What changed in this filing

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Item 1A. Risk Factors

2020-08-14 compared with 2020-05-13 · 92 added, 60 removed, 600 unchanged (20% of the section changed)

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Decreased demand for certain products .

As healthcare systems respond to the increasing demands of managing COVID-19 and the resulting economic uncertainties, governments around the world have imposed measures designed to reduce the transmission of COVID-19 and individuals are responding to the fears of contracting COVID-19.

In particular, elective procedures and exams are being delayed or cancelled, there has been a significant reduction in physician office visits, and hospitals are postponing or cancelling capital purchases as well as limiting or eliminating services.

This has caused our customers to delay or cancel orders for certain products.

In addition, the decrease in overall economic activity has led to decreased demand for our industrial products.

As an initial response to the pandemic, governments around the world imposed measures designed to reduce the transmission of COVID-19 and individuals responded to the fears of contracting COVID-19 by modifying their behavior.

In particular, restrictions on the movement of people and goods were put into place, overall economic activity decreased, elective procedures and exams were delayed or cancelled, there was a significant reduction in physician office visits, and hospitals were postponing or cancelling capital purchases as well as limiting or eliminating services.

Those factors, among others, caused customers to delay or cancel orders for certain Varex products.

While healthcare systems and economies around the world have begun to reopen, customer demand has not returned to pre-pandemic levels, and the adverse effects of COVID-19 on our financial statements and results of operations are expected to be more persistent, and have been more severe, than previously assumed.

Specifically, we now believe that reduced demand in our industrial segment and for certain higher end medical products will continue to depress our results of operations.

In addition, new or continuing outbreaks of COVID-19 could lead to further decreases in demand for certain of our products.

The actions taken to combat COVID-19 have had, and we believe will continue to have, a negative impact on our operating results, cash flows and financial condition.

We expect the effect on our financial results in the third quarter of fiscal 2020 and future periods to be more significant.

We believe that COVID-19’s adverse impact on our operating results, cash flows and financial condition will be primarily driven by:

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and international governmental responses to the COVID-19 pandemic and associated economic disruptions.

Potential disruption in manufacturing, distribution, supply chain and other operations.

In addition to adversely affecting demand for our products, COVID-19 and associated economic disruptions has had and could continue to have an adverse impact on our manufacturing capacity, supply chains and distribution systems, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

Disruption in manufacturing, distribution, supply chain and other operations.

In addition to adversely affecting demand for our products, COVID-19 and associated economic disruptions have had and could continue to have an adverse impact on our manufacturing capacity, supply chains and distribution systems, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

For example, at our manufacturing facility in the Philippines, many employees have had significant difficulty getting to work, which caused the facility to operate at a decreased capacity and caused us to shift some manufacturing to another location.

A reduction or interruption in any of our manufacturing processes could have a material adverse effect on our business.

Supply chain logistics have also become more challenging and could remain challenging.

Our ability to move unfished good and finished products around the world have been impacted by the decreased availability of global transportation networks.

Supply chain logistics have also become more challenging and could remain challenging and result in higher costs.

Our ability to move unfinished goods and finished products around the world have been impacted by the decreased availability of global transportation networks.

In addition, regulatory approvals for certain of our products may continue to be delayed due to COVID-19 related closures.

Potential liquidity and credit impacts.

The terms of our credit facility require us to satisfy certain financial covenants.

If our future business and operations are significantly impaired by the continuing COVID-19 pandemic and associated economic disruptions or otherwise, we cannot assure that we will remain in compliance with our current financial covenants.

In such event, the factors that adversely affect our business may also similarly adversely affect the capital markets, and we cannot assure that we would be able to negotiate alternative covenants or alternative financing on favorable terms if at all.

Our failure to comply with the covenants contained in our amended and restated credit facilities, including financial covenants, could result in an event of default, which could materially and adversely affect our results of operations and financial condition.

Liquidity and credit impacts.

Our failure to comply with the covenants contained in our Credit Agreement, including financial covenants, could result in an event of default, which would materially and adversely affect our results of operations and financial condition.

Based on information available as of the date of this filing, it is probable that we will be in violation of certain leverage ratio covenants contained in the Credit Agreement within the twelve-month period following the issuance of the financial statements included in this quarterly report on Form 10-Q, including as early as the end of our fiscal year end 2020, without giving effect to steps management is pursuing to avoid such non-compliance.

