UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________________________________

FORM 10-Q

____________________________________________________________



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December 29, 2017~~June 30, 2023



¨☐			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

(Exact name of registrant as specified in its charter)

____________________________________________________________



Delaware									81-3434516
(State or other jurisdiction of incorporation or organization)									(I.R.S. Employer Identification Number)

1678 S. Pioneer Road, Salt Lake City, Utah									84104
(Address of principal executive offices)									(Zip Code)

(801) 972-5000

(Registrant’s telephone number, including area code)

____________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	VREX	The Nasdaq Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý ☒No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ý☒ No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

☒

Accelerated filer

☐

~~Large Accelerated filer~~

~~Accelerated filer~~

Non-Accelerated filer

☐

Smaller reporting company

o☐

Emerging growth company

x☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

x☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No ý☒

As of ~~January 31, 2018,~~July 27, 2023, there were ~~37,758,056~~40.4 million shares of the registrant’s common stock outstanding.

VAREX IMAGING CORPORATION

FORM 10-Q ~~for~~

For the Quarter Ended ~~December 29, 2017~~June 30, 2023

INDEX


Part I.			Financial Information		2

~~Part I.~~	~~Financial Information~~	2

Item 1.	Unaudited Financial Statements			2
			Condensed Consolidated Statements of ~~Earnings~~Operations		2
			Condensed Consolidated Statements of Comprehensive ~~Earnings~~Income		3
			Condensed Consolidated Balance Sheets		4
			Condensed Consolidated Statements of Stockholders' Equity		5
			Condensed Consolidated Statements of Cash Flows		57
			Notes to the Condensed Consolidated Financial Statements		68
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations		2528
Item 3.			Quantitative and Qualitative Disclosures About Market Risk		3237
Item 4.			Controls and Procedures		3238

Part II.			Other Information		3339

Item 1.			Legal Proceedings		3339
Item 1A.			Risk Factors		3339
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds		3364
Item 3.			Defaults Upon Senior Securities		3364
Item 4.			Mine Safety Disclosures		3364
Item 5.			Other Information		3364
Item 6.			Exhibits		3365

Signatures					3566

Table of Contents

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ~~EARNINGS~~OPERATIONS

(Unaudited)


	Three Months Ended							Three Months Ended				Nine Months Ended
(In millions, except per share amounts)	December 29, 2017			December 30, 2016			(In millions, except per share amounts)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Revenues	$	176.2		$	157.4
Revenues, net							Revenues, net	$	232.2	$	214.5	$	666.0	$	628.0
Cost of revenues	114.7			98.6			Cost of revenues	155.9		141.1		453.7		419.0
Gross margin	61.5			58.8
Gross profit							Gross profit	76.3		73.4		212.3		209.0
Operating expenses:							Operating expenses:
Research and development	19.7			13.3			Research and development	20.0		20.2		63.0		56.8
Selling, general and administrative	28.2			26.9			Selling, general and administrative	32.1		30.2		96.5		88.6

Total operating expenses	47.9			40.2			Total operating expenses	52.1		50.4		159.5		145.4
Operating earnings	13.6			18.6
Operating income							Operating income	24.2		23.0		52.8		63.6
Interest income	0.1			0.1			Interest income	0.9		0.1		2.1		0.2
Interest expense	(5.5		)	(0.6		)	Interest expense	(7.3)		(9.4)		(22.1)		(30.4)
Other (expense) income, net	(1.1		)	0.2
Interest and other income (expense), net	(6.5		)	(0.3		)
Earnings before taxes	7.1			18.3
(Benefit) taxes on earnings	(4.3		)	7.1
Net earnings	11.4			11.2
Less: Net earnings attributable to noncontrolling interests	0.1			0.1
Net earnings attributable to Varex	$	11.3		$	11.1
Net earnings per common share attributable to Varex
Other expense, net							Other expense, net	(0.7)		(0.2)		(2.5)		(3.0)
Interest and other expense, net							Interest and other expense, net	(7.1)		(9.5)		(22.5)		(33.2)
Income before taxes							Income before taxes	17.1		13.5		30.3		30.4
Income tax expense							Income tax expense	7.9		5.1		13.6		12.8
Net income							Net income	9.2		8.4		16.7		17.6
Less: Net income attributable to noncontrolling interests							Less: Net income attributable to noncontrolling interests	0.1		0.2		0.4		0.4
Net income attributable to Varex							Net income attributable to Varex	$	9.1	$	8.2	$	16.3	$	17.2
Net income per common share attributable to Varex							Net income per common share attributable to Varex
Basic	$	0.30		$	0.30		Basic	$	0.23	$	0.21	$	0.41	$	0.43
Diluted	$	0.30		$	0.29		Diluted	$	0.21	$	0.20	$	0.40	$	0.41
Weighted average common shares outstanding							Weighted average common shares outstanding
Basic	37.7			37.4			Basic	40.4		39.9		40.2		39.7
Diluted	38.2			37.7			Diluted	50.4		40.5		40.6		41.9

See accompanying ~~notes~~Notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~EARNINGS~~INCOME

(Unaudited)


	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)		—		—		—
Foreign currency translation adjustments	(0.4)		0.8		(0.4)		(0.9)

Total comprehensive income	8.7		8.6		16.3		16.1
Less: Comprehensive income attributable to noncontrolling interests	0.1		0.2		0.4		0.4
Comprehensive income attributable to Varex	$	8.6	$	8.4	$	15.9	$	15.7

Three Months Ended
(In millions) December 29, 2017 December 30, 2016
Net earnings $ 11.4
$ 11.2
Other comprehensive earnings, net of tax:
Unrealized gain on interest rate swap contracts, net of tax expense of $0.6 and $0 during the three months ended December 29, 2017 and December 30, 2016, respectively 1.8
—
Other comprehensive earnings, net of tax 1.8
—
Comprehensive earnings 13.2
11.2
Less: Comprehensive earnings attributable to noncontrolling interests 0.1
0.1
Comprehensive earnings attributable to Varex $ 13.1
$ 11.1

See accompanying ~~notes~~Notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In millions, except share amounts) December 29, 2017 September 29, 2017
Assets
Current assets:
Cash and cash equivalents $ 94.1
$ 83.3
Accounts receivable, net 130.0
163.6
Inventories, net 245.3
234.5
Prepaid expenses and other current assets 14.5
13.9
Total current assets 483.9
495.3
Property, plant and equipment, net 144.1
148.3
Goodwill 241.9
241.9
Intangibles assets 87.1
91.3
Investments in privately-held companies 50.3
52.3
Other assets 12.8
11.0
Total assets $ 1,020.1
$ 1,040.1
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable $ 58.3
$ 58.9
Accrued liabilities 60.5
62.4
Current maturities of long-term debt 20.0
20.0
Deferred revenues 10.0
10.5
Total current liabilities 148.8
151.8
Long-term debt 434.5
463.9
Deferred tax liabilities 20.1
29.5
Other long-term liabilities 7.8
4.7
Total liabilities 611.2
649.9
Commitments and contingencies (Note 11)
Redeemable noncontrolling interests 11.4
11.2
Equity:
Preferred stock, $.01 par value: 20,000,000 shares authorized, none issued —
—
Common stock, $.01 par value:
Authorized shares - 150,000,000
Issued shares - 37,753,118 and 37,633,747
Outstanding shares - 37,753,118 and 37,633,747 0.4
0.4
Additional paid-in capital 348.1
342.7
Accumulated other comprehensive loss 2.6
0.8
Retained earnings 46.4
35.1
Total stockholders' equity 397.5
379.0
Total liabilities, redeemable noncontrolling interests and Varex stockholders' equity $ 1,020.1
$ 1,040.1


(In millions, except share and per share amounts)	June 30, 2023		September 30, 2022
Assets
Current assets:
Cash and cash equivalents	$	118.5	$	89.4
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	163.3		173.3
Inventories	297.7		303.2
Prepaid expenses and other current assets	59.0		44.0
Total current assets	638.5		609.9
Property, plant, and equipment, net	142.0		141.3
Goodwill	289.2		284.5
Intangible assets, net	25.5		33.6
Investments in privately-held companies	46.8		46.4
Deferred tax assets	2.8		2.3
Operating lease assets	28.7		23.2
Other assets	38.2		43.2
Total assets	$	1,211.7	$	1,184.4
Liabilities and stockholders' equity
Current liabilities:
Accounts payable	$	74.6	$	78.2
Accrued liabilities and other current liabilities	67.9		81.4
Current operating lease liabilities	3.4		4.0
Current maturities of long-term debt	1.8		2.1
Deferred revenues	10.9		7.4
Total current liabilities	158.6		173.1
Long-term debt, net	441.1		412.3
Deferred tax liabilities	—		0.5
Operating lease liabilities	23.4		18.0
Other long-term liabilities	43.7		33.8
Total liabilities	666.8		637.7


Stockholders' equity:
Preferred stock, $.01 par value: 20,000,000 shares authorized, none issued	—		—
Common stock, $.01 par value: 150,000,000 shares authorized

Shares issued and outstanding: 40,387,511 and 40,085,126 at June 30, 2023 and September 30, 2022, respectively	0.4		0.4

Additional paid-in capital	444.9		469.1
Accumulated other comprehensive (loss) income	(0.3)		0.1
Retained earnings	86.5		63.8
Total Varex stockholders' equity	531.5		533.4
Noncontrolling interests	13.4		13.3
Total stockholders' equity	544.9		546.7
Total liabilities and stockholders' equity	$	1,211.7	$	1,184.4

See accompanying ~~notes~~Notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


	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.

Table of Contents

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)


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

Cumulative effect of accounting change	—	—		(34.6)		—		6.5		(28.1)		—		(28.1)
Net income	—	—		—		—		16.3		16.3		0.4		16.7

Common stock issued upon vesting of restricted shares	0.2	—		—		—		—		—		—		—
Shares withheld on vesting of restricted stock	(0.1)	—		(1.4)		—		—		(1.4)		—		(1.4)
Common stock issued under employee stock purchase plan	0.1	—		2.0		—		—		2.0		—		2.0
Share-based compensation	—	—		10.1		—		—		10.1		—		10.1







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


Other	0.1	—		(0.3)		—		(0.1)		(0.4)		(0.3)		(0.7)
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

(In millions)	Shares	Amount
October 1, 2021	39.4	$	0.4	$	449.4	$	—	$	33.5	$	483.3	$	13.2	$	496.5
Net income	—	—		—		—		17.2		17.2		0.4		17.6

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	—	—		10.7		—		—		10.7		—		10.7



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	—	—		(0.2)		—		—		(0.2)		(0.3)		(0.5)
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.

Table of Contents

VAREX IMAGING CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

Three Months Ended
(In millions) December 29, 2017 December 30, 2016
Cash flows from operating activities:
Net earnings $ 11.4

$ 11.2
Adjustments to reconcile net earnings to net cash provided by operating activities:

Share-based compensation expense 2.1

2.3
Depreciation 4.9

3.1
Amortization of intangible assets 4.2

1.3
Deferred taxes (9.9 )
5.2
Loss (income) from equity method investments 0.7

(0.1 )
Amortization of deferred loan costs 0.6
—
Other, net —

0.2
Changes in assets and liabilities:

Accounts receivable 33.6

9.9
Inventories (9.6 )
(6.7 )
Prepaid expenses and other assets —

(2.4 )
Accounts payable 1.5

(1.9 )
Accrued operating liabilities and other long-term operating liabilities 1.1

(2.4 )
Deferred revenues (0.5 )
(0.5 )
Net cash provided by operating activities 40.1

19.2
Cash flows from investing activities:

Purchases of property, plant and equipment (2.6 )
(5.0 )
Other —

0.7
Net cash used in investing activities (2.6 )
(4.3 )
Cash flows from financing activities:

Net transfers from parent —
1.8
Borrowings under credit agreements 2.0
—
Repayments of borrowing under credit agreements (32.0 ) —
Proceeds from exercise of stock options 1.8
—
Proceeds from shares issued under employee stock purchase plan 1.4
—
Net cash (used in) provided by financing activities (26.8 )
1.8
Effects of exchange rate changes on cash and cash equivalents 0.1

0.7
Net increase in cash and cash equivalents 10.8

17.4
Cash and cash equivalents at beginning of period 83.3

36.5
Cash and cash equivalents at end of period $ 94.1

$ 53.9
Supplemental cash flow information:
Cash paid for interest $ 5.0
$ —
Cash paid for income tax 0.2
—
Supplemental non-cash activities:
Purchases of property, plant and equipment financed through accounts payable $ 2.0
$ 3.6


	Nine Months Ended
(In millions)	June 30, 2023		July 1, 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:
Share-based compensation expense	10.1		10.7

Depreciation	14.2		14.3
Amortization of intangible assets	10.2		11.2
Deferred taxes	(1.1)		1.5
Loss from equity method investments	0.1		1.5

Amortization of deferred loan costs	1.9		8.1


Inventory write-down	3.8		5.3
Loss on operating lease abandonment	—		1.9

Other, net	2.2		1.7
Changes in assets and liabilities:
Accounts receivable	10.2		(1.9)
Inventories	1.7		(81.1)
Prepaid expenses and other assets	4.0		4.6
Accounts payable	(3.7)		24.8
Accrued liabilities and other current and long-term liabilities	(12.5)		(22.8)
Deferred revenues	3.5		2.4

Net cash provided by (used in) operating activities	61.3		(0.2)
Cash flows from investing activities:
Purchases of property, plant, and equipment	(15.3)		(11.5)
Loss on settlement of cash flow hedge	(0.2)		—

Proceeds from maturities of marketable debt securities	16.7		—
Purchase of marketable debt securities	(33.6)		(10.4)
Purchase of marketable equity securities	(2.7)		—

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)
Other, net	(2.2)		(0.4)
Net cash used in investing activities	(30.3)		(20.9)
Cash flows from financing activities:


Taxes related to net share settlement of equity awards	(1.4)		(2.1)


Repayments of borrowing under credit agreements	(1.7)		(29.0)


Proceeds from exercise of stock options	—		3.8

Proceeds from shares issued under employee stock purchase plan	2.0		3.6
Other, net	(0.5)		(0.3)
Net cash used in financing activities	(1.6)		(24.0)
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	29.3		(45.2)
Cash and cash equivalents and restricted cash at beginning of period	90.6		146.1
Cash and cash equivalents and restricted cash at end of period	$	119.9	$	100.9
Supplemental cash flow information:
Cash paid for interest	$	27.4	$	29.5
Income taxes paid, net of (refunds)	9.8		(0.6)
Supplemental non-cash activities:
Purchases of property, plant and equipment financed through accounts payable	$	1.3	$	1.2

See accompanying ~~notes~~Notes to the ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Table of Contents

VAREX IMAGING CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ~~DESCRIPTION~~SUMMARY OF ~~BUSINESS~~SIGNIFICANT ACCOUNTING POLICIES

Description of Business

Varex Imaging Corporation (the ~~“Company,”~~“Company” or “Varex” ~~or “Varex Imaging”~~) 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, ~~high-energy inspection accelerators,~~ image processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, ~~ionization chambers~~ and ~~buckys, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, radio therapy and computer-aided detection.~~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 ~~and industrial imaging systems,~~equipment, as well as to independent service companies and distributors, and directly to end-users for replacement purposes.

The Company also designs, ~~manufacturers,~~manufactures, sells and services industrial products, which include Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors, coolers, imaging processing software and image detection products for security and inspection purposes, such as cargo screening at ports and borders and nondestructive examination in a variety of applications. The Company generally sells security and inspection products to OEM customers who incorporate Varex’s products into their inspection ~~systems.~~or irradiation systems and processes. The Company conducts an active research and development program to focus on new technology and applications in both the medical and industrial X-ray imaging markets.

~~Varex Imaging Corporation was incorporated in Delaware on July 18, 2016 for the purpose~~

Basis of holding the assets and liabilities associated with the Company's business and separated from Varian Medical Systems, Inc. ("Varian") on January 28, 2017, upon which Varian completed the distribution of 100% of the outstanding common stock of Varex to Varian stockholders. Each Varian stockholder received 0.4 of a share of Varex common stock for every one share of Varian common stock held on the close of business on January 20, 2017. Following the separation and distribution, Varex became an independent publicly-traded company and is listed on the NASDAQ Global Select Market under the ticker “VREX.” Presentation

~~2. BASIS OF PRESENTATION AND PRINCIPLE OF CONSOLIDATION~~

The accompanying ~~condensed consolidated financial statements are unaudited. These~~unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and ~~prepared~~ in accordance with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”). for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements include all adjustments ~~consisting only of normal recurring adjustments,~~ necessary for a fair ~~statement~~presentation of the results for the interim periods. ~~Prior to the date~~The Company has consolidated all of ~~separation~~its majority owned subsidiaries and ~~distribution, the financial statements were prepared on a stand-alone basis~~entities over which it has control. All intercompany balances and ~~are derived from Varian’s consolidated financial statements and records as it operated~~transactions have been eliminated as part of ~~Varian prior to~~ the ~~distribution, in conformity with GAAP.~~consolidation.

The condensed consolidated financial statements include the accounts of the Company and certain other assets and liabilities that were historically held at the Varian corporate level but are specifically identifiable and attributable to the Company. Prior to the separation and distribution, the condensed consolidated financial statements included allocations of certain Varian corporate expenses, including costs of information technology, human resources, accounting, legal, facilities, insurance, treasury and other corporate and infrastructure services. In addition, allocated costs included research and development expenses from Varian’s scientific research facility. Prior to the separation, these costs were allocated to the Company on the basis of direct usage when identifiable or other systematic measures that reflect utilization of services provided to or benefits received by the Company. The Company considers the expense allocation methodology and results to be reasonable for all periods presented.

These condensed consolidated financial statements and the accompanying notes are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal ~~years~~year ended ~~2017, 2016 and 2015~~September 30, 2022 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on ~~December 13, 2017.~~November 18, 2022. 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.

~~3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~

Segment Reporting

The Company has two reportable operating segments; (i) Medical and (ii) Industrial, which ~~align~~aligns with how its ~~CEO, which has been identified as~~Chief Executive Officer, who is the Company's Chief Operating Decision ~~Marker, views and measures~~Maker (“CODM”), reviews the Company’s ~~business~~ performance. See Note ~~17, “Segment Information”~~15, Segment Information, for further information on the Company’s segments.

Fiscal Year

The fiscal years of the Company as reported are the 52 or 53-week period ending on the Friday nearest September 30. Fiscal year ~~2018~~2023 is the 52-week period ending September ~~28, 2018.~~29, 2023. Fiscal year ~~2017~~2022 was the 52-week period that ended on September ~~29, 2017.~~30, 2022. The ~~first~~ fiscal ~~quarter~~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.

Table of ~~2018 ended on December 29, 2017. The first fiscal quarter of 2017 ended on December 30, 2016.~~Contents

~~Variable Interest Entities~~

For entities in which the Company has variable interests, the Company focuses on identifying which entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity. If the Company is the primary beneficiary of a variable interest entity, the assets, liabilities and results of operations of the variable interest entity will be included in the Company’s condensed consolidated financial statement. During the three months ended December 29, 2017, the Company had two variable interest entities, only one of which is consolidated, because it was determined that the Company was the primary beneficiary for that entity. As of December 29, 2017, total assets and liabilities for the consolidated variable interest entity was $6.6 million and $0.1 million, respectively.

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. Actual results could differ from these estimates.

Cash and Cash Equivalents

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

~~Fair Value~~Restricted Cash

~~Fair value~~ Restricted cash primarily consists of cash collateral related to certain leases and inventory arrangements. Restricted cash is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. There is a three-level fair value hierarchy that prioritizes the inputs used to measure fair value. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

~~Level 1—Quoted prices in active markets for identical assets or liabilities.~~

~~Level 2—Observable inputs other than quoted prices~~ included in ~~Level 1, such~~other assets on the Company's Condensed Consolidated Balance Sheets. Cash and cash equivalents and restricted cash as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or, other inputs that are observable or can be corroborated by observable market data.

~~Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to~~reported within the ~~fair value~~Condensed Consolidated Statements of Cash Flows consisted of the ~~assets or liabilities.~~

~~Derivative instruments and hedging activities~~

The Company records all derivatives on the balance sheet at fair value. For a derivative such as an interest rate swap that is designated as a cash flow hedge, the effective portion of changes in the fair value of the derivative is initially reported in accumulated other comprehensive income (loss) on the consolidated balance sheet and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. To the extent the effective portion of a hedge subsequently becomes ineffective, the corresponding amount of the change in fair value of the derivative initially reported in accumulated other comprehensive income (loss) is reclassified and is recognized directly in earnings. Accordingly, on a quarterly basis, the Company assesses the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows of the derivative hedging instrument with the changes in fair value or cash flows of a hypothetical designated perfect hedged item or transaction. If the change in the actual swap is greater than the change in the hypothetical perfect swap, the difference is referred to as “ineffectiveness” and is recognized in earnings in the current period.following:


	Nine Months Ended				Nine Months Ended
	June 30, 2023				July 1, 2022
(In millions)	Beginning of Period		End of Period		Beginning of Period		End of Period
Cash and cash equivalents	$	89.4	$	118.5	$	144.6	$	99.6
Restricted cash	1.2		1.4		1.5		1.3
Total as presented in the Condensed Consolidated Statements of Cash Flows	$	90.6	$	119.9	$	146.1	$	100.9

Concentration of Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents, marketable securities, certificates of deposit, and trade accounts receivable. Cash held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. ~~The~~To date, the Company has not ~~experienced~~realized any losses on its deposits of cash and cash equivalents. The Company performs ongoing credit evaluations of its customers and, except for government tenders, group purchases, and orders with a letter of credit, its industrial customers often provide a down payment. The Company maintains an allowance for ~~doubtful accounts~~credit losses based upon the expected collectability of all accounts receivable. The Company obtains some of the components in its products from a limited group of suppliers or from a single-source supplier. ~~The Company has neither experienced nor expects any significant disruptions~~When these suppliers are unable to ~~its operations due~~meet the Company's supply needs, the Company's production is negatively impacted.

Credit is extended to ~~supplier concentration.~~

~~Inventories~~

~~Inventories are valued at the lower of cost or net realizable value. Excess and obsolete inventories are determined primarily~~customers based on future demand forecasts, and write-downs of excess and obsolete inventories are recorded as a component of cost of revenues. Cost is computed using standard cost (which approximates actual cost) on a first-in-first-out basis.

~~Property, Plant and Equipment~~

Property, plant and equipment are stated at cost, net of accumulated depreciation. Major improvements are capitalized, while repairs and maintenance are expensed as incurred. Depreciation and amortization are computed using the straight-line method over the estimated useful livesan evaluation of the ~~assets. Land~~customer’s financial condition, and collateral is not subject to depreciation, but land improvements are depreciated over fifteen years. Land leasehold rights and leasehold improvements are amortized over the lesser of their estimated useful lives or remaining lease terms. Buildings are depreciated over twenty years. Machinery and equipment are depreciated over their estimated useful lives, which range from three to seven years. Assets subject to lease are amortized over the lesser of their estimated useful lives or remaining lease terms. Estimated useful lives are periodically reviewed and, when appropriate, changes are made prospectively. Whenrequired. In certain ~~events or changes in operating conditions occur, asset lives~~circumstances, a customer may be ~~adjusted, and an impairment assessment may be performed on the recoverability~~required to prepay all or a portion of the ~~carrying amounts. When assets are retired or otherwise disposed~~contract price prior to transfer of control. During the periods presented, one of the ~~assets~~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
Canon Medical Systems Corporation	14.8	%	16.6	%	16.0%	18.0%

Canon Medical Systems Corporation accounted for 12.9% and ~~related accumulated depreciation are removed from~~10.3% of the ~~accounts.~~Company’s accounts receivable as of June 30, 2023 and September 30, 2022, respectively.

Equity Method Investments

The Company accounts for its equity investments in privately-held companies under the equity method of accounting asif the Company ~~holds at least a 20% ownership interest or~~ has the ability to exercise significant influence, but not control in these investments. The Company ~~monitors these~~records impairment losses on its equity method investments ~~for~~if an impairment exists and ~~makes appropriate reductions in carrying values if~~is deemed to be other-than-temporary, which is based on various factors, including but not limited to, the ~~Company determines that impairment charges are required based primarily on the financial condition and near-term prospects~~length of ~~these companies.~~

~~Goodwill and Intangible Assets~~

~~Goodwill is recorded when the purchase price of an acquisition exceeds~~time the fair value of the ~~net identified tangible and intangible assets acquired. Purchased intangible assets are carried at cost, net~~investment is below the carrying value, the absence of accumulated amortization, and are included in other assets in the Company's condensed consolidated balance sheets. Intangible assets with finite lives are amortized over their estimated useful lives of primarily twoan ability to ~~seven years using the straight-line method.~~

~~Impairment of Long-lived Assets, Intangible Assets and Goodwill~~

~~The Company reviews long-lived assets and identifiable intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that~~recover the carrying amount of ~~these assets may not be recoverable. The Company assesses these assets for impairment based on their estimated undiscounted future cash flows. If~~ the ~~carrying value~~investment, and the inability of the ~~assets exceeds the estimated future undiscounted cash flows, the Company recognizes~~investee to sustain an ~~impairment loss based on the excess of~~earnings capacity that would justify the carrying amount ~~over~~of the investment. There were no impairments recorded during the three and nine months ended June 30, 2023 and July 1, 2022, respectively.

Table of Contents

Marketable Securities

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

Marketable Debt Securities

The Company's marketable debt securities are classified as available-for-sale. Classification of marketable debt securities is determined at the time of purchase, and the Company reevaluates such classification as of each balance sheet date. Marketable debt securities are recorded at estimated fair value ~~of the assets. The Company did not recognize any impairment charges for long-lived~~and included in cash and cash equivalents, prepaid expenses and other current assets, and ~~identifiable intangible~~other assets ~~during any of~~within the ~~periods presented.~~

~~The Company evaluates goodwill and indefinite lived intangible assets qualitatively for impairment at least annually~~Condensed Consolidated Balance Sheets. Any unrealized gains or losses are included in ~~beginning of~~accumulated other comprehensive (loss) income within the ~~fourth quarter of each fiscal year or whenever an event occurs or circumstances change that would more likely than not reduce~~Condensed Consolidated Balance Sheets. When the fair value of a ~~reporting unit~~marketable debt security declines below its ~~carrying amount. If~~amortized cost basis, any portion of that decline attributable to credit losses, to the ~~Company determines that a quantitative analysis~~extent expected to be nonrecoverable before the sale of the security, is ~~necessary,~~recognized in the ~~impairment test for goodwill is currently a two-step process. Step one consists~~Condensed Consolidated Statements of ~~a comparison of~~Operations. When the fair value of a ~~reporting unit against~~marketable debt security declines below its ~~carrying amount, including~~amortized cost basis due to changes in interest rates, such amounts are recorded in other comprehensive (loss) income, and are recognized in the ~~goodwill allocated~~Condensed Consolidated Statements of Operations only if the Company sells or intends to ~~each reporting unit. The Company determines~~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.

Marketable Equity Securities

Marketable equity securities are stated at fair value as determined by the most recently traded price of ~~its reporting units based~~each security at the balance sheet date and included in other assets within the Condensed Consolidated Balance Sheets. All unrealized gains and losses on a combination of income and market approaches. The income approach is based on the present value of estimated future cash flows of the reporting units, and the market approach is based on a market multiple calculated for each reporting unit based on market datamarketable equity securities are recorded as part of other ~~companies engaged~~expense, net in ~~similar business. If~~ the ~~carrying amount~~Company's Condensed Consolidated Statements of the reporting unit is in excess of its fair value, step two requires the comparison of the implied fair value of the reporting unit’s goodwill against the carrying amount of the reporting unit’s goodwill. Any excess of the carrying value of the reporting unit’s goodwill over the implied fair value of the reporting unit’s goodwill is recorded as an impairment loss. The impairment testOperations. See Note 7, Fair Value, for intangible assets with indefinite useful lives, if any, consists of a comparison of fair value to carrying value, with any excess of carrying value over fair value being recorded as an impairment loss.

~~No impairment charges were recognized as a result of the change in reporting units. The Company performs its annual goodwill impairment analysis during the fourth quarter of its fiscal year.~~further details.

Loss Contingencies

From time to time, the Company is ~~a party to or otherwise~~ involved in legal proceedings, claims and government inspections or investigations, customs and duties audits, and other ~~legal~~contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts ~~to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that it believes will result in a~~for probable ~~loss.~~

~~Product Warranty~~

The Company warrants most of its products for a specific period of time, usually 12 to 24 months from delivery or acceptance, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty.

The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience as to product failures adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.

~~Revenue Recognition~~

The Company’s revenues are derived primarily from the sale of hardware and software products, and services. The Company recognizes its revenues net of any value added or sales tax and net of sales discounts.

The Company sells a high proportion of its X-ray products to a limited number of OEM customers. X-ray tubes, digital detectors and image-processing tools and security and inspection products are generally sold on a stand-alone basis. However, the Company occasionally sells its digital detectors, X-ray tubes and imaging processing tools as a package that is optimized for digital X-ray imaging and sells its Linatron^® X-ray accelerators together with its imaging processing software and image detection products to OEM customers that incorporate them into their inspection systems. Service contracts are often sold with certain security and inspection products and computer-aided detection products. Revenues related to service contracts usually start after the expiration of the warranty period for non-software products or upon delivery of software products.

For a multiple-element arrangement that includes software and non-software deliverables which includes service contracts, the Company allocates revenues among the software and non-software deliverables on a relative selling price basis. The amounts allocated to the non-software products and software are accounted for as follows:

~~Non-Software Products~~

Non-software products include hardware products, software components that function together with the hardware components to deliver the product’s essential functionality, as well as service contracts. Except as described below under “Service,” the Company recognizes revenues for non-software products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

For multiple-element revenue arrangements that involve non-software products, a delivered non-software element is considered as a separate unit of accounting when it has stand-alone value. The allocation of revenue to all deliverables based on their relative selling prices is determined at the inception of the arrangement. The selling price for each deliverable is determined using vendor-specific objective evidence (“VSOE”) of selling price, if it exists; otherwise, third-party evidence of selling price (“TPE”) is used.

If the Company is not able to establish VSOE or TPE of selling prices for its non-software products, the Company uses the deliverable's estimated selling price (“ESP”). The Company estimates selling prices following an established process that considers market conditions, including the product offerings and pricing strategies of competitors, as well as internal factors such as historical pricing practices and margin objectives. The establishment of product and service ESPs is controlled and reviewed by the appropriate level of management in all of the Company’s businesses.

The Company recognizes revenues upon the transfer of risk of loss, which is either at the time of shipment or delivery, depending upon the terms of the contract, provided that all other revenue recognition criteria have been met.

~~Software Products~~

The Company recognizes revenues for software products in accordance with the software revenue recognition guidance. The Company recognizes license revenues when all of the following criteria have been met: persuasive evidence of an arrangement exists, the vendor’s fee is fixed or determinable, collection of the related receivable is probable and delivery of the product has occurred.

Revenues earned on software arrangements involving multiple elements are allocated to each element based on VSOE of fair value, which is based on the price charged when the same element is sold separately. In instances when evidence of VSOE of fair value of all undelivered elements exists, but evidence does not exist for one or more delivered elements, revenues are recognized using the residual method. Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is recognized as revenue. Revenue allocated to maintenance and support is recognized ratably over the maintenance term (typically one year).

For those software products that are not sold stand-alone or for which VSOE cannot be established or maintained, all software revenue under the contract will be deferred until the software product(s) that lack VSOE are all delivered. If the only undelivered software element that lacks VSOE is maintenance and support, then the software revenue would be recognized ratably over the term of the maintenance and support arrangement.

The Company recognizes revenues upon the transfer of risk of loss, which is either at the time of shipment or delivery, depending upon the shipping terms of the contract, provided that all other criteria for revenue recognition have been met.

~~Service~~

Service revenues include revenues from hardware and software service contracts, bundled support arrangements, paid services and trainings and parts that are sold by the service department. Revenues allocated to service contracts are recognized ratably over the period of performance of the related contracts. Revenues related to services performed on a time-and-materials basis are recognized when they are earned and billable.

~~Deferred Revenues~~

Deferred revenue primarily represents (i) the amount billed, billable or received applicable to non-software products for which parts and services under the warranty contracts have not been delivered, (ii) the amount billed, billable or received applicable to software products for which the Company’s obligations under the maintenance contracts have not been fulfilled and (iii) the amount billed, billable or received for service contracts for which the services have not been rendered. Except for government tenders, group purchases and orders with letters of credit, the Company's security and inspection customers often provide a down payment prior to transfer of risk of loss of ordered products. These payments are also included in deferred revenue on the condensed consolidated balance sheets.

~~Share-Based Compensation Expense~~

The Company has an equity-based incentive plan that provides for the grant of nonqualified stock options and restricted stock units to directors, officers and other employees. The Company also permits employees to purchase shares under the Varex employee stock purchase plan. Prior to the separation, the Company’s employees historically participated in Varian’s equity-based incentive plans. Share-based compensation expense through the date of separation included allocations to the Company based on the awards and terms previously granted to its employees as well as an allocation of Varian’s corporate and shared functional employee expenses.

The Company values stock options granted and the option component of the shares of common stock purchased under the equity-based incentive plans and stock purchased under the employee stock purchase plan using the Black-Scholes option-pricing model. Share-based compensation expense for restricted stock units is measured using the fair value of the Company’s stock on the date of grant and is amortized over the award’s respective service period. The Black-Scholes option-pricing model requires the input of certain assumptions, and changes in the assumptions can materially affect the fair value estimates of share-based payment awards.

The Company measures and recognizes expense for all share-based payment awards based on their fair values. Share-based compensation expense recognized in the condensed consolidated statements of earnings includes compensation expense for the share-based payment awards based on the grant date fair value estimated in accordance with the guidance on share-based compensation. Share-based compensation expense recognized is based on the value of the portion of share-based payment awards that is ultimately expected to vest. The Company attributes the value of share-based compensation to expense using the straight-line method. The Company considers only the direct tax impacts of share-based compensation awards when calculating the amount of tax windfalls or shortfalls.

~~Shipping and Handling Costs~~

~~Shipping and handling costs are included as a component of cost of revenues.~~

~~Research and Development~~

~~Research and development costs have been expensed as incurred. These costs primarily include employees’ compensation, consulting fees and material costs.~~

~~Software Development Costs~~

Costs for the development of new software products and substantial enhancements to existing software products are expensed as incurred until technological feasibility has been established, at which time any additional costs would be capitalized. No costs associated with the development of software have been capitalized, as the Company believes its current software development process is essentially completed concurrent with the establishment of technological feasibility.

~~Taxes on Earnings~~

~~Taxes on earnings, as presented, are calculated in accordance with ASC 740,~~ ~~Accounting for Income Taxes.~~ Under this guidance, each interim reporting period is considered integral to the annual period and tax expense is calculated using an estimated annual effective tax rate. The Company records tax expense each quarter based on its effective tax rate estimated for the full fiscal year and uses that rate to provide for income taxes on a current year-to-date basis, adjusted for discrete taxable events that occur during the interim period.

On December 22, 2017, the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The Tax Reform Act significantly revised the U.S. corporate income tax structure by, among other things, lowering the U.S. corporate income tax rate, repealing certain deductions, and changing the way foreign earnings are taxed. U.S. GAAP requires that the impact of tax legislation be recognized in the period in which the law is enacted. As such, the Company’s estimated annual effective tax rate for the current fiscal year includes the impact of the reduction of the U.S. statutory corporate income tax rate from 35% to 21% beginning January 1, 2018. As a September fiscal year end filer, the lower corporate income tax rate will be phased in resulting in a U.S. statutory federal rate of 24.5% for the fiscal year ending September 28, 2018. This phased in rate has been included in the estimated annual effective rate for the quarter. The current year-to-date income tax expense for the quarter also includes adjustments for other Tax Reform Act components that are discrete during the interim period as required by ASC 740. These include one-time adjustments for a tax on the deemed repatriation of foreign earnings and the revaluation of net deferred taxes.

Certain other provisions included in the Tax Reform Act have later effective dates for fiscal year filers and may have an impact on the Company’s future effective tax rate. These include changes in the U.S. taxation of foreign earnings intended to reduce U.S. tax base erosion and the deferral of tax on foreign earnings. The changes included in the Tax Reform Act are broad, complex, and subject to interpretation. The SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) that allows for reasonable estimated impacts to be recorded and a measurement period of up to one year from the date of enactment to revise these provisional amounts as new information is obtained and additional guidance is issued by various regulatory bodies. The amounts included in the current quarter represent provisional reasonable estimates and are anticipated to be finalized in subsequent periods but no later than December 22, 2018.

Significant judgments and estimates are required in evaluating the Company’s tax positions and provision for taxes on earnings. The Company accounts for uncertainty in income taxes following a two-step approach for recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining whether the weight of available evidence indicates that it is more likely than not that, based on the technical merits, the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement. Recognition and measurement are based on management’s best judgment given the facts, circumstances and information available at the end of the accounting period.

The Company is subject to taxes on earnings in both the United States and numerous foreign jurisdictions. Foreign earnings are generally taxed at rates that differ from the United States rates, earnings in certain foreign jurisdictions are currently subject to tax in the United States, and the benefit of losses, generated in some other foreign jurisdictions is reduced due to full valuation allowance positions in those jurisdictions. Our effective tax rate is impacted by these factors as well as existing laws in both the United States and in the respective countries in which foreign subsidiaries do business. In addition, a change in the mix of earnings and losses among the various jurisdictions could increase or decrease our effective tax rate.

~~Foreign Currency Translation~~

The Company uses the U.S. Dollar as the functional currency of its foreign operations. Gains and losses from remeasurement of foreign currency balances into U.S. Dollars are included in the condensed consolidated statements of earnings.

~~Recent Accounting Standards or Updates Not Yet Effective~~

In August 2017, the FASB issued Accounting Standard Update ("ASU") 2017-12 which targets improvements to accounting for hedging activities which amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09 which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The guidance is effective for the Company beginning in the first quarter of fiscal year 2019. Early adoption is permitted. The Company does not expect that the adoption of this guidance will have a material impact on its consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07 which amended its guidance on the accounting related to defined benefit plans and other post-retirement benefits. This amendment requires the service cost component of net periodic pension and post-retirement benefit cost be presented in the same line item as other employee compensation costs, while the other components be presented separately as non-operating income (expense). The amendment will be effective for the Company beginning in its first quarter of fiscal year 2019. Early adoption is permitted. The Company is evaluating the impact of adopting this amendment to its consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04 which clarified its guidance to simplify the measurement of goodwill by eliminating the Step 2 impairment test. The new guidance requires companies to perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendment will be effective for the Company beginning in its first quarter of fiscal year 2021. The amendment is required to be adopted prospectively. Early adoption is permitted. The Company is evaluating the impact of adopting this amendment to its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02 on accounting for leases. The new standard is intended to provide enhanced transparency and comparability by requiring lessees to record right-of-use assets and corresponding lease liabilities on the balance sheet. The new standard will continue to classify leases as either finance or operating, with classification affecting the pattern of expense recognition in the statement of earnings. The new standard is required to be adopted using a modified retrospective method to each prior reporting period presented with various optional practical expedients. The new standard will be effective for the Company beginning in its first quarter of fiscal year 2020 with early adoption permitted. The Company is evaluating the impact of adopting this new standard to its consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, a new revenue standard, which sets forth a single, comprehensive revenue recognition model for all contracts with customers to improve comparability. The new standard requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In March 2016, the FASB amended the principal-versus-agent implementation guidance and illustrations in the new standard. In April 2016, the FASB amended the guidance on identifying performance obligations and the implementation guidance on licensing in the new standard. In May 2016, the FASB amended the guidance on collectability, noncash consideration, presentation of sales tax and transition in the new standard. The new standard will be effective for the Company beginning in its first quarter of fiscal year 2019, with early adoption permitted. The new standard can be applied either retrospectively to each prior reporting period presented (i.e., full retrospective adoption) or with the cumulative effect of initially applying the update recognized at the date of the initial application (i.e., modified retrospective adoption) along with additional disclosures. The Company is evaluating the timing and the impact of adopting this standard to its consolidated financial statements.

~~Accounting Standards Recently Adopted~~

In March 2016, the FASB issued ASU 2016-09 which includes an amendment to its accounting guidance related to employee share-based payments. The amendment simplifies several aspects of the accounting for employee share-based payments, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company retrospectively adopted this amendment in the first quarter of fiscal year 2018, resulting in an immaterial change on the Condensed Consolidated Balance Sheets.

~~4. BUSINESS COMBINATIONS~~

~~Acquisition of PerkinElmer’s Medical Imaging Business~~

On May 1, 2017, the Company completed the acquisition of the Medical Imaging business of PerkinElmer, Inc. (“Acquired Detector Business”) for $273.3 million after post-closing working capital adjustments. The acquisition consisted of PerkinElmer Medical Holdings, Inc. and Dexela Limited, together with certain assets of PKI and its direct and indirect subsidiaries relating to digital flat panel X-ray detectors that serve as components for industrial, medical, dental and veterinary X-ray imaging systems. PKI Imaging has about 280 employees, is headquartered in Santa Clara, California and has additional operations in Germany, the Netherlands and the United Kingdom. The acquisition of PKI Imaging was pursuant to the Master Purchase and Sale Agreement, dated December 21, 2016 (the “Purchase Agreement”), by and between PKI and Varian and the subsequent Assignment and

Assumption Agreement, dated January 27, 2017, by and between Varian and Varex, pursuant to which Varian assigned and conveyed all of its rights, obligations, title and interest in the Purchase Agreement to Varex.

~~Unaudited Pro Forma Information~~

The unaudited pro-forma amounts presented below for the first quarter of fiscal year 2017 is presented for informational purposes only. In addition to the Company's results for the periods presented, the amounts below also include effects of the Acquired Detector Business as if it had been consummated on October 1, 2016. Audited results for the Acquired Detector Business for the fiscal years ended 2016 and 2015, are noted in the Company’s Form 8-K/A filed with the SEC on July 7, 2017. These unaudited pro-forma results include effects that are directly attributable to the acquisition which include the amortization of intangible assets, interest expense, and other adjustments, including estimated tax effects. The unaudited pro-forma results do not reflect any operating efficiencies or potential cost savings which may result from the consolidation of the Acquired Detector Business and are not necessarily indicative of what the actual results of operations of the combined company would have been if the acquisition had occurred at the beginning of the period presented nor are they indicative of future results of operations or results that might have been achieved had the acquisition been consummated as of October 1, 2016.

Three Months Ended
(In millions) December 30, 2016
Revenue $ 193.5
Operating earnings $ 18.9
Net earnings $ 9.2
Net earnings per share, basic $ 0.24
Net earnings per share, diluted $ 0.24

~~5. RELATED-PARTY TRANSACTIONS~~

~~Transactions with Varian Medical Systems, Inc.~~

During the three months ended December 29, 2017 and December 30, 2016, the Company recorded sales to Varian of $3.0 million and $5.4 million, respectively, and recorded purchases of products from Varian of $0.4 million and $0.4 million, respectively.

~~Allocated Costs~~

Prior to the separation on January 28, 2017, the condensed consolidated financial statements included allocations of corporate expenses from Varian to the Company. These allocated expenses included costs of information technology, human resources, accounting, legal, facilities, insurance, treasury and other corporate and infrastructure services. These costs were allocated to the Company on the basis of direct usage when identifiable or other systematic measures that reflect utilization of services provided to or benefits received by the Company.

~~Allocated costs included in the accompanying condensed consolidated statements of earnings are as follows:~~

Three Months Ended
(In millions) December 30, 2016
Selling, general and administrative $ 11.9
Interest expense, net of interest income 0.5

~~Equity Method Investment~~

The Company has a 40% ownership interest in dpiX Holding LLC (“dpiX Holding”), a four-member consortium that has a 100% ownership interest in dpiX LLC (“dpiX”), a supplier of amorphous silicon based thin film transistor arrays for digital flat panel image detectors. In accordance with the dpiX Holding Agreement, net profits or losses are allocated to the members, in accordance with their ownership interests.

The equity 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 December 29, 2017 and December 30, 2016, the Company recorded (loss) and income on the equity investment in dpiX Holding of $(0.7) million and $0.3 million, respectively. Income and loss on the equity investment in dpiX Holding is included in other income (expense), net in the condensed consolidated statements of earnings. The carrying value of the equity investment in dpiX Holding, which was included in investments in privately-held companies on the condensed consolidated balance sheets, was $47.8 million and $50.0 million at December 29, 2017 and September 29, 2017, respectively.

During the three months ended December 29, 2017 and December 30, 2016, the Company purchased glass transistor arrays from dpiX totaling $6.6 million and $8.4 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—product in the condensed consolidated statements of earnings for these fiscal years.

~~As of December 29, 2017 and September 29, 2017, the Company had accounts payable to dpiX totaling $3.3 million and $3.4 million, respectively.~~

In October 2013, the Company entered into an amended agreement with dpiX and other parties that, among other things, provides the Company with the right to 50% of dpiX’s total manufacturing capacity produced after January 1, 2014. The amended agreement requires the Company to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year. As of December 29, 2017, the Company did not yet have a fixed cost commitment related to this credit agreement. In January 2018, the fixed cost commitment was determined and approved by the dpiX board of directors to be $16.3 million for calendar year 2018. The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

The Company has determined that dpiX is a variable interest entity because at-risk equity holders, as a group, lack the characteristics of a controlling financial interest. Majority votes are required to direct the manufacturing activities, legal operations and other activities that most significantly affect dpiX’s economic performance. The Company does not have majority voting rights and no power to direct the activities of dpiX and therefore is not the primary beneficiary of dpiX. The Company’s exposure to loss as a result of its involvement with dpiX is limited to the carrying value of the Company’s investment and fixed cost commitments.

~~6. CONCENTRATION OF CREDIT RISK~~

Credit is extended to customers based on an evaluation of the customer’s financial condition, and collateral is not required. During the periods presented, one customer accounted for a significant portion of revenues, which are as follows:

Three Months Ended

December 29, 2017 December 30, 2016
Revenues to Toshiba Medical Systems 21.3 %
24.1 %

~~Toshiba Medical Systems accounted for 12.0% and 9.0% of the Company’s accounts receivable as of December 29, 2017 and September 29, 2017, respectively.~~

~~7. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES~~

As part of the Company’s overall risk management practices, the Company enters into financial derivatives, which include interest rate swaps designed as cash flow hedges, to hedge the LIBOR-based, floating interest rate on its debt.

The Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

The effective portion of the gain or loss on derivative instruments designated and qualifying for cash flow hedge accounting is deferred in other comprehensive income. Any ineffectiveness in these designated hedging relationships is recognized in current period earnings. The changes in fair value for all trades that are not designated for hedge accounting are recognized in current period

earnings. Deferred gains or losses from designated cash flow hedges are reclassified into earnings in the period that the hedged interest expense effect earnings. The effectiveness of cash flow hedges is assessed at inception and quarterly thereafter. If the instrument were to no longer qualify for hedge accounting due to it becoming probable that the originally-forecasted hedged transactions will not occur, then hedge accounting would cease and the related change in fair value of the ineffective portion of the derivative instrument would be reclassified from accumulated other comprehensive income (loss) and recognized in earnings. The Company does not offset fair value amounts recognized for derivative instruments in its balance sheet for presentation purposes.

Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts. Therefore, the Company’s exposure to the counterparty’s credit risk is generally limited to the amounts, if any, by which the counterparty’s obligations to the Company exceed the Company’s obligations to the counterparty. The Company’s policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings to help mitigate counterparty credit risk.

~~Derivatives Designated as Hedging Instruments - Cash Flow Hedges~~

The Company uses interest rate swap contracts as cash flow hedges to manage its exposure to fluctuations in LIBOR interest rates. Interest rate swap contracts hedging variable rate debt effectively fix the LIBOR component of its interest rate for a specific period of time.

The effective portion of changes in the fair value of derivatives designated and qualifying as cash flow hedges is deferred as a component of accumulated other comprehensive income in the accompanying consolidated balance sheets and is subsequently reclassified into earnings in the period that the hedged interest expense effects earnings. The ineffective portion of the changes in fair value of derivatives designated as cash flow hedges are recognized directly to earnings and reflected in the accompanying condensed consolidated statements of earnings. No ineffectiveness was reported in earnings for the period ending December 29, 2017.

~~As of December 29, 2017, the Company had the following outstanding derivatives designated as hedging instruments:~~

(In millions, except for number of instruments) Number of Instruments Notional Value
Interest Rate Swap Contracts 6
$ 288.8

~~These contracts have maturities of four years or less.~~

The following table summarizes the amount of 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 cash flow hedges:

Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Three months ended Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Three months ended Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)
Three months ended
(In millions) 2017 2016 2017 2016 2017 2016
Interest Rate Swap Contracts $ 2.1
$ —
Interest expense $ (0.3 ) $ —
Interest expense $ —
$ —

The Company expects that approximately $(1.0) million recorded as a component of accumulated other comprehensive income (loss) will be realized in the statements of earnings over the next 12 months and the amount will vary depending on interest rates.

These derivative instruments are subject to master netting agreements giving effect to rights of offset with each counterparty. The following table summarizes the fair values of derivative instruments as of the periods indicated and the line items in the

~~accompanying consolidated balance sheets where the instruments are recorded:~~

Derivative Assets Derivative Liabilities
(In millions) December 29, 2017 September 29, 2017 December 29, 2017 September 29, 2017
Derivatives designated as cash flow hedges Balance sheet location Balance sheet location
Interest rate swap contracts Other non-current assets $ 3.1
$ 1.6
Other non-current liabilities $ —
$ —
Interest rate swap contracts Other current assets 0.2
—
Other current liabilities —
(0.6 )
$ 3.3
$ 1.6
$ —
$ (0.6 )

~~8. FAIR VALUE~~

~~Assets/Liabilities Measured at Fair Value on a Recurring Basis~~

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.

(In millions) Fair Value Measurements at December 29, 2017

Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Assets:
Cash equivalents - Money market funds $ —
$ 15.3
$ —
$ 15.3
Interest rate swap contracts —
3.3
—
3.3
Total assets measured at fair value $ —
$ 18.6
$ —
$ 18.6

As of December 29, 2017, the outstanding borrowings under the Company's credit agreement were $454.5 million, net of deferred loan costs, which approximated its fair value. The fair values of certain of the Company’s financial instruments, including bank deposits included in cash and cash equivalents, accounts receivable and accounts payable, also approximate their fair values due to their short maturities. There were no financial assets or liabilities measured on a recurring basis using significant unobservable inputs (Level 3) and there were no transfers in or out of Level 1, 2 or 3 during the three months ended December 29, 2017.

~~At September 29, 2017, the Company determined the following levels of inputs at fair value for following assets or liabilities:~~

(In millions) Fair Value Measurements at September 29, 2017
Quoted Prices in Active Markets for Identical Assets and Liabilities
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total
Assets:
Cash equivalents - Money market funds $ —
$ 11.4
$ —
$ 11.4
Interest rate swap contracts —
1.6
—
1.6
Total assets measured at fair value $ —
$ 13.0
$ —
$ 13.0

Liabilities:
Interest rate swap contracts $ —
$ 0.6
$ —
$ 0.6

~~9. INVENTORY, NET~~

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

(In millions) December 29, 2017 September 29, 2017
Raw materials and parts, net $ 169.6

$ 164.5
Work-in-process, net 27.1

20.3
Finished goods, net 48.6

49.7
Total inventories, net $ 245.3

$ 234.5

~~10. GOODWILL AND INTANGIBLE ASSETS~~

~~The following table reflects goodwill by reportable operating segment:~~

(In millions) Medical
Industrial
Total
Balance at September 29, 2017 $ 146.9
$ 95.0
$ 241.9
Balance at December 29, 2017 $ 146.9
$ 95.0
$ 241.9

~~There were no additions to goodwill or impairment charges against goodwill during the three months ended December 29, 2017 and December 30, 2016.~~

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:

(In millions) December 29, 2017 September 29, 2017
Acquired existing technology $ 57.0
$ 57.0
Patents, licenses and other 19.4
19.4
Customer contracts and supplier relationship 42.1
42.1
Accumulated amortization (35.4 ) (31.2 )
Total intangible assets with finite lives 83.1
87.3
In-process research and development with indefinite lives 4.0
4.0
Total intangible assets $ 87.1
$ 91.3

~~Amortization expense for intangible assets was $4.2 million and $1.3 million for the three months ended December 29, 2017 and December 30, 2016, respectively.~~

~~11. COMMITMENTS AND CONTINGENCIES~~

~~Product Warranty~~

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

(In millions) Warranty Allowance
Accrued product warranty, September 29, 2017 $ 7.0
Charged to cost of revenues 3.4
Product warranty expenditures (2.8 )
Accrued product warranty, December 29, 2017 $ 7.6

~~Other Commitments~~

~~See Note 5, “Related Party Transactions” for additional information about the Company’s commitments to dpiX.~~

~~See Note 13, “Noncontrolling Interests” for additional information about the Company’s commitment to the noncontrolling shareholders of MeVis.~~

~~Contingencies~~

From time to time, the Company is a party to or otherwise involved in legal proceedings, claims and government inspections or investigations and other legal matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss (including, among other things, probable settlement value). A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the amount of a loss, when material, will exceed the recorded provision. 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.

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. 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). As of September 30, 2022, our estimated liability for these sites was $1.1 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.

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Product Warranty

The Company ~~did~~warrants most of its products for a specific period of time, usually 12 to 24 months from delivery or acceptance, against material defects. The Company provides for the estimated future costs of warranty obligations in cost of revenues when the related revenues are recognized. The accrued warranty costs represent the best estimate at the time of sale of the total costs that the Company will incur to repair or replace product parts that fail while still under warranty.

The amount of the accrued estimated warranty costs obligation for established products is primarily based on historical experience of product failures, adjusted for current information on repair costs. For new products, estimates include the historical experience of similar products, as well as a reasonable allowance for warranty expenses associated with new products. On a quarterly basis, the Company reviews the accrued warranty costs and updates the historical warranty cost trends, if required.

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


	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022
Accrued product warranty, at beginning of period	$	7.9	$	8.5
New accruals charged to cost of revenues	9.3		7.5
Product warranty expenditures	(9.3)		(8.5)
Accrued product warranty, at end of period	$	7.9	$	7.5

Leases

The Company determines if an arrangement is or contains a lease at the inception of an arrangement. The Company's operating lease right-of-use ("ROU") assets represent the right to use an underlying asset over the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. ROU assets may also include initial direct costs incurred and prepaid lease payments, less lease incentives. Lease liabilities and their corresponding ROU assets are recognized based on the present value of lease payments over the lease term, discounted using the Company's incremental borrowing rate. The Company recognizes operating leases with lease terms of more than twelve months in operating lease assets, current operating lease liabilities, and operating lease liabilities on its Condensed Consolidated Balance Sheets. The Company recognizes finance leases with lease terms of more than twelve months in property, plant, and equipment, net, accrued liabilities and other current liabilities, and other long-term liabilities on its Condensed Consolidated Balance Sheets. For purposes of calculating lease liabilities and the corresponding ROU assets, the Company's lease term may include options to extend or terminate the lease when it is reasonably certain that it will exercise that option.

Revenue Recognition

The Company’s revenues are derived primarily from the sale of hardware and services. The Company recognizes its revenues net of any value-added or sales tax and net of sales discounts.

The Company sells a high proportion of its X-ray products to a limited number of OEM customers. X-ray imaging components including X-ray tubes, digital detectors and image-processing tools and security and inspection products are generally sold on a stand-alone basis. However, the Company occasionally sells its digital detectors, X-ray tubes and imaging processing tools as a package that is optimized for digital X-ray imaging and sells its Linatron® X-ray linear accelerators together with its image processing software and image detection products to OEM customers that incorporate them into their inspection or irradiation systems and processes. Service contracts are often sold with certain security and inspection products and computer-aided detection products.

The Company determines revenue recognition through the following steps:

•Identification of the contract, or contracts, with a customer

•Identification of the performance obligations in the contract

•Determination of the transaction price

•Allocation of the transaction price to the performance obligations in the contract

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

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Contracts and Performance Obligations

The Company accounts for a contract with a customer when there is an approval and commitment from both parties, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collectability of the consideration is probable. The Company's performance obligations consist mainly of transferring control of products and services identified in the contracts or purchase orders. For each contract, the Company considers the obligation to transfer products and services to the customer, which are distinct, to be performance obligations.

Transaction Price and Allocation to Performance Obligations

Transaction prices of products or services are typically based on contracted rates. To the extent that the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing the expected value method when there is a large number of transactions with similar characteristics or the most likely amount method when there are two possible outcomes, depending on the circumstances of the transaction, to which the Company expects to be entitled. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of the Company’s anticipated performance and all information (historical, current, and forecasted) that is reasonably available.

The Company allows customers to return specific parts of purchased X-ray tubes for a partial refund credit, which is identified as variable consideration. For sales with a right of return, revenue is reduced and a liability is recorded for expected returns, and an asset is recorded for the right to recover products from customers on settling the liability. The Company recognizes a reduction to revenue and cost of sales at the time of sale and a corresponding refund liability and right of return asset. The Company records this estimate based on the historical volume of product returns and adjusts the estimate on a quarterly basis based on the current quarter sales and current quarter returns.

If a contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of the promised products or services underlying each performance obligation. The Company determines standalone selling prices based on the price at which the performance obligation could be sold separately.

Recognition of Revenue

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised products or services is transferred to customers. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring products or services to a customer.

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

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

Disaggregation of Revenue

Revenue is disaggregated from contracts between geography and by reportable operating segment, which the Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors. Refer to Note 15, Segment Information, included in this report, for the disaggregation of the Company’s revenue based on reportable operating segments and Note 2, Revenue Recognition, for the disaggregation of revenue by geographic region.

Contract Balances

Contract liabilities are included within the deferred revenues, and other long-term liabilities balances in the Condensed Consolidated Balance Sheets. The Company does not have any ~~contingent~~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. The Company's deferred revenue balance primarily relates to contract advances and billings for warranty contracts.

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

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Costs to Obtain or Fulfill a Customer Contract

The Company has certain costs to obtain and fulfill a customer contract, such as commissions and shipping costs. 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. The Company accounts for shipping and handling activities related to contracts with customers as costs to fulfill the promise to transfer the associated products. These costs are included as a component of cost of revenues.

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. 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.

2. REVENUE RECOGNITION

Disaggregation of Revenue

Revenue is disaggregated from contracts by geographic region and by reportable operating segment, which the Company believes best depicts how the nature, amount, timing, and uncertainty of revenues and cash flows are affected by economic factors.

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
Americas	$	73.4	$	63.9	$	207.7	$	192.8
EMEA	77.2		70.2		212.5		207.2
APAC	81.6		80.4		245.8		228.0
	$	232.2	$	214.5	$	666.0	$	628.0

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.

Our products are sold in three geographic regions: the Americas, EMEA, and APAC. The Americas includes North America (primarily the United States) and Latin America. EMEA includes Europe, the Middle East, India and Africa. APAC includes Asia (other than India) and Australia. Revenues by region are based on the known final destination of products sold.

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

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Right of Return Assets and Refund Liabilities

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


	Right of Return Assets
	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022
Balance at beginning of period	$	25.4	$	24.3
Costs recovered from product returns during the period	(3.9)		(4.2)
Right of return assets from shipments of products, subject to return during the period	5.0		5.5
Adjustment for actual vs. reserved product returns	(0.7)		(0.4)
Balance at end of period	$	25.8	$	25.2


	Refund Liabilities
	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022
Balance at beginning of period	$	28.2	$	27.0
Release of refund liability included in beginning of year refund liability	(4.4)		(4.6)
Additions to refund liabilities	5.6		6.1
Adjustment for actual vs. reserved product returns	(0.7)		(0.5)
Balance at end of period	$	28.7	$	28.0

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.

3. LEASES

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
Assets
Operating lease right-of-use assets	Operating lease assets	$	28.7	$	23.2
Finance lease right-of-use assets	Property, plant, and equipment, net	0.2		0.3
Liabilities
Operating lease liabilities (current)	Current operating lease liabilities	3.4		4.0
Finance lease liabilities (current)	Accrued liabilities and other current liabilities	0.1		0.2
Operating lease liabilities (non-current)	Operating lease liabilities	23.4		18.0
Finance lease liabilities (non-current)	Other long-term liabilities	$	0.1	$	0.1

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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
Total operating lease costs(1)	$	1.4	$	1.5	$	4.2	$	4.9

Total finance lease costs	$	0.1	$	0.1	$	0.2	$	0.2

Operating cash flows from operating leases	$	2.6	$	1.9	$	7.7	$	5.5
Financing cash flows from finance leases	0.1		0.1		0.2		0.2
Total cash paid for amounts included in the measurement of lease liabilities	$	2.7	$	2.0	$	7.9	$	5.7

Noncash operating right-of-use assets obtained in exchange for new lease liabilities	$	6.9	$	2.3	$	9.2	$	5.3
Noncash finance right-of-use assets obtained in exchange for new lease liabilities	—		0.1		—		0.1
Total right-of-use assets obtained in exchange for new lease liabilities	$	6.9	$	2.4	$	9.2	$	5.4

(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.

4. RELATED-PARTY TRANSACTIONS

Investments in Privately-Held Companies

The Company has a 40% ownership interest in dpiX Holding LLC (“dpiX Holding”), a holding company that has a 100% ownership interest in dpiX LLC (“dpiX”), a supplier of amorphous silicon-based thin film transistor arrays for flat panels used in the Company's digital image detectors. In accordance with the dpiX Holding operating agreement, net profits or losses are allocated to the members in accordance with their ownership interests.

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. 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.

In October 2013, the Company entered into an amended agreement with dpiX and other parties that, among other things, provides it with the right to 50% of dpiX’s total manufacturing capacity. In addition, the Company is required to pay for 50% of dpiX's fixed costs, as determined at the beginning of each calendar year. In January 2023, the Company's fixed cost commitment was determined and approved by the dpiX board of directors to be $13.1 million for calendar year 2023. 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 dpiX Holding is a variable interest entity because the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest. Majority votes are required to direct the manufacturing activities, legal operations and other activities that most significantly affect dpiX’s economic performance. The Company does not have majority voting rights and no power to unilaterally direct the activities of dpiX Holding, and therefore, is not the primary beneficiary of dpiX Holding. The Company’s exposure to loss as a result of its involvement with dpiX Holding is limited to the carrying value of the Company’s investment of $44.0 million and fixed cost commitments.

In November 2018, the Company (through one of its wholly-owned subsidiaries) and CETTEEN GmbH (“CETTEEN”), formed a German limited liability company that governs the affairs and conduct of the business of VEC Imaging GmbH & Co. KG (“VEC”), a joint venture formed to develop technology for use in X-ray imaging components. In accordance with the VEC agreement, net profits or losses are allocated to the members in accordance with their ownership interest. The Company's investment in VEC is accounted for under the equity method of accounting. 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.

5. 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 ~~29, 2017~~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

6. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

As part of the Company’s overall risk management practices, the Company enters into financial derivatives to manage its financial exposures to foreign currency exchange rates and interest rates.

The Company records all derivatives on the Condensed Consolidated Balance Sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. A qualitative assessment of hedge effectiveness is performed on a quarterly basis, unless facts and circumstances indicate the hedge may no longer be highly effective, in which case the Company would test for effectiveness on a more frequent basis. The changes in fair value for all trades that are not designated for hedge accounting are recognized in current period income. The Company does not offset fair value amounts recognized for derivative instruments in its Condensed Consolidated Balance Sheets for presentation purposes.

Credit risk related to derivative transactions reflects the risk that a party to the transaction could fail to meet its obligation under the derivative contracts. Therefore, the Company’s exposure to the counterparty’s credit risk is generally limited to the amounts, if any, by which the counterparty’s obligations to the Company exceed the Company’s obligations to the counterparty. The Company’s policy is to enter into contracts only with financial institutions that meet certain minimum credit ratings to help mitigate counterparty credit risk.

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Derivatives Designated as Hedging Instruments - Net Investment Hedges

The Company uses cross currency swap contracts as net investment hedges to manage its risk of variability in foreign currency-denominated net investments in 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:


(In millions, except number of instruments)	Number of Instruments	Notional Value
Cross currency swap contracts	2	$	58.7

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 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
Cross currency swap contracts	$	(5.6)	$	5.0	Interest expense	$	0.7	$	0.9

These derivative instruments are subject to master netting agreements giving effect to rights of offset with each counterparty. None of the balances were eligible for netting. The following table summarizes the gross fair values of derivative instruments as of the periods indicated and the line items in the accompanying Condensed Consolidated Balance Sheets where the instruments are recorded:


(In millions)		Derivative Assets and Liabilities
Derivatives Designated as Net Investment Hedges	Balance Sheet Location	June 30, 2023		September 30, 2022
Cross currency swap contracts	Prepaid expenses and other current assets	$	1.1	$	1.2
Cross currency swap contracts	Other assets	—		6.3

Cross currency swap contracts	Other long-term liabilities	$	6.4	$	—

Balance Sheet Hedges

The Company also enters into foreign currency forward contracts to hedge fluctuations associated with foreign currency-denominated monetary assets and liabilities, primarily cash, lease contracts, third-party accounts receivable and payable, and intercompany accounts receivable and payables. These forward contracts 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. The Company has not and does not intend to use derivative financial instruments for speculative or trading purposes.

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


	Notional Value of Derivatives not Designated as Hedging Instruments:
(In millions of equivalent USD)	Sell contracts
Australian Dollar	$	4.0
Chinese Renminbi	9.8
Euro	7.0
India Rupee	6.5



	$	27.3

7. FAIR VALUE

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 September ~~29, 2017. Legal expenses~~30, 2022, the fair values of the Company’s Convertible Notes and Senior Secured Notes, measured using Level 1 inputs, were $250.2 million and $241.3 million, respectively. The Company has elected to use the income approach to value its derivative instruments using standard valuation techniques and Level 2 inputs, such as currency spot rates, forward points and credit default swap spreads.

In the tables below, the Company has segregated all assets and liabilities that are ~~expensed~~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
(In millions)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	30.4	$	—	$	30.4
Commercial paper	—		2.5		—		2.5
Corporate notes/bonds	—		3.7		—		3.7
Government agencies	—		11.3		—		11.3
U.S. Treasury bills	—		21.4		—		21.4
Derivative assets	—		1.1		—		1.1
Deferred compensation plan(1)	6.6		—		—		6.6
Marketable equity securities	4.0		—		—		4.0
Total assets measured at fair value	$	10.6	$	70.4	$	—	$	81.0

Liabilities:
Derivative liabilities	$	—	$	6.4	$	—	$	6.4


Total liabilities measured at fair value	$	—	$	6.4	$	—	$	6.4

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

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~~12.~~


	Fair Value at September 30, 2022
(In millions)	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Money market funds	$	—	$	36.6	$	—	$	36.6
Commercial paper	—		5.9		—		5.9
Corporate notes/bonds	—		3.6		—		3.6
Government agencies	—		0.3		—		0.3
U.S. Treasury bills	—		10.2		—		10.2
Derivative assets	—		7.5		—		7.5
Deferred compensation plan(1)	5.4		—		—		5.4
Marketable equity securities	2.5		—		—		2.5
Total assets measured at fair value	$	7.9	$	64.1	$	—	$	72.0

Liabilities:
Derivative liabilities	$	—	$	0.3	$	—	$	0.3

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

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

Marketable Debt Securities

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


	June 30, 2023
(In millions)	Amortized Costs		Unrealized Losses		Fair Value

Commercial paper	$	2.5	$	—	$	2.5
Corporate notes/bonds	3.7		—		3.7
U.S. Treasury bills	21.5		(0.1)		21.4
Government agencies	11.3		—		11.3


Total marketable debt securities	$	39.0	$	(0.1)	$	38.9


	September 30, 2022
(In millions)	Amortized Costs		Unrealized Losses		Fair Value

Commercial paper	$	5.9	$	—	$	5.9
Corporate notes/bonds	3.7		(0.1)		3.6
U.S. Treasury bills	10.2		—		10.2
Government agencies	0.3		—		0.3


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

The contractual maturities of marketable debt securities as of June 30, 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.

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	June 30, 2023
(In millions)	Amortized Costs		Fair Value
Contractual maturities:
Due within one year	$	38.5	$	38.4
Due after one year through five years	0.5		0.5




Total marketable debt securities	$	39.0	$	38.9

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.

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


	June 30, 2023
(In millions)	Commercial paper		Corporate notes/bonds		Government agencies		Treasury bills		Total
Cash and cash equivalents	$	2.0	$	—	$	2.0	$	0.9	$	4.9
Prepaid expenses and other current assets	0.5		3.7		9.3		20.0		33.5
Other assets	—		—		—		0.5		0.5




Total marketable debt securities	$	2.5	$	3.7	$	11.3	$	21.4	$	38.9


	September 30, 2022
(In millions)	Commercial paper		Corporate notes/bonds		Government agencies		Treasury bills		Total
Cash and cash equivalents	$	—	$	—	$	—	$	3.3	$	3.3
Prepaid expenses and other current assets	5.9		1.9		0.3		6.4		14.5
Other assets	—		1.7		—		0.5		2.2




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

8. INVENTORIES

The following table summarizes the Company’s inventories:


(In millions)	June 30, 2023		September 30, 2022
Raw materials and parts	$	235.0	$	240.3
Work-in-process	21.0		23.2
Finished goods	41.7		39.7
Total inventories	$	297.7	$	303.2

9. GOODWILL AND INTANGIBLE ASSETS

The following table reflects goodwill by reportable operating segment:


(In millions)	Medical		Industrial		Total
Balance at September 30, 2022	$	169.4	$	115.1	$	284.5
Foreign currency translation adjustments	2.8		1.9		4.7

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

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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
(In millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Acquired existing technology	$	72.0	$	(56.0)	$	16.0	$	70.0	$	(49.9)	$	20.1
Patents, licenses and other	12.6		(12.2)		0.4		12.3		(11.6)		0.7
Customer contracts and supplier relationship	50.5		(41.4)		9.1		49.6		(36.8)		12.8


Total intangible assets	$	135.1	$	(109.6)	$	25.5	$	131.9	$	(98.3)	$	33.6

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.

10. BORROWINGS

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


	June 30, 2023		September 30, 2022
(In millions, except for percentages)	Amount		Amount		Contractual Interest Rate	Effective Interest Rate
Current maturities of long-term debt

Other debt	$	1.8	$	2.1


Non-current maturities of long-term debt:

Convertible Senior Unsecured Notes	$	200.0	$	200.0	4.0%	4.8%
Senior Secured Notes	243.0		243.0		7.9%	8.2%
Other debt	3.9		4.6
Total non-current maturities of long-term debt:	$	446.9	$	447.6

Unamortized issuance costs and debt discounts
Unamortized discount - Convertible Notes(1)	$	—	$	(28.7)
Unamortized issuance costs - Convertible Notes(1)	(2.8)		(3.1)
Unamortized issuance costs - Senior Secured Notes	(3.0)		(3.5)
Total	$	(5.8)	$	(35.3)
Total debt outstanding, net	$	442.9	$	414.4

Equity component of Convertible Senior Unsecured Notes(1)(2)	$	—	$	49.7

~~Credit~~(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.

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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
Contractual interest coupon and other	$	6.7	$	6.7	$	20.2	$	21.1
Amortization of debt issuance costs	0.6		0.5		1.9		2.8
Amortization of debt discounts	—		2.2		—		6.5
Total interest expense	$	7.3	$	9.4	$	22.1	$	30.4

Convertible Senior Unsecured Notes

On June 9, 2020, Varex issued $200.0 million in aggregate principal amount of 4.00% Convertible Senior Unsecured Notes due 2025 (“Convertible Notes”). The net proceeds from the issuance of the Convertible Notes, after deducting transaction fees and offering expense payable by the Company, were approximately $193.1 million. The Convertible Notes bear interest at the annual rate of 4.00%, payable semiannually on June 1 and December 1 of each year, beginning on December 1, 2020, and will mature on June 1, 2025, unless earlier converted or repurchased by Varex.

The Convertible Notes are convertible into cash, shares of Varex common stock or a combination thereof, at Varex’s election, at an initial conversion rate of 48.048 shares of common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of approximately $20.81 per share, subject to adjustment pursuant to the terms of the indenture governing the Convertible Notes. The Convertible Notes may be converted at any time after, and including, December 15, 2024, until the close of business on the second scheduled trading day immediately before the maturity date. The maximum number of shares issuable upon conversion of the Convertible Notes is 9.6 million.

Call Spread

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 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). The strike price of $20.81 corresponds to the initial conversion price of the Convertible Notes. 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. 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. The Warrant Transactions could have a dilutive effect to the Company's stockholders to the extent that the market price per share of Varex common stock, as measured under the terms of the Warrant Transactions, exceeds the applicable strike price of the warrants. The number of shares underlying the Warrant Transactions is 9.6 million. The number of warrants outstanding as of June 30, 2023 was 9.6 million.

Senior Secured Notes

Varex issued $300.0 million aggregate principal amount of 7.875% Senior Secured Notes due 2027 (the "Senior Secured Notes") pursuant to an indenture dated September 30, 2020. Interest payments are paid semiannually on April 15 and October 15 of each year, beginning on April 15, 2021. The Senior Secured Notes will mature on October 15, 2027, unless earlier redeemed or repurchased by Varex. 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.

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The Senior Secured Notes are secured by a first priority lien on substantially all of the assets of Varex and the assets and capital stock of its subsidiary guarantors (subject to exceptions), except for assets for which a first priority security interest is pledged for the ABL Facility (defined below), in which the Senior Secured Notes will have a second lien security interest. The Senior Secured Notes include negative covenants, subject to certain exceptions, restricting or limiting Varex's ability and the ability of its restricted subsidiaries to, among other things, incur liens on collateral; sell certain assets; incur additional indebtedness; pay dividends; issue preferred shares; consolidate, merge, or sell all or substantially all of its assets; and enter into certain transactions with their affiliates.

Asset-Based Loan

On ~~January 25, 2017,~~September 30, 2020, the Company entered into a revolving credit ~~facility (the "Previous Revolving Credit Facility"), which matured in five years, and~~agreement consisting of a term facility (the "Previous Term Facility"), which was to be repaid over five years, with 7.5% payable in quarterly installments during the first two years, 10% payable in quarterly installments during the third and fourth years and 15% payable in quarterly installments in the fifth year. The credit agreement relating to the Previous Revolving Credit Facility and the Previous Term Facility (the “Previous Credit Agreement”) contained various customary restrictive covenants that limited, among other things, the incurrence of indebtedness by Varex and its subsidiaries, the grant or incurrence of liens by Varex and its subsidiaries, the entry into sale and leaseback transactions by Varex and its subsidiaries, and the entry into certain fundamental change transactions by Varex and its subsidiaries. It also contained customary events of default and certain financial covenants, including the requirement to maintain certain financial ratios. The Previous Credit Agreement was secured by the stock and assets of certain Varex subsidiaries. The Previous Credit Agreement had several borrowing and interest rate options including the following indices: (i) the LIBOR rate, or (ii) the base rate (equal to the greater of the prime rate, the federal funds rate plus 0.50% or the LIBOR rate for a one-month period plus 1.00%). Loans under the Previous Credit Agreement bore interest at a rate per annum using the applicable indices plus a varying interest rate margin of between 1.125% and 2.125%. The Previous Credit Agreement also provided for fees applicable to amounts available to be drawn under outstanding letters of credit of 0.125% and a fee on unused commitments which ranges from 0.20% to 0.40%. On January 25, 2017, Varex borrowed $203$100.0 million ~~under Previous Term Facility and transferred $200.0 million to Varian.~~

~~On May 1, 2017 and in connection with the acquisition of PKI Imaging, Varex entered into a new secured~~asset-based loan revolving credit facility (the ~~"Revolving Credit~~“Asset-Based Loan” or "ABL Facility"). Borrowings under the Asset-Based Loan bear interest at floating rates based on the Secured Overnight Financing Rate ("SOFR"), or a comparable rate, or a base rate, and an applicable margin based on Average Daily Excess Availability (as defined in anthe Asset-Based Loan Agreement). In addition, the Company is required to pay a quarterly commitment fee of 0.25% annualized, based on the aggregate ~~principal amount~~unused commitments under the Asset-Based Loan.

The ABL Facility matures on the earlier of upSeptember 30, 2025 or 91 days prior to ~~$200 million with a five-year term, and a secured term facility (the "Term Facility" and together with~~ the ~~Revolving Credit Facility,~~maturity of the ~~"Credit Agreement") in an aggregate principal amount of $400 million. The Term~~Convertible Notes, at which time all outstanding amounts under the ABL Facility will be ~~repaid over five years, with 5.0% payable in quarterly installments during each~~due and payable. The maximum availability under the ABL Facility is $100.0 million; 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 ~~first two years of~~amount available under the term thereof, 7.5% payable in quarterly installments during the third and fourth years of the term thereof, and 10% payable in quarterly installments in the fifth year of the term thereof, with the remaining amount due at maturity. Varex used the net proceeds from the TermABL Facility was $87.8 million and the ~~net proceeds from approximately $97 million drawn on the Revolving Credit~~ABL Facility to pay the approximately $276 million purchase price for the acquisition of PKI Imaging, plus related credit facility fees, and to repay all of Varex’s obligations under the Previous Credit Agreement.remains undrawn.

The ~~Credit Agreement contains~~ABL Facility includes various ~~customary~~ restrictive covenants that ~~limits, among other things,~~limit the Company's ability to engage in certain transactions, including the incurrence of ~~indebtedness by Varex~~debt, payment of dividends and ~~its~~other restrictive payments, existence of restrictions affecting subsidiaries, ~~the grant or~~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, ~~by Varex and its subsidiaries, the entry into sale and leaseback transactions by Varex and its subsidiaries, and the entry into certain~~making fundamental ~~change transactions by Varex and its subsidiaries. It also contains customary events~~changes, prepayments of ~~default~~junior indebtedness, and certain ~~financial covenants, including~~other transactions.

11. NONCONTROLLING INTERESTS

In September 2018, the ~~requirement to maintain certain financial ratios.~~ Company entered into a partnership in Saudi Arabia. The ~~Credit Agreement is secured by~~Company has majority voting rights with an approximate 75% interest. Accordingly, the ~~stock~~Company has consolidated the operations of the Saudi Arabia partnership in its Condensed Consolidated Financial Statements and ~~assets of Varex’s material subsidiaries.~~recorded the noncontrolling interests. The ~~Credit Agreement has several borrowing and~~noncontrolling interest ~~rate options including the following indices: (a) LIBOR rate, or (b) the base rate (equal~~related to the ~~greater~~partner’s 25% interest is included in noncontrolling interests in the equity section of the ~~prime rate,~~Company’s Condensed Consolidated Balance Sheets. Income representing the federal funds rate plus 0.50% or the LIBOR rate for a one-month period plus 1.00%). Loans under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a varying interest rate marginnoncontrolling partner's share of between 1.75% and 2.75% (for LIBOR rate loans) and 0.75%-1.75% (for base rate loans). The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit of 0.125%, and a fee on unused commitments which rangesincome from ~~0.25% to 0.40%.~~

~~The following table summarizes~~operations is included in the Company's ~~total debt outstanding:~~

Condensed Consolidated Statements of Operations.

December 29, 2017 September 29, 2017
(Dollars in millions) Amount Weighted-Average Interest Rate Amount Weighted-Average Interest Rate
Current portion of Term Facility $ 20.0
4.08 % $ 20.0
4.07 %
Revolving Credit Facility 79.0
3.77 % 104.0
3.75 %
Long-Term portion of Term Facility 365.0
4.08 % 370.0
4.07 %
Debt issuance costs (9.5 ) (10.1 )
Total debt outstanding $ 454.5
$ 483.9

~~13. REDEEMABLE NONCONTROLLING INTERESTS~~

In April 2015, the Company ~~completed the acquisition of~~acquired 73.5% of the then outstanding shares of MeVis Medical Solutions AG (“MeVis”), a ~~public~~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 ~~October 2015,~~fiscal years 2017 and 2018, the ~~DPLTA became effective upon its registration at~~Company purchased an additional 0.2% of outstanding shares such that the ~~local court~~Company now owns 73.7% of ~~Bremen, Germany.~~the outstanding shares of common stock of MeVis. Under the DPLTA, MeVis subordinates its management to the Company and undertakes to transfer all of its annual profits and losses to the Company. In return, the DPLTA grants the noncontrolling shareholders of ~~MeVis: (1)~~MeVis, an annual recurring net compensation of €0.95 per MeVis ~~share starting from January 1, 2015; and (2) a put right for their MeVis shares at €19.77 per MeVis~~ share. ~~Upon effectiveness of the DPLTA, the noncontrolling interests in MeVis became redeemable as a result of the put right and were reclassified to temporary equity.~~

~~Changes in redeemable noncontrolling interests relating to MeVis were as follows:~~

(In millions) Redeemable Noncontrolling Interests
Balance at beginning of period, September 29, 2017 $ 11.2
Net earnings attributable to noncontrolling interests —
Other, including foreign currency remeasurement 0.2
Balance at end of period, December 29, 2017 $ 11.4

At ~~December 29, 2017,~~June 30, 2023, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

Changes in noncontrolling interests were as follows:


	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022
Noncontrolling interests, at beginning of period	$	13.3	$	13.2
Net income attributable to noncontrolling interests	0.4		0.4
Other	(0.3)		(0.3)

Noncontrolling interests, at end of period	$	13.4	$	13.3

~~14.~~

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12. NET ~~EARNINGS~~INCOME PER SHARE

Basic net ~~earnings~~income per common share is computed by dividing the net ~~earnings~~income for the period by the weighted average number of shares of common stock outstanding during the reporting period. Diluted net ~~earnings~~income per common share reflects the effects of potentially dilutive securities, which is computed by dividing the sum of net ~~earnings~~income and any adjustments to net income by the sum of the weighted average number of common shares outstanding and dilutive common ~~shares, which consists stock options and unvested restricted stock.~~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
(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
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 weighted average shares outstanding	40.4		39.9		40.2		39.7
Dilutive effect of Convertible Notes	9.6		0.2		—		1.6
Dilutive effect of share-based awards and other	0.4		0.4		0.4		0.6

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

Anti-dilutive share summary
Share-based awards and other	2.7		3.2		2.9		3.0
Convertible notes	—		—		9.6		—
Warrants	9.6		—		9.6		—
Total anti-dilutive shares	12.3		3.2		22.1		3.0

Three Months Ended
(In millions, except per share amounts) December 29, 2017
December 30, 2016(1)
Net earnings attributable to Varex $ 11.3
$ 11.1
Weighted average shares outstanding - basic 37.7
37.4
Dilutive effect of potential common shares 0.5
0.3
Weighted average shares outstanding - diluted 38.2
37.7
Net earnings per share attributable to Varex - basic $ 0.30
$ 0.30
Net earnings per share attributable to Varex - diluted $ 0.30
$ 0.29
Anti-dilutive employee shared based awards, excluded 1.0
0.7
(1) Basic and diluted net earnings for the three months ended December 30, 2016 is calculated using the number of common shares distributed on January 28, 2017.

~~The Company excludes potentially~~ Potentially dilutive shares, which are based on the weighted-average shares of common ~~shares (consisting of shares~~stock underlying stock options, ~~and~~unvested stock awards, purchase rights granted under the employee stock purchase ~~plan) from~~plan, warrants, and Convertible Notes using the ~~computation~~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 ~~diluted weighted average~~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~~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 ~~inclusion of the shares underlying these stock awards would be anti-dilutive to earnings per share.~~

~~15. EMPLOYEE STOCK PLANS~~

~~Employee Stock Plans~~

effect is dilutive. Prior to the ~~separation and distribution,~~adoption of ASU 2020-06, the ~~Company’s employees participated~~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 Varian's stock-based compensation plans, which provided for the grants of stock options, restricted stock units and performance shares among other types of awards under Varian’s Third Amended and Restated 2005 Omnibus 2005 Stock Plan (the “Third Amended 2005 Plan”). The expense associatedconnection with the ~~Company’s employees who participated in~~offering of the ~~Third Amended 2005 Plan is included in~~Convertible Notes, the ~~accompanying condensed consolidated statements of earnings. Subsequent to the separation~~Company entered into convertible note hedges and ~~distribution,~~warrants (see Note 10, Borrowings). However, the Company's ~~employees participate in Varex's 2017 Omnibus Stock Plan and 2017 Employee Stock Purchase Plan.~~convertible note hedges are not included when calculating potentially dilutive shares since their effect is always anti-dilutive.

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13. EMPLOYEE STOCK PLANS

Share-Based Compensation Expense

~~As share-based~~ Share-based compensation expense recognized in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~earnings~~Operations is based on awards ultimately expected to vest. Share-based compensation expense includes expenses related to the Company’s direct employees. Prior to the separation, Varian also charged the Company for the allocated share-based compensation costs of certain employees of Varian who provided selling, general and administrative services on the Company’s behalf.

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

Three Months Ended
(In millions) December 29, 2017 December 30, 2016(1)
Cost of revenues $ 0.2
$ 0.2
Research and development 0.4
0.4
Selling, general and administrative
1.5
1.7
Total share-based compensation expense $ 2.1
$ 2.3

~~(1)~~Includes allocated share-based compensation of $0.8 million for the three months ended December 30, 2016, charged by Varian to the Company for certain Varian employees who provided general and administrative services on the Company’s behalf.


	Three Months Ended				Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022		June 30, 2023		July 1, 2022
Cost of revenues	$	0.5	$	0.4	$	1.3	$	1.2
Research and development	0.8		0.8		2.5		2.4
Selling, general and administrative	2.3		2.2		6.3		7.1
Total share-based compensation expense	$	3.6	$	3.4	$	10.1	$	10.7

Stock Option Activity

The following table summarizes the activity for stock options under Varex’s employee incentive plans for the ~~Company’s~~Company's employees:


(In thousands, except per share amounts and the remaining term)	Options	Price Range	Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value(1)
Outstanding at September 30, 2022	2,902	$13.61 - $37.60	$	28.97	4.5	$	1,361.4
Granted	415	$22.13 - $24.55	22.31
Canceled, expired or forfeited	(442)	$22.13 - $37.10	28.92

Outstanding at June 30, 2023	2,875	$13.61 - $37.60	$	28.01	5.1	$	2,329.4

Exercisable at June 30, 2023	2,015	$13.61 - $37.60	$	29.49	3.6	$	1,240.9

Options Outstanding
(In thousands, except per share amounts and the remaining term) Number of Shares Weighted Average
Exercise Price Weighted Average Remaining Term (in years) Aggregate Intrinsic Value (1)
Balance at September 29, 2017 1,926
$ 29.11

Granted 8
37.60

Canceled, expired or forfeited —
—

Exercised (69 ) 26.32

Balance at December 29, 2017 1,865
$ 29.25
5.1 $ 20,353

Exercisable at December 29, 2017 679
$ 26.82
3.5 $ 9,068

(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 ~~$40.17~~$23.57 as of ~~December 29, 2017,~~June 30, 2023, the last trading date of the Company's ~~first~~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 ~~employee incentive plans~~2020 Omnibus Stock Plan and 2017 Omnibus Stock Plan:


(In thousands, except per share amounts)	Number of Shares	Weighted Average Grant-Date Fair Value
Outstanding at September 30, 2022	1,045	$	24.35
Granted	565	20.15
Vested	(253)	24.69
Canceled or expired	(66)	24.03
Outstanding at June 30, 2023	1,291	$	22.43

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14. 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. 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 ~~Company’s employees:~~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.

(In thousands, except per share amounts) Number of Shares
Weighted Average
Grant-Date Fair
Value
Balance at September 29, 2017 525

$ 29.76
Granted 3

37.60
Vested —

—
Canceled or expired —

—
Balance at December 29, 2017 528

$ 29.82

~~16. TAXES ON EARNINGS~~

Three Months Ended
December 29, 2017 December 30, 2016
Estimated effective tax rate (60.6 )% 38.8 %

The Company ~~recognized an income tax benefit of $4.3 million and expense of $7.1 million~~is maintaining its reinvestment assertion with respect to foreign earnings for the three months ended ~~December 29,~~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 ~~and December 30, 2016, respectively, for effective rates of (60.6)% and 38.8%, respectively.~~

~~The Company's effective tax rate decreased primarily due~~earnings in all other countries are not permanently reinvested. Due to the ~~enactment~~level of earnings available for repatriation, the ~~Tax Reform Act~~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. This estimated liability is for United States state income taxes and foreign withholding taxes that would apply if the foreign earnings were repatriated in the ~~U.S. during the period. The Tax Reform Act significantly revised the U.S. corporate income tax structure. Among the revisions impacting the Company’s effective tax rate are~~form of a lower U.S. corporate statutory rate going from 35% to 21% effective January 1, 2018, a repeal of the deduction for domestic production activities, and changes to the way foreign earnings are taxed. As a September fiscal year filer, the lower corporate income tax rate will be phased in resulting in a U.S. statutory federal rate of 24.5% for the fiscal year ending September 28, 2018. U.S. GAAP requires the impact of tax legislation to be recognized in the period in which the law is enacted. The lower U.S. statutory rate has been included in the estimated annual effective rate used to calculate the year-to-date income tax benefit as of the end of the quarter. The repeal of the deduction for domestic production does not apply to the Company until the fiscal year beginning September 29, 2018, and so has also been included in the calculation of the estimated annual effective rate. Also, as a result of the Tax Reform Act, the Company recorded income tax expense of $3.4 million for the tax on the deemed repatriation of deferred foreign earnings offset by a tax benefit of $9.5 million due to the revaluation of net deferred taxes. The $3.4 million of tax on the deemed repatriation of foreign earnings has been reduced by the utilization of an estimated foreign tax credit carryforward from the prior fiscal year which was previously subject to a full valuation allowance. The anticipated utilization of this deferred tax assetdividend.

~~resulted in the release of that valuation allowance and the benefit of approximately $1.9 million has been included in the income tax benefit for the quarter.~~

The changes included in the Tax Reform Act are broad, complex, and subject to interpretation. In addition, the calculation of the impact of certain provisions is dependent on amounts such as current year earnings and year end balances that, while they can be reasonably estimated, will only become final at the end of future accounting periods. On December 22, 2017, the SEC issued SAB 118, allowing registrants to consider the estimated impact of the U.S. legislation as “provisional” when it does not have the information necessary to complete the accounting for the change in tax law. In accordance with SAB 118, the tax on the deemed repatriation of foreign earnings of $3.4 million and the benefit of $9.5 million for the revaluation of net deferred taxes represent the Company’s best and reasonable estimate based on interpretation of the U.S. legislation, are considered provisional, and will be finalized before December 22, 2018. These provisional estimates may be revised as adjustments to tax expense in subsequent periods as additional information is obtained and as additional guidance is issued by regulatory bodies.

