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Item 1. Business

2020-11-30 compared with 2019-12-20 · 172 added, 102 removed, 221 unchanged (55% of the section changed)

Varex Imaging Corporation is a leading innovator, designer and manufacturer of X-ray imaging components including X-ray tubes, digital detectors, linear accelerators and other image processing solutions, which are key components of X-ray imaging systems.

Our components are used in medical imaging as well as in industrial and security imaging applications.

Global original equipment manufacturers (“OEM”) incorporate our X‑ray imaging components in their systems to detect, diagnose, protect and inspect.

As of September 27, 2019 , we had approximately 2,000 full-time equivalents employees, located at manufacturing and service center sites in North America, Europe, and Asia.

For more information about us, visit vareximaging.com .

Varex Imaging Corporation is a leading innovator, designer and manufacturer of X-ray tubes, digital detectors, linear accelerators and other image software processing solutions, which are mission critical components of a variety of X-ray based diagnostic imaging equipment.

These products are used in medical imaging as well as in industrial and security imaging applications such as general X-ray, computed tomography (“CT”), C-arms, angiography, fluoroscopy, mammography, and dental.

In addition, our components are also used in security and quality inspection systems, as well as for analysis and measurement applications in industrial manufacturing applications.

Global original equipment manufacturers (“OEMs”) incorporate our X-ray imaging components in their systems to detect, diagnose, protect and inspect.

Varex has approximately 2,000 full-time employees, located at manufacturing and service center sites in North America, Europe, and Asia.

Founded as a Delaware corporation in July 2016, Varex was established as an independent publicly traded company in January 2017 as a result of its spin-off from Varian Medical Systems, Inc.

We expanded our business in May 2017, when we acquired the medical imaging business (“Acquired Detector Business”) of PerkinElmer, Inc.

( “ PKI”) for $273.3 million.

In the transaction, we acquired PerkinElmer Medical Holdings, Inc.

and Dexela Limited, together with certain assets of PKI and its direct and indirect subsidiaries relating to digital detectors that serve as components for medical and industrial X-ray imaging systems.

April 2019, we acquired Direct Conversion AB, a manufacturer and marketer of linear array digital detectors utilizing direct conversion and photon counting technology.

Our products are sold in three geographic regions:

We expanded our business in May 2017, when we acquired certain assets of PerkinElmer, Inc.

(“PKI”) relating to digital detectors that serve as components for medical and industrial X-ray imaging systems.

In April 2019, we acquired approximately 98% of Direct Conversion AB (publ), a manufacturer and marketer of linear array digital detectors utilizing direct conversion and photon counting technology.

Our products are sold worldwide in three geographic regions:

the Americas, EMEA, and APAC.

The Americas includes North America (primarily the United States) and Latin America.

The Americas includes North America and South America.

EMEA includes Europe, Russia, the Middle East, India and Africa.

APAC includes Asia and Australia.

Revenues by region are based on the known final destination of products sold.

Our success depends, among other things, on our ability to anticipate and respond to changes in our markets, the direction of technological innovation and the demands of our customers.

We continue to invest in research and development and employ over 500 engineers.

Combining this focus on innovation and product performance with strong long-term customer relationships allows us to partner with our customers to bring industry-leading products to the X-ray imaging market.

We continue to work to improve the life and quality of our imaging components and leverage our scale as the largest X-ray imaging component supplier to provide cost-effective solutions for our customers.

Demand for our products can also be impacted by geo-political factors, including tariffs on key imported materials used in manufacturing our products and also on X-ray imaging products we sell to customers outside the United States.

The escalation of trade conflicts between the United States and China has negatively impacted our business and are expected to continue.

APAC includes Asia (other than India) and Australia.

Revenues by region are based on the destination of products being sold.

Our success depends, among other things, on our ability to anticipate and respond to changes in our markets, the direction of technological innovation and the demand from our customers.

We continually invest in research and development and employ approximately 500 individuals in product development related activities.

Our focus on innovation and product performance along with strong and long-term customer relationships allows us to collaborate with our customers to bring industry-leading products to the X-ray imaging market.

We continue to work to improve the life and quality of our imaging components and leverage our scale as one of the largest independent X-ray imaging component suppliers to provide cost-effective solutions for our customers.

Impact of COVID-19

The COVID-19 pandemic and its impact on the global economy has disrupted our business, increased uncertainty in demand for certain medical and industrial products, and increased variability in our supply chain and manufacturing activities.

The economic downturn triggered by COVID-19 has led to significantly lower demand from our customers and delays in their equipment installations.

