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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Varex Imaging Corporation | NASDAQ:VREX | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 14.45 | 5.78 | 22.00 | 5 | 14:13:29 |
☒
|
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
☐
|
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
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)
|
Title of each class
|
Trading Symbol(s)
|
Name of each exchange on which registered
|
Common Stock
|
VREX
|
The Nasdaq Global Select Market
|
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|||
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|||
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|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions, except per share amounts)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||
Revenues
|
$
|
196.7
|
|
|
$
|
191.2
|
|
|
$
|
578.2
|
|
|
$
|
568.6
|
|
Cost of revenues
|
136.0
|
|
|
128.2
|
|
|
393.1
|
|
|
373.9
|
|
||||
Gross margin
|
60.7
|
|
|
63.0
|
|
|
185.1
|
|
|
194.7
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
||||||
Research and development
|
20.9
|
|
|
20.5
|
|
|
58.5
|
|
|
62.3
|
|
||||
Selling, general and administrative
|
35.2
|
|
|
35.2
|
|
|
97.1
|
|
|
94.3
|
|
||||
Total operating expenses
|
56.1
|
|
|
55.7
|
|
|
155.6
|
|
|
156.6
|
|
||||
Operating earnings
|
4.6
|
|
|
7.3
|
|
|
29.5
|
|
|
38.1
|
|
||||
Interest income
|
—
|
|
|
—
|
|
|
0.1
|
|
|
0.1
|
|
||||
Interest expense
|
(5.1
|
)
|
|
(5.4
|
)
|
|
(15.7
|
)
|
|
(16.5
|
)
|
||||
Other (expense) income, net
|
(0.1
|
)
|
|
0.7
|
|
|
(2.6
|
)
|
|
3.8
|
|
||||
Interest and other expense, net
|
(5.2
|
)
|
|
(4.7
|
)
|
|
(18.2
|
)
|
|
(12.6
|
)
|
||||
(Loss) earnings before taxes
|
(0.6
|
)
|
|
2.6
|
|
|
11.3
|
|
|
25.5
|
|
||||
Taxes (benefit) on earnings
|
0.7
|
|
|
(1.3
|
)
|
|
3.7
|
|
|
(2.4
|
)
|
||||
Net (loss) earnings
|
(1.3
|
)
|
|
3.9
|
|
|
7.6
|
|
|
27.9
|
|
||||
Less: Net earnings attributable to noncontrolling interests
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
||||
Net (loss) earnings attributable to Varex
|
$
|
(1.4
|
)
|
|
$
|
3.8
|
|
|
$
|
7.4
|
|
|
$
|
27.5
|
|
Net (loss) earnings per common share attributable to Varex
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
(0.04
|
)
|
|
$
|
0.10
|
|
|
$
|
0.19
|
|
|
$
|
0.73
|
|
Diluted
|
$
|
(0.04
|
)
|
|
$
|
0.10
|
|
|
$
|
0.19
|
|
|
$
|
0.72
|
|
Weighted average common shares outstanding
|
|
|
|
|
|
|
|
||||||||
Basic
|
38.3
|
|
|
37.9
|
|
|
38.2
|
|
|
37.8
|
|
||||
Diluted
|
38.3
|
|
|
38.4
|
|
|
38.4
|
|
|
38.3
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||
Net (loss) earnings
|
$
|
(1.3
|
)
|
|
$
|
3.9
|
|
|
$
|
7.6
|
|
|
$
|
27.9
|
|
Other comprehensive (loss) earnings, net of tax:
|
|
|
|
|
|
|
|
|
|
||||||
Unrealized (loss)/gain on interest rate swap contracts
|
(2.3
|
)
|
|
0.8
|
|
|
(6.0
|
)
|
|
4.7
|
|
||||
Foreign currency translation adjustments
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
||||
Other comprehensive (loss) earnings, net of tax
|
(2.5
|
)
|
|
0.8
|
|
|
(6.2
|
)
|
|
4.7
|
|
||||
Comprehensive (loss) earnings
|
(3.8
|
)
|
|
4.7
|
|
|
1.4
|
|
|
32.6
|
|
||||
Less: Comprehensive earnings attributable to noncontrolling interests
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
||||
Comprehensive (loss) earnings attributable to Varex
|
$
|
(3.9
|
)
|
|
$
|
4.6
|
|
|
$
|
1.2
|
|
|
$
|
32.2
|
|
(In millions, except share and per share amounts)
|
June 28, 2019
|
|
September 28, 2018
|
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
28.5
|
|
|
$
|
51.9
|
|
Accounts receivable, net
|
131.1
|
|
|
154.0
|
|
||
Inventories, net
|
263.4
|
|
|
235.1
|
|
||
Prepaid expenses and other current assets
|
18.4
|
|
|
17.1
|
|
||
Total current assets
|
441.4
|
|
|
458.1
|
|
||
Property, plant and equipment, net
|
138.6
|
|
|
144.9
|
|
||
Goodwill
|
290.1
|
|
|
243.6
|
|
||
Intangible assets
|
90.7
|
|
|
73.8
|
|
||
Investments in privately-held companies
|
54.1
|
|
|
51.0
|
|
||
Other assets
|
28.8
|
|
|
16.5
|
|
||
Total assets
|
$
|
1,043.7
|
|
|
$
|
987.9
|
|
Liabilities, redeemable noncontrolling interests and equity
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
61.3
|
|
|
$
|
66.3
|
|
Accrued liabilities
|
65.9
|
|
|
47.5
|
|
||
Current maturities of long-term debt
|
30.2
|
|
|
25.0
|
|
||
Deferred revenues
|
13.8
|
|
|
13.2
|
|
||
Total current liabilities
|
171.2
|
|
|
152.0
|
|
||
Long-term debt
|
379.4
|
|
|
364.8
|
|
||
Deferred tax liabilities
|
15.7
|
|
|
23.2
|
|
||
Other long-term liabilities
|
28.8
|
|
|
8.5
|
|
||
Total liabilities
|
595.1
|
|
|
548.5
|
|
||
Redeemable noncontrolling interests
|
10.9
|
|
|
11.1
|
|
||
Equity:
|
|
|
|
||||
Preferred stock, $.01 par value: 20,000,000 shares authorized, none issued
|
—
|
|
|
—
|
|
||
Common stock, $.01 par value:
|
|
|
|
||||
Authorized shares - 150,000,000
|
|
|
|
||||
Shares issued and outstanding - 38,341,103 and 38,026,597 at June 28, 2019 and September 28, 2018, respectively.
