What changed in this filing

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Item 9A. Controls and Procedures

2023-11-16 compared with 2022-11-18 · 366 added, 405 removed, 1113 unchanged (41% of the section changed)

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Evaluation of Disclosure Controls and Procedures

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

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

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

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Based on this evaluation, our management concluded that we maintained effective internal control over financial reporting as of September 29, 2023.

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".

The effectiveness of our internal control over financial reporting as of September 29, 2023 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their attestation report, which appears below in this Item 9A.

Changes in 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.

There were no changes to our internal control over financial reporting during the quarter ended September 29, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 29, 2023, 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.

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 29, 2023, of the Company and our report dated November 16, 2023, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of a new accounting standard.

Basis for Opinion

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Other Information

During the three months ended September 29, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

Disclosures Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Except as otherwise disclosed below, the information required by Items 10, 11, 12, 13 and 14 is incorporated by reference from our definitive proxy statement for the 2024 Annual Meeting of Stockholders.

Our definitive proxy statement for the 2024 Annual Meeting of Stockholders ("Proxy Statement") will be filed with the SEC no later than 120 days after September 29, 2023.

Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

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

The other information required by this item is incorporated by reference from our definitive proxy statement for the 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.

The information required by this Item 10 with respect to our executive officers is set forth in Item 1 "Business" 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.

Code of Conduct

We have adopted a Code of Conduct that applies to all of our executive officers and directors.

We have adopted a Code of Conduct that applies to all our executive officers and directors.

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

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.

We intend to comply with the disclosure requirements of 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 will provide disclosure of delinquent Section 16(a) reports, if any, in our Proxy Statement, and such disclosure, if any, is incorporated herein by reference.

Executive Compensation

The information required by this item is incorporated by reference from our definitive proxy statement for the 2023 Annual Meeting of Stockholders under the caption “Executive Compensation.”

The information required by this Item 11 is incorporated by reference from our Proxy Statement under the caption “Executive Compensation.”

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

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(3) Includes 2,211 thousand shares available for future issuance under the 2020 Stock Plan, and also includes 567 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.”

Shares available for issuance under the ESPP, including shares subject to purchase during the current purchase period, which commenced on August 28, 2023 (the exact number of which will not be known until the purchase date on February 23, 2024).

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

The information required by this Item 12 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 Proxy Statement under the caption “Stock Ownership—Beneficial Ownership of Certain Stockholders, Directors and Executive Officers.”

Certain Relationships and Related Transactions and Director Independence.

The information required by this item with respect to certain relationships and related transactions is incorporated by reference from our definitive proxy statement for the 2023 Annual Meeting of Stockholders under the caption “Certain Relationships and Related Transactions.” The information required by this item with respect to director and committee member independence is incorporated by reference from our definitive proxy statement for the 2023 Annual Meeting of Stockholders under the caption “Proposal - Election of Directors.”

The information required by this Item 13 with respect to certain relationships and related transactions is incorporated by reference from our Proxy Statement under the caption “Certain Relationships and Related Transactions.” The information required by this item with respect to director and committee member independence is incorporated by reference from our Proxy Statement under the caption “Proposal - Election of Directors.”

Principal Accountant Fees and Services.

The information required by this item is incorporated by reference from our definitive proxy statement for the 2023 Annual Meeting of Stockholders under the caption “Proposal - Ratification of the Appointment of Our Independent Registered Public Accounting Firm.”

Exhibits, Consolidated Financial Statements and Financial Statement Schedules.

The information required by this Item 14 is incorporated by reference from our Proxy Statement under the caption “Proposal - Ratification of the Appointment of Our Independent Registered Public Accounting Firm.”

Exhibit and Financial Statement Schedules.

Documents filed as part of this annual report include:

Consolidated Financial Statements.

We have filed the consolidated financial statements listed in the index to Consolidated Financial Statements, Schedules and Exhibits on page F-1 as part of this annual report on Form 10 - K.

We have filed the consolidated financial statements listed in the I ndex to Consolidated Financial Statements, Schedules and Exhibits on page F-1 as part of this annual report on Form 10 - K.

Financial Statement Schedules and Other.

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

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

and Varex Imaging Corporation (incorporated by reference to Exhibit 2.3 to the Company’s Quarterly Report on Form 10-Q filed May 12, 2017).

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

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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, 2021).

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

10.1* Tax Matters Agreement, dated as of January 27, 2017 by and between Varian and Company (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed January 30, 2017).

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

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

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10.21* 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).

10.25*† 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

10.22*† Transition and Release Agreement, dated January 10, 2023, by and between Brian Giambattista and Varex Imaging Corporation (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed January 10, 2023).

21.1 List of Subsidiaries as of September 29, 2023

23.1 Consent of Deloitte & Touche 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.

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Shubham Maheshwari

/s/ RUEDIGER NAUMANN-ETIENNE Chairman of the Board November 18, 2022

Ruediger Naumann-Etienne

/s/ WALTER M ROSEBROUGH, JR.

Chairman of the Board November 16, 2023

Walter M Rosebrough, Jr.

/s/ KATHLEEN L.

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KUNKEL Director November 16, 2023

/s/ WALTER M ROSEBROUGH, JR.

Director November 18, 2022

Walter M Rosebrough, Jr.

/s/ CHRISTINE A.

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

Consolidated Statements of Operations for the fiscal years ended 2023, 2022 and 2021

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended 2022, 2021 and 2020

Consolidated Statements of Comprehensive Income for the fiscal years ended 2023, 2022 and 2021

Consolidated Balance Sheets as of the end of fiscal years 2023 and 2022

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Opinion on the Financial Statements

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 audited the accompanying consolidated balance sheets of Varex Imaging Corporation and subsidiaries (the "Company") as of September 29, 2023 and September 30, 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended September 29, 2023, 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 29, 2023 and September 30, 2022, and the results of its operations and its cash flows for each of the three years in the period ended September 29, 2023, 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 29, 2023, 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 16, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for Convertible Notes effective October 1, 2022, due to the adoption of Accounting Standards Update, 2020-06, Debt — Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity , using the modified retrospective approach.

Basis for Opinion

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

Critical Audit Matter

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

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

Critical Audit Matters

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

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

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

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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 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 related to its estimates of anticipated future sales in determining the valuation of excess and obsolete inventories.

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

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

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

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

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

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• 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 assessed the reasonableness of the assumptions used in estimating the valuation of excess and obsolete inventories, which included consideration of anticipated future sales and information obtained from production planning and supply chain employees, and 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.

Investments in Privately-Held Companies – Impairment of Equity Method Investment — Refer to Notes 1, 4, 6, and 10 to the financial statements

Critical Audit Matter Description

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, but not control, these investments.

The Company records impairment losses on its equity method investments if an impairment exists and is deemed to be other-than-temporary.

To determine the fair value of the equity method investment, the Company equally weights an income approach based on discounted cash flows and a market approach based on comparable publicly traded companies in similar lines of business.

During the year ended September 29, 2023, the Company assessed its equity method investment in dpiX Holding LLC (“dpiX Holding”) for impairment and concluded that the carrying value of the investment was greater than its fair value and that the loss in value was other than temporary.

The Company recorded an impairment charge totaling $ 16.4 million.

The Company’s estimate of the fair value of the equity method investment included a discounted cash flow technique which included estimates of a discount rate and future revenues of dpiX Holding.

We identified the valuation of dpiX Holding as a critical audit matter because of the significant judgments and estimates management makes to determine the fair value of the equity method investment to record the impairment charge.

This required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenues used in determining the impairment charge, including the need to involve our valuation specialists.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenues in determining the impairment of dpiX Holding included the following, among others:

• We tested the effectiveness of controls over management’s impairment charge calculation, including those over the determination of the fair value of the equity method investment, such as controls related to management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenues.

• We evaluated the reasonableness of management’s revenue forecast estimates by comparing key assumptions to historical results, communications and contractual agreements between the Company and dpiX Holding, and information obtained from sales and marketing personnel of the Company.

• With the assistance of fair value specialists, we evaluated the reasonableness of the discount rate by:

◦ Testing the source information underlying the determination of the discount rate and mathematical accuracy of the calculation.

◦ Developing a range of independent estimates and comparing those to the discount rate selected by management.

• We evaluated whether the revenue forecast estimates were consistent with evidence obtained in other areas of the audit.

/s/ Deloitte & Touche LLP

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

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Varex Imaging Corporation

Opinion on the Financial Statements

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 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 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 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 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

Salt Lake City, Utah

November 30, 2020

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

VAREX IMAGING CORPORATION

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128.4 118.3 125.5

Impairment of intangible assets

Total operating expenses

213.2 195.3 197.4

Operating income (loss) 88.2 74.1 ( 33.7 )

Operating income 77.1 88.2 74.1

Interest income

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Interest and other expense, net ( 45.8 ) ( 43.7 ) ( 45.5 )

Income (loss) before taxes 44.5 28.6 ( 72.6 )

Income tax expense (benefit) 13.7 10.7 ( 15.2 )

Net income (loss) 30.8 17.9 ( 57.4 )

Income before taxes 31.3 44.5 28.6

Income tax (benefit) expense ( 17.4 ) 13.7 10.7

Net income 48.7 30.8 17.9

Net income attributable to noncontrolling interests 0.5 0.5 0.5

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

Net income (loss) per common share attributable to Varex

Net income attributable to Varex $ 48.2 $ 30.3 $ 17.4

Net income per common share attributable to Varex

Basic $ 1.20 $ 0.76 $ 0.44

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VAREX IMAGING CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions) 2023 2022 2021

Net income (loss) $ 30.8 $ 17.9 $ ( 57.4 )

Other comprehensive income (loss), net of tax

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 ) — —

Net income $ 48.7 $ 30.8 $ 17.9

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on defined benefit obligations ( 1.0 ) 1.4 ( 0.1 )

Income (loss) on forward contracts 0.1 ( 0.6 ) —

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

Foreign currency translation adjustments ( 0.5 ) ( 0.6 ) ( 0.7 )

Total comprehensive income (loss) 30.9 17.1 ( 54.9 )

Total comprehensive income 47.4 30.9 17.1

Comprehensive income attributable to noncontrolling interests 0.5 0.5 0.5

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

Comprehensive income attributable to Varex $ 46.9 $ 30.4 $ 16.6

See accompanying Notes to Consolidated Financial Statements.

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(In millions, except share amounts)

September 30, 2022 October 1, 2021

September 29, 2023 September 30, 2022

Current assets:

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$ 152.6 $ 89.4

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

Accounts receivable, net of allowance for credit losses of $ 0.6 million and $ 0.6 million at September 29, 2023 and September 30, 2022, respectively

Inventories, net

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Shares issued and outstanding:

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

40,529,573 and 40,085,126 at September 29, 2023 and September 30, 2022, respectively

Additional paid-in capital

Accumulated other comprehensive income

Accumulated other comprehensive (loss) income ( 1.2 ) 0.1

Retained earnings

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

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

(In millions) Shares Amount

September 27, 2019 38.4 $ 0.4 $ 371.8 $ ( 1.7 ) $ 74.4 $ 444.9 $ 3.3 $ 448.2

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

Net loss — — — — ( 57.9 ) ( 57.9 ) — ( 57.9 )

Exercise of stock options 0.1 — 1.5 — — 1.5 — 1.5

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

Net income — — — — 17.4 17.4 0.5 17.9

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

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

Unrealized gain on interest rate swap contracts, net of tax — — — 0.4 — 0.4 — 0.4

Unrealized gain on defined benefit obligations, net of tax — — — 0.6 — 0.6 — 0.6

Conversion feature of Convertible Notes, net of issuance costs — — 49.7 — — 49.7 — 49.7

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

Issuance of warrants — — 49.8 — — 49.8 — 49.8

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

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

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

Reclassification from mezzanine equity to equity for noncontrolling interest in MeVis Medical Solutions, AG — — — — — — 11.3 11.3

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

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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 — — — — — — —

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

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

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 )

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

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

Net income — — — — 48.2 48.2 0.5 48.7

Cumulative effect of accounting change — — ( 34.6 ) — 6.1 ( 28.5 ) — ( 28.5 )

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

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Share-based compensation — — 13.5 — — 13.5 — 13.5

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

Realized gain on forward contracts — — — 0.1 — 0.1 — 0.1

Unrealized gain on change in fair value of available-for-sale securities — — — 0.1 — 0.1 — 0.1

Unrealized loss on defined benefit obligations, net of tax — — — ( 1.0 ) — ( 1.0 ) — ( 1.0 )

Foreign currency translation adjustments — — — ( 0.5 ) — ( 0.5 ) — ( 0.5 )

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Cash flows from operating activities:

Net income (loss) $ 30.8 $ 17.9 $ ( 57.4 )

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

Net income $ 48.7 $ 30.8 $ 17.9

Adjustments to reconcile net income to net cash provided by operating activities:

Share-based compensation expense 13.5 14.0 13.9

3 unchanged sentences

Loss from equity method investments 1.6 2.6 3.0

Impairment of equity method investment 16.4 — —

Amortization of deferred loan costs 2.6 10.9 10.0

Impairment of intangible assets — — 2.8

Other assets impairment charges — — 0.5

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Purchase of certificates of deposit ( 1.0 ) ( 7.2 ) —

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

Acquisitions of businesses and assets ( 1.0 ) — —

Settlement of net investment hedge 7.0 — —

Proceeds from sales of business and assets — 1.7 —

5 unchanged sentences

Repayments of borrowings ( 2.4 ) ( 29.4 ) ( 33.1 )

Payment of debt issuance costs — — ( 16.7 )

Proceeds from issuance of warrant — — 49.8

Purchases of hedges — — ( 61.0 )

Proceeds from shares issued under employee stock purchase plan 3.9 4.9 2.8

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Other financing activities ( 0.5 ) ( 0.3 ) ( 2.0 )

Net cash (used in) provided by financing activities ( 23.8 ) ( 32.3 ) 83.6

Net cash used in financing activities ( 0.2 ) ( 23.8 ) ( 32.3 )

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

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

Net increase (decrease) in cash and cash equivalents and restricted cash 63.4 ( 55.5 ) 44.0

Cash and cash equivalents and restricted cash at beginning of period 90.6 146.1 102.1

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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 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.

Varex Imaging Corporation (the “Company” or “Varex”) designs, manufactures, sells, and services a broad range of medical products, which include X-ray imaging components including X-ray tubes, flat panel and photon counting detectors and accessories, ionization chambers, high voltage connectors, image processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, and heat exchangers.

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 also designs, manufactures, sells and services industrial products, which include Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors, coolers, 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.

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Basis of Presentation

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.

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

The Company has consolidated all its majority owned subsidiaries and entities over which it has control.

All intercompany balances and transactions have been eliminated in consolidation.

Reclassification of Prior Period Presentation

Certain prior period amounts in the Notes to the Consolidated Financial Statements have had a change in presentation to conform to current period presentation.

This change does not affect previously reported results.

Segment Reporting

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

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.

Fiscal year 2023 was the 52-week period that ended September 29, 2023, fiscal year 2022 was the 52-week period that ended September 30, 2022, and fiscal year 2021 was the 52-week period that ended October 1, 2021.

Variable Interest Entities

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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 of investments, valuation of financial instruments, and taxes on income.

Such estimates include the valuation of inventories, valuation of goodwill and intangible assets, receivables, warranties, refund 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, 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 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 the allowance for credit losses.

The Company’s assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material negative impacts to the Company’s consolidated financial statements in future reporting periods.

These future developments are highly uncertain and the outcomes cannot be estimated with certainty.

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

Cash and Cash Equivalents

The Company considers currency on hand, demand deposits, time deposits and all highly-liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents.

The Company considers unrestricted currency on hand, demand deposits, time deposits, and all highly-liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents.

Restricted Cash

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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

Twelve Months Ended September 29, 2023 Twelve Months Ended September 30, 2022

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

1 unchanged sentence

Restricted cash 1.2 1.4 1.5 1.2

Cash and cash equivalents and restricted cash as reported per statement of cash flows $ 146.1 $ 90.6 $ 102.1 $ 146.1

Total as presented in the Consolidated Statements of Cash Flows $ 90.6 $ 154.0 $ 146.1 $ 90.6

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.

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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 ("OCI") 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 (loss) 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.

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Concentration of Risk

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

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities, certificates of deposit, and trade accounts receivable.

Cash held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions.

To date, the Company has not experienced any losses on its deposits of cash and cash equivalents.

To date, the Company has not realized 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.

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16.5 % 17.2 % 17.9 %

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.

Canon Medical Systems Corporation accounted for 13.8 % and 10.3 % of the Company’s accounts receivable as of September 29, 2023 and September 30, 2022, respectively.

Inventories, net

4 unchanged sentences

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

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

(In millions) September 29, 2023 September 30, 2022

Raw materials and parts $ 217.5 $ 240.3

2 unchanged sentences

Total inventories $ 277.5 $ 303.2

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.

The Company recorded inventory write-downs of $ 5.6 million, $ 6.4 million and $ 3.5 million for the twelve months ended September 29, 2023, September 30, 2022, and October 1, 2021, respectively.

Property, Plant and Equipment, net

11 unchanged sentences

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

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

(In millions) September 29, 2023 September 30, 2022

Land $ 8.3 $ 8.3

6 unchanged sentences

The Company recorded depreciation expense of $ 19.5 million, $ 19.0 million, and $ 20.5 million in fiscal years 2023, 2022 and 2021, 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.

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

Distributions received from an equity method investment are classified using the cumulative earnings approach, which means that distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment and classified as operating cash flows and those in excess of that amount will be treated as returns of investment and classified as investing cash flows.

The Company reviews its equity investments in privately-held companies for impairment whenever events or changes in business circumstances are other than temporary and indicate that the carrying amount of the investments may not be fully recoverable.

There were no impairments recorded during 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.

Equity Method Investments

The Company records impairment losses on its equity method investments if an impairment exists and is deemed to be other-than-temporary, which is based on various factors, including but not limited to, the length of time the fair value of the investment is below the carrying value, the absence of an ability to recover the carrying amount of the investment, and the inability of the investee to sustain an earnings capacity that would justify the carrying amount of the investment.

In the fourth quarter of fiscal year 2023, the Company assessed its equity method investment in dpiX Holding LLC (“dpiX Holding”) for impairment and engaged an external service firm to perform a valuation of its ownership interest in dpiX Holding as of July 1, 2023.

The fair value of the Company's equity interest in dpiX Holding as of the valuation date was determined to be $ 27.6 million.

The Company's carrying value of its investment as of July 1, 2023 was $ 44.0 million.

The Company concluded the loss in value of the investment was other than temporary and was primarily due to reductions in forecasted glass purchases by Varex, as the Company is one of dpiX LLC's (“dpiX”) largest customers.

See Note 4, Related-Party Transactions, for details on the Company's investment in dpiX Holding.

As a result, the Company recorded a before-tax impairment charge totaling $ 16.4 million, which is included in other expense, net in the Company's Consolidated Statements of Operations.

There were no impairments recorded during fiscal year 2022 or 2021.

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.

The Company's marketable securities consist primarily of financial instruments such as United States treasury securities, United States agency obligations, corporate bonds, commercial paper, money market funds, and equity securities.

Marketable Debt Securities

The Company's marketable debt securities are classified as available-for-sale.

Classification of marketable debt securities is determined at the time of purchase, and the Company reevaluates such classification as of each balance sheet date.

Marketable debt securities are recorded at estimated fair value and included in cash and cash equivalents, prepaid expenses and other current assets, and other assets within the Consolidated Balance Sheets.

Any unrealized gains or losses are included in accumulated other comprehensive (loss) income within the Consolidated Balance Sheets.

When the fair value of a marketable 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 the Consolidated Statements of Operations.

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

There were no impairments related to marketable debt securities recorded during the twelve months ended September 29, 2023.

Marketable Equity Securities

Marketable equity securities are stated at fair value as determined by the most recently traded price of each security at the balance sheet date and included in other assets within the Consolidated Balance Sheets.

All unrealized gains and losses on marketable equity securities are recorded as part of other expense, net in the Company's Consolidated Statements of Operations.

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

6 unchanged sentences

If the carrying value of the assets exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets.

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

The evaluation includes consideration of qualitative factors including industry and market considerations, overall financial performance, and other relevant events and factors affecting the reporting unit.

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

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 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.

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 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.

In fiscal years 2023, 2022, and 2021, the Company performed the annual goodwill qualitative impairment test for our two reporting units and determined that, at those dates, it was not more likely than not that the fair values of the reporting units were less than their carrying amount and accordingly recorded no impairment.

Loss Contingencies

4 unchanged sentences

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

Environmental Obligations

The Company's operations and facilities, past and present, are subject to environmental laws, including laws that regulate the handling, storage, transport, and disposal of hazardous substances.

Certain of those laws impose cleanup liabilities under certain circumstances.

In connection with those laws and certain of our past and present operations and facilities, the Company is obligated to indemnify Varian for the cleanup liabilities related to prior corporate restructuring activities.

The Company anticipates that it will be obligated to reimburse Varian for 20 % of the liabilities of Varian related to these sites (after adjusting for any insurance proceeds or tax benefits received by Varian).

As of September 29, 2023 and September 30, 2022, the Company's estimated liability for these sites was $ 2.8 million and $ 1.1 million, net of expected insurance proceeds, respectively.

Product Warranty

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Fiscal Years Ended

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

(In millions) September 29, 2023 September 30, 2022

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

6 unchanged sentences

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.

The Company recognizes operating leases with lease terms of more than twelve months in operating lease assets, current operating lease liabilities, and

operating lease liabilities on its Consolidated Balance Sheets.

The Company recognizes finance leases with lease terms of more than twelve months in property, plant and equipment, net, accrued liabilities and other current liabilities, and other long-term liabilities on its Consolidated Balance Sheets.

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The Company sells a high proportion of its X-ray products to a limited number of OEM customers.

X-ray tubes, digital detectors and image-processing tools and security and inspection products are generally sold on a stand-alone basis.

However, the Company occasionally sells its digital detectors, X-ray tubes and imaging processing tools as a package that is optimized for digital X-ray imaging and sells its Linatron ® X-ray accelerators together with its imaging processing software and image detection products to OEM customers that incorporate them into their inspection systems.

X-ray imaging components including X-ray tubes, digital detectors and image-processing tools and security and inspection products are generally sold on a stand-alone basis.

However, the Company occasionally sells its digital detectors, X-ray tubes and imaging processing tools as a package that is optimized for digital X-ray imaging and sells its Linatron® X-ray linear accelerators together with its image processing software and image detection products to OEM customers that incorporate them into their inspection or irradiation systems and processes.

Service contracts are often sold with certain security and inspection products and computer-aided detection products.

5 unchanged sentences

• Recognition of revenue when, or as, a performance obligation is satisfied

Contracts and Performance Obligations

The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance and collectability of the consideration is probable.

The Company's performance obligations consist mainly of transferring control of products and services identified in the contracts or purchase orders.

For each contract, the Company considers the obligation to transfer products and services to the customer, which are distinct, to be performance obligations.

Transaction Price and Allocation to Performance Obligations

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

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

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

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

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

The Company records this estimate based on the historical volume of product returns and adjusts the estimate on a quarterly basis based on the current quarter sales and current quarter returns.

1 unchanged sentence

Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation.

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

Contracts and Performance Obligations

The Company's performance obligations consist mainly of transferring control of products and services identified in the contracts or purchase orders.

For each contract, the Company considers the obligation to transfer products and services to the customer, which are distinct, to be performance obligations.

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

Recognition of Revenue

8 unchanged sentences

Contract Balances

Contract assets are included within the prepaid expenses and other current assets, and other assets balances in the Consolidated Balance Sheets.

Contract liabilities, which also includes refund obligations, are included within the accrued liabilities and other current liabilities, deferred revenues, and other long-term liabilities balances in the Consolidated Balance Sheets.

Contract liabilities are included within the deferred revenues, and other long-term liabilities balances in the Consolidated Balance Sheets.

The Company does not have any material contract assets.

Deferred revenue represents the Company's obligation to transfer goods or services to its customers for which it has already received consideration (or the amount is due) from the customer.

The Company's deferred revenue balance primarily relates to contract advances and billings for warranty contracts.

Deferred revenue that is estimated to be recognized during the following twelve-month period is recorded as deferred revenues and the remaining portion is recorded as other long-term liabilities in the Consolidated Balance Sheets.

Costs to Obtain or Fulfill a Customer Contract

4 unchanged sentences

These costs are included as a component of cost of revenues.

Deferred Revenues

Deferred revenue primarily represents (i) the amount received applicable to non-software products for which parts and services under the warranty contracts have not been delivered, and (ii) the amount received for service contracts for which the services have not been rendered.

Allowance for Credit Losses

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 $ 0.6 million and $ 1.0 million as of September 30, 2022 and October 1, 2021, respectively.

The Company had an allowance for credit losses of $ 0.6 million and $ 0.6 million as of September 29, 2023 and September 30, 2022, respectively.

Share-Based Compensation Expense

21 unchanged sentences

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

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

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

6 unchanged sentences

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

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

We regularly evaluate the realizability of our deferred tax assets based on the weight of all available evidence, both positive and negative, including the history of recent earnings and expected future taxable income on a jurisdictional basis and our ability to generate sufficient taxable income in the future to realize the net deferred tax assets.

As of September 29, 2023, based on our assessment of the realizability of our net deferred tax assets, we reached the conclusion that it was more likely than not that the U.S.

federal deferred tax assets are realizable due to cumulative income in recent years and the expectation of sustained profitability in future periods.

As a result, we released the valuation allowance against all of the U.S.

federal deferred tax assets.

We continue to maintain a valuation allowance against U.S.

state R&D credit carryforwards and a partial valuation allowance against state net operating losses that are not expected to be realizable.

We also maintain full valuation allowances against the net deferred tax assets in Sweden, Finland, and Saudi Arabia, due to their recent historical losses and the uncertainty of their future taxable income to realize their net operating losses.

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 was effective for the Company starting in fiscal year 2023.

Because the Company has a significant amount of research and development expenditures, U.S.

taxable income and cash taxes are expected to be significantly higher over the next several years.

Foreign Currency Remeasurement and Translation

The Company uses the U.S.

3 unchanged sentences

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

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

Dollars are recorded to a separate component of accumulated other comprehensive (loss) income.

Recently Adopted Accounting Pronouncements

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.

The Company adopted this ASU on October 3, 2020, using a modified retrospective approach.

The adoption of ASU 2016-13 did not have a material impact on the Company's consolidated financial statements and related disclosures.

Recent Accounting Standards Updates Not Yet Effective

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

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.

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 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.

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.

Adoption of the guidance is elective and is permitted from March 12, 2020 through December 31, 2022.

The Company will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis.

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

In August 2020, the Financial Accounting Standards Board issued Accounting Standard Update ("ASU") 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

The standard removed 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.

These convertible debt instruments are accounted for as a single liability measured at amortized cost.

This results 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 was requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method.

The Company adopted this ASU on October 1, 2022, using the modified retrospective method.

