NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The long-term strategy of Varian Medical Systems, Inc. (“VMS”) and subsidiaries (collectively, the “Company”) is to become a global leader in multi-disciplinary, integrated cancer care solutions that enable and accelerate access to innovative, life-saving technology worldwide. The Company offers solutions in radiation therapy and medical oncology, which fall within the traditional pillars of cancer care, as well as the new pillar of interventional oncology. The Company designs, manufactures, sells and services hardware and software products for treating cancer with radiotherapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy, and offers products for minimally invasive interventional oncology procedures and treatments, including cryoablation, microwave ablation and embolic beads. Software solutions include informatics software for information management, clinical knowledge exchange, patient care management, practice management and decision-making support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices. The Company also develops, designs, manufactures, sells and services proton therapy products and systems for cancer treatment.
In addition to providing the products and services for oncology care described above, the Company offers treatment planning as a service and quality assurance as a service, which allows remote support and delivery of care in understaffed locations to utilize technology on a per patient basis. Further, the Company operates
11
healthcare facilities in India; comprised of
one
specialty hospital and
ten
cancer centers.
Basis of Presentation
The condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended
September 28, 2018
(the “
2018
Annual Report”). In the opinion of management, the condensed consolidated financial statements herein include adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of
June 28, 2019
, and
September 28, 2018
, results of operations and statements of comprehensive earnings for the
three and nine
months ended
June 28, 2019
, and
June 29, 2018
, statements of cash flows for the
nine months ended June 28, 2019
, and
June 29, 2018
, and statements of equity for the three and
nine months ended June 28, 2019
, and
June 29, 2018
. The results of operations for the
nine months ended June 28, 2019
, are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period.
Reclassifications
Certain reclassifications have been made to the amounts in the prior year in order to conform to the current year's presentation.
Fiscal Year
The fiscal years of the Company as reported are the 52- or 53-week periods ending on the Friday nearest September 30. Fiscal year
2019
is the 52-week period ending
September 27, 2019
. Fiscal year
2018
was the 52-week period that ended on
September 28, 2018
. The fiscal quarters ended
June 28, 2019
, and
June 29, 2018
, were both 13-week periods.
Principles of Consolidation
The condensed consolidated financial statements include those of VMS and its wholly-owned and majority-owned or controlled subsidiaries. Intercompany balances, transactions and stock holdings have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies provided in "Note 1: Summary of Significant Accounting Policies" within the Notes to the Consolidated Financial Statements of the Company's
2018
Annual Report.
Recently Adopted Accounting Pronouncements
In the first quarter of fiscal year 2019, the Company adopted the Financial Accounting Standards Board ("FASB") guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company adopted this amendment prospectively, and it did not have a material impact on the Company's condensed consolidated financial statements.
In the first quarter of fiscal year 2019, the Company adopted the FASB guidance on the accounting related to defined benefit plans and other post-retirement benefits. This amendment requires the service cost component of net periodic pension and post-retirement benefit cost to be presented in the same line item as other employee compensation costs, while the other components must be presented separately as other income, net. The adoption of this amendment did not have a material impact on the Company's condensed consolidated financial statements.
In the first quarter of fiscal year 2019, the Company adopted the FASB guidance on the classification and presentation of restricted cash in the statement of cash flow. The amendment requires entities to include restricted cash in cash and cash equivalents in the statement of cash flows. The Company adopted the amendment retrospectively, and prior period amounts on the Condensed Consolidated Statements of Cash Flows have been recast to conform with the current period presentation as shown in the reconciliation provided below. See
Note 3, "Other Financial Information,"
for a reconciliation of the cash balances within the Condensed Consolidated Statements of Cash Flows to the Condensed Consolidated Balance Sheets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 29, 2018
|
(In millions)
|
As Previously Reported
|
|
Adjustments
|
|
As Adjusted
|
Cash used in investing activities
|
$
|
(109.9
|
)
|
|
$
|
6.8
|
|
|
$
|
(103.1
|
)
|
Cash, cash equivalents, and restricted cash at beginning of period
|
$
|
716.2
|
|
|
$
|
2.3
|
|
|
$
|
718.5
|
|
Cash, cash equivalents, and restricted cash at end of period
|
$
|
536.0
|
|
|
$
|
9.1
|
|
|
$
|
545.1
|
|
In the first quarter of fiscal year 2019, the Company adopted the FASB guidance for tax accounting for intra-entity asset transfers. The amendment removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The adoption of this amendment did not have a material impact on the Company's condensed consolidated financial statements. See
Note 10, "Income Taxes,"
for more information about the impact of the adoption.
In the first quarter of fiscal year 2019, the Company adopted the FASB guidance related to the classification of certain cash receipts and cash payments. The amendment was issued to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted the amendment retrospectively, and it did not have an impact on the Company’s condensed consolidated financial statements.
In the first quarter of fiscal year 2019, the Company adopted the FASB guidance related to recognition and measurement of financial assets and financial liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Most prominent among the changes is the requirement for changes in the fair value of the Company's equity investments to be recognized through net earnings rather than other comprehensive income. Under the amendment, equity investments that do not have a readily determinable fair value are eligible for the measurement alternative, which will require the Company to measure these investments at cost, with adjustments for changes in price or impairments reflected through net earnings. The Company adopted the amendment prospectively for its privately-held investments for which the measurement alternative was elected, and adopted the amendment on a modified retrospective basis for all other financial instruments. The adoption did not have an impact on the Company's condensed consolidated financial statements.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Recent Accounting Standards or Updates Not Yet Effective
In November 2018, the FASB amended its guidance to clarify revenue accounting for collaborative arrangements. The standard is effective for the Company beginning in the first quarter of fiscal year 2020 and will be applied retrospectively to the date of the initial application of ASC 606. Early adoption is permitted. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In October 2018, the FASB amended its guidance which will add the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a benchmark interest rate for hedge accounting purposes. The standard is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In August 2018, the FASB amended its guidance for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This new standard becomes effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In August 2018, the FASB issued guidance
which modifies the disclosure requirements for employers that sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The standard is effective for the Company beginning in the first quarter of fiscal year 2022. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its condensed consolidated financial statements.
In August 2018, the FASB issued guidance
which changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for the Company beginning in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its condensed consolidated financial statements.
In February 2018, the FASB amended its guidance that will allow companies to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act to retained earnings. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2020. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In June 2016, the FASB issued an amendment to its accounting guidance related to the impairment of financial instruments. The amendment adds a new impairment model that is based on expected losses, rather than incurred losses. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2021 with early adoption permitted beginning in the first quarter of fiscal year 2020. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In February 2016, the FASB issued a new standard on accounting for leases. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of earnings. The Company intends to adopt this standard beginning in its first quarter of fiscal year 2020, using a modified retrospective method and anticipates applying the optional practical expedients related to the transition. While the Company continues to assess the impact of this standard, the Company anticipates a material impact related to the recognition of right-of-use assets and liabilities for previously unrecognized leases on its Condensed Consolidated Balance Sheets. The Company will continue to monitor and evaluate the effect the standard will have on its consolidated financial statements, including disclosures. The Company's preliminary assessments are subject to change.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
2. BUSINESS COMBINATIONS
Business Combinations in Fiscal Year 2019
Cancer Treatment Services International
In June 2019, the Company acquired Cancer Treatment Services International ("CTSI"), a privately-held company that provides cancer care professional services to health care providers worldwide and, through its oncology care brand, American Oncology Institute, focuses on the operation of comprehensive cancer treatment facilities in international markets. CTSI operates AmPath, a full-service reference laboratory and pathology provider, and CTSI Oncology Solutions, an oncology services company that provides solutions such as remote treatment planning services and multi-disciplinary oncology consulting. This acquisition will increase the Company's expertise in cancer center operations.
The Company acquired CTSI for a purchase price of
$279.3 million
, consisting of
$262.8 million
of cash consideration,
$8.2 million
of contingent consideration, and
$8.3 million
of other consideration. The undiscounted range of the contingent consideration payments is
zero
to
$58 million
and is based on actual revenues over the
18
months following the acquisition date. The acquisition was financed with a combination of cash on hand and proceeds from borrowings. The Company has included this acquisition in its Oncology Systems business. The purchase accounting from this transaction is not yet finalized; however, the goodwill is not expected to be deductible for income tax purposes.
Endocare and Alicon
In June 2019, the Company acquired Austin, Texas-based Endocare and Hangzhou, China-based, Alicon, to expand its portfolio of multidisciplinary integrated cancer solutions. Endocare is a leading provider of hardware and software solutions for cryoablation, and has a microwave ablation product line; and Alicon is a leader in embolic therapy for treating liver cancer in China. These acquisitions enable the Company to develop innovations in interventional oncology and allow it to provide patients and customers with a wider range of cancer care solutions.
The Company acquired Endocare and Alicon for a combined purchase price of
$209.4 million
consisting of
$196.8 million
of cash consideration and
$12.6 million
of contingent consideration. The undiscounted range of the contingent consideration payments is
zero
to
$40 million
and is based on actual revenues through March 2020. The acquisitions were financed with a combination of cash on hand and proceeds from borrowings. These acquisitions comprise the Company's Interventional Oncology business, which is reflected in the "Other" category because the operating segment does not meet the criteria for a reportable operating segment. The purchase accounting from this transaction is not yet finalized; however, the goodwill is not expected to be deductible for income tax purposes.
The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair value of assets acquired and liabilities assumed as a result of the CTSI, Endocare and Alicon acquisitions:
|
|
|
|
|
|
|
|
|
(In millions)
|
CTSI
|
|
Endocare and Alicon
|
Assets acquired
(1)
|
$
|
54.0
|
|
|
$
|
32.9
|
|
Liabilities assumed
(2)
|
(65.0
|
)
|
|
(17.7
|
)
|
Goodwill
|
182.1
|
|
|
122.7
|
|
Intangible assets
|
117.0
|
|
|
71.5
|
|
Fair value of net assets
|
288.1
|
|
|
209.4
|
|
Less: Non-controlling interest
(3)
|
8.8
|
|
|
—
|
|
Total purchase consideration
|
$
|
279.3
|
|
|
$
|
209.4
|
|
(1)
Includes
$5.4 million
and
$11.5 million
of cash and cash equivalents for CTSI and Endocare / Alicon, respectively.
(2)
Includes
$33.9 million
and
$14.8 million
of deferred tax liabilities for CTSI and Endocare / Alicon, respectively.
(3)
The Company's non-controlling interest is a joint venture that was determined to be a variable interest entity. The Company has concluded that it is the primary beneficiary of the joint venture because it has the ability to control the significant activities of the joint venture, has the right to significant residual returns and is exposed to significant expected losses. The Company will consolidate the joint venture into its operations.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Identifiable Intangible Assets
The following table provides the valuation of the intangible assets acquired from CTSI, Endocare and Alicon, along with their estimated useful lives:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
CTSI
|
|
Endocare and Alicon
|
Type
|
|
Fair Value
|
|
Weighted Average Estimated Useful Life (In Years)
|
|
Fair Value
|
|
Weighted Average Estimated Useful Life (In Years)
|
Technologies and trade names
|
|
$
|
47.9
|
|
|
10.7
|
|
$
|
56.3
|
|
|
7.7
|
Customer contracts, supplier relationships, and partner relationships
(1)
|
|
69.1
|
|
|
26.4
|
|
4.8
|
|
|
3.0
|
Total intangible assets with finite lives
|
|
117.0
|
|
|
|
|
61.1
|
|
|
|
In-process research and development with indefinite lives
|
|
—
|
|
|
|
|
10.4
|
|
|
|
Total intangible assets
|
|
$
|
117.0
|
|
|
|
|
$
|
71.5
|
|
|
|
|
|
(1)
|
CTSI has certain partner relationships with hospitals with useful lives that range from approximately
27
to
29
years.
|
Other Acquisitions
In the third quarter of fiscal year 2019, the Company purchased a privately-held company for a cash purchase price of
$15.2 million
, including a
holdback of
$3.6 million
and contingent consideration. As of the closing date, the value of the contingent consideration is
zero
because none of the milestones were probable to be achieved. However, the Company could potentially pay up to approximately
$9 million
by 2023 if certain milestones were met plus additional payments for achieving revenue targets through 2035.
The acquisition was classified as an asset acquisition, a
nd the purchase consideration was allocated primarily to the intellectual property that covers the use of radiation in the heart and other forms of radiosurgery for cardiovascular disease, resulting in a
$20.8 million
of in-process research and development ("in-process R&D") expense because of no future alternative use, and was recorded in acquisition-related expenses and in-process R&D in the Condensed Consolidated Statements of Earnings.
In the first quarter of fiscal year 2019, the Company acquired a privately-held software company for a purchase price of
$28.5 million
. The acquisition primarily consisted of
$22.0 million
in goodwill and
$6.5 million
in finite-lived intangible assets. The Company has integrated this acquisition into its Oncology Systems reporting unit. The goodwill for this acquisition is not deductible for income tax.
Measurement Period Adjustments
In the first quarter of fiscal year 2019, the Company recorded a measurement period adjustment of
$9.6 million
to the fair value of the purchase consideration of a business combination that occurred in the fourth quarter of fiscal year 2018. The adjustment primarily included a
$11.9 million
decrease in the fair value of the contingent consideration liability mostly offset by a decrease to the finite-lived intangible assets of
$5.4 million
, and a decrease of
$4.7 million
to goodwill.
In the third quarter of fiscal year 2019, the Company recorded a measurement period adjustment of
$2.6 million
to the fair value of the purchase consideration of a business combination that occurred in the third quarter of fiscal year 2018. The adjustment consisted of an additional cash payment to sellers and a corresponding increase to goodwill.
Other Information
The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount. The Company believes the factors that contributed to goodwill in its completed acquisitions include synergies not available to market participants, as well as the acquisition of a talented workforce.
The fair value of assets acquired and liabilities assumed has been determined on a preliminary basis, and the Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the date of a business combination may result in certain adjustments. The Company expects to finalize these amounts no later than one year from the date of each business combination.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Management applied significant judgment in determining the fair value of intangible assets, which involved the use of significant estimates and assumptions with respect to the revenue growth rates, the economic lives, and the discount rates. The fair value of the contingent consideration has been estimated based on the likelihood of the performance metrics being achieved.
The condensed consolidated financial statements include the operating results from the date the business was acquired. The impact of the completed business combinations to the periods presented was not material. Pro forma results of operations for the completed business combination have not been presented because the effects were not material to the Company's condensed consolidated financial statements.
The Company incurred acquisition-related expenses of
$10.4 million
and
$12.7 million
during the three months ended
June 28, 2019
and
June 29, 2018
, respectively, and
$15.0 million
and
$33.9 million
during the
nine
months ended
June 28, 2019
and
June 29, 2018
, respectively.
3. OTHER FINANCIAL INFORMATION
Contracts with Customers
The following table provides the Company's unbilled receivables and deferred revenues from contracts with customers:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 28,
2019
|
|
September 28,
2018
|
Unbilled receivables - current
|
$
|
324.8
|
|
|
$
|
362.8
|
|
Unbilled receivables - long-term
(1)
|
63.2
|
|
|
36.3
|
|
Deferred revenues - current
|
(749.7
|
)
|
|
(729.7
|
)
|
Deferred revenues - long-term
(2)
|
(73.5
|
)
|
|
(38.6
|
)
|
Total net unbilled receivables (deferred revenues)
|
$
|
(435.2
|
)
|
|
$
|
(369.2
|
)
|
|
|
(1)
|
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(2)
|
Included in other long-term liabilities on the Company's Condensed Consolidated Balance Sheets.
|
During the
nine
months ended
June 28, 2019
, unbilled receivables remained flat, and deferred revenues,
decreased
primarily due to the contractual timing of billings occurring before the revenues were recognized.
During the three and
nine
months ended
June 28, 2019
, the Company recognized revenues of
$207.2 million
and
$545.0 million
, respectively, which were included in the deferred revenues balance at
September 28, 2018
. During the three and
nine
months ended
June 29, 2018
, the Company recognized revenues of
$66.5 million
and
$367.0 million
, which were included in the deferred revenues balance at
September 29, 2017
.
Unfulfilled Performance Obligations
The following table represents the Company's unfulfilled performance obligations as of
June 28, 2019
, and the estimated revenue expected to be recognized in the future related to these unfulfilled performance obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years of Revenue Recognition
|
(In millions)
|
Remainder of 2019
|
|
2020
|
|
2021
|
|
Thereafter
|
Unfulfilled Performance Obligations
|
$
|
824.6
|
|
|
$
|
2,575.5
|
|
|
$
|
1,037.0
|
|
|
$
|
2,118.7
|
|
The table above includes both product and service unfulfilled performance obligations, which includes a component of service performance obligations which have not been invoiced. The fiscal years presented reflect management’s best estimate of when the Company will transfer control to the customer and may change based on timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products or customer acceptance terms.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Cash, Cash Equivalents, and Restricted Cash
The following table summarizes the Company's cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 28,
2019
|
|
September 28,
2018
|
Cash and cash equivalents
|
$
|
520.7
|
|
|
$
|
504.8
|
|
Restricted cash - current
(1)
|
13.7
|
|
|
3.1
|
|
Restricted cash - long-term
(2)
|
8.5
|
|
|
8.5
|
|
Total cash, cash equivalents, and restricted cash
|
$
|
542.9
|
|
|
$
|
516.4
|
|
|
|
(1)
|
Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(2)
|
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
|
Inventories
The following table summarizes the Company's inventories:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 28,
2019
|
|
September 28,
2018
|
Raw materials and parts
|
$
|
368.8
|
|
|
$
|
304.1
|
|
Work-in-process
|
72.8
|
|
|
50.6
|
|
Finished goods
|
87.7
|
|
|
83.4
|
|
Total inventories
|
$
|
529.3
|
|
|
$
|
438.1
|
|
Short-term Borrowings
The following table summarizes the Company's short-term borrowings:
|
|
|
|
|
|
|
|
(Dollars in millions)
|
June 28, 2019
|
2018 Revolving Credit Facility
|
$
|
400.0
|
|
|
3.40
|
%
|
Total short-term borrowings
|
$
|
400.0
|
|
|
|
Other Long-Term Liabilities
The following table summarizes the Company's other long-term liabilities:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 28,
2019
|
|
September 28,
2018
|
Long-term income taxes payable
|
$
|
183.0
|
|
|
$
|
189.1
|
|
Deferred income taxes
|
78.2
|
|
|
31.4
|
|
Long-term deferred revenues
|
73.5
|
|
|
38.6
|
|
Other
|
65.4
|
|
|
65.2
|
|
Total other long-term liabilities
|
$
|
400.1
|
|
|
$
|
324.3
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Other Income, Net
The following table summarizes the Company's other income, net:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Gain on equity investments
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
23.8
|
|
|
$
|
—
|
|
Net foreign currency exchange gain
|
1.8
|
|
|
0.8
|
|
|
2.6
|
|
|
1.0
|
|
Other
|
0.4
|
|
|
0.7
|
|
|
1.0
|
|
|
1.9
|
|
Total other income, net
|
$
|
4.2
|
|
|
$
|
1.5
|
|
|
$
|
27.4
|
|
|
$
|
2.9
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
4. FAIR VALUE
Assets/Liabilities Measured at Fair Value on a Recurring Basis
In the tables below, the Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement Using
|
|
|
Quoted Prices in
Active Markets
for Identical
Instruments
|
|
Significant
Other
Observable
Inputs
|
|
Significant
Unobservable
Inputs
|
|
Total
|
Type of Instruments
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Balance
|
(In millions)
|
|
|
|
|
|
|
|
|
Assets at June 28, 2019:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
16.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16.7
|
|
Available-for-sale securities:
(1)
|
|
|
|
|
|
|
|
|
MPTC Series B-1 Bonds
|
|
—
|
|
|
26.6
|
|
|
—
|
|
|
26.6
|
|
MPTC Series B-2 Bonds
|
|
—
|
|
|
24.5
|
|
|
—
|
|
|
24.5
|
|
APTC securities
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
6.4
|
|
Total assets measured at fair value
|
|
$
|
16.7
|
|
|
$
|
57.5
|
|
|
$
|
—
|
|
|
$
|
74.2
|
|
|
|
|
|
|
|
|
|
|
Liabilities at June 28, 2019:
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
Contingent consideration
|
|
—
|
|
|
—
|
|
|
(38.2
|
)
|
|
(38.2
|
)
|
Total liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
(38.2
|
)
|
|
$
|
(38.5
|
)
|
|
|
|
|
|
|
|
|
|
Assets at September 28, 2018:
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
Money market funds
|
|
$
|
44.1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
44.1
|
|
Available-for- sale securities:
|
|
|
|
|
|
|
|
|
MPTC Series B-1 Bonds
(2)
|
|
—
|
|
|
25.1
|
|
|
—
|
|
|
25.1
|
|
MPTC Series B-2 Bonds
(1)
|
|
—
|
|
|
23.1
|
|
|
—
|
|
|
23.1
|
|
APTC securities
(2)
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
6.4
|
|
GPTC securities
(2)
|
|
—
|
|
|
7.9
|
|
|
—
|
|
|
7.9
|
|
Total assets measured at fair value
|
|
$
|
44.1
|
|
|
$
|
62.5
|
|
|
$
|
—
|
|
|
$
|
106.6
|
|
|
|
|
|
|
|
|
|
|
Liabilities at September 28, 2018:
|
|
|
|
|
|
|
|
|
Contingent consideration
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(24.4
|
)
|
|
$
|
(24.4
|
)
|
Total liabilities measured at fair value
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(24.4
|
)
|
|
$
|
(24.4
|
)
|
|
|
(1)
|
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(2)
|
Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets because the Company had the ability and intent to sell this security in the next twelve months.
|
The Company classifies its money market funds as Level 1 because they have daily liquidity, quoted prices for the underlying investments can be obtained, and there are active markets for the underlying investments. The Company's Level 2 available-for-sale securities consist of bonds for the Maryland Proton Therapy Center ("MPTC"), Alabama Proton Therapy Center (“APTC”), and Georgia Proton Treatment Center ("GPTC"). The observable inputs for these securities are comparable bond issues, broker/dealer quotations for the same or similar investments in active markets, and other observable inputs such as yields, credit risks, default rates, and volatility. As of
June 28, 2019
, and
September 28, 2018
, the carrying amount of the Company's Level 1 money market funds and Level 2 available-for-sale securities approximated their respective fair values.
See
Note 14, "Proton Solutions Loans and Investments,"
for further information about the available-for-sale securities.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads. The Company’s derivative instruments are generally short-term in nature, typically
one month
to
thirteen months
in duration.
The Company generally measures the fair value of its Level 3 contingent consideration liabilities based on option pricing models through Black-Scholes or Monte Carlo models with key assumptions that include estimated revenues of the acquired business, the probability of completing certain milestone targets during the earn-out period, volatility, and estimated discount rates corresponding to the periods of expected payments. If the estimated revenues or probability of completing certain milestones were to increase or decrease during the respective earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. If the estimated discount rates were to increase or decrease, the fair value of contingent consideration would decrease or increase, respectively. Changes in volatility may result in an increase or decrease in the fair value of contingent consideration. The Company's contingent consideration is from its business combinations and is included in accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.
The following table presents the reconciliation for all assets and liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):
|
|
|
|
|
|
(In millions)
|
|
Contingent
Consideration
|
Balance at September 28, 2018
|
|
$
|
(24.4
|
)
|
Business combinations
|
|
(26.2
|
)
|
Measurement period adjustment to a business combination in prior year
|
|
11.9
|
|
Settlements
|
|
0.5
|
|
Balance at June 28, 2019
|
|
$
|
(38.2
|
)
|
There were
no
transfers of assets or liabilities between fair value measurement levels during either the
three and nine
months ended
June 28, 2019
, or the
three and nine
months ended
June 29, 2018
. Transfers between fair value measurement levels are recognized at the end of the reporting period.
Fair Value of Other Financial Instruments
The fair values of certain of the Company’s financial instruments, including bank deposits included in cash equivalents, trade and unbilled receivables, net of allowance for doubtful accounts, revolving loan to California Proton Therapy Center ("CPTC"), Rinecker Proton Therapy Center ("RPTC") senior secured debt, accounts payable, and short-term borrowings approximate their carrying amounts due to their short maturities.
As of
June 28, 2019
, the fair value of the Term Loan with CPTC approximated its carrying value of
$44.0 million
. The carrying value is based on the present value of expected future cash payments discounted at a rate reflecting the nature and duration of the loans, risks involved with CPTC, and its industry. As a result, the Term Loan is categorized as Level 3 in the fair value hierarchy. See
Note 14, "Proton Solutions Loans and Investments,"
for further information.
The Company's equity investments in privately-held companies were
$61.2 million
and
$37.2 million
at
June 28, 2019
and
September 28, 2018
, respectively. Equity investments without readily determinable fair value are measured at cost and will be adjusted through net earnings when they are deemed to be impaired or when there is an adjustment from observable price changes. At
June 28, 2019
, the Company increased the fair value for an equity investment in a privately-held company by
$2.0 million
due to observable price changes for equity investments without readily determinable fair value.
The fair value of the outstanding long-term notes receivable, including accrued interest, approximated their carrying value of
$32.6 million
and
$29.7 million
at
June 28, 2019
and
September 28, 2018
, respectively, because they are based on terms of recent comparable transactions and are categorized as Level 3 in the fair value hierarchy. The fair value is based on the income approach by using the discounted cash flow model with key assumptions that include discount rates corresponding to the terms and risks as well as underlying cash flow assumptions. See
Note 14, "Proton Solutions Loans and Investments,"
for information on the long-term notes receivable.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
5. RECEIVABLES
The following table summarizes the Company's trade and unbilled receivables, net and notes receivable:
|
|
|
|
|
|
|
|
|
(In millions)
|
June 28,
2019
|
|
September 28,
2018
|
Trade and unbilled receivables, gross
|
$
|
1,169.9
|
|
|
$
|
1,093.0
|
|
Allowance for doubtful accounts
|
(47.0
|
)
|
|
(41.1
|
)
|
Trade and unbilled receivables, net
|
$
|
1,122.9
|
|
|
$
|
1,051.9
|
|
Short-term
|
$
|
1,054.2
|
|
|
$
|
1,009.9
|
|
Long-term
(1)
|
$
|
68.7
|
|
|
$
|
42.0
|
|
|
|
|
|
Notes receivable
|
$
|
32.6
|
|
|
$
|
29.8
|
|
Short-term
(2)
|
$
|
—
|
|
|
$
|
0.1
|
|
Long-term
(1) (3)
|
$
|
32.6
|
|
|
$
|
29.7
|
|
|
|
(1)
|
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(2)
|
Included in prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(3)
|
Balances include accrued interest and are recorded in other assets on the Company's Condensed Consolidated Balance Sheets.
|
A financing receivable represents a financing arrangement with a contractual right to receive money, on demand or on fixed or determinable dates, and that is recognized as an asset on the Company’s Condensed Consolidated Balance Sheets. The Company’s financing receivables consist of trade receivables with contractual maturities of more than one year and notes receivable. A small portion of the Company's financing trade receivables are included in short-term trade accounts receivable.
As of
June 28, 2019
, and
September 28, 2018
, the allowance for doubtful accounts is entirely related to short-term trade and unbilled receivables.
See
Note 14, "Proton Solutions Loans and Investments,"
for more information on the Company's long-term notes receivable balances.
6. GOODWILL AND INTANGIBLE ASSETS
The following table reflects the activity of goodwill by reportable operating segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
Balance at September 28, 2018
|
$
|
242.1
|
|
|
$
|
51.5
|
|
|
$
|
—
|
|
|
$
|
293.6
|
|
Business combinations
|
204.2
|
|
|
—
|
|
|
122.7
|
|
|
326.9
|
|
Impairment charges
|
|
|
|
(50.5
|
)
|
|
—
|
|
|
(50.5
|
)
|
Measurement period adjustments to business combinations in prior year
|
(2.1
|
)
|
|
—
|
|
|
—
|
|
|
(2.1
|
)
|
Foreign currency translation adjustments
|
—
|
|
|
(1.0
|
)
|
|
—
|
|
|
(1.0
|
)
|
Balance at June 28, 2019
|
$
|
444.2
|
|
|
$
|
—
|
|
|
$
|
122.7
|
|
|
$
|
566.9
|
|
See
Note 2, "Business Combinations,"
for more information on the business combinations and measurement period adjustments to business combination in prior year.
During the third quarter of fiscal year 2019, the Company recorded a goodwill impairment charge of
$50.5 million
for the full value of the Proton Solutions reporting unit goodwill. The impairment resulted from a downward revision of the forecasted future cash flows. Factors in the third quarter that contributed to the revised forecast include observed continued weakness in proton therapy markets and lower than expected results as compared to prior forecasts. These events decreased the forecasted cash flows and the fair value of the Proton Solutions reporting unit below its carrying value as of the third quarter of fiscal year 2019.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
To determine the fair value of the Proton Solutions reporting unit, the Company used the income approach. Under the income approach, the fair value of the Proton Solutions reporting unit was based on the present value of the estimated future cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used was based on the weighted-average cost of capital appropriate for the Proton Solutions reporting unit.
The Company also assessed whether the carrying amounts of the Proton Solutions reporting unit’s long-lived assets may not be recoverable and therefore impaired. To assess the recoverability of the reporting unit’s long-lived assets, the undiscounted cash flows of the reporting unit were analyzed and compared to the carrying value. The sum of the undiscounted cash flows exceeded the carrying value of the asset group, therefore, no impairment was indicated.
The following table reflects the gross carrying amount and accumulated amortization of the Company's intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2019
|
|
September 28, 2018
|
(In millions)
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
Technologies, patents, and trade names
|
$
|
240.4
|
|
|
$
|
(81.4
|
)
|
|
$
|
159.0
|
|
|
$
|
139.6
|
|
|
$
|
(73.9
|
)
|
|
$
|
65.7
|
|
Customer contracts, supplier relationships, and partner relationships
|
118.3
|
|
|
(23.5
|
)
|
|
94.8
|
|
|
44.9
|
|
|
(19.1
|
)
|
|
25.8
|
|
Other
|
6.1
|
|
|
(6.0
|
)
|
|
0.1
|
|
|
6.6
|
|
|
(5.8
|
)
|
|
0.8
|
|
Total intangible with finite lives
|
364.8
|
|
|
(110.9
|
)
|
|
253.9
|
|
|
191.1
|
|
|
(98.8
|
)
|
|
92.3
|
|
In-process research and development with indefinite lives
|
19.2
|
|
|
—
|
|
|
19.2
|
|
|
8.8
|
|
|
—
|
|
|
8.8
|
|
Total intangible assets
|
$
|
384.0
|
|
|
$
|
(110.9
|
)
|
|
$
|
273.1
|
|
|
$
|
199.9
|
|
|
$
|
(98.8
|
)
|
|
$
|
101.1
|
|
See
Note 2, "Business Combinations,"
for more information about finite-lived intangible assets acquired in our business combinations.
Amortization expense for intangible assets was
$6.0 million
and
$4.8 million
during the three months ended
June 28, 2019
and
June 29, 2018
, respectively, and
$17.4 million
and
$15.2 million
during the
nine
months ended
June 28, 2019
and
June 29, 2018
, respectively.
As of
June 28, 2019
, the Company estimates its remaining amortization expense for intangible assets with finite lives will be as follows (in millions):
|
|
|
|
|
Fiscal Years:
|
Remaining Amortization Expense
|
Remainder of 2019
|
$
|
9.6
|
|
2020
|
35.7
|
|
2021
|
31.9
|
|
2022
|
30.2
|
|
2023
|
28.4
|
|
Thereafter
|
118.1
|
|
Total remaining amortization for intangible assets
|
$
|
253.9
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company measures all derivatives at fair value on the Condensed Consolidated Balance Sheets. The accounting for gains or losses resulting from changes in the fair value of those derivatives depends upon the use of the derivative and whether it qualifies for hedge accounting.
The fair value of derivative instruments reported on the Company's Condensed Consolidated Balance Sheet were as follows:
|
|
|
|
|
|
|
|
|
|
June 28, 2019
|
(In millions)
|
Balance Sheet
Location
|
|
Fair Value
|
Derivatives designated as hedging instruments:
|
|
|
|
Foreign exchange forward contracts
|
Accrued liabilities
|
|
$
|
(0.3
|
)
|
Total derivatives
|
|
|
$
|
(0.3
|
)
|
As of
September 28, 2018
, the Company did not have any outstanding derivatives designated as hedging instruments. As of
June 28, 2019
, and
September 28, 2018
, the fair value of the Company's derivatives not designated as hedging instruments were not material.
Cash Flow Hedging Activities
The Company had the following outstanding foreign currency forward contracts that were entered into to hedge forecasted revenues and designated as cash flow hedges:
|
|
|
|
|
|
June 28, 2019
|
(In millions)
|
Notional Value Sold
|
Euro
|
$
|
25.5
|
|
As of
September 28, 2018
, the Company did not have any outstanding foreign currency forward contracts designated as cash flow hedges.
The following table presents the amounts, before tax, recognized in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss Recognized in Other Comprehensive Earnings (Loss)
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
Foreign currency forward contracts
|
$
|
(0.3
|
)
|
|
$
|
—
|
|
|
$
|
(0.3
|
)
|
|
$
|
(0.9
|
)
|
As of
June 28, 2019
, the net unrealized loss on derivatives, before tax, of
$0.3 million
was included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets and is expected to be reclassified to earnings over the next
12 months
.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The effect of cash flow hedge accounting on the Condensed Consolidated Statements of Earnings was as follows:
|
|
|
|
|
|
|
Location and Amount Recognized in Earnings on Cash Flow Hedging Relationships
|
|
|
Nine Months Ended
|
|
|
June 29, 2018
|
(In millions)
|
|
Revenues
|
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value and cash flow hedges are recorded
|
|
$
|
2,117.5
|
|
Loss on cash flow hedge relationships:
|
|
|
Foreign currency forward contracts:
|
|
|
Amount of loss reclassified from accumulated other comprehensive loss into earnings
|
|
$
|
(0.9
|
)
|
Balance Sheet Hedging Activities
The Company also hedges balance sheet exposures from its various subsidiaries and business units where the U.S. Dollar is the functional currency. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in other income, net in the Condensed Consolidated Statements of Earnings. Changes in the values of these hedging instruments are offset by changes in the values of foreign-currency-denominated assets and liabilities. At
June 28, 2019
, and
September 28, 2018
, the fair value of the Company's derivatives not designated as hedging instruments was not material.
The Company had the following outstanding foreign currency forward contracts relating to balance sheet hedging activities:
|
|
|
|
|
|
|
|
|
|
June 28, 2019
|
(In millions)
|
Notional
Value Sold
|
|
Notional
Value Purchased
|
Australian Dollar
|
$
|
25.2
|
|
|
$
|
—
|
|
Brazilian Real
|
11.9
|
|
|
—
|
|
British Pound
|
30.2
|
|
|
0.8
|
|
Chinese Yuan
|
—
|
|
|
13.6
|
|
Canadian Dollar
|
3.1
|
|
|
—
|
|
Danish Krone
|
6.9
|
|
|
—
|
|
Euro
|
210.3
|
|
|
12.2
|
|
Hungarian Forint
|
4.6
|
|
|
1.0
|
|
Indian Rupee
|
21.1
|
|
|
—
|
|
Japanese Yen
|
73.8
|
|
|
—
|
|
New Zealand Dollar
|
1.0
|
|
|
—
|
|
Norwegian Krone
|
1.2
|
|
|
—
|
|
Polish Zloty
|
19.5
|
|
|
—
|
|
Singapore Dollar
|
—
|
|
|
1.4
|
|
South African Rand
|
15.4
|
|
|
—
|
|
Swedish Krona
|
7.1
|
|
|
—
|
|
Swiss Franc
|
—
|
|
|
64.4
|
|
Taiwan Dollar
|
13.3
|
|
|
—
|
|
Thai Baht
|
5.3
|
|
|
—
|
|
Totals
|
$
|
449.9
|
|
|
$
|
93.4
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The following table presents the gains (losses) recognized in the Condensed Consolidated Statements of Earnings related to the foreign currency forward contracts that are not designated as hedging instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain (Loss) Recognized in Net Earnings on Derivative Instruments
|
|
Amount of Gain (Loss) Recognized in Net Earnings on Derivative Instruments
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Other income, net
|
|
$
|
(2.2
|
)
|
|
$
|
25.5
|
|
|
$
|
4.2
|
|
|
$
|
13.3
|
|
The gains (losses) on these derivative instruments were significantly offset by the gains (losses) resulting from the re-measurement of monetary assets and liabilities denominated in currencies other than the U.S. Dollar functional currency.
8. COMMITMENTS AND CONTINGENCIES
Product Warranty
The following table reflects the changes in the Company’s accrued product warranty:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
(In millions)
|
June 28,
2019
|
|
June 29,
2018
|
Accrued product warranty, at beginning of period
|
$
|
44.8
|
|
|
$
|
41.3
|
|
Charged to cost of revenues
|
41.7
|
|
|
41.8
|
|
Actual product warranty expenditures
|
(36.9
|
)
|
|
(41.6
|
)
|
Accrued product warranty, at end of period
|
$
|
49.6
|
|
|
$
|
41.5
|
|
Accrued product warranty was included in accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.
Lease Commitments
At June 28, 2019, the Company's lease commitments for minimum rentals under non-cancelable operating leases increased by
$10.8 million
due to leases assumed from the CTSI, Endocare and Alicon acquisitions. The operating lease terms range from
2019
to
2038
.
Lessor Arrangements
The Company leases some of its equipment to certain customers on operating leases generally over a period of
15
years. As of
June 28, 2019
, the Company had
$22.5 million
and
$4.6 million
included in property, plant and equipment and accumulated depreciation, respectively, related to equipment leased to customers. As of
September 28, 2018
, the Company had
$19.2 million
and
$1.3 million
included in property, plant and equipment and accumulated depreciation, respectively, related to equipment leased to customers. The Company recorded income of
$2.3 million
and
$6.5 million
during the three and nine months ended
June 28, 2019
, respectively, on these equipment leases.
Contingencies
Environmental Remediation Liabilities
The Company’s operations and facilities, past and present, are subject to environmental laws, including laws that regulate the handling, storage, transport and disposal of hazardous substances. Certain of those laws impose cleanup liabilities on the Company in connection with its past and present operations. Those include facilities sold as part of the Company’s electron devices business in 1995 and thin film systems business in 1997. As a result, the Company oversees various environmental cleanup projects and receives reimbursements from third parties for a portion of the costs of its cleanup activities.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
As of
June 28, 2019
, and
September 28, 2018
, the Company had accrued
$5.0 million
and
$5.4 million
, respectively, net of third parties' indemnification obligations, for environmental remediation liabilities. The Company believes its reserve is adequate; however, as the scope of the Company’s obligations becomes more clearly defined, the Company may modify the reserve, and charge or credit future earnings accordingly. Based on information currently known to management, management believes 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 in any one fiscal year.
The Company also reimburses certain third parties for cleanup activities. The amount the Company spent on environmental cleanup costs, third-party claim costs, project management costs and legal costs in the three and
nine
months
June 28, 2019
and
June 29, 2018
, was not material.
Other Matters
On October 16, 2018, Best Medical International, Inc. sued the Company in U.S. District Court in the District of Delaware, alleging infringement of
four
patents related to treatment planning. The Company intends to defend the suit vigorously. This lawsuit is in the initial stages, and at this time, the Company is unable to predict the ultimate outcome of this matter or estimate a range of possible exposure. Therefore,
no
amounts have been accrued.
From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value). A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision.
In addition to the above, the Company is involved in other legal matters. However, such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company is unable to estimate a loss or a range of reasonably possible losses with respect to such matters. There can be no assurances as to whether the Company will become subject to significant additional claims and liabilities with respect to ongoing or future proceedings. If actual liabilities significantly exceed the estimates made, the Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected. Legal expenses relating to legal matters are expensed as incurred.
9. RETIREMENT PLANS
The Company sponsors
five
defined benefit pension plans for regular full-time employees in Germany, Japan, Switzerland and the United Kingdom. The Company also sponsors a post-retirement benefit plan that provides healthcare benefits to certain eligible retirees in the United States.
The components of net defined benefit costs were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Defined Benefit Plans
|
|
|
|
|
|
|
|
Service cost
|
$
|
1.7
|
|
|
$
|
1.6
|
|
|
$
|
5.3
|
|
|
$
|
4.9
|
|
Interest cost
|
0.9
|
|
|
0.8
|
|
|
2.8
|
|
|
2.4
|
|
Expected return on plan assets
|
(1.6
|
)
|
|
(2.0
|
)
|
|
(4.8
|
)
|
|
(6.0
|
)
|
Amortization of prior service cost
|
(0.2
|
)
|
|
(0.1
|
)
|
|
(0.6
|
)
|
|
(0.4
|
)
|
Recognized actuarial loss
|
0.6
|
|
|
0.7
|
|
|
1.7
|
|
|
2.1
|
|
Net periodic benefit cost
|
$
|
1.4
|
|
|
$
|
1.0
|
|
|
$
|
4.4
|
|
|
$
|
3.0
|
|
10. INCOME TAXES
The Company’s effective tax rate was
50.9%
and
21.2%
for the three months ended
June 28, 2019
and
June 29, 2018
, respectively, and
28.5%
and
89.2%
for the
nine
months ended
June 28, 2019
and
June 29, 2018
, respectively. The increase in the Company’s effective tax rate for the three months ended
June 28, 2019
, compared to the year-ago period, is primarily
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
because the current period includes a goodwill impairment charge and an in-process research and development expense, neither of which generate a tax benefit for the Company. The decrease in the Company’s effective tax rate for the
nine
months ended
June 28, 2019
, compared to the year-ago period, was primarily because the prior period included the tax effect of a change in law due to the enactment of the Tax Cuts and Jobs Act (the "Act"), which was signed into law on December 22, 2017. The current periods also include the impact of several provisions of the Act that take effect for the Company for the first time in the fiscal year ending September 27, 2019, including a new minimum tax on certain foreign earnings (the Global Intangible Low-taxed Income, or "GILTI"), a new tax on certain payments to foreign related parties (the Base Erosion and Anti-avoidance Tax), a new incentive for foreign-derived intangible income, changes to the limitation on the deductibility of certain executive compensation, and new limitations on the deductibility of interest expense. The Company has elected to account for GILTI as a period cost rather than on a deferred basis. The current periods also reflects the fact that, as the Company has a September fiscal year end, the lower 21% federal rate is now fully phased in; that is, it is applicable to our domestic earnings for the full fiscal year ending September 27, 2019.
As part of the transition to a modified territorial system, the Act imposed a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. The Company recorded a discrete tax expense related to the one-time transition tax of
$2.3 million
during the first quarter of fiscal year 2019, and of
$6.4 million
during the third quarter of fiscal year
2019
, resulting in the cumulative amount of
$173.3 million
. The Company has elected to pay this tax over the
eight
-year period allowed for in the Act.
On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118. This guidance allowed registrants a “measurement period,” to complete their accounting for the tax effects of the Act. The Company relied on this guidance to refine its estimates of the impact of the Act during the measurement period. The measurement period ended during the Company's period ended December 28, 2018. As a result, the Company considered its accounting for the tax effects of the Act to be complete at that time based on its interpretation of the law and subsequent guidance that had been issued to that point. Subsequently, it was necessary to adjust the Company's calculation of the tax as a result of further guidance and its impact on the Company's interpretation of the rules. It is expected that the U.S. Treasury will continue to issue regulations and other guidance on the application of certain provisions of the Act that may impact the Company's interpretation of the rules and our calculation of the tax impact of the transition tax or other provisions of the Act.
The Company adopted the FASB guidance related to intra-entity transfers of assets other than inventory in the first quarter of fiscal year 2019. This standard changes the treatment of the tax effect of transfers of property other than inventory among the entities within a registrant's consolidated group. Under the prior standard, the tax effect related to the transfer of property other than inventory from one member of the group to another was recorded to prepaid income taxes, which is included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. Under the new standard, the tax effect related to the transfer of property other than inventory from one member of the group to another is recorded as a discrete item to taxes on earnings in the Condensed Consolidated Statements of Earnings. The Company recorded a cumulative effect of a change in accounting principle of
$0.2 million
as of September 29, 2018, as a result of adopting the new standard. The Company expects that the new standard may cause its effective tax rate to be more volatile and less predictable going forward.
The Company’s effective income tax rate differs from the U.S. federal statutory rate primarily because the Company’s foreign earnings are taxed at rates that are, on average, lower than the U.S. federal rate, and because the Company’s domestic earnings are subject to state income taxes. The total amount of unrecognized tax benefits did not materially change during the
nine months ended June 28, 2019
; however, the amount of unrecognized tax benefits has increased as a result of positions taken during the current and prior years and has decreased as the result of the expiration of the statutes of limitation in various jurisdictions.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
11. STOCKHOLDERS’ EQUITY
Share Repurchase Program
In November 2016, the VMS Board of Directors authorized the repurchase of an additional
8.0 million
shares of VMS common stock commencing on January 1, 2017. Share repurchases under the Company's authorizations may be made in open market purchases, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and may be made from time to time in one or more blocks. All shares that were repurchased under the Company's share repurchase programs have been retired. As of
June 28, 2019
, approximately
2.5 million
shares of VMS common stock remained available for repurchase under the November 2016 authorization.
The Company repurchased shares of VMS common stock during the periods presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions, except per share amounts)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Number of shares
|
0.4
|
|
|
0.3
|
|
|
1.1
|
|
|
1.1
|
|
Average repurchase price per share
|
$
|
138.90
|
|
|
$
|
120.59
|
|
|
$
|
123.15
|
|
|
$
|
112.25
|
|
Total cost
|
$
|
48.6
|
|
|
$
|
39.2
|
|
|
$
|
134.2
|
|
|
$
|
131.9
|
|
Accumulated Other Comprehensive Loss
The changes in accumulated other comprehensive loss by component and related tax effects are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans
|
|
Net
Unrealized
Losses
Cash Flow
Hedging
Instruments
|
|
Cumulative
Translation
Adjustment
|
|
Accumulated
Other
Comprehensive
Loss
|
Balance at September 28, 2018
|
$
|
(35.2
|
)
|
|
$
|
—
|
|
|
$
|
(30.1
|
)
|
|
$
|
(65.3
|
)
|
Other comprehensive loss before reclassifications
|
—
|
|
|
(0.3
|
)
|
|
(4.8
|
)
|
|
(5.1
|
)
|
Amounts reclassified out of other comprehensive earnings
|
1.1
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
Tax expense
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
Balance at June 28, 2019
|
$
|
(34.3
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(34.9
|
)
|
|
$
|
(69.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans
|
|
Net
Unrealized
Gains
(Losses)
Cash Flow
Hedging
Instruments
|
|
Cumulative
Translation
Adjustment
|
|
Accumulated
Other
Comprehensive Loss
|
Balance at September 29, 2017
|
$
|
(44.1
|
)
|
|
$
|
—
|
|
|
$
|
(24.7
|
)
|
|
$
|
(68.8
|
)
|
Other comprehensive earnings before reclassifications
|
—
|
|
|
(0.9
|
)
|
|
(3.0
|
)
|
|
(3.9
|
)
|
Amounts reclassified out of other comprehensive earnings
|
1.3
|
|
|
0.9
|
|
|
—
|
|
|
2.2
|
|
Tax expense
|
(0.2
|
)
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
Balance at June 29, 2018
|
$
|
(43.0
|
)
|
|
$
|
—
|
|
|
$
|
(27.7
|
)
|
|
$
|
(70.7
|
)
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The amounts reclassified, before taxes, out of other comprehensive earnings (loss) into the Condensed Consolidated Statements of Earnings, with line item location, during each period were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In millions)
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Comprehensive Earnings (Loss) Components
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
|
Line Item in Statements of Earnings
|
Unrealized loss on defined benefit pension and post-retirement benefit plans
|
$
|
(0.4
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(1.3
|
)
|
|
Other income, net
|
Unrealized loss on cash flow hedging instruments
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.9
|
)
|
|
Revenues
|
Total amounts reclassified out of other comprehensive earnings
|
$
|
(0.4
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(1.1
|
)
|
|
$
|
(2.2
|
)
|
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
12. EMPLOYEE STOCK PLANS
The table below summarizes the share-based compensation expense recognized for employee stock awards and employee stock purchase plan shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Cost of revenues - Product
|
$
|
0.7
|
|
|
$
|
0.8
|
|
|
$
|
2.2
|
|
|
$
|
2.3
|
|
Cost of revenues - Service
|
1.2
|
|
|
1.1
|
|
|
3.3
|
|
|
3.1
|
|
Research and development
|
1.3
|
|
|
1.2
|
|
|
3.5
|
|
|
3.6
|
|
Selling, general and administrative
|
9.0
|
|
|
10.2
|
|
|
26.2
|
|
|
25.5
|
|
Total share-based compensation expense
|
$
|
12.2
|
|
|
$
|
13.3
|
|
|
$
|
35.2
|
|
|
$
|
34.5
|
|
Income tax benefit for share-based compensation
|
$
|
(2.3
|
)
|
|
$
|
(3.0
|
)
|
|
$
|
(6.8
|
)
|
|
$
|
(7.7
|
)
|
The fair value of options granted was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Employee Stock Option Plans
|
|
|
|
|
|
|
|
Expected term (in years)
|
3.76
|
|
|
3.85
|
|
|
3.76
|
|
|
3.83
|
|
Risk-free interest rate
|
2.2
|
%
|
|
2.8
|
%
|
|
2.6
|
%
|
|
2.2
|
%
|
Expected volatility
|
23.9
|
%
|
|
21.0
|
%
|
|
23.1
|
%
|
|
19.0
|
%
|
Expected dividend
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Weighted average fair value at grant date
|
$
|
28.52
|
|
|
$
|
24.93
|
|
|
$
|
27.85
|
|
|
$
|
20.82
|
|
The option component of employee stock purchase plan shares was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
Expected term (in years)
|
0.50
|
|
|
0.50
|
|
|
0.50
|
|
|
0.50
|
|
Risk-free interest rate
|
2.5
|
%
|
|
2.0
|
%
|
|
2.5
|
%
|
|
1.6
|
%
|
Expected volatility
|
27.8
|
%
|
|
32.9
|
%
|
|
22.8
|
%
|
|
25.2
|
%
|
Expected dividend
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Weighted average fair value at grant date
|
$
|
31.38
|
|
|
$
|
28.41
|
|
|
$
|
26.76
|
|
|
$
|
24.56
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The activity for stock options and performance stock options is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
(In millions, except per share amounts)
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Term (in years)
|
|
Aggregate
Intrinsic
Value
(1)
|
Balance at September 28, 2018
|
2.3
|
|
|
$
|
85.82
|
|
|
|
|
|
Granted
|
0.5
|
|
|
126.45
|
|
|
|
|
|
Cancelled or expired
|
(0.1
|
)
|
|
106.69
|
|
|
|
|
|
Exercised
|
(0.5
|
)
|
|
75.01
|
|
|
|
|
|
Balance at June 28, 2019
|
2.2
|
|
|
$
|
96.98
|
|
|
4.7
|
|
$
|
87.5
|
|
Exercisable at June 28, 2019
|
1.1
|
|
|
$
|
80.48
|
|
|
3.7
|
|
$
|
63.9
|
|
|
|
(1)
|
The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of VMS common stock of
$136.13
as of
June 28, 2019
, the last trading date of the
third
quarter of fiscal year
2019
, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.
|
As of
June 28, 2019
, there was
$20.2 million
of total unrecognized compensation expense related to stock options and performance stock options granted under the Company's employee stock plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of
2.0
years.
The activity for restricted stock, restricted stock units, deferred stock units and performance units is summarized as follows:
|
|
|
|
|
|
|
|
(In millions, except per share amounts)
|
Number of
Shares
|
|
Weighted Average
Grant-Date Fair
Value
|
Balance at September 28, 2018
|
0.8
|
|
|
$
|
89.17
|
|
Granted
|
0.3
|
|
|
127.14
|
|
Vested
|
(0.4
|
)
|
|
81.81
|
|
Cancelled or expired
|
(0.1
|
)
|
|
87.47
|
|
Balance at June 28, 2019
|
0.6
|
|
|
$
|
108.49
|
|
As of
June 28, 2019
, unrecognized compensation expense totaling
$46.1 million
was related to awards of restricted stock units, deferred stock units and performance units granted under the Company's employee stock plans. This unrecognized share-based compensation expense is expected to be recognized over a weighted average period of
1.9
years.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted net earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions, except per share amounts)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Net earnings
|
$
|
29.5
|
|
|
$
|
72.5
|
|
|
$
|
221.8
|
|
|
$
|
33.5
|
|
Less: Net earnings (loss) attributable to noncontrolling interests
|
0.1
|
|
|
(0.1
|
)
|
|
0.6
|
|
|
—
|
|
Net earnings attributable to Varian
|
$
|
29.4
|
|
|
$
|
72.6
|
|
|
$
|
221.2
|
|
|
$
|
33.5
|
|
Denominator:
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic
|
91.0
|
|
|
91.5
|
|
|
91.0
|
|
|
91.6
|
|
Dilutive effect of potential common shares
|
0.8
|
|
|
1.0
|
|
|
0.9
|
|
|
1.0
|
|
Weighted average shares outstanding - diluted
|
91.8
|
|
|
92.5
|
|
|
91.9
|
|
|
92.6
|
|
Net earnings per share attributable to Varian - basic
|
$
|
0.32
|
|
|
$
|
0.79
|
|
|
$
|
2.43
|
|
|
$
|
0.37
|
|
Net earnings per share attributable to Varian - diluted
|
$
|
0.32
|
|
|
$
|
0.79
|
|
|
$
|
2.41
|
|
|
$
|
0.36
|
|
Anti-dilutive employee share-based awards, excluded
|
0.5
|
|
|
0.7
|
|
|
0.8
|
|
|
0.7
|
|
14. PROTON SOLUTIONS LOANS AND INVESTMENTS
In limited cases, the Company participates, along with other investors and at market terms, in the financing of proton therapy centers. Over time, the Company has divested some of its investments, including investments in CPTC, New York Proton Center ("NYPC"), GPTC and the Delray Radiation Therapy Center.
The following table lists the Company's notes receivable including accrued interest, senior secured debt, available-for-sale securities, loans outstanding and future commitments for funding the development, construction and operation of various proton therapy centers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 28, 2019
|
|
September 28, 2018
|
(In millions)
|
|
Balance
|
|
Commitment
|
|
Balance
|
|
Commitment
|
Notes Receivable and Secured Debt:
|
|
|
|
|
|
|
|
|
NYPC loan
(1)
|
|
$
|
30.8
|
|
|
$
|
—
|
|
|
$
|
28.0
|
|
|
$
|
—
|
|
RPTC senior secured debt
(2)
|
|
24.5
|
|
|
—
|
|
|
24.9
|
|
|
—
|
|
Proton International LLC loan
(1)
|
|
1.8
|
|
|
—
|
|
|
1.7
|
|
|
—
|
|
|
|
$
|
57.1
|
|
|
$
|
—
|
|
|
$
|
54.6
|
|
|
$
|
—
|
|
Available-For-Sale Securities:
|
|
|
|
|
|
|
|
|
MPTC Series B-1 Bonds
(3)
|
|
$
|
26.6
|
|
|
$
|
—
|
|
|
$
|
25.1
|
|
|
$
|
—
|
|
MPTC Series B-2 Bonds
(1)
|
|
24.5
|
|
|
—
|
|
|
23.1
|
|
|
—
|
|
GPTC securities
(2)
|
|
—
|
|
|
—
|
|
|
7.9
|
|
|
—
|
|
APTC securities
(3)
|
|
6.4
|
|
|
—
|
|
|
6.4
|
|
|
—
|
|
|
|
$
|
57.5
|
|
|
$
|
—
|
|
|
$
|
62.5
|
|
|
$
|
—
|
|
CPTC Loans and Investment:
|
|
|
|
|
|
|
|
|
Short-term revolving loan
(2)
|
|
$
|
5.1
|
|
|
$
|
2.1
|
|
|
$
|
3.7
|
|
|
$
|
3.5
|
|
Term loan
(1)
|
|
44.0
|
|
|
—
|
|
|
44.0
|
|
|
—
|
|
Equity investment in CPTC
(1)
|
|
—
|
|
|
—
|
|
|
2.2
|
|
|
—
|
|
|
|
$
|
49.1
|
|
|
$
|
2.1
|
|
|
$
|
49.9
|
|
|
$
|
3.5
|
|
|
|
(1)
|
Included in other assets at
June 28, 2019
and
September 28, 2018
, on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(2)
|
Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets.
|
|
|
(3)
|
Included in other assets at
June 28, 2019
and prepaid and other current assets at
September 28, 2018
, on the Company's Condensed Consolidated Balance Sheets.
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Alabama Proton Therapy Center ("APTC") Securities
In December 2017, the Company purchased
$6.0 million
in Subordinate Revenue Bonds, which financed the APTC. The Subordinate Revenue Bonds carry an interest rate of
8.5%
and pay interest semi-annually. The Company is scheduled to start receiving annual principal payments on the Subordinate Revenue Bonds beginning on November 1, 2022. The Subordinate Revenue Bonds will mature on October 1, 2047.
Rinecker
Proton Therapy Center ("RPTC") Senior Secured Debt
In July 2017, the Company purchased the outstanding senior secured debt related to the RPTC in Munich, Germany for
21.5 million
Euros or
$24.5 million
. By purchasing the senior secured debt, the Company has a right to approximately
77 million
Euros in claims against all of RPTC's assets. In September 2017, the management of RPTC filed for bankruptcy in Germany. In January 2018, the final insolvency proceedings commenced, and upon finalization of bankruptcy proceedings, the Company believes it is probable it will recover the outstanding senior secured debt balance and trade accounts receivable, net.
At both
June 28, 2019
and
September 28, 2018
, the Company had
$4.5 million
in trade receivables, net, from RPTC, which does not include any unbilled receivables.
Georgia Proton Treatment Center ("GPTC") Security
In July 2017 and July 2018, the Company purchased a total of
$16.1 million
in Senior Capital Appreciation Bonds ("Senior Bonds"), which financed the GPTC. In September 2018 and June 2019, the Company sold all of its Senior Bonds for a total of
$16.8 million
, which included payment of accrued interest.
New York Proton Center ("NYPC") Loan
In July 2015, the Company committed to loan up to
$91.5 million
to MM Proton I, LLC. In June 2016, the Company assigned
$73.0 million
of this loan to Deutsche Bank AG. The remaining balance is comprised of an
$18.5 million
“Subordinate Loan” with a six-and-a-half-year term at up to
13.5%
interest. As of
June 28, 2019
, the Subordinate Loan is
$30.8 million
, including accrued interest. The principal balance and accrued interest on the Subordinate Loan are due in full at maturity in January 2022.
In addition to the outstanding loan, the Company had
$25.2 million
and
$24.1 million
, in trade and unbilled receivables, as of
June 28, 2019
and
September 28, 2018
, respectively, which included
$12.6 million
and
$24.1 million
in unbilled receivables, respectively, from NYPC.
Maryland Proton Treatment Center ("MPTC") Securities
In August 2018, MPTC refinanced its then outstanding subordinated debt, including accrued interest, and notes receivable balances. As part of the refinancing, in exchange for its then outstanding subordinated loan, the Company received
$22.9 million
in Subordinate Revenue Bonds ("MPTC Series B-2 Bonds") that carry an interest rate of
8.5%
per annum with interest accruing up to the MPTC Series B-2 Bonds face amount of
$33.9 million
until January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-2 Bonds will mature on January 1, 2049. In exchange for its outstanding notes receivable, the Company also received
$6.0 million
in cash and
$25.0 million
in Subordinate Revenue Bonds ("MPTC Series B-1 Bonds") that carry an interest rate of
7.5%
with interest accruing up to the MPTC Series B-1 Bonds face amount of
$32.0 million
on January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-1 Bonds will mature on January 1, 2048. The MPTC Series B-1 Bonds are senior in right and time to the MPTC Series B-2 Bonds.
At
June 28, 2019
, the Company had
zero
net trade and unbilled receivables from MPTC. At
September 28, 2018
, the Company had
$0.5 million
in trade receivables, net, from MPTC.
Variable Interest Entities
The Company has determined that MM Proton I, LLC and RPTC are variable interest entities and that the Company holds a significant variable interest of each of the entities through its participation in the loan facilities and its agreements to supply and service the proton therapy equipment. The Company has concluded that it is not the primary beneficiary of any of these entities. The Company has no voting rights, has no approval authority or veto rights for these centers' budget, and does not have the power to direct patient recruitment, clinical operations and management of these Centers, which the Company believes are the matters that most significantly affect their economic performance. The Company’s exposure to loss as a result of its
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
involvement with MM Proton I, LLC and RPTC is limited to the carrying amounts of the above-mentioned assets on its Condensed Consolidated Balance Sheets.
California Proton Therapy Center ("CPTC") Loans and Investment
Between September 2011 and November 2015, the Company, ORIX and J.P. Morgan (the "Lenders”) funded loans (“Original CPTC Loans”) to the Scripps Proton Therapy Center in San Diego, California. ORIX is the loan agent.
In March 2017, California Proton Treatment Center, LLC ("Original CPTC") filed for bankruptcy and concurrently entered into a Debtor-in-Possession facility (the "DIP Facility") with the Lenders where the Company's pro-rata share of the DIP Facility was
$7.3 million
. In September 2017, the Lenders and Scripps signed a Transition Agreement to transition the operations of the center from Scripps to Proton Doctors Professional Corporation. As a result of these events, the Company recorded an impairment charge of
$51.4 million
to its Original CPTC Loans in fiscal year 2017.
Pursuant to an order of the Bankruptcy Court, the California Proton Treatment Center ("Original CPTC") conducted an auction of the Scripps Proton Therapy Center. On December 6, 2017 (“Closing Date”), the Bankruptcy Court approved the sale of Scripps Proton Therapy Center to California Proton Therapy Center, LLC (“CPTC”), an entity owned by the Lenders. The Lenders purchased all assets and assumed
$112.0 million
of Original CPTC’s outstanding liabilities. On December 13, 2017, the Bankruptcy Court dismissed the bankruptcy filing of Original CPTC.
On the Closing Date, the Lenders entered into a Credit Agreement with Original CPTC of which the terms of the Original CPTC Loans, DIP Facility and accrued interest (collectively “Former Loans”) have been modified. In addition to the partially satisfied Original CPTC Loans reinstated by the Bankruptcy Court, the Company received a
47.08%
equity ownership in CPTC. Original CPTC has assigned all its Former Loans to CPTC at an amount of
$112.0 million
, the partially satisfied loan balance. Per the terms of the Credit Agreement, the Company's portion of the
$112.0 million
is
$53.5 million
; the remainder is allocated between ORIX and J.P. Morgan. The
$53.5 million
is composed of
four
tranches: Tranche A of
$2.0 million
, Tranche B of
$7.2 million
, Tranche C of
$15.6 million
, and Tranche D of
$28.7 million
(collectively the "Term Loan"). The maturity date of the Term Loan is
three years
from the Closing Date. The Term Loan is secured by the assets of CPTC.
In addition, the Lenders have committed to lend up to
$15.0 million
in a Revolving Loan with a maturity date of
one year
from the Closing Date. In the first quarter of fiscal 2019, as provided in the initial agreement, the Lenders granted a
one year
extension to the term of the Revolving Loan. The Company's share of the funding commitment from the Revolving Loan is
$7.2 million
, and as of
June 28, 2019
, the Company has funded
$5.1 million
.
All of the tranches accrue paid-in-kind interest at
7.5%
per annum, except the Tranche B and the Revolving Loan, which accrue paid-in-kind interest at
10%
per annum. The seniority of these loans is as follows: Revolving Loan, Tranche A, Tranche B, Tranche C and Tranche D. If CPTC is in default, the interest rate of the Tranche A, C and D will increase to
9.5%
and the interest rate on the Tranche B and the Revolving Loan will increase to
12.0%
.
Considering Original CPTC’s financial difficulties, the modification of the original terms of the Former Loans, and the Lenders agreement to grant a concession on the Original CPTC Loans, the Company classified the transaction above as a troubled debt restructuring (“TDR”). The Company does not have any unamortized fees from the Former Loans and any prepayment penalties.
The Company, using a discounted cash flow approach, determined that the fair value of CPTC's equity as of Closing Date was
$20.1 million
. The Company's
47.08%
ownership percentage amounts to a
$9.5 million
equity interest in CPTC. Since the common stock received was in addition to a loan receivable partially satisfied through the bankruptcy proceedings, in accordance with the TDR accounting guidance, the Company recorded the equity interest at fair value and as an offset to the reinstated loan balance. The equity investment in CPTC was accounted for under the equity method of accounting, and the Company accounted for its equity method share of the income or loss of CPTC on a quarter lag basis. In March 2019, the Company sold its equity interest, with a carrying value of zero, in CPTC for a nominal amount. Therefore, beginning in the second quarter of fiscal year 2019, the Company no longer records losses related to the CPTC equity investment.
As of
June 28, 2019
, and
September 28, 2018
, the Company had recorded
$2.3 million
and
$1.8 million
, respectively, in trade receivables, net, from CPTC.
Further, the Company has determined that CPTC is a variable interest entity because of the Company's participation in the loan facilities, and its operations and maintenance agreement. The Company has no special approval authority or veto rights for
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
CPTC’s budget, and does not have the power to direct patient recruitment, clinical operations and management of CPTC, which the Company believes are the matters that most significantly affect their economic performance. Therefore, the Company does not have majority voting rights and no power to direct activities at CPTC, and as a result it is not the primary beneficiary of CPTC.
15. SEGMENT INFORMATION
The Company has
two
reportable operating segments: Oncology Systems and Proton Solutions. The Company's Interventional Oncology business is reflected in the "Other" category because it does not meet the criteria for a reportable operating segment. The operating segments were determined based on how the Company’s Chief Executive Officer, its Chief Operating Decision Maker (“CODM”), views and evaluates the Company’s operations. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on operating earnings.
Description of Segments
The Oncology Systems segment designs, manufactures, sells and services hardware and software products for treating cancer with conventional radiation therapy, and advanced treatments such as fixed field intensity-modulated radiation therapy (“IMRT”), image-guided radiation therapy (“IGRT”), volumetric modulated arc therapy ("VMAT"), stereotactic radiosurgery (“SRS”), stereotactic body radiotherapy (“SBRT”) and brachytherapy as well as associated quality assurance equipment. Products include linear accelerators, brachytherapy afterloaders, treatment accessories, and quality assurance software, information management, treatment planning and image processing, clinical knowledge exchange, patient care management, decision-making support and practice management software. Oncology Systems’ products enable radiation oncology departments in hospitals and clinics to perform conventional radiotherapy treatments and offer advanced treatments such as IMRT, IGRT, VMAT, SRS and SBRT, as well as to treat patients using brachytherapy techniques, which involve temporarily implanting radioactive sources. The Company’s Oncology Systems products are also used by surgeons and radiation oncologists to perform stereotactic radiosurgery and by medical oncology departments to manage chemotherapy treatments. Oncology Systems’ customers worldwide include university research and community hospitals, private and governmental institutions, healthcare agencies, physicians’ offices and cancer care clinics.
In addition to providing the products and services for oncology care described above, the Company offers treatment planning as a service and quality assurance as a service, which allows remote support and delivery of care in understaffed locations to utilize technology on a per patient basis. Further, the Company operates
11
healthcare facilities in India; comprised of
one
specialty hospital and
ten
cancer centers.
The Proton Solutions segment develops, designs, manufactures, sells and services products and systems for delivering proton therapy, a form of external beam radiotherapy using proton beams for the treatment of cancer.
The Other category includes the Interventional Oncology business, which offers products for minimally invasive interventional oncology procedures and treatments, including cryoablation, microwave ablation and embolic beads.
The following information is provided for the purpose 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 Company allocates corporate costs to its operating segments based on the relative revenues of Oncology Systems, Proton Solutions and Interventional Oncology. The Company allocates these costs excluding certain corporate related costs, transactions or adjustments that the Company's CODM considers to be non-operational, such as restructuring and impairment charges, significant litigation charges or benefits and legal costs, and acquisition-related expenses. Although the Company excludes these amounts from segment operating earnings, they are included in the condensed consolidated operating earnings and included in the reconciliation below.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The following table summarizes select financial results for each reportable segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
(In millions)
|
June 28,
2019
|
|
June 29,
2018
|
|
June 28,
2019
|
|
June 29,
2018
|
Revenues
|
|
|
|
|
|
|
|
Oncology Systems
|
$
|
792.9
|
|
|
$
|
667.2
|
|
|
$
|
2,242.2
|
|
|
$
|
2,014.6
|
|
Proton Solutions
|
30.9
|
|
|
41.9
|
|
|
102.0
|
|
|
102.9
|
|
Total reportable segments
|
823.8
|
|
|
709.1
|
|
|
2,344.2
|
|
|
2,117.5
|
|
Other
|
2.0
|
|
|
—
|
|
|
2.0
|
|
|
—
|
|
Total Company
|
$
|
825.8
|
|
|
$
|
709.1
|
|
|
$
|
2,346.2
|
|
|
$
|
2,117.5
|
|
Earnings before taxes
|
|
|
|
|
|
|
|
Oncology Systems
|
$
|
148.7
|
|
|
$
|
125.6
|
|
|
$
|
404.5
|
|
|
$
|
406.9
|
|
Proton Solutions
|
(62.1
|
)
|
|
(10.1
|
)
|
|
(90.9
|
)
|
|
(42.8
|
)
|
Total reportable segments
|
86.6
|
|
|
115.5
|
|
|
313.6
|
|
|
364.1
|
|
Other
|
(1.7
|
)
|
|
—
|
|
|
(1.7
|
)
|
|
—
|
|
Unallocated corporate
|
(31.0
|
)
|
|
(25.5
|
)
|
|
(36.5
|
)
|
|
(59.8
|
)
|
Operating earnings
|
53.9
|
|
|
90.0
|
|
|
275.4
|
|
|
304.3
|
|
Interest income, net
|
1.9
|
|
|
0.5
|
|
|
7.6
|
|
|
2.9
|
|
Other income, net
|
4.2
|
|
|
1.5
|
|
|
27.4
|
|
|
2.9
|
|
Total Company
|
$
|
60.0
|
|
|
$
|
92.0
|
|
|
$
|
310.4
|
|
|
$
|
310.1
|
|
Disaggregation of Revenues
The Company disaggregates its revenues from contracts by major product categories, geographic region, and by timing of revenue recognition for each of its reportable operating segments, as the Company believes this best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. See details in the tables below.
Revenues by Product Type
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 28, 2019
|
|
Nine Months Ended
June 28, 2019
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
Hardware
|
$
|
361.7
|
|
|
$
|
24.2
|
|
|
$
|
2.0
|
|
|
$
|
387.9
|
|
|
$
|
1,014.4
|
|
|
$
|
85.7
|
|
|
$
|
2.0
|
|
|
$
|
1,102.1
|
|
Software
(1)
|
154.4
|
|
|
1.3
|
|
|
—
|
|
|
155.7
|
|
|
429.8
|
|
|
1.3
|
|
|
—
|
|
|
431.1
|
|
Service
|
276.8
|
|
|
5.4
|
|
|
—
|
|
|
282.2
|
|
|
798.0
|
|
|
15.0
|
|
|
—
|
|
|
813.0
|
|
Total Revenues
|
$
|
792.9
|
|
|
$
|
30.9
|
|
|
$
|
2.0
|
|
|
$
|
825.8
|
|
|
$
|
2,242.2
|
|
|
$
|
102.0
|
|
|
$
|
2.0
|
|
|
$
|
2,346.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 29, 2018
|
|
Nine Months Ended
June 29, 2018
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
Hardware
|
$
|
276.5
|
|
|
$
|
38.1
|
|
|
$
|
314.6
|
|
|
$
|
881.2
|
|
|
$
|
95.5
|
|
|
$
|
976.7
|
|
Software
(1)
|
125.1
|
|
|
—
|
|
|
125.1
|
|
|
366.9
|
|
|
—
|
|
|
366.9
|
|
Service
|
265.6
|
|
|
3.8
|
|
|
269.4
|
|
|
766.5
|
|
|
7.4
|
|
|
773.9
|
|
Total Revenues
|
$
|
667.2
|
|
|
$
|
41.9
|
|
|
$
|
709.1
|
|
|
$
|
2,014.6
|
|
|
$
|
102.9
|
|
|
$
|
2,117.5
|
|
|
|
(1)
|
Includes software support agreements that are recorded in revenues from service, and software licenses that are recorded in revenues from product in the Condensed Consolidated Statements of Earnings.
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
Revenues by Geographical Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 28, 2019
|
|
Nine Months Ended
June 28, 2019
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
Americas
|
$
|
385.6
|
|
|
$
|
14.8
|
|
|
$
|
0.8
|
|
|
$
|
401.2
|
|
|
$
|
1,073.5
|
|
|
$
|
48.6
|
|
|
$
|
0.8
|
|
|
$
|
1,122.9
|
|
EMEA
|
256.4
|
|
|
14.9
|
|
|
—
|
|
|
271.3
|
|
|
736.2
|
|
|
47.6
|
|
|
—
|
|
|
783.8
|
|
APAC
|
150.9
|
|
|
1.2
|
|
|
1.2
|
|
|
153.3
|
|
|
432.5
|
|
|
5.8
|
|
|
1.2
|
|
|
439.5
|
|
Total Revenues
|
$
|
792.9
|
|
|
$
|
30.9
|
|
|
$
|
2.0
|
|
|
$
|
825.8
|
|
|
$
|
2,242.2
|
|
|
$
|
102.0
|
|
|
$
|
2.0
|
|
|
$
|
2,346.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
(1)
|
$
|
363.1
|
|
|
$
|
14.8
|
|
|
$
|
0.8
|
|
|
$
|
378.7
|
|
|
$
|
1,001.4
|
|
|
$
|
48.6
|
|
|
$
|
0.8
|
|
|
$
|
1,050.8
|
|
International
|
429.8
|
|
|
16.1
|
|
|
1.2
|
|
|
447.1
|
|
|
1,240.8
|
|
|
53.4
|
|
|
1.2
|
|
|
1,295.4
|
|
Total Revenues
|
$
|
792.9
|
|
|
$
|
30.9
|
|
|
$
|
2.0
|
|
|
$
|
825.8
|
|
|
$
|
2,242.2
|
|
|
$
|
102.0
|
|
|
$
|
2.0
|
|
|
$
|
2,346.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 29, 2018
|
|
Nine Months Ended
June 29, 2018
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
Americas
|
$
|
323.2
|
|
|
$
|
19.4
|
|
|
$
|
342.6
|
|
|
$
|
981.8
|
|
|
$
|
57.7
|
|
|
$
|
1,039.5
|
|
EMEA
|
208.5
|
|
|
21.2
|
|
|
229.7
|
|
|
633.2
|
|
|
43.3
|
|
|
676.5
|
|
APAC
|
135.5
|
|
|
1.3
|
|
|
136.8
|
|
|
399.6
|
|
|
1.9
|
|
|
401.5
|
|
Total Revenues
|
$
|
667.2
|
|
|
$
|
41.9
|
|
|
$
|
709.1
|
|
|
$
|
2,014.6
|
|
|
$
|
102.9
|
|
|
$
|
2,117.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
(1)
|
$
|
298.7
|
|
|
$
|
19.4
|
|
|
$
|
318.1
|
|
|
$
|
924.6
|
|
|
$
|
57.7
|
|
|
$
|
982.3
|
|
International
|
368.5
|
|
|
22.5
|
|
|
391.0
|
|
|
1,090.0
|
|
|
45.2
|
|
|
1,135.2
|
|
Total Revenues
|
$
|
667.2
|
|
|
$
|
41.9
|
|
|
$
|
709.1
|
|
|
$
|
2,014.6
|
|
|
$
|
102.9
|
|
|
$
|
2,117.5
|
|
|
|
(1)
|
North America primarily includes United Statements and Canada.
|
Timing of Revenue Recognition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 28, 2019
|
|
Nine Months Ended
June 28, 2019
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Other
|
|
Total
|
Products transferred at a point in time
|
$
|
433.8
|
|
|
$
|
1.3
|
|
|
$
|
2.0
|
|
|
$
|
437.1
|
|
|
$
|
1,203.0
|
|
|
$
|
1.3
|
|
|
$
|
2.0
|
|
|
$
|
1,206.3
|
|
Products and services transferred over time
|
359.1
|
|
|
29.6
|
|
|
—
|
|
|
388.7
|
|
|
1,039.2
|
|
|
100.7
|
|
|
—
|
|
|
1,139.9
|
|
Total Revenues
|
$
|
792.9
|
|
|
$
|
30.9
|
|
|
$
|
2.0
|
|
|
$
|
825.8
|
|
|
$
|
2,242.2
|
|
|
$
|
102.0
|
|
|
$
|
2.0
|
|
|
$
|
2,346.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 29, 2018
|
|
Nine Months Ended
June 29, 2018
|
(In millions)
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
|
Oncology Systems
|
|
Proton Solutions
|
|
Total
|
Products transferred at a point in time
|
$
|
326.9
|
|
|
$
|
—
|
|
|
$
|
326.9
|
|
|
$
|
1,028.9
|
|
|
$
|
—
|
|
|
$
|
1,028.9
|
|
Products and services transferred over time
|
340.3
|
|
|
41.9
|
|
|
382.2
|
|
|
985.7
|
|
|
102.9
|
|
|
1,088.6
|
|
Total Revenues
|
$
|
667.2
|
|
|
$
|
41.9
|
|
|
$
|
709.1
|
|
|
$
|
2,014.6
|
|
|
$
|
102.9
|
|
|
$
|
2,117.5
|
|
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
16. SUBSEQUENT EVENTS
In July 2019, the Company signed an asset purchase agreement to acquire Boston Scientific's drug-loadable microsphere and bland embolic bead business which manufactures treatment for arteriovenous malformations and hypervascular tumors. The purchase price for these assets is approximately
$90 million
, and the transaction is expected to close in August 2019. The purchase is subject to the satisfaction or waiver of customary closing conditions, including approval of the U.S. Federal Trade Commission and the closing of the proposed acquisition of BTG PLC by Boston Scientific. The assets from this purchase will be included in the Company's Interventional Oncology business.
With respect to the unaudited condensed consolidated financial information of Varian Medical Systems, Inc., for the three and
nine
months ended
June 28, 2019
and
June 29, 2018
, PricewaterhouseCoopers LLP (PricewaterhouseCoopers) reported that it has applied limited procedures in accordance with professional standards for a review of such information. However, its report dated
August 7, 2019
, appearing below, states that the firm did not audit and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopers has not carried out any significant or additional audit tests beyond those that would have been necessary if their report had not been included. Accordingly, the degree of reliance on its report on such information should be restricted in light of the limited nature of the review procedures applied. PricewaterhouseCoopers is not subject to the liability provisions of Section 11 of the Securities Act of 1933, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.