UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from_____ to_____

Commission File Number 0-16211
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
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) 848-0137
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, par value $.01 per share
 XRAY
 The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐   No   ☒

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☐   No ☒

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At November 3, 2022, DENTSPLY SIRONA Inc. had 214,911,886 shares of common stock outstanding.


EXPLANATORY NOTE

As previously reported, we were unable to timely file our Quarterly Report on Form 10-Q for the first quarter of fiscal 2022 ended March 31, 2022 and our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022 ended June 30, 2022 as a result of an Audit and Finance Committee’s investigation as described in Amendment No. 1 to our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021 as amended and filed on November 7, 2022 (the “2021 Form 10-K/A”) and Amendment No. 1 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 filed on November 7, 2022 (the “Third Quarter 2021 Form 10-Q/A”). For the same reason, we are filing our Quarterly Report on Form 10-Q for the second quarter of fiscal 2022 simultaneously herewith.

Please refer to the Explanatory Note to our 2021 Form 10-K/A for more information on the internal investigation commenced in March 2022 by the Audit and Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”) of Dentsply Sirona Inc. (the “Company”). The internal investigation is now complete. The Company delayed the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 (this “Form 10-Q”) pending the completion of the Audit and Finance Committee’s investigation. For a more detailed discussion of the correction of the accounting errors resulting from the above matters, refer to Note 1 to the consolidated financial statements of the Company included in Part II, Item 8 of the Company’s 2021 Form 10-K/A.


DENTSPLY SIRONA Inc.

TABLE OF CONTENTS

2

General

Unless otherwise stated herein or the context otherwise indicates, reference throughout this Form 10-Q to “Dentsply Sirona”, or the “Company,” “we,” “us” or “our” refers to financial information and transactions of DENTSPLY SIRONA Inc., together with its subsidiaries on a consolidated basis.

Forward-Looking Statements and Associated Risks

All statements in this Form 10-Q that do not directly and exclusively relate to historical facts constitute “forward-looking statements” and include statements related to our ability to successfully remediate the material weakness in our internal control over financial reporting disclosed in this Form 10-Q in the manner currently anticipated. These statements represent current expectations and beliefs, and no assurance can be given that the results described in such statements will be achieved. Such statements are subject to numerous assumptions, risks, uncertainties and other factors that could cause actual results to differ materially from those described in such statements, many of which are outside of our control, including those described in Part II, Item 1A “Risk Factors” of this Form 10-Q and in Part I, Item 1A, “Risk Factors” of the Company’s 2021 Form 10-K/A filed on November 7, 2022, and other factors which may be described in the Company’s other filings with the Securities and Exchange Commission (the “SEC”). No assurance can be given that any expectation, belief, goal or plan set forth in any forward-looking statement can or will be achieved, and readers are cautioned not to place undue reliance on such statements which speak only as of the date they are made. We do not undertake any obligation to update or release any revisions to any forward-looking statement or to report any events or circumstances after the date of this Form 10-Q or to reflect the occurrence of unanticipated events.

Investors should understand it is not possible to predict or identify all such factors or risks. As such, you should not consider the risks identified in the Company’s SEC filings to be a complete discussion of all potential risks or uncertainties associated with an investment in the Company.



3

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 March 31,
2022 2021
Net sales $ 969  $ 1,026 
Cost of products sold 448  447 
Gross profit 521  579 
Selling, general, and administrative expenses 376  386 
Research and development expenses
 45  40 
Restructuring and other costs 3  3 
Operating income 97  150 
Other income and expenses:
Interest expense, net 12  14 
Other expense (income), net (2) (9)
Income before income taxes 87  145 
Provision for income taxes 18  33 
Net income 69  112 
Less: Net income attributable to noncontrolling interest —  — 
Net income attributable to Dentsply Sirona $ 69  $ 112 
Net income per common share attributable to Dentsply Sirona:
Basic $ 0.32  $ 0.51 
Diluted $ 0.32  $ 0.51 
Weighted average common shares outstanding:
Basic 217.0  218.8 
Diluted 217.8  219.9 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
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DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(unaudited)
Three Months Ended March 31,
2022 2021
Net income $ 69  $ 112 
Other comprehensive loss, net of tax:
 Foreign currency translation loss (48) (99)
 Net gain on derivative financial instruments 10  5 
 Pension liability gain 1  4 
Total other comprehensive loss, net of tax (37) (90)
Total comprehensive income 32  22 
Less: Comprehensive income attributable to noncontrolling interests —  — 
Total comprehensive income attributable to Dentsply Sirona $ 32  $ 22 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
5

DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
March 31, 2022 December 31, 2021
Assets
Current Assets:
Cash and cash equivalents $ 374  $ 339 
Accounts and notes receivables-trade, net 707  750 
Inventories, net 553  515 
Prepaid expenses and other current assets 263  248 
Total Current Assets 1,897  1,852 
Property, plant, and equipment, net 771  773 
Operating lease right-of-use assets, net 204  198 
Identifiable intangible assets, net 2,228  2,319 
Goodwill 3,944  3,976 
Other noncurrent assets 128  121 
Total Assets $ 9,172  $ 9,239 
Liabilities and Equity
Current Liabilities:
Accounts payable $ 277  $ 262 
Accrued liabilities 694  760 
Income taxes payable 54  57 
Notes payable and current portion of long-term debt 347  182 
Total Current Liabilities 1,372  1,261 
Long-term debt 1,872  1,913 
Operating lease liabilities 157  149 
Deferred income taxes 389  391 
Other noncurrent liabilities 518  528 
Total Liabilities 4,308  4,242 
Commitments and contingencies (Note 15)
Equity:
Preferred stock, $1.00 par value; 0.25 million shares authorized; no shares issued
 —  — 
Common stock, $0.01 par value;
 3  3 
400.0 million shares authorized, and 264.5 million shares issued at March 31, 2022 and December 31, 2021
215.5 million and 217.4 million shares outstanding at March 31, 2022 and December 31, 2021
Capital in excess of par value 6,573  6,606 
Retained earnings 1,556  1,514 
Accumulated other comprehensive loss (629) (592)
Treasury stock, at cost, 49.0 million and 47.1 million shares at March 31, 2022 and December 31, 2021, respectively
 (2,640) (2,535)
Total Dentsply Sirona Equity 4,863  4,996 
Noncontrolling interests 1  1 
Total Equity 4,864  4,997 
Total Liabilities and Equity $ 9,172  $ 9,239 
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
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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, 2021 $ 3  $ 6,606  $ 1,514  $ (592) $ (2,535) $ 4,996  $ 1  $ 4,997 
Net income —  —  69  —  —  69  —  69 
Other comprehensive loss —  —  —  (37) —  (37) —  (37)
Exercise of stock options —  1  —  —  4  5  —  5 
Stock based compensation expense —  11  —  —  —  11  —  11 
Funding of employee stock purchase plan —  1  —  —  1  2  —  2 
Accelerated share repurchase —  (30) —  —  (120) (150) —  (150)
Restricted stock unit distributions —  (16) —  —  10  (6) —  (6)
Cash dividends declared ($0.125 per share)
 —  —  (27) —  —  (27) —  (27)
Balance at March 31, 2022 $ 3  $ 6,573  $ 1,556  $ (629) $ (2,640) $ 4,863  $ 1  $ 4,864 


