SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

SIGNIFICANT ACCOUNTING POLICIES

SIGNIFICANT ACCOUNTING POLICIES AND RESTATEMENT

Basis of Presentation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”). In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements and related notes contain the accounts of DENTSPLY SIRONA Inc. and subsidiaries (“Dentsply Sirona” or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes included in the Company’s Amendment No. 1 on Form 10-K/A filed on November 7, 2022 (the “Form 10-K/A”) to amend its Annual Report on Form 10-K for the fiscal year ended December 31, 2021, originally filed with the Securities and Exchange Commission on March 1, 2022, to make certain changes described below.

The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein, are substantially the same as presented in the Company’s Form 10-K/A, except as may be indicated below. Certain prior period amounts within the Consolidated Statements of Operations have been reclassified in order to conform with the current year presentation of separately reported Research and development expenses.

Restatement and Other Corrections of Previously Issued Consolidated Financial Statements

Subsequent to the issuance of the Company’s consolidated financial statements as of September 30, 2021 and for each of the three and nine months periods ended therein, and also the consolidated financial statements as of December 31, 2021 and 2020 and for each of the three fiscal years in the period ended December 31, 2021 (collectively, the “previously issued financial statements”), management identified errors related to certain customer incentive programs. It was also determined that the Company utilized incorrect accounting and assumptions in the determination of certain estimates related to its sales return provisions, warranty reserve provisions and variable consideration. Additionally, the Company identified an error related to a failure to appropriately account for certain returns and/or exchanges specific to sales transactions in China as a result of an investigation by the Company’s Audit and Finance Committee. Allowing for the product exchanges referred to above resulted in an overstatement of net sales in the third quarter of 2021 of approximately $4 million which should have been recorded in the fourth quarter of 2021. In conjunction with making these corrections, the Company has also made certain other restatements and revisions for previously identified errors. As a result of these collective errors, Net sales and Net income were overstated in the Company’s financial statements for the nine month period ended September 30, 2021 by approximately $35 million and $27 million, respectively, with errors to both Net sales and Net income (loss) for the three months ended September 30, 2021 and 2020 as shown in the tables below. Additionally, the correction of errors pertaining to periods prior to 2020 required an adjustment to opening retained earnings at January 1, 2020 of $45 million as reflected in the Consolidated Statements of Equity. Those errors related primarily to the timing, recognition, and estimation of variable consideration associated with certain sales orders in the historical periods. These errors were deemed to be material when considered together with certain qualitative and quantitative considerations such as the fact that the misstatements masked a failure to meet internal financial targets and external financial analyst expectations for the three months ended September 30, 2021 and due to the material weaknesses identified through the course of the Audit and Finance Committee’s investigation.

Management has therefore restated for the three and nine months ended September 30, 2021 and revised for the three and nine months ended September 30, 2020, the accompanying consolidated financial statements and related notes included herein to correct these accounting errors for all periods presented, as well as the accompanying footnotes affected by the accounting errors, as shown below. The Company has also updated all accompanying footnotes and disclosures affected by the restatements and revisions, respectively, within Note 2, Revenue, Note 4, Comprehensive Income (Loss), Note 5, Earnings Per Common Share, Note 7, Segment Information, Note 8, Inventories, Net, and Note 11, Income Taxes.

The following tables present the effect of correcting these accounting errors on the Company’s previously issued financial statements:

CONSOLIDATED STATEMENTS OF OPERATIONS
	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(in millions, except per share amounts)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Net sales	$	1,069	$	(29)	$	1,040	$	895	$	(12)	$	883
Cost of products sold	478		(7)		471		453		(2)		451
Gross profit	591		(22)		569		442		(10)		432
Selling, general, and administrative expenses	394		1		395		315		(2)		313
Research and development expenses	35		4		39		27		2		29
Operating income	159		(27)		132		82		(10)		72
Interest expense, net	13		1		14		14		—		14
Other expense (income), net	8		(3)		5		1		—		1
Income before income taxes	138		(25)		113		67		(10)		57
Provision for income taxes	35		(6)		29		13		(4)		9
Net income	103		(19)		84		54		(6)		48
Net income attributable to Dentsply Sirona	$	103	$	(19)	$	84	$	53	$	(6)	$	47
Net income per common share attributable to Dentsply Sirona:
Basic	$	0.47	$	(0.08)	$	0.39	$	0.25	$	(0.03)	$	0.22
Diluted	$	0.47	$	(0.09)	$	0.38	$	0.25	$	(0.03)	$	0.22

CONSOLIDATED STATEMENTS OF OPERATIONS
	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(in millions, except per share amounts)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Net sales	$	3,163	$	(35)	$	3,128	$	2,260	$	3	$	2,263
Cost of products sold	1,395		(10)		1,385		1,174		—		1,174
Gross profit	1,768		(25)		1,743		1,086		3		1,089
Selling, general and administrative expenses	1,177		(3)		1,174		935		(6)		929
Research and development expenses	112		10		122		79		6		85
Operating income (loss)	468		(32)		436		(147)		3		(144)
Interest expense, net	43		—		43		32		(1)		31
Income (loss) before income taxes	421		(32)		389		(183)		4		(179)
Provision (benefit) for income taxes	102		(5)		97		(1)		—		(1)
Net income (loss)	319		(27)		292		(182)		4		(178)
Net income (loss) attributable to Dentsply Sirona	$	319	$	(27)	$	292	$	(182)	$	4	$	(178)
Net income (loss) per common share attributable to Dentsply Sirona:
Basic	$	1.46	$	(0.12)	$	1.34	$	(0.83)	$	0.02	$	(0.81)
Diluted	$	1.45	$	(0.13)	$	1.32	$	(0.83)	$	0.02	$	(0.81)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Three Months Ended September 30, 2021						Three Months Ended September 30, 2020
(in millions)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Net income	$	103	$	(19)	$	84	$	54	$	(6)	$	48
Total comprehensive income	47		(19)		28		121		(6)		115
Comprehensive income attributable to Dentsply Sirona	$	47	$	(19)	$	28	$	121	$	(6)	$	115

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(in millions)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Net income (loss)	$	319	$	(27)	$	292	$	(182)	$	4	$	(178)
Total comprehensive income (loss)	216		(27)		189		(159)		4		(155)
Comprehensive income (loss) attributable to Dentsply Sirona	$	216	$	(27)	$	189	$	(159)	$	4	$	(155)

CONSOLIDATED BALANCE SHEETS
	September 30, 2021						December 31, 2020
(in millions)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Accounts and notes receivable-trade, net	$	748	$	(16)	$	732	$	673	$	(6)	$	667
Inventories, net	532		16		548		466		10		476
Prepaid expenses and other current assets	243		1		244		214		3		217
Total Current Assets	1,804		1		1,805		1,791		7		1,798
Other noncurrent assets	128		—		128		94		1		95
Total Assets	9,288		1		9,289		9,342		8		9,350
Accounts payable	276		(5)		271		305		(3)		302
Accrued liabilities	641		84		725		653		59		712
Income taxes payable	58		(6)		52		60		(1)		59
Total Current Liabilities	1,126		73		1,199		1,317		55		1,372
Deferred income taxes	413		(12)		401		393		(12)		381
Other noncurrent liabilities	560		2		562		554		—		554
Total Liabilities	4,163		63		4,226		4,372		43		4,415
Retained earnings	1,481		(62)		1,419		1,233		(35)		1,198
Total Dentsply Sirona Equity	5,122		(62)		5,060		4,967		(35)		4,932
Total Equity	5,125		(62)		5,063		4,970		(35)		4,935
Total Liabilities and Equity	9,288		1		9,289		9,342		8		9,350

CONSOLIDATED STATEMENT OF CASH FLOWS
	Nine Months Ended September 30, 2021						Nine Months Ended September 30, 2020
(in millions)	As Previously Issued		Adjustment		As Restated		As Previously Issued		Adjustment		As Revised
Cash flows from operating activities:
Net income (loss)	$	319	$	(27)	$	292	$	(182)	$	4	$	(178)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Other non-cash expense (income)	12		1		13		9		(2)		7
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net	(98)		9		(89)		149		1		150
Inventories, net	(82)		(6)		(88)		74		(1)		73
Prepaid expenses and other current assets, net	(27)		3		(24)		50		—		50
Accounts payable	(39)		(6)		(45)		(65)		3		(62)
Accrued liabilities	41		29		70		(73)		7		(66)
Income taxes	11		(5)		6		(10)		1		(9)
Other noncurrent liabilities	20		2		22		(14)		—		(14)
Net cash provided by operating activities	435		—		435		372		13		385
Cash flows from financing activities:
Other financing activities, net	(11)		—		(11)		(4)		(13)		(17)
Net cash (used in) provided by financing activities	(257)		—		(257)		504		(13)		491

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of Net sales and expense during the reporting period. Actual results could differ materially from those estimates.

Specifically, for the nine months ended September 30, 2021, some of these estimates and assumptions continue to be based on an ongoing evaluation of expected future impacts from the COVID-19 pandemic. The full extent to which the COVID-19 pandemic will directly or indirectly have a negative material impact on the Company’s financial condition, liquidity, or results of operations in future periods is highly uncertain and difficult to predict. More specifically, the demand for the Company’s products has been, and continues to be, affected by social distancing guidelines, dental practice safety protocols which reduce patient traffic, and some lingering patient reluctance to seek dental care. The Company’s 2020 results were materially impacted by the preventative measures implemented at the outset of the pandemic, including the closure or reduced operations of dental practices. During 2021, demand for the Company’s products has largely recovered, although impacts from the pandemic continue to be experienced as evidenced by the more recent shortages and higher prices of raw materials such as electronic components, higher related transportation costs, and labor shortages. In the current year, the Company has experienced supply chain constraints, which has impacted its ability to timely produce and deliver certain products, and has also resulted in increases in shipping rates. To address these issues, the Company has taken steps to mitigate the impact of these trends, including continued emphasis on cost reduction and supply chain efficiencies. However, uncertainties remain regarding how long these impacts will continue, whether customer demand will fully return to pre-COVID-19 levels upon lifting of remaining government restrictions, or whether future variants of the virus may have an adverse impact on demand in affected markets.

Inventory

As of September 30, 2021, all of the Company’s inventories were determined by the first-in, first-out (“FIFO”) or average cost methods. As of the end of the first quarter of 2021, the Company had $1 million of inventories accounted for under the last-in first-out (“LIFO”) method of inventory costing. Effective as of the beginning of the second quarter, the method of accounting for these inventories was changed from LIFO to FIFO. This change in accounting is preferable as the value of inventory for which cost was previously determined using a LIFO cost flow assumption has declined from prior years due to changes in the business, it allows for a more consistent methodology to be utilized across the Company, and provides improved comparability with industry peers. The change in accounting principle was recognized during the second quarter of 2021 by adjusting these inventories to cost as determined using the FIFO method, resulting in an increase in inventories of $4 million and a corresponding reduction to Cost of products sold in the Company’s Consolidated Statements of Operations. The impact of this change was not material to the Company’s financial position as of December 31, 2020, or the Company’s results of operations for any previously reported prior periods nor is the cumulative effect of the change material to the results of operations for the six months ended June 30, 2021. Therefore, prior period amounts have not been retrospectively adjusted.

Goodwill & Intangible Assets

Effective 2021 and prospectively, the Company is performing its required annual goodwill impairment test as of April 1 rather than as of 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. This change did not result 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.

Accounting Pronouncements Not Yet Adopted

In March 2020, the FASB issued ASU No. 2020-04 “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”, which was subsequently amended by ASU No. 2021-01 “Reference Rate Reform (Topic 848): Scope” in January 2021. The new standard provides optional expedients and exceptions to contracts, hedging relationships, and other transactions that reference the London Interbank Offer Rate (“LIBOR”) or another rate expected to be discontinued due to the reference rate reform. This standard is permitted to be adopted any time through December 31, 2022, and does not apply to contract modifications made or hedging relationships entered into or evaluated after December 31, 2022. The Company is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows, and disclosures.