In conjunction with this reduced demand and uncertainty beyond the forecast horizon, we evaluated our product offering and decided to discontinue certain low margin, low demand products.

As a result, during the third quarter of fiscal year 2020 we took an approximately $15.8 million pre-tax charge for the write-down of associated inventory and restructuring activity, impaired $2.8 million of intangible assets and wrote off a $2.7 million cost investment in a privately-held company.

The COVID-19 pandemic has had a significant effect on hospitals, clinics and outpatient imaging centers as they have encountered declines in surgeries and other non-emergency procedures.

In some cases, healthcare facilities have been closed and non-emergency procedures have been deferred.

As a result, many hospitals, clinics and outpatient imaging centers have reduced their

capital purchases of imaging equipment from OEM’s which has led to lower demand for X-ray imaging components.

In addition, reduced usage of certain X-ray equipment has resulted in less demand for replacement components that wear-out with use.

Additionally, equipment installations were delayed, due to reduced access to healthcare institutions.

Partially offsetting this has been an increased demand for CT and certain radiographic diagnostic imaging equipment used to screen for or assist in the treatment of respiratory diseases (such as COVID-19).

While healthcare systems and economies around the world have begun to reopen, customer demand for our products has not returned to pre-pandemic levels, and the adverse effect of COVID-19 on our results of operations has been significant.

While we believe that the drivers for long-term demand in both our medical and industrial segments remain intact, we believe that in the near-term, reduced demand in our industrial segment and for certain higher end medical products will continue to depress our results of operations.

While our manufacturing sites are currently up and running, COVID-19 and associated economic disruptions have had an adverse impact on our manufacturing capacity, supply chain and distribution systems, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

Supply chain logistics have also become more challenging and while we have had success in localizing our supply chain through our “local-for-local” initiative, supply chain logistics could remain challenging.

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 uncertainty related to the COVID-19 pandemic to continue well into calendar year 2021.

While we have implemented safeguards and procedures and taken other measures to counter the impact of the COVID-19 pandemic, the full extent to which the COVID-19 pandemic has and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted.

We will continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state, or local authorities or that we determine are in the best interests of our employees, customers, suppliers, and stockholders.

Operating Segments and Products

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The segments align our products and service offerings with customer use in medical and industrial markets and are consistent with how the CODM evaluates the business for the allocation of resources.

The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on revenues and gross margin.

In our Medical business segment, we design, manufacture, sell and service X-ray imaging components for use in a range of radiographic or fluoroscopic imaging applications including computed tomography (“CT”), mammography, oncology, cardiac, surgery, dental, and computer-aided detection.

We provide a broad range of X-ray imaging components for Medical customers, including X-ray tubes, digital detectors, high voltage connectors, image-processing software and workstations, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, heat exchangers, ionization chambers and buckys.

A significant portion of our revenues come from the sales of high-end X-ray tubes used in CT imaging and high-end dynamic digital detectors used in fluoroscopic and 3D dental imaging applications.

These upper-tier imaging components are characterized by increased levels of technological complexity, engineering and intellectual property that typically allow these products to have a higher sales price and gross margin.

The digital detector market continues to mature from initial product introductions that were made approximately 15 years ago.

For the past few years, we have experienced price erosion for these products, predominantly in the highly-competitive market for radiographic detectors.

We anticipate this trend will continue in the foreseeable future.

Our X-ray imaging components are primarily sold to OEM customers that incorporate our products into their X-ray imaging systems for a variety of medical modalities and industrial applications.

To a much lesser extent, we also sell our X-ray imaging components to independent service companies, distributors and directly to end-users for replacement purposes.

In China, the government is broadening the availability of healthcare services throughout the country.

The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on revenues and gross profit.

In our Medical business segment, we design, manufacture, sell and service X-ray imaging components, including X-ray tubes, digital detectors, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, heat exchangers, ionization chambers and buckys (a component of X-ray units that holds X-ray film cassettes).

These components are used in a range of medical imaging applications including CT, mammography, oncology, cardiac, surgery, dental, and other diagnostic radiography uses.

Our X-ray imaging components are primarily sold to OEM customers.

These OEM customers then design-in our products into their X-ray imaging systems for a variety of medical modalities.

A substantial majority of medical X-ray imaging OEMs globally are our customers, and many of these have been our customers for over 25 years.

We believe one of the reasons for customer loyalty is that our hardware and software products are tightly integrated with our customers' systems.

We work very closely with our customers to create custom built components for their systems based on technology platforms that we have developed.

Because our products are often customized for our customers' specific equipment, it can be costly and complex for our customers to switch to another provider.

Once our components are designed into our customers' equipment, our customers will typically continue to use us to supply any replacement components and for service and support for that equipment.

Some of our products are also included in product registrations for our customers' equipment that require regulatory approval to change.

In addition to sales to OEM customers, we sell our products to independent service companies and distributors and directly to end-users for replacement purposes.

We are one of the largest global manufacturers of X-ray components and each year we produce over 27,000 X-ray tubes and 20,000 X-ray detectors.

We estimate that our world-wide installed base of products includes more than 150,000 X-ray tubes, 150,000 X-ray detectors, 300,000 connect and control components and 15,000 software instances.

Replacement and service of our existing installed base makes up a significant portion of our revenue.

Many of our components need to be replaced regularly.

For example, CT X-ray tubes generally need to be replaced every 2 to 4 years.

In China, the replacement cycle for CT X-ray tubes can be as frequent as

every 6 to 12 months due to high utilization of imaging equipment.

Other products such as X-ray detectors have a useful life of as much as 7 years, but can require more frequent service and repairs during their useful life.

In addition, our detector customers often elect to upgrade products to newer technology before the end of a current product’s useful life.

X-ray imaging software is a relatively small part of our business and includes maintenance revenue for software licenses.

The COVID-19 pandemic has had a significant effect on hospitals, clinics and outpatient imaging centers as they have encountered declines in surgeries and other elective procedures.

Subsequently, they have reduced their capital purchases of imaging equipment from OEM’s which has led to lower demand for X-ray imaging components.

Additionally, equipment installations were delayed, due to reduced access to healthcare institutions.

Partially offsetting this has been increased demand for imaging equipment used to diagnose respiratory diseases, such as radiographic X-ray imaging systems and CT imaging systems.

The Company expects uncertainty in demand to continue well into calendar year 2021.

In China, the government is broadening the availability of healthcare services.

As a result, the number of diagnostic X-ray imaging systems, including CT, has grown significantly.

We are developing CT tubes and related subsystems for Chinese OEMs as they introduce new CT imaging systems in China.

Over the long-term, we anticipate that China-based revenues will increase as a percentage of our revenues.

For fiscal year 2019, revenues from X-ray imaging components shipped to China-based OEMs and distributors declined to approximately 8% of total company revenues from 10% in the prior year.

This decrease reflects a tariff-related decline in sales of radiographic digital detectors in China as well as lower non-OEM aftermarket sales, which more than offset an increase in sales of CT tubes to OEM customers.

To mitigate the impact of the trade war between the United States and China, we have implemented changes to secure more non-China sources of supply of parts and materials used to manufacture our X-ray imaging products, and in September 2019, we received from the United States Trade Representative a temporary exclusion from Section 301 tariffs on certain parts and components

imported from China into the United States.

We continue to expand manufacturing capabilities at our facilities in China, Germany and the Philippines.

In our Industrial business segment, we design, manufacture, sell and service X-ray imaging products for use in a number of markets, including security applications, such as cargo screening at ports and borders and baggage screening at airports, and nondestructive testing and inspection applications used in a number of other markets.

We are developing CT X-ray tubes and related subsystems for Chinese OEMs as they introduce new systems in China.

We have entered into multi-year agreements for providing CT tubes to eight medical X-ray imaging OEMs in China.

Over the long-term, our objective is to become the partner of choice both for OEMs and in the replacement market as CT systems become more widely adopted throughout the Chinese market.

In China, despite a COVID-19 related slowdown in the beginning of the year, demand for our products has returned, and full fiscal year 2020 results for China exceeded our pre-pandemic expectations.

In recent years our growth in China has been impacted by the trade war with the United States.

Our business has been impacted in two principal ways:

(1) imports of raw materials from China to the U.S.

have become more expensive and (2) importing finished U.S.

manufactured products into China has become more difficult and expensive.

In order to mitigate the impact of tariffs on materials imported from China, we have implemented changes to secure more non-China sources of materials used to manufacture our X-ray imaging products.

With respect to imports into China, the additional tariffs imposed by the Chinese government have led to a decrease in sales of radiographic detectors manufactured outside of China.

To help address these issues, and to be closer to our global customer base, we continue to expand manufacturing capabilities at our facilities in China, Germany and the Philippines and have implemented local sourcing strategies to lower our costs and offer local content.

This local-for-local strategy has been well received by both our local customers as well as global OEMs, and acts as a natural hedge against trade wars and other potential supply chain disruptions.

In our Industrial segment, we design, develop, manufacture, sell and service X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders and baggage screening at airports, and nondestructive testing and inspection applications used in a number of other markets.

Our Industrial products include Linatron ® X-ray linear accelerators, X-ray tubes, digital detectors and high voltage connectors.

In addition, we provide proprietary image-processing and detection software designed to work with these other Varex products to provide package solutions to our Industrial customers.

In addition, we license proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to our Industrial customers.

Our Industrial business benefits from the research and development investment as well as manufacturing economies of scale in the Medical side of our business, as we continue to find new applications for our technology.

In addition, our Industrial business benefits from long-term service agreements for our Linatron ® products.

The security market primarily consists of airport security for carry-on baggage, checked baggage and palletized cargo, as well as cargo security for the screening of trucks, trains and cargo containers at ports and borders.

The end customers for border protection systems are typically government agencies, many of which are in oil-based economies and war zones where there has been significant year over year variation in buying patterns.

The non-destructive testing market utilizes X-ray imaging to scan items for inspection of manufacturing defects and product integrity in a wide range of industries including the aerospace, automotive, oil and gas, food packaging, metal castings and 3D printing industries.

We provide X-ray sources, digital detectors, high voltage connectors and image processing software to OEM customers, system integrators and manufacturers.

The end customers for border protection systems are typically government agencies, many of which are in oil-based economies and war zones where there has been significant variation in buying patterns.

Non-destructive testing and inspection markets utilize X-ray imaging to scan items for inspection of manufacturing defects and product integrity in a wide range of industries including the aerospace, automotive, electronics, oil and gas, food packaging, metal castings and 3D printing industries.

In addition, new applications for X-ray sources are being developed, such as sterilization of food and its packaging.

We provide X-ray sources, digital detectors, high voltage connectors and image processing software to OEM

customers, system integrators and manufacturers in a variety of these markets.

We believe that the nondestructive testing market represents a significant growth opportunity for our business and we are actively pursuing new potential applications for our products.

The economic downturn triggered by the COVID-19 pandemic has reduced the demand for X-ray imaging equipment utilized in the non-destructive testing market as manufacturers have focused on cash preservation and have reduced spending for capital

Additionally, the unprecedented decrease in passenger air traffic has led to decrease in demand in the security market.

We expect uncertainty in demand to continue well into the next calendar year.

Our customers are primarily large OEMs.

Our top five customers, measured by revenue, are Canon Medical Systems Corporation (“Canon”), General Electric Company, Elekta AB, Varian Medical Systems, Inc.

and Hologic, Inc., which collectively accounted for approximately 38% in fiscal year 2019 .

Our largest customer, Canon, accounted for approximately 17% , 18% and 19% of our total revenues for fiscal years 2019 , 2018 , and 2017 , respectively, while our ten largest customers as a group accounted for approximately 51% , 49% and 48% of our revenue for fiscal years 2019 , 2018 and 2017 , respectively.

The loss of one or more of our top customers would have a material and adverse effect on our business.

For more information, see “Risk Factors-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.”

Our top five customers, measured by revenue, are Canon Medical Systems Corporation (“Canon”), General Electric Company, Hologic, Inc., Elekta AB, and Varian Medical Systems, Inc., which collectively accounted for approximately 40% of total revenue in fiscal year 2020.

Our largest customer, Canon, accounted for approximately 21%, 17% and 18% of our total revenue for fiscal years 2020, 2019, and 2018, respectively, while our ten largest customers as a group accounted for approximately 52%, 51% and 49% of our revenue for fiscal years 2020, 2019 and 2018, respectively.

The imaging components market is highly competitive.

OEMs may choose to develop and manufacture X-ray imaging components in-house or they may choose to out-source to a supplier such as us or other providers of imaging components.

Our success depends upon our ability to anticipate changes in our markets, the direction of technological innovation and the demands of our customers.

To remain competitive, we must continue to invest in research and development focused on innovation, improve product performance and quality, and reduce the cost of our imaging components.

OEMs may choose to develop and manufacture X-ray imaging components in-house or they may choose to out-source to a supplier such as Varex or our competitors.

Our success depends upon our ability to anticipate changes in our markets, the direction of technological innovation and the demand from our customers.

To remain competitive, we must continually invest in research and development focused on innovation, improve product performance and quality, and continue to reduce the cost of our imaging components.

Significant capital investment is required for imaging component manufacturers.

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We sell our digital detectors to a number of OEM customers that incorporate our detectors into their medical diagnostic, oncology, 3D dental and veterinary imaging systems.

Our amorphous silicon based digital detector technology, our photon counting technology and our complementary metal-oxide-semiconductor technology

competes with other detector technologies, such as amorphous selenium, charge-coupled devices and variations of amorphous silicon scintillators.

We believe that our products provide a competitive advantage due to product quality and performance and lower overall product lifecycle costs.

Our amorphous silicon based digital detector technology, our photon counting technology and our complementary metal-oxide-semiconductor technology competes with other detector technologies, such as amorphous selenium, charge-coupled devices and variations of amorphous silicon scintillators.

We believe that our products provide a competitive advantage due to product quality and performance and lower total cost of ownership over the product lifecycle.

In the digital flat panel detector market, we primarily compete against Trixell S.A.S., Canon, Vieworks Co., Ltd., Hamamatsu Corporation, iRay Technology (Shanghai) Limited and Jiangsu CareRay Medical Systems Co., Ltd.

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We generally warranty our products for 12 to 24 months.

In certain cases, the warranty also may be specified by usage metrics such as number of scans.

In certain cases, the warranty is specified by usage metrics such as number of scans.

We provide technical advice and consultation to major OEM customers from our U.S.

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and internationally in the Philippines, China, the Netherlands, Germany, France, Sweden, Switzerland, the United Kingdom, Italy and Japan.

Our application specialists and engineers make recommendations to meet the customer’s technical requirements within the customer’s budgetary constraints.

Our application specialists and engineers make recommendations to meet

the customer’s technical requirements within the customer’s budgetary constraints.

We often develop specifications for a unique product that will be designed and manufactured to meet a specific customer’s requirements.

Manufacturing and Supplies

We manufacture our products at facilities located in Salt Lake City, Utah;

Santa Clara, California;

We manufacture our products at facilities in Salt Lake City, Utah;

Las Vegas, Nevada;

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Franklin Park, Illinois;

Dinxperlo and Heerlen, the Netherlands;

Doetinchem and Heerlen, the Netherlands;

Walluf and Bremen, Germany;

Espoo, Finland and Calamba City, Philippines.

Espoo, Finland;

Calamba City, Philippines;

and Wuxi, China.

These facilities employ state-of-the-art manufacturing techniques and several have been recognized by the press, governments and trade organizations for their commitment to quality improvement.

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In addition, we have regional service centers in North Charleston, South Carolina;

Willich, Germany;

and Wuxi, China.

The combined medical and industrial manufacturing infrastructure enable us to leverage production scale to achieve productivity and low cost advantage as well as research and development synergies.

and Willich, Germany.

The combined medical and industrial manufacturing infrastructure enables us to leverage production scale to achieve productivity and low cost advantage as well as research and development synergies.

Manufacturing processes at our various facilities include machining, fabrication, subassembly, system assembly and final testing.

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Our quality assurance program includes various quality control measures from inspection of raw materials, purchased parts and assemblies through in-line inspection.

In some cases, we may outsource the manufacturing of sub-assemblies while still performing system design, final assembly and testing in-house.

In some cases, we outsource the manufacturing of sub-assemblies while still performing system design, final assembly and testing in-house.

In such cases, we believe outsourcing enables us to reduce or maintain fixed costs and capital expenditures, while also providing the flexibility to increase production capacity.

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In the fourth quarter of 2019, we announced the closure of the remainder of our Santa Clara facility and that we would relocate production to other existing facilities.

We expect operations at the Santa Clara facility to cease by the end of December 2020 and all activities related to the closure of the facility to be completed by the end of March 2021.

We ceased all operations at the Santa Clara facility as of October 2, 2020 and all activities related to the closure of the facility are expected to be complete by the end of December 2020.

Research and Development

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Research and development are primarily conducted domestically at our facilities in Salt Lake City, Utah;

San Jose and Santa Clara, California;

San Jose, California;

Las Vegas, Nevada;

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Current X-ray source development areas include smaller footprint linear accelerators, improvements to tube life and tube stability, reductions of tube noise and tube designs that will enable OEMs to continue to reduce dose delivered, and improve image resolution, cost effectively.

Research in digital detector imaging technology is aimed at developing new panel technologies with better dose utilization, improved image quality and materials discrimination, lower product costs and new image processing tools for advanced applications.

Industrial products share some of the same base technology competencies and platforms as medical products and our medical and industrial development teams are therefore co-located in Salt Lake City, San Jose, Santa Clara, Dinxperlo, Danderyd and Walluf.

In addition, through our joint venture, VEC Imaging Verwaltungsgesellschaft GmbH (“VEC”), we are developing cold cathode nanotube technology.

Research in digital detector imaging technology is aimed at developing new panel technologies (such as photon counting) with better dose utilization, improved image quality and materials discrimination, lower product costs and new image processing tools for advanced applications.

One of our competitive advantages is that some of the foundational technologies and software components developed for medical applications may also be applicable in industrial components, and vice versa.

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Under the FDC Act, each medical device manufacturer must comply with quality system regulations that are strictly enforced by the FDA.

Unless an exception applies, the FDA requires that the manufacturer of a new medical device or a new indication for use of, or other significant change in, existing currently marketed medical device obtain 510(k) pre-market notification clearance before it can

market or sell those products in the United States.

The 510(k) clearance process is applicable when the device introduced into commercial distribution is substantially equivalent to a legally marketed device.

The obtaining 510(k) clearance generally takes at least six months from the date an application is filed, but could take significantly longer, and generally requires submitting supporting testing data.

Obtaining the 510(k) clearance generally takes at least six months from the date an application is filed, but could take significantly longer, and generally requires submitting supporting testing data.

After a product receives 510(k) clearance, any modifications or enhancements to a product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, labeling, packaging, or manufacturing process, may require a new 510(k) clearance.

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If in connection with these inspections the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures, it may issue observations that would necessitate prompt corrective action.

If FDA inspection observations are not addressed and/or corrective action taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action.

If FDA inspection

observations are not addressed and/or corrective action is not taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter (which would similarly necessitate prompt corrective action) and/or proceed directly to other forms of enforcement action.

Failure to respond timely to FDA inspection observations, a warning letter or other notice of noncompliance and to promptly come into compliance could result in the FDA bringing enforcement action against us, which could include the total shutdown of our production facilities, denial of importation rights to the United States for products manufactured in overseas locations and denial of export rights for U.S.

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For example, national and state laws regulate privacy and may regulate our use of data.

Furthermore, HIPAA was amended by the HITECH Act to provide that business associates who have access

to patient health information provided by hospitals and healthcare providers are now directly subject to HIPAA, including the associated enforcement scheme and inspection requirements.

Furthermore, HIPAA was amended by the HITECH Act to provide that business associates who have access to patient health information provided by hospitals and healthcare providers are now directly subject to HIPAA, including the associated enforcement scheme and inspection requirements.

Medicare and Medicaid Reimbursement

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Additionally, many countries have laws and regulations relating to radiation and radiation safety that apply to our products.

In most countries, radiological regulatory agencies require some form of licensing or

registration by the facility prior to acquisition and operation of an X-ray generating device or a radiation source.

In most countries, radiological regulatory agencies require some form of licensing or registration by the facility prior to acquisition and operation of an X-ray generating device or a radiation source.

The handling, transportation and recycling of radioactive metals and source materials are also highly regulated.

A number of countries, including the members of the EU, have implemented or are implementing regulations that would require manufacturers to dispose, or bear certain disposal costs, of products at the end of a product’s useful life and restrict the use of some hazardous substances in certain products sold in those countries.

While these regulations could impose a future cost on the Company, the compliance programs are in place to anticipate or establish best estimates of what the potential exposure of such costs could be should they arise.

Manufacturing and selling a device internationally .

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Particularly within Europe, data protection legislation is comprehensive and complex and there has been a recent trend toward more stringent enforcement of requirements regarding protection and confidentiality of personal data, as well as enactment of stricter legislation.

We are also subject to international “fraud and abuse” laws and regulations, as well as false claims and misleading advertisement laws.

We are also subject to international “fraud and abuse” laws and regulations, as well as false claims

and misleading advertisement laws.

We also must comply with numerous international laws of more general applicability relating to such matters as environmental protection, safe working conditions, manufacturing practices, fire hazard control and other matters.

On June 23, 2016, the United Kingdom (the “U.K.”) held a referendum in which voters approved an exit from the E.U., commonly referred to as “Brexit”.

Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the U.K.

determines which E.U.

laws to replace or replicate.

Given the lack of comparable precedent, it is unclear what financial, regulatory and legal implications the withdrawal of the U.K.

from the E.U.

would have and how such withdrawal would affect us.

We currently have UK based Notified Bodies that must be transferred to an EU Member State recognized Notified Body.

Anti-Corruption Laws and Regulations

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

Bribery Act of 2010, which became effective on July 1, 2011, and the law “On the Fundamentals of Health Protection in the Russian Federation,” which became effective in January 2012.

Bribery Act of 2010 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.

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Regulatory or government authorities where we operate may have enforcement powers that can subject us to sanctions and can impose changes or conditions in the way we conduct our business.

For example, local authorities may disagree with how we classify our products, and we may be required to change our classifications, which could increase our operating costs or subject us to increased taxes or fines and

In addition, an increasing number of jurisdictions also provide private rights of action for competitors or consumers to seek damages asserting claims of anti-competitive conduct.

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We generally rely on a combination of patents, copyrights, trademarks, trade secret and other laws, and contractual restrictions on disclosure, copying and transferring title, including confidentiality agreements with vendors, strategic partners, co-developers, employees, consultants and other third parties, to protect our proprietary rights in the developments, improvements and inventions that we have originated and which are incorporated in our products or that fall within our fields of interest.

As of September 27, 2019 , we own over 290 patents issued in the United States, over 370 patents issued throughout the rest of the world and had approximately another 160 patent applications pending with various patent agencies worldwide.

As of October 2, 2020, we own over 275 patents issued in the United States, over 400 patents issued throughout the rest of the world and had approximately another 125 patent applications pending with various patent agencies worldwide.

The patents and patents issuing from the pending applications generally expire between 2020 and 2039.

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These licenses generally can only be terminated for breach.

See “Risk Factors-Protecting our intellectual property can be costly, and we may not be able to maintain licensed rights, and, in either case, our competitive position would be harmed if we are not able to do so.”

“Risk Factors - Risks Relating to our Intellectual Property and Information Systems.”

In conjunction with the January 2017 separation from Varian, we entered into an Intellectual Property Matters Agreement with Varian, pursuant to which, among other things, we each granted the other licenses to use certain intellectual property.

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In connection with the CERCLA sites, to date Varian has been required to pay only a small portion of the total cleanup costs and we anticipate that any reimbursement to Varian in the future will not be material.

As of September 27, 2019 , we had an existing environmental liability of approximately $0.9 million related to the CERCLA sites.

As of October 2, 2020, we had an existing environmental liability of approximately $0.9 million related to the CERCLA sites.

Working Capital

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The product warranty obligations contained in our standard terms and conditions typically range from 12 to 24 months, depending on the product.

As of September 27, 2019 , we had approximately 2,000 full-time and part-time employees worldwide.

Human Capital Resources

Talent Management

To remain a leading innovator, designer and manufacturer of critical components of X-ray based diagnostic equipment, it is crucial that we continue to attract and retain exceptional talent.

Our business results depend on our ability to successfully manage our human capital resources, including attracting, identifying, and retaining key talent.

Factors that may affect our ability to attract and retain qualified employees include employee morale, our reputation, competition from other employers, and availability of qualified individuals.

As of October 2, 2020, we had approximately 2,000 full-time and part-time employees worldwide.

None of our employees based in the United States are unionized or subject to collective bargaining agreements.

Employees based in some foreign countries may, from time to time, be represented by works councils or unions or subject to collective bargaining agreements.

We currently consider our relations with our employees to be good.

We consider our relations with our employees to be good.

As part of our people management strategy, we monitor employee morale and our market reputation.

To better understand how to measure the effectiveness of our people management strategy, and to establish a baseline understanding of employee loyalty and retention, we have recently solicited feedback from our employees in the form of an employee net promoter survey.

The results of

this survey will be aggregated, and we expect to hold meetings with employees to share and discuss areas of improvement.

We believe this will be an effective process to inform how future decisions are made to improve employee morale and engagement.

Total Rewards

We invest in our workforce by offering a competitive total rewards package that includes a combination of salaries and wages, health and wellness benefits, equity incentives, retirement benefits, and educational benefits.

We strive to offer competitive total rewards package that is responsive to local needs.

In the United States., where our largest employee base resides, our benefits for eligible employees have included:

• Affordable health insurance coverage available to full-time employees;

• Tuition reimbursement up to a specified dollar amount on an annual basis;

• Matching contributions to a tax-qualified defined contribution savings ("401K") plan, on a dollar-for-dollar basis up to six percent of the employee’s base compensation;

• An employee assistance program;

• Training and development programs designed to help employees improve workplace performance.

Approximately 94% of our eligible employees participate in our 401K plan, which positions us as a top performer among similarly situated companies.

In addition, in an effort to further align the interests of our employees with our stockholders, we have an equity-based incentive plan that provides for the grant of nonqualified stock options and restricted stock units to directors, officers and other eligible employees.

Additionally, to create performance incentives and to encourage share ownership by our employees, we have implemented an employee stock purchase plan, which enables eligible employees to purchase our common stock at a discount through payroll contributions.

Due to the impact of COVID-19 on our business, it was necessary to modify or freeze certain benefits historically provided to our employees, such as 401K plan matching contributions and tuition reimbursements.

We plan on reinstating both the 401K matching contributions and tuition reimbursement program in January 2021.

Earlier this year, we furloughed certain employees, and when it became clear that the effect of COVID-19 on our business would be more protracted than originally contemplated, we implemented a reduction in force.

We provided employees impacted by the reduction in force with severance packages.

Safety and Wellness

The health and safety of our workforce is fundamental to the success of our business.

We provide our employees upfront and ongoing safety training to ensure that safety policies and procedures are effectively communicated and implemented.

Personal protective equipment is provided to those employees where needed for the employee to safely perform their job function.

We have experienced personnel on site at each of our manufacturing locations that are tasked with environmental, health and personal safety education and compliance and, in Salt Lake City, we have an onsite nurse practitioner available to our employees for medical needs.

Because our business involves the manufacture of physical products, many of our employees are unable to work from home.

In an effort to keep our employees safe and to maintain operations during the COVID-19 pandemic, we have implemented a number of new health-related measures, including social-distancing, restrictions on visitors to our facilities, limiting in-person meetings and other gatherings, and providing employees with additional time-off for COVID-19 related absences.

Information Available to Investors

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• proxy statements.

Additionally, our Code of Conduct, Corporate Governance Guidelines and the charters of the Audit Committee, Compensation and Management Development Committee, and Nominating and Corporate Governance Committee are also available on the Investors page of our website.

on the Investors page of our website.

Investors and others should note that we announce material financial and operational information to our investors using our investor relations website (http://investors.vareximaging.com/), press releases, SEC filings and public conference calls and webcasts.

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Sunny has held executive positions at GE Healthcare, Accenture, and IDX Systems.

He received a Master of Business Administration from Harvard Business School, a Master of Science in industrial engineering from Louisiana State University, and a Bachelor of Engineering in electrical engineering from the University of Bombay.

Verhoef, 64, has served as Chief Financial Officer, and Senior Vice President since January 2017.

Prior to the separation of Varex from Varian, Clarence served as senior vice president, chief accounting officer and corporate controller for Varian since August 2012.

He joined Varian in 2006 and served as the divisional controller of Varian’s Imaging Components business until 2012.

Prior to joining Varian, Clarence served in numerous executive management roles, including chief financial officer of Techniscan Medical Systems, and chief financial officer and vice president of marketing for GE OEC Medical Systems.

He holds a bachelor’s degree in finance from the University of Utah.

He received a Master of Business Administration ("MBA") from Harvard Business School, a Master of Science in industrial engineering from Louisiana State University, and a Bachelor of Engineering in electrical engineering from the University of Bombay.

Shubham Maheshwari, 49, joined Varex as its Chief Financial Officer ("CFO") on July 27, 2020.

Shubham (Sam) joins Varex from SiFive, Inc., a leading provider of hardware and software solutions for developing RISC-V based processors and semiconductor chips, where he served as CFO.

Before SiFive, Sam served for six years as CFO, and later as CFO and COO, of Veeco Instruments Inc.

VECO), a manufacturer of semiconductor process equipment.

Previous notable positions include Senior Vice President, Finance for semiconductor company Spansion, Inc., where he helped lead the company through its restructuring and IPO in 2010, and more than 10 years in various senior positions, including Vice President of M&A and Corporate Controller, at KLA-Tencor Corp., a global semiconductor equipment company.

Sam holds an MBA in Finance from Wharton, and a bachelor’s degree in chemical engineering from the Indian Institute of Technology, Delhi.

Honeysett, 49, has served as Senior Vice President, General Counsel, and Corporate Secretary since January 2017.

Prior to the separation of Varex from Varian, Kim served vice president and assistant general counsel and assistant corporate secretary for Varian, where she advised Varian’s Board of Directors, executive management and corporate functions, including business development, investor relations, human resources, information technology and was responsible for corporate governance,

general compliance matters, litigation and global subsidiary governance.

Prior to the separation of Varex from Varian, Kim served as vice president and assistant general counsel and assistant corporate secretary for Varian, where she advised Varian’s Board of Directors, executive management and corporate functions, including business development, investor relations, human resources, information technology and was responsible for corporate governance, general compliance matters, litigation and global subsidiary governance.

Prior to joining Varian in 2005, Kim served as group director, legal affairs at Siebel Systems, Inc., an enterprise software company, and as an associate with the law firm Brobeck, Phleger & Harrison LLP.

Kim holds juris doctor degree from Cornell Law School and a bachelor’s degree in communications from the University of California, Los Angeles.

Kim holds a juris doctor degree from Cornell Law School and a bachelor’s degree in communications from the University of California, Los Angeles.

Giambattista, 61, has served as Senior Vice President, and General Manager - X-ray Detectors since May 2017 and joined Varex after the acquisition of the PerkinElmer Medical Imaging business.

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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-K

Item 1. Business