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Summary of Significant Accounting Policies (Policies)

12 Months Ended

Sep. 26, 2020

The consolidated financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. The Company’s fiscal year ends on the last Saturday in September. Fiscal 2020, 2019 and 2018 ended on September 26, 2020, September 28, 2019 and September 29, 2018, respectively. Fiscal 2020, 2019 and 2018 were 52-week years.

Management's Estimates

Management’s Estimates and Uncertainties

The preparation of financial statements in conformity with U.S. generally accepted accounting principles ("GAAP") requires management to make significant 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 periods. Significant estimates and assumptions by management affect the Company’s revenue recognition for multiple performance obligation arrangements, valuations, purchase price allocations and contingent consideration related to business combinations, expected future cash flows including growth rates, discount rates, terminal values and other assumptions and estimates used to evaluate the recoverability of long-lived assets and goodwill, estimated fair values of intangible assets and goodwill, amortization methods and periods, warranty reserves, certain accrued expenses, restructuring and other related charges, contingent liabilities, tax reserves, deferred tax rates and recoverability of the Company’s net deferred tax assets and related valuation allowances.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. Changes in estimates are recorded in the period in which they become known. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances.

The Company is subject to a number of risks similar to those of other companies of similar size in its industry, including dependence on third-party reimbursements to support the markets of the Company’s products, early stage of development of certain products, rapid technological changes, recoverability of long-lived assets (including intangible assets and goodwill), competition, stability of world financial markets, ability to obtain regulatory approvals, changes in the regulatory environment, limited number of suppliers, customer concentration, integration of acquisitions, substantial indebtedness, government regulations, management of international activities, protection of proprietary rights, patent and other litigation, dependence on contract manufacturers and dependence on key individuals.

Cash Equivalents

Cash equivalents are highly liquid investments with insignificant interest rate risk and maturities of three months or less at the time of acquisition.

Concentrations of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, cost-method investments and trade accounts receivable. The Company invests its cash and cash equivalents with high credit quality financial institutions.

The Company’s customers are principally located in the United States, Europe and Asia. The Company performs ongoing credit evaluations of the financial condition of its customers and generally does not require collateral. Although the Company is directly affected by the overall financial condition of the healthcare industry, as well as global economic conditions, management does not believe significant credit risk exists as of September 26, 2020. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers in the healthcare industry. The Company maintains an allowance for doubtful accounts based on accounts past due and historical collection experience.

There was one customer with a balance greater than 10% of accounts receivable as of September 26, 2020, at 11.9%. There were no customers with a balance greater than 10% of accounts receivable as of September 28, 2019. There were no customers that represented greater than 10% of consolidated revenues for fiscal years 2020, 2019 and 2018

Inventories

Inventories are valued at the lower of cost or market on a first in, first out basis. Work-in-process and finished goods inventories consist of materials, labor and manufacturing overhead. The valuation of inventory requires management to estimate excess and obsolete inventory. The Company employs a variety of methodologies to determine the net realizable value of its inventory. Provisions for excess and obsolete inventory are primarily based on management’s estimates of forecasted sales, usage levels and expiration dates, as applicable for certain disposable products. A significant change in the timing or level of demand for the Company’s products compared to forecasted amounts may result in recording additional charges for excess and obsolete inventory in the future. The Company records charges for excess and obsolete inventory within cost of product revenues.

Inventories consisted of the following:


	September 26, 2020		September 28, 2019
Raw materials	$	152.3	$	166.1
Work-in-process	46.5		54.5
Finished goods	196.3		224.3
	$	395.1	$	444.9

Property, Plant and Equipment

Property, plant and equipment is recorded at cost less allowances for depreciation and impairments. The straight-line method of depreciation is used for all property and equipment.

Property, plant and equipment consisted of the following:


	Estimated Useful Life	September 26, 2020		September 28, 2019
Equipment	3–10 years	$	460.7	$	379.2
Equipment under customer usage agreements	3–8 years	456.8		427.5
Buildings and improvements	20–35 years	167.3		196.7
Leasehold improvements	Shorter of the Original Term of Lease or Estimated Useful Life	44.3		61.7
Land		40.7		46.3
Furniture and fixtures	5–7 years	16.1		17.5
		1,185.9		1,128.9
Less - accumulated depreciation and amortization		(694.4)		(658.0)
		$	491.5	$	470.9

Equipment under customer usage agreements primarily consists of diagnostic instrumentation and imaging equipment located at customer sites but owned by the Company. Generally, the customer has the right to use the equipment for a period of time provided they meet certain agreed to conditions. The Company recovers the cost of providing the equipment from the sale of disposables, primarily assays, tests and handpieces. The depreciation costs associated with equipment under customer usage agreements are charged to cost of product revenues over the estimated useful life of the equipment. The costs to maintain the equipment in the field are charged to cost of product revenue as incurred.

