DENTSPLY SIRONA Inc.: Form 10-Q for the period ended Mar 31, 2024

Information included in or incorporated by reference in this Form 10-Q, and other filings with the SEC and the Company’s press releases or other public statements, contains or may contain forward-looking statements. Please refer to the discussion under the header “Forward-Looking Statements and Associated Risks” in the forepart of this Form 10-Q.

Company Profile

DENTSPLY SIRONA Inc. is the world's largest manufacturer of professional dental products and technologies, with a 137-year history of innovation and service to the dental industry and a vision of improving oral health and continence care globally. Dentsply Sirona develops, manufactures, and markets comprehensive solutions, including technologically advanced dental equipment supported by cloud software solutions as well as dental products and healthcare consumable products in urology and enterology under a strong portfolio of world class brands. Dentsply Sirona’s products provide innovative, high-quality, and effective solutions to advance patient care and deliver better, safer, and faster dentistry. Dentsply Sirona’s worldwide headquarters is located in Charlotte, North Carolina. The Company’s shares of common stock are listed in the United States on the Nasdaq stock market under the symbol XRAY.

BUSINESS

The Company operates in four reportable segments as described below. Refer also to Note 6, Segment Information, in Part I, Item 1 of this Form 10-Q for more information.

Connected Technology Solutions

This segment includes the design, manufacture, and sales of the Company’s dental technology and equipment products. These products include the Equipment & Instruments and CAD/CAM product categories. Dental CAD/CAM technologies are products designed for dental offices to support numerous digital workflows for procedures such as dental restorations through integrations with DS Core, our cloud-based platform.

Essential Dental Solutions

This segment includes the development, manufacture, and sales of the Company’s value-added endodontic, restorative, and preventive consumable products and small equipment used in dental offices for the treatment of patients. Offerings in this segment also include specialized treatment products including products used in the creation of dental appliances.

Orthodontic and Implant Solutions

This segment includes the design, manufacture, and sales of the Company’s various digital implant systems and innovative dental implant products, digital dentures and dental professional directed aligner solutions. Offerings in this segment also include application of our digital services and technology, including those provided by DS Core, our cloud-based platform.

Wellspect Healthcare

This segment includes the design, manufacture, and sales of the Company’s innovative continence care solutions for both urinary and bowel management. This category consists mainly of urology catheters and other healthcare-related consumable products.

The impact of the Israel-Hamas war

The terrorist attacks by Hamas militants crossing the border from Gaza to Israel in October 2023 and the subsequent military response by the Israeli government in Gaza has resulted in significant unrest and uncertainty within that region. In April 2024, the state of Israel was also a target of a coordinated missile and drone direct attack launched by the Republic of Iran. These events have heightened the possibility that escalating violence and involvement of other terrorist groups or foreign powers in the region may further impact our employees and operations.

The Company’s operations in Israel consist of two manufacturing facilities for implants products, with one site in northern Israel and one in southern Israel, which together employ approximately 300 associates. These facilities remain open and continue to operate. We may, however, decide to discontinue production at these facilities for the safety of our employees, or we could face future production slowdowns or interruptions at either location due to the impacts of the war, including personnel absences as a number of our employees have been called to active military duty, or due to other resource constraints such as the inability to source materials for production.

For the three months ended March 31, 2024, net sales of products produced at these sites comprised approximately 4% of consolidated net sales and 13% of the net sales of the Orthodontic and Implant Solutions segment. Net assets within Israel total $192 million as of March 31, 2024, consisting primarily of acquired technology, cash, inventory, and property, plant and equipment associated with our operations in country. Overall, the Company’s operations in Israel have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the three months ended March 31, 2024. The Company continues to monitor developments and prepare contingency plans to limit potential disruption to its operations.

Additionally, we sell products from across our portfolio to distributors of dental products and direct to dental practices within Israel and its neighboring countries which may face reduced patient traffic and demand for our products in the near term. Net sales for products sold to our customers in Israel comprised approximately 1% of our consolidated net sales for the three months ended March 31, 2024.

While Israel does not constitute a material portion of our business, a significant escalation or expansion of the conflict’s current scope and economic disruption could result in loss of sales and market position, disrupt our supply chain, broaden inflationary costs including energy prices, and have a material adverse effect on our results of operations, including impairment of the net assets in Israel or the goodwill associated with the Implants & Prosthetics reporting unit.

