UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________________
FORM 10-Q
 ____________________________________________________________
ý☒QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2017April 3, 2020
or
¨☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-7598
  _____________________________________________________________________________________________________________ 
VARIAN MEDICAL SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
 ____________________________________________________________ 
Delaware94-2359345
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
3100 Hansen Way,
Palo Alto, CaliforniaCalifornia
94304-1038
(Address of principal executive offices)(Zip Code)
(650) 493-4000
(Registrant’s telephone number, including area code)
 _______________________________________________________________________________________________________________________ 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1 par valueVARNew 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 filerFilerx☒Accelerated filero☐
Non-Accelerated filer
o  (Do not check if a smaller reporting company)
☐		Smaller reporting companyo☐
Emerging growth companyo☐
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 ý☒
IndicateAs of May 1, 2020, the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 91,300,252registrant had 90,814,945 shares of common stock, par value $1 per share, outstanding as of January 26, 2018.
outstanding.



1

VARIAN MEDICAL SYSTEMS, INC.
FORM 10-Q for the Quarter Ended December 29, 2017April 3, 2020
INDEX
 
Part I.
3
Part I.Item 1.
3
Item 1.
Unaudited Financial Statements
3
3
4
5
6
7
79
Item 2.
4136
Item 3.
6154
Item 4.
6355
Part II.
6455
Item 1.
6455
Item 1A.
6455
Item 2.
6657
Item 3.
6657
Item 4.
6657
Item 5.
6657
Item 6.
6758
6859



2

PART I
FINANCIAL INFORMATION


Item 1. Unaudited Financial Statements


VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(Unaudited)


 Three Months EndedSix Months Ended
 April 3,March 29,April 3,March 29,
(In millions, except per share amounts)2020201920202019
Revenues:  
Product$407.3  $430.5  $828.3  $830.7  
Service387.2  348.9  795.1  689.7  
Total revenues794.5  779.4  1,623.4  1,520.4  
Cost of revenues:      
Product263.1  294.4  535.0  561.0  
Service194.2  166.8  384.4  325.1  
Total cost of revenues457.3  461.2  919.4  886.1  
Gross margin337.2  318.2  704.0  634.3  
Operating expenses:      
Research and development71.0  59.4  138.1  120.3  
Selling, general and administrative175.3  146.8  352.3  287.9  
Impairment charges40.5  —  40.5  —  
Acquisition-related expenses (benefits)(4.5) 2.2  8.2  4.6  
Total operating expenses282.3  208.4  539.1  412.8  
Operating earnings54.9  109.8  164.9  221.5  
Interest income3.1  4.0  6.1  7.9  
Interest expense(4.3) (1.0) (9.0) (2.2) 
Other income (expense), net(0.9) 0.2  3.5  23.2  
Earnings before taxes52.8  113.0  165.5  250.4  
Taxes on earnings9.7  24.6  33.5  58.1  
Net earnings43.1  88.4  132.0  192.3  
Less: Net earnings (loss) attributable to noncontrolling interests(0.1) (0.2) 0.6  0.5  
Net earnings attributable to Varian$43.2  $88.6  $131.4  $191.8  
Net earnings per share - basic$0.48  $0.97  $1.45  $2.11  
Net earnings per share - diluted$0.47  $0.96  $1.43  $2.09  
Shares used in the calculation of net earnings per share:
Weighted average shares outstanding - basic90.7  91.0  90.8  91.0  
Weighted average shares outstanding - diluted91.4  91.9  91.6  92.0  
 Three Months Ended
 December 29, December 30,
(In millions, except per share amounts)2017 2016
Revenues:   
Product$365.6
 $309.2
Service312.9
 292.3
Total revenues678.5
 601.5
Cost of revenues:   
Product223.9
 206.2
Service151.8
 128.3
Total cost of revenues375.7
 334.5
Gross margin302.8
 267.0
Operating expenses:   
Research and development55.9
 49.9
Selling, general and administrative125.5
 161.4
Impairment charges—
 38.3
Total operating expenses181.4
 249.6
Operating earnings121.4
 17.4
Interest income3.2
 4.8
Interest expense(2.1) (2.9)
Earnings from continuing operations before taxes122.5
 19.3
Taxes on earnings234.7
 11.3
Net earnings (loss) from continuing operations(112.2) 8.0
Net earnings from discontinued operations—
 6.5
Net earnings (loss)(112.2) 14.5
Less: Net earnings attributable to noncontrolling interests0.1
 0.6
Net earnings (loss) attributable to Varian$(112.3) $13.9
    
Net earnings (loss) per share - basic   
Continuing operations$(1.22) $0.08
Discontinued operations—
 0.07
Net earnings (loss) per share - basic$(1.22) $0.15
    
Net earnings (loss) per share - diluted   
Continuing operations$(1.22) $0.08
Discontinued operations—
 0.07
Net earnings (loss) per share - diluted$(1.22) $0.15
    
Shares used in the calculation of net earnings per share:   
Weighted average shares outstanding - basic91.6
 93.5
Weighted average shares outstanding - diluted91.6
 94.2

See accompanying notes to the condensed consolidated financial statements.

3


VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
(Unaudited)
 
 Three Months Ended
 December 29, December 30,
(In millions)2017 2016
Net earnings (loss)$(112.2) $14.5
Other comprehensive earnings (loss), net of tax:   
Defined benefit pension and post-retirement benefit plans:   
Amortization of prior service cost included in net periodic benefit cost, net of tax benefit of $0.1 and $0.1(0.2) (0.1)
Amortization of net actuarial loss included in net periodic benefit cost, net of tax expense of ($0.2) and ($0.2)0.5
 0.9
 0.3
 0.8
Derivative instruments:   
Change in unrealized loss, net of tax benefit of $0.1 and $0.0(0.2) —
Reclassification adjustments, net of tax expense of $0.0 and $0.0(0.1) —
 (0.3) —
Currency translation adjustment3.1
 (13.1)
Other comprehensive earnings (loss)3.1
 (12.3)
Comprehensive earnings (loss)(109.1) 2.2
Less: Comprehensive earnings attributable to noncontrolling interests0.1
 0.6
Comprehensive earnings (loss) attributable to Varian$(109.2) $1.6
 Three Months EndedSix Months Ended
 April 3,March 29,April 3,March 29,
(In millions)2020201920202019
Net earnings$43.1  $88.4  $132.0  $192.3  
Other comprehensive earnings (loss), net of tax:
Defined benefit pension and post-retirement benefit plans:
Amortization of prior service cost included in net periodic benefit cost, net of tax benefit of $0.1 and $0.1, for three and six months ended April 3, 2020, respectively, and $0.1 and $0.1, for the corresponding periods of fiscal year 2019, respectively(0.1) (0.1) (0.3) (0.3) 
Amortization of net actuarial loss included in net periodic benefit cost, net of tax expense of $(0.1) and $(0.3), for three and six months ended April 3, 2020, respectively, and $(0.1) and $(0.2), for the corresponding periods of fiscal year 2019, respectively0.9  0.4  1.8  0.9  
 0.8  0.3  1.5  0.6  
Derivative instruments:            
Change in unrealized loss, net of tax expense of $(0.6) and $(0.6), respectively2.1  —  2.0  —  
Reclassification adjustments, net of tax benefit of $0.2 and $0.4, respectively(0.9) —  (1.5) —  
1.2  —  0.5  —  
Currency translation adjustment(6.8) (3.1) (1.7) (7.1) 
Other comprehensive earnings (loss)(4.8) (2.8) 0.3  (6.5) 
Comprehensive earnings38.3  85.6  132.3  185.8  
Less: Comprehensive earnings (loss) attributable to noncontrolling interests(0.1) (0.2) 0.6  0.5  
Comprehensive earnings attributable to Varian$38.4  $85.8  $131.7  $185.3  
 
* Tax expense or benefit related to the periods presented are not material.

See accompanying notes to the condensed consolidated financial statements.

4


VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 April 3,September 27,
(In millions, except par values)20202019
Assets  
Current assets:  
Cash and cash equivalents$667.8  $531.4  
Trade and unbilled receivables, net of allowance for doubtful accounts of $48.9 and $46.5 at April 3, 2020 and September 27, 2019, respectively1,004.8  1,106.3  
Inventories604.0  551.5  
Prepaid expenses and other current assets224.3  206.2  
Total current assets2,500.9  2,395.4  
Property, plant and equipment, net341.9  311.5  
Operating lease right-of-use assets123.8  —  
Goodwill614.7  612.2  
Intangible assets281.6  300.7  
Deferred tax assets93.6  84.7  
Other assets387.4  397.2  
Total assets$4,343.9  $4,101.7  
Liabilities and Equity
Current liabilities:
Accounts payable$198.4  $248.5  
Accrued liabilities433.2  459.5  
Deferred revenues798.1  766.0  
Short-term borrowings520.0  410.0  
Total current liabilities1,949.7  1,884.0  
Long-term lease liabilities100.4  —  
Other long-term liabilities423.1  440.1  
Total liabilities2,473.2  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 April 3, 2020 and September 27, 2019, respectively90.7  90.8  
Capital in excess of par value878.2  845.6  
Retained earnings993.7  934.0  
Accumulated other comprehensive loss(101.8) (102.1) 
Total Varian stockholders' equity1,860.8  1,768.3  
Noncontrolling interest9.9  9.3  
Total equity1,870.7  1,777.6  
Total liabilities and equity$4,343.9  $4,101.7  
 December 29, September 29,
(In millions, except par values)2017 2017
Assets   
Current assets:   
Cash and cash equivalents$822.6
 $716.2
Trade and unbilled receivables, net of allowance for doubtful accounts of $42.6 at December 29, 2017 and $45.9 at September 29, 2017880.1
 961.5
Inventories431.4
 417.7
Prepaid expenses and other current assets206.2
 190.3
Current assets of discontinued operations11.3
 11.1
Total current assets2,351.6
 2,296.8
Property, plant and equipment, net250.4
 255.3
Goodwill223.4
 222.6
Intangible assets65.6
 71.6
Deferred tax assets112.8
 147.3
Other assets296.0
 300.8
Total assets$3,299.8
 $3,294.4
Liabilities and Equity   
Current liabilities:   
Accounts payable$152.0
 $162.3
Accrued liabilities350.0
 374.9
Deferred revenues772.3
 755.4
Short-term borrowings340.0
 350.0
Current liabilities of discontinued operations2.1
 2.5
Total current liabilities1,616.4
 1,645.1
Other long-term liabilities292.4
 127.4
Total liabilities1,908.8
 1,772.5
Commitments and contingencies (Note 9)
 
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; 91.6 and 91.7 shares issued and outstanding at December 29, 2017, and at September 29, 2017, respectively91.6
 91.7
Capital in excess of par value740.5
 716.1
Retained earnings620.2
 778.6
Accumulated other comprehensive loss(65.7) (68.8)
Total Varian stockholders' equity1,386.6
 1,517.6
Noncontrolling interests4.4
 4.3
Total equity1,391.0
 1,521.9
Total liabilities and equity$3,299.8
 $3,294.4

See accompanying notes to the condensed consolidated financial statements.

5



VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 Six Months Ended
 April 3,March 29,
(In millions)20202019
Cash flows from operating activities:  
Net earnings$132.0  $192.3  
Adjustments to reconcile net earnings to net cash provided by operating activities:      
Share-based compensation expense26.2  23.0  
Depreciation29.9  25.8  
Amortization of intangible assets and inventory step-up19.7  11.4  
Deferred taxes(8.7) 7.4  
Provision to allowance for doubtful accounts3.7  4.0  
Gain on sale of equity investments(1.4) (21.8) 
Impairment charges40.5  —  
Other, net(1.1) 0.3  
Changes in assets and liabilities, net of effects of acquisitions:   
Trade and unbilled receivables49.9  (58.6) 
Inventories(53.7) (41.9) 
Prepaid expenses and other assets(18.6) (19.3) 
Accounts payable(54.7) 23.7  
Accrued liabilities and other long-term liabilities(62.6) (74.2) 
Deferred revenues33.4  55.4  
Net cash provided by operating activities134.5  127.5  
Cash flows from investing activities:      
Purchases of property, plant and equipment(37.0) (25.2) 
Acquisitions, net of cash acquired(8.4) (25.0) 
Purchase of equity investments—  (11.8) 
Sale of equity investments9.2  29.9  
Other, net—  (2.5) 
Net cash used in investing activities(36.2) (34.6) 
Cash flows from financing activities:      
Repurchases of common stock(86.2) (85.6) 
Proceeds from issuance of common stock to employees32.1  38.6  
Tax withholdings on vesting of equity awards(11.5) (13.9) 
Borrowings under credit facility agreement105.0  —  
Repayments under credit facility agreement(105.0) —  
Net borrowings under the credit facility agreements with maturities less than 90 days110.0  —  
Other(0.9) 4.0  
Net cash provided by (used in) financing activities43.5  (56.9) 
Effects of exchange rate changes on cash, cash equivalents, and restricted cash3.1  6.5  
Net increase in cash, cash equivalents, and restricted cash144.9  42.5  
Cash, cash equivalents, and restricted cash at beginning of period544.1  516.4  
Cash, cash equivalents, and restricted cash at end of period$689.0  $558.9  
 Three Months Ended
 December 29, December 30,
(In millions)2017 2016
Cash flows from operating activities:   
Net earnings (loss)$(112.2) $14.5
Adjustments to reconcile net earnings to net cash provided by operating activities: 
  
Share-based compensation expense10.7
 11.5
Depreciation12.8
 17.2
Amortization of intangible assets6.3
 5.1
Deferred taxes44.9
 (20.9)
Provision for doubtful accounts receivable1.5
 38.1
Impairment charges—
 38.3
Other, net(0.8) (0.6)
Changes in assets and liabilities: 
  
Trade and unbilled receivables65.9
 32.4
Inventories(11.7) (30.1)
Prepaid expenses and other assets28.2
 (10.1)
Accounts payable(10.3) (20.7)
Accrued liabilities and other long-term liabilities125.1
 (20.3)
Deferred revenues18.6
 27.8
Net cash provided by operating activities179.0
 82.2
Cash flows from investing activities: 
  
Purchases of property, plant and equipment(9.3) (17.2)
Issuance of notes receivable—
 (11.4)
Investment in available-for-sale securities(6.0) (0.6)
Loans to CPTC(4.6) —
Escrow deposit(2.6) —
Investment in privately-held company(2.5) —
Amounts paid to deferred compensation plan trust account(1.3) (3.4)
Principal payments on notes receivable0.5
 —
Other, net—
 0.8
Net cash used in investing activities(25.8) (31.8)
Cash flows from financing activities: 
  
Repurchases of common stock(56.7) (49.5)
Proceeds from issuance of common stock to employees24.2
 16.1
Employees' taxes withheld and paid for restricted stock and restricted stock units(0.3) (1.2)
Borrowings under credit facility agreement166.4
 10.0
Repayments under credit facility agreement(166.4) (10.0)
Net (repayments) borrowings under the credit facility agreements with maturities less than 90 days(10.0) (55.0)
Net cash used in financing activities(42.8) (89.6)
Effects of exchange rate changes on cash and cash equivalents(4.0) 10.4
Net increase (decrease) in cash and cash equivalents106.4
 (28.8)
Cash and cash equivalents at beginning of period *716.2
 843.5
Cash and cash equivalents at end of period *$822.6
 $814.7
* Cash and cash equivalents includes $32.7 million at December 30, 2016 classified as discontinued operations. See Note 2, "Discontinued Operations" for more information.
See accompanying notes to the condensed consolidated financial statements.

6


VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited)
 Common Stock    
(In millions)SharesAmountCapital in Excess of Par ValueRetained EarningsAccumulated Other Comprehensive LossTotal Varian Stockholders' EquityNoncontrolling InterestsTotal Equity
Balance at September 27, 201990.8  $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 stock0.3  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, 202090.7  $90.7  $870.4  $983.2  $(97.0) $1,847.3  $10.0  $1,857.3  
Net earnings (loss)—  —  —  43.2  —  43.2  (0.1) 43.1  
Other comprehensive loss—  —  —  —  (4.8) (4.8) —  (4.8) 
Issuance of common stock0.3  0.3  11.0  —  —  11.3  —  11.3  
Tax withholdings on vesting of equity awards—  —  (7.9) —  —  (7.9) —  (7.9) 
Share-based compensation expense—  —  11.5  —  —  11.5  —  11.5  
Repurchases of common stock(0.3) (0.3) (6.8) (32.7) —  (39.8) —  (39.8) 
Balances at April 3, 202090.7  $90.7  $878.2  $993.7  $(101.8) $1,860.8  $9.9  $1,870.7  

7

 Common Stock    
(In millions)SharesAmountCapital in Excess of Par ValueRetained EarningsAccumulated  Other Comprehensive LossTotal Varian Stockholders' EquityNoncontrolling InterestsTotal Equity
Balances at September 28, 201891.2  $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 stock0.3  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, 201891.2  $91.2  $799.3  $855.5  $(69.0) $1,677.0  $5.0  $1,682.0  
Net earnings—  —  —  88.6  —  88.6  (0.2) 88.4  
Other comprehensive loss—  —  —  —  (2.8) (2.8) —  (2.8) 
Issuance of common stock0.5  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, 201991.2  $91.2  $813.6  $902.3  $(71.8) $1,735.3  $4.8  $1,740.1  

See accompanying notes to the condensed consolidated financial statements.

8

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 transform the Company from the global leader in radiation therapy to the global leader in multi-disciplinary, integrated cancer care solutions that leverages its clinical experience and strengths in technology development and new product innovation. The Company offers solutions in radiation therapy and medical oncology, as well as interventional oncology, an emerging area of 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.brachytherapy, and offers products for interventional oncology procedures and treatments, including cryoablation, microwave ablation and embolization. Software solutions also include treatment planning, informatics, software for information management, clinical knowledge exchange, patient care management, practice management and decision-makingdecision 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.
Distribution
On January 28, 2017 (the "Distribution Date"),The Company has expanded its 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 at facilitating improved accessibility and affordability to care while maintaining a fundamental level of clinical quality. Further, the Company completed the separationoperates 12 multi-disciplinary cancer centers and distribution (the "Distribution") of Varex Imaging Corporation ("Varex"), the Company's former Imaging Components business segment. On the Distribution Date, each of Varian's stockholder of record as of the close of business on January 20, 2017 (the "Record Date") received 0.4 of a share of Varex common stock for every one share of Varian common stock as of the Record Date. Varex is now an independent publicly traded company1 specialty hospital in India and is listed on The NASDAQ Global Select Market under the ticker “VREX.” Varian continues to trade on the New York Stock Exchange under the ticker “VAR.” See Note 2, "Discontinued Operations" for additional information.1 multi-disciplinary cancer 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 29, 201727, 2019 (the “2017“2019 Annual Report”).

The Company is subject to risks and uncertainties as a result of the COVID-19 pandemic and the extent and duration of the future impact on the Company's business is highly uncertain and difficult to predict. The COVID-19 pandemic has adversely impacted, and is likely to further adversely impact, nearly all aspects of the Company’s business and markets, including its workforce and operations and the operations of its customers, suppliers, distributors and business partners. The full extent to which the pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, manufacturing, research and development costs, reserves and allowances, fair value measurements, asset impairment charges, contingent consideration obligations and the effectiveness of the Company's hedging instruments, will depend on future developments that are highly uncertain and difficult to predict.

The Company has approximately $1.3 billion in accessible liquidity, including approximately $668 million in cash and cash equivalents and approximately $661 million available under its $1.2 billion revolving credit facility. To date, the Company has not experienced a significant decline in customer credit quality or a significant increase in requests for changes or extension of payment terms as a result of COVID-19, although management will continue to closely monitor these metrics going forward. Furthermore, the Company's ability to estimate and make certain judgments may be materially impacted by the uncertainty caused by the pandemic. As of the date of issuance of these condensed consolidated financial statements, the extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

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 December 29, 2017April 3, 2020, and September 29, 2017,27, 2019, results of operations and statements of comprehensive earnings (loss) for the three and six months ended DecemberApril 3, 2020, and March 29, 2017 and December 30, 2016, and2019, statements of cash flows for the threesix months ended DecemberApril 3, 2020, and March 29, 20172019, and December 30, 2016.statements of equity for the six months ended April 3, 2020, and March 29, 2019. The results of operations for the threesix months
9
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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ended December 29, 2017April 3, 2020, are not necessarily indicative of the operating results to be expected for the full fiscal year or any future period.
At the beginning of the Company's fiscal year 2018, the Company early adopted the new revenue recognition Accounting Standard Codification 606 "Revenues from Contracts with Customers" ("ASC 606") by using the full retrospective method. All financial statements and disclosuresReclassifications
Certain reclassifications have been recast to comply with ASC 606. See "Recently Adopted Accounting Pronouncements" below for further information.

The historical financial position and results of operations of the Imaging Components business and costs relatingmade to the Distribution are reportedamounts in the condensed consolidated financial statements as discontinued operations for all the periods presented. Informationprior year in the accompanying notesorder to conform to the condensed consolidated financial statements have been recast to reflect the effect of the Distribution. The Condensed Consolidated Statements of Comprehensive Earnings and Cash Flows have not been recast to reflect the effect of the Distribution.



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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 20182020 is the 52-week53-week period ending September 28, 2018.October 2, 2020. Fiscal year 20172019 was the 52-week period that ended on September 29, 2017.27, 2019. The fiscal quarters ended DecemberApril 3, 2020 and March 29, 2017 and December 30, 20162019, were both 13-week periods.
Principles of Consolidation
The condensed consolidated financial statements include those of VMS and its wholly-owned and majority-owned or controlled subsidiaries. Intercompany balances, transactions and stock holdings have been eliminated in consolidation.
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 April 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 statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
Due to the COVID-19 pandemic, the Company is subject to a greater degree of uncertainty than normal in making the judgments and estimates needed to apply its significant accounting policies, such as impairment of goodwill and intangibles and the impairment of investments and loans receivables. As the COVID-19 pandemic and responsive actions continue to develop, management may make changes to these estimates and judgments, which could result in material impacts to the Company's financial statements in future periods.

Significant Accounting Policies
TheWith 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 are detailedprovided in "Note 1: SummaryNote 1, "Summary of Significant Accounting Policies"Policies," within Item 8 of the Company's Annual Report on Form 10-K for the year ended September 29, 2017. Significant changes to these accounting policies as a result of adoption of ASC 606 are discussed below:27, 2019.
Revenue Recognition

Leases
The Company's revenues are derived primarily from the sale of radiotherapy and proton therapy hardware and software products, support, training and maintenance of all those products, installation services and the sale of parts.


The Company accounts fordetermines if an arrangement is or contains a contract with a customer when there's approval and commitment from both parties,lease at the rightsinception of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of consideration is probable.

an arrangement. The Company's revenuesoperating lease right-of-use ("ROU") assets represents the right to use an underlying asset over the lease term and 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 measuredrecognized based on consideration specified in the contract with each customer, netpresent value of any sales incentives and amounts collected on behalf of third parties such as sales taxes.lease payments over the lease term, discounted using the Company's incremental borrowing rate ("IBR"). The Company recognizes revenues as the performance obligations are satisfied by transferring controloperating leases with lease terms of the product or service to a customer.more than 12 months in operating lease right-of-use assets, accrued liabilities, and long-term lease liabilities on its Condensed Consolidated Balance Sheets.


The majority of the Company's revenueCompany’s finance leases primarily represent certain sale and leaseback-sublease arrangements. The Company has entered into sale-leaseback arrangements consist of multiple performance obligations including hardware, software, and services. Determining the stand-alone selling price ("SSP") and allocation of consideration from an arrangement to the individual performance obligations, and the appropriate timing of revenue recognition are significant judgments with respect to these arrangements.

The Company's products are generally not sold with a right of returnthird-party finance company for certain equipment and simultaneously subleased the Company does not provide credits or incentives, which may be required to be accounted for as variable consideration when estimating the amount of revenue to be recognized.

10
The Company recognizes an asset for the incremental costs of obtaining a contract with a customer if the Company expects the benefit of those costs to be longer than one year. The Company applies a practical expedient to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less. These costs mainly include the Company's internal sales force compensation program; under the terms of these programs these are generally earned and the costs are recognized at the time the revenue is recognized.

The majority of the Company’s products and services are sold in bundled arrangements (e.g., hardware, software, and services). For bundled arrangements, the Company accounts for individual products and services separately if they are distinct, that is, if a product or service is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration (including any discounts) is allocated between separate products and services in a bundle based on their individual SSP. The SSP is determined based on observable prices at which the Company separately sells the products and services. If an SSP is not directly observable, then the Company
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equipment to certain qualified customers. The Company’s leaseback arrangements have been accounted for as finance leases as they meet one or more of the finance lease classification criteria. The Company recognizes finance leases with lease terms of more than 12 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 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 IBR. The Company uses different data sets to estimate the SSP considering marketing conditions, entity-specific factors, and information about the customer or class of customer that is reasonably available.

The following is a descriptionIBR, including: (i) an estimated indicative credit rating of the principal activities, separatedCompany; (ii) yields on comparable credit rating composite curves; (iii) foreign exchange rates; and (iv) an estimated adjustment for collateral. The Company also applies adjustments to account for considerations related to (i) tenor; and (ii) country credit rating that may not be fully incorporated by reportable segment, from which the Company generates its revenues.aforementioned data sets.


Oncology Systems
The Company's Oncology Systems linear accelerators are generally sold in a bundled arrangement with hardware and software accessory products that enhance efficiency and enable delivery of advanced radiotherapy and radiosurgery treatments, however, certain products are occasionally sold on a stand-alone basis. The majority of machine and software sales include installation services and training. Delivery of different elements in a revenue arrangement often span more than one reporting period. For example, a linear accelerator and software may be delivered in one reporting period, but the related installation of those products may be completed in a later period. Hardware and software extended maintenance and service contracts are occasionally sold during the initial product sale, but the majority are sold separately near or at the endCertain of the initial warranty period. Revenues related to extended warrantyCompany’s lease arrangements include variable lease payments. Variable lease payments, not dependent on an index or discount rate, are expensed as incurred and service contracts are earned afternot included within the expiration of the initial warranty period.

Payment termsROU asset and conditions vary by contract type, although, terms arelease liability calculation. Variable lease payments generally commensurate with a significant milestone, such as contract signing, shipment, delivery, acceptance or service commencement. In instances where the timing of revenue recognition differs from the timing of invoicing, the Company has determined its contracts generally do not include a significant financing component. The primary purposecommon area maintenance, utilities, maintenance charges, property taxes, insurance, and contingent rent payments. Certain of the Company's invoicing termsarrangements contain clauses that provide for contingent rent payments based on a percentage of revenue share and/or earnings before interest, taxes, depreciation and amortization.

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 12 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 customers with simplifiedenhanced transparency and predictable wayscomparability 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 purchasingpractical 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 products and services, not to receive financing fromcondensed consolidated financial statements.
In the Company's customers, such as invoicing atfirst quarter of fiscal year 2020, the beginning of a contract term with revenue recognized ratably overCompany adopted FASB guidance that added the contract period for a service contract. Payment terms can also varyOvernight Index Swap rate based on the type of customer, suchSecured Overnight Financing Rate ("SOFR") as government purchases. There are occasions wherea benchmark interest rate for hedge accounting purposes. The amendment recognizes SOFR as a likely LIBOR replacement and supports the Company provides extended payment terms in which casemarketplace transition by adding the new reference rate as a portion of the transaction price is allocated to imputedbenchmark interest income.

From time to time, the Company's contracts are modified to account for additional, or change existing, performance obligations. The Company's contract modifications are generally accounted for prospectively.

Hardware Products and Installation
Hardware products may include software that the hardware is dependent on and highly interrelated with and cannot operate without.rate. The Company typically has a standard base configuration for its hardware products,not executed interest rate hedges but there are typically multiple options and configuration choices. Revenues fromadopted the sale of hardware are recognized when the Company transfers control to the customer.

Product installation includes uncrating, moving the machine to the treatment room, connection and validating configuration. In addition, a number of testing protocols are completed to confirm the equipment is performing to the contracted specifications. The Company recognizes revenues for hardware installation over time as the customer receives and consumes benefits providedamendment prospectively as the Company performsmay consider interest rate hedges in the installation services.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.
Software Products and InstallationRecent Accounting Standards or Updates Not Yet Effective
Software products include information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software. Software installation includes transferring softwareIn December 2019, the FASB issued guidance which simplifies the accounting for income taxes by removing certain exceptions to the customer’s computers, configurationcurrent guidance and improving the consistent application of and simplification of other areas of the software and potentially data migration.guidance. The standard is effective for the Company beginning in the first quarter of fiscal year 2022. Early adoption is permitted. The Company recognizes revenues for software and software installation uponis evaluating the customer's acceptanceimpact of the software and installation services.adopting this guidance to its condensed consolidated financial statements.

11
Service
Service revenues include revenues from initial and extended software support agreements, extended hardware warranty agreements, training, paid service arrangements when a customer does not have an extended warranty and parts that are sold by the service department.

Revenues from hardware and software support agreements are accounted for ratably over the term of the agreement. Services and training revenues are recognized in the period the services and training are performed. Revenues for sales of parts are recognized when the parts are delivered to the customer and control is transferred.
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Warranties
The Company's saleIn August 2018, the FASB amended its guidance for costs of hardware includesimplementing a one-year warranty. The Company usescloud computing service arrangement and aligns the cost accrual method to accountrequirements for assurance-type warranties. The standard warranty provision further includes services in addition to an assurance-type warranty (preventative maintenance inspections, help desk support, when and if available operating system upgrades). These service-type warranty features are recorded as a separate performance obligation and recognized ratably over the one-year warranty period.

Varian Particle Therapy ("VPT")
The manufacturing of the major components of a proton therapy system, installation, and commissioning typically lasts 18 to 24 months. The Company's proton therapy system is highly customized. A proton therapy system typically includes hardware, software that the hardware is dependent upon and highly interrelated with, and without which the hardware cannot operate, and installation. The Company also sells software products that include information management, treatment planning, image processing, clinical knowledge exchange, patient care management, decision-making support, and practice management software, and software installation.

The Company provides operations and maintenance services related to the proton therapy system under a separate arrangement. These contracts are typically executed at or about the same time as the proton therapy system contracts, however, the pricing and performance of the proton therapy system contracts are not typically related to the pricing or performance of the operations and maintenance contracts. Therefore, the Company recognizes operations and maintenance services as a separate performance obligation.

Under the typical payment terms of the Company's fixed-price contracts, the customer pays the Company an up-front advance payment and then performance-based payments based on quantifiable measures of performance or on the achievement of specified events or milestones. As the revenue is recognized over time relative to thecapitalizing implementation costs incurred and the customer billing milestones are typically event driven this may result in revenue recognized in excess of billings at some point during the contract which the Company presents as unbilled receivables on the Condensed Consolidated Balance Sheets. Amounts billed and due from the Company's customers are classified as trade accounts receivable on the Condensed Consolidated Balance Sheets. In most contracts, the Companya hosting arrangement that is entitled to receive an advance payment at the beginning of the contract. The Company recognizes a liability for these advance payments in excess of revenue recognized and presents it as deferred revenues on the Condensed Consolidated Balance Sheets. The advance payment typically is not considered a significant financing component because it is used to ensure the customer's commitment to the project.

