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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 2, 2020
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-20201002_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 23, 2020, was 159,641,514.




TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE
Item 1.
Item 2.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
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 per share amounts)
As of
October 2, 2020December 31, 2019
ASSETS
Current assets:
Cash and equivalents$700.8 $211.2 
Trade accounts receivable, less allowance for credit losses of $35.8 and $22.8, respectively
365.4 443.6 
Inventories, net257.5 277.9 
Prepaid expenses and other current assets92.5 69.2 
Total current assets1,416.2 1,001.9 
Property, plant and equipment, net296.8 290.3 
Operating lease right-of-use assets177.1 200.1 
Other long-term assets72.7 74.4 
Goodwill3,380.4 3,306.0 
Other intangible assets, net1,262.5 1,285.6 
Total assets$6,605.7 $6,158.3 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt$3.8 $3.9 
Trade accounts payable161.1 208.0 
Accrued expenses and other liabilities485.9 470.6 
Operating lease liabilities28.1 26.7 
Total current liabilities678.9 709.2 
Operating lease liabilities166.5 186.0 
Other long-term liabilities445.0 399.3 
Long-term debt1,755.5 1,321.0 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 15.0 million shares authorized; no shares issued or outstanding at October 2, 2020 and December 31, 2019
  
Common stock - $0.01 par value, 500.0 million shares authorized; 159.7 million shares issued and 159.6 million outstanding at October 2, 2020; 158.7 million shares issued and outstanding at December 31, 2019
1.6 1.6 
Additional paid-in capital3,674.2 3,589.7 
Retained earnings18.0 93.1 
Accumulated other comprehensive loss(136.2)(144.2)
Total Envista stockholders’ equity3,557.6 3,540.2 
Noncontrolling interests2.2 2.6 
Total stockholders’ equity3,559.8 3,542.8 
Total liabilities and stockholders’ equity$6,605.7 $6,158.3 
See the accompanying Notes to the Condensed Consolidated and Combined Financial Statements.
1


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS (Unaudited)
($ and shares in millions, except per share amounts)
 Three Months EndedNine Months Ended
 October 2, 2020September 27, 2019October 2, 2020September 27, 2019
Sales$640.5 $659.3 $1,549.7 $2,031.1 
Cost of sales299.8 292.3 780.1 907.4 
Gross profit340.7 367.0 769.6 1,123.7 
Operating expenses:
Selling, general and administrative248.8 252.0 759.4 804.9 
Research and development22.5 36.3 73.7 119.3 
Operating profit (loss)69.4 78.7 (63.5)199.5 
Nonoperating income (expense):
Other income0.2 0.2 0.4 1.6 
Interest expense, net(23.4)(0.2)(41.2)(0.2)
Income (loss) before income taxes46.2 78.7 (104.3)200.9 
Income tax expense (benefit)10.6 16.6 (29.2)39.4 
Net income (loss)$35.6 $62.1 $(75.1)$161.5 
Earnings (loss) per share:
Basic$0.22 $0.48 $(0.47)$1.25 
Diluted$0.22 $0.48 $(0.47)$1.25 
Average common stock and common equivalent shares outstanding:
Basic159.7 130.6 159.4 128.8 
Diluted163.9 130.6 159.4 128.8 
See the accompanying Notes to the Condensed Consolidated and Combined Financial Statements.
2


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
($ in millions)
Three Months EndedNine Months Ended
October 2, 2020September 27, 2019October 2, 2020September 27, 2019
Net income (loss)$35.6 $62.1 $(75.1)$161.5 
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments18.6 (54.9)14.5 (61.5)
Cash flow hedge adjustments1.5 (0.6)(7.4)(0.6)
Pension plan adjustments0.2  0.9 (0.6)
Total other comprehensive income (loss), net of income taxes20.3 (55.5)8.0 (62.7)
Comprehensive income (loss)$55.9 $6.6 $(67.1)$98.8 
See the accompanying Notes to the Condensed Consolidated and Combined Financial Statements.
3


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CHANGES IN EQUITY (Unaudited)
 ($ in millions)
Nine Months Ended October 2, 2020
Common StockAdditional Paid-in CapitalRetained Earnings (Accumulated Deficit)Accumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance at 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 at 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 at 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 at October 2, 2020$1.6 $3,674.2 $18.0 $(136.2)$3,557.6 $2.2 
4


Nine Months Ended September 27, 2019
Common StockAdditional Paid-in CapitalRetained EarningsFormer Parent Investment, NetAccumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance at December 31, 2018$ $ $ $4,901.3 $(78.2)$4,823.1 $3.3 
Former Parent common stock-based award activity— — — 4.1 — 4.1 — 
Net income— — — 37.9 — 37.9 — 
Net transfers from Former Parent— — — 24.3 — 24.3 — 
Other comprehensive loss— — — — (37.7)(37.7)— 
Changes in noncontrolling interests— — — — — — (0.1)
Balance at March 29, 2019   4,967.6 $(115.9)4,851.7 3.2 
Former Parent common stock-based award activity— — — 4.8 — 4.8 — 
Net income— — — 61.5 — 61.5 — 
Net transfers to Former Parent— — — (95.1)— (95.1)— 
Other comprehensive income— — — — 30.5 30.5 — 
Changes in noncontrolling interests— — — — — — (0.3)
Balance at June 28, 2019   4,938.8 (85.4)4,853.4 2.9 
Issuance of common stock1.6 643.1 — — — 644.7 — 
Common stock-based award activity— 0.5 — — — 0.5 — 
Former Parent common stock-based award activity— — — 3.1 — 3.1 — 
Consideration to Danaher in connection with the Separation— (1,950.0)— — — (1,950.0)— 
Net transfers to Former Parent— — — (45.7)— (45.7)— 
Reclassification of net parent investment— 4,920.0 — (4,921.3)— (1.3)— 
Net income— — 37.0 25.1 — 62.1 — 
Other comprehensive loss— — — — (55.5)(55.5)— 
Changes in noncontrolling interests— — — — — — (0.2)
Balance at September 27, 2019$1.6 $3,613.6 $37.0 $ $(140.9)$3,511.3 $2.7 
See the accompanying Notes to the Condensed Consolidated and Combined Financial Statements.
5


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (Unaudited)
($ in millions)
 Nine Months Ended
 October 2, 2020September 27, 2019
Cash flows from operating activities:
Net (loss) income$(75.1)$161.5 
Noncash items:
Depreciation31.5 29.8 
Amortization68.0 67.3 
Allowance for doubtful accounts20.1 7.6 
Stock-based compensation expense16.7 12.5 
Restructuring charges11.1  
Impairment charges17.1  
Amortization of right-of-use assets23.1 29.2 
Amortization of debt discount and issuance costs8.0  
Change in trade accounts receivable, net64.3 (11.6)
Change in inventories, net16.8 (4.5)
Change in trade accounts payable(49.3)(32.9)
Change in prepaid expenses and other assets(33.8)(38.9)
Change in accrued expenses and other liabilities(0.8)18.7 
Change in operating lease liabilities(27.2)(28.2)
Net cash provided by operating activities90.5 210.5 
Cash flows from investing activities:
Acquisitions, net of cash acquired(40.7) 
Payments for additions to property, plant and equipment(34.6)(61.9)
Proceeds from sales of property, plant and equipment 1.6 
All other investing activities11.3 (2.3)
Net cash used in investing activities(64.0)(62.6)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes517.5  
Payment of debt issuance and other deferred financing costs(17.2) 
Proceeds from revolving line of credit249.8  
Repayment of revolving line of credit(250.0) 
Proceeds from borrowings 1,319.1 
Purchase of capped calls related to issuance of convertible senior notes(20.7) 
Proceeds from stock option exercises8.7  
Proceeds from the public offering of common stock, net of issuance costs 643.4 
Consideration to Danaher in connection with the Separation (1,950.0)
Net transfers to Former Parent (116.5)
All other financing activities0.6 144.4 
Net cash provided by in financing activities488.7 40.4 
Effect of exchange rate changes on cash and equivalents(25.6)4.9 
Net change in cash and equivalents489.6 193.2 
Beginning balance of cash and equivalents211.2  
Ending balance of cash and equivalents$700.8 $193.2 
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Supplemental data:
Cash paid for interest$34.3 $ 
Cash paid for taxes$22.3 $28.5 
ROU assets obtained in exchange for operating lease obligations$16.0 $41.3 
See the accompanying Notes to the Condensed Consolidated and Combined Financial Statements.
7


ENVISTA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED AND COMBINED 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” or “Former Parent”). 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 (the “Split-Off”) 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; handpieces and associated consumables; treatment units and other dental practice equipment; 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

For periods after the Separation, the financial statements are prepared on a consolidated basis. Prior to the Separation, the Company operated as part of Danaher and not as a separate, publicly-traded company and the Company’s financial statements are combined, have been prepared on a stand-alone basis and are derived from Danaher's consolidated financial statements and accounting records. The Condensed Consolidated and Combined Financial Statements reflect the financial position, results of operations and cash flows related to the Dental business that was transferred to the Company. All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included as a component in the financial statements. Prior to the Separation, the financial statements also included allocations of certain general, administrative, sales and marketing expenses and cost of sales from Danaher’s corporate office and from other Danaher businesses to the Company and allocations of related assets, liabilities and Danaher’s investment, as applicable. The allocations were determined on a reasonable basis; however, the amounts are not necessarily representative of the amounts that would have been reflected in the financial statements had the Company been an entity that operated independently of Danaher. Related-party allocations are discussed further in Note 21.
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Prior to the Separation, the Company was dependent upon Danaher for all of its working capital and financing requirements under Danaher’s centralized approach to cash management and financing of its operations. Financial transactions relating to the Company were accounted for through the Former Parent investment, net account of the Company. Accordingly, none of Danaher’s cash, cash equivalents or debt was assigned to the Company in these financial statements for the periods prior to the Separation.

Former Parent investment, net, which included retained earnings, represented Danaher’s interest in the recorded net assets of the Company. Prior to the Separation, all significant transactions between the Company and Danaher have been included in the accompanying Condensed Consolidated and Combined Financial Statements. Transactions with Danaher are reflected in the accompanying Condensed Consolidated and Combined Statements of Changes in Equity as “Net transfers to Former Parent.”

In connection with the Separation, the Former Parent investment, net balance was redesignated within equity and allocated between common stock and additional paid-in capital based on the number of the Company’s common shares outstanding at the Separation. In periods subsequent to the Separation, the Company may make adjustments to balances transferred at the Separation date and may record additional adjustments in the future. Any such adjustments are recorded through additional paid-in capital in equity.

All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying Condensed Consolidated and Combined Financial Statements.

The Condensed Consolidated and Combined Financial Statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. 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 and Combined 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 2, 2020 and December 31, 2019, and its results of operations for the three and nine month periods ended October 2, 2020 and September 27, 2019 and cash flows for the nine month periods ended October 2, 2020 and September 27, 2019. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s combined financial statements and accompanying notes for the three years ended December 31, 2019, included in the Annual Report on Form 10-K filed by the Company on February 21, 2020.

Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the novel coronavirus (“COVID-19”) pandemic. 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. In response to COVID-19 many dental associations recommended that dental practices delay elective procedures and only perform emergency procedures. As a result, there were widespread temporary closures of dental practices around the world due to the pandemic, except to perform emergency procedures, thereby preventing our end customers from conducting most or all business activities and significantly adversely impacting our sales. During the three months ended July 3, 2020, dental practices in the markets in which we operate started to reopen and as of October 2, 2020, the majority of dental practices were open, however, overall patient volume is below pre-COVID-19 levels. 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.

9


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 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, 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 outbreak 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, supply chain disruptions and uncertain demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers. As of the date of issuance of these Condensed Consolidated and Combined Financial Statements, 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 August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820), which modified the disclosures on fair value measurements by removing the requirement to disclose the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of such transfers. The ASU expands the disclosure requirements for Level 3 fair value measurements, primarily focused on changes in unrealized gains and losses included in other comprehensive income (loss). The Company adopted this guidance on January 1, 2020, which did not have a significant impact on the Company’s Condensed Consolidated and Combined Financial Statements.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplified the test for goodwill impairment by removing Step 2 from the goodwill impairment test. Companies will now perform the goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount, recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value not to exceed the total amount of goodwill allocated to that reporting unit. An entity still has the option to perform the qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. The Company adopted this guidance on January 1, 2020, which did not have a significant impact on the Company’s Condensed Consolidated and Combined Financial Statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that uses a forward-looking approach based on expected losses rather than incurred losses to estimate credit losses on certain types of financial instruments, including trade receivables. The Company adopted this guidance on January 1, 2020, which did not have a significant impact on the Company’s Condensed Consolidated and Combined Financial Statements. Refer to Note 3 for additional disclosures required by Topic 326.

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 and Combined Financial Statements.

10


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 and Combined Financial Statements.

In December 2019, the FASB issued 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 is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Condensed Consolidated and Combined Financial Statements.

In August 2018, the FASB issued ASU No. 2018-14, Disclosure FrameworkChanges to the Disclosure Requirements for Defined Benefit Plans, which amends Accounting Standards Codification (“ASC”) 715 to add, remove, and clarify disclosure requirements related to defined benefit pension plans. The ASU is effective for public entities for fiscal years beginning after December 15, 2020, with early adoption permitted. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Condensed Consolidated and Combined Financial Statements.

NOTE 2. ACQUISITIONS

The Company continually evaluates potential acquisitions that either strategically fit with the Company’s existing portfolio or expand the Company’s portfolio into new and attractive business areas. The Company has completed a number of acquisitions that have been accounted for as business combinations and have resulted in the recognition of goodwill in the Company’s financial statements. Among other things, goodwill arises because the purchase prices for these businesses reflect a number of factors including the future earnings and cash flow potential of these businesses, the multiple to earnings, cash flow and other factors at which similar businesses have been purchased by other acquirers, the competitive nature of the processes by which the Company acquired the businesses, avoidance of the time and costs which would be required (and the associated risks that would be encountered) to enhance the Company’s existing product offerings to key target markets and enter into new and profitable businesses and the complementary strategic fit and resulting synergies these businesses bring to existing operations.

The Company makes an initial allocation of the purchase price at the date of acquisition based upon its understanding of the fair value of the acquired assets and assumed liabilities. The Company obtains this information during due diligence and through other sources. In the months after closing, up to 12 months, as the Company obtains additional information that existed at the acquisition date about these assets and liabilities, it is able to refine the estimates of fair value and more accurately allocate the purchase price. Only items that existed as of the acquisition date are considered for subsequent adjustment. The Company will make appropriate adjustments to the purchase price allocation prior to completion of the measurement period, as required.

11


On January 21, 2020, the Company acquired all of the shares of Matricel GmbH (“Matricel”) for cash consideration of approximately $43.7 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 and Combined Statement of Operations. During the three months ended July 3, 2020, the Company finalized the working capital adjustment and received $0.8 million, which was recorded as a reduction of goodwill. Goodwill will not be deductible for income tax purposes.

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 
   Goodwill24.4 
   Other intangible assets22.3 
       Total assets acquired53.2 
Liabilities assumed:
   Trade accounts payable(0.1)
   Accrued expenses and other liabilities(9.4)
       Total liabilities assumed(9.5)
Total net assets acquired$43.7 

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 and Combined 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.

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NOTE 3. CREDIT LOSSES

The allowance for credits 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.

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

Balance at December 31, 2019$22.8 
Foreign currency translation(0.4)
Provision for credit losses20.1 
Write-offs charged against the allowance(6.7)
Balance at October 2, 2020$35.8 

NOTE 4. INVENTORIES

The classes of inventory are summarized as follows ($ in millions):

October 2, 2020December 31, 2019
Finished goods$215.4 $223.5 
Work in process38.0 36.5 
Raw materials88.0 89.9 
Inventories, gross341.4 349.9 
Less: reserve for excess and obsolescence(83.9)(72.0)
Inventories, net$257.5 $277.9 

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NOTE 5. PROPERTY, PLANT AND EQUIPMENT

The classes of property, plant and equipment are summarized as follows ($ in millions):

October 2, 2020December 31, 2019
Land and improvements$24.2 $23.7 
Buildings178.0 166.9 
Machinery and equipment509.8 502.3 
Property, plant and equipment, gross712.0 692.9 
Less: accumulated depreciation(415.2)(402.6)
Property, plant and equipment, net$296.8 $290.3 

NOTE 6. GOODWILL

The following is a rollforward of the Company’s goodwill ($ in millions):

Specialty Products & TechnologiesEquipment & ConsumablesTotal
Balance at December 31, 2019$2,008.1 $1,297.9 $3,306.0 
Acquisitions24.4  24.4 
Foreign currency translation and other33.0 17.0 50.0 
Balance at October 2, 2020$2,065.5 $1,314.9 $3,380.4 

In addition to the annual impairment test, the Company is required to regularly assess whether a “triggering” event has occurred which would require interim impairment testing. Among other factors, the Company considered the current and expected future economic and market conditions surrounding the COVID-19 pandemic and its impact on each of the reporting units. Based on this assessment the Company did not identify any “triggering” events, which would indicate an impairment of goodwill is more likely than not as of October 2, 2020.

The Company will continue to assess whether a “triggering” event has occurred which would require an interim impairment test and will perform an annual impairment test of goodwill during the fourth quarter. Determining the fair value of a reporting unit for purposes of the goodwill impairment test is judgmental in nature and involves the use of estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and also the magnitude of any such charge. Unforeseen negative changes in future business or other market conditions for any of our reporting units including margin compression or loss of business, could cause recorded goodwill to be impaired in the future.

During the performance of a goodwill impairment test, the Company estimates the fair value of its reporting units using a market-based approach and an income approach with each approach given equal weighting. The market-based approach considers trading multiples of earnings before interest, taxes, depreciation and amortization for companies operating in businesses similar to each of the Company’s reporting units, in addition to recent available market sale transactions of comparable businesses. The income approach estimates fair value utilizing a discounted cash flow analysis and requires judgmental assumptions about projected sales growth, future operating margins, discount rates and terminal values.

14


NOTE 7. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities were as follows ($ in millions):

October 2, 2020December 31, 2019
CurrentNoncurrentCurrentNoncurrent
Compensation and benefits$130.7 $12.1 $151.2 $8.9 
Employee severance and other benefits32.1 0.2 5.6  
Pension benefits8.5 91.9 8.5 89.4 
Income and other taxes12.2 277.6 39.3 254.0 
Contract liabilities43.5 5.6 52.6 4.4 
Sales and product allowances61.2 0.8 68.8 0.7 
Loss contingencies61.5 31.3 57.5 29.1 
Other136.2 25.5 87.1 12.8 
Total$485.9 $445.0 $470.6 $399.3 

NOTE 8.  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, 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 15. 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 and Combined Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from June 2021 to September 2022.

The Company also has foreign currency denominated long-term debt in the amount of €600.0 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 (see Note 15). 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 2022. Refer to Note 13 for a further discussion of the above noted 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 15). 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 and Combined Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from September 2021 to September 2022.

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The following table summarizes the notional values as of October 2, 2020 and September 27, 2019 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 2, 2020 and September 27, 2019 ($ in millions):

Notional Amount(Loss) Gain Recognized in OCI
Three Months Ended October 2, 2020
Interest rate contracts$450.0 $1.9 
Foreign currency contracts650.0 (30.7)
Foreign currency denominated debt703.0 (28.1)
Total$1,803.0 $(56.9)

Notional Amount(Loss) Gain Recognized in OCI
Nine Months Ended October 2, 2020
Interest rate contracts$450.0 $(9.8)
Foreign currency contracts650.0 (20.9)
Foreign currency denominated debt703.0 (30.1)
Total$1,803.0 $(60.8)

Notional Amount(Loss) Gain Recognized in OCI
Three and Nine Months Ended September 27, 2019
Interest rate contracts$650.0 $(0.7)
Foreign currency contracts650.0 5.7 
Foreign currency denominated debt656.5 7.2 
Total$1,956.5 $12.2 

The Company did not reclassify any deferred gains or losses related to net investment and cash flow hedges from accumulated other comprehensive loss to income during the three and nine months ended October 2, 2020 and September 27, 2019. In addition, the Company did not have any ineffectiveness related to net investment and cash flow hedges during the three and nine months ended October 2, 2020 and September 27, 2019. The cash inflows and outflows associated with the Company’s derivative contracts designated as net investment hedges are classified in investing activities in the accompanying Condensed Consolidated and Combined Statements of Cash Flows.

The Company’s derivative instruments, as well as its non-derivative debt instruments designated and qualifying as net investment hedges, were classified in the Company’s Condensed Consolidated Balance Sheets as follows ($ in millions):

October 2, 2020December 31, 2019
Derivative assets:
Prepaid expenses and other current assets$ $0.1 
Derivative liabilities:
Accrued expense and other liabilities$24.0 $8.9 
Other long-term liabilities$15.6 $ 
Non-derivative hedging instruments:
Long-term debt$703.0 $672.9 
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NOTE 9. FAIR VALUE MEASUREMENTS
Accounting standards define fair value based on an exit price model, establish a framework for measuring fair value where the Company’s assets and liabilities are required to be carried at fair value and provide for certain disclosures related to the valuation methods used within a valuation hierarchy as established within the accounting standards. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs are quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets in markets that are not active, or other observable characteristics for the asset or liability, including interest rates, yield curves and credit risks, or inputs that are derived principally from, or corroborated by, observable market data through correlation; and Level 3 inputs are unobservable inputs based on the Company’s assumptions. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

A summary of financial assets and liabilities that are measured at fair value on a recurring basis were as follows ($ in millions):

Quoted Prices in
Active Market
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
October 2, 2020:
Liabilities:
Cross-currency swap derivative contracts$ $29.9 $ $29.9 
Interest rate swap derivative contracts$ $9.7 $ $9.7 
Deferred compensation plans$ $10.2 $ $10.2 
December 31, 2019:
Assets:
Interest rate swap derivative contracts$ $0.1 $ $0.1 
Liabilities:
Cross-currency swap derivative contracts$ $8.9 $ $8.9 
Deferred compensation plans$ $7.2 $ $7.2 

Derivative Instruments

The cross-currency swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and foreign currency current exchange rates and forward curves as inputs. The interest rate swap derivative contracts are classified as Level 2 in the fair value hierarchy as they are measured using the income approach with the relevant interest rates and forward curves as inputs. Refer to Note 8 for additional information.


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Deferred Compensation Plans

Certain management employees of the Company participate in nonqualified deferred compensation programs that permit such employees to defer a portion of their compensation, on a pretax basis. All amounts deferred under this plan are unfunded, unsecured obligations and are presented as a component of the Company’s compensation and benefits accrual included in accrued expenses in the accompanying Condensed Consolidated Balance Sheets (refer to Note 7). Participants may choose among alternative earnings rates for the amounts they defer, which are primarily based on investment options within the Company’s 401(k) program. Changes in the deferred compensation liability under these programs are recognized based on changes in the fair value of the participants’ accounts, which are based on the applicable earnings rates on investment options within the Company’s 401(k) program. Amounts voluntarily deferred by employees into the Company stock fund and amounts contributed to participant accounts by the Company are deemed invested in the Company’s common stock and future distributions of such contributions will be made solely in shares of Company common stock, and therefore are not reflected in the above amounts.

Fair Value of Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments were as follows ($ in millions):

 October 2, 2020December 31, 2019
Carrying AmountFair ValueCarrying AmountFair Value
Assets:
Interest rate swap derivative contracts$ $ $0.1 $0.1 
Liabilities:
Cross-currency swap derivative contracts$29.9 $29.9 $8.9 $8.9 
Interest rate swap derivative contracts$9.7 $9.7 $ $ 
Long-term debt, excluding convertible senior notes due 2025$1,349.4 $1,349.4 $1,321.0 $1,321.0 
Convertible senior notes due 2025$406.1 $717.2 $ $ 

The fair value of long-term debt, excluding the convertible senior notes due 2025, approximates the carrying values as these borrowings are based on variable market rates. The fair values of cash and cash equivalents, which consist primarily of money market funds, time and demand deposits, trade accounts receivable, net, and trade accounts payable approximate their carrying amounts due to the short-term maturities of these instruments.

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NOTE 10. PENSION AND OTHER BENEFIT PLANS

The following sets forth the components of the Company’s net periodic benefit costs of the defined benefit pension plans ($ in millions):

Components of net periodic pension cost:
Three Month Period EndedNine Month Period Ended
($ in millions)October 2, 2020September 27, 2019October 2, 2020September 27, 2019
Service cost$(2.6)$(2.2)$(7.8)$(6.8)
Interest cost(0.5)(0.5)(1.3)(1.6)
Expected return on plan assets1.0 0.7 2.8 2.3 
Amortization of initial net obligation  (0.2)(0.1)
Amortization of prior service credit0.1 0.1 0.3 0.1 
Amortization of actuarial loss(0.5)(0.1)(1.3)(0.3)
Curtailment and settlement gains recognized0.1