An event of default under our Credit Agreement would raise substantial doubt as to our ability to continue as a going concern, and would also cause a cross-default under the terms of our other outstanding debt and derivative contracts.

Although we are taking steps to mitigate this from occurring, we may not be successful and cash generated from

our operations together with cash received in the future from possible other sources of funding may not be sufficient to enable us to continue as a going concern.

See Note 1, Summary of Significant Accounting Policies , for further information.

Varex sells its products and services to a limited number of OEM customers, many of which are also its competitors, and a reduction in or loss of business of one or more of these customers may materially reduce its sales.

Varex had one customer during the six months ended April 3, 2020, that accounted for 21% of its revenue.

Varex’s ten largest customers as a group accounted for approximately 53% and 54% of its revenue for the three months ended April 3, 2020 and March 29, 2019, respectively.

Varex’s ten largest customers as a group accounted for approximately 53% of its revenue for the six months ended April 3, 2020 and March 29, 2019, respectively.

Varex had one customer during the nine months ended July 3, 2020, that accounted for 22% of its revenue.

Varex’s ten largest customers as a group accounted for approximately 56% and 51% of its revenue for the three months ended July 3, 2020 and June 28, 2019, respectively.

Varex’s ten largest customers as a group accounted for approximately 53% and 52% of its revenue for the nine months ended July 3, 2020 and June 28, 2019, respectively.

Varex sells its products to a limited number of OEM customers, many of which are also its competitors with in-house X-ray component manufacturing operations.

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Varex may not be able to accurately predict the demand for its products by its customers.

End-user product demand, economic uncertainties, natural disasters, and other matters beyond Varex’s control make it difficult for its customers to accurately forecast and plan future business activities;

End-user product demand, economic uncertainties, the COVID-19 pandemic, natural disasters, and other matters beyond Varex’s control make it difficult for its customers to accurately forecast and plan future business activities;

which makes it difficult for Varex to accurately predict the demand for its products.

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Reductions in purchasing patterns have in the past and may in the future materially and adversely affect Varex’s operating results.

Decreased economic activity associated with the COVID-19 pandemic has had a significant negative impact on the demand for our industrial products and that impact is likely to continue.

Varex competes in highly competitive markets, and it may lose business to its customers or other companies with greater resources or the ability to develop more effective technologies, or it could be forced to reduce its prices.

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The market for flat panel detectors is also very competitive, and Varex faces intense competition from over a dozen smaller competitors.

As a result of these competitive dynamics, to effectively retain the business of its customers and compete with its competitors Varex must have an advantage in one or more significant areas, such as lower product cost, better product quality and/or superior technology and/or performance.

superior technology and/or performance.

Varex has made price concessions to maintain existing customers and attract new customers, and may have to make additional price concessions in the future.

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The market for its X-ray tube and flat panel products used for nondestructive testing in industrial applications is small and highly fragmented.

of Varex’s competitors outside the United States may have resources and support from their governments that Varex does not, such as preferences for local manufacturers, and may not be subject to the same trade compliance regulations as Varex.

Some of Varex’s competitors outside the United States may have resources and support from their governments that Varex does not, such as preferences for local manufacturers, and may not be subject to the same trade compliance regulations as Varex.

Therefore, Varex’s ability to compete in certain high-growth markets may be limited compared to its competitors.

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Uncertainty over tariffs and trade wars could also cause our customers to delay or cancel orders for our products.

In 2018 and 2019, the United States has imposed tariffs on items imported from China that are incorporated into our products.

In recent years, the United States has imposed tariffs on items imported from China that are incorporated into our products.

Tariffs on items imported by us from China and other countries have increased our costs and has increased prices and lowered gross margins on some of our products.

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Once introduced, new products may materially and adversely impact sales of Varex’s existing products or make them less desirable or even obsolete, which could materially and adversely impact Varex’s revenues and operating results.

In addition, certain costs, including installation and warranty costs, associated with new products may be proportionately greater than the costs associated with other products and may therefore disproportionately, materially, and adversely affect Varex’s gross and operating margins.

In addition, certain

costs, including installation and warranty costs, associated with new products may be proportionately greater than the costs associated with other products and may therefore disproportionately, materially, and adversely affect Varex’s gross and operating margins.

