Varex Imaging CorpVREX
Varex Imaging Corp Stock Compensation Disclosure
EMPLOYEE STOCK PLANS
Employee Stock Plans
Certain of the Company's employees participate in the Varex Imaging Corporation 2020 Omnibus Stock Plan, as Amended and Restated (the “2020 Stock Plan”), the 2017 Omnibus Stock Plan (the “2017 Stock Plan”), and the Varex Imaging Corporation 2017 Employee Stock Purchase Plan (the “2017 ESPP”) which allow the grants of stock options, restricted stock units and performance shares among other types of awards to eligible employees.
In January 2017, Varex stockholders approved the 2017 ESPP, which provides eligible employees with an opportunity to purchase shares of Varex common stock at 85% of the lower of its fair market value at the start and end of a six-month purchase period. During fiscal year 2025, the Company's Board of Directors approved an increase in the number of shares available for issuance under the 2017 ESPP of 0.9 million shares. As of October 3, 2025 the 2017 ESPP provides for the purchase of up to 2.7 million shares of Varex common stock.
Share-Based Compensation Expense
Share-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest. Share-based compensation expense includes expenses related to the Company’s direct employees.
The table below summarizes the effect of recording share-based compensation expense and the option value of the employee stock purchase plan shares:
Fiscal Years | |||||||||||||||||
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Cost of revenues | $ | 2.0 | $ | 1.8 | $ | 1.7 | |||||||||||
| Research and development | 3.2 | 3.4 | 3.3 | ||||||||||||||
Selling, general, and administrative | 9.8 | 10.1 | 8.5 | ||||||||||||||
| Total share-based compensation expense | $ | 15.0 | $ | 15.3 | $ | 13.5 | |||||||||||
The unrecognized share-based compensation cost as of October 3, 2025 was $20.3 million, and is expected to be recognized over a weighted average period of 2.1 years. As of October 3, 2025, there were approximately 4.5 million and 0.8 million shares of common stock available for future issuances under the 2020 Stock Plan and the 2017 ESPP, respectively.
The Company utilized the Black-Scholes valuation model for estimating the fair value of stock options granted and the option component of ESPP grants. The Company calculated the fair value of option grants and the option component of ESPP grants on the respective dates of grant using the following weighted average assumptions:
Employee Stock Option Plan | Employee Stock Purchase Plans | ||||||||||||||||||||||||||||||||||
Fiscal Years | Fiscal Years | ||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||
Expected term (in years) | — | 6.1 | 6.9 | 0.5 | 0.5 | 0.5 | |||||||||||||||||||||||||||||
Risk-free interest rate | — | % | 3.8 | % | 3.6 | % | 4.4 | % | 5.2 | % | 4.8 | % | |||||||||||||||||||||||
Expected volatility | — | % | 45.7 | % | 43.9 | % | 57.3 | % | 34.2 | % | 34.8 | % | |||||||||||||||||||||||
Expected dividend | — | % | — | % | — | % | — | % | — | % | — | % | |||||||||||||||||||||||
Weighted average fair value at grant date | $— | $5.85 | $9.75 | $3.79 | $3.97 | $4.96 | |||||||||||||||||||||||||||||
Option valuation methods, including Black-Scholes, require the input of subjective assumptions, which are discussed below.
Risk-Free Interest Rate
The interest rates used are based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent remaining term equal to the expected life of the award.
Expected Term
Options granted generally vest over a period of 48 months and expire 7 to 10 years from the date of grant. Employee stock purchase plan offering periods are typically 6 months and provide eligible employees with an opportunity to purchase shares of Varex common stock at 85% of the lower of its fair market value at the start or end of a six-month purchase period. The Company has elected to use the simplified method in calculating the expected term of its options due to a lack of sufficient historical information.
Expected Dividend Yield
The dividend rate used is zero as the Company has never paid any cash dividends on its common stock and does not anticipate doing so in the foreseeable future. The Company is also restricted from paying dividends on common stock under its debt facilities.
Expected Volatility
Authoritative accounting guidance on stock-based compensation indicates that companies should consider volatility over a period generally commensurate with the expected or contractual term of the stock option. The expected volatility is based on the historical volatility of the Company's common stock.
Stock Option Activity
The following table summarizes the activity for stock options under Varex’s employee incentive plans for the Company’s employees:
| (In thousands, except per share amounts and the remaining term) | Options | Price Range | Weighted Average Exercise Price | Weighted Average Remaining Term (in years) | Aggregate Intrinsic Value(1) | ||||||||||||||||||||||||
| Outstanding at September 27, 2024 | 2,097 | $13.61 - $37.60 | $ | 26.79 | 5.5 | $ | — | ||||||||||||||||||||||
| Canceled, expired or forfeited | (267) | $22.13 - $37.60 | 34.84 | — | — | ||||||||||||||||||||||||
| Outstanding at October 3, 2025 | 1,830 | $13.61 - $31.42 | $ | 25.61 | 5.1 | $ | — | ||||||||||||||||||||||
| Exercisable at October 3, 2025 | 1,675 | $13.61 - $31.42 | $ | 25.89 | 4.9 | $ | — | ||||||||||||||||||||||
(1) The aggregate intrinsic value represents the total pre-tax intrinsic value, which is computed based on the difference between the exercise price and the closing price of Varex common stock of $11.94 as of October 3, 2025, the last trading date of the Company's respective fiscal years, and which represents the amount that would have been received by the option holders had all option holders exercised their options and sold the shares received upon exercise as of that date.
The grant-date fair value of options granted during fiscal years 2025, 2024, and 2023 was $0.0 million, $0.1 million and $4.0 million, respectively. The total intrinsic value of the options exercised during the years ended October 3, 2025, September 27, 2024, and September 29, 2023 was $0.0 million, $0.0 million and $0.1 million, respectively.
Restricted Stock Units, Performance Stock Units, Restricted Stock Awards and Deferred Stock Units
The Company issues performance stock units ("PSUs") to certain officers and key employees in connection with our long-term incentive program. Each PSU represents the right to receive one share of our common stock, provided that the applicable performance and vesting conditions are satisfied. The fair value of PSUs are linked to the achievement of financial performance metrics or a market condition based on our relative total shareholder return over the performance period compared to a predetermined peer group.
The following table summarizes the activity for restricted stock units, performance stock units, restricted stock awards and deferred stock units under the 2020 Stock Plan:
| (In thousands, except per share amounts) | Number of Shares | Weighted Average Grant-Date Fair Value | |||||||||
| Outstanding at September 27, 2024 | 1,670 | $ | 20.74 | ||||||||
| Granted | 776 | 14.95 | |||||||||
| Vested | (407) | 21.30 | |||||||||
| Canceled or expired | (93) | 20.40 | |||||||||
| Outstanding at October 3, 2025 | 1,946 | $ | 18.35 | ||||||||
The total grant-date fair value of shares granted was $11.6 million, $17.2 million, and $11.3 million for fiscal years 2025, 2024, and 2023, respectively. Shares outstanding at October 3, 2025, September 27, 2024, and September 29, 2023 had an estimated market value of $23.2 million, $20.0 million, and $24.0 million, respectively.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.