UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________ FORM 10-Q ____________________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37860 ________ ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________ FORM 10-K ____________________________________________________________ ☒ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended October 1, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37860 VAREX IMAGING CORPORATION ...

Varex Imaging Corporation (NASDAQ:VREX) Q4 2021 Earnings Conference Call November 16, 2021 5:00 PM ET Company Participants Chris Belfiore - Director of Investor Relations Sunny Sanyal - President and CEO Sam Maheshwari - CFO Conference Call Participants Frank Pinal - Jefferies Larry Solow - CJS Securities Jim Sidoti - Sidoti and Company Suraj Kalia - Oppenheimer Operator Greetings. Welcome to the Varex Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen only mode. A qu ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________________________________________ FORM 10-Q ____________________________________________________________ ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 2, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-37860 _____________ ...

Financial Data and Key Metrics Changes - Revenues reached $211 million, a 4% sequential increase and a 23% year-over-year increase, driven by strong demand in both Medical and Industrial segments [9][10] - Non-GAAP gross margin improved to 36%, while non-GAAP operating margin increased to 14% of revenues, resulting in non-GAAP EPS of $0.40, exceeding guidance [11][29] - GAAP gross margin was 35%, up over 300 basis points sequentially, with operating income increasing by $10 million compared to the previous quarter [31][32] Business Line Data and Key Metrics Changes - Medical segment revenues increased 7% sequentially and 22% year-over-year, with strong demand for CT tubes and other modalities returning to pre-COVID levels [10][11] - Industrial segment revenues decreased 6% sequentially but increased 31% year-over-year, attributed to timing of sales [14][29] Market Data and Key Metrics Changes - Revenue levels in the Americas decreased by 7% sequentially, while EMEA grew by 13% and APAC grew by 6% [30] - China is identified as a significant growth opportunity, with expected revenues exceeding $100 million by fiscal year-end 2021, representing 25% to 30% year-over-year growth [18][19] Company Strategy and Development Direction - The company is focusing on establishing relationships with local OEMs in China to drive growth, with nine out of twelve CT projects already brought to market [16][22] - New product development efforts include the launch of the LUMEN 4336W detector and advancements in nanotube technology [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in strong demand for CT tubes and other medical modalities, indicating that the demand is not solely a catch-up from the pandemic [98][101] - Supply chain challenges are acknowledged, particularly regarding raw materials and semiconductors, but management believes they are managing these issues effectively [26][50] Other Important Information - R&D spending was $19 million, or 9% of revenues, reflecting continued prioritization towards innovation and new product development [35][60] - Cash flow from operations improved to $22 million, with cash on hand increasing to $128 million [40][41] Q&A Session Summary Question: Can you provide insights on the demand dynamics for CT tubes in China and supply chain issues? - Management indicated strong demand for CT tubes and acknowledged supply chain issues related to commodities and semiconductors, but they are not currently demand constrained [49][50][51] Question: How much of the gross margin benefit was from sales volume versus cost savings? - Management confirmed that gross margin benefits were primarily driven by higher sales volume and successful cost reduction initiatives, particularly from the migration of manufacturing [56][57] Question: What is the outlook for revenue guidance in Q4? - Management provided guidance for Q4 revenues between $205 million and $225 million, indicating confidence in demand despite potential supply chain constraints [45][121] Question: How is the company performing in comparison to local and global OEMs in China? - Management stated that local OEMs are gaining market share in CTs, and the company is also gaining share in tubes, indicating a positive trend [73][74] Question: What are the expectations for new product contributions to revenue growth? - Management expects future growth from new products developed through increased R&D investments, which have been accelerated due to prior tax savings [82][86]

Q3 FY21 Financial Performance - Revenue reached $211 million[9] - Non-GAAP gross margin was 36%[10] - Non-GAAP EPS was $0.40[10] - Cash reserves totaled $128 million[10] Revenue Trends and Mix - Medical segment revenue was $167 million[20] - Industrial segment revenue was $44 million[20] - Revenue distribution by region: Americas $66 million, EMEA $76 million, and APAC $69 million[22] China Market - FY21 revenues from China are expected to exceed $100 million[15] - Over half of China revenues are from Medical Tubes[15] Q4 FY21 Outlook (Non-GAAP) - Revenue is projected to be between $205 million and $225 million[35] - EPS is expected to be between $0.25 and $0.40[35] - Gross margin is anticipated to be between 35% and 36%[37] - Operating expenses are estimated to be between $46 million and $47 million[37]

VAREX Solutions in Sight™ Q2 FY21 Earnings Presentation May 4, 2021 Proprietary and Confidential Information Forward Looking Statements / Non-GAAP Measures Forward Looking Statements Certain statements in this supplement contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward looking statements include statements concerning industry or market outlook; addressable market, market size; the potential be ...

