SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________



☐			TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

____________________________________________________________

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~~) (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(s)	Name of each exchange on which registered
Common Stock, $1 par value	VAR	New York Stock Exchange

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 (§232.405 of this chapter) 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, a 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.

Large Accelerated Filer

☒

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 26, 2019,~~January 31, 2020, the registrant had ~~91,060,717~~90,665,845 shares of common stock, par value $1 per share, outstanding.

VARIAN MEDICAL SYSTEMS, INC.

FORM 10-Q for the Quarter Ended ~~June 28, 2019~~January 3, 2020

INDEX

Part I.

Financial Information

~~Part I.~~Item 1.

Unaudited Financial ~~Information~~Statements

~~Item 1.~~

~~Unaudited Financial Statements~~

Condensed Consolidated Statements of Earnings

Condensed Consolidated Statements of Comprehensive Earnings

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Cash Flows

Condensed Consolidated Statements of Equity

Notes to the Condensed Consolidated Financial Statements

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3834

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

5448

Item 4.

Controls and Procedures

Part II.

Item 1.

Item 1A.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

5849

Item 3.

Defaults Upon Senior Securities

5850

Item 4.

Mine Safety Disclosures

Item 5.

Item 6.

PART I

FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(Unaudited)


	Three Months Ended
	January 3,		December 28,
(In millions, except per share amounts)	2020		2018
Revenues:
Product	$	421.0	$	400.2
Service	407.9		340.8
Total revenues	828.9		741.0
Cost of revenues:
Product	271.9		266.6
Service	190.2		158.3
Total cost of revenues	462.1		424.9
Gross margin	366.8		316.1
Operating expenses:
Research and development	67.1		60.9
Selling, general and administrative	177.0		141.1

Acquisition-related expenses	12.7		2.4
Total operating expenses	256.8		204.4
Operating earnings	110.0		111.7
Interest income	3.0		3.9
Interest expense	(4.7)		(1.2)
Other income, net	4.4		23.0
Earnings before taxes	112.7		137.4
Taxes on earnings	23.8		33.5


Net earnings	88.9		103.9
Less: Net earnings attributable to noncontrolling interests	0.7		0.7
Net earnings attributable to Varian	$	88.2	$	103.2




Net earnings per share - basic	$	0.97	$	1.13




Net earnings per share - diluted	$	0.96	$	1.12

Shares used in the calculation of net earnings per share:
Weighted average shares outstanding - basic	90.9		91.0
Weighted average shares outstanding - diluted	91.7		92.0

Three Months Ended Nine Months Ended
June 28, June 29, June 28, June 29,
(In millions, except per share amounts) 2019 2018 2019 2018
Revenues:
Product $ 461.3
$ 365.0
$ 1,292.0
$ 1,124.4
Service 364.5
344.1
1,054.2
993.1
Total revenues 825.8
709.1
2,346.2
2,117.5
Cost of revenues:
Product 298.0
242.5
859.0
730.6
Service 176.4
153.0
501.5
452.0
Total cost of revenues 474.4
395.5
1,360.5
1,182.6
Gross margin 351.4
313.6
985.7
934.9
Operating expenses:
Research and development 62.1
59.5
182.4
174.3
Selling, general and administrative 153.6
140.4
441.5
400.3
Impairment charges 50.6
11.0
50.6
22.1
Acquisition-related expenses and in-process research and development 31.2
12.7
35.8
33.9
Total operating expenses 297.5
223.6
710.3
630.6
Operating earnings 53.9
90.0
275.4
304.3
Interest income 3.7
1.8
11.6
8.6
Interest expense (1.8 ) (1.3 ) (4.0 ) (5.7 )
Other income, net 4.2
1.5
27.4
2.9
Earnings before taxes 60.0
92.0
310.4
310.1
Taxes on earnings 30.5
19.5
88.6
276.6
Net earnings 29.5
72.5
221.8
33.5
Less: Net earnings (loss) attributable to noncontrolling interests 0.1
(0.1 ) 0.6
—
Net earnings attributable to Varian $ 29.4
$ 72.6
$ 221.2
$ 33.5
Net earnings per share - basic $ 0.32
$ 0.79
$ 2.43
$ 0.37
Net earnings per share - diluted $ 0.32
$ 0.79
$ 2.41
$ 0.36
Shares used in the calculation of net earnings per share:
Weighted average shares outstanding - basic 91.0
91.5
91.0
91.6
Weighted average shares outstanding - diluted 91.8
92.5
91.9
92.6

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Unaudited)


	Three Months Ended						Nine Months Ended							Three Months Ended
	June 28,			June 29,			June 28,			June 29,				January 3,		December 28,
(In millions)	2019			2018			2019			2018			(In millions)	2020		2018
Net earnings	$	29.5		$	72.5		$	221.8		$	33.5		Net earnings	$	88.9	$	103.9
Other comprehensive earnings (loss), net of tax:													Other comprehensive earnings (loss), net of tax:
Defined benefit pension and post-retirement benefit plans:													Defined benefit pension and post-retirement benefit plans:
Amortization of prior service cost included in net periodic benefit cost, net of tax benefit of $0.0* and $0.1, for the three and nine months ended June 28, 2019, respectively, and $0.1 and $0.2, for the corresponding periods of fiscal year 2018, respectively	(0.2		)	(0.1		)	(0.5		)	(0.6		)
Amortization of net actuarial loss included in net periodic benefit cost, net of tax expense of ($0.1) and ($0.3), for the three and nine months ended June 28, 2019, respectively, and ($0.1) and ($0.4), for the corresponding periods of fiscal year 2018, respectively	0.5			0.5			1.4			1.7
Amortization of prior service cost included in net periodic benefit cost, net of tax benefit of $0.0* and $0.0*, respectively													Amortization of prior service cost included in net periodic benefit cost, net of tax benefit of $0.0* and $0.0*, respectively	(0.2)		(0.2)
Amortization of net actuarial loss included in net periodic benefit cost, net of tax expense of $(0.2) and $(0.1), respectively													Amortization of net actuarial loss included in net periodic benefit cost, net of tax expense of $(0.2) and $(0.1), respectively	0.9		0.5
	0.3			0.4			0.9			1.1				0.7		0.3
Derivative instruments:													Derivative instruments:
Change in unrealized loss, net of tax benefit of $0.0* for both the three and nine months ended June 28, 2019, and $0.3 for the nine months ended June 28, 2018	(0.3		)	—			(0.3		)	(0.6		)
Reclassification adjustments, net of tax expense of ($0.3) for nine months ended June 28, 2018, respectively	—			—			—			0.6
Change in unrealized loss, net of tax benefit of $0.0* and $0.0, respectively													Change in unrealized loss, net of tax benefit of $0.0* and $0.0, respectively	(0.1)		—
Reclassification adjustments, net of tax benefit of $0.2 and $0.0, respectively													Reclassification adjustments, net of tax benefit of $0.2 and $0.0, respectively	(0.6)		—
														(0.7)		—

	(0.3		)	—			(0.3		)	—
Currency translation adjustment	2.3			(12.7		)	(4.8		)	(3.0		)	Currency translation adjustment	5.1		(4.0)
Other comprehensive earnings (loss)	2.3			(12.3		)	(4.2		)	(1.9		)	Other comprehensive earnings (loss)	5.1		(3.7)
Comprehensive earnings	31.8			60.2			217.6			31.6			Comprehensive earnings	94.0		100.2
Less: Comprehensive earnings (loss) attributable to noncontrolling interests	0.1			(0.1		)	0.6			—
Less: Comprehensive earnings attributable to noncontrolling interests													Less: Comprehensive earnings attributable to noncontrolling interests	0.7		0.7
Comprehensive earnings attributable to Varian	$	31.7		$	60.3		$	217.0		$	31.6		Comprehensive earnings attributable to Varian	$	93.3	$	99.5

* Tax expense or benefit related to the periods presented are not material.

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)


	January 3,		September 27,
(In millions, except par values)	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	721.9	$	531.4
Trade and unbilled receivables, net of allowance for doubtful accounts of $47.0 and $46.5 at January 3, 2020 and September 27, 2019, respectively	1,079.2		1,106.3
Inventories	597.4		551.5
Prepaid expenses and other current assets	248.5		206.2

Total current assets	2,647.0		2,395.4
Property, plant and equipment, net	330.3		311.5
Operating lease right-of-use assets	114.1		—
Goodwill	612.4		612.2
Intangible assets	290.9		300.7
Deferred tax assets	85.7		84.7
Other assets	370.3		397.2
Total assets	$	4,450.7	$	4,101.7
Liabilities and Equity
Current liabilities:
Accounts payable	$	215.3	$	248.5
Accrued liabilities	471.2		459.5
Deferred revenues	817.9		766.0
Short-term borrowings	542.0		410.0

Total current liabilities	2,046.4		1,884.0

Long-term lease liabilities	93.7		—
Other long-term liabilities	453.3		440.1
Total liabilities	2,593.4		2,324.1
Commitments and contingencies (Note 8)
Equity:
Varian stockholders' equity:
Preferred stock of $1 par value: 1.0 shares authorized; NaN issued and outstanding	—		—
Common stock of $1 par value: 189.0 shares authorized; 90.7 and 90.8 shares issued and outstanding at January 3, 2020 and September 27, 2019, respectively	90.7		90.8
Capital in excess of par value	870.4		845.6
Retained earnings	983.2		934.0
Accumulated other comprehensive loss	(97.0)		(102.1)
Total Varian stockholders' equity	1,847.3		1,768.3
Noncontrolling interest	10.0		9.3
Total equity	1,857.3		1,777.6
Total liabilities and equity	$	4,450.7	$	4,101.7

June 28, September 28,
(In millions, except par values) 2019 2018 (1)
Assets
Current assets:
Cash and cash equivalents $ 520.7
$ 504.8
Trade and unbilled receivables, net of allowance for doubtful accounts of $47.0 at June 28, 2019, and $41.1 at September 28, 2018 1,054.2
1,009.9
Inventories 529.3
438.1
Prepaid expenses and other current assets 237.0
233.3
Current assets of discontinued operations —
2.3
Total current assets 2,341.2
2,188.4
Property, plant and equipment, net 307.4
274.6
Goodwill 566.9
293.6
Intangible assets 273.1
101.1
Deferred tax assets 93.9
102.2
Other assets 384.8
292.8
Total assets $ 3,967.3
$ 3,252.7
Liabilities and Equity
Current liabilities:
Accounts payable $ 226.1
$ 190.3
Accrued liabilities 433.1
419.7
Deferred revenues 749.7
729.7
Short-term borrowings 400.0
—
Current maturities of long-term debt 1.0
—
Total current liabilities 1,809.9
1,339.7
Other long-term liabilities 400.1
324.3
Total liabilities 2,210.0
1,664.0
Commitments and contingencies (Note 8)

Equity:
Varian stockholders' equity:
Preferred stock of $1 par value: 1.0 shares authorized; none issued and outstanding —
—
Common stock of $1 par value: 189.0 shares authorized; 91.0 and 91.2 shares issued and outstanding at June 28, 2019, and September 28, 2018, respectively 91.0
91.2
Capital in excess of par value 831.4
778.1
Retained earnings 890.7
780.4
Accumulated other comprehensive loss (69.5 ) (65.3 )
Total Varian stockholders' equity 1,743.6
1,584.4
Noncontrolling interest 13.7
4.3
Total equity 1,757.3
1,588.7
Total liabilities and equity $ 3,967.3
$ 3,252.7


⁽¹⁾	The condensed consolidated balance sheet as of September 28, 2018, was derived from audited financial statements as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America.

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three Months Ended
	January 3,		December 28,
(In millions)	2020		2018
Cash flows from operating activities:
Net earnings	$	88.9	$	103.9
Adjustments to reconcile net earnings to net cash provided by operating activities:
Share-based compensation expense	14.9		10.5
Depreciation	15.0		12.8
Amortization of intangible assets and inventory step-up	10.2		4.7


Gain on sale of equity investments	(1.4)		(22.0)


Change in fair value of contingent consideration	8.8		—


Other, net	2.7		3.7
Changes in assets and liabilities, net of effects of acquisitions:
Trade and unbilled receivables	29.5		2.9
Inventories	(44.9)		(32.4)
Prepaid expenses and other assets	6.3		8.6
Accounts payable	(32.7)		13.5
Accrued liabilities and other long-term liabilities	(42.1)		(12.5)
Deferred revenues	57.4		47.2
Net cash provided by operating activities	112.6		140.9
Cash flows from investing activities:
Purchases of property, plant and equipment	(22.6)		(14.0)
Acquisitions, net of cash acquired	(1.7)		(25.5)



Sale of equity investments	9.2		29.9







Other, net	—		(3.5)
Net cash used in investing activities	(15.1)		(13.1)
Cash flows from financing activities:
Repurchases of common stock	(43.8)		(34.8)
Proceeds from issuance of common stock to employees	19.7		22.0

Tax withholdings on vesting of equity awards	(3.6)		(4.4)

Borrowings under credit facility agreement	11.0		—
Repayments under credit facility agreement	(11.0)		—
Net borrowings under the credit facility agreements with maturities less than 90 days	132.0		—



Other	(0.9)		—
Net cash provided by (used in) financing activities	103.4		(17.2)
Effects of exchange rate changes on cash, cash equivalents, and restricted cash	(2.8)		1.7
Net increase in cash, cash equivalents, and restricted cash	198.1		112.3
Cash, cash equivalents, and restricted cash at beginning of period	544.1		516.4
Cash, cash equivalents, and restricted cash at end of period	$	742.2	$	628.7

Nine Months Ended
June 28, June 29,
(In millions) 2019 2018
Cash flows from operating activities:
Net earnings $ 221.8
$ 33.5
Adjustments to reconcile net earnings to net cash provided by operating activities:

Share-based compensation expense 35.2
34.0
Depreciation 38.7
38.3
Amortization of intangible assets 17.4
15.2
Deferred taxes 8.9
50.1
Provision for doubtful accounts receivable 6.2
2.7
Gain on sale of equity investments, net (21.8 ) —
Impairment charges 50.6
22.1
Write-off of in-process research and development related to acquisition-related activities 20.8
—
Loss on hedges related to acquisition-related activities —
5.5
Other, net (1.2 ) 1.3
Changes in assets and liabilities, net of effects of acquisitions:

Trade and unbilled receivables (77.7 ) 10.8
Inventories (78.4 ) (48.5 )
Prepaid expenses and other assets (26.9 ) (29.8 )
Accounts payable 29.9
27.8
Accrued liabilities and other long-term liabilities (24.4 ) 150.0
Deferred revenues 54.9
33.7
Net cash provided by operating activities 254.0
346.7
Cash flows from investing activities:

Purchases of property, plant and equipment (43.7 ) (30.8 )
Acquisitions, net of cash acquired (485.6 ) (58.7 )
Purchase of equity investments (29.8 ) (10.1 )
Sale of equity investment 29.9
—
Principal payments on notes receivable 0.1
6.3
Investment in available-for-sale security —
(6.0 )
Sale of available-for-sale security 8.5
8.0
Loans to CPTC (1.4 ) (5.3 )
Purchase of foreign currency option related to acquisition-related activities —
(5.5 )
Other, net (1.7 ) (1.0 )
Net cash used in investing activities (523.7 ) (103.1 )
Cash flows from financing activities:

Repurchases of common stock (134.2 ) (131.9 )
Proceeds from issuance of common stock to employees 55.7
57.1
Tax withholdings on vesting of equity awards (14.1 ) (11.5 )
Cash received from Varex Imaging Corporation 4.1
—
Borrowings under credit facility agreement 430.0
503.3
Repayments under credit facility agreement (430.0 ) (503.3 )
Net proceeds (repayments) under the credit facility agreements with maturities less than 90 days 400.0
(331.7 )
Repayment of acquired debt (16.8 ) —
Other (0.7 ) (3.6 )
Net cash provided by (used in) financing activities 294.0
(421.6 )
Effects of exchange rate changes on cash, cash equivalents, and restricted cash 2.2
4.6
Net increase (decrease) in cash, cash equivalents, and restricted cash 26.5
(173.4 )
Cash, cash equivalents, and restricted cash at beginning of period 516.4
718.5
Cash, cash equivalents, and restricted cash at end of period $ 542.9
$ 545.1

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)


	Common Stock
(In millions)	Shares	Amount		Capital in Excess of Par Value		Retained Earnings		Accumulated Other Comprehensive Loss		Total Varian Stockholders' Equity		Noncontrolling Interests		Total Equity
Balance at September 27, 2019	90.8	$	90.8	$	845.6	$	934.0	$	(102.1)	$	1,768.3	$	9.3	$	1,777.6
Net earnings	—	—		—		88.2		—		88.2		0.7		88.9
Other comprehensive earnings	—	—		—		—		5.1		5.1		—		5.1
Issuance of common stock	0.3	0.3		20.7		—		—		21.0		—		21.0
Tax withholdings on vesting of equity awards	—	—		(3.6)		—		—		(3.6)		—		(3.6)
Share-based compensation expense	—	—		14.7		—		—		14.7		—		14.7
Repurchases of common stock	(0.4)	(0.4)		(7.0)		(39.0)		—		(46.4)		—		(46.4)

Balances at January 3, 2020	90.7	$	90.7	$	870.4	$	983.2	$	(97.0)	$	1,847.3	$	10.0	$	1,857.3

Common Stock
(In millions) Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Total Varian Stockholders' Equity Noncontrolling Interests Total Equity
Balance at September 28, 2018 91.2
$ 91.2
$ 778.1
$ 780.4
$ (65.3 ) $ 1,584.4
$ 4.3
$ 1,588.7
Net earnings —
—
—
103.2
—
103.2
0.7
103.9
Other comprehensive loss —
—
—
—
(3.7 ) (3.7 ) —
(3.7 )
Issuance of common stock 0.3
0.3
21.7
—
—
22.0
—
22.0
Tax withholdings on vesting of equity awards —
—
(4.4 ) —
—
(4.4 ) —
(4.4 )
Share-based compensation expense —
—
10.5
—
—
10.5
—
10.5
Repurchases of common stock (0.3 ) (0.3 ) (6.6 ) (27.9 ) —
(34.8 ) —
(34.8 )
Other —
—
—
(0.2 ) —
(0.2 ) —
(0.2 )
Balances at December 28, 2018 91.2
$ 91.2
$ 799.3
$ 855.5
$ (69.0 ) $ 1,677.0
$ 5.0
$ 1,682.0
Net earnings (loss) —
—
—
88.6
—
88.6
(0.2 ) 88.4
Other comprehensive loss —
—
—
—
(2.8 ) (2.8 ) —
(2.8 )
Issuance of common stock 0.5
0.5
19.8
—
—
20.3
—
20.3
Tax withholdings on vesting of equity awards (0.1 ) (0.1 ) (9.4 ) —
—
(9.5 ) —
(9.5 )
Share-based compensation expense —
—
12.5
—
—
12.5
—
12.5
Repurchases of common stock (0.4 ) (0.4 ) (8.6 ) (41.8 ) —
(50.8 ) —
(50.8 )
Balances at March 29, 2019 91.2
$ 91.2
$ 813.6
$ 902.3
$ (71.8 ) $ 1,735.3
$ 4.8
$ 1,740.1
Net earnings —
—
—
29.4
—
29.4
0.1
29.5
Other comprehensive earnings —
—
—
—
2.3
2.3
—
2.3
Issuance of common stock 0.2
0.2
13.2
—
—
13.4
—
13.4
Tax withholdings on vesting of equity awards —
—
(0.2 ) —
—
(0.2 ) —
(0.2 )
Share-based compensation expense —
—
12.1
—
—
12.1
—
12.1
Repurchases of common stock (0.4 ) (0.4 ) (7.3 ) (41.0 ) —
(48.7 ) —
(48.7 )
Acquisition of Cancer Treatment Services International —
—
—
—
—
—
8.8
8.8
Balances at June 28, 2019 91.0
$ 91.0
$ 831.4
$ 890.7
$ (69.5 ) $ 1,743.6
$ 13.7
$ 1,757.3