The impact of the war in Ukraine

In February 2022, because of the invasion of Ukraine by Russia, economic sanctions were imposed by the United States, the European Union, and certain other countries on Russian financial institutions and businesses. Due to the medical nature of our products, the current sanctions have not materially restricted our ability to continue selling many of our products to customers located in Russia. The Company also sources certain raw materials and components from Russia and Ukraine, and has taken actions to minimize any adverse impacts from disrupted supply chains related to these items. The Company’s operations in Ukraine consist primarily of R&D activities, which continue uninterrupted from other locations to focus on the safety of employees. Overall, the Company’s operations in Russia and Ukraine have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the three months ended March 31, 2024 as a result of the conflict.

For the three months ended March 31, 2024, net sales in Russia and Ukraine were approximately 1% of our consolidated net sales, and net assets in these countries were $70 million. These net assets include $44 million of cash and cash equivalents held within Russia as of March 31, 2024. Due to currency control measures imposed by the Russian government which include restrictions on the ability of companies to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, we may be limited in our ability to transfer this cash balance out of Russia without incurring substantial costs, if at all.

While neither Russia nor Ukraine constitutes a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could result in a loss of sales, disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations.

The impact of global economic conditions

Markets in several regions, particularly Europe, continue to experience varying degrees of recessionary pressures and face concerns about the systemic impacts of adverse economic conditions and geopolitical issues. Changes in economic conditions, supply chain constraints, higher energy costs, labor shortages, the conflict in Ukraine, and geopolitical tensions in the Middle East, have all contributed to a period of higher inflation across the industry and the regions in which the Company operates. As a result, the Company has experienced higher prices for certain raw materials, particularly for electronic components, which have in some cases required incremental procurement costs such as brokers’ fees, and consequently a negative impact on margins. We expect a continuation of inflationary pressure on the cost of both raw materials and wages in 2024, the effect of which will depend on our ability to successfully mitigate and offset the related impacts.

The challenging macroeconomic conditions has also negatively impacted demand for the Company’s products and may continue to do so in the future. Specifically, higher interest rates have put pressure on the ability and willingness of our customers to obtain financing for equipment purchases, which affects volumes for these products. The Company has also faced additional competitive pressure for lower-priced options for investments in new equipment by dental practices, in particular for imaging products. While the Company has taken steps to address competitive pressures, such as the reintroduction of its Orthophos SL 2D and 3D products, these trends may continue. While patient volumes have largely remained stable in the United States, the impact of macroeconomic declines and high interest rates has been particularly apparent in Germany, which accounted for 10% of the Company’s sales for the three months ended March 31, 2024. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending, and near-term economic forecasts had not improved at the end of the first quarter of 2024. The Company believes the challenging macroeconomic and market conditions in Germany are likely to persist through at least the first half of 2024.

In anticipation of a continued inflationary trend and potentially deteriorating macroeconomic environment, we have attempted to mitigate these pressures through the following actions, among others:

• Driving strategic procurement initiatives to leverage alternative sources of raw materials and transportation;
• Implementing cost-containment measures, as well as intensifying continuous improvement and restructuring programs in our manufacturing and distribution facilities and other areas of our business;
• Optimizing our customer management and implementing strategic investments in our commercial sales organization in key markets, particularly the United States; and
• Refining our focus on developing a winning portfolio with global scale to maximize market share in a competitive pricing environment.

As explained further in the Results of Operations section below, the Company has partially offset elevated costs in certain areas of the business with price increases. Should the higher inflationary environment continue, we may be unable to raise the prices of our products and services sufficiently or engage in other cost cutting measures commensurate with the rate of inflation, which could have a material adverse effect on our results of operations and financial condition.

RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED MARCH 31, 2023

Net Sales

The Company presents net sales comparing the current year periods to the prior year periods. In addition, the Company also presents the changes in net sales on an organic sales basis, which is a Non-GAAP measure. The Company defines “organic sales” as the reported net sales adjusted for: (1) net sales from acquired and divested businesses recorded prior to the first anniversary of the acquisition or divestiture; (2) net sales attributable to discontinued product lines in both the current and prior year periods; and (3) the impact of foreign currency changes, which is calculated by translating current period net sales using the comparable prior period’s currency exchange rates.

Our measure of organic sales may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Organic sales is an important internal measure for the Company, and its senior management receives a monthly analysis of operating results that includes organic sales. The performance of the Company is measured on this metric along with other performance metrics.

The Company discloses changes in organic sales to allow investors to evaluate the performance of the Company’s operations exclusive of the items listed above that may impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company. The Company believes that this supplemental information is helpful in understanding underlying net sales trends.

