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Item 1. Financial Statements

2024-02-06 compared with 2023-08-01 · 217 added, 268 removed, 568 unchanged (46% of the section changed)

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended Nine Months Ended

(In millions, except per share amounts) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

(In millions, except per share amounts) December 29, 2023 December 30, 2022

Revenues, net $ 190.0 $ 205.6

8 unchanged sentences

Interest expense ( 7.3 ) ( 7.5 )

Other expense, net ( 0.7 ) ( 0.2 ) ( 2.5 ) ( 3.0 )

Other income (expense), net 0.6 ( 0.6 )

Interest and other expense, net ( 4.8 ) ( 7.6 )

Income before taxes 17.1 13.5 30.3 30.4

Income tax expense 7.9 5.1 13.6 12.8

Net income 9.2 8.4 16.7 17.6

(Loss) income before taxes ( 0.6 ) 5.4

Income tax (benefit) expense ( 0.2 ) 2.2

Net (loss) income ( 0.4 ) 3.2

Net income attributable to noncontrolling interests 0.1 0.1

Net income attributable to Varex $ 9.1 $ 8.2 $ 16.3 $ 17.2

Net income per common share attributable to Varex

Net (loss) income attributable to Varex $ ( 0.5 ) $ 3.1

Net (loss) income per common share attributable to Varex

Basic $ ( 0.01 ) $ 0.08

5 unchanged sentences

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Three Months Ended Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Net income $ 9.2 $ 8.4 $ 16.7 $ 17.6

Other comprehensive (loss) income

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

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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

Three Months Ended

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

Net (loss) income $ ( 0.4 ) $ 3.2

Other comprehensive loss

Foreign currency translation adjustments ( 1.0 ) —

Total comprehensive income 8.7 8.6 16.3 16.1

Total comprehensive (loss) income ( 1.4 ) 3.2

Comprehensive income attributable to noncontrolling interests 0.1 0.1

Comprehensive income attributable to Varex $ 8.6 $ 8.4 $ 15.9 $ 15.7

Comprehensive (loss) income attributable to Varex $ ( 1.5 ) $ 3.1

See accompanying Notes to the Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share and per share amounts) June 30, 2023 September 30, 2022

(In millions, except share and per share amounts) December 29, 2023 September 29, 2023

Current assets:

Cash and cash equivalents $ 141.3 $ 152.6

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

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

Inventories 289.7 277.5

17 unchanged sentences

Long-term debt, net

Deferred tax liabilities

Operating lease liabilities 22.9 23.1

7 unchanged sentences

Shares issued and outstanding:

40,387,511 and 40,085,126 at June 30, 2023 and September 30, 2022, respectively

40,618,590 and 40,529,573 at December 29, 2023 and September 29, 2023, respectively

Additional paid-in capital 453.2 450.4

Accumulated other comprehensive (loss) income ( 0.3 ) 0.1

Accumulated other comprehensive loss ( 2.2 ) ( 1.2 )

Retained earnings 117.5 118.1

6 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Three Months Ended June 30, 2023

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

(In millions) Shares Amount

March 31, 2023 40.4 $ 0.4 $ 441.6 $ 0.2 $ 77.4 $ 519.6 $ 13.3 $ 532.9

Net income — — — — 9.1 9.1 0.1 9.2

Share-based compensation — — 3.5 — — 3.5 — 3.5

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

Foreign currency translation adjustments — — — ( 0.4 ) — ( 0.4 ) — ( 0.4 )

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

June 30, 2023 40.4 $ 0.4 $ 444.9 $ ( 0.3 ) $ 86.5 $ 531.5 $ 13.4 $ 544.9

Three Months Ended July 1, 2022

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

(In millions) Shares Amount

April 1, 2022 39.8 $ 0.4 $ 459.9 $ ( 1.7 ) $ 42.5 $ 501.1 $ 13.3 $ 514.4

Net income — — — — 8.2 8.2 0.2 8.4

Common stock issued under employee stock purchase plan 0.1 — 1.9 — — 1.9 — 1.9

Share-based compensation — — 3.4 — — 3.4 — 3.4

Unrealized loss on change in fair value of cash flow hedge — — — ( 0.6 ) — ( 0.6 ) — ( 0.6 )

Foreign currency translation adjustments — — — 0.8 — 0.8 — 0.8

Other — — — — — — ( 0.2 ) ( 0.2 )

July 1, 2022 39.9 $ 0.4 $ 465.2 $ ( 1.5 ) $ 50.7 $ 514.8 $ 13.3 $ 528.1

See accompanying Notes to the Condensed Consolidated Financial Statements.

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

Nine Months Ended June 30, 2023

Three Months Ended December 29, 2023

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

1 unchanged sentence

September 29, 2023 40.5 $ 0.4 $ 450.4 $ ( 1.2 ) $ 118.1 $ 567.7 $ 13.3 $ 581.0

Cumulative effect of accounting change — — ( 34.6 ) — 6.5 ( 28.1 ) — ( 28.1 )

Net income — — — — 16.3 16.3 0.4 16.7

Net (loss) income — — — — ( 0.5 ) ( 0.5 ) 0.1 ( 0.4 )

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

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 1.0 ) — — ( 1.0 ) — ( 1.0 )

Common stock issued under employee stock purchase plan 0.1 — 2.0 — — 2.0 — 2.0

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

Foreign currency translation adjustments — — — ( 1.0 ) — ( 1.0 ) — ( 1.0 )