Balances at September 28, 2018	91.2	$	91.2	$	778.1	$	780.4	$	(65.3)	$	1,584.4	$	4.3	$	1,588.7
Net earnings	—	—		—		103.2		—		103.2		0.7		103.9
Other comprehensive loss	—	—		—		—		(3.7)		(3.7)		—		(3.7)
Issuance of common stock	0.3	0.3		21.7		—		—		22.0		—		22.0
Tax withholdings on vesting of equity awards	—	—		(4.4)		—		—		(4.4)		—		(4.4)
Share-based compensation expense	—	—		10.5		—		—		10.5		—		10.5
Repurchases of common stock	(0.3)	(0.3)		(6.6)		(27.9)		—		(34.8)		—		(34.8)
Other	—	—		—		(0.2)		—		(0.2)		—		(0.2)
Balances at December 28, 2018	91.2	$	91.2	$	799.3	$	855.5	$	(69.0)	$	1,677.0	$	5.0	$	1,682.0

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF EQUITY~~

~~(Unaudited)~~

Common Stock
(In millions) Shares Amount Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Total Varian Stockholders' Equity Noncontrolling Interests Total Equity
Balances at September 29, 2017 91.7
$ 91.7
$ 716.1
$ 778.6
$ (68.8 ) $ 1,517.6
$ 4.3
$ 1,521.9
Net earnings (loss) —
—
—
(112.3 ) —
(112.3 ) 0.1
(112.2 )
Other comprehensive earnings —
—
—
—
3.1
3.1
—
3.1
Issuance of common stock 0.4
0.4
23.8
—
—
24.2
—
24.2
Tax withholdings on vesting of equity awards —
—
(0.3 ) —
—
(0.3 ) —
(0.3 )
Share-based compensation expense —
—
10.7
—
—
10.7
—
10.7
Repurchases of common stock (0.5 ) (0.5 ) (10.4 ) (45.8 ) —
(56.7 ) —
(56.7 )
Other —
—
0.6
(0.3 ) —
0.3
—
0.3
Balances at December 29, 2017 91.6
$ 91.6
$ 740.5
$ 620.2
$ (65.7 ) $ 1,386.6
$ 4.4
$ 1,391.0
Net earnings —
—
—
73.2
—
73.2
—
73.2
Other comprehensive earnings —
—
—
—
7.3
7.3
—
7.3
Issuance of common stock 0.5
0.5
20.9
—
—
21.4
—
21.4
Tax withholdings on vesting of equity awards (0.1 ) (0.1 ) (10.7 ) —
—
(10.8 ) —
(10.8 )
Share-based compensation expense —
—
10.5
—
—
10.5
—
10.5
Repurchases of common stock (0.3 ) (0.3 ) (6.5 ) (29.2 ) —
(36.0 ) —
(36.0 )
Balances at March 30, 2018 91.7
$ 91.7
$ 754.7
$ 664.2
$ (58.4 ) $ 1,452.2
$ 4.4
$ 1,456.6
Net earnings (loss) —
—
—
72.6
—
72.6
(0.1 ) 72.5
Other comprehensive loss —
—
—
—
(12.3 ) (12.3 ) —
(12.3 )
Issuance of common stock 0.1
0.1
11.4
—
—
11.5
—
11.5
Tax withholdings on vesting of equity awards —
—
(0.4 ) —
—
(0.4 ) —
(0.4 )
Share-based compensation expense —
—
12.8
—
—
12.8
—
12.8
Repurchases of common stock (0.3 ) (0.3 ) (6.7 ) (32.2 ) —
(39.2 ) —
(39.2 )
Balances at June 29, 2018 91.5
$ 91.5
$ 771.8
$ 704.6
$ (70.7 ) $ 1,497.2
$ 4.3
$ 1,501.5

See accompanying notes to the condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

The long-term growth and value creation strategy of Varian Medical Systems, Inc. (“VMS”) and subsidiaries (collectively, the “Company”) is to ~~become a~~transform the Company from the global leader in radiation therapy to the global leader in multi-disciplinary, integrated cancer care solutions that ~~enable~~leverages its clinical experience and ~~accelerate access to innovative, life-saving~~strengths in technology ~~worldwide.~~development and new product innovation. The Company offers solutions in radiation therapy and medical oncology, ~~which fall within the traditional pillars of cancer care,~~ as well as ~~the new pillar~~interventional oncology, an emerging area of ~~interventional oncology.~~cancer care. The Company designs, manufactures, sells and services hardware and software products for treating cancer with radiotherapy, stereotactic radiosurgery, stereotactic body radiotherapy, and brachytherapy, and offers products for ~~minimally invasive~~ interventional oncology procedures and treatments, including cryoablation, microwave ablation and ~~embolic beads.~~embolization. Software solutions include treatment planning, informatics, ~~software for information management,~~ clinical knowledge exchange, patient care management, practice management and ~~decision-making~~decision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices. The Company also develops, designs, manufactures, sells and services proton therapy products and systems for cancer treatment.

~~In addition~~The Company has expanded its services offerings to ~~providing~~include clinical practice services that assist within the ~~products~~clinical workflow. These services focus on decision support and/or cancer care knowledge augmentation aimed at facilitating improved accessibility and ~~services for oncology~~affordability to care ~~described above, the Company offers treatment planning as~~while maintaining a ~~service and quality assurance as a service, which allows remote support and delivery~~fundamental level of ~~care in understaffed locations to utilize technology on a per patient basis.~~clinical quality. Further, the Company operates ~~11 healthcare facilities in India; comprised of one~~10 multi-disciplinary cancer centers and 1 specialty hospital in India and ~~ten~~1 multi-disciplinary cancer ~~centers.~~center in Sri Lanka.

Basis of Presentation

The condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet as of September 27, 2019, was derived from audited financial statements as of that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America. These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September ~~28, 2018~~27, 2019 (the ~~“2018~~“2019 Annual Report”).

In the opinion of management, the condensed consolidated financial statements herein include adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s financial position as of ~~June 28, 2019,~~January 3, 2020, and September ~~28, 2018,~~27, 2019, results of operations and statements of comprehensive earnings for the three ~~and nine~~ months ended ~~June~~January 3, 2020, and December 28, ~~2019, and June 29,~~ 2018, statements of cash flows for the ~~nine~~three months ended ~~June~~January 3, 2020, and December 28, ~~2019, and June 29,~~ 2018, and statements of equity for the three ~~and nine~~ months ended ~~June~~January 3, 2020, and December 28, ~~2019, and June 29,~~ 2018. The results of operations for the ~~nine~~three months ended ~~June 28, 2019,~~January 3, 2020, are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period.

Reclassifications

Certain reclassifications have been made to the amounts in the prior year in order to conform to the current year's presentation.

Fiscal Year

The fiscal years of the Company as reported are the 52- or 53-week periods ending on the Friday nearest September 30. Fiscal year ~~2019 is~~2020 was the ~~52-week~~53-week period ending ~~September 27, 2019.~~October 2, 2020. Fiscal year ~~2018~~2019 was the 52-week period that ended on September ~~28, 2018.~~27, 2019. The fiscal ~~quarters~~quarter ended ~~June~~January 3, 2020 was a 14-week period, and the fiscal quarter ended December 28, ~~2019, and June 29,~~ 2018, ~~were both~~was a 13-week ~~periods.~~period.

Principles of Consolidation

The condensed consolidated financial statements include those of VMS and its wholly-owned and majority-owned or controlled subsidiaries. Intercompany balances, transactions and stock holdings have been eliminated in consolidation.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

Consolidation of Variable Interest Entities

For entities in which the Company has variable interests, the Company focuses on identifying which entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity. If the Company is the primary beneficiary of a variable interest entity, the assets, liabilities, and results of operations of the variable interest entity will be included in the Company’s condensed consolidated financial statements. At January 3, 2020 and September 27, 2019, the Company consolidated its non-controlling interest in a joint venture, included within its Oncology Systems business, related to the Cancer Treatment Services International ("CTSI") operations.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Significant Accounting Policies

~~There~~With the exception of the change for the accounting of leases as a result of the adoption of Accounting Standard Codification Topic 842, there have been no material changes to the Company's significant accounting policies provided in ~~"Note 1: Summary~~Note 1, "Summary of Significant Accounting ~~Policies"~~Policies," within ~~the Notes to the Consolidated Financial Statements~~Item 8 of the Company's ~~2018~~ Annual ~~Report.~~Report on Form 10-K for the year ended September 27, 2019.

Leases

~~Recently Adopted Accounting Pronouncements~~

In the first quarter of fiscal year 2019, the Company adopted the Financial Accounting Standards Board ("FASB") guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The Company ~~adopted this amendment prospectively,~~determines if an arrangement is or contains a lease at the inception of an arrangement. The Company's operating lease right-of-use ("ROU") assets represents the right to use an underlying asset over the lease term and ~~it did not have a material impact~~lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets may also include initial direct costs incurred and prepaid lease payments, less lease incentives. Lease liabilities and their corresponding ROU assets are recognized based on the ~~Company's condensed consolidated financial statements.~~

Inpresent value of lease payments over the first quarter of fiscal year 2019, the Company adopted the FASB guidance on the accounting related to defined benefit plans and other post-retirement benefits. This amendment requires the service cost component of net periodic pension and post-retirement benefit cost to be presented in the same line item as other employee compensation costs, while the other components must be presented separately as other income, net. The adoption of this amendment did not have a material impact onlease term, discounted using the Company's ~~condensed consolidated financial statements.~~

In the first quarter of fiscal year 2019, the Company adopted the FASB guidance on the classification and presentation of restricted cash in the statement of cash flow. The amendment requires entities to include restricted cash in cash and cash equivalents in the statement of cash flows.incremental borrowing rate ("IBR"). The Company ~~adopted the amendment retrospectively,~~recognizes operating leases with lease terms of more than twelve months in operating lease right-of-use assets, accrued liabilities, and ~~prior period amounts~~long-term lease liabilities on the Condensed Consolidated Statements of Cash Flows have been recast to conform with the current period presentation as shown in the reconciliation provided below. See Note 3, "Other Financial Information," for a reconciliation of the cash balances within the Condensed Consolidated Statements of Cash Flows to theits Condensed Consolidated Balance Sheets.

Nine Months Ended June 29, 2018
(In millions) As Previously Reported Adjustments As Adjusted
Cash used in investing activities $ (109.9 ) $ 6.8
$ (103.1 )
Cash, cash equivalents, and restricted cash at beginning of period $ 716.2
$ 2.3
$ 718.5
Cash, cash equivalents, and restricted cash at end of period $ 536.0
$ 9.1
$ 545.1

InThe Company’s finance leases primarily represent certain sale and leaseback-sublease arrangements. The Company has entered into sale-leaseback arrangements with a third-party finance company for certain equipment and simultaneously subleased the ~~first quarter~~equipment to certain qualified customers. The Company’s leaseback arrangements have been accounted for as finance leases as they meet one or more of ~~fiscal year 2019,~~the finance lease classification criteria. The Company recognizes finance leases with lease terms of more than twelve months in property, plant, and equipment, net, accrued liabilities, and other long-term liabilities on its Condensed Consolidated Balance Sheets.

For purposes of calculating lease liabilities and the corresponding ROU assets, the Company's lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

The Company generally does not have adequate information to determine the implicit rate in a lease, therefore the Company ~~adopted~~uses an estimated IBR. The Company does not maintain a public credit rating and its debt arrangements are unsecured, thus requiring significant judgment to calculate the ~~FASB guidance for tax accounting for intra-entity asset transfers.~~IBR. The ~~amendment removes~~Company uses different data sets to estimate the ~~prohibition against the immediate recognition~~IBR, including: (i) an estimated indicative credit rating of the ~~current~~Company; (ii) yields on comparable credit rating composite curves; (iii) foreign exchange rates; and ~~deferred income tax effects of intra-entity transfers of assets other than inventory.~~(iv) an estimated adjustment for collateral. The ~~adoption of this amendment did~~Company also applies adjustments to account for considerations related to (i) tenor; and (ii) country credit rating that may not ~~have a material impact on~~be fully incorporated by the ~~Company's condensed consolidated financial statements. See Note 10, "Income Taxes," for more information about the impact~~aforementioned data sets.

Certain of the ~~adoption.~~

InCompany’s lease arrangements include variable lease payments. Variable lease payments, not dependent on an index or discount rate, are expensed as incurred and are not included within the ~~first quarter of fiscal year 2019, the Company adopted the FASB guidance related to the classification of certain cash receipts~~ROU asset and ~~cash~~lease liability calculation. Variable lease payments generally include common area maintenance, utilities, maintenance charges, property taxes, insurance, and contingent rent payments. The amendment was issued to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The Company adopted the amendment retrospectively, and it did not have an impact on the Company’s condensed consolidated financial statements.

In the first quarter of fiscal year 2019, the Company adopted the FASB guidance related to recognition and measurement of financial assets and financial liabilities. The amendment addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. Most prominent among the changes is the requirement for changes in the fair valueCertain of the Company's ~~equity investments to be recognized through net earnings rather than other comprehensive income. Under the amendment, equity investments~~arrangements contain clauses that ~~do not have a readily determinable fair value are eligible~~provide for the measurement alternative, which will require the Company to measure these investments at cost, with adjustments for changes in price or impairments reflected through net earnings. The Company adopted the amendment prospectively for its privately-held investments for which the measurement alternative was elected, and adopted the amendmentcontingent rent payments based on a ~~modified retrospective basis for all other financial instruments. The adoption did not have an impact on the Company's condensed consolidated financial statements.~~percentage of revenue share and/or earnings before interest, taxes, depreciation, and amortization.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The Company combines lease and non-lease components as a single lease component for both its operating and finance leases. In addition, the Company does not record operating and finance lease assets and liabilities for short-term leases, which have an initial term of twelve months or less.

Recently Adopted Accounting Pronouncements

In the first quarter of fiscal year 2020, the Company adopted the Financial Accounting Standards Board ("FASB") standard on accounting for leases, "Leases." The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record ROU assets and corresponding lease liabilities on the balance sheet. The Company adopted this standard under the optional transition method, which applies the standard on the effective date, rather than the earliest comparative period presented in the financial statements. The Company elected: (1) the "package of practical expedients," which does not require the Company to reassess its prior conclusions about lease identification, lease classification, and initial direct costs under the new standard; (2) not to separate non-lease components from lease components; and (3) not to recognize ROU assets and lease liabilities for short-term leases. The Company has implemented internal controls and key system functionalities to enable the preparation of financial information. The primary impact for the Company was the balance sheet recognition of ROU assets and lease liabilities for operating leases as a lessee. See Note 8, "Commitments and Contingencies," for more information on the impact of this adoption on the Company's condensed consolidated financial statements.

In the first quarter of fiscal year 2020, the Company adopted FASB guidance that added the Overnight Index Swap rate based on the Secured Overnight Financing Rate ("SOFR") as a benchmark interest rate for hedge accounting purposes. The amendment recognizes SOFR as a likely LIBOR replacement and supports the marketplace transition by adding the new reference rate as a benchmark interest rate. The Company has not executed interest rate hedges but adopted the amendment prospectively as the Company may consider interest rate hedges in the future. The Company is monitoring the LIBOR to SOFR migration and will coordinate the transition of outstanding LIBOR based debt and any related interest rate derivatives with counterparties when the market is liquid to ensure an orderly and efficient transition.

In the first quarter of fiscal year 2020, the Company adopted FASB guidance that allows companies to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act to retained earnings. The impact of adopting this amendment on the Company's condensed consolidated financial statements was not material.

Recent Accounting Standards or Updates Not Yet Effective

In ~~November 2018,~~December 2019, the FASB ~~amended its~~issued guidance ~~to clarify revenue~~which simplifies the accounting for ~~collaborative arrangements.~~income taxes by removing certain exceptions to the current guidance, and improving the consistent application of and simplification of other areas of the guidance. The standard is effective for the Company beginning in the first quarter of fiscal year ~~2020 and will be applied retrospectively to the date of the initial application of ASC 606.~~2022. Early adoption is permitted. The Company is evaluating the impact of adopting this ~~amendment~~guidance to its condensed consolidated financial statements.

In October 2018, the FASB amended its guidance which will add the Overnight Index Swap rate based on the Secured Overnight Financing Rate as a benchmark interest rate for hedge accounting purposes. The standard is effective for the Company beginning in the first quarter of fiscal year 2020. Early adoption is permitted. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

In August 2018, the FASB amended its guidance for costs of implementing a cloud computing service arrangement and aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This new standard also requires customers to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. This new standard becomes effective for the Company in the first quarter of fiscal year 2021, with early adoption permitted. This new standard can be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

In August 2018, the FASB issued guidance which modifies the disclosure requirements for employers that have sponsor defined benefit pension or other post-retirement plans by removing and adding certain disclosures for these plans. The standard is effective for the Company beginning in the first quarter of fiscal year 2022. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its condensed consolidated financial statements.

In August 2018, the FASB issued guidance which changed the disclosure requirements for fair value measurements by removing, adding and modifying certain disclosures. The standard is effective for the Company beginning in the first quarter of fiscal year 2021. Early adoption is permitted. The Company is evaluating the impact of adopting this guidance to its condensed consolidated financial statements.

In February 2018, the FASB amended its guidance that will allow companies to reclassify disproportionate tax effects in accumulated other comprehensive income caused by the Tax Cuts and Jobs Act to retained earnings. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2020. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

In June 2016, the FASB issued an amendment to its accounting guidance related to the impairment of financial instruments. The amendment adds a new impairment model that is based on expected losses, rather than incurred losses. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2021, with early adoption permitted beginning in the first quarter of fiscal year 2020. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

In February 2016, the FASB issued a new standard on accounting for leases. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of earnings. The Company intends to adopt this standard beginning in its first quarter of fiscal year 2020, using a modified retrospective method and anticipates applying the optional practical expedients related to the transition. While the Company continues to assess the impact of this standard, the Company anticipates a material impact related to the recognition of right-of-use assets and liabilities for previously unrecognized leases on its Condensed Consolidated Balance Sheets. The Company will continue to monitor and evaluate the effect the standard will have on its consolidated financial statements, including disclosures. The Company's preliminary assessments are subject to change.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

~~2. BUSINESS COMBINATIONS~~

~~Business Combinations in Fiscal Year 2019~~

~~Cancer Treatment Services International~~

In June 2019, the Company acquired Cancer Treatment Services International ("CTSI"), a privately-held company that provides cancer care professional services to health care providers worldwide and, through its oncology care brand, American Oncology Institute, focuses on the operation of comprehensive cancer treatment facilities in international markets. CTSI operates AmPath, a full-service reference laboratory and pathology provider, and CTSI Oncology Solutions, an oncology services company that provides solutions such as remote treatment planning services and multi-disciplinary oncology consulting. This acquisition will increase the Company's expertise in cancer center operations.

The Company acquired CTSI for a purchase price of $279.3 million, consisting of $262.8 million of cash consideration, $8.2 million of contingent consideration, and $8.3 million of other consideration. The undiscounted range of the contingent consideration payments is zero to $58 million and is based on actual revenues over the 18 months following the acquisition date. The acquisition was financed with a combination of cash on hand and proceeds from borrowings. The Company has included this acquisition in its Oncology Systems business. The purchase accounting from this transaction is not yet finalized; however, the goodwill is not expected to be deductible for income tax purposes.

~~Endocare and Alicon~~

In June 2019, the Company acquired Austin, Texas-based Endocare and Hangzhou, China-based, Alicon, to expand its portfolio of multidisciplinary integrated cancer solutions. Endocare is a leading provider of hardware and software solutions for cryoablation, and has a microwave ablation product line; and Alicon is a leader in embolic therapy for treating liver cancer in China. These acquisitions enable the Company to develop innovations in interventional oncology and allow it to provide patients and customers with a wider range of cancer care solutions.