[Financial Information](index=2&type=section&id=Part%20I.%20Financial%20Information) [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) Presents unaudited condensed consolidated financial statements for Q2 2021 and Q2 2020, highlighting a net income of $3.2 million for the quarter [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Q2 2021 revenues increased 3.3% to $203.5 million, achieving a net income of $3.2 million from a prior-year loss | Indicator (In millions, except EPS) | Three Months Ended April 2, 2021 | Three Months Ended April 3, 2020 | Six Months Ended April 2, 2021 | Six Months Ended April 3, 2020 | | :--- | :--- | :--- | :--- | :--- | | **Revenues, net** | $203.5 | $197.0 | $380.6 | $397.1 | | **Gross Profit** | $64.6 | $57.6 | $121.8 | $118.7 | | **Operating Income** | $15.8 | $1.4 | $21.9 | $6.0 | | **Net Income (Loss)** | $3.2 | $(1.8) | $(3.1) | $(3.0) | | **Diluted EPS** | $0.08 | $(0.05) | $(0.09) | $(0.08) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets were $1,132.6 million as of April 2, 2021, with cash increasing and total liabilities decreasing | Balance Sheet Item (In millions) | April 2, 2021 | October 2, 2020 | | :--- | :--- | :--- | | **Total Current Assets** | $529.8 | $522.0 | | Cash and cash equivalents | $111.1 | $100.6 | | Inventories | $248.2 | $271.9 | | **Total Assets** | $1,132.6 | $1,139.5 | | **Total Current Liabilities** | $146.3 | $160.6 | | **Total Liabilities** | $663.7 | $673.7 | | **Total Stockholders' Equity** | $468.9 | $465.8 | [Condensed Consolidated Statements of Cash Flows](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was $19.9 million for the six months ended April 2, 2021, with a $10.5 million increase in cash | Cash Flow Activity (In millions) | Six Months Ended April 2, 2021 | Six Months Ended April 3, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $19.9 | $23.9 | | **Net cash used in investing activities** | $(8.4) | $(17.3) | | **Net cash used in financing activities** | $(1.0) | $(12.1) | | **Net increase (decrease) in cash** | $10.5 | $(5.7) | [Notes to the Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, segment reporting, revenue by geography, debt structure, and related party transactions - The company operates through two reportable segments: Medical (X-ray tubes, digital detectors for medical applications) and Industrial (components for security, inspection, and non-destructive testing)[27](index=27&type=chunk)[116](index=116&type=chunk)[118](index=118&type=chunk) - A single customer, Canon Medical Systems Corporation, accounted for **17.8% of revenues** for the three months and **17.2%** for the six months ended April 2, 2021, representing a significant concentration of risk[34](index=34&type=chunk) | Revenue by Geography (In millions) | Three Months Ended April 2, 2021 | Six Months Ended April 2, 2021 | | :--- | :--- | :--- | | Americas | $70.5 | $132.8 | | EMEA | $67.7 | $125.6 | | APAC | $65.3 | $122.2 | | **Total** | **$203.5** | **$380.6** | | Segment Performance (In millions) | Three Months Ended April 2, 2021 | Six Months Ended April 2, 2021 | | :--- | :--- | :--- | | **Revenues** | | | | Medical | $156.6 | $295.8 | | Industrial | $46.9 | $84.8 | | **Gross Profit** | | | | Medical | $45.7 | $89.8 | | Industrial | $18.9 | $32.0 | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=31&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q2 2021 financial results, noting demand recovery, 3.3% revenue growth, improved gross margin, and sufficient liquidity [Results of Operations](index=35&type=section&id=Results%20of%20Operations) Q2 2021 revenues grew 3.3% to $203.5 million, driven by Industrial segment growth and an improved gross margin of 31.7% | Revenue by Segment (In millions) | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Medical | $156.6 | $155.4 | 0.8% | | Industrial | $46.9 | $41.6 | 12.7% | | **Total** | **$203.5** | **$197.0** | **3.3%** | | Gross Profit & Margin by Segment | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | **Medical** | $45.7M (29.2%) | $43.2M (27.8%) | | **Industrial** | $18.9M (40.3%) | $14.4M (34.6%) | | **Total** | **$64.6M (31.7%)** | **$57.6M (29.2%)** | - Operating expenses for Q2 2021 decreased by **$7.4 million (13.2%)** year-over-year, primarily due to lower external audit and consulting fees and cost reduction actions[150](index=150&type=chunk)[152](index=152&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is sufficient with **$111.1 million cash** and an undrawn **$100 million ABL facility**, despite **$460.9 million net debt** - The company believes its operating cash flow, cash on hand, and availability under its ABL facility are sufficient to meet operating needs for at least the next 12 months[163](index=163&type=chunk) | Key Liquidity Metrics (In millions) | April 2, 2021 | | :--- | :--- | | Cash and cash equivalents | $111.1 | | Total debt outstanding, net | $460.9 | | ABL Facility Availability | $100.0 (undrawn) | | Net cash from operations (6 months) | $19.9 | - The company has a fixed cost commitment of **$11.6 million** to its supplier dpiX for calendar year 2021, with **$8.7 million** remaining as of April 2, 2021[171](index=171&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Varex faces market risks including foreign currency, interest rate, and commodity price fluctuations, with some hedging strategies - The company faces significant foreign currency exchange risk as a large portion of its customers are outside the United States, while products are generally priced in U.S. Dollars[180](index=180&type=chunk) - Interest rate risk is present due to the floating-rate nature of the ABL Facility, although there were no borrowings as of April 2, 2021[184](index=184&type=chunk) - The company is exposed to commodity price volatility for raw materials such as tungsten, lead, iridium, and copper, which can impact product margins[185](index=185&type=chunk)[242](index=242&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective as of April 2, 2021, due to ongoing material weaknesses in internal financial controls - The CEO and CFO concluded that disclosure controls and procedures were not effective as of April 2, 2021, due to ongoing material weaknesses in internal control over financial reporting[187](index=187&type=chunk) - Remediation efforts are underway to address deficiencies in the Control Environment, Risk Assessment, Inventory and cost of revenues, and Financial Reporting processes[189](index=189&type=chunk) - The material weaknesses will not be considered remediated until the new controls have operated effectively for a sufficient period and have been tested by management[190](index=190&type=chunk) [Other Information](index=44&type=section&id=Part%20II.%20Other%20Information) [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to routine legal actions but is unaware of any material litigation impacting its financial position - The company is not aware of any currently pending litigation that could have a material adverse effect on its operations or financial position[192](index=192&type=chunk) [Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) The company faces diverse risks including COVID-19 impacts, customer concentration, supply chain issues, competition, international trade, and financial control weaknesses - **Business & Operational Risks:** The company's operations and demand have been and could continue to be adversely impacted by the COVID-19 pandemic. It also faces risk from its dependence on a limited number of OEM customers, with one customer accounting for **18% of revenue** in the quarter[196](index=196&type=chunk)[199](index=199&type=chunk) - **Financial & Control Risks:** The company has identified material weaknesses in its internal control over financial reporting, which could result in a loss of investor confidence. It also has significant debt obligations (approx. **$512.3 million**) that could adversely affect its business and flexibility[300](index=300&type=chunk)[302](index=302&type=chunk) - **Market & Regulatory Risks:** The company faces intense competition, risks from changes in import/export regulations and tariffs (particularly with China), and potential supply chain disruptions for critical components from sole-source suppliers like dpiX LLC[203](index=203&type=chunk)[258](index=258&type=chunk)[239](index=239&type=chunk) - **Debt-Related Risks:** Conversion of the company's Convertible Notes could dilute stockholder ownership. The company's ABL Credit Facility and indentures impose significant operating and financial restrictions that may limit flexibility[320](index=320&type=chunk)[307](index=307&type=chunk) [Other Part II Items (Items 2, 3, 4, 5, 6)](index=82&type=section&id=Other%20Part%20II%20Items) This section covers standard SEC filing items, reporting no unregistered equity sales, no defaults, and no other material disclosures - The company reported no activity under Item 2 (Unregistered Sales of Equity Securities and Use of Proceeds), Item 3 (Defaults Upon Senior Securities), and Item 5 (Other Information)[328](index=328&type=chunk)[329](index=329&type=chunk)[331](index=331&type=chunk)