The Company recognizes revenue for its proton therapy systems over time because the customer controls the work in process, the Company's performance does not create an asset with an alternative use to the Company, and the Company has an enforceable right to payment for performance completed to date.

Due to the nature of the work required to be performed on many of the Company's performance obligations, the estimation of total revenues and costs at completion is complex, subject to many variables and requires significant judgment. The Company's contracts generally do not include award fees, incentive fees or other provisions that may be considered as a variable consideration.

The Company has a standard quarterly progress review process in which management reviews the progress and execution of the Company's performance obligations. As part of this process, management reviews information including, but not limited to, any outstanding key contract matters, progress towards completion and the related program schedule, identified risks and the related changes in estimates of revenues and costs. The risks and opportunities include management's judgment about the ability and costs to achieve the schedule (e.g., the number and type of milestone events), technical and other contract requirements. Management must make assumptions and estimates regarding the complexity of the work to be performed, the availability of materials and outside services, the length of time to complete the performance obligation and labor and overhead cost rates, among other significant judgments. Based on this analysis, any quarterly adjustments to revenues, cost of revenues, and the related impact to operating earnings are recognized as necessary in the period they become known on a cumulative catch-up basis. When estimates of total costs to be incurred on a performance obligation exceed total estimates of revenues to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Similar to the Oncology Systems segment, the Company recognizes VPT revenues for software and installation upon completion and acceptance of the software and installation services.
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Unfulfilled Performance Obligations for Oncology Systems and VPT
The following table represents the Company's unfulfilled performance obligations as of December 29, 2017 and the estimated revenue expected to be recognized in the future related to these performance obligations:
 Fiscal years of revenue recognition
(In millions)2018 2019 2020 Thereafter
Unfulfilled Performance Obligations$1,588.2
 $1,857.4
 $697.4
 $1,384.6

The table above includes both product and service unfulfilled performance obligations, which includes a component of service performance obligations which have not been invoiced. The time bands 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.

As part of the Company's adoption of ASC 606, the Company elected to use the following practical expedients (i) to exclude disclosures of transaction prices allocated to remaining performance obligations when the Company expects to recognize such revenue for all periods prior to the date of initial application of ASC 606 (ii) not to adjust the promised amount of consideration for the effects of a significant financing component when the Company expects, at contract inception, that the period between the Company's transfer of a promised product or service to a customer and when the customer pays for that product or service will be one year or less (iii) to expense costs as incurred for costs to obtain a contract when the amortization period would have been one year or less, which mainly includes the Company's internal sales force compensation program and certain partner sales incentive programs (iv) not to recast revenue for contracts that begin and end in the same fiscal period, and (v) not to assess whether promised goods or services are performance obligations if they are immaterial in the context of the contract with the customer.

Contract Balances

The timingrequirements 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 revenue recognition, billings and cash collections results in trade and unbilled receivables, and deferred revenues ona hosting arrangement that is a service contract over the Condensed Consolidated Balance Sheet. In Oncology Systems,term of the hosting arrangement. This new standard becomes effective for the Company often collects an advance payment and the balance is typically billed on a combination of delivery and/or acceptance. In VPT, the Company usually collects an advance payment and additional amounts are billed as work progresses in accordance with agreed-upon contractual terms upon achievement of contractual milestones. Service contracts are usually billed at the beginning of the contract period or at periodic intervals (e.g. monthly or quarterly) during the contract which could result in a contract asset and contract liability. At times, billing occurs subsequent to revenue recognition, resulting in an unbilled receivable which represents a contract asset. However, when the Company receives advances or deposits from customers, which can be higher in the initial stages of the contract, particularly international contracts in the case of Oncology Systems, before revenue is recognized, this results in deferred revenues which represents a contract liability. These contract assets and liabilities are reported as unbilled receivables and deferred revenues, respectively, on the Condensed Consolidated Balance Sheet on a contract-by-contract basis at the end of each reporting period.
Recently Adopted Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued ASC 606. Under the standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. Effective September 30, 2017, the Company elected to early adopt the requirements of ASC 606 using the full retrospective method, which required the Company to recast the prior reporting periods presented.
The most significant impacts on adoption were in the Oncology Systems segment and are primarily due to the removal of the contingent revenue cap which limited revenue recognition to the amount of cash received from the customer, the elimination of the mandatory revenue deferral for software sold with extended payment terms and the removal of the vendor-specific objective evidence requirement for the separation of bundled software products. The Company also identified additional performance obligations for training and certain elements of warranty that are recognized as separate performance obligations, and identified that certain new performance obligations were previously accounted for as part of hardware products and will result in a change in classification of revenues from product to service. In preparation for adoption of the standard, the Company has implemented internal controls and key system functionalities to enable the preparation of financial information.
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The Company has recast its condensed consolidated financial statements from amounts previously reported due to the adoption of ASC 606. Select Condensed Consolidated Statements of Earnings line items, which reflect the adoption of ASC 606 are as follows:
 Three Months Ended
 December 30, 2016
(In millions, except per share amounts)As Previously Reported Adjustments As Adjusted
Revenues:     
Product$343.6
 $(34.4) $309.2
Service268.2
 24.1
 292.3
Total revenues611.8
 (10.3) 601.5
Cost of revenues:     
Product224.4
 (18.2) 206.2
Service111.7
 16.6
 128.3
Total cost of revenues336.1
 (1.6) 334.5
Gross margin275.7
 (8.7) 267.0
Earnings from continuing operations before taxes28.0
 (8.7) 19.3
Taxes on earnings13.5
 (2.2) 11.3
Net earnings from continuing operations14.5
 (6.5) 8.0
Net earnings from discontinued operations6.5
 —
 6.5
Net earnings$21.0
 $(6.5) $14.5
Net earnings attributable to Varian$20.4
 $(6.5) $13.9
      
Diluted net earnings per share from continuing operations attributable to Varian$0.15
 $(0.07) $0.08
Select Condensed Consolidated Statements of Balance Sheet line items, which reflect the adoption of ASC 606 are as follows:
 September 29, 2017
(In millions)As Previously Reported Adjustments As Adjusted
Assets:     
Trade and unbilled receivables, net$823.5
 $138.0
 $961.5
Inventories439.7
 (22.0) 417.7
Prepaid expenses and other current assets199.8
 (9.5) 190.3
Deferred tax assets138.8
 8.5
 147.3
      
Liabilities and Equity:     
Accrued liabilities394.7
 (19.8) 374.9
Deferred revenues640.6
 114.8
 755.4
Other long-term liabilities130.0
 (2.6) 127.4
Retained earnings756.0
 22.6
 778.6
In addition, the cumulative effect of ASC 606 to the Company's retained earnings at October 2, 2015 was $56.7 million. Adoption of ASC 606 had no impact to net cash from or used in operating, investing or financing activities in the Company's Condensed Consolidated Statements of Cash Flows.
In the first quarter of fiscal year 2018, the Company elected to2021, with early adopt the FASB guidance which targeted improvements to the accounting for hedging activities. The guidance allows companies to more accurately present the economic effects of risk management activities in the financial statements.adoption permitted. This amendment is required tonew standard can be applied prospectively. The primary impact
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either retrospectively or prospectively to all implementation costs incurred after the date of the adoption is the required disclosure changes. The adoption of the new guidance did not have material impact on the Company's condensed consolidated financial statements.
In the first quarter of fiscal year 2018, the Company adopted the FASB guidance related to employee share-based payments. The amendment simplifies several aspects of the accounting for employee share-based payments including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company has elected to use the prospective transition method for the presentation of excess tax benefits on the statement of cash flows. Under the new standard, excess tax benefits are now included in taxes on earnings in the Consolidated Statement of Earnings. The Company elected to recognize forfeitures as they occur and the impact of this change in accounting policy was recorded as a $0.4 million reduction, net, to its beginning retained earnings balance as of September 30, 2017. See Note 11, "Income Taxes" for more information on the impact of this accounting guidance. The remaining provisions of this amendment did not have a material impact on the Company's condensed consolidated financial statements.
In the first quarter of fiscal year 2018, the Company adopted the FASB accounting guidance related to inventory measurement. The amendment requires inventory measured using first-in, first-out (FIFO) or average cost to be subsequently measured at the lower of cost and net realizable value, thereby simplifying the current guidance that requires an entity to measure inventory at the lower of cost or market. This amendment is required to be applied prospectively. The adoption of this new guidance did not have a material impact to the Company’s condensed consolidated financial statements.
In the first quarter of fiscal year 2018, the Company elected to early adopt the FASB guidance on the definition of a business in accounting for transactions when determining whether they represent acquisitions or disposals of assets or of a business. The Company adopted this amendment prospectively. The adoption of this new guidance did not have an impact to the Company’s condensed consolidated financial statements.
In the first quarter of fiscal year 2018, the Company elected to early adopt the FASB guidance simplifying the measurement of goodwill by eliminating the Step 2 impairment test. The new guidance requires companies to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The Company adopted this amendment prospectively. The adoption of this new guidance did not have an impact to the Company’s condensed consolidated financial statements.
Recent Accounting Standards or Updates Not Yet Effective
In May 2017, the FASB provided guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on its condensed consolidated financial statements.
In March 2017, the FASB amended its 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 be presented in the same line item as other employee compensation costs, while the other components be presented separately as non-operating income (expense). The amendment will be effective for the Company beginning in its first quarter of fiscal year 2019. Early adoption is permitted.adoption. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

In November 2016,August 2018, the FASB amended itsissued guidance onwhich modifies the classificationdisclosure requirements for employers that have sponsor defined benefit pension or other post-retirement plans by removing and presentation of restricted cash in the statement of cash flow.adding certain disclosures for these plans. The amendment requires entities to include restricted cash and restricted cash equivalents in its cash and cash equivalents in the statement of cash flows. The amendment will bestandard is effective for the Company beginning in itsthe first quarter of fiscal year 2019 with early adoption permitted. The amendment is required to be adopted retrospectively. The amendment is not expected to have a material impact to the Company’s condensed consolidated financial statements.
In October 2016, the FASB amended its guidance for tax accounting for intra-entity asset transfers. The amendment removes the prohibition against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2019.2022. Early adoption is permitted. The amendment is required to be adopted on a modified retrospective basis. The Company is evaluating the impact of adopting this amendmentguidance to its condensed consolidated financial statements.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


In August 2016,2018, the FASB issued an amendment to its accounting guidance related towhich changed the classification ofdisclosure requirements for fair value measurements by removing, adding and modifying certain cash receipts and cash payments.disclosures. The amendment was issued to reduce the diversity in practice in how certain transactions are classified in the statement of cash flows. The amendment will bestandard is effective for the Company beginning in itsthe first quarter of fiscal year 2019 with early2021. Early adoption permitted. The amendment is required to be adopted retrospectively unless it is impracticable.permitted. The Company is evaluating the impact of adopting this amendmentguidance to its condensed consolidated financial statements.

In June 2016, the FASB issued an amendment to its accounting guidance related to the impairment of financial instruments. The amendment adds a new impairment model that is based on expected losses, rather than incurred losses. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2021, with early adoption permitted beginning in the first quarter of fiscal year 2020. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
In February 2016,
2. OTHER FINANCIAL INFORMATION
Contracts with Customers
The following table provides the FASB issued a new standardCompany's unbilled receivables and deferred revenues from contracts with customers:
(In millions)April 3,
2020		September 27,
2019
Unbilled receivables - current$276.7  $346.7  
Unbilled receivables - long-term (1)
71.6  35.1  
Deferred revenues - current(798.1) (766.0) 
Deferred revenues - long-term (2)
(74.1) (73.1) 
Total net unbilled receivables (deferred revenues)$(523.9) $(457.3) 
(1)Included in other assets 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 leasethe Company's Condensed Consolidated Balance Sheets.
(2)Included in other long-term 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 new standard is required to be adopted using a modified retrospective method to each prior reporting period presented with various optional practical expedients. The new standard will be effective for the Company beginning in its first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the impact of adopting this new standard to its condensed consolidated financial statements.
In January 2016, the FASB issued an amendment to its accounting 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. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2019. The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.
2. DISCONTINUED OPERATIONS

On January 28, 2017, the Company completed the Distribution of Varex. In connection with the Distribution, the Company and Varex entered into a separation and distribution agreement as well as various other agreements that governs the relationships between the parties, including a transition services agreement, a tax matters agreement, an employee matters agreement, an intellectual property matters agreement, a trademark license agreement and supply/distribution agreements. The separation and distribution agreement and other agreements related to the separation were entered into on January 27, 2017. Services under the transition services agreement were for 60 days to 24 months following the Distribution Date, depending on the service provided.
On January 25, 2017, the Company entered into a term facility ("Varex Term Facility"), and on the same day drew down $203.0 million under the facility. In conjunction with the Distribution, the Company used $200.0 million of those proceeds to repay a portion of its outstanding 2013 Revolving Credit Facility. At the Distribution Date, the Company contributed $81.3 million in cash and cash equivalents to Varex as part of the distribution and transfer of certain legal entities. In fiscal year 2017, the Company received $38.7 million from Varex for excess cash and cash equivalents contributed at the Distribution Date. In fiscal year 2017, the Company recorded a $334.1 million reduction to retained earnings as a result of the Distribution of Varex, which included assets and liabilities transferred to Varex on the distribution date, including $203.0 million debt outstanding under the Varex Term Facility.
Following the Distribution, Varex retained a specified amount of cash that would enable Varex to pay the Company consideration for certain net assets outside of the United States that were required to be transferred to Varex but which did not occur on the Distribution Date due to not having received regulatory approvals for such transfers. Once those regulatory approvals are received, the Company will receive a cash payment from Varex in consideration for such net asset transfers. At December 29, 2017, the Company had $9.2 million in assets (net of liabilities) on itsCompany's Condensed Consolidated Balance Sheet relatedSheets.
During the six months ended April 3, 2020, unbilled receivables decreased by $33.5 million, primarily due to Varex net assetsthe timing of billings in Oncology Systems, and deferred revenues increased by $33.1 million, primarily due to be transferred. The Company expects the remaindercontractual timing of Varex's net assets will be transferred in fiscal year 2018. Ifbillings occurring before the revenues were recognized.
During the three months and six months ended April 3, 2020, the Company does not receiverecognized revenues of $162.4 million, and $476.9 million, respectively, which were included in the necessary regulatory approvals during a specified time period, Varex will be required to transfer such cash amounts to Varian.deferred revenues balances at September 27, 2019. During the three and six months ended March 29, 2019, the Company recognized revenues of $167.8 million and $431.2 million, respectively which were included in the deferred revenues balances at September 28, 2018.
The financial results of Varex are presented as net earnings from discontinued operations on the Condensed Consolidated Statements of Earnings, and primarily include the financial results of the Company's former Imaging Components operating segment and costs relating to the Distribution. Corporate costs previously allocated to the Company's Imaging Components
12
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


Unfulfilled Performance Obligations
operating segment are not includedThe following table represents the Company's unfulfilled performance obligations as of April 3, 2020, and the estimated revenues expected to be recognized in discontinued operations. See Note 16, "Segment Information" for more informationthe future related to corporate allocated costs.these unfulfilled performance obligations:
Fiscal Years of Revenue Recognition
(In millions)Remainder of 202020212022Thereafter
Unfulfilled Performance Obligations$1,174.3  $2,345.7  $1,006.5  $2,415.9  
The table above includes both product and service unfulfilled performance obligations, which includes a component of service performance obligations that has 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 key components of net earnings from discontinued operations:Company's cash, cash equivalents and restricted cash:
(In millions)April 3,
2020		September 27,
2019
Cash and cash equivalents$667.8  $531.4  
Restricted cash - current (1)
4.8  4.2  
Restricted cash - long-term (2)
16.4  8.5  
  Total cash, cash equivalents, and restricted cash$689.0  $544.1  
 
Three Months Ended (1)
(In millions)December 30,
2016
Revenues$151.5
Cost of revenues92.7
Gross margin58.8
Operating expenses (2)
46.4
Operating earnings12.4
Taxes on earnings5.9
Net earnings from discontinued operations6.5
Less: Net earnings from discontinued operations attributable to noncontrolling interests0.1
Net earnings from discontinued operations attributable to Varian$6.4
(1)Included in prepaid expenses 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
(1)
There was no activity in net earnings from discontinued operations during the three months ended December 29, 2017.
(2)
Operating expenses included separation costs of $14.9 million during the three months ended December 30, 2016. Separation costs include expenses for transaction advisory services, consulting services, restructuring and other expenses.
The following table summarizes the major classes of assets and liabilities of discontinued operations that were included inCompany's inventories:
(In millions)April 3,
2020		September 27,
2019
Raw materials and parts$412.6  $376.5  
Work-in-process80.8  71.8  
Finished goods110.6  103.2  
Total inventories$604.0  $551.5  
Other Long-Term Liabilities
The following table summarizes the Company's balance sheet:other long-term liabilities:
(In millions)April 3,
2020		September 27,
2019
Income taxes payable$168.7  $180.3  
Deferred income taxes75.4  75.3  
Deferred revenues74.1  73.1  
Contingent consideration34.0  42.3  
Defined benefit pension plan28.7  31.1  
Other42.2  38.0  
Total other long-term liabilities$423.1  $440.1  
13
(In millions)December 29,
2017		 September 29,
2017
Assets:   
Trade accounts receivable, net$9.0
 $8.1
Inventories2.2
 2.9
Prepaid expenses and other current assets0.1
 0.1
Current assets of discontinued operations11.3
 11.1
Total assets of discontinued operations$11.3
 $11.1
Liabilities:   
Accounts payable$1.2
 $2.0
Accrued liabilities0.9
 0.5
Current liabilities of discontinued operations2.1
 2.5
Total liabilities of discontinued operations$2.1
 $2.5
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


The following table presents supplemental cash flow information of discontinued operations:
 
Three Months Ended (1)
(In millions)December 30,
2016
Operating activities: 
Share-based compensation expense$1.3
Depreciation expense3.3
Amortization expense1.3
Investing activities: 
Purchases of property, plant and equipment(5.0)
(1)
There was no cash flow activity from discontinued operations during the three months ended December 29, 2017.
3. BALANCE SHEET COMPONENTS

The following table provides the Company's unbilled receivables and deferred revenues from contracts with customers as of December 29, 2017 and September 29, 2017:

(In millions)December 29,
2017		 September 29,
2017
Unbilled receivables - current$269.5
 $259.1
Unbilled receivables - long-term (1)
29.0
 10.9
Deferred revenues - current(772.3) (755.4)
Deferred revenues - long-term (2)
(8.8) (7.2)
Total net unbilled receivables (deferred revenues)$(482.6) $(492.6)
(1)
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
(2)
Included in other long-term liabilities on the Company's Condensed Consolidated Balance Sheets.

During the three months ended December 29, 2017, unbilled receivables net of deferred revenues increased by $10.0 million primarily due to timing of billings occurring after the revenue was recognized and also milestone payments.

During the three months ended December 29, 2017 and December 30, 2016, the Company recognized revenue of $196.4 million and $218.8 million, respectively, which was included in the deferred revenues balance at September 29, 2017 and September 30, 2016, respectively.

The Company did not have any impairment losses on its unbilled receivables during the three months ended December 29, 2017. The Company recognized an impairment loss of $17.2 million from long-term unbilled receivables during the three months ended December 30, 2016. See Note 15, "VPT Loans and Securities" for further information.

The following table summarizes the Company's inventories:
(In millions)December 29,
2017		 September 29,
2017
Raw materials and parts$319.8
 $296.5
Work-in-process47.6
 47.7
Finished goods64.0
 73.5
Total inventories$431.4
 $417.7

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


The following tables summarize the Company's available-for-sale securities:
 December 29, 2017
(In millions)Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
DRTC securities (1)
$8.0
 $—
 $—
 $8.0
APTC securities (1)
6.0
 —
 —
 6.0
GPTC securities (2)
4.5
 —
 —
 4.5
   Total available-for-sale securities$18.5
 $—
 $—
 $18.5

 September 29, 2017
(In millions)Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value
Original CPTC loans (2)
$47.4
 $—
 $—
 $47.4
DRTC securities (2)
8.0
 —
 —
 8.0
GPTC securities (2)
4.4
 —
 —
 4.4
   Total available-for-sale securities$59.8
 $—
 $—
 $59.8

(1)
Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets because the Company has the ability and intent to sell these securities in the next twelve months. Subsequent to December 29, 2017, the Company sold its DRTC securities.
(2)
Included in other assets on the Company's Condensed Consolidated Balance Sheets because the maturity dates are greater than one year and the Company does not have the intent and ability to collect or sell all or a portion of its loans or securities in the next twelve months.

See Note 4, "Fair Value" and Note 15, "VPT Loans and Securities" for more information on the Original California Proton Treatment Center, LLC (“Original CPTC”) Loans, Alabama Proton Therapy Center ("APTC")Other Income (Expense), Delray Radiation Therapy Center (“DRTC”) and Georgia Proton Treatment Center ("GPTC") Securities.

Net
The following table summarizes the Company's other long-term liabilities:income (expense), net:
Three Months EndedSix Months Ended
(In millions)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Gain (loss) on equity investments$—  $(0.2) $1.4  $21.8  
Net foreign currency exchange gain (loss)(1.4) (0.5) 1.0  0.8  
Other, net0.5  0.9  1.1  0.6  
Total other income (expense), net$(0.9) $0.2  $3.5  $23.2  

(In millions)December 29,
2017		 September 29,
2017
Long-term income taxes payable$203.0
 $48.6
Deferred income taxes27.3
 17.1
Other62.1
 61.7
Total other long-term liabilities$292.4
 $127.4
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 Measurements at April 3, 2020
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$100.0  $—  $—  $100.0  
Available-for-sale securities:
MPTC Series B-1 Bonds—  28.1  —  28.1  
MPTC Series B-2 Bonds—  26.2  —  26.2  
APTC securities—  6.1  —  6.1  
Derivative assets—  3.4  —  3.4  
Total assets measured at fair value$100.0  $63.8  $—  $163.8  
Liabilities:            
Contingent consideration$—  $—  $(75.0) $(75.0) 
Total liabilities measured at fair value$—  $—  $(75.0) $(75.0) 


14
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
  Fair Value Measurement Using
  Quoted Prices in
Active Markets
for Identical
Instruments		 Significant
Other
Observable
Inputs		 Significant
Unobservable
Inputs		 Total
Type of Instruments (Level 1) (Level 2) (Level 3) Balance
(In millions)        
Assets at December 29, 2017:        
Available-for-sale securities:        
DRTC securities $—
 $8.0
 $—
 $8.0
APTC securities —
 6.0
 —
 6.0
GPTC securities —
 4.5
 —
 4.5
Total assets measured at fair value $—
 $18.5
 $—
 $18.5
         
Liabilities at December 29, 2017:        
Derivative liabilities: $—
 $(0.4) $—
 $(0.4)
Total liabilities measured at fair value $—
 $(0.4) $—
 $(0.4)
         
Assets at September 29, 2017:        
Available-for-sale securities:        
Original CPTC loans $—
 $—
 $47.4
 $47.4
DRTC securities —
 8.0
 —
 8.0
GPTC securities —
 4.4
 —
 4.4
Total assets measured at fair value $—
 $12.4
 $47.4
 $59.8
Fair Value Measurements at September 27, 2019
Quoted Prices in Active Markets for Identical InstrumentsSignificant
Other
Observable
Inputs		Significant Unobservable InputsTotal
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 DRTC, APTCthe Maryland Proton Therapy Center ("MPTC") and GPTC.the Alabama Proton Therapy Center (“APTC”). 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 December 29, 2017April 3, 2020, and September 29, 2017,27, 2019, the carrying amount of the Company's Level 1 money market funds and Level 2 available-for-sale securities approximated their respective fair value. See Note 15, "VPT Loans and Securities"for further information about these bonds.

values.
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 thirteenfifteen months in duration. See Note 8, "Derivative Instruments and Hedging Activities" for more information about the Company's derivative instruments.
In December 2017, the Original CPTC loans were modified and partially satisfied resulting in a Term Loan of $53.5 million, as defined in Note 15, "VPT Loans and Securities" for further information. One of the modifications was that the loan agent no longer has the option to purchase these loans from the Company, therefore, the Original CPTC loans are no longer classified as an available-for-sale security.
The Company had no unrealized gains or unrealized losses associated with the Original CPTC loans recorded in its other comprehensive income. The modification to the Original CPTC Loans had no impact on the Company's Condensed Consolidated Statements of Earnings for the three months ended December 29, 2017. As of September 29, 2017, the Company classified the Original CPTC loans as available-for-sale securities,generally measures the fair value of which wasits Level 3 contingent consideration liabilities based on the income approach by using the discounted cash flow modelMonte 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 terms and risks associated withperiods of expected payments. If the loans as well as underlying cash flow assumptions. However,estimated revenues or probability of completing certain milestones were to increase or decrease during the Company did not increaserespective earn-out period, the fair value of the Original CPTC loans above their par values as ORIX Capital Markets, LLC (“ORIX”),contingent consideration would increase or decrease, respectively. If the loan agent, hadestimated discount rates were to increase or decrease, the option to purchase these loansfair value of contingent consideration would decrease or increase, respectively. Changes in 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 Company underCondensed Consolidated Balance Sheets.
The following table presents the original termsreconciliation for liabilities measured and conditionsrecorded at par value.fair value on a recurring basis using significant unobservable inputs (Level 3):
(In millions)Contingent
Consideration
Balance at September 27, 2019$(75.3)
Adjustments due to the effect of foreign exchange0.2 
Change in fair value recognized in earnings0.1 
Balance at April 3, 2020$(75.0)
15
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


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)Available-for-sale Securities
Balance at September 29, 2017$47.4
Reclassification of Original CPTC Loans to Term Loan(47.4)
Balance at December 29, 2017$—

There were no transfers of assets or liabilities between fair value measurement levels during either the three and six months ended December 29, 2017,April 3, 2020, or the three and six months ended December 30, 2016.March 29, 2019. 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 and cash equivalents, trade and unbilled receivables, net of allowance for doubtful accounts, short-term notes receivable, revolving loan to CPTC, senior secured debt, accounts payable, and short-term borrowings approximate their carrying amounts due to their short maturities.
As of December 29, 2017,April 3, 2020, the fair value of the Term Loan with CPTC Loans (as defined in Note 14, "Proton Solutions Loans and Investments,") approximated its carrying value of $44.0$10.0 million. See Note 15, "VPTThe Company recorded a $40.5 million impairment charge on the CPTC Loans and Securities" for further information.in the three months ended April 3, 2020. 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 isCPTC Loans are 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 $56.4 million and $64.2 million at April 3, 2020 and September 27, 2019, respectively. The Company measures these investments at cost, and these investments are adjusted through net earnings when they are deemed to be impaired or when there is an adjustment from observable price changes.
The fair value of the outstanding long-term notes receivable, including accrued interest, approximated their carrying value of $56.0$34.9 million and $86.7$33.6 million at December 29, 2017April 3, 2020 and September 29, 2017,27, 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 5, "Receivables"14, "Proton Solutions Loans and Investments," for information on the long-term notes receivable.

5.
4. RECEIVABLES
The following table summarizes the Company's trade and unbilled receivables, net, and long-term notes receivable as of December 29, 2017receivable:
(In millions)April 3,
2020		September 27,
2019
Trade and unbilled receivables, gross$1,131.2  $1,193.5  
Allowance for doubtful accounts(48.9) (46.5) 
Trade and unbilled receivables, net$1,082.3  $1,147.0  
Short-term$1,004.8  $1,106.3  
Long-term (1)
$77.5  $40.7  
Long-term notes receivable (1) (2)
$34.9  $33.6  
(1)Included in other assets on the Company's Condensed Consolidated Balance Sheets.
(2)Balances include accrued interest and September 29, 2017:are recorded in other assets on the Company's Condensed Consolidated Balance Sheets.
(In millions)December 29,
2017		 September 29,
2017
Trade and unbilled receivables, gross$955.5
 $1,039.2
Allowance for doubtful accounts(42.6) (63.1)
Trade and unbilled receivables, net$912.9
 $976.1
Short-term$880.1
 $961.5
Long-term (1) 
$32.8
 $14.6
    
Notes receivable$86.0
 $91.7
Short-term (2) 
$30.0
 $5.0
Long-term (1)
$56.0
 $86.7
(1)
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
(2)
Included in prepaid expenses and other current assets on the Company's Condensed Consolidated Balance Sheets.
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 April 3, 2020, and September 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.
16
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


As of December 29, 2017, the allowance for doubtful accounts is entirely related to short-term trade and unbilled receivables. As of September 29, 2017, the allowance for doubtful accounts included $45.9 million related to short-term trade and unbilled receivables and $17.2 million related to long-term unbilled receivables, which was written off in the first quarter of fiscal year 2018.
See Note 15, "VPT Loans and Securities" for more information on the Company's short-term and long-term notes receivable balances.
6.5. GOODWILL AND INTANGIBLE ASSETS
The following table reflectssummarizes the activity of goodwill by reportable operating segment: 
(In millions)Oncology SystemsOther
Total (1)
Balance at September 27, 2019$447.9  $164.3  $612.2  
Business combination2.6  —  2.6  
Measurement period adjustments to business combinations in prior year(0.1) —  (0.1) 
Balance at April 3, 2020$450.4  $164.3  $614.7  
(In millions)
Oncology
Systems
 Varian Particle Therapy Total
Balance at September 29, 2017$170.2
 $52.4
 $222.6
Foreign currency translation adjustments—
 0.8
 0.8
Balance at December 29, 2017$170.2
 $53.2
 $223.4
(1)The total carrying value of goodwill at both April 3, 2020, and September 27, 2019 is net of $50.5 million of accumulated impairment charges related to the Company recording an impairment charge for the full value of the Proton Solutions operating segment goodwill in fiscal year 2019.

Due to certain indicators identified related to the Company's Interventional Solutions reporting unit in the second quarter of fiscal year 2020, including a significant decrease in near term revenue projections due to COVID-19, the Company identified a triggering event and performed an interim impairment test on its $164.3 million of goodwill in its Interventional Solutions reporting unit, within the Other reportable operating segment. The fair value of the Interventional Solutions’ reporting unit was in excess of its carrying value by approximately $20 million, or 7%. Management believes the methodology and assumptions used to calculate the fair value to be reasonable. However, the Interventional Solutions reporting unit could be at risk for a future goodwill impairment if there are adjustments to certain assumptions used in the fair value calculation, including revenue growth rates, operating margins, and weighted-average cost of capital and/or working capital requirements. Given the uncertain impact of COVID-19 and/or other market factors on the Company's business, its cash flow projections for this business could decrease in the future, which could lead to an impairment of goodwill.