Certain other provisions included in the Tax Reform Act have later effective dates for fiscal year filers and may have an impact on the Company’s future effective tax rate. These include, but are not limited to, changes in the taxation of foreign earnings. The Company is in the process of analyzing the effects of these provisions including GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on interest expense deductions (if certain conditions apply), and other components of the Tax Reform Act. The Company has elected to account for GILTI as a period cost if and when incurred pursuant to the exposure draft issued by the FASB in January 2018. Other future adjustments to tax expense may include the impact of actions the Company may take as a result of the Tax Reform Act.

~~17.~~15. SEGMENT INFORMATION

The Company has two reportable operating ~~segments; (i)~~segments: Medical and ~~(ii)~~ Industrial, which ~~align~~aligns with how ~~its CEO views~~the CODM reviews the Company’s performance and ~~measures~~evaluates the ~~Company's~~ business ~~performance.~~for the allocation of resources. The ~~Company's CEO is~~segments align the ~~Chief Operating Decision Maker~~Company’s products and service offerings with customer use in medical and industrial markets. The CODM allocates resources to and evaluates the financial performance of each operating segment primarily based on revenues and gross ~~margin.~~

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

Description of Segments

The Medical segment designs, manufactures, sells and services X-ray imaging components, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography, radiation therapy and computer-aided detection. The Company provides a broad range of X-ray imaging components for Medical customers 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, ~~ionization chambers~~ and ~~buckys. The Company’s X-ray imaging~~heat exchangers. These components are ~~primarily sold to~~used in a range of medical imaging ~~system OEM customers that incorporate them into their medical~~applications including CT, mammography, oncology, cardiac, surgery, dental, and other diagnostic radiation therapy, dental, veterinary and industrial imaging systems. The Company also sells its X-ray imaging components to independent service companies, distributors and directly to end-users for replacement purposes.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 Company's industrial products ~~which~~ include ~~Linatron~~Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors, ~~image processing~~and coolers. In addition, the Company licenses proprietary image-processing and detection software and image detection products for security and inspection purposes, such as cargo screening at ports and borders and nondestructive examination in a variety of applications. The Company generally sells its Industrialdesigned to work with other Varex products to ~~OEM customers that incorporate its products into their inspection systems.~~provide packaged sub-assembly solutions to industrial customers.

Accordingly, the following information is provided for purposes of achieving an understanding of operations, but it may not be indicative of the financial results of the reported segments were they independent organizations. In addition, comparisons of the Company’s operations to similar operations of other companies may not be meaningful.

Table of Contents

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
Revenues, net
Medical	$	175.4	$	167.1	$	509.6	$	493.2
Industrial	56.8		47.4		156.4		134.8
Total revenues	232.2		214.5		666.0		628.0
Gross profit
Medical	54.7		54.3		152.7		153.7
Industrial	21.6		19.1		59.6		55.3
Total gross profit	76.3		73.4		212.3		209.0
Total operating expenses	52.1		50.4		159.5		145.4
Interest and other expense, net	(7.1)		(9.5)		(22.5)		(33.2)
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
Less: Net income attributable to noncontrolling interests	0.1		0.2		0.4		0.4
Net income attributable to Varex	$	9.1	$	8.2	$	16.3	$	17.2

Three Months Ended
(In millions) December 29, 2017 December 30, 2016
Revenues
Medical $ 139.2
$ 131.7
Industrial 37.0
25.7
Total revenues 176.2
157.4
Gross margin
Medical 46.4
47.1
Industrial 15.1
11.7
Total gross margin 61.5
58.8
Total operating expenses 47.9
40.2
Interest and other income (expenses), net (6.5 ) (0.3 )
Earnings before taxes 7.1
18.3
Taxes on earnings (4.3 ) 7.1
Net earnings 11.4
11.2
Less: Net earnings attributable to noncontrolling interests 0.1
0.1
Net earnings attributable to Varex $ 11.3
$ 11.1

The ~~following table summarizes the Company’s~~Company does not disclose total assets by ~~its reportable segments:~~segment as this information is not provided to the CODM.

(In millions) December 29, 2017 September 29, 2017
Identifiable assets
Medical $ 805.9

$ 832.1
Industrial 214.2

208.0
Total reportable segments $ 1,020.1

$ 1,040.1

Table of Contents

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of ~~the~~our financial condition and results of operations should be read together with the unaudited condensed consolidated financial statements and notes thereto that are contained in this Quarterly Report on Form 10-Q (this "Quarterly Report") as well as our Annual Report on Form 10-K for the fiscal year ended ~~2017~~September 30, 2022 and our other filings, including the Current Reports on Form 108-K, that have been filed ~~on January 12, 2017, for~~with the ~~fiscal years ended 2016, 2015~~Securities and ~~2014.~~Exchange Commission (" SEC") through the date of this report.

In this Quarterly Report, unless otherwise specified or the context otherwise requires, the "Company," "Varex," "we," "us," and "our" refer to Varex Imaging Corporation.

Forward-Looking Statements

This Quarterly Report ~~on Form 10-Q (this “Quarterly Report”)~~ contains “forward-looking” statements within the meaning of the Private Securities Litigation Reform Act of 1995, which provides a “safe harbor” for statements about future events, products, and future financial performance that are based on the beliefs of, estimates made by, and information currently available to the management of Varex Imaging Corporation (“we,” “our,” “us,” the “Company,” “Varex,” or “Varex Imaging”). The outcome of the events described in these forward-looking statements is subject to risks and uncertainties.Varex. Actual results and the outcome or timing of certain events described in these forward-looking statements are subject to risk and uncertainties and may differ significantly from those projected in these forward-looking ~~statements~~statements. Important factors that could cause our actual results and financial condition to differ significantly from those projections or ~~management’s current~~ expectations ~~due to~~include, among other things, the ~~factors cited~~risks outlined in ~~this “Management’s Discussion~~the Summary of Principal Risk Factors and ~~Analysis of Financial Condition and Results of Operations” (“MD&A”),~~further described in the Risk Factors listed ~~under~~in Part II, Item 1A – “Risk Factors” of this Quarterly ~~Report~~Report.

Statements concerning supply chain and ~~other factors described from time to time~~logistics challenges; cost increases and expense management; changes in ~~our other filings with~~U.S. and worldwide economic conditions, such as the ~~U.S. Securities~~impact of inflation, and ~~Exchange Commission (the “SEC”), or other reasons. For this purpose, statements concerning:~~fluctuations in foreign currency exchange rates; geopolitical tensions; industry or market segment outlook; market acceptance of or transition to new products or technology such as advanced X-ray tube and digital flat panel detector products; growth drivers; future orders, revenues, backlog, earnings or other financial results; and any statements using the terms “believe,” “expect,” “anticipate,” “can,” “should,” “would,” “could,” “estimate,” “may,” ~~“intended,~~“intend,” “potential,” and “possible” or similar statements are forward-looking statements that involve risks and uncertainties that could cause our actual results and the outcome and timing of certain events to differ materially from those projected or management’s current expectations. ~~By making~~

Any forward-looking ~~statements, we~~statement made in this Quarterly Report (including in any exhibits or documents incorporated by reference) is based only on information currently available to Varex and its management and speaks only as of the date on which it is made. We have not assumed any obligation to, and you should not expect us to, update or revise those statements because of new information, future events or otherwise.

~~Separation and Distribution~~

On January 28, 2017, Varian completed its separation and distribution of Varex. In connection with the distribution, Varex became an independent publicly-traded company and is listed on the NASDAQ Global Select Market under the ticker “VREX” with 37.4 million shares of common shares distributed to Varian shareholders.

A summary of certain material features of the agreements can be found in the section entitled “Relationships with Varian Following Separation and Distribution” in Varex's Information Statement dated January 20, 2017 (the “Information Statement”), which was included as Exhibit 99.1 to Varex’s Current Report on 8-K filed with the Securities and Exchange Commission on January 20, 2017.

Overview

Varex Imaging Corporation is a leading innovator, designer and manufacturer of X-ray imaging components ~~which include~~including X-ray tubes, digital ~~flat panel~~ detectors and ~~other~~accessories, linear accelerators, image software processing solutions ~~which are key components of~~and stand-alone X-ray ~~imaging systems. With a 65+ year history of successful innovation, Varex’s~~based systems in select application areas. Our components are used in medical diagnostic imaging, security inspection systems, and industrial quality inspection systems, as well as for analysis and measurement applications in industrial ~~and security imaging~~manufacturing applications. Global ~~OEM~~original equipment manufacturers of(“OEMs”) incorporate our X-ray imaging ~~systems use the company’s X-ray sources, digital detectors, connecting devices and imaging software as~~ components ininto their systems to detect, diagnose, protect, irradiate and ~~protect.~~inspect. Varex has approximately ~~1,900~~2,300 full-time ~~equivalents~~equivalent employees, located at engineering, manufacturing and service center sites in North America, Europe, and Asia. ~~For more information about Varex, visit~~ ~~vareximaging.com~~.

On May 1, 2017, we acquired the Medical Imaging business of PerkinElmer, Inc. ("Acquired Detector Business") for $273.3 million. The acquisition consisted of PerkinElmer Medical Holdings, Inc. and Dexela Limited, together with certain assets of PKI and its direct and indirect subsidiaries relating to digital flat panel detectors that serve as components for industrial, medical, dental and veterinary X-ray imaging systems. The acquired business included approximately 280 employees with operations in Santa Clara, California as well as operations in Germany, the Netherlands and the United Kingdom. We believe the acquisition complements our existing imaging detector business and will provide increased expertise and opportunities for Varex in the future.

Our products are sold in three geographic regions: ~~The~~the Americas, EMEA, and APAC. The Americas includes North America (primarily the United States) and Latin America. EMEA includes Europe, ~~Russia,~~ the Middle East, India and Africa. APAC includes Asia (other than India) and Australia. Revenues by region are based on the known final destination of products sold.

Our success depends, ~~upon~~among other things, on our ability to anticipate and respond to changes in our markets, the direction of technological innovation and the ~~demands~~demand from our customers. We continually invest in research and development and employ approximately 400 individuals in product development related activities. Our focus on innovation and product performance along with strong and long-term customer relationships allows us to collaborate with our customers to bring industry-leading products to the X-ray imaging market. We continue to work to improve the life and quality of our ~~customers. A significant portion of~~imaging components and leverage our ~~customers are outside~~scale as one of the ~~United States,~~largest independent X-ray imaging component suppliers to provide cost-effective solutions for our customers.

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Impact of General Economic Environment

We are encouraged by the recent improvements that we have seen in the general economic environment but remain cautious as many factors remain unpredictable and recent high rates of inflation have increased our costs and could negatively affect our future profit margins. The uncertain economic environment, supply chain and logistic challenges, and geopolitical tensions have contributed to, and may continue to contribute to, inflation, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor and materials, exchange rate volatility, and other similar effects.

We have experienced some supply chain, manufacturing, and logistics challenges that we expect will continue throughout 2023. We have experienced and continue to experience shortages of certain materials. Shortages of certain materials have caused, and may continue to cause, delays in manufacturing products for our customers. In some cases, raw material shortages and delivery delays from our suppliers have caused operational and customer order fulfillment challenges. Due to the rising cost environment, in addition to ongoing expense management, we began to raise prices on certain products in ~~this business are generally priced~~fiscal year 2022 and anticipate making further pricing adjustments throughout fiscal year 2023.

For additional information on risks related to supply chain and logistics challenges, cost increases, changes in U.S. ~~Dollars. Demand for~~and worldwide economic conditions, geopolitical tensions and other risks that could impact our ~~products can be negatively impacted by the strengthening of the U.S. Dollar,~~results, see Part II, Item 1A “Risk Factors”.

Operating Segments and ~~can cause our products to be priced higher compared to products sold in non-U.S. Dollar currencies.~~Products

We ~~are continuing to~~ have ~~some~~

customers ask for additional discounts, delay purchasing decisions, or move to in-sourcing supply of such components or migrate to lower cost alternatives. The market for border protection systems has stabilized; however, end customers, particularly in oil-based economies and war zones in which we have a significant customer base, continue to delay tenders, resulting in reduced demand for security products.

~~Our Chief Executive Officer, who is our Chief Operating Decision Maker (“CODM”), evaluates the product groupings and measures the business performance in~~ two reportable operating segments: Medical and Industrial. The segments align our products and ~~service~~services offerings with customer use in medical and industrial markets and are consistent with how the CODM 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 margin.markets.

Medical

In our Medical ~~business~~ segment, we design, manufacture, sell and service X-ray imaging components, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, special procedures, computed tomography (“CT”), radiation therapy and computer-aided detection. We provide a broad range of X-ray imaging components for Medical customers, including X-ray tubes, ~~flat panel~~ digital ~~image~~ 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, ~~ionization chambers~~ and ~~buckys.~~

~~A significant portion of our revenues come from the sales of high-end X-ray tubes~~heat exchangers. These components are used in a range of medical imaging applications including CT, ~~imaging~~mammography, oncology, cardiac, surgery, dental, fluoroscopy, and high-end dynamic digital detectors used in fluoroscopic and dental applications. These upper-tier imaging components are characterized by increased levels of technological complexity, engineering and intellectual property that typically allow these products to have a higher sales price and gross margin.other diagnostic radiography uses.

The digital detector market continues to mature from initial product introductions approximately 10 years ago. For the past few years, we have experienced price erosion for these products, predominantly in the highly-competitive market for radiographic detectors. We anticipate this trend will continue in the foreseeable future.

Our X-ray imaging components are primarily sold to OEM customers. These OEM customers then design-in our products to their X-ray imaging ~~system original~~systems for a variety of medical modalities. A substantial majority of medical X-ray imaging OEMs globally are our customers, and many of these have been our customers for over 25 years. We believe one of the reasons for customer loyalty is that our hardware and software products are tightly integrated with our customers' systems. We work very closely with our customers to create custom built components for their systems based on technology platforms that we have developed. Because our products are often customized for our customers' specific equipment, ~~manufacturer (“OEM”)~~it can be costly and complex for our customers to switch to another provider. Once our components are designed into our customers' equipment, our customers will typically continue to buy from us for any replacement components and for service and support for that ~~incorporate them into their medical diagnostic, radiation therapy, dental and veterinary imaging systems. To a much lesser extent,~~equipment. Some of our products are also included in product registrations for our customers' equipment that require regulatory approval to change. In addition to sales to OEM customers, we ~~also~~ sell our ~~X-ray imaging components~~products to independent service companies and distributors ~~and~~as well as directly to end-users for replacement purposes.

We are one of the largest independent global manufacturers of X-ray imaging components, and each year, we produce over 27,000 X-ray tubes and 20,000 X-ray detectors. We estimate that our world-wide installed base of products includes more than 160,000 X-ray tubes, 170,000 X-ray detectors, 600,000 connect and control components, and 16,500 software instances. Replacement and service of our existing installed base makes up a significant portion of our revenue. Many of our components need to be replaced regularly, depending upon usage and other factors. For example, CT X-ray tubes generally need to be replaced every 2 to 6 years, in comparison to a general radiography tube which can last up to 10 years, depending on utilization. In China, the replacement cycle for CT X-ray tubes currently can be as frequent as every 10 to 20 months due to high utilization of imaging equipment. Other products such as X-ray detectors have a useful life of as much as 7 years or more but can require more frequent service and repairs during their useful life. In addition, our detector customers often elect to upgrade products to newer technology before the end of a current product’s useful life. X-ray imaging software is a relatively small part of our business and includes maintenance revenue for software licenses.

In China, the government is broadening the availability of healthcare services. As a result, the number of diagnostic X-ray imaging systems, including CT, has grown significantly. We are developing CT X-ray tubes and related subsystems for Chinese OEMs as they introduce new systems in China. Over the long-term, our objective is to become the partner of choice both for OEMs and in the replacement market as CT systems become more widely adopted throughout the Chinese market.

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In recent years our business in China has been impacted by the trade war with the United States in three principal ways: (1) importing raw materials from China to the United States has become more expensive, (2) importing raw materials and sub-assemblies from the United States to China has become more expensive, and (3) importing finished United States manufactured products into China has become more difficult and expensive. While the governments of both the United States and China have granted tariff exclusions that temporarily eliminate the additional duties payable for specific commodities, providing partial relief, these exclusions are temporary and/or must be solicited and approved on a shipment-by-shipment basis. There is no guarantee that such exclusions will be granted or extended by either government, and the U.S. tariff exclusions are set to expire on September 30, 2023 unless extended. In order to mitigate the impact of tariffs on materials imported from China, we have implemented changes to secure more non-China sources of materials used to manufacture our X-ray imaging products. To help mitigate the impact of tariffs on materials imported to China, and to be closer to our global customer base, we continue to expand manufacturing capabilities at our facilities in China, Germany, the Netherlands and the Philippines. We have also implemented local sourcing strategies to offer local content. This local-for-local strategy has been well received by both our local customers as well as global OEMs, and acts as a natural hedge against trade wars and other potential supply chain disruptions. Our mitigation efforts could prove less effective than anticipated if rising tensions between China and Taiwan lead to worsening trade relations between China and the United States.

Industrial

In our Industrial ~~business~~ segment, we design, develop, manufacture, sell and service X-ray imaging products for use in a number of markets, including security ~~and industrial inspection~~ applications ~~such as~~for cargo screening at ports and borders, baggage screening at airports, and nondestructive ~~examination~~testing, irradiation and inspection applications used in a ~~variety~~number of ~~applications. The~~other vertical markets. Our industrial products include ~~Linatron~~Linatron® X-ray linear accelerators, X-ray tubes, digital detectors, high voltage connectors, and coolers. In addition, we license proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to our industrial customers. Our Industrial business benefits from the research and development investment and manufacturing economies of scale on the Medical side of our business, as we continue to find new applications for our technology. Along with more favorable pricing dynamics, this allows us to generally achieve higher gross profit for industrial products relative to our Medical business. In addition, our Industrial business benefits from our long-term service agreements for our Linatron® products.

The security market primarily consists of cargo security for the screening of trucks, trains, and cargo containers at ports and borders as well as airport security for carry-on baggage, checked baggage and palletized cargo. The end customers for border protection systems are typically government agencies, many of which are in oil-based economies and war zones where there can be significant variation in buying patterns.

Non-destructive testing and inspection verticals utilize X-ray imaging to scan items for inspection of manufacturing defects and product integrity in a wide range of industries including the aerospace, automotive, electronics, oil and gas, food packaging, metal castings and 3D printing. In addition, new applications for X-ray sources are being developed, such as sterilization of food and its packaging. We provide X-ray sources, digital detectors, high voltage connectors and image ~~detection products that we generally sell~~processing software to OEM customers, system integrators, and manufacturers in a variety of these verticals. We believe that ~~incorporate these products into their inspection systems.~~the non-destructive testing market represents a significant growth opportunity for our business, and we are actively pursuing new potential applications for our products.

~~Basis of Presentation~~

Prior to the separation and distribution, our historical condensed consolidated financial statements have been prepared on a stand-alone basis and were derived from Varian’s consolidated financial statements and records as we operated as part of Varian. Following the separation and distribution, the condensed consolidated financial statements reflect our financial position, results of operations, comprehensive earnings and cash flows in conformity with U.S. generally accepted accounting principles (“GAAP”).

For periods prior to the separation and distribution, the condensed consolidated financial statements include allocation of certain Varian corporate expenses including costs of information technology, human resources, accounting, legal, facilities, insurance, treasury and other corporate and infrastructure services. In addition, allocated costs include research and development expenses from Varian’s scientific research facility. These costs were allocated to us on the basis of direct usage when identifiable or other systematic measures that reflect utilization of services provided to or benefits received. We consider the expense allocation methodology and results to be reasonable for all periods presented. The condensed consolidated financial statements also include certain assets and liabilities that have historically been held at the Varian corporate level, but which are specifically identifiable and attributable to us. Our condensed consolidated financial position, results of operations, comprehensive earnings and cash flows prior to the separation

may not be indicative of our results had we been a separate stand-alone entity during the periods presented, nor are the results stated herein indicative of what our financial position, results of operations, comprehensive earnings, and cash flows may be in the future.

Cash and cash equivalents held by Varian were not allocated to us. Cash and cash equivalents included in the condensed consolidated balance sheets primarily reflects cash and cash equivalents from acquired entities that are specifically attributable to us. Varian’s debt has not been allocated to us for any of the periods presented since we not the legal obligor of the debt. Varian’s debt was utilized for corporate activities that benefited all businesses and therefore a portion of the interest expense relating to Varian’s corporate borrowings has been allocated to us for periods prior to the separation. Interest expense and interest income has been allocated based on our total assets as a percentage of total assets of Varian.

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements and related disclosures in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on historical experience and on various other factors that we believe are reasonable under the circumstances. Our critical accounting policies that are affected by accounting estimates require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates.

We periodically review our accounting policies, estimates and assumptions and make adjustments when facts and circumstances dictate. Refer to our Annual Report on Form 10-K for the fiscal year ended ~~2017~~September 30, 2022 filed with the SEC on ~~December 13, 2017, our Form 10 filed January 20, 2017 for fiscal years 2016, 2015, and 2014,~~November 18, 2022 and Note ~~3 “Summary~~1, Summary of Significant Accounting ~~Policies”~~Policies, of the Notes to the Condensed Consolidated Financial Statements of this report for further details. Our critical accounting policies that are affected by accounting estimates include valuation of inventories, valuation of goodwill and intangible assets, and income taxes. Such accounting policies require us to use judgments, often as a result of the need to make estimates and assumptions regarding matters that are inherently uncertain, and actual results could differ materially from these estimates. Except for the change in certain policies upon adoption of the accounting standard described in Note 1, Summary of Significant Accounting Policies of the Notes to the Condensed Consolidated Financial Statements of this report, 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.

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Fiscal Year

~~Our~~ The fiscal ~~year is a~~years of the Company as reported are the 52 or 53-week period ending on the Friday nearest September 30. Fiscal year ~~2018~~2023 is the 52-week period ending September ~~28, 2018.~~29, 2023. Fiscal year ~~2017~~2022 was athe 52-week period that ended on September ~~29, 2017.~~30, 2022. The fiscal quarters ended ~~December 29, 2017~~June 30, 2023 and ~~December 30, 2016~~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.

Discussion of Results of Operations for the Three Months Ended ~~December 29, 2017~~June 30, 2023 Compared to the Three Months Ended ~~December 30, 2016~~July 1, 2022

Revenues, net


	Three Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Medical	$	175.4		$	167.1		$	8.3	5.0	%
Industrial	56.8			47.4			9.4		19.8	%
Total revenues	$	232.2		$	214.5		$	17.7	8.3	%
Medical as a percentage of total revenues	75.5		%	77.9		%
Industrial as a percentage of total revenues	24.5		%	22.1		%

~~Revenues~~

Three Months Ended
(In millions) December 29, 2017 December 30, 2016 $ Change % Change
Medical $ 139.2
$ 131.7
$ 7.5
5.7 %
Industrial 37.0
25.7
11.3
44.0 %
Total revenues $ 176.2
$ 157.4
$ 18.8
11.9 %
Medical as a percentage of total revenues 79 % 84 %
Industrial as a percentage of total revenues 21 % 16 %

Medical revenues increased ~~by $7.5~~$8.3 million, primarily due to an increase in sales of digital detectors with the addition of the Acquired Detector Business, and from increased sales of software and high voltage cable products. These increases in medical revenues were partially offset by a decrease in sales of digital detectors for the dental and radiographic markets.

~~Industrial revenues increased $11.3 million~~ due to increased sales of mammography X-ray tubes and digital detectors ~~with the addition of the Acquired Detector Business,~~for radiographic, fluoroscopic, and dental modalities, partially offset by ~~a decrease of~~decreased sales in oncology modalities.

Industrial revenues increased $9.4 million, primarily due to increased sales of ~~cargo screening systems.~~security inspection products and industrial X-ray tubes.

Gross Profit


	Three Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Medical	$	54.7		$	54.3		$	0.4	0.7	%
Industrial	21.6			19.1			2.5		13.1	%
Total gross profit	$	76.3		$	73.4		$	2.9	4.0	%
Medical gross margin	31.2		%	32.5		%
Industrial gross margin	38.0		%	40.3		%
Total gross margin	32.9		%	34.2		%

~~Gross Margin~~

Three Months Ended
(In millions) December 29, 2017 December 30, 2016 $ Change % Change
Medical $ 46.4
$ 47.1
$ (0.7 ) (1.5 )%
Industrial 15.1
11.7
3.4
29.1 %
Total gross margin $ 61.5
$ 58.8
$ 2.7
4.6 %
Medical gross margin % 33.3 % 35.8 %
Industrial gross margin % 40.8 % 45.5 %
Total gross margin % 34.9 % 37.4 %

The ~~decrease~~increase in ~~total~~Medical segment gross ~~margin percentage~~profit was primarily due to ~~higher amortization~~increased pricing, partially offset by increased material costs and an unfavorable shift in product sales mix.

The Industrial segment gross profit increased primarily as a result of ~~intangible assets from the Acquired Detector Business, a~~increased sales in security inspection products, partially offset by an unfavorable shift in product mix shift to lower margin products and other indirect product related costs. The decrease in medical gross margin percentage was primarily due to the reasons stated above and the decrease in industrial gross margin percentage was primarily due to indirect product related costs.sales mix.

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Operating Expenses


	Three Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Research and development	$	20.0		$	20.2		$	(0.2)	(1.0)	%
As a percentage of total revenues	8.6		%	9.4		%
Selling, general and administrative	$	32.1		$	30.2		$	1.9	6.3	%
As a percentage of total revenues	13.8		%	14.1		%


Operating expenses	$	52.1		$	50.4		$	1.7	3.4	%
As a percentage of total revenues	22.4		%	23.5		%

Three Months Ended
(In millions) December 29, 2017 December 30, 2016 $ Change % Change
Research and development $ 19.7
$ 13.3
$ 6.4
48.1 %
As a percentage of total revenues 11.2 % 8.4 %
Selling, general and administrative ⁽¹⁾
$ 28.2
$ 26.9
$ 1.3
4.8 %
As a percentage of total revenues 16.0 % 17.1 %
Operating expenses $ 47.9
$ 40.2
$ 7.7
19.2 %
As a percentage of total revenues 27.2 % 25.5 %

~~(1) Selling, general and administrative expenses included $11.9 million of corporate costs allocated to us by Varian in the three months ended December 30, 2016.~~

Research and Development

Selling, General and Administrative

Selling, general and administrative expenses for the third quarter of fiscal year 2023 increased $1.9 million, primarily due to increased compensation costs and fixed cost commitments to a supplier.

Interest and Other Expense, Net

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


	Three Months Ended
(In millions)	June 30, 2023		July 1, 2022		$ Change
Interest income	$	0.9	$	0.1	$	0.8
Interest expense	(7.3)		(9.4)		2.1
Other expense, net	(0.7)		(0.2)		(0.5)
Interest and other expense, net	$	(7.1)	$	(9.5)	$	2.4

Interest and other expense, net decreased in the third quarter of fiscal year 2023 compared to the third quarter of 2022. Interest expense decreased due to reduced fees on the ABL Facility agreement, and reduced interest expense due to the adoption of ASU 2020-06. See Note 1, Summary of Significant Accounting Policies, “Recently Adopted Accounting Pronouncements” for further details concerning the adoption of ASU 2020-06.

Other expense, net increased due to increased losses in certain investments in privately-held companies and equity investments and increased foreign exchange expense.

Interest income increased primarily due to an increase in investments made into marketable debt securities.

Taxes on Income

For the three months ended June 30, 2023 we recognized income tax expense of $7.9 million on $17.1 million of pre-tax income. For the three months ended July 1, 2022 we recognized income tax expense of $5.1 million on $13.5 million of pre-tax income. Our tax expense for the three 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.

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Discussion of Results of Operations for the Nine Months Ended June 30, 2023 Compared to the Nine Months Ended July 1, 2022

Revenues


	Nine Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Medical	$	509.6		$	493.2		$	16.4	3.3	%
Industrial	156.4			134.8			21.6		16.0	%
Total revenues	$	666.0		$	628.0		$	38.0	6.1	%
Medical as a percentage of total revenues	76.5		%	78.5		%
Industrial as a percentage of total revenues	23.5		%	21.5		%

Medical revenues increased $16.4 million, primarily due to increased sales of CT and mammography X-ray tubes and digital detectors for dental and radiographic modalities, partially offset by lower oncology and fluoroscopic modalities sales.

Industrial revenues increased $21.6 million, primarily due to increased sales of security inspection products and industrial X-ray tubes.

Gross Profit


	Nine Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Medical	$	152.7		$	153.7		$	(1.0)	(0.7)	%
Industrial	59.6			55.3			4.3		7.8	%
Total gross profit	$	212.3		$	209.0		$	3.3	1.6	%
Medical gross margin %	30.0		%	31.2		%
Industrial gross margin %	38.1		%	41.0		%
Total gross margin %	31.9		%	33.3		%

The decrease in Medical segment gross profit was primarily due to increased material costs and an unfavorable shift in product sales mix in digital detectors, partially offset by higher sales of CT X-ray tubes.

The Industrial gross profit increased primarily as a result of increased sales in security inspection products and industrial X-ray tubes, partially offset by an unfavorable shift in product sales mix.

Operating Expenses


	Nine Months Ended
(In millions)	June 30, 2023			July 1, 2022			$ Change		% Change
Research and development	$	63.0		$	56.8		$	6.2	10.9	%
As a percentage of total revenues	9.5		%	9.0		%
Selling, general and administrative	$	96.5		$	88.6		$	7.9	8.9	%
As a percentage of total revenues	14.5		%	14.1		%


Operating expenses	$	159.5		$	145.4		$	14.1	9.7	%
As a percentage of total revenues	23.9		%	23.2		%

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Research and Development

We are committed to investing in the business to support long-term growth and believe long-term research and development expenses of approximately 8% to 10% of annual revenues is the appropriate range that will allow us to innovate and bring new products to market for our global OEM customers. ~~The increase in~~Research and development costs increased to 9.5% of total revenues due to increased spending on labor and material costs supporting research and development ~~expenses as~~initiatives, which includes $2.0 million in costs related to a ~~percentage of revenue was due to the continued acceleration and~~ development ~~of digital detector projects and prototype materials costs for CT X-ray tubes.~~agreement with a third-party company.