Part I. Financial Information [Unaudited Financial Statements](index=2&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) The unaudited financial statements for Q1 2021 show a year-over-year revenue decline and increased net loss, with stable assets but decreased operating cash flow [Condensed Consolidated Statements of Operations](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For Q1 2021, Varex reported decreased revenues and gross profit, with increased interest expense leading to a larger net loss Consolidated Statement of Operations Highlights (Unaudited) | (In millions, except per share data) | Three Months Ended Jan 1, 2021 | Three Months Ended Jan 3, 2020 | | :--- | :--- | :--- | | **Revenues, net** | **$177.1** | **$200.1** | | Gross profit | $57.2 | $61.1 | | Operating earnings | $6.1 | $4.6 | | Interest expense | $(10.3) | $(5.4) | | Loss before taxes | $(4.7) | $(1.2) | | **Net loss attributable to Varex** | **$(6.4)** | **$(1.3)** | | **Diluted net loss per share** | **$(0.16)** | **$(0.03)** | [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of January 1, 2021, total assets were $1.137 billion, slightly down from fiscal 2020, with stable cash and significant long-term debt Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In millions) | January 1, 2021 | October 2, 2020 | | :--- | :--- | :--- | | **Current Assets** | | | | Cash and cash equivalents | $105.5 | $100.6 | | Accounts receivable, net | $121.0 | $123.8 | | Inventories | $269.8 | $271.9 | | **Total Assets** | **$1,137.1** | **$1,139.5** | | **Current Liabilities** | $152.5 | $160.6 | | **Long-term debt, net** | **$457.5** | **$452.8** | | **Total Liabilities** | **$672.7** | **$673.7** | | **Total Stockholders' Equity** | **$464.4** | **$465.8** | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities significantly decreased to $7.1 million in Q1 2021, primarily due to working capital changes, resulting in a net cash increase of $4.9 million Consolidated Statement of Cash Flows Highlights (Unaudited) | (In millions) | Three Months Ended Jan 1, 2021 | Three Months Ended Jan 3, 2020 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | **$7.1** | **$23.0** | | Net cash used in investing activities | $(4.4) | $(10.6) | | Net cash provided by (used in) financing activities | $2.2 | $(12.0) | | **Net increase in cash and cash equivalents** | **$4.9** | **$0.1** | [Notes to the Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed information on accounting policies, revenue recognition, segment performance, and debt structure, including geographic and segment revenue breakdowns * The company operates in two reportable segments: **Medical** and **Industrial**, designing and manufacturing X-ray tubes, digital detectors, and components for medical imaging, security, inspection, and non-destructive testing applications[22](index=22&type=chunk)[23](index=23&type=chunk)[26](index=26&type=chunk) * **Canon Medical Systems Corporation** is a significant customer, accounting for **16.6% of revenues** in Q1 2021 and **18.8%** in Q1 2020[33](index=33&type=chunk) Revenue by Geographic Region (in millions) | Region | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Americas | $62.3 | $70.3 | | EMEA | $57.9 | $65.2 | | APAC | $56.9 | $64.6 | | **Total** | **$177.1** | **$200.1** | Segment Performance (in millions) | Segment | Q1 2021 Revenue | Q1 2020 Revenue | Q1 2021 Gross Profit | Q1 2020 Gross Profit | | :--- | :--- | :--- | :--- | :--- | | Medical | $139.2 | $155.6 | $44.1 | $43.8 | | Industrial | $37.9 | $44.5 | $13.1 | $17.3 | | **Total** | **$177.1** | **$200.1** | **$57.2** | **$61.1** | * Total debt outstanding, net of unamortized costs, was **$460.1 million** as of January 1, 2021, including **$200.0 million** of 4.0% Convertible Senior Unsecured Notes due 2025 and **$300.0 million** of 7.9% Senior Secured Notes due 2027[87](index=87&type=chunk)[88](index=88&type=chunk)[92](index=92&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the 11.5% revenue decline to the COVID-19 pandemic and an extra week in the prior year, while gross margin improved due to cost reductions despite increased interest expense * The **COVID-19 pandemic** has caused disruptions, including reduced customer demand, delays in equipment installations, and supply chain challenges, with uncertainty expected to continue into mid-calendar year 2021[122](index=122&type=chunk)[124](index=124&type=chunk)[127](index=127&type=chunk) Revenues by Segment (in millions) | Segment | Q1 2021 | Q1 2020 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Medical | $139.2 | $155.6 | $(16.4) | (10.5)% | | Industrial | $37.9 | $44.5 | $(6.6) | (14.8)% | | **Total** | **$177.1** | **$200.1** | **$(23.0)** | **(11.5)%** | Gross Profit and Margin by Segment | Segment | Q1 2021 Gross Profit (M) | Q1 2020 Gross Profit (M) | Q1 2021 Gross Margin | Q1 2020 Gross Margin | | :--- | :--- | :--- | :--- | :--- | | Medical | $44.1 | $43.8 | 31.7% | 28.1% | | Industrial | $13.1 | $17.3 | 34.6% | 38.9% | | **Total** | **$57.2** | **$61.1** | **32.3%** | **30.5%** | * Research and development expenses decreased by **23.0% to $16.7 million**, primarily due to cost actions and improved material cost management, while selling, general and administrative expenses remained relatively flat at **$34.4 million**[145](index=145&type=chunk)[146](index=146&type=chunk)[147](index=147&type=chunk) * Interest expense nearly doubled to **$10.3 million** from **$5.4 million** in the prior year, mainly due to the issuance of Convertible Notes in June 2020 and Senior Secured