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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 March 31, 2019
Commission File Number 0-16211
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
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Delaware | | 39-1434669 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
| | |
221 West Philadelphia Street, York, PA | | 17401-2991 |
(Address of principal executive offices) | | (Zip Code) |
(717) 845-7511
(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 o
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o | Smaller reporting company o |
| Emerging growth company o |
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o 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 April 26, 2019, DENTSPLY SIRONA Inc. had 233,977,496 shares of Common Stock outstanding.
DENTSPLY SIRONA Inc.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
(unaudited)
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| | | | | Three Months Ended March 31, | | |
| | | | | 2019 | | 2018 |
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| Net sales | | | | | $ | 946.2 | | $ | 956.1 |
| Cost of products sold | | | | | 446.5 | | 442.0 |
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| Gross profit | | | | | 499.7 | | 514.1 |
| Selling, general and administrative expenses | | | | | 431.9 | | 435.2 |
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| Restructuring and other costs | | | | | 20.5 | | 10.2 |
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| Operating income | | | | | 47.3 | | 68.7 |
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| Other income and expenses: | | | | | | | |
| Interest expense | | | | | 8.4 | | 8.6 |
| Interest income | | | | | (1.1) | | (0.6) |
| Other expense (income), net | | | | | (13.8) | | (34.1) |
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| Income before income taxes | | | | | 53.8 | | 94.8 |
| Provision for income taxes | | | | | 14.6 | | 13.7 |
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| Net income | | | | | 39.2 | | 81.1 |
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| Less: Net loss attributable to noncontrolling interest | | | | | — | | (0.1) |
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| Net income attributable to Dentsply Sirona | | | | | $ | 39.2 | | $ | 81.2 |
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| Net income per common share attributable to Dentsply Sirona: | | | | | | | |
| Basic | | | | | $ | 0.18 | | $ | 0.36 |
| Diluted | | | | | $ | 0.17 | | $ | 0.35 |
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| Weighted average common shares outstanding: | | | | | | | |
| Basic | | | | | 223.3 | | 227.2 |
| Diluted | | | | | 225.0 | | 229.9 |
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
(unaudited)
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| | | | | Three Months Ended March 31, | | |
| | | | | 2019 | | 2018 |
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| Net income | | | | | $ | 39.2 | | $ | 81.1 |
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| Other comprehensive (loss) income, net of tax | | | | | | | |
| Foreign currency translation (loss) gain | | | | | (61.0) | | 65.7 |
| Net gain (loss) on derivative financial instruments | | | | | 1.7 | | (12.0) |
| Net realized holding gain on available for sale securities | | | | | — | | (44.3) |
| Pension liability gain | | | | | 0.9 | | 1.2 |
| Total other comprehensive (loss) income, net of tax | | | | | (58.4) | | 10.6 |
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| Total comprehensive (loss) income | | | | | (19.2) | | 91.7 |
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| Less: Comprehensive income attributable to noncontrolling interests | | | | | 0.3 | | 0.5 |
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| Total comprehensive (loss) income attributable to Dentsply Sirona | | | | | $ | (19.5) | | $ | 91.2 |
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See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions, except per share amounts)
(unaudited)
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| March 31, 2019 | | December 31, 2018 |
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| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 225.4 | | $ | 309.6 |
| Accounts and notes receivables-trade, net | 658.5 | | 701.9 |
| Inventories, net | 618.2 | | 598.9 |
| Prepaid expenses and other current assets | 293.5 | | 277.6 |
| Total Current Assets | 1,795.6 | | 1,888.0 |
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| Property, plant and equipment, net | 853.9 | | 870.6 |
| Operating lease right-of-use assets, net | 163.9 | | — |
| Identifiable intangible assets, net | 2,324.7 | | 2,420.3 |
| Goodwill, net | 3,399.2 | | 3,431.3 |
| Other noncurrent assets, net | 67.2 | | 76.8 |
| Total Assets | $ | 8,604.5 | | $ | 8,687.0 |
| | | |
| Liabilities and Equity | | | |
| Current Liabilities: | | | |
| Accounts payable | $ | 269.0 | | $ | 283.9 |
| Accrued liabilities | 511.1 | | 578.9 |
| Income taxes payable | 69.8 | | 58.1 |
| Notes payable and current portion of long-term debt | 20.7 | | 92.4 |
| Total Current Liabilities | 870.6 | | 1,013.3 |
| | | |
| Long-term debt | 1,545.1 | | 1,564.9 |
| Operating lease liabilities | 125.5 | | — |
| Deferred income taxes | 535.1 | | 552.8 |
| Other noncurrent liabilities | 418.7 | | 423.0 |
| Total Liabilities | 3,495.0 | | 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 March 31, 2019 and December 31, 2018, respectively | | | |
