DENTSPLY SIRONA Inc. 10-Q/A

Item 1 – Financial Statements DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in millions, except per share amounts) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 As Restated As Restated Net sales $ 1,040 $ 883 $ 3,128 $ 2,263 Cost of products sold 471 451 1,385 1,174 Gross profit 569 432 1,743 1,089 Selling, general, and administrative expenses 395 313 1,174 929 Research and development expenses 39 29 122 85 Goodwill impairment — — — 157 Restructuring and other costs 3 18 11 62 Operating income (loss) 132 72 436 ( 144 ) Other income and expenses: Interest expense, net 14 14 43 31 Other expense (income), net 5 1 4 4 Income (loss) before income taxes 113 57 389 ( 179 ) Provision (benefit) for income taxes 29 9 97 ( 1 ) Net income (loss) 84 48 292 ( 178 ) Less: Net income attributable to noncontrolling interest — 1 — — Net income (loss) attributable to Dentsply Sirona $ 84 $ 47 $ 292 $ ( 178 ) Net income (loss) per common share attributable to Dentsply Sirona: Basic $ 0.39 $ 0.22 $ 1.34 $ ( 0.81 ) Diluted $ 0.38 $ 0.22 $ 1.32 $ ( 0.81 ) Weighted average common shares outstanding: Basic 218.6 218.5 218.6 219.4 Diluted 220.5 219.2 220.7 219.4 See accompanying Notes to Unaudited Interim Consolidated Financial Statements. 3 DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (in millions) (unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 As Restated As Restated Net income (loss) $ 84 $ 48 $ 292 $ ( 178 ) Other comprehensive (loss) income, net of tax: Foreign currency translation (loss) gain ( 68 ) 84 ( 130 ) 40 Net gain (loss) on derivative financial instruments 10 ( 19 ) 19 ( 22 ) Pension liability gain 2 2 8 5 Total other comprehensive (loss) income, net of tax ( 56 ) 67 ( 103 ) 23 Total comprehensive income (loss) 28 115 189 ( 155 ) Less: Comprehensive income (loss) attributable to noncontrolling interests — — — — Total comprehensive income (loss) attributable to Dentsply Sirona $ 28 $ 115 $ 189 $ ( 155 ) See accompanying Notes to Unaudited Interim Consolidated Financial Statements. 4 DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in millions, except per share amounts) (unaudited) September 30, 2021 December 31, 2020 As Restated Assets Current Assets: Cash and cash equivalents $ 281 $ 438 Accounts and notes receivables-trade, net 732 667 Inventories, net 548 476 Prepaid expenses and other current assets 244 217 Total Current Assets 1,805 1,798 Property, plant, and equipment 771 791 Operating lease right-of-use assets, net 183 176 Identifiable intangible assets, net 2,402 2,504 Goodwill 4,000 3,986 Other noncurrent assets 128 95 Total Assets $ 9,289 $ 9,350 Liabilities and Equity Current Liabilities: Accounts payable $ 271 $ 302 Accrued liabilities 725 712 Income taxes payable 52 59 Notes payable and current portion of long-term debt 151 299 Total Current Liabilities 1,199 1,372 Long-term debt 1,925 1,978 Operating lease liabilities 139 130 Deferred income taxes 401 381 Other noncurrent liabilities 562 554 Total Liabilities 4,226 4,415 Equity: Preferred stock, $ 1.00 par value; 0.25 million shares authorized; no shares issued — — Common stock, $ 0.01 par value; 3 3 400.0 million shares authorized, and 264.5 million shares issued at September 30, 2021 and December 31, 2020 218.6 million and 218.7 million shares outstanding at September 30, 2021 and December 31, 2020 Capital in excess of par value 6,659 6,604 Retained earnings 1,419 1,198 Accumulated other comprehensive loss ( 567 ) ( 464 ) Treasury stock, at cost, 45.9 million and 45.8 million shares at September 30, 2021 and December 31, 2020, respectively ( 2,454 ) ( 2,409 ) Total Dentsply Sirona Equity 5,060 4,932 Noncontrolling interests 3 3 Total Equity 5,063 4,935 Total Liabilities and Equity $ 9,289 $ 9,350 See accompanying Notes to Unaudited Interim Consolidated Financial Statements. 5 DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (in millions, except per share amounts) (unaudited) Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Dentsply Sirona Equity Noncontrolling Interests Total Equity Balance at December 31, 2020 $ 3 $ 6,604 $ 1,198 $ ( 464 ) $ ( 2,409 ) $ 4,932 $ 3 $ 4,935 Net income — — 112 — — 112 — 112 Other comprehensive loss — — — ( 90 ) — ( 90 ) — ( 90 ) Exercise of stock options — 11 — — 22 33 — 33 Stock based compensation expense — 13 — — — 13 — 13 Funding of employee stock purchase plan — 1 — — 2 3 — 3 Treasury shares purchased — — — — ( 90 ) ( 90 ) — ( 90 ) Restricted stock unit distributions — ( 11 ) — — 7 ( 4 ) — ( 4 ) Cash dividends ($ 0.10 per share) — — ( 22 ) — — ( 22 ) — ( 22 ) Balance at March 31, 2021 $ 3 $ 6,618 $ 1,288 $ ( 554 ) $ ( 2,468 ) $ 4,887 $ 3 $ 4,890 Net income — — 96 — — 96 — 96 Other comprehensive income — — — 43 — 43 — 43 Exercise of stock options — 3 — — 9 12 — 12 Stock based compensation expense — 19 — — — 19 — 19 Restricted stock unit distributions — ( 2 ) — — 1 ( 1 ) — ( 1 ) Cash dividends ($ 0.11 per share) — — ( 25 ) — — ( 25 ) — ( 25 ) Balance at June 30, 2021 $ 3 $ 6,638 $ 1,359 $ ( 511 ) $ ( 2,458 ) $ 5,031 $ 3 $ 5,034 Net income — — 84 — — 84 — 84 Other comprehensive (loss) income — — — ( 56 ) — ( 56 ) — ( 56 ) Exercise of stock options — — — — 1 1 — 1 Stock based compensation expense — 23 — — — 23 — 23 Funding of employee stock purchase plan — 1 — — 1 2 — 2 Restricted stock unit distributions — ( 4 ) — — 2 ( 2 ) — ( 2 ) Restricted stock unit dividends — 1 ( 1 ) — — — — — Cash dividends ($ 0.11 per share) — — ( 23 ) — — ( 23 ) — ( 23 ) Balance at September 30, 2021, As Restated $ 3 $ 6,659 $ 1,419 $ ( 567 ) $ ( 2,454 ) $ 5,060 $ 3 $ 5,063 6 DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (cont.) (in millions, except per share amounts) (unaudited) Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Loss Treasury Stock Total Dentsply Sirona Equity Noncontrolling Interests Total Equity Balance at December 31, 2019 $ 3 $ 6,587 $ 1,359 $ ( 602 ) $ ( 2,301 ) $ 5,046 $ 2 $ 5,048 Net loss — — ( 134 ) — — ( 134 ) — ( 134 ) Other comprehensive loss — — — ( 112 ) — ( 112 ) — ( 112 ) Exercise of stock options — — — — 4 4 — 4 Stock based compensation expense — 9 — — — 9 — 9 Funding of employee stock purchase plan — 1 — — 1 2 — 2 Treasury shares purchased — ( 28 ) — — ( 112 ) ( 140 ) — ( 140 ) Restricted stock unit distributions — ( 15 ) — — 9 ( 6 ) — ( 6 ) Cash dividends ($ 0.10 per share) — — ( 22 ) — — ( 22 ) — ( 22 ) Balance at March 31, 2020 $ 3 $ 6,554 $ 1,203 $ ( 714 ) $ ( 2,399 ) $ 4,647 $ 2 $ 4,649 Net loss — — ( 91 ) — — ( 91 ) ( 1 ) ( 92 ) Other comprehensive income — — — 68 — 68 — 68 Exercise of stock options — — — — 1 1 — 1 Stock based compensation expense — 10 — — — 10 — 10 Treasury shares purchased — 28 — — ( 28 ) — — — Restricted stock unit distributions — ( 16 ) — — 10 ( 6 ) — ( 6 ) Cash dividends ($ 0.10 per share) — — ( 22 ) — — ( 22 ) — ( 22 ) Balance at June 30, 2020 $ 3 $ 6,576 $ 1,090 $ ( 646 ) $ ( 2,416 ) $ 4,607 $ 1 $ 4,608 Net income — — 47 — — 47 1 48 Other comprehensive income — — — 67 — 67 — 67 Stock based compensation expense — 17 — — — 17 — 17 Funding of employee stock purchase plan — 1 — — 2 3 — 3 Restricted stock unit distributions — ( 2 ) — — 1 ( 1 ) — ( 1 ) Cash dividends ($ 0.10 per share) — — ( 22 ) — — ( 22 ) — ( 22 ) Balance at September 30, 2020 $ 3 $ 6,592 $ 1,115 $ ( 579 ) $ ( 2,413 ) $ 4,718 $ 2 $ 4,720 See accompanying Notes to Unaudited Interim Consolidated Financial Statements. 7 DENTSPLY SIRONA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in millions) (unaudited) Nine Months Ended September 30, 2021 2020 As Restated Cash flows from operating activities: Net income (loss) $ 292 $ ( 178 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 94 104 Amortization of intangible assets 167 143 Goodwill impairment — 157 Indefinite-lived intangible asset impairment — 39 Deferred income taxes ( 11 ) ( 53 ) Stock based compensation expense 54 36 Other non-cash expense 13 7 (Gain) loss on sale of non-strategic businesses and product lines ( 14 ) — Changes in operating assets and liabilities, net of acquisitions: Accounts and notes receivable-trade, net ( 89 ) 150 Inventories, net ( 88 ) 73 Prepaid expenses and other current assets ( 24 ) 50 Other noncurrent assets ( 12 ) 8 Accounts payable ( 45 ) ( 62 ) Accrued liabilities 70 ( 66 ) Income taxes 6 ( 9 ) Other noncurrent liabilities 22 ( 14 ) Net cash provided by operating activities 435 385 Cash flows from investing activities: Capital expenditures ( 101 ) ( 60 ) Cash paid for acquisitions of businesses and equity investments, net of cash acquired ( 248 ) ( 2 ) Cash received on sale of non-strategic businesses or product lines 27 — Cash received on derivative contracts 1 58 Cash paid on derivative contracts — ( 1 ) Proceeds from sale of property, plant, and equipment 2 — Net cash used in investing activities ( 319 ) ( 5 ) Cash flows from financing activities: Proceeds (repayments) on short-term borrowings, net 147 ( 1 ) Cash paid for treasury stock ( 90 ) ( 140 ) Cash dividends paid ( 68 ) ( 66 ) Cash paid for acquisition of noncontrolling interest of consolidated subsidiary — ( 2 ) Proceeds from long-term borrowings, net of deferred financing costs 15 1,449 Repayments on long-term borrowings, net ( 297 ) ( 701 ) Deferred financing costs — ( 6 ) Proceeds from exercised stock options 47 6 Cash paid on derivative contracts — ( 31 ) Other financing activities, net ( 11 ) ( 17 ) Net cash (used in) provided by financing activities ( 257 ) 491 Effect of exchange rate changes on cash and cash equivalents ( 16 ) ( 4 ) Net (decrease) increase in cash and cash equivalents ( 157 ) 867 Cash and cash equivalents at beginning of period 438 405 Cash and cash equivalents at end of period $ 281 $ 1,272 See accompanying Notes to Unaudited Interim Consolidated Financial Statements. 8 DENTSPLY SIRONA Inc. and Subsidiaries NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES AND RESTATEMENT Basis of Presentation The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements and related notes contain the accounts of DENTSPLY SIRONA Inc. and subsidiaries (“Dentsply Sirona” or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes included in the Company’s Amendment No. 1 on Form 10-K/A filed on November 7, 2022 (the “Form 10-K/A”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, originally filed with the Securities and Exchange Commission on March 1, 2022, to make certain changes described below. The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein, are substantially the same as presented in the Company’s Form 10-K/A, except as may be indicated below. Certain prior period amounts within the Consolidated Statements of Operations have been reclassified in order to conform with the current year presentation of separately reported Research and development expenses. Restatement and Other Corrections of Previously Issued Consolidated Financial Statements Subsequent to the issuance of the Company’s consolidated financial statements as of September 30, 2021 and for each of the three and nine months periods ended therein, and also the consolidated financial statements as of December 31, 2021 and 2020 and for each of the three fiscal years in the period ended December 31, 2021 (collectively, the “previously issued financial statements”), management identified errors related to certain customer incentive programs. It was also determined that the Company utilized incorrect accounting and assumptions in the determination of certain estimates related to its sales return provisions , warranty reserve provisions and variable consideration . Additionally, the Company identified an error related to a failure to appropriately account for certain returns and/or exchanges specific to sales transactions in China as a result of an investigation by the Company’s Audit and Finance Committee. Allowing for the product exchanges referred to above resulted in an overstatement of net sales in the third quarter of 2021 of approximately $ 4 million which should have been recorded in the fourth quarter of 2021. In conjunction with making these corrections, the Company has also made certain other restatements and revisions for previously identified errors. As a result of these collective errors, Net sales and Net income were overstated in the Company’s financial statements for the nine month period ended September 30, 2021 by approximately $ 35 million and $ 27 million, respectively, with errors to both Net sales and Net income (loss) for the three months ended September 30, 2021 and 2020 as shown in the tables below. Additionally, the correction of errors pertaining to periods prior to 2020 required an adjustment to opening retained earnings at January 1, 2020 of $ 45 million a s reflected in the Consolidated Statements of Equity. Those errors related primarily to the timing, recognition, and estimation of variable consideration associated with certain sales orders in the historical periods . These errors were deemed to be material when considered together with certain qualitative and quantitative considerations such as the fact that the misstatements masked a failure to meet internal financial targets and external financial analyst expectations for the three months ended September 30, 2021 and due to the material weaknesses identified through the course of the Audit and Finance Committee’s investigation. Management has therefore restated for the three and nine months ended September 30, 2021 and revised for the three and nine months ended September 30, 2020, the accompanying consolidated financial statements and related notes included herein to correct these accounting errors for all periods presented, as well as the accompanying footnotes affected by the accounting errors, as shown below. The Company has also updated all accompanying footnotes and disclosures affected by the restatements and revisions , respectively, within Note 2, Revenue, Note 4, Comprehensive Income (Loss), Note 5, Earnings Per Common Share, Note 7, Segment Information, Note 8, Inventories, Net, and Note 11, Income Taxes. 9 The following tables present the effect of correcting these accounting errors on the Company’s previously issued financial statements: CONSOLIDATED STATEMENTS OF OPERATIONS Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (in millions, except per share amounts) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Net sales $ 1,069 $ ( 29 ) $ 1,040 $ 895 $ ( 12 ) $ 883 Cost of products sold 478 ( 7 ) 471 453 ( 2 ) 451 Gross profit 591 ( 22 ) 569 442 ( 10 ) 432 Selling, general, and administrative expenses 394 1 395 315 ( 2 ) 313 Research and development expenses 35 4 39 27 2 29 Operating income 159 ( 27 ) 132 82 ( 10 ) 72 Interest expense, net 13 1 14 14 — 14 Other expense (income), net 8 ( 3 ) 5 1 — 1 Income before income taxes 138 ( 25 ) 113 67 ( 10 ) 57 Provision for income taxes 35 ( 6 ) 29 13 ( 4 ) 9 Net income 103 ( 19 ) 84 54 ( 6 ) 48 Net income attributable to Dentsply Sirona $ 103 $ ( 19 ) $ 84 $ 53 $ ( 6 ) $ 47 Net income per common share attributable to Dentsply Sirona: Basic $ 0.47 $ ( 0.08 ) $ 0.39 $ 0.25 $ ( 0.03 ) $ 0.22 Diluted $ 0.47 $ ( 0.09 ) $ 0.38 $ 0.25 $ ( 0.03 ) $ 0.22 CONSOLIDATED STATEMENTS OF OPERATIONS Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (in millions, except per share amounts) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Net sales $ 3,163 $ ( 35 ) $ 3,128 $ 2,260 $ 3 $ 2,263 Cost of products sold 1,395 ( 10 ) 1,385 1,174 — 1,174 Gross profit 1,768 ( 25 ) 1,743 1,086 3 1,089 Selling, general and administrative expenses 1,177 ( 3 ) 1,174 935 ( 6 ) 929 Research and development expenses 112 10 122 79 6 85 Operating income (loss) 468 ( 32 ) 436 ( 147 ) 3 ( 144 ) Interest expense, net 43 — 43 32 ( 1 ) 31 Income (loss) before income taxes 421 ( 32 ) 389 ( 183 ) 4 ( 179 ) Provision (benefit) for income taxes 102 ( 5 ) 97 ( 1 ) — ( 1 ) Net income (loss) 319 ( 27 ) 292 ( 182 ) 4 ( 178 ) Net income (loss) attributable to Dentsply Sirona $ 319 $ ( 27 ) $ 292 $ ( 182 ) $ 4 $ ( 178 ) Net income (loss) per common share attributable to Dentsply Sirona: Basic $ 1.46 $ ( 0.12 ) $ 1.34 $ ( 0.83 ) $ 0.02 $ ( 0.81 ) Diluted $ 1.45 $ ( 0.13 ) $ 1.32 $ ( 0.83 ) $ 0.02 $ ( 0.81 ) 10 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Three Months Ended September 30, 2021 Three Months Ended September 30, 2020 (in millions) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Net income $ 103 $ ( 19 ) $ 84 $ 54 $ ( 6 ) $ 48 Total comprehensive income 47 ( 19 ) 28 121 ( 6 ) 115 Comprehensive income attributable to Dentsply Sirona $ 47 $ ( 19 ) $ 28 $ 121 $ ( 6 ) $ 115 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (in millions) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Net income (loss) $ 319 $ ( 27 ) $ 292 $ ( 182 ) $ 4 $ ( 178 ) Total comprehensive income (loss) 216 ( 27 ) 189 ( 159 ) 4 ( 155 ) Comprehensive income (loss) attributable to Dentsply Sirona $ 216 $ ( 27 ) $ 189 $ ( 159 ) $ 4 $ ( 155 ) CONSOLIDATED BALANCE SHEETS September 30, 2021 December 31, 2020 (in millions) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Accounts and notes receivable-trade, net $ 748 $ ( 16 ) $ 732 $ 673 $ ( 6 ) $ 667 Inventories, net 532 16 548 466 10 476 Prepaid expenses and other current assets 243 1 244 214 3 217 Total Current Assets 1,804 1 1,805 1,791 7 1,798 Other noncurrent assets 128 — 128 94 1 95 Total Assets 9,288 1 9,289 9,342 8 9,350 Accounts payable 276 ( 5 ) 271 305 ( 3 ) 302 Accrued liabilities 641 84 725 653 59 712 Income taxes payable 58 ( 6 ) 52 60 ( 1 ) 59 Total Current Liabilities 1,126 73 1,199 1,317 55 1,372 Deferred income taxes 413 ( 12 ) 401 393 ( 12 ) 381 Other noncurrent liabilities 560 2 562 554 — 554 Total Liabilities 4,163 63 4,226 4,372 43 4,415 Retained earnings 1,481 ( 62 ) 1,419 1,233 ( 35 ) 1,198 Total Dentsply Sirona Equity 5,122 ( 62 ) 5,060 4,967 ( 35 ) 4,932 Total Equity 5,125 ( 62 ) 5,063 4,970 ( 35 ) 4,935 Total Liabilities and Equity 9,288 1 9,289 9,342 8 9,350 11 CONSOLIDATED STATEMENT OF CASH FLOWS Nine Months Ended September 30, 2021 Nine Months Ended September 30, 2020 (in millions) As Previously Issued Adjustment As Restated As Previously Issued Adjustment As Revised Cash flows from operating activities: Net income (loss) $ 319 $ ( 27 ) $ 292 $ ( 182 ) $ 4 $ ( 178 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Other non-cash expense (income) 12 1 13 9 ( 2 ) 7 Changes in operating assets and liabilities, net of acquisitions: Accounts and notes receivable-trade, net ( 98 ) 9 ( 89 ) 149 1 150 Inventories, net ( 82 ) ( 6 ) ( 88 ) 74 ( 1 ) 73 Prepaid expenses and other current assets, net ( 27 ) 3 ( 24 ) 50 — 50 Accounts payable ( 39 ) ( 6 ) ( 45 ) ( 65 ) 3 ( 62 ) Accrued liabilities 41 29 70 ( 73 ) 7 ( 66 ) Income taxes 11 ( 5 ) 6 ( 10 ) 1 ( 9 ) Other noncurrent liabilities 20 2 22 ( 14 ) — ( 14 ) Net cash provided by operating activities 435 — 435 372 13 385 Cash flows from financing activities: Other financing activities, net ( 11 ) — ( 11 ) ( 4 ) ( 13 ) ( 17 ) Net cash (used in) provided by financing activities ( 257 ) — ( 257 ) 504 ( 13 ) 491 Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of Net sales and expense during the reporting period. Actual results could differ materially from those estimates. Specifically, for the nine months ended September 30, 2021, some of these estimates and assumptions continue to be based on an ongoing evaluation of expected future impacts from the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly have a negative material impact on the Company’s financial condition, liquidity, or results of operations in future periods is highly uncertain and difficult to predict. More specifically, the demand for the Company’s products has been, and continues to be, affected by social distancing guidelines, dental practice safety protocols which reduce patient traffic, and some lingering patient reluctance to seek dental care. The Company’s 2020 results were materially impacted by the preventative measures implemented 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, higher related transportation costs, and labor shortages. In the current year, 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. However, uncertainties remain regarding how long these impacts will continue, whether customer demand will fully return to pre-COVID-19 levels upon lifting of remaining government restrictions, or whether future variants of the virus may have an adverse impact on demand in affected markets. 12 Inventory As of September 30, 2021, all of the Company’s inventories were determined by the first-in, first-out (“FIFO”) or average cost methods. As of the end of the first quarter of 2021, the Company had $ 1 million of inventories accounted for under the last-in first-out (“LIFO”) method of inventory costing. Effective as of the beginning of the second quarter, the method of accounting for these inventories was changed from LIFO to FIFO. This change in accounting is preferable as the value of inventory for which cost was previously determined using a LIFO cost flow assumption has declined from prior years due to changes in the business, it allows for a more consistent methodology to be utilized across the Company, and provides improved comparability with industry peers. The change in accounting principle was recognized during the second quarter of 2021 by adjusting these inventories to cost as determined using the FIFO method, resulting in an increase in inventories of $ 4 million and a corresponding reduction to Cost of products sold in the Company’s Consolidated Statements of Operations. The impact of this change was not material to the Company’s financial position as of December 31, 2020, or the Company’s results of operations for any previously reported prior periods nor is the cumulative effect of the change material to the results of operations for the six months ended June 30, 2021. Therefore, prior period amounts have not been retrospectively adjusted. Goodwill & Intangible Assets 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. Accounting Pronouncements Not Yet Adopted In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which was subsequently amended by ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope” in January 2021. The new standard provides optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another rate expected to be discontinued due to the reference rate reform. This standard is permitted to be adopted any time through December 31, 2022, and does not apply to contract modifications made or hedging relationships entered into or evaluated after December 31, 2022. The Company is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows, and disclosures. 13 NOTE 2 - REVENUE Revenues are derived primarily from the sale of dental equipment and dental and healthcare consumable products. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods or providing services. Net sales disaggregated by product category for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 Equipment & Instruments $ 176 $ 152 $ 523 $ 373 CAD/CAM 147 97 403 296 Orthodontics 63 52 212 119 Implants 150 126 461 329 Healthcare 76 70 225 210 Technology & Equipment segment net sales $ 612 $ 497 $ 1,824 $ 1,327 Endodontic & Restorative $ 313 $ 268 $ 953 $ 642 Other Consumables 115 118 351 294 Consumables segment net sales $ 428 $ 386 $ 1,304 $ 936 Total net sales $ 1,040 $ 883 $ 3,128 $ 2,263 Net sales disaggregated by geographic region for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 United States $ 384 $ 312 $ 1,094 $ 758 Europe 393 346 1,239 934 Rest of World 263 225 795 571 Total net sales $ 1,040 $ 883 $ 3,128 $ 2,263 Contract Assets and Liabilities The Company normally does not have contract assets in the course of its business. Contract liabilities, which represent billings in excess of revenue recognized, are primarily related to advanced billings for customer aligner treatment where the performance obligation has not yet been fulfilled. The Company had $ 59 million and $ 53 million of deferred revenue recorded in Accrued liabilities in the Consolidated Balance Sheets at September 30, 2021 and December 31, 2020, respectively. Prior year deferred revenue of approximately $ 35 million was recognized in the current year. The Company expects to recognize significantly all of the remaining deferred revenue within the next twelve months. 14 Allowance for Doubtful Accounts Accounts and notes receivables-trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $ 14 million at September 30, 2021 and $ 18 million at December 31, 2020. For the three months and nine months ended September 30, 2021, changes to the provision for doubtful accounts including write-offs of accounts receivable that were previously reserved were insignificant. For the three months ended September 30, 2020 changes to the provision were insignificant. For the nine months ended September 30, 2020, the Company wrote-off $ 10 million of accounts receivable that were previously reserved and increased the provision for doubtful accounts by $ 2 million. Changes to this provision are included in Selling, general, and administrative expenses in the Consolidated Statements of Operations. 15 NOTE 3 – STOCK COMPENSATION The amounts of stock compensation expense recorded in the Company’s Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 were as follows: Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 Cost of products sold $ 2 $ — $ 4 $ 1 Selling, general, and administrative expense 19 15 48 33 Research and development expense 1 1 2 1 Total stock based compensation expense $ 22 $ 16 $ 54 $ 35 Related deferred income tax benefit $ 2 $ 2 $ 6 $ 4 16 NOTE 4 – COMPREHENSIVE INCOME (LOSS) Changes in Accumulated other comprehensive income (loss) (“AOCI”), net of tax, by component for the nine months ended September 30, 2021 and 2020 were as follows: (in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment and Fair Value Hedges Pension Liability Gain (Loss) Total Balance, net of tax, at December 31, 2020 $ ( 187 ) $ ( 25 ) $ ( 119 ) $ ( 133 ) $ ( 464 ) Other comprehensive (loss) income before reclassifications and tax impact ( 74 ) ( 6 ) 9 3 ( 68 ) Tax (expense) benefit ( 25 ) 2 ( 2 ) ( 1 ) ( 26 ) Other comprehensive (loss) income, net of tax, before reclassifications ( 99 ) ( 4 ) 7 2 ( 94 ) Amounts reclassified from accumulated other comprehensive income, net of tax — 2 — 2 4 Net (decrease) increase in other comprehensive loss ( 99 ) ( 2 ) 7 4 ( 90 ) Balance, net of tax, at March 31, 2021 $ ( 286 ) $ ( 27 ) $ ( 112 ) $ ( 129 ) $ ( 554 ) Other comprehensive income before reclassifications and tax impact 31 3 1 — 35 Tax benefit (expense) 6 ( 2 ) ( 1 ) — 3 Other comprehensive income, net of tax, before reclassifications 37 1 — — 38 Amounts reclassified from accumulated other comprehensive income, net of tax — 3 — 2 5 Net increase in other comprehensive income 37 4 — 2 43 Balance, net of tax, at June 30, 2021 $ ( 249 ) $ ( 23 ) $ ( 112 ) $ ( 127 ) $ ( 511 ) Other comprehensive (loss) income before reclassifications and tax impact ( 59 ) 6 3 — ( 50 ) Tax expense ( 9 ) ( 1 ) ( 1 ) — ( 11 ) Other comprehensive (loss) benefit, net of tax, before reclassifications ( 68 ) 5 2 — ( 61 ) Amounts reclassified from accumulated other comprehensive income, net of tax — 3 — 2 5 Net increase in other comprehensive (loss) income ( 68 ) 8 2 2 ( 56 ) Balance, net of tax, at September 30, 2021 $ ( 317 ) $ ( 15 ) $ ( 110 ) $ ( 125 ) $ ( 567 ) 17 (in millions) Foreign Currency Translation Gain (Loss) Gain (Loss) on Cash Flow Hedges Gain (Loss) on Net Investment and Fair Value Hedges Pension Liability Gain (Loss) Total Balance, net of tax, at December 31, 2019 $ ( 370 ) $ ( 11 ) $ ( 101 ) $ ( 120 ) $ ( 602 ) Other comprehensive (loss) income before reclassifications and tax impact ( 117 ) ( 16 ) 25 — ( 108 ) Tax (expense) benefit ( 2 ) 4 ( 8 ) — ( 6 ) Other comprehensive (loss) income, net of tax, before reclassifications ( 119 ) ( 12 ) 17 — ( 114 ) Amounts reclassified from accumulated other comprehensive income, net of tax — — — 2 2 Net (decrease) increase in other comprehensive income ( 119 ) ( 12 ) 17 2 ( 112 ) Balance, net of tax, at March 31, 2020 $ ( 489 ) $ ( 23 ) $ ( 84 ) $ ( 118 ) $ ( 714 ) Other comprehensive income (loss) before reclassifications and tax impact 77 — ( 15 ) — 62 Tax (expense) benefit ( 2 ) — 7 — 5 Other comprehensive income (loss), net of tax, before reclassifications 75 — ( 8 ) — 67 Amounts reclassified from accumulated other comprehensive income, net of tax — — — 1 1 Net increase (decrease) in other comprehensive income 75 — ( 8 ) 1 68 Balance, net of tax, at June 30, 2020 $ ( 414 ) $ ( 23 ) $ ( 92 ) $ ( 117 ) $ ( 646 ) Other comprehensive income (loss) before reclassifications and tax impact 67 ( 3 ) ( 17 ) — 47 Tax benefit (expense) 17 ( 2 ) 2 — 17 Other comprehensive income (loss), net of tax, before reclassifications 84 ( 5 ) ( 15 ) — 64 Amounts reclassified from accumulated other comprehensive income, net of tax — 1 — 2 3 Net increase (decrease) in other comprehensive income 84 ( 4 ) ( 15 ) 2 67 Balance, net of tax, at September 30, 2020 $ ( 330 ) $ ( 27 ) $ ( 107 ) $ ( 115 ) $ ( 579 ) At September 30, 2021 and December 31, 2020, the cumulative tax adjustments were $ 182 million and $ 216 million, respectively, primarily related to foreign currency translation gains and losses. The cumulative foreign currency translation adjustments included translation losses of $ 113 million and $ 25 million at September 30, 2021 and December 31, 2020, respectively, and cumulative losses on loans designated as hedges of net investments of $ 204 million and $ 162 million, respectively. These foreign currency translation losses were partially offset by movements on derivative financial instruments. Reclassifications out of AOCI to the Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020 were insignificant. 18 NOTE 5 – EARNINGS PER COMMON SHARE The computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2021 and 2020 were as follows: Basic Earnings (Loss) Per Common Share Three Months Ended Nine Months Ended (in millions, except per share amounts) 2021 2020 2021 2020 Net income (loss) attributable to Dentsply Sirona $ 84 $ 47 $ 292 $ ( 178 ) Weighted average common shares outstanding 218.6 218.5 218.6 219.4 Earnings (loss) per common share - basic $ 0.39 $ 0.22 $ 1.34 $ ( 0.81 ) Diluted Earnings (Loss) Per Common Share Three Months Ended Nine Months Ended (in millions, except per share amounts) 2021 2020 2021 2020 Net income (loss) attributable to Dentsply Sirona $ 84 $ 47 $ 292 $ ( 178 ) Weighted average common shares outstanding 218.6 218.5 218.6 219.4 Incremental weighted average shares from assumed exercise of dilutive options from stock-based compensation awards 1.9 0.7 2.1 — Total weighted average diluted shares outstanding 220.5 219.2 220.7 219.4 Earnings (loss) per common share - diluted $ 0.38 $ 0.22 $ 1.32 $ ( 0.81 ) For the three and nine months ended September 30, 2021, the Company excluded from the computation of weighted average diluted shares outstanding 0.9 million and 0.9 million, respectively, of equivalent shares of common stock from stock options and RSUs because their effect would be antidilutive. For the three and nine months ended September 30, 2020, the Company excluded 3.5 million and 3.2 million, respectively, of equivalent shares of common stock outstanding from stock options and RSUs because their effect would be antidilutive. The calculation of weighted average diluted common shares outstanding excluded 0.9 million of potentially diluted common shares because the Company reported a net loss for the nine months ended September 30, 2020. During the nine months ended September 30, 2021, the Company repurchased approximately 1.5 million shares pursuant to its open market shares repurchase plan for a net cost of $ 90 million at an average price of $ 60.62 . On July 28, 2021, the Board of Directors of the Company approved an increase in the value of shares of common stock that may be repurchased under the share repurchase program, up to $ 1.0 billion. Share repurchases 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. 19 NOTE 6 – BUSINESS COMBINATIONS Acquisitions 2021 Transactions On July 1, 2021, the effective date of the transaction, the Company paid $ 7 million to acquire the remaining interest in the dental business of a partially owned affiliate based in Switzerland that primarily develops highly specialized software with a focus on CAD/CAM systems. The acquisition is expected to further accelerate the development of the Company’s specialized software related to CAD/CAM systems. The preliminary fair values of the assets acquired and liabilities assumed in connection with the acquisition of the affiliate included $ 4 million of Other current assets, $ 3 million of Intangible assets and $ 1 million of Other long-term liabilities. The purchase price and the $ 4 million fair value of the previously-held interest in the entity prior to the acquisition has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $ 5 million in goodwill. This goodwill is considered to represent the value associated with the acquired workforce and synergies the two companies anticipate realizing as a combined company and is not expected to be deductible for tax purposes. Management is continuing to finalize its valuation of certain assets including other intangible assets and will conclude its valuation no later than one year from the acquisition date. Identifiable intangible assets acquired were as follows: Weighted Average Useful Life (in millions, except for useful life) Amount (in years) In-process R&D $ 3 Indefinite Total $ 3 On June 1, 2021, the effective date of the transaction, the Company paid $ 132 million to acquire substantially all of the assets of Propel Orthodontics LLC, a privately-held company based in New York and California. Propel Orthodontics manufactures and sells orthodontic devices and provides in-office and at-home orthodontic accessory devices to orthodontists and their patients primarily within the clear aligner market. The acquisition is expected to further accelerate the growth and profitability of the Company’s combined clear aligners business. The preliminary fair values of the assets acquired and liabilities assumed in connection with the Propel Orthodontics acquisition were as follows: (in millions) Other current assets $ 4 Intangible assets 66 Current liabilities ( 1 ) Net assets acquired 69 Goodwill 63 Purchase consideration $ 132 The purchase price has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $ 63 million in goodwill, which is considered to represent the value associated with the acquired workforce and synergies the two companies anticipate realizing as a combined company. The goodwill is expected to be deductible for tax purposes. Management is continuing to finalize its valuation of certain assets including other intangible assets and will conclude its valuation no later than one year from the acquisition date. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during three months ended September 30, 2021 were immaterial to the financial statements, resulting in a reduction to goodwill of $ 2 million. 20 Identifiable intangible assets acquired were as follows: Weighted Average Useful Life (in millions, except for useful life) Amount (in years) Developed technology $ 66 10 Total $ 66 On January 21, 2021, the effective date of the transaction, the Company paid $ 94 million with the potential for additional earn-out provision payments of up to $ 10 million, to acquire 100 % of the outstanding shares of Datum Dental, Ltd., a privately-held producer and distributor of specialized regenerative dental material based in Israel. The fair value of the earn-out provision has been valued at $ 9 million as of the transaction date, resulting in a total purchase price of $ 103 million. The preliminary fair values of the assets acquired and liabilities assumed in connection with the Datum acquisition were as follows: (in millions) Cash and cash equivalents $ 2 Other current assets 2 Intangible assets 76 Current liabilities ( 2 ) Other long-term assets (liabilities), net ( 14 ) Net assets acquired 64 Goodwill 39 Purchase consideration $ 103 The purchase price has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, resulting in the recording of $ 39 million in goodwill, which is considered to represent the value associated with the acquired workforce and synergies the two companies anticipate realizing as a combined company. The goodwill is not deductible for tax purposes. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during the first nine months of 2021 were immaterial to the financial statements, resulting in an increase to goodwill of $ 6 million. Management is continuing to finalize its valuation of certain assets including other intangible assets and will conclude its valuation no later than one year from the acquisition date. Identifiable intangible assets acquired were as follows: Weighted Average Useful Life (in millions, except for useful life) Amount (in years) Developed technology $ 66 15 In-process R&D 10 Indefinite Total $ 76 2020 Transactions On December 31, 2020, the effective date of the transaction, the Company acquired 100 % of the outstanding interests of Straight Smile, LLC (“Byte”), a privately-held company, for approximately $ 1.0 billion using cash on hand. Byte is a doctor-directed, direct-to-consumer, clear aligner business. The acquisition is expected to enhance scale and accelerate the growth and profitability of the Company’s combined clear aligners business. 21 The preliminary fair values of the assets acquired and liabilities assumed in connection with the Byte acquisition for the year ended December 31, 2020 were as follows: (in millions) Cash and cash equivalents $ 14 Current assets 17 Intangible assets 416 Current liabilities ( 28 ) Net assets acquired 419 Goodwill 626 Purchase consideration $ 1,045 The purchase price has been allocated on the basis of the preliminary estimates of fair values of assets acquired and liabilities assumed, which resulted in the recording of $ 626 million in goodwill. The amount of goodwill is considered to represent the value associated with the acquired workforce and synergies the two companies anticipate realizing as a combined company, including alignment with the Company’s existing clear aligner business, and is deductible for tax purposes. Measurement period adjustments made to the fair values of the assets acquired and liabilities assumed during the first nine months of 2021 were immaterial to the financial statements, resulting in a reduction to goodwill of $ 5 million. Intangible assets acquired were as follows: Weighted Average Useful Life (in millions, except for useful life) Amount (in years) Non-compete agreements $ 16 5 Technology know-how 210 10 Tradenames and trademarks 190 20 Total $ 416 The results of operations for each of the acquired businesses above upon the effective date of each transaction have been included in the accompanying financial statements. These results, as well as the historical results for the above acquired businesses for the periods ended September 30, 2021 and 2020, are not material in relation to the Company’s net sales and earnings for those periods. The Company therefore does not believe these acquisitions represent material transactions either individually or in the aggregate requiring the supplemental pro-forma information prescribed by ASC 805 and accordingly, this information is not presented. Investments in Affiliates On June 4, 2021, the effective date of the transaction, the Company paid $ 16 million to acquire a minority interest in a U,K.