Notes in September 2020[148](index=148&type=chunk) * The company believes its operating cash flow, **$105.5 million** cash on hand, and availability under its **$100.0 million ABL Facility** are sufficient to meet operating needs for at least the next 12 months[151](index=151&type=chunk)[152](index=152&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces foreign currency, credit, interest rate, and commodity price risks, managing currency exposure with hedging instruments and monitoring credit risk, with minimal current interest rate risk * The company faces **foreign currency risk** due to significant international sales, which can lead to pricing pressure from a strong U.S. Dollar, partially hedged using derivatives like cross-currency swaps[168](index=168&type=chunk)[169](index=169&type=chunk) * **Interest rate risk** is related to the ABL Facility's floating rates, but there were no borrowings under this facility as of January 1, 2021[172](index=172&type=chunk) * The company is exposed to **commodity price risk** from raw materials such as tungsten, lead, and copper, but did not utilize any commodity derivative instruments during the quarter to manage this exposure[173](index=173&type=chunk) [Controls and Procedures](index=34&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were ineffective as of January 1, 2021, due to ongoing material weaknesses in internal control over financial reporting, for which remediation efforts are underway * The CEO and CFO concluded that **disclosure controls and procedures were not effective** as of January 1, 2021, due to ongoing material weaknesses in internal control over financial reporting[176](index=176&type=chunk) * Remediation efforts for previously identified material weaknesses are underway, including redesigning controls for inventory, enhancing controls over intercompany balances and journal entries, and developing a comprehensive internal finance training program[177](index=177&type=chunk)[178](index=178&type=chunk) * The material weaknesses will not be considered fully remediated until the applicable controls operate effectively for a sufficient period and are validated through testing[180](index=180&type=chunk) Part II. Other Information [Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal actions in the normal course of business but does not anticipate any material adverse effects on its operations or financial position * Varex states that it does not have any pending litigation expected to have a **material adverse effect** on its operations or financial position[182](index=182&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including the ongoing impact of COVID-19, reliance on key customers and suppliers, intense competition, regulatory changes, and material weaknesses in internal controls * The **COVID-19 pandemic** has adversely impacted operations, cash flow, and product demand, and these effects could continue[183](index=183&type=chunk)[186](index=186&type=chunk) * The company is heavily reliant on a **limited number of OEM customers**, with one customer accounting for **17% of revenue** in the quarter and the top ten customers accounting for **51%**[189](index=189&type=chunk) * Changes in **import/export regulations and tariffs**, particularly between the U.S. and China, have negatively impacted the business by increasing costs and causing some customers to reduce purchases[250](index=250&type=chunk)[251](index=251&type=chunk) * The company has identified **material weaknesses in its internal control over financial reporting**, which, if not remediated, could result in a loss of investor confidence[292](index=292&type=chunk) * Varex has **significant debt obligations** of approximately **$513.8 million** that could adversely affect its business and flexibility, including Convertible Notes and Senior Secured Notes[293](index=293&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=59&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds reported during the period * The company reported **no unregistered sales of equity securities** or use of proceeds during the quarter[329](index=329&type=chunk) [Defaults Upon Senior Securities](index=60&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities reported during the period * The company reported **no defaults upon senior securities**[330](index=330&type=chunk) [Mine Safety Disclosures](index=60&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations * Mine safety disclosures are **not applicable** to Varex[331](index=331&type=chunk) [Other Information](index=60&type=section&id=Item%205.%20Other%20Information) No other information was reported for the period * The company reported **no other information** for the quarter[332](index=332&type=chunk) [Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files * The exhibits filed with the report include **CEO and CFO certifications** (Exhibits 31.1, 31.2, 32.1, 32.2) and **interactive data files (XBRL)**[333](index=333&type=chunk)

