What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-01 compared with 2021-03-01 · 258 added, 337 removed, 201 unchanged (75% of the section changed)

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• Business - a general description of Dentsply Sirona’s business and how performance is measured;

• Results of Operations - an analysis of the Company’s consolidated results of operations for the three years presented in the Consolidated Financial Statements;

• Results of Operations - an analysis of the Company’s consolidated results of operations for the years ended December 31, 2021 and 2020;

• Critical Accounting Policies and Estimates - a discussion of accounting policies that require critical judgments and estimates;

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2021 Operational Highlights

• For the year ended December 31, 2020, net sales decreased 17.1% compared to the year ended December 31, 2019.

For the year ended December 31, 2021,

• Net sales increased 27.2% compared to the prior year.

On an organic basis (a Non-GAAP measure as defined under the heading "Key Performance Measurements" below) net sales increased 24.6% for the year ended December 31, 2021 compared to prior year.

Net sales were positively impacted by approximately 2.9% due to the weakening of the U.S.

dollar over the prior year period.

Net sales, on an organic sales basis (a Non-GAAP measure as defined under the heading "Principal Measurements" below), decreased 16.7% for the year ended December 31, 2020 as compared to December 31, 2019.

• For the year ended December 31, 2020, the Company reported net loss attributable to Dentsply Sirona of $83 million as compared to the net income attributable to Dentsply Sirona of $263 million for the year ended December 31, 2019.

The Company reported diluted net loss per share of $0.38 per share compared to a net income per share of $1.17 in the prior year.

• For the year ended December 31, 2020, cash from operations was $635 million, as compared to $633 million in the prior year ended December 31, 2019.

• During the year, the Company continued to execute on the restructuring plan that was announced in November 2018.

The Company also announced an addition to the plan in August 2020.

Under this plan, the Company is undergoing a restructuring to drive revenue growth, margin expansion and to simplify its organization.

• Net income increased to $421 million as compared to the net loss of $83 million for the prior year.

Diluted earnings per share was $1.91 per share compared to a net loss per share of $0.38 in the prior year.

• Cash from operations was $657 million, as compared to $635 million in the prior year.

Company Profile

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The Company operates in two operating segments, Technologies & Equipment and Consumables.

The Technologies & Equipment segment is responsible for the design, manufacture, sales and distribution of the Company’s Dental Technology and Equipment Products and Healthcare Consumable Products.

These products include dental implants, CAD/CAM systems, orthodontic clear aligner products, imaging systems, treatment centers, instruments, as well as consumable medical device products.

The Consumables segment is responsible for the design, manufacture, sales and distribution of the Company’s Dental Consumable Products which include preventive, restorative, endodontic, and dental laboratory products.

The Technologies & Equipment segment is responsible for the design, manufacture, sales and distribution of products including dental implants, CAD/CAM systems, orthodontic clear aligner products, imaging systems, treatment centers, instruments, as well as certain healthcare device products, primarily catheters.

The Consumables segment is responsible for the design, manufacture, sales and distribution of dental consumable products which include categories of preventive, restorative, endodontic, and dental laboratory application.

The impacts of COVID-19 and the Company’s response

The impacts to the Company’s net sales and net income during the year ended December 31, 2020 were as follows:

• As previously announced, in the early part of the first quarter, the Company started to experience declines in customer demand in Asia as a result of the effects of COVID-19.

As COVID-19 spread to other geographies during the first quarter, the Company experienced effects on customer demand in those regions as well.

In early March, the Company experienced declines in demand in the European region, followed by North and South America in the second half of March.

These decreases in demand were primarily driven by the government actions taken to limit the spread of COVID-19.

Additionally, end-user demand was affected by guidance from professional dental associations recommending practitioners only perform emergency procedures.

• Following March, the Company continued to see lower levels of customer demand on a global basis as a result of government authorities extending actions taken in response to COVID-19.

The Company experienced the lowest sales levels in April, however, it began to see an increase in sales during May and June as most stay-at-home orders were lifted and dental practices started to re-open particularly in the United States, Europe, and certain Asian countries within the Rest of World region.

In the second half of 2020, the Company continued to see demand improve in both the United States and Europe, while the Rest of the World sales started to show improvement in the fourth quarter.

• While 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.

• The demand for the Company's products has been, and continues to be, affected by social distancing guidelines, newly implemented dental practice safety protocols which reduce patient traffic, and patient reluctance to seek dental care.

At this time, it is uncertain how long these impacts will continue.

The Company’s response to the pandemic through December 31, 2020 was as follows:

• A COVID-19 infection crisis management process was implemented by the Company to have a unified approach to responding to employees infected by COVID-19.

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

No major outbreaks have occurred at any of the Company's locations.

• The Company put in place travel restrictions, implemented a work from home policy where possible, and prohibited all meetings of more than 10 people.

These measures were taken to limit employee exposure to COVID-19 as well as comply with stay-at-home and social distancing guidelines.

• A customer service support continuity plan was implemented to meet customer needs.

Technical support was maintained to assist the Company’s customers during this period while still ensuring employees' safety.

• The Company remained focused on maintaining a high level of customer support through robust virtual training and development courses.

• The Company suspended or significantly reduced operations at most of its principal manufacturing and distribution locations, which included furloughing employees related to these locations.

While the operations were suspended or significantly reduced, the Company continued to fulfill customer demand.

The Company also continued sales and manufacturing operations at normal levels within the Healthcare business.

The Company’s principal manufacturing facilities and other operations have returned to a more normalized level during the second half of the year.

The Company continues to monitor the COVID-19 pandemic and may need to reduce operations in the event of a resurgence of COVID-19 or in the event of actions from governmental authorities to combat a resurgence.

• The Company temporarily reduced spending on sales, marketing, and other related expenses due to the decrease in customer demand.

Additionally, the Company instituted a temporary global hiring freeze, a reduction in temporary employees and consultants, as well as curtailed or stopped all projects that are not critical to the continuity of the business.

Despite these temporary reductions, the Company maintained investment in critical capital and research and development projects as well as global efficiency and cost savings initiatives.

The majority of these temporary reductions were eased during the fourth quarter as sales level continued to improve.

• During April, the Company announced additional furloughs or the reduction of working hours for employees throughout its organization.

The total number of employees impacted by these measures represented approximately 52% of the workforce.

The furloughs remained in place throughout the second quarter and the majority of these furloughs and reductions were then lifted in the third quarter with all remaining furloughs and reductions being lifted during the fourth quarter.

• For the safety of all employees and customers, the Company established additional protocols in addition to following all mandated regulatory requirements imposed by the country, the state, and the local jurisdictions in which the Company operates.

• The Company implemented a 25% wage reduction plan for all salaried employees of the Company who were not furloughed and were above a certain specified salary level, including members of management, where allowed by law, during the second quarter.

These reductions were in place for 90 days.

The CEO relinquished all but the portion of his base salary necessary to fund, on an after-tax basis, his contributions to continue to participate in the Company’s health benefits plan and meet certain other legal requirements.

In addition, each member of the Board of Directors agreed to waive one quarter of his or her annual cash retainer for 2020.

• The Company has also continued to take measures to contain costs in light of lower sales levels and has taken actions to accelerate the cost improvement initiatives included in the previously announced restructuring plan.

• Many governments across the world instituted programs to reimburse business entities for a portion of employee compensation expense for employees that are furloughed or that are working reduced hours.

The Company applied for and has received relief under these programs as well as certain other programs instituted by governments to mitigate the negative impacts of COVID-19.

As of December 31, 2020, the Company had received a total of $38 million in relief.

• In an effort to preserve liquidity, the Company took action related to deferring the payment of income and payroll tax related liabilities where governments have allowed such deferrals.

Additionally, the Company implemented cost containment measures to ensure the preservation of cash.

• During the second quarter, the Company took various actions to ensure its ongoing liquidity.

The Company elected to drawdown the full amount of its $700 million 2018 Credit Facility to provide additional liquidity and financial flexibility in light of the economic conditions and uncertainties which arose in connection with the COVID-19 pandemic.

On May 26, 2020, the Company issued $750 million of 3.25% senior unsecured notes due 2030 and used the proceeds to repay the $700 million 2018 Credit Facility.

Additionally, out of an abundance of caution, in order to provide for further liquidity, the Company entered 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 three additional facilities are all short-term.

At December 31, 2020, there were no outstanding borrowings under these facilities and the Company’s $700 million 2018 Credit Facility.

The impact to the Company's net sales and net income subsequent to December 31, 2020 includes:

• Governments have continued the imposition of certain restrictions in Europe which began in the fourth quarter due to the rising number of COVID-19 infections.

At this time it is uncertain the impact these actions and further restrictions could potentially have on the Company's net sales and net income.

The COVID-19 pandemic has created significant volatility and uncertainty in the overall markets particularly in the year that followed the initial outbreak late in 2019, leading to changes in consumer behavior, government restrictions on individuals and businesses, and significant disruption to supply chains in several sectors, including dental equipment and medical supplies.

The Company’s 2020 results were materially impacted by this disruption at the outset of the pandemic, including the closure or reduced operations of dental practices.

During 2021, demand for the Company’s products has largely recovered, although impacts from the pandemic continue to be experienced as evidenced by the more recent shortages and higher prices of raw materials such as electronic components, transportation and shipping services, and labor.

The impacts of COVID-19 on the Company’s operations during 2021 were as follows:

• The Company has seen customer demand and dental patient traffic normalize in major markets.

Despite the resurgence of cases late in 2021 due to variants of the COVID-19 virus, public and private dental practices largely remain open, although many continue to operate at less than pre-pandemic capacities.

Certain of the Company's markets including regions of Southeast Asia have experienced setbacks in demand in the second half of the year 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 future variants of the virus may have an adverse impact on demand in affected markets.

• During 2021, the Company has experienced supply chain constraints, which has impacted its ability to timely produce and deliver certain products, and has also resulted in increases in shipping rates.

To address these issues, the Company has taken steps to mitigate the impact of these trends, including continued emphasis on cost reduction and supply chain efficiencies.

The Company continues to monitor the impact of global supply chain issues, including shipping disruption and inflation of material inputs, as well as labor shortages.

• The Company's COVID-19 infection crisis management process implemented in 2020 remains in effect during 2021.

During the pandemic, the Company has utilized this process to manage several incidents of exposure at facilities.

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 adverse impact to the Company’s operating results.

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-K, the Company’s principal manufacturing facilities and other operations have now returned to a more normalized level.

The Company continues to monitor the COVID-19 pandemic.

As governmental authorities adjust restrictions globally, the Company plans to appropriately staff sales, manufacturing, and other functions to meet customer demand and deliver on continuing critical projects while also complying with all government requirements.

Principal Measurements

The principal measurements used by the Company in evaluating its business are:

(1) constant currency sales growth by segment and geographic region;

(2) organic sales growth by segment and geographic region;

As an ongoing consequence of the public's response to the global pandemic, including the restrictive measures imposed to contain its spread, it is noted that dental practices have adapted to potentially long-term conventions of social distancing and remote working.

It is expected that the new conditions will continue to increase demand in dental care markets for the efficiencies and benefits that come from digital solutions.

In response to this trend which began before the pandemic, the Company has continued to make investments to promote the transformation of dentistry with advancements in digital workflows, software upgrades, 3D printing and other offerings such as clinical education that are allowing the Company to quickly respond to increased demand for digital dentistry.

As uncertainty surrounding the pandemic continues, as part of the strategic response to its longer-term implications including the increase in demand for digital solutions, the Company intends to continue targeting investments in this area including the related R&D and sales and marketing investments that will bring these innovations to customers.

The impact of recent developments in Ukraine

In February 2022, as a result of the invasion of Ukraine by Russia, economic sanctions were imposed by the U.S., the European Union, and certain other countries on Russian financial institutions and businesses.

While it is difficult to estimate the impact of current or future sanctions on the Company’s business and financial position, these sanctions could adversely impact the Company’s sales, cost of procuring raw materials, or distribution costs in future periods.

Refer to Part I, Item 1A, "Risk Factors" - Risks Related to Our International Operations .

As of December 31, 2021, the net assets of the Company’s subsidiaries in Russia and Ukraine were $63 million, and for the year ended December 31, 2021, the Company’s net sales in Russia and Ukraine were approximately 3% of its consolidated net sales.

Key Performance Measurements

The principal measurements used by the Company in evaluating its business performance are:

(1) organic sales by segment and geographic region;

and (2) adjusted operating income and margins of each reportable segment, which excludes the impacts of purchase accounting, corporate expenses, and certain other items to enhance the comparability of results period to period.

These principal measurements are not calculated in accordance with accounting principles generally accepted in the United States ("US GAAP");

therefore, these items represent Non-GAAP measures.

These Non-GAAP measures may differ from 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.

The Company defines “constant currency” sales growth as the increase or decrease in net sales from period to period excluding the impact of changes in foreign currency exchange rates.

This impact is calculated by comparing current-period revenues to prior-period revenues, with both periods converted to the U.S.

dollar using local currency foreign exchange rates for each month of the prior period, for the currencies in which the Company does business.

The Company defines "organic sales" as the increase or decrease in net sales excluding:

(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 translation, which is calculated by comparing current-period sales to prior-period sales, with both periods converted to the U.S.

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

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.

The "organic sales" measure is not calculated in accordance with US GAAP;

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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.

The Company's senior management receives a monthly analysis of operating results that includes organic sales.

Organic sales is an important internal measure for the Company, and its senior management who receive 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.

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Business Drivers

The primary drivers of internal sales growth include macroeconomic factors, global dental market demand, innovation and new product launches by the Company, as well as continued investments in sales and marketing resources, including clinical education.

The primary drivers of organic sales include macroeconomic factors, global dental market demand, innovation and new product launches by the Company, as well as continued investments in sales and marketing resources to drive demand creation, including clinical education.

Management believes that the Company’s ability to execute its strategies should allow it to grow faster than the underlying dental market over time.

On a short-term basis, sudden changes in the macroeconomic environment such as those caused by the impacts of COVID-19, changes in strategy, or distributor inventory levels can and have impacted the Company's sales.

On a short-term basis, sudden changes in the macroeconomic environment such as those caused by the impacts of COVID-19, supply chain challenges, changes in strategy, or distributor inventory levels can and have impacted the Company's sales.

The Company has a focus on maximizing operational efficiencies on a global basis.

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While the Company continues consolidation initiatives which can have an adverse impact on reported results in the short term, the Company expects that the continued benefits from these global efficiency efforts will improve its cost structure.

Product innovation is a key component of the Company’s overall growth strategy.

New advances in technology are anticipated to have a significant influence on future products in the dentistry and consumable medical device markets in which the Company operates.

As a result, the Company continues to pursue research and development initiatives to support technological development, including collaborations with various research institutions and dental schools.

In addition, the Company licenses and purchases technologies developed by third parties.

