DENTSPLY SIRONA Inc. 10-Q

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 a leading manufacturer of professional dental products and technologies, with a 135-year history of innovation and service to the dental industry and patients worldwide. Dentsply Sirona develops, manufactures, and markets comprehensive solutions for dental equipment and consumable products under a strong portfolio of world class brands. The Company also manufactures and markets healthcare consumable products. 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 on Nasdaq stock market under the symbol XRAY. Material Weaknesses in Internal Control Over Financial Reporting Identified During the Recent Investigation As first disclosed in the Company’s Form 12b-25 filed on May 10, 2022, the Audit and Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”), assisted by independent legal counsel and forensic accountants, commenced an internal investigation in March 2022 of allegations regarding certain financial reporting matters submitted by current and former employees of the Company (“the North America Investigation”). In the North America Investigation, the Audit and Finance Committee concluded that there was no evidence of intentional wrongdoing or fraud but determined that certain former members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, violated provisions of the Company’s Code of Ethics and Business Conduct. In addition, these former members of senior management did not maintain and promote an appropriate control environment focused on compliance in areas of the Company’s business, nor did they sufficiently promote, monitor or enforce adherence to the Code of Ethics and Business Conduct. While the North America Investigation was ongoing, the Audit and Finance Committee determined that the scope of the investigation should be expanded to analyze an increase in returns of products in China during the fourth quarter of 2021 previously identified by management (the “China Investigation”). Based on the China Investigation, the Audit and Finance Committee concluded that members of the Company’s local commercial team in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local accounting organization, by obstructing the work of the accounting team and by lacking truthfulness in providing information to the Company and to the Audit and Finance Committee as part of the China Investigation. The China Investigation also determined that these actions by the certain members of the Company’s local commercial team in China, as well as the former Chief Financial Officer and the head of the Company’s Asia-Pacific commercial organization, violated the Company’s Code of Ethics and Business Conduct. Refer to the Explanatory Note to this Form 10-Q for more information on each of these investigations and the related findings of the Audit and Finance Committee. In connection with the restatement of the financial statements and related disclosures for the three and nine months ended September 30, 2021 and for the fiscal year ended December 31, 2021, management re-evaluated the effectiveness of the Company’s internal control over financial reporting and identified material weaknesses in the Company’s internal control over financial reporting as of September 30, 2021. These material weaknesses in internal controls over financial reporting were not remediated as of March 31, 2022 and are not remediated through the date of this filing. For more information about the internal investigation and its findings, the specific material weaknesses in internal control over financial reporting and the current status of the Company’s remedial actions, please see Part II, Item 9A Controls and Procedures of the Company’s 2021 Form 10-K/A. BUSINESS The Company operates in two operating segments, Technologies & Equipment (“T&E”) and Consumables. The T&E segment is responsible for the design, manufacture, and sale of products including dental implants, CAD/CAM systems, orthodontic clear aligner products, imaging systems, treatment centers and instruments, as well as certain healthcare products, primarily catheters. 36 The Consumables segment is responsible for the design, manufacture, and sale of dental consumable products within the product categories of preventive, restorative, endodontic, and dental laboratory application. Impact of COVID-19 The Company’s financial results and operations continue to be impacted by the COVID-19 pandemic and its effect on inflation, supply chains, distribution networks and consumer behavior. Information pertaining to the impact of the pandemic on the Company’s business during 2021 as well as the Company’s response can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Form 10-K/A . Upd ates to that summary of impact for the three months ended March 31, 2022 are as follows: • As further described in the “Results of Operations” discussion below, the Company continues to experience supply chain challenges resulting from the pandemic including increased lead times, limited availability of certain components, raw material price increases, and higher shipping costs. As a result of supply chain constraints, the Company had an elevated backlog at the end of the first quarter relative to the start of the year, primarily in imaging equipment for orders on hand unable to be filled due to shortages of electronic components. The Company has continued taking steps to mitigate the impact of these trends, including seeking alternative supplier sources for key raw materials. • Sales continue to be impacted in certain geographic areas by public response to the COVID-19 pandemic. Midway through the first quarter of 2022, authorities in China re-imposed restrictions on individual and business activities in response to the resurgence of COVID-19 infections from recent variants of the virus, resulting in a loss of sales due to distribution constraints and lower demand from patient traffic locally. Although restrictions in major areas where the Company operates in China have lightened, adverse trends in the region could persist if these restrictions are renewed as a result of additional outbreaks. Early in 2022, certain other markets in North America and EMEA experienced more limited setbacks in demand as a result of increased infections and related practice of social distancing requirements. While most government authorities have not re-imposed restrictions with significant impacts, it continues to be unclear when the remaining constraints will be lifted, and to what degree future variants of the virus or renewed restrictions in other markets may impact short-term demand for the Company’s products more broadly. Impact of Russia’s Invasion of Ukraine On February 24, 2022, Russian forces launched military action against Ukraine, resulting in warfare and significant disruption in the region (“the conflict”). As a result of the invasion, economic sanctions have been imposed by the U.S., the European Union, and other countries on certain Russian financial institutions, businesses and individuals. The Company does not have significant operations in Russia or Ukraine. The Company’s net sales in Russia and Ukraine approximate 3% of the Company’s consolidated net sales, and the Company’s net assets in these two countries aggregate to $44 million, or less than 1% of consolidated net assets. Due to the medical nature of its products, the current sanctions have not materially restricted the Company’s ability to continue selling to customers located in Russia. The Company sources certain raw materials and components from Russia and Ukraine, and to minimize the adverse impacts from disrupted supply chains related to these items, it has purchased sufficient quantities for the near term, and is in process of identifying alternate sources for the longer term. The Company’s operations in Ukraine consist primarily of research and development activities, which continue uninterrupted from other locations in order 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 during the three months ended March 31, 2022 as a result of these developments. 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. For additional discussion of associated risks, refer to Part I, Item 1A, “Risk Factors” of the 2021 Form 10-K/A. 37 RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THREE MONTHS ENDED MARCH 31, 2021 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 businesses recorded prior to the first anniversary of the acquisition (2) net sales attributable to disposed businesses or 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 foreign currency exchange rates. The “organic sales” measure is not calculated in accordance with US GAAP; therefore, this item represents a Non-GAAP measure. This Non-GAAP measure may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Organic sales is an important internal measure for the Company which is utilized regularly by senior management in the review of operating results. Organic sales is disclosed to allow investors to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company. The Company believes that this information is helpful in understanding underlying net sales trends. The Company’s net sales for the three months ended March 31, 2022 and 2021, and the reconciliation to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 969 $ 1,026 $ (57) (5.5 %) Foreign exchange impact (4.6 %) Acquisitions 0.2 % Divestitures and discontinued products (0.3 %) Organic sales (0.8 %) Percentages are based on actual values and may not recalculate due to rounding. The decrease in organic sales was attributable primarily to weaker performance in the United States, the impact of supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables products, and the impact of COVID-19 variants on demand from patient traffic in certain markets. The decline in sales volume was partly offset by strong performance in the Implants business and a benefit from price increases implemented in the prior quarter. Net Sales by Segment Technologies & Equipment Net sales for the three months ended March 31, 2022 and 2021, and reconciliation of net sales to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 565 $ 595 $ (30) (5.1%) Foreign exchange impact (5.3%) Acquisitions 0.4% Divestitures and discontinued products (0.1%) Organic sales (0.1%) Percentages are based on actual values and may not recalculate due to rounding. 38 Organic sales were flat due to increases in sales volume in the Implants and Equipment & Instruments businesses, particularly in Europe, being offset by other factors including the impact of supply chain constraints resulting in the Company’s inability to fulfill orders for certain Equipment & Instruments and CAD/CAM products, as well as the impact of COVID-19 reducing sales volumes in certain markets. Sales of CAD/CAM products in the United States were also negatively impacted by high dealer inventory levels at the start of the quarter, as explained below. Consumables Net sales for the three months ended March 31, 2022 and 2021, and reconciliation of net sales to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 404 $ 431 $ (27) (6.1 %) Foreign exchange impact (3.7 %) Divestitures and discontinued products (0.6 %) Organic sales (1.8 %) Percentages are based on actual values and may not recalculate due to rounding. As mentioned above, the decrease in organic sales was primarily due to the impact of supply chain constraints affecting the ability to fulfill orders for certain products, and the impact of COVID-19 variants on sales volumes in certain markets. In contrast, sales during the comparative first quarter of 2021 benefited from a restocking of products by customers as part of the overall recovery from the pandemic. The decline in sales volume was partly offset by the benefit from the price increases implemented at the beginning of the fourth quarter of 2021. Net Sales by Region United States Net sales for the three months ended March 31, 2022 and 2021, and reconciliation of net sales to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 308 $ 347 $ (39) (11.2 %) Foreign exchange impact (0.4 %) Acquisitions 0.6 % Divestitures and discontinued products (0.4 %) Organic sales (11.0 %) Percentages are based on actual values and may not recalculate due to rounding. The decrease in organic sales was attributable to both segments, driven primarily by lower wholesale volumes for Restorative Consumables and CAD/CAM products, due in part to high dealer inventory at the start of the quarter. Dealer inventory on hand for CAD/CAM units was approximately $50 million higher at the start of the first quarter 2022 than at the beginning of the comparative first quarter of 2021. Of this excess, approximately $10 million was reduced during the first quarter 2022, compared to a build in inventory levels of approximately $25 million in the first quarter of 2021. Sales volumes during first three months ended March 31, 2022, were also negatively impacted by supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables products, and the impact of COVID-19 on demand early in the quarter. The decline in sales volume was partly offset by growth in the Implants business and a benefit from price increases implemented in the prior quarter. Within Orthodontics, a decline in sales of direct-to-consumer clear aligners was partly offset by strong demand for dentist-directed clear aligners. 39 Europe Net sales for the three months ended March 31, 2022 and 2021, and reconciliation of net sales to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 411 $ 417 $ (6) (1.4 %) Foreign exchange impact (7.4 %) Divestitures and discontinued products (0.2 %) Organic sales 6.2 % Percentages are based on actual values and may not recalculate due to rounding. The increase in organic sales was primarily due to overall higher volumes for Equipment & Instruments, CAD/CAM and Implants products, as a result of favorable market trends and demand, as well as a benefit from price increases implemented in the prior quarter. The organic sales growth was partly suppressed by supply chain constraints, particularly for Equipment & Instruments products in the European markets. Rest of World Net sales for the three months ended March 31, 2022 and 2021, and reconciliation of net sales to organic sales is as follows: Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Net sales $ 250 $ 262 $ (12) (4.5 %) Foreign exchange impact (5.8 %) Acquisitions 0.1 % Divestitures and discontinued products (0.4 %) Organic sales 1.6 % Percentages are based on actual values and may not recalculate due to rounding. The increase in organic sales was attributable to both segments and was due to achieving higher sales growth for CAD/CAM, Implants, and Endodontic & Restorative Consumable products. This increase was partly offset by the adverse impact of COVID-19, particularly in China which was affected both by supply chain shortages as well as lower demand resulting from ongoing government restrictions affecting patient traffic. Gross Profit Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Gross profit $ 521 $ 579 $ (58) (10.0 %) Gross profit as a percentage of net sales 53.8 % 56.4 % (260) bps Percentages are based on actual values and may not recalculate due to rounding. Gross profit for the quarter was negatively impacted by foreign currency headwinds of $32 million, driven primarily by weakness in the euro. The decrease in the gross profit rate as a percentage of net sales was primarily driven by higher raw materials, labor, and distribution costs as a result of supply chain constraints and global inflation, and a decrease in net sales for higher margin products, notably CAD/CAM units and certain Consumables products as described above. These decreases were partly offset by price increases for Consumable products from the prior quarter. 40 Operating Expenses Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Selling, general, and administrative expenses (“SG&A”) $ 376 $ 386 $ (10) (2.5 %) Research and development expenses (“R&D”) 45 40 5 11.6 % Restructuring and other costs 3 3 — — % SG&A as a percentage of net sales 38.8 % 37.6 % 120 bps R&D as a percentage of net sales 4.6 % 3.9 % 70 bps Percentages are based on actual values and may not recalculate due to rounding. SG&A Expenses SG&A expenses decreased primarily due to lower spend for acquisition activities and sales and marketing resources relative to the first quarter of prior year when strategic investments were made during the COVID-19 recovery. The increase in SG&A expenses as a percentage of net sales was primarily driven by lower absorption of expenses due to lower sales. R&D Expenses The increase in R&D expenses was primarily due to an increase in spend within the T&E segment driven by increases in both headcount expenses and professional service fees for 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 an expanded level of investment in R&D that is at least 4% of annual net sales. Restructuring and Other Costs During the three months ended March 31, 2022, the Company recorded net expense of $3 million of restructuring costs in connection with the various restructuring initiatives. For further details see, Note 9, Restructuring and other costs, in the Notes to Consolidated Financial Statements of this Form 10-Q. Segment Adjusted Operating Income Three Months Ended March 31, (in millions, except percentages) (a) 2022 2021 $ Change % Change Technologies & Equipment $ 86 $ 124 $ (38) (30.6%) Consumables 135 149 (14) (9.4%) (a) See Note 7, Segment Information, in the Notes to Consolidated Financial Statements in Item 1 of this Form 10-Q for a reconciliation from segment adjusted operating income to consolidated US GAAP income. The decrease in adjusted operating income for both Technologies & Equipment and Consumables was primarily driven by the decrease in sales volumes, unfavorable mix including decreased volumes for higher margin products, and the higher costs for raw materials, labor, and distribution costs in the current year as a result of supply chain constraints and global inflation. 41 Other Income and Expense Three Months Ended March 31, (in millions, except percentages) 2022 2021 $ Change % Change Interest expense, net $ 12 $ 14 $ (2) (13.3%) Other expense (income), net (2) (9) 7 NM Net interest and other expense $ 10 $ 5 $ 5 Percentages are based on actual values and may not recalculate due to rounding. NM - Not meaningful Interest expense, net Interest expense, net for the three months ended March 31, 2022 decreased by $2 million as compared to the three months ended March 31, 2021, driven primarily by lower average long term debt levels in 2022 relative to the prior year. Other expense (income), net Other expense (income), net for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 was as follows: Three Months Ended March 31, (in millions) 2022 2021 $ Change Gain on sales of non-core businesses $ — $ (13) $ 13 Foreign exchange gains (a) (4) (2) (2) Defined benefit pension plan expenses 2 3 (1) Other non-operating loss — 3 (3) Other expense (income), net $ (2) $ (9) $ 7 (a) Foreign exchange gains are primarily related to the revaluation of intercompany payables and loans. In February 2022, the three-year cumulative inflation rate in Turkey exceeded 100 percent. As a result, effective April 1, 2022, the functional currency of the Company’s Turkish subsidiaries will be changed to the U.S. dollar, the reporting currency of the parent. Although net monetary assets of the Turkish subsidiaries are not material to the Company, this change in functional currency may result in incremental foreign exchange gains or losses in future periods that cannot be quantified at the present time. Income Taxes and Net Income Three Months Ended March 31, (in millions, except per share amounts and percentages) 2022 2021 $ Change Provision for income taxes $ 18 $ 33 $ (15) Effective income tax rate 20.8 % 22.6 % Net income attributable to Dentsply Sirona $ 69 $ 112 $ (43) Net income per common share - diluted $ 0.32 $ 0.51 Percentages are based on actual values and may not recalculate due to rounding. Provision for income taxes For the three months ended March 31, 2022, the provision for income taxes was $18 million as compared to $33 million during the three months ended March 31, 2021. 42 During the three months ended March 31, 2022, the Company recorded $1 million of tax benefit for other discrete tax matters, none of which are individually significant. During the three months ended March 31, 2021, the Company recorded $1 million tax benefit for other discrete matters. The Company also recorded a $4 million tax expense as a discrete item related to business divestitures. The Company continues to reassess the realizability of its deferred tax assets and, after weighing all positive and negative evidence, continues to maintain a valuation allowance on certain deferred tax assets. CRITICAL ACCOUNTING POLICIES AND ESTIMATES There have been no changes to the critical accounting policies as disclosed in the 2021 Form 10-K/A other than those changes explained in Part I, Item 1, Note 1, Significant Accounting Policies, in the Notes of the Unaudited Consolidated Financial Statements of this Form 10-Q. LIQUIDITY AND CAPITAL RESOURCES Three Months Ended March 31, (in millions) 2022 2021 $ Change Cash provided by (used in): Operating activities $ 93 $ 49 $ 44 Investing activities (43) (103) 60 Financing activities (10) (53) 43 Effect of exchange rate changes on cash and cash equivalents (5) (13) 8 Net increase (decrease) in cash and cash equivalents $ 35 $ (120) $ 155 Cash provided by operating activities increased despite lower sales in the period, primarily as a result of changes in working capital including higher liabilities for trade payables and customer rebates due to the timing of payments, and a lighter build-up in inventory during the current period. For the three months ended March 31, 2022, the number of days for sales outstanding in accounts receivable increased by 4 days to 64 days as compared to 60 days at December 31, 2021, and the number of days of sales in inventory increased by 7 days to 117 days at March 31, 2022 as compared to 110 days at December 31, 2021. The decrease in cash used in investing activities was primarily due to lower cash paid for acquisitions of $92 million, partially offset by higher capital expenditures of $14 million, and less cash received on sale of non-strategic businesses of $19 million. The Company estimates capital expenditures to be in the range of approximately $160 million to $180 million for the full year 2022 and expects these investments to include expansion of facilities to provide incremental space for growth and to consolidate operations for enhanced efficiencies. The decrease in cash used in financing activities was driven by higher proceeds from short-term borrowings of $133 million primarily from using the Company’s commercial paper program, partially offset by higher cash outflows related to stock repurchases of $60 million and reduced proceeds from exercises of stock options of $28 million. As a result of this activity, combined with a decrease of $29 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company’s total borrowings increased by a net $124 million during the three months ended March 31, 2022. During the three months ended March 31, 2022, the Company entered into an accelerated share repurchase agreement (“ASR Agreement”) of $150 million with approximately 2.4 million shares delivered during the three months ended March 31, 2022 at a volume-weighted average price of $50.44. In April 2022 an additional 0.7 million shares were delivered upon the final settlement of the ASR Agreement resulting in a total 3.1 million shares repurchased under the agreement. At March 31, 2022, $770 million of authorization remained available for future share repurchases. This amount was further reduced by $30 million in April 2022 through final settlement of the ASR Agreement. 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 deems appropriate based upon prevailing market and business conditions and other factors. At March 31, 2022, the Company held 49.0 million shares of treasury stock. 43 The Company’s ratio of total net debt to total capitalization was as follows: (in millions, except percentages) March 31, 2022 December 31, 2021 Current portion of debt $ 347 $ 182 Long-term debt 1,872 1,913 Less: Cash and cash equivalents 374 339 Net debt $ 1,845 $ 1,756 Total equity 4,864 4,997 Total capitalization $ 6,709 $ 6,753 Total net debt to total capitalization ratio 27.5 % 26.0 % At March 31, 2022, the Company had a total remaining borrowing capacity of $399 million 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 credit facility from 2018 available through July 28, 2024. The Company also has available 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 $330 million outstanding borrowings under the commercial paper facility at March 31, 2022 resulting in $370 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, 2022, the Company has $14 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: a ratio of total debt outstanding to total capital not to exceed 0.6, and 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, 2022, the Company was in compliance with these covenants. Additionally, the Company is required under certain of its debt agreements to deliver or make available to borrowers its unaudited financial statements on a timely basis each quarter along with the necessary certifications. As a result of the Company’s failure to file its unaudited financial statements for the fiscal quarters ended March 31, 2022 and June 30, 2022 by the reporting deadlines, the Company obtained the consents of the requisite lenders and noteholders of its outstanding indebtedness to extend the time period for delivery of such unaudited financial statements until November 14, 2022. T hose financial statements were delivered on November 7, 2022 and t herefore, the Company has not suffered an event of default as a result of the previously delayed filings. The Company expects on an ongoing basis to be able to finance operating cash require ments, 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 13, 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 U.S., 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, 2022 , management believed that sufficient liquidity was available in the United States and expects this to remain for the next twelve months. The Company has repatriated and expects to continue repatriating certain funds from its non-U.S. subsidiaries that are not needed to finance local operations, however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company. 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. 44 NEW ACCOUNTING PRONOUNCEMENTS Refer to Part 1, Item 1, Note 1, Significant Accounting Policies, to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements. Item 3 – Quantitative and Qualitative Disclosures about Market Risk There have been no material changes from the information provided in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.