Part I [Business](index=7&type=section&id=Item%201.%20Business) Varex manufactures X-ray imaging components for medical and industrial OEMs, with FY20 results impacted by COVID-19 and a concentrated customer base - Varex is a leading designer and manufacturer of X-ray imaging components for medical, industrial, and security applications, serving global Original Equipment Manufacturers (OEMs)[20](index=20&type=chunk) - The business is organized into two reportable segments: **Medical and Industrial**, with the Medical segment serving applications like CT and mammography, and the Industrial segment serving security and non-destructive testing markets[29](index=29&type=chunk)[30](index=30&type=chunk)[38](index=38&type=chunk) - The COVID-19 pandemic negatively impacted the business, leading to lower customer demand, supply chain disruptions, and a **$15.8 million pre-tax charge** for inventory write-downs and restructuring in Q3 2020[24](index=24&type=chunk) - The company has a high customer concentration, with the top five customers accounting for approximately **40% of total revenue** in fiscal year 2020, and Canon Medical Systems representing about **21% of total revenue**[42](index=42&type=chunk) - To mitigate the impact of US-China trade tariffs and be closer to its customer base, Varex is expanding its manufacturing capabilities and implementing local sourcing strategies in China, Germany, and the Philippines[37](index=37&type=chunk) [Risk Factors](index=26&type=section&id=Item%201A.%20Risk%20Factors) The company faces material risks from the COVID-19 pandemic, high customer concentration, significant debt, and material weaknesses in internal controls - The COVID-19 pandemic has adversely affected operations, cash flow, and financial position due to decreased product demand and disruptions in manufacturing and supply chains[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk) - Varex has a high dependency on a limited number of OEM customers, with one customer accounting for **21% of revenue** in FY2020 and the top ten accounting for **52%**[106](index=106&type=chunk)[107](index=107&type=chunk) - The company has identified **material weaknesses in its internal control** over financial reporting related to its risk assessment process, control environment, inventory, and financial reporting, which could result in a loss of investor confidence[212](index=212&type=chunk) - Significant debt obligations of approximately **$511.3 million** could adversely affect the business, and the associated credit facilities impose significant operating and financial restrictions[213](index=213&type=chunk)[219](index=219&type=chunk) - Changes in import/export regulations and tariffs, particularly between the U.S. and China, have negatively impacted the business by increasing costs and causing some customers to reduce purchases[167](index=167&type=chunk)[168](index=168&type=chunk)[170](index=170&type=chunk) [Unresolved Staff Comments](index=63&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[243](index=243&type=chunk) [Properties](index=63&type=section&id=Item%202.%20Properties) Varex's primary owned facility is in Salt Lake City, Utah, and the company owns or leases 34 other facilities globally totaling over 2 million square feet - The company's main property is an owned facility in Salt Lake City, Utah, with approximately **494,000 square feet** of space on 37 acres, used for manufacturing, administration, and R&D[244](index=244&type=chunk) - Varex owns or leases 34 other facilities globally, including primary owned sites in Las Vegas, Nevada, and Franklin Park, Illinois, and primary leased facilities in the Philippines, China, and Germany[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk) [Legal Proceedings](index=65&type=section&id=Item%203.%20Legal%20Proceedings) The company is not currently involved in any litigation expected to have a material adverse effect on its financial position or operations - Varex is subject to various claims in the normal course of business but does not believe any currently pending litigation will have a material adverse effect[247](index=247&type=chunk) [Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - Not applicable[247](index=247&type=chunk) Part II [Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=66&type=section&id=Item%205.%20Market%20for%20the%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Varex's common stock trades on NASDAQ under 'VREX', and the company has no current plans to pay cash dividends - The company's common stock is traded on the NASDAQ under the symbol **'VREX'**[249](index=249&type=chunk) - Varex has never paid cash dividends and does not plan to in the near future[249](index=249&type=chunk) [Selected Financial Data](index=67&type=section&id=Item%206.