Business Context and Reporting Period
This Form 8-K, filed on January 25, 2017, reports the separation of Varex Imaging Corporation (VREX) from Varian Medical Systems, Inc. The separation was effected through a distribution of 100% of Varex's common stock to Varian's stockholders, becoming effective at 12:01 a.m. Pacific Time on January 28, 2017. Varex is now an independent public company listed on the Nasdaq Global Select Market.
Key Financial Metrics and Debt Arrangements
The filing details significant debt arrangements established to fund the separation and future acquisitions. Specific revenue, profit, or cash flow metrics for the reporting period are not provided in this document.
- Initial Credit Facilities (Jan 25, 2017):
- Revolving Credit Facility: Up to $100.0 million (5-year term).
- Term Facility: $200.0 million (5-year term).
- Drawdown: The Company borrowed the full $200.0 million Term Facility and $3.0 million of the Revolving Facility to fund a $200 million cash transfer to Varian and separation costs.
- Interest Rates: LIBOR + 1.125% to 2.125% or Base Rate + 0.125% to 1.125%.
- New Credit Facilities (Commitment Letter Jan 28, 2017):
- New Revolving Credit Facility: Up to $200.0 million (5-year term).
- New Term Facility: $400.0 million (5-year term).
- Purpose: To finance the acquisition of PerkinElmer's medical imaging business and refinance the initial facilities.
- Interest Rates: LIBOR + 1.75% to 2.75% or Base Rate + 0.75% to 1.75%.
Material Changes and Corporate Actions
The primary material change is the corporate spin-off from Varian Medical Systems. Key actions include:
- Separation Agreements: Execution of Separation and Distribution, Transition Services, Tax Matters, Employee Matters, Intellectual Property, and Trademark License agreements with Varian.
- Leadership Changes: Appointment of Sunny S. Sanyal as President and CEO, and Clarence R. Verhoef as CFO. The Board of Directors was expanded from five to six members, with new appointments including Jay K. Kunkel, Erich R. Reinhardt, and Dow R. Wilson.
- Governance: Adoption of a new Code of Conduct and amended Certificate of Incorporation and Bylaws effective January 27, 2017.
- Compensation Plans: Adoption of the 2017 Omnibus Stock Plan, Employee Stock Purchase Plan, and Management Incentive Plan.
Outlook, Risks, and Contingencies
The Company has secured financing to pursue the acquisition of PerkinElmer's medical imaging business. The credit agreements contain customary restrictive covenants limiting additional indebtedness, liens, sale-leaseback transactions, and fundamental changes. They also include financial covenants requiring the maintenance of specific financial ratios. The filing notes that the Company is subject to customary events of default under these agreements.
Investor Verification Checklist
- Verify the closing status and terms of the acquisition of PerkinElmer's medical imaging business.
- Review the full text of the Separation and Distribution Agreement and Transition Services Agreement to understand ongoing dependencies on Varian.
- Confirm the specific financial covenants and ratios required under the Credit Agreements to assess liquidity risk.
- Monitor the execution of the "New Revolving Credit Facility" and "New Term Facility" to ensure refinancing of the initial debt is completed as planned.
- Review the Information Statement (Exhibit 99.1) for detailed executive compensation and director biographical information.