What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-05 · 236 added, 165 removed, 198 unchanged (67% of the section changed)

19 unchanged sentences

Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

Updates to that summary of impact for the six months ended June 30, 2021 are as follows:

• Continuing the trend from the last three quarters, the Company has continued to see demand improve and dental patient traffic normalize in major markets.

Certain markets including regions of Southeast Asia and South America have experienced setbacks in demand in the second quarter as a result of renewed COVID-19 infections from recent variants of the virus.

While most government authorities have lifted many of their restrictions, the end dates for all restrictions being lifted are still unknown.

It is also uncertain when customer demand will fully return to pre-COVID-19 levels upon lifting these restrictions, or whether a resurgence of the virus may have an impact on demand in affected markets.

Updates to that summary of impact for the nine months ended September 30, 2021 are as follows:

• Continuing the trend from the last two quarters, the Company has seen customer demand and dental patient traffic normalize in major markets.

Certain markets including regions of Southeast Asia and South America have experienced setbacks in demand in the second and third quarters as a result of renewed COVID-19 infections from recent variants of the virus.

While most government authorities have lifted many of their restrictions, the end dates for all restrictions being lifted are still unknown, and it is uncertain when customer demand will fully return to pre-COVID-19 levels upon lifting these restrictions, or whether a resurgence of the virus may have an impact on demand in affected markets.

• The Company continues to monitor the impact of global supply chain issues related to the pandemic, including potential downside related to labor shortages, shipping disruption and inflation of material inputs.

To date, there have been no significant disruptions to the Company's production, distribution network or ability to procure raw materials used in the development of its products.

Although the Company has experienced an increase in supply chain related costs including freight and shipping rates during the first nine months of 2021, these have not yet resulted in a material impact to the results of operations.

• The Company's COVID-19 infection crisis management process implemented in 2020 remains in effect, and there have been no significant disruptions to operations as a result of infections.

1 unchanged sentence

All potential and actual cases have been reviewed to ensure that the Company managed exposed employees appropriately, consistently and safely.

None of these incidents have resulted in a material loss of production or financial impact to the results for the six months ended June 30, 2021.

None of these incidents have resulted in a material loss of production or financial impact to the results for the nine months ended September 30, 2021.

• The Company previously undertook various initiatives during the second quarter of 2020, to ensure its ongoing liquidity which included, among other actions, entering into a $310 million revolving credit facility on April 9, 2020, a 40 million euro revolving credit on May 5, 2020, a 30 million euro revolving credit facility on May 12, 2020 and 3.3 billion Japanese yen revolving credit facility on June 11, 2020.

These additional short-term facilities were entered into in an abundance of caution and have all expired as planned as of June 30, 2021.

• During the second quarter the Company has continued to prioritize employee safety and preventing the possible spread of COVID-19 by encouraging ongoing work-from-home where possible and maintaining travel restrictions.

• During the third quarter the Company has continued to prioritize employee safety and preventing the possible spread of COVID-19 by encouraging ongoing work-from-home where possible and maintaining travel restrictions.

Up through the date of the filing of this Form 10-Q, the Company’s principal manufacturing facilities and other operations have remained operational at a more normalized level than during the preceding year.

9 unchanged sentences

The program expansion is expected to result in total charges of approximately $375 million and annual cost savings of approximately $250 million.

The Company expects that these expanded actions will result in incremental global headcount reductions of 6% to 7% in addition to the original projections of 6% to 8%.

T he Company expects that these expand ed actions will result in incremental global headcount reductions of 6% to 7% in addition to the original projections of 6% to 8%.

Since November 2018, the Company has incurred expenditures of approximately $321 million under this program, of which, approximately $123 million were non-cash charges.

6 unchanged sentences

The Company has recorded expenses of approximately $58 million related to these actions, of which approximately $46 million were non-cash charges.

For the six months ended June 30, 2021, the Company made a $3 million adjustment related to inventory reserves and paid $1 million in severance costs.

For the nine months ended September 30, 2021, the Company made a $3 million adjustment related to inventory reserves and paid $2 million in severance costs.

The Company expects nearly all of the remaining restructuring charges to be completed by the first quarter of 2022.

RESULTS OF OPERATIONS, THREE MONTHS ENDED JUNE 30, 2021 COMPARED TO THREE MONTHS ENDED JUNE 30, 2020

RESULTS OF OPERATIONS, THREE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2020

The Company presents net sales comparing the current year periods to the prior year periods.

11 unchanged sentences

The Company believes that this information is helpful in understanding underlying net sales trends.

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Net sales $ 1,069 $ 895 $ 174 19.4 %

Net sales for the three months ended June 30, 2021 were $1,067 million, an increase of $576 million or 117.3% from the three months ended June 30, 2020.

The increase in net sales was attributable to increased volumes in both the Technologies & Equipment and Consumables segments due to a recovery in demand from the impact of the COVID-19 pandemic.

As a result, organic sales increased 104.6% as compared to the same prior year period.

Net sales were also positively impacted by approximately 10.7% due to the weakening of the U.S.

dollar as compared to the same prior year period as well as a benefit of 11.9% from acquisitions offset by a reduction of 9.9% due to divestitures of non-strategic businesses and discontinued products.

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 19.4 %

Foreign exchange impact 1.3 %

Acquisitions 4.3 %

Divestitures and discontinued products (7.3 %)

Organic sales 21.1 %

The increase in organic sales was attributable to increased volumes in both the Technologies & Equipment and Consumables segments due to a recovery in demand from the impact of the COVID-19 pandemic, sales attributed to recent product launches, and an increase of sales to dealers in the third quarter ahead of annual price increases, which previously occurred in the fourth quarter of 2020.

Segment Results

Technologies & Equipment

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Technologies & Equipment $ 629 $ 504 $ 125 24.8 %

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 24.8 %

Foreign exchange impact 1.2 %

Acquisitions 7.7 %

Divestitures and discontinued products (9.4 %)

Organic sales 25.3 %

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Consumables $ 440 $ 391 $ 49 12.4 %

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

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 12.4%

Foreign exchange impact 1.3%

Acquisitions —%

Divestitures and discontinued products (4.8%)

Organic sales 15.9%

Segment Adjusted Operating Income (a)

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Technologies & Equipment (b)

$ 148 $ 127 $ 21 16.5 %

Consumables (b)

135 115 20 17.4 %

(a) See Note 6, Segment and Geographic Information, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-Q for a reconciliation from segment adjusted operating income to a US GAAP measure of consolidated pre-tax income..

(b) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $33 million for the three months ended September 30, 2020, have been reclassified to the "All other" category to conform to current year presentation and the Company's internal reporting to the Chief Operating Decision Maker package.

These amounts are not material to the measure of segment results for the years presented.

Technologies & Equipment

The increase in organic sales occurred across all dental businesses and resulted from overall higher volumes during the three months ended September 30, 2021 due to a recovery in demand from the COVID-19 pandemic, timing of sales to dealers, and sales attributed to recent product launches.

The adjusted operating income increase was primarily driven by the increase in net sales.

The increase in organic sales occurred across all regions and resulted from overall higher volumes during the three months ended September 30, 2021 due to a recovery in demand from the COVID-19 pandemic primarily driven by the Endodontic, Restorative, and Preventive businesses, as well as an increase in sales to dealers in the third quarter ahead of annual price resets which previously occurred in the fourth quarter of 2020.

The adjusted operating income increase was primarily driven by the increase in net sales as well as favorable mix including increased volumes for higher margin products.

Net Sales by Region

Net sales by geographic region were as follows:

Three Months Ended June 30,

United States

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

United States $ 399 $ 319 $ 80 25.3 %

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

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 25.3 %

Foreign exchange impact (0.1 %)

Acquisitions 11.2 %

Divestitures and discontinued products (5.9 %)

Organic sales 20.1 %

The increase in organic sales was attributable to both the Technologies & Equipment and the Consumables segments and resulted from the overall higher volumes during the three months ended September 30, 2021 due to the recovery in demand from the COVID-19 pandemic, sales attributed to recent product launches, and an increase in sales to dealers in the third quarter ahead of annual price increases which previously occurred in the fourth quarter of 2020.

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Europe $ 399 $ 351 $ 48 13.6 %

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

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 13.6 %

Foreign exchange impact 1.7 %

Acquisitions 0.1 %

Divestitures and discontinued products (6.0 %)

Organic sales 17.8%

Rest of World

United States

The increase in net sales was attributable to both the Technologies & Equipment and the Consumables segments and resulted from the overall higher volumes during the three months ended June 30, 2021 due to the recovery in demand from the COVID-19 pandemic.

As a result, organic sales increased by 145.8% as compared to the same prior year period.

The increase in net sales also included a benefit of 43.6% from acquisitions offset by a reduction of 11.8% due to divestitures of non-strategic businesses and discontinued products.

As a result, organic sales increased by 91.8% as compared to the same prior year period.

Net sales for the quarter ended June 30, 2021 was also positively impacted by 15.6% due to the weakening of the U.S.

dollar as compared to the same prior year period, offset by a reduction of 7.9% due to divestitures of non-strategic businesses and discontinued products.

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Rest of World $ 271 $ 225 $ 46 20.1 %

As a result, organic sales increased by 86.2% as compared to the same prior year period.

Net sales for three months ended June 30, 2021 was also positively impacted by 11.4% due to the weakening of the U.S.

dollar as compared to the same prior year period, as well as a benefit of 0.8% from acquisitions offset by a reduction of 10.9% due to divestitures of non-strategic businesses and discontinued products.

Three Months Ended June 30,

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

A reconciliation of net sales to organic sales for the three months ended September 30, 2021 was as follows:

Net sales 20.1 %

Foreign exchange impact 2.3 %

Acquisitions 1.1 %

Divestitures and discontinued products (11.1 %)

Organic sales 27.8 %

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

1 unchanged sentence

Gross profit as a percentage of net sales 55.3% 49.4%

For the three months ended June 30, 2021, the increase in the gross profit rate as a percentage of net sales was primarily driven by favorable mix including an increase in net sales for higher margin products, as compared to the same period ended June 30, 2020.

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

For the three months ended September 30, 2021, the increase in the gross profit rate as a percentage of net sales was primarily driven by favorable mix including an increase in net sales for higher margin products, as compared to the period ended September 30, 2020.

Operating Expenses

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

4 unchanged sentences

R&D as a percentage of net sales 3.3 % 3.0 %

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

NM - Not meaningful

SG&A Expenses

For the three months ended June 30, 2021, the decrease in SG&A expenses as a percentage of net sales was primarily driven by greater absorption of expenses due to higher sales as well as continued expense discipline, as compared to the same period ended June 30, 2020.

For the three months ended June 30, 2021, the increase in R&D expenses from the comparable quarter of the prior year was primarily driven by significant spend controls put in place in 2020 in response to the COVID-19 pandemic.

As a percentage of sales, R&D expenses were flat year-over-year.

The Company intends to continue to increase its investment and the ratio of R&D expense to net sales over time.

For the three months ended September 30, 2021, the increase in SG&A expenses as a percentage of net sales was primarily driven by the resumption of more normalized advertising and promotional expenses as well as increased investment in employee headcount and compensation relative to the comparative period ended September 30, 2020 which was impacted by cost-saving measures in response to COVID-19.

For the three months ended September 30, 2021, the increase in R&D expenses from the comparable quarter of the prior year was primarily driven by significant spend controls put in place in 2020 in response to the COVID-19 pandemic, as well as current year increased investment in digital workflow solutions and the non-capitalizable costs associated with software development including clinical application suite and cloud deployment.

The Company intends to continue to increase its R&D investments over time.

Restructuring and Other Costs

The Company recorded restructuring and other costs of $5 million for the three months ended June 30, 2021 compared to $1 million for the three months ended June 30, 2020.

In connection with the various restructuring initiatives, as described earlier, the Company recorded $9 million of restructuring costs and a benefit of $4 million in other costs for the three months ended June 30, 2021.

For the three months ended June 30, 2020, the Company recorded $2 million of restructuring costs and a benefit of $1 million in other costs.

The Company recorded restructuring and other costs of $3 million for the three months ended September 30, 2021 compared to $18 million for the three months ended September 30, 2020.

In connection with the various restructuring initiatives, as described earlier, the Company recorded $2 million of restructuring costs and $1 million in other costs for the three months ended September 30, 2021.

For the three months ended September 30, 2020, the Company recorded $14 million of restructuring costs and $4 million in other costs.

Other Income and Expense

Three Months Ended June 30,

Three Months Ended September 30,

(in millions) 2021 2020 $ Change

2 unchanged sentences

Net interest and other expense (income) $ 21 $ 15 $ 6

Net Interest Expense

The increase in net interest expense was due to higher average debt levels during for the three months ended June 30, 2021 compared to the prior year period.

The increase in other expense for the three months ended September 30, 2021 is primarily due to foreign exchange losses of $5 million as compared to a gain of $3 million in the prior year period.

Income Taxes and Net Income

Three Months Ended June 30,

Three Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change

Provision (benefit) for income taxes $ 35 $ (24) $ 59

Provision for income taxes $ 35 $ 13 $ 22

Effective income tax rate 25.2 % 18.8 %

Net income (loss) attributable to Dentsply Sirona $ 99 $ (95) $ 194

Provision (benefit) for income taxes

For the three months ended June 30, 2021, the provision for income taxes was $35 million as compared to a benefit of $24 million during the three months ended June 30, 2020.

During the three months ended June 30, 2021, the Company recorded $3 million of tax expense for other discrete tax matters.

During the three months ended June 30, 2020, the Company recorded $1 million of tax expense for other discrete tax matters.

The increase in the effective tax rate is primarily from an increase in mix of higher-taxed foreign income and additional U.S.

tax on foreign income.

Net income attributable to Dentsply Sirona $ 103 $ 53 $ 50

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

Provision for income taxes

For the three months ended September 30, 2021, the provision for income taxes was $35 million as compared to $13 million during the three months ended September 30, 2020.

During the three months ended September 30, 2021, the Company recorded $4 million of tax expense for discrete tax matters.

During the three months ended September 30, 2020, the Company recorded $2 million of tax expense for discrete tax matters.

The increase in the effective tax rate is primarily from an increase in mix of higher-taxed foreign income.

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.

RESULTS OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30, 2021 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2020

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Net sales $ 3,163 $ 2,260 $ 903 40.0 %

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 40.0 %

Foreign exchange impact 4.9 %

Acquisitions 6.3 %

Divestitures and discontinued products (7.0 %)

Organic sales 35.8 %

The increase in organic sales was attributable to both the Technologies & Equipment and Consumables segments which were affected by overall higher volumes primarily due to a recovery in demand from the impact of the COVID-19 pandemic, as well as sales attributed to recent product launches.