|
0.4
|
|
|
0.4
|
|
||
Additional paid-in capital
|
368.1
|
|
|
357.6
|
|
||
Accumulated other comprehensive income
|
(0.4
|
)
|
|
5.8
|
|
||
Retained earnings
|
66.3
|
|
|
62.4
|
|
||
Total Varex equity
|
434.4
|
|
|
426.2
|
|
||
Noncontrolling interests
|
3.3
|
|
|
2.1
|
|
||
Total equity
|
437.7
|
|
|
428.3
|
|
||
Total liabilities, redeemable noncontrolling interests and equity
|
$
|
1,043.7
|
|
|
$
|
987.9
|
|
|
Nine Months Ended
|
||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
||||
Cash flows from operating activities:
|
|
|
|
||||
Net earnings
|
$
|
7.6
|
|
|
$
|
27.9
|
|
Adjustments to reconcile net earnings to net cash provided by operating activities:
|
|
|
|
|
|
||
Share-based compensation expense
|
8.7
|
|
|
7.5
|
|
||
Depreciation
|
18.7
|
|
|
16.0
|
|
||
Amortization of intangible assets
|
11.4
|
|
|
12.5
|
|
||
Deferred taxes
|
(5.7
|
)
|
|
(14.0
|
)
|
||
Income from equity method investments
|
0.7
|
|
|
(3.2
|
)
|
||
Amortization of deferred loan costs
|
1.8
|
|
|
1.7
|
|
||
Impairment of intangible assets
|
4.8
|
|
|
3.0
|
|
||
Inventory write-down
|
3.1
|
|
|
3.1
|
|
||
Other, net
|
1.0
|
|
|
(0.6
|
)
|
||
Changes in assets and liabilities, net of effects of acquisition:
|
|
|
|
|
|
||
Accounts receivable
|
25.1
|
|
|
32.5
|
|
||
Inventories
|
(26.2
|
)
|
|
(12.8
|
)
|
||
Prepaid expenses and other assets
|
4.7
|
|
|
2.8
|
|
||
Accounts payable
|
(4.3
|
)
|
|
(2.7
|
)
|
||
Accrued operating liabilities and other long-term operating liabilities
|
(0.5
|
)
|
|
(7.0
|
)
|
||
Deferred revenues
|
(1.9
|
)
|
|
0.1
|
|
||
Net cash provided by operating activities
|
49.0
|
|
|
66.8
|
|
||
Cash flows from investing activities:
|
|
|
|
|
|
||
Purchases of property, plant and equipment
|
(13.3
|
)
|
|
(15.3
|
)
|
||
Acquisitions of businesses, net of cash acquired
|
(69.5
|
)
|
|
—
|
|
||
Contributions and advances to joint ventures
|
(3.6
|
)
|
|
—
|
|
||
Net cash used in investing activities
|
(86.4
|
)
|
|
(15.3
|
)
|
||
Cash flows from financing activities:
|
|
|
|
|
|
||
Taxes related to net share settlement of equity awards
|
(2.1
|
)
|
|
(2.3
|
)
|
||
Borrowings under credit agreements
|
79.0
|
|
|
10.0
|
|
||
Repayments of borrowing under credit agreements
|
(65.7
|
)
|
|
(96.0
|
)
|
||
Proceeds from exercise of stock options
|
0.2
|
|
|
3.5
|
|
||
Proceeds from shares issued under employee stock purchase plan
|
3.8
|
|
|
3.3
|
|
||
Payment of debt issuance costs
|
(0.5
|
)
|
|
—
|
|
||
Net cash provided by (used in) financing activities
|
14.7
|
|
|
(81.5
|
)
|
||
Effects of exchange rate changes on cash and cash equivalents and restricted cash
|
(0.7
|
)
|
|
(0.5
|
)
|
||
Net decrease in cash and cash equivalents and restricted cash
|
(23.4
|
)
|
|
(30.5
|
)
|
||
Cash and cash equivalents and restricted cash at beginning of period
|
53.4
|
|
|
83.6
|
|
||
Cash and cash equivalents and restricted cash at end of period
|
$
|
30.0
|
|
|
$
|
53.1
|
|
Supplemental cash flow information:
|
|
|
|
||||
Cash paid for interest
|
$
|
13.7
|
|
|
$
|
14.6
|
|
Cash paid for income tax
|
3.8
|
|
|
12.6
|
|
||
Supplemental non-cash activities:
|
|
|
|
||||
Purchases of property, plant and equipment financed through accounts payable
|
$
|
0.2
|
|
|
$
|
2.5
|
|
|
Three Months Ended June 28, 2019
|
|||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Total Varex Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
(In millions)
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|||||||||||||||||||||
March 29, 2019
|
38.2
|
|
|
$
|
0.4
|
|
|
$
|
363.1
|
|
|
$
|
2.1
|
|
|
$
|
67.7
|
|
|
$
|
433.3
|
|
|
$
|
1.9
|
|
|
$
|
435.2
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.4
|
)
|
|
(1.4
|
)
|
|
—
|
|
|
(1.4
|
)
|
|||||||
Common stock issued under employee stock purchase plan
|
0.1
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
—
|
|
|
1.9
|
|
|
—
|
|
|
1.9
|
|
|||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
—
|
|
|
3.1
|
|
|
—
|
|
|
3.1
|
|
|||||||
Unrealized loss on interest rate swap contracts, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
(2.3
|
)
|
|||||||
Currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|||||||
Noncontrolling interest acquired / consolidated
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.4
|
|
|||||||
June 28, 2019
|
38.3
|
|
|
$
|
0.4
|
|
|
$
|
368.1
|
|
|
$
|
(0.4
|
)
|
|
$
|
66.3
|
|
|
$
|
434.4
|
|
|
$
|
3.3
|
|
|
$
|
437.7
|
|
|
Three Months Ended June 29, 2018
|
|||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Total Varex Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
(In millions)
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|||||||||||||||||||||
March 30, 2018
|
37.9
|
|
|
$
|
0.4
|
|
|
$
|
348.8
|
|
|
$
|
4.7
|
|
|
$
|
58.8
|
|
|
$
|
412.7
|
|
|
$
|
—
|
|
|
$
|
412.7
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
|
3.8
|
|
|
—
|
|
|
3.8
|
|
|||||||
Exercise of stock options
|
0.1
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
—
|
|
|
1.3
|
|
|
—
|
|
|
1.3
|
|
|||||||
Common stock issued under employee stock purchase plan
|
—
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
—
|
|
|
1.8
|
|
|
—
|
|
|
1.8
|
|
|||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
—
|
|
|
2.8
|
|
|
—
|
|
|
2.8
|
|
|||||||
Unrealized gain on interest rate swap contracts, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|||||||
June 29, 2018
|
38.0
|
|
|
$
|
0.4
|
|
|
$
|
354.7
|
|
|
$
|
5.5
|
|
|
$
|
62.6
