SEC Filing: Dentsply Sirona

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xray-20210630

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, 2021

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 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 August 3, 2021, DENTSPLY SIRONA Inc. had 218,550,601 shares of common stock outstanding.

DENTSPLY SIRONA Inc.

TABLE OF CONTENTS



PART I	FINANCIAL INFORMATION	Page

Item 1	Financial Statements (unaudited)	3

	Consolidated Statements of Operations	3

	Consolidated Statements of Comprehensive Income (Loss)	4

	Consolidated Balance Sheets	5

	Consolidated Statements of Changes in Equity	6

	Consolidated Statements of Cash Flows	7

	Notes to Unaudited Interim Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31

Item 3	Quantitative and Qualitative Disclosures About Market Risk	45

Item 4	Controls and Procedures	45

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	46

Item 1A	Risk Factors	46

Item 2	Unregistered Sales of Securities and Use of Proceeds	46

Item 6	Exhibits	47

Signatures		48

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,
	2021		2020		2021		2020

Net sales	$	1,067	$	491	$	2,094	$	1,365
Cost of products sold	469		315		917		721

Gross profit	598		176		1,177		644
Selling, general, and administrative expenses	398		261		783		620
Research and development expenses	40		18		77		52
Goodwill impairment	—		—		—		157
Restructuring and other costs	5		1		8		44

Operating income (loss)	155		(104)		309		(229)

Other income and expenses:
Interest expense, net	16		11		30		18

Other expense (income), net	5		5		(4)		3

Income (loss) before income taxes	134		(120)		283		(250)
Provision (benefit) for income taxes	35		(24)		67		(14)


Net income (loss)	99		(96)		216		(236)

Less: Net income (loss) attributable to noncontrolling interest	—		(1)		—		(1)

Net income (loss) attributable to Dentsply Sirona	$	99	$	(95)	$	216	$	(235)

Net income (loss) per common share attributable to Dentsply Sirona:
Basic	$	0.45	$	(0.44)	$	0.99	$	(1.07)
Diluted	$	0.45	$	(0.44)	$	0.98	$	(1.07)

Weighted average common shares outstanding:
Basic	218.4		218.7		218.6		219.8
Diluted	220.7		218.7		220.8		219.8

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

DENTSPLY SIRONA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in millions)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

Net income (loss)	$	99	$	(96)	$	216	$	(236)

Other comprehensive income (loss), net of tax:
Foreign currency translation gain (loss)	37		75		(62)		(44)
Net gain (loss) on derivative financial instruments	4		(8)		9		(3)

Pension liability gain	2		1		6		3
Total other comprehensive income (loss), net of tax	43		68		(47)		(44)

Total comprehensive income (loss)	142		(28)		169		(280)

Less: Comprehensive income (loss) attributable to noncontrolling interests	—		—		—		—

Total comprehensive income (loss) attributable to Dentsply Sirona	$	142	$	(28)	$	169	$	(280)

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

DENTSPLY SIRONA INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in millions, except per share amounts)

(unaudited)


	June 30, 2021		December 31, 2020

Assets
Current Assets:
Cash and cash equivalents	$	332	$	438
Accounts and notes receivables-trade, net	678		673
Inventories, net	539		466
Prepaid expenses and other current assets	236		214
Total Current Assets	1,785		1,791

Property, plant, and equipment	769		791
Operating lease right-of-use assets, net	184		176
Identifiable intangible assets, net	2,488		2,504
Goodwill	4,033		3,986
Other noncurrent assets	119		94
Total Assets	$	9,378	$	9,342

Liabilities and Equity
Current Liabilities:
Accounts payable	$	281	$	305
Accrued liabilities	621		653
Income taxes payable	44		60
Notes payable and current portion of long-term debt	305		299
Total Current Liabilities	1,251		1,317

Long-term debt	1,946		1,978
Operating lease liabilities	139		130
Deferred income taxes	415		393
Other noncurrent liabilities	550		554
Total Liabilities	4,301		4,372



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 June 30, 2021 and December 31, 2020
218.5 million and 218.7 million shares outstanding at June 30, 2021 and December 31, 2020
Capital in excess of par value	6,638		6,604
Retained earnings	1,402		1,233
Accumulated other comprehensive loss	(511)		(464)
Treasury stock, at cost, 46.0 million and 45.8 million shares at June 30, 2021 and December 31, 2020, respectively	(2,458)		(2,409)
Total Dentsply Sirona Equity	5,074		4,967

Noncontrolling interests	3		3
Total Equity	5,077		4,970
Total Liabilities and Equity	$	9,378	$	9,342

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

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, 2020	$	3	$	6,604	$	1,233	$	(464)	$	(2,409)	$	4,967	$	3	$	4,970
Net income	—		—		117		—		—		117		—		117
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 ($0.1000 per share)	—		—		(22)		—		—		(22)		—		(22)
Balance at March 31, 2021	$	3	$	6,618	$	1,328	$	(554)	$	(2,468)	$	4,927	$	3	$	4,930
Net income	—		—		99		—		—		99		—		99
Other comprehensive income	—		—		—		43		—		43		—		43

Exercise of stock options	—		3		—		—		9		12		—		12
Stock based compensation expense	—		19		—		—		—		19		—		19


Restricted stock unit distributions	—		(2)		—		—		1		(1)		—		(1)

Cash dividends ($0.1100 per share)	—		—		(25)		—		—		(25)		—		(25)
Balance at June 30, 2021	$	3	$	6,638	$	1,402	$	(511)	$	(2,458)	$	5,074	$	3	$	5,077


	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, 2019	$	3	$	6,587	$	1,404	$	(600)	$	(2,301)	$	5,093	$	2	$	5,095
Net loss	—		—		(140)		—		—		(140)		—		(140)
Other comprehensive loss	—		—		—		(112)		—		(112)		—		(112)

Exercise of stock options	—		—		—		—		4		4		—		4
Stock based compensation expense	—		9		—		—		—		9		—		9
Funding of employee stock purchase plan	—		1		—		—		1		2		—		2
Treasury shares purchased	—		(28)		—		—		(112)		(140)		—		(140)
Restricted stock unit distributions	—		(15)		—		—		9		(6)		—		(6)

Cash dividends ($0.1000 per share)	—		—		(22)		—		—		(22)		—		(22)
Balance at March 31, 2020	$	3	$	6,554	$	1,242	$	(712)	$	(2,399)	$	4,688	$	2	$	4,690
Net loss	—		—		(95)		—		—		(95)		(1)		(96)
Other comprehensive income	—		—		—		68		—		68		—		68

Exercise of stock options	—		—		—		—		1		1		—		1

Stock based compensation expense	—		10		—		—		—		10		—		10
Treasury shares purchased	—		28		—		—		(28)		—		—		—

Restricted stock unit distributions	—		(16)		—		—		10		(6)		—		(6)

Cash dividends ($0.1000 per share)	—		—		(22)		—		—		(22)		—		(22)
Balance at June 30, 2020	$	3	$	6,576	$	1,125	$	(644)	$	(2,416)	$	4,644	$	1	$	4,645

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

DENTSPLY SIRONA INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)


	Six Months Ended June 30,
	2021		2020

Cash flows from operating activities:
Net income (loss)	$	216	$	(236)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	64		65
Amortization of intangible assets	112		94


Goodwill impairment	—		157
Indefinite-lived intangible asset impairment	—		39

Deferred income taxes	(6)		(32)
Stock based compensation expense	32		19



Other non-cash expense	20		4


(Gain) loss 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	(17)		269
Inventories, net	(77)		(1)
Prepaid expenses and other current assets	(22)		33
Other noncurrent assets	(8)		6
Accounts payable	(28)		(89)
Accrued liabilities	(10)		(140)
Income taxes	(8)		(15)
Other noncurrent liabilities	8		(9)
Net cash provided by operating activities	263		164

Cash flows from investing activities:
Capital expenditures	(66)		(39)

Cash paid for acquisitions of businesses and equity investments, net of cash acquired	(241)		—
Cash received on sale of non-strategic businesses or product lines	27		—
Cash received on derivative contracts	—		58







Proceeds from sale of property, plant, and equipment	1		1
Net cash (used in) provided by investing activities	(279)		20

Cash flows from financing activities:

Proceeds (repayments) on short-term borrowings, net	6		(1)
Cash paid for treasury stock	(90)		(140)
Cash dividends paid	(44)		(44)

Proceeds from long-term borrowings, net of deferred financing costs	13		1,442
Repayments on long-term borrowings, net	—		(701)

Proceeds from exercised stock options	45		6




Cash paid on derivative contracts	—		(31)
Other financing activities, net	(8)		(3)
Net cash (used in) provided by financing activities	(78)		528
Effect of exchange rate changes on cash and cash equivalents	(12)		(8)
Net (decrease) increase in cash and cash equivalents	(106)		704
Cash and cash equivalents at beginning of period	438		405
Cash and cash equivalents at end of period	$	332	$	1,109

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

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”). 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, 2020.

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, 2020, except as may be indicated below. Certain prior period amounts within the Consolidated Statements of Operations have been reclassified in order to conform with the current year presentation of separately reported Research and development expenses.

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 revenue and expense during the reporting period. Actual results could differ materially from those estimates.

Revenue Recognition

At June 30, 2021, the Company had $47 million of deferred revenue recorded predominantly in Accrued liabilities in the Consolidated Balance Sheets, with an immaterial portion recorded in Other noncurrent liabilities. The Company expects to recognize significantly all of this deferred revenue within the next 12 months.

Accounts and Notes Receivable

The Company records a provision for doubtful accounts, which is included in Selling, general, and administrative expenses in the Consolidated Statements of Operations.

Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $14 million at June 30, 2021 and $18 million at December 31, 2020.

Inventory

As of June 30, 2021, all of the Company's inventories were determined by the first-in, first-out (“FIFO”) or average cost methods. As of the end of the first quarter of 2021, the Company had $1 million of inventories accounted for under the Last in first out (“LIFO”) method of inventory costing. Effective as of the beginning of the second quarter, the method of accounting for these inventories was changed from LIFO to FIFO. This change in accounting is preferable as the value of inventory for which cost was previously determined using a LIFO cost flow assumption has declined from prior years due to changes in the business, and it also allows for a more consistent methodology being utilized across the Company, and provides improved comparability with industry peers. The change in accounting principle was recognized during the second quarter of 2021 by adjusting these inventories to cost as determined using the FIFO method, resulting in an increase in inventories of $4 million and a corresponding reduction to Cost of products sold in the Company's Consolidated Statements of Operations. The impact of this change is not material to the Company’s financial position as of December 31, 2020, the Company’s results of operations for any previously reported prior periods nor is the cumulative effect of the change material to the results of operations for the second quarter of 2021. Therefore, prior period amounts have not been retrospectively adjusted.

Goodwill & Intangible Assets

Effective 2021 and prospectively, the Company will perform its required annual goodwill impairment test as of April 1 rather than on April 30 which was the Company’s previous practice. The Company believes this change is preferable as it more closely aligns with the timing of the Company’s strategic business planning process. The Company does not believe this change resulted in any delay, acceleration or avoidance of impairment. Furthermore, a retrospective application to prior periods is impracticable as the Company is unable to objectively determine, without the use of hindsight, the assumptions which would be used in earlier periods.

Additional information related to the annual impairment test is provided in Note 13, Goodwill and Intangible Assets.

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. This standard is permitted to be adopted any time through December 31, 2022, and does not apply to contract modifications made or hedging relationships entered into or evaluated after December 31, 2022. The Company is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows, and disclosures.

NOTE 2 – STOCK COMPENSATION

Total stock based compensation expense for non-qualified stock options, restricted stock units ("RSU"), and the tax related benefit for the three and six months ended June 30, 2021 and 2020 were as follows:


	Three Months Ended				Six Months Ended
(in millions)	2021		2020		2021		2020

Stock option expense	$	1	$	2	$	3	$	3
RSU expense	18		8		29		16
Total stock based compensation expense	$	19	$	10	$	32	$	19

Related deferred income tax benefit	$	2	$	1	$	4	$	2

The amount of stock compensation expense recorded in Cost of products sold, Selling, general, and administrative expense, and Research and development expense in the Company's Consolidated Statement of Operations for the three and six months ended June 30, 2021 and 2020, were as follows:


	Three Months Ended				Six Months Ended
(in millions)	2021		2020		2021		2020

Cost of products sold	$	2	$	1	$	2	$	1
Selling, general, and administrative expense	16		9		29		18
Research and development expense	1		—		1		—
Total stock based compensation expense	$	19	$	10	$	32	$	19

NOTE 3 – COMPREHENSIVE INCOME (LOSS)

Changes in Accumulated other comprehensive income (loss) ("AOCI"), net of tax, by component for the six months ended June 30, 2021 and 2020 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, 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 loss	(99)		(2)		7		4		(90)


Balance, net of tax, at March 31, 2021	$	(286)	$	(27)	$	(112)	$	(129)	$	(554)
Other comprehensive income before reclassifications and tax impact	31		3		1		—		35
Tax benefit (expense)	6		(2)		(1)		—		3
Other comprehensive income, net of tax, before reclassifications	37		1		—		—		38
Amounts reclassified from accumulated other comprehensive income, net of tax	—		3		—		2		5
Net increase in other comprehensive income	37		4		—		2		43


Balance, net of tax, at June 30, 2021	$	(249)	$	(23)	$	(112)	$	(127)	$	(511)


(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, 2019	$	(368)	$	(11)	$	(101)	$	(120)	$	(600)
Other comprehensive (loss) income before reclassifications and tax impact	(117)		(16)		25		—		(108)
Tax (expense) benefit	(2)		4		(8)		—		(6)
Other comprehensive (loss) income, net of tax, before reclassifications	(119)		(12)		17		—		(114)
Amounts reclassified from accumulated other comprehensive income, net of tax	—		—		—		2		2
Net (decrease) increase in other comprehensive loss	(119)		(12)		17		2