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins, working capital requirements, weighted-average cost of capital, future economic and market conditions, estimation of the long-term rate of growth for the Company's business and determination of appropriate market comparables. Management bases the fair value estimates on assumptions it believes to be reasonable but that are inherently uncertain. Actual future results related to assumed variables could differ from these estimates. In addition, management makes certain judgments and assumptions in allocating assets and liabilities to determine the carrying values for each reporting unit.
The following table reflectssummarizes the gross carrying amount and accumulated amortization of the Company's intangible assets: 
December 29, 2017 September 29, 2017April 3, 2020September 27, 2019
(In millions)Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount(In millions)Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Technologies and patents$102.0
 $(65.3) $36.7
 $102.0
 $(60.9) $41.1
Technologies and patents$226.9  $(98.4) $128.5  $226.4  $(85.9) $140.5  
Customer contracts and supplier relationship33.9
 (15.3) 18.6
 33.9
 (14.3) 19.6
Customer contracts, supplier relationships, and partner relationshipsCustomer contracts, supplier relationships, and partner relationships121.1  (30.4) 90.7  121.1  (25.7) 95.4  
Trade namesTrade names55.1  (5.0) 50.1  55.1  (3.0) 52.1  
Other5.5
 (4.0) 1.5
 5.5
 (3.4) 2.1
Other6.1  (6.1) —  6.1  (6.1) —  
Total intangible with finite lives141.4
 (84.6) 56.8
 141.4
 (78.6) 62.8
Total intangible with finite lives409.2  (139.9) 269.3  408.7  (120.7) 288.0  
In-process research and development with indefinite lives8.8
 —
 8.8
 8.8
 —
 8.8
In-process research and development with indefinite lives12.3  —  12.3  12.7  —  12.7  
Total intangible assets$150.2
 $(84.6) $65.6
 $150.2
 $(78.6) $71.6
Total intangible assets$421.5  $(139.9) $281.6  $421.4  $(120.7) $300.7  
Amortization expense for intangible assets was $6.3$9.5 million and $3.8$6.7 million induring the three months ended DecemberApril 3, 2020 and March 29, 20172019, respectively, and December 30, 2016,$19.6 million and $11.4 million during the six months ended April 3, 2020 and March 29, 2019, respectively.
17
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
As of December 29, 2017,April 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$18.5  
202135.6  
202233.8  
202332.8  
202425.7  
Thereafter122.9  
Total remaining amortization for intangible assets$269.3  

Fiscal Years:Remaining Amortization Expense
Remainder of 2018$12.6
201911.7
20209.3
20217.2
20226.0
Thereafter10.0
Total remaining amortization for intangible assets$56.8

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


7.6. BORROWINGS
The following table summarizes the Company's total short-term borrowings:
April 3, 2020September 27, 2019
(In millions, except for percentages)AmountWeighted-Average Interest RateAmountWeighted-Average Interest Rate
Short-term borrowings:
Revolving Credit Facility
$520.0  2.05 %$410.0  3.05 %
Total short-term borrowings$520.0  $410.0  
 December 29, 2017 September 29, 2017
(In millions, except for percentages)Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate
Short-term borrowings:       
2017 Revolving Credit Facility$340.0
 2.49% $350.0
 2.36%
Total short-term borrowings$340.0
   $350.0
  

TheOn November 1, 2019, the Company entered into an agreement,Amendment No.2 (the "Amendment") to its Credit Agreement dated September 1, 2017, ("CreditApril 3, 2018, (the "Credit Agreement") with, by and among the Company, certain lenders party thereto, and Bank of America, N.A. (“BofA”), as administrative agent, ("Debt Lenders").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 provides for a five-yearAgreement's five-year revolving credit facility (the "2017 Revolving"Revolving Credit Facility") in an aggregate principal amount of upfrom $1.8 billion to $600.0 million. The 2017 Revolving Credit Facility also includes$1.2 billion, added a $50$500 million sub-facilitysub-limit for multi-currency borrowings, increased the issuance of lettersletter of credit sub-limit from $50.0 million to $225 million, and permitsreduced the commitment fee. In addition, there is a sub-limit for swing line loans of up to $25 million. TheUnder the Revolving Credit Facility, the Company mayhas the right to (i) request to increase the aggregate commitments under the 2017 Revolving Credit Facility by an aggregate amount for all such requests of up to $100$100.0 million plusand (ii) request an amount based onadditional increase in the Company's consolidated leverage ratio on a pro forma basis, subjectcommitments 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 being met, including lender approval. The Credit Agreement will expire in September 2022. The 2017 Revolving Credit Facility can be prepaid without any premium or penalty.are met. The proceeds of the 2017Revolving Credit Facility may be used for working capital, capital expenditures, Company share repurchases, permitted acquisitions and other corporate purposes, as well as to satisfy the outstanding obligation under the prior credit facility. The Company incurred $1.8 million in debt issuance costs for its 2017 Revolving Credit Facility, which will be amortized over the five-year term. Debt issuance costs are recorded in prepaid expenses and other current assets and other assets on the Condensed Consolidated Balance Sheets.purposes.

Borrowings under the 2017 Revolving Credit Facility accrue interest atbased on either (i) based on the Eurodollar Rate plus a margin of 1.125%1.000% to 1.875%1.375% based on a net leverage ratio involving funded indebtedness and EBITDA, or (ii) based upon 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 0.125%0.000% to 0.875%0.375% based on the same leverage ratio, depending upon instructions from the Company. Borrowings under the 2017 Revolving Credit FacilityEurodollar Rate have a contract repayment date of twelve12 months, or less, and a final maturity of five years if based on the Eurodollar Rate and all overnight borrowings onless. Borrowings under the base rate would alsocan 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 2017 Revolving Credit Facility at a rate from 0.125%0.100% to 0.25%0.225% based on a net leverage ratio. The Company may prepay, reduce or terminate the commitments without penalty. Swing line loans under the 2017Revolving 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 2017 Revolving Credit Facility, subject to certain limitations on the amount secured. As of December 29, 2017,April 3, 2020, no subsidiary guarantiesguarantees were required to be executed under the Credit Agreement.
18
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 has also agreed to maintain certaina financial covenants including (i)covenant which requires a maximum consolidated net leverage ratio, involving funded indebtedness and EBITDA, and (ii) a minimum consolidated interest coverage 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 2017,2020, the Sumitomo Credit Facility was extended and will expire in February 2018.2021. 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 April 3, 2020, the Company did 0t have an outstanding principal balance on its Sumitomo Credit Facility.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)



8.7. 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 Sheets waswere as follows:

Liability Derivatives
Balance Sheet December 29, 2017April 3,
2020		September 27, 2019
(In millions)Location Fair Value(In millions)Balance Sheet
Location		Fair Value
Derivatives designated as hedging instruments:   Derivatives designated as hedging instruments:  
Foreign exchange forward contractsAccrued liabilities $(0.4)Foreign exchange forward contractsPrepaid expenses and other current assets$3.4  $2.8  
Total derivatives  $(0.4)Total derivatives $3.4  $2.8  
AtAs of April 3, 2020, and September 29, 2017,27, 2019, the Company did not have any outstanding derivatives designated as hedging instruments. As of December 29, 2017 and September 29, 2017, the fair value of the Company's derivatives not designated as hedging instruments were not material. See Note 4, "Fair Value" for the valuation of the Company’s derivative instruments. Also, see Note 1, "Summary of Significant Accounting Policies" in the Consolidated Financial Statements in the Company’s 2017 Annual Report for the credit risk associated with the Company’s derivative instruments.
Offsetting of Derivatives
The Company presents its derivative assets and derivative liabilities on a gross basis on the Condensed Consolidated Balance Sheets. However, under agreements containing provisions on netting with certain counterparties of foreign exchange contracts, subject to applicable requirements, the Company is allowed to net-settle transactions in the same currency, with a single net amount payable by one party to the other. As of December 29, 2017 and September 29, 2017, there were no potential effects of rights of setoff associated with derivative instruments. The Company is neither required to pledge nor entitled to receive cash collateral related to these derivative transactions.
Cash Flow Hedging Activities
The Company has many transactions denominated in foreign currencies and addresses certain of those financial exposures through a risk management program that includes the use of derivative financial instruments. The Company sells products throughout the world, often in the currency of the customer’s country, and may hedge certain of the larger foreign currency transactions when they are either not denominated in the relevant subsidiary’s functional currency or the U.S. Dollar. These foreign currency sales transactions are hedged using foreign currency forward contracts. The Company may use other derivative instruments in the future. The Company does not enter into foreign currency forward contracts for speculative or trading purposes. Foreign currency forward contracts are entered into up to several times a quarter and range from one to thirteen months in maturity.

The hedges of foreign currency denominated forecasted revenues are designated and accounted for as cash flow hedges. The designated cash flow hedges de-designate when the anticipated revenues associated with the transactions are recognized and the change in fair value of the derivatives in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets is reclassified to revenues in the Condensed Consolidated Statements of Earnings. Subsequent changes in fair value of the derivative instrument are recorded in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings to offset changes in fair value of the resulting non-functional currency receivables. For derivative instruments that are designated and qualified as cash flow hedges, the Company formally documents for each derivative instrument at the hedge’s inception, the relationship between the hedging instrument (foreign currency forward contract) and hedged item (forecasted foreign currency revenues), the nature of the risk being hedged and its risk management objective and strategy for undertaking the hedge. The Company records the gain or loss on the derivative instruments that are designated and qualified as cash flow hedges in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets and reclassifies these amounts into revenues in the Condensed Consolidated Statements of Earnings (Loss) in the period in which the hedged transaction is
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


recognized in earnings. The Company assesses hedge effectiveness both at the onset of the hedge and on an ongoing basis using regression analysis. The time value of the derivative and hedged item is included in the assessment of hedge effectiveness.

At the inception of the hedge relationship and quarterly thereafter, the Company assesses whether the likelihood of meeting the forecasted cash flow is highly probable. As of December 29, 2017, all forecasted cash flows were still probable to occur. As of December 29, 2017, the net unrealized loss, before tax, on derivative instruments of $0.4 million was included in accumulated other comprehensive loss and is expected to be reclassified to earnings over the next twelve months.

The Company had the following outstanding foreign currency forward contracts that were entered into to hedge forecasted revenues and designated as cash flow hedges:
April 3, 2020September 27, 2019
(In millions)Notional Value Sold
Euro$45.7  $76.5  
Japanese Yen30.4  56.7  
$76.1  $133.2  
 December 29, 2017
(In millions)
Notional
Value Sold
Euro$24.9
Total$24.9


DuringThe following table presents the three months ended December 29, 2017, the Companyamounts, before tax, recognized an unrealized loss of $0.3 million, in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets:
Gain Recognized in Other Comprehensive Earnings (Loss)
Three Months EndedSix Months Ended
(In millions)April 3, 2020March 29, 2019April 3, 2020March 29, 2019
Foreign currency forward contracts$2.7  $—  $2.6  $—  
19
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
As of April 3, 2020, the net unrealized gain on derivatives, before tax, of $3.4 million was included in accumulated other comprehensive loss on the Condensed Consolidated Balance Sheets and is expected to be reclassified into net earnings on foreign currency forward contracts designated as cash flow hedges. The Company did not have any foreign currency forward contracts designated as cash flow hedges duringover the three months ended December 30, 2016.next 12 months.

The effect of cash flow hedge accounting on the Condensed Consolidated Statements of Earnings (Loss) was as follows:
 Location and Amount Recognized in Earnings (Loss) on Cash Flow Hedging Relationships
 December 29, December 30,
 2017 2016
(In millions)Revenues Revenues
Total amounts of income and expense line items presented in the Condensed Consolidated Statements of Earnings (Loss) in which the effects of fair value and cash flow hedges are recorded$678.5
 $601.5
    
Loss on cash flow hedge relationships:   
Foreign exchange contracts:   
Amount of gain reclassified from accumulated other comprehensive loss into earnings (loss)$0.1
 $—
Location and Amount Recognized in Earnings on Cash Flow Hedging Relationships
Three Months EndedSix Months Ended
April 3, 2020April 3, 2020
(In millions)RevenuesRevenues
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$794.5  $1,623.4  
Gain on cash flow hedge relationships:
Foreign currency forward contracts:
Amount of gain reclassified from accumulated other comprehensive loss into net earnings$1.1  $1.9  
The Company did 0t have any gains or losses reclassified from accumulated other comprehensive loss into net earnings in the three and six months ended March 29, 2019.
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. The Company enters into foreign currency forward contracts to minimize the short-term impact of foreign currency fluctuations on monetary assets and liabilities denominated in currencies other than the U.S. Dollar functional currency. The foreign currency forward contracts are short term in nature, typically with a maturity of approximately one month, and are based on the net forecasted balance sheet exposure. For derivative instruments not designated as hedging instruments, changes in their fair values are recognized in selling, general and administrative expensesother income, net in the Condensed Consolidated Statements of Earnings (Loss).Earnings. Changes in the values of these hedging instruments are offset by changes in the values of foreign-currency-denominated assets and liabilities. Variations from the forecasted foreign currency assets or liabilities, coupled with a significant currency rate movement, may result in a material gain or loss if the hedges are not effectively offsetting the change in value

The notional amount of the foreign currency asset or liability. Other than foreign exchange hedging activities, the Company has no other free-standing or embedded derivative instruments.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


The Company had the followingCompany's outstanding foreign currency forward contracts:contracts relating to balance sheet hedging activities:
(In millions)April 3,
2020		September 27,
2019
Notional value sold$382.8  $385.0  
Notional value purchased$105.9  $52.3  
 December 29, 2017
(In millions)Notional
Value Sold		 Notional
Value Purchased
Australian Dollar$34.7
 $—
Brazilian Real10.9
 —
British Pound31.7
 —
Canadian Dollar3.4
 —
Euro252.1
 6.0
Hungarian Forint3.2
 —
Indian Rupee11.2
 —
Japanese Yen62.9
 —
Norwegian Krone2.2
 —
Polish Zloty33.2
 —
Swiss Franc—
 40.9
Thai Baht4.6
 —
Totals$450.1
 $46.9

The following table presents the gains (losses) recognized in the Condensed Consolidated Statements of Earnings (Loss) related to the foreign currency forward contracts that are not designated as hedging instruments.
Location of Gain (Loss) Recognized in Income on Derivative Instruments Amount of Gain (Loss) Recognized in Net Earnings (Loss) on Derivative Instruments
  Three Months Ended
(In millions) December 29,
2017		 December 30,
2016
Selling, general and administrative expenses $(4.7) $14.9
Location of Gain Recognized in Net Earnings on Derivative InstrumentsAmount of Gain Recognized in Net Earnings on Derivative Instruments
 Three Months EndedSix Months Ended
(In millions)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Other income (expense), net$23.2  $3.6  $18.2  $6.4  
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.
Contingent Features
20
Certain of the Company’s derivative instruments are subject to master agreements which contain provisions that require the Company, in the event of a default, to settle the outstanding contracts in net liability positions by making settlement payments in cash or by setting off amounts owed to the counterparty against any credit support or collateral held by the counterparty. As of December 29, 2017 and September 29, 2017, the Company did not have any outstanding derivative instruments with credit-risk-related contingent features that were in a net liability position.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
9.(Unaudited)
8. COMMITMENTS AND CONTINGENCIES
Product Warranty
The following table reflects the changes in the Company’s accrued product warranty:
 Six Months Ended
(In millions)April 3,
2020		March 29,
2019
Accrued product warranty, at beginning of period$43.1  $44.8  
Charged to cost of revenues33.4  27.7  
Actual product warranty expenditures(33.3) (25.7) 
Accrued product warranty, at end of period$43.2  $46.8  
Accrued product warranty was included in accrued liabilities and other long-term liabilities on the Condensed Consolidated Balance Sheets.
Leases
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 21 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 7 years.

Lease 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.

The following table summarizes the components of the Company's lease cost:
Three Months EndedSix Months Ended
(In millions)April 3, 2020April 3, 2020
Operating lease cost$7.6  $15.4  
Finance lease cost:
Amortization of right-of-use assets0.20.3
Interest on lease liabilities0.20.3
Variable lease cost4.28.7  
Total lease cost$12.2  $24.7  


The following table summarizes the supplemental cash flow information related to the Company's operating leases:
Six Months Ended
(In millions)April 3, 2020
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows for leases$16.6 

21
 Three Months Ended
(In millions)December 29,
2017		 December 30,
2016
Accrued product warranty, at beginning of period$41.3
 $41.9
Charged to cost of revenues14.4
 9.2
Actual product warranty expenditures(8.6) (12.1)
Accrued product warranty, at end of period$47.1
 $39.0
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)April 3, 2020
Operating leases:
Operating right-of-use assets$123.8 
Accrued liabilities$24.4 
Long-term lease liabilities100.4 
   Total lease liabilities$124.8 
Finance leases:
Property, plant, and equipment, net$12.8 
Accrued liabilities$3.5 
Other long-term liabilities9.2 
Total lease liabilities$12.7 
Accrued product warranty
The following table summarizes the weighted lease term and discount rate by operating and finance leases:
April 3, 2020
Weighted average remaining lease term in years
Operating leases7.5
Finance leases4.6
Weighted average discount rate
Operating leases5.0 %
Finance leases4.0 %

As of April 3, 2020, the future minimum lease payments are as follows:
(In millions)Operating LeasesFinance leases
Remainder of 2020$15.0  $1.8  
202128.0  3.3  
202222.4  2.8  
202317.6  2.8  
202413.3  1.1  
Thereafter63.6  2.0  
  Total minimum lease payments$159.9  $13.8  
Less: imputed interest35.1  1.1  
Total lease liability$124.8  $12.7  
At September 27, 2019, the Company was committed to minimum rentals under non-cancellable operating leases (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, $26.3 million, $20.2 million, $14.5 million, $10.9 million and $49.9 million, respectively.

Lessor Arrangements
The Company leases some of its equipment to certain customers on operating leases generally over a period of 15 years. As of April 3, 2020, the Company had $23.5 million and $7.5 million included in accrued liabilitiesproperty, plant and other long-term liabilitiesequipment and accumulated depreciation, respectively, related to equipment leased to customers. As of September 27, 2019, the Company had $22.5 million and $5.5 million included in property, plant and equipment and accumulated depreciation, respectively, related to equipment leased to customers. The Company recorded income of $2.1 million and $4.6 million during the three months and six months
22
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
ended April 3, 2020, respectively, on these equipment leases. The Company recorded income of $2.1 million and $4.2 million during the Condensed Consolidated Balance Sheets as of Decemberthree and six months ended March 29, 2017 and September 29, 2017.2019, respectively, on these equipment leases.
Contingencies
Environmental Remediation Liabilities
The Company’s operations and facilities, past and present, are subject to environmental laws, including laws that regulate the handling, storage, transport and disposal of hazardous substances. Certain of those laws impose cleanup liabilities on the Company in connection with its past and present operations. Those include facilities sold as part of the Company’s electron devices business in 1995 and thin film systems business in 1997. As a result, the Company oversees various environmental cleanup projects and receives reimbursements from third parties for a portion of the costs of its cleanup activities.
The Company also reimburses certain third parties for cleanup activities. The Company spent $0.2 million and $0.1 million (net of amounts borne by third-parties) in the three months ended December 29, 2017 and December 30, 2016, respectively, on environmental cleanup costs, third-party claim costs, project management costs and legal costs.
With respect to some of these facilities, inherent uncertainties make it difficult to estimate the likelihood of the cost of future cleanup, third-party claims, project management and legal services for the cleanup sites (“Group A Sites”). Nonetheless, as of December 29, 2017, the Company estimated that, net of third parties’ indemnification obligations, future costs associated with the environmental remediation liabilities for the Group A Sites would range in total from $1.0 million to $7.9 million. The time frames over which these cleanup project costs are estimated vary, ranging from one year to thirty years as of December 29, 2017. Management believes that no amount in that range is more probable of being incurred than any other amount and therefore accrued $1.0 million for these cleanup projects as of December 29, 2017. The accrued amount has not been discounted to present value due to the uncertainties that make it difficult to develop a single best estimate.

In addition to the Group A Sites, there are other past and present facilities (“Group B Sites”) where the Company believes it has gained sufficient knowledge to better estimate the scope and cost of monitoring, cleanup and management activities. This, in part, is based on agreements with other parties and also cleanup plans approved by or completed in accordance with the requirements of, the governmental agencies having jurisdiction. As of December 29, 2017, the Company estimated that the Company’s future exposure on the Group B Sites, net of third parties’ indemnification obligations, for the costs at these facilities,April 3, 2020, and reimbursements of third-party’s claims for these facilities, ranged in total from $3.5 million to $19.5 million. The time frames over which these costs are estimated to be incurred vary, ranging from one year to thirty years as of December 29, 2017. As to each of these facilities, management determined that a particular amount within the range of estimated costs was a better estimate than any other amount within the range, and that the amount and timing of these future costs were reliably determinable. The best estimate within that range was $5.6 million at December 29, 2017. Accordingly,September 27, 2019, the Company had accrued $4.5 million and $4.8 million, as of December 29, 2017 for these costs, which represented the best estimate discounted at 4%,respectively, net of inflation. This accrual is in addition to the $1.0 million accruedthird parties' indemnification obligations, for the Group A Sites.
These amounts are only estimates of anticipated future costs. The amounts the Company will actually spend may be greater than the estimates.environmental remediation liabilities. The Company believes its reserve is adequate,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 evaluates its liabilityalso reimburses certain third parties for investigation andcleanup activities. The amount the Company spent on environmental cleanup costs, in light of the obligationsthird-party claim costs, project management costs and financial strength of potential third parties and insurance companies the Company believes it has rights to indemnity or reimbursement. The Company has an agreement with an insurance company under which that insurer has agreed to pay a portion of the Company’s past and future environmental-related expenditures. Receivables, net of the portion due to third parties who reimburse the Company, from that insurer amounted to $1.6 million at both December 29, 2017 and September 29, 2017, with the respective current portion included in prepaid expenses and other current assets and the respective noncurrent portion included in other assets. The payable portion to that insurer is included in other long-term liabilities on the Condensed Consolidated Balance Sheets. The Company believes that this receivable is recoverable because it is based on a binding, written settlement agreement with an insurance company who appears to be financially viable and who has paid the Company’s claimslegal costs in the past.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


six months April 3, 2020, and March 29, 2019, was not material.
Other Matters
On October 16, 2018, Best Medical International, Inc. sued the Company in U.S. District Court in the District of Delaware, alleging infringement of 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, 0 amounts have been accrued as of April 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.
Restructuring Charges
2017 Restructuring Plan
In the first quarter of fiscal year 2017, the Company offered an enhanced retirement program to its qualifying employees and implemented a workforce reduction (collectively "the 2017 Restructuring Plan"), primarily in its Oncology Systems and VPT segments, to improve operational performance. The Company did not incur any restructuring charges during the three months ended December 29, 2017 and incurred $3.8 million in restructuring charges during the three months ended December 30, 2016. As of December 29, 2017, the Company plans to complete this plan in fiscal year 2018 and does not expect any additional restructuring charges under this plan.
The following table provides a summary of changes in the restructuring liability related to the Company's restructuring plans:
(In millions)September 29,
2017		 Restructuring Charges Cash Payments December 29,
2017
2017 Restructuring Plan$3.9
 $—
 $(2.2) $1.7
Total$3.9
 $—
 $(2.2) $1.7
The restructuring charges are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Earnings (Loss).
10.9. RETIREMENT PLANS
The Company sponsors fivemultiple 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:
23
 Three Months Ended
(In millions)December 29,
2017		 December 30,
2016
Defined Benefit Plans   
Service cost$1.6
 $1.7
Interest cost0.8
 0.6
Expected return on plan assets(2.0) (1.7)
Amortization of prior service cost(0.1) (0.1)
Recognized actuarial loss0.7
 1.1
Net periodic benefit cost$1.0
 $1.6
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:
11.
 Three Months EndedSix Months Ended
(In millions)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Defined Benefit Plans  
Service cost$2.6  $1.8  $5.1  $3.6  
Interest cost0.5  1.0  1.0  1.9  
Expected return on plan assets(2.0) (1.6) (3.9) (3.2) 
Amortization of prior service cost(0.2) (0.2) (0.4) (0.4) 
Recognized actuarial loss1.1  0.5  2.2  1.1  
Net periodic benefit cost$2.0  $1.5  $4.0  $3.0  

10. INCOME TAXES
The Company’s effective tax rate was 191.5%18.5% and 58.6%21.7% for the three months ended DecemberApril 3, 2020, and March 29, 20172019, respectively, and December 30, 2016, respectively.20.2% and 23.2% for the six months ended April 3, 2020, and March 29, 2019. The increase in the Company’s effective tax rate duringwas lower for the three months ended December 29, 2017,April 3, 2020, as compared to the year-ago period, primarily because earnings in the current period included the release of $8.2 million of contingent consideration related to the Company's acquisition of CTSI that resulted in 0 tax charge. The Company's effective tax rate was lower for the six month period ended April 3, 2020, as compared to the year-ago period, primarily because the prior period included the tax effect of a change in law due to the tax effectenactment of the Tax Cuts and Jobs Act, (the "Act") which was signed into law on December 22, 2017. The Company’s effective tax rate in the year-ago period was also high due to the impairment of the CPTC loans in December 2016, which were made by one of the Company's Swiss subsidiaries, which has a low tax rate, and a significant portion of the expense associated with the allowance for doubtful accounts recorded in the period being attributable to one of the Company's German subsidiaries which has a full valuation allowance.

The Act was signed into law on December 22, 2017. Among other changes, the Act reduces the U.S. corporate tax rate from 35% to 21%, and imposes a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. U.S. GAAP generally requires that the tax effect of a change in tax laws or rates be accounted for in the period of enactment.

The reduction in the U.S. corporate tax rate is effective January 1, 2018. As the Company has a September fiscal year end, the lower corporate tax rate will be phased in, resulting in a U.S. corporate rate of approximately 24.6% for the Company's fiscal year ending September 28, 2018, and 21% for subsequent fiscal years. The reduction in the rate requires the Company to re-measure its net deferred tax assets that were originally recorded assuming a future tax benefit at the 35% rate. During the three months ended December 29, 2017, the Company recorded a provisional discrete tax expense of $37.8 million related to re-measuring its net deferred tax assets as a result of the rate reduction.

As part of the transition to a modified territorial system, the Act imposes a one-time transition tax on the unremitted earnings of the Company's foreign subsidiaries. During the three months ended December 29, 2017, the Company recorded a provisional discrete tax expense of $169.3 million related to the one-time transition tax. The Company intends to elect to pay this tax over the eight-year period allowed for in the Act. The transition to a modified territorial regime and the one-time transition tax on unremitted earnings has also caused the Company to re-evaluate its intentions with respect to the unremitted earnings of foreign subsidiaries. In the past, the Company did not accrue U.S. taxes on certain undistributed profits of certain foreign subsidiaries because the earnings were considered to be indefinitely reinvested. In light of the changes to the taxation of foreign earnings in the Act, the Company no longer considers the earnings of its foreign subsidiaries to be indefinitely reinvested.
Other provisions of the Act include a new minimum tax on certain foreign earnings (the Global Intangibles Low-taxed Income, or "GILTI"), a new tax on certain payments to foreign related parties (the Base Erosion Anti-avoidance Tax, or "BEAT"), a new incentive for Foreign-derived Intangibles Income ("FDII"), changes to the limitation on the deductibility of certain executive compensation, and new limitations on the deductibility of interest expense. Generally, these other provisions take effect for the Company in the fiscal year ending September 28, 2018.

On December 22, 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”). This guidance allows registrants a “measurement period,” not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Act. SAB 118 further directs that during the measurement period, registrants who are able to make reasonable estimates of the tax effects of the Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Act. The amounts of the tax effects related to the Act described in the paragraphs above represent the Company’s reasonable estimates and are provisional amounts within the meaning of SAB 118. Also, it is expected that the U.S. Treasury will issue regulations and other guidance on the application of certain provisions of the Act. In subsequent periods, but within the measurement period, the Company will analyze that guidance and other necessary information, including the amount of foreign earnings and profits, pools of foreign tax, and the Company's foreign cash position, to refine its estimates and complete its accounting for the tax effects of the Act.
The Company adopted the FASB guidance related to employee share-based payments during the period ended December 29, 2017. Among other changes, this standard changes the treatment of the tax effect of the excess stock deduction. For a share-based compensation instrument, the excess stock deduction is the difference between the amount of the deduction for taxable income and the amount of expense in the financial statements related to that instrument. Under the prior standard, the tax effect of the excess stock deduction related to share-based compensation was recorded to additional paid-in capital in the equity section on the Condensed Consolidated Balance Sheets. Under the new standard, the tax effect of the excess stock deduction related to share-based compensation is recorded as a discrete item to income taxes in the Condensed Consolidated Statements of Earnings (Loss). During the three months ended December 29, 2017, the Company recorded a discrete tax benefit of $1.5 million related to excess stock deduction activity in the quarter. The Company expects that the new standard may cause its effective tax rate to be less predictable and more volatile going forward.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)



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 increased by $10.5 milliondid not materially change during the threesix months ended December 29, 2017, primarily due to the impact of the Act on the Company's unrecognized tax benefits. The impact of this increase in tax expense is included in the amount of the provisional discrete expense related to the one-time transition tax above. In addition,April 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 statutestatutes of limitationslimitation in various jurisdictions.
12.11. STOCKHOLDERS’ EQUITY AND NONCONTROLLING INTERESTS
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 (“ASR”) 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 December 29, 2017,April 3, 2020, approximately 4.71.6 million shares of VMS common stock remained available for repurchase under the November 2016 authorization. At the beginning of the third quarter of fiscal year 2020, as a precautionary measure due to the COVID-19 pandemic, the Company has paused its share repurchase program.
The Company repurchased shares of VMS common stock under various authorizations during the periods presented as follows:
Three Months EndedSix Months Ended
(In millions, except per share amounts)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Number of shares0.3  0.4  0.6  0.7  
Average repurchase price per share$126.01  $120.89  $133.02  $115.71  
Total cost of shares repurchased$39.8  $50.8  $86.2  $85.6  
24
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
 Three Months Ended
(In millions, except per share amounts)December 29,
2017		 December 30,
2016
Number of shares0.5
 0.5
Average repurchase price per share$108.16
 $98.98
Total cost$56.7
 $49.5

Accumulated Other Comprehensive EarningsLoss
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 (Losses)
Cash Flow
Hedging
Instruments		Cumulative
Translation
Adjustment		Accumulated
Other
Comprehensive
Loss
Balance at September 27, 2019$(61.7) $2.1  $(42.5) $(102.1) 
Other comprehensive earnings (loss) before reclassifications—  2.6  (1.7) 0.9  
Amounts reclassified out of other comprehensive earnings (loss)1.7  (1.9) —  (0.2) 
Tax expense(0.2) (0.2) —  (0.4) 
Balance at April 3, 2020$(60.2) $2.6  $(44.2) $(101.8) 

(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) $(65.3) 
Other comprehensive earnings (loss) before reclassifications—  (7.1) (7.1) 
Amounts reclassified out of other comprehensive earnings (loss)0.7  —  0.7  
Tax expense(0.1) —  (0.1) 
Balance at March 29, 2019$(34.6) $(37.2) $(71.8) 

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 EndedSix Months Ended
Other Comprehensive Earnings (Loss) ComponentsApril 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019		Line Item in Statements of Earnings
Unrealized loss on defined benefit pension and post-retirement benefit plans$(0.8) $(0.3) $(1.7) $(0.7) Other income (expense), net
Unrealized earnings on cash flow hedging instruments1.1  —  1.9  —  Revenues
Total amounts reclassified out of other comprehensive earnings (loss)$0.3  $(0.3) $0.2  $(0.7)  
25
(In millions)Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans		 Net
Unrealized
Gains
(Losses)
Cash Flow
Hedging
Instruments		 Cumulative
Translation
Adjustment		 Accumulated
Other
Comprehensive
Loss
Balance at September 29, 2017$(44.1) $—
 $(24.7) $(68.8)
Other comprehensive earnings (loss) before reclassifications—
 (0.3) 3.1
 2.8
Amounts reclassified out of other comprehensive earnings (loss)0.4
 (0.1) —
 0.3
Tax (expense) benefit(0.1) 0.1
 —
 —
Balance at December 29, 2017$(43.8) $(0.3) $(21.6) $(65.7)

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


(In millions)Net Unrealized Gains
(Losses) Defined
Benefit Pension and
Post-Retirement
Benefit Plans		 Cumulative
Translation
Adjustment		 Accumulated
Other
Comprehensive Earnings
(Loss)
Balance at September 30, 2016$(63.3) $(37.5) $(100.8)
Other comprehensive loss before reclassifications—
 (13.1) (13.1)
Amounts reclassified out of other comprehensive earnings0.9
 —
 0.9
Tax expense(0.1) —
 (0.1)
Balance at December 30, 2016$(62.5) $(50.6) $(113.1)
The amounts reclassified out of other comprehensive loss into the Condensed Consolidated Statements of Earnings (Loss), with line item location, during each period were as follows: 
 Three Months Ended 
 (In millions)
December 29,
2017		 December 30,
2016		 
Comprehensive Earnings ComponentsIncome (Loss) Before TaxesLine Item in Statements of Earnings (Loss)
Unrealized loss on defined benefit pension and post-retirement benefit plans$(0.4) $(0.9)Cost of revenues & Operating expenses
Unrealized gain on cash flow hedging instruments0.1
 —
Revenues
Total amounts reclassified out of other comprehensive earnings$(0.3) $(0.9) 
Noncontrolling Interests
In connection with the Distribution of Varex in January 2017, the Company's redeemable noncontrolling interests relating to MeVis Medical Solutions AG ("MeVis") were transferred to Varex.

Changes in noncontrolling interests and redeemable noncontrolling interests relating to MeVis and other subsidiaries of the Company were as follows:
 Three Months Ended
 December 29, 2017 December 30, 2016
 (In millions)
Noncontrolling Interests Noncontrolling Interests Redeemable Noncontrolling Interests
Beginning of Period$4.3
 $3.7
 $10.3
Net earnings attributable to noncontrolling interests0.1
 0.5
 0.1
Other—
 —
 (0.1)
End of Period$4.4
 $4.2
 $10.3
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


13.12. 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 EndedSix Months Ended
(In millions)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Cost of revenues - Product$0.9  $0.8  $1.7  $1.5  
Cost of revenues - Service1.2  1.0  2.5  2.1  
Research and development1.5  1.1  2.7  2.2  
Selling, general and administrative7.7  9.6  19.3  17.2  
Total share-based compensation expense$11.3  $12.5  $26.2  $23.0  
Income tax benefit for share-based compensation$(2.1) $(2.2) $(5.0) $(4.5) 
 Three Months Ended
(In millions)December 29,
2017		 December 30,
2016
Cost of revenues - Product$0.7
 $0.8
Cost of revenues - Service1.0
 1.0
Research and development1.2
 1.2
Selling, general and administrative7.8
 7.2
Total share-based compensation expense$10.7
 $10.2
Income tax benefit for share-based compensation$(2.1) $(3.0)
The Company adopted new accounting guidance in the three months ended December 29, 2017 where it elected to change its accounting policy to account for forfeitures as they occur rather than estimating expected forfeitures. Share based compensation expense for the three months ended December 30, 2016 was recorded net of estimated forfeitures. See Note 1, "Summary of Significant Accounting Policies" for further information.


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 EndedSix Months Ended
April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Employee Stock Option Plans    
Expected term (in years)3.733.763.743.76
Risk-free interest rate1.4 %2.5 %1.5 %2.6 %
Expected volatility23.5 %23.6 %24.6 %23.1 %
Expected dividend— %— %— %— %
Weighted average fair value at grant date (1)
$29.74  $29.16  $29.60  $27.85  
 Three Months Ended
 December 29,
2017		 December 30,
2016
Employee Stock Option Plans   
Expected term (in years)3.82
 4.13
Risk-free interest rate1.9% 1.4%
Expected volatility18.7% 20.5%
Expected dividend—% —%
Weighted average fair value at grant date$19.45
 $15.44
(1)Excludes the fair value of the market condition based on 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: 
 Six Months Ended
April 3,
2020		March 29,
2019
Employee Stock Purchase Plan  
Expected term (in years)0.500.50
Risk-free interest rate1.6 %2.5 %
Expected volatility26.4 %18.6 %
Expected dividend— %— %
Weighted average fair value at grant date$27.58  $22.82  
26
 Three Months Ended
 December 29,
2017		 December 30,
2016
Employee Stock Purchase Plan   
Expected term (in years)0.50
 0.50
Risk-free interest rate1.2% 0.5%
Expected volatility17.9% 22.3%
Expected dividend—% —%
Weighted average fair value at grant date$20.97
 $19.37

VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)



A summary of share-based awards availableThe activity for grant is as follows:
(In millions)Shares Available for Grant
Balance at September 29, 20172.5
Granted(0.8)
Cancelled or expired0.3
Balance at December 29, 20172.0
For purposes of the total number of shares available for grant under the Fourth Amended 2005 Plan, any shares subject to awards of stock options and performance stock options are counted againstis 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, 20192.2  $97.66    
Granted0.4  140.79    
Cancelled or expired—  116.25    
Exercised(0.3) 80.34    
Balance at April 3, 20202.3  $106.81  4.6$15.9  
Exercisable at April 3, 20201.1  $88.41  3.4$15.9  
(1)The aggregate intrinsic value represents the available-for-grant limittotal pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of VMS common stock of $96.35 as one share for every one share subject toof April 3, 2020, the award. Awards other than stocklast trading date of the second quarter of fiscal year 2020, and which represents the amount that would have been received by the option holders had all option holders exercised their options and performance stock options are counted againstsold the available-for-grant limitshares received upon exercise as 2.6 shares for every one share awarded on or after February 9, 2012. The shares available for grant limit is further adjusted to reflect a maximum payoutof that could be issued for each performance grant. The maximum payouts that could be issued for each performance grant are 2.0 shares beginning in fiscal year 2018, 1.75 shares in fiscal years 2017 and 2016, and 2.0 shares in fiscal year 2015. All awards may be subject to restrictions on transferability and continued employment as determined by the Compensation and Management Development Committee.date.
Activity under the Company’s employee stock plans related to stock options is presented below: 
 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 29, 20172.3
 $74.08
    
Granted0.2
 109.05
    
Cancelled or expired (2)
—
 75.38
    
Exercised(0.2) 67.62
    
Balance at December 29, 20172.3
 $78.45
 4.8 $74.3
        
Exercisable at December 29, 20171.1
 $72.45
 3.7 $41.2

(1)
The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of VMS common stock of $111.15 as of December 29, 2017, the last trading date of the first quarter of fiscal year 2018, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.
(2)
The cancelled and expired shares were not material for disclosure.
As of December 29, 2017,April 3, 2020, there was $12.0$23.3 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 2.22.1 years.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


As of April 3, 2020, there was $0.3 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 2.5 years.
The activity for restricted stock, restricted stock units, deferred stock units and performance units is summarized as follows:
(In millions, except per share amounts)Number of
Shares		Weighted Average
Grant-Date Fair
Value
Balance at September 27, 20190.7  $108.35  
Granted0.3  145.08  
Vested(0.3) 100.04  
Cancelled or expired—  120.64  
Balance at April 3, 20200.7  $130.83  
(In millions, except per share amounts)Number of
Shares		 Weighted Average
Grant-Date Fair
Value
Balance at September 29, 20170.9
 $75.37
Granted0.1
 109.16
Vested (1)
—
 74.62
Cancelled or expired(0.1) 84.96
Balance at December 29, 20170.9
 $79.38

(1)
The vested shares were not material for disclosure.
As of December 29, 2017,April 3, 2020, unrecognized compensation expense totaling $32.7$64.9 million was related to awards of restricted stock, restricted stock units, deferred stock units and performance units granted under the Company's employee stock plans. This unrecognized share-based compensation expense is expected to be recognized over a weighted average period of 2.02.1 years.
14. EARNINGS PER SHARE
Basic net earnings per share is computed by dividing net earnings attributable to Varian by the weighted average number of shares of VMS common stock outstanding for the period. Diluted net earnings per share is computed by dividing net earnings attributable to Varian by the sum of the weighted average number of common shares outstanding and dilutive common shares under the treasury stock method.
The following table sets forth the computation of basic and diluted net earnings per share:
27
 Three Months Ended
(In millions, except per share amounts)December 29,
2017		 December 30,
2016
Net earnings (loss) from continuing operations$(112.2) $8.0
Less: Net earnings from continuing operations attributable to noncontrolling interests0.1
 0.5
Net earnings (loss) from continuing operations attributable to Varian$(112.3) $7.5
    
Net earnings from discontinued operations$—
 $6.5
Less: Net earnings from discontinued operations attributable to noncontrolling interests—
 0.1
Net earnings from discontinued operations attributable to Varian—
 6.4
Net earnings (loss) attributable to Varian$(112.3) $13.9
    
Weighted average shares outstanding - basic91.6
 93.5
Dilutive effect of potential common shares—
 0.7
Weighted average shares outstanding - diluted91.6
 94.2
    
Net earnings (loss) per share attributable to Varian - basic   
Continuing operations$(1.22) $0.08
Discontinued operations—
 0.07
Net earnings per share - basic$(1.22) $0.15
    
Net earnings (loss) per share attributable to Varian - diluted   
Continuing operations$(1.22) $0.08
Discontinued operations—
 0.07
Net earnings per share - diluted$(1.22) $0.15
Anti-dilutive employee share-based awards, excluded3.2
 0.6
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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


13. EARNINGS PER SHARE
The Company excludes potentially dilutive common shares (consisting of shares underlying stock options and the employee stock purchase plan) fromfollowing table sets forth the computation of basic and diluted weighted average shares outstanding if the per share value, either the exercise price of the awards or the sum of (a) the exercise price of the awards and (b) the amount of the compensation cost attributed to future services and not yet recognized and (c) the amount of tax benefit or shortfall that would be recorded in additional paid-in capital when the award becomes deductible, is greater than the average market price of the shares, because the inclusion of the shares underlying these stock awards would be anti-dilutive tonet earnings per share. For the three months ended December 29, 2017, the diluted net loss per share is the same as the basic net loss per share as the effects of all potential common stock equivalents are anti-dilutive.share:
 Three Months EndedSix Months Ended
(In millions, except per share amounts)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Net earnings$43.1  $88.4  $132.0  $192.3  
Less: Net earnings (loss) attributable to noncontrolling interests(0.1) (0.2) 0.6  0.5  
Net earnings attributable to Varian$43.2  $88.6  $131.4  $191.8  
Denominator:
Weighted average shares outstanding - basic90.7  91.0  90.8  91.0  
Dilutive effect of potential common shares0.7  0.9  0.8  1.0  
Weighted average shares outstanding - diluted91.4  91.9  91.6  92.0  
Net earnings per share attributable to Varian - basic$0.48  $0.97  $1.45  $2.11  
Net earnings per share attributable to Varian - diluted$0.47  $0.96  $1.43  $2.09  
Anti-dilutive employee share-based awards, excluded1.1  0.5  1.1  1.0  
15. VPT
14. PROTON SOLUTIONS LOANS AND INVESTMENT

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, NYPCthe New York Proton Center ("NYPC"), the Georgia Proton Treatment Center and DRTC.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 loans, investment and future commitments for funding the development, construction and operationsoperation of various proton therapy centers:
April 3, 2020September 27, 2019
(In millions)BalanceCommitment BalanceCommitment
Notes Receivable and Secured Debt: (1)
NYPC loan$33.1  $—  $31.8  $—  
RPTC senior secured debt23.2  —  23.5  —  
Proton International LLC loan1.8  —  1.8  —  
$58.1  $—  $57.1  $—  
Available-For-Sale Securities: (1)
MPTC Series B-1 Bonds  $28.1  $—  $27.1  $—  
MPTC Series B-2 Bonds   26.2  —  25.1  —  
APTC securities  6.1  —  6.6  —  
$60.4  $—  $58.8  $—  
CPTC Loans:
Short-term revolving loan (2)
$5.3  $1.9  $5.3  $1.9  
Term loan (3)
4.7  —  45.2  —  
$10.0  $1.9  $50.5  $1.9  
(1)Included in other assets at April 3, 2020 and September 27, 2019 on the Company's Condensed Consolidated Balance Sheets, except for amounts related to short-term interest receivable.
(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 April 3, 2020 and other assets at September 27, 2019 on the Company's Condensed Consolidated Balance Sheets.
28
  December 29, 2017 September 29, 2017
(In millions) Balance Commitment  Balance Commitment
Notes receivable and secured debt:        
MPTC loans (1)
 $60.1
 $—
 $60.1
 $—
RPTC senior secured debt (2)
 25.8
 —
 25.4
 —
NYPC loan (3)
 18.5
 —
 18.5
 —
PI loan (3)
 2.5
 —
 3.0
 —
CPTC DIP loan (3)
 —
 —
 5.1
 2.2
  $106.9
 $—
 $112.1
 $2.2
Available-for-sale Securities:        
Original CPTC loans (3)
 $—
 $—
 $47.4
 $—
DRTC securities (4)
 8.0
 —
 8.0
 —
APTC securities (2)
 6.0
 —
 —
 —
GPTC securities (3)
 4.5
 11.8
 4.4
 11.8
  $18.5
 $11.8
 $59.8
 $11.8
         
CPTC Loans and Investment:        
Short-term revolving loan (2)
 $2.4
 $4.8
 $—
 $—
Term loan (3)

 44.0
 —
 —
 —
Equity investment in CPTC (3)
 9.5
 —
 —
 —
  $55.9
 $4.8
 $—
 $—
(1)
Includes $35.0 million in other assets at both December 29, 2017 and September 29, 2017, respectively, and $25.1 million in prepaid and other current assets at December 29, 2017 and other assets at September 29, 2017 on the Company's Condensed Consolidated Balance Sheets.
(2)
Included in prepaid and other current assets on the Company's Condensed Consolidated Balance Sheets.
(3)
Included in other assets on the Company's Condensed Consolidated Balance Sheets.
(4)
Included in prepaid and other current assets at December 29, 2017 and in other assets at September 29, 2017 on the Company's Condensed Consolidated Balance Sheets.
Alabama Proton Therapy Center ("APTC") Securities
In December 2017, the Company purchased $6.0 million in Subordinate Revenue Bonds from the Public Finance Authority which is financing the APTC. The Subordinate Revenue Bonds carry an interest rate of 8.5% and pay interest semi-annually.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
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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 based upon the terms, 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 April 3, 2020 and September 27, 2019, the Company had $6.4 and $2.1 million in trade and unbilled receivables, respectively, which included $5.8 million and $2.1 million, in long-term unbilled receivables, respectively, from APTC.
RineckerProton 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 89approximately 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 in December 2019 the Company expects the insolvency proceedings to be finalized within the next twelve months.center closed for clinical operations and decommissioning began. Upon finalization of bankruptcy proceedings, the Company believes it is probable it will recover itsthe 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 December 29, 2017April 3, 2020 and September 29, 2017,27, 2019, the Company had $4.5$4.2 million and $4.6 million, respectively, in long-term trade receivables, net, forfrom RPTC, which does not include any unbilled receivables.
Georgia Proton Treatment Center ("GPTC") Security
In July 2017, the Company committed to purchase up to $16.1 million in Senior Capital Appreciation Bonds ("Senior Bonds") from the Atlanta Development Authority, which is financing the GPTC. In July 2017, the Company purchased $4.3 million of the Senior Bonds that carry an interest rate of 8.0% per annum with interest accruing up to the principal amount of $6.6 million until January 1, 2023 and then will pay cash interest semi-annually. The Company will purchase the remaining commitment in July 2018. The Company is scheduled, based upon the original terms, to start receiving annual principal payments on the Senior Bonds beginning on January 1, 2024. The Senior Bonds will mature on January 1, 2028.
Delray Radiation Therapy Center ("DRTC") Securities and Loan
In April 2017, the Company purchased $8.0 million in Subordinate Bonds from the Public Finance Authority, which is financing the DRTC. The Subordinate Bonds carry an interest rate of 8.5% and pay interest semi-annually. The Company was scheduled, based upon the original terms, to start receiving annual principal payments on the Subordinate Bonds beginning on November 1, 2021. The Subordinate Bonds will mature on November 1, 2046. In January 2018, the Company sold all of its Subordinate Bonds for $8.5 million, which included accrued interest.
In addition to the purchase of the Subordinate Bonds, the Company also loaned $3.0 million to Proton International LLC ("PI") to allow PI to purchase $3.0 million in Subordinate Bonds from the Public Finance Authority. The loan to PI carries an interest rate of 8.5% per annum, paid semi-annually and matures on April 30, 2022, subject to early repayment as proceeds are received by PI from the bonds purchased, and is secured by the related bonds. During the three months ended December 29, 2017, the Company received a principal payment of $0.5 million.
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 connection with a purchase agreement to supply a proton system to equipthe project developer of the NYPC. 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 April 3, 2020, the Subordinate Loan is $33.1 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 April 3, 2020 and September 27, 2019, the Company had $7.9$19.1 million and $13.3$16.6 million, as of December 29, 2017 and September 29, 2017, respectively, in trade and unbilled receivables, which included $7.9$6.5 million and $1.3$6.0 million in unbilled receivables, as of December 29, 2017 and September 29, 2017, respectively, from NYPC.
Maryland Proton Treatment Center ("MPTC") LoansSecurities
In May 2015, the Company committed to loan up to $35.0 million to MPTC. The Company completed its funding requirements per the loan agreement in the first quarter of fiscal year 2017. Varian's lending is in the form of a subordinated loanhas Subordinate Revenue Bonds ("MPTC Series B-2 Bonds") that is due, with accrued interest, in three annual payments from 2020 to 2022. The interest on the loan accrues at 12.0%.
In addition, the Company had previously entered into an agreement with MPTC to supply it with a proton system, which included a deferral of up to $25.1 million of equipment payments when triggered by achievement of delivery milestones under the contract. As of December 29, 2017, the Company has recorded $25.1 million as a notes receivable related to this deferred payment arrangement. The notes receivable carriescarry an interest rate of 15.0%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 is due September 30, 2018.then will pay cash interest semi-annually. The MPTC Series B-2 Bonds will mature on January 1, 2049. The Company also 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.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


As of December 29, 2017At April 3, 2020 and September 29, 2017,27, 2019, the Company had zero0 net trade and unbilled receivables from MPTC.
Variable Interest Entities
The Company has determined that MM Proton I, LLC MPTC, 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
29
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
involvement with MM Proton I, LLC MPTC, and RPTC is limited to the carrying amounts of the above mentionedabove-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”(the "Lenders”) committed to loan up to $185.0 million (the “Originalfunded loans (“Original CPTC Loans”), of which the Company's commitment was $84.7 million, to fund the development, construction, initial operations, and working capital needs of the Scripps Proton Therapy Center in San Diego, California. ORIX is the loan agent.
In November 2015, the Lenders andMarch 2017, California Proton Treatment Center, LLC ("Original CPTC") entered into a forbearance agreement whereby the Lenders agreed not to enforce their rights to principal and interest payments until April 2017, subject to Original CPTC maintaining certain covenants and achieving certain targets, with additional extensions through September 2017 based on hitting additional targets largely around patient volume and cash flow.
As of December 30, 2016, even though patient volumes continued to increase, Original CPTC was not in compliance with one of the patient volume covenants in the forbearance agreement, which would allow the Lenders to cease funding and terminate the forbearance agreement. In January 2017, the Company was informed of actions taken by Original CPTC and the loan agent, including Original CPTC obtaining shareholder consents for voluntary bankruptcy filing and the loan agent deciding that no additional funding would be available outside of a bankruptcy process. As a result of this information and the Company’s analysis that these actions would likely lead to insolvency or bankruptcy proceedings of Original CPTC, the Company determined that it was appropriate to record a $38.3 million impairment, as determined by the discounted cash flow model using a single best estimate methodology, of its Original CPTC Loans on the Condensed Consolidated Statements of Earnings in the first quarter of fiscal year 2017. As a result of this impairment, the Original CPTC Loans were written down to their estimated fair value of $60.0 million and reclassified from short-term investments to other assets on the Company's Condensed Consolidated Balance Sheet because the Company did not expect to collect or sell all or a portion of these loans in the next twelve months.
In March 2017, Original CPTC filed for bankruptcy and concurrently entered into a Debtor-in-Possession facilityFacility (the "DIP Facility") with the Lenders for up to $16.0 million of additional financing duringwhere the bankruptcy process. The Company's pro-rata share of the DIP Facility was $7.3 million. As of December 29, 2017, the Company had funded its entire commitment under the DIP Facility. The DIP Facility carried an interest rate at the London Interbank Offer Rate (“LIBOR”) plus 9.0% per annum and had a senior secured position ahead of the Original CPTC Loans.
Between April 2017 and August 2017, the Company did not become aware of any new information that warranted an impairment assessment. 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 (“Practice”). Based on the termsCorporation. As a result of the Transition Agreement, a slower projected growth in patient volume, an increase in additional projected capital needs and the Company's analysis,these events, the Company determined thatrecorded an additional $13.1 million impairment charge was deemed appropriate onof $51.4 million to its Original CPTC Loans which was recorded on the Consolidated Statements of Earnings in the fourth quarter of fiscal year 2017.
Pursuant to an order of the Bankruptcy Court, the California Proton Treatment Center ("Original CPTCCPTC") 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.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


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 Tranches: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 2020, as provided in the initial agreement, the Lenders have granted extensions to the term of the Revolving 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 December 29, 2017,April 3, 2020, the Company has funded $2.4$5.3 million.

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

Considering Original CPTC’s financial difficulties, the modificationPrimarily as a result of the original terms ofCOVID-19 pandemic, during March and April 2020, CPTC suffered material negative impacts to its operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner. Therefore, the Former Loans,Company concluded it was no longer probable that it will collect the amounts owed under the Term Loan and the Lenders agreementRevolving Loan (collectively "CPTC Loans") when due and recorded a $40.5 million impairment charge to grant a concession on the Originalits CPTC Loans using the Company classifiedprobability weighted expected return model, utilizing management's assumptions of different outcomes, in the transaction above as a troubled debt restructuring (“TDR”). The Company does not have any unamortized fees fromCondensed Consolidated Statements of Earnings in the Former Loans and any prepayment penalties.second quarter of fiscal year 2020. As a result of this impairment charge, the cost basis andCPTC Loans were written down to their estimated fair value of the Company's outstanding Term Loan as of December 29, 2017 is $53.5 million, which approximates the carrying value of the Former Loans prior to TDR.$10.0 million.

The Company, using a discounted cash flow approach, determined that the fair value of CPTC's equity as of Closing Date is $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 were in addition to a loan receivable partially satisfied through the bankruptcy proceedings, in accordance with the TDR accounting guidance,At April 3, 2020, and September 27, 2019, the Company recorded the equity interest at fair valuehad $2.9 million and as an offset to the reinstated loan balance. The equity investment$2.6 million, respectively, in CPTC is accounted for under the equity method of accounting as of December 29, 2017. The Company will account for its equity method share of the income or loss of CPTC on a quarter lag basis as provided by the equity method accounting guidance.

Per the terms of the Former Loans, as of September 29, 2017, ORIX had the option to purchase the Company's share of the Original CPTC Loans at par and therefore they were accounted for as available-for-sale securities. Per the terms of the new agreement, ORIX no longer has the option to purchase the Company’s share of the Term Loan at par. As a result, the Term Loan no longer qualifies for available-for-sale classification as of December 29, 2017.trade receivables, net, from CPTC.
Further, the Company has determined that CPTC is a variable interest entity (“VIE”) because of the Company's participation in the loan facilities, equity ownership and its operations and maintenance agreement. The Company has one board seat out of five, has no special approval authority or veto rights for 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.
30
16.
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
15. SEGMENT INFORMATION
The Company has two2 reportable operating segments: Oncology Systems and VPT.Proton Solutions. The Company's Interventional 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”), VMAT,volumetric modulated arc therapy ("VMAT"), stereotactic radiosurgery (“SRS”), stereotactic body radiotherapy (“SBRT”) and brachytherapy. Productsbrachytherapy as well as associated quality assurance equipment.
The Oncology Systems’ hardware products include linear accelerators, brachytherapy afterloaders, treatment simulationaccessories, artificial intelligence-powered adaptive delivery systems and verification equipment and accessories; as well as information management,quality assurance software. The Oncology Systems’ software solutions include treatment planning, and image processing,informatics, clinical
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


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 toand treat patients using brachytherapy techniques, which involve temporarily implantingthe introduction or temporary insertion of radioactive sources. The Company’s Oncology SystemsSystems' products are also used by neurosurgeonssurgeons and radiation oncologists to perform stereotactic radiosurgery.radiosurgery and by medical oncology departments to manage 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.
The VPTOncology Systems segment offers services ranging from hardware phone support, break/fix repair of linear accelerators, obsolescence protection of hardware, software support, software upgrades, hosting as a service, as well as clinical consulting services.

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 affordability to care while maintaining a fundamental level of clinical quality. Further, the Company operates 12 multi-disciplinary cancer centers and 1 specialty hospital in India and 1 multi-disciplinary cancer 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.
Accordingly,The Other category primarily includes the Interventional Solutions business, which offers products for interventional oncology procedures and treatments, including cryoablation, microwave ablation and 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 purposesthe 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 VPT.Interventional 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 and benefits.in process research and development. Although the Company excludes these amounts from segment operating earnings, and loss, they are included in the condensed consolidated operating earnings and included in the reconciliation below.
31
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)
The following table summarizes select operatingfinancial results information for each reportable segment:
Three Months Ended Three Months EndedSix Months Ended
(In millions)December 29,
2017		 December 30,
2016		(In millions)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Revenues   Revenues    
Oncology Systems$649.4
 $571.2
Oncology Systems$760.5  $746.8  $1,542.9  $1,449.3  
Varian Particle Therapy29.1
 30.3
Proton SolutionsProton Solutions22.3  32.6  49.9  71.1  
Total reportable segmentsTotal reportable segments782.8  779.4  1,592.8  1,520.4  
OtherOther11.7  —  30.6  —  
Total Company$678.5
 $601.5
Total Company$794.5  $779.4  $1,623.4  $1,520.4  
Operating Earnings   
Earnings before taxesEarnings before taxes            
Oncology Systems$138.2
 $116.1
Oncology Systems$110.9  $131.7  $247.3  $255.8  
Varian Particle Therapy(15.2) (50.3)
Proton SolutionsProton Solutions(14.3) (20.0) (28.6) (28.8) 
Total reportable segments123.0
 65.8
Total reportable segments96.6  111.7  218.7  227.0  
OtherOther(2.3) —  0.5  —  
Unallocated corporate(1.6) (48.4)Unallocated corporate(39.4) (1.9) (54.3) (5.5) 
Operating earningsOperating earnings54.9  109.8  164.9  221.5  
Interest income (expense), netInterest income (expense), net(1.2) 3.0  (2.9) 5.7  
Other income (expense), netOther income (expense), net(0.9) 0.2  3.5  23.2  
Total Company$121.4
 $17.4
Total Company$52.8  $113.0  $165.5  $250.4  
Disaggregation of Revenues
The Company disaggregates its revenues from contracts by major product categories, geographic region, and by geographic regiontiming of revenue recognition for each of its reportable operating segments, as the Company believes this best depicts how the nature, amount, and timing anand uncertainty of revenues and cash flows are affected by economic factors. See details in the tables below.
Revenues by Product Type
Three Months EndedSix Months Ended
Total Revenues by Product TypeApril 3,March 29,April 3,March 29,
(In millions)2020201920202019
Hardware
Oncology Systems$316.1  $339.1  $636.1  $652.7  
Proton Solutions13.1  27.9  33.2  61.5  
Other11.7  —  30.6  —  
Total Hardware340.9  367.0  699.9  714.2  
Software (1)
Oncology Systems153.2  144.2  302.0  275.4  
Proton Solutions1.5  —  1.5  —  
Total Software154.7  144.2  303.5  275.4  
Service
Oncology Systems291.2  263.5  604.8  521.2  
Proton Solutions7.7  4.7  15.2  9.6  
Total Service298.9  268.2  620.0  530.8  
Total Revenues$794.5  $779.4  $1,623.4  $1,520.4  
(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.

