from tax. Therefore, no provision for income taxes has been included
in the Pension Element's financial statements.
This letter supersedes the determination letter received in August 1996 in
which the Internal Revenue Service stated the Pension Element design was in
compliance with the applicable requirements of the Internal Revenue Code.
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements to the Form 5500 (in thousands):
SEPTEMBER 30,
-------------------------
2001 2000
-------- ---------
Net assets available for benefits per the financial statements $224,796 $ 300,345
Amounts allocated to withdrawing participants -- (323)
-------- ---------
Net assets available for benefits per the Form 5500 $224,796 $ 300,022
======== =========
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 (in thousands):
8
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
------------------------
2001 2000
-------- -------
Benefits paid to participants per the financial statements $24,247 $36,679
Less: Amounts allocated to withdrawing participants (323) 323
------- -------
Benefits paid to participants per the Form 5500 $23,924 $37,002
======= =======
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior to
September 30 but not yet paid as of that date.
9
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
5. INVESTMENT IN THE VARIAN ASSOCIATES, INC. RETIREMENT AND PROFIT SHARING
PROGRAM TRUST
The Pension Element's investments are in the Master Trust which was
established for the investment of assets of the Pension Element and the
Profit Sharing Element. Each participating element has a specific interest in
the Master Trust. Investment income and administrative expenses relating to
the Master Trust are allocated to the individual elements based upon
participant balances.
A summary of the net assets available for benefits of the Master Trust and
significant Master Trust investments at September 30, 2001 and 2000 is as
follows:
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 2001 AND 2000
(IN THOUSANDS)
2001 2000
----------------------------------------- -----------------------------------------
PENSION PROFIT SHARING PENSION PROFIT SHARING
ELEMENT ELEMENT TOTAL ELEMENT ELEMENT TOTAL
--------- -------------- --------- --------- -------------- ---------
Assets
Master Trust investments:
Mutual funds $ 197,031 $ 228,301 $ 425,332 $ 274,336 $ 328,178 $ 602,514
Money market funds 26,465 28,974 55,439 25,220 26,085 51,305
Stock fund 822 1,355 2,177 -- -- --
Participant loans 140 2,273 2,413 184 2,715 2,899
--------- --------- --------- --------- --------- ---------
Total Master Trust investments 224,458 260,903 485,361 299,740 356,978 656,718
--------- --------- --------- --------- --------- ---------
Receivables:
Company contributions 363 -- 363 628 -- 628
Participant contributions 10 592 602 9 626 635
--------- --------- --------- --------- --------- ---------
Total receivables 373 592 965 637 626 1,263
--------- --------- --------- --------- --------- ---------
Total assets 224,831 261,495 486,326 300,377 357,604 657,981
--------- --------- --------- --------- --------- ---------
Liabilities
Accrued expenses (35) (40) (75) (32) (38) (70)
--------- --------- --------- --------- --------- ---------
Total liabilities (35) (40) (75) (32) (38) (70)
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 224,796 $ 261,455 $ 486,251 $ 300,345 $ 357,566 $ 657,911
========= ========= ========= ========= ========= =========
Element's participating interest 46% 54% 100% 46% 54% 100%
10
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Investment income (loss) for the Master Trust is as follows (in thousands):
FOR THE YEAR ENDED SEPTEMBER 30, 2001 FOR THE YEAR ENDED SEPTEMBER 30, 2000
-------------------------------------------- --------------------------------------
PENSION PROFIT SHARING PENSION PROFIT SHARING
ELEMENT ELEMENT TOTAL ELEMENT ELEMENT TOTAL
-------- -------------- --------- ------- -------------- --------
Net appreciation (depreciation) in
fair value of investments:
Mutual funds $(67,784) $ (98,182) $(165,966) $40,328 $52,375 $ 92,703
Stock fund 147 182 329 -- -- --
-------- --------- --------- ------- ------- --------
(67,637) (98,000) (165,637) 40,328 52,375 92,703
Interest 11,522 15,426 26,948 13,823 18,068 31,891
-------- --------- --------- ------- ------- --------
Total $(56,115) $ (82,574) $(138,689) $54,151 $70,443 $124,594
======== ========= ========= ======= ======= ========
Master Trust investments in excess of 5% of net assets were as follows (in
thousands):
SEPTEMBER 30,
----------------------
2001 2000
-------- --------
Fidelity Growth Company Fund $ 92,632 $220,568
Fidelity Growth and Income Portfolio 76,917 110,522
Fidelity Balanced Fund 36,548 44,051
Fidelity Retirement Money Market Portfolio 55,439 51,305
Spartan U.S. Equity Index Portfolio 70,407 111,705
Interest Income Fund 120,676 107,350
11
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PENSION ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
6. PARTY-IN-INTEREST AND RELATED PARTY TRANSACTIONS
As allowed by the Plan, participants may elect to invest in the Varian
Medical Systems Stock Fund. Investments in the Company's common stock at
September 30, 2001 and 2000 consisted of 61,623 shares and zero shares, with
fair market values of $809,000 and $0, respectively. The Varian Medical
Systems Stock Fund invests primarily in the Company's common stock. The
remainder of the Varian Medical Systems Stock Fund, approximately $13,000 and
$0 at September 30, 2001 and 2000, respectively, is invested in the Fidelity
Institutional Cash Portfolio Money Market to allow for timely handling of
exchanges, withdrawals and distributions.