If Varex is unable to lower these costs over time, Varex’s operating results could be materially and adversely affected.

Some of the electronic components and integrated circuits used in Varex’s flat panel detectors are susceptible to discontinuance and obsolescence

risks, which may force Varex to incorporate newer generations of these components, resulting in unplanned additional R&D expenses, delays in the launch of new products, supply disruption, or inventory write downs.

Some of the electronic components and integrated circuits used in Varex’s flat panel detectors are susceptible to discontinuance and obsolescence risks, which may force Varex to incorporate newer generations of these components, resulting in unplanned additional R&D expenses, delays in the launch of new products, supply disruption, or inventory write downs.

Varex’s ability to successfully develop and introduce new products and product enhancements and simplifications, and the revenues and costs associated with these efforts, are affected by Varex’s ability to, among other things:

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Varex conducts business globally.

Revenues generated from customers located outside the United States accounted for approximately 69% and 63% of Varex’s total revenues during the three months ended April 3, 2020 and March 29, 2019, respectively.

Revenues generated from customers located outside the United States accounted for approximately 68% and 63% of Varex’s total revenues during the six months ended April 3, 2020 and March 29, 2019, respectively.

Revenues generated from customers located outside the United States accounted for approximately 67% and 64% of Varex’s total revenues during the three months ended July 3, 2020 and June 28, 2019, respectively.

Revenues generated from customers located outside the United States accounted for approximately 67% and 64% of Varex’s total revenues during the nine months ended July 3, 2020 and June 28, 2019, respectively.

As a result, Varex must provide significant service and support globally.

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There could be additional future losses in these and other jurisdictions that would negatively impact Varex's effective tax rate.

Our secured revolving credit facility and secured term loan credit facility (collectively the “Credit Facility”) restrict certain activities, and failure to comply with the terms of this facility may have an adverse effect on our business, liquidity and financial position.

Varex is party to a secured revolving credit facility and a secured term loan credit facility, each of which contains restrictive financial covenants, including financial covenants that require Varex to comply with specified financial ratios.

Varex's Credit Agreement restricts certain activities, and failure to comply with the terms of the Credit Agreement may have an adverse effect on Varex's business, liquidity and financial position.

Varex is party to a Credit Agreement, which contains restrictive financial covenants, including financial covenants that require Varex to comply with specified financial ratios.

If we do not increase our earnings, we are at risk of not being in compliance with certain of our financial covenants, including our consolidated total leverage ratio and our consolidated senior secured leverage ratio.

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These provisions limit its ability to, among other things, incur future indebtedness, contingent obligations or liens, guarantee indebtedness, make certain investments and capital expenditures, sell stock or assets, pay dividends and consummate certain mergers or acquisitions.

Failure to comply with the credit facility requirements, including the requirement to timely deliver financial statements within applicable grace periods, could result in an event of default under our credit facility.

Upon an event of default, if the credit facility documents are not amended or the event of default is not waived, the lender could declare all amounts then outstanding, together with accrued interest, to be immediately due and payable.

Failure to comply with the Credit Agreement requirements, including the requirement to timely deliver financial statements within applicable grace periods, could result in an event of default.

Upon an event of default, if the Credit Agreement is not amended or the event of default is not waived, the lender could declare all amounts then outstanding, together with accrued interest, to be immediately due and payable.

If this happens, Varex may not be able to make those payments or borrow sufficient funds from alternative sources to make those payments.

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Varex has significant debt obligations that could adversely affect Varex’s business, profitability and ability to meet its obligations.

As of April 3, 2020, Varex’s total combined indebtedness was approximately $383 million (net of deferred loan costs).

The borrowings under Varex’s credit facilities bear interest at floating interest rates.

As of July 3, 2020, Varex’s total combined indebtedness was approximately $417.1 million (net of $57.4 million of debt discount and deferred loan costs).

The borrowings under Varex’s Credit Agreement bear interest at floating interest rates and borrowings under the Convertible Notes bear interest at a fixed rate of 4.00%.

As part of its overall risk management practices, Varex entered into financial derivatives, particularly interest rate swaps designed as cash flow hedges, to hedge the floating LIBOR interest rate on $241.9 million of its debt.

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Varex’s cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and Varex may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to refinance Varex’s debt.

For example, holders of the Convertible Notes will have the right to require Varex to repurchase all or a portion of the Convertible Notes on the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date.

Further, if a make-whole fundamental change as defined in the Indenture governing the Convertible Notes occurs prior to the maturity date of the Convertible Notes, Varex will in some cases be required to increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change.

On the conversion of the Convertible Notes, unless Varex elects to deliver solely shares of common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), Varex will be required to make cash payments for the Convertible Notes being converted.

However, Varex may not have enough available cash or be able to obtain financing at the time Varex is required to make such repurchases of the Convertible Notes surrendered or pay cash with respect to the Convertible Notes being converted.

Varex may still incur substantially more debt or take other actions that would diminish its ability to make payments on the Convertible Notes when due.

Varex’s ability to repay its debt depends on future performance, which is subject to economic, financial, competitive, and other factors beyond our control.

Varex may incur substantial additional debt in the future, subject to the restrictions contained in our current and future debt instruments.

We are not restricted under the terms of the Indenture governing the Convertible Notes from incurring additional debt, securing existing or future debt, or taking a number of other actions that could have the effect of diminishing Varex’s ability to make payments on the Convertible Notes when due.

Varex’s ability to pay our debt when due or to refinance our indebtedness, including the Credit Agreement and the Convertible Notes, depends on Varex’s financial condition at such time, the condition of capital markets, and Varex’s future performance, which is subject to economic, financial, competitive, and other factors beyond Varex’s control.

Fulfilling obligations incidental to being a public company place significant demands on Varex’s management, administrative, and operational resources, including accounting and information technology resources.

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There can be no assurance that the remedial measures being implemented by Varex's management will be successful.

In addition, because of the COVID-19 pandemic, a larger number of Varex’s employees are working remotely, which may make it harder to remediate existing material weaknesses and might make it harder to maintain proper internal controls over financial reporting.

If Varex is unable to remediate the material weaknesses, or is otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, Varex's ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject Varex to litigation or investigations requiring management resources and payment of legal and other expenses, including civil penalties, negatively affect investor confidence in our financial statements and adversely impact our stock price.

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Even if it does so, an acquisition may not produce the full efficiencies, growth, or benefits that were expected.

If Varex decides to sell assets or a business, it may be difficult to identify buyers or alternative exit strategies on acceptable terms, in a timely manner, or at all, which

could delay the accomplishment of its strategic objectives.

If Varex decides to sell assets or a business, it may be difficult to identify buyers or alternative exit strategies on acceptable terms, in a timely manner, or at all, which could delay the accomplishment of its strategic objectives.

Varex may be required to dispose of a business at a lower price or on less advantageous terms, or to recognize greater losses than it had anticipated.

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The majority of Varex’s products are manufactured at its facility in Salt Lake City, Utah.

Varex’s manufacturing operations are subject to potential power failures, the breakdown, failure, or substandard performance of equipment, the improper installation or operation of equipment, and natural or other disasters.

Loss or damage to its manufacturing facility due to any of these factors or otherwise could materially and adversely affect Varex’s ability to manufacture sufficient quantities of its products or otherwise deliver products to meet customer demand or contractual requirements, which may result in a loss of revenue and other adverse business consequences.

Because of the time required to obtain regulatory approval and licensing of a manufacturing facility, Varex may not be available on a timely basis to replace any lost manufacturing capacity.

The occurrence of these or any other operational issues at Varex’s manufacturing facilities could have a material and adverse effect on Varex’s business, financial condition, and results of operations.

The occurrence of these or any other

operational issues at Varex’s manufacturing facilities could have a material and adverse effect on Varex’s business, financial condition, and results of operations.

Some of Varex’s products are manufactured in Wuxi, China;

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and Calamba City, Philippines, which are subject to similar risks but may also face additional regulatory and political risks, which could impact Varex’s ability to manufacture and ship products in a timely manner or at all.

Varex manufactures its security products in Las Vegas, Nevada, and certain flat panels in Santa Clara, California, and these operations are also subject to potential power failures, the breakdown, failure, or substandard performance of equipment, the improper installation or operation of equipment, earthquakes, and other disasters, all of which could materially and adversely affect Varex’s ability to deliver products to meet customer demand.

Varex also manufactures security products in Las Vegas, Nevada, and these operations are also subject to potential power failures, the breakdown, failure, or substandard performance of equipment, the improper installation or operation of equipment, earthquakes, and other disasters, all of which could materially and adversely affect Varex’s ability to deliver products to meet customer demand.

In addition, Varex’s costs associated with manufacturing its products can vary significantly from quarter to quarter, and fluctuations thereof may adversely affect its business, operating results, and/or financial condition.

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In addition, actions taken by the current U.S.

administration and the pending withdrawal of the United Kingdom from the European Union (“EU”) may also create global economic uncertainty, which may cause our customers to reduce their spending, which, in turn, could adversely affect our business, financial condition, operating results, and cash flows.

administration may also create global economic uncertainty, which may cause our customers to reduce their spending, which, in turn, could adversely affect our business, financial condition, operating results, and cash flows.

An uncertain economic environment may also disrupt supply or affect our service business, as customers’ constrained budgets may result in pricing pressure, extended warranty provisions, and even cancellation of service contracts.

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In addition, Varian is Varex’s sole source supplier for a key component in linear accelerators used in Varex’s security and inspection products subsystems, which are specially made for Varex.

If current suppliers cease producing these components, there can be no assurance that the components will be available from other suppliers on reasonable terms or at all.

If current suppliers

cease producing these components, there can be no assurance that the components will be available from other suppliers on reasonable terms or at all.

If Varex loses any of these limited- or sole-source suppliers, if their operations are substantially interrupted, or if any of them fail to meet performance or quality specifications or delivery deadlines, Varex may be required to obtain and qualify one or more replacement suppliers.

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In addition, Varex may encounter challenges in satisfying customers who require that all of the components of Varex products are certified as conflict-free, which could place Varex at a competitive disadvantage if it is unable to do so.

Moreover, complying with these rules requires investigative efforts, which has and will continue to cause Varex to incur associated

costs and could materially and adversely affect the sourcing, supply, and pricing of materials used in Varex’s products or result in process or manufacturing modifications, all of which could materially and adversely affect its results of operations.

Moreover, complying with these rules requires investigative efforts, which has and will continue to cause Varex to incur associated costs and could materially and adversely affect the sourcing, supply, and pricing of materials used in Varex’s products or result in process or manufacturing modifications, all of which could materially and adversely affect its results of operations.

The trading price of Varex’s common stock may decline or fluctuate significantly and fluctuations in Varex’s operating results, including quarterly revenues, and margins, may cause its stock price to be volatile, which could cause losses for its stockholders.

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Within the EU/EEA, Varex must obtain, and in turn affix, a CE mark certification, which is a European marking of conformity that indicates that a product meets the essential requirements of the Medical Device Directive.

Compliance with the

Medical Device Directive is done through a self-certification process that is then verified by an independent certification body called a “Notified Body,” which is an organization empowered by the legislature to conduct this verification.

Compliance with the Medical Device Directive is done through a self-certification process that is then verified by an independent certification body called a “Notified Body,” which is an organization empowered by the legislature to conduct this verification.

Once the CE mark is affixed, the Notified Body will regularly audit Varex to ensure that it remains in compliance with the applicable European laws and Medical Device Directive.

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Failure to respond in a timely manner to Form FDA 483 observations, a warning letter, or any other notice of noncompliance and to promptly come into compliance could result in the FDA bringing an enforcement action, which could include the total shutdown of Varex’s production facilities, denial of importation rights to the United States for products manufactured in overseas locations, adverse publicity, and criminal and civil fines.

The expense and costs of any corrective actions that Varex may take, which may include product recalls, correction and removal of products from customer sites, and/or changes to its product manufacturing and quality systems, could materially and adversely impact

Varex’s financial results and may also divert management resources, attention, and time.

Additionally, if a warning letter were issued, customers could delay purchasing decisions or cancel orders, and Varex could face increased pressure from its competitors, who could use the warning letter against Varex in competitive sales situations, either of which could materially and adversely affect Varex’s reputation, business, and stock price.

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Foreign Corrupt Practices Act and anti-corruption laws, as well as similar laws in foreign countries, such as the U.K.

Bribery Act and the Law On the Fundamentals of Health Protection in the Russian Federation.

In general, there is a worldwide trend to strengthen anti-corruption laws and their enforcement, and the healthcare industry and medical equipment manufacturers have been particular targets of these investigation and enforcement efforts.

Any violation of these laws by Varex or its agents or distributors could create substantial liability for Varex, subject its officers and directors to personal liability, and cause a loss of reputation in the market.

Varex operates in many countries, including India and China, where the public sector is perceived as being corrupt.

Varex operates in many countries, including India and China, where the public sector is often perceived as being corrupt.

Varex’s strategic business plans include expanding its business in regions and countries that are rated as higher risk for corruption activity by Transparency International e.V., an international non-profit that publishes an annual corruption perception index.

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Varex may be required to conduct internal investigations or face audits or investigations by one or more domestic or foreign government agencies, which could be costly and time consuming and could divert its management and key personnel from its business operations.

An adverse outcome under any such investigation or audit could subject Varex to fines and/or or criminal or other

penalties, which could materially and adversely affect Varex’s business and financial results.

An adverse outcome under any such investigation or audit could subject Varex to fines and/or or criminal or other penalties, which could materially and adversely affect Varex’s business and financial results.

Furthermore, competition laws may prohibit or increase the cost of future acquisitions that Varex may desire to undertake.

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Even an unsuccessful challenge or investigation into Varex’s practices could cause adverse publicity and be costly to defend and thus could harm its business and results of operations.

Additionally, several recently-enacted state and federal laws, including laws in Massachusetts and Vermont, and the federal Physician Payment Sunshine Act, now require, among other things, extensive tracking and maintenance of databases regarding the disclosure of equity ownership and payments to physicians, healthcare providers, and hospitals.

Additionally, several recently-enacted state and federal laws, including laws in

Massachusetts and Vermont, and the federal Physician Payment Sunshine Act, now require, among other things, extensive tracking and maintenance of databases regarding the disclosure of equity ownership and payments to physicians, healthcare providers, and hospitals.

These laws may require Varex to implement the necessary and costly infrastructure to track and report certain payments to healthcare providers.

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The demand for Varex’s security and inspection products is heavily influenced by U.S.

and foreign governmental policies on national and homeland security, border protection, and customs activities, which depend upon government budgets and appropriations that are subject to economic conditions, as well as political changes and oil prices.

and foreign governmental policies on national and homeland security, border protection, and customs activities, which depend upon government budgets and appropriations

that are subject to economic conditions, as well as political changes and oil prices.

Varex has seen customers freeze or dramatically reduce purchases and capital project expenditures, delay projects, or act cautiously as governments around the world wrestle with spending priorities.

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Varex’s trade secrets may become known to or be independently developed by others, including as a result of misappropriation by unauthorized access to Varex’s technology systems.

If Varex’s proprietary or confidential information is misappropriated, its business and financial results could be materially and adversely impacted.

If Varex’s proprietary or confidential information is misappropriated, its business and financial results

could be materially and adversely impacted.

Varex has trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for its products in the marketplace, but unauthorized parties may still use them.

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Furthermore, a third party claiming infringement may not be willing to license its rights to Varex, and even if a third-party rights holder is willing to do so, the amounts Varex might be required to pay under the associated royalty or license agreement could be significant.

decide to alter its business strategy or voluntarily cease the allegedly infringing actions rather than face litigation or pay a royalty, which could materially and adversely impact its business and results of operations.

Varex could decide to alter its business strategy or voluntarily cease the allegedly infringing actions rather than face litigation or pay a royalty, which could materially and adversely impact its business and results of operations.

Product defects or misuse may result in material product liability or professional errors and omissions claims, litigation, investigation by regulatory authorities, or product recalls that could harm Varex’s future revenues and require it to pay material uninsured claims.

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These are often comparable to, if not more stringent than, the equivalent regulations in the United States.

Varex’s industrial and medical devices utilizing radioactive material are subject to NRC clearance and approval requirements, and the manufacture and sale of these products are subject to extensive federal and state regulation that varies from state to state and

among regions.

Varex’s manufacture, distribution, installation, service, and removal of industrial devices utilizing radioactive material or emitting radiation also requires Varex to obtain a number of licenses and certifications for these devices and materials.

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Further, Varex’s products are typically shipped from a limited number of ports, and any disaster, strike, or other event blocking shipment from these ports could delay or prevent shipments and harm its business.

In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, or an outbreak of epidemic diseases could have a negative effect on Varex’s business operations, those of its suppliers and customers, and the ability to travel, resulting in adverse consequences on its revenues and financial performance.

