BUILT-INVALUE 2 0 1 3 A N N U A L R E P O R T BUILT-INVALUE FINANCIAL HIGHLIGHTS in thousands, except for per share data Y E A R E N D E D D E C E M B E R 3 1 , I NCO ME STAT EMEN T DATA 2013 2012 2011 20 10 Net Sales Net Sales Excluding Precious Metal Content Net Income Attributable to dentsply International Earnings Per Common Share – Diluted Adjusted Earnings Per Common Share – Diluted 1, 2, 3, 4, 5 Cash Dividends Declared Per Common Share FI N AN CIA L POSITION Cash and Cash Equivalents Total Debt Total Equity $ $ $ $ $ $ $ $ $ 2,950,770 2,771,728 313,192 2.16 2.35 0.250 2013 74,954 1,476,040 2,577,974 $ $ $ $ $ $ $ $ $ 2,928,429 2,714,698 314,213 2.18 2.22 0.220 2012 80,132 1,520,998 2,249,443 $ $ $ $ $ $ $ $ $ 2,537,718 2,332,589 244,520 1.70 2.03 0.205 2011 77,128 1,766,711 1,884,151 $ $ $ $ $ $ $ $ $ 2,221,014 2,031,757 265,708 1.82 1.94 0.200 20 10 540,038 611,769 1,909,912 1 2013 – Excludes amortization of purchased intangible assets, net of tax, of $32.3 million; after-tax acquisition and restructuring and other costs of $15.6 million; after-tax credit risk adjustments to outstanding derivatives of $2.3 million; after-tax gain on fair value adjustment related to an unconsolidated affiliated company of $1.2 million and income tax related adjustments of $21.0 million. These items had a negative impact of $0.19 on earnings per diluted common share. 2 2012 – Excludes amortization of purchased intangible assets, net of tax, of $33.6 million; after-tax acquisition and restructuring and other costs of $27.9 million; after-tax loss on fair value adjustment related to an unconsolidated affiliated company of $2.9 million; after-tax orthodontic business continuity costs of $0.6 million and income tax related adjustments of $60.0 million. These items had a negative impact of $0.04 on earnings per diluted common share. 3 2011 – Excludes after-tax acquisition and restructuring and other costs of $74.1 million; amortization of purchased intangible assets, net of tax, of $14.4 million; after-tax orthodontic business continuity costs of $2.1 million; after-tax credit risk adjustment to outstanding derivatives of $0.8 million; after-tax gain on the fair value adjustment related to an unconsolidated affiliated company of $2.5 million and income tax related adjustments of $41.1 million. These items had a negative impact of $0.33 on earnings per diluted common share. 4 2010 – Excludes after-tax restructuring and other costs of $7.1 million; amortization of purchased intangible assets, net of tax, of $6.0 million; after-tax acquisition related activity of $2.2 million; after-tax loss on the fair value adjustment related to an unconsolidated affiliated company of $1.1 million; income tax related adjustments of $1.1 million and after-tax credit risk adjustment to outstanding derivatives of $0.7 million. These items had a negative impact of $0.12 on diluted earnings per common share. 5 Adjusted earnings per diluted share is a non-GAAP measure that excludes certain items. For a reconciliation of U.S. GAAP results to this non-GAAP measure, refer to Item 7 of our 2013 annual report on Form 10-K. BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPO RT D EAR FE LLOW SHAREHOLDERS As a world-leading manufacturer of professional dental products, DENTSPLY is in a unique position to create value for clinicians, patients and our shareholders. This value derives from our ability to drive improvements in • A consistent focus on innovation as we continuously find new clinical outcomes and efficiency across a very broad spectrum ways to deliver improved outcomes of procedures and patient needs. From fine-tuning existing products to rethinking entire procedures, we strive to identify unmet needs and translate them into innovative, clinically • An effective clinical education platform that allows us to reach clinicians on a global basis relevant products and services. Our goal is to deliver solutions • An extensive sales organization of more than 3,600 members, that are better, faster and/or easier than existing options for both providing substantial reach on a global basis clinicians and their patients. This built-in value is reflected in a number of inherent factors and • A significant and leverageable presence in emerging markets, allowing us to address the needs of an expanding population of effective strategies, including: customers and patients • A leading position in many dental and medical consumable product categories that typically grow at a premium to underlying economic growth, with lower volatility • The unparalleled breadth of our product portfolio, which allows • An opportunity to deliver greater leverage across our cost structure and current asset base to enhance financial returns • A strong underlying business model that generates significant cash flow, providing an ongoing platform to fund growth investments us to deliver against a wide range of clinical requirements and acquisitions and reduce debt, as well as return value to numerous stakeholders These factors and strategies provide a strong platform for DENTSPLY’s continued growth in the global dental and medical device markets. 1 Bret W. Wise Chairman and Chief Executive Officer BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPO RT POSITIONED FOR GREATER VALUE CREATION dentsply set new records for sales, adjusted earnings and operating cash flow in 2013. It is important to note that this was achieved despite another year of muted market growth, largely influenced by challenging economic conditions in Europe. Overall, dentsply generated $2.95 billion in net sales in 2013, representing a 1 percent increase for the year and 33 percent growth from three years ago, in aggregate. Adjusted earnings per share grew 6 percent compared with 2012 and 21 percent from 2010. Adjusted operating margins expanded slightly in 2013 despite headwinds from currency exchange rates and the new medical device excise tax in the United States. Accelerating earnings growth remains an important priority for the Company going forward, as we seek to improve top-line performance through effective innovation, clinical education and sales deployment strategies while also improving efficiencies and reducing our overall cost to serve the market. Just as important, we reported an all-time record in operating cash flow in 2013, generating $418 million of cash, a 13 percent increase over the previous year. Over the past few years, we have built new capabilities in our manufacturing platform, and we now seek to maximize the return on those investments through better asset utilization and turns. This should allow us to produce even stronger cash flow in the future. Our growth in 2013 was primarily organic, driven by innovation and initiatives to improve the profitability of our broad portfolio of products. Late in 2013, we began once again to deploy capital to expand through acquisition, executing two transactions to build our technology base and extend our reach in emerging markets. Going forward, we expect a balanced capital deployment model spread among internal investments, acquisitions, debt reduction and return of cash to shareholders. OPPORTUNITIES TO DELIVER VALUE Despite the weakness in the broader worldwide economic markets over the past few years, we remain bullish about the long-term growth opportunities in the global dental and medical device markets that we serve. The fundamental growth drivers – an aging population in developed countries and a rapidly expanding middle class in developing regions – remain valid and are likely to spur growth opportunities in our markets for the foreseeable future. While some challenges remain, we are slowly seeing growth return to certain regions in Europe and employment trends continue to improve in the United States, both of which We expect a balanced capital deployment model spread among internal investments, acquisitions, debt reduction and return of cash to shareholders. NET SALES in millions $2,951 $2,928 $2,538 $2,221 ADJUSTED EARNINGS per share* $2.35 $2.22 $2.03 $1.94 13 12 11 10 13 12 11 10 should drive increased demand for dental services. Even subtle improvements in these large * See footnotes 1–5 on inside front cover markets could have a meaningful positive impact on dentsply’s financial performance. On a relative basis, a significant opportunity remains in markets where spending on dental care is low but accelerating. In the developing markets, dentistry is shifting OPERATING CASH FLOW in millions from acute care and managed tooth loss toward prevention, long-term restoration and improved maintenance. We already have an established presence in these geographic regions, which encompass more than 80 percent of the world’s population. We continue to make the investments in sales and clinical education resources to expand our reach. Our goal is to boost sales from these markets from approximately 16 percent of our portfolio at present to 25 percent of total revenues over the next five years. 13 12 11 10 $418 $370 $393 $377 3 BETTER. FASTER. EASIER. Our product development pipeline remains strong and prepared to fuel a steady stream of innovative products that fulfill the promise of “better/faster/easier.” “In 2013, we once again introduced a wide array of new products to the market, reinforcing our commitment to innovation and improved patient outcomes.” VALUE THROUGH INNOVATION In 2013, we once again introduced a wide array of new products to the market, reinforcing our commitment to innovation and improved patient outcomes. These innovations build upon an IP portfolio that includes more than 2,500 patents throughout the world. In dental restoratives, for example, our new Aquasil Ultra Cordless Tissue Managing Impression System eliminates the use of retraction cord when taking impressions during most crown and bridge cases, reducing placement time by up to 70 percent. dentsply Implants, meanwhile, launched simplant® 16, an updated version of our market-leading implant treatment planning software platform. Among the many new features is a mobile device viewer for sharing digital case-planning information between clinicians involved in the procedure. We are a leader in implant planning and customized digital solutions, and this product integrates our simplant® computer-guided implantology tools with customized, patient-specific atlantis™ abutments used in the final restoration. This integration of the planning process to the final restoration has been received positively by the market. Also, early in 2014, we introduced Astra Tech Implant System™ EV, a new system that provides surgical simplicity and flexibility supported by a simple prosthetic workflow. Other recent product introductions include protaper next®, which offers advancements to our trusted line of rotary endodontic files that result in significant time savings; celtra™ zirconia-reinforced lithium silicate glass ceramic and Crypton® cobalt chrome alloy, together representing the next generation of prosthetic materials; the Cavitron® Prophy-Jet® air polishing system, featuring an improved ergonomic design; Pro-Glider™, a new variable-taper rotary glide-path file that enhances efficiency during endodontic procedures; TPH Spectra® Universal Composite, a new dental composite system; DuraShield® and nupro® fluoride varnishes; as well as the LoFric® Origo™ compact male catheter within our Urology business. BETTER The Cavitron® Plus Ultrasonic Scaler with Tap-on™ Technology is designed to improve the dental hygienist’s comfort with hands- free operation and enhance efficiency through additional power options, including a single-push turbo mode for 25 percent greater power. FASTER The new Aquasil Ultra Cordless Tissue Managing Impression System eliminates the use of retraction cord in most cases, reducing placement time by up to 70 percent. EASIER PROTAPER NEXT®'s refined performance takes the endodontic procedure from instrumentation to obturation with complete, system-based efficiency. The single-use files are pre-sterilized and ready to use. 4 BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPORT BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPO RT UNPARALLELED PRODUCT DEPTH Our unmatched portfolio encompasses some of the most well-established brands in the market. PERCENTAGE OF NET SALES 28% 49% 10% 13% CHAIRSIDE CONSUMABLES Preventive Restorative Nupro® Varnish Midwest® RDH Freedom TPH Spectra® Palodent® Plus SPECIALTIES Orthodontic Endodontic Implants MTM® Clear Aligner e3 Motor PROTAPER NEXT® Wave One® file ANKYLOS® Astra Tech Implant System™ EV XiVE® In-Ovation® bracket systems Vortex Orifice Opener Immediate Smile® featuring ATLANTIS™ Abutment DENTAL LAB PRODUCTS Prosthetics MEDICAL Urology Compartis® ISUS CELTRA™ Duo Ceramco® iC LoFric® Sense™ LoFric® Origo™ 5 6 LIFE CYCLE OF THE TOOTH dentsply helps dental professionals serve patients’ needs across a lifetime of oral health. HEALTHY TOOTH AESTHETICS OF THE TOOTH SAVING THE TOOTH TOOTH LOSS Preventive Orthodontic Restorative Endodontic Implants Prosthetics These exciting new products, along with many others, become part of an unmatched portfolio of some of the most well-established brands in the market. This consumable portfolio creates a strong recurring revenue steam, which allows us to invest more than $100 million per year in innovation and related product support. VALUE THROUGH EDUCATION Our commitment to professional development and education also serves as a competitive advantage and as part of the built-in value we provide to the profession at large. We embrace lifelong learning not only in word, but also in action. More than 5,000 dental students each year dig into the foundations of dental science by participating in the International Association of Student Clinicians-American Dental Association (scada) program, which is sponsored by dentsply. This program was launched in 1959 as a joint venture between dentsply International and the American Dental Association. Today, students from more than 600 dental schools are invited to work with a faculty advisor to prepare and present their scientific discoveries through this one-of-a- kind global program. Through this platform, we hope to promote the next generation of research-oriented clinicians. In addition to scada, each year a quarter of a million dental professionals advance their clinical skills by participating in the more than 5,500 dentsply- sponsored dental continuing education programs in 36 countries across six continents. Under the leadership of Dr. Terri Dolan, our new vice president and chief clinical officer, we will continue to identify and develop innovative, high-quality educational delivery platforms for customers ranging from dental students to seasoned clinicians, building on the technologies of dentsply products and sound clinical evidence. “Each year a quarter of a million dental professionals advance their clinical skills by participating in the more than 5,500 DENTSPLY-sponsored dental continuing education programs in 36 countries across six continents.” 7 BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPORT GLOBAL FOOTPRINT Headquartered in the United States, DENTSPLY has global operations with sales in more than 120 countries. PERCENT OF SALES BY REGION EXCLUDING PRECIOUS METAL CONTENT DENTSPLY LOCATIONS SALES FORCE EXCELLENCE Our powerful worldwide dental sales force takes our solutions to market around the globe. Now more than 3,600 members strong, our sales team keeps us close to the dental professionals who rely on our product solutions to serve their patients' complete oral health needs. NORTH AMERICA 38% EUROPE & CIS 45% MIDDLE EAST & AFRICA 3% LATIN AMERICA 4% ASIA 5% JAPAN 3% AUSTRALIA 2% DELIVERING SUSTAINABLE VALUE I am extremely proud of the strong leadership team we have In closing, I would like to recognize our Board of Directors for built at dentsply and the nearly 12,000 men and women whose their advice and counsel, and to thank you, our shareholders, for contributions drive our business forward. Reinvestment in our your confidence in dentsply. We remain dedicated to making talent base is a top priority, and we have developed innovative the most of the built-in value that is DENTSPLY and continuing to programs to accelerate career advancement while meeting the create value for clinicians, patients and our shareholders. leadership needs of an expanding business. The built-in value of our highly competent team serves as a competitive advantage beyond compare. Bret W. Wise Chairman and Chief Executive Officer April 2014 8 BUILT-IN VALUE 2013 DENTSPLY ANNUAL REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2013 Commission File Number 0-16211 DENTSPLY International Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 221 West Philadelphia Street, York, PA (Address of principal executive offices) 39-1434669 (I.R.S. Employer Identification No.) 17405-2558 (Zip Code) Registrant’s telephone number, including area code: (717) 845-7511 Securities registered pursuant to Section 12(b) of the Act: Title of each class Common Stock, par value $.01 per share Name of each exchange on which registered The NASDAQ Stock Market LLC Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:2) No (cid:3) Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:3) No (cid:2) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (cid:2) No (cid:3) Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes (cid:2) No (cid:3) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. □ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of ‘‘accelerated filer and large accelerated filer’’ in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer (cid:2) Accelerated filer □ Non-accelerated filer □ Smaller reporting company □ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes (cid:3) No (cid:2) The aggregate market value of the voting common stock held by non-affiliates of the registrant computed by reference to the the registrants most recently completed second quarter June 30, 2013, was the last business day of closing price as of $5,825,578,435. The number of shares of the registrant’s Common Stock outstanding as of the close of business on February 13, 2014 was 141,813,505. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of the definitive Proxy Statement of DENTSPLY International Inc. (the ‘‘Proxy Statement’’) to be used in connection with the 2014 Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K to the extent provided herein. Except as specifically incorporated by reference herein the Proxy Statement is not deemed to be filed as part of this Form 10-K. DENTSPLY International Inc. Table of Contents PART I Item 1 Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1A Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 1B Unresolved Staff Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 4 Not Applicable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART II Item 5 Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations . . . . . . Item 7A Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9 Changes In and Disagreements With Accountants on Accounting and Financial Disclosure . . . . . Item 9A Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 9B Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 10 Directors, Executive Officers and Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stock Matters . . Item 13 Certain Relationships and Related Transactions and Director Independence . . . . . . . . . . . . . . . Item 14 Principal Accountant Fees and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page 1 8 15 16 17 18 18 19 21 22 40 42 42 42 42 43 43 43 43 43 Item 15 Exhibits and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 PART IV i (This page intentionally left blank.) PART I FORWARD-LOOKING STATEMENTS ‘‘plan,’’ ‘‘intend,’’ ‘‘project,’’ ‘‘believe,’’ statements ‘‘anticipate,’’ This report contains information that may constitute ‘‘forward-looking statements’’ within the meaning of the Litigation Reform Act of 1995. Private Securities ‘‘could,’’ Generally, the use of terms such as ‘‘may,’’ ‘‘expect,’’ ‘‘estimate,’’ ‘‘forecast,’’ ‘‘assumes’’ and similar expressions identify forward-looking statements. All that address operating performance, events or developments that DENTSPLY International Inc. (‘‘DENTSPLY’’ or the ‘‘Company’’) expects or anticipates will occur in the future are forward-looking statements. Forward-looking statements are based on management’s current expectations and beliefs, and are inherently susceptible in circumstances that could cause actual results to differ materially from the Company’s historical experience and our present expectations or projections. These risks and uncertainties include, but are not those described in Part I, Item 1A (‘‘Risk Factors’’) and elsewhere in this report and those described from time to time in our future reports filed with the Securities and Exchange Commission. The Company undertakes no duty and has no obligation to update forward-looking statements as a result of future events or developments. to uncertainty, and changes limited to, risks, PART I Item 1. Business HISTORY AND OVERVIEW DENTSPLY, a Delaware corporation which dates its history to 1899, believes it is the world’s largest designer, developer, manufacturer and marketer of a broad range of consumable dental products for the professional dental market. The Company also manufactures and markets device other The products. Company’s principal product categories are dental consumable products, dental laboratory products, dental specialty products and consumable medical device products. The Company’s worldwide headquarters and executive offices are located in York, Pennsylvania. consumable medical Consolidated net sales, excluding precious metal content, of the Company’s dental products accounted for approximately 88% of DENTSPLY’s consolidated net sales, excluding precious metal content, for the year ended December 31, 2013. The remaining consolidated net is primarily sales, excluding precious metal content, 1 related to consumable medical device products and materials sold to the investment casting industry. The sales, excluding precious metal presentation of net content, is considered a measure not calculated in accordance with generally accepted accounting principles in the United States of America (‘‘US GAAP’’), and is therefore considered a non-US GAAP measure. This non-US GAAP measure in ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ and a reconciliation of net sales to net sales, excluding precious metal content, is provided. discussed further is Throughout 2013, the Company conducted its business through four operating segments. During the year ended December 31, 2013, the Company realigned certain implant and implant related businesses as a result of changes to the business structure. All of the Company’s segments are primarily engaged in the design, manufacture and distribution of dental and medical products in four principal product categories: 1) dental consumable products 2) dental laboratory products 3) dental specialty products and 4) consumable medical device products. The Company conducts its business in the United States of America (‘‘U.S.’’), as well as in over 120 foreign countries, principally through its foreign subsidiaries. DENTSPLY has a long-established presence in the European market, particularly in Germany, Sweden, France, the United Kingdom (‘‘UK’’), Switzerland and Italy, as well as in Canada. The Company also has a significant market presence in the countries of the Commonwealth of Independent States (‘‘CIS’’), Central and South America, region and the Pacific Rim. the Middle-East Geographic Information sales, including For 2013, 2012 and 2011, the Company’s net sales, excluding precious metal content, to customers outside accounted the U.S., for export respectively, of approximately 67%, 67% and 66%, consolidated net sales, excluding precious metal content. Reference is made to the information about the Company’s U.S. and foreign sales by shipment origin set forth in Note 5, Segment and Geographic Information, to the consolidated financial statements in this Form 10-K. Segment Information Information regarding the Company’s operating segments for the years ended December 31, 2013, 2012 and 2011 can be found in Note 5, Segment and Geographic Information, to the consolidated financial statements in this Form 10-K. Small equipment products in the dental consumable products category consist of various durable goods used in dental offices for the treatment of patients. DENTSPLY’s small equipment products include dental handpieces, intraoral curing light systems, dental diagnostic systems and ultrasonic scalers and polishers. PRINCIPAL PRODUCTS Dental Laboratory Products dental dental specialty professional The worldwide products. Additionally, industry encompasses the diagnosis, treatment and prevention of disease and ailments of the teeth, gums and supporting bone. DENTSPLY’s principal dental product categories are dental consumable products, dental laboratory products the and Company’s consumable medical device products provide for urological and surgical applications. These products are produced by in the U.S. and the Company internationally and are distributed throughout the world under some of the most well-established brand names and trademarks in these industries, including ANKYLOS, AQUASIL ULTRA, ARTICADENT, ASTRA TECH, ATLANTIS, BELLOVAC CAVITRON, CERAMCO, CERCON, CITANEST, DELTON, DENTSPLY, ESTHET.X, DETREY, DYRACT, IN-OVATION, FRIADENT, GENIE, GOLDEN GATE, INTERACTIVE MYSTIQUE, LOFRIC, MAILLEFER, MIDWEST, NUPRO, ORAQIX, OSSEOSPEED, PLUS, PEPGEN P-15, PORTRAIT, PRIME & BOND, PROFILE, PROTAPER, RECIPROC, RINN, SANI-TIP, STYLUS, SULTAN, SUREFIL, THERMAFIL, TRIODENT MATRIX SYSTEMS, TRUBYTE, WAVEONE, WELLSPECT, XIVE, XYLOCAINE and ZHERMACK. ELEPHANT, PALODENT CALIBRA, ECLIPSE, CAULK, XENO, ABT, Dental Consumable Products Dental consumable products consist of value added dental supplies and devices and small equipment used in dental offices for the treatment of patients. Net sales of dental consumable products, excluding precious metal content, accounted for approximately 28%, 28% and 33% of the Company’s consolidated net sales, excluding precious metal ended content, December 31, 2013, 2012 and 2011, respectively. years the for DENTSPLY’s dental supplies and devices in the dental consumable products category include dental anesthetics, prophylaxis paste, dental sealants, impression materials, restorative materials, tooth whiteners and topical fluoride. The Company manufactures thousands of different dental consumable products marketed under more than one hundred brand names. 2 Dental sales of dental laboratory products are used in the laboratories. preparation of dental appliances by dental Net laboratory products, excluding precious metal content, accounted for approximately 10%, 11% and 14% of the Company’s consolidated net sales, excluding precious metal content, for the years ended December 31, 2013, 2012 and 2011, respectively. DENTSPLY’s products in the dental products category include dental prosthetics, laboratory including artificial teeth, precious metal dental alloys, dental ceramics and crown and bridge materials. Equipment in this category includes computer aided design and machining (CAD/CAM) ceramic systems and porcelain furnaces. Dental Specialty Products Dental specialty products are specialized treatment products used within the dental office and laboratory settings. Net sales of dental specialty products, excluding precious metal content, accounted for approximately 49%, 48% and 46% of the Company’s consolidated net sales, excluding precious metal content, for the years ended December 31, 2013, 2012 and 2011, respectively. DENTSPLY’s products in this category include endodontic (root canal) instruments and materials, implants and related products, bone grafting materials, 3D digital scanning and treatment planning software, dental lasers and orthodontic appliances and accessories. Consumable Medical Device Products Consumable medical device products consist mainly of urology catheters, certain surgical products, medical drills and other non-medical products. Net sales of consumable medical device products, excluding precious metal content, accounted for approximately 13%, 13% the Company’s consolidated net sales, and 7% of excluding precious metal content, for the years ended December 31, 2013, 2012 and 2011, respectively. Markets, Sales and Distribution The Company believes that its products will grow over the long-term based on the following factors: the market for • • • • • • • Increasing worldwide population. Aging mix of population in developed countries — The U.S., European, Japanese and regions have aging population with other and for significant healthcare, the elderly in these regions are well positioned to pay for the required procedures since of control they discretionary income. amounts sizable dental needs care are teeth retained Natural being longer — Individuals with natural teeth are much more likely to visit a dentist in a given year teeth than those without any natural remaining. The changing dental practice in North America and Western Europe — Dentistry in North America and Western Europe has been transformed from a profession primarily dealing with pain, infections and tooth decay to one with increased emphasis on preventive care and cosmetic dentistry. The demands for patient comfort and ease of product use and handling. capita and discretionary Per incomes are increasing in emerging markets — As personal incomes continue to rise in the emerging nations of the Pacific Rim, CIS and Latin America, obtaining healthcare, including dental services, is a growing priority. Many surveys indicate the middle class population will expand significantly within these emerging markets. The Company’s business is less susceptible than many other industries to general downturns in the economies in which it operates. Many of the products the Company offers relate to dental procedures and health conditions that are considered necessary by patients regardless of the economic environment. Dental specialty products support products discretionary dental procedures are the most susceptible to changes in economic conditions. that and DENTSPLY believes that demand in a given geographic market for its dental and medical products vary according to the stage of social, economic and technical particular market. of Geographic markets for DENTSPLY’s dental and medical products can be categorized into the following two stages of development: development the Developed Markets The U.S., Canada, Western Europe, Japan, Australia and certain other countries are highly developed markets that demand the most advanced dental and health products and have the highest level of expenditures for dental and medical care. These markets account for approximately 80% to 85% of the Company’s net sales. In these markets, dental care is increasingly focused upon preventive care and specialized dentistry, in addition to basic procedures, such as excavation of teeth and filling of cavities, tooth extraction and denture replacement. These markets require varied and complex dental products, utilize sophisticated diagnostic and imaging equipment and demand high levels of attention to protect against infection and patient cross-contamination. A broader segment of the population in these markets can afford higher end treatments in both dental and medical care. Emerging Markets In certain countries in Central America, South America, Eastern Europe, Pacific Rim, Middle East and Africa, most dental care is often limited to excavation of teeth and filling of cavities and other restorative per for approximately 15% to 20% of capita reflecting more modest techniques, expenditures for dental and medical care. These markets account the Company’s net sales. The Company markets products including dual-brand range with a diverse price alternatives to address patient and professional needs. However, there is also a portion of the population in these markets that receive excellent dental and medical care similar to that received in developed countries. As such our premium products are actively sold into these regions. The Company offers products and equipment for use in markets at both of these stages of development. The Company believes that demand for more technically advanced products will increase as each of these markets develop. The Company also believes that its recognized brand names, high quality and innovative products, clinical education and technical support services and 3 strong international distribution capabilities position it well, to benefit from opportunities in virtually any market. DENTSPLY employs approximately 3,600 highly trained, product-specific sales and technical staff to provide comprehensive marketing and service tailored to the particular sales and technical support requirements of the distributors, dealers and the end-users. Dental DENTSPLY distributes approximately half of its dental products through third-party distributors. Certain highly technical products such as precious metal dental alloys, dental ceramics, crown and bridge porcelain products, and materials, orthodontic endodontic appliances, implants, and bone substitute and grafting materials are sold directly to the dental laboratory or dental professionals in some markets. During 2013 and instruments 2012, the Company did not have any single customer the UK, Germany and France. Sales efforts target urologists, urology nurses, general practitioners and direct-to-patients. Historical reimbursement levels within Europe have been higher for intermittent catheters which explain a greater penetration of single-use catheter products in that market. In the U.S., which the Company considers an important reimbursement environment has improved since 2008 as the infection cost benefits of disposable catheters gain control acceptance among payers. growth market, the throughout The surgery products business operates directly in 13 and Australia, with Europe countries distributors in 21 additional markets. The largest markets include Australia, Norway and the UK. Sales efforts target surgeons, hospital nurses, physiotherapists, hospital purchasing departments and medical supply distributors. that represented ten percent or more of DENTSPLY’s The Company also maintains ongoing relationships consolidated net sales. In 2011, one customer, Henry with various medical associates, professional and key Schein Incorporated, a dental distributor, accounted for opinion leaders to help promote our products, although 11% of DENTSPLY’s consolidated net sales. No other there are no assurances that they will continue to support single customer, represented ten percent or more of the Company’s products in the future. DENTSPLY’s consolidated net sales during 2011. Although many of its dental sales are made to Product Development distributors, dealers and importers, DENTSPLY focuses its Innovation and successful product development are marketing efforts on the dentists, dental hygienists, critical to keeping market leadership position in key dental assistants, dental laboratories and dental schools product categories and growing market share in other which are the end-users of its products. As part of this products categories while strengthening the Company’s end-user ‘‘pull through’’ marketing approach, The prominence in the dental and medical markets that it Company conducts extensive distributor, dealer and serves. While many of DENTSPLY’s existing products end-user marketing programs. Additionally, the Company undergo brand extensions, the Company also continues trains laboratory technicians, dental hygienists, dental to focus efforts on successfully launching innovative assistants and dentists in the proper use of its products products that represent fundamental change. and introduces them to the latest technological developments at its educational courses conducted throughout the world. The Company also maintains ongoing relationships with various dental associations and recognized worldwide opinion leaders in the dental field, although there is no assurance that these influential dental professionals will continue to support the Company’s products in the future. Medical The Company’s urology products business reaches the market directly in 16 countries throughout Europe and North America, 18 additional markets. The largest markets and through distributors in include 4 this technological development, New advances in technology are also anticipated to have a significant influence on future products in dentistry and in select areas of healthcare. As a result, the Company pursues research and development initiatives to including support collaborations with external research institutions, dental and medical schools. Through its own internal research centers as well as through its collaborations with external research institutions, dental and medical schools, the Company directly invested $85.1 million, $85.4 million and $66.7 million in 2013, 2012 and 2011, respectively, in connection with the development of new products, in improvement of existing products and advances technology. The continued development of these areas is a critical step in meeting the Company’s strategic goal as a leader in defining the future of dentistry and in select areas in health care. investment In addition to the direct in product development and improvement, the Company also invests in these activities through acquisitions, and by entering into licensing agreements with third parties as well as purchasing technologies developed by third parties. Acquisition Activities DENTSPLY believes that the dental products industry continues to experience consolidation with respect to both product manufacturing and distribution, although it fragmented thereby creating a number of remains acquisition opportunities. DENTSPLY also seeks to expand its position in consumable medical device products through acquisitions. The Company views acquisitions as a key part of its growth strategy. These acquisition activities are intended to supplement the Company’s core growth and assure including new ongoing expansion of technologies, geographic breadth. its business, products additional and Operating and Technical Expertise are believes important DENTSPLY that to its manufacturing The success. its capabilities the Company’s products manufacturing process of substantial and varied technical expertise. requires Complex materials are technology necessary to manufacture the Company’s products. The Company global to manufacturing operations in order to improve quality and customer service and lower costs. and processes endeavors automate its Financing Information about DENTSPLY’s working capital, liquidity in resources ‘‘Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ in this Form 10-K. provided capital and is Competition The Company its operations, both conducts domestic and foreign, under highly competitive market conditions. Competition in the dental and medical products industries is based primarily upon product performance, quality, safety and ease of use, as well as innovation and acceptance by price, customer service, patients. DENTSPLY professionals, technicians and its that include strengths its believes principal well-established brand names, its reputation for high quality and innovative products, its leadership in product development and manufacturing, its product line, its commitment to customer satisfaction and support of the Company’s products by dental and medical professionals. the breadth of The size and number of the Company’s competitors vary by product line and from region to region. There are many companies that produce some, but not all, of the same types of products as those produced by the Company. Regulation is subject ‘‘device’’ The Company’s products are subject to regulation by, among other governmental entities, the U.S. Food and Drug Administration (the ‘‘FDA’’). In general, if a dental to FDA regulation, or medical compliance with the FDA’s requirements constitutes compliance with corresponding state regulations. In order to ensure that dental and medical products distributed for human use in the U.S. are safe and effective, the FDA regulates the introduction, manufacture, advertising, labeling, packaging, marketing and distribution of, and record-keeping for, such products. The introduction and the types sale of dental and medical products of produced by to government regulation in the various foreign countries in which they are produced or sold. DENTSPLY believes that it is in substantial compliance with the FDA and foreign regulatory requirements that are applicable to its products and manufacturing operations. the Company also subject are regarding Dental and medical devices of the types sold by DENTSPLY are generally classified by the FDA into a renders them subject only to general category that including controls that apply to all medical devices, misbranding, alteration, regulations notification, record-keeping and good manufacturing practices. In the European Union, DENTSPLY’s products are subject to the medical devices laws of the various member states, which are based on a Directive of the European Commission. Such laws generally regulate the safety of the products in a similar way to the FDA regulations. DENTSPLY products in Europe bear the CE mark showing that such products adhere to European regulations. All dental amalgam filling materials, including those manufactured and sold by DENTSPLY, contain mercury. Various groups have alleged that dental amalgam 5 the National lobbied state and federal containing mercury is harmful to human health and have actively lawmakers and regulators to pass laws or adopt regulatory changes restricting the use, or requiring a warning against alleged potential risks, of dental amalgams. The FDA’s Dental Institute of Devices Classification Panel, Health and the U.S. Public Health Service have each indicated that no direct hazard to humans from exposure to dental amalgams has been demonstrated. In response to concerns raised by certain consumer groups regarding dental amalgam, the FDA formed an advisory committee in 2006 to review peer-reviewed scientific literature on the safety of dental amalgam. In July 2009, the FDA concluded its review of dental amalgam, confirming its use as a safe and effective restorative material. Also, as a result of this review, the FDA classified amalgam and its component parts, elemental mercury and powder alloy, as a Class II medical device. Previously there was no mercury within dental amalgam, which has resulted in the sale of mercury containing products being banned in Sweden and severely curtailed in Norway. DENTSPLY also manufactures and sells non-amalgam dental filling materials that do not contain mercury. Sources and Supply of Raw Materials and Finished Goods The Company manufactures the majority of the products sold by the Company. Most of the raw materials used by the Company in the manufacture of its products are purchased from various suppliers and are typically available from numerous sources. No single supplier 10% of DENTSPLY’s than accounts requirements. for more Intellectual Property classification for encapsulated amalgam and dental Products manufactured by DENTSPLY are sold mercury (Class I) and alloy (Class II) were classified primarily under its own trademarks and trade names. separately. This new regulation places encapsulated DENTSPLY also owns and maintains more than amalgam in the same class of devices as most other 2,500 patents throughout the world and is licensed under restorative materials, including composite and gold a small number of patents owned by others. fillings, and makes amalgam subject to special controls by FDA. In that respect, the FDA recommended that certain information about dental amalgam be provided, which includes information indicating that dental amalgam releases low levels of mercury vapor, and that studies on people age six and over as well as FDA estimated exposures of children under six, have not indicated any adverse health risk associated with the use of dental amalgam. After the FDA issued this regulation, several petitions were filed asking the FDA to reconsider its position. Another advisory panel was established by the FDA to consider these petitions. Hearings of the advisory panel were held in December 2010. The FDA has taken no action as of the filing date of this Form 10-K from this latest advisory panel meeting. DENTSPLY’s policy is to protect its products and technology through patents and trademark registrations both in the U.S. and in significant international markets. The Company carefully monitors trademark use worldwide and promotes enforcement of its patents and trademarks in a manner that is designed to balance the cost of such protection against obtaining the greatest value for the Company. DENTSPLY believes its patents and trademark properties are important and contribute to the Company’s marketing position but it does not consider its overall business to be materially dependent upon any individual patent or trademark. Employees In Europe, particularly in Scandinavia and Germany, the contents of mercury in amalgam filling materials have been the subject of public discussion. As a consequence, in 1994 the German health authorities required suppliers of dental amalgam to amend the instructions for use of amalgam filling materials to include a precaution against the use of amalgam for children less than eighteen years of age and to women of childbearing age. Additionally, some groups have asserted that the use of dental amalgam should be prohibited because of concerns from the disposition of about environmental impact At December 31, 2013, the Company and its subsidiaries employed approximately 11,800 employees. Of these employees, approximately 3,400 were employed in the United States and 8,400 in countries outside of the United States. Less than 5% of employees in the United States are covered by collective bargaining agreements. Some employees outside of the United States are covered by collective bargaining, union contract or other similar type program. The Company it has a positive relationship with its believes that employees. 