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GOODWILL AND INTANGIBLE ASSETS | 9 Months Ended
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Sep. 30, 2024
Goodwill and Intangible Assets Disclosure [Abstract] |
GOODWILL AND INTANGIBLE ASSETS | GOODWILL AND INTANGIBLE ASSETS The Company's policy is to assess goodwill and indefinite-lived intangible assets for impairment annually as of April 1, with more frequent assessments if events or changes in circumstances indicate the asset might be impaired. Based on the annual test performed on April 1, 2024, it was previously determined that the fair values of the Company’s 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, 2024, the Company identified indicators of a more likely than not impairment for two of its reporting units, Orthodontic Aligner Solutions and Implant & Prosthetic Solutions, which together comprise all of the Orthodontic and Implant Solutions segment. The decline in fair value for the Orthodontic Aligner Solutions reporting unit was driven by adverse impacts from legislative trends pertaining to the Company’s direct-to-consumer aligner business, specifically the Company’s experience of slower than expected improvements in conversion rates for new aligner customers in the third quarter as the Company continued to modify its operating model in response to those trends. Laws relating to teledentistry enacted in Florida and Illinois during the third quarter, and the potential for similar laws to be introduced in other states, required adjustments to the Company’s process for engaging with customers which resulted in a decline in forecasted revenues in the near term, as well as a longer-term decline in operating margins for the business. The reduction in fair value was also the result of continued macroeconomic pressures and weaker than expected demand for the direct-to-consumer business. The reduction in fair value for the Implant & Prosthetic Solutions reporting unit was driven by weakened demand, particularly in North American and European markets, in conjunction with competitive pressures and adverse impacts of ongoing global conflicts in certain markets, as well as lower long-term expectations for volumes of lab materials. These factors contributed to reduced forecasted revenues, lower operating margins, and reduced expectations for future cash flows in the near term for both reporting units. The higher inflationary environment has impacted the discretionary spending behavior of the Company’s 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, 2024, the fair values of the Orthodontic Aligner Solutions and Implant & Prosthetic Solutions reporting units were 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 ranging from 9.5% to 10.0%, revenue growth rates (including perpetual growth rates), operating margin percentages, and net working capital changes of each respective reporting unit's business. As a result, the Company recorded pre-tax goodwill impairment charges as of September 30, 2024 of $145 million for the Orthodontic Aligner Solutions reporting unit and $359 million for the Implant & Prosthetic Solutions reporting unit, both within the Orthodontic and Implant Solutions segment. The impairment charge related to the Orthodontic Aligner Solutions reporting unit resulted in a full write-off of the remaining goodwill balance for this reporting unit. As the fair value of the Implant & Prosthetic Solutions reporting unit approximates its carrying value as of September 30, 2024, any further decline in key assumptions could result in additional impairment in future periods. The remaining goodwill associated with the Implant & Prosthetic Solutions reporting unit was $814 million as of September 30, 2024. Based on quantitative and qualitative analyses performed for the other reporting units and the Company’s indefinite-lived intangible assets, 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, 2024. 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 50 basis points. The results of this sensitivity analysis at September 30, 2024 indicate that none of the other reporting units would be impaired. The fair values of certain indefinite-lived intangible assets within the Connected Technology Solutions segment continued to approximate carrying values as of September 30, 2024. Any further decline in key assumptions could result in additional impairments in future periods. The carrying value of these assets within the Connected Technology Solutions segment was $211 million as of September 30, 2024. There is a risk of future impairment charges if there is a decline in the fair value of the reporting units or indefinite-lived intangible assets as a result of, among other things, actual financial results that are lower than forecasts, an adverse change in valuation assumptions, a decline in equity valuations, increases in interest rates, or changes in the use of intangible assets. There can be no assurance that the Company’s future asset impairment testing will not result in a material charge to earnings. Impairment during the Three Months Ended March 31, 2024 In the three months ended March 31, 2024, the Company identified indicators of a more likely than not impairment related to certain indefinite-lived imaging product trade names within the Connected Technology Solutions segment. The decline in fair value of these indefinite-lived trade names was driven by declines in volumes during the three months ended March 31, 2024, which was due in part to a loss in market share from competitive pricing pressures, as well as unfavorable economic conditions in certain markets. These factors contributed to a reduction in forecasted revenues in the near term. The trade names were evaluated for impairment using an income approach, specifically a relief from royalty method. As a result, the Company recorded an indefinite-lived intangible asset impairment charge of $6 million for the three months ended March 31, 2024. Impairment during the Three Months Ended September 30, 2023 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. 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 reporting unit was evaluated for impairment using an income approach, specifically a discounted cash flow model. 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 in 2023, the Company conducted an impairment test on the long-lived intangible assets related to the businesses within the Connected Technology Solutions reporting unit within the Connected Technology Solutions segment. The Company also identified an indicator of impairment for the indefinite-lived intangible assets within the Implant & Prosthetic Solutions reporting unit within the Orthodontic and Implant Solutions segment and determined certain trade names and trademarks were impaired. These indefinite-lived intangible assets were evaluated for impairment using an income approach, specifically a relief from royalty method. 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.
A reconciliation of changes in the Company’s goodwill by reportable segment were as follows:
(in millions) |  |  |  |  |  | Connected Technology Solutions |  | Essential Dental Solutions |  | Orthodontic and Implant Solutions |  | Wellspect Healthcare |  | Total
Balance at December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  |  |  |  | $ | 291 |  |  | $ | 840 |  |  | $ | 1,323 |  |  | $ | 275 |  |  | $ | 2,729 |
Accumulated impairment losses (a) |  |  |  |  |  | (291) |  |  | — |  |  | — |  |  | — |  |  | (291) |
Goodwill, net at December 31, 2023 |  |  |  |  |  | — |  |  | 840 |  |  | 1,323 |  |  | 275 |  |  | 2,438 |
Impairment |  |  |  |  |  | — |  |  | — |  |  | (504) |  |  | — |  |  | (504) |
Foreign Currency Translation |  |  |  |  |  | — |  |  | 2 |  |  | (5) |  |  | 6 |  |  | 3 |
Balance at September 30, 2024 |  |  |  |  |  |  |  |  |  |  |  |  |  |
Goodwill |  |  |  |  |  | $ | 291 |  |  | $ | 842 |  |  | $ | 1,318 |  |  | $ | 281 |  |  | $ | 2,732 |
Accumulated impairment losses (a) |  |  |  |  |  | $ | (291) |  |  | $ | — |  |  | $ | (504) |  |  | $ | — |  |  | $ | (795) |
Goodwill, net at September 30, 2024 |  |  |  |  |  | $ | — |  |  | $ | 842 |  |  | $ | 814 |  |  | $ | 281 |  |  | $ | 1,937 |
(a) The Company realigned segments in 2023, and at that time, there was an accumulated impairment loss that was not allocated to the new segments. Identifiable definite-lived and indefinite-lived intangible assets were as follows:
|  | September 30, 2024 |  | December 31, 2023
(in millions) |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net Carrying Amount
Developed technology and patents |  | $ | 1,702 |  |  | $ | (1,110) |  |  | $ | 592 |  |  | $ | 1,697 |  |  | $ | (1,006) |  |  | $ | 691 |
Trade names and trademarks |  | 272 |  |  | (111) |  |  | 161 |  |  | 271 |  |  | (102) |  |  | 169 |
Licensing agreements |  | 30 |  |  | (28) |  |  | 2 |  |  | 30 |  |  | (27) |  |  | 3 |
Customer relationships |  | 1,073 |  |  | (737) |  |  | 336 |  |  | 1,070 |  |  | (680) |  |  | 390 |
Total definite-lived |  | 3,077 |  |  | (1,986) |  |  | 1,091 |  |  | 3,068 |  |  | (1,815) |  |  | 1,253 |
Indefinite-lived trade names and trademarks |  | 442 |  |  | — |  |  | 442 |  |  | 447 |  |  | — |  |  | 447 |
In-process R&D |  | 5 |  |  | — |  |  | 5 |  |  | 5 |  |  | — |  |  | 5 |
Total indefinite-lived |  | 447 |  |  | — |  |  | 447 |  |  | 452 |  |  | — |  |  | 452 |
Total identifiable intangible assets |  | $ | 3,524 |  |  | $ | (1,986) |  |  | $ | 1,538 |  |  | $ | 3,520 |  |  | $ | (1,815) |  |  | $ | 1,705 |
In 2021, the Company purchased certain developed technology rights for an initial payment of $3 million and minimum guaranteed contingent payments of $17 million to be made upon reaching certain regulatory and commercial milestones. The contingent payments are not considered probable as of September 30, 2024.

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- Definition The entire disclosure for goodwill and intangible assets. + References Reference 1: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 350 -SubTopic 30 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/350-30/tableOfContent Reference 2: http://www.xbrl.org/2009/role/commonPracticeRef -Topic 350 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/350-20/tableOfContent + Details
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