What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-07 compared with 2021-11-04 · 564 added, 371 removed, 63 unchanged (94% of the section changed)

Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Information included in or incorporated by reference in this Form 10-Q, and other filings with the U.S.

Securities and Exchange Commission (the “SEC”) and the Company’s press releases or other public statements, contains or may contain forward-looking statements.

Please refer to a discussion of the Company’s forward-looking statements and associated risks in Part I, “Forward-Looking Statements,” Part I, Item 1, “Business” and Part I, Item 1A, "Risk Factors" of the Company's Form 10-K for the year ended December 31, 2020.

See Part II, Item 1A, "Risk Factors" of this Form 10-Q for any updated risk factors.

Item 2 – Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Information included in or incorporated by reference in this Form 10-Q, and other

filings with the SEC and the Company’s press releases or other public statements, contains or may contain forward-looking statements.

Please refer to the discussion under the header “Forward-Looking Statements and Associated Risks” in the

forepart of this Form 10-Q.

Company Profile

DENTSPLY SIRONA Inc.

("Dentsply Sirona" or the "Company"), is the world’s largest manufacturer of professional dental products and technologies, with a 134-year history of innovation and service to the dental industry and patients worldwide.

Dentsply Sirona develops, manufactures, and markets a comprehensive solutions offering including dental equipment and dental consumable products under a strong portfolio of world class brands.

is a leading manufacturer of professional dental products and

technologies, with a 135-year history of innovation and service to the dental industry and patients worldwide.

Dentsply Sirona develops, manufactures, and markets comprehensive solutions for dental equipment and consumable products under a strong

portfolio of world class brands.

The Company also manufactures and markets healthcare consumable products.

As The Dental Solutions Company, Dentsply Sirona’s products provide innovative, high-quality, and effective solutions to advance patient care and deliver better, safer, and faster dentistry.

Dentsply Sirona’s products provide innovative, high-quality, and effective solutions to advance patient care and deliver better, safer, and

faster dentistry.

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

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

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

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

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

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

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

Information pertaining to the impact of the COVID-19 pandemic on the Company's operations and financial results during the course of 2020 as well as the Company's overall response can be found in “Part II, Item 7.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company continues to monitor the COVID-19 pandemic.

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

Restructuring Announcement

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company expects to record total 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 related to these actions.

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

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

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

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

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

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

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

The Company defines "organic sales" as net sales excluding:

(1) net sales from acquired and divested businesses recorded prior to the first anniversary of the acquisition or divestiture, (2) net sales attributable to discontinued product lines in both the current and prior year periods, and (3) the impact of foreign currency translation, which is calculated by comparing current-period sales to prior-period sales, with both periods converted to the U.S.

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

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

Material Weaknesses in Internal Control Over Financial Reporting Identified

During the Recent Investigation

As first disclosed in the Company’s Form 12b-25 filed on May 10, 2022, the Audit and

Finance Committee of the Company’s Board of Directors (the “Audit and Finance Committee”), assisted by independent legal counsel and forensic accountants, commenced an internal investigation in March 2022 of allegations regarding certain

financial reporting matters submitted by current and former employees of the Company (“the North America Investigation”).

In the North America Investigation, the Audit and Finance Committee concluded that there was no evidence of intentional

wrongdoing or fraud but determined that certain former members of senior management, including the Company’s former Chief Executive Officer and former Chief Financial Officer, violated provisions of the Company’s Code of Ethics and Business

In addition, these former members of senior management did not maintain and promote an appropriate control environment focused on compliance in areas of the Company’s business, nor did they sufficiently promote, monitor or enforce

adherence to the Code of Ethics and Business Conduct.

While the North America Investigation was ongoing, the Audit and Finance Committee determined that the scope of the 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

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

The China Investigation also determined that these actions by the certain members of

the Company’s local commercial team in China, as well as the former Chief Financial Officer and the head of the Company’s Asia-Pacific commercial organization, violated the Company’s Code of Ethics and Business Conduct.

Refer to the Explanatory

Note to this Form 10-Q for more information on each of these investigations and the related findings of the Audit and Finance Committee.

In connection with the restatement of the financial statements and related

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

The Company operates in two operating segments, Technologies & Equipment

(“T&E”) and Consumables.

The T&E segment is responsible for the design, manufacture, and sale of products

including dental implants, CAD/CAM systems, orthodontic clear aligner products, imaging systems, treatment centers and instruments, as well as certain healthcare products, primarily catheters.

The Consumables segment is responsible for the design, manufacture, and sale of

dental consumable products within the product categories of preventive, restorative, endodontic, and dental laboratory application.