6 Environmental Matters Securities and Exchange Act Reports DENTSPLY believes that its operations comply in all material respects with applicable environmental laws and regulations. Maintaining this level of compliance has not had, and is not expected to have, a material effect on the Company’s capital expenditures or on its business. Other Factors Affecting the Business Approximately two-thirds of the Company’s sales are located in regions outside the U.S., and the Company’s consolidated net sales can be impacted negatively by the strengthening or positively by the weakening of the U.S. dollar. Additionally, movements in certain foreign exchange rates may unfavorably or favorably impact the Company’s results of operations, financial condition and liquidity. The Company’s business is subject to quarterly fluctuations of consolidated net sales and net income. The Company typically implements most of its price changes in the beginning of the first or fourth quarter. changes, other marketing and promotional Price programs as well as the management of inventory levels by distributors and the implementation of strategic initiatives, may impact sales levels in a given period. Sales for the industry and the Company are generally strongest in the second and fourth calendar quarters and weaker in the first and third calendar quarters, due to the effects of the items noted above and due to the impact of holidays and vacations, particularly throughout Europe. including the Company, The U.S. Securities and Exchange Commission (‘‘SEC’’) maintains a website that contains reports, proxy information and information statements, and other regarding issuers, file that electronically with the SEC. The public can obtain any documents that the Company files with the SEC at http://www.sec.gov. The Company files annual reports, quarterly reports, proxy statements and other documents with the SEC under the Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’). The public may read and copy any materials the Company files with the SEC at its Public Reference Room at the following address: The Securities and Exchange Commission 100 F Street, NE Washington, D.C. 20549 The public may obtain information on the operation of this Public Reference Room by calling the SEC at 1-800-SEC-0330. DENTSPLY also makes available free of charge through its website at www.DENTSPLY.com its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such materials are filed with or furnished to the SEC. The Company tries to maintain short lead times the backlog on to the financial such, is generally not material within its manufacturing, as products statements. 7 Item 1A. Risk Factors The following are the significant risk factors that could materially impact DENTSPLY’s business, financial condition or future results. The order in which these factors appear should not be construed to indicate their relative importance or priority. Negative changes could occur in the dental or medical device markets, the general economic environments, or government reimbursement or regulatory programs of the regions in which the Company operates. The success of the Company is largely dependent upon the continued strength of dental and medical device markets and is also somewhat dependent upon the general economic environments of the regions in which DENTSPLY operates. Negative changes to these markets and economies could materially impact the Company’s results of operations and financial condition. In many markets, dental reimbursement is largely out of pocket for the consumer and thus utilization rates can vary For significantly depending on economic growth. instance, data suggests that the utilization of dental services by working age adults in the U.S. may have declined over the last several years. Additionally, there is also uncertainty as to what impact the Affordable Care Act may have on dental utilization in the U.S. In certain markets, particularly in the European Union, government and regulatory programs have a more significant impact than in other markets. Changes to these programs could have a positive or negative impact on the Company’s results. Prolonged negative economic conditions in domestic and global markets may adversely affect the Company’s suppliers and customers and consumers, which could harm the Company’s financial position. Prolonged negative changes in domestic and global economic conditions or disruptions of either or both of the financial and credit markets may affect the chain and the customers and Company’s consumers of the Company’s products and may have a material adverse effect on the Company’s results of operations, financial condition and liquidity. supply Due to the Company’s international operations, the Company is exposed to the risk of changes in foreign exchange rates. Due to the international nature of DENTSPLY’s business, movements in foreign exchange rates may 8 the weakening of impact the consolidated statements of operations. With approximately two-thirds of the Company’s sales located in regions outside the U.S., the Company’s consolidated net sales are impacted negatively by the strengthening or the U.S. dollar. positively by Additionally, movements in certain foreign exchange rates may unfavorably or the Company’s results of operations, financial condition and liquidity. Although the Company uses certain financial tools to attempt in foreign exchange rates, there can be no assurance that such measures will be effective or that they will not create additional financial obligations on the Company. to mitigate market favorably impact fluctuations Volatility in the capital markets or investment vehicles could limit the Company’s ability to access capital or could raise the cost of capital. Although the Company continues to have positive operating cash flow, a disruption in the credit markets may reduce sources of liquidity available to the Company. The Company relies on multiple financial institutions to provide funding pursuant to existing and/or future credit agreements, and those institutions may not be able to provide funding in a timely manner, or at all, when required by the Company. The cost of or lack of available credit could impact the Company’s ability to develop sufficient liquidity to maintain or grow the Company, which in turn may adversely affect the Company’s businesses and results of operations, financial condition and liquidity. The Company also manages cash and cash equivalents and short-term investments through various institutions. There may be a risk of loss on investments based on the volatility of the underlying instruments that would not allow the Company to recover the full principal of its investments. The Company may not be able to access or renew its precious metal consignment facilities resulting in a liquidity constraint equal to the fair market value of the precious metal value of inventory and would subject the Company to inventory valuation risk as the value of the precious metal inventory fluctuates resulting in greater volatility to reported earnings. The Company’s ability to supply products to meet customer demand; negatively affect the market price of the Company’s common stock, regardless of actual operating • • • • • • • • • • The Company’s quarterly operating results and market price for the Company’s common stock may be volatile. DENTSPLY experiences fluctuations in quarterly sales and earnings due to a number of factors, many of which the Company’s control, are substantially outside of including but not limited to: The timing of new product introductions by DENTSPLY and its competitors; Timing of industry tradeshows; Changes in customer inventory levels; Developments in government reimbursement policies; Changes in customer preferences and product mix; Fluctuations in manufacturing costs; Changes in income tax laws and incentives which could create adverse tax consequences; Fluctuations in currency exchange rates; and General economic conditions, as well as those specific related industries. healthcare and the to As a result, the Company may fail to meet the expectations of securities analysts and investors, which could cause its stock price to decline. The quarterly fluctuations generally result in net sales and operating profits historically being higher in the second and fourth quarters. The Company typically implements most of its price changes early in the fourth quarter or beginning of the year. These price changes, other marketing and promotional programs, which are offered to customers from time to time in the ordinary course of business, the management of inventory levels by distributors and the implementation of strategic initiatives, may impact sales levels in a given period. Net sales and operating profits generally have been lower in the first and third quarters, primarily due not only to increased sales in the quarters preceding these quarters, but also due to the impact of holidays and vacations, particularly throughout Europe. In addition to fluctuations in quarterly earnings, a variety of other factors may have a significant impact on the market price of DENTSPLY’s common stock causing 9 volatility. These factors include, but are not limited to, the publication of earnings estimates or other research investment reports and speculation in the press or community; changes in the Company’s industry and competitors; the Company’s financial condition and cash flows; any future issuances of DENTSPLY’s common stock, which may include primary offerings for cash, stock splits, issuances in connection with business acquisitions, restricted stock and the grant or exercise of stock options from time to time; general market and economic conditions; and any outbreak or escalation of hostilities in geographical areas in which the Company does business. Also, the NASDAQ National Market (‘‘NASDAQ’’) can experience extreme price and volume fluctuations that can be unrelated or disproportionate to the operating performance of the companies listed on the factors may NASDAQ. Broad market and industry performance. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against companies. This type of litigation, if instituted, could in substantial result of costs management’s attention and resources, which could harm the Company’s business. diversion and a The dental and medical device supplies markets are highly competitive and there is no guarantee that the Company can compete successfully. successfully, or that new products The worldwide markets for dental and medical products are highly competitive. There can be no assurance that the Company will successfully identify new product opportunities and develop and market new products and technologies introduced by competitors will not render the Company’s products obsolete or noncompetitive. Additionally, the size and number of the Company’s competitors vary by product line and from region to region. There are many companies that produce some, but not all, of the same types of products as those produced by the Company. Certain of DENTSPLY’s competitors may have greater than the Company. In addition, the Company is exposed to the risk that its customers may introduce private label, generic, or low cost products that compete with the Company’s products at lower price points. If these competitors’ products capture significant market share or result in a decrease in market prices overall, this its competitors or resources could have a negative impact on the Company’s results of operations and financial condition. Inventories maintained by the Company’s customers may fluctuate from time to time. The Company relies in part on its predictions of dealer and customer inventory levels in projecting future demand levels and financial results. These inventory levels may fluctuate, and may differ from the Company’s predictions, resulting in the Company’s projections of future results being different than expected. There can be no assurance that the Company’s dealers and customers will maintain levels of inventory in accordance with the Company’s predictions or past history, or that the timing of customers’ inventory build or liquidation will be in accordance with the Company’s predictions or past history. The Company may be unable to develop innovative products or obtain regulatory approval for new products. The market for DENTSPLY’s products is characterized by rapid and significant technological change, evolving industry standards and new product introductions. There can be no assurance that DENTSPLY’s products will not become noncompetitive or obsolete as a result of such factors or that we will be able to generate any economic return on the Company’s in product development. If the Company’s products or technologies become noncompetitive or obsolete, DENTSPLY’s business could be negatively affected. investment DENTSPLY has identified new products as an important part of its growth opportunities. There can be no assurance that DENTSPLY will be able to continue to develop innovative products and that regulatory approval of any new products will be obtained from applicable U.S. or international government or regulatory authorities, or that if such approvals are obtained, such products will be favorably accepted in the marketplace. Additionally, there is no assurance that entirely new technology or approaches to dental treatment or competitors’ new products will not be introduced that could render the Company’s products obsolete. DENTSPLY may be unable to obtain necessary product approvals and marketing clearances. DENTSPLY must obtain certain approvals and marketing clearances from governmental authorities, including the FDA and similar health authorities in foreign countries to market and sell its products. These regulatory agencies regulate the marketing, manufacturing, labeling, packaging, advertising, sale and distribution of medical devices, including the export of medical devices to foreign countries. The regulatory review process which must be completed prior to marketing a new medical device may delay or hinder a product’s timely entry into the marketplace. There can be no assurance that the review or approval process for these products by the FDA or any other applicable governmental authority will occur in a timely fashion, if at all, or that additional regulations will not be adopted or current regulations amended in such a manner as will adversely affect the Company. The FDA also oversees the content of advertising and marketing materials relating to medical devices which have received FDA clearance. Delays or failure to receive the necessary product approvals from governmental authorities could negatively impact DENTSPLY’s operations. DENTSPLY’s business is subject to extensive, complex and changing laws, regulations and orders that failure to comply with could subject us to civil or criminal penalties or other liabilities. by are administered orders which DENTSPLY is subject to extensive laws, regulations and various international, federal and state governmental authorities, including, among others, the FDA, the Office of Foreign Assets Control of the United States Department of the Treasury (‘‘OFAC’’), the Bureau of Industry and Security of the United States Department of Commerce (‘‘BIS’’), the United States Federal Trade Commission, the United States Department of Justice and other similar domestic and foreign authorities. These regulations include, but are not limited to, the U.S. Foreign Corrupt Practices Act and similar the Physician regulations concerning the Payments Sunshine Act, supply of environmental regulations and regulations relating to trade, import and export controls and economic sanctions. Such laws, regulations and orders may be complex and are subject to change. international anti-bribery laws, conflict minerals, various Compliance with the numerous applicable existing and new laws, regulations and orders could require us to incur substantial regulatory compliance costs. Although the Company has implemented policies and procedures to comply with applicable laws, regulations and orders, there can be no assurance that governmental authorities will not raise compliance concerns or perform audits to regulations and confirm compliance with such laws, orders. Failure to comply with applicable laws, regulations 10 actions, in a range of governmental or orders could result enforcement including fines or penalties, injunctions and/or criminal or other civil proceedings. Any such actions could result in higher than anticipated costs or lower than anticipated revenue and could have a material adverse effect on the Company’s reputation, business, financial condition and results of operations. reports and concerns regarding the potential hazards of dental amalgam or of BPA could contribute to a perceived the Company’s products that contain safety risk for mercury or BPA. Adverse publicity about the quality or safety of our products, whether or not ultimately based on fact, may have an adverse effect on our brand, reputation and operating results. In 2012, the Company received subpoenas from the United States Attorney’s Office for the Southern District of Indiana (the ‘‘USAO’’) and from OFAC requesting documents and information related to compliance with export controls and economic sanctions regulations by certain of its subsidiaries. The Company also voluntarily contacted OFAC and BIS regarding compliance with export controls and economic sanctions regulations by certain other business units of the Company identified in an ongoing internal review by the Company. The Company is cooperating with the USAO, OFAC and BIS with respect to these matters. Challenges may be asserted against the Company’s products due to real or perceived quality or health issues. to the environment. The Company manufactures and sells a wide portfolio of dental and medical device products. While the Company endeavors to ensure that its products are safe and effective, there can be no assurance that there may not be challenges from time to time regarding the the real or perceived quality or health impact of Company’s products. All dental amalgam filling materials, including those manufactured and sold by DENTSPLY, contain mercury. Some groups have asserted that amalgam should be discontinued because of its mercury that disposal of mercury containing content and/or products may be harmful If governmental authorities elect to place restrictions or significant regulations on the sale and/or disposal of dental amalgam, that could have an adverse impact on the Company’s sales of dental amalgam. DENTSPLY also manufactures and sells non-amalgam dental filling materials that do not contain mercury but that may contain bisphenol-A, commonly called BPA. BPA is found in many everyday items, such as plastic bottles, foods, detergents and toys, and may be found in certain dental composite materials or sealants either as a by-product of other ingredients that have degraded, or as a trace material from the manufacture of other ingredients used in such composites or sealants. The FDA currently allows the use of BPA in dental materials, medical devices, and food packaging. Nevertheless, public left over The Company may be unable to obtain a supply for certain finished goods purchased from third parties. A significant portion of the Company’s injectable anesthetic products, orthodontic products, certain dental cutting instruments, catheters, nickel titanium products and certain other products and raw materials are purchased from a limited number of suppliers and in certain cases single source suppliers, some of which may also compete with the Company. As there are a limited number of suppliers for these products, there can be no assurance that the Company will be able to obtain an adequate supply of these products and raw materials in the future. Any delays in delivery of or shortages in these products could interrupt and delay manufacturing of the Company’s products and result in the cancellation of orders for these products. In addition, these suppliers could discontinue the manufacture or supply of these products to the Company at any time or supply products to competitors. DENTSPLY may not be able to identify and integrate alternative sources of supply in a timely fashion or at all. Any transition to alternate suppliers may result in delays in shipment and increased expenses and may limit the Company’s ability to deliver products to customers. If the Company is unable to develop reasonably priced alternative sources in a timely manner, or if the Company encounters delays or other difficulties in the supply or manufacturing of such products and other materials internally or from third parties, the Company’s business and results of operations may be harmed. The Company is facing increased competition in its Orthodontics business as it recovers from a supply disruption in 2011 and 2012. One of the Company’s key suppliers, which was the source of comprising certain orthodontic products approximately 9% of the Company’s 2010 consolidated net sales, excluding precious metal content, was located in the zone that was evacuated following the March 2011 tsunami in Japan. The supplier lost access to its facility and as a result, product supply was severely disrupted through the remainder of 2011 and during a portion of 2012. The supplier gradually restored operations in 2012. The Company has been recovering a portion of the 11 business lost during the supply disruption, but is facing additional competition in part due to capacity added by competition while the Company was out of the market and also in part due to new competitors entering the market and from alternative technologies. The Company continues to source product from its supplier in Japan under an agreement that is subject to periodic renewal and has also established alternative sources of supply. Given the highly competitive conditions in the market, there is no assurance that the Company will be able to recover market share lost during the product outage, or that its existing or alternative sources will be sufficient to allow the Company to have a competitive position in the marketplace. The Company’s expansion through acquisition involves risks and may not result in the expected benefits. The Company continues to view acquisitions as a key part of its growth strategy. The Company continues to be active in evaluating potential acquisitions although there is no assurance that these efforts will result in completed transactions as there are many factors that affect the success of such activities. If the Company does succeed in acquiring a business or product, there can be no assurance that the Company will achieve any of the benefits that it might anticipate from such an acquisition and the attention and effort devoted to the integration of could divert management’s an acquired business the attention from normal business operations. Company makes acquisitions, it may incur debt, assume contingent liabilities and/or additional risks, or create additional expenses, any of which might adversely affect its financial results. Any financing that the Company might need for acquisitions may only be available on terms that restrict its business or that impose additional costs that reduce its operating results. If The Company may fail to successfully complete the integration of Astra Tech or fully realize the benefits of the acquisition. The success of the Company’s acquisition of Astra Tech depends upon its ability to realize anticipated benefits from integrating Astra Tech’s business into its operations. The Company’s ongoing business could be disrupted and management’s attention diverted due to integration planning activities and as a result of the actual integration of following the acquisition. In addition, conditions in the dental implant and urological medical device markets, including but not increased competition and limited to market growth, two companies the 12 government regulation, may differ from the Company’s assumptions and assessments made at the time of the acquisition. As a result, the Company may not fully realize the benefits of the integration as anticipated. The Company may fail to realize the expected benefits of its cost reduction and restructuring efforts. In order to operate more efficiently and control costs, the Company may announce from time to time restructuring plans, including workforce reductions, global facility consolidations and other cost reduction initiatives that are intended to generate operating expense or cost of goods sold savings through direct and indirect overhead expense reductions as well as other savings. Due to the complexities inherent in implementing these types of cost reduction and restructuring activities, the Company may fail to realize expected efficiencies and benefits, or may experience a delay in realizing such efficiencies and benefits, and its operations and business could be disrupted. Risks associated with these actions and other workforce management issues include delays in implementation of anticipated workforce reductions, additional unexpected costs, changes in restructuring plans that increase or decrease the number of employees affected, adverse effects on employee morale, and the failure to meet operational targets due to the loss of employees, any of which may impair the Company’s ability to achieve anticipated cost reductions or may otherwise harm its business, and could have a material adverse effect on its competitive position, results of operations, cash flows or financial condition. Changes in or interpretations of, accounting principles could result in unfavorable charges to operations. interprets or The Company prepares its consolidated financial statements in accordance with US GAAP. These principles are subject to interpretation by the SEC and various bodies formed to interpret and create appropriate accounting principles. Market conditions have prompted accounting standard setters to issue new guidance which accounting seeks further instruments, pronouncements to to issue new transactions as well as structures or standards expanding disclosures. It is possible that future accounting standards the Company would be required to adopt could change the current accounting treatment consolidated financial applied to the Company’s statements and such changes could have a material to revise financial related adverse effect on the Company’s business, results of operations, financial condition and liquidity. If the Company’s goodwill or intangible assets become impaired, the Company may be required to record a significant charge to earnings. are upon assets dependent Under US GAAP, the Company reviews its goodwill and intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Additionally, goodwill is required to be tested for impairment at least annually. The valuations used to determine the fair values used to test goodwill or intangible various assumptions and reflect management’s best estimates. Net sales growth, discount rates, earnings multiples and future cash flows are critical assumptions used to determine these fair values. Slower net sales growth rates in the dental or medical device industries, an increase in discount rates, unfavorable changes in earnings multiples or a decline in future cash flows, among other factors, may cause a change in circumstances indicating that the carrying value of the Company’s goodwill or intangible assets may not be recoverable. The Company may be required to record a significant charge to earnings in the financial statements during the period in which any the Company’s goodwill or intangible impairment of assets is determined. Changes in or interpretations of, tax rules, operating structures, country profitability mix and regulations may adversely affect the Company’s effective tax rates. The Company is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Unanticipated changes in the Company’s tax rates could affect its future results of operations. The Company’s future effective tax rates could be unfavorably affected by factors such as changes in, or interpretation of, tax rules and regulations in the jurisdictions in which the Company does business, by structural changes in the Company’s businesses, by unanticipated decreases in the amount of revenue or earnings in countries with low statutory tax rates, by lapses of the availability of the U.S. research and development tax credit, or by changes in the valuation of the Company’s deferred tax assets and liabilities. The Company faces the inherent risk of litigation and claims. The Company’s business involves a risk of product legal actions or claims, liability and other including possible recall actions affecting the Company’s types of 13 products. The primary risks to which the Company is exposed are related to those products manufactured by the Company. The Company has insurance policies, including product liability insurance, covering these risks in amounts that are considered adequate; however, the Company cannot provide assurance that the maintained coverage is sufficient to cover future claims or that the coverage will be available in adequate amounts or at a reasonable cost. Also, other types of claims asserted against the Company may not be covered by insurance. A successful claim brought against the Company in excess of available insurance, or another type of claim which is uninsured or that results in significant adverse publicity against the Company, could harm its business and overall cash flows of the Company. Various parties, including the Company, own and maintain patents and other intellectual property rights applicable to the dental and medical device fields. Although the Company believes it operates in a manner that does not infringe upon any third party intellectual property rights, it is possible that a party could assert that one or more of the Company’s products infringe upon such party’s intellectual property and force the Company to pay damages and/or discontinue the sale of certain products. Increasing exposure to markets outside of the U.S. and Europe. We anticipate that sales outside of the U.S. and Europe will continue to expand and account for a significant portion of DENTSPLY’s revenue. Operating in such locations is subject to a number of uncertainties, including, but not limited to, the following: • • • • • • • • • • Economic and political instability; Import or export licensing requirements; Additional compliance-related risks; Trade restrictions; Product registration requirements; Longer payment cycles; Changes in regulatory requirements and tariffs; Fluctuations in currency exchange rates; Potentially adverse tax consequences; and Potentially weak protection of property rights. intellectual The Company’s success is dependent upon its management and employees. and employees. The Company’s success is dependent upon its management senior management employees or failure to recruit and train needed managerial, sales and technical personnel, could have a material adverse effect on the Company. loss of The The Company may be unable to sustain the operational and technical expertise that is key to its success. that believes DENTSPLY its manufacturing capabilities are important to its success. The manufacture the Company’s products requires substantial and of varied technical expertise. Complex materials technology to manufacture the and processes are necessary Company’s products. There can be no assurance that the Company will be able to maintain the necessary operational and technical expertise that is key to its success. The Company may not be able to repay its outstanding debt in the event that cross default provisions are triggered due to a breach of loan covenants. existing borrowing DENTSPLY’s documentation contains a number of covenants and financial ratios, which it is required to satisfy. Any breach of any such covenants or restrictions, the most restrictive of which pertain to asset dispositions, maintenance of certain levels of net worth, and prescribed ratios of indebtedness to total capital and operating income excluding depreciation and amortization of interest expense, would result in a default under the existing borrowing documentation that would permit the lenders to declare all borrowings under such documentation to be immediately due and payable through cross default provisions, would entitle and, loans. DENTSPLY’s other to accelerate their lenders DENTSPLY may not be able to meet its obligations under its outstanding indebtedness in the event that any cross default provisions are triggered. A large number of the Company’s products are manufactured in single manufacturing facilities. Although the Company maintains multiple manufacturing facilities, a large number of the products After closing the Astra Tech acquisition, DENTSPLY has a significant amount of indebtedness. A breach of the covenants under DENTSPLY’s debt instru- ments outstanding from time to time could result in an event of default under the applicable agreement. manufactured by the Company are manufactured in In connection with the financing of the acquisition facilities that are the sole source of such products. As of Astra Tech, the Company incurred additional debt of there are a limited number of alternative suppliers for approximately $1.2 billion. As a consequence, after these products, any disruption at a particular Company closing the Acquisition, DENTSPLY has a significant manufacturing facility could lead to delays, increased amount of indebtedness. DENTSPLY also has the ability to expenses, and may damage the Company’s business and incur up to $500 million of indebtedness under the results of operations. Revolving Credit Facility and may incur significantly more The Company may not generate sufficient cash flow to service its debt, pay its contractual obligations and operate the business. DENTSPLY’s ability to make payments on its indebtedness and contractual obligations, and to fund its future performance and operations depends on its financial results, which, to a certain extent, are subject to general economic, financial, competitive, regulatory and other factors and the interest rate environment that are beyond its control. Although senior management believes that the Company has and will continue to have sufficient liquidity, there can be no assurance that DENTSPLY’s business will generate cash flow from operations in the future to service its debt, pay its contractual obligations and operate its business. sufficient indebtedness in the future. DENTSPLY’s level of indebtedness and related debt service obligations could have negative consequences making it more difficult for the Company to to its satisfy its obligations with respect indebtedness; requiring DENTSPLY to dedicate significant cash flow from operations to the payment of indebtedness, principal and interest on its which would reduce the funds the Company has available for other purposes, including working capital, capital expenditures and acquisitions; and including: • • 14 • reducing DENTSPLY’s flexibility in planning for or reacting to changes in its business and market conditions. DENTSPLY’s current indebtedness contains a number of covenants and financial ratios, which it is required to satisfy. Under the agreements governing the DENTSPLY’s 4.11% Senior Notes due 2016, the Company will be required to maintain a ratio of consolidated debt to consolidated EBITDA of less than or equal to 3.50 to 1.00. The Company may need to reduce the amount of its indebtedness outstanding from time to time in order to comply with such ratio, but no assurance can be given that DENTSPLY will be able to do so. DENTSPLY’s failure to maintain such ratio or a breach of the other covenants under its debt instruments outstanding from time to time could result in an event of default under the applicable agreement. Such a default may allow the creditors to accelerate the related indebtedness and may result in the acceleration of any other indebtedness to which a cross- acceleration or cross-default provision applies. Changes in our credit ratings or macroeconomic impacts on credit markets may increase our cost of capital and limit financing options. We utilize the short and long-term debt markets to obtain capital from time to time. Adverse changes in our credit ratings may result in increased borrowing costs for future long-term debt or short-term borrowing facilities which may in turn limit financing options, including our access to the unsecured borrowing market. We may also be subject to additional restrictive covenants that would reduce our In addition, macroeconomic conditions, such as continued or increased volatility or disruption in the credit markets, would adversely affect our ability to refinance existing debt or obtain additional financing to support operations or to fund new acquisitions or capital-intensive internal initiatives. flexibility. Certain provisions in the Company’s governing documents may make it more difficult for a third party to acquire DENTSPLY. Certain provisions of DENTSPLY’s Certificate of Incorporation and By-laws and of Delaware law could have the effect of making it difficult for a third party to acquire control of DENTSPLY. Such provisions include, among others, a provision allowing the Board of Directors to issue preferred stock having rights senior to those of the common stock and certain procedural requirements to amend for which make it difficult stockholders special meetings of DENTSPLY’s By-laws and call stockholders. In addition, members of DENTSPLY’s management and participants in its Employee Stock Ownership Plan (‘‘ESOP’’) collectively own approximately 4% of the outstanding common stock of DENTSPLY. Issues related to the quality and safety of the Company’s products, ingredients or packaging could cause a product recall resulting in harm to the Company’s reputation and negatively impacting the Company’s operating results. The Company’s products generally maintain a good reputation with customers and end-users. Issues related to quality and safety of products, ingredients or packaging, could jeopardize the Company’s image and reputation. Negative publicity related to these types of concerns, whether valid or not, might negatively impact demand for the Company’s products or cause production and delivery disruptions. The Company may need to recall products if they become unfit for use. In addition, the Company could potentially be subject to litigation or government action, which could result in payment of fines or damages. Cost associated with these potential actions could negatively affect the Company’s operating results, financial condition and liquidity. The Company relies heavily on information and technology to operate its business networks, and any disruption to its technology infrastructure or the Internet could harm the Company’s operations. and server- through DENTSPLY operates many aspects of its business including financial reporting and customer relationship management web-based technologies, and stores various types of data on such servers or with third-parties who may in turn store it on servers or in the ‘‘cloud’’. Any disruption to the Internet or to the Company’s or its service providers’ global insecure technology infrastructure, coding, ‘‘Acts of God,’’ attempts to penetrate networks, data leakage and human error, could pose a threat to the Company’s operations. While DENTSPLY has invested and in information technology risk continues management and disaster recovery plans, these measures cannot fully insulate the Company from technology disruptions or data loss and the resulting adverse effect on the Company’s operations and financial results. including malware, to invest Item 1B. Unresolved Staff Comments None. 15 Item 2. Properties The following is a listing of DENTSPLY’s principal manufacturing and distribution locations at December 31, 2013: Location United States: Milford, Delaware(1) Sarasota, Florida(2) Des Plaines, Illinois(1) Elgin, Illinois(1) Waltham, Massachusetts(4) Islandia, New York(2) Maumee, Ohio(1) Lancaster, Pennsylvania(1) York, Pennsylvania(1) York, Pennsylvania(1) Johnson City, Tennessee(4) Foreign: Hasselt, Belgium(4) Leuven, Belgium(4) Catanduva, Brazil(4) Petropolis, Brazil(4) Shanghai, China(1) Tianjin, China(4) Ivry Sur-Seine, France(3) Bohmte, Germany(1) Hanau, Germany(1) Konstanz, Germany(1) Mannheim, Germany(4) Munich, Germany(4) Radolfzell, Germany(5) Rosbach, Germany(1) Badia Polesine, Italy(1) Otawara, Japan(2) Mexicali, Mexico(2) Hoorn, Netherlands(1) HA Soest, Netherlands(2) Katikati, New Zealand(1) Warsaw, Poland(1) Las Piedras, Puerto Rico(1) Mölndal, Sweden(4) Ballaigues, Switzerland(4) Function Manufacture of dental consumable products Manufacture of orthodontic accessory products Manufacture and assembly of dental handpieces Manufacture of dental x-ray film holders, film mounts and accessories Manufacture and distribution of dental implant products Manufacture and distribution of orthodontic products and materials Manufacture and distribution of investment casting products Distribution of dental products Manufacture and distribution of artificial teeth and other dental laboratory products Manufacture of small dental equipment, bone grafting products, and preventive dental products Manufacture and distribution of endodontic instruments and materials Manufacture and distribution of dental products Manufacture and distribution of 3D digital implantology Manufacture and distribution of dental anesthetic products Manufacture and distribution of artificial teeth, dental consumable products and endodontic material Manufacture and distribution of dental laboratory products Manufacture and distribution of dental products Manufacture and distribution of investment casting products Manufacture and distribution of dental laboratory products Manufacture and distribution of precious metal dental alloys, dental ceramics and dental implant products Manufacture and distribution of dental consumable products Manufacture and distribution of dental implant products Manufacture and distribution of endodontic instruments and materials Distribution of dental products Manufacture and distribution of dental ceramics Manufacture and distribution of dental consumable products Manufacture and distribution of precious metal dentalalloys, dental consumable products and orthodontic products Manufacture and distribution of orthodontic products and materials Distribution of precious metal dental alloys and dental ceramics and refinery of precious metals Distribution of orthodontic products Manufacture of dental consumable products Manufacture and distribution of dental consumable products Manufacture of crown and bridge materials Manufacture and distribution of dental medical devices Manufacture and distribution of endodontic instruments, plastic components and packaging material implant products and consumable (1) (2) (3) (4) (5) These properties are included in the Dental Consumables and Laboratory segment. These properties are included in the Orthodontics/Canada/Mexico/Japan segment. These properties are included in the Select Distribution segment. These properties are included in the Implants/Endodontics/Healthcare/Pacific Rim segment. This property is a distribution warehouse not managed by named segments. 16 Leased or Owned Owned Owned Leased Owned/Leased Leased Leased Owned Leased Owned Owned Leased Owned Leased Owned Owned Leased Leased Leased Owned Owned Owned Owned/Leased Owned Leased Owned Owned/Leased Owned Leased Owned Leased Leased Owned Owned Owned Owned In addition, the Company maintains sales and distribution offices at certain of its foreign and domestic manufacturing facilities, as well as at various other U.S. and international locations. The Company maintains offices in Toronto, Mexico City, Paris, Rome, Weybridge, Mölndal, Hong Kong and Melbourne and other locations. Most of these sites around the international world that are used exclusively for sales and distribution are leased. The Company also owns its corporate headquarters located in York, Pennsylvania. DENTSPLY believes that its properties and facilities are well maintained and are generally suitable and adequate for the purposes for which they are used. Item 3. Legal Proceedings Incorporated by reference to Part II, Item 8, Note 19, Commitments and Contingencies, to the Consolidated Financial Statements in this Form 10-K. 17 Executive Officers of the Registrant The following table sets forth certain information regarding the executive officers of the Company as of February 20, 2014. Name Bret W. Wise . . . . . . . . . . . . . . . . . . Christopher T. Clark . . . . . . . . . . . . . . James G. Mosch . . . . . . . . . . . . . . . . Robert J. Size . . . . . . . . . . . . . . . . . . Albert J. Sterkenburg . . . . . . . . . . . . . Deborah M. Rasin . . . . . . . . . . . . . . . Age 53 52 56 55 50 47 Position Chairman of the Board and Chief Executive Officer President and Chief Financial Officer Executive Vice President and Chief Operating Officer Senior Vice President Senior Vice President Vice President, Secretary and General Counsel Bret W. Wise has served as Chairman of the Board and Chief Executive Officer of the Company since January 1, 2007 and also served as President in 2007 and 2008. Prior to that time, Mr. Wise served as President and Chief Operating Officer in 2006, as Executive Vice President in 2005 and Senior Vice President and Chief Financial Officer through from December December 2004. Prior to that time, Mr. Wise was Senior Vice President and Chief Financial Officer with Ferro Corporation of Cleveland, OH (1999 − 2002), Vice President and Chief Financial Officer at WCI Steel, Inc., of Warren, OH, (1994 − 1999) and prior to that he was a partner with KPMG LLP. During 2012, Mr. Wise was elected a member of the Board of Directors of the Pall Corporation. 