DENTSPLY SIRONA Inc. - Quarter Report: 2022 March (Form 10-Q)
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 March 31, 2022
☐
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 0-16211
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
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Delaware
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39-1434669
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(State or other jurisdiction of
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(I.R.S. Employer
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incorporation or organization)
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Identification No.)
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13320 Ballantyne Corporate Place, Charlotte, North Carolina
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28277-3607 |
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(Address of principal executive offices)
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(Zip Code)
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(844) 848-0137
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||||||
| Common Stock, par value $.01 per share |
XRAY |
The Nasdaq Stock Market LLC |
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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 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. ☐
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Large accelerated filer ☒
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Accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company ☐
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Emerging growth company ☐
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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 ☒
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date: At November 3, 2022, DENTSPLY SIRONA Inc. had 214,911,886 shares of common stock outstanding.
EXPLANATORY NOTE
As previously reported, we were unable to timely file our
Quarterly Report on Form 10-Q for the first quarter of fiscal 2022 ended March 31, 2022 and our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022 ended June 30, 2022 as a result of an Audit and Finance Committee’s investigation
as described in Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021 as amended and filed on November 7, 2022 (the “2021 Form 10-K/A”) and Amendment No. 1 to the Quarterly Report on Form 10-Q for the
quarter ended September 30, 2021 filed on November 7, 2022 (the “Third Quarter 2021 Form 10-Q/A”). For the same reason, we are filing our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022 simultaneously herewith.
Please refer to the Explanatory Note to our 2021 Form
10-K/A for more information on the internal investigation commenced in March 2022 by the Audit and Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”) of Dentsply Sirona Inc. (the “Company”). The internal
investigation is now complete. The Company delayed the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (this “Form 10-Q”) pending the completion of the Audit and Finance Committee’s investigation. For a more
detailed discussion of the correction of the accounting errors resulting from the above matters, refer to Note 1 to the consolidated financial statements of the Company included in Part II, Item 8 of the Company’s 2021 Form 10-K/A.
DENTSPLY SIRONA Inc.
TABLE OF CONTENTS
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2
General
Unless otherwise stated herein or the context otherwise indicates, reference
throughout this Form 10-Q to “Dentsply Sirona”, or the “Company,” “we,” “us” or “our” refers to financial information and transactions of DENTSPLY SIRONA Inc., together with its subsidiaries on a consolidated basis.
Forward-Looking Statements and Associated Risks
All statements in this Form 10-Q that do not directly and exclusively relate to
historical facts constitute “forward-looking statements” and include statements related to our ability to successfully remediate the material weakness in our internal control over financial reporting disclosed in this Form 10-Q in the manner
currently anticipated. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks,
uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control, including those described in Part II, Item 1A “Risk Factors” of this Form 10-Q
and in Part I, Item 1A, “Risk Factors” of the Company’s 2021 Form 10-K/A filed on November 7, 2022, and other factors which may be described in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). No assurance can
be given that any expectation, belief, goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do
not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
Investors should understand it is not possible to predict or identify all such
factors or risks. As such, you should not consider the risks identified in the Company’s SEC filings to be a complete discussion of all potential risks or uncertainties associated with an investment in the Company.
3
DENTSPLY SIRONA INC. AND SUBSIDIARIES
(in millions, except per share amounts)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net sales | $ | 969 | $ | 1,026 | |||||||
| Cost of products sold | 448 | 447 | |||||||||
| Gross profit | 521 | 579 | |||||||||
| Selling, general, and administrative expenses | 376 | 386 | |||||||||
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Research and development expenses
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45 | 40 | |||||||||
| Restructuring and other costs | 3 | 3 | |||||||||
| Operating income | 97 | 150 | |||||||||
| Other income and expenses: | |||||||||||
| Interest expense, net | 12 | 14 | |||||||||
| Other expense (income), net | (2) | (9) | |||||||||
| Income before income taxes | 87 | 145 | |||||||||
| Provision for income taxes | 18 | 33 | |||||||||
| Net income | 69 | 112 | |||||||||
| Less: Net income attributable to noncontrolling interest | — | — | |||||||||
| Net income attributable to Dentsply Sirona | $ | 69 | $ | 112 | |||||||
| Net income per common share attributable to Dentsply Sirona: | |||||||||||
| Basic | $ | 0.32 | $ | 0.51 | |||||||
| Diluted | $ | 0.32 | $ | 0.51 | |||||||
| Weighted average common shares outstanding: | |||||||||||
| Basic | 217.0 | 218.8 | |||||||||
| Diluted | 217.8 | 219.9 | |||||||||
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
4
DENTSPLY SIRONA INC. AND SUBSIDIARIES
(in millions)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Net income | $ | 69 | $ | 112 | |||||||
| Other comprehensive loss, net of tax: | |||||||||||
| Foreign currency translation loss | (48) | (99) | |||||||||
| Net gain on derivative financial instruments | 10 | 5 | |||||||||
| Pension liability gain | 1 | 4 | |||||||||
| Total other comprehensive loss, net of tax | (37) | (90) | |||||||||
| Total comprehensive income | 32 | 22 | |||||||||
| Less: Comprehensive income attributable to noncontrolling interests | — | — | |||||||||
| Total comprehensive income attributable to Dentsply Sirona | $ | 32 | $ | 22 | |||||||
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
5
DENTSPLY SIRONA INC. AND SUBSIDIARIES
(in millions, except per share amounts)
(unaudited)
| March 31, 2022 | December 31, 2021 | ||||||||||
| Assets | |||||||||||
| Current Assets: | |||||||||||
| Cash and cash equivalents | $ | 374 | $ | 339 | |||||||
| Accounts and notes receivables-trade, net | 707 | 750 | |||||||||
| Inventories, net | 553 | 515 | |||||||||
| Prepaid expenses and other current assets | 263 | 248 | |||||||||
| Total Current Assets | 1,897 | 1,852 | |||||||||
| Property, plant, and equipment, net | 771 | 773 | |||||||||
| Operating lease right-of-use assets, net | 204 | 198 | |||||||||
| Identifiable intangible assets, net | 2,228 | 2,319 | |||||||||
| Goodwill | 3,944 | 3,976 | |||||||||
| Other noncurrent assets | 128 | 121 | |||||||||
| Total Assets | $ | 9,172 | $ | 9,239 | |||||||
| Liabilities and Equity | |||||||||||
| Current Liabilities: | |||||||||||
| Accounts payable | $ | 277 | $ | 262 | |||||||
| Accrued liabilities | 694 | 760 | |||||||||
| Income taxes payable | 54 | 57 | |||||||||
| Notes payable and current portion of long-term debt | 347 | 182 | |||||||||
| Total Current Liabilities | 1,372 | 1,261 | |||||||||
| Long-term debt | 1,872 | 1,913 | |||||||||
| Operating lease liabilities | 157 | 149 | |||||||||
| Deferred income taxes | 389 | 391 | |||||||||
| Other noncurrent liabilities | 518 | 528 | |||||||||
| Total Liabilities | 4,308 | 4,242 | |||||||||
| Commitments and contingencies (Note 15) | |||||||||||
| Equity: | |||||||||||
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Preferred stock, $1.00 par value; 0.25 million shares authorized; no shares issued
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— | — | |||||||||
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Common stock, $0.01 par value;
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3 | 3 | |||||||||
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400.0 million shares authorized, and 264.5 million shares
issued at March 31, 2022 and December 31, 2021
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215.5
million and 217.4 million shares outstanding at March 31, 2022 and December 31, 2021
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| Capital in excess of par value | 6,573 | 6,606 | |||||||||
| Retained earnings | 1,556 | 1,514 | |||||||||
| Accumulated other comprehensive loss | (629) | (592) | |||||||||
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Treasury stock, at cost, 49.0 million and 47.1 million shares at March 31, 2022 and
December 31, 2021, respectively
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(2,640) | (2,535) | |||||||||
| Total Dentsply Sirona Equity | 4,863 | 4,996 | |||||||||
| Noncontrolling interests | 1 | 1 | |||||||||
| Total Equity | 4,864 | 4,997 | |||||||||
| Total Liabilities and Equity | $ | 9,172 | $ | 9,239 | |||||||
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
6
DENTSPLY SIRONA INC. AND SUBSIDIARIES
(in millions, except per share amounts)
(unaudited)
| Common Stock |
Capital in Excess of Par Value |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Treasury Stock |
Total Dentsply Sirona Equity |
Noncontrolling Interests |
Total Equity |
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| Balance at December 31, 2021 | $ | 3 | $ | 6,606 | $ | 1,514 | $ | (592) | $ | (2,535) | $ | 4,996 | $ | 1 | $ | 4,997 | |||||||||||||||||||||||||||||||
| Net income | — | — | 69 | — | — | 69 | — | 69 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (37) | — | (37) | — | (37) | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | 1 | — | — | 4 | 5 | — | 5 | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | 11 | — | — | — | 11 | — | 11 | |||||||||||||||||||||||||||||||||||||||
| Funding of employee stock purchase plan | — | 1 | — | — | 1 | 2 | — | 2 | |||||||||||||||||||||||||||||||||||||||
| Accelerated share repurchase | — | (30) | — | — | (120) | (150) | — | (150) | |||||||||||||||||||||||||||||||||||||||
| Restricted stock unit distributions | — | (16) | — | — | 10 | (6) | — | (6) | |||||||||||||||||||||||||||||||||||||||
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Cash dividends declared ($0.125
per share)
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— | — | (27) | — | — | (27) | — | (27) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 3 | $ | 6,573 | $ | 1,556 | $ | (629) | $ | (2,640) | $ | 4,863 | $ | 1 | $ | 4,864 | |||||||||||||||||||||||||||||||
| Common Stock |
Capital in Excess of Par Value |
Retained Earnings |
Accumulated Other Comprehensive Loss |
Treasury Stock |
Total Dentsply Sirona Equity |
Noncontrolling Interests |
Total Equity |
||||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | $ | 3 | $ | 6,604 | $ | 1,198 | $ | (464) | $ | (2,409) | $ | 4,932 | $ | 3 | $ | 4,935 | |||||||||||||||||||||||||||||||
| Net income | — | — | 112 | — | — | 112 | — | 112 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | (90) | — | (90) | — | (90) | |||||||||||||||||||||||||||||||||||||||
| Exercise of stock options | — | 11 | — | — | 22 | 33 | — | 33 | |||||||||||||||||||||||||||||||||||||||
| Stock based compensation expense | — | 13 | — | — | — | 13 | — | 13 | |||||||||||||||||||||||||||||||||||||||
| Funding of employee stock purchase plan | — | 1 | — | — | 2 | 3 | — | 3 | |||||||||||||||||||||||||||||||||||||||
| Treasury shares purchased | — | — | — | — | (90) | (90) | — | (90) | |||||||||||||||||||||||||||||||||||||||
| Restricted stock unit distributions | — | (11) | — | — | 7 | (4) | — | (4) | |||||||||||||||||||||||||||||||||||||||
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Cash dividends declared ($0.10
per share)
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— | — | (22) | — | — | (22) | — | (22) | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | 3 | $ | 6,618 | $ | 1,288 | $ | (554) | $ | (2,468) | $ | 4,887 | $ | 3 | $ | 4,890 | |||||||||||||||||||||||||||||||
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
7
DENTSPLY SIRONA INC. AND SUBSIDIARIES
(in millions)
(unaudited)
| Three Months Ended March 31, | |||||||||||
| 2022 | 2021 | ||||||||||
| Cash flows from operating activities: | |||||||||||
| Net income | $ | 69 | $ | 112 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation | 29 | 32 | |||||||||
| Amortization of intangible assets | 55 | 56 | |||||||||
| Deferred income taxes | (14) | (3) | |||||||||
| Stock based compensation expense | 11 | 13 | |||||||||
| Other non-cash expense | 2 | 16 | |||||||||
| Gain on sale of non-strategic businesses and product lines | — | (13) | |||||||||
| Changes in operating assets and liabilities, net of acquisitions: | |||||||||||
| Accounts and notes receivable-trade, net | 34 | 13 | |||||||||
| Inventories, net | (41) | (51) | |||||||||
| Prepaid expenses and other current assets, net | (17) | (26) | |||||||||
| Other noncurrent assets | 3 | (13) | |||||||||
| Accounts payable | 19 | (16) | |||||||||
| Accrued liabilities | (53) | (79) | |||||||||
| Income taxes | 3 | (5) | |||||||||
| Other noncurrent liabilities | (7) | 13 | |||||||||
| Net cash provided by operating activities | 93 | 49 | |||||||||
| Cash flows from investing activities: | |||||||||||
| Capital expenditures | (44) | (30) | |||||||||
| Cash paid for acquisitions of businesses and equity investments, net of cash acquired | — | (92) | |||||||||
| Cash received on sale of non-strategic businesses or product lines | — | 19 | |||||||||
| Cash received on derivative contracts | 1 | — | |||||||||
| Net cash used in investing activities | (43) | (103) | |||||||||
| Cash flows from financing activities: | |||||||||||
| Cash paid for accelerated share repurchase | (150) | — | |||||||||
| Proceeds on short-term borrowings | 163 | 30 | |||||||||
| Cash paid for treasury stock | — | (90) | |||||||||
| Cash dividends paid | (24) | (22) | |||||||||
| Proceeds from long-term borrowings, net of deferred financing costs | 5 | 4 | |||||||||
| Repayments on long-term borrowings | (2) | — | |||||||||
| Proceeds from exercised stock options | 5 | 33 | |||||||||
| Other financing activities, net | (7) | (8) | |||||||||
| Net cash used in financing activities | (10) | (53) | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | (5) | (13) | |||||||||
| Net increase (decrease) in cash and cash equivalents | 35 | (120) | |||||||||
| Cash and cash equivalents at beginning of period | 339 | 438 | |||||||||
| Cash and cash equivalents at end of period | $ | 374 | $ | 318 | |||||||
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
8
DENTSPLY SIRONA Inc. and Subsidiaries
NOTE 1 – SIGNIFICANT
ACCOUNTING POLICIES AND REVISION
Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial
statements and related notes contain the accounts of DENTSPLY SIRONA Inc. and subsidiaries (“Dentsply Sirona” or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes
included in the Company’s most recent Form 10-K for the year ended December 31, 2021, as amended and filed on November 7, 2022.
Recently Concluded Investigation
As
previously disclosed, the Audit and Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”), assisted by independent legal counsel and forensic accountants, commenced an internal investigation in March 2022 of
allegations regarding certain financial reporting matters submitted by current and former employees of the Company. In the North America Investigation, the Audit and Finance Committee concluded that there was no evidence of intentional wrongdoing
or fraud. The Audit and Finance Committee found that certain former members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, violated provisions of the Company’s Code of Ethics and
Business Conduct. In addition, these former members of senior management did not maintain and promote an appropriate control environment focused on compliance in areas of the Company’s business, nor did they sufficiently promote, monitor or
enforce adherence to the Code of Ethics and Business Conduct. The North America Investigation found that certain former members of senior management, including the former Chief Executive Officer and the former Chief Financial Officer
created a culture where employees did not feel comfortable raising concerns without fear of retaliation. In addition, the North America Investigation substantiated certain allegations regarding inappropriate tone at the top by the former Chief
Executive Officer and the former Chief Financial Officer. Based on the China Investigation, the Audit and Finance Committee
concluded that members of the Company’s local commercial team in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local
accounting team, by obstructing the work of the accounting team and by lacking truthfulness in providing information to the Company and to the Audit and Finance Committee as part of the China Investigation. The China Investigation also determined
that these actions by the certain members of the Company’s local commercial team in China, as well as the former Chief Financial Officer and the head of the Company’s Asia-Pacific commercial organization, violated the Company’s Code of Ethics and
Business Conduct.
On October 29, 2022, the Audit and Finance Committee determined that its
investigation was complete, and authorized the filing of these interim consolidated financial statements for the three-month period ended March 31, 2022.
Correction of Previously Reported Interim Consolidated Quarterly Financial Statements
The interim consolidated financial statements include immaterial corrections to the three-month period ended March 31, 2021 which were presented in Note 23 to the audited
consolidated financial statements and notes thereto for the year ended December 31, 2021 in the Company’s 2021 Form 10-K/A filed on November 7, 2022. This revision, which corrects for errors related to certain customer incentive programs as well
as the accounting and assumptions in the determination of estimates related to the Company’s sales returns provisions, warranty reserve provisions and variable consideration, as well as other immaterial adjustments, results in a decrease to Net
sales by $1 million, a decrease to Operating Income by $4 million and a decrease to Diluted EPS by $0.02 from amounts previously
reported for the three-month period ended March 31, 2021. This revision did not result in a change to previously reported Gross Margin for the three-month period ended March 31, 2021. Previously reported cash flows from operating,
investing and financing activities for the three-month period ended March 31, 2021 were not impacted.
The accounting policies of the Company, as applied in the interim consolidated
financial statements presented herein, are substantially the same as presented in the Company’s 2021 Form 10-K/A filed on November 7, 2022, except as may be indicated below.
9
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of Net sales and
expense during the reporting period. Actual results could differ materially from those estimates.
Specifically, for the three months ended March 31, 2022, some of these estimates and
assumptions continue to be based on an ongoing evaluation of expected future impacts from the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly have a negative material impact on the Company’s financial
condition, liquidity, or results of operations in future periods is highly uncertain and difficult to predict. More specifically, although demand for the Company’s products has largely recovered from the impact of rigorous preventive measures
implemented at the outset of the pandemic, it continues to be affected by social distancing guidelines, dental practice safety protocols which reduce patient traffic, and some lingering patient reluctance to seek dental care. Also, impacts from
the pandemic continue to be experienced in the form of more recent shortages and higher prices of raw materials such as electronic components, higher related transportation costs, and labor shortages. In the first quarter of 2022, the Company has
experienced supply chain constraints, which has impacted its ability to timely produce and deliver certain products, and has also resulted in increases in shipping rates. To address these issues, the Company has taken steps to mitigate the impact
of these trends, including continued emphasis on cost reduction and supply chain efficiencies. However, uncertainties remain regarding how long these impacts will continue, whether customer demand will fully return to pre-COVID-19 levels upon
lifting of remaining government restrictions, or whether future variants of the virus may have an adverse impact on demand in affected markets.
Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848):
Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which was subsequently amended by ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope” in January 2021. The new standard provides optional expedients and
exceptions to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another rate expected to be discontinued due to the reference rate reform. The amendments in this standard were
effective upon issuance and generally can be applied to contract modifications made or evaluated through December 31, 2022. The Company does not expect this standard to have a material impact on its consolidated financial statements and related
disclosures.
In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations: Accounting
for Contract Assets and Contract Liabilities from Contracts with Customers” (Topic 805), which requires contract assets and liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in
accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value differs from the
current approach. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact of this standard
on its consolidated financial statements and related disclosures.
10
NOTE 2 - REVENUE
Revenues are derived primarily from the sale of dental equipment and dental and
healthcare consumable products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring
goods or providing services.
Net sales disaggregated by product category for the three months ended March 31,
2022 and 2021 were as follows:
| Three Months Ended | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Equipment & Instruments | $ | 166 | $ | 171 | ||||||||||
| CAD/CAM | 106 | 129 | ||||||||||||
| Orthodontics | 68 | 68 | ||||||||||||
| Implants | 155 | 153 | ||||||||||||
| Healthcare | 70 | 74 | ||||||||||||
| Technology & Equipment segment net sales | $ | 565 | $ | 595 | ||||||||||
| Endodontic & Restorative | $ | 293 | $ | 312 | ||||||||||
| Other Consumables | 111 | 119 | ||||||||||||
| Consumables segment sales | $ | 404 | $ | 431 | ||||||||||
| Total net sales | $ | 969 | $ | 1,026 | ||||||||||
Net sales disaggregated by geographic region for the three months ended March 31,
2022 and 2021 were as follows:
| Three Months Ended | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| United States | $ | 308 | $ | 347 | ||||||||||
| Europe | 411 | 417 | ||||||||||||
| Rest of World | 250 | 262 | ||||||||||||
| Total net sales | $ | 969 | $ | 1,026 | ||||||||||
Contract Assets and Liabilities
The Company normally does not have contract assets in the course of its business.
Contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for customer aligner treatment where the performance obligation has not yet been fulfilled. The Company had $64 million and $68 million of deferred
revenue recorded in Accrued liabilities in the Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, respectively. Prior year deferred revenue of approximately $32 million was recognized in the current year. The Company expects to recognize significantly all of the remaining deferred revenue within the next
twelve months.
Allowance for Doubtful Accounts
Accounts and notes receivables-trade, net are stated net of allowances for doubtful
accounts and trade discounts, which were $11 million at March 31, 2022 and $13 million at December 31, 2021. For the three months ended March 31, 2022 and 2021, changes to the provision for doubtful accounts including write-offs of accounts receivable that were
previously reserved were insignificant. Changes to this provision are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations.
11
NOTE 3 – STOCK
COMPENSATION
The amounts of stock compensation expense recorded in the Company’s Consolidated
Statements of Operations for the three months ended March 31, 2022 and 2021 were as follows:
| Three Months Ended | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
|
Cost of products sold
|
$ | 1 | $ | — | ||||||||||
| Selling, general, and administrative expense | 9 | 13 | ||||||||||||
| Research and development expense | 1 | — | ||||||||||||
| Total stock based compensation expense | $ | 11 | $ | 13 | ||||||||||
| Related deferred income tax benefit | $ | 1 | $ | 2 | ||||||||||
12
NOTE 4 – COMPREHENSIVE
INCOME (LOSS)
Changes in Accumulated other comprehensive income (loss) (“AOCI”),
net of tax, by component for the three months ended March 31, 2022 and 2021 were as follows:
| (in millions) | Foreign Currency Translation Gain (Loss) | Gain (Loss) on Cash Flow Hedges | Gain (Loss) on Net Investment and Fair Value Hedges | Pension Liability Gain (Loss) | Total | |||||||||||||||||||||||||||
| Balance, net of tax, at December 31, 2021 | $ | (366) | $ | (16) | $ | (103) | $ | (107) | $ | (592) | ||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications and tax impact | (37) | 3 | 9 | — | (25) | |||||||||||||||||||||||||||
| Tax expense | (11) | — | (1) | — | (12) | |||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax, before reclassifications | (48) | 3 | 8 | — | (37) | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | — | (1) | — | 1 | — | |||||||||||||||||||||||||||
| Net (decrease) increase in other comprehensive loss | (48) | 2 | 8 | 1 | (37) | |||||||||||||||||||||||||||
| Balance, net of tax, at March 31, 2022 | $ | (414) | $ | (14) | $ | (95) | $ | (106) | $ | (629) | ||||||||||||||||||||||
| (in millions) | Foreign Currency Translation Gain (Loss) | Gain (Loss) on Cash Flow Hedges | Gain (Loss) on Net Investment and Fair Value Hedges | Pension Liability Gain (Loss) | Total | |||||||||||||||||||||||||||
| Balance, net of tax, at December 31, 2020 | $ | (187) | $ | (25) | $ | (119) | $ | (133) | $ | (464) | ||||||||||||||||||||||
| Other comprehensive (loss) income before reclassifications and tax impact | (74) | (6) | 9 | 3 | (68) | |||||||||||||||||||||||||||
| Tax (expense) benefit | (25) | 2 | (2) | (1) | (26) | |||||||||||||||||||||||||||
| Other comprehensive (loss) income, net of tax, before reclassifications | (99) | (4) | 7 | 2 | (94) | |||||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income, net of tax | — | 2 | — | 2 | 4 | |||||||||||||||||||||||||||
| Net (decrease) increase in other comprehensive income | (99) | (2) | 7 | 4 | (90) | |||||||||||||||||||||||||||
| Balance, net of tax, at March 31, 2021 | $ | (286) | $ | (27) | $ | (112) | $ | (129) | $ | (554) | ||||||||||||||||||||||
At March 31, 2022 and December 31, 2021, the cumulative tax adjustments were $156 million and $168 million,
respectively, primarily related to foreign currency translation adjustments.
The cumulative foreign currency translation adjustments included translation losses
of $313 million and $250
million at March 31, 2022 and December 31, 2021, respectively, and cumulative losses on loans designated as hedges of net investments of $101
million and $116 million, respectively. These foreign currency translation losses were partially offset by movements on derivative
financial instruments.
Reclassifications out of AOCI to the Consolidated Statements of Operations for the
three months ended March 31, 2022 and 2021 were insignificant.
13
NOTE 5 – EARNINGS PER
COMMON SHARE
The computation of basic and diluted earnings per common share for
the three months ended March 31, 2022 and 2021 were as follows:
| Basic Earnings Per Common Share | Three Months Ended | |||||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | ||||||||||||
| Net income attributable to Dentsply Sirona | $ | 69 | $ | 112 | ||||||||||
| Weighted average common shares outstanding | 217.0 | 218.8 | ||||||||||||
| Earnings per common share - basic | $ | 0.32 | $ | 0.51 | ||||||||||
| Diluted Earnings Per Common Share | Three Months Ended | |||||||||||||
| (in millions, except per share amounts) | 2022 | 2021 | ||||||||||||
| Net income attributable to Dentsply Sirona | $ | 69 | $ | 112 | ||||||||||
| Weighted average common shares outstanding | 217.0 | 218.8 | ||||||||||||
| Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards | 0.8 | 1.1 | ||||||||||||
| Total weighted average diluted shares outstanding | 217.8 | 219.9 | ||||||||||||
| Earnings per common share - diluted | $ | 0.32 | $ | 0.51 | ||||||||||
For the three months ended March 31, 2022, the Company excluded from the computation
of weighted average diluted shares outstanding 1.9 million of equivalent shares of common stock from stock options and RSUs because
their effect would be antidilutive. For the three months ended March 31, 2021, the Company excluded 0.8 million of equivalent shares
of common stock outstanding from stock options and RSUs because their effect would be antidilutive.
The Board of Directors has approved a share repurchase program, up to $1.0 billion. Share repurchases may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated
transactions or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors. At March 31, 2022, the Company had authorization to repurchase $770 million in shares of common stock remaining under the share repurchase program, which was further reduced by $30 million through final settlement of the accelerated share repurchase program in April 2022 as described below.
On March 8, 2022, the Company entered into an Accelerated Share Repurchase Agreement
(“ASR Agreement”) with a financial institution to purchase the Company’s common stock based on the volume-weighted average price of the Company’s common stock during the term of the agreement, less a discount.
| (in millions, except per share amounts) | Initial Delivery | Final Settlement | |||||||||||||||||||||||||||
| Agreement Date | Amount Paid | Shares Received | Price per share | Value of Shares as a % of Contract Value | Settlement Date | Total Shares Received | Average Price per Share | ||||||||||||||||||||||
| March 8, 2022 | $ | 150 | 2.4 | $ | 50.44 | 80 | % | April 19, 2022 | 3.1 | $ | 48.22 | ||||||||||||||||||
14
The
ASR agreement was accounted for as an initial delivery of common shares in a treasury stock transaction on March 9, 2022 of $120 million
and a forward contract indexed to the Company’s common stock for an amount of common shares to be determined on the final settlement date. The forward contract met all applicable criteria for equity classification and was not accounted for as a
derivative instrument. Therefore, the forward contract was recorded as Capital in excess of par value in the Consolidated Balance Sheets at March 31, 2022. The initial delivery of common stock reduced the weighted average common shares
outstanding for both basic and diluted EPS. The forward contract did not impact the weighted average common shares outstanding for diluted EPS.
15
NOTE 6 – BUSINESS
COMBINATIONS
Acquisitions
2021 Transactions
On July 1, 2021, the effective date of the transaction, the Company paid $7 million to acquire the remaining interest in the dental business of a partially owned affiliate based in Switzerland that primarily develops highly
specialized software with a focus on CAD/CAM systems. The acquisition is expected to further accelerate the development of the Company’s specialized software related to CAD/CAM systems.
The preliminary fair values of the assets acquired and liabilities assumed in
connection with the acquisition of the affiliate included $4 million of Other current assets, $3 million of Intangible assets, $2 million of Current
Liabilities and $1 million of Other long-term liabilities. The cash paid and the $4 million fair value of the previously-held interest in the entity prior to the acquisition has been allocated on the basis of the preliminary estimates of fair values of
assets acquired and liabilities assumed, resulting in the recording of $7 million in goodwill. This goodwill is considered to represent
the value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations, and is not deductible for tax purposes. Measurement period
adjustments made to the fair values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the quarter ended March 31, 2022 were immaterial to the financial statements, resulting in an increase to goodwill of $2 million. Management is continuing to finalize its valuation of certain assets and liabilities including other intangible assets and will conclude
its valuation no later than one year from the acquisition date.
Identifiable intangible assets acquired were as follows:
| Weighted Average | ||||||||||||||
| Useful Life | ||||||||||||||
| (in millions, except for useful life) | Amount | (in years) | ||||||||||||
| In-process R&D | $ | 3 | Indefinite | |||||||||||
On June 1, 2021, the effective date of the transaction, the Company paid $132 million to acquire substantially all of the assets of Propel Orthodontics LLC and certain of its affiliated entities, a privately-held business
based in California (“Propel Orthodontics”). The acquired business manufactures and sells orthodontic devices and provides in-office and at-home orthodontic accessory devices to orthodontists and their patients primarily within the clear aligner
market. The acquisition is expected to further accelerate the growth and profitability of the Company’s combined clear aligners business.
The preliminary fair values of the assets acquired and liabilities assumed in
connection with the Propel Orthodontics acquisition were as follows:
| (in millions) | |||||||||||
| Other current assets | $ | 4 | |||||||||
| Intangible assets | 66 | ||||||||||
| Current liabilities | (1) | ||||||||||
| Net assets acquired | 69 | ||||||||||
| Goodwill | 63 | ||||||||||
| Purchase consideration | $ | 132 | |||||||||
The purchase price has been allocated on the basis of the preliminary estimates of
fair values of assets acquired and liabilities assumed, resulting in the recording of $63 million in goodwill, which is considered to
represent the value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations. The goodwill is expected to be deductible for tax
purposes. Management is continuing to finalize its valuation of certain assets including other intangible assets and will conclude its valuation no later than one year from the acquisition date. Measurement period adjustments made to the fair
values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the quarter ended March 31, 2022 were immaterial to the financial statements, resulting in a reduction to goodwill of $2 million.
16
Identifiable intangible assets acquired were as follows:
| Weighted Average | ||||||||||||||
| Useful Life | ||||||||||||||
| (in millions, except for useful life) | Amount | (in years) | ||||||||||||
| Developed technology | $ | 66 | 10 | |||||||||||
On January 21, 2021, the effective date of the transaction, the Company paid $94 million with the potential for additional earn-out provision payments of up to $10 million, to acquire 100% of the outstanding shares of Datum Dental, Ltd.,
a privately-held producer and distributor of specialized regenerative dental material based in Israel. The fair value of the earn-out provision has been valued at $9 million as of the transaction date, resulting in a total purchase price of $103 million.
The fair values of the assets acquired and liabilities assumed in connection with
the Datum acquisition were as follows:
| (in millions) | |||||||||||
| Cash and cash equivalents | $ | 2 | |||||||||
| Other current assets | 2 | ||||||||||
| Intangible assets | 76 | ||||||||||
| Current liabilities | (2) | ||||||||||
| Other long-term assets (liabilities), net | (14) | ||||||||||
| Net assets acquired | 64 | ||||||||||
| Goodwill | 39 | ||||||||||
| Purchase consideration | $ | 103 | |||||||||
The purchase price has been allocated on the basis of the estimates of fair values
of assets acquired and liabilities assumed, resulting in the recording of $39 million in goodwill, which is considered to represent the
value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations. The goodwill is not deductible for tax purposes. Measurement period
adjustments made to the fair values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the three months ended March 31, 2022 were immaterial to the financial statements, resulting in an increase to goodwill
of $6 million.
Identifiable intangible assets acquired were as follows:
| Weighted Average | ||||||||||||||
| Useful Life | ||||||||||||||
| (in millions, except for useful life) | Amount | (in years) | ||||||||||||
| Developed technology | $ | 66 |
15
|
|||||||||||
| In-process R&D | 10 | Indefinite | ||||||||||||
| Total | $ | 76 | ||||||||||||
The results of operations for each of the acquired businesses above upon the
effective date of each transaction have been included in the accompanying financial statements. These results, as well as the historical results for the above acquired businesses for the periods ended March 31, 2022 and March 31, 2021, are not
material in relation to the Company’s net sales and earnings for those periods. The Company therefore does not believe these acquisitions represent material transactions either individually or in the aggregate requiring the supplemental pro-forma
information prescribed by ASC 805 and accordingly, this information is not presented.
Investment in Affiliates
On June 4, 2021, the effective date of the transaction, the Company paid $16 million to acquire a minority interest in a U.K.-based, privately-held provider of healthcare consumables. The investment is recorded as an equity
method investment within Other noncurrent assets in the Consolidated Balance Sheets.
17
Divestitures
On April 1, 2021, the Company disposed of certain orthodontics businesses based in
Japan previously included as part of the Technologies & Equipment segment in exchange for a cash receipt of $8 million. The
divestiture resulted in an immaterial loss recorded in Other expense (income), net in the Consolidated Statements of Operations for the year ended December 31, 2021.
On February 1, 2021, the Company disposed of an investment casting business
previously included as part of the Consumables segment in exchange for a cash receipt of $19 million. The divestiture resulted in a
pre-tax gain of $13 million recorded in Other expense (income), net in the Consolidated Statements of Operations for the three months
ended March 31, 2021.
18
NOTE 7 – SEGMENT
INFORMATION
The Company’s two operating segments are organized primarily by product and generally have overlapping geographical presence, customer bases, distribution channels, and regulatory oversight. These
operating segments are also the Company’s reportable segments in accordance with how the Company’s chief operating decision-maker regularly reviews financial results and uses this information to evaluate the Company’s performance and allocate
resources.
The Company evaluates performance of the segments based on net sales and adjusted
operating income. Segment adjusted operating income is defined as operating income before income taxes and before certain corporate headquarters unallocated costs, restructuring and other costs, interest expense, net, other expense (income), net,
amortization of intangible assets and depreciation resulting from the fair value step-up of property, plant, and equipment from acquisitions.
A description of the products and services provided within each of the Company’s two reportable segments is provided below.
Technologies & Equipment
This segment is responsible for the design, manufacture, and sales of the Company’s
dental technology and equipment products and healthcare products. These products include dental implants, CAD/CAM systems, orthodontic clear aligners, imaging systems, treatment centers, instruments, as well as medical devices.
Consumables
This segment is responsible for the design, manufacture, and sales of the Company’s
consumable products which include various preventive, restorative, endodontic, and dental laboratory products.
The Company’s segment information for the three months ended March 31, 2022 and
2021 was as follows:
Net Sales
| Three Months Ended | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Technologies & Equipment | $ | 565 | $ | 595 | ||||||||||
| Consumables | 404 | 431 | ||||||||||||
| Total net sales | $ | 969 | $ | 1,026 | ||||||||||
Segment Adjusted Operating Income
| Three Months Ended | ||||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Technologies & Equipment | $ | 86 | $ | 124 | ||||||||||
| Consumables | 135 | 149 | ||||||||||||
| Segment adjusted operating income | 221 | 273 | ||||||||||||
| Reconciling items expense (income): | ||||||||||||||
|
All other (a)
|
65 | 63 | ||||||||||||
| Restructuring and other costs | 3 | 3 | ||||||||||||
| Interest expense, net | 12 | 14 | ||||||||||||
| Other expense (income), net | (2) | (9) | ||||||||||||
| Amortization of intangible assets | 55 | 55 | ||||||||||||
| Depreciation resulting from the fair value step-up of property, plant, and equipment from business combinations | 1 | 2 | ||||||||||||
| Income before income taxes | $ | 87 | $ | 145 | ||||||||||
(a) Includes the results of unassigned Corporate headquarters costs and inter-segment
eliminations.
19
NOTE 8 – INVENTORIES
Inventories, net were as follows:
| (in millions) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Raw materials and supplies | $ | 142 | $ | 139 | ||||||||||
| Work-in-process | 78 | 72 | ||||||||||||
| Finished goods | 333 | 304 | ||||||||||||
| Inventories, net | $ | 553 | $ | 515 | ||||||||||
The
Company’s inventory reserve was $86 million at both March 31, 2022 and December 31, 2021. Inventories are stated at the lower of cost and net realizable value.
20
NOTE 9 – RESTRUCTURING
AND OTHER COSTS
Restructuring and other costs for the three months ended March 31,
2022 and 2021 were immaterial to the Company’s Consolidated Statements of Operations as shown below:
| Affected Line Item in the Consolidated Statements of Operations | Three Months Ended | |||||||||||||
| (in millions) | 2022 | 2021 | ||||||||||||
| Cost of products sold | $ | — | $ | (2) | ||||||||||
| Restructuring and other costs | 3 | 3 | ||||||||||||
| Total restructuring and other costs | $ | 3 | $ | 1 | ||||||||||
The Company’s restructuring accruals at March 31, 2022 were as
follows:
| Severance | ||||||||||||||||||||||||||
| (in millions) | 2020 and Prior Plans |
2021 Plans | 2022 Plans | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 5 | $ | 9 | $ | — | $ | 14 | ||||||||||||||||||
| Provisions | 1 | — | 1 | 2 | ||||||||||||||||||||||
| Amounts applied | (2) | (2) | — | (4) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 4 | $ | 7 | $ | 1 | $ | 12 | ||||||||||||||||||
| Other Restructuring Costs | ||||||||||||||||||||||||||
| (in millions) | 2020 and Prior Plans |
2021 Plans | 2022 Plans | Total | ||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 4 | $ | — | $ | — | $ | 4 | ||||||||||||||||||
| Provisions | — | 1 | — | 1 | ||||||||||||||||||||||
| Amounts applied | — | (1) | — | (1) | ||||||||||||||||||||||
| Balance at March 31, 2022 | $ | 4 | $ | — | $ | — | $ | 4 | ||||||||||||||||||
The cumulative amounts for the provisions and adjustments and amounts applied for all the plans by segment were as follows:
| (in millions) | December 31, 2021 | Provisions | Amounts Applied |
March 31, 2022 | ||||||||||||||||||||||
| Technologies & Equipment | $ | 7 | $ | — | $ | (2) | $ | 5 | ||||||||||||||||||
| Consumables | 11 | 2 | (3) | 10 | ||||||||||||||||||||||
| All Other | — | 1 | — | 1 | ||||||||||||||||||||||
| Total | $ | 18 | $ | 3 | $ | (5) | $ | 16 | ||||||||||||||||||
The associated restructuring liabilities are recorded in Accrued
liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets.
21
NOTE 10 – FINANCIAL
INSTRUMENTS AND DERIVATIVES
Derivative Instruments and Hedging Activities
The Company’s activities expose it to a variety of market risks, which primarily
include the risks related to the effects of changes in foreign currency exchange rates and interest rates. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this
risk management program is to reduce the volatility that these market risks may have on the Company’s operating results and cash flows. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm
commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert fixed rate debt into variable rate debt or vice versa. The Company does not hold derivative instruments
for trading or speculative purposes.
The following summarizes the notional amounts of cash flow hedges,
hedges of net investments, fair value hedges, and derivative instruments not designated as hedges for accounting purposes by derivative instrument type at March 31, 2022 and the notional amounts expected to mature during the next 12 months.
| (in millions) | Aggregate Notional Amount | Aggregate Notional Amount Maturing within 12 Months | ||||||||||||
| Cash Flow Hedges | ||||||||||||||
| Foreign exchange forward contracts | $ | 282 | $ | 215 | ||||||||||
| Total derivative instruments designated as cash flow hedges | $ | 282 | $ | 215 | ||||||||||
| Hedges of Net Investments | ||||||||||||||
| Foreign exchange forward contracts | $ | 177 | $ | 89 | ||||||||||
| Cross currency basis swaps | 295 | — | ||||||||||||
| Total derivative instruments designated as hedges of net investments | $ | 472 | $ | 89 | ||||||||||
| Fair Value Hedges | ||||||||||||||
| Interest rate swaps | $ | 250 | $ | — | ||||||||||
| Foreign exchange forward contracts | 204 | 77 | ||||||||||||
| Total derivative instruments designated as fair value hedges | $ | 454 | $ | 77 | ||||||||||
| Derivative Instruments not Designated as Hedges | ||||||||||||||
| Foreign exchange forward contracts | $ | 349 | $ | 349 | ||||||||||
| Total derivative instruments not designated as hedges | $ | 349 | $ | 349 | ||||||||||
Cash Flow Hedges
Foreign Exchange Risk Management
The Company hedges select anticipated foreign currency cash flows to reduce
volatility in both cash flows and reported earnings. The Company designates certain foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the
assessed effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the
spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded in the Consolidated Statements of Operations in the same period that the hedged transaction is recorded. The time-value component of the fair
value of the derivative is reported on a straight-line basis in Cost of products sold in the Consolidated Statements of Operations in the period which it is applicable. Any cash flows associated with these instruments are included in operating
activities in the Consolidated Statements of Cash Flows.