The Company acquired Endocare and Alicon for a combined purchase price of $209.4 million consisting of $196.8 million of cash consideration and $12.6 million of contingent consideration. The undiscounted range of the contingent consideration payments is zero to $40 million and is based on actual revenues through March 2020. The acquisitions were financed with a combination of cash on hand and proceeds from borrowings. These acquisitions comprise the Company's Interventional Oncology business, which is reflected in the "Other" category because the operating segment does not meet the criteria for a reportable operating segment. The purchase accounting from this transaction is not yet finalized; however, the goodwill is not expected to be deductible for income tax purposes.

The results of operations and the provisional fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair value of assets acquired and liabilities assumed as a result of the CTSI, Endocare and Alicon acquisitions:

(In millions) CTSI Endocare and Alicon
Assets acquired ⁽¹⁾
$ 54.0
$ 32.9
Liabilities assumed ⁽²⁾
(65.0 ) (17.7 )
Goodwill 182.1
122.7
Intangible assets 117.0
71.5
Fair value of net assets 288.1
209.4
Less: Non-controlling interest ⁽³⁾
8.8
—
Total purchase consideration $ 279.3
$ 209.4

⁽¹⁾~~Includes $5.4 million and $11.5 million of cash and cash equivalents for CTSI and Endocare / Alicon, respectively.~~

⁽²⁾ ~~Includes $33.9 million and $14.8 million of deferred tax liabilities for CTSI and Endocare / Alicon, respectively.~~

⁽³⁾The Company's non-controlling interest is a joint venture that was determined to be a variable interest entity. The Company has concluded that it is the primary beneficiary of the joint venture because it has the ability to control the significant activities of the joint venture, has the right to significant residual returns and is exposed to significant expected losses. The Company will consolidate the joint venture into its operations.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

~~Identifiable Intangible Assets~~

~~The following table provides the valuation of the intangible assets acquired from CTSI, Endocare and Alicon, along with their estimated useful lives:~~

(Dollars in millions) CTSI Endocare and Alicon
Type Fair Value Weighted Average Estimated Useful Life (In Years) Fair Value Weighted Average Estimated Useful Life (In Years)
Technologies and trade names $ 47.9
10.7 $ 56.3
7.7
Customer contracts, supplier relationships, and partner relationships ⁽¹⁾
69.1
26.4 4.8
3.0
Total intangible assets with finite lives 117.0
61.1

In-process research and development with indefinite lives —
10.4

Total intangible assets $ 117.0
$ 71.5


⁽¹⁾	~~CTSI has certain partner relationships with hospitals with useful lives that range from approximately 27 to 29 years.~~

~~Other Acquisitions~~

~~In the third quarter of fiscal year 2019, the Company purchased a privately-held company for a cash purchase price of~~ ~~$15.2 million, including a~~ holdback of $3.6 million and contingent consideration. As of the closing date, the value of the contingent consideration is zero because none of the milestones were probable to be achieved. However, the Company could potentially pay up to approximately $9 million by 2023 if certain milestones were met plus additional payments for achieving revenue targets through 2035. ~~The acquisition was classified as an asset acquisition, a~~nd the purchase consideration was allocated primarily to the intellectual property that covers the use of radiation in the heart and other forms of radiosurgery for cardiovascular disease, resulting in a $20.8 million of in-process research and development ("in-process R&D") expense because of no future alternative use, and was recorded in acquisition-related expenses and in-process R&D in the Condensed Consolidated Statements of Earnings.

In the first quarter of fiscal year 2019, the Company acquired a privately-held software company for a purchase price of $28.5 million. The acquisition primarily consisted of $22.0 million in goodwill and $6.5 million in finite-lived intangible assets. The Company has integrated this acquisition into its Oncology Systems reporting unit. The goodwill for this acquisition is not deductible for income tax.

~~Measurement Period Adjustments~~

In the first quarter of fiscal year 2019, the Company recorded a measurement period adjustment of $9.6 million to the fair value of the purchase consideration of a business combination that occurred in the fourth quarter of fiscal year 2018. The adjustment primarily included a ~~$11.9 million~~ ~~decrease in the fair value of the contingent consideration liability mostly offset by a decrease to the finite-lived intangible assets of $5.4 million, and a decrease of $4.7 million to goodwill.~~

~~In the third quarter of fiscal year 2019, the Company recorded a measurement period adjustment of $2.6 million~~to the fair value of the purchase consideration of a business combination that occurred in the third quarter of fiscal year 2018. The adjustment consisted of an additional cash payment to sellers and a corresponding increase to goodwill.

~~Other Information~~

The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount. The Company believes the factors that contributed to goodwill in its completed acquisitions include synergies not available to market participants, as well as the acquisition of a talented workforce.

The fair value of assets acquired and liabilities assumed has been determined on a preliminary basis, and the Company will finalize these amounts as it obtains the information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the date of a business combination may result in certain adjustments. The Company expects to finalize these amounts no later than one year from the date of each business combination.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

Management applied significant judgment in determining the fair value of intangible assets, which involved the use of significant estimates and assumptions with respect to the revenue growth rates, the economic lives, and the discount rates. The fair value of the contingent consideration has been estimated based on the likelihood of the performance metrics being achieved.

The condensed consolidated financial statements include the operating results from the date the business was acquired. The impact of the completed business combinations to the periods presented was not material. Pro forma results of operations for the completed business combination have not been presented because the effects were not material to the Company's condensed consolidated financial statements.

The Company incurred acquisition-related expenses of $10.4 million and $12.7 million during the three months ended June 28, 2019 and June 29, 2018, respectively, and $15.0 million and $33.9 million during the nine months ended June 28, 2019 and June 29, 2018, respectively.

3.2. OTHER FINANCIAL INFORMATION

Contracts with Customers

The following table provides the Company's unbilled receivables and deferred revenues from contracts with customers:


(In millions)	January 3, 2020		September 27, 2019
Unbilled receivables - current	$	315.8	$	346.7
Unbilled receivables - long-term ⁽¹⁾	42.7		35.1


Deferred revenues - current	(817.9)		(766.0)
Deferred revenues - long-term ⁽²⁾	(78.9)		(73.1)
Total net unbilled receivables (deferred revenues)	$	(538.3)	$	(457.3)

(In millions) June 28,
2019 September 28,
2018
Unbilled receivables - current $ 324.8
$ 362.8
Unbilled receivables - long-term ⁽¹⁾
63.2
36.3
Deferred revenues - current (749.7 ) (729.7 )
Deferred revenues - long-term ⁽²⁾
(73.5 ) (38.6 )
Total net unbilled receivables (deferred revenues) $ (435.2 ) $ (369.2 )
⁽¹⁾Included in other assets on the Company's Condensed Consolidated Balance Sheets.


⁽¹⁾ ⁽²⁾Included in other long-term liabilities on the Company's Condensed Consolidated Balance Sheets.	~~Included in other assets on the Company's Condensed Consolidated Balance Sheets.~~


⁽²⁾	~~Included in other long-term liabilities on the Company's Condensed Consolidated Balance Sheets.~~

During the ~~nine~~three months ended ~~June 28, 2019,~~January 3, 2020, unbilled receivables ~~remained flat,~~decreased by $23.3 million, primarily due to the timing of billings in Oncology Systems, and deferred revenues ~~decreased~~increased by $57.7 million primarily due to the contractual timing of billings occurring before the revenues were recognized.

During the three ~~and nine~~ months ended ~~June~~January 3, 2020 and December 28, 2019, the Company recognized revenues of $207.2 million and $545.0 million, respectively, which were included in the deferred revenues balance at September 28, 2018. During the three and nine months ended June 29, 2018, the Company recognized revenues of ~~$66.5~~$314.5 million, and ~~$367.0~~$263.4 million, which were included in the deferred revenues ~~balance~~balances at September ~~29, 2017.~~27, 2019 and September 28, 2018, respectively.

Unfulfilled Performance Obligations

The following table represents the Company's unfulfilled performance obligations as of ~~June 28, 2019,~~January 3, 2020, and the estimated ~~revenue~~revenues expected to be recognized in the future related to these unfulfilled performance obligations:

Fiscal Years of Revenue Recognition
(In millions) Remainder of 2019 2020 2021 Thereafter
Unfulfilled Performance Obligations $ 824.6
$ 2,575.5
$ 1,037.0
$ 2,118.7


	Fiscal Years of Revenue Recognition
(In millions)	Remainder of 2020		2021		2022		Thereafter
Unfulfilled Performance Obligations	$	1,884.1	$	2,003.2	$	787.7	$	2,122.9

The table above includes both product and service unfulfilled performance obligations, which includes a component of service performance obligations ~~which~~that have not been invoiced. The fiscal years presented reflect management’s best estimate of when the Company will transfer control to the customer and may change based on timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products or customer acceptance terms.

Cash, Cash Equivalents, and Restricted Cash

The following table summarizes the Company's cash, cash equivalents and restricted cash:


(In millions)	January 3, 2020		September 27, 2019
Cash and cash equivalents	$	721.9	$	531.4
Restricted cash - current ⁽¹⁾	3.7		4.2
Restricted cash - long-term ⁽²⁾	16.6		8.5
Total cash, cash equivalents, and restricted cash	$	742.2	$	544.1

⁽¹⁾Included in prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

⁽²⁾Included in other assets on the Company's Condensed Consolidated Balance Sheets.

~~Cash, Cash Equivalents, and Restricted Cash~~Inventories

The following table summarizes the Company's ~~cash, cash equivalents and restricted cash:~~inventories:

(In millions) June 28,
2019 September 28,
2018
Cash and cash equivalents $ 520.7
$ 504.8
Restricted cash - current ⁽¹⁾
13.7
3.1
Restricted cash - long-term ⁽²⁾
8.5
8.5
Total cash, cash equivalents, and restricted cash $ 542.9
$ 516.4


⁽¹⁾	~~Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets.~~


⁽²⁾	~~Included in other assets on the Company's Condensed Consolidated Balance Sheets.~~

~~Inventories~~

~~The following table summarizes the Company's inventories:~~

(In millions) June 28,
2019 September 28,
2018
Raw materials and parts $ 368.8
$ 304.1
Work-in-process 72.8
50.6
Finished goods 87.7
83.4
Total inventories $ 529.3
$ 438.1

~~Short-term Borrowings~~

~~The following table summarizes the Company's short-term borrowings:~~

(Dollars in millions)
June 28, 2019
2018 Revolving Credit Facility $ 400.0
3.40 %
Total short-term borrowings $ 400.0


(In millions)	January 3, 2020		September 27, 2019

Raw materials and parts	$	399.8	$	376.5
Work-in-process	75.6		71.8
Finished goods	122.0		103.2
Total inventories	$	597.4	$	551.5

Other Long-Term Liabilities

The following table summarizes the Company's other long-term liabilities:


(In millions)	January 3, 2020		September 27, 2019
Income taxes payable	$	180.8	$	180.3

Deferred income taxes	78.1		75.3
Deferred revenues	78.9		73.1

Contingent consideration	42.5		42.3
Defined benefit pension plan	30.4		31.1
Other	42.6		38.0
Total other long-term liabilities	$	453.3	$	440.1

(In millions) June 28,
2019 September 28,
2018
Long-term income taxes payable $ 183.0
$ 189.1
Deferred income taxes 78.2
31.4
Long-term deferred revenues 73.5
38.6
Other 65.4
65.2
Total other long-term liabilities $ 400.1
$ 324.3
Other Income, Net

The following table summarizes the Company's other income, net:


	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Gain on equity investments	$	1.4	$	22.0

Net foreign currency exchange gain	2.4		1.3
Other income (loss)	0.6		(0.3)
Total other income, net	$	4.4	$	23.0

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

~~Other Income, Net~~

~~The following table summarizes the Company's other income, net:~~

Three Months Ended Nine Months Ended
(In millions) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Gain on equity investments $ 2.0
$ —
$ 23.8
$ —
Net foreign currency exchange gain 1.8
0.8
2.6
1.0
Other 0.4
0.7
1.0
1.9
Total other income, net $ 4.2
$ 1.5
$ 27.4
$ 2.9

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

4.3. FAIR VALUE

Assets/Liabilities Measured at Fair Value on a Recurring Basis

In the tables below, the Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.


	Fair Value Measurement Using												Fair Value Measurements at January 3, 2020
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs			Significant Unobservable Inputs			Total				Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
Type of Instruments	(Level 1)		(Level 2)			(Level 3)			Balance			Type of Instruments	(Level 1)		(Level 2)		(Level 3)		Balance
(In millions)												(In millions)
Assets at June 28, 2019:
Assets:												Assets:
Cash equivalents:												Cash equivalents:
Money market funds	$	16.7	$	—		$	—		$	16.7		Money market funds	$	17.5	$	—	$	—	$	17.5
Available-for-sale securities: ⁽¹⁾
Available-for-sale securities:												Available-for-sale securities:
MPTC Series B-1 Bonds	—		26.6			—			26.6			MPTC Series B-1 Bonds	—		27.6		—		27.6
MPTC Series B-2 Bonds	—		24.5			—			24.5			MPTC Series B-2 Bonds	—		25.7		—		25.7
APTC securities	—		6.4			—			6.4			APTC securities	—		6.7		—		6.7

Derivative assets												Derivative assets	—		2.3		—		2.3
Total assets measured at fair value	$	16.7	$	57.5		$	—		$	74.2		Total assets measured at fair value	$	17.5	$	62.3	$	—	$	79.8

Liabilities at June 28, 2019:
Derivative liabilities	$	—	$	(0.3	)	$	—		$	(0.3	)
Liabilities:												Liabilities:

Contingent consideration	—		—			(38.2		)	(38.2		)	Contingent consideration	$	—	$	—	$	(84.3)	$	(84.3)
Total liabilities measured at fair value	$	—	$	(0.3	)	$	(38.2	)	$	(38.5	)	Total liabilities measured at fair value	$	—	$	—	$	(84.3)	$	(84.3)

Assets at September 28, 2018:
Cash equivalents:
Money market funds	$	44.1	$	—		$	—		$	44.1
Available-for- sale securities:
MPTC Series B-1 Bonds ⁽²⁾	—		25.1			—			25.1
MPTC Series B-2 Bonds ⁽¹⁾	—		23.1			—			23.1
APTC securities ⁽²⁾	—		6.4			—			6.4
GPTC securities ⁽²⁾	—		7.9			—			7.9
Total assets measured at fair value	$	44.1	$	62.5		$	—		$	106.6

Liabilities at September 28, 2018:
Contingent consideration	$	—	$	—		$	(24.4	)	$	(24.4	)
Total liabilities measured at fair value	$	—	$	—		$	(24.4	)	$	(24.4	)


⁽¹⁾	~~Included in other assets on the Company's Condensed Consolidated Balance Sheets.~~


⁽²⁾	~~Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets because the Company had the ability and intent to sell this security in the next twelve months.~~


	Fair Value Measurements at September 27, 2019
	Quoted Prices in Active Markets for Identical Instruments		Significant Other Observable Inputs		Significant Unobservable Inputs		Total
Type of Instruments	(Level 1)		(Level 2)		(Level 3)		Balance
(In millions)
Assets:
Cash equivalents:
Money market funds	$	0.2	$	—	$	—	$	0.2
Available-for-sale securities:
MPTC Series B-1 Bonds	—		27.1		—		27.1
MPTC Series B-2 Bonds	—		25.1		—		25.1
APTC securities	—		6.6		—		6.6
Derivative assets	—		2.8		—		2.8
Total assets measured at fair value	$	0.2	$	61.6	$	—	$	61.8

Liabilities:
Contingent consideration	$	—	$	—	$	(75.3)	$	(75.3)
Total liabilities measured at fair value	$	—	$	—	$	(75.3)	$	(75.3)

The Company classifies its money market funds as Level 1 because they have daily liquidity, quoted prices for the underlying investments can be obtained, and there are active markets for the underlying investments. The Company's Level 2 available-for-sale securities consist of bonds for the Maryland Proton Therapy Center ("MPTC"), and the Alabama Proton Therapy Center

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

(“APTC”~~), and Georgia Proton Treatment Center ("GPTC"~~). The observable inputs for these securities are comparable bond issues, broker/dealer quotations for the same or similar investments in active markets, and other observable inputs such as yields, credit risks, default rates, and volatility. The Company's available-for-sale securities are included in other assets on the Company's Condensed Consolidated Balance Sheets, except for amounts related to short-term interest receivable. See Note 14, "Proton Solutions Loans and Investments," for further information about the available-for-sale securities. As of ~~June 28, 2019,~~January 3, 2020, and September ~~28, 2018,~~27, 2019, the carrying amount of the Company's Level 1 money market funds and Level 2 available-for-sale securities approximated their respective fair values.~~SeeNote 14, "Proton Solutions Loans and Investments,"for further information about the available-for-sale securities.~~

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

The Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads. The Company’s derivative instruments are generally short-term in nature, typically one month to ~~thirteen~~fifteen months in duration.

The Company generally measures the fair value of its Level 3 contingent consideration liabilities based on ~~option pricing models through Black-Scholes or~~ Monte Carlo pricing models with key assumptions that include estimated revenues of the acquired business, the probability of completing certain milestone targets during the earn-out period, revenue volatility, and estimated discount rates corresponding to the periods of expected payments. If the estimated revenues or probability of completing certain milestones were to increase or decrease during the respective earn-out period, the fair value of the contingent consideration would increase or decrease, respectively. If the estimated discount rates were to increase or decrease, the fair value of contingent consideration would decrease or increase, respectively. Changes in ~~volatility~~key assumptions may result in an increase or decrease in the fair value of contingent consideration. The Company's contingent consideration is from its business combinations and is included in accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

The following table presents the reconciliation for ~~all assets and~~ liabilities measured and recorded at fair value on a recurring basis using significant unobservable inputs (Level 3):

(In millions) Contingent
Consideration
Balance at September 28, 2018 $ (24.4 )
Business combinations (26.2 )
Measurement period adjustment to a business combination in prior year 11.9
Settlements 0.5
Balance at June 28, 2019 $ (38.2 )


(In millions)	Contingent Consideration
Balance at September 27, 2019	$	(75.3)



Adjustments due to the effect of foreign exchange	(0.2)
Change in fair value recognized in earnings	(8.8)
Balance at January 3, 2020	$	(84.3)

There were no transfers of assets or liabilities between fair value measurement levels during either the three ~~and nine~~ months ended ~~June 28, 2019,~~January 3, 2020, or the three ~~and nine~~ months ended ~~June 29,~~December 28, 2018. Transfers between fair value measurement levels are recognized at the end of the reporting period.

Fair Value of Other Financial Instruments

The fair values of certain of the Company’s financial instruments, including bank deposits included in cash equivalents, trade and unbilled receivables, net of allowance for doubtful accounts, revolving loan to California Proton Therapy Center ("CPTC"), ~~Rinecker Proton Therapy Center ("RPTC") senior secured debt,~~ accounts payable, and short-term borrowings approximate their carrying amounts due to their short maturities.

As of ~~June 28, 2019,~~January 3, 2020, the fair value of the Term Loan (as defined below) with CPTC approximated its carrying value of $44.0 million. The carrying value is based on the present value of expected future cash payments discounted at a rate reflecting the nature and duration of the loans, risks involved with CPTC, and its industry. As a result, the Term Loan is categorized as Level 3 in the fair value hierarchy. See Note 14, "Proton Solutions Loans and Investments," for further information.