Long-Lived Assets

Long-Lived AssetsThe Company reviews its long-lived assets, which includes property, plant and equipment and identifiable intangible assets (see below for discussion of intangible assets), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ASC 360-10-35-15, Property, Plant and Equipment—Impairment or Disposal of Long-Lived Assets (ASC 360). Recoverability of these assets is evaluated by comparing the carrying value of the assets to the undiscounted cash flows estimated to be generated by those assets over their remaining economic life. If the undiscounted cash flows are not sufficient to recover the carrying value of the assets, the assets are considered impaired. The impairment loss is measured by comparing the fair value of the assets to their carrying value. Fair value is determined by either a quoted market price, if any, or a value determined by a discounted cash flow technique.

Business Combinations and Acquisition of Intangible Assets

The Company accounts for the acquisition of a business in accordance with ASC 805, Business Combinations (ASC 805). Amounts paid to acquire a business are allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition. Contingent consideration not deemed to be linked to continuing employment is recorded at fair value as measured on the date of acquisition. The value recorded is based on estimates of future financial projections under various potential scenarios using a Monte Carlo simulation. These cash flow projections are discounted with an appropriate risk adjusted rate. Each quarter until such contingent amounts are earned, the fair value of the liability is remeasured at each reporting period and adjusted as a component of operating expenses based on changes to the underlying assumptions. The estimates used to determine the fair value of the contingent consideration liability are subject to significant judgment and actual results are likely to differ from the amounts originally recorded. The Company determines the fair value of acquired intangible assets based on detailed valuations that use certain information and assumptions provided by management. The Company allocates any excess purchase price over the fair value of the net tangible and intangible assets acquired to goodwill.

The Company uses the income approach to determine the fair value of developed technology and in-process research and development ("IPR&D") acquired in a business combination. This approach determines fair value by estimating the after-tax cash flows attributable to the respective asset over its useful life and then discounting these after-tax cash flows back to a present value. The Company bases its revenue assumptions on estimates of relevant market sizes, expected market growth rates, expected trends in technology and expected product introductions by competitors. Developed technology represents patented and unpatented technology and know-how. The value of the in-process projects is based on the project's stage of completion,

the complexity of the work completed as of the acquisition date, the projected costs to complete, the contribution of core technologies and other acquired assets, the expected introduction date, the estimated cash flows to be generated upon commercial release and the estimated useful life of the technology. The Company believes that the estimated developed technology and IPR&D amounts represent the fair value at the date of acquisition and do not exceed the amount a third-party would pay for the assets.The Company also uses the income approach, as described above, to determine the estimated fair value of certain other identifiable intangible assets including customer relationships, trade names and business licenses. Customer relationships represent established relationships with customers, which provide a ready channel for the sale of additional products and services. Trade names represent acquired company and product names

Other Assets

Other assets consisted of the following:


	September 26, 2020		September 28, 2019
Other Assets

Tax receivable	$	325.7	$	—
Right of use assets	80.7		—
Life insurance contracts	49.3		44.6
Deferred tax assets	15.5		17.2



Cost-method equity investments	11.4		11.4

Equity-method investment and loans to SSI (Note 5)	—		42.7
Other	34.0		38.7
	$	516.6	$	154.6

The tax receivable primarily relates to a discrete tax benefit from the sale of Cynosure in the second quarter of fiscal 2020. The right of use assets were recorded in connection with the adoption of ASC 842, Leases, and pertains to operating leases. Life insurance contracts were purchased in connection with the Company’s Nonqualified Deferred Compensation Plan (“DCP”) and are recorded at their cash surrender value (see Note 12 for further discussion).

Research and Software Development Costs

Costs incurred for the research and development of the Company’s products are expensed as incurred. Nonrefundable advance payments for goods or services to be received in the future by the Company for use in research and development activities are deferred. The deferred costs are expensed as the related goods are delivered or the services are performed.

The Company accounts for the development costs of software embedded in the Company’s products in accordance with ASC 985, Software. Costs incurred in the research, design and development of software embedded in products to be sold to customers are charged to expense until technological feasibility of the ultimate product to be sold is established. The Company’s policy is that technological feasibility is achieved when a working model, with the key features and functions of the product, is available for customer testing. Software development costs incurred after the establishment of technological feasibility and until the product is available for general release are capitalized, provided recoverability is reasonably assured. Capitalized software development costs are amortized over their estimate useful life and recorded within cost of revenues - product.

Foreign Currency Translation

Foreign Currency TranslationThe financial statements of the Company’s foreign subsidiaries are translated in accordance with ASC 830, Foreign Currency Matters. The reporting currency for the Company is the U.S. dollar. The functional currency of the Company’s foreign subsidiaries is determined based on the guidance in ASC 830. The majority of the Company's foreign subsidiaries' functional currency is the applicable local currency, although certain of the Company's foreign subsidiaries' functional currency is the U.S. dollar based on the nature of their operations or functions. Assets and liabilities of subsidiaries whose functional currency is the local currency are translated at the exchange rate in effect at each balance sheet date. Before translation, the Company re-measures foreign currency denominated assets and liabilities, including inter-company accounts receivable and payable, into the functional currency of the respective entity, resulting in unrealized gains or losses recorded in other income, net in the Consolidated Statements of Operations. Revenues and expenses are translated using average exchange rates during the respective period. Foreign currency translation adjustments are accumulated as a component of other comprehensive income (loss) as a separate component of stockholders’ equity. Gains and losses arising from transactions denominated in foreign currencies are included in other income, net in the Consolidated Statements of Operations and were not significant in any of the reporting periods presented.

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income (loss)

Other comprehensive income (loss) includes certain transactions that have generally been reported in the statement of stockholders’ equity. The following tables summarize the components and changes in accumulated balances of other comprehensive loss for the periods presented:


	Year Ended September 26, 2020										Year Ended September 28, 2019
	Foreign Currency Translation		Pension Plans		Hedged Interest Rate Caps		Hedged Interest Rate Swaps		Total		Foreign Currency Translation		Pension Plans		Hedged Interest Rate Caps		Hedged Interest Rate Swaps		Total
Beginning Balance	$	(41.4)	$	(1.7)	$	(2.7)	$	3.5	$	(42.3)	$	(26.6)	$	(1.1)	$	2.2	$	—	$	(25.5)
Other comprehensive loss before reclassifications	18.5		(0.1)		(0.5)		(27.6)		(9.7)		(14.8)		(0.6)		(8.0)		3.5		(19.9)
Charges (gains) reclassified to statement of operations	—		—		2.3		—		2.3		—		—		3.1		—		3.1
Ending Balance	$	(22.9)	$	(1.8)	$	(0.9)	$	(24.1)	$	(49.7)	$	(41.4)	$	(1.7)	$	(2.7)	$	3.5	$	(42.3)

Derivatives

Interest Rate Cap - Cash Flow Hedge

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company manages its exposure to some of its interest rate risk through the use of interest rate caps, which are derivative financial instruments. The Company does not use derivatives for speculative purposes. For a derivative that is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in accumulated other comprehensive income ("AOCI") to the extent the derivative is effective at offsetting the changes in the cash flows being hedged until the hedged item affects earnings. To the extent there is any hedge ineffectiveness, changes in fair value relating to the ineffective portion are immediately recognized in earnings in other income, net in the Consolidated Statements of Operations.

During fiscal 2018, the Company entered into separate interest rate cap agreements with multiple counter-parties to mitigate the interest rate volatility associated with the variable interest rate on its amounts borrowed under the term loan feature of its credit facilities (see Note 7). Interest rate cap agreements provide the right to receive cash if the reference interest rate rises above a contractual rate. The aggregate premium paid for these interest rate cap agreements was $3.7 million, which was the initial fair value of the instruments recorded in the Company's financial statements.

During fiscal 2019, the Company entered into additional separate interest rate cap agreements with multiple counter-parties to extend the expiration date of its hedges by an additional year. The aggregate premium paid for these interest cap agreements was $1.5 million, which was the initial fair value of the instruments recorded in the Company’s financial statements.

The critical terms of the interest rate caps were designed to mirror the terms of the Company’s LIBOR-based borrowings under its Credit Agreement, that has been amended multiple times, and therefore are highly effective at offsetting the cash flows being hedged. The Company designated these derivatives as cash flow hedges of the variability of the LIBOR-based interest

payments on $1.0 billion of principal, which ended on December 27, 2019 for the contracts entered into in fiscal 2018, and which will end on December 23, 2020 for the interest rate cap agreements entered into in fiscal 2019.