Common
Stock		 Capital in
Excess of
Par Value		 Retained
Earnings		 Accumulated
Other
Comprehensive
Loss		 Treasury
Stock		 Total Dentsply Sirona
Equity		 Noncontrolling
Interests		 Total
Equity
Balance at December 31, 2020 $ 3  $ 6,604  $ 1,198  $ (464) $ (2,409) $ 4,932  $ 3  $ 4,935 
Net income —  —  112  —  —  112  —  112 
Other comprehensive loss —  —  —  (90) —  (90) —  (90)
Exercise of stock options —  11  —  —  22  33  —  33 
Stock based compensation expense —  13  —  —  —  13  —  13 
Funding of employee stock purchase plan —  1  —  —  2  3  —  3 
Treasury shares purchased —  —  —  —  (90) (90) —  (90)
Restricted stock unit distributions —  (11) —  —  7  (4) —  (4)
Cash dividends declared ($0.10 per share)
 —  —  (22) —  —  (22) —  (22)
Balance at March 31, 2021 $ 3  $ 6,618  $ 1,288  $ (554) $ (2,468) $ 4,887  $ 3  $ 4,890 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
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DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended March 31,
2022 2021
Cash flows from operating activities:
Net income $ 69  $ 112 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 29  32 
Amortization of intangible assets 55  56 
Deferred income taxes (14) (3)
Stock based compensation expense 11  13 
Other non-cash expense 2  16 
Gain on sale of non-strategic businesses and product lines —  (13)
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net 34  13 
Inventories, net (41) (51)
Prepaid expenses and other current assets, net (17) (26)
Other noncurrent assets 3  (13)
Accounts payable 19  (16)
Accrued liabilities (53) (79)
Income taxes 3  (5)
Other noncurrent liabilities (7) 13 
Net cash provided by operating activities 93  49 
Cash flows from investing activities:
Capital expenditures (44) (30)
Cash paid for acquisitions of businesses and equity investments, net of cash acquired —  (92)
Cash received on sale of non-strategic businesses or product lines —  19 
Cash received on derivative contracts 1  — 
Net cash used in investing activities (43) (103)
Cash flows from financing activities:
Cash paid for accelerated share repurchase (150) — 
Proceeds on short-term borrowings 163  30 
Cash paid for treasury stock —  (90)
Cash dividends paid (24) (22)
Proceeds from long-term borrowings, net of deferred financing costs 5  4 
Repayments on long-term borrowings (2) — 
Proceeds from exercised stock options 5  33 
Other financing activities, net (7) (8)
Net cash used in financing activities (10) (53)
Effect of exchange rate changes on cash and cash equivalents (5) (13)
Net increase (decrease) in cash and cash equivalents 35  (120)
Cash and cash equivalents at beginning of period 339  438 
Cash and cash equivalents at end of period $ 374  $ 318 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
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DENTSPLY SIRONA Inc. and Subsidiaries

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES AND REVISION

Basis of Presentation


The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements and related notes contain the accounts of DENTSPLY SIRONA Inc. and subsidiaries (“Dentsply Sirona” or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes included in the Company’s most recent Form 10-K for the year ended December 31, 2021, as amended and filed on November 7, 2022.


Recently Concluded Investigation



As previously disclosed, the Audit and Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”), assisted by independent legal counsel and forensic accountants, commenced an internal investigation in March 2022 of allegations regarding certain financial reporting matters submitted by current and former employees of the Company. In the North America Investigation, the Audit and Finance Committee concluded that there was no evidence of intentional wrongdoing or fraud. The Audit and Finance Committee found that certain former members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, violated provisions of the Company’s Code of Ethics and Business Conduct. In addition, these former members of senior management did not maintain and promote an appropriate control environment focused on compliance in areas of the Company’s business, nor did they sufficiently promote, monitor or enforce adherence to the Code of Ethics and Business Conduct. The North America Investigation found that certain former members of senior management, including the former Chief Executive Officer and the former Chief Financial Officer created a culture where employees did not feel comfortable raising concerns without fear of retaliation. In addition, the North America Investigation substantiated certain allegations regarding inappropriate tone at the top by the former Chief Executive Officer and the former Chief Financial Officer. Based on the China Investigation, the Audit and Finance Committee concluded that members of the Company’s local commercial team in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local accounting team, by obstructing the work of the accounting team and by lacking truthfulness in providing information to the Company and to the Audit and Finance Committee as part of the China Investigation. The China Investigation also determined that these actions by the certain members of the Company’s local commercial team in China, as well as the former Chief Financial Officer and the head of the Company’s Asia-Pacific commercial organization, violated the Company’s Code of Ethics and Business Conduct.



On October 29, 2022, the Audit and Finance Committee determined that its investigation was complete, and authorized the filing of these interim consolidated financial statements for the three-month period ended March 31, 2022.


Correction of Previously Reported Interim Consolidated Quarterly Financial Statements



The interim consolidated financial statements include immaterial corrections to the three-month period ended March 31, 2021 which were presented in Note 23 to the audited consolidated financial statements and notes thereto for the year ended December 31, 2021 in the Company’s 2021 Form 10-K/A filed on November 7, 2022. This revision, which corrects for errors related to certain customer incentive programs as well as the accounting and assumptions in the determination of estimates related to the Company’s sales returns provisions, warranty reserve provisions and variable consideration, as well as other immaterial adjustments, results in a decrease to Net sales by $1 million, a decrease to Operating Income by $4 million and a decrease to Diluted EPS by $0.02 from amounts previously reported for the three-month period ended March 31, 2021. This revision did not result in a change to previously reported Gross Margin for the three-month period ended March 31, 2021. Previously reported cash flows from operating, investing and financing activities for the three-month period ended March 31, 2021 were not impacted.


The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein, are substantially the same as presented in the Company’s 2021 Form 10-K/A filed on November 7, 2022, except as may be indicated below.
9

Use of Estimates


The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of Net sales and expense during the reporting period. Actual results could differ materially from those estimates.



Specifically, for the three months ended March 31, 2022, some of these estimates and assumptions continue to be based on an ongoing evaluation of expected future impacts from the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly have a negative material impact on the Company’s financial condition, liquidity, or results of operations in future periods is highly uncertain and difficult to predict. More specifically, although demand for the Company’s products has largely recovered from the impact of rigorous preventive measures implemented at the outset of the pandemic, it continues to be affected by social distancing guidelines, dental practice safety protocols which reduce patient traffic, and some lingering patient reluctance to seek dental care. Also, impacts from the pandemic continue to be experienced in the form of more recent shortages and higher prices of raw materials such as electronic components, higher related transportation costs, and labor shortages. In the first quarter of 2022, the Company has experienced supply chain constraints, which has impacted its ability to timely produce and deliver certain products, and has also resulted in increases in shipping rates. To address these issues, the Company has taken steps to mitigate the impact of these trends, including continued emphasis on cost reduction and supply chain efficiencies. However, uncertainties remain regarding how long these impacts will continue, whether customer demand will fully return to pre-COVID-19 levels upon lifting of remaining government restrictions, or whether future variants of the virus may have an adverse impact on demand in affected markets.


Accounting Pronouncements Not Yet Adopted



In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which was subsequently amended by ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope” in January 2021. The new standard provides optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another rate expected to be discontinued due to the reference rate reform. The amendments in this standard were effective upon issuance and generally can be applied to contract modifications made or evaluated through December 31, 2022. The Company does not expect this standard to have a material impact on its consolidated financial statements and related disclosures.



In October 2021, the FASB issued ASU No. 2021-08, “Business Combinations: Accounting for Contract Assets and Contract Liabilities from Contracts with Customers” (Topic 805), which requires contract assets and liabilities acquired in a business combination to be recognized and measured by the acquirer on the acquisition date in accordance with ASC 606, Revenue from Contracts with Customers, as if it had originated the contracts. The current requirement to measure contract assets and contract liabilities acquired in a business combination at fair value differs from the current approach. This standard is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements and related disclosures.


10

NOTE 2 - REVENUE


Revenues are derived primarily from the sale of dental equipment and dental and healthcare consumable products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services.



Net sales disaggregated by product category for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended
(in millions) 2022 2021
Equipment & Instruments $ 166  $ 171 
CAD/CAM 106  129 
Orthodontics 68  68 
Implants 155  153 
Healthcare 70  74 
Technology & Equipment segment net sales $ 565  $ 595 
Endodontic & Restorative $ 293  $ 312 
Other Consumables 111  119 
Consumables segment sales $ 404  $ 431 
Total net sales $ 969  $ 1,026 



Net sales disaggregated by geographic region for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended
(in millions) 2022 2021
United States $ 308  $ 347 
Europe 411  417 
Rest of World 250  262 
Total net sales $ 969  $ 1,026 

Contract Assets and Liabilities


The Company normally does not have contract assets in the course of its business. Contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for customer aligner treatment where the performance obligation has not yet been fulfilled. The Company had $64 million and $68 million of deferred revenue recorded in Accrued liabilities in the Consolidated Balance Sheets at March 31, 2022 and December 31, 2021, respectively. Prior year deferred revenue of approximately $32 million was recognized in the current year. The Company expects to recognize significantly all of the remaining deferred revenue within the next twelve months.


Allowance for Doubtful Accounts



Accounts and notes receivables-trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $11 million at March 31, 2022 and $13 million at December 31, 2021. For the three months ended March 31, 2022 and 2021, changes to the provision for doubtful accounts including write-offs of accounts receivable that were previously reserved were insignificant. Changes to this provision are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations.


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NOTE 3 – STOCK COMPENSATION


The amounts of stock compensation expense recorded in the Company’s Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended
(in millions) 2022 2021
Cost of products sold
 $ 1  $ — 
Selling, general, and administrative expense 9  13 
Research and development expense 1  — 
Total stock based compensation expense $ 11  $ 13 
Related deferred income tax benefit $ 1  $ 2 


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NOTE 4 – COMPREHENSIVE INCOME (LOSS)


Changes in Accumulated other comprehensive income (loss) (“AOCI”), net of tax, by component for the three months ended March 31, 2022 and 2021 were as follows:
(in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment and Fair Value Hedges Pension Liability Gain (Loss) Total
Balance, net of tax, at December 31, 2021 $ (366) $ (16) $ (103) $ (107) $ (592)
Other comprehensive (loss) income before reclassifications and tax impact (37) 3  9  —  (25)
Tax expense (11) —  (1) —  (12)
Other comprehensive (loss) income, net of tax, before reclassifications (48) 3  8  —  (37)
Amounts reclassified from accumulated other comprehensive income, net of tax —  (1) —  1  — 
Net (decrease) increase in other comprehensive loss (48) 2  8  1  (37)
Balance, net of tax, at March 31, 2022 $ (414) $ (14) $ (95) $ (106) $ (629)
(in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment and Fair Value Hedges Pension Liability Gain (Loss) Total
Balance, net of tax, at December 31, 2020 $ (187) $ (25) $ (119) $ (133) $ (464)
Other comprehensive (loss) income before reclassifications and tax impact (74) (6) 9  3  (68)
Tax (expense) benefit (25) 2  (2) (1) (26)
Other comprehensive (loss) income, net of tax, before reclassifications (99) (4) 7  2  (94)
Amounts reclassified from accumulated other comprehensive income, net of tax —  2  —  2  4 
Net (decrease) increase in other comprehensive income (99) (2) 7  4  (90)
Balance, net of tax, at March 31, 2021 $ (286) $ (27) $ (112) $ (129) $ (554)

At March 31, 2022 and December 31, 2021, the cumulative tax adjustments were $156 million and $168 million, respectively, primarily related to foreign currency translation adjustments.



The cumulative foreign currency translation adjustments included translation losses of $313 million and $250 million at March 31, 2022 and December 31, 2021, respectively, and cumulative losses on loans designated as hedges of net investments of $101 million and $116 million, respectively. These foreign currency translation losses were partially offset by movements on derivative financial instruments.



Reclassifications out of AOCI to the Consolidated Statements of Operations for the three months ended March 31, 2022 and 2021 were insignificant.

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NOTE 5 – EARNINGS PER COMMON SHARE


The computation of basic and diluted earnings per common share for the three months ended March 31, 2022 and 2021 were as follows:
Basic Earnings Per Common Share Three Months Ended
(in millions, except per share amounts) 2022 2021
Net income attributable to Dentsply Sirona $ 69  $ 112 
Weighted average common shares outstanding 217.0  218.8 
Earnings per common share - basic $ 0.32  $ 0.51 
Diluted Earnings Per Common Share Three Months Ended
(in millions, except per share amounts) 2022 2021
Net income attributable to Dentsply Sirona $ 69  $ 112 
Weighted average common shares outstanding 217.0  218.8 
Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards 0.8  1.1 
Total weighted average diluted shares outstanding 217.8  219.9 
Earnings per common share - diluted $ 0.32  $ 0.51 

For the three months ended March 31, 2022, the Company excluded from the computation of weighted average diluted shares outstanding 1.9 million of equivalent shares of common stock from stock options and RSUs because their effect would be antidilutive. For the three months ended March 31, 2021, the Company excluded 0.8 million of equivalent shares of common stock outstanding from stock options and RSUs because their effect would be antidilutive.



The Board of Directors has approved a share repurchase program, up to $1.0 billion. Share repurchases may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors. At March 31, 2022, the Company had authorization to repurchase $770 million in shares of common stock remaining under the share repurchase program, which was further reduced by $30 million through final settlement of the accelerated share repurchase program in April 2022 as described below.



On March 8, 2022, the Company entered into an Accelerated Share Repurchase Agreement (“ASR Agreement”) with a financial institution to purchase the Company’s common stock based on the volume-weighted average price of the Company’s common stock during the term of the agreement, less a discount.

(in millions, except per share amounts) Initial Delivery Final Settlement
Agreement Date Amount Paid Shares Received Price per share Value of Shares as a % of Contract Value Settlement Date Total Shares Received Average Price per Share
March 8, 2022 $ 150  2.4 $ 50.44  80  % April 19, 2022 3.1 $ 48.22 

14


The ASR agreement was accounted for as an initial delivery of common shares in a treasury stock transaction on March 9, 2022 of $120 million and a forward contract indexed to the Company’s common stock for an amount of common shares to be determined on the final settlement date. The forward contract met all applicable criteria for equity classification and was not accounted for as a derivative instrument. Therefore, the forward contract was recorded as Capital in excess of par value in the Consolidated Balance Sheets at March 31, 2022. The initial delivery of common stock reduced the weighted average common shares outstanding for both basic and diluted EPS. The forward contract did not impact the weighted average common shares outstanding for diluted EPS.


15

NOTE 6 – BUSINESS COMBINATIONS

Acquisitions

2021 Transactions



On July 1, 2021, the effective date of the transaction, the Company paid $7 million to acquire the remaining interest in the dental business of a partially owned affiliate based in Switzerland that primarily develops highly specialized software with a focus on CAD/CAM systems. The acquisition is expected to further accelerate the development of the Company’s specialized software related to CAD/CAM systems.



The preliminary fair values of the assets acquired and liabilities assumed in connection with the acquisition of the affiliate included $4 million of Other current assets, $3 million of Intangible assets, $2 million of Current Liabilities and $1 million of Other long-term liabilities. The cash paid and the $4 million fair value of the previously-held interest in the entity prior to the acquisition has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $7 million in goodwill. This goodwill is considered to represent the value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations, and is not deductible for tax purposes. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the quarter ended March 31, 2022 were immaterial to the financial statements, resulting in an increase to goodwill of $2 million. Management is continuing to finalize its valuation of certain assets and liabilities including other intangible assets and will conclude its valuation no later than one year from the acquisition date.



Identifiable intangible assets acquired were as follows:
Weighted Average
Useful Life
(in millions, except for useful life) Amount (in years)
In-process R&D $ 3  Indefinite



On June 1, 2021, the effective date of the transaction, the Company paid $132 million to acquire substantially all of the assets of Propel Orthodontics LLC and certain of its affiliated entities, a privately-held business based in California (“Propel Orthodontics”). The acquired business manufactures and sells orthodontic devices and provides in-office and at-home orthodontic accessory devices to orthodontists and their patients primarily within the clear aligner market. The acquisition is expected to further accelerate the growth and profitability of the Company’s combined clear aligners business.



The preliminary fair values of the assets acquired and liabilities assumed in connection with the Propel Orthodontics acquisition were as follows:


(in millions)
Other current assets $ 4 
Intangible assets 66 
Current liabilities (1)
Net assets acquired 69 
Goodwill 63 
Purchase consideration $ 132 



The purchase price has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $63 million in goodwill, which is considered to represent the value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations. The goodwill is expected to be deductible for tax purposes. Management is continuing to finalize its valuation of certain assets including other intangible assets and will conclude its valuation no later than one year from the acquisition date. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the quarter ended March 31, 2022 were immaterial to the financial statements, resulting in a reduction to goodwill of $2 million.
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Identifiable intangible assets acquired were as follows:
Weighted Average
Useful Life
(in millions, except for useful life) Amount (in years)
Developed technology $ 66  10


On January 21, 2021, the effective date of the transaction, the Company paid $94 million with the potential for additional earn-out provision payments of up to $10 million, to acquire 100% of the outstanding shares of Datum Dental, Ltd., a privately-held producer and distributor of specialized regenerative dental material based in Israel. The fair value of the earn-out provision has been valued at $9 million as of the transaction date, resulting in a total purchase price of $103 million.



The fair values of the assets acquired and liabilities assumed in connection with the Datum acquisition were as follows:


(in millions)
Cash and cash equivalents $ 2 
Other current assets 2 
Intangible assets 76 
Current liabilities (2)
Other long-term assets (liabilities), net (14)
Net assets acquired 64 
Goodwill 39 
Purchase consideration $ 103 



The purchase price has been allocated on the basis of the estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $39 million in goodwill, which is considered to represent the value associated with the acquired workforce and synergies the Company anticipates realizing from integrating the acquired assets into the Company’s existing business operations. The goodwill is not deductible for tax purposes. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during the year ended December 31, 2021 and the three months ended March 31, 2022 were immaterial to the financial statements, resulting in an increase to goodwill of $6 million.



Identifiable intangible assets acquired were as follows:
Weighted Average
Useful Life
(in millions, except for useful life) Amount (in years)
Developed technology $ 66 
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In-process R&D 10  Indefinite
Total $ 76 



The results of operations for each of the acquired businesses above upon the effective date of each transaction have been included in the accompanying financial statements. These results, as well as the historical results for the above acquired businesses for the periods ended March 31, 2022 and March 31, 2021, are not material in relation to the Company’s net sales and earnings for those periods. The Company therefore does not believe these acquisitions represent material transactions either individually or in the aggregate requiring the supplemental pro-forma information prescribed by ASC 805 and accordingly, this information is not presented.

Investment in Affiliates


On June 4, 2021, the effective date of the transaction, the Company paid $16 million to acquire a minority interest in a U.K.-based, privately-held provider of healthcare consumables. The investment is recorded as an equity method investment within Other noncurrent assets in the Consolidated Balance Sheets.

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Divestitures



On April 1, 2021, the Company disposed of certain orthodontics businesses based in Japan previously included as part of the Technologies & Equipment segment in exchange for a cash receipt of $8 million. The divestiture resulted in an immaterial loss recorded in Other expense (income), net in the Consolidated Statements of Operations for the year ended December 31, 2021.



On February 1, 2021, the Company disposed of an investment casting business previously included as part of the Consumables segment in exchange for a cash receipt of $19 million. The divestiture resulted in a pre-tax gain of $13 million recorded in Other expense (income), net in the Consolidated Statements of Operations for the three months ended March 31, 2021.


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NOTE 7 – SEGMENT INFORMATION


The Company’s two operating segments are organized primarily by product and generally have overlapping geographical presence, customer bases, distribution channels, and regulatory oversight. These operating segments are also the Company’s reportable segments in accordance with how the Company’s chief operating decision-maker regularly reviews financial results and uses this information to evaluate the Company’s performance and allocate resources.


The Company evaluates performance of the segments based on net sales and adjusted operating income. Segment adjusted operating income is defined as operating income before income taxes and before certain corporate headquarters unallocated costs, restructuring and other costs, interest expense, net, other expense (income), net, amortization of intangible assets and depreciation resulting from the fair value step-up of property, plant, and equipment from acquisitions.


A description of the products and services provided within each of the Company’s two reportable segments is provided below.


Technologies & Equipment



This segment is responsible for the design, manufacture, and sales of the Company’s dental technology and equipment products and healthcare products. These products include dental implants, CAD/CAM systems, orthodontic clear aligners, imaging systems, treatment centers, instruments, as well as medical devices.


Consumables



This segment is responsible for the design, manufacture, and sales of the Company’s consumable products which include various preventive, restorative, endodontic, and dental laboratory products.


The Company’s segment information for the three months ended March 31, 2022 and 2021 was as follows:
Net Sales
Three Months Ended
(in millions) 2022 2021
Technologies & Equipment $ 565  $ 595 
Consumables 404  431 
Total net sales $ 969  $ 1,026 
Segment Adjusted Operating Income
Three Months Ended
(in millions) 2022 2021
Technologies & Equipment $ 86  $ 124 
Consumables 135  149 
Segment adjusted operating income 221  273 
Reconciling items expense (income):
All other (a)
 65  63 
Restructuring and other costs 3  3 
Interest expense, net 12  14 
Other expense (income), net (2) (9)
Amortization of intangible assets 55  55 
Depreciation resulting from the fair value step-up of property, plant, and equipment from business combinations 1  2 
Income before income taxes $ 87  $ 145 
(a) Includes the results of unassigned Corporate headquarters costs and inter-segment eliminations.
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NOTE 8 – INVENTORIES


Inventories, net were as follows:
(in millions) March 31, 2022 December 31, 2021
Raw materials and supplies $ 142  $ 139 
Work-in-process 78  72 
Finished goods 333  304 
Inventories, net $ 553  $ 515 


The Company’s inventory reserve was $86 million at both March 31, 2022 and December 31, 2021. Inventories are stated at the lower of cost and net realizable value.