%20Selected%20Financial%20Data) The company presents five years of financial data, showing a revenue decline and a significant net loss of $57.9 million in fiscal year 2020 Five-Year Financial Summary | Fiscal Year | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $738.3M | $780.6M | $773.4M | $698.1M | $620.1M | | **Gross Profit** | $190.2M | $256.7M | $253.9M | $253.5M | $248.4M | | **Net (Loss) Earnings Attributable to Varex** | $(57.9)M | $15.5M | $27.5M | $51.6M | $68.5M | | **Diluted (Loss) Earnings Per Share** | $(1.49) | $0.40 | $0.72 | $1.36 | $1.82 | | **Total Assets** | $1,139.5M | $1,038.9M | $987.9M | $1,040.1M | $622.4M | | **Total Debt (long-term)** | $452.8M | $364.4M | $364.8M | $463.9M | $0M | Fiscal Year 2020 Quarterly Results | Quarter (FY 2020) | Q1 | Q2 | Q3 | Q4 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenues** | $200.1M | $197.0M | $171.2M | $170.0M | | **Gross Profit** | $61.1M | $57.6M | $26.3M | $45.2M | | **Net Loss Attributable to Varex** | $(1.3)M | $(1.9)M | $(28.3)M | $(26.4)M | [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=69&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) FY20 revenues decreased 5% due to COVID-19, gross margin fell to 26%, and the company reported a net loss while undertaking significant debt refinancing Results of Operations | Metric | FY 2020 | FY 2019 | % Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $738.3M | $780.6M | (5)% | | Medical Revenues | $584.5M | $596.8M | (2)% | | Industrial Revenues | $153.8M | $183.8M | (16)% | | **Gross Profit** | $190.2M | $256.7M | (26)% | | Gross Margin | 26% | 33% | -7 p.p. | | **Operating (Loss) Earnings** | $(33.7)M | $45.7M | N/A | - The decrease in gross margin was primarily due to **$22.2 million of restructuring** and product discontinuation charges, higher manufacturing costs, and an unfavorable product mix[288](index=288&type=chunk) Cash Flow Summary | Cash Flow Activity (in millions) | FY 2020 | FY 2019 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $13.2 | $71.9 | | **Net cash used in investing activities** | $(26.9) | $(93.2) | | **Net cash provided by financing activities** | $83.6 | $(0.1) | - The company significantly altered its capital structure by issuing **$200.0 million in Convertible Notes** and **$300.0 million in Senior Secured Notes**, using the proceeds to terminate and repay its previous credit agreement[304](index=304&type=chunk)[305](index=305&type=chunk) - Total order backlog decreased by **21.7%** from $265.2 million at the end of FY 2019 to **$207.6 million** at the end of FY 2020[328](index=328&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=82&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is exposed to market risks including foreign currency, credit, interest rate, and commodity price volatility, and uses derivatives to hedge - Primary market risks are identified as **foreign currency exchange rate risk**, credit and counterparty risk, interest rate risk, and commodity price risk[331](index=331&type=chunk) - The company uses foreign currency forward and option contracts to hedge against exchange rate risks associated with assets, liabilities, and net investments in foreign subsidiaries[333](index=333&type=chunk) [Financial Statements and Supplementary Data](index=83&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The report includes audited financial statements for FY2018-2020, with an unqualified opinion on financials but an adverse opinion on internal controls [Report of Independent Registered Public Accounting Firm](index=95&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor issued an unqualified opinion on financial statements but an adverse opinion on internal controls due to identified material weaknesses - The auditor, PricewaterhouseCoopers LLP, concluded that the company **did not maintain effective internal control** over financial reporting as of October 2, 2020[382](index=382&type=chunk) - **Material weaknesses** were identified in: (i) the control environment due to insufficient resources, (ii) the risk assessment process, (iii) controls for inventory accounting, and (iv) controls over the financial reporting close process[382](index=382&type=chunk)[383](index=383&type=chunk) [Consolidated Financial Statements](index=98&type=section&id=Consolidated%20Financial%20Statements) FY20 results show a net loss of $57.9 million on $738.3 million in revenue, with total assets of $1.14 billion and equity of $465.8 million Consolidated Statements of Operations | (In millions) | FY 2020 | FY 2019 | FY 2018 | | :--- | :--- | :--- | :--- | | **Revenues, net** | $738.3 | $780.6 | $773.4 | | **Gross profit** | $190.2 | $256.7 | $253.9 | | **Operating (loss) earnings** | $(33.7) | $45.7 | $44.5 | | **Net (loss) earnings attributable to Varex** | $(57.9) | $15.5 | $27.5 | Consolidated Balance Sheets | (In millions) | Oct 2, 2020 | Sep 27, 2019 | | :--- | :--- | :--- | | **Total current