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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended October 2, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                   
Commission File Number: 1-7598
VARIAN MEDICAL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
94-2359345
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
 
3100 Hansen Way
Palo Alto
California
94304-1038
(Address of principal executive offices)
(Zip Code)

(650) 493-4000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol   Name of each exchange on which registered
Common Stock, $1 par value VAR   New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý   No ¨
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ¨  No  ý
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ý    No  ¨
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
Accelerated filer  Non-accelerated filer
     
Smaller reporting company  Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ý
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As of April 3, 2020, the last business day of Registrant’s most recently completed second fiscal quarter, the aggregate market value of shares of Registrant’s common stock held by non-affiliates of Registrant (based upon the closing sale price of such shares on the New York Stock Exchange on April 3, 2020) was $6,905,810,423. At November 13, 2020, the number of shares of the Registrant’s common stock outstanding was 91,355,469.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement for the Company’s 2021 Annual Meeting of Stockholders — Part III of this Form 10-K



VARIAN MEDICAL SYSTEMS, INC.
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Annual Report”), including the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for statements about future events, products and future financial performance that are based on the beliefs of, estimates made by and information currently available to the management of Varian Medical Systems, Inc. (“VMS”) and its subsidiaries (collectively “we,” “our,” “Varian” or the “Company”). The outcome of the events described in these forward-looking statements is subject to risks and uncertainties. Actual results and the outcome or timing of certain events may differ significantly from those projected in these forward-looking statements due to the factors listed under Item 1A, “Risk Factors,” MD&A and disclosed from time to time in our other filings with the Securities and Exchange Commission (“SEC”). For this purpose, statements concerning: the impact of the COVID-19 pandemic on our business, including but not limited to, the impact on our workforce, operations, supply chain, demand for our products and services, our financial results and condition; and the value of our assets; our ability to successfully manage the challenges associated with the COVID-19 pandemic; expected savings from restructuring activities; growth strategies; industry or market segment outlook; economic and market conditions; domestic and global trends; development, market acceptance of or transition to new products, technologies, solutions or services; growth drivers; future orders, revenues, operating expenses, tax rate, cash flows, backlog, earnings growth or other financial results; expected capital expenditures; new and potential future tariffs and exclusions therefrom (and extensions thereof) or cross-border trade restrictions; currency fluctuation, changes in political, regulatory, safety or economic conditions; the occurrence of any event, change or other circumstances that could give rise to the termination of the Agreement and Plan of Merger, dated as of August 2, 2020 (the “Merger Agreement”) by and among VMS, Siemens Healthineers Holding I GmbH, a company organized under the laws of Germany (“Siemens Healthineers”), Falcon Sub Inc., a Delaware corporation and a direct wholly-owned subsidiary of Siemens Healthineers (“Merger Sub”), and, with respect to certain provisions, Siemens Medical Solutions USA, Inc., a Delaware corporation (the “Guarantor”), pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into VMS (the “Merger”); the failure to obtain certain required regulatory approvals or the failure to satisfy any of the other closing conditions to the completion of the Merger; risks related to disruption of management’s attention from the Company’s ongoing business operations due to the Merger; the effect of the announcement of the Merger on the ability of the Company to retain and hire key personnel and maintain relationships with its customers, suppliers, distributors and others with whom it does business, or on its operating results and business generally; the ability to meet expectations regarding the timing and completion of the Merger; risks associated with Merger-related litigation; and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “may,” “intended,” “potential,” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations. By making forward-looking statements, we have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

PART I
 
Item 1. Business
Overview
We, Varian Medical Systems, Inc., are a Delaware corporation originally incorporated in 1948 as Varian Associates, Inc. We are the world’s leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, stereotactic radiosurgery, stereotactic body radiotherapy, brachytherapy and proton therapy. We operate a hospital and a network of cancer centers in India and Sri Lanka; provide cancer care professional services to healthcare providers worldwide; and are a supplier of a broad portfolio of interventional solutions.
Our vision is a world without fear of cancer. Our mission is to combine the ingenuity of people with the power of data and technology to achieve new victories against cancer. Our long-term growth and value creation strategy is to transform our company from the global leader in radiation therapy (also referred to as radiotherapy) to the global leader in multi-disciplinary, integrated cancer care solutions that leverage our strengths, technology, innovation and clinical experience. To achieve these long-term objectives, we are focused on driving growth through strengthening our leadership in radiation therapy, extending our global footprint and expanding into new markets and therapies.
We have two reportable operating segments: Oncology Systems and Proton Solutions. Our Interventional Solutions business is reflected in the "Other" category because it does not meet the criteria of a reportable operating segment. The operating segments were determined based on how our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), views and evaluates our operations. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on operating earnings. We report revenues in three regions. The Americas region includes
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North America (primarily the United States and Canada) and Latin America. The EMEA region includes Europe, Russia, the Middle East, India and Africa. The APAC region primarily includes East and Southeast Asia and Australia.
Our business is subject to various risks and uncertainties. You should carefully consider the factors described in Item 1A, “Risk Factors” in conjunction with the description of our business set forth below and the other information included in this Annual Report on Form 10-K.
Proposed Acquisition by Siemens Healthineers
On August 2, 2020, VMS, Siemens Healthineers, Merger Sub, and, with respect to certain provisions, the Guarantor, entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into VMS, with VMS surviving the Merger as a wholly owned subsidiary of Siemens Healthineers. Under the terms of the Merger Agreement, which has been unanimously approved by VMS' Board of Directors, Siemens Healthineers will acquire all outstanding shares of VMS for $177.50 per share in cash, in a transaction valued at approximately $16.4 billion on a fully diluted basis. The Merger is expected to close in the first half of calendar year 2021, subject to receipt of specified regulatory approvals and other customary closing conditions. On October 15, 2020, VMS' stockholders approved and adopted the Merger Agreement. Under the terms of the Merger Agreement, if the Merger Agreement is terminated by VMS or Siemens Healthineers under certain specified circumstances, a termination fee of $450.0 million in cash may be payable by VMS to Siemens Healthineers. The Merger Agreement also provides that a reverse termination fee of $450.0 million or $925.0 million in cash may be payable by Siemens Healthineers to VMS if the Merger Agreement is terminated by VMS or Siemens Healthineers under certain specified circumstances.

COVID-19 Impact

The COVID-19 pandemic has impacted our day-to-day operations and the operations of the vast majority of our customers, suppliers and distributors globally. The COVID-19 response by hospitals and healthcare professionals has placed a severe strain on healthcare systems. Many of our hospital customers have been prioritizing their efforts on their COVID-19 response and have diverted focus and resources away from their normal operations and restricted access to their sites in efforts to contain the spread of the virus. The global nature of the pandemic has resulted in authorities implementing numerous measures designed to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, business limitations and shutdowns. The prioritization of COVID-19 treatment and containment has presented us with unique operational challenges, including delays in capital equipment purchasing decisions by customers, obstacles to our ability to market, deliver, install and service our products, and disruptions and delays in our logistics and supply chain. We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussion of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.

Oncology Systems
Our Oncology Systems business designs, manufactures, sells and services hardware and software products for treating cancer with conventional radiotherapy, 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”), artificial intelligence ("AI") based Adaptive Radiotherapy ("ART") and brachytherapy, as well as associated quality assurance equipment.
Our hardware products include linear accelerators, brachytherapy afterloaders, treatment accessories, AI-powered adaptive delivery systems and quality assurance products. Our software solutions include treatment planning, informatics, clinical knowledge exchange, patient care management, practice management and decision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices. Our products enable radiation oncology departments in hospitals and clinics to perform conventional radiotherapy treatments and advanced treatments such as IMRT, IGRT, VMAT, SRS and SBRT, as well as the treatment of patients using brachytherapy techniques, which involve the introduction or temporary insertion of radioactive sources. Our products are also used by surgeons and radiation oncologists to perform stereotactic radiosurgery.
Our software products span the cancer care continuum, starting with pre-treatment multi-disciplinary tumor boards and cancer treatment planning, then onto the patient treatment and associated workflows, and ending with the collection of patient-reported outcomes in a post-treatment setting. Our clinical solutions software products are used primarily in radiation and medical oncology departments to manage patient treatments. Our software products help improve physician engagement and clinical knowledge-sharing, patient care management, clinical practice management and decision support. Our worldwide customers
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include university research and community hospitals, private and government institutions, healthcare agencies, physicians’ offices, medical oncology practices, radiotherapy centers and cancer care clinics.

We offer services ranging from hardware phone support, break/fix repair of linear accelerators, obsolescence protection of hardware, software support, software upgrades, hosting as a service, as well as clinical consulting services.

We have expanded our service offerings as a result of our acquisition of Cancer Treatment Services International ("CTSI") to include clinical practice services that assist within the clinical workflow. These services focus on decision support and/or cancer care knowledge augmentation aimed to facilitate improved accessibility and affordability to care while maintaining a fundamental level of clinical quality. Examples of these services include radiation treatment planning and quality assurance as a service. In developing markets, our offerings allows us to provide a range of clinical support services that improve the use of medical technology and standardized care delivery on a per patient basis, providing increased quality and reduced costs in understaffed geographies. Our services in these markets are expected to accelerate our hardware and software businesses through broader adoption of radiation therapy and drive the provision of advanced comprehensive cancer care. In developed markets, these services can augment the existing workforce of a clinic to support staffing fluctuations and clinical quality initiatives and can provide a bridge to new technology implementation. Further, we operate 13 multi-disciplinary cancer centers and one specialty hospital in India, and one multi-disciplinary cancer center in Sri Lanka. In addition to expanding our services portfolio, we expect that the CTSI acquisition will enable us to innovate and incubate new solutions, such as technology-enabled services, and to develop additional technologies that incorporate artificial intelligence and machine learning capabilities, in an environment of data security and patient privacy integrity.
Proton Solutions
Our Proton Solutions business develops, designs, manufactures, sells and services products and systems for delivering proton therapy, another form of external beam radiotherapy using proton beams for the treatment of cancer. Proton therapy is a preferred option for treating certain cancers, particularly tumors near critical structures such as the base of skull, spine, optic nerve, and most pediatric cancers. Our current focus is reducing the total cost of ownership for proton therapy and bringing our expertise in traditional radiation therapy to this treatment modality, thereby improving its clinical utility and reducing its cost of treatment per patient, in order for it to be more widely accepted and deployed.
Interventional Solutions
In fiscal year 2019, we entered the interventional oncology market with our acquisitions of Endocare, Inc ("Endocare"), Alicon Pharmaceutical Sci & Tec Co., Ltd ("Alicon") and Scion Medical Device Co., Ltd (“Scion”) in June 2019 and Boston Scientific’s embolic microspheres business that included both bland and drug-eluting embolic microspheres in August 2019. Our Interventional Solutions business offers products for interventional oncology and interventional radiology procedures and treatments, including cryoablation, microwave ablation and embolization. We also provide software and remote services for post-treatment dose calculation for Yttrium-90 microspheres used in selective internal radiation therapy. Our goal is to offer a wide range of innovative products to the global oncology and radiology markets through a direct sales force and a network of distributors.
Radiation Therapy and the Cancer Care Market
Radiation Therapy
Radiation therapy is the use of certain types of focused radiation to kill cancer cells, shrink tumors, and provide palliative treatment for symptoms such as pain. Occasionally, radiation can also be used to treat non-cancerous conditions such as arteriovenous malformations, keloids and trigeminal neuralgia. The use of radiation for treating cardiac disease is gaining interest in the medical community and is currently being investigated in a clinical trial setting. Radiation therapy is commonly used either alone or in combination with surgery, chemotherapy, immunotherapy or targeted drugs. One important advantage of radiation is that it tends to disproportionately kill cancer cells. The clinical goal in radiation oncology is to deliver a therapeutic dose directly to the tumor to kill cancerous cells while minimizing radiation exposure to surrounding healthy tissue in order to limit or avoid complications, side effects and secondary effects caused by the treatment. This goal has been the driving force in clinical care advancements in radiation oncology over the past two decades, from conventional radiotherapy to advanced forms of treatment such as IMRT, IGRT, VMAT, SRS, SBRT, ART, brachytherapy and proton therapy. We offer a series of complimentary software and hardware solutions to provide these treatment modalities. Our solutions are purposefully designed to provide value in a variety of clinical and economic settings around the globe.

The most common form of radiation oncology involves delivering X-ray beams from outside of the patient’s body, a process sometimes referred to as external beam radiotherapy. A device called a medical linear accelerator generates the high-energy X-
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ray beams and delivers the radiation to the patient lying on a treatment couch. The linear accelerator rotates around a patient by delivering a radiation beam that is conformed to the tumor shape from different angles. This concentrates radiation at the tumor while at the same time minimizing the dose delivered to the surrounding healthy tissue. Conventional radiotherapy typically involves multiple, or fractionated, treatments of a tumor often in more than 40 sessions. The linear accelerator may also deliver electron beams for the treatment of diseases closer to the body surface.
IMRT is an advanced form of external beam radiotherapy in which the shape and intensity of the radiation beams are varied optimally (modulated) across the target region. IMRT allows the radiation dose to be more precisely conformed to the volume of the tumor, allowing physicians to deliver higher doses of radiation to the tumor than conventional radiation treatments, while limiting the radiation dose to nearby healthy tissue. In this way, clinicians can design and administer an individualized treatment plan for each patient, targeting the tumor within millimeters. IMRT can be used to treat a full spectrum of both malignant and benign disorders, such as: head and neck, breast, prostate, pancreatic, lung, liver, gynecological and central nervous system cancers. IMRT has become a well-accepted standard of treatment for cancer around the world. We are a leading global provider of products that enable IMRT for the treatment of cancer.
VMAT is a significant further advancement in IMRT that allows physicians to control three parameters simultaneously: (i) the rate at which the linear accelerator gantry rotates around the patient, (ii) the beam-shaping aperture and (iii) the rate at which the radiation dose is delivered to the patient. This creates a finely-shaped IMRT dose distribution that closely matches the size and shape of the tumor, with faster treatment times. Our RapidArc® radiotherapy products plan and deliver VMAT treatments.
Physicians, hospitals and clinics place additional value on radiotherapy equipment and treatments, such as VMAT, that enable shorter treatment times, increased quality of dose distributions and greater patient throughput. From the patient’s standpoint, reduced treatment times means that the patient is immobilized on the treatment couch for a shorter time period. Shorter treatment sessions decrease waiting times and, since treatments are delivered in fractions over the course of many days, can mean shorter disruptions to a patient’s daily routine. From the physicians’ and hospitals’ standpoint, shorter treatment times can lessen the chance of tumors moving during treatment and can increase patient throughput. Shorter treatment times and increased patient throughput can increase the number of treatments per day (which is a particular concern in countries with lower numbers of treatment machines per capita) and, as a result, can decrease the cost per treatment and allow greater access to advanced care for more patients.
IGRT is another advanced form of external beam radiotherapy complementing IMRT, VMAT, SRS, and SBRT to enhance treatments. While IMRT helps physicians more precisely conform the beam to the tumor, IGRT allows physicians to see how a tumor and normal tissue move or change during a course of treatment, thereby improving treatment accuracy. This allows clinicians to tighten the margin of certainty around the tumor and spare more of the surrounding healthy tissue, potentially improving outcomes. We believe IGRT has become an accepted standard for treatment in the radiation oncology community in the U.S. Varian's latest state-of-the-art linear accelerator mandates that all fractions of radiation delivered have IGRT before the treatment is delivered.
SRS and SBRT, often collectively referred to as radiosurgery, are advanced ablative radiation treatment procedures performed in a small number of treatment sessions with high doses of radiation. Radiosurgery often incorporates advanced image-guidance to focus beams of radiation from many orientations precisely on the target and to minimize the dose to surrounding normal tissues. Radiation oncologists, surgeons and other oncology specialists increasingly recognize radiosurgery as a useful tool to treat cancerous and non-cancerous lesions anywhere in the body.

Adaptive radiation therapy is a clinical treatment approach that takes a patient’s treatment plan and adapts it to a patient’s changing tumor volume and anatomy during the course of therapy. IMRT, VMAT, SRS, and SBRT all shape the radiation dose with increased levels of fidelity, and IGRT allows an image to be taken to verify how the patient should be re-positioned for the original treatment plan to be applied for therapy delivery. Adaptive radiation therapy re-creates the treatment plan based on changes in location of a tumor or surrounding anatomy during the course of therapy. These changes can manifest from tumor response, weight loss or anatomical deformation of internal structures. There are two types of adaptive radiation therapy - offline and online. In offline adaptive radiation therapy, adaptation of the treatment plan takes place between treatment visits and in online adaptive radiation therapy, adaptation takes place while the patient is on the treatment couch for each treatment.
An alternative to external beam radiotherapy, brachytherapy involves the insertion of radioactive seeds, wires or ribbons directly into a tumor or body cavity near the tumor. These techniques tend to irradiate much less surrounding healthy tissue so that physicians can prescribe a higher total dose of radiation, typically over a shorter period of time. Brachytherapy is often used for cancers of the head and neck, breast, uterus, cervix, soft tissue, skin and prostate.
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Proton therapy is another form of external beam radiotherapy that uses proton particles generated with a cyclotron rather than X-ray beams from a linear accelerator. A proton beam’s signature energy distribution curve, known as the “Bragg peak,” allows for greater precision in targeting tumor cells with an even lower dose to nearby healthy tissue than may be delivered with X-ray beams from a linear accelerator. This makes proton therapy a preferred option for treating certain cancers, particularly cancers in children and tumors near critical structures such as the spine. Pencil-beam scanning capability, which is an advanced way of delivering the proton beam, allows for greater sparing of healthy tissue compared to scattering and collimation of the proton beam. Pencil beam scanning treatments are often referred to as Intensity Modulated Proton Therapy ("IMPT"). We have been investing resources for pre-clinical research in a new treatment methodology that uses proton beams to deliver the physician prescribed dose at ultra-high dose rates in a small number of fractions. This new treatment paradigm is called FLASH therapy and clinical trials are being initiated with support from clinical experts around the globe.
With the advent of radiosurgery and stereotactic body radiotherapy, other mechanisms of killing cancer cells are also being explored, including immunotherapy technologies, which involve using radiation to stimulate the immune response to fight cancer growth.
Radiation Oncology Market
The radiation oncology market is growing globally due to a number of factors. According to the World Health Organization Global Cancer Observatory, there were approximately 18 million cancer cases diagnosed worldwide in 2018, and the number of new cancer cases diagnosed annually is projected to increase to almost 25 million by 2030. According to a peer-reviewed publication in the International Journal of Radiation Oncology Biology and Physics in 2019, most of the increase is coming from low- and middle-income countries such as China and India. In addition, technological advancements have helped to improve the precision and applicability of radiotherapy and radiosurgery, potentially expanding the use of radiotherapy and radiosurgery equipment to treat a broader range of cases. Technological advances in hardware and software are also creating a market for replacing an aging installed base of machines that are unable to deliver new, higher standards of care.
The rise in cancer cases, together with the increase in sophistication of new treatment protocols, have created a demand for more automated products and services that can be integrated into clinically practical systems to make treatments more rapid and cost effective. Technological advances leading to improvements in patient care, the availability of more advanced, automated and efficient clinical tools in radiation therapy, the advent of more precise forms of radiotherapy treatment (such as IMRT, IGRT, VMAT, SRS, SBRT, brachytherapy and proton therapy), and innovative new technology and equipment (such as the Halcyon®, Ethos, EDGE® and TrueBeam® systems) that enable treatments that reduce treatment times and increase patient throughput should drive the demand for our radiation therapy products and services.
International markets, in particular, are under-equipped to address the growing cancer incidence. Patients in many countries must frequently endure long waits for radiotherapy. According to a peer-reviewed publication in the International Journal of Radiation Oncology Biology and Physics in 2019, radiotherapy is required in more than half of new cancer patients, particularly in low- and middle-income countries, and it is estimated that more than 12,000 additional treatment machines will be required by 2030 in these countries alone. The 12,000 linear accelerators necessary to meet the global demand for cancer care will require an estimated 150,000 trained clinicians to operate the machines. It is unlikely that existing clinical training programs will be able to train 150,000 new clinicians by 2030; therefore, we anticipate an increase in demand for Varian’s technology enabled services offered by CTSI.
The ever-increasing incidences of cancer and, subject to the potential impact of COVID-19, the demand for additional treatment machines in these regions represent additional drivers for our continued growth in international markets.
Interventional Oncology Market
Interventional oncology is a field of interventional radiology that deals with the diagnosis and treatment of cancer using targeted minimally invasive procedures performed under image guidance. The interventional oncology market includes several categories of treatment modalities: ablation devices (e.g. cryoablation, microwave ablation, and radiofrequency ablation), embolization devices (bland microspheres or particles, drug-eluting microspheres and radioembolic agents), and other support devices such as catheters and guidewires. In terms of cancer types, the interventional oncology market primarily includes treatment of liver, lung, kidney, breast, bone, and prostate cancers.

We operate in some of the fastest-growing geographies with an accelerating burden of cancer. These markets generally are economically challenged to provide broad access to care for cancer patients. Given the low cost of ownership for our Interventional Solutions products, these markets are significant opportunities to expand our global footprint with cost effective cancer fighting solutions. Our Interventional Solutions business intends to increase its market share through commercial expansion, additional regulatory clearances in new markets, and continued innovation in its product offerings. We believe that
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interventional oncology is quickly growing into the fourth pillar of cancer care worldwide, along with radiation oncology, surgical oncology, and medical oncology.

According to a market analysis conducted by an independent market analyst, the global interventional oncology market is expected to be approximately $2.9 billion by 2024, within the overall interventional radiology market. The primary users of ablation and embolization products are interventional radiologists and oncologists for the treatment of various cancerous solid tumors and non-cancerous conditions. An increase in the elderly population, a rising cancer risk due to unhealthy habits and pollution, increased early detection, awareness and knowledge of cancer treatments, and the rise in disposable income are factors fueling the growth of these products at an annual growth rate of 7%.
Products
Oncology Systems
Our Oncology Systems business is the leading provider of advanced hardware and software products for the treatment of cancer with conventional radiation therapy, and advanced treatments such as IMRT, IGRT, VMAT, SRS, SBRT, ART and brachytherapy. Oncology Systems products address each major aspect of the radiotherapy process, including linear accelerators and accessory products for positioning the patient and delivering the X-ray beam; brachytherapy afterloaders for delivering radiation from within the patient; treatment planning software for planning treatment sessions and dose delivery; treatment accessories and quality assurance software for simulating and verifying treatment plans before treatment as well as verification of correct treatment delivery; and information management software for recording the history and results of treatments and other patient treatment information and data, including patient images.
The focus of our Oncology Systems business is addressing the key concerns of the market for advanced cancer care systems; improving efficiency, precision, cost-effectiveness and ease of delivery of these treatments; and providing greater access to advanced treatments. A core element of our business strategy is to provide our customers with highly versatile, proven products that are interoperable and can be configured and integrated into automated systems that combine greater precision, shorter treatment times and greater cost effectiveness to improve the entire process of treating a patient. Our products and accessories for IMRT and IGRT allow clinicians to track and treat tumors using very precisely shaped beams, targeting the tumor as closely as currently possible and allowing the delivery of higher doses of radiation to the tumor while limiting exposure of nearby healthy tissue. Additionally, the precision and versatility of our products and technology make it possible to use radiotherapy to treat metastatic cancers. With our treatment planning, verification and information management software products, a patient’s treatment plans, treatment data and images are recorded and stored in a single database shared by our products, which enables better communication among products. Our products also allow multiple medical specialties such as, radiation oncology, neurosurgery, diagnostic radiology and medical oncology, as well as allowing clinicians in multiple locations to share equipment, resources and information in a more efficient, cost-effective manner. Furthermore, the ability of our products and technology to interoperate with each other and to interconnect into automated systems allows physicians to schedule and treat more patients within a set time period, which adds to the cost-effectiveness of our equipment.
Hardware Products
Medical linear accelerators are the core device for delivering conventional external beam radiotherapy and advanced treatments such as IMRT, IGRT, VMAT, SRS, SBRT, and ART, and we produce versions of these devices to suit various clinical requirements. The TrueBeam and EDGE systems for image-guided radiotherapy and radiosurgery are fully-integrated high-energy linear accelerator systems designed from the ground up to treat a moving target with higher speed and accuracy. The Clinac® iX linear accelerators deliver high-energy X-ray beams and are designed for more streamlined and advanced treatment processes, including IMRT and IGRT. We also produce the Trilogy® linear accelerator, designed to be a versatile, cost-effective, precise high-energy device with a faster dose delivery rate and more precise isocenter compared to the Clinac iX. Our UNIQUE medical linear accelerator is positioned for the more price sensitive emerging markets, and is designed to meet the evolving needs of our IMRT and IGRT customers in these markets.
In September 2019, we introduced our Ethos therapy, an AI-Powered Adaptive Radiotherapy Treatment system. We received a CE Mark for Europe in August 2019 and FDA 510(k) clearance in February 2020. The first patient was treated on this system at Herlev Hospital, University of Copenhagen in September 2019. Ethos therapy is an AI-driven holistic solution that includes a linear accelerator and is designed to increase the capability, flexibility and efficiency of radiotherapy. This solution is designed to deliver an entire online adaptive treatment in a typical 15-minute time slot, from patient setup through treatment delivery. Adaptive therapy provides the ability to alter the treatment plan based on tumor and anatomical changes. The goal is to better target the tumor, reduce the dose to healthy tissue and potentially improve overall outcomes.
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In May 2017, we introduced our Halcyon® system. We received a CE mark for the Halcyon system in May 2017 and FDA 510(k) clearance in June 2017. The Halcyon system has been designed on a platform of next generation technology including a full field ring gantry design that rotates at four times per minute, an innovative stacked and staggered multi-leaf collimator design, virtually silent magnetic drive motors and solid-state modulators. This new platform is the smallest footprint linear accelerator in our portfolio, uses less energy than our other radiation therapy treatment systems, and has been designed with a human centered user experience concept that benefits the patient and the health care practitioner for simplicity of treatment and use.
Our Millennium™ series of multi-leaf collimators and High Definition 120 (“HD 120”) multi-leaf collimators are used with a linear accelerator to define the size, shape and intensity of the generated beams. PortalVision™, our electronic portal-imager, is used to verify a patient’s position while on the treatment couch, which is critical for accurate treatments and simplifies quality assurance of individual treatment plans. We also offer an innovative real-time patient position monitoring product, the Real-Time Patient Management ("RPM") respiratory gating system, which allows the linear accelerator to be synchronized with patient breathing to help compensate for tumor motion during treatment. In addition, we manufacture the Calypso® system (some features not approved for use in all markets), which can continuously track and monitor the position of implanted or surface-attached Beacon® transponders. This technology allows the clinician to easily locate the position of the tumor and aim the treatment beam precisely to deliver the full, prescribed dose to the tumor, and minimize exposure of surrounding healthy tissues.
Our EDGE radiosurgery suite is comprised of a combination of products for performing advanced radiosurgery using new real-time tumor tracking technology and motion management capabilities. The EDGE radiosurgery suite includes the EDGE radiosurgery accelerator, the Calypso system with Dynamic Edge Gating, and the PerfectPitch couch with six degrees of freedom to accurately and precisely align the patient position. Our IGRT accessories include the On-Board Imager® (“OBI”) hardware accessory affixed to the linear accelerator that allows dynamic, real-time imaging of tumors while the patient is on the treatment couch and offers cone-beam computerized tomography (“CBCT”) imaging software capability to allow patient positioning based on soft-tissue anatomy. Using sophisticated image analysis tools, the CBCT scan can be compared with a reference computerized tomography scan to determine how the treatment couch should be adjusted to fine-tune and verify the patient’s treatment setup and positioning prior to delivery of the radiation. To deliver the most advanced forms of IGRT, our accelerators would typically have an OBI, CBCT, PortalVision and other IGRT-related hardware and software as accessories.
Our RapidArc® radiotherapy products are a proprietary implementation of VMAT that coordinate beam shaping, dose rate and gantry speed to deliver a highly conformal dose distribution to the target tumor. RapidArc products enable the planning and delivery of image-guided IMRT in a single continuous rotation of up to 360 degrees rather than as a series of fixed fields. Our RapidArc products enable faster delivery of radiation treatment with the possibility of reduced opportunity for tumor movement during treatment, as well as greater patient throughput and lower cost per patient for the hospital or clinic. We believe RapidArc represents a significant advancement in IMRT cancer treatment.
Our HyperArc® high-definition radiotherapy product is designed to simplify, automate and improve the quality of intracranial SRS, making SRS accessible to more clinics and patients around the world. HyperArc received a CE mark in August 2017 and FDA 510(k) clearance in September 2017 and is currently available for sale in the United States and other global markets where a CE mark is applicable. We expect that HyperArc will significantly improve the quality and efficiency of sophisticated SRS procedures. HyperArc is available only on the TrueBeam and Edge platforms.  

