DENTSPLY SIRONA Inc

Previous wording

The Company operates in four reportable segments as described below. Refer also to Note 6, Segment Information, in Part I, Item 1 of this Form 10-Q for more information.

Current wording

The Company operates in four reportable segments as described below.

Previous wording

The terrorist attacks by Hamas militants crossing the border from Gaza to Israel in October 2023 and the subsequent military response by the Israeli government in Gaza has resulted in significant unrest and uncertainty within that region. In April 2024, the state of Israel was also a target of a coordinated missile and drone direct attack launched by the Republic of Iran. These events have heightened the possibility that escalating violence and involvement of other terrorist groups or foreign powers in the region may further impact our employees and operations.

Current wording

The terrorist attacks by Hamas militants crossing the border from Gaza to Israel in October 2023 and the subsequent military response by the Israeli government in Gaza has resulted in significant unrest and uncertainty within that region. In April 2024, the state of Israel was also a target of a coordinated missile and drone direct attack launched by the Republic of Iran. These events have heightened the possibility that escalating violence and involvement of other terrorist groups or foreign powers in the region may further impact our employees and operations. Additionally, in May 2024, in response to ongoing military actions, the government of Turkey implemented restrictions on the import of goods manufactured within Israel for sale in the Turkish market. Sales of our products made in Israel and sold in Turkey represent less than 2% of our global sales of Implants & Prosthetics, but this product category is an area of relatively high potential growth. It is not clear when these restrictions will be lifted or if other countries will institute similar restrictions.

Previous wording

For the three months ended March 31, 2024, net sales of products produced at these sites comprised approximately 4% of consolidated net sales and 13% of the net sales of the Orthodontic and Implant Solutions segment. Net assets within Israel total $192 million as of March 31, 2024, consisting primarily of acquired technology, cash, inventory, and property, plant and equipment associated with our operations in country. Overall, the Company’s operations in Israel have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the three months ended March 31, 2024. The Company continues to monitor developments and prepare contingency plans to limit potential disruption to its operations.

Current wording

For the three months ended June 30, 2024, net sales of products produced at these sites comprised approximately 4% of consolidated net sales and 13% of the net sales of the Orthodontic and Implant Solutions segment. Net assets within Israel total $198 million as of June 30, 2024, consisting primarily of acquired technology, cash, inventory, and property, plant and equipment associated with our operations in country. Overall, the Company’s operations in Israel have not been materially impacted by the conflict, and consequently, the Company has not recorded any allowance for doubtful accounts, inventory reserves, or asset impairments through the six months ended June 30, 2024. The Company continues to monitor developments and prepare contingency plans to limit potential disruption to its operations.

Previous wording

While Israel does not constitute a material portion of our business, a significant escalation or expansion of the conflict’s current scope and economic disruption could result in loss of sales and market position, disrupt our supply chain, broaden inflationary costs including energy prices, and have a material adverse effect on our results of operations, including impairment of the net assets in Israel or the goodwill associated with the Implants & Prosthetics reporting unit.

Current wording

While Israel does not constitute a material portion of our business, a significant escalation or expansion of the conflict’s current scope and economic disruption could result in loss of sales and market position, disrupt our supply chain, broaden inflationary costs including energy prices, and have a material adverse effect on our results of operations, including impairment of the net assets in Israel or goodwill within the Implants & Prosthetics reporting unit.

Previous wording

For the three months ended March 31, 2024, net sales in Russia and Ukraine were approximately 1% of our consolidated net sales, and net assets in these countries were $70 million. These net assets include $44 million of cash and cash equivalents held within Russia as of March 31, 2024. Due to currency control measures imposed by the Russian government which include restrictions on the ability of companies to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, we may be limited in our ability to transfer this cash balance out of Russia without incurring substantial costs, if at all.

Current wording

For the three months ended June 30, 2024, net sales in Russia and Ukraine were approximately 2% of our consolidated net sales, and net assets in these countries were $76 million. These net assets include $44 million of cash and cash equivalents held within Russia as of June 30, 2024. Due to currency control measures imposed by the Russian government which include restrictions on the ability of companies to repatriate or otherwise remit cash from their Russian-based operations to locations outside of Russia, we may be limited in our ability to transfer this cash balance out of Russia without incurring substantial costs.

Previous wording

Markets in several regions, particularly Europe, continue to experience varying degrees of recessionary pressures and face concerns about the systemic impacts of adverse economic conditions and geopolitical issues. Changes in economic conditions, supply chain constraints, higher energy costs, labor shortages, the conflict in Ukraine, and geopolitical tensions in the Middle East, have all contributed to a period of higher inflation across the industry and the regions in which the Company operates. As a result, the Company has experienced higher prices for certain raw materials, particularly for electronic components, which have in some cases required incremental procurement costs such as brokers’ fees, and consequently a negative impact on margins. We expect a continuation of inflationary pressure on the cost of both raw materials and wages in 2024, the effect of which will depend on our ability to successfully mitigate and offset the related impacts.

Current wording

Markets in several regions, particularly Europe, continue to experience varying degrees of recessionary pressures and face concerns about the systemic impacts of adverse economic conditions and geopolitical issues. Changes in economic conditions, supply chain constraints, higher energy costs, labor shortages, the conflict in Ukraine, and geopolitical tensions in the Middle East, have all contributed to a period of higher inflation across the industry and the regions in which the Company operates. As a result, the Company has experienced higher prices for certain raw materials, including electronic components, which consequently have led to a negative impact on margins. We expect a continuation of inflationary pressure on the cost of both raw materials and wages through the remainder of 2024, the effect of which will depend on our ability to successfully mitigate and offset the related impacts.

Previous wording

The challenging macroeconomic conditions has also negatively impacted demand for the Company’s products and may continue to do so in the future. Specifically, higher interest rates have put pressure on the ability and willingness of our customers to obtain financing for equipment purchases, which affects volumes for these products. The Company has also faced additional competitive pressure for lower-priced options for investments in new equipment by dental practices, in particular for imaging products. While the Company has taken steps to address competitive pressures, such as the reintroduction of its Orthophos SL 2D and 3D products, these trends may continue. While patient volumes have largely remained stable in the United States, the impact of macroeconomic declines and high interest rates has been particularly apparent in Germany, which accounted for 10% of the Company’s sales for the three months ended March 31, 2024. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending, and near-term economic forecasts had not improved at the end of the first quarter of 2024. The Company believes the challenging macroeconomic and market conditions in Germany are likely to persist through at least the first half of 2024.

Current wording

The challenging macroeconomic conditions have also negatively impacted demand for the Company’s products and may continue to do so in the future. Specifically, higher interest rates have put pressure on the ability and willingness of our customers to obtain financing for equipment purchases, which affects volumes for these products. The higher cost of borrowing has also reduced patient demand for elective dental procedures, which affects sales of the Company’s offerings more broadly. The Company has also faced additional competitive pressure for lower-priced options for investments in new equipment by dental practices, in particular for imaging products. While the Company has taken steps to address competitive pressures, such as the reintroduction of its Orthophos SL 2D and 3D products, these trends may continue. While patient volumes have largely remained stable in the United States, the impact of macroeconomic declines and high interest rates has been particularly apparent in Germany, which represented 10% of the Company’s sales for the six months ended June 30, 2024. Germany was in a recession for most of 2023, largely due to persistent high inflation and falling household spending. Although conditions including inflation have recently improved marginally, demand for investments in new dental equipment continues to be weak, and recent economic forecasts have delayed the projected timing for recovery and more meaningful growth beyond the next two quarters. The Company therefore believes the challenging macroeconomic and market conditions in Germany are likely to persist and negatively impact sales of equipment, in particular through the remainder of 2024.

Previous wording

•Implementing cost-containment measures, as well as intensifying continuous improvement and restructuring programs in our manufacturing and distribution facilities and other areas of our business;

Current wording

•Implementing cost-containment measures, as well as intensifying continuous improvement and restructuring programs in our manufacturing and distribution facilities and other areas of our business, including the most recent restructuring plan approved by the Board of Directors on July 29, 2024;

Previous wording

As explained further in the Results of Operations section below, the Company has partially offset elevated costs in certain areas of the business with price increases. Should the higher inflationary environment continue, we may be unable to raise the prices of our products and services sufficiently or engage in other cost cutting measures commensurate with the rate of inflation, which could have a material adverse effect on our results of operations and financial condition.

Current wording

As explained further in the Results of Operations section below, the Company has partially offset elevated costs in certain areas of the business with price increases. Should the higher inflationary environment continue, we may be unable to raise the prices of certain products and services sufficiently or engage in other cost cutting measures commensurate with the rate of inflation, which could have a material adverse effect on our results of operations and financial condition.

Previous wording

RESULTS OF OPERATIONS: THREE MONTHS ENDED MARCH 31, 2024 COMPARED TO THREE MONTHS ENDED MARCH 31, 2023

Current wording

RESULTS OF OPERATIONS: THREE AND SIX MONTHS ENDED JUNE 30, 2024 COMPARED TO THREE AND SIX MONTHS ENDED JUNE 30, 2023

Previous wording

The decrease in organic sales was primarily driven by weaker overall demand in the United States and Europe, in part due to a benefit from satisfying backlog orders during the comparative quarter of 2023, partially offset by price increases.

Current wording

The decrease in organic sales for the six months ended June 30, 2024 was primarily driven by weaker overall demand in the United States, in part, due to a benefit from satisfying backlog orders during the first quarter of 2023, partially offset by price increases.

Previous wording

The increase in organic sales was primarily driven by higher sales volumes of orthodontic aligners, particularly in the United States and Europe, and stronger demand for implants products in Rest of World, partially offset by lower volumes for implants and prosthetics products in the United States and Europe.

Current wording

The increase in organic sales for both the three and six months ended June 30, 2024 was primarily driven by higher volumes of orthodontic aligners, particularly in the United States and Europe, partially offset by the impact of regulatory developments on sales of direct-to-consumer aligners as described below. Organic sales also benefited from stronger demand for implants products in Rest of World, partially offset by lower volumes for implants and prosthetics products in Europe.

Previous wording

As a result of recent legislative changes in Nevada relating to teledentistry, we will discontinue new patient recruitment for our current direct-to-consumer aligner business model in the state, which we do not anticipate will have a material impact on our results. Currently in several other states, there are pending legislative or regulatory changes, or changes in the interpretation of existing legislation by regulators, that may impact the current business model and operations of our direct-to-consumer aligner business. As a result, we may need to evaluate new patient recruitment in certain states as we continue to assess these developments. We are developing new features and procedures for our direct-to-consumer aligner business models in response to existing and pending legislation. We continue to monitor these legal and regulatory developments to understand their potential impact on the operations of our direct-to-consumer aligner business. For additional information, see Part I, Item 1, “Business - Regulation” and Part 1, Item 1A, “Risk Factors” in our 2023 Form 10-K.

Current wording

Legislative changes in Nevada relating to teledentistry required us to discontinue new patient recruitment for our current direct-to-consumer aligner business model in the state during the second quarter. Additionally, enacted and pending legislative changes in certain other states including Florida and Illinois are expected to impact sales in the second half of 2024. These changes would require certain adjustments to our business model, some of which have been made preemptively and have started to negatively impact sales of direct-to-consumer aligners in those states. These adjustments include developing new features and modifying our process for engaging with customers as part of our direct-to-consumer aligner business models in response to existing and pending legislation. Our response to these legislative developments resulted in reduced sales of direct-to-consumer orthodontic aligners by approximately $6 million during the second quarter of 2024, with a similar estimated impact for each of the remaining quarters of 2024, which we expect will be more than offset by organic growth. Future legislative or regulatory changes in other states, or changes in the interpretation of existing legislation by regulators, may further impact the current business model and operations of our direct-to-consumer aligner business or require us to evaluate patient recruitment strategies in certain states. We continue to monitor these legal and regulatory developments to understand their potential impact on the operations of our direct-to-consumer aligner business. For additional information, see Part I, Item 1, “Business - Regulation” and Part 1, Item 1A, “Risk Factors” in our 2023 Form 10-K.

Previous wording

The increase in organic sales was primarily driven by higher volumes of orthodontic aligners within our direct-to-consumer aligner solutions and CAD/CAM products. These increases were partially offset by lower volumes of imaging equipment, implants products, and Essential Dental Solutions products. Decreases in volumes for Essential Dental Solutions products were partially offset by price increases for these products. Organic sales were positively affected by higher wholesale volumes of CAD/CAM products, but were not impacted by changes in dealer inventory levels during the quarter relative to 2023. Volumes for CAD/CAM products in both the three months ended March 31, 2023 and 2024 included a seasonal build in distributor inventory of approximately $9 million. Distributor inventory levels for CAD/CAM products as of March 31, 2024 approximate historical averages.

Current wording

The decrease in organic sales for the three months ended June 30, 2024 was primarily driven by lower volumes of imaging equipment, partially due to the timing of sales to dealers, and lower demand for Essential Dental Solutions products. These decreases were partially offset by higher volumes of orthodontic aligners within our direct-to-consumer aligner solutions business. Volumes for imaging products in the three months ended June 30, 2024 were negatively impacted by a seasonal reduction in distributor inventory of approximately $4 million compared to a build of approximately $7 million in the three months ended June 30, 2023. Conversely, volumes for CAD/CAM products were positively affected by a lower seasonal reduction in dealer inventory levels of approximately $16 million in the three months ended June 30, 2024 compared to approximately $27 million in the three months ended June 30, 2023. Distributor inventory levels for both imaging and CAD/CAM products as of June 30, 2024 approximate historical averages.

Previous wording

The decrease in organic sales was primarily due to overall lower volumes for Essential Dental Solutions products as well as Connected Technology Solutions products as a result of less favorable market and macroeconomic trends, particularly in Germany. These decreases were partially offset by price increases.

Current wording

The decrease in organic sales for the six months ended June 30, 2024 was primarily due to overall lower volumes for Connected Technology Solutions products as a result of unfavorable economic conditions, particularly in Germany. These decreases were partially offset by price increases for Essential Dental Solutions products.

Previous wording

The slight decrease in organic sales was primarily driven by declines in volumes for Connected Technology Solutions products, particularly CAD/CAM, price concessions, and lower demand in Japan. These decreases were mostly offset by increased volumes for implants products. The local volume-based procurement program in China continued to result in increased volumes for implants products, representing a marked improvement from the program's adverse impact in early 2023, however the growth rates in China are expected to be more moderate for the remainder of 2024.

Current wording

The decrease in organic sales for the six months ended June 30, 2024 was primarily driven by lower volumes of Connected Technology Solutions products, particularly CAD/CAM, competitive pricing, and lower demand in Japan. These decreases were mostly offset by increased volumes for implants products. The local volume-based procurement program in China continued to result in increased volumes for implants products, representing a marked improvement from the program's adverse impact in early 2023; however, the growth rates in China are expected to be more moderate for the remainder of 2024.

Previous wording

Gross profit as a percentage of net sales was flat for the quarter as higher manufacturing and input costs were offset by improved pricing as a result of lower targeted sales promotions, and a decrease in warranty costs compared to the three months ended March 31, 2023.

Current wording

Gross profit as a percentage of net sales for the six months ended June 30, 2024 declined as higher manufacturing and input costs were partially offset by improved pricing and a decrease in warranty costs.

Previous wording

SG&A expenses remained flat as the higher selling costs to drive growth, particularly in orthodontic solutions, were fully offset by a reduction in professional service costs and incentive compensation, as well as favorable impact from foreign currency exchange on operating expenses.

Current wording

The decrease in SG&A expenses for the six months ended June 30, 2024 was driven by lower headcount and incentive compensation costs, and professional service costs, as well as favorable impact from foreign currency exchange on operating expenses. The decreases were partially offset by higher selling costs, particularly in Orthodontic and Implant Solutions.

Previous wording

R&D expenses decreased as the Company continues to prioritize a disciplined approach with ongoing investments in digital workflow solutions, product development initiatives, software development, including clinical application suite and cloud deployment. The Company expects to continue to maintain a level of investment in R&D that is at least 4% of annual net sales.

Current wording

For the three and six months ended June 30, 2024, R&D expenses decreased as the Company continues to prioritize a disciplined approach with ongoing investments in digital workflow solutions, product development initiatives, and software development, including clinical application suite and cloud deployment. The Company expects to continue to maintain a level of investment in R&D that is at least 4% of annual net sales.

Previous wording

For the three months ended March 31, 2024, the Company recorded an intangible asset impairment charge of $6 million. The charge was related to indefinite-lived imaging product trade names within the Connected Technology Solutions segment. For further information see Note 13, Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Current wording

The Company did not record any impairment charges for the three months ended June 30, 2024. For the six months ended June 30, 2024, the Company recorded an intangible asset impairment charge of $6 million. The charge was related to indefinite-lived imaging product trade names within the Connected Technology Solutions segment. For further information see Note 13, Goodwill and Intangible Assets, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Previous wording

For the three months ended March 31, 2024, the Company recorded net expense of $1 million of restructuring and other costs, a decrease from the three months ended March 31, 2023, which consisted primarily of severance costs in conjunction with the restructuring plan announced in February 2023. For further details refer to Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Current wording

For the three and six months ended June 30, 2024, the Company recorded $21 million and $22 million, respectively, of restructuring and other costs, and for the three and six months ended June 30, 2023, the Company recorded $5 million and $64 million, respectively. These expenses in both years consisted primarily of severance costs in conjunction with the restructuring plan announced in February 2023. On July 31, 2024 the Company announced a new restructuring plan which will result in additional severance charges beginning in the third quarter. For further details refer to Material Trends in Capital Resources below, and Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Previous wording

The decrease in segment adjusted operating income is due to lower organic sales noted above as well as unfavorable manufacturing leverage from lower volumes. These decreases were partially offset by lower warranty costs, a reduction in professional services, advertising and selling related costs, and the favorable impact from foreign currency translation.

Current wording

The decrease in segment adjusted operating income for both the three and six months ended June 30, 2024 is due to lower organic sales noted above as well as unfavorable manufacturing leverage from lower volumes and unfavorable product mix as a result of lower sales for certain higher margin CAD/CAM equipment. These decreases were partially offset by lower headcount-related costs and product warranty and return costs.

Previous wording

The decrease in segment adjusted operating income is due to the organic sales decrease noted above and an increase in SG&A expenses including an increase in selling related costs. These decreases were partially offset by the favorable impact of foreign currency translation.

Current wording

For the comparative six months ended June 30, the decrease in segment adjusted operating income is due to the reduction in organic sales for the period and higher manufacturing costs. These decreases were partially offset by the favorable impact of foreign currency translation.

Previous wording

The decrease in segment adjusted operating income is due to inflation of material costs, an increase in advertising and selling costs, and increased headcount primarily for key customer-facing roles for direct-to-consumer aligner solutions. This was partially offset by the organic sales increase primarily for orthodontics products noted above.

Current wording

The decrease in segment adjusted operating income for both the three and six months ended June 30, 2024 is due to higher distribution and manufacturing costs, an increase in advertising and selling costs, and higher headcount, primarily for key customer-facing roles for direct-to-consumer aligner solutions. This was partially offset for both periods by the organic sales increase primarily for orthodontics products noted above.

Previous wording

The increase in segment operating income results from the increase in sales noted above, as well as margin improvement due to the favorable manufacturing leverage of higher volumes, partially offset by unfavorable foreign currency translation.

Current wording

The increase in segment operating income for both the three and six months ended June 30, 2024 is due to the increase in sales noted above, as well as margin improvement due to the favorable manufacturing leverage of higher volumes, partially offset by unfavorable foreign currency translation.

Previous wording

Interest expense, net for the three months ended March 31, 2024 decreased compared to the three months ended March 31, 2023, driven primarily by lower short-term and other borrowings.

Current wording

Interest expense, net for the three and six months ended June 30, 2024 decreased compared to the three and six months ended June 30, 2023, driven primarily by lower short-term and other borrowings.

Previous wording

Other (income) expense, net for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 is as follows:

Current wording

Other (income) expense, net for the three and six months ended June 30, 2024 compared to the three and six months ended June 30, 2023 is as follows:

Previous wording

Indefinite-lived intangible assets consist of trade names, trademarks and in-process R&D and are not subject to amortization; instead, they are tested for impairment annually or more frequently if events or circumstances indicate that the carrying value of indefinite-lived intangible assets may be impaired or if a decision is made to sell a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred during the year. Such indicators may include a decline in expected cash flow, unanticipated competition, increased interest rates, or slower growth rates, among others. It is important to note that fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of indefinite-lived assets.

Current wording

Indefinite-lived intangible assets consist of trade names, trademarks and in-process R&D and are not subject to amortization; instead, they are tested for impairment annually at April 1 or more frequently if events or circumstances indicate that the carrying value of indefinite-lived intangible assets may be impaired or if a decision is made to sell a business. A significant amount of judgment is involved in determining if an indicator of impairment has occurred during the year. Such indicators may include a decline in expected cash flow, unanticipated competition, increased interest rates, or slower growth rates, among others. It is important to note that fair values that could be realized in an actual transaction may differ from those used to evaluate the impairment of indefinite-lived assets.

Previous wording

Based on the interim quantitative and qualitative assessments performed for the Company's other indefinite-lived intangible assets and 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 March 31, 2024; therefore, the Company did not identify any indicators of a more likely than not impairment related to its goodwill or intangible assets, other than as noted above. However, any further deterioration in key assumptions could result in impairment charges in the future. The Company applied a hypothetical sensitivity analysis by increasing the discount rate of these indefinite-lived intangible assets and reporting units by 100 basis points. As of March 31, 2024, the estimated fair value of the Implants & Prosthetics reporting unit within the Orthodontic and Implant Solutions segment exceeded carrying value by less than 15%. If discount rates were hypothetically increased by 100 basis points, this reporting unit would have an estimated fair value less than 10% in excess of its carrying value. Goodwill associated with this reporting unit was $1,148 million at March 31, 2024.

Current wording

For the three months ended June 30, 2024, 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 course of the quarter, and concluded there were no such indicators. The Company applied a hypothetical sensitivity analysis by increasing the discount rate used to value the reporting units by 50 basis points. As of June 30, 2024, the estimated fair value of the Implants & Prosthetics reporting unit within the Orthodontic and Implant Solutions segment exceeded its carrying value by less than 10%. An increase of the discount rate by 50 basis points would result in a material impairment of the Implants & Prosthetics reporting unit. Additionally, if market conditions worsen, such as a further decline in demand for premium implants, the resulting reduction in projected long-term growth rates would also likely lead to a material impairment for this reporting unit. Goodwill associated with the Implants & Prosthetics reporting unit was $1,141 million as of June 30, 2024.

Previous wording

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 first quarter of 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 reduced forecasted revenues in the near term. The trade names 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, a discount rate of 11%, revenue growth rates (including perpetual growth rates), and royalty rates. As a result, the Company recorded an indefinite-lived intangible asset impairment charge of $6 million for the three months ended March 31, 2024. The remaining carrying value of this intangible asset group was $22 million as of March 31, 2024. As the fair value of these indefinite-lived intangible assets approximates carrying value, any further decline in key assumptions could result in additional impairment in the future. Refer to Part I, Item 1, Note 13, Goodwill and Intangible Assets, in the Notes to the Unaudited Consolidated Financial Statements of this Form 10-Q for further discussion of the Company's annual and interim indefinite-lived intangible asset impairment testing.

Current wording

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.

Previous wording

Cash provided by operating activities increased compared to the three months ended March 31, 2023, primarily as a result of changes in working capital including higher collections on accounts receivable which were outstanding at the beginning of the period, and a lower build of inventory during the current period. These increases in operating cash were offset by other changes in working capital including higher payments to vendors during the current period due to timing. At March 31, 2024, the number of days for sales outstanding in accounts receivable increased by 1 day to 60 days as compared to 59 days at December 31, 2023, and the number of days of sales in inventory increased by 2 days to 128 days at March 31, 2024 as compared to 126 days at December 31, 2023.

Current wording

Cash provided by operating activities increased compared to the six months ended June 30, 2023, primarily as a result of changes in working capital including higher collections on accounts receivable due largely to timing of customer remittances, and a lower build of inventory during the current period. Cash provided by operating activities for the first six months of 2024 also includes receipt of a $42 million foreign income tax refund. These increases in operating cash were partially offset by other changes in working capital including higher payments to vendors during the current period due to timing. At June 30, 2024, the number of days for sales outstanding in accounts receivable decreased by 7 days to 52 days as compared to 59 days at December 31, 2023, and the number of days of sales in inventory increased by 2 days to 128 days at June 30, 2024 as compared to 126 days at December 31, 2023.

Previous wording

The cash used in investing activities increased compared to the three months ended March 31, 2023, primarily due to higher net cash paid on settlement of derivatives of $11 million, offset by lower capital expenditures of $5 million. The Company estimates capital expenditures to be in the range of approximately $170 million to $200 million for the full year 2024 and expects these investments to include implementation expenses for a new global Enterprise Resource Planning (“ERP”) system, equipment upgrades, and capacity expansion to support product innovation and consolidate operations for enhanced efficiencies.

Current wording

The cash used in investing activities increased compared to the six months ended June 30, 2023, due to higher cash paid on settlement of derivatives of $9 million and higher capital expenditures of $14 million. The Company estimates capital expenditures to be in the range of approximately $170 million to $200 million for the full year 2024 and expects these investments to include additional implementation expenses for our new global Enterprise Resource Planning (“ERP”) system, equipment upgrades, and capacity expansion to support product innovation and consolidate operations for enhanced efficiencies.

Previous wording

On November 7, 2023, the Board of Directors approved an increase to the authorized share repurchase program of $1.0 billion. At March 31, 2024, the Company had $1.44 billion of authorization remaining available for share repurchases. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company considers appropriate based upon prevailing market and business conditions and other factors. The Company intends to repurchase up to $150 million of shares in the second quarter of 2024. At March 31, 2024, the Company held 56.9 million shares of treasury stock.

Current wording

On November 7, 2023, the Board of Directors approved an increase to the authorized share repurchase program of $1.0 billion. At June 30, 2024, the Company had $1.29 billion of authorization remaining available for share repurchases. Additional share repurchases, if any, may be made through open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions, or other transactions in such amounts and at such times as the Company considers appropriate based upon prevailing market and business conditions and other factors. The Company intends to repurchase $100 million of shares in the third quarter of 2024, subject to market conditions. At June 30, 2024, the Company held 61.9 million shares of treasury stock.

Previous wording

At March 31, 2024, the Company had $475 million of borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million multi-currency credit facility which expires in May 2028. The Company also has access to an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $249 million outstanding borrowings under the commercial paper facility at March 31, 2024 resulting in $451 million remaining available under the revolving credit and commercial paper facilities. The Company also has access to $43 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At March 31, 2024, the Company had $19 million outstanding under short-term borrowing arrangements.

Current wording

At June 30, 2024, the Company had $454 million of borrowings available under lines of credit, including lines available under its short-term arrangements and revolving credit facility. The Company’s borrowing capacity includes a $700 million multi-currency credit facility which expires in May 2028. The Company also has access to an aggregate $500 million under a U.S. dollar commercial paper facility. The $700 million revolver serves as a back-up to the commercial paper facility, thus the total available credit under the commercial paper facility and the multi-currency revolving credit facility in the aggregate is $700 million. The Company had $270 million outstanding borrowings under the commercial paper facility at June 30, 2024 resulting in $430 million remaining available under the revolving credit and commercial paper facilities. The Company also has access to $41 million in uncommitted short-term financing under lines of credit from various financial institutions, the availability of which is reduced by other short-term borrowings. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At June 30, 2024, the Company had $17 million outstanding under short-term borrowing arrangements.

Previous wording

On February 14, 2023, the Board of Directors of the Company approved a plan to restructure the Company’s business to improve operational performance and drive shareholder value creation. The plan includes a restructuring of the business through a new operating model with five global business units, optimization of central functions and overall management infrastructure, and other efforts aimed at cost savings. The restructuring plan anticipates a reduction in the Company’s global workforce of approximately 8% to 10%, subject to co-determination processes with employee representative groups in countries where required. The plan is expected to be substantially completed in 2024 and result in approximately $200 million in annual cost savings. The reduction in headcount and cost savings related to this plan is expected to be offset as the Company makes additional investments in sales personnel, our new global ERP system, and other transformation initiatives.

Current wording

On February 14, 2023, the Board of Directors of the Company approved a plan to restructure the business through a new operating model with five global business units, optimize central functions and overall management infrastructure, and implement other efforts aimed at cost savings (the “2023 Plan”). The 2023 Plan estimated a reduction in the Company’s global workforce of approximately 8% to 10% and annual cost savings of approximately $200 million. The target for cost savings has been substantially met as of June 30, 2024, with the benefits mostly offset in the short term by additional investments in sales personnel, our new global ERP system, and other transformation initiatives.

Previous wording

As of March 31, 2024, in conjunction with this plan, the Company has incurred $67 million in restructuring charges, from inception, primarily related to employee transition, severance payments, employee benefits, and facility closure costs and $20 million in other non-recurring costs related to restructuring activities which mostly consist of consulting, legal and other professional service fees. The Company expects to incur between $115 million to $135 million in one-time charges, comprising $80 million to $100 million in restructuring expenditures and charges and $35 million in other non-recurring charges. The estimates of these charges and their timing are subject to several assumptions, including local law requirements in various jurisdictions and co-determination aspects in countries where required. Actual amounts may differ materially from estimates. In addition, the Company may incur other charges or cash expenditures in connection with this plan which are not currently contemplated. For further details refer to Note 8, Restructuring and other costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Current wording

The estimates of the charges and expenditures that the Company expects to incur in connection with the 2024 Plan, and the timing thereof, are subject to several assumptions, including local law requirements in various jurisdictions and co-determination aspects in countries where required. Actual amounts may differ materially from estimates. In addition, the Company may incur additional charges or cash expenditures not currently contemplated due to unanticipated events that may occur, including in connection with the implementation of the 2024 Plan. For further details refer to Note 8, Restructuring and Other Costs, in the Notes to Unaudited Consolidated Financial Statements of this Form 10-Q.

Previous wording

Beginning in the second quarter of 2022, the Company’s financial results have also been impacted by the costs associated with the internal investigation conducted and completed by the Audit and Finance Committee and subsequently, associated litigation and the external investigation by the SEC which are ongoing. These costs totaled $61 million for the year ended December 31, 2022, with additional costs of $19 million incurred for the year ended December 31, 2023. In the three months ended March 31, 2024, the Company recorded $2 million of similar costs, including legal defense expenses pertaining to the matters described in Note 14, Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements, and expects that it will continue to incur such costs for the remainder of 2024.

Current wording

Beginning in the second quarter of 2022, the Company’s financial results have also been impacted by the costs associated with the internal investigation conducted and completed by the Audit and Finance Committee of the Company’s Board of Directors, and subsequently, associated litigation and the external investigation by the SEC which are ongoing. These costs totaled $61 million for the year ended December 31, 2022 and $19 million for the year ended December 31, 2023. In the six months ended June 30, 2024, the Company recorded $4 million of similar costs, including legal defense expenses pertaining to the matters described in Note 14, Commitments and Contingencies in the Notes to the Unaudited Consolidated Financial Statements, and expects that it will continue to incur such costs in the second half of 2024.