What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 117 added, 92 removed, 227 unchanged (48% of the section changed)

7 unchanged sentences

the impact of the ongoing COVID-19 pandemic on the global economy or the Company;

supply chain actions;

industry or market segment outlook;

20 unchanged sentences

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

Impact of COVID-19

Over the past year, the unprecedented nature of the COVID-19 pandemic and its effect on the global economy significantly disrupted our business by increasing uncertainty in demand for our products as well as increasing variability in our supply chain and manufacturing productivity.

Impact of COVID-19 and the General Economic Environment

Over the past 18 months, the unprecedented nature of the COVID-19 pandemic and its effect on the global economy significantly disrupted our business by increasing uncertainty in demand for our products as well as increasing variability in our supply chain and manufacturing productivity.

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

During the three months ended April 2, 2021, demand for many of our products continued to recover and our business continued to stabilize.

During the three months ended July 2, 2021, demand for many of our products has continued to recover and our business has continued to stabilize.

We believe that demand for our products has increased in part because end-users (such as hospitals) are making capital purchases that were previously deferred due to the uncertainty surrounding COVID-19.

1 unchanged sentence

While we are encouraged by the recovery that we have seen, we remain cautious as many factors remain unpredictable.

In particular, the ongoing pandemic continues to create logistic, supply chain, and manufacturing challenges that we expect will continue into 2022.

In particular, new variants of the COVID-19 virus and uneven vaccination rates across the globe continue to make it difficult to forecast the trajectory and speed of any future recovery.

We continue to experience logistic, supply chain, and manufacturing challenges that we expect will continue into 2022.

As economies around the world begin to recover, shortages in raw materials have become more widespread.

While we have not experienced significant delays due to a shortage of materials, and while we have had success in localizing our supply chain through our “local-for-local” initiative, we have been required to dedicate more resources to managing and monitoring our supply chain.

During the three months ended July 2, 2021, we experienced shortages of materials and have used more of our inventory on hand than we have used historically.

Shortages of materials, particularly micro-controller chips and associated electronic components, have caused delays in manufacturing products for our customers.

In some cases, raw material shortages and delivery delays from our suppliers are communicated to us with very little advanced warning, which has caused operational and customer order fulfillment challenges.

While we are dedicating significant resources to manage, mitigate, and resolve these issues, we currently expect supply chain challenges to continue to impact our ability to deliver products to our customers over the next several quarters.

Increased freight charges and shipping delays have also become more common over the last few months and are expected to continue.

During the three months ended April 2, 2021, our manufacturing facilities continued to operate with minimal disruption.

Our COVID-19 related precautions, including social distancing and mask requirements, remain in place.

In addition, we recently launched a program in the United States to incentivize employees to obtain a COVID-19 vaccine.

Notwithstanding the improvements we have seen during the three months ended April 2, 2021, the full extent to which the COVID-19 pandemic has and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted.

During the three months ended July 2, 2021, our manufacturing facilities continued to operate with minimal disruption.

In accordance with government guidelines, we have begun to modify certain COVID-19 related protocols, including social distancing and mask requirements.

In the event COVID-19 cases continue an upward trajectory, we may be required to re-implement certain COVID-19 related precautions.

The full extent to which the COVID-19 pandemic has and will directly or indirectly impact us, including our business, financial condition, and results of operations, will depend on future developments that are highly uncertain and cannot be accurately predicted.

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

7 unchanged sentences

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

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

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

Our X-ray imaging components are sold primarily to OEM customers, which integrate our products into their X-ray imaging systems for a variety of medical modalities.

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

17 unchanged sentences

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

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

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

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

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

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

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

Along with more favorable pricing dynamics, this allows us to generally achieve higher gross profit for industrial products relative to our Medical business.

7 unchanged sentences

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

During the three months ended April 2, 2021, we began to see improved conditions in this modality.

During the three months ended July 2, 2021, we have continued to see improved conditions in this market.

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

5 unchanged sentences

Refer to our Annual Report on Form 10-K for the fiscal year ended October 2, 2020 filed with the SEC on November 30, 2020 and Note 1 “Summary of Significant Accounting Policies” of the notes to the condensed consolidated financial statements of this report for further details.

Our critical accounting policies that are affected by accounting estimates include valuation

of inventories, assessment of recoverability of goodwill and intangible assets, and income taxes.

Our critical accounting policies that are affected by accounting estimates include valuation of inventories, assessment of recoverability of goodwill and intangible assets, and income taxes.

Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates.

3 unchanged sentences

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

The fiscal quarters ended April 2, 2021 and April 3, 2020 were both 13-week periods.

The two fiscal quarters ended April 2, 2021 and April 3, 2020 were 26 weeks and 27 weeks, respectively.

Discussion of Results of Operations for the Three Months Ended April 2, 2021 Compared to the Three Months Ended April 3, 2020

The fiscal quarters ended July 2, 2021 and July 3, 2020 were both 13-week periods.

On a year-to-date basis, the three fiscal quarters ended July 2, 2021 and July 3, 2020 were 39 weeks and 40 weeks, respectively.

Discussion of Results of Operations for the Three Months Ended July 2, 2021 Compared to the Three Months Ended July 3, 2020

Revenues, net

Three Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change % Change

(In millions) July 2, 2021 July 3, 2020 $ Change % Change

$ 167.3 $ 137.6 $ 29.7 21.6 %

3 unchanged sentences

Industrial as a percentage of total revenues 20.8 % 19.6 %

Medical revenues increased by $1.2 million primarily due to increased sales of digital detectors for dynamic imaging applications, partially offset by lower sales of CT X-ray tubes.

Industrial revenues increased $5.3 million primarily due to increased sales of digital detectors and connectors for security and non-destructive inspection applications.

Medical revenues increased $29.7 million primarily due to increased sales of digital detectors for dynamic imaging applications and higher sales of CT X-ray tubes.

Industrial revenues increased $10.3 million primarily due to increased sales of digital detectors, X-ray tubes, and connectors for security and non-destructive inspection applications.

Three Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change % Change

(In millions) July 2, 2021 July 3, 2020 $ Change % Change

$ 56.5 $ 18.0 $ 38.5 213.9 %

4 unchanged sentences

Total gross margin 35.1 % 15.4 %

The increase in total gross profit was due primarily to the increase in the gross profit of our Industrial segment.

The Industrial segment gross profit increased as a result of increased sales of digital detectors for security and non-destructive inspection applications.

The increase in Medical gross profit was primarily due to the increased sales of digital detectors for dynamic imaging applications, the impacts of cost reduction measures taken by management in previous quarters and a favorable product mix in medical detectors.

Also during the three months ended July 3, 2020, there was a $13 million charge for the write-down of inventory associated with discontinued products and restructuring activity.

The Industrial segment gross profit increased as a result of increased sales of digital detectors for security and non-destructive inspection applications.

Also during the three months ended July 3, 2020, there was a $3 million charge for the write-down of inventory associated with discontinued products and restructuring activity.

Operating Expenses

Three Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change

(In millions) July 2, 2021 July 3, 2020 $ Change

Research and development $ 19.2 $ 19.0 $ 0.2 1.1 %

3 unchanged sentences

13.8 % 18.3 %

Impairment of intangible assets $ — $ 2.7 $ (2.7) (100.0) %

As a percentage of total revenues

Operating expenses

4 unchanged sentences

We are committed to investing in the business to support long-term growth and believe long-term research and development expenses of approximately 8% to 10% of annual revenues is the appropriate range that will allow us to innovate and bring new products to market for our global OEM customers.

Research and development costs decreased to 8.9% of revenues for the second quarter of 2021 primarily due to cost actions and improved material cost management.

Research and development costs decreased to 9.1% of revenues for the third quarter of 2021 primarily due to increased revenues, cost actions and improved material cost management.

Selling, General and Administrative

Selling, general and administrative expenses for the second quarter of 2021 decreased by $4.7 million and decreased to 15.0% of total revenues primarily due to lower external audit and consulting fees compared to the prior year quarter and cost reduction actions taken by management in prior quarters.

Selling, general and administrative expenses for the third quarter of 2021 decreased $2.2 million and decreased to 13.8% of total revenues primarily due to lower external audit, consulting and legal costs compared to the prior year quarter and cost reduction actions taken by management in prior quarters.

Interest and Other Expense, Net

1 unchanged sentence

Three Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change

Interest income

$ — $ 0.1 $ (0.1)

(In millions) July 2, 2021 July 3, 2020 $ Change

Interest expense

(10.6) (6.9) (3.7)

Other (expense) income, net (2.2) 2.0 (4.2)

Other income (expense), net 0.2 (6.1) 6.3

Interest and other expense, net

$ (10.4) $ (13.0) $ 2.6

Interest and other expense, net increased during the three months ended April 2, 2021 compared to the prior year period, primarily due to higher interest expense, which resulted from the issuance of our Convertible Notes in June 2020 and the issuance of our Senior Secured Note in September 2020.

Other expense, net increased for the three months ended April 2, 2021 as compared to the three months ended April 3, 2020 due to increased losses from investments in privately-held companies.

Interest and other expense, net decreased during the three months ended July 2, 2021 compared to the prior year period, primarily due to lower other expenses, net, which were partially offset by higher interest expense.

Interest expense increased due to the interest related to our Convertible Notes issued during June 2020 and the issuance of our Senior Secured Notes in September 2020 which had higher interest rates.

Other expense, net decreased for the three months ended July 2, 2021, compared to the three months ended July 3, 2020.

Other expense, net during the three months ended July 3, 2020, consisted primarily of the impairment of certain investments in privately-held companies and an increase in the fair value of the deferred consideration related to the Direct Conversion acquisition, which did not recur during the three months ended July 2, 2021.

Taxes on Income (Loss)

For the three months ended April 2, 2021, we recognized income tax expense of $0.0 million on a $3.2 million pre-tax income.

We are unable to recognize a tax benefit for pre-tax book losses in the U.S.

and certain foreign jurisdictions.

For the three months ended April 3, 2020, we recognized income tax expense of $0.7 million on $1.1 million of pre-tax loss.

Our tax expense for the three months ended April 2, 2021 decreased, compared to the prior year, primarily due to tax credits and benefits recorded in certain foreign jurisdictions.

Discussion of Results of Operations for the Six Months Ended April 2, 2021 Compared to the Six Months Ended April 3, 2020

Six Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change % Change

For the three months ended July 2, 2021, we recognized income tax expense of $3.1 million on a $15.3 million pre-tax income.

We are unable to recognize a tax benefit for pre-tax book losses in certain foreign jurisdictions.

For the three months ended July 3, 2020, we recognized income tax benefit of $11.6 million on $39.8 million of pre-tax loss.

Our tax expense for the three months ended July 2, 2021 increased, compared to the prior year, primarily due to increased pre-tax income in certain jurisdictions.

Discussion of Results of Operations for the Nine Months Ended July 2, 2021 Compared to the Nine Months Ended July 3, 2020

The nine months ended July 2, 2021 and July 3, 2020 consisted of 39 weeks and 40 weeks, respectively.

In the narrative text below, we do not highlight the differences between periods due to the extra week of operations in the 2020 period.

Nine Months Ended

(In millions) July 2, 2021 July 3, 2020 $ Change % Change

$ 463.1 $ 448.6 $ 14.5 3.2 %

3 unchanged sentences

Industrial as a percentage of total revenues 21.7 % 21.1 %

Medical revenues decreased by $15.2 million primarily due to decreased sales of CT X-ray tubes, digital detectors for dental applications and decreased sales of radiographic digital detectors.

Industrial revenues decreased $1.3 million due to decreased sales of linear accelerators for cargo inspection and other non-destructive inspection applications, which was mostly offset by an increase in sales of digital detectors for security and non-destructive inspection applications.

Six Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change % Change

Medical revenues increased $14.5 million primarily due to increased sales of CT X-ray tubes, digital detectors for dynamic imaging applications and decreased sales of radiographic digital detectors.

Industrial revenues increased $9.0 million due to increased sales of linear accelerators for cargo inspection and other non-destructive inspection applications, and an increase in sales of digital detectors for security and non-destructive inspection applications.

Nine Months Ended

(In millions) July 2, 2021 July 3, 2020 $ Change % Change

$ 146.3 $ 105.2 $ 41.1 39.1 %

5 unchanged sentences

Total gross margin % 33.1 % 25.5 %

The increase in total gross profit was due to the increase in both Medical and Industrial gross profit.

The increase in Medical gross profit was primarily due to a favorable mix of higher margin products, somewhat offset by customer price decreases for digital detectors.

The Industrial gross profit increased due to a favorable mix of higher margin industrial detector products.

The increase in Medical gross profit was primarily due to a favorable mix of higher margin products and the impacts of cost reduction measures taken by management in previous quarters.

Also during the nine months ended July 3, 2020, there was a $13 million charge for the write-down of inventory associated with discontinued products and restructuring activity.

The Industrial gross

profit increased due to a favorable mix of higher margin industrial detector products.

Also during the nine months ended July 3, 2020, there was a $3 million charge for the write-down of inventory associated with discontinued products and restructuring activity.

Operating Expenses

Six Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change

Nine Months Ended

(In millions) July 2, 2021 July 3, 2020 $ Change

Research and development

5 unchanged sentences

15.9 % 17.9 %

Impairment of intangible assets $ — $ 2.7 $ (2.7) (100.0) %

As a percentage of total revenues

Operating expenses

6 unchanged sentences

Selling, General and Administrative

Selling, general and administrative expenses for the six months ended April 2, 2021, decreased to 17.1% primarily due to lower external audit and consulting fees and cost actions taken by management in previous quarters.

Selling, general and administrative expenses for the nine months ended July 2, 2021, decreased to 15.9% primarily due to lower external audit, consulting and legal costs and cost actions taken by management in previous quarters.

Interest and Other Income (Expense), Net

The following table summarizes the Company’s interest and other income (expense), net:

Six Months Ended

(In millions) April 2, 2021 April 3, 2020 $ Change

Nine Months Ended

(In millions) July 2, 2021 July 3, 2020 $ Change

Interest income

2 unchanged sentences

(31.3) (16.9) (14.4)

Other (expense) income, net (2.7) 1.6 (4.3)

Other income (expense), net (2.5) (4.5) 2.0

Interest and other expense, net

$ (33.8) $ (21.3) $ (12.5)

Interest and other expense, net increased during the six months ended April 2, 2021.

Interest expense increased due to the interest related to our Convertible Notes issued during June 2020 and the issuance of our Senior Secured Notes in September 2020.

Other expense, net increased during the six months ended April 2, 2021 due to increased losses from investments in privately-held companies.

Interest and other expense, net increased during the nine months ended July 2, 2021.

Interest expense increased due to the interest related to our Convertible Notes issued during June 2020 and the issuance of our Senior Secured Notes in September 2020 which had higher interest rates.

Other expense, net decreased during the nine months ended July 2, 2021 as compared to the nine months ended July 3, 2020.

Other expense, net during the nine months ended July 3, 2020 consisted primarily of the impairment of certain investments in privately-held companies and a decrease in the fair value of the deferred consideration related to the Direct Conversion acquisition, which did not recur during the nine months ended July 2, 2021.

Taxes on Income (Loss)

For the six months ended April 2, 2021, we recognized an income tax expense of $1.6 million on $1.5 million of pre-tax loss.

For the nine months ended July 2, 2021, we recognized an income tax expense of $4.7 million on $13.8 million of pre-tax income.

We are unable to recognize a tax benefit for pre-tax book losses in the U.S.

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

For the six months ended April 3, 2020, the Company recognized income tax expense of $0.7 million on $2.3 million of pre-tax loss.

Our tax expense for the six months ended April 2, 2021 increased, compared to the prior year, primarily due to valuation allowances 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.

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.

Our tax expense for the nine months ended July 2, 2021 increased, compared to the prior year, primarily due to pre-tax income and valuation allowances in the U.S.

on credits and disallowed interest expense deductions and losses in certain foreign jurisdictions for which no benefit can be recorded.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operations, including working capital and investing activities.

We continue to generate cash from operating activities and believe that our operating cash flow, cash on our balance sheet and availability under our Asset-Based Loan ("ABL") Facility will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions and manage our capital structure on a short and long-term basis, and are sufficient to meet our anticipated operating cash need for at least the next 12 months.

The maximum availability under our ABL Facility was $100.0 million as of April 2, 2021;

however, the borrowing base under the ABL Facility fluctuates from month-to-month depending on the amount of eligible accounts receivable and inventory.

We believe that our operating cash flow, cash on our balance sheet and availability under our Asset-Based Loan ("ABL") Facility are sufficient to meet our anticipated operating cash needs for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions and manage our capital structure on a short and long-term basis.

The maximum availability under our ABL Facility is $100.0 million;

however, the borrowing base under the ABL Facility fluctuates from month-to-month depending on the amount of eligible accounts receivable, inventory, and real estate.

As of July 2, 2021 the amount available under our ABL Facility was $70 million, and the ABL Facility remains undrawn.

See Part II, Item 1A.

“Risk Factors” for a further discussion.

At April 2, 2021 we had $458.0 million in long-term debt and $2.9 million of current maturities of long-term debt, net of deferred issuance costs of $51.4 million.

At July 2, 2021 we had $429.8 million in long-term debt and $32.9 million of current maturities of long-term debt, net of deferred issuance costs of $49.0 million.

On July 1, 2021, we announced, and completed on July 15, 2021, the partial redemption in the principal amount of $30 million of our $300 million 7.875% Senior Secured Notes due 2027 (the "Senior Secured Notes"), in accordance with the terms and conditions of the governing indenture.

The redemption price of the redeemed notes was 103% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest from, and including, April 15, 2021 to, but excluding, the redemption date of July 15, 2021.

On July 15, 2021, the Company redeemed $30 million of Senior Secure Notes by paying cash of $31.5 million, inclusive of the redemption premium and accrued interest, and recognized a $1.4 million loss related to the redemption premium and the write-off of previously recorded debt issuance costs.

Borrowings, in the accompanying notes to our condensed consolidated financial statements for more information regarding our indebtedness.

1 unchanged sentence

The following table summarizes our cash and cash equivalents:

(In millions) April 2, 2021 October 2, 2020 $ Change

(In millions) July 2, 2021 October 2, 2020 $ Change

Cash and cash equivalents

1 unchanged sentence

The following table summarizes the changes in our debt outstanding:

April 2, 2021 October 2, 2020

July 2, 2021 October 2, 2020

(In millions, except for percentages) Amount Amount $ Change

Current maturities of long-term debt

Senior Secured Notes $ 30.0 $ — $ 30.0

Other debt $ 2.9 $ 2.5 $ 0.4

13 unchanged sentences

Total debt outstanding, net $ 462.7 $ 455.3 $ 7.4

Six Months Ended

(In millions) April 2, 2021 April 3, 2020

Nine Months Ended

(In millions) July 2, 2021 July 3, 2020

Net cash flow provided by (used in):

2 unchanged sentences

Investing activities

(12.9) (23.2)

Financing activities

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

Net increase (decrease) in cash and cash equivalents and restricted cash $ 10.5 $ (5.7)

Net increase in cash and cash equivalents and restricted cash $ 27.7 $ 57.5

Net Cash Provided by Operating Activities.

Cash from operating activities consists primarily of the net loss adjusted for certain non-cash items, including share-based compensation, depreciation, amortization of intangible assets, deferred income taxes, income from equity investments and the effect of changes in operating assets and liabilities.

For the six months ended April 2, 2021, compared to the six months ended April 3, 2020, cash provided by operating activities were as follows:

• Net losses were $3.1 million compared to $3.0 million

• Non-cash adjustments to net losses of $38.2 million compared to $29.2 million

Cash from operating activities consists primarily of the net income (loss) adjusted for certain non-cash items, including share-based compensation, depreciation, amortization of intangible assets, deferred income taxes, income from equity investments and the effect of changes in operating assets and liabilities.

For the nine months ended July 2, 2021, compared to the nine months ended July 3, 2020, cash provided by operating activities were as follows:

• Net income of $9.1 million compared to a loss of $(31.2) million

• Non-cash adjustments to net income (loss) of $53.1 million compared to $50.8 million

• Operating assets and liabilities activity:

◦ Accounts receivable increased by $6.2 million compared to a decrease $14.7 million,

◦ Accounts receivable increased by $25.5 million compared to a decrease of $31.6 million,

◦ Inventories decreased by $24.6 million compared to an increase of $50.1 million,

3 unchanged sentences

Net Cash Used in Investing Activities.

Net cash used in investing activities was $8.4 million and $17.3 million for the six months ended April 2, 2021 and April 3, 2020, respectively.

The decrease in cash used in investing activities was primarily due to higher capital spending during the six months ended April 3, 2020.

Net Cash Used in Financing Activities.

Financing activities for the six months ended April 2, 2021 used $1.0 million while during the six months ended April 3, 2020, we used $12.1 million primarily for repayments of borrowings of our legacy credit agreement.

Net cash used in investing activities was $12.9 million and $23.2 million for the nine months ended July 2, 2021 and July 3, 2020, respectively.

The decrease in cash used in investing activities was primarily due to higher capital spending during the nine months ended July 3, 2020.

Net Cash (Used in) Provided by Financing Activities.

We used $1.3 million of cash in financing activities for the nine months ended July 2, 2021.

Net cash provided by financing activity for the nine months ended July 3, 2020, was primarily due to our issuance of $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, were approximately $193.1 million.

In connection with offering the Convertible Notes, we separately 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 underlay the Convertible Notes.

We also entered into 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 underlay the Convertible Notes, subject to customary anti-dilution adjustments.

We used $11.2 million of the net proceeds from the issuance of the Convertible Notes to pay the cost of the Call Spread Transactions.

Additionally, during the nine months ended July 3, 2020, we had borrowings under our credit agreement of $91.7 million and repayments of borrowings of $218.0 million.

Days Sales Outstanding

Trade accounts receivable days sales outstanding (“DSO”) was 58 days at April 2, 2021 and 66 days at October 2, 2020.

Our accounts receivable and DSO are impacted by a number of factors, primarily including the timing of product shipments, collections performance, payment terms, the mix of revenues from different regions and the effects of economic instability.

Trade accounts receivable days sales outstanding (“DSO”) was 64 days at July 2, 2021 and 66 days at October 2, 2020.

Our accounts receivable and DSO are impacted by a number of factors, including the timing of product shipments, collections performance, payment terms, the mix of revenues from different regions and the effects of economic instability.

Contractual Obligations

1 unchanged sentence

The amended agreement requires us to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year.

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 April 2, 2021, we estimate that we have fixed cost commitments of $8.7 million related to this amended agreement through the remainder of calendar year 2021.

In January 2021, the total fixed cost commitment was $11.6 million for calendar year 2021.

As of July 2, 2021, we estimate that we have fixed cost commitments of $5.8 million related to this amended agreement through the remainder of calendar year 2021.

The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

In October 2015, pursuant to a Domination and Profit and Loss Transfer Agreement (the “MeVis Agreement”), we committed to grant the noncontrolling shareholders of MeVis an annual recurring net compensation of €0.95 per MeVis share.

In October 2015, pursuant to a Domination and Profit and Loss Transfer Agreement (the “MeVis Agreement”), we committed to pay the noncontrolling shareholders of MeVis an annual recurring net compensation of €0.95 per MeVis share.

The annual net payment will continue for the life of the MeVis Agreement, which we anticipate will continue for as long as we remain as the controlling shareholder of MeVis.

As of April 2, 2021, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

As of July 2, 2021, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

During the third quarter of fiscal year 2020, we entered into a purchase agreement with a supplier to acquire certain equipment and intellectual property from the supplier that is utilized to manufacture X-ray cables utilized in our products.

As of April 2, 2021, there has been no transfer of control of the underlying equipment.

As of July 2, 2021, there has been no transfer of control of the underlying equipment.

This acquisition is expected to be completed during the 2021 fiscal year and the total consideration to be paid by us for the acquired assets is expected to be ¥1,084.7 million or approximately $9.7 million.

3 unchanged sentences

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.

The Company did not have any material contingent liabilities as of April 2, 2021 and October 2, 2020.

The Company did not have any material contingent liabilities as of July 2, 2021 and October 2, 2020.

Legal expenses are expensed as incurred.

3 unchanged sentences

Except for losses related to property damages, the maximum potential amount of future payments we could be required to make under these arrangements is unlimited.

As of April 2, 2021, we have not incurred any material costs to defend lawsuits or settle claims related to these indemnification arrangements.

As of July 2, 2021, we have not incurred any material costs to defend lawsuits or settle claims related to these indemnification arrangements.

As a result, we believe the estimated fair value of these arrangements is minimal.

4 unchanged sentences

Backlog also includes a small portion of billed service contracts that are included in deferred revenue.

Our total backlog at April 2, 2021 was $195.4 million.

The Company expects to recognize this backlog as revenue over the next 12 months, however, orders may be revised or canceled, either according to their terms or as customers’ needs change.

Our estimated total backlog at July 2, 2021 was approximately $259 million.

The Company expects to recognize this backlog as revenue over the next 12 months;

however, orders may be revised or canceled, either according to their terms or as customers’ needs change.

Consequently, it is difficult to predict with certainty the amount of backlog that will result in revenues.

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 2. Management’s Discussion and Analysis