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Item 1. Business

2021-11-19 compared with 2020-11-30 · 94 added, 109 removed, 284 unchanged (42% of the section changed)

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

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

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

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

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

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

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

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

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

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

Our components are used in medical diagnostic imaging, security inspection systems, and industrial quality inspection systems, as well as for analysis and measurement applications in industrial manufacturing applications.

Global OEMs incorporate our X-ray imaging components in their systems to detect, diagnose, protect and inspect.

Varex has approximately 2,100 full-time employees, located at engineering, manufacturing and service center sites in North America, Europe, and Asia.

Our products are sold worldwide in three geographic regions:

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

Impact of COVID-19

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Operating Segments and Products

Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), evaluates our product groupings and measures our business performance in two reportable operating segments:

We have two reportable operating segments:

Medical and Industrial.

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

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

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

The segments align our products and service offerings with customer use in medical and industrial markets.

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

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

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

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

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

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

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

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

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

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

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

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

Many of our components need to be replaced regularly.

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

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

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

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

Many of our components need to be replaced regularly depending upon usage and other factors.

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

In China, the replacement cycle for CT X-ray tubes can be as frequent as every 6 to 12 months due to high utilization of imaging equipment.

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

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

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

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

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

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

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

As a result, they reduced the capital purchases of imaging equipment from OEMs, which led to lower demand for X-ray imaging components for us.

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

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

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

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

The Company has experienced growth in demand for its products as health systems globally have continued to address healthcare services gaps.

However, the Company is not able to convert all the demand into sales due to on-going supply chain related interruptions and uncertainties, particularly with the availability of semiconductor and other electronic components.

As a result, uncertainty in overall sales volume is expected to continue into calendar year 2022.

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

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

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

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

In China, despite a COVID-19 related slowdown in the beginning of the year, demand for our products has returned, and full fiscal year 2021 results for China exceeded our pre-pandemic expectations.

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

Our business has been impacted in two principal ways:

In recent years our business in China has been impacted by the trade war with the United States in three principal ways:

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

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

manufactured products into China has become more difficult and expensive.

have become more expensive, (2) imports of raw materials and sub-assemblies from the U.S.

to China have become more expensive, and (3) importing finished U.S.

manufactured products into China have become more difficult and expensive.

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

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

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

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

To help address these issues, and to be closer to our global customer base, we continue to expand manufacturing capabilities at our facilities in China, Germany and the Philippines.

We have also implemented local sourcing strategies to offer local content.

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

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

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, baggage screening at airports, and nondestructive testing and inspection applications used in a number of other markets.

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

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

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

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

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

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

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.

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

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

The end customers for border

protection systems are typically government agencies, many of which are in oil-based economies and war zones where there can be significant variation in buying patterns.

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

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

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

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

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

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 twelve months ended October 1, 2021, we have continued to see improved conditions in this market.

Separately, the unprecedented decrease in passenger air traffic led to a decrease in demand in the security market for carry-on baggage and checked baggage.

Our customers are primarily large OEMs.

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

Our top five customers, measured by revenue, are Canon Medical Systems Corporation (“Canon”), General Electric Company, Elekta AB, United Imaging Healthcare and Varian Medical Systems, Inc., which collectively accounted for approximately 39% of total revenue in fiscal year 2021.

Our largest customer, Canon, accounted for approximately 18%, 21% and 17% of our total revenue for fiscal years 2021, 2020, and 2019, respectively, while our ten largest customers as a group accounted for approximately 51%, 52% and 51% of our revenue for fiscal years 2021, 2020 and 2019, respectively.

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

Significant capital investment is required for imaging component manufacturers.

Significant capital investment is required to manufacture imaging components.

We believe we have sufficient manufacturing scale to leverage our high volume to reduce overall costs by spreading fixed costs over more units.

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High capital costs and mastery of complex manufacturing processes that drive production yield and product life are significant characteristics of the X-ray tubes business.

The market for digital detectors is also highly competitive.

The market for digital detectors is highly competitive.

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

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

In the low-energy market of the Industrial segment, we compete with other OEM suppliers, such as General Electric, Canon, Nuctech Company Limited (“Nuctech”) and Comet AG.

While there are other manufacturers of low-energy X-ray tubes and digital detectors for specialized and niche industrial applications, our products are designed for a broad range of applications in inspection, analysis, and testing.

In the high-energy market, we compete against technologies from Nuctech, Siemens AG, and Foton Ltd., whose X-ray sources are used in applications that include cargo and container scanning, border security, aerospace applications, castings and pressure vessel inspections.

In the low-energy market of the Industrial segment, we compete with other OEM suppliers, such as iRay, Teledyne, Nuctech Company Limited (“Nuctech”) and Comet AG.

While there are other manufacturers of low-energy X-ray tubes and digital detectors

for specialized and niche industrial applications, our products are designed for a broad range of applications in inspection, analysis, and non-destructive testing.

In the high-energy market, we compete against technologies from Nuctech, Siemens AG, ETM Electromatic Inc., and Foton Ltd., whose X-ray sources are used in applications that include cargo and container scanning, border security, aerospace applications, castings and pressure vessel inspections.

Customer Services and Support

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

offices in Utah, California, Nevada, South Carolina, New York and Illinois;

offices in Utah, California, Nevada, New York and Illinois;

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

Our application specialists and engineers make recommendations to meet

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

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

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

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Franklin Park, Illinois;

Doetinchem and Heerlen, the Netherlands;

Doetinchem, the Netherlands;

Walluf and Bremen, Germany;

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Each of these manufacturing facilities are certified by International Standards Organization (“ISO”) under ISO 9001 (for industrial products) or ISO 13485 (for medical devices).

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

and Willich, Germany.

In addition, we have a regional service center in Willich, Germany.

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

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transistor arrays and cesium iodide coatings for digital detectors and specialized integrated circuits, X-ray tube targets, housings, bearings and various other components.

We require certain raw materials, such as copper, lead, tungsten, iridium, rhenium, molybdenum zirconium, and various high grades of steel alloy for X-ray tubes and industrial products.

We require certain raw materials, such as copper, nickel, silver, gold, lead, tungsten, iridium, rhenium, molybdenum, rhodium, niobium, zirconium, and various high grades of steel alloy for X-ray tubes and industrial products.

Worldwide demand, availability and pricing of these raw materials have been volatile, and we expect that availability and pricing will continue to fluctuate in the future.

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

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

Research and Development

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Liverpool, New York;

and Franklin Park, Illinois and internationally at our facilities in the Netherlands, Sweden and Germany.

and Franklin Park, Illinois and internationally at our facilities in the Netherlands, UK, Sweden and Germany.

Our research and development activities are primarily focused on developing and improving imaging component technology.

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

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

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

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

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

One of our competitive advantages is that some of the foundational technologies and software components developed for medical applications

may also be applicable in industrial components, and vice versa.

In addition to these product development synergies, we are also able to realize sourcing, production, service center, and logistics synergies across the different products and market sectors.

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In the United States, as a manufacturer and seller of medical devices and devices emitting radiation or utilizing radioactive by-product material, we and some of our suppliers and distributors are subject to extensive regulation by federal governmental authorities, such as the U.S.

Food and Drug Administration (the “FDA”), Nuclear Regulatory Commission (“NRC”), and state and local regulatory agencies, to ensure the devices are safe and effective and comply with laws governing products which emit, produce or control radiation.

Food and Drug Administration (the “FDA”), the Nuclear Regulatory Commission (“NRC”), and state and local regulatory agencies, to ensure the devices are safe and effective and comply with laws governing products which emit, produce or control radiation.

Similar international regulations apply overseas.

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QSR compliance is necessary to receive and maintain FDA clearance or approval to market new and existing products.

The FDA makes announced and unannounced periodic and ongoing inspections of medical device manufacturers to determine compliance with the QSR.

The FDA makes announced and unannounced periodic and ongoing inspections of medical device manufacturers to determine compliance

with the QSR.

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

If FDA inspection

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

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

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

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

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

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

Medicare and Medicaid Reimbursement

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In addition, it is possible that changes in federal health care law and policy could result in additional proposals and/or changes to health care system legislation which could have a material adverse effect on our business.

Uncertainty created by healthcare reform complicates our customers’ decision-making process and, therefore, impacts our business, and may continue to do so.

created by healthcare reform complicates our customers’ decision-making process and, therefore, impacts our business, and may continue to do so.

The sale of medical devices, the referral of patients for diagnostic examinations and treatments utilizing such devices, and the submission of claims to third-party payors (including Medicare and Medicaid) seeking reimbursement for such services, are subject to various federal and state laws pertaining to healthcare “fraud and abuse.” Anti-kickback laws make it illegal to solicit, induce, offer, receive or pay any remuneration in exchange for the referral of business, including the purchase of medical devices from a particular manufacturer or the referral of patients to a particular supplier of diagnostic services utilizing such devices.

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The CE mark is an international symbol of adherence to certain essential principles of safety and effectiveness, which once affixed enables a product to be sold in member countries of the EEA.

The CE mark is also recognized in many countries outside the EU, such as Switzerland and Norway and can assist in the clearance process.

To receive permission to affix the CE mark to our medical devices products, we must obtain Quality System certification, e.g ., ISO 13485, through an accredited Notified Body and must otherwise have a quality management system that complies with the EU Medical Device Directive to be superseded by the EU MDR-Medical Device Regulations in May 2020.

The CE mark is also recognized in many countries outside the EU, such as Finland and Norway and can assist in the clearance process.

To receive permission to affix the CE mark to our medical devices products, we must obtain approvals and Quality System certification, e.g., ISO 13485, through an accredited Notified Body and must otherwise have a quality management system that complies with the EU Medical Device Directive superseded by the EU MDR-Medical Device Regulations in May 2021.

The ISO promulgates standards for certification of quality assurance operations.

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Several Asian countries, including Japan and China, have adopted regulatory schemes that are comparable, and in some cases more stringent, than the EU scheme.

To import medical devices into Japan, the requirements of Japan’s New Medical Device Regulation must be met and an approval to sell medical products in Japan, must be obtained.

To import medical devices into Japan, the requirements of the Japanese Pharmaceutical and Medical Device Act must be met and an approval to sell medical products in Japan, must be obtained.

Similarly, a registration certification issued by the National Medical Products Administration and a China Compulsory Certification mark for certain products are required to sell medical devices in China.

Obtaining such certifications on our products can be time-consuming and can cause us to delay marketing or sales of certain products in such countries.

Similarly, prior to selling a device in Canada, manufacturers of Class II devices must obtain a medical device license in Canada.

Similarly, prior to selling a device in Canada, manufacturers of Class II devices must obtain a medical device license from Health Canada.

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

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laws regarding the privacy and integrity of patient medical information, we are subject to similar laws and regulations in foreign countries covering data privacy and other protection of health and employee information.

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

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

and misleading advertisement laws.

enactment of stricter legislation.

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

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

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

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

As of October 1, 2021, we had an existing environmental liability of approximately $0.6 million, net of expected insurance proceeds, related to the CERCLA sites.

Working Capital

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

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

The results of

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

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

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

The results of this survey are

aggregated, and we hold meetings with employees to share and discuss areas of improvement.

We believe this is an effective process to inform how future decisions are made in order to improve employee morale and engagement.

Total Rewards

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

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

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

• An employee assistance program;

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

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

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

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

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

During fiscal year 2020, due to the impact of COVID-19 on our business, it was necessary to modify or freeze certain benefits historically provided to our employees, such as 401(k) plan matching contributions and tuition reimbursements.

During the second half of fiscal year 2021, we reinstated both the 401(k) matching contributions and tuition reimbursement program.

Safety and Wellness

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

As COVID-19 vaccinations became available we incentivized our employees to become vaccinated, and then discontinued additional time-off programs in June 2021.

In September 2021, we made the decision to bring non-essential workers back to facilities in the U.S., at the time of the decision we estimated that 72% of the workforce had been vaccinated based on vaccine incentive payments.

In addition, we implemented a hybrid-office work program where non-essential employees could work a portion of the workweek from a home office if approved by their leadership to encourage social distancing.

Diversity and Inclusion

As one of our values states “we embrace equality,” and are committed to a diverse and inclusive workplace that is respectful to all.

Some of our initiatives include providing scholarships to the Society of Women Engineers ("SWE") and science, technology, engineering, and mathematics ("STEM") programs, regularly analyzing pay equity, and engaging in on-campus events that increase our exposure to diverse populations to promote diversity in our hiring.

We do not tolerate discrimination and harassment, and we expect our teams to conduct themselves ethically at all times in accordance with Varex’s Code of Conduct.

Information Available to Investors

The Securities and Exchange Commission (“SEC”) maintains an internet site, www.sec.gov, that contains reports, proxy and information statements, and other information regarding the Company and other issuers that file electronically with the SEC.

As soon as reasonably practicable after filing with or furnishing to the SEC, we also make the following reports and information available free of charge on the Investors page of our website www.vareximaging.com:

as reasonably practicable after filing with or furnishing to the SEC, we also make the following reports and information available free of charge on the Investors page of our website www.vareximaging.com:

• our annual reports on Form 10-K;

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• proxy statements.

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

on the Investors page of our website.

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

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

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

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

Shubham Maheshwari, 50, has served as Chief Financial Officer ("CFO") since July 2020.

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

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

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Giambattista, 62, has served as Senior Vice President, and General Manager - X-ray Detectors since May 2017 and joined Varex after the acquisition of the PerkinElmer Medical Imaging business.

He has nearly 30 years of experience in the industry, having held various management and engineering roles at PerkinElmer and General Electric, and received his doctorate degree in physics from the University of Virginia.

Jonaitis, 58, has served as Senior Vice President and General Manager - X-Ray Sources since 2017.

He has nearly 30 years of experience in the industry, having held various management and engineering roles at PerkinElmer and General Electric Company, and received his doctorate degree in physics from the University of Virginia.

Jonaitis, 60, has served as Senior Vice President and General Manager - X-Ray Sources since January 2017.

Prior to the separation of Varex from Varian, Mark served in various management positions at Varian, including most recently vice president and general manager, X‑ray Tube Products and global manufacturing.

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Mark received his Bachelor of Science in physics from the University of Utah.

Andrew Hartmann, 59, has served as Senior Vice President, Medical Sales & Marketing since July 2018.

Prior to joining Varex he worked for a number of leading OEMs in various leadership rolls, most recently as General Manager of the X-ray and Ultrasound Business for Carestream Health, Inc., a worldwide provider of X-ray imaging systems, from April 2012 to June 2018.

Prior to Carestream, Andrew worked for Siemens Medical Solutions USA, Inc.

(Siemens Healthineers), a leading medical technology company, in sales and marketing rolls both domestically in the United States and internationally for Siemens’ ultrasound business.

Prior to Siemens, he held leadership roles at Acuson Corp.

(subsequently acquired by Siemens), including General Manager for Acuson’s Australia and New Zealand business.

Andrew received a Master of Business Administration (“EMBA”) from Ashridge Business School in London, United Kingdom, and received a diploma in electronics from Sydney Technical College in Australia.

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

What changed 10-K

Item 1. Business