We purchased Mobius Medical Systems ("Mobius") in February 2018. Mobius markets and sells quality assurance products to radiation oncology departments around the globe. We will continue to sell those products while expanding and integrating the technology for current and future applications. In July 2018, we acquired humediQ GmbH, which markets and sells the IDENTIFY products that enable patient and accessory verification, patient setup position, and motion monitoring for radiation oncology treatments. We will continue to market and sell these products as we expand the regulatory clearance footprint around the globe and enhance and integrate the technology for current and future applications.
Brachytherapy products
Our brachytherapy operations design, manufacture, sell and service advanced brachytherapy products, including VariSource HDR and GammaMedplus iX HDR/PDR afterloaders, BrachyVision brachytherapy treatment planning system, applicators and accessories. We also develop and market the VariSeed LDR prostate treatment planning system and the Vitesse software for real-time treatment planning for HDR prostate brachytherapy.
Our Bravos®, brachytherapy treatment delivery system, is now available in over 100 countries where CE Mark and 510(k) clearance are applicable. Bravos is an integrated system designed to improve the patient and clinic experience by simplifying
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brachytherapy treatment and providing greater workflow efficiency. It is compatible with our full range of applicators and integrates with BrachyVision for treatment planning. BrachyVision fully integrates with the ARIA® oncology information system that coordinates care from end to end, scheduling appointments, orchestrating the clinical workflow, delivering the plan to the afterloader, updating the patient's electronic record, and capturing clinical data for analytics.
Software Products
Our software products enhance and enable the delivery of advanced radiotherapy treatments, from the initial treatment planning and plan quality assurance verification to the post-treatment recording of data and storing of patient information, as well as help improve physician engagement and clinical knowledge-sharing, patient care management and clinical practice management of cancer clinics, radiotherapy centers and oncology practices for better performance. Prior to any treatment, physicians must prescribe, or plan, the course of radiation delivery for the patient. We offer a range of treatment planning products that assist physicians in designing this treatment plan. Our Eclipse treatment planning system provides physicians with 3D image viewing, treatment simulation, radiation dosage calculation and verification and other tools for generating treatment delivery plans for the patient. The Eclipse software utilizes a sophisticated technique known as inverse planning to enable physicians to rapidly develop optimal treatment plans based on a desired radiation dose outcome to the tumor and surrounding tissue. Our RapidPlan® knowledge-based planning tool creates a new category for artificial intelligence applied to treatment planning systems in which machine learned statistical models can be used to predict the achievable quality of an IMRT treatment from a patient’s anatomy. RapidPlan is designed to streamline the planning process by using shared clinical knowledge embedded in its statistical plan models. Clinics may use plan models included with Eclipse or can create models based on their own treatment methods and protocols.
We continue to enhance our treatment planning software products and have integrated multi-criteria optimization radiotherapy treatment planning algorithms licensed from the Fraunhofer Institute that enable clinicians to quickly navigate solution space to find the ideal treatment plan for each patient. We have incorporated this technology along with other treatment planning software tools to enhance both treatment planning efficiency and quality.
Our ARIA® information system is a comprehensive oncology information system spanning radiation therapy and chemotherapy treatments and departmental workflow management. ARIA offers a real-time information management system and database that records and verifies radiotherapy treatments carried out on the linear accelerator, records and stores patient data relating to radiation therapy, provides oncology flowsheets, performs patient charting and manages patient information and patient image data. This gives clinics and hospitals the ability to manage treatment and patient information across radiation oncology and medical oncology procedures. Also, because ARIA is an electronic medical record, it can enable users to operate filmless and paperless oncology departments and cancer clinics. ARIA is a (ONC-Health IT) 2015 Edition Health IT Module and supports the ICD-10 billing codes. Our FullScale oncology-specific information technology solutions take advantage of virtualization or cloud technologies to deploy our ARIA oncology information and Eclipse treatment planning systems in a way that enables treatment centers to take advantage of economies of scale. We have from time to time entered into agreements with a variety of companies to increase the capabilities of our ARIA information systems software. Our software product offerings also include Varian Treatment, which connects ARIA oncology information management system to third-party linear accelerators and expands our software support of third-party manufacturers.
Our Insightive analytics software solution aggregates clinical and operational data and allows for improved decision making and practice management. Insightive enables oncology administrators and clinicians to use real-time information to discover patterns and trends through interactive dashboards and visualizations. We also created an interactive online group on the OncoPeer platform for clinicians to share knowledge-based cancer treatment models that can improve the efficiency and quality of cancer care across multiple institutions. The OncoPeer cloud community is a platform where oncologists, clinicians and other oncology professionals can publish knowledge, share data, exchange treatment techniques and discuss best practices within a professional oncology network.
Our Velocity software provides solutions at the clinical process level to aggregate unstructured treatment and imaging data from diverse systems. It allows for a more comprehensive view of a patient’s diagnostic imaging and treatment history and helps clinicians make more informed treatment decisions.

Qumulate is our cloud-based software technology that collects and analyzes machine performance data in a radiation therapy department and allows users to compare their machine performance data and trends against a community of users’ data.
Our Noona® software application is a smart, cloud-based patient-reported outcomes solution. Through the capture and analysis of structured, real-time symptom information, Noona is designed to help clinicians better manage patient symptoms and
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improve treatment outcomes. Noona is designed to support the everyday work of nurses and physicians in cancer care, helping to increase clinical efficiency and reduce workloads through comprehensive communications tools.
Partnerships
In addition to offering our own suite of equipment and software products for planning and delivering radiotherapy treatments, we have partnered with selected leaders in certain segments of the radiation therapy and radiosurgery market. We have a strategic agreement with McKesson Corp. ("McKesson") to supply its US Oncology Network and Vantage Oncology affiliated sites of care with treatment delivery systems and planning, service and radiotherapy information system solutions. Under the agreement, we are collaborating with McKesson to establish interoperability between our ARIA product and McKesson IT solutions which we anticipate will facilitate access to our ARIA, Eclipse and Velocity products at its sites that do not currently utilize these solutions. We have a partnership agreement with Siemens AG (“Siemens”) through which, among other things, we represent Siemens diagnostic imaging products to radiation oncology clinics in the United States and agreed upon countries, and Siemens, represents our equipment and software products for radiotherapy and radiosurgery to its healthcare customers in agreed upon countries. Furthermore, we and Siemens have developed interfaces to enable ARIA and Eclipse to connect with Siemens linear accelerators and imaging systems and are exploring opportunities to co-develop new imaging and treatment solutions. We have equity investments which include Grail, Inc., a life sciences company developing blood tests for early-stage cancer detection and Fusion Pharmaceuticals Inc., a clinical stage company focused on developing targeted alpha-particle radiotherapeutics for the treatment of cancer. We list the member companies and associated products for the Varian Interoperability Program publicly on our website: https://www.varian.com/why-varian/interoperability.
CTSI
CTSI oncology solutions facilitates the use of clinical processes and technology solutions that ensure the delivery of precise, consistent and safe care to cancer patients worldwide. CTSI offers services ranging from treatment planning as a service, quality assurance as a service, linear accelerator commissioning, practice workflow optimization, oncology nursing training, clinical decision support, international tumor board and other multi-disciplinary services to improve care delivery. The range of services focuses on participating in the clinical workflow to support the decisions of clinicians rather than the direct provision of care. CTSI services also include a full-service laboratory and pathology provider, and under our American Oncology Institute ("AOI") brand, we operate 13 multi-disciplinary cancer centers and one specialty hospital in India and one multi-disciplinary cancer center in Sri Lanka.
Proton Solutions
Our ProBeam® system is capable of delivering precise intensity modulated proton therapy (“IMPT”) using pencil-beam scanning technology. The ProBeam Compact product is our lower cost, single room proton therapy product launched in fiscal year 2014. During fiscal year 2016, we booked our first ProBeam Compact order. In October 2018, we introduced our new ProBeam® 360 proton therapy product, in a single-room configuration, with a 30 percent smaller footprint and 25 percent lower vault construction costs as compared to the ProBeam Compact. The new system has a 360-degree rotating gantry, iterative cone-beam CT imaging and high-definition pencil-beam scanning technology. The system can also provide a viable path to potential next generation treatments. In September 2019, we introduced the multi-room version of ProBeam 360, which provides comparable space and cost savings as the single room version.
Due to the intrinsic physical properties of proton therapy, it is a preferred option for treating certain cancers, particularly tumors near critical structures such as the base of the skull, spine, optic nerve and most pediatric cancers. Although proton therapy has been in clinical use for more than four decades, it has not been widely deployed due to high capital cost. Proton therapy facilities are large-scale construction projects that are time consuming, involve significant customer investment and often complex project financing. Consequently, this business is vulnerable to general economic and market conditions, as well as country specific coverage and reimbursement rates. Customer decision-making cycles tend to be very long, and orders generally involve many contingencies. The funding environment for large capital projects, such as proton therapy projects, remains challenging and volatile.
At the end of fiscal year 2020, our proton therapy systems are in operation at thirteen centers, which have a total of 40 operational rooms. During fiscal years 2020, 2019 and 2018, we recorded four, four and two proton therapy system orders, respectively.
In limited cases, we participate, along with other investors and at market terms, in the financing of proton therapy centers. See Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for further discussion on our Proton Solutions financing arrangements.
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Interventional Solutions
Our Interventional Solutions business offers products for interventional oncology and interventional radiology procedures and treatments, including cryoablation, microwave ablation and embolic particles. We also provide software and remote services for post-treatment dose calculation for Yttrium-90 microspheres, which are radioactive beads used in selective internal radiation therapy.

Ablation Products
Our CRYOCARE® ablation systems, acquired as part of the Endocare acquisition, are treatment systems designed to simplify cryotherapy and to meet physician needs. Our cryoablation systems are used by customers primarily to treat liver, lung, kidney, and prostate cancer.

Our microwave ablation device, also acquired through the Endocare acquisition, features the MICROTHERMX® ("MTX") generator and its Synchronous Wave Alignment® technology antennas. The generator is a low-profile device with a small footprint, which can be set up in less than two minutes. The generator uses a 915 MHz operating frequency and can generate up to 180W (60W per channel/antenna) for optimized power delivery. The SynchroWave® antennas are designed to work in combination with one another to create large active heating and ablation volumes.

Embolization Therapy Products
Our Gelatin Sponge Particle and Polyvinyl Alcohol ("PVA") Particle products, acquired as part of the Alicon and Scion acquisitions, comprise a range of calibrated particles used primarily for the treatment of liver cancers. Currently, these products are only offered outside of the United States. The Gelatin Sponge particles are degradable (resorbable), while the PVA particles are for permanent occlusion within a blood vessel.

Included in the embolic microspheres business acquired from Boston Scientific were the Embozene®, Oncozene®, and Tandem® microsphere products. The Tandem microsphere product is only offered outside of the United States. The Embozene and Oncozene microspheres are intended for embolization of arteriovenous malformations and hypervascular tumors, including uterine fibroids and hepatoma, and for embolization of prostatic arteries for symptomatic benign prostatic hyperplasia. These products are available in a broad range of tightly calibrated sizes for greater embolization control.
Marketing and Sales
We employ a combination of a direct sales force and independent distributors or resellers for the marketing and sales of our products worldwide. Our gross orders and revenues reflect a growing percentage from international regions and particularly emerging markets. As a U.S.-based company, the competitiveness of our product pricing is influenced by the fluctuation of the U.S. Dollar against other currencies. A stronger U.S. Dollar against foreign currencies would make our product pricing more expensive and less competitive compared to products sold in non-U.S. Dollar currencies. A stronger U.S. Dollar against foreign currencies would also lower our international revenues and gross orders when measured in U.S. Dollars. In fiscal years 2020, 2019 and 2018, we did not have a single customer that represented 10% or more of our total revenues.
Oncology Systems
Our Oncology Systems business sells direct in the United States and Canada and uses a combination of direct sales and independent distributors in international regions.
We sell our Oncology Systems products primarily to university research and community hospitals, private and governmental institutions, healthcare agencies, physicians’ offices and cancer care clinics worldwide. These hospitals, institutes, agencies, physicians’ offices and clinics replace equipment and upgrade treatment capability as technology evolves. Sales cycles for many of our external beam radiotherapy products are typically quite lengthy because they are affected by capital equipment budgeting cycles. Our customers frequently fix capital budgets one or more years in advance. Through our strategic global partnership with Siemens, we represent Siemens diagnostic imaging products to radiation oncology clinics in the United States and some other small, select markets. Siemens represents our equipment and software products for radiotherapy and radiosurgery to its healthcare customers in agreed upon countries.
Approximately half of Oncology Systems gross orders and revenues come from international markets, within which certain emerging markets typically have lower gross margins and longer installation cycles since many of these purchases are for new sites where treatment vaults need to be constructed. We have been investing a higher portion of our Oncology Systems research
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and development budget in software and software-related products, which have a higher gross margin than our hardware products.
The radiation oncology market in North America is largely characterized by replacements of older machines, with periodic increases in demand driven by the introduction of new technologies. Reimbursement rates in the United States have generally supported a favorable return on investment for the purchase of new radiotherapy equipment and technologies. While we believe that improved product functionality, greater cost-effectiveness and prospects for better clinical outcomes with new capabilities such as IMRT, IGRT and VMAT tend to drive demand for radiotherapy products, large changes in reimbursement rates or reimbursement structure can affect customer demand and cause market shifts.
We believe that growth of the radiation oncology market in the United States could be impacted as customers’ decision-making processes are complicated by the uncertainties surrounding reimbursement rates and new models for radiotherapy and radiosurgery, such as the alternative payment model pilot program for radiation oncology released by the Centers for Medicare and Medicaid Innovation Center in September of 2020, which is scheduled to start on July 1, 2021. This pilot program is intended to test whether an episode-based payment structure would reduce Medicare expenditures. We believe that this uncertainty will likely continue in future fiscal years and could impact transaction size, timing and purchasing processes, and also contribute to increased quarterly business variability.
Proton Solutions
Our Proton Solutions business primarily uses direct sales specialists who collaborate with our global Oncology Systems sales group on customer projects. Potential customers are government-sponsored hospitals, research institutions and research universities, which typically purchase products through public tenders, as well as private hospitals, clinics and private developers. While this market is still developing and has been highly variable over the last several years, we believe that this market has the potential to be consistent over the longer term mostly driven by institutions that wish to expand their clinical offerings and increase their profile in their respective communities. We will continue to invest resources to grow this business. Proton therapy facilities are large-scale construction projects that are time consuming and involve significant customer investment and often complex project financing. Consequently, this business is vulnerable to general economic and market conditions, as well as reimbursement rates. Customer decision-making cycles tend to be very long, and orders generally involve many contingencies. The funding environment for large capital projects, such as proton therapy projects remains challenging and volatile.
Interventional Solutions
We sell our Interventional Solutions line of products in the United States primarily through a direct sales force and internationally through a combination of direct sales and distributors. We support our customers with customer service representatives, sales representatives, clinical specialists, medical science liaisons and market development managers. We focus our sales and marketing efforts on interventional radiologists, interventional oncologists and urologists.
Backlog
Backlog is the accumulation of all gross orders for which revenues have not been recognized but are still considered valid. Backlog is stated at historical foreign currency exchange rates and revenue is recognized from backlog at current exchange rates, with any difference recorded as a backlog adjustment. Orders may be revised as customers’ needs change and as our new products become available; consequently, it is difficult to predict with certainty the amount and timing of when backlog will result in revenues. Our backlog at the end of fiscal year 2020 was $3.4 billion, of which we expect to recognize approximately 29% to 35% as revenues in fiscal year 2021. Our backlog at the end of fiscal year 2019, was $3.4 billion, of which approximately $1.0 billion was recognized as revenues in fiscal year 2020. Our Oncology Systems backlog represented 93% of the total backlog at the end of both fiscal year 2020 and 2019.
Gross orders are defined as new orders recorded during the period and revisions to previously recorded orders. New orders are recorded for the total contractual amount, excluding certain pass-through items and service items which are recognized as the revenues are recognized, once a written agreement for the delivery of goods or provision of services is in place and, other than Proton Solutions, when shipment of the product is expected to occur within two years, so long as any contingencies are deemed perfunctory. For our Proton Solutions business, we record orders when construction of the related proton therapy treatment center is reasonably expected to start within two years, but only if any contingencies are deemed perfunctory. We will not record Proton Solutions orders if there are financing contingencies, if a substantial portion of the financing for the project is not reasonably assured or if customer board approval contingencies are pending. We perform a quarterly review to verify that
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outstanding orders remain valid. If an order is no longer expected to be converted to revenue, we record a backlog adjustment which reduces backlog but does not impact gross orders for the period.
Backlog adjustments are comprised of dormancies, cancellations, foreign currency exchange rate adjustments, backlog acquired from our acquisitions, and other adjustments. Gross orders do not include backlog adjustments. In fiscal years 2020, 2019 and 2018, our backlog adjustments were a net reduction of $262.3 million, $136.6 million and $152.8 million, respectively.
Competition
The markets for cancer treatment and services are characterized by rapidly evolving technology, intense competition and pricing pressure. We compete with companies worldwide, some of whom may have greater financial, marketing and other resources. Large amounts of resources are being invested in the research and development of new therapies for cancer. The successful development of alternative therapies for cancer, for example, immunotherapy, increased efficacy of new therapies or existing products, pricing decisions by competitors and the rate of market penetration by competitive products may render our products obsolete or noncompetitive.
Our smaller competitors could be acquired by companies with greater financial strength, which could enable them to compete more aggressively. Some of our suppliers or distributors could also be acquired by competitors, which could disrupt these supply or distribution arrangements and result in less predictable and reduced revenues. New competitors and new technologies, such as radiosurgery, VMAT, MR-Linac and proton therapy, will compete directly with our products or will compete for customer budget allocation. We have directed substantial product development efforts into (i) increasing the interconnectivity of our products for more seamless operation within a system, (ii) enhancing the ease of use of our software products and (iii) reducing setup and treatment times and increasing patient throughput. We have also maintained an “open system” approach that allows customers to “mix and match” our various individual products, incorporate products from other manufacturers, share information with other systems or products and use the equipment for offering various methods of radiation therapy treatment. We have done this based on our belief that such interconnectivity will increase the acceptance and adoption of IMRT, IGRT and VMAT and will stimulate demand for our products. There are competitive “closed-ended” dedicated-use systems, however, that place simplicity of use ahead of flexibility. If we have misjudged the importance to our customers of maintaining an “open system” approach, or if we are unsuccessful in our efforts to sustain interconnectivity, enhance ease-of-use and reduce setup and treatment times, our revenues could suffer.
Our Oncology Systems customers’ equipment purchase considerations typically include: reliability, servicing, patient throughput, precision, price, payment terms, connectivity, clinical features, the ability to track patient referral patterns, long-term relationship and capabilities of customers’ existing equipment. We believe we compete favorably with our competitors based upon our strategy of providing a complete package solution of products and services in the field of radiation oncology and our continued commitment to global distribution and customer services, value-added manufacturing, technological leadership and new product innovation. To compete successfully, we must provide technically superior, clinically proven products that deliver more precise, cost effective, high quality clinical outcomes, together in a complete package of products and services, and do so ahead of our competitors. Since our Oncology Systems products are generally sold on a basis of total value to the customer, our business may suffer when purchase decisions are based solely upon price, which can happen if hospitals and clinics give purchasing decision authority to group purchasing organizations. Further, competitors may delay customer purchasing decisions as customers evaluate competitive product offerings, potentially extending our sales cycle and adversely affecting our gross orders.
We are the leading provider of medical linear accelerators and related accessories. In the radiotherapy and radiosurgery markets, we compete primarily with Elekta AB and Accuray Incorporated. Additionally, Elekta AB and ViewRay Incorporated have introduced MR-Linac devices that also compete with us for hospital budget allocations. Sun Nuclear Corporation and Standard Imaging have QA products that compete with our Mobius and Qumulate offerings. Vision RT, Brainlab and C-RAD have products that compete with our humediQ product line in the areas of patient monitoring and tracking during therapy. With our information and image management, simulation, treatment planning and radiosurgery products, we also compete with a number of other companies, such as Philips Medical Systems, Elekta AB, MIM Software Inc., RaySearch Laboratories AB, Brainlab AG and Best Theratronics, Ltd. We also encounter some competition from providers of enterprise hospital information systems. With respect to our brachytherapy solutions, our competitors are Elekta AB, MIM Software Inc. and Eckert & Ziegler BEBIG GmbH. In our Oncology Systems service and maintenance business, we compete with independent service organizations and our customers’ internal service organizations.
In addition, as a radiotherapy and radiosurgery equipment provider, we also face competition from other cancer treatment alternatives, such as traditional surgery, chemotherapy, robotic surgery and drug therapies, among others. To compete successfully, we need to demonstrate and convince our customers and cancer patients of the advantages of radiation therapy
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over or in addition to other cancer treatment alternatives. This may involve funding and, in some instances, sponsoring clinical research and studies relating to the efficacy, comparative effectiveness and safety of radiation therapy as compared to such other alternative treatments.
Our ARIA software competes with Elekta AB and large electronic medical record companies such as EPIC and CERNER, as well as multiple new competing products from established companies such as Roche (Navify and Flatiron), Philips etc., and emerging competitors such as Carevive Systems Inc, and Syapse, Inc.
The proton therapy market is still developing and is characterized by rapidly evolving technology, multiple competitors and considerable pricing pressure. Our ability to compete successfully depends, in part, on our ability to lower our product costs, and deliver technically superior, clinically proven products that enable more precise, cost-effective, high quality clinical care. In the proton therapy market, we compete principally with Hitachi Heavy Industries, Ion Beam Applications S.A., and Mevion Medical Systems, Inc. There are a number of smaller competitors that are also developing proton therapy products. We are the only established company in the field of radiation therapy to enter the proton therapy market directly.

The interventional oncology market is highly competitive. We face significant competition from large to small competitors across our product lines and in each geographic region where our products are sold. Our primary competitors include: Boston Scientific Corporation; Cook Medical LLC; Medtronic plc; Merit Medical Systems, Inc.; Terumo Medical Corporation; AngioDynamics, Inc.; MedWaves, Inc.; and Johnson & Johnson. Our main competitive strengths are product innovation, having a broad line of quality products and expertise in the field of interventional oncology and interventional radiology.
Customer Services and Support
We warrant most of our Oncology Systems products for parts and labor for 12 months, and we offer a variety of post-warranty equipment service contracts and software support contracts to suit customers’ requirements. We have 28 service centers located in North America, EMEA and APAC.
We also have field service personnel throughout the world for Oncology Systems customer support services. Key Oncology Systems education operations are located in Beijing, China; Cham, Switzerland; Las Vegas, Nevada; Mumbai, India; Tokyo, Japan; and Montreal, Canada. Our network of service engineers and customer support specialists provide installation, warranty, repair, training and support services, project management, site planning, and professional services. We also have a distributed service parts network of regional hubs and forward-stocking locations across all major geographic areas. We generate service revenues by providing our customers with time-and-materials services, replacement part sales, post-warranty equipment service contracts and software support contracts. Most of the field service engineers are our employees, but our products are serviced by employees of distributors and/or agents in a few foreign countries. Customers can access our extensive service network by calling any of our service centers.
We believe customer service and support are an integral part of our Oncology Systems competitive strategy. Growth in our service revenues has resulted from the increasing customer adoption of service contracts as the sophistication and installed base of our products increase. We also believe superior service plays an important role in marketing and selling medical products and systems, particularly as the products become more complex. Nevertheless, some of our customers use their own internal biomedical engineering organizations and/or independent service organizations to service equipment after the warranty period expires and therefore do not enter into agreements with us for extended service.
Our Proton Solutions business sells our proton therapy equipment generally with a 12-month warranty. Upon transfer of a treatment room to a customer, we generally begin generating service revenues by providing on-site proton therapy system technical operation and maintenance support services, which typically are for relatively long-term periods (e.g., a five-year term or longer). We believe customer service and support are an integral part of our Proton Solutions competitive strategy.
Our Interventional Solutions business sells cryoablation and microwave ablation systems with a 12-month warranty. Our cryoablation systems require annual preventive maintenance and our equipment servicing is handled by factory trained service personnel across the globe. Our product support department offers technical assistance and replacement parts to our authorized distributors and to those customers who choose to perform their own service.
Manufacturing and Supplies
We manufacture our medical linear accelerators in Palo Alto, California; Beijing, China; Crawley, United Kingdom and Jundiai, Brazil. We manufacture some of our accessory products in Crawley, United Kingdom; Baden, Switzerland; Helsinki, Finland; Toulouse, France; and Winnipeg, Canada. We manufacture our high dose rate brachytherapy systems in Haan,
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Germany and our brachytherapy treatment planning products in Baden, Switzerland; and Charlottesville, Virginia. We manufacture IDENTIFY in Germany. We manufacture Calypso components in Seattle, Washington. We manufacture components and sub-systems for our proton therapy products and systems in Troisdorf, Germany. These facilities employ state-of-the-art manufacturing techniques, and several have been honored by the press, governments and trade organizations for their commitment to quality improvement. These manufacturing facilities are certified under International Standards Organization (“ISO”) 13485 (for medical devices) and have other regulatory clearances in all markets served.
Manufacturing processes at our various facilities include machining, fabrication, subassembly, system assembly and final testing. Our quality assurance program includes various quality control measures from inspection of raw materials, purchased parts and assemblies through online inspection. We outsource the manufacturing of many major subassemblies and perform system design, assembly and testing in house. We believe outsourcing enables us to reduce or maintain fixed costs and capital expenditures, while also providing us with the flexibility to increase production capacity.
We purchase material and components from various suppliers that are either standard products or customized to our specifications. We obtain some of the components included in our products from a limited group of suppliers or from a single source supplier, such as: the radioactive sources for high dose afterloaders; klystrons for linear accelerators; and radiofrequency components, magnets, patient positioning systems and gantry hardware for proton therapy systems. We require certain raw materials such as tungsten, lead and copper for Oncology Systems; and high-grade steel, high-grade copper and iron for the Proton Solutions business. Worldwide demand, availability and pricing of these raw materials have been volatile, and we expect that availability and pricing will continue to fluctuate in the future.

We design and manufacture our cryoablation and microwave ablation products in our Austin, Texas facility. Our Austin manufacturing facility is certified under ISO 13485 (for medical devices). Our quality assurance program includes various quality control measures from inspection of raw materials, purchased parts and assemblies through online inspection. We purchase material and components from qualified suppliers that are either standard products or customized to our specifications. We outsource the manufacturing of some of our accessory microwave products to a third party in Colorado.