|
|
|
$
|
423.2
|
|
|
$
|
—
|
|
|
$
|
423.2
|
|
|
Nine Months Ended June 28, 2019
|
|||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Total Varex Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
(In millions)
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|||||||||||||||||||||
September 28, 2018
|
38.0
|
|
|
$
|
0.4
|
|
|
$
|
357.6
|
|
|
$
|
5.8
|
|
|
$
|
62.4
|
|
|
$
|
426.2
|
|
|
$
|
2.1
|
|
|
$
|
428.3
|
|
Effect of adoption of ASC 606
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3.5
|
)
|
|
(3.5
|
)
|
|
—
|
|
|
(3.5
|
)
|
|||||||
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7.4
|
|
|
7.4
|
|
|
(0.2
|
)
|
|
7.2
|
|
|||||||
Exercise of stock options
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
|
—
|
|
|
0.1
|
|
|||||||
Common stock issued upon vesting of restricted shares
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
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
|
|
|
—
|
|
|
3.8
|
|
|
—
|
|
|
—
|
|
|
3.8
|
|
|
—
|
|
|
3.8
|
|
|||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
8.7
|
|
|
—
|
|
|
—
|
|
|
8.7
|
|
|
—
|
|
|
8.7
|
|
|||||||
Unrealized loss on interest rate swap contracts, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
|
—
|
|
|
(6.0
|
)
|
|||||||
Currency translation adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|
—
|
|
|
(0.2
|
)
|
|||||||
Noncontrolling interest acquired / consolidated
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
|
1.4
|
|
|||||||
June 28, 2019
|
38.3
|
|
|
$
|
0.4
|
|
|
$
|
368.1
|
|
|
$
|
(0.4
|
)
|
|
$
|
66.3
|
|
|
$
|
434.4
|
|
|
$
|
3.3
|
|
|
$
|
437.7
|
|
|
Nine Months Ended June 29, 2018
|
|||||||||||||||||||||||||||||
|
Common Stock
|
|
Additional Paid-in Capital
|
|
Accumulated Other Comprehensive Income
|
|
Retained Earnings
|
|
Total Varex Equity
|
|
Noncontrolling Interests
|
|
Total Equity
|
|||||||||||||||||
|
|
|
|
|
|
|
||||||||||||||||||||||||
(In millions)
|
Shares
|
|
Amount
|
|
|
|
|
|
|
|||||||||||||||||||||
September 29, 2017
|
37.6
|
|
|
$
|
0.4
|
|
|
$
|
342.7
|
|
|
$
|
0.8
|
|
|
$
|
35.1
|
|
|
$
|
379.0
|
|
|
$
|
—
|
|
|
$
|
379.0
|
|
Net earnings
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
27.5
|
|
|
27.5
|
|
|
—
|
|
|
27.5
|
|
|||||||
Exercise of stock options
|
0.2
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
—
|
|
|
3.5
|
|
|
—
|
|
|
3.5
|
|
|||||||
Common stock issued upon vesting of restricted shares
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Shares withheld on vesting of restricted stock
|
(0.1
|
)
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
—
|
|
|
(2.3
|
)
|
|
—
|
|
|
(2.3
|
)
|
|||||||
Common stock issued under employee stock purchase plan
|
0.1
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
—
|
|
|
3.3
|
|
|
—
|
|
|
3.3
|
|
|||||||
Share-based compensation
|
—
|
|
|
—
|
|
|
7.5
|
|
|
—
|
|
|
—
|
|
|
7.5
|
|
|
—
|
|
|
7.5
|
|
|||||||
Unrealized gain on interest rate swap contracts, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
|
—
|
|
|
4.7
|
|
|||||||
June 29, 2018
|
38.0
|
|
|
$
|
0.4
|
|
|
$
|
354.7
|
|
|
$
|
5.5
|
|
|
$
|
62.6
|
|
|
$
|
423.2
|
|
|
$
|
—
|
|
|
$
|
423.2
|
|
|
Nine Months Ended June 28, 2019
|
|
Nine Months Ended June 29, 2018
|
||||||||||||
|
Beginning of Period
|
|
End of Period
|
|
Beginning of Period
|
|
End of Period
|
||||||||
Cash and cash equivalents
|
$
|
51.9
|
|
|
$
|
28.5
|
|
|
$
|
83.3
|
|
|
$
|
52.8
|
|
Restricted cash
|
1.5
|
|
|
1.5
|
|
|
0.3
|
|
|
0.3
|
|
||||
Cash and cash equivalents and restricted cash as reported per statement of cash flows
|
$
|
53.4
|
|
|
$
|
30.0
|
|
|
$
|
83.6
|
|
|
$
|
53.1
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||
Canon Medical Systems Corporation
|
17.1
|
%
|
|
16.2
|
%
|
|
17.5%
|
|
18.6%
|
(In millions)
|
Warranty Allowance
|
||
Accrued product warranty, September 28, 2018
|
$
|
7.3
|
|
Charged to cost of revenues
|
9.8
|
|
|
Product warranty expenditures
|
(9.2
|
)
|
|
Accrued product warranty, June 28, 2019
|
$
|
7.9
|
|
•
|
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
|
(In millions)
|
Fair Value
|
||
Allocation of the purchase consideration:
|
|
||
Accounts receivable
|
$
|
2.4
|
|
Inventories
|
5.7
|
|
|
Prepaid expenses and other current assets
|
0.7
|
|
|
Property, plant, and equipment
|
0.9
|
|
|
Goodwill
|
46.5
|
|
|
Intangible assets
|
33.0
|
|
|
Total assets acquired
|
89.2
|
|
|
Accounts payable
|
(1.0
|
)
|
|
Accrued liabilities
|
(1.5
|
)
|
|
Current maturities of long-term debt
|
(1.0
|
)
|
|
Deferred revenues
|
(0.9
|
)
|
|
Long-term debt
|
(3.5
|
)
|
|
Other long-term liabilities
|
(0.5
|
)
|
|
Total liabilities assumed
|
(8.4
|
)
|
|
Noncontrolling interest
|
(1.4
|
)
|
|
Net assets acquired, less noncontrolling interest
|
$
|
79.4
|
|
Net cash paid
|
$
|
69.5
|
|
Deferred consideration
|
9.9
|
|
|
Total consideration
|
$
|
79.4
|
|
(In millions, except for number of instruments)
|
|
Number of Instruments
|
|
Notional Value
|
|||
Interest Rate Swap Contracts
|
|
6
|
|
|
$
|
264.4
|
|
|
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)
|
June 28, 2019
|
|
June 29, 2018
|
|
|
June 28, 2019
|
|
June 29, 2018
|
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||||||||
Interest Rate Swap Contracts
|
$
|
(2.4
|
)
|
|
$
|
1.2
|
|
|
Interest expense
|
|
$
|
0.5
|
|
|
$
|
0.2
|
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Amount of Gain (Loss) Recognized in OCI on Derivative (Effective Portion)
Nine 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)
Nine 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)
Nine months ended |
||||||||||||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
|
June 28, 2019
|
|
June 29, 2018
|
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||||||||
Interest Rate Swap Contracts
|
$
|
(6.1
|
)
|
|
$
|
6.1
|
|
|
Interest expense
|
|
$
|
1.6
|
|
|
$
|
(0.2
|
)
|
|
Interest expense
|
|
$
|
—
|
|
|
$
|
—
|
|
(In millions)
|
Notional Amounts (in U.S. dollars)
|
||
Swiss franc
|
$
|
1.0
|
|
Chinese renminbi
|
2.2
|
|
|
Euro
|
3.4
|
|
|
|
$
|
6.6
|
|
|
Fair Value Measurements at June 28, 2019
|
||||||||||||||
(In millions)
|
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
|
$
|
—
|
|
|
$
|
5.8
|
|
|
$
|
—
|
|
|
$
|
5.8
|
|
Interest rate swap contracts
|
—
|
|
|
0.5
|
|
|
—
|
|
|
0.5
|
|
||||
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
6.3
|
|
|
$
|
—
|
|
|
$
|
6.3
|
|
|
|
|
|
|
|
|
|
||||||||
Liabilities:
|
|
|
|
|
|
|
|
||||||||
Interest rate swap contracts
|
$
|
—
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
0.4
|
|
Deferred consideration
|
9.4
|
|
|
—
|
|
|
—
|
|
|
9.4
|
|
||||
Total liabilities measured at fair value
|
$
|
9.4
|
|
|
$
|
0.4
|
|
|
$
|
—
|
|
|
$
|
9.8
|
|
|
Fair Value Measurements at September 28, 2018
|
||||||||||||||
(In millions)
|
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
|
$
|
—
|
|
|
$
|
18.4
|
|
|
$
|
—
|
|
|
$
|
18.4
|
|
Interest rate swap contracts
|
—
|
|
|
7.7
|
|
|
—
|
|
|
7.7
|
|
||||
Total assets measured at fair value
|
$
|
—
|
|
|
$
|
26.1
|
|
|
$
|
—
|
|
|
$
|
26.1
|
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
||||
Raw materials and parts, net
|
$
|
165.5
|
|
|
$
|
149.9
|
|
Work-in-process, net
|
32.3
|
|
|
25.4
|
|
||
Finished goods, net
|
65.6
|
|
|
59.8
|
|
||
Total inventories, net
|
$
|
263.4
|
|
|
$
|
235.1
|
|
(In millions)
|
Medical
|
|
Industrial
|
|
Total
|
||||||
Balance at September 28, 2018
|
$
|
147.0
|
|
|
$
|
96.6
|
|
|
$
|
243.6
|
|
Business combinations
|
25.6
|
|
|
20.9
|
|
|
46.5
|
|
|||
Balance at June 28, 2019
|
$
|
172.6
|
|
|
$
|
117.5
|
|
|
$
|
290.1
|
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
||||
Acquired existing technology
|
$
|
74.1
|
|
|
$
|
57.9
|
|
Patents, licenses and other
|
12.7
|
|
|
9.9
|
|
||
Customer contracts and supplier relationship
|
51.0
|
|
|
42.6
|
|
||
Accumulated amortization
|
(49.9
|
)
|
|
(40.6
|
)
|
||
Total intangible assets with finite lives
|
87.9
|
|
|
69.8
|
|
||
In-process research and development with indefinite lives
|
2.8
|
|
|
4.0
|
|
||
Total intangible assets
|
$
|
90.7
|
|
|
$
|
73.8
|
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
|
$ Change
|
||||||
Current portion of Term Facility
|
$
|
29.4
|
|
|
$
|
25.0
|
|
|
$
|
4.4
|
|
Current portion of other long-term debt
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|||
Revolving Credit Facility
|
66.0
|
|
|
28.0
|
|
|
38.0
|
|
|||
Long-term portion of Term Facility
|
316.1
|
|
|
345.0
|
|
|
(28.9
|
)
|
|||
Long-term portion of other debt
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|||
Total debt outstanding, gross
|
416.0
|
|
|
398.0
|
|
|
18.0
|
|
|||
Debt issuance costs
|
(6.4
|
)
|
|
(8.2
|
)
|
|
1.8
|
|
|||
Total debt outstanding, net
|
$
|
409.6
|
|
|
$
|
389.8
|
|
|
$
|
19.8
|
|
(In millions)
|
Redeemable Noncontrolling Interests
|
||
Balance at beginning of period, September 28, 2018
|
$
|
11.1
|
|
Net earnings attributable to noncontrolling interests
|
0.4
|
|
|
Other, including foreign currency remeasurement
|
(0.6
|
)
|
|
Balance at end of period, June 28, 2019
|
$
|
10.9
|
|
|
Balance at
|
|
Adjustment Due to
|
|
Balance at
|
||||||
(In millions)
|
September 28, 2018
|
|
ASC 606
|
|
September 29, 2018
|
||||||
Assets:
|
|
|
|
|
|
||||||
Prepaid expenses and other current assets
|
$
|
17.1
|
|
|
$
|
6.4
|
|
|
$
|
23.5
|
|
Other assets
|
16.5
|
|
|
18.0
|
|
|
34.5
|
|
|||
Liabilities and Equity:
|
|
|
|
|
|
||||||
Deferred revenues
|
13.2
|
|
|
0.3
|
|
|
13.5
|
|
|||
Accrued liabilities
|
47.5
|
|
|
7.1
|
|
|
54.6
|
|
|||
Deferred tax liabilities
|
23.2
|
|
|
(0.8
|
)
|
|
22.4
|
|
|||
Other long-term liabilities
|
8.5
|
|
|
21.3
|
|
|
29.8
|
|
|||
Retained earnings
|
62.4
|
|
|
(3.5
|
)
|
|
58.9
|
|
|
June 28, 2019
|
||||||
(In millions)
|
Balance without Adoption
|
|
As Reported
|
||||
Assets:
|
|
|
|
||||
Prepaid expenses and other current assets
|
$
|
12.1
|
|
|
$
|
18.4
|
|
Other assets
|
$
|
11.0
|
|
|
$
|
28.8
|
|
Liabilities and equity:
|
|
|
|
||||
Deferred revenues
|
$
|
11.8
|
|
|
$
|
13.8
|
|
Accrued liabilities
|
$
|
58.9
|
|
|
$
|
65.9
|
|
Deferred tax liabilities
|
$
|
16.5
|
|
|
$
|
15.7
|
|
Other long-term liabilities
|
$
|
9.0
|
|
|
$
|
28.8
|
|
Retained earnings
|
$
|
70.2
|
|
|
$
|
66.3
|
|
|
Three Months Ended June 28, 2019
|
Nine Months Ended June 28, 2019
|
||||||||
(In millions)
|
Balance without Adoption
|
|
As Reported
|
Balance without Adoption
|
|
As Reported
|
||||
Revenues
|
196.5
|
|
|
196.7
|
|
577.6
|
|
|
578.2
|
|
Cost of revenues
|
136.0
|
|
|
136.0
|
|
392.9
|
|
|
393.1
|
|
Taxes on earnings
|
0.7
|
|
|
0.7
|
|
3.7
|
|
|
3.7
|
|
Net earnings attributable to Varex
|
(1.6
|
)
|
|
(1.4
|
)
|
7.0
|
|
|
7.4
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||
Americas
|
$
|
73.8
|
|
|
$
|
67.1
|
|
|
$
|
216.4
|
|
|
$
|
201.4
|
|
EMEA
|
67.3
|
|
|
61.7
|
|
|
198.0
|
|
|
186.8
|
|
||||
APAC
|
55.6
|
|
|
62.4
|
|
|
163.8
|
|
|
180.4
|
|
||||
|
$
|
196.7
|
|
|
$
|
191.2
|
|
|
$
|
578.2
|
|
|
$
|
568.6
|
|
(In millions)
|
Contact Assets
|
||
Balance at September 29, 2018
|
$
|
24.4
|
|
Costs recovered from X-ray tube returns during the period
|
(4.6
|
)
|
|
Contract asset from shipments of X-ray tubes, subject to product return during the period
|
4.3
|
|
|
Balance at June 28, 2019
|
$
|
24.1
|
|
(In millions)
|
Contract Liabilities
|
||
Balance at September 29, 2018
|
$
|
41.9
|
|
Recognition of revenue included in beginning of year contract liability
|
(5.4
|
)
|
|
Additions to contract liabilities, net of revenue recognized during the period
|
4.1
|
|
|
Balance at June 28, 2019
|
$
|
40.6
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions, except per share amounts)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||
Net earnings attributable to Varex
|
$
|
(1.4
|
)
|
|
$
|
3.8
|
|
|
$
|
7.4
|
|
|
$
|
27.5
|
|
Weighted average shares outstanding - basic
|
38.3
|
|
|
37.9
|
|
|
38.2
|
|
|
37.8
|
|
||||
Dilutive effect of potential common shares
|
—
|
|
|
0.5
|
|
|
0.2
|
|
|
0.5
|
|
||||
Weighted average shares outstanding - diluted
|
38.3
|
|
|
38.4
|
|
|
38.4
|
|
|
38.3
|
|
||||
Net earnings per share attributable to Varex - basic
|
$
|
(0.04
|
)
|
|
$
|
0.10
|
|
|
$
|
0.19
|
|
|
$
|
0.73
|
|
Net earnings per share attributable to Varex - diluted
|
$
|
(0.04
|
)
|
|
$
|
0.10
|
|
|
$
|
0.19
|
|
|
$
|
0.72
|
|
Anti-dilutive shared based awards, excluded
|
2.4
|
|
|
1.1
|
|
|
2.0
|
|
|
1.2
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||||||
Cost of revenues
|
$
|
0.5
|
|
|
$
|
0.4
|
|
|
$
|
1.2
|
|
|
$
|
1.0
|
|
Research and development
|
0.3
|
|
|
0.5
|
|
|
1.7
|
|
|
1.3
|
|
||||
Selling, general and administrative
|
2.3
|
|
|
1.9
|
|
|
5.8
|
|
|
5.2
|
|
||||
Total share-based compensation expense
|
$
|
3.1
|
|
|
$
|
2.8
|
|
|
$
|
8.7
|
|
|
$
|
7.5
|
|
|
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 28, 2018
|
2,011
|
|
|
$
|
30.35
|
|
|
|
|
|
||
Granted
|
297
|
|
|
31.42
|
|
|
|
|
|
|||
Canceled, expired or forfeited
|
(4
|
)
|
|
31.08
|
|
|
|
|
|
|||
Exercised
|
(7
|
)
|
|
25.52
|
|
|
|
|
|
|||
Balance at June 28, 2019
|
2,297
|
|
|
$
|
30.50
|
|
|
4.31
|
|
$
|
2,656.0
|
|
|
|
|
|
|
|
|
|
|||||
Exercisable at June 28, 2019
|
1,423
|
|
|
$
|
29.39
|
|
|
3.55
|
|
$
|
2,656.0
|
|
(In thousands, except per share amounts)
|
Number of Shares
|
|
Weighted Average Grant-Date Fair Value
|
|||
Balance at September 28, 2018
|
641
|
|
|
$
|
33.60
|
|
Granted
|
288
|
|
|
31.30
|
|
|
Vested
|
(197
|
)
|
|
31.57
|
|
|
Canceled or expired
|
(47
|
)
|
|
34.17
|
|
|
Balance at June 28, 2019
|
685
|
|
|
$
|
33.18
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||
|
June 28, 2019
|
|
June 29, 2018
|
|
June 28, 2019
|
|
June 29, 2018
|
||||
Estimated effective tax rate
|
(116.7
|
)%
|
|
(50.0
|
)%
|
|
32.7
|
%
|
|
(9.4
|
)%
|
|
Three Months Ended
|
|
Nine Months Ended
|
||||||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
(1)
|
|
June 28, 2019
|
|
June 29, 2018
(1)
|
||||||||
Revenues
|
|
|
|
|
|
|
|
||||||||
Medical
|
$
|
151.6
|
|
|
$
|
147.4
|
|
|
$
|
444.4
|
|
|
$
|
445.2
|
|
Industrial
|
45.1
|
|
|
43.8
|
|
|
133.8
|
|
|
123.4
|
|
||||
Total revenues
|
$
|
196.7
|
|
|
$
|
191.2
|
|
|
$
|
578.2
|
|
|
$
|
568.6
|
|
Gross margin
|
|
|
|
|
|
|
|
||||||||
Medical
|
$
|
44.2
|
|
|
$
|
47.1
|
|
|
$
|
135.4
|
|
|
$
|
147.0
|
|
Industrial
|
16.5
|
|
|
15.9
|
|
|
49.7
|
|
|
47.7
|
|
||||
Total gross margin
|
$
|
60.7
|
|
|
$
|
63.0
|
|
|
$
|
185.1
|
|
|
$
|
194.7
|
|
Total operating expenses
|
56.1
|
|
|
55.7
|
|
|
155.6
|
|
|
156.6
|
|
||||
Interest and other income (expenses), net
|
(5.2
|
)
|
|
(4.7
|
)
|
|
(18.2
|
)
|
|
(12.6
|
)
|
||||
Earnings before taxes
|
(0.6
|
)
|
|
2.6
|
|
|
11.3
|
|
|
25.5
|
|
||||
Taxes on earnings
|
0.7
|
|
|
(1.3
|
)
|
|
3.7
|
|
|
(2.4
|
)
|
||||
Net earnings
|
(1.3
|
)
|
|
3.9
|
|
|
7.6
|
|
|
27.9
|
|
||||
Less: Net earnings attributable to noncontrolling interests
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
|
0.4
|
|
||||
Net earnings attributable to Varex
|
$
|
(1.4
|
)
|
|
$
|
3.8
|
|
|
$
|
7.4
|
|
|
$
|
27.5
|
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
||||
Identifiable assets
|
|
|
|
||||
Medical
|
$
|
803.6
|
|
|
$
|
770.6
|
|
Industrial
|
240.1
|
|
|
217.3
|
|
||
Total reportable segments
|
$
|
1,043.7
|
|
|
$
|
987.9
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Medical
|
$
|
151.6
|
|
|
$
|
147.4
|
|
|
$
|
4.2
|
|
|
2.8
|
%
|
Industrial
|
45.1
|
|
|
43.8
|
|
|
1.3
|
|
|
3.0
|
%
|
|||
Total revenues
|
$
|
196.7
|
|
|
$
|
191.2
|
|
|
$
|
5.5
|
|
|
2.9
|
%
|
Medical as a percentage of total revenues
|
77
|
%
|
|
77
|
%
|
|
|
|
|
|||||
Industrial as a percentage of total revenues
|
23
|
%
|
|
23
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Medical
|
$
|
44.2
|
|
|
$
|
47.1
|
|
|
$
|
(2.9
|
)
|
|
(6.2
|
)%
|
Industrial
|
16.5
|
|
|
15.9
|
|
|
0.6
|
|
|
3.8
|
%
|
|||
Total gross margin
|
$
|
60.7
|
|
|
$
|
63.0
|
|
|
$
|
(2.3
|
)
|
|
(3.7
|
)%
|
Medical gross margin %
|
29.2
|
%
|
|
32.0
|
%
|
|
|
|
|
|||||
Industrial gross margin %
|
36.6
|
%
|
|
36.3
|
%
|
|
|
|
|
|||||
Total gross margin %
|
30.9
|
%
|
|
32.9
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Research and development
|
$
|
20.9
|
|
|
$
|
20.5
|
|
|
$
|
0.4
|
|
|
2.0
|
%
|
As a percentage of total revenues
|
10.6
|
%
|
|
10.7
|
%
|
|
|
|
|
|||||
Selling, general and administrative
|
$
|
35.2
|
|
|
$
|
35.2
|
|
|
$
|
—
|
|
|
—
|
%
|
As a percentage of total revenues
|
17.9
|
%
|
|
18.4
|
%
|
|
|
|
|
|||||
Operating expenses
|
$
|
56.1
|
|
|
$
|
55.7
|
|
|
$
|
0.4
|
|
|
0.7
|
%
|
As a percentage of total revenues
|
28.5
|
%
|
|
29.1
|
%
|
|
|
|
|
|
Three Months Ended
|
|
|
||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
||||||
Interest income
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest expense
|
(5.1
|
)
|
|
(5.4
|
)
|
|
0.3
|
|
|||
Other (expense) income, net
|
(0.1
|
)
|
|
0.7
|
|
|
(0.8
|
)
|
|||
Interest and other expense, net
|
$
|
(5.2
|
)
|
|
$
|
(4.7
|
)
|
|
$
|
(0.5
|
)
|
|
Three Months Ended
|
||||
|
June 28, 2019
|
|
June 29, 2018
|
||
Estimated effective tax rate
|
(116.7
|
)%
|
|
(50.0
|
)%
|
|
Nine Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Medical
|
$
|
444.4
|
|
|
$
|
445.2
|
|
|
$
|
(0.8
|
)
|
|
(0.2
|
)%
|
Industrial
|
133.8
|
|
|
123.4
|
|
|
10.4
|
|
|
8.4
|
%
|
|||
Total revenues
|
$
|
578.2
|
|
|
$
|
568.6
|
|
|
$
|
9.6
|
|
|
1.7
|
%
|
Medical as a percentage of total revenues
|
77
|
%
|
|
78
|
%
|
|
|
|
|
|||||
Industrial as a percentage of total revenues
|
23
|
%
|
|
22
|
%
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Medical
|
$
|
135.4
|
|
|
$
|
147.0
|
|
|
$
|
(11.6
|
)
|
|
(7.9
|
)%
|
Industrial
|
49.7
|
|
|
47.7
|
|
|
2.0
|
|
|
4.2
|
%
|
|||
Total gross margin
|
$
|
185.1
|
|
|
$
|
194.7
|
|
|
$
|
(9.6
|
)
|
|
(4.9
|
)%
|
Medical gross margin %
|
30.5
|
%
|
|
33.0
|
%
|
|
|
|
|
|||||
Industrial gross margin %
|
37.1
|
%
|
|
38.7
|
%
|
|
|
|
|
|||||
Total gross margin %
|
32.0
|
%
|
|
34.2
|
%
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
|
% Change
|
|||||||
Research and development
|
$
|
58.5
|
|
|
$
|
62.3
|
|
|
$
|
(3.8
|
)
|
|
(6.1
|
)%
|
As a percentage of total revenues
|
10.1
|
%
|
|
11.0
|
%
|
|
|
|
|
|||||
Selling, general and administrative
|
$
|
97.1
|
|
|
$
|
94.3
|
|
|
$
|
2.8
|
|
|
3.0
|
%
|
As a percentage of total revenues
|
16.8
|
%
|
|
16.6
|
%
|
|
|
|
|
|||||
Operating expenses
|
$
|
155.6
|
|
|
$
|
156.6
|
|
|
$
|
(1.0
|
)
|
|
(0.6
|
)%
|
As a percentage of total revenues
|
26.9
|
%
|
|
27.5
|
%
|
|
|
|
|
|
Nine Months Ended
|
|
|
||||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
|
$ Change
|
||||||
Interest income
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
—
|
|
Interest expense
|
(15.7
|
)
|
|
(16.5
|
)
|
|
0.8
|
|
|||
Other
|
(2.6
|
)
|
|
3.8
|
|
|
(6.4
|
)
|
|||
Interest and other income (expense), net
|
$
|
(18.2
|
)
|
|
$
|
(12.6
|
)
|
|
$
|
(5.6
|
)
|
|
Nine Months Ended
|
||||
|
June 28, 2019
|
|
June 29, 2018
|
||
Estimated effective tax rate
|
32.7
|
%
|
|
(9.4
|
)%
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
|
$ Change
|
||||||
Cash and cash equivalents
|
$
|
28.5
|
|
|
$
|
51.9
|
|
|
$
|
(23.4
|
)
|
(In millions)
|
June 28, 2019
|
|
September 28, 2018
|
|
$ Change
|
||||||
Current portion of Term Facility
|
$
|
29.4
|
|
|
$
|
25.0
|
|
|
$
|
4.4
|
|
Current portion of other long-term debt
|
0.8
|
|
|
—
|
|
|
0.8
|
|
|||
Revolving Credit Facility
|
66.0
|
|
|
28.0
|
|
|
38.0
|
|
|||
Long-term portion of Term Facility
|
316.1
|
|
|
345.0
|
|
|
(28.9
|
)
|
|||
Long-term portion of other debt
|
3.7
|
|
|
—
|
|
|
3.7
|
|
|||
Total debt outstanding, gross
|
416.0
|
|
|
398.0
|
|
|
18.0
|
|
|||
Debt issuance costs
|
(6.4
|
)
|
|
(8.2
|
)
|
|
1.8
|
|
|||
Total debt outstanding, net
|
$
|
409.6
|
|
|
$
|
389.8
|
|
|
$
|
19.8
|
|
|
Nine Months Ended
|
||||||
(In millions)
|
June 28, 2019
|
|
June 29, 2018
|
||||
Net cash flow provided by (used in):
|
|
|
|
||||
Operating activities
|
$
|
49.0
|
|
|
$
|
66.8
|
|
Investing activities
|
(86.4
|
)
|
|
(15.3
|
)
|
||
Financing activities
|
14.7
|
|
|
(81.5
|
)
|
||
Effects of exchange rate changes on cash and cash equivalents
|
(0.7
|
)
|
|
(0.5
|
)
|
||
Net increase in cash and cash equivalents
|
$
|
(23.4
|
)
|
|
$
|
(30.5
|
)
|
•
|
Net earnings were
$7.6 million
compared to
$27.9 million
|
•
|
Non-cash adjustments to net earnings of
$44.5 million
compared to
$26.0 million
|
•
|
Operating assets and liabilities activity:
|
◦
|
Accounts receivable
decreased by
$25.1 million
compared to
$32.5 million
,
|
◦
|
Inventories
increased by
$26.2 million
compared to
$12.8 million
,
|
◦
|
Prepaid expenses and other assets
increased by
$4.7 million
compared to
$2.8 million
,
|
◦
|
Accounts payable
decreased by
$4.3 million
compared to
$2.7 million
|
◦
|
Accrued liabilities and other long-term liabilities
decreased by
$0.5 million
compared to
$7.0 million
.
|
•
|
As a result of our risk assessment processes being inadequate to identify and assess the risks in our information technology environment and business processes, we did not appropriately design controls in response to the risks of material misstatement. Specifically, we did not adequately identify new and evolving risks of material misstatement, and design and implement controls to address those risks as a result of changes to our business operating environment including becoming an independent publicly traded company. Although this deficiency did not result in a material misstatement to our consolidated financial statements, until remediated, it could result in material misstatements potentially impacting all financial statement accounts and disclosures in our annual or interim consolidated financial statements that would not be prevented or detected. This material weakness contributed to the following control deficiencies, which are also considered to be material weaknesses:
|
◦
|
We did not design and maintain effective controls over certain information technology general controls (ITGCs) for information systems that are relevant to the preparation of our financial statements. Specifically, we did not design and maintain:
|
▪
|
User access controls that adequately restrict user and privileged access to certain financial applications, programs, and data to appropriate Company personnel, and
|
▪
|
Program change management controls for certain financial systems to ensure that information technology program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized and implemented appropriately.
|
•
|
We did not design and maintain effective controls related to accounting for revenue, deferred revenue and related accounts receivable, including maintaining effective business process controls to prevent or detect misstatements in the processing of customer transactions. Specifically, we did not design and maintain effective controls related to the review of the completeness and accuracy of customer order entry, quantity and pricing. Additionally we did not design and maintain effective controls for the effect of the adoption of Revenue from Contracts with Customers (“ASC 606”) to prevent and detect misstatements. Specifically, we did not design and maintain effective controls related to the accuracy of recording the effect of the adoption of ASC 606.
|
•
|
We did not design and maintain effective controls related to accounting for inventory and cost of revenues, including maintaining effective business process controls to prevent or detect misstatements in the accuracy and valuation of inventory. Specifically, we did not maintain effective controls related to certain cycle count programs, the valuation of inventory at lower of cost or market, and presentation and disclosure of inventory classifications.
|
•
|
We did not design and maintain effective controls related to accounting for our operations in Germany, including maintaining effective business process controls and appropriate segregation of duties to prevent or detect misstatements in the financial information of our German operations. Specifically, we did not maintain effective controls related to the authorization of transactions and journal entries, and the cutoff, completeness and accuracy of transactions in the German operations.
|
•
|
We did not design and maintain effective controls in our financial reporting close process to prevent or detect misstatements in the translation of foreign currency denominated account balances to US dollars and the reporting of certain footnote information. Specifically, we did not maintain effective controls related to the accuracy of the translation of foreign currency denominated transactions to US dollars, and the reporting of segment footnote disclosures.
|
1.
|
Risk Assessment Process -
A critical element of the Internal Control - Integrated Framework developed by the Committee of Sponsoring Organizations (COSO) is the performance of a risk assessment to identify and assess current and emerging risks in our processes and the points in those processes at which potential misstatements could occur. We implemented a formal risk assessment to better align with the COSO and Control Objectives for Information and Related Technology (COBIT) frameworks. Applying the results of the risk assessment, we developed a comprehensive risk control matrix.
|
2.
|
Information Technology General Controls
- Regarding the general ITGCs environment, we applied the principles delineated in the COBIT framework in assessing risks associated with ITGCs. Regarding the deficiencies relating to user access and change management, we have performed a control environment and design review making changes to the control environment by redesigning certain controls to be aligned with the COBIT framework and designing additional controls to ensure all identified risks are addressed.
|
3.
|
Business Process Material Weaknesses
- Relating to the areas of customer order entry, quantity and pricing, cycle count programs, valuation of inventory at lower of cost or market, our German operations and the financial close process, we have applied the following governance protocols in support of comprehensive remediation:
|
a.
|
Enhancement of Corporate Governance Protocols and Entity Level Controls
|
b.
|
Formulization of a Risk Management Committee
|
c.
|
Improved Financial Close and Reporting Process
|
d.
|
Establishment of a Formal Internal Control Over Financial Reporting Function
|
•
|
properly identify customer needs or long-term customer demands;
|
•
|
prove the feasibility of new products;
|
•
|
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;
|
•
|
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 its products competitively and profitably, which can be particularly difficult with a strong U.S. Dollar;
|
•
|
manufacture, deliver, and install its products in sufficient volumes on time and accurately predict and control costs associated with manufacturing installation, warranty, and maintenance of the products;
|
•
|
appropriately manage its supply chain;
|
•
|
manage customer acceptance and payment for products; and
|
•
|
anticipate, respond to, and compete successfully with competitors.
|
•
|
the introduction and timing of announcement of new products or product enhancements by Varex and its competitors;
|
•
|
change in its or its 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 of our customers;
|
•
|
changes in the relative portion of its revenues represented by its various products, including the relative mix between higher margin and lower-margin products;
|
•
|
changes in the relative portion of its revenues represented by its 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 its effective tax rate, which may or may not be known to Varex in advance;
|
•
|
the 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 its organizational structure, which may result in restructuring or other charges;
|
•
|
disruptions in its operations, including its ability to manufacture products, caused by events such as earthquakes, fires, floods, terrorist attacks or the outbreak of epidemic diseases;
|
•
|
the unfavorable outcome of any litigation or administrative proceeding or inquiry, as well as ongoing costs associated with legal proceedings; and
|
•
|
accounting changes and adoption of new accounting pronouncements.
|
•
|
requiring that a portion of Varex’s cash flow from operations be used to make principal and interest payments on this debt, which would reduce cash flow available for other corporate purposes;
|
•
|
increasing Varex’s vulnerability to shifts in interest rates and to general adverse economic and industry conditions;
|
•
|
limiting Varex’s flexibility in planning for, or reacting to, changes in its business and the industry; and
|
•
|
limiting Varex’s ability to borrow additional funds as needed or increasing the costs of any such borrowing.
|
•
|
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 and may in the future adversely affect Varex’s financial results and cause some customers to delay purchasing decisions or move to in-sourcing supply or migrate to lower cost alternatives or ask for additional 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 recently put into place by both China and the United States;
|
•
|
any inability to obtain required export or import licenses or approvals, including the inability to obtain required export licenses during a U.S. government shutdown;
|
•
|
failure to comply with export laws and requirements, which may result in civil or criminal penalties and restrictions on Varex’s ability to export its products, particularly its 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 Varex conducts in a foreign jurisdiction, which may result in civil or criminal penalties and restrictions on its ability to conduct business in that jurisdiction; and
|
•
|
that it may be more difficult to protect Varex’s intellectual property in foreign countries.
|
•
|
adverse publicity affecting both Varex and its 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 Varex products or those of its customers;
|
•
|
delays in purchasing decisions by customers or cancellation of existing orders;
|
•
|
the inability to sell Varex products; and
|
•
|
difficulty in obtaining product liability or operating insurance at a reasonable cost, or at all.
|
•
|
difficulties in staffing and managing employee relations and foreign operations, particularly in attracting and retaining personnel qualified to design, sell, test, and support its products;
|
•
|
fluctuations in currency exchange rates;
|
•
|
difficulties in coordinating its operations globally and in maintaining uniform standards, controls, procedures, and policies across its operations;
|
•
|
difficulties in enforcing contracts and protecting intellectual property;
|
•
|
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 its operations.
|
•
|
the inability of Varex’s stockholders to call a special meeting;
|
•
|
the inability of Varex’s 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 Varex’s board of directors to issue preferred stock without stockholder approval;
|
•
|
the division of Varex’s board of directors into three classes of directors, with each class serving a staggered three-year term, and this classified board provision could have the effect of making the replacement of incumbent directors more time-consuming and difficult, until the 2022 annual meeting of stockholders, after which directors will be elected annually;
|
•
|
a provision that stockholders may only remove directors with cause while the board is classified;
|
•
|
the ability of Varex’s directors, and not stockholders, to fill vacancies on Varex’s board of directors; and,
|
•
|
the requirement that the affirmative vote of stockholders holding at least 66 2/3% of Varex’s voting stock is required to amend certain provisions in Varex’s Amended and Restated Certificate of Incorporation (relating to the term and removal of its directors, the filling of its board vacancies, the calling of special meetings of stockholders, stockholder action by written consent, the elimination of liability of directors to the extent permitted by Delaware law and indemnification of directors and officers), although this requirement will expire on the completion of the 2021 annual meeting of stockholders, after which Varex's Amended and Restated Certificate of Incorporation may be amended by the affirmative vote of the holders of at least a majority of the outstanding voting stock.
|
•
|
Prior to the separation, Varex’s business was operated by Varian as part of its broader corporate organization, rather than as an independent company. Varian or one of its affiliates performed various corporate functions for Varex such as accounting, legal, human resources, information technology, treasury, tax, facilities, research and development, insurance, and other corporate and infrastructure services. Varex’s historical financial results reflect allocations of corporate expenses from Varian for such functions and are likely to be less than the expenses Varex would have incurred had it operated as a separate publicly-traded company. Following the separation, Varex’s costs related to such functions previously performed by Varian may therefore increase.
|
•
|
Prior to the separation, Varex’s business was integrated with the other businesses of Varian. Historically, Varex has shared economies of scope and scale in costs, employees, vendor relationships, and customer relationships. Although Varex entered into a Transition Services Agreement with Varian, the arrangements provided by such agreement may not fully capture the benefits that Varex enjoyed when integrated with Varian and may result in Varex paying higher charges than in the past for these services. This could have a material and adverse effect on Varex’s results of operations and financial condition.
|
•
|
Generally, Varex’s working capital requirements and capital for its general corporate purposes, including acquisitions and capital expenditures, have historically been satisfied as part of the corporate-wide cash management policies of Varian. Following the separation, Varex may need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements, which may or may not be available and may be more costly.
|
•
|
The cost of capital for Varex’s business is expected to be higher than Varian’s cost of capital prior to the separation.
|
•
|
more effective pursuit of each company’s distinct operating priorities and strategies;
|
•
|
more efficient allocation of capital for both Varian and Varex;
|
•
|
direct access by Varex to the capital markets;
|
•
|
facilitation of incentive compensation arrangements for employees more directly tied to the performance of the relevant company’s business, and potential enhancement of employee hiring and retention by, among other things, improving the alignment of management and employee incentives with performance and growth objectives, while at the same time creating an independent equity structure that will facilitate Varex’s ability to effect future acquisitions utilizing Varex common stock; and
|
•
|
a distinct investment identity of Varex, allowing investors to evaluate the merits, performance, and future prospects of Varex separately from Varian.
|
•
|
was insolvent;
|
•
|
was rendered insolvent by reason of the separation and distribution;
|
•
|
had remaining assets constituting unreasonably small capital; or,
|
•
|
intended to incur, or believed it would incur, debts beyond its ability to pay these debts as they matured,
|
|
|
|
VAREX IMAGING CORPORATION
|
|
|
|
|
|
|
|
|
Date:
|
August 7, 2019
|
By:
|
/s/ CLARENCE R. VERHOEF
|
|
|
|
Clarence R. Verhoef
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
(Duly Authorized Officer and Principal Financial Officer)
|
1 Year Varex Imaging Chart |
1 Month Varex Imaging Chart |
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