Certain Master Trust investments are shares of mutual funds managed by an
affiliate of Fidelity, and therefore these transactions qualify as
party-in-interest. Any purchases and sales of these funds are open market
transactions at fair market value. Consequently, such transactions are
permitted under the provisions of the Plan and are exempt from the
prohibition of party-in-interest transactions under ERISA. Administrative
fees paid by the Plan to Fidelity for the years ended September 30, 2001 and
2000 were $98,000 and $16,000, respectively .
12
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND 2000
13
REPORT OF INDEPENDENT ACCOUNTANTS
To the Participants and Retirement Committee of Varian Medical Systems, Inc.
Retirement Plan - Profit Sharing Element:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of Varian Medical Systems, Inc. Retirement Plan - Profit Sharing Element (the
"Profit Sharing Element") at September 30, 2001 and 2000, and the changes in net
assets available for benefits for the years then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Profit Sharing Element's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
San Jose, California
February 27, 2002
14
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
SEPTEMBER 30,
----------------------
2001 2000
-------- --------
(IN THOUSANDS)
Interest in the Varian Associates, Inc. Retirement and
Profit Sharing Program Trust (Note 5) $261,455 $357,566
-------- --------
Net assets available for benefits $261,455 $357,566
======== ========
The accompanying notes are an integral part of these financial statements.
15
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
--------------------------------------------------------------------------------
FOR THE YEAR ENDED
SEPTEMBER 30,
-------------------------
2001 2000
--------- ---------
(IN THOUSANDS)
Additions to net assets attributed to:
Interest in Varian Associates, Inc. Retirement and
Profit Sharing Program Trust investment income $ -- $ 70,443
--------- ---------
Contributions:
Participant 8,289 7,488
Employer 335 889
--------- ---------
Total contributions 8,624 8,377
--------- ---------
Total additions 8,624 78,820
--------- ---------
Deductions from net assets attributed to:
Interest in Varian Associates, Inc. Retirement and
Profit Sharing Program Trust investment loss 82,574 --
Benefits paid to participants 21,975 37,773
Administrative expenses 186 171
--------- ---------
Total deductions 104,735 37,944
--------- ---------
Net increase (decrease) in net assets prior
to transfers to other plans (96,111) 40,876
Transfers to other plans (Note 1) -- (4,127)
--------- ---------
Net increase (decrease) in net assets (96,111) 36,749
Net assets available for benefits:
Beginning of year 357,566 320,817
--------- ---------
End of year $ 261,455 $ 357,566
========= =========
The accompanying notes are an integral part of these financial statements.
16
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. DESCRIPTION OF THE PLAN
The following brief description of the Varian Medical Systems, Inc.
Retirement Plan (the "Plan") is provided for general information purposes
only. Participants should refer to the Plan document and the Summary Plan
Description/Prospectus for more detailed information.
In November 1998, the Board of Directors of Varian Associates, Inc. approved
a plan to reorganize into three publicly traded independent companies by
spinning off two of its businesses to stockholders in a tax free
distribution. On April 2, 1999, the distribution was consummated by spinning
off the instruments business, which renamed itself Varian, Inc., and the
semiconductor equipment business, which renamed itself Varian Semiconductor
Equipment Associates, Inc. Varian Associates, Inc. renamed itself Varian
Medical Systems, Inc. (the "Company"). The Plan remained with the Company.
The employees of the other two companies had the following options with
respect to their Plan balances: (i) transfer their entire Plan balance,
including any loans, to the new company retirement plan; (ii) choose a
distribution of their entire Plan balance and directly rollover the amount to
an IRA or another employer's tax-qualified plan; (iii) choose a distribution
of their entire Plan balance, or (iv) leave their account balance in the
Plan. Transfer out of the Plan have been shown on the statement of changes in
net assets available for benefits as transfers to other plans.
The Plan was established to provide benefits to those employees of the
Company who elect to participate. The Plan consists of two distinct defined
contribution plan elements, the Varian Medical Systems, Inc. Retirement Plan
- Pension Element (the "Pension Element") and the Varian Medical Systems,
Inc. Retirement Plan - Profit Sharing Element (the "Profit Sharing Element").
The Plan is intended to comply with the applicable requirements of the
Internal Revenue Code and the provisions of the Employee Retirement Income
Security Act of 1974 (ERISA), as amended. Contributions to the Pension
Element can come from participant after-tax contributions, Company matching
contributions, matching Employee Incentive Plan ("EIP") contributions and
matching Management Incentive Plan ("MIP") contributions. Contributions to
the Profit Sharing Element can come from participant before-tax
contributions, EIP bonus allocations, MIP bonus allocations, retirement
profit-sharing contributions and rollover contributions. Employees are
eligible to join the Plan immediately after they are hired by the Company.
FISCAL YEAR
The Plan's fiscal year ends on the Friday closest to September 30. For
presentation purposes, the financial statements are shown as ending September
30 although the fiscal years ended on September 28, 2001 and September 29,
2000, respectively.
ADMINISTRATION
The Company is the designated administrator of the Plan. The Company has
contracted with Fidelity Institutional Retirement Services Company
("Fidelity") to maintain the Plan's individual participant accounts and with
Fidelity Management Trust Company ("Fidelity Trust") to act as the custodian
and trustee. The Company currently pays certain administrative expenses on
behalf of the Plan, except for loan fees paid by Plan participants who elect
to receive a Plan loan. Brokerage commissions and other charges incurred in
connection with
17
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
investment transactions are paid from Plan assets. The Profit Sharing
Element's investments, as well as the investments of the Pension Element, are
maintained in the Varian Associates, Inc. Retirement and Profit Sharing
Program Trust ("Master Trust"), a trust established pursuant to a trust
agreement between the Company and Fidelity Trust.
CONTRIBUTIONS AND PARTICIPANTS' ACCOUNTS
Participants in the Plan may make a minimum contribution of 1% of their base
pay (as defined) up to a maximum of 15% of their base pay, subject to
statutory annual limitations. Employees of the Company may elect to have
their EIP bonus allocation paid out in cash or deposited directly to their
Plan accounts in 10% increments, subject to statutory annual limitations. All
participant contributions may be made on either a before-tax or after-tax
basis and are subject to statutory annual limitations and Plan rules.
Effective October 2, 1999, new Plan participants must complete one year of
service before making any after-tax contributions to the Plan.
Upon completion of one year of service with the Company, participants are
entitled to receive Company contributions. The Company's matching
contribution is 100% of participants' before or after-tax deposits, up to a
maximum of 6% of participants' eligible base pay. The Company may make a
discretionary retirement profit-sharing contribution to the Profit Sharing
Element for participants who have completed one year of service and were
employed on the last day of the fiscal year or died during the fiscal year.
Participants' portions of the Company's retirement profit sharing
contribution are based on the percentages of their eligible base salary to
the total eligible base pay for all employees during the Profit Sharing
Element year. No discretionary Company retirement profit-sharing
contributions were made in fiscal year 2001 and 2000.
Each participant's account is credited with the participant's contributions
and allocations of the Company's contributions and Plan earnings and charged
with an allocation of certain administrative expenses. Allocations are based
on participant earnings or account balances, as defined. The benefit to which
a participant is entitled is the benefit that can be provided from the
participant's vested account.
Participants are immediately fully vested in their contributions and Company
contributions.