Selling, General and Administrative

Selling, general and administrative expenses ~~as a percentage~~for the nine months ended June 30, 2023 increased to 14.5% of total revenues ~~decreased~~ primarily ~~from lower acquisition~~due to increased compensation, marketing, and ~~integration related~~environmental remediation costs, ~~partially offset by increased depreciation, and amortization of intangible assets.~~when compared to the prior year.

Interest and Other ~~Income (Expense),~~Expense, Net

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


	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022		$ Change
Interest income	$	2.1	$	0.2	$	1.9
Interest expense	(22.1)		(30.4)		8.3
Other expense, net	(2.5)		(3.0)		0.5
Interest and other expense, net	$	(22.5)	$	(33.2)	$	10.7

Interest and other expense, net decreased during the nine months ended June 30, 2023 due to the redemption of $27.0 million of our Senior Secured Notes in March 2022, reduced fees on the ABL Facility agreement, and reduced interest expense due to the adoption of ASU 2020-06.

Other expense, net decreased during the nine months ended June 30, 2023 as compared to the nine months ended July 1, 2022, primarily due to decreased losses in certain investments in privately-held companies and equity investments as well as decreased foreign exchange expense when compared to prior year.

Interest income ~~(expense), net:~~

Three Months Ended
(In millions) December 29, 2017 December 30, 2016 $ Change
Interest income $ 0.1
$ 0.1
$ —
Interest expense (5.5 ) (0.6 ) (4.9 )
Other (1.1 ) 0.2
(1.3 )
Interest and other income (expense), net $ (6.5 ) $ (0.3 ) $ (6.2 )

~~The~~increased primarily due to an increase in ~~interest and other income (expense), net was due to higher interest expense as a result of borrowings under our credit agreement, losses from equity method~~ investments ~~and foreign currency translation losses.~~

made into marketable debt securities.

Taxes on ~~Earnings~~Income

Three Months Ended
December 29, 2017 December 30, 2016
Estimated effective tax rate (60.6 )% 38.8 %

~~We had an income tax benefit of $4.3 million and expense of $7.1 million for~~ For the ~~three~~nine months ended ~~December 29, 2017 and December~~June 30, ~~2016, respectively, for effective rates of (60.6)% and 38.8%, respectively.~~

Our effective tax rate decreased primarily due to the enactment of the Tax Reform Act in the U.S. during the period. The Tax Reform Act significantly revised the U.S. corporate income tax structure. Among the revisions impacting our effective tax rate are a lower U.S. corporate statutory tax rate going from 35% to 21% effective January 1, 2018, a repeal of the deduction for domestic production activities, and changes to the way foreign earnings are taxed. As a September fiscal year filer, the lower corporate income tax rate will be phased in resulting in2023, we recognized an estimated U.S. statutory federal rate of 24.5% for the fiscal year ending September 28, 2018. U.S. GAAP requires the impact of tax legislation to be recognized in the period in which the law is enacted. The lower U.S. statutory rate has been included in the estimated annual effective rate used to calculate the year-to-date income tax benefit as of the end of the quarter. The repeal of the deduction for domestic production does not apply until the fiscal year beginning September 29, 2018 and so has also been included in the calculation of the estimated annual effective rate. Also, as a result of the Tax Reform Act, we recorded income tax expense of ~~$3.4~~$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. Our tax expense for the 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 onattributes, and losses in certain foreign jurisdictions for which no benefit can be recorded.

We regularly evaluate the ~~deemed repatriation~~realizability of our net deferred tax assets. As of June 30, 2023, substantially all of our U.S. deferred tax assets, net of deferred ~~foreign earnings offset by a~~ tax ~~benefit~~liabilities, were subject to valuation allowance. If our financial results continue to improve and we conclude that estimates of ~~$9.5 million due to~~our future taxable income are objectively verifiable, our assessment of the ~~revaluation~~realization of our net deferred ~~taxes. The $3.4 million of~~ tax on the deemed repatriation of foreign earnings has been reduced by the utilization of an estimated foreign tax credit carryforward from the prior fiscal year which was previously subject to a full valuation allowance. The anticipated utilization of this deferred tax asset resultedassets could result in the release of ~~that~~the valuation ~~allowance and the benefit of approximately $1.9 million has been included~~allowance. Such a release would result in ~~the~~a material non-cash income tax benefit ~~for the quarter.~~

~~The changes included~~ in ~~the Tax Reform Act are broad, complex, and subject to interpretation. In addition, the calculation~~our Condensed Consolidated Statements of the impact of certain provisions is dependent on amounts such as current year earnings and year end balances that, while they can be reasonably estimated, will only become final at the end of future accounting periods. On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) allowing registrants to consider the estimated impact of the U.S. legislation as “provisional” when it does not have the information necessary to complete the accounting for the change in tax law. In accordance with SAB 118, the tax on the deemed repatriation of foreign earnings of $3.4 million and the benefit of $9.5 million for the revaluation of net deferred taxes represent the Company’s best and reasonable estimates based on interpretation of the U.S. legislation, are considered provisional, and will be finalized in future periods but no later than December 22, 2018. These provisional estimates may be revised as adjustments to tax expense in subsequent periods as actual amounts required to finalize the accounting for these items become final, as other required information becomes available, and as additional guidance is issued by regulatory bodies.

Certain other provisions included in the Tax Reform Act have later effective dates for fiscal year filers and may have an impact on the Company’s future effective tax rate. These include, but are not limited to, changes in the taxation of foreign earnings. The Company is in the process of analyzing the effects of these provisions including GILTI (global intangible low-taxed income), BEAT (base-erosion anti-abuse tax), FDII (foreign-derived intangible income), limitations on interest expense deductions (if certain conditions apply), and other components of the Tax Reform Act. The Company has elected to account for GILTI as a period cost if and when incurred pursuant to the exposure draft issued by the FASB in January 2018. Other future adjustments to tax expense may include the impact of actions the Company may take as a result of the Tax Reform Act.

~~Backlog~~

Backlog is the accumulation of all orders for which revenues have not been recognized and are still considered valid. Backlog also includes a small portion of billed service contracts that are included in deferred revenue. Our total backlog at December 29, 2017 was $193.3 million, a decrease of 22.2% from $248.4 million at September 29, 2017, which was primarily due to several of our customers providing quarterly orders rather than annual orders.

Orders may be revised or canceled, either according to their terms or as customers’ needs change. Consequently, it is difficult to predict with certainty the amount of backlog that will result in revenues. We perform a quarterly review to verify that outstanding orders in the backlog remain valid. Aged orders that are not expected to be converted to revenues are deemed dormant and are reflected as a reduction in the backlog amountsOperations in the period ~~identified.~~of release and an increase to deferred tax assets on our Condensed Consolidated Balance Sheets. There is a reasonable possibility that within the next several quarters, sufficient positive evidence may become available to reach a conclusion that the valuation allowance against our U.S. net deferred tax assets would no longer be required. However, the exact timing and amount of valuation allowance releases are subject to change based on the level of profitability achieved in future periods.

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Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our ~~operating~~operations, including working capital and investing activities. We ~~continue to generate substantial cash from operating activities and~~ believe that our operating cash flow, ~~credit facility,~~cash on our balance sheet and ~~other sources of liquidity~~availability under our ABL Facility are sufficient to meet our anticipated operating cash needs for at least the next 12 months and will be sufficient to allow us to continue to invest in our existing businesses, consummate strategic acquisitions and manage our capital structure on a short and long-term basis. ~~Although we believe~~We are currently not aware of any trends or demands, commitments, events, or uncertainties that will result in or that are reasonably likely to result in a material change to our ~~future cash~~liquidity needs during the next 12 months. The maximum availability under our ABL Facility is $100.0 million; however, the borrowing base under the ABL Facility fluctuates from ~~operations, together with~~month to month depending on the amount of eligible accounts receivable, inventory, and real estate. As of June 30, 2023, the amount available under our ~~access to banking and capital markets, will provide adequate resources to fund our operating and financing needs, our access to,~~ABL Facility was $87.8 million, and the ~~availability~~ABL Facility remains undrawn. See Part II, Item 1A – “Risk Factors” for a further discussion. At June 30, 2023 we had total debt of ~~financing on acceptable terms in the future will be affected by many factors, including: (i) the liquidity~~$442.9 million, net of ~~the overall capital markets~~discounts and ~~(ii) the current state~~deferred issuance costs of ~~the economy. There can be no assurances that we will continue to have access to these markets on terms acceptable to us.~~$5.8 million.

Cash and Cash Equivalents, Certificates of Deposit, and Marketable Securities

The following table summarizes our cash and cash ~~equivalents:~~

(In millions) December 29, 2017 September 29, 2017 $ Change
Cash and cash equivalents $ 94.1
$ 83.3
$ 10.8
equivalents, certificates of deposit, and marketable securities:


(In millions)	June 30, 2023		September 30, 2022		$ Change
Cash and cash equivalents	$	118.5	$	89.4	$	29.1
Certificates of deposit not included in cash and cash equivalents	—		7.2		(7.2)
Marketable securities not included in cash and cash equivalents	34.0		16.7		17.3
Total	$	152.5	$	113.3	$	39.2

Borrowings

The following table summarizes the changes in our debt outstanding:


	June 30, 2023		September 30, 2022
(In millions, except for percentages)	Amount		Amount		$ Change
Current maturities of long-term debt

Other debt	$	1.8	$	2.1	$	(0.3)


Non-current maturities of long-term debt:

Convertible Senior Unsecured Notes	$	200.0	$	200.0	$	—
Senior Secured Notes	243.0		243.0		—
Other debt	3.9		4.6		(0.7)
Total non-current maturities of long-term debt:	$	446.9	$	447.6	$	(0.7)

Unamortized issuance costs and debt discounts
Unamortized discount - Convertible Notes(1)	$	—	$	(28.7)	$	28.7
Unamortized issuance costs - Convertible Notes(1)	(2.8)		(3.1)		0.3
Unamortized issuance costs - Senior Secured Notes	(3.0)		(3.5)		0.5
Total	$	(5.8)	$	(35.3)	$	29.5
Total debt outstanding, net	$	442.9	$	414.4	$	28.5

(1) In connection with the adoption of ASU 2020-06, the unamortized discount related to the Convertible Notes was 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.

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(Dollars in millions) December 29, 2017 September 29, 2017 $ Change
Current portion of Term Facility $ 20.0
$ 20.0
$ —
Revolving Credit Facility 79.0
104.0
(25.0 )
Long-Term portion of Term Facility 365.0
370.0
(5.0 )
Debt issuance costs (9.5 ) (10.1 ) 0.6
Total debt outstanding $ 454.5
$ 483.9
$ (29.4 )

~~At December 29, 2017, we had approximately $121 million remaining of our Revolver available for borrowings.~~

Cash Flows


	Nine Months Ended
(In millions)	June 30, 2023		July 1, 2022
Net cash flow (used in) provided by:
Operating activities	$	61.3	$	(0.2)
Investing activities	(30.3)		(20.9)
Financing activities	(1.6)		(24.0)
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	$	29.3	$	(45.2)

Three Months Ended
(In millions) December 29, 2017 December 30, 2016
Net cash flow provided by (used in):
Operating activities $ 40.1
$ 19.2
Investing activities (2.6 ) (4.3 )
Financing activities (26.8 ) 1.8
Effects of exchange rate changes on cash and cash equivalents 0.1
0.7
Net increase in cash and cash equivalents $ 10.8
$ 17.4

Net ~~Cash Provided~~cash provided by ~~Operating Activities.~~ ~~Cash from~~(used in) operating activities. Net cash provided by (used in) operating activities ~~consists primarily of net earnings adjusted~~was $61.3 million and $(0.2) million for ~~certain non-cash items, including share-based compensation, depreciation, amortization of intangible assets, deferred income taxes, income and loss from equity investments and~~ the ~~effect of changes in operating assets and liabilities.~~

~~For the three~~nine months ended ~~December 29, 2017, as compared to the three months ended December~~June 30, ~~2016,~~2023 and July 1, 2022, respectively. The increase in cash provided by operating activities ~~were as follows:~~was primarily due to increased collections from accounts receivable and a reduction in cash outflows for inventory, partially offset by increased payments for accounts payable when compared to the nine months ended July 1, 2022.

Net ~~earnings of $11.4 million vs $11.2 million~~

~~Non-cash items of $2.6 million vs $12.0 million~~

~~Operating assets and liabilities activity:~~


◦	Accounts receivable decreased $33.6 million vs $9.9 million. The fourth quarter of fiscal year 2017 had a higher level of sales and resulted in increased collections of accounts receivable in the first quarter of fiscal year 2018.


◦	~~Inventories increased $9.6 million vs $6.7 million. Increases in inventories in the first quarter of each fiscal year is normal as we begin to right-size our inventories for the upcoming quarters.~~


◦	Other items increased $2.1 million vs decreases of $7.2 million. These items include changes in prepaid expenses, accounts payable, accrued liabilities, deferred revenues, which fluctuate due to timing of expenses and payments.

~~Net Cash Used~~cash used in ~~Investing Activities.~~investing activities. Net cash used in investing activities was ~~$2.6~~$30.3 million and ~~$4.3~~$20.9 million for the ~~three~~nine months ended ~~December 29, 2017~~June 30, 2023 and ~~the three months ended December 30, 2016, respectively, and~~July 1, 2022, respectively. The increase in cash used in investing activities was primarily ~~related~~due to ~~capital expenditures for~~increased purchases of property, plant, and equipment, ~~for both periods.~~along with increased purchases of marketable equity and debt securities during the nine months ended June 30, 2023, partially offset by the settlement of net investment hedges.

Net ~~Cash Provided by (Used in) Financing Activities.~~ ~~Financing~~cash used in financing activities. Net cash used in financing activities was $1.6 million and $24.0 million for the ~~three~~nine months ended ~~December 29, 2017 consisted~~June 30, 2023 and July 1, 2022, respectively. The decrease in cash used in financing activities was primarily due to the partial redemption of ~~borrowings under~~ our credit agreement of $2.0 million, repayments of borrowings of $32.0 million, proceeds from stock option exercises of $1.8 million, and proceeds from shares issued under employee stock purchase plan. Financing activities forSenior Secured Notes during the ~~three~~nine months ended ~~December 30, 2016 consisted of transfers from Varian of $1.8 million.~~

~~Days Sales Outstanding~~

Trade accounts receivable days sales outstanding (“DSO”) was 67 days at December 29, 2017 and 66 days September 29, 2017. Our accounts receivable and DSO are impacted by a number of factors, primarily including the timing of product shipments, collections performance, payment terms, the mix of revenues from different regions and the effects of economic instability.

July 1, 2022.

Contractual Obligations

In October 2013, we entered into an amended agreement with dpiX and other parties that, among other things, provides us with the right to 50% of dpiX’s total manufacturing capacity produced after January 1, 2014. The amended agreement requires us to pay for 50% of the fixed costs (as defined in the amended agreement), as determined at the beginning of each calendar year. ~~As of December 29, 2017, we do not yet have a~~In January 2023, the Company's fixed cost commitment ~~related to this amended agreement. In January 2018, the fixed costs commitment~~ was determined ~~and approved by the dpiX board of directors~~ to be ~~$16.3~~$13.1 million for calendar year ~~2018.~~2023. As of June 30, 2023, the Company estimated it has $6.5 million remaining related to this fixed cost commitment. The amended agreement will continue unless the ownership structure of dpiX changes (as defined in the amended agreement).

In ~~October~~August 2015, pursuant to a Domination and Profit and Loss Transfer Agreement (the “DPLTA”), we committed to ~~grant~~pay the noncontrolling shareholders of ~~MeVis: (1)~~MeVis an annual recurring net compensation of ~~€0.95 per MeVis share; and, (2) a put right for their MeVis shares at €19.77~~€0.95 per MeVis share. The annual net payment will continue for the life of the DPLTA, which we anticipate will continue for as long as we remain as the controlling shareholder of MeVis. As of ~~December 29, 2017,~~June 30, 2023, noncontrolling shareholders together held approximately 0.5 million shares of MeVis, representing 26.3% of the outstanding shares.

In fiscal year 2022, the Company entered into several agreements with a third-party company, whose stock is publicly traded on a foreign exchange. Under these agreements, the Company will make certain milestone payments of up to $5.0 million upon achievement of specified milestones. During fiscal year 2022, the first of these milestones was achieved and the Company paid $1.0 million to the third-party company. During the second quarter of fiscal year 2023, two more milestones were achieved and the Company paid an additional $2.0 million to the third-party company. No additional milestones were achieved nor were any payments made during the third quarter of fiscal year 2023. Payments made under this agreement are recorded in research and development in the Condensed Consolidated Statements of Operations. As of June 30, 2023, there were two milestones remaining of $1.0 million each under these agreements.

The Company enters into purchase agreements with its suppliers in the ordinary course of its business for the purchase of goods and services. Some of these purchase agreements are non-cancellable and thus contractually obligate the Company to future cash payments. As of June 30, 2023, our non-cancellable supplier purchase obligations totaled $8.2 million.

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Contingencies

From time to time, we are a party to or otherwise involved in legal proceedings, government inspections, investigations, customs and duty audits, and other claims and ~~government inspections or investigations and other legal~~contingency matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. ~~Such matters are subject to many uncertainties and outcomes are not predictable with assurance. See Note 11 “Commitments and Contingencies” in the notes~~We accrue amounts for probable losses, to the ~~condensed consolidated financial statements, which discussion is incorporated herein by reference.~~

~~Off-Balance Sheet Arrangements~~

~~In conjunction with the sale of our products in the ordinary course of business,~~extent they can be reasonably estimated, that we ~~provide standard indemnification of business partners and customers for losses suffered or incurred for property damages, death and injury and for patent, copyright or~~believe are adequate to address any ~~other intellectual property infringement claims by any third parties with respect to our products. The terms of these indemnification arrangements are generally perpetual. Except for losses~~liabilities related to ~~property damages,~~legal proceedings as well as other loss contingencies that we believe will result in a probable loss (including, among other things, probable settlement value). A loss or a range of loss is disclosed when it is reasonably possible that a material loss will be incurred and can be estimated or when it is reasonably possible that the ~~maximum potential~~ amount of ~~future payments we could be required to make under these arrangements is unlimited. As of December 29, 2017, we~~a loss, when material, will exceed the recorded provision. We did not have ~~not incurred~~ any material ~~costs to defend lawsuits or settle claims related to these indemnification arrangements. As~~contingent liabilities as of June 30, 2023and September 30, 2022. Legal expenses are expensed as incurred.

Days Sales Outstanding

Trade accounts receivable days sales outstanding (“DSO”) was 64 days at June 30, 2023 and 68 days at September 30, 2022. Our accounts receivable and DSO are impacted by a ~~result, we believe~~number of factors, including the ~~estimated fair value~~timing of ~~these arrangements is minimal.~~product shipments, collections performance, payment terms, the mix of revenues from different regions and the effects of economic instability.

We have indemnification obligations to our directors and officers and certain of our employees that serve as officers or directors of our foreign subsidiaries that may require us to indemnify our directors and officers and those certain employees against liabilities that may arise by reason of their status or service as directors or officers, and to advance their expenses incurred as a result of any legal proceeding against them as to which they could be indemnified.

Recent Accounting Standards or Updates Not Yet Effective

See Note ~~3, “Summary~~1, Summary of Significant Accounting ~~Policies”~~Policies, of the ~~notes~~accompanying Notes to the ~~condensed consolidated financial statements~~Condensed Consolidated Financial Statements for a description of recent accounting standards, including the expected dates of adoption and the estimated effects on our condensed consolidated financial statements.

Backlog

Orders may be revised or canceled, either according to their terms or as customers' needs change. Consequently, it is difficult to predict with certainty the amount of backlog that will result in revenues. We perform a quarterly review to verify that outstanding orders in the backlog remain valid. Aged orders that are not expected to be converted to revenues are deemed dormant and are reflected as a reduction in the backlog amounts in the period identified.

In addition to orders for which revenues have not been recognized and are still considered valid, we have pricing agreements with many of our established customers that span multi-year periods. These pricing agreements include volume ranges under which orders are placed.

Item 3. Quantitative and Qualitative Disclosures about Market ~~Risks~~Risk

We are exposed to four primary types of market risks: foreign currency exchange rate risk, credit and counterparty risk, interest rate risk and commodity price risk.

Foreign Currency Exchange Rate Risk

A significant portion of our customers are outside the United States, while our financial statements are denominated, and our products are generally priced in U.S. Dollars. A strong U.S. Dollar may result in pricing pressure for our customers that are located outside the United States and that conduct their businesses in currencies other than the U.S. Dollar. Such pricing pressure has caused, and could continue to cause, some of our customers to ask for discounted prices, delay purchasing decisions, or consider moving to in-sourcing supply of components or migrating to lower cost alternatives. In addition, because our business is global and some payments may be made in local currency, fluctuations in foreign currency exchange rates can impact our revenues and expenses and/or the profitability in U.S. Dollars of products and services that we provide or purchase in foreign markets.

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We may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, net investments in foreign subsidiaries, and forecast purchases denominated in foreign currencies. We may hedge portions of forecasted foreign currency exposure, typically for one to three months. In addition, we hold cross-currency swaps between the Euro and U.S. Dollar as a net investment hedge of our acquisition of Direct Conversion. Depending on the spot rate between the Euro and U.S. Dollar at the time of settlement and whether we have sufficient Euros available, we may have to borrow incrementally in U.S. Dollars to settle this obligation. Additionally, we may choose not to hedge certain foreign exchange exposures for a variety of reasons including, but not limited to, accounting considerations, the prohibitive economic cost of hedging particular exposures, or due to natural offsets among the different exposures. See Note 6, Financial Derivatives and Hedging Activities, of the Notes to the Condensed Consolidated Financial Statements for further information.

Credit and Counterparty Risk

We use a centralized approach to manage substantially all of our cash and to finance our operations. Our cash and cash equivalents and marketable securities may be exposed to a concentration of credit risk, and we may also be exposed to credit risk and interest rate risk to the extent that we enter into credit facilities.

We perform ongoing credit evaluations of our customers and we maintain what we believe to be strong credit controls in evaluating and granting customer credit, including performing ongoing evaluations of our customers’ financial condition and creditworthiness and often using letters of credit ~~and~~or requiring ~~industrial~~certain customers to provide a down payment.

Interest Rate Risk

~~At December 29, 2017, we had borrowings of $454.5 million.~~ Borrowings under our ~~credit facilities~~ABL Facility bear interest at floating interest rates. AsAt June 30, 2023, we had no borrowings subject to floating interest rates. See Note 10, Borrowings, of the Notes to the Condensed Consolidated Financial Statements for further information.

Our exposure to interest rate risk also relates to our interest-bearing assets, primarily our cash and cash equivalents and marketable securities. Fixed rate securities may have their market value adversely affected due to a ~~result, we are exposed to fluctuations~~rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Due in part to ~~the extent of~~these factors, our ~~borrowings under the credit facilities. As part of our overall risk management program,~~future investment income may fluctuate due to changes in interest rates or we ~~entered into several~~may suffer losses in principal if we are forced to sell securities that decline in market value due to changes in interest rate swaps designed as cash flow hedges, to hedge the floating LIBOR components of our interest rate which represented a notional value of $288.8 million of our debt as of December 29, 2017. See Note 7, “Financial Derivatives and Hedging Activities” for further information on hedging activities.rates.

Commodity Price Risk

We are exposed to market risks related to volatility in the prices of raw materials used in our products. The prices of these raw materials fluctuate in response to changes in supply and demand fundamentals and our product margins and level of profitability tend to fluctuate with changes in these raw materials prices. We try to protect against such volatility through various business strategies. During the three and nine months ended ~~December 29, 2017,~~June 30, 2023, we did not have any commodity derivative instruments in place to manage our exposure to price changes.

Item 4. Controls and Procedures

~~Based on the evaluation of our~~Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act of ~~1934),~~1934, as amended (the ~~“Exchange Act”~~"Exchange Act")) are designed to provide reasonable assurance that information required ~~by Rules 13a-15(b)~~to be disclosed in the reports that we file or ~~15d-15(b)~~submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that ~~as of the end of the period covered by this report,~~ our disclosure controls and procedures were ~~effective.~~effective as of June 30, 2023.

Changes in ~~internal control over financial reporting~~Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting ~~that occurred~~ during the ~~period covered by this report~~quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) under the Exchange Act).

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PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various claims, complaints and legal actions in the normal course of business from time to time. We doare not ~~believe we have~~aware of any currently pending litigation for which the outcome could have a material adverse effect on our operations or financial position.

Item 1A. Risk Factors

Summary of Principal Risk Factors

Investing in Varex Imaging Corporation ("we," "our," "us," the "Company," or "Varex") common stock involves risks. See below and Part I, Item 2 "Management’s Discussion and Analysis of Financial Condition and Results of Operations" and Part I, Item 3 "Quantitative and Qualitative Disclosures about Market Risk" for a discussion of the following principal risks and other risks that make an investment in Varex speculative or risky:

•The global economy has been and continues to be adversely impacted by economic instability and geopolitical tensions.

•We sell our products and services to a limited number of original equipment manufacturer (“OEM”) customers, many of which are also our competitors, and a reduction in or loss of business of one or more of these customers may materially reduce our sales.

•We may not be able to accurately predict the demand or delivery schedules for our products.

•We compete in highly competitive markets, and we may lose business to our customers or other companies with greater resources or with greater abilities to develop more effective technologies, or we could be forced to reduce our prices.

•Our success depends on the successful development, introduction, and commercialization of new generations of products and enhancements to or simplifications of existing product lines.

•More than half of our revenue is generated from customers located outside the United States and is subject to global, regional, and country-specific economic instability, shifting political environments, changing tax treatment, and other risks associated with international operations and sales that could materially and adversely impact our business and financial results.

•It has become more difficult to attract and retain employees, which has impacted, and is likely to continue to impact, our ability to develop and manufacture products and operate our business.

•We may be unable to complete future acquisitions or realize expected benefits from acquisitions of or investments in new businesses, products, or technologies, which could harm our business.

•Warranty claims may materially and adversely affect our business.

•Product defects or misuse may result in material product liability or professional errors and omissions claims, litigation, investigation by regulatory authorities, or product recalls that could harm our future revenues and require us to pay material uninsured claims.

•We are exposed to credit risk and fluctuations in the values of our investment portfolio.

•Our business is subject to evolving Environmental, Social, and Governance (“ESG”) requirements and stakeholder expectations that could expose us to numerous risks.

•Supply chain disruptions, including the loss of a supplier, and any inability to obtain supplies of important components have impacted our ability to manufacture products, have caused delays in our ability to deliver products, and have increased our costs and may continue to do so.

•Shortages, changes in source of, and increases in prices for, raw materials have negatively impacted our ability to manufacture products, have caused delays, and have increased our cost of goods.

•A disruption at our manufacturing facilities, as well as fluctuating manufacturing costs, could materially and adversely affect our business.

•Our competitive position would be harmed if we are not able to maintain our intellectual property rights, and protecting our intellectual property and defending against infringement claims can be costly.

•Disruption of critical information systems or material breaches in the security of our systems may materially and adversely affect our business and customer relations.

•Changes in import/export regulatory regimes, tariffs, and national policies could continue to negatively impact our business.

•Compliance with foreign laws and regulations applicable to the marketing, manufacturing, and distribution of our products may be costly, and failure to comply may result in unfavorable legal proceedings, in significant penalties and other harm to our business.

•Compliance with United States laws and regulations applicable to the marketing, manufacturing, and distribution of our products may be costly, and failure or delays in obtaining regulatory clearances or approvals or failure to comply with

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applicable laws and regulations could prevent us from distributing our products, require us to recall our products, or result in unfavorable legal proceedings, significant penalties or other harm to our business.

•Initiation of legal proceedings, defense against legal proceedings and unfavorable results of legal proceedings could materially and adversely affect our financial results.

•We have significant debt obligations and could incur additional debt that could adversely affect our business, profitability, liquidity, credit rating, and ability to meet our obligations.

•The ABL Facility and the indenture governing our Senior Secured Notes impose significant operating and financial restrictions that may limit our current and future operating flexibility, particularly our ability to respond to changes in the economy or our industry or to take certain actions, which could harm our long-term interests and may limit our ability to make payments on the notes.

•Conversion of the Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the market price of our common stock.

•Liabilities related to our operations when we were part of Varian Medical Systems, Inc., a Siemens Healthineers Company ("Varian"), or liabilities associated with the spin-off from Varian, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

The following risk factors and other information included in this Quarterly Report on Form 10-Q (this "Quarterly Report") should be carefully considered. Although the risk factors described below are the ones management deems significant, additional risks and uncertainties not presently known to us or that we presently deem not material may also adversely affect our business operations. If any of the following risks or additional risks and uncertainties actually occur, our business, operating results, and financial condition could be adversely affected.

Risks Relating to Our Business

The global economy has been and continues to be adversely impacted by economic instability and geopolitical tensions.

In many markets where we operate, global economic instability and geopolitical tensions have contributed to volatility in commodity prices, and in the credit and capital markets; market, supply chain, and inventory disruptions; sustained inflation; exchange rate volatility; the imposition of sanctions and countermeasures; and increased likelihood of new and unfavorable trade regulations. These conditions have shrunk capital equipment budgets, slowed decision-making and made it difficult for our customers and vendors to accurately forecast and plan future business activities. This, in turn, has caused our customers to be more cautious with, and sometimes freeze, delay, or dramatically reduce purchases and capital project expenditures. Some countries have adopted, and may in the future adopt, austerity or stimulus programs that could negatively affect our results from period to period.

We have experienced, and in some areas continue to experience, difficulties in obtaining materials used to build our products, and these difficulties have in the past impacted, and could in the future impact, our ability to deliver finished products to our customers. If we are unable to produce and deliver products to our customers without unreasonable delay, those customers may seek alternative suppliers or decide to in-source certain products. Further, our competitors with greater financial resources may be better able to restructure their manufacturing and supply chains in response to geopolitical and economic trends and thereby have a competitive advantage over us.

We have been and, in some cases, continue to be subject to price increases on the components used to make our products. If we are not able to mitigate these price increases and/or adequately increase prices for our products, our operations, cash flow, and financial position could continue to be adversely impacted.

Inflation has the potential to increase our overall cost structure. The existence of sustained inflation in the economy has resulted in, and may continue to result in, higher interest rates and capital costs, increased shipping costs, supply shortages, increased costs of labor, weakening exchange rates and other similar effects. As interest rates rise to address inflation or otherwise, we may experience further increases in capital and other costs.

Changes in monetary or other policies in the United States and abroad, including efforts to combat inflation, economic and/or political instability, or in reaction thereto, could affect foreign currency exchange rates. Furthermore, if one or more European countries were to replace the Euro with another currency, our sales in these countries, or in Europe generally, would likely be materially and adversely affected until stable exchange rates are established. Our products are generally priced in U.S. Dollars. Because our business is global and some payments may be made in local currency, fluctuations in foreign currency exchange rates can impact our results by affecting product demand and purchasing decisions, revenues and expenses, and/or the profitability in U.S. Dollars of products and services that we provide in foreign markets.

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If the measures we take to mitigate the impact of inflation and exchange rate fluctuations are not effective, our business, financial condition, results of operations and liquidity could be materially adversely affected. Even if such measures are effective, the benefits of such measures may not be realized until after the costs of inflation have been incurred.

Additionally, fluctuations in commodities prices could materially and adversely affect our performance. Rising commodities prices have in the past increased, and may in the future increase, our costs and those of our medical OEM customers, which could in turn result in reduced demand for our products or impact our financial results. Further, our security product revenues from oil-producing countries, in which we have a significant customer base, have in the past suffered as a result of volatility in oil prices and remain sensitive to fluctuations in the future.

The uncertain economic environment has also impacted, and may in the future continue to impact, our service business, as customers’ constrained budgets may result in pricing pressure, extended warranty provisions, and even cancellation of service contracts. In addition, concerns over continued economic instability could make it more difficult for us to collect outstanding receivables. A weak or deteriorating healthcare market would inevitably materially and adversely affect our business, financial conditions, and results of operations.

We sell our products and services to a limited number of OEM customers, many of which are also our competitors, and a reduction in or loss of business of one or more of these customers may materially reduce our sales.

We sell our products to a limited number of OEM customers, many of which are also our competitors with in-house X-ray component manufacturing operations. We had one customer during the three months ended June 30, 2023 that accounted for 14.8% of our revenue. Our ten largest customers as a group accounted for approximately 52% and 51% of our revenue for the three months ended June 30, 2023 and July 1, 2022, respectively. Our ten largest customers as a group accounted for approximately 51% and 50% of our revenue for the nine months ended June 30, 2023 and July 1, 2022, respectively. We will continue to depend on sales to a relatively small number of major customers. Because we often take significant time to replace lost business, it is likely that our operating results would be materially and adversely affected if one or more of our major OEM customers were to cancel, delay, or reduce orders in the future.

Furthermore, we generate significant accounts receivables from the sale of our products and the provision of services directly to our major customers. We had one customer that accounted for 12.9% of our accounts receivables as of June 30, 2023. If one or more of these customers were to cancel a product order or service contract (whether in accordance with its terms or otherwise), become insolvent, or otherwise be unable or fail to pay for our products and/or services, our operating results and financial condition could be materially and adversely affected.

We may not be able to accurately predict the demand or delivery schedules for our products.

End-user product demand, economic uncertainties, the impact of pandemic diseases, natural disasters, armed conflict, geopolitical tensions, and other matters beyond our control make it difficult for our customers to accurately forecast and plan future business activities; which makes it difficult for us to accurately predict the demand for our products. Because the manufacture of our products requires some lead-time, changes in customer purchasing forecasts have previously impacted our business, resulting in excess inventory and slowdowns in sales. Similar inventory adjustments and slowdowns in sales are likely to occur in the future. Changes to customer forecasts can occur on short notice. Our customers also face inherent competitive issues and new product introduction delays which can result in changes in forecasts. The market and regulatory risks faced by our customers also ultimately impact our ability to forecast future business. Our agreements for imaging components contain purchasing estimates that are typically based on our customers’ forward-looking forecasts rather than firm commitments, and actual purchasing volumes under the agreements may vary significantly from these estimates. The variation from forecasted purchasing volume may be due, in part, to the increasing life of X-ray tubes, which can result in reduced demand for replacement X-ray tubes in ways we may not be able to accurately forecast. Reductions in purchasing patterns have in the past, and may in the future, materially and adversely affect our operating results.

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We compete in highly competitive markets, and we may lose business to our customers or other companies with greater resources or with greater abilities to develop more effective technologies, or we could be forced to reduce our prices.

We compete in markets characterized by rapidly-evolving technology, intense competition and pricing pressure. We often compete with companies that have greater financial, marketing and other resources than us. Some of the major diagnostic imaging systems companies, which are the primary OEM customers for our X-ray imaging components, also manufacture X-ray imaging components, including X-ray tubes, for use in their own imaging systems products. We must compete with these in-house manufacturing operations for business. If these customers manufacture a greater percentage of their components in-house or otherwise decrease purchases from external sources, which may occur for a number of reasons, including a strong U.S. Dollar, rising interest rates or a general economic slowdown, we could experience reductions in purchasing volume by, or loss of, one or more of these customers. Such a reduction or loss may have a material and adverse effect on our business. In addition, we compete against other stand-alone, independent X-ray tube manufacturers for both the OEM business of major diagnostic imaging equipment manufacturers and the independent servicing business for X-ray tubes.

The market for flat panel detectors is also very competitive, and we face intense competition from over a dozen smaller competitors. As a result of these competitive dynamics, to effectively retain the business of our customers and compete with our competitors we must have an advantage in one or more significant areas, such as lower product cost, better product quality and/or superior technology and/or performance. We have made price concessions to maintain existing customers and attract new customers, and may have to make additional price concessions in the future.

In our Industrial segment, we compete with other OEM suppliers primarily outside of the United States. The market for our X-ray tube and flat panel products used for nondestructive testing in industrial applications is small and highly fragmented. Some of our competitors outside of the United States may have resources and support from their governments that we do not, such as preferences for local manufacturers, and may not be subject to the same trade compliance regulations as us. Therefore, our ability to compete in certain high-growth markets may be limited compared to our competitors.

Our competitors could develop technologies and products that are more effective than those we currently use or produce or that could render our products obsolete or noncompetitive. In addition, the timing of our competitors’ introduction of products into the market could affect the market acceptance and sales of our products. Some competitors offer specialized products that provide, or may be perceived by customers to provide, an advantage over our products. Also, some of our non-United States competitors may not be subject to the same standards, regulatory and/or other legal requirements to which we are subject and, therefore, they could have a competitive advantage in developing, manufacturing and marketing products and services. Any inability to develop, gain regulatory approval for and supply commercial quantities of competitive products to the market as quickly and effectively as our competitors could limit market acceptance of our products and reduce our sales. Any of these competitive factors could negatively and materially affect our pricing, sales, revenues, market share and gross margins and our ability to maintain or increase our operating margins.

Our success depends on the successful development, introduction, and commercialization of new generations of products and enhancements to or simplifications of existing product lines.

We operate in a ~~rapidly~~market characterized by rapid change and technological innovation, particularly with respect to flat panel technology. Our customers use our products in their medical diagnostic, security, and industrial imaging systems, and we must continually introduce new products at competitive prices while also improving existing products with higher quality, lower costs, and increased features. To be successful, we must anticipate our customers’ needs and demands, as well as potential shifts in market preferences. Our failure to do so has in the past resulted, and may in the future result, in the loss of customers and an adverse impact to our financial performance. When the U.S. Dollar is strong compared to the operating currencies of our international customers, our ability to meet such customers’ pricing expectations is particularly challenging and may result in erosion of product margin and market share.

We have in the past spent, and in the future may need to spend, more time and money than we expect to develop, market and introduce new products or enhancements, and, even if we succeed, we may not be able to recover all or a meaningful part of our investment. Once introduced, new products may materially and adversely impact sales of our existing products or make them less desirable or even obsolete, which could materially and adversely impact our revenues and operating results. In addition, certain costs, including installation and warranty costs, associated with new products may be proportionately greater than the costs associated with other products and may therefore disproportionately, materially, and adversely affect our gross and operating margins. If we are unable to lower these costs over time, our operating results could be materially and adversely affected. Some of the electronic components and integrated circuits used in our flat panel detectors are susceptible to discontinuance and obsolescence risks, which may force us to incorporate newer generations of these components, resulting in unplanned additional R&D expenses, delays in the launch of new products, supply disruptions, or inventory write-downs.

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Our ability to successfully develop and introduce new products and product enhancements and simplifications, and the revenues and costs associated with these efforts, are affected by our ability to, among other things:

•properly identify customer needs or long-term customer demands;

•prove the feasibility of new products;

•identify complementary technologies or intellectual property and, where appropriate, negotiate and maintain related licensing agreements or other arrangements to facilitate development of new products and product enhancements and simplifications;

•properly manage and control research and development costs;

•limit the time required from proof of feasibility to routine production;

•timely and efficiently comply with internal quality assurance systems and processes;

•limit the timing and cost of regulatory approvals;

•adequately protect the underlying intellectual property and, where licensed or jointly developed, ensure the continuity of our use of such intellectual property for the manufacture, sale and distribution of new products and product enhancements or simplifications;

•accurately predict and control costs associated with inventory overruns caused by the phase-in of new products and the phase-out of old products;

•price our products competitively and profitably, which can be particularly difficult with a strong U.S. Dollar;

•manufacture, deliver, and install our products on time in sufficient volumes and accurately predict and control costs associated with manufacturing installation, warranty, and maintenance of the products;

•appropriately manage our supply chain;

•manage customer acceptance and payment for products; and

•anticipate, respond to, and compete successfully with competitors.

Furthermore, as discussed in greater detail elsewhere in this “Risk Factors” section, we cannot be sure that we will be able to successfully develop, manufacture, or introduce new products or enhancements, the roll-out of which involves compliance with complex quality assurance processes, including the Quality System Regulation (“QSR”) of the U.S. Food and Drug Administration (“FDA”). Failure to complete these processes timely and efficiently could result in delays that could affect our ability to attract and retain customers or cause customers to delay or cancel orders, which would materially and adversely affect our revenues and operating results.

More than half of our revenue is generated from customers located outside the United States, and is subject to global, regional, and country-specific economic instability, shifting political environments, changing ~~environment that involves a number of~~tax treatment, and other risks associated with international operations and sales that could materially and adversely affect our ~~business. For~~business and financial results.

We conduct business globally. Revenues generated from customers located outside the United States accounted for approximately 69% and 71% of our total revenues for the three months ended June 30, 2023 and July 1, 2022, respectively and approximately 69% and 70% of our total revenues for the nine months ended June 30, 2023 and July 1, 2022, respectively. As a ~~detailed discussion~~result, we must provide significant service and support globally. We intend to continue to expand our presence in international markets and expect to expend significant resources in doing so. We cannot be sure that we will be able to meet our sales, service, and support objectives or obligations in these international markets or recover our investment in these international markets. Our future results could be harmed by a variety of factors, including:

•currency fluctuations, and in particular the strength of the U.S. Dollar (which is our functional and reporting currency) relative to many currencies, which have adversely affected, and may in the future adversely affect, our financial results and cause some customers to delay purchasing decisions, move to in-sourcing supply, migrate to lower cost alternatives, or ask for discounts;

•the longer payment cycles associated with many customers located outside the United States;

•difficulties in interpreting or enforcing agreements and collecting receivables through many foreign countries’ legal systems;

•changes in restrictions on trade between the United States and other countries or unstable regional political and economic conditions;

•changes in the political, regulatory, safety or economic conditions in a country or region;

•the imposition by governments of additional taxes, tariffs, global economic sanctions programs, or other restrictions on foreign trade such as the tariffs put into place by both China and the United States;

•conflicts between countries, including the current military conflict between Russia and Ukraine, and related sanctions, and growing tensions surrounding China and Taiwan;

•any inability to obtain required export or import licenses or approvals, including the inability to obtain required export licenses during a United States government shutdown;

•natural disasters and pandemics;

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•failure to comply with export laws and requirements, which may result in civil or criminal penalties and restrictions on our ability to export our products, particularly our industrial linear accelerator products;

•risks unique to the Chinese market, including import barriers and preferences for local manufacturers;

•failure to obtain proper business licenses or other documentation or to otherwise comply with local laws and requirements regarding marketing, sales, service, or any other business we conduct in a foreign jurisdiction, which may result in civil or criminal penalties and restrictions on our ability to conduct business in that jurisdiction; and

•difficulties in protecting our intellectual property in foreign countries.

In recent years our international operations have represented a larger share of our business. The more we depend on international sales, the more vulnerable we become to these factors.

It has become more difficult to attract and retain employees, which has impacted, and is likely to continue to impact, our ability to develop and manufacture products and operate our business.

Our future success depends, to a great degree, on our ability to retain, attract, expand, integrate, and train our management team and other key personnel, such as qualified engineering, service, sales, marketing, manufacturing and other staff. We compete for key personnel with other medical equipment and software manufacturers and technology companies, as well as universities and research institutions. Competition for qualified personnel has increased over the past years. We have observed an overall tightening and increasingly competitive labor market, which has resulted in increased wages offered by other employers and voluntary attrition of employees in the industry, making it more difficult to recruit, hire, and retain talent. Because competition is intense, particularly in Utah, where unemployment rates are relatively low, compensation-related costs have increased, and could continue to increase, significantly. If we are unable to hire and train qualified personnel, we may not be able to maintain or expand our business.

Additionally, our United States-based employees, including our senior management team, work for us on an at-will basis and there is no assurance that any such employees will remain with us. Replacing key employees, including our executive officers, and management personnel may be difficult or costly and may take an extended period of time because of the limited number of individuals in our industry and where we are located with the breadth of skills and experience that we require. We have faced and may continue to face increased challenges of employee attraction and retention. To the extent we hire employees from competitors, we also may be subject to allegations that they have been improperly solicited or divulged proprietary or other confidential information.

We may face additional risks from the acquisition or development of new lines of business.

From time to time, we may acquire or develop new lines of business. There are substantial risks and uncertainties associated with new lines of business, particularly in instances where the markets are not fully developed or are ones we have not operated in before. Risks include developing knowledge of and experience in the new business, recruiting market professionals, new types or greater levels of liability exposure, increasing research and development expenditures, and developing and capitalizing on new relationships with experienced market participants. This may mean significant investment and involvement of our senior management to acquire or develop, then integrate, the business into our operations. Timelines for integration of new businesses may not be achieved, and price and profitability targets may not prove feasible, as new products can carry lower gross margins than existing products. External factors, such as compliance with regulations, (including in the case of some evolving end-markets, fast-changing regulatory developments and legal uncertainties), competitive alternatives, and shifting market preferences may also impact whether implementation of a new business will be successful. Failure to manage these risks could have a material and adverse effect on our business, results of operations, and/or financial condition.

In addition, some of our products are multi-purpose products designed and intended to be used by OEMs and end users for a wide range of imaging and irradiation purposes including for use in new and emerging industries. Certain of these industries may be subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions, which depending on how they develop, could negatively impact demand for such products. We cannot reasonably predict the nature of these developments or the effect, if any, that these developments could have on our business.

We may be unable to complete future acquisitions or realize expected benefits from acquisitions of or investments in new businesses, products, or technologies, which could harm our business.

Our ability to identify and take advantage of attractive acquisitions or other business development opportunities is an important component in implementing our overall business strategy. We must grow our business in response to changing technologies, customer demands, and competitive pressures. In some circumstances, we may decide to grow our business through the acquisition of complementary businesses, products, or technologies, rather than through internal development; however, there is no guarantee that these acquisitions will be successful or that we will realize a return on our investment.

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Identifying suitable acquisition candidates can be difficult, time consuming, and costly, and we may not be able to identify suitable candidates or successfully complete or finance identified acquisitions, including as a result of failing to obtain regulatory or competition clearances, which could impair our growth and ability to compete. In addition, completing an acquisition can divert our management and key personnel from our current business operations, which could harm our business and affect our financial results. Even if we complete an acquisition, we may not be able to successfully integrate newly-acquired organizations, products, technologies, or employees into our operations or may not fully realize some of the expected synergies.

Integrating an acquisition can also be expensive and time consuming and may strain our resources. It may cost us more to commercialize new products than originally anticipated or cause us to increase our expenses related to research and development, either of which could materially and adversely impact our results of operations. In many instances, integrating a new business will also involve implementing or improving internal controls appropriate for a public company into a business that lacks them. It is also possible that an acquisition could increase our risk of litigation, as a third party may be more likely to assert a legal claim following an acquisition because of perceived deeper pockets or a perceived greater value of a claim. In addition, we may be unable to retain the employees of acquired companies or the acquired company’s customers, suppliers, distributors, or other partners for a variety of reasons, including the fact that these entities may be our competitors or may have close relationships with our competitors.

Further, we may find that we need to restructure or divest acquired businesses or assets of those businesses. Completed acquisitions may not produce the full efficiencies, growth, or benefits that were expected. If we decide to sell assets or a business, it may be difficult to identify buyers or alternative exit strategies on acceptable terms, in a timely manner, or at all, which could delay the accomplishment of our strategic objectives. We may be required to dispose of a business at a lower price or on less advantageous terms, or to recognize greater losses than we had anticipated.

If we acquire a business, we allocate the total purchase price to the acquired business’ tangible assets and liabilities, identifiable intangible assets, and liabilities based on their fair values as of the date of the acquisition and record the excess of the purchase price over those values as goodwill. If we fail to achieve the anticipated growth from an acquisition, or if we decide to sell assets or a business, we may be required to recognize an impairment loss on the write-down of our assets and goodwill, which could materially and adversely affect our financial results. In addition, acquisitions can result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or expenses, or other charges, any of which could harm our business and affect our financial results.

We participate in joint ventures and other investments in privately-held and publicly traded companies. For example, we hold a 40% ownership interest in dpiX LLC, our major supplier of our amorphous silicon-based thin film transistor arrays for flat panels used in our digital image detectors, and a 50% interest in VEC Imaging GmbH & Co. KG, a joint venture formed to develop technology for use in X-ray imaging components and we recently invested in another X-ray imaging components technology company. These and other investments are subject to risk of loss of investment capital as well as losses associated with contributed or jointly developed intellectual property. These types of investments are inherently risky, in some instances because the markets for the technologies or products these companies have under development may never materialize or may underperform relative to our expectations. If these companies do not succeed, we could lose some or all of our investment in these companies. In addition, we may incur significant costs and management resources to enforce our rights, protect our intellectual property and other assets, address disputes that have arisen, are ongoing, or may arise in the future, and/or unwind, dispose of or terminate our arrangements with respect to these investments. There is no guarantee that the time and money invested by us in these projects, or jointly developed intellectual property or product or product enhancements will yield the expected returns.

Warranty claims may materially and adversely affect our business.

We could experience an increase in warranty claims as a result of issues with product quality or product failures as a direct result of our design, manufacturing, or issues in our supply chain. Such an occurrence may damage our market reputation, cause sales to decline, or require repairs or voluntary remedial measures to enhance customer satisfaction, which could materially and adversely impact our financial results. Increased warranty claims on any given product could cause us to halt production on that product and significantly impair our liquidity and profitability, and could cause reputational harm to us. Because some categories of products tend to experience higher numbers of warranty claims than others, a shift in the types of products that our customers purchase could lead to an increase in warranty claims. If actual levels of warranty claims are greater than the level of claims we estimate, cost of sales could increase, and our financial condition could be materially and adversely affected. In addition, product quality issues could result in significant follow-on effects for us, including, among other things, reputational harm to us and our customers, loss of customers, and liability as a result of product quality issues. These outcomes would materially and adversely affect our business ~~please refer~~and financial condition.

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Product defects or misuse may result in material product liability or professional errors and omissions claims, litigation, investigation by regulatory authorities, or product recalls that could harm our future revenues and require us to pay material uninsured claims.

Our business exposes us to potential product liability claims that are inherent in the manufacture, sale, installation, servicing, and support of components that are used in medical devices and other devices that deliver radiation. Because our products, through incorporation into OEMs’ systems, are involved in the intentional delivery of radiation to the ~~section entitled "Risk Factors"~~human body and other situations where people may come into contact with radiation (for example, when our security and inspection products are being used to scan cargo or in the diagnosis of medical problems), the possibility for significant personal injury or loss of life exists. We may also be subject to claims for property damage, personal injury, or economic loss related to or resulting from any errors or defects in our ~~Annual Report~~products or the installation, servicing, or support of our products. Any accident or mistreatment could subject us to legal costs, litigation, adverse publicity, and damage to our reputation, whether or not our products or services were a factor.

If our X-ray inspection systems fail to detect the presence of bombs, explosives, weapons, contraband, or other threats to personal safety, we could be subject to product and other liability claims or negative publicity, which could result in increased costs, reduced sales, and a decline in the market price of our common stock. There are many factors beyond our control that could result in such a failure, including operator error and misuse of or malfunction of our equipment. The failure of our systems to detect the presence of these dangerous materials may lead to personal injury, loss of life, and extensive property damage and may result in potential claims against us.

Product liability actions are subject to uncertainty and may be expensive, time consuming, and disruptive to our operations. For these and other reasons, we may choose to settle product liability claims against us regardless of their actual merit. A product liability action determined against us could result in adverse publicity or significant damages, including the possibility of punitive damages, and our combined financial position, results of operations, or cash flows could be materially and adversely affected.

If a product we design or manufacture were defective (whether due to design, labeling or manufacturing defects, improper use of the product, or other reasons), we may be required to correct or recall the product and notify regulatory authorities. The adverse publicity resulting from a correction or recall could damage our reputation and cause customers to review and potentially terminate their relationships with us. A product correction or recall could consume management time and have an adverse financial impact on ~~Form 10-K~~our business, including incurring substantial costs, losing revenues, and accruing losses.

We maintain limited product liability insurance coverage. Our product liability insurance policies are expensive and have high deductible amounts and self-insured retentions. Our insurance coverage may prove to be inadequate, and future policies may not be available on acceptable terms or in sufficient amounts, if at all. If a material claim is not insured or is in excess of our insurance coverage, we could have to pay substantial damages, which could have a material and adverse effect on our financial position and/or results of operations.

We are exposed to credit risk and fluctuations in the values of our investment portfolio.

Our investments can be negatively affected by liquidity, credit deterioration, financial results, market and economic conditions, political risk, sovereign risk, interest rate fluctuations or other factors. As a result, the value and liquidity of our cash, cash equivalents and marketable securities may fluctuate substantially. Future fluctuations in their value could result in significant losses and could have a material adverse impact on our financial condition and operating results. See Part I, Item 3 "Quantitative and Qualitative Disclosures about Market Risk" for more information regarding the risks related to credit risks and fluctuations on our business.

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Our business is subject to evolving ESG requirements and stakeholder expectations that could expose us to numerous risks.

Regulators, customers, consumers, investors, and other stakeholders are increasingly focusing on ESG issues and related disclosures. Changing ESG requirements and stakeholder expectations, including ESG requirements set forth in customer procurement policies, have resulted in, and are likely to continue to result in, increased general and administrative expenses and increased management time and attention spent complying with or meeting such regulations and expectations. For example, developing and acting on ESG initiatives, and collecting, measuring, and reporting ESG information and metrics can be costly, difficult and time consuming and is subject to evolving reporting standards, including the SEC’s proposed climate-related reporting requirements. We may also communicate certain ESG initiatives and goals in our SEC filings or in other public disclosures. These initiatives and goals could be difficult and expensive to implement, the technologies needed to implement them may not be cost effective and may not advance at a sufficient pace, and we could be criticized for the ~~year ended~~accuracy, adequacy, or completeness of the disclosure of our ESG initiatives. Further, statements about our ESG initiatives and goals, and progress against those goals, may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future. In addition, we could be criticized for the scope or nature of such initiatives or goals, or for any revisions to these goals. If our ESG-related data, processes and reporting are incomplete or inaccurate, or if we fail to achieve progress with respect to our ESG goals on a timely basis, or at all, our reputation, business, financial performance and growth could be adversely affected.

In addition, our customers have adopted, and may continue to adopt, procurement policies that require us to comply with social, and environmental responsibility provisions. An increasing number of investors have adopted, and may continue to adopt, ESG policies for their portfolio companies, and various voluntary sustainability initiatives and organizations have promulgated different social and environmental responsibility and sustainability guidelines. These practices, policies, provisions, and initiatives are under active development, subject to change, can be unpredictable and conflicting, and may prove difficult and expensive for us to comply with and could negatively affect our reputation, business, or financial condition.

Risks Relating to the Manufacture of our Products

Supply chain disruptions, including the loss of a supplier, and any inability to obtain supplies of important components have impacted our ability to manufacture products, have caused delays in our ability to deliver products, and have increased our costs and may continue to do so.

As discussed under the heading "Risks Relating to Our Business" above, supply chain disruptions have had, and could continue to have, an impact on our ability to manufacture certain products. We have experienced some delays in receiving materials used to make certain products due both to material shortages and shipping delays. These delays for certain products could continue in the future.

Material shortages have caused, and could in the future cause, us to temporarily stop production of certain products or miss opportunities to pursue additional sales of some products. If we are unable to obtain the materials necessary to make certain products or if we must pay more for certain materials, it could have a material adverse effect on our business and financial results.

We obtain some of the components included in our products from a limited group of suppliers or from sole-source suppliers, such as wave guides for industrial linear accelerators, transistor arrays, cesium iodide coatings and specialized integrated circuits for flat panel detectors, X-ray tube targets, housings, glass frames, high-voltage cable, bearings, and various other components. For example, our major supplier of our amorphous silicon-based thin film transistor arrays for flat panels used in our digital image detectors is dpiX LLC. We do not have majority voting rights or the power to direct the activities of dpiX. In addition, Varian is our sole source supplier for a key component in linear accelerators used in our security and inspection products subsystems, which are specially made for us. If current suppliers cease producing these or other components, or fail to provide products on our delivery timelines, there can be no assurance that the components will be available from other suppliers on reasonable terms or at all, and this could materially and adversely affect out business and financial results.

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If we lose any of these limited- or sole-source suppliers, if their operations are substantially interrupted, or if any of them fail to meet performance or quality specifications or delivery deadlines, we may be required to obtain and qualify one or more replacement suppliers or to manufacture the components internally. Such an event (1) may then also require us to redesign or modify our products to incorporate new parts and/or further require us to obtain clearance, qualification, or certification of these products, including by the FDA, or obtain other applicable regulatory approvals in other countries, (2) could significantly increase costs for the affected products, (3) cause material delays in delivery of affected and other related products, or (4) could prevent us from meeting our delivery obligations to our customers. In addition, manufacturing capacity limitations of any of our suppliers or other inability of these suppliers to meet increasing demand or delivery deadlines could limit growth opportunities for the affected product lines and damage customer relationships. Shortages of, and greater demand for, components and subassemblies could also increase manufacturing costs if the supply/demand imbalance increases the price of the components and subassemblies. Any of these events could materially and adversely affect our business and financial results. If we decide to manufacture a component that was previously purchased from an external supplier, we may not be able to manufacture the component as efficiently as the external supplier and may experience delays or problems in successfully manufacturing the component, which could materially and adversely affect our ability to manufacture and supply products to customers.

Shortages, changes in source of, and increases in prices for, raw materials have negatively impacted our ability to manufacture products, have caused delays, and have increased our cost of goods.

We rely on the supplies of certain raw materials such as tungsten, lead, iridium, and copper for security and inspection products and copper, lead, tungsten, rhenium, molybdenum zirconium, and various high grades of steel alloy for X-ray tubes. Worldwide demand, availability, and pricing of these raw materials have been volatile. We have experienced and expect that we will continue to experience increases in raw material costs due to inflation and other market constraints. We expect that availability and pricing will continue to fluctuate in the future. If supplies are restricted or become unavailable or if prices increase further, this could constrain our manufacturing of affected products, reduce our profit margins, or otherwise materially and adversely affect our business.

We are required to disclose (1) the presence in our products of certain metals known as “conflict minerals,” which are metals mined from the Democratic Republic of the Congo and adjoining countries, and (2) procedures regarding our efforts to identify the sourcing of those minerals from this region. Our complex supply chain may inhibit our ability to sufficiently verify the origins of the relevant minerals used in our products through the due diligence procedures that we implement, which may harm our reputation. In addition, we may encounter challenges in satisfying customers who require that all of the components of our products are certified as conflict-free, which could place us at a competitive disadvantage if we are unable to do so. Moreover, complying with these rules requires investigative efforts, which has caused, and will continue to cause, us to incur associated costs and could materially and adversely affect the sourcing, supply, and pricing of materials used in our products or result in process or manufacturing modifications, all of which could materially and adversely affect our results of operations.

If we are not able to match our manufacturing capacity with demand for our products, our financial results may suffer.

Many of our products have a long production cycle, and we must anticipate demand for our products to ensure adequate manufacturing and testing capacity. If we are unable to anticipate demand, and our manufacturing or testing capacity does not keep pace with product demand, we will not be able to fulfill orders in a timely manner, which may negatively impact our financial results and overall business. Conversely, if demand for our products decreases, the fixed costs associated with excess manufacturing capacity may harm our financial results, including by decreasing gross margins and increasing research and development costs as a percentage of revenue.

A disruption at our manufacturing facilities, as well as fluctuating manufacturing costs, could materially and adversely affect our business.

The majority of our products are manufactured at our facility in Salt Lake City, Utah. Our manufacturing operations are subject to potential power failures, the breakdown, failure, or substandard performance of equipment, the improper installation or operation of equipment, pandemics, and natural or other disasters. Loss or damage to our manufacturing facility due to any of these factors or otherwise could materially and adversely affect our ability to manufacture sufficient quantities of our products or otherwise deliver products to meet customer demand or contractual requirements, which may result in a loss of revenue and other adverse business consequences. Because of the time required to obtain regulatory approval and licensing of a manufacturing facility, we may not be able to replace any lost manufacturing capacity on a timely basis. The occurrence of these or any other operational issues at our manufacturing facilities could have a material and adverse effect on our business, financial condition, and results of operations.

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Some of our products are manufactured in Wuxi, China; Walluf, Germany; Doetinchem, the Netherlands; and Calamba City, Philippines, which are subject to similar risks but may also face additional regulatory and political risks, which could impact our ability to manufacture and ship products in a timely manner or at all. We also manufacture security products in Las Vegas, Nevada, and these operations are also subject to potential power failures, the breakdown, failure, or substandard performance of equipment, the improper installation or operation of equipment, earthquakes, and other disasters, all of which could materially and adversely affect our ability to deliver products to meet customer demand. In addition, our costs associated with manufacturing our products can vary significantly from quarter to quarter, and fluctuations thereof may adversely affect our business, operating results, and/or financial condition.

