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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 July 2, 2021
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from         to         
    
Commission File Number: 001-39054
nvst-20210702_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 July 30, 2021, was 161,257,697.




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




PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
($ in millions, except share amounts)
As of
July 2, 2021December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents$553.9 $888.9 
Trade accounts receivable, less allowance for credit losses of $32.8 and $37.1, respectively
355.0 361.0 
Inventories, net311.5 266.9 
Prepaid expenses and other current assets81.3 73.7 
Total current assets1,301.7 1,590.5 
Property, plant and equipment, net303.9 303.0 
Operating lease right-of-use assets153.9 165.3 
Other long-term assets147.0 127.3 
Goodwill3,381.9 3,430.7 
Other intangible assets, net1,192.9 1,259.2 
Total assets$6,481.3 $6,876.0 
LIABILITIES AND EQUITY
Current liabilities:
Short-term debt$421.5 $886.8 
Trade accounts payable209.4 235.1 
Accrued expenses and other liabilities504.8 530.3 
Operating lease liabilities27.5 32.5 
Total current liabilities1,163.2 1,684.7 
Operating lease liabilities140.7 153.8 
Other long-term liabilities415.3 408.8 
Long-term debt893.2 907.7 
Commitments and contingencies
Stockholders’ equity:
Preferred stock, no par value, 15.0 million shares authorized; no shares issued or outstanding at July 2, 2021 and December 31, 2020
  
Common stock - $0.01 par value, 500.0 million shares authorized;161.5 million shares issued and 161.2 million shares outstanding at July 2, 2021; 160.2 million shares issued and 160.0 million outstanding at December 31, 2020
1.6 1.6 
Additional paid-in capital3,707.6 3,684.4 
Retained earnings288.2 126.4 
Accumulated other comprehensive loss(128.9)(91.8)
Total Envista stockholders’ equity3,868.5 3,720.6 
Noncontrolling interests0.4 0.4 
Total stockholders’ equity3,868.9 3,721.0 
Total liabilities and stockholders’ equity$6,481.3 $6,876.0 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
1


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
($ and shares in millions, except per share amounts)
 Three Months EndedSix Months Ended
 July 2, 2021July 3, 2020July 2, 2021July 3, 2020
Sales$740.1 $362.0 $1,449.3 $909.2 
Cost of sales328.2 211.5 640.1 480.3 
Gross profit411.9 150.5 809.2 428.9 
Operating expenses:
Selling, general and administrative283.1 241.9 542.0 510.6 
Research and development30.3 16.5 60.4 51.2 
Operating profit (loss)98.5 (107.9)206.8 (132.9)
Nonoperating income (expense):
Other income0.3 0.1 0.6 0.2 
Interest expense, net(13.6)(14.5)(31.6)(17.8)
Income (loss) before income taxes85.2 (122.3)175.8 (150.5)
Income tax (benefit) expense(4.9)(28.8)14.0 (39.8)
Net income (loss)$90.1 $(93.5)$161.8 $(110.7)
Earnings (loss) per share:
Basic$0.56 $(0.59)$1.01 $(0.69)
Diluted$0.51 $(0.59)$0.91 $(0.69)
Average common stock and common equivalent shares outstanding:
Basic161.2 159.5 160.8 159.3 
Diluted178.4 159.5 177.2 159.3 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
2


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited)
($ in millions)
Three Months EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
Net income (loss)$90.1 $(93.5)$161.8 $(110.7)
Other comprehensive income (loss), net of income taxes:
Foreign currency translation adjustments14.4 33.1 (39.3)(4.1)
Cash flow hedge adjustments1.1  2.5 (8.9)
Pension plan adjustments(0.5)0.3 (0.3)0.7 
Total other comprehensive income (loss), net of income taxes15.0 33.4 (37.1)(12.3)
Comprehensive income (loss)$105.1 $(60.1)$124.7 $(123.0)
See the accompanying Notes to the Condensed Consolidated Financial Statements.
3



ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
 ($ in millions)
Six Months Ended July 2, 2021
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance, December 31, 2020$1.6 $3,684.4 $126.4 $(91.8)$3,720.6 $0.4 
Common stock-based award activity— 6.7 — — 6.7 — 
Net income— — 71.7 — 71.7 — 
Other comprehensive loss— — — (52.1)(52.1)— 
Balance, April 2, 20211.6 3,691.1 198.1 (143.9)3,746.9 0.4 
Common stock-based award activity— 16.5 — — 16.5 — 
Net income— — 90.1 — 90.1 — 
Other comprehensive income— — — 15.0 15.0 — 
Balance, July 2, 2021$1.6 $3,707.6 $288.2 $(128.9)$3,868.5 $0.4 
Six Months Ended July 3, 2020
Common StockAdditional Paid-in CapitalRetained EarningsAccumulated Other
Comprehensive Loss
Total
Envista
Equity
Noncontrolling Interests
Balance, December 31, 2019$1.6 $3,589.7 $93.1 $(144.2)$3,540.2 $2.6 
Common stock-based award activity— 6.4 — — 6.4 — 
Net loss— — (17.2)— (17.2)— 
Other comprehensive loss— — — (45.7)(45.7)— 
Balance, April 3, 20201.6 3,596.1 75.9 (189.9)3,483.7 2.6 
Common stock-based award activity— 7.6 — — 7.6 — 
Equity component of convertible senior notes, net of financing costs and taxes— 77.9 — — 77.9 — 
Purchase of capped calls related to issuance of convertible senior notes, net of taxes— (15.7)— — (15.7)— 
Net loss— — (93.5)— (93.5)— 
Other Comprehensive income— — — 33.4 33.4 — 
Changes in noncontrolling interest— — — — — (0.1)
Balance at July 3, 2020$1.6 $3,665.9 $(17.6)$(156.5)$3,493.4 $2.5 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
4


ENVISTA HOLDINGS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
($ in millions)
 Six Months Ended
 July 2, 2021July 3, 2020
Cash flows from operating activities:
Net income (loss)$161.8 $(110.7)
Noncash items:
Depreciation19.9 19.6 
Amortization42.0 45.3 
Allowance for credit losses3.6 11.6 
Stock-based compensation expense14.3 11.7 
Restructuring charges0.3 9.0 
Impairment charges4.1 10.3 
Amortization of right-of-use assets14.3 15.2 
Amortization of debt discount and issuance costs12.0 2.7 
Change in trade accounts receivable(1.5)126.1 
Change in inventories(47.9)(9.4)
Change in trade accounts payable(23.5)(77.1)
Change in prepaid expenses and other assets(7.2)(3.0)
Change in accrued expenses and other liabilities(34.2)(90.8)
Change in operating lease liabilities(20.7)(18.1)
Net cash provided by (used in) operating activities137.3 (57.6)
Cash flows from investing activities:
Acquisitions, net of cash acquired (40.7)
Payments for additions to property, plant and equipment(28.5)(21.4)
All other investing activities5.7 7.7 
Net cash used in investing activities(22.8)(54.4)
Cash flows from financing activities:
Proceeds from issuance of convertible senior notes 517.5 
Payment of debt issuance and other deferred financing costs(2.3)(17.3)
Proceeds from revolving line of credit 249.8 
Repayment of borrowings(475.6)(0.1)
Purchase of capped calls related to issuance of convertible senior notes (20.7)
Proceeds from stock option exercises13.8 5.0 
All other financing activities1.0 (1.1)
Net cash (used in) provided by financing activities(463.1)733.1 
Effect of exchange rate changes on cash and cash equivalents13.6 (9.9)
Net change in cash and cash equivalents(335.0)611.2 
Beginning balance of cash and cash equivalents888.9 211.2 
Ending balance of cash and cash equivalents$553.9 $822.4 
Supplemental data:
Cash paid for interest$22.1 $16.8 
Cash paid for taxes$51.1 $14.2 
ROU assets obtained in exchange for operating lease obligations$10.8 $4.3 
See the accompanying Notes to the Condensed Consolidated Financial Statements.
5


ENVISTA HOLDINGS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BUSINESS AND BASIS OF PRESENTATION
Separation and Initial Public Offering
Envista Holdings Corporation (together with its subsidiaries, “Envista” or the “Company”) was formed as a wholly-owned subsidiary of Danaher Corporation (“Danaher”). Danaher formed Envista to ultimately acquire, own and operate the Dental business of Danaher. On September 20, 2019, the Company completed an initial public offering (“IPO”) resulting in the issuance of 30.8 million shares of its common stock (including shares issued pursuant to the underwriters’ option to purchase additional shares) to the public, which represented 19.4% of the Company’s outstanding common stock, at $22.00 per share, the initial public offering price, for total net proceeds, after deducting underwriting discounts and commissions, of $643.4 million. In connection with the completion of the IPO, through a series of equity and other transactions, Danaher transferred substantially all of its Dental business to the Company. As consideration for the transfer of the Dental business to the Company, the Company paid Danaher approximately $2.0 billion, which included the net proceeds from the IPO and the net proceeds from term debt financing, as further discussed in Note 12, and issued to Danaher 127.9 million shares of the Company’s common stock. The transactions described above related to the transfer of the Dental business are collectively referred to herein as the “Separation.”
On November 15, 2019, Danaher announced an exchange offer whereby Danaher stockholders could exchange all or a portion of Danaher common stock for shares of the Company’s common stock owned by Danaher. The disposition of the Company’s shares was completed on December 18, 2019 and resulted in the full separation of the Company and disposal of Danaher’s entire ownership and voting interest in the Company.

Business Overview

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

The Company operates in two business segments: Specialty Products & Technologies and Equipment & Consumables.
The Company’s Specialty Products & Technologies segment develops, manufactures and markets dental implant systems, dental prosthetics and associated treatment software and technologies, as well as orthodontic bracket systems, aligners and lab products. The Company’s Equipment & Consumables segment develops, manufactures and markets dental equipment and supplies used in dental offices, including digital imaging systems, software and other visualization/magnification systems; 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
All revenues and costs as well as assets and liabilities directly associated with the business activity of the Company are included in the financial statements. All significant intercompany accounts and transactions between the businesses comprising the Company have been eliminated in the accompanying Condensed Consolidated Financial Statements.

The Condensed Consolidated Financial Statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules and regulations; however, the Company believes that the disclosures are adequate to make the information presented not misleading. The accompanying Condensed Consolidated Financial Statements contain all adjustments (consisting of only normal recurring adjustments and reclassifications to conform to current year presentation) necessary to present fairly the financial position of the Company as of July 2, 2021 and December 31, 2020, and its results of operations for the three and six month periods ended July 2, 2021 and July 3, 2020 and cash flows for the six month periods ended July 2, 2021 and July 3, 2020. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s Consolidated and Combined Financial Statements and accompanying notes for the three years ended December 31, 2020, included in the Annual Report on Form 10-K filed by the Company with the SEC on February 19, 2021.
6



Risks and Uncertainties

The Company is subject to risks and uncertainties as a result of the novel coronavirus (“COVID-19”) pandemic. During 2020, the Company’s sales and results of operations were most impacted by the COVID-19 pandemic during the first and second quarters with positive signs of recovery during the third and fourth quarters of 2020. During the three and six months ended July 2, 2021, the Company continued to see positive signs of recovery in certain markets in which it operates, however, certain markets continue to be more adversely impacted than others.

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

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

The Company's future results of operations and liquidity could be adversely impacted by delays in payments of outstanding receivable amounts beyond normal payment terms, 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. The extent to which the COVID-19 pandemic may materially impact the Company's financial condition, liquidity, or results of operations is uncertain.

Accounting Standards Recently Adopted

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

Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This guidance is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU is effective for public entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. The Company has not yet completed its assessment of the impact of the new standard on the Company’s Condensed Consolidated Financial Statements.
7



In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform, if certain criteria are met. The ASU is effective for public entities as of March 12, 2020 through December 31, 2022. An entity may elect to apply the amendments to eligible hedging relationships existing as of the beginning of the interim period that includes March 12, 2020 and to new eligible hedging relationships entered into after the beginning of the interim period that includes March 12, 2020. If an entity elects to apply any of the amendments for an eligible hedging relationship existing as of the beginning of the interim period that includes March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of that interim period and recognized in accordance with the guidance in Reference Rate Reform Subtopics 848-30, 848-40, and 848-50 (as applicable). If an entity elects to apply any of the amendments for a new hedging relationship entered into between the beginning of the interim period that includes March 12, 2020 and March 12, 2020, any adjustments as a result of those elections must be reflected as of the beginning of the hedging relationship and recognized in accordance with the guidance in Reference Rate Reform Subtopics 848-30, 848-40, and 848-50 (as applicable).

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

NOTE 2. ACQUISITION
On January 21, 2020, the Company acquired all of the shares of Matricel GmbH (“Matricel”) for cash consideration of approximately $43.6 million. Matricel, a German company, is a provider of biomaterials used in dental applications and complements the Company’s Specialty Products & Technologies segment. For the three and six months ended July 3, 2020, Matricel’s revenue and earnings were not material to the Condensed Consolidated Statements of Operations. Goodwill was not deductible for income tax purposes. The measurement period for adjustments related to the purchase price allocation for this acquisition is complete.

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

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

8


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

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

NOTE 3. CREDIT LOSSES

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

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

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

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

Balance at December 31, 2020$37.1 
Foreign currency translation(0.5)
Provision for credit losses3.6 
Write-offs charged against the allowance(3.6)
Recoveries(3.8)
Balance at July 2, 2021$32.8 

NOTE 4. INVENTORIES
The classes of inventory are summarized as follows ($ in millions):
July 2, 2021December 31, 2020
Finished goods$258.4 $219.0 
Work in process36.2 39.8 
Raw materials101.4 93.7 
Reserve for inventory obsolescence(84.5)(85.6)
Total$311.5 $266.9 

9


NOTE 5. PROPERTY, PLANT AND EQUIPMENT
The classes of property, plant and equipment are summarized as follows ($ in millions):
July 2, 2021December 31, 2020
Land and improvements$24.4 $24.8 
Buildings and improvements176.4 182.6 
Machinery, equipment and other assets451.8 438.8 
Construction in progress86.3 84.8 
Gross property, plant and equipment738.9 731.0 
Less: accumulated depreciation(435.0)(428.0)
Property, plant and equipment, net$303.9 $303.0 

NOTE 6. GOODWILL
The following is a rollforward of the Company’s goodwill by segment ($ in millions):
Specialty Products & TechnologiesEquipment & ConsumablesTotal
Balance, December 31, 2020$2,099.0 $1,331.7 $3,430.7 
Foreign currency translation(35.4)(13.4)(48.8)
Balance, July 2, 2021$2,063.6 $1,318.3 $3,381.9 

NOTE 7. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities were as follows ($ in millions):
July 2, 2021December 31, 2020
CurrentNoncurrentCurrentNoncurrent
Compensation and benefits$168.0 $17.0 $161.0 $14.2 
Restructuring-related employee severance, benefits and other20.0 2.2 30.5  
Pension benefits8.5 90.7 8.5 91.5 
Taxes, income and other42.4 226.9 48.8 227.5 
Contract liabilities56.4 5.4 48.6 4.8 
Sales and product allowances70.5 1.1 73.8 0.9 
Loss contingencies11.5 31.1 7.4 33.2 
Derivative financial instruments14.7 33.2 42.4 27.8 
Other112.8 7.7 109.3 8.9 
Total$504.8 $415.3 $530.3 $408.8 

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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, in the accompanying Condensed Consolidated Balance Sheets, partially offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive loss as reflected in Note 13. Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The interest income or expense from these swaps is recorded in interest expense in the Company’s Condensed Consolidated Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature in September 2022.

The Company also has foreign currency denominated long-term debt in the amount of €208.0 million. This senior unsecured term loan facility represents a partial hedge of the Company’s net investment in foreign operations against adverse movements in exchange rates between the U.S. dollar and the euro. The euro senior unsecured term loan facility is designated and qualifies as a non-derivative hedging instrument. Accordingly, the foreign currency translation of the euro senior unsecured term loan facility is recorded in accumulated other comprehensive loss in equity in the accompanying Condensed Consolidated Balance Sheets, offsetting the foreign currency translation adjustment of the Company’s related net investment that is also recorded in accumulated other comprehensive loss (see Note 13). Any ineffective portions of net investment hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The euro senior unsecured term loan facility matures in September 2024. Refer to Note 12 for a further discussion of the above loan facilities.
The Company uses interest rate swap derivative contracts to reduce its variability of cash flows related to interest payments with respect to its senior unsecured term loans. The interest rate swap contracts exchange interest payments based on variable rates for interest payments based on fixed rates. The changes in the fair value of these instruments are recorded in accumulated other comprehensive loss in equity (see Note 13). Any ineffective portions of the cash flow hedges are reclassified from accumulated other comprehensive loss into income during the period of change. The interest income or expense from these swaps is recorded in interest expense in the Company’s Condensed Consolidated Statements of Operations consistent with the classification of interest expense attributable to the underlying debt. These instruments mature on dates ranging from September 2021 to September 2022.
11


The following table summarizes the notional values as of July 2, 2021 and July 3, 2020 and pretax impact of changes in the fair values of instruments designated as net investment hedges and cash flow hedges in accumulated other comprehensive loss (“OCI”) for the three and six months ended July 2, 2021 and July 3, 2020 ($ in millions):
Three Months Ended July 2, 2021Three Months Ended July 3, 2020
Notional AmountGain Recognized in OCINotional AmountLoss Recognized in OCI
Interest rate contracts$450.0 $1.5 $650.0 $ 
Foreign currency contracts650.0 (6.6)650.0 (27.3)
Foreign currency denominated debt246.8 (2.1)674.9 (26.2)
Total$1,346.8 $(7.2)$1,974.9 $(53.5)
Six Months Ended July 2, 2021Six Months Ended July 3, 2020
Notional Amount(Loss) Gain Recognized in OCINotional Amount(Loss) Gain Recognized in OCI
Interest rate contracts$450.0 $3.3 $650.0 $(11.7)
Foreign currency contracts650.0 19.0 650.0 9.7 
Foreign currency denominated debt246.8 14.1 674.9 (2.0)
Total$1,346.8 $36.4 $1,974.9 $(4.0)

Gains or losses related to the foreign currency contracts and foreign currency denominated debt are classified as foreign currency translation adjustments in the schedule of changes in OCI in Note 13, as these items are attributable to the Company’s hedges of its net investment in foreign operations. Gains or losses related to the interest rate contracts are classified as cash flow hedge adjustments in the schedule of changes in OCI in Note 13. 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 six months ended July 2, 2021 and July 3, 2020. In addition, the Company did not have any ineffectiveness related to net investment and cash flow hedges during the three and six months ended July 2, 2021 and July 3, 2020. 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 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):
July 2, 2021December 31, 2020
Derivative liabilities:
Accrued expenses and other liabilities$47.9 $70.2 
Nonderivative hedging instruments:
Short-term debt$ $472.0 
Long-term debt$246.8 $260.9 
Amounts related to the Company’s derivatives expected to be reclassified from accumulated other comprehensive loss to net income during the next 12 months are not significant.

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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
July 2, 2021:
Liabilities:
Interest rate swap derivative contracts$ $5.1 $ $5.1 
Cross-currency swap derivative contracts$ $42.8 $ $42.8 
Deferred compensation plans$ $14.9 $ $14.9 
December 31, 2020:
Liabilities:
Interest rate swap derivative contracts$ $8.3 $ $8.3 
Cross-currency swap derivative contracts$ $61.8 $ $61.8 
Deferred compensation plans$ $11.8 $ $11.8 
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.
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.
13


Fair Value of Financial Instruments
The carrying amounts and fair values of the Company’s financial instruments were as follows ($ in millions):
July 2, 2021December 31, 2020
 Carrying AmountFair ValueCarrying AmountFair Value
Liabilities:
Interest rate swap derivative contracts$5.1 $5.1 $8.3 $8.3 
Cross-currency swap derivative contracts$42.8 $42.8 $61.8 $61.8 
Convertible senior notes due 2025$421.4 $1,112.2 $411.1 $902.7 
Long-term debt$893.2 $893.2 $907.7 $907.7 
The fair value of long-term debt approximates the carrying value as these borrowings are based on variable market rates. The fair value of the convertible senior notes due 2025 was determined based on the quoted bid price of the convertible senior notes in an over-the-counter market on July 2, 2021 and December 31, 2020. The convertible senior notes are considered as Level 2 of the fair value hierarchy. 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.

NOTE 10. WARRANTY
The Company generally accrues estimated warranty costs at the time of sale. In general, manufactured products are warranted against defects in material and workmanship when properly used for their intended purpose, installed correctly and appropriately maintained. Warranty periods depend on the nature of the product and range from 90 days up to the life of the product. The amount of the accrued warranty liability is determined based on historical information such as past experience, product failure rates or number of units repaired, estimated cost of material and labor and in certain instances estimated property damage. The accrued warranty liability is reviewed on a quarterly basis and may be adjusted as additional information regarding expected warranty costs becomes known.
The following is a rollforward of the Company’s accrued warranty liability ($ in millions):
Balance at December 31, 2020$14.1 
Accruals for warranties issued during the year9.7 
Settlements made(11.1)
Effect of foreign currency translation(0.1)
Balance at July 2, 2021$12.6 

14


NOTE 11. LITIGATION AND CONTINGENCIES
For a description of the Company’s litigation and contingencies, refer to Note 14 of the Company’s Consolidated and Combined Financial Statements as of and for the year ended December 31, 2020, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The Company records accruals for loss contingencies associated with these legal matters when it is probable that a liability will be incurred, and the amount of the loss can be reasonably estimated. The Company has determined that the liabilities associated with certain litigation matters are probable and can be reasonably estimated and has accrued $42.6 million and $40.6 million as of July 2, 2021 and December 31, 2020, respectively, which are included in accrued liabilities in the Condensed Consolidated Balance Sheets. The Company has accrued for these matters and will continue to monitor each related legal issue and adjust accruals as might be warranted based on new information and further developments in accordance with ASC 450-20-25. Amounts accrued for legal contingencies often result from a complex series of judgments about future events and uncertainties that rely heavily on estimates and assumptions including timing of related payments. The ability to make such estimates and judgments can be affected by various factors including, among other things, whether damages sought in the proceedings are unsubstantiated or indeterminate; legal discovery has not commenced or is not complete; proceedings are in early stages; matters present legal uncertainties; there are significant facts in dispute; procedural or jurisdictional issues; the uncertainty and unpredictability of the number of potential claims; or there are numerous parties involved. To the extent adverse verdicts have been rendered against the Company, the Company does not record an accrual until a loss is determined to be probable and can be reasonably estimated. In the Company's opinion, based on its examination of these matters, its experience to date and discussions with counsel, the ultimate outcome of legal proceedings, net of liabilities accrued in the Company's Condensed Consolidated Balance Sheets, is not expected to have a material adverse effect on the Company's financial position. However, the resolution of, or increase in accruals for, one or more of these matters in any reporting period may have a material adverse effect on the Company’s results of operations and cash flows for that period.

NOTE 12. DEBT AND CREDIT FACILITIES
The components of the Company’s debt were as follows ($ in millions):
July 2, 2021December 31, 2020
Senior term loan facility due 2022 ($650.0 aggregate principal amount) (the “Term Loan Facility”), net of deferred debt issuance costs of $3.1 and $1.9, respectively
$646.9 $648.1 
Senior euro term loan facility due 2022 (€208.0 and €600.0 aggregate principal amount, respectively) (the “Euro Term Loan Facility”), net of deferred debt issuance costs of $0.5 and $1.3, respectively
246.3 731.6 
Convertible senior notes due 2025 ($517.5 aggregate principal amount), net of deferred debt issuance costs of $9.9 and $10.8, respectively and unamortized discount of $86.2 and $95.6, respectively
421.4 411.1 
Other0.1 3.7 
Total debt1,314.7 1,794.5 
Less: current portion(421.5)(886.8)
Long-term debt$893.2 $907.7 
Unamortized debt issuance costs and discount totaled $99.7 million and $109.6 million as of July 2, 2021 and December 31, 2020, respectively, which have been netted against their respective aggregate principal amounts of the related debt in the table above, and are being amortized to interest expense over the term of the respective debt.
Long-Term Indebtedness
Credit Agreement
On September 20, 2019, the Company entered into a credit agreement (the “Credit Agreement”) with a syndicate of banks under which Envista borrowed approximately $1.3 billion, consisting of the three-year $650.0 million Term Loan Facility and the three-year600.0 million Euro Term Loan Facility (together with the Term Loan Facility, the “Term Loans”). The Credit Agreement also included the five-year, $250.0 million revolving credit facility (the “Revolving Credit Facility” and together with the Term Loans, the “Senior Credit Facilities”). Pursuant to the Separation Agreement, all of the net proceeds of the Term Loans were paid to Danaher as partial consideration for the Dental business Danaher transferred to Envista, as further discussed in Note 1.

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On February 9, 2021, in connection with an amendment to the Credit Agreement, the Company repaid $472.0 million of its Euro Term Loan Facility, which was classified as short-term debt as of December 31, 2020.

On June 15, 2021, the Company entered into an amended and restated credit agreement (the “Amended Credit Agreement”) with a syndicate of banks including Bank of America, N.A. as administrative agent (the “Administrative Agent”). The Amended Credit Agreement amends and restates the Company’s Credit Agreement, originally dated September 20, 2019 (as amended by Amendment No. 1 to Credit Agreement dated as of May 6, 2020, Amendment No. 2 to Credit Agreement dated as of May 19, 2020, and Amendment No. 3 to Credit Agreement dated as of February 9, 2021).

Under the Amended Credit Agreement: (a) the maturity date of the Company’s existing Term Loans has been extended to September 20, 2024, (b) the Revolving Credit Facility has been increased from $250.0 million to $750.0 million, (c) the Company may request further increases to the Revolving Credit Facility in an aggregate amount not to exceed $350.0 million, (d) the amount of cash and cash equivalents permitted to be netted in the definition of “Consolidated Funded Indebtedness” has been increased to up to the greater of (i) $250.0 million and (ii) 50% of Consolidated EBITDA as of the most recent measurement period, and (e) the floor on Eurocurrency rate loans applicable to the Revolving Credit Facility and the Term Loan Facility has been reduced to zero, in each case subject to and in accordance with the terms and conditions of the Amended Credit Agreement. The Company paid fees aggregating approximately $2.1 million in connection with the Amended Credit Agreement.

The Revolving Credit Facility includes an aggregate principal amount of $750.0 million with a $20.0 million sublimit for the issuance of standby letters of credit. The Revolving Credit Facility can be used for working capital and other general corporate purposes. As of July 2, 2021 and December 31, 2020, there were no borrowings outstanding under the Revolving Credit Facility.
Under the Senior Credit Facilities, borrowings bear interest as follows: (1) Eurocurrency Rate Loans (as defined in the Amended Credit Agreement) bear interest at a variable rate equal to the London inter-bank offered (“LIBOR”) rate plus a margin of between 0.785% and 1.625%, depending on the Company’s Consolidated Leverage Ratio (as defined in the Amended Credit Agreement) as of the last day of the immediately preceding fiscal quarter; and (2) Base Rate Loans (as defined in the Amended Credit Agreement) bear interest at a variable rate equal to (a) the highest of (i) the Federal funds rate (as published by the Federal Reserve Bank of New York from time to time) plus 0.50%, (ii) Bank of America’s “prime rate” as publicly announced from time to time and (iii) the Eurocurrency Rate (as defined in the Amended Credit Agreement) plus 1.0%, plus (b) a margin of between 0.00% and 0.625%, depending on the Company’s Consolidated Leverage Ratio as of the last day of the immediately preceding fiscal quarter. In no event will Eurocurrency Rate Loans or Base Rate Loans bear interest at a rate lower than 0.0%. In addition, the Company is required to pay a per annum facility fee of between 0.09% and 0.225% depending on the Company’s Consolidated Leverage Ratio as of the last day of the immediately preceding fiscal quarter and based on the aggregate commitments under the Revolving Credit Facility, whether drawn or not.
The interest rates for borrowings under the Term Loan Facility were 1.51% and 4.25% as of July 2, 2021 and December 31, 2020, respectively. The interest rates for borrowings under the Euro Term Loan Facility were 1.20% and 3.33% as of July 2, 2021 and December 31, 2020, respectively. Interest is payable quarterly for the Term Loans. The Company has entered into interest rate swap derivative contracts for the Term Loan Facility, as further discussed in Note 8. The Amended Credit Agreement requires the Company to maintain a Consolidated Leverage Ratio of 3.75 to 1.00 or less and includes a provision that the maximum Consolidated Leverage Ratio will be increased to 4.25 to 1.00 for the four consecutive full fiscal quarters immediately following the consummation of any acquisition by the Company or any subsidiary of the Company in which the purchase price exceeds $100.0 million. The Amended Credit Agreement also requires the Company to maintain a Consolidated Interest Coverage Ratio (as defined in the Amended Credit Agreement) of at least 3.00 to 1.00. The Amended Credit Agreement contains customary representations, warranties, conditions precedent, events of default, indemnities and affirmative and negative covenants, including covenants that, among other things, limit or restrict the Company’s and/or the Company’s subsidiaries ability, subject to certain exceptions and qualifications, to incur liens or indebtedness, merge, consolidate or sell or otherwise transfer assets, make dividends or distributions, enter into transactions with the Company’s affiliates and use proceeds of the debt financing for other than permitted uses. The Amended Credit Agreement also contains customary events of default. Upon the occurrence and during the continuance of an event of default, the lenders may declare the outstanding advances and all other obligations under the Amended Credit Agreement immediately due and payable. The Company was in compliance with all of its debt covenants as of July 2, 2021.
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Convertible Senior Notes (the “Notes”)

On May 21, 2020, the Company issued the Notes due on June 1, 2025, unless earlier repurchased, redeemed or converted. The aggregate principal amount, which includes the initial purchasers’ exercise in full of their option to purchase an additional $67.5 million principal amount of the Notes, was $517.5 million. The net proceeds from the issuance, after deducting purchasers’ discounts and estimated offering expenses, were $502.6 million. The Company used part of the net proceeds to pay for the capped call transactions (“Capped Calls”) as further described below. The Notes accrue interest at a rate of 2.375% per annum, payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2020. The Notes have an initial conversion rate of 47.5862 shares of the Company’s common stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $21.01 per share of the Company’s common stock and is subject to adjustment upon the occurrence of specified events. The Notes are governed by an indenture dated as of May 21, 2020 (the “Indenture”) between the Company and Wilmington Trust, National Association, as trustee. The Indenture does not contain any financial covenants or any restrictions on the payment of dividends, the incurrence of senior debt or other indebtedness or the issuance or repurchase of the Company’s securities by the Company.

The Notes are the Company’s senior, unsecured obligations and are (i) equal in right of payment with the Company’s existing and future senior, unsecured indebtedness; (ii) senior in right of payment to the Company’s existing and future indebtedness that is expressly subordinated to the Notes; (iii) effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and (iv) structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.

Holders of the Notes may convert their Notes at any time on or after December 2, 2024 until the close of business on the second scheduled trading day preceding the maturity date. Holders of the Notes will also have the right to convert the Notes prior to December 2, 2024, but only upon the occurrence of specified events. Upon conversion, the Notes will be settled in cash, shares of the Company’s common stock or a combination thereof, at the Company’s election. The Company’s current intent and policy is to settle all Notes conversions through combination settlement, satisfying the principal amount outstanding with cash and any Notes conversion value in excess of the principal amount in shares of the Company’s common stock. If a fundamental change occurs prior to the maturity date, holders of the Notes may require the Company to repurchase all or a portion of their Notes for cash at a repurchase price equal to 100.0% of the principal amount plus any accrued and unpaid interest. In addition, if specific corporate events occur prior to the maturity date, the Company would increase the conversion rate for a holder who elects to convert its Notes in connection with such an event in certain circumstances. As of July 2, 2021 and December 31, 2020, the stock price exceeded 130% of the conversion price of $21.01 in 20 days of the final 30 trading days ended July 2, 2021 and December 31, 2020, which satisfied one of the conditions permitting early conversion by holders of the Notes, therefore, the Notes are classified as short-term debt.

The Notes will be redeemable, in whole or in part, at the Company’s option at any time, and from time to time, on or after June 1, 2023 and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding the redemption date, but only if the last reported sale price per share of the Company’s common stock exceeds 130.0% of the conversion price on (i) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice; and (ii) the trading day immediately before the date the Company sends such notice. In addition, calling any Note for redemption will constitute a “Make-Whole Fundamental Change” (as defined in the Indenture) with respect to that Note, in which case the conversion rate applicable to the conversion of that Note will be increased in certain circumstances if it is converted after it is called for redemption.

In accounting for the issuance of the Notes, the Company separated the Notes into liability and equity components of $410.9 million and $106.6 million, respectively. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the Notes. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) will be amortized to interest expense over the term of the Notes.

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The Company allocated the total issuance costs incurred to the liability and equity components of the Notes based on their relative values. Issuance costs attributable to the liability component of $11.9 million were recorded as a reduction to the liability portion of the Notes and will be amortized as interest expense over the term of the Notes. The issuance costs of $3.1 million attributable to the equity component were netted with the equity component in stockholders’ equity.

The Company recorded a net deferred tax liability of $20.5 million in connection with the issuance of the Notes, which was recorded to stockholders’ equity.

The following table sets forth total interest expense recognized related to the Notes ($ in millions):

Three Months EndedSix Months Ended
July 2, 2021July 3, 2020July 2, 2021July 3, 2020
Contractual interest expense
$3.0 $1.4 $6.1 $1.4 
Amortization of debt issuance costs
0.4 0.2 0.9 0.2 
Amortization of debt discount
4.7 2.0 9.3 2.0 
Total interest expense
$8.1 $3.6 $16.3 $3.6 

For the three and six months ended July 2, 2021, the debt discount and debt issuance costs were amortized using an annual effective interest rate of 7.3% to interest expense over the term of the Notes.

As of July 2, 2021 and December 31, 2020, the if-converted value of the Notes exceeded the outstanding principal amount by $549.5 million and $313.1 million, respectively.

Capped Call Transactions

In connection with the offering of the Notes, the Company entered into Capped Calls with certain counterparties. The Capped Calls each have an initial strike price of approximately $21.01 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Notes. The Capped Calls have initial cap prices of $23.79 per share, subject to certain adjustments. The Capped Calls cover, subject to anti-dilution adjustments, 2.9 million shares of the Company's common stock. The Capped Calls are generally intended to reduce or offset the potential dilution from shares of common stock issued upon any conversion of the Notes with such reduction or offset, as the case may be, subject to a cap based on the cap price. As the Capped Call transactions are considered indexed to the Company's own stock and are considered equity classified, they are recorded in equity and are not accounted for as derivatives. The cost of $20.7 million incurred in connection with the Capped Calls was recorded as a reduction to additional paid-in capital.

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NOTE 13. ACCUMULATED OTHER COMPREHENSIVE LOSS
The changes in accumulated other comprehensive loss by component are summarized below ($ in millions).
Foreign Currency Translation AdjustmentsUnrealized Loss on Cash Flow HedgesUnrealized Pension CostsTotal Accumulated Other Comprehensive Loss
Three Months Ended July 2, 2021
Balance, April 2, 2021$(116.2)$(4.9)$(22.8)$(143.9)
Other comprehensive income before reclassifications:
Increase12.4 1.5  13.9 
Income tax impact2.0 (0.4) 1.6 
Other comprehensive income before reclassifications, net of income taxes