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NOTE 9 – RESTRUCTURING AND OTHER COSTS


Restructuring and other costs for the three months ended March 31, 2022 and 2021 were immaterial to the Company’s Consolidated Statements of Operations as shown below:
Affected Line Item in the Consolidated Statements of Operations Three Months Ended
(in millions) 2022 2021
Cost of products sold $ —  $ (2)
Restructuring and other costs 3  3 
Total restructuring and other costs $ 3  $ 1 



The Company’s restructuring accruals at March 31, 2022 were as follows:
Severance
(in millions) 2020 and
Prior Plans		 2021 Plans 2022 Plans Total
Balance at December 31, 2021 $ 5  $ 9  $ —  $ 14 
Provisions 1  —  1  2 
Amounts applied (2) (2) —  (4)
Balance at March 31, 2022 $ 4  $ 7  $ 1  $ 12 
Other Restructuring Costs
(in millions) 2020 and
Prior Plans		 2021 Plans 2022 Plans Total
Balance at December 31, 2021 $ 4  $ —  $ —  $ 4 
Provisions —  1  —  1 
Amounts applied —  (1) —  (1)
Balance at March 31, 2022 $ 4  $ —  $ —  $ 4 
The cumulative amounts for the provisions and adjustments and amounts applied for all the plans by segment were as follows:
(in millions) December 31, 2021 Provisions Amounts
Applied		 March 31, 2022
Technologies & Equipment $ 7  $ —  $ (2) $ 5 
Consumables 11  2  (3) 10 
All Other —  1  —  1 
Total $ 18  $ 3  $ (5) $ 16 

The associated restructuring liabilities are recorded in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets.


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NOTE 10 – FINANCIAL INSTRUMENTS AND DERIVATIVES

Derivative Instruments and Hedging Activities


The Company’s activities expose it to a variety of market risks, which primarily include the risks related to the effects of changes in foreign currency exchange rates and interest rates. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this risk management program is to reduce the volatility that these market risks may have on the Company’s operating results and cash flows. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert fixed rate debt into variable rate debt or vice versa. The Company does not hold derivative instruments for trading or speculative purposes.



The following summarizes the notional amounts of cash flow hedges, hedges of net investments, fair value hedges, and derivative instruments not designated as hedges for accounting purposes by derivative instrument type at March 31, 2022 and the notional amounts expected to mature during the next 12 months.
(in millions) Aggregate Notional Amount Aggregate Notional Amount Maturing within 12 Months
Cash Flow Hedges
Foreign exchange forward contracts $ 282  $ 215 
Total derivative instruments designated as cash flow hedges $ 282  $ 215 
Hedges of Net Investments
  Foreign exchange forward contracts $ 177  $ 89 
Cross currency basis swaps 295  — 
Total derivative instruments designated as hedges of net investments $ 472  $ 89 
Fair Value Hedges
Interest rate swaps $ 250  $ — 
Foreign exchange forward contracts 204  77 
Total derivative instruments designated as fair value hedges $ 454  $ 77 
Derivative Instruments not Designated as Hedges
Foreign exchange forward contracts $ 349  $ 349 
Total derivative instruments not designated as hedges $ 349  $ 349 
Cash Flow Hedges
Foreign Exchange Risk Management


The Company hedges select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings. The Company designates certain foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the assessed effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded in the Consolidated Statements of Operations in the same period that the hedged transaction is recorded. The time-value component of the fair value of the derivative is reported on a straight-line basis in Cost of products sold in the Consolidated Statements of Operations in the period which it is applicable. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.



These foreign exchange forward contracts generally have maturities up to 18 months, which is the period over which the Company is hedging exposures to variability of cash flows and the counterparties to the transactions are typically large international financial institutions.

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Interest Rate Risk Management



The Company enters into interest rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments and not for speculative purposes. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.



On May 26, 2020, the Company paid $31 million to settle the $150 million notional T-Lock contract, which partially hedged the interest rate risk of the $750 million senior unsecured notes. This loss is amortized over the ten-year life of the notes. As of March 31, 2022 and December 31, 2021, $24 million and $25 million, respectively, of this loss is remaining to be amortized from AOCI in future periods.


AOCI Release


Overall, the derivatives designated as cash flow hedges are considered to be highly effective for accounting purposes. At March 31, 2022, the Company expects to reclassify an immaterial amount of deferred net losses on cash flow hedges recorded in AOCI in the Consolidated Statements of Operations during the next 12 months. For the rollforward of derivative instruments designated as cash flow hedges in AOCI see Note 4, Comprehensive Income (Loss).


Hedges of Net Investments in Foreign Operations     


The Company has significant investments in foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. The Company employs both derivative and non-derivative financial instruments to hedge a portion of this exposure. The derivative instruments consist of foreign exchange forward contracts and cross-currency basis swaps. The non-derivative instruments consist of foreign currency denominated debt held at the parent company level. Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in the aforementioned instruments, which are designated as hedges of net investments and are included in AOCI. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in investing activities in the Consolidated Statements of Cash Flows except for derivative instruments that include an other-than-insignificant financing element, for which all cash flows are classified as financing activities in the Consolidated Statements of Cash Flows.


The fair value of the foreign exchange forward contracts and cross-currency basis swaps is the estimated amount the Company would receive or pay at the reporting date, taking into account the effective interest rates, cross-currency swap basis rates and foreign exchange rates. The effective portion of the change in the value of these derivatives is recorded in AOCI, net of tax effects.



On July 2, 2021, the Company entered into a cross currency basis swap totaling a notional amount of $300 million which matures on June 3, 2030. The cross currency basis swap is designated as a hedge of net investments. This contract effectively converts a portion of the $750 million bond coupon from 3.3% to 1.7%.



On May 25, 2021, the Company re-established its euro net investment hedge portfolio by entering into eight foreign exchange forward contracts, each with a notional amount of 10 million euro. The original contracts have quarterly maturity dates through March 2023. The Company enters into additional foreign exchange contracts as individual contracts within the portfolio mature. As of March 31, 2022 the euro net investment hedge portfolio has an aggregate notional value of 160 million euro with maturity dates through March 2024.
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Fair Value Hedges

Foreign Exchange Risk Management


The Company has intercompany loans denominated in Swedish kronor that are exposed to volatility in currency exchange rates. The Company employs derivative financial instruments to hedge these exposures. The Company accounts for these designated foreign exchange forward contracts as fair value hedges. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be recorded in the Consolidated Statements of Operations. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows.



On January 6, 2021 the Company entered into foreign exchange forward contracts with a notional value of SEK 1.3 billion as a result of an increase in intercompany loans denominated in Swedish kronor. The foreign exchange forwards are designated as fair value hedges.


Interest Rate Risk Management


On July 1, 2021, the Company entered into variable interest rate swaps with a notional amount of $250 million, which effectively converts a portion of the underlying fixed rate of 3.3% on the $750 million Senior Notes due June 2030 to a variable interest rate. Of the $250 million notional amount, $100 million has a term of five-years maturing on June 1, 2026 and $150 million has a term of nine years maturing on March 1, 2030.


Derivative Instruments Not Designated as Hedges


The Company enters into derivative instruments with the intent to partially mitigate the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The Company primarily uses foreign exchange forward contracts to hedge these risks. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in Other expense (income), net in the Consolidated Statements of Operations. Any cash flows associated with the foreign exchange forward contracts and interest rate swaps not designated as hedges are included in operating activities in the Consolidated Statements of Cash Flows.



Gains and (losses) recorded in the Company’s Consolidated Statements of Operations related to the economic hedges not designated as hedges for the three months ended March 31, 2022 and 2021 were insignificant.

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Derivative Instrument Activity


The amount of gains and losses recorded in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations related to all derivative instruments for the three months ended March 31, 2022 and 2021 were as follows:
Three Months Ended March 31, 2022
(in millions) Gain (Loss) recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense)
Cash Flow Hedges
Foreign exchange forward contracts $ 3  Cost of products sold $ —  $ — 
Interest rate swaps —  Interest expense, net (1) — 
Total for cash flow hedging $ 3  $ (1) $ — 
Hedges of Net Investments
Cross currency basis swaps $ 8  Interest expense, net $ —  $ 1 
Foreign exchange forward contracts 3  Other expense (income), net —  — 
Total for net investment hedging $ 11  $ —  $ 1 
Fair Value Hedges
Interest rate swaps $ —  Interest expense, net $ —  $ 1 
Foreign exchange forward contracts (2) Other expense (income), net —  8 
Total for fair value hedging $ (2) $ —  $ 9 

Three Months Ended March 31, 2021
(in millions) Gain (Loss) Recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense)
Cash Flow Hedges
Foreign exchange forward contracts $ (6) Cost of products sold $ (1) $ — 
Interest rate swaps —  Interest expense, net (1) — 
Total for cash flow hedging $ (6) $ (2) $ — 
Hedges of Net Investments
Cross currency basis swaps $ 9  Interest expense, net $ —  $ 2 
Total for net investment hedging $ 9  $ —  $ 2 
Fair Value Hedges
Foreign exchange forward contracts $ —  Interest expense, net $ —  $ 16 
Total for fair value hedging $ —  $ —  $ 16 
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Consolidated Balance Sheets Location of Derivative Fair Values


The fair value and the location of the Company’s derivatives in the Consolidated Balance Sheets were as follows:
March 31, 2022
(in millions) Prepaid Expenses and Other Current Assets Other Noncurrent Assets Accrued Liabilities Other Noncurrent Liabilities
Designated as Hedges:
Foreign exchange forward contracts $ 23  $ 11  $ 2  $ 1 
Interest rate swaps 2  —  —  20 
Cross currency basis swaps 3  1  —  — 
Total $ 28  $ 12  $ 2  $ 21 
Not Designated as Hedges:
Foreign exchange forward contracts $ 3  $ —  $ 4  $ — 
Total $ 3  $ —  $ 4  $ — 
December 31, 2021
(in millions) Prepaid Expenses and Other Current Assets Other Noncurrent Assets Accrued Liabilities Other Noncurrent Liabilities
Designated as Hedges:
Foreign exchange forward contracts $ 18  $ 11  $ 2  $ 1 
Interest rate swaps 5  —  —  9 
Cross currency basis swaps 4  —  —  7 
Total $ 27  $ 11  $ 2  $ 17 
Not Designated as Hedges:
Foreign exchange forward contracts $ 1  $ —  $ 1  $ — 
Total $ 1  $ —  $ 1  $ — 

Balance Sheet Offsetting



Substantially all of the Company’s derivative contracts are subject to netting arrangements; whereby the right to offset occurs in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts contain the enforceable right to offset through netting arrangements with the same counterparty, the Company elects to present them on a gross basis in the Consolidated Balance Sheets.

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Offsetting of financial assets and liabilities under netting arrangements at March 31, 2022 were as follows:
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in millions) Gross Amounts Recognized Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received/Pledged Net Amount
Assets
Foreign exchange forward contracts $ 37  $ —  $ 37  $ (7) $ —  $ 30 
Cross currency basis swaps 4  —  4  (2) —  2 
Total assets $ 41  $ —  $ 41  $ (9) $ —  $ 32 
Liabilities
Foreign exchange forward contracts $ 7  $ —  $ 7  $ (7) $ —  $ — 
Interest rate swaps 18  —  18  (2) —  16 
Total liabilities $ 25  $ —  $ 25  $ (9) $ —  $ 16 


Offsetting of financial assets and liabilities under netting arrangements at December 31, 2021 were as follows:
Gross Amounts Not Offset in the Consolidated Balance Sheets
(in millions) Gross Amounts Recognized Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received/Pledged Net Amount
Assets
Foreign exchange forward contracts $ 31  $ —  $ 31  $ (9) $ —  $ 22 
Total assets $ 31  $ —  $ 31  $ (9) $ —  $ 22 
Liabilities
Foreign exchange forward contracts $ 4  $ —  $ 4  $ (4) $ —  $ — 
Interest rate swaps 4  —  4  (2) —  2 
Cross currency basis swaps 4  —  4  (3) —  1 
Total liabilities $ 12  $ —  $ 12  $ (9) $ —  $ 3 


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NOTE 11 – FAIR VALUE MEASUREMENT


The estimated fair value and carrying value of the Company’s total debt, including current portion, was $2,251 million and $2,219 million, respectively, at March 31, 2022. At December 31, 2021, the estimated fair value and carrying value were $2,239 million and $2,095 million, respectively. The fair value of long-term debt is based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available at March 31, 2022 and December 31, 2021 to companies with similar credit ratings for issues with similar terms and maturities. It is considered a Level 2 fair value measurement for disclosure purposes.


Assets and liabilities measured at fair value on a recurring basis



The Company’s financial assets and liabilities set forth by level within the fair value hierarchy that were accounted for at fair value on a recurring basis were as follows:
March 31, 2022
(in millions) Total Level 1 Level 2 Level 3
Assets
Interest rate swaps $ 2  $ —  $ 2  $ — 
Cross currency basis swaps 4  —  4  — 
Foreign exchange forward contracts 37  —  37  — 
Long-term debt 18  —  18  — 
Total assets $ 61  $ —  $ 61  $ — 
Liabilities
Interest rate swaps $ 20  $ —  $ 20  $ — 
Foreign exchange forward contracts 7  —  7  — 
Contingent considerations on acquisitions 9  —  —  9 
Total liabilities $ 36  $ —  $ 27  $ 9 
December 31, 2021
(in millions) Total Level 1 Level 2 Level 3
Assets
Interest rate swaps $ 5  $ —  $ 5  $ — 
Long term debt 4  —  4  — 
Cross currency basis swaps 4  —  4  — 
Foreign exchange forward contracts 30  —  30  — 
Total assets $ 43  $ —  $ 43  $ — 
Liabilities
Interest rate swaps $ 9  $ —  $ 9  $ — 
Cross currency basis swaps 7  —  7  — 
Foreign exchange forward contracts 4  —  4  — 
Contingent considerations on acquisitions 10  —  —  10 
Total liabilities $ 30  $ —  $ 20  $ 10 

Derivative valuations are based on observable inputs to the valuation model including interest rates, foreign currency exchange rates, and credit risks. The Company utilizes interest rate swaps and foreign exchange forward contracts that are considered cash flow hedges. In addition, the Company at times employs certain cross currency interest rate swaps and forward exchange contracts that are considered hedges of net investment in foreign operations.



There have been no transfers between levels during the three months ended March 31, 2022.
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NOTE 12 – INCOME TAXES

Uncertainties in Income Taxes


The Company recognizes the impact of a tax position in the interim consolidated financial statements if that position is more likely than not of being sustained on audit based on the technical merits of the position. Under ASC 740-10, the Company provides for uncertain tax positions and the related interest expense by adjusting unrecognized tax benefits and accrued interest accordingly. The Company recognizes potential interest and penalties related to unrecognized tax benefits in income tax expense.


The Company files income tax returns in multiple jurisdictions based on its operations, some of which are under examination by taxing authorities. Certain amounts of unrecognized tax benefits may increase or decrease within twelve months of the reporting date of the Company’s consolidated financial statements, primarily due to the completion of ongoing income tax examinations. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next 12 months are not expected to be significant. Expiration of statutes of limitation in various jurisdictions during the next twelve months could include unrecognized tax benefits of approximately $1 million. Of this approximately $1 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate.


Other Tax Matters


The impact of discrete items is separately recognized in the quarter in which they occur. During the three months ended March 31, 2022, the Company recorded $1 million of tax expense for other discrete tax matters, none of which are individually significant. The decrease in the effective tax rate is due to the overall decrement in the Company’s performance and the corresponding earnings mix of jurisdictions in which Company does business.



During the three months ended March 31, 2021, the Company recorded $1 million of tax benefit for other discrete tax matters. The Company also recorded a $4 million tax expense as a discrete item related to business divestitures.


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NOTE 13 – FINANCING ARRANGEMENTS


At March 31, 2022, the Company had $399 million of borrowing available under lines of credit, including lines available under its short-term arrangements and revolving credit facility.



The Company has a $500 million commercial paper program. The Company had $330 million and $170 million outstanding borrowings under the commercial paper facility at March 31, 2022 and December 31, 2021, respectively. The Company also has a $700 million multi-currency revolving credit facility which serves as a back-stop credit facility for the Company’s commercial paper program. At March 31, 2022 and December 31, 2021, there were no outstanding borrowings under the multi-currency revolving credit facility. The Company also has access to $43 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings of $14 million. At March 31, 2022, the weighted-average interest rate for short-term debt was 1.2%.


The Company’s revolving credit facility, term loans and senior notes contain certain affirmative and negative debt covenants relating to the Company’s operations and financial condition. At March 31, 2022, the Company was in compliance with all debt covenants. The Company is required under certain of its debt agreements to deliver or make available to borrowers its unaudited financial statements on a timely basis each quarter along with the necessary certifications. As a result of the Company’s failure to file its unaudited financial statements for the fiscal quarters ended March 31, 2022 and June 30, 2022 by the reporting deadlines, the Company obtained the consents of the requisite lenders and noteholders of its outstanding indebtedness to extend the time period for delivery of such unaudited financial statements until November 14, 2022. Therefore, the Company has not suffered an event of default as a result of the delayed filings.


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NOTE 14 – GOODWILL AND INTANGIBLE ASSETS


The Company assesses both goodwill and indefinite-lived intangible assets for impairment annually as of April 1 or more frequently if events or changes in circumstances indicate the asset might be impaired. Based on the Company’s 2021 impairment test, it was determined that the fair values of its reporting units and indefinite-lived intangible assets more likely than not exceeded their respective carrying values, resulting in no impairment.

The fair values of reporting units were computed using a discounted cash flow model with inputs developed using both internal and market-based data. Intangible assets were evaluated for impairment using an income approach, specifically a relief from royalty method, or using a qualitative assessment. A change in any of the estimates and assumptions used in the annual test, a decline in the overall markets or in the use of intangible assets among other factors, could have a material adverse effect to the fair value of either the reporting units or intangible assets and could result in a future impairment charge. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings.

Subsequent to the annual impairment test, the Company considered qualitative and quantitative factors as of March 31, 2022 to determine whether any events or changes in circumstances had resulted in the likelihood that the goodwill or indefinite-lived intangible assets may have become more likely than not impaired during the course of the quarter, and concluded there were no such indicators.