32
Total Revenues by product typeThree Months Ended December 29, 2017
(In millions)Oncology VPT Total
Hardware$293.1
 $27.3
 $320.4
Software (1)
115.1
 —
 115.1
Service241.2
 1.8
 243.0
Total Revenues$649.4
 $29.1
 $678.5
(1)
Includes software support agreements that are recorded in revenues from service in the Condensed Consolidated Statements of Earnings (Loss).
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)

Revenues by Geographical Region
Three Months EndedSix Months Ended
Total Revenues by Geographical RegionApril 3,March 29,April 3,March 29,
(In millions)2020201920202019
Americas
Oncology Systems$369.7  $357.1  $748.6  $687.9  
Proton Solutions11.4  14.2  28.3  33.8  
Other6.8  —  13.2  —  
Total Americas387.9  371.3  790.1  721.7  
EMEA
Oncology Systems240.9  245.3  500.7  479.8  
Proton Solutions9.8  16.2  20.1  32.7  
Other0.2  —  3.0  —  
Total EMEA250.9  261.5  523.8  512.5  
APAC
Oncology Systems149.9  144.4  293.6  281.6  
Proton Solutions1.1  2.2  1.5  4.6  
Other4.7  —  14.4  —  
Total APAC155.7  146.6  309.5  286.2  
Total Revenues$794.5  $779.4  $1,623.4  $1,520.4  
North America (1)
Oncology Systems$343.9  $329.2  $699.2  $638.3  
Proton Solutions11.5  14.2  28.3  33.8  
Other6.8  —  13.2  —  
Total North America362.2  343.4  740.7  672.1  
International
Oncology Systems416.6  417.6  843.7  811.0  
Proton Solutions10.8  18.4  21.6  37.3  
Other4.9  —  17.4  —  
Total International432.3  436.0  882.7  848.3  
Total Revenues$794.5  $779.4  $1,623.4  $1,520.4  
(1)North America primarily includes the United States and Canada.
Revenues by Timing of Revenue Recognition
Three Months EndedSix Months Ended
Timing of revenue recognitionApril 3,March 29,April 3,March 29,
(In millions)2020201920202019
Products transferred at a point in time
Oncology Systems$381.0  $402.6  $763.0  $769.2  
Proton Solutions1.5  —  1.5  —  
Other11.7  —  30.6  —  
Total products transferred at a point in time394.2  402.6  795.1  769.2  
Products and services transferred over time
Oncology Systems379.5  344.2  779.9  680.1  
Proton Solutions20.8  32.6  48.4  71.1  
Total products and services transferred over time400.3  376.8  828.3  751.2  
Total Revenues$794.5  $779.4  $1,623.4  $1,520.4  

33

Total Revenues by product typeThree Months Ended December 30, 2016
(In millions)Oncology VPT Total
Hardware$238.6
 $26.8
 $265.4
Software (1)
112.2
 —
 112.2
Service220.4
 3.5
 223.9
Total Revenues$571.2
 $30.3
 $601.5
(1)
Includes software support agreements that are recorded in revenues from service in the Condensed Consolidated Statements of Earnings (Loss).
Total Revenues by geographical regionThree Months Ended December 29, 2017
(In millions)Oncology VPT Total
Americas$337.4
 $19.3
 $356.7
EMEA183.5
 9.5
 193.0
APAC128.5
 0.3
 128.8
Total Revenues$649.4
 $29.1
 $678.5
      
North America$326.3
 $19.3
 $345.6
International323.1
 9.8
 332.9
Total Revenues$649.4
 $29.1
 $678.5
Total Revenues by geographical regionThree Months Ended December 30, 2016
(In millions)Oncology VPT Total
Americas$290.8
 $7.4
 $298.2
EMEA169.0
 15.0
 184.0
APAC111.4
 7.9
 119.3
Total Revenues$571.2
 $30.3
 $601.5
      
North America$275.0
 $7.4
 $282.4
International296.2
 22.9
 319.1
Total Revenues$571.2
 $30.3
 $601.5

Timing of revenue recognitionThree Months Ended December 29, 2017
(In millions)Products transferred at a point in time 
Products and Services transferred over time

 Total
Oncology Systems$338.3
 $311.1
 $649.4
VPT—
 29.1
 29.1
Total Revenues$338.3
 $340.2
 $678.5
VARIAN MEDICAL SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(Unaudited)


16. BUSINESS COMBINATIONS
Business Combinations in Fiscal Year 2020
Timing of revenue recognitionThree Months Ended December 30, 2016
(In millions)Products Transferred at a Point in Time 
Products and Services Transferred Over Time

 Total
Oncology Systems$282.4
 $288.8
 $571.2
VPT—
 30.3
 30.3
Total Revenues$282.4
 $319.1
 $601.5
The Company completed three acquisitions in its Oncology Systems business that were not material in the first six months of fiscal year 2020. The acquisitions were comprised of goodwill and assets acquired. The purchase accounting from these transactions is not yet finalized.

17. SUBSEQUENT EVENTSBusiness Combinations in Fiscal Year 2019

Assets acquired from Boston Scientific
On January 30, 2018,In August 2019, the Company signed an agreementacquired Boston Scientific's embolics microspheres business, for treating arteriovenous malformations and hypervascular tumors, for a purchase price of $90.0 million in cash consideration. The assets from this purchase are included in the Company's Interventional Solutions business, which is included in the Other category. The purchase accounting from this transaction has been finalized.

Cancer Treatment Services International
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 acquire Sirtex Medical Limited ("Sirtex"), an Australian company that$58 million and is listedbased on actual revenues over the Australian Securities Exchange, for A$28 per share or approximately A$1.6 billion ($1.3 billion). Sirtex is an Australian-based global life sciences company focused on interventional oncology therapies.18 months following the acquisition date. In March 2020, the Company released the $8.2 million of contingent consideration to earnings due to CTSI having lower projected financial performance during the earnout period. The Company planshas included this acquisition in its Oncology Systems business. The purchase accounting from this transaction is not yet finalized. The Company recorded a measurement period adjustment in the first quarter of fiscal year 2020 that was not material.

Endocare and Alicon
In June 2019, the Company acquired Endocare and Alicon for a combined purchase price of $210.0 million consisting of $197.4 million of cash consideration and $12.6 million of contingent consideration. The undiscounted range of the contingent consideration payments is 0 to finance the acquisition using cash$40 million and is based on handactual revenues through March 2020. Due to better than expected actual and projected financial performance for Endocare and Alicon, as well as proceeds from borrowings.a change in the expected mix of products, the Company recorded an $8.8 million increase in the 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 transaction,Company has recorded a total of $40.0 million in contingent consideration related to the Endocare and Alicon acquisitions, which is expected to closebe paid in late May 2018,fiscal year 2020. These acquisitions are included in the Company's Interventional Solutions business, which is subject toincluded in the approvalOther 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 Sirtex shareholders,contingent consideration was 0 because none of the Federal Courtmilestones 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 Australia and other customary closing conditions, including applicable regulatory approvals. 

On February 1, 2018,fiscal year 2019, the Company acquired Mobius Medical Systems L.P. ("Mobius")a privately-held software company for approximately $24.0a purchase price of $28.5 million. Mobius makes quality assurance software for the radiation oncology field. In December 2017, the Company deposited $2.6The acquisition primarily consisted of $21.9 million in an escrow account relatedgoodwill and $6.5 million in finite-lived intangible assets. The Company integrated this acquisition into its Oncology Systems reporting unit.
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 Mobius. Pera talented workforce.

The fair value of assets acquired and liabilities assumed, has been determined on a preliminary basis for acquisitions completed in the acquisition agreement,current year and certain acquisitions in the entire amountprevious fiscal year. The Company will finalize these amounts as it obtains the
34
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 escrow was releasedcertain adjustments. The Company expects to a third party onfinalize these amounts no later than one year from the acquisition date. The initial purchase accounting for this transaction was not yet complete at the filingdate of this Report.

each business combination.


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Varian Medical Systems, Inc.:

We have reviewed the accompanyingThe condensed consolidated balance sheetfinancial statements include the operating results from the date the above businesses were acquired. Pro forma results of Varian Medical Systems, Inc. and its subsidiaries as of December 29, 2017, andoperations for the relatedcompleted acquisitions have not been presented because the effects were not material to the Company's condensed consolidated statementsfinancial statements.

The Company incurred acquisition transaction costs of earnings (loss), of comprehensive earnings (loss)$4.4 million and of cash flows for$2.2 million during the three-month periodsthree months ended DecemberApril 3, 2020 and March 29, 20172019, respectively, and December 30, 2016. These interim financial statements are$8.3 million and $4.6 million during the responsibility of the Company’s management.six months ended April 3, 2020 and March 29, 2019, respectively.


We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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 Public Company Accounting Oversight Board (United States), 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.
35

Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.


We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of September 29, 2017, and the related consolidated statements of earnings and of comprehensive earnings, of equity, and of cash flows for the year then ended (not presented herein), and in our report dated November 27, 2017, we expressed an unqualified opinion on those consolidated financial statements. As discussed in Note 1 to the accompanying condensed consolidated interim financial statements, the Company adopted Accounting Standard Codification 606, Revenue from contracts with customers. The accompanying September 29, 2017 condensed consolidated balance sheet reflects this change.

/s/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
February 7, 2018


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: Varian's planned acquisition of Sirtex, expected synergies, accretive expectations, estimated closing datethe impact of the Sirtex acquisition, Varian's financing plans;COVID-19 pandemic on our business, including but not limited to, the impact on our workforce, operations, supply chain, demand for our products and services, and our financial results and condition; our ability to successfully manage the challenges associated with the COVID-19 pandemic; growth strategies; industry or market segment outlook; economic and market conditions; domestic and global trends; development, market acceptance of or transition to new products, technologies, solutions or technology such as fixed field intensity-modulated radiation therapy, image-guided radiation therapy, stereotactic radiosurgery, volumetric modulated arc therapy, brachytherapy, software, treatment techniques, 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 27, 2019 (the “2019 Annual Report”), as well as the information contained under Part I, Item 1A "Risk Factors" of the 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 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 Varian Particle Therapy ("VPT").Proton Solutions. Our Interventional 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 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
36

COVID-19 Impact

The outbreak of the COVID-19 virus in Wuhan, China in late 2019, and value creation strategy.subsequent spread of the virus throughout the world, has impacted our day-to-day operations globally, and the operations of the vast majority of our customers, suppliers, and distributors. The COVID-19 response by hospitals and healthcare professionals has placed a severe strain on healthcare systems globally. The World Health Organization’s March 2020 declaration of the COVID-19 outbreak as a global pandemic has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, border closures, quarantines, shelter-in-place orders, and business limitations and shutdowns. Many of our hospital customers have prioritized their efforts on COVID-19 response, diverting focus and resources away from their normal operations, and have restricted access to their sites in efforts to contain the spread of the virus. The prioritization of COVID-19 treatment and containment and travel restrictions have, in turn, presented us with unique operational challenges, including delays in decisions on new contracts by some customers and delays in our ability to market, deliver, install and service our systems. We have also experienced some disruptions and delays in our logistics and supply chains. To support the health and well-being of our employees, customers, distributors, partners and communities, as of May 12, 2020, approximately 65% of our employees are working remotely, whereas typically only 15% of our employees, such as field service employees, work remotely.

The impact of COVID-19 on our operations has varied by region, in parallel with the geographical spread and stage of containment of the pandemic. Our operations in China were impacted first, beginning early in our fiscal second quarter 2020, followed by other parts of our Asia Pacific geography, with EMEA and the Americas geographies being impacted later in the quarter. Our revenues in the quarter were trending higher than our revenues in the comparable period in our fiscal second quarter 2019 until March 2020, when we started to experience a decline in product revenues in EMEA and the Americas due to COVID-19 spread. By the end of the quarter, signs of recovery were noted in China and South Korea. These trends continued into April 2020. The adverse impact to revenues primarily resulted from delays in installation and acceptance of our hardware products and solutions. We experienced minimal impact to our services revenues during the quarter and expect that our services revenues will continue to be reasonably insulated from COVID-19 given the long-term nature of the underlying contracts and our current installed base. Our software revenues during the quarter increased compared to software revenues in our fiscal second quarter 2019.

In addition to these revenue impacts, we experienced delays in orders, primarily for capital equipment, during the quarter and this trend continued, with some geographic variation, into April 2020. To date, we have not experienced any order cancellations due to COVID-19. We incurred some idle capacity costs due to factory shutdowns during a portion of the quarter; however, we also had reduced costs of sales as a result of the operational slow down. We also incurred some COVID-19 operational expenses, which were offset by reduced travel costs. The net impact of COVID-19 related expenses on our operating earnings during the quarter was not material.

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

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

•We instituted work-from-home policies and workplace safety measures and protocols, including strict site access guidelines and ensuring the availability of personal protective equipment.

•To reduce the financial strain on our employees and their families, we implemented continuity of pay benefits in March that will continue as needed through fiscal 2020.

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

•In compliance with government mandates, we closed our manufacturing facility in Beijing for approximately four weeks during the quarter. As part of our workforce safety measures, we proactively placed our U.S. manufacturing and logistics facilities, including our Palo Alto manufacturing facility, in critical operations mode for approximately 3 weeks during the quarter. After implementing stringent safety protocols, which included rigorous health and safety training for all manufacturing employees returning to work and the institution of new workplace spacing requirements, we recommenced operations at these facilities and they are all currently fully operational. Existing inventory allowed us to continue shipments and honor customer commitments during the shutdowns.

37

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

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

•We have a solid balance sheet, with $1.3 billion in accessible liquidity, including $668 million in cash and cash equivalents and $661 million available under our $1.2 billion revolving credit facility. To date, we have not experienced a significant decline in customer credit quality or a significant increase in requests for changes or extension of payment terms as a result of COVID-19, although we will continue to closely monitor these metrics going forward. While our capital allocation priorities remain unchanged, as a precautionary measure we have paused our share buybacks to preserve liquidity and are focused on cancer care solutionsreducing costs to bolster our financial flexibility in light of the broad range of potential outcomes over the foreseeable future.

We are not able to accurately predict the full impact that COVID-19 will have on our future results of operations, financial condition, liquidity and well-positionedcash flows due to positively influence morenumerous uncertainties, including the duration and more patients globally every day by bringing smarterseverity of the pandemic and simpler solutionsthe containment measures in different geographies. However, we believe that lockdowns restricting access to healthcare providers. Our long-term growthcustomer sites and value creation strategy isvault construction delays will continue to transformhave an adverse impact on our company fromrevenues during the global leader in radiation therapy to become the global leader in multidisciplinary, integrated cancer care solutions. We intend to leverage our deep customer relationships, human-centered design, scale and financial strength to selectively broaden our capabilities to capitalize on industry trends. 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.
Adoption of ASC 606. At the beginningsecond half of our fiscal year 2018,2020 and that customer financial constraints, foreign currency headwinds, and uncertainty around the pandemic may lead our customers to defer capital equipment purchases during the second half of our fiscal year 2020 which will have a corresponding adverse impact on our orders. For both revenues and orders, we early adoptedbelieve that there will be a higher impact in our fiscal third quarter 2020 followed by sequential improvement in our fiscal fourth quarter 2020, assuming there is no second wave of infections or lockdowns. In addition, we believe that our existing orders backlog should soften the new revenue recognition Accounting Standard Codification 606 "Revenuesimpact of order delays on our revenues in our fiscal year 2020. We expect to continue to experience some logistical, manufacturing and shipment delays and some increased logistics-related costs.

We expect that our services revenues will continue to be reasonably insulated from Contracts with Customers" ("ASC 606")the impacts of COVID-19 and usedshould be reasonably predictable given the full retrospective method. All financial statementslong-term nature of the underlying contracts and disclosuresour current installed base. However, if treatment volumes decline materially and impact hospitals’ operating costs, it may impact our service contract renewals, pricing and service revenues. Based on regional machine utilization trends that we are closely monitoring, volume levels appear to be returning to historical averages in certain regions that have begun to recover from the pandemic, which should have a corresponding positive impact on hospital operating budgets.

While we believe that orders trends and our revenues will return to historical norms over time as the pandemic is controlled, if COVID-19 proliferates for an extended period, capital expenditure delays could be prolonged and have a material impact on revenues and orders beyond the second half of our fiscal year 2020. Capital markets and worldwide economies have been recastsignificantly impacted by the COVID-19 pandemic, and an extended economic recession could have a material adverse effect on our business over the longer term if hospitals reduce or curtail capital and overall spending. Some of our hospital customers may decide to complyno longer purchase or use our products or services and certain of our customers, suppliers and distributors may become insolvent.

Despite the challenges that we are facing due to the COVID-19 pandemic, we remain confident that the actions that we are taking to manage such challenges, combined with ASC 606.our strong liquidity, position us well to navigate through the current economic environment and continue to execute on our long-term value creation strategy.

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

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Highlights for the Three Months Ended April 3, 2020
Financial Summary
Three Months Ended
(In millions, except per share amounts)April 3,
2020		March 29,
2019		Change
Gross Orders$845.9  $770.9  10 %
Oncology Systems773.4  766.2  1 %
Proton Solutions60.8  4.7  1,206 %
Other11.7  —  n/m  
Backlog$3,286.0  $3,117.9  5 %
Revenues$794.5  $779.4  2 %
Oncology Systems760.5  746.8  2 %
Proton Solutions22.3  32.6  (32)%
Other11.7  —  n/m  
Gross margin as a percentage of revenues42.5 %40.8 %160 bps  
Effective tax rate18.5 %21.7 %
Net earnings attributable to Varian$43.2  $88.6  (51)%
Diluted net earnings per share$0.47  $0.96  (51)%
Net cash (used in) provided by operating activities$21.9  $(13.4) n/m  
Number of shares repurchased0.3  0.4  (25)%
Total cost of shares repurchased$39.8  $50.8  (22)%
n/m - not meaningful

Tariff Measures. Between July 2018 and May 2019, the Trump Administration imposed a series of tariffs, ranging from 5% to 25%, on numerous products imported into the United States from China, including Varian’s radiotherapy systems manufactured in China and certain components used in our manufacturing and service activities. In July and August 2018, China retaliated against the U.S. tariffs by imposing its own series of tariffs, ranging from 10% to 25%, on certain products imported into China from the United States, including Varian’s radiotherapy systems and certain manufacturing and service components.
We participated in the Office of the U.S. Trade Representative (“USTR”) process to seek product-specific exclusions from the U.S. tariffs on Chinese imports. To date, USTR has granted tariff exclusions for four products: certain radiotherapy systems manufactured in China, as well as three key components of the radiation therapy systems that we manufacture in the United States: multi-leaf collimators, certain printed circuit board assemblies and tungsten shielding. We submitted an additional U.S. exclusion request in September 2019, in relation to a manufacturing component, which is pending. In December 2019, USTR granted a one-year extension to our exclusion for radiotherapy systems.

In June and July 2019, we submitted formal requests to the Chinese government for exclusions from the Chinese retaliatory tariffs for manufacturing inputs, service parts and radiotherapy systems imported into China from the United States. In September 2019, the Chinese government granted a tariff exclusion for medical linear accelerators, including our radiotherapy systems, with retroactive effect. The other exclusion requests are still pending. The U.S. and Chinese government tariff exclusions are for one-year periods, with anticipated renewal processes. In the aggregate, these tariffs will be referred to as "U.S./China tariffs."
Impairment Charges. In March 2020, we recorded a $40.5 million impairment charge to our California Proton Therapy Center ("CPTC") term loan (“Term Loan”) due to material negative impacts to CPTC's operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner primarily driven by the impact of COVID-19. See Note 1, "Summary of Significant Accounting Policies"14, "Proton Solutions Loans and Investments," of the Notes to the condensed consolidated financial statements, for additional information.
As we completed our adoption of ASC 606 in the first quarter of fiscal year 2018, certain balance sheet adjustments were necessary from the Preliminary Condensed Consolidated Balance Sheets as of December 29, 2017 and September 29, 2017 that were filed in the Company’s 8-K on January 24, 2018 announcing its fiscal year 2018 first quarter results. The impact of these adjustments was to increase both unbilled receivables and deferred revenue by $25.8 million and $78.5 million as of December 29, 2017 and September 29, 2017, respectively which results in Oncology Systems accounts receivable days sales outstanding, or DSO, of 107 days at December 29, 2017 and 125 days at December 30, 2016. There has been no change to our Condensed ConsolidatedFinancial Statements of Earnings.for further information.



39


Change in Gross Orders Policy. In the first quarter of fiscal year 2018, we decided to retroactively change our policy on how we record services gross orders. Under the new policy, services gross orders do not include changes in deferred services revenue. We made the change to more accurately reflect the operational performance of the services business and to eliminate variations in orders reporting due to the timing of services billings. This policy change also impacts backlog, which no longer reflects the deferred revenue related to purchasable services. These changes only impact the Oncology Systems gross orders. All prior periods gross orders and backlog have been recast to reflect this policy change.
Distribution. On January 28, 2017 (the "Distribution Date"), we completed the separation and distribution (the "Distribution") of Varex Imaging Corporation ("Varex"), our former Imaging Components business segment. The historical financial position and results of operations of the Imaging Components business and costs relating to the Distribution are reported in the condensed consolidated financial statements as discontinued operations for all the periods presented. Unless otherwise noted, the financial information herein has been recast to reflect the effect of the Distribution. The Condensed Consolidated Statements of Comprehensive Earnings (Loss) and the Statements of Cash Flows have not been recast to reflect the effect of the Distribution. See Note 2, "Discontinued Operations" of the Notes to the condensed consolidated financial statements, for additional information.
Acquisition of Sirtex Medical Limited. On January 30, 2018, we signed an agreement to acquire Sirtex Medical Limited ("Sirtex"), an Australian company that is listed on the Australian Securities Exchange, for A$28 per share or approximately A$1.6 billion ($1.3 billion). Sirtex is an Australian-based global life sciences company focused on interventional oncology therapies. We plan to finance the acquisition using cash on hand as well as proceeds from borrowings. The transaction, which is expected to close in late May 2018, is subject to the approval of the Sirtex shareholders, the Federal Court of Australia and other customary closing conditions, including applicable regulatory approvals. We plan to finance the acquisition using cash on hand as well as proceeds from borrowings.

Acquisition of Mobius Medical Systems L.P. On February 1, 2018, we acquired Mobius Medical Systems L.P. ("Mobius") for approximately $24.0 million. Mobius makes quality assurance software for the radiation oncology field.
Financial Information. Total revenues increased 13%, gross margin percentage increased 0.2%, and the effective tax rate increased by 132.9 percentage points, compared to the year-ago period. Net loss from continuing operations was $112.2 million, and a net loss of $1.22 from continuing operations per diluted share, in the first quarter of fiscal year 2018, compared to $8.0 million net earnings from continuing operations and $0.08 net earnings per diluted share from continuing operations in the year-ago period.
Gross orders increased 7% in Oncology Systems in the first quarter of fiscal year 2018, compared to the year-ago period. Our total backlog at December 29, 2017 was 10% higher than at the end of the first quarter of fiscal year 2017.
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 revenuerevenues and gross orders are not adjusted for constant currency unless indicated.
Currency fluctuations did not havehad approximately a significant$6.5 million unfavorable impact onfor both total revenues and Oncology Systems gross orders, inrespectively, for the first quarter of fiscal year 2018,three months ended April 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.

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.

The first quarter of 2018 reflects the enactment of the Tax Cuts and Jobs Act, which was signed into U.S. law on December 22, 2017. Two provisions of the new law had an immediate impact.

First, the U.S. corporate tax rate was reduced from 35% to 21%. This rate reduction required us to re-measure our net deferred tax assets which were originally recorded assuming a future tax benefit at the 35% rate. We estimate that the total impact of this re-measurement of our net deferred tax assets will be about $47.0 million. The impact to our first quarter of fiscal year 2018 is a charge to income tax expense of $37.8 million. As the Company has a September fiscal year end, the change to the lower corporate tax rate will be phased in. As a result of this phase in, the remainder, or about $9.2 million, will be charged to income tax expense over the balance of fiscal year 2018.


Second, as part of the transition to a modified territorial system, the new law imposes a one-time transition tax on the unremitted earnings of our foreign subsidiaries. We estimate the tax effect of this deemed repatriation to be $169.3 million. We intend to elect to pay this tax over an eight-year period.
The Securities and Exchange Commission has issued guidance allowing companies a measurement period, not to exceed one-year from the date of enactment, to refine their estimates of the tax impact of the new law. We fully expect that we will true up our estimates of these tax impacts of the new tax legislation over the measurement period.
On January 22, 2018, a continuing budget resolution was signed into law that included a provision to extend the moratorium on the 2.3% medical device excise tax for two more years, or until January 1, 2020. This tax has had, and may continue to have, a negative impact on our gross margin when the moratorium expires.
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 also include treatment planning, informatics, software for information management, clinical knowledge exchange, patient care management, practice management and decision-makingdecision support for comprehensive cancer clinics, radiotherapy centers and medical oncology practices. We offer services ranging from hardware phone support, break/fix repair of linear accelerators, obsolescence protection of hardware, software support, software upgrades, hosting as a service, as well as clinical consulting services.

We have expanded our services offerings to include clinical practice services that assist within the clinical workflow. These services focus on decision support and/or cancer care knowledge augmentation aimed to facilitate improved accessibility and affordability to care while maintaining a fundamental level of clinical quality. Further, we operate 12 multi-disciplinary cancer centers and one specialty hospital in India and one multi-disciplinary cancer center in Sri Lanka. We also expect to innovate and incubate new solutions such as technology-enabled services, and to develop additional technologies that incorporate artificial intelligence and machine learning capabilities, in an environment of data security and patient privacy integrity.
Our primary goal in the Oncology Systems business is to promote the adoption of more advanced and effective cancer treatments. In our view, the fundamental market forces that drive long-term growth in our Oncology Systems business are the rise in cancer cases; technology advances and product developments that are leading to improvements in patient care;care and outcomes; customer demand for the more advanced and effective cancer treatments that we enable; competitive conditions among hospitals and clinics to offer such advanced treatments; continued improvement in safety and cost efficiency in delivering radiation therapy; and underserved medical needs outside of the United States. Over the last few years, we have seen a greater percentageApproximately half of Oncology Systems gross orders and revenues comingcome from international markets, within which certain emerging markets within our international region, which typically can have lower gross margins and longer installation cycles comparedsince many of these purchases are for new sites where treatment vaults need to mature markets. We have also seen an increased portion of gross orders and revenues coming from services and software licenses, both of which have higher gross margin percentages than our hardware products.be constructed. We have also been investing a higher portion of our Oncology Systems research and development budget in software and software-related products, which have a higher gross margin than our hardware products.
Subject to the potential impact of COVID-19, we believe international markets will be our fastest growing markets. The radiation oncology market in North America is largely characterized by replacements of older machines, with periodic increases in demand driven by the introduction of new technologies. Reimbursement rates in the United States have generally supported a favorable return on investment for the purchase of new radiotherapy equipment and technologies. While we believe that improved product functionality, greater cost-effectiveness and prospects for better clinical outcomes with new capabilities, such as IMRT, IGRT and VMAT, tend to drive demand for radiotherapy products, large changes in reimbursement rates or reimbursement structure can affect customer demand and cause market shifts. We do not know the full impact of the Affordable Care Act or its potential repeal, or the possible impact of changes in policy resulting from President Trump's administration, will have on long-term growth or demand for our products and services. We believe however, that growth of the radiation oncology market in the United States could be impacted as customers’ decision-making processes are complicated by the uncertainties surrounding the Affordable Care Act, or its replacement,reimbursement rates and reimbursement ratesnew models for radiotherapy and radiosurgery, such as the alternative payment model pilot program for radiation oncology that was proposed by the Centers for Medicare and Medicaid Services in July 2019. This pilot program is intended to test whether an episode-based payment structure would reduce Medicare expenditures. We believe that this uncertainty will likely continue in future fiscal years. We believe this uncertaintyyears and could impact transaction size, timing and purchasing processes, and also contribute to increased quarterly business variability. Given all the dynamic elements affecting this market, as outlined above, we believe the North America market will continue to grow in the low to mid-single digit range.
In the radiation oncology markets outside of North America, we expect the EMEA marketand Latin America markets to grow over the long-termlong term with mixed performancevarying growth rates across the region.regions. In APAC, we expect China to lead longer-term regional growth, off-setting a slower Japanese market. Latin America is currently experiencing volatility; however, our long-term outlook is cautiously optimistic.growth. Overall, we believe the global radiation oncology market can grow over the long-term,long term, in constant currencies, in the low to mid-single-digit range.
In the first quarter of fiscal year 2018, Oncology Systems revenues increased 14% and gross margin percentage increased by 0.4 percentage points compared to the year-ago period.
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In the first quarter of fiscal year 2018, Oncology Systems gross orders increased 7%, compared to the year-ago period, primarily due to an increase in gross orders of 12% and 2% from our international and North America regions, respectively. On a constant currency basis, Oncology Systems gross orders and international gross orders increased 6% and 9%, respectively, in the first quarter of fiscal year 2018, compared to the year-ago period.


Varian Particle TherapyProton Solutions. Our VPTProton Solutions business develops, designs, manufactures, sells and services products and systems for delivering proton therapy, another form of external beam radiotherapytherapy using proton beams, for the treatment of cancer.
In Proton therapy is a preferred option for treating certain cancers, particularly tumors near critical structures such as the first quarterbase of fiscal year 2018, VPT revenues decreased $1.2 millionthe skull, spine, optic nerve and gross orders increased $41.9 million comparedmost pediatric cancers. Although proton therapy has been in clinical use for more than four decades, it has not been widely deployed due to the year-ago period.high capital cost.
In January 2017, we were informed of actions taken by CaliforniaWe are investing resources to drive growth and innovation in this business. Proton Treatment Center, LLC (“Original CPTC”)therapy facilities are large-scale construction projects that have long lead times and the loan agent, including Original CPTC obtaining shareholder consentsinvolve significant customer investment and often complex project financing. Consequently, this business is vulnerable to general economic and market conditions, as well as reimbursement rates. Customer decision-making cycles tend to be very long, and orders generally involve many contingencies. Credit markets for voluntary bankruptcy filing and the loan agent deciding that no additional funding would be available outside of a bankruptcy process. In March 2017, Original CPTC filed for bankruptcy and concurrently entered into a Debtor-in-Possession facility (the "DIP Facility") with ORIX Capital Markets, LLC, J.P. Morgan and Varian for up to $16.0 million of additional financing during the bankruptcy process. Our pro-rata share of the DIP Facility was $7.3 million. In September 2017, ORIX, J.P. Morgan and Varian (collectively the "Lenders") and the Scripps Proton Therapy Center ("Scripps") signed a Transition Agreement to transition the operations of the center from Scripps to a new operator.
Pursuant to an order from the Bankruptcy Court, Original CPTC conducted an auction of the sale of Scripps Proton Therapy Center. On December 6, 2017 (“Closing Date”), the Bankruptcy Court approved the sale of Original CPTC to the California Proton Therapy Center, LLC (“CPTC”), an entity owned by the Lenders. The Lenders purchased all assets and assumed $112.0 million (“Term Loan”) 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”)proton therapy projects have been modified. In addition to the partially satisfied Original CPTC Loans reinstated by the Bankruptcy Court, the Company received a 47.08% equity ownershipimproved in CPTC. Original CPTC has assigned all its Former Loans to CPTC at an amount of $112.0 million, the partially satisfied loan balance. Per the terms of the Credit Agreement, our portion of the $112.0 million is $53.5 million; the remainder is allocated between ORIX and J.P. Morgan. The $53.5 million is composed of four Tranches: Tranche A of $2.0 million, Tranche B of $7.2 million, Tranche C of $15.6 million, and Tranche D of $28.7 million (collectively the "Term Loan"). The maturity date of the Term Loan is threerecent 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 Revolving Loans. Our share ofbut the funding commitment from the Revolving Loanenvironment for large capital projects, such as proton therapy projects, is $7.2 millionstill challenging and asvolatile. Our current focus is bringing our expertise in traditional radiation therapy to proton therapy to improve its clinical utility, reduce its cost of December 29, 2017,treatment per patient and drive innovation, so that it is more widely accepted and deployed.
As of April 3, 2020, we have funded $2.4 million. The Revolving Loan accrues paid-in-kind interest at 10% per annum and hashad a maturity date one year from the Closing Date.

All of the Tranches accrue paid-in-kind interest at 7.5% per annum, except the Tranche B, loan which accrues 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 of the Tranche A, C and D will increase to 9.5% and the Tranche B and the Revolving Loan will increase to 12.0%.

Considering Original CPTC’s financial difficulties, the modification of the original terms of the Former Loans, and the Lenders agreement to grant a concession on the Original CPTC Loans, we classified this transaction as a troubled debt restructuring (“TDR”). We did not have any unamortized fees from the Former Loans and any prepayment penalties. As a result, the cost basis and fair value of our outstanding term loan as of December 29, 2017 to CPTC is $53.5 million, which approximates the carrying value of the Former Loans prior to TDR.

We used a discounted cash flow approach$128.5 million of notes receivable, including accrued interest, senior secured debt, available-for-sale securities, and determined the fair value of CPTC's equity as of Closing Date is $20.1 million. Our 47.08% ownership percentage amounts to a $9.5 million equity interest in CPTC. Since the common stock received were in addition to a loan receivable partially satisfied through the bankruptcy proceedings, in accordance with the TDR accounting guidance, we recorded the equity interest at fair value and as an offset to the reinstated loan balance. The equity investment in CPTC is accounted for under the equity method of accounting as of December 29, 2017. We will account for our equity method share of the income or loss of CPTC on a quarter lag basis as provided by the equity method accounting guidance.
Per the terms of the Former Loans, as of September 29, 2017, ORIX had the option to purchase our share of the Original CPTC Loans at par and therefore they were accounted as available-for-sale securities. Per the terms of the new agreement, ORIX no longer has the option to purchase our share of the Term Loan at par. As a result, the Term Loan no longer qualifies for available-for-sale classification as of December 29, 2017. As of December 29, 2017, we had a total of $125.4 million carrying value of loans outstanding to VPT customers, available-for-sale securities, notes receivable and short-term senior secured debt.Proton Solutions customers. See Note 15, "VPT14, "Proton Solutions Loans and Securities"Investments," of the Notes to the Condensed Consolidated Financial Statements for further information.



This discussionOther. The Other category includes our Interventional Solutions business that offers products for interventional oncology procedures and analysis of our financial conditiontreatments, including cryoablation, microwave ablation and results of operations is based upon and should be readembolization. We also provide software for post treatment, image-guided dosimetry for Yttrium-90 microspheres used 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 and the Notesselective internal radiation therapy. The Other category also includes assets related to the Consolidated Financial Statements anduse of radiation in 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 29, 2017 (the “2017 Annual Report”), as well as the information contained under Part II, Item 1A "Risk Factors" of this Quarterly Report on Form 10-Q,heart and other information provided from time to time in our other filings with the SEC.forms of radiosurgery for cardiovascular disease.
Critical Accounting Estimates
The preparation of our financial statements and related disclosures in conformity with accounting principles generally accepted in the United States (“GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. We periodically review our accounting policies, estimates and assumptions and make adjustments when facts and circumstances dictate. In addition to the accounting policies that are more fully described in the Notes to the Consolidated Financial Statements included in our 2017 Annual Report on Form 10-K, we consider the critical accounting policies described below to be affected by critical accounting estimates. Our critical accounting policies that are affected by accounting estimates include revenue recognition, share-based compensation expense, valuation of allowance for doubtful accounts, impairment of investments and notes receivable, valuation of inventories, assessment of recoverability of goodwill and intangible assets, valuation of warranty obligations, assessment of loss contingencies, valuation of defined benefit pension and post-retirement benefit plans, valuation of derivative instruments, and taxes on earnings. Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates. For a discussion of how theseWe periodically review our accounting policies, estimates and other factors may affectassumptions and make adjustments when facts and circumstances dictate. During the six months ended April 3, 2020, there were no significant changes, except as noted below to our business, seecritical accounting policies and estimates as described in the financial statements contained in Part II, Item 1A, “Risk Factors.”7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our 2019 Annual Report.
Revenue Recognition
Our revenues are derived primarily from the sale of hardware and software products, and services from our Oncology Systems and VPT businesses. We recognize revenues net of any value added or sales tax and net of sales discounts.
We frequently enter into revenue arrangements with customers that contain multiple performance obligations including hardware, software, and services. Judgments as to the stand alone selling price and allocation of consideration from an arrangement to the individual performance obligations, and the appropriate timing of revenue recognition are critical with respect to these arrangements.
Changes to the elements in an arrangement and the amounts allocated to each element could affect the timing and amount of revenue recognition. Revenue recognition also depends on the timing of shipment, readiness of customers’ facilities for installation, installation requirements, and availability of products or customer acceptance terms. If shipments or installations are not made on scheduled timelines or if the products are not accepted by the customer in a timely manner, our reported revenues may differ materially from expectations.
Service revenues include revenues from hardware service contracts, software service agreements, bundled support arrangements, paid services and trainings, and parts that are sold by our service department. Revenues allocated to service contracts are generally recognized ratably over the period of the related contracts.
We recognize revenues on proton therapy contracts over the life of the project as costs are incurred. We recognize revenue related to our proton therapy systems over time because the customer controls the work in process, the Company's performance does not create an asset with alternative use to the Company, and the Company has an enforceable right to payment for performance completed to date. Changes in estimates of total contract revenue, total contract cost or the extent of progress towards completion are recognized in the period in which the changes in estimates are identified. Estimated losses on contracts are recognized in the period in which the loss is identified. In circumstances in which the final outcome of a contract cannot be reliably estimated but a loss on the contract is not expected, we recognize revenues to the extent of costs incurred until reliable estimates can be made. If and when we can make reliable estimates, revenues and costs of revenues are adjusted in the same period. Recognizing revenue over time based on costs incurred requires the use of estimates in determining revenues, costs and profits and in assigning the dollar amounts to relevant accounting periods. Because the estimates must be periodically reviewed and appropriately adjusted, if our estimates prove to be inaccurate or circumstances change over time, we may be forced to adjust revenues or even record a contract loss in later periods.


For a discussion of the impact of ASC 606 on our revenue recognition, please see Note 1, "Summary of Significant Accounting Policies" of the Notes to the condensed consolidated financial statements.
Share-based Compensation Expense
We grant restricted stock units, deferred stock units, performance units, and stock options to employees and permit employees to purchase shares under the VMS employee stock purchase plan. We value our stock options granted and the option component of the shares of VMS common stock purchased under the employee stock purchase plan using the Black-Scholes option-pricing model. We value our performance units, which contain a market condition, using the Monte Carlo simulation model. The determination of fair value of share-based payment awards on the date of grant under both the Black-Scholes option-pricing model and the Monte Carlo simulation model is affected by VMS’s stock price, as well as the input of other subjective assumptions, including the expected terms of share-based awards and the expected price volatilities of shares of VMS common stock and peer companies that are used to assess certain performance targets over the expected term of the awards, and the expected dividend yield of shares of VMS common stock.
The expected term of our stock options is based on the observed and expected time to post-vesting exercise and post-vesting cancellations of stock options by our employees. We use a blended volatility in deriving the expected volatility assumption for our stock options. Blended volatility represents the weighted average of implied volatility and historical volatility. Implied volatility is derived based on traded options on VMS common stock. In determining the grant date fair value of our performance units, historical volatilities of shares of VMS common stock, as well as the shares of common stock of peer companies, were used to assess certain performance targets. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our stock awards. The dividend yield assumption is based on our history and expectation of no dividend payouts. If factors change and we employ different assumptions in future periods, the compensation expense that we record may differ significantly from what we have recorded in the current period.
Beginning in the first quarter of fiscal year 2018, we now record forfeitures as they occur. We estimate the probability that certain performance conditions that affect the vesting of performance units will be achieved, and recognize expense only for those awards expected to vest. If the actual number of performance units that vest based on achievement of performance conditions are materially different from our estimates, the share-based compensation expense could be significantly different from what we have recorded in the current period.
Allowance for Doubtful Accounts
We evaluate the creditworthiness of our customers prior to authorizing shipment for all major sale transactions. Except for government tenders, group purchases and orders with letters of credit in Oncology Systems our payment terms often require payment of a small portion of the total amount due when the customer signs the purchase order, a significant amount upon transfer of risk of loss to the customer and the remaining amount upon completion of the installation. On a quarterly basis, we evaluate aged items in the accounts receivable aging report and provide an allowance in an amount we deem adequate for doubtful accounts. If our evaluation of our customers’ financial conditions does not reflect our future ability to collect outstanding receivables, additional provisions may be needed and our operating results could be negatively affected.
Impairment of Investments and Notes Receivable
We recognize an impairment charge when the declines in the fair values of our available-for-sale investments below their cost basis are determined to be other than temporary impairments (“OTTI”). We monitor our available-for-sale investments for possible OTTI on an ongoing basis. When there has been a decline in fair value of a debt security below the amortized cost basis, we recognize OTTI if: (i) we have the intention to sell the security; (ii) it is more likely than not that we will be required to sell the security before recovery of the entire amortized cost basis; or (iii) we do not expect to recover the entire amortized cost basis of the security. We assess the fair value of our available-for-sale securities, which are classified in the level 3 fair value hierarchy 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 associated with the loans, as well as underlying cash flow assumptions. As of December 29, 2017, we did not have any available-for-sale investments classified as level 3 in the fair value hierarchy. As of September 29, 2017, we had $47.4 million, which comprised of the fair value our Original CPTC Loans, of available-for-sale investments classified as level 3 in the fair value hierarchy. See Note 4, "Fair Value" and Note 15, "VPT Loans and Securities" of the Notes to the Condensed Consolidated Financial Statements.

We also have investments in privately-held companies, some of which are in the startup or development stages. We monitor these investments for events or circumstances indicative of potential impairment, and we make appropriate reductions in carrying values if we determine that an impairment charge is required, based primarily on the financial condition, near-term


prospects and recent financing activities of the investee. These investments are inherently risky because the markets for the technologies or products these companies are developing are typically in the early stages and may never materialize.

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

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

Goodwill represents the excess of the purchase price in a business over the fair value of net tangible and intangible assets acquired. The determination of the value of the intangible assets acquired involves certain judgments and estimates. These judgments can include, but are not limited to, the cash flows that an asset is expected to generate in the future and the appropriate discount weighted-average cost of capital ("WACC"). Each period we evaluate the estimated remaining useful lives of purchased intangible assets and whether events or changes in circumstances warrant a revision to the remaining periods of amortization.

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

Determining the fair value of a reporting unit involves the use of significant estimates and assumptions. These estimates and assumptions include revenue growth rates, operating margins and working capital needs to calculate projected future cash flows,requirements, WACC, future economic and market conditions, estimation of the long-term rate of growth for our business and determination of appropriate market comparables. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. Actual future results related to assumed variables could differ from these estimates. In addition, we make certain judgments and assumptions in allocating assets and liabilities to determine the carrying values for each reporting unit.
We
As of April 3, 2020, we have two reporting units: (i)units with goodwill: Oncology Systems and (ii) VPT,Interventional Solutions, with $170.2balances of $450.4 million and $53.2$164.3 million, respectively. Due to certain indicators identified related to our Interventional Solutions reporting unit in goodwill, respectively, as of December 29, 2017. Based upon the most recent annual goodwill analysis during the fourthsecond quarter of fiscal year 2017, VPT's2020, including a significant decrease in near term revenue projections due to COVID-19, we identified a triggering event and performed an interim impairment test on our $164.3 million of goodwill in our Interventional Solutions reporting unit, within the Other reportable operating segment. The fair value of the Interventional Solutions’ reporting unit was 21% in excess of its carrying value by approximately $20 million, or 7%. Management believes the methodology and we believe each of the assumptions used to calculate VPT’sthe fair value to be reasonable. However, VPTthe Interventional Solutions reporting unit could be at risk for a future goodwill impairment becauseif there are adjustments to certain assumptions used in the fair value calculation, including revenue growth rates, operating margins, WACC and/or our working capital usedrequirements. Given the uncertain impact of COVID-19 and/or other market factors on our business, our cash flow projections for this business could decrease in the fair value calculationfuture, which could lead to an impairment.


Warranty Obligations
We warrant mostimpairment of our products forgoodwill. In the third quarter of fiscal year 2019, we recorded a specific periodgoodwill impairment charge of time, usually 12 months from installation, against material defects. We provide$50.5 million for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent our best estimate at the time of salefull value of the total costs that we will incur to repair or replace product parts that fail while still under warranty. The amount of accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates will include historical experience of similar products, as well as reasonable allowance for start-up expenses. Actual warranty costs could differ from the estimated amounts. On a quarterly basis, we review the accrued balances of our warranty obligationsProton Solutions reporting unit goodwill.See Note 5, "Goodwill and update the historical warranty cost trends, if required. If we were required to accrue additional warranty costs in the future, it would have a negative effect on our operating results.
Loss Contingencies
From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations or other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. We accrue amounts, to the extent they can be reasonably estimated, that we believe are adequate to address any liabilities related to legal proceedings and other loss contingencies that we believe will result in a probable loss. Such matters are subject to many uncertainties, outcomes are not predictable with assurance, and actual liabilities could significantly exceed our estimates of potential liabilities. In addition, we are subject to a variety of environmental laws around the world. Those laws regulate multiple aspects of our operations, including the handling, storage, transport and disposal of hazardous substances. They impose costs on our operations. In connection with our past and present operations and facilities, we record environmental remediation liabilities when we conclude that environmental assessments or remediation efforts are probable and we believe we can reasonably estimate the costs of those efforts. Our accrued environmental costs represent our best estimate of the total costs of assessments and remediation and the time period over which we expect to incur those costs. We review these accrued balances quarterly. If we were required to increase or decrease the accrued environmental costs in the future, it would adversely or favorably impact our operating results.
Defined Benefit Pension Plans
We sponsor five defined benefit pension plans in Germany, Japan, Switzerland and the United Kingdom covering employees who meet the applicable eligibility requirements in these countries. Several statistical and other factors that attempt to anticipate future events are used in calculating the expenses and liabilities related to the aforementioned plans. These factors include assumptions about the discount rate, expected return on plan assets, and rate of future compensation increases, all of which we determine within certain guidelines. In addition, we also use assumptions, such as withdrawal and mortality rates, to calculate the expenses and liabilities. The actuarial assumptions we use are long-term assumptions and may differ materially from actual experience particularly in the short term due to changing market and economic conditions and changing participant demographics. These differences may have a significant impact on the amount of defined benefit pension plan expenses we record.
The expected rates of return on the various defined benefit pension plans’ assets are based on the asset allocation of each plan and the long-term projected return on those assets. The discount rate enables us to state expected future cash flows at a present value on the measurement date. The discount rates used for defined benefit plans are primarily based on the current effective yield of long-term corporate bonds that are of high quality with satisfactory liquidity and credit rating with durations corresponding to the expected durations of the benefit obligations. A change in the discount rate may cause the present value of benefit obligations to change significantly.
Valuation of Derivative Instruments
We use foreign currency forward contracts to reduce the effects of currency rate fluctuations on sales transactions denominated in foreign currencies and on net monetary assets and liabilities denominated in foreign currencies. These foreign currency forward contracts are derivative instruments and are measured at fair value. There are three levels of inputs that may be used to measure fair value (see Note 4, "Fair Value"Intangible Assets," of the Notes to the Condensed Consolidated Financial Statements). The fair value of foreign currency forward contracts is calculated primarily using Level 2 inputs, which include currency spot and forward rates, interest rate and credit or non-performance risk. The spot rateStatements for each currency is the same spot rate used for all balance sheet translations at the measurement date and sourced from our major trading banks. The forward point values for each currency and the London Interbank Offered Rate (“LIBOR”) to discount assets and liabilities are interpolated from commonly quoted broker services. One-year credit default swap spreads of the counterparty at the measurement date are used to adjust derivative assets, all of which mature in 13 months or less, for non-performance risk. We are required to adjust derivative liabilities to reflect themore information.




potential non-performance risk to lenders based on our incremental borrowing rate. Each contract is individually adjusted using the counterparty credit default swap rates (for net assets) or our borrowing rate (for net liabilities). The use of Level 2 inputs in determining fair values requires certain management judgment and subjectivity. Changes to these Level 2 inputs could have a material impact on the valuation of our derivative instruments. There were no transfers of assets or liabilities between fair value measurement levels during the first quarter of fiscal years 2018 and 2017.
Taxes on Earnings
We are subject to taxes on earnings in both the United States and numerous foreign jurisdictions. As a global taxpayer, significant judgments and estimates are required in evaluating our tax positions and determining our provision for taxes on earnings. We account for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Recognition and measurement are based on management’s best judgment given the facts, circumstances and information available at the end of the accounting period.
Generally, the carrying value of our net deferred tax assets assumes that we will be able to generate sufficient future taxable earnings in the applicable tax jurisdictions to utilize these deferred tax assets. Should we conclude it is more likely than not that we will be unable to recover our deferred tax assets in these tax jurisdictions, we would increase our valuation allowance and our tax provision would increase in the period in which we make such a determination. The Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. Among other changes, the Act reduces the U.S. corporate tax rate from 35% to 21%. The reduction in the rate required us to re-measure our net deferred tax assets that were originally recorded assuming a future tax benefit at the 35% rate. During the three months ended December 29, 2017, we recorded a provisional discrete tax expense of $37.8 million related to re-measuring our net deferred tax assets as a result of the rate reduction.
Our foreign earnings are taxed at rates that are, on average, lower than U.S. rates. Our effective tax rate is impacted by existing tax laws in both the United States and in the respective countries in which our foreign subsidiaries do business. In addition, a decrease in the percentage of our total earnings from foreign countries, or a change in the mix of foreign countries among particular tax jurisdictions could increase or decrease our effective tax rate.

As part of the transition to a modified territorial system, the Act imposes a one-time transition tax on the unremitted earnings of our foreign subsidiaries. During the three months ended December 29, 2017, we recorded a provisional discrete tax expense of $169.3 million related to the one-time transition tax. We intend to elect to pay this tax over an eight-year period.
The transition to a modified territorial regime and the one-time transition tax on unremitted earnings has caused us to re-evaluate our intentions with respect to the unremitted earnings of our foreign subsidiaries. In the past, we did not accrue U.S. taxes on certain undistributed profits of certain foreign subsidiaries because the earnings were considered to be indefinitely reinvested. In light of the changes to the taxation of foreign earnings in the Act, we no longer consider the earnings of our foreign subsidiaries to be indefinitely reinvested.

On December 22, 2017, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118 (“SAB 118”). This guidance allows registrants a “measurement period,” not to exceed one year from the date of enactment, to complete their accounting for the tax effects of the Act. SAB 118 further directs that during the measurement period, registrants who are able to make reasonable estimates of the tax effects of the Act should include those amounts in their financial statements as “provisional” amounts. Registrants should reflect adjustments over subsequent periods as they are able to refine their estimates and complete their accounting for the tax effects of the Act. We have made reasonable estimates and recorded provisional amounts within the meaning of SAB 118. Also, it is expected that the U.S. Treasury will issue regulations and other guidance on the application of certain provisions of the Act. In subsequent periods, but within the measurement period, we will analyze that guidance and other necessary information to refine our estimates and complete our accounting for the tax effects of the Act.
Results of Operations
Fiscal Year
Our fiscal year is the 52- or 53-week period ending on the Friday nearest September 30. Fiscal year 20182020 is the 52-week53-week period ending September 28, 2018,October 2, 2020, and fiscal year 20172019 was the 52-week period that ended on September 29, 2017.27, 2019. The fiscal quarters ended DecemberApril 3, 2020 and March 29, 2017 and December 30, 20162019 were both 13-week periods.


Discussion of Results of Operations for the First Quarter of Fiscal Year 2018Three and Six Months Ended April 3, 2020 Compared to the First Quarter of Fiscal Year 2017Three and Six Months Ended March 29, 2019
Total Revenues
Revenues by sales classificationThree Months EndedRevenues by sales classificationThree Months EndedSix Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Product$365.6
 $309.2
 18%Product$407.3  $430.5  (5)%$828.3  $830.7  — %
Service312.9
 292.3
 7%Service387.2  348.9  11 %795.1  689.7  15 %
Total Revenues$678.5
 $601.5
 13%Total Revenues$794.5  $779.4  2 %$1,623.4  $1,520.4  7 %
Product as a percentage of total revenues54% 51%  Product as a percentage of total revenues51 %55 % 51 %55 %
Service as a percentage of total revenues46% 49%  Service as a percentage of total revenues49 %45 % 49 %45 % 
Total product revenues decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to decreases from Oncology Systems and Proton Solutions, offset by $11.7 million in revenues from the Other category. Total product revenues were flat in the six months ended April 3, 2020, primarily due to a decrease from Proton Solutions and, to a lesser extent, a decrease from Oncology Systems, partially offset by $30.6 million in revenues from the Other Category.
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Total service revenues increased in the three and six months ended April 3, 2020, compared to the year-ago periods, primarily due to Oncology Systems, which included approximately $17 million and $35 million, respectively, in service revenues from CTSI. The six months ended April 3, 2020 included approximately $19 million in additional service revenues due to the first quarter of fiscal year 2018,2020 being a 14-week period.
Revenues by geographical regionThree Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeConstant CurrencyApril 3,
2020		March 29,
2019		Percent ChangeConstant Currency
Americas$387.9  $371.3  4 %5 %$790.1  $721.7  9 %10 %
EMEA250.9  261.5  (4)%(2)%523.8  512.5  2 %4 %
APAC155.7  146.6  6 %7 %309.5  286.2  8 %8 %
Total Revenues$794.5  $779.4  2 %3 %$1,623.4  $1,520.4  7 %8 %
North America (1)
$362.2  $343.4  5 %5 %$740.7  $672.1  10 %10 %
International432.3  436.0  (1)%1 %882.7  848.3  4 %5 %
Total Revenues$794.5  $779.4  2 %3 %$1,623.4  $1,520.4  7 %8 %
North America as a percentage of total revenues46 %44 % 46 %44 % 
International as a percentage of total revenues54 %56 % 54 %56 % 
(1) North America primarily includes the United States and Canada.
The Americas revenues increased in the three months and six months ended April 3, 2020, compared to the year-ago period,periods, primarily due to an increase in revenues from Oncology Systems.

Revenues by geographical regionThree Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change 
Constant Currency (1)
Americas$356.7
 $298.2
 20% 20 %
EMEA193.0
 184.0
 5% (2)%
APAC128.8
 119.3
 8% 10 %
Total Revenues$678.5
 $601.5
 13% 11 %
        
North America$345.6
 $282.4
 22% 22 %
International (2)
332.9
 319.1
 4% 1 %
Total Revenues$678.5
 $601.5
 13% 11 %
North America as a percentage of total revenues51% 46%    
International as a percentage of total revenues49% 54%    
(1)
Constant currency is the percent change excluding the effect of foreign currency fluctuations against the U.S. Dollar.
(2)
We consider international revenues to be revenues outside of North America.
The Americas revenues increased in the first quarter of fiscal year 2018, compared to the year-ago period, due to an increase in revenues from Oncology Systems in North America and, to a lesser extent, an increase in revenues from VPT.the Other category, partially offset by a decrease in revenues from Proton Solutions.
EMEA revenues decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to decreases in revenues from Proton Solutions and Oncology Systems. EMEA revenues increased in the first quarter of fiscal year 2018, compared to the year-ago period,six months ended April 3, 2020, primarily due to an increase in revenues from Oncology Systems, and to a lesser extent, an increase in revenue from the Other category, partially offset by a decrease in revenues from Proton Solutions. Oncology Systems revenues in the three and six months ended April 3, 2020 included approximately $13 million and $27 million, respectively, in revenues from CTSI.
APAC revenues increased in the three months and six months ended April 3, 2020, compared to the year-ago periods, primarily due to an increase in revenues from the Other category and Oncology Systems, partially offset by a decrease in revenues from VPT. APAC revenues increased in the first quarter of fiscal year 2018, compared to the year-ago period, due to an increase in revenues from Oncology Systems, partially offset by a decrease in revenues from VPT.Proton Solutions.

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Oncology Systems Revenues
Revenues by sales classificationThree Months EndedRevenues by sales classificationThree Months EndedSix Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change Constant Currency(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeConstant CurrencyApril 3,
2020		March 29,
2019		Percent ChangeConstant Currency
Product$338.3
 $282.4
 20% 18%Product$381.0  $402.6  (5)%(4)%$763.0  $769.2  (1)%— %
Service311.1
 288.8
 8% 6%Service379.5  344.2  10 %11 %779.9  680.1  15 %15 %
Total Oncology Systems Revenues$649.4
 $571.2
 14% 12%Total Oncology Systems Revenues$760.5  $746.8  2 %3 %$1,542.9  $1,449.3  6 %7 %
Product as a percentage of total Oncology Systems revenues52% 49% 
  Product as a percentage of total Oncology Systems revenues50 %54 %49 %53 %
Service as a percentage of total Oncology Systems revenues48% 51%    Service as a percentage of total Oncology Systems revenues50 %46 % 51 %47 %   
Oncology Systems revenues as a percentage of total revenues96% 95%    Oncology Systems revenues as a percentage of total revenues96 %96 %95 %95 %
Oncology Systems product revenues increaseddecreased in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period,periods, primarily due to increases inlower hardware product revenues due tocaused by the COVID-19 pandemic, partially offset by higher volumessoftware sales. In the three and six months ended March 29, 2019, revenues from hardware products had a negative impact of hardware unit shipments.approximately $9 million and $17 million from the U.S./China Tariffs.
Oncology Systems service revenues, which now includesinclude performance obligations for installation, training and warranty, increased across all regions in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period,periods, primarily due to the ongoing customer adoption of service contracts as the warranty periods on our TrueBeam systems expire and an increase in the number of customers as the installed base of our products continues to grow.

Oncology Systems service revenues also include approximately $17 million and $35 million in revenues from CTSI in the three and six months ended April 3, 2020. The first quarter of fiscal year 2020 was a 14-week period, which resulted in approximately $19 million in additional service revenues being recorded.
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Revenues by geographical regionThree Months EndedRevenues by geographical regionThree Months EndedSix Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change Constant Currency(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeConstant CurrencyApril 3,
2020		March 29,
2019		Percent ChangeConstant Currency
Americas$337.4
 $290.8
 16% 16%Americas$369.7  $357.1  4 %4 %$748.6  $687.9  9 %9 %
EMEA183.5
 169.0
 9% 2%EMEA240.9  245.3  (2)%— %500.7  479.8  4 %6 %
APAC128.5
 111.4
 15% 17%APAC149.9  144.4  4 %5 %293.6  281.6  4 %4 %
Total Oncology Systems Revenues$649.4
 $571.2
 14% 12%Total Oncology Systems Revenues$760.5  $746.8  2 %3 %$1,542.9  $1,449.3  6 %7 %
       
North America$326.3
 $275.0
 19% 19%North America$343.9  $329.2  4 %4 %$699.2  $638.3  10 %10 %
International323.1
 296.2
 9% 6%International416.6  417.6  — %1 %843.7  811.0  4 %5 %
Total Oncology Systems Revenues$649.4
 $571.2
 14% 12%Total Oncology Systems Revenues$760.5  $746.8  2 %3 %$1,542.9  $1,449.3  6 %7 %
North America as a percentage of total Oncology Systems revenues50% 47%    North America as a percentage of total Oncology Systems revenues45 %44 % 45 %44 % 
International as a percentage of total Oncology Systems revenues50% 53%    International as a percentage of total Oncology Systems revenues55 %56 % 55 %56 % 
Americas Oncology Systems revenues increased in the first quarter of fiscal year 2018, compared to the year-ago period, primarily due to higher volumes of hardware unit shipments from hardware products in North America, and to a lesser extent, an increase in revenues from services in North America, partially offset by a decrease in revenues from software licenses and hardware products in Latin America.
EMEA Oncology Systems revenues increased in the first quarter of fiscal year 2018,three months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in revenues from services and software licenses, and a favorable foreign currency exchange impact.
APACpartially offset by lower revenues from hardware products caused by the COVID-19 pandemic. Americas Oncology Systems revenues increased slightly in the first quarter of fiscal year 2018,six months ended April 3, 2020, compared to the year-ago period, primarily due to increases relatedan increase in revenues from services and software licenses.
EMEA Oncology Systems revenues decreased in the three months ended April 3, 2020, compared to higher volumes ofthe year-ago period, primarily due to lower revenues from hardware unit shipments,products caused by the COVID-19 pandemic, partially offset by an increase in revenues from services. EMEA Oncology Systems revenues increased in the six months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in revenues from services and, to a lesser extent, an increase in revenues from software licenses, partially offset by lower revenues from hardware products caused by the COVID-19 pandemic. EMEA Oncology Systems revenues from services included approximately $13 million and $27 million from CTSI in the three and six months ended April 3, 2020.
APAC Oncology Systems revenues increased in the three months and six months ended April 3, 2020, compared to the year-ago periods, primarily due to an increase in revenues from services and hardware products, partially offset by a decrease in revenuesrevenue from software licenses. In the three and six months ended March 29, 2019, revenues from hardware products included a negative impact of approximately $9 million and $17 million from the U.S./China Tariffs.
Variations of higher and lower revenues between the North AmericanAmerica and international regions are impacted by regional influences,factors influencing our gross orders, which recently have includedinclude the potential impact of COVID-19, government stimulus programs,spending, philanthropy/donations, economic and political instability in some countries, uncertainty created by U.S. health care reform (suchpolicy, such as the excise tax on the sale of most medical devices, Medicare reimbursement rates and consolidation of free standing clinics in the United States),States, and different technology adoption cycles that are consistent with the gross order patterns.cycles. See further discussion of orders under “Gross Orders.”


