What changed in this filing

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Item 1. Financial Statements

2022-02-08 compared with 2021-08-04 · 163 added, 277 removed, 539 unchanged (45% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(In millions, except per share amounts) July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Three Months Ended

(In millions, except per share amounts) December 31, 2021 January 1, 2021

Revenues, net $ 198.8 $ 177.1

Cost of revenues

137.1 144.9 395.9 423.3

Gross profit 64.8 57.2

1 unchanged sentence

Research and development

19.2 19.0 54.1 61.6

Selling, general and administrative

29.2 31.4 94.2 101.5

Impairment of intangible assets

Total operating expenses

48.4 53.1 148.3 165.8

Operating income (loss) 25.7 ( 26.8 ) 47.6 ( 20.8 )

Interest income

Operating income 14.0 6.1

Interest expense

( 9.9 ) ( 10.3 )

Other income (expense), net 0.2 ( 6.1 ) ( 2.5 ) ( 4.5 )

Other expense, net ( 0.8 ) ( 0.5 )

Interest and other expense, net

1 unchanged sentence

Income (loss) before taxes 3.3 ( 4.7 )

Income tax expense (benefit) 3.1 ( 11.6 ) 4.7 ( 10.9 )

Income tax expense 1.7 1.6

Net income (loss) 1.6 ( 6.3 )

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Net income (loss) $ 1.6 $ ( 6.3 )

Other comprehensive (loss) income, net of tax:

Unrealized gain (loss) on interest rate swap contracts — 0.3 — ( 2.0 )

Foreign currency translation adjustments ( 0.5 ) 0.1

6 unchanged sentences

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(In millions, except share and per share amounts) December 31, 2021 October 1, 2021

Current assets:

Cash and cash equivalents $ 157.8 $ 144.6

Accounts receivable, net of allowance for credit losses of $ 0.8 million and $ 0.3 million at July 2, 2021 and October 2, 2020, respectively

Accounts receivable, net of allowance for credit losses of $ 0.8 million and $ 1.0 million at December 31, 2021 and October 1, 2021, respectively

Prepaid expenses and other current assets

4 unchanged sentences

Deferred tax assets

Operating lease right-of-use assets 27.5 27.7

Operating lease assets 21.2 24.3

$ 1,139.0 $ 1,147.5

18 unchanged sentences

150,000,000 shares authorized

Shares issued and outstanding - 39,433,708 and 39,059,094 at July 2, 2021 and October 2, 2020, respectively.

Shares issued and outstanding - 39,645,030 and 39,435,830 at December 31, 2021 and October 1, 2021, respectively.

Additional paid-in capital 458.0 449.4

Accumulated other comprehensive income 0.2 0.8

Accumulated other comprehensive (loss) income ( 0.5 ) —

Retained earnings 34.9 33.5

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Cash flows from operating activities:

5 unchanged sentences

Deferred taxes 0.2 0.1

Loss from equity method investments 2.2 1.6

Amortization of debt issuance costs and discounts 7.4 2.3

Impairment of assets — 5.4

Loss from equity method investments, net of dividends received 0.5 1.7

Amortization of deferred loan costs 2.6 2.4

Inventory write-down 0.4 —

Loss on operating lease abandonment 1.9 —

Other, net 1.1 0.7

Changes in assets and liabilities, net of effects of acquisition:

Changes in assets and liabilities:

Accounts receivable 28.4 2.2

2 unchanged sentences

Accounts payable 13.5 ( 4.2 )

Accrued liabilities and other current and long-term operating liabilities 1.2 11.0

Accrued liabilities and other current and long-term liabilities ( 30.5 ) ( 2.7 )

Deferred revenues ( 0.5 ) ( 0.3 )

2 unchanged sentences

Purchases of property, plant and equipment ( 4.1 ) ( 4.4 )

Acquisitions of businesses, net of cash acquired — ( 1.2 )

Investments and loans to privately-held companies ( 0.8 ) ( 2.5 )

