What changed in this filing

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Item 1. Financial Statements

2021-02-05 compared with 2020-08-14 · 302 added, 598 removed, 411 unchanged (69% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions, except per share amounts) January 1, 2021 January 3, 2020

Revenues, net

1 unchanged sentence

Cost of revenues

144.9 136.0 423.3 393.1

26.3 60.7 145.0 185.1

Gross profit 57.2 61.1

Operating expenses:

1 unchanged sentence

Selling, general and administrative 34.4 34.8

Impairment of intangible assets 2.7 4.0 2.7 4.8

Total operating expenses

53.1 56.1 165.8 155.6

Operating (loss) earnings

( 26.8 ) 4.6 ( 20.8 ) 29.5

Interest income

Operating earnings 6.1 4.6

Interest expense

4 unchanged sentences

( 10.8 ) ( 5.8 )

(Loss) earnings before taxes

( 39.8 ) ( 0.6 ) ( 42.1 ) 11.3

Income tax (benefit) expense

( 11.6 ) 0.7 ( 10.9 ) 3.7

Net (loss) earnings

( 28.2 ) ( 1.3 ) ( 31.2 ) 7.6

Loss before taxes ( 4.7 ) ( 1.2 )

Income tax expense 1.6 —

Net loss ( 6.3 ) ( 1.2 )

Net earnings attributable to noncontrolling interests

0.1 0.1 0.3 0.2

Net (loss) earnings attributable to Varex

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

Net (loss) earnings per common share attributable to Varex

Net loss attributable to Varex $ ( 6.4 ) $ ( 1.3 )

Net loss per common share attributable to Varex

Basic $ ( 0.16 ) $ ( 0.03 )

5 unchanged sentences

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS

Three Months Ended Nine Months Ended

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

Net (loss) earnings

$ ( 28.2 ) $ ( 1.3 ) $ ( 31.2 ) $ 7.6

Other comprehensive (loss) earnings, net of tax:

Unrealized (loss)/gain on interest rate swap contracts

0.3 ( 2.3 ) ( 2.0 ) ( 6.0 )

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Net loss $ ( 6.3 ) $ ( 1.2 )

Other comprehensive loss, net of tax:

Foreign currency translation adjustments 0.1 ( 0.9 )

Other comprehensive (loss) earnings, net of tax

( 3.4 ) ( 2.5 ) ( 1.4 ) ( 6.2 )

Comprehensive (loss) earnings

( 31.6 ) ( 3.8 ) ( 32.6 ) 1.4

Other comprehensive earnings (loss), net of tax 0.1 ( 0.9 )

Comprehensive loss ( 6.2 ) ( 2.1 )

Comprehensive earnings attributable to noncontrolling interests

0.1 0.1 0.3 0.2

Comprehensive (loss) earnings attributable to Varex

$ ( 31.7 ) $ ( 3.9 ) $ ( 32.9 ) $ 1.2

Comprehensive loss attributable to Varex $ ( 6.3 ) $ ( 2.2 )

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(In millions, except share and per share amounts) January 1, 2021 October 2, 2020

Current assets:

1 unchanged sentence

$ 105.5 $ 100.6

Accounts receivable, net

Accounts receivable, net of allowance for doubtful accounts of $ 0.7 million and $ 0.3 million at January 1, 2021 and October 2, 2020, respectively

Prepaid expenses and other current assets

6 unchanged sentences

$ 1,137.1 $ 1,139.5

Liabilities, redeemable noncontrolling interests and equity

Liabilities and stockholders' equity

Current liabilities:

11 unchanged sentences

Total liabilities 672.7 673.7

Commitments and contingencies

Redeemable noncontrolling interests

Stockholders' equity:

Preferred stock, $ .01 par value:

2 unchanged sentences

150,000,000 shares authorized

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

Shares issued and outstanding - 39,184,538 and 39,059,094 at January 1, 2021 and October 2, 2020, respectively.

Additional paid-in capital 439.2 434.4

Accumulated other comprehensive loss ( 3.1 ) ( 1.7 )

Accumulated other comprehensive income 0.9 0.8

Retained earnings 9.7 16.1

1 unchanged sentence

Noncontrolling interests 14.2 14.1

Total equity 470.3 448.2

Total liabilities, redeemable noncontrolling interests and equity $ 1,121.7 $ 1,038.9

Total stockholders' equity 464.4 465.8

Total liabilities and stockholders' equity $ 1,137.1 $ 1,139.5

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

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

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Cash flows from operating activities:

Net (loss) earnings

$ ( 31.2 ) $ 7.6

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

Net loss $ ( 6.3 ) $ ( 1.2 )

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

Share-based compensation expense 3.6 3.2

2 unchanged sentences

Deferred taxes 0.1 0.5

Loss from equity method investments 1.6 0.7

Amortization of deferred loan costs 2.3 1.8

Impairment of assets 5.4 4.8

Inventory write-down 15.8 3.1

Loss (gain) from equity method investments 1.7 ( 0.7 )

Amortization of debt issuance costs and discounts 2.4 0.6

Other, net 0.7 —

15 unchanged sentences

Repayments of borrowing under credit agreements ( 0.2 ) ( 17.8 )

Proceeds from issuance of convertible debt 200.0 —

Proceeds from issuance of warrants 49.8 —

Purchases of hedges ( 61.0 ) —

Payment of debt issuance costs ( 8.5 ) ( 0.5 )

Proceeds from exercise of stock options — 1.1

Proceeds from shares issued under employee stock purchase plan 1.2 1.8

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

Other financing activities ( 0.1 ) ( 0.1 )

Net cash provided by financing activities 56.7 14.7

Net cash provided by (used in) financing activities 2.2 ( 12.0 )

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

( 1.0 ) ( 0.7 )

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

57.5 ( 23.4 )

Net increase in cash and cash equivalents and restricted cash 4.9 0.1

Cash and cash equivalents and restricted cash at beginning of period

9 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Three Months Ended July 3, 2020

Three Months Ended January 1, 2021

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

(In millions) Shares Amount

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

October 2, 2020 39.1 $ 0.4 $ 434.4 $ 0.8 $ 16.1 $ 451.7 $ 14.1 $ 465.8

Net loss — — — — ( 6.4 ) ( 6.4 ) 0.1 ( 6.3 )

3 unchanged sentences

— — 3.6 — — 3.6 — 3.6

Unrealized loss on interest rate swap contracts, net of tax

— — — 0.3 — 0.3 — 0.3

Conversion feature of Convertible Notes, net of issuance costs

— — 46.1 — — 46.1 — 46.1

Purchase of hedges

— — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants

— — 49.8 — — 49.8 — 49.8

Currency translation adjustments

— — — 0.1 — 0.1 — 0.1

Shares issued to settle deferred consideration

0.3 — 7.4 — — 7.4 — 7.4

— — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )

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

Three Months Ended June 28, 2019

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

(In millions) Shares Amount

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

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

Common stock issued upon vesting of restricted shares

0.1 — 1.9 — — 1.9 — 1.9

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

Unrealized loss on interest rate swap contracts, net of tax

— — — ( 2.3 ) — ( 2.3 ) — ( 2.3 )

Currency translation adjustments

— — — ( 0.2 ) — ( 0.2 ) — ( 0.2 )

Noncontrolling interest acquired / consolidated

— — — — — — 1.4 1.4

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

See accompanying notes to the condensed consolidated financial statements.

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

Nine Months Ended July 3, 2020

January 1, 2021 39.2 $ 0.4 $ 439.2 $ 0.9 $ 9.7 $ 450.2 $ 14.2 $ 464.4

Three Months Ended January 3, 2020

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

1 unchanged sentence

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

Cumulative effect of accounting change

— — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

Cumulative effect of accounting changes — — — — ( 0.6 ) ( 0.6 ) — ( 0.6 )

Net loss — — — — ( 1.3 ) ( 1.3 ) — ( 1.3 )

Exercise of stock options — — 1.1 — — 1.1 — 1.1

Common stock issued upon vesting of restricted shares

0.2 — — — — — — —

Shares withheld on vesting of restricted stock

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

Common stock issued under employee stock purchase plan 0.1 — 1.8 — — 1.8 — 1.8

0.2 — 3.6 — — 3.6 — 3.6

Share-based compensation — — 3.2 — — 3.2 — 3.2

— — 10.2 — — 10.2 — 10.2

Unrealized loss on interest rate swap contracts, net of tax

— — — ( 2.0 ) — ( 2.0 ) — ( 2.0 )

Conversion feature of Convertible Notes, net of issuance costs

— — 46.1 — — 46.1 — 46.1

Purchase of hedges

— — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants

— — 49.8 — — 49.8 — 49.8

Currency translation adjustments

— — — ( 0.9 ) — ( 0.9 ) — ( 0.9 )

Shares issued to settle deferred consideration

0.3 — 7.4 — — 7.4 — 7.4

— — ( 0.4 ) — — ( 0.4 ) — ( 0.4 )

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

Nine Months Ended June 28, 2019

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

(In millions) Shares Amount

September 28, 2018 38.0 $ 0.4 $ 357.6 $ 5.8 $ 62.4 $ 426.2 $ 2.1 $ 428.3

Cumulative effect of accounting change

— — — — ( 3.5 ) ( 3.5 ) — ( 3.5 )

— — — — 7.4 7.4 ( 0.2 ) 7.2

Exercise of stock options

— — 0.1 — — 0.1 — 0.1

Common stock issued upon vesting of restricted shares

0.2 — — — — — — —

Shares withheld on vesting of restricted stock

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

Common stock issued under employee stock purchase plan

0.2 — 3.8 — — 3.8 — 3.8

Share-based compensation

— — 8.7 — — 8.7 — 8.7

Unrealized loss on interest rate swap contracts, net of tax

— — — ( 6.0 ) — ( 6.0 ) — ( 6.0 )

Currency translation adjustments

— — — ( 0.2 ) — ( 0.2 ) — ( 0.2 )

Noncontrolling interest acquired / consolidated

— — — — — — 1.4 1.4

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

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

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

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Varex Imaging Corporation (the “Company,” “Varex” or “Varex Imaging”) designs, manufactures, sells and services a broad range of Medical products, which include X-ray imaging components, including X-ray tubes, digital detectors and accessories, high voltage connectors, image processing software and workstations, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, ionization chambers and buckys, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, computed tomography, oncology and computer-aided detection.

The Company sells its products to imaging system original equipment manufacturer (“OEM”) customers for incorporation into new medical diagnostic, radiation therapy, dental, and veterinary imaging systems, to independent service companies, distributors and directly to end-users for replacement purposes.

The Company also designs, manufacturers, sells and services industrial products, which include Linatron ® X-ray accelerators, imaging processing software and image detection products for security and inspection purposes, such as cargo screening at ports and borders and nondestructive examination in a variety of applications.

Description of Bus iness

Varex Imaging Corporation (the “Company,” “Varex” or “Varex Imaging”) designs, manufactures, sells and services a broad range of medical products, which include X-ray tubes, digital detectors and accessories, high voltage connectors, image processing software and workstations, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, ionization chambers and buckys, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, computed tomography, oncology and computer-aided detection.

The Company sells its products to imaging system original equipment manufacturer (“OEM”) customers for incorporation into new medical diagnostic, radiation therapy, dental, and veterinary equipment, to independent service companies, distributors and directly to end-users for replacement purposes.

The Company also designs, manufacturers, sells and services industrial products, which include Linatron® X-ray accelerators, high voltage connectors, imaging processing software and image detection products for security and inspection purposes, such as cargo screening at ports and borders and nondestructive examination in a variety of applications.

The Company generally sells security and inspection products to OEM customers who incorporate Varex’s products into their inspection systems.

The Company conducts an active research and development program to focus on new technology and applications in both the medical and industrial X-ray imaging markets.

Varex Imaging Corporation was incorporated in Delaware on July 18, 2016 and is listed on the NASDAQ Global Select Market under the ticker “VREX.”

Basis of Presentation and Principle of Consolidation

The accompanying condensed consolidated financial statements are unaudited.

These condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

In the opinion of management, these condensed consolidated financial statements include all adjustments necessary for a fair statement of the results for the interim periods.

These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements for the fiscal years ended 2019, 2018 and 2017 included in the Company’s Form 10-K, which was filed with the SEC on December 20, 2019.

These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements for the fiscal years ended 2020, 2019 and 2018 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on November 30, 2020.

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Except for the change in certain policies upon adoption of the accounting standards described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for fiscal year 2020.

Certain prior period amounts have been reclassified to conform the prior period presentation to the current year.

Segment Reporting

The Company has two reportable operating segments, Medical and Industrial, which align with how its Chief Executive Officer, who has been identified as the Company's Chief Operating Decision Maker ("CODM"), views and measures the Company’s business performance.

See Note 16, Segment Information, for further information on the Company’s segments.

The Company has two reportable operating segments;

(i) Medical and (ii) Industrial, which aligns with how its Chief Executive Officer, who is the Company's Chief Operating Decision Maker (“CODM”), reviews the Company’s performance.

Segment Information , for further information on the Company’s segments.

The fiscal years of the Company as reported are the 52 or 53-week period ending on the Friday nearest September 30.

Fiscal year 2021 is the 52-week period ending October 1, 2021.

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

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

Fiscal year 2020 was the 53-week period that ended on October 2, 2020.

The fiscal quarters ended January 1, 2021 and January 3, 2020 were 13-week and 14-week periods, respectively.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.

Such estimates

include the valuation of inventories, goodwill and intangible assets, impairment on investments, and taxes on earnings.

Such estimates include the valuation of inventories, goodwill and intangible assets, warranties, contract liabilities, long-lived asset valuations, impairment on investments, financial instruments, and taxes on earnings.

Actual results could differ from these estimates.

Impact of COVID-19

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

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

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

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

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

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

The extent to which COVID-19 will continue to impact the Company’s business and financial results depends on numerous evolving factors including:

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

As a result of the economic downturn resulting from COVID-19, the Company has experienced reduced demand in its Industrial segment and for certain higher-end medical products that negatively impacted revenues and gross margin.

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

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

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

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

While there was no direct impairments or adjustments related to COVID-19 recorded in the Company’s consolidated financial statements for the three months ended January 1, 2021, the Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material negative impacts to the Company’s condensed consolidated financial statements in future reporting periods.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Cash and Cash Equivalents

The Company considers currency on hand, demand deposits, time deposits and all highly-liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents.

Restricted Cash

2 unchanged sentences

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

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

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

Three Months Ended January 1, 2021 Three Months Ended January 3, 2020

(In millions) Beginning of Period End of Period Beginning of Period End of Period

Cash and cash equivalents $ 100.6 $ 105.5 $ 29.9 $ 30.0

6 unchanged sentences

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

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

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

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

1 unchanged sentence

Credit is extended to customers based on an evaluation of the customer’s financial condition, and collateral is not required.

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

Three Months Ended Nine Months Ended

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

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

Three Months Ended

January 1, 2021 January 3, 2020

Canon Medical Systems Corporation

16.6 % 18.8 %

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

Canon Medical Systems Corporation accounted for 17.0 % and 12.0 % of the Company’s accounts receivable as of January 1, 2021 and October 2, 2020, respectively.

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

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

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

Distributions received from an equity method investment are classified using the cumulative earnings approach, which means that distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment and classified as operating cash flows and those in excess of that amount will be treated as returns of investment and classified as investing cash flows.

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

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

There were no impairments recorded during the three-month periods ended January 1, 2021 and January 3, 2020, respectively.

Loss Contingencies

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

The Company accrues amounts for probable losses, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value).

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

The Company accrues amounts for probable losses, to the extent they can be reasonably estimated, that it believes are adequate to address liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value).

A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision.

When a loss contingency is probable but not reasonably estimable the nature of the contingency and the fact that an estimate cannot be made is disclosed.

Product Warranty

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

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

when the related revenues are recognized.

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

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

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

The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs.

For new products, the Company bases warranty estimates on historical experience for similar products and adds a reasonable allowance for warranty expenses associated with new products.

For new products, estimates include the historical experience of similar products, as well as a reasonable allowance for warranty expenses associated with new products.

On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.

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

Nine Months Ended

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

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Accrued product warranty, at beginning of period

6 unchanged sentences

ROU assets may also include initial direct costs incurred and prepaid lease payments, less lease incentives.

Lease liabilities and their corresponding ROU assets are recognized based on the present value of lease payments over the lease term, discounted using the Company's incremental borrowing rate ("IBR").

Lease liabilities and their corresponding ROU assets are recognized based on the present value of lease payments over the lease term, discounted using the Company's incremental borrowing rate.

The Company recognizes operating leases with lease terms of more than twelve months in operating lease assets, current operating lease liabilities, and operating lease liabilities on its condensed consolidated balance sheets.

1 unchanged sentence

For purposes of calculating lease liabilities and the corresponding ROU assets, the Company's lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No.

2016-02 , Leases ("Topic 842"), referred to as ASC 842.

The purpose of ASC 842 is to increase the transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet, including those previously classified as operating leases under U.S.

GAAP, and disclosing key information about leasing arrangements.

ASC 842, as amended, is effective for public entities for annual periods beginning after December 15, 2018, including interim periods within those annual periods and is effective for the Company in fiscal year 2020.

The Company adopted the standard using the transition method provided by ASC Update No.

2018-11, Leases ("Topic 842"):

Targeted Improvements.

Under this method, the Company applied the new leasing rules on September 28, 2019, rather than at the earliest comparative period presented in the financial statements.

Prior periods were presented in accordance with the existing lease guidance under ASC 840.

Upon transition, the Company applied the package of practical expedients permitted under ASC 842 transition guidance to its entire lease portfolio at September 28, 2019.

As a result, the Company was not required to reassess (i) whether any expired or existing contracts are or contain leases, (ii) the classification of any expired or existing leases, and (iii) initial direct costs for any existing leases.

Also, the Company applied the hindsight practical expedient.

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

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

The most significant impact of the standards for the Company relate to the recognition of the right-of-use assets and lease liabilities for the operating leases in the balance sheet.

Upon adoption of the new lease standard, the Company recognized operating lease right-of-use assets and finance lease right-of-use assets of $ 26.8 million and $ 0.6 million, respectively, and corresponding operating lease liabilities and finance lease liabilities of $ 27.5 million and $ 0.6 million, respectively.

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

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

retained earnings.

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

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which provides the option to reclassify certain income tax effects related to the Tax Cuts and Jobs Act passed in December of 2017 between accumulated other comprehensive income and retained earnings and also requires additional disclosures.

The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.

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

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

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

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

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

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

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

Recent Accounting Standards or Updates Not Yet Effective

In March 2020, the FASB issued ASU 2020-04 to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting.

The Company is currently evaluating the impact from the replacement of the London Interbank Offered Rate (LIBOR) and whether the Company will elect the adoption of the optional guidance.

In December 2019, the FASB issued ASU 2019-12 which simplifies the accounting for income taxes by removing certain exceptions to the current guidance, and improving the consistent application of and simplification of other areas of the guidance.

The standard is effective for the Company beginning in the first quarter of fiscal year 2022.

Early adoption is permitted.

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

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

In addition, the ASU requires new disclosures.

This standard will be effective for the Company's interim and annual periods beginning with the first quarter of fiscal 2021 and must be applied on a modified retrospective basis.

The Company is evaluating the potential impact of this standard to its condensed consolidated financial statements.

Revenue Recognition

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The Company recognizes its revenues net of any value-added or sales tax and net of sales discounts.

The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers .

The Company sells a high proportion of its X-ray products to a limited number of OEM customers.

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Service contracts are often sold with certain security and inspection products and computer-aided detection products.

The Company determines revenue recognition through the following steps:

• Identification of the contract, or contracts, with a customer

• Identification of the performance obligations in the contract

• Determination of the transaction price

• Allocation of the transaction price to the performance obligations in the contract

• Recognition of revenue when, or as, a performance obligation is satisfied

Transaction price and allocation to performance obligations

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For each contract, the Company considers the obligation to transfer products and services to the customer, which are distinct, to be performance obligations.

Revenue recognition

Recognition of revenue

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers.

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Revenue is disaggregated from contracts between geography and by reportable operating segment, which the Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors.

Refer to Note 15.

Segment Information, included in this report, for the disaggregation of the Company’s revenue based on reportable operating segments and Note 2.

Revenue for the disaggregation of revenue by geographic region.

Contract Balances

Contract assets are included within the prepaid expenses and other current assets, and other assets balances in the condensed consolidated balance sheets.

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

Costs to Obtain or Fulfill a Customer Contract

The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs.

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

Incremental costs of obtaining contracts that would be recognized over greater than one year are not material.

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.

These costs are included as a component of cost of revenues.

Deferred Revenues

Deferred revenue primarily represents (i) the amount received applicable to non-software products for which parts

and services under the warranty contracts have not been delivered, and (ii) the amount received for service contracts for

which the services have not been rendered.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments.

This pronouncement changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans and replaces the incurred loss methodology with a new, forward-looking “expected loss” model that considers the risk of loss over the asset’s contractual life, even if remote, historical experience, current conditions, and reasonable and supportable forecasts of future relevant events.

The Company adopted this ASU on October 3, 2020, using a modified retrospective approach.

The adoption of ASU 2016-13 did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

Recent Accounting Standards or Updates Not Yet Effective

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The standard removes certain separation models in ASC 470-20 for convertible instruments, and, as a result, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC 815.

The convertible debt instruments will be accounted for as a single liability measured at amortized cost.

This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate.

Further, the ASU made amendments to the earnings per share ( “EPS”) guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted for fiscal years beginning after December 15, 2020.

Adoption of the ASU can either be on a modified retrospective or full retrospective basis.

We are currently evaluating the impacts of this ASU on our condensed consolidated financial statements.

Adoption of the guidance is elective and is permitted from March 12, 2020 through December 31, 2022.

The Company will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

The Company does not expect that the new guidance will have a material impact on its financial position, results of operations and cash flows.

The standard is effective for the Company beginning in the first quarter of fiscal year 2022.

Early adoption is permitted.

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

Disaggregation of Revenue

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Americas $ 62.3 $ 70.3

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$ 177.1 $ 200.1

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

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

Revenue in the United States of America was $ 61.1 million and $ 68.9 million for the three months ended January 1, 2021 and January 3, 2020, respectively.

Refer to Note 15, Segment Information , for the disaggregation of the Company’s revenue based on reportable operating segments.

Contract Balances

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

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

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

(In millions) Contract Assets

Balance at September 27, 2019 $ 23.7

The following table summarizes the changes in the contract assets and refund liabilities:

Contract Assets

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Balance at beginning of fiscal year $ 24.6 23.7

Costs recovered from product returns during the period ( 1.2 ) ( 0.8 )

Contract asset from shipments of products, subject to return during the period 0.8 1.6

Balance at July 3, 2020 $ 24.6

(In millions) Refund Liabilities

Balance at September 27, 2019 $ 26.4

Balance at end of period $ 24.2 24.5

Contract Liabilities

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Balance at beginning of fiscal year $ 27.4 26.4

Release of refund liability included in beginning of year refund liability ( 1.4 ) ( 0.9 )

Additions to refund liabilities 0.9 1.7

Balance at July 3, 2020 $ 27.3

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

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

Remaining Performance Obligations

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

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

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

Costs to Obtain or Fulfill a Customer Contract

The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs.

Incremental costs of obtaining contracts that would be recognized over greater than one year are not material.

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.

These costs are included as a component of cost of revenues.

On September 28, 2019, the Company adopted a new accounting standard that amends the guidance for the accounting and reporting of leases.

The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement.

Balance at end of period $ 26.9 27.2

During the three months ended January 1, 2021, the Company recognized revenue of $ 5.0 million related to deferred revenues which existed at October 2, 2020.

During the three months ended January 3, 2020, the Company recognized revenue of $ 6.1 million related to deferred revenue which existed at September 27, 2019.

The Company has operating and finance leases for office space, warehouse and manufacturing space, vehicles and certain equipment.

The Company's lease agreements do not contain any material residual value guarantees, variable lease costs, bargain purchase options or restrictive covenants.

The Company does not have any lease transactions with related parties.

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

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

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

Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease contract.

Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of fixed lease payments over the expected lease term.

The interest rate implicit in lease contracts is typically not readily determinable.

As such, our incremental borrowing rate is based on a credit-adjusted risk-free rate, which best approximates a secured rate over a similar term of lease.

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

(In millions) Balance Sheet Location Operating Leases Finance Leases

(In millions) Balance Sheet Location January 1, 2021 October 2, 2020

Operating lease right-of-use assets Operating lease assets

$ 26.3 $ 27.7

Finance lease right-of-use assets Property, plant and equipment, net

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Operating lease liabilities (non-current) Operating lease liabilities

$ 22.2 $ 23.1

Finance lease liabilities (non-current) Other long-term liabilities

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

Operating Leases Finance Leases

Weighted average remaining lease term (in years) 6.7 3.4

Weighted average discount rate 4.7 % 4.1 %

January 1, 2021 January 3, 2020

Operating lease weighted average remaining lease term (in years) 6.4 5.2

Operating lease weighted average discount rate 4.5 % 4.2 %

Finance lease weighted average remaining lease term (in years) 3.1 3.0

Finance lease weighted average discount rate 3.7 % 3.8 %

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

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

(In millions) Three Months Ended January 1, 2021 Three Months Ended January 3, 2020

Total operating lease costs (a) $ 1.9 $ 2.1

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Total cash paid for amounts included in the measurement of lease liabilities $ 1.9 $ 2.1

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

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

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

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

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

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

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

(a) Includes variable and short-term lease expense, which were immaterial for the three months ended January 1, 2021 and January 3, 2020.

As of January 1, 2021, maturities of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

(In millions)

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Present value of lease liabilities $ 28.3 $ 0.6

At September 27, 2019, the Company was committed to minimum rentals under non-cancelable operating leases (including rent escalation clauses) for fiscal years 2020 through 2024 and therea fter, as follows:

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

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

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

We evaluated the materiality of this error on our current quarter and prior quarter consolidated financial statements and have concluded that this error was not material when considering both qualitative and quantitative factors.

BUSINESS COMBINATIONS

During April 2019, Varex completed the acquisition of approximately 98.2 % of the outstanding shares of common stock of Direct Conversion AB (publ) (“Direct Conversion”) for $ 69.5 million in cash, net of cash acquired, the assumption of Direct Conversion's debt of $ 4.5 million and deferred consideration equal to $ 9.9 million or 0.3 million shares of the Company’s common stock.

To settle the deferred consideration, in April 2020, the Company issued the 0.3 million shares of its common stock to certain shareholders of Direct Conversion.

In issuing the shares, the Company relied on the exemptions from registration under Section 4(a)(2) of the Securities Act of 1933 (the “Securities Act”), Rule 506 of Regulation D, and/or Regulation S promulgated under the Securities Act.

The acquisition of Direct Conversion expands our detector product portfolio to include photon counting technology.

This technology will allow Varex to expand its range of imaging applications and offer new solutions to both Medical and Industrial customers.

The following table summarizes the purchase price allocation:

(In millions) Fair Value

Allocation of the purchase consideration:

Accounts receivable $ 2.4

Inventories 5.7

Prepaid expenses and other current assets 0.7

Property, plant, and equipment 0.9

Goodwill 47.2

Intangible assets 32.9

Total assets acquired $ 89.8

Accounts payable $ ( 1.0 )

Accrued liabilities and other current liabilities

Current maturities of long-term debt ( 1.0 )

Deferred revenues ( 0.9 )

Long-term debt ( 3.5 )

Other long-term liabilities ( 1.1 )

Total liabilities assumed $ ( 9.0 )

Noncontrolling interest $ ( 1.4 )

Net assets acquired, less noncontrolling interest $ 79.4

Net cash paid $ 69.5

Deferred consideration 9.9

Total consideration $ 79.4

The Company recorded the assets acquired and liabilities assumed at their fair values.

Intangibles were valued primarily using a discounted cash flow, which included estimated revenue growth and discount rate.

The fair value assigned to goodwill is primarily attributable to expected synergies.

The goodwill related to the Direct Conversion acquisition is not tax deductible.

The following amounts represent the determination of the fair value and estimated weighted average useful lives of identifiable intangible assets for the Direct Conversion, which are amortized using the straight-line method:

(In millions) Fair Value Estimated Weighted Average

Backlog $ 0.2 1

Trade names 2.5 5

Developed technology 18.4 10

In-process research and development 2.8 indefinite

Customer relationships 9.0 10

Total intangible assets acquired $ 32.9

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

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

During the first quarter of fiscal year 2021 the Company entered into a new lease of a manufacturing facility in the Philippines that is not expected to commence until the second quarter of fiscal year 2021.

This lease has a stated term of five years and will result in an initial lease right-of-use asset and liability balance of approximately $ 4 million upon lease commencement.

RELATED PARTY TRANSACTIONS

Investment in Privately-Held Companies

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

image detectors.

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

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

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

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

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

During the three months ended January 1, 2021 and January 3, 2020, the Company recorded (loss)/income on the equity investment in dpiX Holding of $( 1.5 ) million and $ 0.9 million, respectively.

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

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

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

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

The carrying value of the equity investment in dpiX Holding was $ 45.9 million and $ 47.3 million at January 1, 2021 and October 2, 2020, respectively.

During the three months ended January 1, 2021 and January 3, 2020, the Company purchased glass transistor arrays from dpiX totaling $ 4.9 million and $ 5.9 million, respectively.

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

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

As of January 1, 2021, and October 2, 2020, the Company had accounts payable to dpiX totaling $ 3.2 million and $ 4.6 million, respectively.

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

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In January 2021, the fixed cost commitment was determined and approved by the dpiX board of directors to be $ 11.6 million for calendar year 2021.

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

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

The Company has determined that dpiX is a variable interest entity because at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

The Company has determined that dpiX Holding is a variable interest entity because at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

Majority votes are required to direct the manufacturing activities, legal operations and other activities that most significantly affect dpiX’s economic performance.

The Company does not have majority voting rights and no power to direct the activities of dpiX and therefore is not the primary beneficiary of dpiX.

The Company’s exposure to loss as a result of its involvement with dpiX is limited to the carrying value of the Company’s investment of $ 46.8 million and fixed cost commitments.

The Company does not have majority voting rights and no power to unilaterally direct the activities of dpiX Holding and therefore is not the primary beneficiary of dpiX Holding.

The Company’s exposure to loss as a result of its involvement with dpiX Holding is limited to the carrying value of the Company’s investment of $ 45.9 million and fixed cost commitments.

In November 2018, the Company and CETTEEN GmbH (“CETTEEN”), formed a German limited liability company that governs the affairs and conduct of the business of VEC Imaging Verwaltungsgesellschaft GmbH (“VEC”), a joint venture formed to develop technology for use in X-ray imaging components.

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

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

As of January 1, 2021, the Company has made contributions totaling $ 4.0 million, and has committed to contribute an additional $ 1.2 million as milestones are achieved, and to provide certain full-time employees to support prototyping and manufacturing activities in exchange for a 50 % interest in VEC.

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

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

During the three months ended January 1, 2021 and January 3, 2020 the Company recorded loss on the equity investment in VEC of $ 0.3 million and $ 0.2 million, respectively.

The Company's investment in VEC was $ 2.4 million and $ 2.5 million at January 1, 2021 and October 2, 2020, respectively.

RESTRUCTURING

In July 2018, the Company committed to a plan to relocate the production of amorphous silicon glass for digital detectors, from its Santa Clara facility, to the jointly owned dpiX fabrication facility in Colorado.

In July 2018, the Company committed to relocate the production of amorphous silicon glass for digital detectors, from its Santa Clara facility, to the dpiX fabrication facility in Colorado.

In July 2019, the Company committed to close its Santa Clara facility and to relocate the remaining production to its other existing facilities.

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

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

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

The Company ceased all operations at the Santa Clara facility as of October 2, 2020 and all activities related to the closure of the facility were completed by the end of December 2020.

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

This action resulted in the reduction of the Company’s workforce by approximately 94 employees, of which nearly all were located within the United States.

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

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

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

Three Months Ended Nine Months Ended

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

Below is a detail of restructuring charges incurred during the three months ended January 1, 2021 and January 3, 2020, respectively, which predominantly relate to the Company's Medical segment:

Three Months Ended

(In millions) Location of Restructuring Charges in Condensed Consolidated Statements of Operations January 1, 2021 January 3, 2020

Accelerated depreciation Cost of revenues $ 0.1 $ 0.3

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As part of the Company’s overall risk management practices, the Company enters into financial derivatives to manage its financial exposures to foreign currency exchange rates and interest rates.

The Company records all derivatives on the consolidated balance sheets at fair value.

The Company records all derivatives on the condensed consolidated balance sheets at fair value.

The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

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The changes in fair value for all trades that are not designated for hedge accounting are recognized in current period earnings.

The Company does not offset fair value amounts recognized for derivative instruments in its consolidated balance sheets for presentation purposes.

The Company does not offset fair value amounts recognized for derivative instruments in its condensed consolidated balance sheets for presentation purposes.

Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts.

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The Company’s policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings to help mitigate counterparty credit risk.

Derivatives Designated as Hedging Instruments - Cash Flow Hedges

The Company uses interest rate swap contracts as cash flow hedges to manage its exposure to fluctuations in LIBOR interest rates.

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

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

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

Interest Rate Swap Contracts 6 $ 241.9

The following table summarizes the amount of pre-tax earnings recognized from derivative instruments for the periods indicated and the line items in the accompanying statements of operations where the results are recorded for cash flow hedges:

Amount of Gain (Loss) Recognized in OCI on Derivative

Three months ended Location of Gain or (Loss) Reclassified from Accumulated OCI into Income Amount of Gain (Loss) Reclassified from Accumulated OCI into Income

Three months ended

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

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

Amount of Gain (Loss) Recognized in OCI on Derivative

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

Nine Months Ended

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

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

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

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

The following table summarizes the fair values of derivative instruments as of the periods indicated and the line items in the accompanying consolidated balance sheets where the instruments are recorded:

(In millions) Derivative Assets and Liabilities

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

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

Interest rate swap contracts Other long-term liabilities — ( 0.5 )

$ ( 3.2 ) $ ( 0.5 )

Derivatives Designated as Hedging Instruments - Net Investment Hedges

The Company uses cross currency swap contracts as net investment hedges to manage its risk of variability in foreign currency-denominated net investments in wholly owned international operations.

The Company uses cross currency swap contracts as net investment hedges to manage its risk of variability in foreign currency-denominated net investments in majority-owned international operations.

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

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

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

As of January 1, 2021, the Company had the following outstanding derivatives designated as net investment hedging instruments:

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

Cross Currency Swap Contracts 3 $ 66.6

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

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

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

Amount of Gain (Loss) Recognized in OCI on Derivative

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

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

(In millions) January 1, 2021 January 3, 2020 January 1, 2021 January 3, 2020

Cross Currency Swap Contracts $ 3.0 $ ( 0.8 ) Interest expense $ 0.3 $ 0.4

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None of the balances were eligible for netting.

The following table summarizes the gross fair values of derivative instruments as of the periods indicated and the line items in the accompanying consolidated balance sheets where the instruments are recorded:

The following table summarizes the gross fair values of derivative instruments as of the periods indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:

(In millions) Derivative Assets and Liabilities

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

Derivatives designated as net investment hedges Balance sheet location January 1, 2021 October 2, 2020

Cross Currency Swap Contracts Other current assets $ 1.2 $ 1.3

Cross Currency Swap Contracts Other non-current assets 0.6 —

Cross Currency Swap Contracts Other long-term liabilities ( 5.1 ) ( 2.1 )

$ ( 3.9 ) $ ( 0.8 )

Balance Sheet Hedges

The Company’s foreign currency management objective is to mitigate the potential impact of currency fluctuations on the value of its U.S.

dollar cash flows and to reduce the variability of certain cash flows at the subsidiary level.

The Company also enters into foreign currency forward contracts to hedge fluctuations associated with foreign currency denominated monetary assets and liabilities, primarily cash, lease contracts, third-party accounts receivable and payable, and intercompany accounts receivable and payables.

These forward contracts expire within 30 to 90 days.

These forward contracts are not designated for hedge accounting treatment, therefore, the change in fair value of these derivatives is recorded as a component of other income (expense) and offsets the change in fair value of the foreign currency denominated assets and liabilities, which are also recorded in other income (expense).

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

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

The following table shows the notional amounts of outstanding foreign currency contracts as of January 1, 2021:

Notional Value of Derivatives not Designated as Hedging Instruments:

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Japanese yen $ 1.5 $ —

Swiss franc — ( 1.0 )

Chinese renminbi 2.8 —

Euro — ( 6.8 )

$ 4.3 $ ( 7.8 )

Assets/Liabilities Measured at Fair Value on a Recurring Basis

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

As of January 1, 2021, the fair values of the Company's Convertible Notes and Senior Secured Notes, as defined in Note 10.

Borrowings, were $ 211.7 million and $ 320.3 million, respectively.

As of October 2, 2020, the fair values of the Company's Convertible Notes and Senior Secured Notes were $ 178.5 million and $ 312.8 million, respectively.

The Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads.

There were no financial assets or liabilities measured on a recurring basis using significant unobservable inputs (Level 3) and there were no transfers in or out of Level 1, 2 or 3 during the three months ended January 1, 2021.

In the tables below, the Company has segregated all assets and liabilities that are measured at fair value on a recurring basis into the most appropriate level within the fair value hierarchy based on the inputs used to determine the fair value at the measurement date.

Fair Value Measurements at July 3, 2020

Fair Value Measurements at January 1, 2021

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

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Total liabilities measured at fair value $ — $ 5.1 $ — $ 5.1

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

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

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

Fair Value Measurements at September 27, 2019

Fair Value Measurements at October 2, 2020

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

4 unchanged sentences

$ — $ 72.9 $ — $ 72.9

Derivative assets

Total assets measured at fair value $ — $ 74.0 $ — $ 74.0

Derivative liabilities $ — $ 2.1 $ — $ 2.1

Deferred Consideration 8.9 — — 8.9

Total liabilities measured at fair value $ — $ 2.1 $ — $ 2.1

The following table summarizes the Company’s inventories:

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

(In millions) January 1, 2021 October 2, 2020

Raw materials and parts

4 unchanged sentences

$ 269.8 $ 271.9

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

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

GOODWILL AND INTANGIBLE ASSETS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

impaired in the future.

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

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

The following table reflect goodwill by reportable operating segment:

The following table reflects goodwill by reportable operating segment:

(In millions) Medical Industrial Total

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

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

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

July 3, 2020 September 27, 2019

Balance at October 2, 2020 $ 174.4 $ 118.7 $ 293.1

Foreign currency translation adjustments 1.3 0.9 2.2

Balance at January 1, 2021 $ 175.7 $ 119.6 $ 295.3

The following table reflects the gross carrying amount and accumulated amortization of the Company’s intangible assets:

January 1, 2021 October 2, 2020

(In millions)

8 unchanged sentences

$ 51.6 $ ( 26.0 ) $ 25.6 $ 51.2 $ ( 24.2 ) $ 27.0

Total intangible assets with finite lives

$ 137.6 $ ( 67.0 ) $ 70.6 $ 137.5 $ ( 54.0 ) $ 83.5

In-process R&D with indefinite lives

$ — $ — $ — $ 2.8 $ — $ 2.8

Total intangible assets

$ 140.4 $ ( 75.9 ) $ 64.5 $ 138.9 $ ( 71.4 ) $ 67.5

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

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

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

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

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

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

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

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

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

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

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

Amortization expense for intangible assets was $ 4.2 million and $ 4.5 million for the three months ended January 1, 2021 and January 3, 2020, respectively.

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

July 3, 2020 September 27, 2019 $ Change

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

January 1, 2021 October 2, 2020

(In millions, except for percentages) Amount Amount Contractual Interest Rate Effective Interest Rate

Current maturities of long-term debt

Term facility $ 26.8 5.6 % $ 29.4 5.6 % $ ( 2.6 )

Other debt 2.6 2.5

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Non-current maturities of long-term debt:

Revolving credit facility $ — — % $ 59.0 5.6 % $ ( 59.0 )

Term facility 238.7 5.6 % 308.6 5.6 % ( 69.9 )

Convertible Notes 200.0 — 200.0

Asset-Based Loan — —

Convertible Senior Unsecured Notes 200.0 200.0 4.0 % 10.9 %

Senior Secured Notes 300.0 300.0 7.9 % 8.2 %

Other debt 11.2 8.8

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

Total non-current maturities of long-term debt:

$ 511.2 $ 508.8

Unamortized issuance costs and debt discounts

Unamortized discount - Convertible Notes ( 43.6 ) ( 45.5 )

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

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

Existing Credit Agreement

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

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

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

In connection with Amendment No.

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

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

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

Both the Term Facility and Revolving Credit Facility expire on May 1, 2022.

The Credit Agreement contains various customary restrictive covenants that limits, among other things, the incurrence of indebtedness by Varex and its subsidiaries, the grant or incurrence of liens by Varex and its subsidiaries, the entry into sale and leaseback transactions by Varex and its subsidiaries, and the entry into certain fundamental change transactions by Varex and its subsidiaries.

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

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

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

in prior quarter forecasted cash flow estimates.

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

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

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

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

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

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

Convertible Notes

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

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

Unamortized issuance costs - Convertible Notes ( 4.7 ) ( 4.9 )

Unamortized issuance costs - Senior Secured Notes ( 5.4 ) ( 5.6 )

Total $ ( 53.7 ) $ ( 56.0 )

Total debt outstanding, net $ 460.1 $ 455.3

The following table summarizes the Company's interest expense:

Three Months Ended

January 1, 2021 January 3, 2020

Contractual interest coupon 7.9 4.5

Amortization of debt issuance costs 0.5 0.9

Amortization of debt discounts 1.9 —

Total interest expense 10.3 5.4

Convertible Senior Unsecured Notes

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

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

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

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

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

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

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

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

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

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

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

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

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

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

No sinking fund is provided for the Convertible Notes.

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

Total interest expense related to the Convertible Notes for the three months ended January 1, 2021 was $ 4.1 million and was comprised of $ 2.0 million related to the contractual interest coupon and $ 2.1 million related to the amortization of the discount and issuance costs on the liability component.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

REDEEMABLE NONCONTROLLING INTERESTS & NONCONTROLLING INTERESTS

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

The number of warrants outstanding as of January 1, 2021, was 9.6 million.

Senior Secured Notes

Varex issued $ 300.0 million aggregate principal amount of 7.875 % Senior Secured Notes due 2027 (the "Senior Secured Notes") pursuant to an indenture dated September 30, 2020, among Varex, certain of its direct or indirect wholly-owned subsidiaries as guarantors and Wells Fargo Bank, National Association as trustee and collateral agent.

Interest payments are paid semiannually on April 15 and October 15 of each year, beginning on April 15, 2021.

Interest expense related to the Senior Secured Notes for the three months ended January 1, 2021 was $ 6.1 million.

Asset-Based Loan

On September 30, 2020, the Company entered into a new revolving credit agreement consisting of a $ 100.0 million asset-based loan revolving credit facility (the “Asset-Based Loan”, or "ABL Facility").

Borrowings under the Asset-Based Loan will be expected to bear interest at floating rates based on LIBOR, or comparable rate, or a base rate, and an applicable margin based on Average Daily Excess Availability (as defined in the Asset-Based Loan Agreement).

In addition, the Company is required to pay a quarterly commitment fee of 0.375 % to 0.5 %, based on the aggregate unused commitments under the Asset-Based Loan.

The ABL Facility matures on the earlier of September 30, 2025 or 91 days prior to the maturity of the Convertible Notes, at which time all outstanding amounts under the ABL Facility will be due and payable.

The maximum availability under our ABL Facility was $ 100.0 million as of January 1, 2021, however, the borrowing base under the ABL Facility fluctuates from month-to-month depending on the amount of eligible accounts receivable and inventory.

The ABL Facility includes various restrictive covenants that limit our ability to engage in certain transactions, including the incurrence of debt, payment of dividends and other restrictive payments, existence of restrictions affecting subsidiaries, sales of stock and assets, certain affiliate transactions, modifications of debt documents and organizational documents, changes to line of business and fiscal year, incurrence of liens, making fundamental changes, prepayments of junior indebtedness, and certain other transactions.

NONCONTROLLING INTERESTS

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

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

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

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

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

As the Company has majority voting rights it has consolidated Direct Conversion's operations in its condensed consolidated financial statements and records the noncontrolling interest in the equity section of the Company's condensed consolidated balance sheet.

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

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

The Company has majority voting rights with an approximate 75 % interest.

Accordingly, the Company has consolidated the operations of the Saudi Arabia partnership in our consolidated financial statements and recorded the noncontrolling interests.

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

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

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

Accordingly, the Company has consolidated the operations of the Saudi Arabia partnership in our condensed consolidated financial statements and recorded the noncontrolling interests.

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

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

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

In August 2015, the Company, through one of its German subsidiaries, entered into a Domination and Profit and Loss Transfer Agreement (the “DPLTA”) with MeVis.

In October 2015, the DPLTA became effective upon its registration at the local court of Bremen, Germany.

Under the DPLTA, MeVis subordinates its management to the Company and undertakes to transfer all its annual profits and losses to the Company.

In return, the DPLTA grants the noncontrolling shareholders of MeVis:

(1) an annual recurring net compensation of € 0.95 per MeVis share starting from January 1, 2015;

and (2) a put right for their MeVis shares at € 19.77 per MeVis share.

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

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

Changes in redeemable noncontrolling interests were as follows:

(In millions) Redeemable Noncontrolling Interests Noncontrolling Interest

Balance at September 27, 2019 $ 10.5 $ 3.3

In return, the DPLTA grants the noncontrolling shareholders of MeVis an annual recurring net compensation of € 0.95 per MeVis share.

At January 1, 2021, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3 % of the outstanding shares.

Changes in noncontrolling interests were as follows:

(In millions) Noncontrolling Interest

Balance at October 2, 2020 $ 14.1

Net earnings attributable to noncontrolling interests

Other, including foreign currency remeasurement

Balance at July 3, 2020 $ 10.8 $ 3.2

NET (LOSS) EARNINGS PER SHARE

Basic net (loss) earnings per common share is computed by dividing the net (loss) earnings for the period by the weighted average number of shares of common stock outstanding during the reporting period.

Diluted net (loss) earnings per common share reflects the effects of potentially dilutive securities, which is computed by dividing net (loss) earnings by the sum of the weighted average number of common shares outstanding and dilutive common shares, which consists of shares underlying stock options, unvested stock awards and purchase rights granted under the employee stock purchase plan.

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

Three Months Ended Nine Months Ended

Balance at January 1, 2021 $ 14.2

NET LOSS PER SHARE

Basic loss per common share is computed by dividing the net loss for the period by the weighted average number of shares of common stock outstanding during the reporting period.

Diluted earnings per common share reflects the effects of potentially dilutive securities, which is computed by dividing net loss by the sum of the weighted average number of common shares outstanding and dilutive common shares.

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

Three Months Ended

(In millions, except per share amounts)

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

Net (loss) earnings attributable to Varex

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

January 1, 2021 January 3, 2020

Net loss attributable to Varex $ ( 6.4 ) $ ( 1.3 )

Weighted average shares outstanding - basic

39.0 38.3 38.7 38.2

Dilutive effect of potential common shares

Weighted average shares outstanding - diluted

39.0 38.3 38.7 38.4

Net (loss) earnings per share attributable to Varex - basic

$ ( 0.73 ) $ ( 0.04 ) $ ( 0.81 ) $ 0.19

Net (loss) earnings per share attributable to Varex - diluted

Net loss per share attributable to Varex - basic

$ ( 0.16 ) $ ( 0.03 )

Anti-dilutive shared based awards, excluded

Net loss per share attributable to Varex - diluted

$ ( 0.16 ) $ ( 0.03 )

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

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

Anti-dilutive share based awards, excluded

Potentially dilutive shares, which are based on the weighted-average shares of common stock underlying stock options, unvested stock awards, purchase rights granted under the employee stock purchase plan, warrants and convertible notes using the treasury stock method or the if-converted method, as applicable, are included when calculating diluted net loss per share attributable to Varex when their effect is dilutive.

Because the Company incurred a net loss for the three months ended January 1, 2021 and January 3, 2020, none of the potentially dilutive common shares were included in the diluted share calculations for those periods as they would have been anti-dilutive.

EMPLOYEE STOCK PLANS

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

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

Three Months Ended Nine Months Ended

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

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

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

Cost of revenues

$ 0.4 $ 0.5 $ 1.0 $ 1.2

Research and development

0.7 0.3 1.9 1.7

Selling, general and administrative

2.6 2.3 7.3 5.8

Total share-based compensation expense

$ 3.7 $ 3.1 $ 10.2 $ 8.7

Stock Option Activity

The following table summarizes the activity for stock options under Varex’s 2020 Omnibus Stock Plan, 2017 Omnibus Stock Plan, and 2017 Employee Stock Purchase Plan for the Company’s employees:

The following table summarizes the activity for stock options under Varex’s 2020 Omnibus Stock Plan, 2017 Omnibus Stock Plan, and for participation in the 2017 Employee Stock Purchase Plan for the Company’s employees:

Options Outstanding

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Aggregate Intrinsic Value (1)

Outstanding at September 27, 2019 2,269 $ 22.63 - $ 37.60

Outstanding at October 2, 2020 2,735 $ 13.61 - $ 37.60

$ 29.23 4.5 $ —

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( 39 ) $ 31.08 - $ 37.10

( 64 ) $ 22.84 - $ 23.24

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

Outstanding at January 1, 2021 2,696 $ 13.61 - $ 37.60

$ 29.19 4.3 $ 591.6

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

Exercisable at January 1, 2021 1,844 $ 25.17 - $ 37.60

$ 30.53 2.7 $ —

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of Varex common stock of $ 14.94 as of July 3, 2020, the last trading date of the Company's third quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of Varex common stock of $ 16.68 as of December 31, 2020, the last trading date of the Company's first quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.

Restricted Stock Units

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(In thousands, except per share amounts) Number of Shares Weighted Average Grant-Date Fair Value

Outstanding at September 27, 2019 678 $ 33.18

( 220 ) 32.81

Outstanding at October 2, 2020 955 $ 25.54

Canceled or expired

Outstanding at July 3, 2020 774 $ 29.96

Outstanding at January 1, 2021 923 $ 25.48

TAXES ON EARNINGS

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

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

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

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

For the three months ended January 1, 2021, the Company recognized income tax expense of $ 1.6 million on $ 4.7 million of pre-tax loss.

The Company is unable to recognize a tax benefit for pre-tax book losses in the U.S.

and certain foreign jurisdictions but has recognized tax expense for profitable foreign jurisdictions.

For the three months ended January 3, 2020, the Company recognized income tax expense of zero on $ 1.2 million of pre-tax loss.

The Company's tax expense for the three months ended January 1, 2021 increased, compared to the prior year, primarily due to valuation allowance positions in the U.S.

on disallowed interest expense deductions and losses in the U.S.

and certain foreign jurisdictions for which no benefit can be recorded.

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

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

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

The Company modified its prior assertion in fiscal year 2019 with respect to the acquisition of Direct Conversion.

The modification was to assert that all earnings for Direct Conversion, located primarily in Sweden and Finland, are indefinitely reinvested in those countries.

The Company is maintaining this prior assertion for the quarter ended January 1, 2021.

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

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SEGMENT INFORMATION

The Company has two reportable operating segments Medical and Industrial.

The Company has two reportable operating segments:

Medical and Industrial.

The segments align the Company’s products and service offerings with customer use in medical and industrial markets and are consistent with how the Company’s Chief Executive Officer, who is also its 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.

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

The operating and reportable segment structure provides alignment between business strategies and operating results.

Description of Segments

The Medical segment designs, manufactures, sells and services X-ray imaging components for use in a range of applications, including radiographic and fluoroscopic imaging, mammography, computed tomography, radiation therapy and computer-aided detection.

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

The Company’s X-ray imaging components are primarily sold to imaging system OEM customers that incorporate them into their medical diagnostic, radiation therapy, dental, veterinary and industrial imaging systems.

The Company also sells its X-ray imaging components to independent service companies, distributors and directly to end-users for replacement purposes.

The Industrial segment designs, manufactures, sells and services products for use in the security and industrial inspection applications, such as airport security, cargo screening at ports and borders and nondestructive examination in a variety of applications.

The products include Linatron X-ray accelerators, X-ray tubes, digital flat panel detectors, high voltage connectors and image processing software that we generally sell to OEM customers that incorporate these products into their inspection systems.

The Medical segment designs, manufactures, sells and services 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.

The Industrial segment designs, develops, manufactures, sells and services 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.

The Company's industrial products include Linatron ® X-ray linear accelerators, X-ray tubes, digital detectors and high voltage connectors.

In addition, the Company licenses proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to industrial customers.

Accordingly, the following information is provided for purposes of achieving an understanding of operations, but it may not be indicative of the financial results of the reported segments were they independent organizations.

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

Three Months Ended Nine Months Ended

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

$ 137.6 $ 151.6 $ 448.6 $ 444.4

Three Months Ended

(In millions) January 1, 2021 January 3, 2020

$ 139.2 $ 155.6

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$ 44.1 $ 43.8

8.3 16.5 39.8 49.7

Total gross margin $ 26.3 $ 60.7 $ 145.0 $ 185.1

Total gross profit $ 57.2 $ 61.1

Total operating expenses

53.1 56.1 165.8 155.6

Interest and other expenses, net

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Net earnings attributable to noncontrolling interests

0.1 0.1 0.3 0.2

Net (loss) earnings attributable to Varex

$ ( 6.4 ) $ ( 1.3 )

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

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

Identifiable assets

$ 885.5 $ 794.3

Total reportable segments $ 1,121.7 $ 1,038.9

SUBSEQUENT EVENTS

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

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

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

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

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

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

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

The Company does not disclose total assets by segment as this information is not provided to the CODM.

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

What changed 10-Q

Item 1. Financial Statements