On the date of adoption, the Company recorded an entry to reduce additional paid-in capital by $ 34.6 million, increase long-term debt, net by $ 28.0 million, decrease deferred tax assets by $ 0.5 million, and increase retained earnings by $ 6.1 million for the after-tax impact of previously recognized amortization of the debt discount associated with the Company’s Convertible Notes (as defined herein).

The unamortized discount on the Company's Convertible Notes (see Note 9, Borrowings ) was derecognized in the first quarter of fiscal year 2023, which removed the amortization of the debt discount, and brought the effective interest rate closer to the coupon rate of 4.00 %.

The impact that the adoption of ASU 2020-06 has on the Company's net income per diluted share will depend on the amount of earnings in each period and could result in additional dilution.

REVENUE RECOGNITION

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

Right of Return Assets and Refund Liabilities

Right of return assets are included within the prepaid expenses and other current assets, and other assets in the Consolidated Balance Sheets.

Refund liabilities are included within the accrued liabilities and other current liabilities and other long-term liabilities in the Consolidated Balance Sheets.

The following tables summarize the changes in the right of return assets and refund liabilities for the twelve months ended September 29, 2023 and September 30, 2022:

(In millions) Right of Return Assets

Balance at October 1, 2021 $ 24.3

Costs recovered from product returns during the period ( 5.4 )

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

Right of return assets from shipments of products, subject to return during the period 7.1

Adjustment for actual vs.

reserved product returns ( 0.6 )

Balance at October 1, 2021 $ 24.3

Balance at September 30, 2022 $ 25.4

Costs recovered from product returns during the period ( 5.1 )

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

Right of return assets from shipments of products, subject to return during the period 6.8

Adjustment for actual vs.

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reserved product returns ( 0.6 )

Balance at October 1, 2021 $ 27.0

Balance at September 30, 2022 $ 28.2

Release of refund liability included in beginning of year refund liability ( 5.6 )

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Balance at September 29, 2023 $ 28.9

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 2023, the Company recognized revenue of $ 6.7 million related to deferred revenue which existed at September 30, 2022.

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

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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.

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

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Leases with an initial term of 12 months or less are generally not recorded on the balance sheet and expense for these leases is recognized on a straight-line basis over the lease term.

The Company's leases have remaining lease terms of 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.

The Company's leases have remaining lease terms of less than one year to approximately ninety-five 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.

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

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

(In millions) Balance Sheet Location September 29, 2023 September 30, 2022

Operating lease right-of-use assets Operating lease assets $ 29.0 $ 23.2

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

September 30, 2022 October 1, 2021

September 29, 2023 September 30, 2022

Operating lease weighted average remaining lease term (in years) 7.8 6.4

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Investment in Privately-Held Companies

The Company has a 40 % ownership interest in dpiX Holding LLC (“dpiX Holding”), a holding company that has a 100 % ownership interest in dpiX LLC (“dpiX”), a supplier of amorphous silicon-based thin film transistor arrays for digital flat panel image detectors.

The Company has a 40 % ownership interest in dpiX Holding, a holding company that has a 100 % ownership interest in dpiX, a supplier of amorphous silicon-based thin film transistor arrays for flat panels used in the Company's digital image detectors.

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

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

In fiscal years 2022, 2021 and 2020, the Company recorded a loss on the equity investment in dpiX Holding of $ 2.6 million, $ 2.3 million and $ 0.8 million, respectively.

Loss on the equity investment in dpiX Holding is included in other expense, net in the Consolidated Statements of Operations.

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

In fiscal years 2023, 2022, and 2021, the Company recorded loss on the equity investment in dpiX Holding of $ 0.2 million, $ 2.6 million, and $ 2.3 million, respectively.

The 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 $ 25.8 million and $ 42.4 million at September 29, 2023 and September 30, 2022, respectively.

The Company recorded an impairment of its investment in dpiX Holding of $ 16.4 million in the fourth quarter of 2023.

See Note 1, Summary of Significant Accounting Policies, for details on the nature of the impairment.

There were no impairments recorded during fiscal year 2022 or 2021.

In fiscal years 2023, 2022 and 2021, the Company purchased glass transistor arrays from dpiX totaling $ 18.7 million, $ 21.0 million and $ 18.5 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.

As of September 29, 2023 and September 30, 2022, the Company had accounts payable to dpiX totaling $ 2.7 million and $ 3.1 million, respectively.

In October 2013, the Company entered into an amended agreement with dpiX and other parties that, among other things, provides it with the right to 50 % of dpiX’s total manufacturing capacity.

In addition, the Company is required to pay for 50 % of dpiX's fixed costs, as determined at the beginning of each calendar year.

In January 2023, the fixed cost commitment was determined and approved by the dpiX board of directors to be $ 13.1 million for calendar year 2023.

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.

As of September 29, 2023, the Company estimated it has fixed cost commitments of $ 3.3 million related to the amended agreement through the remainder of calendar year 2023.

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

The Company has determined that dpiX Holding is a variable interest entity because at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

The Company has determined that dpiX Holding is a variable interest entity because the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest.

Majority votes are required to direct the manufacturing activities, legal operations and other activities that most significantly affect dpiX’s economic performance.

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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.

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In fiscal years 2023, 2022, and 2021, the Company recorded a loss on the equity investment in VEC of $ 0.4 million, $ 0.8 million, and $ 1.1 million respectively.

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.

The Company's investment in VEC was $ 2.1 million and $ 2.5 million as of September 29, 2023 and September 30, 2022, respectively.

In fiscal years 2023 and 2022, the Company had loans and other receivables from VEC of $ 0.7 million and $ 0.9 million, respectively, which are recorded in prepaid expenses and other current assets in the Consolidated Balance Sheets.

RESTRUCTURING

In July 2018, the Company committed to relocate the production of amorphous silicon glass for digital detectors, from its Santa Clara facility, to the jointly owned dpiX fabrication facility in Colorado.

In July 2018, the Company committed to relocate the production of amorphous silicon glass for digital detectors from its Santa Clara facility to the dpiX fabrication facility in Colorado.

In July 2019, the Company committed to close its Santa Clara facility and to relocate the remaining production to its other existing facilities.

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

In connection with the relocation of the glass production and site closure, the Company recorded $ 0.0 million , $ 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 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.

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

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

Inventory write downs Cost of revenues — — 1.3

Accelerated depreciation Cost of revenues — — 0.2

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

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

(In millions) September 29, 2023 September 30, 2022

Accrued compensation and benefits $ 33.4 $ 36.7

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Taxes payable 13.3 11.3

Right of return liability 6.8 6.7

Refund liability 7.2 6.8

Accrued interest 11.6 11.7

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

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

(In millions) September 29, 2023 September 30, 2022

Long-term income tax payable $ 4.6 $ 4.3

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Defined benefit obligation liability 5.2 3.3

Long-term right of return liability 21.4 20.3

Long-term refund liability 21.7 21.4

Derivative liability 4.9 —

Long-term other 3.3 3.5

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Loss from equity method investments $ ( 1.4 ) $ ( 3.0 ) $ ( 3.4 )

Change in fair value of deferred consideration — — 0.9

Impairment of investment — — ( 2.7 )

Impairment of equity method investment ( 16.4 ) — —

Realized losses on foreign currencies, net ( 1.0 ) ( 1.5 ) ( 0.2 )

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Total other expense, net $ ( 20.2 ) $ ( 4.3 ) $ ( 3.5 )

NET INCOME (LOSS) PER SHARE

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

Diluted net income (loss) per common share reflects the effects of potentially dilutive securities, which is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding and dilutive common shares.

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

NET INCOME PER SHARE

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

Diluted net income per common share reflects the effects of potentially dilutive securities, which is computed by dividing the sum of net income and any adjustments to net income by the sum of the weighted average number of common shares outstanding and dilutive common shares.

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

(In millions, except per share amounts)

2023 2022 2021

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

Weighted average shares outstanding – basic

Net income per share - basic

Net income attributable to Varex $ 48.2 $ 30.3 $ 17.4

Basic weighted average shares outstanding

40.3 39.8 39.3

Basic net income per share attributable to Varex $ 1.20 $ 0.76 $ 0.44

Net income per share - diluted

Net income attributable to Varex $ 48.2 $ 30.3 $ 17.4

Interest expense on Convertible Notes, net of tax 6.2 — —

Diluted net income 54.4 30.3 17.4

Basic weighted average shares outstanding 40.3 39.8 39.3

Dilutive effect of Convertible Senior Notes 9.6 1.3 0.6

Dilutive effect of share-based awards and other

Weighted average shares outstanding – diluted

Diluted weighted average shares outstanding

50.3 41.6 40.3

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

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

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 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 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.

Diluted net income per share attributable to Varex $ 1.08 $ 0.73 $ 0.43

Anti-dilutive share summary

Share-based awards and other

Warrants 9.6 — —

Total anti-dilutive shares 12.3 3.0 2.8

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 per share attributable to Varex when their effect is dilutive.

As of October 1, 2022, the Company adopted ASU 2020-06 using the modified retrospective method.

The standard requires the Company to apply the if-converted method in relation to the Convertible Notes, which requires the Company to assume that the Convertible Notes would have been converted using only share settlement at the beginning of the period, resulting in an additional 9.6 shares outstanding.

Using this method, the numerator is affected by adding back the after-tax interest expense and the denominator is affected by including the effect of potential share settlement, if the effect is dilutive.

Prior to the adoption of ASU 2020-06, the Convertible Notes were accounted for using the treasury stock method for purposes of net income per share.

See Note 1, Summary of Significant Accounting Policies, "Recently Adopted Accounting Pronouncements" for further details concerning the adoption of ASU 2020-06.

Furthermore, in connection with the offering of the Convertible Notes, the Company entered into convertible note hedges and warrants (see Note 9, Borrowings ).

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

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

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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

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.

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

Fiscal Year Ended

(In millions)

2022 2021 2020 2022 2021 2020

Interest rate swap contracts

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

$ — $ ( 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

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

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

In September 2020, the Company terminated one of the net investment swaps and the

loss on the swap was recorded in accumulated other comprehensive income where it will remain until substantial liquidation of the international operations.

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

During the first quarter of fiscal year 2023, the Company terminated all three of its previously outstanding cross currency swap contracts which resulted in cash received upon settlement of $ 7.3 million.

The gain on the cross currency swap contracts was recorded in accumulated other comprehensive (loss) income where it will remain until such time that substantial liquidation of the international operations should occur.

Concurrent with the termination of the previous cross currency swap contracts, the Company entered into two new cross currency swap contracts which have been designated as net investment hedges.

As of September 29, 2023, the Company had the following outstanding derivatives designated as net investment hedging instruments:

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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

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

Fiscal Year Ended

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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 generally entered into at the end of one fiscal period and expire by the end of the next fiscal period.

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.

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

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

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Notional Value of Derivatives not Designated as Hedging Instruments:

(In millions of equivalent USD) Buy contracts Sell contracts

Indian Rupee $ — $ 5.2

(In millions of equivalent USD) Sell contracts

Australian Dollar $ 3.9

Chinese Renminbi 8.6

Indian Rupee 6.3

Total notional value $ 34.7

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

September 30, 2022 October 1, 2021

September 29, 2023 September 30, 2022

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

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Other debt $ 1.5 $ 2.1 $ ( 0.6 )

Total current maturities of long-term debt $ 2.1 $ 2.8 $ ( 0.7 )

Non-current maturities of long-term debt:

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Unamortized discount - Convertible Notes (1)

$ — $ ( 28.7 ) $ 28.7

Unamortized issuance costs - Convertible Notes (1)

( 2.5 ) ( 3.1 ) 0.6

Debt issuance costs - Senior Secured Notes ( 2.9 ) ( 3.5 ) 0.6

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$ — $ 49.7 $ ( 49.7 )

(1) In connection with the adoption of ASU 2020-06, the unamortized discount and equity component related to the Convertible Notes were derecognized and the carrying value of the issuance costs was adjusted in the first quarter of fiscal year 2023.

Refer to Note 1, Summary of Significant Accounting Policies for further details.

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

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Twelve Months Ended

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

September 29, 2023 September 30, 2022 October 1, 2021

Contractual interest coupon and other $ 26.7 $ 27.6 $ 30.7

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The net proceeds from the issuance of the Convertible Notes, after deducting transaction fees and offering expense payable by the Company, were approximately $ 193.1 million.

The Convertible Notes bear interest at the annual rate of 4.00 %, payable semiannually on June 1 and December 1 of each year, beginning on December 1, 2020, and will mature on June 1, 2025, unless earlier converted or repurchased by us.

The Convertible Notes are convertible into cash, shares of Varex common stock or a combination thereof, at Varex’s election, at an initial conversion rate of 48.048 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $ 20.81 per share, subject to adjustment pursuant to the terms of the indenture governing the Convertible Notes.

The Convertible Notes may be converted at any time after, and including, December 15, 2024, until the close of business on the second scheduled trading day immediately before the maturity date.

The maximum number of shares issuable upon conversion of the Convertible Notes is 9.6 million.

On June 4, 2020 and June 5, 2020, in connection with the offering of the Convertible Notes, Varex entered into privately negotiated convertible note hedge transactions (collectively, the “Hedge Transactions”).

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The initial strike price of the warrants is $ 24.975 per share (subject to adjustment under the terms of the Warrant Transactions), which is 50 % above the last reported sale price of Varex common stock on June 4, 2020.

The Warrant Transactions could have a dilutive effect to the Company's stockholders to the extent that the market price per share of Varex common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants.

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

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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").

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.

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").

From September 30, 2020 through March 9, 2022, borrowings under the Asset-Based Loan bore interest at floating rates based on the London Interbank Offered Rate ("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 % annualized, 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 LIBOR and the quarterly commitment fee was amended to 0.25 % annualized, 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.

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As of September 29, 2023, the Company is compliant with the ABL Facility covenants.

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

Credit Agreement

On May 1, 2017 Varex entered into a secured revolving credit facility (the “Revolving Credit Facility”) in an aggregate principal amount of up to $ 200.0 million with a term of five years , and a secured term facility (the “Term Facility” and together with the Revolving Credit Facility, the “Credit Agreement”) in an aggregate principal amount of $ 400.0 million, which was subsequently amended.

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

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.

The ABL Facility has 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.

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, 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.

As of September 29, 2023, 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 $ 228.4 million and $ 243.6 million, respectively.

As of September 30, 2022, the fair values of the Company's Convertible Notes and Senior Secured Notes, measured using Level 1 inputs, were $ 250.2 million and $ 241.3 million, respectively.

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

There were no financial assets or liabilities measured on a recurring basis using significant unobservable inputs (Level 3) and there were no transfers in or out of Level 1, 2 or 3 during fiscal year 2022.

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.

1 unchanged sentence

(In millions)

Quoted Prices in Active Markets for Identical Assets and Liabilities

Quoted Prices in Active Markets

Significant Other

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Derivative assets

Deferred compensation plan (1)

Marketable equity securities 4.1 — — 4.1

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Total liabilities measured at fair value $ — $ 4.9 $ — $ 4.9

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

Fair Value Measurements at October 1, 2021

(1) The assets held under the Company’s deferred compensation plan are classified in Level 1 as they relate primarily to publicly traded mutual funds for which there are observable market prices in active markets.

Fair Value Measurements at September 30, 2022

(In millions)

Quoted Prices in Active Markets for Identical Assets and Liabilities

Quoted Prices in Active Markets

Significant Other

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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 — 7.5 — 7.5

Deferred compensation plan (1)

Marketable equity securities 2.5 — — 2.5

Total assets measured at fair value $ 7.9 $ 64.1 $ — $ 72.0

Derivative liabilities $ — $ 0.3 $ — $ 0.3

$ — $ 2.4 $ — $ 2.4

Total liabilities measured at fair value $ — $ 0.3 $ — $ 0.3

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

Nonrecurring Fair Value Measurements

In the fourth quarter of fiscal year 2023, the Company assessed its equity method investment in dpiX Holding for impairment and concluded that the carrying value of the investment was greater than its fair value.

The nonrecurring fair value measurements used by the Company to impair its equity method investment in dpiX Holding was calculated by equal weighting of the income approach based on estimated discounted future cash flows and the market approach based on comparable publicly traded companies in similar lines of businesses.

Under the income approach, fair value is determined based on a discounted cash flow technique that uses estimates of cash flows discounted to present value using rates commensurate with the risks associated with those cash flows.

Under the market approach, a market-based value is derived by relating multiples for earnings and cash flow measures for a group of comparable public companies to the same measure for each reporting unit to estimate fair value.

This valuation resulted in a Level 3 nonrecurring fair value measurement.

See Note 1, Summary of Significant Accounting Policies, for details on the nature of the impairment.

Marketable Debt Securities

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September 29, 2023

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

(In millions) Amortized Costs Unrealized Losses Fair Value

Commercial paper $ 6.0 $ — $ 6.0

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Total marketable debt securities $ 49.5 $ — $ 49.5

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

The following table summarizes the marketable debt securities on the Consolidated Balance Sheets as of September 30, 2022.

September 30, 2022

(In millions) Amortized Costs 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

The contractual maturities of marketable debt securities as of September 29, 2023, are shown in the table below.

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Total marketable debt securities $ 49.5 $ 49.5

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:

During the twelve months ended September 29, 2023, there were no gross realized gains or losses from the sale of certain marketable debt securities that were reclassified out of accumulated other comprehensive (loss) income.

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

September 29, 2023

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Prepaid expenses and other current assets — 8.3 6.6 26.4 41.3

Total marketable debt securities $ 6.0 $ 8.3 $ 6.6 $ 28.6 $ 49.5

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

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(In millions)

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

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

Business combination

Foreign currency translation adjustments

( 4.5 ) ( 3.2 ) ( 7.7 )

Balance at September 29, 2023 $ 171.5 $ 117.0 $ 288.5

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:

September 30, 2022 October 1, 2021

September 29, 2023 September 30, 2022

(In millions)

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Amortization expense for intangible assets was $ 13.7 million, $ 14.6 million and $ 16.8 million in fiscal years 2023, 2022 and 2021, respectively.

The Company recognized intangible asset impairment charges of $ 0.0 million , $ 0.0 million , and $ 2.8 million in fiscal years 2022, 2021, and 2020, respectively, which are included in the Consolidated Statements of Operations under impairment of intangible assets.

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

As of September 29, 2023, the estimated future amortization expense of intangible assets with finite lives is as follows:

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See Note 3 , Leases, included in this report, for additional information about the Company's lease commitments.

Purchase Agreement With Supplier

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

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The Company has an environmental liability of approximately $ 2.8 million as of September 29, 2023.

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.

See Note 1, Summary of Significant Accounting Policies, included in the accompanying Notes to Consolidated Financial Statements for additional information.

In 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 years 2022 and 2023, the Company paid $ 1 million and $ 2 million, respectively, 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 2024.

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.

The Company enters into purchase agreements with its suppliers in the ordinary course of its business for the purchase of goods and services.

Some of these purchase agreements are non-cancellable and thus contractually obligate the Company to future cash payments.

The Company has non-cancellable supplier purchase obligations of approximately $ 7.3 million as of September 29, 2023.

Contingencies

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

The Company did not have any material contingent liabilities as of September 29, 2023 and September 30, 2022.

Legal expenses are expensed as incurred.

NONCONTROLLING INTERESTS

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

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

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

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

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(1) an annual recurring net compensation of € 0.95 per MeVis share starting from January 1, 2015 and (2) a put right for their MeVis shares at € 19.77 per MeVis share.

During fiscal year 2018 , an immaterial number of MeVis’ shares were purchased under the put right.

During the fourth quarter of fiscal year 2020, the put right granted to the noncontrolling shareholders of MeVis under the DPLTA expired unexercised, which resulted in the redeemable noncontrolling interests being reclassified to permanent equity as noncontrolling interest in the Consolidated Balance Sheet.

In fiscal years 2017 and 2018, the Company purchased an immaterial number of MeVis' shares for an additional 0.2 % of outstanding shares under the put right such that the Company now owns 73.7 % of the outstanding shares of common stock of MeVis .

As of September 29, 2023, 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:

Changes in noncontrolling interests were as follows:

(In millions) Noncontrolling

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

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

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

(In millions)

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

Employee stock purchase plan offering periods are 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.

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.

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Aggregate Intrinsic Value (1)

Outstanding at October 1, 2021

2,811 $ 13.61 - $ 37.60

Outstanding at September 30, 2022 2,902 $ 13.61 - $ 37.60

$ 28.97 4.5 $ 1,361.4

5 unchanged sentences

$ 28.08 4.8 $ 871.4

$ 28.97 4.5 $ 1,361.4

Exercisable at September 29, 2023 2,080 $ 13.61 - $ 37.60

$ 29.44 3.4 $ 642.6

$ 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 $ 18.79 as of September 29, 2023, 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 2023, 2022 and 2021 was $ 4.0 million, $ 3.9 million and $ 3.7 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.

The total intrinsic value of the options exercised during the years ended September 29, 2023, September 30, 2022 and October 1, 2021 was $ 0.1 million, $ 0.5 million and $ 0.0 million , respectively.

Restricted Stock Units, Restricted Stock Awards and Deferred Stock Units

4 unchanged sentences

Grant-Date Fair

Balance at October 1, 2021

1,080 $ 23.25

Balance at September 30, 2022 1,045 $ 24.35

( 255 ) 24.71

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Balance at September 29, 2023 1,277 $ 22.30

1,045 $ 24.35

The total grant-date fair value of shares granted was $ 11.3 million, $ 10.8 million and $ 8.9 million for fiscal years 2023, 2022 and 2021, 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.

Shares outstanding at September 29, 2023, September 30, 2022 and October 1, 2021 had an estimated market value of $ 24.0 million, $ 22.1 million and $ 30.9 million, respectively.

TAXES ON INCOME

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

Income tax expense (benefit) was as follows:

Income tax (benefit) expense was as follows:

(In millions) 2023 2022 2021

Current income tax expense (benefit)

Current income tax expense

$ 9.8 $ 3.7 $ 5.4

3 unchanged sentences

$ 22.7 $ 14.2 $ 13.6

Deferred i ncome tax expense (benefit) :

Deferred i ncome tax (benefit) expense :

$ ( 38.0 ) $ 0.4 $ 1.8

4 unchanged sentences

( 40.1 ) ( 0.5 ) ( 2.9 )

Income tax expense (benefit) $ 13.7 $ 10.7 $ ( 15.2 )

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

Income tax (benefit) expense $ ( 17.4 ) $ 13.7 $ 10.7

Income before taxes are generated from the following geographic areas:

(In millions) 2023 2022 2021

1 unchanged sentence

Foreign 37.5 28.1 32.7

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

Income before taxes $ 31.3 $ 44.5 $ 28.6

The effective tax rate differs from the U.S.

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During fiscal year 2023, the Company's effective tax rate varied from the U.S.

federal statutory rate of 21% primarily due to the favorable impact of the release of the U.S.

valuation allowance, U.S.

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

These favorable items were partially offset by the unfavorable impact of profit in foreign jurisdictions with statutory tax rates greater than 21%.

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.

8 unchanged sentences

tax reform international provisions.

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

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

net operating losses to be carried back to tax years with greater U.S.

federal statutory rates.

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

The Company has estimated its fiscal year 2023 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) September 30, 2022 October 1, 2021 (1)

(In millions) September 29, 2023 September 30, 2022

Deferred tax assets:

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Lease liabilities 6.1 5.4

Investments in privately held companies 3.2 —

Research and experimentation capitalization 17.6 —

Other 4.1 2.5

12 unchanged sentences

Deferred tax liabilities ( 20.2 ) ( 25.0 )

Net deferred tax assets (liabilities) $ 1.8 $ 1.8

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

Net deferred tax assets $ 41.3 $ 1.8

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the year ended September 29, 2023, 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.

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As of September 29, 2023, the Company had foreign net operating loss carryforwards ("NOL") of approximately $ 19.3 million with $ 0.8 million expiring between 2023 and 2034 and $ 18.5 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.

The valuation allowance increased by $ 2.0 million during fiscal year 2022 and increased by $ 1.5 million during fiscal year 2021.

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

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

The valuation allowance decreased by $ 13.5 million during fiscal year 2023 and increased by $ 2.0 million during fiscal year 2022.

The decrease during the current year was primarily related to the release of the valuation allowance against U.S.

deferred tax attributes.

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Additions based on tax positions related to the current year 0.2 —

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

Unrecognized tax benefits balance—end of fiscal year $ 1.4 $ 1.2

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.

As of September 29, 2023 and September 30, 2022, the total amount of gross unrecognized tax benefits was $ 1.4 million and $ 1.2 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 29, 2023, $ 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 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.

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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, 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.

SEGMENT INFORMATION

The Company has two reportable operating segments:

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

Medical and Industrial, which aligns with how its 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 evaluates the business for the allocation of resources.

2 unchanged sentences

Description of Segments

The Medical segment designs, manufactures, sells and services X-ray imaging components, including X-ray tubes, digital detectors, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, heat exchangers, ionization chambers and buckys (a component of X-ray units that holds X-ray film cassettes).

The Medical segment designs, manufactures, sells and services X-ray imaging components, including X-ray tubes, digital detectors and accessories, ionization chambers, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, and heat exchangers.

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

The Industrial segment designs, develops, manufactures, sells and services X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders and baggage screening at airports, and nondestructive testing and inspection applications used in a number of other markets.

The Company's Industrial products include Linatron ® X-ray linear accelerators, X-ray tubes, digital detectors and high voltage connectors.

The Industrial segment designs, develops, manufactures, sells and services X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders and baggage screening at airports, and nondestructive testing, irradiation, and inspection applications used in a number of other vertical markets.

The Company's industrial products include Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors, and coolers.

In addition, the Company licenses proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to industrial customers.

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Interest and other expense, net ( 45.8 ) ( 43.7 ) ( 45.5 )

Income (loss) before taxes 44.5 28.6 ( 72.6 )

Income tax expense (benefit) 13.7 10.7 ( 15.2 )

Net income (loss) 30.8 17.9 ( 57.4 )

Income before taxes 31.3 44.5 28.6

Income tax (benefit) expense ( 17.4 ) 13.7 10.7

Net income 48.7 30.8 17.9

Net income attributable to noncontrolling interests 0.5 0.5 0.5

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

Net income attributable to Varex $ 48.2 $ 30.3 $ 17.4

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

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The Company made matching contributions to the plan totaling $ 4.9 million, $ 4.4 million and $ 2.8 million in fiscal years 2023, 2022 and 2021, 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 also maintains defined benefit plans for certain employees located outside the United States.

The net pension liability is included in other long-term liabilities on the Company's Consolidated Balance Sheets and totaled $ 5.2 million and $ 3.3 million as of September 29, 2023 and September 30, 2022, respectively.

The Company’s net periodic benefit costs for the Company’s defined benefit plans were not material for fiscal years 2023, 2022, and 2021.

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 (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)

ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME

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

(In millions) (Loss) Income on Forward Contracts Unrealized (Loss) Gain on Defined Benefit Obligations CTA, Including Impact of Net Investment Hedge Unrealized (Loss) Income on Available-For-Sale Securities Accumulated Other Comprehensive Income (Loss)

Balance at October 01, 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

3 unchanged sentences

— — ( 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

Other comprehensive (loss) income before reclassifications

6 unchanged sentences

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