Although the Company believes these activities will lead to new innovative dental and healthcare products, they involve new technologies and there can be no assurance that marketable products will be developed.

Subject to the pace of the post-pandemic recovery, the Company intends to continue pursuing opportunities to expand the Company’s product offerings, technologies, and sales and service infrastructure through partnerships and acquisitions.

Although the professional dental and the consumable medical device markets in which the Company operates have experienced consolidation, they remain fragmented.

Although the professional dental market has experienced consolidation, it remains fragmented.

Management believes that there will continue to be adequate opportunities to participate as a consolidator in the industry for the foreseeable future.

The Company’s business is subject to quarterly fluctuations of consolidated net sales and net income.

The Company’s business is subject to quarterly fluctuations in net sales and operating income.

Price increases, promotional activities, as well as changes in inventory levels at distributors contribute to this fluctuation.

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Required minimum purchase commitments under agreements with key distributors may increase inventory levels in excess of retail demand.

These net inventory changes have impacted the Company’s consolidated net sales and net income in the past, and may continue to do so in the future, over a given period or multiple periods.

In addition, the Company may from time to time, engage in new distributor relationships that could cause fluctuations of consolidated net sales and net income.

Distributor inventory levels may fluctuate, and may differ from the Company’s predictions, resulting in the Company’s projections of future results being different than expected.

There can be no assurance that the Company’s dealers and customers will maintain levels of inventory in accordance with the Company’s predictions or past history, or that the timing of customers’ inventory build or liquidation will be in accordance with the Company’s predictions or past history.

The Company anticipates that inventory levels may fluctuate as dealers and customers manage the effects of COVID-19 on their businesses.

Changes in dealer inventory levels have impacted the Company’s consolidated net sales in the past, and may continue to do so in the future.

In addition, the Company may from time to time, engage in new distributor relationships that could cause fluctuations of consolidated net sales and operating income.

Distributor inventory levels may fluctuate, and may differ from the Company’s projections, resulting in the Company’s forecast of future results being different than expected.

There can be no assurance that the Company’s dealers and customers will maintain levels of inventory or patterns of build and liquidation timing in accordance with the Company’s predictions or past history.

As of December 31, 2021, certain dealers’ inventory of the Company’s CAD/CAM products was higher than at the end of the prior year, by approximately $50 million.

These higher levels of dealer inventory are due to lower-than-expected retail sales in the fourth quarter and may pose headwinds to the Company’s net sales for these products in 2022.

The Company anticipates that inventory levels may continue to fluctuate as dealers and customers manage the effects of COVID-19 and supply chain constraints on their businesses.

Any of these fluctuations could be material to the Company’s consolidated financial statements.

For more information about the drivers of our business and related risks, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors."

Restructuring Announcement

In November 2018, the Board of Directors of the Company approved a plan to restructure and simplify the Company’s business.

The goal of the restructuring is to drive annualized net sales growth of 3% to 4% and adjusted operating income margins of 22% by the end of 2022 as well as achieve net annual cost savings of $200 million to $225 million by 2021.

In July 2020, the Board of Directors of the Company approved an expansion of this plan that is intended to further optimize the Company’s product portfolio and reduces operating expenses.

The product portfolio optimization has resulted in the divestiture or closure of certain underperforming businesses.

The operating expense reductions will come as a result of additional leverage from continued integration and simplification of the business.

The Company had initially anticipated one-time expenditures and charges of approximately $275 million yielding annual cost savings of $200 million to $225 million by 2021.

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%.

Since November 2018, the Company has incurred expenditures of approximately $310 million under this program, of which, approximately $120 million were non-cash charges.

These amounts include the charges for the portfolio shaping initiatives announced on August 6, 2020 which are further discussed below.

As part of this expanded plan, the Company announced on August 6, 2020 that it will exit its traditional orthodontics business as well as both exit and restructure certain portions of its laboratory business.

The traditional orthodontics business is part of the Technologies & Equipment segment and the laboratory business is part of the Consumables segment.

The Company is exiting several of its facilities and reducing its workforce by approximately 4% to 5%.

The Company expects to record restructuring charges in a range of $70 million to $80 million for inventory write-downs, severance costs, fixed asset write-offs, and other facility closure costs.

The Company estimates that $45 million to $55 million of the restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs.

During the year ended December 31, 2020, the Company recorded expenses of approximately $59 million related to these actions, of which, approximately $48 million were non-cash charges.

The Company expects most of the remaining restructuring charges will be recorded during the first quarter of 2021.

The Company does not expect a significant impact to net sales in the first quarter of 2021.

Both businesses have been experiencing declining sales and are dilutive to the Company’s operating income rate.

The Company’s traditional orthodontics business, which includes brackets, bands, tubes and wires, had net sales of $132 million in 2019.

The portion of the laboratory business the Company is exiting manufactures removable dentures and related products and had net sales of $44 million in 2019.

Restructuring Programs

In 2018, the Board of Directors approved a plan to restructure and simplify the Company’s business, which was expanded in 2020 for certain portfolio optimization objectives including the exit of the Company’s traditional orthodontics business as well as portions of its laboratory business.

A primary goal of the restructuring has been to drive annualized net sales growth of 4% to 5% and adjusted operating income margins of 22% by the fourth quarter of 2022.

The operating expense reductions have come as a result of additional leverage from continued integration and simplification of the business.

The expanded program is expected to result in total charges of approximately $345 million and annual cost savings of approximately $250 million.

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

The Company expects most of the remaining charges will be recorded during the first quarter of 2022.

The Company has not seen and does not expect a significant impact to net sales as a result of these actions.

The businesses being exited as part of the portfolio optimization have been experiencing declining sales and were dilutive to the Company’s operating income margin.

The Company’s traditional orthodontics business, which includes brackets, bands, tubes and wires, had net sales of $92 million in 2020 and $132 million in 2019.

The portion of the laboratory business the Company is exiting manufactures removable dentures and related products and had net sales of $30 million in 2020 and $44 million in 2019.

The net income of these businesses is not material to the Company’s consolidated results.

As part of this restructuring plan, the Company has introduced five key operating principles in order to achieve this goal:

• Approach customers as one:

Put the customer at the center of how Dentsply Sirona is organized.

The Company is creating one integrated approach to customer service, direct and indirect selling, and clinical education to strengthen the relationship with the customer and better serve the customers' needs.

• Assume greater responsibility for Dentsply Sirona’s demand creation:

To better support dealer partners and end-user customers, the Company launched a sales force effectiveness program, with a view to improving returns on sales and marketing investments.

• Ensure that innovation is substantial and supported:

Create a comprehensive R&D program that prioritizes spending across the entire Company portfolio resulting in more impactful innovations each year.

• Lead in clinical education:

Dentsply Sirona is investing to further its leadership position through local training events and enhancing online training presence to strengthen the relationship with the dental professionals.

• Take advantage of scale:

The Company is focused on integrating its dental product portfolios to unlock operational efficiencies, including performance improvements in procurement, logistics, manufacturing, sales force and marketing programs.

In addition, Dentsply Sirona is taking significant measures to simplify the business.

In combination, these initiatives will improve organizational efficiency and better leverage the Company’s selling, general and administrative infrastructure.

Impact of Foreign Currencies

Due to the Company’s significant international presence, movements in foreign currency exchange may impact the Consolidated Statements of Operations.

With approximately two-thirds of the Company’s net sales located in regions outside the United States, the Company’s consolidated net sales are impacted negatively by the strengthening or positively impacted by the weakening of the U.S.

