DENTSPLY SIRONA INC. Information included in or incorporated by reference in this Form 10-Q, and other filings with theU.S. Securities and Exchange Commission (the "SEC") and the Company's press releases or other public statements, contains or may contain forward-looking statements. Please refer to a discussion of the Company's forward-looking statements and associated risks in Part I, "Forward-Looking Statements," Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" of the Company's Form 10-K for the year endedDecember 31, 2019 . See updated risk factors in Part II, Item 1A, "Risk Factors" of this Form 10-Q.
Company Profile
DENTSPLY SIRONA Inc. ("Dentsply Sirona" or the "Company"), is the world's largest manufacturer of professional dental products and technologies, with a 133-year history of innovation and service to the dental industry and patients worldwide.Dentsply Sirona develops, manufactures, and markets a comprehensive solutions offering including dental equipment and dental consumable products under a strong portfolio of world class brands. The Company also manufactures and markets healthcare consumable products. AsThe Dental Solutions Company ,Dentsply Sirona's products provide innovative, high-quality and effective solutions to advance patient care and deliver better, safer and faster dentistry.Dentsply Sirona's worldwide headquarters is located inCharlotte, North Carolina . The Company's shares of common stock are listed inthe United States on Nasdaq under the symbol XRAY.
BUSINESS
The Company operates in two operating segments, Technologies & Equipment and Consumables.
The Technologies & Equipment 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 clear aligner products, imaging systems, treatment centers, instruments, as well as consumable medical device products. The Consumables segment is responsible for the worldwide design, manufacture, sales and distribution of the Company's Dental Consumable Products which include preventive, restorative, endodontic, and dental laboratory products.
The impact of COVID-19 and the Company's response
The impact to the Company's net sales and net income during the six months ended
•As previously announced, in the early part of the first quarter, the Company started to experience declines in customer demand inAsia as a result of the effects of COVID-19. As COVID-19 spread to other geographies during the first quarter, the Company experienced effects on customer demand in those regions as well. In early March, the Company experienced declines in demand in the European region, followed byNorth and South America in the second half of March. These decreases in demand were primarily driven by the government actions taken to limit the spread of COVID-19. Additionally, end-user demand was affected by guidance from professional dental associations recommending practitioners only perform emergency procedures. •The Company continued to see lower levels of customer demand on a global basis as a result of government authorities extending actions taken in response to COVID-19. The Company experienced the lowest sales levels in April and began to see an increase in sales during May and June as most stay-at-home orders were lifted and dental practices started to re-open particularly inthe United States ,Europe and certain Asian countries within the Rest of World region. •While government authorities have lifted many of these restrictions, the end dates for all restrictions being lifted are still unknown. It is also uncertain when customer demand will return to pre-COVID-19 levels upon lifting these restrictions. 36 -------------------------------------------------------------------------------- •The demand for the Company's products has been, and continues to be, affected by social distancing guidelines, newly implemented dental practice safety protocols which reduces patient traffic, and patient reluctance to seek dental care. At this time, it is uncertain how long these impacts will continue.
The Company's response to the pandemic through
•A COVID-19 infection crisis management process was implemented by the Company to have a unified approach to responding to employees infected by COVID-19. All potential and actual cases across the Company were reviewed to ensure that the Company managed exposed employees appropriately, consistently and safely. No major outbreaks have occurred at any of the Company's locations. •The Company put in place a travel ban, implemented a work from home policy where possible and prohibited all meetings of more than 10 people. These measures were taken to limit employee exposure to COVID-19 as well as comply with stay-at-home and social distancing guidelines. •A customer service support continuity plan was implemented to meet customer needs. Technical support was maintained to assist the Company's customers during this period while still ensuring employees' safety. •The Company remained focused on maintaining a high level of customer support through robust virtual training and development courses. •The Company suspended or significantly reduced operations at most of its principal manufacturing and distribution locations, which included furloughing employees related to these locations. While the operations were suspended or significantly reduced, the Company continued to fulfill customer demand. The Company also continued sales and manufacturing operations at normal levels within the Healthcare business. •The Company reduced spending on sales, marketing, and other related expenses due to the decrease in customer demand. Additionally, the Company instituted a global hiring freeze, a reduction in temporary employees and consultants as well as curtailed or stopped all projects that are not critical to the continuity of the business. Despite these reductions, the Company maintained investment in critical capital and research and development projects as well as global efficiency and cost savings initiatives. •During April, the Company announced additional furloughs or the reduction of working hours for employees throughout its organization. The total number of employees impacted by these measures represented approximately 52% of the workforce. The furloughs remained in place throughout the second quarter. •For the safety of all employees and customers, the Company established additional protocols as well as following all mandated regulatory requirements imposed by the country, the state and the local jurisdictions in which the Company operates. •The Company implemented salary reductions of up to 25% for most employees of the Company who were not furloughed during the second quarter where allowed by law, including members of management. These reductions were in place for 90 days. The CEO relinquished all but the portion of his base salary necessary to fund, on an after-tax basis, his contributions to continue to participate in the Company's health benefits plan and meet certain other legal requirements. In addition, each member of the Board of Directors agreed to waive one quarter of his or her annual cash retainer for 2020. •Many governments across the world instituted programs to reimburse business entities for a portion of employee compensation expense for employees that are furloughed or that are working reduced hours. The Company applied for and has received relief under these programs as well as certain other programs instituted by governments to mitigate the negative impacts of COVID-19. •In an effort to preserve liquidity, the Company took action related to deferring the payment of income and payroll tax related liabilities where governments have allowed such deferrals. Additionally, the Company implemented cost containment measures to ensure the preservation of cash. •Further, out of an abundance of caution in order to support its liquidity, the Company entered into and announced onApril 9, 2020 , a$310.0 million revolving credit facility, onMay 5, 2020 entered into a40.0 million euro revolving credit facility, onMay 26, 2020 issued$750.0 million of senior unsecured notes, onMay 12, 2020 entered into a30.0 million euro revolving credit facility, and onJune 11, 2020 entered into a3.3 billion Japanese yen revolving credit facility. These liquidity measures are in addition to the Company's$700.0 million revolving credit facility disclosed in its Form 10-K forDecember 31, 2019 filed onMarch 2, 2020 . 37 -------------------------------------------------------------------------------- •The Company elected to drawdown the full amount of the$700.0 million revolving credit facility to provide additional liquidity and financial flexibility in light of current economic conditions and uncertainties arising in connection with the COVID-19 pandemic. Upon the issuance of the$750.0 million of senior unsecured notes, the Company subsequently repaid the$700.0 million revolving credit facility.
In addition to continuing the above measures, subsequent to the six months ended
•The Company continues to prioritize employee safety and preventing the possible spread of COVID-19 by encouraging ongoing work-from-home where possible and maintaining travel restrictions. •The Company continues to take measures to contain costs in light of lower sales levels. The Company is also taking actions to accelerate the cost improvement initiatives included in the previously announced restructuring plan. Up through the date of the filing of this Form 10-Q, the Company continues to operate its principal manufacturing facilities and other operations at a reduced capacity with the exception of its Healthcare business which is operating at normal capacity. While at a reduced level, the Company is still selling all products in its portfolio. The Company cannot estimate when its net sales will return to pre-COVID-19 levels or when manufacturing facilities and other operations will resume operating at a normal capacity. The Company continues to monitor the COVID-19 pandemic. As governmental authorities adjust restrictions globally, the Company will appropriately staff sales, manufacturing, and other functions to meet customer demand and deliver on continuing critical projects while also complying with all government requirements.
Restructuring Announcement
InNovember 2018 , the Board of Directors of the Company approved a plan to restructure and simplify the Company's business. The goal of the restructuring is to drive annualized net sales growth of 3% to 4% and adjusted operating income margins of 22% by the end of 2022 as well as achieve net annual cost savings of$200 million to$225 million by 2021. InJuly 2020 , the Board of Directors of the Company approved an expansion of this plan that further optimizes the Company's product portfolio and reduces operating expenses. The product portfolio optimization will result in the divestiture or closure of certain underperforming businesses. The operating expense reductions will come as a result of additional leverage from continued integration and simplification of the business. The Company had initially anticipated one-time expenditures and charges of approximately$275 million yielding annual cost savings of$200 million to$225 million by 2021. The program expansion will result in total charges of approximately$375 million and is expected to result in annual cost savings of approximately$250 million . The Company expects that these expanded actions will result in incremental global headcount reductions of 6% to 7% in addition to the original projections of 6% to 8%. SinceNovember 2018 , the Company has incurred expenditures of approximately$225 million under this program, of which, approximately$75 million were non-cash charges. As part of this expanded plan, the Company announced onAugust 6, 2020 that it will close its traditional orthodontics business as well as close and restructure certain portions of its laboratory business. The traditional orthodontics business is part of the Technologies & Equipment segment and the laboratory business is part of the Consumables segment. The Company intends to close several of its facilities and reduce its workforce by approximately 4% to 5%. The Company expects to record restructuring charges in a range of$80 million to$90 million for inventory write-downs, severance costs, fixed asset write-offs and other facility closure costs. It is expected that the majority of these charges will be taken during the remainder of 2020. The Company estimates that$45 million to$55 million of the restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs. The Company does not expect a significant impact to net sales in the third and fourth quarter of 2020. Both businesses have been experiencing negative sales growth and are dilutive to the Company's operating income rate. The Company's traditional orthodontics business, which includes brackets, bands, tubes and wires, had net sales of$132 million in 2019. The portion of the laboratory business the Company is closing manufactures removable dentures and related products and had net sales of$44 million in 2019. The net income of these businesses is not material to the Company's consolidated results. 38 --------------------------------------------------------------------------------
Business Drivers
The primary drivers of sales growth include macroeconomic factors, global dental
market demand, innovation and new product launches by the Company, as well as
continued investments in sales and marketing resources, including clinical
education. Management believes that the Company's ability to execute its
strategies should allow it to grow faster than the underlying dental market over
time. On a short-term basis, sudden changes in the macroeconomic environment
such as COVID-19, changes in strategy, or distributor inventory levels can and
have impacted the Company's sales.
The Company has a focus on maximizing operational efficiencies on a global
basis. The Company has expanded the use of technology as well as process
improvement initiatives to enhance global efficiency. In addition, management
continues to evaluate the worldwide consolidation of operations and functions to
further reduce costs. While the Company continues consolidation initiatives
which can have an adverse impact on reported results in the short-term, the
Company expects that the continued benefits from these global efficiency efforts
will improve its cost structure over time.
Product innovation is a key component of the Company's overall growth strategy.
New advances in technology are anticipated to have a significant influence on
future products in the dentistry and consumable medical device markets in which
the Company operates. As a result, the Company continues to pursue research and
development initiatives to support technological development, including
collaborations with various research institutions and dental schools. In
addition, the Company licenses and purchases technologies developed by third
parties. Although the Company believes these activities will lead to new
innovative dental and healthcare products, they involve new technologies and
there can be no assurance that marketable products will be developed.
Subject to the pace of the post-pandemic recovery, the Company intends to
continue pursuing opportunities to expand the Company's product offerings,
technologies, and sales and service infrastructure through partnerships and
acquisitions. Although the professional dental and the consumable medical device
markets in which the Company operates have experienced consolidation, they
remain fragmented. Management believes that there will continue to be adequate
opportunities to participate as a consolidator in the industry for the
foreseeable future.
The Company's business is subject to quarterly fluctuations of consolidated net
sales and net income. Price increases, promotional activities, as well as
changes in inventory levels at distributors contribute to this fluctuation. The
Company typically implements most of its price increases in January or October
of a given year across most of its businesses. Distributor inventory levels tend
to increase in the period leading up to a price increase and decline in the
period following the implementation of a price increase. Required minimum
purchase commitments under agreements with key distributors may increase
inventory levels in excess of retail demand. These net inventory changes have
impacted the Company's consolidated net sales and net income in the past, and
may continue to do so in the future, over a given period or multiple periods. In
addition, the Company may from time to time, engage in new distributor
relationships that could cause fluctuations of consolidated net sales and net
income. Distributor inventory levels may fluctuate, and may differ from the
Company's predictions, resulting in the Company's projections of future results
being different than expected. There can be no assurance that the Company's
dealers and customers will maintain levels of inventory in accordance with the
Company's predictions or past history, or that the timing of customers'
inventory build or liquidation will be in accordance with the Company's
predictions or past history. The Company anticipates that inventory levels will
fluctuate as dealers and customers manage the effects of COVID-19 on their
businesses. Any of these fluctuations could be material to the Company's
consolidated financial statements.
