GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2022

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. The Company conducted its annual goodwill and indefinite-lived intangible assets impairment tests as of April 1, 2022, noting no impairment.

Third Quarter 2022 Impairment

In the third quarter of 2022, the Company experienced adverse macroeconomic factors as a result 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 Digital Dental Group and Equipment & Instruments reporting units within the Technologies & Equipment segment and certain indefinite-lived intangible assets, including within the above mentioned reporting units as well as the Consumables reporting unit within the Consumables segment. As such, a third quarter impairment test was performed (the "third quarter test").

During the third quarter test, the fair values of the two 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 Digital Dental Group and Equipment & Instruments reporting units within the 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 impairment in the Consolidated Statements of Operations.

During the third quarter test, 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 an impairment charge of $66 million and $26 million for the Digital Dental Group and Equipment & Instruments reporting units, respectively, within the Technologies & Equipment segment, and a $2 million charge for the Consumables reporting unit within the Consumables segment, for its indefinite-lived intangible assets for the three months ended September 30, 2022. This charge was recorded in Intangible asset impairment and other costs in the Consolidated Statements of Operations.

Fourth Quarter 2022 Impairment

During the fourth quarter of 2022, the Company considered whether any events or changes in circumstances indicated that goodwill or indefinite-lived intangible assets may have been impaired. Based on a quantitative analysis performed, the Company believes there is no indication that the carrying value of any of its reporting units "more likely than not" exceeds fair value at December 31, 2022. Reductions of near-term forecasts and continued adverse macroeconomic factors, including the impact of foreign exchange rates, for specific tradenames within the Equipment & Instruments reporting unit within the Technologies & Equipment segment and the Consumables reporting unit within the Consumables segment, resulted in indicators of a "more likely than not" impairment for those indefinite-lived intangible assets. As such, an impairment test was performed in the fourth quarter. The fair values of these intangible assets were computed using an income approach, specifically a relief from royalty method. The Company's other significant inputs in the relief from royalty method in the fourth quarter were consistent to those described within the third quarter test above, with royalty rates remaining consistent with the third quarter test and discount rates ranging from 11.5% to 12.0%. As a result of the fourth quarter test, the Company recorded impairment charges of $2 million and $4 million for indefinite-lived intangible assets within the Equipment & Instruments and Consumables reporting units, respectively, for the three months ended December 31, 2022. These charges were recorded in Intangible asset impairment and other costs in the Consolidated Statements of Operations.

At December 31, 2022, the remaining goodwill related to the Digital Dental Group and Equipment & Instruments reporting units was $235 million and $193 million, respectively, and the carrying value of indefinite-lived intangible assets with impairments in the third or fourth quarter was $156 million, $15 million, and $39 million for the Digital Dental Group, Equipment & Instruments, and Consumables reporting units, respectively. As the fair value of these reporting units and indefinite-lived intangible assets continues to approximate carrying value as of December 31, 2022, any further decline in key assumptions could result in additional impairments in future periods. For the Company's reporting units and indefinite-lived intangible assets that were not impaired in the third or fourth quarter, the Company performed hypothetical sensitivity analyses by increasing the discount rate by 100 basis points and, in a separate test, reducing by 10% the fair value of the reporting units and indefinite-lived intangible assets. If discount rates were hypothetically increased by 100 basis points one reporting unit within the Technologies & Equipment segment and certain indefinite-lived intangibles within the Technologies & Equipment segment would have a fair value less than 10% in excess of book value. Goodwill associated with this reporting unit was $1,128 million at December 31, 2022, and the carrying value of these indefinite-lived intangible assets was $47 million at December 31, 2022.

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.

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.

2020 Annual Goodwill and Indefinite-Lived Intangibles Impairment and Testing

During the three months ended March 31, 2020, the Company recorded an impairment charge of $157 million related to the goodwill associated with the Equipment & Instruments reporting unit. The impairment was a result of changes in forecasted revenues, operating margins, and discount rates due to negative impacts of the COVID-19 pandemic on customer demand for the Company's products, which caused a decline in revenue and profitability in the first quarter of 2020. To determine the fair value of each of the reporting units for which a triggering event was concluded to exist as of March 31, 2020, the Company utilized a discounted cash flow model, and utilized discount rates for each of the reporting units which ranged between 9.5% to 11.5%. As a result of these models which included updates to the estimates and assumptions resulting from the ongoing COVID-19 pandemic, the Company determined the goodwill associated with the Equipment & Instruments reporting unit was impaired. The impairment charge was recorded in Goodwill impairment in the Consolidated Statements of Operations.

The Company also concluded in the first quarter of 2020 that due to the negative effects of the COVID-19 pandemic on revenue and profitability, a triggering event also existed for all but two of the Company's indefinite-lived intangible assets as of March 31, 2020. The Company performed impairment tests for the indefinite-lived intangible assets using an income approach, more specifically a relief from royalty method. In the development of the forecasted cash flows, the Company applied significant judgment to determine key assumptions, including royalty rates, and discount rates (which ranged from 10.0% to 17.5%). The impairment test resulted in an impairment charge of $39 million related to certain tradenames and trademarks within the Equipment & Instruments reporting unit during the three months ended March 31, 2020. The impairment charge was driven by a decline in forecasted sales as a result of the COVID-19 pandemic as discussed above, as well as an unfavorable change in the discount rates. The impairment charge was recorded in Intangible asset impairment and other costs in the Consolidated Statement of Operations.

The Company further performed the required annual impairment tests of goodwill and indefinite-lived intangibles as of April 30, 2020 consistent with the valuation approaches described above, which did not result in any additional impairment for the year ended December 31, 2020.

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


(in millions)	Technologies & Equipment		Consumables		Total

Balance at December 31, 2020
Goodwill	$	5,985	$	894	$	6,879
Accumulated impairment losses	(2,893)		—		(2,893)
Goodwill, net	$	3,092	$	894	$	3,986

Acquisition related additions (a)	109		—		109

Translation and other	(105)		(14)		(119)

Balance at December 31, 2021
Goodwill	$	5,989	$	880	$	6,869
Accumulated impairment losses	(2,893)		—		(2,893)
Goodwill, net	$	3,096	$	880	$	3,976

Impairment	(1,187)		—		(1,187)
Translation and other	(87)		(14)		(101)

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

(a) Refer to Note 6, Business Combinations, for more information regarding recent acquisitions.

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


	Year Ended December 31,
	2022						2021
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount

Developed technology and patents	$	1,658	$	(848)	$	810	$	1,729	$	(762)	$	967
Tradenames and trademarks	273		(96)		177		269		(79)		190
Licensing agreements	30		(26)		4		36		(32)		4
Customer relationships	1,057		(600)		457		1,091		(545)		546
Total definite-lived	$	3,018	$	(1,570)	$	1,448	$	3,125	$	(1,418)	$	1,707

Indefinite-lived tradenames and trademarks	450		—		450		598		—		598
In-process R&D (a)	5		—		5		14		—		14
Total indefinite-lived	455		—		455		612		—		612

Total identifiable intangible assets	$	3,473	$	(1,570)	$	1,903	$	3,737	$	(1,418)	$	2,319

(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. During the third quarter of 2022, the completion of certain R&D activities occurred, resulting in the reclassification of $5 million of in-process R&D to in-service assets with a definite life. In the fourth quarter of 2022, the Company made the determination to abandon certain in-process R&D efforts, and recorded a $3 million impairment charge of in-process R&D assets.

Amortization expense for identifiable definite-lived intangible assets for the years ended December 31, 2022, 2021 and 2020 was $209 million, $222 million and $192 million, respectively. The annual estimated amortization expense related to these intangible assets for each of the five succeeding calendar years is $207 million, $211 million, $216 million, $142 million and $123 million for 2023, 2024, 2025, 2026 and 2027, 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, 2022.