The Company's equity investments in privately-held companies were ~~$61.2~~$56.4 million and ~~$37.2~~$64.2 million at ~~June 28, 2019~~January 3, 2020 and September ~~28, 2018,~~27, 2019, respectively. Equity investments without readily determinable fair value are measured at cost and will be adjusted through net earnings when they are deemed to be impaired or when there is an adjustment from observable price changes. At June 28, 2019, the Company increased the fair value for an equity investment in a privately-held company by $2.0 million due to observable price changes for equity investments without readily determinable fair value.

The fair value of the outstanding long-term notes receivable, including accrued interest, approximated their carrying value of ~~$32.6~~$34.1 million and ~~$29.7~~$33.6 million at ~~June 28, 2019~~January 3, 2020 and September ~~28, 2018,~~27, 2019, respectively, because they are based on terms of recent comparable transactions and are categorized as Level 3 in the fair value hierarchy. The fair value is based on the income approach by using the discounted cash flow model with key assumptions that include discount rates corresponding to the terms and risks as well as underlying cash flow assumptions. See Note 14, "Proton Solutions Loans and Investments," for information on the long-term notes receivable.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

5.4. RECEIVABLES

The following table summarizes the Company's trade and unbilled receivables, net, and long-term notes receivable:


(In millions)	January 3, 2020		September 27, 2019
Trade and unbilled receivables, gross	$	1,174.7	$	1,193.5
Allowance for doubtful accounts	(47.0)		(46.5)
Trade and unbilled receivables, net	$	1,127.7	$	1,147.0
Short-term	$	1,079.2	$	1,106.3
Long-term ⁽¹⁾	$	48.5	$	40.7


Long-term notes receivable ^{(1) (2)}	$	34.1	$	33.6

(In millions) June 28,
2019 September 28,
2018
Trade and unbilled receivables, gross $ 1,169.9
$ 1,093.0
Allowance for doubtful accounts (47.0 ) (41.1 )
Trade and unbilled receivables, net $ 1,122.9
$ 1,051.9
Short-term $ 1,054.2
$ 1,009.9
Long-term ⁽¹⁾
$ 68.7
$ 42.0

Notes receivable $ 32.6
$ 29.8
Short-term ⁽²⁾
$ —
$ 0.1
Long-term ^{(1) (3)}
$ 32.6
$ 29.7
⁽¹⁾Included in other assets on the Company's Condensed Consolidated Balance Sheets.


⁽¹⁾ ⁽²⁾Balances include accrued interest and are recorded in other assets on the Company's Condensed Consolidated Balance Sheets.	~~Included in other assets on the Company's Condensed Consolidated Balance Sheets.~~


⁽²⁾	~~Included in prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets.~~


⁽³⁾	~~Balances include accrued interest and are recorded in other assets on the Company's Condensed Consolidated Balance Sheets.~~

A financing receivable represents a financing arrangement with a contractual right to receive money, on demand or on fixed or determinable dates, and that is recognized as an asset on the Company’s Condensed Consolidated Balance Sheets. The Company’s financing receivables consist of trade receivables with contractual maturities of more than one year and notes receivable. A small portion of the Company's financing trade receivables are included in short-term trade accounts receivable.

As of ~~June 28, 2019,~~January 3, 2020, and September ~~28, 2018,~~27, 2019, the allowance for doubtful accounts is entirely related to short-term trade and unbilled receivables.

See Note 14, "Proton Solutions Loans and Investments," for more information on the Company's long-term notes receivable balances.

6.5. GOODWILL AND INTANGIBLE ASSETS

The following table ~~reflects~~summarizes the activity of goodwill by reportable operating segment:

(In millions) Oncology Systems Proton Solutions Other Total
Balance at September 28, 2018 $ 242.1
$ 51.5
$ —
$ 293.6
Business combinations 204.2
—
122.7
326.9
Impairment charges

(50.5 ) —
(50.5 )
Measurement period adjustments to business combinations in prior year (2.1 ) —
—
(2.1 )
Foreign currency translation adjustments —
(1.0 ) —
(1.0 )
Balance at June 28, 2019 $ 444.2
$ —
$ 122.7
$ 566.9


(In millions)	Oncology Systems		Other		Total⁽¹⁾
Balance at September 27, 2019	$	447.9	$	164.3	$	612.2
Business combination	0.3		—		0.3

Measurement period adjustments to business combinations in prior year	(0.1)		—		(0.1)

Balance at January 3, 2020	$	448.1	$	164.3	$	612.4

~~See Note 2, "Business Combinations," for more information on the business combinations~~⁽¹⁾The total carrying value of goodwill at both January 3, 2020, and ~~measurement period adjustments~~September 27, 2019 is net of $50.5 million of accumulated impairment charges related to ~~business combination in prior year.~~

~~During the third quarter of fiscal year 2019,~~ the Company ~~recorded a goodwill~~recording an impairment charge ~~of $50.5 million~~ for the full value of the Proton Solutions ~~reporting unit goodwill.~~ operating segment goodwill in fiscal year 2019.

The ~~impairment resulted from a downward revision~~following table summarizes the gross carrying amount and accumulated amortization of the ~~forecasted future cash flows. Factors in~~Company's intangible assets:


	January 3, 2020										September 27, 2019
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Technologies and patents	$	226.4	$	(92.2)	$	134.2	$	226.4	$	(85.9)	$	140.5
Customer contracts, supplier relationships, and partner relationships	121.1		(28.1)		93.0		121.1		(25.7)		95.4
Trade names	55.1		(4.1)		51.0		55.1		(3.0)		52.1
Other	6.1		(6.1)		—		6.1		(6.1)		—
Total intangible with finite lives	408.7		(130.5)		278.2		408.7		(120.7)		288.0
In-process research and development with indefinite lives	12.7		—		12.7		12.7		—		12.7
Total intangible assets	$	421.4	$	(130.5)	$	290.9	$	421.4	$	(120.7)	$	300.7

Amortization expense for intangible assets was $10.1 million and $4.7 million during the ~~third quarter that contributed to the revised forecast include observed continued weakness in proton therapy markets~~three months ended January 3, 2020 and lower than expected results as compared to prior forecasts. These events decreased the forecasted cash flows and the fair value of the Proton Solutions reporting unit below its carrying value as of the third quarter of fiscal year 2019.

December 28, 2018, respectively.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

To determine the fair value of the Proton Solutions reporting unit, the Company used the income approach. Under the income approach, the fair value of the Proton Solutions reporting unit was based on the present value of the estimated future cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used was based on the weighted-average cost of capital appropriate for the Proton Solutions reporting unit.

The Company also assessed whether the carrying amounts of the Proton Solutions reporting unit’s long-lived assets may not be recoverable and therefore impaired. To assess the recoverability of the reporting unit’s long-lived assets, the undiscounted cash flows of the reporting unit were analyzed and compared to the carrying value. The sum of the undiscounted cash flows exceeded the carrying value of the asset group, therefore, no impairment was indicated.

~~The following table reflects the gross carrying amount and accumulated amortization of the Company's intangible assets:~~

June 28, 2019 September 28, 2018
(In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount
Technologies, patents, and trade names $ 240.4
$ (81.4 ) $ 159.0
$ 139.6
$ (73.9 ) $ 65.7
Customer contracts, supplier relationships, and partner relationships 118.3
(23.5 ) 94.8
44.9
(19.1 ) 25.8
Other 6.1
(6.0 ) 0.1
6.6
(5.8 ) 0.8
Total intangible with finite lives 364.8
(110.9 ) 253.9
191.1
(98.8 ) 92.3
In-process research and development with indefinite lives 19.2
—
19.2
8.8
—
8.8
Total intangible assets $ 384.0
$ (110.9 ) $ 273.1
$ 199.9
$ (98.8 ) $ 101.1

~~See Note 2, "Business Combinations," for more information about finite-lived intangible assets acquired in our business combinations.~~

Amortization expense for intangible assets was $6.0 million and $4.8 million during the three months ended June 28, 2019 and June 29, 2018, respectively, and $17.4 million and $15.2 million during the nine months ended June 28, 2019 and June 29, 2018, respectively.

As of ~~June 28, 2019,~~January 3, 2020, the Company estimates its remaining amortization expense for intangible assets with finite lives will be as follows (in millions):


Fiscal Years:	Remaining Amortization Expense
Remainder of 2020	$	27.1
2021	35.6
2022	33.5
2023	32.7
2024	25.7
Thereafter	123.6
Total remaining amortization for intangible assets	$	278.2

Fiscal Years: Remaining Amortization Expense
Remainder of 2019 $ 9.6
2020 35.7
2021 31.9
2022 30.2
2023 28.4
Thereafter 118.1
Total remaining amortization for intangible assets $ 253.9

6. BORROWINGS

The following table summarizes the Company's total short-term borrowings:


	January 3, 2020						September 27, 2019
(In millions, except for percentages)	Amount		Weighted-Average Interest Rate		Amount		Weighted-Average Interest Rate
Short-term borrowings:
Revolving Credit Facility	$	542.0	2.80	%	$	410.0	3.05	%

Total short-term borrowings	$	542.0			$	410.0

On November 1, 2019, the Company entered into Amendment No.2 (the "Amendment") to its Credit Agreement dated April 3, 2018, (the "Credit Agreement"), by and among the Company certain lenders party thereto, and Bank of America, N.A., as administrative agent, swing line lender and letter of credit issuer. The Amendment extended the maturity date from April 2023 to November 2024. The Amendment reduced the aggregate principal amount available under Credit Agreement's five-year revolving credit facility (the "Revolving Credit Facility") from $1.8 billion to $1.2 billion, added a $500 million sub-limit for multi-currency borrowings, increased the letter of credit sub-limit from $50.0 million to $225 million, and reduced the commitment fee. In addition, there is a sub-limit for swing line loans of up to $25 million. Under the Revolving Credit Facility, the Company has the right to (i) request to increase the aggregate commitments by an aggregate amount for all such requests of up to $100.0 million and (ii) request an additional increase in the commitments or establish one or more term loans, provided that, in each case, the lenders are willing to provide such new or increased commitments and certain other conditions are met. The proceeds of the Revolving Credit Facility may be used for working capital, capital expenditures, Company share repurchases, permitted acquisitions and other corporate purposes.

Borrowings under the Revolving Credit Facility accrue interest based on either (i) the Eurodollar Rate plus a margin of 1.000% to 1.375% based on a net leverage ratio involving funded indebtedness and EBITDA, or (ii) a base rate of (a) the federal funds rate plus 0.50%, (b) BofA’s announced prime rate, or (c) the Eurodollar Rate plus 1.00%, whichever is highest, plus a margin of 0.000% to 0.375% based on the same leverage ratio, depending upon instructions from the Company. Borrowings under the Eurodollar Rate have a contract repayment date of twelve months, or less. Borrowings under the base rate can be made on an overnight basis and have a final maturity of five years.

The Company must pay a commitment fee on the unused portion of the Revolving Credit Facility at a rate from 0.100% to 0.225% based on a net leverage ratio. The Company may prepay, reduce or terminate the commitments without penalty. Swing line loans under the Revolving Credit Facility will bear interest at the base rate plus the then applicable margin for base rate loans.

The Credit Agreement provides that certain material domestic subsidiaries must guarantee the Revolving Credit Facility, subject to certain limitations on the amount secured. As of January 3, 2020, no subsidiary guarantees were required to be executed under the Credit Agreement.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The Credit Agreement contains provisions that limit the Company's 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.

The Credit Agreement contains affirmative and negative covenants applicable to the Company and its subsidiaries that are typical for credit facilities of this type, and that are subject to materiality and other qualifications, carve-outs, baskets and exceptions. The Company agreed to maintain a financial covenant which requires a maximum consolidated net leverage ratio. The Company was in compliance with all financial covenants under the Credit Agreement for all periods within these condensed consolidated financial statements.

Other Borrowings

VMS’s Japanese subsidiary (“VMS KK”) has an unsecured uncommitted credit agreement with Sumitomo that enables VMS KK to borrow and have outstanding at any given time a maximum of 3.0 billion Japanese Yen (the “Sumitomo Credit Facility”). In February 2019, the Sumitomo Credit Facility was extended and will expire in February 2020. Borrowings under the Sumitomo Credit Facility accrue interest based on the basic loan rate announced by the Bank of Japan plus a margin of 0.5%. As of January 3, 2020, the Company did not have an outstanding principal balance on its Sumitomo Credit Facility.

7. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

The Company measures all derivatives at fair value on the Condensed Consolidated Balance Sheets. The accounting for gains or losses resulting from changes in the fair value of those derivatives depends upon the use of the derivative and whether it qualifies for hedge accounting.

The fair value of derivative instruments reported on the Company's Condensed Consolidated Balance ~~Sheet~~Sheets were as follows:

June 28, 2019
(In millions) Balance Sheet
Location Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts Accrued liabilities $ (0.3 )
Total derivatives $ (0.3 )


		January 3, 2020		September 27, 2019
(In millions)	Balance Sheet Location	Fair Value
Derivatives designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	$	1.9	$	2.8
Derivatives not designated as hedging instruments:
Foreign exchange forward contracts	Prepaid expenses and other current assets	0.4		—
Total derivatives		$	2.3	$	2.8

As of September ~~28, 2018, the Company did not have any outstanding derivatives designated as hedging instruments. As of June 28,~~27, 2019, ~~and September 28, 2018,~~ the fair value of the Company's derivatives not designated as hedging instruments were not material.

Cash Flow Hedging Activities

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge forecasted revenues and designated as cash flow hedges:


	January 3, 2020		September 27, 2019
(In millions)	Notional Value Sold
Euro	$	52.9	$	76.5
Japanese Yen	46.2		56.7
	$	99.1	$	133.2

June 28, 2019
(In millions) Notional Value Sold
Euro $ 25.5

~~As of September 28, 2018, the Company did not have any outstanding foreign currency forward contracts designated as cash flow hedges.~~

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The following table presents the amounts, before tax, recognized in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets:

Loss Recognized in Other Comprehensive Earnings (Loss)
Three Months Ended Nine Months Ended
(In millions) June 28, 2019 June 29, 2018 June 28, 2019 June 29, 2018
Foreign currency forward contracts $ (0.3 ) $ —
$ (0.3 ) $ (0.9 )


	Loss Recognized in Other Comprehensive Earnings (Loss)
	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Foreign currency forward contracts	$	(0.1)	$	—

As of ~~June 28, 2019,~~January 3, 2020, the net unrealized ~~loss~~gain on derivatives, before tax, of ~~$0.3~~$1.9 million was included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets and is expected to be reclassified tointo net earnings over the next 12 months.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

The effect of cash flow hedge accounting on the Condensed Consolidated Statements of Earnings was as follows:

Location and Amount Recognized in Earnings on Cash Flow Hedging Relationships
Nine Months Ended
June 29, 2018
(In millions) Revenues
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value and cash flow hedges are recorded $ 2,117.5
Loss on cash flow hedge relationships:
Foreign currency forward contracts:
Amount of loss reclassified from accumulated other comprehensive loss into earnings $ (0.9 )

Balance Sheet Hedging Activities

The Company also hedges balance sheet exposures from its various subsidiaries and business units where the U.S. Dollar is the functional currency. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in other income, net in the Condensed Consolidated Statements of Earnings. Changes in the values of these hedging instruments are offset by changes in the values of foreign-currency-denominated assets and liabilities. ~~At June 28, 2019, and September 28, 2018, the fair value~~

The notional amount of the Company's ~~derivatives not designated as hedging instruments was not material.~~

~~The Company had the following~~ outstanding foreign currency forward contracts relating to balance sheet hedging activities:


(In millions)	January 3, 2020		September 27, 2019
Notional value sold	$	471.3	$	385.0
Notional value purchased	$	116.3	$	52.3

June 28, 2019
(In millions) Notional
Value Sold Notional
Value Purchased
Australian Dollar $ 25.2
$ —
Brazilian Real 11.9
—
British Pound 30.2
0.8
Chinese Yuan —
13.6
Canadian Dollar 3.1
—
Danish Krone 6.9
—
Euro 210.3
12.2
Hungarian Forint 4.6
1.0
Indian Rupee 21.1
—
Japanese Yen 73.8
—
New Zealand Dollar 1.0
—
Norwegian Krone 1.2
—
Polish Zloty 19.5
—
Singapore Dollar —
1.4
South African Rand 15.4
—
Swedish Krona 7.1
—
Swiss Franc —
64.4
Taiwan Dollar 13.3
—
Thai Baht 5.3
—
Totals $ 449.9
$ 93.4

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

The following table presents the gains (losses) recognized in the Condensed Consolidated Statements of Earnings related to the foreign currency forward contracts that are not designated as hedging instruments.

Location of Gain (Loss) Recognized in Net Earnings on Derivative Instruments Amount of Gain (Loss) Recognized in Net Earnings on Derivative Instruments
Three Months Ended Nine Months Ended
(In millions) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Other income, net $ (2.2 ) $ 25.5
$ 4.2
$ 13.3

Location of Gain (Loss) Recognized in Net Earnings on Derivative Instruments

Amount of Gain (Loss) Recognized in Net Earnings on Derivative Instruments

Three Months Ended

(In millions)

January 3,
2020

December 28,
2018

Other income, net

(5.0)

2.8

The gains (losses) on these derivative instruments were significantly offset by the gains (losses) resulting from the re-measurement of monetary assets and liabilities denominated in currencies other than the U.S. Dollar functional currency.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

8. COMMITMENTS AND CONTINGENCIES

The following table reflects the changes in the Company’s accrued product warranty:

Nine Months Ended
(In millions) June 28,
2019 June 29,
2018
Accrued product warranty, at beginning of period $ 44.8
$ 41.3
Charged to cost of revenues 41.7
41.8
Actual product warranty expenditures (36.9 ) (41.6 )
Accrued product warranty, at end of period $ 49.6
$ 41.5


	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Accrued product warranty, at beginning of period	$	43.2	$	44.8
Charged to cost of revenues	20.8		13.3
Actual product warranty expenditures	(17.8)		(11.8)
Accrued product warranty, at end of period	$	46.2	$	46.3

Accrued product warranty was included in accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.

The Company leases its facilities and certain equipment under operating leases. The Company's operating leases have remaining lease terms ranging from less than one year to 19 years. Facilities primarily include general and administrative office space, and space for manufacturing, research and development, and other services. Equipment primarily includes vehicles and various office equipment. The Company's finance leases primarily relate to its sale and leaseback-subleases arrangements for certain equipment and have a remaining lease terms ranging from one year to 8 years.

Lease ~~Commitments~~cost for operating leases is recognized on a straight-line basis over the lease term. Lease cost for finance leases is recognized as amortization of the finance lease ROU asset and interest expense on the finance lease liability over the lease term. The Company also has variable lease cost that primarily relate to its operating leases and include common area maintenance, utilities, maintenance charges, property taxes, insurance, and contingent rent.

~~At June 28, 2019,~~

The following table summarizes the components of the Company's lease ~~commitments~~cost:


	Three Months Ended
(In millions)	January 3, 2020

Operating lease cost	$	7.8
Finance lease cost:
Amortization of right-of-use assets	0.1
Interest on lease liabilities	0.1

Variable lease cost	4.5
Total lease cost	$	12.5

The following table summarizes the supplemental cash flow information related to the Company's operating leases:


	Three Months Ended
(In millions)	January 3, 2020
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows for leases	$	8.8

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The following table summarizes supplemental balance sheet information related to the Company's operating and finance leases:


(In millions)	January 3, 2020
Operating leases:
Operating right-of-use assets	$	114.1

Accrued liabilities	$	24.4
Long-term lease liabilities	93.7
Total lease liabilities	$	118.1

Finance leases:
Property, plant, and equipment, net	$	14.3

Accrued liabilities	$	3.4
Other long-term liabilities	10.5
Total lease liabilities	$	13.9

The following table summarizes the weighted lease term and discount rate by operating and finance leases:


	January 3, 2020
Weighted average remaining lease term in years
Operating leases	7.0
Finance leases	4.8

Weighted average discount rate
Operating leases	4.8	%
Finance leases	1.5	%

As of January 3, 2020, the future minimum lease payments are as follows:


(In millions)	Operating Leases		Finance leases
Remainder of 2020	$	21.5	$	2.9
2021	25.8		3.5
2022	20.3		2.9
2023	15.4		2.9
2024	11.8		1.1
Thereafter	51.4		1.1
Total minimum lease payments	$	146.2	$	14.4
Less: imputed interest	28.1		0.5
Total operating lease liability	$	118.1	$	13.9

At September 27, 2019, the Company was committed to minimum rentals under ~~non-cancelable~~non-cancellable operating leases ~~increased by $10.8~~(including rent escalation clauses) for fiscal years 2020 through 2024 and thereafter, as determined under the prior accounting guidance of Accounting Standard Codification 840, as follows: $32.5 million, ~~due to leases assumed from the CTSI, Endocare~~$26.3 million, $20.2 million, $14.5 million, $10.9 million and ~~Alicon acquisitions. The operating lease terms range from 2019 to 2038.~~$49.9 million, respectively.

The Company leases some of its equipment to certain customers on operating leases generally over a period of 15 years. As of ~~June 28, 2019,~~January 3, 2020, the Company had ~~$22.5~~$22.6 million and ~~$4.6~~$6.4 million included in property, plant and equipment and accumulated depreciation, respectively, related to equipment leased to customers. As of September ~~28, 2018,~~27, 2019, the Company had ~~$19.2~~$22.5 million and ~~$1.3~~$5.5 million included in property, plant and equipment and accumulated depreciation, respectively, related to equipment

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

leased to customers. The Company recorded income of ~~$2.3~~$2.5 million and ~~$6.5~~$2.1 million during the three ~~and nine~~ months ended ~~June~~January 3, 2020 and December 28, ~~2019,~~2018, respectively, on these equipment leases.

Environmental Remediation Liabilities

The Company’s operations and facilities, past and present, are subject to environmental laws, including laws that regulate the handling, storage, transport and disposal of hazardous substances. Certain of those laws impose cleanup liabilities on the Company in connection with its past and present operations. Those include facilities sold as part of the Company’s electron devices business in 1995 and thin film systems business in 1997. As a result, the Company oversees various environmental cleanup projects and receives reimbursements from third parties for a portion of the costs of its cleanup activities.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

As of ~~June 28, 2019,~~January 3, 2020 and September ~~28, 2018,~~27, 2019, the Company had accrued ~~$5.0~~$4.7 million and ~~$5.4~~$4.8 million, respectively, net of third parties' indemnification obligations, for environmental remediation liabilities. The Company believes its reserve is adequate; however, as the scope of the Company’s obligations becomes more clearly defined, the Company may modify the reserve, and charge or credit future earnings accordingly. Based on information currently known to management, management believes the costs of these environmental-related matters are not reasonably likely to have a material adverse effect on the consolidated financial statements of the Company in any one fiscal year.

The Company also reimburses certain third parties for cleanup activities. The amount the Company spent on environmental cleanup costs, third-party claim costs, project management costs and legal costs in the three months January 3, 2020 and ~~nine months June~~December 28, ~~2019 and June 29,~~ 2018, was not material.

On October 16, 2018, Best Medical International, Inc. sued the Company in U.S. District Court in the District of Delaware, alleging infringement of ~~four~~4 patents related to treatment planning. The Company intends to defend the suit vigorously. This lawsuit is in the initial stages, and at this time, the Company is unable to predict the ultimate outcome of this matter or estimate a range of possible exposure. Therefore, no0 amounts have been ~~accrued.~~accrued as of January 3, 2020.

From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value). A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision.

In addition to the above, the Company is involved in other legal matters. However, such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company is unable to estimate a loss or a range of reasonably possible losses with respect to such matters. There can be no assurances as to whether the Company will become subject to significant additional claims and liabilities with respect to ongoing or future proceedings. If actual liabilities significantly exceed the estimates made, the Company’s consolidated financial position, results of operations or cash flows could be materially adversely affected. Legal expenses relating to legal matters are expensed as incurred.

The Company sponsors ~~five~~multiple defined benefit pension plans for regular full-time employees in Germany, Japan, Switzerland and the United Kingdom. The Company also sponsors a post-retirement benefit plan that provides healthcare benefits to certain eligible retirees in the United States.

~~The components of net defined benefit costs were as follows:~~

Three Months Ended Nine Months Ended
(In millions) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Defined Benefit Plans
Service cost $ 1.7
$ 1.6
$ 5.3
$ 4.9
Interest cost 0.9
0.8
2.8
2.4
Expected return on plan assets (1.6 ) (2.0 ) (4.8 ) (6.0 )
Amortization of prior service cost (0.2 ) (0.1 ) (0.6 ) (0.4 )
Recognized actuarial loss 0.6
0.7
1.7
2.1
Net periodic benefit cost $ 1.4
$ 1.0
$ 4.4
$ 3.0
21

~~10. INCOME TAXES~~

The Company’s effective tax rate was 50.9% and 21.2% for the three months ended June 28, 2019 and June 29, 2018, respectively, and 28.5% and 89.2% for the nine months ended June 28, 2019 and June 29, 2018, respectively. The increase in the Company’s effective tax rate for the three months ended June 28, 2019, compared to the year-ago period, is primarily

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The components of net periodic benefit costs were as follows:

~~because the current period includes a goodwill impairment charge and an in-process research and development expense, neither of which generate a tax benefit for the Company.~~


	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Defined Benefit Plans
Service cost	$	2.5	$	1.8
Interest cost	0.5		0.9
Expected return on plan assets	(1.9)		(1.6)
Amortization of prior service cost	(0.2)		(0.2)
Recognized actuarial loss	1.1		0.6
Net periodic benefit cost	$	2.0	$	1.5

The ~~decrease in the~~ Company’s effective tax rate was 21.0% and 24.4% for the ~~nine~~three months ended ~~June~~January 3, 2020 and December 28, ~~2019,~~2018, respectively. The Company’s effective tax rate is lower in the three months ended January 3, 2020 as compared to the year-ago period, ~~was~~ primarily because the prior period included the tax effect of a change in law due to the enactment of the Tax Cuts and Jobs Act, ~~(the "Act"),~~ which was signed into law on December 22, 2017. The current periods also include the impact of several provisions of the Act that take effect for the Company for the first time in the fiscal year ending September 27, 2019, including a new minimum tax on certain foreign earnings (the Global Intangible Low-taxed Income, or "GILTI"), a new tax on certain payments to foreign related parties (the Base Erosion and Anti-avoidance Tax), a new incentive for foreign-derived intangible income, changes to the limitation on the deductibility of certain executive compensation, and new limitations on the deductibility of interest expense. The Company has elected to account for GILTI as a period cost rather than on a deferred basis. The current periods also reflects the fact that, as the Company has a September fiscal year end, the lower 21% federal rate is now fully phased in; that is, it is applicable to our domestic earnings for the full fiscal year ending September 27, 2019.

As part of the transition to a modified territorial system, the Act imposed a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. The Company recorded a discrete tax expense related to the one-time transition tax of $2.3 million during the first quarter of fiscal year 2019, and of $6.4 million during the third quarter of fiscal year 2019, resulting in the cumulative amount of $173.3 million. The Company has elected to pay this tax over the eight-year period allowed for in the Act.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118. This guidance allowed registrants a “measurement period,” to complete their accounting for the tax effects of the Act. The Company relied on this guidance to refine its estimates of the impact of the Act during the measurement period. The measurement period ended during the Company's period ended December 28, 2018. As a result, the Company considered its accounting for the tax effects of the Act to be complete at that time based on its interpretation of the law and subsequent guidance that had been issued to that point. Subsequently, it was necessary to adjust the Company's calculation of the tax as a result of further guidance and its impact on the Company's interpretation of the rules. It is expected that the U.S. Treasury will continue to issue regulations and other guidance on the application of certain provisions of the Act that may impact the Company's interpretation of the rules and our calculation of the tax impact of the transition tax or other provisions of the Act.

The Company adopted the FASB guidance related to intra-entity transfers of assets other than inventory in the first quarter of fiscal year 2019. This standard changes the treatment of the tax effect of transfers of property other than inventory among the entities within a registrant's consolidated group. Under the prior standard, the tax effect related to the transfer of property other than inventory from one member of the group to another was recorded to prepaid income taxes, which is included in prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets. Under the new standard, the tax effect related to the transfer of property other than inventory from one member of the group to another is recorded as a discrete item to taxes on earnings in the Condensed Consolidated Statements of Earnings. The Company recorded a cumulative effect of a change in accounting principle of $0.2 million as of September 29, 2018, as a result of adopting the new standard. The Company expects that the new standard may cause its effective tax rate to be more volatile and less predictable going forward.

The Company’s effective income tax rate differs from the U.S. federal statutory rate primarily because the Company’s foreign earnings are taxed at rates that are, on average, lower than the U.S. federal rate, and because the Company’s domestic earnings are subject to state income taxes. The total amount of unrecognized tax benefits did not materially change during the ~~nine~~three months ended ~~June 28, 2019;~~January 3, 2020; however, the amount of unrecognized tax benefits has increased as a result of positions taken during the current and prior years and has decreased as the result of the expiration of the statutes of limitation in various jurisdictions.

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

11. STOCKHOLDERS’ EQUITY

Share Repurchase Program

In November 2016, the VMS Board of Directors authorized the repurchase of an additional 8.0 million shares of VMS common stock commencing on January 1, 2017. Share repurchases under the Company's authorizations may be made in open market purchases, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and may be made from time to time in one or more blocks. All shares that were repurchased under the Company's share repurchase programs have been retired. As of ~~June 28, 2019,~~January 3, 2020, approximately ~~2.5~~1.9 million shares of VMS common stock remained available for repurchase under the November 2016 authorization.

The Company repurchased shares of VMS common stock during the periods presented as follows:


	Three Months Ended
(In millions, except per share amounts)	January 3, 2020		December 28, 2018
Number of shares	0.3		0.3
Average repurchase price per share	$	139.67	$	108.90
Total cost of shares repurchased	$	46.4	$	34.8

Three Months Ended Nine Months Ended
(In millions, except per share amounts) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Number of shares 0.4
0.3
1.1
1.1
Average repurchase price per share $ 138.90
$ 120.59
$ 123.15
$ 112.25
Total cost $ 48.6
$ 39.2
$ 134.2
$ 131.9

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

Accumulated Other Comprehensive Loss

The changes in accumulated other comprehensive loss by component and related tax effects are summarized as follows:


(In millions)	Net Unrealized Gains (Losses) Defined Benefit Pension and Post-Retirement Benefit Plans		Net Unrealized Gains Cash Flow Hedging Instruments		Cumulative Translation Adjustment		Accumulated Other Comprehensive Loss
Balance at September 27, 2019	$	(61.7)	$	2.1	$	(42.5)	$	(102.1)
Other comprehensive earnings (loss) before reclassifications	—		(0.1)		5.1		5.0
Amounts reclassified out of other comprehensive earnings (loss)	0.9		(0.8)		—		0.1
Tax (expense) benefit	(0.2)		0.2		—		—
Balance at January 3, 2020	$	(61.0)	$	1.4	$	(37.4)	$	(97.0)

(In millions) Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans Net
Unrealized
Losses
Cash Flow
Hedging
Instruments Cumulative
Translation
Adjustment Accumulated
Other
Comprehensive
Loss
Balance at September 28, 2018 $ (35.2 ) $ —
$ (30.1 ) $ (65.3 )
Other comprehensive loss before reclassifications —
(0.3 ) (4.8 ) (5.1 )
Amounts reclassified out of other comprehensive earnings 1.1
—
—
1.1
Tax expense (0.2 ) —
—
(0.2 )
Balance at June 28, 2019 $ (34.3 ) $ (0.3 ) $ (34.9 ) $ (69.5 )

(In millions) Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans Net
Unrealized
Gains
(Losses)
Cash Flow
Hedging
Instruments Cumulative
Translation
Adjustment Accumulated
Other
Comprehensive Loss
Balance at September 29, 2017 $ (44.1 ) $ —
$ (24.7 ) $ (68.8 )
Other comprehensive earnings before reclassifications —
(0.9 ) (3.0 ) (3.9 )
Amounts reclassified out of other comprehensive earnings 1.3
0.9
—
2.2
Tax expense (0.2 ) —
—
(0.2 )
Balance at June 29, 2018 $ (43.0 ) $ —
$ (27.7 ) $ (70.7 )


(In millions)	Net Unrealized Gains (Losses) Defined Benefit Pension and Post-Retirement Benefit Plans		Cumulative Translation Adjustment		Accumulated Other Comprehensive Loss
Balance at September 28, 2018	$	(35.2)	$	(30.1)	$	(65.3)
Other comprehensive earnings (loss) before reclassifications	—		(4.0)		(4.0)
Amounts reclassified out of other comprehensive earnings (loss)	0.4		—		0.4
Tax expense	(0.1)		—		(0.1)
Balance at December 28, 2018	$	(34.9)	$	(34.1)	$	(69.0)

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

The amounts reclassified, before taxes, out of other comprehensive earnings (loss) into the Condensed Consolidated Statements of Earnings, with line item location, during each period were as follows:

(In millions)
Three Months Ended Nine Months Ended
Comprehensive Earnings (Loss) Components June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018 Line Item in Statements of Earnings
Unrealized loss on defined benefit pension and post-retirement benefit plans $ (0.4 ) $ (0.4 ) $ (1.1 ) $ (1.3 ) Other income, net
Unrealized loss on cash flow hedging instruments —
—
—
(0.9 ) Revenues
Total amounts reclassified out of other comprehensive earnings $ (0.4 ) $ (0.4 ) $ (1.1 ) $ (2.2 )


(In millions)	Three Months Ended
Comprehensive Earnings (Loss) Components	January 3, 2020		December 28, 2018		Line Item in Statements of Earnings
Unrealized loss on defined benefit pension and post-retirement benefit plans	$	(0.9)	$	(0.4)	Other income, net
Unrealized earnings on cash flow hedging instruments	0.8		—		Revenues

Total amounts reclassified out of other comprehensive earnings (loss)	$	(0.1)	$	(0.4)

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

12. EMPLOYEE STOCK PLANS

The table below summarizes the share-based compensation expense recognized for employee stock awards and employee stock purchase plan shares:


	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Cost of revenues - Product	$	0.8	$	0.7
Cost of revenues - Service	1.3		1.1
Research and development	1.2		1.1
Selling, general and administrative	11.6		7.6
Total share-based compensation expense	$	14.9	$	10.5
Income tax benefit for share-based compensation	$	(2.9)	$	(2.3)

Three Months Ended Nine Months Ended
(In millions) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Cost of revenues - Product $ 0.7
$ 0.8
$ 2.2
$ 2.3
Cost of revenues - Service 1.2
1.1
3.3
3.1
Research and development 1.3
1.2
3.5
3.6
Selling, general and administrative 9.0
10.2
26.2
25.5
Total share-based compensation expense $ 12.2
$ 13.3
$ 35.2
$ 34.5
Income tax benefit for share-based compensation $ (2.3 ) $ (3.0 ) $ (6.8 ) $ (7.7 )

The fair value of stock options and performance stock options granted was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:


	Three Months Ended
	January 3, 2020			December 28, 2018
Employee Stock Option Plans
Expected term (in years)	3.8			3.8
Risk-free interest rate	1.6		%	2.9		%
Expected volatility	26.0		%	22.2		%
Expected dividend	—		%	—		%
Weighted average fair value at grant date⁽¹⁾	$	29.42		$	25.87

Three Months Ended Nine Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Employee Stock Option Plans
Expected term (in years) 3.76
3.85
3.76
3.83
Risk-free interest rate 2.2 % 2.8 % 2.6 % 2.2 %
Expected volatility 23.9 % 21.0 % 23.1 % 19.0 %
Expected dividend — % — % — % — %
Weighted average fair value at grant date $ 28.52
$ 24.93
$ 27.85
$ 20.82
⁽¹⁾Excludes the fair value of the market condition based on a relative total shareholder return for the performance stock options granted during the period.

The option component of employee stock purchase plan shares was estimated at the date of grant using the Black-Scholes model with the following weighted average assumptions:


	Three Months Ended
	January 3, 2020			December 28, 2018
Employee Stock Purchase Plan
Expected term (in years)	0.5			0.5
Risk-free interest rate	1.6		%	2.5		%
Expected volatility	26.4		%	18.6		%
Expected dividend	—		%	—		%
Weighted average fair value at grant date	$	27.58		$	22.82

Three Months Ended Nine Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Employee Stock Purchase Plan
Expected term (in years) 0.50
0.50
0.50
0.50
Risk-free interest rate 2.5 % 2.0 % 2.5 % 1.6 %
Expected volatility 27.8 % 32.9 % 22.8 % 25.2 %
Expected dividend — % — % — % — %
Weighted average fair value at grant date $ 31.38
$ 28.41
$ 26.76
$ 24.56

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The activity for stock options and performance stock options is summarized as follows:


	Options Outstanding
(In millions, except per share amounts)	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value⁽¹⁾
Balance at September 27, 2019	2.2	$	97.66
Granted	0.1	131.34

Cancelled or expired	—	99.35
Exercised	(0.1)	82.03
Balance at January 3, 2020	2.2	$	101.01	4.6	$	98.0

Exercisable at January 3, 2020	1.1	$	82.38	3.4	$	68.2

Options Outstanding
(In millions, except per share amounts) Number of
Shares Weighted
Average
Exercise
Price Weighted
Average
Remaining
Term (in years)
Aggregate
Intrinsic
Value⁽¹⁾
Balance at September 28, 2018 2.3
$ 85.82

Granted 0.5
126.45

Cancelled or expired (0.1 ) 106.69

Exercised (0.5 ) 75.01

Balance at June 28, 2019 2.2
$ 96.98
4.7 $ 87.5
Exercisable at June 28, 2019 1.1
$ 80.48
3.7 $ 63.9

As of ~~June 28, 2019,~~January 3, 2020, there was ~~$20.2~~$20.7 million of total unrecognized compensation expense related to stock options and performance stock options granted under the Company's employee stock plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of ~~2.0~~2.1 years.

As of January 3, 2020 there was $0.6 million of total unrecognized compensation expense related to cash-settled stock appreciation rights granted outside the Company's employee stock plans. This unrecognized compensation expense is expected to be recognized over a weighted average period of 2.2 years.

The activity for restricted stock, restricted stock units, deferred stock units and performance units is summarized as follows:

As of ~~June 28, 2019,~~January 3, 2020, unrecognized compensation expense totaling ~~$46.1~~$43.7 million was related to awards of restricted stock units, deferred stock units and performance units granted under the Company's employee stock plans. This unrecognized share-based compensation expense is expected to be recognized over a weighted average period of ~~1.9~~2.0 years.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

13. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net earnings per share:


	Three Months Ended
(In millions, except per share amounts)	January 3, 2020		December 28, 2018
Net earnings	$	88.9	$	103.9
Less: Net earnings attributable to noncontrolling interests	0.7		0.7
Net earnings attributable to Varian	$	88.2	$	103.2

Denominator:
Weighted average shares outstanding - basic	90.9		91.0
Dilutive effect of potential common shares	0.8		1.0
Weighted average shares outstanding - diluted	91.7		92.0
Net earnings per share attributable to Varian - basic	$	0.97	$	1.13
Net earnings per share attributable to Varian - diluted	$	0.96	$	1.12
Anti-dilutive employee share-based awards, excluded	0.8		0.9

Three Months Ended Nine Months Ended
(In millions, except per share amounts) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Net earnings $ 29.5
$ 72.5
$ 221.8
$ 33.5
Less: Net earnings (loss) attributable to noncontrolling interests 0.1
(0.1 ) 0.6
—
Net earnings attributable to Varian $ 29.4
$ 72.6
$ 221.2
$ 33.5
Denominator:
Weighted average shares outstanding - basic 91.0
91.5
91.0
91.6
Dilutive effect of potential common shares 0.8
1.0
0.9
1.0
Weighted average shares outstanding - diluted 91.8
92.5
91.9
92.6
Net earnings per share attributable to Varian - basic $ 0.32
$ 0.79
$ 2.43
$ 0.37
Net earnings per share attributable to Varian - diluted $ 0.32
$ 0.79
$ 2.41
$ 0.36
Anti-dilutive employee share-based awards, excluded 0.5
0.7
0.8
0.7

14. PROTON SOLUTIONS LOANS AND INVESTMENTS

In limited cases, the Company participates, along with other investors and at market terms, in the financing of proton therapy centers. Over time, the Company has divested some of its investments, including investments in CPTC, the New York Proton Center ("NYPC"), ~~GPTC~~the Georgia Proton Treatment Center and the Delray Radiation Therapy Center.

The following table lists the Company's notes receivable, including accrued interest, senior secured debt, available-for-sale securities, loans outstanding and future commitments for funding the development, construction and operation of various proton therapy centers:


	January 3, 2020						September 27, 2019
(In millions)	Balance		Commitment		Balance		Commitment
Notes Receivable and Secured Debt: ⁽¹⁾
NYPC loan	$	32.3	$	—	$	31.8	$	—
RPTC senior secured debt	24.0		—		23.5		—
Proton International LLC loan	1.8		—		1.8		—
	$	58.1	$	—	$	57.1	$	—
Available-For-Sale Securities: ⁽¹⁾
MPTC Series B-1 Bonds	$	27.6	$	—	$	27.1	$	—
MPTC Series B-2 Bonds	25.7		—		25.1		—

APTC securities	6.7		—		6.6		—
	$	60.0	$	—	$	58.8	$	—

CPTC Loans and Investment:
Short-term revolving loan ⁽²⁾	$	5.3	$	1.9	$	5.3	$	1.9
Term loan ⁽³⁾	44.0		—		44.0		—

	$	49.3	$	1.9	$	49.3	$	1.9

June 28, 2019 September 28, 2018
(In millions) Balance Commitment Balance Commitment
Notes Receivable and Secured Debt:
NYPC loan⁽¹⁾
$ 30.8
$ —
$ 28.0
$ —
RPTC senior secured debt⁽²⁾
24.5
—
24.9
—
Proton International LLC loan⁽¹⁾
1.8
—
1.7
—
$ 57.1
$ —
$ 54.6
$ —
Available-For-Sale Securities:
MPTC Series B-1 Bonds⁽³⁾
$ 26.6
$ —
$ 25.1
$ —
MPTC Series B-2 Bonds ⁽¹⁾
24.5
—
23.1
—
GPTC securities ⁽²⁾
—
—
7.9
—
APTC securities⁽³⁾
6.4
—
6.4
—
$ 57.5
$ —
$ 62.5
$ —
CPTC Loans and Investment:
Short-term revolving loan ⁽²⁾
$ 5.1
$ 2.1
$ 3.7
$ 3.5
Term loan ⁽¹⁾
44.0
—
44.0
—
Equity investment in CPTC⁽¹⁾
—
—
2.2
—
$ 49.1
$ 2.1
$ 49.9
$ 3.5
⁽¹⁾Included in other assets at January 3, 2020 and September 27, 2019 on the Company's Condensed Consolidated Balance Sheets, except for amounts related to short-term interest receivable.

⁽¹⁾

⁽²⁾Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets.

⁽³⁾Included in prepaid and other current assets at January 3, 2020 and other assets at September 27, 2019 on the Company's Condensed Consolidated Balance Sheets.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

Alabama Proton Therapy Center ("APTC") Securities

In December 2017, the Company purchased $6.0 million in Subordinate Revenue Bonds, which financed the APTC. The Subordinate Revenue Bonds carry an interest rate of 8.5% and pay interest semi-annually. The Company is scheduled to start receiving annual principal payments on the Subordinate Revenue Bonds beginning on November 1, 2022. The Subordinate Revenue Bonds will mature on October 1, 2047.

At January 3, 2020 and September 27, 2019, the Company had $3.9 million and $2.1 million, respectively, in long-term unbilled receivables from APTC.

Rinecker Proton Therapy Center ("RPTC") Senior Secured Debt

In July 2017, the Company purchased the outstanding senior secured debt related to the RPTC in Munich, Germany for ~~21.5~~€21.5 million ~~Euros~~ or $24.5 million. By purchasing the senior secured debt, the Company has a right to approximately 77 million Euros in claims against all of RPTC's assets. In September 2017, the management of RPTC filed for bankruptcy in Germany. In January 2018, the final insolvency proceedings commenced, and ~~upon~~in December 2019 the center closed for clinical operations and decommissioning began. Upon finalization of bankruptcy proceedings, the Company believes it is probable it will recover the outstanding senior secured debt balance and trade accounts receivable, net. The Company classified its senior secured debt as long-term other assets because it expects the bankruptcy proceedings to be complete in greater than one year.

At ~~both June 28, 2019~~January 3, 2020 and September ~~28, 2018,~~27, 2019, the Company had ~~$4.5~~$4.2 million and $4.6 million, respectively, in long-term trade receivables, net, from RPTC, which does not include any unbilled receivables.

~~Georgia Proton Treatment Center ("GPTC") Security~~

In July 2017 and July 2018, the Company purchased a total of $16.1 million in Senior Capital Appreciation Bonds ("Senior Bonds"), which financed the GPTC. In September 2018 and June 2019, the Company sold all of its Senior Bonds for a total of $16.8 million, which included payment of accrued interest.

New York Proton Center ("NYPC") Loan

In July 2015, the Company committed to loan up to $91.5 million to MM Proton I, LLC. In June 2016, the Company assigned $73.0 million of this loan to Deutsche Bank AG. The remaining balance is comprised of an $18.5 million “Subordinate Loan” with a six-and-a-half-year term at up to 13.5% interest. In December 2019, the interest rate on the loan was reduced to 10%, effective May 1, 2019. As of ~~June 28, 2019,~~January 3, 2020, the Subordinate Loan is ~~$30.8~~$32.3 million, including accrued interest. The principal balance and accrued interest on the Subordinate Loan are due in full at maturity in January 2022.

~~In addition to the outstanding loan,~~At January 3, 2020 and September 27, 2019, the Company had ~~$25.2~~$18.0 million and ~~$24.1~~$16.6 million, respectively, in trade and unbilled receivables, ~~as of June 28, 2019 and September 28, 2018, respectively,~~ which included ~~$12.6~~$6.4 million and ~~$24.1~~$6.0 million in unbilled receivables, respectively, from NYPC.

Maryland Proton Treatment Center ("MPTC") Securities

In August 2018, MPTC refinanced its then outstanding subordinated debt, including accrued interest, and notes receivable balances. As part of the refinancing, in exchange for its then outstanding subordinated loan, theThe Company ~~received $22.9 million in~~has Subordinate Revenue Bonds ("MPTC Series B-2 Bonds") that carry an interest rate of 8.5% per annum with interest accruing up to the MPTC Series B-2 Bonds face amount of $33.9 million until January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-2 Bonds will mature on January 1, 2049. ~~In exchange for its outstanding notes receivable, the~~The Company also ~~received $6.0 million in cash and $25.0 million in~~has Subordinate Revenue Bonds ("MPTC Series B-1 Bonds") that carry an interest rate of 7.5% with interest accruing up to the MPTC Series B-1 Bonds face amount of $32.0 million on January 1, 2022 and then will pay cash interest semi-annually. The MPTC Series B-1 Bonds will mature on January 1, 2048. The MPTC Series B-1 Bonds are senior in right and time to the MPTC Series B-2 Bonds.

At ~~June 28,~~January 3, 2020 and September 27, 2019, the Company had ~~zero~~0 net trade and unbilled receivables ~~from MPTC. At September 28, 2018, the Company had $0.5 million in trade receivables, net,~~ from MPTC.

Variable Interest Entities

The Company has determined that MM Proton I, LLC and RPTC are variable interest entities and that the Company holds a significant variable interest of each of the entities through its participation in the loan facilities and its agreements to supply and service the proton therapy equipment. The Company has concluded that it is not the primary beneficiary of any of these entities. The Company has no voting rights, has no approval authority or veto rights for these centers' budget, and does not have the power to direct patient recruitment, clinical operations and management of these Centers, which the Company believes are the matters that most significantly affect their economic performance. The Company’s exposure to loss as a result of its

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

involvement with MM Proton I, LLC and RPTC is limited to the carrying amounts of the above-mentioned assets on its Condensed Consolidated Balance Sheets.

California Proton Therapy Center ("CPTC") Loans and Investment

Between September 2011 and November 2015, the Company, ORIX and J.P. Morgan (the "Lenders”) funded loans (“Original CPTC Loans”) to the Scripps Proton Therapy Center in San Diego, California. ORIX is the loan agent.

In March 2017, California Proton Treatment Center, LLC ("Original CPTC") filed for bankruptcy and concurrently entered into a Debtor-in-Possession ~~facility~~Facility (the "DIP Facility") with the Lenders where the Company's pro-rata share of the DIP Facility was $7.3 million. In September 2017, the Lenders and Scripps signed a Transition Agreement to transition the operations of the center from Scripps to Proton Doctors Professional Corporation. As a result of these events, the Company recorded an impairment charge of $51.4 million to its Original CPTC Loans in fiscal year 2017.

Pursuant to an order of the Bankruptcy Court, the California Proton Treatment Center ("Original CPTC") conducted an auction of the Scripps Proton Therapy Center. On December 6, 2017 (“Closing Date”), the Bankruptcy Court approved the sale of Scripps Proton Therapy Center to California Proton Therapy Center, LLC (“CPTC”), an entity owned by the Lenders. The Lenders purchased all assets and assumed $112.0 million of Original CPTC’s outstanding liabilities. On December 13, 2017, the Bankruptcy Court dismissed the bankruptcy filing of Original CPTC.

On the Closing Date, the Lenders entered into a Credit Agreement with Original CPTC of which the terms of the Original CPTC Loans, DIP Facility and accrued interest (collectively “Former Loans”) have been modified. In addition to the partially satisfied Original CPTC Loans reinstated by the Bankruptcy Court, the Company received a 47.08% equity ownership in ~~CPTC.~~CPTC, which it sold for a nominal amount in March 2019. Original CPTC has assigned all its Former Loans to CPTC at an amount of $112.0 million, the partially satisfied loan balance. Per the terms of the Credit Agreement, the Company's portion of the $112.0 million is $53.5 million; the remainder is allocated between ORIX and J.P. Morgan. The $53.5 million is composed of ~~four~~4 tranches: Tranche A of $2.0 million, Tranche B of $7.2 million, Tranche C of $15.6 million, and Tranche D of $28.7 million (collectively, the "Term Loan"). The maturity date of the Term Loan is three years from the Closing Date. The Term Loan is secured by the assets of CPTC.

In addition, the Lenders have committed to lend up to $15.0 million in a Revolving Loan with a maturity date of one year from the Closing Date. In the first quarters of fiscal 2019, fiscal 2020 and subsequent to the end of the first quarter of fiscal ~~2019,~~2020, as provided in the initial agreement, the Lenders have granted ~~a one year extension~~extensions to the term of the Revolving ~~Loan.~~Loan with a current maturity of June 30, 2020. The Company's share of the funding commitment from the Revolving Loan is $7.2 million, and as of ~~June 28, 2019,~~January 3, 2020, the Company has funded ~~$5.1~~$5.3 million.

All of the tranches accrue paid-in-kind interest at 7.5% per annum, except the Tranche B and the Revolving Loan, which accrue paid-in-kind interest at 10% per annum. The seniority of these loans is as follows: Revolving Loan, Tranche A, Tranche B, Tranche C and Tranche D. If CPTC is in default, the interest rate of the Tranche A, C and D will increase to 9.5% and the interest rate on the Tranche B and the Revolving Loan will increase to 12.0%.

~~Considering Original~~The Company believes it is probable that it will collect the amounts owed under the Term Loan and Revolving Loan when due based on CPTC’s ~~financial difficulties,~~current operating plan. This plan includes an increase in patient volume, partnership with a significant clinical partner, and maintenance of its current reimbursement structure. In July 2019, the ~~modification~~Centers for Medicare and Medicaid Services ("CMS") proposed an alternative payment model (or “APM”) pilot program for radiation oncology. This proposed APM could materially impact the reimbursement to CPTC for its services. CPTC's inability to execute its operating plan, as well as finalization of the ~~original terms~~proposed APM as currently drafted could negatively impact CPTC's ability to repay or refinance the debt when it comes due, which may result in an impairment of the ~~Former Loans,~~loan receivable; this impairment could be material.

At January 3, 2020, and the Lenders agreement to grant a concession on the Original CPTC Loans, the Company classified the transaction above as a troubled debt restructuring (“TDR”). The Company does not have any unamortized fees from the Former Loans and any prepayment penalties.

The Company, using a discounted cash flow approach, determined that the fair value of CPTC's equity as of Closing Date was $20.1 million. The Company's 47.08% ownership percentage amounts to a $9.5 million equity interest in CPTC. Since the common stock received was in addition to a loan receivable partially satisfied through the bankruptcy proceedings, in accordance with the TDR accounting guidance, the Company recorded the equity interest at fair value and as an offset to the reinstated loan balance. The equity investment in CPTC was accounted for under the equity method of accounting, and the Company accounted for its equity method share of the income or loss of CPTC on a quarter lag basis. In MarchSeptember 27, 2019, the Company sold its equity interest, with a carrying value of zero, in CPTC for a nominal amount. Therefore, beginning in the second quarter of fiscal year 2019, the Company no longer records losses related to the CPTC equity investment.

~~As of June 28, 2019, and September 28, 2018, the Company~~ had ~~recorded $2.3~~$2.9 million and ~~$1.8~~$2.6 million, respectively, in trade receivables, net, from CPTC.

Further, the Company has determined that CPTC is a variable interest entity because of the Company's participation in the loan facilities, and its operations and maintenance agreement. The Company has no special approval authority or veto rights for

~~VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)~~

~~(Unaudited)~~

CPTC’s budget, and does not have the power to direct patient recruitment, clinical operations and management of CPTC, which the Company believes are the matters that most significantly affect their economic performance. Therefore, the Company does not have majority voting rights and no power to direct activities at CPTC, and as a result it is not the primary beneficiary of CPTC.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

15. SEGMENT INFORMATION

The Company has ~~two~~2 reportable operating segments: Oncology Systems and Proton Solutions. The Company's Interventional ~~Oncology~~Solutions business is reflected in the "Other" category because it does not meet the criteria for a reportable operating segment. The operating segments were determined based on how the Company’s Chief Executive Officer, its Chief Operating Decision Maker (“CODM”), views and evaluates the Company’s operations. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on operating earnings.

Description of Segments

The Oncology Systems segment designs, manufactures, sells and services hardware and software products for treating cancer with conventional radiation therapy, and advanced treatments such as fixed field intensity-modulated radiation therapy (“IMRT”), image-guided radiation therapy (“IGRT”), volumetric modulated arc therapy ("VMAT"), stereotactic radiosurgery (“SRS”), stereotactic body radiotherapy (“SBRT”) and brachytherapy as well as associated quality assurance equipment. ~~Products~~

The Oncology Systems’ hardware products include linear accelerators, brachytherapy afterloaders, treatment accessories, artificial intelligence-powered adaptive delivery systems and quality assurance software. The Oncology Systems’ software ~~information management,~~solutions include treatment planning, ~~and image processing,~~informatics, clinical knowledge exchange, patient care management, ~~decision-making support and~~ practice management ~~software.~~ and decision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices.

Oncology Systems’ products enable radiation oncology departments in hospitals and clinics to perform conventional radiotherapy treatments and offer advanced treatments such as IMRT, IGRT, VMAT, SRS and SBRT, ~~as well as to~~and treat patients using brachytherapy techniques, which involve ~~temporarily implanting~~the introduction or temporary insertion of radioactive sources. The ~~Company’s~~ Oncology ~~Systems~~Systems' products are also used by surgeons and radiation oncologists to perform stereotactic radiosurgery and by medical oncology departments to manage ~~chemotherapy~~patient treatments. Oncology Systems’ customers worldwide include university research and community hospitals, private and governmental institutions, healthcare agencies, physicians’ offices, medical oncology practices, radiotherapy centers and cancer care clinics.

~~In addition to providing the products and~~The Oncology Systems segment offers services ~~for oncology care described above, the Company offers treatment planning~~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.

The Oncology Systems segment also provides clinical practice services that assist within the clinical workflow. These services focus on decision support and/or cancer care knowledge augmentation aimed at facilitating improved accessibility and ~~quality assurance as~~affordability to care while maintaining a ~~service, which allows remote support and delivery~~fundamental level of ~~care in understaffed locations to utilize technology on a per patient basis.~~clinical quality. Further, the Company operates ~~11 healthcare facilities in India; comprised of one~~10 multi-disciplinary cancer centers and 1 specialty hospital in India and ~~ten~~1 multi-disciplinary cancer ~~centers.~~center in Sri Lanka.

The Proton Solutions segment develops, designs, manufactures, sells and services products and systems for delivering proton therapy, aanother form of external beam radiotherapy using proton beams, for the treatment of cancer.

The Other category primarily includes the Interventional ~~Oncology~~Solutions business, which offers products for ~~minimally invasive~~ interventional oncology procedures and treatments, including cryoablation, microwave ablation and ~~embolic beads.~~embolization. Interventional Solutions also provides software and remote services for post treatment dose calculation for Yttrium-90 microspheres used in selective internal radiation therapy. The Other category also includes assets related to the use of radiation in the heart and other forms of radiosurgery for cardiovascular disease.

The following information is provided for the purpose of achieving an understanding of operations but may not be indicative of the financial results of the reported segments were they independent organizations. In addition, comparisons of the Company’s operations to similar operations of other companies may not be meaningful.

The Company allocates corporate costs to its operating segments based on the relative revenues of Oncology Systems, Proton Solutions and Interventional ~~Oncology.~~Solutions. The Company allocates these costs, excluding certain corporate related costs, transactions or adjustments that the Company's CODM considers to be non-operational, such as restructuring and impairment charges, significant litigation charges or benefits and legal costs, and acquisition-related ~~expenses.~~expenses and in process research and development. Although the Company excludes these amounts from segment operating earnings, they are included in the condensed consolidated operating earnings and included in the reconciliation below.

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

The following table summarizes select financial results for each reportable segment:

Three Months Ended Nine Months Ended
(In millions) June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Revenues
Oncology Systems $ 792.9
$ 667.2
$ 2,242.2
$ 2,014.6
Proton Solutions 30.9
41.9
102.0
102.9
Total reportable segments 823.8
709.1
2,344.2
2,117.5
Other 2.0
—
2.0
—
Total Company $ 825.8
$ 709.1
$ 2,346.2
$ 2,117.5
Earnings before taxes
Oncology Systems $ 148.7
$ 125.6
$ 404.5
$ 406.9
Proton Solutions (62.1 ) (10.1 ) (90.9 ) (42.8 )
Total reportable segments 86.6
115.5
313.6
364.1
Other (1.7 ) —
(1.7 ) —
Unallocated corporate (31.0 ) (25.5 ) (36.5 ) (59.8 )
Operating earnings 53.9
90.0
275.4
304.3
Interest income, net 1.9
0.5
7.6
2.9
Other income, net 4.2
1.5
27.4
2.9
Total Company $ 60.0
$ 92.0
$ 310.4
$ 310.1


	Three Months Ended
(In millions)	January 3, 2020		December 28, 2018
Revenues
Oncology Systems	$	782.4	$	702.5
Proton Solutions	27.6		38.5
Total reportable segments	810.0		741.0
Other	18.9		—
Total Company	$	828.9	$	741.0
Earnings from continuing operations before taxes
Oncology Systems	$	136.4	$	124.1
Proton Solutions	(14.3)		(8.8)
Total reportable segments	122.1		115.3
Other	2.8		—
Unallocated corporate	(14.9)		(3.6)
Operating earnings	110.0		111.7
Interest income (expense), net	(1.7)		2.7
Other income, net	4.4		23.0
Total Company	$	112.7	$	137.4

The Company disaggregates its revenues from contracts by major product categories, geographic region, and by timing of revenue recognition for each of its reportable operating segments, as the Company believes this best depicts how the nature, amount, timing and uncertainty of revenues and cash flows are affected by economic factors. See details in the tables below.