Business acquisitions — — — — — — 0.7 0.7

Other — — 0.1 — ( 0.1 ) — — —

June 30, 2023 40.4 $ 0.4 $ 444.9 $ ( 0.3 ) $ 86.5 $ 531.5 $ 13.4 $ 544.9

Nine Months Ended July 1, 2022

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

December 29, 2023 40.6 $ 0.4 $ 453.2 $ ( 2.2 ) $ 117.5 $ 568.9 $ 14.1 $ 583.0

Three Months Ended December 30, 2022

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

(In millions) Shares Amount

October 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

Cumulative effect of accounting changes — — ( 34.6 ) — 6.5 ( 28.1 ) — ( 28.1 )

Net income — — — — 3.1 3.1 0.1 3.2

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

Common stock issued upon vesting of restricted shares 0.3 — — — — — — —

Shares withheld on vesting of restricted stock ( 0.1 ) — ( 2.1 ) — — ( 2.1 ) — ( 2.1 )

Common stock issued under employee stock purchase plan 0.2 — 3.6 — — 3.6 — 3.6

Share-based compensation — — 3.3 — — 3.3 — 3.3

Unrealized loss on change in fair value of cash flow hedge — — — ( 0.6 ) — ( 0.6 ) — ( 0.6 )

Foreign currency translation adjustments — — — ( 0.9 ) — ( 0.9 ) — ( 0.9 )

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

July 1, 2022 39.9 $ 0.4 $ 465.2 $ ( 1.5 ) $ 50.7 $ 514.8 $ 13.3 $ 528.1

December 30, 2022 40.1 $ 0.4 $ 437.9 $ 0.1 $ 73.3 $ 511.7 $ 13.3 $ 525.0

See accompanying Notes to the Condensed Consolidated Financial Statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

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

Cash flows from operating activities:

Net income $ 16.7 $ 17.6

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

Net (loss) income $ ( 0.4 ) $ 3.2

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

Share-based compensation expense 3.7 3.3

2 unchanged sentences

Deferred taxes ( 0.8 ) ( 0.2 )

Loss from equity method investments 0.1 1.5

Income from equity method investments ( 0.4 ) ( 1.3 )

Amortization of deferred loan costs 0.7 0.6

Gain on purchase of business ( 2.1 ) —

Inventory write-down 0.9 2.0

Loss on operating lease abandonment — 1.9

Other, net ( 0.5 ) —

14 unchanged sentences

Settlement of net investment hedge — 7.0

Proceeds from sales of business and assets — 1.7

Investments in and loans to privately-held companies — ( 0.3 )

Acquisitions of businesses, net of cash acquired 0.9 —

Other, net ( 0.1 ) 0.1

2 unchanged sentences

Taxes related to net share settlement of equity awards

( 1.4 ) ( 2.1 )

Repayments of borrowing under credit agreements

( 0.4 ) ( 0.5 )

Proceeds from exercise of stock options

Proceeds from shares issued under employee stock purchase plan

Other, net ( 0.3 ) 0.1

Net cash used in financing activities ( 1.7 ) ( 0.4 )

Effects of exchange rate changes on cash and cash equivalents and restricted cash

( 0.1 ) ( 0.1 )

Net increase (decrease) in cash and cash equivalents and restricted cash

Net decrease in cash and cash equivalents and restricted cash

( 11.3 ) ( 7.8 )

12 unchanged sentences

Description of Business

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, 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.

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.

10 unchanged sentences

The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

Except for the change in certain policies upon adoption of the accounting standard described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for fiscal year 2022.

Reclassification of Prior Period Presentation

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

This change does not affect previously reported results.

Except for the change in certain policies upon adoption of the accounting standards described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies , in the Company’s Annual Report on Form 10-K for fiscal year 2023.

Segment Reporting

2 unchanged sentences

See Note 15, Segment Information , for further information on the Company’s segments.

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

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

Fiscal year 2024 is the 52-week period ending September 27, 2024.

Fiscal year 2023 was the 52-week period that ended on September 29, 2023.

The fiscal quarters ended June 30, 2023 and July 1, 2022 were both 13-week periods.

The three fiscal quarters ended June 30, 2023 and July 1, 2022 were both 39-week periods.

The fiscal quarters ended December 29, 2023 and December 30, 2022 were both 13-week periods.

Use of Estimates

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

Such estimates include the valuation of inventories, valuation of goodwill and intangible assets, warranties, refund 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.

5 unchanged sentences

Cash and cash equivalents and restricted cash as reported within the Condensed Consolidated Statements of Cash Flows consisted of the following:

Nine Months Ended Nine Months Ended

June 30, 2023 July 1, 2022

Three Months Ended Three Months Ended

December 29, 2023 December 30, 2022

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

13 unchanged sentences

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

Three Months Ended Nine Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

December 29, 2023 December 30, 2022

Canon Medical Systems Corporation 14.7 % 20.1 %

Canon Medical Systems Corporation accounted for 12.9 % and 10.3 % of the Company’s accounts receivable as of June 30, 2023 and September 30, 2022, respectively.

Canon Medical Systems Corporation accounted for 8.2 % and 13.8 % of the Company’s accounts receivable as of December 29, 2023 and September 29, 2023, respectively.

Equity Method Investments

The Company accounts for its equity investments in privately-held companies under the equity method of accounting if the Company has the ability to exercise significant influence, but not control in these 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.

There were no impairments recorded during the three and nine months ended June 30, 2023 and July 1, 2022, respectively.

There were no impairments recorded during the three months ended December 29, 2023 and December 30, 2022.

Marketable Securities

4 unchanged sentences

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 Condensed Consolidated Balance Sheets.

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

Any unrealized gains or losses are included in accumulated other comprehensive loss within the Condensed 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 Condensed 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 other comprehensive (loss) income, and are recognized in the Condensed 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 three and nine months ended June 30, 2023 and July 1, 2022.

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 other comprehensive loss, and are recognized in the Condensed 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 three months ended December 29, 2023 and December 30, 2022.

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 Condensed Consolidated Balance Sheets.

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

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

See Note 6, Fair Value , for further details.

4 unchanged sentences

When a loss contingency is probable but not reasonably estimable the nature of the contingency and the fact that an estimate cannot be made is disclosed.

Supplier Finance Programs

The Company participates in voluntary supply chain finance programs with a financial intermediary which provide participating suppliers the option to be paid by the intermediary earlier than the original invoice due date.

The Company’s responsibility is limited to making payments on the terms originally negotiated with the suppliers, regardless of whether the intermediary pays the supplier in advance of the original due date.

As part of participating in these arrangements, the Company generally receives more favorable payment terms from its suppliers.

The Company does not receive fees, payments, extended payment terms, or other direct economic benefits from the intermediary.

The total amounts due to the financial intermediary to settle supplier invoices under supply chain finance programs as of December 29, 2023 and September 29, 2023 were $ 2.3 million and $ 4.2 million, respectively.

These amounts are included within accounts payable in the Condensed Consolidated Balance Sheets.

Environmental Obligations

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

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, we are obligated to indemnify Varian for the cleanup liabilities related to prior corporate restructuring activities.

We anticipate that we 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).

In connection with those laws and certain of our past and present operations and facilities, the Company is obligated to indemnify Varian Medical Systems, Inc.

("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 December 29, 2023, our estimated environmental liability for these sites was $ 2.6 million, net of expected insurance proceeds.

As of September 29, 2023, our estimated liability for these sites was $ 2.8 million, net of expected insurance proceeds.

During the second quarter of fiscal year 2023, Varian informed us of an adjustment to their estimate of their liability, which resulted in an increase to our liability of approximately $ 2.9 million, net of expected insurance proceeds.

As of June 30, 2023, our estimated environmental liability for these sites is $ 4.2 million, net of expected insurance proceeds.

Product Warranty

6 unchanged sentences

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

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

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

Accrued product warranty, at beginning of period $ 7.7 $ 7.9

50 unchanged sentences

The Company does not have any material contract assets.

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

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.

3 unchanged sentences

The Company recognizes the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less.

Incremental costs of obtaining contracts that would be recognized over more than one year are not material.

Incremental costs of obtaining contracts that would be recognized over greater than one year are not material.

The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products.

1 unchanged sentence

Recently Adopted Accounting Pronouncements

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.

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

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 $ 0.1 million, and increase retained earnings by $ 6.5 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 10, 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 the Company's share price and could result in additional dilution.

For further details, refer to Note 1, Summary of Significant Accounting Policies, of the Notes to the Condensed Consolidated Financial Statements of our Annual Report on Form 10-K for the fiscal year ended September 29, 2023 filed with the SEC on November 16, 2023.

In September 2022, the FASB issued ASU 2022-04, Liabilities—Supplier Finance Programs, which requires entities to provide qualitative and quantitative disclosures about their supplier finance programs, including a rollforward of related obligations.

The adoption of ASU 2022-04 did not affect the Company’s financial condition, results of operations, or cash flows as the guidance only requires additional disclosures.

We adopted this ASU effective September 30, 2023 on a retrospective basis, except for the amendment on rollforward information, which has been adopted on a prospective basis.

Recent Accounting Standards or Updates Not Yet Effective

There are no new accounting standards not yet adopted or effective that are expected to have a material impact on the Company's Condensed Consolidated Financial Statements.

REVENUE RECOGNITION

2 unchanged sentences

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

Three Months Ended Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

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

Americas $ 62.4 $ 66.6

2 unchanged sentences

$ 190.0 $ 205.6

Revenue in the United States was $ 72.1 million and $ 61.7 million for the three months ended June 30, 2023 and July 1, 2022, respectively.

Revenue in the United States was $ 203.8 million and $ 186.7 million for the nine months ended June 30, 2023 and July 1, 2022, respectively.

Revenue in the United States was $ 60.6 million and $ 65.4 million for the three months ended December 29, 2023 and December 30, 2022, respectively.

Our products are sold in three geographic regions:

8 unchanged sentences

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

The following table summarizes the changes in the right of return assets and refund liabilities for the nine months ended June 30, 2023 and July 1, 2022:

The following table summarizes the changes in the right of return assets and refund liabilities for the three months ended December 29, 2023 and December 30, 2022:

Right of Return Assets

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

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

Balance at beginning of period $ 26.0 $ 25.4

1 unchanged sentence

Right of return assets from shipments of products subject to return during the period 1.4 1.5

Adjustment for actual vs.

reserved product returns ( 0.7 ) ( 0.4 )

Balance at end of period $ 25.5 $ 25.4

Refund Liabilities

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

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

Balance at beginning of period $ 28.9 $ 28.2

1 unchanged sentence

Additions to refund liabilities 1.5 1.7

Adjustment for actual vs.

reserved product returns ( 0.7 ) ( 0.5 )

Balance at end of period $ 28.3 $ 28.3

Contract Balances

During the three and nine months ended June 30, 2023, the Company recognized revenue of $ 0.9 million and $ 5.7 million, respectively, related to deferred revenues which existed at September 30, 2022.