-based, privately-held provider of healthcare consumables. The Company records this investment and subsequent profit or losses under equity method accounting within Other noncurrent assets. Divestitures On April 1, 2021, the Company disposed of certain orthodontics businesses based in Japan previously included as part of the Technologies and Equipment segment in exchange for a cash receipt of $ 8 million. The divestiture resulted in an immaterial loss recorded in Other expense (income), net in the Consolidated Statements of Operations for the nine months ended September 30, 2021. On February 1, 2021, the Company disposed of an investment casting business previously included as part of the Consumables segment in exchange for a cash receipt of $ 19 million. The divestiture resulted in a pre-tax gain of $ 13 million recorded in Other expense (income), net in the Consolidated Statements of Operations for the nine months ended September 30, 2021. 22 NOTE 7 – SEGMENT INFORMATION The Company’s two operating segments are organized primarily by product and generally have overlapping geographical presence, customer bases, distribution channels, and regulatory oversight. These operating segments also comprise the Company’s reportable segments in accordance with how the Company’s chief operating decision-maker regularly reviews financial results and uses this information to evaluate the Company’s performance and allocate resources. The Company evaluates performance of the segments based on net sales and adjusted operating income. Segment adjusted operating income is defined as operating income before income taxes and before certain corporate headquarters unallocated costs, restructuring and other costs, interest expense, net, other expense (income), net, amortization of intangible assets and depreciation resulting from the fair value step-up of property, plant, and equipment from acquisitions. A description of the products and services provided within each of the Company’s two reportable segments is provided below. Technologies & Equipment This segment is responsible for the design, manufacture, and sales 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. Consumables This segment is responsible for the design, manufacture, and sales of the Company’s Dental Consumable Products which include preventive, restorative, endodontic, and dental laboratory products. The Company’s segment information for the three and nine months ended September 30, 2021 and 2020 was as follows: Net Sales Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 Technologies & Equipment $ 612 $ 497 $ 1,824 $ 1,327 Consumables 428 386 1,304 936 Total net sales $ 1,040 $ 883 $ 3,128 $ 2,263 23 Segment Adjusted Operating Income Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 Technologies & Equipment (a) $ 134 $ 122 $ 391 $ 231 Consumables (a) 123 114 426 166 Segment adjusted operating income (loss) 257 236 817 397 Reconciling items expense (income): All other (b) 67 95 199 174 Goodwill impairment — — — 157 Restructuring and other costs 3 18 11 62 Interest expense, net 14 14 43 31 Other expense (income), net 5 1 4 4 Amortization of intangible assets 56 49 167 143 Depreciation and other adjustments resulting from the fair value step-up of property, plant, and equipment from business combinations ( 1 ) 2 4 5 Income (loss) before income taxes $ 113 $ 57 $ 389 $ ( 179 ) (a) Certain charges related to discontinuance of product lines which were previously reported in adjusted operating income for the reportable segments, $ 33 million and $ 34 million for the three and nine months ended September 30, 2020, respectively, have been reclassified to the “All other” category to conform to current year presentation and the Company’s internal reporting in the Chief Operating Decision Maker package. These amounts are not material to the measure of segment results for the years presented. (b) Includes the results of unassigned Corporate headquarters costs and inter-segment eliminations. 24 NOTE 8 – INVENTORIES Inventories, net were as follows: (in millions) September 30, 2021 December 31, 2020 Finished goods $ 343 $ 274 Work-in-process 73 68 Raw materials and supplies 132 134 Inventories, net $ 548 $ 476 The Company’s inventory reserve was $ 89 million and $ 117 million at September 30, 2021 and December 31, 2020, respectively. Inventories are stated at the lower of cost and net realizable value. 25 NOTE 9 – RESTRUCTURING AND OTHER COSTS During the three and nine months ended September 30, 2021, the Company recorded net restructuring and other costs of $ 6 million and $ 14 million, respectively, which consists of severance and other restructuring costs of $ 6 million and $ 17 million, respectively, offset by adjustments to inventory reserves of $ 3 million for the nine months ended September 30, 2021. During the three and nine months ended September 30, 2020, the Company recorded restructuring and other costs of $ 52 million and $ 96 million, respectively, which consists of inventory write-downs of $ 25 million for both the three and nine months ended, severance costs of $ 16 million and $ 21 million, respectively, accelerated depreciation of $ 9 million for both the three and nine months ended, and asset impairments of $ 2 million and $ 41 million, respectively. The details of total restructuring and other costs for the three and nine months ended September 30, 2021 and 2020 were as follows: Affected Line Item in the Consolidated Statements of Operations Three Months Ended Nine Months Ended (in millions) 2021 2020 2021 2020 Cost of products sold $ — $ 33 $ ( 3 ) $ 33 Selling, general, and administrative expenses 3 1 6 1 Restructuring and other costs 3 18 11 62 Total restructuring and other costs $ 6 $ 52 $ 14 $ 96 Restructuring Programs and Accruals 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 “2020 Plan”). 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 $ 60 million to $ 70 million for inventory write-downs, severance costs, fixed asset write-offs, and other facility closure costs. The Company recorded total expenses of approximately $ 58 million related to these actions which consists primarily of inventory write-downs of approximately $ 28 million, accelerated depreciation of approximately $ 14 million, and severance costs of approximately $ 11 million. For the nine months ended September 30, 2021, the Company made a $ 3 million adjustment related to inventory reserves and recorded severance costs of $ 2 million. The Company expects nearly all of the remaining restructuring charges to be completed by the first quarter of 2022. The Company’s restructuring accruals at September 30, 2021 were as follows: Severance (in millions) 2019 and Prior Plans 2020 Plans 2021 Plans Total Balance at December 31, 2020 $ 12 $ 17 $ — $ 29 Provisions 2 4 7 13 Amounts applied ( 8 ) ( 11 ) ( 3 ) ( 22 ) Change in estimates ( 1 ) ( 5 ) — ( 6 ) Balance at September 30, 2021 $ 5 $ 5 $ 4 $ 14 26 Other Restructuring Costs (in millions) 2019 and Prior Plans 2020 Plans 2021 Plans Total Balance at December 31, 2020 $ 3 $ 2 $ — $ 5 Provisions 2 3 3 8 Amounts applied ( 2 ) ( 4 ) ( 2 ) ( 8 ) Change in estimate — ( 1 ) — ( 1 ) Balance at September 30, 2021 $ 3 $ — $ 1 $ 4 The cumulative amounts for the provisions and adjustments and amounts applied for all the plans by segment were as follows: (in millions) December 31, 2020 Provisions Amounts Applied Change in Estimates September 30, 2021 Technologies & Equipment $ 16 $ 6 $ ( 13 ) $ ( 5 ) $ 4 Consumables 17 12 ( 14 ) ( 2 ) 13 All Other 1 3 ( 3 ) — 1 Total $ 34 $ 21 $ ( 30 ) $ ( 7 ) $ 18 The associated restructuring liabilities are recorded in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. 27 NOTE 10 – FINANCIAL INSTRUMENTS AND DERIVATIVES Derivative Instruments and Hedging Activities The Company’s activities expose it to a variety of market risks, which primarily include the risks related to the effects of changes in foreign currency exchange rates and interest rates. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this risk management program is to reduce the volatility that these market risks may have on the Company’s operating results and equity. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert fixed rate debt into variable rate debt or variable rate debt to fixed rate debt. The Company does not hold derivative instruments for trading or speculative purposes. Derivative Instruments The following summarizes the notional amounts of cash flow hedges, hedges of net investments, fair value hedges, and derivative instruments not designated as hedges for accounting purposes by derivative instrument type at September 30, 2021 and the notional amounts expected to mature during the next 12 months. (in millions) Aggregate Notional Amount Aggregate Notional Amount Maturing within 12 Months Cash Flow Hedges Foreign exchange forward contracts $ 323 $ 246 Total derivative instruments designated as cash flow hedges $ 323 $ 246 Hedges of Net Investments Foreign exchange forward contracts $ 185 $ 93 Cross currency basis swaps 309 — Total derivative instruments designated as hedges of net investments $ 494 $ 93 Fair Value Hedges Interest Rate Swaps $ 250 $ — Foreign exchange forward contracts 217 134 Total derivative instruments designated as fair value hedges $ 467 $ 134 Derivative Instruments not Designated as Hedges Foreign exchange forward contracts $ 342 $ 342 Total derivative instruments not designated as hedges $ 342 $ 342 Cash Flow Hedges Foreign Exchange Risk Management The Company uses a program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings. The Company accounts for the designated foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the assessed effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded in the Consolidated Statements of Operations in the same period that the hedged transaction is recorded. The time-value component of the fair value of the derivative is reported on a straight-line basis in Cost of products sold in the Consolidated Statements of Operations in the period which it is 28 applicable. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows. These foreign exchange forward contracts generally have maturities up to 18 months, which is the period over which the Company is hedging exposures to variability of cash flows and the counterparties to the transactions are typically large international financial institutions. Interest Rate Risk Management The Company enters into interest rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments and not for speculative purposes. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows. AOCI Release Overall, the derivatives designated as cash flow hedges are considered to be highly effective for accounting purposes. At September 30, 2021, the Company expects to reclassify $ 1 million of deferred net losses on cash flow hedges recorded in AOCI in the Consolidated Statements of Operations during the next 12 months. For the rollforward of derivative instruments designated as cash flow hedges in AOCI see Note 3, Comprehensive (Loss) Income. Hedges of Net Investments in Foreign Operations The Company has significant investments in foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. The Company employs both derivative and non-derivative financial instruments to hedge a portion of this exposure. The derivative instruments consist of foreign exchange forward contracts and cross currency basis swaps. The non-derivative instruments consist of foreign currency denominated debt held at the parent company level. Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in derivative and non-derivative financial instruments; which are designated as hedges of net investments and are included in AOCI. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in investing activities in the Consolidated Statements of Cash Flows except for derivative instruments that include an other-than-insignificant financing element, for which all cash flows are classified as financing activities in the Consolidated Statements of Cash Flows. The fair value of the foreign exchange forward contracts and cross currency basis swaps is the estimated amount the Company would receive or pay at the reporting date, taking into account the effective interest rates, cross currency swap basis rates, and foreign exchange rates. The effective portion of the change in the value of these derivatives is recorded in AOCI, net of tax effects. On May 25, 2021, the Company re-established its euro net investment hedge portfolio by entering into eight foreign exchange forward contracts, each with a notional amount of 10 million euro. The contracts have quarterly maturity dates through March 31, 2023. On July 2, 2021, the Company entered into a cross currency basis swap totaling a notional amount of $ 300 million which matures on June 3, 2030. The cross currency basis swap is designated as a hedge of net investments. This contract effectively converts a portion of the $ 750 million bond coupon from 3.3 % to 1.7 %, which will result in a net reduction of interest expense in 2021. 29 Fair Value Hedges Foreign Exchange Risk Management The Company has intercompany loans denominated in Swedish kronor that are exposed to volatility in currency exchange rates. The Company employs derivative financial instruments to hedge these exposures. The Company accounts for these designated foreign exchange forward contracts as fair value hedges. The Company measures the effectiveness of fair value hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be recorded in the Consolidated Statements of Operations. The time-value component of the fair value of the derivative is reported on a straight-line basis in Other expense (income), net in the Consolidated Statements of Operations in the applicable period. Any cash flows associated with these instruments are included in operating activities in the Consolidated Statements of Cash Flows. On January 6, 2021 the Company entered into foreign exchange forward contracts with a notional value of SEK 1.3 billion as a result of an increase in intercompany loans denominated in Swedish kronor. The foreign exchange forwards are designated as fair value hedges. On July 1, 2021, the Company entered into variable interest rate swaps with a notional amount of $ 250 million, which effectively converts a portion of the underlying fixed rate of 3.3 % on the $ 750 million Senior Notes due June 2030 to a variable interest rate. Of the $ 250 million notional amount, $ 100 million has a term of five-years maturing on June 1, 2026 and $ 150 million has a term of nine years maturing on March 1, 2030. Derivative Instruments Not Designated as Hedges The Company enters into derivative instruments with the intent to partially mitigate the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The Company primarily uses foreign exchange forward contracts to hedge these risks. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in Other expense (income), net in the Consolidated Statements of Operations. Any cash flows associated with these instruments are included in cash from operating activities in the Consolidated Statements of Cash Flows. Gains and (losses) recorded in the Company’s Consolidated Statements of Operations related to the economic hedges not designated as hedges for the three and nine months ended September 30, 2021 and 2020 were insignificant. 30 Derivative Instrument Activity The amount of gains and losses recorded in the Company’s Consolidated Balance Sheets and Consolidated Statements of Operations related to all derivative instruments for the three months ended September 30, 2021 and 2020 were as follows: Three Months Ended September 30, 2021 (in millions) Gain (Loss) recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense) Cash Flow Hedges Foreign exchange forward contracts $ 6 Cost of products sold $ ( 2 ) $ — Interest rate swaps — Interest expense, net ( 1 ) — Total for cash flow hedging $ 6 $ ( 3 ) $ — Hedges of Net Investments Cross currency basis swaps $ ( 1 ) Interest expense, net $ — $ 1 Foreign exchange forward contracts 4 Other expense (income), net — — Total for net investment hedging $ 3 $ — $ 1 Fair Value Hedges Interest rate swaps $ — Interest expense, net $ — $ 1 Foreign exchange forward contracts — Other expense (income), net — 6 Total for fair value hedging $ — $ — $ 7 Three Months Ended September 30, 2020 (in millions) Gain (Loss) recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense) Cash Flow Hedges Foreign exchange forward contracts $ ( 6 ) Cost of products sold $ 1 $ 1 Interest rate swaps 3 Interest expense, net ( 2 ) — Total for cash flow hedging $ ( 3 ) $ ( 1 ) $ 1 Hedges of Net Investments Cross currency basis swaps $ ( 17 ) Interest expense, net $ — $ 2 Total for net investment hedging $ ( 17 ) $ — $ 2 31 The amount of gains and losses recorded in AOCI in the Consolidated Balance Sheets and Consolidated Statement of Operations related to all derivative instruments for the nine months ended September 30, 2021 and 2020 were as follows: Nine Months Ended September 30, 2021 (in millions) Gain (Loss) recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense) Cash Flow Hedges Foreign exchange forward contracts $ 3 Cost of products sold $ ( 4 ) $ 1 Interest rate swaps — Interest expense, net ( 4 ) — Total for cash flow hedging $ 3 $ ( 8 ) $ 1 Hedges of Net Investments Cross currency basis swaps $ 6 Interest expense, net $ — $ 5 Foreign exchange forward contracts 7 Other expense (income), net — — Total for net investment hedging $ 13 $ — $ 5 Fair Value Hedges Interest rate swaps $ — Interest expense, net $ — $ 1 Foreign exchange forward contracts — Other expense (income), net — 18 Total for fair value hedging $ — $ — $ 19 Nine Months Ended September 30, 2020 (in millions) Gain (Loss) recognized in AOCI Consolidated Statements of Operations Location Effective Portion Reclassified from AOCI into Income (Expense) Recognized in Income (Expense) Cash Flow Hedges Foreign exchange forward contracts $ ( 2 ) Cost of products sold $ 2 $ 2 Interest rate swaps ( 17 ) Interest expense, net ( 3 ) — Total for cash flow hedging $ ( 19 ) $ ( 1 ) $ 2 Hedges of Net Investments Cross currency basis swaps $ ( 13 ) Interest expense, net $ — $ 7 Foreign exchange forward contracts 6 Other expense (income), net — 6 Total for net investment hedging $ ( 7 ) $ — $ 13 32 Consolidated Balance Sheets Location of Derivative Fair Values The fair value and the location of the Company’s derivatives in the Consolidated Balance Sheets were as follows: September 30, 2021 (in millions) Prepaid Expenses and Other Current Assets Other Noncurrent Assets Accrued Liabilities Other Noncurrent Liabilities Designated as Hedges: Foreign exchange forward contracts $ 13 $ 11 $ 2 $ — Interest rate swaps 3 — — 5 Cross currency basis swaps 3 — — 14 Total $ 19 $ 11 $ 2 $ 19 Not Designated as Hedges: Foreign exchange forward contracts $ 1 $ — $ 2 $ — Total $ 1 $ — $ 2 $ — December 31, 2020 (in millions) Prepaid Expenses and Other Current Assets Other Noncurrent Assets Accrued Liabilities Other Noncurrent Liabilities Designated as Hedges: Foreign exchange forward contracts $ 5 $ 2 $ 10 $ 3 Cross currency basis swaps — — 20 — Total $ 5 $ 2 $ 30 $ 3 Not Designated as Hedges: Foreign exchange forward contracts $ 3 $ — $ 2 $ — Total $ 3 $ — $ 2 $ — Balance Sheet Offsetting Substantially all of the Company’s derivative contracts are subject to netting arrangements; whereby the right to offset occurs in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts contain the enforceable right to offset through netting arrangements with the same counterparty, the Company elects to present them on a gross basis in the Consolidated Balance Sheets. 33 Offsetting of financial assets and liabilities under netting arrangements at September 30, 2021 were as follows: Gross Amounts Not Offset in the Consolidated Balance Sheets (in millions) Gross Amounts Recognized Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received/Pledged Net Amount Assets Foreign exchange forward contracts $ 25 $ — $ 25 $ ( 10 ) $ — $ 15 Interest rate swaps 3 — 3 ( 3 ) — — Cross currency basis swaps 3 — 3 ( 3 ) — — Total assets $ 31 $ — $ 31 $ ( 16 ) $ — $ 15 Liabilities Foreign exchange forward contracts $ 4 $ — $ 4 $ ( 3 ) $ — $ 1 Interest rate swaps 5 — 5 ( 3 ) — 2 Cross currency basis swaps 14 — 14 ( 10 ) — 4 Total liabilities $ 23 $ — $ 23 $ ( 16 ) $ — $ 7 Offsetting of financial assets and liabilities under netting arrangements at December 31, 2020 were as follows: Gross Amounts Not Offset in the Consolidated Balance Sheets (in millions) Gross Amounts Recognized Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Financial Instruments Cash Collateral Received/Pledged Net Amount Assets Foreign exchange forward contracts $ 9 $ — $ 9 $ ( 9 ) $ — $ — Total assets $ 9 $ — $ 9 $ ( 9 ) $ — $ — Liabilities Foreign exchange forward contracts $ 15 $ — $ 15 $ — $ — $ 15 Interest rate swaps 20 — 20 ( 7 ) — 13 Total liabilities $ 35 $ — $ 35 $ ( 7 ) $ — $ 28 34 NOTE 11 – FAIR VALUE MEASUREMENT The estimated fair value and carrying value of the Company’s total debt was $ 2,227 million and $ 2,076 million, respectively, at September 30, 2021. At December 31, 2020, the estimated fair value and carrying value were $ 2,509 million and $ 2,281 million, respectively. The fair value of long-term debt is based on recent trade information in the financial markets of the Company’s public debt or is determined by discounting future cash flows using interest rates available at September 30, 2021 and December 31, 2020 to companies with similar credit ratings for issues with similar terms and maturities. It is considered a Level 2 fair value measurement. Assets and liabilities measured at fair value on a recurring basis The Company’s financial assets and liabilities set forth by level within the fair value hierarchy that were accounted for at fair value on a recurring basis were as follows: September 30, 2021 (in millions) Total Level 1 Level 2 Level 3 Assets Interest rate swaps $ 3 $ — $ 3 $ — Cross currency basis swaps 3 — 3 — Foreign exchange forward contracts 25 — 25 — Long-term debt 2 — 2 — Total assets $ 33 $ — $ 33 $ — Liabilities Interest rate swaps $ 5 $ — $ 5 $ — Cross currency basis swaps 14 — 14 — Foreign exchange forward contracts 4 — 4 — Contingent considerations on acquisitions 11 — — 11 Total liabilities $ 34 $ — $ 23 $ 11 December 31, 2020 (in millions) Total Level 1 Level 2 Level 3 Assets Foreign exchange forward contracts $ 10 $ — $ 10 $ — Total assets $ 10 $ — $ 10 $ — Liabilities Cross currency basis swaps $ 20 $ — $ 20 $ — Foreign exchange forward contracts 15 — 15 — Contingent considerations on acquisitions 5 — — 5 Total liabilities $ 40 $ — $ 35 $ 5 There have been no transfers between levels during the nine months ended September 30, 2021. 35 NOTE 12 – INCOME TAXES Uncertainties in Income Taxes The Company recognizes the impact of a tax position in the interim consolidated financial statements if that position is more likely than not of being sustained on audit based on the technical merits of the position. It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease within 12 months of the reporting date of the Company’s quarterly consolidated financial statements. Final settlement and resolution of outstanding tax matters in various jurisdictions during the next 12 months are not expected to be significant. Other Tax Matters During the three months ended September 30, 2021, the Company recorded $ 4 million of tax expense for discrete tax matters. During the three months ended September 30, 2020, the Company recorded $ 2 million of tax expense for discrete tax matters. 36 NOTE 13 – FINANCING ARRANGEMENTS At September 30, 2021, the Company had $ 607 million of borrowing available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company has a $ 500 million commercial paper program. The $ 700 million multi-currency revolving credit facility serves as a back-stop credit facility for the Company’s commercial paper program. At September 30, 2021 and December 31, 2020, there were no outstanding borrowings under the multi-currency revolving credit facility. The Company had $ 139 million outstanding borrowings under the commercial paper facility at September 30, 2021 and no outstanding borrowings under the commercial paper facility at December 31, 2020. As of September 30, 2021, the weighted-average interest rate for this short-term debt was 0.2 %. On July 2, 2021 the Company pre-paid the fixed rate Senior Notes totaling $ 296 million that were scheduled to mature on August 16, 2021 using cash and short-term commercial paper. The Company’s revolving credit facilities and senior unsecured notes contain certain affirmative and negative debt covenants relating to the Company’s operations and financial condition. At September 30, 2021, the Company was in compliance with all affirmative and negative debt covenants. 37 NOTE 14 – GOODWILL AND INTANGIBLE ASSETS The Company assesses both goodwill and indefinite-lived intangible assets for impairment annually during the second quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. The Company conducted its annual goodwill and indefinite-lived intangible assets impairment test as of April 1, 2021. Based on the Company’s 2021 impairment test, it was determined that the fair values of its reporting units and indefinite-lived intangible assets more likely than not exceed their respective carrying values, resulting in no impairment. The fair values of reporting units were computed using a discounted cash flow model with inputs developed using both internal and market-based data. Intangible assets were evaluated for impairment using an income approach, specifically a relief from royalty method, or using a qualitative assessment. A change in any of the estimates and assumptions used in the annual test, a decline in the overall markets or in the use of intangible assets among other factors, could have a material adverse effect to the fair value of either the reporting units or intangible assets and could result in a future impairment charge. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings. Subsequent to the annual impairment test, as of September 30, 2021, the Company considered whether any events or changes in circumstances had resulted in the likelihood that the goodwill or indefinite-lived intangible assets may have become impaired during the course of the quarter, and concluded that there were no such indicators. During the three months ended March 31, 2020, as a result of updating the estimates and assumptions pertaining to the impact of the ongoing COVID-19 pandemic, the Company recorded a goodwill impairment charge of $ 157 million related to the goodwill associated with the Technologies & Equipment segment. Additionally, during the three months ended March 31, 2020, the Company recorded an indefinite-lived intangible asset impairment charge of $ 39 million within the Technologies & Equipment segment which was driven by a decline in forecasted sales as a result of the COVID-19 pandemic and an unfavorable change in the discount rate. A reconciliation of changes in the Company’s goodwill by reportable segment were as follows: (in millions) Technologies & Equipment Consumables Total Balance at December 31, 2020 Goodwill $ 5,985 $ 894 $ 6,879 Accumulated impairment losses ( 2,893 ) — ( 2,893 ) Goodwill, net $ 3,092 $ 894 $ 3,986 Acquisition related additions (a) 107 — 107 Translation and other ( 140 ) 47 ( 93 ) Balance at September 30, 2021 Goodwill $ 5,952 $ 941 $ 6,893 Accumulated impairment losses ( 2,893 ) — ( 2,893 ) Goodwill, net $ 3,059 $ 941 $ 4,000 (a) Refer to Note 5, “Business Combinations” for more information regarding recent acquisitions. 38 Identifiable definite-lived and indefinite-lived intangible assets were as follows: September 30, 2021 December 31, 2020 (in millions) Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount Developed technology and patents $ 1,752 $ ( 743 ) $ 1,009 $ 1,681 $ ( 677 ) $ 1,004 Tradenames and trademarks 269 ( 76 ) 193 273 ( 70 ) 203 Licensing agreements 36 ( 31 ) 5 37 ( 30 ) 7 Customer relationships 1,105 ( 533 ) 572 1,142 ( 494 ) 648 Total definite-lived $ 3,162 $ ( 1,383 ) $ 1,779 $ 3,133 $ ( 1,271 ) $ 1,862 Indefinite-lived tradenames and trademarks $ 610 $ — $ 610 $ 642 $ — $ 642 In-process R&D (a) 13 — 13 — — — Total indefinite-lived $ 623 $ — $ 623 $ 642 $ — $ 642 Total identifiable intangible assets $ 3,785 $ ( 1,383 ) $ 2,402 $ 3,775 $ ( 1,271 ) $ 2,504 (a) Intangible assets acquired in a business combination that are in-process and used in research and development (“R&D”) activities are considered indefinite-lived until the completion or abandonment of the R&D efforts. The useful life and amortization of those assets will be determined once the R&D efforts are completed. During the second quarter of 2021, the Company purchased certain developed technology rights for an initial payment of $ 3 million. The purchase consideration also includes contingent payments of $ 17 million to be made upon reaching certain regulatory and commercial milestones, which were not yet deemed probable at September 30, 2021. 39 NOTE 15 – COMMITMENTS AND CONTINGENCIES Litigation On January 25, 2018, Futuredontics, Inc., a former wholly-owned subsidiary of the Company, received service of a purported class action lawsuit brought by Henry Olivares and other similarly situated individuals in the Superior Court of the State of California for the County of Los Angeles. In January 2019, an amended complaint was filed adding another named plaintiff, Rachael Clarke, and various claims. The plaintiff class alleges several violations of the California wage and hours laws, including, but not limited to, failure to provide rest and meal breaks and the failure to pay overtime. The parties have engaged in written and other discovery. On February 5, 2019, Plaintiff Calethia Holt (represented by the same counsel as Mr. Olivares and Ms. Clarke) filed a separate representative action in Los Angeles Superior Court alleging a single violation of the Private Attorneys’ General Act that is based on the same underlying claims as the Olivares/Clarke lawsuit. On April 5, 2019, Plaintiff Kendra Cato filed a similar action in Los Angeles Superior Court alleging a single violation of the Private Attorneys’ General Act that is based on the same underlying claims as the Olivares/Clarke lawsuit. The Company has agreed to resolve all three actions (Olivares, Holt, and Cato). The court in Cato approved the settlement in that case, the settlement payment has been made, and the court dismissed the lawsuit. The parties to Olivares and Holt are in the process of seeking court approval of that settlement. The expected settlement amount, which is immaterial to the financial statements, has been recorded as an accrued liability within the Company’s consolidated balance sheet as of September 30, 2021. On June 7, 2018, and August 9, 2018, two putative class action suits were filed, and later consolidated, in the Supreme Court of the State of New York, County of New York claiming that the Company and certain individual defendants, violated U.S. securities laws (the “State Court Action”) by making material misrepresentations and omitting required information in the December 4, 2015 registration statement filed with the SEC in connection with the Merger. The amended complaint alleges that the defendants failed to disclose, among other things, that a distributor had purchased excessive inventory of legacy Sirona products and that three distributors of the Company’s products had been engaging in anticompetitive conduct. The plaintiffs seek to recover damages on behalf of a class of former Sirona shareholders who exchanged their shares for shares of the Company’s stock in the Merger. On September 26, 2019, the Court granted the Company’s motion to dismiss all claims and a judgment dismissing the case was subsequently entered. On February 4, 2020, the Court denied plaintiffs’ post-judgment motion to vacate or modify the judgment and to grant them leave to amend their complaint. The plaintiffs appealed the dismissal and the denial of the post-judgment motion to the Supreme Court of the State of New York, Appellate Division, First Department, and the Company cross-appealed select rulings in the Court’s decision dismissing the action. The plaintiffs’ appeals and the Company’s cross-appeal were consolidated and argued on January 12, 2021. On February 2, 2021, the Appellate Division issued its decision upholding the dismissal of the State Court Action with prejudice on statute of limitations grounds. The Plaintiffs did not appeal the Appellate Division decision. On December 19, 2018, a related putative class action was filed in the U.S. District Court for the Eastern District of New York against the Company and certain individual defendants (the “Federal Class Action”). The plaintiff makes similar allegations and asserts the same claims as those asserted in the State Court Action. In addition, the plaintiff alleges that the defendants violated U.S. securities laws by making false and misleading statements in quarterly and annual reports and other public statements between February 20, 2014, and August 7, 2018. The plaintiff asserts claims on behalf of a putative class consisting of (a) all purchasers of the Company’s stock during the period February 20, 2014 through August 7, 2018 and (b) former shareholders of Sirona who exchanged their shares of Sirona stock for shares of the Company’s stock in the Merger. The Company moved to dismiss the amended complaint on August 15, 2019. The plaintiff filed its second amended complaint on January 22, 2021, and the Company filed a motion to dismiss the second amended complaint on March 8, 2021. Briefing on the motion to dismiss was fully submitted on May 21, 2021, and that motion is currently pending before the Court. The Company intends to defend itself vigorously in these actions. 40 As a result of an audit by the IRS for fiscal years 2012 through 2013, on February 11, 2019, the IRS issued to the Company a “30-day letter” and a Revenue Agent’s Report (“RAR”), relating to the Company’s worthless stock deduction in 2013 in the amount of $ 546 million. The RAR disallows the deduction and, after adjusting the Company’s net operating loss carryforward, asserts that the Company is entitled to a refund of $ 5 million for 2012, has no tax liability for 2013, and owes a deficiency of $ 17 million in tax for 2014, excluding interest. In accordance with ASC 740, the Company recorded the tax benefit associated with the worthless stock deduction in the Company’s 2012 financial statements. In March 2019, the Company submitted a formal protest disputing on multiple grounds the proposed taxes. The Company and its advisors discussed its position with the IRS Appeals Office Team on October 28, 2020 and, on November 13, 2020, submitted a supplemental response to questions raised by the Appeals Team. The Company’s position continues to be reviewed by the IRS Appeals Office team. The Company believes the IRS’ position is without merit and believes that it is more likely-than-not the Company’s position will be sustained in 2021 upon further review by the IRS Appeals Office Team. The Company has not accrued a liability relating to the proposed tax adjustments. However, the outcome of this dispute involves a number of uncertainties, including those inherent in the valuation of various assets at the time of the worthless stock deduction, and those relating to the application of the Internal Revenue Code and other federal income tax authorities and judicial precedent. Accordingly, there can be no assurance that the dispute with the IRS will be resolved favorably. If determined adversely, the dispute would result in a current period charge to earnings and could have a material adverse effect in the consolidated results of operations, financial position, and liquidity of the Company. The Swedish Tax Agency has disallowed certain of the Company’s interest expense deductions for the tax years from 2013 to 2018. If such interest expense deductions were disallowed, the Company would be subject to an additional $ 49 million in tax expense. The Company has appealed the disallowance to the Swedish Administrative Court. With respect to such deductions taken in the tax years from 2013 to 2014, the Court ruled against the Company on July 5, 2017. On August 7, 2017, the Company appealed the unfavorable decision of the Swedish Administrative Court. On November 5, 2018, the Company delivered its final argument to the Administrative Court of Appeals at a hearing. The European Union Commission has taken the view that Sweden’s interest deduction limitation rules are incompatible with European Union law and supporting legal opinions, and therefore the Company has not paid the tax or made provision in its financial statements for such potential expense. This view has now been confirmed by the European Union Court of Justice in a preliminary ruling requested by the Swedish Supreme Administrative Court. Subsequently, the Swedish Tax Authority has conceded in pending court proceedings that the Company should be granted further interest expense deductions, but still claims that interest expense deductions incurring a maximum additional tax expense of $ 12 million should be disallowed on grounds not relating to European Union law. The Company intends to vigorously defend its position and pursue related appeals. In addition to the matters disclosed above, the Company is, from time to time, subject to a variety of litigation and similar proceedings incidental to its business. These legal matters primarily involve claims for damages arising out of the use of the Company’s products and services and claims relating to intellectual property matters including patent infringement, employment matters, tax matters, commercial disputes, competition and sales and trading practices, personal injury, and insurance coverage. The Company may also become subject to lawsuits as a result of past or future acquisitions or as a result of liabilities retained from, or representations, warranties or indemnities provided in connection with, divested businesses. Some of these lawsuits may include claims for punitive and consequential, as well as compensatory damages. Based upon the Company’s experience, current information, and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its consolidated results of operations, financial position, or liquidity. However, in the event of unexpected further developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations, or liquidity. While the Company maintains general, product, property, workers’ compensation, automobile, cargo, aviation, crime, fiduciary and directors’ and officers’ liability insurance up to certain limits that cover certain of these claims, this insurance may be insufficient or unavailable to cover such losses. In addition, while the Company believes it is entitled to indemnification from third parties for some of these claims, these rights may also be insufficient or unavailable to cover such losses. Commitments From time to time, the Company enters into long-term inventory purchase commitments with minimum purchase requirements for raw materials and finished goods to ensure the availability of products for production and distribution. Future minimum annual payments for inventory purchase commitments were immaterial as of September 30, 2021. 41 DENTSPLY SIRONA Inc. and Subsidiaries