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The decrease in organic sales was primarily due to weaker demand for Essential Dental Solutions and certain products in Connected Technology Solutions, particularly in Europe, partially offset by stronger demand for Orthodontic and Implant Solutions products.

Net Sales by Segment

Connected Technology Solutions

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The decrease in organic sales was primarily due to lower volumes of imaging equipment and treatment centers, driven in part by competitive pricing pressures as well as unfavorable economic conditions in certain countries including Germany. These decreases were partially offset by higher volumes of CAD/CAM equipment in the United States and improved pricing as a result of lower targeted sales promotions in Europe.

Essential Dental Solutions

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The decrease in organic sales was primarily driven by weaker overall demand in the United States and Europe, in part due to a benefit from satisfying backlog orders during the comparative quarter of 2023, partially offset by price increases.

Orthodontic and Implant Solutions

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The increase in organic sales was primarily driven by higher sales volumes of orthodontic aligners, particularly in the United States and Europe, and stronger demand for implants products in Rest of World, partially offset by lower volumes for implants and prosthetics products in the United States and Europe.

As a result of recent legislative changes in Nevada relating to teledentistry, we will discontinue new patient recruitment for our current direct-to-consumer aligner business model in the state, which we do not anticipate will have a material impact on our results. Currently in several other states, there are pending legislative or regulatory changes, or changes in the interpretation of existing legislation by regulators, that may impact the current business model and operations of our direct-to-consumer aligner business. As a result, we may need to evaluate new patient recruitment in certain states as we continue to assess these developments. We are developing new features and procedures for our direct-to-consumer aligner business models in response to existing and pending legislation. We continue to monitor these legal and regulatory developments to understand their potential impact on the operations of our direct-to-consumer aligner business. For additional information, see Part I, Item 1, “Business - Regulation” and Part 1, Item 1A, “Risk Factors” in our 2023 Form 10-K.

Wellspect Healthcare

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The increase in organic sales was driven by higher volumes in all regions particularly Rest of World, partly as a result of new product launches, as well as a favorable impact from price increases.

Net Sales by Region

United States

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The increase in organic sales was primarily driven by higher volumes of orthodontic aligners within our direct-to-consumer aligner solutions and CAD/CAM products. These increases were partially offset by lower volumes of imaging equipment, implants products, and Essential Dental Solutions products. Decreases in volumes for Essential Dental Solutions products were partially offset by price increases for these products. Organic sales were positively affected by higher wholesale volumes of CAD/CAM products, but were not impacted by changes in dealer inventory levels during the quarter relative to 2023. Volumes for CAD/CAM products in both the three months ended March 31, 2023 and 2024 included a seasonal build in distributor inventory of approximately $9 million. Distributor inventory levels for CAD/CAM products as of March 31, 2024 approximate historical averages.

Europe

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The decrease in organic sales was primarily due to overall lower volumes for Essential Dental Solutions products as well as Connected Technology Solutions products as a result of less favorable market and macroeconomic trends, particularly in Germany. These decreases were partially offset by price increases.

Rest of World

A reconciliation of net sales to organic sales for the three months ended March 31, 2024 is as follows:

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

The slight decrease in organic sales was primarily driven by declines in volumes for Connected Technology Solutions products, particularly CAD/CAM, price concessions, and lower demand in Japan. These decreases were mostly offset by increased volumes for implants products. The local volume-based procurement program in China continued to result in increased volumes for implants products, representing a marked improvement from the program's adverse impact in early 2023, however the growth rates in China are expected to be more moderate for the remainder of 2024.

Gross Profit

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

Gross profit as a percentage of net sales was flat for the quarter as higher manufacturing and input costs were offset by improved pricing as a result of lower targeted sales promotions, and a decrease in warranty costs compared to the three months ended March 31, 2023.

Operating Expenses

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

NM - Not meaningful

SG&A Expenses

SG&A expenses remained flat as the higher selling costs to drive growth, particularly in orthodontic solutions, were fully offset by a reduction in professional service costs and incentive compensation, as well as favorable impact from foreign currency exchange on operating expenses.

R&D Expenses

R&D expenses decreased as the Company continues to prioritize a disciplined approach with ongoing investments in digital workflow solutions, product development initiatives, software development, including clinical application suite and cloud deployment. The Company expects to continue to maintain a level of investment in R&D that is at least 4% of annual net sales.

Intangible Asset Impairments

For the three months ended March 31, 2024, the Company recorded an intangible asset impairment charge of $6 million. The charge was related to indefinite-lived imaging product trade names within the Connected Technology Solutions segment. For further information see Note 13, Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Restructuring and Other Costs

For the three months ended March 31, 2024, the Company recorded net expense of $1 million of restructuring and other costs, a decrease from the three months ended March 31, 2023, which consisted primarily of severance costs in conjunction with the restructuring plan announced in February 2023. For further details refer to Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Segment Adjusted Operating Income

Percentages are based on actual values and may not reconcile due to rounding.

(a) See Note 6, Segment Information, in the Notes to Unaudited Consolidated Financial Statements in Part I, Item 1 of this Form 10-Q for a reconciliation from segment adjusted operating income to consolidated US GAAP income.

Connected Technology Solutions

The decrease in segment adjusted operating income is due to lower organic sales noted above as well as unfavorable manufacturing leverage from lower volumes. These decreases were partially offset by lower warranty costs, a reduction in professional services, advertising and selling related costs, and the favorable impact from foreign currency translation.

Essential Dental Solutions

The decrease in segment adjusted operating income is due to the organic sales decrease noted above and an increase in SG&A expenses including an increase in selling related costs. These decreases were partially offset by the favorable impact of foreign currency translation.

Orthodontic and Implant Solutions

The decrease in segment adjusted operating income is due to inflation of material costs, an increase in advertising and selling costs, and increased headcount primarily for key customer-facing roles for direct-to-consumer aligner solutions. This was partially offset by the organic sales increase primarily for orthodontics products noted above.

Wellspect Healthcare

The increase in segment operating income results from the increase in sales noted above, as well as margin improvement due to the favorable manufacturing leverage of higher volumes, partially offset by unfavorable foreign currency translation.

Other Income and Expense

(in millions)

NM - Not meaningful

Interest expense, net

Interest expense, net for the three months ended March 31, 2024 decreased compared to the three months ended March 31, 2023, driven primarily by lower short-term and other borrowings.

Other (income) expense, net

Other (income) expense, net for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 is as follows:

(in millions)

Income Taxes and Net Income

(in millions, except percentages)

Percentages are based on actual values and may not reconcile due to rounding.

Provision for income taxes

The effective tax rate for the three months ended March 31, 2024 and 2023 was 44.9% and 18.4%, respectively. The quarter to date increase in the effective tax rate is due to an increase in a valuation allowance and a shift in geographical mix of earnings towards jurisdictions with higher statutory tax rates.

The Company performed an assessment to evaluate the new global minimum tax developed by the Organisation for Economic Co-operation and Development (“Pillar Two”), which involved analyzing the tax laws in each jurisdiction in which the Company operates and modeling the implications with the Pillar Two framework. The impact of Pillar Two on the Company was not significant. The Company included the impact of the top-up tax under the Income Inclusion Rule for those jurisdictions in which the Company failed the transitional safe harbor requirement in its full year 2024 effective tax rate.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no changes to the critical accounting policies as disclosed in the 2023 Form 10-K.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill

Goodwill represents the excess cost over the fair value of the identifiable net assets of business acquired and is allocated among the Company's reporting units. Goodwill is not amortized; instead, it is tested for impairment at the reporting unit level annually at April 1 or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired, or if a decision is made to sell a business. Judgment is involved in determining if an indicator of impairment has occurred during the year. Such indicators may include a decline in expected cash flows, unanticipated competition, increased interest rates, or slower growth rates, among others. When testing goodwill for impairment, the Company may assess qualitative factors for its reporting units to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount including goodwill. Alternatively, the Company may bypass this qualitative assessment and perform the quantitative goodwill impairment test. It is important to note that fair values which could be realized in an actual transaction may differ from those used to evaluate the impairment of goodwill.

For the three months ended March 31, 2024, the Company did not identify any indicators of a more likely than not impairment related to its goodwill balances which would require an interim quantitative assessment. Refer to Part I, Item 1, Note 13, Goodwill and Intangible Assets, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company's annual and interim goodwill impairment testing.

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets consist of trade names, trademarks and in-process R&D and are not subject to amortization; instead, they are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value of indefinite-lived intangible assets may be impaired or if a decision is made to sell a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred during the year. Such indicators may include a decline in expected cash flow, unanticipated competition, increased interest rates, or slower growth rates, among others. It is important to note that fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of indefinite-lived assets.

The fair value of acquired trade names and trademarks is estimated using a relief from royalty method, which values an indefinite-lived intangible asset by estimating the royalties saved through the ownership of an asset. Under this method, an owner of an indefinite-lived intangible asset determines the arm’s length royalty that likely would have been charged if the owner had to license the asset from a third party. The royalty rate, which is based on the estimated rate applied against forecasted sales, is tax-effected and discounted at present value using a discount rate commensurate with the relative risk of achieving the cash flow attributable to the asset. Management judgment is necessary to determine key assumptions, including revenue growth rates, perpetual revenue growth rates, royalty rates, and discount rates. Other assumptions are consistent with those applied to goodwill impairment testing.

In the three months ended March 31, 2024, the Company identified indicators of a more likely than not impairment related to certain indefinite-lived imaging product trade names within the Connected Technology Solutions segment. The decline in fair value of these indefinite-lived trade names was driven by declines in volumes during the first quarter of 2024, which was due in part to a loss in market share from competitive pricing pressures, as well as unfavorable economic conditions in certain markets. These factors contributed to reduced forecasted revenues in the near term. The trade names were evaluated for impairment using an income approach, specifically a relief from royalty method. Significant assumptions used in the relief from royalty method included, but were not limited to, a discount rate of 11%, revenue growth rates (including perpetual growth rates), and royalty rates. As a result, the Company recorded an indefinite-lived intangible asset impairment charge of $6 million for the three months ended March 31, 2024. The remaining carrying value of this intangible asset group was $22 million as of March 31, 2024. As the fair value of these indefinite-lived intangible assets approximates carrying value, any further decline in key assumptions could result in additional impairment in the future. Refer to Part I, Item 1, Note 13, Goodwill and Intangible Assets, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company's annual and interim indefinite-lived intangible asset impairment testing.

Based on the interim quantitative and qualitative assessments performed for the Company's other indefinite-lived intangible assets and reporting units, the Company believes there is no indication that the carrying value more likely than not exceeds the fair value in each case as of March 31, 2024; therefore, the Company did not identify any indicators of a more likely than not impairment related to its goodwill or intangible assets, other than as noted above. However, any further deterioration in key assumptions could result in impairment charges in the future. The Company applied a hypothetical sensitivity analysis by increasing the discount rate of these indefinite-lived intangible assets and reporting units by 100 basis points. As of March 31, 2024, the estimated fair value of the Implants & Prosthetics reporting unit within the Orthodontic and Implant Solutions segment exceeded carrying value by less than 15%. If discount rates were hypothetically increased by 100 basis points, this reporting unit would have an estimated fair value less than 10% in excess of its carrying value. Goodwill associated with this reporting unit was $1,148 million at March 31, 2024.

LIQUIDITY AND CAPITAL RESOURCES

(in millions)

Cash provided by operating activities increased compared to the three months ended March 31, 2023, primarily as a result of changes in working capital including higher collections on accounts receivable which were outstanding at the beginning of the period, and a lower build of inventory during the current period. These increases in operating cash were offset by other changes in working capital including higher payments to vendors during the current period due to timing. At March 31, 2024, the number of days for sales outstanding in accounts receivable increased by 1 day to 60 days as compared to 59 days at December 31, 2023, and the number of days of sales in inventory increased by 2 days to 128 days at March 31, 2024 as compared to 126 days at December 31, 2023.

The cash used in investing activities increased compared to the three months ended March 31, 2023, primarily due to higher net cash paid on settlement of derivatives of $11 million, offset by lower capital expenditures of $5 million. The Company estimates capital expenditures to be in the range of approximately $170 million to $200 million for the full year 2024 and expects these investments to include implementation expenses for a new global Enterprise Resource Planning (“ERP”) system, equipment upgrades, and capacity expansion to support product innovation and consolidate operations for enhanced efficiencies.

The increase of cash used in financing activities compared to the three months ended March 31, 2023 was primarily driven by a reduction in short-term borrowing of $175 million partially offset by the reduction in share repurchases of $150 million. During the three months ended March 31, 2024, the Company's total borrowings increased by a net $28 million, mainly due to the use of the Company's commercial paper program, partially offset by a decrease of $45 million due to exchange rate fluctuations on debt denominated in foreign currencies.

On November 7, 2023, the Board of Directors approved an increase to the authorized share repurchase program of $1.0 billion. At March 31, 2024, the Company had $1.44 billion of authorization remaining available for share repurchases. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company considers appropriate based upon prevailing market and business conditions and other factors. The Company intends to repurchase up to $150 million of shares in the second quarter of 2024. At March 31, 2024, the Company held 56.9 million shares of treasury stock.

