What changed in this filing

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Item 1. Financial Statements

2020-08-14 compared with 2020-05-13 · 322 added, 175 removed, 687 unchanged (42% of the section changed)

1 unchanged sentence

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

Three Months Ended Six Months Ended

(In millions, except per share amounts) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(In millions, except per share amounts) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Revenues, net

9 unchanged sentences

53.1 56.1 165.8 155.6

Operating earnings

Operating (loss) earnings

( 26.8 ) 4.6 ( 20.8 ) 29.5

Interest income

0.1 0.1 0.1 0.1

Interest expense

( 6.9 ) ( 5.1 ) ( 16.9 ) ( 15.7 )

Other income (expense), net

Other expense, net

( 6.1 ) ( 0.1 ) ( 4.5 ) ( 2.6 )

3 unchanged sentences

( 39.8 ) ( 0.6 ) ( 42.1 ) 11.3

Taxes on earnings

Income tax (benefit) expense

( 11.6 ) 0.7 ( 10.9 ) 3.7

14 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS

Three Months Ended Six Months Ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Three Months Ended Nine Months Ended

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Net (loss) earnings

15 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts) April 3, 2020 September 27, 2019

(In millions, except share and per share amounts) July 3, 2020 September 27, 2019

Current assets:

7 unchanged sentences

Investments in privately-held companies

Deferred tax assets

Operating lease assets

20 unchanged sentences

150,000,000 shares authorized

Shares issued and outstanding - 38,653,547 and 38,371,305 at April 3, 2020 and September 27, 2019, respectively.

Shares issued and outstanding - 39,056,965 and 38,371,305 at July 3, 2020 and September 27, 2019, respectively.

Additional paid-in capital 427.2 371.8

Accumulated other comprehensive income (loss) 0.3 ( 1.7 )

Accumulated other comprehensive loss ( 3.1 ) ( 1.7 )

Retained earnings 42.6 74.4

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended

(In millions) April 3, 2020 March 29, 2019

Nine Months Ended

(In millions) July 3, 2020 June 28, 2019

Cash flows from operating activities:

1 unchanged sentence

$ ( 31.2 ) $ 7.6

Adjustments to reconcile net earnings to net cash provided by operating activities:

Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:

Share-based compensation expense 10.2 8.7

Depreciation 17.3 18.7

Amortization of intangible assets 13.1 11.4

Deferred taxes ( 15.6 ) ( 5.7 )

Income from equity method investments

Loss from equity method investments 1.6 0.7

Amortization of deferred loan costs 2.3 1.8

Impairment of intangible assets

Impairment of assets 5.4 4.8

Inventory write-down 15.8 3.1

Other, net 0.7 1.0

Changes in assets and liabilities, net of effects of acquisition:

Accounts receivable 31.6 25.1

( 34.2 ) ( 26.4 )

Inventories ( 50.1 ) ( 26.2 )

Prepaid expenses and other assets ( 7.7 ) 4.7

5 unchanged sentences

Purchases of property, plant and equipment ( 19.5 ) ( 13.3 )

( 14.2 ) ( 7.6 )

Acquisitions of businesses, net of cash acquired ( 1.2 ) ( 69.5 )

1 unchanged sentence

Net cash used in investing activities ( 23.2 ) ( 86.4 )

( 17.3 ) ( 7.6 )

Cash flows from financing activities:

Taxes related to net share settlement of equity awards

( 1.8 ) ( 2.1 )

Borrowings under credit agreements 91.7 79.0

Repayments of borrowing under credit agreements ( 218.0 ) ( 65.7 )

( 36.5 ) ( 52.0 )

Proceeds from issuance of convertible debt 200.0 —

Proceeds from issuance of warrants 49.8 —

Purchases of hedges ( 61.0 ) —

Payment of debt issuance costs ( 8.5 ) ( 0.5 )

Proceeds from exercise of stock options 1.5 0.2

Proceeds from shares issued under employee stock purchase plan 3.6 3.8

Payment of debt issuance costs

( 0.5 ) ( 0.5 )

Taxes related to net share settlement of equity awards ( 1.8 ) ( 2.1 )

Other financing activities ( 0.6 ) —

Net cash used in financing activities

( 12.1 ) ( 45.6 )

Net cash provided by financing activities 56.7 14.7

Effects of exchange rate changes on cash and cash equivalents and restricted cash

( 1.0 ) ( 0.7 )

Net increase in cash and cash equivalents and restricted cash

Net increase (decrease) in cash and cash equivalents and restricted cash

57.5 ( 23.4 )

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended April 3, 2020

Three Months Ended July 3, 2020

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total Varex Equity Noncontrolling Interests Total Equity

(In millions) Shares Amount

January 3, 2020 38.5 $ 0.4 $ 377.6 $ ( 2.6 ) $ 72.5 $ 447.9 $ 3.3 $ 451.2

Cumulative effect of accounting changes — — — — 0.3 0.3 — 0.3

April 3, 2020 38.7 $ 0.4 $ 379.5 $ 0.3 $ 70.9 $ 451.1 $ 3.2 $ 454.3

Net loss — — — — ( 28.3 ) ( 28.3 ) — ( 28.3 )

Exercise of stock options — — 0.3 — — 0.3 — 0.3

Common stock issued upon vesting of restricted shares

0.2 — — — — — — —

Shares withheld on vesting of restricted stock

Common stock issued under employee stock purchase plan

0.1 — 1.8 — — 1.8 — 1.8

3 unchanged sentences

— — — 0.3 — 0.3 — 0.3

Conversion feature of Convertible Notes, net of issuance costs

— — 46.1 — — 46.1 — 46.1

Purchase of hedges

— — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants

— — 49.8 — — 49.8 — 49.8

Currency translation adjustments

— — — ( 3.7 ) — ( 3.7 ) — ( 3.7 )

April 3, 2020 38.7 $ 0.4 $ 379.5 $ 0.3 $ 70.9 $ 451.1 $ 3.2 $ 454.3

Three Months Ended March 29, 2019

Shares issued to settle deferred consideration

0.3 — 7.4 — — 7.4 — 7.4

— — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )

July 3, 2020 39.1 $ 0.4 $ 427.2 $ ( 3.1 ) $ 42.6 $ 467.1 $ 3.2 $ 470.3

Three Months Ended June 28, 2019

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income Retained Earnings Total Varex Equity Noncontrolling Interests Total Equity

(In millions) Shares Amount

December 29, 2018 38.1 $ 0.4 $ 362.1 $ 3.5 $ 61.3 $ 427.3 $ 1.9 $ 429.2

Cumulative effect of accounting changes — — — — 0.6 0.6 — 0.6

Net earnings — — — — 5.8 5.8 — 5.8

Exercise of stock options — — 0.1 — — 0.1 — 0.1

March 29, 2019 38.2 $ 0.4 $ 363.1 $ 2.1 $ 67.7 $ 433.3 $ 1.9 $ 435.2

Net loss — — — — ( 1.4 ) ( 1.4 ) — ( 1.4 )

Common stock issued upon vesting of restricted shares

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 2.1 ) — — ( 2.1 ) — ( 2.1 )

0.1 — 1.9 — — 1.9 — 1.9

Share-based compensation — — 3.1 — — 3.1 — 3.1

Unrealized loss on interest rate swap contracts, net of tax

March 29, 2019 38.2 $ 0.4 $ 363.1 $ 2.1 $ 67.7 $ 433.3 $ 1.9 $ 435.2

— — — ( 2.3 ) — ( 2.3 ) — ( 2.3 )

Currency translation adjustments

— — — ( 0.2 ) — ( 0.2 ) — ( 0.2 )

