Varex Imaging Corp 10-K

Item 9A. Controls and Procedures. 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, 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 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 47 "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: We did not maintain an effective control environment as we 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 our internal control over financial reporting are appropriately applied, prioritized, and implemented in a timely manner. • Risk Assessment: We did not design and maintain an effective risk assessment process to identify and assess the risks in our business processes. 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. • Inventory and cost of revenues: 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 existence, accuracy, and presentation and disclosure of inventory. Specifically, we did not maintain effective controls related to the verification of inventory at third party vendor locations and the presentation and disclosure of inventory classification. • Financial Reporting: 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 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. 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: improve our talent acquisition and retention platforms; enhance technical, transactional and control knowledge of our accounting teams; and created a culture of accountability and control. These programs have significantly improved the stability of our global accounting organization. • 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. 48 • 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 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. 49 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. 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. /s/ Deloitte & Touche LLP Salt Lake City, Utah November 19, 2021 50 Item 9B. Other Information None. PART III Item 10. Directors, Executive Officers and Corporate Governance Directors and Executive Officers 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 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 We have adopted a Code of Conduct that applies to all of our executive officers and directors. 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 persons performing similar functions by posting such information on our website, specified above. Item 11. Executive Compensation. 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 “Executive Compensation.” Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Equity Compensation Plan Information The following table provides information as of October 1, 2021 with respect to the shares of our common stock that may be issued under our existing equity compensation plans. Plan Category (amounts in thousands except per share data) Number of securities to be issued upon exercise of outstanding options, warrants and rights (1) (a) Weighted average exercise price of outstanding options, warrants, and rights (2) (b) Number of securities remaining available for future issuance under equity compensation plans (3) (excluding securities reflected in columns (a) and (b)) Equity compensation plans approved by security holders 3,891 $ 28.69 4,349 Equity compensation plans not approved by security holders — — — Total 3,891 $ 28.69 4,349 (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 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 2022 Annual 51 Meeting of Stockholders under the caption “Stock Ownership—Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.” Item 13. 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 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.” Item 14. Principal Accountant Fees and Services. 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.” 52 Table of Contents PART IV Item 15. Exhibits, Consolidated Financial Statements and Financial Statement Schedules. Documents filed as part of this annual report include: 1. Consolidated Financial Statements. We have filed the consolidated financial statements listed in the index to Consolidated Financial Statements, Schedules and Exhibits on page F-1 as part of this annual report on Form 10 - K. 2. Financial Statement Schedules and Other. All financial statement schedules have been omitted because they are not applicable, or not material or the required information is shown in the consolidated financial statements or the notes thereto. 3. Exhibits. The exhibits listed below are filed as part of this annual report on Form 10-K. Exhibit Number Description 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* Assignment and Assumption Agreement, dated January 27, 2017, by and between Varian Medical Systems, Inc. and Varex Imaging Corporation (incorporated by reference to Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q filed May 12, 2017). 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 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 (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). 10.2* Tax Matters Agreement, dated as of January 27, 2017 by and between Varian and Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 30, 2017). 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 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). 10.6*† Varex Imaging Corporation 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 99.1 to the Company’s Form S-8, filed January 27, 2017). 53 Table of Contents 10.7*† Form of Nonqualified Stock Option Agreement under the 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed February 16, 2017). 10.8*† Form of Restricted Stock Unit Award Agreement under the 2017 Omnibus Stock Plan (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed February 16, 2017). 10.9*† Varex Imaging Corporation 2017 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 99.2 to the Company’s Form S-8, filed January 27, 2017). 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 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). 10.13*† Varex Imaging Corporation 2016 Deferred Compensation Plan (incorporated by reference to Exhibit 10.6 to Amendment No. 2 to Form 10 filed by the Company on December 8, 2016). 10.14*† Varex Imaging Corporation Frozen Deferred Compensation Plan (incorporated by reference to Exhibit 10.7 to Amendment No. 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 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 (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). 10.20* Form of Base Warrant Confirmation, dated June 4, 2020, between Varex Imaging Corporation and each of the counterparties thereto (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed June 9, 2020). 10.21* Form of Additional Convertible Bond Hedge Confirmation, dated June 5, 2020, between Varex Imaging Corporation and each of the counterparties thereto (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed June 9, 2020). 10.22* Form of Additional Warrant Confirmation, dated June 5, 2020, between Varex Imaging Corporation and each of the Counterparties (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K filed June 9, 2020). 10.23* Share Purchase Agreement dated March 21, 2019 between Varex Imaging Corporation, Varex Imaging Investments, B.V. and certain shareholders of Direct Conversions AB (publ) (incorporated by reference to Exhibit 10.1 to Company's Quarterly Report on Form 10-Q filed on May 8, 2019). 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 (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 54 Table of Contents 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. 31.2 Chief Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act. 32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Taxonomy Extension Label Linkbase Document 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. Item 16. Form 10-K Summary None 55 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. VAREX IMAGING CORPORATION Date: November 19, 2021 By: /s/ Shubham Maheshwari Shubham Maheshwari Chief Financial Officer (Duly Authorized Officer and Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Capacity Date /s/ SUNNY S. SANYAL President and Chief Executive Officer and Director (Principal Executive Officer) November 19, 2021 Sunny S. Sanyal /s/ SHUBHAM MAHESHWARI Chief Financial Officer (Principal Financial and Accounting Officer) November 19, 2021 Shubham Maheshwari /s/ RUEDIGER NAUMANN-ETIENNE Chairman of the Board November 19, 2021 Ruediger Naumann-Etienne /s/ JOCELYN D. CHERTOFF Director November 19, 2021 Jocelyn D. Chertoff /s/ TIMOTHY E. GUERTIN Director November 19, 2021 Timothy E. Guertin /s/ JAY K. KUNKEL Director November 19, 2021 Jay K. Kunkel /s/ WALTER M ROSEBROUGH, JR. Director November 19, 2021 Walter M Rosebrough, Jr. /s/ CHRISTINE A. TSINGOS Director November 19, 2021 Christine A. Tsingos 56 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firms F- 1 Consolidated Statements of Operations for the fiscal years ended 202 1 , 20 20 and 201 9 F- 4 Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended 202 1 , 20 20 and 201 9 F- 5 Consolidated Balance Sheets as of the end of fiscal years 202 1 and 20 2 0 F- 6 Consolidated Statements of Stockholders' Equity for the fiscal years 2021, 2020 and 201 9 F- 7 Consolidated Statements of Cash Flows for the fiscal years ended 2021, 2020 and 201 9 F- 8 Notes to the Consolidated Financial Statements F- 9 57 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. F-1 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. F-2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Varex Imaging Corporation 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 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 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. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP Salt Lake City, Utah November 30, 2020 We served as the Company's auditor from 2016 to 2020. F-3 Table of Contents VAREX IMAGING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Fiscal Years (In millions, except per share amounts) 2021 2020 2019 Revenues, net $ 818.1 $ 738.3 $ 780.6 Cost of revenues 546.6 548.1 523.9 Gross profit 271.5 190.2 256.7 Operating expenses: Research and development 71.9 78.9 78.1 Selling, general and administrative 125.5 142.2 128.1 Impairment of intangible assets — 2.8 4.8 Total operating expenses 197.4 223.9 211.0 Operating income (loss) 74.1 ( 33.7 ) 45.7 Interest income 0.1 0.1 0.1 Interest expense ( 42.1 ) ( 31.4 ) ( 21.1 ) Other expense, net ( 3.5 ) ( 7.6 ) ( 3.2 ) Interest and other expense, net ( 45.5 ) ( 38.9 ) ( 24.2 ) 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 Less: 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 Diluted $ 0.43 $ ( 1.49 ) $ 0.40 Weighted average common shares outstanding Basic 39.3 38.8 38.2 Diluted 40.3 38.8 38.6 See accompanying notes to the consolidated financial statements. F-4 Table of Contents VAREX IMAGING CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) Fiscal Years (In millions) 2021 2020 2019 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 (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 income (loss) 17.1 ( 54.9 ) 8.3 Less: 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. F-5 Table of Contents VAREX IMAGING CORPORATION CONSOLIDATED BALANCE SHEETS (In millions, except share amounts) October 1, 2021 October 2, 2020 Assets Current assets: Cash and cash equivalents $ 144.6 $ 100.6 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 155.3 123.8 Inventories 224.8 271.9 Prepaid expenses and other current assets 29.5 25.7 Total current assets 554.2 522.0 Property, plant and equipment, net 140.2 145.2 Goodwill 292.2 293.1 Intangible assets, net 50.7 67.5 Investments in privately-held companies 49.3 51.3 Deferred tax assets 4.0 0.5 Operating lease assets 24.3 27.7 Other assets 32.6 32.2 Total assets $ 1,147.5 $ 1,139.5 Liabilities and stockholders' equity Current liabilities: Accounts payable $ 58.8 $ 72.9 Accrued liabilities and other current liabilities 89.7 70.5 Current operating lease liabilities 6.2 6.1 Current maturities of long-term debt 2.8 2.5 Deferred revenues 9.1 8.6 Total current liabilities 166.6 160.6 Long-term debt, net 431.7 452.8 Deferred tax liabilities 2.2 2.3 Operating lease liabilities 18.7 23.1 Other long-term liabilities 31.8 34.9 Total liabilities 651.0 673.7 Commitments and contingencies (Note 13) Stockholders' equity: Preferred stock, $ 0.01 par value: 20,000,000 shares authorized, none issued — — Common stock, $ 0.01 par value: 150,000,000 shares authorized Shares issued and outstanding: 39,435,830 and 39,059,094 at October 1, 2021 and October 2, 2020, respectively 0.4 0.4 Additional paid-in capital 449.4 434.4 Accumulated other comprehensive income — 0.8 Retained earnings 33.5 16.1 Total Varex stockholders' equity 483.3 451.7 Noncontrolling interests 13.2 14.1 Total stockholders' equity 496.5 465.8 Total liabilities and stockholders' equity $ 1,147.5 $ 1,139.5 See accompanying notes to the consolidated financial statements. F-6 Table of Contents VAREX IMAGING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Retained Earnings Total Varex Equity Noncontrolling Interests Total Stockholders' Equity (In millions) Shares Amount September 28, 2018 38.0 $ 0.4 $ 357.6 $ 5.8 $ 62.4 $ 426.2 $ 2.1 $ 428.3 Cumulative effect of accounting change — — — — ( 3.5 ) ( 3.5 ) — ( 3.5 ) Net income (loss) — — — — 15.5 15.5 ( 0.2 ) 15.3 Exercise of stock options — — 0.8 — — 0.8 — 0.8 Common stock issued upon vesting of restricted shares 0.2 — — — — — — — Shares withheld on vesting of restricted stock — — ( 2.1 ) — — ( 2.1 ) — ( 2.1 ) Common stock issued under employee stock purchase plan 0.2 — 3.8 — — 3.8 — 3.8 Share-based compensation — — 11.7 — — 11.7 — 11.7 Unrealized loss on interest rate swap contracts, net of tax — — — ( 6.2 ) — ( 6.2 ) — ( 6.2 ) Unrealized loss on defined benefit obligations, net of tax — — — ( 1.3 ) — ( 1.3 ) — ( 1.3 ) Noncontrolling interest acquired/consolidated — — — — — — 1.4 1.4 September 27, 2019 38.4 $ 0.4 $ 371.8 $ ( 1.7 ) $ 74.4 $ 444.9 $ 3.3 $ 448.2 Cumulative effect of accounting change — — — — ( 0.3 ) ( 0.3 ) — ( 0.3 ) Net loss — — — — ( 57.9 ) ( 57.9 ) — ( 57.9 ) Exercise of stock options 0.1 — 1.5 — — 1.5 — 1.5 Common stock issued upon vesting of restricted shares 0.2 — — — — — — — Shares withheld on vesting of restricted stock ( 0.1 ) — ( 1.8 ) — — ( 1.8 ) — ( 1.8 ) Common stock issued under employee stock purchase plan 0.2 — 3.6 — — 3.6 — 3.6 Share-based compensation — — 13.4 — — 13.4 — 13.4 Unrealized gain on interest rate swap contracts, net of tax — — — 0.4 — 0.4 — 0.4 Unrealized gain on defined benefit obligations, net of tax — — — 0.6 — 0.6 — 0.6 Conversion feature of Convertible Notes, net of issuance costs — — 49.7 — — 49.7 — 49.7 Purchase of hedges — — ( 61.0 ) — — ( 61.0 ) — ( 61.0 ) Issuance of warrants — — 49.8 — — 49.8 — 49.8 Foreign currency translation adjustments — — — 1.5 — 1.5 — 1.5 Shares issued to settle deferred consideration 0.3 — 7.4 — — 7.4 — 7.4 Reclassification from mezzanine equity to equity for noncontrolling interest in MeVis Medical Solutions, AG — — — — — — 11.3 11.3 Other — — — — ( 0.1 ) ( 0.1 ) ( 0.5 ) ( 0.6 ) 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. F-7 Table of Contents VAREX IMAGING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal Years (In millions) 2021 2020 2019 Cash flows from 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 Depreciation 20.5 22.3 23.5 Amortization of intangible assets 16.8 17.2 15.7 Impairment of intangible assets — 2.8 4.8 Other assets impairment charges 0.5 2.7 — Inventory write-down 3.5 18.1 3.1 Deferred taxes ( 3.0 ) ( 3.1 ) ( 12.9 ) Amortization of deferred loan costs 10.0 5.1 2.4 Loss from equity method investments, net of dividends received 3.0 1.3 2.3 Other, net 1.3 4.7 0.8 Changes in assets and liabilities, net of effects of acquisitions: Accounts receivable ( 32.9 ) 17.7 14.8 Inventories 42.8 ( 42.7 ) ( 11.1 ) Prepaid expenses and other assets ( 0.9 ) ( 9.3 ) 4.3 Accounts payable ( 13.6 ) 14.3 ( 9.0 ) Accrued operating liabilities and other long-term operating liabilities 12.2 8.1 10.9 Deferred revenues 0.6 ( 2.0 ) ( 5.2 ) Net cash provided by operating activities 92.6 13.2 71.9 Cash flows from investing activities: Purchases of property, plant and equipment ( 15.1 ) ( 23.5 ) ( 19.8 ) Acquisitions of businesses, net of cash acquired — ( 1.6 ) ( 69.5 ) 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 ) Cash flows from financing activities: Proceeds from issuance of debt 1.5 593.8 85.4 Repayments of borrowings ( 33.1 ) ( 483.9 ) ( 87.0 ) Payment of debt issuance costs — ( 16.7 ) ( 0.5 ) Proceeds from issuance of warrant — 49.8 — Purchases of hedges — ( 61.0 ) — Proceeds from shares issued under employee stock purchase plan 2.8 3.6 3.8 Proceeds from exercise of stock options — 1.5 0.8 Taxes related to net share settlement of equity awards ( 1.5 ) ( 1.8 ) ( 2.1 ) Other financing activities ( 2.0 ) ( 1.7 ) ( 0.5 ) 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 ) Net increase (decrease) in cash and cash equivalents and restricted cash 44.0 70.8 ( 22.1 ) Cash and cash equivalents and restricted cash at beginning of period 102.1 31.3 53.4 Cash and cash equivalents and restricted cash at end of period $ 146.1 $ 102.1 $ 31.3 Supplemental cash flow information: Cash paid for interest $ 21.6 $ 16.7 $ 19.9 Cash paid for income tax, net of refunds 14.1 4.2 8.2 Supplemental non-cash activities: Purchases of property, plant and equipment financed through accounts payable $ 1.5 $ 1.6 $ 1.8 See accompanying notes to the consolidated financial statements. F-8 Table of Contents VAREX IMAGING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business Varex Imaging Corporation (the “Company,” “Varex” or “Varex Imaging”) designs, manufactures, sells and services a broad range of Medical products, which include X-ray tubes, digital detectors and accessories, high voltage connectors, image processing software and workstations, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, ionization chambers and buckys, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, computed tomography, oncology and computer-aided detection. The Company sells its products to imaging system original equipment manufacturer (“OEM”) customers for incorporation into new medical diagnostic, radiation therapy, dental, and veterinary, to independent service companies, distributors and directly to end-users for replacement purposes. 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 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. See Note 17. Segment Information, included in this report, for further information on the Company’s segments. Fiscal Year The fiscal years of the Company as reported are the 52 or 53-week period ending on the Friday nearest September 30. Fiscal year 2021 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 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 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, 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. F-9 Table of Contents Impact of COVID-19 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 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 credit losses. 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. Cash and Cash Equivalents The Company considers currency on hand, demand deposits, time deposits and all highly-liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents. Restricted Cash Restricted cash primarily consists of cash collateral related to certain leases and inventory arrangements. Restricted cash is 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 1, 2021 Twelve Months Ended October 2, 2020 (In millions) Beginning of Period End of Period Beginning of Period End of Period Cash and cash equivalents $ 100.6 $ 144.6 $ 29.9 $ 100.6 Restricted cash 1.5 1.5 1.4 1.5 Cash and cash equivalents and restricted cash as reported per statement of cash flows $ 102.1 $ 146.1 $ 31.3 $ 102.1 Fair Value Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows: Level 1—Quoted prices in active markets for identical assets or liabilities. Level 2—Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or, other inputs that are observable or can be corroborated by observable market data. Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Derivative instruments and hedging activities 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 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 F-10 Table of Contents 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. Concentration of Risk Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. Cash held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. The Company has not experienced any losses on its deposits of cash and cash equivalents. The Company performs ongoing credit evaluations of its customers and, except for government tenders, group purchases and orders with a letter of credit, its industrial customers often provide a down payment. The Company maintains an allowance for doubtful accounts based upon the expected collectability of all accounts receivable. The Company obtains some of the components in its products from a limited group of suppliers or from a single-source supplier. Credit is extended to customers based on an evaluation of the customer’s financial condition, and collateral is not required. 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: Fiscal Year 2021 2020 2019 Canon Medical Systems Corporation 17.9 % 20.5 % 17.3 % 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 Inventories are valued at the lower of cost or net realizable value. 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. 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. The following table summarizes the Company’s inventories, net: (In millions) October 1, 2021 October 2, 2020 Raw materials and parts $ 168.0 $ 184.6 Work-in-process 20.4 23.9 Finished goods 36.4 63.4 Total inventories $ 224.8 $ 271.9 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 Property, plant and equipment are stated at cost, net of accumulated depreciation. Major improvements are capitalized, while repairs and maintenance are expensed as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or remaining lease term. Land is not subject to depreciation, but land improvements are depreciated over fifteen years . Land leasehold rights and leasehold improvements are depreciated over the lesser of their estimated useful lives or remaining lease terms. Buildings are depreciated up to thirty years . Machinery and equipment are depreciated over a range from three to seven years . Assets subject to lease are depreciated over the lesser of their estimated useful lives or remaining lease terms. 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 F-11 Table of Contents amounts. 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 1, 2021 October 2, 2020 Land $ 8.3 $ 8.3 Buildings and leasehold improvements 148.7 137.2 Machinery and equipment 179.7 175.5 Construction in progress 18.1 35.4 354.8 356.4 Accumulated depreciation and amortization ( 214.6 ) ( 211.2 ) Property, plant, and equipment, net $ 140.2 $ 145.2 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 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. See Note 6. Restructuring , included in this report, for further information. Investments 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, 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 Goodwill is recorded when the purchase price of an acquisition exceeds the fair value of the net identified tangible and intangible assets acquired. Purchased intangible assets are carried at cost, net of accumulated amortization, and are included in intangible assets in the Company's consolidated balance sheets. Intangible assets with finite lives are amortized over their estimated useful lives of primarily two to seven years using the straight-line method. Impairment of Long-lived Assets, Intangible Assets and Goodwill The Company reviews long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. The Company assesses these assets for impairment based on their estimated undiscounted future cash flows. If the carrying value of the assets exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. The Company evaluates goodwill and indefinite lived intangible assets 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. The evaluation includes consideration of qualitative factors including industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit. If the Company determine that a quantitative analysis is necessary, the Company performs a step one analysis, which consists of a comparison of the fair value of a reporting unit against its carrying amount, including the goodwill allocated to each reporting unit. The Company 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. 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 F-12 Table of Contents 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. 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 From time to time, the Company is involved in legal proceedings, claims and government inspections or investigations, customs and duties audits, other contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts for probable losses, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value). A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision. When a loss contingency is probable but not reasonably estimable the nature of the contingency and the fact that an estimate cannot be made is disclosed. See Note 13. Commitments and Contingencies, for further information regarding certain of our contractual obligations and contingencies. Product Warranty The Company warrants most of its products for a specific period of time, usually 12 to 24 months from delivery or acceptance, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty. The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as a reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required. The following table reflects the changes in the Company’s accrued product warranty: Fiscal Years (In millions) 2021 2020 Accrued product warranty, at beginning of period $ 8.1 $ 8.1 Charged to cost of revenues 13.0 15.1 Actual product warranty expenditures ( 12.6 ) ( 15.1 ) Accrued product warranty, at end of period $ 8.5 $ 8.1 Leases The Company determines if an arrangement is or contains a lease at the inception of an arrangement. The Company's operating lease right-of-use ("ROU") assets represent the right to use an underlying asset over the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets may also include initial direct costs incurred and prepaid lease payments, less lease incentives. Lease liabilities and their corresponding ROU assets are recognized based on the present value of lease payments over the lease term, discounted using the Company's incremental borrowing rate ("IBR"). The Company recognizes operating leases with lease terms of more than twelve months in operating lease assets, current operating lease liabilities, and operating lease liabilities on its consolidated balance sheets. The Company recognizes finance leases with lease terms of more than twelve months in property, plant, and equipment, net, accrued liabilities and other current liabilities, and other long-term liabilities on its consolidated balance sheets. For purposes of calculating lease liabilities and the corresponding ROU assets, the Company's lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option. F-13 Table of Contents Revenue Recognition Effective September 29, 2018, the Company adopted the requirements of Accounting Standards Update (“ASU”) 2014-09 and related amendments, Revenue from Contracts with Customers (“ASC 606”), which superseded all prior revenue recognition methods and industry-specific guidance. The Company’s revenues are derived primarily from the sale of hardware and services. The Company recognizes its revenues net of any value-added or sales tax and net of sales discounts. The Company sells a high proportion of its X-ray products to a limited number of OEM customers. X-ray tubes, digital detectors and image-processing tools and security and inspection products are generally sold on a stand-alone basis. However, the Company occasionally sells its digital detectors, X-ray tubes and imaging processing tools as a package that is optimized for digital X-ray imaging and sells its Linatron ® X-ray accelerators together with its imaging processing software and image detection products to OEM customers that incorporate them into their inspection systems. Service contracts are often sold with certain security and inspection products and computer-aided detection products. The Company determines revenue recognition through the following steps: • Identification of the contract, or contracts, with a customer • Identification of the performance obligations in the contract • Determination of the transaction price • Allocation of the transaction price to the performance obligations in the contract • Recognition of revenue when, or as, a performance obligation is satisfied Transaction price and allocation to performance obligations Transaction prices of products or services are typically based on contracted rates. To the extent that the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method when there is a large number of transactions with similar characteristics or the most likely amount method when there are two possible outcomes, depending on the circumstances of the transaction, to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The Company allows customers to return specific parts of purchased X-ray tubes for a partial refund credit, which is identified as variable consideration. 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. The Company records this estimate based on the historical volume of product returns and adjusts the estimate on a quarterly basis based on the current quarter sales and current quarter returns. If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation is sold separately. Contracts and performance obligations The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable. The Company's performance obligations consist mainly of transferring control of products and services identified in the contracts or purchase orders. For each contract, the Company considers the obligation to transfer products and services to the customer, which are distinct, to be performance obligations. Recognition of revenue Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer. 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. F-14 Table of Contents 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. Disaggregation of Revenue Revenue is disaggregated from contracts between geography and by reportable operating segment, which the Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Refer to Note 17. Segment Information, included in this report, for the disaggregation of the Company’s revenue based on reportable operating segments and disaggregated by geographic region. Contract Balances Contract assets are included within the Prepaid expenses and other current assets, and Other assets balances in the consolidated balance sheets. Contract liabilities, which also includes refund obligations, are included within the Accrued liabilities and other current liabilities, Deferred revenues, and Other long-term liabilities balances in the consolidated balance sheets. Costs to Obtain or Fulfill a Customer Contract The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs. The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. Incremental costs of obtaining contracts that would be recognized over greater than one year are not material. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. These costs are included as a component of cost of revenues. Deferred Revenues Deferred revenue primarily represents (i) the amount received applicable to non-software products for which parts and services under the warranty contracts have not been delivered, and (ii) the amount received for service contracts for which the services have not been rendered. 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 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 The Company has an equity-based incentive plan that provides for the grant of nonqualified stock options and restricted stock units to directors, officers and other employees. The Company also permits employees to purchase shares under the Varex employee stock purchase plan. The Company values stock options granted and the option component of the shares of common stock purchased under the equity-based incentive plans and stock purchased under the employee stock purchase plan using the Black-Scholes option-pricing model. Share-based compensation expense for restricted stock units is measured using the fair value of the Company’s stock on the date of grant and is amortized over the award’s respective service period. The Black-Scholes option-pricing model requires the input of certain assumptions, and changes in the assumptions can materially affect the fair value estimates of share-based payment awards. 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 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. The Company attributes the value of share-based compensation to expense using the straight-line method. The Company considers only the direct tax impacts of share-based compensation awards when calculating the amount of tax windfalls or shortfalls. For additional information, see Note 15. Employee Stock Plans , included in this report. F-15 Table of Contents Software Development Costs Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. No costs associated with the development of software have been capitalized, as the Company believes its current software development process is essentially completed concurrent with the establishment of technological feasibility. Research and Development Research and development costs are expensed as incurred. These costs primarily include employees’ compensation, consulting fees and material costs. 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. U.S. 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 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 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. 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 The Company uses the U.S. Dollar predominately as the functional currency of its foreign operations. Gains and losses from remeasurement of foreign currency balances into U.S. 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 income. Recently Adopted Accounting Pronouncements 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. F-16 Table of Contents 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. 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. 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 (e.g., LIBOR) reform on financial reporting. 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. The Company does not expect that the new guidance will have a material impact on its financial position, results of operations, or cash flows. 2. REVENUE RECOGNITION 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 Balance at September 27, 2019 $ 23.7 Costs recovered from product returns during the period ( 5.6 ) Contract asset from shipments of products, subject to return during the period 6.5 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 (In millions) Refund Liabilities Balance at September 27, 2019 $ 26.4 Release of refund liability included in beginning of year refund liability ( 6.2 ) Additions to refund liabilities 7.2 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 F-17 Table of Contents 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. Remaining Performance Obligations Remaining performance obligations represent the transaction price of firm orders for which revenue has not yet been recognized, which are primarily related to contracts where control will be transferred to customers over the next 12 months. See Note 1. Summary of Significant Accounting Policies, for details on the nature of the remaining performance obligations within these contracts and how they will be resolved. 3. LEASES On September 28, 2019, the Company adopted ASC 842, which amends the guidance for the accounting and reporting of leases. The determination of whether an arrangement is, or contains, a lease is performed at the inception of the arrangement. The Company has operating and finance leases for office space, warehouse and manufacturing space, vehicles, and certain equipment. The Company's lease agreements do not contain any material residual value guarantees, variable lease costs, bargain purchase options or restrictive covenants. The Company does not have any lease transactions with related parties. Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a straight-line basis over the lease term. The Company's leases have remaining lease terms of one year to approximately 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. Right-of-use assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease contract. Operating lease liabilities and their corresponding right-of-use assets are recorded based on the present value of fixed lease payments over the expected lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company's incremental borrowing rate is based on a credit-adjusted risk-free rate, which best approximates a secured rate over a similar term of lease. The following table presents supplemental balance sheet information related to the Company's operating and finance leases: (In millions) Balance Sheet Location October 1, 2021 October 2, 2020 Assets Operating lease right-of-use assets Operating lease assets $ 24.3 $ 27.7 Finance lease right-of-use assets Property, plant and equipment, net 0.5 0.5 Liabilities Operating lease liabilities (current) Current operating lease liabilities 6.2 6.1 Finance lease liabilities (current) Accrued liabilities and other current liabilities 0.2 0.2 Operating lease liabilities (non-current) Operating lease liabilities 18.7 23.1 Finance lease liabilities (non-current) Other long-term liabilities $ 0.3 $ 0.4 The following table presents the weighted average remaining lease term and discount rate information related to the Company's operating and finance leases: F-18 Table of Contents 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) October 1, 2021 October 2, 2020 Total operating lease costs (a) $ 8.1 $ 8.4 Total finance lease costs $ 0.3 $ 0.3 Operating cash flows from operating leases $ 7.9 $ 8.0 Financing cash flows from finance leases 0.2 0.3 Total cash paid for amounts included in the measurement of lease liabilities $ 8.1 $ 8.3 Noncash operating right-of-use assets obtained in exchange for new lease liabilities (b) $ 5.6 $ 10.6 Noncash finance right-of-use assets obtained in exchange for new lease liabilities (b) 0.2 0.2 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 2021 and 2020. (b) Excludes the impact of adopting the new leases standard in the first quarter of 2020. 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: (In millions) Fiscal years: Operating Leases Finance Leases 2022 $ 7.4 $ 0.2 2023 4.9 0.2 2024 4.1 0.1 2025 3.9 — 2026 2.4 — Thereafter 6.7 — Total future lease payments $ 29.4 $ 0.5 Less: imputed interest ( 4.5 ) — Present value of lease liabilities $ 24.9 $ 0.5 As of October 1, 2021 , the Company had not entered into any material leases that have not yet commenced. 4. 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”). 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. F-19 Table of Contents 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: (In millions) Direct Conversion Revenue Medical $ 4.5 Industrial 1.8 Total Direct Conversion revenues $ 6.3 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. 5. RELATED-PARTY TRANSACTIONS Investment in Privately-Held Companies 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 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. As of October 1, 2021, the Company estimated it has fixed cost commitments of $ 2.9 million related to this amended agreement through the remainder of calendar year 2021. The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement). 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 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 of accounting. As of October 1, 2021, the Company has made equity contributions totaling F-20 Table of Contents $ 5.1 million. CETTEEN made contributions of certain assets including intellectual property in exchange for a 50 % interest in VEC. 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. 6. RESTRUCTURING In July 2018, the Company committed to relocate the production of amorphous silicon glass for digital detectors, from its Santa Clara facility, to the jointly owned dpiX fabrication facility in Colorado. In July 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 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 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 Operations 2021 2020 2019 Inventory write downs Cost of revenues $ — $ 1.3 $ 3.1 Intangible assets impairment Impairment of intangible assets — — 4.8 Accelerated depreciation Cost of revenues 0.2 2.9 4.5 Severance costs Selling, general and administrative 0.6 5.7 6.2 Facility closure costs Selling, general and administrative 0.2 3.6 0.3 Total restructuring charges $ 1.0 $ 13.5 $ 18.9 7. OTHER FINANCIAL INFORMATION The following table summarizes the Company’s accrued liabilities and other current liabilities: (In millions) October 1, 2021 October 2, 2020 Accrued compensation and benefits $ 44.2 $ 33.0 Product warranty 8.5 8.1 Income taxes payable 8.0 5.6 Right of return liability 6.7 7.4 Accrued interest 12.5 2.6 Other 9.8 13.8 Total accrued liabilities and other current liabilities $ 89.7 $ 70.5 F-21 Table of Contents The following table summarizes the Company’s other long-term liabilities: (In millions) October 1, 2021 October 2, 2020 Long-term income tax payable $ 1.8 $ 3.9 Environmental liabilities 0.6 0.8 Defined benefit obligation liability 5.9 6.5 Long-term right of return liability 20.3 19.9 Long-term other 3.2 3.8 Total other long-term liabilities $ 31.8 $ 34.9 The following table summarizes the Company’s other (expense) income, net: Fiscal Years (In millions) 2021 2020 2019 Loss from equity method investments $ ( 3.4 ) $ ( 2.1 ) $ ( 2.3 ) Change in fair value of deferred consideration — 0.9 1.0 Impairment of investment — ( 2.7 ) — Realized loss on foreign currencies ( 0.2 ) ( 3.7 ) ( 1.9 ) Other 0.1 — — Total other expense, net $ ( 3.5 ) $ ( 7.6 ) $ ( 3.2 ) 8. 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: Fiscal Year (In millions, except per share amounts) 2021 2020 2019 Net income (loss) attributable to Varex $ 17.4 $ ( 57.9 ) $ 15.5 Weighted average shares outstanding - basic 39.3 38.8 38.2 Dilutive effect of Convertible Senior Notes 0.6 — — Dilutive effect of share-based awards and other 0.4 — 0.4 Weighted average shares outstanding - diluted 40.3 38.8 38.6 Net income (loss) per share attributable to Varex - basic $ 0.44 $ ( 1.49 ) $ 0.41 Net income (loss) per share attributable to Varex - diluted $ 0.43 $ ( 1.49 ) $ 0.40 Anti-dilutive share-based awards, excluded 2.8 3.5 1.9 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 F-22 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. 9. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES As part of the Company’s overall risk management practices, the Company enters into financial derivatives to manage its financial exposures to foreign currency exchange rates and interest rates. The Company records all derivatives on the consolidated balance sheets at fair value. The 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, 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. Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts. Therefore, the Company’s exposure to the counterparty’s credit risk is generally limited to the amounts, if any, by which the counterparty’s obligations to the Company exceed the Company’s obligations to the counterparty. The Company’s policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings to help mitigate counterparty credit risk. Derivatives Designated as Hedging Instruments - Cash Flow Hedges The Company previously used interest rate swap contracts as cash flow hedges to manage its exposure to fluctuations in LIBOR interest rates. 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 Fiscal Year Ended Location of Gain or (Loss) Reclassified from Accumulated OCI into Income Amount of Gain or (Loss) Reclassified from Accumulated OCI into Income Fiscal Year Ended (In millions) 2021 2020 2019 2021 2020 2019 Interest rate swap contracts $ — $ ( 3.4 ) $ ( 6.3 ) Interest expense $ — $ ( 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 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: F-23 Table of Contents (In millions, except for number of instruments) Number of Instruments Notional Value Cross currency swap contracts 3 $ 66.6 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 Fiscal Year Ended Location of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) Amount of Gain or (Loss) Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing) (In millions) 2021 2020 2019 2021 2020 2019 Cross currency swap contracts $ ( 0.3 ) $ ( 1.3 ) $ ( 0.2 ) Interest expense $ 1.3 $ 1.5 $ 0.2 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 Assets Derivative Liabilities (In millions) October 1, 2021 October 2, 2020 October 1, 2021 October 2, 2020 Derivatives designated as net investment hedges Balance sheet location Balance sheet location Cross currency swap contracts Other current assets $ 1.2 $ 1.3 Other current liabilities $ — $ — Cross currency swap contracts Other non-current assets — — Other non-current liabilities ( 2.4 ) ( 2.1 ) $ 1.2 $ 1.3 $ ( 2.4 ) $ ( 2.1 ) F-24 Table of Contents 10. BORROWINGS The following table summarizes the Company's short-term and long-term debt: 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 Other debt $ 2.8 $ 2.5 $ 0.3 Total current maturities of long-term debt $ 2.8 $ 2.5 $ 0.3 Non-current maturities of long-term debt: Asset-Based Loan $ — $ — $ — Convertible Senior Unsecured Notes 200.0 10.9 % 200.0 10.9 % — Senior Secured Notes 270.0 8.2 % 300.0 8.2 % ( 30.0 ) Other debt 7.8 8.8 ( 1.0 ) Total non-current maturities of long-term debt: $ 477.8 $ 508.8 $ ( 31.0 ) Unamortized issuance costs and debt discounts 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 Total $ ( 46.1 ) $ ( 56.0 ) $ 9.9 Total debt outstanding, net $ 434.5 $ 455.3 $ ( 20.8 ) Future principal payments of long-term debt outstanding as of October 1, 2021 are as follows: (In millions) Fiscal years: 2022 $ 2.8 2023 2.6 2024 1.7 2025 201.7 2026 1.4 Thereafter 270.4 Total debt outstanding $ 480.6 Less: current maturities of long-term debt ( 2.8 ) Non-current portion of long -term debt $ 477.8 F-25 Table of Contents 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 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. Call Spread On June 4, 2020 and June 5, 2020, in connection with the offering of the Convertible Notes, Varex entered into privately negotiated convertible note hedge transactions (collectively, the “Hedge Transactions”). The Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of Varex common stock that initially underlie the Convertible Notes. The Hedge Transactions are expected generally to reduce the potential dilution and/or offset any cash payments Varex is required to make in excess of the principal amount due upon conversion of the Convertible Notes in the event that the market price of Varex common stock is greater than the strike price of the Hedge Transactions, which was initially $ 20.81 per share (subject to adjustment under the terms of the Hedge Transactions). The strike price of $ 20.81 corresponds to the initial conversion price of the Convertible Notes. The number of shares underlying the Hedge Transactions is 9.6 million. On June 4, 2020 and June 5, 2020, Varex also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby 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 Warrant Transactions could have a dilutive effect to the Company's stockholders to the extent that the market price per share of Varex common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The number of shares underlying the Warrant Transactions is 9.6 million. The number of warrants outstanding as of October 1, 2021, was 9.6 million. Senior Secured Notes Varex issued $ 300.0 million aggregate principal amount of 7.875 % Senior Secured Notes due 2027 (the "Senior Secured Notes") pursuant to an indenture dated September 30, 2020, among Varex, certain of its direct or indirect wholly-owned subsidiaries as guarantors, and Wells Fargo Bank, National Association as trustee and collateral agent. Interest payments are paid semiannually on April 15 and October 15 of each year, beginning on April 15, 2021. 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. The Senior Secured Notes include negative covenants, subject to certain exceptions, restricting or limiting Varex's ability and the ability of its restricted subsidiaries to, among other things, incur liens on collateral; sell certain assets; incur additional indebtedness; pay dividends; issue preferred shares; consolidate, merge, or sell all or substantially all of its assets; and enter into certain transactions with their affiliates. 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 F-26 Table of Contents 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). In addition, the Company is required to pay a quarterly commitment fee of 0.375 % to 0.5 %, based on the aggregate unused commitments under the Asset-Based Loan. The ABL Facility matures on the earlier of September 30, 2025 or 91 days prior to the maturity of the Convertible Notes, at which time all outstanding amounts under the ABL Facility will be due and payable. The maximum availability under our ABL Facility 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 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. Credit Agreement On May 1, 2017 Varex entered into a secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $ 200.0 million with a term of five years , and a secured term facility (the “Term Facility” and together with the Revolving Credit Facility, the “Credit Agreement”) in an aggregate principal amount of $ 400.0 million, which was subsequently amended. 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 income (loss). 11. FAIR VALUE 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. F-27 Table of Contents (In millions) Fair Value Measurements at October 1, 2021 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Cash equivalents - money market funds $ — $ 88.2 $ — $ 88.2 Derivative assets — 1.2 — 1.2 Total assets measured at fair value $ — $ 89.4 $ — $ 89.4 Liabilities: Derivative liabilities $ — $ 2.4 $ — $ 2.4 Total liabilities measured at fair value $ — $ 2.4 $ — $ 2.4 At October 2, 2020, the Company determined the following levels of inputs for the following assets or liabilities: (In millions) Fair Value Measurements at October 2, 2020 Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Assets: Cash equivalents - Money market funds $ — $ 72.9 $ — $ 72.9 Derivative assets — 1.1 — 1.1 Total assets measured at fair value $ — $ 74.0 $ — $ 74.0 Liabilities: Derivative liabilities $ — $ 2.1 $ — $ 2.1 Deferred consideration — — — — Total liabilities measured at fair value $ — $ 2.1 $ — $ 2.1 12. GOODWILL AND INTANGIBLE ASSETS The following table reflects goodwill by reportable segment: (In millions) Medical Industrial Total Balance at October 2, 2020 $ 174.4 $ 118.7 $ 293.1 Other ( 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 1, 2021 October 2, 2020 (In millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Acquired existing technology $ 74.2 $ ( 45.5 ) $ 28.7 $ 74.9 $ ( 37.5 ) $ 37.4 Patents, licenses and other 12.8 ( 10.9 ) 1.9 12.8 ( 9.7 ) 3.1 Customer contracts and supplier relationship 51.1 ( 31.0 ) 20.1 51.2 ( 24.2 ) 27.0 Total intangible assets $ 138.1 $ ( 87.4 ) $ 50.7 $ 138.9 $ ( 71.4 ) $ 67.5 F-28 Table of Contents 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 $ 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. As of October 1, 2021, the estimated future amortization expense of intangible assets with finite lives is as follows: (In millions) Fiscal years: 2022 $ 14.7 2023 13.6 2024 9.2 2025 3.0 2026 3.0 Thereafter 7.2 Total $ 50.7 13. COMMITMENTS AND CONTINGENCIES Lease Commitments See Note 3 . Leases, included in this report, for additional information about the Company's lease commitments. Purchase Agreement With Supplier During the third quarter of fiscal year 2020, Varex entered into a purchase agreement with a supplier to acquire certain equipment and intellectual property from the supplier that is utilized to manufacture X-ray cables utilized in Varex's products. As of October 1, 2021, there has been no transfer of control of the underlying equipment. This acquisition is expected to be completed during the 2023 fiscal year and the total consideration to be paid by Varex for the acquired assets is expected to be ¥ 1,084.7 million or approximately $ 9.8 million. Other Commitments See Note 5. Related Party Transactions, included in this report, for additional information about the Company’s commitments to dpiX. See Note 14 . Redeemable Noncontrolling Interests & Noncontrolling Interests, included in this report, for additional information about the Company’s commitment to the noncontrolling shareholders of MeVis. The Company has an environmental liability of approximately $ 0.8 million as of October 1, 2021. Contingencies From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations, customs and duty audits, other contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts for probable losses, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value). 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 1, 2021 and October 2, 2020. Legal expenses are expensed as incurred. F-29 Table of Contents 14. 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. The Company has majority voting rights with an approximate 75 % interest. 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 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. In August 2015, the Company, through one of its German subsidiaries, entered into a domination and profit and loss transfer agreement (the “DPLTA”) with MeVis. In October 2015, the DPLTA became effective upon its registration at the local court of Bremen, Germany. Unde r the DPLTA, MeVis subordinates its management to the Company and undertakes to transfer all of its annual profits and losses to the Company. In return, the DPLTA grants the noncontrolling shareholders of MeVis: (1) an annual recurring net compensation of € 0.95 per MeVis share starting from January 1, 2015 and (2) a put right for their MeVis shares at € 19.77 per MeVis share. During fiscal year 2018 , an immaterial number of MeVis’ shares were purchased under the put right. During the fourth quarter of fiscal year 2020, the put right granted to the noncontrolling shareholders of MeVis under the DPLTA expired unexercised, which resulted in the redeemable noncontrolling interests being reclassified to permanent equity as noncontrolling interest in the consolidated balance sheet. 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 noncontrolling interests and redeemable noncontrolling interests were as follows: Fiscal Years 2021 2020 (In millions) Noncontrolling Interests Redeemable Noncontrolling Interests Noncontrolling Interest Balance at beginning of period $ 14.1 $ 10.5 $ 3.3 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 Other, including foreign currency remeasurement ( 1.4 ) 0.3 ( 0.5 ) Balance at end of period $ 13.2 $ — $ 14.1 15. EMPLOYEE STOCK PLANS Employee Stock Plans The Company's employees participate in Varex Imaging Corporation 2020 Omnibus Stock Plan (the “2020 Stock Plan”), 2017 Omnibus Stock Plan (the “2017 Stock Plan”), and Varex Imaging Corporation 2017 Employee Stock Purchase Plan (the “2017 ESPP”) which allows the grants of stock options, restricted stock units and performance shares among other types of awards. In January 2017, Varex stockholders approved the 2017 ESPP, which 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 2017 ESPP provides for the purchase of up to one million shares of Varex common stock. F-30 Table of Contents Share-Based Compensation Expense 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. The table below summarizes the effect of recording share-based compensation expense and for the option component of the employee stock purchase plan shares: Fiscal Year (In millions) 2021 2020 2019 Cost of revenues $ 1.4 $ 1.1 $ 1.2 Research and development 3.0 2.5 2.2 Selling, general and administrative 9.5 9.8 8.3 Total share-based compensation expense $ 13.9 $ 13.4 $ 11.7 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. The Company utilized the Black-Scholes valuation model for estimating the fair value of stock options granted and the option component of ESPP grants. The Company calculated the fair value of option grants and option component of ESPP grants on the respective dates of grant using the following weighted average assumptions: Employee Stock Option Plan Employee Stock Purchase Plans Fiscal Year Fiscal Year 2021 2020 2019 2021 2020 2019 Expected term (in years) 7.0 6.1 4.6 0.5 0.5 0.5 Risk-free interest rate 1.0 % 1.1 % 2.5 % 0.1 % 0.9 % 2.5 % Expected volatility 41.5 % 36.9 % 33.9 % 68.4 % 50.0 % 43.9 % Expected dividend — % — % — % — % — % — % Weighted average fair value at grant date $ 9.37 $ 7.53 $ 10.19 $ 5.90 $ 7.94 $ 7.81 Option valuation methods, including Black-Scholes, require the input of subjective assumptions, which are discussed below. Risk-Free Interest Rate The interest rates used are based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award. Expected Term 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 or 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. Expected Dividend Yield The dividend rate used is zero as the Company has never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future. The Company is also restricted from paying dividends on common stock under its debt facilities. F-31 Table of Contents Expected Volatility Authoritative accounting guidance on stock-based compensation indicates that companies should consider volatility over a period generally commensurate with the expected or contractual term of the stock option. 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. Stock Option Activity The following table summarizes the activity for stock options under Varex’s employee incentive plans for the Company’s employees: (In thousands, except per share amounts and the remaining term) Options Price range Weighted Average Exercise Price Weighted Average Remaining Term (in years) Aggregate Intrinsic Value (1) Outstanding at October 2, 2020 2,735 $ 13.61 - $ 37.60 $ 29.23 4.5 $ — Granted 399 $ 25.06 - $ 27.95 25.19 Canceled, expired or forfeited ( 323 ) $ 25.17 - $ 37.10 28.90 Outstanding at October 1, 2021 2,811 $ 13.61 - $ 37.60 $ 28.69 4.7 $ 5,161.0 Exercisable at October 1, 2021 1,911 $ 13.61 - $ 37.60 $ 30.36 3.1 $ 1,597.6 (1) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of Varex common stock of $ 28.58 as of October 1, 2021, the last trading date of the Company's respective fiscal years, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date. 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 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 The following table summarizes the activity for restricted stock units, restricted stock awards and deferred stock units under Varex’s employee incentive plans for the Company’s employees: (In thousands, except per share amounts) Number of Shares Weighted Average Grant-Date Fair Value Balance at October 2, 2020 955 $ 25.54 Granted 388 22.81 Vested ( 199 ) 33.63 Canceled, expired or forfeited ( 64 ) 23.39 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 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. 16. 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 F-32 Table of Contents 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. Income tax expense (benefit) was as follows: Fiscal Years (In millions) 2021 2020 2019 Current income tax expense (benefit) Federal $ 5.4 $ ( 16.3 ) $ 9.2 State and local 1.4 ( 1.4 ) 1.3 Foreign 6.8 5.7 6.8 Total current $ 13.6 $ ( 12.0 ) $ 17.3 Deferred i ncome tax expense (benefit) : Federal $ 1.8 $ ( 1.7 ) $ ( 10.0 ) State and local ( 1.3 ) 0.6 ( 1.6 ) Foreign ( 3.4 ) ( 2.1 ) — Total deferred $ ( 2.9 ) $ ( 3.2 ) $ ( 11.6 ) Income tax expense (benefit) $ 10.7 $ ( 15.2 ) $ 5.7 Income (loss) before taxes are generated from the following geographic areas: Fiscal Years (In millions) 2021 2020 2019 United States $ ( 4.1 ) $ ( 74.1 ) $ 5.9 Foreign 32.7 1.5 15.6 Income (loss) before taxes $ 28.6 $ ( 72.6 ) $ 21.5 The effective tax rate differs from the U.S. federal statutory tax rate as a result of the following: Fiscal Years 2021 2020 (1) 2019 (1) Federal statutory income tax rate 21.0 % 21.0 % 21.0 % State and local taxes, net of federal tax benefit 0.3 1.0 ( 0.9 ) Mandatory repatriation tax on foreign earnings — — 1.9 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 U.S. tax reform - international provisions ( 0.7 ) — ( 4.7 ) U.S. net operating loss carryback 5.2 5.6 — Other 5.6 ( 2.2 ) 2.2 Effective tax rate 37.4 % 20.9 % 26.5 % (1) Certain prior year amounts have been reclassified to conform to current year presentation. F-33 Table of Contents 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. federal statutory rate of 21% primarily because of the favorable impact of U.S. net operating losses to be carried back to tax years with greater U.S. federal statutory rates. 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. During fiscal year 2019, the Company’s effective tax rate varied from the U.S. federal statutory rate of 21% primarily because of the favorable impact of changes to the U.S. corporate tax structure resulting from U.S. Tax Reform, and U.S. research and development tax credits. These favorable U.S. 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. 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 1, 2021 October 2, 2020 (1) Deferred tax assets: Inventory adjustments $ 4.9 $ 4.4 Share-based compensation 5.5 4.2 Product warranty 1.8 1.7 Deferred compensation 1.6 1.3 Net operating loss carryforwards 25.7 27.0 Accrued vacation 1.0 1.0 Accrued incentives 4.2 1.7 Credit carryforwards 3.3 5.9 Deferred financing fees 3.0 3.3 Interest expense limitation 4.3 4.7 Lease liabilities 6.8 7.2 Other 6.4 4.3 $ 68.5 $ 66.7 Valuation allowance ( 30.2 ) ( 28.7 ) Total deferred tax assets $ 38.3 $ 38.0 Deferred tax liabilities: Acquired intangibles $ ( 13.9 ) $ ( 16.6 ) Property, plant and equipment ( 13.0 ) ( 12.4 ) Investments in privately held companies ( 1.8 ) ( 2.8 ) Operating lease assets ( 6.5 ) ( 6.7 ) Other ( 1.3 ) ( 1.3 ) Total deferred tax liabilities ( 36.5 ) ( 39.8 ) Net deferred tax assets $ 1.8 $ ( 1.8 ) Reported As: Deferred tax assets $ 38.3 $ 38.0 Deferred tax liabilities ( 36.5 ) ( 39.8 ) Net deferred tax assets (liabilities) $ 1.8 $ ( 1.8 ) (1) Certain prior year amounts have been reclassified to conform to current year presentation. F-34 Table of Contents 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. tax treatment of repatriated foreign earnings, the amount of deferred tax liability recorded related to the potential repatriation is approximately $ 0.1 million. This estimated liability is for U.S. 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. 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. 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. 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 other U.S. deferred tax attributes. Changes in the Company's valuation allowance for deferred tax assets were as follows: Fiscal Years (In millions) 2021 2020 2019 Valuation allowance balance–beginning of fiscal year $ 28.7 $ 18.8 $ 4.0 Increases resulting from business combinations — — 12.0 Other increases 5.4 10.2 2.8 Other decreases ( 3.9 ) ( 0.3 ) — Valuation allowance balance—end of fiscal year $ 30.2 $ 28.7 $ 18.8 The Company accounts for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Changes in the Company’s unrecognized tax benefits were as follows: Fiscal Years (In millions) 2021 2020 Unrecognized tax benefits balance–beginning of fiscal year $ 0.8 $ 0.6 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 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. F-35 Table of Contents 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. The Company files U.S. federal and state income tax returns and non-U.S. income tax returns in various jurisdictions. 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. 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. 17. SEGMENT INFORMATION 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. The operating and reportable segment structure provides alignment between business strategies and operating results. Description of Segments The Medical segment designs, manufactures, sells and services X-ray imaging components, including X-ray tubes, digital detectors, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, heat exchangers, ionization chambers and buckys (a component of X-ray units that holds X-ray film cassettes). These components are used in a range of medical imaging applications including CT, mammography, oncology, cardiac, surgery, dental, and other diagnostic radiography uses. The Industrial segment designs, develops, manufactures, sells and services X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders and baggage screening at airports, and nondestructive testing and inspection applications used in a number of other markets. The Company's Industrial products include Linatron ® X-ray linear accelerators, X-ray tubes, digital detectors and high voltage connectors. In addition, the Company licenses proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to Industrial customers. Accordingly, the following information is provided for purposes of achieving an understanding of operations, but it may not be indicative of the financial results of the reported segments were they independent organizations. In addition, comparisons of the Company’s operations to similar operations of other companies may not be meaningful. F-36 Table of Contents Information related to the Company’s segments is as follows: Fiscal Year (In millions) 2021 2020 2019 Revenues Medical $ 643.8 $ 584.5 $ 596.8 Industrial 174.3 153.8 183.8 Total revenues 818.1 738.3 780.6 Gross profit Medical 203.2 136.4 188.9 Industrial 68.3 53.8 67.8 Total gross profit 271.5 190.2 256.7 Total operating expenses 197.4 223.9 211.0 Interest and other expense, net ( 45.5 ) ( 38.9 ) ( 24.2 ) 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 Less: 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 Long-Lived Assets Fiscal Years Fiscal Years (In millions) 2021 2020 2019 2021 2020 Americas $ 268.5 $ 255.0 $ 282.6 $ 105.4 $ 115.9 EMEA 276.3 231.5 269.0 23.9 21.5 APAC 273.3 251.8 229.0 10.9 7.8 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. Americas includes North and South America. EMEA includes Europe, Russia, the Middle East, India and Africa. APAC includes Asia and Australia. Revenues by region are based on the known final destination of products sold. 18. EMPLOYEE BENEFIT PLANS Varex’s 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code and intended for all full-time employees in the United States. This plan allows employees to contribute a portion of their pretax salary up to the maximum dollar limitation prescribed by the Internal Revenue Service. The Company made matching contributions to the plan totaling $ 2.8 million, $ 4.4 million and $ 6.7 million in fiscal years 2021, 2020 and 2019, respectively. 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 $ 5.9 million and $ 6.5 million as of October 1, F-37 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. 19. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME The following tables present the changes in the accumulated balances for each component of other comprehensive income (loss): (In millions) Unrealized Gain (Loss) on Derivative Financial Instruments Unrealized Gain (Loss) on Defined Benefit Obligations Currency Translation Adjustment Accumulated Other Comprehensive (Loss) Income Balance at September 27, 2019 $ ( 0.4 ) $ ( 1.3 ) $ — $ ( 1.7 ) Other comprehensive (loss) income before reclassifications ( 3.4 ) 0.9 ( 1.3 ) ( 3.8 ) Amount reclassified out of other comprehensive income 1.5 — — 1.5 Amount reclassified out of other comprehensive income - transaction remote 2.4 — — 2.4 Income tax impact ( 0.1 ) ( 0.3 ) 0.3 ( 0.1 ) Foreign currency translation adjustment — — 2.5 2.5 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 — — 0.1 0.1 Foreign currency translation adjustment — — ( 0.5 ) ( 0.5 ) Balance at October 1, 2021 $ — $ ( 0.8 ) $ 0.8 $ — F-38