2002 Christopher T. Clark has served as President and Chief Financial Officer of the Company since April 8, 2013. He also served as President and Chief Operating Officer from 2009 through April 2013 and as Executive Vice President and Chief Operating Officer in 2007 and 2008. Prior to that time, Mr. Clark served as Senior Vice President (2003 − 2006), as Vice President and General Manager of DENTSPLY’s global imaging business (1999 − 2002), as Vice President and General Manager of the Prosthetics Division (1996 − 1999), and as Director of Marketing Division (1992 − 1996). Prior to September 1992, Mr. Clark held various brand management positions with Proctor & Gamble. DENTSPLY’S Prosthetics of James G. Mosch has served as Chief Operating Officer since April 8, 2013 and as Executive Vice President since January 1, 2009. Prior to that time, he served as Senior Vice President (2003 − 2009) and as Vice President and General Manager of DENTSPLY’s Professional division, beginning in July 1994 when he started with the 18 Company. Prior to 1994, Mr. Mosch served in general management and marketing positions with Baxter International and American Hospital Supply Corporation. Robert J. Size has served as Senior Vice President since January 1, 2007. Prior to that, Mr. Size served as a Vice President (2006) and as Vice President and General Manager of DENTSPLY’s Caulk division beginning June 2003 through December 31, 2005. Prior to that time, he was the Chief Executive Officer and President of Superior MicroPowders and held various cross-functional and international leadership positions with The Cookson Group. Albert J. Sterkenburg, D.D.S. has served as Senior Vice President since January 1, 2009. Prior to that, Dr. Sterkenburg served as Vice President (2006 − 2009), Vice President and General Manager of the DeguDent division (2003 − 2006) and Vice President and General Manager of the VDW division beginning in 2000. Prior to that served in marketing and general management roles at Johnson & Johnson. time, he and General Counsel of Deborah M. Rasin has served as Vice President, Secretary the Company since March 7, 2011. Prior to that, she served since 2006 as Vice President, General Counsel and Secretary of Samsonite Corporation, where she oversaw all legal, compliance and corporate governance matters of a Delaware-incorporated global consumer goods company. Prior to joining Samsonite, Ms. Rasin served as a senior corporate attorney at General Motors Corporation, and as an associate at various international law firms. Ms. Rasin received her J.D. from Harvard Law School in 1992. Item 4. Mine Safety Disclosure Not Applicable PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Quarterly Stock Market and Dividend Information The Company’s common stock is traded on the NASDAQ National Market under the symbol ‘‘XRAY.’’ The following table shows, for the periods indicted, the high, low, closing sale prices and cash dividends declared of the Company’s common stock as reported on the NASDAQ National Market: Market Range of Common Stock High Low Period-end Closing Price 2013 First Quarter . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . 2012 First Quarter . . . . . . . . . . . . . . . . . Second Quarter . . . . . . . . . . . . . . Third Quarter . . . . . . . . . . . . . . . . Fourth Quarter . . . . . . . . . . . . . . . $43.63 44.21 45.37 50.99 $40.32 41.38 39.27 40.82 $39.36 39.90 40.81 42.99 $34.77 35.88 35.04 35.83 $42.44 40.96 43.41 48.48 $40.13 37.81 38.14 39.61 Cash Dividend Declared $0.0625 0.0625 0.0625 0.0625 $ 0.055 0.055 0.055 0.055 The Company estimates, based on information supplied by its transfer agent, that there are 325 holders of record of the Company’s common stock. Approximately 68,900 holders of the Company’s common stock are ‘‘street name’’ or beneficial holders, whose shares are held of record by banks, brokers and other financial institutions. Stock Repurchase Program The Board of Directors has authorized the Company to repurchase shares under its stock repurchase program in an amount up to 34.0 million shares of common stock. The table below contains certain information with respect to the repurchase of shares of the Company’s common stock during the quarter ended December 31, 2013: Period October 1 − 31, 2013 . . . . . . . . . . . . . . . November 1 − 30, 2013 . . . . . . . . . . . . . December 1 − 31, 2013 . . . . . . . . . . . . . Total Number of Shares Purchased — 220,400 737,573 957,973 Average Price Paid Per Share $ — 47.55 47.68 $47.65 Total Cost of Shares Purchased $ — 10,479.5 35,163.9 $45,643.4 Number of Shares that May Yet be Purchased Under the Share Repurchase Program 13,962.8 13,908.8 13,465.9 19 Stock Authorized for Issuance Under Equity Compensation Plans The following table provides information about the Company’s common stock that may be issued under equity compensation plans at December 31, 2013: Plan Category Securities to Be Issued Upon Exercise of Outstanding Options Weighted Average Exercise Price per Share Securities Available for Future Issuance (in thousands, except share price) Equity compensation plans approved by security holders . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,425,749 9,425,749 $35.50 $35.50 9,441,618 9,441,618 Performance Graph The following graph compares the Company’s cumulative total stockholder return (Common Stock price appreciation plus dividends, on a reinvested basis) over the last five fiscal years with the NASDAQ Composite Index, the Standard & Poor’s S&P 500 Index and the Standard & Poor’s S&P Health Care Index. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among DENTSPLY International Inc., the NASDAQ Composite Index, the S&P 500 Index, and the S&P Health Care Index $300 $250 $200 $150 $100 $50 12/08 12/09 12/10 12/11 12/12 12/13 DENTSPLY International Inc. NASDAQ Composite S&P 500 S&P Health Care * $100 invested on 12/31/08 in stock or index, including reinvestment of dividends. Fiscal year ending December 31. 12/08 12/09 12/10 12/11 12/12 12/13 DENTSPLY International Inc. . . . . . . . . . . . NASDAQ Composite . . . . . . . . . . . . . . . S&P 500 . . . . . . . . . . . . . . . . . . . . . . . S&P Health Care . . . . . . . . . . . . . . . . . . 100.00 100.00 100.00 100.00 125.35 144.88 126.46 119.70 122.53 170.58 145.51 123.17 126.22 171.30 148.59 138.85 143.70 199.99 172.37 163.69 176.89 283.39 228.19 231.55 20 Item 6. Selected Financial Data DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (in thousands, except per share amounts, days and percentages) Statement of Operations Data: Net sales . . . . . . . . . . . . . . . . . . . . Net sales, excluding precious metal content . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . Restructuring and other costs . . . . . . . Operating income . . . . . . . . . . . . . . Income before income taxes . . . . . . . . Net income . . . . . . . . . . . . . . . . . . Net income attributable to DENTSPLY International . . . . . . . . . 2013 Year ended December 31, 2011(a) 2010 2012 2009 $2,950,770 $2,928,429 $2,537,718 $2,221,014 $2,159,378 2,771,728 1,577,412 13,356 419,166 369,335 318,161 2,714,698 1,556,387 25,717 381,939 330,679 318,489 2,332,589 1,273,440 35,865 300,728 256,111 247,446 2,031,757 1,130,158 10,984 380,273 357,656 267,335 1,990,666 1,106,363 6,890 381,243 363,356 274,412 $ 313,192 $ 314,213 $ 244,520 $ 265,708 $ 274,258 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . Cash dividends declared per common share . . . . . . . . . . . . . . . . $ $ $ 2.20 2.16 0.250 $ $ $ 2.22 2.18 0.220 $ $ $ 1.73 1.70 0.205 $ $ $ 1.85 1.82 0.200 $ $ $ 1.85 1.83 0.200 Weighted Average Common Shares Outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . Balance Sheet Data: Cash and cash equivalents . . . . . . . . . Property, plant and equipment, net . . . Goodwill and other intangibles, net . . . Total assets . . . . . . . . . . . . . . . . . . . Total debt, current and long-term portions . . . . . . . . . . . . Equity . . . . . . . . . . . . . . . . . . . . . . Return on average equity . . . . . . . . . . Total net debt to total capitalization(b) . . Other Data: 142,663 144,965 141,850 143,945 141,386 143,553 143,980 145,985 148,319 150,102 $ 74,954 637,172 3,076,919 5,078,047 $ 80,132 614,705 3,041,595 4,972,297 $ 77,128 591,445 2,981,163 4,755,398 $ 540,038 423,105 1,381,798 3,257,951 $ 450,348 439,619 1,401,682 3,087,932 1,476,040 2,577,974 1,520,998 2,249,443 1,766,711 1,884,151 611,769 1,909,912 469,325 1,906,958 13.0% 35.2% 15.2% 39.0% 12.9% 47.3% 13.9% 3.6% 15.4% 1.0% Depreciation and amortization . . . . . . Cash flows from operating activities . . . Capital expenditures . . . . . . . . . . . . . Interest expense (income), net . . . . . . . Inventory days . . . . . . . . . . . . . . . . . Receivable days . . . . . . . . . . . . . . . . Effective tax rate . . . . . . . . . . . . . . . $ $ 127,903 417,848 100,345 41,502 114 56 14.1% $ 129,199 369,685 92,072 48,091 106 53 2.7% $ 85,035 393,469 71,186 35,577 100 54 4.3% 65,912 377,461 44,236 20,835 100 54 25.0% $ 65,175 362,489 56,481 16,864 99 55 24.5% (a) (b) Includes the results of the Astra Tech acquisition from September 1, 2011 through December 31, 2011. The Company defines net debt as total debt, including current and long-term portions, less cash and cash equivalents and total capitalization as the sum of net debt plus equity. 21 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERA- TIONS OVERVIEW The following Management’s Discussion and Analysis of Financial Conditions and Results of Operations (‘‘MD&A’’) is intended to help the reader understand the Company’s operations and business environment. MD&A is provided as a supplement to, and should be read in conjunction with, the Consolidated Financial Statements and Notes Statements contained in Item 8 of this Form 10-K. The following that discussion includes involve See ‘‘Forward-Looking Statements’’ in the beginning of this Form 10-K. The MD&A includes the following sections: forward-looking statements uncertainties. risks to Consolidated Financial certain and organization. the combined DENTSPLY organizations of Implants efforts Integration during the year and continuing into 2014 are now efficiency focused improvements, including in-sourcing of certain products previously produced by outside parties. primarily on • • Operating margins on a reported basis for the year ended December 31, 2013 increased 120 basis points to 14.2% from 13.0% in fiscal 2012. On an adjusted basis (a non-US GAAP measure), and certain other items, operating margin improved by 10 basis points to 17.6% from 17.5%. excluding precious metals Operating cash flow for the year ended December 31, 2013 was $418 million, an all the Company and a 13% time record for increase versus $370 million in fiscal year 2012. BUSINESS • • • • general of Business — a DENTSPLY’s business and how performance is measured; description the Results of Operations — an analysis of Company’s consolidated results of operations for the consolidated financial statements; presented three years the in Critical Accounting Estimates — a discussion of accounting critical judgments and estimates; and policies require that Liquidity and Capital Resources — an analysis of cash flows; debt and other obligations; and aggregate contractual obligations. a it is is Inc. DENTSPLY the world’s International leading manufacturer and distributor of dental and other consumable medical device products. The Company believes largest manufacturer of consumable dental products for the professional dental market. For over 110 years, DENTSPLY’s commitment to innovation and professional collaboration has enhanced and small its portfolio of branded consumables the equipment. Headquartered in the United States, Company has global operations with sales in more than 120 countries. The Company also has strategically located distribution centers to enable it to better serve its customers and increase its operating efficiency. While the United States and Europe are the Company’s largest markets, all major markets worldwide. the Company serves 2013 Operational Highlights • For the year ended December 31, 2013, sales grew by 0.8% on a reported basis and grew 2.1%, excluding precious metal content. The sales growth excluding precious metal content was driven by internal growth of 1.9%, with acquisitions and currency translation each adding 0.1%. This internal sales growth was comprised of increases of 3.8% in the United States, 0.2% in Europe and 2.7% in the rest of world regions. • During 2013 the Company completed the integration of its regional sales and marketing Principal Measurements The principal measurements used by the Company in evaluating its business are: (1) internal sales growth by geographic region; (2) constant currency sales growth by geographic (3) operating margins of each reportable segment including product pricing and cost and development, controls; contribution of innovative new products; and (5) sales growth through acquisition. introduction region; the (4) The Company defines ‘‘internal sales growth’’ as the increase or decrease in net sales from period to period, excluding (1) precious metal content; (2) the impact of 22 changes in currency exchange rates; and (3) net acquisition sales growth. The Company defines ‘‘net acquisition sales growth’’ as the net sales, excluding precious metal content, for a period of twelve months following the transaction date of businesses that have been acquired, less the net sales, excluding precious metal content, for a period of twelve months prior to the transaction date of businesses that have been divested. The Company defines ‘‘constant currency sales growth’’ as internal sales growth plus net acquisition sales growth. internal growth includes The primary drivers of global dental market growth, innovation and new products launched by the Company, and continued investments in sales and marketing resources, including clinical education. Management believes that over time, the Company’s ability to execute its strategies allows it to grow at a modest premium to the growth rate of the underlying dental market. Management further believes that the global dental market has generally in the past and should over time in the future grow at a premium to underlying economic growth rates. Considering all of these factors, the Company assumes that the long-term growth rate for the dental market will range from 3% to 6% on average and that the Company targets a slight premium to market growth. Over the past several years, growth in the global dental and other healthcare markets have been restrained by lower economic growth in Western Europe and certain other markets compared to historical averages and, accordingly, market growth rates, and the Company’s internal growth rate remains uncertain in the near term. The Company’s business is subject to quarterly fluctuations of consolidated net sales and net income. The Company typically implements most of its price changes at the beginning of the first or fourth quarters. Price changes, other marketing and promotional programs as well as the management of inventory levels by distributors and the implementation of strategic initiatives, may impact sales levels in a given period. In addition, The Company has a focus on minimizing costs and achieving operational efficiencies. Management continues to evaluate the consolidation of operations or functions to reduce costs. the Company remains focused on enhancing efficiency through expanded use of technology and process improvement initiatives. The Company believes that the benefits from these initiatives will improve the cost structure and help offset areas of rising costs such as energy, employee benefits and regulatory oversight and compliance. In connection with these efforts, the Company expects that it will record restructuring charges, from time to time associated with such initiatives. These restructuring charges could be material consolidated financial statements. to the Company’s Product innovation is a key component of the Company’s overall growth strategy. New advances in technology are anticipated to have a significant influence on future products in dentistry and consumable medical device markets in which the Company operates. As a result, the Company continues to pursue research and initiatives development technological to support development, including collaborations with various research institutions and dental schools. In addition, the Company licenses and purchases technologies developed by third parties. Although the Company believes these activities will lead to new innovative dental and consumable medical device products, they involve new technologies and there can be no assurance that commercialized products will be developed. The Company will continue to pursue opportunities to expand the Company’s product offerings through acquisitions. Although the professional dental and the consumable medical device markets in which the Company operates have experienced consolidation, they remain fragmented. Management believes that there will continue to be adequate opportunities to participate as a consolidator in the industry for the foreseeable future. Impact of Foreign Currencies Due to the international nature of DENTSPLY’s business, movements in foreign exchange rates may impact the Consolidated Statements of Operations. With 65% to 70% of the Company’s net sales located in regions outside the U.S., the Company’s consolidated net sales are impacted negatively by the strengthening or positively by the U.S. dollar. Additionally, movements in certain foreign exchange rates may unfavorably or the Company’s results of operations, financial condition and liquidity. the weakening of favorably impact Reclassification of Prior Year Amounts Certain reclassifications have been made to prior years’ data in order to conform to the current year presentation. Specifically, during the year ended 2013, the Company realigned certain implant and implant related businesses as a result of changes to the management structure. The segment information below reflects the revised structure for all periods shown. 23 RESULTS OF OPERATIONS 2013 Compared to 2012 Net Sales The discussion below summarizes the Company’s sales growth, excluding precious metal content, into the following components: sales (1) growth, which includes internal sales growth and net acquisition sales growth, and (2) foreign currency translation. These disclosures of net sales growth provide the reader with sales results on a comparable basis between periods. constant currency Management believes that the presentation of net sales, excluding precious metal content, provides useful information to investors because a significant portion of DENTSPLY’s net sales is comprised of sales of precious the Company’s metals generated through sales of precious metal dental alloy products, which are used by third parties to construct crown and bridge materials. Due to the fluctuations of precious metal prices and because the cost of the precious metal content of the Company’s sales is largely passed through to customers and has minimal effect on earnings, DENTSPLY reports net sales both with and without precious metal content to show the Company’s performance independent of precious metal price volatility and to enhance comparability of performance between periods. The Company uses its cost of precious metal purchased as a proxy for the precious metal content of sales, as the precious metal content of sales is not separately tracked and invoiced to customers. The Company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal dental alloy sale prices are typically adjusted when the prices of underlying precious metals change. The presentation of net sales, excluding precious metal content, is considered a measure not calculated in accordance with US GAAP, and is therefore considered a non-US GAAP measure. The Company provides the following reconciliation of net sales to net sales, excluding precious metal content. The Company’s definitions and calculations of net sales, excluding precious metal content, and other operating measures derived using net content, may not sales, excluding precious metal necessarily be the same as those used by other companies. Year Ended December 31, 2013 2012 $ Change % Change (in millions) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Precious metal content of sales . . . . . . . . . . . . . . . . $2,950.8 179.1 Net sales, excluding precious metal content . . . . . . . . . . . $2,771.7 $2,928.4 213.7 $2,714.7 $ 22.4 (34.6) $ 57.0 0.8% (16.2%) 2.1% During 2013, net sales, excluding precious metal content increased $57.0 million from 2012. The 2.1% increase in net sales, excluding precious metal content, included constant currency sales growth of 2.0%. The constant currency sales growth was comprised of internal Constant Currency Sales Growth sales growth of 1.9% and acquisition sales growth of 0.1%. Precious metal content of sales declined compared to the same period in 2012, primarily as a result of a decline in use of precious metal alloys in dentistry. The following table includes growth rates for net sales, excluding precious metal content. Internal sales growth . . . . . . . . . . . . . . . . . . . . . . . . . Net acquisition sales growth . . . . . . . . . . . . . . . . . . . . . Constant currency sales growth . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2013 United States 3.8% —% 3.8% Europe 0.2% 0.2% 0.4% All Other Regions 2.7% (0.1%) 2.6% Worldwide 1.9% 0.1% 2.0% 24 United States During 2013, net sales, excluding precious metal content, increased by 3.8% on a constant currency basis. The increase was primarily due to internal sales growth in dental consumables product categories. and dental specialty increase in net sales, excluding precious metal content, was primarily driven by an increase in consumable medical products, partially offset by lower sales of dental specialty products when compared to the year ago period. Europe During 2013, net sales, excluding precious metal content, increased by 0.4% on a constant currency basis, including 0.2% of net acquisition sales growth. The All Other Regions During 2013, net sales, excluding precious metal content, increased 2.6% on a constant currency basis. The internal sales growth was 2.7%, driven by increased sales across all product categories. Year Ended December 31, Gross Profit (in millions) Gross profit Gross profit as a percentage of net sales, including precious . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 $ Change % Change $1,577.4 $1,556.4 $21.0 1.3% metal content . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.5% 53.1% Gross profit as a percentage of net sales, excluding precious metal content . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56.9% 57.3% Gross profit as a percentage of net sales, excluding precious metal content, decreased 40 basis points during 2013 compared to 2012. The margin rate decline was primarily the impact of the medical device federal excise tax mandated by the Affordable Care Act that became effective January 1, 2013. Expenses Year Ended December 31, Selling, General and Administrative (‘‘SG&A’’) Expenses (in millions) SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SG&A expenses as a percentage of net sales, including 2013 2012 $ Change % Change $1,144.9 $1,148.7 $(3.8) (0.3%) precious metal content . . . . . . . . . . . . . . . . . . . . . . . 38.8% 39.2% SG&A expenses as a percentage of net sales, excluding precious metal content . . . . . . . . . . . . . . . . . . . . . . . 41.3% 42.3% SG&A expenses as a percentage of net sales, improved 100 basis excluding precious metal content, points as compared to 2012 primarily as a result cost savings across a number of businesses and synergies from the integration activities of recent acquisitions. Year Ended December 31, Restructuring and Other Costs (in millions) Restructuring and other costs . . . . . . . . . . . . . . . . . . . . 2013 2012 $ Change % Change $13.4 $25.7 $(12.3) (47.9%) The Company recorded net restructuring and other leverage the Company’s resources. Restructuring and costs of $13.4 million in 2013 compared to $25.7 million in 2012. In 2013, restructuring costs of $12.0 million other costs also includes net expense of $1.4 million acquired related to an impairment of previously related to the closure and consolidation of facilities in an technology partially offset by a net gain on legal effort to streamline the Company’s operations and better settlements. 25 In 2012, restructuring of $25.7 million included restructuring cost of $17.8 million related to the implant integration activity as well as the closure and consolidation of facilities in an effort to other costs and streamline the Company’s operations and better leverage the Company’s resources. Restructuring and other costs also included $5.2 million related to impairment of previously acquired technologies. Other Income and Expenses (in millions) Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest and other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2013 2012 $ Change $41.5 8.3 $49.8 $48.1 3.2 $51.3 $(6.6) 5.1 $(1.5) Net Interest Expense for the Net year interest expense ended December 31, 2013 was $6.6 million lower compared to the year ended December 31, 2012. The net decrease is a result of lower average debt levels in 2013 compared to the same period in 2012 and positive net interest recorded on net investment hedges due to lower average interest rates on euro and Swiss franc hedge contracts compared to the prior year period. The net decrease was partially offset by lower investment income due to lower investment balances, lower interest rates and a lower coupon rate on convertible bonds. the year ended December 31, 2012. Other expense (income), net for the year ended December 31, 2013 was $8.3 million, comprised primarily of $6.9 million of interest expense and fair value adjustments on cross currency basis swaps not designated as hedges that offset currency risk on intercompany loans, and $2.1 million of currency transaction losses offset by $0.7 million of other non-operating income. Other expense (income), net for the year ended December 31, 2012 was $3.2 million, including $2.7 million of currency transaction losses and $0.5 million of non-operating expenses. Other Expense (Income), Net Other expense (income), net for the year ended December 31, 2013 was $5.1 million higher compared to Income Taxes and Net Income (in millions, except per share amounts) Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in net income (loss) of unconsolidated affiliated company . . . . . . . . . . . . . . . . . . . . . . Net income attributable to noncontrolling interests Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2013 2012 $ Change 14.1% 2.7% $ 1.0 $ 5.0 $313.2 $ 2.16 $ (3.3) $ 4.3 $314.2 $ 2.18 $ 4.3 $ 0.7 $(1.0) Provision for Income Taxes The Company’s effective tax rate for 2013 and 2012 was 14.1% and 2.7%, respectively. The Company’s effective tax rate for 2013 was favorably impacted by the Company’s post-acquisition restructuring activities, the recording of tax benefits of $9.4 million related to U.S. federal legislative changes enacted in January 2013 relating to 2012, a tax benefit of $2.2 million for the release of a valuation allowance and $10.3 million of benefits related to prior year tax matters. During 2012, the Company entity restructuring activities to complete the integration of the Astra Tech business acquired in August 2011. In addition entered various legal into to the specific tax integration of the Astra Tech subsidiaries with legacy DENTSPLY subsidiaries, the Company also realigned much of its foreign legal entity structure to better align operations and cash management activities. As a part of this restructuring, the Company was able to capture an overall net benefit from anticipated tax losses of $57.7 million. Most of the cash flow benefit from this tax matter, including utilization of an existing credit carryforward of approximately $49.6 million will be realized over the next several years after 2012. Also, the Company recognized $12.0 million of tax benefit from a reduction in foreign tax rates and separately recorded a valuation allowance on 26 previously recognized assets of $10.4 million. Further information regarding the details of income taxes is presented in Note 14, Income Taxes, to the consolidated financial statements in this Form 10-K. In 2013, the Company’s effective tax rate included the impact of amortization of purchased intangible assets, integration and restructuring and other costs as well as various income tax adjustments which impacted income before taxes and the provisions for income taxes by $72.9 million and $43.7 million, respectively. In 2012, the Company’s effective tax rate included the impact of amortization of purchased intangible assets, integration and restructuring and other costs as well as various income tax adjustments which impacted income before taxes and the provisions for income taxes by $91.7 million and $90.0 million, respectively. Equity in net income (loss) of unconsolidated affiliated company The Company’s 17% ownership investment of DIO Corporation (‘‘DIO’’) resulted in a net earnings of $1.0 million on an after-tax basis for 2013. The equity earnings of DIO includes the result of mark-to-market changes related to the derivative accounting for the convertible bonds issued by DIO to DENTSPLY. The the mark-to-market net gain Company’s portion of incurred by DIO was approximately $1.2 million. In 2012, equity in net loss in DIO was $3.3 million on an after-tax basis, which includes the Company’s portion of the mark- to-market net loss incurred by DIO of approximately $3.1 million. Net income attributable to noncontrolling interests The portion of consolidated net income attributable to noncontrolling interests increased $0.7 million from 2013 to 2012 primarily due to increased sales and earnings by such entities. Net Income attributable to DENTSPLY International In addition to the results reported in accordance the Company provides adjusted net with US GAAP, income attributable to DENTSPLY International and adjusted earnings per diluted common share. The Company discloses adjusted net income attributable to DENTSPLY International to allow investors to evaluate the performance of the Company’s operations exclusive of certain items that impact the comparability of results from period to period and certain large non-cash charges related to purchased intangible assets. The Company believes that this information is helpful in understanding 27 underlying operating trends and cash flow generation. The adjusted net income attributable to DENTSPLY income attributable to International consists of net DENTSPLY International adjusted to exclude the impact of the following: (1) Acquisition related costs. These adjustments include costs related to integrating recently acquired businesses and specific costs related to the consummation of the acquisition process. These costs are irregular in timing and as such may not be indicative of past and future performance of the Company and are therefore excluded to allow investors to better understand underlying operating trends. other costs. (2) Restructuring These and adjustments include both costs and income that are irregular in timing, amount and impact to the Company’s financial performance. As such, these items may not be indicative of past and future performance of the Company and are therefore excluded for the purpose of understanding underlying operating trends. the This excludes purchased (3) Amortization of adjustment intangible assets. periodic amortization expense related to purchased intangible assets. Beginning in 2011, the Company began recording large non-cash charges related to the values attributed to purchased intangible assets. These charges have been excluded from adjusted net income attributed to DENTSPLY International to allow investors to evaluate and understand operating trends excluding these large non-cash charges. (4) Income related to credit risk and fair value These adjustments include both the cost adjustments. and income impacts of adjustments in certain assets and liabilities that are recorded through net income which are due solely to the changes in fair value and credit risk. These items can be variable and driven more by market conditions than the Company’s operating performance. As such, these items may not be indicative of past and future performance of the Company and therefore are excluded for comparability purposes. fair the (5) Certain fair value adjustments related to an This adjustment unconsolidated affiliated company. the of value represents unconsolidated affiliated company’s convertible debt instrument held by the Company. The affiliate is accounted for under the equity method of accounting. The fair value adjustment is driven by open market pricing of the affiliate’s equity instruments, which has a high adjustment degree of variability and may not be indicative of the operating performance of the affiliate or the Company. tax (6) Income adjustments. These related adjustments include both income tax expenses and income tax benefits that are representative of income tax adjustments mostly related to prior periods, as well as the final settlement of income tax audits. These adjustments are irregular in timing and amount and may significantly impact the Company’s operating performance. As such, these items may not be indicative of past and future performance of the Company and therefore are excluded for comparability purposes. Adjusted earnings per diluted common share is calculated by dividing adjusted net income attributable to DENTSPLY International by diluted weighted-average common shares outstanding. Adjusted net income attributable to DENTSPLY International and adjusted earnings per diluted common share are considered measures not calculated in accordance with US GAAP, and therefore are non-US GAAP measures. These non-US GAAP measures may differ from other companies. Income tax related adjustments may include the impact to adjust the interim effective income tax rate to the expected annual effective tax rate. The non-US GAAP financial information should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with US GAAP. Year Ended December 31, 2013 Net Income Per Diluted Common Share (in thousands, except per share amounts) Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . . . . . . Amortization of purchased intangible assets, net of tax . . . . . . . . . . . . . . . . . . Restructuring and other costs, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related activities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . Credit risk and fair value adjustments to outstanding derivatives, net of tax . . . . . Gain on fair value adjustment related to an unconsolidated affiliated company, $313,192 32,309 9,721 5,890 2,339 net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted non-US GAAP earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,200) (21,054) $341,197 $ 2.16 0.22 0.07 0.04 0.02 (0.01) (0.15) $ 2.35 Year Ended December 31, 2012 Net Income Per Diluted Common Share (in thousands, except per share amounts) Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . . . . . . Amortization of purchased intangible assets, net of tax . . . . . . . . . . . . . . . . . . Restructuring and other costs, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related activities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on fair value adjustment related to an unconsolidated affiliated company, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Orthodontic business continuity costs, net of tax . . . . . . . . . . . . . . . . . . . . . . Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted non-US GAAP earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $314,213 33,612 18,549 9,299 2,927 600 (59,992) $319,208 $ 2.18 0.23 0.13 0.07 0.02 — (0.41) $ 2.22 Operating Segment Results The Company’s operating businesses are combined into operating groups, which have overlapping product offerings, geographic presence, customer bases, distribution channels and regulatory oversight. These considered the Company’s operating groups are reportable segments as the Company’s chief operating decision-maker regularly reviews financial results at the operating group level and uses this information to manage the Company’s operations. Each of these operating groups covers a wide range of product categories and geographic regions. The product categories and geographic regions often overlap across the groups. Further information regarding the details of each group is presented in Note 5, Segment and Geographic Information, to the consolidated financial 28 statements in this Form 10-K. The management of each group is evaluated for performance and incentive compensation purposes on net third party sales, excluding precious metal content, and segment operating income. Net Sales, Excluding Precious Metal Content (in millions) Dental Consumable and Laboratory Businesses . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . Segment Operating Income (Loss) (in millions) Dental Consumable and Laboratory Businesses . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . Year Ended December 31, 2013 2012 $ Change % Change $ 842.7 $ 279.0 $ 267.3 $1,386.9 $ 816.3 $ 286.7 $ 252.1 $1,363.3 $26.4 $ (7.7) $15.2 $23.6 3.2% (2.7%) 6.0% 1.7% Year Ended December 31, 2013 2012 $ Change % Change $229.6 $ 13.9 $ (1.0) $295.4 $223.7 $ 14.1 $ (4.2) $293.0 $ 5.9 $(0.2) $ 3.2 $ 2.4 2.6% (1.4%) NM 0.8% NM — Not meaningful Dental Consumable and Laboratory Businesses Net sales, excluding precious metal content, increased $26.4 million, or 3.2%, during 2013 as compared to 2012. Sales on a constant currency basis increased 2.1% coupled with positive currency translation of 1.1% due to the weakening of the U.S. dollar primarily against the euro. Constant currency growth was primarily the result of increased sales of the dental consumable products. income improvements reflecting the ongoing recovery of the orthodontics business. Select Distribution Businesses Net sales, excluding precious metal content, increased $15.2 million, or 6.0%, during 2013 compared to 2012. Sales increased by 4.0% on a constant currency basis, while currency translation added 2.0%. The constant currency growth was primarily the result of increased sales of specialty dental products. Operating income increased $5.9 million during 2013 compared to 2012. The improvement in operating income was primarily the result of sales growth. Operating income (loss), improved by $3.2 million in 2013 compared to 2012. The improvement in operating income was primarily the result of sales growth. Orthodontics/Canada/Mexico/Japan Implants/Endodontics/Healthcare/Pacific Rim Net sales, excluding precious metal content, decreased $7.7 million, or 2.7%, during 2013 compared to 2012. Sales grew on a constant currency basis by 1.4% which was entirely offset by negative currency translation of 4.1% as currency rates for the Japanese yen and the Canadian dollar weakened compared with the U.S. dollar. The constant currency growth was primarily the result of increased sales of specialty dental products. Net sales, excluding precious metal content, increased $23.6 million, or 1.7%, during 2013 compared to 2012. The sales improvement included sales growth of 1.8% on a constant currency basis slightly offset by the negative impact of foreign currency rates. Constant currency sales growth was primarily the result of increased sales of specialty products despite a decline in implant sales. Operating income decreased $0.2 million during 2013 compared to 2012. Excluding the impact of foreign there were modest operating currency fluctuations, Operating income improved $2.4 million during 2013 compared to 2012, primarily as a result of increased specialty product sales and cost savings activities. 29 RESULTS OF OPERATIONS 2012 Compared to 2011 Year Ended December 31, Net Sales (in millions) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Precious metal content of sales . . . . . . . . . . . . . . . . Net sales, excluding precious metal content . . . . . . . . . . . 2012 2011 $ Change % Change $2,928.4 213.7 $2,714.7 $2,537.7 205.1 $2,332.6 $390.7 8.6 $382.1 15.4% 4.2% 16.4% In 2012, net sales, excluding precious metal content increased $382.1 million from 2011. The 16.4% increase in net sales, excluding precious metal content, included constant currency growth of 20.2%, and currency translation, which decreased net sales, excluding precious metal content, by 3.8%. The constant currency sales growth was comprised of internal growth of 4.0% and acquisition growth of 16.2%. Constant Currency Sales Growth The following table includes growth rates for net sales, excluding precious metal content. Internal sales growth . . . . . . . . . . . . . . . . . . . . . . . . . Net acquisition sales growth . . . . . . . . . . . . . . . . . . . . . Constant currency sales growth . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2012 United States 3.6% 10.2% 13.8% Europe 2.6% 24.9% 27.5% All Other Regions 7.2% 8.7% 15.9% Worldwide 4.0% 16.2% 20.2% United States During 2012, net sales, excluding precious metal content, increased by 13.8% on a constant currency basis, including 10.2% of acquisition growth. The internal growth rate was 3.6% due to increased demand across all product categories. Europe During 2012, net sales, excluding precious metal content, increased by 27.5% on a constant currency basis, including 24.9% of acquisition growth. The internal growth rate was 2.6% and was primarily driven by sales growth in the dental specialty, dental consumable and consumable medical device products partially offset by decreased demand for precious metal alloy products within the dental laboratory products category. All Other Regions During 2012, net sales, excluding precious metal content, increased 15.9% on a constant currency basis, which includes 8.7% of acquisition growth. The internal growth was 7.2%, driven by sales growth in all dental product categories. Year Ended December 31, Gross Profit (in millions) Gross profit Gross profit as a percentage of net sales, including precious . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 2011 $ Change % Change $1,556.4 $1,273.4 $283.0 22.2% metal content . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53.1% 50.2% Gross profit as a percentage of net sales, excluding precious metal content . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57.3% 54.6% Gross profit as a percentage of net sales, excluding impacted by improved product pricing, favorable product precious metal content, increased 2.7% during 2012 mix primarily associated with recent acquisitions as well as compared to 2011. The gross profit rate was positively a favorable rate impact from changes in foreign currency 30 translation rates offset by higher manufacturing costs. In 2011, the gross profit rate was negatively impacted by approximately two percentage points from expensing inventory for the fair value adjustments associated with acquisitions. Expenses Year Ended December 31, Selling, General and Administrative (‘‘SG&A’’) Expenses (in millions) SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SG&A expenses as a percentage of net sales, including 2012 2011 $ Change % Change $1,148.7 $936.8 $211.9 22.6% precious metal content . . . . . . . . . . . . . . . . . . . . . . . 39.2% 36.9% SG&A expenses as a percentage of net sales, excluding precious metal content . . . . . . . . . . . . . . . . . . . . . . . 42.3% 40.2% SG&A expenses as a percentage of net sales, excluding precious metal content, was 2.1% higher than in 2011. Increased SG&A expenses as a percent of net sales, excluding precious metal content, was a result of the higher expense rate of the Astra Tech business and $30.9 million of amortization primarily associated with 2011 acquisitions as well as key global marketing events. Year Ended December 31, Restructuring and Other Costs (in millions) Restructuring and other costs . . . . . . . . . . . . . . . . . . . . 2012 2011 $ Change % Change $25.7 $35.9 $(10.2) (28.4%) The Company recorded net restructuring and other costs of $25.7 million in 2012 compared to $35.9 million in 2011. In 2012, restructuring cost of $17.8 million were related to the implant integration activity as well as the closure and consolidation of facilities in an effort to streamline the Company’s operations and better leverage the Company’s resources. Restructuring and other costs also include $5.2 million related to an impairment of previously acquired technology. In 2011, these costs were related to expenses associated with the acquisition of Astra Tech of $18.0 million, legal settlement cost of $12.6 million as well as restructuring costs primarily related to the orthodontic business. Also, the Company recorded certain other costs of $1.5 million related to an impairment of an intangible asset. The benefits associated with the 2011 and 2012 restructuring plans were immaterial to the current period. The Company estimates the future annual savings related to these plans to be in the range of $10 million to $15 million to be realized over the next three to five years. There is no assurance that future savings will be fully achieved. Other Income and Expenses (in millions) Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net interest and other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 2011 $ Change $48.1 3.2 $51.3 $35.6 9.0 $44.6 $12.5 (5.8) $ 6.7 Year Ended December 31, 31 Net Interest Expense The change in net interest expense in 2012 compared to 2011 was primarily the result of higher average debt levels and lower cash levels as a result of financing the $1.8 billion Astra Tech acquisition in 2011. Interest expense increased $13.0 million over 2011. and $0.5 million of other non-operating expense. Other expense in the 2011 period included approximately $1.7 million of currency transaction losses, $2.9 million of interest rate swap terminations, $3.8 million of Treasury rate lock ineffectiveness, and $0.6 million of other non- operating expense. Other Expense, Net Other expense in the 2012 period included approximately $2.7 million of currency transaction losses Income Taxes and Net Income (in millions, except per share amounts) Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in net income (loss) of unconsolidated affiliated company . . . . . . . . . . . . . . . . . . . . . . Net income attributable to noncontrolling interests Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . Year Ended December 31, 2012 2011 $ Change 2.7% 4.3% $ (3.3) $ 4.3 $314.2 $ 2.18 $ 2.4 $ 2.9 $244.5 $ 1.70 $ (5.7) $ 1.4 $69.7 Provision for Income Taxes During 2012, the Company entered into various to complete the legal entity restructuring activities integration of the Astra Tech business acquired in August 2011. In addition to the specific tax integration of the Astra Tech subsidiaries with legacy DENTSPLY subsidiaries, the Company also realigned much of its foreign legal entity structure to better align operations this and cash management activities. As a part of restructuring, the Company was able to capture an overall net benefit from anticipated tax losses of $57.7 million. Most of the cash flow benefit from this tax matter, including utilization of an existing credit carryforward of approximately $49.6 million will be realized over the next several years. Also, the Company recognized $12.0 million of tax benefit from a reduction in foreign tax rates and separately recorded a valuation allowance on previously recognized assets of $10.4 million. During 2011, the Company recorded a tax benefit from the previously release unrecognized tax loss carryforwards of approximately $46.7 million. Further information regarding the details of income taxes is presented in Note 14, Income Taxes, to the consolidated financial statements in this Form 10-K. allowance valuation on of a The Company’s effective tax rate for 2012 and 2011 was 2.7% and 4.3%, the Company’s effective tax rate included the impact of amortization of purchased intangible assets, integration and restructuring and other costs as well as various respectively. In 2012, income tax adjustments which impacted income before taxes and the provisions for income taxes by $91.7 million and $90.0 million, respectively. In 2011, the Company’s effective income tax rate included the impact of acquisition related activity, restructuring and other costs, amortization of purchased intangibles from acquisitions and the release of the valuation allowance and various income tax adjustments, which impacted income before income taxes and the provision for income taxes by $123.8 million and $75.4 million, respectively. Equity in net income (loss) of unconsolidated affiliated company The Company’s 17% ownership investment of DIO Corporation resulted in a net loss of $3.3 million on an after-tax basis for 2012. The equity earnings of DIO includes the result of mark-to-market changes related to the derivative accounting for the convertible bonds issued by DIO to DENTSPLY. The Company’s portion of the mark- to-market net loss incurred by DIO was approximately $3.1 million. In 2011, equity in net income was $2.4 million on an after-tax basis and the Company’s portion of the mark-to-market net gain incurred by DIO was approximately $2.2 million. Net income attributable to noncontrolling interests The portion of consolidated net income attributable to noncontrolling interests increased $1.4 million from 2012 to 2011 due to higher earnings. 