Varian Particle Therapy 
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Revenues by sales classificationThree Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change
Product$27.3
 $26.8
 2 %
Service1.8
 3.5
 (49)%
Total Varian Particle Therapy Revenues$29.1
 $30.3
 (4)%
VPT revenues as a percentage of total revenues4% 5%  
Proton Solutions Revenues
Revenues by sales classificationThree Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Product$14.6  $27.9  (48)%$34.7  $61.5  (44)%
Service7.7  4.7  61 %15.2  9.6  58 %
Total Proton Solutions Revenues$22.3  $32.6  (32)%$49.9  $71.1  (30)%
Proton Solutions revenues as a percentage of total revenues3 %4 %3 %5 %
Revenues from VPTProton Solutions decreased in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period, primarily due to a decreasefewer orders in fiscal year 2018 and the first half of fiscal year 2019, the timing of project completion and stage of progress, partially offset by an increase in service revenues resulting from certainthe increase in proton customers.centers transitioned to service contracts. The estimated impact of the COVID-19 pandemic on Proton Solution revenues was not material in the three and six months ended April 3, 2020.
Other Revenues
Revenues from the Other category was $11.7 million and $30.6 million for the three and six months ended April 3, 2020. Revenues from the Other category are allocated to product revenues and are related to our Interventional Solutions business. The estimated impact of the COVID-19 pandemic on Interventional Solutions revenues was not material in the three and six months ended April 3, 2020.
Gross Margin
Dollars by segmentThree Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Oncology Systems$328.6  $322.4  2 %$681.6  $632.2  8 %
Proton Solutions(0.4) (4.2) 91 %(0.4) 2.1  (118)%
Other9.0  —  n/m  22.8  —  n/m  
Gross margin$337.2  $318.2  6 %$704.0  $634.3  11 %
Percentage by segment
Oncology Systems43.2 %43.2 %44.2 %43.6 %
Proton Solutions(1.8)%(13.0)%(0.8)%3.2 %
Other77.6 %— %74.7 %— %
Total Company42.5 %40.8 %43.4 %41.7 %
Percentage by sales classification
Total Company - Product35.4 %31.6 %35.4 %32.5 %
Total Company - Service49.9 %52.2 %51.7 %52.9 %
Oncology Systems - Product36.6 %35.1 %36.3 %35.4 %
Oncology Systems - Service49.9 %52.7 %51.9 %52.9 %
Dollars by segmentThree Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change
Oncology Systems$300.5
 $262.1
 15 %
Varian Particle Therapy2.3
 4.9
 (52)%
Gross margin$302.8
 $267.0
 13 %
      
Percentage by segment     
Oncology Systems46.3% 45.9%  
Varian Particle Therapy8.0% 16.1%  
Total Company44.6% 44.4%  
      
Percentage by sales classification     
Total Company - Product38.8% 33.3%  
Total Company - Service51.5% 56.1%  
n/m - not meaningful

Oncology Systems product gross margin percentage was 40.8%increased in the first quarter of fiscal year 2018, compared to 35.4% for the respective year-ago period. The increase in Oncology Systems product gross margin percentage in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period, wasperiods, primarily due to morehigher software product mix and certain tariff exclusions, partially offset by an unfavorable hardware product mix and some additional costs due to the COVID-19 pandemic. In the three months ended March 29, 2019, the U.S./China tariffs had a negative impact of approximately $13 million, comprised of a negative impact of $9 million in revenues from higher margin hardware products and software licenses.$4 million in cost of revenues. In the six months ended March 29, 2019, the U.S./China tariffs had a negative impact of $24 million, comprised of a negative impact of $17 million in revenues and $7 million in cost of revenues.
Oncology Systems service gross margin percentage was 52.2%decreased in the first quarter of fiscal year 2018, compared to 56.2% in the year-ago period. The decrease in service gross margin percentage in the first quarter of fiscal year 2018,three months and six months ended April 3, 2020, compared to the year-ago period, wasperiods, primarily due to higher service delivery costs and service revenues from CTSI, which have a lower installation revenues and higher costs associated with installation, warranty and entitled training.margin than our traditional services, partially offset by an increase in service revenues.
VPT
46

Proton Solutions gross margin percentage decreasedincreased in the first quarter of fiscal year 2018 compared to the year-ago period, primarily due to more revenues from lower margin projects and a decrease in service revenues.
Research and Development
 Three Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change
Research and development$55.9
 $49.9
 12%
Research and development as a percentage of total revenues8% 8%  

Research and development expenses increased $6.0 million in the first quarter of fiscal year 2018,three months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in service revenues and mix of projects. Proton Solutions gross margin percentage decreased in the six months ended April 3, 2020, compared to the year-ago period, primarily due to the mix of projects and increased project costs.
Research and Development
 Three Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Research and development$71.0  $59.4  19 %$138.1  $120.3  15 %
Research and development as a percentage of total revenues9 %8 %9 %8 %
Research and development expenses increased $11.6 million and $17.8 million in the three and six months ended April 3, 2020, compared to the year-ago periods, primarily due to an increase in investments in new product development projectssoftware, Flash technology, adaptive radiotherapy and the enhancement of existing products in Oncology Systems.


other strategic programs.
Selling, General and Administrative and Impairment ChargesAcquisition-related expenses (benefits)
Three Months Ended Three Months EndedSix Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Selling, general and administrative$125.5
 $161.4
 (22)%Selling, general and administrative$175.3  $146.8  20 %$352.3  $287.9  22 %
Impairment charges—
 38.3
 n/m
Impairment charges$40.5  $—  n/m  $40.5  $—  n/m  
Acquisition-related expenses (benefits)Acquisition-related expenses (benefits)$(4.5) $2.2  (320)%$8.2  $4.6  80 %
Selling, general and administrative as a percentage of total revenues18% 27% 
Selling, general and administrative as a percentage of total revenues22 %19 %22 %19 %
Impairment charges as a percentage of total revenues—% 6%  Impairment charges as a percentage of total revenues5 %— %2 %— %
Acquisition-related expenses as a percentage of total revenuesAcquisition-related expenses as a percentage of total revenues(1)%— %1 %— %
n/m =- not meaningful

Selling, general and administrative expenses decreased $35.9increased $28.5 million and $64.4 million in the first quarterthree and six months ended April 3, 2020, compared to the year-ago periods, as we continue to invest in scaling our operations to support growth, including an increase in headcount to support sales and marketing for recent acquisitions and investments in product management for treatment planning in Oncology Systems. Also contributing to the increase in the three and six months ended April 3, 2020, were increases of fiscal year 2018,$3.9 million and $9.2 million, respectively in additional amortization of intangible assets.

Impairment charges in the three and six months ended April 3, 2020, were due to an impairment charge of $40.5 million to our CPTC Term Loan. As a result of the COVID-19 pandemic, during March and April 2020, CPTC suffered material negative impacts to its operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner. Therefore, we concluded it was no longer probable that we will collect the amounts owed under the CPTC Term Loan when due. See Note 14, "Proton Solutions Loans and Investments," of the Notes to the Condensed Consolidated Financial Statements for further information.

Acquisition-related expenses (benefits) decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to the release of $8.2 million in contingent consideration earnout liabilities related to our acquisition of CTSI, partially offset by an increase in transaction costs. Acquisition-related expenses increased in the six months ended April 3, 2020, compared to the year-ago period, primarily due to $8.8 million increase in the fair value of contingent consideration related to the Endocare and Alicon acquisitions and an increase in transaction costs, partially offset by the release of $8.2 million in contingent consideration earnout liabilities related to our acquisition of CTSI.
47

Other Income (Expense), Net
 Three Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Interest income$3.1  $4.0  (20)%$6.1  $7.9  (23)%
Interest expense$(4.3) $(1.0) 327 %$(9.0) $(2.2) 301 %
Other income (expense), net$(0.9) $0.2  (751)%$3.5  $23.2  (85)%
Interest income decreased in the three and six months ended April 3, 2020, compared to the year-ago periods, primarily due to a decrease in interest income from loans to our Proton Solution customers and available-for-sale securities.
Interest expense increased in the three and six months ended April 3, 2020, compared to the year-ago periods, primarily due to an increase in borrowings.
Other income (expense), net, decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to changes in foreign currency exchange. Other income (expense), net, decreased in the six months ended April 3, 2020, compared to the year-ago period, primarily due to a $36.6$22.0 million decreasegain on the sale of an equity investment in the allowance for doubtful accounts that was mostly for CPTC and another proton center in the first quarter of fiscal year 2017, a $6.1 million decrease in litigation expenses primarily as a result of the settlement with Elekta in April 2017, and a $3.5 million decrease in restructuring charges, partially offset by an $8.8 million increase in employee-related costs largely due to an increase in headcount.2019.
In the first quarter of fiscal year 2017, we recorded a $38.3 million impairment charge related to our Original CPTC loans. See Note 15, "VPT Loans and Securities" in our Notes to the Condensed Consolidated Financial Statements for additional information.Taxes on Earnings
Interest Income, Net
 Three Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		ChangeApril 3,
2020		March 29,
2019		Change
Taxes on earnings$9.7  $24.6  (60.0)%$33.5  $58.1  (42.3)%
Effective tax rate18.5 %21.7 %20.2 %23.2 %
 Three Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change
Interest income, net$1.1
 $1.9
 (43)%
Interest income, net of interest expense, decreasedOur effective tax rate is lower in the first quarter of fiscal year 2018,three months ended April 3, 2020, compared to the year-ago period, primarily duebecause earnings in the current period included the release of $8.2 million of contingent consideration related to a decreaseour acquisition of CTSI that resulted in interest income generated from our loans to CPTC partially offset by a decrease in interest expense associated with a decrease in borrowings from our credit facility.
Taxes on Earnings
 Three Months Ended
 December 29,
2017		 December 30,
2016		 Percent Change
Effective tax rate191.5% 58.6% 132.9%
no tax charge. Our effective tax rate increased inwas lower for the first quarter of fiscal year 2018,six month period ended April 3, 2020, compared to the year agoyear-ago period, primarily due tobecause the prior period included the tax effect of a change in law change. The first quarter of 2018 reflectsdue to the enactment of the Tax Cuts and Jobs Act, which was signed into U.S. law on December 22, 2017. Two provisions of the new law had an immediate impact.

First, the U.S. corporate tax rate was reduced from 35% to 21%. This rate reduction required us to re-measure our net deferred tax assets which were originally recorded assuming a future tax benefit at the 35% rate. We estimate that the total impact of this re-measurement of our net deferred tax assets will be about $47.0 million. The impact to our first quarter is a charge to income tax expense of $37.8 million. As the Company has a September fiscal year end, the change to the lower corporate tax rate will be phased in. As a result of this phase in, the remainder, or about $9.2 million, will be charged to income tax expense over the balance of fiscal year 2018.
Second, as part of the transition to a modified territorial system, the new law imposes a one-time transition tax on the unremitted earnings of our foreign subsidiaries. We estimate the tax effect of this deemed repatriation to be $169.3 million. We intend to elect to pay this tax over an 8-year period.


The Securities and Exchange Commission has issued guidance allowing companies a measurement period, not to exceed one-year from the date of enactment, to refine their estimates of the tax impact of the new law. We fully expect that we will true up our estimates of these tax impacts from the new tax legislation over the measurement period.
We adopted the guidance related to employee share-based payments during the period ended December 29, 2017. Under the prior standard, the tax effect of the “excess stock deduction” related to stock-based compensation was recorded to Additional Paid-in Capital in the equity section on the Balance Sheet. For a stock-based compensation instrument, the excess stock deduction is the difference between the amount of the deduction for taxable income and the amount of book expense related to that instrument. Under the new standard, the tax effect of the “excess stock deduction” related to stock-based compensation is recorded as a discrete item to Income Taxes on Earnings in the Statement of Earnings. During the three months ended December 29, 2017, we recorded a discrete tax benefit of $1.5 million related to excess stock deduction activity in the quarter. We expect that the new standard may cause our effective tax rate to be less predictable and more volatile going forward.
Our effective tax rate is impacted by the percentage of our total earnings that comecomes from our international region,regions, the mix of particular tax jurisdictions within our international region,regions, changes in the valuation of our deferred tax assets or liabilities, and changes in tax laws or interpretations of those laws. We also expect that our effective tax rate may experience increased fluctuations from period to period. See Note 14, “Taxes on Earnings”10, "Income Taxes," of the Notes to the Consolidated Financial Statements in our 20172019 Annual Report.
Discontinued Operations
The following table summarizes the key components of net (loss) earnings from discontinued operations:
 
Three Months Ended (1)
(In millions)December 30,
2016
Revenues$151.5
Cost of revenues92.7
Gross margin58.8
Operating expenses (2)
46.4
Operating earnings12.4
Taxes on earnings5.9
Net earnings from discontinued operations$6.5
(1)
There was no activity in net earnings from discontinued operations during the first quarter of fiscal year 2018.
(2)
Operating expenses from discontinued operations included separation costs of $14.9 million during the first quarter of fiscal year 2017. Separation costs include expenses for transaction advisory services, consulting services, restructuring and other expenses.
Diluted Net Earnings (Loss) Per Share
 Three Months EndedSix Months Ended
April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Diluted net earnings per share$0.47  $0.96  (51)%$1.43  $2.09  (31)%
 Three Months Ended
 December 29,
2017		 December 30,
2016		 Percent Change
Diluted net earnings (loss) per share - continuing operations$(1.22) $0.08
 n/m
Diluted net earnings per share - discontinued operations—
 0.07
 n/m
Total - Diluted net earnings (loss) per share$(1.22) $0.15
 n/m
n/m = not meaningful
Diluted net earnings per share from continuing operations decreased in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period,periods, primarily due to the Tax Cuts$40.5 million impairment of our Term Loan with CPTC, and Jobs Act signedincreases in December 2017,both research and development and selling, general and administrative costs, partially offset by an increase in


operating earnings from continuing operations and a reductiondecrease in the number of diluted shares of common stock outstanding due to share repurchases.effective tax rate.

48

Gross Orders
Gross orders by segmentThree Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeApril 3,
2020		March 29,
2019		Percent Change
Oncology Systems$773.4  $766.2  1 %$1,547.2  $1,482.7  4 %
Proton Solutions60.8  4.7  1,206 %86.7  9.9  780 %
Other11.7  —  n/m  30.6  —  n/m  
Total Gross Orders$845.9  $770.9  10 %$1,664.5  $1,492.6  12 %
Total Gross Orders by segmentThree Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change
Oncology Systems$619.9
 $576.7
 7%
Varian Particle Therapy46.2
 4.3
 965%
Total Gross Orders$666.1
 $581.0
 15%
n/m - not meaningful
Gross orders are defined as new orders recorded during the period adjusted for anyand revisions to existing orders during the period.previously recorded orders. New orders are recorded for the total contractual amount, excluding certain pass-through items and service items, which are recognized as revenue is recognized, once a written agreement for the delivery of goods or provision of services is in place and, other than VPT,Proton Solutions, when shipment of the product is expected to occur within two years, so long as any contingencies are deemed perfunctory. For our VPTProton Solutions business, we record orders when construction of the related proton therapy treatment center is reasonably expected to start within two years, but only if any contingencies are deemed perfunctory. We will not record VPTProton Solutions orders if there are major financing contingencies, if a substantial portion of the financing for the project is not reasonably assured or if customer board approval contingencies are pending. We perform a quarterly review to verify that outstanding orders remain valid. If an order is no longer expected to be convertedultimately convert to revenue, we record a backlog adjustment, which reduces backlog but does not impact gross orders for the period.
Gross orders in any period may not be directly correlated to the level of revenues in any particular future quarter or period since the timing of revenue recognition will vary significantly based on the delivery requirements of individual orders, acceptance schedules and the readiness of individual customer sites for installation of our products.products, all of which could be impacted by COVID-19. Moreover, certain types of orders, such as orders for software or newly introduced products in our Oncology Systems segment, typically take more time from order to completion of installation and acceptance than hardware or older products. Because an order for a proton therapy system can be relatively large, an order in one fiscal period will cause gross orders in our VPTProton Solutions business to vary significantly, making comparisons between fiscal periods more difficult.
Oncology Systems Gross Orders
Gross orders by geographical regionThree Months EndedSix Months Ended
(Dollars in millions)April 3,
2020		March 29,
2019		Percent ChangeConstant CurrencyApril 3,
2020		March 29,
2019		Percent ChangeConstant Currency
Americas$355.4  $366.1  (3)%(3)%$714.9  $702.0  2 %2 %
EMEA259.3  233.3  11 %13 %496.0  451.6  10 %12 %
APAC158.7  166.8  (5)%(5)%336.3  329.1  2 %2 %
Total Oncology Systems Gross Orders$773.4  $766.2  1 %2 %$1,547.2  $1,482.7  4 %5 %
North America$337.8  $342.5  (1)%(1)%$664.6  $656.0  1 %1 %
International435.6  423.7  3 %4 %882.6  826.7  7 %8 %
Total Oncology Systems Gross Orders$773.4  $766.2  1 %2 %$1,547.2  $1,482.7  4 %5 %
Gross Orders by geographical regionThree Months Ended
(Dollars in millions)December 29,
2017		 December 30,
2016		 Percent Change Constant Currency
Americas$299.5
 $293.6
 2% 2%
EMEA190.4
 160.1
 19% 13%
APAC130.0
 123.0
 6% 6%
Total Oncology Systems Gross Orders$619.9
 $576.7
 7% 6%
 

 

 

  
North America$278.7
 $272.2
 2% 2%
International341.2
 304.5
 12% 9%
Total Oncology Systems Gross Orders$619.9
 $576.7
 7% 6%
The Americas Oncology Systems gross orders decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to a decrease in gross orders from hardware products caused by the COVID-19 pandemic and, to a lesser extent, a decrease in gross orders from software licenses, partially offset by an increase in gross orders from services. The Americas Oncology Systems gross orders increased in the first quarter of fiscal year 2018, compared to the year-ago period, primarily due to growth in North America for our products and services.
EMEA Oncology Systems gross orders increased in the first quarter of fiscal year 2018, compared to the year-ago period, primarily due to success in large government tenders resulting in increases in gross orders for hardware products, software licenses and services.
APAC Oncology Systems gross orders increased in the first quarter of fiscal year 2018,six months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in gross orders forfrom services, partially offset by a decrease in gross orders from hardware products caused by the COVID-19 pandemic.
EMEA Oncology Systems gross orders increased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in gross orders from services and, to a lesser extent, an increase in gross orders from hardware
49

products, partially offset by a decrease in gross orders from software licenses. EMEA gross orders increased in the six months ended compared to the year-ago period, primarily due to an increase in service revenues, partially offset by a decrease in hardware products. The COVID-19 pandemic had a negative impact to gross orders in the three months ended April 3, 2020. EMEA Oncology Systems gross orders from services include approximately $13 million and $27 million from CTSI in the three and six months ended April 3, 2020.


APAC Oncology Systems gross orders decreased in the three months ended April 3, 2020, compared to the year-ago period, primarily due to a decrease in gross orders from hardware products caused by the COVID-19 pandemic. APAC Oncology Systems gross orders increased in the six months ended April 3, 2020, compared to the year-ago period, primarily due to an increase in gross orders from services, partially offset by a decrease in gross orders from hardware products caused by the COVID-19 pandemic.
The trailing 12 months' growth in gross orders for Oncology Systems at the end of the firstsecond quarter of fiscal year 20182020 and at the end of each of the previous three fiscal quarters was:
Trailing 12 Months EndedTrailing 12 Months Ended
December 29, 2017 September 29, 2017 June 30, 2017 March 31, 2017April 3,
2020		January 3,
2020		September 27,
2019		June 28,
2019
Americas1% 1% 4% 5%Americas4%6%7%6%
EMEA14% 12% 1% —%EMEA9%11%12%13%
APAC3% 7% 14% 15%APAC(2)%6%9%22%
North America3% 4% 2% 5%North America3%6%8%6%
International7% 7% 7% 6%International5%9%10%15%
Total Oncology Systems Gross Orders5% 5% 5% 5%Total Oncology Systems Gross Orders5%8%9%11%
Consistent with the historical pattern, we expect that Oncology Systems gross orders will continue to experience regional fluctuations. In recent years,We expect that the percentage of domesticCOVID-19 pandemic will have an adverse effect on Oncology Systems gross orders has increased, butfor the remainder of our fiscal year 2020. Over the long-term, we expect in the long-term international gross orders, specifically from emerging markets, willto grow as a percentage of overall orders. Oncology Systems gross orders are affected by foreign currency fluctuations, which could impact the demand for our products. In addition, government programs that stimulate the purchase of healthcare products could affect the demand for our products from period to period, and could therefore make it difficult to compare our financial results.
Varian Particle TherapyProton Solutions Gross Orders
VPTProton Solutions gross orders increased $56.1 million and $76.8 million in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to the year-ago period,periods, primarily due to twothree proton therapy system orders in the first quartersix months ended April 3, 2020, as compared to none in the prior year periods. Also contributing to the increase in gross orders was an increase in service orders. We expect that the COVID-19 pandemic will have an adverse effect on Proton Solutions gross orders for the remainder of fiscal year 2018 versus no proton therapy system2020.
Other Category Gross Orders
The Other category gross orders were $11.7 million and $30.6 million in the first quarterthree and six months ended April 3, 2020. Gross orders from the Other category are related to our Interventional Solutions business. We expect that the COVID-19 pandemic will have an adverse effect on the Other category gross orders for the remainder of fiscal year 2017.2020.
Backlog
Backlog is the accumulation of all gross orders for which revenues have not been recognized andbut are still considered valid. Backlog is stated at historical foreign currency exchange rates and revenue is released from backlog at current exchange rates, with any difference recorded as a backlog adjustment. OurAt April 3, 2020, total Company backlog at December 29, 2017 was $3.0$3.3 billion, which includes approximately $340 million in VPT backlog, which was an increase of 10% over5% compared to the backlog at December 30, 2016.March 29, 2019. Our Oncology Systems backlog at December 29, 2017April 3, 2020 was 7%3% higher than the backlog at December 30, 2016,March 29, 2019, which reflected an increase of 12%4% and 3%2% for the international regions and North America regions, respectively. Proton Solutions backlog was approximately $259 million at April 3, 2020.
50

We perform a quarterly review to verify that outstanding orders in the backlog remain valid. Aged orders that are not expected to ultimately convert to revenues are deemedclassified as dormant and are reflected as a reduction in the backlog amounts in the period identified. Backlog adjustments are comprised of dormancies, cancellations, foreign currency exchange rate adjustments, backlog acquired from our acquisitions, and other adjustments. Gross orders do not include backlog adjustments. Backlog adjustments totaled $50.0net reductions of $70.7 million and $145.2 million in the first quarter of fiscal year 2018,three and six months ended April 3, 2020, compared to $18.3net reductions of $48.2 million and $37.2 million in the year-ago period.periods.
Liquidity and Capital Resources
Liquidity is the measurement of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, acquire businesses or make other investments or loans, repurchase shares of VMS common stock, and fund continuing operations and capital expenditures. Our sources of cash have included operations, borrowings, stock option exercises, and employee stock purchases. Our cash usage is actively managed on a daily basis to ensure the maintenance of sufficient funds to meet our needs.
Cash, and Cash Equivalents, and Restricted Cash
The following table summarizes our cash, cash equivalents, and cash equivalents:restricted cash:
(In millions)December 29,
2017		 September 29,
2017		 Increase(In millions)April 3,
2020		September 27,
2019		Increase
Total cash and cash equivalents$822.6
 $716.2
 $106.4
Cash and cash equivalentsCash and cash equivalents$667.8  $531.4  $136.4  
Restricted cashRestricted cash21.2  12.7  8.5  
Total cash, cash equivalents, and restricted cash Total cash, cash equivalents, and restricted cash$689.0  $544.1  $144.9  
The increase in cash, and cash equivalents, and restricted cash in the first quarter of fiscal year 2018six months ended April 3, 2020 was primarily due to $179.0$134.5 million of cash provided by operating activities, and $24.2$110.0 million in net borrowings from our credit facility, $32.1 million in proceeds from the issuance of common stock to employees, and $9.2 million in proceeds from the sale of an equity investment, partially offset by $56.7$86.2 million of cash used for the repurchase of shares of VMS common stock, debt repayments, net of borrowings, of $10.0 million under our credit facility agreements, $9.3$37.0 million used for purchases of property, plant, and equipment, a $6.0and $11.5 million investment in available-for-sale securities related to the Alabama Proton Therapy Center, and $4.6 million in loans to CPTC.used for tax withholdings on vesting of equity awards.
At December 29, 2017,April 3, 2020, we had approximately $112$144 million, or 14%22%, of cash and cash equivalents in the United States. Approximately $711States, which includes approximately $100 million in money market funds, and approximately $524 million, or 86%78%, of cash and cash equivalents was held abroad. As a result of the transition to a modified territorial system and the one-time transition tax on the unremitted earnings of our foreign subsidiaries in the Tax Cuts and Jobs Act, we expect that the cash and cash equivalents held by our foreign subsidiaries will no longer be subject to U.S. federal income tax upon a subsequent actual repatriation to the United States. However, a portion of this cash may still be subject to foreign and state income taxes upon future remittance. In light of the changes to the U.S. federal taxation of foreign earnings inunder the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017, we no longer consider the earnings of our foreign subsidiaries to be indefinitely reinvested. As a result, we have accrued for the foreign and state income taxes that we expect would be imposed upon a future remittance.
As of December 29, 2017,April 3, 2020, most of our cash and cash equivalents that waswere held abroad waswere in U.S. Dollars and waswere primarily held as bank deposits. In addition to cash flows generated from operations, a significant portion of which are generated in the United States, we have used our credit facilities to meet our cash needs from time to time and expect to continue to do so in the future. Borrowings under our credit facilities may be used for working capital, capital expenditures, VMS share repurchases, acquisitions and other corporate purposes.
Cash Flows
 Six Months Ended
(In millions)April 3,
2020		March 29,
2019
Net cash flow provided by (used in):  
Operating activities$134.5  $127.5  
Investing activities(36.2) (34.6) 
Financing activities43.5  (56.9) 
Effects of exchange rate changes on cash, cash equivalents and restricted cash3.1  6.5  
Net increase in cash, cash equivalents and restricted cash$144.9  $42.5  
51
 Three Months Ended
(In millions)December 29,
2017		 December 30,
2016
Net cash flow provided by (used in):   
Operating activities$179.0
 $82.2
Investing activities(25.8) (31.8)
Financing activities(42.8) (89.6)
Effects of exchange rate changes on cash and cash equivalents(4.0) 10.4
Net increase (decrease) in cash and cash equivalents$106.4
 $(28.8)

Our primary cash inflows and outflows for the first quarter of fiscal year 2018, as compared to the first quarter of fiscal year 2017, were as follows:
•In the first quarter of fiscal year 2018, we generatedsix months ended April 3, 2020, net cash fromprovided by operating activities of $179.0was $134.5 million compared to $82.2$127.5 million in the first quarter of fiscal year 2017.six months ended March 29, 2019. The $96.8$7.0 million increase in net cash from operating activities was driven by a $236.8$8.6 million increase in the net change from operating assets and liabilities and a $58.7 million increase from non-cash items, partially offset by a $126.7$60.3 million decrease in net earnings and a $13.3 million decrease from non-cash items.earnings.
•The major contributors to the net change in operating assets and liabilities, net of effects of acquisitions, in the first quarter of fiscal year 2018six months ended April 3, 2020 were as follows:
◦Accrued liabilities and other long-term liabilities increased $125.1 million primarily due an increase in a long-term income tax liability that resulted from the tax legislation that was signed into law in the first quarter of fiscal year 2018.
◦Trade and unbilled receivables decreased $65.9 million primarily due to higher collections than billings partially offset by an increase in unbilled receivables.
◦Prepaid and other assets decreased $28.2 million primarily due to a decrease in prepaid income taxes.
◦Deferred revenues increased $18.6 million primarily due to advance payments received from VPT customers and an increase in deferred service revenues in Oncology Systems.
◦Inventory increased $11.7 million primarily due an increase in hardware product inventory in Oncology Systems.


◦Trade and unbilled receivables decreasing $49.9 million, primarily due to customer payments in Proton Solutions.
◦Inventory increasing $53.7 million, primarily to support a higher volume of orders in Oncology Systems.
◦Accounts payable decreasing $54.7 million, primarily due to timing of payments.
◦Accrued liabilities and other long-term liabilities decreasing $62.6 million, primarily due to the timing of payments processed for income taxes and accrued compensation.
◦Deferred revenues increasing $33.4 million, primarily due to an increase in billing ahead of revenue recognition resulting from changes in the mix of contractual billing terms.
We expect that cash provided by operating activities may fluctuate in future periods as a result of a number of factors, including fluctuations in our operating results, timing of product shipments, product installation or customer acceptance, trade receivable collections, inventory management, contracts with extended payment terms, and the timing and amount of taxtaxes and other payments. As a result of the COVID-19 pandemic, we expect to experience reduced cash flow from operations as a result of decreased revenues and slower collections. Moreover, we are focused on ensuring that we have adequate inventory on hand given the potential disruption of the COVID-19 pandemic to our suppliers and their supply chain. For additional discussion, please refer to the “Risk Factors” in Item 1A.1A herein and in Part I, Item 1A of our 2019 Annual Report.
•In the first quarter of fiscal year 2018,six months ended April 3, 2020, cash used forin investing activities was $25.8$36.2 million, compared to $34.6 million in the six months ended March 29, 2019. In the six months ended April 3, 2020, cash used in investing activities primarily included $37.0 million used for purchases of property, plant and equipment and $8.4 million used for acquisitions, partially offset by $9.2 million in proceeds from the sale of an equity investment. In the six months ended March 29, 2019, cash used in investing activities primarily included $25.2 million used for purchases of property, plant and equipment, $25.0 million used for acquisitions, and $11.8 million used for the purchase of equity investments, partially offset by $29.9 million in proceeds from the sale of an equity investment.
•In the six months ended April 3, 2020, cash provided by financing activities was $43.5 million, compared to cash used of $31.8$56.9 million in the first quarter of fiscal year 2017.six months ended March 29, 2019. In the first quarter of fiscal year 2018,six months ended April 3, 2020, cash used for investing activities primarily included $9.3 million in purchases of property, plant and equipment, $6.0 million in investment in available-for-sale securities, $4.6 million in loans to CPTC, a $2.6 million deposit in an escrow account related to a potential acquisition, and a $2.5 million investment in a privately-held company. In the first quarter of fiscal year 2017, cash used for investing activities primarily included $17.2 million in purchases of property, plant and equipment, a $11.4 million issuance of a notes receivable, and $3.4 million paid to our deferred compensation plan trust account.
In the first quarter of fiscal year 2018, cash used in financing activities was $42.8 million compared to $89.6 million used in the first quarter of fiscal year 2017. In the first quarter of fiscal year 2018, cash used forprovided by financing activities primarily included $56.7$110.0 million in net borrowings from our credit facility and $32.1 million in proceeds received from stock option exercises and employee stock purchases, partially offset by $86.2 million used for the repurchase of VMS common stock $10.0and $11.5 million in debt repayments, netused for tax withholdings on vesting of borrowings, partially offset by $24.2 million received from the issuance of common stock to employees.equity awards. In the first quarter of fiscal year 2017,six months ended March 29, 2019, cash used forin financing activities primarily included $55.0$85.6 million in borrowings, net of debt repayments, under our credit facility agreements, $49.5 millionused for the repurchase of VMS common stock and $13.9 million used for tax withholdings on vesting of equity awards, partially offset by $16.1$38.6 million in proceeds received from the issuance of common stock to employees.option exercises and employee stock purchases.
We expect our total fiscal year 2018 capital expenditures, which typically represent construction and/or purchases of facilities, manufacturing equipment, office equipment and furniture and fixtures, as well as capitalized costs related to the implementation of software applications, will be approximately 2% of revenues in fiscal year 2018.
We entered into an agreement, dated September 1, 2017, ("Credit Agreement") with certain lenders and Bank of America, N.A. (“BofA”) as administrative agent ("Debt Lenders"). The Credit Agreement provides for a five-year revolving credit facility (the "2017 Revolving Credit Facility") in an aggregate principal amount of up to $600.0 million. The 2017 Revolving Credit Facility also includes a $50 million sub-facility for the issuance of letters of credit and permits swing line loans of up to $25 million. We may increase the aggregate commitments under the 2017 Revolving Credit Facility by up to $100 million, plus an amount based on our consolidated leverage ratio on a pro forma basis, subject to certain conditions being met, including lender approval. The Credit Agreement will expire in September 2022. The 2017 Revolving Credit Facility can be prepaid without any premium or penalty. A portion of the proceeds of the 2017 Credit Facility were used to satisfy the outstanding obligation under the prior credit facility. Additional proceeds may be used for working capital, capital expenditures, Company share repurchases, acquisitions and other corporate purposes.
In addition, our Japanese subsidiary (“VMS KK”) has an unsecured uncommitted credit agreement with Sumitomo Mitsui Banking Corporation 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”). The Sumitomo Credit Facility will expire in February 2018.
The following table summarizes our short-term borrowings:
(Dollars in millions)
April 3, 2020September 27, 2019
AmountWeighted-Average Interest RateAmountWeighted-Average Interest Rate
Revolving Credit Facility$520.0  2.05%$410.0  3.05 %
Total short-term borrowings$520.0  $410.0  
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 December 29, 2017 September 29, 2017
(Dollars in millions)Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate
Short-term borrowings:       
2017 Revolving Credit Facility$340.0
 2.49% $350.0
 2.36%

See Note 7, "Borrowings"6, "Borrowings," of the Notes to the Condensed Consolidated Financial Statements for further information regarding the 2017 Revolvingabout our Credit FacilityAgreement and the Sumitomo Credit Facility.