We design and manufacture our embolic particles (Gelatin and PVA particles) in China. The embolic microspheres (Embozene, Oncozene and Tandem products) that we acquired from Boston Scientific in August 2019 are currently manufactured by Boston Scientific in their United States and European facilities under a transition manufacturing agreement while we build-out a microspheres manufacturing facility in Austin, Texas.
Research and Development
Developing products, systems and services based on advanced technology is essential to our ability to compete effectively in the marketplace. We maintain a research and development and engineering staff responsible for product design and engineering.
Within Oncology Systems, our development efforts focus on enhancing the reliability and performance of existing products and developing new products. This development is conducted primarily in the United States, Switzerland, Canada, England, Finland, Germany, India and China. In addition, we support research and development programs at selected hospitals and clinics. Current areas for development within Oncology Systems include linear accelerator systems and accessories for medical applications, information systems, radiation treatment planning software, image processing software, imaging devices, patient positioning and equipment diagnosis and maintenance tools. Development for our high-energy linear accelerators is focused on improvements in accelerator technology, size, and mobility to address the needs of our customers in the market. Within Oncology Systems, we also have an Applied Research group, which focuses on disruptive technologies and new capability incubation.
Within Proton Solutions, our development efforts focus on accelerating treatment delivery, machine-learning based treatment planning, integrating patient set-up, advanced in-room imaging, motion management and remote service capabilities, as well as reducing the size and cost of our proton therapy system. We expect that, in order to realize the full potential of the Proton Solutions business, we will need to continue to invest substantial resources to deliver our innovation roadmap.
Within Interventional Solutions, our development efforts focus on introducing new and innovative products and enhancing existing offerings. We achieve this through internal product development, acquisition, technology licensing and strategic alliances. We recognize the importance of continued investment in research and development efforts, clinical education and medical education, guided by our strategic intent, key opinion leaders and global oncology community feedback.
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Product and Other Liabilities
Our business exposes us to potential product liability claims that are inherent in the manufacture, sale, installation, servicing, and support of medical devices and other devices that deliver radiation. Because our products are involved in the intentional delivery of radiation to the human body and other situations where people may come in contact with radiation, the collection and storage of patient treatment data for medical analysis and treatment delivery, the planning of radiation treatment and diagnostic imaging of the human body, and the diagnosis of medical problems, the possibility for significant injury and/or death exists.
Our medical products operate within our customers’ facilities and network systems, and under quality assurance procedures established by the facilities that ultimately deliver treatments to patients. Human and other errors or accidents may arise from the operation of our products in complex environments, particularly with products from other vendors, where interoperability or data sharing protocol may not be optimized even though the equipment or system operates according to specifications. As a result, we may face substantial liability to patients, our customers and others for damages resulting from faulty, or allegedly faulty, design, manufacture, installation, servicing, support, testing or interoperability of our products with other products, or their misuse or failure, as well as liability related to the loss or misuse of private patient data, including resulting from unauthorized intrusion into our products. We may also be subject to claims for property damages or economic loss related to or resulting from any errors or defects in our products, or the installation, servicing and support of our products. Any accident or mistreatment could subject us to legal costs, litigation, adverse publicity and damage to our reputation, whether or not our products or services were a factor. In addition, if a product we design or manufacture were defective (whether due to design, labeling or manufacturing defects, improper use of the product or other reasons), or found to be so by a competent regulatory authority, we may be required to correct or recall the product and notify other regulatory authorities. We maintain limited product liability and healthcare professional liability insurance coverage and currently do not maintain any errors and omissions insurance.
Government Regulation
U.S. Regulations
Laws governing marketing a medical device. In the United States, our products and operations are subject to extensive regulation by federal governmental authorities, such as the FDA, Nuclear Regulatory Commission (“NRC”), and state and local regulatory agencies, such as the state of California and other U.S. states, to ensure the devices are safe and effective and comply with laws governing products which emit, produce or control radiation. Similar international regulations apply overseas. These regulations, which include the U.S. Food, Drug and Cosmetic Act (the “FDC Act”) and regulations promulgated by the FDA, govern, among other things, the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, sale, marketing, and disposal of medical devices, post market surveillance and reporting of serious injuries and death, repairs, replacements, recalls and other matters relating to medical devices, radiation emitting devices and devices utilizing radioactive by-product material. State regulations are extensive and vary from state to state. Our Oncology Systems and Interventional Solutions equipment and software, as well as proton therapy systems and related software offered by our Proton Solutions business, constitute medical devices subject to these regulations. Under the FDC Act, each medical device manufacturer must comply with quality system regulations that are strictly enforced by the FDA.
Unless an exemption applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other significant change in, an existing currently marketed medical device obtain either 510(k) premarket notification clearance or premarket approval (“PMA”) before it can market or sell the product in the United States. We do not currently manufacture any Class III medical devices, which require PMA. Certain of our products, such as our radiation delivery systems manufactured by our Oncology Systems business and proton therapy systems manufactured by our Proton Solutions business, are Class II medical devices that typically require 510(k) clearance, while most of our other products are either exempt from 510(k) clearance or are not regulated by the FDA as medical devices.
To secure clearance of a 510(k), we must show that the product requiring a 510(k) is “substantially equivalent” to another medical device of the same classification (referred to as the “predicate device”) as to all salient features including labeling, technological characteristics, and intended use. The predicate device can be another Varian device or that of another medical device manufacturer. In some situations, FDA may require clinical studies be conducted to support a 510(k) clearance.
Under the PMA process, the applicant submits extensive supporting data, including, in most cases, data from clinical studies, in the PMA application to establish reasonable assurance of the safety and effectiveness of the product. This process typically takes at least one to two years from the date the PMA is accepted for filing but can take significantly longer for the FDA to review. In addition, to secure PMA approval, an applicant must demonstrate, usually via an FDA inspection, that the medical
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device subject to the PMA conforms to FDA’s Quality Systems Regulations which implement Good Manufacturing Practice ("GMP") requirements.
Modifications or enhancements to a 510(k) product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, labeling, or packaging, may also require a new 510(k) clearance or, if sufficiently different from a prior legally-marketed device, may require PMA approval prior to marketing.
Under current FDA guidance and applicable regulations, if we make a change to a current product, we must be able to show that the modified product is substantially equivalent to a legally marketed device that also may be sold under a 510(k) or, if applicable, is exempt from the need for a 510(k). If we cannot do so, we must seek premarket approval for the changed product through a PMA application unless the FDA grants a request, under the “de novo” process, to reclassify the proposed product so that it does not require a PMA. If FDA does reclassify the proposed product in response to a de novo request, the agency may require a premarket notification submission - or 510(k) - or may eliminate the need for a 510(k) submission altogether, depending on how the FDA views the risk associated with the proposed changed product.
Manufacturers make the initial determination whether a change to a cleared device requires a new 510(k) clearance, but the FDA can review any such decision. If the FDA disagrees with the manufacturer’s decision not to seek a new 510(k) clearance or PMA approval, as applicable, for a change, it may retroactively require the manufacturer to seek 510(k) clearance or PMA approval. The FDA can also seek to require the manufacturer to cease marketing and selling the product in the United States and/or recall the product until 510(k) clearance or PMA approval is obtained.
In those situations where FDA requires a device manufacturer to perform clinical studies, either to support a 510(k) or when a PMA is required, the manufacturer usually will need to obtain prior approval from FDA of an investigational device exemption (“IDE”) before it can enroll subjects in the clinical study. Conducting a clinical study under an IDE requires detailed attention by the study sponsor to an array of statutory and regulatory requirements. These include developing a detailed protocol that governs the conduct of the study, obtaining approval from an Institutional Review Board (“IRB”) for each site at which subjects are to be enrolled in the study, compliance with Good Clinical Practice (“GCP”) requirements, ensuring informed consent is obtained from participating subjects, and careful controls over data to ensure both the integrity of the data collected in the study and to appropriately protect patient privacy. Varian is currently enrolling subjects for a 10-subject study involving ultra-high dose rate (FLASH) therapy under an FDA-approved IDE and is in the planning stages for a potential clinical study involving cardiac radioablation.
Quality systems. Our manufacturing operations for medical devices, and those of our third-party suppliers, are required to comply with the FDA’s Quality System Regulation (“QSR”), as well as other federal and state regulations for medical devices and radiation emitting products. The QSR requires that each manufacturer establish a quality systems program by which the manufacturer monitors the manufacturing process and maintains records that show compliance with FDA regulations and the manufacturer’s written specifications and procedures relating to the devices. QSR compliance is necessary to receive and maintain FDA clearance or approval to market new and existing products. The FDA makes announced and unannounced periodic and on-going inspections of medical device manufacturers to determine compliance with the QSR. If in connection with these inspections, the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, it may issue observations that, if valid, necessitate prompt corrective action. If FDA inspection observations are not addressed and/or corrective action taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a Warning Letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of administrative and judicial enforcement actions. Failure to respond timely to FDA inspection observations, a Warning Letter or other notice of noncompliance and to promptly come into compliance could result in fines, civil penalties, delays, suspension or withdrawal of clearances, seizures or recalls of products, operating restrictions, injunctions involving partial or total shutdown of production facilities, prohibition on export or import and criminal prosecution. Such actions may have further indirect consequences for the manufacturer both inside and outside of the United States and may adversely affect the reputation of the manufacturer and the product.
Radiation Control Regulations. Our products that use radioactive material, such as brachytherapy sources, are subject to the NRC clearance and approval requirements, and the manufacture and sale of these products are subject to federal and state regulations that vary from state to state and among regions. The manufacture, distribution, installation and service (and decommissioning and removal) of medical devices using radioactive material or emitting radiation also requires a number of licenses and certifications. Service of these products must also be done in accordance with a specific radioactive materials license. In addition, the handling and disposal of radioactive materials resulting from the manufacture, use or disposal of our products may impose significant requirements. Sites for the lawful disposal of materials generated by the manufacture, use or decommissioning of our products may no longer accept these materials in the future, or may accept them on unfavorable terms.
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Regulations on Advertising and Promotions; Interactions with Healthcare Providers. The FDA and the Federal Trade Commission also regulate advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that there is competent and reliable scientific evidence to substantiate the claims, that our advertising fairly balances benefit and risk information, and that our promotional labeling and advertising is neither false nor misleading. We may not promote or advertise our products for uses not within the scope of our intended use statement in our clearances or approvals or make unsupported safety and effectiveness claims.

Additionally, we are members of AdvaMed, a global trade association of companies that develop, produce, manufacture and market medical technologies. Varian subscribes to the AdvaMed Code of Ethics on Interactions with U.S. Health Care Professionals, which provides AdvaMed members with guidance on ethical interactions and relationships with Health Care Professionals. Also, we are subject to the Physician Payments Sunshine Act which requires medical product manufacturers to disclose annually any payments or other transfers of value made to U.S. physicians or teaching hospitals.
Electrical Safety and Environmental Regulations. It is also important that our products comply with electrical safety and environmental standards, such as those of Underwriters Laboratories, the Canadian Standards Association, and the International Electrotechnical Commission. We are also subject to a variety of additional environmental laws regulating our manufacturing operations and the handling, storage, transport and disposal of hazardous materials, and which impose liability for the cleanup of any contamination from these materials. For a further discussion of these laws and regulations, see “Critical Accounting Estimates” in MD&A, and Note 9, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements.
Data Privacy Laws. A number of states in the United States have passed or introduced bills, which, if passed, impose operational requirements on U.S. companies similar to the requirements reflected in the General Data Protection Regulation (“GDPR”) in the European Union ("EU"). In addition, For example, the California Consumer Privacy Act of 2018 (“CCPA”), which came into effect on January 1, 2020, which requires covered companies that process personal information on California residents to make new disclosures to consumers about their data collection, use and sharing practices, allows consumers to opt out of certain data sharing with third parties and provides a new private right of action for data breaches. Additionally, the Federal Trade Commission and many state attorney generals are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination and security of data. The compliance and other burdens imposed by the EU's GDPR, CCPA and similar privacy laws and regulations may be substantial as they are subject to differing interpretations and implementation among jurisdictions. The restrictions imposed by such laws and regulations may limit the use and adoption of our services, reduce overall demand for our services, require us to modify our data handling practices, slow the pace at which we close sales transactions and impose additional compliance costs and burdens.
Other United States Healthcare Laws. As a participant in the healthcare industry, we are also subject to federal and state laws and regulations pertaining to patient privacy and data security, fraud and abuse, and physician payment transparency. The laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes to these laws and regulations may have on our business. Government regulation also may cause considerable delay or even prevent the marketing and full commercialization of future products or services that we may develop. These healthcare laws include:
The Medicare and Medicaid “anti-kickback” laws, and similar state laws, that prohibit payments or other remuneration intended to induce hospitals, physicians, or others either to refer patients, or to purchase, lease or order, or arrange for or recommend the purchase, lease, or order of healthcare products or services for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid. These laws affect our sales, marketing and other promotional activities by limiting the kinds of financial arrangements we may have with hospitals, physicians, or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants, and other service arrangements. These laws are broadly written, and it is often difficult to determine precisely how these laws will be applied to specific circumstances.

Federal and state “false claims” laws generally prohibit knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government payors that are false or fraudulent, or for items or services that were not provided as claimed. Although we do not submit claims directly to payors, manufacturers can be, and have been, held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by providing inaccurate billing or coding information to customers, or through certain other activities, including promoting products for uses not approved or cleared by the FDA.

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State and federal transparency laws, including laws in Massachusetts and Vermont, and the federal Physician Payment Sunshine Act, which require, among other things, the disclosure of equity ownership and payments to physicians, healthcare providers and hospitals.
From time to time, these laws and regulations may be revised or interpreted in ways that could make it more difficult for our customers to conduct their businesses, such as recent proposed revisions to the laws prohibiting physician self-referrals, and such revisions could have an adverse effect on the demand for our products, and therefore our business and results of operations.
Medicare and Medicaid Reimbursement
The federal and state governments of the United States establish guidelines and pay reimbursements to hospitals and free-standing clinics for diagnostic examinations and therapeutic procedures under Medicare at the federal level and Medicaid at the state level. Private insurers often establish payment levels and policies based on reimbursement rates and guidelines established by the government.

The federal government and the Congress review and adjust rates annually, and from time to time consider various Medicare and other healthcare reform proposals that could significantly affect both private and public reimbursement for healthcare services, including radiotherapy and radiosurgery, in hospitals and free-standing clinics. State government reimbursement for services is determined pursuant to each state’s Medicaid plan, which is established by state law and regulations, subject to requirements of federal law and regulations. In the past, we have seen our customers’ decision-making process complicated by the uncertainties surrounding reimbursement rates for radiotherapy and radiosurgery in the United States. In September 2020, CMS released the Centers for Medicare and Medicaid Innovation Center’s Radiation Oncology Alternative Payment Model Final Rule (the "RO Model"). The RO Model is intended to test whether an episodic payment structure across a cohort of U.S. hospitals and freestanding cancer centers would reduce Medicare expenditures, while preserving or enhancing the quality of care. The RO Model is scheduled to go into effect in July 2021, and end in December 2025, and includes 30% of Medicare radiotherapy episodes.

Various healthcare reform proposals have also emerged at the state level, and we are unable to predict which, if any of these proposals will be enacted. We believe that the uncertainty created by healthcare reform in the United States has complicated our customers’ decision-making process and impacted our Oncology Systems and Proton Solutions businesses and may continue to do so.
The sale of medical devices including radiotherapy products, the referral of patients for diagnostic examinations and treatments utilizing such devices, and the submission of claims to third-party payors (including Medicare and Medicaid) seeking reimbursement for such services, are subject to various federal and state laws pertaining to healthcare “fraud and abuse.” These laws include physician self-referral prohibitions, anti-kickback laws, and false claims laws. Subject to enumerated exceptions, the federal physician self-referral law, also known as Stark II, prohibits a physician from referring Medicare or Medicaid patients to an entity with which the physician (or a family member) has a financial relationship, if the referral is for a “designated health service,” which is defined explicitly to include radiology and radiation therapy services. Anti-kickback laws make it illegal to solicit, induce, offer, receive or pay any remuneration in exchange for the referral of business, including the purchase of medical devices from a particular manufacturer or the referral of patients to a particular supplier of diagnostic services utilizing such devices. False claims laws prohibit anyone from knowingly and willfully presenting, or causing to be presented, claims for payment to third-party payors (including Medicare and Medicaid) that are false or fraudulent, for services not provided as claimed, or for medically unnecessary services. The Office of the Inspector General of the U.S. Department of Health & Human Services prosecutes violations of fraud and abuse laws and any violation may result in criminal and/or civil sanctions including, in some instances, imprisonment and exclusion from participation in federal healthcare programs such as Medicare and Medicaid. Varian needs to comply with all applicable laws related to federal healthcare programs in transactions with health care professionals.
Foreign Regulations
Our operations, sales and servicing of our products outside the United States are subject to regulatory requirements that vary from country to country and may differ significantly from those in the United States. In general, our products are regulated outside the United States as medical devices by foreign governmental agencies similar to the FDA.
Marketing a medical device internationally. In order for us to market our products internationally, we must obtain clearances, approvals, or registrations for products and product modifications. We are required to affix the CE mark to our products in order to sell them in member countries of the European Economic Area (“EEA”). The CE mark is an international symbol of
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adherence to certain essential principles of safety and effectiveness, which, once affixed, enables a product to be sold in member countries of the EEA. The CE mark is also recognized in many countries outside the EEA, such as Switzerland and Australia, and can assist in the clearance process. In order to receive permission to affix the CE mark to our products, we must obtain Quality System certification, e.g., ISO 13485, and must otherwise have a quality management system that complies with the EU Medical Device Directive. The ISO promulgates standards for certification of quality assurance operations. We are certified as complying with ISO 13485 for our medical devices. The EU Commission published a new Medical Device Regulation in 2017, providing a three-year transition period which in 2020 was extended with one additional year until May 2021, at which time, the existing Directives will be repealed. The Medical Device Regulation will change multiple aspects of the existing regulatory framework, such as different/higher medical device classification, higher clinical evidence requirements and introduce several new requirements, such as Unique Device Identification and many other post-market obligations. Thus, the new Medical Device Regulation significantly modifies and intensifies the compliance requirements for the medical device industry in EEA.
Several Asian countries, including China and Japan, have adopted their own regulatory schemes. To import medical devices into Japan, the requirements of Japan’s Pharmaceutical New Medical Act Device Regulation must be met and a “shonin,” the approval to sell medical products in Japan, must be obtained. Similarly, in China a product registration license issued by the National Medical Product Administration are required to sell medical devices in that country. Obtaining such license approvals for our products will require type testing by a local authorized Test Lab, and for certain products, such as Proton Systems, local clinical trials, which can be time-consuming and can result in delays to our ability to market or sell our products in the country in question. Similarly, prior to selling a device in Canada, manufacturers of Class II, III and IV devices must obtain a medical device license. We sell Class II and Class III devices in Canada. Additionally, many countries have laws and regulations relating to radiation and radiation safety that also apply to our products. In most countries, radiological regulatory agencies require some form of licensing or registration by the facility prior to acquisition and operation of an X-ray generating device or a radiation source. The handling, transportation and the recycling of radioactive metals and source materials are also highly regulated.
A number of countries, including the members of the EU, have implemented or are implementing regulations that would require manufacturers to dispose, or bear certain disposal costs, of products at the end of a product’s useful life and restrict the use of some hazardous substances in certain products sold in those countries.
CTSI operations. We are subject to laws and regulations in India and Sri Lanka in relation to the operation of a healthcare establishment. The laws apply to the governing, commissioning, and operating of the centers; the practice and conduct of medical professionals; management of patients; sale and storage of drugs and safe medication; employment and management of manpower; the safety of patients, staff, and the public; and environmental protection. In order to serve our patients, we must obtain the relevant licenses and/or registrations, adhere to set standards and are subject to inspections required for the operations of our centers.
Data Privacy Laws. Laws and regulations related to the collection, processing, storage, transfer and use of personal data are evolving globally. The compliance and other burdens imposed by the GDPR and similar privacy laws and regulations may be substantial since they are subject to differing interpretations and implementation among jurisdictions. The restrictions imposed by such laws and regulations may limit the use and adoption of our products and services, reduce overall demand for our services, require us to modify our data handling practices, slow the pace at which we close sales transactions and impose additional costs and burdens. In addition, non-compliance could result in proceedings against us by governmental bodies or others, significant fines, could negatively impact our reputation and may otherwise adversely impact our business, financial condition and operating results.
Other applicable international regulations. We are also subject to foreign laws and regulations that apply to manufacturers of radiation emitting devices and products utilizing radioactive materials, as well as laws and regulations of general applicability relating to matters such as environmental protection, safe working conditions, manufacturing practices and other matters. In addition, our sales of products in foreign countries are also subject to regulation of matters such as product standards, packaging requirements, labeling requirements, import restrictions, environmental and product recycling requirements, trade regulations, duties, and tax requirements. In some countries, we rely on our foreign distributors and agents to assist us in complying with foreign regulatory requirements. These laws and regulations are often comparable to, if not more stringent than, the equivalent laws and regulations in the United States.
We are also subject to international “fraud and abuse” laws and regulations, as well as false claims and misleading advertisement laws. From time to time, these laws and regulations may be revised or interpreted in ways that could make it more difficult for our customers to conduct their businesses, which could have an adverse effect on the demand for our
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products, and therefore our business and results of operations. The laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes to these laws and regulations may have on our business.

Anti-Corruption Laws and Regulations
We are subject to the U.S. Foreign Corrupt Practices Act and anti-corruption laws, and similar laws in foreign countries, such as the U.K. Bribery Act of 2010 and the Law “On the Fundamentals of Health Protection in the Russian Federation.” In general, there is a worldwide trend to strengthen anti-corruption laws and their enforcement, and the healthcare industry and medical equipment manufacturers have been particular targets of related investigations and enforcement efforts. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market.
Transparency International’s 2019 Corruption Perceptions Index measured the degree to which public sector corruption is perceived to exist around the world and found that approximately sixty-seven percent of the countries in the index, including many that we consider to be high growth areas for our products, such as China, India, Russia, and Brazil, scored below 50, on a scale from 100 (very clean) to 0 (highly corrupt). We currently operate in many countries where the public sector is perceived as being more or highly corrupt and our strategic business plans include expanding our business in regions and countries that are rated as higher risk for corruption activity by Transparency International.
Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability. In addition, becoming familiar with and implementing the infrastructure necessary to comply with laws, rules and regulations applicable to new business activities and mitigating and protecting against corruption risks could be quite costly. Failure by us or our agents or distributors to comply with these laws, rules and regulations could delay our expansion into high-growth markets and could adversely affect our business.
Patent and Other Proprietary Rights
We place considerable importance on obtaining and maintaining patent, copyright and trade secret protection for significant new technologies, products and processes, because of the length of time and expense associated with bringing new products through the development process and to the marketplace.
We generally rely upon a combination of patents, copyrights, trademarks, trade secret and other laws, and contractual restrictions on disclosure, copying and transferring title, including confidentiality agreements with vendors, strategic partners, co-developers, employees, consultants and other third parties, to protect our proprietary rights in the developments, improvements and inventions that we have originated and which are incorporated in our products or that fall within our fields of interest. As of October 2, 2020, we owned 629 patents issued in the United States and 484 patents issued throughout the rest of the world, and had 501 patent applications on file with various patent agencies worldwide. We intend to file additional patent applications as appropriate. We have trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for our products in the marketplace. We also have agreements with third parties that provide for licensing of patented or proprietary technology, including royalty bearing licenses and technology cross licenses.
Environmental Matters
For a discussion of environmental matters, see “Critical Accounting Estimates” in MD&A and Note 9, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, which discussions are incorporated herein by reference.
Tariff Measures
Between July 2018 and May 2019, the Trump Administration imposed a series of tariffs, ranging from 5% to 25%, on numerous products imported into the United States from China, including Varian’s radiotherapy systems manufactured in China and certain components used in our manufacturing and service activities. In July and August 2018, China retaliated against the U.S. tariffs by imposing its own series of tariffs, ranging from 10% to 25%, on certain products imported into China from the United States, including Varian’s radiotherapy systems and certain manufacturing and service components.

We participated in the Office of the U.S. Trade Representative (“USTR”) process to seek product-specific exclusions from the U.S. tariffs on Chinese imports. To date, USTR has granted tariff exclusions for four products: certain radiotherapy systems manufactured in China, as well as three key components of the radiation therapy systems that we manufacture in the United States: multi-leaf collimators, certain printed circuit board assemblies and tungsten shielding. We submitted an additional U.S. exclusion request in September 2019, in relation to a manufacturing component, which was ultimately not granted. In 2019,
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USTR granted a one-year extension to our exclusion for radiotherapy systems through December 28, 2020. Two additional component exclusion extensions, for multi-leaf collimators and certain printed circuit board assemblies, have been granted through December 31, 2020. One additional exclusion request, for tungsten shielding, was not extended and expired on September 19, 2020.

In June and July 2019, we submitted formal requests to the Chinese government for exclusions from the Chinese retaliatory tariffs for manufacturing inputs, service parts and radiotherapy systems imported into China from the United States. In September 2019, the Chinese government granted a tariff exclusion for medical linear accelerators, including our radiotherapy systems, with retroactive effect and valid through September 16, 2020. We requested and subsequently received a one year extension for this exclusion. We utilize a monthly exclusion program to further mitigate the tariffs on other items.
Human Capital
VAR-20201002_G1.JPG
Employee Wellbeing and Resilience
Employee safety and wellbeing is of paramount importance to us in any year and was of particular focus in our fiscal year 2020 in light of COVID-19. In response to the pandemic, we provided personal protective equipment to our frontline employees, implemented new safety protocols, and established a governance structure to ensure timely communication and decision making. We provided productivity and collaboration tools and resources for employees working remotely, including training and toolkits to help leaders effectively lead and manage remote teams. In addition, we enhanced and promoted programs to support our employees’ physical, financial and mental wellbeing. For example, we provided emergency pay to employees who were unable to work due to the pandemic impact, ensured healthcare access for COVID-19 testing and treatment, implemented virtual fitness classes, and significantly expanded employee assistance and mindfulness programs to help employees and their families manage anxiety, stress, sleep and overall wellbeing. We are providing resources and training to help employees build
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resilience. Internal surveys show that employees who attend resilience training sessions experience a better sense of wellbeing and satisfaction than those not attending these sessions.

Building Strong Leaders
Leaders are critical to ensuring employees are engaged and positioned to perform at their best. For these reasons, we have invested in developing our leadership capabilities. We have implemented leadership programs both for experienced and new managers. For those teams where new managers have attended trainings, we see up to four points higher engagement in our surveys. We also include questions intended to measure Leadership Effectiveness in our engagement surveys. Scores from these questions are aggregated into a Leadership Effectiveness Index ("LINDEX"). For new managers that attend training, their subordinates reported up to four points higher LINDEX scores, indicating they feel their managers help them prioritize work, and provide feedback and recognition that helps them to grow and feel engaged.
Information About Our Executive Officers
The biographical summaries of our executive officers, as of November 1, 2020, are as follows:
Name Age Position
Dow R. Wilson 61 Chief Executive Officer
Christopher A. Toth 41 President and Chief Operating Officer
Kolleen T. Kennedy 61 President, Proton Solutions and Chief Growth Officer
J. Michael Bruff 51 Senior Vice President, Chief Financial Officer
Kevin O'Reilly 51 Senior Vice President and President, Oncology Systems
Michael Hutchinson 49 Senior Vice President, Chief Legal Officer and Corporate Secretary

Dow R. Wilson was appointed President and Chief Executive Officer effective September 29, 2012. Mr. Wilson served as Corporate Executive Vice President and Chief Operating Officer from October 2011 through September 2012 and as Corporate Executive Vice President and President, Oncology Systems from August 2005 through September 2011. Mr. Wilson served as Corporate Vice President and President, Oncology Systems from January 2005 to August 2005. Prior to joining the Company in January 2005, Mr. Wilson was Chief Executive Officer of the Healthcare-Information Technologies business in General Electric (a diversified technology and services company), from 2003 to 2005. During the previous 18 years, Mr. Wilson held various management positions within General Electric. Mr. Wilson holds a B.A. degree in English from Brigham Young University and an M.B.A. degree from Dartmouth’s Amos Tuck School of Business. Mr. Wilson serves on the board of directors at Agilent, Inc. Mr. Wilson also serves on the board of directors of industry associations AdvaMed and the US-India Strategic Partner Forum. In 2015, Mr. Wilson was appointed by President Obama to serve on a Presidential Advisory Council ("Council") for doing business in Africa; he recently completed a second term on the Council. Mr. Wilson served on the board of directors of Varex Imaging Corporation, our former Imaging Components business segment, from January 2017 to January 2018. He also served on the board of directors of Saba Software, Inc. (an e-learning software provider) from August 2006 to March 2015 and as the lead independent director of that board from August 2011 to March 2013. Mr. Wilson was appointed to our Board of Directors in September 2012.

Christopher A. Toth was appointed President and Chief Operating Officer in October 2020. Mr. Toth served as President of Oncology Systems from October 2018 to October 2020. Mr. Toth joined Varian in 2001 and has held multiple cross-functional roles and executive positions during his tenure with the company. Prior to his appointment as President of Oncology Systems, Mr. Toth served as President of Global Commercial and Field Operations from January 2017 to September 2018, where he was responsible for global sales strategy and execution for Oncology Systems and Proton Solutions. Additionally, in this role, Mr. Toth was responsible for global field service, applications training, market access and regional marketing for the Oncology Systems business. From September 2014 to January 2017, Mr. Toth was President, Oncology Systems Americas and from April 2011 to September 2014, Vice President, Global Marketing. Mr. Toth holds a B.A. degree in Business Administration with a concentration in Marketing from the Lundquist College of Business at the University of Oregon.

Kolleen T. Kennedy was appointed President of Proton Solutions and Chief Growth Officer effective October 2018. Ms. Kennedy served as Executive Vice President and President, Oncology Systems from September 2014 to September 2018, and was Senior Vice President and President, Oncology Systems from October 2011 to September 2014. From January 2006 through September 2011, Ms. Kennedy served as Vice President, Oncology Systems Customer Service and Support. Prior to that, Ms. Kennedy was the Company’s Vice President, Oncology Systems Marketing, Product Management and Engineering from September 2004 to January 2006. Prior to becoming Vice President, Ms. Kennedy served in various marketing management positions since she joined the Company in 1997. Ms. Kennedy holds a B.S. degree in Radiation Oncology and a
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B.S. degree in Psychology, both from Wayne State University, as well as an M.S. degree in Medical Physics from the University of Colorado.

J. Michael Bruff was appointed Chief Financial Officer in December 2019. Prior to this appointment, Mr. Bruff served as Senior Vice President, Finance and Investor Relations between February 2018 and December 2019 and served as Vice President of Investor Relations between August 2017 and February 2018. Prior to joining the Company, Mr. Bruff worked for Dell Technologies for 19 years in both domestic and international roles, most recently as Senior Vice President of North America Sales Strategy & Planning. Previously, he served as Senior Vice President and CFO of Dell's Asia Pacific and Japan Commercial Business and Vice President and CFO of the Greater China Commercial Business. He also held several other finance leadership roles in commercial finance, financial planning and analysis, internal audit and product business unit finance. In addition, Mr. Bruff was Vice President, Global Services Accounting and Finance at CA, Inc. and held a variety of finance and reporting roles at MCI Telecommunications. Mr. Bruff started his career in auditing and accounting at Deloitte & Touche. Mr. Bruff holds a B.S. degree in Accounting and a B.A degree in Economics from the University of Maryland.

Kevin O’Reilly was appointed Senior Vice President and President, Varian Oncology Systems in October 2020. Prior to this appointment, he served as Senior Vice President, Global Operations, between April 2019 and October 2020, as interim President of EMEIA between April 2020 and October 2020, President, Asia Pacific between February 2016 and April 2019, VP Strategy and Business Development between 2014 and 2016, Senior Director, Product Marketing between 2012 and 2014, and as Senior Director, Services Marketing and Global Publications between 2009 and 2012. Prior to joining Varian, Mr. O’Reilly held executive positions at RPO, Inc., and Photon Dynamics. He holds a BS in Electronic Engineering from Technological University Dublin.

Michael Hutchinson was appointed Senior Vice President, Chief Legal Officer and Corporate Secretary in June 2020. Prior to joining the Company, Mr. Hutchinson was with Stryker for 12 years, where he served as Vice President and Advisor to the Chairman and CEO from 2019 to 2020, General Counsel, Vice President and Chief Legal Officer from 2013 to 2019 and Deputy General Counsel, Chief Legal Counsel Orthopaedics Group between 2008 and 2013. Prior to joining Stryker, Mr. Hutchinson worked for several law firms and as an in-house attorney in the Washington, D.C. area. Mr. Hutchinson holds a J.D. degree from The George Washington University Law School and a B.A. degree from Clark University.
Information Available to Investors
As soon as reasonably practicable after our filing or furnishing the information to the SEC, we make the following available on the Investors page of our website http://www.varian.com: our annual reports on Form 10-K; quarterly reports on Form 10-Q; current reports on Form 8-K (including any amendments to those reports); and proxy statements. Our Code of Conduct, Corporate Governance Guidelines and the charters of the Audit Committee, Compensation and Management Development Committee, Ethics and Compliance Committee, Nominating and Corporate Governance Committee and Executive Committee are also available on the Investors page of our website. Investors and others should note that we announce material financial and operational information to our investors using our investor relations website (http://investors.varian.com/), press releases, SEC filings and public conference calls and webcasts. Please note that information on, or that can be accessed through, our website is not deemed “filed” with the SEC and is not to be incorporated by reference into any of our filings under the Securities Act of 1933, as amended (the “Securities Act”), or the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Item 1A. Risk Factors

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered. The occurrence of any of the following risks or of unknown risks and uncertainties may adversely affect our business, operating results and financial condition.

Risk Factor Summary
The Merger is subject to the satisfaction of closing conditions in the Merger Agreement.
Failure to complete the Merger could materially adversely affect our business operations, financial results and stock price.
We will be subject to various uncertainties while the Merger is pending that may cause disruption and may make it more difficult to maintain relationships with employees, customers, suppliers and distributors.
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We are subject to certain restrictions in the Merger Agreement that may hinder operations pending the consummation of the Merger.
If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Siemens Healthineers.
Our business and results of operations have been adversely affected, and our business, results of operations, cash flow and financial condition may in the future be materially adversely affected by the COVID-19 pandemic and any associated economic disruptions.
Our performance depends on successful improvements to our existing products and services, commercialization of new products and services and increasingly on our ability to anticipate emerging trends in oncology diagnosis, treatment and management.
We compete in highly competitive markets, and we may lose market share to companies with greater resources or more effective technologies, or be forced to reduce our prices.
The interoperability of radiation oncology treatment products is becoming increasingly important, and sales of our products could fall if we fail to establish interoperability.
Disruption of our critical information systems or material cyberattacks or security breaches of our products may adversely affect our business and customer relations.
We may offer extended payment terms to certain customers, which could adversely affect our financial results.
Economic, political, foreign currency, security and other risks associated with international sales and operations could adversely affect our sales or operations.
Tariffs or cross-border trade restrictions could increase the cost of our products.
Consolidation among our oncology systems customers could adversely affect our sales of oncology products.
Our business will suffer if we are unable to provide the significant education and training required for the healthcare market to accept our products.
We may not realize expected benefits from acquisitions of or investments in businesses, products or technologies and our efforts to integrate acquired businesses may not be successful.
Acquiring or implementing new business lines or offering new products and services may subject us to additional risks.
Losing distributors may harm our revenues in some territories.
The results of studies and clinical trials are highly uncertain.
Our credit facility restricts certain activities, and failure to comply with this agreement may adversely affect our business, liquidity and financial position.
Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.
Product defects or misuse may result in material product liability or professional errors and omissions claims, litigation, investigation by regulatory authorities or product recalls.
We are subject to certain risks related to the separation of our former imaging components business into Varex Imaging Corporation.
We may face delays in the installation of our software products, which could have a material adverse effect on our operating results.
The need to maintain and service multiple versions of the same software product across our installed base of customers could adversely affect our ability to release upgraded or new products.
Coding errors in our software and cloud offerings could adversely affect our results of operations.
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We may not be successful in transitioning our customer base to software solutions deployed via cloud and software-as-a-service ("SaaS") solutions.
Because we recognize revenue from subscriptions for our SaaS solutions over the term of the subscription, downturns or upturns in our SaaS business may not be immediately reflected in our operating results.
Certain software that we use in our products is licensed from third parties and, for that reason, may not be available to us in the future.
We participate in project financing for our Proton Solutions business, which has resulted in impairment charges and could result in payment defaults that adversely affect our financial results.
Our Proton Solutions business has not been profitable historically, its financial results may be unpredictable and if our proton customers are unsuccessful, our financial results will be adversely affected.
Our Proton Solutions business may subject us to increased liability.
Our cancer center operations may not be profitable, and the operation or development of existing and future cancer centers could cause us to incur unexpected costs.
The performance of the cancer centers that we operate depends on our ability to recruit and retain quality physicians, qualified nurses and medical support staff and we face competition for staffing.
Our cancer centers face competition for patients from other cancer centers, hospitals and health care providers.
We are subject to occupational health, safety and other similar regulations and failure to comply with such regulations could harm our business and results of operations.
We may be subject to liabilities from claims brought against our cancer centers and third-party customers of our AmPath business.
Any inability to obtain supplies of important components could restrict the manufacture of products, cause delays in delivery, or significantly increase our costs.
A shortage or change in source of raw materials could restrict our ability to manufacture products, cause delays, or significantly increase our cost of goods.
Our financial results may suffer if we are not able to match our manufacturing capacity with demand for our products.
Disruptions at our logistics providers may adversely impact our business.
Failure or delays in obtaining regulatory approvals or complying with laws and regulations could delay or prevent product distribution, the introduction of new products or services and result in significant fines and penalties.
Healthcare reform legislation, including The Affordable Care Act and state-level legislation, may adversely affect our business.
Changes to radiation oncology, reimbursements, and insurance deductibles and administration may affect demand for our products.
Any violation of federal, state or foreign laws governing our business practices may result in substantial penalties. Investigation into our business practices could cause adverse publicity and harm our business.
Environmental laws impose compliance costs on our business and can result in liability.
Protecting our intellectual property can be costly and we may not be able to maintain licensed rights.
Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products.
Fluctuations in our operating results, including quarterly gross orders, revenues, margins, and cash flows may cause our stock price to be volatile, resulting in losses for our stockholders.
Unfavorable results of legal proceedings could adversely affect our financial results.
Our business may suffer if we are not able to hire and retain qualified personnel.
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Changes in the interpretation or application of generally accepted accounting principles may adversely affect our operating results.


RISKS RELATING TO PROPOSED ACQUISITION BY SIEMENS HEALTHINEERS

The Merger is subject to the satisfaction of closing conditions in the Merger Agreement.
The Merger Agreement contains a number of customary conditions to complete the Merger, including, (i) the adoption of the Merger Agreement by the affirmative vote of the holders of at least a majority of the outstanding shares of VMS common stock entitled to vote, which was received on October 15, 2020, (ii) the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which expired October 22, 2020 at 11:59 p.m. Eastern Time, (iii) the receipt of specified regulatory approvals, (iv) the receipt of the approval of the Committee on Foreign Investment in the United States, (v) the absence of any newly enacted law, injunction or order prohibiting the Merger, (vi) the accuracy of the representations and warranties contained in the Merger Agreement (generally subject to a material adverse effect qualification), (vii) compliance in all material respects with the covenants and agreements in the Merger Agreement and (viii) absence of a Company Material Adverse Effect (as defined in the Merger Agreement) on the Company since the date of the Merger Agreement that is continuing. We can provide no assurance that all required approvals will be obtained or that all closing conditions will be satisfied, and, if all required approvals are obtained and the closing conditions are satisfied, we can provide no assurance as to the terms, conditions and timing of such approvals or the timing of the completion of the Merger. Any delay in completing the Merger could cause us not to realize some or all of the benefits that we expect to achieve if the Merger is successfully completed within its expected timeframe.

Failure to complete the Merger could materially adversely affect our business operations, financial results and stock price.
If the Merger is not completed, our stockholders will not receive any payment for their shares in connection with the Merger. Instead, VMS will remain an independent public company, and the shares will continue to be traded on the New York Stock Exchange. Our ongoing business may be materially adversely affected, and we would be subject to a number of risks, including the following:

we may experience negative reactions from the financial markets, including negative impacts on our stock price, and it is uncertain when, if ever, the price of the shares would return to the prices at which the shares currently trade;
we may experience negative publicity, which could have an adverse effect on our ongoing operations including, but not limited to, retaining and attracting employees, customers, suppliers and distributors;
we will still be required to pay certain significant costs relating to the Merger, such as legal, accounting, financial advisor, printing and other professional services fees, which may relate to activities that we would not have undertaken other than to complete the Merger;
we may be required to pay a cash termination fee as required under the Merger Agreement;
the Merger Agreement places certain restrictions on the conduct of our business, which may have delayed or prevented us from undertaking business opportunities that, absent the Merger Agreement, we may have pursued;
matters relating to the Merger require substantial commitments of time and resources by our management, which could result in the distraction of management from ongoing business operations and refraining from pursuing other opportunities that could have been beneficial to us; and we have and may continue to incur additional costs in connection with the defense or settlement of any stockholder litigation in connection with the Merger, which may adversely affect our ability to complete the Merger.

If the Merger is not consummated, the risks described above may materialize and they may have a material adverse effect on our business operations, financial results and stock price, especially to the extent that the current market price of our common stock reflects an assumption that the Merger will be completed.

We will be subject to various uncertainties while the Merger is pending that may cause disruption and may make it more difficult to maintain relationships with employees, customers, suppliers and distributors.
Uncertainty about the effect of the Merger on employees, customers, suppliers and distributors may have an adverse effect on us. These uncertainties may impair our ability to attract, retain and motivate key personnel until the Merger is completed, and
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could cause customers, suppliers, distributors and others that deal with us to attempt to change existing business relationships with us. Retention and motivation of certain employees may be challenging while the Merger is pending, as certain employees may experience uncertainty about their future roles. If key employees depart, our business could be harmed. In addition, there could be distractions to or disruptions for our employees and management associated with obtaining the required approvals to close the Merger. Our customers, suppliers and distributors may experience uncertainty with the Merger, including with respect to current or future business relationships following the Merger. Our business relationships may be subject to disruption as customers, suppliers, distributors and others may attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than with us. These disruptions could have an adverse effect on our business operations and financial results. The risks, and adverse effects, of such disruptions could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

We are subject to certain restrictions in the Merger Agreement that may hinder operations pending the consummation of the Merger.
Whether or not the Merger is completed, the pending Merger may disrupt our current plans and operations, which could have an adverse effect on our business operations and financial results. The Merger Agreement generally requires us to use commercially reasonable efforts to operate our business in all material respects in the ordinary course pending completion of the Merger and not to engage in specified types of actions during this period, in each case subject to certain exceptions. These restrictions could be in place for an extended period of time if the consummation of the Merger is delayed, which may delay or prevent us from undertaking business opportunities that, absent the Merger Agreement, we might have pursued, or effectively respond to competitive pressures or industry developments. For these and other reasons, the pendency of the Merger could adversely affect our business operations and financial results.

If the Merger Agreement is terminated, we may, under certain circumstances, be obligated to pay a termination fee to Siemens Healthineers. These costs could require us to use cash that would have otherwise been available for other uses.
If the Merger is not completed, in certain circumstances, we could be required to pay a termination fee of $450 million to Siemens Healthineers. If the Merger Agreement is terminated, the termination fee we may be required to pay, if any, under the Merger Agreement may require us to use available cash that would have otherwise been available for general corporate purposes or other uses. The payment of a termination fee may also have an adverse impact on our financial condition and could affect the structure, pricing and terms proposed by a third party seeking to acquire or merge with us or deter such third party from making a competing acquisition proposal. Further, a failed transaction may result in negative publicity and a negative impression of us in the investment community. For these and other reasons, termination of the Merger Agreement could materially adversely affect our business operations and financial results, which in turn would materially and adversely affect the price of our common stock.

RISKS RELATING TO COVID-19

Our business and results of operations have been adversely affected, and our business, results of operations, cash flow and financial condition may in the future be materially adversely affected by the COVID-19 pandemic and any associated economic disruptions.

We are subject to risks associated with public health threats and epidemics, including the global COVID-19 pandemic. The COVID-19 pandemic has adversely impacted nearly all aspects of our business and markets globally, including our workforce and operations and the operations of our customers, suppliers, distributors and business partners, and has created significant volatility, uncertainty and economic disruption to healthcare activity globally. While we are unable to predict the extent to which the COVID-19 pandemic may have a material adverse effect on our business, results of operations, cash flow and financial condition, we may experience a broad range of operational and financial impacts, including:

Increased fluctuations in our operating results, including quarterly gross orders, revenues, margins, and cash flows and resulting volatility in our stock price;
Significant volatility or reductions in demand for our products or services, or delays in the timing of orders;
Impacts to the normal operations of our customers which may impact our ability to market, sell, deliver, install and service our products and systems, and increase customer payment, credit and insolvency risk;
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Limitations on our business operations resulting from shelter-in-place orders and other travel restrictions implemented to contain the pandemic and the timing of relaxation of such containment measures across geographies;
Increased risks related to the health and safety of our employees and associated employment-related disputes and retention issues;
Disruptions to our manufacturing operations and distribution and supply chains;
Distraction of management time and attention;
Potential disproportionate adverse impacts, including political, social and economic impacts, in the emerging markets in which we operate, which could increase security risks for our personnel and harm our business and operating results in such markets;
Increased volatility of foreign currency exchange rates, which may impact demand for our products and services;
Increased risk of cybersecurity attacks and security breaches by bad actors seeking to exploit the crisis;
Delays to acquisition plans, increased risks to the operations and financial condition of newly acquired businesses, and increased costs or delays to integration of newly acquired businesses;
The impact of any reprioritization of capital allocations on our ability to achieve our strategic objectives over the medium and long-term;
Write downs or impairments to our loans to proton centers, investments in third parties, goodwill or intangible assets from recently acquired businesses, accounts receivable, or other assets;
Potential liquidity constraints and credit impacts;
Delays in obtaining regulatory clearances and approvals to market our products or delays to clinical trial activity;
Local or global recessions caused by the COVID-19 pandemic, which may result in hospitals reducing or curtailing capital or overall spending.

In addition, a lack of coordinated COVID-19 response by the U.S. government could result in significant increases to the duration and severity of the pandemic in the United States and could have a corresponding negative impact on our business. The extent to which the COVID-19 global pandemic and measures taken in response to it will impact our business, results of operations and cash flows and financial condition will depend on future developments, which are highly uncertain and are difficult to predict; these developments include, but are not limited to, the duration and spread of the pandemic, its severity, the actions to contain the virus or address its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussion of the potential impact of the COVID-19 pandemic and associated economic disruptions, and the actual operational and financial impacts that we have experienced to date.

RISKS RELATING TO OUR BUSINESSES

Our performance depends on successful improvements to our existing products and services, commercialization of new products and services and increasingly on our ability to anticipate emerging trends in oncology diagnosis, treatment and management.
The markets in which we operate are characterized by rapid change and technological innovation. Our performance depends on the successful commercialization of new products and services that reflect and respond to changes in the marketplace, technology and customer demands and increasingly on our ability to anticipate emerging trends in oncology diagnosis, treatment and management.

Our Oncology Systems hardware and software products often have long development and government approval cycles, are technologically complex and must demonstrate high levels of performance and functionality to remain competitive.
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Our software products compete in markets characterized by rapid technological advances, changing delivery models, evolving standards and frequent new product introductions and enhancements. We are expanding our software product lines and investing in the development of cloud and SaaS solutions. The development and introduction of new software platforms and delivery models, as well as different business models, is complex and involves many technological, regulatory and legal hurdles. We cannot assure you that we can successfully develop and implement such platforms or models or that our customers will accept them.
Our Proton Solutions products require intensive planning, design, development, testing and capital commitment. Because of the large footprint and high price of many proton therapy systems, there is increasing demand for the development of smaller, more compact proton therapy systems. Although we have introduced our ProBeam® Compact single-room proton therapy solution and our ProBeam 360 single room and multi-room systems, other companies have more experience offering smaller, less expensive proton therapy systems. Our competitiveness will depend on our ability to continue to timely develop new technologies to reduce the size and price of our system or provide additional features and functionality that our competitors do not.
Our Interventional Solutions business offers products for interventional oncology procedures and treatments, including cryoablation, microwave ablation and embolization The success of our Interventional Oncology business will depend on general market penetration and acceptance of interventional solutions among physicians, the medical community, healthcare payors and patients, and our ability to develop and successfully market technologically competitive products and win market share from other companies in spaces where they have greater resources than we do.
In addition to hardware and software products for oncology care, we offer treatment planning and quality assurance as a service, which allows remote delivery and support of care in understaffed locations to utilize technology on a per patient basis. Our ability to realize the full potential of these services will depend heavily on our ability to deploy them using AI-based software solutions and developing such software solutions.

We may need to spend more time and money than anticipated to develop and introduce new products, product enhancements or services. We may not be able to recover all or a meaningful part of our investments. New products may adversely impact orders and sales of our existing products or make them less desirable or even obsolete. In addition, certain costs, including installation and warranty costs, associated with new products may be disproportionately greater than the costs associated with existing products, and if we are unable to lower these costs over time, our operating results could be adversely affected.

Our ability to successfully develop and introduce new products, product enhancements and services depends, among other things, on our ability to:
properly identify and respond to customer needs;
demonstrate the value proposition of new products and services;
limit the time required from proof of feasibility to routine production;
timely and efficiently comply with internal quality assurance systems and processes;
limit the timing and cost of regulatory approvals;
accurately predict and control costs associated with inventory overruns or shortages caused by phase-in of new products and services and phase-out of old products and services;
price our products and services competitively and profitably;
manufacture, deliver and install our products in sufficient volumes on time, and accurately predict and control costs associated with manufacturing, installation, warranty and maintenance of the products; and
manage customer demands for new and old products and services, and optimize complementary product lines and services.

We cannot be sure that we will be able to successfully commercialize new products because commercialization involves compliance with complex quality assurance processes, including the Quality System Regulation (“QSR”) of the FDA. Failure to complete these processes on a timely and efficient basis could result in delays that could affect our ability to attract or retain customers, or could cause customers to delay or cancel orders.

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In addition, a portion of our Oncology Systems’ product revenue is generally tied to installation and acceptance of the product, and our recognition of revenue associated with new products may be deferred where it takes longer to manufacture or install the new products. Customers may also decide not to upgrade their equipment, or customers may delay delivery of some of our more sophisticated products because of the longer preparation and renovation of treatment rooms required.

We compete in highly competitive markets, and we may lose market share to companies with greater resources or more effective technologies, or be forced to reduce our prices.
The markets for cancer treatment are characterized by rapidly evolving technology, intense competition and pricing pressure. In radiotherapy and radiosurgery markets, we compete primarily with Elekta AB and Accuray Incorporated. In addition, our software products compete with the product offerings of a variety of companies, such as Philips Medical Systems, RaySearch Laboratories AB and Brainlab AG.

New competitors may enter our markets and have already entered some of our newer markets such as radiosurgery, VMAT and proton therapy. Established enterprise software developers with greater software development capability may enter the markets for cancer treatment software. Some of these competitors may have greater financial, marketing and other resources. To compete successfully, we must provide technically superior, proven products that deliver more precise, cost-effective, high quality clinical capabilities, in a complete package of products and services, and do so ahead of our competitors.

As our Oncology Systems products are generally sold on a basis of total value to the customer, our business may suffer when purchase decisions are based solely upon price, which can happen if hospitals and clinics give purchasing decision authority to group purchasing organizations. New competitors may also delay the purchasing decisions of customers if customers decide to evaluate the products of such competitors along with ours, potentially extending our sales cycle and adversely affecting our gross orders and revenues.

The shift in the proportion of sales outside the United States towards emerging market countries, which typically purchase less complex, lower-priced products compared to more developed countries, and which usually have stiffer price competition and longer periods from placement of orders to revenue recognition, could also adversely impact our results of operations.
The market for proton therapy products is still developing and is characterized by rapidly evolving technology and pricing pressure. Our primary competitors in the proton therapy market are Hitachi Heavy Industries, Ion Beam Applications S.A. and Mevion Medical Systems. Our ability to compete successfully depends, in part, on our ability to lower our product costs, and develop and provide technically superior, proven products that deliver precise, cost-effective, high quality capabilities.

The markets for interventional solutions products are relatively new, still developing and consist of a wide variety of products, many of which have had varying degrees of market acceptance. Our primary competitors in the interventional solutions market include Boston Scientific Corp., Terumo Medical Corp., Merit Medical Systems, AngioDynamics, Medtronic and Johnson & Johnson, many of which have greater experience in the interventional solutions markets and more financial and other resources than we do.

The successful development of alternative therapies for cancer (e.g. pharmaceutical treatments such as immunotherapy), increased efficacy information about new therapies or existing products, pricing decisions by competitors and the rate of market penetration by competitive products may render our products obsolete, result in lost market share for us, reduce utilization of our products, lower prices, and reduce product sales and operating margins.

The timing of our competitors’ introduction of products into the market could affect the market acceptance and market share of our products. Some competitors offer specialized products that provide, or may be perceived by customers to provide, a marketing advantage over our mainstream cancer treatment products. Also, some of our competitors may not be subject to the same standards, regulatory and/or other legal requirements that we are subject to, and therefore, they could have a competitive advantage in developing, manufacturing and marketing products and services. Any inability to develop, gain regulatory approval for and supply commercial quantities of competitive products to the market as quickly and effectively as our competitors could limit market acceptance of our products and reduce our sales. In addition, some of our smaller competitors could be acquired by larger companies that have greater financial strength and resources, which could enable them to compete more aggressively and effectively. Our competitors could also acquire some of our suppliers or distributors, which could disrupt supply or distribution arrangements and result in less predictable and reduced revenues in our businesses.

The interoperability of radiation oncology treatment products is becoming increasingly important, and sales of our products could fall if we fail to establish interoperability.
As radiation oncology treatment becomes more complex, our customers are increasingly focused on ease-of-use and interconnectivity. We have directed substantial product development efforts into (1) increasing the interconnectivity of our
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products for more seamless operation within a system, (2) making our software products easier to use, and (3) reducing setup and treatment times to increase patient throughput. Our equipment and software are highly sophisticated, and a high level of training and education is required to use them safely and effectively.

We have emphasized an “open system” approach that allows customers to “mix and match” our individual products, incorporate products from other manufacturers, share information with other systems or products and offer various methods of radiation and chemotherapy treatment. We have done this based on our belief that such interconnectivity will increase the acceptance and adoption of IMRT, IGRT and VMAT and will stimulate demand for our products. There are competitive “closed-ended” dedicated-use systems that place simplicity of use ahead of flexibility. If we have misjudged the importance to our customers of maintaining an “open system” approach, or if we are unsuccessful in our efforts to increase interconnectivity, enhance ease-of-use and reduce setup and treatment times, our revenues could suffer. Obtaining and maintaining
interoperability and compatibility can be costly and time-consuming. While we try to use standard published protocols for communication with widely-used oncology products manufactured by other companies, if we cannot do this, we may need to develop individual interfaces so that our products communicate correctly with other products.

When other companies modify the design or functionality of their products, this may affect their compatibility with our products. In addition, when we improve our products, customers may be reluctant to adopt our new technology due to potential interoperability issues. For example, a clinic may be unwilling to implement one of our new technologies because its third-party software does not yet communicate correctly with our new product. Our ability to obtain compatibility with products of other companies may depend on our ability to obtain adequate information from them regarding their products. In many cases, these third parties are our competitors and may schedule their product changes or delay their release of relevant information to place us at a competitive disadvantage.

When we modify our products to make them interoperable or compatible with third-party products, we may be required to obtain additional regulatory clearances. This process is costly and could delay our ability to release our products for commercial use. It is also possible that, despite our efforts, we may not be able to make our products interoperable or compatible with widely used third-party products or may only be able to do so at a prohibitive expense, making our products less attractive to our customers.

Disruption of our critical information systems or material cyberattacks or security breaches of our products may adversely affect our business and customer relations.
Information technology helps us operate efficiently, interface with and support our customers, maintain financial accuracy and efficiency, and produce our financial statements. There is an increasing threat of information security attacks for companies such as Varian. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to, among other things, transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through a security breach. Such security breaches could expose us to a risk of loss of information, litigation and possible liability to employees, customers and regulatory authorities. If our data management systems fail to effectively collect, secure, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired. Any such impairment could materially and adversely affect our financial condition and results of operations, and the timeliness with which we report our operating results internally and externally.

We manufacture and sell (i) hardware products that rely upon software systems to operate properly and (ii) software products that deliver treatment instructions and store confidential patient information. Both types of products often are connected to and reside within our customers' information technology infrastructures. While we have implemented security measures to protect our hardware and software products from unauthorized access, these measures may not be effective in securing these products, particularly since techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target. Additionally, we are developing and offering cloud and SaaS software products which reside with and are hosted by third-party providers. A security breach, whether of our products, of our customers’ network security and systems or of third-party hosting services, could disrupt treatments occurring on our products, disrupt access to our customers' stored information, such as patient treatment delivery instructions, and could lead to the loss of, damage to or public disclosure of our customers’ stored information, including patient health information. Such an event could have serious negative consequences, including possible patient injury, regulatory action, fines, penalties and damages, reduced demand for our solutions, an unwillingness of our customers to use our solutions, harm to our reputation and brand, and time-consuming and expensive litigation, any of which could have an adverse effect on our financial results.
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If we were to experience a significant cyberattack or security breach of our information systems or data, the costs associated with the investigation, remediation and potential notification of the breach to customers and counter-parties could be material. We carry a limited amount of insurance for cybersecurity liability, and our insurance coverage may be inadequate. In the future, our insurance coverage may be expensive and/or not be available on acceptable terms or in sufficient amounts, if at all.

We may offer extended payment terms to certain customers, which could adversely affect our financial results.
We offer extended payment terms for certain qualified customers. As of October 2, 2020, customer contracts with remaining terms of more than one year amounted to approximately 6% of our net trade and unbilled receivables.

While we qualify customers to whom we offer extended payment terms, their financial positions may change adversely over the longer payment term. Many of the customers to which we offer such extended payment terms are located in underdeveloped legal systems for securing debt and enforcing collection of debt. Concerns over economic instability could also make it more difficult for us to collect outstanding receivables. This may result in an increase in payment defaults and uncollectible accounts, or could cause us to increase our bad debt expense, which would adversely affect our net earnings. In addition, extended payment terms decrease our cash flow from operations.

In addition to extended payment terms, in some cases the purchase price for our hardware products is also variable based on the number of patients treated with the product, which may make it more difficult for us to accurately forecast revenue.

Economic, political and other risks associated with international sales and operations could adversely affect our sales or make them less predictable.

Revenues outside of the United States accounted for approximately 56%, 57%, and 55% of our total revenues during fiscal years 2020, 2019 and 2018, respectively. Correspondingly, we must provide significant service and support globally. We intend to continue to expand our presence in international markets and expect to expend significant resources in doing so. We cannot assure you that we will be able to recover these investments in international markets.

Our results of operation could be adversely affected by a variety of factors, including, among other things:
lower sales prices and gross margins usually associated with sales of our products and services in international regions, and in emerging markets in particular;
the longer payment cycles associated with many foreign customers;
the typically longer periods from placement of orders to revenue recognition in certain international and emerging markets;
currency fluctuations;
difficulties in interpreting or enforcing agreements and collecting receivables through the legal systems of many foreign countries;
unstable regional political and economic conditions, or strained or worsening relations between the United States and China or other countries;
changes in the political, regulatory, safety or economic conditions in a country or region, including as a result of the United Kingdom’s (the “U.K.”) exit from the European Union (“E.U.”) (“Brexit”);
the imposition by governments, including the United States, of additional taxes, tariffs, global economic sanctions programs or other restrictions on foreign trade, and our ability to obtain or renew exemptions from tariffs;
any inability to obtain required export or import licenses or approvals;
any inability to comply with export or import laws and requirements or any violation of sanctions regulations, which may result in enforcement actions, civil or criminal penalties and restrictions on exportation;
any increase in the cost of trade compliance functions to comply with changes to regulatory requirements;
failure to obtain proper business licenses or other documentation, or to otherwise comply with local laws and requirements to conduct business in a foreign jurisdiction; and
the possibility that it may be more difficult to protect our intellectual property in foreign countries.
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Tariffs or cross-border trade restrictions could increase the cost of our products.
On July 6, 2018, the Trump Administration imposed 25% tariffs on a variety of imports from China, including Varian’s radiotherapy systems manufactured in China and certain components imported into the U.S. for our manufacturing and service activities. The Administration subsequently imposed tariffs on two additional lists of products from China; the first of these additional lists involves 25% tariffs and the second list imposes 25% tariffs. We expect our imports into the U.S. will continue to be impacted less by these two additional tariff lists than by the initial tariff list.

China responded to the multiple U.S. tariff lists by announcing several lists of products from the U.S. that are subject to additional tariffs upon import to China. The first round of Chinese retaliatory tariffs went into effect on July 6, 2018. Our products are not impacted by these tariffs. Our exports of U.S. manufactured radiotherapy systems to China are impacted by the second Chinese list, implemented on August 23, 2018, which is subject to a 25% tariff. A third group of items, including certain of our manufacturing inputs and services, is subject to 5 to 10% tariffs, which went into effect on September 24, 2018. In September 2019, the Chinese government granted a tariff exclusion for medical linear accelerators, including our radiotherapy systems, which has been extended through September 16, 2021. Any tariffs imposed by the United States and China that include Varian technology could increase the cost of our products and adversely impact the competitiveness of our products and/or our operational results in the future.

We continue to participate in the Office of the U.S. Trade Representative (“USTR”) process to consider and extend product-specific exclusions from these tariffs. On December 21, 2018, USTR announced its approval of our request to exclude certain radiotherapy systems manufactured in China, and this decision has been extended through December 28, 2020. Two additional component exclusions, for multi-leaf collimators and certain printed circuit board assemblies, have been granted through December 31, 2020. One additional exclusion request, for tungsten shielding, was not extended and expired on September 19, 2020. We continue to advocate for consideration of extensions beyond the current expiration dates, but there can be no assurance we will be successful.

Changes in foreign currency exchange rates may impact our results.
Because our business is global, and payments are generally made in local currency, fluctuations in foreign currency exchange rates can impact our results by affecting product demand, or our revenues and expenses, and/or the profitability in U.S. Dollars of products and services that we sell in foreign markets.

While we use hedging strategies to help offset the effect of fluctuations in foreign currency exchange rates, the protection these strategies provide is affected by the timing of transactions, the effectiveness of the hedges, the number of transactions that are hedged and forecast accuracy. If our hedging strategies do not offset these fluctuations, our revenues, margins and other operating results may be adversely impacted. Furthermore, movements in foreign currency exchange rates could impact our financial results positively or negatively in one period and not in another, making it more difficult to compare our financial results from period to period.