As of September 26, 2020, the Company determined that the existence of hedge ineffectiveness, if any, was immaterial and all changes in the fair value of the interest rate caps were recorded within AOCI.

During fiscal 2020, 2019 and 2018, interest expense of $2.3 million, $3.1 million and $3.6 million, respectively, was reclassified from AOCI to the Company's Consolidated Statements of Operations related to the interest rate cap agreements. The Company expects to similarly reclassify approximately $0.5 million from AOCI to the Consolidated Statements of Operations in the next twelve months.

The aggregate fair value of these interest rate caps was $0.0 million and $0.1 million at September 26, 2020 and September 28, 2019, respectively, and is included in both Prepaid expenses and other current assets and Other assets on the Company’s Consolidated Balance Sheet. Refer to Note 8 “Fair Value Measurements” for related fair value disclosures.

Interest Rate Swap - Cash Flow Hedge

In fiscal 2019, in order to hedge a portion of its variable rate debt beyond the contracted period under interest cap agreements, the Company entered into an interest rate swap contract with an effective date of December 23, 2020 and a termination date of December 17, 2023. The notional amount of this swap is $1.0 billion. The interest rate swap effectively fixes the LIBOR component of the variable interest rate on $1.0 billion of the notional amount under the 2018 Credit Agreement at 1.23%. The critical terms of the interest rate swap are designed to mirror the terms of the Company’s LIBOR-based borrowings under its credit agreement and therefore are highly effective at offsetting the cash flows being hedged. The Company designated this derivative as a cash flow hedge of the variability of the LIBOR-based interest payments on $1.0 billion of principal. Therefore, changes in the fair value of the swap are recorded in accumulated other comprehensive income (loss) and were a loss, net of taxes, of $27.6 million and a gain, net of taxes, of $3.5 million for the years ended September 26, 2020 and September 28, 2019, respectively. The fair value of this derivative was in a liability position of $31.2 million as of September 26, 2020.

Forward Foreign Currency Contracts and Foreign Currency Option Contracts

The Company enters into forward foreign currency exchange contracts and foreign currency option contracts to mitigate certain operational exposures from the impact of changes in foreign currency exchange rates. Such exposures result from the portion of the Company's operations that are denominated in currencies other than the U.S. dollar, primarily the Euro, the UK Pound, the Australian dollar, the Canadian dollar, the Chinese Yuan and the Japanese Yen. These foreign currency exchange contracts are entered into to support transactions made in the ordinary course of business and are not speculative in nature. The contracts are generally for periods of one year or less. The Company did not elect hedge accounting for these contracts; however, the Company may seek to apply hedge accounting in future scenarios. The change in the fair value of these contracts is recognized directly in earnings as a component of other income, net.


	Years Ended
	September 26, 2020		September 28. 2019		September 29. 2018
Amount of realized (loss) gain recognized in income
Forward foreign currency contracts	$	0.7	$	11.0	$	(1.3)
Foreign currency option contracts	(1.9)		—		—
Total	$	(1.2)	$	11.0	$	(1.3)

Amount of unrealized gain (loss) recognized in income
Forward foreign currency contracts	$	(0.2)	$	(2.2)	$	6.6
Foreign currency option contracts	4.0		0.1		—
Total	$	3.8	$	(2.1)	$	6.6

As of September 26, 2020, the Company had outstanding forward foreign currency contracts that were not designated for hedge accounting and are used to hedge fluctuations in the U.S dollar of forecasted transactions denominated in the Australian Dollar, Canadian Dollar, Chinese Yuan and Japanese Yen with a notional amount of $172.6 million. As of September 26, 2020, the Company had outstanding foreign currency option contracts that were not designated for hedge accounting and are used to hedge fluctuations in the U.S dollar of forecasted transactions denominated in the Euro and UK Pound with a notional amount of $380.2 million.

Financial Instrument Presentation

The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the balance sheet as of September 26, 2020:


	Balance Sheet Location	September 26, 2020		September 28, 2019
Assets:
Derivative instruments designated as a cash flow hedge:
Interest rate cap agreements	Prepaid expenses and other current assets	$	—	$	0.1

Interest rate swap contract	Other assets	$	—	$	4.7
		$	—	$	4.8

Derivatives not designated as hedging instruments:
Forward foreign currency contracts	Prepaid expenses and other current assets	$	1.1	$	0.9
Foreign currency option contracts	Prepaid expenses and other current assets	10.1		2.0
		$	11.2	$	2.9

Liabilities:
Derivative instruments designated as a cash flow hedge:
Interest rate swap contract	Accrued expenses	$	8.2	$	—
Interest rate swap contract	Other long-term liabilities	23.0		—
Total		$	31.2	$	—
Derivatives not designated as hedging instruments:
Forward foreign currency contracts	Accrued expenses	$	—	$	0.1

The following table presents the unrealized gain (loss) recognized in AOCI related to the interest rate caps and interest rate swap for the following reporting periods:


	Years Ended
	September 26, 2020		September 28, 2019		September 29, 2018
Amount of gain (loss) recognized in other comprehensive income (loss), net of taxes:
Interest rate swap	$	(27.6)	$	3.5	$	—
Interest rate cap agreements	(0.5)		(8.0)		(5.7)
Total	$	(28.1)	$	(4.5)	$	(5.7)

The following table presents the adjustment to fair value (realized and unrealized) recorded within the Consolidated Statements of Operations for derivative instruments for which the Company did not elect hedge accounting:


Derivatives not classified as hedging instruments	Years Ended						Location of Gain Recognized in Income
	September 26, 2020		September 28, 2019		September 29, 2018
Forward foreign currency contracts	$	0.5	$	8.8	$	5.3	Other income, net
Foreign currency option contracts	2.1		0.1		—		Other income, net
	$	2.6	$	8.9	$	5.3

Accounts Receivable and Reserves

The Company records reserves for doubtful accounts based upon a specific review of all outstanding invoices, known collection issues and historical experience. The Company regularly evaluates the collectability of its trade accounts receivables and performs ongoing credit evaluations of its customers and adjusts credit limits based upon payment history and its assessment of the customer’s current credit worthiness.

Accounts receivable reserve activity for fiscal 2020, 2019 and 2018 was as follows:


	Balance at Beginning of Period		Charged to Costs and Expenses		Divested		Write- offs and Payments		Balance at End of Period
Period Ended:
September 26, 2020	$	17.8	$	26.8	$	(5.8)	$	(7.2)	$	31.6
September 28, 2019	$	16.2	$	4.4	$	—	$	(2.8)	$	17.8
September 29, 2018	$	9.8	$	7.0	$	—	$	(0.6)	$	16.2

Cost of Service and Other Revenues

Cost of service and other revenues primarily represents payroll and related costs associated with the Company’s professional services’ employees, consultants, infrastructure costs and overhead allocations, including depreciation, rent and materials consumed in providing the service.

Stock-Based Compensation

Stock-Based CompensationThe Company accounts for share-based payments in accordance with ASC 718, Stock Compensation (ASC 718). As such, all share-based payments to employees, including grants of stock options, restricted stock units, performance stock units and market stock units and shares issued under the Company’s employee stock purchase plan, are recognized in the Consolidated Statements of Operations based on their fair values on the date of grant. In addition, as a result of the adoption of ASU 2016-09 in fiscal 2017, all excess tax benefits and deficiencies are recognized as a component of the provision for income taxes on a discrete basis in the period in which the equity awards vest and/or are settled.

Net Income Per Share

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted net income per share is computed by dividing net income by the weighted average number of common shares and the dilutive effect of potential future issuances of common stock from outstanding stock options, restricted stock units and convertible debt for the period outstanding determined by applying the treasury stock method. In accordance with ASC 718, the assumed proceeds under the treasury stock method include the average unrecognized compensation expense of in-the-money stock options and restricted stock units. This results in the assumed buyback of additional shares, thereby reducing the dilutive impact of equity awards.

Product Warranties

The Company generally offers a one-year warranty for its products. The Company provides for the estimated cost of product warranties at the time product revenue is recognized. Factors that affect the Company’s warranty reserves include the number of units sold, historical and anticipated rates of warranty repairs and the cost per repair. The Company periodically assesses the adequacy of the warranty reserve and adjusts the amount as necessary.

Product warranty activity for fiscal 2020 and 2019 was as follows:


	Balance at Beginning of Period		Provisions		Acquired		Divested		Settlements/ Adjustments		Balance at End of Period
Period ended:
September 26, 2020	$	13.9	$	11.7	$	0.5	$	(6.1)	$	(10.1)	$	9.9
September 28, 2019	$	15.9	$	14.1	$	—	$	—	$	(16.1)	$	13.9

Advertising Costs

Advertising costs are charged to operations as incurred. The Company does not have any direct-response advertising. Advertising costs, which include trade shows and conventions, were approximately $15.6 million, $29.5 million and $26.9 million for fiscal 2020, 2019 and 2018, respectively, and were included in selling and marketing expense in the Consolidated Statements of Operations.