Proceeds from sales of business and assets 1.7 —

Other ( 0.2 ) —

Net cash used in investing activities

3 unchanged sentences

Repayments of borrowing under credit agreements ( 0.3 ) ( 0.2 )

Proceeds from issuance of convertible debt — 200.0

Proceeds from issuance of warrants — 49.8

Purchases of hedges — ( 61.0 )

Payment of debt issuance costs — ( 8.5 )

Proceeds from exercise of stock options 3.5 —

Proceeds from shares issued under employee stock purchase plan 1.7 1.2

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

Other financing activities 0.1 ( 0.1 )

Net cash (used in) provided by financing activities

Net cash provided by financing activities

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

10 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Months Ended July 2, 2021

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

Three Months Ended December 31, 2021

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

April 2, 2021 39.3 $ 0.4 $ 441.3 $ 0.2 $ 12.8 $ 454.7 $ 14.2 $ 468.9

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

Net income — — — — 1.4 1.4 0.2 1.6

Exercise of stock options 0.1 — 3.5 — — 3.5 — 3.5

Common stock issued under employee stock purchase plan

2 unchanged sentences

— — 3.4 — — 3.4 — 3.4

— — ( 0.2 ) — — ( 0.2 ) ( 1.2 ) ( 1.4 )

July 2, 2021 39.4 $ 0.4 $ 446.1 $ 0.2 $ 24.8 $ 471.5 $ 13.2 $ 484.7

Three Months Ended July 3, 2020

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

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

Net loss — — — — ( 28.3 ) ( 28.3 ) — ( 28.3 )

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

Share-based compensation — — 3.7 — — 3.7 — 3.7

Unrealized loss on interest rate swap contracts, net of tax

— — — 0.3 — 0.3 — 0.3

Conversion feature of Convertible Notes, net of issuance costs — — 46.1 — — 46.1 — 46.1

Purchase of hedges — — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants — — 49.8 — — 49.8 — 49.8

Currency translation adjustments

— — — ( 0.5 ) — ( 0.5 ) — ( 0.5 )

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

Other — — ( 0.1 ) — — ( 0.1 ) — ( 0.1 )

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

See accompanying notes to the unaudited condensed consolidated financial statements.

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Nine Months Ended July 2, 2021

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

— — — — — — ( 0.1 ) ( 0.1 )

December 31, 2021 39.6 $ 0.4 $ 458.0 $ ( 0.5 ) $ 34.9 $ 492.8 $ 13.3 $ 506.1

Three Months Ended January 1, 2021

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

(In millions) Shares Amount

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

Net income — — — — 8.7 8.7 0.4 9.1

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 — — 10.6 — — 10.6 — 10.6

Currency translation adjustments — — — ( 0.6 ) — ( 0.6 ) — ( 0.6 )

Other — — ( 0.2 ) — — ( 0.2 ) ( 1.3 ) ( 1.5 )

July 2, 2021 39.4 $ 0.4 $ 446.1 $ 0.2 $ 24.8 $ 471.5 $ 13.2 $ 484.7

Nine Months Ended July 3, 2020

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 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 — — — — ( 31.5 ) ( 31.5 ) ( 0.1 ) ( 31.6 )

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 )

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

Common stock issued under employee stock purchase plan 0.1 — 1.2 — — 1.2 — 1.2

Share-based compensation — — 3.6 — — 3.6 — 3.6

Unrealized loss on interest rate swap contracts, net of tax — — — ( 2.0 ) — ( 2.0 ) — ( 2.0 )

Conversion feature of Convertible Notes, net of issuance costs — — 46.1 — — 46.1 — 46.1

Purchase of hedges — — ( 61.0 ) — — ( 61.0 ) — ( 61.0 )

Issuance of warrants — — 49.8 — — 49.8 — 49.8

Currency translation adjustments

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

Other — — ( 0.4 ) — — ( 0.4 ) — ( 0.4 )

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

— — — 0.1 — 0.1 — 0.1

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

See accompanying notes to the unaudited condensed consolidated financial statements.