During the nine months ended September 30, 2020, the Company saw normal sales levels for the months of January and February and started to experience a decline in sales volume beginning in March and extending through September due to the onset of the pandemic.

Segment Results

Three Months Ended June 30,

Technologies & Equipment

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Technologies & Equipment $ 1,848 $ 1,328 $ 520 39.2%

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 39.2%

Foreign exchange impact 5.1%

Acquisitions 10.8%

Divestitures and discontinued products (8.1%)

Organic sales 31.4%

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Consumables $ 1,315 $ 932 $ 383 41.1%

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 41.1%

Foreign exchange impact 4.5%

Acquisitions —%

Divestitures and discontinued products (5.3%)

Organic sales 41.9%

Segment Adjusted Operating Income (a)

Three Months Ended June 30,

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

4 unchanged sentences

NM - Not meaningful

(b) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $7 million for the three months June 30, 2020, have been reclassified to the "All other" category to conform to current year presentation and the Company's internal reporting to the Chief Operating Decision Maker package.

(b) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $34 million for the nine months ended September 30, 2020, have been reclassified to the "All other" category to conform to current year presentation and the Company's internal reporting to the Chief Operating Decision Maker package.

These amounts are not material to the measure of segment results for the years presented.

Technologies & Equipment

The increase in net sales occurred across all dental businesses and resulted from overall higher volumes during the three months ended June 30, 2021 due to a recovery in demand from the COVID-19 pandemic.

As a result, organic sales increased 85.2% as compared to the same prior year period, driven primarily by the Equipment & Instruments, Digital Dentistry, and Implants businesses.

Net sales were also positively impacted by approximately 10.4% due to the weakening of the U.S.

dollar over the prior year period, as well as a benefit of 19.0% from acquisitions offset by a reduction of 10.0% due to divestitures of non-strategic businesses and discontinued products.

The adjusted operating income increase was primarily driven by the increase in net sales as well as continued expense discipline.

The increase in net sales occurred across all regions and resulted from overall higher volumes during the three months ended June 30, 2021 due to a recovery in demand from the COVID-19 pandemic.

As a result, organic sales increased 135.3% as compared to the same prior year period, primarily driven by the Endodontic, Restorative, and Preventive businesses.

Net sales were also positively impacted by approximately 11.2% due to the weakening of the U.S.

dollar as compared to the same prior year period, offset by a reduction of 8.5% due to divestitures of non-strategic businesses and discontinued products.

The adjusted operating income increase was primarily driven by the increase in net sales as well as favorable mix including increased volumes for higher margin products, and continued expense discipline.

RESULTS OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 2021 COMPARED TO SIX MONTHS ENDED JUNE 30, 2020

Six Months Ended June 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Net sales $ 2,094 $ 1,365 $ 729 53.4 %

Net sales for the six months ended June 30, 2021 were $2,094 million, an increase of $729 million or 53.4% from the six months ended June 30, 2020.

The increase in net sales was attributable to both the Technologies & Equipment and Consumables segments which were affected by overall higher volumes primarily due to a recovery in demand from the impact of the COVID-19 pandemic.

During the six months ended June 30, 2020, the Company saw normal sales levels for the months of January and February and started to experience a decline in sales volume beginning in March and extending through June due to the onset of the pandemic.

As a result, organic sales increased 45.3% in the first six months of 2021 relative to the comparative period.

Net sales were also positively impacted by approximately 7.2% due to the weakening of the U.S.

dollar as compared to the same prior year period as well as a benefit of 7.7% from acquisitions offset by a reduction of 6.8% due to divestitures of non-strategic businesses and discontinued products.

The increase in organic sales occurred across all dental businesses and was the result of overall higher volumes during the nine months ended primarily due to demand recovery from the impact of the COVID-19 pandemic, as well as sales attributed to recent product launches.

The adjusted operating income increase was primarily driven by the increase in net sales as well as expense discipline during the nine months of 2021 relative to the comparative period.

The increase in organic sales occurred across all regions and was the result of overall higher volumes during the nine months ended primarily due to demand recovery from the impact of the COVID-19 pandemic driven by the Endodontic, Restorative, and Preventive businesses.

The adjusted operating income increase was primarily driven by favorable mix including increased volumes for higher margin products, and expense discipline during the nine months of 2021 relative to the comparative period.

Net Sales by Region

Net sales by geographic region were as follows:

Six Months Ended June 30,

United States

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

United States $ 1,112 $ 750 $ 362 48.2 %

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

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 48.2 %

Foreign exchange impact 0.8 %

Acquisitions 18.3 %

Divestitures and discontinued products (6.9 %)

Organic sales 36.0%

The increase in organic sales was attributable to both the Technologies & Equipment and the Consumables segments and was primarily due to overall higher volumes during the nine months ended September 30, 2021 following periods of lower demand resulting from the COVID-19 pandemic.

as well as sales attributed to recent product launches.

