Commitments and Contingencies

12 Months Ended

Sep. 27, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

Indemnification Agreements

In conjunction with the sale of the Company’s products in the ordinary course of business, the Company provides 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 its products. The terms of these indemnification arrangements are generally perpetual. Except for losses related to property damages, the maximum potential amount of future payments the Company could be required to make under these arrangements is unlimited. As of September 27, 2019, the Company had not incurred any significant costs to defend lawsuits or settle claims related to these indemnification arrangements. As a result, the Company believes the estimated fair value of these arrangements is minimal.

VMS has entered into indemnification agreements with its directors and officers and certain of its employees that serve as officers or directors of its foreign subsidiaries that may require VMS to indemnify its 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.

Product Warranty

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



	Fiscal Years
(In millions)	2019			2018
Accrued product warranty, at beginning of period	$	44.8		$	41.3
Charged to cost of revenues	54.2			55.5
Actual product warranty expenditures	(55.8		)	(52.0		)
Accrued product warranty, at end of period	$	43.2		$	44.8

The long-term portion of accrued product warranty costs were $3.2 million and $3.9 million at September 27, 2019, and September 28, 2018, respectively and was included in other long-term liabilities on the Consolidated Balance Sheets.

Lease Commitments

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 follows: $32.5 million, $26.3 million, $20.2 million, $14.5 million, $10.9 million and $49.9 million, respectively. Rental expenses were $28.4 million, $28.7 million and $26.4 million for fiscal years 2019, 2018 and 2017, 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 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. As of September 28, 2018, the Company had $19.2 million and $1.3 million included in property, plant and equipment and accumulated depreciation, respectively, related to equipment leased to customers. The Company recorded income on these equipment leases of $8.8 million and $3.8 million during fiscal years ended September 27, 2019 and September 28, 2018, respectively.

Purchase Obligations

At September 27, 2019, the Company was committed to purchase obligations to purchase goods or services that are enforceable, are legally binding and non-cancellable. The Company's purchase obligations for fiscal years 2020 through 2024, are as follows: $48.9 million, $30.8 million, $19.3 million, $11.3 million, and $10.1 million respectively.

Other Commitments

See Note 15, "Proton Solutions Loans and Investment," for additional information about the Company's commitments for funding development and construction of various proton therapy centers.

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 amount the Company spent (net of amounts borne by third parties) on environmental cleanup costs, third-party claim costs, project management costs and legal costs during fiscal years 2019, 2018 and 2017, was not material.

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 September 27, 2019, the Company estimated that, net of third parties' indemnification obligations, future costs associated with environmental remediation liabilities for the Group A Sites would range in total from $0.7 million to $4.2 million. The time

frames over which these cleanup project costs are estimated vary, ranging from one year up to thirty years as of September 27, 2019. Management believes that no amount in that range is more probable of being incurred than any other amount and therefore had accrued $0.7 million for these cleanup projects as of September 27, 2019. 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 September 27, 2019, 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, and reimbursements of third-party’s claims for these facilities, ranged in total from $3.6 million to $18.7 million. The time frames over which these costs are estimated to be incurred vary, ranging from zero to thirty years as of September 27, 2019. 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 $4.5 million at September 27, 2019. Accordingly, the Company had accrued $4.1 million for these costs as of September 27, 2019, which represented the best estimate discounted at 4%, net of inflation. This accrual is in addition to the $0.7 million described for the Group A Sites.

The table that follows presents information about the Company’s liabilities for future environmental costs at September 27, 2019, based on estimates as of that date.



(In millions)	Recurring Costs		Non-Recurring Costs		Total Anticipated Future Costs
Fiscal Years:
2020	$	0.4	$	0.9	$	1.3
2021	0.4		0.3		0.7
2022	0.3		0.2		0.5
2023	0.3		0.1		0.4
2024	0.3		0.4		0.7
Thereafter	0.7		0.9		1.6
Total costs	$	2.4	$	2.8	$	5.2
Less imputed interest					0.4
Reserve amount					$	4.8

Recurring costs include expenses for such tasks as the ongoing operation, maintenance and monitoring of cleanup. Non-recurring costs include expenses for such tasks as soil excavation and treatment, installation of injection and monitoring wells, other costs for soil and groundwater treatment by injection, construction of ground and surface water treatment systems, soil and groundwater investigation, governmental agency costs required to be reimbursed by the Company, removal and closure of treatment systems and monitoring wells, and the defense and settlement of pending and anticipated third-party claims.

These amounts are only estimates of anticipated future costs. The amounts the Company will actually spend may be greater than these estimates. The Company believes its reserve is adequate, however as the scope of the Company’s obligations becomes more clearly defined, the Company may modify the reserve, and charge or credit future earnings accordingly. Based on information currently known to management, management believes the costs of these environmental related matters are not reasonably likely to have a material adverse effect on the consolidated financial statements of the Company in any one fiscal year.

The Company evaluates its liability for investigation and cleanup costs in light of the obligations and apparent financial strength of potential third parties and insurance companies to which 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 $1.1 million and $1.4 million at September 27, 2019 and September 28, 2018, respectively, with the respective current portion included in prepaid expenses and other current assets and the respective noncurrent portion included in other assets on the Consolidated Balance Sheets. The payable portion to that insurer is included in other long-term liabilities on the 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 that appears to be financially viable and who has paid the Company’s claims in the past.

The availability of the indemnities of third parties' will depend upon the future of their financial strength. Given the long-term nature of some of the liabilities, the third parties may be unable to fund the indemnities in the future. It is also possible that a court would disregard this contractual allocation among the parties and require the Company to assume responsibility for obligations allocated to another party, particularly if the other party were to refuse or was unable to pay any of its allocated share. In addition, the Amended and Restated Distribution Agreement dated as of January 14, 1999 and other associated agreements that govern the Spin-offs generally provide that if a court prohibits a company from satisfying its shared indemnification obligations, the indemnification obligations will be shared equally by the two other companies.

Other Matters

On October 16, 2018, Best Medical International, Inc. sued the Company in U.S. District Court in the District of Delaware, alleging infringement of four patents related to treatment planning. The Company intends to defend the suit vigorously. This lawsuit is in the initial stages and at this time, the Company is unable to predict the ultimate outcome of this matter or estimate a range of possible exposure, and therefore no amounts have been accrued.

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

In addition to the above, the Company is involved in other legal matters. However, such matters are subject to many uncertainties and their outcomes are not predictable with assurance. The Company is unable to estimate 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.