In addition, our hedging program is designed to hedge currency movements on a relatively short-term basis, typically up to the next twelve-month period, instead of on a rollforward basis. Therefore, we are exposed to currency fluctuations over a longer term. Long-term movements in foreign currency exchange rates can also affect the competitiveness of our products in the local currencies of our international customers. A substantial portion of our international sales are priced in local currencies, although our cost structure is weighted towards the U.S. Dollar. Therefore, the strengthening of the U.S. Dollar may adversely affect our competitiveness and financial results, as our foreign competitors may have cost structures based in other currencies other than the U.S. Dollar, and they may be more competitive when the U.S. Dollar strengthens against those currencies.

Changes in monetary or other policies here and abroad, including as a result of economic and or political instability, or in reaction thereto, would also likely affect foreign currency exchange rates. Furthermore, if one or more European countries were to replace the Euro with another currency, our sales into these countries, or into Europe generally, would likely be adversely affected until stable exchange rates are established.

Consolidation among our oncology systems customers could adversely affect our sales of oncology products.
We have seen and may continue to see some consolidation among our customers in our Oncology Systems business, as hospitals and clinics combine through mergers and acquisitions, and as they join group purchasing organizations or affiliated enterprises. In addition, we have seen and may continue to see integration of equipment and information systems among hospitals as they consolidate their networks. As customers consolidate and/or integrate, the volume of product sales to these customers might decrease. Alternatively, order size may increase, as customers combine orders as one entity, or as groups of
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organizations combine their purchases. If orders increase in size and require more customer approvals, the purchasing cycle for our Oncology Systems products could lengthen. Both increased order size and extended purchasing cycles could cause our gross orders to be more volatile and less predictable and could result in longer overall order to revenue cycles. In addition, some customers appear to be developing new partnerships across clinical specialties to prepare for the possibility of operating in an accountable care organization (“ACO”) environment and the possibility of bundled reimbursement payments. Group purchasing organizations often focus on pricing as the determinant in making purchase decisions. A reduction in pricing could negatively impact gross orders, future revenues and gross margins.

Our business will suffer if we are unable to provide the significant education and training required for the healthcare market to accept our products.
In order to achieve market acceptance for our radiation therapy products, we often need to (i) educate physicians about the use of treatment procedures such as IMRT, IGRT, VMAT, SRS, SBRT, proton therapy or procedures using our interventional oncology products, (ii) overcome physician objections to some of the effects of the product or its related treatment regimen, (iii) convince healthcare payors that the benefits of the product and its related treatment process outweigh its costs, and (iv) help train qualified physicists in the skilled use of the product. For example, the complex and dynamic nature of IMRT and IGRT requires significant education of hospital personnel and physicians regarding the benefits of and practices associated with IMRT and IGRT. Further, the complexity and high cost of proton therapy requires similar significant education, as well as education regarding construction and facility requirements. We have devoted and will continue to devote significant resources to marketing and educational efforts to (a) create awareness of IMRT, IGRT, VMAT radiotherapy, SRS, SBRT, proton therapy or procedures using our interventional oncology products, (b) encourage the acceptance and adoption of our products for these technologies and (c) promote the safe and effective use of our products in compliance with their operating procedures. Future products may not gain adequate market acceptance among physicians, patients and healthcare payors, even if we spend significant time and expense educating them about these products.

We may not realize expected benefits from acquisitions of or investments in businesses, products or technologies, which could harm our business.
We need to grow and evolve our businesses in response to changing technologies, customer demands and competitive pressures. From time to time we may decide to execute on our strategy of becoming the global leader in multi-disciplinary, integrated cancer care solutions through the acquisition of, or investments in, businesses, products or technologies, rather than through organic development. For example, we completed five acquisitions in fiscal year 2019. Identifying suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to identify suitable candidates or successfully complete identified acquisitions. In addition, negotiating and completing an acquisition can divert our management and key personnel from our current business operations, which could harm our business and adversely affect our financial results.

There can be no assurance that the businesses, products or technologies we acquire, or the businesses we invest in, will become profitable or remain so. It may cost us more than anticipated to commercialize acquired business product lines, as we experienced with our proton therapy systems, or require us to increase our research and development, sales and marketing or general and administrative expenses, any of which could adversely impact our results of operations. Moreover, our failure to successfully manage the growth of an acquired businesses could have an adverse impact on the overall financial performance of our business.

Factors that will affect the success of our acquisitions include:
our ability to retain key employees of the acquired businesses;
the performance of the acquired businesses and their technologies, products or services;
our ability to integrate the operations, financial and other systems of the acquired businesses;
the ability of the combined company to achieve synergies such as increasing sales of the combined company’s products and services, achieving expected cost savings and effectively combining technologies to develop new products and services;
any disruption in order fulfillment or loss of sales due to integration processes;
increases in our risk of litigation, as a third-party may be more likely to assert a legal claim following an acquisition because of perceived deeper pockets or perceived greater value of a claim;
the absence of adequate internal controls and/or the presence of fraud in the acquired businesses;
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our ability to retain or grow the acquired company’s customers, suppliers, distributors or other partners;
any decrease in customer and distributor loyalty and product orders caused by dissatisfaction with the product lines and sales and marketing practices of the acquired businesses, including price increases; and
our assumption of known contingent liabilities, known liabilities that prove greater than anticipated, or unknown liabilities that come to light, in each case to the extent that the realization of such liabilities increases our expenses or adversely affects our business or financial position.

When we acquire a business, we allocate the total purchase price to the acquired businesses’ tangible assets and liabilities, identifiable intangible assets and liabilities based on their fair values as of the date of the acquisition, and we record the excess of the purchase price over those fair values as goodwill. If we fail to achieve the anticipated growth or cash flows from an acquisition, or if we decide to sell assets or a business, we may be required to recognize an impairment loss on the write down of our assets and goodwill, which could adversely affect our financial results. In addition, from time to time we structure our acquisitions to include earnout provisions that require us to pay the sellers of the businesses we acquire additional cash payments upon the accomplishment of financial performance or developmental milestones in the periods following the acquisition closing date. Any changes to our estimate of the expected earnout payments after the close of the acquisition up to and including the final payment, would generally be reflected on our statement of earnings. Moreover, acquisitions can result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges, any of which could harm our business and affect our financial results.

Additionally, we have investments in privately held companies. These investments are inherently risky, in some instances because the markets for the technologies or products these companies have under development may never materialize or achieve expectations. If these companies do not succeed, we may be forced to record impairment charges and could lose some or all of our investment in these companies.

Our efforts to integrate acquired businesses may not be successful, and this may adversely affect our financial results.
The success of business acquisitions may depend on our ability to successfully integrate the operations of the acquired business. Integrating the operations of acquired businesses requires significant efforts, including the coordination of operations, manufacturing, personnel, information technologies, research and development, sales and marketing and finance. These efforts can be compounded when the acquisitions are in new geographies or business lines. If these integration efforts are not successful, the anticipated benefits and synergies of the acquisition may not be realized fully, may take longer to realize than expected, or may not be realized at all. Our efforts to successfully integrate acquisitions may also result in additional expenses and divert significant amounts of management’s time from other projects.

Acquiring or implementing new business lines or offering new products and services may subject us to additional risks.
From time to time, we may acquire or implement new business lines or offer new products and services within existing lines of business. For example, with our June 2019 acquisition of Cancer Treatment International (“CTSI”), we entered the healthcare provider space and plan to expand into treatment planning and service, and with our July and August 2019 acquisitions of Endocare and Alicon we entered the Interventional Oncology market. There are substantial risks and uncertainties associated with these efforts. We may invest significant time and resources in developing, marketing, or acquiring new lines of business and/or offering new products and services. Initial timetables for the introduction and development or acquisition of new lines of business and/or the offering of new products or services may not be achieved, and price and profitability targets may prove to be unachievable. Our lack of experience or knowledge, as well as external factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the success of an acquisition or the implementation or of a new line of business or a new product or service. Entry into a new line of business and/or offering a new product or service may also subject us to new laws and regulations with which we are not familiar and may lead to increased litigation or regulatory risk. Furthermore, any new business line and/or new product or service could have an adverse impact on the effectiveness of our system of internal controls. New business lines or new products and services within existing lines of business could affect the sales and profitability of existing lines of business or products and services, including as a result of sales channel conflicts. Other risks include: (i) potential diversion of management’s attention, available cash, and other resources from our existing businesses; (ii) unanticipated liabilities or contingencies; (iii) the need for additional capital and other resources to expand into or acquire the new line of business; (iv) potential damage to existing customer relationships, lack of customer acceptance or inability to attract new customers; and (v) the inability to compete effectively. These risks would be magnified to the extent that any new business line would result in a significant increase in operations in developing markets. Failure to successfully manage these risks in the implementation or acquisition of new lines of business or the offering of new products or services could have a material adverse effect on our reputation, business, results of operations, and financial condition.
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Losing distributors may harm our revenues in some territories.
We have strategic relationships with a number of key distributors for sales and service of our products. If these strategic relationships end and are not replaced, our revenues from product sales or the ability to service our products in the territories serviced by these distributors could be adversely affected.

The results of studies and clinical trials are highly uncertain.
We have in the past conducted, and, in the future may continue to conduct, clinical trials related to prospective new therapies and technologies, including most recently pre-clinical studies in relation to ultra-high dose rate cancer treatments using our ProBeam platform. The results of preclinical studies and early clinical trials of product candidates or new therapies and technologies may not be predictive of the results of later-stage clinical trials, and favorable data from interim analyses do not ensure that the final results of a trial will be favorable. Product candidates or new therapies and technologies may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, or despite having produced favorable data in connection with an interim analysis. A number of companies in our industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. In addition, even if such clinical trials are successfully completed, we cannot guarantee that the FDA or comparable foreign regulatory authorities will interpret the results as we do, and more trials could be required before we submit our product candidates, new therapies or technologies for approval. To the extent that the results of trials are not satisfactory to the FDA or comparable foreign regulatory authorities for support of a marketing application or desired reimbursement classification product codes, we may be required to expend significant resources, which may not be available to us, to conduct additional trials in support of potential approval of our product candidates, new therapies or technologies.

Our credit facility restricts certain activities, and failure to comply with this agreement may adversely affect our business, liquidity and financial position.
We maintain a credit facility that contains affirmative and negative covenants that could restrict our operating and financing activities. These provisions limit our ability to, among other things, incur future indebtedness, contingent obligations or liens, guarantee indebtedness, make certain investments and capital expenditures, sell stock or assets and pay dividends, and consummate certain mergers or acquisitions. Because of the restrictions on our ability to create or assume liens, we may find it difficult to secure additional indebtedness if required.

We have in the past used borrowings under our credit facility to fund the repurchase of our shares, and we may continue to do so in the future. Furthermore, if we fail to comply with the credit facility requirements, we may be in default. Upon an event of default, if the credit agreement is not amended or the event of default is not waived, the lender could declare all amounts outstanding, together with accrued interest, to be immediately due and payable. If this happens, we may not be able to make those payments or borrow sufficient funds from alternative sources to make those payments. Even if we were to obtain additional financing, that financing may be on unfavorable terms.

Our operations are vulnerable to interruption or loss due to natural or other disasters, power loss, strikes and other events beyond our control.
We conduct a significant portion of our activities, including manufacturing, administration and data processing at facilities located in the State of California and other seismically active areas that have experienced major earthquakes and other natural disasters. We carry limited earthquake insurance that may not be adequate or continue to be available at commercially reasonable rates and terms. In addition, we have operations in parts of the world, including cancer centers in parts of India, which have experienced natural disasters such as tsunamis, floods and drought. A major earthquake or other disaster (such as a major fire, hurricane, flood, drought, tsunami, volcanic eruption or terrorist attack) affecting our facilities, or those of our suppliers, could significantly disrupt our operations, and delay or prevent product manufacture and shipment during the time required to repair, rebuild or replace the damaged facilities. These delays could be lengthy and costly. If any of our customers’ facilities are adversely affected by a disaster, shipments of our products could be delayed. Additionally, customers may delay purchases of our products until operations return to normal or may move to a competitor that can meet their desired delivery time frame. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. Further, our products are typically shipped from a limited number of ports, and any disaster, strike or other event blocking shipment from these ports could delay or prevent shipments and harm our business. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil or a pandemic could have or in the case of the recent COVID-19 pandemic, has had and could continue to have, a negative effect on our business operations, those of
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our suppliers and customers, and the ability to travel, resulting in adverse consequences on our revenues and financial performance.

The United Kingdom's exit from the European Union may negatively impact our operations.
The United Kingdom's ("U.K") exit from the European Union on January 31, 2020, commonly referred to as Brexit, has caused, and may continue to cause, uncertainty in the global markets. Political and regulatory responses to the withdrawal are still developing, and we are in the process of assessing the impact that the withdrawal may have on our business as more information becomes available. While we have not experienced any material financial impact from Brexit on our U.K. business to date, sales into the U.K. represented approximately 3% of our total revenues in fiscal year 2020, and we cannot predict the future implications of Brexit. Any impact from Brexit on our business and operations over the long term will depend, in part, on the outcome of tariff, tax treaties, trade, regulatory, and other negotiations the U.K. conducts.

We work in international locations with high security risks, which could result in harm to our employees or contractors or cause us to incur substantial costs.
We work in some international locations where there are high security risks, which could result in harm to our employees and contractors or substantial costs to maintain the safety of our personnel. Some of our services are performed in high-risk locations or adjacent locations where the country or surrounding area is suffering from political, social, or economic issues, war or civil unrest, or is experiencing a high level of criminal or terrorist activity. Despite the precautions that we take, the safety of our personnel in these locations may continue to be at risk, and we may in the future suffer the loss of employees and contractors, which could harm our business and operating results.

Product defects or misuse may result in material product liability or professional errors and omissions claims, litigation, investigation by regulatory authorities or product recalls that could harm our future financial results.
Our business exposes us to potential product liability claims that are inherent in the manufacture, sale, installation, servicing and support of medical devices and other devices that deliver radiation. Because our products are involved in the intentional delivery of radiation to the human body and other situations where people may come into contact with radiation, the possibility for significant injury and/or death exists. Our products operate within our customers’ facilities and network systems, and under quality assurance procedures established by the facility that ultimately delivers radiation to patients. Human and other errors or accidents may arise from the operation of our products in complex environments, particularly with products from other vendors, where interoperability or data sharing protocol may not be optimized even though the equipment or system operates according to specifications. In addition, if the integrity of a catheter used as part of our cryoablation system is compromised, serious injury or death may occur. As a result, we may face substantial liability to patients, our customers and others for damages resulting from the faulty, or allegedly faulty, design, manufacture, installation, servicing, support, testing or interoperability of our products with other products, or their misuse or failure. In addition, third-party service providers could fail to adequately perform their obligations, which could subject us to further liability. We may also be subject to claims for property damages or economic loss related to or resulting from any errors or defects in our products, or the installation, servicing and support of our products. Any accident or mistreatment could subject us to legal costs, litigation, adverse publicity and damage to our reputation, whether or not our products or services were a factor. In connection with our products that collect and store patient treatment data, we may be liable for the loss or misuse of such private data or personal information, if those products fail or are otherwise defective.

Product liability actions are subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations. If a product liability action were determined against us, it could result in significant damages, including punitive damages, and our consolidated financial position, results of operations or cash flows could be materially adversely affected.
Adverse publicity regarding any accidents or mistreatments could cause patients to be less receptive to radiotherapy or radiosurgery treatments, to question the efficacy of radiation therapy and radiosurgery and to seek other methods of treatment. Adverse publicity could also result in additional regulation that could adversely affect our ability to promote, manufacture and sell our products.

In addition, if a product we design or manufacture was defective or found to be so by a competent regulatory authority, we may be required to correct or recall the product and notify other regulatory authorities. The adverse publicity resulting from a correction or recall, however imposed, could damage our reputation and cause customers to review and potentially terminate their relationships with us. A product correction or recall could consume management time, cause us to lose new orders, cause customers to cancel or delay installation of existing orders, or cause us to incur significant costs, any of which could have an adverse effect on our results of operation.

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We maintain limited product liability and healthcare professional liability insurance coverage and do not maintain errors and omissions insurance. Our product liability and healthcare professional liability insurance policies are expensive and have high deductible amounts and self-insured retentions. Our insurance coverage may be inadequate, and future policies may not be available on acceptable terms or in sufficient amounts, if at all. If a material claim is successfully brought against us, we may have to pay substantial damages if they are not covered by insurance.

We are subject to certain risks related to the separation of our former imaging components business into Varex Imaging Corporation.
On January 28, 2017, we completed the separation of our former Imaging Components business through the distribution of 100% of the outstanding common stock of Varex Imaging Corporation (“Varex”) to our stockholders. We obtained an opinion of outside counsel to the effect that the separation will qualify as a transaction that is generally tax-free to both Varian and its stockholders for United States federal income tax purposes under Sections 355 and 368(a)(1)(D) of the United States Internal Revenue Code of 1986, as amended. An opinion of outside counsel represents their legal judgment but is not binding on the Internal Revenue Service (the “IRS”) or any court. Accordingly, there can be no assurance that the IRS will not challenge the conclusions reflected in the opinion or that a court would not sustain such a challenge.

ADDITIONAL RISKS RELATING TO OUR SOFTWARE PRODUCTS

We may face delays in the installation of our software products, which could have a material adverse effect on our operating results.
We may face delays in the installation and acceptance of our software products, which may take more time from order to completion of installation and acceptance than our hardware products. Though some of our software products are cloud-enabled, many of our current software product offerings are designed as on-premise products which must be installed on customer systems on-site. Delays in installation of our software products may arise as a result of a variety of factors, including (i) longer installation timetables resulting from challenges in coordinating on-site visits with the customer personnel, (ii) customer IT systems not being ready to host the installation, or (iii) the planning and customization required to deploy our software products in order to be compatible with a customer’s unique, complex and/or dated health IT systems. Delays in installation of our software products could result in delays in our ability to recognize revenues from the sale of these products, which could have a material adverse effect on our operating results and financial performance.

The need to maintain and service multiple versions of the same software product across our installed base of customers could adversely affect our ability to release upgraded or new products.
Because there is no uniform practice among our customer base of updating to more recent versions of our software products and, for a variety of reasons, many of our customers do not regularly update to the newest version of our software products, at any point in time our installed base of customers may be running several different versions of our software products. The need to maintain and service multiple versions of the same software product across our installed base of customers can be cumbersome, time consuming and may require more personnel and other resources than would be the case if all of our customers utilized the same versions of our software products. Moreover, the fact that not all of our customers run the same version of our software products can complicate our ability to efficiently release upgrades to, or new versions of, our software products across our installed base. Similar complications to the release and installation of upgrades may be experienced with certain of our cloud-enabled products that have been developed using single tenant architecture. In addition, in many instances, unless a customer has a certain version of our software products installed, their system will not be compatible with certain of our other software or hardware products. Our inability to release new versions of software to customers or to sell customers other products because of incompatibility issues hurts our revenues and may make revenue projection less predictable.

Coding errors in our software and cloud offerings could adversely affect our results of operations.
Despite extensive testing prior to the release and throughout the lifecycle of a product or service, our software and cloud offerings sometimes contain coding or manufacturing errors that can impact their function, performance and security, and result in other negative consequences. The detection and correction of any errors in released software or cloud offerings can be time consuming and costly. Errors in our software or cloud offerings could affect their ability to properly function or operate with other software, hardware or cloud offerings, delay the development or release of new products or services or new versions of products or services, create security vulnerabilities in our products or services, and adversely affect market acceptance of our products or services. If we experience errors or delays in releasing our software or cloud offerings or new versions thereof, our sales could be affected, and revenues could decline.

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We may not be successful in transitioning our customer base to software solutions deployed via cloud and SaaS solutions.
We are expanding our software product lines and investing in the development of cloud and SaaS solutions. Cloud and SaaS solutions for use in the health care industry must comply with stringent regulations in many of the countries in which our customers are located, particularly in relation to the use and storage of patient health data and privacy, and the regulations vary on a country-by-country basis. Our software products must be compliant with applicable regulation in the country in question before we can operationalize our offerings for customers located in those countries. Ensuring the compliance of our cloud and SaaS solutions with applicable regulation may take longer than expected, occur more slowly in certain countries than in others, require that design changes be developed into our products, or require more financial resources than anticipated.
In addition, even where our cloud and SaaS solutions are compliant with applicable regulation, customers may nevertheless refuse to adopt our products for numerous reasons, particularly in regards to the security of patient health data. Moreover, unless and until our cloud and SaaS solutions find general acceptance among our customer base, we would likely need to maintain and continue to develop both our on-premise software product offerings and our cloud and SaaS solution platforms, which could prevent us from realizing the full benefits and efficiencies from transitioning to a cloud platform, result in higher costs and have a material adverse effect on our operating results and financial performance.

An increase in the prevalence of cloud and SaaS delivery models offered by us and our competitors could also unfavorably impact the pricing of our on-premise software offerings and have a dampening impact on overall demand for our on-premise software product and related service offerings, which could reduce our revenues and profitability. In addition, to the extent that demand for our cloud offerings increases in the future, we may experience volatility in our reported revenues and operating results due to the differences in timing of revenue recognition between our software licenses and our cloud offering arrangements.

Furthermore, our cloud and SaaS software products may reside upon and be hosted by third party providers. A security breach, whether of our products, of our customers’ network security and systems or of third-party hosting services, could disrupt treatments utilizing our products, disrupt access to our customers’ stored information, such as patient treatment delivery instructions, and could lead to the loss of, damage to or public disclosure of our customers’ stored information, including patient health information.

Because we recognize revenue from subscriptions for our SaaS solutions over the term of the subscription, downturns or upturns in our SaaS business may not be immediately reflected in our operating results.
We recognize SaaS related revenue from customers ratably over the terms of their subscription agreements. As a result, most of the revenue we report in each quarter relating to our SaaS products is the result of subscription agreements entered into during previous quarters. Consequently, a decline in new or renewed subscriptions in any one quarter may not be reflected in our revenue results for that quarter. Any such decline, however, could negatively impact our revenue in future quarters. Accordingly, the effect of significant downturns in sales and market acceptance of our SaaS solutions, and potential changes in our attrition rate, may not be fully reflected in our results of operations until future periods.

Certain software that we use in our products is licensed from third parties and, for that reason, may not be available to us in the future, which has the potential to delay product development and production or cause us to incur additional expenses.
Some of our software products contain software licensed from third parties. Some of these licenses may not be available to us in the future on terms that are acceptable to us or allow our products to remain competitive. The loss of these third-party licenses or the inability to maintain any of them on commercially acceptable terms could delay development of future products or the enhancement of existing products. We may also choose to pay a premium price for such a license in certain circumstances, thereby reducing the gross margin of our software sales.

ADDITIONAL RISKS RELATING TO OUR PROTON SOLUTIONS BUSINESS
We participate in project financing for our Proton Solutions business, which has resulted in impairment charges and could result in payment defaults that adversely affect our financial results.
We have participated along with others in providing financing for the construction and start-up operations of several proton therapy centers and may provide financing to other proton therapy customers in the future. As of October 2, 2020, we had $118.6 million of loans outstanding, including accrued interest, available-for-sale securities, notes receivable and short-term senior secured debt, net of impairment reserves, related to Proton Solutions customers. See “Management Discussion and Analysis - Overview - Proton Solutions” and Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for the carrying value of our outstanding loans relating to the establishment of proton therapy centers. Providing such financing has adversely affected and could in the future adversely affect our financial results, since a center may not be completed on time or within budget, or may not generate sufficient patient volumes and revenues to
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support scheduled loan payments or facilitate a refinancing. If a borrower does not have the financial means to pay off loan amounts owing to us, and if we cannot recover loan amounts owing to us from the sale of any collateral or through other means, or in the event of a bankruptcy of the borrower, we may be required to write-off all, or a portion, of the loans, which would adversely affect our financial results. For example, in fiscal year 2017, the California Proton Therapy Center, LLC (“CPTC”), to which we had project financing outstanding, filed for bankruptcy and we recorded $51.4 million in impairment charges related to that financing. We also recorded an allowance for doubtful accounts of $37.8 million related to CPTC and one other proton center in fiscal year 2017. Similarly, in fiscal year 2018, we recorded impairment charges of $22.1 million on our subordinated loans to the Maryland Proton Therapy Center (“MPTC”) and in the second quarter of fiscal year 2020 we recorded an impairment of loans receivable from CPTC of $40.5 million. Please refer to “Management Discussion and Analysis - Overview - Varian Proton Solutions” and Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for a more detailed discussion of the impairment of the loan we extended. Any impairment charges relating to our Proton Solutions business could have a material adverse impact on our operating results and financial position.

Our Proton Solutions business has not been profitable historically, its financial results may be unpredictable and if our proton customers are unsuccessful, our financial results will be adversely affected.
The success of our Proton Solutions business will depend upon the widespread awareness, acceptance and adoption by the oncology market of proton therapy systems for the treatment of cancer. This technology is expensive and has not been widely adopted. Future developments may not be adopted as quickly as technological developments in more traditional areas of radiation therapy.

Since proton therapy projects are generally large, highly customized and more complex than projects in our Oncology Systems radiotherapy business, planning for these projects takes more resources. Many of the components used in proton therapy equipment require long lead times, which may require an increase in our inventory levels. This may cause fluctuations in the operating results of Proton Solutions that may make it difficult to predict our results and compare our results from period to period.

The construction of a proton therapy facility requires significant capital investment and may involve complex project financing. Consequently, this business is vulnerable to deterioration in general economic and market conditions. Economic downturns that result in a contraction in credit markets, have made and may continue to make it more difficult for potential customers of this business to find appropriate financing for large proton therapy projects, which could cause them to delay or cancel their projects, or request payment concessions in their agreements with us, which could adversely impact our operating results.
Proton therapy is expensive and changes in reimbursement rates for proton therapy treatments or uncertainty regarding these reimbursement rates can affect growth or demand for our Proton Solutions products and services.

After a proton therapy facility is established, there can be no assurance that it will have sufficient patient volume to be successful or profitable. If a proton treatment center cannot generate sufficient patient volume, it may lead to a need to refinance or renegotiate debt, seek concession on payments, or ultimately insolvency and bankruptcy, as in the case of CPTC and the Rinecker Proton Therapy Center in Germany, which has and may in the future require us to impair loans if we have extended loans to the proton treatment center, or to record an allowance for doubtful accounts against accounts receivables due from the proton treatment center.

Our estimates as to future operating results include certain assumptions about the future results of Proton Solutions’ business. If we are incorrect in our assumptions, our financial results could be materially and adversely affected. It is possible that Proton Solutions could perform significantly below our expectations due to a number of factors that cannot be predicted with certainty, including future market conditions, market acceptance of proton therapy and reimbursement rates. These factors could adversely impact Proton Solutions' ability to meet its projected results. For example, during the third quarter of fiscal year 2019, we recorded a goodwill charge of $50.5 million for the full value of the Proton Solutions reporting unit goodwill, which resulted from a downward revision of forecasted future cash flows attributable to continued weakness in proton therapy markets and lower than expected results as compared to prior forecasts.

We compete for many proton therapy system sales through tenders, where parties compete on price and other factors. Many companies sell their products at a lower price than we do. If we are unable to lower our prices or our customers are not willing to pay for additional features and functionality that we may provide, we may lose sales, and if we lower our prices to gain business, our margins and other financial results may suffer. Further, the award of certain proton therapy system orders may be subject to challenge by third parties, which can make these orders more unpredictable than orders for other products. Because an order for a proton therapy system can be large and complex, and the sales cycle for proton therapy projects may take several years, an order in one fiscal period may cause our gross orders and revenues to vary significantly, making it difficult to predict and compare our results of operations from period to period.
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We expect that a limited number of customers will account for a substantial portion of Proton Solutions' business for the foreseeable future. In instances where one customer undertakes multiple proton center projects, an adverse event with respect to one project could cause an adverse event with respect to the other projects, which in turn could adversely impact our operating results and financial position.

Our Proton Solutions business may subject us to increased liability.
Our Proton Solutions' business may subject us to increased liability. For example, because proton therapy projects are large in scale and require detailed project planning, failure to deliver or delays in delivering on our commitments could result in greater than expected liabilities, as we could be required to indemnify business partners and customers for losses suffered or incurred if we are unable to deliver our products in accordance with the terms of customer contracts. Additionally, customers have in the past requested and may in the future request that the systems vendor, as the primary technology provider, provide guarantees for and suffer penalties in relation to the overall construction project. Since the cost of a proton therapy center project can often exceed $100 million, the amount of potential liability and potential for financial loss would likely be higher than the levels historically assumed by us for our traditional radiation therapy business and may also exceed the project’s value. Insurance covering these contingencies may be unobtainable or expensive. If we cannot reasonably mitigate or eliminate these contingencies or risks, our ability to competitively bid upon proton center projects will be negatively impacted or we may be required to assume material amounts of potential liability, all of which may have adverse consequences to us.

ADDITIONAL RISKS RELATED TO OUR CANCER TREATMENT SERVICES INTERNATIONAL BUSINESS
In June 2019, we acquired CTSI, which through its America Oncology Institute (“AOI”) business operates thirteen multi-disciplinary cancer centers and one specialty hospital in India, and one multi-disciplinary cancer center in Sri Lanka, as of October 2, 2020 (collectively, “cancer centers”). CTSI also operates AmPath, a full-service reference laboratory and pathology provider in India. Our AOI and AmPath businesses subject us to a number of risks, including those set forth below.

Our cancer center operations may not be profitable, and the operation or development of existing and future cancer centers could cause us to incur unexpected costs.
The operation and development of cancer centers is subject to a number of risks, including the inability to obtain regulatory permits or approval, delays in the construction of facilities and environmental liabilities related to the disposal of radioactive, chemical and medical waste. Our strategy includes the development of additional multidisciplinary cancer centers, which are in various planning or development stages. Any failure or delay in successfully building new cancer centers, as well as liabilities from ongoing operations, could seriously harm our operating results. New cancer centers may incur significant operating losses during their initial operations, which could materially and adversely affect our operating results, cash flows and financial condition. In addition, in some cases our cancer centers may not be profitable enough for us to recover our investment. We may decide to close or sell cancer centers, either because of underperformance or other market developments.

