What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-11-18 compared with 2021-11-19 · 397 added, 367 removed, 1121 unchanged (41% of the section changed)

3 unchanged sentences

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.

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 September 30, 2022.

Management's Annual Report on Internal Control Over Financial Reporting

1 unchanged sentence

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

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

"COSO framework" (2013)).

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

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

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

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

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

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 September 30, 2022.

Based on this evaluation, our management concluded that we maintained effective internal control over financial reporting as of September 30, 2022.

The effectiveness of our internal control over financial reporting as of September 30, 2022 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.

• 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.

There were no changes to our internal control over financial reporting during the quarter ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

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.

We have audited the internal control over financial reporting of Varex Imaging Corporation and subsidiaries (the “Company”) as of September 30, 2022, 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 September 30, 2022, 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 September 30, 2022 of the Company and our report dated November 18, 2022, expressed an unqualified opinion on those financial statements.

Basis for Opinion

18 unchanged sentences

Other Information

Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.

Directors, Executive Officers and Corporate Governance.

1 unchanged sentence

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.

The other information required by this item is incorporated by reference from our definitive proxy statement for the 2023 Annual Meeting of Stockholders.

Our definitive proxy statement for the 2023 Annual Meeting of Stockholders will be filed with the SEC no later than 120 days after September 30, 2022.

Code of Conduct

1 unchanged sentence

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.

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

Executive Compensation

2 unchanged sentences

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.

The following table provides information as of September 30, 2022 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)

7 unchanged sentences

(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.

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

(3) Includes 3,157 thousand shares available for future issuance under the 2020 Stock Plan, and also includes 824 thousand shares available for future issuance under the ESPP.

Shares available for issuance under the ESPP are subject to the number of shares remaining in the share reserve, and the maximum number of shares purchasable by any participant on any one purchase date for any purchase period, which 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 2023 Annual Meeting of Stockholders under the caption “Stock Ownership—Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.”

Certain Relationships and Related Transactions and Director Independence.

17 unchanged sentences

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).

8 unchanged sentences

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

10.11† Form of Change in Control Agreement (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K filed November 19, 2021) .

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).

11 unchanged sentences

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* LIBOR Transition Amendment, dated as of March 9, 2022, among Varex Imaging Corporation, Varex Imaging West, LLC, Varex Imaging Deutschland AG, the other Loan Parties, the Lenders, Issuing Banks and Swing Line Lender, and BANK OF AMERICA, N.A., as administrative agent and collateral agent.

10.24* 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).

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 14, 2022

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

23.2 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm

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

31 unchanged sentences

Ruediger Naumann-Etienne

/s/ KATHLEEN L.

BARDWELL Director November 18, 2022

/s/ JOCELYN D.

9 unchanged sentences

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms

Report of Independent Registered Public Accounting Firm (PCAOB ID No.

Consolidated Statements of Operations for the fiscal years ended 2022, 2021 and 2020

3 unchanged sentences

Consolidated Statements of Cash Flows for the fiscal years ended 2022, 2021 and 2020

Notes to the Consolidated Financial Statements

Notes to Consolidated Financial Statements

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

1 unchanged sentence

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.

We have audited the accompanying consolidated balance sheets of Varex Imaging Corporation and subsidiaries (the "Company") as of September 30, 2022 and October 1, 2021, the related consolidated statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2022, 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 September 30, 2022 and October 1, 2021, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2022, 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 September 30, 2022, 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 18, 2022, 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.

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

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.

We conducted our audits 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.

Our audits 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.

Our audits 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 audits provide a reasonable basis for our opinion.

Critical Audit Matter

6 unchanged sentences

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.

As of September 30, 2022, the Company’s inventories, net, were $303.2 million.

For the year ended September 30, 2022, inventory write-downs were $6.4 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.

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 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 .

5 unchanged sentences

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

• We assessed the reasonableness of the assumptions used in the calculations of the 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

5 unchanged sentences

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.

We have audited the consolidated statements of operations, of comprehensive income (loss), of stockholders’ equity and of cash flows of Varex Imaging Corporation and its subsidiaries (the "Company") for the year 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 results of operations and cash flows of the Company for the year ended October 2, 2020 in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of September 28, 2019.

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.

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

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.

We conducted our audit 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.

Our audit 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.

Our audit 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 audit provides a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

35 unchanged sentences

Diluted 41.6 40.3 38.8

See accompanying notes to the consolidated financial statements.

See accompanying Notes to Consolidated Financial Statements.

VAREX IMAGING CORPORATION

3 unchanged sentences

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 )

Unrealized income on interest rate swap contracts — — 0.4

Unrealized gain (loss) on defined benefit obligations 1.4 ( 0.1 ) 0.6

Unrealized loss on forward contracts ( 0.6 ) — —

Unrealized loss on available-for-sale securities ( 0.1 ) — —

Foreign currency translation adjustments ( 0.6 ) ( 0.7 ) 1.5

( 0.8 ) 2.5 ( 7.5 )

Comprehensive income (loss) 17.1 ( 54.9 ) 8.3

Total comprehensive income (loss) 30.9 17.1 ( 54.9 )

Comprehensive income attributable to noncontrolling interests 0.5 0.5 0.5

Comprehensive income (loss) attributable to Varex $ 30.4 $ 16.6 $ ( 55.4 )

See accompanying notes to the consolidated financial statements.

See accompanying Notes to Consolidated Financial Statements.

VAREX IMAGING CORPORATION

1 unchanged sentence

(In millions, except share amounts)

October 1, 2021 October 2, 2020

September 30, 2022 October 1, 2021

Current assets:

1 unchanged sentence

$ 89.4 $ 144.6

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

Accounts receivable, net of allowance for credit losses of $ 0.6 million and $ 1.0 million at September 30, 2022 and October 1, 2021, respectively

Inventories, net

Prepaid expenses and other current assets

27 unchanged sentences

Shares issued and outstanding:

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

40,085,126 and 39,435,830 at September 30, 2022 and October 1, 2021, respectively

Additional paid-in capital

6 unchanged sentences

$ 1,184.4 $ 1,147.5

See accompanying notes to the consolidated financial statements.

See accompanying Notes to Consolidated Financial Statements.

VAREX IMAGING CORPORATION

4 unchanged sentences

Cumulative effect of accounting change — — — — ( 0.3 ) ( 0.3 ) — ( 0.3 )

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 )

23 unchanged sentences

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.

Net income — — — — 30.3 30.3 0.5 30.8

Exercise of stock options 0.1 — 3.8 — — 3.8 — 3.8

Common stock issued upon vesting of restricted shares 0.4 — — — — — — —

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 2.8 ) — — ( 2.8 ) — ( 2.8 )

Common stock issued under employee stock purchase plan 0.3 — 4.9 — — 4.9 — 4.9

Share-based compensation — — 14.0 — — 14.0 — 14.0

Unrealized loss on forward contracts — — — ( 0.6 ) — ( 0.6 ) — ( 0.6 )

Unrealized loss on change in fair value of available-for-sale securities — — — ( 0.1 ) — ( 0.1 ) — ( 0.1 )

Unrealized gain on defined benefit obligations, net of tax — — — 1.4 — 1.4 — 1.4

Foreign currency translation adjustments — — — ( 0.6 ) — ( 0.6 ) — ( 0.6 )

Other — — ( 0.2 ) — — ( 0.2 ) ( 0.4 ) ( 0.6 )

September 30, 2022 40.1 $ 0.4 $ 469.1 $ 0.1 $ 63.8 $ 533.4 $ 13.3 $ 546.7

See accompanying Notes to Consolidated Financial Statements.

VAREX IMAGING CORPORATION

7 unchanged sentences

Amortization of intangible assets 14.6 16.8 17.2

Deferred taxes 0.6 ( 3.0 ) ( 3.1 )

Loss from equity method investments 2.6 3.0 1.3

Amortization of deferred loan costs 10.9 10.0 5.1

Impairment of intangible assets — — 2.8

1 unchanged sentence

Inventory write-down 6.4 3.5 18.1

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

Loss on operating lease abandonment 1.9 — —

Other, net 4.1 1.3 4.7

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

Changes in assets and liabilities:

Accounts receivable ( 18.1 ) ( 32.9 ) 17.7

2 unchanged sentences

Accounts payable 19.7 ( 13.6 ) 14.3

Accrued operating liabilities and other long-term operating liabilities 12.2 8.1 10.9

Accrued liabilities and other current and long-term liabilities ( 14.9 ) 12.2 8.1

Deferred revenues — 0.6 ( 2.0 )

2 unchanged sentences

Purchases of property, plant and equipment ( 21.3 ) ( 15.1 ) ( 23.5 )

Loss on settlement of cash flow hedge ( 0.5 ) — —

Proceeds from maturities of marketable debt securities 2.0 — —

Purchase of marketable debt securities ( 18.7 ) — —

Purchase of marketable equity securities ( 2.4 ) — —

Purchase of certificates of deposit ( 7.2 ) — —

Acquisitions of businesses, net of cash acquired — — ( 1.6 )

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

Proceeds from sales of business and assets 1.7 — —

Investments in and loans to privately-held companies ( 0.6 ) ( 1.4 ) ( 1.8 )

Other ( 1.4 ) 0.3 —

12 unchanged sentences

Effects of exchange rate changes on cash and cash equivalents and restricted cash ( 0.2 ) ( 0.1 ) 0.9

Net increase (decrease) in cash and cash equivalents and restricted cash 44.0 70.8 ( 22.1 )

Net (decrease) increase in cash and cash equivalents and restricted cash ( 55.5 ) 44.0 70.8

Cash and cash equivalents and restricted cash at beginning of period 146.1 102.1 31.3

5 unchanged sentences

Purchases of property, plant and equipment financed through accounts payable $ 1.5 $ 1.5 $ 1.6

See accompanying notes to the consolidated financial statements.

See accompanying Notes to Consolidated Financial Statements.

VAREX IMAGING CORPORATION

2 unchanged sentences

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.

Varex Imaging Corporation (the “Company,” “Varex,” or “Varex Imaging”) designs, manufactures, sells and services a broad range of medical products, which include X-ray components including 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 equipment, as well as to independent service companies and distributors, and directly to end-users for replacement purposes.

The Company also designs, manufactures, sells and services industrial products, which include Linatron® X-ray linear accelerators, digital detectors, high voltage connectors, 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 or irradiation systems and processes.

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 accompanying consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the SEC and 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.

3 unchanged sentences

(i) Medical and (ii) Industrial.

Segment Information, included in this report, for further information on the Company’s segments.

See Note 16, Segment Information, included in this report, for further information on the Company’s segments.

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

Fiscal year 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.

Fiscal year 2022 was the 52-week period that ended September 30, 2022, fiscal year 2021 was the 52-week period that ended October 1, 2021, and fiscal year 2020 was the 53-week period that ended October 2, 2020.

Variable Interest Entities

1 unchanged sentence

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.

As of September 30, 2022, 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.

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

Actual results could differ from these estimates.

Impact of COVID-19

The coronavirus (“COVID-19”) pandemic, 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.

the magnitude and duration of COVID-19, the extent to which it will continue to 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.

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

In addition, while we have from time to time taken significant precautions to maintain employee safety, such as implementing mask requirements, encouraging vaccination, and periodically asking non-production related employees to work from home when possible, the Company has experienced, and may in the future experience, COVID-19 related employee absences that adversely impact our production or business.

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.

5 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 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

Restricted cash is included in other assets on the Company's 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 September 30, 2022 Twelve Months Ended October 1, 2021

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

13 unchanged sentences

The Company records all derivatives on the Consolidated Balance Sheets at fair value as of the reporting date.

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

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

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

The portion of the change in fair value

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

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

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

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.

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities, 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.

To date, 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 maintains an allowance for credit losses 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.

When these suppliers are unable to meet the Company's supply needs, the Company's production is negatively impacted.

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:

During the periods presented, one of the Company's customers accounted for a significant portion of revenues, as set forth below:

2022 2021 2020

1 unchanged sentence

17.2 % 17.9 % 20.5 %

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

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

Canon Medical Systems Corporation accounted for 10.3 % and 16.2 % of the Company’s accounts receivable as of September 30, 2022 and October 1, 2021, respectively.

Inventories, net

Inventory is 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.

2 unchanged sentences

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

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

(In millions) September 30, 2022 October 1, 2021

Raw materials and parts $ 240.3 $ 168.0

$ 168.0 $ 184.6

Work-in-process 23.2 20.4

1 unchanged sentence

Total inventories $ 303.2 $ 224.8

$ 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.

The Company recorded inventory write-downs of $ 6.4 million, $ 3.5 million and $ 18.1 million for the twelve months ended September 30, 2022, October 1, 2021 and October 2, 2020, respectively, of which $ 0.0 million , $ 3.5 million, and $ 15.8 million were from certain discontinued products in relation to COVID-19.

Property, Plant and Equipment, net

8 unchanged sentences

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

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

When 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

(In millions) September 30, 2022 October 1, 2021

Land $ 8.3 $ 8.3

Buildings and leasehold improvements 149.2 148.7

1 unchanged sentence

Construction in progress 29.1 18.1

Gross property, plant and equipment 369.5 354.8

Accumulated depreciation and amortization ( 228.2 ) ( 214.6 )

( 214.6 ) ( 211.2 )

Property, plant, and equipment, net

$ 140.2 $ 145.2

Total property, plant and equipment, net $ 141.3 $ 140.2

The Company recorded depreciation expense of $ 19.0 million, $ 20.5 million and $ 22.3 million in fiscal years 2022, 2021 and 2020, respectively.

During fiscal years 2022, 2021 and 2020, the Company recorded accelerated depreciation of $ 0.0 million , $ 0.2 million and $ 2.9 million, respectively, which primarily related to the machinery and equipment used at the Santa Clara, California facility.

Restructuring , included in this report, for further information.

See Note 5, Restructuring , included in this report, for further information.

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

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 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.

There were no impairments recorded during fiscal years 2022 and 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 expense, net in the Company's consolidated financial statements.

Marketable Securities

The Company's marketable securities consist primarily of financial instruments such as U.S.

treasury securities, U.S.

agency obligations, corporate bonds, commercial paper, money market funds, and equity securities.

The Company classifies marketable debt securities as available-for-sale at the time of purchase and reevaluates such classifications as of each balance sheet date.

All marketable debt securities are recorded at estimated fair value.

Any unrealized gains or losses for marketable debt securities are included in accumulated other comprehensive income within the Consolidated Balance Sheets.

Marketable equity securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date.

All unrealized gains and losses on equity securities are recorded as part of other expense, net in the Company's consolidated financial statements.

See Note 10, Fair Value, for further details.

When the fair value of a debt security declines below its amortized cost basis, any portion of that decline attributable to credit losses, to the extent expected to be nonrecoverable before the sale of the security, is recognized in our Consolidated Statements of Operations.

When the fair value of a debt security declines below its amortized cost basis due to changes in interest rates, such amounts are recorded in accumulated other comprehensive income, and are recognized in our Consolidated Statements of Operations only if we sell or intend to sell the security before recovery of its cost basis.

There were no credit losses related to marketable debt securities recorded during the twelve months ended September 30, 2022.

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.

Purchased intangible assets are carried at cost, net of accumulated amortization, and are included in intangible assets, net 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.

5 unchanged sentences

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.

If the Company determines 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

impairment loss.

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

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

In fiscal years 2022, 2021 and 2020, 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.

During the fiscal years ended September 30, 2022, October 1, 2021 and October 2, 2020, the Company recognized $ 0.0 million , $ 0.0 million , and $ 2.8 million of impairments of intangible assets, respectively.

Loss Contingencies

3 unchanged sentences

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.

Commitments and Contingencies, for further information regarding certain of our contractual obligations and contingencies.

See Note 12, Commitments and Contingencies, for further information regarding certain of our contractual obligations and contingencies.

Product Warranty

6 unchanged sentences

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

(In millions) 2021 2020

Fiscal Years Ended

(In millions) September 30, 2022 October 1, 2021

Accrued product warranty, at beginning of period $ 8.5 $ 8.1

Charged to cost of revenues 13.0 15.1

Actual product warranty expenditures ( 12.6 ) ( 15.1 )

New accruals charged to cost of revenues 11.3 13.0

Product warranty expenditures ( 11.9 ) ( 12.6 )

Accrued product warranty, at end of period $ 7.9 $ 8.5

2 unchanged sentences

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").

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.

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.

2 unchanged sentences

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.

34 unchanged sentences

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.

Refer to Note 16, 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

8 unchanged sentences

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.

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

1 unchanged sentence

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.

The Company had an allowance for credit losses of $ 0.6 million and $ 1.0 million as of September 30, 2022 and October 1, 2021, respectively.

Share-Based Compensation Expense

9 unchanged sentences

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.

For additional information, see Note 14, Employee Stock Plans , included in this report.

Software Development Costs

15 unchanged sentences

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.

A reserve for R&D is typical for companies that 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.

During fiscal year 2022, the Company received cash tax refunds related to net operating loss ("NOL") carryback claims for U.S.

losses incurred in fiscal year 2020.

On August 16, 2022, the Inflation Reduction Act was enacted in response to rising inflation.

The Company does not meet the financial statement thresholds for the minimum tax applicability and does not anticipate other provisions will have a material impact.

The 2017 Tax Cuts and Jobs Act ("TCJA") included a provision requiring research and development expenditures to be capitalized for tax years beginning after December 31, 2021, which will be effective for the Company starting in fiscal year 2023.

Because the Company has a significant amount of research and development expenditures, it expects increased cash taxes in the early years following the effective date of TCJA.

Foreign Currency Translation

2 unchanged sentences

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

Dollars are included in the consolidated statements of operations.

Dollars are included in the Consolidated Statements of Operations in other expense, net.

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

1 unchanged sentence

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.

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 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 consolidated financial statements and related disclosures.

In June 2016, the FASB issued 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.

4 unchanged sentences

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.

These 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.

The ASU is effective for annual periods beginning after December 15, 2021, including interim periods within those years.

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.

The Company will adopt the new standard effective October 1, 2022, the first day of the fiscal year ending September 29, 2023, using the modified retrospective method.

On the date of adoption, the Company estimates that its entry to adopt this ASU will be to record a reduction in additional paid-in capital of $ 34.6 million, an increase to long-term debt, net of $ 28.0 million, an increase to deferred tax assets of $ 6.7 million, and an increase to retained earnings of $ 13.3 million in 2023 for the after-tax impact of previously recognized amortization of the debt discount associated with the Company’s Convertible Senior Notes.

The unamortized discount on our Convertible Notes (see Note 9, Borrowings ) will be reclassified from equity to liabilities and 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, and 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.

1 unchanged sentence

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.

The Company determined this ASU will not have a material impact on its financial position, results of operations or cash flows.

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:

The following tables summarize the changes in the contract assets and refund liabilities for the twelve months ended September 30, 2022 and October 1, 2021:

(In millions) Contract Assets

Balance at September 27, 2019 $ 23.7

Balance at October 2, 2020 $ 24.6

Costs recovered from product returns during the period ( 4.8 )

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

Adjustment for actual vs.

reserved product returns ( 1.9 )

Balance at October 1, 2021 $ 24.3

1 unchanged sentence

Contract asset from shipments of products, subject to return during the period 7.1

Adjustment for actual vs reserved product returns ( 1.9 )

Balance at October 1, 2021 $ 24.3

(In millions) Refund Liabilities

Adjustment for actual vs.

reserved product returns ( 0.6 )

Balance at September 30, 2022 $ 25.4

(In millions) Refund Liabilities

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

1 unchanged sentence

Additions to refund liabilities 7.9

Adjustment for actual vs reserved product returns ( 2.2 )

Balance at October 1, 2021 $ 27.0

Adjustment for actual vs.

reserved product returns ( 0.6 )

Balance at September 30, 2022 $ 28.2

During fiscal year 2022, the Company recognized revenue of $ 6.7 million related to deferred revenue which existed at October 1, 2021.

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

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

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.

Summary of Significant Accounting Policies, for details on the nature of the remaining performance obligations within these contracts and how they will be resolved.

On September 28, 2019, the Company adopted ASC 842, which amends the guidance for the accounting and reporting of leases.

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.

On September 28, 2019, the Company adopted ASC 842, which amended 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.

3 unchanged sentences

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.

The Company's leases have remaining lease terms of less than one year to approximately ten years , some of which may include options to extend the leases for up to five 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.

3 unchanged sentences

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.

During the twelve months ended September 30, 2022, the Company recorded a loss due to abandonment of $ 1.9 million, which is included in selling, general and administrative on the Consolidated Statements of Operations.

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

(In millions) Balance Sheet Location September 30, 2022 October 1, 2021

Operating lease right-of-use assets Operating lease assets $ 23.2 $ 24.3

5 unchanged sentences

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

October 1, 2021 October 2, 2020

September 30, 2022 October 1, 2021

Operating lease weighted average remaining lease term (in years) 6.4 5.9

3 unchanged sentences

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

(In millions) 2022 2021 2020

Total operating lease costs (1)

$ 6.4 $ 8.1 $ 8.4

Total finance lease costs $ 0.2 $ 0.3 $ 0.3

2 unchanged sentences

Total cash paid for amounts included in the measurement of lease liabilities $ 7.5 $ 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:

Noncash operating right-of-use assets obtained in exchange for new lease liabilities $ 5.4 $ 5.6 $ 10.6

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 $ 5.5 $ 5.8 $ 10.8

(1) Includes variable and short-term lease expense, which were immaterial for fiscal years 2022, 2021, and 2020.

As of September 30, 2022, maturities of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:

(In millions)

6 unchanged sentences

Present value of lease liabilities $ 22.0 $ 0.3

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

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.

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

Total Direct Conversion revenues

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

As of September 30, 2022 , the Company had not entered into any material leases that have not yet commenced.

RELATED-PARTY TRANSACTIONS

6 unchanged sentences

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.

The carrying value of the equity investment in dpiX Holding was $ 42.4 million and $ 45.0 million at September 30, 2022 and October 1, 2021, respectively.

In fiscal years 2022, 2021 and 2020, the Company purchased glass transistor arrays from dpiX totaling $ 21.0 million, $ 18.5 million and $ 20.4 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.

These purchases of glass transistor arrays are included as a component of inventories, net on the Consolidated Balance Sheets or cost of revenues in the Consolidated Statements of Operations.

As of September 30, 2022 and October 1, 2021, the Company had accounts payable to dpiX totaling $ 3.1 million and $ 2.8 million, respectively.

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

1 unchanged sentence

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

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.

As of September 30, 2022, the Company estimated it has fixed cost commitments of $ 3.3 million related to this amended agreement through the remainder of calendar year 2022.

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

5 unchanged sentences

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.

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

$ 5.1 million.

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

The Company has determined that VEC is a variable interest entity.

In fiscal years 2022, 2021 and 2020, the Company recorded a loss on the equity investment in VEC of $ 0.8 million, $ 1.1 million, and $ 1.2 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.

The Company's investment in VEC was $ 2.5 million and $ 3.0 million as of September 30, 2022 and October 1, 2021, respectively.

In fiscal years 2022 and 2021, the Company made contributions to VEC totaling $ 0.3 million and $ 1.2 million, respectively.

As of September 30, 2022 and October 1, 2021 the Company had loans outstanding to VEC totaling $ 0.6 million and $ 0.3 million, respectively, and other receivables from VEC of $ 0.3 million at September 30, 2022 and October 1, 2021, respectively, which are recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets.

RESTRUCTURING

2 unchanged sentences

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.

In connection with the relocation of the glass production and site closure, the Company recorded $ 0.0 million , $ 0.0 million and $ 9.1 million of restructuring charges during fiscal years 2022, 2021 and 2020, 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 action resulted in the reduction of the Company’s workforce by approximately 94 employees, of whom 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.

2 unchanged sentences

(In millions) Location of Restructuring Charges in Consolidated Statements of Operations 2022 2021 2020

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

Inventory write downs Cost of revenues — — 1.3

Intangible assets impairment Impairment of intangible assets — — 4.8

Accelerated depreciation Cost of revenues — 0.2 2.9

4 unchanged sentences

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

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

(In millions) September 30, 2022 October 1, 2021

Accrued compensation and benefits $ 37.5 $ 44.2

$ 44.2 $ 33.0

Product warranty 7.9 8.5

Income taxes payable

Taxes payable 11.3 8.0

Right of return liability 6.8 6.7

Accrued interest 11.7 12.5

Other 6.2 9.8

Total accrued liabilities and other current liabilities $ 81.4 $ 89.7

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

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

(In millions) September 30, 2022 October 1, 2021

Long-term income tax payable $ 4.3 $ 1.8

4 unchanged sentences

Total other long-term liabilities $ 33.8 $ 31.8

$ 31.8 $ 34.9

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

The following table summarizes the Company’s other expense, net:

(In millions) 2022 2021 2020

2 unchanged sentences

Impairment of investment — — ( 2.7 )

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

Realized losses on foreign currencies, net ( 1.5 ) ( 0.2 ) ( 3.7 )

Other 0.2 0.1 —

7 unchanged sentences

Net income (loss) attributable to Varex $ 30.3 $ 17.4 $ ( 57.9 )

$ 17.4 $ ( 57.9 ) $ 15.5

Weighted average shares outstanding – basic

5 unchanged sentences

Net income (loss) per share attributable to Varex – basic $ 0.76 $ 0.44 $ ( 1.49 )

$ 0.44 $ ( 1.49 ) $ 0.41

Net income (loss) per share attributable to Varex – diluted $ 0.73 $ 0.43 $ ( 1.49 )

$ 0.43 $ ( 1.49 ) $ 0.40

Anti-dilutive share-based awards, excluded

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

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

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

convertible note hedges and warrants (see Note 10.

Borrowings ).

Since we intend to settle in cash the principal outstanding under our Convertible Senior Notes, 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 9, 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.

Warrants, which have a strike price above our average share price for the periods presented, 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.

8 unchanged sentences

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.

The Company’s policy is to enter into contracts only with financial institutions that 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.

During the twelve months ended October 2, 2020 the Company 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

During the twelve months ended September 30, 2022, the Company entered into forward contracts which have been designated as cash flow hedges and are intended to manage its risk of variability in foreign currency-denominated contracts.

All changes in fair value of the derivatives designated as cash flow hedges are reported in accumulated other comprehensive income in the Consolidated Balance Sheet.

As of September 30, 2022, the Company had the following outstanding derivatives designated as cash flow hedging instruments.

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

Forward contracts 4 $ 2.5

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

Amount of 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

Location of Loss Reclassified from Accumulated OCI into Income Amount of Loss Reclassified from Accumulated OCI into Income

Fiscal Year Ended

4 unchanged sentences

$ — $ ( 1.5 )

Forward contracts ( 0.8 ) — — Interest expense — — —

$ ( 0.8 ) $ — $ ( 3.4 ) $ — $ — $ ( 1.5 )

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:

(In millions) Derivative Liabilities

Derivatives designated as cash flow hedges Balance sheet location 2022

Forward contracts Accrued liabilities and other current liabilities $ 0.3

Derivatives Designated as Hedging Instruments - Net Investment Hedges

1 unchanged sentence

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:

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 September 30, 2022, the Company had the following outstanding derivatives designated as net investment hedging instruments:

(In millions, except for number of instruments)

2 unchanged sentences

Cross currency swap contracts

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:

The following table summarizes the amount of pre-tax gain (loss) 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

1 unchanged sentence

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)

Amount of Gain Recognized in Income on Derivative (Amount Excluded from Effectiveness Testing)

(In millions)

5 unchanged sentences

Derivative Assets

Derivative Liabilities

(In millions)

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

Derivative Assets and Liabilities

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 )

Prepaid expenses and other current assets $ 1.2 $ 1.2

Cross currency swap contracts Other assets 6.3 —

Cross currency swap contracts Other long-term liabilities $ — $ 2.4

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 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 expense, net and offsets the change in fair value of the foreign currency-denominated assets and liabilities, which are also recorded in other expense, net.

The Company has 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 September 30, 2022:

Notional Value of Derivatives not Designated as Hedging Instruments:

(In millions of equivalent USD) Buy contracts Sell contracts

Indian Rupee $ — $ 5.2

Chinese Renminbi — 11.1

Total notional value $ — $ 25.4

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

October 1, 2021 October 2, 2020

September 30, 2022 October 1, 2021

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

3 unchanged sentences

Non-current maturities of long-term debt:

Asset-Based Loan $ — $ — $ —

Convertible Senior Unsecured Notes $ 200.0 10.9 % $ 200.0 10.9 % $ —

9 unchanged sentences

Total debt outstanding, net $ 414.4 $ 434.5 $ ( 20.1 )

Future principal payments of long-term debt outstanding as of October 1, 2021 are as follows:

Equity component of Convertible Senior Unsecured Notes (1)

$ 49.7 $ 49.7 $ —

(1) Included in additional paid-in capital on the Consolidated Balance Sheets.

Future principal payments of long-term debt outstanding as of September 30, 2022 are as follows:

(In millions)

Fiscal years:

Thereafter 270.4

Total debt outstanding $ 449.7

3 unchanged sentences

Twelve Months Ended

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

September 30, 2022 October 1, 2021 October 2, 2020

Contractual interest coupon and other $ 27.6 $ 30.7 $ 19.1

15 unchanged sentences

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.

The number of warrants outstanding as of September 30, 2022, was 9.6 million.

Senior Secured Notes

11 unchanged sentences

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 March 18, 2022, the Company redeemed $ 27 million of Senior Secured Notes, in accordance with the terms and conditions of the governing indenture, by paying cash of $ 28.7 million, inclusive of the redemption premium and accrued interest, and recognized a $ 1.2 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, October 15, 2021 to, but excluding, the redemption date of March 18, 2022.

As of September 30, 2022, the aggregate principal amount of the outstanding Senior Secured Notes was $ 243.0 million.

Asset-Based Loan

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

From September 30, 2020 through March 9, 2022, borrowings under the Asset-Based Loan bore interest at floating rates based on LIBOR, or a 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 was required to pay a quarterly commitment fee of 0.375 % to 0.5 %, based on the aggregate unused commitments under the Asset-Based Loan.

On March 9, 2022, the ABL Facility was amended to transition the reference rate for certain dollar denominated advances to the Secured Overnight Financing Rate ("SOFR") from the London Interbank Offered Rate ("LIBOR") and the quarterly commitment fee was amended to 0.25 %, based on the aggregate unused commitments under the Asset-Based Loan.

Additionally, the applicable margin rates were reduced by 75 basis points and the interest rate floor was reduced from 50 basis points to 0 basis points.

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.

1 unchanged sentence

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.

As of September 30, 2022, the amount available under our ABL Facility was $ 94.5 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.

As of September 30, 2022, 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.

1 unchanged sentence

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).

On September 30, 2020, the Company terminated the Credit Agreement.

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.

The fair values of certain of the Company’s financial instruments, including bank deposits included in cash and cash equivalents, accounts receivable, net and accounts payable, approximate their fair values due to their short maturities.

As of September 30, 2022, the fair value of the Company's Convertible Notes and Senior Secured Notes, as defined in Note 9, Borrowings

and measured using Level 1 inputs, were $ 250.2 million and $ 241.3 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.

2 unchanged sentences

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 Measurements at September 30, 2022

(In millions)

Fair Value Measurements at October 1, 2021

Quoted Prices in Active Markets for Identical Assets and Liabilities

2 unchanged sentences

Significant Unobservable Inputs

Cash equivalents - money market funds

$ — $ 88.2 $ — $ 88.2

Money market funds $ — $ 36.6 $ — $ 36.6

Commercial paper — 5.9 — 5.9

Corporate notes/bonds — 3.6 — 3.6

Government agencies — 0.3 — 0.3

US Treasury bills — 10.2 — 10.2

Derivative assets

Marketable equity securities 2.5 — — 2.5

Total assets measured at fair value $ 2.5 $ 64.1 $ — $ 66.6

$ — $ 89.4 $ — $ 89.4

Derivative liabilities

2 unchanged sentences

At October 1, 2021, the Company determined the following levels of inputs for the following assets or liabilities:

(In millions)

Fair Value Measurements at October 1, 2021

(In millions)

Quoted Prices in Active Markets for Identical Assets and Liabilities

2 unchanged sentences

Significant Unobservable Inputs

Cash equivalents - Money market funds

$ — $ 72.9 $ — $ 72.9

Money market funds $ — $ 88.2 $ — $ 88.2

Derivative assets

Total assets measured at fair value $ — $ 89.4 $ — $ 89.4

$ — $ 74.0 $ — $ 74.0

Derivative liabilities

$ — $ 2.4 $ — $ 2.4

Deferred consideration

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

The Company holds assets under its deferred compensation plan which total $ 5.4 million as of September 30, 2022.

Marketable Debt Securities

The following is a summary of marketable debt securities, which are included within the cash and cash equivalents, prepaid expenses and other current assets, and other assets balances on the Consolidated Balance Sheets.

September 30, 2022

(In millions) Amortized Costs Unrealized Gains Unrealized Losses Fair Value

Commercial paper $ 5.9 $ — $ — $ 5.9

Corporate notes/bonds 3.7 — ( 0.1 ) 3.6

US Treasury bills 10.2 — — 10.2

Government agencies 0.3 — — 0.3

Total marketable debt securities $ 20.1 $ — $ ( 0.1 ) $ 20.0

On October 1, 2021, the Company did not hold any marketable debt securities.

The contractual maturities of marketable debt securities as of September 30, 2022, are shown in the table below.

Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations.

September 30, 2022

(In millions) Amortized Costs Fair Value

Contractual maturities:

Due within one year $ 17.8 $ 17.7

Due after one year through five years 2.3 2.3

Total marketable debt securities $ 20.1 $ 20.0

During the twelve months ended September 30, 2022, there were no gross realized gains or losses from the sale of certain marketable debt securities that were reclassified out of accumulated other comprehensive income.

The following table summarizes the balance sheet locations for marketable debt securities:

September 30, 2022

(In millions) Commercial paper Corporate notes/bonds Government agencies Treasury Bills Total

Cash and cash equivalents $ — $ — $ — $ 3.3 $ 3.3

Prepaid expenses and other current assets 5.9 1.9 0.3 6.4 14.5

Other assets — 1.7 — 0.5 2.2

Total marketable debt securities $ 5.9 $ 3.6 $ 0.3 $ 10.2 $ 20.0

GOODWILL AND INTANGIBLE ASSETS

2 unchanged sentences

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

( 0.2 ) ( 0.2 ) ( 0.4 )

Foreign currency translation adjustments

( 4.5 ) ( 3.2 ) ( 7.7 )

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

Balance at September 30, 2022 $ 169.4 $ 115.1 $ 284.5

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

September 30, 2022 October 1, 2021

(In millions)

13 unchanged sentences

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:

As of September 30, 2022, the estimated future amortization expense of intangible assets with finite lives is as follows:

(In millions)

Fiscal years:

Thereafter 4.5

COMMITMENTS AND CONTINGENCIES

Lease Commitments

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

During 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 September 30, 2022, transfer of the underlying equipment has been completed and installation and calibration is underway.

All activities related to this asset purchase are expected to be completed during the 2023 fiscal year.

Total consideration to be paid by Varex for the acquired assets is expected to be ¥ 1,084.7 million, subject to potential decreases for costs incurred by the Company.

On April 14, 2022, we entered into a foreign currency hedge related to this Japanese Yen payment, which is expected to fix the purchase price of these assets at approximately $ 7.9 million.

As of September 30, 2022, the Company has made payments totaling $ 5.4 million and estimates that our remaining cash payments to be made total $ 2.5 million.

Other Commitments

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.

See Note 4, Related-Party Transactions, included in this report, for additional information about the Company’s commitments to dpiX.

See Note 13 , 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 $ 1.6 million as of September 30, 2022.

In the fourth quarter of fiscal year 2022, the Company entered into several agreements with a third-party company, whose stock is publicly traded on a foreign exchange.

Under these agreements, the Company will make certain milestone payments of up to

$ 5 million upon achievement of specified milestones.

During fiscal year 2022, the first of these milestones was achieved and the Company paid $ 1 million to the third party company, which was recorded in research and development in the Consolidated Statements of Operations.

The remaining milestones are expected to be achieved in fiscal year 2023.

In addition, the Company agreed to acquire, through two separate purchases, a fixed number of shares for consideration of approximately $ 5 million, representing 9.9 % of the shares of the third-party company outstanding on the date the agreements were signed.

The Company completed the acquisition of the first tranche of shares during fiscal year 2022 for approximately $ 2.4 million.

The Company has recorded this investment as marketable equity securities, which is included in other assets on the Consolidated Balance Sheet.

Refer to Note 1, Summary of Significant Accounting Policies , and Note 10, Fair Value .

The second tranche of the investment is subject to foreign regulatory approval and, if approved, is expected to be completed in fiscal year 2023.

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.

The Company did not have any material contingent liabilities as of September 30, 2022 and October 1, 2021.

Legal expenses are expensed as incurred.

2 unchanged sentences

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

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 Sheets related to Direct Conversion

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

1 unchanged sentence

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.

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 Consolidated Balance Sheets.

Income representing the noncontrolling partner's share of income from operations is included in the Company's Consolidated Statements of Operations.

7 unchanged sentences

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.

As of September 30, 2022, 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:

(In millions) Noncontrolling

Interests Redeemable

Noncontrolling

Interests Noncontrolling Interest

1 unchanged sentence

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 ( 0.4 ) ( 1.4 )

2 unchanged sentences

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.

Certain of the Company's employees participate in the Varex Imaging Corporation 2020 Omnibus Stock Plan (the “2020 Stock Plan”), the 2017 Omnibus Stock Plan (the “2017 Stock Plan”), and the Varex Imaging Corporation 2017 Employee Stock Purchase Plan (the “2017 ESPP”) which allow the grants of stock options, restricted stock units and performance shares among other types of awards to eligible employees.

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.

During the fiscal year 2022, the Company's Board of Directors approved an increase in the number of shares available for issuance under the 2017 ESPP of 0.8 million shares.

As of September 30, 2022 the 2017 ESPP provides for the purchase of up to 1.8 million shares of Varex common stock.

Share-Based Compensation Expense

10 unchanged sentences

$ 14.0 $ 13.9 $ 13.4

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 unrecognized share-based compensation cost as of September 30, 2022 was $ 23.2 million, and is expected to be recognized over a weighted average period of 2.5 fiscal years.

As of September 30, 2022, there were approximately 3.2 million and 0.8 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.

19 unchanged sentences

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.

Employee stock purchase plan offering periods are typically 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.

19 unchanged sentences

( 90 ) $ 25.17 - $ 31.42

Outstanding at October 1, 2021

( 138 ) $ 13.61 - $ 30.74

Outstanding at September 30, 2022

2,902 $ 13.61 - $ 37.60

Exercisable at October 1, 2021

$ 28.97 4.5 $ 1,361.4

Exercisable at September 30, 2022

2,085 $ 13.61 - $ 37.60

(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.

$ 29.81 3.1 $ 666.1

(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 $ 21.14 as of September 30, 2022, 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 2022, 2021 and 2020 was $ 3.9 million, $ 3.7 million and $ 4.4 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

The total intrinsic value of the options exercised during the years ended September 30, 2022, October 1, 2021 and October 2, 2020 was $ 0.5 million, $ 0.0 million and $ 0.4 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:

The following table summarizes the activity for restricted stock units, restricted stock awards and deferred stock units under the 2020 Stock Plan:

(In thousands, except per share amounts)

4 unchanged sentences

1,080 $ 23.25

( 364 ) 24.83

Canceled, expired or forfeited

Balance at October 1, 2021

Balance at September 30, 2022

1,045 $ 24.35

The total grant-date fair value of shares granted was $ 10.8 million, $ 8.9 million and $ 11.9 million for fiscal years 2022, 2021 and 2020, 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.

Shares outstanding at September 30, 2022, October 1, 2021 and October 2, 2020 had an estimated market value of $ 22.1 million, $ 30.9 million and $ 11.8 million, respectively.

TAXES ON INCOME

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

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

amounts that are recognized for income tax purposes.

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

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

19 unchanged sentences

United States $ 16.4 $ ( 4.1 ) $ ( 74.1 )

$ ( 4.1 ) $ ( 74.1 ) $ 5.9

32.7 1.5 15.6

Foreign 28.1 32.7 1.5

Income (loss) before taxes $ 44.5 $ 28.6 $ ( 72.6 )

1 unchanged sentence

federal statutory tax rate as a result of the following:

2021 2020 (1)

Federal statutory income tax rate

2 unchanged sentences

( 1.4 ) 0.3 1.0

Mandatory repatriation tax on foreign earnings — — 1.9

Statutory rate change impact on prior year deferreds 1.1 — —

Return to provision ( 2.1 ) 4.2 2.8

2 unchanged sentences

Prior year research and development credit — ( 0.3 ) —

Prior year deferred tax adjustments — 0.4 4.7

Foreign rate difference 6.5 1.7 ( 0.4 )

6 unchanged sentences

30.8 % 37.4 % 20.9 %

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

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

During fiscal year 2022, the Company's effective tax rate varied from the U.S.

federal statutory rate of 21% primarily due to the unfavorable impact of profit in foreign jurisdictions with statutory tax rates greater than 21% and also U.S.

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

These unfavorable items are partially offset by the favorable impact of U.S.

tax reform international provisions, return to provision adjustments, and R&D tax credits.

During fiscal year 2021, the Company’s effective tax rate varied from the U.S.

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

8 unchanged sentences

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 2022 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.

2 unchanged sentences

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

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

(In millions) September 30, 2022 October 1, 2021 (1)

Deferred tax assets:

2 unchanged sentences

Product warranty 1.4 1.8

Unrealized exchange gain 2.6 1.7

Deferred compensation 1.3 1.6

5 unchanged sentences

Interest expense limitation 3.9 4.3

Capitalized interest 0.9 —

Lease liabilities 5.4 6.8

15 unchanged sentences

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

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

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the year ended September 30, 2022, 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.

2 unchanged sentences

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.

As of September 30, 2022, the Company had foreign net operating loss carryforwards ("NOL") of approximately $ 19.3 million with $ 0.9 million expiring between 2022 and 2033 and $ 18.4 million carried forward indefinitely.

During fiscal year 2022, the Company received cash tax refunds related to NOL carryback claims for U.S.

losses incurred during fiscal year 2020.

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.

5 unchanged sentences

Valuation allowance balance–beginning of fiscal year $ 30.2 $ 28.7 $ 18.8

Increases resulting from business combinations — — 12.0

Other increases 6.9 5.4 10.2

11 unchanged sentences

Unrecognized tax benefits balance—end of fiscal year $ 1.2 $ 1.1

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.

As of September 30, 2022 and October 1, 2021, the total amount of gross unrecognized tax benefits was $ 1.2 million and $ 1.1 million, respectively, all of which would affect the effective tax rate if recognized.

The Company includes interest and penalties related to income taxes within income tax expense (benefit) on the Consolidated Statements of Operations.

For the year ended September 30, 2022, $ 0.2 million interest and penalties have been included for this period.

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.

4 unchanged sentences

Generally, periods prior to 2012 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.

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, which remain open as of September 30, 2022.

The Swedish Tax Agency commenced an examination of Direct Conversion’s tax returns for the fiscal year 2019 in fiscal year 2022 and closed the examination with no adjustments.

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.

2 unchanged sentences

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 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 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.

32 unchanged sentences

(In millions) 2022 2021 2020 2022 2021

$ 268.5 $ 255.0 $ 282.6 $ 105.4 $ 115.9

276.3 231.5 269.0 23.9 21.5

273.3 251.8 229.0 10.9 7.8

Americas $ 273.3 $ 268.5 $ 255.0 $ 99.8 $ 105.4

EMEA 280.8 276.3 231.5 23.2 23.9

APAC 305.3 273.3 251.8 18.3 10.9

Total company

10 unchanged sentences

The Company made matching contributions to the plan totaling $ 4.4 million, $ 2.8 million and $ 4.4 million in fiscal years 2022, 2021 and 2020, 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,

2021 and October 2, 2020, respectively.

The Company also maintains defined benefit plans for certain 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 $ 3.3 million and $ 5.9 million as of September 30, 2022 and October 1, 2021, respectively.

The Company’s net periodic benefit costs for the Company’s defined benefit plans were not material for fiscal years 2022, 2021, and 2020.

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

ACCUMULATED OTHER COMPREHENSIVE 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

(In millions) Unrealized (Loss) Gain on Derivative Financial Instruments Unrealized (Loss) Gain on Defined Benefit Obligations CTA, Including Impact of Net Investment Hedge Unrealized Loss on Available-for-Sale Securities Accumulated Other Comprehensive Income (Loss)

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

Other comprehensive loss before reclassifications

— ( 0.1 ) ( 0.3 ) — ( 0.4 )

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

1 unchanged sentence

Foreign currency translation adjustment

— — ( 0.5 ) — ( 0.5 )

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

Other comprehensive loss before reclassifications

Other comprehensive (loss) income before reclassifications

( 0.8 ) 2.0 8.7 ( 0.1 ) 9.8

Income tax impact

0.2 ( 0.6 ) ( 0.4 ) — ( 0.8 )

Foreign currency translation adjustment

— — ( 8.9 ) $ — ( 8.9 )

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

Balance at September 30, 2022 $ ( 0.6 ) $ 0.6 $ 0.2 $ ( 0.1 ) $ 0.1

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

What changed 10-K

Item 9A. Controls and Procedures