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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 2021
OR
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: 001-39054
nvst-20211001_g1.jpg
ENVISTA HOLDINGS CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware83-2206728
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification Number)
200 S. Kraemer Blvd., Building E92821-6208
Brea,California
(Address of Principal Executive Offices)(Zip Code)
Registrant’s telephone number, including area code: 714-817-7000
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Common stock, $0.01 par valueNVSTNew York Stock Exchange
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 (§232.405 of this chapter) 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  
The number of shares of common stock outstanding as of October 29, 2021, was 161,368,349.




TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1.
Item 2.
Item 3.
Item 4.
PART II. OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
($ in millions, except share amounts)
As of
October 1, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$638.8 $888.9 
Trade accounts receivable, less allowance for credit losses of $25.2 and $30.5, respectively
307.4 301.7 
Inventories, net274.3 216.0 
Prepaid expenses and other current assets77.9 70.1 
Current assets held for sale468.0 113.9 
Total current assets1,766.4 1,590.6 
Property, plant and equipment, net266.1 274.6 
Operating lease right-of-use assets150.8 162.7 
Other long-term assets174.1 119.0 
Goodwill3,145.8 3,207.4 
Other intangible assets, net1,058.8 1,152.7 
Noncurrent assets held for sale 369.0 
Total assets$6,562.0 $6,876.0 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt$426.7 $886.8 
Trade accounts payable171.0 202.5 
Accrued expenses and other liabilities509.9 467.8 
Operating lease liabilities24.5 31.1 
Current liabilities held for sale137.1 96.5 
Total current liabilities1,269.2 1,684.7 
Operating lease liabilities139.7 152.6 
Other long-term liabilities318.2 347.0 
Long-term debt887.8 907.7 
Noncurrent liabilities held for sale 63.0 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 15.0 million shares authorized; no shares issued or outstanding at October 1, 2021 and December 31, 2020
  
Common stock - $0.01 par value, 500.0 million shares authorized;161.7 million shares issued and 161.3 million shares outstanding at October 1, 2021; 160.2 million shares issued and 160.0 million outstanding at December 31, 2020
1.6 1.6 
Additional paid-in capital3,716.6 3,684.4 
Retained earnings381.1 126.4 
Accumulated other comprehensive loss(152.6)(91.8)
Total Envista stockholders’ equity3,946.7 3,720.6 
Noncontrolling interests0.4 0.4 
Total stockholders’ equity3,947.1 3,721.0 
Total liabilities and stockholders’ equity$6,562.0 $6,876.0 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
1


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
($ and shares in millions, except per share amounts)
 Three Months EndedNine Months Ended
 October 1, 2021October 2, 2020October 1, 2021October 2, 2020
Sales$607.3 $547.2 $1,857.1 $1,312.8 
Cost of sales251.0 238.8 773.8 598.0 
Gross profit356.3 308.4 1,083.3 714.8 
Operating expenses:
Selling, general and administrative250.6 226.8 747.5 681.3 
Research and development24.0 20.0 75.7 63.5 
Operating profit (loss)81.7 61.6 260.1 (30.0)
Nonoperating income (expense):
Other income0.2 0.2 0.8 0.4 
Interest expense, net(12.0)(23.4)(43.6)(41.2)
Income (loss) before income taxes69.9 38.4 217.3 (70.8)
Income tax (benefit) expense(10.3)14.8 (3.7)(22.2)
Income (loss) from continuing operations80.2 23.6 221.0 (48.6)
Income (loss) from discontinued operations, net of tax (refer to Note 3)12.7 12.0 33.7 (26.5)
Net income (loss)$92.9 $35.6 $254.7 $(75.1)
Earnings (loss) per share:
Earnings (loss) from continuing operations - basic$0.50 $0.15 $1.37 $(0.30)
Earnings (loss) from continuing operations - diluted$0.45 $0.14 $1.25 $(0.30)
Earnings (loss) from discontinued operations - basic$0.08 $0.08 $0.21 $(0.17)
Earnings (loss) from discontinued operations - diluted$0.07 $0.07 $0.19 $(0.17)
Earnings (loss) - basic$0.58 $0.22 *$1.58 $(0.47)
Earnings (loss) - diluted$0.52 $0.22 *$1.43 *$(0.47)
Average common stock and common equivalent shares outstanding:
Basic161.5 159.7 161.1 159.4 
Diluted178.1 163.9 177.5 159.4 
* Earnings (loss) per share is computed independently for earnings (loss) per share from continuing operations and earnings (loss) per share from discontinued operations. The sum of earnings (loss) per share from continuing operations and earnings (loss) per share from discontinued operations does not equal earnings (loss) per share due to rounding.
See the accompanying Notes to the Condensed Consolidated Financial Statements.
2


