GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

The Company assesses both goodwill and indefinite-lived intangible assets for impairment annually as of April 1 or more frequently if events or changes in circumstances indicate the asset might be impaired.

On April 1, 2023, the Company realigned its reporting due to a change in organizational structure. Reporting units under the former structure were tested for impairment prior to the realignment, and no impairment was identified.

As a result of the realignment, the Company reallocated its goodwill to align its new reporting units which resulted from the change in its operating segments. Goodwill was reassigned to each of the new reporting units using a relative fair value approach. The Company assessed the goodwill of the new reporting units and its indefinite-lived intangible assets for impairment as of April 1, 2023. Based on this test, it was determined that the fair values of its reporting units and indefinite-lived intangible assets more likely than not exceeded their carrying values, resulting in no impairment.

In the quarter ended September 30, 2023, the Company identified indicators of a "more likely than not" impairment related to its Connected Technology Solutions reporting unit, which comprises all of the Connected Technology Solutions segment. The decline in fair value for this reporting unit was driven by adverse macroeconomic factors as a result of weakened demand, particularly in European markets, and increased discount rates. 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 110 basis points. These factors contributed to reduced forecasted revenues, lower operating margins, and reduced expectations for future cash flows in the near term, particularly demand for products which are commonly financed by end customers and are therefore adversely impacted by an environment of higher interest rates. The higher inflationary environment has also impacted the discretionary spending behavior of our customers more generally, further reducing global demand for certain products in favor of lower cost options.

For the goodwill impairment test as of September 30, 2023, the fair value of the Connected Technology Solutions reporting unit was computed using a discounted cash flow model with inputs developed using both internal and market-based data. The discounted cash flow model uses ten-year forecasted cash flows plus a terminal value based on capitalizing the last period's cash flows using a perpetual growth rate. Significant assumptions used in the discounted cash flow model included, but were not limited to, discount rates of 11.5%, revenue growth rates (including perpetual growth rates), operating margin percentages, and net working capital changes of the reporting unit's business. As a result, the Company recorded a pre-tax goodwill impairment charge as of September 30, 2023 related to the Connected Technology Solutions reporting unit of $291 million, resulting in a full write-off of the remaining goodwill balance for the Connected Technology Solutions reporting unit within the Connected Technology Solutions segment.

Based on quantitative and qualitative analyses performed for the other four reporting units, the Company believes there is no indication that the carrying value "more likely than not" exceeds the fair value in each case as of September 30, 2023; however, any further deterioration in key assumptions could result in impairment charges in the future. For the Company's reporting units that were not impaired, the Company applied a hypothetical sensitivity analysis by increasing the discount rate of these reporting units by 100 basis points. If discount rates were hypothetically increased by 100 basis points at September 30, 2023, the Implants & Prosthetics reporting unit within the Orthodontic and Implant Solutions segment would have an estimated fair value less than 10% in excess of its carrying value. Goodwill associated with this reporting unit was $1,133 million at September 30, 2023.

Additionally, in conjunction with the goodwill impairment test in the quarter ended September 30, 2023, the Company tested the long-lived intangible assets related to the businesses within the Connected Technology Solutions reporting unit within the Connected Technology Solutions segment for impairment. The Company also identified an indicator of impairment for the indefinite-lived intangible assets within the Implants & Prosthetics reporting unit within the Orthodontic and Implant Solutions segment, and determined certain tradenames and trademarks were impaired. These indefinite-lived intangible assets were evaluated for impairment using an income approach, specifically a relief from royalty method. Significant assumptions used in the relief from royalty method included, but were not limited to, discount rates (ranging from 11.5% to 16.5%) revenue growth rates (including perpetual growth rates), and royalty rates. As a result, the Company recorded indefinite-lived intangible asset impairment charges of $14 million and $2 million for the Connected Technology Solutions and Orthodontic and Implant Solutions segments, respectively, for the three months ended September 30, 2023. The impairment charge was primarily driven by macroeconomic factors such as weakened demand, higher cost of capital, and cost inflation, which are contributing to reduced forecasted revenues. These charges were recorded in Goodwill and intangible asset impairment in the Consolidated Statements of Operations. As the fair value of these indefinite-lived intangible assets approximate carrying value as of September 30, 2023, any further decline in key assumptions could result in additional impairment in future periods. Based on qualitative assessments performed on the indefinite-lived intangible assets related to the businesses in the other reporting units, the Company believes there is no indication that the carrying value "more likely than not" exceeds the fair value of these indefinite-lived intangible assets in each case as of September 30, 2023; however, any further deterioration in key assumptions could result in impairment charges in the future.

For the Company's indefinite-lived intangible assets that were not impaired, the Company performed a hypothetical sensitivity analysis by increasing the discount rate by 100 basis points. Under this sensitivity, certain indefinite-lived intangibles within the Connected Technology Solutions and Essential Dental Solutions segments would have a fair value less than 10% in excess of carrying value. The carrying value of these indefinite-lived intangible assets within the aforementioned segments was $27 million and $7 million, respectively, at September 30, 2023.

Any deviation in actual financial results compared to the forecasted financial results or valuation assumptions used in the annual or interim tests, a decline in equity valuations, increases in interest rates, or changes in the use of intangible assets, among other factors, could have a material adverse effect to the fair value of either the reporting units or intangible assets and could result in a future impairment charge. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings.

Third Quarter 2022 Impairment

In the third quarter of 2022, the Company identified indicators of a more likely than not impairment related to its former Digital Dental Group and Equipment & Instruments reporting units and indefinite-lived intangible assets, included within the former Technologies & Equipment segment, and indicators of a more likely than not impairment related to its indefinite-lived intangible assets for the former Consumables reporting unit within the former Consumables segment. The Company recorded a pre-tax goodwill impairment charge related to its former Digital Dental Group and Equipment & Instruments reporting units within the former Technologies & Equipment segment of $1,100 million and $87 million, respectively, and an indefinite-lived intangible asset impairment charge of $66 million and $26 million for the former Digital Dental Group and Equipment & Instruments reporting units, respectively, within the former Technologies & Equipment segment and a $2 million impairment charge for the former Consumables reporting unit within the former Consumables segment for the three months ended September 30, 2022.

A reconciliation of changes in the Company’s goodwill by reportable segment were as follows:


(in millions)	Technologies & Equipment		Consumables		Connected Technology Solutions		Essential Dental Solutions		Orthodontic and Implant Solutions		Wellspect Healthcare		Total

Balance at December 31, 2022
Goodwill	$	5,902	$	866	$	—	$	—	$	—	$	—	$	6,768
Accumulated impairment losses	(4,080)		—		—		—		—		—		(4,080)
Goodwill, net December 31, 2022	$	1,822	$	866	$	—	$	—	$	—	$	—	$	2,688



Translation	9		4		—		—		—		—		13

Balance at March 31, 2023
Goodwill	$	5,911	$	870	$	—	$	—	$	—	$	—	$	6,781
Accumulated impairment losses	(4,080)		—		—		—		—		—		(4,080)
Goodwill, net March 31, 2023	$	1,831	$	870	$	—	$	—	$	—	$	—	$	2,701

Realignment of goodwill	$	(1,831)	$	(870)	$	293	$	835	$	1,303	$	270	$	—
Translation	—		—		—		1		(5)		6		2
Goodwill, net June 30, 2023	$	—	$	—	$	293	$	836	$	1,298	$	276	$	2,703

Impairment	—		—		(291)		—		—		—		(291)
Translation	—		—		(2)		(7)		(19)		(10)		(38)

Balance at September 30, 2023
Goodwill	$	—	$	—	$	291	$	829	$	1,279	$	266	$	2,665
Accumulated impairment losses	—		—		(291)		—		—		—		(291)
Goodwill, net September 30, 2023	$	—	$	—	$	—	$	829	$	1,279	$	266	$	2,374

Identifiable definite-lived and indefinite-lived intangible assets were as follows:


	September 30, 2023						December 31, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Developed technology and patents	$	1,648	$	(939)	$	709	$	1,658	$	(848)	$	810
Tradenames and trademarks	271		(98)		173		273		(96)		177
Licensing agreements	29		(27)		2		30		(26)		4
Customer relationships	1,038		(642)		396		1,057		(600)		457
Total definite-lived	$	2,986	$	(1,706)	$	1,280	$	3,018	$	(1,570)	$	1,448

Indefinite-lived tradenames and trademarks	$	426	$	—	$	426	$	450	$	—	$	450
In-process R&D (a)	5		—		5		5		—		5
Total indefinite-lived	$	431	$	—	$	431	$	455	$	—	$	455

Total identifiable intangible assets	$	3,417	$	(1,706)	$	1,711	$	3,473	$	(1,570)	$	1,903

(a) Intangible assets acquired in a business combination that are in-process and used in research and development ("R&D") activities are considered indefinite-lived until the completion or abandonment of the R&D efforts. The useful life and amortization of those assets will be determined once the R&D efforts are completed.

During the second quarter of 2021, the Company purchased certain developed technology rights for an initial payment of $3 million. The purchase consideration also includes minimum guaranteed contingent payments of $17 million to be made upon reaching certain regulatory and commercial milestones. The contingent payments are not yet considered probable of payment as of September 30, 2023.