39
--------------------------------------------------------------------------------Impact of Foreign Currencies
Due to the Company's significant international presence, movements in foreign currency exchange may impact the Consolidated Statements of Operations. With approximately two-thirds of the Company's net sales located outsidethe United States , the Company's consolidated net sales are impacted negatively by the strengthening or positively impacted by the weakening of theU.S. dollar. Additionally, movements in certain foreign exchange rates may unfavorably or favorably impact the Company's results of operations, financial condition and liquidity as a number of the Company's manufacturing and distribution operations are located outside of theU.S. 40 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS, THREE MONTHS ENDED
Net Sales
The Company presents reported net sales comparing the current year periods to the prior year periods. In addition, the Company also compares reported net sales on an organic sales basis, which is a Non-GAAP measure.
The Company defines "organic sales" as the increase or decrease in net sales excluding: (1) net sales from acquired and divested businesses recorded prior to the first anniversary of the acquisition or divestiture, (2) net sales attributable to discontinued product lines in both the current and prior year periods, and (3) the impact of foreign currency translation, which is calculated by comparing current-period sales to prior-period sales, with both periods converted to theU.S. dollar rate at local currency foreign exchange rates for each month of the prior period. The "organic sales" measure is not calculated in accordance with accounting principles generally accepted inthe United States ("US GAAP"); therefore, this item represents a Non-GAAP measure. This Non-GAAP measure may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Organic sales is an important internal measure for the Company. The Company's senior management receives a monthly analysis of operating results that includes organic sales. The performance of the Company is measured on this metric along with other performance metrics. The Company discloses organic sales to allow investors to evaluate the performance of the Company's operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company. The Company believes that this information is helpful in understanding underlying net sales trends. Three Months Ended June 30, (in millions, except percentages) 2020 2019 $ Change % Change Net sales$ 490.6 $ 1,009.4 $ (518.8) (51.4 %) Net sales for the three months endedJune 30, 2020 were$490.6 million , a decrease of$518.8 million or 51.4% from the three months endedJune 30, 2019 . The decrease in net sales was driven by both the Consumables segment and the Technologies & Equipment segment which were impacted by reduced demand for dental related procedures as a result of the COVID-19 pandemic. Net sales were negatively impacted by approximately 1.0% due to the strengthening of theU.S. dollar as compared to the same prior year period. This decrease included the negative impact of 0.4% from divestitures of non-strategic businesses and a 0.1% reduction due to discontinued products.
For the three months ended
During the three months endedJune 30, 2020 , the Company experienced the lowest sales levels in April and began to see an increase in sales during May and June as most stay-at-home orders were lifted and dental practices started to re-open particularly inthe United States andEurope . The ultimate impact that COVID-19 will have on 2020 results is still unknown at this time and will depend heavily on the substance and pace of the post-pandemic recovery. However, at this time the Company expects that the COVID-19 pandemic will continue to have a negative material impact on 2020 net sales. 41 --------------------------------------------------------------------------------
Net sales by geographic region were as follows:
Three Months
Ended
(in millions, except percentages) 2020 2019 $ Change % Change
United States $ 130.9 $ 329.5 $ (198.6) (60.3 %)
Europe 215.3 422.0 (206.7) (49.0 %)
Rest of World 144.4 257.9 (113.5) (44.0 %)
United States
Net sales for the three months ended June 30, 2020 were $130.9 million , a
decrease of $198.6 million or 60.3% from the three months ended June 30, 2019 .
Both the Consumables segment and the Technologies & Equipment segment saw a
decline in net sales which was the result of the COVID-19 pandemic. The decrease
also included a 0.3% reduction from divestitures of non-strategic businesses.
For the three months ended June 30, 2020 , net sales decreased by 60.0% on an
organic sales basis. The decline in organic sales was attributable to both the
Consumables segment and the Technologies & Equipment segment which was the
result of the COVID-19 pandemic.
Net sales for the three months endedJune 30, 2020 were$215.3 million , a decrease of$206.7 million or 49.0% from the three months endedJune 30, 2019 . Both the Technologies & Equipment segment and the Consumables segment saw a decline in net sales which was the result of the COVID-19 pandemic. The three months endedJune 30, 2020 was negatively impacted by approximately 1.1% due to the strengthening of theU.S. dollar as compared to the same prior year period. The decrease included reductions of 0.9% from divestitures of non-strategic businesses and 0.1% due to discontinued products. For the three month period endedJune 30, 2020 , net sales decreased by 46.9% on an organic sales basis. The decline in organic sales was attributable to both the Technologies & Equipment segment and the Consumables segment which was the result of the COVID-19 pandemic.
Rest of World
Net sales for the three months endedJune 30, 2020 were$144.4 million , a decrease of$113.5 million or 44.0% from the three months endedJune 30, 2019 . Both the Consumables segment and the Technologies & Equipment segment saw a decline in net sales which was the result of the COVID-19 pandemic. The three months endedJune 30, 2020 was negatively impacted by approximately 2.0% due to the strengthening of theU.S. dollar as compared to the same prior year period. The decrease included a 0.1% reduction from divestitures of non-strategic businesses. For the three month period endedJune 30, 2020 , net sales decreased by 41.9% on an organic sales basis. The decline in organic sales was attributable to both the Consumables segment and the Technologies & Equipment segment which was the result of the COVID-19 pandemic. 42 --------------------------------------------------------------------------------
Gross Profit
Three Months Ended June 30,
(in millions, except percentages) 2020 2019 $ Change % Change
Gross profit $ 176.1 $ 540.8 $ (364.7) (67.4%)
Gross profit as a percentage of net sales 35.9 % 53.6 %
For the three months ended June 30, 2020 , the decrease in the gross profit rate
was driven by the decline in net sales and the resulting unfavorable
manufacturing variances due to the COVID-19 pandemic, as compared to the same
period ended June 30, 2019 .
For the remainder of 2020, the Company believes the gross profit rate will be
unfavorably impacted as a result of lower net sales and manufacturing facilities
operating at reduced volume until market demand returns to normal levels.
Operating Expenses
Three Months Ended June 30,
(in millions, except percentages) 2020 2019 $ Change % Change
Selling, general, and administrative expenses
$ (151.8) (35.2 %) Restructuring and other costs 1.3 42.4 (41.1) (96.9 %) SG&A as a percentage of net sales 56.9 % 42.7 %
Selling, general, and administrative expenses
For the three months endedJune 30, 2020 , Selling, general, and administrative expenses ("SG&A"), including research and development expenses, as a percentage of net sales had a higher rate driven by lower sales which more than offsets the cost reduction measures implemented by the Company in response to COVID-19. For the remainder of 2020, the Company believes SG&A expenses will be lower than 2019, primarily due to the cost reduction measures including COVID-19 related actions. The cost reduction measures include, but are not limited to the reduction of the following expense categories: marketing and promotion expenses, travel and meeting expenses, salary expenses, and professional services. The Company expects to continue these measures until sales start to return to a more normal level. Restructuring and Other Costs The Company recorded restructuring and other costs of$1.3 million for the three months endedJune 30, 2020 compared to$42.4 million for the three months endedJune 30, 2019 .
The Company recorded
During the three months endedJune 30, 2020 , the Company recorded a benefit of$0.9 million of other costs. During the three months endedJune 30, 2019 , the Company recorded$31.7 million of other costs, which consist primarily of fixed asset impairments. 43 -------------------------------------------------------------------------------- The Company announced onAugust 6, 2020 that it will close its traditional orthodontics business as well as close and restructure certain portions of its laboratory business. The traditional orthodontics business is part of the Technologies & Equipment segment and the laboratory business is part of the Consumables segment. The Company intends to close several of its facilities and reduce it's workforce by approximately 4% to 5%. The Company expects to record restructuring charges in a range of$80 million to$90 million for inventory write-downs, severance costs, fixed asset write-offs and other facility closure costs. It is expected that the majority of these charges will be taken during the remainder of 2020. The Company estimates that$45 million to$55 million of the restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs The Company does not expect a significant impact to net sales in the third and fourth quarter of 2020. Both businesses have been experiencing negative sales growth and are dilutive to the Company's operating income rate. Other Income and Expense Three Months Ended June 30, (in millions) 2020 2019 $ Change Net interest expense$ 11.3 $ 7.8 $ 3.5 Other expense (income), net 4.3 12.1 (7.8) Net interest and other expense (income)$ 15.6 $ 19.9 $ (4.3) Net Interest Expense Net interest expense for the three months endedJune 30, 2020 increased$3.5 million as compared to the three months endedJune 30, 2019 . Higher average debt levels in 2020 was the primary driver when compared to the prior year period resulting in higher net interest expense. OnApril 17, 2020 the Company drew down$700.0 million under its 2018 revolving credit facility. OnMay 26, 2020 , the Company issued$750.0 million of senior unsecured notes with a final maturity date ofJune 1, 2030 at a semi-annual coupon of 3.25%. The net proceeds were$748.4 million , net of discount of$1.6 million . Issuance fees totaled$6.4 million . The Company paid$30.5 million to settle its$150.0 million notional T-Lock contract which partially hedged the interest rate risk of the note issuance. The Company repaid the$700.0 million revolver borrowing onMay 26, 2020 from the net proceeds of the note issuance.
As a result of the additional financing, the Company's interest expense will increase throughout the remainder of 2020. See Part I, Item 1, Note 11, Financing Arrangements, in the Notes to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q for further details.
Other Expense (Income), Net
Other expense (income), net for the three months endedJune 30, 2020 was expense of$4.3 million . Other expense (income), net for the three months endedJune 30, 2019 was expense of$12.1 million .
On
44
--------------------------------------------------------------------------------Income Taxes and Net (Loss) Income
Three Months Ended June 30,
(in millions, except per share data and percentages) 2020 2019 $ Change
(Benefit) provision for income taxes $ (24.0) Effective income tax rate NM
23.5 %
Net (loss) income attributable to
Net (loss) income per common share - diluted$ (0.44) $ 0.16 NM - Not meaningful
(Benefit) provision for income taxes
For the three months endedJune 30, 2020 , income taxes were a benefit of$24.0 million as compared to a net provision of$11.2 million during the three months endedJune 30, 2019 .
During the three months ended
During the three months endedJune 30, 2019 , the Company recorded$1.8 million of excess tax benefit related to employee share-based compensation. The Company also recorded a$10.1 million tax benefit as a discrete item related to a fixed asset impairment charge. Excluding these discrete tax items and adjusting pretax income to exclude the pretax charge related to the impairment of fixed assets and the losses related to the divestitures of non-strategic businesses, the Company's effective tax rate was 25.2%.
The Company is restructuring its business through streamlining of the organization and consolidating functions. Realization of the benefits of these plans could give rise to the release of a valuation allowance that has been established on the Company's deferred tax assets in a future period.
Operating Segment ResultsNet Sales Three Months Ended June 30, (in millions, except percentages) 2020 2019 $ Change % Change Technologies & Equipment$ 303.9 $ 558.4 $ (254.5) (45.6 %) Consumables 186.7 451.0 (264.3) (58.6 %)
Segment Operating (Loss) Income
Three Months Ended June 30,
(in millions, except percentages) 2020 2019 $ Change % Change Technologies & Equipment$ (3.8) $ 96.0 $ (99.8) (104.0 %) Consumables (17.6) 121.8 (139.4) (114.4 %) 45
--------------------------------------------------------------------------------
Technologies & Equipment
Net sales for the three months endedJune 30, 2020 were$303.9 million , a decrease of$254.5 million or 45.6% from the three months endedJune 30, 2019 . The decrease in net sales was across all businesses which were impacted by reduced demand for dental related procedures as a result of the COVID-19 pandemic. Net sales were negatively impacted by approximately 1.0% due to the strengthening of theU.S. dollar over the prior year period. The increase included a 0.9% negative impact from divestitures of non-strategic businesses and a 0.1% reduction due to discontinued products.
For the three months ended
Key drivers of the decrease in organic sales for the three months ended
Operating income decreased$99.8 million for the three months endedJune 30, 2020 as compared to the same prior year period. The decrease in operating income was driven by lower sales volume and unfavorable manufacturing variances due to the impact of COVID-19, partially offset by cost reduction measures in both gross profit and SG&A.
Consumables
Net sales for the three months endedJune 30, 2020 were$186.7 million , a decrease of$264.3 million or 58.6% from the three months endedJune 30, 2019 . The decrease in net sales was across all businesses which were impacted by reduced demand for dental related procedures as a result of the COVID-19 pandemic. Net sales were negatively impacted by approximately 0.9% due to the strengthening of theU.S. dollar as compared to the same prior year period.