9 unchanged sentences

Basis of Presentation

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

Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements.

8 unchanged sentences

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

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

Fiscal year 2022 is the 52-week period ending September 30, 2022.

Fiscal year 2021 was the 52-week period that ended on October 1, 2021.

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

The three fiscal quarters ended July 2, 2021 and July 3, 2020 were 39 weeks and 40 weeks, respectively.

The fiscal quarters ended December 31, 2021 and January 1, 2021 were both 13-week periods.

Use of Estimates

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

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

Actual results could differ from these estimates.

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 coronavirus (“COVID-19”) pandemic, the emerging variants, 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.

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

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

In the past few months, the Company has experienced continuing supply chain disruptions and other issues that are at least partially related to the ongoing COVID-19 pandemic.

These supply chain related challenges have been increasing in recent months.

In addition, while we have been taking significant precautions to maintain employee safety, such as continuing a mask requirement, strongly encouraging vaccination, and asking non-production related employees to work from home when possible, the Company has experienced an increase in COVID-19 related employee absences.

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.

7 unchanged sentences

Restricted cash primarily consists of cash collateral related to certain leases and inventory arrangements.

Restricted cash is included in other assets on the condensed consolidated balance sheet.

Restricted cash is included in Other assets on the Company's condensed consolidated balance sheets.

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

Nine Months Ended Nine Months Ended

July 2, 2021 July 3, 2020

Three Months Ended Three Months Ended

December 31, 2021 January 1, 2021

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

1 unchanged sentence

Restricted cash 1.5 1.4 1.5 1.5

Cash and cash equivalents and restricted cash as reported per statement of cash flows $ 102.1 $ 129.8 $ 31.3 $ 88.8

Cash and cash equivalents and restricted cash $ 146.1 $ 159.2 $ 102.1 $ 107.0

Concentration of Risk

5 unchanged sentences

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

The Company has not experienced any significant disruptions to its operations due to supplier concentration.

When these suppliers are unable to meet our supply needs, our production is negatively impacted.

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

1 unchanged sentence

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

Three Months Ended Nine Months Ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Three Months Ended

December 31, 2021 January 1, 2021

Canon Medical Systems Corporation

19.2 % 16.6 %

Canon Medical Systems Corporation accounted for 13.0 % and 12.0 % of the Company’s consolidated accounts receivable as of July 2, 2021 and October 2, 2020, respectively.

Canon Medical Systems Corporation accounted for 13.9 % and 16.2 % of the Company’s condensed consolidated accounts receivable as of December 31, 2021 and October 1, 2021, respectively.

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

1 unchanged sentence

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 three and nine months ended July 2, 2021 and July 3, 2020, respectively.

There were no impairments recorded during the three months ended December 31, 2021 and January 1, 2021, respectively.

Loss Contingencies

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

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

From time to time, the Company is involved in legal proceedings, government inspections, investigations, customs and duties audits, and other claims and 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.

8 unchanged sentences

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

Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Accrued product warranty, at beginning of period

15 unchanged sentences

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.

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 image 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.

11 unchanged sentences

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

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

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

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

2 unchanged sentences

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.

The Company determines standalone selling prices based on the price at which the performance obligation could be sold separately.

Contracts and Performance Obligations

6 unchanged sentences

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

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

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

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

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

6 unchanged sentences

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

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

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

Costs to Obtain or Fulfill a Customer Contract

7 unchanged sentences

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.

In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("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 Company adopted this ASU on October 2, 2021, using a prospective approach.

The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

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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.

The ASU is effective for interim and annual periods beginning after December 15, 2021.

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

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

We expect to adopt this ASU as of the first quarter of fiscal year 2023.

While we are still evaluating the impacts of this ASU on our consolidated financial statements, we expect that the discount on our Convertible Notes will be reclassified from equity to liabilities and that the interest expense from our Convertible Notes will decrease and be closer to the coupon rate of 4.00 %.

The impact that adoption of ASU 2020-06 will have on our net income per diluted share will depend on the amount of earnings in each period and our share price, but could result in additional dilution.

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.

2 unchanged sentences

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

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

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

Early adoption is permitted.

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

Disaggregation of Revenue

1 unchanged sentence

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Americas $ 60.5 $ 62.3

2 unchanged sentences

$ 198.8 $ 177.1

Revenue in the United States of America was $ 64.0 million and $ 56.9 million for the three months ended July 2, 2021 and July 3, 2020, respectively.

Revenue in the United States of America was $ 194.2 million and $ 185.6 million for the nine months ended July 2, 2021 and July 3, 2020, respectively.

Revenue in the United States was $ 58.8 million and $ 61.1 million for the three months ended December 31, 2021 and January 1, 2021, respectively.

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

2 unchanged sentences

Contract Assets

Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Balance at beginning of fiscal year $ 24.3 $ 24.6

1 unchanged sentence

Contract asset from shipments of products, subject to return during the period 1.8 0.8

Change in estimate ( 0.6 ) —

Balance at end of period $ 24.6 $ 24.2

Contract Liabilities

Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Balance at beginning of fiscal year $ 27.0 $ 27.4

1 unchanged sentence

Additions to refund liabilities 1.9 0.9

Change in estimate ( 0.7 ) —

Balance at end of period $ 27.3 $ 26.9

During the three and nine months ended July 2, 2021, the Company recognized revenue of $ 0.6 million and $ 6.0 million related to deferred revenues which existed at October 2, 2020.

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

During the three months ended December 31, 2021, the Company recognized revenue of $ 4.1 million related to deferred revenues which existed at October 1, 2021.

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

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

During the three months ended December 31, 2021, the Company determined that it no longer intends to sublease the Santa Clara facility, which ceased operations at the end of fiscal year 2020.

See Note 5, Restructuring, for further details.

Accordingly, the Company recorded a loss due to abandonment of $ 1.9 million which is included in "Selling, general and administrative" on the Condensed Consolidated Statements of Operations for the three months ended December 31, 2021.

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

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

Operating lease right-of-use assets Operating lease right-of-use assets $ 27.5 $ 27.7

(In millions) Balance Sheet Location December 31, 2021 October 1, 2021

Operating lease right-of-use assets Operating lease assets $ 21.2 $ 24.3

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

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

July 2, 2021 July 3, 2020

December 31, 2021 January 1, 2021

Operating lease weighted average remaining lease term (in years) 6.0 6.4

3 unchanged sentences

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

Three Months Ended Nine Months Ended

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

Total operating lease costs (a) $ 1.9 $ 2.0 $ 5.8 $ 6.0

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Total operating lease costs (1)

Total finance lease costs $ 0.1 $ 0.1

3 unchanged sentences

Noncash operating right-of-use assets obtained in exchange for new lease liabilities $ 0.1 $ —

Noncash finance right-of-use assets obtained in exchange for new lease liabilities 0.1 — 0.2 0.2

Total right-of-use assets obtained in exchange for new lease liabilities $ 0.1 $ —

(a) Includes variable and short-term lease expense, which were immaterial for the three and nine months ended July 2, 2021 and July 3, 2020.

As of July 2, 2021, the present value of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

(1) Includes variable and short-term lease expense, which were immaterial for the three months ended December 31, 2021 and January 1, 2021.

As of December 31, 2021, the present value of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

(In millions)

12 unchanged sentences

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

During the three months ended July 2, 2021 and July 3, 2020, the Company recorded a gain (loss) on the equity investment in dpiX Holding of $ 0.8 million and $( 0.5 ) million, respectively.

During the nine months ended July 2, 2021 and July 3, 2020, the Company recorded a gain (loss) on the equity investment in dpiX Holding of $( 1.1 ) million and $( 0.4 ) million, respectively.

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

The carrying value of the equity investment in dpiX Holding was $ 47.2 million and $ 47.3 million at July 2, 2021 and October 2, 2020, respectively.

During the three months ended July 2, 2021 and July 3, 2020, the Company purchased glass transistor arrays from dpiX totaling $ 4.8 million and $ 4.9 million, respectively.

During the nine months ended July 2, 2021 and July 3, 2020, the Company purchased glass transistor arrays from dpiX totaling $ 13.8 million and $ 15.8 million, respectively.

During the three months ended December 31, 2021 and January 1, 2021, the Company recorded a loss on the equity investment in dpiX Holding of $ 0.7 million and $ 1.5 million, respectively.

The loss on the equity investment in dpiX Holding is included in Other expense, net in the condensed consolidated statements of operations.

The carrying value of the equity investment in dpiX Holding was $ 44.6 million and $ 45.0 million at December 31, 2021 and October 1, 2021, respectively.

During the three months ended December 31, 2021 and January 1, 2021, the Company purchased glass transistor arrays from dpiX totaling $ 5.2 million and $ 4.9 million, respectively.

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

As of July 2, 2021, and October 2, 2020, the Company had accounts payable to dpiX totaling $ 3.6 million and $ 4.6 million, respectively.

As of December 31, 2021, and October 1, 2021, the Company had accounts payable to dpiX totaling $ 3.8 million and $ 2.8 million, respectively.

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

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In January 2022, the Company's fixed cost commitment was determined and approved by the dpiX board of directors to be $ 13.2 million for calendar year 2022.

As of July 2, 2021, the Company estimated it has fixed cost commitments of $ 5.8 million related to dpiX through the remainder of calendar year 2021.

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.

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

As of July 2, 2021, the Company has made equity contributions totaling $ 4.0 million, has committed to contribute an additional $ 1.2 million as milestones are achieved, and to provide certain full-time employees to support prototyping and manufacturing activities in exchange for a 50 % interest in VEC.

As of December 31, 2021, the Company has made equity contributions totaling $ 5.1 million.

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

During the three months ended July 2, 2021, and July 3, 2020, the Company recorded a loss on the equity investment in VEC of $ 0.4 million and $ 0.2 million, respectively.

During the nine months ended July 2, 2021 and July 3, 2020, the Company recorded a loss on the equity investment in VEC of $ 0.9 million and $ 1.0 million, respectively.

The Company's investment in VEC was $ 1.9 million and $ 2.5 million at July 2, 2021 and October 2, 2020, respectively.

At July 2, 2021, the Company had loans outstanding to VEC totaling $ 0.8 million .

On July 27, 2021, the Company made its final required equity contribution of $ 1.2 million to VEC, and VEC repaid $ 0.6 million of its outstanding loans to the Company, leaving $ 0.2 million outstanding.

During the three months ended December 31, 2021, and January 1, 2021, the Company recorded loss on the equity investment in VEC of $ 0.1 million and $ 0.3 million, respectively.

The Company's investment in VEC was $ 3.0 million at December 31, 2021 and October 1, 2021, respectively.

At December 31, 2021, the Company had loans outstanding to VEC totaling $ 0.3 million which is recorded in Prepaid expenses and other current assets in the condensed consolidated balance sheet.

RESTRUCTURING

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

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

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

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

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

Below is a detail of restructuring charges incurred during the three and nine months ended July 2, 2021 and July 3, 2020, respectively, which predominantly relate to the Company's Medical segment:

Three Months Ended Nine Months Ended

(In millions) Location of Restructuring Charges in Condensed Consolidated Statements of Operations July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Below is a detail of restructuring charges incurred during the three months ended December 31, 2021 and January 1, 2021, respectively, which predominantly relate to the Company's Medical segment:

Three Months Ended

(In millions) Location of Restructuring Charges in Condensed Consolidated Statements of Operations December 31, 2021 January 1, 2021

Other assets impairment charges Selling, general and administrative $ 1.8 $ —

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

Derivatives Designated as Hedging Instruments - Cash Flow Hedges

The Company 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 July 2, 2021, the Company had no outstanding derivatives designated as cash flow hedging instruments.

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

Amount of Loss Recognized in OCI on Derivative

Three Months Ended Location of Loss Reclassified from Accumulated OCI into Income Amount of Loss Reclassified from Accumulated OCI into Income

Three Months Ended

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

Interest Rate Swap Contracts $ — $ ( 0.3 ) Interest expense $ — $ ( 0.7 )

Amount of Loss Recognized in OCI on Derivative

Nine Months Ended Location of Loss Reclassified from Accumulated OCI into Income Amount of Loss Reclassified from Accumulated OCI into Income

Nine Months Ended

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

Interest Rate Swap Contracts $ — $ ( 3.3 ) Interest expense $ — $ ( 0.6 )

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.

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

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

As of July 2, 2021, the Company had the following outstanding derivatives designated as net investment hedging instruments:

As of December 31, 2021, the Company had the following outstanding derivatives designated as net investment hedging instruments:

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

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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 Loss Recognized in OCI on Derivative

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

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

Cross Currency Swap Contracts $ ( 0.1 ) $ ( 2.2 ) Interest expense $ 0.3 $ 0.4

Amount of Gain (Loss) Recognized in OCI on Derivative

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

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

Amount of Gain Recognized in OCI on Derivative

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

(In millions) December 31, 2021 January 1, 2021 December 31, 2021 January 1, 2021

Cross Currency Swap Contracts $ 0.8 $ 3.0 Interest expense $ 0.3 $ 0.3

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(In millions) Derivative Assets and Liabilities

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

Derivatives designated as net investment hedges Balance sheet location December 31, 2021 October 1, 2021

Cross Currency Swap Contracts Other current assets $ 1.2 $ 1.2

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$ ( 0.4 ) $ ( 1.2 )

Balance Sheet Hedges

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

These forward contracts expire within 30 to 90 days.

These forward contracts are not designated for hedge accounting treatment;

therefore, the change in fair value of these derivatives is recorded as a component of other income (expense), net and offsets the change in fair value of the foreign currency denominated assets and liabilities, which are also recorded in other income (expense), net.

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

The following table shows the notional amounts of outstanding foreign currency contracts as of July 2, 2021:

Notional Value of Derivatives not Designated as Hedging Instruments:

(In millions) Buy contracts Sell contract

Philippine peso $ 4.1 $ —

Chinese renminbi 1.4 —

Total Notional Value $ 15.0 $ —

Assets/Liabilities Measured at Fair Value on a Recurring Basis

Assets and 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 approximate their fair values due to their short maturities.

As of July 2, 2021, the fair values of the Company's Convertible Notes and Senior Secured Notes, as defined in Note 10.

Borrowings, were $ 296.3 million and $ 339.3 million, respectively.

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

As of December 31, 2021, the fair values of the Company's Convertible Notes and Senior Secured Notes, as defined in Note 10.

Borrowings and measured using Level 1 inputs , were $ 340.3 million and $ 299.0 million, respectively.

As of October 1, 2021, the fair values of the Company's Convertible Notes and Senior Secured Notes, measured using Level 1 inputs were $ 296.3 million and $ 304.8 million, respectively.

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

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

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

Fair Value at July 2, 2021

Fair Value at December 31, 2021

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

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The following table summarizes the Company’s inventories:

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

(In millions) December 31, 2021 October 1, 2021

Raw materials and parts

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$ 247.6 $ 224.8

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 $ 15.8 million for the three months ended July 3, 2020, and $ 3.5 million and $ 15.8 million for the nine months ended July 2, 2021 and July 3, 2020, respectively.

GOODWILL AND INTANGIBLE ASSETS

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Foreign currency translation adjustments ( 0.6 ) ( 0.4 ) ( 1.0 )

Balance at July 2, 2021 $ 174.6 $ 118.9 $ 293.5

Balance at December 31, 2021 $ 173.3 $ 117.9 $ 291.2

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

July 2, 2021 October 2, 2020

December 31, 2021 October 1, 2021

(In millions)

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$ 137.3 $ ( 90.9 ) $ 46.4 $ 138.1 $ ( 87.4 ) $ 50.7

Amortization expense for intangible assets was $ 4.2 million for each of the three months ended July 2, 2021 and July 3, 2020, and $ 12.7 million and $ 13.1 million for the nine months ended July 2, 2021 and July 3, 2020, respectively.

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

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

Amortization expense for intangible assets was $ 3.8 million and $ 4.2 million for the three months ended December 31, 2021 and January 1, 2021, respectively.

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

July 2, 2021 October 2, 2020

December 31, 2021 October 1, 2021

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

Current maturities of long-term debt

Senior Secured Notes $ 30.0 $ —

Other debt $ 2.8 $ 2.8

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Non-current maturities of long-term debt:

Asset-Based Loan $ — $ —

Convertible Senior Unsecured Notes 200.0 200.0 4.0 % 10.9 %

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Total debt outstanding, net $ 436.5 $ 434.5

Equity component of Convertible Senior Unsecured Notes (1)

$ 49.7 $ 49.7

(1) Included in Additional paid-in capital on the condensed consolidated balance sheets.

The following table summarizes the Company's interest expense:

Three Months Ended Nine Months Ended

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

Three Months Ended

December 31, 2021 January 1, 2021

Contractual interest coupon and other $ 7.3 $ 7.9

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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).

terms of the Hedge Transactions).

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

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

The number of warrants outstanding as of July 2, 2021, was 9.6 million.

The number of warrants outstanding as of December 31, 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.

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.

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

On July 1, 2021, the Company announced its intent to complete the partial redemption, in the principal amount of $ 30 million, of the Senior Secured Notes, in accordance with the terms and conditions of the governing indenture.

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

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

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.

Asset-Based Loan

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

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

As of December 31, 2021, the amount available under our ABL Facility was $ 67 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.

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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.

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 condensed consolidated financial statements and no longer records any noncontrolling interest in the equity section of the Company's condensed consolidated balance sheet related to Direct Conversion.

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

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

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

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

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

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

In August 2015, the Company, through one of its German subsidiaries, entered into a domination and profit and loss transfer agreement (the “DPLTA”) with MeVis.

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

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

At December 31, 2021, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3 % of the outstanding shares.

Changes in noncontrolling interests were as follows:

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Other, including foreign currency remeasurement

Balance at July 2, 2021 $ 13.2

Balance at December 31, 2021 $ 13.3

NET INCOME (LOSS) PER SHARE

Basic 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 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.

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 net loss per common share is as follows:

Three Months Ended Nine Months Ended

Three Months Ended

(In millions, except per share amounts)

July 2, 2021 July 3, 2020 July 2, 2021 July 3, 2020

December 31, 2021 January 1, 2021

Net income (loss) attributable to Varex $ 1.4 $ ( 6.4 )

Weighted average shares outstanding - basic

39.4 39.0 39.3 38.7

Dilutive effect of Convertible Senior Notes 1.5 — — —

Dilutive effect of Convertible Notes 2.6 —

Dilutive effect of share-based awards and other 0.7 —

Dilutive effect of warrants 1.1 —

Weighted average shares outstanding - diluted

41.3 39.0 39.5 38.7

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

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Anti-dilutive share based awards, excluded

2.8 3.2 2.9 3.0

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

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

Furthermore, in connection with the offerings of our notes, we entered into convertible note hedges and warrants (see Note 10, Borrowings).

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

Furthermore, in connection with the offerings of our Convertible Notes, we entered into convertible note hedges and warrants (see Note 10, Borrowings ).

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

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

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

EMPLOYEE STOCK PLANS

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

Three Months Ended Nine Months Ended

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

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

Cost of revenues

$ 0.4 $ 0.4 $ 1.0 $ 1.0

Research and development

0.8 0.7 2.2 1.9

Selling, general and administrative

2.2 2.6 7.4 7.3

Total share-based compensation expense

$ 3.4 $ 3.7 $ 10.6 $ 10.2

Stock Option Activity

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319 $ 30.95 - $ 30.95

Canceled, expired or forfeited

( 124 ) $ 25.17 - $ 30.74

— $ 0.00 - $ 0.00

Outstanding at July 2, 2021 2,821 $ 13.61 - $ 37.60

Outstanding at December 31, 2021 3,006 $ 13.61 - $ 37.60

$ 28.95 5.2 $ 9,102

Exercisable at July 2, 2021 1,813 $ 25.17 - $ 37.60

Exercisable at December 31, 2021 1,856 $ 13.61 - $ 37.60

$ 30.42 3.1 $ 3,339

(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 $ 27.66 as of July 2, 2021, the last trading date of the Company's third quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.

(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of Varex common stock of $ 31.55 as of December 31, 2021, the last trading date of the Company's first quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.

Restricted Stock Units

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Canceled or expired ( 12 ) 23.92

Outstanding at July 2, 2021 1,099 $ 23.26

Outstanding at December 31, 2021 1,402 $ 24.40

TAXES ON INCOME

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

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

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

For the nine months ended July 3, 2020, the Company recognized income tax benefit of $ 10.9 million on $ 42.1 million of pre-tax loss.

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

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

The Company's tax expense for the three months ended July 2, 2021 increased, primarily due to increased pre-tax income in certain jurisdictions.

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

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

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the quarter ended July 2, 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.

For the three months ended December 31, 2021, the Company recognized income tax expense of $ 1.7 million on $ 3.3 million of pre-tax income.

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

The Company is unable to recognize a tax benefit for pre-tax book losses in certain foreign jurisdictions but has recognized tax expense for profitable foreign jurisdictions.

The Company's tax expense for the three months ended December 31, 2021 increased, primarily due to increased pre-tax income in certain jurisdictions, valuation allowance positions in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the quarter ended December 31, 2021, which is that earnings prior to fiscal year 2018 are permanently reinvested, but post fiscal year 2017 earnings are not permanently reinvested.

Furthermore, all earnings with respect to Direct Conversion subsidiaries, located primarily in Sweden and Finland, are indefinitely reinvested in those countries.

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

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State income taxes and foreign withholding taxes expected to apply when the foreign earnings are repatriated.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), signed into law on March 27, 2020, has resulted in significant changes to the U.S.

federal corporate tax law.

Additionally, several state and foreign jurisdictions in which we operate have enacted legislation that complies with or is incremental to the changes included in the CARES Act.

The most significant impact of the CARES Act is the ability to carry back a net operating loss for 5 years.

The Company has evaluated the other provisions of the CARES Act and does not believe it will have a material effect on the Company’s business, results of operations or financial condition.

SEGMENT INFORMATION

The Company has two reportable operating segments:

Medical and Industrial.

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

Medical and Industrial, which aligns with how the CODM reviews the Company’s performance and evaluates the business for the allocation of resources.

The segments align the Company’s products and service offerings with customer use in medical and industrial markets.

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

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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.

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

Three Months Ended Nine Months Ended

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

$ 167.3 $ 137.6 $ 463.1 $ 448.6

Three Months Ended

(In millions) December 31, 2021 January 1, 2021

$ 155.7 $ 139.2

Total revenues 198.8 177.1

56.5 18.0 146.3 105.2

17.6 8.3 49.6 39.8

Total gross profit 64.8 57.2

Total operating expenses

48.4 53.1 148.3 165.8

Interest and other expenses, net

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

What changed 10-Q

Item 1. Financial Statements