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Europe $ 1,248 $ 939 $ 309 32.9 %

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 32.9 %

Foreign exchange impact 7.6 %

Acquisitions — %

Divestitures and discontinued products (5.8 %)

Organic sales 31.1%

The increase in organic sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to overall higher volumes during the nine months ended September 30, 2021 following periods of lower demand resulting from the COVID-19 pandemic.

Rest of World

United States

The increase in net sales was attributable to both the Technologies & Equipment and the Consumables segments and was primarily due to overall higher volumes during the six months ended June 30, 2021 following periods of lower demand resulting from the COVID-19 pandemic.

As a result, organic sales increased by 47.6% as compared to the same prior year period.

The increase in net sales also included a benefit of 23.6% from acquisitions offset by a reduction of 7.3% due to divestitures of non-strategic businesses and discontinued products.

The increase in net sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to overall higher volumes during the six months ended June 30, 2021 following periods of lower demand resulting from the COVID-19 pandemic.

As a result, organic sales increased by 38.9% as compared to the same prior year period.

Net sales for the quarter ended June 30, 2021 was also positively impacted by 11.1% due to the weakening of the U.S.

dollar as compared to the same prior year period, offset by a reduction of 5.9% due to divestitures of non-strategic businesses and discontinued products.

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Rest of World $ 803 $ 571 $ 232 40.8 %

During the six months ended June 30, 2020, the Company experienced a decline in sales volume beginning in March and extending through June due to the COVID-19 pandemic, particularly in China and other Asian markets.

As a result, organic sales increased by 53.5% as compared to the same prior year period.

Net sales for the six months ended June 30, 2021 was also positively impacted by 7.7% due to the weakening of the U.S.

dollar as compared to the same prior year period, as well as a benefit of 0.8% from acquisitions offset by a reduction of 7.8% due to divestitures of non-strategic businesses and discontinued products.

Six Months Ended June 30,

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

A reconciliation of net sales to organic sales for the nine months ended September 30, 2021 was as follows:

Net sales 40.8 %

Foreign exchange impact 5.6 %

Acquisitions 1.0 %

Divestitures and discontinued products (9.3 %)

Organic sales 43.5%

During the nine months ended September 30, 2020, the Company experienced a decline in sales volume beginning in March due to the COVID-19 pandemic, particularly in China and other Asian markets.

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

1 unchanged sentence

Gross profit as a percentage of net sales 55.9 % 48.1 %

For the six months ended June 30, 2021, the increase in the gross profit rate as a percentage of net sales was primarily driven by favorable mix including the increase in net sales for higher margin products, as compared to the same period ended June 30, 2020.

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

For the nine months ended September 30, 2021, the increase in the gross profit rate as a percentage of net sales was primarily driven by favorable mix including the increase in net sales for higher margin products, as compared to the same period ended September 30, 2020.

Operating Expenses

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change % Change

5 unchanged sentences

R&D as a percentage of net sales 3.6 % 3.5 %

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

NM - Not meaningful

SG&A Expenses

For the six months ended June 30, 2021, the decrease in SG&A expenses as a percentage of net sales was primarily driven by greater absorption of expenses due to higher sales as well as continued expense discipline, as compared to the same period ended June 30, 2020.

For the six months ended June 30, 2021, the increase in R&D expense from the comparable six month period of the prior year was primarily driven by significant spend controls put into place in 2020 in response to the COVID-19 pandemic, increased investment on product development initiatives particularly in the Company's Technology & Equipment segment, and in research investments specific to our recent acquisitions of Byte and Datum Dental.

The Company intends to continue to increase its investment and the ratio of R&D expense to net sales over time.

For the nine months ended September 30, 2021, the decrease in SG&A expenses as a percentage of net sales was primarily driven by greater absorption of expenses due to higher sales as well as expense discipline, as compared to the same period ended September 30, 2020.

For the nine months ended September 30, 2021, the increase in R&D expenses from the comparable quarter of the prior year was primarily driven by significant spend controls put in place in 2020 in response to the COVID-19 pandemic, as well as current year increased investments in digital workflow solutions and other product development initiatives, and the non-capitalizable costs associated with software development including clinical application suite and cloud deployment.

The Company also has additional spend in the current year associated with our recent acquisitions and the opening of a new innovation center in Charlotte, North Carolina.

The Company intends to continue to increase its R&D investments over time.

Goodwill Impairment

There were no impairments recorded in the six months ended June 30, 2021.

During the six months ended June 30, 2020, as a result of updating the estimates and assumptions pertaining to the impact of the ongoing COVID-19 pandemic the Company determined that the goodwill associated with the Equipment & Instruments reporting unit within the Technologies & Equipment segment was impaired.

There were no impairments recorded in the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, as a result of updating the estimates and assumptions pertaining to the impact of the ongoing COVID-19 pandemic the Company determined that the goodwill associated with the Equipment & Instruments reporting unit within the Technologies & Equipment segment was impaired.

As a result, the Company recorded a goodwill impairment charge of $157 million.

Restructuring and Other Cost

The Company recorded restructuring and other costs of $8 million for the six months ended June 30, 2021 compared to $44 million for the six months ended June 30, 2020.

In connection with the various restructuring initiatives, as described earlier, the Company recorded $12 million of restructuring costs and a benefit of $4 million in other costs for the six months ended June 30, 2021.

During the six months ended June 30, 2020, the Company recorded $5 million of restructuring costs and $39 million in other costs, which consisted primarily of impairment charges of $39 million related to indefinite-lived intangible assets within the Technologies & Equipment segment driven by a decline in forecasted sales as a result of the COVID-19 pandemic as well as an unfavorable change in the discount rate.

The Company recorded restructuring and other costs of $11 million for the nine months ended September 30, 2021 compared to $62 million for the nine months ended September 30, 2020.

In connection with the various restructuring initiatives, as described earlier, the Company recorded $14 million of restructuring costs and a benefit of $3 million in other costs for the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, the Company recorded $19 million of restructuring costs and $43 million in other costs, which consisted primarily of impairment charges of $39 million related to indefinite-lived intangible assets within the Technologies & Equipment segment driven by a decline in forecasted sales as a result of the COVID-19 pandemic as well as an unfavorable change in the discount rate.

Other Income and Expense

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2021 2020 Change

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Net interest and other expense $ 47 $ 36 $ 11

The increase in net interest expense was due to higher average debt levels during the six months ended June 30, 2021 compared to the prior year period.

As noted in Part I, Item 1, Note 15, Subsequent Events, in July 2021 the Company entered into a cross currency basis swap which effectively converts a portion of the Company's $750 million bond coupon from 3.3% to 1.7%.

The increase in net interest expense was due to higher average debt levels particularly during the first six months of 2021 compared to the prior year period.

As noted in Part I, Item 1, Note 9, Financial Instruments, in July 2021 the Company entered into a cross currency basis swap which effectively converts a portion of the Company's $750 million bond coupon from 3.3% to 1.7%.

Also in July 2021, the Company entered into variable interest rate swaps which convert a portion of the $750 million Senior Notes from a fixed rate of 3.3% into a variable interest rate.

Together, these instruments are expected to result in a net reduction of interest expense for the remainder of 2021.

Together, these instruments are expected to continue to result in a net reduction of interest expense for the second half of 2021.

Income Taxes and Net Income (Loss)

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change

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Net income (loss) attributable to Dentsply Sirona $ 319 $ (182) $ 501

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

Provision (benefit) for income taxes

For the six months ended June 30, 2021, the provision for income taxes was $67 million as compared to a tax benefit of $14 million during the six months ended June 30, 2020.

During the six months ended June 30, 2021, the Company recorded $2 million of tax expense for other discrete tax matters.

For the nine months ended September 30, 2021, the provision for income taxes was $102 million as compared to a tax benefit of $1 million during the nine months ended September 30, 2020.

During the nine months ended September 30, 2021, the Company recorded $7 million of tax expense for discrete tax matters.

The Company also recorded a $4 million tax expense as a discrete item related to business divestitures.

During the six months ended June 30, 2020, the Company recorded $7 million of tax expense for other discrete matters.

During the nine months ended September 30, 2020, the Company recorded $9 million of tax expense for discrete matters.

The Company also recorded a $11 million tax benefit as a discrete item related to the indefinite-lived intangible asset impairment charge.

The increase in the effective tax rate is primarily from an increase in mix of higher-taxed foreign income and additional U.S.

tax on foreign income.

The increase in the effective tax rate is primarily from an increase in mix of higher-taxed foreign income.

Segment Results

Six Months Ended June 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Technologies & Equipment $ 1,219 $ 824 $ 395 47.9%

Consumables 875 541 334 61.7%

Segment Adjusted Operating Income (a)

Six Months Ended June 30,

(in millions, except percentages) 2021 2020 $ Change % Change

Technologies & Equipment (b)

$ 261 $ 107 $ 154 143.9%

Consumables (b)

304 45 259 575.6%

(b) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $7 million for the six months June 30, 2020, have been reclassified to the "All other" category to conform to current year presentation and the Company's internal reporting to the Chief Operating Decision Maker package.

These amounts are not material to the measure of segment results for the years presented.

Technologies & Equipment

The increase in net sales occurred across all dental businesses and was the result of overall higher volumes during the six months ended primarily due to demand recovery from the impact of the COVID-19 pandemic.

As a result, organic sales increased 35.0% as compared to the same prior year period, driven primarily by the Equipment & Instruments and Implants businesses.

Net sales were also positively impacted by approximately 7.4% due to the weakening of the U.S.

dollar over the prior year period, as well as a benefit of 12.7% from acquisitions offset by a reduction of 7.2% due to divestitures of non-strategic businesses and discontinued products.

The adjusted operating income increase was primarily driven by the increase in net sales as well as continued expense discipline.

The increase in net sales occurred across all regions and was the result of overall higher volumes during the six months ended primarily due to demand recovery from the impact of the COVID-19 pandemic.

As a result, organic sales increased 60.6% as compared to the same prior year period, primarily driven by the Endodontic, Restorative, and Preventive businesses.

Net sales were also positively impacted by approximately 6.9% due to the weakening of the U.S.

dollar as compared to the same prior year period, offset by a reduction of 5.8% due to divestitures of non-strategic businesses and discontinued products.

The adjusted operating income increase was primarily driven by favorable mix including increased volumes for higher margin products, and continued expense discipline.

CRITICAL ACCOUNTING POLICIES

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The Company's reporting units are either an operating segment or one level below its operating segments, as determined in accordance with ASC 350.

Effective 2021 and prospectively, the Company will perform its required annual goodwill impairment test as of April 1 rather than on April 30 which was the Company’s previous practice.

Effective 2021 and prospectively, the Company is performing its required annual goodwill impairment test as of April 1 rather than on April 30 which was the Company’s previous practice.

The Company believes this change is preferable as it more closely aligns with the timing of the Company’s strategic business planning process.

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For the fiscal year 2021, the Company performed its goodwill impairment test as of April 1, 2021 and elected to bypass the qualitative assessment and performed a quantitative assessment.

The Company did not record any goodwill impairment during the first six months of 2021.

During the comparative first six months of 2020, the Company recorded a goodwill impairment charge of $157 million associated with one reporting unit within the Technologies & Equipment segment.

The Company did not record any goodwill impairment during the first nine months of 2021.

During the comparative first nine months of 2020, the Company recorded a goodwill impairment charge of $157 million associated with one reporting unit within the Technologies & Equipment segment.

In conjunction with its annual goodwill impairment test, the Company applied a hypothetical sensitivity analysis to each of its reporting units by increasing the discount rate of these reporting units by 100 basis points and, in a separate test, reducing by 10% the fair value of those reporting units.

All of the Company's reporting units passed the hypothetical tests without the fair value being reduced below carrying value, and therefore it is noted that there are currently no reporting units deemed at risk of being impaired based on the sensitivity analysis.

All of the Company's reporting units passed the hypothetical tests without the fair value being reduced below carrying value, and therefore it was noted that there were currently no reporting units deemed at risk of being impaired based on the sensitivity analysis.

To determine the fair value of the reporting units, the Company used a discounted cash flow model which utilizes both internal and market-based data as its valuation technique.

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The Company performed this annual impairment test as of April 1, 2021 in conjunction with the goodwill impairment annual test.

The Company did not record any indefinite-lived intangible asset impairment during the first six months of 2021.

During the comparative first six months of 2020, the Company recorded an indefinite-lived intangible asset impairment charge of $39 million within the Technologies & Equipment segment.

The Company did not record any indefinite-lived intangible asset impairment during the first nine months of 2021.

During the comparative first nine months of 2020, the Company recorded an indefinite-lived intangible asset impairment charge of $39 million within the Technologies & Equipment segment.

The fair value of acquired tradenames and trademarks is estimated by the use of a relief from royalty method, which values an indefinite-lived intangible asset by estimating the royalties saved through the ownership of an asset.

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The Company also applied a hypothetical sensitivity analysis as part of the annual impairment test of indefinite-lived intangibles.

It was noted that if the fair value of each of these indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate had been hypothetically increased by 100 basis points as of April 1st, 2021, the fair value of these assets would still exceed their book value and currently none of the indefinite-lived intangible assets would be considered at risk based on the sensitivity analysis.

It was noted that if the fair value of each of these indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate had been hypothetically increased by 100 basis points as of April 1st, 2021, the fair value of these assets would still exceed their book value and none of the indefinite-lived intangible assets were considered at-risk based on the sensitivity analysis.

The determination of fair value involves uncertainties around the forecasted cash flows as it requires management to make assumptions and apply judgement to estimate future business expectations.

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LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities during the six months ended June 30, 2021 was $263 million, an increase of $99 million as compared to $164 million during the six months ended June 30, 2020.

This increase was driven primarily by the higher cash collections in the current period, offset by changes in working capital including a build in inventory during the current period to meet recovered demand.

For the six months ended June 30, 2021, on a constant currency basis, the number of days of sales outstanding in accounts receivable increased by 2 day to 56 days as compared to 54 days at December 31, 2020.

On a constant currency basis, the number of days of sales in inventory increased by 11 days to 113 days at June 30, 2021 as compared to 102 days at December 31, 2020.

The Company calculates “constant currency basis” by removing the impact of foreign currency translation, which is calculated by comparing current-period sales, accounts receivables, and inventory to prior-period sales, accounts receivable, and inventory, with both periods converted to the U.S.

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change

Cash provided by (used in):

Operating activities $ 435 $ 372 $ 63

Investing activities (319) (5) (314)

Financing activities (257) 504 (761)

Effect of exchange rate changes on cash and cash equivalents (16) (4) (12)

Net (decrease) increase in cash and cash equivalents $ (157) $ 867 $ (1,024)

The increase in cash provided by operating activities was driven primarily by the higher cash receipts in the current period as a result of higher sales, offset by changes in working capital including a build-up in inventory during the current period to meet recovered demand.

At September 30, 2021, the number of days of sales outstanding in accounts receivable after adjusting for the impact of foreign currency translation increased by 8 days to 62 days as compared to 54 days at December 31, 2020.

The number of days of sales in inventory increased by 8 days to 110 days at September 30, 2021 as compared to 102 days at December 31, 2020.

The Company removes the impact of foreign currency translation in these ratios by comparing current-period sales, accounts receivables, and inventory to prior-period sales, accounts receivable, and inventory, with both periods converted to the U.S.

dollar rate at local currency foreign exchange rates for each month of the prior period.

Cash used in investing activities during the first six months of 2021 included net cash paid for acquisitions of $241 million and capital expenditures of $66 million, offset by the receipt of $27 million in net cash from the sale of a non-core business.

Cash used in investing activities during the first nine months of 2021 included net cash paid for acquisitions of $248 million and capital expenditures of $101 million, offset by the receipt of $27 million in net cash from the sale of a non-core business.

The Company expects critical capital expenditures to be in the range of approximately $150 million to $170 million for the full year 2021.

Cash used in financing activities for the six months ended June 30, 2021 was primarily related to net share repurchases of $90 million and dividend payments of $44 million.

Financing inflows consisted of proceeds from the exercise of stock options of $45 million and additional borrowings of $19 million.

The Company’s overall cash and cash equivalents decreased by $106 million to $332 million during the six months ended June 30, 2021.

During the six months ended June 30, 2021, the Company repurchased approximately 1.5 million shares under its open market share repurchase plan for a cost of $90 million at a weighted average price of $60.62.

Including prior year repurchases, the total amount repurchased under this authorization is $740 million leaving approximately $260 million available to be repurchased.

Cash used in financing activities for the nine months ended September 30, 2021 was primarily driven by the repayment of fixed senior notes totaling $296 million, offset by the partial financing of this repayment through the Company's commercial paper program which resulted in proceeds of $147 from short-term borrowings.

Primarily as a result of this activity, combined with an a decrease of $66 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company's total borrowings decreased by a net $201 million during the nine months ended September 30, 2021.

Other uses of cash for financing included net share repurchases of $90 million and dividend payments of $68 million, offset by proceeds from the exercise of stock options of $47 million.

During the nine months ended September 30, 2021, the Company repurchased approximately 1.5 million shares under its open market share repurchase plan for a cost of $90 million at a weighted average price of $60.62.

On July 28, 2021, the Board of Directors of the Company approved an increase in the value of shares of common stock that may be repurchased under the share repurchase program to $1 billion, all of which is unused and available to be repurchased as of September 30, 2021.

Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors.

The Company's total borrowings decreased by a net $26 million during the six months ended June 30, 2021, driven by $45 million due to exchange rate fluctuations on debt denominated in foreign currencies.

At June 30, 2021 and December 31, 2020, the Company's ratio of total net debt to total capitalization was 27.4% and 27.0%, respectively.

The Company defines net debt as total debt, including current and long-term portions, less cash and cash equivalents, and total capitalization as the sum of net debt plus equity.

In response to the COVID-19 pandemic, the Company previously took actions during the course of 2020 to strengthen its liquidity and financial flexibility.

See the Company's most recently filed Form 10-K for more information.

At June 30, 2021, the Company had a borrowing capacity of $744 million available under lines of credit, including lines available under its short-term arrangements and revolving credit facility.

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

(in millions, except percentages) September 30, 2021 December 31, 2020

Current portion of debt $ 151 $ 296

Long-term debt 1,925 1,978

Cash and cash equivalents 281 438

Net debt $ 1,795 $ 1,836

Total equity 5,125 4,970

Total capitalization $ 6,920 $ 6,806

Total net debt to total capitalization ratio 25.9 % 27.0 %

At September 30, 2021, the Company had a borrowing capacity of $607 million available under lines of credit, including lines available under its short-term arrangements and revolving credit facility.

Through the date of the filing of this Form 10-Q, the Company has no outstanding borrowings under any of its credit facilities.

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The most restrictive of these covenants pertain to asset dispositions and prescribed ratios of indebtedness to total capital and operating income, plus depreciation and amortization to interest expense.

At June 30, 2021, the Company was in compliance with these covenants and expects to remain in compliance with all covenants over the next twelve months.

At June 30, 2021, the Company held $52 million of precious metals on consignment from several financial institutions.

At September 30, 2021, the Company was in compliance with these covenants and expects to remain in compliance with all covenants over the next twelve months.

At September 30, 2021, the Company held $44 million of precious metals on consignment from several financial institutions.

The consignment agreements allow the Company to acquire the precious metals at market rates at a point in time which is approximately the same time and for the same price as alloys are sold to the Company's customers.

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state income taxes, and the impact of foreign currency movements.

At June 30, 2021, management believed that sufficient liquidity was available in the United States and expects this to remain for the next twelve months.

At September 30, 2021, 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis