Quarterly Report (10-q)

Date : 08/02/2019 @ 11:19AM
Source : Edgar (US Regulatory)
Stock : DENTSPLY SIRONA Inc (XRAY)
Quote : 57.37  0.0 (0.00%) @ 9:47AM

Quarterly Report (10-q)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
Commission File Number 0-16211
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
Delaware
39-1434669
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
13320 Ballantyne Corporate Place, Charlotte, North Carolina
28277-3607
(Address of principal executive offices)
(Zip Code)
(844) 546-3722
(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

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 x 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    x No   


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   x
Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
Yes    No    x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At July 26, 2019, DENTSPLY SIRONA Inc. had 224,183,464 shares of Common Stock outstanding.



DENTSPLY SIRONA Inc.

TABLE OF CONTENTS
 

2


PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net sales $ 1,009.4  $ 1,042.1  $ 1,955.6  $ 1,998.2 
Cost of products sold 468.6  489.3  915.1  931.3 
Gross profit 540.8  552.8  1,040.5  1,066.9 
Selling, general, and administrative expenses 430.9  432.2  862.8  867.4 
Goodwill impairment —  1,085.8  —  1,085.8 
Restructuring and other costs 42.4  188.9  62.9  199.1 
Operating income (loss) 67.5  (1,154.1) 114.8  (1,085.4)
Other income and expenses:
Interest expense 8.0  9.6  16.4  18.2 
Interest income (0.2) (0.4) (1.3) (1.0)
Other expense (income), net 12.1  (1.0) (1.7) (35.1)
Income (loss) before income taxes 47.6  (1,162.3) 101.4  (1,067.5)
Provision (benefit) for income taxes 11.2  (41.3) 25.8  (27.6)
Net income (loss) 36.4  (1,121.0) 75.6  (1,039.9)
Less: Net income attributable to noncontrolling interest —  1.0  —  0.9 
Net income (loss) attributable to Dentsply Sirona $ 36.4  $ (1,122.0) $ 75.6  $ (1,040.8)
Net income (loss) per common share attributable to Dentsply Sirona:
Basic $ 0.16  $ (4.98) $ 0.34  $ (4.60)
Diluted $ 0.16  $ (4.98) $ 0.34  $ (4.60)
Weighted average common shares outstanding:
Basic 224.2  225.2  223.7  226.2 
Diluted 225.7  225.2  225.3  226.2 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
3


DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net income (loss) $ 36.4  $ (1,121.0) $ 75.6  $ (1,039.9)
Other comprehensive income (loss), net of tax:
 Foreign currency translation gain (loss) 43.7  (192.6) (17.3) (126.9)
 Net (loss) gain on derivative financial instruments (9.8) 29.6  (8.1) 17.6 
Net realized holding gain on available for sale securities —  —  —  (44.3)
 Pension liability gain 0.9  3.0  1.8  4.2 
Total other comprehensive income (loss), net of tax 34.8  (160.0) (23.6) (149.4)
Total comprehensive income (loss) 71.2  (1,281.0) 52.0  (1,189.3)
Less: Comprehensive income attributable to noncontrolling interests —  0.8  0.3  1.3 
Total comprehensive income (loss) attributable to Dentsply Sirona $ 71.2  $ (1,281.8) $ 51.7  $ (1,190.6)

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
4


DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
June 30, 2019 December 31, 2018
Assets
Current Assets:
Cash and cash equivalents $ 250.1  $ 309.6 
Accounts and notes receivables-trade, net 700.1  701.9 
Inventories, net 608.3  598.9 
Prepaid expenses and other current assets, net 269.8  277.6 
Total Current Assets 1,828.3  1,888.0 
Property, plant, and equipment, net 819.6  870.6 
Operating lease right-of-use assets, net 155.8  — 
Identifiable intangible assets, net 2,295.9  2,420.3 
Goodwill, net 3,412.7  3,431.3 
Other noncurrent assets, net 63.0  76.8 
Total Assets $ 8,575.3  $ 8,687.0 
Liabilities and Equity
Current Liabilities:
Accounts payable $ 248.1  $ 283.9 
Accrued liabilities 524.4  578.9 
Income taxes payable 52.0  58.1 
Notes payable and current portion of long-term debt 56.3  92.4 
Total Current Liabilities 880.8  1,013.3 
Long-term debt 1,441.3  1,564.9 
Operating lease liabilities 119.3  — 
Deferred income taxes 519.8  552.8 
Other noncurrent liabilities 431.2  423.0 
Total Liabilities 3,392.4  3,554.0 
Commitments and contingencies —  — 
Equity:
Preferred stock, $1.00 par value; 0.25 million shares authorized; no shares issued —  — 
Common stock, $0.01 par value; 2.6  2.6 
400.0 million shares authorized and 264.5 million shares issued at June 30, 2019 and December 31, 2018, respectively
224.1 million and 223.0 million shares outstanding at June 30, 2019 and December 31, 2018, respectively
Capital in excess of par value 6,551.3  6,522.3 
Retained earnings 1,261.8  1,225.9 
Accumulated other comprehensive loss (502.6) (478.7)
Treasury stock, at cost, 40.4 million and 41.5 million shares at June 30, 2019 and December 31, 2018, respectively (2,132.0) (2,151.0)
Total Dentsply Sirona Equity 5,181.1  5,121.1 
Noncontrolling interests 1.8  11.9 
Total Equity 5,182.9  5,133.0 
Total Liabilities and Equity $ 8,575.3  $ 8,687.0 
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
5


DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(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
Balance at December 31, 2018 $ 2.6  $ 6,522.3  $ 1,225.9  $ (478.7) $ (2,151.0) $ 5,121.1  $ 11.9  $ 5,133.0 
Net income —  —  39.2  —  —  39.2  —  39.2 
Other comprehensive loss —  —  —  (58.7) —  (58.7) 0.3  (58.4)
Divestiture of noncontrolling interest —  —  —  —  —  —  (10.4) (10.4)
Exercise of stock options —  1.5  —  —  18.2  19.7  —  19.7 
Stock based compensation expense —  9.1  —  —  —  9.1  —  9.1 
Funding of Employee Stock Purchase Plan —  0.1  —  —  1.9  2.0  —  2.0 
Restricted Stock Unit "RSU" distributions —  (12.8) —  —  8.0  (4.8) —  (4.8)
RSU dividends —  0.2  (0.2) —  —  —  —  — 
Cash dividends ($0.0875 per share) —  —  (19.9) —  —  (19.9) —  (19.9)
Balance at March 31, 2019 $ 2.6  $ 6,520.4  $ 1,245.0  $ (537.4) $ (2,122.9) $ 5,107.7  $ 1.8  $ 5,109.5 
Net income —  —  36.4  —  —  36.4  —  36.4 
Other comprehensive income —  —  —  34.8  —  34.8  —  34.8 
Exercise of stock options —  6.3  —  —  50.2  56.5  —  56.5 
Stock based compensation expense —  25.2  —  —  —  25.2  —  25.2 
Treasury shares purchased —  —  —  —  (60.0) (60.0) —  (60.0)
RSU distributions —  (0.8) —  —  0.7  (0.1) —  (0.1)
RSU dividends —  0.2  (0.2) —  —  —  —  — 
Cash dividends ($0.0875 per share) —  —  (19.4) —  —  (19.4) —  (19.4)
Balance at June 30, 2019 $ 2.6  $ 6,551.3  $ 1,261.8  $ (502.6) $ (2,132.0) $ 5,181.1  $ 1.8  $ 5,182.9 
























6


DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(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
Balance at December 31, 2017 $ 2.6  $ 6,543.9  $ 2,316.2  $ (291.0) $ (1,955.4) $ 6,616.3  $ 11.6  $ 6,627.9 
Net income —  —  81.2  —  —  81.2  (0.1) 81.1 
Other comprehensive income —  —  —  10.0  —  10.0  0.6  10.6 
Exercise of stock options —  (1.8) —  —  9.4  7.6  —  7.6 
Cumulative effect on adoption of ASC 606 —  —  (6.0) —  —  (6.0) —  (6.0)
Reclassification on adoption of ASU No. 2016-16 —  —  (2.7) —  —  (2.7) —  (2.7)
Reclassification on adoption of ASU No. 2018-02 —  —  7.6  —  —  7.6  —  7.6 
Stock based compensation expense —  9.3  —  —  —  9.3  —  9.3 
RSU distributions —  (19.9) —  —  9.9  (10.0) —  (10.0)
RSU dividends —  0.2  (0.2) —  —  —  —  — 
Cash dividends ($0.0875 per share) —  —  (20.2) —  —  (20.2) —  (20.2)
Balance at March 31, 2018 $ 2.6  $ 6,531.7  $ 2,375.9  $ (281.0) $ (1,936.1) $ 6,693.1  $ 12.1  $ 6,705.2 
Net income —  —  (1,122.0) —  —  (1,122.0) 1.0  (1,121.0)
Other comprehensive (loss) income —  —  —  (159.8) —  (159.8) (0.2) (160.0)
Exercise of stock options —  (4.6) —  —  8.2  3.6  —  3.6 
Reclassification on adoption of ASU No. 2018-02 —  —  0.5  —  —  0.5  —  0.5 
Stock based compensation expense —  0.5  —  —  —  0.5  —  0.5 
Treasury shares purchased —  —  —  —  (250.2) (250.2) —  (250.2)
RSU distributions —  (1.5) —  —  1.1  (0.4) —  (0.4)
RSU dividends —  0.1  (0.1) —  —  —  —  — 
Cash dividends ($0.175 per share) —  —  (38.1) —  —  (38.1) —  (38.1)
Balance at June 30, 2018 $ 2.6  $ 6,526.2  $ 1,216.2  $ (440.8) $ (2,177.0) $ 5,127.2  $ 12.9  $ 5,140.1 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
7


DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Six Months Ended June 30,
2019 2018
Cash flows from operating activities:
Net income (loss) $ 75.6  $ (1,039.9)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 70.4  68.8 
Amortization of intangible assets 95.5  100.1 
Amortization of deferred financing costs 1.4  1.3 
Fixed asset impairment 33.2  — 
Goodwill impairment —  1,085.8 
Indefinite-lived intangible asset impairment 5.3  179.2 
Deferred income taxes (18.4) (70.8)
Stock based compensation expense 34.4  9.8 
Restructuring and other costs - non-cash 14.8  9.1 
Other non-cash income (16.7) (2.9)
Loss on disposal of property, plant and equipment 0.6  0.6 
Gain on divestiture of noncontrolling interest (8.7) — 
Loss on sale of non-strategic businesses and product lines 14.5  — 
Gain on sale of equity security —  (44.1)
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net (1.5) 23.0 
Inventories, net (18.3) (69.3)
Prepaid expenses and other current assets, net 7.9  (25.7)
Other noncurrent assets, net 6.9  (7.7)
Accounts payable (32.2) (6.5)
Accrued liabilities (81.1) (4.6)
Income taxes (11.0) (28.5)
Other noncurrent liabilities 1.8  (5.7)
Net cash provided by operating activities 174.4  172.0 
Cash flows from investing activities:
Capital expenditures (63.5) (81.2)
Cash paid for acquisitions of businesses and equity investments, net of cash acquired —  (130.5)
Cash received on sale of non-strategic businesses or product lines 11.6  — 
Cash received on derivatives contracts 27.0  1.9 
Cash paid on derivatives contracts —  (2.4)
Expenditures for identifiable intangible assets —  (5.3)
Purchase of short-term investments (0.3) — 
Proceeds from sale of equity security —  54.1 
Proceeds from sale of property, plant, and equipment, net 0.7  3.9 
Net cash used in investing activities (24.5) (159.5)
Cash flows from financing activities:
Increase in short-term borrowings (23.3) 187.3 
Cash paid for treasury stock (60.0) (250.2)
Cash dividends paid (39.1) (39.7)
Proceeds from long-term borrowings, net of deferred financing costs 1.7  0.3 
Repayments on long-term borrowings (134.6) (0.4)
Proceeds from exercised stock options 76.4  13.9 
Cash paid for contingent consideration on prior acquisitions (30.6) — 
Net cash used in financing activities (209.5) (88.8)
Effect of exchange rate changes on cash and cash equivalents 0.1  (5.0)
Net decrease in cash and cash equivalents (59.5) (81.3)
Cash and cash equivalents at beginning of period 309.6  320.6 
Cash and cash equivalents at end of period $ 250.1  $ 239.3 
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
8


DENTSPLY SIRONA Inc. and Subsidiaries

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, 2018.

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, 2018, except as may be indicated below.

Revenue Recognition

At June 30, 2019, the Company had $29.2 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 twelve 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 $28.5 million at June 30, 2019 and $24.5 million at December 31, 2018.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) with subsequent amendments (collectively, “Topic 842”). The Company adopted the new leasing standards on January 1, 2019 using the modified retrospective approach transition method. Results for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior periods are not adjusted and continue to be reported in accordance with historic accounting under ASC 840. The Company elected the package of practical expedients permitted under the transition guidance within the standard, which eliminates the reassessment of past leases, their classification and initial direct costs for existing leases. The Company did not elect to adopt the hindsight practical expedient. The Company recognized material right-of-use assets and liabilities in the Consolidated Balance Sheets for its operating lease commitments with terms greater than twelve months. See Note 8, Leases for additional information. The impact of adopting this standard, by financial statement line item, on January 1, 2019 was as follows:

9


(in millions) January 1, 2019
Assets
Operating lease right-of-use assets, net $ 167.1 
Property, plant, and equipment, net 1.8 
Liabilities
Accrued liabilities $ 39.4 
Notes payable and current portion of long-term debt 0.2
Long-term debt 1.5
Operating lease liabilities 126.5

In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging.” This newly issued accounting standard improves the financial reporting and disclosure of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. The amendments in this update make improvements to simplify the application of the hedge accounting guidance in current US GAAP based on the feedback received from preparers, auditors, users and other stakeholders. More specifically, this update expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentation of the effects of the hedging instruments and the hedged items in the financial statements. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this update. The amended presentation and disclosure guidance is required only prospectively. The Company adopted this accounting standard during the three months ended March 31, 2019. The adoption of this standard did not materially impact the statements of operations, financial position, cash flows, and disclosures.

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 is currently assessing the impact that this standard will have on its disclosures.
10


NOTE 2 – STOCK COMPENSATION

The following represents total stock based compensation expense for non-qualified stock options, RSUs and the tax related benefit for the three and six months ended June 30, 2019 and 2018:
Three Months Ended Six Months Ended
(in millions) 2019 2018 2019 2018
Stock option expense $ 2.8  $ 2.7  $ 5.0  $ 3.4 
RSU expense 22.1  (2.6) 28.8  5.9 
Total stock based compensation expense $ 24.9  $ 0.1  $ 33.8  $ 9.3 
Related deferred income tax benefit $ 3.6  $ —  $ 5.0  $ 1.6 

For the three and six months ended June 30, 2019, stock compensation expense was $24.9 million and $33.8 million, respectively, of which $24.2 million and $32.8 million, respectively, was recorded in Selling, general, and administrative expense, and $0.7 million and $1.0 million, respectively, was recorded in Cost of products sold in the Consolidated Statements of Operations.

For the three and six months ended June 30, 2018, stock compensation expense was $0.1 million and $9.3 million, respectively, of which $1.2 million and $8.3 million, respectively, was recorded in Selling, general, and administrative expense, and $0.1 million and $0.4 million, respectively, was recorded in Cost of products sold in the Consolidated Statements of Operations. For the three and six months ended June 30, 2018, the Company recorded income of $1.2 million and expense of $0.5 million, respectively, in Restructuring and other costs in the Consolidated Statements of Operations.

During the six months ended June 30, 2019, the Company granted certain performance-based RSUs issued under the 2016 Omnibus Incentive Plan to provide performance targets for the Company's three year transformation program. The adjusted operating income margin performance target approximates the adjusted operating income margin targets previously disclosed by the Company as part of its effort to support revenue growth and margin expansion. For vesting to occur an adjusted operating income margin target must be achieved over a period of four consecutive quarters, and an adjusted operating income margin above that target threshold must then be maintained for the subsequent quarter, all calculated on a trailing four quarter basis. The performance period began on January 1, 2019 and concludes on December 31, 2022.

11


NOTE 3 – COMPREHENSIVE INCOME (LOSS)

The following summarizes the components of Other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2019 and 2018:

Three Months Ended Six Months Ended
(in millions) 2019 2018 2019 2018
Foreign currency translation gains (losses) $ 54.9  $ (223.4) $ (17.0) $ (139.4)
Foreign currency translation (loss) gain on hedges of net investments (11.2) 31.0  (0.6) 12.1 

These amounts are recorded in Accumulated other comprehensive loss ("AOCI"), net of any related tax adjustments. At June 30, 2019 and December 31, 2018, the cumulative tax adjustments were $152.6 million and $157.4 million, respectively, primarily related to foreign currency translation gains and losses.

The cumulative foreign currency translation adjustments included translation losses of $189.9 million and $172.9 million at June 30, 2019 and December 31, 2018, respectively, and cumulative losses on loans designated as hedges of net investments of $112.4 million and $111.8 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 six months ended June 30, 2019 and 2018 were as follows:

(in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment Hedges Pension Liability Gain (Loss) Total
Balance, net of tax, at December 31, 2018 $ (284.7) $ 0.6  $ (111.4) $ (83.2) $ (478.7)
Other comprehensive (loss) income before reclassifications and tax impact (13.4) (15.4) 6.7  —  (22.1)
Tax (expense) benefit (4.2) 4.0  (4.6) —  (4.8)
Other comprehensive (loss) income, net of tax, before reclassifications (17.6) (11.4) 2.1  —  (26.9)
Amounts reclassified from accumulated other comprehensive income, net of tax —  1.2  —  1.8  3.0 
Net (decrease) increase in other comprehensive loss (17.6) (10.2) 2.1  1.8  (23.9)
Balance, net of tax, at June 30, 2019 $ (302.3) $ (9.6) $ (109.3) $ (81.4) $ (502.6)

12


(in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment Hedges Net Unrealized Holding Gain on Available-for-sale Securities Pension Liability Gain (Loss) Total
Balance, net of tax, at December 31, 2017 $ (104.5) $ (12.6) $ (127.6) $ 44.3  $ (90.6) $ (291.0)
Other comprehensive (loss) income before reclassifications and tax impact (106.6) (4.2) 29.4  —  2.4  (79.0)
Tax (expense) benefit (20.7) 0.5  (14.5) —  (0.6) (35.3)
Other comprehensive (loss) income, net of tax, before reclassifications (127.3) (3.7) 14.9  —  1.8  (114.3)
Amounts reclassified from accumulated other comprehensive income (loss), net of tax —  6.4  —  (44.3) 2.4  (35.5)
Net (decrease) increase in other comprehensive loss (127.3) 2.7  14.9  (44.3) 4.2  (149.8)
Balance, net of tax, at June 30, 2018 $ (231.8) $ (9.9) $ (112.7) $ —  $ (86.4) $ (440.8)

Reclassifications out of AOCI to the Consolidated Statements of Operations for the three and six months ended June 30, 2019 and 2018 were as follows:
Details about AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Consolidated Statements of Operations
Three Months Ended
(in millions) 2019 2018
Loss on derivative financial instruments:
Interest rate swaps $ (0.5) $ (0.5) Interest expense
Foreign exchange forward contracts (0.5) (4.3) Cost of products sold
Net loss before tax (1.0) (4.8)
Tax impact —  0.7  Provision (benefit) for income taxes
Net loss after tax $ (1.0) $ (4.1)
Amortization of defined benefit pension and other postemployment benefit items:
Amortization of prior service benefits $ 0.1  $ — 
(a)
Amortization of net actuarial losses (1.3) (1.7)
(a)
Net loss before tax (1.2) (1.7)
Tax impact 0.3  0.5  Provision (benefit) for income taxes
Net loss after tax $ (0.9) $ (1.2)
Total reclassifications for the period $ (1.9) $ (5.3)
(a) These AOCI components are included in the computation of net periodic benefit cost for the three months ended June 30, 2019 and 2018.
13


Details about AOCI Components Amounts Reclassified from AOCI Affected Line Item in the Consolidated Statements of Operations
Six Months Ended
(in millions) 2019 2018
Loss on derivative financial instruments:
Interest rate swaps $ (1.1) $ (1.1) Interest expense
Foreign exchange forward contracts (0.1) (6.1) Cost of products sold
Net loss before tax (1.2) (7.2)
Tax impact —  0.8  Provision (benefit) for income taxes
Net loss after tax $ (1.2) $ (6.4)
Net unrealized holding gain on available-for-sale securities:
Available-for-sale securities $ —  $ 45.0  Other expense (income), net
Tax impact —  (0.7) Provision (benefit) for income taxes
Net gain after tax $ —  $ 44.3 
Amortization of defined benefit pension and other postemployment benefit items:
Amortization of prior service benefits $ 0.2  $ —  (a)
Amortization of net actuarial losses (2.7) (3.4) (a)
Net loss before tax (2.5) (3.4)
Tax impact 0.7  1.0  Provision (benefit) for income taxes
Net loss after tax $ (1.8) $ (2.4)
Total reclassifications for the period $ (3.0) $ 35.5 
(a) These AOCI components are included in the computation of net periodic benefit cost for the three months ended June 30, 2019 and 2018.


14


NOTE 4 – EARNINGS PER COMMON SHARE

The calculation of earnings per common share for the three and six months ended June 30 were as follows:

Basic Earnings Per Common Share Computation Three Months Ended Six Months Ended
(in millions, except per share amounts) 2019 2018 2019 2018
Net income (loss) attributable to Dentsply Sirona $ 36.4  $ (1,122.0) $ 75.6  $ (1,040.8)
Weighted average common shares outstanding 224.2  225.2  223.7  226.2 
Earnings (loss) per common share - basic $ 0.16  $ (4.98) $ 0.34  $ (4.60)
Diluted Earnings Per Common Share Computation Three Months Ended Six Months Ended
(in millions, except per share amounts) 2019 2018 2019 2018
Net income (loss) attributable to Dentsply Sirona $ 36.4  $ (1,122.0) $ 75.6  $ (1,040.8)
Weighted average common shares outstanding 224.2  225.2  223.7  226.2 
Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards 1.5  —  1.6  — 
Total weighted average diluted shares outstanding 225.7  225.2  225.3  226.2 
Earnings (loss) per common share - diluted $ 0.16  $ (4.98) $ 0.34  $ (4.60)

The calculation of weighted average diluted common shares outstanding excludes stock options and RSUs of 3.1 million and 3.6 million equivalent shares of common stock that were outstanding during the three and six months ended June 30, 2019, respectively, because their effect would be antidilutive. There were 5.5 million and 4.7 million antidilutive equivalent shares of common stock outstanding during the three and six months ended June 30, 2018, respectively.


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NOTE 5 – BUSINESS COMBINATIONS

On May 1, 2018, the Company acquired all of the outstanding shares of privately held OraMetrix, Inc. for $120.0 million, with an additional payment totaling $30.0 million, subject to meeting certain earn-out provisions. During the three months ended March 31, 2019, the Company paid the earn-out provision. OraMetrix specializes in orthodontic treatment planning software, wire bending, and clear aligner manufacturing and is headquartered in Richardson, Texas.
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NOTE 6 – 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 91% of net sales for the three and six months ended June 30, 2019 and 92% for the three and six months ended June 30, 2018.

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 third party sales, excluding precious metal content, and segment adjusted operating income. Net third party sales excluding precious metal content is considered a measure not calculated in accordance with US GAAP, and is therefore considered a non-US GAAP measure. Management believes that the presentation of net sales, excluding precious metal content, provides useful information to investors because a portion of Dentsply Sirona’s net sales is comprised of sales of precious metals generated through sales of the Company’s precious metal dental alloy products, which are used by third parties to construct crown and bridge materials. Due to the fluctuations of precious metal prices and because the cost of the precious metal content of the Company’s sales is largely passed through to customers and has minimal effect on earnings, Dentsply Sirona reports net sales both with and without precious metal content to show the Company’s performance independent of precious metal price volatility and to enhance comparability of performance between periods. The Company uses its cost of precious metal purchased as a proxy for the precious metal content of sales, as the precious metal content of sales is not separately tracked and invoiced to customers. The Company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change. The Company’s exclusion of precious metal content in the measurement of net third party sales enhances comparability of performance between periods as it excludes the fluctuating market prices of the precious metal content. 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-US GAAP measure. A description of the products and services provided within each of the Company’s two operating segments is provided below.

During the three and six months ended June 30, 2019, certain reclassifications have been made to prior year’s data in order to conform to current year presentation. Specifically, during the three months ended March 31, 2019; the Company's laboratory dental business moved into the Consumables segment as the products sold from this business are typically made on a recurring basis and have similar sales and operating characteristics as the other businesses in this segment. The Company moved the orthodontics business into the Technologies & Equipment segment to take advantage of the synergies related to digital planning and treatment within this segment. The Company also moved the instruments business into the Technologies & Equipment segment in order to take advantage of the synergies that stem from pairing equipment with instruments, which are often sold in conjunction with each other. The segment information reflects the revised structure for all periods shown.

Technologies & Equipment

This segment is responsible for the worldwide design, manufacture, sales, and distribution of the Company’s Dental Technology and Equipment Products and Healthcare Consumable Products. These products include dental implants, CAD/CAM systems, orthodontic dental products, 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.


17


The Company’s segment information for the three and six months ended June 30 were as follows:

Third Party Net Sales
Three Months Ended Six Months Ended
(in millions) 2019  2018  2019  2018 
Technologies & Equipment $ 558.4  $ 553.2  $ 1,079.2  $ 1,063.3 
Consumables 451.0  488.9  876.4  934.9 
Total net sales $ 1,009.4  $ 1,042.1  $ 1,955.6  $ 1,998.2 

Third Party Net Sales, Excluding Precious Metal Content
Three Months Ended Six Months Ended
(in millions) 2019  2018  2019  2018 
Technologies & Equipment $ 558.4  $ 553.2  $ 1,079.2  $ 1,063.3 
Consumables 442.1  479.5  856.3  915.2 
Total net sales, excluding precious metal content 1,000.5  1,032.7  1,935.5  1,978.5 
Precious metal content of sales 8.9  9.4  20.1  19.7 
Total net sales, including precious metal content $ 1,009.4  $ 1,042.1  $ 1,955.6  $ 1,998.2 

Segment Adjusted Operating Income
Three Months Ended Six Months Ended
(in millions) 2019  2018  2019  2018 
Technologies & Equipment $ 96.0  $ 68.8  $ 167.8  $ 137.3 
Consumables 121.8  143.4  227.5  258.1 
Segment adjusted operating income before income taxes and interest 217.8  212.2  395.3  395.4 
Reconciling items expense (income):
All Other (a) 58.9  39.6  118.6  92.2 
Goodwill impairment —  1,085.8  —  1,085.8 
Restructuring and other costs 42.4  188.9  62.9  199.1 
Interest expense 8.0  9.6  16.4  18.2 
Interest income (0.2) (0.4) (1.3) (1.0)
Other expense (income), net 12.1  (1.0) (1.7) (35.1)
Amortization of intangible assets 47.3  50.2  95.5  100.1 
Depreciation resulting from the fair value step-up of property, plant, and equipment, net from business combinations 1.7  1.8  3.5  3.6 
Income (loss) before income taxes $ 47.6  $ (1,162.3) $ 101.4  $ (1,067.5)
(a) Includes the results of unassigned Corporate headquarter costs and inter-segment eliminations.

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NOTE 7 – 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 June 30, 2019 and December 31, 2018 were $8.7 million and $9.0 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 June 30, 2019 and December 31, 2018 by $11.6 million and $10.2 million, respectively.

Inventories, net of inventory valuation reserves, consist of the following:
(in millions) June 30, 2019 December 31, 2018
Finished goods $ 390.6  $ 380.0 
Work-in-process 87.3  89.2 
Raw materials and supplies 130.4  129.7 
Inventories, net $ 608.3  $ 598.9 

The inventory valuation allowance was $106.7 million and $92.5 million at June 30, 2019 and December 31, 2018, respectively.
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NOTE 8 – LEASES

The Company leases real estate, automobiles and equipment under various operating and finance leases. Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the implicit rate is not readily determinable in most of the Company’s lease agreements, the Company uses its estimated secured incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. Lease expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Beginning January 1, 2019, any new real estate and equipment operating lease agreements with lease and nonlease components, will be accounted for as a single lease component; auto leases will be accounted for as separate lease components.

The Company determines if an arrangement is a lease or contains a lease at inception. The Company’s leases have remaining lease terms of approximately 1 year to 11 years. Many of the Company's real estate and equipment leases have one or more options to renew, with terms that can extend primarily from 1 year to 3 years, which are not included in the initial lease term. The Company does not have lease agreements with residual value guarantees, sale-and-leaseback terms, or material restrictive covenants. The Company does not have any material sublease arrangements.

The net present value of finance and operating lease assets and liabilities consist of the following:

(in millions, except percentages) Location in the Consolidated Balance Sheets June 30, 2019
Assets
Current assets
Finance leases Property, plant, and equipment, net $ 1.6 
Operating leases Operating lease right-of-use assets, net 155.8 
Total right-of-use assets $ 157.4 
Liabilities
Current liabilities
Finance leases Notes payable and current portion of long-term debt $ 0.2 
Operating leases Accrued liabilities 39.7 
Noncurrent liabilities
Finance leases Long-term debt 1.4 
Operating leases Operating lease liability 119.3 
Total lease liabilities $ 160.6 
Supplemental information:
Weighted-average discount rate
Finance leases 3.5  %
Operating leases 3.0  %
Weighted-average remaining lease term in years
Finance leases 7.2
Operating leases 5.7


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The lease cost recognized in the Consolidated Statements of Operations for the three and six months ended June 30, 2019 were as follows:

(in millions) Three Months Ended Six Months Ended
Finance lease cost
Amortization of right-of-use assets $ 0.1  $ 0.2 
Operating lease cost 12.5  25.7 
Short-term lease cost 0.3  0.4 
Variable lease cost 2.0  3.9 
Total lease cost $ 14.9  $ 30.2 



The contractual maturity dates of the remaining lease liabilities at June 30, 2019 consist of the following:

(in millions) Finance Leases Operating Leases Total
2019, excluding the six months ended June 30, 2019 $ 0.1  $ 23.0  $ 23.1 
2020 0.3  38.8  39.1 
2021 0.3  29.7  30.0 
2022 0.3  22.4  22.7 
2023 0.2  17.4  17.6 
2024 and beyond 0.7  43.8  44.5 
Total lease payments $ 1.9  $ 175.1  $ 177.0 
Less imputed interest 0.3  16.1  16.4 
Present value of lease liabilities $ 1.6  $ 159.0  $ 160.6 

The contractual maturity dates presented under prior lease accounting guidance of the remaining rental commitments at December 31, 2018 were as follows:

(in millions) Finance Leases Operating Leases Total
2019 $ 4.2  $ 36.6  $ 40.8 
2020 4.2  28.5  32.7 
2021 2.5  22.1  24.6 
2022 1.8  16.4  18.2 
2023 1.3  12.7  14.0 
2024 and beyond 1.1  16.9  18.0 
Total lease payments $ 15.1  $ 133.2  $ 148.3 



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The supplemental cash flow information for the three and six months ended June 30, 2019 were as follows:

(in millions) Three Months Ended Six Months Ended
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases $ 12.6  $ 25.2 
Financing cash flows from finance leases 0.1  0.2 
Right-of-use assets obtained in exchange for new lease liabilities:
Operating leases $ 1.5  $ 5.8 


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NOTE 9 – RESTRUCTURING AND OTHER COSTS

Restructuring Costs

During the three and six months ended June 30, 2019, the Company recorded net restructuring costs and other costs of $42.4 million and $62.9 million, respectively, which includes net restructuring costs of $10.7 million and $24.9 million, respectively. During the three and six months ended June 30, 2018, the Company recorded net restructuring costs and other cost of $188.9 million and $199.1 million, respectively, which includes net restructuring costs of $3.4 million and $10.8 million, respectively. 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 June 30 were as follows:
Severance
(in millions) 2017 and
Prior Plans
2018 Plans 2019 Plans Total
Balance at December 31, 2018 $ 26.8  $ 16.4  $ —  $ 43.2 
Provisions 2.5  2.0  16.0  20.5 
Amounts applied (16.2) (8.9) (3.4) (28.5)
Change in estimates (0.6) (0.5) 1.6  0.5 
Balance at June 30, 2019 $ 12.5  $ 9.0  $ 14.2  $ 35.7 

Lease/Contract Terminations
(in millions) 2017 and
Prior Plans
2018 Plans Total
Balance at December 31, 2018 $ 0.5  $ 0.1  $ 0.6 
Provisions 0.4  —  0.4 
Amounts applied (0.4) (0.1) (0.5)
Balance at June 30, 2019 $ 0.5  $ —  $ 0.5 

Other Restructuring Costs
(in millions) 2017 and
Prior Plans
2018 Plans