Impact of COVID-19

The Company’s financial results and operations continue to

be impacted by the COVID-19 pandemic and its effect on inflation, supply chains, distribution networks and consumer behavior.

Information pertaining to the impact of the pandemic on the Company’s business during 2021 as well as the Company’s

response can be found in “Part II, Item 7.

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

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

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

continues to experience supply chain challenges resulting from the pandemic including increased lead times, limited availability of certain components, raw material price increases, and higher shipping costs.

As a result of supply chain

constraints, the Company 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.

• 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.

Impact of Russia’s Invasion of Ukraine

On February 24, 2022, Russian forces launched military action against Ukraine,

resulting in warfare and significant disruption in the region (“the conflict”).

As a result of the invasion, economic sanctions have been imposed by the U.S., the European Union, and other countries on certain Russian financial institutions,

businesses and individuals.

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

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

significant escalation or expansion of economic disruption or the conflict’s current scope could result in a loss of sales, disrupt our supply chain, broaden inflationary costs, and have a material adverse effect on our results of operations.

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

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

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

The Company defines “organic sales” as the reported net sales adjusted for:

(1) net sales from acquired businesses

recorded prior to the first anniversary of the acquisition (2) net sales attributable to disposed businesses or discontinued product lines in both the current and prior year periods, and (3) the impact of foreign currency changes, which is

calculated by translating current period net sales using the comparable prior period’s foreign currency exchange rates.

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

therefore, this item represents a Non-GAAP measure.

This Non-GAAP measure may differ from those used by other companies and should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP.

Organic sales is an important internal measure for the Company.

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

The performance of the Company is measured on this metric along with other performance metrics.

The Company discloses organic sales to allow investors to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company.

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

Three Months Ended September 30,

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

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

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

Net sales 19.4 %

Foreign exchange impact 1.3 %

Acquisitions 4.3 %

Divestitures and discontinued products (7.3 %)

this item represents a Non-GAAP measure.

Organic sales is an important internal measure for the Company which is utilized regularly by senior management in the review of operating results.

Organic sales is disclosed to allow investors to evaluate the performance of the Company’s

operations exclusive of certain items that impact the comparability of results from period to period and may not be indicative of past or future performance of the normal operations of the Company.

The Company believes that this information is

helpful in understanding underlying net sales trends.

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

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

Segment Results

Technologies & Equipment

Three Months Ended September 30,

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

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

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

Net sales 24.8 %

Foreign exchange impact 1.2 %

Acquisitions 7.7 %

Divestitures and discontinued products (9.4 %)

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

Three Months Ended September 30,

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

Consumables $ 440 $ 391 $ 49 12.4 %

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

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

Net sales 12.4%

Foreign exchange impact 1.3%

Acquisitions —%

Divestitures and discontinued products (4.8%)

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

Segment Adjusted Operating Income (a)

Three Months Ended September 30,

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

Technologies & Equipment (b)

$ 148 $ 127 $ 21 16.5 %

Consumables (b)

135 115 20 17.4 %

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

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

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

Technologies & Equipment

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

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

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

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

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

Three Months Ended September 30,

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

United States $ 399 $ 319 $ 80 25.3 %

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

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

Net sales 25.3 %

Foreign exchange impact (0.1 %)

Acquisitions 11.2 %

Divestitures and discontinued products (5.9 %)

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

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

Three Months Ended September 30,

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

Europe $ 399 $ 351 $ 48 13.6 %

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

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

Net sales 13.6 %

Foreign exchange impact 1.7 %

Acquisitions 0.1 %

Divestitures and discontinued products (6.0 %)

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

Rest of World

Three Months Ended September 30,

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

Rest of World $ 271 $ 225 $ 46 20.1 %

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

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

Net sales 20.1 %

Foreign exchange impact 2.3 %

Acquisitions 1.1 %

Divestitures and discontinued products (11.1 %)

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

Three Months Ended September 30,

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

Gross profit $ 591 $ 442 $ 149 33.5%

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

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

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

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 September 30,

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

Selling, general and administrative expenses ("SG&A") $ 394 $ 315 $ 79 24.7 %

Research and development expenses ("R&D") 35 27 8 32.2 %

Restructuring and other costs 3 18 (15) NM

SG&A as a percentage of net sales 36.8 % 35.2 %

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

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.

NM - Not meaningful

SG&A Expenses

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

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

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

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

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

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

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

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 September 30,

(in millions) 2021 2020 $ Change

Net interest expense $ 13 $ 14 $ (1)

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

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

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

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 September 30,

(in millions, except percentages) 2021 2020 $ Change

Provision for income taxes $ 35 $ 13 $ 22

Effective income tax rate 25.2 % 18.8 %

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

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

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

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

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

The Company continues to reassess the realizability of its deferred tax assets and, after weighing all positive and negative evidence, continues to maintain a valuation allowance on certain deferred tax assets.

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

Nine Months Ended September 30,

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

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

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

Net sales 40.0 %

Foreign exchange impact 4.9 %

Acquisitions 6.3 %

Divestitures and discontinued products (7.0 %)

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,

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

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

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

Segment Results

Technologies & Equipment

Nine Months Ended September 30,

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

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.

Net Sales by Segment

Technologies & Equipment

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

Net sales 39.2%

Foreign exchange impact 5.1%

Acquisitions 10.8%

Divestitures and discontinued products (8.1%)

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

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

(in millions, except percentages)

exchange impact

Organic sales

Nine Months Ended September 30,

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

Consumables $ 1,315 $ 932 $ 383 41.1%

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

Net sales 41.1%

Foreign exchange impact 4.5%

Acquisitions —%

Divestitures and discontinued products (5.3%)

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

reconciliation of net sales to organic sales is as follows:

Six Months Ended

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

Segment Adjusted Operating Income (a)

Nine Months Ended September 30,

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

Technologies & Equipment (b)

$ 409 $ 234 $ 175 NM

Consumables (b)

439 160 279 NM

NM - Not meaningful

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

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

Technologies & Equipment

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

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

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

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

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.

Net Sales by Region

United States

Nine Months Ended September 30,

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

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

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

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

Net sales 48.2 %

Foreign exchange impact 0.8 %

Acquisitions 18.3 %

Divestitures and discontinued products (6.9 %)

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

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

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

as well as sales attributed to recent product launches.

Nine Months Ended September 30,

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

Europe $ 1,248 $ 939 $ 309 32.9 %

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

Net sales 32.9 %

Foreign exchange impact 7.6 %

Acquisitions — %

Divestitures and discontinued products (5.8 %)

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

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

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

Rest of World

Nine Months Ended September 30,

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

Rest of World $ 803 $ 571 $ 232 40.8 %

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

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

Net sales 40.8 %

Foreign exchange impact 5.6 %

Acquisitions 1.0 %

Divestitures and discontinued products (9.3 %)

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

Rest of World

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

reconciliation of net sales to organic sales is as follows:

Six Months Ended June 30,

(in millions, except percentages)

exchange impact

and discontinued products

Organic sales

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

Nine Months Ended September 30,

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

Gross profit $ 1,768 $ 1,086 $ 682 62.8 %

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

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

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

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,

(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 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.

Operating Expenses

Nine Months Ended September 30,

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

Selling, general and administrative expenses ("SG&A") $ 1,177 $ 935 $ 242 25.8 %

Research and development expenses ("R&D") 112 79 33 42.5 %

Goodwill impairment — 157 (157) NM

Restructuring and other costs 11 62 (51) NM

SG&A as a percentage of net sales 37.2 % 41.4 %

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

Six 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.

NM - Not meaningful

SG&A Expenses

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

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

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

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

Goodwill Impairment

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

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

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

Restructuring and Other Cost

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

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

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

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

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

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 $10

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

Six 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 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

Nine Months Ended September 30,

(in millions) 2021 2020 Change

Net interest expense $ 43 $ 32 $ 11

Six Months Ended June 30,

(in millions, except percentages)

Other expense

(income), net

Net interest and other

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

NM - Not meaningful

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.

Other expense (income), net

Net interest and other expense $ 47 $ 36 $ 11

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

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

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

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

Income Taxes and Net Income (Loss)

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change

Provision (benefit) for income taxes $ 102 $ (1) $ 103

Effective income tax rate 24.2 % 0.7 %

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

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,

(in millions)

Gain on sales

of non-core businesses

Foreign exchange gains (a)

equity method investments

benefit pension plan expenses

non-operating loss

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

Six Months Ended June 30,

(in millions, except per share amounts and

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 (benefit) for income taxes

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

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES

There have been no changes to the critical accounting policies as disclosed in the Company’s Form 10-K for the year ended December 31, 2020 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.

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.

The Company also recorded a $4 million tax

expense as a discrete item related to business divestitures.

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

2021 Form 10-K/A other than those changes explained in Part I, Item 1, Note 1, Significant Accounting Policies, in the Notes 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 business acquired.

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.

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 level.

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.

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

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

The Company does not believe this change resulted 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.

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

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

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

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

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

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

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.

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.

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;

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.

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

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

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

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

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.

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

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

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

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 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.

A change in any of these estimates and assumptions used in the annual test, as well as unfavorable changes in the ongoing COVID-19 pandemic, or in the overall markets served by these reporting units, among other factors, could have a negative material impact to the fair value of the reporting units and 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 13, Goodwill and Intangible Assets, in the Notes of 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.

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.

LIQUIDITY AND CAPITAL RESOURCES

Nine Months Ended September 30,

(in millions, except percentages) 2021 2020 $ Change

Cash provided by (used in):

Operating activities $ 435 $ 372 $ 63

Investing activities (319) (5) (314)

Financing activities (257) 504 (761)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Current portion of debt $ 151 $ 296

Six Months Ended June 30,

(in millions)

Cash provided by (used

exchange rate changes on cash and cash equivalents

(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.

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

(in millions, except percentages)

June 30, 2022

December 31, 2021

portion of debt

Long-term debt

Cash and cash equivalents 281 438

Net debt $ 1,795 $ 1,836

Total equity 5,125 4,970

cash equivalents

Total capitalization

Total net debt to total capitalization ratio 25.9 % 27.0 %

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

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

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

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

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

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

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

In the event that the financial institutions would discontinue offering these consignment arrangements, and if the Company could not obtain other comparable arrangements, the Company may be required to obtain third party financing to fund an ownership position in the required precious metal inventory levels.

The cash held by foreign subsidiaries for permanent reinvestment is generally used to finance the subsidiaries' operating activities and future foreign investments.

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

Total net debt to

total capitalization ratio

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

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

The Company’s borrowing capacity includes a $700 million credit facility from 2018 available through July 28, 2024.

Company also has available an aggregate $500 million under a U.S.

dollar commercial paper facility.

The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper

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

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

under the revolving credit and commercial paper facilities.

The Company also has access to $54 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other

short-term borrowings.

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

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

arrangements.

The Company’s revolving credit facility, term loans and senior notes contain certain

covenants relating to the Company’s operations and financial condition.

The most restrictive of these covenants are:

a ratio of total debt outstanding to total capital not to exceed 0.6, and a ratio of operating income excluding depreciation and

amortization to interest expense of not less than 3.0 times, in each case, as such terms are defined in the relevant agreement.

Any breach of any such covenants would result in a default under the existing debt agreements that would permit the

lenders to declare all borrowings under such debt agreements to be immediately due and payable and, through cross default provisions, would entitle the Company’s other lenders to accelerate their loans.

At June 30, 2022, the Company was in

compliance with these covenants.

Additionally, the Company is required under certain of its debt agreements to

deliver or make available to borrowers its unaudited financial statements on a timely basis each quarter along with the necessary certifications.

As a result of the Company’s failure to file its unaudited financial statements for the fiscal

quarters ended March 31, 2022 and June 30, 2022 by the reporting deadlines, the Company obtained the consents of the requisite lenders and noteholders of its outstanding indebtedness to extend the time period for delivery of such unaudited

financial statements until November 14, 2022.

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

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

The Company’s credit facilities are further

discussed in Note 13, Financing Arrangements, to the Unaudited Consolidated Financial Statements of this Form 10-Q.

The cash held by foreign subsidiaries for permanent reinvestment is generally used

to finance the subsidiaries’ operating activities and future foreign investments.

The Company has the ability to repatriate cash to the U.S., which could result in an adjustment to the tax liability for foreign withholding taxes, foreign and/or

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

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

At June 30, 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.

subsidiaries that are not needed to finance local operations, however, these particular repatriation activities have not and are not expected to result in a significant incremental tax liability to the Company.

Except as stated above, there have been no material changes to the Company's scheduled contractual cash obligations disclosed in its Form 10-K for the year ended December 31, 2020.

The Company continues to review its debt portfolio and may refinance additional debt or add debt in the near-term as interest rates remain at historically low levels.

subsidiaries that are not needed to finance local operations, however, these particular repatriation activities have not and are not expected

to result in a significant incremental tax liability to the Company.

The Company continues to review its debt portfolio and may refinance additional debt

or add debt in the near-term based on strategic capital management.

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

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

Refer to Part 1, Item 1, Note 1, Significant Accounting Policies, to the Unaudited Interim Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.

Refer to Part 1, Item 1, Note 1, Significant Accounting Policies, to the Unaudited

Interim Consolidated Financial Statements of this Form 10-Q for a discussion of recent accounting pronouncements.

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

There have been no significant material changes to the market risks as disclosed in the Company’s Form 10-K for the year ended December 31, 2020.

There have been no material changes from the information

provided in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

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