NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES
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”). The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP. 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, 2019.
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 Form 10-K for the year ended December 31, 2019, except as may be indicated below.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements.
For the three months ended March 31, 2020, the Company made certain estimates and assumptions related to the financial statements. Some of these estimates and assumptions were based on the impacts of the COVID-19 pandemic as they were known as of the date of the filing of this Form 10-Q and there may be changes to those estimates in future periods. Actual results may differ from these estimates. As of the date of issuance of these consolidated financial statements, the full extent to which the COVID-19 pandemic will directly or indirectly materially impact the Company's financial condition, liquidity, or results of operations is highly uncertain and difficult to predict. As the response to the pandemic is in its incipient stages, information is rapidly evolving. More specifically, the Company has been affected by social distancing guidelines, stay-at-home orders, and limits to essential-only dental procedures which has led to a decline in demand for the Company's products. Furthermore, economies and, to a lesser extent, capital markets worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a local and/or global economic recession. Such economic disruption has had, and could continue to have, a material adverse effect on the Company's business. Governmental authorities around the world have responded with fiscal policy actions to support economies as a whole. The magnitude and overall effectiveness of these actions remain uncertain.
During the first quarter of 2020, the impact of COVID-19 on the Company’s business was most pronounced in Europe and certain countries in Asia where the Company experienced partial or country-wide lockdowns of operations in various markets, including China, France, and Italy. The first quarter impact of COVID-19 affected March sales and financial results, specifically in the second half of the month. While the duration and severity of this pandemic is uncertain, the Company currently expects that its results of operations will be materially impacted for the remainder of 2020. As a result of the economic uncertainties caused by the COVID-19 pandemic, the Company has implemented several measures to improve liquidity and operating results, including reduction of hours or furloughs of the Company's employees, suspended hiring, travel bans, delaying some of its planned capital expenditures, and deferring other discretionary spending for 2020. The Company believes it will be able to generate sufficient liquidity to satisfy its obligations and remain in compliance with the Company's existing debt covenants for the next twelve months.
Specifically, at March 31, 2020, the Company had $235.9 million of cash and subsequently drew $700.0 million of cash against the available borrowings under its revolving credit facility, which does not mature until 2024. On April 9, 2020, the Company closed on a $310.0 million revolving credit facility, which matures on April 8, 2021. In addition, on May 5, 2020 the Company entered into a 40.0 million euro 364-day revolving credit facility with a maturity date of April 30, 2021. At March 31, 2020, the Company is in compliance with all of the debt covenants. The Company expects to remain in compliance with all covenants, one of which includes an operating income excluding depreciation and amortization to interest expense of not less than 3.0 times on a trailing twelve months basis. If recovery from the pandemic takes longer than currently estimated by the Company, the Company may need to seek covenant waivers in the future. The Company's failure to obtain debt covenant waivers could trigger a violation of these covenants and lead to default and acceleration of all of its outstanding debt, which could have a material adverse effect on liquidity.
Revenue Recognition
At March 31, 2020, the Company had $26.6 million of deferred revenue recorded in Accrued liabilities in the Consolidated Balance Sheets. The Company expects to recognize significantly all of the deferred revenue within the next 12 months.
Accounts and Notes Receivable
The Company records a provision for doubtful accounts, which is included in Selling, general, and administrative expenses in the Consolidated Statements of Operations.
Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $31.4 million at March 31, 2020 and $29.4 million at December 31, 2019.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13 "Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." This newly issued accounting standard changes the recognition and measurement of credit losses, including trade accounts receivable. Under current accounting standards, a loss is recognized when loss becomes probable of occurring. The new standard broadens the information that an entity must consider when developing expected credit loss estimates. The Company adopted this accounting standard on January 1, 2020. The adoption of this standard did not materially impact the Company's financial position, results of operations, cash flows, disclosures or internal controls.
In December 2019, the FASB issued ASU No. 2019-12 "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." This newly issued accounting standard simplifies key provisions for accounting for income taxes, as part of the FASB's initiative to reduce complexity in accounting standards. The amendments eliminate certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The amendments also clarify and simplify other aspects of the accounting for income taxes. The amendments in this update are effective for interim and fiscal period beginning after December 31, 2020. The Company adopted this accounting standard on January 1, 2020. The adoption of this standard did not materially impact the Company's financial position, results of operations, cash flows, disclosures or internal controls.
Recently Issued Accounting Pronouncements Not Yet Adopted
In August 2018, the FASB issued ASU No. 2018-14 "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." This newly issued accounting standard changes disclosure requirements for defined benefit plans, including removal and modification of existing disclosures. The amendments in this standard are required for fiscal years ending after December 15, 2020. Early adoption is permitted. The amendments should be applied on a retrospective basis for all periods presented. The Company will adopt this standard on December 31, 2020. The adoption of this standard will not materially impact the Company's disclosures.
NOTE 2 – STOCK COMPENSATION
Total stock based compensation expense for non-qualified stock options, restricted stock units ("RSU") and the tax related benefit were as follows:
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Three Months Ended March 31,
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(in millions)
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2020
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2019
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Stock option expense
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$
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1.6
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$
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2.2
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RSU expense
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7.6
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6.7
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Total stock based compensation expense
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$
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9.2
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$
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8.9
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Related deferred income tax benefit
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$
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1.0
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$
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1.4
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For the three months ended March 31, 2020, stock compensation expense was $9.2 million of which $8.9 million was recorded in Selling, general, and administrative expense, and $0.3 million was recorded in Cost of products sold in the Consolidated Statements of Operations.
For the three months ended March 31, 2019, stock compensation expense was $8.9 million of which $8.6 million was recorded in Selling, general, and administrative expense, and $0.3 million was recorded in Cost of products sold in the Consolidated Statements of Operations.
NOTE 3 – COMPREHENSIVE INCOME (LOSS)
Components of Other comprehensive income (loss), net of tax, were as follows:
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Three Months Ended March 31,
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(in millions)
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2020
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2019
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|
|
|
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Foreign currency translation losses
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$
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(123.0)
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$
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(71.9)
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Foreign currency translation gain on hedges of net investments
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4.3
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10.6
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These amounts are recorded in Accumulated other comprehensive income (loss) ("AOCI"), net of any related tax adjustments. At March 31, 2020 and December 31, 2019, the cumulative tax adjustments were $166.9 million and $173.0 million, respectively, primarily related to foreign currency translation gains and losses.