During the three and nine months ended July 1, 2022, the Company recognized revenue of $ 0.4 million and $ 6.3 million, respectively, related to deferred revenues that existed at October 1, 2021.

During the three months ended December 29, 2023, the Company recognized revenue of $ 6.8 million related to deferred revenues which existed at September 29, 2023.

During the three months ended December 30, 2022, the Company recognized revenue of $ 4.2 million related to deferred revenues that existed at September 30, 2022.

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

During the nine months ended July 1, 2022, the Company recorded a loss due to abandonment of $ 1.9 million, which is included in selling, general and administrative in the Condensed Consolidated Statements of Operations.

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

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

(In millions) Balance Sheet Location December 29, 2023 September 29, 2023

Operating lease right-of-use assets Operating lease assets $ 28.4 $ 29.0

5 unchanged sentences

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

Three Months Ended Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

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

Total operating lease costs (1)

$ 1.4 $ 1.5 $ 4.2 $ 4.9

Total finance lease costs $ 0.1 $ 0.1

5 unchanged sentences

Total right-of-use assets obtained in exchange for new lease liabilities $ 2.2 $ —

(1) Includes variable and short-term lease expense, which were immaterial for the three and nine months ended June 30, 2023 and July 1, 2022.

(1) Includes variable and short-term lease expense, which were immaterial for the three months ended December 29, 2023 and December 30, 2022.

RELATED-PARTY TRANSACTIONS

3 unchanged sentences

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

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

During the three months ended June 30, 2023 and July 1, 2022, the Company recorded income on the equity investment in dpiX Holding of $ 0.0 million and $ 0.3 million, respectively.

During the nine months ended June 30, 2023 and July 1, 2022, the Company recorded income (loss) on the equity investment in dpiX Holding of $ 1.6 million and $( 0.8 ) million, respectively.

The income and loss on the equity investment in dpiX Holding are included in other expense, net in the Condensed Consolidated Statements of Operations.

The carrying value of the equity investment in dpiX Holding was $ 44.0 million and $ 42.4 million at June 30, 2023 and September 30, 2022, respectively.

During the three months ended June 30, 2023 and July 1, 2022, the Company purchased glass transistor arrays from dpiX totaling $ 5.1 million and $ 5.3 million, respectively.

During the nine months ended June 30, 2023 and July 1, 2022, the Company purchased glass transistor arrays from dpiX totaling $ 14.6 million and $ 16.0 million, respectively.

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

During the three months ended December 29, 2023 and December 30, 2022, the Company recorded income on the equity investment in dpiX Holding of $ 0.5 million and $ 2.0 million, respectively.

The income and loss on the equity investment in dpiX Holding are included in other income (expense), net in the Condensed Consolidated Statements of Operations.

The carrying value of the equity investment in dpiX Holding was $ 26.3 million and $ 25.8 million at December 29, 2023 and September 29, 2023, respectively.

During the three months ended December 29, 2023 and December 30, 2022, the Company purchased glass transistor arrays from dpiX totaling $ 5.0 million and $ 5.0 million, respectively.

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

As of June 30, 2023 and September 30, 2022, the Company had accounts payable to dpiX totaling $ 3.2 million and $ 3.1 million, respectively.

As of December 29, 2023 and September 29, 2023, the Company had accounts payable to dpiX totaling $ 2.8 million and $ 2.7 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.

1 unchanged sentence

In January 2024, the Company's fixed cost commitment was determined and approved by the dpiX board of directors to be $ 12.4 million for calendar year 2024.

As of June 30, 2023, the Company estimated it has fixed cost commitments of $ 6.5 million related to the amended agreement with dpiX 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).

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

During the three months ended June 30, 2023 and July 1, 2022, the Company recorded a loss on the equity investment in VEC of $ 0.3 million and $ 0.4 million, respectively.

During the nine months ended June 30, 2023, and July 1, 2022, the Company recorded a loss on the equity investment in VEC of $ 0.7 million and $ 1.0 million, respectively.

The Company's investment in VEC was $ 1.8 million and $ 2.5 million at June 30, 2023 and September 30, 2022, respectively.

As of June 30, 2023 and September 30, 2022, the Company had loans and other receivables outstanding from VEC of $ 1.0 million, and $ 0.9 million, respectively, which are recorded in prepaid expenses and other current assets in the Condensed 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 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.

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

Below is a detail of restructuring charges incurred during the three and nine months ended June 30, 2023 and July 1, 2022, respectively, which predominantly relate to the Company's Medical segment:

Three Months Ended Nine Months Ended

(In millions) Location in Statements of Operations June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

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

During the three months ended December 29, 2023 and December 30, 2022, the Company recorded a loss on the equity investment in VEC of $ 0.1 million and $ 0.3 million, respectively.

The Company's investment in VEC was $ 2.0 million and $ 2.1 million at December 29, 2023 and September 29, 2023, respectively.

As of December 29, 2023 and September 29, 2023, the Company had loans and other receivables outstanding from VEC of $ 0.7 million, and $ 0.7 million, respectively, which are recorded in prepaid expenses and other current assets in the Condensed Consolidated Balance Sheets.

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

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

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

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 June 30, 2023, the Company had the following outstanding derivatives designated as net investment hedging instruments:

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

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

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

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

Amount of (Loss) Gain Recognized in OCI on Derivative

Amount of Loss Recognized in OCI on Derivative

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

Three Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Cross currency swap contracts $ ( 0.6 ) $ 3.9 Interest expense $ 0.3 $ 0.3

Amount of (Loss) Gain Recognized in OCI on Derivative

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

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

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

Cross currency swap contracts $ ( 2.7 ) $ ( 4.0 ) Interest expense $ 0.3 $ 0.2

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(In millions) Derivative Assets and Liabilities

Derivatives Designated as Net Investment Hedges Balance Sheet Location June 30, 2023 September 30, 2022

Derivatives Designated as Net Investment Hedges Balance Sheet Location December 29, 2023 September 29, 2023

Cross currency swap contracts Prepaid expenses and other current assets $ 0.8 $ 0.7

Cross currency swap contracts Other assets — 6.3

Cross currency swap contracts Other long-term liabilities $ 7.7 $ 4.9

Balance Sheet Hedges

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

These forward contracts 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 in the Condensed 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.

therefore, the change in fair value of these derivatives is recorded as a component of other income (expense), net in the Condensed 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 income (expense), net .

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

The following table shows the notional amounts of outstanding foreign currency contracts as of June 30, 2023:

The following table shows the notional amounts of outstanding foreign currency contracts as of December 29, 2023:

Notional Value of Derivatives not Designated as Hedging Instruments:

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Chinese Renminbi 10.2

India Rupee 6.5

Indian Rupee 5.0

Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

As of June 30, 2023, the fair values of the Company’s Convertible Notes and Senior Secured Notes, as defined in Note 10, Borrowings and measured using Level 1 inputs, were $ 253.6 million and $ 242.7 million, respectively.

As of December 29, 2023, the fair values of the Company’s Convertible Notes and Senior Secured Notes, as defined in Note 9, Borrowings and measured using Level 1 inputs, were $ 234.0 million and $ 244.4 million, respectively.

As of September 29, 2023, the fair values of the Company’s Convertible Notes and Senior Secured Notes, measured using Level 1 inputs, were $ 228.4 million and $ 243.6 million, respectively.

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

Fair Value at June 30, 2023

Fair Value at December 29, 2023

(In millions) Quoted Prices in Active Markets

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Marketable Debt Securities

The following tables summarize the Company’s marketable debt securities:

June 30, 2023

(In millions) Amortized Costs Unrealized Losses Fair Value

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

December 29, 2023

(In millions) Amortized Costs Fair Value

Commercial paper $ 8.3 $ 8.3

4 unchanged sentences

September 29, 2023

(In millions) Amortized Costs Unrealized Losses Fair Value

(In millions) Amortized Costs Fair Value

Commercial paper $ 6.0 $ 6.0

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Total marketable debt securities $ 49.5 $ 49.5

The contractual maturities of marketable debt securities as of June 30, 2023, are shown in the table below.

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

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

June 30, 2023

December 29, 2023

(In millions) Amortized Costs Fair Value

3 unchanged sentences

Total marketable debt securities $ 60.5 $ 60.5

During the three and nine months ended June 30, 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.

During the three months ended December 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.

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

June 30, 2023

December 29, 2023

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

1 unchanged sentence

Prepaid expenses and other current assets — 10.3 20.1 21.8 52.2

Other assets — — — 0.5 0.5

Total marketable debt securities $ 8.3 $ 10.3 $ 20.1 $ 21.8 $ 60.5

3 unchanged sentences

Prepaid expenses and other current assets — 8.3 6.6 26.4 41.3

Other assets — 1.7 — 0.5 2.2

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

The following table summarizes the Company’s inventories:

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

(In millions) December 29, 2023 September 29, 2023

Raw materials and parts $ 223.5 $ 217.5

7 unchanged sentences

Foreign currency translation adjustments 1.1 0.8 1.9

Balance at June 30, 2023 $ 172.2 $ 117.0 $ 289.2

Balance at December 29, 2023 $ 172.6 $ 117.8 $ 290.4

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 Condensed Consolidated Balance Sheets:

June 30, 2023 September 30, 2022

December 29, 2023 September 29, 2023

(In millions)

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$ 138.8 $ ( 116.7 ) $ 22.1 $ 135.1 $ ( 112.7 ) $ 22.4

Amortization expense for intangible assets was $ 3.4 million and $ 3.7 million for the three months ended June 30, 2023 and July 1, 2022, respectively.

Amortization expense for intangible assets was $ 10.2 million and $ 11.2 million for the nine months ended June 30, 2023 and July 1, 2022, respectively.

Amortization expense for intangible assets was $ 3.6 million and $ 3.4 million for the three months ended December 29, 2023 and December 30, 2022, respectively.

In connection with the business combination discussed in Note 10.

Business Combinations, the Company recorded additional intangible assets of $ 2.6 million, of which $ 2.1 million related to customer contracts and supplier relationships and $ 0.5 million related to acquired existing technology.

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

June 30, 2023 September 30, 2022

December 29, 2023 September 29, 2023

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

1 unchanged sentence

Other debt $ 1.6 $ 1.5

Total current maturities of long-term debt $ 1.6 $ 1.5

Non-current maturities of long-term debt:

4 unchanged sentences

$ 446.2 $ 446.5

Unamortized issuance costs and debt discounts

Unamortized discount - Convertible Notes (1)

$ — $ ( 28.7 )

Unamortized issuance costs

Unamortized issuance costs - Convertible Notes $ ( 2.1 ) $ ( 2.5 )

( 2.8 ) ( 3.1 )

Unamortized issuance costs - Senior Secured Notes ( 2.7 ) ( 2.9 )

1 unchanged sentence

Total debt outstanding, net $ 443.0 $ 442.6

Equity component of Convertible Senior Unsecured Notes (1)(2)

(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 Condensed Consolidated Balance Sheets.

The following table summarizes the Company’s interest expense:

Three Months Ended Nine Months Ended

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

December 29, 2023 December 30, 2022

Contractual interest coupon and other $ 6.6 $ 6.9

Amortization of debt issuance costs 0.7 0.6

Amortization of debt discounts — 2.2 — 6.5

Total interest expense $ 7.3 $ 7.5

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

The Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of Varex common stock that were initially covered by the Convertible Notes.

The Hedge Transactions cover, subject to customary anti-dilution adjustments, the number of shares of Varex common stock that initially underlie the Convertible Notes.

The Hedge Transactions are expected generally to reduce the potential dilution and/or offset any cash payments Varex is required to make in excess of the principal amount due upon conversion of the Convertible Notes in the event that the market price of Varex common stock is greater than the strike price of the Hedge Transactions, which was initially $ 20.81 per share (subject to adjustment under the terms of the Hedge Transactions).

1 unchanged sentence

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

On June 4, 2020 and June 5, 2020, Varex also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby the Company sold warrants at a higher strike price relating to the same number of shares of Varex common stock that were initially covered by the Convertible Notes, subject to customary anti-dilution adjustments.

On June 4, 2020 and June 5, 2020, Varex also entered into privately negotiated warrant transactions (collectively, the “Warrant Transactions” and, together with the Hedge Transactions, the “Call Spread Transactions”), whereby the Company sold warrants at a higher strike price relating to the same number of shares of Varex common stock that initially underlie the Convertible Notes, subject to customary anti-dilution adjustments.

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

1 unchanged sentence

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

The number of warrants outstanding as of June 30, 2023 was 9.6 million.

The number of warrants outstanding as of December 29, 2023 was 9.6 million.

Senior Secured Notes

3 unchanged sentences

On July 15, 2021, we redeemed $ 30.0 million, and on March 18, 2022, we redeemed $ 27.0 million of the Senior Secured Notes.

As of June 30, 2023, the aggregate principal amount of the outstanding Senior Secured Notes was $ 243.0 million.

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

As of December 29, 2023, the aggregate principal amount of the outstanding Senior Secured Notes was $ 243.0 million.

The Senior Secured Notes include negative covenants, subject to certain exceptions, restricting or limiting Varex's ability and the ability of its restricted subsidiaries to, among other things, incur liens on collateral;

12 unchanged sentences

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

As of June 30, 2023, the amount available under the ABL Facility was $ 87.8 million and the ABL Facility remains undrawn.

The ABL Facility includes various restrictive covenants that limit the Company's ability to engage in certain transactions, including the incurrence of debt, payment of dividends and other restrictive payments, existence of restrictions affecting subsidiaries, sales of stock and assets, certain affiliate transactions, modifications of debt documents and organizational documents, changes to line of business and fiscal year, incurrence of liens, making fundamental changes, prepayments of junior indebtedness, and certain other transactions.

As of December 29, 2023, the amount available under the ABL Facility was $ 71.9 million and the ABL Facility remains undrawn.

The ABL Facility includes various restrictive covenants that limit our ability to engage in certain transactions, including the incurrence of debt, payment of dividends and other restrictive payments, existence of restrictions affecting subsidiaries, sales of stock and assets, certain affiliate transactions, modifications of debt documents and organizational documents, changes to line of business and fiscal year, incurrence of liens, making fundamental changes, prepayments of junior indebtedness, and certain other transactions.

BUSINESS COMBINATIONS

As of September 29, 2023, the Company, through two of its consolidated subsidiaries, Varex Imaging Deutschland AG and MeVis Medical Solutions AG ("MeVis Medical"), held a combined ownership interest in MeVis BreastCare GmbH and MeVis BreastCare Gmbh & Co KG (referred to in combination as "MeVis Breastcare") of 37.6 %.

Because the Company had the ability to exercise significant influence in, but not control, over MeVis Breastcare, it was historically accounted for as an equity method investment.

In October 2023, the Company increased its ownership in MeVis Breastcare to 87.1 % for a purchase price of $ 0.9 million, resulting in the Company now holding a controlling interest in MeVis Breastcare.

The purchase of this additional ownership interest was accounted for as a business combination achieved in stages, or step acquisition.

As a result, the previously held equity interest was remeasured to its acquisition-date fair value, with a gain of $ 0.9 million recognized in other income (expense), net in the Condensed Consolidated Statements of Operations.

The assets and liabilities of MeVis Breastcare were then recorded on the Company's balance sheet at their fair values in accordance with ASC 805, and a gain on bargain purchase of $ 1.2 million was recorded in other income (expense), net in the Condensed Consolidated Statements of Operations.

Because the purchase price did not give consideration to the other assets of the business, the fair value of the ownership interest acquired exceeded the price paid to the third party partial owner and this resulted in a gain on bargain purchase.

The following table summarizes the consideration paid for MeVis Breastcare and the amounts of the assets acquired and liabilities assumed recognized at their estimated acquisition date fair values, as well as the estimated fair value at the acquisition date of the noncontrolling interest in MeVis Breastcare.

(in millions)

Consideration paid

Fair value of total consideration transferred 0.9

Remeasurement of previous equity interest

Carrying value of previous equity interest before acquisition 1.1

Fair value of previous equity interest at acquisition date 2.0

Remeasurement gain recorded on previous equity interest 0.9

Total of consideration paid and fair value of previous equity interest $ 2.9

Recognized amounts of identifiable assets acquired and liabilities assumed

Cash and cash equivalents $ 1.8

Accounts receivable, net 1.2

Intangible assets, net 2.6

Accounts payable ( 0.1 )

Accrued liabilities and other current liabilities ( 0.6 )

Other long-term liabilities ( 0.1 )

Total identifiable net assets 4.8

Noncontrolling interest in MeVis Breastcare ( 0.7 )

Bargain purchase gain ( 1.2 )

NONCONTROLLING INTERESTS

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

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

In August 2015, the Company, through one of its German subsidiaries, entered into a Domination and Profit and Loss Transfer Agreement (the “DPLTA”) with MeVis.

In fiscal years 2017 and 2018, the Company purchased an additional 0.2 % of outstanding shares such that the Company now owns 73.7 % of the outstanding shares of common stock of MeVis.

Under the DPLTA, MeVis subordinates its management to the Company and undertakes to transfer all its annual profits and losses to the Company.

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

At June 30, 2023, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3 % of the outstanding shares.

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

In August 2015, the Company, through one of its German subsidiaries, entered into a Domination and Profit and Loss Transfer Agreement (the “DPLTA”) with MeVis Medical.

In fiscal years 2017 and 2018, the Company purchased an additional 0.2 % of outstanding shares such that the Company now owns 73.7 % of the outstanding shares of common stock of MeVis Medical.

Under the DPLTA, MeVis Medical subordinates its management to the Company and undertakes to transfer all its annual profits and losses to the Company.

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

At December 29, 2023, noncontrolling shareholders together held approximately 0.5 million shares of MeVis Medical, representing 26.3 % of the outstanding shares.

During the first quarter of fiscal year 2024, the Company acquired a controlling interest in MeVis Breastcare, in which the Company now holds an 87.1 % ownership interest.

In association with this acquisition, the Company recorded an associated noncontrolling interest of $ 0.7 million.

Changes in noncontrolling interests were as follows:

Nine Months Ended

(In millions) June 30, 2023 July 1, 2022

Three Months Ended

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

Noncontrolling interests, at beginning of period $ 13.3 $ 13.3

Net income attributable to noncontrolling interests 0.1 0.1

Business acquisitions 0.7 —

Other — ( 0.1 )

Noncontrolling interests, at end of period $ 14.1 $ 13.3

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:

Three Months Ended Nine Months Ended

NET (LOSS) INCOME PER SHARE

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

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

Three Months Ended

(In millions, except per share amounts)

June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Net income per share - basic

Net income attributable to Varex $ 9.1 $ 8.2 $ 16.3 $ 17.2

December 29, 2023 December 30, 2022

Net (loss) income per share - basic

Net (loss) income attributable to Varex $ ( 0.5 ) $ 3.1

Basic weighted average shares outstanding

40.4 39.9 40.2 39.7

Basic net income per share attributable to Varex $ 0.23 $ 0.21 $ 0.41 $ 0.43

Net income per share - diluted

Net income attributable to Varex $ 9.1 $ 8.2 $ 16.3 $ 17.2

Interest expense on Convertible Notes, net of tax 1.4 — — —

Diluted net income $ 10.5 $ 8.2 $ 16.3 $ 17.2

Basic net (loss) income per share attributable to Varex $ ( 0.01 ) $ 0.08

Net (loss) income per share - diluted

Net (loss) income attributable to Varex $ ( 0.5 ) $ 3.1

Basic weighted average shares outstanding 40.6 40.1

Dilutive effect of Convertible Notes 9.6 0.2 — 1.6

Dilutive effect of share-based awards and other — 0.5

Diluted weighted average shares outstanding

50.4 40.5 40.6 41.9

Diluted net income per share attributable to Varex $ 0.21 $ 0.20 $ 0.40 $ 0.41

Diluted net (loss) income per share attributable to Varex $ ( 0.01 ) $ 0.08

Anti-dilutive share summary

Share-based awards and other

2.7 3.2 2.9 3.0

Convertible notes 9.6 9.6

1 unchanged sentence

Total anti-dilutive shares 22.8 14.5

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 million 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 10, Borrowings ).

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 (loss) income per share attributable to Varex when their effect is dilutive.

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.

4 unchanged sentences

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

Three Months Ended Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

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

Cost of revenues $ 0.5 $ 0.4

1 unchanged sentence

Selling, general, and administrative

2.3 2.2 6.3 7.1

Total share-based compensation expense $ 3.7 $ 3.3

8 unchanged sentences

Canceled, expired or forfeited — $ 0.00 - $ 0.00

Outstanding at June 30, 2023 2,875 $ 13.61 - $ 37.60

Outstanding at December 29, 2023 2,862 $ 13.61 - $ 37.60

$ 28.08 4.6 $ 1,159.0

Exercisable at June 30, 2023 2,015 $ 13.61 - $ 37.60

Exercisable at December 29, 2023 2,249 $ 13.61 - $ 37.60

$ 29.01 3.6 $ 937.8

(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 $ 23.57 as of June 30, 2023, the last trading date of the Company's third quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their in-the-money options and sold the shares received upon exercise as of that date.

Restricted Stock Units, Restricted Stock Awards and Deferred Stock Units

The following table summarizes the activity for restricted stock units, restricted stock awards and deferred stock units under Varex’s 2020 Omnibus Stock Plan and 2017 Omnibus Stock Plan:

(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 $ 20.50 as of December 29, 2023, the last trading date of the Company's first quarter, and which represents the amount that would have been received by the option holders had all option holders exercised their in-the-money options and sold the shares received upon exercise as of that date.

Restricted Stock Units, Performance Stock Units, Restricted Stock Awards, and Deferred Stock Units

In the first quarter of fiscal year 2024, the Company issued performance stock units ("PSUs").

PSUs are awarded to certain officers and key employees in connection with our long-term incentive program.

Each PSU represents the right to receive one share of our common stock, provided that the applicable performance and vesting conditions are satisfied.

The fair value of certain PSUs are linked to the achievement of performance goals based on Adjusted EBITDA margin.

Share-based compensation expense for these PSUs are recognized over the performance period based on the probability of achieving the performance targets.

Certain PSUs include a performance objective based on our relative total shareholder return over the performance period compared to a predetermined peer group.

The fair value of these awards is determined using a Monte Carlo simulation as of the date of the grant and share-based compensation expense will not be adjusted should the target awards vary from actual awards.

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

(In thousands, except per share amounts) Number of Shares Weighted Average Grant-Date Fair Value

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Canceled or expired ( 16 ) 21.91

Outstanding at June 30, 2023 1,291 $ 22.43

TAXES ON INCOME

For the three months ended June 30, 2023, the Company recognized income tax expense of $ 7.9 million on $ 17.1 million of pre-tax income.

For the three months ended July 1, 2022, the Company recognized income tax expense of $ 5.1 million on $ 13.5 million of pre-tax income.

For the nine months ended June 30, 2023, the Company recognized income tax expense of $ 13.6 million on $ 30.3 million of pre-tax income.

For the nine months ended July 1, 2022, the Company recognized income tax expense of $ 12.8 million on $ 30.4 million of pre-tax income.

Outstanding at December 29, 2023 1,904 $ 21.00

TAXES ON (LOSS) INCOME

For the three months ended December 29, 2023, the Company recognized income tax benefit of $ 0.2 million on $ 0.6 million of pre-tax loss.

For the three months ended December 30, 2022, the Company recognized income tax expense of $ 2.2 million on $ 5.4 million of pre-tax income.

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

The Company's tax expense for the three and nine months ended June 30, 2023 increased, primarily due to increased pre-tax income in certain jurisdictions, valuation allowance positions in the United States on deferred tax attributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the three months ended June 30, 2023, which is that all earnings prior to fiscal year 2018 are permanently reinvested for all countries, and that all earnings for Direct Conversion, one of our consolidated entities, which is located primarily in Sweden and Finland, are also indefinitely reinvested in those countries, but post fiscal year 2017 earnings in all other countries are not permanently reinvested.

The Company's tax expense for the three months ended December 29, 2023 decreased, primarily due to decreased pre-tax income in certain jurisdictions and losses in certain foreign jurisdictions for which no benefit can be recorded.

The Company is maintaining its reinvestment assertion with respect to foreign earnings for the three months ended December 29, 2023, which is that all earnings prior to fiscal year 2018 are permanently reinvested for all countries, and that all earnings for Varex Imaging Sweden and Oy Varex Imaging Finland are also indefinitely reinvested in those countries, but post fiscal year 2017 earnings in all other countries are not permanently reinvested.

Due to the level of earnings available for repatriation, the treaty benefits applicable to jurisdictions in which those earnings are located, and the now favorable United States tax treatment of repatriated foreign earnings, the amount of deferred tax liability recorded related to the potential repatriation is approximately $ 0.1 million.

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The Company has two reportable operating segments:

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

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

Medical and Industrial, which aligns with how the 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.

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

The reportable operating segment structure provides alignment between business strategies and operating results.

The operating and reportable segment structure provides alignment between business strategies and operating results.

Description of Segments

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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, irradiation, and inspection applications used in a number of other vertical markets.

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, 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.

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

Three Months Ended Nine Months Ended

(In millions) June 30, 2023 July 1, 2022 June 30, 2023 July 1, 2022

Three Months Ended

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

Revenues, net

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Interest and other expense, net ( 4.8 ) ( 7.6 )

Income before taxes 17.1 13.5 30.3 30.4

Income tax expense 7.9 5.1 13.6 12.8

Net income 9.2 8.4 16.7 17.6

(Loss) income before taxes ( 0.6 ) 5.4

Income tax (benefit) expense ( 0.2 ) 2.2

Net (loss) income ( 0.4 ) 3.2

Net income attributable to noncontrolling interests 0.1 0.1

Net income attributable to Varex $ 9.1 $ 8.2 $ 16.3 $ 17.2

Net (loss) income attributable to Varex $ ( 0.5 ) $ 3.1

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

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

What changed 10-Q

Item 1. Financial Statements