For the three months ended
Key drivers of the decline in organic sales for the three months endedJune 30, 2020 , were the Endodontic, Restorative, and Preventive businesses driven by the COVID-19 pandemic. Operating income decreased$139.4 million for the three months endedJune 30, 2020 as compared to the same prior year period. The decrease in operating income was driven by lower sales volume and unfavorable manufacturing variances due to the impact of COVID-19, partially offset by cost reduction measures in both gross profit and SG&A. 46 -------------------------------------------------------------------------------- RESULTS OF OPERATIONS, SIX MONTHS ENDEDJUNE 30, 2020 COMPARED TO SIX MONTHS ENDEDJUNE 30, 2019 Net Sales Six Months Ended June 30, (in millions, except percentages) 2020 2019 $ Change % Change Net sales$ 1,364.9 $ 1,955.6 $ (590.7) (30.2 %) Net sales for the six months endedJune 30, 2020 were$1,364.9 million , a decrease of$590.7 million or 30.2% from the six months endedJune 30, 2019 . The decrease in net sales was attributable to both the Consumables segment and the Technologies & Equipment segment which were impacted by reduced demand for dental related procedures as a result of the COVID-19 pandemic, partially offset by new product sales. Net sales were negatively impacted by approximately 1.4% due to the strengthening of theU.S. dollar as compared to the same prior year period. This decrease included the negative impact of 0.9% from divestitures of non-strategic businesses and a 0.1% reduction due to discontinued products.
For the six months ended
During the six months endedJune 30, 2020 , the Company saw normal sales levels for the months of January and February and started to experience a decline in sales volume during March which continued to its lowest levels in April as certain countries inAsia andEurope began to issue stay-at-home and social distancing guidelines which were quickly adopted inthe United States as well. The Company then began to see an increase in sales during May and June as most stay-at-home orders were lifted and dental practices started to re-open particularly inthe United States andEurope . The ultimate impact that COVID-19 will have on 2020 results is still unknown at this time and will depend heavily on the substance and pace of the post-pandemic recovery. However, at this time the Company expects that the COVID-19 pandemic will continue to have a negative material impact to 2020 net sales.
Net sales by geographic region were as follows:
Six Months
Ended
(in millions, except percentages) 2020 2019 $ Change % Change
United States $ 431.4 $ 642.9 $ (211.5) (32.9 %)
Europe 588.4 817.8 (229.4) (28.1 %)
Rest of World 345.1 494.9 (149.8) (30.3 %)
United States
Net sales for the six months ended June 30, 2020 were $431.4 million , a decrease
of $211.5 million or 32.9% from the six months ended June 30, 2019 . The decrease
in net sales was attributable to both the Consumables segment and the
Technologies & Equipment segment which was a result of the COVID-19 pandemic.
The decrease also included a 1.2% reduction from divestitures of non-strategic
businesses in the prior year period.
For the six months ended June 30, 2020 , net sales decreased by 31.3% on an
organic sales basis. The decline in organic sales was attributable to both the
Consumables segment and the Technologies & Equipment segment which was a result
of the COVID-19 pandemic.
47
--------------------------------------------------------------------------------Net sales for the six months endedJune 30, 2020 were$588.4 million , a decrease of$229.4 million or 28.1% from the six months endedJune 30, 2019 . The decrease in net sales was attributable to both the Consumables segment and the Technologies & Equipment segment which was the result of the COVID-19 pandemic. The six months endedJune 30, 2020 was negatively impacted by approximately 1.8% due to the strengthening of theU.S. dollar as compared to the same prior year period. The decrease included reductions of 0.9% from divestitures of non-strategic businesses and 0.1% due to discontinued products. For the six month period endedJune 30, 2020 , net sales decreased by 25.2% on an organic sales basis. The decline in organic sales was attributable to both the Consumables segment and the Technologies & Equipment segment which was the result of the COVID-19 pandemic.
Rest of World
Net sales for the six months endedJune 30, 2020 were$345.1 million , a decrease of$149.8 million or 30.3% from the six months endedJune 30, 2019 . The decrease in net sales was attributable to both the Technologies & Equipment segment and the Consumables segment which was the result of the COVID-19 pandemic. The six months endedJune 30, 2020 was negatively impacted by approximately 2.2% due to the strengthening of theU.S. dollar as compared to the same prior year period. The decrease included reductions of 0.3% from divestitures of non-strategic businesses and 0.2% due to discontinued products.
For the six month period ended
Gross Profit
Six Months Ended June 30,
(in millions, except percentages) 2020 2019 $ Change % Change
Gross profit $ 643.9 $ 1,040.5 $ (396.6) (38.1 %)
Gross profit as a percentage of net sales 47.2 % 53.2 %
Gross profit as a percentage of net sales decreased by 603 basis points for the
six months ended
For the six months endedJune 30, 2020 , the decrease in the gross profit rate was primarily driven by the decline in net sales and the resulting unfavorable manufacturing variances due to the COVID-19 pandemic, as compared to the six months endedJune 30, 2019 .
For the remainder of 2020, the Company believes the gross profit rate will be unfavorably impacted as a result of manufacturing facilities operating at reduced volume until market demand returns to normal levels.
Operating Expenses
Six Months Ended June 30,
(in millions, except percentages) 2020 2019 $ Change % Change
Selling, general, and administrative
expenses ("SG&A") $ 672.6 $ 862.8 $ (190.2) (22.0 %)
Goodwill impairment 156.6 - 156.6 NM
Restructuring and other costs 43.8 62.9 (19.1) (30.4 %)
SG&A as a percentage of net sales 49.3 % 44.1 %
NM - Not meaningful
48--------------------------------------------------------------------------------
SG&A Expenses
SG&A expenses, including research and development expenses, as a percentage of net sales for the six months endedJune 30, 2020 increased 516 basis points as compared to the six months endedJune 30, 2019 . For the six months endedJune 30, 2020 , the higher rate was primarily driven by lower sales which more than offsets the cost reduction measures implemented by the Company in response to COVID-19. For the remainder of 2020, the Company believes SG&A expenses will be lower than 2019, primarily due to the cost reduction measures including COVID-19 related actions. The cost reduction measures include, but are not limited to the reduction of the following expense categories: marketing and promotion expenses, travel and meeting expenses, salary expenses, and professional services. The Company expects to continue these measures until sales start to return to a more normal level.Goodwill impairment For the six months endedJune 30, 2020 , the Company recorded a goodwill impairment charge of$156.6 million . The impairment charge is related to the Equipment & Instruments reporting unit within the Technologies & Equipment segment recorded in the three months endedMarch 31, 2020 . For further details see Part 1, Item 1, Note 12,Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.
Restructuring and Other Cost
The Company recorded restructuring and other costs of$43.8 million for the six months endedJune 30, 2020 compared to$62.9 million for the six months endedJune 30, 2019 .
