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GOODWILL AND INTANGIBLE ASSETS | 12 Months Ended
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Dec. 31, 2023
Goodwill and Intangible Assets Disclosure [Abstract] |
GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS 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 units 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. For both the former and new structure goodwill impairment tests as of April 1, 2023, the fair values of reporting units were computed using a discounted cash flow model with inputs developed using both internal and market-based data. Third Quarter 2023 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 the Connected Technology Solutions segment. The decline in fair value for this reporting unit was driven by adverse macroeconomic factors because of weakened demand, particularly in European markets, and increased discount rates. Core underlying market interest rates, which serve as the basis for the discount rate assumptions in our impairment models, rose by approximately 110 bps between the annual impairment test and the interim test during the third quarter of 2023. These factors contributed to reduced forecasted revenues, lower operating margins, and reduced expectations for future cash flows in the near term, particularly in relation to 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. As such, an impairment test was performed in the third quarter of 2023 (the “third quarter test”). During the third quarter test, 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, a discount rate of 11.5%, revenue growth rates (including perpetual growth rates), and operating margin percentages of the reporting unit’s business. As a result, the Company recorded a pre-tax goodwill impairment charge for the three months ended 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 segment. This charge was recorded in Goodwill and intangible asset impairment in the Consolidated Statement of Operations. Additionally, in conjunction with the third quarter test, 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. The carrying values of indefinite-lived intangible assets impaired in the third quarter of 2023 were $215 million and $23 million for the Connected Technology Solutions and Orthodontic and Implant Solutions segments, respectively, as of December 31, 2023. As the fair value of these indefinite-lived intangible assets continues to approximate carrying value as of December 31, 2023, any further decline in key assumptions could result in additional impairments in future periods. As of December 31, 2023, the Company considered qualitative and quantitative factors to determine whether any events or changes in circumstances had resulted in the likelihood that the goodwill or indefinite-lived intangible assets may have become more likely than not impaired during the fourth quarter of 2023 and concluded there were no such indicators. 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 indefinite-lived intangibles assets and could results 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. 2022 Annual Goodwill and Indefinite-Lived Intangibles Impairment and Testing In the third and fourth quarters of 2022, the Company experienced adverse macroeconomic factors because of weakened global demand, higher cost of capital, unfavorable foreign currency impacts, and increased raw material, supply chain, and service costs, which contributed to reduced forecasted revenues, lower operating margins, and reduced expectations for future cash flows. As a result, the Company identified indicators of a more likely than not impairment related to its former Digital Dental Group and former Equipment & Instruments reporting units within the former Technologies & Equipment segment and certain indefinite-lived intangible assets, within these former reporting units as well as the former Consumables reporting unit within the former Consumables segment. The fair values of the two former reporting units above were computed using a discounted cash flow model with inputs developed using both internal and market-based data. The discounted cash flow model uses five- to ten- year forecasted cash flows plus a terminal value based on capitalizing the last period’s cash flows using a perpetual growth rate. The Company’s significant assumptions in the discounted cash flow models include, but are not limited to, the discount rate of 11.0%, revenue growth rates (including perpetual growth rates), operating margin percentages, and net working capital changes of the reporting unit’s business. These assumptions were developed in consideration of current market conditions and future expectations which include, but were not limited to, distribution channel changes, impact from competition, and new product developments. The Company also considered current and projected market and economic conditions. As a result, the Company recorded a pre-tax goodwill impairment charge related to the former Digital Dental Group and former Equipment & Instruments reporting units within the former Technologies & Equipment segment of $1,100 million and $87 million, respectively, for the three months ended September 30, 2022. This charge was recorded in Goodwill and intangible asset impairment in the Consolidated Statements of Operations. The fair values of intangible assets were computed using either an income approach, specifically a relief from royalty method, or a qualitative assessment. The Company’s significant assumptions in the relief from royalty method include, but were not limited to, discount rates ranging from 11.0% to 12.5%, revenue growth rates (including perpetual growth rates) and royalty rates. As a result, the Company recorded impairment charges for its indefinite-lived intangible assets of $66 million and $28 million for the former Digital Dental Group and former Equipment & Instruments reporting units, respectively, within the former Technologies & Equipment segment, and a $6 million charge for the former Consumables reporting unit within the former Consumables segment, for the year ended December 31, 2022. This charge was recorded in Goodwill and intangible asset impairment in the Consolidated Statements of Operations. 2021 Annual Goodwill and Indefinite-Lived Intangibles Impairment and Testing The Company performed the required annual impairment tests of goodwill and indefinite-lived intangibles as of April 1, 2021 consistent with the valuation approaches described above, which did not result in any impairment for the year ended December 31, 2021. 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) |  |  | 4 |  |  | 25 |  |  | (1) |  |  | 26 |
Balance at December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  | $ | — |  |  | $ | — |  |  | $ | 291 |  |  | $ | 840 |  |  | $ | 1,323 |  |  | $ | 275 |  |  | $ | 2,729 |
Accumulated Impairment Losses |  | — |  |  | — |  |  | (291) |  |  | — |  |  | — |  |  | — |  |  | (291) |
Balance at December 31, 2023 |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 840 |  |  | $ | 1,323 |  |  | $ | 275 |  |  | $ | 2,438 |
Identifiable definite-lived and indefinite-lived intangible assets at were as follows:
|  | Year Ended December 31,
|  | 2023 |  | 2022
(in millions) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount
Developed technology and patents |  | $ | 1,697 |  |  | $ | (1,006) |  |  | $ | 691 |  |  | $ | 1,658 |  |  | $ | (848) |  |  | $ | 810 |
Tradenames and trademarks |  | 271 |  |  | (102) |  |  | 169 |  |  | 273 |  |  | (96) |  |  | 177 |
Licensing agreements |  | 30 |  |  | (27) |  |  | 3 |  |  | 30 |  |  | (26) |  |  | 4 |
Customer relationships |  | 1,070 |  |  | (680) |  |  | 390 |  |  | 1,057 |  |  | (600) |  |  | 457 |
Total definite-lived |  | $ | 3,068 |  |  | $ | (1,815) |  |  | $ | 1,253 |  |  | $ | 3,018 |  |  | $ | (1,570) |  |  | $ | 1,448 |
Indefinite-lived tradenames and trademarks |  | 447 |  |  | — |  |  | 447 |  |  | 450 |  |  | — |  |  | 450 |
In-process R&D (a) |  | 5 |  |  | — |  |  | 5 |  |  | 5 |  |  | — |  |  | 5 |
Total indefinite-lived |  | 452 |  |  | — |  |  | 452 |  |  | 455 |  |  | — |  |  | 455 |
Total identifiable intangible assets |  | $ | 3,520 |  |  | $ | (1,815) |  |  | $ | 1,705 |  |  | $ | 3,473 |  |  | $ | (1,570) |  |  | $ | 1,903 |
(a) Intangible assets acquired in a business combination that are in-process and used in 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. Amortization expense for definite-lived intangible assets for the years ended December 31, 2023, 2022 and 2021 was $211 million, $209 million and $222 million, respectively. The estimated annual amortization expense related to these intangible assets for each of the five succeeding calendar years is $212 million, $219 million, $143 million, $124 million and $128 million for 2024, 2025, 2026, 2027 and 2028, respectively. During the second quarter of 2021, the Company purchased certain developed technology rights for an initial payment of $3 million. The purchase consideration also includes contingent payments of $17 million to be made upon reaching certain regulatory and commercial milestones, which were not yet considered probable at December 31, 2023.

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