Delivery schedules for our security, industrial, and inspection products tend to be unpredictable.

We design, manufacture, sell, and service Linatron® X-ray linear accelerators, image-processing software, and image detection products for security and inspection, such as cargo screening at ports and borders and nondestructive examination for a variety of applications, as well as industrial applications. We generally sell security and inspection products to OEMs who incorporate our products into their inspection or irradiation systems and processes, which are then sold to customs and other government agencies, as well as to commercial organizations in the casting, power, aerospace, chemical, petrochemical, and automotive industries. We believe growth in our security and inspection products will be driven by security cargo screening and border protection needs, as well as by the needs of customs agencies to verify shipments for assessing duties and taxes. This business is heavily influenced by domestic and international government policies on border and port security, political change, and government budgets. Orders for our security and inspection products have been and may continue to be unpredictable, as governmental agencies may place large orders with us or our OEM customers in a short time period and then may not place any orders for a long time period thereafter. Because it is difficult to predict our OEM customer delivery, the actual timing of sales and revenue recognition varies significantly.

The demand for our security and inspection products is heavily influenced by United States and foreign governmental policies on national and homeland security, border protection, and customs activities, which depend upon government budgets and appropriations that are subject to economic conditions, as well as political changes and oil prices. We have seen customers freeze or dramatically reduce purchases and capital project expenditures, delay projects, or act cautiously as governments around the world wrestle with spending priorities. As economic growth remains sluggish in various jurisdictions and appears to be deteriorating in others, and as concerns about levels of government employment and government debt continue, we expect that these effects will also continue. Bid awards in this business may be subject to challenge by third parties. These factors make this business more unpredictable and could cause volatility in our revenues and earnings.

Our international manufacturing operations subject us to volatility and other risks, including high security risks, which could result in harm to our employees and contractors or substantial costs.

We conduct certain manufacturing operations internationally to reduce costs and streamline our manufacturing operations. There are administrative, legal, and governmental risks to operating internationally that could increase operating expenses or hamper the development of these operations. The risks from operating internationally that could increase our operating expenses and materially and adversely affect our operating results, financial condition, and ability to deliver our products and grow our business include, among others:

•difficulties in staffing and managing employee relations and foreign operations, particularly in attracting and retaining personnel qualified to design, test, sell, and support our products;

•fluctuations in currency exchange rates;

•difficulties in coordinating our operations globally and in maintaining uniform standards, controls, procedures, and policies across our operations;

•difficulties in enforcing contracts and protecting intellectual property, including in connection with our joint ventures;

•diversion of management attention;

•imposition of burdensome governmental regulations, including changing laws and regulations with respect to collection and maintenance of personally identifiable data;

•regional and country-specific political and economic instability, as discussed in greater detail below; and

•inadequacy of the local infrastructure to support our operations.

Our international locations expose us to higher security risks compared to our United States locations, which could result in both harm to our employees and contractors or substantial costs. Some of our services are performed in or adjacent to high-risk locations where the country or location and surrounding area is suffering from political, social, or economic turmoil, war or civil unrest, or has a high level of criminal or terrorist activity. In those locations where we have employees or operations, we may incur substantial costs to maintain the safety of our personnel. Despite these precautions, the safety of our personnel in these locations may continue to be at risk, and we may in the future suffer the loss of employees and contractors, which could harm our business reputation and operating results.

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Our operations are vulnerable to interruption or loss due to natural or other disasters, the effects of climate change, power loss, strikes, and other events beyond our control.

We conduct some of our activities, including manufacturing, research and development, administration, and data processing at facilities located in areas that have in the past experienced or may in the future experience natural disasters. Our insurance coverage for such disasters may not be adequate or continue to be available at commercially-reasonable terms, or at all. A major disaster (such as a major fire, hurricane, earthquake, flood, tsunami, volcanic eruption or terrorist attack) or a climate change-related event affecting our facilities, or those of our suppliers, could significantly disrupt our operations and delay or prevent product manufacture and shipment during the time required to repair, rebuild, or replace our or our suppliers’ damaged manufacturing facilities. These delays could be lengthy and costly. If any of our customers’ facilities are adversely affected by such a disaster or event, shipments of our products could be delayed. Additionally, customers may delay purchases of our products until our or their operations return to normal. For example, following the earthquake and tsunami disasters in Japan in 2011, the operations of Canon Medical Systems Corporation, our largest customer, were impacted, and, as a consequence, orders to and product shipment from our business were delayed for several months. Even if our suppliers or customers are able to quickly respond to such a disaster or event, the ongoing effects could create some uncertainty in the operations of our business. In addition, our facilities may be subject to a shortage of available electrical power and other energy supplies. Any shortages may increase our costs for power and energy supplies or could result in blackouts, which could disrupt the operations of our affected facilities and harm our business. Further, our products are typically shipped from a limited number of ports, and any disaster, strike, or other event blocking shipment from these ports could delay or prevent shipments and harm our business. In addition, concerns about terrorism, the effects of a terrorist attack, political turmoil, or an outbreak of epidemic diseases have in the past had, and could in the future have, a negative effect on our business operations, those of our suppliers and customers, and the ability to travel, resulting in adverse consequences on our revenues and financial performance.

Risks Relating to our Intellectual Property and Information Systems

Our competitive position would be harmed if we are not able to maintain our intellectual property rights, and protecting our intellectual property and defending against infringement claims can be costly.

We file applications as appropriate for patents covering new products and manufacturing processes. We cannot be sure, however, that patents will be issued from any of our pending or future patent applications. We also cannot be sure that our current patents, the claims allowed under our current patents, or patents for technologies licensed to us will be sufficiently broad to protect our technology position against competitors. We also jointly develop intellectual property with third parties and seek to protect our rights to such intellectual property through licenses and other contractual arrangements. Issued patents owned by, or licensed to, us may be challenged, invalidated, or circumvented, and the rights granted under the patents, licenses or other contractual arrangements may not provide us with competitive advantages or otherwise protect our interests. Asserting our patent rights against others in litigation or other legal proceedings is costly and diverts managerial resources. An adverse finding in patent infringement litigation could adversely impact our competitive position. In addition, we may not be able to detect patent infringement by others or may lose our competitive position in the market before we are able to do so.

We also rely on a combination of copyright, trade secret, and other laws, and contractual restrictions on disclosure, copying and transferring title (including confidentiality agreements with vendors, strategic partners, co-developers, employees, consultants, and other third parties), to protect our proprietary, and other confidential rights. These protections may prove to be inadequate, since agreements may still be breached, and we may not have adequate remedies for a breach. Our trade secrets may become known to or be independently developed by others, including as a result of misappropriation by unauthorized access to our technology systems. If our proprietary or confidential information is misappropriated, our business and financial results could be materially and adversely impacted. We have trademarks, both registered and unregistered, that are maintained and enforced to provide customer recognition for our products in the marketplace, but unauthorized parties may still use them. We also license certain patented or proprietary technologies from others. In some cases, products with substantial revenues may depend on these license rights. If we were to lose the rights to license these technologies, or our costs to license these technologies were to materially increase, our business would suffer. As we expand our manufacturing capabilities outside of the United States, more of our intellectual property may be held in jurisdictions that do not have robust intellectual property protections, which may make it harder for us to adequately protect our intellectual property.

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Third parties may claim that we are infringing upon their intellectual property, and we could suffer significant litigation or licensing expenses or be prevented from selling our products.

There is a substantial amount of litigation over patent and other intellectual property rights in the industries in which we compete. Our competitors, like companies in many high technology businesses, continually review other companies’ activities for possible conflicts with their own intellectual property rights. In addition, non-practicing entities may review our activities for conflicts with their patent rights. Determining whether a product infringes on a party’s intellectual property rights involves complex legal and factual issues, and the outcome of this type of litigation is often uncertain. Parties may claim that we are infringing upon their intellectual property rights or that we are in breach of related licensing agreements or other contractual arrangements. We may not be aware of intellectual property rights of others that relate to our products, services, or technologies. From time to time, we have received notices from parties asserting infringement, and we have been subject to lawsuits alleging infringement of patent or other intellectual property rights. Any dispute regarding patents or other intellectual property, including with respect to breaches of licensing agreements or other contractual arrangements, could be costly and time consuming and could divert our management and key personnel from our business operations. We may not prevail in a dispute. We do not maintain insurance for intellectual property infringement, so costs of defense, whether or not we are successful in defending an infringement claim, will be borne by us and could be significant. If we are unsuccessful in defending or appealing an infringement claim or claims alleging other contractual breaches, we may be subject to significant damages, and our combined financial position, results of operations, or cash flows could be materially and adversely affected. We may also be subject to injunctions against development and sale of our products, the effect of which could be to materially reduce our revenues. Furthermore, a third party claiming infringement may not be willing to license our rights to us, and even if a third-party rights holder is willing to do so, the amounts we might be required to pay under the associated royalty or license agreement could be significant. We could decide to alter our business strategy or voluntarily cease the allegedly infringing actions rather than face litigation or pay a royalty, which could materially and adversely impact our business and results of operations.

Disruption of critical information systems or material breaches in the security of our systems may materially and adversely affect our business and customer relations.

Information technology (including technology from third party providers) helps us operate efficiently, interface with and support our customers, maintain financial accuracy and efficiency, and produce our financial statements. In the ordinary course of our business, we collect, process and store sensitive data, including intellectual property, proprietary business information and information of customers, suppliers and business partners, third parties accessing our website, patient data and personally identifiable information of customers and employees, in our data centers and on our networks, as well as in third party off-site data centers. Despite security measures, there is an increasing threat of information security attacks, including from computer viruses or other malicious codes, unauthorized access attempts, and cyber-attacks that pose risks to companies, including us. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently, have become increasingly sophisticated and generally are not recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventative measures, which could result in data leaks or otherwise compromise our confidential or proprietary information and disrupt our operations. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to, among other things, transaction errors, processing inefficiencies, the loss of customers, business disruptions, or the loss of or damage to intellectual property through a security breach or misappropriation of intellectual property. Such security breaches could expose us to a risk of loss of information, litigation, and possible liability to employees, customers, and/or regulatory authorities. If our data management systems do not effectively collect, secure, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our operating results internally and externally.

We use certain cloud-based software. A security breach, whether of our products, of our customers’ network security and systems, or of third-party hosting services could disrupt access to our customers’ stored information and could lead to the loss of, damage to, or public disclosure of our customers’ stored information, including patient health information. Such an event could have serious negative consequences, including possible patient injury, regulatory action, fines, penalties and damages, reduced demand for our solutions, an unwillingness of our customers to use our solutions, harm to our reputation and brand, and time-consuming and expensive litigation, any of which could have a material and adverse effect on our financial results.

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Risks Relating to Our Legal and Regulatory Environment

Changes in import/export regulatory regimes, tariffs, and national policies could continue to negatively impact our business.

Tariffs and changes in international trade agreements or trade-related laws and regulations may have an adverse impact on our business. As a component manufacturer, our products are integrated into the systems and products of our OEM customers. If the United States, China or other countries levy tariffs, duties or other additional taxes or restrictions on our customer’s products, the demand for such products, and our components included in such products, could decrease, which could have a material adverse effect on our business. Uncertainty over tariffs and trade wars could also cause our customers to delay or cancel orders for our products.

In the past, the United States has imposed tariffs on items imported from China and other countries that are incorporated into our products. Tariffs on items imported by us from China and other countries have increased our costs and have increased prices and lowered gross margins on some of our products, thereby having a direct adverse impact on our business and results of operations. China has imposed retaliatory tariffs that impact a number of our products, including United States origin X-ray tubes, heat exchange units, and certain flat panel detectors. The tariffs levied by China have increased our customers’ costs for products imported into China, which has caused us to make price concessions on some products and has caused some customers to stop purchasing our products. We expect that tariffs will continue to have a negative effect on our business and results of operations, including the possibility of continued price concessions or loss of business. Tariffs could limit our ability to compete for increased market share in China, which could cause our long-term prospects in China to suffer. In addition, future tariffs could have a more significant impact on our business. The imposition of additional tariffs by the United States could result in the adoption of additional tariffs by China and other countries, as well as further retaliatory actions by any affected country, which could negatively impact the global market for imaging equipment and could have a significant adverse effect on our business.

Both the governments of the United States and China have granted tariff exclusions that temporarily eliminate duties payable for specific commodities, providing partial relief from such tariffs. These exclusions are temporary and/or must be solicited and approved on a shipment-by-shipment basis. There is no guarantee that such exclusions will be granted or extended by either government, and the U.S. tariff exclusions are set to expire on September ~~29, 2017 filed~~30, 2023, unless extended.

In addition to tariffs, China’s stated policy of reducing its dependence on foreign manufacturers and technology companies may result in reduced demand for our products in China. Both the United States and China could pursue policies to reduce their dependence on foreign goods, which could have a material adverse impact on our business, results of operations and financial position. In addition, as a consequence of such policies, there are risks that the Chinese government may, among other things, require the use of local suppliers, compel companies that do business in China to partner with local companies to conduct business, or provide incentives to government-backed local customers to buy from local suppliers rather than companies like ours, all of which could adversely impact our business, results of operations and financial position.

Increasing tensions between China and Taiwan may cause the United States and/or China to impose higher tariffs, commence trade wars, move more quickly to reduce their dependence on each other’s goods, or enact boycotts against each other’s goods, this could cause significant disruptions in the markets and industries we serve, our supply chain, decrease demand from customers for the ultimate products using our solutions, and would materially harm our business, financial condition and results of operations.

In response to Russia's ongoing aggression against Ukraine, as substantially enabled by Belarus, the Department of Commerce strengthened its existing sanctions under the Export Administration Regulations against Russia and Belarus. The enhanced sanctions would require Bureau of Industry export licenses in order to export our products, even products for medical, health and safety, or humanitarian purposes, to Russia and Belarus. Applications for the export of products to Russia or Belarus will be reviewed under a policy of denial and reviewed on a case-by-case basis. If licenses for the export of our product are denied, it could adversely affect our business and results of operations.

A change in the percentage of our total earnings from international sales or additional changes in tax laws could increase our effective tax rate.

Our effective tax rate is impacted by tax laws in both the United States and in foreign countries. Earnings from our international subsidiaries are generally taxed at rates that differ from United States rates. A change in the percentage of our total earnings from our international subsidiaries, a change in the mix of particular tax jurisdictions between our international subsidiaries, or a change in currency exchange rates could cause our effective tax rate to increase. Furthermore, while United States tax reform imposed a current tax on cumulative undistributed earnings, these earnings could also become subject to incremental foreign withholding or United States state taxes should they actually be remitted to the United States, in which case our financial results could be materially and adversely affected.

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Statutory changes included in proposed United States legislation, if passed, including interpretive guidance, could have a material impact on income tax expense, the effective tax rate, or the value of deferred tax assets and liabilities. Changes in the valuation of our deferred tax assets or liabilities, additional changes in tax laws or rates, changes in the interpretation of tax laws in other jurisdictions, or other changes beyond our control could materially and adversely affect our financial position and results of operations.

We have entities in certain jurisdictions with cumulative net operating losses for which no income tax benefit can be recorded due to full valuation allowance positions. There could be additional future losses in these and other jurisdictions that would negatively impact our effective tax rate.

Compliance with foreign laws and regulations applicable to the marketing, manufacturing, and distribution of our products may be costly, and failure to comply may result in unfavorable legal proceedings, in significant penalties and other harm to our business.

Regulatory requirements affecting our operations and sales outside the United States vary from country to country, often differing significantly from those in the United States. In general, outside the United States, some of our products are regulated as medical devices by foreign governmental agencies similar to the FDA.

For us to market our products internationally, we must obtain clearances or approvals for products and product modifications. These processes (including, for example, the processes in the EU, the European Economic Area (“EEA”), Switzerland, Brazil, Australia, China, Japan and Canada) can be time consuming, expensive and uncertain, which can delay our ability to market products in those countries. Delays in the receipt of or failure to receive regulatory approvals, the inclusion of significant limitations on the indicated uses of a product, the loss of previously obtained approvals or failure to comply with existing or future regulatory requirements could restrict or prevent us from doing business in a country or subject us to a variety of enforcement actions and civil or criminal penalties, which would materially and adversely affect our business. In addition, compliance with changing regulatory schemes may add additional complexity, cost and delays in marketing or selling our products.

Within the EU/EEA, we must obtain, and in turn affix, a CE mark certification, which is a European marking of conformity that indicates that a product meets the essential requirements of the EU’s Medical Device Directive (“MDD”) and the EU Medical Device Regulations. Compliance with the ~~SEC~~MDD is done through a self-certification process that is then verified by an independent certification body called a “Notified Body,” which is an organization empowered by the legislature to conduct this verification. Once the CE mark is affixed, the Notified Body will regularly audit us to ensure that we remain in compliance with the applicable European laws and MDD. By affixing the CE mark to our product, we are certifying that our products comply with the laws and regulations required by the EU/EEA countries, thereby allowing the free movement of our products within these countries and others that accept CE mark standards. If we cannot support our performance claims and demonstrate compliance with the applicable European laws and the MDD, we would lose our right to affix the CE mark to our products, which would prevent us from selling our products within the EU/EEA/Switzerland territory and in other countries that recognize the CE mark. In April 2017, the European Commission adopted two regulations on ~~December 13, 2017.~~medical devices that impose stricter requirements for placing medical devices in the EU market, as well as for Notified Bodies. These regulations have resulted in the limited availability of recognized Notified Bodies, which could delay our ability to obtain CE marks. We may be subject to risks associated with additional testing, modification, certification, or amendment of our existing market authorizations, or we may be required to modify products already installed at our customers’ facilities to comply with the official interpretations of these revised regulations.

We are also subject to international laws and regulations of general applicability relating to matters such as environmental protection, safe working conditions, and manufacturing practices, as well as others. These are often comparable to, if not more stringent than, the equivalent regulations in the United States. Sales overseas are also affected by regulation of matters such as product standards, packaging, labeling, environmental and product recycling requirements, import and export restrictions, tariffs, duties, and taxes.

In addition, we are required to timely file various reports with international regulatory authorities similar to the ~~following risk factors should be considered in conjunction~~reports we are required to timely file with ~~those risk factors previously reported.~~

United States ~~Tax Reform~~regulatory authorities, including reports required by international adverse event reporting regulations. If these reports are not timely filed, regulators may impose sanctions, including temporarily suspending our market authorizations or CE mark, and sales of our products may suffer.

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Further, as we enter new businesses or pursue new business opportunities internationally, or as regulatory schemes change, we may become subject to additional laws, rules, and regulations. Becoming familiar with and implementing the infrastructure necessary to comply with these laws, rules, and regulations is costly. Additionally, in some countries, we rely or may rely in the future on foreign distributors and agents to assist in complying with foreign regulatory requirements, and we cannot be sure that they will always do so. The ~~Tax Cuts~~failure by us or our agents to comply with these laws, rules, and ~~Jobs Act~~regulations could delay the introduction of ~~2017 was signed~~new products, cause reputational harm, or result in investigations, fines, injunctions, civil penalties, criminal prosecution, or an inability to sell our products in or to import our products into certain countries, which could materially and adversely affect our business.

Compliance with United States laws and regulations applicable to the marketing, manufacturing, and distribution of our products may be costly, and failure or delays in obtaining regulatory clearances or approvals or failure to comply with applicable laws and regulations could prevent us from distributing our products, require us to recall our products, or result in unfavorable legal proceedings, significant penalties or other harm to our business.

Some of our products and those of OEMs that incorporate our products are subject to extensive and rigorous government regulation in the United States. Compliance with these laws and regulations is expensive and time-consuming, and failure to comply with these laws and regulations could materially and adversely affect our business.

Generally, our manufacturing operations for medical devices, and those of our third-party manufacturers, are required to comply with the QSR of the FDA, as well as other federal and state regulations for medical devices and radiation-emitting products. The FDA, through authorized auditing organizations, makes announced and unannounced periodic and on-going inspections of medical device manufacturers to determine compliance with QSR and, in connection with these inspections, issues reports known as Form FDA 483 reports when the FDA believes the manufacturer has failed to comply with applicable regulations and/or procedures. If Form FDA 483 reports are not addressed or corrective action is not taken in a timely manner and to the FDA’s satisfaction, the FDA may issue a warning letter or proceed directly to an enforcement action. Failure to respond in a timely manner to a warning letter, or any other notice of noncompliance and to promptly come into compliance could result in the FDA bringing an enforcement action, which could include the total shutdown of our production facilities, denial of importation rights to the United States for products manufactured in overseas locations, adverse publicity, and criminal and civil fines. The expense and costs of any corrective actions that we may take, which may include product recalls, correction and removal of products from customer sites, or changes to our product manufacturing and quality systems, could materially and adversely impact our financial results and may also divert management resources, attention, and time. Additionally, if a warning letter were issued, customers could delay purchasing decisions or cancel orders, and we could face increased pressure from our competitors, who could use the warning letter against us in competitive sales situations, either of which could materially and adversely affect our reputation, business, and stock price.

In addition, we are required to timely file various reports with the FDA, including reports required by the medical device reporting regulations (“MDRs”), that require we report to regulatory authorities if our devices may have caused or contributed to a death or serious injury, or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If we initiate a correction or removal of a device to reduce a risk to health posed by the device, we would be required to submit a publicly-available correction and removal report to the FDA and, in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall, which could lead to increased scrutiny by the FDA, other international regulatory agencies, and our customers regarding the quality and safety of our devices. If these MDRs or correction and removal reports are not filed on a timely basis, regulators may impose sanctions, sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business.

Government regulation may also cause significant delays or even prevent the marketing and full commercialization of future products or services that we may develop and/or may impose costly requirements on our business. Further, as we enter new businesses or pursue new business opportunities, we will become subject to additional laws, rules, and regulations, including FDA and foreign rules and regulations. Becoming familiar with and implementing the infrastructure necessary to comply with these laws, rules, and regulations is costly and time consuming. In addition, failure to comply with these laws, rules and regulations could delay the introduction of new products and could materially and adversely affect our business.

If we or any of our suppliers, distributors, agents, or customers fail to comply with FDA, Federal Trade Commission, or other applicable United States regulatory requirements or are perceived to have failed to comply with regulations, we may face:

•adverse publicity affecting both us and our customers;

•increased pressures from competitors;

•investigations by governmental authorities;

•fines, injunctions, civil penalties, and criminal prosecution;

•partial suspension or total shutdown of production facilities or the imposition of operating restrictions;

•increased difficulty in obtaining required clearances or approvals or losses of clearances or approvals already granted;

•seizures or recalls of our products or those of our customers;

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•delays in purchasing decisions by customers or cancellation of existing orders;

•the inability to sell our products; and

•difficulty in obtaining product liability or operating insurance at a reasonable cost, or at all.

We are also subject to federal and state laws and regulations of general applicability relating to matters such as environmental protection, safe working conditions, manufacturing practices, and other matters. Insurance coverage is not commercially available for violations of law, including the fines, penalties, or investigatory costs that we may incur as the consequence of regulatory violations. Consequently, we do not have insurance that would cover this type of liability.

We sell certain X-ray tube products as replacements which are subject to medical device certification and product registration laws and regulations, which vary by country and are subject to change, and we may be unable to receive registration approval or renewal of existing registrations if we fail to meet regulatory approval requirements or if the approval process becomes commercially infeasible or impractical.

We market and distribute certain X-ray tubes through distributors and third-party/multi-vendor service organizations that are used as equivalent replacements for specific OEM tubes. We are subject to medical device certification and product registration laws, which vary by country and are subject to periodic reviews and changes by regulatory authorities in those countries. For example, to sell X-ray tubes for replacement applications in China, product registrations must be approved by the new National Medical Products Administration (“NMPA”). We must comply with the requirements of the NMPA, and we may not be able to receive registration approval or renewal of existing registrations if we fail to meet regulatory approval requirements or if the process of gaining approval becomes commercially infeasible or impractical. Certain of these local laws and regulations have the effect of serving as a barrier to trade and can be difficult to navigate predictably.

In addition, certain countries in which our products are sold require products to undergo re-registration if the product is altered in any significant way.

These registration processes can be costly and time consuming, and customers may decide to purchase products from our competitors that do not have to be involved in a re-registration process. In addition, our inability to receive or renew product registrations may prevent us from marketing and/or distributing those particular products for replacement applications in the specific country.

Existing and future healthcare reforms, and changes to reimbursement rates, may indirectly have a material adverse effect on ~~December 22, 2017. The law includes significant~~our business and results of operations.

Sales of our products to OEMs in the medical sector indirectly depend on whether adequate reimbursement is available for our customers’ products from a variety of sources, such as government healthcare insurance programs, including U.S. Medicare and Medicaid programs, foreign government programs, private insurance plans, health maintenance organizations, and preferred provider organizations. Without adequate reimbursement, the demand for our customers’ products, and therefore indirectly our products, may be limited.

Healthcare reform proposals and medical cost containment measures in the United States and in many foreign countries could limit the use of both ours and our customers’ products, reduce reimbursement available for such use, further tax the sale or use of our products, and further increase the administrative and financial burden of compliance. These reforms and measures, including the uncertainty in the medical community regarding their nature and effect, could have a material and adverse effect on us and our customers’ purchasing decisions regarding our products and treatments and could harm our business, results of operations, financial condition, and prospects. We cannot predict the specific healthcare programs and regulations that will be ultimately implemented by local, regional, and national governments globally. However, any changes that lower reimbursements for us or our customers’ products and/or procedures using these products, including, for example, existing reimbursement incentives to convert from analog to digital X-ray systems, or changes that reduce medical procedure volumes or increase cost containment pressures on us or others in the healthcare sector could materially and adversely affect our business and results of operations.

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We are subject to federal, state, and foreign laws governing our business practices which, if violated, could result in substantial penalties. Additionally, challenges to or investigations into our practices could cause adverse publicity and be costly to respond to and thus could harm our business.

Anti-corruption laws and regulations. We are subject to the U.S. ~~corporate income tax system,~~Foreign Corrupt Practices Act and anti-corruption laws, as well as similar laws in foreign countries, such as the U.K. Bribery Act. In general, there is a worldwide trend to strengthen anti-corruption laws and their enforcement, and the healthcare industry and medical equipment manufacturers have been particular targets of these investigation and enforcement efforts. Any violation of these laws by us or our agents or distributors could create substantial liability for us, subject our officers and directors to personal liability, and cause a loss of reputation in the market. We operate in many countries, including India and China, where the public sector is perceived as being corrupt. Our strategic business plans include expanding our business in regions and countries that are rated as higher risk for corruption activity by Transparency International e.V., an international non-profit that publishes an annual corruption perception index. Becoming familiar with and implementing the infrastructure necessary to comply with laws, rules, and regulations applicable to new business activities and mitigating and protecting against corruption risks could be costly. Failure by us or our agents or distributors to comply with these laws, rules, and regulations could delay our expansion into high-growth markets and could materially and adversely affect our business. We will likely do more business, directly and potentially indirectly, in countries where the public sector is perceived to be corrupt. Increased business in higher-risk countries could subject us and our officers and directors to increased scrutiny and increased liability from our business operations.

Competition and trade compliance laws. We are subject to various competition and trade compliance laws in the jurisdictions where we operate. Regulatory authorities in those jurisdictions may have the power to subject us to sanctions and impose changes or conditions in the way we conduct our business. An increasing number of jurisdictions provide private rights of action for competitors or consumers to assert claims of anti-competitive conduct and seek damages. Increased government scrutiny of our actions or enforcement or private rights of action could materially and adversely affect our business or damage our reputation. We may be required to conduct internal investigations or face audits or investigations by one or more domestic or foreign government agencies, which could be costly and time consuming and could divert our management and key personnel from our business operations. An adverse outcome under any such investigation or audit could subject us to fines and criminal or other penalties, which could materially and adversely affect our business and financial results. Furthermore, competition laws may prohibit or increase the cost of future acquisitions that we may desire to undertake.

Laws and ethical rules governing interactions with healthcare providers. We do not generally sell our products directly to healthcare providers, but may occasionally sell our products to healthcare providers through distributors or otherwise engage healthcare providers to provide services. The U.S. Medicare and Medicaid “anti-kickback” laws, and similar state laws, prohibit payments or other remuneration that is intended to induce hospitals, physicians, or others either to refer patients or to purchase, lease, or order, or to arrange for or recommend the purchase, lease, or order of healthcare products or services for which payment may be made under federal and state healthcare programs, such as Medicare and Medicaid. These laws affect our sales, marketing, and other promotional activities by limiting the kinds of financial arrangements we may have with hospitals, physicians, or other potential purchasers of our products. They particularly impact how we structure our sales offerings, including discount practices, customer support, education and training programs, physician consulting, research grants, and other fee-for-service arrangements. These laws are broadly written, and it is often difficult to determine precisely how these laws will be applied to specific circumstances.

Federal and state “false claims” laws generally prohibit knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other government payors that are false or fraudulent, or for items or services that were not provided as claimed. Although we do not submit claims directly to payors, manufacturers can be, and have been, held liable under these laws if they are deemed to “cause” the submission of false or fraudulent claims by providing inaccurate billing or coding information to customers or through certain other activities, including promoting products for uses not approved or cleared by the FDA, which is called off-label promotion. Violating “anti-kickback” and “false claims” laws can result in civil and criminal penalties, which can be substantial, as well as potential mandatory or discretionary exclusion from healthcare programs for noncompliance. Even an unsuccessful challenge or investigation into our practices could cause adverse publicity and be costly to defend and thus could harm our business and results of operations. Additionally, several recently-enacted state and federal laws, including laws in Massachusetts and Vermont, and the federal Physician Payment Sunshine Act, now require, among other things, extensive tracking and maintenance of databases regarding the disclosure of equity ownership and payments to physicians, healthcare providers, and hospitals. These laws may require us to implement the necessary and costly infrastructure to track and report certain payments to healthcare providers. Failure to comply with these tracking and reporting laws could subject us to significant civil monetary penalties.

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Other Laws. We are subject to other laws in foreign countries where we conduct business. For example, within the EU, the control of unlawful marketing activities is a ~~Federal corporate rate reduction~~matter of national law in each of the member states. The member states of the EU closely monitor perceived unlawful marketing activity by companies. We could face civil, criminal, and administrative sanctions if any member state determines that we have breached our obligations under such state’s national laws. Industry associations also closely monitor the activities of member companies. If these organizations or authorities name us as having breached our obligations under their regulations, rules, or standards, our reputation would suffer, and our business and financial condition could be materially and adversely affected.

Certain of our products are subject to regulations relating to use of radioactive material, compliance with which may be costly, and a failure to comply with these regulations may materially and adversely affect our business.

As a manufacturer and seller of medical devices and devices emitting radiation or utilizing radioactive by-product material, we and some of our suppliers and distributors are subject to extensive regulation by United States governmental authorities, such as the FDA, the Nuclear Regulatory Commission (“NRC”), and state and local regulatory agencies, which is intended to ensure the devices are safe and effective and comply with laws governing products which emit, produce, or control radiation. These regulations govern, among other things, the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, sale, marketing, and disposal of our products. We are also subject to international laws and regulations that apply to manufacturers of radiation-emitting devices and products utilizing radioactive materials. These are often comparable to, if not more stringent than, the equivalent regulations in the United States.

Our industrial and medical devices utilizing radioactive material are subject to NRC clearance and approval requirements, and the manufacture and sale of these products are subject to extensive federal and state regulation that varies from ~~35%~~state to ~~21%,~~state and among regions. Our manufacture, distribution, installation, service, and removal of industrial devices utilizing radioactive material or emitting radiation also requires us to obtain a number of licenses and certifications for these devices and materials. Service of these products must also be performed in accordance with specific radioactive materials licenses. Obtaining licenses and certifications may be time consuming, expensive, and uncertain.

The handling and disposal of radioactive materials resulting from the manufacture, use, or disposal of our products may impose significant costs and requirements. Disposal sites for the lawful disposal of materials generated by the manufacture, use, or decommissioning of our products may no longer accept these substances in the future or may accept them on unfavorable terms.

If we are unable to obtain required FDA clearances or approvals for a product or are unduly delayed in doing so, or the uses of that product are limited, our business could suffer.

Typically, our OEM customers are responsible for obtaining 510(k) pre-market notification clearance on their systems that integrate our products. A substantial majority of our products are “Class I” devices that do not require 510(k) clearance, but we do produce software that is classified as a Class II device subject to 510(k) clearance. Unless an exception applies, we may be required by FDA regulations to obtain a 510(k) pre-market notification clearance in connection with the manufacture of a new medical device or a new indication for use of, or other significant change in, an existing currently marketed medical device before we can market or sell those products in the United States. Modifications or enhancements to a product that could significantly affect its safety or effectiveness, or that would constitute a major change in the intended use of the device, technology, materials, labeling, packaging, or manufacturing process also require a new 510(k) clearance. We cannot ensure that the FDA will agree with our decisions not to seek additional approvals or clearances for particular modifications to our products or that we will be successful in obtaining new 510(k) clearances for modifications. Obtaining clearances or approvals is time consuming, expensive, and uncertain. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the ~~deductibility~~indicated uses of ~~interest expense~~the product, which may limit the market for the product. If we are unable to obtain required FDA clearance or approval for a product or are unduly delayed in doing so, or the uses of that product were limited, our business could suffer.

Initiation of legal proceedings, defense against legal proceedings, and ~~executive compensation,~~unfavorable results of legal proceedings could materially and ~~extensive changes~~adversely affect our financial results.

From time to time, we are a party to or otherwise involved in legal proceedings, claims, government inspections, audits or investigations, and other legal matters, both inside and outside the United States, arising in the ordinary course of our business or otherwise. Legal proceedings are often lengthy, taking place over a period of years with interim motions or judgments subject to multiple levels of review (such as appeals or rehearings) before the outcome is final. Litigation and other legal proceedings, claims, government inspections, audits and investigations are subject to significant uncertainty and may be expensive, time consuming, and disruptive to our operations. For these and other reasons, we may choose to settle legal proceedings and claims, regardless of their actual merit.

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If a legal proceeding were ultimately resolved against us, it could result in significant compensatory damages, and, in certain circumstances, punitive damages, disgorgement of revenue or profits, remedial corporate measures, or injunctive relief imposed on us and, in certain cases, potential civil or criminal action, including against our employees, officers or directors, for which we may be required to, or we may elect to, provide indemnification. If our existing insurance does not cover the amount or types of damages awarded, or if other resolution or actions taken as a result of such legal proceeding were to restrain our ability to market one or more of our material products or services, or if we were required to, or elected to, indemnify an employee, officer or director, our combined financial position, results of operations, or cash flows could be materially and adversely affected. In addition, legal proceedings, and any adverse resolution thereof, can result in adverse publicity and damage to our reputation, which could materially and adversely impact our business.

Environmental laws impose compliance costs on our business and may also result in liability.

We are subject to environmental laws around the world. These laws regulate many aspects of our operations, including our handling, storage, transport, and disposal of hazardous substances, such as the chemicals and materials that we use in the course of our manufacturing operations. They can also impose cleanup liabilities, including with respect to discontinued operations. As a consequence, we can incur significant environmental costs and liabilities, some recurring and others not recurring. Like other businesses, we may mishandle or inadequately manage hazardous substances used in our manufacturing operations and can never completely eliminate the risk of contamination or injury from certain materials that we use in our business and, therefore, we cannot completely eliminate the prospect of resulting claims and damage payments. We may also be assessed fines and/or other penalties for failure to comply with environmental laws and regulations. Insurance has provided coverage for portions of cleanup costs resulting from historical occurrences, but we do not expect to maintain insurance coverage for costs or claims that might result from any future contamination.

Pursuant to the ~~way foreign earnings~~Separation and Distribution Agreement we entered into with Varian when we spun off from Varian, we are ~~taxed~~obligated to indemnify Varian for 20% of the cleanup liabilities related to prior corporate restructuring activities undertaken while we were a division of Varian. This includes facilities sold as part of Varian’s electron devices business in 1995 and thin film systems business in 1997. The U.S. Environmental Protection Agency (“EPA”) or third parties have named Varian as a potentially responsible party under the amended Comprehensive Environmental Response Compensation and Liability Act of 1980 (“CERCLA”), at sites to which Varian or the facilities of the businesses sold in 1995 and 1997 were alleged to have shipped waste for recycling or disposal (the “CERCLA sites”). We anticipate that we will be obligated to reimburse Varian for 20% of the liabilities of Varian related to these CERCLA sites (after adjusting for any insurance proceeds or tax benefits received by Varian). We assess this indemnification obligation quarterly with Varian and make accruals accordingly. These accruals have historically been small, but can sometimes fluctuate significantly from period to period. For example, 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 in our liability of approximately $2.9 million, net of expected insurance proceeds.

Future changes in environmental laws could also increase our costs of doing business, perhaps significantly. Several countries, including some in the ~~U.S.~~EU, now require medical equipment manufacturers to bear certain disposal costs of products at the end of the product’s useful life, thereby increasing its costs. The ~~new tax law~~EU has also adopted directives that may lead to restrictions on the use of certain hazardous substances or other regulated substances in some of our products sold there. These directives, along with another that requires substance information to be provided upon request, could increase our operating costs in order to maintain our access to certain markets. All of these costs, and any future violations or liabilities under environmental laws or regulations, could have a material adverse effect on our business.

Failure to maintain effective internal controls and procedures could negatively impact us.

We must, among other things, maintain effective internal controls and procedures for financial reporting and disclosure purposes. In the past, we have not always been successful in maintaining effective internal controls and procedures. Internal control over financial reporting is complex and may be revised over time to adapt to changes in our ~~tax liabilities~~business or changes in applicable accounting rules. We cannot assure that our internal control over financial reporting will be effective in the future or that material weaknesses will not be discovered with respect to a prior period for which we had previously believed that internal controls were effective. If our internal controls and procedures are not effective, our financial statements may not accurately reflect the results of our business and operations. In addition, there could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could affect our stock price.

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Risks Relating to Our Indebtedness

We have significant debt obligations that could adversely affect our business, profitability, liquidity, and ability to meet our obligations.

As of June 30, 2023, our total combined indebtedness was approximately $448.7 million. The borrowings under our Convertible Senior Unsecured Notes due 2025 (the “Convertible Notes”) bear interest at a fixed rate of 4.00% and borrowings under our Senior Secured Notes due 2027 (the “Senior Secured Notes”) bear interest at a fixed rate of 7.875%. For more information regarding our borrowings, see Note 10, Borrowings of the Notes to the Condensed Consolidated Financial Statements of this report.

Our debt could potentially have important consequences to us and our investors, including:

•limiting our flexibility in planning for, or reacting to, changes in our business and the industry;

•limiting our ability to borrow additional funds as needed or increasing the costs of any such borrowing;

•making it more difficult for us to satisfy our obligations, including our debt obligations;

•increasing our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations, because a portion of our borrowings are and will continue to be at variable rates of interest;

•requiring us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures or other general corporate purposes;

•placing us at a disadvantage compared to competitors that may have proportionately less debt; and

•limiting our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements.

If our cash requirements in the future are greater than expected, our cash flow from operations may not be sufficient to repay all of the outstanding debt as it becomes due, and we may not be able to borrow money, sell assets, or otherwise raise funds on acceptable terms, or at all, to refinance our debt. For example, holders of the Convertible Notes will have the right to require us to repurchase all or a portion of the Convertible Notes on the occurrence of a fundamental change at a repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. Further, if a make-whole fundamental change as defined in the indenture governing the Convertible Notes occurs prior to the maturity date of the Convertible Notes, we will in some cases be required to increase the conversion rate for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change. Unless we elect to deliver solely shares of common stock to settle a conversion of the Convertible Notes (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments for those Convertible Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make such repurchases of the Convertible Notes surrendered or pay cash with respect to the Convertible Notes being converted.

Despite our substantial indebtedness, we may still be able to incur significantly more debt. This could intensify the risks described above.

We and our subsidiaries may be able to incur substantial indebtedness in the future. As of June 30, 2023, after adjustment to our available borrowing base under the $100 million revolving credit agreement we entered into on September 30, 2020 (the “Asset-Based Loan,” or "ABL Facility"), we had approximately $88 million of additional available borrowing capacity. In addition to any amounts that might be available to us for borrowing under the ABL Facility, subject to certain conditions, we will have the right to request an increase of aggregate commitments under the ABL Facility by an aggregate amount of up to $75 million by obtaining additional commitments either from one or more of the lenders under the ABL Facility or other lending institutions.

The ABL Facility and the indenture governing our Senior Secured Notes contain restrictions on our and our subsidiaries’ ability to incur additional indebtedness, which are subject to a number of ~~ways, including causing~~important qualifications and exceptions, and the indebtedness incurred in compliance with these restrictions could be substantial. Furthermore, the covenants in the indenture governing our Convertible Notes do not restrict the incurrence of indebtedness by us or any of our subsidiaries, and the covenants that may be contained in any future debt instruments could allow us to incur a ~~tax liability on earnings~~significant amount of additional indebtedness.

The more leveraged we become, the more we, and in turn holders of our notes, will be exposed to certain risks described above under “Risks Relating to Our Indebtedness—We have significant debt obligations that ~~have not been repatriated into~~could adversely affect our business, profitability, liquidity, and ability to meet our obligations.”

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The ABL Facility and the ~~United States~~indenture governing our Senior Secured Notes impose significant operating and ~~limiting~~financial restrictions that may limit our current and future operating flexibility, particularly our ability to ~~deduct~~respond to changes in the ~~expense~~economy or our industry or to take certain actions, which could harm our long-term interests and may limit our ability to make payments on the notes.

Our ABL Facility and the indenture governing our Senior Secured Notes impose significant operational and financial restrictions on us that include, but are not limited to our ability to:

•incur, assume or permit to exist additional indebtedness (including guarantees thereof);

•pay dividends or certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated indebtedness;

•prepay, redeem or repurchase certain debt;

•issue certain preferred stock or similar equity securities;

•incur liens on assets;

•make certain loans, investments or other restricted payments;

•allow to exist certain restrictions on the ability of our restricted subsidiaries to pay dividends or make other payments to us;

•engage in transactions with affiliates;

•alter the business that we conduct; and

•sell certain ~~executive compensation.~~assets or merge or consolidate with or into other companies.

As a result of these restrictions, we may be:

•limited in how we conduct our business;

•unable to raise additional debt or equity financing to operate during general economic or business downturns; or

•unable to compete effectively or to take advantage of new business opportunities.

A breach of the covenants under the indenture governing our Senior Secured Notes or the ABL Facility could result in an event of default under the applicable indebtedness. Such a default, if not cured or waived, may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt that is subject to an applicable cross-acceleration or cross-default provision. In addition, ~~significant judgments~~an event of default under the ABL Facility would permit the lenders under the ABL Facility to terminate all commitments to extend further credit under the ABL Facility. Furthermore, if we were unable to repay the amounts due and ~~estimates~~payable under the ABL Facility, those lenders could proceed against the collateral securing such indebtedness. In the event our lenders or holders of the notes accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness.

Our ability to continue to have the necessary liquidity to operate our business may be adversely impacted by a number of factors, including uncertain conditions in the credit and financial markets, which could limit the availability and increase the cost of financing. A deterioration of our results of operations and cash flow resulting from decreases in consumer spending, could, among other things, impact our ability to comply with the fixed charge coverage ratio contained in our ABL Facility.

Our historical sources of liquidity to fund ongoing cash requirements include cash flows from operations, cash and cash equivalents, borrowings through our previous credit facility and convertible debt offerings. The sufficiency and availability of credit may be adversely affected by a variety of factors, including, without limitation, the tightening of the credit markets, including lending by financial institutions who are sources of credit for our borrowing and liquidity; an increase in the cost of capital; the reduced availability of credit; our ability to execute our strategy; the level of our cash flows, which will be impacted by customer demand for our products; compliance with a fixed charge coverage ratio that is included in our ABL Facility; and interest rate fluctuations. We cannot predict the future level of interest rates or the effect of any increase in interest rates on the availability or aggregate cost of our borrowings. We cannot be certain that any additional required financing, whether debt or equity, will be available in amounts needed or on terms acceptable to us, if at all.

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The ABL Facility contains a minimum Fixed Charge Coverage Ratio of 1.00 to 1.00 that is tested when excess availability under the ABL is less than the greater of (i) 10.0% of the Loan Cap (the lesser of (a) the aggregate commitments under the ABL Facility and (b) the aggregate borrowing base) and (ii) $7.5 million. If we have to borrow in excess of 10.0% of the Loan Cap and $7.5 million, and we do not increase our earnings, we also would be at risk of not being in compliance with the ABL Facility’s fixed charge coverage ratio. Compliance with the fixed charge coverage ratio is dependent on the results of our operations, which are subject to a number of factors including current economic conditions. Adverse developments in the economy, including as a result of a number of events described in these Risk Factors, in the past have led and in the future could lead to reduced spending by our customers and end-users which could adversely impact our net sales and cash flow, which could affect our ability to comply with the fixed charge coverage ratio. In addition, the ABL Facility contains other affirmative and negative covenants that restrict our operating and financing activities. These provisions may limit our ability to, among other things, incur future indebtedness, contingent obligations or liens, guarantee indebtedness, make certain investments and capital expenditures, sell stock or assets, pay dividends and consummate certain mergers or acquisitions. Failure to comply with the fixed charge coverage ratio and other covenants, including the requirement to timely deliver financial statements within applicable grace periods, could result in an event of default. Upon an event of default, if the ABL Facility is not amended or the event of default is not waived, the lender could declare all amounts then outstanding, together with accrued interest, to be immediately due and payable. If this happens, we may not be able to make those payments or borrow sufficient funds from alternative sources to make those payments. Even if we were to obtain additional financing, that financing may be on unfavorable terms.

We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the notes. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Any future refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations. Additionally, the indentures relating to our notes limit the use of the proceeds from any disposition of our assets. As a result, the indentures may prevent us from using the proceeds from such dispositions to satisfy our debt service obligations.

Our credit rating and ability to access well-functioning capital markets are important to our ability to secure future debt financing on acceptable terms. Our credit ratings may not reflect all risks associated with an investment in our secured notes.

Our access to the debt markets and the terms of such access depend on multiple factors including the condition of the debt capital markets, our operating performance and our credit ratings. These ratings are based on a number of factors including an assessment of our financial strength and financial policies. Our borrowing costs will be dependent to some extent on the rating assigned to our debt. However, there can be no assurance that any particular rating assigned to us will remain in effect for any given period of time or that a rating will not be changed or withdrawn by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating so warrant. Incurrence of additional debt by us could adversely affect our credit rating. Any disruptions or turmoil in the capital markets or any downgrade of our credit rating could adversely affect our cost of funds, liquidity, competitive position and access to capital markets, which could materially and adversely affect our business operations, financial condition and results of operations. In addition, downgrading the credit rating of our debt securities or placing us on a watch list for possible future downgrading would likely have an adverse effect on the market price of our securities.

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We entered into certain hedging positions that may affect the value of the Convertible Notes and the volatility and value of our common stock.

In connection with the issuance of the Convertible Notes, we entered into certain convertible note hedge transactions. These hedge transactions are expected generally to reduce potential dilution of our common stock on any conversion of the Convertible Notes or offset any cash payments we are required to ~~evaluate our tax position and the impact~~make in excess of the ~~new tax law. If~~principal amount of such converted Convertible Notes, as the case may be, with such reduction or offset subject to a cap. The counterparties to these ~~judgments and estimates~~hedging positions or their respective affiliates may modify their hedge positions by entering into or unwinding various derivatives with respect to our common stock or purchasing or selling our common stock in secondary market transactions prior to the maturity of the Convertible Notes (and are ~~incorrect,~~likely to do so during any observation period related to a conversion of Convertible Notes or iffollowing any repurchase of Convertible Notes by us on any fundamental change repurchase date or otherwise). This activity could cause or avoid an increase or a decrease in the ~~underlying assumptions are different from what we expect, our tax liability could differ significantly from our current estimates. The new tax law could also impact the financial condition~~market price of our ~~customers,~~common stock or the Convertible Notes. In addition, if any such hedging positions fail to become effective, the counterparties to these hedging positions or their respective affiliates may unwind their hedge positions, which could adversely affect the value of our common stock.

Risks Relating to Our Common Stock

The trading price of our common stock may decline or fluctuate significantly and fluctuations in our operating results, including quarterly revenues, and margins, may cause our stock price to be volatile, which could cause losses for our stockholders.

During the year ended June 30, 2023, our stock price has ranged from a low of $17.11 to a high of $23.90. We cannot guarantee that an active trading market will be sustained for our common stock. Nor can we predict the prices at which shares of our common stock may trade. We have experienced and expect in the future to experience fluctuations in our operating results, including revenues and margins, from period to period. These fluctuations may cause our stock price to be volatile, which could cause losses for our stockholders.

Our quarterly and annual operating results, including our revenues and margins, may be affected by a number of other factors, including:

•the introduction and timing of announcement of new products or product enhancements by us and our competitors;

•changes in our or our competitors’ pricing or discount levels;

•changes in foreign currency exchange rates and other economic uncertainty;

•changes in import/export regulatory regimes including the imposition of tariffs on our products or those ~~customers~~of our customers;

•changes in the relative portion of our revenues represented by our various products, including the relative mix between higher-margin and lower-margin products;

•changes in the relative portion of our revenues represented by our international region as a whole and by regions within the overall region, as well as by individual countries (notably, those in emerging markets);

•fluctuation in our effective tax rate, which may or may not be known to ~~decrease~~ us in advance;

•the ~~amount~~availability of economic stimulus packages or other government funding, or reductions thereof;

•disruptions in the supply or changes in the costs of raw materials, labor, product components or transportation services;

•changes to our organizational structure, which may result in restructuring or other charges;

•disruptions in our operations, including our ability to manufacture products, ~~they purchase~~caused by events such as earthquakes, fires, floods, terrorist attacks or the outbreak of epidemic diseases;

•developments relating to any litigation or administrative proceeding or inquiry, including governmental audits, as well as ongoing costs associated with legal proceedings and governmental audits; and

•accounting changes and adoption of new accounting pronouncements.

Because many of our operating expenses are based on anticipated capacity levels, and a high percentage of these expenses are fixed for the short term, a small variation in the timing of revenue recognition can cause significant variations in operating results from ~~us,~~quarter to quarter. If our gross margins fall below the expectation of securities analysts and investors, the trading price of our common stock has declined in the past and may decline again in the future.

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Conversion of the Convertible Notes may dilute the ownership interest of our stockholders or may otherwise depress the market price of our common stock.

The conversion of the Convertible Notes may dilute the ownership interests of our stockholders. On conversion of the Convertible Notes, we have the option to pay or deliver, as the case may be, cash, shares of common stock, or a combination of cash and shares of common stock. If we elect to settle our conversion obligation in shares of common stock or a combination of cash and shares of common stock, any sales of our common stock issuable on such conversion could adversely affect prevailing market prices of our common stock. In addition, the existence of the Convertible Notes may encourage short selling by market participants because the conversion of the Convertible Notes could be used to satisfy short positions, or anticipated conversion of the Convertible Notes into shares of our common stock, any of which ~~would~~could depress the market price of our common stock.

The conditional conversion feature of the Convertible Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditions for optional conversion of the Convertible Notes by holders are met before the close of business on the business day immediately preceding June 1, 2025, holders of the Convertible Notes will be entitled to convert the Convertible Notes at any time during specified periods at their option. If we elect to satisfy our conversion obligation by settling all or a portion of our conversion obligation in cash, it could adversely affect our liquidity. In addition, even if holders do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital and may seriously harm our business.

Certain provisions in our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws, our Indenture, and of Delaware law, may prevent or delay an acquisition of our Company, which could decrease the trading price of our common stock.

Our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws, and Delaware law contain, provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the bidder and to encourage prospective acquirers to negotiate with our board of directors rather than to attempt a hostile takeover. These provisions include, among others:

•the inability of our stockholders to call a special meeting;

•the inability of our stockholders to act without a meeting of stockholders;

•rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;

•the right of our board of directors to issue preferred stock without stockholder approval; and,

•the ability of our directors, and not stockholders, to fill vacancies on our board of directors.

In addition, because we did not elect to be exempt from Section 203 of the Delaware General Corporation Law (the “DGCL”), this provision could also delay or prevent a change of control that stockholders may favor. Section 203 provides that, subject to limited exceptions, persons that acquire, or who are affiliated with a person that acquires, more than 15% of the outstanding voting stock of a Delaware corporation (an “interested stockholder”) shall not engage in any business combination with that corporation, including by merger, consolidation, or acquisitions of additional shares, for a three-year period following the date on which the person became an interested stockholder, unless: (1) prior to such time, the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (2) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced; or (3) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock of such corporation not owned by the interested stockholder.

These provisions are not intended to make us immune from takeovers. However, these provisions will apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our board of directors determines is not in the best interests of us and our stockholders. These provisions may also prevent or discourage attempts to remove and replace incumbent directors.

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Furthermore, certain provisions in our indenture governing the Convertible Notes may make it more difficult or expensive for a third party to acquire us. For example, our indenture requires us, at the holders’ election, to repurchase the Convertible Notes for cash on the occurrence of a fundamental change and, in certain circumstances, to increase the conversion rate for a holder that converts our Convertible Notes in connection with a make-whole fundamental change. A takeover of us may trigger the requirement that we repurchase the Convertible Notes or increase the conversion rate, which could make it costlier for a third party to acquire us. Our indenture also prohibits us from engaging in a merger or acquisition unless, among other things, the surviving entity assumes the obligations under the Convertible Notes and our indenture. These and other provisions in our indenture could deter or prevent a third party from acquiring us even when the acquisition may be favorable to holders of the Convertible Notes or our stockholders.

Liabilities related to our operations when we were part of Varian, or liabilities associated with the spin-off from Varian, could materially and adversely affect our business, financial condition, results of operations, and cash flows.

We entered into a Separation and Distribution Agreement when we spun off from Varian. The agreement provides for, among other things, indemnification obligations designed to make Varex financially responsible for information contained in our registration statement that describes Varex, our separation from Varian, the transactions contemplated by the Separation and Distribution Agreement, and liabilities that were allocable to Varex before the spin-off. We may be subject to substantial liabilities if we were required to indemnify Varian or if Varian were required, but unable, to indemnify us. Either of these could negatively affect our business, financial position, results of operations, and/or cash flows.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~None.~~During the fiscal quarter ended June 30, 2023, none of our directors or officers informed us of the adoption or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

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Item 6. Exhibits

(a) Exhibits required to be filed by Item 601 of Regulation S-K:


Exhibit No.						Description


~~Exhibit~~ ~~No.~~						~~Description~~
10.1*
























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

31.1* 3.2						Amended and Restated Bylaws of the Company, as amended February 11, 2021 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed February 16, 2021).

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

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

31.2* *						Chief Financial Officer Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act

32.1* **						Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2* **						Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS**						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH**						Inline XBRL Taxonomy Extension Schema Document

101.CAL**						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF**						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB**						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE**						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104**						Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101)

*						Incorporated herein by reference.
**						Filed herewith.
***						Furnished herewith.
†						Management contract of compensatory agreement

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SIGNATURES

Pursuant to the requirements ~~of Section 13 or 15(d)~~ of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


					VAREX IMAGING CORPORATION


Date:			August 1, 2023	By:	~~VAREX IMAGING CORPORATION~~/s/ SHUBHAM MAHESHWARI
					Shubham Maheshwari

~~Date:~~	~~February 6, 2018~~	~~By:~~	~~/s/ CLARENCE R. VERHOEF~~
			~~Clarence R. Verhoef~~
			~~Senior Vice President and~~ Chief Financial Officer
					(Duly Authorized Officer and Principal Financial Officer)

3566



(In millions, except share amounts)	December 29, 2017		September 29, 2017
Assets
Current assets:
Cash and cash equivalents	$	94.1	$	83.3
Accounts receivable, net	130.0		163.6
Inventories, net	245.3		234.5
Prepaid expenses and other current assets	14.5		13.9
Total current assets	483.9		495.3
Property, plant and equipment, net	144.1		148.3
Goodwill	241.9		241.9
Intangibles assets	87.1		91.3
Investments in privately-held companies	50.3		52.3
Other assets	12.8		11.0
Total assets	$	1,020.1	$	1,040.1
Liabilities, Redeemable Noncontrolling Interests and Equity
Current liabilities:
Accounts payable	$	58.3	$	58.9
Accrued liabilities	60.5		62.4
Current maturities of long-term debt	20.0		20.0
Deferred revenues	10.0		10.5
Total current liabilities	148.8		151.8
Long-term debt	434.5		463.9
Deferred tax liabilities	20.1		29.5
Other long-term liabilities	7.8		4.7
Total liabilities	611.2		649.9
Commitments and contingencies (Note 11)
Redeemable noncontrolling interests	11.4		11.2
Equity:
Preferred stock, $.01 par value: 20,000,000 shares authorized, none issued	—		—
Common stock, $.01 par value:
Authorized shares - 150,000,000
Issued shares - 37,753,118 and 37,633,747
Outstanding shares - 37,753,118 and 37,633,747	0.4		0.4
Additional paid-in capital	348.1		342.7
Accumulated other comprehensive loss	2.6		0.8
Retained earnings	46.4		35.1
Total stockholders' equity	397.5		379.0
Total liabilities, redeemable noncontrolling interests and Varex stockholders' equity	$	1,020.1	$	1,040.1



	Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion) Three months ended				Location of Gain or (Loss) Reclassified from Accumulated OCI into Income (Effective Portion)	Amount of Gain (Loss) Reclassified from Accumulated OCI into Income (Effective Portion) Three months ended					Location of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion)	Amount of Gain or (Loss) Recognized in Income on Derivative (Ineffective Portion) Three months ended
(In millions)	2017		2016			2017			2016			2017		2016
Interest Rate Swap Contracts	$	2.1	$	—	Interest expense	$	(0.3	)	$	—	Interest expense	$	—	$	—



(In millions)	Fair Value Measurements at December 29, 2017
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents - Money market funds	$	—	$	15.3	$	—	$	15.3
Interest rate swap contracts	—		3.3		—		3.3
Total assets measured at fair value	$	—	$	18.6	$	—	$	18.6



(In millions)	Fair Value Measurements at September 29, 2017
	Quoted Prices in Active Markets for Identical Assets and Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Assets:
Cash equivalents - Money market funds	$	—	$	11.4	$	—	$	11.4
Interest rate swap contracts	—		1.6		—		1.6
Total assets measured at fair value	$	—	$	13.0	$	—	$	13.0

Liabilities:
Interest rate swap contracts	$	—	$	0.6	$	—	$	0.6



(In millions)	Warranty Allowance
Accrued product warranty, September 29, 2017	$	7.0
Charged to cost of revenues	3.4
Product warranty expenditures	(2.8		)
Accrued product warranty, December 29, 2017	$	7.6



	December 29, 2017					September 29, 2017
(Dollars in millions)	Amount			Weighted-Average Interest Rate		Amount			Weighted-Average Interest Rate
Current portion of Term Facility	$	20.0		4.08	%	$	20.0		4.07	%
Revolving Credit Facility	79.0			3.77	%	104.0			3.75	%
Long-Term portion of Term Facility	365.0			4.08	%	370.0			4.07	%
Debt issuance costs	(9.5		)			(10.1		)
Total debt outstanding	$	454.5				$	483.9



(In millions)	Redeemable Noncontrolling Interests
Balance at beginning of period, September 29, 2017	$	11.2
Net earnings attributable to noncontrolling interests	—
Other, including foreign currency remeasurement	0.2
Balance at end of period, December 29, 2017	$	11.4



	Options Outstanding
(In thousands, except per share amounts and the remaining term)	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Term (in years)	Aggregate Intrinsic Value (1)
Balance at September 29, 2017	1,926		$	29.11
Granted	8		37.60
Canceled, expired or forfeited	—		—
Exercised	(69	)	26.32
Balance at December 29, 2017	1,865		$	29.25	5.1	$	20,353

Exercisable at December 29, 2017	679		$	26.82	3.5	$	9,068



(In thousands, except per share amounts)	Number of Shares	Weighted Average Grant-Date Fair Value
Balance at September 29, 2017	525	$	29.76
Granted	3	37.60
Vested	—	—
Canceled or expired	—	—
Balance at December 29, 2017	528	$	29.82