Additionally, movements in certain foreign exchange rates may unfavorably or favorably impact the Company’s results of operations, financial condition and liquidity as a number of the Company’s manufacturing and distribution operations are located outside of the U.S.

Due to the Company’s global footprint, movements in foreign currency exchange rates may have a material impact on its reported net sales and pre-tax income.

With approximately two-thirds of the Company’s net sales originating from regions outside the United States, the Company’s net sales and results from operation are negatively impacted by the strengthening, or positively impacted by the weakening of the U.S.

dollar, compared to the primary currencies in which the Company operates.

RESULTS OF OPERATIONS

2020 Compared to 2019

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

In addition, the Company also compares net sales on an organic sales basis, which is a Non-GAAP measure.

The Company defines "organic sales" as the increase or decrease in net sales excluding:

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

The "organic sales" measure is not calculated in accordance with US GAAP;

therefore, this item represents a Non-GAAP measure.

Organic sales is an important internal measure for the Company.

The Company's 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 organic sales 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.

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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Net sales $ 4,251 $ 3,342 $ 909 27.2 %

Net sales for the year ended December 31, 2020 were $3,342 million, a decrease of $687 million or 17.1% from the year ended December 31, 2019.

The decrease in net sales was attributable to both the Consumables and the Technologies & Equipment segments which were impacted by reduced demand for dental related procedures primarily due to the impact of the COVID-19 pandemic.

Net sales were positively impacted by approximately 0.3% due to the weakening of the U.S.

dollar as compared to the same prior year period.

This decrease included a reduction of 0.6% from divestitures of non-strategic businesses and a 0.1% decrease due to discontinued products.

For the year ended December 31, 2020, organic sales decreased 16.7% as compared to the same prior year period.

The decrease in organic sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to the impact of the COVID-19 pandemic.

During the year ended December 31, 2020, the Company saw normal sales levels for the months of January and February and started to experience a decline in sales volume during March which continued to its lowest levels in April as certain countries in Asia and Europe began to issue stay-at-home and social distancing guidelines which were quickly adopted in the United States as well.

The Company then began to see an increase in sales during May and June as most stay-at-home orders were lifted and dental practices started to re-open, particularly in the United States and Europe.

During the last six months of 2020, the Company continued to see demand improve.

Net Sales by Region

Net sales by geographic region were as follows:

Favorable foreign exchange impact 2.9 %

Acquisitions 5.4 %

Divestitures and discontinued products (5.7 %)

Organic sales 24.6 %

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

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

In addition to the overall increases due to more normalized demand across the product lines, the Company achieved additional topline growth as a result of successful product launches during 2021 and geographic expansion in the Implants, Orthodontics, and Endodontic & Restorative Consumables businesses.

Net Sales by Segment

Technologies & Equipment

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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

United States $ 1,109 $ 1,373 $ (264) (19.2 %)

Europe 1,387 1,614 (227) (14.1 %)

Rest of World 846 1,042 (196) (18.8 %)

Net sales $ 2,524 $ 1,961 $ 563 28.7 %

Favorable foreign exchange impact 2.9 %

Acquisitions 9.0 %

Divestitures and discontinued products (6.4 %)

Organic sales 23.2 %

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

The increase in organic sales occurred across all product categories and was primarily due to the easing of the adverse impact of the COVID-19 pandemic, as well as new product launches and geographic expansion of existing products.

These increases in organic sales were partly offset by supply chain issues that delayed shipments of certain products to customers until the following year.

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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

Net sales $ 1,727 $ 1,381 $ 346 25.0 %

Favorable foreign exchange impact 2.8 %

Acquisitions — %

Divestitures and discontinued products (4.5 %)

Organic sales 26.7 %

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

The increase in organic sales occurred across all regions and was the result of overall higher volumes during the year ended December 31, 2021, primarily due to demand recovery from the impact of the COVID-19 pandemic.

The segment also benefited from successful launches of new Endodontic and Restorative products, and favorable price increases.

Net Sales by Region

United States

Net sales for the year ended December 31, 2020 were $1,109 million, a decrease of $264 million or 19.2% from the year ended December 31, 2019.

The decrease in net sales was attributable to both the Technologies & Equipment and the Consumables segments and was primarily due to the impact of the COVID-19 pandemic.

The decrease included a reduction of 0.5% from divestitures of non-strategic businesses and a decline of 0.6% due to discontinued products.

For the year ended December 31, 2020, organic sales decreased 18.4% as compared to the same prior year period.

The decrease in organic sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to the impact of the COVID-19 pandemic.

Net sales for the year ended December 31, 2020 were $1,387 million, a decrease of $227 million or 14.1% from the year ended December 31, 2019.

The decrease in net sales was attributable to both the Technologies & Equipment and the Consumables segments and was primarily due to the impact of the COVID-19 pandemic.

The year ended December 31, 2020 was positively impacted by approximately 1.3% due to the weakening of the U.S.

dollar as compared to the same prior year period.

The decrease included a reduction of 0.9% from divestitures of non-strategic businesses and a decline of 0.1% due to discontinued products.

For the year ended December 31, 2020, organic sales decreased 14.4% as compared to the same prior year period.

The decrease in organic sales was attributable to both the Technologies & Equipment and the Consumables segments and was primarily due to the impact of the COVID-19 pandemic.

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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

Net sales $ 1,497 $ 1,109 $ 388 35.0 %

Favorable foreign exchange impact 0.3 %

Acquisitions 15.4 %

Divestitures and discontinued products (4.9 %)

Organic sales 24.2%

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

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 year ended December 31, 2021, following periods of lower demand resulting from the COVID-19 pandemic.

In addition to the overall increases due to more normalized demand across the product lines, the Company achieved additional topline growth domestically as a result of successful product launches in the Implants, Orthodontics, and Endodontic & Restorative Consumables businesses, partly offset by delays in shipments of some products late in the year due to supply chain constraints.

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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

Net sales $ 1,685 $ 1,387 $ 298 21.5 %

Favorable foreign exchange impact 4.7 %

Acquisitions — %

Divestitures and discontinued products (4.7 %)

Organic sales 21.5%

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

The increase in organic sales was attributable to both the Technologies & Equipment and Consumables segments and was primarily due to overall higher volumes during the year ended December 31, 2021, following periods of lower demand resulting from the COVID-19 pandemic.

In addition to the overall increases due to more normalized demand across the product lines, the Company achieved additional topline growth in Europe as a result of increased sales volumes of CAD/CAM units, as well as successful product launches and geographic expansion in the Implants, Orthodontics, and Restorative Consumables businesses, partly offset by delays in shipments of some Equipment & Instruments products late in the year due to supply chain constraints.

Rest of World

Net sales for the year ended December 31, 2020 were $846 million, a decrease of $196 million or 18.8% from the year ended December 31, 2019.

The decrease in net sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to the impact of the COVID-19 pandemic.

The year ended December 31, 2020 was negatively impacted by approximately 1.1% due to the strengthening of the U.S.

dollar as compared to the same prior year period.

The decrease included a reduction of 0.2% from divestitures of non-strategic businesses offset by an increase of 0.5% from discontinued products.

For the year ended December 31, 2020, organic sales decreased 18.0% as compared to the same prior year period.

The decrease in organic sales was attributable to both the Consumables and the Technologies & Equipment segments and was primarily due to the impact of the COVID-19 pandemic.

A reconciliation of net sales to organic sales for the year ended December 31, 2021 was as follows:

Year Ended December 31,

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

Net sales $ 1,069 $ 846 $ 223 26.4 %

Favorable foreign exchange impact 3.2 %

Acquisitions 1.0 %

Divestitures and discontinued products (8.3 %)

Organic sales 30.5%

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

In addition to the overall increases due to more normalized demand across the product lines, the Company achieved additional topline growth in the Rest of World markets as a result of increased sales volumes of Implants, CAD/CAM units and the Company's Orthodontics products.

Year Ended December 31,

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

Gross profit $ 2,361 $ 1,657 $ 704 42.5 %

Gross profit as a percentage of net sales 49.6 % 53.7 %

Gross profit as a percentage of net sales decreased by 410 basis points for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

For the year ended December 31, 2020, the decrease in the gross profit rate as compared to the year ended December 31, 2019 was primarily driven by the decline in net sales and the resulting unfavorable manufacturing variances due to the impact of the COVID-19 pandemic, as well as accelerated depreciation and inventory write-downs related to the discontinuation of product lines.

Gross profit as a percentage of net sales 55.5 % 49.6 % 590 bps

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

The increase in the gross profit rate as a percentage of net sales was primarily driven by the increase in net sales for higher margin products, including those related to new product launches.

Mix relative to prior year has benefited from portfolio optimization including the discontinuation of certain lower margin products associated with the traditional orthodontic and laboratory businesses, and the strategic investments in higher margin products such as specialized implants solutions and clear aligners.

These favorable increases to gross profit as a percentage of sales were offset by pricing incentives for certain products and increased supply chain related expenses including distribution costs in the current year.

Operating Expenses

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Selling, general and administrative expenses (“SG&A”) $ 1,551 $ 1,312 $ 239 18.2 %

Research and development expenses ("R&D") 171 123 48 38.9 %

Goodwill impairment — 157 (157) NM

Restructuring and other costs 77 81 (4) (4.9 %)

SG&A as a percentage of net sales 42.9 % 42.8 %

Restructuring and other costs 17 77 (60) NM

SG&A as a percentage of net sales 36.5 % 39.3 % (280) bps

R&D as a percentage of net sales 4.0 % 3.7 % 30 bps

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

NM - Not meaningful

SG&A Expenses

For the year ended December 31, 2020, SG&A, including research and development expenses, as a percentage of net sales increased 10 basis points for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

The higher rate was driven by the impact of lower sales which more than offsets the cost reduction measures implemented by the Company in response to the COVID-19 pandemic.

These cost reduction measures include, but are not limited to, the reduction of the following expense categories:

marketing and promotion expenses, travel and meeting expenses, salary expenses, and professional services.

SG&A expenses increased primarily due to strategic investments in sales and marketing resources in key growth areas, as well as a decrease in COVID-19 related relief from foreign governments.

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.

The increase in R&D expenses was primarily due to an increase in spend within the T&E segment driven by increased investments in digital workflow solutions, product development initiatives, software development including clinical application suite and cloud deployment.

Additionally, the Company made investments in a new Consumables innovation center in Charlotte, North Carolina.

The Company expects to continue to maintain an expanded level of investment in research and development that is at least 4% of annual net sales.

Goodwill Impairment

For the year ended December 31, 2020, the Company recorded a goodwill impairment charge of $157 million.

The impairment charge is related to the Equipment & Instruments reporting unit within the Technologies & Equipment segment recorded in the three months ended March 31, 2020.

There were no impairments recorded in the year ended December 31, 2021.

During the year ended December 31, 2020, as a result of the impact of the 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.

For further details see Item 8, Note 12, Goodwill and Intangible Assets, in the Notes to the Audited Consolidated Financial Statements of this Form 10-K.

Restructuring and Other Costs

The Company recorded restructuring and other costs of $77 million for the year ended December 31, 2020 compared to $81 million for the year ended December 31, 2019.

During the year ended December 31, 2021, the Company recorded net expense of $17 million of restructuring costs in connection with the various restructuring initiatives.

For further details see Item 8, Note 19, Restructuring and Other Costs, in the Notes to the Audited Consolidated Financial Statements of this Form 10-K.

During the year ended December 31, 2020, the Company recorded $26 million of restructuring costs primarily related to the expansion of the restructuring plan announced in August 2020.

The Company also recorded $51 million of other costs, which consist primarily of impairment charges of $39 million related to indefinite-lived intangible assets and other impairments of $8 million.

For further details see Item 8, Note 10, Goodwill and Intangible Assets, in the Notes to the Audited Consolidated Financial Statements of this Form 10-K.

During the year ended December 31, 2019, the Company recorded $34 million of restructuring costs.

The Company also recorded $47 million of other costs, which consisted primarily of fixed asset impairments of $33 million, a $5 million impairment of indefinite-lived tradenames and trademarks within the Technologies & Equipment segment, and a $4 million impairment of intangible assets related to discontinued product lines in the Consumables segment.

The Company announced on August 6, 2020 that it will exit its traditional orthodontics business as well as both exit and restructure certain portions of its laboratory business.

The traditional orthodontics business is part of the Technologies & Equipment segment and the laboratory business is part of the Consumables segment.

The Company expects to record restructuring charges in a range of $70 million to $80 million for inventory write-downs, severance costs, fixed asset write-offs, and other facility closure costs.

The Company estimates that $45 million to $55 million of the restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs.

During the year ended December 31, 2020, the Company recorded expenses of approximately $59 million related to these actions, of which, approximately $48 million were non-cash charges.

The traditional orthodontics business has been part of the Technologies & Equipment segment and the laboratory business has been part of the Consumables segment.

The Company expects to record total ending restructuring charges in a range of $60 million to $70 million for inventory write-downs, severance costs, fixed asset write-offs, and other facility closure costs.

The Company estimates that $45 million to $55 million of the total final restructuring charges will be non-cash charges related to inventory write-downs and fixed asset write-offs.

To date through December 31, 2021, the Company recorded expenses of approximately $58 million related to these actions, of which approximately $46 million were non-cash charges.

Segment Adjusted Operating Income

Year Ended December 31,

(in millions, except percentages) (a)

2021 2020 $ Change % Change

Technologies & Equipment

$ 556 $ 387 $ 169 43.7 %

Consumables 541 314 227 72.3 %

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

(a) See Note 7, Segment and Geographic Information, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation from segment adjusted operating income to consolidated US GAAP income.

The increase in adjusted operating income for both Technologies & Equipment and Consumables was primarily driven by the increase in net sales, favorable mix including increased volumes for higher margin products, and continued expense discipline during 2021, offset by higher supply chain related expenses, including distribution costs.

Other Income and Expenses

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

Net interest expense $ 47 $ 28 $ 19 67.9 %

Interest expense, net $ 55 $ 47 $ 8 18.6 %

Other expense (income), net 8 1 7 NM

Net interest and other expense $ 63 $ 48 $ 15

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

NM - Not meaningful

Net Interest Expense

Net interest expense for the year ended December 31, 2020 increased $19 million as compared to the year ended December 31, 2019.

Higher average debt levels in 2020 when compared to the prior year period were the primary driver resulting in higher net interest expense.

Interest expense, net

Net interest expense for the year ended December 31, 2021 increased by $8 million as compared to the year ended December 31, 2020, driven primarily by higher average debt levels in 2021 relative to the prior year period.

Other expense (income), net

Other expense (income), net for the year ended December 31, 2020 increased $13 million compared to the year ended December 31, 2019.

Other expense (income), net for the year ended December 31, 2020 includes foreign exchange gains of $13 million, primarily on net investment hedges, offset by the non-operating losses of $14 million related to the divestitures of non-strategic businesses.

The net investment hedges were sold in April 2020 resulting in lower income for the year.

Other expense (income), net for the year ended December 31, 2019 includes foreign exchange gains of $27 million, primarily on net investment hedges, offset by the non-operating losses of $15 million related to the divestitures of non-strategic businesses.

Income Taxes and Net (Loss) Income

Other expense (income), net for the year ended December 31, 2021 compared to the year ended December 31, 2020 was as follows:

Year Ended December 31,

(in millions, except percentages) 2021 2020 $ Change

(Gain) loss on sales of non-core businesses $ (7) $ 2 $ (9)

Foreign exchange gains (a)

Loss from equity method investments 10 1 9

Defined benefit pension plan expenses 10 9 1

Other non-operating loss (gain) 1 2 (1)

Other expense (income), net $ 8 $ 1 $ 7

(a) Foreign exchange gains are primarily related to the revaluation of intercompany payables and loans.

Income Taxes and Net Income (Loss)

Year Ended December 31,

(in millions, except per share data and percentages) 2021 2020 $ Change

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Effective income tax rate 24.7 % (38.3 %)

Net (loss) income attributable to Dentsply Sirona $ (83) $ 263 $ (346)

Net (loss) income per common share - diluted (a)

Net income (loss) attributable to Dentsply Sirona $ 421 $ (83) $ 504

Net income (loss) per common share - diluted (a)

$ 1.91 $ (0.38)

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

(a) For the year ended December 31, 2020, the Company's net loss per share was calculated on a non-diluted basis.

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For the year ended December 31, 2021, income taxes were a net expense of $138 million.

During the year ended December 31, 2020, the Company recorded $9 million of tax expense for other discrete tax matters.

The Company also recorded an $11 million tax benefit as a discrete item related to the indefinite-lived intangible asset impairment charge and $2 million related to the asset impairment charge.

Excluding these discrete tax items and adjusting pretax income to exclude the pretax charge related to the impairment of the intangible assets and non-intangible assets, and non-deductible goodwill impairment charge, the Company's effective tax rate was 18.4%.

During the year ended December 31, 2021, the Company recorded discrete tax expense items of $10 million related to statutory rate changes and $4 million for other discrete tax matters.

The Company also recorded $5 million of tax expense as a discrete item related to business divestitures.

The increase in the effective tax rate is due to the overall improvement in the Company’s performance and its corresponding 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.

For the year ended December 31, 2020, income taxes were a net expense of $23 million.

During the year ended December 31, 2019, the Company recorded the following discrete tax items:

$4 million of excess tax benefit related to employee share-based compensation, tax expense of $9 million for other discrete tax matters, and tax benefit of $4 million related to valuation allowance on foreign tax credits and other deferred tax assets.

The Company also recorded a $10 million tax benefit as a discrete item related to the fixed asset impairment charge, $2 million tax benefit related to the indefinite-lived intangible asset impairment charge and $1 million tax benefit related to the definite-lived intangible asset impairment charge.

Excluding these discrete tax items and adjusting pretax income to exclude the pretax charge related to impairment of fixed assets, impairment of the indefinite-lived intangible assets, and the losses related to the divestitures of non-strategic businesses, the Company’s effective tax rate was 24.3%.

During the year ended December 31, 2020, the Company recorded $9 million of tax expense for other discrete tax matters.

The Company also recorded an $11 million tax benefit as a discrete item related to the indefinite-lived intangible asset impairment charge and $2 million related to the asset impairment charge.

Further information regarding the details of income taxes is presented in Note 17, Income Taxes, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

Operating Segment Results

Net Sales Year Ended December 31,

(in millions, except percentages) 2020 2019 $ Change % Change

Technologies & Equipment $ 1,961 $ 2,283 $ (322) (14.1 %)

Consumables 1,381 1,746 (365) (20.9 %)

Segment Adjusted Operating Income (a)

Year Ended December 31,

(in millions, except percentages) 2020 2019 $ Change % Change

Technologies & Equipment (b)

$ 387 $ 467 $ (80) (17.1 %)

Consumables (b)

314 440 (126) (28.6 %)

(a) See Note 5, Segment and Geographic Information, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K for a reconciliation from segment adjusted operating income to consolidated US GAAP income.

(b) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $38 million in 2019, has been reclassified as pertaining to corporate results to conform to current year presentation and our internal reporting to our Chief Operating Decision Maker package ("CODM").

This amount is not material to the measure of segment results for the years presented.

Technologies & Equipment

Net sales for the year ended December 31, 2020 were $1,961 million, a decrease of $322 million or 14.1% from the year ended December 31, 2019.

The decrease in net sales was across all dental businesses primarily due to the impact of the COVID-19 pandemic, partially offset by increased sales in the Healthcare business.

Net sales were positively impacted by approximately 0.6% due to the weakening of the U.S.

dollar over the prior year.

The decrease included a reduction of 1.0% from divestitures of non-strategic businesses and a 0.2% decrease due to discontinued products.

For the year ended December 31, 2020, organic sales decreased 13.5% as compared to the prior year.

Organic sales decline was across all regions and was primarily due to the impact of the COVID-19 pandemic.

Key drivers of the decrease in organic sales for the year ended December 31, 2020, were Implants, Equipment & Instruments, and Digital Dentistry businesses, partially offset by an increase in the Healthcare business.

Adjusted operating income decreased $80 million or 17.1% for the year ended December 31, 2020 as compared to the prior year.

The decrease in operating income was primarily driven by lower sales volume and the resulting unfavorable manufacturing variances due to the impact of the COVID-19 pandemic, partially offset by cost reduction measures in both gross profit and SG&A.

Net sales for the year ended December 31, 2020 were $1,381 million, a decrease of $365 million or 20.9% from the year ended December 31, 2019.

The decrease in net sales was across all businesses primarily due to the impact of the COVID-19 pandemic.

The decrease included a reduction of 0.1% from divestitures of non-strategic businesses.

For the year ended December 31, 2020, organic sales decreased 20.8% as compared to the prior year.

The decline in organic sales was the result of lower demand in all regions primarily due to the impact of the COVID-19 pandemic.

Key drivers of the decrease in organic sales for the year ended December 31, 2020, were the Endodontic, Restorative, and Laboratory businesses.

Adjusted operating income decreased $126 million or 28.6% for the year ended December 31, 2020 as compared to the prior year.

The decrease in operating income was primarily driven by lower sales volume and the resulting unfavorable manufacturing variances due to the impact of COVID-19 pandemic, partially offset by cost reduction measures in both gross profit and SG&A.

Discussion of the results of operations for the year ended December 31, 2018 was included in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Form 10-K for the year ended December 31, 2019, as filed with the SEC on March 2, 2020.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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If there are unfavorable changes in these assumptions, particularly changes in the Company’s discount rates, revenue growth rates, and operating margins, the Company may be required to recognize impairment charges.

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

Those future expectations include, but are not limited to, the current and ongoing impact of the COVID-19 pandemic and new product developments.

The Company also considers the current and projected market and economic conditions amid the ongoing pandemic for the dental industry, both in the U.S.

and globally, when determining its assumptions.

A change in any of these estimates and assumptions used in the annual test, as well as unfavorable changes in the ongoing COVID-19 pandemic, or in the overall markets served by these reporting units, among other factors, could have a negative material impact to the fair value of the reporting units and indefinite-lived intangible assets and could result in a future impairment charge.

There can be no assurance that the Company's future goodwill and indefinite-lived impairment testing will not result in a material adverse impact to the Company's results of operations.

Information with respect to the Company’s significant accounting policies on goodwill and indefinite-lived intangible assets are included in Note 1, Significant Accounting Policies, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

Annual Goodwill Impairment Testing

Goodwill Impairment

Goodwill represents the excess cost over the fair value of the identifiable net assets of business acquired.

Goodwill is not amortized;

instead, it is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to sell a business.

The valuation date for annual impairment testing is April 30.

instead, it is tested for impairment annually 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 course of the year.

Such indicators may include a decline in expected cash flows, unanticipated competition 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.

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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.

The evaluation of impairment involves comparing the current fair value of each reporting unit to its net book value, including goodwill.

Effective 2021 and prospectively, the Company is performing its required annual goodwill impairment test as of April 1 rather than as of 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.

This change did not result in any delay, acceleration or avoidance of impairment.

Furthermore, a retrospective application to prior periods is impracticable as the Company is unable to objectively determine, without the use of hindsight, the assumptions which would be used in earlier periods.

The quantitative evaluation of impairment involves comparing the current fair value of each reporting unit to its net book value, including goodwill.

The Company uses a discounted cash flow model (“DCF model”) as its valuation technique to measure the fair value for its reporting units when testing for impairment, as management believes forecasted operating cash flows are the best indicator of such fair value.

The discounted cash flow model uses five- to ten- year forecasted cash flows plus a terminal value based on a multiple of earnings or by capitalizing the last period’s cash flows using a perpetual growth rate.

The significant assumptions and estimates are involved in the application of the DCF model to forecast operating cash flows include, but are not limited to the discount rates, revenue growth rates, perpetual revenue growth rates, and future operating margin percentages of the reporting unit’s business.

The discounted cash flow model uses five- to ten- year forecasted cash flows plus a terminal value based on capitalizing the last period’s cash flows using a perpetual growth rate.

The significant assumptions and estimates involved in the application of the DCF model to forecast operating cash flows include, but are not limited to the discount rates, revenue growth rates (including perpetual growth rates), and future operating margin percentages of the reporting unit’s business.

These assumptions may vary significantly among the reporting units.

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In the development of the forecasted cash flows, the Company applies revenue, gross profit, and operating expense assumptions taking into consideration historical trends as well as future expectations.

The revenue growth rate assumptions were developed in consideration of future expectations which included, but were not limited to, the current and ongoing impact of the COVID-19 pandemic, distribution channel changes, impact from competition, and new product development changes for these reporting units.

The Company also considers the current and projected market conditions for dental and medical device industries, both in the U.S.

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These rates are developed based on market participant data, which included assumptions regarding the Company’s weighted-average cost of capital adjusted for the relevant risk associated with business-specific characteristics and the uncertainty related to the reporting unit's ability to execute on the projected cash flows.

The Company reconciled the aggregate fair values of its reporting units to its market capitalization, which included a reasonable control premium based on market conditions.

The Company has not materially changed its methodology for goodwill impairment testing for the years presented.

The use of estimates and the development of assumptions results in uncertainties around forecasted cash flows.

Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of the Company’s recorded goodwill, differences in assumptions may have a material effect on the results of the Company’s impairment analysis.

Should the Company’s analysis in the future indicate an increase in discount rates or a decline in the overall markets served by these reporting units, it could result in impairment of the carrying value of goodwill to its implied fair value.

There can be no assurance that the Company’s future goodwill impairment testing will not result in a material charge to earnings.

Annual Indefinite-Lived Intangible Asset Impairment Testing

Indefinite-lived intangible assets consist of tradenames and trademarks and are not subject to amortization;

instead, they are tested for impairment annually as of April 30 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.

Indefinite-Lived Intangible Asset Impairment

Indefinite-lived intangible assets consist of tradenames, trademarks and in-process research and development 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 course of the year.

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

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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Goodwill and Indefinite-Lived Intangible Asset Impairment Results

During the three months ended March 31, 2020, prior to performance of the annual impairment test, the Company concluded that due to the negative effects of the COVID-19 pandemic on revenue and profitability, a triggering event existed for four of the Company's five reporting units containing a goodwill balance as of March 31, 2020.

The first quarter goodwill impairment test resulted in an impairment charge of $157 million in the Equipment & Instruments reporting unit.

No goodwill impairment was identified at April 30, 2020 in conjunction with the annual test and no subsequent triggering events were identified.

No goodwill or indefinite-lived intangible impairment was identified at April 1, 2021 in conjunction with the annual test and no subsequent triggering events were identified.

For further information, see Note 12, Goodwill and Intangible Assets, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

Indefinite-lived Intangible Assets

During the three months ended March 31, 2020, prior to performance of the annual test, the Company identified a triggering event, and consequently performed an interim impairment test which resulted in an impairment charge of $39 million which was recorded in Restructuring and other costs in the Consolidated Statements of Operations.

The impaired indefinite-lived intangibles assets are tradenames and trademarks related to the Equipment & Instruments reporting unit, for which the tradenames and trademarks for one business unit in the Equipment & Instruments reporting unit makes up a significant portion of the Company's total $39 million intangible asset impairment charge.

The impairment charge was primarily driven by a decline in forecasted sales due to the COVID-19 pandemic.

The first quarter goodwill impairment test resulted in an impairment charge of $157 million in the Equipment & Instruments reporting unit, and an impairment charge of $39 million related to certain tradenames and trademarks related to the Equipment & Instruments reporting unit.

The intangible asset impairment charge was recorded in Restructuring and other costs in the Consolidated Statements of Operations.

The Company further performed the required annual impairment tests of goodwill and indefinite-lived intangible assets at April 30, 2020, which did not result in any additional impairment in 2020.

During the twelve months ended December 31, 2019, the Company impaired $5 million of product tradenames and trademarks within the Technologies & Equipment segment.

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The impairment was the result of a change in forecasted sales related to divestitures of non-strategic product lines.

The Company previously recorded an impairment charge of $179 million in the twelve months ended December 31, 2018 for the impairment of tradenames and trademarks related to the CAD/CAM, Imaging, and Instrument businesses.

The impairment charge was primarily driven by a decline in forecasted sales resulting from increased competition and the impact of low-cost competitive products.

Consistent with the current year charges, these amounts were recorded in Restructuring and other costs in the Consolidated Statements of Operations.

The Company also assessed the annual impairment of indefinite-lived intangible assets as of April 30, 2020, which largely consist of acquired tradenames and trademarks, in conjunction with the annual impairment tests of goodwill.

The assumptions used in determining the fair value of the indefinite-lived intangible assets contain uncertainties, and any changes to these assumptions could have a negative impact and result in a future impairment.

At April 30, 2020, the Company did not identify any impairment triggers for the indefinite-lived intangible assets.

For further information see Note 10, Goodwill and Intangible Assets, in the Notes to Consolidated Financial Statements in Item 8 of this Form 10-K.

The Company and its subsidiaries are from time to time parties to lawsuits arising out of their respective operations.

The Company records liabilities when a loss is probable and can be reasonably estimated.

These estimates are typically in the form of ranges, and the Company records the liabilities at the low point of the ranges, when no other point within the ranges is a better estimate of the probable loss.

The ranges established by management are based on analysis made by internal and external legal counsel based on information known at the time.

If the Company determines a liability to be only reasonably possible, it considers the same information to estimate the possible exposure and discloses any material potential liability.

These loss contingencies are monitored regularly for a change in fact or circumstance that would require an accrual adjustment.

The Company believes it has appropriately estimated liabilities for probable losses in the past;

however, the unpredictability of litigation and court decisions could cause a liability to be incurred in excess of estimates.

Legal costs related to these lawsuits are expensed as incurred.

Income taxes are determined using the liability method of accounting for income taxes.

13 unchanged sentences

LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities during the year ended December 31, 2020 was $635 million, an increase of $2 million as compared to $633 million during the year ended December 31, 2019.

Working capital contributed $213 million of operating cash flow in 2020 compared to $9 million consumed in 2019.

The Company's cash and cash equivalents increased by $33 million to $438 million during the year ended December 31, 2020.

For the year ended December 31, 2020, on a constant currency basis, the number of days for sales outstanding in accounts receivable decreased by 8 days to 54 days as compared to 62 days at December 31, 2019.

On a constant currency basis, the number of days of sales in inventory decreased by 14 days to 102 days at December 31, 2020 as compared to 116 days at December 31, 2019.

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.

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

Cash used in investing activities for the year ended December 31, 2020 included acquisitions of $1,078 million, capital expenditures of $87 million and cash proceeds from net investment hedges of $58 million.

The Company expects capital expenditures to be in the range of approximately $135 million to $160 million for the full year 2021.

Cash used in financing activities for the year ended December 31, 2020 was primarily related to a payment on a Treasury Rate Lock of $31 million, dividend payments of $88 million and net share repurchases of $140 million.

On March 9, 2020, the Company entered into an Accelerated Share Repurchase Transaction (“ASR Agreement") for $140 million.

The final amount repurchased was 3.7 million shares at a volume-weighted average price of $38.25 inclusive of a $0.63 per share discount.

Year Ended December 31,

(in millions) 2021 2020 $ Change

Cash (used in) provided by:

Operating activities $ 657 $ 635 $ 22

Investing activities (358) (1,106) 748

Financing activities (379) 490 (869)

Effect of exchange rate changes on cash and cash equivalents (19) 14 (33)

Net (decrease) increase in cash and cash equivalents $ (99) $ 33 $ (132)

The increase in cash provided by operating activities was driven primarily by higher sales in the current period, partially offset by unfavorable changes in working capital including a slower trend in collections relative to the prior year, timing of payments to vendors, and a build-up in inventory during the current period to meet recovered demand for the Company's products.

For the year ended December 31, 2021, the number of days for sales outstanding in accounts receivable increased by 7 days to 61 days as compared to 54 days at December 31, 2020, and the number of days of sales in inventory increased by 6 days to 108 days at December 31, 2021 as compared to 102 days at December 31, 2020.

The decrease in cash used in investing activities was primarily due to lower cash paid for acquisitions by $830 million, partially offset by higher capital expenditures of $55 million, and less cash proceeds from liquidation of net investment hedges of $56 million.

The Company estimates capital expenditures to be in the range of approximately $150 million to $170 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 increase in cash used in financing activities was primarily driven by lower net borrowings of $851 million during 2021 compared to prior year, higher stock repurchases of $60 million, partially offset by greater proceeds from exercises of stock options of $40 million.

Primarily as a result of this activity, combined with a decrease of $76 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company's total borrowings decreased by a net $182 million during the year ended December 31, 2021.

During the year ended December 31, 2021, the Company repurchased approximately 3.5 million shares under its open market share repurchase plan for a cost of $200 million at a volume-weighted average price of $57.47.

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.

At December 31, 2021, $890 million of authorization remains available for future 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 deems appropriate based upon prevailing market and business conditions and other factors.

At December 31, 2021, the Company held 47.1 million shares of treasury stock.

The Company received proceeds of $11 million as a result of the exercise of 0.3 million shares of stock options during the year ended December 31, 2020.

Including prior year repurchases, the total amount repurchased under this authorization is $650 million leaving $350 million available to be repurchased.

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 increased by $842 million for the year ended December 31, 2020.

Dentsply Sirona's long-term debt, including the current portion at December 31, 2020 and 2019, was $2,274 million and $1,433 million, respectively.

The Company's long-term debt, including the current portion, increased by a net of $841 million during the year ended December 31, 2020.

This net change included a net increase in borrowings of $743 million, and an increase of $98 million due to exchange rate fluctuations on debt denominated in foreign currencies.

In response to the COVID-19 pandemic, the Company took actions to strengthen its liquidity and financial flexibility.

See Note 13, Financing Arrangements, to the Consolidated Financial Statements in Item 8 of this Form 10-K for more information.

During the year ended December 31, 2020, the Company's ratio of net debt to total capitalization increased to 27.0% compared to 16.8% at December 31, 2019.

Dentsply Sirona 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 total equity.

The Company has access to a $700 million 2018 Credit Facility through July 28, 2024 and a separate $310 million revolving credit facility through April 8, 2021.

These facilities are unsecured and contain certain affirmative and negative covenants relating to the operations and financial condition of the Company.

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.

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

Year Ended December 31,

(in millions, except percentages) 2021 2020

Current portion of debt $ 182 $ 299

Long-term debt 1,913 1,978

Cash and cash equivalents 339 438

Net debt $ 1,756 $ 1,839

Total equity 5,043 4,970

Total capitalization $ 6,799 $ 6,809

Total net debt to total capitalization ratio 25.8 % 27.0 %

At December 31, 2021, the Company had a total remaining borrowing capacity of $560 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 facilities in the aggregate is $700 million.

At December 31, 2020, there were no outstanding borrowings under both the $700 million and the $310 million multi-currency revolving credit facilities.

The Company had no outstanding borrowings under the commercial paper facility at December 31, 2020.

The Company’s revolving credit facility, term loans and senior notes contain certain affirmative and negative covenants relating to the Company's operations and financial condition.

These credit agreements contain a number of covenants and two financial ratios, which the Company is required to satisfy.

The most restrictive of these covenants pertain to asset dispositions and prescribed ratios of total debt outstanding to total capital not to exceed the ratio of 0.6 to 1.0, and 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 or ratios 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 December 31, 2020, the Company was in compliance with these covenants.

The Company had $170 million outstanding borrowings under the commercial paper facility at December 31, 2021 resulting in $530 million remaining available under the revolving credit and commercial paper facilities.

The Company also has access to $41 million in uncommitted short-term financing under lines of credit from various financial institutions.

The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions.

At December 31, 2020, $3 million was outstanding under these short-term lines of credit.

At December 31, 2020, the Company had total unused lines of credit related to the revolving credit agreements and the uncommitted short-term lines of credit of $1,173 million.

The Company expects on an ongoing basis to be able to finance cash requirements, including capital expenditures, cash payments related to restructuring programs, debt service, operating leases and potential future acquisitions, from the current cash, cash equivalents and short-term investment balances, funds generated from operations and amounts available under its existing credit facilities.

The Company estimates cash payments related to the previously announced restructuring to be in a range from $50 million to $100 million in 2021.

At December 31, 2021, the Company has $11 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 December 31, 2021, the Company was in compliance with these covenants.

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 15, Financing Arrangements, to the Consolidated Financial Statements in Item 8 of this Form 10-K.

As noted in the Company's Consolidated Statements of Cash Flows in Item 8 of this Form 10-K, the Company has continued to generate strong cash flows from operations, which has been used to finance the Company's activities.

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 additional funds to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or U.S.

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.

12 unchanged sentences

The Company's scheduled contractual cash obligations at December 31, 2021 were as follows:

Contractual Obligations Within

(in millions)

1 unchanged sentence

Operating leases 57 81 41 36 215

Interest on long-term borrowings, net

of interest rate swap agreements

Purchase commitments 161 111 83 — 355

Interest on long-term borrowings, net of interest rate swap agreements

36 71 64 96 267

8 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis