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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 ____________________________________________________________
FORM 10-Q
 ____________________________________________________________
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-37860
 ____________________________________________________________ 
var-20220401_g1.jpg
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   No       
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).     Yes       No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer
Accelerated filer
Non-Accelerated filer
☐  
Smaller reporting company
Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No  
As of April 26, 2022, there were 39.8 million shares of the registrant’s common stock outstanding.



VAREX IMAGING CORPORATION
FORM 10-Q for the Quarter Ended April 1, 2022
INDEX
 
Condensed Consolidated Statements of Stockholders' Equity

1

PART I
FINANCIAL INFORMATION

Item 1. Financial Statements

VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS    
(Unaudited)
 
Three Months EndedSix Months Ended
(In millions, except per share amounts)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Revenues, net$214.7 $203.5 $413.5 $380.6 
Cost of revenues143.9 138.9 277.9 258.8 
Gross profit70.8 64.6 135.6 121.8 
Operating expenses:
Research and development18.9 18.2 36.6 34.9 
Selling, general and administrative25.3 30.6 58.4 65.0 
Total operating expenses44.2 48.8 95.0 99.9 
Operating income26.6 15.8 40.6 21.9 
Interest income0.1  0.1  
Interest expense(11.1)(10.4)(21.0)(20.7)
Other expense, net(2.0)(2.2)(2.8)(2.7)
Interest and other expense, net(13.0)(12.6)(23.7)(23.4)
Income (loss) before taxes13.6 3.2 16.9 (1.5)
Income tax expense6.0  7.7 1.6 
Net income (loss)7.6 3.2 9.2 (3.1)
Less: Net income attributable to noncontrolling interests 0.1 0.2 0.2 
Net income (loss) attributable to Varex$7.6 $3.1 $9.0 $(3.3)
Net income (loss) per common share attributable to Varex
Basic$0.19 $0.08 $0.23 $(0.09)
Diluted$0.18 $0.08 $0.21 $(0.09)
Weighted average common shares outstanding
Basic39.7 39.2 39.6 39.2 
Diluted42.2 40.0 43.2 39.2 
 
See accompanying notes to the unaudited condensed consolidated financial statements.
2



VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months EndedSix Months Ended
(In millions)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Net income (loss)$7.6 $3.2 $9.2 $(3.1)
Other comprehensive income (loss):
Foreign currency translation adjustments(1.2)(0.7)(1.7)(0.6)
Total comprehensive income (loss)6.4 2.5 7.5 (3.7)
Less: Comprehensive income attributable to noncontrolling interests 0.1 0.2 0.2 
Comprehensive income (loss) attributable to Varex$6.4 $2.4 $7.3 $(3.9)

 See accompanying notes to the unaudited condensed consolidated financial statements.

3

VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions, except share and per share amounts)April 1, 2022October 1, 2021
Assets
Current assets:
Cash and cash equivalents$115.1 $144.6 
Accounts receivable, net of allowance for credit losses of $0.7 million and $1.0 million at April 1, 2022 and October 1, 2021, respectively
154.3 155.3 
Inventories
269.2 224.8 
Prepaid expenses and other current assets
30.6 29.5 
Total current assets569.2 554.2 
Property, plant and equipment, net
136.4 140.2 
Goodwill
289.9 292.2 
Intangible assets, net
42.1 50.7 
Investments in privately-held companies
47.9 49.3 
Deferred tax assets
1.2 4.0 
Operating lease assets23.0 24.3 
Other assets
32.9 32.6 
Total assets
$1,142.6 $1,147.5 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable
$78.8 $58.8 
Accrued liabilities and other current liabilities
72.8 89.7 
Current operating lease liabilities
5.3 6.2 
Current maturities of long-term debt
2.6 2.8 
Deferred revenues
7.6 9.1 
Total current liabilities167.1 166.6 
Long-term debt, net
408.4 431.7 
Deferred tax liabilities
 2.2 
Operating lease liabilities19.0 18.7 
Other long-term liabilities
33.7 31.8 
Total liabilities628.2 651.0 
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 - 39,823,331 and 39,435,830 at April 1, 2022 and October 1, 2021, respectively
0.4 0.4 
Additional paid-in capital459.9 449.4 
Accumulated other comprehensive (loss) income(1.7) 
Retained earnings42.5 33.5 
Total Varex stockholders' equity501.1 483.3 
Noncontrolling interests13.3 13.2 
Total stockholders' equity514.4 496.5 
Total liabilities and stockholders' equity$1,142.6 $1,147.5 

See accompanying notes to the unaudited condensed consolidated financial statements.
4

VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)

Three Months Ended April 1, 2022
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Varex EquityNoncontrolling InterestsTotal Stockholders' Equity
(In millions)SharesAmount
December 31, 202139.6 $0.4 $458.0 $(0.5)$34.9 $492.8 $13.3 $506.1 
Net income— — — — 7.6 7.6 — 7.6 
Exercise of stock options — 0.3 — — 0.3 — 0.3 
Common stock issued upon vesting of restricted shares0.3 — — — — — — — 
Shares withheld on vesting of restricted stock(0.1)— (2.1)— — (2.1)— (2.1)
Share-based compensation
— — 3.9 — — 3.9 — 3.9 
Foreign currency translation adjustments— — — (1.2)— (1.2)— (1.2)
Other
— — (0.2)— — (0.2) (0.2)
April 1, 202239.8 $0.4 $459.9 $(1.7)$42.5 $501.1 $13.3 $514.4 


Three Months Ended April 2, 2021
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive IncomeRetained EarningsTotal Varex EquityNoncontrolling InterestsTotal Stockholders' Equity
(In millions)SharesAmount
January 1, 202139.2 $0.4 $439.2 $0.9 $9.7 $450.2 $14.2 $464.4 
Net income— — — — 3.1 3.1 0.1 3.2 
Common stock issued upon vesting of restricted shares
0.2 — — — — — — — 
Shares withheld on vesting of restricted stock(0.1)— (1.5)— — (1.5)— (1.5)
Share-based compensation— — 3.6 — — 3.6 — 3.6 
Foreign currency translation adjustments— — — (0.7)— (0.7)— (0.7)
Other— — — — — — (0.1)(0.1)
April 2, 202139.3 $0.4 $441.3 $0.2 $12.8 $454.7 $14.2 $468.9 


See accompanying notes to the unaudited condensed consolidated financial statements.
5

VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Six Months Ended April 1, 2022
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive LossRetained EarningsTotal Varex EquityNoncontrolling InterestsTotal Stockholders' Equity
(In millions)SharesAmount
October 1, 202139.4 $0.4 $449.4 $ $33.5 $483.3 $13.2 $496.5 
Net income— — — — 9.0 9.0 0.2 9.2 
Exercise of stock options0.1 — 3.8 — — 3.8 — 3.8 
Common stock issued upon vesting of restricted shares0.3 — — — — — — — 
Shares withheld on vesting of restricted stock(0.1)— (2.1)— — (2.1)— (2.1)
Common stock issued under employee stock purchase plan0.1 — 1.7 — — 1.7 — 1.7 
Share-based compensation— — 7.3 — — 7.3 — 7.3 
Foreign currency translation adjustments— — — (1.7)— (1.7)— (1.7)
Other— — (0.2)— — (0.2)(0.1)(0.3)
April 1, 202239.8 $0.4 $459.9 $(1.7)$42.5 $501.1 $13.3 $514.4 


Six Months Ended April 2, 2021
Common StockAdditional Paid-in CapitalAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal Varex EquityNoncontrolling InterestsTotal Stockholders' Equity
(In millions)SharesAmount
October 2, 202039.1 $0.4 $434.4 $0.8 $16.1 $451.7 $14.1 $465.8 
Net (loss) income— — — — (3.3)(3.3)0.2 (3.1)
Common stock issued upon vesting of restricted shares0.2 — — — — — — — 
Shares withheld on vesting of restricted stock(0.1)— (1.5)— — (1.5)— (1.5)
Common stock issued under employee stock purchase plan0.1 — 1.2 — — 1.2 — 1.2 
Share-based compensation— — 7.2 — — 7.2 — 7.2 
Foreign currency translation adjustments— — — (0.6)— (0.6)— (0.6)
Other— — — — — — (0.1)(0.1)
April 2, 202139.3 $0.4 $441.3 $0.2 $12.8 $454.7 $14.2 $468.9 

See accompanying notes to the unaudited condensed consolidated financial statements.
6

VAREX IMAGING CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
(In millions)April 1, 2022April 2, 2021
Cash flows from operating activities:
Net income (loss)$9.2 $(3.1)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Share-based compensation expense7.3 7.2 
Depreciation9.6 10.5 
Amortization of intangible assets7.5 8.5 
Deferred taxes0.5 0.1 
Loss from equity method investments1.6 2.5 
Amortization of deferred loan costs5.3 4.9 
Inventory write-down1.6 3.5 
Loss on operating lease abandonment1.9  
Other, net1.4 1.0 
Changes in assets and liabilities:
Accounts receivable1.3 (6.2)
Inventories(46.5)20.4 
Prepaid expenses and other assets1.1 (15.1)
Accounts payable20.4 (19.8)
Accrued liabilities and other current and long-term liabilities(18.2)5.2 
Deferred revenues(1.5)0.3 
Net cash provided by operating activities2.5 19.9 
Cash flows from investing activities:
Purchases of property, plant and equipment(7.5)(7.8)
Proceeds from sales of business and assets1.7  
Investments in and loans to privately-held companies(0.3)(0.6)
Other(0.5) 
Net cash used in investing activities
(6.6)(8.4)
Cash flows from financing activities:
Taxes related to net share settlement of equity awards
(2.1)(1.5)
Borrowings under credit agreements
 1.5 
Repayments of borrowing under credit agreements
(28.4)(1.5)
Proceeds from exercise of stock options
3.8  
Proceeds from shares issued under employee stock purchase plan
1.7 1.2 
Other financing activities
(0.4)(0.7)
Net cash used in financing activities
(25.4)(1.0)
Effects of exchange rate changes on cash and cash equivalents and restricted cash
(0.1) 
Net (decrease) increase in cash and cash equivalents and restricted cash
(29.6)10.5 
Cash and cash equivalents and restricted cash at beginning of period
146.1 102.1 
Cash and cash equivalents and restricted cash at end of period
$116.5 $112.6 
Supplemental cash flow information:
Cash paid for interest$15.8 $4.0 
Income taxes paid, net of (refunds)(3.4)12.9 
Supplemental non-cash activities:
Purchases of property, plant and equipment financed through accounts payable$1.1 $0.4 
See accompanying notes to the unaudited condensed consolidated financial statements.
7

VAREX IMAGING CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Description of Business
    Varex Imaging Corporation (the “Company,” “Varex” or “Varex Imaging”) designs, manufactures, sells and services a broad range of medical products, which include X-ray tubes, digital detectors and accessories, high voltage connectors, image processing software and workstations, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, ionization chambers and buckys, for use in a range of applications, including radiographic or fluoroscopic imaging, mammography, computed tomography, oncology and computer-aided detection. The Company sells its products to imaging system original equipment manufacturer (“OEM”) customers for incorporation into new medical diagnostic, radiation therapy, dental, and veterinary equipment, as well as to independent service companies and distributors, and directly to end-users for replacement purposes.
    The Company also designs, manufactures, sells and services industrial products, which include Linatron® X-ray accelerators, high voltage connectors, imaging processing software and image detection products for security and inspection purposes, such as cargo screening at ports and borders and nondestructive examination in a variety of applications. The Company generally sells security and inspection products to OEM customers who incorporate Varex’s products into their inspection systems. 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.
Basis of Presentation
    The accompanying 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 have been prepared in accordance with accounting principles generally accepted in the United States (“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 condensed consolidated financial statements include all adjustments necessary for a fair presentation of the results for the interim periods.
    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 year ended 2021 included in the Company’s Annual Report on Form 10-K, which was filed with the SEC on November 19, 2021. 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 standards described below, there have been no material changes to the Company's significant accounting policies, compared to the accounting policies described in Note 1, Summary of Significant Accounting Policies, in the Company’s Annual Report on Form 10-K for fiscal year 2021.

Segment Reporting

    The Company has two reportable operating segments; (i) Medical and (ii) Industrial, which aligns with how its Chief Executive Officer, who is the Company's Chief Operating Decision Maker (“CODM”), reviews the Company’s performance. See Note 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 2022 is the 52-week period ending September 30, 2022. Fiscal year 2021 was the 52-week period that ended on October 1, 2021. The fiscal quarters ended April 1, 2022 and April 2, 2021 were both 13-week periods. The two fiscal quarters ended April 1, 2022 and April 2, 2021 were both 26-week periods.

8

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, contract liabilities, long-lived asset valuations, impairment on investments, valuation of financial instruments, and taxes on income. Actual results could differ from these estimates.

Impact of COVID-19
    The coronavirus (“COVID-19”) pandemic, the emerging variants, uneven vaccination rates across the globe, and the mitigation efforts by governments to control its spread have created uncertainties and disruptions in the economic and financial markets. The extent to which COVID-19 will continue to impact the Company’s business and financial results depends on numerous evolving factors including: the magnitude and duration of COVID-19, the extent to which it will impact worldwide macroeconomic conditions, including supply chain disruptions, interest rates, unemployment rates, the speed of the economic recovery, and governmental and business reactions to the pandemic. The Company has experienced continuing supply chain disruptions and other issues that are at least partially related to the ongoing COVID-19 pandemic. These supply chain related challenges have been increasing in recent months. In addition, while we have from time to time taken significant precautions to maintain employee safety, such as implementing mask requirements, encouraging vaccination, and periodically asking non-production related employees to work from home when possible, the Company has experienced, and may in the future experience, COVID-19 related employee absences that adversely impact our production or business.
    The Company assessed certain accounting matters that generally require consideration of forecasted financial information in context with the information reasonably available to the Company, including the estimated future impacts of COVID-19, through the date of filing this report. The accounting matters assessed included, but were not limited to, the Company’s carrying value of goodwill, intangibles, long-lived assets, equity method investments, inventory and related reserves, and the allowance for credit losses. The Company’s assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material negative impacts to the Company’s condensed consolidated financial statements in future reporting periods. These future developments are highly uncertain and the outcomes cannot be estimated with certainty. Actual results may differ from those estimates, and such differences may be material to the financial statements.
Cash and Cash Equivalents
    The Company considers currency on hand, demand deposits, time deposits and all highly-liquid investments with an original maturity of three months or less at the date of purchase to be cash and cash equivalents.

Restricted Cash
    Restricted cash primarily consists of cash collateral related to certain leases and inventory arrangements. Restricted cash is included in Other assets on the Company's condensed consolidated balance sheets. Cash and cash equivalents and restricted cash as reported within the condensed consolidated statements of cash flows consisted of the following:
Six Months EndedSix Months Ended
April 1, 2022April 2, 2021
(In millions)Beginning of PeriodEnd of PeriodBeginning of PeriodEnd of Period
Cash and cash equivalents$144.6 $115.1 $100.6 $111.1 
Restricted cash1.5 1.4 1.5 1.5 
Cash and cash equivalents and restricted cash$146.1 $116.5 $102.1 $112.6 
9

Concentration of Risk
    Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash, cash equivalents and trade accounts receivable. Cash held with financial institutions may exceed the Federal Deposit Insurance Corporation insurance limits or similar limits in foreign jurisdictions. To date, the Company has not experienced any losses on its deposits of cash and cash equivalents. 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 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. When these suppliers are unable to meet our supply needs, our production is negatively impacted.
    Credit is extended to customers based on an evaluation of the customer’s financial condition, and collateral is not required. In certain circumstances, a customer may be required to prepay all or a portion of the contract price prior to transfer of control. During the periods presented, one of the Company's customers accounted for a significant portion of revenues, as set forth below:
Three Months EndedSix Months Ended
April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Canon Medical Systems Corporation18.2 %17.8 %18.7%17.2%
    Canon Medical Systems Corporation accounted for 12.8% and 16.2% of the Company’s condensed consolidated accounts receivable as of April 1, 2022 and October 1, 2021, respectively.

Investments
    The Company accounts for its equity investments in privately-held companies under the equity method of accounting if the Company has the ability to exercise significant influence in these investments. Distributions received from an equity method investment are classified using the cumulative earnings approach, which means that distributions up to the amount of cumulative equity in earnings recognized will be treated as returns on investment and classified as operating cash flows and those in excess of that amount will be treated as returns of investment and classified as investing cash flows. The Company reviews its equity investments in privately-held companies for impairment whenever events or changes in business circumstances are other than temporary and indicate that the carrying amount of the investments may not be fully recoverable. There were no impairments recorded during the three and six months ended April 1, 2022 and April 2, 2021, respectively.
    
Loss Contingencies
    From time to time, the Company is involved in legal proceedings, government inspections, investigations, customs and duties audits, and other claims and contingency matters, both inside and outside the United States, arising in the ordinary course of its business or otherwise. The Company accrues amounts for probable losses, 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.
10

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 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 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:
Six Months Ended
(In millions)April 1, 2022April 2, 2021
Accrued product warranty, at beginning of period$8.5 $8.1 
New accruals charged to cost of revenues4.6 6.1 
Product warranty expenditures(5.5)(6.3)
Accrued product warranty, at end of period$7.6 $7.9 
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 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 image 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.
    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

11

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 for expected returns, a liability is recorded for expected returns, and an asset is recorded for the right to recover products from customers on settling the liability. The Company recognizes a reduction to revenue and cost of sales at the time of sale and a corresponding contract liability and contract asset. 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.
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.
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 for the disaggregation of revenue by geographic region.    
Contract Balances
    Contract assets are included within the Prepaid expenses and other current assets, and Other assets balances in the condensed consolidated balance sheets. Contract liabilities, which also includes refund obligations, are included within the Accrued liabilities and other current liabilities, Deferred revenues, and Other long-term liabilities balances in the condensed consolidated balance sheets.

12

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.

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

Recently Adopted Accounting Pronouncements
    In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which simplifies the accounting for income taxes by removing certain exceptions to the current guidance, and improving the consistent application of and simplification of other areas of the guidance. The Company adopted this ASU on October 2, 2021, using a prospective approach. The adoption of ASU 2019-12 did not have a material impact on the Company's condensed consolidated financial statements and related disclosures.

Recent Accounting Standard Updates Not Yet Effective
    In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The standard removes certain separation models in ASC 470-20 for convertible instruments, and, as a result, embedded conversion features are no longer separated from the host contract for convertible instruments with conversion features that are not required to be accounted for as derivatives under ASC 815. The convertible debt instruments will be accounted for as a single liability measured at amortized cost. This will also result in the interest expense recognized for convertible debt instruments to be typically closer to the coupon interest rate. Further, the ASU made amendments to the earnings per share (“EPS”) guidance in Topic 260 for convertible instruments, the most significant impact of which is requiring the use of the if-converted method for diluted EPS calculation, and no longer allowing the net share settlement method. The ASU is effective for annual periods beginning after December 15, 2021, including interim periods within those years. Adoption of the ASU can either be on a modified retrospective or full retrospective basis. We expect to adopt this ASU as of the first quarter of fiscal year 2023. While we are still evaluating the impacts of this ASU on our consolidated financial statements, we expect that the unamortized discount on our Convertible Notes (see Note 10. Borrowings) will be reclassified from equity to liabilities and that the interest expense from our Convertible Notes will decrease and be closer to the coupon rate of 4.00%. The impact that adoption of ASU 2020-06 will have on our net income per diluted share will depend on the amount of earnings in each period and our share price, but could result in additional dilution.
    In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, to provide optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate (e.g., LIBOR) reform on financial reporting. Adoption of the guidance is elective and is permitted from March 12, 2020 through December 31, 2022. The Company will evaluate transactions or contract modifications occurring as a result of reference rate reform and determine whether to apply the optional guidance on an ongoing basis. The Company does not currently expect this ASU will have a material impact on its financial position, results of operations or cash flows.
2. REVENUE
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.
13

    The following table disaggregates the Company’s revenue by geographic region:
Three Months EndedSix Months Ended
(In millions)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Americas$68.4 $70.5 $128.9 $132.8 
EMEA69.6 67.7 137.0 125.6 
APAC76.7 65.3 147.6 122.2 
$214.7 $203.5 $413.5 $380.6 
    Revenue in the United States was $66.2 million and $69.2 million for the three months ended April 1, 2022 and April 2, 2021, respectively. Revenue in the United States was $125.0 and $130.3 million for the six months ended April 1, 2022 and April 2, 2021, respectively.
    Refer to Note 15, Segment Information, for the disaggregation of the Company’s revenue based on reportable operating segments.
Contract Balances
     The following table summarizes the changes in the contract assets and refund liabilities:
Contract Assets
Six Months Ended
(In millions)April 1, 2022April 2, 2021
Balance at beginning of period$24.3 $24.6 
Costs recovered from product returns during the period(2.6)(2.4)
Contract asset from shipments of products, subject to return during the period3.6 2.9 
Adjustment for actual vs reserved product returns(0.4)(0.6)
Balance at end of period$24.9 $24.5 
Contract Liabilities
Six Months Ended
(In millions)April 1, 2022April 2, 2021
Balance at beginning of period$27.0 $27.4 
Release of refund liability included in beginning of year refund liability(2.9)(2.7)
Additions to refund liabilities3.9 3.2 
Adjustment for actual vs reserved product returns(0.4)(0.7)
Balance at end of period$27.6 $27.2 
    During the three and six months ended April 1, 2022, the Company recognized revenue of $1.8 million and $5.9 million related to deferred revenues that existed at October 1, 2021. During the three and six months ended April 2, 2021, the Company recognized revenue of $0.4 million and $5.4 million related to deferred revenues that existed at October 2, 2020.
14

3. LEASES
    The Company has operating and finance leases for office space, warehouse and manufacturing space, vehicles and certain equipment. During the three months ended December 31, 2021, the Company determined that it no longer intends to sublease the Santa Clara facility, which ceased operations at the end of fiscal year 2020. See Note 5, Restructuring, for further details. Accordingly during the three months ended December 31, 2021, the Company recorded a loss due to abandonment of $1.9 million, which is included in Selling, general and administrative on the Condensed Consolidated Statements of Operations for the six months ended April 1, 2022. The following table presents supplemental balance sheet information related to the Company's operating and finance leases:
(In millions)Balance Sheet LocationApril 1, 2022October 1, 2021
Assets
Operating lease right-of-use assetsOperating lease assets$23.0 $24.3 
Finance lease right-of-use assets
Property, plant and equipment, net
$0.3 $0.5 
Liabilities
Operating lease liabilities (current) Current operating lease liabilities$5.3 $6.2 
Finance lease liabilities (current) Accrued liabilities and other current liabilities$0.2 $0.2 
Operating lease liabilities (non-current)Operating lease liabilities$19.0 $18.7 
Finance lease liabilities (non-current)
Other long-term liabilities
$0.1 $0.3 
    The following table presents the weighted average remaining lease term and discount rate information related to the Company's operating and finance leases:
April 1, 2022April 2, 2021
Operating lease weighted average remaining lease term (in years)6.06.2
Operating lease weighted average discount rate5.6 %4.9 %
Finance lease weighted average remaining lease term (in years)2.23.0
Finance lease weighted average discount rate4.0 %3.8 %
    The following table provides information related to the Company’s operating and finance leases:
Three Months EndedSix Months Ended
(In millions)April 1, 2022April 2, 2021April 1, 2022April 2, 2021
Total operating lease costs(1)
$1.4 $2.0 $3.4 $3.9 
Total finance lease costs$ $ $0.1 $0.1 
Operating cash flows from operating leases$1.7 $1.9 $3.6 $3.7 
Financing cash flows from finance leases  0.1 0.1 
Total cash paid for amounts included in the measurement of lease liabilities$1.7 $1.9 $3.7 $3.8 
Noncash operating right-of-use assets obtained in exchange for new lease liabilities$2.9 $2.3 $3.0 $2.5 
Noncash finance right-of-use assets obtained in exchange for new lease liabilities   0.1 
Total right-of-use assets obtained in exchange for new lease liabilities$2.9 $2.3 $3.0 $2.6 
15

(1) Includes variable and short-term lease expense, which were immaterial for the three and six months ended April 1, 2022 and April 2, 2021.
    As of April 1, 2022, the present value of operating lease and finance lease liabilities for each of the following five years and a total thereafter were as follows:
(In millions)
Fiscal years:Operating LeasesFinance Leases
2022 remaining$3.6 $0.1 
20235.2 0.2 
2024