The following table provides additional information regarding our short-term borrowings:
(Dollars in millions)First Quarter of Fiscal Year 2018
Amount outstanding (at end of period)$340.0
Weighted average interest rate (at end of period)2.49%
Average amount outstanding (during period)$257.6
Weighted average interest rate (during period)2.40%
Maximum month-end amount outstanding during period$340.0
other borrowing arrangements.
Our liquidity is affected by many factors, some of which result from the normal ongoing operations of our business and some of which arise from uncertainties and conditions in the United States and global economies. As a precautionary measure due to the COVID-19 pandemic, we have paused share buybacks to preserve liquidity and we are re-evaluating investment opportunities. We will continue to prioritize key research and development and productivity programs to support our long-term goals. Although our cash requirements will fluctuate as a result of the shifting influences of these factors, we believe that existing cash and cash equivalents, cash to be generated from operations, and current or future credit facilities will be sufficient to satisfy anticipated commitments for capital expenditures, and other cash requirements for at least the next 12 months and into the foreseeable future. We currently anticipate that we will continue to utilize our available liquidity and cash flows from operations, as well as borrowed funds, to make strategic acquisitions, invest in the growth of our business, invest in advancing our systems and processes, repurchase VMS common stock, fund loan commitments and other strategic investments.months.
Total debt as a percentage of total capital increased to 19.6% at December 29, 2017 from 18.7% at September 29, 2017 primarily due to a net loss incurred during the first quarter of fiscal year 2018. The ratio of current assets to current liabilities increased to 1.45 to 1 at December 29, 2017 from 1.40 to 1 at September 29, 2017.
Days Sales Outstanding
Our Oncology Systems trade and unbilled receivables days sales outstanding (“DSO”) decreased to 107was 110 days at Decemberboth April 3, 2020, and March 29, 2017 compared to 125 days at December 30, 2016.2019. Our accounts receivable and DSO are impacted by a number of factors, primarily including: the timing of product shipments, product installation or customer acceptance, collections performance, payment terms, the mix of revenues from different regions, and the effects of economic instability. VPT'sProton Solutions' DSO is not meaningful because it is highly variable. Trade and unbilled receivables from our Other category are not material. As of December 29, 2017,April 3, 2020, approximately 4%7% of our net trade and unbilled receivables balance was related to customer contracts with remaining terms of more than one year.
Share Repurchase Program
We repurchased shares of VMS common stock under various authorizations during the periods presented as follows:
Three Months EndedSix Months Ended
(In millions, except per share amounts)April 3,
2020		March 29,
2019		April 3,
2020		March 29,
2019
Number of shares0.3  0.4  0.6  0.7  
Average repurchase price per share$126.01  $120.89  $133.02  $115.71  
Total cost of shares repurchased$39.8  $50.8  $86.2  $85.6  
 Three Months Ended
(In millions, except per share amounts)December 29,
2017		 December 30,
2016
Number of shares0.5
 0.5
Average repurchase price per share$108.16
 $98.98
Total cost$56.7
 $49.5


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. As of December 29, 2017,April 3, 2020, approximately 4.71.6 million shares of VMS common stock remained available for repurchase under the November 2016 authorization. At the beginning of our third quarter of fiscal year 2020, due to COVID-19, as a precautionary measure, we have paused our share repurchase program.
Stock repurchases may be made in the open market, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and also may be made from time to time or in one or more larger blocks. All shares that were repurchased under our share repurchase programs have been retired.
For more details see Note 12, "Stockholders' Equity and Noncontrolling Interests" of the Notes to the Condensed Consolidated Financial Statements for further discussion.


Contractual Obligations
Long-term income taxes payable includes the liability for uncertain tax positions, including interest and penalties, and the noncurrent portion of the one-time transition tax on unremitted foreign earnings under the Tax Cuts and Jobs Act (the "Act"), and may also include other long-term tax liabilities.Act. As of December 29, 2017,April 3, 2020, our liability for uncertain tax positions was $59.9$46.3 million, of which we do not anticipate making any payments in the next 12 months. We are unable to reliably estimate the timing of the remainder of future payments related to uncertain tax positions; we believe that existing cash and cash equivalents, cash to be generated from operations, and current or future credit facilities will be sufficient to satisfy any payment obligations that may arise related to our liability for uncertain tax positions. The Act allows taxpayers to electWe have elected to pay the one-time transition tax over a period of 8 years as follows: 8% per year for each of the first five years and 15%, 20%, and 25%, in years 6 through 8, respectively. As of December 29, 2017,April 3, 2020, the noncurrent portion of the one-time transition tax on unremitted foreign earnings is $143.1was $122.4 million.
As of December 29, 2017, we had accrued liabilities of $5.8 million for environmental remediation liabilities. The amount accrued represents estimates of anticipated future costs and the timing and amount of actual future environmental remediation costs may vary as the scope of our obligations become more clearly defined. For more details seeSee Note 9,8, "Commitments and Contingencies"Contingencies," of the Notes to the Condensed Consolidated Financial Statements for further discussion.
As of December 29, 2017, our outstanding commitment for the GPTC securities was $11.8 million. For more details see Note 15, "VPT Loans and Securities" of the Notes to the Condensed Consolidated Financial Statements for further discussion.information about contractual obligations regarding lease arrangements.
Except for the change in the outstanding balance under our term loan facility and the other itemsitem discussed above, there has been no significant change to the other contractual obligations we reported in our 20172019 Annual Report.
Subsequent Events
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See Note 17, "Subsequent Events" of the Notes to the Condensed Consolidated Financial Statements for a discussion of our subsequent events.

Contingencies
Environmental Remediation Liabilities
For a discussion of environmental remediation liabilities, see Note 9,8, "Commitments and Contingencies"Contingencies," of the Notes to the Condensed Consolidated Financial Statements, which discussion is incorporated herein by reference.
Other Matters
From time to time, we are a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters both inside and outside the United States, arising in the ordinary course of our business or otherwise. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. See Note 9,8, "Commitments and Contingencies"Contingencies," of the Notes to the Condensed Consolidated Financial Statements, which discussion is incorporated herein by reference.
Off-Balance Sheet Arrangements
In conjunction with the sale of our products in the ordinary course of business, we provide standard indemnification of business partners and customers for losses suffered or incurred for property damages, death and injury and for patent, copyright or any other intellectual property infringement claims by any third parties with respect to our products. The terms of these indemnification arrangements are generally perpetual. Except for losses related to property damages, the maximum potential amount of future payments we could be required to make under these arrangements is unlimited. As of December 29, 2017,April 3, 2020, we have not incurred any significant costs since the Spin-offs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, we believe the estimated fair value of these arrangements is minimal.
We have entered into indemnification agreements with our directors and officers and certain of our employees that serve as officers or directors of our foreign subsidiaries that may require us to indemnify our directors and officers and those certain employees against liabilities that may arise by reason of their status or service as directors or officers, and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified.



From time to time, we are required to provide letters of credit, surety bonds and bank guarantees to support certain obligations that arise in the ordinary course of business and in some cases, in place of pledging cash collateral. There has been no significant change to the balance of these outstanding instruments from what we reported in our 2019 Annual Report.

Recent Accounting Standards or Updates Not Yet Effective
See Note 1, "Summary of Significant Accounting Policies"Policies," of the Notes to the Condensed Consolidated Financial Statementscondensed consolidated financial statements for a description of recent accounting standards, including the expected dates of adoption and the estimated effects on our consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to three primary types of market risks: credit risk and counterparty risk, foreign currency exchange rate risk and interest rate risk. Our exposures to foreign currency exchange risk and interest rate risk have not changed materially since September 27, 2019. For quantitative and qualitative disclosures about market risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of our 2019 Annual Report.
Credit Risk and Counterparty Risk
We are exposed to credit loss in the event of nonperformance by counterparties on the foreign currency forward contracts used in hedging activities. These counterparties are large international and regional financial institutions and to date, no such counterparty has failed to meet its financial obligation to us under such contracts.
We are also exposed to credit loss in the event of default by counterparties of our financing receivables and our loans to VPT customers such as:Proton Solutions customers. Primarily as a result of the COVID-19 pandemic, during March and April 2020, CPTC suffered material negative impacts to its operating plan, including declines in current and projected patient volume and delays in partnership with a significant clinical partner. Therefore, we concluded it was no longer probable that we will collect the amounts owed under the Term Loan and Revolving Loan (collectively "CPTC Loans") when due and recorded a $40.5 million impairment charge on
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the Condensed Consolidated Statements of Earnings in the second quarter of fiscal year 2020. As a result of this impairment, the CPTC Loans were written down to their estimated fair value of $10.0 million.
As of December 29, 2017, the Term Loan with California Proton Therapy Center ("CPTC") was $53.5 million. The $53.5 million is composed of four Tranches: Tranche A of $2.0 million, Tranche B of $7.2 million, Tranche C of $15.6 million, and Tranche D of $28.7 million (collectively the "Term Loan"). All of the Tranches accrue paid-in-kind interest at 7.5% per annum, except the Tranche B which accrues paid-in-kind interest at 10% per annum. 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 $15.0April 3, 2020, we had $10.0 million in Revolving Loans. Our sharecarrying value of the funding commitment from the Revolving Loan is $7.2loans outstanding to CPTC, and $118.5 million and asin carrying value of December 29, 2017, we have funded $2.4 million. The Revolving Loan accrues paid-in-kind interest at 10% per annum and has a maturity date one year from the Closing Date.
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 of Tranche A, C and D will increase to 9.5% and Tranche B and the Revolving Loan will increase to 12.0%.
As of December 29, 2017, we have an outstanding loan of $35.0 million to Maryland Proton Treatment Center ("MPTC"). Our subordinated loan is due, withnotes receivable, including accrued interest in three annual payments from 2020 to 2022. The interest on the outstanding loan accrues at 12%. We also have $25.1 million as long-term notes receivable related to a deferred payment arrangement with MPTC. The notes receivable carries an interest rate of 15%Proton Solutions customers, available-for-sale securities, and is due in September 30, 2018.
We also have loans associated with the New York Proton Center, and Proton International LLC totaling $18.5 million and $2.5 million, respectively.
In July 2017, we purchased the outstandingshort-term senior secured debt related to the Rinecker Proton Therapy Center ("RPTC") in Munich, Germany for 21.5 million Euros or $24.5 million. By purchasing the senior secured debt, we have a right to 89 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 it expects the insolvency proceedings to be finalized within the next twelve months. Upon finalization of bankruptcy proceedings, we believe it is probable we will recover its outstanding senior secured debt balance and trade accounts receivable, net.
debt. See Note 15, "VPT14, "Proton Solutions Loans and Securities"Investments," of the Notes to the Condensed Consolidated Financial Statements for further information on loans to VPT customers.information.
In addition, cash and cash equivalents held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. We also may need to rely on our credit facilities as described below under “Interest Rate Risk.” Our access to our cash and cash equivalents or ability to borrow could be reduced if one or more financial institutions with which we have deposits or from which we borrow should fail or otherwise be adversely impacted by conditions in the financial or credit markets. Conditions such as those we experienced as a result of the last economic downturn and accompanying contraction in the credit markets heighten these risks. Concerns over economic instability could make it more difficult for us to collect outstanding receivables and could adversely impact our liquidity.


Foreign Currency Exchange Rate Risk
As a global entity, we are exposed to movements in foreign currency exchange rates. These exposures may change over time as business practices evolve. Adverse foreign currency rate movements could have a material negative impact on our financial results. Our primary exposures related to foreign currency denominated sales and purchases are in Europe, Asia, Australia and Canada.
We have many transactions denominated in foreign currencies and address certain of those financial exposures through a risk management program that includes the use of derivative financial instruments. We sell products throughout the world, often in the currency of the customer’s country, and may hedge certain of these larger foreign currency sale transactions when they are not transacted in the subsidiaries’ functional currency or in U.S. Dollars. The foreign currency transactions that fit our risk management policy criteria are hedged with foreign currency forward contracts. We may use other derivative instruments in the future. We enter into foreign currency forward contracts primarily to reduce the effects of fluctuating foreign currency exchange rates. We do not enter into foreign currency forward contracts for speculative or trading purposes. The forward contracts range from one to thirteen months in maturity.
We also hedge the balance sheet exposures from our various foreign subsidiaries and business units. We enter into foreign currency forward contracts to minimize the short-term impact of currency fluctuations on assets and liabilities denominated in currencies other than the subsidiaries' functional currency or the U.S. Dollar.
The notional values of our sold and purchased foreign currency forward contracts outstanding as of December 29, 2017 were $475.0 million and $46.9 million, respectively. The notional amounts of foreign currency forward contracts are not a measure of our exposure. The fair value of forward contracts generally reflects the estimated amounts that we would receive or pay to terminate the contracts at the reporting date, thereby taking into account and approximating the current unrealized and realized gains or losses of the open contracts. A move in foreign currency exchange rates would change the fair value of the contracts, and the fair value of the underlying exposures hedged by the contracts would change in a similar offsetting manner.
Interest Rate Risk
Our market risk exposure to changes in interest rates depends primarily on our investment portfolio and borrowings. Our investment portfolio primarily consisted of cash and cash equivalents and available-for-sale investments as of December 29, 2017. The principal amount of cash and cash equivalents in continuing operations at December 29, 2017 totaled $822.6 million with a weighted average interest rate of 0.36%. At December 29, 2017, our available-for-sale investments, $8.0 million in subordinated bonds with a fixed interest rate to finance the Delray Radiation Therapy Center ("DRTC"), $6.0 million Subordinate Revenue Bonds with a fixed interest rate to finance the Alabama Proton Therapy Center ("APTC') and $4.5 million in Senior Capital Appreciation Bonds to finance the Georgia Proton Treatment Center ("GPTC"). The DRTC subordinated bonds and the APTC Subordinate Revenue bear an interest rate of 8.5% per annum and the GPTC Senior Capital Appreciation Bonds bear an interest rate of 8.0% per annum. Our available-for-sale investments are carried at fair value.
Borrowings under the 2017 Revolving Credit Facility accrue interest at either (i) based on the Eurodollar Rate plus a margin of 1.125% to 1.875% based on a leverage ratio involving funded indebtedness and EBITDA, or (ii) based upon 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 0.125% to 0.875% based on the same leverage ratio, depending upon instructions from the Company. Borrowings under the 2017 Revolving Credit Facility have a contract repayment date of twelve months, or less, and a final maturity of five years if based on the Eurodollar Rate and all overnight borrowings on the base rate would also have a final maturity of five years.
We are affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable under our 2017 Revolving Credit Facility. As of December 29, 2017, borrowings under the 2017 Revolving Credit Facility totaled $340.0 million with a weighted average interest rate of 2.49%. If the amount outstanding under our 2017 Revolving Credit Facility remained at this level for an entire year and interest rates increased or decreased by 1%, our annual interest expense would increase or decrease, respectively, by an additional $3.4 million. See Note 7, "Borrowings" of the Condensed Consolidated Financial Statements for a discussion regarding the 2017 Credit Facility.
In addition, the Sumitomo Credit Facility allows VMS KK to borrow up to a maximum amount of 3.0 billion Japanese Yen. 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% per annum. As of December 29, 2017, the there was no outstanding balance under the Sumitomo Credit Facility.


To date, we have not used derivative financial instruments to hedge the interest rate within our investment portfolio, borrowings, but may consider the use of derivative instruments in the future. In addition, although payments under certain of our operating leases for our facilities are tied to market indices, these operating leases do not expose us to material interest rate risk.
Item 4. Controls and Procedures
(a)
Disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b)
Changes in internal control over financial reporting. Beginning September 30, 2017, we implemented ASC 606, Revenue from Contracts with Customers. As a result, we implemented changes to our processes related to revenue recognition, the control activities within them, and the key system functionalities to enable the preparation of financial information. This included the development of new policies based on the five-step model provided in the new revenue standard. There were no other changes in our internal control over financial reporting that occurred during the first quarter of fiscal year 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

(a)Disclosure controls and procedures. Based on the evaluation of our disclosure controls and procedures (as defined in the Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) required by Exchange Act Rules 13a-15(b) or 15d-15(b), as applicable, our principal executive officer and principal financial officer have concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and include controls and procedures designed to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

(b)Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting that occurred during the second quarter of fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II
OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to various legal proceedings and claims that are discussed in Note 9,8, "Commitments and Contingencies"Contingencies," to the Condensed Consolidated Financial Statements, which discussion is incorporated by reference into this item.
Item 1A. Risk Factors

There were no material changes during the period covered in this report to the risk factors previously disclosed in Part I, Item 1A, of our 2017 Annual Report on Form 10-K for the year ended September 27, 2019, except as follows:
The Tax Cuts and Jobs Act of 2017, the enactment of legislation implementing changes in taxation of international
Our business activities, and the adoption of other tax legislation and policies could materially impact our financial position and results of operations.
The Tax Cuts and Jobs Act of 2017 (the “Act”) is expected to have a significant impact on our financial position and results of operations. The Act reduced the U.S. corporate income tax rate from 35% to 21%. This rate reduction requires us to re-measure our net deferred tax assets which were originally recorded assuming a future tax benefit at the 35% rate. We estimate the impact of this re-measurement is a charge to our income tax expense of approximately $47 million, with approximately $37.8 million charged in the first quarter of 2018, and the remainder of $9.2 million over the balance of fiscal year 2018.
In addition, as part of the transition to a modified territorial system, the new law imposes a one-time transition tax on the unremitted earnings of our foreign subsidiaries. We currently estimate the tax effect of this deemed repatriation to be $169.3 million. We intend to make the election to pay this tax over an eight-year period. The transition to a modified territorial regime and the one-time transition tax on unremitted earnings has also caused us to re-evaluate our intentions with respect to the unremitted earnings of our foreign subsidiaries. In the past, we did not accrue U.S. taxes on certain undistributed profits of certain foreign subsidiaries because the earnings were considered to be indefinitely reinvested. In light of the changes to the taxation of foreign earnings in the Act, we no longer consider the earnings of our foreign subsidiaries to be indefinitely reinvested.
The amounts of the tax effects related to the Act described above represent our reasonable estimates. Also, it is expected that the U.S. Treasury will issue regulations and other guidance on the application of certain provisions of the Act, which could cause us to significantly revise the provisional amounts we have recorded.
On January 22, 2018, a continuing budget resolution was signed into law that included a provision to extend the moratorium on the 2.3% medical device excise tax for two more years, or until January 1, 2020. This tax has had, and may continue to have, a negative impact on our gross margin when the moratorium expires.

A significant portion of our earnings is generated from activity outside the United States. As a result, any substantial changes in international policies regarding corporate taxation or legislative initiatives may materially and adversely affect our business, the amount of taxes we are required to pay and our financial condition and results of operations generally.have been adversely affected, and our business, results of operations, cash flow and financial condition may in the future be materially adversely affected by the COVID-19 pandemic and any associated economic disruptions.
The proposed acquisition of Sirtex Medical Limited may not be completed within the expected timeframe, or at all, and the failure to complete the acquisition could adversely affect our business.
On January 30, 2018, we signed an agreement to acquire Sirtex Medical Limited ("Sirtex"), an Australian company that is listed on the Australian Securities Exchange, for A$28 per share or approximately A$1.6 billion (approximately $1.3 billion). Sirtex is an Australian-based global life sciences company focused on interventional oncology therapies.
The transaction, which is expected to close in late May 2018, isWe are subject to the approval of the Sirtex shareholders, the Federal Court of Australia and other customary closing conditions, including applicable regulatory approvals that are beyond our control. There is no guarantee that these conditions will be satisfied in a timely manner or at all. If any of the conditions to the proposed acquisition are not satisfied (or waived by the other party) the acquisition may not be completed. In addition, the Scheme Implementation Deed (the “Agreement”) may be terminated under specified circumstances. Failure to complete the acquisition could adversely affect our business as we could be required to pay a termination fee up to 1% of the total consideration under certain circumstances as described in the Agreement and cause delay in our plan to expand into the


interventional oncology market. In addition, our stock price may also suffer as the failure to consummate the acquisition may result in negative perception in the investment community.
Uncertaintyrisks associated with public health threats and epidemics, including the completionglobal COVID-19 pandemic. The COVID-19 pandemic has adversely impacted nearly all aspects of the merger may cause substantial disruptions in our business and Sirtex’s business.markets globally, including our workforce and operations and the operations of our customers, suppliers, distributors and business partners, and has created significant volatility, uncertainty and economic disruption to healthcare activity globally. While we are unable to predict the extent to
Uncertainty associated with
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which the completion of the acquisitionCOVID-19 pandemic may cause substantial disruptions in our business and Sirtex’s business, which could have ana material adverse effect on our business, results of operations, cash flow and financial results. Among other things, such uncertaintycondition, we may affectexperience a broad range of operational and financial impacts, including:

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

The extent to which the COVID-19 global pandemic and measures taken in response to it will impact our relationships with customers, potential customersbusiness, results of operations and supplierscash flows and our abilityfinancial condition will depend on future developments, which are highly uncertain and are difficult to recruit prospective employees orpredict; these developments include, but are not limited to, retainthe duration and motivate existing employees. Sirtex may face similar disruptions to its business. The adverse effect of such disruptions could be exacerbated by delay in the completionspread of the acquisitionoutbreak, its severity, the actions to contain the virus or terminationaddress its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

We refer you to “Management’s Discussion and Analysis of Financial Position and Results of Operations” for a more detailed discussions of the Agreement.
Our efforts to integrate acquisitions may not be successful,potential impact of the COVID-19 pandemic and this may adversely impact our profitabilityassociated economic disruptions, and sales growth.
As part of our strategy to developthe actual operational and identify new technologies, products and services,financial impacts that we have made and may continueexperienced to acquire new businesses and technologies. Our integration of the operations of acquired businesses requires significant efforts, including the coordination of information technologies, research and development, sales and marketing, operations, manufacturing and finance. In particular, if our proposed acquisition of Sirtex is completed, its success will depend, in part, on our ability to successfully integrate the business and operations and fully realize the anticipated benefits and synergies from combining our businesses and Sirtex’s business If we are not able to achieve these objectives following the acquisition, the anticipated benefits and synergies of the transactions may not be realized fully or at all or may take longer to realize than expected. Our efforts to successfully integrate acquisitions may result in additional expenses and divert significant amounts of management’s time from other projects.date.
Our failure tomanage successfully and coordinate the growth of the acquired companies could also have an adverse impact on our business. In addition, there is no guarantee that some of the businesses we acquire will become profitable or remain so. If our acquisitions do not meet our initial expectations, we may record impairment charges.
Factors that will affect the success of our acquisitions include:
our ability to retain key employees of the acquired company;
56
the performance of the acquired business, technology, product or service;
our ability to integrate operations, financial and other systems;

the ability of the combined company to achieve synergies among its constituent companies, such as increasing sales of the combined company’s products and services, achieving expected cost savings and effectively combining technologies to develop new products and services;
any disruption in order fulfillment or loss of sales due to integration processes;
the presence or absence of adequate internal controls and/or significant fraud in the financial systems of acquired companies;
any decrease in customer and distributor loyalty and product orders caused by dissatisfaction with the acquired companies’ product lines and sales and marketing practices, including price increases; and
our assumption of known contingent liabilities that are realized, known liabilities that prove greater than anticipated, or unknown liabilities that come to light, to the extent that the realization of any of these liabilities increases our expenses or adversely affects our business or financial position.





Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)Not applicable
(b)Not applicable
(c)The following table provides information with respect to the shares of common stock repurchased by us during the first quarter of fiscal year 2018 (in millions, except per share amounts):
(a)Not applicable
Period
Total Number of
Shares Purchased
 
Average Price
Paid Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1)
September 30, 2017 - October 27, 2017—
 $—
 —
 5.2
October 28, 2017 - November 24, 20170.3
 $106.29
 0.3
 4.9
November 25, 2017 - December 29, 20170.2
 $111.18
 0.2
 4.7
Total0.5
 $108.16
 0.5
 4.7
(b)Not applicable
(1)In November 2016, the VMS Board of Directors authorized the repurchase of an additional 8.0 million shares of VMS common stock commencing on January 1, 2017. Share repurchases may be made in the open market, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and also may be made from time to time or in one or more larger blocks. All shares that were repurchased under the Company's share repurchase programs have been retired.
(c)The following table provides information with respect to the shares of common stock repurchased by us during the second quarter of fiscal year 2020 (in millions, except per share amounts):
PeriodTotal Number of
Shares Purchased		Average Price
Paid Per Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
Maximum Number
of Shares that May
Yet Be Purchased
Under the Plans or
Programs (1)
January 4, 2020 - January 31, 20200.1  $147.58  0.1  1.8  
February 1, 2020 - February 28, 2020—  $141.59  —  1.8  
February 29, 2020 - April 3, 20200.2  $106.58  0.2  1.6  
Total0.3  $126.01  0.3  1.6  
(1)In November 2016, the VMS Board of Directors authorized the repurchase of an additional 8.0 million shares of VMS common stock commencing on January 1, 2017. Share repurchases may be made in the open market, in privately negotiated transactions (including accelerated share repurchase programs), or under Rule 10b5-1 share repurchase plans, and also may be made from time to time or in one or more larger blocks. All shares that were repurchased under the Company's share repurchase programs have been retired. At the beginning of our third quarter of fiscal year 2020, as a precautionary measure due to the COVID-19 pandemic, we have paused our share repurchase program.
The preceding table excludes an immaterial number of shares of VMS common stock that were withheld by VMS in satisfaction of tax withholding obligations upon the vesting of restricted stock units granted under our employee stock plans.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information

None.
As the Company completed its adoption of ASC 606 in the first quarter of fiscal year 2018, certain balance sheet adjustments were necessary from the Preliminary Condensed Consolidated Balance Sheets as of December 29, 2017 and September 29, 2017 that were filed in the Company’s 8-K on January 24, 2018 announcing its fiscal year 2018 first quarter results. The impact of these adjustments was to increase both unbilled receivables and deferred revenue by $25.8 million and $78.5 million as of December 29, 2017 and September 29, 2017, respectively, which results in Oncology Systems accounts receivable days sales outstanding, or DSO, of 107 days at December 29, 2017 and 125 days at December 30, 2016. There has been no change to the Company’s Condensed Consolidated Statements of Earnings.
57



Item 6. Exhibits
The exhibits listed below are filed or incorporated by reference as part of this Form 10-Q:
Exhibit
No.		Description
Exhibit
No.
Description
3.1
2.1 *
4.1
Form of Senior Indenture, between Registrant and one or more trustees to be namedRestated Bylaws, as amended (incorporated by reference to Exhibit No. 4.23.1 to the Registrant's Form S-3, File No. 333-221763).
4.2
Form of Subordinated Indenture, between Registrant and one or more trustees to be named (incorporated by reference to Exhibit No. 4.3 to the Registrant's Form S-3, File No. 333-221763).
10.1
Form of Performance-based Nonqualified Stock Option Agreement under the Fourth Amended and Restated 2005 Omnibus Stock Plan for Section 16 officers (incorporated by reference to Exhibit No. 10.1 to the Registrant's"Registrant’s Form 8-K Current Report filed as of November 15, 2017,March 3, 2020, File No. 1-7598).
31.1*
10.2
.
10.3
Form of Restricted Stock Unit Agreement under the Fourth Amended and Restated 2005 Omnibus Stock Plan for Section 16 officers (incorporated by reference to Exhibit No. 10.3 to the Registrant's Form 8-K Current Report filed as of November 15, 2017, File No. 1-7598).
.
10.4
Form of Performance Unit Agreement under the Fourth Amended and Restated 2005 Omnibus Stock Plan for Section 16 officers (incorporated by reference to Exhibit No. 10.4 to the Registrant's Form 8-K Current Report filed as of November 15, 2017, File No. 1-7598).
.
15.1*
Letter Regarding Unaudited Interim Financial Information.
31.1*
Chief Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.
31.2*
32.1**
32.2**
101.INS101*XBRL Instance DocumentThe following financial statements from the Company's Quarterly Report on Form 10-Q for the quarter ended January 3, 2020: (i) Condensed Consolidated Statements of Earnings, (ii) Condensed Consolidated Statements of Comprehensive Earnings, (iii) Condensed Consolidated Balance Sheets, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Equity, and (vi) Notes to the Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
101.SCHXBRL Taxonomy Extension Schema Document
101.CALXBRL Taxonomy Extension Calculation Linkbase Document
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document
101.PREXBRL Taxonomy Extension Presentation Linkbase Document
104*The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended January 3, 2020, formatted in Inline XBRL
*Filed herewith
**Filed herewithFurnished, not filed



58

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
VARIAN MEDICAL SYSTEMS, INC.
(Registrant)
Dated:February 7, 2018May 12, 2020By:/s/ GARY E. BISCHOPING JR.J. MICHAEL BRUFF
Gary E. Bischoping Jr.J. Michael Bruff
Senior Vice President, Finance and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)


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