What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2022-11-07 · 143 added, 397 removed, 230 unchanged (70% of the section changed)

15 unchanged sentences

Dentsply Sirona’s worldwide headquarters is located in Charlotte, North Carolina.

The Company’s shares of common stock are listed on the Nasdaq stock market under the symbol XRAY.

The Company’s shares of common stock are listed on Nasdaq stock market under the symbol XRAY.

Material Weaknesses in Internal Control Over Financial Reporting Identified

7 unchanged sentences

adherence to the Code of Ethics and Business Conduct.

While the North America Investigation was ongoing, the Audit and Finance Committee determined that the scope of the internal investigation should be expanded to analyze an increase in returns

of products in China during the fourth quarter of 2021 previously identified by management (the “China Investigation”).

Based on the China Investigation, the Audit and Finance Committee concluded that members of the Company’s local commercial

team in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local accounting organization, by obstructing the work of the

While the North America Investigation was ongoing, the Audit and Finance Committee determined that the scope of the investigation should be expanded to analyze an increase in returns of

products in China during the fourth quarter of 2021 previously identified by management (the “China Investigation”).

Based on the China Investigation, the Audit and Finance Committee concluded that members of the Company’s local commercial team

in China, as well as the head of the Company’s Asia-Pacific commercial organization, committed intentional wrongdoing by failing to provide requested information to the Company’s local accounting organization, by obstructing the work of the

accounting team and by lacking truthfulness in providing information to the Company and to the Audit and Finance Committee as part of the China Investigation.

4 unchanged sentences

In connection with the restatement of the financial statements and related

disclosures for the three and nine months ended September 30, 2021 and for the fiscal year ended December 31, 2021, management re-evaluated the effectiveness of the Company’s internal control over financial reporting and identified weaknesses in

the Company’s internal control over financial reporting as of September 30, 2021.

These material weaknesses in internal controls over financial reporting were not remediated as of June 30, 2022 and are not remediated through the date of this filing.

For more information about the internal investigation and

its findings, the specific material weaknesses in internal control over financial reporting and the current status of the Company’s remedial actions, please see Part II, Item 9A Controls and Procedures of the Company’s 2021 Form 10-K/A.

weaknesses in the Company’s internal control over financial reporting as of September 30, 2021.

material weaknesses in internal controls over financial reporting were not remediated as of March 31, 2022 and are not remediated through the date of this filing.

For more information about the internal investigation and its findings, the

specific material weaknesses in internal control over financial reporting and the current status of the Company’s remedial actions, please see Part II, Item 9A Controls and Procedures of the Company’s 2021 Form 10-K/A.

The Company operates in two operating segments, Technologies & Equipment

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Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in the 2021 Form 10-K/A .

Updates to that summary of impact for the six months ended June 30, 2022 are as

Upd ates to that summary of

impact for the three months ended March 31, 2022 are as follows:

• As further described in the “Results of Operations” discussion below, the Company

1 unchanged sentence

As a result of supply chain

constraints, the Company continued to have an elevated backlog at the end of the second quarter relative to the start of the year, primarily in imaging equipment for orders on hand unable to be filled due to continued shortages of electronic

The Company has continued taking steps to mitigate the impact of these trends, including seeking alternative supplier sources for key raw materials.

constraints, the Company had an elevated backlog at the end of the first quarter relative to the start of the year, primarily in imaging equipment for orders on hand unable to be filled due to shortages of electronic components.

The Company has

continued taking steps to mitigate the impact of these trends, including seeking alternative supplier sources for key raw materials.

• Sales continue to be impacted in certain geographic areas by public response to the COVID-19 pandemic.

Towards the end of the first quarter of 2022,

authorities in China re-imposed severe restrictions on individual and business activities in response to the resurgence of COVID-19 infections from variants of the virus, resulting in a loss of sales due to distribution constraints and lower

demand from patient traffic locally.

Primarily as a result of these factors, sales in China declined by $38 million in the first six months of 2022 compared to 2021.

Although restrictions in major areas where the Company operates in China have

lightened by the end of the second quarter, adverse trends in certain regions could persist if these restrictions are renewed as a result of additional outbreaks.

Early in 2022, certain other markets in North America and EMEA experienced more

limited setbacks in demand as a result of increased infections and related practice of social distancing requirements.

While most government authorities have not re-imposed restrictions with significant impacts, it continues to be unclear when

the remaining constraints will be lifted, and to what degree future variants of the virus or renewed restrictions in other markets may impact short-term demand for the Company’s products more broadly.

Midway through the first quarter of 2022, authorities in

China re-imposed restrictions on individual and business activities in response to the resurgence of COVID-19 infections from recent variants of the virus, resulting in a loss of sales due to distribution constraints and lower demand from patient

traffic locally.

Although restrictions in major areas where the Company operates in China have lightened, adverse trends in the region could persist if these restrictions are renewed as a result of additional outbreaks.

Early in 2022, certain

other markets in North America and EMEA experienced more limited setbacks in demand as a result of increased infections and related practice of social distancing requirements.

While most government authorities have not re-imposed restrictions

with significant impacts, it continues to be unclear when the remaining constraints will be lifted, and to what degree future variants of the virus or renewed restrictions in other markets may impact short-term demand for the Company’s products

more broadly.

Impact of Russia’s Invasion of Ukraine

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businesses and individuals.

The Company does not have significant operations in Russia or Ukrain e.

The Company’s net sales in Russia and Ukraine approximate 3% of the Company’s consolidated net sales, and

the Company’s net assets in these two countries aggregate to $74 million, or less than 2% of consolidated net assets .

to the medical nature of its products, the current sanctions have not materially restricted the Company’s ability to continue selling to customers located in Russia.

The Company sources certain raw materials and components from Russia and

Ukraine, and to minimize the adverse impacts from disrupted supply chains related to these items, it has purchased sufficient quantities for the near term, and is in process of identifying alternate sources for the longer term.

The Company does not have significant operations in Russia or Ukraine.

The Company’s

operations in Ukraine consist primarily of research and development activities, which continue uninterrupted from other locations in order to focus on the safety of employees.

Overall, the Company’s operations in Russia and Ukraine have not been

materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments during the six months ended June 30, 2022 as a result of these developments.

net sales in Russia and Ukraine approximate 3% of the Company’s consolidated net sales, and the Company’s net assets in these two countries aggregate to $44 million, or less than 1% of consolidated net assets.

Due to the medical nature of its

products, the current sanctions have not materially restricted the Company’s ability to continue selling to customers located in Russia.

The Company sources certain raw materials and components from Russia and Ukraine, and to minimize the adverse

impacts from disrupted supply chains related to these items, it has purchased sufficient quantities for the near term, and is in process of identifying alternate sources for the longer term.

The Company’s operations in Ukraine consist primarily

of research and development activities, which continue uninterrupted from other locations in order to focus on the safety of employees.

Overall, the Company’s operations in Russia and Ukraine have not been materially impacted by the conflict, and

consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments during the three months ended March 31, 2022 as a result of these developments.

While neither Russia nor Ukraine constitutes a material portion of our business, a

1 unchanged sentence

additional discussion of associated risks, refer to Part I, Item 1A, “Risk Factors” of the 2021 Form 10-K/A.

RESULTS OF OPERATIONS, THREE MONTHS ENDED JUNE 30, 2022 COMPARED TO THREE MONTHS ENDED JUNE 30, 2021

RESULTS OF OPERATIONS, THREE MONTHS ENDED MARCH 31, 2022 COMPARED TO THREE MONTHS ENDED MARCH 31,

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

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helpful in understanding underlying net sales trends.

The Company’s net sales for the three months ended June 30, 2022

The Company’s net sales for the three months ended March 31, 2022

and 2021, and the reconciliation to organic sales is as follows:

Three Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

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

The increase in organic sales was attributable to both the T&E and Consumables

segments and was primarily due to strong performance in volumes for CAD/CAM, Equipment & Instruments, and Healthcare products globally, as well as a benefit from price increases.

These drivers were offset by the continued impact of supply

chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments and Consumables products, the impact of COVID-19 variants on demand from patient traffic in China, and weaker performance in the United States as

explained below.

Net Sales by Segment

Technologies & Equipment

Net sales for the three months ended June 30, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Three Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

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

As mentioned above, the increase in organic sales was primarily due to strong

performance in volumes for CAD/CAM, Equipment & Instruments, and Healthcare products, as well as a benefit from price increases.

The sales growth in CAD/CAM units is attributed to both Europe and the Rest of World regions, partially offset by

sales of CAD/CAM products in the United States which were negatively impacted by high dealer inventory levels at the start of the quarter, as explained below.

Supply chain constraints have also continued to adversely impact the Company’s ability

to fulfill orders for certain Equipment & Instruments products.

Net sales for the three months ended June 30, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Three Months Ended

(in millions, except percentages)

exchange impact

Organic sales

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

The slight increase in organic sales was primarily driven by growth in Other

Consumables including preventive products and the benefit from pricing adjustments, largely offset by the impact of COVID-19 variants on sales volumes in China, and the continuing impact of supply chain constraints affecting the ability to

fulfill orders for certain products.

Net Sales by Region

United States

Net sales for the three months ended June 30, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Three Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

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

The decrease in organic sales was attributable primarily to T&E, driven

primarily by lower wholesale volumes for CAD/CAM products, due in part to high dealer inventory at the start of the quarter.

Dealer inventory on hand for CAD/CAM units was approximately $10 million higher at the start of the second quarter 2022

than at the beginning of the comparative second quarter of 2021.

This level of dealer inventory was reduced by approximately $25 million during the second quarter 2022, compared to a build in inventory level of approximately $20 million in the

second quarter of 2021.

Sales volumes during the three months ended June 30, 2022, were also negatively impacted by ongoing global supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM

and Consumables products.

Within Orthodontics, a decline in sales of direct-to-consumer clear aligners was partly offset by strong demand for dentist-directed clear aligners.

The decline in sales volume was partly offset by overall growth in

Equipment & Instruments, particularly for imaging products, and the Healthcare business, as well as a benefit from price increases.

Net sales for the three months ended June 30, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Three Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

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

The increase in organic sales was primarily due to overall higher volumes for

Equipment & Instruments, CAD/CAM, and Endodontic and Restorative Consumables products, as a result of favorable market trends and demand, as well as a benefit from price increases.

The organic sales growth was partly suppressed by ongoing

global supply chain constraints, particularly for certain Equipment & Instruments products which rely on electrical components.

Rest of World

Net sales for the three months ended June 30, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Three Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

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

The increase in organic sales was attributable to the T&E segment, primarily

driven by higher sales growth for CAD/CAM products.

This increase was partly offset by the impact of ongoing global supply chain constraints and the adverse impact of COVID-19,

particularly in China which was affected by lower demand resulting from ongoing government restrictions affecting patient traffic.

Three Months Ended June 30,

(in millions, except percentages)

Gross profit as a

percentage of net sales

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

Gross profit for the quarter was negatively impacted by the decrease in volumes as

described above, as well as foreign currency translation headwinds of $42 million.

Gross profit margins as a percentage of net sales improved slightly in the current period due to the benefit of price increases and favorable foreign currency

transaction gains being offset by unfavorable product mix.

The impact of higher raw materials, labor, and distribution costs as a result of supply chain constraints and global inflation during the period was mostly offset by higher capitalized

purchase price and manufacturing variances which will be reflected in cost of sales in future periods.

Operating Expenses

Three Months Ended June 30,

(in millions, except percentages)

Selling, general and

administrative expenses (“SG&A”)

development expenses (“R&D”)

Restructuring and

percentage of net sales

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

SG&A Expenses

SG&A expense s increased pri marily due to special costs

including executive severance and legal expenses.

The increase in SG&A expenses as a percentage of net sales is also

driven by lower absorption of expenses due to lower sales.

The increase in R&D expenses was primarily due to an increase in spend within

the T&E segment driven by increases in both headcount expenses and professional service fees for ongoing investments in digital workflow solutions, product development initiatives, software development including clinical application suite and

cloud deployment.

The Company expects to continue to maintain an expanded level of investment in R&D that is at least 4% of annual net sales.

Restructuring and Other Costs

During the three months ended June 30, 2022, the Company recorded net expense of $7

million of restructuring costs in connection with the various restructuring initiatives.

For further details see, Note 9, Restructuring and other costs, in the Notes to Consolidated Financial Statements of this Form 10-Q.

Segment Adjusted Operating Income

Three Months Ended June 30,

(in millions, except percentages) (a)

Technologies &

(a) See Note 7, Segment Information, in the Notes to Consolidated Financial Statements

in Item 1 of this Form 10-Q for a reconciliation from segment adjusted operating income to consolidated US GAAP income.

The decrease in adjusted operating income for both Technologies & Equipment and

Consumables was primarily driven by the decrease in sales volumes, offset by benefits from pricing adjustments.

Other Income and Expense

Three Months Ended June 30,

(in millions)

Other expense

(income), net

Net interest and other

expense (income)

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

NM - Not meaningful

Interest expense, net

Interest expense, net for the three months ended June 30, 2022 was flat compared to

the three months ended June 30, 2021.

Other expense (income), net

Other expense (income), net for the three months ended June 30, 2022 compared to the

three months ended June 30, 2021 was as follows:

Three Months Ended June 30,

(in millions)

Loss on sales

of non-core businesses

Foreign exchange (gain) loss (a)

equity method investments

benefit pension plan expenses

non-operating loss (gain)

Other expense

(income), net

(a) Foreign exchange gains are primarily related to the revaluation of intercompany

payables and loans.

In February 2022, the three-year cumulative inflation rate in Turkey exceeded 100

As a result, effective April 1, 2022, the functional currency of the Company’s Turkish subsidiaries was changed to the U.S.

dollar, the reporting currency of the parent.

The impact of recognizing foreign currency gains and losses

resulting from this change in functional currency were not material to the period.

Income Taxes and Net Income

Three Months Ended June 30,

(in millions, except percentages)

Provision for income

Effective income tax

attributable to Dentsply Sirona

Net income per common

share - diluted

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

Provision for income taxes

For the three months ended June 30, 2022, the provision for income taxes was $18

million as compared to $35 million during the three months ended June 30, 2021.

The reduction in tax expense as compared to the prior period is driven primarily by the earnings mix of jurisdictions in which the Company does business and the

overall decrease in the Company’s income before taxes.

During the three months ended June 30, 2022, changes in tax expense for other

discrete tax matters are not significant.

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

The Company continues to reassess the realizability of its deferred tax assets and,

after weighing all positive and negative evidence, continues to maintain a valuation allowance on certain deferred tax assets.

RESULTS OF OPERATIONS, SIX MONTHS ENDED JUNE 30, 2022 COMPARED TO SIX MONTHS ENDED JUNE 30, 2021

The Company’s net sales for the six months ended June 30, 2022 and

2021, and the reconciliation to organic sales is as follows:

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

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

The increase in organic sales was due to benefits from price increases and strong performance in the T&E segment in markets outside the United States as explained below.

These increases were largely offset by overall weaker performance in the United States, including sales of CAD/CAM and Endodontic & Restorative

Consumables products, and the ongoing impact of ongoing global supply chain constraints affecting the ability to fulfill

orders for certain Equipment & Instruments, CAD/CAM and Consumables products.

Results were also negatively impacted by COVID-19 variants on demand from patient traffic in certain markets, particularly China.

The decrease in organic sales was attributable primarily to weaker performance in

the United States, the impact of supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables products, and the impact of COVID-19 variants on demand from patient traffic in

certain markets.

The decline in sales volume was partly offset by strong performance in the Implants business and a benefit from price increases implemented in the prior quarter.

Net Sales by Segment

Technologies & Equipment

Net sales for the six months ended June 30, 2022 and 2021, and

Net sales for the three months ended March 31, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

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

The increase in organic sales was primarily due to strong

performance for Implants and Equipment & Instruments, partly as a result of beneficial price increases.

These positive drivers were offset by the impact of ongoing global supply chain constraints resulting in the Company’s inability to

fulfill orders for certain Equipment & Instruments and CAD/CAM products, as well as the impact of COVID-19 reducing sales volumes in certain markets, particularly China.

Sales of CAD/CAM products in the United States were also negatively

impacted by high dealer inventory levels at the start of the year, as explained below.

Net sales for the six months ended June 30, 2022 and 2021, and

Organic sales were flat due to increases in sales volume in the Implants and

Equipment & Instruments businesses, particularly in Europe, being offset by other factors including the impact of supply chain constraints resulting in the Company’s inability to fulfill orders for certain Equipment & Instruments and

CAD/CAM products, as well as the impact of COVID-19 reducing sales volumes in certain markets.

Sales of CAD/CAM products in the United States were also negatively impacted by high dealer inventory levels at the start of the quarter, as explained

Net sales for the three months ended March 31, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Six Months Ended

Three Months Ended

(in millions, except percentages)

3 unchanged sentences

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

The decrease in organic sales was primarily due to the impact of ongoing global

supply chain constraints affecting the ability to fulfill orders for certain products, and the impact of COVID-19 variants on sales volumes in certain markets, particularly China.

Sales during the comparative first half of 2021 benefited from a

restocking of products by customers as part of the overall recovery from the pandem ic.

decline in sales volume was partly offset by strong performance for Preventive Consumables and the benefit from the price increases.

As mentioned above, the decrease in organic sales was primarily due to the impact of

supply chain constraints affecting the ability to fulfill orders for certain products, and the impact of COVID-19 variants on sales volumes in certain markets.

In contrast, sales during the comparative first quarter of 2021 benefited from a

restocking of products by customers as part of the overall recovery from the pandemic.

The decline in sales volume was partly offset by the benefit from the price increases implemented at the beginning of the fourth quarter of 2021.

Net Sales by Region

United States

Net sales for the six months ended June 30, 2022 and 2021, and

Net sales for the three months ended March 31, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

3 unchanged sentences

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

The decrease in organic sales was attributable to both

segments, driven primarily by lower wholesale volumes for Restorative & Endodontic Consumable s and CAD/CAM products,

due in part to high dealer inventory at the start of the year.

Dealer inventory on hand for CAD/CAM units was approximately $50 million higher at the start of 2022 than at the beginning of 2021.

The level of inventory was reduced by approximately

$35 million during the first half of 2022, compared to a build in inventory levels of approximately $45 million in the first half of 2021.

Sales vol umes during the six months ended June 30, 2022, were also negatively impacted by ongoing global supply chain constraints affecting the ability to fulfill orders for certain

Equipment & Instruments, CAD/CAM and Consumables products, and the impact of COVID-19 on demand early in the first quarter.

The decline in sales volume was partly offset by sales growth in the Implants business and a benefit from price

increases implemented in the current quarter.

Within Orthodontics, a decline in sales of direct-to-consumer clear aligners was partly offset by strong demand for dentist-directed clear aligners.

Net sales for the six months ended June 30, 2022 and 2021, and

The decrease in organic sales was attributable to both segments, driven primarily by

lower wholesale volumes for Restorative Consumables and CAD/CAM products, due in part to high dealer inventory at the start of the quarter.

Dealer inventory on hand for CAD/CAM units was approximately $50 million higher at the start of the first

quarter 2022 than at the beginning of the comparative first quarter of 2021.

Of this excess, approximately $10 million was reduced during the first quarter 2022, compared to a build in inventory levels of approximately $25 million in the first

quarter of 2021.

Sales volumes during first three months ended March 31, 2022, were also negatively impacted by supply chain constraints affecting the ability to fulfill orders for certain Equipment & Instruments, CAD/CAM and Consumables

products, and the impact of COVID-19 on demand early in the quarter.

The decline in sales volume was partly offset by growth in the Implants business and a benefit from price increases implemented in the prior quarter.

Within Orthodontics, a

decline in sales of direct-to-consumer clear aligners was partly offset by strong demand for dentist-directed clear aligners.

Net sales for the three months ended March 31, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

3 unchanged sentences

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

The increase in organic sales was primarily due to overall

higher volumes for Equipment & Instruments, CAD/CAM and Implants products as a result of favorable market trends and demand, as well as a benefit from price increases.

The organic sales growth was partly suppressed by ongoing global supply chain constraints, particularly for certain Equipment & Instruments products which rely on electrical

The increase in organic sales was primarily due to overall higher volumes for

Equipment & Instruments, CAD/CAM and Implants products, as a result of favorable market trends and demand, as well as a benefit from price increases implemented in the prior quarter.

The organic sales growth was partly suppressed by supply

chain constraints, particularly for Equipment & Instruments products in the European markets.

Rest of World

Net sales for the six months ended June 30, 2022 and 2021, and

Net sales for the three months ended March 31, 2022 and 2021, and

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

3 unchanged sentences

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

The increase in organic sales was primarily due to higher

sales growth for CAD/CAM products.

This increase was partly offset by supply shortages for certain Equipment & Instruments products, and the adverse impact of COVID-19 on volumes, particularly in China which was affected by lower demand

resulting from ongoing government restrictions affecting patient traffic.

Six Months Ended June 30,

The increase in organic sales was attributable to both segments and was due to

achieving higher sales growth for CAD/CAM, Implants, and Endodontic & Restorative Consumable products.

This increase was partly offset by the adverse impact of COVID-19, particularly in China which was affected both by supply chain shortages

as well as lower demand resulting from ongoing government restrictions affecting patient traffic.

Three Months Ended March 31,

(in millions, except percentages)

2 unchanged sentences

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

Gross profit was negatively impacted by foreign currency headwinds of $74 million

and a decrease in sales volumes during the period.

Gross profit margins as a percentage of net sales declined in the current period due to the impact of higher raw materials, labor, and distribution costs as a result of supply chain constraints

and global inflation during the period, partly offset by the benefit of price increases and higher capitalized purchase price and manufacturing variances which will be reflected in cost of sales in future periods.

Gross profit for the quarter was negatively impacted by foreign currency headwinds

of $32 million, driven primarily by weakness in the euro.

The decrease in the gross profit rate as a percentage of net sales was primarily driven by higher raw materials, labor, and distribution costs as a result of supply chain constraints and

global inflation, and a decrease in net sales for higher margin products, notably CAD/CAM units and certain Consumables products as described above.

These decreases were partly offset by price increases for Consumable products from the prior

Operating Expenses

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

7 unchanged sentences

SG&A Expenses

SG&A expen ses increased pri marily due t o special costs

including executive severance and legal expenses , offset by lower spend for acquisition activities and sales and marketing

resources relative to the first half of prior year when strategic investments were made during the COVID-19 recovery.

The increase in SG&A expenses as a percentage of net sales was also driven by lower absorption of expenses due to lower

SG&A expenses decreased primarily due to lower spend for acquisition activities

and sales and marketing resources relative to the first quarter of prior year when strategic investments were made during the COVID-19 recovery.

The increase in SG&A expenses as a percentage of net sales was primarily driven by lower

absorption of expenses due to lower sales.

The increase in R&D expenses was primarily due to an increase in spend within

3 unchanged sentences

Restructuring and Other Costs

During the three months ended June 30, 2022, the Company recorded net expense of $10

During the three months ended March 31, 2022, the Company recorded net expense of $3

million of restructuring costs in connection with the various restructuring initiatives.

1 unchanged sentence

Segment Adjusted Operating Income

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages) (a)

3 unchanged sentences

The decrease in adjusted operating income for both Technologies & Equipment and

Consumables was primarily driven by the decrease in sales volumes and the higher costs for raw materials, labor, and distribution costs in the current year as a result of supply chain constraints and global inflation.

Consumables was primarily driven by the decrease in sales volumes, unfavorable mix including decreased volumes for higher margin products, and the higher costs for raw materials, labor, and distribution costs in the current year as a result of

supply chain constraints and global inflation.

Other Income and Expense

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except percentages)

5 unchanged sentences

Interest expense, net

Interest expense, net for the six months ended June 30, 2022 decreased by $2 million

as compared to the six months ended June 30, 2021, driven primarily by lower average long-term debt levels in 2022 relative to the prior year.

Interest expense, net for the three months ended March 31, 2022 decreased by $2

million as compared to the three months ended March 31, 2021, driven primarily by lower average long term debt levels in 2022 relative to the prior year.

Other expense (income), net

Other expense (income), net for the six months ended June 30, 2022 compared to the

six months ended June 30, 2021 was as follows:

Six Months Ended June 30,

Other expense (income), net for the three months ended March 31, 2022 compared to

the three months ended March 31, 2021 was as follows:

Three Months Ended March 31,

(in millions)

2 unchanged sentences

Foreign exchange gains (a)

equity method investments

benefit pension plan expenses

5 unchanged sentences

In February 2022, the three-year cumulative inflation rate in Turkey exceeded 100

As a result, effective April 1, 2022, the functional currency of the Company’s Turkish subsidiaries was changed to the U.S.

As a result, effective April 1, 2022, the functional currency of the Company’s Turkish subsidiaries will be changed to the U.S.

dollar, the reporting currency of the parent.

The impact of recognizing foreign currency gains and losses

resulting from this change in functional currency were not material to the period.

Although net monetary assets of the Turkish subsidiaries are

not material to the Company, this change in functional currency may result in incremental foreign exchange gains or losses in future periods that cannot be quantified at the present time.

Income Taxes and Net Income

Six Months Ended June 30,

Three Months Ended March 31,

(in millions, except per share amounts and

6 unchanged sentences

Provision for income taxes

For the six months ended June 30, 2022, the provision for income taxes was

$36 million as compared to $68 million during the six months ended June 30, 2021.

The decrease in tax expense in the current period is driven by the divestiture and its related tax impact in the prior period, and additional discrete tax expense,

as well changes in the earnings mix in jurisdictions in which the Company operates.

During the six months ended June 30, 2022, the Company recorded $1 million of tax

expense for other discrete tax matters, none of which are individually significant.

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

For the three months ended March 31, 2022, the provision for income taxes was

$18 million as compared to $33 million during the three months ended March 31, 2021.

During the three months ended March 31, 2022, the Company recorded $1 million of tax

benefit for other discrete tax matters, none of which are individually significant.

During the three months ended March 31, 2021, the Company recorded $1 million tax benefit for other discrete matters.

The Company also recorded a $4 million tax

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There have been no changes to the critical accounting policies as disclosed in the

2021 Form 10-K/A other than those changes explained in Part I, Item 1, Note 1, Significant Accounting Policies, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q.

Goodwill Impairment

Goodwill represents the excess cost over the fair value of the identifiable net

assets of businesses acquired.

Goodwill is not amortized;

instead, it is tested for impairment annually or more frequently if events or circumstances indicate that the carrying value of goodwill may be impaired.

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.

Goodwill is allocated among reporting units and evaluated for impairment at that

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

For the fiscal year 2022, the Company performed its goodwill impairment test as of

April 1, 2022 and elected to bypass the qualitative assessment and performed a quantitative assessment.

The Company did not record any goodwill impairment during the first six months of 2022 or 2021.

To determine the fair value of the reporting units, the Company used a discounted

cash flow model which utilizes both internal and market-based data as its valuation technique.

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 Company’s significant assumptions in the discounted cash flow model include, but are not limited to, the weighted average cost of capital, revenue growth rates (including perpetual

growth rates), and operating margin percentages of the reporting unit’s business.

These assumptions were developed in consideration of current market conditions.

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.

Indefinite-Lived Intangible Asset Impairment

Indefinite-lived intangible assets consist of tradenames and trademarks and are not

subject to amortization;

instead, 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.

Company performed this annual impairment test as of April 1, 2022 in conjunction with the goodwill impairment annual test.

The Company did not record any indefinite-lived intangible asset impairment during the first six months of 2022 or 2021.

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.

Under this method, an owner of an indefinite-lived intangible asset determines the arm’s length

royalty that likely would have been charged if the owner had to license the asset from a third party.

The royalty rate, which is based on the estimated rate applied against forecasted sales, is tax-effected and discounted at present value using a

discount rate commensurate with the relative risk of achieving the cash flow attributable to the asset.

Management judgment is necessary to determine key assumptions, including revenue growth rates, perpetual revenue growth rates, royalty rates,

and discount rates.

Other assumptions are consistent with those applied to goodwill impairment testing.

The determination of fair value involves uncertainties around the forecasted cash

flows as it requires management to make assumptions and apply judgement to estimate future business expectations.

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

development changes for these reporting units.

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.

Impairments Subsequent to June 30, 2022

The Company has continued to monitor macroeconomic events after its most recent annual impairment testing for goodwill and indefinite-lived

intangible assets which was completed during the second quarter ended June 30, 2022.

In the three months ended September 30, 2022, the Company expects to record a pre-tax non-cash charge for the impairment of goodwill and intangible assets in the

range of $1.0 billion - $1.3 billion, due primarily to macroeconomic factors such as higher cost of capital, cost inflation, unfavorable foreign currency impacts, and increased supply chain costs, which are contributing to reduced forecasted

revenues, lower operating margins, and reduced expectations for future cash flows.

The timing of this impairment charge in the third quarter was the result of the following factors:

Current macroeconomic conditions, including the rising interest rate environment and broad declines in equity valuations.

Since the second quarter, core

underlying market interest rates, which serve as the basis for the discount rate assumptions in our impairment models, rose by approximately 200 basis points.

Reduced earnings forecasts for several reporting units as these forecasts were impacted by ongoing macroeconomic forces.

First, global demand has weakened

for certain products in the third quarter as inflationary pressures impacted the discretionary spending behavior of our customers, which has introduced new competitive challenges.

Additionally, raw materials, supply chain, and service

costs have all increased due to changes in our business model and broad inflationary trends.

A change in any of these estimates and assumptions used in the annual test, or in

the tests utilized subsequent to June 30, 2022, 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 further negative material impacts to the

fair value of the reporting units and the indefinite-lived tangible assets and could result in a future impairment charge.

There can be no assurance that the Company’s future goodwill and indefinite-lived assets impairment testing will not result

in a material adverse impact to the Company’s results of operations.

Refer to Part I, Item 1, Note 14, Goodwill and Intangible Assets, in the Notes to

the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company’s annual goodwill and indefinite-lived intangible asset impairment testing.

2021 Form 10-K/A other than those changes explained in Part I, Item 1, Note 1, Significant Accounting Policies, in the Notes of the Unaudited Consolidated Financial Statements of this Form 10-Q.

LIQUIDITY AND CAPITAL RESOURCES

Six Months Ended June 30,

Three Months Ended March 31,

(in millions)

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(decrease) in cash and cash equivalents

Cash provided by operating activities remained flat despite lower sales in the

period, primarily as a result of changes in working capital including higher liabilities for trade payables and a decrease in accounts receivable, offset by the build-up in inventory during the current period, partly as a consequence of temporary

COVID-19 related shutdowns in China.

For the six months ended June 30, 2022, the number of days for sales outstanding in accounts receivable decreased by 2 days to 58 days as compared to 60 days at December 31, 2021, and the number of days of

sales in inventory increased by 18 days to 128 days at June 30, 2022 as compared to 110 days at December 31, 2021.

The decrease in cash used in investing activities was

primarily due to lower cash paid for acquisitions of $241 million, partially offset by higher capital expenditures of $19 million, and less cash received on sale of non-strategic businesses of $27 million.

The Company estimates capital

expenditures to be in the range of approximately $160 million to $180 million for the full year 2022 and expects these investments to include expansion of facilities to provide incremental space for growth and to consolidate operations for

enhanced efficiencies.

The increase in cash used in financing activities was

driven by higher cash outflows related to stock repurchases of $60 million and reduced proceeds from exercises of stock options of $39 million, offset by higher proceeds from short-term borrowings of $32 million primarily from using the Company’s commercial paper program .

As a result of this activity, combined with a decrease of $88 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company’s total borrowings

decreased by a net $68 million during the six months ended June 30, 2022.

During the six months ended June 30, 2022, the Company entered into an accelerated

share repurchase agreement (“ASR Agreement”) of $150 million with approximately 2.4 million shares delivered during March 2022 at a volume-weighted average price of $50.44.

In April 2022 an additional 0.7 million shares were delivered upon the

final settlement of the ASR Agreement resulting in a total 3.1 million shares repurchased under the agreement.

At June 30, 2022, $740 million of authorization remained 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 June 30, 2022, the Company held 49.7 million shares of treasury stock.

Cash provided by operating activities increased despite lower sales in the period,

primarily as a result of changes in working capital including higher liabilities for trade payables and customer rebates due to the timing of payments, and a lighter build-up in inventory during the current period.

For the three months ended

March 31, 2022, the number of days for sales outstanding in accounts receivable increased by 4 days to 64 days as compared to 60 days at December 31, 2021, and the number of days of sales in inventory increased by 7 days to 117 days at March 31,

2022 as compared to 110 days at December 31, 2021.

The decrease in cash used in investing activities was primarily due to lower cash

paid for acquisitions of $92 million, partially offset by higher capital expenditures of $14 million, and less cash received on sale of non-strategic businesses of $19 million.

The Company estimates capital expenditures to be in the range of

approximately $160 million to $180 million for the full year 2022 and expects these investments to include expansion of facilities to provide incremental space for growth and to consolidate operations for enhanced efficiencies.

The decrease in cash used in financing activities was driven by higher proceeds from

short-term borrowings of $133 million primarily from using the Company’s commercial paper program, partially offset by higher cash outflows related to stock repurchases of $60 million and reduced proceeds from exercises of stock options of $28

As a result of this activity, combined with a decrease of $29 million due to exchange rate fluctuations on debt denominated in foreign currencies, the Company’s total borrowings increased by a net $124 million during the three months

ended March 31, 2022.

During the three months ended March 31, 2022, the Company entered into an

accelerated share repurchase agreement (“ASR Agreement”) of $150 million with approximately 2.4 million shares delivered during the three months ended March 31, 2022 at a volume-weighted average price of $50.44.

In April 2022 an additional 0.7

million shares were delivered upon the final settlement of the ASR Agreement resulting in a total 3.1 million shares repurchased under the agreement.

At March 31, 2022, $770 million of authorization remained available for future share

This amount was further reduced by $30 million in April 2022 through final settlement of the ASR Agreement.

Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share

repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company deems appropriate based upon prevailing market and business conditions and other factors.

At March 31, 2022, the Company held

49.0 million shares of treasury stock.

The Company’s ratio of total net debt to total capitalization was

(in millions, except percentages)

June 30, 2022

March 31, 2022

December 31, 2021

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total capitalization ratio

At June 30, 2022, the Company had a total remaining borrowing capacity of $535

At March 31, 2022, the Company had a total remaining borrowing capacity of $399

million under lines of credit, including lines available under its short-term arrangements and revolving credit facility.

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facility and the multi-currency revolving credit facility in the aggregate is $700 million.

The Company had $193 million outstanding borrowings under the commercial paper facility at June 30, 2022 resulting in $507 million remaining available

The Company had $330 million outstanding borrowings under the commercial paper facility at March 31, 2022 resulting in $370 million remaining available

under the revolving credit and commercial paper facilities.

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

At June 30, 2022, the Company has $26 million outstanding under short-term borrowing

At March 31, 2022, the Company has $14 million outstanding under short-term borrowing

arrangements.

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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 June 30, 2022, the Company was in

At March 31, 2022, the Company was in

compliance with these covenants.

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financial statements until November 14, 2022.

Therefore, the Company has not suffered an event of default as a result of the delayed filings.

T hose financial statements were delivered on November 7, 2022 and t herefore,

the Company has not suffered an event of default as a result of the previously delayed filings.

The Company expects on an ongoing basis to be able to finance operating cash require ments, capital expenditures, and debt service from the current cash, cash equivalents, cash flows from operations and amounts available under its existing borrowing facilities.

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

At June 30, 2022 , management believed that sufficient liquidity was available in the United States and expects this to remain for the next twelve

At March 31, 2022 , management believed that sufficient liquidity was available in the United States and expects this to remain for the next twelve

The Company has repatriated and expects to continue repatriating certain funds from its non-U.S.

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The Company believes there is sufficient liquidity available for the next twelve months.

Material Trends in Capital Resources

Beginning in the second quarter of 2022, the Company’s

financial results have been impacted by the costs associated with the internal investigation conducted by the Audit and

Finance Committee and assisted by independent legal counsel and forensic accountants.

These costs have included professional service fees associated with the investigation itself, as well as third party accounting and legal costs incurred by

management to make assessments and revisions and begin remediation activities in response to the investigation’s findings.

Additionally, the Company has incurred severance costs associated with its remedial personnel actions, as well as special

one-time costs in connection with retention of key personnel.

These costs totaled approximately $25 million for the three months ended June 30, 2022 with additional charges of approximately $20 million expected to be recorded in the third quarter

Although the investigation has been completed at the time of this filing, related costs are expected to continue as a material trend into the fourth quarter of 2022 and beyond into 2023 as the Company completes its remediation activities

described in Part I, Item 4 Controls and Procedures of this Form 10-Q, and incurs incremental legal defense costs pertaining to the matters described in Note 15 Commitments and Contingencies to the

financial statements included in Part I, Item 1.

NEW ACCOUNTING PRONOUNCEMENTS

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis