CORRESP Filing
Varex Imaging Corp
Date: April 24, 2025 · CIK: 0001681622 · Accession: 0001681622-25-000054
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-37860
Referenced dates: March 27, 2025
Letter
Document Varex Imaging Corporation 1678 South Pioneer Road Salt Lake City, UT 84104 - USA www.vareximaging.com April 24, 2025 VIA EDGAR Securities and Exchange Commission Division of Corporation Finance Office of Manufacturing 100 F. Street, N.D. Washington, D.C. 20549-9303 Attention: Ms. Stephany Yang Mr. Andrew Blume Re: Varex Imaging Corporation Form 10-K for the Fiscal Year Ended September 27, 2024 Filed November 19, 2024 Form 8-K Furnished November 19, 2024 File No. 001-37860 Dear Ms. Yang and Mr. Blume: On behalf of Varex Imaging Corporation (the “Company”), I am responding to the comment letter from the Staff dated March 27, 2025, regarding our Annual Report on Form 10-K for the fiscal year ended September 27, 2024 (the “Form 10-K”) filed with the Securities and Exchange Commission (the “Commission”) on November 19, 2024 and the Current Report on Form 8-K furnished to the Commission on November 19, 2024 (the “Form 8-K”). The Commission’s comments are reproduced below in bold and italics, followed in each case by the Company’s response. Form 8-K Furnished November 19, 2024 Exhibit 99.1 1. We note your non-GAAP measures include an adjustment for “other non-operational costs.” Please tell us the amount and nature of each material component of this adjustment in fiscal year 2024 and how you determined that they were not normal and recurring operating expenses necessary to operate your business. Specifically address the propriety of adjusting for inventory write-downs of discontinued products. See Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. Please present a separate line item for any individual amounts that are material in future filings. April 24, 2025 Page 2 Response: The Company respectfully acknowledges the Staff’s comment. For fiscal year 2024, “Other non-operational costs” included two material components: Non-ordinary course litigation expense totaling $5.38 million, and Restructuring (Reduction in Force) totaling $2.55 million. Non-ordinary course litigation expense includes only non-ordinary course litigation matters such as certain intellectual property disputes and joint venture litigation and excludes litigation matters that are part of the ordinary course of the Company’s business, such as product liability claims, employment related matters and commercial contract disputes. The Company considers these types of litigation matters to be non-ordinary course because they occur infrequently and are unique in their complexity. In determining whether the expenses relating to intellectual property disputes constitute expenses that are outside the ordinary course of business, the Company considered the following factors: (1) while the expenses have been incurred over a period of time, the expenses relate to a single matter, the first intellectual property dispute that the Company had received since its separation from Varian Medical Systems, Inc. in 2017, (2) the dispute related to the defense of a claim by a non-practicing entity whose business model is to litigate patent claims for damages, and not ordinary course claims that relate to the practice of technology, and (3) the excluded expenses do not include other intellectual property dispute matters that the Company considers to be recurring, such as recurring fees or litigation costs associated with trademark enforcement. In determining whether the litigation expenses relating to joint ventures constitute expenses that are outside the ordinary course of business, the Company considered the following factors: (1) while the expenses have been incurred over a period of time, the expenses relate to claims involving only two of the Company’s joint ventures, and were the first of their kind for the Company, (2) the excluded expenses relate to complex litigation spanning a number of claims that have been made in state, federal, and international courts, and so are not considered to be in the ordinary course of business due to the scope of the litigation, as well as complexity of the cases, and (3) the excluded expenses do not include other legal expenses that are incurred relative to the joint ventures, such as expenses relating to corporate governance, employment, and general operating advice. The restructuring charges included in “Other non-operational costs” are related to reduction in force costs. The restructuring line item in the earnings release for fiscal year 2024 of $0.3 million relates to costs incurred due to the Company closing operations of a facility in the United States and relocating equipment and personnel to one of our manufacturing locations in Asia. In determining whether the restructuring charges were outside the ordinary course of business, the Company considered that while the Company periodically reviews the adequacy and appropriateness of its facilities, the Company does not frequently determine that a facility should be closed and relocated. Please note that the Company has specifically reported the facility closure and relocation restructuring costs and the reduction in force costs in separate line items for comparative and consistent reporting. The total expense related to write-downs of discontinued products was immaterial at approximately $80,000. In determining whether the write-down of discontinued products was an infrequent, unusual activity, the Company considered that the discontinuation related to one April 24, 2025 Page 3 collimator product line and that the Company does not regularly discontinue significant product lines and considers this to be an infrequent, unusual activity. As a result, when the Company determined to discontinue its Collimator product line, the Company recorded the associated $80,000 excess and obsolescence reserve as a non-GAAP expense for the purpose of reporting Adjusted EBITDA. The Company will present a separate line item for any individual adjustments that are material in future filings. Form 10-K for the Fiscal Year Ended September 27, 2024 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of Results of Operations for Fiscal Years 2024 and 2023, page 31 2. Where you describe two or more business reasons that contributed to a material change in a financial statement line item between periods, please quantify, where possible, the extent to which each factor contributed to the overall change in that line item, including any offsetting factors. In addition, where you identify intermediate causes of changes in your operating results, also describe the reasons underlying the intermediate causes. We note your disclosures that the changes in segment revenues, revenues by region, and segment gross profit from fiscal year 2023 to fiscal year 2024 were due to lower sales in your China business and changes in sales of various products. To the extent possible, quantify the impact of each contributing factor in dollars and/or percentage, expand on the reasons driving these changes, and provide greater transparency into the material components and potential variability of your revenues and gross profit. Response: The Company respectfully acknowledges the Staff’s comment. The Company confirms that in future filings where the Company describes two or more material business reasons that contribute to a material change in a financial statement line item between periods, it will quantify, where possible, the extent to which each factor contributed to the overall change in the financial statement line item, including any offsetting factors, as suggested by the Staff. The Company also confirms that if it identifies intermediate causes of changes in its operating results, in future filings, it will also describe the reasons underlying the intermediate causes. The following are illustrative examples of what the additional disclosure requested by the Staff for changes in segment revenues and revenues by region could look like in future annual reports on Form 10-K and quarterly reports on Form 10-Q using the Company’s results for the fiscal year ended September 27, 2024. April 24, 2025 Page 4 Segment Revenues Example Medical revenues decreased $91.6 million in fiscal year 2024 compared to 2023 primarily due to decreased sales of $43.2 million in fluoroscopy, oncology, and dental applications excluding China, and $28.9 million of lower sales in our China business. Industrial revenues increased $9.2 million due to increased sales of security inspection products of $26.0 million and industrial tubes of $3.9 million. This increase was partially offset by lower sales of industrial detectors of $22.8 million. Revenues by Region Example The Americas revenues decreased $15.3 million in fiscal year 2024 compared to 2023 primarily due to decreased digital detectors sales of $26.0 million offset by an increase in tubes sales of $12.8 million. EMEA revenues decreased $10.4 million primarily due to decreased digital detectors sales of $41.0 million, partially offset by increased security inspection products sales of $28.0 million. APAC revenues decreased $56.7 million primarily due to decreased X-ray tubes sales of $41.0 million and decreased digital detectors sales of $14.0 million. Liquidity and Capital Resources Cash Flows, page 34 3. Please provide a more informative analysis and discussion of changes in operating, investing and financing cash flows for each period presented. In doing so, explain the underlying reasons and implications of material changes between periods to provide investors with an understanding of trends and variability in cash flows. Also provide an analysis of any known trends and uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in your liquidity. Ensure your discussion and analysis is not merely a recitation of changes evident from the financial statements. Refer to Item 303(a) of Regulation S-K and Section IV.B of SEC Release No. 33-8350. Response: The Company respectfully acknowledges the Staff’s comment. The Company confirms that in future filings it will provide additional analysis of the material quantitative and qualitative changes in operating, investing, and financing cash flows for each period presented, explaining the underlying reasons and implications of material changes between periods. To the extent applicable, the Company will also provide investors with an understanding of trends and variability in cash flows, as well as an analysis of any known trends and uncertainties that will result in or are reasonably likely to result in a material increase or decrease in the Company’s liquidity. The following are illustrative examples of what the disclosures could look like in future annual reports on Form 10-K and quarterly reports on Form 10-Q using the Company’s cash flow results for the fiscal year ended September 27, 2024. April 24, 2025 Page 5 Net cash provided by operating activities . Cash provided by operating activities for fiscal year 2024 was $47.3 million compared to $108.4 million for fiscal year 2023. Net cash provided by operating activities decreased $61.1 million for the fiscal year ended September 27, 2024 compared to the fiscal year ended September 29, 2023. Significant changes in operating assets and liabilities affecting cash flows during these years included: • Net loss was $47.2 million for the year ended September 27, 2024 compared to net income of $48.7 million for the year ended September 29, 2023, due primarily to lower sales of $82.4 million in fiscal year 2023 compared to fiscal year 2024 and $11.6 million of higher operating expenses in fiscal year 2024 compared to fiscal year 2023. • Non-cash increase of $37.0 million in deferred tax assets due to the addition of the valuation allowance in fiscal year 2024 compared to non-cash decrease of $39.5 million in deferred tax assets due to the release of the valuation allowance in fiscal year 2023. • Non-cash decrease of $16.0 million for impairment of equity method investment from fiscal year 2023 compared to fiscal year 2024 due to one-time impairment charge in fiscal year 2023. • Cash provided by inventories was $13.6 million lower in fiscal year ended September 27, 2024, compared to fiscal year ended September 29, 2023, respectively due primarily to lower sales in 2024 and inventory turns decreasing year over year. • Cash used for accrued expenses and other long term-liabilities increased by $8.1 million due to tax related payments and the timing of certain payroll costs. Net cash used in investing activities . Cash used in investing activities was $27.5 million and $44.9 million for the fiscal years 2024 and 2023, respectively. Net cash used in investing activities decreased $17.4 million for the fiscal year ended September 27, 2024, compared to the fiscal year ended September 29, 2023. The decrease in cash used in investing activities was primarily due to the implementation of an investment strategy to increase the Company’s cash balance to pay down the outstanding Convertible Notes during the third quarter of fiscal year 2025. This strategy resulted in increased proceeds from the maturities of marketable debt securities by $30.5 million, partially offset by higher purchases of short-term marketable securities of $4.4 million and higher purchases of property, plant, and equipment of $6.2 million. Net cash used in financing activities . Net cash used in financing activities was $3.3 million and $0.2 million for the fiscal years 2024 and 2023, respectively. The increase in cash used in financing activities of $3.1 million was primarily due to increased cash payments of $2.3 million for debt issuance costs related to our strategy to strengthen the balance sheet in preparation for paying down the Convertible Notes mentioned above, and increased taxes paid for the net share settlement of equity awards of $0.8 million. April 24, 2025 Page 6 Critical Accounting Estimates Goodwill and Intangible Assets, page 36 4. We note that you conducted a quantitative goodwill impairment test during the fourth quarter of fiscal 2024 due to indicators of possible impairment. Please disclose whether any of your reporting units are at risk of failing the goodwill impairment test. A reporting unit is at risk of failing the impairment test if it has a fair value that is not substantially in excess of carrying value. If no reporting units are at risk based on your most recent impairment test, disclose such information to your readers as we believe it provides them with valuable information in assessing the sensitivity of your goodwill to future impairment. Alternatively, if a reporting unit is at risk of failing the impairment test and a material impairment charge could occur, please disclose the following: • The percentage by which fair value exceeded carrying value as of the date of the most recent test; • The amount of goodwill allocated to the reporting unit; • A description of the methods and key assumptions used and how the key assumptions were determined; • A discussion of the degree of uncertainty associated with the key assumptions. The discussion regarding uncertainty should provide specifics to the extent possible (e.g., the valuation model assumes recovery from a business downturn within a defined period of time); and • A description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions. Response: The Company respectfully acknowledges the Staff’s comment. Based on the quantitative goodwill impairment test conducted by the Company during the fourth quarter of fiscal year 2024, the Company determined that none of the reporting units were at risk of failing the goodwill impairment test because the fair value of each reporting unit was substantially in excess of the carrying values as of the valuation date. In future filings, when a qua
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CORRESP 1 filename1.htm Document Varex Imaging Corporation 1678 South Pioneer Road Salt Lake City, UT 84104 - USA www.vareximaging.com April 24, 2025 VIA EDGAR Securities and Exchange Commission Division of Corporation Finance Office of Manufacturing 100 F. Street, N.D. Washington, D.C. 20549-9303 Attention: Ms. Stephany Yang Mr. Andrew Blume Re: Varex Imaging Corporation Form 10-K for the Fiscal Year Ended September 27, 2024 Filed November 19, 2024 Form 8-K Furnished November 19, 2024 File No. 001-37860 Dear Ms. Yang and Mr. Blume: On behalf of Varex Imaging Corporation (the “Company”), I am responding to the comment letter from the Staff dated March 27, 2025, regarding our Annual Report on Form 10-K for the fiscal year ended September 27, 2024 (the “Form 10-K”) filed with the Securities and Exchange Commission (the “Commission”) on November 19, 2024 and the Current Report on Form 8-K furnished to the Commission on November 19, 2024 (the “Form 8-K”). The Commission’s comments are reproduced below in bold and italics, followed in each case by the Company’s response. Form 8-K Furnished November 19, 2024 Exhibit 99.1 1. We note your non-GAAP measures include an adjustment for “other non-operational costs.” Please tell us the amount and nature of each material component of this adjustment in fiscal year 2024 and how you determined that they were not normal and recurring operating expenses necessary to operate your business. Specifically address the propriety of adjusting for inventory write-downs of discontinued products. See Question 100.01 of the Compliance and Disclosure Interpretations on Non-GAAP Financial Measures. Please present a separate line item for any individual amounts that are material in future filings. April 24, 2025 Page 2 Response: The Company respectfully acknowledges the Staff’s comment. For fiscal year 2024, “Other non-operational costs” included two material components: Non-ordinary course litigation expense totaling $5.38 million, and Restructuring (Reduction in Force) totaling $2.55 million. Non-ordinary course litigation expense includes only non-ordinary course litigation matters such as certain intellectual property disputes and joint venture litigation and excludes litigation matters that are part of the ordinary course of the Company’s business, such as product liability claims, employment related matters and commercial contract disputes. The Company considers these types of litigation matters to be non-ordinary course because they occur infrequently and are unique in their complexity. In determining whether the expenses relating to intellectual property disputes constitute expenses that are outside the ordinary course of business, the Company considered the following factors: (1) while the expenses have been incurred over a period of time, the expenses relate to a single matter, the first intellectual property dispute that the Company had received since its separation from Varian Medical Systems, Inc. in 2017, (2) the dispute related to the defense of a claim by a non-practicing entity whose business model is to litigate patent claims for damages, and not ordinary course claims that relate to the practice of technology, and (3) the excluded expenses do not include other intellectual property dispute matters that the Company considers to be recurring, such as recurring fees or litigation costs associated with trademark enforcement. In determining whether the litigation expenses relating to joint ventures constitute expenses that are outside the ordinary course of business, the Company considered the following factors: (1) while the expenses have been incurred over a period of time, the expenses relate to claims involving only two of the Company’s joint ventures, and were the first of their kind for the Company, (2) the excluded expenses relate to complex litigation spanning a number of claims that have been made in state, federal, and international courts, and so are not considered to be in the ordinary course of business due to the scope of the litigation, as well as complexity of the cases, and (3) the excluded expenses do not include other legal expenses that are incurred relative to the joint ventures, such as expenses relating to corporate governance, employment, and general operating advice. The restructuring charges included in “Other non-operational costs” are related to reduction in force costs. The restructuring line item in the earnings release for fiscal year 2024 of $0.3 million relates to costs incurred due to the Company closing operations of a facility in the United States and relocating equipment and personnel to one of our manufacturing locations in Asia. In determining whether the restructuring charges were outside the ordinary course of business, the Company considered that while the Company periodically reviews the adequacy and appropriateness of its facilities, the Company does not frequently determine that a facility should be closed and relocated. Please note that the Company has specifically reported the facility closure and relocation restructuring costs and the reduction in force costs in separate line items for comparative and consistent reporting. The total expense related to write-downs of discontinued products was immaterial at approximately $80,000. In determining whether the write-down of discontinued products was an infrequent, unusual activity, the Company considered that the discontinuation related to one April 24, 2025 Page 3 collimator product line and that the Company does not regularly discontinue significant product lines and considers this to be an infrequent, unusual activity. As a result, when the Company determined to discontinue its Collimator product line, the Company recorded the associated $80,000 excess and obsolescence reserve as a non-GAAP expense for the purpose of reporting Adjusted EBITDA. The Company will present a separate line item for any individual adjustments that are material in future filings. Form 10-K for the Fiscal Year Ended September 27, 2024 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of Results of Operations for Fiscal Years 2024 and 2023, page 31 2. Where you describe two or more business reasons that contributed to a material change in a financial statement line item between periods, please quantify, where possible, the extent to which each factor contributed to the overall change in that line item, including any offsetting factors. In addition, where you identify intermediate causes of changes in your operating results, also describe the reasons underlying the intermediate causes. We note your disclosures that the changes in segment revenues, revenues by region, and segment gross profit from fiscal year 2023 to fiscal year 2024 were due to lower sales in your China business and changes in sales of various products. To the extent possible, quantify the impact of each contributing factor in dollars and/or percentage, expand on the reasons driving these changes, and provide greater transparency into the material components and potential variability of your revenues and gross profit. Response: The Company respectfully acknowledges the Staff’s comment. The Company confirms that in future filings where the Company describes two or more material business reasons that contribute to a material change in a financial statement line item between periods, it will quantify, where possible, the extent to which each factor contributed to the overall change in the financial statement line item, including any offsetting factors, as suggested by the Staff. The Company also confirms that if it identifies intermediate causes of changes in its operating results, in future filings, it will also describe the reasons underlying the intermediate causes. The following are illustrative examples of what the additional disclosure requested by the Staff for changes in segment revenues and revenues by region could look like in future annual reports on Form 10-K and quarterly reports on Form 10-Q using the Company’s results for the fiscal year ended September 27, 2024. April 24, 2025 Page 4 Segment Revenues Example Medical revenues decreased $91.6 million in fiscal year 2024 compared to 2023 primarily due to decreased sales of $43.2 million in fluoroscopy, oncology, and dental applications excluding China, and $28.9 million of lower sales in our China business. Industrial revenues increased $9.2 million due to increased sales of security inspection products of $26.0 million and industrial tubes of $3.9 million. This increase was partially offset by lower sales of industrial detectors of $22.8 million. Revenues by Region Example The Americas revenues decreased $15.3 million in fiscal year 2024 compared to 2023 primarily due to decreased digital detectors sales of $26.0 million offset by an increase in tubes sales of $12.8 million. EMEA revenues decreased $10.4 million primarily due to decreased digital detectors sales of $41.0 million, partially offset by increased security inspection products sales of $28.0 million. APAC revenues decreased $56.7 million primarily due to decreased X-ray tubes sales of $41.0 million and decreased digital detectors sales of $14.0 million. Liquidity and Capital Resources Cash Flows, page 34 3. Please provide a more informative analysis and discussion of changes in operating, investing and financing cash flows for each period presented. In doing so, explain the underlying reasons and implications of material changes between periods to provide investors with an understanding of trends and variability in cash flows. Also provide an analysis of any known trends and uncertainties that will result in or that are reasonably likely to result in a material increase or decrease in your liquidity. Ensure your discussion and analysis is not merely a recitation of changes evident from the financial statements. Refer to Item 303(a) of Regulation S-K and Section IV.B of SEC Release No. 33-8350. Response: The Company respectfully acknowledges the Staff’s comment. The Company confirms that in future filings it will provide additional analysis of the material quantitative and qualitative changes in operating, investing, and financing cash flows for each period presented, explaining the underlying reasons and implications of material changes between periods. To the extent applicable, the Company will also provide investors with an understanding of trends and variability in cash flows, as well as an analysis of any known trends and uncertainties that will result in or are reasonably likely to result in a material increase or decrease in the Company’s liquidity. The following are illustrative examples of what the disclosures could look like in future annual reports on Form 10-K and quarterly reports on Form 10-Q using the Company’s cash flow results for the fiscal year ended September 27, 2024. April 24, 2025 Page 5 Net cash provided by operating activities . Cash provided by operating activities for fiscal year 2024 was $47.3 million compared to $108.4 million for fiscal year 2023. Net cash provided by operating activities decreased $61.1 million for the fiscal year ended September 27, 2024 compared to the fiscal year ended September 29, 2023. Significant changes in operating assets and liabilities affecting cash flows during these years included: • Net loss was $47.2 million for the year ended September 27, 2024 compared to net income of $48.7 million for the year ended September 29, 2023, due primarily to lower sales of $82.4 million in fiscal year 2023 compared to fiscal year 2024 and $11.6 million of higher operating expenses in fiscal year 2024 compared to fiscal year 2023. • Non-cash increase of $37.0 million in deferred tax assets due to the addition of the valuation allowance in fiscal year 2024 compared to non-cash decrease of $39.5 million in deferred tax assets due to the release of the valuation allowance in fiscal year 2023. • Non-cash decrease of $16.0 million for impairment of equity method investment from fiscal year 2023 compared to fiscal year 2024 due to one-time impairment charge in fiscal year 2023. • Cash provided by inventories was $13.6 million lower in fiscal year ended September 27, 2024, compared to fiscal year ended September 29, 2023, respectively due primarily to lower sales in 2024 and inventory turns decreasing year over year. • Cash used for accrued expenses and other long term-liabilities increased by $8.1 million due to tax related payments and the timing of certain payroll costs. Net cash used in investing activities . Cash used in investing activities was $27.5 million and $44.9 million for the fiscal years 2024 and 2023, respectively. Net cash used in investing activities decreased $17.4 million for the fiscal year ended September 27, 2024, compared to the fiscal year ended September 29, 2023. The decrease in cash used in investing activities was primarily due to the implementation of an investment strategy to increase the Company’s cash balance to pay down the outstanding Convertible Notes during the third quarter of fiscal year 2025. This strategy resulted in increased proceeds from the maturities of marketable debt securities by $30.5 million, partially offset by higher purchases of short-term marketable securities of $4.4 million and higher purchases of property, plant, and equipment of $6.2 million. Net cash used in financing activities . Net cash used in financing activities was $3.3 million and $0.2 million for the fiscal years 2024 and 2023, respectively. The increase in cash used in financing activities of $3.1 million was primarily due to increased cash payments of $2.3 million for debt issuance costs related to our strategy to strengthen the balance sheet in preparation for paying down the Convertible Notes mentioned above, and increased taxes paid for the net share settlement of equity awards of $0.8 million. April 24, 2025 Page 6 Critical Accounting Estimates Goodwill and Intangible Assets, page 36 4. We note that you conducted a quantitative goodwill impairment test during the fourth quarter of fiscal 2024 due to indicators of possible impairment. Please disclose whether any of your reporting units are at risk of failing the goodwill impairment test. A reporting unit is at risk of failing the impairment test if it has a fair value that is not substantially in excess of carrying value. If no reporting units are at risk based on your most recent impairment test, disclose such information to your readers as we believe it provides them with valuable information in assessing the sensitivity of your goodwill to future impairment. Alternatively, if a reporting unit is at risk of failing the impairment test and a material impairment charge could occur, please disclose the following: • The percentage by which fair value exceeded carrying value as of the date of the most recent test; • The amount of goodwill allocated to the reporting unit; • A description of the methods and key assumptions used and how the key assumptions were determined; • A discussion of the degree of uncertainty associated with the key assumptions. The discussion regarding uncertainty should provide specifics to the extent possible (e.g., the valuation model assumes recovery from a business downturn within a defined period of time); and • A description of potential events and/or changes in circumstances that could reasonably be expected to negatively affect the key assumptions. Response: The Company respectfully acknowledges the Staff’s comment. Based on the quantitative goodwill impairment test conducted by the Company during the fourth quarter of fiscal year 2024, the Company determined that none of the reporting units were at risk of failing the goodwill impairment test because the fair value of each reporting unit was substantially in excess of the carrying values as of the valuation date. In future filings, when a qua