These foreign exchange forward contracts generally have maturities up to 18 months, which is the period over which the Company is hedging exposures to variability of cash flows and the counterparties to the transactions are
typically large international financial institutions.
22
Interest Rate Risk Management
The Company enters into interest rate swap contracts infrequently as they are only
used to manage interest rate risk on long-term debt instruments and not for speculative purposes. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.
On May 26, 2020, the Company paid $31 million to settle the $150 million notional T-Lock contract,
which partially hedged the interest rate risk of the $750 million senior unsecured notes. This loss is amortized over the ten-year life of the notes. As of March 31, 2022 and December 31, 2021, $24 million and $25 million, respectively, of this loss is remaining to be
amortized from AOCI in future periods.
AOCI Release
Overall, the derivatives designated as cash flow hedges are considered to be highly
effective for accounting purposes. At March 31, 2022, the Company expects to reclassify an immaterial amount of deferred net losses on cash flow hedges recorded in AOCI in the Consolidated Statements of Operations during the next 12 months. For
the rollforward of derivative instruments designated as cash flow hedges in AOCI see Note 4, Comprehensive Income (Loss).
Hedges of Net Investments in Foreign Operations
The Company has significant investments in foreign subsidiaries. The net assets of
these subsidiaries are exposed to volatility in currency exchange rates. The Company employs both derivative and non-derivative financial instruments to hedge a portion of this exposure. The derivative instruments consist of foreign exchange
forward contracts and cross-currency basis swaps. The non-derivative instruments consist of foreign currency denominated debt held at the parent company level. Translation gains and losses related to the net assets of the foreign subsidiaries are
offset by gains and losses in the aforementioned instruments, which are designated as hedges of net investments and are included in AOCI. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other
expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in investing activities in the Consolidated Statements of Cash Flows except for derivative
instruments that include an other-than-insignificant financing element, for which all cash flows are classified as financing activities in the Consolidated Statements of Cash Flows.
The fair value of the foreign exchange forward contracts and cross-currency basis
swaps is the estimated amount the Company would receive or pay at the reporting date, taking into account the effective interest rates, cross-currency swap basis rates and foreign exchange rates. The effective portion of the change in the value
of these derivatives is recorded in AOCI, net of tax effects.
On July 2, 2021, the Company entered into a cross currency basis swap totaling a
notional amount of $300 million which matures on June 3, 2030. The cross currency basis swap is designated as a hedge of net
investments. This contract effectively converts a portion of the $750 million bond coupon from 3.3% to 1.7%.
On May 25, 2021, the Company re-established its euro net investment hedge portfolio
by entering into eight foreign exchange forward contracts, each with a notional amount of 10 million euro. The original contracts have quarterly maturity dates through March 2023. The Company enters into additional foreign exchange contracts as individual
contracts within the portfolio mature. As of March 31, 2022 the euro net investment hedge portfolio has an aggregate notional value of 160
million euro with maturity dates through March 2024.
23
Fair Value Hedges
Foreign Exchange Risk Management
The Company has intercompany loans denominated in Swedish kronor that are exposed to
volatility in currency exchange rates. The Company employs derivative financial instruments to hedge these exposures. The Company accounts for these designated foreign exchange forward contracts as fair value hedges. The Company measures the
effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be recorded in the Consolidated Statements of
Operations. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with
these instruments are included in operating activities in the Consolidated Statements of Cash Flows.
On January 6, 2021 the Company entered into foreign exchange forward contracts with
a notional value of SEK 1.3 billion as a result of an increase in intercompany loans denominated in Swedish kronor. The foreign
exchange forwards are designated as fair value hedges.
Interest Rate Risk Management
On July 1, 2021, the Company entered into variable interest rate swaps with a
notional amount of $250 million, which effectively converts a portion of the underlying fixed rate of 3.3% on the $750 million Senior Notes
due June 2030 to a variable interest rate. Of the $250 million notional amount, $100 million has a term of five-years maturing on June 1, 2026 and $150 million has a term of nine years
maturing on March 1, 2030.
Derivative Instruments Not Designated as Hedges
The Company enters into derivative instruments with the intent to partially mitigate
the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The Company primarily uses foreign exchange forward contracts to hedge these risks. The gains and losses on
these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in Other expense (income), net in the Consolidated Statements of Operations. Any cash flows
associated with the foreign exchange forward contracts and interest rate swaps not designated as hedges are included in operating activities in the Consolidated Statements of Cash Flows.
Gains and (losses) recorded in the Company’s Consolidated Statements of Operations
related to the economic hedges not designated as hedges for the three months ended March 31, 2022 and 2021 were insignificant.
24
Derivative Instrument Activity
The amount of gains and losses recorded in the Company’s
Consolidated Balance Sheets and Consolidated Statements of Operations related to all derivative instruments for the three months ended March 31, 2022 and 2021 were as follows:
|
Three Months Ended March 31, 2022
|
||||||||||||||||||||||||||
| (in millions) | Gain (Loss) recognized in AOCI | Consolidated Statements of Operations Location | Effective Portion Reclassified from AOCI into Income (Expense) | Recognized in Income (Expense) | ||||||||||||||||||||||
| Cash Flow Hedges | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 3 | Cost of products sold | $ | — | $ | — | |||||||||||||||||||
| Interest rate swaps | — | Interest expense, net | (1) | — | ||||||||||||||||||||||
| Total for cash flow hedging | $ | 3 | $ | (1) | $ | — | ||||||||||||||||||||
|
Hedges of Net Investments
|
||||||||||||||||||||||||||
| Cross currency basis swaps | $ | 8 | Interest expense, net | $ | — | $ | 1 | |||||||||||||||||||
| Foreign exchange forward contracts | 3 | Other expense (income), net | — | — | ||||||||||||||||||||||
| Total for net investment hedging | $ | 11 | $ | — | $ | 1 | ||||||||||||||||||||
|
Fair Value Hedges
|
||||||||||||||||||||||||||
| Interest rate swaps | $ | — | Interest expense, net | $ | — | $ | 1 | |||||||||||||||||||
| Foreign exchange forward contracts | (2) | Other expense (income), net | — | 8 | ||||||||||||||||||||||
| Total for fair value hedging | $ | (2) | $ | — | $ | 9 | ||||||||||||||||||||
|
Three Months Ended March 31, 2021
|
||||||||||||||||||||||||||
| (in millions) | Gain (Loss) Recognized in AOCI | Consolidated Statements of Operations Location | Effective Portion Reclassified from AOCI into Income (Expense) | Recognized in Income (Expense) | ||||||||||||||||||||||
| Cash Flow Hedges | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | (6) | Cost of products sold | $ | (1) | $ | — | |||||||||||||||||||
| Interest rate swaps | — | Interest expense, net | (1) | — | ||||||||||||||||||||||
| Total for cash flow hedging | $ | (6) | $ | (2) | $ | — | ||||||||||||||||||||
|
Hedges of Net Investments
|
||||||||||||||||||||||||||
| Cross currency basis swaps | $ | 9 | Interest expense, net | $ | — | $ | 2 | |||||||||||||||||||
| Total for net investment hedging | $ | 9 | $ | — | $ | 2 | ||||||||||||||||||||
|
Fair Value Hedges
|
||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | — | Interest expense, net | $ | — | $ | 16 | |||||||||||||||||||
| Total for fair value hedging | $ | — | $ | — | $ | 16 | ||||||||||||||||||||
25
Consolidated Balance Sheets Location of Derivative Fair Values
The fair value and the location of the Company’s derivatives in
the Consolidated Balance Sheets were as follows:
| March 31, 2022 | ||||||||||||||||||||||||||
| (in millions) | Prepaid Expenses and Other Current Assets | Other Noncurrent Assets | Accrued Liabilities | Other Noncurrent Liabilities | ||||||||||||||||||||||
| Designated as Hedges: | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 23 | $ | 11 | $ | 2 | $ | 1 | ||||||||||||||||||
| Interest rate swaps | 2 | — | — | 20 | ||||||||||||||||||||||
| Cross currency basis swaps | 3 | 1 | — | — | ||||||||||||||||||||||
| Total | $ | 28 | $ | 12 | $ | 2 | $ | 21 | ||||||||||||||||||
| Not Designated as Hedges: | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 3 | $ | — | $ | 4 | $ | — | ||||||||||||||||||
| Total | $ | 3 | $ | — | $ | 4 | $ | — | ||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||
| (in millions) | Prepaid Expenses and Other Current Assets | Other Noncurrent Assets | Accrued Liabilities | Other Noncurrent Liabilities | ||||||||||||||||||||||
| Designated as Hedges: | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 18 | $ | 11 | $ | 2 | $ | 1 | ||||||||||||||||||
| Interest rate swaps | 5 | — | — | 9 | ||||||||||||||||||||||
| Cross currency basis swaps | 4 | — | — | 7 | ||||||||||||||||||||||
| Total | $ | 27 | $ | 11 | $ | 2 | $ | 17 | ||||||||||||||||||
| Not Designated as Hedges: | ||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||||||||||||
| Total | $ | 1 | $ | — | $ | 1 | $ | — | ||||||||||||||||||
Balance Sheet Offsetting
Substantially all of the Company’s derivative contracts are subject to netting
arrangements; whereby the right to offset occurs in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts contain the enforceable right to offset through netting
arrangements with the same counterparty, the Company elects to present them on a gross basis in the Consolidated Balance Sheets.
26
Offsetting of financial assets and liabilities under netting arrangements at
March 31, 2022 were as follows:
| Gross Amounts Not Offset in the Consolidated Balance Sheets | ||||||||||||||||||||||||||||||||||||||
| (in millions) | Gross Amounts Recognized | Gross Amount Offset in the Consolidated Balance Sheets | Net Amounts Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received/Pledged | Net Amount | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 37 | $ | — | $ | 37 | $ | (7) | $ | — | $ | 30 | ||||||||||||||||||||||||||
| Cross currency basis swaps | 4 | — | 4 | (2) | — | 2 | ||||||||||||||||||||||||||||||||
| Total assets | $ | 41 | $ | — | $ | 41 | $ | (9) | $ | — | $ | 32 | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 7 | $ | — | $ | 7 | $ | (7) | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest rate swaps | 18 | — | 18 | (2) | — | 16 | ||||||||||||||||||||||||||||||||
| Total liabilities | $ | 25 | $ | — | $ | 25 | $ | (9) | $ | — | $ | 16 | ||||||||||||||||||||||||||
Offsetting of financial assets and liabilities under netting
arrangements at December 31, 2021 were as follows:
| Gross Amounts Not Offset in the Consolidated Balance Sheets | ||||||||||||||||||||||||||||||||||||||
| (in millions) | Gross Amounts Recognized | Gross Amount Offset in the Consolidated Balance Sheets | Net Amounts Presented in the Consolidated Balance Sheets | Financial Instruments | Cash Collateral Received/Pledged | Net Amount | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 31 | $ | — | $ | 31 | $ | (9) | $ | — | $ | 22 | ||||||||||||||||||||||||||
| Total assets | $ | 31 | $ | — | $ | 31 | $ | (9) | $ | — | $ | 22 | ||||||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||||||||
| Foreign exchange forward contracts | $ | 4 | $ | — | $ | 4 | $ | (4) | $ | — | $ | — | ||||||||||||||||||||||||||
| Interest rate swaps | 4 | — | 4 | (2) | — | 2 | ||||||||||||||||||||||||||||||||
| Cross currency basis swaps | 4 | — | 4 | (3) | — | 1 | ||||||||||||||||||||||||||||||||
| Total liabilities | $ | 12 | $ | — | $ | 12 | $ | (9) | $ | — | $ | 3 | ||||||||||||||||||||||||||
27
NOTE 11 – FAIR
VALUE MEASUREMENT
The estimated fair value and carrying value of the Company’s total debt, including
current portion, was $2,251 million and $2,219
million, respectively, at March 31, 2022. At December 31, 2021, the estimated fair value and carrying value were $2,239 million and $2,095 million, respectively. The fair value of long-term debt is based on recent trade information in the financial markets of the Company’s public
debt or is determined by discounting future cash flows using interest rates available at March 31, 2022 and December 31, 2021 to companies with similar credit ratings for issues with similar terms and maturities. It is considered a Level 2 fair
value measurement for disclosure purposes.
Assets and liabilities measured at fair value on a recurring basis
The Company’s financial assets and liabilities set forth by level within the fair
value hierarchy that were accounted for at fair value on a recurring basis were as follows:
| March 31, 2022 | ||||||||||||||||||||||||||
| (in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Interest rate swaps | $ | 2 | $ | — | $ | 2 | $ | — | ||||||||||||||||||
| Cross currency basis swaps | 4 | — | 4 | — | ||||||||||||||||||||||
| Foreign exchange forward contracts | 37 | — | 37 | — | ||||||||||||||||||||||
| Long-term debt | 18 | — | 18 | — | ||||||||||||||||||||||
| Total assets | $ | 61 | $ | — | $ | 61 | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Interest rate swaps | $ | 20 | $ | — | $ | 20 | $ | — | ||||||||||||||||||
| Foreign exchange forward contracts | 7 | — | 7 | — | ||||||||||||||||||||||
| Contingent considerations on acquisitions | 9 | — | — | 9 | ||||||||||||||||||||||
| Total liabilities | $ | 36 | $ | — | $ | 27 | $ | 9 | ||||||||||||||||||
| December 31, 2021 | ||||||||||||||||||||||||||
| (in millions) | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||
| Interest rate swaps | $ | 5 | $ | — | $ | 5 | $ | — | ||||||||||||||||||
| Long term debt | 4 | — | 4 | — | ||||||||||||||||||||||
| Cross currency basis swaps | 4 | — | 4 | — | ||||||||||||||||||||||
| Foreign exchange forward contracts | 30 | — | 30 | — | ||||||||||||||||||||||
| Total assets | $ | 43 | $ | — | $ | 43 | $ | — | ||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||
| Interest rate swaps | $ | 9 | $ | — | $ | 9 | $ | — | ||||||||||||||||||
| Cross currency basis swaps | 7 | — | 7 | — | ||||||||||||||||||||||
| Foreign exchange forward contracts | 4 | — | 4 | — | ||||||||||||||||||||||
| Contingent considerations on acquisitions | 10 | — | — | 10 | ||||||||||||||||||||||
| Total liabilities | $ | 30 | $ | — | $ | 20 | $ | 10 | ||||||||||||||||||
Derivative valuations are based on observable inputs to the valuation model
including interest rates, foreign currency exchange rates, and credit risks. The Company utilizes interest rate swaps and foreign exchange forward contracts that are considered cash flow hedges. In addition, the Company at times employs certain
cross currency interest rate swaps and forward exchange contracts that are considered hedges of net investment in foreign operations.
There have been no transfers between levels during the three months ended March 31,
2022.
28
NOTE 12 – INCOME TAXES
Uncertainties in Income Taxes
The Company recognizes the impact of a tax position in the interim consolidated
financial statements if that position is more likely than not of being sustained on audit based on the technical merits of the position. Under
ASC 740-10, the Company provides for uncertain tax positions and the related interest expense by adjusting unrecognized tax benefits and accrued interest accordingly. The Company recognizes potential interest and penalties related to unrecognized
tax benefits in income tax expense.
The Company files income tax returns in multiple jurisdictions based on its
operations, some of which are under examination by taxing authorities. Certain amounts of unrecognized tax benefits may increase or decrease within twelve months of the reporting date of the Company’s consolidated financial statements, primarily
due to the completion of ongoing income tax examinations. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next 12 months are not expected to be significant. Expiration of statutes of limitation in
various jurisdictions during the next twelve months could include unrecognized tax benefits of approximately $1 million. Of this
approximately $1 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax
rate.
Other Tax Matters
The impact of discrete items is separately recognized in the quarter in which they
occur. During the three months ended March 31, 2022, the Company recorded $1 million of tax expense for other discrete tax matters,
none of which are individually significant. The decrease in the effective tax rate is due to the overall decrement in the Company’s performance and the corresponding earnings mix of jurisdictions in which Company does business.
During the three months ended March 31, 2021, the Company recorded $1 million of tax benefit for other discrete tax matters. The Company also recorded a $4 million tax expense as a discrete item related to business divestitures.
29
NOTE 13 – FINANCING
ARRANGEMENTS
At March 31, 2022, the Company had $399 million of borrowing available under lines of credit, including lines available under its short-term arrangements and revolving credit facility.
The Company has a $500 million commercial paper program. The Company had $330 million and $170 million outstanding borrowings under the commercial paper facility at March 31, 2022 and December 31, 2021, respectively. The Company also has a $700 million multi-currency revolving credit facility which serves as a back-stop credit facility for the Company’s commercial paper program. At
March 31, 2022 and December 31, 2021, there were no outstanding borrowings under the multi-currency revolving credit facility. The
Company also has access to $43 million in uncommitted short-term financing under lines of credit from various financial institutions,
the availability of which is reduced by other short-term borrowings of $14 million. At March 31, 2022, the weighted-average interest
rate for short-term debt was 1.2%.
The Company’s revolving credit facility, term loans and senior notes contain certain
affirmative and negative debt covenants relating to the Company’s operations and financial condition. At March 31, 2022, the Company was in compliance with all debt covenants. The Company is required under certain of its debt agreements to deliver or make available to borrowers its unaudited financial statements on a timely basis each quarter along with
the necessary certifications. As a result of the Company’s failure to file its unaudited financial statements for the fiscal quarters ended March 31, 2022 and June 30, 2022 by the reporting deadlines, the Company obtained the consents of the
requisite lenders and noteholders of its outstanding indebtedness to extend the time period for delivery of such unaudited financial statements until November 14, 2022. Therefore, the Company has not suffered an event of default as a result of
the delayed filings.
30
NOTE 14 – GOODWILL
AND INTANGIBLE ASSETS
The Company assesses both goodwill and indefinite-lived intangible
assets for impairment annually as of April 1 or more frequently if events or changes in circumstances indicate the asset might be impaired. Based on the Company’s 2021 impairment test, it was determined that the fair values of its reporting units
and indefinite-lived intangible assets more likely than not exceeded their respective carrying values, resulting in no impairment.
The fair values of reporting units were computed using a
discounted cash flow model with inputs developed using both internal and market-based data. Intangible assets were evaluated for impairment using an income approach, specifically a relief from royalty method, or using a qualitative assessment. A
change in any of the estimates and assumptions used in the annual test, a decline in the overall markets or in the use of intangible assets among other factors, could have a material adverse effect to the fair value of either the reporting units
or intangible assets and could result in a future impairment charge. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings.
Subsequent to the annual impairment test, the Company considered
qualitative and quantitative factors as of March 31, 2022 to determine whether any events or changes in circumstances had resulted in the likelihood that the goodwill or indefinite-lived intangible assets may have become more likely than not
impaired during the course of the quarter, and concluded there were no such indicators.
A reconciliation of changes in the Company’s goodwill by
reportable segment were as follows:
| (in millions) | Technologies & Equipment | Consumables | Total | |||||||||||||||||
| Balance at December 31, 2021 | ||||||||||||||||||||
| Goodwill | $ | 5,989 | $ | 880 | $ | 6,869 | ||||||||||||||
| Accumulated impairment losses | (2,893) | — | (2,893) | |||||||||||||||||
| Goodwill, net | $ | 3,096 | $ | 880 | $ | 3,976 | ||||||||||||||
| Translation and other | (31) | (1) | (32) | |||||||||||||||||
| Balance at March 31, 2022 | ||||||||||||||||||||
| Goodwill | $ | 5,958 | $ | 879 | $ | 6,837 | ||||||||||||||
| Accumulated impairment losses | (2,893) | — | (2,893) | |||||||||||||||||
| Goodwill, net | $ | 3,065 | $ | 879 | $ | 3,944 | ||||||||||||||
31
Identifiable definite-lived and indefinite-lived intangible assets
were as follows:
| March 31, 2022 | December 31, 2021 | |||||||||||||||||||||||||||||||||||||
| (in millions) | Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
Gross Carrying Amount |
Accumulated Amortization |
Net Carrying Amount |
||||||||||||||||||||||||||||||||
| Developed technology and patents | $ | 1,692 | $ | (777) | $ | 915 | $ | 1,729 | $ | (762) | $ | 967 | ||||||||||||||||||||||||||
| Tradenames and trademarks | 277 | (90) | 187 | 269 | (79) | 190 | ||||||||||||||||||||||||||||||||
| Licensing agreements | 31 | (26) | 5 | 36 | (32) | 4 | ||||||||||||||||||||||||||||||||
| Customer relationships | 1,090 | (565) | 525 | 1,091 | (545) | 546 | ||||||||||||||||||||||||||||||||
| Total definite-lived | $ | 3,090 | $ | (1,458) | $ | 1,632 | $ | 3,125 | $ | (1,418) | $ | 1,707 | ||||||||||||||||||||||||||
| Indefinite-lived tradenames and trademarks | $ | 583 | $ | — | $ | 583 | $ | 598 | $ | — | $ | 598 | ||||||||||||||||||||||||||
|
In-process R&D (a)
|
13 | — | 13 | 14 | — | 14 | ||||||||||||||||||||||||||||||||
| Total indefinite-lived | $ | 596 | $ | — | $ | 596 | $ | 612 | $ | — | $ | 612 | ||||||||||||||||||||||||||
| Total identifiable intangible assets | $ | 3,686 | $ | (1,458) | $ | 2,228 | $ | 3,737 | $ | (1,418) | $ | 2,319 | ||||||||||||||||||||||||||
(a) Intangible assets acquired in a business combination that are in-process and used in research and
development (“R&D”) activities are considered indefinite-lived until the completion or abandonment of the R&D efforts. The useful life and amortization of those assets will be determined once the R&D efforts are completed.
During
the second quarter of 2021, the Company purchased certain developed technology rights for an initial payment of $3 million. The
purchase consideration also includes minimum guaranteed contingent payments of $17 million to be made upon reaching certain regulatory
and commercial milestones, which were not yet considered probable of payment as of March 31, 2022.
32
NOTE 15 – COMMITMENTS
AND CONTINGENCIES
Contingencies
On January 25, 2018, Futuredontics, Inc., a former wholly-owned subsidiary of the
Company, received service of a purported class action lawsuit brought by Henry Olivares and other similarly situated individuals in the Superior Court of the State of California for the County of Los Angeles. In January 2019, an amended complaint
was filed adding another named plaintiff, Rachael Clarke, and various claims. The plaintiff class alleges several violations of the California wage and hours laws, including, but not limited to, failure to provide rest and meal breaks and the
failure to pay overtime. The parties have engaged in written and other discovery. On February 5, 2019, Plaintiff Calethia Holt (represented by the same counsel as Mr. Olivares and Ms. Clarke) filed a separate representative action in Los Angeles
Superior Court alleging a single violation of the Private Attorneys’ General Act that is based on the same underlying claims as the Olivares/Clarke lawsuit. On April 5, 2019, Plaintiff Kendra Cato filed a similar action in Los Angeles Superior
Court alleging a single violation of the Private Attorneys’ General Act that is based on the same underlying claims as the Olivares/Clarke lawsuit. The Company has agreed to resolve all three actions (Olivares, Holt, and Cato). The court in Cato
approved the settlement in that case, the settlement payment has been made, and the court dismissed the lawsuit. The parties to Olivares and Holt are in the process of seeking court approval of that settlement. The expected settlement amount,
which is immaterial to the financial statements, has been recorded as an accrued liability within the Company’s
consolidated balance sheet as of March 31, 2022.
On June 7, 2018, and August 9, 2018, two putative class action suits were filed, and
later consolidated, in the Supreme Court of the State of New York, County of New York claiming that the Company and certain individual defendants, violated U.S. securities laws (the “State Court Action”) by making material misrepresentations and
omitting required information in the December 4, 2015 registration statement filed with the SEC in connection with the 2016 merger of Sirona Dental Systems Inc. (“Sirona”) with DENTSPLY International Inc. (the “Merger”). The amended complaint
alleges that the defendants failed to disclose, among other things, that a distributor had purchased excessive inventory of legacy Sirona products and that three distributors of the Company’s products had been engaging in anticompetitive conduct.
The plaintiffs seek to recover damages on behalf of a class of former Sirona shareholders who exchanged their shares for shares of the Company’s stock in the Merger. On September 26, 2019, the Court granted the Company’s motion to dismiss all
claims and a judgment dismissing the case was subsequently entered. On February 4, 2020, the Court denied plaintiffs’ post-judgment motion to vacate or modify the judgment and to grant them leave to amend their complaint. The plaintiffs appealed
the dismissal and the denial of the post-judgment motion to the Supreme Court of the State of New York, Appellate Division, First Department, and the Company cross-appealed select rulings in the Court’s decision dismissing the action. The
plaintiffs’ appeals and the Company’s cross-appeal were consolidated and argued on January 12, 2021. On February 2, 2021, the Appellate Division issued its decision upholding the dismissal of the State Court Action with prejudice on statute of
limitations grounds. The Plaintiffs did not appeal the Appellate Division decision.
On December 19, 2018, a related putative class action was filed in the U.S. District
Court for the Eastern District of New York against the Company and certain individual defendants (the “Federal Class Action”). The plaintiff makes similar allegations and asserts the same claims as those asserted in the State Court Action. In
addition, the plaintiff alleges that the defendants violated U.S. securities laws by making false and misleading statements in quarterly and annual reports and other public statements between February 20, 2014, and August 7, 2018. The plaintiff
asserts claims on behalf of a putative class consisting of (a) all purchasers of the Company’s stock during the period February 20, 2014 through August 7, 2018 and (b) former shareholders of Sirona who exchanged their shares of Sirona stock for
shares of the Company’s stock in the Merger. The Company moved to dismiss the amended complaint on August 15, 2019. The plaintiff filed its second amended complaint on January 22, 2021, and the Company filed a motion to dismiss the second amended
complaint on March 8, 2021. Briefing on the motion to dismiss was fully submitted on May 21, 2021, and that motion is currently pending before the Court.
On June 2, 2022, the Company was named as a defendant in a putative class action filed in the United States District Court for the Southern District of Ohio
captioned City of Miami General Employees’ & Sanitation Employees’ Retirement Trust v. Casey, Jr. et al., No. 2:22-cv-02371 (S.D. Ohio), and on July 28, 2022, the Company was named as a defendant in a putative class action filed in the United
States District Court for the Southern District of New York captioned San Antonio Fire and Police Pension Fund v. Dentsply Sirona Inc. et al., No. 1:22-cv-06339 (together, the “Securities Litigation”). The complaints in the Securities Litigation
are substantially similar and both allege that, during the period June 9, 2021 through May 9, 2022, the Company, Mr. Donald M. Casey Jr., the Company’s former Chief Executive Officer, and Mr. Jorge Gomez, the Company’s former Chief Financial
Officer, violated United States securities laws by, among other things, making materially false and misleading statements or omissions, including regarding the manner in which the Company recognizes revenue tied to distributor rebate and
incentive programs.
33
No specific amounts of damages have been alleged in these lawsuits. We will continue to incur legal fees in connection with these pending cases, including expenses for the reimbursement of legal fees
of present and former officers and directors under indemnification obligations. The expense of continuing to defend such litigation may be significant. We intend to defend these lawsuits vigorously, but there can be no assurance that we will be
successful in any defense. If any of the lawsuits are decided adversely, we may be liable for significant damages directly or under our indemnification obligations, which could adversely affect our business, results of operations and cash flows. At
this stage, we are unable to assess whether any material loss or adverse effect is reasonably possible as a result of these lawsuits or estimate the range of any potential loss.
As a result of an audit by the IRS for fiscal years 2012 through 2013, on February
11, 2019, the IRS issued to the Company a “30-day letter” and a Revenue Agent’s Report (“RAR”), relating to the Company’s worthless stock deduction in 2013 in the amount of $546 million. The RAR disallows the deduction and, after adjusting the Company’s net operating loss carryforward, asserts that the Company is entitled to a refund of $5 million for 2012, has no tax
liability for 2013, and owes a deficiency of $17 million in tax for 2014, excluding interest. In accordance with ASC 740, the Company recorded the tax benefit associated with the worthless stock deduction in the Company’s 2012
financial statements. In March 2019, the Company submitted a formal protest disputing on multiple grounds the proposed taxes. The Company and its advisors discussed its position with the IRS Appeals Office Team on October 28, 2020 and, on
November 13, 2020, submitted a supplemental response to questions raised by the Appeals Team. The Company’s position continues to be reviewed by the IRS Appeals Office team. The Company believes the IRS’ position is without merit and believes
that it is more likely-than-not the Company’s position will be sustained upon further review by the IRS Appeals Office Team. The Company has not accrued a liability relating to the proposed tax adjustments. However, the outcome of this dispute
involves a number of uncertainties, including those inherent in the valuation of various assets at the time of the worthless stock deduction, and those relating to the application of the Internal Revenue Code and other federal income tax
authorities and judicial precedent. Accordingly, there can be no assurance that the dispute with the IRS will be resolved favorably. If determined adversely, the dispute would result in a current period charge to earnings and could have a
material adverse effect in the consolidated results of operations, financial position, and liquidity of the Company.
The Swedish Tax Agency has disallowed certain of the Company’s interest expense
deductions for the tax years from 2013 to 2018. If such interest expense deductions were disallowed, the Company would be subject to an additional $42
million in tax expense. The Company has appealed the disallowance to the Swedish Administrative Court. With respect to such deductions taken in the tax years from 2013 to 2014, the Court ruled against the Company on July 5, 2017. On August 7,
2017, the Company appealed the unfavorable decision of the Swedish Administrative Court. On November 5, 2018, the Company delivered its final argument to the Administrative Court of Appeals at a hearing. The European Union Commission has taken
the view that Sweden’s interest deduction limitation rules are incompatible with European Union law and supporting legal opinions, and therefore the Company has not paid the tax or made provision in its financial statements for such potential
expense. This view has now been confirmed by the European Union Court of Justice in a preliminary ruling requested by the Swedish Supreme Administrative Court. Subsequently, the Swedish Tax Authority has conceded in pending court proceedings that
the Company should be granted further interest expense deductions, but still claims that interest expense deductions incurring a maximum additional tax expense of $11 million should be disallowed on grounds not relating to European Union law.
The Company intends to vigorously defend its positions and pursue related appeals in
the above-described pending matters.
In addition to the matters disclosed above, the Company is, from time to time,
subject to a variety of litigation and similar proceedings incidental to its business. These legal matters primarily involve claims for damages arising out of the use of the Company’s products and services and claims relating to intellectual
property matters including patent infringement, employment matters, tax matters, commercial disputes, competition and sales and trading practices, personal injury, and insurance coverage. The Company may also become subject to lawsuits as a
result of past or future acquisitions or as a result of liabilities retained from, or representations, warranties or indemnities provided in connection with, divested businesses. Some of these lawsuits may include claims for punitive and
consequential, as well as compensatory damages. Except as otherwise noted, the Company cannot predict what the eventual outcome of the above-described pending matters will be, what the timing of the ultimate resolution of these matters will be,
or what the eventual loss, fines or penalties related to each pending matter may be. Based upon the Company’s experience, current information, and applicable law, it does not believe that these proceedings and claims will have a material adverse
effect on its consolidated results of operations, financial position, or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable,
may be materially adverse to the Company’s business, financial condition, results of operations, or liquidity.
While the Company maintains general, product, property, workers’ compensation,
automobile, cargo, aviation, crime, fiduciary and directors’ and officers’ liability insurance up to certain limits that cover certain of these claims, this insurance may be insufficient or unavailable to cover such losses. In addition, while the
Company believes it is entitled to indemnification from third parties for some of these claims, these rights may also be insufficient or unavailable to cover such losses.
34
Commitments
Purchase Commitments
The Company has certain non-cancelable future commitments primarily related to
long-term supply contracts for key components and raw materials. At March 31, 2022, non-cancelable purchase commitments are as follows:
| (in millions) | ||||||||
| 2022 | $ | 119 | ||||||
| 2023 | 86 | |||||||
| 2024 | 35 | |||||||
| 2025 | 36 | |||||||
| 2026 | 43 | |||||||
| Thereafter | — | |||||||
| Total | $ | 319 | ||||||
The above information should be read in conjunction with Part II, Item 7 “Contractual Obligations” and
Part II, Item 8, Note 22 “Commitments and Contingencies” in our 2021 Form 10-K/A for the fiscal year ended December 31, 2021.
Off-Balance Sheet Arrangements
As of March 31, 2022, we had no material off-balance sheet arrangements that have,
or are reasonably likely to have, a current or future material effect on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources other than certain items disclosed in the sections above.
Indemnification
In the normal course of business to facilitate sale of our products and services, we
indemnify certain parties: customers, vendors, lessors, and other parties with respect to certain matters, including, but not limited to, services to be provided by us and intellectual property infringement claims made by third parties. In
addition, we have entered into indemnification agreements with our directors and our executive officers that will require us, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as
directors or officers. Several of these agreements limit the time within which an indemnification claim can be made and the amount of the claim.
It
is not possible to make a reasonable estimate of the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Additionally, we have a limited history of prior
indemnification claims and the payments we have made under such agreements have not had a material effect on our results of operations, cash flows or financial position. As of March 31, 2022, we did not have any material indemnification claims
that were probable or reasonably possible. However, to the extent that valid indemnification claims arise in the future, future payments by us could be significant and could have a material adverse effect on our results of operations or cash
flows in a particular period.
35
DENTSPLY SIRONA Inc. and Subsidiaries
Information included in or incorporated by reference in this Form 10-Q, and other
filings with the SEC and the Company’s press releases or other public statements, contains or may contain forward-looking statements. Please refer to the discussion under the header “Forward-Looking Statements and Associated Risks” in the
forepart of this Form 10-Q.
Company Profile
DENTSPLY SIRONA Inc. is a leading manufacturer of professional dental products and
technologies, with a 135-year history of innovation and service to the dental industry and patients worldwide. Dentsply Sirona develops, manufactures, and markets comprehensive solutions for dental equipment and consumable products under a strong
portfolio of world class brands. The Company also manufactures and markets healthcare consumable products. Dentsply Sirona’s products provide innovative, high-quality, and effective solutions to advance patient care and deliver better, safer, and
faster dentistry. Dentsply Sirona’s worldwide headquarters is located in Charlotte, North Carolina. The Company’s shares of common stock are listed on Nasdaq stock market under the symbol XRAY.
Material Weaknesses in Internal Control Over Financial Reporting Identified
During the Recent Investigation
As first disclosed in the Company’s Form 12b-25 filed on May 10, 2022, the Audit and
Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”), assisted by independent legal counsel and forensic accountants, commenced an internal investigation in March 2022 of allegations regarding certain
financial reporting matters submitted by current and former employees of the Company (“the North America Investigation”). In the North America Investigation, the Audit and Finance Committee concluded that there was no evidence of intentional
wrongdoing or fraud but determined that certain former members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, violated provisions of the Company’s Code of Ethics and Business
Conduct. In addition, these former members of senior management did not maintain and promote an appropriate control environment focused on compliance in areas of the Company’s business, nor did they sufficiently promote, monitor or enforce
adherence to the Code of Ethics and Business Conduct. While the North America Investigation was ongoing, the Audit and Finance Committee determined that the scope of the investigation should be expanded to analyze an increase in returns of
products in China during the fourth quarter of 2021 previously identified by management (the “China Investigation”). Based on the China Investigation, the Audit and Finance Committee concluded that members of the Company’s local commercial team
in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local accounting organization, by obstructing the work of the
accounting team and by lacking truthfulness in providing information to the Company and to the Audit and Finance Committee as part of the China Investigation. The China Investigation also determined that these actions by the certain members of
the Company’s local commercial team in China, as well as the former Chief Financial Officer and the head of the Company’s Asia-Pacific commercial organization, violated the Company’s Code of Ethics and Business Conduct. Refer to the Explanatory
Note to this Form 10-Q for more information on each of these investigations and the related findings of the Audit and Finance Committee.
In connection with the restatement of the financial statements and related
disclosures for the three and nine months ended September 30, 2021 and for the fiscal year ended December 31, 2021, management re-evaluated the effectiveness of the Company’s internal control over financial reporting and identified material
weaknesses in the Company’s internal control over financial reporting as of September 30, 2021. These
material weaknesses in internal controls over financial reporting were not remediated as of March 31, 2022 and are not remediated through the date of this filing. For more information about the internal investigation and its findings, the
specific material weaknesses in internal control over financial reporting and the current status of the Company’s remedial actions, please see Part II, Item 9A Controls and Procedures of the Company’s 2021 Form 10-K/A.
BUSINESS
The Company operates in two operating segments, Technologies & Equipment
(“T&E”) and Consumables.
The T&E segment is responsible for the design, manufacture, and sale of products
including dental implants, CAD/CAM systems, orthodontic clear aligner products, imaging systems, treatment centers and instruments, as well as certain healthcare products, primarily catheters.
36
The Consumables segment is responsible for the design, manufacture, and sale of
dental consumable products within the product categories of preventive, restorative, endodontic, and dental laboratory application.
Impact of COVID-19
The Company’s financial results and operations continue to
be impacted by the COVID-19 pandemic and its effect on inflation, supply chains, distribution networks and consumer behavior. Information pertaining to the impact of the pandemic on the Company’s business during 2021 as well as the Company’s
response can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Form 10-K/A. Updates to that summary of
impact for the three months ended March 31, 2022 are as follows:
•As further described in the “Results of Operations” discussion below, the Company
continues to experience supply chain challenges resulting from the pandemic including increased lead times, limited availability of certain components, raw material price increases, and higher shipping costs. As a result of supply chain
constraints, the Company had an elevated backlog at the end of the first quarter relative to the start of the year, primarily in imaging equipment for orders on hand unable to be filled due to shortages of electronic components. The Company has
continued taking steps to mitigate the impact of these trends, including seeking alternative supplier sources for key raw materials.
•Sales continue to be impacted in certain geographic areas by public response to the COVID-19 pandemic. Midway through the first quarter of 2022, authorities in
China re-imposed restrictions on individual and business activities in response to the resurgence of COVID-19 infections from recent variants of the virus, resulting in a loss of sales due to distribution constraints and lower demand from patient
traffic locally. Although restrictions in major areas where the Company operates in China have lightened, adverse trends in the region could persist if these restrictions are renewed as a result of additional outbreaks. Early in 2022, certain
other markets in North America and EMEA experienced more limited setbacks in demand as a result of increased infections and related practice of social distancing requirements. While most government authorities have not re-imposed restrictions
with significant impacts, it continues to be unclear when the remaining constraints will be lifted, and to what degree future variants of the virus or renewed restrictions in other markets may impact short-term demand for the Company’s products
more broadly.
Impact of Russia’s Invasion of Ukraine
On February 24, 2022, Russian forces launched military action against Ukraine,
resulting in warfare and significant disruption in the region (“the conflict”). As a result of the invasion, economic sanctions have been imposed by the U.S., the European Union, and other countries on certain Russian financial institutions,
businesses and individuals.
The Company does not have significant operations in Russia or Ukraine. The Company’s
net sales in Russia and Ukraine approximate 3% of the Company’s consolidated net sales, and the Company’s net assets in these two countries aggregate to $44 million, or less than 1% of consolidated net assets. Due to the medical nature of its
products, the current sanctions have not materially restricted the Company’s ability to continue selling to customers located in Russia. The Company sources certain raw materials and components from Russia and Ukraine, and to minimize the adverse
impacts from disrupted supply chains related to these items, it has purchased sufficient quantities for the near term, and is in process of identifying alternate sources for the longer term. The Company’s operations in Ukraine consist primarily
of research and development activities, which continue uninterrupted from other locations in order to focus on the safety of employees. Overall, the Company’s operations in Russia and Ukraine have not been materially impacted by the conflict, and
consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments during the three months ended March 31, 2022 as a result of these developments.
While neither Russia nor Ukraine constitutes a material portion of our business, a
significant escalation or expansion of economic disruption or the conflict’s current scope could result in a loss of sales, disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations. For
additional discussion of associated risks, refer to Part I, Item 1A, “Risk Factors” of the 2021 Form 10-K/A.
37
RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THREE MONTHS ENDED MARCH 31,
2021
Net Sales
The Company presents net sales comparing the current year periods to the prior year
periods. In addition, the Company also presents the changes in net sales on an organic sales basis, which is a Non-GAAP measure. The Company defines “organic sales” as the reported net sales adjusted for: (1) net sales from acquired businesses
recorded prior to the first anniversary of the acquisition (2) net sales attributable to disposed businesses or discontinued product lines in both the current and prior year periods, and (3) the impact of foreign currency changes, which is
calculated by translating current period net sales using the comparable prior period’s foreign currency exchange rates.
The “organic sales” measure is not calculated in accordance with US GAAP; therefore,
this item represents a Non-GAAP measure. This Non-GAAP measure may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US
GAAP. Organic sales is an important internal measure for the Company which is utilized regularly by senior management in the review of operating results. Organic sales is disclosed to allow investors to evaluate the performance of the Company’s
operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company. The Company believes that this information is
helpful in understanding underlying net sales trends.
The Company’s net sales for the three months ended March 31, 2022
and 2021, and the reconciliation to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 969 | $ | 1,026 | $ | (57) | (5.5 | %) | ||||||||||||||||||
| Foreign exchange impact | (4.6 | %) | ||||||||||||||||||||||||
| Acquisitions | 0.2 | % | ||||||||||||||||||||||||
| Divestitures and discontinued products | (0.3 | %) | ||||||||||||||||||||||||
| Organic sales | (0.8 | %) | ||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
The decrease in organic sales was attributable primarily to weaker performance in
the United States, the impact of supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables products, and the impact of COVID-19 variants on demand from patient traffic in
certain markets. The decline in sales volume was partly offset by strong performance in the Implants business and a benefit from price increases implemented in the prior quarter.
Net Sales by Segment
Technologies & Equipment
Net sales for the three months ended March 31, 2022 and 2021, and
reconciliation of net sales to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 565 | $ | 595 | $ | (30) | (5.1%) | |||||||||||||||||||
| Foreign exchange impact | (5.3%) | |||||||||||||||||||||||||
| Acquisitions | 0.4% | |||||||||||||||||||||||||
| Divestitures and discontinued products | (0.1%) | |||||||||||||||||||||||||
| Organic sales | (0.1%) | |||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
38
Organic sales were flat due to increases in sales volume in the Implants and
Equipment & Instruments businesses, particularly in Europe, being offset by other factors including the impact of supply chain constraints resulting in the Company’s inability to fulfill orders for certain Equipment & Instruments and
CAD/CAM products, as well as the impact of COVID-19 reducing sales volumes in certain markets. Sales of CAD/CAM products in the United States were also negatively impacted by high dealer inventory levels at the start of the quarter, as explained
below.
Consumables
Net sales for the three months ended March 31, 2022 and 2021, and
reconciliation of net sales to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 404 | $ | 431 | $ | (27) | (6.1 | %) | ||||||||||||||||||
| Foreign exchange impact | (3.7 | %) | ||||||||||||||||||||||||
| Divestitures and discontinued products | (0.6 | %) | ||||||||||||||||||||||||
| Organic sales | (1.8 | %) | ||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
As mentioned above, the decrease in organic sales was primarily due to the impact of
supply chain constraints affecting the ability to fulfill orders for certain products, and the impact of COVID-19 variants on sales volumes in certain markets. In contrast, sales during the comparative first quarter of 2021 benefited from a
restocking of products by customers as part of the overall recovery from the pandemic. The decline in sales volume was partly offset by the benefit from the price increases implemented at the beginning of the fourth quarter of 2021.
Net Sales by Region
United States
Net sales for the three months ended March 31, 2022 and 2021, and
reconciliation of net sales to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 308 | $ | 347 | $ | (39) | (11.2 | %) | ||||||||||||||||||
| Foreign exchange impact | (0.4 | %) | ||||||||||||||||||||||||
| Acquisitions | 0.6 | % | ||||||||||||||||||||||||
| Divestitures and discontinued products | (0.4 | %) | ||||||||||||||||||||||||
| Organic sales | (11.0 | %) | ||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
The decrease in organic sales was attributable to both segments, driven primarily by
lower wholesale volumes for Restorative Consumables and CAD/CAM products, due in part to high dealer inventory at the start of the quarter. Dealer inventory on hand for CAD/CAM units was approximately $50 million higher at the start of the first
quarter 2022 than at the beginning of the comparative first quarter of 2021. Of this excess, approximately $10 million was reduced during the first quarter 2022, compared to a build in inventory levels of approximately $25 million in the first
quarter of 2021. Sales volumes during first three months ended March 31, 2022, were also negatively impacted by supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables
products, and the impact of COVID-19 on demand early in the quarter. The decline in sales volume was partly offset by growth in the Implants business and a benefit from price increases implemented in the prior quarter. Within Orthodontics, a
decline in sales of direct-to-consumer clear aligners was partly offset by strong demand for dentist-directed clear aligners.
39
Europe
Net sales for the three months ended March 31, 2022 and 2021, and
reconciliation of net sales to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 411 | $ | 417 | $ | (6) | (1.4 | %) | ||||||||||||||||||
| Foreign exchange impact | (7.4 | %) | ||||||||||||||||||||||||
| Divestitures and discontinued products | (0.2 | %) | ||||||||||||||||||||||||
| Organic sales | 6.2 | % | ||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
The increase in organic sales was primarily due to overall higher volumes for
Equipment & Instruments, CAD/CAM and Implants products, as a result of favorable market trends and demand, as well as a benefit from price increases implemented in the prior quarter. The organic sales growth was partly suppressed by supply
chain constraints, particularly for Equipment & Instruments products in the European markets.
Rest of World
Net sales for the three months ended March 31, 2022 and 2021, and
reconciliation of net sales to organic sales is as follows:
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Net sales | $ | 250 | $ | 262 | $ | (12) | (4.5 | %) | ||||||||||||||||||
| Foreign exchange impact | (5.8 | %) | ||||||||||||||||||||||||
| Acquisitions | 0.1 | % | ||||||||||||||||||||||||
| Divestitures and discontinued products | (0.4 | %) | ||||||||||||||||||||||||
| Organic sales | 1.6 | % | ||||||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
The increase in organic sales was attributable to both segments and was due to
achieving higher sales growth for CAD/CAM, Implants, and Endodontic & Restorative Consumable products. This increase was partly offset by the adverse impact of COVID-19, particularly in China which was affected both by supply chain shortages
as well as lower demand resulting from ongoing government restrictions affecting patient traffic.
Gross Profit
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Gross profit | $ | 521 | $ | 579 | $ | (58) | (10.0 | %) | ||||||||||||||||||
| Gross profit as a percentage of net sales | 53.8 | % | 56.4 | % | (260) bps | |||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
Gross profit for the quarter was negatively impacted by foreign currency headwinds
of $32 million, driven primarily by weakness in the euro. The decrease in the gross profit rate as a percentage of net sales was primarily driven by higher raw materials, labor, and distribution costs as a result of supply chain constraints and
global inflation, and a decrease in net sales for higher margin products, notably CAD/CAM units and certain Consumables products as described above. These decreases were partly offset by price increases for Consumable products from the prior
quarter.
40
Operating Expenses
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Selling, general, and administrative expenses (“SG&A”) | $ | 376 | $ | 386 | $ | (10) | (2.5 | %) | ||||||||||||||||||
| Research and development expenses (“R&D”) | 45 | 40 | 5 | 11.6 | % | |||||||||||||||||||||
| Restructuring and other costs | 3 | 3 | — | — | % | |||||||||||||||||||||
| SG&A as a percentage of net sales | 38.8 | % | 37.6 | % | 120 bps | |||||||||||||||||||||
| R&D as a percentage of net sales | 4.6 | % | 3.9 | % | 70 bps | |||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
SG&A Expenses
SG&A expenses decreased primarily due to lower spend for acquisition activities
and sales and marketing resources relative to the first quarter of prior year when strategic investments were made during the COVID-19 recovery. The increase in SG&A expenses as a percentage of net sales was primarily driven by lower
absorption of expenses due to lower sales.
R&D Expenses
The increase in R&D expenses was primarily due to an increase in spend within
the T&E segment driven by increases in both headcount expenses and professional service fees for ongoing investments in digital workflow solutions, product development initiatives, software development including clinical application suite and
cloud deployment. The Company expects to continue to maintain an expanded level of investment in R&D that is at least 4% of annual net sales.
Restructuring and Other Costs
During the three months ended March 31, 2022, the Company recorded net expense of $3
million of restructuring costs in connection with the various restructuring initiatives. For further details see, Note 9, Restructuring and other costs, in the Notes to Consolidated Financial Statements of this Form 10-Q.
Segment Adjusted Operating Income
| Three Months Ended March 31, | ||||||||||||||||||||||||||
|
(in millions, except percentages)(a)
|
2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Technologies & Equipment | $ | 86 | $ | 124 | $ | (38) | (30.6%) | |||||||||||||||||||
| Consumables | 135 | 149 | (14) | (9.4%) | ||||||||||||||||||||||
(a) See Note 7, Segment Information, in the Notes to Consolidated Financial Statements
in Item 1 of this Form 10-Q for a reconciliation from segment adjusted operating income to consolidated US GAAP income.
The decrease in adjusted operating income for both Technologies & Equipment and
Consumables was primarily driven by the decrease in sales volumes, unfavorable mix including decreased volumes for higher margin products, and the higher costs for raw materials, labor, and distribution costs in the current year as a result of
supply chain constraints and global inflation.
41
Other Income and Expense
| Three Months Ended March 31, | ||||||||||||||||||||||||||
| (in millions, except percentages) | 2022 | 2021 | $ Change | % Change | ||||||||||||||||||||||
| Interest expense, net | $ | 12 | $ | 14 | $ | (2) | (13.3%) | |||||||||||||||||||
| Other expense (income), net | (2) | (9) | 7 | NM | ||||||||||||||||||||||
| Net interest and other expense | $ | 10 | $ | 5 | $ | 5 | ||||||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
NM - Not meaningful
Interest expense, net
Interest expense, net for the three months ended March 31, 2022 decreased by $2
million as compared to the three months ended March 31, 2021, driven primarily by lower average long term debt levels in 2022 relative to the prior year.
Other expense (income), net
Other expense (income), net for the three months ended March 31, 2022 compared to
the three months ended March 31, 2021 was as follows:
| Three Months Ended March 31, | ||||||||||||||||||||
| (in millions) | 2022 | 2021 | $ Change | |||||||||||||||||
| Gain on sales of non-core businesses | $ | — | $ | (13) | $ | 13 | ||||||||||||||
|
Foreign exchange gains (a)
|
(4) | (2) | (2) | |||||||||||||||||
| Defined benefit pension plan expenses | 2 | 3 | (1) | |||||||||||||||||
| Other non-operating loss | — | 3 | (3) | |||||||||||||||||
| Other expense (income), net | $ | (2) | $ | (9) | $ | 7 | ||||||||||||||
(a) Foreign exchange gains are primarily related to the revaluation of intercompany
payables and loans.
In February 2022, the three-year cumulative inflation rate in Turkey exceeded 100
percent. As a result, effective April 1, 2022, the functional currency of the Company’s Turkish subsidiaries will be changed to the U.S. dollar, the reporting currency of the parent. Although net monetary assets of the Turkish subsidiaries are
not material to the Company, this change in functional currency may result in incremental foreign exchange gains or losses in future periods that cannot be quantified at the present time.
Income Taxes and Net Income
| Three Months Ended March 31, | ||||||||||||||||||||
| (in millions, except per share amounts and percentages) | 2022 | 2021 | $ Change | |||||||||||||||||
| Provision for income taxes | $ | 18 | $ | 33 | $ | (15) | ||||||||||||||
| Effective income tax rate | 20.8 | % | 22.6 | % | ||||||||||||||||
| Net income attributable to Dentsply Sirona | $ | 69 | $ | 112 | $ | (43) | ||||||||||||||
| Net income per common share - diluted | $ | 0.32 | $ | 0.51 | ||||||||||||||||
Percentages are based on actual values and may not recalculate due to rounding.
Provision for income taxes
For the three months ended March 31, 2022, the provision for income taxes was
$18 million as compared to $33 million during the three months ended March 31, 2021.
42
During the three months ended March 31, 2022, the Company recorded $1 million of tax
benefit for other discrete tax matters, none of which are individually significant. During the three months ended March 31, 2021, the Company recorded $1 million tax benefit for other discrete matters. The Company also recorded a $4 million tax
expense as a discrete item related to business divestitures.
The Company continues to reassess the realizability of its deferred tax assets and,
after weighing all positive and negative evidence, continues to maintain a valuation allowance on certain deferred tax assets.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no changes to the critical accounting policies as disclosed in the
2021 Form 10-K/A other than those changes explained in Part I, Item 1, Note 1, Significant Accounting Policies, in the Notes of the Unaudited Consolidated Financial Statements of this Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
| Three Months Ended March 31, | ||||||||||||||||||||
| (in millions) | 2022 | 2021 | $ Change | |||||||||||||||||
| Cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 93 | $ | 49 | $ | 44 | ||||||||||||||
| Investing activities | (43) | (103) | 60 | |||||||||||||||||
| Financing activities | (10) | (53) | 43 | |||||||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (5) | (13) | 8 | |||||||||||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 35 | $ | (120) | $ | 155 | ||||||||||||||
Cash provided by operating activities increased despite lower sales in the period,
primarily as a result of changes in working capital including higher liabilities for trade payables and customer rebates due to the timing of payments, and a lighter build-up in inventory during the current period. For the three months ended
March 31, 2022, the number of days for sales outstanding in accounts receivable increased by 4 days to 64 days as compared to 60 days at December 31, 2021, and the number of days of sales in inventory increased by 7 days to 117 days at March 31,
2022 as compared to 110 days at December 31, 2021.
The decrease in cash used in investing activities was primarily due to lower cash
paid for acquisitions of $92 million, partially offset by higher capital expenditures of $14 million, and less cash received on sale of non-strategic businesses of $19 million. The Company estimates capital expenditures to be in the range of
approximately $160 million to $180 million for the full year 2022 and expects these investments to include expansion of facilities to provide incremental space for growth and to consolidate operations for enhanced efficiencies.
The decrease in cash used in financing activities was driven by higher proceeds from
short-term borrowings of $133 million primarily from using the Company’s commercial paper program, partially offset by higher cash outflows related to stock repurchases of $60 million and reduced proceeds from exercises of stock options of $28
million. As a result of this activity, combined with a decrease of $29 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company’s total borrowings increased by a net $124 million during the three months
ended March 31, 2022.
During the three months ended March 31, 2022, the Company entered into an
accelerated share repurchase agreement (“ASR Agreement”) of $150 million with approximately 2.4 million shares delivered during the three months ended March 31, 2022 at a volume-weighted average price of $50.44. In April 2022 an additional 0.7
million shares were delivered upon the final settlement of the ASR Agreement resulting in a total 3.1 million shares repurchased under the agreement. At March 31, 2022, $770 million of authorization remained available for future share
repurchases. This amount was further reduced by $30 million in April 2022 through final settlement of the ASR Agreement. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share
repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors. At March 31, 2022, the Company held
49.0 million shares of treasury stock.
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The Company’s ratio of total net debt to total capitalization was
as follows:
| (in millions, except percentages) | March 31, 2022 | December 31, 2021 | ||||||||||||
| Current portion of debt | $ | 347 | $ | 182 | ||||||||||
| Long-term debt | 1,872 | 1,913 | ||||||||||||
| Less: Cash and cash equivalents | 374 | 339 | ||||||||||||
| Net debt | $ | 1,845 | $ | 1,756 | ||||||||||
| Total equity | 4,864 | 4,997 | ||||||||||||
| Total capitalization | $ | 6,709 | $ | 6,753 | ||||||||||
| Total net debt to total capitalization ratio | 27.5 | % | 26.0 | % | ||||||||||
At March 31, 2022, the Company had a total remaining borrowing capacity of $399
million under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million credit facility from 2018 available through July 28, 2024. The
Company also has available an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper
facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $330 million outstanding borrowings under the commercial paper facility at March 31, 2022 resulting in $370 million remaining available
under the revolving credit and commercial paper facilities. The Company also has access to $43 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other
short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At March 31, 2022, the Company has $14 million outstanding under short-term borrowing
arrangements.
The Company’s revolving credit facility, term loans and senior notes contain certain
covenants relating to the Company’s operations and financial condition. The most restrictive of these covenants are: a ratio of total debt outstanding to total capital not to exceed 0.6, and a ratio of operating income excluding depreciation and
amortization to interest expense of not less than 3.0 times, in each case, as such terms are defined in the relevant agreement. Any breach of any such covenants would result in a default under the existing debt agreements that would permit the
lenders to declare all borrowings under such debt agreements to be immediately due and payable and, through cross default provisions, would entitle the Company’s other lenders to accelerate their loans. At March 31, 2022, the Company was in
compliance with these covenants.
Additionally, the Company is required under certain of its debt agreements to
deliver or make available to borrowers its unaudited financial statements on a timely basis each quarter along with the necessary certifications. As a result of the Company’s failure to file its unaudited financial statements for the fiscal
quarters ended March 31, 2022 and June 30, 2022 by the reporting deadlines, the Company obtained the consents of the requisite lenders and noteholders of its outstanding indebtedness to extend the time period for delivery of such unaudited
financial statements until November 14, 2022. Those financial statements were delivered on November 7, 2022 and therefore,
the Company has not suffered an event of default as a result of the previously delayed filings.
The Company expects on an ongoing basis to be able to finance operating cash requirements, capital expenditures, and debt service from the current cash, cash equivalents, cash flows from operations and amounts available under its existing borrowing facilities. The Company’s credit facilities are further
discussed in Note 13, Financing Arrangements, to the Unaudited Consolidated Financial Statements of this Form 10-Q.
The cash held by foreign subsidiaries for permanent reinvestment is generally used
to finance the subsidiaries’ operating activities and future foreign investments. The Company has the ability to repatriate cash to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or
U.S. state income taxes, and the impact of foreign currency movements. At March 31, 2022, management believed that sufficient liquidity was available in the United States and expects this to remain for the next twelve
months. The Company has repatriated and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations, however, these particular repatriation activities have not and are not expected
to result in a significant incremental tax liability to the Company.
The Company continues to review its debt portfolio and may refinance additional debt
or add debt in the near-term based on strategic capital management. The Company believes there is sufficient liquidity available for the next twelve months.
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NEW ACCOUNTING PRONOUNCEMENTS
Refer to Part 1, Item 1, Note 1, Significant Accounting Policies, to the Unaudited
Interim Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.
There have been no material changes from the information
provided in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
The Company’s management, with the participation of the
Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of March 31, 2022, the end of the period covered by this report. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered
by this report were not effective as of March 31, 2022 because of the material weaknesses in internal control over financial reporting, as described below under “Material Weaknesses in Internal Control over Financial Reporting.”
Notwithstanding the ineffective disclosure controls and
procedures as a result of the identified material weaknesses, the Chief Executive Officer and Chief Financial Officer have concluded that the consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all
material respects, the Company’s financial position, results of operations and cash flows in accordance with generally accepted accounting principles in the United States of America (U.S. GAAP).
Material Weaknesses in Internal Control over
Financial Reporting
A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Management identified the following material weaknesses in the Company’s internal control over financial reporting as of March 31, 2022:
a.The Company did not design and maintain an effective internal control environment, as former management failed to set an appropriate tone at the top.
Specifically, certain members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, engaged in conduct that was inconsistent with the Company’s culture of compliance and Code of Ethics
and Business Conduct.
b.The Company did not maintain a sufficient complement of personnel with an appropriate level of knowledge about accounting for variable consideration related to
customer incentive arrangements in a manner commensurate with our financial reporting requirements.
These material weaknesses contributed to the following additional material
weakness:
c.The Company did not design and maintain effective controls associated with approving, communicating, and accounting for incentive arrangements with customers,
impacting the completeness and accuracy of revenues, including variable consideration.
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These material weaknesses resulted in the restatement of our consolidated financial
statements for the year ended December 31, 2021, and the unaudited interim financial information for the three and nine months ended September 30, 2021. These material weaknesses also resulted in adjustments to substantially all of our accounts
and disclosures for the interim and annual periods related to 2019, 2020, and 2021. Additionally, each of these material weaknesses could result in a misstatement of substantially all of our account balances or disclosures that would result in a
material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.
Remediation Plan and Status
In response to the matters discussed in the Explanatory Note, management is devoting
substantial resources to the planning and ongoing implementation of remediation efforts to address the material weaknesses described herein, as well as other identified areas of risk. These remediation efforts, summarized below, which either have
already been implemented or are continuing to be implemented, are intended to address both the identified material weaknesses and to enhance the Company’s overall internal control over financial reporting and disclosure controls and procedures.
With oversight from the Audit and Finance Committee and input from the Board of
Directors, management has begun designing and implementing changes in processes and controls to remediate the material weaknesses and to enhance our internal control over financial reporting as noted below. Management and the Board of Directors,
including the Audit and Finance Committee, are working to remediate the material weaknesses identified herein. While the Company expects to take other remedial actions, actions taken to date include:
a.Appointment of a new Chief Executive Officer, a new Chief Financial Officer and a new Chief Accounting Officer;
b.Termination of certain members of senior management as well as non-executive employees for violations of the Code of Ethics and Business Conduct.
In addition to the remedial actions taken to date, the Company is taking, or plans
to take, the following actions to remediate the material weaknesses identified herein:
a.Review and enhance the Company’s Code of Ethics and Business Conduct to clarify responsibilities related to the Company’s financial reporting and disclosures
and provide incremental training to Company personnel on the updated Code of Ethics and Business Conduct;
b.Implement written policies and procedures to provide governance and establish responsibility for oversight of incentive arrangements provided to customers,
including the appropriate delegation of authority for such approvals;
c.Formalize written policies and procedures to provide governance and establish responsibility for guidelines, documentation and oversight of product returns
from customers when a contractual right to return exists in a customer agreement;
d.Require and provide trainings for employees who have a role in negotiating, assessing, agreeing, and accounting for customer incentive arrangements with
distributors;
e.Provide training on new processes to individuals responsible for execution, oversight and review of customer incentive arrangements with customers;
f.Enhance processes to ensure all applicable terms and conditions for incentive-based programs and customer agreements are timely communicated to individuals
responsible for accounting and financial reporting;
g.Strengthen internal controls over the accounting for customer incentive arrangements, including: (i) implementing formal
controls to continuously review and document the methodology and assumptions used in estimating variable based incentives, and (ii) formal controls to ensure the accuracy of the estimated accrued liability analysis;
h.Evaluate finance and commercial operations talent and address identified gaps; and
i.Enhance training programs on revenue recognition for commercial and finance personnel.
In addition, the Company took the following remedial actions to improve disclosure
controls and procedures:
a.Enhanced existing Disclosure Committee responsibilities through a more formal charter, which identifies members and sets forth the roles and responsibilities
of the Disclosure Committee, among other requirements; and
b.Implemented additional and enhance existing sub-certifications and internal management representation letters, including providing training on the purpose and
execution of these processes.
Management developed a detailed plan and timetable for the implementation of the
foregoing remediation efforts and will oversee the effective execution. In addition, under the direction of the Audit and Finance Committee, management will continue
46
to identify and implement actions to improve the effectiveness of its disclosure controls and
procedures and internal control over financial reporting, including plans to enhance its resources and training with respect to financial reporting and disclosure responsibilities and make necessary changes to policies and procedures to improve
the overall effectiveness of such controls.
Management believes the foregoing efforts will effectively remediate the material
weaknesses described above. As the Company continues to evaluate and work to improve its internal control over financial reporting and disclosure controls and procedures, management may determine to take additional measures to improve controls or
determine to modify the remediation plan described above.
As of the filing of this Form 10-Q, the material weaknesses
described above have not been remediated. The material weaknesses described above cannot be considered remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that
these controls are designed and operating effectively. Accordingly, management will continue to monitor and evaluate the effectiveness of our internal control over financial reporting in the activities affected by the material weaknesses
described above.
The Company’s management will continue to work towards
remediation of these material weaknesses to improve its internal control over financial reporting.
Changes in Internal Control Over
Financial Reporting
There have been no changes in the Company’s internal
control over financial reporting that occurred during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
47
Refer to Part I, Item 1, Note 15 Commitments and Contingencies, in the Notes to
Unaudited Interim Consolidated Financial Statements of this Form 10-Q.
There have been no material changes to the risk factors as
disclosed in Part 1A, “Risk Factors” in the Company’s 2021 Form 10-K/A.
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During the three months ended March 31, 2022, the Company had the following activity
with respect to this repurchase program:
| (in millions, except per share amounts) | Total Number of Shares Purchased | Average Price Paid Per Share | Total Cost of Shares Purchased | Dollar Value of Shares that May be Purchased Under the Stock Repurchase Program | ||||||||||||||||||||||
| Period | ||||||||||||||||||||||||||
| January 1, 2022 to January 31, 2022 | — | $ | — | $ | — | $ | 890 | |||||||||||||||||||
| February 1, 2022 to February 28, 2022 | — | — | — | 890 | ||||||||||||||||||||||
| March 1, 2022 to March 31, 2022 | 2.4 | 50.44 | 120 | 770 | ||||||||||||||||||||||
| 2.4 | $ | 50.44 | $ | 120 | $ | 770 | ||||||||||||||||||||
(a) On July 28, 2021 the Board of Directors approved a share repurchase program, up to $1.0 billion. On March 8, 2022, the Company entered
into an ASR Agreement with a financial institution, to repurchase $150 million of the Company’s common stock. For further information on the ASR Agreement see Part I, Item 1, Note 5, Earnings Per Common Share, in the Notes to Unaudited Interim
Consolidated Financial Statements of this Form 10-Q.
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| Exhibit Number | Description | |||||||
| Section 302 Certification Statement Chief Executive Officer | ||||||||
| Section 302 Certification Statement Chief Financial Officer | ||||||||
| Section 906 Certification Statements | ||||||||
| 101.INS | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||||||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||||||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||||||
| 101.LAB | XBRL Extension Labels Linkbase Document | |||||||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Company has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
DENTSPLY SIRONA Inc.
| /s/ | Simon D. Campion | November 7, 2022 | |||||||||
| Simon D. Campion | Date | ||||||||||
| Chief Executive Officer | |||||||||||
| /s/ | Glenn G. Coleman | November 7, 2022 | |||||||||
| Glenn G. Coleman | Date | ||||||||||
| Chief Financial Officer | |||||||||||
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