Three Months Ended
June 29, 2018 Nine Months Ended
June 29, 2018
(In millions) Oncology Systems Proton Solutions Total Oncology Systems Proton Solutions Total
Hardware $ 276.5
$ 38.1
$ 314.6
$ 881.2
$ 95.5
$ 976.7
Software ⁽¹⁾
125.1
—
125.1
366.9
—
366.9
Service 265.6
3.8
269.4
766.5
7.4
773.9
Total Revenues $ 667.2
$ 41.9
$ 709.1
$ 2,014.6
$ 102.9
$ 2,117.5


⁽¹⁾	~~Includes software support agreements that are recorded in revenues from service, and software licenses that are recorded in revenues from product in the Condensed Consolidated Statements of Earnings.~~

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

Revenues by Geographical Region


	Three Months Ended
Total Revenues by Geographical Region	January 3,		December 28,
(In millions)	2020		2018
Americas
Oncology Systems	$	378.9	$	330.8
Proton Solutions	16.9		19.6
Other	6.4		—
Total Americas	402.2		350.4
EMEA
Oncology Systems	259.8		234.5
Proton Solutions	10.3		16.5
Other	2.8		—
Total EMEA	272.9		251.0
APAC
Oncology Systems	143.7		137.2
Proton Solutions	0.4		2.4
Other	9.7		—
Total APAC	153.8		139.6
Total Revenues	$	828.9	$	741.0
North America ⁽¹⁾
Oncology Systems	$	355.2	$	309.1
Proton Solutions	16.9		19.6
Other	6.4		—
Total North America	378.5		328.7
International
Oncology Systems	427.2		393.4
Proton Solutions	10.7		18.9
Other	12.5		—
Total International	450.4		412.3
Total Revenues	$	828.9	$	741.0

Three Months Ended
June 28, 2019 Nine Months Ended
June 28, 2019
(In millions) Oncology Systems Proton Solutions Other Total Oncology Systems Proton Solutions Other Total
Americas $ 385.6
$ 14.8
$ 0.8
$ 401.2
$ 1,073.5
$ 48.6
$ 0.8
$ 1,122.9
EMEA 256.4
14.9
—
271.3
736.2
47.6
—
783.8
APAC 150.9
1.2
1.2
153.3
432.5
5.8
1.2
439.5
Total Revenues $ 792.9
$ 30.9
$ 2.0
$ 825.8
$ 2,242.2
$ 102.0
$ 2.0
$ 2,346.2

North America⁽¹⁾
$ 363.1
$ 14.8
$ 0.8
$ 378.7
$ 1,001.4
$ 48.6
$ 0.8
$ 1,050.8
International 429.8
16.1
1.2
447.1
1,240.8
53.4
1.2
1,295.4
Total Revenues $ 792.9
$ 30.9
$ 2.0
$ 825.8
$ 2,242.2
$ 102.0
$ 2.0
$ 2,346.2
⁽¹⁾North America primarily includes the United States and Canada.

Three Months Ended
June 29, 2018 Nine Months Ended
June 29, 2018
(In millions) Oncology Systems Proton Solutions Total Oncology Systems Proton Solutions Total
Americas $ 323.2
$ 19.4
$ 342.6
$ 981.8
$ 57.7
$ 1,039.5
EMEA 208.5
21.2
229.7
633.2
43.3
676.5
APAC 135.5
1.3
136.8
399.6
1.9
401.5
Total Revenues $ 667.2
$ 41.9
$ 709.1
$ 2,014.6
$ 102.9
$ 2,117.5

North America⁽¹⁾
$ 298.7
$ 19.4
$ 318.1
$ 924.6
$ 57.7
$ 982.3
International 368.5
22.5
391.0
1,090.0
45.2
1,135.2
Total Revenues $ 667.2
$ 41.9
$ 709.1
$ 2,014.6
$ 102.9
$ 2,117.5


⁽¹⁾	~~North America primarily includes United Statements and Canada.~~

Revenues by Timing of Revenue Recognition


	Three Months Ended
Timing of revenue recognition	January 3,		December 28,
(In millions)	2020		2018
Products transferred at a point in time
Oncology Systems	$	382.0	$	366.6

Other	18.9		—
Total products transferred at a point in time	400.9		366.6
Products and services transferred over time
Oncology Systems	400.4		335.9
Proton Solutions	27.6		38.5

Total products and services transferred over time	428.0		374.4
Total Revenues	$	828.9	$	741.0

Three Months Ended
June 28, 2019 Nine Months Ended
June 28, 2019
(In millions) Oncology Systems Proton Solutions Other Total Oncology Systems Proton Solutions Other Total
Products transferred at a point in time $ 433.8
$ 1.3
$ 2.0
$ 437.1
$ 1,203.0
$ 1.3
$ 2.0
$ 1,206.3
Products and services transferred over time 359.1
29.6
—
388.7
1,039.2
100.7
—
1,139.9
Total Revenues $ 792.9
$ 30.9
$ 2.0
$ 825.8
$ 2,242.2
$ 102.0
$ 2.0
$ 2,346.2

Three Months Ended
June 29, 2018 Nine Months Ended
June 29, 2018
(In millions) Oncology Systems Proton Solutions Total Oncology Systems Proton Solutions Total
Products transferred at a point in time $ 326.9
$ —
$ 326.9
$ 1,028.9
$ —
$ 1,028.9
Products and services transferred over time 340.3
41.9
382.2
985.7
102.9
1,088.6
Total Revenues $ 667.2
$ 41.9
$ 709.1
$ 2,014.6
$ 102.9
$ 2,117.5

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

16. ~~SUBSEQUENT EVENTS~~BUSINESS COMBINATIONS

Business Combinations in Fiscal Year 2020

The Company completed an acquisition in its Oncology Systems business that was not material in the first quarter of fiscal year 2020. The acquisition was comprised of goodwill and assets acquired. The purchase accounting from this transaction is not yet finalized.

Business Combinations in Fiscal Year 2019

Assets acquired from Boston Scientific

In ~~July~~August 2019, the Company ~~signed an asset purchase agreement to acquire~~acquired Boston Scientific's ~~drug-loadable microsphere and bland embolic bead~~embolics microspheres business, ~~which manufactures treatment~~ for treating arteriovenous malformations and hypervascular ~~tumors. The~~tumors, for a purchase price ~~for these assets is approximately $90~~of $90.0 million ~~and the transaction is expected to close~~ in August 2019. The purchase is subject to the satisfaction or waiver of customary closing conditions, including approval of the U.S. Federal Trade Commission and the closing of the proposed acquisition of BTG PLC by Boston Scientific.cash consideration. The assets from this purchase ~~will be~~are included in the Company's Interventional ~~Oncology business.~~Solutions business, which is included in the Other category. The purchase accounting from this transaction has been finalized.

Cancer Treatment Services International

~~With respect~~In June 2019, the Company acquired CTSI, a privately-held company for a purchase price of $277.0 million, consisting of $262.8 million of cash consideration, $8.2 million of contingent consideration, and $6.0 million of other consideration. The undiscounted range of the contingent consideration payments is 0 to $58 million and is based on actual revenues over the 18 months following the acquisition date. There have been 0 changes this quarter to the ~~unaudited condensed consolidated financial information~~fair value of ~~Varian Medical~~the contingent consideration included in the initial purchase price. The Company has included this acquisition in its Oncology Systems ~~Inc., for~~business. The purchase accounting from this transaction is not yet finalized. The Company recorded a measurement period adjustment in the ~~three~~first quarter of fiscal year 2020 that was not material.

Endocare and ~~nine months ended~~Alicon

In June ~~28,~~ 2019, the Company acquired Endocare and ~~June 29, 2018, PricewaterhouseCoopers LLP (PricewaterhouseCoopers) reported that it has applied limited procedures in accordance with professional standards~~Alicon for a ~~review~~combined purchase price of ~~such information. However, its report dated August 7, 2019, appearing below, states that the firm did not audit~~$210.0 million consisting of $197.4 million of cash consideration and does not express an opinion on that unaudited condensed consolidated financial information. PricewaterhouseCoopers has not carried out any significant or additional audit tests beyond those that would have been necessary if their report had not been included. Accordingly, the degree$12.6 million of ~~reliance on its report on such information should be restricted in light~~contingent consideration. The undiscounted range of the ~~limited nature of the review procedures applied. PricewaterhouseCoopers~~contingent consideration payments is ~~not subject~~0 to ~~the liability provisions of Section 11 of the Securities Act of 1933,~~$40 million and is based on actual revenues through March 2020. Due to better than expected actual and projected financial performance for Endocare and Alicon, as amended (the Act) for its report on the unaudited condensed consolidated financial information because that report is not a "report" or a "part" of a registration statement prepared or certified by PricewaterhouseCoopers within the meaning of Sections 7 and 11 of the Act.

~~REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM~~

~~To the Board of Directors and~~

~~Stockholders of Varian Medical Systems, Inc.:~~

~~Results of Review of Interim Financial Statements~~

~~We have reviewed the accompanying condensed consolidatedbalance sheetof Varian Medical Systems, Inc. and its subsidiaries(the “Company”)~~well as ~~of June 28, 2019, and the related condensed consolidated statements of earnings, of comprehensive earnings and of equity for the three-month and nine-month~~periods ended June 28, 2019 and June 29, 2018 and the condensed consolidated statements of cash flows for the nine-month periods ended June 28, 2019 and June 29, 2018, including the related notes (collectively referred to as the “interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of September 28, 2018, and the related consolidated statement of earnings, of comprehensive earnings, of equity and of cash flows for the year then ended (not presented herein), and in our report dated November 26, 2018, which included a paragraph describing a change in the ~~manner~~expected mix of ~~accounting for revenue from contracts with customers~~products, the Company recorded an $8.8 million increase in the ~~2018~~fair value of contingent consideration in the first quarter of fiscal year 2020, in addition to a $18.6 million increase in the fair value of the contingent consideration recorded in the fourth quarter of fiscal year 2019. The Company has recorded a total of $40.0 million in contingent consideration related to the Endocare and Alicon acquisitions, which is expected to be paid in fiscal year 2020. These acquisitions are included in the Company's Interventional Solutions business, which is included in the Other category. The purchase accounting from this transaction is not yet finalized. The Company has not recorded any measurement period adjustments this quarter.

Other Acquisitions in Fiscal Year 2019

In the third quarter of fiscal year 2019, the Company purchased a privately-held company for a cash purchase price of $15.2 million, including a holdback of $3.6 million and contingent consideration. At the closing date, the value of the contingent consideration was 0 because none of the milestones were probable to be achieved however, the Company could potentially pay up to approximately $9 million by 2023 if certain milestones were met plus additional payments for achieving revenue targets through 2035. The acquisition was classified as an asset acquisition. This acquisition is included in the Other category.

In the first quarter of fiscal year 2019, the Company acquired a privately-held software company for a purchase price of $28.5 million. The acquisition primarily consisted of $21.9 million in goodwill and $6.5 million in finite-lived intangible assets. The Company integrated this acquisition into its Oncology Systems reporting unit.

Other Information

The fair value of assets acquired and liabilities assumed has been determined on a preliminary basis for acquisitions completed in the current year and certain acquisitions in the previous fiscal year. The Company will finalize these amounts as it obtains the

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)

(Unaudited)

information necessary to complete the measurement process. Any changes resulting from facts and circumstances that existed as of the date of a business combination may result in certain adjustments. The Company expects to finalize these amounts no later than one year from the date of each business combination.

The condensed consolidated financial statements~~we expressed an unqualified opinion on those~~ include the operating results from the date the above businesses were acquired. Pro forma results of operations for the completed acquisitions have not been presented because the effects were not material to the Company's condensed consolidated financial statements. ~~In our opinion,~~

The Company incurred acquisition transaction costs of $3.9 million and $2.4 million during the ~~information set forth in the accompanying condensed consolidated balance sheet as of September~~three months ended January 3, 2020 and December 28, 2018, ~~is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.~~respectively.

~~Basis for Review Results~~

~~These interim financial statements are the responsibility of the Company’s management.~~We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

~~/s/ PricewaterhouseCoopers LLP~~

~~San Jose, California~~

~~August 7, 2019~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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” 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 or management’s current expectations due to the factors cited in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”), the Risk Factors listed under Part II, Item 1A of this Quarterly Report on Form 10-Q, and other factors described from time to time in our other filings with the Securities and Exchange Commission (“SEC”), or other reasons. For this purpose, statements concerning: growth strategies; industry or market segment outlook; economic and market conditions; domestic and global trends; development, market acceptance of or transition to new products, ~~technology~~technologies, solutions or services such as fixed field intensity-modulated radiation therapy, image-guided radiation therapy, stereotactic radiosurgery, volumetric modulated arc therapy, brachytherapy, software, treatment techniques, healthcare services, interventional treatment planning as a service, quality assurance as a service, interventional oncology, and proton therapy;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 or cross-border trade restrictions; currency fluctuation, changes in political, regulatory, safety or economic conditions; 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.

This discussion and analysis of our financial condition and results of operations is based upon and should be read in conjunction with the Condensed Consolidated Financial Statements and the Notes included elsewhere in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements, the Notes to the Consolidated Financial Statements and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended September ~~28, 2018~~27, 2019 (the ~~“2018~~“2019 Annual Report”), as well as the information contained under Part I, Item 1A "Risk Factors" of the ~~2018~~2019 Annual Report and Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q , and other information provided from time to time in our other filings with the SEC.

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. Through recent acquisitions, we now 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 ~~oncology~~ 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 leverages our clinical experience and strengths in technology development and new product innovation. To ~~meet this challenge,~~achieve these long-term objectives, we ~~offer comprehensive solutions for fighting cancer.~~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 ~~Oncology~~Solutions business is reflected in the ~~"Other"~~Other category because it does not meet the criteria for 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 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.

~~Long-Term Growth and Value Creation Strategy~~

We are focused on cancer care solutions and are well-positioned to positively influence more and more patients globally every day by bringing smarter and simpler solutions to healthcare providers. Our long-term growth and value creation strategy is to transform our company from the global leader in radiation therapy to the global leader in multi-disciplinary, integrated cancer

3834

care solutions. We intend to leverage our deep customer relationships, human-centered design, scale and financial strength to selectively broaden our capabilities to help cancer patients. 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 other addressable markets.

Highlights for the Three Months Ended ~~June 28, 2019~~January 3, 2020


	Three Months Ended
(In millions, except per share amounts)	January 3, 2020			December 28, 2018			Change
Gross Orders	$	818.6		$	721.7		13	%
Oncology Systems	773.8			716.5			8	%
Proton Solutions	25.9			5.2			399	%
Other	18.9			—			n/m
Backlog	$	3,305.3		$	3,174.7		4	%
Revenues	$	828.9		$	741.0		12	%
Oncology Systems	782.4			702.5			11	%
Proton Solutions	27.6			38.5			(28)	%
Other	18.9			—			n/m
Gross margin as a percentage of revenues	44.2		%	42.7		%	160 bps
Effective tax rate	21.0		%	24.4		%
Net earnings attributable to Varian	$	88.2		$	103.2		(14)	%
Diluted net earnings per share	$	0.96		$	1.12		(14)	%
Net cash provided by operating activities	$	112.6		$	140.9		(20)	%
Number of shares repurchased	0.3			0.3			4	%
Total cost of shares repurchased	$	46.4		$	34.8		33	%

Three Months Ended
(In millions, except per share amounts) June 28,
2019 June 29,
2018 Change
Gross Orders $ 891.6
$ 767.1
16 %
Oncology Systems $ 778.3
$ 763.3
2 %
Proton Solutions $ 111.3
$ 3.8
n/m
Other $ 2.0
$ —
n/m
Backlog $ 3,118.4
$ 2,948.9
6 %
Revenues $ 825.8
$ 709.1
16 %
Oncology Systems $ 792.9
$ 667.2
19 %
Proton Solutions $ 30.9
$ 41.9
(26 )%
Other $ 2.0
$ —
n/m
Gross margin as a percentage of revenues 42.5 % 44.2 % (170) bps
Effective tax rate 50.9 % 21.2 %
Net earnings attributable to Varian $ 29.4
$ 72.6
(60 )%
Diluted net earnings per share $ 0.32
$ 0.79
(59 )%
Net cash provided by operating activities $ 126.5
$ 102.2
24 %
Number of shares repurchased 0.4
0.3
8 %
Total cost of shares repurchased $ 48.6
$ 39.2
24 %

n/m - not meaningful

~~Cancer Treatment Services International.~~
In June 2019, we acquired Cancer Treatment Services International ("CTSI"), a privately-held company that provides cancer care professional services to health care providers worldwide and, through its oncology care brand, American Oncology Institute, focuses on the operation of comprehensive cancer treatment facilities in international markets. CTSI operates AmPath, a full-service reference laboratory and pathology provider, and CTSI Oncology Solutions, an oncology services company that provides solutions such as remote treatment planning services and multi-disciplinary oncology consulting. This acquisition will increase our expertise in cancer center operations,~~allowing for new partnerships globally, which will allow us to deliver world-class,~~value-based care in developed and emerging markets. In addition, we expect that the transaction will enable us to innovate and be a leader in cancer focused technology-enabled services. CTSI operations are included in our Oncology Systems business.

We acquired CTSI for a purchase price of $279.3 million, consisting of $262.8 million of cash consideration, $8.2 million of contingent consideration, and $8.3 million of other consideration. The undiscounted range of the contingent consideration payments is zero to $58 million and is based on actual revenues over the 18 months following the acquisition date.

~~Endocare and Alicon.~~ In June 2019, we acquired Austin, Texas-based Endocare and Hangzhou, China-based, Alicon, to expand our portfolio of multidisciplinary integrated cancer solutions. Endocare is a leading provider of hardware and software solutions for cryoablation, and has a microwave ablation product line; and Alicon is a leader in embolic therapy for treating liver cancer in China. These acquisitions enable us to develop innovations in interventional oncology and provide patients and customers with a wider range of cancer care solutions. Endocare and Alicon operations comprise our Interventional Oncology business.

We acquired Endocare and Alicon for a combined purchase price of $209.4 million consisting of approximately $196.8 million of cash consideration and $12.6 million of contingent consideration. The undiscounted range of the contingent consideration payments is zero to $40 million and is based on actual revenues through March 2020.

~~Impairment of Proton Solutions Goodwill.~~ During 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. The impairment resulted from a downward revision of the forecasted future cash flows. Factors in the third quarter that contributed to the revised forecast include observed continued weakness in proton therapy markets and lower than expected results as compared to prior forecasts. These events decreased the forecasted cash flows and the fair value of the Proton Solutions reporting unit below its carrying value as of the third quarter of fiscal year 2019.

To determine the fair value of the Proton Solutions reporting unit, we used the income approach. Under the income approach, the fair value of the Proton Solutions reporting unit was based on the present value of the estimated future cash flows that the reporting unit is expected to generate over its remaining life. Cash flow projections were based on management's estimates of revenue growth rates and operating margins, taking into consideration industry and market conditions. The discount rate used was based on the weighted-average cost of capital appropriate for the Proton Solutions reporting unit.