The Company recorded
During the six months endedJune 30, 2020 , the Company recorded$39.3 million of other costs, which consist primarily of impairment charges of$38.7 million related to indefinite-lived intangible assets recorded in the three months endedMarch 31, 2020 . For further details see Part 1, Item 1, Note 12,Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q. During the six months endedJune 30, 2019 , the Company recorded$38.0 million of other costs, which consisted primarily of fixed asset impairments of$32.8 million and an impairment charges of$5.3 million related to indefinite-lived intangible assets. The Company announced onAugust 6, 2020 that it will close its traditional orthodontics business as well as close and restructure certain portions of its laboratory business. The traditional orthodontics business is part of the Technologies & Equipment segment and the laboratory business is part of the Consumables segment. The Company intends to close several of its facilities and reduce its workforce by approximately 4% to 5%. The Company expects to record restructuring charges in a range of$80 million to$90 million for inventory write-downs, severance costs, fixed asset write-offs and other facility closure costs. It is expected that the majority of these charges will be taken during the remainder of 2020. The Company estimates that$45 million to$55 million of the restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs The Company does not expect a significant impact to net sales in the third and fourth quarter of 2020. Both businesses have been experiencing negative sales growth and are dilutive to the Company's operating income rate. 49 --------------------------------------------------------------------------------
Other Income and Expense
Six Months Ended June 30,
(in millions) 2020 2019 Change
Net interest expense $ 17.6 $ 15.1 $ 2.5
Other expense (income), net 2.9 (1.7) 4.6
Net interest and other expense $ 20.5 $ 13.4 $ 7.1
Net Interest Expense
Net interest expense for the six months ended June 30, 2020 increased $2.5
million as compared to the six months ended June 30, 2019 . Higher average debt
levels in 2020 was the primary driver when compared to the prior year period
resulting in higher net interest expense.
On April 17, 2020 the Company drew down $700.0 million under its 2018 revolving
credit facility. On May 26, 2020 , the Company issued $750.0 million of senior
unsecured notes with a final maturity date of June 1, 2030 at a semi-annual
coupon of 3.25%. The net proceeds were $748.4 million , net of discount of $1.6
million . Issuance fees totaled $6.4 million . The Company paid $30.5 million to
settle its $150.0 million notional T-Lock contract which partially hedged the
interest rate risk of the note issuance. The Company repaid the $700.0 million
revolver borrowing on May 26, 2020 from the net proceeds of the note issuance.
As a result of the additional financing, the Company's interest expense will increase throughout the remainder of 2020. See Part I, Item 1, Note 11, Financing Arrangements, in the Notes to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q for further details.
Other Expense (Income), Net
Other expense (income), net for the six months endedJune 30, 2020 was expense of$2.9 million . Other expense (income), net for the six months endedJune 30, 2019 was income of$1.7 million and consisted primarily of a gain on the sale of a non-strategic business.
On
Income Taxes and Net (Loss) Income
Six Months Ended June 30 ,
(in millions, except per share data and percentages) 2020 2019 $ Change
(Benefit) provision for income taxes$ (13.8) $ 25.8 $ (39.6) Effective income tax rate NM 25.4 % Net (loss) income attributable to Dentsply Sirona$ (235.3)
Net (loss) income per common share - diluted$ (1.07) $ 0.34 NM - Not meaningful.
(Benefit) provision for income taxes
For the six months endedJune 30, 2020 , income taxes were a benefit of$13.8 million as compared to a net provision of$25.8 million during the six months endedJune 30, 2019 . 50 -------------------------------------------------------------------------------- During the six months endedJune 30, 2020 , the Company recorded$6.9 million of tax expense for other discrete tax matters. The Company also recorded a$10.6 million tax benefit as a discrete item related to the indefinite-lived intangible asset impairment charge. Excluding these discrete tax items and adjusting pretax income to exclude the pretax charge related to the impairment of the intangible assets and non-deductible goodwill impairment charge, the Company's effective tax rate was 18.6%. During the six months endedJune 30, 2019 , the Company recorded the following discrete tax items,$1.5 million of tax benefit related to employee share-based compensation and$2.1 million of tax expense for other discrete tax matters. The Company also recorded a$10.1 million tax benefit as a discrete item related to the fixed asset impairment charge and$1.5 million tax benefit related to the indefinite-lived intangible asset impairment charge. Excluding these discrete tax items and adjusting pretax income to exclude the pretax charge related to the impairment of fixed assets, impairment of the indefinite-lived intangible assets, and the losses related to the divestitures of non-strategic businesses, the Company's effective tax rate was 24.4%.
The Company is restructuring its business through streamlining of the organization and consolidating functions. Realization of the benefits of these plans could give rise to the release of a valuation allowance that has been established on the Company's deferred tax assets in a future period.
Operating Segment ResultsNet Sales Six Months Ended June 30, (in millions, except percentages) 2020 2019 $ Change % Change Technologies & Equipment$ 824.2 $ 1,079.2 $ (255.0) (23.6%) Consumables 540.7 876.4 (335.7) (38.3%) Segment Operating Income Six Months Ended June 30, (in millions, except percentages) 2020 2019 $ Change % Change Technologies & Equipment$ 107.3 $ 167.8 $ (60.5) (36.1%) Consumables 44.0 227.5 (183.5) (80.7%) Technologies & Equipment Net sales for the six months endedJune 30, 2020 were$824.2 million , a decrease of$255.0 million or 23.6% from the six months endedJune 30, 2019 . The decrease in net sales was across all businesses as compared to the same six month period in the prior year was the result of the COVID-19 pandemic. Net sales were negatively impacted by approximately 1.6% due to the strengthening of theU.S. dollar over the prior year period. The increase included a 1.6% negative impact from divestitures of non-strategic businesses and a 0.1% reduction due to discontinued products. For the six months endedJune 30, 2020 , net sales decreased 20.3% on an organic sales basis. Organic sales decline was across all regions which was the result of the COVID-19 pandemic.
Key drivers of the decrease in organic sales for the six months ended
Operating income decreased$60.5 or 36.1% for the six months endedJune 30, 2020 as compared to the same prior year period. The decrease in operating income was primarily driven by lower sales volume and unfavorable manufacturing variances due to the impact of COVID-19, partially offset by cost reduction measures in both gross profit and SG&A. 51 --------------------------------------------------------------------------------
Consumables
Net sales for the six months endedJune 30, 2020 were$540.7 million , a decrease of$335.7 million or 38.3% from the six months endedJune 30, 2019 . The decrease in net sales was across all businesses which was the result of the COVID-19 pandemic. Net sales were negatively impacted by approximately 1.2% due to the strengthening of theU.S. dollar as compared to the same prior year period. For the six months endedJune 30, 2020 , net sales decreased 37.1% on an organic sales basis. The decline in organic sales was due to lower demand in all regions which was a result of the COVID-19 pandemic.
Key drivers of the decline in organic sales for the six months ended
Operating income decreased
52
--------------------------------------------------------------------------------CRITICAL ACCOUNTING POLICIES
Except as noted below, there have been no other significant material changes to the critical accounting policies as disclosed in the Company's Form 10-K for the year endedDecember 31, 2019 .
Annual Goodwill Impairment Testing
Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to sell a business. The valuation date for annual impairment testing isApril 30 . The performance of the Company's 2020 annual impairment test did not result in any impairment of the Company's goodwill. The weighted average cost of capital ("WACC") rates utilized in the 2020 analysis ranged from 9.0% to 11.5%. For the Company's reporting units that were not impaired atMarch 31, 2020 (seeMarch 31, 2020 Impairment Testing below), the Company applied a hypothetical sensitivity analysis. If the WACC rate of these reporting units had been hypothetically increased by 100 basis points atApril 30, 2020 , one reporting unit within the Company's Technologies & Equipment segment, would have a fair value that would approximate book value. If the fair value of each of these reporting units had been hypothetically reduced by 10% atApril 30, 2020 , the fair value of those reporting units would still exceed net book value.Goodwill for this reporting unit totals$1.1 billion atJune 30, 2020 . If the Company's analysis in the future indicates additional unfavorable impacts related to the ongoing COVID-19 pandemic, an increase in discount rates or a degradation in the overall markets served by these reporting units, any of which could have a negative material impact to the fair value and result in a future impairment of the carrying value of goodwill. There can be no assurance that the Company's future goodwill impairment testing will not result in a charge to earnings.
Indefinite-Lived Assets
Indefinite-lived intangible assets consist of tradenames and trademarks and are not subject to amortization; instead, they are tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to sell a business. The valuation date for annual impairment testing isApril 30 . The performance of the Company's 2020 annual impairment test did not result in any impairment of the Company's indefinite-lived assets. For the Company's indefinite-lived intangible assets that were not impaired atMarch 31, 2020 (seeMarch 31, 2020 Impairment Testing below), the Company applied a hypothetical sensitivity analysis. If the fair value of each of these indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate had been hypothetically increased by 100 basis points atApril 30, 2020 , the fair value of these assets would still exceed their book value. Should the Company's analysis in the future indicate additional unfavorable impacts related to the ongoing COVID-19 pandemic, an increase in discount rates, or a degradation in the use of the tradenames and trademarks, any of which could have a negative material impact to the fair value and result in a future impairment of the carrying value of the indefinite-lived intangible assets. There can be no assurance that the Company's future indefinite-lived intangible asset impairment testing will not result in a charge to earnings. 53 --------------------------------------------------------------------------------
In conjunction with the preparation of the financial statements for the three months endedMarch 31, 2020 , the Company identified a triggering event, and as a result, the Company recorded a goodwill impairment charge of$156.6 million related to the Equipment & Instruments reporting unit within the Technologies & Equipment segment. The goodwill impairment charge was primarily driven by a change in forecasted sales due to the COVID-19 pandemic which resulted in a lower fair value for this reporting unit. For further information, see Part I, Item 1, Note 12,Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q. The assumptions and estimates used in determining the fair value of these reporting units contain uncertainties, and any changes to these assumptions and estimates could have a negative impact and result in a future impairment. For the Company's reporting units that were not impaired, the Company applied a hypothetical sensitivity analysis. If the WACC rate of each of these reporting units had been hypothetically increased by 100 basis points atMarch 31, 2020 , one reporting unit, within the Company's Technologies & Equipment segment, would have a fair value that would approximate net book value. If the fair value of each of these reporting units had been hypothetically reduced by 5% atMarch 31, 2020 , the fair value of those reporting units would still exceed net book value. If the fair value of each of these reporting units had been hypothetically reduced by 10% atMarch 31, 2020 , one reporting unit, as disclosed above, would have a fair value that would approximate net book value.Goodwill for this reporting unit totals$1.1 billion atMarch 31, 2020 .
Indefinite-Lived Assets
The Company, in conjunction with the goodwill impairment test, assessed the indefinite-lived intangible assets within the Equipment & Instruments reporting unit as ofMarch 31, 2020 which largely consists of acquired tradenames and trademarks. As a result of the impairment test of indefinite-lived intangible assets, the Company recorded an impairment charge of$38.7 million for the three months endedMarch 31, 2020 which was recorded in Restructuring and other costs in the Consolidated Statements of Operations. The impaired indefinite-lived intangibles assets are tradenames and trademarks related to the Equipment & Instruments reporting unit. The impairment charge was primarily driven by a decline in forecasted sales due to the COVID-19 pandemic. For further information see Part I, Item 1, Note 12,Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q. The assumptions and estimates used in determining the fair value of the indefinite-lived intangible assets contain uncertainties, and any changes to these assumptions and estimates could have a negative impact and result in a future impairment. For the Company's indefinite-lived intangible assets within the Equipment & Instruments reporting unit that were not impaired, the Company applied a hypothetical sensitivity analysis. If the fair value of each of these indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate had been hypothetically increased by 50 basis points atMarch 31, 2020 , the fair value of these assets would still exceed their book value. 54 --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Six months ended
Net loss of$235.8 million for the six months endedJune 30, 2020 , was a decrease of$311.4 million as compared to net income of$75.6 million for the six months endedJune 30, 2019 , primarily as a result of reduced demand for dental related procedures due to the COVID-19 pandemic. Cash provided by operating activities during the six months endedJune 30, 2020 was$164.4 million , a decrease of$10.0 million as compared to$174.4 million during the six months endedJune 30, 2019 which was driven by a reduction in working capital in the current period, primarily related to a decrease in accounts receivables and to a lesser extent, a reduction in inventory. The Company's cash and cash equivalents increased by$704.2 million to$1,109.1 million during the six months endedJune 30, 2020 . For the six months endedJune 30, 2020 , on a constant currency basis, the number of days of sales outstanding in accounts receivable increased by 26 days to 88 days as compared to 62 days atDecember 31, 2019 . The increase in days of sales outstanding in accounts receivable was primarily due to lower sales for the three months endedJune 30, 2020 as compared to the three months endedDecember 31, 2019 as the COVID-19 pandemic decreased dental products demand in the months of March through June. On a constant currency basis, the number of days of sales in inventory increased by 16 days to 132 days atJune 30, 2020 as compared to 116 days atDecember 31, 2019 . Inventory days increased primarily due to the lower sales during the six months endedJune 30, 2020 , slightly offset by the decrease in inventory as compared toDecember 31, 2019 . The Company calculates "constant currency basis" by removing the impact of foreign currency translation, which is calculated by comparing current-period sales, accounts receivables, and inventory to prior-period sales, accounts receivable, and inventory, with both periods converted to theU.S. dollar rate at local currency foreign exchange rates for each month of the prior period.