Certain provisions in Varex’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and of Delaware law, may prevent or delay an acquisition of Varex, which could decrease the trading price of Varex’s common stock.

In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, or an outbreak of epidemic diseases

could have a negative effect on Varex’s business operations, those of its suppliers and customers, and the ability to travel, resulting in adverse consequences on its revenues and financial performance.

Conversion of the Convertible Notes may dilute the ownership interest of Varex’s stockholders or may otherwise depress the market price of Varex’s common stock.

The conversion of the Convertible Notes may dilute the ownership interests of Varex’s stockholders.

On conversion of the Convertible Notes, Varex has the option to pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock.

If Varex elects to settle our conversion obligation in shares of common stock or a combination of cash and shares of common stock, any sales of Varex common stock issuable on such conversion could adversely affect prevailing market prices of Varex’s common stock.

In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of Varex’s common stock, any of which could depress the market price of Varex’s common stock.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditions for optional conversion of the Convertible Notes by holders are met before the close of business on the business day immediately preceding June 1, 2025, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option.

If one or more holders elect to convert their Convertible Notes, unless Varex elects to satisfy our conversion obligation by delivering solely shares of common stock (other than paying cash in lieu of delivering any fractional share), Varex may settle all or a portion of its conversion obligation in cash, which could adversely affect Varex’s liquidity.

In addition, even if holders do not elect to convert their Convertible Notes, Varex could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of Varex net working capital and may seriously harm Varex’s business.

Varex entered into certain hedging positions that may affect the value of the Convertible Notes and the volatility and value of Varex’s common stock.

In connection with the issuance of the Convertible Notes, Varex entered into certain convertible note hedge transactions.

These hedge transactions are expected generally to reduce potential dilution of our common stock on any conversion of the Convertible Notes or offset any cash payments we are required to make in excess of the principal amount of such converted Convertible Notes, as the case may be, with such reduction or offset subject to a cap.

The counterparties to these hedging positions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to Varex’s common stock or purchasing or selling Varex’s common stock in secondary market transactions prior to the maturity of the Convertible Notes (and are likely to do so during any observation period related to a conversion of Convertible Notes or following any repurchase of Convertible Notes by Varex on any fundamental change repurchase date or otherwise).

This activity could cause or avoid an increase or a decrease in the market price of Varex common stock or the Convertible Notes.

In addition, if any such hedging positions fail to become effective, the counterparties to these hedging positions or their respective affiliates may unwind their hedge positions, which could adversely affect the value of Varex common stock.

Certain provisions in Varex’s Amended and Restated Certificate of Incorporation, its Amended and Restated Bylaws, its Indenture, and of Delaware law, may prevent or delay an acquisition of Varex, which could decrease the trading price of Varex’s common stock.

Varex’s Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws contain, and Delaware law contains, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with Varex’s board of directors rather than to attempt a hostile takeover.

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In addition, because Varex did not elect to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that stockholders may favor.

Section 203 provides that,

subject to limited exceptions, persons that acquire, or who are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation, or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless:

Section 203 provides that, subject to limited exceptions, persons that acquire, or who are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation, or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless:

(1) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;

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or (3) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

Varex believes these provisions will protect its stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirers to negotiate with Varex’s board of directors and by providing Varex’s board of directors with more time to assess any acquisition proposal.

These provisions are not intended to make Varex immune from takeovers.

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These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

Furthermore, certain provisions in Varex’s Indenture governing the Convertible Notes may make it more difficult or expensive for a third party to acquire Varex.

For example, the Indenture requires Varex, at the holders’ election, to repurchase the Convertible Notes for cash on the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts its Convertible Notes in connection with a make-whole fundamental change.

A takeover of Varex may trigger the requirement that we repurchase the Convertible Notes or increase the conversion rate, which could make it costlier for a third party to acquire Varex.

Varex’s Indenture also prohibits Varex from engaging in a merger or acquisition unless, among other things, the surviving entity assumes the obligations under the Convertible Notes and Varex’s Indenture.

These and other provisions in Varex’s Indenture could deter or prevent a third party from acquiring Varex even when the acquisition may be favorable to holders of the Convertible Notes or Varex’s stockholders.

Potential indemnification liabilities to Varian could materially and adversely affect Varex’s business, financial condition, results of operations, and cash flows.

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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 1A. Risk Factors