| 223.8 million and 223.0 million shares outstanding at March 31, 2019 and December 31, 2018, respectively | | | |
| Capital in excess of par value | 6,520.4 | | 6,522.3 |
| Retained earnings | 1,245.0 | | 1,225.9 |
| Accumulated other comprehensive loss | (537.4) | | (478.7) |
| Treasury stock, at cost, 40.7 million and 41.5 million shares at March 31, 2019 and December 31, 2018, respectively | (2,122.9) | | (2,151.0) |
| Total Dentsply Sirona Equity | 5,107.7 | | 5,121.1 |
| | | |
| Noncontrolling interests | 1.8 | | 11.9 |
| Total Equity | 5,109.5 | | 5,133.0 |
| Total Liabilities and Equity | $ | 8,604.5 | | $ | 8,687.0 |
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
(unaudited)
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| 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 |
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| Restricted Stock Unit "RSU" distributions | — | | (12.8) | | — | | — | | 8.0 | | (4.8) | | — | | (4.8) |
| RSU dividends | — | | 0.2 | | (0.2) | | — | | — | | — | | — | | — |
| Cash dividends ($.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 |
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| 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 ($.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 |
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See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
| | | | | | | | | | | |
| Three Months Ended March 31, | | |
| 2019 | | 2018 |
| | | |
| Cash flows from operating activities: | | | |
| Net income | $ | 39.2 | | $ | 81.1 |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation | 34.9 | | 33.3 |
| Amortization of intangible assets | 48.2 | | 49.9 |
| Amortization of deferred financing costs | 0.7 | | 0.7 |
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| Indefinite-lived intangible asset impairment | 5.3 | | — |
| Deferred income taxes | (6.0) | | (16.8) |
| Stock based compensation expense | 9.2 | | 9.3 |
| Restructuring and other costs - non-cash | 9.7 | | 3.3 |
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| Other non-cash (income) expense | (7.8) | | 14.0 |
| (Gain) loss on disposal of property, plant and equipment | (0.1) | | 0.5 |
| Gain on divestiture of noncontrolling interest | (8.7) | | — |
| Gain on sale of equity security | — | | (44.1) |
| Changes in operating assets and liabilities, net of acquisitions: | | | |
| Accounts and notes receivable-trade, net | 36.5 | | 87.5 |
| Inventories, net | (31.5) | | (64.7) |
| Prepaid expenses and other current assets, net | (16.3) | | (5.6) |
| Other noncurrent assets, net | 4.8 | | (2.9) |
| Accounts payable | (11.3) | | (3.9) |
| Accrued liabilities | (90.1) | | (77.4) |
| Income taxes | 12.3 | | (14.1) |
| Other noncurrent liabilities | 0.3 | | 5.0 |
| Net cash provided by operating activities | 29.3 | | 55.1 |
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| Cash flows from investing activities: | | | |
| Capital expenditures | (33.9) | | (35.8) |
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| Cash paid for acquisitions of businesses and equity investments, net of cash acquired | — | | (6.7) |
| Cash paid on sale of business or product line | (1.0) | | — |
| Cash received on derivatives contracts | 22.7 | | — |
| Cash paid on derivatives contracts | — | | (2.4) |
| Expenditures for identifiable intangible assets | — | | (3.3) |
| Purchase of short-term investments | (0.8) | | — |
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| Proceeds from sale of property, plant and equipment, net | 0.3 | | 3.0 |
| Net cash used in investing activities | (12.7) | | (45.2) |
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| Cash flows from financing activities: | | | |
| Repayments on short-term borrowings | (67.9) | | (7.8) |
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| Cash dividends paid | (19.5) | | (19.8) |
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| Proceeds from long-term borrowings, net of deferred financing costs | 0.9 | | 0.1 |
| Repayments on long-term borrowings | (1.9) | | (0.2) |
| Proceeds from exercised stock options | 19.8 | | 8.3 |
| Cash paid for contingent consideration on prior acquisitions | (30.6) | | — |
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| Net cash used in financing activities | (99.2) | | (19.4) |
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| Effect of exchange rate changes on cash and cash equivalents | (1.6) | | 6.0 |
| Net decrease in cash and cash equivalents | (84.2) | | (3.5) |
| Cash and cash equivalents at beginning of period | 309.6 | | 320.6 |
| Cash and cash equivalents at end of period | $ | 225.4 | | $ | 317.1 |
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”). 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 March 31, 2019, the Company had $28.7 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 $32.5 million at March 31, 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, classification and initial direct costs. 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:
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| (in millions) | | | | | | Balance at
January 1, 2019 |
| Assets | | | | | | |
| Operating lease right-of-use assets, net | | | | | | 167.1 |
| Property, plant, and equipment, net | | | | | | 1.8 |
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| 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 |
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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 quarter 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 financial position, results of operations, cash flows and disclosures.
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 months ended March 31, 2019 and 2018:
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| | | | | | Three Months Ended | | |
| (in millions) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Stock option expense | | | | | | $ | 2.2 | | $ | 0.7 |
| RSU expense | | | | | | 6.7 | | 8.3 |
| Total stock based compensation expense | | | | | | $ | 8.9 | | $ | 9.0 |
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| Related deferred income tax benefit | | | | | | $ | 1.4 | | $ | 1.8 |
For the three months ended March 31, 2019, stock compensation expense was $8.9 million of which $8.6 million was recorded in Selling, general, and administrative expense, and $0.3 million was recorded in Cost of products sold in the Consolidated Statements of Operations.
For the three months ended March 31, 2018, stock compensation expense was $9.0 million, of which $7.0 million was recorded in Selling, general, and administrative expense, and $0.3 million was recorded in Cost of products sold in the Consolidated Statements of Operations. For the three months ended March 31, 2018, the Company recorded $1.7 million in Restructuring and other costs in the Consolidated Statements of Operations.
During the three months ended March 31, 2019, the Company granted certain performance-based RSUs issued under the 2016 Omnibus Incentive Plan. The RSUs 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. The performance target needs to be achieved for five consecutive quarters before vesting. The performance period begins January 1, 2019 and concludes on December 31, 2022.
NOTE 3 – COMPREHENSIVE INCOME (LOSS)
The following summarizes the components of Other comprehensive (loss) income, net of tax, for the three months ended March 31, 2019 and 2018:
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| | | | | | Three Months Ended | | |
| (in millions) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Foreign currency translation (losses) gains | | | | | | $ | (71.9) | | $ | 84.0 |
| Foreign currency translation gain (loss) on hedges of net investments | | | | | | 10.6 | | (18.9) |
These amounts are recorded in Accumulated other comprehensive loss ("AOCI"), net of any related tax adjustments. At March 31, 2019 and December 31, 2018, the cumulative tax adjustments were $146.6 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 $244.9 million and $172.9 million at March 31, 2019 and December 31, 2018, respectively, and cumulative losses on loans designated as hedges of net investments of $101.1 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 three months ended March 31, 2019 and 2018 were as follows:
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| (in millions) | | Foreign Currency Translation (Loss) | | Gain (Loss) on Cash Flow Hedges | | (Loss) Gain on Net Investment Hedges | | | | Pension Liability (Loss) Gain | | 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 | | (59.9) | | (7.7) | | 18.6 | | | | — | | (49.0) |
| Tax (expense) benefit | | (1.4) | | 2.4 | | (11.8) | | | | — | | (10.8) |
| Other comprehensive (loss) income, net of tax, before reclassifications | | (61.3) | | (5.3) | | 6.8 | | | | — | | (59.8) |
| Amounts reclassified from accumulated other comprehensive income, net of tax | | — | | 0.2 | | — | | | | 0.9 | | 1.1 |
| Net (decrease) increase in other comprehensive loss | | (61.3) | | (5.1) | | 6.8 | | | | 0.9 | | (58.7) |
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| Balance, net of tax, at March 31, 2019 | | $ | (346.0) | | $ | (4.5) | | $ | (104.6) | | | | $ | (82.3) | | $ | (537.4) |
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| (in millions) | | Foreign Currency Translation (Loss) Gain | | (Loss) Gain on Cash Flow Hedges | | (Loss) Gain on Net Investment Hedges | | Net Unrealized Holding Gain on Available-for-sale Securities | | | | Pension Liability (Loss) Gain | | Total |
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| Balance, net of tax, at December 31, 2017 | | $ | (104.5) | | $ | (12.6) | | $ | (127.6) | | $ | 44.3 | | | | $ | (90.6) | | $ | (291.0) |
| Other comprehensive income (loss) before reclassifications and tax impact | | 84.3 | | (7.0) | | (17.9) | | — | | | | — | | 59.4 |
| Tax (expense) benefit | | (19.2) | | 1.3 | | 9.3 | | — | | | | — | | (8.6) |
| Other comprehensive income (loss), net of tax, before reclassifications | | 65.1 | | (5.7) | | (8.6) | | — | | | | — | | 50.8 |
| Amounts reclassified from accumulated other comprehensive income (loss), net of tax | | — | | 2.3 | | — | | (44.3) | | | | 1.2 | | (40.8) |
| Net increase (decrease) in other comprehensive loss | | 65.1 | | (3.4) | | (8.6) | | (44.3) | | | | 1.2 | | 10.0 |
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| Balance, net of tax, at March 31, 2018 | | $ | (39.4) | | $ | (16.0) | | $ | (136.2) | | $ | — | | | | $ | (89.4) | | $ | (281.0) |
Reclassifications out of AOCI to the Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 were as follows:
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| | Amounts Reclassified from AOCI | | | | Affected Line Item in the Consolidated Statements of Operations |
| (in millions) | | Three Months Ended | | | | |
| Details about AOCI Components | | 2019 | | 2018 | | |
| | | | | | |
| Loss on derivative financial instruments: | | | | | | |
| Interest rate swaps | | $ | (0.6) | | $ | (0.6) | | Interest expense |
| Foreign exchange forward contracts | | 0.4 | | (1.8) | | Cost of products sold |
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| Net loss before tax | | (0.2) | | (2.4) | | |
| Tax impact | | — | | 0.1 | | Provision for income taxes |
| Net loss after tax | | $ | (0.2) | | $ | (2.3) | | |
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| Amortization of defined benefit pension and other postemployment benefit items: | | | | | | |
| Amortization of prior service benefits | | $ | 0.1 | | $ | — | | (a) |
| | | | | | |
| Amortization of net actuarial losses | | (1.4) | | (1.7) | | (a) |
| Net loss before tax | | (1.3) | | (1.7) | | |
| Tax impact | | 0.4 | | 0.5 | | Provision for income taxes |
| Net loss after tax | | $ | (0.9) | | $ | (1.2) | | |
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| Total reclassifications for the period | | $ | (1.1) | | $ | (3.5) | | |
(a) These AOCI components are included in the computation of net periodic benefit cost for the three months ended March 31, 2019 and 2018.
NOTE 4 – EARNINGS PER COMMON SHARE
| | | | | | | | | | | | | | | | | | |
| Basic Earnings Per Common Share Computation | | | | | | Three Months Ended | | |
| (in millions, except per share amounts) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Net income attributable to Dentsply Sirona | | | | | | $ | 39.2 | | $ | 81.2 |
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| Weighted average common shares outstanding | | | | | | 223.3 | | 227.2 |
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| Earnings per common share - basic | | | | | | $ | 0.18 | | $ | 0.36 |
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| Diluted Earnings Per Common Share Computation | | | | | | Three Months Ended | | |
| (in millions, except per share amounts) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Net income attributable to Dentsply Sirona | | | | | | $ | 39.2 | | $ | 81.2 |
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| Weighted average common shares outstanding | | | | | | 223.3 | | 227.2 |
| Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards | | | | | | 1.7 | | 2.7 |
| Total weighted average diluted shares outstanding | | | | | | 225.0 | | 229.9 |
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| Earnings per common share - diluted | | | | | | $ | 0.17 | | $ | 0.35 |
The calculation of weighted average diluted common shares outstanding excludes stock options and RSUs of 4.5 million equivalent shares of common stock that were outstanding during the three months ended March 31, 2019 because their effect would be antidilutive. There were 1.6 million antidilutive equivalent shares of common stock outstanding during the three months ended March 31, 2018, respectively.
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 quarter 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.
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 92% of net sales for all periods presented.
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 months ended March 31, 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, sales and distribution of the Company’s Dental Consumable Products which include preventive, restorative, endodontic and laboratory dental products.
The following set forth information about the Company’s segments for the three months ended March 31, 2019 and 2018:
Third Party Net Sales
| | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended | | |
| (in millions) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Technologies & Equipment | | | | | | $ | 520.8 | | $ | 510.1 |
| Consumables | | | | | | 425.4 | | 446.0 |
| Total net sales | | | | | | $ | 946.2 | | $ | 956.1 |
Third Party Net Sales, Excluding Precious Metal Content
| | | | | | | | | | | | | | | | | | |
| | | | | | Three Months Ended | | |
| (in millions) | | | | | | 2019 | | 2018 |
| | | | | | | | |
| Technologies & Equipment | | | | | | $ | 520.8 | | $ | 510.1 |
| Consumables | | | | | | 414.2 | | 435.7 |
| Total net sales, excluding precious metal content | | | | | | 935.0 | | 945.8 |
| Precious metal content of sales | | | | | | 11.2 | | 10.3 |
| Total net sales, including precious metal content | | | | | | $ | 946.2 | | $ | 956.1 |
Segment Adjusted Operating Income
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| | | | | | Three Months Ended | | |
| (in millions) | | | | | | 2019 | | 2018 |
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| Technologies & Equipment | | | | | | $ | 71.8 | | $ | 68.5 |
| Consumables | | | | | | 105.7 | | 114.7 |
| Segment adjusted operating income before income taxes and interest | | | | | | 177.5 | | 183.2 |
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| Reconciling items expense (income): | | | | | | | | |
| All Other (a) | | | | | | 59.7 | | 52.6 |
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| Restructuring and other costs | | | | | | 20.5 | |