Contributions made to the Plan are allocated among twenty-two investment
funds, including the Varian Medical Systems Stock Fund, offered by the Plan
in 1% increments according to the participant's direction. Participants may
transfer account balances and the investment of their future contributions
among these funds.
PARTICIPANT LOANS
Loans are available to participants who are either active employees or on a
leave of absence. Participants are eligible to request a loan from the Plan
ranging from $1,000 to the lesser of 50% of the participant's Plan assets or
$50,000. Loan balances are also subject to certain other limitations as
provided by the Plan. Loan balances are collateralized by the balance in the
participant's account and bear interest at a fixed rate of prime plus 1% at
the date requested. The interest rates on loans outstanding at September 30,
2001 and 2000 range from 7.75% to
18
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
10.5% and 8.75% to 10.5%, respectively. Principal and interest is paid
ratably through payroll deductions generally over five years. Upon employment
termination, the entire loan balance becomes immediately due and payable.
PAYMENT OF BENEFITS
Upon termination of service on account of death, disability or retirement, a
participant or beneficiary may elect to receive either a lump sum amount
equal to the value of their account or annual installments over a period of
years.
HARDSHIP DISTRIBUTIONS
Participants are allowed to withdraw funds from the Profit Sharing Element in
case of hardship. Withdrawals may be made no more than once a month and must
be at least $500 (or such lesser amount as is available for withdrawal).
Withdrawals are subject to restrictions as to amount, frequency and intended
use of the proceeds. The normal form of payment is cash.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right
under the Plan to discontinue its contributions at any time and to terminate
the Plan subject to the provisions of ERISA.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements of the Profit Sharing Element are prepared utilizing
the accrual basis of accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires the
administrator and trustee to make estimates and assumptions that affect the
reported amounts of assets and liabilities in the financial statements. Such
estimates include those regarding fair value. Actual results may differ from
those estimates.
RISKS AND UNCERTAINTIES
The Plan provides participants with various investment options in mutual
funds which are invested in a combination of stocks, bonds, fixed income
securities and other investment securities. Investment securities are exposed
to various risks, such as those associated with interest rates, market
conditions and credit worthiness of the securities' issuers. Due to the level
of risk associated with certain investment securities, it is at least
reasonably possible that changes in risks in the near term could materially
affect participants' account balances and the amounts reported in the
financial statements.
INVESTMENTS
Investments of the Plan are held by Fidelity Trust and are invested in the
investment options
19
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
available in the Plan based solely upon instructions received from Plan
participants.
Investments of the Master Trust held in money market and mutual funds are
valued at fair value as determined by quoted market prices. Investments of
the Master Trust held in the Interest Income Fund and the Varian Medical
Systems Stock Fund are stated at net asset value, as determined by the
investment manager, based on the fair value of the underlying securities. The
carrying amounts of the investments approximate fair value. Purchases and
sales of securities held in the Master Trust are recorded on a trade-date
basis. Participant loans are valued at cost which approximates fair value.
The Master Trust presents in its investment income (loss) the net
appreciation (depreciation) in the fair value of its investments, which
consists of the realized gains or losses and the unrealized appreciation
(depreciation) on these investments.
PAYMENT OF BENEFITS
Benefits are recorded when paid.
3. INCOME TAXES
The Profit Sharing Element obtained its current determination letter on
December 4, 2001, in which the Internal Revenue Service stated that the
Profit Sharing Element design is in compliance with the applicable
requirements of the Internal Revenue Code. The Profit Sharing Element has
been subsequently amended; however, the Company believes that the Profit
Sharing Element is designed and is currently being operated in compliance
with the applicable requirements of the Internal Revenue Code and that the
Master Trust, which forms a part of the Plan, is exempt from tax. Therefore,
no provision for income taxes has been included in the Profit Sharing
Element's financial statements.
This letter supersedes the determination letter received in August 1996 in
which the Internal Revenue Service stated that the Profit Sharing Element
design was in compliance with the applicable requirements of the Internal
Revenue Code.
4. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits per
the financial statements to the Form 5500 (in thousands):
SEPTEMBER 30,
-----------------------
2001 2000
-------- --------
Net assets available for benefits per the financial statements $261,455 $357,566
Amounts allocated to withdrawing participants -- (447)
-------- --------
Net assets available for benefits per the Form 5500 $261,455 $357,119
======== ========
20
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
The following is a reconciliation of benefits paid to participants per the
financial statements to the Form 5500 (in thousands):
YEAR ENDED
SEPTEMBER 30,
---------------------
2001 2000
------- -------
Benefits paid to participants per the financial statements $21,975 $37,773
Less: Amounts allocated to withdrawing participants (447) 447
------- -------
Benefits paid to participants per the Form 5500 $21,528 $38,220
======= =======
Amounts allocated to withdrawing participants are recorded on the Form 5500
for benefit claims that have been processed and approved for payment prior to
September 30 but not yet paid as of that date.
21
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
5. INVESTMENT IN THE VARIAN ASSOCIATES, INC. RETIREMENT AND PROFIT SHARING
PROGRAM TRUST
The Profit Sharing Element's investments are in the Master Trust which was
established for the investment of assets of the Profit Sharing Element and
the Pension Element. Each participating element has a specific interest in
the Master Trust. Investment income and administrative expenses relating to
the Master Trust are allocated to the individual elements based upon
participant balances.
A summary of the net assets available for benefits of the Master Trust and
significant Master Trust investments at September 30, 2001 and 2000 is as
follows:
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
SEPTEMBER 30, 2001 AND 2000
(IN THOUSANDS)
2001 2000
----------------------------------------- -----------------------------------------
PENSION PROFIT SHARING PENSION PROFIT SHARING
ELEMENT ELEMENT TOTAL ELEMENT ELEMENT TOTAL
--------- -------------- --------- --------- -------------- ---------
Assets
Master Trust investments:
Mutual funds $ 197,031 $ 228,301 $ 425,332 $ 274,336 $ 328,178 $ 602,514
Money market funds 26,465 28,974 55,439 25,220 26,085 51,305
Stock fund 822 1,355 2,177 -- -- --
Participant loans 140 2,273 2,413 184 2,715 2,899
--------- --------- --------- --------- --------- ---------
Total Master Trust investments 224,458 260,903 485,361 299,740 356,978 656,718
--------- --------- --------- --------- --------- ---------
Receivables:
Company contributions 363 -- 363 628 -- 628
Participant contributions 10 592 602 9 626 635
--------- --------- --------- --------- --------- ---------
Total receivables 373 592 965 637 626 1,263
--------- --------- --------- --------- --------- ---------
Total assets 224,831 261,495 486,326 300,377 357,604 657,981
--------- --------- --------- --------- --------- ---------
Liabilities
Accrued expenses (35) (40) (75) (32) (38) (70)
--------- --------- --------- --------- --------- ---------
Total liabilities (35) (40) (75) (32) (38) (70)
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 224,796 $ 261,455 $ 486,251 $ 300,345 $ 357,566 $ 657,911
========= ========= ========= ========= ========= =========
Element's participating interest 46% 54% 100% 46% 54% 100%
22
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN - PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Investment income (loss) for the Master Trust is as follows (in thousands):
FOR THE YEAR ENDED SEPTEMBER 30, 2001 FOR THE YEAR ENDED SEPTEMBER 30, 2000
-------------------------------------- -------------------------------------
PENSION PROFIT SHARING PENSION PROFIT SHARING
ELEMENT ELEMENT TOTAL ELEMENT ELEMENT TOTAL
-------- -------------- --------- ------- -------------- --------
Net appreciation (depreciation) in
fair value of investments:
Mutual funds $(67,784) $ (98,182) $(165,966) $40,328 $52,375 $ 92,703
Stock fund 147 182 329 -- -- --
-------- --------- --------- ------- ------- --------
(67,637) (98,000) (165,637) 40,328 52,375 92,703
Interest 11,522 15,426 26,948 13,823 18,068 31,891
-------- --------- --------- ------- ------- --------
Total $(56,115) $ (82,574) $(138,689) $54,151 $70,443 $124,594
======== ========= ========= ======= ======= ========
Master Trust investments in excess of 5% of net assets were as follows (in
thousands):
SEPTEMBER 30,
----------------------------
2001 2000
-------- --------
Fidelity Growth Company Fund $ 92,632 $220,568
Fidelity Growth and Income Portfolio 76,917 110,522
Fidelity Balanced Fund 36,548 44,051
Fidelity Retirement Money Market Portfolio 55,439 51,305
Spartan U.S. Equity Index Portfolio 70,407 111,705
Interest Income Fund 120,676 107,350
23
VARIAN MEDICAL SYSTEMS, INC. RETIREMENT PLAN -
PROFIT SHARING ELEMENT
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
6. PARTY-IN-INTEREST AND RELATED PARTY TRANSACTIONS
As allowed by the Plan, participants may elect to invest in the Varian
Medical Systems Stock Fund. Investments in the Company's common stock at
September 30, 2001 and 2000 consisted of 101,557 shares and zero shares, with
fair market values of $1,333,000 and $0, respectively. The Varian Medical
Systems Stock Fund invests primarily in the Company's common stock. The
remainder of the Varian Medical Systems Stock Fund, approximately $22,000 and
$0 at September 30, 2001 and 2000, respectively, is invested in the Fidelity
Institutional Cash Portfolio Money Market to allow for timely handling of
exchanges, withdrawals, and distributions.
Certain Master Trust investments are shares of mutual funds managed by an
affiliate of Fidelity, and therefore these transactions qualify as
party-in-interest. Any purchases and sales of these funds are open market
transactions at fair market value. Consequently, such transactions are
permitted under the provisions of the Plan and are exempt from the
prohibition of party-in-interest transactions under ERISA. Administrative
fees paid by the Plan to Fidelity for the year ended September 30, 2001 and
2000 were $183,000 and $157,000, respectively.
24
SCHEDULE OF ASSETS HELD FOR INVESTMENT - ATTACHMENT TO 2000 FORM 5000 SCHEDULE H
ITEM 4(i)
PLAN NAME: VARIAN ASSOC., INC RETIREMENT AND PROFIT SHARING PROGRAM TRUST
PLAN NO. 003
PLAN SPONSOR: VARIAN MEDICAL SYSTEMS, INC.
EMPLOYER IDENTIFICATION NUMBER: 94-2359345
(a) (b) Identity of Issue (c) Description of Investment (d) Cost ** (e) Current Value
------------------------- ---------------------------- --------------------------------
* PIMCO TOT RETURN ADM Mutual Fund 7,274,851
* FKLN SMMIDCAP GRTH A Mutual Fund 1,253,723
* JANUS MERCURY FUND Mutual Fund 1,280,457
* JANUS OVERSEAS Mutual Fund 845,272
* NB GENESIS TRUST Mutual Fund 4,034,012
* INTEREST INCOME FUND Mutual Fund 120,676,918
* VMS COMPANY STOCK Employer Stock 2,176,843
* FIDELITY PURITAN Mutual Fund 3,766,129
* FIDELITY EQUITY INC Mutual Fund 1,479,762
* FIDELITY GROWTH CO Mutual Fund 92,632,400
* FIDELITY GROWTH & INC Mutual Fund 76,917,104
* FIDELITY BALANCED Mutual Fund 36,548,281
* FIDELITY BLUE CHIP Mutual Fund 848,654
* FIDELITY WORLDWIDE Mutual Fund 3,305,020
* FIDELITY DIVERS INTL Mutual Fund 846,551
* FID FREEDOM INCOME Mutual Fund 607,633
* FID FREEDOM 2010 Mutual Fund 1,077,403
* FID FREEDOM 2020 Mutual Fund 926,484
* FID FREEDOM 2030 Mutual Fund 489,232
* FID FREEDOM 2040 Mutual Fund 114,453
* FIDELITY RETIRE MMKT Mutual Fund 55,439,362
* SPARTAN US EQ INDEX Mutual Fund 70,406,663
* PARTICIPANT LOANS Maturity dates of up to 5 years; interest 2,413,701
rates range from 7.75% to 10.5%;
collateralized by participants' account
balances
Total: 485,360,995
* Party-in-interest transactions for which statutory exemptions exist.
** All investments are participant-directed; therefore, disclosure of cost
is not required.
25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustee (or other persons who administer the employee benefit plan) has duly
caused this annual report to be signed by the undersigned, thereunto duly
authorized.
VARIAN MEDICAL SYSTEMS INC.
RETIREMENT PLAN
By: Varian Medical Systems, Inc.
By: /s/ John E. McCarthy
--------------------------------------
John E. McCarthy
Vice President, Human Resources
Date: March 22, 2002
EXHIBIT INDEX
Number Description
------ -----------
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.