~~Acquisition-related expenses and in-process research and development.~~ We incurred acquisition-related expenses and in-process research and development of $31.2 million and $12.7 million during the three months ended June 28, 2019 and June 29, 2018, respectively, and $35.8 million and $33.9 million during the nine months ended June 28, 2019 and June 29, 2018, respectively. The three and nine months ended June 28, 2019, included a $20.8 million charge associated with a write-off of in-process research and development ("in-process R&D") related to an acquisition that closed in the third quarter of fiscal year 2019.

Tariff Measures. OnBetween July 6, 2018 and May 2019, the Trump Administration imposed ~~25%~~a series of tariffs, ranging from 5% to 25%, on ~~a variety of~~numerous products ~~when~~ imported into the United States from China, including Varian’s radiotherapy systems manufactured in China and certain components ~~imported from China into the United States for~~used in our manufacturing and service activities. OnIn July and August ~~23,~~ 2018, China retaliated against the ~~Administration imposed 25%~~U.S. tariffs ~~on a second list~~by imposing its own series of ~~products~~tariffs, ranging from ~~China. On September 24, 2018, the Administration imposed~~ 10% ~~tariffs on a third list of products, and the tariffs in the third list were~~ ~~increased~~ to 25%, on ~~May 10, 2019.We expect our imports~~certain products imported into ~~the United States to be impacted less by the second and third tariff lists than by the first tariff list.~~

We participated in the Office of the U.S. Trade Representative (“USTR”) process to ~~retaliatory tariffs upon import to China. On July 26, 2018, China imposed a first round of 25% retaliatory tariffs that did not impact our products. On August 23, 2018, China imposed 25% retaliatory~~seek product-specific exclusions from the U.S. tariffs on ~~a second list~~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 ~~products, including our exports of~~the radiation therapy systems that we manufacture in the United States ~~manufactured~~-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 is pending. In December 2019, USTR granted a one-year extension to our exclusion for radiotherapy ~~systems to China.~~ systems.

OnIn June ~~27, July 2,~~ and July 4, 2019, ~~respectively, Varian~~we submitted formal requests to the Chinese government for ~~exclusion~~exclusions from the Chinese retaliatory tariffs for manufacturing inputs, service parts and radiotherapy systems imported into China from the United States.~~Any tariffs imposed by~~ In September 2019, the ~~United States and China that include Varian technology could increase the cost of~~Chinese government granted a tariff exclusion for medical linear accelerators, including our ~~products and adversely impact the competitiveness of our products and/or our operational results in the future.~~

Currency Fluctuation. 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~~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 approximately a ~~$19.1~~$5.4 million and ~~$16.4~~$3.6 million unfavorable impact on total revenues and Oncology Systems gross orders, respectively, for the three months ended ~~June 28, 2019,~~January 3, 2020, compared to the year-ago period. We expect that fluctuations of non-U.S. Dollar currencies against the U.S. Dollar may continue to cause variability in our financial performance.

Oncology Systems. OurOncology 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"~~(“IMRT”), image-guided radiation therapy ~~("IGRT"~~(“IGRT”), volumetric modulated arc therapy ~~("VMAT"~~(“VMAT”), stereotactic ~~radiotherapy,~~radiosurgery, stereotactic body radiotherapy and ~~brachytherapy.~~brachytherapy as well as associated quality assurance equipment. Our software solutions include treatment planning, informatics, ~~software for information management,~~ clinical knowledge exchange, patient care management, practice management and ~~decision-making~~decision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices.

~~In addition to providing the products and~~ We offer services ~~for oncology care described above, we offer treatment planning~~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 ~~quality assurance as~~affordability to care while maintaining a ~~service, which allows remote support and delivery~~fundamental level of ~~care in understaffed locations to utilize technology on a per patient basis, providing increased quality and reduced costs.~~clinical quality. Further, we operate ~~11 healthcare facilities in India; comprised of~~ten multi-disciplinary cancer centers and one specialty hospital in India and ~~ten~~one multi-disciplinary cancer ~~centers. The CTSI acquisition will enable us~~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.~~capabilities, in an environment of data security and patient privacy integrity.



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	June 28,			September 28,
(In millions, except par values)	2019			2018 (1)
Assets
Current assets:
Cash and cash equivalents	$	520.7		$	504.8
Trade and unbilled receivables, net of allowance for doubtful accounts of $47.0 at June 28, 2019, and $41.1 at September 28, 2018	1,054.2			1,009.9
Inventories	529.3			438.1
Prepaid expenses and other current assets	237.0			233.3
Current assets of discontinued operations	—			2.3
Total current assets	2,341.2			2,188.4
Property, plant and equipment, net	307.4			274.6
Goodwill	566.9			293.6
Intangible assets	273.1			101.1
Deferred tax assets	93.9			102.2
Other assets	384.8			292.8
Total assets	$	3,967.3		$	3,252.7
Liabilities and Equity
Current liabilities:
Accounts payable	$	226.1		$	190.3
Accrued liabilities	433.1			419.7
Deferred revenues	749.7			729.7
Short-term borrowings	400.0			—
Current maturities of long-term debt	1.0			—
Total current liabilities	1,809.9			1,339.7
Other long-term liabilities	400.1			324.3
Total liabilities	2,210.0			1,664.0
Commitments and contingencies (Note 8)
Equity:
Varian stockholders' equity:
Preferred stock of $1 par value: 1.0 shares authorized; none issued and outstanding	—			—
Common stock of $1 par value: 189.0 shares authorized; 91.0 and 91.2 shares issued and outstanding at June 28, 2019, and September 28, 2018, respectively	91.0			91.2
Capital in excess of par value	831.4			778.1
Retained earnings	890.7			780.4
Accumulated other comprehensive loss	(69.5		)	(65.3		)
Total Varian stockholders' equity	1,743.6			1,584.4
Noncontrolling interest	13.7			4.3
Total equity	1,757.3			1,588.7
Total liabilities and equity	$	3,967.3		$	3,252.7



	Nine Months Ended June 29, 2018
(In millions)	As Previously Reported			Adjustments		As Adjusted
Cash used in investing activities	$	(109.9	)	$	6.8	$	(103.1	)
Cash, cash equivalents, and restricted cash at beginning of period	$	716.2		$	2.3	$	718.5
Cash, cash equivalents, and restricted cash at end of period	$	536.0		$	9.1	$	545.1



(In millions)	CTSI			Endocare and Alicon
Assets acquired ⁽¹⁾	$	54.0		$	32.9
Liabilities assumed ⁽²⁾	(65.0		)	(17.7		)
Goodwill	182.1			122.7
Intangible assets	117.0			71.5
Fair value of net assets	288.1			209.4
Less: Non-controlling interest ⁽³⁾	8.8			—
Total purchase consideration	$	279.3		$	209.4



(Dollars in millions)	CTSI			Endocare and Alicon
Type	Fair Value		Weighted Average Estimated Useful Life (In Years)	Fair Value		Weighted Average Estimated Useful Life (In Years)
Technologies and trade names	$	47.9	10.7	$	56.3	7.7
Customer contracts, supplier relationships, and partner relationships ⁽¹⁾	69.1		26.4	4.8		3.0
Total intangible assets with finite lives	117.0			61.1
In-process research and development with indefinite lives	—			10.4
Total intangible assets	$	117.0		$	71.5



(In millions)	June 28, 2019			September 28, 2018
Unbilled receivables - current	$	324.8		$	362.8
Unbilled receivables - long-term ⁽¹⁾	63.2			36.3
Deferred revenues - current	(749.7		)	(729.7		)
Deferred revenues - long-term ⁽²⁾	(73.5		)	(38.6		)
Total net unbilled receivables (deferred revenues)	$	(435.2	)	$	(369.2	)



	Fiscal Years of Revenue Recognition
(In millions)	Remainder of 2019		2020		2021		Thereafter
Unfulfilled Performance Obligations	$	824.6	$	2,575.5	$	1,037.0	$	2,118.7



	June 28, 2019							September 28, 2018
(In millions)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Technologies, patents, and trade names	$	240.4	$	(81.4	)	$	159.0	$	139.6	$	(73.9	)	$	65.7
Customer contracts, supplier relationships, and partner relationships	118.3		(23.5		)	94.8		44.9		(19.1		)	25.8
Other	6.1		(6.0		)	0.1		6.6		(5.8		)	0.8
Total intangible with finite lives	364.8		(110.9		)	253.9		191.1		(98.8		)	92.3
In-process research and development with indefinite lives	19.2		—			19.2		8.8		—			8.8
Total intangible assets	$	384.0	$	(110.9	)	$	273.1	$	199.9	$	(98.8	)	$	101.1



	Location and Amount Recognized in Earnings on Cash Flow Hedging Relationships
		Nine Months Ended
		June 29, 2018
(In millions)		Revenues
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings in which the effects of fair value and cash flow hedges are recorded		$	2,117.5
Loss on cash flow hedge relationships:
Foreign currency forward contracts:
Amount of loss reclassified from accumulated other comprehensive loss into earnings		$	(0.9	)



	June 28, 2019
(In millions)	Notional Value Sold		Notional Value Purchased
Australian Dollar	$	25.2	$	—
Brazilian Real	11.9		—
British Pound	30.2		0.8
Chinese Yuan	—		13.6
Canadian Dollar	3.1		—
Danish Krone	6.9		—
Euro	210.3		12.2
Hungarian Forint	4.6		1.0
Indian Rupee	21.1		—
Japanese Yen	73.8		—
New Zealand Dollar	1.0		—
Norwegian Krone	1.2		—
Polish Zloty	19.5		—
Singapore Dollar	—		1.4
South African Rand	15.4		—
Swedish Krona	7.1		—
Swiss Franc	—		64.4
Taiwan Dollar	13.3		—
Thai Baht	5.3		—
Totals	$	449.9	$	93.4



(In millions)	Net Unrealized Gains (Losses) Defined Benefit Pension and Post-Retirement Benefit Plans			Net Unrealized Losses Cash Flow Hedging Instruments			Cumulative Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at September 28, 2018	$	(35.2	)	$	—		$	(30.1	)	$	(65.3	)
Other comprehensive loss before reclassifications	—			(0.3		)	(4.8		)	(5.1		)
Amounts reclassified out of other comprehensive earnings	1.1			—			—			1.1
Tax expense	(0.2		)	—			—			(0.2		)
Balance at June 28, 2019	$	(34.3	)	$	(0.3	)	$	(34.9	)	$	(69.5	)



(In millions)	Net Unrealized Gains (Losses) Defined Benefit Pension and Post-Retirement Benefit Plans			Net Unrealized Gains (Losses) Cash Flow Hedging Instruments			Cumulative Translation Adjustment			Accumulated Other Comprehensive Loss
Balance at September 29, 2017	$	(44.1	)	$	—		$	(24.7	)	$	(68.8	)
Other comprehensive earnings before reclassifications	—			(0.9		)	(3.0		)	(3.9		)
Amounts reclassified out of other comprehensive earnings	1.3			0.9			—			2.2
Tax expense	(0.2		)	—			—			(0.2		)
Balance at June 29, 2018	$	(43.0	)	$	—		$	(27.7	)	$	(70.7	)


(In millions, except per share amounts)	Number of Shares		Weighted Average Grant-Date Fair Value		(In millions, except per share amounts)	Number of Shares	Weighted Average Grant-Date Fair Value
Balance at September 28, 2018	0.8		$	89.17
Balance at September 27, 2019					Balance at September 27, 2019	0.7	$	108.35
Granted	0.3		127.14		Granted	0.1	140.74

Vested	(0.4	)	81.81		Vested	(0.1)	84.99
Cancelled or expired	(0.1	)	87.47		Cancelled or expired	(0.1)	117.11
Balance at June 28, 2019	0.6		$	108.49
Balance at January 3, 2020					Balance at January 3, 2020	0.6	$	115.82


⁽¹⁾ ⁽²⁾Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets. ⁽³⁾Included in prepaid and other current assets at January 3, 2020 and other assets at September 27, 2019 on the Company's Condensed Consolidated Balance Sheets.	~~Included in other assets at June 28, 2019 and September 28, 2018, on the Company's Condensed Consolidated Balance Sheets.~~


																		Three Months Ended
	Three Months Ended June 28, 2019								Nine Months Ended June 28, 2019
Total Revenues by Product Type																	Total Revenues by Product Type	January 3,		December 28,
(In millions)	Oncology Systems		Proton Solutions		Other		Total		Oncology Systems		Proton Solutions		Other		Total		(In millions)	2020		2018
Hardware	$	361.7	$	24.2	$	2.0	$	387.9	$	1,014.4	$	85.7	$	2.0	$	1,102.1	Hardware
Oncology Systems																	Oncology Systems	$	320.0	$	313.6
Proton Solutions																	Proton Solutions	20.1		33.6
Other																	Other	18.9		—
Total Hardware																	Total Hardware	359.0		347.2
Software ⁽¹⁾	154.4		1.3		—		155.7		429.8		1.3		—		431.1		Software ⁽¹⁾
Oncology Systems																	Oncology Systems	148.8		131.2
Proton Solutions																	Proton Solutions	—		—
Total Software																	Total Software	148.8		131.2
Service	276.8		5.4		—		282.2		798.0		15.0		—		813.0		Service
Oncology Systems																	Oncology Systems	313.6		257.7
Proton Solutions																	Proton Solutions	7.5		4.9
Total Service																	Total Service	321.1		262.6
Total Revenues	$	792.9	$	30.9	$	2.0	$	825.8	$	2,242.2	$	102.0	$	2.0	$	2,346.2	Total Revenues	$	828.9	$	741.0



	Three Months Ended June 29, 2018						Nine Months Ended June 29, 2018
(In millions)	Oncology Systems		Proton Solutions		Total		Oncology Systems		Proton Solutions		Total
Hardware	$	276.5	$	38.1	$	314.6	$	881.2	$	95.5	$	976.7
Software ⁽¹⁾	125.1		—		125.1		366.9		—		366.9
Service	265.6		3.8		269.4		766.5		7.4		773.9
Total Revenues	$	667.2	$	41.9	$	709.1	$	2,014.6	$	102.9	$	2,117.5


Revenues by sales classification	Three Months Ended
(Dollars in millions)	January 3, 2020			December 28, 2018			Percent Change
Product	$	421.0		$	400.2		5	%
Service	407.9			340.8			20	%
Total Revenues	$	828.9		$	741.0		12	%
Product as a percentage of total revenues	51		%	54		%
Service as a percentage of total revenues	49		%	46		%


Dollars by segment	Three Months Ended								Nine Months Ended								Dollars by segment	Three Months Ended
(Dollars in millions)	June 28, 2019			June 29, 2018			Percent Change		June 28, 2019			June 29, 2018			Percent Change		(Dollars in millions)	January 3, 2020			December 28, 2018			Percent Change
Oncology Systems	$	346.3		$	305.5		13	%	$	978.5		$	923.3		6	%	Oncology Systems	$	353.0		$	309.8		14	%
Proton Solutions	5.0			8.1			(41	)%	7.1			11.6			(39	)%	Proton Solutions	—			6.3			n/m
Other	0.1			—			n/m		0.1			—			n/m		Other	13.8			—			n/m
Gross margin	$	351.4		$	313.6		12	%	$	985.7		$	934.9		5	%	Gross margin	$	366.8		$	316.1		16	%
Percentage by segment																	Percentage by segment
Oncology Systems	43.7		%	45.8		%			43.7		%	45.8		%			Oncology Systems	45.1		%	44.1		%
Proton Solutions	15.6		%	19.5		%			6.9		%	11.3		%			Proton Solutions	n/m			16.9		%
Other	5.3		%	—		%			5.3		%	—		%			Other	72.8		%	—		%
Total Company	42.5		%	44.2		%			42.0		%	44.2		%			Total Company	44.2		%	42.7		%
Percentage by sales classification																	Percentage by sales classification
Total Company - Product	35.4		%	33.6		%			33.5		%	35.0		%			Total Company - Product	35.4		%	33.4		%
Total Company - Service	51.6		%	55.5		%			52.4		%	54.5		%			Total Company - Service	53.4		%	53.6		%
Oncology Systems - Product	37.1		%	35.2		%			36.0		%	37.0		%			Oncology Systems - Product	36.1		%	35.8		%
Oncology Systems - Service	51.7		%	56.0		%			52.5		%	55.1		%			Oncology Systems - Service	53.7		%	53.2		%


Gross orders by segment	Three Months Ended						Nine Months Ended						Gross orders by segment	Three Months Ended
(Dollars in millions)	June 28, 2019		June 29, 2018		Percent Change		June 28, 2019		June 29, 2018		Percent Change		(Dollars in millions)	January 3, 2020		December 28, 2018		Percent Change
Oncology Systems	$	778.3	$	763.3	2	%	$	2,261.0	$	2,047.3	10	%	Oncology Systems	$	773.8	$	716.5	8	%
Proton Solutions	111.3		3.8		n/m		121.2		51.9		134	%	Proton Solutions	25.9		5.2		399	%
Other	2.0		—		n/m		2.0		—		n/m		Other	18.9		—		n/m
Total Gross Orders	$	891.6	$	767.1	16	%	$	2,384.2	$	2,099.2	14	%	Total Gross Orders	$	818.6	$	721.7	13	%


Gross orders by geographical region	Three Months Ended
(Dollars in millions)	January 3, 2020		December 28, 2018		Percent Change		Constant Currency
Americas	$	359.5	$	335.9	7	%	7	%
EMEA	236.7		218.3		8	%	11	%
APAC	177.6		162.3		9	%	9	%
Total Oncology Systems Gross Orders	$	773.8	$	716.5	8	%	9	%

North America	$	326.8	$	313.5	4	%	4	%
International	447.0		403.0		11	%	12	%
Total Oncology Systems Gross Orders	$	773.8	$	716.5	8	%	9	%


	Trailing 12 Months Ended					Trailing 12 Months Ended
	June 28, 2019	March 29, 2019	December 28, 2018	September 28, 2018		January 3, 2020	September 27, 2019	June 28, 2019	March 29, 2019
Americas	6%	8%	7%	5%	Americas	6%	7%	6%	8%
EMEA	13%	18%	16%	17%	EMEA	11%	12%	13%	18%
APAC	22%	20%	13%	9%	APAC	6%	9%	22%	20%
North America	6%	9%	5%	3%	North America	6%	8%	6%	9%
International	15%	17%	16%	15%	International	9%	10%	15%	17%
Total Oncology Systems Gross Orders	11%	13%	11%	9%	Total Oncology Systems Gross Orders	8%	9%	11%	13%


◦	~~Trade and unbilled receivables increased $77.7 million primarily due to an increase in revenues in Oncology Systems.~~


◦	~~Inventory increased $78.4 million primarily to support a higher volume of orders in Oncology Systems.~~


◦	~~Prepaid expenses and other assets increased $26.9 million primarily due to an increase in prepaid taxes.~~


◦	~~Accounts payable increased $29.9 million primarily due to timing of payments.~~


◦	~~Accrued liabilities and other long-term liabilities decreased $24.4 million, primarily due to the timing of income tax payments and payments processed for accrued compensation.~~


◦	~~Deferred revenues increased $54.9 million primarily due to an increase in billing ahead of revenue recognition resulting from changes in the mix of contractual billing terms.~~



(In millions, except for percentages)	Fair Value		Interest Rate
MPTC Series B-1 Bonds	$	26.6	7.5	%
MPTC Series B-2 Bonds	$	24.5	8.5	%
APTC securities	$	6.4	8.5	%


~~(b)~~	~~Changes in internal control over financial reporting.~~ There were no changes in our internal control over financial reporting that occurred during the third quarter of fiscal year 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(Dollars in millions)

June 28, 2019

2018 Revolving Credit Facility

Total short-term borrowings