The Company's ratio of total net debt to total capitalization was as follows:

(in millions, except percentages)

At March 31, 2024, the Company had $475 million of borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million multi-currency credit facility which expires in May 2028. The Company also has access to an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $249 million outstanding borrowings under the commercial paper facility at March 31, 2024 resulting in $451 million remaining available under the revolving credit and commercial paper facilities. The Company also has access to $43 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At March 31, 2024, the Company had $19 million outstanding under short-term borrowing arrangements.

The Company’s revolving credit facility, term loans and senior notes contain certain covenants relating to the Company’s operations and financial condition. The most restrictive of these covenants are: (1) a ratio of total debt outstanding to total capital not to exceed 0.6, and (2) a ratio of operating income excluding depreciation and amortization to interest expense of not less than 3.0 times, in each case, as such terms are defined in the relevant agreement. Any breach of any such covenants would result in a default under the existing debt agreements that would permit the lenders to declare all borrowings under such debt agreements to be immediately due and payable and, through cross default provisions, would entitle the Company’s other lenders to accelerate their loans. At March 31, 2024, the Company was in compliance with these covenants.

The Company expects on an ongoing basis to be able to finance operating cash requirements, capital expenditures, and debt service from the current cash, cash equivalents, cash flows from operations and amounts available under its existing borrowing facilities. The Company’s credit facilities are further discussed in Note 12, Financing Arrangements, to the Unaudited Consolidated Financial Statements of this Form 10-Q.

The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries’ operating activities and future foreign investments. The Company has the ability to repatriate cash to the United States, which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S. state income taxes, and the impact of foreign currency movements. At March 31, 2024, management believed that sufficient liquidity was available in the United States and expects this to continue for the next twelve months. The Company has repatriated and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations. Repatriation activities both performed and contemplated to date have not resulted in, and are not expected to result in, any significant incremental tax liability to the Company.

The Company continues to review its debt portfolio and may refinance additional debt or add debt in the near-term based on strategic capital management. The Company believes there is sufficient liquidity available for the next twelve months.

Material Trends in Capital Resources

On February 14, 2023, the Board of Directors of the Company approved a plan to restructure the Company’s business to improve operational performance and drive shareholder value creation. The plan includes a restructuring of the business through a new operating model with five global business units, optimization of central functions and overall management infrastructure, and other efforts aimed at cost savings. The restructuring plan anticipates a reduction in the Company’s global workforce of approximately 8% to 10%, subject to co-determination processes with employee representative groups in countries where required. The plan is expected to be substantially completed in 2024 and result in approximately $200 million in annual cost savings. The reduction in headcount and cost savings related to this plan is expected to be offset as the Company makes additional investments in sales personnel, our new global ERP system, and other transformation initiatives.

As of March 31, 2024, in conjunction with this plan, the Company has incurred $67 million in restructuring charges, from inception, primarily related to employee transition, severance payments, employee benefits, and facility closure costs and $20 million in other non-recurring costs related to restructuring activities which mostly consist of consulting, legal and other professional service fees. The Company expects to incur between $115 million to $135 million in one-time charges, comprising $80 million to $100 million in restructuring expenditures and charges and $35 million in other non-recurring charges. The estimates of these charges and their timing are subject to several assumptions, including local law requirements in various jurisdictions and co-determination aspects in countries where required. Actual amounts may differ materially from estimates. In addition, the Company may incur other charges or cash expenditures in connection with this plan which are not currently contemplated. For further details refer to Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Beginning in the second quarter of 2022, the Company’s financial results have also been impacted by the costs associated with the internal investigation conducted and completed by the Audit and Finance Committee and subsequently, associated litigation and the external investigation by the SEC which are ongoing. These costs totaled $61 million for the year ended December 31, 2022, with additional costs of $19 million incurred for the year ended December 31, 2023. In the three months ended March 31, 2024, the Company recorded $2 million of similar costs, including legal defense expenses pertaining to the matters described in Note 14, Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements, and expects that it will continue to incur such costs for the remainder of 2024.

NEW ACCOUNTING PRONOUNCEMENTS

Refer to Part I, Item 1, Note 1, Business and Basis of Presentation, to the Unaudited Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.

There have been no material changes from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our 2023 Form 10-K.

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that it is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the three months ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

There have been no significant material changes to the risk factors as disclosed in Part 1A, “Risk Factors” in the Company’s Form 10-K for the year ended December 31, 2023.