The cumulative foreign currency translation adjustments included translation losses of $383.2 million and $260.2 million at March 31, 2020 and December 31, 2019, respectively, and cumulative losses on loans designated as hedges of net investments of $103.8 million and $108.1 million, respectively. These foreign currency translation losses were partially offset by movements on derivative financial instruments.
Changes in AOCI, net of tax, by component for the three months ended March 31, 2020 and 2019 were as follows:
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(in millions)
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Foreign Currency Translation Gain (Loss)
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Gain (Loss) on Cash Flow Hedges
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Gain (Loss) on Net Investment Hedges
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Pension Liability Gain (Loss)
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Total
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Balance, net of tax, at December 31, 2019
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$
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(368.3)
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$
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(10.6)
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$
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(100.7)
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$
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(120.1)
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$
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(599.7)
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Other comprehensive (loss) income before reclassifications and tax impact
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(116.7)
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(15.7)
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24.7
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—
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(107.7)
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Tax (expense) benefit
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(2.0)
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4.0
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(8.1)
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—
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(6.1)
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Other comprehensive (loss) income, net of tax, before reclassifications
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(118.7)
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(11.7)
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16.6
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—
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(113.8)
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Amounts reclassified from accumulated other comprehensive (loss) income, net of tax
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—
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(0.3)
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—
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1.6
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1.3
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Net (decrease) increase in other comprehensive loss
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(118.7)
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(12.0)
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16.6
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1.6
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(112.5)
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Balance, net of tax, at March 31, 2020
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$
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(487.0)
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$
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(22.6)
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$
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(84.1)
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$
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(118.5)
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$
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(712.2)
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(in millions)
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Foreign Currency Translation Gain (Loss)
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Gain (Loss) on Cash Flow Hedges
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Gain (Loss) on Net Investment Hedges
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Pension Liability Gain (Loss)
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Total
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Balance, net of tax, at December 31, 2018
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$
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(284.7)
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$
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0.6
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$
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(111.4)
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$
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(83.2)
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$
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(478.7)
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Other comprehensive (loss) income before reclassifications and tax impact
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(59.9)
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(7.7)
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18.6
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—
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(49.0)
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Tax (expense) benefit
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(1.4)
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2.4
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(11.8)
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—
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(10.8)
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Other comprehensive (loss) income, net of tax, before reclassifications
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(61.3)
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(5.3)
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6.8
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—
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(59.8)
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Amounts reclassified from accumulated other comprehensive income (loss), net of tax
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—
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0.2
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—
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0.9
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1.1
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Net (decrease) increase in other comprehensive loss
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(61.3)
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(5.1)
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6.8
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0.9
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(58.7)
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Balance, net of tax, at March 31, 2019
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$
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(346.0)
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$
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(4.5)
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$
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(104.6)
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$
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(82.3)
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$
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(537.4)
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Reclassifications out of AOCI to the Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 were as follows:
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Details about AOCI Components
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Amounts Reclassified from AOCI
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Affected Line Item in the Consolidated Statements of Operations
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Three Months Ended
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(in millions)
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2020
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2019
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|
Gain (loss) on derivative financial instruments:
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Interest rate swaps
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$
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(0.5)
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$
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(0.6)
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Interest expense
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Foreign exchange forward contracts
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0.8
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0.4
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Cost of products sold
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Net gain (loss) after tax
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$
|
0.3
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$
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(0.2)
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Amortization of defined benefit pension and other postemployment benefit items:
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Amortization of prior service benefits
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$
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0.1
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$
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0.1
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(a)
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Amortization of net actuarial losses
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(2.2)
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(1.4)
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(a)
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Net loss before tax
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(2.1)
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|
(1.3)
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Tax impact
|
|
0.5
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|
|
0.4
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|
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Provision for income taxes
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Net loss after tax
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$
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(1.6)
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$
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(0.9)
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Total reclassifications for the period
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|
$
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(1.3)
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|
|
$
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(1.1)
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(a) These AOCI components are included in the computation of net periodic benefit cost for the three months ended March 31, 2020 and 2019.
NOTE 4 – EARNINGS PER COMMON SHARE
The computation of basic and diluted earnings per common share were as follows:
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Basic Earnings Per Common Share Computation
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Three Months Ended March 31,
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(in millions, except per share amounts)
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2020
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2019
|
|
|
|
|
|
|
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|
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Net (loss) income attributable to Dentsply Sirona
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|
|
$
|
(139.9)
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|
|
$
|
39.2
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|
|
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Weighted average common shares outstanding
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220.9
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|
|
223.3
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(Loss) earnings per common share - basic
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|
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$
|
(0.63)
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|
|
$
|
0.18
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Diluted Earnings Per Common Share Computation
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Three Months Ended March 31,
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(in millions, except per share amounts)
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2020
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2019
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Dentsply Sirona
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|
|
|
|
|
$
|
(139.9)
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|
|
$
|
39.2
|
|
|
|
|
|
|
|
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|
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Weighted average common shares outstanding
|
|
|
|
|
|
220.9
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|
|
223.3
|
|
Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards
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|
|
|
|
|
—
|
|
|
1.7
|
|
Total weighted average diluted shares outstanding
|
|
|
|
|
|
220.9
|
|
|
225.0
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|
|
|
|
|
|
|
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(Loss) earnings per common share - diluted
|
|
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|
|
|
$
|
(0.63)
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|
|
$
|
0.17
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|
The calculation of weighted average diluted common shares outstanding excluded 1.4 million of potentially diluted common shares because the Company reported a net loss for the three months ended March 31, 2020. Stock options and RSUs of 2.6 million equivalent shares of common stock that were outstanding during the three months ended March 31, 2020 were excluded because their effect would be antidilutive. There were 4.5 million antidilutive equivalent shares of common stock outstanding during the three months ended March 31, 2019.
On March 9, 2020, the Company entered into an accelerated share repurchase agreement with a financial institution pursuant to an Accelerated Share Repurchase Transaction (“ASR Agreement") to purchase $140.0 million of shares of the Company's common stock. Pursuant to the terms of the ASR Agreement, the Company delivered $140.0 million cash to a financial institution and received an initial delivery of 2.7 million shares of the Company’s common stock on March 9, 2020 based on a closing market price of $42.12 per share and the applicable contractual discount. This was approximately 80% of the then estimated total number of shares expected to be repurchased under the ASR Agreement. The Company expects to receive the remaining shares during the Company's second quarter of 2020.
NOTE 5 – SEGMENT INFORMATION
The Company has numerous operating businesses covering a wide range of dental consumable products, dental technology, and dental equipment products primarily serving the professional dental market, and certain healthcare products. Professional dental products represented approximately 90% and 92% of net sales for the three months ended March 31, 2020 and 2019, respectively.
The operating businesses are combined into two operating groups, which generally have overlapping geographical presence, customer bases, distribution channels, and regulatory oversight. These operating groups are considered the Company’s reportable segments as the Company’s chief operating decision-maker regularly reviews financial results at the operating group level and uses this information to manage the Company’s operations. The accounting policies of the segments are consistent with those described in the Company’s most recently filed Form 10-K, in the summary of significant accounting policies.
The Company evaluates performance of the segments based on the groups’ net sales and segment adjusted operating income. The Company also evaluates segment performance based on each segment’s adjusted operating income before provision for income taxes and interest. Segment adjusted operating income is defined as operating income before income taxes and before certain corporate headquarter unallocated costs, restructuring and other costs, interest expense, interest income, other expense (income), net, amortization of intangible assets, and depreciation resulting from the fair value step-up of property, plant and equipment from acquisitions. The Company’s segment adjusted operating income is considered a non-GAAP measure. A description of the products and services provided within each of the Company’s two operating segments is provided below.
Technologies & Equipment
This segment is responsible for the worldwide design, manufacture, sales and distribution of the Company’s Dental Technology & Equipment Products and Healthcare Consumable Products. These products includes dental implants, CAD/CAM systems, orthodontic clear aligners, imaging systems, treatment centers, instruments, as well as consumable medical device products.
Consumables
This segment is responsible for the worldwide design, manufacture, sale and distribution of the Company’s Dental Consumable Products which include preventive, restorative, endodontic, and laboratory dental products.
The Company’s segment information was as follows:
Net Sales
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|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
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(in millions)
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
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Technologies & Equipment
|
|
|
|
|
|
$
|
520.3
|
|
|
$
|
520.8
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|
Consumables
|
|
|
|
|
|
354.0
|
|
|
425.4
|
|
Total net sales
|
|
|
|
|
|
$
|
874.3
|
|
|
$
|
946.2
|
|
Segment Adjusted Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
|
(in millions)
|
|
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Technologies & Equipment
|
|
|
|
|
|
$
|
111.1
|
|
|
$
|
71.8
|
|
Consumables
|
|
|
|
|
|
61.6
|
|
|
105.7
|
|
Segment adjusted operating income
|
|
|
|
|
|
172.7
|
|
|
177.5
|
|
|
|
|
|
|
|
|
|
|
Reconciling items expense (income):
|
|
|
|
|
|
|
|
|
All other (a)
|
|
|
|
|
|
49.7
|
|
|
59.7
|
|
Goodwill impairment
|
|
|
|
|
|
156.6
|
|
|
—
|
|
Restructuring and other costs
|
|
|
|
|
|
42.5
|
|
|
20.5
|
|
Interest expense
|
|
|
|
|
|
6.7
|
|
|
8.4
|
|
Interest income
|
|
|
|
|
|
(0.4)
|
|
|
(1.1)
|
|
Other expense (income), net
|
|
|
|
|
|
(1.4)
|
|
|
(13.8)
|
|
Amortization of intangible assets
|
|
|
|
|
|
47.2
|
|
|
48.2
|
|
Depreciation resulting from the fair value step-up of property, plant, and equipment from business combinations
|
|
|
|
|
|
1.5
|
|
|
1.8
|
|
(Loss) income before income taxes
|
|
|
|
|
|
$
|
(129.7)
|
|
|
$
|
53.8
|
|
(a) Includes the results of unassigned Corporate headquarters costs and inter-segment eliminations.
NOTE 6 – INVENTORIES
Inventories are stated at the lower of cost and net realizable value. The cost of inventories determined by the last-in, first-out (“LIFO”) method at March 31, 2020 and December 31, 2019 were $9.4 million and $5.0 million, respectively. The cost of remaining inventories was determined by the first-in, first-out (“FIFO”) or average cost methods. If the FIFO method had been used to determine the cost of LIFO inventories, the amounts at which net inventories are stated would be higher than reported at March 31, 2020 and December 31, 2019 by $18.3 million and $14.3 million, respectively.
Inventories, net of inventory valuation reserves, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
Finished goods
|
|
$
|
368.4
|
|
|
$
|
356.4
|
|
Work-in-process
|
|
80.3
|
|
|
82.5
|
|
Raw materials and supplies
|
|
141.8
|
|
|
122.8
|
|
Inventories, net
|
|
$
|
590.5
|
|
|
$
|
561.7
|
|
The inventory valuation reserve was $86.2 million and $85.0 million at March 31, 2020 and December 31, 2019, respectively.
NOTE 7 – RESTRUCTURING AND OTHER COSTS
Restructuring Costs
During the three months ended March 31, 2020 the Company recorded restructuring and other costs of $42.5 million, which included net restructuring costs of $2.3 million. During the three months ended March 31, 2019, the Company recorded net restructuring and other costs of $20.5 million, which included net restructuring costs of $14.2 million. These costs are recorded in Restructuring and other costs in the Consolidated Statements of Operations and the associated liabilities are recorded in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets.
The Company’s restructuring accruals at March 31, 2020 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
|
|
|
|
(in millions)
|
|
2018 and
Prior Plans
|
|
2019 Plans
|
|
2020 Plans
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
7.2
|
|
|
$
|
19.8
|
|
|
$
|
—
|
|
|
$
|
27.0
|
|
Provisions
|
|
0.2
|
|
|
0.7
|
|
|
1.4
|
|
|
2.3
|
|
Amounts applied
|
|
(0.8)
|
|
|
(3.0)
|
|
|
—
|
|
|
(3.8)
|
|
Change in estimates
|
|
(0.1)
|
|
|
(0.2)
|
|
|
—
|
|
|
(0.3)
|
|
Balance at March 31, 2020
|
|
$
|
6.5
|
|
|
$
|
17.3
|
|
|
$
|
1.4
|
|
|
$
|
25.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease/Contract Terminations
|
|
|
|
|
|
|
(in millions)
|
|
2018 and
Prior Plans
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
0.5
|
|
|
|
|
|
|
$
|
0.5
|
|
Provisions
|
|
0.1
|
|
|
|
|
|
|
0.1
|
|
Amounts applied
|
|
(0.1)
|
|
|
|
|
|
|
(0.1)
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2020
|
|
$
|
0.5
|
|
|
|
|
|
|
$
|
0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Restructuring Costs
|
|
|
|
|
|
|
(in millions)
|
|
2018 and
Prior Plans
|
|
2019 Plans
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2019
|
|
$
|
2.2
|
|
|
$
|
0.3
|
|
|
|
|
$
|
2.5
|
|
Provisions
|
|
—
|
|
|
0.3
|
|
|
|
|
0.3
|
|
Amounts applied
|
|
—
|
|
|
(0.3)
|
|
|
|
|
(0.3)
|
|
Change in estimate
|
|
—
|
|
|
(0.1)
|
|
|
|
|
(0.1)
|
|
Balance at March 31, 2020
|
|
$
|
2.2
|
|
|
$
|
0.2
|
|
|
|
|
$
|
2.4
|
|
The cumulative amounts for the provisions and adjustments and amounts applied for all the plans by segment were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
December 31, 2019
|
|
Provisions
|
|
Amounts
Applied
|
|
Change in Estimates
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
Technologies & Equipment
|
|
$
|
19.1
|
|
|
$
|
1.5
|
|
|
$
|
(2.7)
|
|
|
$
|
(0.3)
|
|
|
$
|
17.6
|
|
Consumables
|
|
11.4
|
|
|
0.8
|
|
|
(1.0)
|
|
|
(0.1)
|
|
|
11.1
|
|
All Other
|
|
(0.5)
|
|
|
0.4
|
|
|
(0.5)
|
|
|
—
|
|
|
(0.6)
|
|
Total
|
|
$
|
30.0
|
|
|
$
|
2.7
|
|
|
$
|
(4.2)
|
|
|
$
|
(0.4)
|
|
|
$
|
28.1
|
|
Other Costs
Other costs for the three months ended March 31, 2020 and March 31, 2019, were $40.2 million and $6.3 million, respectively.
For the three months ended March 31, 2020, the Company recorded an impairment charge of $38.7 million. The impaired indefinite-lived intangible assets are tradenames and trademarks related to a reporting unit within the Technologies & Equipment segment. For further details, see Note 12, Goodwill and Intangible Assets.
For the three months ended March 31, 2019, the Company recorded an impairment charge of $5.3 million. The impaired indefinite-lived intangibles assets are tradenames and trademarks related to a reporting unit within the Technologies & Equipment segment. For further details, see Note 12, Goodwill and Intangible Assets.
NOTE 8 – 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 equity. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company has utilized interest rate swaps to convert variable rate debt to fixed rate debt.
Derivative Instruments Designated as Hedging
Cash Flow Hedges
The following summarizes the notional amounts of cash flow hedges by derivative instrument type at March 31, 2020 and the notional amounts expected to mature during the next 12 months, with a discussion of the various cash flow hedges by derivative instrument type following the table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Aggregate Notional Amount
|
|
Aggregate Notional Amount Maturing within 12 Months
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
331.2
|
|
|
$
|
250.4
|
|
Interest rate swaps
|
|
150.0
|
|
|
—
|
|
|
|
|
|
|
Total derivative instruments designated as cash flow hedges
|
|
$
|
481.2
|
|
|
$
|
250.4
|
|
Foreign Exchange Risk Management
The Company uses a program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings of the consolidated Company. The Company accounts for the designated 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. The Company hedges various currencies, primarily in euros, Swedish kronor, Canadian dollars, British pounds, Swiss francs and Australian dollars.
These foreign exchange forward contracts generally have maturities up to 18 months and the counterparties to the transactions are typically large international financial institutions.
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.
Cash Flow Hedge Activity
The amount of gains and losses recorded in AOCI in the Consolidated Balance Sheets, Interest expense and Cost of products sold in the Company's Consolidated Statements of Operations related to the cash flow hedges were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
|
|
Gain (Loss) in AOCI
|
|
Consolidated Statements of Operations Location
|
|
Effective Portion Reclassified from AOCI into Income (Expense)
|
|
Ineffective Portion Recognized in Income (Expense)
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion:
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
(17.9)
|
|
|
Interest expense
|
|
$
|
(0.5)
|
|
|
$
|
—
|
|
Foreign exchange forward contracts
|
|
2.2
|
|
|
Cost of products sold
|
|
0.8
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Ineffective Portion:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
—
|
|
|
Cost of products sold
|
|
—
|
|
|
0.7
|
|
Total in cash flow hedging
|
|
$
|
(15.7)
|
|
|
|
|
$
|
0.3
|
|
|
$
|
0.7
|
|
Gains and losses recorded in AOCI in the Consolidated Balance Sheets and Cost of products sold in the Company’s Consolidated Statements of Operations related to all cash flow hedges for the three months ended March 31, 2019 were insignificant.
For the rollforward of derivative instruments designated as cash flow hedges in AOCI see Note 3, Comprehensive Income (Loss).
Hedges of Net Investments in Foreign Operations
The Company has significant investments in foreign subsidiaries, the most significant of which are denominated in euros, Swiss francs, Japanese yen and Swedish kronor. 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 derivative and non-derivative financial 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.
On April 7, 2020, the Company terminated its entire net investment hedge portfolio early which resulted in a $48.1 million gain. The Company elected to enter into this transaction to convert the favorable gain position into additional liquidity.
The notional amount of hedges of net investments by derivative instrument type at March 31, 2020 and the notional amounts expected to mature during the next 12 months were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Aggregate
Notional
Amount
|
|
Aggregate Notional Amount Maturing within 12 Months
|
|
|
|
|
|
Foreign exchange forward contracts - Euro
|
|
$
|
363.2
|
|
|
$
|
363.2
|
|
|
|
|
|
|
Foreign exchange forward contracts - Swiss franc
|
|
342.4
|
|
|
342.4
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
289.9
|
|
|
—
|
|
Total for instruments designated as hedges of net investment
|
|
$
|
995.5
|
|
|
$
|
705.6
|
|
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.
The gains and losses recorded in AOCI in the Consolidated Balance Sheets and Other expense (income), net in the Company's Consolidated Statements of Operations related to the hedges of net investments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
Gain (Loss) in AOCI
|
|
Consolidated Statements of Operations Location
|
|
Recognized in Income (Expense)
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion:
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
$
|
8.8
|
|
|
Interest expense
|
|
$
|
2.2
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
15.9
|
|
|
Other expense (income), net
|
|
5.8
|
|
|
|
|
|
|
|
|
Total for net investment hedging
|
|
$
|
24.7
|
|
|
|
|
$
|
8.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
Gain (Loss) in AOCI
|
|
Consolidated Statements of Operations Location
|
|
Recognized in Income (Expense)
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Portion:
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
$
|
3.1
|
|
|
Interest expense
|
|
$
|
2.0
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
15.5
|
|
|
Other expense (income), net
|
|
3.5
|
|
|
|
|
|
|
|
|
Total for net investment hedging
|
|
$
|
18.6
|
|
|
|
|
$
|
5.5
|
|
Fair Value Hedges
Foreign Exchange Risk Management
The Company has an intercompany loan denominated in Swedish kronor that is exposed to volatility in currency exchange rates. The Company employs derivative financial instruments to hedge this exposure. 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. Any cash flows associated with these instruments are included in investing activities in the Consolidated Statements of Cash Flows.
The notional amounts of fair value hedges by derivative instrument type at March 31, 2020 and the notional amounts expected to mature during the next 12 months were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Aggregate
Notional
Amount
|
|
Aggregate Notional Amount Maturing within 12 Months
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
79.6
|
|
|
$
|
36.2
|
|
Total derivative instruments as fair value hedges
|
|
$
|
79.6
|
|
|
$
|
36.2
|
|
Gains (losses) recorded in AOCI on the Consolidated Balance Sheets and Other expense (income), net on the Company's Consolidated Statements of Operations related to the fair value hedges for the three months ended March 31, 2020 and 2019 were insignificant.
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 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. The Company primarily uses foreign exchange forward contracts to hedge these risks. Any cash flows associated with the foreign exchange forward contracts and interest rate swaps not designated as hedges are included in cash from operating activities in the Consolidated Statements of Cash Flows.
The aggregate notional amounts of the Company’s economic hedges not designated as hedges by derivative instrument types at March 31, 2020 and the notional amounts expected to mature during the next 12 months were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Aggregate
Notional
Amount
|
|
Aggregate Notional Amount Maturing within 12 Months
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
221.1
|
|
|
$
|
221.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total for instruments not designated as hedges
|
|
$
|
221.1
|
|
|
$
|
221.1
|
|
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, 2020 and 2019 were insignificant.
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, 2020
|
|
|
|
|
|
|
(in millions)
|
|
Prepaid Expenses and Other Current Assets, Net
|
|
Other Noncurrent Assets, Net
|
|
Accrued Liabilities
|
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
|
Designated as Hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
51.9
|
|
|
$
|
7.3
|
|
|
|
$
|
3.9
|
|
|
|
$
|
0.8
|
|
Interest rate swaps
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
28.4
|
|
Cross currency basis swaps
|
|
—
|
|
|
|
15.6
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
51.9
|
|
|
$
|
22.9
|
|
|
$
|
3.9
|
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
(in millions)
|
|
Prepaid Expenses and Other Current Assets, Net
|
|
Other Noncurrent Assets, Net
|
|
Accrued Liabilities
|
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
|
$
|
1.6
|
|
|
|
$
|
—
|
|
Total
|
|
$
|
4.8
|
|
|
$
|
—
|
|
|
$
|
1.6
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(in millions)
|
|
Prepaid Expenses and Other Current Assets, Net
|
|
Other Noncurrent Assets, Net
|
|
Accrued Liabilities
|
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
|
Designated as Hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
26.9
|
|
|
|
$
|
11.3
|
|
|
|
$
|
1.3
|
|
|
|
$
|
1.8
|
|
Interest rate swaps
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10.8
|
|
Cross currency basis swaps
|
|
—
|
|
|
|
6.9
|
|
|
|
—
|
|
|
|
—
|
|
Total
|
|
$
|
26.9
|
|
|
$
|
18.2
|
|
|
$
|
1.3
|
|
|
$
|
12.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(in millions)
|
|
Prepaid Expenses and Other Current Assets, Net
|
|
Other Noncurrent Assets, Net
|
|
Accrued Liabilities
|
|
Other Noncurrent Liabilities
|
|
|
|
|
|
|
|
|
|
Not Designated as Hedges:
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
2.0
|
|
|
|
$
|
—
|
|
|
|
$
|
1.5
|
|
|
|
$
|
—
|
|
Total
|
|
$
|
2.0
|
|
|
$
|
—
|
|
|
$
|
1.5
|
|
|
$
|
—
|
|
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.
Offsetting of financial assets and liabilities under netting arrangements at March 31, 2020 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
|
|
$
|
63.3
|
|
|
$
|
—
|
|
|
$
|
63.3
|
|
|
$
|
(12.2)
|
|
|
$
|
—
|
|
|
$
|
51.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
15.6
|
|
|
—
|
|
|
15.6
|
|
|
(3.3)
|
|
|
—
|
|
|
12.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
78.9
|
|
|
$
|
—
|
|
|
$
|
78.9
|
|
|
$
|
(15.5)
|
|
|
$
|
—
|
|
|
$
|
63.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
5.6
|
|
|
$
|
—
|
|
|
$
|
5.6
|
|
|
$
|
(5.6)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
28.4
|
|
|
—
|
|
|
28.4
|
|
|
(9.9)
|
|
|
—
|
|
|
18.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
34.0
|
|
|
|
$
|
—
|
|
|
|
$
|
34.0
|
|
|
|
$
|
(15.5)
|
|
|
|
$
|
—
|
|
|
|
$
|
18.5
|
|
Offsetting of financial assets and liabilities under netting arrangements at December 31, 2019 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
|
|
$
|
38.8
|
|
|
$
|
—
|
|
|
$
|
38.8
|
|
|
$
|
(7.8)
|
|
|
$
|
—
|
|
|
$
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
6.9
|
|
|
—
|
|
|
6.9
|
|
|
(0.9)
|
|
|
—
|
|
|
6.0
|
|
Total Assets
|
|
$
|
45.7
|
|
|
$
|
—
|
|
|
$
|
45.7
|
|
|
$
|
(8.7)
|
|
|
$
|
—
|
|
|
$
|
37.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
$
|
3.2
|
|
|
$
|
—
|
|
|
$
|
3.2
|
|
|
$
|
(3.0)
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
10.8
|
|
|
—
|
|
|
10.8
|
|
|
(5.7)
|
|
|
—
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
14.0
|
|
|
|
$
|
—
|
|
|
|
$
|
14.0
|
|
|
|
$
|
(8.7)
|
|
|
|
$
|
—
|
|
|
|
$
|
5.3
|
|
NOTE 9 – FAIR VALUE MEASUREMENT
Assets and Liabilities Measured at Fair Value on a Recurring Basis
At March 31, 2020, the Company estimated the fair value of total long-term debt, including the current portion, using Level 1 inputs and carrying value, were $1,463.0 million and $1,454.1 million, respectively. At December 31, 2019, the Company estimated the fair value and carrying value of total long-term debt, including the current portion, were $1,440.8 million and $1,433.3 million, respectively.
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, 2020
|
|
|
|
|
|
|
(in millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
$
|
15.6
|
|
|
$
|
—
|
|
|
$
|
15.6
|
|
|
$
|
—
|
|
Foreign exchange forward contracts
|
|
64.0
|
|
|
—
|
|
|
64.0
|
|
|
—
|
|
Total assets
|
|
$
|
79.6
|
|
|
$
|
—
|
|
|
$
|
79.6
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
28.4
|
|
|
$
|
—
|
|
|
$
|
28.4
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
6.3
|
|
|
—
|
|
|
6.3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Contingent considerations on acquisitions
|
|
6.9
|
|
|
—
|
|
|
—
|
|
|
6.9
|
|
Total liabilities
|
|
$
|
41.6
|
|
|
$
|
—
|
|
|
$
|
34.7
|
|
|
$
|
6.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
(in millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross currency basis swaps
|
|
$
|
6.9
|
|
|
$
|
—
|
|
|
$
|
6.9
|
|
|
$
|
—
|
|
Foreign exchange forward contracts
|
|
40.2
|
|
|
—
|
|
|
40.2
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
47.1
|
|
|
$
|
—
|
|
|
$
|
47.1
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
$
|
10.8
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
4.6
|
|
|
—
|
|
|
4.6
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Contingent considerations on acquisitions
|
|
8.7
|
|
|
—
|
|
|
—
|
|
|
8.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
24.1
|
|
|
$
|
—
|
|
|
$
|
15.4
|
|
|
$
|
8.7
|
|
|
|
|
|
|
|
|
|
|
There have been no transfers between levels during the three months ended March 31, 2020.
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 rates 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. Both types of designated derivative instruments are further discussed in Note 8, Financial Instruments and Derivatives.
Assets Measured at Fair Value on a Non-Recurring Basis
For the three months ended March 31, 2020, the Company recorded impairments of $156.6 million related to goodwill and $38.7 million related to indefinite-lived intangible assets for the Equipment & Instruments reporting unit. The carrying value of $290.4 million of goodwill related to this reporting unit represents the estimated fair value as determined in the March 31, 2020 valuation. The carrying value of $75.0 million of identifiable indefinite-lived intangible assets was also related to businesses within this reporting unit and represents the estimated fair value as determined in the March 31, 2020 valuation. The valuation technique and inputs, which used Level 3 unobservable inputs, as well as further details on the impairment are disclosed in Note 12, Goodwill and Intangible Assets.
Certain goodwill and identifiable indefinite-lived intangible assets that were measured at fair value on a non-recurring basis by level within the fair value hierarchy were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
|
(in millions)
|
|
Total
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Identifiable intangible assets, net
|
|
$
|
75.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
75.0
|
|
Goodwill, net
|
|
290.4
|
|
|
—
|
|
|
—
|
|
|
290.4
|
|
Total assets
|
|
$
|
365.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
365.4
|
|
NOTE 10 – 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.
It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date of the Company’s quarterly consolidated financial statements. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next 12 months are not expected to be significant.
Other Tax Matters
During the three months ended March 31, 2020, the Company recorded $6.0 million of tax expense for discrete tax matters. The Company also recorded a $10.6 million tax benefit as a discrete item related to the indefinite-lived intangible asset impairment charge.
During the three months ended March 31, 2019, the Company recorded $2.4 million of tax expense for discrete tax matters. The Company also recorded a $1.5 million tax benefit related to the indefinite-lived intangible asset impairment charge recorded during the quarter.
NOTE 11 – FINANCING ARRANGEMENTS
The Company has access to a $700.0 million multi-currency revolving credit facility. At March 31, 2020 and December 31, 2019, there were no outstanding borrowings under this facility.
The Company has a $500.0 million commercial paper program. The multi-currency revolving credit facility serves as a back-stop credit facility for the Company's commercial paper program. At March 31, 2020 there was $31.2 million outstanding under the commercial paper program. At December 31, 2019 there were no outstanding borrowings under the commercial paper program.
At March 31, 2020, the Company had $703.2 million of borrowing available under lines of credit, including lines available under its short-term arrangements and revolving credit facility.
The Company’s revolving credit facility, term loans and senior notes contain certain affirmative and negative covenants relating to the Company's operations and financial condition. At March 31, 2020 the Company was in compliance with all debt covenants.
Subsequent Event
In response to the COVID-19 pandemic, on April 9, 2020 the Company entered into a $310.0 million 364-day revolving credit facility with a maturity date of April 8, 2021. The 364-day revolving credit facility mirrors the original five-year facility in all major respects, is unsecured and contains certain affirmative and negative covenants relating to the operations and financial condition of the Company. This revolving credit facility is in addition to those credit facilities as described above as well as disclosed in the Company's Form 10-K for the year ended December 31, 2019 filed on March 2, 2020.
On April 17, 2020, the Company provided a notice to the administrative agent to draw down the full available amount under the 2018 revolving credit facility, which is equal to $700.0 million. The Company has previously not drawn down any sums under this facility. The borrowings will bear interest at the rate of adjusted LIBOR plus 1.25%.
On May 5, 2020 the Company entered into a 40.0 million euro 364-day revolving credit facility with a maturity date of April 30, 2021. The agreement is unsecured and contains certain affirmative and negative covenants relating to the operations and financial condition of the Company.
Although the Company has no immediate need for additional liquidity, the Company has elected to draw down the $700.0 million credit facility to provide additional liquidity and financial flexibility in light of current economic conditions and uncertainties arising in connection with the COVID-19 pandemic. The proceeds will be used for working capital and other general corporate purposes. Through the date of the filing of this Form 10-Q, the Company has not borrowed on the $310.0 million credit facility or the 40.0 million euro credit facility noted above.
NOTE 12 – GOODWILL AND INTANGIBLE ASSETS
In preparing the financial statements for the quarter ended March 31, 2020, the Company identified an impairment triggering event related to four of its reporting units. The Company has experienced a meaningful decrease in customer demand for its products as a result of stay-at-home orders, travel restrictions, and social distancing guidelines set forth by governmental authorities throughout the world in response to the COVID-19 pandemic. These actions meaningfully impacted end user demand for routine dental procedures in most of the Company's markets. The Company updated its future forecasted revenues, operating margins and weighted average cost of capital for all four of the reporting units which were impacted by the continuing pandemic. Based on the Company's best estimates and assumptions at this time, the Company believes forecasted future revenue growth related to the Equipment & Instruments reporting unit will experience an extended recovery period in returning to the pre-COVID-19 levels. The Company believes that dental practitioners will focus their initial post-COVID-19 equipment spending on products that deliver short-term revenue gains for their practices before replacing the Imaging, Treatment Center and Instruments products that comprise the Equipment & Instruments reporting unit. After this extended recovery period, the Company expects the growth rates of Equipment & Instruments reporting unit to return to pre-COVID-19 levels.
To determine the fair value of these four reporting units, the Company uses a discounted cash flow model with market-based support as its valuation technique to measure the fair value for its reporting units. The discounted cash flow model uses five- to ten- year forecasted cash flows plus a terminal value based on a multiple of earnings or by capitalizing the last period’s cash flows using a perpetual growth rate. The Company's significant assumptions in the discounted cash flow models include, but are not limited to, the weighted average cost of capital, revenue growth rates, including perpetual revenue growth rates, and gross margin percentages of the reporting unit's business. The Company considered the current market conditions when determining its assumptions. The total forecasted cash flows were discounted based on a range between 9.5% to 11.5%, which included assumptions regarding the Company’s weighted average cost of capital. Lastly, the Company reconciled the aggregate fair values of its reporting units to its market capitalization, which included a reasonable control premium based on market conditions. These future expectations include, but are not limited to, the current and ongoing impact of the COVID-19 pandemic and new product development changes for these reporting units. The Company also considers the current and projected market and economic conditions amid the ongoing pandemic for the dental industry both in the U.S. and globally, when determining its assumptions. The use of estimates and the development of assumptions results in uncertainties around forecasted cash flows. A change in any of these estimates and assumptions, as well as unfavorable changes in the ongoing pandemic, could produce a different fair value, which could have a negative impact and result in a future impairment charge and could materially impact the Company’s results of operations.
As a result of updating the estimates and assumptions in the ongoing COVID-19 pandemic and with the preparation of the financial statements for the three months ended March 31, 2020, the Company determined that the goodwill associated with the Equipment & Instruments reporting unit was impaired. As a result, the Company recorded a goodwill impairment charge of $156.6 million. This reporting unit is within the Technologies & Equipment segment. At March 31, 2020, the remaining goodwill related to the Equipment & Instruments reporting unit was $290.5 million. Based on the quantitative assessments performed for the three other reporting units, the Company believes that its adjusted long-term forecasted cash flows do not indicate that the fair value of these reporting units may be below their carrying value.
In preparing the financial statements for the quarter ended March 31, 2020 in conjunction with the goodwill impairment, the Company tested the indefinite-lived intangible assets related to the businesses within the four reporting units for impairment. The Company performs impairment tests using an income approach, more specifically a relief from royalty method. In the development of the forecasted cash flows, the Company applies significant judgment to determine key assumptions, including royalty rates and discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation. If the carrying value exceeds the fair value, an impairment loss in the amount equal to the excess is recognized. As a result, the Company identified that certain tradenames and trademarks related to businesses in the Equipment & Instruments reporting unit, within the Technologies & Equipment segment, were impaired. The Company recorded an impairment charge of $38.7 million for the three months ended March 31, 2020, which was recorded in Restructuring and other costs in the Consolidated Statements of Operations. The impairment charge was driven by a decline in forecasted sales as a result of the COVID-19 pandemic as discussed above, as well as an unfavorable change in the discount rate. The Company utilized discount rates ranging from 10.0% to 17.5%. The assumptions and estimates used in determining the fair value of the indefinite-lived intangible assets contain uncertainties and any changes to these assumptions and estimates, including unfavorable changes related to the COVID-19 pandemic, could have a negative impact and result in a future impairment charge and could materially impact the Company's results of operations. At March 31, 2020, the remaining indefinite-lived tradenames and trademarks related to the Equipment & Instruments reporting unit was $75.0 million. Based on the quantitative assessments performed for the indefinite-lived intangible assets related to the businesses in the three other reporting units, the Company believes that its adjusted long-term forecasted cash flows do not indicate that the fair value of the indefinite-lived intangible assets may be below their carrying value.
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, 2019
|
|
$
|
2,515.7
|
|
|
$
|
880.8
|
|
|
$
|
3,396.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment
|
|
(156.6)
|
|
|
—
|
|
|
(156.6)
|
|
Effects of exchange rate changes
|
|
(32.3)
|
|
|
(15.8)
|
|
|
(48.1)
|
|
Balance at March 31, 2020
|
|
$
|
2,326.8
|
|
|
$
|
865.0
|
|
|
$
|
3,191.8
|
|
The gross carrying amount of goodwill and the cumulative goodwill impairment were as follows:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
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|
|
|
|
|
December 31, 2019
|
|
|
|
|
(in millions)
|
|
Gross Carrying Amount
|
|
Cumulative Impairment
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Cumulative Impairment
|
|
Net Carrying Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technologies & Equipment
|
|
$
|
5,220.0
|
|
|
$
|
(2,893.2)
|
|
|
$
|
2,326.8
|
|
|
$
|
5,252.3
|
|
|
$
|
(2,736.6)
|
|
|
$
|
2,515.7
|
|
Consumables
|
|
865.0
|
|
|
—
|
|
|
865.0
|
|
|
880.8
|
|
|
—
|
|
|
880.8
|
|
Total effect of cumulative impairment
|
|
$
|
6,085.0
|
|
|
$
|
(2,893.2)
|
|
|
$
|
3,191.8
|
|
|
$
|
6,133.1
|
|
|
$
|
(2,736.6)
|
|
|
$
|
3,396.5
|
|
Identifiable definite-lived and indefinite-lived intangible assets were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2020
|
|
|
|
|
|
December 31, 2019
|
|
|
|
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
Carrying
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
1,328.4
|
|
|
$
|
(536.7)
|
|
|
$
|
791.7
|
|
|
$
|
1,351.3
|
|
|
$
|
(517.9)
|
|
|
$
|
833.4
|
|
Tradenames and trademarks
|
|
76.4
|
|
|
(62.6)
|
|
|
13.8
|
|
|
79.0
|
|
|
(63.4)
|
|
|
15.6
|
|
Licensing agreements
|
|
36.0
|
|
|
(28.3)
|
|
|
7.7
|
|
|
36.0
|
|
|
(27.9)
|
|
|
8.1
|
|
Customer relationships
|
|
1,046.6
|
|
|
(407.4)
|
|
|
639.2
|
|
|
1,070.5
|
|
|
(399.2)
|
|
|
671.3
|
|
Total definite-lived
|
|
$
|
2,487.4
|
|
|
$
|
(1,035.0)
|
|
|
$
|
1,452.4
|
|
|
$
|
2,536.8
|
|
|
$
|
(1,008.4)
|
|
|
$
|
1,528.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived tradenames and trademarks
|
|
$
|
593.0
|
|
|
$
|
—
|
|
|
$
|
593.0
|
|
|
$
|
647.9
|
|
|
$
|
—
|
|
|
$
|
647.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total identifiable intangible assets
|
|
$
|
3,080.4
|
|
|
$
|
(1,035.0)
|
|
|
$
|
2,045.4
|
|
|
$
|
3,184.7
|
|
|
$
|
(1,008.4)
|
|
|
$
|
2,176.3
|
|
During the three months ended March 31, 2019, the Company impaired $5.3 million of product tradenames and trademarks within the Technologies & Equipment segment. The impairment was the result of a change in forecasted sales related to divestitures of non-strategic product lines.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Litigation
The SEC’s Division of Enforcement has asked the Company to provide documents and information concerning the Company’s accounting and disclosures. The Company is cooperating with the SEC’s investigation. The Company is unable to predict the ultimate outcome of this matter, or whether it will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
On January 11, 2018, Tom Redlich, a former employee, filed a lawsuit against the Company, demanding supplemental compensation pursuant to an agreement allegedly entered into with Sirona Dental GmbH which was intended to entice Mr. Redlich to continue to work for the company for no less than eight years following the date of this agreement. The Company filed its response on April 4, 2018, denying the authenticity and enforceability of, and all liability under, the alleged agreement. Mr. Jost Fischer, upon invitation of the Company, joined the litigation against Mr. Redlich as a third party. In his submission to the Court, Mr. Fischer disputed the central allegations raised by Mr. Redlich in his lawsuit. The Court held several hearings in the matter, and then closed the hearings in June 2019 pending the Court’s decision on the capacity of Mr. Fischer to enter into a binding agreement of the type alleged by Mr. Redlich in the manner alleged. On November 5, 2019, the Company received the Court’s judgment rejecting Mr. Redlich’s lawsuit and dismissing his claims. Mr. Redlich appealed in December 2019 and the Company filed its response in January 2020 seeking to uphold the Court’s ruling. On February 27, 2020, the Company received the Appellate Court’s decision rejecting Mr. Redlich’s appeal and upholding the decision of the lower court dismissing his claims. The Court of Appeals has denied Mr. Redlich the right to file a further appeal in this matter, however, on March 23, 2020, Mr. Redlich filed an extraordinary appeal with the Austrian Supreme Court which will assess the appeal. If the Austrian Supreme Court accepts Mr. Redlich’s extraordinary appeal, the Company will then file its response.
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 parties intend to participate in a mediation in July 2020 and the case will be stayed until that time. The Company continues to vigorously defend against these matters.
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 Class Action") by making material misrepresentations and omitting required information in the December 4, 2015 registration statement filed with the SEC in connection with 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. The Company has filed motions to dismiss the amended complaint, to stay discovery pending resolution of the motion to dismiss, and to stay all proceedings pending resolution of the Federal Class Action described below. On August 2, 2019, the Court denied the Company's motions to stay discovery and to stay all proceedings. On August 21, 2019, the Company filed a notice of appeal of that decision. Briefing has not yet commenced on that appeal. On September 26, 2019, the Court granted the Company's motion to dismiss all claims. The associated judgment was entered on September 30, 2019. On October 25, 2019, the plaintiffs filed a notice of appeal of the motion to dismiss decision and the judgment. On November 4, 2019, the Company filed a notice of cross-appeal of select rulings in the Court's motion to dismiss decision. On October 9, 2019, the plaintiffs moved by order to show cause to vacate or modify the judgment and grant plaintiffs leave to amend their complaint. On February 4, 2020, the Court denied the plaintiffs' motion. On March 5, 2020, the plaintiffs also filed a notice of appeal from the denial of their motion to vacate or modify the judgment and for leave to amend their complaint.
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 Class 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's motion to dismiss the amended complaint was served on August 15, 2019. Briefing was completed on October 21, 2019 and the Company is awaiting the decision of the Court.
On April 29, 2019, two purported stockholders of the Company filed a derivative action on behalf of the Company in the U.S. District Court for the District of Delaware against the Company's directors (the "Stockholder's Derivative Action"). Based on allegations similar to those asserted in the class actions described above, the plaintiffs allege that the directors caused the Company to misrepresent its business prospects and thereby subjected the Company to multiple securities class actions and other litigation. On September 20, 2019, the plaintiffs in the Stockholder's Derivative Action filed an amended derivative complaint on behalf of the Company in the U.S. District Court for the District of Delaware against the Company's directors. The plaintiffs assert claims for breach of fiduciary duty, unjust enrichment, waste of corporate assets, and violations of the U.S. securities laws. The plaintiffs seek relief that includes, among other things, monetary damages and various corporate governance reforms. The Company filed a motion to dismiss, which has been fully briefed by the parties. The Company is awaiting the Court's decision.
The Company intends to defend itself vigorously in these actions.
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 $546.0 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 $4.7 million for 2012, has no tax liability for 2013, and owes a deficiency of $17.1 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. The Company has submitted a formal protest disputing on multiple grounds the proposed taxes.
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. 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 2017 and is also expected to do the same for the 2018 tax year. If such interest expense deductions were disallowed, the Company would be subject to an additional $41.0 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. The Company intends to vigorously defend its position and pursue related appeals.
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 additional legal matters involve a variety of matters, including 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. Based upon the Company’s experience, current information and applicable law, it does not believe that these additional legal matters 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.
DENTSPLY SIRONA Inc. and Subsidiaries