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
($ in millions)
Three Months EndedNine Months Ended
October 1, 2021October 2, 2020October 1, 2021October 2, 2020
Net income (loss)$92.9 $35.6 $254.7 $(75.1)
Other comprehensive (loss) income, net of income taxes:
Foreign currency translation adjustments(25.0)18.6 (64.3)14.5 
Cash flow hedge adjustments1.1 1.5 3.6 (7.4)
Pension plan adjustments0.2 0.2 (0.1)0.9 
Total other comprehensive (loss) income, net of income taxes(23.7)20.3 (60.8)8.0 
Comprehensive income (loss)$69.2 $55.9 $193.9 $(67.1)
See the accompanying Notes to the Condensed Consolidated Financial Statements.
3



ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
 ($ in millions)
Nine Months Ended October 1, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance, December 31, 2020$1.6 $3,684.4 $126.4 $(91.8)$3,720.6 $0.4 
Common stock-based award activity— 6.7 — — 6.7 — 
Net income— — 71.7 — 71.7 — 
Other comprehensive loss— — — (52.1)(52.1)— 
Balance, April 2, 20211.6 3,691.1 198.1 (143.9)3,746.9 0.4 
Common stock-based award activity— 16.5 — — 16.5 — 
Net income— — 90.1 — 90.1 — 
Other comprehensive income— — — 15.0 15.0 — 
Balance, July 2, 20211.6 3,707.6 288.2 (128.9)3,868.5 0.4 
Common stock-based award activity— 9.0 — — 9.0 — 
Net income— — 92.9 — 92.9 — 
Other comprehensive loss— — — (23.7)(23.7)— 
Balance, October 1, 2021$1.6 $3,716.6 $381.1 $(152.6)$3,946.7 $0.4 
Nine Months Ended October 2, 2020
Common StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance, December 31, 2019$1.6 $3,589.7 $93.1 $(144.2)$3,540.2 $2.6 
Common stock-based award activity— 6.4 — — 6.4 — 
Net loss— — (17.2)— (17.2)— 
Other comprehensive loss— — — (45.7)(45.7)— 
Balance, April 3, 20201.6 3,596.1 75.9 (189.9)3,483.7 2.6 
Common stock-based award activity— 7.6 — — 7.6 — 
Equity component of convertible senior notes, net of financing costs and taxes— 77.9 — — 77.9 — 
Purchase of capped calls related to issuance of convertible senior notes, net of taxes— (15.7)— — (15.7)— 
Net loss— — (93.5)— (93.5)— 
Other comprehensive income— — — 33.4 33.4 — 
Changes in noncontrolling interests— — — — — (0.1)
Balance, July 3, 20201.6 3,665.9 (17.6)(156.5)3,493.4 2.5 
Common stock-based award activity— 8.3 — — 8.3 
Net income— — 35.6 — 35.6 
Other comprehensive income— — — 20.3 20.3 
Changes in noncontrolling interests— — — — — $(0.3)
Balance, October 2, 2020$1.6 $3,674.2 $18.0 $(136.2)$3,557.6 $2.2 
See the accompanying Notes to the Condensed Consolidated Financial Statements.

4


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in millions)
 Nine Months Ended
 October 1, 2021October 2, 2020
Cash flows from operating activities:
Net income (loss)$254.7 $(75.1)
Noncash items:
Depreciation29.4 31.5 
Amortization62.6 68.0 
Allowance for credit losses4.2 20.1 
Stock-based compensation expense21.6 16.7 
Gain on sale of property, plant and equipment(2.2) 
Restructuring charges0.3 11.1 
Impairment charges9.4 17.1 
Amortization of right-of-use assets21.3 23.1 
Amortization of debt discount and issuance costs17.6 8.0 
Change in trade accounts receivable(15.1)64.3 
Change in inventories(67.1)16.8 
Change in trade accounts payable(39.9)(49.3)
Change in prepaid expenses and other assets(23.4)(33.8)
Change in accrued expenses and other liabilities(18.7)(0.8)
Change in operating lease liabilities(29.1)(27.2)
Net cash provided by operating activities225.6 90.5 
Cash flows from investing activities:
Acquisitions, net of cash acquired (40.7)
Payments for additions to property, plant and equipment(46.0)(34.6)
Proceeds from sales of property, plant and equipment11.6  
All other investing activities8.5 11.3 
Net cash used in investing activities(25.9)(64.0)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes 517.5 
Payment of debt issuance and other deferred financing costs(2.3)(17.2)
Proceeds from revolving line of credit 249.8 
Repayment of revolving line of credit (250.0)
Repayment of borrowings(475.7) 
Purchase of capped calls related to issuance of convertible senior notes (20.7)
Proceeds from stock option exercises16.0 8.7 
All other financing activities(5.4)0.6 
Net cash (used in) provided by financing activities(467.4)488.7 
Effect of exchange rate changes on cash and cash equivalents17.6 (25.6)
Net change in cash and cash equivalents(250.1)489.6 
Beginning balance of cash and cash equivalents888.9 211.2 
Ending balance of cash and cash equivalents$638.8 $700.8 
5


Supplemental data:
Cash paid for interest$26.1 $34.3 
Cash paid for taxes$65.6 $22.3 
ROU assets obtained in exchange for operating lease obligations$24.9 $16.0 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
6


ENVISTA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Separation and Initial Public Offering
Envista Holdings Corporation (together with its subsidiaries, “Envista” or the “Company”) was formed as a wholly-owned subsidiary of Danaher Corporation (“Danaher”). Danaher formed Envista to ultimately acquire, own and operate the Dental business of Danaher. On September 20, 2019, the Company completed an initial public offering (“IPO”) resulting in the issuance of 30.8 million shares of its common stock (including shares issued pursuant to the underwriters’ option to purchase additional shares) to the public, which represented 19.4% of the Company’s outstanding common stock, at $22.00 per share, the initial public offering price, for total net proceeds, after deducting underwriting discounts and commissions, of $643.4 million. In connection with the completion of the IPO, through a series of equity and other transactions, Danaher transferred substantially all of its Dental business to the Company. As consideration for the transfer of the Dental business to the Company, the Company paid Danaher approximately $2.0 billion, which included the net proceeds from the IPO and the net proceeds from term debt financing, as further discussed in Note 13, and issued to Danaher 127.9 million shares of the Company’s common stock. The transactions described above related to the transfer of the Dental business are collectively referred to herein as the “Separation.”
On November 15, 2019, Danaher announced an exchange offer whereby Danaher stockholders could exchange all or a portion of Danaher common stock for shares of the Company’s common stock owned by Danaher. The disposition of the Company’s shares was completed on December 18, 2019 and resulted in the full separation of the Company and disposal of Danaher’s entire ownership and voting interest in the Company.

Business Overview

The Company provides products that are used to diagnose, treat and prevent disease and ailments of the teeth, gums and supporting bone, as well as to improve the aesthetics of the human smile. The Company is a worldwide provider of a broad range of dental implants, orthodontic appliances, general dental consumables, equipment and services and is dedicated to driving technological innovations that help dental professionals improve clinical outcomes and enhance productivity.

The Company operates in two business segments: Specialty Products & Technologies and Equipment & Consumables.
The Company’s Specialty Products & Technologies segment develops, manufactures and markets dental implant systems, dental prosthetics and associated treatment software and technologies, as well as orthodontic bracket systems, aligners and lab products. The Company’s Equipment & Consumables segment develops, manufactures and markets dental equipment and supplies used in dental offices, including digital imaging systems, software and other visualization/magnification systems; endodontic systems and related consumables; and restorative materials and instruments, rotary burs, impression materials, bonding agents and cements and infection prevention products.

Basis of Presentation
All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the financial statements. All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying Condensed Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments and reclassifications to conform to current year presentation) necessary to present fairly the financial position of the Company as of October 1, 2021 and December 31, 2020, and its results of operations for the three and nine month periods ended October 1, 2021 and October 2, 2020 and cash flows for the nine month periods ended October 1, 2021 and October 2, 2020. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated and Combined Financial Statements and accompanying notes for the three years ended December 31, 2020, included in the Annual Report on Form 10-K filed by the Company with the SEC on February 19, 2021.

7


As discussed in Note 3, Discontinued Operations, the Company has entered into a master sale and purchase agreement to sell its KaVo dental treatment unit and instrument business (the "KaVo Treatment Unit and Instrument Business"), which was part of the Company’s Equipment and Consumables segment. The previously reported amounts for the KaVo Treatment Unit and Instrument Business have been reclassified to discontinued operations for all periods presented. All segment information and descriptions exclude the KaVo Treatment Unit and Instrument Business.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the novel coronavirus (“COVID-19”) pandemic. During 2020, the Company’s sales and results of operations were most impacted by the COVID-19 pandemic during the first and second quarters with positive signs of recovery during the third and fourth quarters of 2020. During the three and nine months ended October 1, 2021, the Company continued to see positive signs of recovery in certain markets in which it operates, however, certain markets continue to be more adversely impacted than others.

The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict because of the dynamic and evolving nature of the crisis. A worsening of the pandemic or impacts of new variants of the virus may lead to temporary closures of dental practices in the future. Furthermore, capital markets and economies worldwide have also been negatively impacted by the COVID-19 pandemic, and it is possible that it could cause a material local and/or global economic slowdown or global recession. Such economic disruption could have a material adverse effect on the Company as the Company’s customers curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. The magnitude and overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company's business will depend on a number of factors, including, but not limited to, the scope and duration of the pandemic, the extent and severity of the impact on the Company's customers, the measures that have been and may be taken to contain the virus (including its various mutations) and mitigate its impact, U.S. and foreign government actions to respond to the reduction in global economic activity, the ability of the Company to continue to manufacture and source its products and to find suitable alternative products at reasonable prices, the impact of the pandemic and associated economic downturn on the Company’s ability to access capital if and when needed and how quickly and to what extent normal economic and operating conditions can resume, all of which are uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, the Company may continue to experience materially adverse impacts on the Company’s financial condition and results of operations.

The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, continued or worsening supply chain disruptions, uncertain demand, staffing shortages due to any federal, state, and local vaccine mandates and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers and suppliers. The extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Accounting Standards Recently Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. The ASU was effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company adopted this guidance on January 1, 2021, which did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.

8


Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Condensed Consolidated Financial Statements.

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 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The ASU is effective for public entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. If an entity elects to apply any of the amendments for an eligible hedging relationship existing as of the beginning of the interim period that includes March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of that interim period and recognized in accordance with the guidance in Reference Rate Reform Subtopics 848-30, 848-40, and 848-50 (as applicable). If an entity elects to apply any of the amendments for a new hedging relationship entered into between the beginning of the interim period that includes March 12, 2020 and March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of the hedging relationship and recognized in accordance with the guidance in Reference Rate Reform Subtopics 848-30, 848-40, and 848-50 (as applicable).

The expedients and exceptions provided by the amendments do not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Condensed Consolidated Financial Statements.

NOTE 2. ACQUISITION
On January 21, 2020, the Company acquired all of the shares of Matricel GmbH (“Matricel”) for cash consideration of approximately $43.6 million. Matricel, a German company, is a provider of biomaterials used in dental applications and complements the Company’s Specialty Products & Technologies segment. For the three and nine months ended October 2, 2020, Matricel’s revenue and earnings were not material to the Condensed Consolidated Statements of Operations. Goodwill was not deductible for income tax purposes. The measurement period for adjustments related to the purchase price allocation for this acquisition is complete.

9


The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date ($ in millions):

January 21, 2020
Assets acquired:
   Cash$2.9 
   Trade accounts receivable1.0 
   Inventories1.9 
   Prepaid expenses and other current assets0.2 
   Property, plant and equipment0.5 
   Goodwill25.1 
   Other intangible assets22.3 
       Total assets acquired53.9 
Liabilities assumed:
   Trade accounts payable(0.1)
   Accrued expenses and other liabilities(10.2)
       Total liabilities assumed(10.3)
Total net assets acquired$43.6 

The excess of the purchase price over the fair value assigned to the assets acquired and liabilities assumed represents the goodwill resulting from the acquisition. Goodwill attributable to the acquisition has been recorded as a non-current asset and is not amortized, but is subject to review at least on an annual basis for impairment. Goodwill recognized was primarily attributable to expected operating efficiencies and expansion opportunities in the business acquired. The pro forma impact of this acquisition is not presented as it was not considered material to the Company's Condensed Consolidated Financial Statements.

The intangible assets acquired consist of technology and customer relationships. The weighted average amortization period of the acquired intangible assets in the aggregate is 10 years.

NOTE 3. DISCONTINUED OPERATIONS
On September 7, 2021, the Company entered into a master sale and purchase agreement (the "Purchase Agreement") with planmeca Verwaltungs GmbH, Germany ("Planmeca"), and Planmeca Oy, a privately-held Finnish company, as guarantor, pursuant to which the Company will sell to Planmeca its KaVo Treatment Unit and Instrument Business for total consideration of up to $455 million, which includes a potential earn-out payment of up to $30 million, subject to certain adjustments as provided in the Purchase Agreement. The Purchase Agreement provides that the Company will sell the KaVo Treatment Unit and Instrument Business through the sale of certain assets, the transfer of the equity of certain of its subsidiaries, and the assumption by Planmeca of certain liabilities and agreements, in each case used in or related to the KaVo Treatment Unit and Instrument Business (the "Divestiture"). The transaction is expected to close at the end of 2021.

The Divestiture was part of the Company’s strategy to structurally improve its long-term margins and represents a strategic shift with a major effect on the Company’s operations and financial results as described in Accounting Standards Codification—Discontinued Operations ("ASC 205-20"). The pending sale meets the criteria to be accounted for as a discontinued operation. Accordingly, the Company has applied discontinued operations treatment for the Divestiture as required by ASC 205-20. In accordance with ASC 205-20, the Company reclassified the Divestiture to assets and liabilities held for sale on its Condensed Consolidated Balance Sheets as of October 1, 2021 and December 31, 2020 and reclassified the financial results of the Divestiture in its Condensed Consolidated Statements of Operations for all periods presented. The Company’s Condensed Consolidated Statements of Cash Flows for the three and nine months ended October 1, 2021 and October 2, 2020 include the financial results of the KaVo Treatment Unit and Instrument Business.



10


The carrying amounts of the assets and liabilities of the Divestiture have been reclassified from their historical balance sheet presentation to current and noncurrent assets and current and noncurrent liabilities held for sale as follows:
As of
October 1, 2021December 31, 2020
ASSETS
Current assets:
Trade accounts receivable, less allowance for credit losses of $4.4 and $6.6, respectively
$57.4 $59.3 
Inventories, net53.5 50.9 
Prepaid expenses and other current assets6.7 3.7 
Property, plant and equipment, net27.5  
Operating lease right-of-use assets2.8  
Other assets8.2  
Goodwill212.0  
Other intangible assets, net99.9  
Current assets held for sale$468.0 $113.9 
Property, plant and equipment, net$ $28.4 
Operating lease right-of-use assets 2.6 
Other long-term assets 8.2 
Goodwill 223.3 
Other intangible assets, net 106.5 
Noncurrent assets held for sale$ $369.0 
LIABILITIES AND EQUITY
Current liabilities:
Trade accounts payable$20.4 $32.6 
Accrued expenses and other liabilities53.5 62.5 
Operating lease liabilities2.7 1.4 
Other liabilities60.5  
Current liabilities held for sale$137.1 $96.5 
Operating lease liabilities$ $1.2 
Other long-term liabilities 61.8 
Noncurrent liabilities held for sale$ $63.0 

















11


The operating results of the Divestiture are reflected in the Condensed Consolidated Statements of Operations within income (loss) from discontinued operations, net of tax as follows:

 Three Months EndedNine Months Ended
 October 1, 2021October 2, 2020October 1, 2021October 2, 2020
Sales$102.5 $93.3 302.0 $236.8 
Cost of sales57.2 61.1 174.4 182.1 
Gross profit45.3 32.2 127.6 54.7 
Operating expenses:
Selling, general and administrative25.2 22.0 70.4 78.1 
Research and development3.8 2.4 12.5 10.1 
Operating profit (loss)16.3 7.8 44.7 (33.5)
Income tax expense (benefit)$3.6 $(4.2)$11.0 $(7.0)
Income (loss) from discontinued operations$12.7 $12.0 $33.7 $(26.5)

Significant non-cash operating items and capital expenditures for the Divestiture are reflected in the cash flows from operations as follows:

Nine Months Ended
October 1, 2021October 2, 2020
Cash flows from operating activities
Non-cash restructuring charges$ $9.6 
Impairment charges$ $10.3 
Depreciation and amortization1
$5.6 $9.0 
Cash flows from investing activities:
Capital expenditures$4.2 $4.5 
1 Depreciation and amortization are no longer recognized once the business is classified as held for sale.

NOTE 4. CREDIT LOSSES

The allowance for credit losses is a valuation account deducted from accounts receivable to present the net amount expected to be collected. Accounts receivable are charged off against the allowance when management believes the uncollectibility of an accounts receivable balance is confirmed.

Management estimates the adequacy of the allowance by using relevant available information, from internal and external sources, relating to past events, current conditions and forecasts. Historical credit loss experience provides the basis for estimation of expected credit losses and is adjusted as necessary using the relevant information available. The allowance for credit losses is measured on a collective basis when similar risk characteristics exist. The Company has identified one portfolio segment based on the following risk characteristics: geographic regions, product lines, default rates and customer specific factors.

The factors used by management in its credit loss analysis are inherently subject to uncertainty. The extent of the impact of the COVID-19 pandemic on the Company's business is highly uncertain and difficult to predict. The Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic, including the impact of delays in payments of outstanding receivable amounts beyond normal payment terms. If actual results are not consistent with management’s estimates and assumptions, the allowance for credit losses may be overstated or understated and a charge or credit to net income (loss) may be required.

12


The rollforward of the allowance for credit losses is summarized as follows ($ in millions):

Balance at December 31, 2020$30.5 
Foreign currency translation(0.8)
Provision for credit losses3.5 
Write-offs charged against the allowance(3.6)
Recoveries(4.4)
Balance at October 1, 2021$25.2 

NOTE 5. INVENTORIES
The classes of inventory are summarized as follows ($ in millions):
October 1, 2021December 31, 2020
Finished goods$232.3 $179.3 
Work in process21.1 25.3 
Raw materials82.0 71.8 
Reserve for inventory obsolescence(61.1)(60.4)
Total$274.3 $216.0 

NOTE 6. PROPERTY, PLANT AND EQUIPMENT
The classes of property, plant and equipment are summarized as follows ($ in millions):
October 1, 2021December 31, 2020
Land and improvements$10.8 $16.9 
Buildings and improvements172.2 148.8 
Machinery, equipment and other assets365.5 342.8 
Construction in progress42.1 84.8 
Gross property, plant and equipment590.6 593.3 
Less: accumulated depreciation(324.5)(318.7)
Property, plant and equipment, net$266.1 $274.6 

NOTE 7. GOODWILL
The following is a rollforward of the Company’s goodwill by segment ($ in millions):
Specialty Products & TechnologiesEquipment & ConsumablesTotal
Balance, December 31, 2020$2,099.0 $1,108.4 $3,207.4 
Foreign currency translation(49.7)(11.9)(61.6)
Balance, October 1, 2021$2,049.3 $1,096.5 $3,145.8 

13


NOTE 8. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities were as follows ($ in millions):
October 1, 2021December 31, 2020
CurrentNoncurrentCurrentNoncurrent
Compensation and benefits$163.8 $17.0 $142.5 $13.6 
Restructuring-related employee severance, benefits and other15.3  23.0  
Pension benefits8.5 58.6 8.5 60.6 
Taxes, income and other47.8 200.6 48.3 199.8 
Contract liabilities57.0 4.5 44.6 3.6 
Sales and product allowances68.0 1.2 56.9 0.9 
Loss contingencies10.0 29.1 6.3 33.2 
Derivative financial instruments32.2  42.4 27.8 
Other107.3 7.2 95.3 7.5 
Total$509.9 $318.2 $467.8 $347.0 

NOTE 9.  HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses cross-currency swap derivative contracts to partially hedge its net investments in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. The cross-currency swap derivative contracts are agreements to exchange fixed-rate payments in one currency for fixed-rate payments in another currency. On September 20, 2019, the Company entered into cross-currency swap derivative contracts with respect to its $650.0 million senior unsecured term loan facility. These contracts effectively convert the $650.0 million senior unsecured term loan facility to an obligation denominated in euros and partially offsets the impact of changes in currency rates on foreign currency denominated net investments. The changes in the fair value of these instruments are recorded in accumulated other comprehensive loss in equity, in the accompanying Condensed Consolidated Balance Sheets, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive loss as reflected in Note 14. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The interest income or expense from these swaps is recorded in interest expense in the Company’s Condensed Consolidated Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature in September 2022.

The Company also has foreign currency denominated long-term debt in the amount of €208.0 million. This senior unsecured term loan facility represents a partial hedge of the Company’s net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. The euro senior unsecured term loan facility is designated and qualifies as a non-derivative hedging instrument. Accordingly, the foreign currency translation of the euro senior unsecured term loan facility is recorded in accumulated other comprehensive loss in equity in the accompanying Condensed Consolidated Balance Sheets, offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive loss in equity (see Note 14). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The euro senior unsecured term loan facility matures in September 2024. Refer to Note 13 for a further discussion of the above loan facilities.
The Company uses interest rate swap derivative contracts to reduce its variability of cash flows related to interest payments with respect to its senior unsecured term loans. The interest rate swap contracts exchange interest payments based on variable rates for interest payments based on fixed rates. The changes in the fair value of these instruments are recorded in accumulated other comprehensive loss in equity (see Note 14). Any ineffective portions of the cash flow hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The interest income or expense from these swaps is recorded in interest expense in the Company’s Condensed Consolidated Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on September 2022.
14


The following table summarizes the notional values as of October 1, 2021 and October 2, 2020 and pretax impact of changes in the fair values of instruments designated as net investment hedges and cash flow hedges in accumulated other comprehensive loss (“OCI”) for the three and nine months ended October 1, 2021 and October 2, 2020 ($ in millions):

Three Months Ended
October 1, 2021
Three Months Ended
October 2, 2020
Notional AmountGain Recognized in OCINotional AmountGain (Loss) Recognized in OCI
Interest rate contracts$250.0 $1.5 $450.0 $1.9 
Foreign currency contracts650.0 14.1 650.0 (30.7)