Noncontrolling interest acquired / consolidated

— — — — — — 1.4 1.4

June 28, 2019 38.3 $ 0.4 $ 368.1 $ ( 0.4 ) $ 66.3 $ 434.4 $ 3.3 $ 437.7

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Six Months Ended April 3, 2020

Nine Months Ended July 3, 2020

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Retained Earnings Total Varex Equity Noncontrolling Interests Total Equity

1 unchanged sentence

September 27, 2019 38.4 $ 0.4 $ 371.8 $ ( 1.7 ) $ 74.4 $ 444.9 $ 3.3 $ 448.2

Cumulative effect of accounting changes — — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

Cumulative effect of accounting change

— — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

Net loss — — — — ( 31.5 ) ( 31.5 ) ( 0.1 ) ( 31.6 )

1 unchanged sentence

Common stock issued upon vesting of restricted shares

0.2 — — — — — — —

Shares withheld on vesting of restricted stock

( 0.1 ) — ( 1.8 ) — — ( 1.8 ) — ( 1.8 )

Common stock issued under employee stock purchase plan

0.2 — 3.6 — — 3.6 — 3.6

Share-based compensation

— — 10.2 — — 10.2 — 10.2

Unrealized loss on interest rate swap contracts, net of tax

— — — ( 2.0 ) — ( 2.0 ) — ( 2.0 )

Conversion feature of Convertible Notes, net of issuance costs

— — 46.1 — — 46.1 — 46.1

Purchase of hedges

— — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants

— — 49.8 — — 49.8 — 49.8

Currency translation adjustments

Other — — ( 0.3 ) — — ( 0.3 ) — ( 0.3 )

April 3, 2020 38.7 $ 0.4 $ 379.5 $ 0.3 $ 70.9 $ 451.1 $ 3.2 $ 454.3

Six Months Ended March 29, 2019

— — — 0.6 — 0.6 — 0.6

Shares issued to settle deferred consideration

0.3 — 7.4 — — 7.4 — 7.4

— — ( 0.4 ) — — ( 0.4 ) — ( 0.4 )

July 3, 2020 39.1 $ 0.4 $ 427.2 $ ( 3.1 ) $ 42.6 $ 467.1 $ 3.2 $ 470.3

Nine Months Ended June 28, 2019

Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Varex Equity Noncontrolling Interests Total Equity

2 unchanged sentences

Cumulative effect of accounting change

Net earnings — — — — 8.8 8.8 ( 0.2 ) 8.6

— — — — ( 3.5 ) ( 3.5 ) — ( 3.5 )

— — — — 7.4 7.4 ( 0.2 ) 7.2

Exercise of stock options

— — 0.1 — — 0.1 — 0.1

Common stock issued upon vesting of restricted shares

0.2 — — — — — — —

Shares withheld on vesting of restricted stock

( 0.1 ) — ( 2.1 ) — — ( 2.1 ) — ( 2.1 )

Common stock issued under employee stock purchase plan

0.2 — 3.8 — — 3.8 — 3.8

Share-based compensation

— — 8.7 — — 8.7 — 8.7

Unrealized loss on interest rate swap contracts, net of tax

March 29, 2019 38.2 $ 0.4 $ 363.1 $ 2.1 $ 67.7 $ 433.3 $ 1.9 $ 435.2

— — — ( 6.0 ) — ( 6.0 ) — ( 6.0 )

Currency translation adjustments

— — — ( 0.2 ) — ( 0.2 ) — ( 0.2 )

Noncontrolling interest acquired / consolidated

— — — — — — 1.4 1.4

June 28, 2019 38.3 $ 0.4 $ 368.1 $ ( 0.4 ) $ 66.3 $ 434.4 $ 3.3 $ 437.7

See accompanying notes to the condensed consolidated financial statements.

23 unchanged sentences

Fiscal year 2019 was the 52-week period that ended on September 27, 2019.

The fiscal quarters ended April 3, 2020 and March 29, 2019 were 13-week periods.

The fiscal quarters ended July 3, 2020 and June 28, 2019 were 13-week periods.

Use of Estimates

3 unchanged sentences

Actual results could differ from these estimates.

The recent coronavirus (“COVID-19”) pandemic and the mitigation efforts by governments to attempt to control its spread created uncertainties and disruptions in the economic and financial markets.

The extent to which COVID-19 impacts the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

Impact of COVID-19

The coronavirus (“COVID-19”) pandemic and the mitigation efforts by governments to attempt to control its spread created uncertainties and disruptions in the economic and financial markets.

The extent to which COVID-19 will continue to impact the Company’s business and financial results will depend on numerous evolving factors including, but not limited to:

the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions including interest rates, employment rates, the speed of the anticipated recovery, and governmental and business reactions to the pandemic.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the unknown future impacts COVID-19 as of April 3, 2020 and through the date of this report.

The accounting matters assessed included, but were not limited to, the Company’s carrying value of goodwill, intangibles, long-lived assets, inventory and related reserves, and allowance for doubtful accounts.

While there was not a material impact to the Company’s consolidated financial statements as of and for the quarter ended April 3, 2020, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material impacts to the Company’s consolidated financial statements in future reporting periods.

These future developments are highly uncertain and the outcomes are unpredictable.

During the quarter ended July 3, 2020, as a result of the economic downturn resulting from COVID-19, the Company experienced reduced demand in the Company’s industrial segment and for certain higher end medical products that negatively impacted revenues and gross margin.

The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company and the currently estimated future impacts COVID-19 as of July 3, 2020 and through the date of filing this report.

The accounting matters assessed included, but were not limited to, the Company’s carrying value of goodwill, intangibles, long-lived assets, equity method investments, inventory and related reserves, and allowance for doubtful accounts.

The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material negative impacts to the Company’s consolidated financial statements in future reporting periods.

These future developments are highly uncertain and the outcomes can not be estimated with certainty.

Actual results may differ from those estimates, and such differences may be material to the financial statements.

The Company’s Credit Agreement, as defined in Note 11, Borrowings, contains financial covenants, including certain leverage ratio covenants.

The Company was in compliance with all financial covenants as of July 3, 2020.

However, the adverse effects of the COVID-19 pandemic on the Company’s financial condition and results of operations are expected to be more persistent and have been more severe than previously estimated in the prior quarter forecasted financial results.

Specifically, in conjunction with analyzing the results for the Company’s third quarter, the Company now believes that reduced demand in the Company’s industrial segment and for certain higher end medical products will continue to negatively impact revenues, gross margin and the other items used to calculate the Company’s financial covenants contained in its Credit Agreement.

Based on the Company’s current forecasts, it is probable that the Company will be in violation of certain leverage ratio covenants contained in its Credit Agreement within the twelve-month period following the issuance of these financial statements, including as early as the end of the Company's fiscal year end 2020.

Failure to comply with the covenants, if not amended or waived, would result in an event of default under the Credit Agreement and the acceleration of the outstanding balance of the loans thereunder.

If an event of default under the Credit Agreement occurs, then pursuant to cross default and/or cross acceleration clauses, substantially all of the Company’s other outstanding debt and derivative contract payables would become due, and all debt and derivative contracts could be terminated, which would have a material adverse impact to the Company’s operations and liquidity as the Company currently does not have the financial resources to satisfy such obligations if they were to become due and payable.

These events and conditions raise substantial doubt about the Company’s ability to continue as a going concern within the twelve-month period following the issuance of these financial statements.

The Company is actively pursuing various options to prevent an event of default from occurring under the Credit Agreement.

The Company is implementing actions to improve its financial results and other items used to calculate the financial covenants, such as accelerating the closure of its Santa Clara facility, the previously announced reduction in force, austerity programs related to outside services, and other appropriate actions.

The Company is also taking actions to improve cash flow such as working capital reductions and reduced spending for property, plant and equipment, as well as pursuing potential additional fundraising to modify, supplement, or replace its Credit Agreement.

While the Company has and continues to take actions to mitigate the risk of an event of default under the Credit Agreement, there is no assurance that it will be successful in doing so.

The Company’s unaudited condensed consolidated financial statements have been prepared on a going concern basis and do not reflect any adjustments that might result if the Company is unable to continue as a going concern.

Restricted Cash

2 unchanged sentences

Cash and cash equivalents and restricted cash as reported within the condensed consolidated statements of cash flows consisted of the following:

Six Months Ended April 3, 2020 Six Months Ended March 29, 2019

Nine Months Ended July 3, 2020 Nine Months Ended June 28, 2019

Beginning of Period End of Period Beginning of Period End of Period

7 unchanged sentences

The Company performs ongoing credit evaluations of its customers and, except for government tenders, group purchases and orders with a letter of credit, its industrial customers often provide a down payment.

The Company maintains an allowance for doubtful accounts based upon the expected collectability of all accounts receivable.

The Company maintains an allowance for doubtful accounts based on the expected collectability of accounts receivable.

The Company obtains some of the components in its products from a limited group of suppliers or from a single-source supplier.

2 unchanged sentences

During the periods presented, one of the Company's Medical segment customers accounted for a significant portion of revenues, as follows:

Three Months Ended Six Months Ended

April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Three Months Ended Nine Months Ended

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Canon Medical Systems Corporation

23.7 % 17.1 % 21.7 % 17.5 %

Canon Medical Systems Corporation accounted for 18.3 % and 10.1 % of the Company’s accounts receivable as of April 3, 2020 and September 27, 2019, respectively.

Canon Medical Systems Corporation accounted for 15.7 % and 10.1 % of the Company’s accounts receivable as of July 3, 2020 and September 27, 2019, respectively.

The Company accounts for its equity investments in privately-held companies under the equity method of accounting if the Company has the ability to exercise significant influence in these investments.

Distributions received from an equity method investment are classified using the cumulative earnings approach.

Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment as operating cash flows and those in excess of that amount will be treated as returns of investment as investing cash flows.

The Company reviews its equity investments in privately-held companies for impairment whenever events or changes in business circumstances are other than temporary and indicate that the carrying amount of the investments may not be fully recoverable.

During the three and nine months ended July 3, 2020, the Company wrote off a $ 2.7 million cost investment in a privately-held company, the related expense is included as part of other expenses, net in the Company's condensed consolidated financial statements.

Loss Contingencies

From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations, customs and duties audits, other contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise.

Company believes will result in a probable loss (including, among other things, probable settlement value).

The Company accrues amounts for probable losses, 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.

1 unchanged sentence

The Company warrants most of its products for a specific period of time, usually 12 to 24 months from delivery or acceptance, against material defects.

The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized.

The Company provides for the estimated future costs of warranty obligations in cost of revenues

when the related revenues are recognized.

The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty.

3 unchanged sentences

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

Six Months Ended

(In millions) April 3, 2020 March 29, 2019

Nine Months Ended

(In millions) July 3, 2020 June 28, 2019

Accrued product warranty, at beginning of period

24 unchanged sentences

Also, the Company applied the hindsight practical expedient.

Furthermore, as a lessee the Company elected to combine lease and non-lease components for the majority of its leases, which means that the Company accounted for each separate lease component

and the non-lease components associated with that lease component as a single lease component.

Furthermore, as a lessee the Company elected to combine lease and non-lease components for the majority of its leases, which means that the Company accounted for each separate lease component and the non-lease components associated with that lease component as a single lease component.

The only asset class that did not combine lease and non-lease components were vehicle leases.

2 unchanged sentences

This includes the recording of the Company’s existing capital leases as finance leases at transition.

The cumulative impact of adoption was a $ 0.3 million decrease to retained earnings.

The cumulative impact of adoption was a $ 0.3 million decrease to

retained earnings.

Refer to Note 3, Leases, for a detailed description of the impact of adopting this standard and its impact on the consolidated financial statements and related disclosures.

2 unchanged sentences

Effective September 28, 2019, the Company adopted ASU 2018-02 and it did not have a material effect on the Company’s financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intan gibles - Goodwill and Other, Simplifying the Test for Goodwill Impairment , which simplified the testing required for the impairment of goodwill by removing Step 2 from the goodwill impairment test.

Step 2 of the goodwill impairment test measures a goodwill impairment loss by comparing the implied fair value of a reporting units goodwill with the carrying amount of that goodwill.

ASU 2017-04 allows an entity to measure the impairment based off Step 1 of the impairment test, which calculates the impairment as the difference between the carrying amount of the reporting unit and its fair value.

Adoption of this ASU was required for the Company in the first quarter of fiscal year 2021.

The Company elected to early adopt this standard effective April 4, 2020.

This adoption was made on a prospective basis, as required by the standard.

Recent Accounting Standards or Updates Not Yet Effective

5 unchanged sentences

The Company is evaluating the impact of adopting this guidance to its condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 which clarified its guidance to simplify 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 amendment will be effective for the Company beginning in its first quarter of fiscal year 2021.

The amendment is required to be adopted prospectively.

Early adoption is permitted.

The Company is evaluating the impact of adopting this amendment to its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments." This ASU replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.

12 unchanged sentences

Transaction prices of products or services are typically based on contracted rates.

amount method when there are two possible outcomes, depending on the circumstances of the transaction , to which the Company expects to be entitled.

To the extent that the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method when there is a large number of transactions with similar characteristics or the most likely amount method when there are two possible outcomes, depending on the circumstances of the transaction, to which the Company expects to be entitled.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

21 unchanged sentences

The following table disaggregates the Company’s revenue by geographic region:

Three Months Ended Six Months Ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Three Months Ended Nine Months Ended

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Americas $ 58.7 $ 73.8 $ 191.5 $ 216.4

2 unchanged sentences

$ 171.2 $ 196.7 $ 568.3 $ 578.2

Revenue in the United States of America was $ 60.2 million and $ 72.2 million for the three months ended April 3, 2020 and March 29, 2019, respectively.

Revenue in the United States of America was $ 128.8 million and $ 139.4 million for the six months ended April 3, 2020 and March 29, 2019, respectively.

Revenue in the United States of America was $ 56.9 million and $ 71.4 million for the three months ended July 3, 2020 and June 28, 2019, respectively.

Revenue in the United States of America was $ 185.6 million and $ 210.8 million for the nine months ended July 3, 2020 and June 28, 2019, respectively.

Refer to Note 16, Segment Information , for the disaggregation of the Company’s revenue based on reportable operating segments.

1 unchanged sentence

Contract assets are included within the prepaid expenses and other current assets, and other assets balances.

Contract liabilities, which also includes refund obligations are included within the accrued liabilities and other current liabilities, deferred revenues, and other long-term liabilities balances.

The following table summarizes the changes in the contract assets and refund liabilities for the six months ended April 3, 2020:

Contract liabilities, which also include refund obligations are included within the accrued liabilities and other current liabilities, deferred revenues, and other long-term liabilities balances.

The following table summarizes the changes in the contract assets and refund liabilities for the nine months ended July 3, 2020:

(In millions) Contract Assets

2 unchanged sentences

Contract asset from shipments of products, subject to return during the period 5.2

Balance at April 3, 2020 24.1

Balance at July 3, 2020 $ 24.6

(In millions) Refund Liabilities

2 unchanged sentences

Additions to refund liabilities 5.7

Balance at April 3, 2020 $ 26.9

During the three and six months ended April 3, 2020, the Company recognized revenue of $ 1.3 million and $ 7.4 million respectively, related to contract liabilities which existed at September 27, 2019.

During the three and six months ended March 29, 2019, the Company recognized revenue of $ 2.6 million and $ 8.3 million respectively, related to contract liabilities which existed at September 28, 2018.

Balance at July 3, 2020 $ 27.3

During the three and nine months ended July 3, 2020, the Company recognized revenue of $ 0.5 million and $ 7.8 million respectively, related to contract liabilities which existed at September 27, 2019.

During the three and nine months ended June 28, 2019, the Company recognized revenue of $ 0.7 million and $ 8.9 million respectively, related to contract liabilities which existed at September 28, 2018.

Remaining Performance Obligations

Remaining performance obligations represent the transaction price of firm orders for which revenue has not yet been recognized.

As of April 3, 2020, total remaining performance obligations amounted to $ 276.1 million.

As of July 3, 2020, total remaining performance obligations amounted to $ 235.7 million.

The Company expects to recognize the remaining performance obligations over the next 12 months.

11 unchanged sentences

Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a straight-line basis over the lease term.

The Company's leases have remaining lease terms of one year to approximately five years , some of which may include options to extend the leases for up to six years and some include options to terminate early.

The Company's leases have remaining lease terms of one year to approximately seven years , some of which may include options to extend the leases for up to six years and some include options to terminate early.

These options have been included in the determination of the lease liability when it is reasonably certain that the option will be exercised.

4 unchanged sentences

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

April 3, 2020

(In millions) Balance Sheet Location Operating Leases Finance Leases

6 unchanged sentences

The following table presents the weighted average remaining lease term and discount rate information related to the Company's operating and finance leases:

April 3, 2020

Operating Leases Finance Leases

2 unchanged sentences

The following table provides information related to the Company’s operating and finance leases:

(In millions) Three Months Ended April 3, 2020 Six Months Ended April 3, 2020

(In millions) Three Months Ended July 3, 2020 Nine Months Ended July 3, 2020

Total operating lease costs (a) $ 2.0 $ 6.0

3 unchanged sentences

Total cash paid for amounts included in the measurement of lease liabilities $ 1.9 $ 6.0

(a) Includes variable and short-term lease expense, which were immaterial for the three and six months ended April 3, 2020.

For the three and six months ended March 29, 2019 the Company's lease expense was $ 1.4 million and $ 2.6 million, respectively.

As of April 3, 2020, maturities of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

Noncash operating right-of-use assets obtained in exchange for new lease liabilities (b) $ 0.3 $ 10.6

Noncash finance right-of-use assets obtained in exchange for new lease liabilities (b) — 0.2

Total right-of-use assets obtained in exchange for new lease liabilities (b) $ 0.3 $ 10.8

(a) Includes variable and short-term lease expense, which were immaterial for the three and nine months ended July 3, 2020.

(b) Excludes the impact of adopting the new leases standard in the first quarter of 2020.

For the three and nine months ended June 28, 2019 the Company's lease expense was $ 1.2 million and $ 3.8 million, respectively.

As of July 3, 2020, maturities of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

(In millions)

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$ 7.5 million, $ 5.4 million, $ 4.7 million, $ 1.8 million, $ 0.9 million, and $ 0.2 million, respectively.

During the second quarter of 2020, the Company identified an error related to the adoption of ASC 842, which was adopted as of September 28, 2019, and recorded adjustments of $ 2.3 million to the lease right-of-use asset balance and $ 2.8 million to the lease liability balance, which reduced these balances and also recorded an adjustment of $ 0.3 million to increase retained earnings.

During the second and third quarters of 2020, the Company identified offsetting errors related to the adoption of ASC 842, which was adopted as of September 28, 2019, and recorded first quarter adjustments of $ 0.3 million to the lease right-of-use asset balance and $ 0.8 million to the lease liability balance, which reduced these balances and also recorded an adjustment of $ 0.3 million to increase retained earnings.

There was no material impact to the income statement for this correction.

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Total intangible assets acquired $ 32.9

During the third quarter of 2020 the in-process research and development assets from the Direct Conversion acquisition were determined to be impaired.

Refer to Note 10, Goodwill and Intangible Assets, for more information.

RELATED PARTY TRANSACTIONS

Investment in Privately-Held Companies

The Company has a 40 % ownership interest in dpiX Holding LLC (“dpiX Holding”), a four -member consortium that has a 100 % ownership interest in dpiX LLC (“dpiX”), a supplier of amorphous silicon based thin film transistor arrays for digital flat panel image detectors.

image detectors.

In accordance with the dpiX Holding operating agreement, net profits or losses are allocated to the members in accordance with their ownership interests.

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When the Company recognizes its share of net profits or losses of dpiX Holding, profits or losses in inventory purchased from dpiX are eliminated.

During the three months ended April 3, 2020 and March 29, 2019, the Company recorded income/(loss) on the equity investment in dpiX Holding of $( 0.8 ) million and zero , respectively.

During the six months ended April 3, 2020 and March 29, 2019, the Company recorded income/(loss) on the equity investment in dpiX Holding of $ 0.1 million and $( 0.7 ) million, respectively.

Income and loss on the equity investment in dpiX Holding is included in other income (expense), net in the condensed consolidated statements of earnings.

The carrying value of the equity investment in dpiX Holding was $ 47.9 million and $ 48.1 million at April 3, 2020 and September 27, 2019, respectively.

During the three months ended April 3, 2020 and March 29, 2019, the Company purchased glass transistor arrays from dpiX totaling $ 5.3 million and $ 1.4 million, respectively.

During the six months ended April 3, 2020 and March 29, 2019, the Company purchased glass transistor arrays from dpiX totaling $ 10.9 million and $ 4.2 million, respectively.

These purchases of glass transistor arrays are included as a component of inventories on the condensed consolidated balance sheets or cost of revenues in the condensed consolidated statements of earnings.

As of April 3, 2020, and September 27, 2019, the Company had accounts payable to dpiX totaling $ 7.0 million and $ 3.6 million, respectively.

During the three months ended July 3, 2020 and June 28, 2019, the Company recorded (loss)/income on the equity investment in dpiX Holding of $( 0.5 ) million and $ 0.4 million, respectively.

During the nine months ended July 3, 2020 and June 28, 2019, the Company recorded loss on the equity investment in dpiX Holding of $( 0.4 ) million and $( 0.3 ) million, respectively.

Income and loss on the equity investment in dpiX Holding is included in other expense, net in the condensed consolidated statements of operations.

The carrying value of the equity investment in dpiX Holding was $ 46.8 million and $ 48.1 million at July 3, 2020 and September 27, 2019, respectively.

During the three months ended July 3, 2020 and June 28, 2019, the Company purchased glass transistor arrays from dpiX totaling $ 4.9 million and $ 5.5 million, respectively.

During the nine months ended July 3, 2020 and June 28, 2019, the Company purchased glass transistor arrays from dpiX totaling $ 15.8 million and $ 16.7 million, respectively.

As of July 3, 2020, and September 27, 2019, the Company had accounts payable to dpiX totaling $ 3.7 million and $ 3.6 million, respectively.

In October 2013, the Company entered into an amended agreement with dpiX and other parties that, among other things, provides the Company with the right to 50 % of dpiX’s total manufacturing capacity produced after January 1, 2014.

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In January 2020, the fixed cost commitment was determined and approved by the dpiX board of directors to be $ 12.7 million for calendar year 2020.

As of April 3, 2020, the Company had $ 9.5 million fixed cost commitments related to this agreement remaining for calendar year 2020.

As of July 3, 2020, the Company had $ 6.4 million fixed cost commitments related to this agreement remaining for calendar year 2020.

The amended agreement will continue unless the ownership structure of dpiX changes as provided in the amended agreement.

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The Company's investment in VEC is accounted for under the equity method.

As of April 3, 2020, the Company has made contributions totaling $ 4.0 million, and has committed to contribute an additional $ 1.1 million as milestones are achieved, and to provide certain full-time employees to support prototyping and manufacturing activities in exchange for a 50 % interest in VEC.

As of July 3, 2020, the Company has made contributions totaling $ 4.0 million, and has committed to contribute an additional $ 1.1 million as milestones are achieved, and to provide certain full-time employees to support prototyping and manufacturing activities in exchange for a 50 % interest in VEC.

CETTEEN made contributions of certain assets including intellectual property in exchange for a 50 % interest in VEC.

The Company's investment in VEC was $ 2.6 million and $ 2.0 million at April 3, 2020 and September 27, 2019, respectively .

The Company's investment in VEC was $ 2.6 million and $ 2.0 million at July 3, 2020 and September 27, 2019, respectively.

RESTRUCTURING

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The Company expects operations at the Santa Clara facility to cease by the end of September 2020 and all activities related to the closure of the facility to be complete by the end of December 2020.

In connection with the relocation of the glass production and site closure the Company recorded $ 1.7 million and $ 0.9 million of restructuring charges for the three months ended April 3, 2020 and March 29, 2019, respectively and $ 2.5 million and $ 6.0 million of restructuring charges for the six months ended April 3, 2020 and March 29, 2019, respectively.

In connection with the relocation of the glass production and site closure the Company recorded $ 1.5 million and $ 0.0 million of restructuring charges for the three months ended July 3, 2020 and June 28, 2019, respectively and $ 4.0 million and $ 6.0 million of restructuring charges for the nine months ended July 3, 2020 and June 28, 2019, respectively.

The Company expects to incur an additional $ 4.0 million to $ 8.0 million of restructuring charges through December 2020.

Cash outflows associated with these restructuring charges are limited to employee termination expenses, facility closure and equipment sales and disposals.

Below is a detail of restructuring charges incurred during the six months ended April 3, 2020 and March 29, 2019, respectively, which predominately relate to the Company's Medical segment:

Three Months Ended Six Months Ended

(In millions) Location of Restructuring Charges in Consolidated Statements of Earnings April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Below is a detail of restructuring charges incurred during the three and nine months ended July 3, 2020 and June 28, 2019, respectively, which predominantly relate to the Company's Medical segment:

Three Months Ended Nine Months Ended

(In millions) Location of Restructuring Charges in Consolidated Statements of Operations July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Accelerated depreciation Cost of revenues $ 0.9 $ — $ 2.1 $ 4.2

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Interest rate swap contracts hedging variable rate debt effectively fix the LIBOR component of its interest rate for a specific period of time.

As of April 3, 2020, the Company had the following outstanding derivatives designated as hedging instruments:

As of July 3, 2020, the Company had the following outstanding derivatives designated as hedging instruments:

(In millions, except for number of instruments) Number of Instruments Notional Value

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Three months ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Interest Rate Swap Contracts $ ( 0.3 ) $ ( 2.4 ) Interest expense $ ( 0.7 ) $ 0.5

Amount of Gain (Loss) Recognized in OCI on Derivative

Six Months Ended Location of Gain or (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income

Six Months Ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Nine Months Ended Location of Gain or (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income

Nine Months Ended

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Interest Rate Swap Contracts $ ( 3.3 ) $ ( 6.1 ) Interest expense $ ( 0.6 ) $ 1.6

The Company expects that approximately $( 3.2 ) million of the accumulated other comprehensive (loss) income related to cash flow hedges will be realized in pre-tax earnings over the next 12 months, but the amount will vary depending on interest rates.

The Company expects that approximately $ 3.2 million of the accumulated other comprehensive loss related to cash flow hedges will be realized in pre-tax earnings over the next 12 months, but the amount will vary depending on interest rates.

These derivative instruments are subject to master netting agreements giving effect to rights of offset with each counterparty.

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(In millions) Derivative Assets and Liabilities

Derivatives designated as cash flow hedges Balance sheet location April 3, 2020 September 27, 2019

Derivatives designated as cash flow hedges Balance sheet location July 3, 2020 September 27, 2019

Interest rate swap contracts Accrued liabilities and other current liabilities $ ( 3.2 ) $ —

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All changes in fair value of the derivatives designated as net investment hedges are reported in accumulated other comprehensive (loss) income along with the foreign currency translation adjustments on those investments.

As of April 3, 2020, the Company had the following outstanding derivatives designated as net investment hedging instruments:

As of July 3, 2020, the Company had the following outstanding derivatives designated as net investment hedging instruments:

(In millions, except for number of instruments) Number of Instruments Notional Value

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Three months ended Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Cross Currency Swap Contracts $ ( 2.2 ) $ — Interest expense $ 0.4 $ —

Amount of Gain (Loss) Recognized in OCI on Derivative

Six Months Ended Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Nine Months Ended Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Cross Currency Swap Contracts $ 2.1 $ — Interest expense $ 1.1 $ —

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(In millions) Derivative Assets and Liabilities

Derivatives designated as net investment hedges Balance sheet location April 3, 2020 September 27, 2019

Derivatives designated as net investment hedges Balance sheet location July 3, 2020 September 27, 2019

Cross Currency Swap Contracts Other current assets $ 1.5 $ —

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The Company does not and does not intend to use derivative financial instruments for speculative or trading purposes.

The following table shows the notional amounts of outstanding foreign currency contracts as of April 3, 2020:

The following table shows the notional amounts of outstanding foreign currency contracts as of July 3, 2020:

Notional Value of Derivatives not Designated as Hedging Instruments:

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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

Fair Value Measurements at July 3, 2020

(In millions) Quoted Prices in Active Markets for Identical Assets and Liabilities

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Derivative liabilities

$ — $ 3.6 $ — $ 3.6

Deferred consideration 7.0 — — 7.0

Total liabilities measured at fair value $ — $ 3.2 $ — $ 3.2

As of April 3, 2020, the outstanding borrowings under the Company's credit agreement were $ 383.0 million, net of deferred loan costs, which approximated its fair value.

As of July 3, 2020, the outstanding borrowings under the Company's Credit Agreement were $ 260.5 million, net of deferred loan costs, which approximated its fair value.

The fair values of certain of the Company’s financial instruments, including bank deposits included in cash and cash equivalents, accounts receivable and accounts payable, also approximate their fair values due to their short maturities.

As of July 3, 2020, the fair value of the Company's Convertible Notes, as defined in Note 11, Borrowings, was $ 193.3 million.

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.

There were no financial assets or liabilities measured on a recurring basis using significant unobservable inputs (Level 3) and there were no transfers in or out of Level 1, 2 or 3 during the six months ended April 3, 2020.

At September 27, 2019, the Company determined the following levels of inputs at fair value for the following assets or liabilities:

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The following table summarizes the Company’s inventories:

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

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

Raw materials and parts

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$ 283.2 $ 248.2

As a result of the economic downturn resulting from COVID-19, during the three months ended July 3, 2020, the Company discontinued certain products and wrote-down approximately $ 15.8 million of inventory associated with discontinued products and restructuring activity.

These charges are included in cost of revenues in the condensed consolidated statements of operations.

GOODWILL AND INTANGIBLE ASSETS

In the third quarter of 2020, changes in facts and circumstances and general market declines from COVID-19 resulted in reduced expectations of future operating results.

The Company considered these circumstances and the potential long-term impact on cash flows associated with its reporting units and indefinite-lived intangible assets and determined that an indicator of possible impairment existed within its Medical and Industrial reporting units and indefinite-lived intangible assets.

Accordingly, the Company performed a quantitative impairment analysis to determine the fair values of those reporting units and indefinite-lived intangible assets.

The Company used both an income approach utilizing the discounted cash flow method ("DCF") and a market approach utilizing the public company market multiple method.

The Company developed multiple forecasted future cash flow scenarios for the reporting units and indefinite-lived intangible assets with varied recovery timing and sales impact assumptions.

Based on the output of the analysis, the Company determined that the fair values of both the Medical and Industrial reporting units exceeded their carrying amounts.

The Company's Industrial reporting unit's fair value exceeded its carrying value by more than 20 % and the Company's Medical reporting unit's fair value exceeded its carrying value by more than 30 %.

Accordingly, no impairment charges were required as of July 3, 2020.

However, an impairment charge was required for the Company's in-process R&D as discussed below.

Fair value determinations require considerable judgment and are sensitive to changes in underlying assumptions, estimates, and market factors.

Estimating the fair value of individual reporting units requires us to make assumptions and estimates regarding our future plans, as well as industry, economic, and regulatory conditions.

These assumptions and estimates include estimated future annual net cash flows, income tax rates, discount rates, growth rates, market multiples, terminal value and other market factors.

This fair value measurement was based on significant inputs not observable in the market and thus represents a Level 3 fair value measurement.

If current expectations of future growth rates and margins, both in size and timing, are not met, if market factors outside of our control, such as discount rates, change, if market multiples decline, or if management’s expectations or plans otherwise change, including as a result of the development of our global five-year operating plan, then one or more of our reporting units might become

impaired in the future.

The Company will continue to monitor the financial performance of and assumptions for its reporting units.

A future impairment charge for goodwill could have a material effect on the Company's consolidated financial position and results of operations.

The following table reflect goodwill by reportable operating segment:

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Balance at September 27, 2019 $ 173.0 $ 117.8 $ 290.8

Balance at April 3, 2020 $ 173.0 $ 117.8 $ 290.8

The following table reflects the gross carrying amount and accumulated amortization of the Company’s finite-lived intangible assets included in other assets in the condensed consolidated balance sheets:

April 3, 2020 September 27, 2019

Balance at July 3, 2020 $ 173.0 $ 117.8 $ 290.8

The following table reflects the gross carrying amount and accumulated amortization of the Company’s intangible assets included in other assets in the condensed consolidated balance sheets:

July 3, 2020 September 27, 2019

(In millions)

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$ 137.6 $ ( 67.0 ) $ 70.6 $ 140.3 $ ( 54.0 ) $ 86.3

Amortization expense for intangible assets was $ 4.4 million and $ 3.6 million for the three months ended April 3, 2020 and March 29, 2019, respectively and $ 8.9 million and $ 7.3 million for the six months ended April 3, 2020 and March 29, 2019, respectively.

Amortization expense for intangible assets was $ 4.2 million and $ 4.1 million for the three months ended July 3, 2020 and June 28, 2019, respectively and $ 13.1 million and $ 11.4 million for the nine months ended July 3, 2020 and June 28, 2019, respectively.

For the three months ended July 3, 2020 and June 28, 2019, the Company recognized intangible asset impairment charges of $ 2.8 million and $ 4.0 million, respectively, which are included in impairment of intangible assets in the condensed consolidated statements of operations.

For the nine months ended July 3, 2020 and June 28, 2019, the Company recognized intangible asset impairment charges of $ 2.8 million and $ 4.8 million, respectively, which are included in impairment of intangible assets in the condensed consolidated statements of operations.

These impairment charges related primarily to the Company's Medical reporting segment.

The fair value of the asset impaired during the third quarter of 2020 was determined using an estimated weighted average cost of capital of 25.0 % (consistent with the rate used at the acquisition date), which reflects the risks inherent in future cash flow projections and represents a rate of return that a market participant would expect for this asset.

The Company believes its assumptions are consistent with the plans and estimates that a market participant would use to manage the business.

The estimated fair value of the in-process R&D intangible asset as of July 3, 2020 was zero .

This fair value measurement was based on significant inputs not observable in the market and thus represents a Level 3 fair value measurement.

In addition, as a result of the impact of COVID-19 as discussed above, the Company determined certain impairment triggers had occurred related to the Company’s finite-lived tangible and intangible assets.

Accordingly, the Company analyzed undiscounted cash flows at the asset group level for certain finite-lived tangible and intangible assets as of July 3, 2020.

Based on that undiscounted cash flow analysis, the Company determined that estimated undiscounted future cash flows exceeded their net carrying values, and, therefore, as of July 3, 2020, the Company's finite-lived tangible and intangible assets were not impaired.

The following table summarizes the Company's short-term and long-term debt:

April 3, 2020 September 27, 2019 $ Change

July 3, 2020 September 27, 2019 $ Change

(In millions, except for percentages) Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate

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Term facility 238.7 5.6 % 308.6 5.6 % ( 69.9 )

Convertible Notes 200.0 — 200.0

Other debt 8.2 2.5 5.7

Debt issuance costs ( 4.8 ) ( 5.7 ) 0.9

Debt issuance costs - Credit Agreement ( 5.0 ) ( 5.7 ) 0.7

Unamortized discount - Convertible Notes ( 52.4 ) — ( 52.4 )

Non-current maturities of long-term debt 389.5 364.4 25.1

Total long-term debt, net $ 417.1 $ 395.1 $ 22.0

Existing Credit Facility

Existing Credit Agreement

On May 1, 2017 Varex entered into a new secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $ 200 million with a term of five years , and a secured term facility (the “Term Facility” and together with the Revolving Credit Facility, the “Credit Agreement”) in an aggregate principal amount of $ 400 million, which was subsequently amended.

The Company reduced the Revolving Credit Facility to $ 150 million on October 3, 2018 and to $ 125 million on October 1, 2019.

At April 3, 2020, the Company had $ 66 million of the Revolving Credit Facility available for borrowings, subject to covenants contained in the Credit Agreement.

During April 2020, the Company drew $ 65 million on its Revolving Credit Facility, primarily as a precautionary measure, to increase liquidity and fund operations.

In connection with the issuance of the Convertible Notes (defined below), on June 6, 2020, the Company amended the Credit Agreement (“Amendment No.

6”) to revise certain covenants, including covenants that restricted the incurrence of debt and restricted the Company’s ability to enter into the Call Spread Transactions (defined below) and issue the Convertible Notes.

In connection with Amendment No.

6, Varex permanently reduced the total amount available under the Revolving Credit Facility to $ 100 million.

At July 3, 2020, the Company had $ 100 million of the Revolving Credit Facility available for borrowings, subject to covenants contained in the Credit Agreement.

The Term Facility will be repaid over five years , with 5.0 % payable in quarterly installments during each of the first two years of the term thereof, 7.5 % payable in quarterly installments during the third and fourth years of the term thereof, and 10 % payable in quarterly installments in the fifth year of the term thereof, with the remaining amount due at maturity.

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It also contains customary events of default and certain financial covenants.

The Company agreed to maintain financial covenants, which include maximum consolidated total leverage ratio, maximum senior secured leverage ratio, maximum capital expenditures and a minimum consolidated fixed charge coverage ratio.

The Company was in compliance with all financial covenants under the Credit Agreement as of April 3, 2020.

The Company agreed to maintain financial covenants, which include maximum consolidated total leverage ratio, maximum consolidated senior secured leverage ratio, maximum capital expenditures and a minimum consolidated fixed charge coverage ratio.

The Company was in compliance with all financial covenants under the Credit Agreement as of July 3, 2020.

in prior quarter forecasted cash flow estimates.

The Credit Agreement is secured by the stock and assets of Varex’s material subsidiaries.

The Credit Agreement has several borrowing and interest rate options including the following indices:

(a) LIBOR rate subject to a 0.75 % floor, or (b) the base rate (equal to the greater of the prime rate, the federal funds rate plus 0.50 % or the LIBOR rate for a one-month period plus 1.00 %).

(a) LIBOR rate subject to a 0.75 % floor, or (b) the base rate (equal

to the greater of the prime rate, the federal funds rate plus 0.50 % or the LIBOR rate for a one-month period plus 1.00 %).

Loans under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 1.75 % and 3.50 % (for LIBOR rate loans) and 0.75 %- 2.50 % (for base rate loans).

The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit of 0.125 %, and a fee on unused commitments which ranges from 0.25 % to 0.40 %.

Convertible Notes

On June 9, 2020, Varex issued $ 200.0 million in aggregate principal amount of 4.00 % unsecured convertible senior notes due 2025 (“Convertible Notes”).

The net proceeds from the issuance of the Convertible Notes, after deducting transaction fees and offering expense payable by us, were approximately $ 193.1 million.

The Convertible Notes bear interest at the annual rate of 4.00 %, payable semiannually on June 15 and December 15 of each year, beginning on December 15, 2020, and will mature on June 15, 2025, unless earlier converted or repurchased by us.

The Convertible Notes will be convertible into cash, shares of our common stock or a combination thereof, at our election, at an initial conversion rate of 48.05 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 20.81 per share, subject to adjustment pursuant to the terms of the Indenture governing the Convertible Notes (the "Indenture").

The Convertible Notes may be converted at any time after, and including, December 15, 2024 until the close of business on the second scheduled trading day immediately before the maturity date.

The conversion rate of the Convertible Notes may be adjusted in certain circumstances, including in connection with a conversion of the Convertible Notes made following certain fundamental changes and under other circumstances set forth in the Indenture.

It is our current intent and policy to settle any conversions of notes through a combination of cash and shares.

Prior to the close of business on the business day immediately preceding December 15, 2024, the Convertible Notes at the option of the holder can be convertible only under the following circumstances:

during any calendar quarter commencing after the calendar quarter ending on September 30, 2020, if the last reported sale price per share of our common stock exceeds 130 % of the conversion price for each of at least 20 trading days during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter;

during the five consecutive business days immediately after any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price per share of our common stock on such trading day and the conversion rate on such trading day;

upon the occurrence of certain corporate events or distributions on our common stock, as described in the Indenture;

if we call any notes for redemption (under the conditions specified below).

The Convertible Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 1, 2023 and on or before the 60th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest, if any, but only if the last reported sale price per share of the Company’s common stock exceeds 130 % of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice.

In addition, calling any Convertible Note for redemption will constitute a make-whole fundamental change with respect to that Convertible Note, in which case the conversion rate applicable to the conversion of that Convertible Note will be increased in certain circumstances if it is converted after it is called for redemption.

No sinking fund is provided for the Convertible Notes.

Total interest expense related to the Convertible Notes for the three months ended July 3, 2020 was $ 1.0 million and was comprised of $ 0.5 million related to the contractual interest coupon and $ 0.5 million related to the amortization of the discount on the liability component.

On June 4, 2020 and June 5, 2020, in connection with the offering of the Convertible Notes, Varex entered into privately negotiated convertible note hedge transactions (collectively, the “Hedge Transactions”).

The Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of our common stock that initially underlie the Convertible Notes.

Hedge Transactions are expected generally to reduce the potential dilution and/or offset any cash payments Varex is required to make in excess of the principal amount due upon conversion of the Convertible Notes in the event that the market price of our common stock is greater than the strike price of the Hedge Transactions, which was initially $ 20.81 per share (subject to adjustment under the terms of the Hedge Transactions).

The strike price of $ 20.81 corresponds to the initial conversion price of the Convertible Notes.

The number of shares underlying the Hedge Transactions is 9.6 million.

On June 4, 2020 and June 5, 2020, Varex also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby we sold warrants at a higher strike price relating to the same number of shares of our common stock that initially underlie the Convertible Notes, subject to customary anti-dilution adjustments.

The initial strike price of the warrants is $ 24.975 per share (subject to adjustment under the terms of the Warrant Transactions), which is 50 % above the last reported sale price of our common stock on June 4, 2020.

The Warrant Transactions could have a dilutive effect to our stockholders to the extent that the market price per share of our common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.

The number of shares underlying the Warrant Transactions is 9.6 million.

The number of warrants outstanding as of July 3, 2020, was 9.6 million.

We used $ 11.2 million of the net proceeds from the issuance of the Convertible Notes and $ 49.8 million from the Warrant Transactions to pay the cost of the Hedge Transactions, which totaled $ 61.0 million.

The Hedge Transactions and the Warrant Transactions are separate transactions, in each case, and are not part of the terms of the Convertible Notes and will not affect any holder’s rights under the Convertible Notes.

Holders of the Convertible Notes will not have any rights with respect to the Call Spread Transactions.

Accounting Treatment of the Convertible Notes and Related Hedge Transactions and Warrant Transactions

As the Call Spread Transactions meet certain accounting criteria, the Call Spread Transactions were classified as equity and are not accounted for as derivatives.

The proceeds from the offering of the Convertible Notes were separated into liability and equity components.

On the date of issuance, the liability and equity components of the Convertible Notes were calculated to be approximately $ 152.3 million and $ 47.7 million, respectively.

The initial $ 152.3 million liability component was determined based on the fair value of similar debt instruments excluding the conversion feature assuming a hypothetical interest rate of 10.45 %.

The initial $ 47.7 million equity component represents the difference between the fair value of the initial $ 152.3 million in debt and the $ 200.0 million of gross proceeds.

The equity component is included in additional paid-in capital in the condensed consolidated balance sheets and will not be subsequently remeasured as long as it continues to meet the conditions for equity classification.

The related initial debt discount of $ 47.7 million is being amortized over the life of the Convertible Notes as non-cash interest expense using the effective interest method at an interest rate of 10.9 %.

In connection with the above-noted transactions, we incurred approximately $ 6.9 million of offering-related costs.

These offering fees were allocated to the liability and equity components in proportion to the allocation of proceeds and accounted for as debt and equity issuance costs, respectively.

We allocated $ 5.3 million of debt issuance costs to the liability component, which were capitalized as deferred financing costs within long-term debt.

These costs are being amortized as interest expense over the term of the debt using the effective interest method.

The remaining $ 1.6 million of transaction costs allocated to the equity component were recorded as a reduction of the equity component.

REDEEMABLE NONCONTROLLING INTERESTS & NONCONTROLLING INTERESTS

In April 2019, a subsidiary of Varex completed the acquisition of 98.2 % of the outstanding shares of common stock of Direct Conversion.

The Company has subsequently acquired additional shares of Direct Conversion such that the Company now owns 98.7 %

of the outstanding shares of common stock of Direct Conversion.

The Company has subsequently acquired additional shares of Direct Conversion such that the Company now owns 98.7 % of the outstanding shares of common stock of Direct Conversion.

As the Company has majority voting rights it has consolidated Direct Conversion's operations in its consolidated financial statements and recorded the noncontrolling interest.

The noncontrolling interest related to Direct Conversion is included in noncontrolling interest in the equity section of the Company's consolidated balance sheet.

Earnings representing the noncontrolling interest's portion of Direct Conversion's income from operations is included in the Company's consolidated statements of earnings.

Earnings representing the noncontrolling interest's portion of Direct Conversion's income from operations is included in the Company's consolidated statements of operations.

In September 2018, the Company entered into a partnership in Saudi Arabia.

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The noncontrolling interest related to the partner’s 25 % interest in the joint venture is included in noncontrolling interest in the equity section of the Company’s consolidated balance sheet.

Earnings representing the noncontrolling partner's share of income from operations is included in the Company's consolidated statements of earnings.

Earnings representing the noncontrolling partner's share of income from operations is included in the Company's consolidated statements of operations.

In April 2015, the Company completed the acquisition of 73.5 % of the then outstanding shares of MeVis, a publicly traded company based in Bremen, Germany that provides image processing software and services for cancer screening.

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Upon effectiveness of the DPLTA, the noncontrolling interests in MeVis became redeemable as a result of the put right and were reclassified to temporary equity.

At April 3, 2020, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.5 % of the outstanding shares.

At July 3, 2020, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.5 % of the outstanding shares.

Changes in redeemable noncontrolling interests were as follows:

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Other, including foreign currency remeasurement

Balance at April 3, 2020 $ 10.5 $ 3.2

Balance at July 3, 2020 $ 10.8 $ 3.2

NET (LOSS) EARNINGS PER SHARE

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A reconciliation of the numerator and denominator used in the calculation of basic and diluted net (loss) income per common share is as follows:

Three Months Ended Six Months Ended

Three Months Ended Nine Months Ended

(In millions, except per share amounts)

April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Net (loss) earnings attributable to Varex

$ ( 28.3 ) $ ( 1.4 ) $ ( 31.5 ) $ 7.4

Weighted average shares outstanding - basic

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3.2 2.4 3.0 2.0

The Company excludes potentially dilutive common shares (consisting of shares underlying stock options, unvested stock awards and purchase rights granted under the employee stock purchase plan) from the computation of diluted weighted average shares outstanding if the inclusion of the shares underlying these stock awards would be anti-dilutive to (loss) earnings per share.

Because the Company incurred a net loss for the three and six months ended April 3, 2020, none of the potentially dilutive common shares were included in the diluted share calculations for those periods as they would have been anti-dilutive.

The Company excludes potentially dilutive common shares (consisting of shares underlying stock options, unvested stock awards, purchase rights granted under the employee stock purchase plan and warrants) from the computation of diluted weighted average shares outstanding if the inclusion of the shares underlying these stock awards would be anti-dilutive to (loss) earnings per share.

Because the Company incurred a net loss for the three and nine months ended July 3, 2020, none of the potentially dilutive common shares were included in the diluted share calculations for those periods as they would have been anti-dilutive.

EMPLOYEE STOCK PLANS

Share-Based Compensation Expense

Share-based compensation expense recognized in the condensed consolidated statements of earnings is based on awards ultimately expected to vest.

Share-based compensation expense recognized in the condensed consolidated statements of operations is based on awards ultimately expected to vest.

Share-based compensation expense includes expenses related to the Company’s direct employees.

The table below summarizes the effect of recording the share-based compensation expense (which includes the option component of the employee stock purchase plan shares):

Three Months Ended Six Months Ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Three Months Ended Nine Months Ended

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

Cost of revenues

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( 64 ) $ 22.84 - $ 23.24

Outstanding at April 3, 2020 2,566 $ 22.63 - $ 37.60

Outstanding at July 3, 2020 2,561 $ 25.17 - $ 37.60

$ 30.42 4.4 $ —

Exercisable at April 3, 2020 1,619 $ 22.63 - $ 37.60

Exercisable at July 3, 2020 1,705 $ 25.17 - $ 37.60

$ 30.39 3.1 $ —

(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 Varex common stock of $ 20.73 as of April 3, 2020, the last trading date of the Company's second quarter, 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.

(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 Varex common stock of $ 14.94 as of July 3, 2020, the last trading date of the Company's third quarter, 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.

Restricted Stock Units

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Canceled or expired

Outstanding at April 3, 2020 787 $ 29.96

Outstanding at July 3, 2020 774 $ 29.96

TAXES ON EARNINGS

For the three months ended April 3, 2020, the Company recognized income tax expense of $ 0.7 million on $ 1.1 million of pre-tax loss primarily due to losses in certain jurisdictions for which no benefit can be recorded due to full valuation allowance positions and overall pre-tax book loss.

For the three months ended March 29, 2019, the Company recognized income tax expense of $ 1.9 million on $ 7.8 million of pre-tax income.

For the six months ended April 3, 2020, the Company recognized income tax expense of $ 0.7 million on $ 2.3 million of pre-tax loss before tax primarily due to losses in certain jurisdictions for which no benefit can be recorded due to full valuation allowance positions and overall pre-tax book loss.

For the six months ended March 29, 2019, the Company recognized income tax expense of $ 3.0 million on $ 11.9 million of pre-tax income.

For the three months ended July 3, 2020, the Company recognized income tax benefit of $ 11.6 million on $ 39.8 million of pre-tax loss primarily due to losses in the United States.

For the three months ended June 28, 2019, the Company recognized income tax expense of $ 0.7 million on $ 0.6 million of pre-tax loss.

For the nine months ended July 3, 2020, the Company recognized income tax benefit of $ 10.9 million on $ 42.1 million of pre-tax loss before tax primarily due to losses in the United States.

For the nine months ended June 28, 2019, the Company recognized income tax expense of $ 3.7 million on $ 11.3 million of pre-tax income.

As a result of the changes to the U.S.

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Tax Reform, the Company reevaluated its previous indefinite reinvestment assertion with respect to these earnings during fiscal year 2018, which resulted in the Company revoking its assertion for current and future earnings for all countries, while maintaining the assertion that historic earnings are indefinitely reinvested outside the U.S.

The Company is maintaining this prior assertion for the quarter ended April 3, 2020.

The Company is maintaining this prior assertion for the quarter ended July 3, 2020.

Due to the level of earnings available for repatriation, the treaty benefits applicable to jurisdictions in which those earnings are located, and the now favorable U.S.

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Additionally, several state and foreign jurisdictions in which we operate have enacted legislation that complies with or is incremental to the changes included in the CARES Act.

The most significant impact of the CARES Act is the ability to carry back a net operating loss for 5 years.

The Company has evaluated the other provisions of the CARES Act and does not believe it will have a material effect on the Company’s business, results of operations or financial condition.

SEGMENT INFORMATION

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Information related to the Company’s segments is as follows:

Three Months Ended Six Months Ended

(In millions) April 3, 2020 March 29, 2019 April 3, 2020 March 29, 2019

Three Months Ended Nine Months Ended

(In millions) July 3, 2020 June 28, 2019 July 3, 2020 June 28, 2019

$ 137.6 $ 151.6 $ 448.6 $ 444.4

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53.1 56.1 165.8 155.6

Interest and other income (expenses), net

( 2.5 ) ( 6.7 ) ( 8.3 ) ( 13.0 )

Earnings before taxes

Interest and other expenses, net

( 13.0 ) ( 5.2 ) ( 21.3 ) ( 18.2 )

Taxes on earnings

(Loss) earnings before taxes

( 39.8 ) ( 0.6 ) ( 42.1 ) 11.3

Income taxes (benefit) expense ( 11.6 ) 0.7 ( 10.9 ) 3.7

Net (loss) earnings

( 28.2 ) ( 1.3 ) ( 31.2 ) 7.6

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0.1 0.1 0.3 0.2

Net earnings attributable to Varex

Net (loss) earnings attributable to Varex

$ ( 28.3 ) $ ( 1.4 ) $ ( 31.5 ) $ 7.4

The following table summarizes the Company’s total assets by its reportable segments:

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

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

Identifiable assets

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Total reportable segments $ 1,121.7 $ 1,038.9

SUBSEQUENT EVENTS

The Company is not aware of any subsequent events which would require recognition or disclosure in the condensed consolidated financial statements other than those listed below.

On July 29, 2020, Varex commenced the implementation of a reduction in workforce to reduce the Company’s operating cost and address the impact of the COVID-19 pandemic.

The action is expected to result in the reduction of the Company’s workforce by approximately 94 employees, of which nearly all are located within the United States.

This reduction is in addition to the previously disclosed reduction in workforce associated with the closure of the Company’s Santa Clara facility.

The Company expects to complete the reduction in workforce by December 31, 2020.

The Company estimates that it will incur approximately $ 2.5 million to $ 3.5 million of cash expenditures in connection with the reduction in workforce.

The Company expects to recognize the majority of the pre-tax restructuring charges by the end of the Company’s fiscal year 2020.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements