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Item 9A. Controls and Procedures

2021-11-19 compared with 2020-11-30 · 453 added, 670 removed, 1035 unchanged (52% of the section changed)

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Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and to ensure that such information required to be disclosed is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

The Chief Executive Officer (CEO) and the Chief Financial Officer (CFO), with assistance from other members of management, have evaluated the effectiveness of our disclosure controls and procedures as of October 2, 2020 and, based on their evaluation, the CEO and CFO have concluded that the disclosure controls and procedure s were not effective as of such date due to the material weaknesses in internal control over financial reporting described in "Management's Annual Report on Internal Control Over Financial Reporting" below.

Our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") are designed to provide reasonable assurance that information required to be disclosed in our periodic reports that we file or submit under the Exchange Act are recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed, and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on this evaluation, the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) have concluded that our disclosure controls and procedures were effective as of October 1, 2021.

Management's Annual Report on Internal Control Over Financial Reporting

Management, under the supervision of our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.

Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

(1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of our assets;

(2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with appropriate authorizations;

(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our management, including the CEO and CFO, believes that any disclosure controls and procedures or internal control over financial reporting, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of internal controls are met.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of October 2, 2020, using the criteria described in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

As a result of that evaluation, our management concluded that the Company's internal control over financial reporting was not effective as of October 2, 2020, the end of the period covered by this Form 10-K, because of the material weaknesses in our internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We have identified the following control deficiencies that constituted material weaknesses in our internal control over financial reporting as of October 2, 2020:

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Our management evaluated the design and operating effectiveness of our internal control over financial reporting based on the criteria established in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the

"COSO framework" (2013)).

All internal control systems, no matter how well designed, have inherent limitations.

Accordingly, even effective internal controls and procedures can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of October 1, 2021.

Based on this evaluation, our management concluded that we maintained effective internal control over financial reporting as of October 1, 2021.

The effectiveness of our internal control over financial reporting as of October 1, 2021 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report, which appears below in “Item 9a.

Controls and Procedures".

Previously Identified Material Weaknesses in Internal Control Over Financial Reporting

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reas onable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

We previously identified and disclosed in our Annual Report on Form 10-K for the year ended October 2, 2020 material weaknesses in our internal control over financial reporting relating to the following:

• Control Environment:

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Specifically, we did not adequately identify new and evolving risks of material misstatement and design and implement controls to address those risks as a result of changes to our business operating environment.

These material weaknesses contributed to the following material weaknesses:

• Inventory and cost of revenues:

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Specifically, we did not design and maintain effective controls related to the completeness, accuracy and elimination of intercompany balances and ensuring appropriate segregation of duties as it relates to the preparation and review of journal entries.

The deficiencies relating to inventory and financial reporting resulted in immaterial audit adjustments and out of period adjustments to the Company's consolidated financial statements for the fiscal year ended and as of October 2, 2020.

Additionally, these control deficiencies could result in misstatements impacting the aforementioned accounts or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

The effectiveness of the Company’s internal control over financial reporting as of October 2,2020 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included in “Item 8.

Financial Statements and Supplementary Data.”

Remediation of Previously Reported Material Weaknesses in Fiscal Year 2019 Form 10-K

We previously identified and disclosed in our Annual Report on Form 10-K for the year ended September 27, 2019, the following material weaknesses in our internal control over financial reporting, of which certain aspects have been remediated:

• We did not design and maintain effective controls related to accounting for revenue, deferred revenue and related accounts receivable, including maintaining business process controls to prevent or detect misstatements in the processing of customer transactions.

Specifically, we did not design and maintain effective controls related to the review of the completeness and accuracy of customer order entry, quantity and pricing.

Additionally, we did not design and maintain effective controls for the effect of the adoption of and continuous accounting for Revenue from Contracts with Customers (“ASC 606”) to prevent and detect misstatements.

• We did not design and maintain effective controls related to accounting for inventory and cost of revenues, including maintaining effective business process controls to prevent or detect misstatements in the accuracy and valuation of inventory.

Specifically, we did not maintain effective controls related to inventory count procedures and the valuation of inventory at lower of cost and net realizable value.

• We did not design and maintain effective controls over our financial reporting close process to prevent or detect material misstatements in our financial statements.

Specifically, we did not maintain an effective business performance monitoring review control at our international entities, design and maintain controls to identify post-close events which occur before the

financial statements are available to be issued and design and maintain effective control over the review of the statement of cash flows.

During the first three quarters of fiscal 2020, we substantially completed our plans to remediate certain of these material weaknesses by performing the following:

• Implementing or enhancing controls in the revenue business process over (i) standard contract reviews, (ii) customer invoice reviews, (iii) review of monthly sales order changes and (iv) an addition of a control that reviews and approves the summary of service billings for the period, and (v) improved our controls for the continuing accounting of ASC 606.

• Implementing or enhancing controls in the inventory business process over (i) inventory count procedures, (ii) review of inventory adjustments and approvals, (iii) review over variance analysis, and (iv) review of the valuation of inventory at lower of cost and net realizable value.

• Implementing or enhancing controls in the financial reporting close process over (i) international business performance reviews to include improved documentation of items for follow-up and resolution, (ii) identification of post-close events which occur before the financial statements are available to be issued and (iii) the review of the statement of cash flows.

During the quarter ended October 2, 2020, we completed the testing and evaluation of the operating effectiveness of the newly designed and implemented and enhanced controls and concluded these material weaknesses have been remediated as of October 2, 2020.

Ongoing Remediation Efforts and Status of Remaining Material Weaknesses

We continue to devote substantial effort to remediating the identified material weaknesses.

We are continuing to enhance our overall control environment through the following:

• Control Environment:

During fiscal year 2020, management invested significantly in the quality of our accounting talent including management, technical, process improvement and financial system roles.

Remediation Efforts of Previously Disclosed Material Weaknesses

Subsequent to the evaluation made in connection with filing our Annual Report on Form 10-K for the year ended October 2, 2020, management, with the oversight of the Audit Committee of the Board of Directors, continued the process of remediating the material weaknesses.

During the year ended October 1, 2021, we completed our plans to remediate these material weaknesses by performing the following:

• We invested significantly in the quality of our accounting talent including management, technical, process improvement and financial system roles.

Additionally, we implemented programs to:

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enhance technical, transactional and control knowledge of our accounting teams;

and create a culture of accountability and control.

and created a culture of accountability and control.

These programs have significantly improved the stability of our global accounting organization.

While significant progress has been made in response to the material weakness, additional time is needed to demonstrate sustainability as it relates to our internal control over financial reporting and improvements made to our complement of resources.

• Risk Assessment:

We continue to enhance our comprehensive risk assessment process to identify, design, implement, and re-evaluate our control activities, including monitoring controls related to the design and operating effectiveness of certain control activities pertaining to our business process environment.

• Inventory and cost of revenues:

We continue to enhance controls related to the verification of inventory at third party vendor locations as well as our controls over presentation and disclosure of inventory classification.

• Financial Reporting :

We continue to enhance controls related to the monitoring of journal entry posting rights and responsibilities.

To the extent certain conflicts remain, we will implement controls to review the remaining conflicts and permissions and document the appropriate control that effectively mitigates the risk associated with the conflicts and/or permissions.

We also continue to enhance the design of controls over the completeness, accuracy and elimination of intercompany balances.

• We completed a gap analysis of our key controls.

In completing this analysis, we identified areas where new controls were necessary and enhancements to existing controls, policies and procedures needed to be made.

• Implementing or enhancing controls in the inventory business process over (i) verification of inventory at third party vendor locations and (ii) presentation and disclosure of inventory classification.

• Implementing or enhancing controls in the financial reporting close process over (i) journal entry posting rights and responsibilities, (ii) appropriate level of segregation of duties and (ii) completeness, accuracy and elimination of intercompany balances.

As a result of these remediation activities and based on the result of the operating effectiveness testing we performed for the new and modified controls, we concluded the previously reported material weaknesses have been fully remediated as of October 1, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended October 2, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Other than the remediation efforts of previously disclosed material weaknesses described above, there were no changes to our internal control over financial reporting during the quarter ended October 1, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Varex Imaging Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Varex Imaging Corporation and subsidiaries (the “Company”) as of October 1, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of October 1, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended October 1, 2021 of the Company and our report dated November 19, 2021, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

/s/ Deloitte & Touche LLP

Salt Lake City, Utah

November 19, 2021

Other Information

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The information required by this item with respect to our executive officers is set forth in Part I of this Annual Report on Form 10-K and information relating to the availability of our code of conduct for executive officers and directors is set out below.

The other information required by this item is incorporated by reference from our definitive proxy statement for the 2021 Annual Meeting of Stockholders under the captions “Proposal One — Election of Directors.” and “Stock Ownership-Section 16(a) Beneficial Ownership Reporting Compliance.” Our definitive proxy statement for the 2021 Annual Meeting of Stockholders will be filed with the SEC no later than 120 days after October 2, 2020.

The other information required by this item is incorporated by reference from our definitive proxy statement for the 2022 Annual Meeting of Stockholders under the captions “Proposal — Election of Directors.” and “Stock Ownership-Section 16(a) Beneficial Ownership Reporting Compliance.” Our definitive proxy statement for the 2022 Annual Meeting of Stockholders will be filed with the SEC no later than 120 days after October 1, 2021.

Code of Conduct

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The Code of Conduct is available on our website at http://www.vareximaging.com.

We intend to satisfy the disclosure requirements under Item 5.05(c) of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions by posting such information on our website, specified above.

We intend to satisfy the disclosure requirements under Item 5.05(c) of Form 8-K regarding an amendment to, or waiver from, a provision of the Code of Conduct that applies to our principal executive officer, principal financial officer, principal accounting officer or persons performing similar functions by posting such information on our website, specified above.

Executive Compensation.

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Total 3,891 $ 28.69 4,349

(1) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding RSUs and DSUs, which have no exercise price.

(2) Consists of stock options, RSUs, and DSUs granted under the Varex Imaging Corporation 2017 Omnibus Stock Plan and the 2020 Stock Plan.

(1) Consists of stock options, restricted stock units ("RSUs"), and deferred stock units ("DSUs") granted under the Varex Imaging Corporation 2017 Omnibus Stock Plan and the 2020 Stock Plan.

Excludes purchase rights under the ESPP.

(2) The weighted average exercise price does not take into account the shares issuable upon vesting of outstanding RSUs and DSUs, which have no exercise price.

(3) Includes 4,051 thousand shares available for future issuance under the 2020 Stock Plan.

Also includes 542 thousand shares available for future issuance under the ESPP, including shares subject to purchase during the current purchase period, which commenced on November 2, 2020 (the exact number of which will not be known until the purchase date on April 30, 2021).

Also includes 298 thousand shares available for future issuance under the ESPP.

Subject to the number of shares remaining in the share reserve, the maximum number of shares purchasable by any participant on any one purchase date for any purchase period, including the current purchase period may not exceed 2,000 shares.

The information required by this item with respect to the security ownership of certain beneficial owners and the security ownership of directors and executive officers is incorporated by reference from our definitive proxy statement for the 2021 Annual Meeting of Stockholders under the caption “Stock Ownership—Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.”

Meeting of Stockholders under the caption “Stock Ownership—Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.”

Certain Relationships and Related Transactions and Director Independence.

The information required by this item with respect to certain relationships and related transactions is incorporated by reference from our definitive proxy statement for the 2021 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions.” The information required by this item with respect to director and committee member independence is incorporated by reference from our definitive proxy statement for the 2021 Annual Meeting of Stockholders under the caption “Proposal One-Election of Directors.”

The information required by this item with respect to certain relationships and related transactions is incorporated by reference from our definitive proxy statement for the 2022 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions.” The information required by this item with respect to director and committee member independence is incorporated by reference from our definitive proxy statement for the 2022 Annual Meeting of Stockholders under the caption “Proposal - Election of Directors.”

Principal Accountant Fees and Services.

The information required by this item is incorporated by reference from our definitive proxy statement for the 2021 Annual Meeting of Stockholders under the caption “Proposal Four-Ratification of the Appointment of Our Independent Registered Public Accounting Firm.”

The information required by this item is incorporated by reference from our definitive proxy statement for the 2022 Annual Meeting of Stockholders under the caption “Proposal - Ratification of the Appointment of Our Independent Registered Public Accounting Firm.”

Exhibits, Consolidated Financial Statements and Financial Statement Schedules.

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2.1* Separation and Distribution Agreement, dated as of January 27, 2017, by and between Varian and (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed January 30, 2017).

2.2* Master Purchase and Sale Agreement, dated as of December 21, 2016, by and between Varian Medical Systems, Inc.

and PerkinElmer, Inc.

(incorporated by reference to Exhibit 2.2 to the Company’s Amendment No.

3 to the Registration Statement on Form 10 filed December 30, 2016 ).

2.3* Amendment No.1 to Master Purchase and Sale Agreement, entered into as of January 17, 2017, by and between PerkinElmer, Inc.

and Varian Medical Systems, Inc.

(incorporated by reference to Exhibit 2.2 to the Company’s Quarterly Report on Form 10-Q filed May 12, 2017 ).

2.4* Amendment No.2 to Master Purchase and Sale Agreement, entered into as of April 28, 2017, by and between PerkinElmer, Inc.

and Varex Imaging Corporation (incorporated by reference to Exhibit 2.4 to the Company’s Quarterly Report on Form 10-Q filed May 12, 2017).

2.2* Assignment and Assumption Agreement, dated January 27, 2017, by and between Varian Medical Systems, Inc.

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3.1* Amended and Restated Certificate of Incorporation, dated January 27, 2017 (as corrected December 11, 2017) (incorporated by reference to Exhibit 3.1 to the Company’s Annual Report on Form 10-K filed November 27, 2018).

3.2* Amended and Restated Bylaws of Company, as amended January 27, 2017 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed January 30, 2 017 ).

3.2* Amended and Restated Bylaws of the Company, as amended February 11, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 16, 2021).

4.1 Information required by Item 202(a) through (d) and (f) of Regulation S-K for each class of Company securities that is registered under Section 12 of the Exchange Act.

4.2* Indenture, dated June 9, 2020, by and among Varex Imaging Corporation and Wells Fargo Bank, National Association, as Trustee, including form of 4.00% Convertible Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed June 9, 2020).

4.3 Indenture, dated as of September 30, 2020, by and among Varex Imaging Corporation, the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent , including the form of 7.875% Senior Secured Notes due 2027 as Exhibit A.

4.3* Indenture, dated as of September 30, 2020, by and among Varex Imaging Corporation, the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee and collateral agent, including the form of 7.875% Senior Secured Notes due 2027 as Exhibit A (incorporated by reference to Exhibit 4.

3 to the Company’s Current Report on Form 10 -K filed November 30 , 202 1 ) .

10.1* Transition Services Agreement, dated as of January 27, 2017, by and between Varian and Company (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 30, 2017).

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10.3* Employee Matters Agreement, dated as of January 27, 2017, by and between Varian and Company (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed January 30, 2017).

10.4* Intellectual Property Matters Agreement, dated as of January 27, 2017, by and between Varian and Company (incorporated by reference to Exhibit 10.4 to t he Company’s Current Report on Form 8-K filed January 30, 2017 ).

10.4* Intellectual Property Matters Agreement, dated as of January 27, 2017, by and between Varian and Company (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed January 30, 2017).

10.5* Trademark License Agreement, dated as of January 27, 2017, by and between Varian and Company (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed January 30, 2017).

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10.10*† Varex Imaging Corporation Management Incentive Plan (incorporated by reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed January 30, 2017).

10.11*† Form of Change in Control Agreement (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed January 30, 2017 ).

10.11† Form of Change in Control Agreement

10.12*† Form of Indemnification Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Current Report on Form 8-K filed January 30, 2017).

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2 to Form 10 filed by the Company on December 8, 2016).

10.15*† Form of Grant Agreement for Deferred Stock Units under the 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 10.17 to t he Company's Annual Report on Form 10-K filed Dec ember 13, 2017 .

10.15*† Form of Grant Agreement for Deferred Stock Units under the 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K filed December 13, 2017.

10.16*† Form of Grant Agreement for Deferred Stock Units under the 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 10.18 to the Company's Annual Report on Form 10-K filed December 20, 2019).

10.17*† Varex Imaging Corporation 2020 Omnibus Stock Plan, including the Form of Nonqualified Stock Option Agreement, the Form of Restricted Stock Unit Agreement and the Form of Grant Agreement – Deferred Stock Units (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 14, 2020).

10.18 Credit Agreement dated as of September 30, 2020, by and among Varex Imaging Corporation, Varex Imaging West, LLC, Varex Imaging Deutschland AG, the Guarantors party thereto and Bank of America N.A., as administrative and collateral agent, and the lenders party thereto.

10.18* Credit Agreement dated as of September 30, 2020, by and among Varex Imaging Corporation, Varex Imaging West, LLC, Varex Imaging Deutschland AG, the Guarantors party thereto and Bank of America N.A., as administrative and collateral agent, and the lenders party thereto (incorporated by reference to Exhibit 10.18 to the Company’s Current Report on Form 10-K filed November 30, 2021).

10.19* Form of Base Convertible Bond Hedge Confirmation, dated June 4, 2020, between Varex Imaging Corporation and each of the counterparties thereto (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed June 9, 2020).

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10.24*† Transition Agreement dated February 11, 2020 between Clarence Verhoef and Varex Imaging Corporation (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q filed on May 13, 2020).

10.25† Offer Letter dated June 8, 2020 by Varex Imaging Corporation to Shubham Maheshwari .

10.25*† Offer Letter dated June 8, 2020 by Varex Imaging Corporation to Shubham Maheshwari (incorporated by reference to Exhibit 10.

25 to the Company’s Current Report on Form 10-K filed November 30, 2021).

21.1 List of Subsidiaries as of November 8, 2021

23.1 Consent of Independent Registered Public Accounting Firm

23.1 Consent of Deloitte & Touche LLP, Independent Registered Public Accounting Firm

23.2 Consent of Pricewaterhouse Cooper s LLP, Independent Registered Public Accounting Firm

31.1 Chief Executive Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act.

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101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibits 101).

* Incorporated herein by reference

† Management contract or compensatory agreement.

++ Portions of this exhibit have been omitted pursuant to a confidential treatment request filed pursuant to Rule 24b-2 of the Securities Exchange Act of 1934, as amended.

Form 10-K Summary

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/s/ SHUBHAM MAHESHWARI Chief Financial Officer

(Principal Financial Officer)

(Principal Financial and Accounting Officer)

November 19, 2021

Shubham Maheshwari

YANKTON Corporate Controller and Chief Accounting Officer (Principal Accounting Officer)

November 30, 2020

/s/ RUEDIGER NAUMANN-ETIENNE Chairman of the Board November 19, 2021

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Statements of (Loss) Earnings for the fiscal years ended 2020, 2019 and 2018

Consolidated Statements of Comprehensive (Loss) Earnings for the fiscal years ended 2020, 2019 and 2018

Consolidated Balance Sheets as of the en d of fiscal y ears 20 20 a nd 201 9

Reports of Independent Registered Public Accounting Firms

Consolidated Statements of Operations for the fiscal years ended 202 1 , 20 20 and 201 9

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended 202 1 , 20 20 and 201 9

Consolidated Balance Sheets as of the end of fiscal years 202 1 and 20 2 0

Consolidated Statements of Stockholders' Equity for the fiscal years 2021, 2020 and 201 9

Consolidated Statements of Cash Flows for the fiscal years ended 2021, 2020 and 201 9

Consolidated Statements of S tockholders' Equity for the fiscal years 2020, 2019 and 2018

Notes to the Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of Varex Imaging Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Varex Imaging Corporation and subsidiaries (the "Company") as of October 1, 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the year ended October 1, 2021, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of October 1, 2021, and the results of its operations and its cash flows for the year ended October 1, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of October 1, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 19, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories – Valuation of Excess and Obsolete Inventories — Refer to Note 1 to the financial statements

Critical Audit Matter Description

Inventories are valued at the lower of cost or net realizable value.

The Company evaluates the carrying value of its inventories taking into consideration such factors as historical sales and anticipated future sales compared to quantities on hand and the prices the Company expects to obtain for products in its various markets.

The Company adjusts excess and obsolete inventories to net realizable value, and write-downs of excess and obsolete inventories are recorded as a component of cost of revenues.

As of October 1, 2021, the Company’s inventories, net, were $224.8 million.

For the year ended October 1, 2021, inventory write-downs associated with certain discontinued products were $3.5 million.

Estimating the amount of excess and obsolete inventories involves significant judgment and estimates.

We identified the valuation of excess and obsolete inventories as a critical audit matter because of management’s significant judgment and estimates in determining the reasonableness of the valuation of excess and obsolete inventories primarily around anticipated future sales.

This required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates of the valuation of excess and obsolete inventories included the following, among others:

• We tested the effectiveness of controls over the valuation of excess and obsolete inventories.

The controls we tested included those over the calculation and accuracy and completeness of underlying data used in the calculation including historical sales and anticipated future sales by product, product quantities on hand, and applicable prices.

• We evaluated management’s ability to accurately estimate the valuation of excess and obsolete inventories by comparing actual inventory write-downs to management’s historical estimates.

• We performed procedures to evaluate the reasonableness of management’s methods, assumptions, and judgments used in developing their estimate of the valuation of excess and obsolete inventories, which included consideration of historical sales, anticipated future sales, and information obtained from production planning and supply chain employees.

• We assessed the reasonableness of the assumptions used in the calculations of valuation of excess and obsolete inventories by developing an independent expectation and comparing our independent expectation to the results of the Company’s calculations.

• We tested the mathematical accuracy of the Company’s calculations of excess and obsolete inventories.

• We tested the accuracy and completeness of the underlying data used in the Company’s calculations of the valuation of excess and obsolete inventories, including historical sales, anticipated future sales, quantities on hand, and pricing.

/s/ Deloitte & Touche LLP

Salt Lake City, Utah

November 19, 2021

We have served as the Company’s auditor since 2021.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Varex Imaging Corporation

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Varex Imaging Corporation and its subsidiaries (the “Company”) as of October 2, 2020 and September 27, 2019, and the related consolidated statements of (loss) earnings, of comprehensive (loss) earnings, of stockholders’ equity, and of cash flows for each of the three years in the period ended October 2, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of October 2, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 2, 2020 and September 27, 2019, and the results of its operations and its cash flows for each of the three years in the period ended October 2, 2020 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of October 2, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO because material weaknesses in internal control over financial reporting existed as of that date related to (i) ineffective control environment as the Company had an insufficient complement of resources with the requisite knowledge and experience to create the proper environment for effective internal control over financial reporting such that corrective activities to the Company’s internal control over financial reporting are appropriately applied, prioritized, and implemented in a timely manner, (ii) ineffective risk assessment process to identify and assess the risks in the Company’s business processes, (iii) ineffective controls related to the accounting for inventory and cost of revenues, including controls related to the existence, accuracy, and presentation and disclosure of inventory, and (iv) ineffective controls over the Company’s financial reporting close process to prevent or detect misstatements in the financial statements, including controls related to the elimination of intercompany balances and to ensure appropriate segregation of duties over the preparation and review of journal entries.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses referred to above are described in Management's Annual Report on Internal Control Over Financial Reporting appearing under Item 9A.

We considered these material weaknesses in determining the nature, timing, and extent of audit tests applied in our audit of the October 2, 2020 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements.

Opinion on the Financial Statements

We have audited the consolidated balance sheet of Varex Imaging Corporation and its subsidiaries (the “Company”) as of October 2, 2020, and the related consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows for each of the two years in the period ended October 2, 2020, including the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of October 2, 2020, and the results of its operations and its cash flows for each of the two years in the period ended October 2, 2020 in conformity with accounting principles generally accepted in the United States of America.

Changes in Accounting Principles

As discussed in Notes 1 and 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of September 28, 2019 and the manner in which it accounts for revenues as of September 29, 2018.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above.

Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Consolidated Financial Statements - Impact of Resources and Controls Related to Risk Assessment and Financial Reporting

The completeness and accuracy of the consolidated financial statements, including the financial condition, results of operations and cash flows, is dependent on, in part, (i) maintaining sufficient resources to create the proper environment for effective internal control over financial reporting, (ii) designing and maintaining monitoring controls related to the identification and assessment of risk in the business process environment, and (iii) designing and maintaining financial reporting controls, including controls related to the elimination of intercompany balances and segregation of duties over the preparation and review of journal entries.

The principal considerations for our determination that performing procedures relating to the consolidated financial statements - impact of resources and controls related to risk assessment and financial reporting is a critical matter are the high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to businesses processes which affect substantially all financial statement account balances and disclosures.

As described above in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, material weaknesses were identified as of October 2, 2020 related to (i) ineffective control environment, (ii) ineffective risk assessment component of internal control, and (iii) the financial reporting close process.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, evaluating and determining the nature and extent of audit procedures performed and evidence obtained that are responsive to the material weaknesses identified.

These procedures also included testing the completeness and accuracy and the elimination of intercompany balances, testing manual journal entries, and evaluating whether segregation of duties was maintained over the recording of entries.

As described in Note 1 to the consolidated financial statements, the Company’s consolidated inventory balance was $271.9 million as of October 2, 2020.

Management values inventories at the lower of cost or net realizable value.

Costs include materials, labor and manufacturing overhead and is computed on a first-in-first-out basis.

Management evaluates the carrying value of its inventories

taking into consideration such factors as historical and anticipated future sales compared to quantities on hand and the prices management expects to obtain for products in its various markets.

Management adjusts excess and obsolete inventories to net realizable value and write-downs of excess and obsolete inventories are recorded as a component of cost of revenues.

The principal considerations for our determination that performing procedures relating to inventories is a critical audit matter are the high degree of auditor judgment, subjectivity and effort in performing procedures and in evaluating audit evidence related to the existence and valuation of inventory.

As described above in the “Opinions on the Financial Statements and Internal Control over Financial Reporting” section, material weaknesses were identified as of October 2, 2020 related to the Company’s control environment, the risk assessment component of internal control, and the accounting for inventory, including maintaining effective controls related to the verification of inventory at third party vendor locations and presentation and disclosure of inventory classification.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included, among others, performing procedures to test the existence of inventory, including inventory maintained at third party vendor locations, evaluating and testing management’s process for determining the valuation of inventory, and testing the classification of inventory.

Goodwill Impairment Assessment

As described in Notes 1 and 12 to the consolidated financial statements, the Company’s consolidated goodwill balance was $293.1 million as of October 2, 2020.

Management evaluates goodwill for impairment at least annually at the beginning of the fourth quarter of each fiscal year or whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount.

Management determines the fair value of its reporting units based on a combination of income and market approaches.

The income approach is based on the present value of estimated future cash flows of the reporting units, and the market approach is based on a market multiple calculated for each reporting unit based on market data of other companies engaged in similar business.

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

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.

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

Accordingly, management performed a quantitative impairment analysis to determine the fair values of those reporting units.

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

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessment is a critical audit matter are the significant judgment by management when determining the fair value measurement of the reporting units;

this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the discount rates, revenue growth rates, forecasted gross margins, and market multiples.

In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s quantitative goodwill impairment assessment, including controls over the determination of the fair value of the Company’s reporting units.

These procedures also included, among others, testing management’s process for determining the fair value estimate of the reporting units;

evaluating the appropriateness of the income and market approaches;

testing the completeness, accuracy, and relevance of underlying data used in the estimates;

and evaluating the significant assumptions used by management, including the discount rates, revenue growth rates, forecasted gross margins, and market multiples.

Evaluating management’s assumptions related to revenue growth rates and forecasted gross margins involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting unit, (ii) the consistency with external market and industry data, and (iii) whether the assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the income and market approaches and the discount rates and market multiples assumptions.

We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

1 unchanged sentence

November 30, 2020

We have served as the Company’s auditor since 2016.

We served as the Company's auditor from 2016 to 2020.

VAREX IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except per share amounts) 2021 2020 2019

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197.4 223.9 211.0

Operating (loss) earnings ( 33.7 ) 45.7 44.5

Operating income (loss) 74.1 ( 33.7 ) 45.7

Interest income

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( 42.1 ) ( 31.4 ) ( 21.1 )

Other (expense) income, net

( 7.6 ) ( 3.2 ) 2.7

Other expense, net ( 3.5 ) ( 7.6 ) ( 3.2 )

Interest and other expense, net ( 45.5 ) ( 38.9 ) ( 24.2 )

(Loss) earnings before taxes ( 72.6 ) 21.5 25.7

Taxes (benefit) on earnings

( 15.2 ) 5.7 ( 2.6 )

Net (loss) earnings ( 57.4 ) 15.8 28.3

Net earnings attributable to noncontrolling interests

Net (loss) earnings attributable to Varex $ ( 57.9 ) $ 15.5 $ 27.5

(Loss) earnings per common share attributable to Varex

Income (loss) before taxes 28.6 ( 72.6 ) 21.5

Income tax expense (benefit) 10.7 ( 15.2 ) 5.7

Net income (loss) 17.9 ( 57.4 ) 15.8

Net income attributable to noncontrolling interests 0.5 0.5 0.3

Net income (loss) attributable to Varex $ 17.4 $ ( 57.9 ) $ 15.5

Net income (loss) per common share attributable to Varex

Basic $ 0.44 $ ( 1.49 ) $ 0.41

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VAREX IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) EARNINGS

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In millions) 2021 2020 2019

Net (loss) earnings $ ( 57.4 ) $ 15.8 $ 28.3

Other comprehensive (loss) earnings, net of tax:

Net income (loss) $ 17.9 $ ( 57.4 ) $ 15.8

Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on interest rate swap contracts — 0.4 ( 6.2 )

Unrealized gain (loss) on defined benefit obligations 0.6 ( 1.3 ) ( 0.2 )

Unrealized (loss) gain on defined benefit obligations ( 0.1 ) 0.6 ( 1.3 )

Foreign currency translation adjustments ( 0.7 ) 1.5 —

( 0.8 ) 2.5 ( 7.5 )

Comprehensive (loss) earnings ( 54.9 ) 8.3 33.3

Comprehensive earnings attributable to noncontrolling interests 0.5 0.3 0.8

Comprehensive (loss) earnings attributable to Varex $ ( 55.4 ) $ 8.0 $ 32.5

Comprehensive income (loss) 17.1 ( 54.9 ) 8.3

Comprehensive income attributable to noncontrolling interests 0.5 0.5 0.3

Comprehensive income (loss) attributable to Varex $ 16.6 $ ( 55.4 ) $ 8.0

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In millions, except share amounts)

October 2, 2020 September 27, 2019

October 1, 2021 October 2, 2020

Current assets:

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$ 144.6 $ 100.6

Accounts receivable, net of allowance for doubtful accounts of $ 0.3 million and $ 1.0 million at October 2, 2020 and September 27, 2019, respectively

Accounts receivable, net of allowance for credit losses of $ 1.0 million and $ 0.3 million at October 1, 2021 and October 2, 2020, respectively

Prepaid expenses and other current assets

6 unchanged sentences

$ 1,147.5 $ 1,139.5

Liabilities, redeemable noncontrolling interests and stockholders' equity

Liabilities and stockholders' equity

Current liabilities:

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Commitments and contingencies (Note 13)

Redeemable noncontrolling interests

Stockholders' equity:

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Shares issued and outstanding:

39,059,094 and 38,371,305 at October 2, 2020 and September 27, 2019, respectively

39,435,830 and 39,059,094 at October 1, 2021 and October 2, 2020, respectively

Additional paid-in capital

Accumulated other comprehensive loss

Accumulated other comprehensive income

Retained earnings

2 unchanged sentences

Total stockholders' equity

Total liabilities, redeemable noncontrolling interests and stockholders' equity

Total liabilities and stockholders' equity

$ 1,147.5 $ 1,139.5

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

Net earnings — — — — 27.5 27.5 0.3 27.8

Exercise of stock options 0.2 — 3.8 — — 3.8 — 3.8

Common stock issued upon vesting of restricted shares 0.2 — — — — — — —

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 2.2 ) — — ( 2.2 ) — ( 2.2 )

Common stock issued under employee stock purchase plan 0.1 3.3 — — 3.3 — 3.3

Share-based compensation — — 10.0 — — 10.0 — 10.0

Unrealized gain on interest rate swap contracts, net of tax — — — 5.2 — 5.2 — 5.2

Unrealized loss on defined benefit obligations, net of tax — — — ( 0.2 ) — ( 0.2 ) — ( 0.2 )

Capital contribution by noncontrolling interest — — — — — — 1.8 1.8

Other — — — — ( 0.2 ) ( 0.2 ) — ( 0.2 )

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

Effect of adoption of ASC 606

— — — — ( 3.5 ) ( 3.5 ) — ( 3.5 )

Net earnings — — — — 15.5 15.5 ( 0.2 ) 15.3

Cumulative effect of accounting change — — — — ( 3.5 ) ( 3.5 ) — ( 3.5 )

Net income (loss) — — — — 15.5 15.5 ( 0.2 ) 15.3

Exercise of stock options — — 0.8 — — 0.8 — 0.8

19 unchanged sentences

Issuance of warrants — — 49.8 — — 49.8 — 49.8

Currency translation adjustments — — — 1.5 — 1.5 — 1.5

Foreign currency translation adjustments — — — 1.5 — 1.5 — 1.5

Shares issued to settle deferred consideration 0.3 — 7.4 — — 7.4 — 7.4

2 unchanged sentences

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

Net income — — — — 17.4 17.4 0.5 17.9

Common stock issued upon vesting of restricted shares 0.2 — — — — — — —

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 1.5 ) — — ( 1.5 ) — ( 1.5 )

Common stock issued under employee stock purchase plan 0.2 — 2.8 — — 2.8 — 2.8

Share-based compensation — — 13.9 — — 13.9 — 13.9

Unrealized loss on defined benefit obligations, net of tax — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

Foreign currency translation adjustments — — — ( 0.7 ) — ( 0.7 ) — ( 0.7 )

Other — — ( 0.2 ) — — ( 0.2 ) ( 1.4 ) ( 1.6 )

October 1, 2021 $ 39.4 $ 0.4 $ 449.4 $ — $ 33.5 $ 483.3 $ 13.2 $ 496.5

See accompanying notes to the consolidated financial statements.

3 unchanged sentences

Cash flows from operating activities:

Net (loss) earnings $ ( 57.4 ) $ 15.8 $ 28.3

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

Net income (loss) $ 17.9 $ ( 57.4 ) $ 15.8

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

Share-based compensation expense 13.9 13.4 11.7

6 unchanged sentences

Amortization of deferred loan costs 10.0 5.1 2.4

Loss (gain) from equity method investments, net of dividends received 1.3 2.3 ( 3.9 )

Loss from equity method investments, net of dividends received 3.0 1.3 2.3

Other, net 1.3 4.7 0.8

11 unchanged sentences

Investments in privately-held companies ( 1.4 ) ( 1.8 ) ( 3.9 )

Other 0.3 — —

Net cash used in investing activities ( 16.2 ) ( 26.9 ) ( 93.2 )

8 unchanged sentences

Taxes related to net share settlement of equity awards ( 1.5 ) ( 1.8 ) ( 2.1 )

Contributions from noncontrolling partner — — 1.8

Other financing activities ( 2.0 ) ( 1.7 ) ( 0.5 )

Net cash provided by (used in) financing activities 83.6 ( 0.1 ) ( 90.4 )

Net cash (used in) provided by financing activities ( 32.3 ) 83.6 ( 0.1 )

Effects of exchange rate changes on cash and cash equivalents and restricted cash ( 0.1 ) 0.9 ( 0.7 )

14 unchanged sentences

The Company sells its products to imaging system original equipment manufacturer (“OEM”) customers for incorporation into new medical diagnostic, radiation therapy, dental, and veterinary, 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.

The Company also designs, manufactures, 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.

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.

Basis of Presentation and Principle of Consolidation

The accompanying 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 (“GAAP”).

Basis of Presentation

The accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC and prepared in accordance with accounting principles generally accepted in the United States ("GAAP").

The Company has consolidated all the majority owned subsidiaries and entities over which we have control.

All intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

The Company has two reportable operating segments;

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

(i) Medical and (ii) Industrial.

Segment Information, included in this report, 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 2020 was the 53-week period that ended October 2, 2020, fiscal year 2019 was the 52-week period that ended September 27, 2019, and fiscal year 2018 was the 52-week period ended September 28, 2018.

Fiscal year 2021 was the 52-week period that ended October 1, 2021, fiscal year 2020 was the 53-week period that ended October 2, 2020, and fiscal year 2019 was the 52-week period that ended September 27, 2019.

Variable Interest Entities

For entities in which the Company has variable interests, the Company focuses on identifying which entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity.

For entities in which the Company has variable interests, the Company focuses on identifying which entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which entity has the obligation to absorb losses or the right to receive residual returns from the variable interest entity.

If the Company is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity will be included in the Company’s consolidated financial statements.

As of October 2, 2020, the Company had two variable interest entities neither of which were consolidated.

As of October 1, 2021, the Company had variable interests in two entities, neither of which were consolidated by the Company.

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 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, warranties, contract liabilities, long-lived asset valuations, impairment on investments, financial instruments, and taxes on earnings.

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

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, unemployment rates, the speed of the anticipated recovery, and governmental and business reactions to the pandemic.

During the 2020 fiscal year, 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 of COVID-19 as of October 2, 2020 and 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.

The coronavirus (“COVID-19”) pandemic, the emerging variants and uneven vaccination rates across the globe, 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.

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 Company’s 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 cannot be estimated with certainty.

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

As described in Note 1 to the Company’s consolidated financial statements for the year ended September 27, 2019, as reissued on September 22, 2020 in our Current Report on Form 8-K, the Company concluded that there was substantial doubt about its ability to continue as a going concern.

This assessment was based on the Company’s financial projections, which included the anticipated adverse effects of the COVID-19 pandemic on the Company’s financial condition and results of operations, and which indicated that it was probable that the Company would be in violation of certain leverage ratio covenants contained in its previously existing credit agreement.

As described more fully in Note 10.

Borrowings , on September 30, 2020, the Company issued $ 300.0 million aggregate principal amount of 7.875 % Senior Secured Notes due in 2027, the proceeds from which were used to repay the principal amounts outstanding under the Company’s previously existing credit agreement (which was then terminated), and entered into a new revolving credit agreement consisting of a $ 100.0 million asset-based loan revolving credit facility.

The Senior Secured Notes do not contain any financial covenants and the asset-based loan revolving credit facility’s financial covenant is limited to when excess availability falls below a specified threshold.

Management has concluded that the replacement of the Company's previously existing credit agreement with the Senior Secured Notes, combined with our current and anticipated future cash flows, has alleviated the substantial doubt about the Company's ability to continue as a going concern and the Company has sufficient liquidity to satisfy our obligations over the twelve-month period from the issuance date of these consolidated financial statements.

Cash and Cash Equivalents

3 unchanged sentences

Restricted cash is

included in other assets on the consolidated balance sheet.

included in other assets on the consolidated balance sheets.

Cash and cash equivalents and restricted cash as reported within

the consolidated statements of cash flows consisted of the following:

Twelve Months Ended October 2, 2020 Twelve Months Ended September 27, 2019

Twelve Months Ended October 1, 2021 Twelve Months Ended October 2, 2020

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

13 unchanged sentences

The Company records all derivatives on the consolidated balance sheets at fair value as of the reporting date.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income or loss and reclassified from accumulated other comprehensive loss into earnings when the hedged transaction affects earnings.

For derivative instruments that are designated and qualify as cash flow hedges, the gain or loss on the derivative is reported as a component of other comprehensive income or loss and reclassified from accumulated other comprehensive income into earnings when the hedged transaction affects earnings.

For derivatives that are designated and qualify as net investment hedges, the gain or loss on the derivative is reported as a component of other comprehensive income or loss until the hedged item is sold.

The portion of the change in fair value of the Company's net investment hedges (or cross currency swaps) related to the cross-currency basis spread is an excluded component in the assessment of the effectiveness of these net investment hedges (or cross currency swaps).

These changes in fair value are recognized as an adjustment to interest expense.

The portion of the change in fair value

of the Company's net investment hedges (or cross currency swaps) related to the cross-currency basis spread is an excluded component in the assessment of the effectiveness of these net investment hedges (or cross currency swaps).

A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective, in which case, a quantitative assessment of hedge effectiveness is performed.

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

The Company has neither experienced nor expects any significant disruptions to its operations due to supplier concentration.

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, which is as follows:

In certain circumstances, a customer may be required to prepay all or a portion of the contract price prior to transfer of control.

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

2021 2020 2019

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17.9 % 20.5 % 17.3 %

Canon Medical Systems Corporation accounted for 12.0 % and 10.1 % of the Company’s accounts receivable as of October 2, 2020 and September 27, 2019, respectively.

Canon Medical Systems Corporation accounted for 16.2 % and 12.0 % of the Company’s accounts receivable as of October 1, 2021 and October 2, 2020, respectively.

Inventories are valued at the lower of cost or net realizable value.

Costs include materials, labor and manufacturing overhead

and is computed on a first-in-first-out basis.

Costs include materials, labor, external service, and manufacturing overhead and is computed on a first-in-first-out basis.

The Company evaluates the carrying value of its inventories taking into consideration such factors as historical and anticipated future sales compared to quantities on hand and the prices the Company expects to obtain for products in its various markets.

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The following table summarizes the Company’s inventories, net:

(In millions) October 2, 2020 September 27, 2019

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

Raw materials and parts

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$ 224.8 $ 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.

As a result of the economic downturn resulting from COVID-19, the Company discontinued certain products and wrote-down inventory associated with these discontinued products by $ 3.5 million and $ 15.8 million for the twelve months ended October 1, 2021 and October 2, 2020, respectively.

Property, Plant and Equipment, net

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Land leasehold rights and leasehold improvements are depreciated over the lesser of their estimated useful lives or remaining lease terms.

Buildings are depreciated over twenty years .

Buildings are depreciated up to thirty years .

Machinery and equipment are depreciated over a range from three to seven years .

1 unchanged sentence

Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively.

When certain events or changes in operating conditions occur, asset lives may be adjusted, and an impairment assessment may be performed on the recoverability of the carrying amounts.

When certain events or changes in operating conditions occur, asset lives may be adjusted, and an impairment assessment may be performed on the recoverability of the carrying

When assets are retired or otherwise disposed of, the assets and related accumulated depreciation are removed from the accounts.

The following table summarizes the Company’s property, plant and equipment, net:

(In millions) October 2, 2020 September 27, 2019

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

Buildings and leasehold improvements

1 unchanged sentence

Construction in progress

$ 356.4 $ 341.9

Accumulated depreciation and amortization

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The Company recorded depreciation expense of $ 20.5 million, $ 22.3 million and $ 23.5 million, in fiscal years 2021, 2020 and 2019, respectively.

During fiscal years 2020, 2019 and 2018 the Company recorded accelerated depreciation of $ 2.9 million, $ 4.5 million and $ 4.2 million, respectively, which primarily related to the machinery and equipment used at the Santa Clara, CA facility.

Restructu ring, included in this report, for further information.

During fiscal years 2021, 2020 and 2019 the Company recorded accelerated depreciation of $ 0.2 million, $ 2.9 million and $ 4.5 million, respectively, which primarily related to the machinery and equipment used at the Santa Clara, California facility.

Restructuring , included in this report, for further information.

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.

The Company monitors these equity investments for impairment and makes appropriate reductions in carrying values if the Company determines that impairment charges are required based primarily on the financial condition and near-term prospects of these companies.

During the three 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 consolidated financial statements.

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.

There were no impairments recorded during the fiscal year 2021.

During the fiscal year 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 consolidated financial statements.

Goodwill and Intangible Assets

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If the carrying amount of the reporting unit is in excess of its fair value, the difference between the fair value and carrying amount is recorded as an impairment loss.

If the carrying amount of the reporting unit is in excess of its fair value, the difference between the fair value and carrying amount is recorded as an

impairment loss.

The impairment test for intangible assets with indefinite useful lives, if any, consists of a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss.

In fiscal years 2021, 2020 and 2019, the Company performed the annual goodwill impairment test for our two reporting units and found no impairment.

In the third quarter of 2020, changes in facts and circumstances and general market declines due to 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.

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

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

However, an impairment charge of $ 2.8 million was required for the Company's in-process R&D.

Goodwill and Intangible Assets for more information.

During the fiscal years ended October 2, 2020, September 27, 2019 and September 28, 2018, the Company recognized $ 2.8 million, $ 4.8 million, and $ 3.0 million of impairments of intangible assets, respectively.

No goodwill impairment charges were recognized for any of the periods presented.

During the fiscal years ended October 1, 2021, October 2, 2020 and September 27, 2019, the Company recognized $ 0.0 million , $ 2.8 million, and $ 4.8 million of impairments of intangible assets, respectively.

Loss Contingencies

44 unchanged sentences

The Company allows customers to return specific parts of purchased X-ray tubes for a partial refund credit, which is identified as variable consideration.

ASC 606-10-55-23 requires that for sales with a right of return, revenue is reduced for expected returns, a liability is recorded for expected returns, and an asset is recorded for the right to recover products from customers on settling the liability.

For sales with a right of return, revenue is reduced for expected returns, a liability is recorded for expected returns, and an asset is recorded for the right to recover products from customers on settling the liability.

The Company recognizes a reduction to revenue and cost of sales at the time of sale and a corresponding contract liability and contract asset.

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Product revenue is generally recognized when the customer obtains control of the Company’s product, which occurs at a point in time, and may be upon shipment or upon delivery based on the contractual shipping terms of a contract.

Service revenue is generally recognized over time as the services are rendered to the customer based on the extent of progress towards completion of the performance obligation.

The Company recognizes service revenue over the term of the service contract.

Service revenue is generally recognized over the term of the service contract.

Services are expected to be transferred to the customer throughout the term of the contract and the Company believes recognizing revenue ratably over the term of the contract best depicts the transfer of value to the customer.

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which the services have not been rendered.

Allowance for Doubtful Accounts

Allowance for Credit Losses

The Company evaluates the creditworthiness of customers prior to authorizing shipment for all major sale transactions.

On a quarterly basis, the Company evaluates aged items in the accounts receivable aging report and provides an allowance in an amount deemed adequate for doubtful accounts.

If the evaluation of customers’ financial conditions does not reflect a future ability to collect outstanding receivables, additional provisions may be needed.

The Company had an allowance for doubtful accounts of $ 0.3 million and $ 1.0 million as of October 2, 2020 and September 27, 2019, respectively.

On a quarterly basis, the Company considers historical trends, current information and any reasonable and supportable forecasts to determine if an amount should be included in the allowance for credit losses.

The Company had an allowance for credit losses of $ 1.0 million and $ 0.3 million as of October 1, 2021 and October 2, 2020, respectively.

Share-Based Compensation Expense

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The Company measures and recognizes expense for all share-based payment awards based on their fair values.

Share-based compensation expense recognized in the consolidated statements of (loss) earnings includes compensation expense for the share-based payment awards based on the grant date fair value estimated in accordance with the guidance on share-based compensation.

Share-based compensation expense recognized in the consolidated statements of operations includes compensation expense for the share-based payment awards based on the grant date fair value estimated in accordance with the guidance on share-based compensation.

The Company records forfeitures as they occur.

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Employee Stock Plans , included in this report.

Shipping and Handling Costs

Shipping and handling costs are included as a component of cost of revenues.

Software Development Costs

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These costs primarily include employees’ compensation, consulting fees and material costs.

Taxes on Earnings

Taxes on Income

Current income tax expense or benefit is the amount of income taxes expected to be payable or receivable for the current year.

Deferred income tax liabilities or assets are established for the expected future tax consequences resulting from the differences in financial reporting and tax bases of assets and liabilities.

Future changes in tax regulation can have a material impact, including tax rate changes or the realization of deferred tax assets.

A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized.

Tax Reform introduced a limitation of business interest deduction under IRC Section 163(j), which may be difficult to utilize without significant taxable income.

Also, net operating loss carryforwards in jurisdictions with current losses provide uncertainty for realization.

In addition, we provide reserves for uncertain tax positions when such tax positions do not meet the recognition thresholds or measurement standards prescribed by the authoritative guidance for accounting for income taxes.

A portion of the U.S.

general business tax credits for research outside of the financial statement line for research and development ("R&D") have a small degree of uncertainty.

A reasonable reserve is maintained on the uncertain portion until either the Internal Revenue Service chooses to audit, or the statute of limitation expires.

A reserve for R&D is typical for companies who calculate and utilize this general business credit.

Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled.

Interest and penalties related to uncertain tax positions are recognized as a component of income tax expense.

On December 22, 2017, the U.S.

Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“U.S.

Tax Reform”).

Tax Reform significantly revised the U.S.

corporate income tax structure including a lower corporate statutory rate and changes to the way foreign earnings are taxed.

GAAP requires that the impact of tax legislation be recognized in the period in which the law is enacted.

In accordance with these rules, we are including the impact of certain provisions of U.S.

Tax Reform to the extent they are effective during the current reporting period.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was enacted in response to the COVID-19 pandemic.

The CARES Act, among other things, permits NOL carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

The CARES Act, among other things, permits net operating loss ("NOL") carryovers and carrybacks to offset 100% of taxable income for taxable years beginning before 2021.

In addition, the CARES Act allows NOLs incurred in 2018, 2019, and 2020 to be carried back to each of the five preceding taxable years to generate a refund of previously paid income taxes.

On July 2, 2020, the US Treasury Department issued a regulation providing an election to waive NOL carryback to a former consolidated group.

The Company has evaluated the impact of the CARES Act and concludes the NOL carryback provision of the CARES Act will result in a material cash tax benefit.

The CARES Act retroactively clarified treatment of qualified improvement property as 15-year property instead of 39-year property as defined under U.S.

Certain qualified improvement property is also eligible for bonus depreciation.

During fiscal year 2021, the Company filed NOL carryback claims for U.S.

losses incurred in fiscal year 2020 and anticipates cash tax refunds on those claims.

Foreign Currency Translation

2 unchanged sentences

Gains and losses from remeasurement of foreign currency balances into U.S.

Dollars are included in the consolidated statements of (loss) earnings.

Dollars are included in the consolidated statements of operations.

For the foreign subsidiaries where the local currency is the functional currency, translation adjustments of foreign currency financial statements into U.S.

dollars are recorded to a separate component of accumulated other comprehensive loss.

dollars are recorded to a separate component of accumulated other comprehensive income.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update ASU No.

2016-02 , Leases, 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 was effective for the Company beginning in fiscal year 2020.

The Company adopted the standard using the transition method provided by ASU 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 previously existing lease guidance under ASC Topic 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 were 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, Intangibles - 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 unit's 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.

In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 consolidated financial statements and related disclosures.

Recent Accounting Standards 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, to address issues identified as a result of the complexity associated with applying GAAP for certain financial instruments with characteristics of liabilities and equity.

In addressing the complexity, this ASU is focused on amending the guidance for convertible instruments and the derivatives scope exception for contracts in an entity’s own equity.

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

In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, 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 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 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 or cash flows.

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes, 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 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.

This standard will not materially impact the Company's consolidated financial statements.

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

REVENUE RECOGNITION

The Company adopted ASC 606 on September 29, 2018, using the modified retrospective method for all contracts not completed as of the date of adoption.

The reported results for fiscal year 2020 and 2019 reflect the application of ASC 606 guidance while the reported results for fiscal year 2018 were prepared under the guidance of ASC 605, Revenue Recognition.

The following tables summarize the changes in the contract assets and refund liabilities for the twelve months ended October 2, 2020 and September 27, 2019:

The following tables summarize the changes in the contract assets and refund liabilities for the twelve months ended October 1, 2021 and October 2, 2020:

(In millions) Contract Assets

2 unchanged sentences

Contract asset from shipments of products, subject to return during the period 6.5

Balance at September 27, 2019 $ 23.7

Balance at October 2, 2020 $ 24.6

Costs recovered from product returns during the period ( 4.8 )

Contract asset from shipments of products, subject to return during the period 6.4

Adjustment for actual vs reserved product returns ( 1.9 )

Balance at October 1, 2021 $ 24.3

3 unchanged sentences

Additions to refund liabilities 7.2

Balance at September 27, 2019 $ 26.4

Balance at October 2, 2020 $ 27.4

Release of refund liability included in beginning of year refund liability ( 5.3 )

Additions to refund liabilities 7.1

Adjustment for actual vs reserved product returns ( 2.2 )

Balance at October 1, 2021 $ 27.0

During fiscal year 2020, the Company recognized revenue of $ 8.4 million related to deferred revenue which existed at September 27, 2019.

During fiscal year 2021, the Company recognized revenue of $ 6.9 million related to deferred revenue which existed at October 2, 2020.

During fiscal year 2020, the Company recognized revenue of $ 8.4 million related to deferred revenue which existed at September 27, 2019.

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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.

The Company's leases have remaining lease terms of one year to approximately six 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.

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

October 2, 2020

(In millions) Balance Sheet Location Operating Leases Finance Leases

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

Operating lease right-of-use assets Operating lease assets $ 24.3 $ 27.7

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

October 2, 2020

Operating Leases Finance Leases

Weighted average remaining lease term (in years) 6.6 3.3

Weighted average discount rate 4.5 % 4.1 %

October 1, 2021 October 2, 2020

Operating lease weighted average remaining lease term (in years) 5.9 6.6

Operating lease weighted average discount rate 5.5 % 4.5 %

Finance lease weighted average remaining lease term (in years) 2.5 3.3

Finance lease weighted average discount rate 3.6 % 4.1 %

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

(In millions) Fiscal Year 2020

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

Total operating lease costs (a) $ 8.1 $ 8.4

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Total right-of-use assets obtained in exchange for new lease liabilities (b) $ 5.8 $ 10.8

(a) Includes variable and short-term lease expense, which were immaterial for fiscal year 2020.

(a) Includes variable and short-term lease expense, which were immaterial for fiscal year 2021 and 2020.

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

For fiscal year 2019 and 2018 the Company's lease expense was $ 5.1 million and $ 5.3 million, respectively.

For fiscal year 2019, the Company's lease expense was $ 5.1 million.

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

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As of October 1, 2021 , the Company had not entered into any material leases that have not yet commenced.

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.

BUSINESS COMBINATIONS

Acquisition of Direct Conversion AB

In April 2019, Varex completed the acquisition of 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.

In April 2019, Varex completed the acquisition of 98.2 % of the outstanding shares of common stock of Direct Conversion AB (publ) (“Direct Conversion”).

In April 2021, the Company acquired all of the remaining shares representing the noncontrolling interests in Direct Conversion such that the Company now owns 100% of the outstanding shares of common stock of Direct Conversion.

The acquisition of Direct Conversion expanded 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.

To settle the deferred consideration, in April 2020, the Company issued the 0.3 million shares of its common stock valued at $ 7.4 million to certain shareholders of Direct Conversion.

The following table summarizes the purchase price allocation for Direct Conversion:

(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 ( 1.5 )

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

Developed technology

In-process research and development

2.8 indefinite

Customer relationships

Total intangible assets acquired

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 12.

Goodwill and Intangible Assets, for more information.

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

The following amounts represent revenues by reporting segment from Direct Conversion from the acquisition date of April 29, 2019, through September 27, 2019:

2 unchanged sentences

Total Direct Conversion revenues

The acquisition of Direct Conversion did not have a significant impact on the Company's consolidated results of operations on a pro forma basis for the current or prior years.

The acquisition of Direct Conversion did not have a significant impact on the Company's consolidated results of operations on a pro forma basis for fiscal year 2019.

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.

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

The equity investment in dpiX Holding is accounted for under the equity method of accounting.

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

In fiscal years 2020, 2019 and 2018, the Company recorded (loss) and income on the equity investment in dpiX Holding of $( 0.8 ) million, $( 1.1 ) million and $ 3.4 million, respectively.

Income and loss on the equity investment in dpiX Holding is included in other (expense) income, net in the consolidated statements of (loss) earnings.

The carrying value of the equity investment in dpiX Holding, which was included in investments in privately-held companies on the consolidated balance sheets, was $ 47.3 million and $ 48.1 million at October 2, 2020 and September 27, 2019, respectively.

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.

The investment in dpiX Holding is accounted for under the equity method of accounting.

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

In fiscal years 2021, 2020 and 2019, the Company recorded a loss on the equity investment in dpiX Holding of $( 2.3 ) million, $( 0.8 ) million and $( 1.1 ) million, respectively.

Loss on the equity investment in dpiX Holding is included in other expense, net in the consolidated statements of operations.

The carrying value of the equity investment in dpiX Holding was $ 45.0 million and $ 47.3 million at October 1, 2021 and October 2, 2020, respectively.

In fiscal years 2021, 2020 and 2019, the Company purchased glass transistor arrays from dpiX totaling $ 18.5 million, $ 20.4 million and $ 23.5 million, respectively.

These purchases of glass transistor arrays are included as a component of inventories on the consolidated balance sheets or cost of revenues in the consolidated statements of (loss) earnings for these fiscal years.

As of October 2, 2020 and September 27, 2019, the Company had accounts payable to dpiX totaling $ 4.6 million and $ 3.6 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.

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

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

As of October 1, 2021 and October 2, 2020, the Company had accounts payable to dpiX totaling $ 2.8 million and $ 4.6 million, respectively.

The Company has the right to 50 % of dpiX’s total manufacturing capacity.

In addition, the Company is required to pay for 50 % of dpiX's fixed costs, 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.

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The amended agreement will continue unless the ownership structure of dpiX changes (as defined 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 $ 47.3 million and fixed cost commitments.

In November 2018, the Company and CETTEEN GmbH (“CETTEEN”), formed a German joint venture entity, VEC Imaging Verwaltungsgesellschaft GmbH (“VEC”), to develop technology for use in X-ray imaging components.

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 $ 45.0 million and fixed cost commitments.

In November 2018, the Company (through one of its wholly-owned subsidiaries) and CETTEEN GmbH (“CETTEEN”), formed a German limited liability company that governs the affairs and conduct of the business of VEC Imaging GmbH & Co.

KG (“VEC”), a joint venture formed to develop technology for use in X-ray imaging components.

In accordance with the VEC agreement, net profits or losses are allocated to the members in accordance with their ownership interest.

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

As of October 2, 2020, 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.

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

As of October 1, 2021, the Company has made equity contributions totaling

$ 5.1 million.

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

The Company's investment in VEC was $ 2.5 million and $ 2.0 million as of October 2, 2020 and September 27, 2019, respectively.

In fiscal years 2021, 2020 and 2019, the Company recorded a loss on the equity investment in VEC of $( 1.1 ) million, $( 1.2 ) million, and $( 0.9 ) million respectively.

The Company's investment in VEC was $ 3.0 million and $ 2.5 million as of October 1, 2021 and October 2, 2020, respectively.

In the fourth quarter of fiscal year 2021, the Company made its final required equity contribution of $ 1.2 million to VEC.

As of October 1, 2021, the Company had loans outstanding to VEC totaling $ 0.3 million which is recorded in prepaid expenses and other current assets in the consolidated balance sheet.

RESTRUCTURING

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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 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.

In connection with the relocation of the glass production and site closure, the Company recorded $ 9.1 million and $ 18.9 million of restructuring charges during fiscal year 2020 and 2019, respectively.

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.

In connection with the relocation of the glass production and site closure, the Company recorded $ 0.0 million , $ 9.1 million and $ 18.9 million of restructuring charges during fiscal year 2021, 2020 and 2019, respectively.

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 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.

In connection with this reduction in workforce and other restructuring activities, excluding those related to the Santa Clara facility, the Company has recorded $ 4.4 million of expense during fiscal year 2020.

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 2021, 2020 and 2019 fiscal years, which predominately relate to the Company's Medical segment:

(In millions) Location of Restructuring Charges in Consolidated Statements of (Loss) Earnings October 2, 2020 September 27, 2019

(In millions) Location of Restructuring Charges in Consolidated Statements of Operations 2021 2020 2019

Inventory write downs Cost of revenues $ — $ 1.3 $ 3.1

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The following table summarizes the Company’s accrued liabilities and other current liabilities:

(In millions) October 2, 2020 September 27, 2019

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

Accrued compensation and benefits

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Right of return liability

Deferred consideration

Accrued interest 12.5 2.6

Total accrued liabilities and other current liabilities $ 89.7 $ 70.5

The following table summarizes the Company’s other long-term liabilities:

(In millions) October 2, 2020 September 27, 2019

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

Long-term income tax payable $ 1.8 $ 3.9

Environment liabilities 0.8 0.9

Environmental liabilities 0.6 0.8

Defined benefit obligation liability 5.9 6.5

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(In millions) 2021 2020 2019

Income (loss) from equity method investments $ ( 2.1 ) $ ( 2.3 ) $ 3.9

Loss from equity method investments $ ( 3.4 ) $ ( 2.1 ) $ ( 2.3 )

Change in fair value of deferred consideration — 0.9 1.0

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Realized loss on foreign currencies ( 0.2 ) ( 3.7 ) ( 1.9 )

Total other income (expense), net

$ ( 7.6 ) $ ( 3.2 ) $ 2.7

(LOSS) EARNINGS PER SHARE

Basic (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 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 stock options and unvested restricted stock.

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

Other 0.1 — —

Total other expense, net $ ( 3.5 ) $ ( 7.6 ) $ ( 3.2 )

NET INCOME (LOSS) PER SHARE

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

Diluted net income (loss) per common share reflects the effects of potentially dilutive securities, which is computed by dividing net income (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 income per common share is as follows:

(In millions, except per share amounts)

2021 2020 2019

Net (loss) earnings attributable to Varex

Net income (loss) attributable to Varex

$ 17.4 $ ( 57.9 ) $ 15.5

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39.3 38.8 38.2

Dilutive effect of potential common shares

Dilutive effect of Convertible Senior Notes 0.6 — —

Dilutive effect of share-based awards and other

Weighted average shares outstanding - diluted

40.3 38.8 38.6

(Loss) earnings per share attributable to Varex - basic

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

$ 0.44 $ ( 1.49 ) $ 0.41

(Loss) earnings per share attributable to Varex - diluted

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

$ 0.43 $ ( 1.49 ) $ 0.40

Anti-dilutive employee shared 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 income (loss) earnings per share attributable to Varex when their effect is dilutive.

Because the Company incurred a net loss for fiscal year 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 income (loss) per share attributable to Varex when their effect is dilutive.

Since we intend to settle in cash the principal outstanding under our 4.00% Convertible Senior Notes due in 2025, we apply the treasury stock method applied using our average share price during the period when calculating their potential dilutive effect, if any.

Furthermore, in connection with the offerings of our notes, we entered into

convertible note hedges and warrants (see Note 10.

Borrowings ).

However, our convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive.

Warrants, which have a strike price above our average share price during the period, were out of the money and were not included in the tables above.

Because the Company incurred a net loss for fiscal year 2020, none of the potentially dilutive common shares were included in the diluted share calculation for that period as they would have been anti-dilutive.

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

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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.

A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective.

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

A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective, in which case the Company would test for effectiveness on a more frequent basis.

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

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

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The Company previously used 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 fixed the LIBOR component of its interest rate for a specific period of time.

These hedges were entered into in connection with the Company's prior Credit Agreement, as defined in Note 10.

Borrowings , as the interest rates under the Credit Agreement were at variable rates.

In September 2020, the Company repaid the debt under the Credit Agreement and terminated all of the interest rate swap contracts.

The loss on the interest rate contracts that was deferred in other comprehensive income (OCI) was immediately recognized in earnings from transactions that are remote.

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

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

As of October 1, 2021, the Company had no outstanding derivatives designated as cash flow hedging instruments.

The following table summarizes the amount of pre-tax income (loss) recognized from derivative instruments for the periods indicated:

Amount of Gain or (Loss) Recognized in OCI on Derivatives

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$ — $ ( 3.4 ) $ ( 6.3 ) Interest expense $ —

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

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.

Derivative Liabilities

(In millions)

October 2, 2020 September 27, 2019

Derivatives designated as cash flow hedges

Balance sheet location

Interest rate swap contracts

Other non-current liabilities $ — $ ( 0.5 )

$ ( 1.5 ) $ 1.9

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 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.

In September 2020, the Company terminated one of the net investment swaps and the loss on the swap was recorded in accumulated other comprehensive (loss) income where it will remain until substantial liquidation of the international operations.

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

In September 2020, the Company terminated one of the net investment swaps and the loss on the swap was recorded in accumulated other comprehensive income where it will remain until substantial liquidation of the international operations.

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

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Cross currency swap contracts

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 (loss) earnings where the results are recorded for net investment hedges:

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

Amount of Gain or (Loss) Recognized in OCI on Derivatives

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(In millions)

October 2, 2020 September 27, 2019 October 2, 2020 September 27, 2019

October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020

Derivatives designated as net investment hedges

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$ 1.2 $ 1.3 $ ( 2.4 ) $ ( 2.1 )

Balance Sheet Hedges

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

These forward contracts expire within 30 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 effect of derivative instruments not designated as hedges for fiscal year 2020 was a loss of $ 0.2 million.

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 entered into under its balance sheet hedge program as of October 2, 2020:

Notional Value of Derivatives not Designated as Hedging Instruments:

(in millions) Buy contracts Sell contracts

Swiss franc $ — $ 1.1

Chinese renminbi 3.4 —

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

October 2, 2020 September 27, 2019

October 1, 2021 October 2, 2020

(In millions, except for percentages) Amount Weighted-Avg Effective Interest Rate Amount Weighted-Avg Effective Interest Rate $ Change

Current maturities of long-term debt

Term Facility $ — $ 29.4 5.6 % $ ( 29.4 )

Other debt $ 2.8 $ 2.5 $ 0.3

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Non-current maturities of long-term debt:

Revolving Credit Facility $ — $ 59.0 5.6 % $ ( 59.0 )

Asset-Based Loan $ — $ — $ —

Term Facility — 308.6 5.6 % ( 308.6 )

Convertible Senior Unsecured Notes 200.0 10.9 % 200.0 10.9 % —

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Unamortized issuance costs and debt discounts

Debt issuance costs - Credit Agreement $ — $ ( 5.7 ) $ 5.7

Unamortized discount and issuance costs - Convertible Notes ( 50.4 ) — ( 50.4 )

Unamortized discount - Convertible Notes $ ( 37.6 ) $ ( 45.4 ) $ 7.8

Unamortized issuance costs - Convertible Notes ( 4.1 ) ( 5.0 ) 0.9

Debt issuance costs - Senior Secured Notes ( 4.4 ) ( 5.6 ) 1.2

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Non-current portion of long -term debt $ 477.8

The following table summarizes the Company's interest expense:

Twelve Months Ended

October 1, 2021 October 2, 2020 September 27, 2019

Contractual interest coupon and other $ 30.7 $ 19.1 $ 17.9

Amortization/extinguishment of debt issuance costs 3.5 7.0 3.2

Amortization of debt discounts 7.9 5.3 —

Total interest expense $ 42.1 $ 31.4 $ 21.1

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 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 1 and December 1 of each year, beginning on December 1, 2020, and will mature on June 1, 2025, unless earlier converted or repurchased by us.

The Convertible Notes will be convertible into cash, shares of Varex common stock or a combination thereof, at the Company's 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 the Company's 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 Varex 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 Varex common stock on such trading day and the conversion rate on such trading day;

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

• if the Company calls 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 twelve months ended October 2, 2020 was $ 5.0 million and was comprised of $ 2.5 million related to the contractual interest coupon and $ 2.5 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”).

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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 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 Varex common stock on June 4, 2020.

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 Varex common stock on June 4, 2020.

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.

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

The Company 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 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, the Company 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.

The Company 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.

Senior Secured Notes

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

The net proceeds from the Senior Secured Notes after initial purchasers’ discount, commissions and estimated fees and expenses of $ 5.6 million, were approximately $ 294.4 million.

The Company used $ 267.5 million of the proceeds from the offering to repay the Term Facility (defined below), including accrued interest.

As of October 2, 2020, the book value of the Senior Secured Notes was presented net of unamortized debt issuance costs of $ 5.6 million.

Debt issuance costs are amortized to interest expense over the agreement term using the effective interest method.

The effective interest rate was 8.2 % as of October 2, 2020.

The Senior Secured Notes are secured by a first priority lien on substantially all of the assets of Varex and the assets and capital stock of its subsidiary guarantors (subject to exceptions), except for assets for which a first priority security interest is pledged for the ABL Facility (defined below), in which the Senior Secured Notes will have a second lien security interest.

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and enter into certain transactions with their affiliates.

At any time prior to October 15, 2023, the Company has the ability to redeem the Senior Secured Notes under the following optional redemptions:

• up to 30 % of the aggregate principal amount of the notes issued under the indenture with the proceeds of certain equity offerings at a redemption price equal to 107.875 % of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

• some or all of the notes at a price equal to 100 % of the principal amount of the notes, plus a “make-whole premium,” together with accrued and unpaid interest, if any, to, but excluding, the redemption date.

• up to 10 % of the aggregate principal amount of the notes per year at a redemption price equal to 103 % of the aggregate principal amount of notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding the redemption date.

At any time on or after October 15, 2023, Varex may redeem all or part of the notes at the redemption prices indicated in the indenture, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

In addition, if the Company experiences certain changes of control or receive proceeds from certain asset sales, holders of the notes will have the right to require the Company to repurchase the notes under the terms set forth within the indenture.

Interest expense related to the Senior Secured Notes for the twelve months ended October 2, 2020 was $ 0.2 million.

On July 15, 2021, the Company redeemed $ 30 million of Senior Secured Notes, in accordance with the terms and conditions of the governing indenture, 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.

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

Asset-Based Loan

Concurrent with the termination of the Credit Agreement (defined below) and closing of the Senior Secured Notes 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").

Concurrent with the termination of the Credit Agreement (defined below) and closing of the Senior Secured Notes on September 30, 2020, the Company entered into a 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).

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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.

As of October 2, 2020, the total undrawn amount under the ABL Facility was $ 100.0 million, however, the borrowing base under the ABL fluctuates from month-to-month depending on the amount of eligible accounts receivable and inventory.

Debt issuance costs, including unamortized deferred costs for continuing lenders under the previously existing revolving credit facility, of $ 3.1 million were capitalized and are being amortized over the term of the new agreement.

The amortization associated with these costs is recorded within Interest expense in the consolidated statement of operations.

The debt issuance costs are included net of amortization within other assets in the accompanying consolidated balance sheets.

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

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

As of October 1, 2021, the amount available under our ABL Facility was $ 69.4 million and the ABL Facility remains undrawn.

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.

The ABL Facility contains a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 that is tested when excess availability under the ABL is less than the greater of (i) 10.0 % of the Line Cap (the lesser of (a) the aggregate commitments under the ABL Facility and (b) the aggregate borrowing base) and (ii) $ 7.5 million.

The ABL Facility contains a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 that is tested when excess availability under the ABL is less than the greater of (i) 10.0 % of the Loan Cap (the lesser of (a) the aggregate commitments under the ABL Facility and (b) the aggregate borrowing base) and (ii) $ 7.5 million.

As of October 1, 2021, the Company is compliant with the ABL Facility covenants.

The ABL Facility will have a first lien security interest on accounts receivable, cash, and inventory as well as certain real estate and holds second lien security interest on all other assets.

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On September 30, 2020, the Company terminated its previously existing Credit Agreement, consisting of both the Term Facility and Revolving Credit Facility.

The Company repaid the outstanding Term Facility balance of $ 265.5 million and accrued

interest of $ 2.0 million with proceeds received from the issuance of the Senior Secured Notes (defined above) and wrote off approximately $ 3.8 million of previously recorded debt issuance costs, which resulted in a $ 3.8 million loss on extinguishment of debt, recorded as interest expense within the consolidated statements of operations and comprehensive (loss) earnings.

The Company repaid the outstanding Term Facility balance of $ 265.5 million and accrued interest of $ 2.0 million with proceeds received from the issuance of the Senior Secured Notes (defined above) and wrote off approximately $ 3.8 million of previously recorded debt issuance costs, which resulted in a $ 3.8 million loss on extinguishment of debt, recorded as interest expense within the consolidated statements of operations and comprehensive income (loss).

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

Borrowings and measured using Level 1 inputs, were $ 296.3 million and $ 304.8 million, respectively.

As of October 2, 2020, the fair values of the Company's Convertible Notes and Senior Secured Notes, measured using Level 1 inputs, 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 fiscal year 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.

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Total liabilities measured at fair value $ — $ 2.4 $ — $ 2.4

As of October 2, 2020, the fair value of the Company's Convertible Notes and Senior Secured Notes, as defined in Note 10.

Borrowings, was $ 178.5 million and $ 312.8 million, respectively.

As of September 27, 2019, the total outstanding borrowings of $ 395.1 million, net of deferred loan costs, approximated its fair value as it was carried at a market observable interest rate that resets periodically and was categorized as Level 2 in the fair value hierarchy.

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

At October 2, 2020, the Company determined the following levels of inputs for the following assets or liabilities:

(In millions)

Fair Value Measurements at September 27, 2019

Fair Value Measurements at October 2, 2020

Quoted Prices in Active Markets for Identical Assets and Liabilities

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$ — $ 72.9 $ — $ 72.9

Derivative assets

Total assets measured at fair value

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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.

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 the Company's future plans, as well as industry, economic, and regulatory conditions.

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 revenue growth rates and forecasted gross margins, both in size and timing, are not met, if market factors outside of the Company's 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 the Company's global five-year operating plan, then one or more of the Company's 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 reflects goodwill by reportable operating segment:

The following table reflects goodwill by reportable segment:

(In millions)

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

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

( 0.2 ) ( 0.2 ) ( 0.4 )

Foreign currency translation adjustments

( 0.3 ) ( 0.2 ) ( 0.5 )

Balance at October 1, 2021 $ 173.9 $ 118.3 $ 292.2

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

October 2, 2020 September 27, 2019

October 1, 2021 October 2, 2020

(In millions)

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51.1 ( 31.0 ) 20.1 51.2 ( 24.2 ) 27.0

Total intangible assets with finite lives

138.9 ( 71.4 ) 67.5 137.5 ( 54.0 ) 83.5

In-process R&D with indefinite lives

— — — 2.8 — 2.8

Total intangible assets

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Amortization expense for intangible assets was $ 16.8 million, $ 17.2 million and $ 15.7 million in fiscal years 2021, 2020 and 2019, respectively.

The Company recognized intangible asset impairment charges of $ 2.8 million, $ 4.8 million, and $ 3.0 million in fiscal years 2020, 2019, and 2018, respectively, which are included in the consolidated statements of (loss) earnings under impairment of intangible assets.

The Company recognized intangible asset impairment charges of $ 0.0 million , $ 2.8 million, and $ 4.8 million in fiscal years 2021, 2020, and 2019, respectively, which are included in the consolidated statements of operations under impairment of intangible assets.

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.

As of October 1, 2021, the estimated future amortization expense of intangible assets with finite lives is as follows:

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Lease Commitments

Leases, included in this report, for additional information about Varex's lease commitments.

Leases, included in this report, for additional information about the Company's lease commitments.

Purchase Agreement With Supplier

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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 October 2, 2020 and September 27, 2019.

The Company did not have any material contingent liabilities as of October 1, 2021 and October 2, 2020.

Legal expenses are expensed as incurred.

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.

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 (loss) earnings.

NONCONTROLLING INTERESTS

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

In April 2021, the Company acquired all of the remaining shares representing the noncontrolling interests in Direct Conversion such that the Company now owns 100 % of the outstanding shares of common stock of Direct Conversion.

As a result, the Company consolidates Direct Conversion's operations in its consolidated financial statements and no longer records any noncontrolling interest in the equity section of the Company's consolidated balance sheet related to Direct Conversion

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

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Accordingly, the Company has consolidated the operations of the Saudi Arabia partnership in the Company's 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 (loss) earnings.

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 sheets.

Income 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 Medical Solutions AG (“MeVis”), a public company based in Bremen, Germany that provides image processing software and services for cancer screening.

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

Changes in redeemable noncontrolling interests and noncontrolling interests were as follows:

(In millions) Redeemable

Noncontrolling

Interests Noncontrolling

Changes in noncontrolling interests and redeemable noncontrolling interests were as follows:

(In millions) Noncontrolling

Interests Redeemable

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Balance at beginning of period $ 14.1 $ 10.5 $ 3.3

Net earnings attributable to noncontrolling interests 0.5 — 0.5 ( 0.2 )

Contributions from noncontrolling interests — — — 1.4

Net income attributable to noncontrolling interests 0.5 0.5 —

Reclassification of redeemable NCI in MeVis to noncontrolling interests in permanent equity — ( 11.3 ) 11.3

Dividend distributions ( 0.5 ) — ( 0.5 ) —

Other 0.8 ( 0.5 ) ( 0.6 ) —

Other, including foreign currency remeasurement ( 1.4 ) 0.3 ( 0.5 )

Balance at end of period $ 13.2 $ — $ 14.1

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Share-Based Compensation Expense

Share-based compensation expense recognized in the consolidated statements of (loss) earnings is based on awards ultimately expected to vest.

Share-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest.

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

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$ 13.9 $ 13.4 $ 11.7

The unrecognized share-based compensation cost as of October 2, 2020 was $ 24.4 million, and is expected to be recognized in the next 3 to 4 fiscal years.

The unrecognized share-based compensation cost as of October 1, 2021 was $ 22.9 million, and is expected to be recognized over a weighted average period of 2.7 fiscal years.

As of October 1, 2021, there were approximately 4.1 million and 0.3 million shares of common stock available for future issuances under the 2020 Stock Plan and the 2017 ESPP, respectively.

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Options granted generally vest over a period of 36 to 48 months and expire 7 to 10 years from date of grant.

Employee stock purchase plan offering periods are 6 months and provides eligible employees with an opportunity to purchase shares of Varex common stock at 85 % of the lower of its fair market value at the start and end of a six-month purchase period.

The Company has elected to use the simplified method in calculating the expected term of its options due to a lack of sufficient historical information.

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Adequate Company-specific data does not exist for this time period as the Company began trading in January 2017.

The volatility variable used is a blended approach by using

the Company's historic data for the years it has been publicly traded and a benchmark of other comparable companies’ volatility rates for the prior years.

The volatility variable used is a blended approach by using the Company's historic data for the years it has been publicly traded and a benchmark of other comparable companies’ volatility rates for the prior years.

Stock Option Activity

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Aggregate Intrinsic Value (1)

Outstanding at September 27, 2019

Outstanding at October 2, 2020

2,735 $ 13.61 - $ 37.60

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( 323 ) $ 25.17 - $ 37.10

( 64 ) $ 22.84 - $ 23.24

Outstanding at October 1, 2021

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The grant-date fair value of options granted during fiscal years 2021, 2020 and 2019 was $ 3.7 million, $ 4.4 million and $ 3.0 million, respectively.

The total intrinsic value of the options exercised during the years ended October 2, 2020, September 27, 2019 and September 28, 2018 was $ 0.4 million, $ 0.2 million and $ 1.7 million, respectively

The total intrinsic value of the options exercised during the years ended October 1, 2021, October 2, 2020 and September 27, 2019 was $ 0.0 million , $ 0.4 million and $ 0.2 million, respectively

Restricted Stock Units, Restricted Stock Awards and Deferred Stock Units

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Grant-Date Fair

Balance at September 27, 2019

Balance at October 2, 2020

( 199 ) 33.63

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Balance at October 1, 2021

1,080 $ 23.25

The total grant-date fair value of shares granted was $ 8.9 million, $ 11.9 million and $ 9.0 million for fiscal years 2021, 2020 and 2019, respectively.

Shares outstanding at October 2, 2020, September 27, 2019 and September 28, 2018 had an estimated market value of $ 11.8 million, $ 19.2 million and $ 18.4 million, respectively.

TAXES ON EARNINGS

Shares outstanding at October 1, 2021, October 2, 2020 and September 27, 2019 had an estimated market value of $ 30.9 million, $ 11.8 million and $ 19.2 million, respectively.

TAXES ON INCOME

Income tax expense or benefit is based on reported income or loss before income taxes.

Deferred income taxes reflect the effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the amounts that are recognized for income tax purposes.

Deferred income taxes reflect the effect of temporary differences between asset and liability amounts that are recognized for financial reporting purposes and the

amounts that are recognized for income tax purposes.

These deferred taxes are measured by applying currently enacted tax laws.

Valuation allowances are recognized to reduce deferred tax assets to the amount that is more likely than not to be realized.

Taxes on earnings were as follows:

Income tax expense (benefit) was as follows:

(In millions) 2021 2020 2019

Current (benefit) provision:

Current income tax expense (benefit)

$ 5.4 $ ( 16.3 ) $ 9.2

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$ 13.6 $ ( 12.0 ) $ 17.3

Deferred (benefit) provision:

Deferred i ncome tax expense (benefit) :

$ 1.8 $ ( 1.7 ) $ ( 10.0 )

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$ ( 2.9 ) $ ( 3.2 ) $ ( 11.6 )

Taxes on (loss) earnings $ ( 15.2 ) $ 5.7 $ ( 2.6 )

(Loss) earnings before taxes are generated from the following geographic areas:

Income tax expense (benefit) $ 10.7 $ ( 15.2 ) $ 5.7

Income (loss) before taxes are generated from the following geographic areas:

(In millions) 2021 2020 2019

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32.7 1.5 15.6

(Loss) earnings before taxes $ ( 72.6 ) $ 21.5 $ 25.7

Income (loss) before taxes $ 28.6 $ ( 72.6 ) $ 21.5

The effective tax rate differs from the U.S.

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0.3 1.0 ( 0.9 )

Revaluation of deferred tax liabilities for US statutory change

Mandatory repatriation tax on foreign earnings — — 1.9

Domestic production activities deduction

Return to provision 4.2 2.8 ( 4.7 )

Research and development credit

( 4.2 ) 3.7 ( 10.2 )

Prior year research and development credit ( 0.3 ) — —

Prior year deferred tax adjustments — 0.4 4.7

Foreign rate difference 1.7 ( 0.4 ) 6.0

Foreign research innovation box ( 3.8 ) — —

Change in valuation allowance 8.4 ( 11.0 ) 11.2

US tax reform - international provisions — ( 4.7 ) —

US NOL carryback 5.6 — —

tax reform - international provisions ( 0.7 ) — ( 4.7 )

net operating loss carryback 5.2 5.6 —

Other 5.6 ( 2.2 ) 2.2

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37.4 % 20.9 % 26.5 %

(1) Certain prior year amounts have been reclassified to conform to current year presentation.

During fiscal year 2021, t he Company's effective tax rate varied from the U.S.

federal statutory rate of 21% primarily because of the unfavorable impact of U.S.

deferred tax attributes and losses in certain foreign jurisdictions for which a valuation allowance is provided and a reduction in benefit for U.S.

net operating losses carried back to prior years.

These unfavorable items are partially offset by the favorable impact of R&D tax credits and U.S.

tax reform international provisions.

During fiscal year 2020, the Company’s effective tax rate varied from the U.S.

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These favorable tax items were mostly offset by the unfavorable impact of additional losses in certain foreign jurisdictions, limitations on interest expense, and R&D credits for which no benefit is recognized.

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (U.S.

Tax Reform) was enacted in the U.S.

which significantly revised the U.S.

corporate income tax structure.

Among the revisions impacting our effective tax rate are a lower U.S.

corporate statutory rate going from 35% to 21% effective January 1, 2018 and changes to the way foreign earnings are taxed.

As a September

fiscal year filer, the lower corporate income tax rate is phased in from a U.S.

statutory federal rate of 24.5% in fiscal year ending September 28, 2018 to a rate of 21% for the fiscal year ending September 27, 2019.

During fiscal year 2019, the Company’s effective tax rate varied from the U.S.

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tax items were offset by losses in certain foreign jurisdictions for which no benefit is recognized and earnings in other foreign jurisdictions that are taxed at higher rates.

During fiscal year 2018, the Company’s effective tax rate varied from the U.S.

federal statutory rate primarily because of the favorable impact of changes to the U.S.

corporate tax structure resulting from U.S.

During fiscal years 2018 and 2017, the effective tax rate also differs from the U.S.

federal statutory rate due to increases resulting from U.S.

state income tax expense, losses in certain foreign jurisdictions for which no benefit is recognized, earnings in other foreign jurisdictions that are taxed at higher rates, and limitations on the deductibility of officers' compensation.

These are offset by decreases due to U.S.

research and development credits, tax windfalls for share-based compensation, and the release of a valuation allowance against loss carryforwards in certain foreign jurisdictions.

During fiscal year 2019, additional U.S.

Tax Reform provisions, including GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on interest expense deductions (if certain conditions apply), and other components became effective for the Company and, if applicable, have been included in the calculation of the fiscal year 2019 tax provision.

The determination of the tax effects of U.S.

Tax Reform may change following future legislation or further interpretation of U.S.

Tax Reform from U.S.

Federal and state tax authorities.

The guidance for accounting for U.S.

Tax Reform requires taxpayers to make an election regarding the accounting for GILTI.

This policy election is to either:

(1) treat GILTI as a period cost if and when incurred, or (2) recognize deferred taxes for basis differences that are expected to reverse as GILTI in future years.

During the first quarter of fiscal year 2019, the Company has made the accounting policy election to account for GILTI under the period cost method.

The Company has estimated its fiscal year 2021 GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on interest expense deductions, and other components of U.S.

Tax Reform, and have included these amounts in the calculation of the fiscal year 2021 tax provision.

The Company has made an accounting policy election, as allowed by the SEC and FASB, to recognize the impact of GILTI as a period cost if and when incurred.

Significant components of deferred tax assets and liabilities are as follows:

(In millions) October 2, 2020 September 27, 2019

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

Deferred tax assets:

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Accrued vacation 1.0 1.0

Accrued incentives 4.2 1.7

Credit carryforwards 3.3 5.9

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Investments in privately held companies ( 1.8 ) ( 2.8 )

Right of use assets ( 6.7 ) —

Operating lease assets ( 6.5 ) ( 6.7 )

Other ( 1.3 ) ( 1.3 )

Total deferred tax liabilities ( 36.5 ) ( 39.8 )

Net deferred tax liabilities $ ( 1.8 ) $ ( 8.2 )

Net deferred tax assets $ 1.8 $ ( 1.8 )

Deferred tax assets $ 38.3 $ 38.0

Deferred tax liabilities ( 36.5 ) ( 39.8 )

Net deferred tax liabilities $ ( 1.8 ) $ ( 8.2 )

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

taxation of foreign earnings included in U.S.

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 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.

For the year ended October 2, 2020, the Company maintains these assertions.

Net deferred tax assets (liabilities) $ 1.8 $ ( 1.8 )

(1) Certain prior year amounts have been reclassified to conform to current year presentation.

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the year ended October 1, 2021, which is that all earnings prior to fiscal year 2018 are permanently reinvested for all countries, and that all earnings for Direct Conversion, located primarily in Sweden and Finland, are also indefinitely reinvested in those countries, but post fiscal year 2017 earnings in all other countries are not permanently reinvested.

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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This estimated liability is for U.S.

State income taxes and foreign withholding taxes that would apply if the foreign earnings were actually repatriated in the form of a dividend.

state income taxes and foreign withholding taxes that would apply if the foreign earnings were repatriated in the form of a dividend.

As of October 1, 2021, the Company had foreign net operating loss carryforwards ("NOL") of approximately $ 25.7 million with $ 2.6 million expiring between 2021 and 2030 and $ 23.1 million carried forward indefinitely.

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On July 2, 2020, the US Treasury Department issued a regulation providing an election to waive NOL carryback to a former consolidated group.

The Company has evaluated the impact of the CARES Act and concludes the NOL carryback provision of the CARES Act will result in a material cash tax benefit.

The valuation allowance relates primarily to net operating losses in certain foreign jurisdictions where, based on the weight of available evidence, it is more likely than not that the tax benefit of the net operating losses will not be realized.

During fiscal year 2021, the Company filed NOL carryback claims for U.S.

losses incurred during fiscal year 2020 and anticipates cash tax refunds on those claims.

The valuation allowance relates primarily to net operating losses in certain foreign jurisdictions, limitations on interest expense deductions, and other deferred tax attributes where, based on the weight of available evidence, it is more likely than not that the tax benefit will not be realized.

The valuation allowance increased by $ 1.5 million during fiscal year 2021 and increased by $ 9.9 million during fiscal year 2020.

The increase during the current year was primarily related to net operating losses in certain foreign jurisdictions, limitations on interest expense, and U.S.

Federal and State research and development tax credits.

The increase during the current year was primarily related to other U.S.

deferred tax attributes.

Changes in the Company's valuation allowance for deferred tax assets were as follows:

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Valuation allowance balance—end of fiscal year $ 30.2 $ 28.7 $ 18.8

During fiscal year 2020, the Company paid U.S and foreign taxes of approximately $ 4.2 million.

In fiscal year 2019, the Company paid U.S.

and foreign taxes of approximately $ 8.2 million.

The Company accounts for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions.

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Unrecognized tax benefits balance–beginning of fiscal year $ 0.8 $ 0.6

Additions (subtractions) based on tax positions related to a prior year 0.2 ( 0.2 )

Additions based on tax positions related to a prior year 0.4 0.2

Additions based on tax positions related to the current year 0.1 —

Reductions resulting from the expiration of the applicable statute of limitations ( 0.2 ) —

Unrecognized tax benefits balance—end of fiscal year $ 1.1 $ 0.8

As of October 2, 2020 and September 27, 2019, the total amount of gross unrecognized tax benefits was $ 0.8 million and $ 0.6 million, respectively, all of which would affect the effective tax rate if recognized.

The Company includes interest and penalties related to income taxes within taxes (benefit) on earnings on the consolidated statements of (loss) earnings.

As of October 1, 2021 and October 2, 2020, the total amount of gross unrecognized tax benefits was $ 1.1 million and $ 0.8 million, respectively, all of which would affect the effective tax rate if recognized.

The Company includes interest and penalties related to income taxes within income tax expense (benefit) on the consolidated statements of operations.

For the year ended October 1, 2021, $ 0.2 million interest and penalties have been included for this period.

For the year ended October 2, 2020, $ 0.1 million interest and penalties have been included for this period.

For the year ended September 27, 2019, $ 0.1 million interest and penalties have been included for this period.

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All of these returns are subject to examination by their respective taxing jurisdictions from the date of filing through each applicable statute of limitation period.

The Company’s significant operations up to the date of separation have historically been included in Varian’s U.S.

federal and state income tax returns and non-U.S.

jurisdiction tax returns.

Material liabilities arising related to the pre-spin operations would be the responsibility of Varian.

Other periods for entities acquired are still open and subject to examination.

Generally, periods prior to 2011 are no longer subject to examination.

During fiscal year 2021, the New York Department of Finance and Taxation and the Utah State Tax Commission commenced examinations of Varex’s tax returns for the years 2017, 2018, and 2019.

The Swedish Tax Agency will commence an examination of Direct Conversion’s tax returns for the fiscal year 2019 in fiscal year 2022.

Although the outcome of tax audits are uncertain, based on currently available information, the Company believes the outcomes will not have a material adverse effect on the Company’s financial position.

SEGMENT INFORMATION

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 Company has two reportable operating segments:

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

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 CEO, 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 profit.

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Interest and other expense, net ( 45.5 ) ( 38.9 ) ( 24.2 )

(Loss) earnings before taxes ( 72.6 ) 21.5 25.7

Taxes (benefit) on earnings

( 15.2 ) 5.7 ( 2.6 )

Net (loss) earnings ( 57.4 ) 15.8 28.3

Net earnings attributable to noncontrolling interests

Net (loss) earnings attributable to Varex $ ( 57.9 ) $ 15.5 $ 27.5

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

(In millions)

October 2, 2020 September 27, 2019

Identifiable assets:

$ 900.2 $ 794.3

Total reportable segments

$ 1,139.5 $ 1,038.9

Income (loss) before taxes 28.6 ( 72.6 ) 21.5

Income tax expense (benefit) 10.7 ( 15.2 ) 5.7

Net income (loss) 17.9 ( 57.4 ) 15.8

Net income attributable to noncontrolling interests 0.5 0.5 0.3

Net income (loss) attributable to Varex $ 17.4 $ ( 57.9 ) $ 15.5

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

Geographic Information

Revenues Property, plant and equipment, net

Revenues Long-Lived Assets

Fiscal Years Fiscal Years

(In millions) 2021 2020 2019 2021 2020

United States

$ 268.5 $ 255.0 $ 282.6 $ 105.4 $ 115.9

Latin America

276.3 231.5 269.0 23.9 21.5

273.3 251.8 229.0 10.9 7.8

251.8 229.0 243.1 7.8 8.3

Total company

$ 818.1 $ 738.3 $ 780.6 $ 140.2 $ 145.2

Revenue in the United States of America was $ 262.3 million, $ 249.8 million and $ 275.3 million in fiscal years 2021, 2020 and 2019, respectively.

The Company operates various manufacturing and marketing operations outside the United States.

Latin America includes Brazil and Mexico.

Americas includes North and South America.

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

6 unchanged sentences

The Company also maintains defined benefit plans for employees located outside the US.

The net pension liability is included in other long-term liabilities on the Company's consolidated balance sheets and totaled $ 6.5 million and $ 5.5 million as of October 2, 2020 and September 27, 2019, respectively.

The net pension liability is included in other long-term liabilities on the Company's consolidated balance sheets and totaled $ 5.9 million and $ 6.5 million as of October 1,

2021 and October 2, 2020, respectively.

The Company’s net periodic benefit costs for the Company’s defined benefit plans were not material for fiscal years 2021, 2020 and 2019.

OTHER COMPREHENSIVE (LOSS) INCOME

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

The following tables present the changes in the accumulated balances for each component of other comprehensive income (loss):

2 unchanged sentences

Balance at September 27, 2019 $ ( 0.4 ) $ ( 1.3 ) $ — $ ( 1.7 )

Other comprehensive loss before reclassifications

( 8.3 ) ( 1.9 ) — ( 10.2 )

Income tax benefit

2.1 0.6 — 2.7

Foreign currency translation adjustment

Balance at September 27, 2019 $ ( 0.4 ) $ ( 1.3 ) $ — $ ( 1.7 )

Other comprehensive (loss) income before reclassifications

1 unchanged sentence

Amount reclassified out of other comprehensive income 1.5 — — 1.5

Amount reclassified out of other comprehensive earnings - transaction remote 2.4 — — 2.4

Amount reclassified out of other comprehensive income - transaction remote 2.4 — — 2.4

Income tax impact

2 unchanged sentences

Balance at October 2, 2020 $ — $ ( 0.7 ) $ 1.5 $ 0.8

Other comprehensive loss before reclassifications

— ( 0.1 ) ( 0.3 ) ( 0.4 )

Income tax impact

Foreign currency translation adjustment

— — ( 0.5 ) ( 0.5 )

Balance at October 1, 2021 $ — $ ( 0.8 ) $ 0.8 $ —

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 9A. Controls and Procedures