The performance of the cancer centers that we operate depends on our ability to recruit and retain quality physicians, qualified nurses and medical support staff and we face competition for staffing that may increase our labor costs and harm our results of operations.
Typically, physicians are responsible for making admissions decisions and for directing the course of patient treatment at the cancer centers that we operate. As a result, the success and competitive advantage of our cancer centers may depend, in part, on the number and quality of the physicians and the medical staffs of our cancer centers, the admitting practices of those physicians and our maintenance of good relations with those physicians. In many cases, physicians are not employees of our cancer centers, and, in a number of the regions in which we operate, physicians have admitting privileges at other cancer centers or hospitals in addition to our cancer centers. They may terminate their affiliation with us at any time. If we are unable to provide adequate support personnel and technologically advanced equipment and facilities that meet the needs of those physicians, they may be discouraged from treating patients at our facilities and our results of operations may decline.

In addition, we depend on the efforts, abilities, and experience of our medical support personnel, including our nurses, pharmacists and lab technicians and other healthcare professionals. We compete with other healthcare providers in recruiting and retaining qualified management, nurses and other medical personnel. There is a nationwide shortage of nurses and other medical support personnel in India which from time to time may require us to enhance wages and benefits in order to recruit and retain nurses and other medical support personnel or require us to hire expensive temporary personnel. To the extent we cannot hire adequate numbers of medical support personnel, we may be required to limit the healthcare services provided in these markets, which would have a corresponding adverse effect on our results of operation.

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We cannot predict the degree to which we will be affected by the future availability or cost of attracting and retaining talented medical support staff. If our general labor and related expenses increase, we may not be able to raise our rates correspondingly. Our failure to recruit and retain qualified management, nurses and other medical support personnel, or control our labor costs could harm our results of operations.

Our cancer centers face competition for patients from other cancer centers, hospitals and health care providers.
The healthcare industry in India is highly competitive and competition among cancer centers, hospitals and other healthcare providers for patients and physicians has intensified in recent years. In all the geographical areas in which we operate, there are other cancer centers or hospitals that provide services comparable to those offered by our facilities. We also face competition from specialty hospitals (some of which are physician-owned) and unaffiliated freestanding outpatient centers for market share in high margin services and for quality physicians and personnel. In recent years, the number of freestanding specialty hospitals, surgery centers, emergency departments, urgent care centers and diagnostic imaging centers in the geographic areas in which we operate has increased significantly. Furthermore, some of the hospitals that compete with our hospitals are owned by government agencies or not-for-profit organizations supported by endowments and charitable contributions and can finance capital expenditures and operations on a tax-exempt basis. If our competitors are better able to attract patients, recruit physicians, expand services or obtain favorable managed care contracts at their facilities than we are, we may experience an overall decline in patient volumes.

We are subject to occupational health, safety and other similar regulations and failure to comply with such regulations could harm our business and results of operations.
Our CTSI operations in India are subject to a wide variety of Indian national and local occupational health and safety laws and regulations. Regulatory requirements affecting us include, but are not limited to, those covering: (i) air and water quality control; (ii) occupational health and safety (e.g., standards regarding blood-borne pathogens and ergonomics, etc.); (iii) waste management; (iv) the handling of asbestos, polychlorinated biphenyls and radioactive substances; and (v) other hazardous materials. If we fail to comply with those standards, we may be subject to sanctions and penalties that could harm our business and results of operations.

We may be subject to liabilities from claims brought against our cancer centers and third-party customers of our AmPath business.
We are subject to medical malpractice lawsuits, class action lawsuits and other legal actions against our cancer centers and third-party customers of our AmPath business in the ordinary course of business. Some of these actions may involve large claims, as well as significant defense costs. We cannot predict the outcome of these lawsuits or the effect that such lawsuits may have on us. In an effort to resolve one or more of these matters, we may choose to negotiate a settlement. Amounts we pay to settle any of these matters may be material. We maintain limited healthcare professional liability insurance coverage and do not maintain errors and omissions insurance. Our insurance coverage may be inadequate, and future policies may not be available on acceptable terms or in sufficient amounts, if at all. If a material claim is successfully brought against us, we may have to pay substantial damages if they are not covered by insurance, which could have a material adverse effect on our operations.

RISKS RELATING TO THE MANUFACTURE OF OUR PRODUCTS

Any inability to obtain supplies of important components could restrict the manufacture of products, cause delays in delivery, or significantly increase our costs.
We obtain some of the components included in our products from a limited group of suppliers or from a single source supplier, such as the radioactive sources for high dose rate brachytherapy, klystrons for linear accelerators and specialized integrated circuits and various other components; radiofrequency components, magnets, patient positioning systems and gantry hardware for proton therapy systems, and vacuum sleeves for our cryoablation products.

If we lose any of these suppliers, if their operations were substantially interrupted, or if any of them failed to meet performance or quality specifications, we may be required to obtain and qualify one or more replacement suppliers. Such an event may then also require us to redesign or modify our products to incorporate new parts and/or further require us to obtain clearance, qualification or certification of these products by the FDA or obtain other applicable regulatory approvals in other countries. Events like these could significantly increase costs for the affected product and likely cause material delays in delivery of our products, which could have an adverse effect on our revenue and results of operations.

Some of our single-source suppliers provide components for some of our growing product lines. Manufacturing capacity limitations of any of our suppliers or other inability of these suppliers to meet increasing demand could adversely affect us, resulting in curtailed growth opportunities for our affected product lines. Shortage of, and greater demand for, components and
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subassemblies could also increase manufacturing costs if the supply/demand imbalance increases the price of the components and subassemblies. Disruptions or loss of any of our limited-sourced or sole-sourced components or subassemblies or the capacity limitations of the suppliers for these components or subassemblies could adversely affect our business and financial results and could damage our customer relationships.

In addition, following the separation of our former Imaging Components business into Varex in January 2017, Varex is the sole source supplier of tubes, panels and detector components used in certain of our products, such as our On-Board Imager. Any disruption or reduction in the supply of these components could result in delays or reductions in our product deliveries, which could adversely affect our business and financial results and could damage our customer relationships. Also, any unforecasted increases in the price of these components could adversely impact our profitability.

A shortage or change in source of raw materials could restrict our ability to manufacture products, cause delays, or significantly increase our cost of goods.
We rely upon the supplies of certain raw materials such as tungsten, lead, iridium and copper for Oncology Systems and high-grade steel, high-grade copper and iron for Proton Solutions. Worldwide demand, availability and pricing of these raw materials have been volatile, and we expect that availability and pricing will continue to fluctuate in the future. If supplies are restricted or become unavailable or if prices increase, this could constrain our manufacturing of affected products, reduce our profit margins or otherwise adversely affect our business.

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has promulgated rules regarding disclosure of the presence in a company’s products of certain metals, known as “conflict minerals,” which are metals mined from the Democratic Republic of the Congo and adjoining countries, as well as procedures regarding a manufacturer’s efforts to identify the sourcing of those minerals from this region. Complying with these rules requires investigative efforts, which has and will continue to cause us to incur associated costs, and could adversely affect the sourcing, supply, and pricing of materials used in our products, or result in process or manufacturing modifications, all of which could adversely affect our results of operations.

Our financial results may suffer if we are not able to match our manufacturing capacity with demand for our products.
Many of our products have a long production cycle, and we need to anticipate demand for our products in order to ensure adequate manufacturing or testing capacity. If we are unable to anticipate demand and our manufacturing or testing capacity does not keep pace with product demand, we will not be able to fulfill orders in a timely manner, which may negatively impact our financial results and overall business. Conversely, if demand for our products decreases, the fixed costs associated with excess manufacturing capacity may harm our financial results.

We rely on third parties to perform spare parts shipping and other logistics functions on our behalf. Disruptions at our logistics providers may adversely impact our business.
Third-party logistics providers store a significant portion of our spare parts inventory in depots around the world and perform a significant portion of our spare parts logistics and shipping activities. If any of our logistics providers terminates its relationship with us, suffers an interruption in its business, or experiences delays, disruptions or quality control problems in its operations, or if we have to change and qualify alternative logistics providers for our spare parts, shipments of spare parts to our customers may be delayed and our reputation, business, financial condition and results of operations may be adversely affected.

RISKS RELATING TO OUR REGULATORY ENVIRONMENT

We operate in a highly regulated industry, and we face significant costs in complying with laws and regulations. Failure or delays in obtaining regulatory approvals or complying with laws and regulations could delay or prevent product distribution, the introduction of new products or services and result in significant fines and penalties.
We operate in a highly regulated industry and our products and services are subject to numerous U.S. and foreign laws and regulations, as discussed in “Part 1, Item 1. Business - Government Regulation.” Our products, services and operations are subject to regulation by the FDA, the state of California and other U.S. states, the Nuclear Regulatory Commission ("NRC”) and regulatory bodies in the countries and regions in which we market our products and services. For example, we must comply with FDA medical device clearance and reporting regulations, and similar laws in numerous foreign countries, including the European Union (“EU”), the European Economic Area (“EEA”), Switzerland, China, Japan and Canada; and we must comply with NRC clearance, approval and licensing requirements and other federal, state and foreign laws that regulate the use of radioactive materials. We are also subject to laws and regulations in India and Sri Lanka in relation to the operation of healthcare establishments. Compliance with these regulations can be costly, time consuming and burdensome, may negatively impact our ability to market our products and services or result in significant delays or even prevent the marketing and full
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commercialization of future products or services. Moreover, failure to obtain regulatory approvals or renewals in a timely manner could subject us to fines and penalties.

As a participant in the healthcare industry, we are also subject to federal, state and foreign laws and regulations pertaining to fraud and abuse, physician payment transparency, false claims and misleading advertisements. These laws and regulations and their enforcement are constantly undergoing change, and we cannot predict what effect, if any, changes to these laws and regulations may have on our business or the businesses of our customers. Non-compliance with “anti-kickback”, “false claims” and transparency laws and regulations can result in substantial civil and criminal penalties and potential mandatory or discretionary exclusion from healthcare programs.

We are also subject to laws and regulations related to the collection, processing, storage, transfer and use of personal data, including under the EU General Data Protection Regulation ("GDPR") and data protection legislation in other foreign jurisdictions and the California Consumer Privacy Act of 2018 (“CCPA”) and similar laws in the United States, at both the federal and state level. The compliance and other burdens imposed by the GDPR, CCPA and similar privacy laws and regulations may limit the use and adoption of our services, reduce overall demand for our services, require us to modify our data handling practices, slow the pace at which we close sales transactions and impose additional costs and burdens. In particular, the collection, storage, transfer and use of patient information and data obtained through our AOI business operations is highly regulated by applicable law. In addition, non-compliance could result in proceedings against us by governmental entities or others and/or significant fines, could negatively impact our reputation, and may otherwise adversely impact our business, financial condition and operating results. Further, in July 2020, the Court of Justice of the European Union released a decision in the Schrems II case (Data Protection Commission v. Facebook Ireland, Schrems), declaring the EU-US Privacy Shield invalid and calling into question data transfers carried out under the European Commission’s Standard Contractual Clauses. As a result of the decision, we may face additional scrutiny from EU regulators in relation to the transfer of personal data from the EU to the US. Noncompliance with the GDPR can trigger fines of up to the greater of €20 million or 4% of global annual revenues.

As we enter new businesses or pursue new business opportunities that require clinical trials, we may seek to conduct clinical studies or trials in the United States or other countries on products that have not yet been cleared or approved for a particular indication. Additional regulations govern the approval, initiation, conduct, monitoring, documentation and reporting of clinical studies to regulatory agencies in the countries or regions in which they are conducted. Failure to comply with all regulations governing such studies could subject us to significant enforcement actions and sanctions, including halting of the study, rejection of data generated in the study, seizure of investigational devices or data, sanctions against investigators, civil or criminal penalties, and other actions. In addition, without the data from one or more clinical studies, it may not be possible for us to secure the data necessary to support certain regulatory submissions, to secure reimbursement or demonstrate other requirements. We cannot assure you that access to clinical investigators, sites and subjects, documentation and data will be available on the terms and timeframes necessary.

Any failure or delay in complying with one or more of the regulatory requirements we face could result in reduced sales, increased costs, delays to new product introductions, enhancements or our strategic plans, or harm to our reputation or competitiveness, all of which could have a material adverse effect on our business and financial results.

Healthcare reform legislation including The Affordable Care Act and state-level legislation may adversely affect our business.
The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act (collectively, the “ACA”) became effective in 2010. The ACA could adversely impact the demand for our products and services, and therefore our financial position and results of operations, possibly materially. Discussions relating to the ACA have included the possibility for bundled reimbursement payments and ACOs. ACOs and bundled payment programs were established by the ACA to reward integrated, efficient care and allow providers to share in any savings they achieve through the coordination of care and meeting certain mandated quality standards. ACOs and the bundled payment programs have primarily focused on primary care. However, some customers appear to be developing new partnerships across clinical specialties to prepare for the possibility of operating in an ACO environment and bundled reimbursement payments. These and other elements of the ACA, including comparative effectiveness research, an independent payment advisory board, payment system reforms (including shared savings pilots) and the reporting of certain payments by us to healthcare professionals and hospitals, could meaningfully change the way healthcare is developed and delivered, and may materially impact numerous aspects of our business, including the demand and availability of our products, the reimbursement available for our products from governmental and third-party payors, and medical procedure volumes. We believe that growth of the radiation oncology market, which includes both traditional radiation therapy as well as proton therapy in the United States could be adversely impacted as customers’ decision-making processes are complicated by the uncertainties surrounding the implementation of the ACA and reimbursement rates for
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radiotherapy and radiosurgery, and that this uncertainty will likely continue into the next fiscal year and could result in a high degree of variability of gross orders and revenues from quarter-to-quarter.

Various healthcare reform proposals have also emerged at the state level, and we are unable to predict which, if any of these proposals will be enacted. We are also unable to predict what effect ongoing uncertainty surrounding federal and state health reform proposals, uncertainty related to implementation of ACA provisions, and instability within insurance markets created under the ACA, will have on our customer’s purchasing decisions. However, an expansion in government’s role in the United States healthcare industry may adversely affect our business, possibly materially. In addition, it is possible that changes in administration and policy, including the potential repeal of all or parts of the ACA could result in additional proposals and/or changes to health care system legislation which could have a material adverse effect on our business. The full effect that a full or partial repeal of the ACA would have on our business remains unclear at this time. We cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.

Changes to radiation oncology, reimbursements, and insurance deductibles and administration may affect demand for our products and could have a material adverse effect on our results of operations, financial position and stock price.
Sales of our healthcare products indirectly depend on whether adequate reimbursement is available to our customers from a variety of sources, such as government healthcare insurance programs, including the Medicare and Medicaid programs; private insurance plans; health maintenance organizations; and preferred provider organizations. In general, employers and third-party payors in the United States have become increasingly cost-conscious, with higher deductibles imposed or encouraged in many medical plans. The imposition of higher deductibles tends to inhibit individuals from seeking the same level of medical treatments as they might seek if the costs were lower. Third-party payors have also increased utilization controls related to the use of our products by healthcare providers.

There is no uniform policy on reimbursement among third-party payors, and we cannot be sure that third-party payors will reimburse our customers at a level that will enable us to achieve or maintain adequate sales and price levels for our products. Without adequate support from third-party payors, the market for our products may be limited.

Once Medicare makes a decision to provide reimbursement for a given treatment, these reimbursement rates are generally reviewed and adjusted by Medicare annually. Private third-party payors, although independent from Medicare, sometimes use portions of Medicare reimbursement policies and payment amounts in making their own reimbursement decisions. As a result, decisions by the Centers for Medicare and Medicaid Services ("CMS") to reimburse for a treatment, or changes to Medicare’s reimbursement policies or reductions in payment amounts may extend to third-party payor reimbursement policies and amounts for that treatment. We have seen our customers’ decision-making process complicated by the uncertainty surrounding Medicare reimbursement rates and coverage for modalities and indications for radiotherapy and radiosurgery in the United States.

From time to time, CMS and third-party payors may review and modify the factors upon which they rely to determine appropriate levels of reimbursement and coverage of procedures for cancer treatments. For example, CMS and third-party payors have begun to focus on the comparative effectiveness of radiation therapy versus other methods of cancer treatment, including surgery, and could modify reimbursement rates based on the results of comparative effectiveness studies. In addition, in September of 2020, CMS released the Centers for Medicare and Medicaid Innovation Center’s Radiation Oncology (RO) Alternative Payment Model Final Rule. The RO Model is intended to test an episodic payment structure across a cohort of U.S. hospitals and freestanding cancer centers which would reduce Medicare expenditures, while preserving or enhancing the quality of care. The RO Model effective date is January 1, 2021 and will end December 31, 2025 and includes 30% of Medicare radiotherapy episodes. On October 21, 2020, CMS announced that it intends to delay the RO Model start date to July 1, 2021. Any significant cuts in reimbursement rates or changes in reimbursement methodology or administration for radiotherapy, radiosurgery, proton therapy or brachytherapy, as a result of the RO Model or otherwise, or concerns or proposals regarding further cuts or changes in methodology or administration, could further increase uncertainty, influence our customers’ decisions, reduce demand for our products, cause customers to cancel orders, make it more difficult for us to collect payments on outstanding accounts receivable or indebtedness from our proton therapy center customers or debtors, all of which could have a material adverse effect on our results of operations, financial position and stock price.

Foreign governments also have their own healthcare reimbursement systems and there can be no assurance that adequate reimbursement will be made available with respect to our products under any foreign reimbursement system.

Any violation of federal, state or foreign laws governing our business practices may result in substantial penalties. Investigation into our business practices could cause adverse publicity and harm our business.
Anti-corruption laws and regulations. We are subject to the United States Foreign Corrupt Practices Act and anti-corruption laws, and similar laws in foreign countries, such as the U.K. Bribery Act of 2010, and the Law “On the Fundamentals of Health
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Protection in the Russian Federation.” Any violation of these laws by us or our partners, agents or distributors could create a substantial liability for us, subject our officers and directors to personal liability and also cause a loss of reputation in the market. Transparency International’s 2019 Corruption Perceptions Index found that approximately sixty-seven percent of the countries in the index, including many that we consider to be high growth areas for our products, such as China, India, Russia and Brazil, scored below 50, on a scale from 100 (very clean) to 0 (highly corrupt). We currently operate in many countries where the public sector is perceived as being more or highly corrupt. Our strategic business plans include expanding our business in regions and countries that are rated as higher risk for corruption activity by Transparency International. Moreover, our recent acquisitions of CTSI and Alicon have significantly increased our operations in India and China, respectively. Increased business in higher risk countries could subject us and our officers and directors to increased scrutiny and increased liability.

In addition, we have conducted and have been subject to, and in the future expect to conduct or be subject to, internal investigations or audits or investigations by one or more domestic or foreign government agencies. Any such investigation or proceeding results in costs and management distraction, which could adversely affect our business and financial results. An adverse outcome under any such proceeding, investigation or audit could subject us to fines, or criminal or other penalties as well as reputational harm, which could adversely affect our business and financial results.

Competition laws. We are subject to competition laws in the regions where we do business. Regulatory authorities under whose laws we operate may have enforcement powers that can subject us to sanctions and can impose changes or conditions in the way we conduct our business. In addition, an increasing number of jurisdictions provide private rights of action for competitors or consumers to seek damages asserting claims of anti-competitive conduct. Increased government scrutiny of our actions or enforcement or private rights of action could adversely affect our business or damage our reputation. In addition, we have conducted, and in the future expect to conduct, internal investigations or face audits or investigations by one or more domestic or foreign government agencies, which could be costly and time-consuming, and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could subject us to fines or criminal or other penalties, which could adversely affect our business and financial results.

Environmental laws impose compliance costs on our business and can result in liability.
We are subject to environmental laws around the world. These laws regulate many aspects of our operations, including our handling, storage, transport and disposal of hazardous materials. They can also impose cleanup liabilities, including with respect to discontinued operations. As a consequence, we can incur significant environmental costs and liabilities, some recurring and others not recurring. Although we follow procedures intended to comply with existing environmental laws, we, like other businesses, can never completely eliminate the risk of contamination or injury from certain materials that we use in our business and, therefore, the prospect of resulting claims and damage payments. We may also be assessed fines or penalties for failure to comply with environmental laws and regulations. Although insurance has provided coverage for portions of cleanup costs resulting from historical occurrences, we maintain only limited insurance coverage for costs or claims that might result from any future contamination.

Future changes in environmental laws could also increase our costs of doing business, perhaps significantly. Several countries, including some in the EU, now require medical equipment manufacturers to bear certain disposal costs of products at the end of the product’s useful life, increasing our costs. The EU has also adopted directives that may lead to restrictions on the use of certain hazardous substances or other regulated substances in some of our products sold there. These directives, along with another that requires substance information to be provided upon request, could increase our operating costs in order to maintain access to certain markets. All of these costs, and any future violations or liabilities under environmental laws or regulations, could have a material adverse effect on our business.

RISKS RELATING TO OUR INTELLECTUAL PROPERTY

Protecting our intellectual property can be costly and we may not be able to maintain licensed rights, which would harm our business.
We file applications for patents covering new products and manufacturing processes. We cannot assure you that our current patents, the claims allowed under our current patents, or the patents for technologies licensed to us by third parties will be sufficiently broad to protect our technology position against competitors. We also have agreements with third parties that license to us certain patented or proprietary technologies. In some cases, our products with substantial revenues may depend on these license rights. If we were to lose the rights to license these technologies, or our costs to license these technologies were to materially increase, our business would suffer. Issued patents owned by, or licensed to, us may be challenged, invalidated or circumvented, or the rights granted under the patents may not provide us with competitive advantages. We also cannot be sure that patents will be issued from any of our pending or future patent applications. Asserting our patent rights against others in
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litigation or other legal proceedings is costly and diverts resources. An unfavorable outcome in such litigation or proceedings could harm us. In addition, we may not be able to detect patent infringement by others or may lose our competitive position in the market before we are able to do so. Our efforts to protect our intellectual property do not prevent competitors from independently developing similar or alternative technologies or products that are equal or superior to our technology and products without infringing any of our intellectual property rights, or from designing around our proprietary technologies, which could harm us. In addition, the regulations of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States.

In addition to patents, we also rely on a combination of copyright, trade secret, trademark and other laws, and contractual restrictions on disclosure, copying and transferring title (including confidentiality agreements with vendors, strategic partners, co-developers, employees, consultants and other third parties), to protect our proprietary and other confidential rights. These protections may prove inadequate, since agreements may still be breached, and we may not have adequate remedies for a breach, and our trade secrets may otherwise become known to or be independently developed by others. In the event that our proprietary or confidential information is misappropriated, our business and financial results could be adversely impacted. We have trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for our products in the marketplace, but unauthorized third parties may still use them, which could adversely impact our business.

Third parties may claim we are infringing their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products.
There is a substantial amount of litigation over patent and other intellectual property rights in the industries in which we compete. Our competitors, like companies in many high technology businesses, continually review other companies’ activities for possible conflicts with their own intellectual property rights. In addition, non-practicing entities may review our activities for conflicts with their patent rights. Determining whether a product infringes a third party’s intellectual property rights involves complex legal and factual issues, and the outcome of this type of litigation is uncertain. Third parties may claim that we are infringing their intellectual property rights. We may not be aware of the intellectual property rights of others that relate to our products, services or technologies. From time to time, we receive notices from third parties asserting infringement and we are subject to lawsuits alleging infringement of third-party patent or other intellectual property rights. Any dispute regarding patents or other intellectual property could be costly and time-consuming and could divert our management and key personnel from our business operations. We may not prevail in a dispute. We do not maintain insurance for intellectual property infringement, so costs of defense, whether or not we are successful in defending an infringement claim, will be borne by us and could be significant. If we are unsuccessful in defending or appealing an infringement claim, we may be subject to significant damages and our consolidated financial position, results of operations or cash flows could be materially adversely affected. We may also be subject to injunctions against development and sale of our products, the effect of which could be to materially reduce our revenues.

RISKS RELATING TO OUR COMMON STOCK

Fluctuations in our operating results, including quarterly gross orders, revenues, margins, and cash flows may cause our stock price to be volatile, resulting in losses for our stockholders.
We have experienced and expect to experience periodic fluctuations in our operating results, including gross orders, revenues, margins and cash flows. Drivers of orders include the introduction and timing of announcement of new products or product enhancements by us and our competitors, as well as changes or anticipated changes in third-party reimbursement amounts or policies applicable to treatments using our products. The availability of economic stimulus packages or other government funding, or reductions thereof, may also affect timing of customer purchases. Many of our products require significant capital expenditures by our customers. Accordingly, individual product orders can be quite large in dollar amounts, which can extend the customer purchasing cycle. We have experienced this with our IGRT products, and it is especially true with our proton therapy products because of the high cost of the proton therapy equipment and the complexity of project financing. In addition, the budgeting cycles of hospitals and clinics for capital equipment purchases are frequently fixed well in advance. Economic uncertainty also tends to extend the purchasing cycle as potential customers more closely scrutinize and prioritize their capital spending budgets and analyze appropriate financing alternatives. In addition, some of our more sophisticated equipment, such as IGRT and proton therapy products, requires greater site preparation and longer construction cycles, which can delay customer decision cycles and the placement of orders even further. The timing of order placement, equipment installation and revenue recognition affect our quarterly results.

Once orders are received and booked into backlog, factors that may affect whether these orders become revenue (or are cancelled or deemed dormant and reflected as a reduction in the backlog amounts) and the timing of revenue include:
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delay in shipment due (e.g. an unanticipated construction delay at a customer location where our products are to be installed), cancellations or rescheduling by customers, extreme weather conditions, natural disasters, port strikes or other labor actions;
a challenge to a bid award for one or more of our products;
delay in the installation and/or acceptance of a product;
failure to satisfy contingencies associated with an order;
the method of accounting used to recognize revenue;
a change in a customer’s financial condition or ability to obtain financing; or
timing of necessary regulatory approvals or authorizations.

Our operating results, including our margins, may also be affected by a number of other factors, many of which are out of our control, including, among other things:
changes in our or our competitors’ pricing or discount levels;
imposition of tariffs on our products or components and services used in our products;
negative publicity about our products and services;
impairment of loans, notes receivables, accounts receivable;
changes in foreign currency exchange rates;
changes in the relative mix between higher margin and lower margin products;
changes in the relative portion of our revenues represented by different geographic regions;
fluctuation in our effective tax rate, which may or may not be known to us in advance;
changes to our organizational structure, which may result in restructuring or other charges;
disruptions in the supply or changes in the costs of raw materials, labor, product components or transportation services;
disruptions in our operations, including our ability to manufacture products, caused by events such as earthquakes, fires, floods, terrorist attacks or pandemics, such as the recent COVID-19 pandemic;
the unfavorable outcome of any litigation or administrative proceeding or inquiry, as well as ongoing costs associated with legal proceedings; and
accounting changes and adoption of new accounting pronouncements.

Because many of our operating expenses are based on anticipated capacity levels and a high percentage of these expenses are fixed for the short term, a small variation in the timing of revenue recognition can cause significant variations in operating results from quarter to quarter. Our overall gross margin may also be impacted by the gross margin of our proton therapy products, which presently carry lower gross margins than do our traditional radiotherapy products. If our gross margins fall below the expectation of securities analysts and investors, the trading price of VMS common stock would likely decline.
We report our gross orders and backlog on a quarterly and annual basis. It is important to understand that, unlike revenues, gross orders and backlog are not governed by GAAP, and are not within the scope of the quarterly review or annual audit conducted by our independent registered public accounting firm; therefore, investors should not interpret our gross orders or backlog in such a manner. Also, for the reasons set forth above, our gross orders and backlog cannot necessarily be relied upon as accurate predictors of future revenues. Order cancellation or delays in delivery dates will reduce our backlog and future revenues, and we cannot predict if or when orders will mature into revenues. Particularly high levels of cancellations in one period will make it difficult to compare our operating results for other periods.

In addition, our gross orders, backlog, revenues and net earnings in one or more future periods may fall below the expectations of securities analysts and investors. In that event, the trading price of VMS common stock would almost certainly decline.

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GENERAL RISKS

Unfavorable results of legal proceedings could adversely affect our financial results.
From time to time, we are 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, including product liability claims and intellectual property claims. For example, in October 2018, Best Medical International, Inc. ("Best Medical") filed a complaint for patent infringement against us in the United States District Court for the District of Delaware alleging that several of our products infringe several of Best Medical's patents. While it is not possible to predict the outcome of patent litigation and difficult to make a reasonable estimate of loss or range of losses, it is possible that the results of such litigation could require us to pay significant monetary damages and/or royalty payments. Legal proceedings are often lengthy, taking place over a period of years before the outcome is final. Litigation is subject to significant uncertainty and may be expensive, time-consuming, and disruptive to our operations.

If a legal proceeding were finally resolved against us, it could result in significant compensatory damages, and in certain circumstances punitive or trebled damages, disgorgement of revenue or profits, remedial corporate measures or injunctive relief imposed on us. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of the legal proceeding were to restrain our ability to market one or more of our material products or services, our consolidated financial position, results of operations or cash flows could be materially adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could adversely impact our business.

Our business may suffer if we are not able to hire and retain qualified personnel.
Our future success depends, to a great degree, on our ability to retain, attract, expand, integrate and train our management team and other key personnel, such as qualified engineering, service, sales, marketing and other staff. We compete for key personnel with other medical equipment and software manufacturers, as well as universities and research institutions. As we continue to grow our software revenues, we face intense competition for personnel from software and technology companies. Because this competition is intense, compensation-related costs could increase significantly if the supply of qualified personnel decreases or demand increases. If we are unable to hire and train qualified personnel, we may not be able to maintain or expand our business. In addition, some of our executive officers have had long careers at our company. If these executives retire or leave, and we are unable to locate qualified or suitable replacements in a timely manner, our business could be adversely affected.

Changes in the interpretation or application of generally accepted accounting principles may adversely affect our operating results.
We prepare our financial statements to conform to GAAP. These principles are subject to interpretation by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants, the SEC and various other regulatory or accounting bodies. A change in interpretations of, or our application of, these principles can have a significant effect on our reported results and may even affect our reporting of transactions completed before a change is announced. In addition, when we are required to adopt new accounting standards, our methods of accounting for certain items may change, which could cause our results of operations to fluctuate each period. We may introduce new products or new technologies that require us to apply different accounting principles than we have applied in past periods, including accounting principles regarding revenue recognition. The application of different types of accounting principles and related potential changes may also make it more difficult to compare our financial results to prior periods, and the trading price of VMS common stock could suffer or become more volatile.

Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of October 2, 2020, we owned and leased a total of approximately 2.9 million square feet of floor space for office space, manufacturing, research and development and other services worldwide. Substantially all of this space is fully utilized for its intended purpose. We believe that our facilities and equipment are generally well maintained, in good operating condition and adequate for our present operations.
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Item 3. Legal Proceedings
From time to time, we are involved in other legal proceedings arising in the ordinary course of our business or otherwise and, from time to time, acquired as part of business acquisitions that we make. For a detailed discussion of current material legal proceedings, see Note 9, "Commitments and Contingencies," of the Notes to the Consolidated Financial Statements, which is by this reference incorporated herein.

Item 4. Mine Safety Disclosures
Not applicable.

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PART II
 
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
VMS common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “VAR.” As of November 13, 2020, there were 1,591 holders of record of VMS common stock.
PERFORMANCE GRAPH
This graph shows the total return on VMS common stock and certain indices from October 2, 2015, until the last day of fiscal year 2020.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG VARIAN MEDICAL SYSTEMS, INC., THE S&P 500 INDEX AND
THE S&P HEALTHCARE EQUIPMENT INDEX
VAR-20201002_G2.GIF
*$100 invested on October 2, 2015 in stock or index, including reinvestment of dividends. Indexes are calculated based on our fiscal year-end.
  10/2/2015 9/30/2016 9/29/2017 9/28/2018 9/27/2019 10/2/2020
Varian Medical Systems, Inc. 100.00 132.37 150.28 168.10 177.46 258.22
S&P 500 100.00 115.43 136.91 161.43 168.30 193.80
S&P Health Care Equipment 100.00 131.15 148.22 199.64 222.06 254.65
The performance graph and related information shall not be deemed to be soliciting material or to be “filed” with the SEC or to be deemed to be incorporated by reference to any filing under the Securities Act or the Exchange Act.

Share Repurchase Program
We did not repurchase shares of common stock during the fourth quarter of fiscal year 2020. At the beginning of our third quarter of fiscal year 2020, as a precautionary measure due to the COVID-19 pandemic, we paused our share repurchase
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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 may be made in the open market, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and also may be made from time to time or in one or more larger blocks. All shares that were repurchased under our share repurchase programs have been retired. As of October 2, 2020, approximately 1.6 million shares of VMS common stock remained available for repurchase under the November 2016 authorization. Our share repurchases do not include shares of VMS common stock that were withheld by VMS in satisfaction of tax withholding obligations upon the vesting of restricted stock units granted under our employee stock plans.


Item 6. Selected Financial Data
The following financial data should be read in conjunction with our consolidated financial statements and the accompanying notes and the MD&A included elsewhere herein.

Summary of Operations:
Fiscal Years (1)
(In millions, except per share amounts) 2020 2019 2018 2017 2016
Revenues $ 3,168.2  $ 3,225.1  $ 2,919.1  $ 2,619.3  $ 2,593.7 
Earnings from continuing operations before taxes (2)
358.3  420.8  452.1  303.1  432.4 
Taxes on earnings (3)
88.9  128.6  301.8  77.1  110.1 
Net earnings from continuing operations 269.4  292.2  150.3  226.0  322.3 
Net (loss) earnings from discontinued operations —  —  —  (6.8) 77.4 
Net earnings 269.4  292.2  150.3  219.2  399.7 
Less: Net earnings attributable to noncontrolling interests 0.2  0.3  0.4  0.7  0.4 
Net earnings attributable to Varian $ 269.2  $ 291.9  $ 149.9  $ 218.5  $ 399.3 
Net earnings (loss) per share - basic          
Continuing operations $ 2.96  $ 3.21  $ 1.64  $ 2.44  $ 3.38 
Discontinued operations
—  —  —  (0.08) 0.81 
Net earnings per share - basic $ 2.96  $ 3.21  $ 1.64  $ 2.36  $ 4.19 
Net earnings (loss) per share – diluted          
Continuing operations $ 2.94  $ 3.18  $ 1.62  $ 2.42  $ 3.36 
Discontinued operations —  —  —  (0.07) 0.80 
Net earnings per share - diluted $ 2.94  $ 3.18  $ 1.62  $ 2.35  $ 4.16 
Financial Position at Fiscal Year End: (4)
         
Working capital (5)
$ 748.8  $ 511.4  $ 848.7  $ 651.7  $ 1,053.0 
Total assets (5)
$ 4,462.2  $ 4,101.7  $ 3,252.7  $ 3,294.4  $ 3,948.1 
Short-term borrowings $ 355.0  $ 410.0  $ —  $ 350.0  $ 329.6 
Long-term debt (including current maturities)
$ —  $ —  $ —  $ —  $ 336.3 
 Total equity $ 2,084.8  $ 1,777.6  $ 1,588.7  $ 1,521.9  $ 1,797.9 

(1)Our fiscal years as reported are the 52- or 53-weeks periods ending on the Friday nearest September 30. Fiscal year 2020 was a 53- week period. Fiscal years 2019, 2018, 2017 and 2016 were 52-week periods.
(2)In fiscal year 2020, earnings from continuing operations before taxes includes a $40.5 million impairment of loans receivable from the California Proton Treatment Center, $18.7 million in restructuring charges, $17.8 million in impairments to our Maryland Proton Treatment Center and Alabama Proton Treatment Center securities, and $41.9 million in net gains on our equity investments. In fiscal year 2019, earnings from continuing operations before taxes includes a $22.0 million gain on the sale of an equity investment, a $50.5 million goodwill impairment charge related to our Proton Solutions business, a $20.8 million charge associated with the write-off of in-process research and development expenses related to an acquisition, and an $18.6 million charge to acquisition-related expenses due to an increase to the fair value of contingent consideration related to an acquisition. In fiscal year 2018, earnings from continuing operations before taxes includes a $29.7 million hedging loss related to the Australian dollar
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purchase price for Sirtex Medical Limited ("Sirtex"), $22.4 million in impairment charges mostly related to our Maryland Proton Therapy Center subordinated loan and $15.7 million of acquisition-related expenses, partially offset by $9.0 million for the Sirtex breakup fee. In fiscal year 2017, earnings from continuing operations before taxes includes $51.4 million in impairment charges related to our loans to the Scripps Proton Therapy Center and a $37.8 million allowance for doubtful accounts from the California Proton Therapy Center and another proton center.
(3)In fiscal year 2018, taxes on earnings includes a $207.8 million tax expense related to the Tax Cuts and Jobs Act, partially offset by an $8.0 million benefit to income tax expense due to the partial release of a valuation allowance as a result of an acquisition.
(4)For fiscal years 2016 through 2018, the financial position at year end includes Varex, which is presented as discontinued operations for all periods presented.
(5)See Note 2, "Business Combinations," for impact from our acquisitions to total assets in fiscal year 2019.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We, Varian Medical Systems, Inc., are a Delaware corporation originally incorporated in 1948 as Varian Associates, Inc. We are the world’s leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, stereotactic radiosurgery, stereotactic body radiotherapy, brachytherapy and proton therapy. We operate a hospital and a network of cancer centers in India and Sri Lanka; provide cancer care professional services to healthcare providers worldwide; and are a supplier of a broad portfolio of interventional solutions.
Our vision is a world without fear of cancer. Our mission is to combine the ingenuity of people with the power of data and technology to achieve new victories against cancer. Our long-term growth and value creation strategy is to transform our company from the global leader in radiation therapy (also referred to as radiotherapy) to the global leader in multi-disciplinary, integrated cancer care solutions that leverage our strengths, technology, innovation and clinical experience. To achieve these long-term objectives, we are focused on driving growth through strengthening our leadership in radiation therapy, extending our global footprint and expanding into new markets and therapies.
We have two reportable operating segments: Oncology Systems and Proton Solutions. Our Interventional Solutions business is reflected in the "Other" category because it does not meet the criteria of a reportable operating segment. The operating segments were determined based on how our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), views and evaluates our operations. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on operating earnings. We report revenues in three regions. The Americas region includes North America (primarily the United States and Canada) and Latin America. The EMEA region includes Europe, Russia, the Middle East, India and Africa. The APAC region primarily includes East and Southeast Asia and Australia.
Proposed Acquisition by Siemens Healthineers
On August 2, 2020, VMS, Siemens Healthineers, Merger Sub, and, with respect to certain provisions, the Guarantor, entered into the Merger Agreement, pursuant to which, on the terms and subject to the conditions set forth therein, Merger Sub will be merged with and into VMS, with VMS surviving the Merger as a wholly owned subsidiary of Siemens Healthineers. Under the terms of the Merger Agreement, which has been unanimously approved by VMS' Board of Directors, Siemens Healthineers will acquire all outstanding shares of VMS for $177.50 per share in cash, in a transaction valued at approximately $16.4 billion on a fully diluted basis. The Merger is expected to close in the first half of calendar year 2021, subject to receipt of specified regulatory approvals and other customary closing conditions. On October 15, 2020, VMS' stockholders approved and adopted the Merger Agreement. Under the terms of the Merger Agreement, if the Merger Agreement is terminated by VMS or Siemens Healthineers under certain specified circumstances, a termination fee of $450.0 million in cash may be payable by VMS to Siemens Healthineers. The Merger Agreement also provides that a reverse termination fee of $450.0 million or $925.0 million in cash may be payable by Siemens Healthineers to VMS if the Merger Agreement is terminated by VMS or Siemens Healthineers under certain specified circumstances.

COVID-19 Impact
The COVID-19 pandemic has impacted our day-to-day operations and the operations of the vast majority of our customers, suppliers and distributors globally. The COVID-19 response by hospitals and healthcare professionals has placed a severe strain on healthcare systems. Many of our hospital customers have prioritized their efforts on their COVID-19 response and have diverted focus and resources away from their normal operations and restricted access to their sites in efforts to contain the spread of the virus. The global nature of the pandemic has resulted in authorities implementing numerous measures designed to
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contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, business limitations and shutdowns. The prioritization of COVID-19 treatment and containment have presented us with unique operational challenges, including delays in capital equipment purchasing decisions by customers, obstacles to our ability to market, deliver, install and service our products, and disruptions and delays in our logistics and supply chain.

Revenues and Orders Trends
The impact of COVID-19 on our operations has varied by region, with mixed impacts based on the geographical spread, stage of containment, and recurrence of the pandemic in each region. Our operations in China were impacted first, beginning early in the second quarter of our fiscal year 2020, followed by other parts of our Asia Pacific geography, with our EMEA and Americas geographies experiencing the initial impacts of the pandemic late in the second quarter of our fiscal year 2020. Our second quarter revenues were trending higher than the comparable second quarter fiscal 2019 period, until March 2020 when we started to experience a decline in hardware product revenues in our EMEA and Americas geographies due to the spread of COVID-19. In the third quarter of our fiscal year 2020, these trends in declining revenues continued across all of our geographies, both in comparison to the second quarter of our fiscal year 2020 and in comparison to our third quarter of fiscal 2019, with the exception of revenues from the China region, which increased with respect to both comparison periods, driven by recovery from COVID-19 in China which began at the end of the second quarter of our fiscal year 2020. In the fourth quarter of our fiscal year 2020, we experienced improvement in revenues in comparison to the third quarter of our fiscal year 2020 in all three geographies, although our total revenues decreased by 3% in comparison to the fourth quarter of our fiscal year 2019. The sequential improvement in revenues was driven primarily by fourth quarter seasonality and to some extent by recovery in our Americas and EMEA geographies and continued recovery in China and other Asia Pacific countries.

We have experienced adverse impacts to revenues for both our hardware and software products, primarily resulting from customer capital constraints, site access challenges and delays to pre-installation activities. We have experienced minimal impact to our services revenues and expect that our services revenues will continue to be reasonably insulated from COVID-19 given the long-term nature of the underlying contracts and our current installed base; however, installation and commissioning service revenues linked to hardware installation have trended downward, consistent with delays to hardware installations. If treatment volumes decline materially and impact hospitals’ operating costs, it may impact our service contract renewals, pricing and service revenues.

We have experienced similar trends in orders as we have in revenues. We began to experience delays in orders, primarily for capital equipment, during the second quarter of our fiscal year 2020. Orders continued to decline across most regions during the third quarter of our fiscal year 2020, with our EMEA geography experiencing the most severe negative impact to orders and our Americas geography also experiencing significant negative impacts. However, in the third quarter of our fiscal year 2020 our APAC geography experienced an increase in orders both in comparison to the second quarter of our fiscal year 2020, driven by recovery in China, and in comparison to the third quarter of our fiscal year 2019, driven by recovery in Southeast Asia and Korea. In the fourth quarter of our fiscal year 2020, we experienced significant improvement in orders compared to the third quarter of our fiscal year 2020 in all three geographies, as our customers began to resume capital purchasing activity, although our total gross orders decreased by 8% in comparison to the fourth quarter of our fiscal year 2019.

We are not able to accurately predict the full impact that COVID-19 will have on our future results of operations, financial condition, liquidity and cash flows due to numerous uncertainties, including the duration and severity of the pandemic and the extent and effectiveness of containment measures imposed in different geographies. To the extent lockdown measures restrict access to customer sites and delay vault construction it could have an adverse impact on our revenues during our fiscal year 2021. In addition, a lack of coordinated COVID-19 response by the U.S. government could result in significant increases to the duration and severity of the pandemic in the United States. We expect that customer financial constraints, foreign currency headwinds, and uncertainty around the pandemic may lead our customers to defer capital equipment purchases during our fiscal year 2021.

We believe that we will experience improvement in both our revenues and orders over the course of our fiscal year 2021 to the extent COVID-19 impacts to our operations continue to decrease as the pandemic is controlled. We believe that our existing orders backlog, together with recurring services revenues, should soften the impact of order delays on our revenues. Based on regional machine utilization trends, during the fourth quarter of our fiscal year 2020 radiation therapy treatment volume levels had been returning to historical averages in certain regions that experienced recovery from the pandemic, which we would expect to have a corresponding positive impact on hospital operating budgets; however, recently announced lockdown measures in response to resurgence of the pandemic in several countries could negatively impact utilization trends. We expect to continue to experience some logistical, manufacturing and shipment delays, and some increased logistics-related costs for so long as COVID-19 related travel and customer site access restrictions remain in place.
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General Increase in Risks
While we believe that orders trends and our revenues will return to historical norms over time as the pandemic is controlled, if the COVID-19 pandemic proliferates for an extended period, capital expenditure delays could be prolonged and have a material impact on revenues and orders well into our fiscal year 2021. Capital markets and worldwide economies have been significantly impacted by the COVID-19 pandemic, and on June 8, 2020, the National Bureau of Economic Research announced that the United States was in recession. An extended economic recession in the United States or elsewhere could have a material adverse effect on our business over the longer term if hospitals reduce or curtail capital and overall spending. Some of our hospital customers may decide to no longer purchase our products or services, and certain of our customers, suppliers and distributors may become insolvent.

For additional information on risk factors that could impact our results, please refer to “Risk Factors” in Part I, Item 1A of this Form 10-K.

Our Response
Since the outbreak of the pandemic, our focus has been on keeping our employees safe, supporting our customers and their patients, and ensuring supply chain stability and business continuity.

Our employees are crucial to our mission, and we have taken the following actions to ensure their safety and well-being.

We have instituted work-from-home policies and workplace safety measures and protocols, including strict site access guidelines and ensuring the availability of personal protective equipment. To support the health and well-being of our employees, customers, distributors, partners and communities, as of October 2, 2020, approximately 54% of our employees are working remotely, whereas typically only 15% of our employees, such as field service employees, work remotely.

We have implemented new programs aimed at educating our employees on how to operate in virtual, social-distancing environments.

During our second quarter of fiscal 2020, we closed our manufacturing facility in Beijing for approximately four weeks and placed our U.S. manufacturing and logistics facilities, including our Palo Alto manufacturing facility, in critical operations mode for approximately three weeks. Since May 2020, all of our manufacturing facilities have been fully operational. We have implemented stringent safety protocols at all of our manufacturing facilities, including rigorous health and safety training for all manufacturing employees and the institution of new workplace spacing requirements.

Our customers are facing unique challenges, and we are taking actions to support their priorities. Among other efforts, we are taking actions to ensure that all of our customers can continue to deliver radiation therapy, a non-elective procedure, to their patients, and we are actively deploying remote tools across our training, installation and field service teams to ensure continued access to our products and solutions.

Despite certain logistical and manufacturing challenges, to date, we have been successful in our efforts to secure and stabilize our global supply chain, and we are actively coordinating with our suppliers and distributors to maintain adequate inventory to fulfill our customer commitments.

We have a solid balance sheet, as of October 2, 2020, with approximately $1.6 billion in accessible liquidity, including approximately $766 million in cash and cash equivalents and approximately $845 million available under our $1.2 billion revolving credit facility. To date, we have not experienced a significant decline in customer credit quality or a significant increase in requests for changes or extension of payment terms as a result of COVID-19, although we will continue to closely monitor these metrics going forward. While our capital allocation priorities remain unchanged, as a precautionary measure we have paused our share buybacks to preserve liquidity and are focused on reducing costs to bolster our financial flexibility in light of the broad range of potential outcomes over the foreseeable future. In our third and fourth quarter of fiscal year 2020, we implemented several cost cutting measures designed to preserve liquidity, including a reduction in force that impacted approximately 3% of our work force, a temporary reduction in certain employee benefits, and requiring our employees to take mandatory paid personal leave days during a set week in each of the third quarter and fourth quarters of our fiscal year 2020 and in the first quarter of our fiscal year 2021.
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Despite the challenges that we are facing due to the COVID-19 pandemic, we remain confident that the actions that we are taking to manage such challenges, combined with our strong liquidity, position us well to navigate through the current economic environment and continue to execute on our long-term value creation strategy.

Highlights from fiscal year 2020

Financial Summary
Fiscal Years
(Dollars in millions, except per share amounts) 2020 2019 Change
Gross Orders $ 3,435.3 $ 3,568.8 (4) %
Oncology Systems 3,253.6 3,397.6 (4) %
Proton Solutions 132.4 151.8 (13) %
Other 49.3 19.4 154  %
Backlog $ 3,394.9 $ 3,390.1 —  %
Revenues $ 3,168.2 $ 3,225.1 (2) %
Oncology Systems 2,997.8 3,061.8 (2) %
Proton Solutions 121.1 143.9 (16) %
Other 49.3 19.4 154  %
Gross margin as a percentage of revenues 43.5  % 42.5  % 100 bps
Effective tax rate 24.8  % 30.6  %
Net earnings attributable to Varian $ 269.2 $ 291.9 (8) %
Diluted net earnings per share $ 2.94 $ 3.18 (7) %
Net cash provided by operating activities $ 484.1 $ 371.8 30  %
Number of shares repurchased 0.6 1.4 (53) %
Total cost of shares repurchased $ 86.2 $ 166.7 (48) %
n/m = not meaningful

Tariff Measures. Between July 2018 and May 2019, the Trump Administration imposed a series of tariffs, ranging from 5% to 25%, on numerous products imported into the United States from China, including Varian’s radiotherapy systems manufactured in China and certain components used in our manufacturing and service activities. In July and August 2018, China retaliated against the U.S. tariffs by imposing its own series of tariffs, ranging from 10% to 25%, on certain products imported into China from the United States, including Varian’s radiotherapy systems and certain manufacturing and service components.

We participated in the Office of the U.S. Trade Representative (“USTR”) process to seek product-specific exclusions from the U.S. tariffs on Chinese imports. To date, USTR has granted tariff exclusions for four products: certain radiotherapy systems manufactured in China, as well as three key components of the radiation therapy systems that we manufacture in the United States: multi-leaf collimators, certain printed circuit board assemblies and tungsten shielding. We submitted an additional U.S. exclusion request in September 2019, in relation to a manufacturing component, which was ultimately not granted. In 2019, USTR granted a one-year extension to our exclusion for radiotherapy systems through December 28, 2020. Two additional component exclusion extensions, for multi-leaf collimators and certain printed circuit board assemblies, have been granted through December 31, 2020. One additional exclusion request, for tungsten shielding, was not extended and expired on September 19, 2020.

In June and July 2019, we submitted formal requests to the Chinese government for exclusions from the Chinese retaliatory tariffs for manufacturing inputs, service parts and radiotherapy systems imported into China from the United States. In September 2019, the Chinese government granted a tariff exclusion for medical linear accelerators, including our radiotherapy systems, with retroactive effect and valid through September 16, 2020. We requested and subsequently received a one year extension for this exclusion. We utilize a monthly exclusion program to further mitigate the tariffs on other items. In the aggregate, these tariffs will be referred to as "U.S./China tariffs."
Impairment Charges. In the second half of fiscal year 2020, our Maryland Proton Treatment Center (“MPTC") Series B-1 and B-2 bonds (collectively "MPTC" bonds) and the Alabama Proton Treatment Center (“APTC") securities were determined to be
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other-than-temporarily impaired due to a decrease in trade prices of comparable bonds. We believed that it was more likely than not that we will not recover the losses before these bonds are sold, so we incurred impairment charges of $16.9 million on our MPTC bonds and $0.9 million on our APTC securities. In the second quarter, we recorded a $40.5 million impairment charge related to our California Proton Therapy Center ("CPTC") term loan (“Term Loan”) due to material negative impacts to CPTC's operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner primarily driven by the impact of COVID-19. The impairment charges are included in impairment and restructuring charges in the Consolidated Statements of Earnings. See Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for further information.
Restructuring Charges. In the third quarter of fiscal year 2020, we implemented a global workforce reduction, as part of our plan to enhance operational performance through productivity initiatives, in response to the impact of the COVID-19 pandemic. We incurred $18.7 million in restructuring charges, which primarily consisted of employee-related expenses, in fiscal year 2020. The Company paid $12.0 million related to these charges in fiscal year 2020, and the remaining balance of $6.7 million is expected to be paid in fiscal year 2021. As of October 2, 2020, we do expect to incur additional restructuring charges under this plan; however, these costs are not expected to be material. The restructuring charges are included in impairment and restructuring charges in the Consolidated Statements of Earnings.
Currency Fluctuations. In order to assist with the assessment of how our underlying businesses performed, we compare the percentage change in revenues and Oncology Systems gross orders from one period to another, excluding the effect of foreign currency fluctuations (i.e., using constant currency exchange rates). To present this information on a constant currency basis, we convert current period revenues and gross orders in currencies other than U.S. Dollars into U.S. Dollars using the comparable prior period’s average exchange rate. Percentage changes in revenues and gross orders are not adjusted for constant currency unless indicated.
Currency fluctuations had a $11.7 million and a $1.6 million unfavorable impact on total revenues and Oncology Systems gross orders, respectively, in fiscal year 2020 compared to fiscal year 2019. We expect that fluctuations of non-U.S. Dollar currencies against the U.S. Dollar may continue to cause variability in our financial performance.
Our Businesses
Oncology Systems. Our Oncology Systems business designs, manufactures, sells and services hardware and software products for treating cancer with conventional radiotherapy, and advanced treatments such as fixed field intensity-modulated radiation therapy (“IMRT”), image-guided radiation therapy (“IGRT”), volumetric modulated arc therapy (“VMAT”), stereotactic radiosurgery, stereotactic body radiotherapy, artificial intelligence based Adaptive Radiotherapy and brachytherapy as well as associated quality assurance equipment. Our software solutions include treatment planning, informatics, clinical knowledge exchange, patient care management, practice management and decision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices. We offer services ranging from hardware phone support, break/fix repair of linear accelerators, obsolescence protection of hardware, software support, software upgrades, hosting as a service, as well as clinical consulting services.
We have expanded our services offerings to include clinical practice services that assist within the clinical workflow. These services focus on decision support and/or cancer care knowledge augmentation aimed to facilitate improved accessibility and affordability to care while maintaining a fundamental level of clinical quality. Further, we operate 13 multi-disciplinary cancer centers and one specialty hospital in India and one multi-disciplinary cancer center in Sri Lanka. We also expect to innovate and incubate new solutions such as technology-enabled services, and to develop additional technologies that incorporate artificial intelligence and machine learning capabilities, in an environment of data security and patient privacy integrity.
Our primary goal in the Oncology Systems business is to promote the adoption of more advanced and effective cancer treatments. In our view, the fundamental market forces that drive long-term growth in our Oncology Systems business are the rise in cancer cases; technology advances and product developments that are leading to improvements in patient care and outcomes; customer demand for the more advanced and effective cancer treatments that we enable; competitive conditions among hospitals and clinics to offer such advanced treatments; continued improvement in safety and cost efficiency in delivering radiation therapy; and underserved medical needs outside of the United States. Approximately half of Oncology Systems gross orders and revenues come from international markets, within which certain emerging markets typically can have lower gross margins and longer installation cycles since many of these purchases are for new sites where treatment vaults need to be constructed. We have also been investing a higher portion of our Oncology Systems research and development budget in software and software-related products, which have a higher gross margin than our hardware products.
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Subject to the potential impact of COVID-19, we believe international markets will be our fastest growing markets. The radiation oncology market in North America is largely characterized by the replacements of older machines, with periodic increases in demand driven by the introduction of new technologies. Reimbursement rates in the United States have generally supported a favorable return on investment for the purchase of new radiotherapy equipment and technologies. While we believe that improved product functionality, greater cost-effectiveness and prospects for better clinical outcomes with new capabilities, such as IMRT, IGRT and VMAT, tend to drive demand for radiotherapy products, large changes in reimbursement rates or reimbursement structure can affect customer demand and cause market shifts.

We believe that growth of the radiation oncology market in the United States could be impacted as customers’ decision-making processes are complicated by the uncertainties surrounding reimbursement rates and new models for radiotherapy and radiosurgery, such as the alternative payment model pilot program for radiation oncology released by the Centers for Medicare and Medicaid Innovation Center in September of 2020, which is scheduled to start on July 1, 2021. This pilot program is intended to test whether an episode-based payment structure would reduce Medicare expenditures. We believe that this uncertainty will likely continue in future fiscal years and could impact transaction size, timing and purchasing processes, and also contribute to increased quarterly business variability as they recover from the COVID-19 pandemic.
Global demand for oncology equipment varies by geography and size of cancer burden. The number of new cancer cases diagnosed annually is projected to increase from approximately 18 million in 2018 to almost 25 million by 2030. Markets such as North America, developed Europe and Japan are primarily replacement markets with growth consistent with the aging cycle of the installed base and the aging of populations. Emerging markets such as Brazil, Russia, India, China and Africa have large gaps in access to care and are expected to grow faster to address this gap. Variations in spend on oncology equipment will occur over time based on economic factors in individual countries.
Proton Solutions. Our Proton Solutions business develops, designs, manufactures, sells and services products and systems for delivering proton therapy, another form of external beam therapy using proton beams, for the treatment of cancer. Proton therapy is a preferred option for treating certain cancers, particularly tumors near critical structures such as the base of the skull, spine, optic nerve and most pediatric cancers. Although proton therapy has been in clinical use for more than four decades, it has not been widely deployed due to the high capital cost.
We are investing resources to drive growth and innovation in this business. Proton therapy facilities are large-scale construction projects that have long lead times and involve significant customer investment and often complex project financing. Consequently, this business is vulnerable to general economic and market conditions, as well as reimbursement rates. Customer decision-making cycles tend to be very long, and orders generally involve many contingencies. The funding environment for large capital projects, such as proton therapy projects, remains challenging and volatile. Our current focus is bringing our expertise in traditional radiation therapy to proton therapy to improve its clinical utility, reduce its cost of treatment per patient and drive innovation, so that it is more widely accepted and deployed.
As of October 2, 2020, we had a total of $118.6 million of notes receivable including accrued interest, senior secured debt, available-for-sale securities, and loans outstanding to Proton Solutions customers. See Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for further information.

Other. The Other category includes our Interventional Solutions business that offers products for interventional oncology and interventional radiology procedures and treatments, including cryoablation, microwave ablation and embolization. We also provide software and remote services for post treatment dose calculation for Yttrium-90 microspheres used in selective internal radiation therapy. Our goal is to offer a wide range of innovative products to the global oncology and radiology markets through a direct sales force and a network of distributors.

This discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the Consolidated Financial Statements and the Notes included elsewhere in this Annual Report on Form 10-K, as well as the information contained under Part I, Item 1A, “Risk Factors.” We discuss our results of operations below.
Critical Accounting Estimates
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our accounting policies, estimates and assumptions and make adjustments when facts and circumstances dictate. In addition to the accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included in this Annual Report on Form 10-K, we
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consider the critical accounting policies described below to be affected by critical accounting estimates. Our critical accounting policies that are affected by accounting estimates are included below. Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates. For a discussion of how these estimates and other factors may affect our business, see Part I, Item 1A, “Risk Factors.”
Revenue Recognition
Our revenues are derived primarily from the sale of hardware and software products, and services from our Oncology Systems, Proton Solutions and Interventional Solutions businesses. We recognize revenues net of any value added or sales tax and net of sales discounts.
We frequently enter into revenue arrangements with customers that contain multiple performance obligations including hardware, software, and services. Judgments as to the stand-alone selling price and allocation of consideration from an arrangement to the individual performance obligations, and the appropriate timing of revenue recognition are critical with respect to these arrangements.
Changes to the performance obligations, contract terms, credit worthiness, or right of return of the customer can impact the arrangement and the amounts allocated to each element could affect the timing and amount of revenue recognition. Revenue recognition also depends on the timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products. If shipments or installations are not made on scheduled timelines or if the products are not accepted by the customer in a timely manner, our reported revenues may differ materially from expectations.
Service revenues include revenues from hardware service contracts, software service agreements, bundled support arrangements, paid services and trainings, point in time patient services, and parts that are sold by our service department. Revenues allocated to service contracts are generally recognized ratably over the period of the related contracts.
We recognize revenues on proton therapy contracts over the life of the project as costs are incurred. We recognize revenue related to our proton therapy systems over time because the customer controls the work in process, the Company's performance does not create an asset with alternative use to the Company, and the Company has an enforceable right to payment for performance completed to date. Changes in estimates of total contract revenue, total contract cost or the extent of progress towards completion are recognized in the period in which the changes in estimates are identified. Estimated losses on contracts are recognized in the period in which the loss is identified. In circumstances in which the final outcome of a contract cannot be reliably estimated but a loss on the contract is not expected, we recognize revenues to the extent of costs incurred until reliable estimates can be made. If and when we can make more reliable estimates, revenues and costs of revenues are adjusted in the same period. Recognizing revenue over time based on costs incurred requires the use of estimates in determining revenues, costs and profits and in assigning the dollar amounts to relevant accounting periods. Because the estimates must be periodically reviewed and appropriately adjusted, if our estimates prove to be inaccurate or circumstances change over time, we may be required to adjust revenues or even record a contract loss in later periods, and our financial results could suffer.
Share-based Compensation Expense
We value our time-based stock options, purchase rights under the employee stock purchase plan, and cash-settled stock appreciation rights using the Black-Scholes option-pricing model. We value our restricted stock units and deferred stock units using the fair market value of the Company’s common stock on the date of grant. We value performance units at fair market value and adjust the value according to the contingent market condition specified in the terms of those awards. We value performance-based options using the Black-Scholes option-pricing model and adjust the value according to the contingent market condition specified in the terms of those awards. In accordance with the guidance on share-based compensation, the fair value of cash-settled stock appreciation rights is recalculated at the end of each reporting period.

The determination of the grant date fair value of share-based payment awards on the date of grant under both the Black-Scholes option-pricing model and the Monte Carlo simulation model is affected by the Company’s stock price, as well as the input of other subjective assumptions, including, as applicable, the expected terms of share-based awards, the expected price volatilities of shares of the Company’s common stock and peer companies that are used to assess certain performance targets over the expected term of the awards, and the expected dividend yield of shares of the Company’s common stock. The expected term of our stock options and cash-settled stock appreciation rights is based on the observed and expected time for such awards to be exercised or cancelled. We use a blended volatility in deriving the expected volatility assumption for our stock options, performance-based options and cash-settled stock appreciation rights, which represents the weighted average of implied volatility and historical volatility. In determining the grant date fair value of our performance units and performance options,
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historical volatilities of shares of VMS common stock, as well as the shares of common stock of peer companies, were used to assess certain performance targets. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our stock awards. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
We record forfeitures as they occur. We estimate the probability that certain performance conditions that affect the vesting of performance units and performance-based options will be achieved, and recognize expense only for those awards expected to vest. If the actual number of performance units and performance-based options that vest based on achievement of performance conditions are materially different from our estimates, the share-based compensation expense could be significantly different from what we have recorded in the current period.
Allowance for Doubtful Accounts
We evaluate the creditworthiness of our customers prior to authorizing shipment for all major sale transactions. Except for government tenders, group purchases and orders with letters of credit in Oncology Systems, our payment terms often require payment of a small portion of the total amount due when the customer signs the purchase order, a significant amount upon transfer of risk of loss to the customer and the remaining amount due upon completion of the installation. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If our evaluation of our customers’ financial conditions does not reflect our future ability to collect outstanding receivables, additional provisions may be needed, and our operating results could be negatively affected.
Impairment of Investments and Notes Receivable
We recognize an impairment charge when the declines in the fair values of our available-for-sale securities and notes receivable below their cost basis are determined to be other than temporary impairments (“OTTI”). We monitor our available-for-sale and notes receivable securities for possible OTTI on an ongoing basis. When there has been a decline in fair value of a debt security below the amortized cost basis, we recognize OTTI if: (i) we have the intention to sell the security; (ii) it is more likely than not that we will be required to sell the security before recovery of the entire amortized cost basis; or (iii) we do not expect to recover the entire amortized cost basis of the security.

We have equity investments in privately-held companies, some of which are in the startup or development stages. Our equity investments are measured at cost and are adjusted through net earnings when they are deemed to be impaired or when there is an adjustment from observable price changes. We monitor these investments for events or circumstances indicative of potential impairment, and we make appropriate reductions in carrying values if we determine that an impairment charge is required, based primarily on the financial condition, near-term prospects and recent financing activities of the investee. These investments are inherently risky because the markets for the technologies or products these companies are developing are typically in the early stages and may never materialize.

At times, we advance notes to third parties, including our customers. We regularly assess these notes for collectability by considering internal factors such as historical experience, credit quality, age of the note balances as well as external factors such as economic conditions that may affect the note holder's ability to pay.

Our ongoing consideration of all the factors described above could result in impairment charges in the future, which could adversely affect our operating results.
Inventories
Our inventories include technology parts and components that are highly specialized in nature and subject to rapid technological obsolescence. We have programs to minimize the required inventories on hand, and we regularly review inventory quantities on hand and on order and adjust for excess and obsolete inventory based primarily on historical usage rates and our estimates of product demand and production. Actual demand may differ from our estimates, in which case we may have understated or overstated the provision required for obsolete and excess inventory, which would have an impact on our operating results.

Business Combinations
We allocate the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these
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identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows primarily from acquired technologies, patents, trade names, customer contracts, partner relationships and supplier relationships, useful lives and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill.
We generally measure the fair value of our contingent consideration liabilities based on Black-Scholes or Monte Carlo pricing models with applicable key assumptions, including estimated revenues of the acquired business, the probability of completing certain milestone targets during the contingency 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 contingency 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 the contingent consideration would decrease or increase, respectively. Changes in volatility may result in an increase or decrease in the fair value of the contingent consideration.
Goodwill, Intangible Assets and Impairment Assessment
Goodwill represents the excess of the purchase price in a business over the fair value of net tangible and intangible assets acquired. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate discount weighted-average cost of capital ("WACC"). Each period we evaluate the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.

Goodwill is allocated to reporting units expected to benefit from the business combination. We evaluate our reporting units when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach. We evaluate goodwill for impairment at least annually or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. We can opt to perform a qualitative assessment to test a reporting unit’s goodwill for impairment or we can directly perform a quantitative assessment. Various factors are considered in the qualitative assessment, including macroeconomic conditions, industry and market considerations, financial performance and other relevant events affecting the reporting unit. Based on our qualitative assessment, if we determine that the fair value of a reporting unit is more likely than not (i.e., a likelihood of more than 50 percent) to be less than its carrying amount, the quantitative assessment will be performed. The quantitative assessment compares the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. We determine the fair value of our reporting units based on a combination of income and market valuation approaches. The income approach is based on the present value of estimated future cash flows that the reporting unit is expected to generate, and the market approach is based on a market multiple calculated for each reporting unit based on market data of other companies engaged in similar business. Any excess of the reporting unit’s carrying value over its fair value will be recorded as an impairment loss.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins and working capital needs to calculate projected future cash flows, WACC, future economic and market conditions, estimation of the long-term rate of growth for our business and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results related to assumed variables could differ from these estimates. In addition, we make certain judgments and assumptions in allocating assets and liabilities to determine the carrying values for each reporting unit.

As of October 2, 2020, we have two reporting units with goodwill: Oncology Systems and Interventional Solutions, with balances of $454.7 million and $169.2 million, respectively. Due to certain indicators identified related to our Interventional Solutions reporting unit in the second quarter of fiscal year 2020, including a significant decrease in near term revenue projections due to COVID-19, we identified a triggering event and performed an interim impairment test on $164.3 million of goodwill in our Interventional Solutions reporting unit, within the Other reportable operating segment. The fair value of the Interventional Solutions’ reporting unit was in excess of its carrying value by approximately $20 million, or 7%. Management believes the methodology and significant assumptions, revenue growth rates, operating margins, and weighted-average cost of capital used to calculate the fair value to be reasonable as of April 3, 2020. Management also performed the annual goodwill impairment assessment on its Interventional Solutions reporting unit, within the Other reportable operating segment, during the
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fourth quarter of fiscal year 2020. Management determined that the fair value of the Interventional Solutions reporting unit was in excess of its carrying value by approximately $72 million, or 27%. Management believes the methodology and assumptions used to calculate the fair value to be reasonable as of July 3, 2020. However, the Interventional Solutions reporting unit could be at risk for a future goodwill impairment if there are adjustments to certain assumptions used in the fair value calculation, including revenue growth rates, operating margins, WACC and/or working capital requirements. Given the uncertain impact of COVID-19 and/or other market factors on our business, our cash flow projections for this business could decrease in the future, which could lead to an impairment of goodwill.

In the third quarter of fiscal year 2019, we recorded a goodwill impairment charge of $50.5 million for the full value of the Proton Solutions reporting unit goodwill. See Note 6, "Goodwill and Intangible Assets," of the Notes to the Consolidated Financial Statements for more information about the Proton Solutions goodwill impairment.
Warranty Obligations
We warrant most of our products for a specific period of time, usually 12 months from installation, against material defects. In addition, we often include additional support services (training, help desk, maintenance) and recognize these services as separate purchase obligations along with our standard break/fix warranty cost accrual. We provide for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty break/fix costs represent our best estimate at the time of sale of the total costs that we will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates will include historical experience of similar products, as well as reasonable allowance for start-up expenses. Actual warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances of our warranty obligations and update the historical warranty cost trends, if required. If we were required to accrue additional warranty costs in the future, it would have a negative effect on our operating results.
Loss Contingencies
From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations or other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We accrue amounts, to the extent they can be reasonably estimated, that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss. Such matters are subject to many uncertainties, outcomes are not predictable with assurance, and actual liabilities could significantly exceed our estimates of potential liabilities. In addition, we are subject to a variety of environmental laws around the world. Those laws regulate multiple aspects of our operations, including the handling, storage, transport and disposal of hazardous substances. They impose costs on our operations. In connection with our past and present operations and facilities, we record environmental remediation liabilities when we conclude that environmental assessments or remediation efforts are probable, and we believe we can reasonably estimate the costs of those efforts. Our accrued environmental costs represent our best estimate of the total costs of assessments and remediation and the time period over which we expect to incur those costs. We review these accrued balances quarterly. If we were required to increase or decrease the accrued environmental costs or other loss contingencies in the future, it would adversely or favorably impact our operating results.
Defined Benefit Pension Plans
We sponsor multiple defined benefit pension plans in Germany, India, Japan, Switzerland and the United Kingdom covering employees who meet the applicable eligibility requirements in these countries. Several statistical and other factors that attempt to anticipate future events are used in calculating the expenses and liabilities related to the aforementioned plans. These factors include assumptions about the discount rate, expected return on plan assets, and the rate of future compensation increases, all of which we determine within certain guidelines. In addition, we use assumptions, such as withdrawal and mortality rates, to calculate the expenses and liabilities. The actuarial assumptions we use are long-term assumptions and may differ materially from actual experience, particularly in the short term due to changing market and economic conditions and changing participant demographics. These differences may have a significant impact on the amount of defined benefit pension plan expenses we record.
The expected rates of return on the various defined benefit pension plans’ assets are based on the asset allocation of each plan and the long-term projected return on those assets. Discount rates enable us to report expected future cash flows at a present value on the measurement date. The discount rates used for defined benefit plans are primarily based on the current effective yield of long-term corporate bonds that are of high quality with satisfactory liquidity and credit rating with durations
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corresponding to the expected duration of the benefit obligations. A change in the discount rate may cause the present value of benefit obligations to change significantly.
Taxes on Earnings
We are subject to taxes on earnings in both the United States and numerous foreign jurisdictions. As a global taxpayer, significant judgments and estimates are required in evaluating our tax positions and determining our provision for taxes on earnings. We account for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Recognition and measurement are based on management’s best judgment given the facts, circumstances and information available at the end of the accounting period.
Generally, the carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable earnings in the applicable tax jurisdictions to utilize these deferred tax assets. Should we conclude it is more likely than not that we will be unable to recover our net deferred tax assets in these tax jurisdictions, we would increase our valuation allowance and our tax provision would increase in the period in which we make such a determination.

Our effective tax rate is impacted by the proportion of our earnings generated in various geographies and subject to tax at differing rates in various tax jurisdictions.
Results of Operations
Fiscal Year
Our fiscal year is the 52- or 53-week period ending on the Friday nearest September 30. Fiscal year 2020 was the 53-week period ended October 2, 2020, fiscal year 2019 was the 52-week period ended September 27, 2019, and fiscal year 2018 was the 52-week period ended September 28, 2018.

Discussion of Results of Operations for Fiscal Years 2020 and 2019
A discussion regarding our financial condition and results of operations for fiscal 2020 compared to fiscal 2019 is presented below. A discussion regarding our financial condition and results of operations for fiscal 2019 compared to fiscal 2018 can be found under Item 7 in our Annual Report on Form 10-K for the fiscal year ended September 27, 2019, filed with the SEC on November 25, 2019, which is available on the SEC’s website at www.sec.gov and our Investor Relations website at investors.varian.com.

Total Revenues
Revenues by sales classification Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Product $ 1,587.8 (11) % $ 1,784.1 14  % $ 1,569.9
Service 1,580.4 10  % 1,441.0 % 1,349.2
Total Revenues $ 3,168.2 (2) % $ 3,225.1 10  % $ 2,919.1
Product as a percentage of total revenues 50  %   55  %   54  %
Service as a percentage of total revenues 50  %   45  %   46  %

Total product revenues decreased in fiscal year 2020 over fiscal year 2019, mostly driven by a decline in hardware product revenues from Oncology Systems due to customer capital constraints, site access challenges and delays to pre-installation activities resulting from COVID-19 and, to a lesser extent, a decrease in product revenues from Proton Solutions, partially offset by an increase in revenues from the Other category.
Total service revenues increased in fiscal year 2020 over fiscal year 2019, primarily due to an increase in service revenues from Oncology Systems, which included an increase of approximately $47 million in service revenues from CTSI and an increase of approximately $16 million in service revenues from Proton Solutions. Total service revenues in Oncology Systems were
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negatively impacted by a decline in installation and commissioning services related to delays in hardware installations due to the COVID-19 pandemic. Fiscal year 2020 included approximately $19 million in additional service revenues due to fiscal year 2020 being a 53-week period.
Revenues by region Fiscal Years
(Dollars in millions) 2020 Percent Change Constant Currency 2019 Percent Change Constant Currency 2018
Americas $ 1,534.7 —  % % $ 1,527.4 % % $ 1,436.9
EMEA 1,000.1 (7) % (6) % 1,073.4 14  % 19  % 942.8
APAC 633.4 % % 624.3 16  % 17  % 539.4
Total Revenues $ 3,168.2 (2) % (1) % $ 3,225.1 10  % 12  % $ 2,919.1
North America (1)
$ 1,448.0 % % $ 1,425.1 % % $ 1,347.2
International 1,720.2 (4) % (4) % 1,800.0 15  % 18  % 1,571.9
Total Revenues $ 3,168.2 (2) % (1) % $ 3,225.1 10  % 12  % $ 2,919.1
North America as a percentage of total revenues 46  %   44  %   47  %
International as a percentage of total revenues 54  %   56  %   53  %
(1) North America primarily includes the United States and Canada.
Revenues across all regions were negatively impacted by a decline in hardware product revenues from Oncology Systems due to site access challenges and delays to pre-installation activities resulting from COVID-19.
The Americas region revenues were flat in fiscal year 2020 over fiscal year 2019, primarily due to an increase in revenues from the Other category, mostly offset by decreases in revenues from Proton Solutions and Oncology Systems. The EMEA region revenues decreased in fiscal year 2020, over fiscal year 2019, primarily due to the decrease in revenues from Oncology Systems and, to a lesser extent, a decrease in revenues from Proton Solutions. The EMEA region revenues from Oncology Systems in fiscal year 2020 include an increase of approximately $34 million in service revenues from CTSI. The APAC region revenues increased in fiscal year 2020, over fiscal year 2019, primarily due to an increase in revenues from the Other Category, partially offset by a decrease in revenues from Oncology Systems.
Oncology Systems Revenues
Revenues by sales classification Fiscal Years
(Dollars in millions) 2020 Percent Change Constant Currency 2019 Percent Change Constant Currency 2018
Product $ 1,455.3 (11) % (11) % $ 1,642.4 15  % 17  % $ 1,431.0
Service 1,542.5 % % 1,419.4 % % 1,339.2
Total Oncology Systems Revenues $ 2,997.8 (2) % (2) % $ 3,061.8 11  % 13  % $ 2,770.2
Product as a percentage of Oncology Systems revenues 49  %   54  %   52  %
Service as a percentage of Oncology Systems revenues 51  %   46  %   48  %
Oncology Systems revenues as a percentage of total revenues 95  %   95  %   95  %
Oncology Systems product revenues in fiscal year 2020, decreased over fiscal year 2019, driven by a decline in hardware product revenues due to COVID-19 related delays, including site access restrictions and delays to customer installation readiness in second half of fiscal year 2020.
Oncology Systems service revenues, which include performance obligations for installation, training and warranty, increased in fiscal year 2020, over fiscal year 2019, primarily due to the ongoing customer adoption of service contracts as the warranty periods on our systems expire and an increase in the number of customers as the installed base of our products continues to grow. Oncology Systems service revenues were negatively impacted by a decline in installation and commissioning services
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related to delays in hardware installations due to the COVID-19 pandemic. In fiscal year 2020, Oncology Systems service revenues also included an increase of approximately $47 million in service revenues from CTSI and approximately $19 million in additional service revenues due to fiscal year 2020 being a 53-week period.
Revenues by geographical region Fiscal Years
(Dollars in millions) 2020 Percent Change Constant Currency 2019 Percent Change Constant Currency 2018
Americas $ 1,449.7 —  % —  % $ 1,451.3 % % $ 1,351.3
EMEA 942.1 (6) % (5) % 1,000.9 13  % 18  % 883.2
APAC 606.0 (1) % (1) % 609.6 14  % 15  % 535.7
Total Oncology Systems Revenues $ 2,997.8 (2) % (2) % $ 3,061.8 11  % 13  % $ 2,770.2
North America $ 1,362.9 % % $ 1,349.2 % % $ 1,261.6
International 1,634.9 (5) % (4) % 1,712.6 14  % 17  % 1,508.6
Total Oncology Systems Revenues $ 2,997.8 (2) % (2) % 3,061.8 11  % 13  % 2,770.2
North America as a percentage of total Oncology Systems revenues 45  %   44  %   46  %
International as a percentage of total Oncology Systems revenues 55  %   56  %   54  %
Oncology Systems revenues decreased across all regions, in fiscal year 2020, driven by a decline in hardware product revenues due to COVID-19 related delays, including site access restrictions and delays to customer installation readiness in the second half of fiscal year 2020. Service revenues increased across all regions, but were also negatively impacted in the second half of fiscal year 2020 by a decline in installation and commissioning services related to delays in hardware installations due to the COVID-19 pandemic.
The Americas Oncology Systems revenues decreased in fiscal year 2020 over fiscal year 2019, primarily due to a decrease in revenues from hardware products, partially offset by an increase in revenues from services. EMEA Oncology Systems revenues decreased in fiscal year 2020 over fiscal year 2019, primarily due to a decrease in revenues from hardware products, partially offset by an increase in revenues from services. In fiscal year 2020, EMEA Oncology Systems revenues from services included an increase of approximately $34 million in revenues from CTSI. APAC Oncology Systems revenues decreased in fiscal year 2020 over fiscal year 2019, primarily due to a decrease in revenues from software licenses and, to a lesser extent, a decrease in revenues from hardware products, partially offset by an increase in revenues from services.

Variations of higher and lower revenues between the North America and international regions are impacted by regional factors influencing our gross orders, which include the impact of COVID-19, government spending, philanthropy/donations, timing of replacement or new site expansions, economic and political instability in some countries, uncertainty created by U.S. health care policy, such as the possibility for bundled reimbursement payments and accountable care organizations, Medicare reimbursement rates and consolidation of free standing clinics in the United States, and different technology adoption cycles. See further discussion of orders under “Gross Orders.”
Proton Solutions Revenues 
Revenues by sales classification Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Product $ 83.2 (32) % $ 122.3 (12) % $ 138.9
Service 37.9 76  % 21.6 116  % 10.0
Total Proton Solutions revenues $ 121.1 (16) % $ 143.9 (3) % $ 148.9
Proton Solutions revenues as a percentage of total revenues %   %   %
Proton Solutions revenues decreased in fiscal year 2020 over fiscal year 2019, primarily due to the timing of project completion and stage of progress, partially due to COVID-19, and fewer orders in fiscal year 2018 and the first half of fiscal year 2019. This was partially offset by an increase in service revenues resulting from the increase in proton centers transitioning to service contracts.
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Other
Revenues from the Other category increased $29.9 million in fiscal year 2020 over fiscal year 2019, primarily due to fiscal year 2020 consisting of a full year of revenues compared to four months of revenues in fiscal year 2019. Revenues from the Other category are related to our Interventional Solutions business and are reported as product revenues.

Gross Margin 
  Fiscal Years
Dollars by segment 2020 Percent Change 2019 Percent Change 2018
(Dollars in millions)          
Oncology Systems $ 1,340.7 (1) % $ 1,349.4 % $ 1,253.2
Proton Solutions 1.8 (90) % 17.7 (13) % 20.4
Other 34.7 n/m 3.2 n/m
Gross margin $ 1,377.2 —  % $ 1,370.3 % $ 1,273.6
Percentage by segment    
Oncology Systems 44.7  %   44.1  %   45.2  %
Proton Solutions 1.5  %   12.3  %   13.7  %
Other 70.4  % 16.3  % —  %
Total Company 43.5  %   42.5  %   43.6  %
Percentage by sales classification
Total Company - Product 33.5  % 34.4  % 34.7  %
Total Company - Service 53.5  % 52.5  % 54.0  %
Oncology Systems - Product 35.5  % 36.7  % 36.5  %
Oncology Systems - Service 53.4  % 52.6  % 54.6  %
n/m = not meaningful
Oncology Systems product gross margin percentage decreased in fiscal year 2020 over fiscal year 2019, primarily due to manufacturing overhead under absorption due to the COVID-19 pandemic, as well as a geographical mix shift to emerging markets. In fiscal year 2019, the U.S./China tariffs had a negative impact, net of the expected refund for tariff exclusions, of $12 million, comprised of $4 million in revenues and $8 million in cost of revenues. Oncology Systems service gross margin percentage increased in fiscal year 2020 compared to fiscal year 2019, primarily due to lower variable service costs due to COVID-19 in the second half of fiscal year 2020 and additional service revenues due to fiscal year 2020 being a 53-week period, partially offset by an increase in service revenues from CTSI, which have a lower margin than our traditional services.
Proton Solutions gross margin percentage decreased in fiscal year 2020 compared to fiscal year 2019, primarily due to the mix of projects and increased project costs, partially offset by an increase in service revenues.
Other category gross margin percentage increased in fiscal year 2020 compared to fiscal year 2019, primarily due to the amortization of the inventory step-up after the acquisition of Endocare and Alicon in the prior fiscal year.
Research and Development
  Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Research and development $ 280.6 13  % $ 247.6 % $ 233.9
As a percentage of total revenues %   %   %

Research and development expenses increased $33.0 million in fiscal year 2020 over fiscal year 2019, primarily due to an increase in investments in software, flash technology, adaptive radiotherapy and other strategic programs.
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Selling, General and Administrative, Impairment and Restructuring Charges and Acquisition-Related Expenses

  Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Selling, general and administrative $ 671.8 % $ 623.1 15  % $ 543.5
Impairment and restructuring charges $ 77.0 52  % $ 50.6 126  % $ 22.4
Acquisition-related expenses and in-process R&D $ 24.6 (61) % $ 62.8 73  % $ 36.4
Selling, general and administrative as a percentage of total revenues 21  %   19  %   19  %
Impairment and restructuring charges as a percentage of total revenues % % %
Acquisition-related expenses and in-process R&D as a percentage of total revenues % % %
n/m = not meaningful
Selling, general and administrative expenses increased $48.7 million in fiscal year 2020 over fiscal year 2019, primarily due to increases in our operations to support growth, including an increase in sales and marketing headcount related to our acquisitions in the second half of fiscal year 2019, and investments in product management for treatment planning in Oncology Systems, partially offset by cost-saving measures that were put in place in the second half of fiscal year 2020 due to the COVID-19 pandemic. Selling, general and administrative expenses in fiscal year 2020 over fiscal year 2019, also include an increase of approximately $13 million in litigation and legal costs, and an increase of approximately $12 million in amortization expenses for intangible assets that were primarily related to our fiscal year 2019 acquisitions.
Impairment and restructuring charges in fiscal year 2020 were due to a $40.5 million impairment to the CPTC Term Loan, $18.7 million in restructuring charges and a $17.8 million impairment to our MPTC bonds and APTC securities. The $40.5 million impairment charge to the CPTC Term Loan was due to CPTC suffering material negative impacts to its operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner, during March and April 2020 as a result of the COVID-19 pandemic. The $18.7 million in restructuring charges were due to a global workforce reduction, as part of our plan to enhance operational performance through productivity initiatives in response to the impact of the COVID-19 pandemic. The $17.8 million impairment to our MPTC bonds and APTC securities was due to a decrease in trade prices of comparable bonds and we believed that it was more likely than not that we would not recover the losses before these bonds and securities are sold. See Note 15, "Proton Solutions Loans and Investment," of the Notes to the Consolidated Financial Statements for more information about our CPTC Term Loan, MPTC bonds and APTC securities. Impairment charges in fiscal year 2019 were primarily due to a $50.5 million goodwill impairment charge to the Proton Solutions reporting unit.
Acquisition-related expenses and in-process R&D in fiscal year 2020 were primarily due to transactions costs related to our acquisitions and advisory fees related to the proposed acquisition by Siemens Healthineers. Acquisition-related expenses and in-process R&D in fiscal year 2019 was primarily due to a $20.8 million charge associated with a write-off of in-process R&D related to an acquisition that closed in the third quarter of fiscal year 2019, an $18.6 million charge due to the increase in the fair value of contingent consideration related to the Endocare and Alicon acquisition, and transaction costs related to the acquisitions of CTSI, and Endocare and Alicon.
Other Income, Net
  Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Interest income $ 10.4 (32) % $ 15.1 (12) % $ 17.3
Interest expense $ (14.0) 59  % $ (8.8) 31  % $ (6.8)
Other income, net $ 38.7 37  % $ 28.3 n/m $ 4.2
n/m = not meaningful
Interest income decreased in fiscal year 2020 over fiscal year 2019, primarily due to a decrease in interest income from loans to our Proton Solutions customers, our available-for-sale securities, and income generated from our cash balances due to a decrease in interest rates. Interest expense increased in fiscal year 2020 over fiscal year 2019, primarily due to an increase in
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borrowings from our Credit Facility in fiscal year 2020. Other income, net, in fiscal year 2020, primarily includes $41.9 million in net gains that was mostly due to increases in the fair value of our equity investments, partially offset by $5.5 million in foreign exchange losses. Other income, net, in fiscal year 2019 primarily includes a $22.0 million gain on the sale of an equity investment.

  Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Taxes on earnings $ 88.9 (31.0) % $ 128.6 (57.0) % $ 301.8
Effective tax rate 24.8  % 30.6  % 66.8  %
Our effective tax rate decreased in fiscal year 2020 over fiscal year 2019, primarily because the prior period included a goodwill impairment charge and an in-process research and development expense, neither of which generated a tax benefit for the Company. This decrease was partially offset by an unfavorable shift in the geographic mix of earnings in fiscal year 2020.
Our effective tax rate is impacted by the percentage of our total earnings that comes from our international region, the mix of particular tax jurisdictions within our international region, changes in the valuation of our deferred tax assets or liabilities, and changes in tax laws or interpretations of those laws. We expect that our effective tax rate may experience increased fluctuations from period to period. See Note 11, "Taxes on Earnings," of the Notes to the Consolidated Financial Statements for further information.
Net Earnings Per Diluted Share
  Fiscal Years
  2020 Percent Change 2019 Percent Change 2018
Total net earnings per diluted share $ 2.94 (7) % $ 3.18 96  % $ 1.62

Net earnings per diluted share decreased in fiscal year 2020 over fiscal year 2019, primarily due to higher operating expenses, partially offset by gains on equity investments and a decrease in the effective tax rate in fiscal year 2020.
Gross Orders
Total Gross Orders (by segment) Fiscal Years
(Dollars in millions) 2020 Percent Change 2019 Percent Change 2018
Oncology Systems $ 3,253.6 (4) % $ 3,397.6 % $ 3,113.9
Proton Solutions 132.4 (13) % 151.8 163  % 57.7
Other 49.3 154  % 19.4 —  %
Total Gross Orders $ 3,435.3 (4) % $ 3,568.8 13  % $ 3,171.6