Cash provided from investing activities during the first six months of 2020
included capital expenditures of
OnApril 7, 2020 , the Company terminated its entire net investment hedge portfolio early which resulted in a$48.1 million cash receipt in the second quarter of 2020. The Company elected to enter into this transaction to convert the favorable gain position into additional liquidity. Cash generated by financing activities for the six months endedJune 30, 2020 was primarily related to net proceeds on long-term borrowings of$741.2 million , less payment on a T-Lock of$30.5 million , dividend payments of$44.0 million , and share repurchases of$140.0 million . OnMarch 9, 2020 , the Company entered into an Accelerated Share Repurchase Transaction ("ASR Agreement") for$140.0 million . Under the ASR Agreement, the Company received 80% of the then estimated total shares up-front or 2.7 million shares at the then current price of$42.12 . The Company received an additional 1.0 million shares after the trading window closed onMay 8, 2020 . The final amount repurchased is 3.7 million shares at a volume-weighted average price of$38.25 inclusive of a$0.63 per share discount. AtJune 30, 2020 , the Company held 46.1 million shares of treasury stock. The Company received proceeds of$5.4 million as a result of the exercise of 0.1 million of stock options during the six months endedJune 30, 2020 . Including prior year repurchases, the total amount repurchased under this authorization is$650.2 million leaving$349.8 million available to be repurchased. Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors. The Company's total borrowings increased by a net$747.6 million during the six months endedJune 30, 2020 , which includes an increase of$7.9 million due to exchange rate fluctuations on debt denominated in foreign currencies. AtJune 30, 2020 andDecember 31, 2019 , the Company's ratio of total net debt to total capitalization was 18.8% and 16.8%, respectively. The Company defines net debt as total debt, including current and long-term portions, less cash and cash equivalents and total capitalization as the sum of net debt plus equity. 55 -------------------------------------------------------------------------------- AtJune 30, 2020 , the Company had borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility of$1,156.1 million . Through the date of the filing of this Form 10-Q, the Company has no outstanding borrowings under any of its credit facilities.
In response to the COVID-19 pandemic the Company took the following actions
during the six months ended
•OnApril 9, 2020 , the Company entered into a$310.0 million 364-day revolving credit facility with a maturity date ofApril 8, 2021 . The 364-day revolving credit facility mirrors the original five-year facility in all major respects, is unsecured and contains certain affirmative and negative covenants relating to the operations and financial condition of the Company. •OnApril 17, 2020 , the Company provided a notice to the administrative agent to draw down the full available amount under the 2018 revolving credit facility, which is equal to$700.0 million . The Company had previously not drawn down any sums under this facility. The borrowings incurred interest at the rate of adjusted LIBOR plus 1.25%. The Company subsequently repaid the$700.0 million revolver borrowing onMay 26, 2020 . Under its multi-currency revolving credit agreement, the Company is able to borrow up to$700.0 million throughJuly 28, 2024 . •OnMay 26, 2020 , the Company issued$750.0 million of 3.25% senior unsecured notes with a final maturity date ofJune 1, 2030 . The net proceeds were$748.4 million , net of discount of$1.6 million . Issuance fees totaled$6.4 million . The Company paid$30.5 million to settle the$150.0 million notional T-Lock contract which partially hedged the interest rate risk of the note issuance. This cost will be amortized over the ten-year life of the notes. The proceeds were used to repay the$700.0 million revolver borrowing and the remaining proceeds will be used for working capital and other general corporate purposes.
•Various other credit facilities:
•OnMay 5, 2020 , the Company entered into a40.0 million euro 364-day revolving credit facility with a maturity date ofApril 30, 2021 . •OnMay 12, 2020 the Company entered into a30.0 million euro 364-day revolving credit facility with a maturity date ofMay 6, 2021 . •OnJune 11, 2020 , the Company entered into a3.3 billion Japanese yen 364-day revolving credit facility with a maturity date ofJune 11, 2021 .
These agreements are unsecured and contain certain affirmative and negative covenants relating to the operations and financial condition of the Company.
The Company also has access to$35.4 million in uncommitted short-term financing under lines of credit from various financial institutions. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. AtJune 30, 2020 , the Company had$0.1 million outstanding under these short-term lines of credit. The Company also has available an aggregate$500.0 million under aU.S. dollar commercial paper program. The$700.0 million revolver serves as a back-up to the commercial paper program, thus the total available credit under the commercial paper program and the multi-currency revolving credit facilities in the aggregate is$700.0 million . AtJune 30, 2020 andDecember 31, 2019 , there were no outstanding borrowings under these facilities. The Company had no outstanding borrowings under the commercial paper program atJune 30, 2020 . These agreements are unsecured and contain certain affirmative and negative covenants relating to the operations and financial condition of the Company.The most restrictive of these covenants pertain to asset dispositions and prescribed ratios of indebtedness to total capital and operating income, plus depreciation and amortization to interest expense. AtJune 30, 2020 , the Company was in compliance with these covenants and expects to remain in compliance with all covenants over the next twelve months. 56 -------------------------------------------------------------------------------- AtJune 30, 2020 , the Company held$51.4 million of precious metals on consignment from several financial institutions. The consignment agreements allow the Company to acquire the precious metals at market rates at a point in time which is approximately the same time and for the same price as alloys are sold to the Company's customers. In the event that the financial institutions would discontinue offering these consignment arrangements, and if the Company could not obtain other comparable arrangements, the Company may be required to obtain third party financing to fund an ownership position in the required precious metal inventory levels. The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operating activities and future foreign investments. The Company has the ability to repatriate additional funds to theU.S. , which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/orU.S. state income taxes and the impact of foreign currency movements. AtJune 30, 2020 , management believed that sufficient liquidity was available inthe United States and expects this to remain for the next twelve months. The Company has repatriated and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations; however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company. Except as stated above, there have been no material changes to the Company's scheduled contractual cash obligations disclosed in its Form 10-K for the year endedDecember 31, 2019 . The Company continues to review its debt portfolio and may refinance additional debt or add debt in the near-term as interest rates remain at historically low levels. The Company believes there is sufficient liquidity available for the next twelve months.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Part 1, Item 1, Note 1, Significant Accounting Policies, to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.
57--------------------------------------------------------------------------------
© Edgar Online, source