assets** | $522.0 | $438.4 | | **Total assets** | $1,139.5 | $1,038.9 | | **Total current liabilities** | $160.6 | $175.1 | | **Total liabilities** | $673.7 | $580.2 | | **Total stockholders' equity** | $465.8 | $448.2 | [Notes to Consolidated Financial Statements](index=104&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail the adoption of a new lease standard, a 2019 acquisition, significant 2020 debt refinancing, and an impairment charge for R&D - The company adopted the new lease standard ASC 842 in fiscal year 2020, resulting in the recognition of operating lease right-of-use assets of **$26.8 million** and lease liabilities of **$27.5 million** upon transition[471](index=471&type=chunk)[473](index=473&type=chunk) - In April 2019, Varex acquired 98.2% of Direct Conversion AB for **$69.5 million in cash**, assumption of debt, and deferred consideration, adding **$47.2 million in goodwill** and **$32.9 million in intangible assets**[490](index=490&type=chunk)[492](index=492&type=chunk) - In June 2020, the company issued **$200.0 million of 4.00% convertible senior unsecured notes** due 2025, and in September 2020, it issued **$300.0 million of 7.875% senior secured notes** due 2027[523](index=523&type=chunk)[537](index=537&type=chunk)[545](index=545&type=chunk) - Due to COVID-19 impacts, an interim impairment test was performed in Q3 2020, and while no goodwill impairment was found, a **$2.8 million impairment charge** was recorded for in-process R&D intangible assets[556](index=556&type=chunk)[558](index=558&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=83&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[340](index=340&type=chunk) [Controls and Procedures](index=83&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were not effective as of October 2, 2020 - Management concluded that disclosure controls and procedures were **not effective** as of October 2, 2020, due to material weaknesses in internal control over financial reporting[342](index=342&type=chunk) - Management's assessment concluded that internal control over financial reporting was **not effective** as of October 2, 2020[345](index=345&type=chunk) - **Material weaknesses** were identified in the Control Environment, Risk Assessment, Inventory and cost of revenues, and the Financial Reporting close process[347](index=347&type=chunk)[350](index=350&type=chunk) - The company has substantially completed remediation for material weaknesses reported in the prior fiscal year (FY 2019) related to revenue, certain inventory controls, and aspects of the financial close process[349](index=349&type=chunk)[352](index=352&type=chunk) [Other Information](index=87&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[354](index=354&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=88&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors and corporate governance is incorporated by reference from the company's 2021 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[357](index=357&type=chunk) [Executive Compensation](index=88&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2021 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[360](index=360&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=88&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section provides details on equity compensation plans, with other ownership information incorporated by reference from the 2021 proxy statement Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise (thousands) | Weighted-average exercise price | Securities remaining for future issuance (thousands) | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by security holders | 3,677 | $29.23 | 5,328 | | Equity compensation plans not approved by security holders | — | — | — | | **Total** | **3,677** | **$29.23** | **5,328** | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the definitive proxy statement[363](index=363&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=89&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the 2021 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[364](index=364&type=chunk) [Principal Accountant Fees and Services](index=89&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services is incorporated by reference from the company's 2021 proxy statement - Information required by this item is incorporated by reference from the definitive proxy statement for the 2021 Annual Meeting of Stockholders[365](index=365&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=90&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and all exhibits filed as part of the annual report - This item lists the consolidated financial statements and exhibits filed with the Form 10-K[367](index=367&type=chunk)[368](index=368&type=chunk) [Form 10-K Summary](index=92&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company reports no Form 10-K summary - None[372](index=372&type=chunk)