32 Net Income attributable to DENTSPLY International In addition to the results reported in accordance the Company provides adjusted net with US GAAP, income attributable to DENTSPLY International and adjusted earnings per diluted common share. Adjusted earnings per diluted common share is calculated by dividing adjusted net income attributable to DENTSPLY International by diluted weighted-average common shares outstanding. Adjusted net income attributable to DENTSPLY International and adjusted earnings per diluted from other common share are considered measures not calculated in accordance with US GAAP, and therefore are non-US GAAP measures. These non-US GAAP measures may differ related companies. adjustments may include the impact to adjust the interim effective income tax rate to the expected annual effective tax rate. The non-US GAAP financial information should not be considered in isolation from, or as a substitute for, measures in financial of accordance with US GAAP. performance Income tax prepared Year Ended December 31, 2012 Net Income Per Diluted Common Share (in thousands, except per share amounts) Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . . . . . . Amortization of purchased intangible assets, net of tax . . . . . . . . . . . . . . . . . . Restructuring and other costs, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisition related activities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . Loss on fair value adjustment at an unconsolidated affiliated company, net of tax . Orthodontic business continuity costs, net of tax . . . . . . . . . . . . . . . . . . . . . . Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted non-US GAAP earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $314,213 33,612 18,549 9,299 2,927 600 (59,992) $319,208 $ 2.18 0.23 0.13 0.07 0.02 — (0.41) $ 2.22 Year Ended December 31, 2011 Net Income Per Diluted Common Share (in thousands, except per share amounts) Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . . . . . . Acquisition related activities, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of purchased intangible assets, net of tax . . . . . . . . . . . . . . . . . . Restructuring and other costs, net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . Orthodontic business continuity costs, net of tax . . . . . . . . . . . . . . . . . . . . . . Credit risk adjustment to outstanding derivatives, net of tax . . . . . . . . . . . . . . . Gain on fair value adjustment at an unconsolidated affiliated company, net of tax . Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjusted non-US GAAP earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $244,520 62,723 14,428 11,395 2,128 (783) (2,486) (41,053) $290,872 $ 1.70 0.44 0.10 0.08 0.01 — (0.02) (0.28) $ 2.03 Operating Segment Results Net Sales, Excluding Precious Metal Content (in millions) Dental Consumable and Laboratory Businesses . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . Year Ended December 31, 2012 2011 $ Change % Change $ 816.3 $ 286.7 $ 252.1 $1,363.3 $824.3 $276.2 $252.5 $984.5 Year Ended December 31, $ (8.0) $ 10.5 $ (0.4) $378.8 (1.0%) 3.8% (0.2%) 38.5% Segment Operating Income (Loss) (in millions) Dental Consumable and Laboratory Businesses . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . 2012 2011 $ Change % Change $223.7 $ 14.1 $ (4.2) $293.0 $209.4 $ 13.0 $ (1.4) $218.4 $14.3 $ 1.1 $ (2.8) $74.6 6.8% 8.5% NM 34.2% NM — Not meaningful 33 Dental Consumable and Laboratory Businesses the Net year sales, $8.0 million excluding precious metal during content, ended decreased December 31, 2012 as compared to 2011. On a constant currency basis, net sales, excluding precious metals content, increased 2.0%, which was driven primarily by increased sales in the dental consumable businesses partially offset by lower sales in the dental laboratory businesses. Operating income increased $14.3 million during the year ended December 31, 2012 compared to 2011. Operating income was positively impacted by an increase in gross profit of approximately $8 million despite unfavorable currency translation of approximately $13 million, the increase was mainly the result of product mix. SG&A expenses decreased approximately $7 million, primarily due to favorable currency translation. Orthodontics/Canada/Mexico/Japan Net sales, excluding precious metal content, increased $10.5 million, or 3.8%, during the year ended December 31, 2012 compared to 2011. On a constant currency basis, net sales, excluding precious metal content, increased 6.0%. The increase was due to the recovery of the orthodontics business and sales growth in Canada. Operating income increased $1.1 million during the year ended December 31, 2012 compared to 2011. Gross profit increased $2 million mainly due to higher sales despite approximately $2 million of unfavorable currency translation. as compared to 2011, including favorable foreign currency translation and expenses related to the relaunch of the orthodontics businesses. SG&A expenses were unchanged Select Distribution Businesses the Net sales, $0.4 million excluding precious metal during content, decreased ended December 31, 2012 compared to 2011. On a constant currency basis, net sales, excluding precious metal content, increased by 8.3% primarily driven by sales demand in all dental product categories with the largest increase in dental specialty products. year favorable foreign currency translation partially offset by increased selling expense. Implants/Endodontics/Healthcare/Pacific Rim Net sales, excluding precious metal content, increased $378.8 million, or 38.5%, during the year ended December 31, 2012 compared to 2011. On a constant currency basis, net sales, excluding precious metal content, increased 42.2% over prior year mostly as a result of the full year of Astra Tech financial results. The 2011 net sales, excluding precious metal content, only included four months of Astra Tech financial results. On a constant currency basis, net sales, excluding precious metal content grew in all businesses. Operating income increased $74.6 million, or 34.2% during the year ended December 31, 2012 compared to 2011. Gross margin increased approximately $289 million by acquisitions primarily approximately $42 million of unfavorable foreign currency translation. SG&A expenses increased approximately $215 million primarily due to acquisitions and favorable foreign currency translation of approximately $27 million. partially offset due to CRITICAL ACCOUNTING JUDGMENTS AND POLICIES results requires could differ The preparation of the Company’s consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions about future events that affect the amounts reported in the statements and accompanying consolidated financial cannot be notes. Future events and their effects determined with absolute certainty. Therefore, the the exercise of determination of estimates from those judgment. Actual estimates, and such differences may be material to the consolidated financial The process of determining significant estimates is fact specific and takes into account factors such as historical experience, current and expected economic conditions, product mix and in some cases, actuarial techniques. The Company evaluates these significant facts and circumstances dictate. Some events as described below could cause results to differ significantly from those determined using estimates. The Company has identified the following accounting estimates as those which are critical to its business and results of operations. statements. factors as Operating income decreased $2.8 million during the year ended December 31, 2012 compared to 2011. Gross profit decreased approximately $5 million primarily due to SG&A expenses unfavorable decreased by approximately $3 million, primarily due to translation. currency Business Acquisitions The Company acquires businesses as well as partial interests in businesses. Acquired businesses are accounted for using the acquisition method of accounting which 34 requires the Company to record assets acquired and liabilities assumed at their respective fair values with the excess of the purchase price over estimated fair values recorded as goodwill. in The determining the fair value of acquired assets and assumed liabilities as well as asset lives can materially impact the results of operations. assumptions made The Company obtains information during due diligence and through other sources to get respective fair values. Examples of factors and information that the Company uses to determine the fair values include: tangible and intangible asset evaluations and appraisals; evaluations of existing contingencies and liabilities and the initial product valuation for an acquisition is incomplete by the end of the quarter the Company will record a provisional estimate in the financial statements. The provisional estimate will be finalized as soon as information becomes available but will only occur up to one year from the acquisition date. in which the acquisition occurred, line integration information. If Goodwill and Other Long-Lived Assets Goodwill and Indefinite-Lived Assets the Company also requires The Company follows the accounting standards for goodwill and indefinite-lived intangibles, which require an annual test for impairment to goodwill using a fair value impairment In addition to minimum annual approach. tests, impairment that assessments be made more frequently if events or changes in circumstances indicate that the goodwill or indefinite-lived assets might be impaired. If impairment is identified, the resulting charge is related to goodwill a goodwill determined hypothetical purchase price allocation of the fair value and reducing the current carrying value to the extent it exceeds the recalculated goodwill. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. recalculating through by Other Long-Lived Assets their lives. Other estimated useful long-lived assets, such as definite-lived intangible assets and fixed assets, are amortized or depreciated over In accordance with US GAAP, these assets are reviewed for impairment whenever events or circumstances provide evidence that suggest that the carrying amount of the asset may not be recoverable based upon an evaluation of the identifiable undiscounted cash flows. impaired based on the identifiable undiscounted cash flows, the asset’s fair value is determined using the discounted cash If flow and market participant assumptions. The resulting charge reflects the excess of the asset’s carrying cost over its fair value. Impairment Assessment Assessment of the potential impairment of goodwill and other long-lived assets is an integral part of the Company’s normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s businesses operate and key economic and business assumptions with respect to projected selling prices, increased competition and introductions of new technologies can significantly affect the outcome of impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impairments can have a significant impact on the existence and magnitude of impairments, as well as the time at which such impairments are recognized. If there are unfavorable changes in these assumptions, particularly changes in the Company’s discount rates, earnings multiples and future cash flows, the Company may be required to recognize impairment charges. Information with respect to the Company’s significant accounting policies on goodwill and other long-lived assets are included in Note 1, Significant Accounting Policies, to the consolidated financial statements in this Form 10-K. Annual Goodwill Impairment Testing Goodwill impairment is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist or if a decision is made to sell a business. testing is The valuation date for annual April 30. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline in expected cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition 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 goodwill. Goodwill is allocated among and evaluated for impairment at the reporting unit level, which is defined as an operating segment or one level below an operating 35 segment. The Company has contained within each operating segment. several reporting units impairment, as management believes The evaluation of impairment involves comparing the current fair value of each reporting unit to its net book value, including goodwill. The Company uses a discounted cash flow model (‘‘DCF model’’) to estimate the current fair value of its reporting units when testing for forecasted operating cash flows are the best indicator of such fair value. A number of significant assumptions and estimates are involved in the application of the DCF model to including future sales forecast operating cash flows, from growth, operating margin growth, benefits restructuring initiatives, spending, tax business initiatives, and working capital changes. These assumptions may vary significantly among the reporting capital rates, units. Operating cash flow forecasts are based on approved business-unit operating plans for the early years and historical relationships and projections in later years. The weighted average cost of capital (‘‘WACC’’) rate is estimated for geographic regions and applied to the reporting units located within the regions. The Company has not materially changed its methodology for goodwill impairment testing for the years presented. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative size of the Company’s recorded goodwill, differences in assumptions may have a the Company’s material effect on the results of impairment analysis. The performance of the Company’s 2013 annual impairment tests did not result in any impairment of the Company’s goodwill. The WACC rates utilized in the 2013 analysis ranged from 8.4% to 11.5%. If the fair value of each of the Company’s reporting units had been hypothetically reduced by 10% at April 30, 2013, the fair value of each reporting unit would still exceed their net book value. Had the WACC rate of each of the Company’s reporting units been hypothetically increased by 50 basis points at April 30, 2013, the fair value of all reporting units still exceeds their net book value. In 2011, the Company had a major acquisition that significantly increased the size of the Company’s implants and healthcare businesses. Also in 2011, the Company’s orthodontic business suffered a severe supply disruption. The Company these businesses given the size and competitive markets in which they operate. Goodwill for these reporting units totaled approximately $1.6 billion at December 31, 2013. to closely monitor continues Should the Company’s analysis in the future indicate an increase in discount rates or a degradation in the overall markets served by these reporting units, it could result in impairment of the carrying value of goodwill to its implied fair value. There can be no assurance that the Company’s future goodwill impairment testing will not result in a charge to earnings. Annual Testing Indefinite-Lived Intangible Asset Impairment assets consist Indefinite-lived of intangible tradenames and are not subject to amortization; instead, they are tested for impairment annually or more frequently if indicators of impairment exist 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. Such indicators may include a decline in expected cash flows, a significant adverse in the business climate, change in legal unanticipated competition 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. factors or The fair value of acquired tradenames is estimated by the use of a relief from royalty method, which values an indefinite-lived intangible asset by estimating the royalties saved through the ownership of an asset. Under this method, an owner of an indefinite-lived intangible asset determines the arm’s length royalty that likely would have been charged if the owner had to license the asset from a third party. The royalty, which is based on the estimated rate applied against is tax-effected and discounted present value using a discount rate commensurate with the relative risk of achieving the cash flow attributable to the asset. Significant management to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation. Other assumptions are impairment consistent with those applied to goodwill testing. forecasted sales, is necessary judgment The performance of the Company’s 2013 annual impairment test did not result in any impairment of the Company’s indefinite-lived assets. If the fair value of each of the Company’s indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate had been hypothetically increased by 50 basis points, the fair value of these assets would still exceed their book value. 36 In 2011, the Company had a major acquisition that significantly increased the size of the Company’s implants and healthcare businesses. The Company continues to these businesses given the size and closely monitor competitive markets operate. Indefinite-lived intangible assets related to these reporting at totaled unit December 31, 2013. $196.8 million approximately in which they Should the Company’s analysis in the future indicate an increase in discount rates or a degradation in the use of the tradenames, it could result in impairment of the carrying value of the indefinite-lived assets to its implied fair value. There can be no assurance that the Company’s future indefinite-lived asset impairment testing will not result in a charge to earnings. Litigation internal and external The Company and its subsidiaries are from time to time parties to lawsuits arising out of their respective operations. The Company records liabilities when a loss is probable and can be reasonably estimated. These estimates are typically in the form of ranges, and the Company records the liabilities at the low point of the ranges, when no other point within the ranges are a the probable loss. The ranges better estimate of established by management are based on analysis made counsel based on by information known at the Company determines a liability to be only reasonably possible, it considers the same information to estimate the possible exposure and discloses any material potential liability. These loss contingencies are monitored regularly for a change in fact or circumstance that would require an accrual adjustment. The Company believes it has estimated liabilities for probable losses well in the past; however, litigation and court decisions could cause a liability to be incurred in excess of estimates. Legal costs related to these lawsuits are expensed as incurred. legal the time. the unpredictability of If Income Taxes Income taxes are determined using the liability method of accounting for income taxes. The Company’s income tax expense includes the U.S. and international taxes plus the provision for U.S. taxes on undistributed earnings of international subsidiaries not deemed to be permanently invested. The Company applies a recognition threshold and statement measurement attribute for the financial recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are recognized if it is more likely than not that the assets will be realized in future years. The Company establishes a valuation allowance for deferred tax assets for which the realization is not Company recorded a valuation allowance of $228.8 million against the benefit of certain deferred tax assets of foreign and domestic subsidiaries. likely. At December 31, 2013, The Company operates within multiple taxing jurisdictions and in the normal course of business is examined in various jurisdictions. The reversal of accruals is recorded when examinations are completed, statutes of limitation are closed or tax laws are changed. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities during the year ended December 31, 2013 were $417.8 million compared to $369.7 million during the year ended December 31, 2012. The year over year improvement in cash from operations of $48.1 million was primarily the result of substantially lower taxes paid partially offset by an increase in working capital. The Company’s cash, cash equivalents and short-term investments decreased by $5.1 million during the year ended December 31, 2013 to $75.0 million. For the year ended December 31, 2013, the number of days for sales outstanding in accounts receivable increased by three days to 56 days as compared to 53 days in 2012. On a constant currency basis, the number of days of sales in inventory increased by eight days to 114 days at December 31, 2013 as compared to 106 days at December 31, 2012. The Company has strategically increased inventory in a few businesses as part of transition plans associated with anticipated operational changes. The Company anticipates that inventory levels may continue to increase slightly in 2014 before gradually returning to more normal levels by the end of 2015. Investing activities during 2013 include capital expenditures of $100.3 million. The Company also 37 invested $75.2 million related to the acquisition of two businesses and final payments on previous acquisitions. At December 31, 2013, the Company had authorization to maintain up to 34.0 million shares of treasury stock under its stock repurchase program as approved by the Board of Directors. Under this program, the Company purchased approximately 2.7 million shares, or approximately 1.9% of average diluted shares outstanding, during 2013 at an average price of $43.94. At December 31, 2013 and 2012, the Company held 20.5 million shares of treasury stock. The Company also received proceeds of $66.9 million primarily as a result of 2.3 million stock options exercised during the year ended December 31, 2013. Total debt decreased by $45.0 million for the year ended December 31, 2013. DENTSPLY’s long-term debt, including the current portion, at December 31, 2013 and 2012 was $1,370.8 million and $1,472.9 million, respectively. The Company’s long-term debt, including the current portion decreased by a net of $102.1 million during the year ended December 31, 2013. This net change included a net decrease in borrowings of $78.4 million, and a decrease of $23.7 million due to exchange rate fluctuations on debt denominated in foreign currencies. The decrease in long term borrowings reflects refinancing of $250.0 million floating rate notes with a combination of a new seven year term loan of $175.0 million and the balance refinanced with short-term commercial paper, which increased $56.9 million for the year. During the year ended December 31, 2013, the to total capitalization Company’s ratio of net debt 39.0% at 35.3% compared decreased December 31, 2012. DENTSPLY defines net debt as total debt, including current and long-term portions, less cash and cash equivalents and total capitalization as the sum of net debt plus total equity. to to On August 26, 2013, the Company entered into a $175.0 million variable rate seven-year term loan that matures in August 2020. The term loan is pre-payable at par and has annual principal repayments of $8.8 million in each of the first six years with the balance due at maturity. The variable interest rate is reset quarterly at three-month U.S. dollar London Inter-Bank Offered Rate (‘‘LIBOR’’) plus 1.125%. During the fourth quarter of 2013, the Company settled and replaced net investment hedges totaling 533.8 million euros. The settled hedge instruments were cross currency basis swaps that matured in October and 38 December of 2013. The Company replaced these hedges with new foreign exchange forward contracts that have layered maturity dates from March 2014 to June 2015. These net investment hedges were traded at an exchange rate of approximately 1.37 U.S. dollars per euro which resulted in cash payments totaling $52.7 million to settle the hedges during the fourth quarter of 2013. On December 30, 2013, entered into 22.0 million euro of additional foreign exchange forward investments, contracts designated as hedges of net maturing June 2015. The hedges had an original exchange rate of approximately 1.38 U.S. dollars per euro. the Company On January 17, 2013, the Company extended 295.5 million Swiss swaps maturing in February, March and April of 2013 with five francs of cross currency basis new swaps totaling 295.5 million Swiss francs maturing in February 2016, March 2017 and April 2018. These net investment hedges were traded at an exchange rate of approximately 0.93 Swiss francs per U.S. dollar which resulted in cash payments totaling $55.2 million to settle the hedges in February, March, and April of 2013. The Company will receive three-month U.S. dollar LIBOR and pay three-month Swiss franc LIBOR minus 31.6 basis points. On January 10, 2013, the Company entered into 347.8 million euro of cross currency basis swaps to hedge a balance sheet liability resulting from a legal entity restructuring pursuant to the Company’s acquisition integration plans. The hedges had an original exchange rate of approximately 1.32 U.S. dollars per euro and offset currency revaluation of a euro note payable by a U.S. dollar functional company. On June 19, 2013, the Company terminated these swaps resulting in a cash receipt of $2.2 million. On December 20, 2012, the Company established hedges totaling 241.4 million Swiss francs to offset an intercompany Swiss franc note receivable at a U.S. dollar functional entity that was created by a net dividend of 241.4 million Swiss francs. The change in the value of the hedges offset the change in the value of the Swiss franc denominated intercompany note receivable held at a U.S. dollar functional entity. During the year ending December 31, 2013, the Company adjusted the amount of the hedge each quarter to reflect note repayments and maintain an offset to the currency revaluation of the Swiss franc note receivable outstanding. The note and the hedge decreased by 142.3 million Swiss francs as the note was repaid. The hedge settlements resulted in $7.0 million cash receipt. Under its five-year multi-currency revolving credit agreement, the Company is able to borrow up to $500.0 million through July 27, 2016. The facility is unsecured and contains certain affirmative and negative covenants relating to the operations and financial condition of the Company. The most restrictive of these covenants pertain to asset dispositions and prescribed ratios of indebtedness to total capital and operating income plus depreciation and amortization to interest expense. At December 31, 2013, the Company was in compliance with these covenants. The Company also has available an aggregate $500.0 million under a U.S. dollar commercial paper facility. The five-year 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 in the aggregate is $500.0 million. At December 31, 2013, outstanding borrowings were $101.9 million under the multi-currency revolving facility. revolving credit facilities from various financial institutions. The lines of credit have no major restrictions and are provided under demand notes between the Company and the lending institutions. At December 31, 2013, $3.3 million was outstanding under these short-term lines of credit. At December 31, 2013, the Company had total unused lines of credit related to the revolving credit agreement and the uncommitted short-term lines of credit of $469.7 million. financial institutions. At December 31, 2013, the Company held $80.8 million of precious metals on consignment from several consignment agreements allow the Company to acquire the precious in time, which is rates at a point metal at market approximately the same time, and for the same price as alloys are sold to the Company’s customers. In the event that the financial institutions would discontinue offering These these consignment arrangements, and if the Company could not obtain other comparable arrangements, the Company may be required to obtain third party financing to fund an ownership position in the required precious metal inventory levels. The Company also has access to $75.4 million in uncommitted short-term financing under lines of credit The following table presents the Company’s scheduled contractual cash obligations at December 31, 2013: Contractual Obligations (in thousands) Long-term borrowings . . . . . . . . . . Operating leases . . . . . . . . . . . . . . Interest on long-term borrowings, net of interest rate swap agreements . . Postemployment obligations . . . . . . . Cross currency basis swaps . . . . . . . . Precious metal consignment agreements . . . . . . . . . . . . . . . . Other commitments . . . . . . . . . . . . Less Than 1 Year $204,656 38,068 37,877 11,097 40,756 1 − 3 Years 3 − 5 Years Greater Than 5 Years Total $567,888 50,317 $ 17,984 33,793 $580,305 21,381 $1,370,833 143,559 58,574 23,852 9,187 40,298 27,686 8,655 51,657 84,824 — 188,406 147,459 58,598 80,766 89,122 $502,342 — — $709,818 — — $128,416 — — $738,167 80,766 89,122 $2,078,743 Due to the uncertainty with respect to the timing of The Company, on an ongoing basis, expects to be future cash flows associated with the Company’s able to finance cash requirements, including 2014 capital unrecognized tax benefits at December 31, 2013, the expenditures in a range of $120.0 million to Company is unable to make reasonably reliable estimates $130.0 million, stock repurchases, debt service, operating of the period of cash settlement with the respective leases and potential future acquisitions from the current taxing authority; therefore, $25.2 million of the cash and cash equivalents and short-term investment unrecognized tax benefit has been excluded from the balances, funds generated from operations and amounts contractual obligations table above (See Note 14, Income Taxes, to the consolidated financial statements in this available under its existing credit facilities, which is further discussed in Note 12, Financing Arrangements, to the Form 10-K). consolidated financial statements. The Company intends to finance the current portion of long-term debt due in 39 2014 utilizing the available commercial paper and revolving credit facilities as well as other sources of credit. As noted in the Company’s Consolidated Statements of Cash Flows in this Form 10-K, the Company continues to generate strong cash flows from operations, which are used to finance the Company’s activities. the majority of At December 31, 2013, the Company’s cash and cash equivalents were held outside of the United States. Most of these balances could be repatriated to the United States, however, under current law, may potentially be subject to U.S. federal income tax, less applicable foreign tax credits. The Company expects to repatriate its foreign excess free cash flow (the amount investment and acquisition needs), in excess of capital subject to current regulations, in order to repay a portion of its commercial paper. Historically, the Company has generated more than sufficient operating cash flows in the United States to fund domestic operations. Further, the Company expects on an ongoing basis, to be able to finance domestic and international cash requirements, including capital expenditures, stock repurchases, debt service, operating leases and potential future acquisitions, from the funds generated from operations and amounts available under its existing credit facilities. The Company intends to finance the purchase of the remaining shares of one variable interest entity for approximately 62.0 million euros as well as the current portion of long-term debt maturing in 2014 utilizing available commercial paper, cash and other financing. NEW ACCOUNTING PRONOUNCEMENTS Refer to Note 1, Significant Accounting Policies, to the Consolidated Financial Statements in this Form 10-K for a discussion of recent accounting guidance and pronouncements. Item 7A. Quantitative and Qualitative Disclosure About Market Risk QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK and price rates potential The Company’s major market risk exposures are changing interest rates, movements in foreign currency exchange of commodities used by the Company in its manufacturing processes. The Company’s policy is to manage interest rates through the use of floating rate debt and interest rate exposures when rate swaps interest to adjust The conditions. appropriate, based upon market Company employs foreign currency denominated debt volatility and currency swaps which serve to partially offset the Company’s exposure on its net investments in subsidiaries denominated in foreign currencies. The Company’s policy generally is to hedge major foreign currency transaction exposures through foreign exchange forward contracts. These contracts are entered into with major financial institutions thereby minimizing the risk of credit loss. In order to limit the unanticipated earnings fluctuations the Company from volatility in commodity prices, selectively enters to convert variable raw material costs to fixed costs. The Company does not hold or issue derivative financial instruments for speculative or trading purposes. The Company is subject risk exposure in to other addition to the risks on its financial instruments, such as possible impacts on its pricing and production costs, which are difficult to reasonably predict, and have therefore not been included below. foreign exchange market into commodity swaps Foreign Exchange Risk Management The Company enters into derivative financial instruments to hedge the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances. The Company primarily uses forward foreign exchange contracts and cross currency basis swaps to hedge these risks. The Company uses a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings of the consolidated Company. The Company accounts for the forward foreign exchange contracts as cash flow hedges. uses both non-derivative The Company has numerous investments in foreign these subsidiaries are subsidiaries. The net assets of exposed to volatility in currency exchange rates. Currently, the Company financial including foreign currency denominated instruments, debt held at the parent company level, cross currency basis swaps and foreign exchange forward contracts to hedge some of this exposure. Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in the non-derivative and derivative financial instruments designated as hedges of net investment. At December 31, 2013, a 10% strengthening of the U.S. dollar against all other currencies would improve the 40 net fair value associated with the forward foreign exchange contracts and the cross currency basis swaps by approximately $81.8 million. Interest Rate Risk Management converts The Company uses interest rate swaps to convert a portion of its variable interest rate debt to fixed interest rate debt and to convert fixed rate debt to variable rate debt. At December 31, 2013, the Company has three groups of significant interest rate swaps. One of the groups of swaps has notional amounts totaling 12.5 billion Japanese yen, and effectively the underlying variable interest rates to an average fixed interest rate of 0.2% for a term of three years, ending in September 2014. Another swap has a notional amount of 65.0 million Swiss francs, and effectively converts the underlying variable interest rates to a fixed interest rate of 0.7% for a term of five years, ending in September 2016. Another swap has a notional amount of $150.0 million to effectively convert the underlying fixed interest rate of 4.1% on a portion of the Company’s $250.0 million Private Placement Notes to variable rate for a term of five years, ending February 2016. The interest rates on variable rate term loan debt and commercial paper are consistent with current market conditions, therefore the fair value of these instruments approximates their carrying values. At December 31, 2013, an increase of 1.0% in the interest rates on the variable interest rate instruments interest expense by would increase the Company’s approximately $4.7 million. Commodity Risk Management The Company selectively enters into commodity swaps to effectively fix certain variable raw material costs. These swaps are used purely to stabilize the cost of components used in the production of certain of the Company’s products. The Company generally accounts for the commodity swaps as cash flow hedges. At December 31, 2013, the Company had swaps in place to purchase 1,062 troy ounces of platinum bullion for use in production at an average fixed rate of $1,452 per troy ounce. In addition, the Company had swaps in place to purchase 79,380 troy ounces of silver bullion for use in production at an average fixed rate of $24 per troy ounce. At December 31, 2013, a 10% increase in commodity prices would reduce the fair value liability associated with the commodity swaps by approximately $0.3 million. 41 Off Balance Sheet Arrangements Consignment Arrangements financial institutions. Under The Company consigns the precious metals used in the production of precious metal dental alloy products from various these consignment arrangements, the banks own the precious metal, and, accordingly, the Company does not report this consigned inventory as part of its inventory on its consolidated balance sheet. These agreements are cancelable by either party at the end of each consignment period, which typically run for a period of one to nine months; however, because the Company typically has access to numerous financial institutions with excess capacity, consignment needs created by cancellations can be shifted among the other institutions. The consignment agreements allow the Company to take ownership of the metal at approximately the same time customer orders are received and to closely match the price of the metal acquired to the price charged to the customer (i.e., the price charged to the customer is largely a pass through). the impact of As precious metal prices fluctuate, the Company evaluates the precious metal price fluctuation on its target gross margins for precious metal dental alloy products and revises the prices customers are charged for precious metal dental alloy products accordingly, depending upon the magnitude of the fluctuation. While the Company does not separately the precious metal content of invoice customers for the underlying precious metal dental alloy products, precious metal content is the primary component of the cost and sales price of the precious metal dental alloy products. For practical purposes, if the precious metal prices go up or down by a small amount, the Company will not immediately modify prices, as long as the cost of precious metals embedded in the Company’s precious metal dental alloy price closely approximates the market price of the precious metal. If there is a significant change in the price of precious metals, the Company adjusts the price for the precious metal dental alloys, maintaining its margin on the products. At December 31, 2013, the Company had 171,140 troy ounces of precious metal, primarily gold, platinum, palladium and silver on consignment for periods of less than one year with a market value of $80.8 million. Under the terms of the consignment agreements, the Company also makes compensatory payments to the consignor banks based on a percentage of the value of At precious metals the December 31, 2013, the average annual rate charged by consigned inventory. the consignor banks was 0.4%. These compensatory payments are considered to be a cost of the metals the cost of purchased and are recorded as part of products sold. Item 8. Financial Statements and Supplementary Data Firm,’’ Statements forth under ‘‘Consolidated ‘‘Consolidated The information set the captions ‘‘Management’s Report on Internal Control Over Financial ‘‘Report of Independent Registered Public Reporting,’’ of Accounting Operations,’’ of Comprehensive Income,’’ ‘‘Consolidated Balance Sheets,’’ in Equity,’’ ‘‘Consolidated Statements of Changes ‘‘Consolidated Statements of Cash Flows,’’ and ‘‘Notes to Consolidated Financial Statements’’ is filed, in Item 15 in this Form 10-K. Other information required by Item 8 is included in ‘‘Computation of Ratios of Earnings to Fixed Charges’’ filed as Exhibit 12.1 to this Form 10-K. Statements Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. Item 9A. Controls and Procedures (a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures The Company’s management, with the participation the Company’s Chief Executive Officer and Chief of the Financial Officer, evaluated the effectiveness of Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d- 15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that it is accumulated and including the Chief communicated to management, Executive Officer as appropriate to allow timely decisions regarding required disclosure. Financial Officer, and Chief (b) Management’s Report on Internal Control Over Financial Reporting Management’s report on the Company’s internal included under reporting is financial control over Item 15(a)(1) of this Form 10-K. (c) Changes in Internal Control Over Financial Reporting There have been no changes in the Company’s internal controls over financial reporting that occurred during quarter ended December 31, 2013 that have materially affected, or are likely to materially affect, its internal control over financial reporting. Item 9B. Other Information Not applicable. 42 PART III Item 10. Directors, Executive Officers and Corporate Governance Item 11. Executive Compensation The information set forth under the caption ‘‘Report in the 2014 Proxy on Executive Compensation’’ Statement is incorporated herein by reference. forth under The information (i) set the caption ‘‘Executive Officers of the Registrant’’ in Part I of this Form 10-K and (ii) set forth under the captions ‘‘Election of Directors’’ and ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ in the 2014 Proxy Statement is incorporated herein by reference. Code of Ethics at www.DENTSPLY.com. The Company has adopted a Code of Business Conduct and Ethics that applies to the Chief Executive Officer, Chief Financial Officer and the Board of Directors and substantially all of the Company’s management level employees. A copy of the Code of Business Conduct and Ethics is available in the Investor Relations section of the Company’s website The Company intends to disclose any amendment to its Code relates to any of Business Conduct and Ethics that element enumerated in Item 406(b) of Regulation S-K, and any waiver from a provision of the Code of Business Conduct and Ethics granted to any director, principal financial officer, principal executive officer, principal accounting officer, or any of the Company’s other executive officers, in the Investor Relations section of the Company’s website at www.DENTSPLY.com, within four business days following the date of such amendment or waiver. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters forth under The information set the caption ‘‘Security Ownership of Certain Beneficial Owners and Management’’ and ‘‘Securities Authorized for Issuance Under Equity Compensation Plans’’ in the 2014 Proxy Statement is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions and Director Independence The information required under this item is presented in the 2014 Proxy Statement, which is incorporated herein by reference. Item 14. Principal Accounting Fees and Services The information set forth under the caption ‘‘Relationship with Independent Registered Public Accounting Firm’’ in the 2014 Proxy Statement is incorporated herein by reference. 43 Consolidated Statements of Changes in Equity — Years ended December 31, 2013, 2012 and 2011 Consolidated Statements of Cash Flows — Years ended December 31, 2013, 2012 and 2011 Notes to Consolidated Financial Statements Quarterly Financial Information (Unaudited) 2. Financial Statement Schedule The financial following statement schedule is filed as part of this Form 10-K and is covered by the Report of Independent Registered Public Accounting Firm: Schedule II — Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required to be included herein under the related instructions or are inapplicable and, therefore, have been omitted. PART IV Item 15. Exhibits and Financial Statement Schedule (a) Documents filed as part of this Report 1. Financial Statements The following financial statements of the Company are filed as part of this Form 10-K: consolidated Management’s Report on Internal Control Over Financial Reporting Report of Independent Registered Public Accounting Firm Consolidated Statements of Operations — Years ended December 31, 2013, 2012 and 2011 Consolidated Statements of Comprehensive Income — Years ended December 31, 2013, 2012 and 2011 Consolidated Balance Sheets — December 31, 2013 and 2012 44 3. Exhibits The Exhibits listed below are filed or incorporated by reference as part of the Company’s Form 10-K. Exhibit Number 3.1 3.2 4.1(a) (b) (c) (d) 4.4 4.5 4.6 4.8 4.9 4.10 4.11 4.12 10.1 10.2 10.3 10.4(a) Restated Certificate of Incorporation (Filed herewith) By-Laws, as amended (Filed herewith) Description United States Commercial Paper Issuing and paying Agency Agreement dated as of August 12, 1999 between the Company and the Chase Manhattan Bank(2) United States Commercial Paper Dealer Agreement dated as of March 28, 2002 between the Company and Salomon Smith Barney Inc.(6) 12.5 Billion Japanese Yen Term Loan Agreement, due March 28, 2012 dated as of July 25, 2008(9) United States Commercial Paper Dealer Agreement dated as of March 28, 2002 between the Company and J.P. Morgan Chase Bank, N.A.(6) $250.0 Million Private Placement Note Purchase Agreement, due February 19, 2016 dated as of October 16, 2009(10) 65.0 Million Swiss Franc Term Loan Agreement, due March 1, 2012 dated as of February 24, 2010(11) $500.0 Million Credit Agreement, dated as of July 27, 2011 final maturity in July 2016, by and among the Company, the subsidiary borrowers party thereto, the lenders party thereto, JPMorgan Chase Bank, N.A. as administrative agent, Morgan Stanley Senior Funding, Inc. as Syndication Agent, Citigroup Global Markets, Inc., Bank of Tokyo-Mitsubishi UFJ, LTD and Wells Fargo Bank, N.A. as co-documentation agents, and Morgan Stanley Senior Funding, Inc. and J.P. Morgan Securities LLC, as Joint Bookrunners and Joint Lead Arrangers.(12) Second Amendment to the 65.0 Million Swiss Franc Term Loan Agreement dated August 31, 2011 due September 1, 2016, between the Company, the Lenders, and PNC Bank, National Association, as Agent(12) 12.5 Billion Japanese Yen Term Loan Agreement between the Company and Bank of Tokyo dated September 21, 2011 due September 28, 2014, between the Company, The Bank of Tokyo as Arranger, Development Bank of Japan, Inc. as Co-Arranger, The Bank of Tokyo-Mitsubishi UFJ, Inc, as Agent, and the Bank of Tokyo-Mitsubishi UFJ, LTD, Development Bank of Japan, Inc., The Shinkumi Federation Bank, Mit- sui Sumitomo Insurance Company, Limited, and The Chiba Bank, LTD as Lenders.(12) $175.0 Million Credit Agreement dated August 26, 2013 among DENTSPLY International Inc., PNC Bank, National Association as Administrative Agent and the Lenders Party thereto (Filed herewith) Form of Indenture(13) Supplemental Indenture, dated August 23, 2011 between DENTSPLY International Inc., as Issuer and Wells Fargo, National Association, as Trustee(14) 1998 Stock Option Plan(1) 2002 Amended and Restated Equity Incentive Plan(8) Restricted Stock Unit Deferral Plan(7) Trust Agreement for the Company’s Employee Stock Ownership Plan between the Company and T. Rowe Price Trust Company dated as of November 1, 2000(3) (b) Plan Recordkeeping Agreement for the Company’s Employee Stock Ownership Plan between the Company and T. Rowe Price Trust Company dated as of November 1, 2000(3) 10.5 10.6 10.7 10.8 DENTSPLY Supplemental Saving Plan Agreement dated as of December 10, 2007(8) Amended and Restated Employment Agreement entered February 19, 2008 between the Company and Bret W. Wise*(8) Amended and Restated Employment Agreement entered February 19, 2008 between the Company and Christopher T. Clark*(8) Amended and Restated Employment Agreement entered February 19, 2008 between the Company and William R. Jellison*(8) 10.10 Amended and Restated Employment Agreement entered February 19, 2008 between the Company and James G. Mosch*(8) 45 Exhibit Number 10.11 10.12 10.13 10.14 10.15 10.16 10.17 Description Amended and Restated Employment Agreement entered February 19, 2008 between the Company and Robert J. Size*(8) Amended and Restated Employment Agreement entered January 1, 2009 between the Company’s subsidiary, DeguDent GMBH and Albert Sterkenburg*(9) DENTSPLY International Inc. Directors’ Deferred Compensation Plan effective January 1, 2007, as amended*(9) Board Compensation Arrangement*(15) Supplemental Executive Retirement Plan effective January 1, 1999, as amended January 1, 2008*(9) Incentive Compensation Plan, amended and restated*(12) AZ Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer Instru- ments Holdings, S.A.(3) 10.18(a) Precious metal inventory Purchase and Sale Agreement dated November 30, 2001, as amended October 10, 2006 between Bank of Nova Scotia and the Company(7) (b) (c) (e) (f) (g) 10.19 10.20 10.21 12.1 21.1 23.1 31.1 31.2 32 Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between JPMorgan Chase Bank and the Company(4) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between Mitsui & Co., Precious Metals Inc. and the Company(4) Precious metal inventory Purchase and Sale Agreement dated January 30, 2002 between Com- merzbankAG, Frankfurt, and the Company(8) Precious metal inventory Purchase and Sale Agreement dated December 6, 2010, as amended February 8, 2013 between HSBC Bank USA, National Association and the Company (Filed herewith) Precious metal inventory Purchase and Sale Agreement dated April 29, 2013 between The Toronto- Dominion Bank and the Company (Filed herewith) Executive Change in Control Plan for foreign executives, as amended December 31, 2008*(10) 2010 Equity Incentive Plan, amended and restated(12) Employment Agreement between the Company and Deborah M. Rasin*(12) Computation of Ratio of Earnings to Fixed Charges (Filed herewith) Subsidiaries of the Company (Filed herewith) Consent of Independent Registered Public Accounting Firm — PricewaterhouseCoopers LLP Section 302 Certification Statement Chief Executive Officer Section 302 Certification Statements Chief Financial Officer Section 906 Certification Statement 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Extension Schema Document 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF XBRL Taxonomy Extension Definition Linkbase Document 101.LAB XBRL Extension Labels Linkbase Document 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document * Management contract or compensatory plan. (1) (2) (3) Incorporated by reference to exhibit included in the Company’s Registration Statement on Form S-8 dated June 4, 1998 (No. 333-56093). Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 1999, File No. 0-16211. Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2000, File No. 0-16211. 46 (4) (5) (6) (7) (8) (9) Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2001, File No. 0-16211. Incorporated by reference to exhibit included in the Company’s Registration Statement on Form S-8 dated November 27, 2002 (No. 333-101548). Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2002, File No. 0-16211. Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2006, File no. 0-16211. Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2007, File No. 0-16211. Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2008, File No. 0-16211 (10) Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2009, File no. 0-16211. (11) Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2010, File no. 0-16211. (12) Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2011, File no. 0-16211. (13) Incorporated by reference to exhibit included in the Company’s Registration Statement on Form S-3 dated August 15, 2011 (No. 333-176307). (14) Incorporated by reference to exhibit included in the Company’s Form 8-K dated August 29, 2011, File no. 0- 16211. (15) Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2012, File no. 0-16211. 47 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2013, 2012 and 2011 Additions Balance at Beginning of Period Charged (Credited) To Costs And Expenses Charged to Other Accounts Write-offs Net of Recoveries Translation Adjustment Balance at End of Period Description (in thousands) Allowance for doubtful accounts: For Year Ended December 31, 2011 . . . . . . . . . . . . . . . $ 8,820 $ 469 $7,930(a) $(1,373) $ (941) $ 14,905 2012 . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . 14,905 13,647 2,409 2,949 115 (231) (3,798) (2,521) 16 369 13,647 14,213 Inventory valuation reserves: For Year Ended December 31, 2011 . . . . . . . . . . . . . . . $ 35,469 $ 3,325 $ 697(b) $(3,924) $ (463) $ 35,104 2012 . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . 35,104 32,561 2,500 4,663 (78) (54) (4,673) (2,521) (292) (410) 32,561 34,239 Deferred tax asset valuation allowance: For Year Ended December 31, 2011 . . . . . . . . . . . . . . . $ 93,054 $ (22,400) $2,174(c) $ — $(1,070) $ 71,758 2012 . . . . . . . . . . . . . . . 71,758 2013 . . . . . . . . . . . . . . . 179,699 107,995 49,251 — — — — (54) (104) 179,699 228,846 (a) Amount includes $7.8 million allowance for Astra Tech opening balance at August 31, 2011. (b) Amount includes $1.1 million reserve for Astra Tech opening balance at August 31, 2011. (c) Amount related to opening balance sheet valuation allowance for Astra Tech at August 31, 2011. 48 Management’s Report on Internal Control Over Financial Reporting financial The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as amended. The Company’s internal control over reporting is a process financial designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A Company’s internal control over those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and provide reasonable assurance regarding prevention or timely detection of the unauthorized acquisition, use, or disposition of reporting includes the assets of statements Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over reporting may not prevent or detect financial misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2013. In making its assessment, management used the criteria established in Internal Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the its Treadway Commission assessment management of December 31, 2013, the Company’s internal control over financial reporting was effective based on the criteria established in Internal Control — Integrated Framework (1992) issued by the COSO. Based that, (‘‘COSO’’). concluded on as The effectiveness of the Company’s internal control over financial reporting as of December 31, 2013 has been audited by an independent registered public accounting firm, as stated in their report, which appears herein. PricewaterhouseCoopers LLP, /s/ Bret W. Wise Bret W. Wise Chairman of the Board and Chief Executive Officer February 20, 2014 /s/ Christopher T. Clark Christopher T. Clark President and Chief Financial Officer February 20, 2014 49 Report of Independent Registered Public Accounting Firm financial assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal reporting included control over obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. detection generally accepted timely or of Because of its inherent limitations, internal control reporting may not prevent or detect financial over misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. To the Board of Directors and Stockholders of DENTSPLY International Inc. on established In addition, Inc. and its In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of DENTSPLY International subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013 in conformity with accounting principles generally accepted in the United States of America. in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2), presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2013, Internal in criteria based Control — Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for these financial statements and financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of financial internal reporting, included in Management’s Report on Internal Financial Reporting, appearing under Control over Item 15(a)(1). Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our included financial examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, control over statements audits of the /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Philadelphia, Pennsylvania February 20, 2014 50 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,950,770 $2,928,429 $2,537,718 Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373,358 1,372,042 1,264,278 Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,577,412 1,556,387 1,273,440 Year Ended December 31, 2013 2012 2011 Selling, general and administrative expenses . . . . . . . . . . . . . . . . . 1,144,890 1,148,731 Restructuring and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,356 419,166 25,717 381,939 Other income and expenses: Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . Equity in net income (loss) of unconsolidated affiliated company . . . . 49,625 (8,123) 8,329 369,335 52,150 976 56,851 (8,760) 3,169 8,920 (3,270) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318,161 318,489 Less: Net income attributable to noncontrolling interests . . . . . . . . . 4,969 4,276 936,847 35,865 300,728 43,814 (8,237) 9,040 11,016 2,351 247,446 2,926 330,679 256,111 Net income attributable to DENTSPLY International . . . . . . . . . . . . $ 313,192 $ 314,213 $ 244,520 Earnings per common share: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ $ 2.20 2.16 $ $ 2.22 2.18 $ $ 1.73 1.70 Weighted average common shares outstanding: Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142,663 144,965 141,850 143,945 141,386 143,553 The accompanying notes are an integral part of these financial statements. 51 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, 2013 2012 2011 (in thousands) Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $318,161 $318,489 $ 247,446 Other comprehensive income (loss), net of tax: Foreign currency translation adjustments . . . . . . . . . . . . . . . . . Net (loss) gain on derivative financial instruments . . . . . . . . . . . . Net unrealized holding (loss) gain on available-for-sale securities . . . Pension liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . Total other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . 88,931 (29,725) (5,093) 23,266 77,379 Total comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,540 93,775 (25,752) 18,338 (39,196) 47,165 365,654 (208,009) 9,258 (11,545) (3,164) (213,460) 33,986 Less: Comprehensive income attributable to noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,210 4,671 2,730 Comprehensive income attributable to DENTSPLY International . . . . . $388,330 $360,983 $ 31,256 The accompanying notes are an integral part of these financial statements. 52 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 2013 2012 (in thousands) Assets Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 74,954 $ 80,132 Accounts and notes receivable-trade, net . . . . . . . . . . . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 472,802 438,559 157,487 442,412 402,940 185,612 Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,143,802 1,111,096 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifiable intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 637,172 795,323 614,705 830,642 Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,281,596 2,210,953 Other noncurrent assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220,154 204,901 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,078,047 $4,972,297 Liabilities and Equity Current Liabilities: Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 132,789 $ 165,290 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes payable and current portion of long-term debt . . . . . . . . . . . . . . . . . . Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,308 14,446 309,862 796,405 424,336 39,191 298,963 927,780 Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,166,178 1,222,035 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,394 299,096 232,641 340,398 Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500,073 2,722,854 Commitments and contingencies Equity: Preferred stock, $.01 par value; .25 million shares authorized; no shares issued . . — — Common stock, $.01 par value; 200.0 million shares authorized; 162.8 million shares issued at December 31, 2013 and 2012 . . . . . . . . . . . . . . . . . . . . 1,628 Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255,272 1,628 246,548 Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,095,721 2,818,461 Accumulated other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . (69,062) Treasury stock, at cost, 20.5 million shares at December 31, 2013 and 2012 . . . (748,506) (144,200) (713,739) Total DENTSPLY International Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,535,053 2,208,698 Noncontrolling Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,921 40,745 Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,577,974 2,249,443 Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,078,047 $4,972,297 The accompanying notes are an integral part of these financial statements. 53 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY Common Stock Capital in Excess of Par Value Retained Earnings Accumulated Other Comprehensive Income (Loss) Treasury Stock Total DENTSPLY International Equity Noncontrolling Interests Total Equity (in thousands) Balance at December 31, 2010 . . . . . . . $1,628 $204,902 $2,320,350 $ 24,156 $(711,650) $1,839,386 $ 70,526 $1,909,912 Net income . . . . . . . . . . . . . . . . . . — — 244,520 — — 244,520 2,926 247,446 Other comprehensive loss . . . . . . . . . . Acquisition of noncontrolling interest . . . Exercise of stock options . . . . . . . . . . . Tax benefit from stock options exercised . . Share based compensation expense . . . . Funding of Employee Stock Option Plan . . Treasury shares purchased . . . . . . . . . . Dividends from noncontrolling interests . . RSU distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RSU dividends Cash dividends ($0.205 per share) . . . . . Balance at December 31, 2011 . . . . . . . — — — — — — — — — — — $1,628 — 22,782 (14,677) 1,039 20,947 379 — — (5,872) 187 — $229,687 — — — — — — — — — (187) (28,974) $2,535,709 (213,264) (1,862) — — — — — — — — — $(190,970) — — 56,952 — — 2,595 (79,500) — 3,626 — — $(727,977) (213,264) 20,920 42,275 1,039 20,947 2,974 (79,500) — (2,246) — (28,974) $1,848,077 (196) (37,008) — — — — — (174) — — — $ 36,074 (213,460) (16,088) 42,275 1,039 20,947 2,974 (79,500) (174) (2,246) — (28,974) $1,884,151 Net income . . . . . . . . . . . . . . . . . . — — 314,213 — — 314,213 4,276 318,489 Other comprehensive income . . . . . . . . Exercise of stock options . . . . . . . . . . . Tax benefit from stock options exercised . . Share based compensation expense . . . . Funding of Employee Stock Option Plan . . Treasury shares purchased . . . . . . . . . . RSU distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RSU dividends Cash dividends ($0.220 per share) . . . . . Balance at December 31, 2012 . . . . . . . — — — — — — — — — $1,628 — (10,482) 13,009 22,187 370 — (8,453) 230 — $246,548 — — — — — — — (230) (31,231) $2,818,461 46,770 — — — — — — — — $(144,200) — 44,665 — — 3,271 (38,837) 5,139 — — $(713,739) 46,770 34,183 13,009 22,187 3,641 (38,837) (3,314) — (31,231) $2,208,698 395 — — — — — — — — $ 40,745 47,165 34,183 13,009 22,187 3,641 (38,837) (3,314) — (31,231) $2,249,443 Net income . . . . . . . . . . . . . . . . . . — — 313,192 — — 313,192 4,969 318,161 Other comprehensive income . . . . . . . . Acquisition of noncontrolling interest . . . Exercise of stock options . . . . . . . . . . . Tax benefit from stock options exercised . . Share based compensation expense . . . . Funding of Employee Stock Option Plan . . Treasury shares purchased . . . . . . . . . . RSU distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RSU dividends Cash dividends ($0.250 per share) . . . . . Balance at December 31, 2013 . . . . . . . — — — — — — — — — — $1,628 — (3,926) (7,317) 2,406 25,099 959 — (8,795) 298 — $255,272 — — — — — — — — (298) (35,634) $3,095,721 75,138 — — — — — — — — — $ (69,062) — — 74,230 — — 3,698 (118,024) 5,329 — — $(748,506) 75,138 (3,926) 66,913 2,406 25,099 4,657 (118,024) (3,466) — (35,634) $2,535,053 2,241 (5,034) — — — — — — — — $ 42,921 77,379 (8,960) 66,913 2,406 25,099 4,657 (118,024) (3,466) — (35,634) $2,577,974 The accompanying notes are an integral part of these financial statements. 54 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Cash flows from operating activities: Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Adjustments to reconcile net income to net cash provided by operating activities: Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amortization of intangible and other assets . . . . . . . . . . . . . . . Amortization of deferred financing costs . . . . . . . . . . . . . . . . . Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Share based compensation expense . . . . . . . . . . . . . . . . . . . . Restructuring and other costs - non-cash . . . . . . . . . . . . . . . . . Stock option income tax benefit . . . . . . . . . . . . . . . . . . . . . . . Equity in earnings from unconsolidated affiliates . . . . . . . . . . . . Other non-cash expense (income) . . . . . . . . . . . . . . . . . . . . . . Loss on disposal of property, plant and equipment . . . . . . . . . . . Changes in operating assets and liabilities, net of acquisitions: Accounts and notes receivable-trade, net . . . . . . . . . . . . . . . . Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets . . . . . . . . . . . . . . . Other noncurrent assets . . . . . . . . . . . . . . . . . . . . . . . . . . Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Net cash provided by operating activities . . . . . . . . . . . . . . . . Cash flows from investing activities: Cash paid for acquisitions of businesses and equity investments . . . . Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase of company owned life insurance policies Cash received on derivative contracts . . . . . . . . . . . . . . . . . . . . . Cash paid on derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . Expenditures for identifiable intangible assets . . . . . . . . . . . . . . . . Liquidations of short-term investments . . . . . . . . . . . . . . . . . . . . Proceeds from sale of property, plant and equipment . . . . . . . . . . . Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . Cash flows from financing activities: Proceeds from long-term borrowings, net of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . (Decrease) increase in short-term borrowings . . . . . . . . . . . . . . . . Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . Excess tax benefits from share based compensation . . . . . . . . . . . . Cash paid for contingent consideration on prior acquisitions . . . . . . Cash paid for acquisition of noncontrolling interests of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash paid for treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cash received on derivative contracts . . . . . . . . . . . . . . . . . . . . . Cash paid on derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . Net cash (used in) provided by financing activities . . . . . . . . . . Effect of exchange rate changes on cash and cash equivalents . Net (decrease) increase in cash and cash equivalents . . . . . . . . Cash and cash equivalents at beginning of period . . . . . . . . . . Cash and cash equivalents at end of period . . . . . . . . . . . . . . Supplemental disclosures of cash flow information: Year Ended December 31, 2012 2011 2013 $ 318,161 $ 318,489 $ 247,446 81,639 46,264 4,984 (29,156) 25,099 14,008 (2,406) (976) 19,760 685 (32,532) (25,367) 26,929 (1,065) (36,728) (4,187) (458) 13,192 417,846 (66,247) (100,345) (1,500) 10,784 (104,880) (1,076) — 3,033 (260,231) 174,628 (251,383) 57,261 66,913 2,406 — (8,960) (118,024) (34,874) 7 (49,659) (161,685) (1,108) (5,178) 80,132 $ 74,954 79,456 49,743 7,045 (65,527) 22,187 20,229 (13,009) 3,270 (15,564) 808 (12,591) (36,792) (15,126) 853 12,843 (976) 22,105 (7,758) 369,685 (4,861) (92,072) (1,577) — (14,221) (3,329) — 1,039 (115,021) — — (228,912) 34,183 13,009 (2,519) — (38,837) (31,425) — (1,108) (255,609) 3,949 3,004 77,128 $ 80,132 64,039 20,996 8,023 (88,402) 20,947 2,460 (1,039) (2,351) 20,938 570 1,469 21,503 (933) (1,560) 10,816 42,218 26,139 190 393,469 (1,787,516) (71,186) — — (25,575) (3,068) 6 497 (1,886,842) 1,106,514 (251,932) 270,209 42,275 1,039 (3,023) (16,088) (79,500) (28,632) — (38,481) 1,002,381 28,082 (462,910) 540,038 77,128 34,048 58,646 $ $ $ Interest paid, net of amounts capitalized . . . . . . . . . . . . . . . . . Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,469 $ 49,832 $ 60,166 $ 109,544 The accompanying notes are an integral part of these financial statements. 55 DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES Description of Business Inc. DENTSPLY International (‘‘DENTSPLY’’ or the ‘‘Company’’), designs, develops, manufactures and markets a broad range of consumable dental products for the professional dental market. The Company believes that it is the world’s leading manufacturer and distributor instruments and of dental prosthetics, endodontic materials, and ultrasonic the leading U.S. scalers; manufacturer and distributor of denture teeth, dental handpieces, dental x-ray film holders, film mounts and prophylaxis paste; and a leading worldwide manufacturer impression materials, orthodontic or distributor of implants appliances, dental cutting instruments, dental and restorative dental materials, dental sealants, and crown and bridge materials. also manufactures and distributes consumable medical device products consisting mainly of urological catheters and certain surgical products. The Company distributes its products in over 120 countries under some of the most well established brand names in the industry. The Company Use of Estimates of The financial statements preparation in conformity with generally accepted accounting principles in the United States of America (‘‘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 statements and the reported date of amounts of revenue and expense during the reporting period. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. the financial owned companies, Investments in nonconsolidated affiliates (20 − 50 percent and partnerships as well as less than 20 percent ownership significant positions where the Company maintains influence over the subsidiary) are accounted for using the equity method. ventures joint The accompanying audited Consolidated Statements of Operations for the year ended December 31, 2011 include the results of operations for Astra Tech AB (‘‘Astra Tech’’) to for December 31, 2011. September period 2011 the 1, Cash and Cash Equivalents Cash and cash equivalents include deposits with banks as well as highly liquid time deposits with maturities at the date of purchase of ninety days or less. Short-term Investments Short-term investments are highly liquid time deposits with original maturities at the date of purchase greater than ninety days and with remaining maturities of one year or less. Accounts and Notes Receivable-Trade require The Company sells dental and certain medical products through a worldwide network of distributors and directly to end users. For customers on credit terms, the Company performs ongoing credit evaluation of those customers’ financial condition and generally does The Company not for establishes estimated losses its customers to make required payments. The Company records a provision for doubtful accounts, which is administrative included expenses’’ in the Consolidated Statements of Operations. from them. for doubtful resulting from the inability of collateral allowances accounts ‘‘Selling, general and in Principles of Consolidation of The Company the Company. The consolidated financial statements include the accounts also consolidates all variable interest entities (‘‘VIE’’) where the Company has determined that it has the power to direct the activities that most significantly impact the VIE’s economic performance and shares in either the significant risks or rewards of the VIE. The Company continually reassesses its VIE to determine if consolidation is appropriate. All significant intercompany accounts and transactions are eliminated in consolidation. Accounts receivable — trade is stated net of these allowances that were $14.2 million and $13.6 million at December 31, 2013 and 2012, respectively. For the years ended December 31, 2013 and 2012, the Company wrote-off $2.5 million and $3.8 million, respectively, of accounts receivable that were previously reserved. The Company increased the provision for doubtful accounts by $2.9 million and $2.4 million during 2013 and 2012, respectively. Additionally, notes receivable — trade is stated net that were $0.5 million and these allowances of 56 $0.9 million at December 31, 2013 and 2012, respectively. The Company for doubtful accounts on notes receivable — trade of $0.0 million for 2013 and $0.1 million for 2012. Additionally, the Company wrote-off $0.4 million and $0.2 million in 2013 and 2012, respectively. recorded provisions Inventories respectively, of Inventories are stated at the lower of cost or market. At December 31, 2013 and 2012, the cost of $6.5 million inventories was and $6.3 million, determined by the last in, first-out (‘‘LIFO’’) method. The cost of other inventories was determined by the first-in, first-out (‘‘FIFO’’) or average cost methods. The Company establishes reserves for inventory estimated to be obsolete or unmarketable equal to the difference between the cost of inventory and estimated market value based upon and market assumptions conditions. demand future about If the FIFO method had been used to determine the cost of LIFO inventories, the amounts at which net inventories are stated would be higher than reported at December 31, 2013 and 2012 by $5.9 million and $5.9 million, respectively. Valuation of Goodwill and Other Long-Lived Assets and competition introductions environments Assessment of the potential impairment of goodwill and other long-lived assets is an integral part of the Company’s normal ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on assumptions and reflects management’s best estimates at a particular point in time. The dynamic in which the Company’s economic businesses operate and key economic and business to projected selling prices, assumptions with respect increased new of the outcome of technologies can significantly affect impairment tests. Estimates based on these assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential impact on the impairments can have a significant existence and magnitude of impairments, as well as the time at which such impairments are recognized. If there are unfavorable changes in these assumptions, future cash flows, a key variable in assessing the impairment of these assets, may decrease and as a result the Company may be required to recognize impairment charges. Future changes in the environment and the economic outlook in the assets being evaluated could also result for impairment charges being recognized. The additional following information outlines the Company’s significant accounting policies on long-lived assets by type. Goodwill Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired and liabilities is not assumed in a business combination. Goodwill is tested for impairment annually, amortized. Goodwill second quarter, or when during the Company’s impairment exist. The Company indications of potential monitors impairment the existence of potential for throughout the year. This impairment assessment includes an evaluation of various reporting units, which is an operating segment or one reporting level below the operating segment. The Company performs impairment tests using a fair value approach. The Company compares the fair value of each reporting unit to its carrying amount to determine if there is potential goodwill impairment. If impairment is identified on goodwill, the resulting charge is determined by recalculating goodwill through a hypothetical purchase price allocation of the fair value and reducing the current carrying value to the extent it exceeds the recalculated goodwill. The Company’s fair value approach involves using a discounted cash flow model with market-based support as its valuation technique to measure the fair value for its reporting units. The discounted cash flow model uses five-year forecasted cash flows plus a terminal value based on a multiple of earnings. In addition, the Company applies gross profit and operating expense assumptions consistent with its historical trends. The total cash flows were discounted based on market participant data, which included the Company’s weighted-average cost of capital. The Company considered the current market conditions when determining its assumptions. Lastly, the Company reconciled the aggregate fair values of its reporting units to its market capitalization, which included a reasonable control premium based on market conditions. Additional information related to the testing for goodwill impairment is provided in Note 9, Goodwill and Intangible Assets. 57 Indefinite-Lived Intangible Assets Property, Plant and Equipment assets subject intangible Indefinite-lived of consist tradenames and are not to amortization. Valuations of identifiable intangibles assets acquired are based on information and assumptions available at the time of acquisition, using income and market model approaches to determine fair value. In-process research and development assets are not subject to amortization until the product associated with the research and development is substantially complete and is a viable product. At that time, the useful life to amortize the intangible asset is determined by identifying the period in which substantially all the cash flows are expected to be generated and the asset is moved to definite-lived. These assets are reviewed for impairment annually or whenever events or circumstances suggest that the carrying amount of the asset may not be recoverable. The Company uses an income approach, more specifically a relief from royalty method. Significant management judgment is necessary to determine key assumptions, including projected revenue, royalty rates and appropriate discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation. Other assumptions are consistent with those impairment testing. If the carrying applied to goodwill value exceeds the fair value, an impairment loss in the amount equal to the excess is recognized. Indentifiable Definite-Lived Intangible Assets Identifiable definite-lived intangible assets, which primarily consist of patents, trademarks, brand names, non-compete agreements and licensing agreements, are amortized on a straight-line basis over their estimated useful lives. Valuations of identifiable intangibles assets acquired are based on information and assumptions available at the time of acquisition, using income and market model approaches to determine fair value. indicators of These assets are reviewed for impairment whenever events or circumstances suggest that the carrying amount of the asset may not be recoverable. The Company closely monitors certain intangible assets related to new and existing technologies for impairment as these assets have more risk of becoming impaired. Impairment is based upon an initial evaluation of the identifiable undiscounted cash flows. the initial evaluation identifies a potential impairment, a fair value is determined by using a discounted cash flows valuation. If impaired, the resulting charge reflects the excess of the asset’s carrying cost over its fair value. If 58 the useful following for financial Property, plant and equipment are stated at cost, net leasehold of accumulated depreciation. Except reporting improvements, depreciation for is computed by the straight-line method purposes lives: estimated over buildings — generally 40 years and machinery and leasehold equipment — 4 to 15 years. The cost of improvements is amortized over the the lease. estimated useful Maintenance and repairs are expensed as incurred to the statement of operations; and major improvements are capitalized. These assets groups are or reviewed circumstances suggest that the carrying amount of the asset group may not be recoverable. Impairment is based upon an evaluation of the identifiable undiscounted cash flows. If impaired, the resulting charge reflects the excess of the asset group’s carrying cost over its fair value. impairment whenever the shorter of the term of replacements life or events for Marketable Securities as the 2015. Sheets determined instruments mature The Company’s marketable securities consist of debt instruments that are classified as available-for-sale in ‘‘Other noncurrent assets, net’’ on the Consolidated in Balance December the The Company appropriate classification at the time of purchase and will re-evaluate such designation as of each balance sheet In addition, the Company reviews the securities date. each quarter for indications of possible impairment. Once identified, the determination of whether the impairment is temporary or other-than-temporary requires significant the Company judgment. The primary considers in classifying the impairment include the extent and time the fair value of each investment has been below cost and the existence of a credit loss. If a decline in fair value is judged other-than-temporary, the basis of the securities is written down to fair value and the amount of the write-down is included as a realized loss. factors that Derivative Financial Instruments The Company records all derivative instruments on the consolidated balance sheet at fair value and changes in fair value are recorded each period in the consolidated statements other or comprehensive income (‘‘AOCI’’). accumulated operations of The Company financial employs instruments to hedge certain anticipated transactions, firm commitments, and assets and liabilities denominated derivative in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert floating rate debt to fixed rate, fixed rate debt to floating rate, cross currency basis swaps to convert debt denominated in one currency to another currency, and commodity swaps to fix its variable raw materials costs. Pension and Other Postemployment Benefits accrues for the expected costs associated with these risks by considering historical claims experience, demographic factors, severity factors and other relevant information. Costs are recognized in the period the claim is incurred, and the financial statement accruals include an estimate of claims incurred but not yet reported. The Company has stop-loss coverage to limit its exposure to any significant exposure on a per claim basis. by are have costs rates, benefit benefit defined covered periodic associated employees government Some of the employees of the Company and its or subsidiaries Company-sponsored defined benefit plans. Many of to the them defined available contribution plans. Additionally, certain union and in the United States are salaried employee groups covered by postemployment healthcare plans. Costs for Company-sponsored and postemployment benefit plans are based on expected employee return on plan assets, discount compensation increase rates and health care cost trends. Expected return on plan assets, discount rates and health care cost trend assumptions are particularly important when determining the Company’s benefit obligations and net with postemployment benefits. Changes in these assumptions can impact the Company’s earnings before income taxes. In determining the cost of postemployment benefits, certain assumptions are established annually to reflect market conditions and plan experience to appropriately reflect the expected costs as actuarially determined. These inflation trend rates, assumptions discount rates, employee turnover and mortality rates. The Company predominantly uses liability durations in establishing its discount rates, which are observed from indices of high-grade corporate bond yields in the respective economic regions of the plans. The expected return on plan assets is the weighted average long-term expected return based upon asset allocations and historic average returns for the markets where the assets are invested, principally in foreign locations. The Company reports the funded status of its defined benefit pension and other postemployment benefit plans on its consolidated balance sheets as a net liability or asset. Additional information related to the impact of changes in these assumptions is provided in Note 15, Benefit Plans. include medical Accruals for Self-Insured Losses The Company maintains insurance for certain risks, including workers’ liability, compensation, product liability and vehicle liability, and is self-insured for employee related healthcare benefits. The Company general 59 Litigation The Company and its subsidiaries are from time to time parties to lawsuits arising out of their respective operations. The Company records liabilities when a loss is probable and can be reasonably estimated. These estimates are typically in the form of ranges, and the Company records the liabilities at the low point of the ranges, when no other point within the ranges are a the probable loss. The ranges better estimate of established by management are based on analysis made legal counsel who considers by internal and external information known at the Company the time. determines a liability to be only reasonably possible, it considers the same information to estimate the possible exposure and discloses any material potential liability. These loss contingencies are monitored regularly for a change in fact or circumstance that would require an accrual adjustment. The Company believes it has estimated liabilities for probable losses appropriately in the past; however, the unpredictability of litigation and court decisions could cause a liability to be incurred in excess of estimates. Legal costs related to these lawsuits are expensed as incurred. If Foreign Currency Translation The functional currency for for except generally has been determined to be the local currency. those in highly foreign operations, inflationary economies, Assets and liabilities of foreign subsidiaries are translated at foreign exchange rates on the balance sheet date; revenue and expenses are translated at the average year-to-date foreign exchange rates. The effects of these translation adjustments are reported in Equity within AOCI of the consolidated balance sheets. During the year ended December 31, 2013, the Company had gains of $14.5 million on its loans designated as hedges of net investments and translation gains of $72.2 million. During the year ended December 31, 2012, the Company had gains of $10.1 million on its loans designated as hedges of net investments and translation gains of $83.3 million. of the entity currency Foreign exchange gains and losses arising from transactions denominated in a currency other than the and functional remeasurement adjustments in countries with highly inflationary economies are included in income. Net foreign exchange transaction losses of $9.0 million, $2.7 million and $1.7 million in 2013, 2012, and 2011, respectively, are included in ‘‘Other expense (income), net’’ on the Consolidated Statements of Operations. involved Revenue Recognition Revenue, net of related discounts and allowances, is recognized when the earnings process is complete. This occurs when products are shipped to or received by the customer in accordance with the terms of the agreement, title and risk of loss have been transferred, collectability is reasonably assured and pricing is fixed or determinable. Net sales include shipping and handling costs collected from customers in connection with the sale. Sales taxes, value added taxes and other similar taxes collected from customers in connection with the sale are recorded by the Company on a net basis and are not included in the consolidated statement of operations. types of Certain of the Company’s customers are offered cash rebates based on targeted sales increases. Estimates of rebates are based on the forecasted performance of the customer and their expected level of achievement within the rebate programs. In accounting for these rebate programs, the Company records an accrual as a reduction of net sales as sales take place over the period the rebate is earned. The Company revises the accruals for these rebate programs as actual results and revised for forecasts customers within the rebate programs. achievement estimated impact the A portion of the Company’s net sales is comprised of sales of precious metals generated through its precious metal dental alloy product offerings. As the precious metal content of the Company’s sales is largely a pass-through to customers, the Company uses its cost of precious metal purchased as a proxy for the precious metal content of sales, as the precious metal content of sales is not separately tracked and invoiced to customers. The Company believes that it is reasonable to use the cost of precious metal content purchased in this manner since precious metal alloy sale prices are typically adjusted when the prices of underlying precious metals change. The precious metals content of sales was $179.1 million, $213.7 million and $205.1 million for 2013, 2012 and 2011, respectively. Cost of Products Sold Cost of products sold represents costs directly the related to the manufacture and distribution of Company’s products. Primary costs include raw materials, packaging, direct labor, overhead, shipping and handling, warehousing and the depreciation of manufacturing, warehousing and distribution facilities. Overhead and related expenses include salaries, wages, employee benefits, utilities, lease costs, maintenance and property taxes. Warranties The Company provides warranties on certain costs are equipment products. Estimated warranty accrued when sales are made to customers. Estimates for warranty costs are based primarily on historical warranty claim experience. Warranty costs are included in ‘‘Cost of in the Consolidated Statements of products Operations. sold’’ Selling, General and Administrative Expenses and Selling, general administrative expenses represent costs incurred in generating revenues and in managing the business of the Company. Such costs include advertising and other marketing expenses, incentive compensation, salaries, employee benefits, research and development, travel, office expenses, lease costs, and capitalized depreciation of administrative facilities. amortization software of Research and Development Costs In addition, Research and development (‘‘R&D’’) costs relate primarily to internal costs for salaries and direct overhead expenses. the Company contracts with outside vendors to conduct R&D activities. All such R&D costs are charged to expense when incurred. The Company capitalizes the costs of equipment that have general R&D uses and expenses such equipment that is solely for specific R&D projects. The depreciation expense related to this capitalized equipment is included in the Company’s R&D costs. R&D costs are included in ‘‘Selling, general and administrative expenses’’ in the Consolidated Statements of Operations and amounted to $85.1 million, $85.4 million and $66.7 million for 2013, 2012 and 2011, respectively. Stock Compensation The Company recognizes the compensation cost transactions in the relating to share-based payment financial statements. The cost of share-based payment 60 transactions is measured at the grant date, based on the calculated fair value of the award, and is recognized as an the employee’s requisite service period expense over (generally the vesting period of the equity awards). The compensation cost is only recognized for the portion of the awards that are expected to vest. Income Taxes of on earnings The Company’s tax expense includes U.S. and international income taxes plus the provision for U.S. international taxes undistributed subsidiaries not deemed to be permanently invested. Tax credits and other incentives reduce tax expense in the year the credits are claimed. Certain items of income and expense are not reported in tax returns and financial statements in the same year. The tax effect of such temporary differences is reported as deferred income taxes. Deferred tax assets are recognized if it is more likely than not that the assets will be realized in future years. The Company establishes a valuation allowance for deferred tax assets for which realization is not likely. the financial The Company applies a recognition threshold and measurement attribute for statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. Earnings Per Share Basic earnings per share are calculated by dividing net earnings by the weighted average number of shares outstanding for the period. Diluted earnings per share is calculated by dividing net earnings by the weighted average number of shares outstanding for the period, adjusted for the effect of an assumed exercise of all dilutive options outstanding at the end of the period. Business Acquisitions The Company acquires businesses as well as partial interests in businesses. Acquired businesses are accounted for using the acquisition method of accounting which requires the Company to record assets acquired and liabilities assumed at their respective fair values with the excess of the purchase price over estimated fair values recorded as goodwill. in The determining the fair value of acquired assets and assumed liabilities as well as asset lives can materially impact the results of operations. assumptions made sources information during due The Company obtains diligence and through other to establish respective fair values. Examples of factors and information that the Company uses to determine the fair values include: tangible and intangible asset evaluations and appraisals; evaluations of existing contingencies and the initial liabilities and product valuation for an acquisition is incomplete by the end of the quarter the Company will record a provisional estimate in the financial statements. The provisional estimate will be finalized as soon as information becomes available but will only occur up to one year from the acquisition date. in which the acquisition occurred, line information. If Equity Method Investments Investments in partnerships, joint ventures and less- than-majority-owned subsidiaries in which the Company has significant influence are accounted for under the equity method. Equity investments are carried at original cost adjusted for the proportionate share of the investees’ income, losses and distributions. The Company assesses the carrying value of its equity investments when an indicator of a loss in value is present and records a loss in value of the investment when the assessment indicates that an other-than-temporary decline in the investment exists. The Company classifies its equity in net earnings of unconsolidated affiliates in the Consolidated Statements of Operations under the title of ‘‘Equity in net income (loss) of unconsolidated affiliated company.’’ Noncontrolling Interests The Company reports noncontrolling interest (‘‘NCI’’) in a subsidiary as a separate component of Equity in the Consolidated Balance Sheets. Additionally, the Company reports income and comprehensive income (loss) attributed to the Company and NCI separately in the Consolidated Statements of Operations. The Company also includes a separate column for NCI in the Consolidated Statements of Changes in Equity. the portion of net Variable Interest Entities The Company consolidates all VIE where the Company has determined that it has the power to direct the activities that most significantly impact the VIE’s economic performance and shares in either the significant risks or rewards of the VIE. The Company continually 61 to reassesses VIE is determine appropriate. The Company continues to believe that it is this the primary beneficiary of one entity under accounting guidance. consolidation if Segment Reporting The Company has numerous operating businesses covering a wide range of products and geographic regions, primarily serving the professional dental market and to a lesser extent the consumable medical device represented dental market. approximately 88%, 89%, and 93% of sales in 2013, 2012 and 2011, respectively. The Company has four reportable segments and a description of the activities of these segments is included in Note 5, Segment and Geographic Information. Professional products During the year ended December 31, 2013, the Company realigned certain implant and implant related businesses as a result of changes to the business structure. These changes also helped the Company gain operating efficiencies and effectiveness. The segment information reflects the revised structure for all periods shown. Fair Value Measurement Recurring Basis (an exit price) The Company records certain financial assets and liabilities at fair value in accordance with the accounting guidance, which defines fair value as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly the transaction measurement date. The accounting guidance establishes a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring financial instruments at fair value. The three broad levels defined by the fair value hierarchy are as follows: between market participants on Level 1 — Quoted prices are available in active markets for identical assets or liabilities as of the reported date. Level 2 — Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable reported date. The nature of these financial include, derivative instruments whose fair value have been derived using a model where inputs to the model are directly observable in the market, or can be derived principally from, or corroborated by observable market data. instruments Level 3 — Instruments that have little to no pricing observability as of the reported date. These financial instruments do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation. impacted by a number of The degree of judgment utilized in measuring the fair value of certain financial assets and liabilities generally correlates to the level of pricing observability. Pricing observability is factors, including the type of financial instrument. Financial assets and liabilities with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring fair value. Conversely, financial assets and liabilities rarely traded or not quoted will generally have less, or no pricing observability and a higher degree of judgment utilized in measuring fair value. The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Additionally, the Company considers its credit risks and its counterparties’ credit risks when determining the fair values of its financial assets and liabilities. The Company has presented the required disclosures in Note 18, Fair Value Measurement. Non-Recurring Basis When events or circumstances require an asset or liability to be fair valued that otherwise is generally recorded based on another valuation method, such as, net the Company will utilize the valuation techniques described above. realizable value, Reclassification of Prior Year Amounts Certain reclassifications have been made to prior to conform to current year years’ data in order presentation. New Accounting Pronouncements In December 2011, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting Standards Update (‘‘ASU’’) No. 2011-11, ‘‘Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.’’ The standard requires entities to disclose both gross and net information about instruments and transactions that 62 are offset in the Consolidated Balance Sheet, as well as to an instruments and transactions that are subject similar enforceable master netting agreement or agreement. In January 2013, The FASB issued ASU No. 2013-01, ‘‘Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and the Liabilities.’’ The standard clarifies disclosure including bifurcated embedded derivatives, repurchase and reverse repurchase agreements as well as securities lending and borrowing transactions. The standard was effective January 1, 2013, with retrospective application required. The adoption of this standard did not have a material statements. The impact Company adopted this accounting standard during the quarter ended March 31, 2013. to the Company’s to apply only to derivatives, the scope of financial In July 2012, the FASB issued ASU No. 2012-02, ‘‘Intangibles — Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment.’’ This newly issued accounting standard is intended to reduce the cost and complexity of the annual indefinite-lived intangible asset impairment test by providing entities an option to perform a qualitative assessment to determine whether further impairment testing is necessary. Under the revised standard, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that an indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Prior to the issuance of the revised standard, an entity was required to perform step one of the impairment test at least annually by calculating and comparing the fair value of an indefinite-lived intangible asset to its carrying amount. Under the revised standard, if an entity determines that step one is necessary and the indefinite-lived intangible asset is less than its carrying amount, then step two of the test will continue to be required to measure the amount of the impairment loss, if any. This ASU is effective for annual and interim indefinite-lived intangible asset impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this standard did not materially impact the Company’s financial position or results of operations. The Company adopted this accounting standard during the quarter ended March 31, 2013. 63 In February 2013, the FASB issued ASU No. 2013-02, ‘‘Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.’’ This newly issued accounting standard requires an entity to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income in its entirety in the same period. For other amounts not required to be reclassified to net income in the same reporting period, a cross that provide additional detail about the reclassification amounts is required. Since the standard only impacts the disclosure the requirements of AOCI and does not accounting for accumulated comprehensive income, the standard did not have an impact on the Company’s consolidated financial statements. The Company adopted this accounting standard during the quarter ended March 31, 2013. to other disclosures reference impact 830): (Topic In March 2013, the FASB issued ASU No. 2013-05, Parent’s ‘‘Foreign Currency Matters Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity.’’ This newly issued accounting standard requires a cumulative translation adjustment (‘‘CTA’’) attached to the parent’s investment in a foreign entity should be released in a manner consistent with the derecognition guidance on investment entities. Thus the entire amount of CTA associated with the foreign entity would be released when there has been a sale of a subsidiary or group of net assets within a foreign entity and the sale represents a complete liquidation of the investment in the foreign entity, a loss of a controlling financial interest in an investment in a foreign entity, or step acquisition for a foreign entity. The adoption of this the standard is not expected to materially impact Company’s financial position or results of operations. The Company expects to adopt this accounting standard for the quarter ending March 31, 2014. of Taxes (Topic Presentation In July 2013, the FASB issued ASU No. 2013-11, ‘‘Income a 740): Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.’’ The newly issued accounting standard requires the netting of unrecognized tax benefits for a loss or other against a deferred tax asset the carryforward that would apply in settlement of the new standard, uncertain tax positions. Under same-jurisdiction unrecognized tax benefits will be netted against all available tax carryforwards that would be utilized, rather than only against the that unrecognized tax benefit. The adoption of this standard is carryforwards created losses other are by or not expected to materially the Company’s financial position or results of operations. The Company expects to adopt this accounting standard for the quarter ending March 31, 2014. impact NOTE 2 — EARNINGS PER COMMON SHARE The following table sets forth the computation of basic and diluted earnings per common share: Net income attributable to DENTSPLY International Shares Earnings per common share (in thousands, except for share amounts) Year Ended December 31, 2013 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incremental shares from assumed exercise of dilutive options . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $313,192 $313,192 Year Ended December 31, 2012 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incremental shares from assumed exercise of dilutive options . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $314,213 $314,213 Year Ended December 31, 2011 Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Incremental shares from assumed exercise of dilutive options . . . . Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $244,520 $244,520 142,663 2,302 144,965 141,850 2,095 143,945 141,386 2,167 143,553 $2.20 $2.16 $2.22 $2.18 $1.73 $1.70 common stock Options to purchase 2.3 million, 4.1 million and that were 3.2 million shares of outstanding during the years ended 2013, 2012 and 2011, respectively, were not included in the computation of diluted earnings per common share since the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive. certain derivative financial instruments, net unrealized holding gain on available-for-sale securities and pension liability adjustments and prior service costs, net are recorded in AOCI. These changes are recorded in AOCI net of any related tax adjustments. For the years ended these tax December 31, 2013, 2012 and 2011, adjustments were $205.1 million, $185.6 million and $167.5 million, respectively, primarily related to foreign currency translation adjustments. The currency cumulative translation foreign adjustments included translation gains of $249.9 million and $177.7 million at December 31, 2013 and 2012, respectively, and were offset by losses of $108.9 million and $123.4 million, respectively, on loans designated as hedges of net investments. NOTE 3 — COMPREHENSIVE INCOME AOCI foreign to includes related currency the Company’s translation adjustments foreign subsidiaries, net of the related changes in certain financial instruments hedging these foreign currency investments. In addition, changes in the Company’s fair value of 64 Changes in AOCI, net of tax, by component for the years ended December 31, 2013, 2012 and 2011: Foreign Currency Translation Adjustments Gains and (Loss) on Derivative Financial Instruments Net Unrealized Holding Gain (Loss) on Available- for-Sale Securities Pension Liability Adjustments Total $ 54,302 $(143,142) $17,822 $(73,182) $(144,200) (in thousands) Balance at December 31, 2012 . . . . . . . . Other comprehensive income (loss) before reclassifications . . . . . . . . . . . . . . . . 86,690 (31,687) (5,093) 19,478 69,388 Amounts reclassified from accumulated other comprehensive income (loss) . . . . — 1,962 — 3,788 5,750 Net increase (decrease) in other comprehensive income . . . . . . . . . . . Balance at December 31, 2013 . . . . . . . . 86,690 $140,992 (29,725) $(172,867) (5,093) $12,729 23,266 $(49,916) 75,138 $ (69,062) Foreign Currency Translation Adjustments Gains and (Loss) on Derivative Financial Instruments Net Unrealized Holding Gain (Loss) on Available- for-Sale Securities Pension Liability Adjustments Total $(39,078) $(117,390) $ (516) $(33,986) $(190,970) (in thousands) Balance at December 31, 2011 . . . . . . . . Other comprehensive income (loss) before reclassifications . . . . . . . . . . . . . . . . 93,380 (20,903) 18,338 (40,474) 50,341 Amounts reclassified from accumulated other comprehensive income (loss) . . . . — (4,849) — 1,278 (3,571) Net increase (decrease) in other comprehensive income . . . . . . . . . . . 93,380 (25,752) 18,338 (39,196) 46,770 Balance at December 31, 2012 . . . . . . . . $ 54,302 $(143,142) $17,822 $(73,182) $(144,200) 65 Reclassification out of accumulated other comprehensive income (loss) for the years ended December 31, 2013, 2012 and 2011: Amounts Reclassified from AOCI Details about AOCI Components (in thousands) Gains and (loss) on derivative financial instruments: Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . Year Ended December, 31 2012 2011 2013 Affected Line Item in the Statements of Operations $(3,681) 1,184 (147) (288) (2,932) 970 $(1,962) $(3,611) 8,029 779 136 5,333 (484) $ 4,849 $(4,903) Interest expense 1,503 Cost of products sold 39 SG&A expenses 273 Cost of products sold (3,088) 644 (loss) gain before Net tax Tax benefit (expense) $(2,444) Net of tax Amortization of defined benefit pension and other postemployment benefit items: Amortization of prior service benefits . . . . . . . . . . . . . . . . . . . . . Amortization of net actuarial losses $ 141 (5,532) (5,391) 1,603 $ 138 (1,956) (1,818) 540 $ 80(a) (1,773)(a) (1,693) Net loss before tax Tax benefit 526 Total reclassifications for the period . . . . . . . . . . . . . $(5,750) $ 3,571 $(3,611) $(3,788) $(1,278) $(1,167) Net of tax (a) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost for the years ended December 31, 2013, 2012, and 2011, respectively (see Note 15, Benefit Plans, for additional details). NOTE 4 — BUSINESS ACQUISITIONS AND INVEST- MENTS IN AFFILIATES attributable to DENTSPLY. The Company expects to finalize the fair value of identifiable assets and liabilities Business Acquisitions 2013 Acquisitions a recorded In November 2013, the Company purchased a Hong Kong-based direct dental selling organization and certain assets of a professional dental consumable New Zealand- based manufacturer. Total purchase price related to these two acquisitions was $62.3 million subject to final purchase price adjustments. At December 31, 2013, the preliminary Company of related to the difference $52.9 million in goodwill between the fair value of assets acquired and liabilities assumed and the consideration given for the acquisitions. The results of operations for these business have been included in the accompanying financial statements as of the effective date of the respective transactions. The purchase prices have been assigned on the basis of preliminary estimates of the fair values of assets acquired transactions were and immaterial to the Company’s net sales and net income assumed. liabilities estimate These assumed during 2014. Additionally during the year, the Company paid $9.0 million to purchase the remaining outstanding shares of a consolidated subsidiary. As a result of the transaction, the Company recorded a decrease in noncontrolling interest of $5.0 million and a reduction to additional paid in capital of $3.9 million for the excess of the purchase price above the carrying value of the noncontrolling interest. 2012 Acquisitions The acquisition related activity for the year ended December 31, 2012 was $7.4 million, which was related to one acquisition and one earn-out payment for a prior this period acquisition. The results of operations for acquisition have been included in the accompanying financial statements as of the respective transactions. This transaction was immaterial to the Company’s net sales and net income attributable to DENTSPLY. the effective date of 66 2011 Acquisition of Astra Tech On August 31, 2011, the Company acquired 100% of the outstanding common shares of Astra Tech using the available cash on hand and debt financing. Astra Tech is a leading developer, manufacturer and marketer of implants, customized implant abutments and dental consumable medical devices in the urology and surgery market segments. The Astra Tech acquisition was recorded in accordance with the business combinations provisions of US GAAP. Astra Tech contributed net sales of $207.1 million and an operating loss of $18.5 million to the Company’s consolidated statements of operations during the period from September 1, 2011 to December 31, 2011 and is included in the Implants/Endodontics/Healthcare/Pacific Rim segment. The financial following unaudited pro forma information reflects the consolidated results of operations of the Company had the Astra Tech acquisition occurred on January 1, 2011. These amounts were calculated after conversion to US GAAP, applying the Company’s accounting policies and adjusting Astra Tech’s results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, inventory and intangible assets had been applied from January 1, 2011, together with the consequential tax effects at the the statutory additional to finance the acquisition. rate. These adjustments also reflect interest expense incurred on the debt Year Ended December 31, 2011 (in thousands, except per share data) Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,918,347 Net income attributable to DENTSPLY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 250,363 Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.74 The pro forma financial information is based on the Company’s final assignment of purchase price of the fair value of identifiable assets acquired and liabilities assumed. The Astra Tech financial information has been compiled in a manner consistent with the accounting policies adopted by DENTSPLY. Pro forma results do not include any anticipated synergies or other anticipated benefits of the acquisition. Accordingly, the unaudited pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition occurred on January 1, 2011. Investment in Affiliates On December 9, 2010, the Company purchased an initial ownership interest of 17% of the outstanding shares of DIO Corporation (‘‘DIO’’). The Company accounts for the ownership in DIO under the equity method of accounting as it has significant influence over DIO. In addition, on December 9, 2010, the Company invested $49.7 million in the corporate convertible bonds of DIO, which may be converted into common shares at any time. The contractual maturity of the bonds are in December 2015. The bonds are designated by the Company as available-for-sale securities which are ‘‘Other noncurrent assets, net,’’ on the reported in, that would substantially place Consolidated Balance Sheets and the changes in fair value are reported in AOCI. The convertible feature of the bonds has not been bifurcated from the underlying bonds as the feature does not contain a net-settlement feature, nor would the Company be able to achieve a hypothetical the net-settlement Company in a comparable cash settlement position. As such, the derivative is not accounted for separately from the bonds. The cash paid by the Company is equal to the face value of the bonds issued by DIO, and therefore, the Company has not recorded any bond premium or discount on acquiring the bonds. The fair value of the DIO bonds was $70.0 million and $75.1 million at December 31, 2013 and 2012, respectively. For the year ended December 31, 2013, an unrealized holding loss of $5.1 million on available-for-sale securities, net of tax, the years ended had been recorded in AOCI. For December 31, 2012 and 2011, an unrealized holding gain of $18.3 million and an unrealized holding loss of $11.5 million, respectively, were recorded on available-for-sale securities, net of tax, in AOCI. NOTE 5 — SEGMENT AND GEOGRAPHIC INFORMA- TION The businesses are combined into operating groups, which have overlapping product offerings, geographical 67 this statements These operating groups chief operating decision-maker presence, customer bases, distribution channels and regulatory oversight. are considered the Company’s reportable segments as the Company’s regularly reviews financial results at the operating group level and information to manage the Company’s uses operations. The accounting policies of the segments are the consolidated consistent with those described for financial significant accounting policies (see Note 1, Significant Accounting Policies). The Company measures segment income for reporting purposes as net operating income before restructuring, impairments, and other costs, interest and taxes. Additionally, the operating groups are measured on net third party sales, excluding precious metal content. A description of the products and services provided within reportable segments is each of provided below. in the summary of the Company’s four During the year ended December 31, 2013, the Company realigned certain implant and implant related businesses as result of changes to the business structure. These changes also helped the Company gain operating efficiencies and effectiveness. The segment information below reflects the revised structure for all periods shown. Dental Consumable and Laboratory Businesses It also has responsibility for This segment includes responsibility for the design, manufacturing, sales and distribution of certain small equipment and chairside consumable products in the United States, Germany and certain other European regions. the sales and distribution of certain Endodontic products in Germany. This segment also includes the responsibility for the design, manufacture, sales and distribution of most laboratory products, excluding certain countries. dental the This Company’s non-dental business excluding medical products. is also responsible for most of segment Orthodontics/Canada/Mexico/Japan This segment the world-wide manufacturing, sales and distribution of the Company’s Orthodontic products. It also has responsibility for the is responsible for sales and distribution of most of the Company’s dental products sold in Japan, Canada and Mexico. Select Distribution Businesses This segment includes responsibility for the sales and distribution for most of the Company’s dental products sold in France, United Kingdom, Italy, Austria and certain other European countries, Middle Eastern countries, India and Africa. Operating margins of the segment are reflective of the intercompany transfer price of products manufactured by other operating segments. Implants/Endodontics/Healthcare/Pacific Rim This segment In addition, sales includes the responsibility for the sales and distribution of the design, manufacture, sales and distribution of most of the Company’s dental implant and related products. This segment also includes the responsibility for the design and manufacturing of Endodontic products and is responsible for the Company’s Endodontic products in the United States, Switzerland, and locations not covered by other selling this business group is also divisions. responsible certain and distribution of Endodontic products in Germany, Asia and other parts of the world. Additionally, this segment is responsible for the design and manufacture of certain dental consumables and dental laboratory products and the sales and distribution of most dental products sold in Brazil, Latin America (excluding Mexico), Australia and most of Asia is also (excluding India and Japan). This responsible for the world-wide design, manufacturing, sales and distribution of the Company’s medical products (non-dental) throughout most of the world. segment for Significant interdependencies exist among the Company’s operations in certain geographic areas. Inter- group sales are at prices intended to provide a reasonable profit to the manufacturing unit after recovery of all manufacturing costs and to provide a reasonable profit for purchasing locations after coverage of marketing and general and administrative costs. Generally, the Company evaluates performance of the segments based on the groups’ operating income, excluding restructuring and other costs, and net third party sales, excluding precious metal content. 68 The following table sets forth information about the Company’s segments for the years ended December 31, 2013, 2012 and 2011. Third Party Net Sales (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 2011 $ 991,694 307,160 267,949 1,388,152 (4,185) $2,950,770 $ 993,624 320,614 252,632 1,365,231 (3,672) $2,928,429 $ 992,406 309,143 253,421 987,778 (5,030) $2,537,718 (a) Includes amounts recorded at Corporate headquarters. Third Party Net Sales, Excluding Precious Metal Content (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total net sales, excluding precious metal content . . . . . . . . . . . . . . Precious metal content of sales . . . . . . . . . . . . . . . . . . . . . . . . . Total net sales, including precious metal content . . . . . . . . . . . . . . 2013 2012 2011 $ 842,736 278,994 267,300 1,386,883 (4,185) $2,771,728 179,042 $2,950,770 $ 816,281 286,680 252,064 1,363,344 (3,671) $2,714,698 213,731 $2,928,429 $ 824,341 276,228 252,539 984,509 (5,030) $2,332,587 205,131 $2,537,718 (b) Includes amounts recorded at Corporate headquarters. Intersegment Net Sales (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 2011 $ 172,827 3,913 2,129 143,455 243,127 (565,451) — $ $ 173,194 4,000 1,534 139,460 221,867 (540,055) — $ $ 167,621 4,065 1,549 158,724 211,658 (543,617) — $ (c) Includes amounts recorded at Corporate headquarters and one distribution warehouse not managed by named segments. Depreciation and Amortization (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 2011 $ 31,137 3,716 931 90,175 1,944 $127,903 $ 33,855 4,959 964 86,900 2,521 $129,199 $34,575 4,432 875 42,546 2,607 $85,035 (d) Includes amounts recorded at Corporate headquarters. 69 Segment Operating Income (Loss) (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Segment Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . Reconciling Items: Restructuring and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 2011 $ 229,566 13,946 (1,005) 295,419 (105,404) $ 432,522 13,356 49,625 (8,123) 8,329 $ 369,335 $ 223,702 14,104 (4,191) 292,991 (118,950) $ 407,656 25,717 56,851 (8,760) 3,169 $ 330,679 $ 209,353 12,998 (1,358) 218,396 (102,796) $ 336,593 35,865 43,814 (8,237) 9,040 $ 256,111 (e) Includes results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments. Amount recorded in 2011 includes $31.9 million of Astra Tech acquisition costs. Capital Expenditures (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . All Other(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (f) Includes capital expenditures of Corporate headquarters. 2013 2012 2011 $ 21,122 14,423 1,377 58,104 5,319 $100,345 $18,957 9,071 657 58,372 5,015 $92,072 $20,693 7,494 1,123 32,958 8,918 $71,186 Assets (in thousands) Dental Consumable and Laboratory Businesses . . . . . . . . . . . . . . . . . . . . . . . . . Orthodontics/Canada/Mexico/Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Select Distribution Businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Implants/Endodontics/Healthcare/Pacific Rim . . . . . . . . . . . . . . . . . . . . . . . . . . . All Other(g) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 2012 $ 961,989 308,393 166,679 3,450,670 190,316 $1,007,307 294,348 192,684 3,195,382 282,576 $5,078,047 $4,972,297 (g) Includes assets of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments. 70 Geographic Information The following table sets forth information about the Company’s operations in different geographic areas for the years ended December 31, 2013, 2012 and 2011. Net sales reported below represent revenues for shipments made by operating businesses located in the country or territory identified, including export sales. Property, plant and equipment, net, represents those long-lived assets held by the operating businesses located in the respective geographic areas. United States Germany Sweden Other Foreign Consolidated (in thousands) 2013 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $1,011,646 158,673 Property, plant and equipment, net . . . . . . . . 2012 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 993,980 148,950 Property, plant and equipment, net . . . . . . . . 2011 Net sales . . . . . . . . . . . . . . . . . . . . . . . . . $ 875,471 137,871 Property, plant and equipment, net . . . . . . . . $559,109 129,685 $ 57,504 134,083 $1,322,511 214,731 $2,950,770 637,172 $546,092 122,310 $ 54,507 133,502 $1,333,850 209,943 $2,928,429 614,705 $515,819 118,229 $ 20,383 150,167 $1,126,045 185,178 $2,537,718 591,445 Product and Customer Information The following table presents net sales information by product category: December 31, 2013 2012 2011 (in thousands) Dental consumables products . . . . . . . . . . . . . . . . . . . . . . . . . . Dental laboratory products . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dental specialty products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consumable medical device products . . . . . . . . . . . . . . . . . . . . . $ 777,935 472,080 1,347,417 353,338 $ 768,098 511,850 1,313,035 335,446 $ 766,385 515,491 1,087,551 168,291 Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,950,770 $2,928,429 $2,537,718 Dental consumable products consist of value added dental alloys, dental ceramics, crown and bridge dental supplies and small equipment products used in materials, and equipment products used in laboratories dental offices for the treatment of patients. DENTSPLY’s consisting of computer aided design and machining products in this category include dental anesthetics, (CAD/CAM) ceramic systems and porcelain furnaces. infection control products, prophylaxis paste, dental sealants, impression materials, restorative materials, bone grafting materials, tooth whiteners and topical fluoride. The Company manufactures thousands of different consumable products marketed under more than a hundred brand names. Small equipment products consist of various durable goods used in dental offices for treatment of patients. DENTSPLY’s small equipment Dental specialty products are specialized treatment products used within the dental office and laboratory settings. DENTSPLY’s products in this category include endodontic (root canal) instruments and materials, implants and related products, bone grafting material, 3D digital scanning and treatment planning software, dental lasers and orthodontic appliances and accessories. products include dental handpieces, intraoral curing light Consumable medical device products consist mainly systems and ultrasonic scalers and polishers. of urology catheters, certain surgical products, medical Dental laboratory products are used in dental laboratories in the preparation of dental appliances. DENTSPLY’s products in this category include dental teeth, precious metal prosthetics, including artificial drills and other non-medical products. Both in 2013 and 2012, the Company did not have any single customer that represented ten percent or more In 2011, one of DENTSPLY’s consolidated net sales. 71 customer, Henry Schein Incorporated, accounted for 11% of DENTSPLY’s consolidated net sales. Third party export from the U.S. are less sales consolidated net sales. than ten percent of NOTE 6 — OTHER EXPENSE (INCOME), NET Other expense (income), net, consists of the following: (in thousands) Foreign exchange transaction losses . . . . . . . . . . . . . . . . . . . . . . Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total other expense (income), net December 31, 2013 2012 2011 $8,982 (653) $8,329 $2,679 490 $3,169 $1,713 7,327 $9,040 Foreign exchange transaction losses for the year ending December 31, 2013 and 2012, included approximately $6.9 million of interest and fair value adjustments and $1.3 million of interest on non-designated hedges, respectively. Other expense (income), net in the 2011 period included approximately $2.9 million of interest rate swap terminations, $3.8 million of Treasury rate lock ineffectiveness, and $0.6 million of other non-operating expenses. NOTE 7 — INVENTORIES, NET Inventories, net, consist of the following: December 31, 2013 2012 (in thousands) Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Raw materials and supplies $285,271 67,718 85,570 Inventories, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $438,559 $248,870 72,533 81,537 $402,940 The Company’s inventory valuation reserve was $34.2 million and $32.6 million at December 31, 2013 and 2012, respectively. NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net, consist of the following: December 31, 2013 2012 (in thousands) Assets, at cost: Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,616 427,826 907,541 59,583 $ 45,561 409,451 848,331 50,647 Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,442,566 805,394 1,353,990 739,285 Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 637,172 $ 614,705 NOTE 9 — GOODWILL AND INTANGIBLE ASSETS The Company performed the required annual impairment tests of goodwill at April 30, 2013 on thirteen reporting units. To determine the fair value of the reporting units, Company’s the Company uses a discounted cash flow model with market-based support as its valuation technique to measure the fair value for its reporting units. The discounted cash flow model uses five-year forecasted cash flows plus a terminal value 72 In addition, based on a multiple of earnings. the Company applies gross margin and operating expense assumptions consistent with historical trends. The total cash flows were discounted based on a range between 8.4% to 11.5%, which included assumptions regarding the Company’s weighted-average cost of capital. The Company considered the current market conditions both and globally, when determining its in the U.S. assumptions. reconciled the Lastly, aggregated fair values of its reporting units to its market capitalization, which included a reasonable control the Company premium based on market conditions. As a result of the annual impairment tests of goodwill, no impairment was identified. Impairments of identifiable definite-lived and indefinite-lived intangible assets for the years ended December 31, 2013, 2012 and 2011 were $2.0 million, $5.2 million and $1.5 million, respectively, and are included in ‘‘Restructuring and other costs’’ on the Consolidated Statements of Operations. A reconciliation of changes in the Company’s goodwill by segment and in total are as follows: Dental Consumable and Laboratory Businesses Orthodontics/ Canada/ Mexico/Japan Select Distribution Businesses Implants/ Endodontics/ Healthcare/ Pacific Rim Total (in thousands) Balance at December 31, 2012 . . . . . . Acquisition activity . . . . . . . . . . . . . . Business unit transfers . . . . . . . . . . . . Additional consideration for post closing adjustments . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes $ 488,206 42,998 (111,766) $102,065 — (4,365) $ 92,473 — (29,510) $1,528,209 9,901 145,641 $2,210,953 52,899 — — 1,844 — (2,531) — 3,571 610 14,250 610 17,134 Balance, at December 31, 2013 . . . . . . $ 421,282 $ 95,169 $ 66,534 $1,698,611 $2,281,596 During 2013, the Company transferred goodwill from the Implants/Endodontics/Healthcare/Pacific Rim segment due resulting from the to changes in reporting units reporting other units to integration of the implant businesses. Affected reporting units were tested for potential impairment of goodwill before and after the transfers. No impairment was identified. Identifiable definite-lived and indefinite-lived intangible assets consist of the following: December 31, 2013 December 31, 2012 Gross Carrying Amount Accumulated Amortization Net Carrying Amount Gross Carrying Amount Accumulated Amortization Net Carrying Amount (in thousands) Patents . . . . . . . . . . . . . . . . . . . . $ 181,847 $ (91,736) $ 90,111 $ 179,512 $ (81,390) (33,129) Trademarks . . . . . . . . . . . . . . . . . (18,966) Licensing agreements . . . . . . . . . . . (50,632) Customer relationships . . . . . . . . . . (35,994) (20,992) (82,381) 83,073 30,695 491,859 49,928 10,958 414,727 85,922 31,950 497,108 $ 98,122 49,944 11,729 441,227 Total definite-lived . . . . . . . . . . . . . $ 796,827 $(231,103) $565,724 $ 785,139 $(184,117) $601,022 Trademarks and In-process R&D . . . . $ 229,599 $ — $229,599 $ 229,620 $ — $229,620 Total identifiable intangible assets . . . $1,026,426 $(231,103) $795,323 $1,014,759 $(184,117) $830,642 Amortization expense for identifiable definite-lived intangible assets for 2013, 2012 and 2011 was $46.2 million, $49.7 million and $21.0 million, respectively. The annual estimated amortization expense related to these intangible assets for each of the five succeeding fiscal years is $47.7 million, $46.9 million, $46.3 million, $45.6 million and $44.3 million for 2014, 2015, 2016, 2017 and 2018, respectively. 73 NOTE 10 — PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets consist of the following: (in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred taxes Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prepaid expenses and other current assets NOTE 11 — ACCRUED LIABILITIES Accrued liabilities consist of the following: December 31, 2013 2012 $ 86,929 36,129 34,429 $157,487 $ 80,903 54,881 49,828 $185,612 December 31, 2013 2012 (in thousands) Payroll, commissions, bonuses, other cash compensation and employee benefits . . . . General insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Professional and legal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Warranty liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accrued vacation and holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Third party royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current portion of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $101,274 12,178 38,514 14,855 8,608 3,608 4,922 29,944 11,494 54,367 59,544 Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $339,308 $ 96,206 12,204 32,742 12,202 14,452 3,693 5,514 29,804 11,288 144,195 62,036 $424,336 NOTE 12 — FINANCING ARRANGEMENTS Short-Term Debt Short-term debt consisted of the following: December 31, 2013 2012 Principal Balance Interest Rate Principal Balance Interest Rate (in thousands) Bank overdrafts . . . . . . . . . . . . . . . . . . . . . . . . . Corporate commercial paper facility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Brazil short-term loans Other short-term loans . . . . . . . . . . . . . . . . . . . . Add: Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total short-term debt $ 1,429 101,900 1,314 563 204,656 $309,862 1.0% 0.3% 2.8% 1.8% —% 0.5% 2.0% 3.9% $ 123 45,000 1,000 1,962 250,878 $298,963 $399,931 $248,318 1.6% 0.6% Maximum month-end short-term debt outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . $417,065 Average amount of short-term debt outstanding during the year . . . . . . . . . . . . . . . . . . . . . . . $318,817 Weighted-average interest rate on short-term debt at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Short-Term Borrowings The Company has a $500.0 million commercial paper facility, at December 31, 2013 and 2012 amounts outstanding were $101.9 million and $45.0 million, respectively. The Company has a $500.0 million five-year revolving credit agreement that expires in July 2016, that serves as back-up credit to this commercial paper facility. Long-Term Debt Long-term debt consisted of the following: if any, reduce amounts available under the commercial paper Amounts outstanding under facility, the revolving credit agreement. Average outstanding issued commercial paper during 2013 was $98.7 million. At December 31, 2013, the Company has classified the reflecting the commercial paper as short-term debt, Company’s intent to repay over the next year. December 31, 2013 2012 Principal Balance Interest Rate Principal Balance Interest Rate (in thousands) Floating rate senior notes $250 million due August 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ — —% $ 250,000 Term loan Japanese yen denominated due September 2014 . . . . . . . . . . . . . . . . . . . . . . . 119,213 1.0% 144,681 Private placement notes $250 million due February 2016 . . . . . . . . . . . . . . . . . . . . . . . . Fixed rate senior notes $300 million due August 2016 Term loan Swiss francs denominated due September 2016 . . . . . . . . . . . . . . . . . . . . . . . Term loan $175 million due August 2020 . . . . . . . . Fixed rate senior notes $450 million due August 2021 Other borrowings, various currencies and rates . . . . . 252,370 299,775 72,829 175,000 448,809 2,838 $1,370,834 4.1% 2.8% 1.1% 1.4% 4.2% Less: Current portion (included in notes payable and current portion of long-term debt) . . . . . . . . . . . . . . . . . . . . . . . Long-term portion . . . . . . . . . . . . . . . . . . . . . . . 204,656 $1,166,178 254,560 299,689 71,027 — 448,653 4,303 $1,472,913 250,878 $1,222,035 1.8% 1.1% 4.1% 2.8% 1.2% —% 4.2% The Company has a $500.0 million five-year seven-year term loan that matures in August 2020. The revolving credit agreement with participation from sixteen banks, which expires in July 2016. The revolving credit agreement contains a number of covenants and two financial ratios, which the Company is required to satisfy. The most restrictive of these covenants pertain to asset dispositions and prescribed ratios of indebtedness to total capital and operating income excluding depreciation and amortization to interest expense. Any breach of any such covenants or restrictions would result in a default under the existing borrowing documentation that would permit the lenders such documentation to be immediately due and payable and, through cross default provisions, would entitle the Company’s other lenders to accelerate their loans. At December 31, 2013, the Company was in compliance with these covenants. to declare all borrowings under The Company repaid the two-year floating rate senior notes in August 2013. On August 26, 2013, the Company entered into a $175.0 million variable rate 75 term loan is pre-payable at par and has annual principal repayments of $8.8 million in each of the first six years with the balance due at maturity. The variable interest rate is reset quarterly at three-month U.S. dollar London Inter-Bank Offered Rate (‘‘LIBOR’’) plus 1.125%. The Company’s current portion of long-term debt includes a $75.0 million tranche of the $250.0 million private placement note (‘‘PPN’’), $8.8 million of the $175.0 million term loan and the balance of the Japanese yen term loan. The term loans and PPN contain certain affirmative and negative covenants relating to the Company’s operations and financial condition. At December 31, 2013, the Company was in compliance with all debt covenants. At December 31, 2013, the Company had total unused lines of credit, including lines available under its short-term arrangements and revolving credit agreement, of $469.7 million. The table below reflects the contractual maturity dates of the various borrowings at December 31, 2013: (in thousands) 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 204,656 182,896 384,992 9,064 8,920 580,306 $1,370,834 NOTE 13 — EQUITY At December 31, 2013, the Company had authorization to maintain up to 34.0 million shares of treasury stock under its stock repurchase program as approved by the Board of Directors. Under its stock repurchase program, the Company purchased 2,685,796 shares and 998,356 shares during 2013 and 2012, respectively, at an average price of $43.94 and $38.90, respectively. At both December 31, 2013 and 2012, the Company held 20.5 million of treasury stock shares. During 2013, the Company repurchased outstanding shares at a value of $118.0 million. The Company also received proceeds of $66.9 million primarily as a result of 2.3 million stock options exercised during the year ended the Company December 31, 2013. During 2012, repurchased outstanding shares at a value of $38.8 million. The Company also received proceeds of $34.2 million primarily as a result of 1.4 million stock options exercised during the year ended December 31, 2012. It is the Company’s practice to issue shares from treasury stock when options are exercised. The tax benefit realized for the options exercised during the year ended December 31, 2013 and 2012 is $3.0 million and $6.8 million, respectively. The following table represents total outstanding shares for the years ended December 31: Common Shares Treasury Shares Outstanding Shares (in thousands) Balance at December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of common stock at cost Balance at December 31, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of common stock at cost Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . Shares issued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Repurchase of common stock at cost Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . 162,776 — — 162,776 — — 162,776 — — 162,776 (21,041) 2,084 (2,187) (21,144) 1,688 (998) (20,454) 2,605 (2,686) (20,535) 141,735 2,084 (2,187) 141,632 1,688 (998) 142,322 2,605 (2,686) 142,241 The Company maintains the 2010 Equity Incentive Company authorized grants under the Plan of 13.0 Plan (the ‘‘Plan’’) under which it may grant non-qualified million shares of common stock, plus any unexercised stock options (‘‘NQSO’’), incentive stock options, portion of cancelled or terminated stock options granted restricted stock, restricted stock units (‘‘RSU’’) and stock under the DENTSPLY International Inc. 2002 Equity appreciation rights, collectively referred to as ‘‘Awards.’’ Incentive Plan, as amended, subject to adjustment as Awards are granted at exercise prices that are equal to follows: each January, if 7% of the total outstanding the closing stock price on the date of grant. The common shares of the Company exceed 13.0 million, the 76 excess becomes available for grant under the Plan. No more than 2.5 million shares may be awarded as restricted stock and RSU, and no key employee may be granted restricted stock and RSU in excess of approximately 0.2 million shares of common stock in any calendar year. The number of shares available for grant under the 2010 Plan at December 31, 2013 is 9.4 million. Stock options granted become exercisable over a period of three years after the date of grant at the rate of one-third per year and generally expire ten years after the date of grant under these plans. RSU vest 100% on the third anniversary of the date of grant and are subject to a service condition, which requires grantees to remain employed by the Company during the three-year period following the date of grant. Under the terms of the RSU, the three-year period is referred to as the restricted pledged donated, assigned, transferred, to vesting. period. RSU and the rights under the award may not be sold, or otherwise disposed of during the three-year restricted period prior In addition to the service condition, certain key executives are granted RSU subject to performance requirements during the first year of the RSU award. If actual performance against the goals is not met the the RSU granted is adjusted to reflect achievement level. Upon the expiration of the applicable restricted period and the satisfaction of all conditions imposed, all restrictions imposed on RSU will lapse, and one share of common stock will be issued as payment for each vested RSU. All awards become immediately exercisable upon death, disability or qualified retirement. Awards are expensed as their respective vesting periods or to the eligible retirement date if shorter. compensation over The following table represents total stock based compensation expense and the tax related benefit for the years ended: (in thousands) Stock option expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RSU expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total stock based compensation expense . . . . . . . . . . . . . . . . . . . $10,554 13,059 $23,613 Related deferred income tax benefit . . . . . . . . . . . . . . . . . . . . . . $ 6,057 $11,126 9,644 $20,770 $ 5,775 $10,369 9,243 $19,612 $ 5,021 December 31, 2013 2012 2011 There were 2.1 million non-qualified stock options unvested at December 31, 2013. The remaining unamortized compensation cost related to non-qualified stock options is $10.7 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.3 years. The unamortized compensation cost related to RSU is $17.7 million, which will be expensed over the remaining weighted average restricted period of the RSU, or 1.2 years. The Company uses the Black-Scholes option-pricing model to estimate the fair value of each option awarded. The following table sets forth the assumptions used to determine compensation cost for the Company’s NQSO issued during the years ended: Weighted average fair value per share . . . . . . . . . . . . . . . . . . . . Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Expected life (years) 2013 $9.30 0.53% 0.87% 25% 4.98 December 31, 2012 $8.91 0.57% 0.93% 26% 5.10 2011 $8.86 0.55% 2.35% 24% 5.07 The total intrinsic value of options exercised for the years ended December 31, 2013, 2012 and 2011 was $34.3 million, $21.1 million and $27.0 million, respectively. 77 The following table summarizes the NQSO transactions for the year ended December 31, 2013: (in thousands, except per share amounts) December 31, 2012 . . . . . . . . Granted . . . . . . . . . . . . . . . Exercised . . . . . . . . . . . . . . . Cancelled . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . December 31, 2013 . . . . . . . . Shares 9,906 923 (2,309) (31) (194) 8,295 Outstanding Weighted Average Exercise Price $33.18 40.63 28.98 42.82 38.89 $35.04 Aggregate Intrinsic Value Shares Exercisable Weighted Average Exercise Price Aggregate Intrinsic Value $ 69,079 7,599 $31.79 $64,819 $111,450 6,225 $33.67 $92,200 The weighted average remaining contractual term of all outstanding options is 5.6 years and the weighted average remaining contractual term of exercisable options is 4.7 years. The following table summarizes information about NQSO outstanding for the year ended December 31, 2013: Number Outstanding at December 31, 2013 Range of Exercise Prices (in thousands, except per share amounts and life) 20.01 − 30.00 . . . . . 30.01 − 40.00 . . . . . 40.01 − 50.00 . . . . . 1,938 4,622 1,735 8,295 Outstanding Weighted Average Remaining Contractual Life (in years) Weighted Average Exercise Price Number Exercisable at December 31, 2013 Exercisable 3.6 6.2 6.5 5.6 $26.83 35.51 42.98 $35.04 1,938 3,408 879 6,225 Weighted Average Exercise Price $26.83 34.64 44.97 $33.67 The following table summarizes the unvested RSU transactions for the year ended December 31, 2013: (in thousands, except per share amounts) Unvested at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unvested at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTE 14 — INCOME TAXES The components of income before income taxes from operations are as follows: Unvested Restricted Stock Units Weighted Average Grant Date Fair Value $36.34 40.92 32.80 38.82 $38.81 Shares 1,034 506 (248) (161) 1,131 (in thousands) United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 $ 58,383 310,952 $369,335 December 31, 2012 $ 67,668 263,011 $330,679 2011 $ 7,041 249,070 $256,111 78 The components of the provision for income taxes from operations are as follows: (in thousands) Current: U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total Deferred: U.S. federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . U.S. state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total 2013 December 31, 2012 2011 $ 10,340 4,660 66,306 $ 81,306 $(28,941) (1,377) 1,162 $(29,156) $ 52,150 $ 23,412 2,788 69,954 $ 96,154 $(128,832) 11,730 29,868 $ (87,234) 8,920 $ $ 34,870 5,151 59,397 $ 99,418 $(29,664) (4,089) (54,649) $(88,402) $ 11,016 The reconciliation of the U.S. federal statutory tax rate to the effective rate for the years ended is as follows: Statutory U. S. federal income tax rate . . . . . . . . . . . . . . Effect of: State income taxes, net of federal benefit . . . . . . . . . . . Federal benefit of R&D and foreign tax credits . . . . . . . . Tax effect of international operations . . . . . . . . . . . . . . Net effect of tax audit activity . . . . . . . . . . . . . . . . . . Tax effect of enacted statutory rate changes . . . . . . . . . Federal tax on unremitted earnings of certain foreign subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . Valuation allowance adjustments . . . . . . . . . . . . . . . . Tax effect of enacted U.S. federal legislation . . . . . . . . . Foreign outside basis differences . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Effective income tax rate on operations . . . . . . . . . . . . . . 2013 35.0% 0.7 (5.9) (10.2) 1.9 0.1 — (0.6) (2.6) (1.5) (2.8) 14.1% December 31, 2012 35.0% 0.7 (7.2) (7.4) (0.6) (3.7) 0.1 12.0 — (26.5) 0.3 2.7% 2011 35.0% 0.3 (8.6) (7.9) 2.1 0.2 0.1 (18.1) — — 1.2 4.3% 79 The tax effect of significant temporary differences giving rise to deferred tax assets and liabilities are as follows: December 31, 2013 December 31, 2012 Deferred Tax Asset Deferred Tax Liability Deferred Tax Asset Deferred Tax Liability (in thousands) Commission and bonus accrual . . . . . . . . . . . . . . . . . . . Employee benefit accruals . . . . . . . . . . . . . . . . . . . . . . Foreign outside basis difference . . . . . . . . . . . . . . . . . . . Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . Insurance premium accruals . . . . . . . . . . . . . . . . . . . . . Miscellaneous accruals . . . . . . . . . . . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Unrealized losses included in AOCI . . . . . . . . . . . . . . . . . Property, plant and equipment . . . . . . . . . . . . . . . . . . . Product warranty accruals . . . . . . . . . . . . . . . . . . . . . . Foreign tax credit carryforward . . . . . . . . . . . . . . . . . . . Restructuring and other cost accruals . . . . . . . . . . . . . . . Sales and marketing accrual . . . . . . . . . . . . . . . . . . . . . Taxes on unremitted earnings of foreign subsidiaries . . . . . . . . . . . . . . . Tax loss carryforwards and other tax attributes Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,793 46,740 — 21,941 — 4,402 10,089 35,734 32,908 — 1,069 48,450 956 5,768 — 389,614 (228,846) $ — $ — — — 374,240 — — — — 49,368 — — — — 2,506 — — 2,529 44,266 189,125 21,173 — 4,381 12,685 15,844 39,879 — 1,154 — 1,048 4,480 — 187,449 (179,699) $ — — — — 359,303 — — — — 51,020 — — — — 2,556 — — Deferred tax assets and liabilities are included in the following consolidated balance sheet line items: $ 374,618 $426,114 $ 344,314 $412,879 (in thousands) Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noncurrent assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deferred income taxes December 31, 2013 2012 $ 86,929 4,416 104,385 238,394 $ 80,903 2,856 86,029 232,641 The Company has $48.5 million of foreign tax credit tax assets at December 31, 2013 are tax benefits totaling carryforwards at December 31, 2013, which will expire in $315.4 million, before valuation allowances, for the tax 2023. loss carryforwards. The deferred tax asset recorded during 2012 for The Company has recorded $147.1 million of foreign outside basis differences in a wholly owned valuation allowance to offset the tax benefit of net subsidiary was realized as a deduction for U.S. income tax operating losses and $81.7 million of valuation allowance purposes during 2013, thus the deferred tax asset for other deferred tax assets. The Company has recorded remaining at December 31, 2013 is now reflected as a tax these valuation allowances due to the uncertainty that loss carryforward. This federal tax loss carryforward of these assets can be realized in the future. $430.2 million will expire in 2033. The Company also has tax loss carryforwards related to certain foreign and domestic subsidiaries of approximately $1.0 billion at December 31, 2013, of which $563.8 million expires at various times through 2033 and $456.4 million may be carried forward indefinitely. Included in deferred income Federal and state tax loss carryforwards that result from the exercise of employee stock options are not recorded on the Company’s Consolidated Balance Sheets. These tax loss carryforwards are accounted for as a credit to additional paid-in capital when realized through a reduction in income taxes payable. The amount incurred 80 during 2013 for tax loss carryforwards, both federal and state, was $17.2 million. The Company has provided federal income taxes on certain undistributed earnings of its foreign subsidiaries that the Company anticipates will be repatriated. Deferred federal income taxes have not been provided on $1.3 billion of cumulative earnings of foreign subsidiaries that the Company has determined to be permanently reinvested. It is not practicable to estimate the amount of tax that might be payable on these permanently reinvested earnings. Tax Contingencies the financial The Company applies a recognition threshold and measurement attribute for statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company recognizes in the financial statements, the impact of a tax position, if that position is more likely than not of being sustained on audit, based on the technical merits of the position. The total amount of gross unrecognized tax benefits at December 31, 2013 is approximately $25.9 million, of this total, approximately $24.5 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate. It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease within twelve months of the reporting date of the Company’s consolidated financial statements. Expiration of statutes of limitation in various jurisdictions during the next twelve months could include unrecognized tax benefits of approximately $1.1 million. The total amount of accrued interest and penalties were $7.9 million and $6.1 million at December 31, 2013 and 2012, respectively. The Company has consistently classified interest and penalties recognized in its consolidated financial statements as income taxes based on the accounting policy election of the Company. During the Company the year ended December 31, 2013, recognized income tax expense of $1.7 million in interest and penalties. During the year ended December 31, 2012, the Company recognized income tax benefit in the amount of $0.9 million for interest and penalties and during the year ended December 31, 2011, the Company recognized income tax expense in the amount of $0.9 million. The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The significant jurisdictions include the U.S., Germany and Switzerland. The Company has substantially concluded all U.S. federal income tax matters for years through 2009, resulting in the years 2010 through 2012 being subject to future potential tax audit adjustments while years prior to 2010 are settled. The Company has concluded audits in Germany through the tax year 2008 and is currently under audit for the years 2009 through 2011. The taxable years that remain open for Switzerland are 2003 through 2012. The Company had the following activity recorded for unrecognized tax benefits: December 31, 2013 2012 2011 (in thousands) Unrecognized tax benefits at beginning of period . . . . . . . . . . . . . . . . Gross change for prior period positions . . . . . . . . . . . . . . . . . . . . . . . Gross change for current year positions . . . . . . . . . . . . . . . . . . . . . . . Decrease due to settlements and payments . . . . . . . . . . . . . . . . . . . . Decrease due to statute expirations . . . . . . . . . . . . . . . . . . . . . . . . . Increase due to effect of foreign currency translation . . . . . . . . . . . . . . Decrease due to effect from foreign currency translation . . . . . . . . . . . . $12,264 2,471 4,517 — (1,381) — 126 Unrecognized tax benefits at end of period . . . . . . . . . . . . . . . . . . . . $17,997 $14,956 (3,029) 268 — — — 69 $12,264 $13,143 1,425 640 — (123) — (129) $14,956 81 NOTE 15 — BENEFIT PLANS Defined Benefit Pension Plan Assets Defined Contribution Plans Service defined limits. The DENTSPLY Employee Stock Ownership Plan (‘‘ESOP’’) and 401(k) plans are designed to have contribution allocations of eligible compensation, with a targeted 3% going into the ESOP in Company stock and a targeted 3% going into the 401(k) as a non-elective contribution in cash. The Company sponsors an employee its U.S. workforce to which 401(k) savings plan for enrolled participants may contribute up to Internal Revenue a non-contributory defined contribution plan that covers substantially all of the U.S. based non-union employees of the Company. All future ESOP allocations will come from a combination of forfeited shares and shares acquired in the open market. The share allocation will be accounted at fair value at the point of allocation, which is normally year-end. In addition to these plans, the Company also maintains various other U.S. and non-U.S. defined contribution and non-qualified deferred compensation forfeitures, were plans. The annual expense, net of $25.8 million, $26.1 million and $17.5 million for 2013, 2012 and 2011, respectively. ESOP The is Defined Benefit Plans The Company maintains a number of separate contributory and non-contributory qualified defined benefit pension plans for certain union and salaried employee groups in the United States. Pension benefits for salaried plans are based on salary and years of service; hourly plans are based on negotiated benefits and years of service. Annual contributions to the pension plans are sufficient to satisfy minimum funding requirements. Pension plan assets are held in trust and consist mainly of common stock and fixed income investments. The U.S. plans are funded in excess of the funding required by the U.S. Department of Labor. the Company In addition to the U.S. plans, for certain maintains defined benefit pension plans employees in Austria, France, Germany, Italy, Japan, the Netherlands, Norway, Spain, Sweden, Switzerland and Taiwan. These plans provide benefits based upon age, years of service and remuneration. Other foreign plans are not aggregate. Substantially all of the German and Sweden plans are unfunded book reserve plans. Most employees and retirees outside the U.S. are covered by government health plans. individually or significant in the The investments. and fixed income The primary investment strategy is to ensure that the assets of the plans, along with anticipated future contributions, will be invested in order that the benefit entitlements of employees, pensioners and beneficiaries covered under the plan can be met when due with high probability. Pension plan assets consist mainly of common stock target allocations for defined benefit plan assets are 30% to 65% equity securities, 30% to 65% fixed income securities, 0% to 15% real estate, and 0% to 25% in all other investments. Equity securities include investments in companies located both in and outside the U.S. Equity securities do not include common stock of the include corporate Company. Fixed income securities bonds industries, companies government bonds, mortgage notes and pledge letters. Other types of investments include investments in mutual funds, common trusts, insurance contracts, hedge funds and real estate. These plan assets are not recorded on the Company’s Consolidated Balance Sheet as they are held in trust or other off-balance sheet investment vehicles. from diversified types of of investment The defined benefit pension plan assets in the U.S. are held in trust and the investment policies of the plans are generally to invest the plans assets in equities and fixed income investments. The objective is to achieve a long-term rate of return in excess of 5% while at the same time mitigating the impact of risk associated with investment categories that are expected to yield greater than average returns. In accordance with the investment policies of the U.S. plans, the plans assets were invested in the following investment categories: interest-bearing cash, registered investment companies (e.g. mutual funds), common/collective trusts, master trust investment accounts and insurance company general accounts. The investment objective is for assets to be invested in a manner consistent with the fiduciary standards of the Employee Retirement Income Security Act of 1974, as amended (‘‘ERISA’’). The defined benefit pension plan assets maintained in Austria, Germany, Japan, Norway, the Netherlands, Switzerland and Taiwan all have separate investment policies but generally have an objective to achieve a long- term rate of return in excess 4% while at the same time mitigating the impact of investment risk associated with investment categories that are expected to yield greater than average returns. In accordance with the investment policies for the plans outside the U.S., the plans’ assets were invested in the following investment categories: 82 income interest-bearing cash, U.S. and foreign equities, foreign fixed and government bonds), insurance company contracts, real estate and hedge funds. corporate (primarily securities Postemployment Healthcare The Company sponsors postemployment healthcare plans that cover certain union and salaried employee groups in the U.S. and is contributory, with retiree contributions adjusted annually to limit the Company’s contribution for participants who retired after June 1, 1985. The plans for postemployment healthcare have no plan assets. The Company also sponsors unfunded non- contributory postemployment medical plans for a limited number of union employees and their spouses and retirees of a discontinued operation. Reconciliations of changes in the defined benefit and postemployment healthcare plans’ benefit obligations, fair value of assets and statement of funded status are as follows: Pension Benefits December 31, Other Postemployment Benefits December 31, 2013 2012 2013 2012 (in thousands) Change in Benefit Obligation Benefit obligation at beginning of year . . . . . . . . . . . . . . $ 355,766 $ 270,607 $ 14,218 $ 12,217 Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,863 Interest cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Participant contributions . . . . . . . . . . . . . . . . . . . . . . 9,901 3,968 Actuarial (gains) losses . . . . . . . . . . . . . . . . . . . . . . . (20,727) Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . Acquisitions/Divestitures . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes . . . . . . . . . . . . . . . . . Foreign plan additions . . . . . . . . . . . . . . . . . . . . . . . Foreign plan deletions . . . . . . . . . . . . . . . . . . . . . . . Plan curtailments . . . . . . . . . . . . . . . . . . . . . . . . . . Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 30 8,248 — (524) (1,669) (10,440) 12,178 10,600 3,638 59,461 (93) 3,745 8,100 540 — (310) 234 464 515 195 490 535 (2,708) 1,601 11 — — — — — — — — — — — (12,700) (798) (820) Benefit obligation at end of year . . . . . . . . . . . . . . . . . . $ 359,416 $ 355,766 $ 11,936 $ 14,218 Change in Plan Assets Fair value of plan assets at beginning of year . . . . . . . . . . $ 124,884 $ 108,708 $ Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes . . . . . . . . . . . . . . . . . Employer contributions . . . . . . . . . . . . . . . . . . . . . . Participant contributions . . . . . . . . . . . . . . . . . . . . . . 9,658 2,377 12,718 3,968 10,732 2,362 12,144 3,638 Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,440) (12,700) — — — 283 515 (798) $ — — — 285 535 (820) Fair value of plan assets at end of year . . . . . . . . . . . . . . $ 143,165 $ 124,884 $ — $ — Funded status at end of year . . . . . . . . . . . . . . . . . . . . $(216,251) $(230,882) $(11,936) $(14,218) 83 The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as follows: Pension Benefits Other Postemployment Benefits December 31, December 31, 2013 2012 2013 2012 (in thousands) Other noncurrent assets, net Deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated other comprehensive income . . . . . . . . . . . Net amount recognized . . . . . . . . . . . . . . . . . . . . . . . . Total liabilities $ 23 19,618 $ 19,641 (5,097) (211,177) (644) $(216,918) 48,957 $(148,320) $ 263 26,421 $ 26,684 (4,561) (226,584) (449) $(231,594) 70,377 $(134,533) $ $ — 605 605 (491) (11,445) — $(11,936) 961 $(10,370) $ — 1,764 $ 1,764 (654) (13,564) — $(14,218) 2,805 $ (9,649) Amounts recognized in AOCI consist of: Pension Benefits Other Postemployment Benefits December 31, December 31, 2013 2012 2013 2012 (in thousands) Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net prior service cost Before tax AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . Net of tax AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,615 (2,684) $67,931 18,974 $48,957 $99,129 (2,780) $96,349 25,972 $70,377 $1,557 9 $1,566 605 $ 961 $4,569 — $4,569 1,764 $2,805 Information for pension plans with an accumulated benefit obligation in excess of plan assets: December 31, 2013 2012 (in thousands) Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $357,459 330,215 141,186 $344,653 315,963 117,413 Components of net periodic benefit cost: Pension Benefits Other Postemployment Benefits 2013 2012 2011 2013 2012 2011 (in thousands) . . . . . . . . . . . . . . . . . . . Service cost Interest cost . . . . . . . . . . . . . . . . . . . Expected return on assets . . . . . . . . . . Amortization of prior service cost (credit) . . . . . . Amortization of net actuarial loss Curtailment and settlement gains . . . . . Net periodic benefit cost . . . . . . . . . . . $14,863 9,901 (4,998) (133) 5,150 (1,600) $23,183 $12,178 10,600 (4,727) (138) 1,995 (303) $19,605 $10,950 9,633 (5,184) 80 1,584 4 $17,067 $ 234 464 — 2 303 — $1,003 $195 490 — — 264 — $949 $ 61 553 — — 189 — $803 84 Other changes in plan assets and benefit obligations recognized in AOCI: (in thousands) Net actuarial (gain) loss . . . . . . . . . . . . Net prior service (credit) . . . . . . . . . . . . Amortization . . . . . . . . . . . . . . . . . . Total recognized in AOCI . . . . . . . . . . . Total recognized in net periodic benefit Pension Benefits Other Postemployment Benefits 2013 2012 2011 2013 2012 2011 $(23,364) (37) (5,017) $(28,418) $55,662 (161) (1,857) $53,644 $ 8,352 (2,845) (1,664) $ 3,843 $(2,709) 11 (305) $(3,003) $1,601 — (264) $1,337 $ 537 — (189) $ 348 cost and AOCI . . . . . . . . . . . . . . . . $ (5,235) $73,249 $20,910 $(2,000) $2,286 $1,151 The estimated net loss, prior service cost and transition obligation for the defined benefit plans that will into net periodic benefit cost be amortized from AOCI over the next fiscal year are $2.7 million. There will be an immaterial amount of estimated net loss and prior service credit for the other postemployment plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year. The amounts in AOCI that are expected to be amortized as net expense (income) during fiscal year 2014 are as follows: Other Pension Benefits Postemployment Benefits (in thousands) Amount of net prior service cost (credit) Amount of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (138) 2,838 $ 2 43 The weighted average assumptions used to determine benefit obligations for the Company’s plans, principally in foreign locations, at December 31, 2013, 2012 and 2011 are as follows: Discount rate . . . . . . . . . . . . Rate of compensation increase . Health care cost trend . . . . . . . Ultimate health care cost trend . Years until ultimate trend is Pension Benefits Other Postemployment Benefits 2013 2012 2011 2013 2012 3.2% 2.7% n/a n/a 2.8% 2.7% n/a n/a 4.0% 2.8% n/a n/a 4.8% n/a 8.5% 5.0% 3.5% n/a 8.0% 5.0% 2011 4.0% n/a 7.5% 5.0% reached . . . . . . . . . . . . . . n/a n/a n/a 8.0 7.0 6.0 The weighted average assumptions used to determine net periodic benefit cost for the Company’s plans, principally in foreign locations, for the years ended December 31, 2013, 2012 and 2011 are as follows: Discount rate . . . . . . . . . . . . Expected return on plan assets . Rate of compensation increase . Health care cost trend . . . . . . . Ultimate health care cost trend . Years until ultimate trend is Pension Benefits Other Postemployment Benefits 2013 2012 2011 2013 2012 2011 2.8% 4.3% 2.7% n/a n/a 4.0% 4.1% 2.8% n/a n/a 4.1% 4.8% 2.6% n/a n/a 3.5% n/a n/a 8.5% 5.0% 4.0% n/a n/a 8.0% 5.0% 5.0% n/a n/a 7.5% 5.0% reached . . . . . . . . . . . . . . n/a n/a n/a 8.0 7.0 6.0 Measurement Date . . . . . . . . 12/31/2013 12/31/2012 12/31/2011 12/31/2013 12/31/2012 12/31/2011 85 To develop the assumptions for the expected long- term rate of return on assets, the Company considered level of expected returns on risk free the current (primarily U.S. government bonds), investments the historical level of the risk premium associated with the other asset classes in which the assets are invested and the expectations for future returns of each asset class. The expected return for each asset class was then weighted based on the target asset allocations to develop the assumptions for the expected long-term rate of return on assets. Assumed health care cost trend rates have an impact on the amounts reported for postemployment benefits. An ongoing one percentage point change in assumed healthcare cost trend rates would have had the following effects for the year ended December 31, 2013: (in thousands) Effect on total of service and interest cost components . . . . . . . . . . . . . . . . . . Effect on postemployment benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . $ 161 2,104 $ (123) (1,656) Other Postemployment Benefits 1% Increase 1% Decrease Fair Value Measurements of Plan Assets The fair value of the Company’s pension plan assets at December 31, 2013 is presented in the table below by asset category. Approximately 82% of the total plan assets are categorized as Level 1, and therefore, the values assigned to these pension assets are based on quoted prices available in active markets. For the other category levels, a description of the valuation is provided in Note 1, Significant Accounting Policies, under the ‘‘Fair Value Measurement’’ heading. December 31, 2013 Total Level 1 Level 2 Level 3 (in thousands) Assets Category Cash and cash equivalents Equity securities: . . . . . . . . . . . . . . . . . . . . $ 15,231 $ 15,231 $ U. S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . 929 37,904 929 37,904 Fixed income securities: Fixed rate bonds(a) . . . . . . . . . . . . . . . . . . . . . . . . 51,066 51,066 Other types of investments: Mutual funds(b) . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate mutual funds . . . . . . . . . . . . . . . . . . . . Common trusts(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,367 8,906 10,100 13,240 2,046 376 3,367 8,906 — — — — — — — — — — 6,802 3,739 — — $ — — — — — — 3,298 9,501 2,046 376 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $143,165 $117,403 $10,541 $15,221 86 December 31, 2012 Total Level 1 Level 2 Level 3 (in thousands) Assets Category Cash and cash equivalents Equity securities: . . . . . . . . . . . . . . . . . . . . $ 5,930 $ 5,930 $ U. S. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . International . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,015 34,197 1,015 34,197 Fixed income securities: Fixed rate bonds(a) . . . . . . . . . . . . . . . . . . . . . . . . 48,450 48,450 Other types of investments: — — — — Mutual funds(b) . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate mutual funds . . . . . . . . . . . . . . . . . . . . Common trusts(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Insurance contracts Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,994 9,713 2,708 12,199 1,311 367 $124,884 — 9,713 — — — — $99,305 8,994 — — 3,865 — — $12,859 $ — — — — — — 2,708 8,334 1,311 367 $12,720 (a) (b) (c) This category includes fixed income securities invested primarily in Swiss bonds, foreign bonds denominated in Swiss francs, foreign currency bonds, mortgage notes and pledged letters. This category includes mutual funds balanced between moderate-income generation and moderate capital appreciation with investment allocations of approximately 50% equities and 50% fixed income investments. This category includes common/collective funds with investments in approximately 65% equities and 35% in fixed income investments. The following table provides a reconciliation from December 31, 2012 to December 31, 2013 for the plans assets categorized as Level 3. No assets were transferred in or out of the Level 3 category during the year ended December 31, 2013. (in thousands) Balance at December 31, 2012 . . . . . . . . . . Actual return on plan assets: Relating to assets still held at the reporting date . . . . . . . . . . . . . . . . Relating to assets sold during the period . Purchases, sales and settlements, net . . . Effect of exchange rate changes . . . . . . Changes within Level 3 Category for Year Ended December 31, 2013 Common Trust Insurance Contracts Hedge Funds Real Estate Total $2,708 $8,334 $1,311 $367 $12,720 409 99 82 — 421 — 637 109 82 — 596 57 — — — 9 912 99 1,315 175 Balance at December 31, 2013 . . . . . . . . . . $3,298 $9,501 $2,046 $376 $15,221 87 The following tables provide a reconciliation from December 31, 2011 to December 31, 2012 for the plans assets categorized as Level 3. No assets were transferred in or out of the Level 3 category during the year ended December 31, 2012. (in thousands) Balance at December 31, 2011 . . . . . . . . . . Actual return on plan assets: Relating to assets still held at the Changes within Level 3 Category for Year Ended December 31, 2012 Common Trust Insurance Contracts Hedge Funds Real Estate Total $2,083 $5,820 $ 890 $358 $ 9,151 reporting date . . . . . . . . . . . . . . . . Relating to assets sold during the period . Purchases, sales and settlements, net . . . Effect of exchange rate changes . . . . . . Balance at December 31, 2012 . . . . . . . . . . 284 8 333 — $2,708 1,700 — 533 281 $8,334 52 6 331 32 $1,311 — — — 9 $367 2,036 14 1,197 322 $12,720 Fair values for Level 3 assets are determined as Real Estate: Investment is stated by its appraised follows: value. Common Trusts and Hedge Funds: The investments are valued using the net asset value provided by the administrator of the trust or fund, which is based on the fair value of the underlying securities. Insurance Contracts: The value of the asset represents the mathematical reserve of the insurance policies and is calculated by the insurance firms using their own assumptions. Cash Flows In 2014, the Company expects to make contributions and direct benefit payments of $12.1 million to its defined benefit pension plans and $0.5 million to its postemployment medical plans. Estimated Future Benefit Payments Other Pension Benefits Postemployment Benefits (in thousands) 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 − 2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $10,595 11,697 11,171 12,221 14,437 82,030 $ 502 497 487 504 524 2,794 The above table reflects the total employer contributions and benefits expected to be paid from the plan and does not include the participants’ share of the cost. NOTE 16 — RESTRUCTURING AND OTHER COSTS During 2013, the Company initiated several Restructuring Costs of costs Restructuring $12.0 million and respectively, are $17.8 million for 2013 and 2012, reflected in ‘‘Restructuring and other costs’’ in the Consolidated Statement of Operations and the associated liabilities are recorded in ‘‘Accrued liabilities’’ and ‘‘Other noncurrent liabilities’’ in the Consolidated Balance Sheet. These costs consist of employee severance benefits, payments due under operating contracts, and other restructuring costs. restructuring plans primarily related to closing locations as a result of integration activities as the Company realigned certain implant and implant related businesses to better leverage the Company’s resources by reducing costs and obtaining operational efficiencies. These restructuring costs were offset by changes in estimates of $2.3 million, related to adjustments to 2012 and 2011 and prior plans. During 2012, the Company initiated several restructuring plans primarily related to the closure and/or consolidation of certain production and selling facilities in 88 Europe to better leverage the Company’s resources by reducing costs and obtaining operational efficiencies. These restructuring costs were offset by changes in estimates of $0.8 million, related to adjustments to 2011 and 2010 and prior plans. The During 2011, as a result of the impact of the Japan natural disaster, the Company initiated a restructuring plan related to the Orthodontic business during the second quarter. restructuring plan addressed overhead costs related to the business and has reduced those costs as the Orthodontic business. The Company recorded $1.7 million of charges for the year ended December 31, 2011 for this plan. In addition to the restructuring charges, for the year ended December 31, 2011, the Company incurred approximately $3.3 million of selling, general and administrative expenses related to costs of maintaining the critical Orthodontic business processes and structures during the lack of product supply. In addition to the Orthodontic restructuring plans the Company also initiated several during 2011, restructuring plans primarily related to the closure and/or consolidation of certain production and selling facilities in Europe and South America to better leverage the Company’s resources by reducing costs and obtaining operational incurred $1.9 million of costs related to other restructuring plans, offset by income of $0.5 million for adjustments to 2010 plans and 2009 and prior plans. These adjustments were primarily related to revised estimates of severance costs. efficiencies. Company The At December 31, 2013, the Company’s restructuring accruals were as follows: (in thousands) Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . Provisions and adjustments . . . . . . . . . . . . . . . . . . . . Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . . . Change in estimates . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . (in thousands) Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . Provisions and adjustments . . . . . . . . . . . . . . . . . . . . Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . . . Change in estimates . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . 2011 and Prior Plans $ 1,495 — (1,069) (24) $ 402 2011 and Prior Plans $ 792 — (136) $ — $ 656 (in thousands) Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Provisions and adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . Severances 2012 Plans 2013 Plans Total $11,412 1,314 (9,832) (2,014) 880 $ $ — 8,615 (2,615) (236) $ 5,764 $ 12,907 9,929 (13,516) (2,274) $ 7,046 Lease/Contract Terminations 2012 Plans 2013 Plans Total $ 682 77 (626) (41) $ 92 $ — 1,999 (1,887) (14) $ 98 $ 1,474 2,076 (2,649) (55) $ 846 Other Restructuring Costs 2012 Plans 2013 Plans Total $ 94 957 (994) 1 $ 58 $ — 1,383 (716) (9) $ 658 $ 94 2,340 (1,710) (8) $ 716 89 The following table provides the cumulative amounts for the provisions and adjustments and amounts applied for all the plans by segment: (in thousands) Dental Consumable and December 31, 2012 Provisions and Adjustments Amounts Applied Change in Estimates December 31, 2013 Laboratory Businesses . . . . . . $ 9,132 $ 1,236 $ (7,635) $(1,390) $1,343 Orthodontics/Canada/Mexico/ Japan . . . . . . . . . . . . . . . . Select Distribution Businesses . . . Implants/Endodontics/Healthcare/ Pacific Rim . . . . . . . . . . . . . All Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total 361 222 4,760 — $14,475 Other Costs For the year ended December 31, 2013, the Company recorded other costs of $1.4 million which included a $2.4 million impairment of certain previously acquired technology offset by net gain for legal settlements. For the year ended December 31, 2012, the Company recorded other costs of $7.9 million, other costs including $5.2 million impairments of certain previously acquired technologies and the impact of the U.S. presidential executive order updating trade sanctions. On October 9, 2012, President Obama issued an executive order making it illegal for non-U.S. subsidiaries of U.S. companies to engage in certain transactions involving Iran without a license. The Company reserved appropriate allowances against accounts receivable in its controlled foreign subsidiaries and has discontinued such sales activities. There can be no assurance as to when such sales may be resumed to this region. NOTE 17 — FINANCIAL INSTRUMENTS AND DERIVA- TIVES 164 383 11,869 693 $14,345 (415) (266) (9,242) (317) $(17,875) (4) — (943) — $(2,337) 106 339 6,444 376 $8,608 the Company utilizes interest rate swaps to convert variable rate debt to fixed rate debt and to convert fixed rate debt to variable rate debt, cross currency basis swaps to convert debt denominated in one currency to another currency and commodity swaps to fix certain variable raw material costs. Derivative Instruments Not Designated as Hedging The Company enters into derivative financial instruments to hedge the foreign exchange revaluation risk associated with recorded assets and liabilities that are denominated in a non-functional currency. The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances and are recorded in ‘‘Other expense (income), net’’ on the Consolidated Statements of Operations. The Company primarily uses forward foreign exchange contracts and cross currency basis swaps to hedge these risks. The Company’s significant contracts outstanding at December 31, 2013 Derivative Instruments and Hedging Activities are summarized in the tables that follow. The Company’s activities expose it to a variety of market risks, which primarily include the risks related to the effects of changes in foreign currency exchange rates, interest rates and commodity prices. These financial exposures are monitored and managed by the Company as part of its overall risk management program. The objective of this risk management program is to reduce the volatility that these market risks may have on the Company’s operating results and equity. The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, or assets and liabilities denominated in foreign currencies. Additionally, 90 On December 20, 2012, the Company established hedges totaling 241.4 million Swiss francs to offset an intercompany Swiss franc note receivable at a U.S. dollar functional entity that was created by a net dividend of 241.4 million Swiss francs. The change in the value of the hedges offset the change in the value of the Swiss franc denominated intercompany note receivable held at a U.S. dollar ending December 31, 2013, the Company adjusted the amount of the hedge each quarter to reflect note repayments and maintain an offset to the currency revaluation of the Swiss franc note receivable outstanding. The note and the entity. During the functional year hedge decreased by 142.3 million Swiss francs as the note was repaid. The hedge settlements resulted in $7.0 million cash receipt. Company’s policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged. On January 10, 2013, the Company entered into 347.8 million euros of cross currency basis swaps to hedge a balance sheet liability resulting from a legal entity restructuring pursuant to the Company’s acquisition integration plans. The hedges had an original exchange rate of approximately 1.32 U.S. dollars per euro and offset currency revaluation of a euro note payable by a U.S. dollar functional company. On June 19, 2013, the Company terminated these swaps resulting in a cash receipt of $2.2 million. euros dedesignated 36.0 million On June 27, 2013 and September 16, 2013, the Company and 48.0 million euros, respectively, of its net investment hedges. These trades matured during the fourth quarter of 2013, resulting in a net cash payment of $3.7 million. The change in the value of the hedges offset the change in the value of a euro denominated intercompany note receivable held at a U.S. dollar functional entity. Derivative Instruments Designated as Hedging Cash Flow Hedges Foreign Exchange Risk Management The Company uses a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in both cash flows and reported earnings of the consolidated Company. The Company accounts for the foreign exchange forward contracts as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the tested effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot change in the derivative fair value will be deferred in AOCI and released and recorded on the Consolidated Statements of Operations in the same period that the hedged transaction is recorded. The time value component of the fair value of the derivative is deemed ineffective and is reported currently in ‘‘Other expense (income), net’’ on the Consolidated Statements of Operations in the period which it is applicable. Any cash flows associated with these instruments are included in cash from operating activities on the Consolidated in accordance with the Statements of Cash Flows 91 These foreign exchange forward contracts generally have maturities up to eighteen months and the counterparties to the transactions are typically large international The Company’s significant contracts outstanding at December 31, 2013 are summarized in the tables that follow. institutions. financial Interest Rate Risk Management The Company uses interest rate swaps to convert a portion of its variable interest rate debt to fixed interest rate debt. At December 31, 2013, the Company has two groups of significant interest rate swaps. One of the groups of swaps has notional amounts totaling 12.6 billion Japanese yen, and effectively the underlying variable interest rates to an average fixed interest rate of 0.2% for a term of three years, ending in September 2014. Another swap has a notional amount of 65.0 million Swiss francs, and effectively converts the underlying variable interest rates to a fixed interest rate of 0.7% for a term of five years, ending in September 2016. converts into interest The Company enters rate swap contracts infrequently as they are only used to manage interest rate risk on long-term debt instruments and not for speculative purposes. Any cash flows associated with these instruments are included in cash from operating activities on the Consolidated Statements of Cash Flows in accordance with the Company’s policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged. significant contracts outstanding at The Company’s December 31, 2013 are summarized in the tables that follow. Commodity Risk Management The Company selectively enters into commodity swaps to effectively fix certain variable raw material costs. These swaps are used to stabilize the cost of components used in the production of certain of the Company’s products. The Company generally accounts the commodity swaps as cash flow hedges. As a result, the Company records the fair value of the contracts primarily through AOCI based on the tested effectiveness of the commodity the The Company measures effectiveness of cash flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-to-spot swaps. for change in the derivative fair value will be deferred in AOCI and released and recorded on the Consolidated Statements of Operations in the same period that the hedged transaction is value component of the fair value of the derivative is deemed ineffective and is reported currently in ‘‘Interest expense’’ on the Consolidated Statements of Operations in the recorded. time The period which it is applicable. Any cash flows associated with these instruments are included in cash from operating activities on the Consolidated Statements of Cash Flows in accordance with the Company’s policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged. The following tables summarize the notional amounts and fair value of the Company’s cash flow hedges and non-designated derivatives at December 31, 2013: Notional Amounts Maturing in the Year 2014 2015 Fair Value Net Asset (Liability) December 31, 2013 Foreign Exchange Forward Contracts (in thousands) Forward sale, 14.9 million Australian dollars . . . . . . . . . . . Forward purchase, 12.6 million British pounds . . . . . . . . . Forward sale, 46.5 million Canadian dollars . . . . . . . . . . . Forward purchase, 22.7 million Danish kroner . . . . . . . . . . Forward sale, 212.9 million euros . . . . . . . . . . . . . . . . . Forward sale, 23.3 million Hong Kong dollars . . . . . . . . . . Forward sale, 870.6 million Japanese yen . . . . . . . . . . . . . Forward sale, 180.9 million Mexican pesos . . . . . . . . . . . . Forward purchase, 12.9 million Norwegian kroner . . . . . . . Forward sale, 0.5 million New Zealand dollars . . . . . . . . . . Forward sale, 17.0 million Polish zlotys . . . . . . . . . . . . . . Forward sale, 3.2 million Singapore dollars . . . . . . . . . . . . Forward sale, 4.2 billion South Korean won . . . . . . . . . . . Forward purchase, 1.3 billion Swedish kronor . . . . . . . . . . Forward purchase, 48.1 million Swiss francs . . . . . . . . . . . Forward sale, 71.6 million Taiwanese dollars . . . . . . . . . . . $ 12,331 (20,916) 35,861 (4,181) 243,739 3,006 8,263 13,837 (2,118) 417 5,621 2,515 4,000 (183,015) (62,278) 2,401 Total foreign exchange forward contracts . . . . . . . . . . . $ 59,483 Notional Amounts Maturing in the Year $ 1,610 — 8,247 — 47,344 — — — — — — — — (28,429) 7,225 — $ 35,997 $ 757 193 1,045 (4) (2,755) 133 (626) 46 (2) 2 (73) 7 1 (1,282) (1,009) 31 $(3,536) Fair Value Net Asset (Liability) 2014 2015 2016 2017 2018 and Beyond December 31, 2013 Interest Rate Swaps (in thousands) Euro . . . . . . . . . . . . . . . . . Japanese yen . . . . . . . . . . . Swiss francs . . . . . . . . . . . . $ 993 119,213 — Total interest rate swaps . . . $120,206 $993 — — $993 $ 993 — 72,829 $73,822 $993 — — $993 $248 — — $248 $ (341) 47 (885) $(1,179) 92 Notional Amounts Maturing in the Year Commodity Swap Contracts (in thousands) . . . . . . . . . . . . . . . . . . . . . . . Silver swap − U.S. dollar Platinum swap − U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total commodity contracts 2014 $1,446 1,351 $2,797 2015 $112 101 $213 Cross Currency Basis Swaps (in thousands) 449.8 million euros at 1.45 pay U.S. dollar three-month Notional Amounts Maturing in the Year 2014 2015 Fair Value Net Asset (Liability) December 31, 2013 $(343) (91) $(434) Fair Value Net Asset (Liability) December 31, 2013 LIBOR receive three-month Euro Inter-Bank Offered Rate . $618,449 $ — $(33,800) 141.4 million Swiss francs at 0.93 pay Swiss francs three- month LIBOR receive U.S. dollar three-month LIBOR . . . . Total cross currency basis swaps . . . . . . . . . . . . . . . . . 112,045 $730,494 46,370 $46,370 (6,692) $(40,492) At December 31, 2013, deferred net losses on the non-derivative and derivative financial instruments derivative instruments of $7.7 million, which were designated as hedges of net investments, which are recorded in AOCI, are expected to be reclassified to included in AOCI. current earnings during the next twelve months. This reclassification is primarily due to the sale of inventory that includes hedged purchases and recognized interest expense on interest rate swaps. The maximum term over which the Company is hedging exposures to variability of cash flows (for all forecasted transactions, excluding interest payments on variable interest rate debt) is eighteen months. Overall, the derivatives designated as cash flow hedges are highly effective. Any cash flows associated with these instruments are included in cash from operating activities in the Consolidated Statements of Cash Flows in accordance with the Company’s policy of classifying the cash flows from these instruments in the same category as the cash flows from the items being hedged. During the fourth quarter of 2013, the Company settled and replaced net investment hedges totaling 533.8 million euros. The settled hedge instruments were cross currency basis swaps that matured in October and December of 2013. The Company replaced these hedges with new foreign exchange forward contracts that have layered maturity dates from March 2014 to June 2015. These net investment hedges were traded at an exchange rate of approximately 1.37 U.S. dollars per euro which resulted in cash payments totaling $52.7 million to settle the hedges during the fourth quarter of 2013. On December 30, 2013, the Company entered into 22.0 million euros of additional foreign exchange forward contracts designated as hedges of net investments, maturing June 2015. The hedges had an original exchange rate of approximately 1.38 U.S. dollars per Hedges of Net Investments in Foreign Operations euro. The Company has significant investments in foreign subsidiaries. The net assets of these subsidiaries are exposed to volatility in currency exchange rates. Currently, the Company uses both non-derivative financial instruments, including foreign currency denominated debt held at the parent company level and derivative instruments to hedge some of this exposure. financial Translation gains and losses related to the net assets of the foreign subsidiaries are offset by gains and losses in On January 17, 2013, the Company extended 295.5 million Swiss francs of cross currency basis swaps maturing in February, March and April of 2013 with five new forward starting swaps totaling 295.5 million Swiss francs maturing in February 2016, March 2017 and April 2018. These net investment hedges were traded at an exchange rate of approximately. 93 Swiss francs per U.S. dollar which resulted in cash payments totaling $55.2 million to settle the hedges in February, March, and 93 April of 2013. The Company will receive three-month U.S. dollar LIBOR and pay three-month Swiss franc LIBOR minus 31.6 basis points. At December 31, 2013 and 2012, the Company had debt, cross currency basis swaps and foreign exchange forward contracts to hedge the currency exposure related to a designated portion of the net assets of its European, Swiss and Japanese subsidiaries. The fair value net asset (liability) of rate swap the cross currency interest agreements and foreign exchange forward contracts is the estimated amount the Company would receive (pay) at the reporting date, taking into account the effective interest rates, currency swap basis rates and foreign exchange rates. At December 31, 2013 and 2012, the estimated net fair values of the cross currency interest contracts fair values of the estimated net rate swap agreements was a liability of $18.1 million and a liability of $90.7 million, respectively. At December 31, the foreign 2013, exchange forward contracts was a liability of $5.1 million; the Company did not hold similar at December 31, 2012. The effective portion of the change in the value of these derivatives is recorded in AOCI, net of tax effects. At December 31, 2013 and 2012, the accumulated translation gain (loss) on investments in foreign subsidiaries, primarily denominated in euros, Swiss francs, Japanese yen and Swedish kronor, net of these net investment hedges, were losses of $10.1 million and $71.4 million, respectively, which were included in AOCI, net of tax effects. The following tables summarize the notional amounts and fair value of the Company’s hedges of net investments in foreign operations at December 31, 2013: Foreign Exchange Forward Contracts (in thousands) Forward sale, 555.8 million euros . . . . . . . . . . . . . . . . . . . . . . . Total foreign exchange forward contracts . . . . . . . . . . . . . . . . . $705,078 Notional Amounts Maturing in the Year 2014 2015 $705,078 $59,127 $59,127 Cross Currency Basis Swaps (in thousands) 432.5 million Swiss francs at 0.93 pay Swiss francs three-month LIBOR receive U.S. dollar three-month LIBOR . . . . . . . . . . . . . . . . . . . Notional Amounts Maturing in the Year 2014 2015 2016 2017 2018 $90,084 $63,417 $112,045 $112,045 $107,003 Total cross currency basis swaps . . . $90,084 $63,417 $112,045 $112,045 $107,003 Fair Value Net Asset (Liability) December 31, 2013 $(5,112) $(5,112) Fair Value Net Asset (Liability) December 31, 2013 $(18,106) $(18,106) Fair Value Hedges The Company uses interest rate swaps to convert a portion of its fixed interest rate debt to variable interest rate debt. The Company has a group of U.S. dollar denominated interest rate swaps with an initial total notional value of $150.0 million to effectively convert the underlying fixed interest rate of 4.1% on the Company’s $250.0 million PPN to variable rate for a term of five years, ending February 2016. The notional value of the swaps will decline proportionately as portions of the PPN mature. These interest rate swaps are designated as fair value hedges of the interest rate risk associated with the hedged portion of the fixed rate PPN. Accordingly, the Company will carry the portion of the hedged debt at fair value, with the change in debt and swaps offsetting each other in the Consolidated Statements of Operations. At December 31, 2013, the estimated net fair value of these interest rate swaps was an asset of $2.4 million. 94 The following tables summarize the notional amounts and fair value of the Company’s fair value hedges at December 31, 2013: Interest Rate Swaps (in thousands) U.S. dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total interest rate swaps . . . . . . . . . . . . . . . . . . . . . Notional Amounts Maturing in the Year 2014 2015 2016 Fair Value Net Asset (Liability) December 31, 2013 $45,000 $45,000 $60,000 $60,000 $45,000 $45,000 $2,359 $2,359 The following tables summarize the fair value and location of the Company’s derivatives on the Consolidated Balance Sheets at December 31, 2013 and 2012: Designated as Hedges (in thousands) Foreign exchange forward contracts . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Designated as Hedges Foreign exchange forward contracts . . . . . . . . . . . . . . . . DIO equity option contracts . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Designated as Hedges (in thousands) Foreign exchange forward contracts . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Not Designated as Hedges Prepaid Expenses and Other Current Assets $1,517 — 789 530 $2,836 $3,128 — — — $3,128 Prepaid Expenses and Other Current Assets $ 2,353 — 2,192 8,191 $12,736 Foreign exchange forward contracts . . . . . . . . . . . . . . . . DIO equity option contracts . . . . . . . . . . . . . . . . . . . . . Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total $6,652 — — 537 $7,189 $— — — — $— 95 December 31, 2013 Other Noncurrent Assets, Net Accrued Liabilities Other Noncurrent Liabilities $ 255 1 1,617 — $1,873 $ — — — — $ — $10,280 434 466 2,223 $13,403 $ 2,328 — 85 38,551 $40,964 December 31, 2012 Other Noncurrent Assets, Net $ 65 — 2,535 — $2,600 Accrued Liabilities $ 2,243 95 525 97,281 $100,144 $ 1,353 — 114 40,026 $41,493 $ 940 1 419 16,413 $17,773 $ — 142 256 1,941 $2,339 Other Noncurrent Liabilities $ 844 — 948 1,588 $3,380 $ — 153 416 55,858 $56,427 Balance Sheet Offsetting Substantially all of the Company’s derivative contracts are subject to netting arrangements, whereby the right to offset occurs in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts contain the enforceable right to offset through netting arrangements, the Company elects to present them on a gross basis on the Consolidated Balance Sheets. Offsetting of financial assets and liabilities under netting arrangements at December 31, 2013: Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Recognized Financial Instruments Cash Collateral Received/ Pledged Net Amount (in thousands) Assets Foreign exchange forward contracts . . . . . . . . . . . . Commodity contracts . . . . . Interest rate swaps . . . . . . . Cross currency basis swaps . . Total Assets . . . . . . . . . . . . $4,900 1 2,406 530 $7,837 $— — — — $— $4,900 1 2,406 530 $7,837 $(4,641) (1) (1,979) (530) $(7,151) $— — — — $— $259 — 427 — $686 Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Recognized Financial Instruments Cash Collateral Received/ Pledged Net Amount (in thousands) Liabilities Foreign exchange forward contracts . . . . . . . . . . . . Commodity contracts . . . . . DIO equity option contracts . . Interest rate swaps . . . . . . . Cross currency basis swaps . . Total Liabilities . . . . . . . . . . $13,548 435 142 1,226 59,128 $74,479 $— — — — — $— $13,548 435 142 1,226 59,128 $74,479 $(3,467) (1) — (62) (3,621) $(7,151) $— — — — — $— $10,081 434 142 1,164 55,507 $67,328 96 Offsetting of financial assets and liabilities under netting arrangements at December 31, 2012: Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Recognized Financial Instruments Cash Collateral Received/ Pledged Net Amount (in thousands) Assets Foreign exchange forward contracts . . . . . . . . . . . . Interest rate swaps . . . . . . . Cross currency basis swaps . . Total Assets . . . . . . . . . . . . $ 9,070 4,727 8,728 $22,525 $— — — $— $ 9,070 4,727 8,728 $22,525 $ (6,131) (3,146) (7,821) $(17,098) $— — — $— $2,939 1,581 907 $5,427 Gross Amounts Not Offset in the Consolidated Balance Sheets Gross Amount Offset in the Consolidated Balance Sheets Net Amounts Presented in the Consolidated Balance Sheets Gross Amounts Recognized Financial Instruments Cash Collateral Received/ Pledged Net Amount (in thousands) Liabilities Foreign exchange forward contracts . . . . . . . . . . . . Commodity contracts . . . . . DIO equity option contracts . . Interest rate swaps . . . . . . . Cross currency basis swaps . . Total Liabilities . . . . . . . . . . $ 4,440 95 153 2,003 194,753 $201,444 $— — — — — $— $ 4,440 95 153 2,003 194,753 $201,444 $ (2,339) — — (1,339) (13,420) $(17,098) $— — — — — $— $ 2,101 95 153 664 181,333 $184,346 The following tables summarize the amount of gains (losses) recorded in the Company’s Consolidated Statements of Operations related to the Company’s cash flow hedges for the years ended December 31, 2013 and 2012: Derivatives in Cash Flow Hedging (in thousands) Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total December 31, 2013 Gain (Loss) in AOCI Affected Line Item in the Consolidated Statements of Operations $ (166) (6,550) (294) (1,004) $(8,014) Interest expense Cost of products sold SG&A expenses Cost of products sold Derivatives in Cash Flow Hedging (in thousands) Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . Other expense (income), net Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense Total Affected Line Item in the Consolidated Statements of Operations Effective Portion Reclassified from AOCI into Income $(3,681) 1,184 (147) (288) $(2,932) Ineffective Portion Recognized in Income $666 (56) $610 97 Derivatives in Cash Flow Hedging (in thousands) Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total December 31, 2012 Gain (Loss) in AOCI Affected Line Item in the Consolidated Statements of Operations $(1,987) 1,027 80 472 $ (408) Interest expense Cost of products sold SG&A expenses Cost of products sold Derivatives in Cash Flow Hedging (in thousands) Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . Other expense (income), net Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Interest expense Total Affected Line Item in the Consolidated Statements of Operations Effective Portion Reclassified from AOCI into Income $(3,611) 8,029 779 136 $ 5,333 Ineffective Portion Recognized in Income $915 (25) $890 The following tables summarize the amount of gains (losses) recorded in the Company’s Consolidated Statements of Operations related to the Company’s hedges of net investments for the years ended December 31, 2013 and 2012: Derivatives in Net Investment Hedging (in thousands) Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . Gain (Loss) in AOCI $(36,035) Foreign exchange forward contracts . . . . . . . . . . . . . . (5,419) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(41,454) Derivatives in Net Investment Hedging (in thousands) Cross currency basis swaps . . . . . . . . . . . . . . . . . . . . Gain (Loss) in AOCI $(34,216) Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(34,216) December 31, 2013 Affected Line Item in the Consolidated Statements of Operations Gain (Loss) Recognized in Income Interest income Interest expense Other expense (income), net $4,771 1,432 284 $6,487 December 31, 2012 Affected Line Item in the Consolidated Statements of Operations Gain (Loss) Recognized in Income Interest income Interest expense $ 4,264 (1,885) $ 2,379 The following tables summarize the amount of gains (losses) recorded in the Company’s Consolidated Statements of Operations related to the Company’s hedges of fair value for the years ended December 31, 2013 and 2012: Derivatives in Fair Value Hedging (in thousands) Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Affected Line Item in the Consolidated Statements of Operations Interest expense Gain (Loss) Recognized in Income 2013 $320 $320 2012 $2,284 $2,284 98 The following table summarizes the amounts of gains (losses) recorded in the Company’s Consolidated Statements of Operations related to the Company’s hedges not designated as hedging for the years ended December 31, 2013 and 2012: Affected Line Item in the Consolidated Statements of Operations Derivatives Not Designated as Hedging (in thousands) Foreign exchange forward contracts(a) . . . . . . . . Other expense (income), net DIO equity option contracts . . . . . . . . . . . . . . . Other expense (income), net Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps(a) . . . . . . . . . . . . . . Other expense (income), net Interest expense Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gain (Loss) Recognized in Income 2013 2012 $ 6,733 17 6 15,483 $22,239 $ (1,224) 272 (155) 12,323 $11,216 (a) The gains and losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional currency balances which are recorded in ‘‘Other expense (income), net’’ on the Consolidated Statements of Operations. Amounts recorded in AOCI related to cash flow hedging instruments at: December 31, 2013 2012 (in thousands, net of tax) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Changes in fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reclassifications to earnings from equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(17,481) (6,234) 1,964 Total activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,270) $(12,737) 105 (4,849) (4,744) Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(21,751) $(17,481) Amounts recorded in AOCI related to hedges of net investments in foreign operations at: (in thousands, net of tax) Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Foreign currency translation adjustment Changes in fair value of: Foreign currency debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Derivative hedge instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . December 31, 2013 2012 $(71,358) 72,159 $(143,730) 83,283 14,531 (25,453) 61,237 10,097 (21,008) 72,372 Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(10,121) $ (71,358) NOTE 18 — FAIR VALUE MEASUREMENT The fair value of financial instruments is determined The Company records financial instruments at fair value with unrealized gains and losses related to certain financial instruments reflected in AOCI on the Consolidated Balance Sheets. In addition, the Company recognizes certain liabilities at fair value. The Company recurring fair value applies the market approach for measurements. Accordingly, utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. the Company by reference to various market data and other valuation techniques as appropriate. The Company believes the carrying amounts of cash and cash equivalents, accounts receivable (net of allowance for doubtful accounts), prepaid expenses and other current assets, accounts payable, accrued liabilities, income taxes payable and notes payable approximate fair value due to the short-term nature of these instruments. The Company estimated the fair value and carrying value of its total 99 and long-term debt, including current portion, was $1,387.7 million at respectively, $1,370.8 million, the December 31, 2013. At December 31, 2012, Company estimated the fair value and carrying value was $1,515.2 million and $1,472.9 million, respectively. The interest rate on the $450.0 million Senior Notes, the $300.0 million Senior Notes, and the $250.0 million Private Placement Notes are fixed rates of 4.2%, 2.8% and 4.1%, respectively, and their fair value is based on the interest rates at December 31, 2013. The interest rates on variable rate term loan debt and commercial paper are consistent with current market conditions, therefore the fair value of these instruments approximates their carrying values. and other The following tables set forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis at December 31, 2013 and 2012, which are classified as ‘‘Cash and cash equivalents,’’ ‘‘Prepaid ‘‘Long-Term current expenses investments,’’ ‘‘Other noncurrent assets, net,’’ ‘‘Accrued liabilities,’’ and ‘‘Other noncurrent liabilities’’ on the Consolidated Balance Sheets. Financial assets and liabilities that are recorded at fair value as of the balance sheet date are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. assets,’’ Total Level 1 Level 2 Level 3 December 31, 2013 (in thousands) Assets Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . Corporate convertible bonds . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Long-term debt DIO equity option contracts . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . $ 2,406 1 530 4,900 70,019 $ 77,856 $ 1,226 435 59,128 13,548 152,370 142 $226,849 $ — — — — — $ — $ — — — — — — $ — $ 2,406 1 530 4,900 — $ 7,837 $ 1,226 435 59,128 13,548 152,370 — $226,707 $ — — — — 70,019 $70,019 $ $ — — — — — 142 142 Total Level 1 Level 2 Level 3 December 31, 2012 (in thousands) Assets Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . Corporate convertible bonds . . . . . . . . . . . . . . . Total assets . . . . . . . . . . . . . . . . . . . . . . . . . Liabilities Interest rate swaps . . . . . . . . . . . . . . . . . . . . . Commodity contracts . . . . . . . . . . . . . . . . . . . Cross currency basis swaps . . . . . . . . . . . . . . . . Foreign exchange forward contracts . . . . . . . . . . Long-term debt . . . . . . . . . . . . . . . . . . . . . . . DIO equity option contracts . . . . . . . . . . . . . . . . Total liabilities . . . . . . . . . . . . . . . . . . . . . . . $ 4,727 8,728 9,070 75,143 $ 97,668 $ 2,003 95 194,753 4,440 154,560 153 $356,004 $ — — — — $ — $ — — — — — $ — $ — $ 4,727 8,728 9,070 — $ 22,525 $ 2,003 95 194,753 4,440 154,560 — $355,851 $ — — — 75,143 $75,143 $ $ — — — — — 153 153 100 Derivative valuations are based on observable inputs to the valuation model including interest rates, foreign currency exchange rates, future commodities prices and credit risks. The commodity contracts, certain interest rate swaps and foreign exchange forward contracts are considered cash flow hedges and certain cross currency interest rate swaps are considered hedges of net investment in foreign operations as discussed in Note 17, Financial Instruments and Derivatives. The Company uses the income method valuation technique to estimate the fair value of the corporate bonds. The significant unobservable inputs for valuing the corporate bonds are DIO Corporation’s stock volatility factor of approximately 40% and corporate bond rating which implies an approximately 15% discount rate on the valuation model. Significant observable inputs used to value the corporate bonds include foreign exchange rates and DIO Corporation’s period-ending market stock price. estimates The Company has valued the DIO equity option contracts using a Monte Carlo simulation which uses assumptions by and probability several management including the future stock price, the stock price as a multiple of DIO earnings and the probability of the sellers to reduce their shares held by selling into the open market. Changes in the fair value of the DIO equity option contracts are reported in ‘‘Other expense (income), net’’ on the Consolidated Statements of Operations. For the year ended December 31, 2013, there were no purchases, issuances or transfers of Level 3 financial instruments. The following table presents a reconciliation of the Company’s Level 3 holdings measured at fair value on a recurring basis using unobservable inputs: Corporate Convertible Bonds DIO Equity Options Contracts (in thousands) Balance at December 31, 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $75,143 $(153) Unrealized loss: Reported in AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,592) Unrealized gain: Reported in other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,468 — 17 (6) Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $70,019 $(142) NOTE 19 — COMMITMENTS AND CONTINGENCIES leases generally require the Company to pay insurance, Leases The Company leases automobiles and machinery and equipment and certain office, warehouse and manufacturing facilities under non-cancellable leases. The taxes and other expenses related to the leased property. Total rental expense for all operating leases was $39.7 million, $42.3 million and $39.0 million for 2013, 2012 and 2011, respectively. Rental commitments, principally for real estate (exclusive of taxes, insurance and maintenance), automobiles and office equipment are as follows: (in thousands) 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2019 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 35,002 25,679 20,496 16,475 14,350 20,149 $132,151 101 Litigation On June 18, 2004, Marvin Weinstat, DDS and Richard Nathan, DDS filed a class action suit in San Francisco County, California alleging that the Company misrepresented that its Cavitron(cid:5) ultrasonic scalers are suitable for use in oral surgical procedures. The Complaint seeks a recall of the product and refund of its purchase price to dentists who have purchased it for use in oral surgery. The Court certified the case as a class action in June 2006 with respect to the breach of warranty and unfair business practices claims. The class that was certified is defined as California dental professionals who, at any time during the period beginning June 18, 2000 through September 14, 2012, purchased and used one or more Cavitron(cid:5) ultrasonic scalers for the performance of oral surgical procedures on their patients, which Cavitrons(cid:5) were accompanied by Directions for Use that ‘‘Indicated’’ Cavitron(cid:5) use for ‘‘periodontal debridement for all types of periodontal disease.’’ The case went to trial in September 2013, and on January 22, 2014, the San Francisco Superior Court issued its decision in the Company’s favor, rejecting all of the plaintiffs’ claims. of (the that District Pennsylvania and asserts seeks damages On December 12, 2006, a Complaint was filed by Carole Hildebrand, DDS and Robert Jaffin, DDS in the Plaintiffs Eastern subsequently added Dr. Mitchell Goldman as a named class representative). The case was filed by the same law firm that filed the Weinstat case in California. The Complaint asserts putative class action claims on behalf of dentists located in New Jersey and Pennsylvania. The Complaint the Company’s Cavitron(cid:5) ultrasonic scaler was negligently designed and sold in breach of contract and warranty arising from misrepresentations about the potential uses of the product because it cannot assure the delivery of potable or sterile water. Following dismissal of the case the plaintiffs filed a second for complaint under the name of Dr. Hildebrand’s corporate practice, Center City Periodontists.. The Company’s motion to dismiss this new complaint was denied and the case will now proceed under the name ‘‘Center City Periodontists.’’ The Court subsequently granted the Company’s Motion and dismissed plaintiffs’ New Jersey Consumer Fraud and negligent design claims, leaving only a breach of express warranty claim. The plaintiffs have moved to have the case certified as a class action, to which the Company has objected and filed its brief. jurisdiction, lack of On January 20, 2014, the Company was served with a qui tam complaint filed by two former and one current for that things, employee of the Company under the Federal False Claims Act and equivalent state and city laws. The lawsuit was in the U.S. District Court for the previously under seal Eastern District of Pennsylvania The complaint alleges, among other the Company engaged in various illegal marketing activities, and thereby caused dental and other healthcare professionals to file false claims reimbursement with Federal and State governments. The relators seek injunctive relief, fines, treble damages, and attorneys’ fees and costs. On January 27, 2014, the United States filed with the Court a notice that it had elected not to intervene in the qui tam action at this time. The United States’ notice indicated that the named state and city co-plaintiffs had authorized the United States to communicate to the Court that they also had decided not to intervene at this time. These non- intervention decisions do not prevent the qui tam relators from litigating this action, and the United States and/or the named states and/or cities may seek to intervene in the action at a later time. The Company is reviewing the allegations in the complaint and intends to vigorously defend itself in the litigation. The Company does not believe a loss is probable related to the above litigation. Further a reasonable estimate of a possible range of loss cannot be made. In the event is unfavorably resolved, it is possible the Company’s results from operations could be materially impacted. that one or more of these matters (‘‘OFAC’’) requesting documents In 2012, the Company received subpoenas from the United States Attorney’s Office for the Southern District of Indiana (the ‘‘USAO’’) and from the Office of Foreign Assets Control of the United States Department of the and Treasury information related to compliance with export controls and economic sanctions regulations by certain of its subsidiaries. The Company has voluntarily contacted OFAC and the Bureau of Industry and Security of the United States Department of Commerce (‘‘BIS’’), in connection with these matters as well as regarding compliance with export controls and economic sanctions regulations by certain other business units of the Company identified in connection with an ongoing internal review by the Company. The Company is cooperating with the USAO, OFAC and BIS with respect to these matters. At this stage of the inquiries, the Company is unable to predict the ultimate outcome of these matters or what impact, if any, the outcome of these matters might have on the Company’s consolidated financial position, results 102 of operations or cash flows. Violations of export control or economic sanctions laws or regulations could result in a range of governmental enforcement actions, including fines or penalties, injunctions and/or criminal or other civil proceedings, which actions could have a material adverse effect on the Company’s reputation, business, financial condition and results of operations. At this time, no claims have been made against the Company. patent including incidental the use of In addition to the matters disclosed above, the Company is, from time to time, subject to a variety of litigation and similar proceedings to its business. These legal matters primarily involve claims for damages arising out of the Company’s products and services and claims relating to intellectual property matters infringement, employment matters, tax matters, commercial disputes, competition and sales and trading practices, personal injury and insurance coverage. The Company may also become subject to lawsuits as a result of past or future acquisitions or as a result of liabilities retained from, or representations, warranties or indemnities provided in these connection with, divested businesses. Some of lawsuits may and punitive consequential, as well as compensatory damages. Based upon the Company’s experience, current information and applicable law, it does not believe that these proceedings and claims will have a material adverse effect on its consolidated results of operations, financial position or in the event of unexpected further liquidity. However, developments, it is possible that the ultimate resolution of these matters, or other similar matters, if unfavorable, may be materially adverse to the Company’s business, financial condition, results of operations or liquidity. include claims for While the Company maintains general, products, property, workers’ compensation, automobile, cargo, fiduciary and directors’ and officers’ aviation, crime, liability insurance up to certain limits that cover certain of these claims, insurance may be insufficient or unavailable to cover such losses. In addition, while the Company believes it is entitled to indemnification from third parties for some of these claims, these rights may also be insufficient or unavailable to cover such losses. this Purchase and Other Commitments From time to time, the Company enters into commitments with purchase long-term inventory minimum purchase requirements for raw materials and finished goods to ensure the availability of products for production and distribution. These commitments may have a significant impact on levels of inventory maintained by the Company. The Company has employment agreements with its executive officers. These agreements generally provide for salary continuation for a specified number of months under certain circumstances. If all of the employees under contract were to be terminated by the Company without cause, as defined in the agreements, the Company’s liability would be approximately $15.8 million at December 31, 2013. The Company is required to complete the purchase of the remaining shares of one VIE, acquired in 2008, during 2014. The final purchase price is subject to adjustments but is currently expected to be approximately 62.0 million euros. 103 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) DENTSPLY INTERNATIONAL INC. Quarterly Financial Information (Unaudited) (in thousands, except per share amounts) 2013 Net sales . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . Net income attributable to DENTSPLY International . . . . . . . . . . Earnings per common share − basic . . . . Earnings per common share − diluted . . . Cash dividends declared per common First Quarter Second Quarter Third Quarter Fourth Quarter Rounding Total Year $732,084 388,200 93,858 $761,010 414,956 122,866 $704,018 376,417 105,021 $753,658 397,839 97,421 $ — $2,950,770 1,577,412 419,166 — — 71,685 0.50 0.49 $ $ 87,228 0.61 0.60 $ $ 79,851 0.56 0.55 $ $ 74,428 0.52 0.51 $ $ — $0.01 $0.01 313,192 2.20 2.16 $ $ share . . . . . . . . . . . . . . . . . . . . . . $ 0.0625 $ 0.0625 $ 0.0625 $ 0.0625 $ — $ 0.25 2012 Net sales . . . . . . . . . . . . . . . . . . . . . Gross profit . . . . . . . . . . . . . . . . . . . Operating income . . . . . . . . . . . . . . . Net income attributable to DENTSPLY International . . . . . . . . . . . . . . . . . Earnings per common share − basic . . . . Earnings per common share − diluted . . . Cash dividends declared per common $716,413 392,750 87,160 $762,994 407,469 108,907 $695,734 364,115 88,666 $753,288 392,053 97,207 $ — $2,928,429 1,556,387 381,939 — (1) 53,284 0.38 0.37 $ $ 80,764 0.57 0.56 $ $ 53,364 0.38 0.37 $ $ 126,800 0.89 0.88 $ $ 1 $ — $ $ — $ 314,213 2.22 2.18 share . . . . . . . . . . . . . . . . . . . . . . $ 0.055 $ 0.055 $ 0.055 $ 0.055 $ — $ 0.220 Net sales, excluding precious metal content, were $672.6 million, $716.0 million, $669.4 million and $713.7 million, respectively, for the first, second, third and fourth quarters of 2013. Net sales, excluding precious metal content, were $665.6 million, $698.5 million, $647.1 million and $703.5 million, respectively, for the first, second, third and fourth quarters of 2012. This measurement should be considered a non-US GAAP measure as discussed further in Management’s Discussion and Analysis of Financial Condition and Results of Operations. 104 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIGNATURES DENTSPLY INTERNATIONAL INC. By: /s/ Bret W. Wise Bret W. Wise Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Bret W. Wise Bret W. Wise Chairman of the Board and Chief Executive Officer (Principal Executive Officer) /s/ Christopher T. Clark Christopher T. Clark President and Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Dr. Michael C. Alfano Dr. Michael C. Alfano Director /s/ Eric K. Brandt Eric K. Brandt Director /s/ Paula H. Cholmondeley Paula H. Cholmondeley Director /s/ Michael J. Coleman Michael J. Coleman Director /s/ Willie A. Deese Willie A. Deese Director /s/ William F. Hecht William F. Hecht Director /s/ Leslie A. Jones Leslie A. Jones Director /s/ Francis J. Lunger Francis J. Lunger Director /s/ /s/ John L. Miclot John L. Miclot Director John C. Miles II John C. Miles II Director 105 February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date February 20, 2014 Date DIRECTORS AND OFFICERS board of directors Bret W. Wise 53 Chairman, Chief Executive Officer DENTSPLY INTERNATIONAL INC. director since 2006 Michael C. Alfano, D.M.D., Ph.D. 66 Executive Vice President Emeritus NEW YORK UNIVERSITY director since 2001 Eric K. Brandt 51 Executive Vice President, Chief Financial Officer BROADCOM CORPORATION director since 2004 Paula H. Cholmondeley 67 Former Vice President SAPPI FINE PAPER director since 2001 Michael J. Coleman 70 Chairman COOL MEDIA CONSULTANTS director since 1991 Willie A. Deese 58 Executive Vice President MERCK & CO., INC. President MERCK MANUFACTURING DIVISION director since 2011 officers and management Bret W. Wise Chairman, Chief Executive Officer Christopher T. Clark President, Chief Financial Officer James G. Mosch Executive Vice President, Chief Operating Officer Robert J. Size Senior Vice President Albert J. Sterkenburg Senior Vice President Markus Boehringer Operating Vice President Steven E. Jenson Operating Vice President Thomas G. Leonardi Operating Vice President William E. Newell Operating Vice President Teresa A. Dolan, D.M.D., M.P.H. Vice President, Chief Clinical Officer Derek W. Leckow Vice President, Investor Relations William F. Hecht 71 Chairman, Chief Executive Officer and President, Retired PPL CORPORATION director since 2001 Leslie A. Jones 74 Chairman and Senior Vice President, Retired DENTSPLY INTERNATIONAL INC. director since 1983 Francis J. Lunger 68 Chairman, Chief Executive Officer and President, Retired MILLIPORE CORPORATION director since 2005 John L. Miclot 55 Chief Executive Officer TENGION, INC. director since 2010 John C. Miles II 72 Chairman and Chief Executive Officer, Retired DENTSPLY INTERNATIONAL INC. director since 1990 Andrew M. Lichkus, Ph.D. Vice President, Chief Technology Officer Maureen J. MacInnis Vice President, Chief Human Resources Officer James P. McNulty Vice President, Global Supply Chain Charles K. Pigott Vice President, Quality and Regulatory Affairs Deborah M. Rasin Vice President, Secretary and General Counsel William E. Reardon Vice President, Treasurer William J. Schlageter IV Vice President, Chief Information Officer Richard M. Wagner Vice President, Corporate Controller Robert J. Winters Vice President, Tax SHAREHOLDER INFORMATION world headquarters dentsply International Inc. World Headquarters Susquehanna Commerce Center 221 West Philadelphia Street, Suite 60W York, pa 17405 Phone (717) 845-7511 independent registered public accounting firm PricewaterhouseCoopers LLP Two Commerce Square, Suite 1700 2001 Market Street Philadelphia, pa 19103-7042 Phone (267) 330-3000 stock listing nasdaq’s National Market Symbol: xray annual meeting The 2014 Annual Meeting will be held on Wednesday, May 21, at 9:30 a.m. at: dentsply International Inc. World Headquarters Susquehanna Commerce Center 221 West Philadelphia Street, Suite 60W York, pa 17405 investor relations, form 10-k and other information If you would like to receive our Investor Package, or a copy of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission, or be placed on the Company’s mailing list, please contact: Derek Leckow Vice President, Investor Relations dentsply International Inc. Susquehanna Commerce Center 221 West Philadelphia Street, Suite 60W York, pa 17405 Phone (717) 849-7863 Fax (717) 849-4756 Email: investor@dentsply.com trademarks All brand names used in this report are owned by or licensed trademarks of dentsply International Inc., or its subsidiaries. transfer agent and registrar If your stock certificate is lost, stolen or destroyed, or if you change your address, please contact the Shareholder Services Department at: American Stock Transfer & Trust Company 6201 15th Ave. Brooklyn, New York, ny 11219 www.amstock.com Toll-free (800) 937-5449 Certain statements made in this Annual Report, including, without limitation, statements regarding future sales and development of products and markets, may be deemed to be forward-looking statements that involve risks and uncertainties. Such statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with prior descriptions of risk factors by the Company, including specifically the risk factors discussed within the Company's Annual Report on Form 10-K for the year ended December 31, 2013. Such factors could cause actual results to differ materially from those expressed in any forward-looking statements contained in this Annual Report. World Headquarters Susquehanna Commerce Center 221 West Philadelphia Street Suite 60W York, pa 17405 (717) 845-7511 dentsply.com