THE DENTAL
SOLUTIONS
COMPANY TM
For better, safer,
faster dental care
2016 Annual Report
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Pursuing Better, Safer, Faster Care in
Each Dental Discipline
Across the globe, our employees are coming
together as one global team to enhance
our value and empower dental professionals.
Financial Highlights
(in millions, except per share data)
Income Statement Data
2016
2015
2014
2013
Net Sales
$3,745.3
$2,674.3
$2,922.6
$2,950.8
Net Sales, Excluding Precious
Metal Content
Earnings Per Common Share —Diluted
Adjusted Earnings Per Common
Share—Diluted1, 2, 3, 4, 5
Cash Dividends Declared
Per Common Share
Financial Position
Cash and Cash Equivalents
Total Debt6
Total Equity
$3,681.0
$1.94
$2,581.5
$1.76
$2,792.7
$2.24
$2,771.7
$2.16
$2.78
$2.62
$2.50
$2.35
$0.310
$0.290
$0.265
$0.250
2016
$383.9
$1,532.2
$8,125.9
2015
$284.6
$1,153.1
2014
$151.6
2013
$75.0
$1,261.9
$1,471.6
$2,339.4
$2,322.2
$2,578.0
1 2016 – Excludes pre-tax cost of $162.2 million related to business combinations; pre-tax amortization expense related to purchased intangible assets of $155.3 million; pre-tax
restructuring and other costs of $17.0 million; and the pre-tax loss on credit risk and fair value adjustments of $5.8 million. The related net impact to income taxes on these excluded
items and other income tax adjustments was $153.1 million. These items had a negative impact of $0.84 on earnings per diluted common share.
2 2015 – Excludes pre-tax cost of $106.2 million related to business combinations and restructuring and other costs; pre-tax amortization expense related to purchased intangible assets
of $43.7 million; the pre-tax loss on credit risk and fair value adjustments of $8.3 million; and the pre-tax gain on certain fair value adjustments related to an unconsolidated affiliated
company of $2.8 million. The related net impact to income taxes on these excluded items and other income tax adjustments was $33.5 million. These items had a negative impact of
$0.86 on earnings per diluted common share.
3 2014 – Excludes pre-tax amortization expense related to purchased intangible assets of $47.9 million; pre-tax cost of $16.0 million related to business combinations and restructuring
and other costs; the pre-tax gain on credit risk and fair value adjustments of $0.7 million; and the pre-tax gain on certain fair value adjustments related to an unconsolidated affiliated
company of $1.2 million. The related net impact to income taxes on these excluded items and other income tax adjustments was $23.9 million. These items had a negative impact of
$0.26 on earnings per diluted common share.
4 2013 – Excludes pre-tax amortization expense related to purchased intangible assets of $46.2 million; pre-tax cost of $22.9 million related to business combinations and restructuring
and other costs; the pre-tax loss on credit risk and fair value adjustments of $3.8 million; and the pre-tax gain on certain fair value adjustments related to an unconsolidated affiliated
company of $1.2 million. The related net impact to income taxes on these excluded items and other income tax adjustments was $43.7 million. These items had a negative impact of
$0.19 on earnings per diluted 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 annual
report on Form 10-K.
6 Total debt amounts shown are net of deferred financing costs.
Dear Fellow
Shareholders,
In fiscal 2016, Dentsply Sirona became The Dental Solutions
Company™. On February 29, we closed the most significant
merger in the history of our industry to create the largest
manufacturer of professional dental products, combining
two world-class portfolios of technology and consumables
that cover all major clinical categories of dentistry. As
Dentsply Sirona, we will create long-term value for the
profession, the patient, our employees and our shareholders.
We will continue to stand for quality, innovation and best-in-
class customer service.
Beginning on day one, we focused our
efforts on uniting under a new mission,
vision, and values and a unique Dentsply
Sirona brand identity. In our first year,
we began delivering on all of the
promises of our merger: to accelerate
top and bottom line growth, to increase
investments in research and development,
clinical education and sales and service
infrastructure, to deliver cost and revenue
synergies, and to utilize our powerful and
flexible balance sheet to deploy capital
for the benefit of our shareholders. After
a year focused heavily on merger-related
planning and early integration activities,
our Company will transform into an
even faster growing and more efficient
company which will create significant
value for our shareholders.
Financial Review
In fiscal 2016, we delivered record
adjusted earnings per share of $2.78,
growing 6% reported, but nearly 9% on
a currency-neutral basis. Revenues of
$3.7 billion grew 40% compared to the
prior year, while sales of our combined
businesses1 grew 3.6% excluding the
effects of exchange rates. Despite
currency headwinds, we were
able to benefit from our merger
synergies and deliver record adjusted
operating margins of 21.8%.
We met the high end of our financial
guidance range despite slower than
expected revenue growth in the face of
challenging market conditions. Political
instability and lower oil prices impacted
emerging market economies like Russia,
Brazil and the Middle East. The Brexit
vote added uncertainty in Europe.
The U.S. Dental Market slowed down
unexpectedly from summer until late
in the year. Our diversification in both
geography and product portfolio is
proving to be a competitive advantage.
Early cost and revenue synergies enabled
us to accelerate top and bottom line
growth in fiscal 2016.
Mission and Vision Focused on
Driving Industry Megatrends
Our new Mission, Vision and Values align
our objectives to benefit from industry
megatrends and drive growth for our
Company. Our Mission, to empower dental
Bret W. Wise
Executive Chairman
Jeffrey T. Slovin
Chief Executive Officer
professionals to provide better, safer, faster
dental care, addresses the growing need
for dental care in both developed and
developing markets. In developed markets,
increasing focus on early prevention and
an aging population retaining more of their
natural teeth are driving increased demand
for dental care. In emerging economies,
a growing middle class is paying more
attention to oral health, driving the need
for more dental care. To address these
developments, we empower dental
professionals with the tools and training
to perform both general and specialized
procedures to be more efficient and
meet increasingly customized patient
needs. Around the globe, a trend toward
group practices continues to grow, and
clinicians are seeking manufacturing and
distribution partners to develop consistent
and improving workflows for both offices
and labs. As a leader in digital technologies
and integrated solutions, we are the only
company that can offer optimal end-to-
end solutions making practitioners most
effective. Each day, 600,000 dental
professionals use a Dentsply Sirona product
on over six million patients, translating into
1 “Sales of our combined businesses” combines the historical consolidated revenues of DENTSPLY and Sirona, giving effect to the merger as if it had been consummated on January 1, 2015.
2016 Annual Report
1
over one billion patients being treated by
our products each year. We can leverage
our market leadership to transform our
industry, empower dental professionals,
and advance patient care. All of these
trends drive increasing demand for our
products and customer support which will
in turn accelerate our long-term growth.
Our Vision of delivering innovative
dental solutions to improve oral health
worldwide speaks to our commitment
of continuously investing to be at the
forefront of innovation, clinical education
and customer service and support.
We invest over $150 million annually in
research and development, significantly
more than any of our competitors. We
foster the exchange of ideas between
thought leaders in the industry and our
over 600 leading scientists and engineers
at centers of innovation around the
globe. These investments have led to
the development of technologies like 3D
imaging and chairside CAD/CAM which
not only provide better diagnoses and
treatments, but also have significantly
cut down treatment times and made
single-visit dentistry a reality. We have
the broadest clinical education platform in
the industry, with approximately 350,000
professionals attending 10,000 courses
conducted annually in more than 80
countries. Through training and education,
we are helping move dentistry from a
focus on acute care and pain management
toward improved access to preventive
care and restoration of natural teeth. Our
unmatched sales and service infrastructure
of more than 4,000 employees reaches all
ends of the globe.
Driving Enabling Technologies
and Procedural Solutions to
Elevate Dental Care Standards
Every day enabling technologies
are revolutionizing the world. From
computers to cell phones, offices and
homes around the globe have entered a
digital age. Dentistry is in the early phase
of digital adoption, and the demand for
enabling technologies and procedural
2
Dentsply Sirona
solutions by dental professionals is rapidly
gaining traction.
As the leader in enabling technologies,
and integrated and procedural solutions,
Dentsply Sirona is poised to lead
dentistry into a more integrated world
by improving workflows and clinical
solutions. Over the past twenty years,
our enabling technologies have led the
conversion of film to digital in dental
offices, making digital radiography the
standard of care. We have introduced
procedural solutions for Class I and
Class II restorations, making everyday
restorative dentistry more seamless.
We have not just pioneered the
introduction of CAD/CAM technologies
and 3D X-ray in the dental office, but we
believe we are on the cusp of making
these technologies part of everyday
dentistry. Just recently, we have
introduced our Root To Crown Solution
to provide a full solution for root canals,
from diagnosis and treatment planning to
the final coronal restoration. Additionally,
we have announced opening up our
one-of-a-kind CEREC® branded CAD/
CAM ecosystem, making access to this
technology easier than ever before.
This will enable dental professionals to
marry our market-leading technologies
with existing technologies in their office,
creating a digital network in the office. In
time, these clinicians will build out their
ecosystem with complete Dentsply Sirona
products and solutions and set the stage
for fully digitalized dental offices with
integrated procedural solutions.
In the U.S. we are redefining our
go-to-market strategy and expanding
our distribution network. Using our direct
sales and the support of the strongest
distributors, we will reach the entire
U.S. market with our leading product
portfolios. This will help accelerate
adoption of our technologies, and in turn,
the demand for integrated solutions in the
largest dental market in the world. This
will drive near and medium-term demand
for our products, and facilitate change in
our industry. Global markets will follow
suit and demand for digital technologies
and integrated solutions will increase
around the world.
Our technologies and solutions continue
to change what is possible within the
confines of a dental office. Our innovations
will truly change lives—both of patients
and practitioners. Dentsply Sirona is
uniquely positioned to move our industry
forward. Our leadership will fuel our
growth for years to come.
Integration Efforts Accelerating
and On Track
Part of the benefit of our transformational
merger was to capture synergies over
the course of years. In our first year, we
made substantial progress integrating
the businesses. These efforts put us in a
strong position to unlock significant value
as we move forward. We remain on time
and on track to deliver over $125 million
in synergies by the end of year three.
We are a much stronger company today
than we were a year ago and will continue
to improve.
We have begun to realize revenue
synergies through programs and solutions
that we are uniquely positioned to deliver
to customers. Commercial strategies
such as cross-selling, bundling and loyalty
programs began rolling out in mid-2016.
We are seeing strong acceptance of
these initial efforts and see broader
applications as we continue to fine-tune
our go-to-market strategies and align
them with the sales incentive programs we
are establishing across our global team of
4,000 sales professionals. We are confident
in our ability to drive increased demand
for our products in 2017 and beyond.
Early on, we were able to leverage
our market-leading CEREC CAD/CAM
brand to sell associated consumables
needed for chairside restorations. By
sharing leads, and leveraging expertise
in equipment and consumables, we were
able to gain market share in a category
that we’ve just recently entered with
a sales force dedicated to selling our
own CAD/CAM consumables. In August,
we hosted SIROWORLD, our one-of-a-
kind ultimate dental meeting, where we
demonstrated to customers our unique
ability to meet their needs across all
treatment modalities. These examples,
along with other commercial workstreams
supported revenue growth in 2016.
We have also begun collaborating to
develop unique products and integrated
solutions. In our first year, we began
leveraging our instruments manufacturing
expertise and our powerful Midwest
brand to introduce a new electric
handpiece to the U.S. market. We
successfully developed the first 3D Endo
CBCT-based software, enabling safer and
more efficient planning and delivery of
root canal treatments. We have continued
to invest in collaborative research and
development efforts that will differentiate
Dentsply Sirona as the innovator in the
industry for years to come. This will raise
customer loyalty, enable the cross-selling
of our products, and drive our short and
long-term growth.
We have also implemented cost
reduction programs that have begun
to pay dividends, and will continue to
produce results. We have proposed
and initiated plans to reorganize
manufacturing, logistics and distribution
networks in multiple places, including
large regions like Germany and Brazil.
Our procurement team is leveraging
our size and scope to get better terms
from vendors. In many locations we are
implementing organizational structures
and processes that provide strong
product-specific focus and leverage our
combined market presence and common
As a leader in digital
technologies and
integrated solutions,
we are the only company
that can offer optimal
end-to-end solutions
making practitioners
most effective.
cost base. As cross-functional teams
come together, we will realize the savings
of consolidating multiple offices into
central locations, leveraging resources
and eliminating redundancies.
The purpose of all of our synergy
activities is to accelerate top and bottom
line growth. Revenue synergy programs
will drive increasing demand for our
products and differentiate us from the
competition as the partner of choice
to dental practitioners and distributors.
Efficiencies created by cost synergies
will enable further reinvestment in the
business to support growth initiatives,
while also delivering savings to our
shareholders.
Capital Deployment
Dentsply Sirona has an attractive financial
profile and a strong balance sheet that
will be used to support our growth
initiatives. Capital deployment is a critical
lever in creating value that will be
used for the benefit of our shareholders.
In our first year as Dentsply Sirona, our
Company deployed over one billion
dollars in the form of share repurchases,
dividends and acquisitions. This three-
pronged approach will be used for years
to come.
Our management team and Board of
Directors are committed to returning
capital to shareholders through our
dividend and buyback programs. During
fiscal 2016, we repurchased over thirteen
million shares worth over $800 million.
2016 Annual Report
3
Executive Management Team
From left to right: James G. Mosch, Maureen MacInnis, Jeffrey T. Slovin, Ulrich Michel, Christopher T. Clark and Rainer Berthan
In November, our Board authorized us
to repurchase an additional five million
shares. For the year, we distributed over
$70 million in dividends, increasing
our payout rate by 7% versus last year.
In February, we announced a double-
digit increase in our dividend to provide
shareholders additional returns.
In September, we closed our acquisition
of MIS Implants, a leading player in the value
implant market. The value implant market
is estimated to be sized around one and a
half billion dollars and is growing faster than
the overall implant market. MIS represents
Dentsply Sirona’s first venture into the value
implant market and also a significant growth
opportunity. Along with our premium
implant offering, MIS will fortify our position
as a leading dental implant provider and
be a key hinge for growing our worldwide
position in this market.
From Integration to
Transformation: Building a
Company for All Environments
With less than 20% market share
of the global dental market, we have
significant growth opportunities
ahead of us. In 2016, our ability to
accelerate growth in challenging markets
demonstrated our potential. As we
continue to realize more synergies, we
will become a faster growing and more
profitable company.
We are building our Company for
long-term growth to succeed in all
business cycles. We are committed to fully
integrating our businesses and continuously
investing in research and development,
sales and service infrastructure and clinical
education to maintain and expand our
competitive advantages.
We are also committed to investing
in the talent and career development of
our employees to progress their dental
knowledge, experience and commitment
to our customers. They also represent a
diverse group of future leaders whose
best ideas will forge our future for the
next hundred years.
We recognize that delivering long-
term targets also requires hitting short
and medium-term goals. We make all
decisions in the best interest of our future,
but with an eye on the present as well.
After our first year as Dentsply Sirona,
we are even more confident that we
have the right leadership and strategy
along with talented employees to create
significant value for our shareholders. Our
commitment to deliver on our promises is
unwavering.
We want to thank our employees
around the world for helping us create
The Dental Solutions Company™. We
would also like to extend a special thanks
to Jim Mosch who has been a significant
contributor to our organization for the
past 23 years. We wish Jim well in his
retirement. Finally, we want to thank you,
our shareholders, for your confidence
in us as we aim to deliver leading
shareholder returns. Our future is bright
and our potential is vast. The best is yet
to come.
Respectfully yours,
Jeffrey T. Slovin
Chief Executive
Officer
Bret W. Wise
Executive
Chairman
April 2017
4
Dentsply Sirona
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, 2016
Commission File Number 0-16211
DENTSPLY SIRONA 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.)
17401-2991
(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 ☒ No ☐
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 ☐ No ☒
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 ☒ No ☐
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 ☒ No ☐
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 definitions of “accelerated filer and large accelerated filer” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Indicate by check mark whether the registrant
Yes ☐ No ☒
is a shell company (as defined in Rule 12b-2 of
the Act)
The aggregate market value of the voting common stock held by non-affiliates of the registrant computed by
reference to the closing price as of the last business day of the registrants most recently completed second quarter
June 30, 2016, was $14,454,589,603.
The number of shares of the registrant’s common stock outstanding as of the close of business on February 21,
2017 was 229,680,818.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the definitive Proxy Statement of DENTSPLY SIRONA Inc. (the “Proxy Statement”) to be used in
connection with the 2017 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 SIRONA 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Item 4
Mine Safety Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Page
1
9
23
24
25
25
26
28
29
50
51
52
52
52
55
55
55
55
55
Item 15
Exhibits and Financial Statement Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56
i
PART I
FORWARD-LOOKING STATEMENTS
This
report
“plan,”
“intend,”
contains
“project,”
information
that may
constitute “forward-looking statements” within the
meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of
the Securities
Exchange Act of 1934, as amended. These statements
can be identified by the use of
forward-looking
terminology, including “may,” “believe,” “will,” “expect,”
“forecast,” or
“anticipate,”
other similar words. All statements that address
operating performance, events or developments that
DENTSPLY SIRONA Inc. (“Dentsply Sirona” or the
“Company”) expects or anticipates will occur in the
future are forward-looking statements. Statements
contained in this report are based on information
presently available to the Company and assumptions
that the Company believes to be reasonable. These
risks and uncertainties include, but are not limited to,
those described in Part I, Item 1A (“Risk Factors”) of
this Form 10-K 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 is not assuming any duty to update this
information if those facts change or if the assumptions
are no longer believed to be reasonable. Investors are
cautioned that all such statements involve risks and
uncertainties, and important factors could cause actual
results to differ materially from those
events or
statements.
indicated
forward-looking
by
Therefore, you should not
these
forward-looking statements.
rely on any of
such
PART I
Item 1. Business
History and Overview
the
Sirona
world’s
Dentsply
largest
is
manufacturer of professional dental products and
technologies, with a 130-year history of innovation and
service to the dental
industry and patients worldwide.
Dentsply Sirona develops, manufactures, and markets
a comprehensive solutions offering including dental and
oral health products as well as other consumable
medical devices under a strong portfolio of world class
brands. As The Dental Solutions Company™, Dentsply
Sirona’s products provide innovative, high-quality and
effective solutions to advance patient care and deliver
better, safer and faster dentistry. Dentsply Sirona’s
global headquarters is located in York, Pennsylvania,
and the international headquarters
is based in
Salzburg, Austria. The Company’s shares of common
stock are listed in the United States on NASDAQ under
the symbol XRAY.
innovation in the dental
On February 29, 2016 DENTSPLY International
Inc. merged with Sirona Dental Systems, Inc. (“Sirona”)
in an all-stock transaction and the registrant was
named DENTSPLY SIRONA Inc.
(the “Merger”).
DENTSPLY International Inc. dates its history to 1899,
as a designer, developer, manufacturer and marketer of
a broad range of consumable dental products for the
professional dental market. The Company also
manufactures and markets other consumable medical
device products. Sirona Dental Systems, Inc. dates its
history back to 1882, as a designer, developer,
manufacturer and marketer of technologically-advanced
dental equipment. Both Companies have long traditions
of
industry. The Company
introduced the first dental electric drill over 130 years
ago, the first dental X-ray unit approximately 100 years
design/
ago,
computer-aided manufacturing (CAD/CAM) system 30
years ago, and numerous other significant innovations
including pioneering ultrasonic scaling to increase the
speed, effectiveness and comfort of cleaning and
revolutionizing both file and apex locater technology to
make root canal procedures easier and safer. Dentsply
Sirona continues to make significant
investments in
research and development (“R&D”), and its track record
innovative and profitable new products continues
of
today. Detail of the Merger can be found in Note 4
Business Combinations, in the Notes to Consolidated
Financial Statements in Item 15 of this Form 10-K.
computer-aided
dental
first
the
stated
Unless
herein,
otherwise
reference
throughout this Form 10-K to “Dentsply Sirona”, or the
and
“Company”
transactions
Inc.
to February 29, 2016 and to
(“DENTSPLY”) prior
financial
information and transactions of DENTSPLY
SIRONA Inc., thereafter.
information
International
refers
of
DENTSPLY
financial
to
Dental products and equipment accounted for
approximately 92% of Dentsply Sirona’s consolidated
net sales and 91% of Dentsply Sirona’s consolidated
net sales, excluding precious metal content,
for the
year ended December 31, 2016. The remaining
consolidated net sales, excluding precious metal
content, are primarily related to consumable medical
device products and the materials sold to the
investment casting industry. The presentation of net
sales, excluding precious metal content, is considered a
measure not calculated in accordance with accounting
principles generally accepted in the United States of
America (“US GAAP”), and is therefore considered a
non-US GAAP measure. This non-US GAAP measure
is discussed further
“Management’s
Discussion and Analysis of Financial Condition and
in Item 7,
1
Results of Operations” of
this form 10-K and a
reconciliation of net sales to net sales, excluding
precious metal content, is provided.
During the first quarter of 2016,
the Company
realigned reporting responsibilities as a result of the
Merger and changed the management structure. The
Company conducts its business through two operating
segments, Dental and Healthcare Consumables and
Technologies. Prior period segment
information has
been recast to conform to the 2016 presentation.
through its
The Company conducts its business in the United
States of America (“U.S.”), as well as in over 120
foreign countries, principally
foreign
subsidiaries. Dentsply Sirona 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, the Middle-East
region and the Pacific Rim.
Geographic Information
For 2016, 2015 and 2014,
the Company’s net
sales, excluding precious metal content, to customers
outside the U.S., including export sales, accounted for
approximately 64%, 63% and 66%, respectively, of
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, 2016,
2015 and 2014 can be found in Note 5, Segment and
Geographic Information, in the Notes to Consolidated
Financial Statements in Item 15 of this Form 10-K.
Principal Products
INTEGO,
CELTRA, CERAMCO, CERCON, CEREC, CEREC
MCX, CITANEST, DAC, DELTON, DENTSPLY,
DETREY, DYRACT, ESTHET.X, GALILEOS,
INLAB,
IN-OVATION,
LOFRIC, MAILLEFER,
MIDWEST, MTM, NUPRO, OMNICAM, ORAQIX,
ORIGO, ORTHOPHOS, OSSEOSPEED, PALODENT
PLUS, PEPGEN P-15, PORTRAIT, PRIME & BOND,
PROFILE, PROGLIDER, PROTAPER, RECIPROC,
RINN, SANI-TIP, SCHICK, SENSE, SENTALLOY,
SINIUS, SIROLASER, SIRONA, SLIMLINE, STYLUS,
SULTAN, SUREFIL, T1, T2, T3, T4, TENEO,
SYSTEMS,
TRIODENT MATRIX
THERMAFIL,
TRUBYTE, VIPI, WAVEONE, WELLSPECT, XENO,
XIVE, XYLOCAINE and ZHERMACK.
Dental Consumable Products
the treatment of patients.
Dental consumable products consist of value
added dental supplies and small equipment used in
dental offices for
It also
includes specialized treatment products used within the
dental office and laboratory settings including products
used in the preparation of dental appliances by dental
laboratories. Net sales of dental consumable products,
excluding precious metal content, accounted for
approximately 46%, 60% and 59% of the Company’s
consolidated net sales, excluding precious metal
content, for the years ended December 31, 2016, 2015
and 2014, respectively.
Dentsply
dental
include
supplies
Sirona’s
endodontic (root canal)
instruments and materials,
dental anesthetics, prophylaxis paste, dental sealants,
impression materials,
tooth
fluoride. Small equipment
whiteners and topical
products include dental handpieces,
intraoral curing
light systems, dental diagnostic systems and ultrasonic
scalers and polishers.
restorative materials,
used
dental
include
products
The Company’s
dental
including
laboratories
artificial
teeth, precious metal dental alloys, dental
ceramics and crown and bridge materials. Dental
porcelain
laboratory
furnaces.
prosthetics,
equipment
products
include
in
dental
professional
The worldwide
industry
encompasses the diagnosis, treatment and prevention
the teeth, gums and
of disease and ailments of
supporting bone. Dentsply Sirona’s principal dental
product categories are dental consumable products,
laboratory products, dental specialty products
dental
the Company’s
and dental equipment. Additionally,
consumable medical device products provide for
urological and surgical applications. These products are
produced
and
internationally and are distributed throughout the world
under some of the most well-established brand names
and
including
these
ANKYLOS, AQUASIL ULTRA, ARTICADENT, ASTRA
TECH, ATLANTIS, CALIBRA, CAULK, CAVITRON,
the Company
trademarks
industries,
the U.S.
by
in
in
Dental Technology Products
Dental technology products consist of basic and
high-tech dental equipment such as treatment centers,
imaging equipment and computer aided design and
machining “CAD/CAM” systems equipment for dental
practitioners and laboratories. The product category
also includes high-tech state-of-art dental implants and
related scanning equipment and treatment software,
orthodontic appliances for dental practitioners and
specialist and dental laboratories. The Company is the
that can fully outfit a dental
only manufacturer
practitioner’s office with dental equipment. Net sales of
dental technology products, excluding precious metal
content, accounted for approximately 45%, 28% and
2
28% of
the Company’s consolidated net sales,
excluding precious metal content, for the years ended
December 31, 2016, 2015 and 2014.
for
dental
offices
crowns,
copings
bridges,
products
designed
Treatment centers comprise a broad range of
products from basic dentist chairs to sophisticated
chair-based units with integrated diagnostic, hygiene
and ergonomic functionalities, as well as specialist
centers used in preventative treatment and for training
purposes. Imaging systems consist of a broad range of
diagnostic imaging systems for 2D or 3D, panoramic,
and intra-oral applications. Dental CAD/CAM Systems
are
and
laboratories used for dental restorations, which includes
several types of restorations, such as inlays, onlays,
veneers,
bridge
frameworks made from ceramic, metal or composite
blocks. This product line also includes high-tech CAD/
CAM techniques of CEramic REConstruction, or
CEREC, equipment. This equipment allows for in-office
application that enables dentists to produce high quality
restorations from ceramic material and insert them into
the patient’s mouth during a single appointment.
CEREC has a number of advantages compared to the
traditional out-of-mouth pre-shaped restoration method,
require a physical model,
as CEREC does not
restorations can be created in the dentist’s office and
the procedure can be completed in a single visit. The
Company estimates that at December 31, 2016 the
market penetration for in-office CAD/CAM systems in
the U.S. and Germany was approximately 16% to 17%.
and
Healthcare Consumable Products
Healthcare consumable products consist mainly of
urology catheters, certain surgical products, medical
drills and other non-medical products. Net sales of
healthcare consumable products, excluding precious
metal content, accounted for approximately 9%, 12%
the Company’s consolidated net sales,
and 13% of
excluding precious metal content, for the years ended
December 31, 2016, 2015 and 2014, respectively.
Markets, Sales and Distribution
The Company believes that
for its
products will grow over the long-term based on the
following factors:
the market
•
•
•
Increasing worldwide population.
Aging population in developed countries
requires more dental care and is well
positioned to pay for the required procedures
since
of
discretionary income.
amounts
controls
sizable
it
are
teeth
Natural
being
retained
teeth are
longer — Individuals with natural
much more likely to visit a dentist in a given
year than those without any natural
teeth
remaining.
•
•
•
•
•
Earlier preventive care and a growing
demand for aesthetic dentistry — Dentistry
has evolved from a profession primarily
dealing with pain, infections and tooth decay
to one with increased emphasis on preventive
care and cosmetic dentistry.
Increasing demands for patient comfort and
ease of product use and handling.
Increasing demand for more efficiency and
better workflow in the dental office, including
digital and integrated solutions.
Per capita and discretionary incomes are
increasing in emerging markets. As personal
continue to rise in emerging
incomes
economies,
dental
services, is a growing priority. Many surveys
indicate the middle class population will
expand significantly within these emerging
markets.
healthcare,
including
industries
The Company’s business is less susceptible
than many other
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
economic
patients
regardless
products,
environment. Dental
dental equipment and products that support
discretionary dental procedures are the most
susceptible
economic
changes
conditions.
of
the
specialty
to
in
Dentsply Sirona employs approximately 5,000
highly trained, product-specific sales and technical staff
to provide comprehensive marketing and service
tailored to the particular sales and technical support
its distributors, dealers and the
requirements of
end-users.
Dental
Dentsply Sirona distributes approximately half of
its dental consumable and technology products through
third-party distributors. Certain highly technical products
such as dental technology equipment, dental ceramics,
crown and bridge porcelain products, endodontic
instruments and materials, orthodontic appliances,
dental
implants are often sold directly to the dental
laboratory or dental professionals in some markets. For
the year ended December 31, 2016, two customers,
Henry Schein, Inc. and Patterson Companies, Inc., both
dental distributors, each accounted for more than ten
percent of consolidated net sales. At December 31,
2016, one customer, Patterson Companies,
Inc.,
accounted for more than ten percent of the consolidated
the year ended
accounts receivable balance. For
December 31, 2015, one customer, Henry Schein, Inc.,
accounted for more than ten percent of consolidated net
sales. At December 31, 2015, there were no customers
3
ten percent or more of
that accounted for
the
consolidated accounts receivable balance. For the year
ended December 31, 2014, the Company had no single
customer
represented ten percent or more of
consolidated net sales.
that
and
through
America,
North
in
approximately 20 additional markets. The Company’s
largest markets include the UK, Germany and France.
Key customers include urologists, urology nurses,
general practitioners and direct-to-patients.
distributors
The Company has two exclusive distribution
agreements with Patterson for the marketing and sales
of certain legacy Sirona products and equipment in the
United States and one similar agreement in Canada. In
order to maintain exclusivity, certain purchase targets
had to be achieved. In the fourth quarter 2016, the
decision not
to extend the exclusivity beyond
September 2017 was announced. The Company’s
relationship with Patterson remains strong, and the
Company expects to continue to distribute the products
and equipment underlying the agreements through
the
Patterson on a non-exclusive basis. However,
disruption caused by the announcement of
the
termination of exclusivity, as well as a reduction in
Patterson sales resources, negatively impacted fourth
quarter sales. Additionally, Patterson began to reduce
inventories in both the United States and Canada,
which further negatively impacted the Company’s
reported sales in the fourth quarter by approximately
$30 million. These factors are expected to continue in
2017. The Company is evaluating its options for
additional channels of distribution for such products,
although no firm decisions have been reached as of the
date of this filing. The Company anticipates that the
continuation
could
unfavorably impact sales in 2017 by approximately $50
million as Patterson reduces inventory in some periods
and as other market channels are brought on-line in
the
other periods. Notwithstanding the foregoing,
Company believes end-user demand for its products
continues to be strong.
reduction
inventory
the
of
“pull
this end-user
Although many of its dental sales are made to
distributors, dealers and importers, Dentsply Sirona
focuses much of its marketing efforts on the dentists,
dental hygienists, dental assistants, dental laboratories
its
and dental schools which are the end-users of
products. As part of
through”
marketing approach, the Company conducts extensive
distributor, dealer and end-user marketing programs.
Additionally, the Company trains laboratory technicians,
dental hygienists, dental assistants and dentists in the
proper use of its products and introduces them to the
latest
its educational
courses conducted throughout the world. The Company
also maintains ongoing consulting and educational
relationships with various dental associations and
recognized worldwide opinion leaders in the dental
field.
technological developments at
Medical
The Company’s urology products are sold directly
in approximately 15 countries throughout Europe and
4
reimbursement
for
levels within Europe
Historical
have been higher
intermittent catheters which
explain a greater penetration of single-use catheter
products in that market. In the United States, which the
Company considers an important growth market, the
reimbursement environment has improved since 2008
as the infection control cost benefits of disposable
catheters gain acceptance among payers.
The Company’s surgery products are sold directly
in approximately 13 countries and through distributors
in approximately 20 additional markets. The Company’s
largest markets include Australia, Norway and the UK.
Key customers include surgeons, hospital nurses,
physiotherapists, hospital purchasing departments and
medical supply distributors.
The Company also maintains ongoing consulting
and educational
relationships with various medical
associations and recognized worldwide opinion leaders
in this field.
Product Development
Innovation and successful product development
are critical to keeping market leadership position in key
product categories and growing market share in other
products categories while strengthening the Company’s
prominence in the dental and medical markets that it
serves. While many of Dentsply Sirona’s existing
products undergo brand extensions, the Company also
continues to focus efforts on successfully launching
innovative products that represent fundamental change.
collaborations with
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
this technological development,
initiatives to support
including
research
external
institutions, dental and medical schools. Through its
own internal research centers as well as through its
collaborations with external research institutions, dental
the Company directly invested
and medical schools,
$128.5 million, $74.9 million and $80.8 million in 2016,
2015 and 2014, respectively,
in connection with the
development of new products, improvement of existing
The
products
year-over-year investment for all years was reduced by
foreign currency translation, which increased reported
expense variations. 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.
technology.
advances
and
in
investment
In addition to the direct
in product
the Company also
development and improvement,
invests in these activities through acquisitions, by
entering into licensing agreements with third parties,
and by purchasing technologies developed by third
parties.
Acquisition Activities
implant
During September 2016,
the Company finalized
the acquisitions of MIS Implants Technologies Ltd.
systems manufacturer
(“MIS”), a dental
headquartered in northern Israel, and a small
acquisition of a healthcare consumable business. MIS
is a growing and profitable manufacturer of dental
implant systems. MIS is a leader in the value segment
of the market, selling its products under the MIS brand
through a wide distribution network that
includes a
direct sales force, reaching over 65 countries.
the
and
believes
Dentsply Sirona
that
products
dental
industries
technology
consumable
continue to experience consolidation with respect
to
both product manufacturing and distribution, although
they remain fragmented thereby creating a number of
acquisition opportunities. Dentsply Sirona also seeks to
expand its position in healthcare consumable products
through acquisitions.
The Company views acquisitions as a key part of
its growth strategy. These acquisition activities are
the Company’s core growth
intended to supplement
its business,
and assure ongoing expansion of
including
products,
organizational strength and geographic breadth.
new technologies,
additional
Operating and Technical Expertise
to its
Dentsply Sirona believes that
its manufacturing
capabilities are important
success. The
manufacturing processes of the Company’s products
require substantial and varied technical expertise.
Complex materials technology and processes are
necessary to manufacture the Company’s products.
The Company endeavors to automate its global
manufacturing operations in order to improve quality
and customer service and lower costs.
strengths
its principal
quality, safety and ease of use, as well as price,
innovation and acceptance by
customer service,
technicians and patients. Dentsply Sirona
clinicians,
believes
include its
that
well-established brand names, its reputation for high
its leadership in
quality and innovative products,
its global
product development and manufacturing,
line and
sales force,
its product
the breadth of
distribution network,
to customer
satisfaction and support of the Company’s products by
dental and medical professionals.
its commitment
and
The
size
the Company’s
number
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.
of
Regulation
The
sale
and
development, manufacture,
distribution of the Company’s products are subject to
comprehensive governmental
regulation both within
and outside the United States. The following sections
the significant
describe certain, but not all, of
regulations that apply to the Company. For a
description of the risks related to the regulations that
the Company is subject to, please refer to Item 1A.
“Risk Factors” of this Form 10-K.
and
laws,
rules,
foreign
Certain of the Company’s products are classified
as medical devices and are subject to restrictions under
domestic
regulations,
self-regulatory codes, circulars and orders, including,
but not limited to, the United States Food, Drug, and
Cosmetic Act (the “FDCA”), Council Directive 93/42/
EEC on Medical Devices (MDD)
in the
European Union (and implementing and local measures
adopted thereunder) and similar international laws and
regulations. The FDCA requires these products, when
sold in the United States, to be safe and effective for
their intended use and to comply with the regulations
administered by the United States Food and Drug
Administration (“FDA”). Certain medical device products
are also regulated by comparable agencies in non-U.S.
countries in which they are produced or sold.
(1993)
Financing
Information about Dentsply Sirona’s working
capital, liquidity and capital resources is provided in
Item 7 “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” of this
Form 10-K.
Competition
The Company conducts its operations, both
domestic and foreign, under highly competitive market
conditions. Competition in the dental and healthcare
consumable products and dental
technology product
industries is based primarily upon product performance,
regarding
Dental and medical devices of the types sold by
Dentsply Sirona are generally classified by the FDA into
a category that renders them subject only to general
including
controls that apply to all medical devices,
regulations
misbranding,
alteration,
record-keeping and good manufacturing
notification,
practices.
In the European Union, Dentsply Sirona’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 Sirona products in
Europe bear the CE mark showing that such products
adhere to European regulations.
5
All dental amalgam filling materials,
including
those manufactured and sold by Dentsply Sirona,
contain mercury. Various groups have alleged that
dental amalgam containing mercury is harmful
to
human health and have actively lobbied state, federal
and foreign lawmakers and regulators to pass laws or
regulatory changes restricting the use, or
adopt
requiring a warning against alleged potential risks, of
dental amalgams. The FDA, the National Institutes of
Health and the U.S. Public Health Service have each
indicated that there are no demonstrated direct adverse
health effects due to exposure to dental amalgam. 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 classification
for encapsulated amalgam, and dental mercury (Class
I) and alloy (Class II) were classified separately. This
new regulation places encapsulated amalgam in the
same class of devices as most other
restorative
materials,
including composite and gold fillings, and
makes amalgam subject to special controls by the 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 ages 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
the
FDA to consider
advisory panel were held in December 2010. The FDA
has taken no action indicating a change in its position
as of the filing date of this Form 10-K.
these petitions. Hearings of
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 about
environmental
impact from the disposition of mercury
within dental amalgam, which has resulted in the sale of
mercury containing products being banned in Sweden
and severely curtailed in Norway. In the United States,
the Environmental Protection Agency proposed in
September 2014 certain effluent
limitation guidelines
and standards under the Clean Water Act to help cut
6
regulations exist
discharges of mercury-containing dental amalgam to
the environment. The rule would require affected
dentists to use best available technology (amalgam
separators) and other best management practices to
control mercury discharges to publicly-owned treatment
works. Similar
in Europe and in
the European Union adopted a
February 2016,
ratification package regarding the United Nations
Minamata Convention on Mercury, proposing rules
restricting the use of dental amalgam to the
encapsulated form and requiring the use of separators
by dentists. The Company strongly recommends
adherence to the American Dental Association’s Best
Management Practices for Amalgam Waste and
includes this in every package of dental amalgam.
sells
Dentsply Sirona
non-amalgam dental filling materials that do not contain
mercury.
also manufactures
and
generally
international
The Company is also subject
to domestic and
foreign laws, rules, regulations, self-regulatory codes,
circulars and orders
regarding anti-bribery and
anti-corruption, including, but not limited to, the United
States Foreign Corrupt Practices Act (“FCPA”), the U.S.
Federal Anti-Kickback Statute,
the United Kingdom’s
Bribery Act 2010 (c.23), Brazil’s Clean Company Act
2014 (Law No. 12,846) China’s National Health and
Family Planning Commission (NHFPC) circulars No. 40
and No. 50, and similar
laws and
regulations. The United States Foreign Corrupt
Practices Act and similar anti-bribery laws applicable in
non-United States
prohibit
jurisdictions
companies and their intermediaries from improperly
offering or paying anything of value to foreign
government officials for the purpose of obtaining or
retaining business. Some of our customer relationships
are with governmental entities and therefore may be
subject
to such anti-bribery laws. The U.S. Federal
Anti-Kickback Statute and similar anti-corruption laws
applicable in non-United States jurisdictions prohibit
persons from knowingly and willfully soliciting, offering,
or
receiving
indirectly,
the
referral of an individual, or the furnishing or arranging
for a good or service, for which payment may be made
under a health care program, such as, in the United
States, Medicare or Medicaid. In the sale, delivery and
servicing of our products to other countries, we must
also comply with various domestic and foreign export
control and trade embargo laws and regulations,
including those administered by the Department of
Treasury’s Office of Foreign Assets Control (“OFAC”),
the Department of Commerce’s Bureau of Industry and
Security (“BIS”) and similar international governmental
agencies, which may
require licenses or other
authorizations for
transactions relating to certain
countries and/or with certain individuals identified by the
respective government. Despite our internal compliance
program, our policies and procedures may not always
protect us from reckless or criminal acts committed by
these
our employees or agents. Violations of
or
providing
in exchange for or
directly
to induce either
remuneration,
requirements are punishable by criminal or civil
sanctions, including substantial fines and imprisonment.
adopted
limited to,
thereunder),
The Company is subject to domestic and foreign
laws, rules, regulations, self-regulatory codes, circulars
and orders governing data privacy and transparency,
the Health Insurance
including, but not
Portability and Accountability Act of 1996 (“HIPAA”) as
amended by the Health Information Technology for
Economic and Clinical Health Act of 2009 (the “HITECH
Act”), the Physician Payments Sunshine Provisions of
the Patient Protection and Affordable Care Act, the EU
Directive 2002/58/EC (and implementing and local
measures
France’s Data
Protection Act of 1978 (rev. 2004) and France’s Loi
Bertrand, certain rules issued by Denmark’s Health and
Medicines Authority, and similar international laws and
regulations. HIPAA, as amended by the HITECH Act,
and similar data-privacy laws applicable in non-United
States jurisdictions, restrict the use and disclosure of
personal health information, mandate the adoption of
standards relating to the privacy and security of
individually identifiable health information and require
us to report certain breaches of unsecured, individually
identifiable health information. The Physician Payments
the Patient Protection and
Sunshine Provisions of
Affordable Care Act require the Company to record all
transfers of value to physicians and teaching hospitals
and to report this data to the Centers for Medicare and
for public disclosure. Similar
Medicaid Services
reporting requirements have also been enacted in
several states, and an increasing number of countries
worldwide either have adopted or are considering
similar laws requiring transparency of interactions with
health care professionals.
The Company believes
in substantial
compliance with the laws and regulations that regulate
its business.
is
it
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 accounts for more than 10% of Dentsply
Sirona’s supply requirements.
Intellectual Property
Products manufactured by Dentsply Sirona are
sold primarily under
its own trademarks and trade
names. Dentsply Sirona also owns and maintains more
than 3,500 patents throughout the world and is licensed
under a number of patents owned by others.
Dentsply Sirona’s policy is to protect its products
and technology
through patents and trademark
registrations both in the U.S. and in significant
7
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 Sirona
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. Additional
information regarding certain
risks related to our intellectual property is included in
Part I, Item 1A “Risk Factors” of this Form 10-K and is
incorporated herein by reference.
Employees
employed
approximately
At December 31, 2016,
the Company and its
subsidiaries
15,700
employees. Of these employees, approximately 3,800
were employed in the United States and 11,900 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
type
bargaining, union contract or other similar
programs. The Company believes that it generally has
a positive relationship with its employees.
Environmental Matters
in all material
Dentsply Sirona believes that
its operations
respects with applicable
comply
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 as a number of
the
Company’s manufacturing and distribution operations
are located outside of the U.S.
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.
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. 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.
The Company tries to maintain short lead times
the backlog on
to the financial
within its manufacturing, as such,
products is generally not material
statements.
Securities Exchange Act Reports
The U.S. Securities and Exchange Commission
(“SEC”) maintains a website that contains reports,
proxy and information statements, and other information
regarding issuers,
file
electronically with the SEC. The public can obtain any
the Company files with the SEC at
documents that
http://www.sec.gov. The Company files annual reports,
quarterly
other
the Securities
documents with the SEC under
including the Company,
statements
reports,
proxy
and
that
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 Sirona also makes available free of
charge through its website at www.dentsplysirona.com
its annual report on Form 10-K, quarterly reports on
Form 10-Q, current
reports on Form 8-K and
furnished
amendments to these reports filed or
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.
8
Item 1A. Risk Factors
The following are the significant risk factors that
could materially impact Dentsply Sirona’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.
•
Dentsply Sirona may be unable to integrate
successfully DENTSPLY’s and Sirona’s businesses
and realize the anticipated benefits of the Merger.
businesses must
The success of the Merger will depend, in large
part, on the ability of Dentsply Sirona to realize the
anticipated benefits,
including revenue and cost
synergies,
from combining DENTSPLY and Sirona’s
businesses. To realize these anticipated benefits,
DENTSPLY and Sirona’s
be
successfully integrated. This integration will be complex
integrate
and
successfully
the
to manage
challenges presented by the integration process may
result
fully achieving the
anticipated benefits of the Merger. Potential difficulties
Dentsply Sirona may encounter as part of
the
integration process include, but are not limited to, the
following:
to
successfully
in Dentsply Sirona not
consuming. The
failure
time
and
•
•
•
•
•
•
•
to
inability
successfully
the
combine
DENTSPLY and Sirona’s businesses in a
that permits Dentsply Sirona to
manner
achieve the full revenue and cost synergies
anticipated to result from the Merger;
including
complexities associated with managing the
the
combined
businesses,
challenge of
integrating complex systems,
technology, networks and other assets of
each of the companies in a seamless manner
that minimizes any adverse impact on
customers, suppliers, employees and other
constituencies;
coordinating
organizations, systems and facilities;
geographically
separated
addressing possible differences in business
backgrounds,
and
corporate
management philosophies;
cultures
the workforces
two
integrating
companies while maintaining
on
providing consistent, high quality customer
service;
the
focus
of
potential unknown liabilities and unforeseen
increased or new expenses, delays or
regulatory conditions associated with the
Merger;
Dentsply Sirona’s current and prospective
employees may experience uncertainty about
9
their roles within Dentsply Sirona following
the Merger, which may have an adverseeffect
on the ability of Dentsply Sirona to attract or
retain key management and other key
personnel; and
personnel
the
No assurance can be given that Dentsply
Sirona will be able to attract or retain key
key
management
employees
that
DENTSPLY and Sirona have previously been
able to attract or retain employees, which
could have a negative impact on their
respective businesses.
other
extent
same
and
to
In addition, given that DENTSPLY and Sirona
the
operated independently until
Merger, it is possible that the integration process could
result in:
the completion of
•
•
•
diversion of the attention of Dentsply Sirona’s
management;
disruption of existing relationships with
distributors,
other
manufacturers in the industry that drive a
substantial amount of revenues to Dentsply
Sirona; and
suppliers
and
in
standards,
the disruption of, or the loss of momentum in,
Dentsply Sirona’s ongoing businesses or
inconsistencies
controls,
procedures and policies, any of which could
adversely affect Dentsply Sirona’s ability to
maintain
customers,
other
suppliers,
constituencies, Dentsply Sirona’s ability to
achieve the anticipated benefits of
the
Merger, or which could reduce Dentsply
Sirona’s earnings or otherwise adversely
affect the business and financial results of
Dentsply Sirona.
relationships with
employees
and
The future results of Dentsply Sirona will suffer if
Dentsply Sirona does not effectively manage its
expanded operations following the Merger.
The size of the business of the Dentsply Sirona
will
increase significantly beyond the size of either
DENTSPLY or Sirona’s business prior to the Merger.
Dentsply Sirona’s future success depends, in part, upon
its ability to manage this expanded business, which will
pose substantial challenges for management, including
challenges related to the management and monitoring
of new operations and associated increased costs and
complexity. There can be no assurances that Dentsply
Sirona will be successful or that
it will realize the
expected operating efficiencies, cost savings, revenue
enhancements and other benefits currently anticipated
from the Merger.
The success of our business depends in part on
achieving our strategic objectives, including
through acquisitions and dispositions.
With respect
to acquisitions and dispositions of
assets and businesses, the Company may not achieve
expected returns and other benefits associated with
business combinations as a result of various factors,
including integration and collaboration challenges, such
as personnel and technology. In addition, the Company
may not achieve anticipated synergies from related
integration activities. However, the Company continues
to evaluate the potential disposition of assets and
businesses that may no longer help the Company
achieve its strategic objectives, and to view acquisitions
as a key part of its growth strategy.
If
the
attention from normal business operations.
it may incur debt,
Company makes acquisitions,
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
its business or that
available on terms that restrict
impose additional costs that
reduce its operating
results.
Recent healthcare reform legislation and other
changes in the healthcare industry and in
healthcare spending could adversely affect our
business, financial condition or results of
operations.
risks
associated
perspective,
After reaching an agreement with a buyer or seller
for the acquisition or disposition of a business,
the
transaction may remain subject to necessary regulatory
and governmental approvals on acceptable terms as
well as the satisfaction of pre-closing conditions, which
may prevent
the Company from completing the
transaction in a timely manner, or at all. From a
workforce
with
acquisitions and dispositions include, among others,
delays in anticipated workforce reductions, additional
unexpected costs, changes in restructuring plans that
increase or decrease the number of employees
affected,
the Company’s
relationship with labor unions, 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.
negative
impacts
on
of
its
strategic
accomplishment
When the Company decides to sell assets or a
business,
the Company may encounter difficulty in
finding buyers or executing alternative exit strategies on
acceptable terms in a timely manner, which could delay
the
objectives.
Alternatively, the Company may dispose of a business
at a price or on terms that are less than the Company
had anticipated, or with the exclusion of assets that
must be divested or run off separately. Dispositions
involvement in a
may also involve continued financial
divested business, such as through continuing equity
ownership, transition service agreements, guarantees,
indemnities or other current or contingent
financial
obligations. Under these arrangements, performance by
the acquired or divested business, or other conditions
outside the Company’s control, could affect its future
financial results.
In the context of acquisitions,
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
an acquired business could divert management’s
10
Our results of operations and financial condition
could be affected by changes in healthcare spending
to
and policy. The healthcare industry is subject
changing political, regulatory and other influences.
It
has undergone, and is in the process of undergoing,
significant changes driven by efforts to reduce costs.
These changes include legislative healthcare reform,
the reduction of spending budgets by government and
private insurance programs,
such as Medicare,
Medicaid and corporate health insurance plans; trends
toward managed care; consolidation of healthcare
distribution companies; consolidation of healthcare
manufacturers; collective purchasing arrangements and
healthcare
consolidation
practitioners; and changes in reimbursements to
customers. Some of
these potential changes may
cause a decrease in demand for and/or reduce the
prices of Dentsply Sirona’s products. These changes
could adversely affect Dentsply Sirona’s revenues and
profitability. In addition, similar legislative efforts in the
future could adversely
impact Dentsply Sirona’s
business.
office-based
among
by
The Patient Protection and Affordable Care Act as
amended
and Education
the Health Care
Reconciliation Act, each enacted in March 2010, (the
“Health Care Reform Law”), made major changes to the
way health care is financed by both governmental and
private payors. Certain provisions of the Health Care
Reform Law (and rules issued thereunder) could affect
us adversely by increasing provider costs, shrinking the
pool of covered persons, or restricting coverage of
related services. The Health Care Reform Law contains
many provisions designed to generate the revenues
necessary to fund the coverage expansions and to
reduce costs of Medicare and Medicaid. One such
provision that began in 2013 imposed a 2.3% excise tax
on domestic sales of many medical devices by
manufacturers and importers. This adversely affected
sales and cost of goods sold through December 31,
2015. This provision was temporarily suspended
through December 31, 2017, which may adversely
affect sales and cost of goods sold thereafter if not
repealed. The Health Care Reform Law may also
adversely affect payors by increasing their medical cost
this impact
trends, which could have an effect on the industry and
potentially impact our business and revenue as payors
these increases by reducing costs in
seek to offset
is
other areas, although the extent of
currently unknown. Additionally,
federal and
state proposals for health care reform are likely as a
result of the U.S. elections in November 2016, and the
Health Care Reform Law may be invalidated, in whole
or in part, or it may be repealed. We cannot predict
what further reform proposals, if any, will be adopted,
when they may be adopted, or what impact they may
have on us.
further
In certain international markets, particularly in
European Union member countries and other countries
by
marketplaces
whose
government-administered
programs,
government and regulatory programs have a more
significant impact than in other markets. Changes to
these programs could have a negative impact on the
Company’s results.
are
healthcare
dominated
Inadequate levels of reimbursement from
governmental or other third-party payors for
procedures using Dentsply Sirona’s products may
cause Dentsply Sirona’s revenue to decline.
Third-party
Third-party payors,
including government health
administration authorities, private health care insurers
and other organizations regulate the reimbursement of
fees related to certain diagnostic procedures or medical
treatments.
increasingly
challenging the price and cost-effectiveness of medical
products and services. While Dentsply Sirona cannot
predict what effect the policies of government entities
and other third-party payors will have on future sales of
our products,
there can be no assurance that such
policies would not cause Dentsply Sirona’s revenue to
decline.
payors
are
Negative changes in the dental or medical device
markets or prolonged negative economic
conditions in domestic and global markets in which
the Company operates may adversely affect the
Company’s financial condition or results of
operations.
the success of
Notwithstanding that the Company believes that its
business is less susceptible than many other industries
the
to general economic downturns,
Company is dependent upon the continued strength of
the dental and medical device markets and is also
somewhat dependent upon the general economic
the regions in which it operates.
environments of
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
vary
consumer
significantly depending on economic growth. For
the utilization of dental
instance, data suggests that
utilization
rates
thus
and
can
services by working age adults in the U.S. may have
the last several years. Prolonged
declined over
negative changes in domestic and global economic
conditions or disruptions of either or both of
the
financial and credit markets may affect the Company’s
supply chain and the customers and consumers of the
Company’s products and may have a material adverse
effect on the Company’s results of operations, financial
condition and liquidity. The June 2016 U.K. referendum
in which voters approved an exit from the European
Union (“Brexit”) and the likely withdrawal of the U.K.
from the European Union as a result may create further
global economic uncertainty, which may cause our
current and future customers to closely monitor their
costs and reduce their spending on our products and
services. Given the lack of comparable precedent, it is
unclear how Brexit may negatively
the
economies of the U.K., the European Union and other
nations. However, any of these effects of Brexit, among
others, could adversely affect our financial position,
results of operation or cash flows.
impact
Due to the Company’s international operations, the
Company is exposed to the risk of changes in
foreign exchange rates.
two-thirds of
Due to the international nature of Dentsply
Sirona’s business, movements in foreign exchange
the consolidated statements of
rates may impact
operations. With approximately
the
Company’s sales located in regions outside the U.S.,
the Company’s consolidated net sales are 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 as a number of
the
Company’s manufacturing and distribution operations
are located outside of the U.S. Changes in exchange
rates may have a negative effect on the Company’s
customers’ access to credit as well as on the underlying
strength of particular economies and dental markets.
Although the Company may use certain financial
instruments to attempt to mitigate market fluctuations 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.
Additionally, as a result of Brexit, global markets and
In
foreign currencies may be adversely impacted.
particular, the value of the British pound has declined
as compared to the U.S. dollar and other currencies.
This volatility in foreign currencies is expected to
continue as the U.K. negotiates and executes its exit
from the European Union, but it is uncertain over what
time period this will occur. A significantly weaker British
pound compared to the U.S. dollar could have a
negative effect on our business, financial condition and
results of operations. Further, policy changes resulting
from the November 2016 U.S. elections could also
affect foreign exchange markets.
11
Dentsply Sirona hedging and cash management
transactions may expose Dentsply Sirona to loss or
limit Dentsply Sirona’s potential gains.
As part of Dentsply Sirona’s risk management
program, we use foreign currency exchange forward
contracts. While intended to reduce the effects of
exchange rate fluctuations, these transactions may limit
Dentsply Sirona’s potential gains or expose Dentsply
Sirona to loss. Should Dentsply Sirona’s counterparties
to such transactions or the sponsors of the exchanges
to
through which these transactions are offered fail
honor
their obligations due to financial distress or
otherwise, we would be exposed to potential losses or
the inability to recover anticipated gains from these
transactions.
for
and
although
We enter into foreign currency exchange forward
contracts as economic hedges of trade commitments or
anticipated commitments denominated in currencies
other than the functional currency to mitigate the effects
of changes in currency rates. Although we do not enter
trading purposes or
into these instruments
speculation,
Sirona’s
management believes all of
these instruments are
economically effective as hedges of underlying physical
transactions, these foreign exchange commitments are
dependent on timely performance by Dentsply Sirona’s
counterparties. Their failure to perform could result in
Dentsply Sirona having to close these hedges without
the anticipated underlying transaction and could result
in losses if
foreign currency exchange rates have
changed.
Dentsply
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
liquidity to maintain or grow the
develop sufficient
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 quarterly operating results and
market price for the Company’s common stock may
be volatile.
Dentsply Sirona
in
quarterly sales and earnings due to a number of
factors, many of which are substantially outside of the
Company’s control, including but not limited to:
experiences
fluctuations
We enter into interest rate swap agreements from
time to time to manage some of Dentsply Sirona’s
exposure to interest
rate volatility. These swap
agreements involve risks, such as the risk that
counterparties may fail to honor their obligations under
these arrangements. In addition, these arrangements
may not be effective in reducing Dentsply Sirona’s
exposure to changes in interest rates. If such events
occur, Dentsply Sirona’s results of operations may be
adversely affected.
Most of Dentsply Sirona’s cash deposited with
banks is not insured and would be subject to the risk of
liquidity also
bank failure. Dentsply Sirona’s total
depends in part on the availability of
funds under
Dentsply Sirona’s multi-currency revolving credit facility.
The failure of any bank in which we deposit Dentsply
Sirona’s funds or
is part of Dentsply Sirona’s
multi-currency revolving credit facility could reduce the
amount of cash we have available for operations and
additional investments in Dentsply Sirona’s business.
that
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
liquidity available to the
may reduce sources of
•
•
•
•
•
•
•
•
•
•
the timing of new product
Dentsply Sirona and its competitors;
introductions by
timing of industry trade shows;
changes in customer inventory levels;
developments in government reimbursement
policies;
changes
in
product mix;
customer
preferences
and
the Company’s ability to supply products to
meet customer demand;
fluctuations in manufacturing costs;
changes in income tax laws and incentives
which
tax
create
could
consequences;
adverse
fluctuations in currency exchange rates; and
general economic conditions, as well as
those specific to the healthcare and related
industries.
As a result, the Company may fail to meet the
expectations of securities analysts and investors, which
could cause its stock price to decline. Quarterly
fluctuations generally result in net sales and operating
12
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 Sirona’s common stock
causing volatility. These factors include, but are not
limited to, the publication of earnings estimates or other
reports and speculation in the press or investment
community; changes in the Company’s industry and
competitors;
the Company’s financial condition and
cash flows; any future issuances of Dentsply Sirona’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
NASDAQ. Broad market and industry factors may
the Company’s
negatively affect
the market price of
common
operating
stock,
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
result
costs and a diversion of
management’s attention and resources, which could
harm the Company’s business.
in substantial
regardless
actual
of
The dental and medical device supplies markets are
highly competitive and there is no guarantee that
the Company can compete successfully.
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 successfully, or
that 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 Sirona’s
13
competitors may have greater
resources than the
Company. In addition, the Company is exposed to the
risk that its competitors or 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 could have a negative impact on the Company’s
results of operations and financial condition.
The Company may be unable to develop innovative
products or obtain regulatory approval for new
products.
The market
for Dentsply Sirona’s products is
characterized by rapid and significant
technological
change, new intellectual property associated with that
technological change, evolving industry standards, and
new product
introductions. Additionally, Dentsply
Sirona’s patent portfolio continues to change with
patents expiring through the normal course of their life.
There can be no assurance that Dentsply Sirona’s
products will not lose their competitive advantage or
become noncompetitive or obsolete as a result of such
that we will be able to generate any
factors, or
in
economic return on the Company’s investment
product development.
the Company’s products or
technologies lose their competitive advantage or
become noncompetitive or obsolete, Dentsply Sirona’s
business could be negatively affected.
If
Dentsply Sirona has identified new products as an
important part of its growth opportunities. There can be
no assurance that Dentsply Sirona will be able to
continue to develop innovative products and that
regulatory approval of any new products will be
international
obtained
from applicable U.S.
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.
or
Dentsply Sirona’s business is subject to extensive,
complex and changing domestic and foreign laws,
rules, regulations, self-regulatory codes, directives,
circulars and orders that failure to comply with
could subject us to civil or criminal penalties or
other liabilities.
rules,
Dentsply Sirona is subject to extensive domestic
regulations, self-regulatory
and foreign laws,
codes, circulars and orders which are administered by
federal and state governmental
various international,
authorities,
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,
including, among others,
the FDA,
thereunder),
“FCPA”),
and
the Environmental Protection Agency (“EPA”), and
other similar domestic and foreign authorities. These
laws, rules, regulations, self-regulatory codes, circulars
and orders include, but are not limited to, the United
States Food, Drug and Cosmetic Act, the European
Council Directive 93/42/EEC on Medical Devices
(MDD) (1993) (and implementing and local measures
the U.S. Foreign Corrupt
adopted
the U.S. Federal
(the
Practices Act
Anti-Kickback
international
similar
Statute
anti-bribery and anti-corruption laws,
the Physician
Payments Sunshine Act, regulations concerning the
supply of conflict minerals, various environmental
regulations such as the Federal Water Pollution Control
Act (the “Clean Water Act”), and regulations relating to
import and export controls and economic
trade,
sanctions. Such laws, rules, regulations, self-regulatory
codes, circulars and orders may be complex and are
subject
to change. For example, since a significant
proportion of the regulatory framework in the United
Kingdom is derived from EU directives and regulations,
Brexit could materially affect
the regulatory regime
applicable to our operations and customers with
operations connected to the United Kingdom. Any such
changes to the regulatory regime could have a material
adverse effect on our ability to adjust our solutions to
comply with such changes.
rules,
Compliance with the numerous applicable existing
and new laws, rules, regulations, self-regulatory codes,
circulars 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,
self-regulatory codes, circulars and orders, there can
be no assurance that governmental authorities will not
raise compliance concerns or perform audits to confirm
compliance with
regulations,
self-regulatory codes, circulars and orders. Failure to
comply with applicable laws,
regulations,
self-regulatory codes, circulars or orders could result in
a range of governmental enforcement actions, including
fines or penalties, injunctions and/or criminal or other
in
civil proceedings. Any such actions could result
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.
rules,
rules,
laws,
such
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
economic
compliance with
sanctions regulations by certain of its subsidiaries. The
Company also voluntarily contacted OFAC and BIS
regarding
and
economic sanctions regulations by certain other
compliance with
controls
controls
export
export
and
14
business units of the Company identified in an ongoing
review by the Company. The Company is
internal
cooperating with the USAO, OFAC and BIS with
respect to these matters.
Dentsply Sirona may be exposed to liabilities under
the Foreign Corrupt Practices Act, and any
determination that Dentsply Sirona violated the
Foreign Corrupt Practices Act could have a material
adverse effect on Dentsply Sirona’s business.
To the extent
that Dentsply Sirona operates
outside the United States, Dentsply Sirona is subject to
the FCPA which generally prohibits U.S. companies
and their intermediaries from bribing foreign officials for
the purpose of obtaining or keeping business or
otherwise obtaining favorable treatment. In particular,
Dentsply Sirona may be held liable for actions taken by
Dentsply Sirona’s strategic or
local partners even
though such partners are foreign companies that are
to the FCPA. Any determination that
not subject
Dentsply Sirona violated the FCPA could result
in
sanctions that could have a material adverse effect on
Dentsply Sirona’s business.
If we fail to comply with laws and regulations
relating to health care fraud, we could suffer
penalties or be required to make significant
changes to Dentsply Sirona’s operations, which
could adversely affect Dentsply Sirona’s business.
rules,
Dentsply Sirona is subject to federal, state, local
and foreign laws,
regulations, self-regulatory
codes, circulars and orders relating to health care fraud,
including, but not
the U.S. Federal
limited to,
Anti-Kickback Statute, the United Kingdom’s Bribery Act
2010 (c.23), Brazil’s Clean Company Act 2014 (Law
No. 12,846) and China’s National Health and Family
Planning Commission (NHFPC) circulars No. 49 and
No. 50. Some of these laws, referred to as “false claims
the
laws,”
submission
for
or
reimbursement to federal, state and other health care
referred to as
payors and programs. Other
offering,
prohibit
“anti-kickback
receiving or paying remuneration in order to induce the
referral of a patient or ordering, purchasing, leasing or
arranging for or recommending ordering, purchasing or
leasing, of items or services that are paid for by federal,
state and other health care payors and programs.
causing
claims
prohibit
of
the
false
submission
fraudulent
soliciting,
laws,”
laws,
or
The government has expressed concerns about
financial relationships between suppliers on the one
hand and physicians and dentists on the other. As a
result, we regularly review and revise Dentsply Sirona’s
marketing
facilitate
compliance.
the reporting and
the Physician Payment
disclosure obligations of
rules,
Sunshine Act
In addition, under
necessary
practices
foreign
similar
laws,
and
as
to
regulations, self-regulatory codes, circulars and orders,
such as France’s Loi Bertrand and rules issued by
Denmark’s Health and Medicines Authority, the general
public and government officials will be provided with
new access to detailed information with regard to
transfers of value to certain
payments or other
and
practitioners
teaching hospitals) by applicable drug and device
manufacturers subject to such reporting and disclosure
obligations, which includes us. This information may
lead to greater
in
modifications to established practices and additional
costs.
scrutiny, which may
physicians,
(including
dentists
result
Failure to comply with health care fraud laws,
rules, regulations, self-regulatory codes, circulars and
orders could result
in significant civil and criminal
penalties and costs, including the loss of licenses and
the ability to participate in federal and state health care
programs, and could have a material adverse impact on
Dentsply Sirona’s business. Also, these laws may be
interpreted or applied by a prosecutorial, regulatory or
judicial authority in a manner
that could require
Dentsply Sirona to make changes in Dentsply Sirona’s
operations or incur substantial defense and settlement
expenses. Even unsuccessful challenges by regulatory
authorities or private relators could result in reputational
harm and the incurring of substantial costs. In addition,
many of these laws are vague or indefinite and have
not been interpreted by the courts, and have been
subject
varied
frequent modification
interpretation by prosecutorial, regulatory authorities,
increasing compliance risks.
and
to
the
and
and
laws
thereunder,
While we believe that we are substantially
compliant with
rules,
foregoing
regulations, self-regulatory codes, circulars and orders
promulgated
adequate
compliance programs and controls in place to ensure
substantial compliance, we cannot predict whether
regulations,
changes
self-regulatory codes, circulars and orders, or
the
interpretation thereof, or changes in Dentsply Sirona’s
services or marketing practices in response, could
adversely affect Dentsply Sirona’s business.
applicable
rules,
laws,
have
in
If we fail to comply with domestic and foreign laws,
rules, regulations, self-regulatory codes, circulars
and orders relating to the confidentiality of
sensitive personal information or standards in
electronic health data transmissions, we could be
required to make significant changes to Dentsply
Sirona’s products, or incur penalties or other
liabilities.
the
and
limit
laws
rules,
information,
Federal Health
Insurance Portability
things,
the implementation of various recordkeeping,
operational, notice and other practices intended to
safeguard that
its use to allowed
purposes, and notify individuals in the event of privacy
and security breaches. Such laws include, but are not
limited to, the Federal Health Information Technology
for Economic and Clinical Health Act (“HITECH Act”),
the
and
Accountability Act of 1996 (“HIPAA”), France’s Data
Protection Act of 1978 (rev. 2004) and similar
international
regulations,
self-regulatory codes, circulars and orders promulgated
thereunder. Failure to comply with these laws, rules,
regulations, self-regulatory codes, circulars and orders
can result in substantial penalties and other liabilities.
As a result of the HITECH Act, which was passed in
2009, some of Dentsply Sirona’s businesses that were
previously only indirectly subject to HIPAA privacy and
to such rules
security rules became directly subject
because
“business
as
associates” of HIPAA covered entities, such as health
care providers. On January 17, 2013, the Office for Civil
Rights of
the Department of Health and Human
Services released a final rule implementing the HITECH
Act and making certain other changes to HIPAA privacy
and security requirements. Compliance with the rule
was required by September 23, 2013, and increases
the requirements applicable to some of Dentsply
Sirona’s businesses.
businesses
serve
such
pertaining
identifiable
information
to domestic and foreign laws,
In addition, Dentsply Sirona’s affiliates handle
personally
to
Dentsply Sirona’s members and paying subscribers.
Both Dentsply Sirona and Dentsply Sirona’s affiliates
rules,
are subject
regulations, self-regulatory codes, circulars and orders
related to Internet communications (including the
CAN-SPAM Act of 2003, EU Directive 2002/58/EC and
laws and regulations), consumer
similar international
protection
Telephone Consumer
the
Protection Act and similar state and international laws
and regulations), advertising, privacy, security and data
protection, including the HITECH Act, HIPAA, France’s
Data Protection Act of 1978 (rev. 2004), and similar
international
If Dentsply Sirona or
Dentsply Sirona’s affiliates are found to be in violation
of these laws, rules, regulations, self-regulatory codes,
circulars or orders, Dentsply Sirona may become
subject to administrative fines or litigation, which could
materially increase Dentsply Sirona’s expenses.
laws regulations.
(including
Regulations related to conflict minerals could
adversely impact Dentsply Sirona’s business.
Certain of Dentsply Sirona’s businesses involve
access to personal health, medical, financial and other
information of individuals, and are accordingly directly
or indirectly subject to numerous federal, state, local
and foreign laws,
regulations, self-regulatory
codes, circulars and orders that protect the privacy and
security of such information, and require, among other
rules,
The Dodd-Frank Wall Street Reform and
Consumer Protection Act and similar
international
regulations including consumer protection rules issued
by Germany’s Ministry for Consumer Protection, Food
and Agriculture contains provisions designed to
improve transparency and accountability concerning
the supply of certain minerals, known as conflict
15
minerals, originating from the Democratic Republic of
Congo (DRC) and adjoining countries. As a result, in
August 2012 the SEC adopted annual disclosure and
reporting requirements for those companies who use
conflict minerals mined from the DRC and adjoining
countries in their products. There are additional costs
associated with complying with these disclosure
requirements, including for diligence to determine the
sources of conflict minerals used in Dentsply Sirona’s
products and other potential changes to products,
processes or sources of supply as a consequence of
such verification activities. The implementation of these
rules could adversely affect the sourcing, supply, and
pricing of materials used in Dentsply Sirona’s products.
As there may be only a limited number of suppliers
offering conflict-free minerals, we cannot be sure that
we will be able to obtain necessary conflict minerals
from such suppliers in sufficient quantities or at
competitive prices. Also, we may face reputational
challenges if we determine that certain of Dentsply
Sirona’s products contain minerals not determined to be
conflict free or if we are unable to sufficiently verify the
origins for all conflict minerals used in Dentsply Sirona’s
products through the procedures we may implement.
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
In
the cancellation of orders for
these products.
could
addition,
the
suppliers
these
discontinue
these products to the
manufacture or supply of
Company at any
to
supply products
time or
competitors. Dentsply Sirona 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.
16
Dentsply Sirona may be unable to obtain necessary
product approvals and marketing clearances.
from,
regulate
agencies
clearances
Dentsply Sirona must obtain certain approvals by,
governmental
and marketing
authorities,
including the FDA and similar health
authorities in foreign countries to market and sell
Dentsply Sirona’s products in those countries. These
regulatory
the marketing,
manufacturing,
labeling, packaging, advertising, sale
and distribution of medical devices. The FDA enforces
regulations regarding the safety of X-ray
additional
emitting devices. Dentsply Sirona’s products are
currently regulated by such authorities and certain of
Dentsply Sirona’s new products will require approval
by, or marketing clearance from, various governmental
authorities,
including the FDA. Various states also
impose similar regulations.
be
typically
or PMA, may
The FDA review process
requires
extended proceedings pertaining to the safety and
efficacy of new products. A 510(k) application is
required in order to market a new or modified medical
device. If specifically required by the FDA, a pre-market
approval,
necessary. Such
to
proceedings, which must be completed prior
marketing a new medical device, are potentially
expensive and time consuming. They may delay or
hinder a product’s timely entry into the marketplace.
Moreover, 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 us. The FDA also
oversees the content of advertising and marketing
materials relating to medical devices which have
received FDA clearance. Failure to comply with the
in the
FDA’s advertising guidelines may
imposition of penalties.
result
We are also subject to other federal, state and
local laws, regulations and recommendations relating to
safe working conditions, laboratory and manufacturing
practices. The extent of government regulation that
might result from any future legislation or administrative
action cannot be accurately predicted. Failure to comply
with regulatory requirements could have a material
adverse effect on Dentsply Sirona’s business.
typically
requires
extended
Similar to the FDA review process, the EU review
process
proceedings
pertaining to the safety and efficacy of new products.
Such proceedings, which must be completed prior to
marketing a new medical device, are potentially
expensive and time consuming and may delay or
prevent a product’s entry into the marketplace.
Inventories maintained by the Company’s
customers may fluctuate from time to time.
The Company relies in part on its dealer and
customer relationships and predictions of dealer and
customer inventory levels in projecting future demand
levels and financial results. These inventory levels may
from the Company’s
fluctuate, and may differ
predictions, resulting in the Company’s projections of
future results being different
than expected. These
changes may be influenced by changing relationships
with the dealers and customers, economic conditions
and customer preference for particular products. There
can be no assurance that the Company’s dealers and
customers will maintain
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.
inventory
levels
of
that
the Company
the exclusive provisions of
During the fourth quarter of 2016, upon the
the
announcement
agreement would expire by its terms, Patterson began
to reduce inventories in both the United States and
Canada, which negatively impacted the Company’s
reported sales in the fourth quarter. The reduction of
inventory by Patterson is expected to continue in 2017
as
a
non-exclusive arrangement. The Company is evaluating
its options for additional channels of distribution for
as
subject
October 2017, although no firm decisions have been
reached as of the date of this filing. As a result of the
above, the Company’s sales will likely fluctuate in 2017
on a quarter by quarter basis, as Patterson reduces
inventory in some periods and as other market
channels are brought on line in other periods.
and Patterson move
commencing
products
early
as
to
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
tax rules and regulations in the
interpretation of,
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, or by
changes in the valuation of the Company’s deferred tax
assets and liabilities.
Challenges may be asserted against the Company’s
products due to real or perceived quality, health or
environmental issues.
The Company manufactures and sells a wide
portfolio of dental and medical device products. While
impact of
regulations exist
the United States,
the EPA proposed
the Company endeavors to ensure that its products are
there can be no assurance that
safe and effective,
there may not be challenges from time to time
regarding the real or perceived quality, health or
the Company’s products or
environmental
certain raw material components of
the Company’s
products. All dental amalgam filling materials, including
those manufactured and sold by Dentsply Sirona,
contain mercury. Some groups have asserted that
amalgam should be discontinued because of
its
mercury content and/or
that disposal of mercury
containing products may be harmful to the environment.
In
in
September 2014 certain effluent
limitation guidelines
and standards under the Clean Water Act to help cut
discharges of mercury-containing dental amalgam to
the environment. The rule would require affected
dentists to use best available technology (amalgam
separators) and other best management practices to
control mercury discharges to publicly-owned treatment
in Europe and in
works. Similar
February 2016,
the European Union adopted a
ratification package regarding the United Nations
Minamata Convention on Mercury, proposing rules
restricting the use of dental amalgam to the
encapsulated form and requiring the use of separators
by dentists. 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 Sirona
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 left over from the
ingredients used in such
manufacture of other
composites or sealants. The FDA currently allows the
use of BPA in dental materials, medical devices, and
food packaging. Nevertheless, public reports and
concerns regarding the potential hazards of dental
amalgam or of BPA could contribute to a perceived
safety risk for the Company’s products that contain
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 and legal and
regulatory developments in this area may lead to
litigation and/or product limitations or discontinuation.
also manufactures
and
Issues related to the quality and safety of the
Company’s products, ingredients or packaging
could cause a product recall or discontinuation
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
17
the Company’s products 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
cause
production and delivery disruptions. The Company may
need to recall or discontinue products if they become
unfit for use. In addition, the Company could potentially
to litigation or government action, which
be subject
could result
fines or damages. Cost
associated with these potential actions could negatively
affect
financial
condition and liquidity.
the Company’s operating results,
in payment of
Product warranty claims exposure could be
significant.
Dentsply Sirona generally warrants each of
Dentsply Sirona’s products against defects in materials
and workmanship for a period of one year from the date
of shipment plus any extended warranty period
purchased by
the customer. The future costs
associated with providing product warranties could be
material. A successful warranty claim brought against
Dentsply Sirona could reduce Dentsply Sirona’s profits
and/or
financial condition, and damage
impair our
Dentsply Sirona’s reputation.
The Company’s Orthodontics business is subject
to risk.
The Company sources a substantial portion of its
orthodontic products from a Japanese supplier under
an agreement that is subject to periodic renewal. The
Company also has established alternative sources of
supply. The market for orthodontic products is highly
competitive and subject
to significant negative price
pressure.
Changes in or interpretations of, accounting
principles could result in unfavorable charges to
operations.
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 further
interprets or seeks to
revise accounting pronouncements related to financial
instruments, structures or transactions as well as to
is
issue new standards expanding disclosures.
possible that future accounting standards the Company
would be required to adopt could change the current
accounting treatment applied to the Company’s
consolidated financial statements and such changes
could have a material adverse effect on the Company’s
business, results of operations, financial condition and
liquidity.
It
If the Company’s goodwill or intangible assets
become impaired, the Company may be required to
record a significant charge to earnings.
Under US GAAP,
the Company reviews its
goodwill and intangible assets for impairment when
18
events or changes in circumstances indicate the
carrying value may not be recoverable. Additionally,
goodwill and indefinite-lived intangible assets are
required to be tested for impairment at least annually.
The valuation models used to determine the fair values
of goodwill or intangible assets are dependent upon
various assumptions and reflect management’s best
estimates. Net sales growth, discount rates, earnings
multiples and future cash flow projections are critical
assumptions used to determine these fair values. The
Company has made disclosures about the fair values of
certain reporting units and indefinite-lived intangible
assets approximating the book values within Item 7
“Management’s Discussion and Analysis of Financial
Condition and Results of Operations” under “Critical
Accounting Judgments and Policies.” Specifically
included in the disclosures is one reporting unit within
the Technologies segment as well as the four reporting
units (three within the Technologies segment and one
within the Dental and Healthcare Consumables
segment) and the related indefinite-lived intangible
assets created as a result of the Merger. Given the
limited time since the Merger date, the indefinite-lived
assets and reporting units’ fair values approximate the
book values of the indefinite-lived assets and reporting
units. 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 flow projections, among other factors,
may cause a change in circumstances indicating that
the carrying value of
the indefinite-lived assets and
goodwill
in these five reporting units may not be
recoverable. The Company may be required to record a
in the financial
significant
statements during the period in which any impairment
of
is
these indefinite-lived assets and goodwill
determined.
charge to earnings
The Company faces the inherent risk of litigation
and claims.
liability and other types of
The Company’s business involves a risk of
legal actions or
product
claims, including possible recall actions affecting the
Company’s 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
the coverage will be
that
available in adequate amounts or at a reasonable cost.
Also, other
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.
types of claims asserted against
future claims or
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.
Dentsply Sirona’s failure to obtain issued patents
and, consequently, to protect Dentsply Sirona’s
proprietary technology could hurt Dentsply
Sirona’s competitive position.
Dentsply Sirona’s success will depend in part on
Dentsply Sirona’s ability to obtain and enforce claims in
our patents directed to Dentsply Sirona’s products,
technologies and processes, both in the United States
and in other countries. Risks and uncertainties that
Dentsply Sirona faces with respect to Dentsply Sirona’s
patents and patent applications include the following:
•
•
•
•
•
•
•
the pending patent applications that Dentsply
Sirona has filed, or to which Dentsply Sirona
has exclusive rights, may not result in issued
patents or may take longer than Dentsply
Sirona expects to result in issued patents;
the allowed claims of any patents that are
issued may
provide meaningful
protection;
not
Dentsply Sirona may be unable to develop
additional proprietary technologies that are
patentable;
the patents licensed or issued to Dentsply
Sirona may not provide a competitive
advantage;
other companies may challenge patents
licensed or issued to Dentsply Sirona;
disputes may arise regarding inventions and
corresponding ownership rights in inventions
and know-how resulting from the joint
creation or use of
intellectual property by
Dentsply Sirona and Dentsply Sirona’s
respective licensors; and
other companies may design around the
technologies patented by Dentsply Sirona.
Dentsply Sirona’s profitability could suffer if third
parties infringe upon Dentsply Sirona’s proprietary
technology.
Dentsply Sirona’s profitability could suffer if third
parties infringe upon Dentsply Sirona’s intellectual
property rights or misappropriate Dentsply Sirona’s
technologies and trademarks for their own businesses.
To protect Dentsply Sirona’s rights to Dentsply Sirona’s
intellectual property, Dentsply Sirona relies on a
combination of patent and trademark law, trade secret
protection, confidentiality agreements and contractual
arrangements with Dentsply Sirona’s employees,
strategic partners and others. Dentsply Sirona cannot
assure you that any of Dentsply Sirona’s patents, any of
the patents of which Dentsply Sirona are a licensee or
any patents which may be issued to Dentsply Sirona or
which we may license in the future, will provide
Dentsply Sirona with a competitive advantage or afford
Dentsply Sirona protection against
infringement by
others, or that
the patents will not be successfully
challenged or circumvented by third parties, including
Dentsply Sirona’s competitors. The protective steps we
have
deter
misappropriation of Dentsply Sirona’s proprietary
information. Dentsply Sirona may be unable to detect
the unauthorized use of, or take appropriate steps to
enforce, Dentsply Sirona’s intellectual property rights.
Effective patent, trademark and trade secret protection
may not be available in every country in which Dentsply
Sirona will offer, or intend to offer, Dentsply Sirona’s
products. Any failure to adequately protect Dentsply
Sirona’s intellectual property could devalue Dentsply
Sirona’s proprietary content and impair Dentsply
effectively. Further,
compete
Sirona’s
defending Dentsply Sirona’s intellectual property rights
could result in the expenditure of significant financial
and managerial resources.
taken may
inadequate
ability
be
to
to
Dentsply Sirona’s profitability may suffer if
Dentsply Sirona’s products are found to infringe
the intellectual property rights of others.
Litigation may be necessary to enforce Dentsply
Sirona’s patents or to defend against any claims of
infringement of patents owned by third parties that are
asserted against Dentsply Sirona. In addition, Dentsply
Sirona may have to participate in one or more
interference proceedings declared by the United States
the European Patent
Patent and Trademark Office,
Office or other foreign patent governing authorities, to
determine the priority of inventions, which could result
in substantial costs.
If Dentsply Sirona becomes involved in litigation or
interference proceedings, Dentsply Sirona may incur
substantial expense, and the proceedings may divert
the attention of Dentsply Sirona’s technical and
management personnel, even if Dentsply Sirona
ultimately prevails. An adverse determination in
proceedings of this type could subject us to significant
liabilities, allow Dentsply Sirona’s competitors to market
competitive products without obtaining a license from
from
Dentsply Sirona,
marketing Dentsply Sirona’s products or require us to
seek licenses from third parties that may not be
available on commercially reasonable terms, if at all. If
Dentsply Sirona cannot obtain such licenses, Dentsply
from
Sirona may
commercializing Dentsply Sirona’s products.
prohibit Dentsply Sirona
prevented
restricted
be
or
The enforcement, defense and prosecution of
intellectual property rights, including the United States
19
Patent and Trademark Office’s, the European Patent
interference
Office’s and other foreign patent offices’
proceedings, and related legal and administrative
proceedings in the United States and elsewhere,
involve complex legal and factual questions. As a
result,
and
time-consuming, and their outcome is uncertain.
Litigation may be necessary to:
proceedings
costly
these
are
•
•
•
•
assert against others or defend Dentsply
Sirona against claims of infringement;
enforce patents owned by, or
Dentsply Sirona from, another party;
licensed to
protect Dentsply Sirona’s trade secrets or
know-how; or
determine the enforceability, scope and
validity of Dentsply Sirona’s proprietary rights
or the proprietary rights of others.
Due to the international nature of our business,
including increasing exposure to markets outside
of the U.S. and Europe, political or economic
changes or other factors could harm our business
and financial performance.
Approximately two-thirds of the Company’s sales
are located in regions outside the United States.
In
addition, we anticipate that sales outside of the U.S.
and Europe will continue to expand and account for a
significant portion of Dentsply Sirona’s
revenue.
Operating internationally 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 and tariffs;
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
Certain of these risks may be heightened as a
result of changing political climates, for example as a
result of Brexit or the results of the November 2016
U.S. elections, both of which may lead to changes in
areas such as trade restrictions and tariffs, regulatory
requirements and exchange rate fluctuations, which
may adversely affect our business and financial
performance.
20
The Company’s success is dependent upon its
management and employees.
The Company’s success is dependent upon its
management and employees. The loss of senior
management employees or failure to recruit and train
needed managerial, sales and technical personnel,
could have a material adverse effect on the Company.
The Company may be unable to sustain the
operational and technical expertise that is key to its
success.
to its
Dentsply Sirona believes that
its manufacturing
success. The
capabilities are important
manufacture of
the Company’s products requires
substantial and varied technical expertise. Complex
materials, technology and processes are necessary to
manufacture the 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.
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
manufactured by the Company are manufactured in
facilities that are the sole source of such products. As
there are a limited number of alternative suppliers for
these products, any disruption at a particular Company
manufacturing facility could lead to delays, increased
expenses, and may damage the Company’s business
and results of operations.
The Company relies heavily on information and
technology to operate its business networks, and
any cyber-attacks or other disruption to its
technology infrastructure or the Internet could
harm the Company’s operations.
server-
technology infrastructure,
Dentsply Sirona operates many aspects of
its
reporting and customer
business including financial
relationship management
and
through
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
including
malware, insecure coding, “Acts of God,” cyber-attacks
and other attempts to penetrate networks, data leakage
and human error, could pose a threat to the Company’s
operations. Our network and storage applications may
to unauthorized access by hackers or
be subject
breached due to operator error, malfeasance or other
system disruptions and the Company may be the victim
of cyber-attacks,
financial
assets,
information of
sensitive
individuals
information. In some cases, it is difficult to anticipate or
immediately detect such incidents and the damage
caused thereby. These data breaches and any
targeted at
intellectual property, personal
the theft of
customers,
other
and
or
key
and
information
unauthorized access or disclosure of our information
could compromise our intellectual property and expose
sensitive business information. Cyber-attacks could
also cause us to incur significant remediation costs,
disrupt key business operations and divert attention of
management
technology
resources. These incidents could also subject us to
liability, expose us to significant expense, or cause
significant harm to our reputation, which could result in
lost revenues. While Dentsply Sirona has invested and
in information technology risk
continues to invest
these
recovery plans,
management and disaster
measures cannot
fully insulate the Company from
cyber-attacks, technology disruptions or data loss and
the resulting adverse effect on the Company’s
operations and financial results.
The Company may not generate sufficient cash flow
to service its debt, pay its contractual obligations
and operate the business.
Dentsply Sirona’s ability to make payments on its
indebtedness and contractual obligations, and to fund
its operations depends on its future performance and
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 Sirona’s business will generate sufficient cash
flow from operations in the future to service its debt,
pay its contractual obligations and operate its business.
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.
income
existing
Sirona’s
Dentsply
borrowing
documentation contains a number of covenants and
is required to satisfy. Any
financial ratios, which it
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
and
operating
excluding
amortization of
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 and, through cross default provisions, would
entitle Dentsply Sirona’s other lenders to accelerate
their loans. Dentsply Sirona may not be able to meet its
obligations under its outstanding indebtedness in the
event that any cross default provisions are triggered.
depreciation
interest expense, would result
Dentsply Sirona has a significant amount of
indebtedness. A breach of the covenants under
Dentsply Sirona’s debt instruments outstanding
from time to time could result in an event of default
under the applicable agreement.
The Company has debt securities outstanding of
approximately $1.5 billion. Dentsply Sirona also has the
21
indebtedness
the Revolving Credit Facility and may incur
ability to incur up to $500.0 million of
under
significantly more indebtedness in the future.
Dentsply Sirona’s level of
indebtedness and
related debt service obligations could have negative
consequences including:
•
•
•
making it more difficult for the Company to
satisfy its obligations with respect
to its
indebtedness;
to
requiring Dentsply Sirona
dedicate
significant cash flow from operations to the
payment of principal and interest on its
indebtedness, which would reduce the funds
the Company has available for other
including working capital, capital
purposes,
expenditures and acquisitions; and
reducing Dentsply Sirona’s
in
planning for or reacting to changes in its
business and market conditions.
flexibility
Dentsply Sirona’s current debt agreements contain
a number of covenants and financial ratios, which the
Company is required to satisfy. Under
the Note
Purchase Agreement dated December 11, 2015, the
Company will be required to maintain ratios of debt
outstanding to total capital not to exceed the ratio of 0.6
to 1.0, and operating income excluding depreciation
and amortization to interest expense of not less than
the Company’s outstanding debt
3.0 times. All of
agreements have been amended to reflect
these
covenants. The Company may need to reduce the
amount of its indebtedness outstanding from time to
time in order to comply with such ratios, though no
assurance can be given that Dentsply Sirona will be
able to do so. Dentsply Sirona’s failure to maintain such
ratios or a breach of the other covenants under its debt
agreements 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
future long-term debt or short-term borrowing
for
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 flexibility. 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.
Certain provisions in the Company’s governing
documents, and of Delaware law, may make it more
difficult for a third party to acquire Dentsply Sirona.
Certain provisions of Dentsply Sirona’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 Sirona. 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 which make it difficult for stockholders to
them
amend Dentsply Sirona’s By-laws and prevent
from calling special meetings of stockholders.
In
addition, members of Dentsply Sirona’s management
and participants in its Employee Stock Ownership Plan
the
(“ESOP”) collectively own approximately 2% of
outstanding common stock of Dentsply Sirona.
Delaware law imposes some restrictions on mergers
the
and
between
the
Company and any holder of 15% or more of
Company’s outstanding common stock.
combinations
business
other
The Company’s results could be negatively
impacted by a natural disaster or similar event.
The Company operates in more than 120
countries and its and its suppliers’ manufacturing
facilities are located in multiple locations around the
world. Any natural or other disaster in such a location
could result in serious harm to the Company’s business
and consolidated results of operations. Any insurance
maintained by the Company may not be adequate to
cover our losses resulting from such disasters or other
business interruptions, and our emergency response
plans may not be effective in preventing or minimizing
losses in the future.
Dentsply Sirona is dependent upon a limited
number of distributors for a significant portion of
Dentsply Sirona’s revenue, and loss of these key
distributors could result in a loss of a significant
amount of Dentsply Sirona’s revenue.
It
each
accounted
Historically, a substantial portion of Dentsply
Sirona’s revenue has come from a limited number of
distributors. For example, Patterson Companies, Inc.
and Henry Schein,
for
Inc.
approximately 12% of the annual revenue of Dentsply
is anticipated that Patterson
Sirona in 2016.
Companies, Inc. and Henry Schein, Inc. will continue to
be the largest contributors to Dentsply Sirona’s revenue
for the foreseeable future. There can be no assurance
that Patterson Companies, Inc. and Henry Schein, Inc.
will purchase any specified minimum quantity of
products from Dentsply Sirona or that they will continue
If Patterson
to purchase any products at all.
Companies,
Inc. ceases to
purchase a significant volume of products from
Dentsply Sirona, it could have a material adverse effect
on Dentsply Sirona’s results of operations and financial
that
condition. This risk is increased by the fact
Inc. or Henry Schein,
22
arrangement
has with
the Company
exclusive
to certain
Inc. with respect
Patterson Companies,
products in the U.S. and Canada will
terminate
subsequent to September 2017. We cannot assure you
that this cessation of exclusivity will not adversely affect
our results of operations. As we transition from a single
for our
distributor model
CEREC CAD/CAM products, our sales could be
adversely affected as we incorporate new distributors
into our network.
to a multi-distributor model
Work stoppages and other labor relations matters
may make it substantially more difficult or
expensive for us to produce Dentsply Sirona’s
products, which could result in decreased sales or
increased costs, either of which would negatively
impact Dentsply Sirona’s financial condition and
results of operations.
employees
A significant part of our foreign employees are
subject to collective bargaining agreements, and some
unionized;
of Dentsply Sirona’s
therefore, Dentsply Sirona is subject to the risk of work
stoppages and other
relations matters. Any
labor
prolonged work stoppage or strike at any one of
Dentsply Sirona’s principal
facilities could have a
negative impact on Dentsply Sirona’s business,
financial condition, or results of operations.
are
Dentsply Sirona has developed and must continue
to maintain internal controls.
of
or
on
the
over
fraud.
control
internal
prevent
possibility
reporting may
Effective internal controls are necessary for us to
to Dentsply Sirona’s
provide assurance with respect
financial reports and to effectively prevent
If
Dentsply Sirona cannot provide reasonable assurance
with respect to Dentsply Sirona’s financial reports and
effectively prevent
fraud, Dentsply Sirona’s operating
results could be harmed. The Sarbanes-Oxley Act of
2002 requires Dentsply Sirona to furnish a report by
financial
management
reporting, including managements’ assessment of the
Internal control over
effectiveness of such control.
financial
detect
not
its certain limitations,
misstatements because of
the
including
circumvention or overriding of controls, or fraud. As a
result, even effective internal controls may not provide
reasonable assurances with respect to the preparation
and presentation of financial statements. In addition,
projections of any evaluation of effectiveness of internal
control over financial reporting to future periods are
subject to the risk that the control may become either
obsolete or
inadequate as a result of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
If Dentsply
Sirona fails to maintain adequate internal controls,
including any failure to implement required new or
improved controls, or if Dentsply Sirona experiences
difficulties in implementing new or revised controls,
Dentsply Sirona’s business and operating results could
be harmed and Dentsply Sirona could fail
to meet
Dentsply Sirona’s reporting obligations.
human
error,
Dentsply Sirona is subject to payments-related
risks.
Dentsply Sirona accepts payments using a variety
of methods,
including credit card, debit card, credit
accounts, direct debit from a customer’s bank account,
consumer invoicing, physical bank check, and payment
upon delivery. For existing and future payment options
Dentsply Sirona offers to Dentsply Sirona’s customers,
we may become subject to additional regulations and
compliance requirements (including obligations to
implement enhanced authentication processes that
could result in significant costs and reduce the ease of
use of our payments products), as well as fraud. For
certain payment methods,
including credit and debit
cards, Dentsply Sirona pays interchange and other
fees, which may increase over time and raise Dentsply
Sirona’s operating costs and lower profitability.
Dentsply Sirona relies on third parties to provide certain
payment methods and payment processing services,
including the processing of credit cards, debit cards,
electronic checks, and promotional financing. In each
it could disrupt Dentsply Sirona’s business if
case,
these companies become unwilling or unable to provide
these services to Dentsply Sirona. We are also subject
to payment card association operating rules, including
data security rules, certification requirements, and rules
governing electronic funds transfers, which could
change or be reinterpreted to make it difficult or
impossible for us to comply. If Dentsply Sirona fails to
comply with these rules or requirements, or if Dentsply
Sirona’s data security systems are breached or
compromised, Dentsply Sirona may be liable for card
issuing banks’ costs, subject
to fines and higher
transaction fees, and lose Dentsply Sirona’s ability to
accept credit and debit card payments from Dentsply
Sirona’s customers, process electronic funds transfers,
or
types of online payments, and
Dentsply Sirona’s business and operating results could
be adversely affected.
facilitate other
Item 1B. Unresolved Staff Comments
None.
23
Item 2. Properties
The following is a listing of Dentsply Sirona’s principal manufacturing and distribution locations at
December 31, 2016:
Location
United States:
Milford, Delaware(1)
Sarasota, Florida(2)
Des Plaines, Illinois(1)
Waltham, Massachusetts(2)
Long Island City, New York(2)
Charlotte, North Carolina(2)
Maumee, Ohio(1)
Lancaster, Pennsylvania(3)
York, Pennsylvania(1)
York, Pennsylvania(1)
Johnson City, Tennessee(1)
Foreign:
Hasselt, Belgium(1)
Petropolis, Brazil(1)
Pirassununga, Brazil(1)
Tianjin, China(1)
Bensheim, Germany(2)
Hanau, Germany(1)
Konstanz, Germany(1)
Mannheim, Germany(2)
Munich, Germany(1)
Radolfzell, Germany(3)
Rosbach, Germany(1)
Bar Lev Industrial Park, Israel(2)
Badia Polesine, Italy(1)
Otawara, Japan(1) (2)
Mexicali, Mexico(2)
Venlo, Netherlands(3)
Katikati, New Zealand(1)
Warsaw, Poland(1)
Las Piedras, Puerto Rico(1)
Mölndal, Sweden(1) (2)
Ballaigues, Switzerland(1)
Function
Leased
or Owned
Manufacture of dental consumable products
Manufacture of orthodontic accessory products
Manufacture and assembly of dental handpieces
Manufacture and distribution of dental implant products
Manufacture of dental technology products
Distribution of dental technology products
Manufacture and distribution of investment casting products
Distribution of dental products
Manufacture and distribution of artificial teeth and other dental
consumable 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 artificial teeth, dental
consumable products and endodontic material
Owned
Owned
Leased
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Manufacture and distribution of artificial teeth
Owned/Leased
Manufacture and distribution of dental products
Manufacture and distribution of dental equipment
Manufacture and distribution of precious metal dental alloys,
dental ceramics and dental implant products
Manufacture and distribution of dental consumable products
Leased
Owned
Owned
Owned
Manufacture and distribution of dental implant products
Owned/Leased
Manufacture and distribution of endodontic instruments and
materials
Distribution of dental products
Manufacture and distribution of dental ceramics
Manufacture and distribution of dental implant products
Manufacture and distribution of dental consumable products
Manufacture and distribution of precious metal dental alloys,
dental consumable products and orthodontic products
Manufacture and distribution of orthodontic products and
materials
Distribution of dental consumable products
Manufacture of dental consumable products
Manufacture and distribution of dental consumable products
Manufacture of crown and bridge materials
Manufacture and distribution of dental implant products and
healthcare consumable products
Manufacture and distribution of endodontic instruments, plastic
components and packaging material
Owned
Leased
Owned
Owned/Leased
Owned/Leased
Owned
Leased
Leased
Leased
Owned
Owned
Owned
Owned
Ankara, Turkey(1)
Manufacture and distribution of healthcare consumable products
Owned
(1) These properties are included in the Dental and Healthcare Consumables segment.
(2) These properties are included in the Technologies segment.
(3) This property is a distribution warehouse not managed by named segments.
24
Item 3. Legal Proceedings
Incorporated by reference to Part II, Item 8, and
Note 19, Commitments and Contingencies, in the Notes
to Consolidated Financial Statements in Item 15 of this
Form 10-K.
Item 4. Mine Safety Disclosure
Not Applicable
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 international locations. Most of these sites around
the world that are used exclusively for sales and
distribution are leased.
The Company
corporate
also
headquarters located in York, Pennsylvania and leases
its international headquarters in Salzburg, Austria.
owns
its
Dentsply Sirona believes that its properties and
facilities are well maintained and are generally suitable
and adequate for the purposes for which they are used.
25
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
DENTSPLY SIRONA INC. AND SUBSIDIARIES
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 indicated, 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
2016
First Quarter . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Third Quarter
. . . . . . . . . . . . . . . . . . . .
Fourth Quarter
2015
First Quarter . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Third Quarter
. . . . . . . . . . . . . . . . . . . .
Fourth Quarter
$63.68
65.83
65.16
62.92
$53.85
53.72
57.61
63.45
$53.43
58.84
58.57
55.01
$49.42
49.81
50.09
49.48
$61.63
62.04
59.43
57.73
$50.89
51.55
50.57
60.85
Cash
Dividend
Declared
$0.0775
0.0775
0.0775
0.0775
$0.0725
0.0725
0.0725
0.0725
Approximately 123,579 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. In addition, the Company
estimates, based on information supplied by its transfer agent, that there are 298 holders of record of the
Company’s common stock.
Stock Repurchase Program
At December 31, 2016, the Company had authorization to maintain up to 39.0 million shares of treasury stock
under the stock repurchase program as approved by the Board of Directors on September 21, 2016. 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, 2016:
Period
(in millions, except per share amounts)
October 1, 2016 to October 31, 2016 . . . . . . . . .
November 1, 2016 to November 30, 2016 . . . . . .
December 1, 2016 to December 31, 2016 . . . . . .
Total Number
of Shares
Purchased
Average Price
Paid Per
Share
Total Cost
of Shares
Purchased
Number of
Shares that
May Yet be
Purchased
Under the Stock
Repurchase
Program
0.9
0.7
0.4
2.0
$58.28
59.97
57.90
$58.81
$ 51.4
42.2
21.9
$115.5
5.3
4.8
4.6
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, 2016:
Plan Category
(in millions, except share price)
Equity compensation plans approved by security holders
26
Securities to Be
Issued Upon
Exercise of
Outstanding
Options
Weighted Average
Exercise Price
per Share
Securities
Available for
Future Issuance
10.3
$41.08
36.4
Performance Graph
The graph below compares DENTSPLY SIRONA Inc.’s cumulative 5-Year total shareholder return on
common stock with the cumulative total returns of the NASDAQ Composite index, the S&P 500 index, and the
S&P Health Care index. The graph tracks the performance of a $100 investment in DENTSPLY SIRONA’s
common stock and in each index (with the reinvestment of all dividends) from 12/31/2011 to 12/31/2016.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among DENTSPLY SIRONA Inc., the NASDAQ Composite Index,
the S&P 500 Index and the S&P Health Care Index
$250
$230
$210
$190
$170
$150
$130
$110
$90
$70
$50
12/11
12/12
12/13
12/14
12/15
12/16
DENTSPLY SIRONA Inc.
NASDAQ Composite
S&P 500
S&P Health Care
*$100 invested on 12/31/11 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
DENTSPLY SIRONA Inc. . . . .
NASDAQ Composite . . . . . . .
S&P 500 . . . . . . . . . . . . . . .
S&P Health Care . . . . . . . . .
12/11
100.00
100.00
100.00
100.00
12/12
113.85
116.41
116.00
117.89
12/13
140.15
165.47
153.58
166.76
12/14
154.85
188.69
174.60
209.02
12/15
177.84
200.32
177.01
223.42
12/16
169.58
216.54
198.18
217.41
27
Item 6. Selected Financial Data
DENTSPLY SIRONA INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and should be read in conjunction with, the
Consolidated Financial Statements, including the notes thereto, and Management’s Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this Form 10-K.
(in millions, except per share amounts, days and percentages)
Statement of Operations Data:
2016(a)
Year ended December 31,
2014
2015
2013
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net sales, excluding precious metal content(b) . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
Restructuring and other costs . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Dentsply Sirona . . . . . .
$ 3,745.3
3,681.0
2,000.9
23.2
454.7
440.9
431.4
429.9
$
$2,674.3
2,581.5
1,517.2
64.7
375.2
329.7
251.1
$ 251.2
$2,922.6
2,792.7
1,599.8
11.1
445.6
404.4
322.9
$ 322.9
$2,950.8
2,771.7
1,577.4
13.4
419.2
369.3
318.2
$ 313.2
2012
$2,928.4
2,714.7
1,556.4
25.7
381.9
330.7
318.5
$ 314.2
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.97
1.94
1.79
1.76
2.28
2.24
2.20
2.16
2.22
2.18
Cash dividends declared per common share . . . . . .
0.310
0.290
0.265
0.250
0.220
Weighted Average Common Shares Outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218.0
221.6
140.0
142.5
141.7
144.2
142.7
145.0
141.9
143.9
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(c)
. . . . .
Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Return on average equity . . . . . . . . . . . . . . . . .
Total net debt to total capitalization(d) . . . . . . . . . .
383.9
799.8
8,909.6
11,656.1
1,532.2
8,125.9
284.6
558.8
2,588.3
4,402.9
1,153.1
2,339.4
151.6
588.8
2,760.1
4,646.5
1,261.9
2,322.2
75.0
637.2
3,076.9
5,073.6
1,471.6
2,578.0
80.1
614.7
3,041.6
4,966.8
1,515.5
2,249.4
8.2%
12.4%
10.8%
27.1%
13.2%
32.3%
13.0%
35.1%
15.2%
39.0%
Other Data:
Depreciation and amortization . . . . . . . . . . . . . .
Cash flows from operating activities . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . .
Interest expense (income), net
. . . . . . . . . . . . . .
Inventory days . . . . . . . . . . . . . . . . . . . . . . . .
Receivable days . . . . . . . . . . . . . . . . . . . . . . .
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . .
$
271.7
563.4
125.0
33.9
113
58
2.2%
$ 122.9
497.4
72.0
53.7
110
54
23.4%
$ 129.1
560.4
99.6
41.3
113
55
20.1%
$ 127.9
417.8
100.3
41.5
114
56
14.1%
$ 129.2
369.7
92.1
48.1
106
53
2.7%
(a)
Includes the results of the Sirona merger from February 29, 2016 through December 31, 2016. Information
prior to February 29, 2016 refers to DENTSPLY International Inc only.
(b) 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.
(c) Total debt amounts shown are net of deferred financing costs.
(d) The Company defines net debt as total debt, including current and long-term portions less deferred financing
costs, less cash and cash equivalents and total capitalization as the sum of net debt plus equity.
28
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
OPERATIONS
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,
the
and should be read in conjunction with,
Consolidated Financial Statements and Notes to
Consolidated Financial Statements contained in Items 8
and 15 of
this Form 10-K. The following discussion
includes forward-looking statements that involve certain
“Forward-Looking
risks
Statements” in the beginning of this Form 10-K. The
MD&A includes the following sections:
uncertainties.
See
and
•
•
•
•
Business — a general description of Dentsply
Sirona’s business and how performance is
measured;
Results of Operations — an analysis of the
Company’s consolidated results of operations
for
the three years presented in the
Consolidated Financial Statements;
Critical Accounting Estimates — a discussion
require critical
of accounting policies that
judgments and estimates; and
Liquidity and Capital Resources — an
analysis of cash flows; debt and other
contractual
obligations;
obligations.
aggregate
and
On February 29, 2016, DENTSPLY International
Inc. merged with Sirona Dental Systems, Inc. (“Sirona”)
(the “Merger”) The
to form Dentsply Sirona Inc.
accompanying financial
information for the Company
for the year ended December 31, 2016, include the
results of operations for Sirona for
the period
February 29, 2016 to December 31, 2016.
References to the “combined business” or the
“combined businesses” are included below to provide
comparisons of net sales performance from year to
year as if the businesses were combined on January 1,
2015.
2016 Operational Highlights
•
The Company closed its merger between
Inc. and Sirona
DENTSPLY International
Dental Systems, Inc. on February 29, 2016
and established Dentsply Sirona as The
Dental Solutions Company™ and the largest
29
•
•
•
•
manufacturer of dental products for
the
professional dental market. The Company is
best positioned to foster the development of
differentiated integrated solutions for general
practitioners and specialists.
For the year ended December 31, 2016, net
sales, excluding precious metal content,
increased 42.6% compared to prior year. The
increase in sales primarily reflects the impact
of consolidating ten months of Sirona’s sales.
the year ended December 31, 2016,
For
sales of our combined businesses (a non-US
GAAP measure as referenced above), grew
3.6% on a constant currency basis. This
includes a benefit of 1.7% from net
acquisitions and was unfavorably impacted
by discontinued products by approximately 50
basis points, which results in internal growth
of 2.4%.
attributable
For the year ended December 31, 2016, net
income
to Dentsply Sirona
increased 71.2%. Earnings per diluted share
of $1.94 increased by 10.2% from $1.76 in
the prior year. On an adjusted basis (a
non-US GAAP measure as defined under the
heading “Net Income attributable to Dentsply
Sirona”),
income grew
64.7% and earnings per diluted share grew
5.7% to $2.78 from $2.62 in the prior year.
The Company’s results reflect a significant
earnings
rate
changes compared to the prior year of
approximately 3.0%, or $0.08 per diluted
share.
full year 2016 net
from currency
headwind
of
of
the
certain
planning
Company
elimination
In 2016, the Company initiated merger and
integration activities to capture cost and
revenue synergies. The Company completed
corporate
the
redundancies,
country
consolidation activities and the renegotiating
of supply contracts with vendors. Additionally,
reorganization
initiated
the
activities that
include manufacturing and
logistics. The Company achieved tax savings
as it realized complementary tax attributes of
the combined businesses. With regard to
revenue synergies, Dentsply Sirona launched
combined commercial activities, such as
developing
bundling
cross-selling opportunities.
Investments in
research and development have yielded new
products and solutions which is expected to
generate sales growth in the future.
products
and
During 2016, the Company deployed cash in
excess of $1.2 billion as it returned cash to
shareholders
share
repurchases and dividend payments, as well
through
the
as
strengthened
business
common
through
acquisitions. During 2016,
the Company
completed two acquisitions with an aggregate
purchase price of $341.1 million,
including
the acquisition of MIS Implants Technologies
Ltd. (“MIS”), a manufacturer of dental implant
systems, and a small acquisition of a
healthcare consumable business. In addition,
the Company repurchased $813.9 million of
common shares outstanding in 2016.
Company Profile
the
Sirona
world’s
Dentsply
largest
is
manufacturer of professional dental products and
technologies, with a 130-year history of innovation and
industry and patients worldwide.
service to the dental
Dentsply Sirona develops, manufactures, and markets
a comprehensive solutions offering including dental and
oral health products as well as other consumable
medical devices under a strong portfolio of world class
brands. As The Dental Solutions Company™, Dentsply
Sirona’s products provide innovative, high-quality and
effective solutions to advance patient care and deliver
better, safer and faster dentistry. Dentsply Sirona’s
global headquarters is located in York, Pennsylvania,
and the international headquarters are based in
Salzburg, Austria. The Company’s shares are listed in
the United States on NASDAQ under the symbol XRAY.
BUSINESS
The Company operates in two business segments,
and
Consumables
Healthcare
Dental
and
Technologies.
responsibility
The Dental and Healthcare Consumables segment
includes
the worldwide design,
for
manufacture, sales and distribution of the Company’s
Dental and Healthcare Consumable Products which
include preventive, restorative, instruments, endodontic,
and laboratory dental products as well as consumable
medical device products.
The Technologies segment is responsible for the
worldwide design, manufacture, sales and distribution
of the Company’s Dental Technology Products which
includes dental
implants, CAD/CAM systems, imaging
systems, treatment centers and orthodontic products.
Principal Measurements
by
(2)
The
used
principal measurements
the
Company in evaluating its business are: (1) constant
currency sales growth by segment and geographic
region;
internal sales growth by segment and
geographic region; and (3) adjusted operating income
and margins of each reportable segment, which
excludes the impacts of purchase accounting, corporate
items to enhance the
expenses, and certain other
results period to period. These
comparability of
in
not
principal measurements
generally
principles
accordance with
are
accounting
calculated
accepted in the United States; therefore, these items
represent non-US GAAP measures. These non-US
GAAP measures may differ from other companies and
should not be considered in isolation from, or as a
substitute for, measures of
financial performance
prepared in accordance with US GAAP.
is
impact
calculated by
The Company defines “constant currency” sales
growth as the increase or decrease in net sales from
period to period excluding precious metal content and
the impact of changes in foreign currency exchange
comparing
rates. This
current-period revenues to prior-period revenues, with
both periods converted at
to local
currency average foreign exchange rate for each month
for the currencies in which the
of
Company does business. The Company defines
“internal” sales growth as constant currency sales
growth excluding the impacts of net acquisitions and
divestitures, Merger
and
discontinued products.
the prior period,
the U.S. dollar
accounting
impacts
Business Drivers
The primary drivers of
internal growth include
macroeconomic factors, global dental market growth,
innovation and new product launches by the Company,
as well as continued investments in sales and
including clinical education.
marketing resources,
the Company’s ability to
Management believes that
execute its strategies has allowed it to grow faster than
the underlying dental market.
The Company has a focus on maximizing
operational efficiencies on a global basis. The
Company has expanded the use of technology as well
as process improvement initiatives to enhance global
efficiency.
In addition, management continues to
evaluate the consolidation of operations and functions,
as part of integration activities, to further reduce costs.
The Company believes that
the benefits from these
global efficiency and integration initiatives will improve
the cost structure and help mitigate the impacts of
rising costs such as energy, employee benefits and
regulatory oversight and compliance.
that
it will
The Company expects
record
restructuring charges,
from time to time, associated
with such initiatives. These restructuring charges could
be material
to the Company’s consolidated financial
statements and there can be no assurance that the
target adjusted operating income margins will continue
to be achieved.
its manufacturing,
In October 2016, the Company announced that it
is proposing plans in Germany to reorganize and
logistics and
combine portions of
distribution networks within both of
the Company’s
the
segments. As required under German law,
Company has entered into a statutory co-determination
process under which it will collaborate with the
the
appropriate
groups
define
jointly
labor
to
30
infrastructure and staffing adjustments necessary to
this initiative. The Company also initiated
support
the world. The
similar actions in other
regions of
Company estimates the cost of
these initiatives to
range up to $83 million, primarily for severance related
benefits for employees, which is expected to be
incurred as actions are implemented over the next two
years.
support
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 the dentistry and
consumable medical device markets in which the
Company operates. As a result,
the Company
to pursue research and development
continues
development,
technological
to
initiatives
research
including
collaborations with
institutions and dental schools.
the
Company
technologies
developed by third parties. Although the Company
believes these activities will
lead to new innovative
dental, healthcare consumable and dental technology
products, they involve new technologies and there can
be no assurance that commercialized products will be
developed.
In addition,
purchases
licenses
various
and
The Company’s business is subject to quarterly
fluctuations of consolidated net sales and net income.
Price increases, promotional activities as well as
inventory management contribute to this
distributor
fluctuation. The Company typically implements most of
its price increases in October or January of a given
year across most of
its businesses. Distributor
inventory levels tend to increase in the period leading
up to a price increase and decline in the period
following the implementation of a price increase.
Required minimum purchase commitments under
agreements with key distributors may
increase
inventory levels at those distributors to the extent that
future purchase commitments may not be met and
could impact the Company’s consolidated net sales and
net income in a given period or over multiple periods. In
addition, the Company may from time to time, engage
relationships that could cause
in new distributor
quarterly fluctuations of consolidated net sales and net
income. Any of these fluctuations could be material to
the Company’s consolidated financial statements.
product
the Company’s
The Company will continue to pursue opportunities
to
offerings,
expand
technologies and sales and service infrastructure
through partnerships and acquisitions. Although the
professional dental and the consumable medical device
in which the Company operates have
markets
they remain fragmented.
experienced consolidation,
Management believes that
there will continue to be
adequate opportunities to participate as a consolidator
in the industry for the foreseeable future.
The Company has two exclusive distribution
agreements with Patterson for the marketing and sales
31
In order
2017 was
of certain legacy Sirona products and equipment in the
in
United States and and one similar agreement
to maintain exclusivity, certain
Canada.
purchase targets had to be achieved.
In the fourth
quarter 2016, the decision not to extend the exclusivity
beyond September
announced. The
Company’s relationship with Patterson remains strong,
and the Company expects to continue to distribute the
products and equipment underlying the agreements
through Patterson on a non-exclusive basis. However,
the disruption caused by the announcement of
the
termination of exclusivity, as well as a reduction in
Patterson sales resources, negatively impacted fourth
quarter sales. Additionally, Patterson began to reduce
inventories in both the United States and Canada,
which further negatively impacted the Company’s
reported sales in the fourth quarter by approximately
$30 million. These factors are expected to continue in
2017. The Company is evaluating its options for
additional channels of distribution for such products,
although no firm decisions have been reached as of the
date of this filing. The Company anticipates that the
continuation
could
unfavorably impact sales in 2017 by approximately $50
million as Patterson reduces inventory in some periods
and as other market channels are brought on-line in
other periods. Notwithstanding the foregoing,
the
Company believes end-user demand for its products
continues to be strong.
reduction
inventory
the
of
Impact of Foreign Currencies and Interest Rates
Due to the Company’s significant
international
presence, movements in foreign exchange and interest
the Consolidated Statements of
rates may impact
Operations. With approximately two thirds of
the
Company’s net sales located in regions outside the
United States, the Company’s consolidated net sales
are impacted negatively by the strengthening or
positively impacted by the weakening of the U.S. dollar.
Additionally, movements in certain foreign exchange
and interest rates may unfavorably or favorably impact
the Company’s results of operations, financial condition
and liquidity. For the year ended December 31, 2016,
net sales, excluding precious metal content, were
unfavorably impacted by approximately 1.2% and
earnings per diluted common share by approximately
$0.08 due to movements in foreign currency exchange
rates.
Reclassification of Prior Year Amounts
Certain reclassifications have been made to prior
years’ data in order
to conform to current year
presentation. Specifically, during the March 31, 2016
quarter,
reporting
responsibilities as a result of the Merger and changed
the management structure. The segment
information
reflects the revised structure for all periods shown.
Company
realigned
the
RESULTS OF OPERATIONS
2016 Compared to 2015
Net Sales
The discussion below summarizes the Company’s
sales growth which excludes precious metal content,
into the following components: (1) impact of the Merger;
and (2) the results of the “combined businesses” as if
the businesses were merged on January 1, 2015.
These disclosures of net sales growth provide the
reader with sales results on a comparable basis
between periods.
Management believes that the presentation of net
sales, excluding precious metal content, provides
useful
information to investors because a portion of
Dentsply Sirona’s net sales is comprised of sales of
precious metals generated through sales of
the
Company’s 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
(in millions, except percentage amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Precious metal content of sales . . . . . . . . . . . . .
. . . . . . . . .
Net sales, excluding precious metal content
Net sales, excluding precious metal content, for
the year ended December 31, 2016 were $3,681.0
million, an increase of $1,099.5 million from the year
ended December 31, 2015, as reported by legacy
DENTSPLY. This excludes approximately $13.5 million
of revenue that was eliminated in fair value purchase
accounting adjustments to deferred income.
Sales related to precious metal content declined
30.7% during 2016, which was primarily related to the
lines and to a lesser
discontinued refinery product
extent the continued reduction in the use of precious
metal alloys in dentistry.
(in millions, except percentage amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: precious metal content of sales . . . . . . . . . . . . .
Net sales, excluding precious metal content
. . . . . . . . .
Sirona net sales(a)
. . . . . . . . . . . . . . . . . . . . . . . .
Merger related adjustments(b)
. . . . . . . . . . . . . . . .
Elimination of intercompany net sales . . . . . . . . . . .
Non-US GAAP combined business, net sales, excluding
earnings, Dentsply Sirona reports net sales both with
to show the
and without precious metal content
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
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.
it
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,
The
Company’s definitions and calculations of net sales,
excluding precious metal content, and other operating
measures derived using net sales, excluding precious
metal content, may not necessarily be the same as
those used by other companies.
precious metal
excluding
content.
Year Ended December 31,
2016
2015
$ Change
% Change
$3,745.3
64.3
$3,681.0
$2,674.3
92.8
$2,581.5
$1,071.0
(28.5)
$1,099.5
40.0%
(30.7%)
42.6%
impacted
and was
unfavorably
For the year ended December 31, 2016, sales of
our combined businesses grew 3.6% on a constant
currency basis. This includes a benefit of 1.7% from net
acquisitions
by
discontinued products by approximately 50 basis points,
which leads to internal growth of 2.4%. Net sales,
excluding precious metal content, were negatively
impacted by approximately 90 basis points due to the
strengthening of
the U.S. dollar over the prior year
period. A reconciliation of reported net sales to net
the
sales, excluding precious metal content, of
combined business for the year ended December 31,
2016 and 2015, respectfully, is as follows:
Year Ended December 31,
2016
2015
$ Change
% Change
$3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
$2,674.3
92.8
2,581.5
1,172.5
—
(2.3)
$ 1,071.0
(28.5)
1,099.5
(1,011.8)
13.5
1.8
40.0%
(30.7%)
42.6%
NM
NM
NM
precious metal content
. . . . . . . . . . . . . . . . . . . .
$3,854.7
$3,751.7
$
103.0
2.7%
(a) Represents Sirona sales for January and February 2016, and the year ended December 31, 2015.
32
(b) Represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under
business combination accounting standards to make the 2016 and 2015 non-U.S. GAAP combined business
results comparable.
NM — Not meaningful
Sales Growth by Region
Net sales, excluding precious metal content, for the year ended December 31, 2016 and 2015, respectfully,
by geographic region is as follows:
Year Ended December 31,
2016
2015
$ Change
% Change
(in millions, except percentage amounts)
United States . . . . . . . . . . . . . . . . . . . . . . . .
Europe . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rest of World . . . . . . . . . . . . . . . . . . . . . . . .
$1,306.4
1,421.7
952.9
$ 958.8
1,065.3
557.4
$347.6
356.4
395.5
36.3%
33.5%
71.0%
A reconciliation of reported net sales to net sales, excluding precious metal content, of the combined business
by geographic region for the year ended December 31, 2016 and 2015, respectfully, is as follows:
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: precious metal content of sales . . . . . . . . .
Net sales, excluding precious metal content
. . . .
Sirona net sales(a)
. . . . . . . . . . . . . . . . . . . . .
Merger related adjustments(b)
. . . . . . . . . . . .
Elimination of intercompany net sales . . . . . . .
Non-US GAAP combined business, net sales,
Year Ended December 31, 2016
United States
Europe
$1,311.6
5.2
1,306.4
60.5
11.9
(0.1)
$1,463.2
41.5
1,421.7
59.4
1.6
(0.4)
Rest of
World
$970.5
17.6
952.9
40.8
—
—
Total
$3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
excluding precious metal content
. . . . . . . . . .
$1,378.7
$1,482.3
$993.7
$3,854.7
(a) Represents Sirona sales for January and February 2016
(b) Represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under
business combination accounting standards to make the 2016 and 2015 non-U.S. GAAP combined business
results comparable.
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: precious metal content of sales . . . . . . . . .
Net sales, excluding precious metal content
. . . .
Sirona net sales(a)
. . . . . . . . . . . . . . . . . . . . .
Elimination of intercompany net sales . . . . . . . . .
Non-US GAAP combined business, net sales,
Year Ended December 31, 2015
United States
Europe
$ 965.9
7.1
958.8
406.4
(0.1)
$1,125.7
60.4
1,065.3
394.0
(2.2)
Rest of
World
$582.7
25.3
557.4
372.1
—
Total
$2,674.3
92.8
2,581.5
1,172.5
(2.3)
excluding precious metal content
. . . . . . . . . .
$1,365.1
$1,457.1
$929.5
$3,751.7
(a) Represents Sirona sales for the year ended December 31, 2015.
United States
increased by 36.3% for
Reported net sales, excluding precious metal
content,
the year ended
December 31, 2016 as compared to the year ended
December 31, 2015. This increase reflects sales of
$352.3 million as a result of
the Merger and other
acquisitions, primarily the consolidation of the Sirona
ten months.
businesses
for
approximately $11.9 million of
eliminated
adjustments to deferred income.
value
fair
in
This
excludes
revenue that was
accounting
purchase
For the year ended December 31, 2016, sales of
our combined businesses grew 1.0% on a constant
currency basis. This includes a benefit of 2.3% from net
33
and was
unfavorably
acquisitions
by
discontinued products by approximately 40 basis points,
which results in a negative internal sales growth rate of
0.9%. This was driven by lower sales in the
Technologies segment and was the result of
lower
purchases by a dealer compared to the prior period.
impacted
Europe
increased by 33.5% for
Reported net sales, excluding precious metal
content,
the year ended
December 31, 2016 as compared to the year ended
December 31, 2015. This increase reflects sales of
$361.6 million as a result of
the Merger and other
acquisitions, primarily the consolidation of the Sirona
excludes
ten months.
for
businesses
revenue that was
approximately $1.6 million of
eliminated
accounting
adjustments to deferred income.
purchase
value
This
fair
in
For the year ended December 31, 2016, sales of
our combined businesses grew 3.2% on a constant
currency basis. This includes a benefit of 1.0% from net
acquisitions
by
discontinued products by approximately 70 basis points,
which results in internal growth of 2.9%. Net sales,
excluding precious metal content, were negatively
unfavorably
and was
impacted
by
approximately
the
impacted
the U.S. dollar over the prior year
strengthening of
period. Internal sales growth in this region was primarily
driven by higher demand in the Dental and Healthcare
Consumables segment.
1.5% due
to
Rest of World
increased by 71.0% for
Reported net sales, excluding precious metal
content,
the year ended
December 31, 2016 as compared to the year ended
December 31, 2015. This increase reflects sales of
$378.7 million as a result of
the Merger and other
acquisitions, primarily the consolidation of the Sirona
businesses for ten months.
and was
unfavorably
For the year ended December 31, 2016, sales of
our combined businesses grew 8.2% on a constant
currency basis. This includes a benefit of 1.9% from net
acquisitions
by
discontinued products by approximately 30 basis points,
which results in internal growth of 6.6%. Net sales,
excluding precious metal content, were negatively
impacted
the
strengthening of
the U.S. dollar over the prior year
period. Internal sales growth in this region was driven
by higher demand in both segments led by the
Technologies segment.
approximately
1.2% due
impacted
by
to
Gross Profit
(in millions, except percentage amounts)
Gross profit
Gross profit as a percentage of net sales, including
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
$ Change
% Change
$2,000.9
$1,517.2
$483.7
31.9%
precious metal content
. . . . . . . . . . . . . . . . . . . . .
53.4%
56.7%
Gross profit as a percentage of net sales, excluding
precious metal content
. . . . . . . . . . . . . . . . . . . . .
54.4%
58.8%
Gross profit as a percentage of net sales,
excluding precious metal content, decreased by 440
basis points for the year ended December 31, 2016 as
compared to the year ended December 31, 2015. This
decrease was the result of the roll-off of Merger related
fair value adjustments, Sirona’s lower gross profit rate,
and foreign currency, which negatively impacted the
rate by 610 basis points. The decrease was partially
offset by savings from the Company’s global efficiency
and integration program and favorable product pricing
during the year ended December 31, 2016 as
compared to the year ended December 31, 2015.
Operating Expenses
(in millions, except percentage amounts)
Selling, general and administrative expenses (“SG&A”) . .
Restructuring and other costs . . . . . . . . . . . . . . . . . .
SG&A as a percentage of net sales, including precious
Year Ended December 31,
2016
2015
$ Change
% Change
$1,523.0
23.2
$1,077.3
64.7
$445.7
(41.5)
41.4%
(64.1%)
metal content
. . . . . . . . . . . . . . . . . . . . . . . . . . .
40.7%
40.3%
SG&A as a percentage of net sales, excluding precious
metal content
. . . . . . . . . . . . . . . . . . . . . . . . . . .
41.4%
41.7%
34
SG&A Expenses
SG&A
research
including
expenses,
and
developing expenses, as a percentage of net sales,
excluding precious metal content, for the year ended
December 31, 2016 decreased 30 basis points
compared to the year ended December 31, 2015. The
decrease was primarily the result of Sirona’s lower
operating expense rate and savings
from the
Company’s global efficiency and integration program,
partially offset by increased amortization expense and
other costs related to the Merger.
Restructuring and Other Costs
restructuring and
The Company recorded net
the year ended
other costs of $23.2 million for
December 31, 2016 compared to $64.7 million for the
year ended December 31, 2015. In 2016, restructuring
costs were related to the closure and consolidation of
to streamline the Company’s
facilities in an effort
the Company’s
operations
leverage
better
and
resources. In 2015, the Company reorganized portions
of its laboratory business and associated manufacturing
capabilities within
and Healthcare
Consumables segment.
the Dental
its manufacturing,
In October 2016, the Company announced that it
is proposing plans in Germany to reorganize and
logistics and
combine portions of
the Company’s
distribution networks within both of
segments. As required under German law,
the
Company has entered into a statutory co-determination
process under which it will collaborate with the
appropriate
the
infrastructure and staffing adjustments necessary to
this initiative. The Company also initiated
support
the world. The
regions of
similar actions in other
Company estimates the cost of
these initiatives to
range up to $83 million, primarily for severance related
benefits for employees, which is expected to be
incurred as actions are implemented over the next two
years.
groups
define
jointly
labor
to
Other Income and Expenses
(in millions, except percentage amounts)
Net interest expense . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net
. . . . . . . . . . . . . . . . . .
Net interest and other expense . . . . . . . . . . . . . . . . .
$ 33.9
(20.1)
$ 13.8
$53.7
(8.2)
$45.5
$(19.8)
(11.9)
$(31.7)
(36.9%)
NM
Year Ended December 31,
2016
2015
$ Change
% Change
NM — Not meaningful
Net Interest Expense
Net
interest expense for
the year ended
December 31, 2016 was $19.8 million lower as
compared to the year ended December 31, 2015. The
decrease is a result of $15.5 million of costs incurred in
2015 related to a bond tender which was comprised of
a bond premium and tender fees paid of $8.5 million
and the acceleration of the discount on tendered bonds
and other fees of $7.0 million. Excluding the bond
tender expense, net interest expense was $4.2 million
lower in 2016 as compared to 2015 due to lower
average interest rates on lower average debt
levels
during 2016.
Other Expense (Income), Net
Other expense (income), net for the year ended
December 31, 2016 improved $11.9 million compared
to the year ended December 31, 2015. Other expense
(income), net for the year ended December 31, 2016
includes foreign exchange gain of $10.3 million and
$9.9 million of other non-operating income primarily due
to a legal settlement. Other income, net for the year
ended December 31, 2015 was $8.2 million, comprised
primarily of $5.2 million of foreign exchange gains, and
$3.0 million of other non-operating income.
Income Taxes and Net Income
(in millions, except per share and percentage amounts)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . .
2.2%
23.4%
$429.9
$ 1.94
$251.2
$ 1.76
$178.7
Year Ended December 31,
2016
2015
$ Change
35
Provision for Income Taxes
legacy
DENTSPLY
The Company’s effective tax rate for 2016 and
2015 was 2.2% and 23.4%, respectively. For the year
ended December 31, 2016, income taxes were a net
expense of $9.5 million. During the year, the Company
recorded a tax benefit from the release of a valuation
allowance on previously unrecognized tax assets
related to foreign interest deduction carryforwards of a
non-U.S.
of
approximately $72.6 million, resulting from the Merger.
The Company also recorded $0.8 million of tax expense
related to other discrete tax matters. Excluding the
impact of these tax matters, the Company’s effective
tax rate was 18.9%. The effective tax rate was
favorably impacted by the Company’s change in the
mix of consolidated earnings. Further
information
regarding the details of income taxes is presented in
Note 14, Income Taxes, in the Notes to Consolidated
Financial Statements in Item 15 of this Form 10-K.
subsidiary
The Company’s effective income tax rate for 2016
included the net impact of business combination related
costs and fair value adjustments, amortization of
purchased intangible assets,
restructuring program
related costs and other costs, credit risk and fair value
adjustments and income tax related adjustments which
impacted income before income taxes and the
provision for income taxes by $340.3 million and $153.1
million, respectively.
value adjustments,
The Company’s effective income tax rate for 2015
included the net impact of restructuring program related
costs and other costs, amortization of purchased
intangible assets, business combination related costs
and fair
related
adjustments, credit risk and fair value adjustments and
certain
an
unconsolidated affiliated company which impacted
income before income taxes and the provision for
income taxes by $153.0 million and $33.5 million,
respectively.
income tax
adjustments
related
value
fair
to
Net Income attributable to Dentsply Sirona
net
adjusted
discloses
In addition to the results reported in accordance
with US GAAP, the Company provides adjusted net
income attributable to Dentsply Sirona and adjusted
earnings per diluted common share (“adjusted EPS”).
The Company
income
attributable to Dentsply Sirona 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 may not be
indicative of past or future performance of the normal
operations of the Company and certain large non-cash
charges related to intangible assets either purchased or
combination. The
acquired
Company believes that
in
understanding underlying operating trends and cash
flow generation.
business
this information is helpful
through
a
36
Adjusted net
income and adjusted EPS are
important internal measures for the Company. Senior
management receives a monthly analysis of operating
results that includes adjusted net income and adjusted
EPS and the performance of the Company is measured
on this basis along with other performance metrics.
The adjusted net income attributable to Dentsply
Sirona consists of net income attributable to Dentsply
Sirona adjusted to exclude the following:
(1) Business combination related costs and fair
value adjustments. These adjustments include costs
related to integrating and consummating mergers and
recently acquired businesses, as well as costs, gains
and losses related to the disposal of businesses or
product lines. In addition, this category includes the roll
off to the consolidated statement of operations of fair
value adjustments related to business combinations,
except for amortization expense noted below. These
items are irregular in timing and as such may not be
the
indicative of past and future performance of
Company and are therefore excluded to allow investors
to better understand underlying operating trends.
and
contract
terminations
(2)Restructuring program related costs and other
costs. These adjustments include costs related to the
implementation of restructuring initiatives as well as
certain other costs. These costs can include, but are
not limited to, severance costs, facility closure costs,
lease
related
professional service costs, duplicate facility and labor
costs associated with specific restructuring initiatives,
as well as, legal settlements and impairments of assets.
These items 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.
costs,
of
excludes
purchased
adjustment
Amortization
intangible
(3)
assets. This
periodic
amortization expense related to purchased intangible
assets. Amortization expense has been excluded from
adjusted net income attributed to Dentsply Sirona to
allow investors to evaluate and understand operating
trends excluding these large non-cash charges.
the
(4) Credit risk and fair value adjustments. These
adjustments include both the cost and income impacts
of adjustments in certain assets and liabilities including
the Company’s pension obligations, 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.
(5) Certain fair value adjustments related to an
unconsolidated affiliated company. This adjustment
the
value
represents
adjustment
the
fair
of
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 degree of variability and may not be indicative of
the
the operating performance of
Company.
the affiliate or
(6)
Income tax
related adjustments. These
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, and
discrete tax items resulting from the implementation of
restructuring initiatives. 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 Sirona by diluted weighted-average
common shares outstanding. Adjusted net
income
attributable to Dentsply Sirona 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, 2016
Per Diluted
Common Share
Net Income
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . .
$429.9
$ 1.94
Pre-tax non-US GAAP adjustments:
Business combination related costs and fair value adjustments . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of the pre-tax non-US GAAP adjustments(a) . . . . . . . . . . . . .
Subtotal non-US GAAP adjustments . . . . . . . . . . . . . . . . . . . . . .
Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
162.2
155.3
17.0
5.8
(79.6)
260.7
(73.5)
$617.1
1.17
(0.33)
$ 2.78
(a) The tax amount was calculated using the applicable statutory tax rate in the tax jurisdiction where the non-US
GAAP adjustments were generated.
Year Ended December 31, 2015
Per Diluted
Common Share
Net Income
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . .
$251.2
$1.76
Pre-tax non-US GAAP adjustments:
Restructuring program related costs and other costs . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . .
Certain fair value adjustments related to an unconsolidated affiliated
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of the pre-tax non-US GAAP adjustments(a) . . . . . . . . . . . . .
Subtotal non-US GAAP adjustments . . . . . . . . . . . . . . . . . . . . . .
Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
92.9
43.7
13.3
8.3
(2.8)
(39.8)
115.6
6.3
$373.1
0.82
0.04
$2.62
(a) The tax amount was calculated using the applicable statutory tax rate in the tax jurisdiction where the non-US
GAAP adjustments were generated.
37
Adjusted Operating Income and Margin
Adjusted operating income and margin is another
important internal measure for the Company. Operating
income in accordance with US GAAP is adjusted for the
items noted above which are excluded on a pre-tax
basis to arrive at adjusted operating income, a non-US
GAAP measure. The adjusted operating margin is
calculated by dividing adjusted operating income by net
sales, excluding precious metal content.
Senior management receives a monthly analysis
includes adjusted operating
of operating results that
income. The performance of the Company is measured
on this basis along with the adjusted non-US GAAP
earnings noted above as well as other performance
metrics. This non-US GAAP measure may differ from
other companies and 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, 2016
Percentage of
Net Sales,
Excluding
Precious Metal
Content
Operating
Income (Loss)
(in millions, except percentage of net sales amount)
Operating income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP Operating Income . . . . . . . . . . . . . . . . . . . . . . .
$454.7
161.8
155.3
27.1
5.3
$804.2
12.4%
4.4%
4.2%
0.7%
0.1%
21.8%
Year Ended December 31, 2015
Percentage of
Net Sales,
Excluding
Precious Metal
Content
Operating
Income (Loss)
(in millions, except percentage of net sales amounts)
Operating income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP Operating Income . . . . . . . . . . . . . . . . . . . . . . .
$375.2
81.1
43.7
13.1
8.0
$521.1
14.5%
3.2%
1.7%
0.5%
0.3%
20.2%
Operating Segment Results
Net Sales, Excluding Precious Metal Content
(in millions, except percentage amounts)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,994.3
$1,686.7
$1,868.8
$ 712.7
$125.5
$974.0
6.7%
136.7%
Year Ended December 31,
2016
2015
$ Change % Change
Segment Operating Income
(in millions, except percentage amounts)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$544.5
$355.1
$470.1
$ 93.7
$ 74.4
$261.4
15.8%
279.0%
Year Ended December 31,
2016
2015
$ Change % Change
38
A reconciliation of reported net sales to net sales, excluding precious metal content, of the combined business
by segment for the year ended December 31, 2016 and 2015, respectfully, is as follows:
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: precious metal content of sales . . . . . . . . . . . . . . . . .
Net sales, excluding precious metal content . . . . . . . . . . . . .
Sirona net sales(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger related adjustments(b) . . . . . . . . . . . . . . . . . . . . .
Elimination of intercompany net sales . . . . . . . . . . . . . . . . .
Non-US GAAP combined business, net sales, excluding
Year Ended December 31, 2016
Dental and
Healthcare
Consumables
$2,058.1
63.8
1,994.3
15.7
—
(0.5)
Technologies
Total
$1,687.2
0.5
1,686.7
145.0
13.5
—
$3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
precious metal content
. . . . . . . . . . . . . . . . . . . . . . . . .
$2,009.5
$1,845.2
$3,854.7
(a) Represents Sirona sales for January and February 2016
(b) Represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under
business combination accounting standards to make the 2016 and 2015 non-U.S. GAAP combined business
results comparable.
(in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: precious metal content of sales . . . . . . . . . . . . . . . . .
Net sales, excluding precious metal content . . . . . . . . . . . . .
Sirona net sales(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Elimination of intercompany net sales . . . . . . . . . . . . . . . . .
Non-US GAAP combined business, net sales, excluding
Year Ended December 31, 2015
Dental and
Healthcare
Consumables
$1,961.0
92.2
1,868.8
112.1
(2.3)
Technologies
Total
$ 713.3
0.6
712.7
1,060.4
—
$2,674.3
92.8
2,581.5
1,172.5
(2.3)
precious metal content
. . . . . . . . . . . . . . . . . . . . . . . . .
$1,978.6
$1,773.1
$3,751.7
(a) Represents Sirona sales for the year ended December 31, 2015.
Dental and Healthcare Consumables
increased by 6.7% for
Reported net sales, excluding precious metal
content,
the year ended
December 31, 2016 as compared to the year ended
December 31, 2015. This increase reflects sales of
$106.4 million as a result of
the Merger and other
acquisitions, primarily the consolidation of the Sirona
businesses for ten months.
For the year ended December 31, 2016, sales of
our combined businesses grew 2.7% on a constant
currency basis. This includes a benefit of approximately
60 basis points from net acquisitions and was
unfavorably impacted by discontinued products by
approximately 80 basis points, which results in internal
growth of 2.9%. Net sales, excluding precious metal
content, were negatively impacted by approximately
1.1% due to the strengthening of the U.S. dollar over
the prior year period. Sales growth was led by Europe
and the Rest of World region.
The operating income increase for the year ended
December 31, 2016 as compared to 2015 reflects the
savings from the Company’s global efficiency and
integration program, as well as the impact of
the
Merger.
Technologies
Reported net sales, excluding precious metal
content, increased by $974.0 million for the year ended
December 31, 2016 as compared to the year ended
December 31, 2015. This increase is a result of the
Merger
the
consolidation of the Sirona businesses for ten months.
This excludes approximately $13.5 million of revenue
that was eliminated in fair value purchase accounting
adjustments to deferred income.
acquisitions,
primarily
other
and
For the year ended December 31, 2016, sales of
our combined businesses grew 4.6% on a constant
currency basis. This includes a benefit of 2.8% from net
acquisitions which results in internal growth of 1.8%.
Net sales, excluding precious metal content, were
negatively impacted by approximately 60 basis points
due to the strengthening of the U.S. dollar over the prior
39
year period. Sales growth in this segment
reflects
increased demand in the Rest of World region offset by
sales declines in the United State which reflects lower
purchases by a dealer compared to the prior year
period.
The operating income increase for the year ended
December 31, 2016 as compared to 2015 reflects the
impact of the Merger.
RESULTS OF OPERATIONS
2015 Compared to 2014
Net Sales
(in millions, except percentage amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Precious metal content of sales . . . . . . . . . . . .
Net sales, excluding precious metal content . . . . . . . .
$2,674.3
92.8
$2,581.5
$2,922.6
129.9
$2,792.7
$(248.3)
(37.1)
$(211.2)
(8.5%)
(28.6%)
(7.6%)
Year Ended December 31,
2015
2014
$ Change
% Change
For the year ended December 31, 2015, net sales,
excluding precious metal content decreased $211.2
million or 7.6% from the year end December 31, 2014.
The change in net sales excluding precious metals
content
reflects 9.5% unfavorable foreign currency
translation. Excluding the impact of unfavorable foreign
currency translation and excluding precious metal
content, net sales grew 1.9%. Sales related to precious
metal content declined 28.6% from the prior year period
which was primarily due to the continuing reduction in
refinery volumes and the declining use of precious
metal alloys in dentistry.
Constant Currency Sales Growth
The following table includes growth rates for net
sales, excluding precious metal content.
Internal sales growth . . . . . . . . . . . . . . . . . . . . . . .
Net acquisition (divestiture) sales growth . . . . . . . . . .
Constant currency sales growth . . . . . . . . . . . . . . . .
Year Ended December 31, 2015
United
States
3.1%
(0.5%)
2.6%
Europe
(0.3%)
—%
(0.3)%
Rest of
World
4.9%
0.4%
5.3%
Worldwide
2.0%
(0.1%)
1.9%
United States
During 2015, net sales, excluding precious metal
content,
increased by 2.6% on a constant currency
basis compared to 2014. Internal sales growth of 3.1%
was led by increased sales in the dental consumables
and dental specialty product categories. Internal growth
for the year ended December 31, 2015 was negatively
impacted by approximately 0.8% as a result of product
line discontinuations associated with the Company’s
global efficiency initiative.
Europe
During 2015, net sales, excluding precious metal
content, decreased by 0.3% on a constant currency
Internal sales growth was
basis compared to 2014.
negative 0.3% mostly as a result of a decrease in sales
of dental laboratory products and continued contraction
in the CIS region, partially offset by positive sales
growth in dental consumable and dental specialty
products categories. Internal growth for the year ended
December 31, 2015 was negatively impacted by
approximately 0.5% as a result of product
line
discontinuations associated with the Company’s global
efficiency initiative.
Rest of World
During 2015, net sales, excluding precious metal
content, increased 5.3% on a constant currency basis
compared to 2014. The internal sales growth of 4.9%
was led by the dental specialty product category.
Internal growth for the year ended December 31, 2015
was negatively impacted by approximately 0.3% as a
result of product line discontinuations associated with
the Company’s global efficiency initiative.
40
Gross Profit
(in millions, except percentage amounts)
Gross profit
Gross profit as a percentage of net sales, including
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2015
2014
$ Change
% Change
$1,517.2
$1,599.8
$(82.6)
(5.2%)
precious metal content
. . . . . . . . . . . . . . . . . . . .
56.7%
54.7%
Gross profit as a percentage of net sales, excluding
precious metal content
. . . . . . . . . . . . . . . . . . . .
58.8%
57.3%
Gross profit as a percentage of net sales,
excluding precious metal content, increased 150 basis
points during 2015 compared to 2014. The increase in
the gross profit rate was due to the favorable impact of
foreign currency, benefits from the Company’s global
efficiency initiative, favorable pricing and product mix
when compared to the year ended December 31, 2014.
Expenses
Selling, General and Administrative (“SG&A”) Expenses
(in millions, except percentage amounts)
SG&A expenses . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expenses as a percentage of net sales, including
. . . . . . . . . . . . . . . . . . . .
precious metal content
SG&A expenses as a percentage of net sales,
Year Ended December 31,
2015
2014
$ Change
% Change
$1,077.3
$1,143.1
$(65.8)
(5.8%)
40.3%
39.1%
excluding precious metal content
. . . . . . . . . . . . .
41.7%
40.9%
SG&A expenses as a percentage of net sales,
excluding precious metal content, increased 80 basis
points as compared to 2014 primarily as a result of the
fees mostly related to the
increase in professional
Company’s global efficiency initiative, merger and
acquisition related expenses and higher pension costs.
Restructuring and Other Costs
(in millions, except percentage amounts)
Restructuring and other costs . . . . . . . . . . . . . . . . .
$64.7
$11.1
$53.6
NM
Year Ended December 31,
2015
2014
$ Change
% Change
NM — Not meaningful
The Company recorded net
restructuring and
other costs of $64.7 million in 2015 compared to $11.1
million in 2014. On May 22, 2015,
the Company
announced that it reorganized portions of its laboratory
business and associated manufacturing capabilities
within the Dental and Healthcare Consumables
segment. During the year ended December 31, 2015,
the Company recorded $37.3 million of costs that
consist primarily of employee severance benefits
related to these actions. Also during the year ended
recorded
December
restructuring costs of $16.3 million within the
the Company
2015,
31,
segment
Technologies
consists primarily of
that
employee severance benefits related to the global
efficiency initiative.
In 2014,
the Company recorded restructuring
costs of $9.9 million related to the closure and
consolidation of facilities in an effort to streamline the
Company’s
the
and
Company’s resources. Restructuring and other costs
also includes expense of $1.2 million related to net
legal settlements.
operations
leverage
better
41
Other Income and Expenses
(in millions, except percentage amounts)
Net interest expense . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . .
Net interest and other expense . . . . . . . . . . . . . . . .
$53.7
(8.2)
$45.5
$41.3
(0.1)
$41.2
$12.4
(8.1)
$ 4.3
30.0%
NM
Year Ended December 31,
2015
2014
$ Change
% Change
NM — Not meaningful
Net Interest Expense
Net
interest expense for
the year ended
December 31, 2015 was $12.4 million higher as
compared to the year ended December 31, 2014. The
increase is a result of $15.5 million of costs incurred
related to the December 11, 2015 bond tender which
was comprised of a bond premium and tender fees paid
of $8.5 million and the acceleration of the discount on
fees of $7.0 million.
tendered bonds and other
Excluding the bond tender expense, net
interest
expense was $3.1 million lower in 2015 as compared to
2014 due to lower average debt
levels during 2015
partially offset by lower investment income compared to
the prior year.
Income Taxes and Net Income
Other Expense (Income), Net
Other expense (income), net for the year ended
December 31, 2015 improved $8.1 million compared to
the year ended December 31, 2014. Other expense
(income), net for the year ended December 31, 2015
includes foreign exchange gain of $5.1 million on the
sale of convertible bonds and $3.0 million of other
non-operating income. Other income, net for the year
ended December 31, 2014 was $0.1 million, comprised
primarily of $1.1 million of
interest and non-cash
income relating to fair value adjustments on cross
currency basis swaps not designated as hedges that
offset currency risk on intercompany loans, $2.5 million
of currency transaction losses, and $1.4 million of other
non-operating income.
Year Ended December 31,
2015
2014
$ Change
(in millions, except per share and percentage amounts)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23.4%
20.1%
Equity in net loss of unconsolidated affiliated company . . . . . . . . . .
$ (1.6)
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . .
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . .
$251.2
$ 1.76
$ (0.4)
$322.9
$ 2.24
$ (1.2)
$(71.7)
Provision for Income Taxes
The Company’s effective tax rate for 2015 and
2014 was 23.4% and 20.1%, respectively. During 2015,
the Company recorded tax expense of $5.6 million
the
related to prior year tax matters. During 2014,
Company recorded a tax benefit from the release of
valuation allowances on previously unrecognized tax
loss carryforwards and other deferred tax assets of
approximately $8.3 million, a tax benefit of $1.4 million
related to statutory tax rate changes and $4.5 million of
unfavorable tax effects related to prior year tax matters.
The Company’s effective income tax rate for 2015
includes the impact of restructuring program related
costs and other costs, amortization of purchased
intangible assets, business combination related costs
and fair value adjustments, credit risk and fair value
adjustments as well as various income tax adjustments
which impacted income before income taxes and the
provision for income taxes by $153.0 million and $33.5
million, respectively.
The Company’s effective income tax rate for 2014
includes the impact of amortization of purchased
intangible assets, restructuring program related costs
and other costs, business combination related costs
and fair value adjustments, credit risk and fair value
adjustments as well as various income tax adjustments
which impacted income before income taxes and the
provision for income taxes by $63.2 million and $23.9
million, respectively.
Equity in net loss of unconsolidated affiliated company
The Company’s 17% ownership investment of DIO
Corporation (“DIO”) resulted in a net loss of $1.6 million
and $0.3 million on an after-tax basis for the years
ended December 31, 2015 and 2014, respectively. The
equity earnings of DIO include the result of
mark-to-market changes related to the derivative
accounting for the convertible bonds issued by DIO to
the
Dentsply Sirona. The Company’s portion of
mark-to-market loss recorded through DIO’s net income
the year ended
was approximately $2.4 million for
42
December 31, 2015. For the year ended December 31,
the mark-to-market
the Company’s portion of
2014,
gain recorded through DIO’s net
income was
approximately $1.2 million. During the quarter ended
the Company sold the DIO
September 30, 2015,
the
convertible bonds. As part of
to
convertible
relinquish its two board seats on the DIO Board of
Directors. At December 31, 2015,
the Company no
longer has representation on the DIO Board of
Directors and as a result, the Company no longer has
influence on the operations of DIO. The
significant
Company uses the cost-basis method of accounting for
the remaining direct investment.
the disposition of
requested
the Company
bonds,
Net income attributable to Dentsply Sirona
In addition to the results reported in accordance
with US GAAP, the Company provides adjusted net
income attributable to Dentsply Sirona and adjusted
net
adjusted
discloses
earnings per diluted common share (“adjusted EPS”).
income
The Company
attributable to Dentsply Sirona 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 may not be
indicative of past or future performance of the normal
operations of the Company and certain large non-cash
charges related to intangible assets either purchased or
combination. The
acquired
Company believes that
in
understanding underlying operating trends and cash
flow generation.
business
this information is helpful
through
a
Adjusted net
income and adjusted EPS are
important internal measures for the Company. Senior
management receives a monthly analysis of operating
results that includes adjusted net income and adjusted
EPS and the performance of the Company is measured
on this basis along with other performance metrics.
Year Ended December 31, 2015
Per Diluted
Common Share
Net Income
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . .
$251.2
$1.76
Pre-tax non-US GAAP adjustments:
Restructuring program related costs and other costs . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . .
Certain fair value adjustments related to an unconsolidated affiliated
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of the pre-tax non-US GAAP adjustments(a) . . . . . . . . . . . . .
Subtotal non-US GAAP adjustments . . . . . . . . . . . . . . . . . . . . . .
Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
92.9
43.7
13.3
8.3
(2.8)
(39.8)
115.6
6.3
$373.1
0.82
0.04
$2.62
(a) The tax amount was calculated using the applicable statutory tax rate in the tax jurisdiction where the non-US
GAAP adjustments were generated.
Year Ended December 31, 2014
Per Diluted
Common Share
Net Income
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . .
$322.9
$ 2.24
Pre-tax non-US GAAP adjustments:
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . .
Certain fair value adjustments related to an unconsolidated affiliated
company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax impact of the pre-tax non-US GAAP adjustments(a) . . . . . . . . . . . . .
Subtotal non-US GAAP adjustments . . . . . . . . . . . . . . . . . . . . . .
Income tax related adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
47.9
12.5
3.5
(0.7)
(1.2)
(19.6)
42.4
(4.3)
$361.0
0.29
(0.03)
$ 2.50
(a) The tax amount was calculated using the applicable statutory tax rate in the tax jurisdiction where the non-US
GAAP adjustments were generated.
43
Adjusted Operating Income and Margin
Adjusted operating income and margin is another
important internal measure for the Company. Operating
income in accordance with US GAAP is adjusted for the
items noted above which are excluded on a pre-tax
basis to arrive at adjusted operating income, a non-US
GAAP measure. The adjusted operating margin is
calculated by dividing adjusted operating income by net
sales, excluding precious metal content.
Senior management receives a monthly analysis
includes adjusted operating
of operating results that
income. The performance of the Company is measured
on this basis along with the adjusted non-US GAAP
earnings noted above as well as other performance
metrics. This non-US GAAP measure may differ from
other companies and 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, 2015
Percentage of
Net Sales,
Excluding
Precious Metal
Content
Operating
Income (Loss)
(in millions, except percentage of net sales amount)
Operating income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . . . .
Credit risk and fair value adjustments . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted non-US GAAP Operating Income . . . . . . . . . . . . . . . . . . . . . . .
$375.2
81.1
43.7
13.1
8.0
$521.1
14.5%
3.2%
1.7%
0.5%
0.3%
20.2%
Year Ended December 31, 2014
Percentage of
Net Sales,
Excluding
Precious Metal
Content
Operating
Income (Loss)
(in millions, except percentage of net sales amounts)
Operating income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . .
Amortization of purchased intangible assets . . . . . . . . . . . . . . . . . . . .
Restructuring program related costs and other costs . . . . . . . . . . . . . . .
Business combination related costs and fair value adjustments . . . . . . . .
Adjusted non-US GAAP Operating Income . . . . . . . . . . . . . . . . . . . . . . .
$445.6
47.9
12.5
6.8
$512.8
16.0%
1.7%
0.5%
0.2%
18.4%
Operating Segment Results
Net Sales, Excluding Precious Metal Content
(in millions, except percentage amounts)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,868.8
$ 712.7
$2,013.2
$ 779.5
$(144.4)
$ (66.8)
(7.2%)
(8.6%)
Year Ended December 31,
2015
2014
$ Change % Change
Segment Operating Income
(in millions, except percentage amounts)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 470.1
93.7
$
$ 467.5
$ 111.3
$
2.6
$ (17.6)
0.6%
(15.8%)
Year Ended December 31,
2015
2014
$ Change % Change
44
Dental and Healthcare Consumables
Net sales, excluding precious metal content,
decreased $144.4 million, or 7.2%, during 2015 as
compared to 2014. On a constant currency basis, net
sales, excluding precious metal content,
increased
2.2% primarily due to sales growth in the Dental
Consumable businesses partially offset by softer sales
in the Dental Laboratory businesses as a result of
product
line discontinuations associated with the
Company’s global efficiency initiative.
Operating income improved $2.6 million or 0.6%
during 2015 compared to 2014. The improvement in
operating income was primarily the result of improved
gross margins partially offset by higher operating
expenses and negative foreign currency translation
within these businesses in aggregate.
Technologies
Net sales, excluding precious metal content,
decreased $66.8 million, or 8.6%, during 2015
compared to 2014. Sales increased on a constant
currency basis by 0.9%, led by increased sales in the
Implant business.
Operating income decreased $17.6 million or
15.8% during 2015 compared to 2014 as negative
foreign
operating
translation
improvements and income generated from internal
sales growth.
currency
offset
CRITICAL ACCOUNTING JUDGMENTS AND
POLICIES
consolidated
the Company
The preparation of
future events that affect
in
the Company’s consolidated
financial statements in conformity with US GAAP
to make estimates and
requires
the
assumptions about
amounts
financial
the
reported
statements and accompanying notes. Future events
and their effects cannot be determined with absolute
certainty. Therefore,
the determination of estimates
requires the exercise of judgment. Actual results could
differ from those estimates, and such differences may
be material
to the consolidated financial statements.
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
factors as 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.
accounting which requires the Company to record
their
assets acquired and liabilities assumed at
respective fair values with the excess of the purchase
price over estimated fair values recorded as goodwill.
The assumptions made in determining the fair value of
acquired assets and assumed liabilities as well as asset
lives can materially impact the results of operations.
and
asset
intangible
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
appraisals; evaluations of existing contingencies and
liabilities and product line integration information. If the
initial valuation for an acquisition is incomplete by the
end of the quarter in which the acquisition occurred, 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.
evaluations
Goodwill and Other Long-Lived Assets
Goodwill and Indefinite-Lived Assets
tests,
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 approach. In addition to minimum annual
the Company also requires that
impairment
impairment assessments be made more frequently if
events or changes in circumstances indicate that the
goodwill or indefinite-lived assets might be impaired. If
impairment related to goodwill is identified, 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 carrying
amount of an indefinite-lived intangible asset exceeds
its fair value, an impairment loss is recognized.
If
Other Long-Lived Assets
lives.
Other
their 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. If
impaired based on the identifiable undiscounted cash
flows, the asset’s fair value is determined using the
discounted
participant
assumptions. The resulting charge reflects the excess
of the asset’s carrying cost over its fair value.
flow and market
cash
Business Acquisitions
Impairment Assessment
The Company acquires businesses as well as
partial interests in businesses. Acquired businesses are
accounted for using the acquisition method of
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.
45
impairment
impairment of
the outcome of
results. Changes
Testing for potential
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
increased competition and
projected selling prices,
introductions of new technologies can significantly
affect
tests. Estimates
based on these assumptions may differ significantly
factors
from actual
and
impairments
assumptions used in assessing potential
can have a significant
impact on the existence and
magnitude of impairments, as well as the time at which
such impairments are recognized.
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, in
the Notes to Consolidated Financial Statements in Item
15 of this Form 10-K.
in
If
Annual Goodwill Impairment Testing
Goodwill 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. The valuation date for annual
impairment
testing is April 30. 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
several
reporting units
contained within each operating
segment.
segment. The Company
has
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 impairment, as management believes 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 forecast operating cash flows, including future
sales growth, operating margin growth, benefits from
restructuring initiatives,
tax rates, capital spending,
business initiatives, and working capital changes.
46
(“WACC”)
These assumptions may vary significantly among the
reporting 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
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
the Company’s recorded goodwill,
relative size of
differences in assumptions may have a material effect
on the results of the Company’s impairment analysis.
The performance of the Company’s 2016 annual
impairment test did not result in any impairment of the
Company’s goodwill. The WACC rates utilized in the
2016 analysis ranged from 6.7% to 14.7%. Had the
WACC rate of each of the Company’s reporting units
been hypothetically increased by 100 basis points at
April 30, 2016, the fair value of those reporting units
would still exceed net book value. If the fair value of
each of
the Company’s reporting units had been
hypothetically reduced by 5% at April 30, 2016, the fair
value of those reporting units would still exceed net
book value. If the fair value of each of the Company’s
reporting units had been hypothetically reduced by 10%
at April 30, 2016, one reporting unit, within the
Company’s Technologies segment, would have a fair
value that would approximate net book value. Goodwill
for that reporting unit totals $66.0 million at April 30,
2016. To the extent that future operating results of the
reporting units do not meet the forecasted cash flow
projections, the Company can provide no assurance
that a future goodwill impairment charge would not be
incurred.
on
year
result
At December 31, 2016, the Company updated its
impairment testing for the one reporting unit
goodwill
financial
above
noted
current
based
in any
performance. The review did not
impairment of
the reporting units’ goodwill balance.
Assumptions used in the calculations of fair value were
substantially consistent with those at April 30, 2016.
Had the WACC rate of this reporting unit had been
hypothetically increased by 100 basis points at
December 31, 2016, the fair value of this reporting unit
would still exceed net book value. If the fair value of this
reporting unit had been hypothetically reduced by 5%,
the fair value of would still exceed book value. If the fair
value of
the reporting unit had been hypothetically
reduced by 10% at December 31, 2016, the reporting
unit fair value would approximate net book value. At
this
December 31, 2016,
reporting unit was $54.7 million. Additionally,
three
reporting units, all components of
the Technologies
a
operating
component of the Dental and Healthcare Consumables
operating segment, were created as a result of
the
Sirona merger on February 29, 2016. At the date of the
the goodwill balance for
segment,
reporting
unit,
and
one
for
the
date,
Merger, the fair value of the businesses equaled book
the reporting units totaling
value with goodwill
$3,776.8 million. Given the limited time since the
units’
Merger
values
reporting
fair
approximate the book values of
the reporting units.
Slower net sales growth rates in the dental industry, an
rates, unfavorable changes in
increase in discount
earnings multiples or a decline in future cash flow
projections, among other factors, may cause a change
in circumstances indicating that the carrying value of
the Company’s goodwill may not be recoverable.
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
the carrying value of
could result
to its implied fair value. There can be no
goodwill
future
assurance
goodwill
impairment
in a charge to
earnings.
the Company’s
result
that
testing will not
in impairment of
Annual Indefinite-Lived Intangible Asset Impairment
Testing
assets
judgment
intangible
Indefinite-lived
of
consist
to amortization;
tradenames and are not subject
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
is involved in determining if an
indicator of impairment has occurred. Such indicators
may
include a decline in expected cash flow
projections, 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 indefinite-lived assets.
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 at
forecasted sales,
present value using a discount rate commensurate with
the relative risk of achieving the cash flow attributable
to the asset. Management judgment is necessary to
determine
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 applied to
goodwill impairment testing.
assumptions,
including
key
The performance of the Company’s 2016 annual
impairment test did not result in any impairment of the
the
Company’s indefinite-lived assets. Except
for
47
indefinite-lived intangibles noted below, if the fair value
the Company’s indefinite-lived intangible
of each of
assets had been hypothetically reduced by 10% or the
discount rate had been hypothetically increased by 50
basis points, at December 31, 2016, the fair value of
these assets would still exceed their book value.
Additionally, indefinite-lived assets recorded on three
reporting units, all within the Technologies operating
segment, and indefinite-lived assets recorded on one
reporting unit within the Dental and Healthcare
Consumables operating segment, were identified and
the Sirona merger on
fair valued as result of
February 29, 2016. At the date of the Merger, the fair
value of the indefinite-lived assets equaled book value
totaling $905.0 million. Given the limited time since the
the indefinite-lived asset’s fair values
Merger date,
approximate the book values. Slower net sales growth
rates in the dental
industry, an increase in discount
rates, unfavorable changes in earnings multiples or a
decline in future cash flow projections, among other
factors, may cause a change in circumstances
indicating that
the Company’s
the carrying value of
indefinite-lived assets may not be recoverable.
the tradenames,
Should the Company’s analysis in the future
indicate an increase in discount rates or a degradation
in the use of
in
impairment of the carrying value of the indefinite-lived
assets to its implied fair value. There can be no
the Company’s future indefinite-lived
assurance that
asset impairment testing will not result in a charge to
earnings.
it could result
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 is a
better estimate of
the probable loss. The ranges
established by management are based on analysis
made by internal and external legal counsel based on
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
appropriately estimated liabilities for probable losses 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.
the time.
If
Income Taxes
Income taxes are determined using the liability
taxes. The
for
accounting
income
of
method
Company’s tax expense includes the U.S. and
income taxes plus the provision for U.S.
international
taxes on undistributed earnings of
international
subsidiaries not deemed to be permanently invested.
The Company applies a recognition threshold and
the financial statement
measurement attribute for
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 realization is not likely. At
the Company has a valuation
December 31, 2016,
the benefit of
allowance of $182.7 million against
certain deferred tax assets of
foreign and domestic
subsidiaries.
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
tax laws are
changed.
limitation are closed or
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the
year ended December 31, 2016 were $563.4 million
compared to $497.4 million during the year ended
December 31, 2015. Net income improved by $180.4
million in the period ended December 31, 2016
compared to the prior year, largely from the Merger and
acquisition growth. This improvement was offset by
increases in accounts receivable and prepaid expenses
and merger transaction related fees and integration
costs. Working capital uses consumed $153.4 million in
2016 compared to cash generated of $65.4 million in
2015. Primary working capital (defined as inventories
plus accounts receivable less accounts payable, a
non-US GAAP measure) consumed $112.6 million of
operating cash flow in 2016 compared to sources of
$46.1 million in 2015. The investment of $112.6 million
during the 2016 calendar year came from higher
accounts receivable of $75.1 million, higher inventory of
$11.6 million, and investment of $25.9 million in prepaid
expenses and other current assets, net of accruals.
This investment in primary working capital was partially
offset by a reduction in inventory of $77.0 million related
to the roll off of fair value adjustments from the Merger
and acquisitions. The decline in total working capital
was further impacted by higher tax payments of $137.1
million in 2016 versus 2015. The Company’s cash and
cash equivalents increased by $99.3 million during the
year ended December 31, 2016 to $383.9 million.
For the year ended December 31, 2016, on a
constant currency basis, the number of days for sales
outstanding in accounts receivable increased by 4 days
to 58 days as compared to 54 days in 2015. On a
constant currency basis, the number of days of sales in
inventory increased by 3 days to 113 days at
December 31, 2016 as compared to 110 days at
December 31, 2015.
Investing activities during 2016 included cash
acquired in the Merger of $522.3 million partially offset
by
capital expenditures of $125.0 million and
acquisitions of businesses of $341.8 million. The
Company expects capital expenditures to be in the
range of approximately $120.0 million to $140.0 million
for the full year 2017.
At December 31, 2016,
the Company had
authorization to maintain up to 39.0 million shares of
treasury stock under its stock repurchase program as
approved by the Board of Directors. Under
this
program, the Company purchased approximately 13.4
million shares, or approximately 6.0% of average
diluted shares outstanding, during 2016 at a cost of
$815.1 million for an average price of $60.78. As of
December 31, 2016 and 2015, the Company held 34.4
million and 22.7 million shares of
treasury stock,
respectively. The Company also received proceeds of
$41.0 million primarily as a result of 1.2 million stock
options exercised during the year ended December 31,
2016.
Total debt increased by $379.1 million for the year
ended December 31, 2016. Dentsply Sirona’s long-term
debt,
including the current portion, at December 31,
2016 and 2015 was $1,522.1 million and $1,150.2
million, respectively. The Company’s long-term debt,
including the current portion increased by a net of
$371.9 million during the year ended December 31,
2016. This net change included a net
increase in
borrowings of $407.0 million, and a decrease of $35.1
million due to exchange rate fluctuations on debt
denominated in foreign currencies. The net increase in
long term borrowings
reflects new financing in
February, August, and October, 2016, as described
below,
fund
acquisitions. At December 31, 2016 and 2015, there
were no outstanding borrowings under the commercial
paper facility. During the year ended December 31,
2016,
to total
capitalization decreased to 12.4% compared to 27.1%
at December 31, 2015. Dentsply Sirona 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.
the Company’s ratio of net debt
refinance maturing
debt
and
to
Pursuant
to the December 11, 2015, Note
Purchase Agreement
the Company issued private
placement notes on February 19, 2016 and August 15,
2016 in various aggregate principal amounts as follows:
48
On February 19, 2016, the Company issued a total
of 71.0 million euros aggregate principal amount
bearing average interest of 2.30%, with an average
maturity of 13 years spanning 2026 through 2031.
Proceeds from the senior notes were used to pay the
final
the
required payment of $75.0 million under
$250.0 million private placement notes that matured on
February 19, 2016.
in a default under
would result
the existing debt
agreements that would permit the lenders to declare all
borrowings under such debt agreements 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,
the Company was in compliance with these
2016,
covenants.
On August 15, 2016, the Company issued a total
of 263.0 million Swiss francs aggregate principal
amount bearing average interest of 1.17%, with an
average maturity 12 years spanning 2026 to 2031. On
August 15, 2016, the Company issued a total of 106
million euros aggregate principal amount bearing
average interest of 2.25%, with maturity 10 years
maturing in 2026. Proceeds from the senior notes were
used to pay the maturing bond principal of $300.0
million due August 15, 2016 and to pre-pay Swiss franc
65.0 million final required payment under the term loan
that matured on September 1, 2016.
On October 27, 2016, the Company executed a
new Note Purchase Agreement in a private placement
with institutional
investors to sell 350.0 million euros
aggregate principal amount of senior notes at a
weighted average interest rate of 1.40%. The notes
have an average maturity of 12 years and mature in
years from 2024 through 2031. Proceeds from these
senior notes were used to finance acquisitions in the
fourth quarter of 2016.
Effective June 30, 2016, the Company amended
and extended its $500 million multicurrency revolving
credit facility for an additional year thorough July 23,
2021. In addition, certain non-extending members of
the bank group were replaced with existing and new
lenders. The Company has access to the full $500
million through July 23, 2021. The facility is unsecured
and contains certain affirmative and negative covenants
relating to the operations and financial condition of the
Company. The most
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
there were no
December 31, 2016 and 2015,
outstanding borrowings under
the revolving credit
facility.
restrictive of
to
covenants
The Company’s revolving credit facility, term loans
and senior notes contain certain affirmative and
negative
the Company’s
relating
operations and financial
condition. These credit
agreements contain 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 total debt
outstanding to total capital not to exceed the ratio of 0.6
to 1.0, and operating income excluding depreciation
and amortization to interest expense of not less than
3.0 times. Any breach of any such covenants or ratios
The Company also has access to $53.2 million in
uncommitted short-term financing under lines of credit
institutions. The lines of credit
from various financial
have no major restrictions and are provided under
demand notes between the Company and the lending
institutions. At December 31, 2016, $10.1 million was
outstanding under these short-term lines of credit. At
December 31, 2016, the Company had total unused
lines of credit related to the revolving credit agreement
and the uncommitted short-term lines of credit of
$549.4 million.
its existing credit
future acquisitions,
The Company expects on an ongoing basis to be
able to finance cash requirements,
including capital
expenditures in a range of $120 million to $140 million,
stock repurchases, debt service, operating leases and
from the current cash,
potential
cash equivalents and short-term investment balances,
funds generated from operations and amounts available
under
facilities, which is further
discussed in Note 12, Financing Arrangements, to the
Consolidated Financial Statements in Item 15 in this
Form 10-K. The Company intends to pay or refinance
the current portion of
long term debt due in 2017
utilizing cash or available credit. As noted in the
Company’s Consolidated Statements of Cash Flows in
Item 15 in this Form 10-K, the Company continues to
generate strong cash flows from operations, which is
used to finance the Company’s activities.
the majority of
At December 31, 2016,
the United States. The majority of
the
Company’s cash and cash equivalents were held
outside of
the
Company’s excess free cash flow is generated outside
of the United States. Most of the foreign excess free
cash flow could be repatriated to the United States,
however, under current law, potentially may 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 in excess of capital
investment and acquisition needs), subject to current
regulations,
to fund ongoing operations and capital
needs. 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.
49
Off Balance Sheet Arrangements
institutions. Under
At December 31, 2016, the Company held $34.4
million of precious metals on consignment from several
financial
consignment
arrangements, the banks own the precious metal, and,
accordingly,
this
the Company does not
its inventory on the
consigned inventory as part of
Consolidated Balance Sheet. These consignment
agreements allow the Company to acquire the precious
report
these
metal at market rates at a point
in time, which is
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 consignment arrangements, and if the
Company
comparable
arrangements, the Company may be required to obtain
third party financing to fund an ownership position to
maintain precious metal inventory at operational levels.
obtain
could
other
not
Contractual Obligations
The following table presents the Company’s scheduled contractual cash obligations at December 31, 2016:
Contractual Obligations
(in millions)
Long-term borrowings . . . . . . . . . . . . . . . . . .
Operating leases . . . . . . . . . . . . . . . . . . . . .
Interest on long-term borrowings, net of interest
rate swap agreements . . . . . . . . . . . . . . . .
Postemployment obligations . . . . . . . . . . . . .
Precious metal consignment agreements . . . . .
Within
1 Year
$ 11.0
38.9
32.5
16.1
34.4
$132.9
Years
2 – 3
Years
4 – 5
Greater
Than
5 Years
Total
$128.3
75.4
64.1
31.6
—
$299.4
$420.6
35.5
58.1
34.6
—
$548.8
$ 968.3
32.4
$1,528.2
182.2
67.5
99.1
—
$1,167.3
222.2
181.4
34.4
$2,148.4
Due to the uncertainty with respect to the timing of
future cash flows associated with the Company’s
unrecognized tax benefits at December 31, 2016, the
Company is unable to make reasonably reliable
estimates of
the period of cash settlement with the
respective taxing authority; therefore, $13.7 million of
the unrecognized tax benefit has been excluded from
the contractual obligations table above (See Note 14,
Income Taxes, in the Notes to Consolidated Financial
Statements in Item 15 of this Form 10-K).
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Significant Accounting Policies, in
the Notes to Consolidated Financial Statements in Item
recent
this Form 10-K for a discussion of
15 of
accounting guidance and pronouncements.
Item 7A. Quantitative and Qualitative
Disclosure About Market Risk
through
exposures
transaction
Company employs foreign currency denominated debt
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
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 from volatility in
commodity prices, the Company selectively enters into
commodity swaps 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
to other
foreign exchange market risk exposure in 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.
QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
The Company’s major market risk exposures are
changing interest rates, movements in foreign currency
exchange rates and potential price volatility 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 swaps to adjust
rate exposures when
interest
appropriate, based upon market conditions. The
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.
50
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. These cash
flow hedges have maturities of six to 18 months and do
not change the underlying long term foreign currency
exchange risk. The Company accounts for the forward
foreign exchange contracts as cash flow hedges.
of
net
assets
subsidiaries. The
The Company has numerous investments in
foreign
these
subsidiaries are exposed to volatility in currency
the Company uses both
exchange rates. Currently,
non-derivative financial
including foreign
currency denominated debt held at the parent company
level 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.
instruments,
At December 31, 2016, a 10% strengthening of
the U.S. dollar against all other currencies would
improve the net fair value associated with the forward
foreign exchange contracts by approximately $15.9
million.
Interest Rate Risk Management
The Company uses interest rate swaps to convert
a portion of
to fixed
its variable interest rate debt
interest rate debt and, in the past, to convert fixed rate
debt to variable rate debt. At December 31, 2016, the
Company has one significant interest rate swap. This
interest rate swap has notional amounts totaling 12.6
billion Japanese yen, and effectively converts the
underlying variable interest rates to an average fixed
interest rate of 0.9% for a term of five years, ending in
September 2019. The interest rates on variable rate
term loan debt are consistent with current market
conditions, therefore the fair value of this instrument
approximates its carrying values.
At December 31, 2016, an increase of 1.0% in the
interest rates on the variable interest rate instruments
would increase the Company’s annual interest expense
by approximately $1.6 million.
Consignment Arrangements
financial
institutions. Under
The Company consigns the precious metals used
in the production of precious metal dental alloy products
from various
these
the banks own the
consignment arrangements,
precious metal, and, accordingly, the Company does
not
its
inventory on the 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
this consigned inventory as part of
report
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).
As precious metal prices fluctuate, the Company
the precious metal price
evaluates the impact of
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
invoice customers for the precious metal content of
precious metal dental alloy products,
the underlying
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, 2016,
the Company had
approximately 44,100 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 $34.4 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 the consigned precious
metals inventory. At December 31, 2016, the average
annual rate charged by the consignor banks was 0.6%.
These compensatory payments are considered to be a
cost of the metals purchased and are recorded as part
of the cost of products sold.
Item 8. Financial Statements and
Supplementary Data
forth under
Consolidated
The information set
the captions
Management’s Report on Internal Control Over
Financial Reporting, Report of Independent Registered
Public Accounting Firm, Consolidated Statements of
of
Operations,
Comprehensive Income, Consolidated Balance Sheets,
Consolidated Statements of Changes
in Equity,
Consolidated Statements of Cash Flows, and Notes to
Consolidated Financial Statements is filed, in Item 15 of
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
51
Item 9. Changes in and Disagreements
with Accountants on Accounting and
Financial Disclosure
Compensatory Arrangements of Certain Officers and
Item 5.03 Amendments to Articles of Incorporation or
Bylaws; Change in Fiscal Year:
None.
Item 5.02(b)
Item 9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of
Disclosure Controls and Procedures
The
with
the end of
concluded that
the
Company’s management,
participation of the Company’s Chief Executive Officer
and Chief Financial Officer, evaluated the effectiveness
of the Company’s disclosure controls and procedures
as of
the period covered by this report.
Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer
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 period covered by this report were
the end of
effective to provide reasonable assurance that
the
information required to be disclosed by the Company in
reports filed under
the Securities Exchange Act of
processed,
is
as
1934,
summarized and reported within the time periods
specified in the SEC’s rules and forms and that it is
accumulated and communicated to management,
including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely
decisions regarding required disclosure.
amended,
recorded,
(b) Management’s Report on Internal Control Over
Financial Reporting
Management’s report on the Company’s internal
control over financial reporting is included under 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 the quarter ended December 31, 2016 that have
materially affected, or are likely to materially affect, its
internal control over financial reporting.
Item 9B. Other Information
In the fourth quarter of
the year ended
December 31, 2016,
the Company reported all
information that was required to be disclosed in a
current report on Form 8-K.
Because we are filing this annual report on Form
10-K within four business days after the applicable
triggering events, we are making the following
disclosures under Part II, Item 9B of this annual report
instead of filing a report on Form 8-K for Item 5.02(b)
Departure of Directors or Certain Officers; Election of
Officers;
Directors;
Appointment
Certain
of
On February 24, 2017,
it was announced that
Robert J. Size would leave his position as Senior Vice
President of Dentsply Sirona Inc.
(the “Company”)
effective as of June 30, 2017. Mr. Size will assist the
Company in the transition of his responsibilities until his
departure.
Item 5.03
Third Amended and Restated By-Laws
The third amendment and restatement of
the
Company’s By-laws (the “Amended By-laws”), as
approved by the Board of Directors, became effective
on February 23, 2017. The following descriptions of the
changes reflected in the Amended By-laws do not
purport to be complete and are qualified in their entirety
by reference to the full text of the Amended By-laws, a
copy of which is attached hereto as Exhibit 3.2 and
incorporated herein by reference.
Proxy Access
three percent of
ARTICLE I, Section 12a (Stockholder Nominations
Included in the Corporation’s Proxy Statement) was
added to permit, commencing after
the Company’s
2017 annual meeting of stockholders, a stockholder, or
a group of no more than 20 stockholders, owning at
least
the Company’s outstanding
common stock continuously for at least three years, to
nominate and include in the Company’s proxy materials
for
stockholders director
nominees constituting up to the greater of two directors
or 20% of the total number of directors then serving on
the Board, provided that the stockholder(s) and their
nominee(s)
the eligibility, procedural and
disclosure requirements set forth in ARTICLE I, Section
12a of the Amended By-laws.
its annual meeting of
satisfy
The Amended By-laws also include certain
ministerial, clarifying and conforming changes in
ARTICLE I, Sections 11, 12 and 13 related to the
addition of the proxy access right described above.
Modernizing and Clarifying Changes
A number of modernizing and/or
clarifying
changes were made to the By-laws as follows:
(1) ARTICLE I, Sections 1 (Annual Meetings)
and 2 (Special Meetings) were revised to
the Company may postpone,
provide that
reschedule or cancel any annual or special
meeting previously called by the Board of
Directors.
52
(2) ARTICLE I, Section 3 (Place of Meeting) was
revised by deleting that a waiver of notice
signed by all stockholders entitled to vote at a
meeting may designate any place as the
place for such meeting.
attendance
(3) ARTICLE I, Section 4 (Notice of Meeting)
was revised (i) to provide for the possibility of
meeting
remote
communication and different record dates for
notice and voting rights; and (ii) by deleting
that notice may be delivered personally or by
mail at the discretion of the Chief Executive
Officer or the officer or persons calling the
meeting.
via
(4) ARTICLE I, Section 5 (Fixing of Record Date)
was revised (i) to provide for the possibility of
different record dates for notice and voting
rights as well as certain stipulation with
regards to the fixing of record dates; and
(ii) by deleting that the stock transfer books
may not be closed before the record date for
notice, voting or dividend rights.
(5) ARTICLE
I,
Section
6
(Quorum;
to provide
Adjournments) was revised (i)
further detail regarding the adjournment and
reconvening of meetings, and (ii) by deleting
a provision by which a meeting is property
constituted if notice was properly given,
waived or deemed waived.
(6) ARTICLE I, Section 7 (Proxies) was revised
to provide that proxies shall be valid for up to
three years from their date of issuance and
may only be irrevocable if coupled with an
interest sufficient
in law to support an
irrevocable power.
(7) ARTICLE I, Section 8 (Voting of Shares) was
revised (i) to provide for the possibility of
different record dates for notice and voting
rights; and (ii) by deleting that shares of a
corporation may be voted by any officer or
proxy appointed by any officer in the absence
of express notice that such officer has no
authority to vote.
(8) ARTICLE I, Section 9 (List of Stockholders)
was revised to provide certain details with
regards to the preparation and examination of
the stock ledger, as well as providing for the
possibility of access via an electronic network
and meetings held solely by means of remote
communication.
(9) ARTICLE I, Section 10 (Waiver of Notice by
Stockholders) was revised to provide for the
possibility of electronic transmission of a
waiver.
Directors) were revised to provide that where
the annual meeting is called for a date that is
more than 30 days before or 60 days after its
anniversary date, notice is timely if received
not later than the close of business on the
90th day prior to the annual meeting or, if
the 10th day following mailing of
later,
the
notice or public disclosure of
the annual
meeting.
(11) ARTICLE I, Section 13 (Stockholder Voting)
revised to provide that all other
was
proposals aside from director elections shall
be decided by a majority vote of the shares
present in person or by proxy and entitled to
vote, unless otherwise required by applicable
the Company’s
regulations,
laws,
Certificate of Incorporation or By-laws.
rules or
(12) ARTICLE I, Section 14 (Conduct of Meetings)
was inserted to provide certain procedural
guidelines for the conduct of meetings and
stipulate certain powers of
the presiding
person.
(13) ARTICLE II, Section 1 (General Powers) was
the business and
the Company may be managed
revised to provide that
affairs of
under the direction of the Board of Directors.
(14) ARTICLE II, Section 2 (Number of Directors,
Tenure and Qualifications) was revised by
deleting that any director filling a vacancy as
the result of an increase in the number of
directors shall hold office until the next annual
meeting but a decrease in the number of
directors shall not shorten the term of an
incumbent director, and that an election shall
be held at an adjournment or a special
meeting if not held at the annual meeting.
(15) ARTICLE II, former Section 10 (Presumption
of Assent) was deleted.
(16) ARTICLE II, new Section 10 (Committees)
was revised to delete certain restrictions with
regards to committees.
(17) ARTICLE II, Sections 11 (Action of the Board
by Written Consent) and 12 (Conferences)
were revised to provide for the possibility of
electronic transmissions.
(18) ARTICLE III, Section 6 (Chief Executive
Officer, President) was revised to provide that
unless another officer has been elected
President of
the Chief
Executive Officer shall also be President and
as such may,
together with the Secretary,
sign certificates for shares of the capital stock
of the corporation.
the Company,
(10) ARTICLE I, Sections 11 (Advance Notice)
and 12 (Procedure for Nomination of
(19) ARTICLE III, Section 8 (Secretary and
Assistant Secretaries) and ARTICLE IV,
53
Section 1 (Shares of Stock) were revised to
“Chief Executive Officer” with
replace
“President” as regards the signing of share
certificates.
provide that present or former directors may
demand that determination of entitlement to
indemnification be made by independent
counsel.
(20) ARTICLE V, Section 1 (Indemnification
Generally) was revised to delete employees
and agents of the Company.
(21) ARTICLE V, Section 4 (Determination that
Indemnification is Proper) was revised to
(22) ARTICLE VI (Exclusive Form) was revised to
include fiduciary duties owed by stockholders,
actions in connection with the Company’s
Certificate of Incorporation or By-laws, and all
claims
the internal affairs
doctrine.
covered by
54
PART III
Item 10. Directors, Executive Officers
and Corporate Governance
The information required under this item is set
forth in the 2017 Proxy Statement, which is
incorporated herein by reference.
Code of Ethics
The Company has 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 at www.dentsplysirona.com.
The Company intends to disclose any amendment to its
Code of Business Conduct and Ethics that relates to
any 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 executive officer, principal
financial officer,
principal accounting officer, or any of the Company’s
in the Investor Relations
other executive officers,
section
at
of
www.dentsplysirona.com, within four business days
following the date of such amendment or waiver.
Company’s
website
the
Item 11. Executive Compensation
The information required under this item is set
forth in the 2017 Proxy Statement, which is
incorporated herein by reference.
Item 12. Security Ownership of Certain
Beneficial Owners and Management
and Related Stockholder Matters
The information required under this item is set
forth in the 2017 Proxy Statement, which 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 2017 Proxy Statement, which is
incorporated herein by reference.
Item 14. Principal Accounting Fees
and Services
The information required under this item is set
forth in the 2017 Proxy Statement, which is
incorporated herein by reference.
55
Consolidated Statements of Changes in
Equity — Years ended December 31, 2016,
2015 and 2014
Consolidated
of Cash
Flows — Years ended December 31, 2016,
2015 and 2014
Statements
Notes
Statements
to
Consolidated
Financial
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
in
the
All other schedules for which provision is
made
accounting
applicable
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 consolidated financial
statements of the Company are filed as part
of this Form 10-K:
Management’s Report
Control Over Financial Reporting
on
Internal
Report of Independent Registered Public
Accounting Firm
Consolidated
of
Operations — Years ended December 31,
2016, 2015 and 2014
Statements
Consolidated
of
Comprehensive Income — Years ended
December 31, 2016, 2015 and 2014
Statements
Consolidated
Balance
December 31, 2016 and 2015
Sheets —
56
3. Exhibits
The Exhibits listed below are filed or incorporated by reference as part of the Company’s Form 10-K.
Exhibit
Number
2.1
3.1
3.2
4.1(a)
(b)
4.2(a)
(b)
4.3
(a)
(b)
Description
Agreement and Plan of Merger, dated as of September 15, 2015, by and among DENTSPLY
International Inc., Sirona Dental Systems, Inc. and Dawkins Merger Sub Inc.(18)
Amended and Restated Certificate of Incorporation (Filed herewith)
By-Laws, as amended and restated (Filed herewith)
United States Commercial Paper Dealer Agreement dated as of March 28, 2002 between the
Company and Citigroup Global Markets Inc. (formerly known as Salomon Smith Barney Inc.)(formerly
Exhibit 4.1(b))(6)
First Amendment to the United States Commercial Paper Dealer Agreement dated as of March 28,
2002 between the Company and Citigroup Global Markets Inc. (formerly known as Salomon Smith
Barney Inc.)(17)
United States Commercial Paper Dealer Agreement dated as of August 18, 2011 between the
Company and J.P. Morgan Securities LLC(17)
First Amendment to the United States Commercial Paper Dealer Agreement dated as of August 18,
2011 between the Company and J.P. Morgan Securities LLC(17)
$500.0 Million Credit Agreement, dated as of July 23, 2014 final maturity in July 23, 2019, by and
among the Company, the subsidiary borrowers party thereto, the lenders party thereto, JPMorgan
Chase Bank, N.A. as administrative agent, Citibank N.A. as Syndication Agent, Bank of
Tokyo-Mitsubishi UFJ, LTD and Wells Fargo Bank, N.A., Commerzbank AG, and HSBC Bank USA
N.A. as co-documentation agents, and J.P. Morgan Securities LLC and Citibank Global Markets Inc.,
as Joint Bookrunners and Joint Lead Arrangers(17)
First Amendment to the $500.0 Million Credit Agreement dated as of July 1, 2015 between the
Company and the Subsidiary Borrowers party(19)
Second Amendment to the $500.0 Million Credit Agreement dated November 30, 2015 between the
Company and Subsidiary Borrowers party(19)
4.4
$250.0 Million Private Placement Note Purchase Agreement, due February 19, 2016 dated as of
October 16, 2009(10)
4.5(a)
65.0 Million Swiss Franc Term Loan Agreement, due March 1, 2012 dated as of February 24, 2010(11)
(b)
(c)
First Amendment to the 65.0 Million Swiss Franc Term Loan Agreement dated May 21, 2010 between
the Company, the Lenders, and PNC Bank National Association, as Agent(19)
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)
(d)
Third Amendment to the 65.0 Million Swiss Franc Term Loan Agreement dated November 30, 2015(19)
4.10
(a)
4.11
4.12
$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(16)
First Amendment to the $175.0 Million Credit Agreement dated November 30, 2015 between the
Company and PNC Bank, National Association as Administrative Agent and the Lenders Party
thereto(19)
Form of Indenture(13)
Supplemental Indenture, dated August 23, 2011 between DENTSPLY International Inc., as Issuer and
Wells Fargo, National Association, as Trustee(14)
57
Exhibit
Number
4.14
Description
12.55 Billion Japanese Yen Term Loan Agreement between the Company and Bank of Tokyo dated
September 22, 2014 due September 28, 2019, between the Company, The Bank of Tokyo-Mitsubishi
UFJ, LTD as Sole Lead Arranger, Development Bank of Japan, Inc. as Co-Arranger, The Bank of
Tokyo-Mitsubishi UFJ, LTD, as Administrative Agent(17)
(a)
First Amendment to 12.55 Billion Japanese Yen Term Loan Agreement dated December 18, 2015
between the Company and Bank of Tokyo-Mitsubishi UFJ, LTD(19)
4.15
4.16
4.17
10.2
10.3
United States Commercial Paper issuing and paying Agency Agreement dated as of November 4,
2014, between the Company and U.S. Bank N.A.(17)
Note Purchase Agreement, dated December 11, 2015, by and among the Company and the
purchasers listed in Schedule A thereto(19)
Note Purchase Agreement, dated October 27, 2016, by and among the Company and the purchasers
listed in Schedule A thereto (Filed herewith)
2002 Amended and Restated Equity Incentive Plan(8)
Restricted Stock Unit Deferral Plan(19)
10.4(a)
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
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
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 James G. Mosch*(8)
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*(19)
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
Instruments 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)
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)
58
Exhibit
Number
(e)
(f)
(g)
10.19
10.20
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
12.1
21.1
23.1
31.1
31.2
32
Description
Precious metal inventory Purchase and Sale Agreement dated January 30, 2002 between
CommerzbankAG, 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(16)
Precious metal inventory Purchase and Sale Agreement dated April 29, 2013 between The
Toronto-Dominion Bank and the Company(16)
Executive Change in Control Plan for foreign executives, as amended December 31, 2008*(10)
2010 Equity Incentive Plan, amended and restated(19)
Employment Agreement, dated December 11, 2015, between DENTSPLY International Inc. and
Bret W. Wise*(19)
Employment Agreement, dated February 12, 2016, between DENTSPLY SIRONA Inc. and
Christopher T. Clark* (Filed herewith)
Employment Agreement, dated February 12, 2016, between DENTSPLY SIRONA Inc. and Ulrich
Michel* (Filed herewith)
2016 Omnibus Incentive Plan (Filed herewith)
Employment Agreement, dated December 11, 2015, between DENTSPLY International Inc., Sirona
Dental Systems, Inc. and Jeffrey T. Slovin* (Filed herewith)
Amended and Restated U.S. Distributorship Agreement, dated May 31, 2012, by and between
Patterson Companies, Inc. and Sirona Dental Systems, Inc.(20)
Amended and Restated U.S. CAD-CAM Distributorship Agreement, dated May 31, 2012, by and
between Patterson Companies, Inc. and Sirona Dental Systems GmbH(20)
Sirona Dental Systems, Inc. Equity Incentive Plan, as Amended (Filed herewith)
Sirona Dental Systems, Inc. 2015 Long-Term Incentive Plan (Filed herewith)
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
*
(1)
(2)
Management contract or compensatory plan.
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
December 31, 1999, File No. 0-16211.
included in the Company’s Form 10-K for the fiscal year ended
59
(5)
(4)
(3)
(6)
(7)
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
Incorporated by reference to exhibit
December 31, 2000, File No. 0-16211.
Incorporated by reference to exhibit
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
December 31, 2002, File No. 0-16211.
Incorporated by reference to exhibit
December 31, 2006, File no. 0-16211.
Incorporated by reference to exhibit
December 31, 2007, File No. 0-16211.
Incorporated by reference to exhibit
December 31, 2008, File No. 0-16211.
(10) Incorporated by reference to exhibit
December 31, 2009, File no. 0-16211.
(11) Incorporated by reference to exhibit
December 31, 2010, File no. 0-16211.
(12) Incorporated by reference to exhibit
December 31, 2011, File no. 0-16211.
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
(8)
(9)
(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
File no. 0-16211.
(15) Incorporated by reference to exhibit
December 31, 2012, File no. 0-16211.
(16) Incorporated by reference to exhibit
December 31, 2013, File no. 0-16211.
(17) Incorporated by reference to exhibit
December 31, 2014, File no. 0-16211.
included in the Company’s Form 8-K dated August 29, 2011,
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
included in the Company’s Form 10-K for the fiscal year ended
(18) Incorporated by reference to exhibit included in the Company’s Form 8-K dated September 16, 2015, File no.
0-16211.
(19) Incorporated by reference to exhibit
December 31, 2015, File no. 0-16211.
included in the Company’s Form 10-K for the fiscal year ended
(20) Incorporated by reference to exhibit included in the Form 8-K/A, filed by Sirona Dental Systems, Inc. on
July 12, 2012 (File no 000-22673).
60
SCHEDULE II
DENTSPLY SIRONA INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2016, 2015 and 2014
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 millions)
Allowance for doubtful accounts:
For Year Ended December 31,
2014 . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . .
$ 14.2
8.8
10.7
$ (1.7)
4.3
9.2
Deferred tax asset valuation allowance:
For Year Ended December 31,
2014 . . . . . . . . . . . . . . . . .
2015 . . . . . . . . . . . . . . . . .
2016 . . . . . . . . . . . . . . . . .
$228.9
253.3
274.3
$ 28.7
26.7
(99.9)
$0.5
1.4
4.3
$ —
—
8.5
$(2.4)
(2.2)
(2.5)
$ —
—
—
$(1.8)
(1.6)
1.0
$ 8.8
10.7
22.7
$(4.3)
(5.7)
(0.2)
$253.3
274.3
182.7
61
Management’s Report on Internal Control Over Financial Reporting
of
for
financial
statements
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 financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation
external
purposes in accordance with accounting principles
generally accepted in the United States of America. A
Company’s internal control over
reporting
includes those policies and procedures that pertain to
the maintenance of records that, in reasonable detail,
the transactions and
accurately and fairly reflect
dispositions of
the Company; provide
the assets of
reasonable assurance that transactions are recorded
as necessary to permit preparation of
financial
statements in accordance with generally accepted
accounting
and
expenditures of the Company are being made only in
accordance with authorizations of management and
the Company; and provide reasonable
directors of
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of
the
Company’s assets that could have a material effect on
the financial statements.
principles,
financial
receipts
and
that
In
Because of its inherent limitations, internal control
reporting may not prevent or detect
over
financial
misstatements.
any
addition,
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.
projections
of
used
assessment, management
Management of the Company has assessed the
effectiveness of
the Company’s internal control over
financial reporting as of December 31, 2016. In making
its
criteria
established in Internal Control — Integrated Framework
(2013)
issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
Based on its assessment management concluded that,
as of December 31, 2016,
the Company’s internal
control over financial reporting was effective based on
the criteria established in Internal Control — Integrated
Framework (2013) issued by the COSO.
the
The effectiveness of
the Company’s internal
control over financial reporting as of December 31,
2016 has been audited by PricewaterhouseCoopers
LLP, an independent registered public accounting firm,
as stated in their report, which appears herein.
/s/ Jeffrey T. Slovin
Jeffrey T. Slovin
Chief Executive Officer
March 1, 2017
/s/ Ulrich Michel
Ulrich Michel
Chief Financial Officer
March 1, 2017
62
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of DENTSPLY SIRONA Inc.
In
our
fairly,
opinion,
respects,
consolidated
in all material
of Sponsoring Organizations
financial
the
statements listed in the index appearing under Item
the
15(a)(1) present
financial position of Dentsply Sirona Inc. and its
subsidiaries at December 31, 2016 and 2015, and the
results of their operations and their cash flows for each
of the three years in the period ended December 31,
2016 in conformity with accounting principles generally
accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in
the index appearing under 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,
2016, based on criteria established in Internal
Control — Integrated Framework 2013 issued by the
Committee
the
Treadway Commission (COSO). The Company’s
financial
responsible
management
for
statements and financial statement schedule,
maintaining effective internal control over
financial
reporting and for its assessment of the effectiveness of
included in
financial
internal control over
Management’s Report on Internal Control over
Financial Reporting, appearing under Item 15(a)(1).
responsibility is to express opinions on these
Our
financial
statement
statements, on the financial
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 audits of the financial statements
included examining, on a test basis, evidence
reporting,
these
for
of
is
financial
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used
and significant estimates made by management, and
evaluating the overall financial statement presentation.
internal control over financial reporting
Our audit of
included obtaining an understanding of internal control
over
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.
internal
policies
includes
reporting
control over
A company’s
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
and
those
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
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
(iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the 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. 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.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Harrisburg, Pennsylvania
March 1, 2017
63
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
2016
2015
2014
(in millions, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,745.3
$2,674.3
$2,922.6
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,744.4
1,157.1
1,322.8
Gross profit
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,000.9
1,523.0
23.2
1,517.2
1,077.3
64.7
1,599.8
1,143.1
11.1
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
454.7
375.2
445.6
Other income and expenses:
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
35.9
(2.0)
(20.1)
55.9
(2.2)
(8.2)
46.9
(5.6)
(0.1)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
440.9
329.7
404.4
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in net loss of unconsolidated affiliated company . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Net income (loss) attributable to noncontrolling interests . . . . . . . . . .
9.5
—
431.4
1.5
77.0
(1.6)
251.1
(0.1)
81.1
(0.4)
322.9
—
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . .
$ 429.9
$ 251.2
$ 322.9
Earnings per common share:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
1.97
1.94
$
$
1.79
1.76
$
$
2.28
2.24
Weighted average common shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
218.0
221.6
140.0
142.5
141.7
144.2
The accompanying notes are an integral part of these financial statements.
64
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
2016
2015
2014
(in millions)
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 431.4
$ 251.1
$ 322.9
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
(90.5)
(188.1)
(354.1)
Net (loss) gain on derivative financial instruments . . . . . . . . . . . . . . . . . . . .
Net unrealized holding loss on available-for-sale securities . . . . . . . . . . . . . .
(8.6)
—
Pension liability adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(13.8)
12.1
(8.5)
32.2
49.3
(4.2)
(63.7)
Total other comprehensive (loss) income . . . . . . . . . . . . . . . . . . . . . . . . . . .
(112.9)
(152.3)
(372.7)
Total comprehensive income (loss)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
318.5
Less: Comprehensive income (loss) attributable to noncontrolling interests . . . . .
0.3
98.8
0.5
(49.8)
(0.7)
Comprehensive income (loss) attributable to Dentsply Sirona . . . . . . . . . . . . . .
$ 318.2
$ 98.3
$ (49.1)
The accompanying notes are an integral part of these financial statements.
65
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
Assets
Current Assets:
December 31,
2016
2015
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
383.9
$ 284.6
Accounts and notes receivable-trade, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
636.0
517.1
345.6
399.9
340.4
171.8
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,882.6
1,196.7
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
799.8
2,957.6
5,952.0
64.1
558.8
600.7
1,987.6
59.1
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,656.1
$4,402.9
Liabilities and Equity
Current Liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
223.0
$ 133.6
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
462.7
310.1
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable and current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . .
64.2
21.1
20.2
12.1
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
771.0
476.0
Long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,511.1
1,141.0
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
848.6
399.5
160.3
286.2
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,530.2
2,063.5
Commitments and contingencies
Equity:
Preferred stock, $1.00 par value; .25 million shares authorized; no shares issued . . . .
—
—
Common stock, $.01 par value; 400.0 million and 200.0 million shares authorized at
December 31, 2016 and 2015, respectively 264.5 million and 162.8 million shares
issued at December 31, 2016 and 2015, respectively 230.1 million and 140.1 million
shares outstanding at December 31, 2016 and 2015, respectively . . . . . . . . . . . . .
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.6
6,516.7
3,948.0
1.6
237.8
3,591.0
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(705.7)
(594.0)
Treasury stock, at cost, 34.4 million and 22.7 million shares at December 31, 2016 and
2015, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1,647.3)
(898.4)
Total Dentsply Sirona Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,114.3
2,338.0
Noncontrolling interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11.6
1.4
Total Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,125.9
2,339.4
Total Liabilities and Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,656.1
$4,402.9
The accompanying notes are an integral part of these financial statements.
66
DENTSPLY SIRONA 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
Sirona
Equity
Noncontrolling
Interests
Total
Equity
(in millions)
Balance at December 31, 2013 . . . . . . . . .
$1.6
$ 255.3 $3,095.7
$ (69.1)
$ (748.5) $2,535.0
$ 42.9
$2,577.9
Net income . . . . . . . . . . . . . . . . . . . .
Other comprehensive income . . . . . . . . . .
Acquisition of noncontrolling interest . . . . . .
Exercise of stock options . . . . . . . . . . . .
Tax benefit from stock options exercised . . .
Stock based compensation expense . . . . . .
Funding of Employee Stock Ownership
Plan . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares purchased . . . . . . . . . . .
RSU distributions . . . . . . . . . . . . . . . . .
RSU dividends . . . . . . . . . . . . . . . . . .
Cash dividends ($0.265 per share) . . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
—
(42.0)
(9.7)
2.1
25.4
1.5
—
(11.2)
0.3
—
322.9
—
—
—
—
—
—
—
—
(0.3)
(37.6)
—
(366.5)
(5.5)
—
—
—
—
—
—
—
—
—
322.9
— (366.5)
—
58.7
—
—
(47.5)
49.0
2.1
25.4
4.4
5.9
(163.2)
(163.2)
7.0
—
—
(4.2)
—
(37.6)
—
(0.7)
(41.3)
—
—
—
—
—
—
—
—
322.9
(367.2)
(88.8)
49.0
2.1
25.4
5.9
(163.2)
(4.2)
—
(37.6)
Balance at December 31, 2014 . . . . . . . . .
$1.6
$ 221.7 $3,380.7
$(441.1)
$ (841.6) $2,321.3
$ 0.9
$2,322.2
Net income . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . .
Exercise of stock options . . . . . . . . . . . .
Tax benefit from stock options exercised . . .
Stock based compensation expense . . . . . .
Funding of Employee Stock Ownership
Plan . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares purchased . . . . . . . . . . .
RSU distributions . . . . . . . . . . . . . . . . .
RSU dividends . . . . . . . . . . . . . . . . . .
Cash dividends ($0.29 per share)
. . . . . . .
—
—
—
—
—
—
—
—
—
—
—
—
(8.2)
11.6
25.6
1.1
—
(14.3)
0.3
—
251.2
—
—
—
—
—
—
—
(0.3)
(40.6)
—
(152.9)
—
251.2
— (152.9)
(0.1)
0.6
251.1
(152.3)
—
—
—
—
—
—
—
—
43.4
—
—
35.2
11.6
25.6
3.6
4.7
(112.7)
(112.7)
8.9
—
—
(5.4)
—
(40.6)
—
—
—
—
—
—
—
—
35.2
11.6
25.6
4.7
(112.7)
(5.4)
—
(40.6)
Balance at December 31, 2015 . . . . . . . . .
$1.6
$ 237.8 $3,591.0
$(594.0)
$ (898.4) $2,338.0
$ 1.4
$2,339.4
Net income . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . .
Acquisition of noncontrolling interest . . . . . .
—
—
—
—
—
(0.1)
Common stock issuance related to Sirona
merger
. . . . . . . . . . . . . . . . . . . . .
1.0
6,255.2
Exercise of stock options . . . . . . . . . . . .
Tax benefit from stock options exercised . . .
Stock based compensation expense . . . . . .
Funding of Employee Stock Ownership
Plan . . . . . . . . . . . . . . . . . . . . . . .
Treasury shares purchased . . . . . . . . . . .
RSU distributions . . . . . . . . . . . . . . . . .
RSU dividends . . . . . . . . . . . . . . . . . .
Cash dividends ($0.310 per share) . . . . . . .
—
—
—
—
—
—
—
—
(10.8)
16.1
41.3
2.1
—
(25.5)
0.6
—
429.9
—
—
—
—
—
—
—
—
—
(0.6)
(72.3)
—
(111.7)
—
—
—
—
—
—
—
—
—
—
—
429.9
— (111.7)
—
(0.1)
1.5
(1.2)
(0.3)
431.4
(112.9)
(0.4)
— 6,256.2
10.2
6,266.4
48.1
—
—
37.3
16.1
41.3
4.3
6.4
(815.1)
(815.1)
13.8
(11.7)
—
—
—
(72.3)
—
—
—
—
—
—
—
—
37.3
16.1
41.3
6.4
(815.1)
(11.7)
—
(72.3)
Balance at December 31, 2016 . . . . . . . . .
$2.6
$6,516.7 $3,948.0
$(705.7)
$(1,647.3) $8,114.3
$ 11.6
$8,125.9
The accompanying notes are an integral part of these financial statements.
67
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of deferred financing costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock based compensation expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs – non-cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock option income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Equity in earnings from unconsolidated affiliates . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-cash (income) expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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 . . . . . . . . . . . . . . . . . .
Proceeds from the sale of businesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of short term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liquidation of short term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from redemption of long-term corporate bonds . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash assumed in Sirona merger
Purchase of company owned life insurance policies . . . . . . . . . . . . . . . . . . . . . . . . .
Cash received on derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid on derivative contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expenditures for identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by (used in) investing activities . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2014
2015
2016
$ 431.4
$ 251.1
$ 322.9
116.6
155.1
4.5
(110.1)
41.3
9.7
(12.7)
—
(32.0)
2.8
(75.1)
65.4
(32.4)
2.6
7.2
(12.2)
(7.7)
9.0
563.4
(341.8)
6.1
(6.8)
—
—
(125.0)
522.3
(1.7)
20.1
(17.1)
(1.1)
5.0
60.0
79.1
43.8
11.3
27.4
25.6
43.3
(11.6)
1.6
(13.1)
0.8
(0.9)
32.1
(9.5)
3.3
8.8
(4.7)
(8.1)
17.1
497.4
(54.0)
—
—
—
47.7
(72.0)
—
(1.4)
30.7
(6.3)
—
0.4
(54.9)
81.2
47.9
4.6
17.5
25.4
5.8
(2.1)
0.4
10.0
0.4
7.2
21.0
(16.1)
4.9
10.0
(12.2)
22.4
9.2
560.4
(8.6)
6.5
(2.3)
1.1
—
(99.6)
—
(0.9)
67.2
(96.5)
(6.2)
0.6
(138.7)
Cash flows from financing activities:
. . . . . . . . . . . . . . .
Proceeds from long-term borrowings, net of deferred financing costs
Payments on long-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease in short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for acquisition of noncontrolling interests of consolidated subsidiaries . . . . . . . . .
Cash paid for treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . .
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,220.6
(877.5)
(44.1)
41.0
12.7
(0.4)
(813.9)
(64.6)
(526.2)
2.1
99.3
284.6
$ 383.9
152.9
(267.5)
(2.2)
35.5
11.6
(80.5)
(112.7)
(40.0)
(302.9)
(6.6)
133.0
151.6
$ 284.6
114.3
(199.2)
(101.9)
49.0
2.1
—
(163.2)
(37.3)
(336.2)
(8.9)
76.6
75.0
$ 151.6
Schedule of non-cash investing activities:
Merger financed by common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,256.2
$ — $ —
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
36.7
$
$ 112.3
$ 54.9
$ 71.4
$ 47.8
$ 48.7
The accompanying notes are an integral part of these financial statements.
68
DENTSPLY SIRONA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
Description of Business
DENTSPLY SIRONA Inc. (“Dentsply Sirona” or the
“Company”),
is the world’s largest manufacturer of
professional dental products and technologies, with a
130-year history of innovation and service to the dental
industry and patients worldwide. Dentsply Sirona
develops, manufactures, and markets a comprehensive
solutions offering including dental and oral health
products as well as other consumable healthcare
products under a strong portfolio of world class brands.
The Company’s principal product categories are dental
consumable products, healthcare consumable products
and dental
technology products. The Company
distributes its products in over 120 countries under
some of the most well established brand names in the
industry.
On February 29, 2016, DENTSPLY International
Inc. merged with Sirona Dental Systems, Inc. (“Sirona”)
to form DENTSPLY SIRONA Inc. (the “Merger”). The
Consolidated Statements of Operations for the year
ended December 31, 2016 include the results of
operations for Sirona for the period February 29, 2016
to December
accompanying
2016.
Consolidated Balance Sheets at December 31, 2016
includes Sirona’s acquired assets and assumed
liabilities. See Note 4, Business Combinations,
for
additional information about the Merger.
The
31,
stated
Unless
herein,
otherwise
reference
throughout this Form 10-K to “Dentsply Sirona”, or the
and
“Company”
transactions
Inc.
to February 29, 2016 and to
(“DENTSPLY”) prior
financial
information and transactions of DENTSPLY
SIRONA Inc., thereafter.
information
International
refers
of
DENTSPLY
financial
to
Use of Estimates
The
financial
principles
to make
statements
preparation
of
accounting
in
conformity with
generally
accepted in the United States of America (“US GAAP”)
requires management
and
assumptions that affect the reported amounts of assets
and liabilities and the disclosure of contingent assets
and liabilities as of the date of the financial statements
and the reported amounts of 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.
estimates
Principles of Consolidation
The consolidated financial statements include the
accounts of the Company. All significant intercompany
accounts
in
consolidation.
transactions
eliminated
and
are
owned
companies,
Investments in non-consolidated affiliates (20-50
percent
and
partnerships as well as less than 20 percent ownership
positions where the Company maintains significant
influence over the subsidiary) are accounted for using
the equity method.
ventures
joint
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
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 not require collateral from them. The Company
establishes allowances for doubtful accounts for
estimated losses resulting from the inability of
its
customers to make required payments. The Company
records a provision for doubtful accounts, which is
administrative
included
of
expenses
Operations.
the Consolidated Statements
in Selling,
general
and
in
Accounts receivable – trade is stated net of these
allowances that were $22.7 million and $10.7 million at
respectively. The
December 31, 2016 and 2015,
December 31, 2016 balance includes $7.4 million
related to the Merger and acquisitions during the year.
For the years ended December 31, 2016 and 2015, the
Company wrote-off $2.5 million and $2.2 million,
respectively,
that were
previously reserved. The Company increased the
provision for doubtful accounts by $9.2 million and $4.3
million during 2016 and 2015, respectively.
receivable
accounts
of
Inventories
Inventories are stated at
the lower of cost or
market. At December 31, 2016 and 2015, the cost of
$8.6 million and $8.1 million, respectively, of inventories
was 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.
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, 2016 and 2015 by $6.8 million and $6.6
million, respectively.
69
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 assumptions about
future
demand and market conditions.
Valuation of Goodwill and Other Long-Lived Assets
tests.
impairment of
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.
these assets is
Testing for potential
significantly dependent on 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
the outcome of
technologies can significantly affect
impairment
these
Estimates
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,
future cash flows, a key variable in assessing the
impairment of these assets, may decrease and as a
the Company may be required to recognize
result
the
impairment
environment and the economic outlook for the assets
being evaluated could also result
in additional
impairment charges being recognized. The following
information
significant
accounting policies on long-lived assets by type.
the Company’s
charges.
changes
outlines
Future
based
on
in
Goodwill
Goodwill is the excess of the purchase price over
the fair value of identifiable net assets acquired and
liabilities assumed in a business combination. Goodwill
is not amortized. Goodwill
is tested for impairment
annually, during the Company’s second quarter, or
impairment exist. The
when indications of potential
the existence of potential
Company monitors for
impairment
the year. This impairment
throughout
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 determine if
to its carrying amount
there is potential goodwill impairment. If impairment is
is
charge
identified
determined by
through a
hypothetical purchase price allocation of the fair value
and reducing the current carrying value to the extent it
exceeds the recalculated goodwill.
resulting
the
recalculating goodwill
goodwill,
on
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
70
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
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.
assumptions.
determining
Lastly,
its
Indefinite-Lived Intangible Assets
assets
intangible
Indefinite-lived
to determine fair
consist
of
to amortization.
tradenames and are not subject
Valuations of
identifiable intangibles assets acquired
are based on information and assumptions available at
the time of acquisition, using income and market model
approaches
In-process
research and development assets are not subject to
the product associated with the
amortization until
research and development
is substantially complete
and is a viable product. At that time, the useful life to
is determined by
amortize the intangible asset
identifying the period in which substantially all the cash
flows are expected to be generated and the asset is
moved to definite-lived.
value.
the carrying amount of
These assets are reviewed for
impairment
annually or whenever events or circumstances suggest
that
the asset may not be
recoverable. The Company uses an income approach,
from royalty method.
more specifically a relief
is necessary to
Significant management
determine
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 applied to
the carrying value
goodwill
exceeds the fair value, an impairment
loss in the
amount equal to the excess is recognized.
assumptions,
impairment
judgment
including
testing.
key
If
Identifiable 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
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.
lives. Valuations of
These assets are reviewed for
whenever events or circumstances suggest
impairment
the
that
carrying amount of the asset may not be recoverable.
intangible assets
The Company closely monitors all
including those related to new and existing technologies
for indicators of impairment as these assets have more
risk of becoming impaired. Impairment is based upon
an initial evaluation of
the identifiable undiscounted
cash flows. If the initial evaluation identifies a potential
impairment, a fair value is determined by using a
the
discounted cash flows valuation.
resulting charge reflects the excess of
the asset’s
carrying cost over its fair value.
impaired,
If
Property, Plant and Equipment
financial
Property, plant and equipment are stated at cost,
net of accumulated depreciation. Except for leasehold
reporting
improvements, depreciation for
purposes is computed by the straight-line method over
the following estimated useful
lives: buildings -
generally 40 years and machinery and equipment - 4 to
leasehold improvements is
15 years. The cost of
amortized over the shorter of the estimated useful life or
the term of
the lease. Maintenance and repairs are
expensed as incurred to the statement of operations;
replacements and major improvements are capitalized.
impairment
These asset groups are reviewed for
whenever events or circumstances suggest
the
that
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.
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 of operations or accumulated
other comprehensive income (“AOCI”). The Company
classifies derivative assets and liabilities as current
when the remaining term of the derivative contract is
one year or less. The Company has elected to classify
the cash flow from derivative instruments in the same
category as the cash flows from the items being
hedged. Should the Company enter into a derivative
instrument
included an other-than-insignificant
financing element then all cash flows will be classified
as financing activities in the Consolidated Statements of
Cash Flows as required by US GAAP.
that
derivative
The Company
financial
employs
instruments to hedge certain anticipated transactions,
liabilities
and
firm commitments,
denominated in foreign currencies. Additionally,
the
Company utilizes interest rate swaps to convert floating
rate debt to fixed rate.
assets
and
Pension and Other Postemployment Benefits
Some of the employees of the Company and its
subsidiaries
or
Company-sponsored defined benefit plans. Many of the
government
covered
are
by
in
benefit
defined
healthcare
are
plans.
covered
Costs
the United States
employees have available to them defined contribution
plans. Additionally, certain union and salaried employee
by
groups
for
postemployment
Company-sponsored
and
postemployment benefit plans are based on expected
rates, 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 periodic benefit costs associated
with postemployment benefits. Changes in these
the Company’s earnings
assumptions can impact
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 assumptions
include medical
inflation trend rates, 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.
Accruals for Self-Insured Losses
The Company maintains insurance for certain
risks, including workers’ compensation, general liability,
product liability and vehicle liability, and is self-insured
for employee related healthcare benefits. The Company
accrues for the expected costs associated with these
risks by considering historical claims experience,
demographic
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.
severity
factors,
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
71
If
the time.
better estimate of
the probable loss. The ranges
established by management are based on analysis
legal counsel who
made by internal and external
considers 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
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.
liability. These loss
Foreign Currency Translation
The functional currency for
foreign operations,
those in highly inflationary economies,
except
generally has been determined to be the local currency.
for
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 on the Consolidated Balance
Sheets. During the year ended December 31, 2016, the
Company had gains of $15.6 million on its loans
designated as hedges of net
investments and
translation losses of $109.4 million. During the year
ended December 31, 2015, the Company had gains of
$1.7 million on its loans designated as hedges of net
investments and translation losses of $187.2 million.
of
the
entity
involved
currency
Foreign exchange gains and losses arising from
transactions denominated in a currency other than the
functional
and
remeasurement adjustments in countries with highly
inflationary economies are included in income. Net
foreign exchange transaction gains of $10.2 million and
$5.2 million and net
foreign exchange transaction
losses of $1.3 million in 2016, 2015, and 2014,
respectively, are included in Other expense (income),
net in the Consolidated Statements of Operations.
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,
collectibility 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
taxes collected from customers in
similar
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
The Company offers discounts to its customers
and distributors if certain conditions are met. Discounts
are primarily based on the volume of products
purchased or targeted to be purchased by the individual
customer or distributor. Discounts are deducted from
revenue at the time of sale or when the discount is
offered, whichever is later. The Company estimates
volume discounts based on the individual customer’s
historical and estimated future product purchases.
Returns of products, excluding warranty related returns,
are infrequent and insignificant.
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
In
of achievement within the rebate programs.
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
these rebate
Company updates the accruals for
programs as actual
results and updated forecasts
impact the estimated achievement for customers within
the rebate programs.
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
the Company’s sales is
precious metal content of
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 $64.3 million, $92.8 million
and $129.9 million for 2016, 2015 and 2014,
respectively.
Revenue Recognition related to Multiple Deliverables
Sales revenue arrangements can consist of
its product and service
multiple deliverables of
certain products offerings,
offerings. Additionally,
technology products, may contain
primarily dental
functions together with the
embedded software that
product to deliver the product’s essential functionality.
Amounts received from customers in advance of
product shipment are classified as deferred income until
the revenue can be recognized in accordance with the
Company’s revenue recognition policy.
is
revenue
specified
Services: Service
generally
recognized ratably over the contract term as
the
performed.
services
Amounts received from customers in advance
rendering of services are classified as
of
deferred income until
the revenue can be
recognized upon rendering of those services.
are
•
72
•
•
•
•
Extended Warranties: The Company offers its
customers an option to purchase extended
warranties on certain products. The Company
recognizes
revenue on these extended
warranty contracts ratably over the life of the
contract. The costs associated with these
extended warranty contracts are recognized
when incurred.
services
customers may
Multiple-Element Arrangements: Arrangements
with
include multiple
including any combination of
deliverables,
equipment,
extended
and
warranties. The deliverables included in the
Company’s multiple-element arrangements
are separated into more than one unit of
accounting when (i) the delivered equipment
has value to the customer on a stand-alone
the undelivered
basis, and (ii) delivery of
service
and
probable
substantially in the control of the Company.
Arrangement consideration is then allocated
to each unit, delivered or undelivered, based
on the relative selling price of each unit of
accounting based first on vendor-specific
objective evidence,
it exists, and then
if
based on estimated selling price.
element(s)
is
are
also
Vendor-specific objective: In most instances,
products are sold separately in stand-alone
arrangements. Services
sold
separately through renewals of contracts with
varying periods. The Company determines
vendor-specific objective based on its pricing
the specific
and discounting practices for
product or service when sold separately,
considering geographical,
customer, and
other economic or marketing variables, as
well as renewal rates or stand-alone prices
for the service element(s).
Estimated Selling Price: Represents the price
at which the Company would sell a product or
service if it were sold on a stand-alone basis.
When vendor-specific objective evidence
does not exist for all elements, the Company
determines estimated selling price for
the
arrangement element based on sales, cost
and margin analysis, as well as other inputs
based on its pricing practices. Adjustments
for other market and Company-specific
factors are made as deemed necessary in
determining estimated selling price.
After separating the elements into their specific
units of accounting, total arrangement consideration is
allocated to each unit of accounting according to the
the revenue as described above and
nature of
application of the relative selling price method. Total
recognized revenue is limited to the amount not
contingent upon future transactions.
73
Cost of Products Sold
Cost of products sold represents costs directly
the
related to the manufacture and distribution of
Company’s products. Primary
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.
costs
Warranties
The Company provides warranties on certain
equipment products. Estimated warranty costs are
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 products sold in the Consolidated Statements
of Operations. During 2016, the Company’s warranty
the
expense and accrual
Merger. The following table presents the Company’s
warranty
at
December 31:
increased as a result of
warranty
expense
accrual
and
December 31,
2015
2016
2014
(in millions)
Warranty Expense . . . . . . . . .
. . . . . . . . .
Warranty Accrual
$25.2
11.2
$6.0
3.8
$6.0
4.0
Selling, General and Administrative Expenses
Selling, general and 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,
travel, office expenses,
research and development,
lease costs, amortization of capitalized software and
depreciation of administrative facilities. Advertising cost
are expensed as incurred.
Research and Development Costs
In
addition,
expenses.
Research and development (“R&D”) costs relate
primarily to internal costs for salaries and direct
overhead
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.
Software development costs incurred prior
to the
attainment of
feasibility are considered
R&D and are expensed as incurred. Once technological
feasibility is established, software development costs
are capitalized until the product is available for general
release to customers. Amortization of these costs are
technological
included in Cost of products sold over the estimated life
the products. R&D costs are included in Selling,
of
general
the
Consolidated Statements of Operations and amounted
to $128.5 million, $74.9 million and $80.8 million for
2016, 2015 and 2014, respectively.
administrative
expenses
and
in
Stock Compensation
The Company recognizes the compensation cost
relating to stock-based payment
transactions in the
financial statements. The cost of stock-based payment
transactions is measured at the grant date, based on
the calculated fair value of the award, and is recognized
as an expense over the employee’s requisite service
the equity
period (generally the vesting period of
awards). The compensation cost is only recognized for
the portion of the awards that are expected to vest.
Income Taxes
The Company’s tax expense includes U.S. and
income taxes plus the provision for U.S.
international
taxes on undistributed earnings of
international
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 Company applies a recognition threshold and
measurement attribute for
the financial 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
the
of all dilutive options outstanding at
period.
the end of
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
74
assets acquired and liabilities assumed at
their
respective fair values with the excess of the purchase
price over estimated fair values recorded as goodwill.
The assumptions made in determining the fair value of
acquired assets and assumed liabilities as well as asset
lives can materially impact the results of operations.
and
include:
tangible
intangible
The Company obtains information during due
diligence and through other sources to establish
respective fair values. Examples of
factors and
information that the Company uses to determine the fair
asset
values
evaluations and appraisals; evaluations of existing
contingencies
line
liabilities
information. If the initial valuation for an acquisition is
the quarter in which the
incomplete by the end of
acquisition occurred,
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.
the Company will
product
and
and
Noncontrolling Interests
in
the Consolidated
The Company reports noncontrolling interest
(“NCI”) in a subsidiary as a separate component of
Equity
Sheets.
Additionally, the Company reports the portion of net
income (loss) 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.
Balance
Segment Reporting
The
Company
numerous
operating
has
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 market. Professional dental products
and equipment represented approximately 92%, 88%
and 88% of sales for each of the years ended 2016,
2015 and 2014, respectively. The Company has two
reportable segments and a description of the activities
within these segments is included in Note 5, Segment
and Geographic Information.
Fair Value Measurement
Recurring Basis
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 (an exit price) in the principal or most
for the asset or liability in an
advantageous market
orderly transaction between market participants on the
guidance
measurement
The
framework
hierarchal
establishes
accounting
disclosure
date.
a
associated with the level of pricing observability utilized
instruments at fair value. The
in measuring financial
three broad levels defined by the fair value hierarchy
are as follows:
presentation. Specifically, during the first quarter of
2016, the Company realigned reporting responsibilities
for multiple locations as a result of changes to the
management reporting structure.
Level 1 — Quoted prices are available in active
the
identical assets or
liabilities as of
markets for
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
instruments include, derivative instruments
financial
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.
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.
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 impacted by a number of factors,
including the type of
instrument. Financial
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 Years Amounts
Certain reclassifications have been made to prior
to conform to current year
year’s data in order
75
New Accounting Pronouncements
to
the
the
this
timing
option
nature,
regarding
standard, an entity
In May 2014, the Financial Accounting Standards
Board (“FASB”) issued Accounting Standards Update
(“ASU”) No. 2014-09, “Revenue from Contracts with
Customers (Topic 606)” that seeks to provide a single,
for all
comprehensive revenue recognition model
contracts with customers that
improve comparability
within industries, across industries and across capital
markets. Under
should
recognize revenue for the transfer of goods or services
equal to the amount it expects to be entitled to receive
those goods or services. Enhanced disclosure
for
requirements
and
the
uncertainty of revenue and related cash flows exist. To
assist entities in applying the standard, a five step
model
for recognizing and measuring revenue from
contracts with customers has been introduced. Entities
have
new guidance
apply
retrospectively to each prior reporting period presented
(full retrospective approach) or retrospectively with a
cumulative effect adjustment to retained earnings for
initial application of the guidance at the date of initial
adoption (modified retrospective method). On July 9,
2015, the FASB issued ASU No. 2015-14, deferring the
effective date by one year to annual reporting periods
beginning after December 15, 2017. Early adoption is
permitted. In April 2016, the FASB issued ASU No.
2016-10, which clarifies the “identifying performance
obligations and licensing implementations guidance”
aspects of Topic 606. In May 2016, the FASB issued
ASU No. 2016-11, which amends and or
rescinds
certain
the Accounting Standards
Codification (“ASC”) to reflect the requirements under
Topic 606. Additionally,
the FASB issued ASU No.
2016-12, which clarifies the criteria for assessing
collectibility, permits an entity to elect an accounting
policy to exclude from the transaction price amounts
collected from customers for all sales taxes, and
provides a practical expedient that permits an entity to
reflect the aggregate effect of all contract modifications
that occur before the beginning of the earliest period
presented
In
December 2016, the FASB issued ASU No. 2016-20,
which clarifies several additional aspects of Topic 606
including contract modifications and performance
obligations. The Company will adopt these accounting
standards on January 1, 2018. The Company has
completed its analysis of revenue areas that will be
impacted by the adoption of this standard. The primary
areas affected are the Company’s promotional and
customer loyalty programs. The Company is currently
impact this will
gathering and assessing the financial
have on the financial position, results of operations,
cash flows and disclosures. The Company is also in the
systems,
process
accordance with Topic
implementing
changes
aspects
606.
of
of
to
in
processes and internal controls to meet the standard
update to reporting and disclosure requirements. The
Company has not made a decision on the transition
method of adoption.
In January 2015,
the FASB issued ASU No.
2015-01, “Simplifying Income Statement Presentation
by Eliminating the Concept of Extraordinary Items”.
This newly issued accounting standard eliminates from
generally accepted accounting principles the concept of
Extraordinary items, events or transactions that are
infrequently. The
unusual
amendments in this update are effective for fiscal years
and interim periods within those fiscal years, beginning
after December 15, 2015. The Company adopted this
accounting standard in the quarter ended March 31,
2016. The adoption of this standard did not materially
impact the Company’s financial position or results of
operations.
in nature and occur
In July 2015, the FASB issued ASU No. 2015-11,
“Simplifying the Measurement of Inventory.” This newly
issued accounting standard requires that an entity
measure inventory at the lower of cost or net realizable
value, as opposed to the lower of cost or market value.
Net realizable value is defined as the estimated selling
prices in the ordinary course of business,
less
reasonably predictable costs of completion, disposal,
and transportation. Excluded from this update are the
Last In First Out (“LIFO”) and retail inventory methods
of accounting for inventory. The amendments in this
standard are effective for fiscal years beginning after
December 15, 2016 and for interim periods within fiscal
years beginning after December 15, 2017. Prospective
application is required for presentation purposes. The
adoption of this standard did not materially impact the
Company’s financial position or results of operations.
In September 2015, the FASB issued ASU No.
“Simplifying Accounting for Measurement
2015-16,
Period Adjustments.” This accounting standard seeks
to simplify
the accounting related to business
combinations. Current US GAAP requires retrospective
adjustment for provisional amounts recognized during
the measurement
and
periods
circumstances that existed at the measurement date, if
known, would have affected the measurement of the
accounts initially recognized. This standard eliminates
retrospective adjustments and
the requirement
requires adjustments to the Financial Statements as
needed in current period earnings for the full effect of
changes. The Company adopted this accounting
standard for the quarter ended March 31, 2016. The
adoption of this standard did not materially impact the
Company’s financial position or results of operations.
when
facts
for
In November 2015,
the FASB issued ASU No.
“Balance Sheet Classification of Deferred
2015-17,
Taxes.” This accounting standard seeks to simplify the
accounting related to deferred income taxes. Current
US GAAP requires an entity to separate deferred tax
76
assets (“DTAs”) and deferred tax liabilities (“DTLs”) into
current and noncurrent amounts for each tax jurisdiction
the related asset or
based on the classification of
liability for
reporting. DTAs and DTLs not
financial
related to assets and liabilities for financial reporting are
classified based on the expected reversal date. The
new standard requires DTAs or DTLs for each tax
jurisdictions to be classified as noncurrent
in a
classified statement of financial position. The adoption
of this standard is required for interim and fiscal periods
ending after December 15, 2016 and is permitted to be
adopted prospectively or retrospectively. The adoption
of this standard is not expected to materially impact the
Company’s financial position and disclosures.
for financial
In January 2016,
statements with more
the FASB issued ASU No.
2016-01, “Recognition and Measurement of Financial
Assets and Financial Liabilities.” This newly issued
accounting standard seeks to enhance the reporting
instruments to provide users of
model
decision-useful
financial
information as well as to improve and achieve
convergence of the FASB and International Accounting
Standards Board (“IASB”) standards on the accounting
for financial instruments. The amendments allow equity
investments that do not have readily determinable fair
values to be remeasured at fair value either upon the
occurrence of an observable price change or upon
identification of an impairment.
It also requires
those investments and
enhanced disclosures about
items that are recognized in
reduces the number of
other comprehensive income. The adoption of
this
standard is required for
interim and fiscal periods
ending after December 15, 2017 and should be applied
to the
by means of a cumulative-effect adjustment
balance sheet as of the beginning of the fiscal year of
adoption. The Company is currently assessing the
this standard may have on its financial
impact
position,
cash flows and
disclosures.
results of operations,
that
to
key
about
increase
disclosing
information
transparency
In February 2016,
the FASB issued ASU No.
“Leases.” This newly issued accounting
2016-02,
standard
and
seeks
comparability among organizations by recognizing
lease assets and lease liabilities in the balance sheet
leasing
and
arrangements. Current US GAAP does not
require
lessees to recognize assets and liabilities arising from
operating leases in the balance sheet. This standard
also provides guidance from the lessees prospective on
how to determine if a lease is an operating lease or a
financing lease and the differences in accounting for
this standard is required for
each. The adoption of
interim and fiscal periods ending after December 15,
2018 and it is required to be applied retrospectively
using the modified retrospective approach. Early
adoption is permitted. The Company is currently
assessing the impact that this standard will have on its
financial position, results of operations, cash flows and
disclosures.
In March 2016,
the FASB issued ASU No.
“Stock Compensation.” This newly issued
2016-09,
accounting standard seeks to simplify the accounting
for all entities that issue stock-based payment awards
to their employees. The primary areas of change
include accounting for
income taxes, cash flow
statement classification of excess tax benefits and
employee taxes paid when an employer withholds
shares, accounting for forfeitures and tax withholding
requirements. The adoption of this standard is required
for interim and fiscal periods ending after December 15,
2016. Early adoption is permitted. Amendments related
to the timing of when excess tax benefits are
recognized,
withholding
requirements and forfeitures should be applied using a
modified retrospective transition method by means of a
cumulative-effect adjustment
the
beginning of
the period in which the guidance is
adopted. Amendments related to the presentation of
employee taxes paid in the statement of cash flows
the
when an employer withholds shares to meet
minimum statutory withholding requirement should be
applied
requiring
recognition of excess tax benefits and tax deficiencies
applied
in
be
should
prospectively. The adoption of
this standard is not
expected to materially impact the Company’s financial
position,
cash flows and
disclosures.
results of operations,
to equity as of
retrospectively.
Amendments
statement
minimum
statutory
income
the
after
business
In August 2016,
the FASB issued ASU No.
2016-15, “Statement of Cash Flows.” This newly issued
accounting standard seeks to clarify the presentation of
eight specific cash flow issues in order
to reduce
diversity in practice. The topics of clarification include
debt prepayment or extinguishment costs, settlement of
zero-coupon debt instruments, contingent consideration
combination,
payments made
a
insurance claims,
proceeds from the settlement of
proceeds from the settlement of corporate-owned life
insurance policies, distributions received from equity
method investees, beneficial
in securitization
transactions, and separately identifiable cash flows.
The amendments in this update are effective for interim
and fiscal periods beginning after December 15, 2017.
Early adoption is permitted. The amendments in this
update should be applied using a retrospective
transition method to each period presented. The
Company is currently assessing the impact that this
standard will have on the presentation of
its
Consolidated Statements of Cash Flows.
interest
In October 2016,
the FASB issued ASU No.
2016-16, “Income Taxes.” This newly issued accounting
standard seeks to improve the accounting for
the
income tax consequences of
intra-entity transfers of
assets other than inventory. Current US GAAP prohibits
the recognition of current and deferred income taxes for
an intra-entity asset transfer until the asset has been
sold to a third party, which is an exception to the
77
principle of comprehensive recognition of current and
deferred income taxes in US GAAP. ASU No. 2016-16
eliminates this exception. The amendments in this
update are effective for
interim and fiscal periods
beginning after December 15, 2017. Early adoption is
permitted. The amendments in this update should be
applied using a modified retrospective basis through a
cumulative-effect
retained
earnings as of the beginning of the period of adoption.
The Company is currently assessing the impact that
this standard will have on its financial position, results
of operations, cash flows and disclosures.
adjustment
directly
to
In January 2017,
the FASB issued ASU No.
2017-01, “Business Combinations.” This newly issued
accounting standard clarifies the definition of a
business with the objective of adding guidance to assist
entities with evaluating whether transactions should be
accounted for as acquisition or disposal of assets or
businesses. The amendments in this update provide a
screen to determine when a set of assets is not a
business. The screen requires that when substantially
all of the fair value of the gross assets acquired (or
disposed of) is concentrated in a single identifiable
asset or a group of similar identifiable assets, the set of
assets is not a business. The amendments in this
update are effective for
interim and fiscal periods
beginning after December 15, 2017. Early adoption is
permitted under certain conditions. The amendments in
this update should be applied prospectively. The
Company is currently assessing the impact that this
standard will on its financial position,
results of
operations, cash flows and disclosures.
In January 2017,
its assets and liabilities at
the FASB issued ASU No.
2017-04, “Intangibles, Goodwill and Other.” This newly
issued accounting standard seeks to simplify the
subsequent measurement of goodwill by eliminating
step 2 of the goodwill
impairment test which requires
business to perform procedures to determine the fair
value of
the impairment
testing date. Under this amendment, an entity should
perform its goodwill impairment test by comparing the
fair value of a reporting unit with its carrying amount
the
and then recognize an impairment charge for
amount by which the carrying amount exceeds the
reporting unit’s fair value. The loss recognized should
not exceed the total amount of goodwill allocated to that
reporting unit. Additionally, an entity should consider
income tax effects from any tax deductible goodwill on
the reporting unit when
the carrying amount of
measuring the goodwill
impairment loss, if applicable.
The amendments in this update are required for annual
impairment tests in fiscal years
and interim goodwill
beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment test
performed on testing dates after January 1, 2017. The
amendments
in this update should be applied
prospectively. The Company is currently assessing the
impact
this standard will have on its financial
position, results of operations and disclosures.
that
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
Sirona
Shares
Earnings per
common share
(in millions, except for per share amounts)
Year Ended December 31, 2016
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429.9
218.0
$1.97
Incremental shares from assumed exercise of dilutive options and
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
429.9
3.6
221.6
$1.94
Year Ended December 31, 2015
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251.2
140.0
$1.79
Incremental shares from assumed exercise of dilutive options and
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
251.2
2.5
142.5
$1.76
Year Ended December 31, 2014
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322.9
141.7
$2.28
Incremental shares from assumed exercise of dilutive options and
RSUs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
322.9
2.5
144.2
$2.24
The calculation of weighted average diluted shares
outstanding excludes stock options and restricted stock
units (“RSUs”) of 0.6 million, 0.9 million and 1.0 million
shares of common stock that were outstanding during
the years ended 2016, 2015 and 2014, respectively,
from the computation of diluted earnings per common
share since their effect would be antidilutive.
certain derivative financial
instruments,
value of
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 December 31, 2016, 2015 and 2014, these tax
adjustments were $166.4 million, $169.3 million and
$195.4 million, respectively, primarily related to foreign
currency translation adjustments.
The
currency
cumulative
translation
foreign
adjustments included translation losses of $412.4
million and $307.5 million at December 31, 2016 and
2015, respectively, and which included losses of $78.1
million and $93.7 million,
respectively, on loans
designated as hedges of net investments.
NOTE 3 — COMPREHENSIVE INCOME
AOCI
foreign
to
translation
includes
foreign
adjustments
related
the related changes in certain
subsidiaries, net of
financial
instruments hedging these foreign currency
investments. In addition, changes in the Company’s fair
currency
the Company’s
78
Changes in AOCI by component for the years ended December 31, 2016, 2015 and 2014:
Gain and
(Loss) on
Derivative
Financial
Instruments
Designated
as Cash Flow
Hedges
Foreign
Currency
Translation
Gain (Loss)
Gain and
(Loss) on
Derivative
Financial
Instruments
Pension
Liability
Gain (Loss)
Total
(in millions)
Balance, net of tax, at December 31, 2015 . .
$(401.2)
$(1.2)
$(110.2)
$(81.4)
$(594.0)
Other comprehensive (loss) income before
. . . . . .
reclassifications and tax impact
Tax (expense) benefit . . . . . . . . . . . . . .
Other comprehensive (loss) income, net of
tax, before reclassifications . . . . . . . . .
Amounts reclassified from accumulated
other comprehensive income (loss), net
of tax . . . . . . . . . . . . . . . . . . . . . . .
(71.4)
(17.9)
(89.3)
(0.8)
0.5
(0.3)
(13.2)
6.6
(25.4)
(110.8)
7.9
(2.9)
(6.6)
(17.5)
(113.7)
—
(1.7)
—
3.7
2.0
Net (decrease) increase in other
comprehensive income . . . . . . . . . .
(89.3)
Balance, net of tax, at December 31, 2016 . .
$(490.5)
(2.0)
$(3.2)
(6.6)
(13.8)
(111.7)
$(116.8)
$(95.2)
$(705.7)
Gain and
(Loss) on
Derivative
Financial
Instruments
Designated
as Cash Flow
Hedges
Net
Unrealized
Holding
Gain
(Loss) on
Available-
for-Sale
Securities
Gain and
(Loss) on
Derivative
Financial
Instruments
Foreign
Currency
Translation
Gain (Loss)
Pension
Liability
Gain (Loss)
Total
(in millions)
Balance, net of tax, at
December 31, 2014 . . . . . . .
$(212.5)
$(10.8)
$(112.7)
$ 8.5
$(113.6)
$(441.1)
Other comprehensive (loss)
income before
reclassifications and tax
impact . . . . . . . . . . . . . .
Tax (expense) benefit
. . . . .
Other comprehensive income
(loss), net of tax, before
reclassifications . . . . . . . .
Amounts reclassified from
accumulated other
comprehensive income
(loss), net of tax . . . . . . . .
Net (decrease) increase in
other comprehensive
income . . . . . . . . . . . .
Balance, net of tax, at
(178.0)
(9.5)
22.1
(3.3)
4.5
(2.0)
(6.8)
2.0
39.9
(13.3)
(118.3)
(26.1)
(187.5)
18.8
2.5
(4.8)
26.6
(144.4)
(1.2)
(9.2)
—
(3.7)
5.6
(8.5)
(188.7)
9.6
2.5
(8.5)
32.2
(152.9)
December 31, 2015 . . . . . . .
$(401.2)
$ (1.2)
$(110.2)
$ —
$ (81.4)
$(594.0)
79
Reclassification out of accumulated other comprehensive income (loss) for the years ended December 31,
2016, 2015 and 2014:
Details about AOCI Components
Amounts Reclassified from AOCI
Year Ended December, 31
2015
2014
2016
Affected Line Item
in the Statements of
Operations
(in millions)
Realized foreign currency gain on liquidation of foreign subsidiary:
$ 1.2
Foreign currency translation adjustment . . . .
$ —
Gains and (loss) on derivative financial instruments:
Interest rate swaps . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . .
Foreign exchange forward contracts . . . .
Commodity contracts . . . . . . . . . . . . . .
Net gain (loss) before tax . . . . . . . . . . . .
Tax impact
. . . . . . . . . . . . . . . . . . . . .
Net gain (loss) after tax . . . . . . . . . . . . .
Realized gain on available-for-sale securities:
Available-for-sale-securities . . . . . . . . . .
Tax impact
. . . . . . . . . . . . . . . . . . . . .
Net gain after tax . . . . . . . . . . . . . . . . .
$(2.9)
4.8
0.1
(0.1)
1.9
(0.2)
$ 1.7
$ —
—
$ —
$(10.1)
18.0
0.6
(0.5)
8.0
1.2
$ 9.2
$ 5.1
(1.4)
$ 3.7
$ — Other expense (income), net
$ (3.7)
(6.4)
(0.1)
(0.5)
(10.7)
3.7
$ (7.0)
Interest expense
Cost of products sold
SG&A expenses
Cost of products sold
Provision for income taxes
$ — Other expense (income), net
— Provision for income taxes
$ —
Amortization of defined benefit pension and other postemployment benefit items:
$ 0.1(a)
(2.9)(a)
(2.8)
1.0
$ (1.8)
$ (8.8)
Amortization of prior service benefits . . . .
Amortization of net actuarial losses . . . . .
Net loss before tax . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Tax impact
Net loss after tax . . . . . . . . . . . . . . . . .
Total reclassifications for the period . . . . . .
$ 0.2
(8.0)
(7.8)
2.2
$ (5.6)
$ 8.5
$ 0.2
(5.3)
(5.1)
1.4
$(3.7)
$(2.0)
Provision for income taxes
(a) These accumulated other comprehensive income components are included in the computation of net periodic
benefit cost for the years ended December 31, 2016, 2015, and 2014, respectively (see Note 15, Benefit
Plans, for additional details).
NOTE 4 — BUSINESS COMBINATIONS
Business Combinations
2016 Transactions
On February 29, 2016, DENTSPLY merged with
Sirona in an all-stock transaction and the registrant was
renamed DENTSPLY SIRONA Inc. and the common
stock continues to trade on the NASDAQ under the
ticker “XRAY”.
In connection with the Merger, each
former share of Sirona common stock issued and
outstanding immediately prior to February 29, 2016,
was converted to 1.8142 shares of DENTSPLY
common stock. The Company issued approximately
101.8 million shares of DENTSPLY common stock to
stock,
former
representing approximately 42% of the approximately
242.2 million total shares of DENTSPLY common stock
outstanding on the Merger date.
shareholders
of Sirona
common
DENTSPLY was determined to be the accounting
acquirer. In this all-stock transaction, only DENTSPLY
common stock was transferred and DENTSPLY
shareholders received approximately 58% of the voting
interest of
the combined company, and the Sirona
shareholders received approximately 42% of the voting
interest. Additional
indicators included the combined
company’s eleven Board of Directors which includes six
the former DENTSPLY board, and five
members of
members of
the former Sirona board, as well as
DENTSPLY’s financial size.
combines
The Merger
leading platforms
in
consumables, equipment, and technologies which
creates complimentary end to end solutions to meet
customer needs and improve patient care. The
combined company is positioned to capitalize on key
industry trends to drive growth, including accelerating
adoption of digital dentistry.
80
The following table summarizes the consideration transferred:
(in millions, except per share amount)*
Sirona common stock outstanding at February 29, 2016 . . . . . . . . . . . . . . . . . . . . . .
Exchange ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
DENTSPLY common stock issued for consideration . . . . . . . . . . . . . . . . . . . . . . . .
DENTSPLY common stock per share price at February 26, 2016 . . . . . . . . . . . . . . . .
Fair value of DENTSPLY common stock issued to Sirona shareholders . . . . . . . . . . . .
Fair value of vested portion of Sirona stock-based awards outstanding – 1.5 million at
February 29, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total acquisition consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
56.1
1.8142
101.8
$ 60.67
$6,173.8
82.4
$6,256.2
*
Table may not foot due to rounding
The Merger was recorded in accordance with US
GAAP pursuant to the provisions of ASC Topic 805,
Business Combinations. The Company has performed
a preliminary valuation analysis of identifiable assets
acquired and liabilities assumed and allocated the
consideration based on the preliminary fair values of
those identifiable assets acquired and liabilities
In addition, completion of
assumed, but there may be material changes as the
the
valuation is finalized.
valuation may impact
the net
deferred tax liability currently recognized with any
resulting in a corresponding change to
adjustment
these potential adjustments
goodwill. The amount of
could be significant.
the assessment of
The following table summarizes the preliminary fair value of
identifiable assets acquired and liabilities
assumed at the date of the Merger:
(in millions)
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Identifiable intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest
Total identifiable net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 522.3
143.0
220.7
111.1
237.1
2,435.0
3,776.8
10.7
7,456.7
68.0
197.9
57.5
771.6
95.3
1,190.3
10.2
$6,256.2
Inventory held by Sirona included a fair value
adjustment of $72.0 million. The Company expensed
this amount through June 30, 2016 as the acquired
inventory was sold.
Property, plant and equipment
includes a fair
value adjustment of $33.6 million, and consists of land,
buildings, plant and equipment. Depreciable lives range
from 25 to 50 years for buildings and from 3 to 10 years
for plant and equipment.
Deferred income for service contracts previously
recorded by Sirona now includes a fair value
liabilities by
adjustment which reduced other current
this amount
$17.3 million. The consequence is that
cannot be recognized as revenue under US GAAP.
81
Weighted average useful lives for intangible assets were determined based upon the useful economic lives of
the intangible assets that are expected to contribute to future cash flows. The acquired definite-lived intangible
assets are being amortized on a straight-line basis over their expected useful lives. Intangible assets acquired
consist of the following:
(in millions, except for useful life)
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology and patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names and trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average
Useful Life
(in years)
14
12
Indefinite
Amount
$ 495.0
1,035.0
905.0
$2,435.0
flows
resulting
The fair values assigned to intangible assets were
determined through the use of the income approach,
specifically the relief from royalty method was used to
fair value the developed technology and patents and
tradenames and trademarks and the multi-period
excess earnings method was used to fair value
customer relationships. Both valuation methods rely on
including expected future
management’s judgments,
cash
customer
from existing
relationships, customer attrition rates, contributory
effects of other assets utilized in the business, peer
group cost of capital and royalty rates as well as other
factors. The valuation of tangible assets was derived
using a combination of
the
market approach and the cost approach. Significant
judgments used in valuing tangible assets include
estimated reproduction or replacement cost, weighted
average useful lives of assets, estimated selling prices,
costs to complete and reasonable profit.
the income approach,
The $3,776.8 million of goodwill is attributable to
the excess of the purchase price over the fair value of
the net
tangible and intangible assets acquired and
liabilities assumed. Goodwill is considered to represent
the value associated with workforce and synergies the
two companies anticipate realizing as a combined
company. Goodwill of $3,663.5 million has been
assigned to the Company’s Technologies segment and
$113.3 million has been assigned to the Company’s
Dental and Healthcare Consumables segment. The
tax
goodwill
purposes.
is not expected to be deductible for
Sirona contributed net sales of $1,039.9 million
and operating income of $227.2 million to the
Company’s Consolidated Statements of Operations
during the period from February 29, 2016 to
December 31, 2016 which is primarily included in the
Technologies segment.
The following unaudited pro forma financial information reflects the consolidated results of operations of the
Company had the Merger occurred on January 1, 2015. Sirona’s financial information has been compiled in a
manner consistent with the accounting policies adopted by DENTSPLY. The following unaudited pro forma
financial
information for the year ended December 31, 2016 and 2015, has been prepared for comparative
purposes and does not purport to be indicative of what would have occurred had the Merger occurred on
January 1, 2015, nor is it indicative of any future results.
(in millions, except per share amount)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$3,916.0
Net income attributable to Dentsply Sirona . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 437.0
Diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.85
$3,830.0
$ 388.5
$
1.58
Pro forma – unaudited
Year Ended
2016
2015
The pro forma financial
information is based on
the Company’s preliminary assignment of consideration
given and therefore subject to adjustment. These pro
forma amounts were calculated after applying the
Company’s accounting policies and adjusting Sirona’s
results
that are directly
attributable to the Merger. These adjustments mainly
amortization,
intangible
include
to reflect adjustments
additional
asset
82
fair
value
inventory
depreciation,
adjustments,
transaction costs and taxes that would have been
charged assuming the fair value adjustments had been
applied from January 1, 2015,
together with the
consequential
the statutory rate. Pro
forma results do not include any anticipated synergies
or other benefits of the Merger.
tax effects at
For the year ended December 31, 2016, in connection with the Merger, the Company has incurred $29.9
million of transaction related costs, primarily amounts paid to third party advisers, legal and banking fees, which
are included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
In September 2016, the Company finalized the acquisitions of MIS Implants Technologies Ltd., a dental
implant systems manufacturer headquartered in northern Israel and a small acquisition of a healthcare
consumable business. Total purchase price related to these two acquisitions was $341.4 million, net of cash
acquired of $61.4 million, and is subject to final purchase price adjustments. At December 31, 2016, the Company
recorded a preliminary estimate of $206.4 million in goodwill related to the difference between the fair value of
assets acquired and liabilities assumed and the consideration given for the acquisitions. Intangible assets acquired
consist of the following:
(in millions, except for useful life)
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Developed technology and patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade names and trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted Average
Useful Life
(in years)
15
15
Indefinite
Amount
$ 91.3
37.4
25.3
$154.0
The results of operations for these businesses
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 and liabilities assumed. These
transactions were not material to the Company’s net
sales and net income attributable to Dentsply Sirona for
the year ended December 31, 2016.
2015 Transactions
In October 2015, the Company purchased a South
laboratory
American-based manufacturer of dental
products for $51.1 million. The Company recorded
$31.3 million of goodwill
related to the difference
between the fair value of assets acquired and liabilities
assumed
the
acquisitions. The results of operations for this business
have been included in the accompanying financial
statements as of the effective date of the respective
transactions. This transaction was immaterial
to the
Company’s net sales and net
income attributable to
Dentsply Sirona.
consideration
given
and
the
for
2014 Transactions
On January 1, 2014,
the Company recorded a
liability for the contractual purchase of the remaining
shares of one noncontrolling interest. The Company
paid $80.4 million to settle this obligation during the first
quarter of 2015.
In addition during 2014, the Company had one
two non-core product
to the
income attributable to
acquisition and divestitures of
lines. These transactions were immaterial
Company’s net sales and net
Dentsply Sirona.
Investment in Affiliates
On December 9, 2010, the Company purchased
an initial ownership interest of 17% of the outstanding
83
shares of DIO Corporation (“DIO”).
In addition, on
December 9, 2010, the Company invested $49.7 million
in the corporate convertible bonds of DIO, which were
permitted to be converted into common shares at any
time. The bonds were designated by the Company as
available-for-sale securities which are reported in,
Prepaid expenses and other current assets,
in the
Consolidated Balance Sheets at December 31, 2014
and the changes in fair value were reported in AOCI.
The
bonds was
December 2015. The Company had recorded the
ownership in DIO under
the equity method of
accounting as it had significant influence over DIO.
contractual maturity
the
of
In September 2015, the Company sold the bonds
at face value. The Company recorded an unrealized
holding loss, net of tax, of $4.8 million for the year
ended December 31, 2015,
in the Consolidated
Statements of Comprehensive Income. As a result of
sale of the bonds, the Company recorded $3.7 million,
net of tax, of realized foreign currency gains in Other
expense (income), net, in the Consolidated Statements
of Operations for the year ended December 31, 2015.
The fair value of the DIO bonds was $57.7 million at
December 31, 2014 and a cumulative unrealized
holding gain of $8.5 million was
recorded in
available-for-sale securities, net of tax in AOCI.
In addition,
At December 31, 2015, the Company no longer
has representation on the DIO Board of Directors and
the Company no longer has significant
as a result
influence on the operations of DIO.
the
the convertible bonds exercised the
buyers of
conversion rights which resulted in DIO issuing
the Company’s
additional
and
ownership position to 13%. As a result of
these
changes the Company now uses the cost-basis method
of accounting for the remaining direct investment. The
book value of the Company’s direct investment in DIO
is $8.2 million and $8.5 million at December 31, 2016
respectively, and is included in “Other
and 2015,
diluting
shares
noncurrent assets, net,” in the Consolidated Balance
Sheet. At December 31, 2016 and 2015, the fair value
of
is $63.4 million and $49.3
million, respectively.
investment
the direct
NOTE 5 — SEGMENT AND GEOGRAPHIC
INFORMATION
as
chief
The operating businesses are combined into two
operating groups, which generally have overlapping
geographical presence, customer bases, distribution
channels, and regulatory oversight. These operating
groups are considered the Company’s reportable
segments
operating
the Company’s
decision-maker regularly reviews financial results at the
operating group level and uses this information to
manage the Company’s operations. The Company
evaluates performance of the segments based on the
groups’ net third party sales, excluding precious metal
content, and segment adjusted operating income. The
third party sales excluding
Company defines net
precious metal content as the Company’s net sales
excluding the precious metal cost within the products
sold, which is considered a measure not calculated in
accordance with US GAAP, and is therefore considered
a non-US GAAP measure. Management believes that
the presentation of net sales, excluding precious metal
content, provides useful
information to investors
because a portion of Dentsply Sirona’s net sales is
comprised of sales of precious metals generated
through sales of the Company’s 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 Sirona 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 Company’s exclusion of precious metal content in
the measurement of net
third party sales enhances
comparability of performance between periods as it
excludes the fluctuating market prices of the precious
metal content. The Company also evaluates segment
performance based on each segment’s adjusted
operating income before provision for income taxes and
interest. Segment adjusted operating income is defined
as operating income before income taxes and before
certain corporate headquarter unallocated costs,
restructuring and other costs, interest expense, interest
income, other expense (income), net, amortization of
intangible assets and depreciation resulting from the
fair value step-up of property, plant and equipment from
acquisitions. The Company’s
adjusted
operating income is considered a non-US GAAP
measure. A description of the products and services
provided within each of the Company’s two operating
segments is provided below.
segment
During the March 31, 2016 quarter, the Company
realigned reporting responsibilities as a result of the
Merger and changed the management structure. The
segment
the revised
structure for all periods shown.
information below reflects
Dental and Healthcare Consumables
This segment
includes responsibility for
the
worldwide design, manufacture, sales and distribution
of the Company’s Dental and Healthcare Consumable
Products which
restorative,
instruments, endodontic, and laboratory dental products
as well as consumable medical device products.
preventive,
include
Technologies
This segment
is responsible for the worldwide
design, manufacture, sales and distribution of
the
Company’s Dental Technology Products which includes
dental implants, CAD/CAM systems, imaging systems,
treatment centers and orthodontic products.
The following table sets forth information about the Company’s segments for the years ended December 31,
2016, 2015 and 2014.
Third Party Net Sales
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,058.1
1,687.2
$3,745.3
$1,961.0
713.3
$2,674.3
$2,142.3
780.3
$2,922.6
2016
2015
2014
84
Third Party Net Sales, Excluding Precious Metal Content
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales, excluding precious metal content . . . . . . . . . . . . . . . . .
Precious metal content of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . .
Total net sales, including precious metal content
2016
2015
2014
$1,994.3
1,686.7
$3,681.0
64.3
$3,745.3
$1,868.8
712.7
$2,581.5
92.8
$2,674.3
$2,013.2
779.5
$2,792.7
129.9
$2,922.6
Intersegment Net Sales
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Eliminations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$ 233.0
6.4
239.5
(478.9)
$ 208.0
7.3
214.6
(429.9)
$ — $ —
$ 210.8
6.8
239.2
(456.8)
$ —
(a)
Includes amounts recorded at Corporate headquarters and one distribution warehouse not managed by
named segments.
Depreciation and Amortization
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other(b)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$ 78.1
182.4
11.2
$271.7
$ 74.4
42.0
6.5
$122.9
$ 78.2
45.5
5.4
$129.1
(b)
Includes amounts recorded at Corporate headquarters.
Segment Operating Income (Loss)
Segment adjusted operating income before income taxes and interest
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .
. . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciling Items (income) expense:
All Other(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring and other costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation resulting from the fair value step-up of property, plant and
2016
2015
2014
$544.5
355.1
$899.6
$470.1
93.7
$563.8
$467.5
111.3
$578.8
261.3
23.2
35.9
(2.0)
(20.1)
155.4
78.4
64.7
55.9
(2.2)
(8.2)
43.7
72.1
11.1
46.9
(5.6)
(0.1)
47.9
equipment from business combinations . . . . . . . . . . . . . . . . . . . . . . .
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.0
$440.9
1.8
$329.7
2.1
$404.4
(c)
Includes results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not
managed by named segments.
85
Capital Expenditures
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . .
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$ 42.1
73.8
9.1
$125.0
$37.9
23.3
10.8
$72.0
$62.2
28.9
8.5
$99.6
(d)
Includes capital expenditures of Corporate headquarters.
Assets
(in millions)
Dental and Healthcare Consumables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,616.6
8,103.7
Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All Other(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
935.8
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,656.1
$2,537.0
1,537.7
328.2
$4,402.9
2016
2015
(e)
Includes assets of Corporate headquarters, inter-segment eliminations and one distribution warehouse not
managed by named segments.
Geographic Information
The following table sets forth information about the Company’s operations in different geographic areas for
the years ended December 31, 2016, 2015 and 2014. 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 millions)
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . .
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . .
2014
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . .
$1,383.0
192.5
$617.0
244.1
$ 53.2
82.5
$1,692.1
280.7
$3,745.3
799.8
$1,027.4
178.5
$472.8
92.1
$ 42.3
92.3
$1,131.8
195.9
$2,674.3
558.8
$1,015.9
170.8
$541.8
109.3
$ 48.9
103.9
$1,316.0
204.8
$2,922.6
588.8
Product and Customer Information
The following table presents net sales information by product category:
(in millions)
Dental consumables products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dental technology products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Healthcare consumable products . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,770.3
1,658.6
316.4
$3,745.3
$1,671.1
687.7
315.5
$2,674.3
$1,807.6
753.7
361.3
$2,922.6
December 31,
2015
2014
2016
86
Dental Consumable Products
Dental consumable products consist of value
added dental supplies and small equipment used in
dental offices for
It also
includes specialized treatment products used within the
dental office and laboratory settings including products
used in the preparation of dental appliances by dental
laboratories.
the treatment of patients.
Dentsply
dental
include
supplies
Sirona’s
endodontic (root canal)
instruments and materials,
dental anesthetics, prophylaxis paste, dental sealants,
impression materials,
tooth
fluoride. Small equipment
whiteners and topical
products include dental handpieces,
intraoral curing
light systems, dental diagnostic systems and ultrasonic
scalers and polishers.
restorative materials,
dental
include
The Company’s products used in the dental
including
laboratories
teeth, precious metal dental alloys, dental
artificial
ceramics and crown and bridge materials. Dental
laboratory
porcelain
furnaces.
prosthetics,
equipment
products
include
Dental Technology Products
and
Dental
software,
technology products consist of high-tech
implants and related scanning
state-of-art dental
equipment
orthodontic
treatment
appliances for dental practitioners and specialist and
dental laboratories. The product category also includes
basic and high-tech dental equipment
such as
treatment centers,
imaging equipment and computer
aided design and machining “CAD/CAM” systems
equipment for dental practitioners and laboratories. The
Company is the only manufacturer that can fully outfit a
dental practitioner’s office with dental equipment.
Treatment centers comprise a broad range of
products from basic dentist chairs to sophisticated
chair-based units with integrated diagnostic, hygiene
and ergonomic functionalities, as well as specialist
centers used in preventative treatment and for training
NOTE 6 — OTHER EXPENSE (INCOME), NET
for
and
dental
offices
crowns,
copings
bridges,
products
designed
purposes. Imaging systems consist of a broad range of
diagnostic imaging systems for 2D or 3D, panoramic,
and intra-oral applications. Dental CAD/CAM Systems
are
and
laboratories used for dental restorations, which includes
several types of restorations, such as inlays, onlays,
bridge
veneers,
frameworks made from ceramic, metal or composite
blocks. This product line also includes high-tech CAD/
CAM techniques of CEramic REConstruction, or
CEREC equipment. This equipment allows for in-office
application that enables dentists to produce high quality
restorations from ceramic material and insert them into
the patient’s mouth during a single appointment.
CEREC has a number of advantages compared to the
traditional out-of-mouth pre-shaped restoration method,
as CEREC does not
require a physical model,
restorations can be created in the dentist’s office and
the procedure can be completed in a single visit.
Healthcare Consumable Products
Healthcare consumable products consist mainly of
urology catheters, certain surgical products, medical
drills and other non-medical products.
Concentration Risk
For
the year ended December 31, 2016,
two
customers each accounted for more than ten percent of
consolidated net sales. At December 31, 2016, one
customer accounted for more than ten percent of the
consolidated accounts receivable balance. For the year
ended December 31, 2015, one customer accounted
for more than ten percent of consolidated net sales. At
there were no customers that
December 31, 2015,
accounted for ten percent or more of the consolidated
accounts receivable balance. For
the year ended
December 31, 2014,
the Company had no single
represented ten percent or more of
customer
consolidated
ended
sales. For
net
December 31, 2016, 2015 and 2014, third party export
sales from the U.S. were less than ten percent of
consolidated net sales.
years
that
the
Other expense (income), net, consists of the following:
(in millions)
Foreign exchange transaction (gains) losses . . . . . . . . . . . . . . . . . . . . .
Other (income) expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total other expense (income), net . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(10.2)
(9.9)
$(20.1)
$(5.2)
(3.0)
$(8.2)
December 31,
2015
2016
2014
$ 1.3
(1.4)
$(0.1)
Foreign exchange transaction gains for the year ended December 31, 2016, included approximately $6.9
million foreign currency gains on foreign currency forwards designated as net
investment hedges. Foreign
exchange transaction gains for the year ended December 31, 2015, included approximately $5.1 million foreign
currency gain on the sale of a convertible bond. Foreign exchange transaction losses for the year ended
December 31, 2014, included approximately $1.1 million of interest income and fair value gains on non-designated
hedges.
87
NOTE 7 — INVENTORIES, NET
Inventories, net, consist of the following:
(in millions)
Finished goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories, net
December 31,
2016
2015
$311.3
77.1
128.7
$517.1
$218.2
52.3
69.9
$340.4
The Company’s inventory valuation reserve was $37.5 million and $36.3 million at December 31, 2016 and
2015, respectively.
NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consist of the following
(in millions)
Assets, at cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$
52.8
500.4
1,218.8
82.9
1,854.9
1,055.1
$ 799.8
$
38.5
400.4
846.7
57.1
1,342.7
783.9
$ 558.8
NOTE 9 — GOODWILL AND INTANGIBLE ASSETS
The Company performed the required annual
impairment tests of goodwill at April 30, 2016 on 20
reporting units. As discussed in Note 5, Segment and
Geographic Information, effective in the first quarter of
2016, the Company realigned reporting responsibilities
for multiple locations. For any realignment that resulted
in reporting unit changes,
the Company applied the
relative fair value method to determine the reallocation
of goodwill of the associated reporting units.
To determine the fair value of
the Company’s
reporting units, 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 based on a
multiple of earnings. In addition, the Company applies
gross margin and operating expense assumptions
consistent with historical trends. The total cash flows
were discounted based on a range between 6.7% to
14.7%, which included assumptions regarding the
Company’s weighted-average cost of capital. The
Company considered the current market conditions
both in the U.S. and globally, when determining its
assumptions and reconciled the aggregated fair values
of its reporting units to its market capitalization, which
88
included a reasonable control premium based on
market conditions. As a result of the annual impairment
tests of goodwill, no impairment was identified.
At December 31, 2016, three reporting units, all
components of
the Technologies operating segment,
and one reporting unit, a component of the Dental and
Healthcare Consumables operating segment, were
created as a result of
the Sirona merger on
February 29, 2016. At the date of the Merger, the fair
value of
the businesses equaled book value with
goodwill for the reporting units totaling $3,776.8 million.
the
Given the limited time since the Merger date,
reporting units’ fair values approximate the book values
of the reporting units. Slower net sales growth rates in
the dental
rates,
unfavorable changes in earnings multiples or a decline
in future cash flow projections, among other factors,
may cause a change in circumstances indicating that
the carrying value of the Company’s goodwill may not
be recoverable.
industry, an increase in discount
no
There were
impairments of
identifiable
definite-lived and indefinite-lived intangible assets for
the year ended December 31, 2016. Impairments of
identifiable definite-lived and indefinite-lived intangible
assets for the year ended December 31, 2015 was $3.7
identifiable
million. There were no impairments of
definite-lived and indefinite-lived intangible assets for
the year ended December 31, 2014. Impairments of
intangible assets are included in Restructuring and
other
in the Consolidated Statements of
Operations.
costs
At December 31, 2016,
indefinite-lived assets
recorded on three reporting units, all within the
Technologies operating segment, and indefinite-lived
assets recorded on one reporting unit within the Dental
and Healthcare Consumables operating segment, were
identified and fair valued as result of the Sirona merger
on February 29, 2016. At the date of the Merger, the
fair value of the indefinite-lived assets equaled book
value totaling $905.0 million. Given the limited time
since the Merger date, the indefinite-lived asset’s fair
values approximate the book values. Slower net sales
growth rates in the dental
industry, an increase in
discount
rates, unfavorable changes in earnings
multiples or a decline in future cash flow projections,
among other
factors, may cause a change in
circumstances indicating that the carrying value of the
Company’s
be
recoverable.
indefinite-lived
assets may
not
A reconciliation of changes in the Company’s goodwill by segment and in total are as follows (the segment
information below reflects the current structure for all periods shown):
(in millions)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . .
Acquisition activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . .
Merger related additions . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisition activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment of provisional amounts on prior acquisitions . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . .
Dental and
Healthcare
Consumables
Technologies
Total
$ 951.9
31.3
(26.6)
$ 956.6
113.3
8.5
1.6
11.2
$1,137.4
—
(106.4)
$1,031.0
3,663.5
196.1
—
(29.8)
$2,089.3
31.3
(133.0)
$1,987.6
3,776.8
204.6
1.6
(18.6)
Balance, at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
$1,091.2
$4,860.8
$5,952.0
Identifiable definite-lived and indefinite-lived intangible assets consist of the following:
(in millions)
Patents . . . . . . . . . . . . . . . . . . . .
Trademarks . . . . . . . . . . . . . . . . .
Licensing agreements . . . . . . . . . .
Customer relationships . . . . . . . . .
Total definite-lived . . . . . . . . . . . .
Trademarks and In-process R&D . . .
Total identifiable intangible assets . .
Gross
Carrying
Amount
$1,189.5
65.3
33.5
1,004.8
$2,293.1
$1,088.4
$3,381.5
December 31, 2016
December 31, 2015
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
$(177.3)
(38.7)
(26.7)
(181.2)
$(423.9)
$ —
$(423.9)
$1,012.2
26.6
6.8
823.6
$1,869.2
$1,088.4
$2,957.6
$164.8
67.0
33.7
437.7
$703.2
$178.8
$882.0
$ (95.0)
(36.0)
(24.9)
(125.4)
$(281.3)
$ —
$(281.3)
$ 69.8
31.0
8.8
312.3
$421.9
$178.8
$600.7
Amortization expense for identifiable definite-lived
intangible assets for 2016, 2015 and 2014 was $155.1
million, $43.8 million and $47.9 million, respectively.
The annual estimated amortization expense related to
these intangible assets for each of the five succeeding
fiscal years is $180.1 million, $178.5 million, $178.3
million, $177.9 million and $172.6 million for 2017,
2018, 2019, 2020 and 2021, respectively.
89
NOTE 10 — PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in millions)
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NOTE 11 — ACCRUED LIABILITIES
Accrued liabilities consist of the following:
December 31,
2016
2015
$172.1
39.4
36.5
14.1
83.5
$345.6
$ 70.4
14.8
24.1
28.1
34.4
$171.8
December 31,
2016
2015
(in millions)
Payroll, commissions, bonuses, other cash compensation and employee benefits . . . . .
Sales and marketing programs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued vacation and holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restructuring costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Professional and legal costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third party royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued travel expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued property taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$143.4
102.0
37.5
27.4
20.2
15.0
14.1
11.2
10.4
8.1
6.9
6.4
2.7
57.4
$462.7
$110.0
43.3
26.1
35.4
14.3
13.5
2.2
3.8
8.5
8.9
5.6
2.7
11.0
24.8
$310.1
NOTE 12 — FINANCING ARRANGEMENTS
Short-Term Debt
Short-term debt consisted of the following:
(in millions except percentage amounts)
Brazil short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
China short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Add: Current portion of long-term debt
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total short-term debt
Maximum month-end short-term debt outstanding during the year . .
Average amount of short-term debt outstanding during the year . . .
Weighted-average interest rate on short-term debt at year-end . . . .
90
December 31,
2016
2015
Principal
Balance
Interest
Rate
Principal
Balance
Interest
Rate
$ 1.5
6.8
1.8
11.0
$21.1
2016
$49.0
15.5
15.0% $
2.5
15.1%
2.8%
3.5%
3.1%
0.4
9.2
$ 12.1
2015
$453.2
265.3
3.9%
13.4%
Short-Term Borrowings
The Company has a $500.0 million commercial
paper facility. At December 31, 2016 and 2015, there
were no outstanding borrowings under this facility. The
average balance outstanding for the commercial paper
facility during the year ended December 31, 2016 was
$0.2 million.
Long-Term Debt
Long-term debt consisted of the following:
December 31,
2016
2015
Principal
Balance
Interest
Rate
Principal
Balance
Interest
Rate
(in millions except percentage amounts)
Private placement notes $250.0 million due February 2016 . . . . . . . .
Fixed rate senior notes $300.0 million due August 2016 . . . . . . . . . .
Term loan 65.0 million Swiss francs denominated due
September 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Term loan 12.6 billion Japanese yen denominated due
September 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Term loan $175.0 million due August 2020 . . . . . . . . . . . . . . . . . .
Fixed rate senior notes $450 million due August 2021 . . . . . . . . . . .
Private placement notes 70.0 million euros due October 2024 . . . . . .
Private placement notes 25.0 million Swiss franc due December
2025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private placement notes 97.0 million euros due December 2025 . . . .
Private placement notes 26.0 million euros due February 2026 . . . . .
Private placement notes 58.0 million Swiss franc due August 2026 . . .
Private placement notes 106.0 million euros due August 2026 . . . . . .
Private placement notes 70.0 million euros due October 2027 . . . . . .
Private placement notes 7.5 million Swiss franc due December
2027 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Private placement notes 15.0 million euros due December 2027 . . . .
Private placement notes 140.0 million Swiss franc due August 2028 . .
Private placement notes 70.0 million euros due October 2029 . . . . . .
Private placement notes 70.0 million euros due October 2030 . . . . . .
Private placement notes 45.0 million euros due February 2031 . . . . .
Private placement notes 65.0 million Swiss franc due August 2031 . . .
Private placement notes 70.0 million euros due October 2031 . . . . . .
Other borrowings, various currencies and rates . . . . . . . . . . . . . . .
Less: Current portion
(included in “Notes payable and current portion of long-term debt”
. . . . . . . . . . . . . . . . . . .
in the Consolidated Balance Sheets)
Less: Long-term portion of deferred financing costs . . . . . . . . . . .
Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
—
107.5
148.8
295.7
73.8
24.5
102.2
27.4
57.0
111.7
73.7
7.4
15.8
137.6
73.8
73.7
47.4
63.9
73.8
12.5
$1,528.2
11.0
6.1
$1,511.1
—% $
—%
75.1
299.9
4.1%
2.8%
—%
64.9
0.3%
0.8%
1.5%
4.1%
—
0.9%
2.0%
—
—
—
—
1.0%
2.2%
—
—
—
—
—
—
0.7%
2.1%
4.1%
1.0%
0.9%
2.1%
2.1%
1.0%
2.3%
1.3%
1.0%
2.2%
1.2%
1.5%
1.6%
2.5%
1.3%
1.7%
104.4
157.5
295.6
—
25.0
105.3
—
—
—
—
7.5
16.3
—
—
—
—
—
—
2.0
$1,153.5
9.2
3.3
$1,141.0
In February 2016,
the Company paid the final
required payment of $75.0 million under the $250.0
million private placement notes by issuing commercial
paper. The Company used the proceeds from the
February 19, 2016 private placement notes issuance to
pay the 2016 payment.
On August 26, 2016, the Company paid the third
annual
$8.8 million
amortization
representing a 5% mandatory principal amortization
principal
of
91
due in each of the first six years under the terms of the
$175.0 million Term Loan with a final maturity of
August 26, 2020. An amount of $8.8 million will be due
in August 2017 and has been classified as current in
the Consolidated Balance Sheets. The Company
intends to use available cash, commercial paper and
the revolving credit facilities to pay the 2017 payment.
On February 19, 2016, the Company issued the
the
placements
private
under
notes
following
December 11, 2015 Note Purchase Agreement: 11.0
million euros aggregate principal amount bearing
interest of 2.05%, Series F Senior Notes due
February 19, 2026; 15.0 million euros aggregate
principal amount bearing interest of 2.05%, Series G
Senior Notes due February 19, 2026; and 45.0 million
euros aggregate principal amount bearing interest of
2.45%, Series H Senior Notes due February 19, 2031.
notes
under
private
On August 15, 2016,
the Company issued the
following
the
placements
December 11, 2015 Note Purchase Agreement: 58.0
million Swiss francs aggregate principal amount of
1.01%, Series I Senior Notes due August 15, 2026;
40.0 million euros aggregate principal amount bearing
J Senior Notes due
interest of 2.25%, Series
August 15, 2026; 66.0 million euros aggregate principal
amount bearing interest of 2.25%, Series K Senior
Notes due August 15, 2026; 140.0 million Swiss francs
aggregate principal amount bearing interest of 1.17%,
Series L Senior Notes due August 15, 2028; and 65.0
million Swiss francs aggregate principal amount
bearing interest of 1.33%, Series M Senior Notes due
August 15, 2031.
The 2016 issuance of the private placement notes
were used to finance the payments of $75.0 million on
the $250.0 million private placement notes due
February 19, 2016, the $300.0 million fixed rate senior
notes that matured on August 2016 and the 65.0 million
Swiss francs term loan that matured on September 1,
2016.
On October 27, 2016, the Company executed a
new Note Purchase Agreement in a private placement
with institutional
investors to sell 350.0 million euros
aggregate principal amount of senior notes at a
weighted average interest rate of 1.40%. The Company
issued 87.5 million euros in the following series: 17.5
million euros aggregate principal amount bearing
interest of 0.98%, Series N Senior Notes due
October 27, 2024; 14.5 million euros aggregate
principal amount bearing interest of 1.31%, Series O
Senior Notes due October 27, 2027; 3.0 million euros
aggregate principal amount bearing interest of 1.31%,
Series P Senior Notes due October 27, 2027; 15.5
million euros aggregate principal amount bearing
interest of 1.50%, Series Q Senior Notes due
October 27, 2029; 2.0 million euros aggregate principal
amount bearing interest of 1.50%, Series R Senior
Notes due October 27, 2029; 6.5 million euros
aggregate principal amount bearing interest of 1.58%,
Series S Senior Notes due October 27, 2030; 11.0
million euros aggregate principal amount bearing
interest of 1.58%, Series T Senior Notes due
October 27, 2030; 10.5 million euros aggregate
principal amount bearing interest of 1.65%, Series U
Senior Notes due October 27, 2031; and 7.0 million
euros aggregate principal amount bearing interest of
1.65%, Series V Senior Notes due October 27, 2031.
The Company issued 262.5 million euros in the
following series: 52.5 million euros aggregate principal
amount bearing interest of 0.98%, Series A Senior
Notes due October 27, 2024; 43.5 million euros
aggregate principal amount bearing interest of 1.31%,
Series B Senior Notes due October 27, 2027; 9.0
million euros aggregate principal amount bearing
interest of 1.31%, Series C Senior Notes due
October 27, 2027; 46.5 million euros aggregate
principal amount bearing interest of 1.50%, Series D
Senior Notes due October 27, 2029; 6.0 million euros
aggregate principal amount bearing interest of 1.50%,
Series E Senior Notes due October 27, 2029; 19.5
million euros aggregate principal amount bearing
interest of 1.58%, Series F Senior Notes due
October 27, 2030; 33.0 million euros aggregate
principal amount bearing interest of 1.58%, Series G
Senior Notes due October 27, 2030; 31.5 million euros
aggregate principal amount bearing interest of 1.65%,
Series H Senior Notes due October 27, 2031; and 21.0
million euros aggregate principal amount bearing
interest of 1.65%, Series
I Senior Notes due
October 27, 2031. Proceeds from the senior notes were
used to finance acquisitions in the fourth quarter of
2016.
restrictive of
Effective June 30, 2016, the Company amended
and extended its $500.0 million multicurrency revolving
credit facility for an additional year thorough July 23,
2021. In addition, certain non-extending members of
the bank group were replaced with existing and new
lenders. The Company has access to the full $500.0
million through July 23, 2021. The facility is unsecured
and contains certain affirmative and negative covenants
relating to the operations and financial condition of the
Company. The most
these covenants
pertain to asset dispositions and prescribed ratios of
debt outstanding to total capital not to exceed the ratio
of 0.6 to 1.0, and operating income excluding
depreciation and amortization to interest expense of not
less than 3.0 times. Any breach of any such covenants
or
the
existing debt agreements that would permit the lenders
to declare all borrowings under such debt agreements
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,
2016 and 2015, there were no outstanding borrowings
under the revolving credit facility.
restrictions would result
in a default under
The Company’s revolving credit facility, term loans
and senior notes contain certain affirmative and
negative
the Company’s
relating
operations and financial condition. At December 31,
2016, the Company was in compliance with all debt
covenants.
covenants
to
At December 31, 2016, the Company had $549.4
million borrowings available under unused lines of
credit,
including lines available under its short-term
arrangements and revolving credit agreement.
92
The table below reflects the contractual maturity dates of the various borrowings at December 31, 2016:
(in millions)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 and beyond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
11.0
10.7
117.6
123.9
296.7
968.3
$1,528.2
NOTE 13 — EQUITY
At December 31, 2016,
the Company had
authorization to maintain up to 39.0 million shares of
treasury stock under its stock repurchase program as
approved by the Board of Directors on September 21,
2016. During 2016, 2015 and 2014,
the Company
repurchased outstanding shares of common stock at a
cost of $815.1 million, $112.7 million and $163.2
million, respectively. For the years ended December 31,
2016, 2015 and 2014, the Company received proceeds
of $41.0 million, $35.5 million and $49.0 million,
respectively, primarily as a result of stock options
exercised in the amount of 1.2 million, 1.1 million and
1.5 million in each of the years, respectively. It is the
Company’s practice to issue shares from treasury stock
when options are exercised. The tax benefit realized for
ended
the
December 31, 2016, 2015 and 2014 is $16.1 million,
$11.6 million and $2.1 million, respectively.
exercised
options
during
year
the
The following table represents total outstanding shares of common stock and treasury stock for the years
ended December 31:
Shares of
Common Stock
Shares of
Treasury Stock
Outstanding
Shares
(in millions)
Balance at December 31, 2013 . . . . . . . . . . . . . . . . . . . . . .
Shares of treasury stock issued . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock at an average cost of $49.88 . . .
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . .
Shares of treasury stock issued . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock at an average cost of $52.50 . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . .
Common stock issuance related to Merger
Shares of treasury stock issued . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock at an average cost of $60.78 . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
162.8
—
—
162.8
—
—
162.8
101.7
—
—
264.5
(20.5)
1.9
(3.3)
(21.9)
1.3
(2.1)
(22.7)
—
1.7
(13.4)
(34.4)
142.3
1.9
(3.3)
140.9
1.3
(2.1)
140.1
101.7
1.7
(13.4)
230.1
On February 29, 2016,
in conjunction with the
Merger, the Company increased the authorized number
of shares of common stock to 400.0 million.
The Company maintains the 2016 Omnibus
Incentive Plan (the “Plan”) under which it may grant
non-qualified stock options (“NQSO”), incentive stock
options, restricted stock, restricted stock units (“RSU”)
and stock appreciation rights, collectively referred to as
“Awards.” Awards are granted at exercise prices that
are equal to the closing stock price on the date of grant.
The Company authorized grants under the Plan of 25.0
million shares of common stock, plus any unexercised
portion of canceled or terminated stock options granted
under the legacy DENTSPLY International Inc. 2010
and 2002 Equity Incentive Plans, as amended, and
under the legacy Sirona Dental Systems, Inc. 2015 and
2006 Equity Incentive Plans, as amended. For each
restricted stock and RSU issued, it is counted as a
reduction of 3.09 shares of common stock available to
be issued under the Plan. No key employee may be
granted awards in excess of 1.0 million shares of
common stock in any calendar year. The number of
shares available for grant under the 2016 Plan at
December 31, 2016 is 36.4 million.
Stock options granted become exercisable as
determined by the grant agreement and expire ten
years after the date of grant under these plans. RSU
vest as determined by the grant agreement and are
subject to a service condition, which requires grantees
to remain employed by the Company during the period
following the date of grant. Under the terms of the RSU,
the vesting period is referred to as the restricted period.
93
RSU and the rights under the award may not be sold,
transferred, donated, pledged or otherwise
assigned,
disposed of during the restricted period prior to vesting.
In addition to the service condition, certain key
executives are granted RSU subject
to performance
requirements that can vary between the first year and
targeted
up to the final year of
performance is not met the RSU granted is adjusted to
reflect the achievement level. Upon the expiration of the
the RSU award.
If
applicable restricted period and the satisfaction of all
conditions imposed, all restrictions imposed on RSU will
lapse, and one shares of common stock will be issued
as payment
for each vested RSU. Upon death,
disability or qualified retirement all awards become
immediately exercisable for up to one year. Awards are
respective
expensed as compensation over
vesting periods or to the eligible retirement date if
shorter.
their
The following table represents total stock based compensation expense and the tax related benefit for the
years ended:
(in millions)
Stock option expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
RSU expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Related deferred income tax benefit
2016
$10.6
29.1
$39.7
$10.9
December 31,
2015
$ 8.1
16.2
$24.3
$ 7.1
2014
$ 8.8
15.4
$24.2
$ 6.7
For the years ended December 31, 2016, 2015,
and 2014, stock compensation expense of $39.7
million, $24.3 million and $24.2 million, respectively,
was recorded in the Consolidated Statement of
Operations. For the years ended December 31, 2016,
2015, and 2014, $39.1 million, $23.6 million and $23.5
million, respectively, was recorded in Selling, general
and administrative expense and $0.6 million, $0.7
million and $0.7 million, respectively, was recorded in
Cost of products sold.
There were 1.7 million non-qualified stock options
unvested at December 31, 2016. The remaining
unamortized compensation cost related to non-qualified
stock options is $11.8 million, which will be expensed
over the weighted average remaining vesting period of
the
unamortized
compensation cost related to RSU is $42.0 million,
which will be expensed over the remaining weighted
average restricted period of the RSU, or 1.5 years.
options,
years.
The
1.4
or
The Company uses the Black-Scholes option-pricing model to estimate the fair value of each option awarded.
The following table sets forth the average 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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$12.78
December 31,
2015
$10.87
0.52%
1.54%
20.8%
6.14
0.51%
1.59%
20.3%
5.68
2014
$9.41
0.59%
1.61%
21.6%
5.13
The total
intrinsic value of options exercised for
the years ended December 31, 2016, 2015 and 2014
was $38.3 million, $22.3 million and $28.8 million,
respectively.
The total fair value of shares vested for the years
ended December 31, 2016, 2015 and 2014 was $34.8
million, $22.7 million and $20.2 million, respectively.
94
The following table summarizes the NQSO transactions for the year ended December 31, 2016:
(in millions, except per share amounts)
December 31, 2015 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . .
Merger . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . .
December 31, 2016 . . . . . . . . . . . . . . . . .
Shares
7.3
0.7
1.7
(1.3)
8.4
Outstanding
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Shares
Exercisable
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
$38.85
57.52
26.93
30.73
$39.22
$159.9
5.7
$36.38
$139.4
$155.9
6.7
$36.03
$144.9
The weighted average remaining contractual term of all outstanding options is 5.1 years and the weighted
average remaining contractual term of exercisable options is 4.3 years.
The following table summarizes information about NQSO outstanding for the year ended December 31, 2016:
Range of Exercise Prices
(in millions, except per share amounts and life)
5.01 – 10.00 . . . . . . . . . . . . . . . . . .
10.01 – 20.00 . . . . . . . . . . . . . . . . . .
20.01 – 30.00 . . . . . . . . . . . . . . . . . .
30.01 – 40.00 . . . . . . . . . . . . . . . . . .
40.01 – 50.00 . . . . . . . . . . . . . . . . . .
50.01 – 60.00 . . . . . . . . . . . . . . . . . .
60.01 – 70.00 . . . . . . . . . . . . . . . . . .
Outstanding
Weighted
Average
Remaining
Contractual
Life (in years)
Exercisable
Weighted
Average
Exercise
Price
Number
Exercisable at
December 31,
2016
Weighted
Average
Exercise
Price
Number
Outstanding at
December 31,
2016
0.3
0.1
0.9
3.4
2.3
1.2
0.2
8.4
1.9
1.4
2.3
4.4
5.6
8.5
9.2
5.1
$ 6.50
14.39
25.68
36.49
44.11
53.58
60.74
$39.22
0.3
0.1
0.9
3.2
1.9
0.3
—
6.7
$ 6.50
14.39
25.68
36.47
43.69
52.12
—
$36.03
The following table summarizes the unvested RSU transactions for the year ended December 31, 2016:
Unvested Restricted Stock Units
Weighted Average
Grant Date
Fair Value
Shares
(in millions, except per share amounts)
Unvested at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unvested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.1
0.4
1.0
(0.5)
(0.1)
1.9
$45.82
56.40
46.64
40.06
50.77
$49.55
NOTE 14 — INCOME TAXES
The components of income before income taxes from operations are as follows:
(in millions)
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
$ 28.9
412.0
$440.9
December 31,
2015
$ 26.8
302.9
$329.7
2014
$ 59.6
344.8
$404.4
95
The components of the provision for income taxes from operations are as follows:
December 31,
2015
2014
2016
(in millions)
Current:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. federal
U.S. state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$
2.3
5.6
111.7
$ 119.6
Deferred:
U.S. federal
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
U.S. state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 27.6
1.3
(139.0)
$(110.1)
9.5
$
$ (3.0)
1.7
50.9
$ 49.6
$ 44.3
0.3
(17.2)
$ 27.4
$ 77.0
$(12.8)
(0.3)
76.7
$ 63.6
$ 32.3
(9.9)
(4.9)
$ 17.5
$ 81.1
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other
Effective income tax rate on operations . . . . . . . . . . . . . . . . . . . . . . . . .
2016
35.0%
1.1
(12.6)
(3.9)
(0.6)
(0.2)
0.1
(16.3)
(0.4)
2.2%
December 31,
2015
35.0%
0.4
(11.2)
(6.4)
(0.4)
0.2
2.5
0.2
3.1
23.4%
2014
35.0%
0.7
(10.5)
(3.2)
1.5
(0.3)
(0.1)
(2.1)
(0.9)
20.1%
96
The tax effect of significant temporary differences giving rise to deferred tax assets and liabilities are as
follows:
December 31, 2016
December 31, 2015
Deferred
Tax
Asset
Deferred
Tax
Liability
Deferred
Tax
Asset
Deferred
Tax
Liability
(in millions)
Commission and bonus accrual . . . . . . . . . . . . . . . . . . . . . .
Employee benefit accruals . . . . . . . . . . . . . . . . . . . . . . . . .
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 and R&D 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
8.4
71.5
41.9
—
5.5
16.0
19.6
17.5
—
1.6
137.9
—
8.0
—
274.5
(182.7)
$ 419.7
$
— $
—
—
1,011.8
—
—
—
—
54.8
—
—
8.1
—
2.1
—
—
$1,076.8
7.5
52.2
22.7
—
4.9
11.3
20.5
14.6
—
1.3
135.7
5.5
7.4
—
282.1
(274.3)
$ 291.4
$ —
—
—
318.0
—
—
—
—
39.3
—
—
—
—
10.2
—
—
$367.5
Deferred tax assets and liabilities are included in the following Consolidated Balance Sheet line items:
(in millions)
Assets
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other noncurrent assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$172.1
22.8
$ 70.4
16.9
Liabilities
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.4
848.6
3.1
160.3
The Company has $137.9 million of foreign tax
credit carryforwards at December 31, 2016, of which
$43.4 million will expire in 2023, $55.5 million will expire
in 2024, $38.9 million will expire in 2025 and $0.1
million will expire in 2026.
The Company has tax loss carryforwards related
subsidiaries of
to certain foreign and domestic
approximately $1.1 billion at December 31, 2016, of
which $442.8 million expires at various times through
2036 and $680.8 million may be carried forward
indefinitely. Included in deferred income tax assets at
December 31, 2016 are tax benefits totaling $209.6
million, before valuation allowances, for the tax loss
carryforwards.
The Company has recorded $175.3 million of
the tax benefit of net
valuation allowance to offset
operating losses and $7.4 million of valuation allowance
97
for other deferred tax assets. The Company has
recorded these valuation allowances due to the
these assets can be realized in the
uncertainty that
future.
As of December 31, 2016, a deferred tax asset of
$18.4 million, related to a non-US tax attribute, has
been recognized. This benefit
is a result of an
agreement that has been filed to combine the profits
and losses of certain entities, effective 1/1/2019.
its
The Company has provided federal income taxes
foreign
on certain undistributed earnings of
the Company anticipates will be
subsidiaries that
repatriated. Deferred federal
income taxes have not
been provided on $599.0 million of cumulative earnings
the Company has
of
determined to be permanently reinvested.
is not
practicable to estimate the amount of tax that might be
payable on these permanently reinvested earnings.
foreign subsidiaries
that
It
Tax Contingencies
The Company applies a recognition threshold and
measurement attribute for
the financial 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, 2016 is approximately $13.7
million, of
this total, approximately $13.3 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. Final
settlement and resolution of outstanding tax matters in
various jurisdictions during the next twelve months are
not expected to be significant.
The total amount of accrued interest and penalties
were $2.8 million and $6.5 million at December 31,
respectively. The Company has
2016 and 2015,
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 years ended December 31, 2016
and 2015, the Company recognized income tax benefit
of $3.4 million and $2.0 million respectively, related to
interest and penalties. During the year ended
December 31, 2014, the company recognized a $1.9
million tax expense related to interest and penalties.
The Company is subject to U.S. federal income tax
as well as income tax of multiple state and foreign
jurisdictions include the
jurisdictions. The significant
U.S., Germany, Sweden
and Switzerland. The
Company has substantially concluded all U.S. federal
income tax matters for years through 2011. The
Company is currently under audit for the tax years 2012
and 2013. The tax years 2014 and 2015 are subject to
future potential tax audit adjustments. The Company
has concluded audits in Germany through the tax year
2011 and is currently under audit for the years 2012
through 2014. The taxable years that remain open for
Sweden are 2011 through 2015. The taxable years that
remain open for Switzerland are 2006 through 2015.
The Company had the following activity recorded for unrecognized tax benefits:
(in millions)
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 . . . . . . . . . . . .
Unrecognized tax benefits at end of period . . . . . . . . . . . . . . . . . . . . . . .
2016
$12.1
(2.0)
2.2
(1.3)
—
—
(0.2)
$10.8
December 31,
2015
2014
$21.9
(7.6)
0.2
(0.5)
(0.2)
—
(1.7)
$12.1
$18.0
5.1
0.2
(0.2)
(0.6)
—
(0.6)
$21.9
NOTE 15 — BENEFIT PLANS
Defined Contribution Plans
The Company maintains a number of defined
contribution plans. 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 401(k) savings plan
for its U.S. workforce to which enrolled participants may
contribute up to Internal Revenue Service defined
limits. The ESOP is 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 for at
fair value at the point of allocation, which is normally
31,
2016,
Effective December
year-end.
the
DENTSPLY Employee Stock Ownership Plan was
merged with the DENTSPLY 401(k) Savings Plan. The
result of this merger will be the creation of the Dentsply
Sirona Inc. 401(k) Savings and Employee Stock
Ownership Plan (the ’’Plan’’), effective as of January 1,
2017. In addition to these plans, the Company also
maintains various other U.S. and non-U.S. defined
contribution and non-qualified deferred compensation
plans. The annual expense, net of
forfeitures, were
$28.0 million, $24.9 million and $25.4 million for 2016,
2015 and 2014, respectively.
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
98
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 Company’s funding policy for its U.S.
plans is to make contributions that are necessary to
maintain the plans on a sound actuarial basis and to
the minimum funding standards prescribed by
meet
law. The Company may, at
its discretion, contribute
amounts
the minimum required
in
contribution.
excess
of
In addition to the U.S. plans,
the Company
maintains defined benefit pension plans for certain
employees in Austria, France, Germany, Italy, Japan,
the Netherlands, Norway, Sweden, Switzerland and
Taiwan. These plans provide benefits based upon age,
years of service and remuneration. Other foreign plans
are not significant
in the aggregate.
individually or
Substantially all of the German and Swedish plans are
unfunded book reserve plans. Most employees and
retirees outside the U.S. are covered by government
health plans.
uses
predominantly
The Company
liability
durations in establishing its discount rates, which are
observed from indices of high-grade corporate bond
yield curves in the respective economic regions of the
plan. During the first quarter of 2016, the Company
changed the method utilized to estimate the service
cost and interest cost components of net periodic
benefit costs for the Company’s major defined benefit
pension plans in Germany, Switzerland and for all
defined benefit pension and other postemployment
healthcare plans in the United States. Historically, the
Company estimated the service cost and interest cost
components using a single weighted average discount
rate derived from the yield curve used to measure the
benefit obligation at the beginning of the period. The
Company has elected to use a spot rate approach for
the estimation of these components of benefit cost by
applying the specific spot rates along the yield curve to
the relevant projected cash flows, as the Company
believes this provides a better estimate of service and
interest costs. The Company considers this a change in
it
estimate
for
accordingly,
prospectively. This change does not affect
the
measurement of the Company’s total benefit obligation.
accounted
and,
Defined Benefit Pension Plan Assets
of
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
and
employees,
beneficiaries covered under the plan can be met when
due with high probability. Pension plan assets consist
mainly of common stock and fixed income investments.
The 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
pensioners
25% in all other types of investments. Equity securities
include investments in companies located both in and
outside the U.S. Equity securities do not
include
common stock of
the Company. Fixed income
securities include corporate bonds of companies from
diversified industries, 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 in the Company’s
Consolidated Balance Sheet as they are held in trust or
other off-balance sheet investment vehicles.
The defined benefit pension plan assets in the
U.S. are held in trust and the investment policies of the
the plans assets in
plans are generally to invest
equities and fixed income investments. The objective is
to achieve a long-term rate of return in excess of 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 of the U.S.
plans, the plans assets were invested in the following
investment categories: interest-bearing cash, registered
funds), common/
investment companies (e.g. mutual
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
plan
benefit
defined
pension
assets
maintained in Austria, France, 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 of 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:
interest-bearing cash, U.S. and foreign equities, foreign
fixed income securities
corporate and
government bonds), insurance company contracts, real
estate and hedge funds.
(primarily
In Germany, Sirona traditionally had an unfunded
defined benefit pension plan whose benefits are based
primarily on years of service and wage and salary
group. This plan is closed to new participants. Sirona
replaced its unfunded defined benefit pension plan in
Germany with a defined contribution plan. All new hires
now receive defined contributions to a pension plan
the employee’s eligible
based on a percentage of
compensation. However,
grandfathering
due
provisions for certain existing employees hired before
the new defined contribution plan was introduced, the
Company continues to be obligated to provide pension
benefits which are at a minimum equal to benefits that
to
99
would have been available under the terms of
the
traditional defined benefit plans (the “Grandfathered
Benefit”). The Grandfathered Benefit and contributions
to the Sirona pension plan made for those employees
are included in the disclosures for defined benefit plans.
The Company accounts for the Grandfathered Benefit
by recognizing the higher of the defined contribution
obligation or
the
minimum benefit.
the defined benefit obligation for
The Sirona plan assets in Germany consist of
insurance policies with a guaranteed minimum return
by the insurance company and an excess profit
participation feature for a portion of the benefits. Sirona
pays the premiums on the insurance policies, but does
not manage the investment of the funds. The insurance
company makes all decisions on investment of funds,
including the allocation to asset groups. The fair value
of
the plan assets which include equity securities,
fixed-income investments, and others is based on the
cash surrender values reported by the insurance
company.
Postemployment Healthcare
The
sponsors
Company
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,
2016
2015
2016
2015
(in millions)
Change in Benefit Obligation
Benefit obligation at beginning of year . . . . . . . . . . . . . . . .
Service cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
Participant contributions . . . . . . . . . . . . . . . . . . . . . . .
Actuarial losses (gains) . . . . . . . . . . . . . . . . . . . . . . . .
Plan amendments . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions/Divestitures . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . .
Plan curtailments and settlements . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Benefit obligation at end of year . . . . . . . . . . . . . . . . . . . .
Change in Plan Assets
Fair value of plan assets at beginning of year . . . . . . . . . . .
Actual return on assets . . . . . . . . . . . . . . . . . . . . . . . .
Plan settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions/Divestitures . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . .
Employer contributions . . . . . . . . . . . . . . . . . . . . . . . .
Participant contributions . . . . . . . . . . . . . . . . . . . . . . .
Benefits paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets at end of year . . . . . . . . . . . . . . .
$ 378.9
15.7
8.0
3.8
26.8
0.3
76.3
(14.2)
(8.5)
(14.0)
$ 473.1
$ 142.0
6.5
(8.0)
12.7
(2.4)
16.2
3.8
(14.0)
$ 156.8
$ 436.9
17.1
7.3
3.7
(41.1)
(0.3)
(0.7)
(28.7)
(1.6)
(13.7)
$ 378.9
$ 143.6
0.5
(0.3)
—
(2.2)
10.4
3.7
(13.7)
$ 142.0
Funded status at end of year . . . . . . . . . . . . . . . . . . . . . .
$(316.3)
$(236.9)
$ 14.1
0.3
0.6
0.3
1.4
—
—
—
—
(0.6)
$ 16.1
$ —
—
—
—
—
0.3
0.3
(0.6)
$ —
$(16.1)
$ 13.9
0.4
0.6
0.4
(0.4)
—
—
—
—
(0.8)
$ 14.1
$ —
—
—
—
—
0.4
0.4
(0.8)
$ —
$(14.1)
100
The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as
follows:
Location On The
Consolidated Balance Sheet
Pension Benefits
December 31,
Other Postemployment
Benefits
December 31,
2016
2015
2016
2015
(in millions)
Other noncurrent assets, net . . . Other noncurrent assets, net
Deferred tax asset . . . . . . . . . . Other noncurrent assets, net
Total assets . . . . . . . . . . . .
Current liabilities . . . . . . . . . . . Accrued liabilities
Other noncurrent liabilities . . . . Other noncurrent liabilities
Deferred tax liability . . . . . . . . . Deferred income taxes
Total liabilities . . . . . . . . . . .
Accumulated other
comprehensive income . . . . .
Net amount recognized . . . . . .
Accumulated other
comprehensive loss
$
0.1
31.7
$ 31.8
(6.9)
(309.5)
(0.5)
$(316.9)
$ —
27.0
$ 27.0
(4.2)
(232.7)
(0.8)
$(237.7)
$ —
1.4
$ 1.4
(0.7)
(15.4)
—
$(16.1)
82.3
$(202.8)
71.5
$(139.2)
2.2
$(12.5)
$ —
0.9
$ 0.9
(0.7)
(13.4)
—
$(14.1)
1.5
$(11.7)
Amounts recognized in AOCI consist of:
Pension Benefits
December 31,
Other Postemployment
Benefits
December 31,
2016
2015
2016
2015
(in millions)
Net actuarial loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net prior service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Before tax AOCI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net of tax AOCI
$115.3
(1.8)
$113.5
31.2
$ 82.3
$100.1
(2.4)
$ 97.7
26.2
$ 71.5
$3.5
—
$3.5
1.3
$2.2
$2.4
—
$2.4
0.9
$1.5
Information for pension plans with an accumulated benefit obligation in excess of plan assets:
(in millions)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fair value of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Components of net periodic benefit cost:
December 31,
2016
2015
$458.7
427.2
142.3
$377.7
361.0
140.7
Pension Benefits
2015
2014
2016
Other Postemployment
Benefits
2015
2014
2016
(in millions)
Service cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest cost
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected return on plan assets . . . . . . . . . . . . . . .
Amortization of prior service (credit) cost
. . . . . . . . .
Amortization of net actuarial loss . . . . . . . . . . . . . .
Curtailment and settlement loss (gains) . . . . . . . . . .
Net periodic benefit cost . . . . . . . . . . . . . . . . . . . .
$15.7
8.0
(5.1)
(0.2)
5.1
1.2
$24.7
$17.1
7.3
(5.4)
(0.2)
7.8
(0.8)
$25.8
$14.0
11.1
(5.5)
(0.1)
2.8
0.1
$22.4
$0.3
0.6
—
—
0.2
—
$1.1
$0.4
0.6
—
—
0.2
—
$1.2
$0.2
0.5
—
—
0.1
—
$0.8
101
Other changes in plan assets and benefit obligations recognized in AOCI:
Pension Benefits
2015
2014
2016
Other Postemployment
Benefits
2015
2014
2016
(in millions)
Net actuarial loss (gain) . . . . . . . . . . . . . . . . . . . . . . .
Net prior service cost (credit) . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total recognized in AOCI
. . . . . . . . . . . . . . . . . . . . . .
Total recognized in net periodic benefit cost and AOCI . . .
$20.3
0.4
(4.9)
$15.8
$40.5
(0.3)
(7.6)
$(48.6) $ 88.5
0.4
(2.6)
$(56.5) $ 86.3
$(30.7) $108.7
$ 1.4
—
(0.2)
$ 1.2
$ 2.3
$(0.4)
—
(0.2)
$(0.6)
$ 0.6
$1.4
—
—
$1.4
$2.2
The estimated net loss, prior service cost and transition obligation for the defined benefit plans that will be
amortized from AOCI into net periodic benefit cost over the next fiscal year are $6.3 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 2017 are
as follows:
Pension
Benefits
Other
Postemployment
Benefits
(in millions)
Amount of net prior service (credit) cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amount of net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$(0.2)
6.5
$ —
0.2
Assumptions
The assumptions used to determine benefit obligations and net periodic benefit cost for the Company’s plans
are similar for both U.S. and foreign plans.
The weighted average assumptions used to determine benefit obligations for the Company’s plans, principally
in foreign locations, at December 31, 2016, 2015 and 2014 are as follows:
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rate of compensation increase . . . . . . . . . . . . . . . . . .
Health care cost trend pre 65 . . . . . . . . . . . . . . . . . . .
Health care cost trend post 65 . . . . . . . . . . . . . . . . . . .
Ultimate health care cost trend . . . . . . . . . . . . . . . . . .
Years until trend is reached pre 65 . . . . . . . . . . . . . . . .
Years until ultimate trend is reached post 65 . . . . . . . . . .
Other Postemployment
Benefits
2015
Pension Benefits
2015
2016
2016
2014
1.6% 2.1% 1.8% 4.4% 4.7%
2.6% 2.5% 2.6% n/a
n/a
n/a
n/a
n/a
n/a
7.8% 7.6%
8.5% 8.2%
4.5% 5.0%
9.0
9.0
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
9.0
9.0
n/a
2014
4.3%
n/a
8.0%
7.0%
5.0%
8.0
7.0
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, 2016, 2015 and 2014 are as follows:
Pension Benefits
2015
2014
2016
Other Postemployment
Benefits
2015
2014
2016
4.8%
Discount rate . . . . . . . . . . . . . . . . .
n/a
Expected return on plan assets . . . . .
n/a
Rate of compensation increase . . . . .
8.5%
Health care cost trend . . . . . . . . . . .
5.0%
Ultimate health care cost trend . . . . .
Years until ultimate trend is reached . .
8.0
Measurement Date . . . . . . . . . . . . . 12/31/2016 12/31/2015 12/31/2014 12/31/2016 12/31/2015 12/31/2014
2.1%
3.3%
2.5%
n/a
n/a
n/a
3.2%
3.8%
2.7%
n/a
n/a
n/a
1.8%
3.7%
2.6%
n/a
n/a
n/a
4.3%
n/a
n/a
8.5%
5.0%
8.0
4.7%
n/a
n/a
7.8%
4.5%
9.0
102
To develop the assumptions for
return on assets,
the expected
the Company
long-term rate of
considered the current level of expected returns on risk
free investments (primarily U.S. government bonds),
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, 2016:
Other Postemployment
Benefits
1% Increase
1% Decrease
(in millions)
Effect on total of service and interest cost components . . . . . . . . . . . . . . . . . . . .
Effect on postemployment benefit obligation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.2
2.6
$(0.2)
(2.1)
Fair Value Measurements of Plan Assets
The fair value of the Company’s pension plan assets at December 31, 2016 is presented in the table below by
asset category. Approximately 75% 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.
Total
December 31, 2016
Level 2
Level 1
Level 3
(in millions)
Assets Category
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Equity securities:
International
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities:
Fixed rate bonds(a). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other types of investments:
Mutual funds(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common trusts(c). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 11.5
$ 11.5
$ —
$ —
39.1
52.6
14.3
9.9
25.1
4.0
0.3
$156.8
39.1
52.6
14.3
—
—
—
—
$117.5
—
—
—
9.9
—
—
—
$9.9
—
—
—
—
25.1
4.0
0.3
$29.4
Total
December 31, 2015
Level 2
Level 1
Level 3
(in millions)
Assets Category
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . .
Equity securities:
International
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fixed income securities:
Fixed rate bonds(a). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other types of investments:
Mutual funds(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common trusts(c)
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Insurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Hedge funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
$ 9.2
$ 9.2
$ —
$ —
39.2
52.4
14.5
9.0
14.2
3.2
0.3
$142.0
39.2
52.4
14.5
—
—
—
—
$115.3
—
—
—
9.0
3.9
—
—
$12.9
—
—
—
—
10.3
3.2
0.3
$13.8
(a) 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.
103
(b) 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.
(c) 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, 2015 to December 31, 2016 for the plan
assets categorized as Level 3. During the year ended December 31, 2016, $0.2 million of plan assets were
transferred out of the Level 3 category.
(in millions)
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets:
Year Ended December 31, 2016
Insurance
Contracts
Hedge
Funds
Real
Estate
Total
$10.3
$ 3.2
$0.3
$13.8
Relating to assets still held at the reporting date . . . . . .
Acquisitions/Divestitures . . . . . . . . . . . . . . . . . . . . .
Purchases, sales and settlements, net . . . . . . . . . . . . . .
Transfers in and/or (out)
. . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . .
2.1
12.7
1.0
(0.2)
(0.8)
—
—
0.9
—
(0.1)
—
—
—
—
—
2.1
12.7
1.9
(0.2)
(0.9)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . .
$25.1
$ 4.0
$0.3
$29.4
The following tables provide a reconciliation from December 31, 2014 to December 31, 2015 for the plan
assets categorized as Level 3. During the year ended December 31, 2015, no assets were transferred in or out of
the Level 3 category.
(in millions)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . .
Actual return on plan assets:
Year Ended December 31, 2015
Insurance
Contracts
Hedge
Funds
Real
Estate
Total
$11.9
$ 1.8
$ 0.4
$14.1
Relating to assets still held at the reporting date . . . . . .
Purchases, sales and settlements, net . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . .
(0.6)
0.3
(1.3)
0.1
1.4
(0.1)
—
—
(0.1)
(0.5)
1.7
(1.5)
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . .
$10.3
$ 3.2
$ 0.3
$13.8
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 2017, the Company expects to make contributions and direct benefit payments of $11.4 million to its
defined benefit pension plans and $0.7 million to its postemployment medical plans.
104
Estimated Future Benefit Payments
Pension
Benefits
Other
Postemployment
Benefits
(in millions)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 – 2026 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15.4
15.5
14.8
17.2
16.2
95.9
$0.7
0.7
0.6
0.6
0.6
3.2
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
Restructuring Costs
in
costs
Restructuring costs of $20.9 million, $61.4 million
and $9.9 million for the year ended 2016, 2015 and
2014, respectively, are reflected in Restructuring and
other
of
Operations and the associated liabilities are recorded in
Accrued liabilities and Other noncurrent liabilities in the
Consolidated Balance Sheets. These costs consist of
employee severance benefits, payments due under
operating contracts, and other restructuring costs.
the Consolidated Statement
its manufacturing,
In October 2016, the Company announced that it
is proposing plans in Germany to reorganize and
logistics and
combine portions of
the Company’s
distribution networks within both of
segments. As required under German law,
the
Company has entered into a statutory co-determination
process under which it will collaborate with the
appropriate
the
infrastructure and staffing adjustments necessary to
this initiative. The Company also initiated
support
the world. The
regions of
similar actions in other
Company estimates the cost of
these initiatives to
range up to $83.0 million, primarily for severance
related benefits for employees, which is expected to be
incurred as actions are implemented over the next two
years.
groups
define
jointly
labor
to
the Company announced that
it
During 2015,
reorganized portions of
its laboratory business and
associated manufacturing capabilities within the Dental
and Healthcare Consumables segment. During the year
ended December 31, 2015,
the Company recorded
$37.3 million of costs that consist primarily of employee
severance benefits related to these and other similar
actions. Also during the year ended December 31,
the Company recorded restructuring costs of
2015,
that
$16.3 million within the Technologies segment
consists primarily of employee severance benefits
related to the global efficiency initiative. These
restructuring costs were offset by changes in estimates
of $6.6 million, related to adjustments to the cost of
initiatives in prior years. Other costs associated with
2015 plans of $7.4 million and $9.1 million were
recorded in Cost of products sold and Selling, general
and administrative expenses,
in the
Consolidated Statements of Operations.
respectfully,
During 2014,
the Company initiated several
restructuring plans primarily related to closing locations
integration activities as the Company
as a result of
related
realigned
implant
businesses
the Company’s
resources by reducing costs and obtaining operational
efficiencies. These restructuring costs were offset by
related to
changes in estimates of $3.0 million,
adjustments to the cost of initiatives in prior years.
and
leverage
certain
to
implant
better
At December 31, 2016, the Company’s restructuring accruals were as follows:
(in millions)
Balance at December 31, 2015 . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . .
2014 and
Prior Plans
$ 1.5
—
(0.8)
(0.1)
Balance at December 31, 2016 . . . . . . . . . . . . . . . .
$ 0.6
Severances
2015 Plans
2016 Plans
Total
$ 34.6
4.7
(18.5)
(0.8)
$ 20.0
$ —
11.4
(2.8)
(0.4)
$ 8.2
$ 36.1
16.1
(22.1)
(1.3)
$ 28.8
105
(in millions)
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . . .
2014 and
Prior Plans
$ 0.8
—
(0.4)
(0.2)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . .
$ 0.2
(in millions)
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . . .
2014 and
Prior Plans
$ 0.3
0.1
(0.2)
—
Balance at December 31, 2016 . . . . . . . . . . . . . . . . .
$ 0.2
Lease/Contract Terminations
2015 Plans
2016 Plans
Total
$ 3.4
5.4
(3.3)
(3.0)
$ 2.5
$ —
0.5
(0.2)
—
$ 0.3
$ 4.2
5.9
(3.9)
(3.2)
$ 3.0
Other Restructuring Costs
2015 Plans
2016 Plans
Total
$ 0.6
3.1
(3.0)
(0.4)
$ 0.3
$ —
0.5
(0.3)
—
$ 0.2
$ 0.9
3.7
(3.5)
(0.4)
$ 0.7
The following table provides the cumulative amounts for the provisions and adjustments and amounts applied
for all the plans by segment:
December 31,
2015
Provisions
and
Adjustments
Amounts
Applied
Change in
Estimates
December 31,
2016
(in millions)
Dental and Healthcare Consumables . . . .
Technologies . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
All Other
. . . . . . . . . . . . . . . . . . . . . . .
Total
$35.7
4.3
1.2
$41.2
$20.5
4.9
0.3
$25.7
$(24.4)
(4.1)
(1.0)
$(29.5)
$(3.9)
(0.6)
(0.4)
$(4.9)
$27.9
4.5
0.1
$32.5
At December 31, 2015, the Company’s restructuring accruals were as follows:
(in millions)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . . .
2013 and
Prior Plans
$ 1.0
0.1
(0.7)
(0.1)
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
$ 0.3
(in millions)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . . .
2013 and
Prior Plans
$ 0.5
—
(0.2)
—
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
$ 0.3
Severances
2014 Plans
2015 Plans
Total
$ 5.0
0.7
(4.1)
(0.4)
$ 1.2
$ —
59.0
(19.3)
(5.1)
$ 6.0
59.8
(24.1)
(5.6)
$ 34.6
$ 36.1
Lease/Contract Terminations
2014 Plans
2015 Plans
Total
$ 1.7
(0.5)
(0.7)
—
$ 0.5
$ —
5.0
(0.9)
(0.7)
$ 3.4
$ 2.2
4.5
(1.8)
(0.7)
$ 4.2
106
Other Restructuring Costs
2013 and
Prior Plans
2014 Plans
2015 Plans
Total
(in millions)
Balance at December 31, 2014 . . . . . . . . . . . . . . . . .
Provisions and adjustments . . . . . . . . . . . . . . . . . .
Amounts applied . . . . . . . . . . . . . . . . . . . . . . . . .
Change in estimates . . . . . . . . . . . . . . . . . . . . . . .
$ —
—
—
—
Balance at December 31, 2015 . . . . . . . . . . . . . . . . .
$ —
$ 1.1
0.2
(0.8)
(0.2)
$ 0.3
$ —
3.5
(2.8)
(0.1)
$ 0.6
$ 1.1
3.7
(3.6)
(0.3)
$ 0.9
The following table provides the cumulative amounts for the provisions and adjustments and amounts applied
for all the plans by segment:
December 31,
2014
Provisions
and
Adjustments
Amounts
Applied
Change in
Estimates
December 31,
2015
(in millions)
Dental and Healthcare Consumables . . . .
Technologies . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
All Other
. . . . . . . . . . . . . . . . . . . . . . .
Total
$6.2
3.0
0.1
$9.3
$54.3
11.9
1.8
$68.0
$(20.9)
(8.0)
(0.6)
$(29.5)
$(3.9)
(2.6)
(0.1)
$(6.6)
$35.7
4.3
1.2
$41.2
Other Costs
For
the year ended December 31, 2016,
the
Company recorded other costs of $2.3 million, which
were primarily related to legal costs.
For
the
Company recorded other costs of $3.3 million, which
the year ended December 31, 2015,
NOTE 17 — FINANCIAL INSTRUMENTS AND
DERIVATIVES
Derivative Instruments and Hedging Activities
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,
rates and commodity prices. These
financial exposures are monitored and managed by the
risk management
Company as part of
its overall
interest
included $4.2 million of impairments of fixed assets and
intangibles offset by income from legal settlements.
For
the year ended December 31, 2014,
the
Company recorded other costs of $1.2 million, which
were primarily the result of legal settlements.
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, the Company utilizes
interest rate swaps to convert variable rate debt to fixed
rate debt.
Derivative Instruments Designated as Hedging
Cash Flow Hedges
The following table summarizes the notional amounts of cash flow hedges by derivative instrument type at
December 31, 2016 and the notional amounts expected to mature during the next 12 months, with a discussion of
the various cash flow hedges by derivative instrument type following the table:
(in millions)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total derivative instruments designated as cash flow hedges . . . . . . . . . . . . . . .
$292.0
107.5
$399.5
$219.9
—
$219.9
Aggregate
Notional
Amount
Aggregate
Notional Amount
Maturing within
12 Months
107
Foreign Exchange Risk Management
of
the
the
based
foreign
on
exchange
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 designated foreign exchange forward
contracts as cash flow hedges. As a result,
the
the contracts
Company records the fair value of
tested
primarily
through AOCI
effectiveness
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 in 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 in
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 in the Consolidated Statements of
Cash Flows. The Company hedges various currencies,
primarily in euros, Swedish kronor, Canadian dollars,
British pounds, Swiss francs, Japanese yen and
Australian dollars.
These
foreign
contracts
exchange
generally have maturities up to 18 months and the
counterparties to the transactions are typically large
international financial institutions.
forward
Interest Rate Risk Management
The Company uses interest rate swaps to convert
a portion of
to fixed
its variable interest rate debt
interest rate debt. At December 31, 2016, the Company
has one significant exposure hedged with interest rate
contracts. The exposure is hedged with derivative
contracts having notional amounts totaling 12.6 billion
Japanese yen, which effectively converts the underlying
a
five-years
0.9% for
variable interest rate debt facility to a fixed interest rate
ending
term of
of
September 2019. Another exposure hedged with
derivative contracts had a notional amount of 65.0
million Swiss francs, and effectively converted the
underlying variable interest
rate of a Swiss franc
denominated loan to a fixed interest rate of 1.8% for a
term of five-years, that matured in September 2016.
The Company enters into interest
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 in the Consolidated Statements of
Cash Flows.
Commodity Risk Management
into
The Company
precious metal
enters
commodity swap contracts to effectively fix certain
variable raw material costs typically for up to 18
months. These swaps are used to stabilize the cost of
components used in the production of certain products.
The Company generally accounts for 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 swaps. 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 in 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 Interest expense
in 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 in the Consolidated Statements of
Cash Flows.
108
The following tables summarize the amount of gains (losses) recorded in AOCI in the Consolidated Balance
Sheets and income (expense) in the Company’s Consolidated Statements of Operations related to all cash flow
hedges for the years ended December 31, 2016, 2015 and 2014:
December 31, 2016
Gain (Loss)
in AOCI
Consolidated
Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into Income
(Expense)
Ineffective Portion
Recognized in
Income (Expense)
(in millions)
Effective Portion:
Interest rate swaps . . . . . . . . .
Foreign exchange forward
$(0.4)
Interest expense
contracts . . . . . . . . . . . . . .
(0.3)
Cost of products sold
Foreign exchange forward
contracts . . . . . . . . . . . . . .
Commodity contracts . . . . . . . .
(0.2)
0.1
SG&A expenses
Cost of products sold
Ineffective Portion:
Foreign exchange forward
contracts . . . . . . . . . . . . . .
Total in cash flow hedging . . .
$(0.8)
Other expense (income), net
$(2.9)
4.8
0.1
(0.1)
$ 1.9
$(0.6)
$(0.6)
December 31, 2015
Gain (Loss)
in AOCI
Consolidated
Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into Income
(Expense)
Ineffective Portion
Recognized in
Income (Expense)
(in millions)
Effective Portion:
Interest rate swaps . . . . . . . . .
Foreign exchange forward
$ (1.4)
Interest expense(a)
$(10.1)
contracts . . . . . . . . . . . . . .
23.3
Cost of products sold
Foreign exchange forward
contracts . . . . . . . . . . . . . .
Commodity contracts . . . . . . . .
0.5
(0.3)
SG&A expenses
Cost of products sold
18.0
0.6
(0.5)
Ineffective Portion:
Foreign exchange forward
contracts . . . . . . . . . . . . . .
Total for cash flow hedging . . .
$22.1
Other expense (income), net
$ 8.0
$(0.7)
$(0.7)
(a) The Company reclassified $6.0 million of losses into earnings due to the discontinuance of a cash flow hedge
because a portion of the forecasted transaction will no longer occur.
December 31, 2014
Gain (Loss)
in AOCI
Consolidated
Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into Income
(Expense)
Ineffective Portion
Recognized in
Income (Expense)
(in millions)
Effective Portion:
Interest rate swaps . . . . . . . .
Foreign exchange forward
$(0.7)
Interest expense
contracts . . . . . . . . . . . . .
4.3
Cost of products sold
Foreign exchange forward
contracts . . . . . . . . . . . . .
Commodity contracts . . . . . . .
Total for cash flow hedging . .
0.5
(0.2)
$ 3.9
SG&A expenses
Cost of products sold
$ (3.7)
(6.4)
(0.1)
(0.5)
$(10.7)
$ —
109
Overall, the derivatives designated as cash flow
hedges are considered to be highly effective. At
December 31, 2016, the Company expects to reclassify
$1.0 million of deferred net gains on cash flow hedges
recorded in AOCI in the Consolidated Statements of
Operations during the next 12 months. The 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
typically 18 months.
For
the rollforward of derivative instruments
designated as cash flow hedges in AOCI see Note 3,
Comprehensive Income.
Hedges of Net Investments in Foreign Operations
The Company has significant
investments in
foreign subsidiaries the most significant of which are
denominated in euros, Swiss francs, Japanese yen and
Swedish kronor. The net assets of these subsidiaries
are exposed to volatility in currency exchange rates. To
hedge a portion of this exposure the Company employs
both derivative and non-derivative financial instruments.
The derivative instruments consist of foreign exchange
forward contracts and cross currency basis swaps. The
non-derivative instruments consist of foreign currency
denominated debt held at the parent company level.
Translation gains and losses related to the net assets of
the foreign subsidiaries are offset by gains and losses
in derivative and non-derivative financial
instruments
designated as hedges of net investments, which are
included in AOCI. Any cash flows associated with these
instruments are included in investing activities in the
for
Consolidated Statements of Cash Flows except
derivative
an
in which
other-than-insignificant
case all cash flows will be classified as financing
activities in the Consolidated Statements of Cash
Flows.
that
financing element,
instruments
include
The following table summarizes the notional amounts of hedges of net investments by derivative instrument
type at December 31, 2016 and the notional amounts expected to mature during the next 12 months:
(in millions)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$95.1
$95.1
Aggregate
Notional
Amount
Aggregate
Notional Amount
Maturing within
12 Months
The fair value of
the foreign exchange forward
contracts and cross currency basis swaps is the
estimated amount the Company would receive or pay at
the effective
the reporting date,
taking into account
interest rates, cross currency swap basis rates and
foreign exchange rates. The effective portion of
the
change in the value of these derivatives is recorded in
AOCI, net of tax effects.
The following tables summarize the amount of gains (losses) recorded in AOCI in the Consolidated Balance
Sheets and income (expense) in the Company’s Consolidated Statements of Operations related to the hedges of
net investments for the year ended December 31, 2016, 2015 and 2014:
(in millions)
Effective Portion:
Foreign exchange forward contracts . . . . . . . . . . . .
Total for net investment hedging . . . . . . . . . . . . .
December 31, 2016
Consolidated
Statements of
Operations Location
Recognized
in Income
(Expense)
Other expense (income), net
$6.7
$6.7
December 31, 2015
Consolidated
Statements of
Operations Location
Recognized
in Income
(Expense)
Gain (Loss)
in AOCI
$(13.2)
$(13.2)
Gain (Loss)
in AOCI
(in millions)
Effective Portion:
Foreign exchange forward contracts . . . . . . . . . . . .
Total for net investment hedging . . . . . . . . . . . . .
$4.5
$4.5
Other expense (income), net
$4.1
$4.1
110
Gain (Loss)
in AOCI
December 31, 2014
Consolidated
Statements of
Operations Location
Recognized
in Income
(Expense)
(in millions)
Effective Portion:
Cross currency basis swaps . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . .
19.3
43.1
Interest income
Interest expense
Other expense (income), net
Total for net investment hedging . . . . . . . . . . . . .
62.4
1.9
(1.6)
1.3
1.6
Fair Value Hedges
its fixed interest rate debt
The Company used interest rate swaps to convert
to variable
a portion of
rate debt. The Company had U.S. dollar
interest
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 private placement notes
(“PPN”) to variable rate, the debt and interest rate swap
matured in February 2016. The notional value of the
swaps declined proportionately as portions of the PPN
matured. These interest rate swaps were designated as
fair value hedges of the interest rate risk associated
with the hedged portion of
the fixed rate PPN.
Accordingly, the Company carried 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. Any cash flows associated
with these instruments were included in operating
activities in the Consolidated Statements of Cash
Flows.
The following tables summarize the amount of income (expense) recorded in the Company’s Consolidated
Statements of Operations related to the hedges of fair value for the years ended December 31, 2016, 2015 and
2014:
Consolidated
Statements of
Operations Location
Income (Expense) Recognized
Twelve Months Ended
December 31,
2015
2014
2016
(in millions)
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . .
Interest expense
$ —
$0.3
$0.2
Derivative Instruments Not Designated as Hedges
The Company enters into derivative instruments
with the intent to partially mitigate 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 underlying non-functional
the revaluation of
currency balances and are recorded in Other expense
(income), net
in the Consolidated Statements of
Operations. The Company primarily uses foreign
exchange forward contracts and cross currency basis
swaps to hedge these risks. Any cash flows associated
with the foreign exchange forward contracts and
interest
rate swaps not designated as hedges are
included in cash from operating activities in the
Consolidated Statements of Cash Flows. Any cash
flows associated with the cross currency basis swaps
not designated as hedges are included in investing
activities in the Consolidated Statements of Cash Flows
except
include an
in which
other-than-insignificant
case the cash flows will be classified as financing
activities in the Consolidated Statements of Cash
Flows.
for derivative instruments that
financing element,
111
The following tables summarize the aggregate notional amounts of the Company’s economic hedges not
designated as hedges by derivative instrument types at December 31, 2016 and the notional amounts expected to
mature during the next 12 months:
Aggregate
Notional
Amount
Aggregate Notional
Amount
Maturing within
12 Months
(in millions)
Foreign exchange forward contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total for instruments not designated as hedges . . . . . . . . . . . . . . . . . . . .
267.2
1.0
268.2
267.2
0.8
268.0
The Company had a Swiss franc denominated
cross currency basis swaps to offset an intercompany
Swiss franc note receivable at a U.S. dollar functional
entity. The hedge matured during the second quarter to
coincide with the repayment of the note.
The following table summarizes the amounts of gains (losses) recorded in the Company’s Consolidated
Statements of Operations related to the economic hedges not designated as hedging for the years ended
December 31, 2016, 2015 and 2014:
Consolidated
Statements of
Operations Location
Gain (Loss)
Recognized
Twelve Months Ended
December 31,
2015
2014
2016
(in millions)
Foreign exchange forward contracts(a) . . . . . . Other expense (income), net
DIO equity option contracts . . . . . . . . . . . . . Other expense (income), net
Cross currency basis swaps(a)
. . . . . . . . . . . Other expense (income), net
Total for instruments not designated as
hedges . . . . . . . . . . . . . . . . . . . . . . .
$(0.6)
—
—
$ 6.3
0.1
(1.8)
$ 33.2
—
(50.2)
$(0.6)
$ 4.6
$(17.0)
(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 in the Consolidated Statements of Operations.
Consolidated Balance Sheets Location of Derivative Fair Values
The following tables summarize the fair value and consolidated balance sheet location of the Company’s
derivatives at December 31, 2016 and December 31, 2015:
Designated as Hedges
(in millions)
Foreign exchange forward contracts . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Not Designated as Hedges
Foreign exchange forward contracts . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid
Expenses
and Other
Current
Assets, Net
$12.8
—
$12.8
$ 1.3
$ 1.3
December 31, 2016
Other
Noncurrent
Assets, Net
Accrued
Liabilities
Other
Noncurrent
Liabilities
$0.6
—
$0.6
$ —
$ —
$1.0
0.2
$1.2
$1.5
$1.5
$ —
0.3
$0.3
$ —
$ —
112
Designated as Hedges
(in millions)
Foreign exchange forward contracts . . . . . . . . . . . . . . . .
Commodity contracts . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Not Designated as Hedges
Foreign exchange forward contracts . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total
Prepaid
Expenses
and Other
Current
Assets, Net
23.0
—
0.1
23.1
5.0
5.0
December 31, 2015
Other
Noncurrent
Assets, Net
Accrued
Liabilities
Other
Noncurrent
Liabilities
7.9
—
—
7.9
—
—
6.9
0.1
1.0
8.0
3.0
3.0
0.4
—
0.2
0.6
—
—
Balance Sheet Offsetting
Substantially all of
the Company’s derivative
contracts are subject to netting arrangements, whereby
to offset occurs in the event of default or
the right
the
termination in accordance with the terms of
arrangements with the counterparty. While these
contracts contain the enforceable right to offset through
netting arrangements with the same counterparty, the
Company elects to present them on a gross basis in the
Consolidated Balance Sheets.
Offsetting of financial assets and liabilities under netting arrangements at December 31, 2016:
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented
in the
Consolidated
Balance
Sheets
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net
Amount
Gross
Amounts
Recognized
(in millions)
Assets
Foreign exchange forward
contracts . . . . . . . . . . .
Total Assets . . . . . . . . . . .
(in millions)
Liabilities
Foreign exchange forward
contracts . . . . . . . . . . .
Interest rate swaps . . . . . .
Total Liabilities . . . . . . . . . .
$14.7
$14.7
$ —
$ —
$14.7
$14.7
$(2.8)
$(2.8)
$ —
$ —
$11.9
$11.9
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented
in the
Consolidated
Balance
Sheets
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net
Amount
Gross
Amounts
Recognized
$2.5
0.5
$3.0
$ —
—
$ —
$2.5
0.5
$3.0
$(2.5)
(0.3)
$(2.8)
$ —
—
$ —
$ —
0.2
$0.2
113
Offsetting of financial assets and liabilities under netting arrangements at December 31, 2015:
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented
in the
Consolidated
Balance
Sheets
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net
Amount
Gross
Amounts
Recognized
(in millions)
Assets
Foreign exchange forward
contracts . . . . . . . . . . .
Interest rate swaps . . . . . .
Total Assets . . . . . . . . . . .
$35.9
0.1
$36.0
$ —
—
$ —
$35.9
0.1
$36.0
$(7.4)
—
$(7.4)
$ —
—
$ —
$28.5
0.1
$28.6
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented
in the
Consolidated
Balance
Sheets
Gross Amounts Not Offset
in the Consolidated
Balance Sheets
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net
Amount
Gross
Amounts
Recognized
(in millions)
Liabilities
Foreign exchange forward
contracts . . . . . . . . . . .
Commodity contracts . . . .
Interest rate swaps . . . . . .
Total Liabilities . . . . . . . . . .
$10.3
0.1
1.2
$11.6
NOTE 18 — FAIR VALUE MEASUREMENT
$ —
—
—
$ —
$10.3
0.1
1.2
$11.6
$(6.3)
—
(1.1)
$(7.4)
$ —
—
—
$ —
$4.0
0.1
0.1
$4.2
The Company records financial instruments at fair
value with unrealized gains and losses related to
instruments reflected in AOCI in the
certain financial
Consolidated Balance Sheets.
the
Company has recognized certain liabilities at fair value.
The Company applies the market approach for
the
recurring fair value measurements. Accordingly,
Company utilizes valuation techniques that maximize
the use of observable inputs and minimize the use of
unobservable inputs.
addition,
In
financial
The fair
value of
instruments
is
determined 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
its total
long-term debt,
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
including
current portion, was $1,525.7 million and $1,522.2
million,
respectively, at December 31, 2016. At
December 31, 2015, the Company estimated the fair
value and carrying value was $1,160.7 million and
$1,150.2 million, respectively. The interest rate on the
$450.0 million Senior Notes is a fixed rate of 4.1% and
the fair
rates at
value is based on interest
December 31, 2016. For additional details on interest
rates of long term debt, please see Note 12, Financing
Arrangements. The variable interest
rate on the
Japanese yen term loan is consistent with current
market conditions, therefore the fair value approximates
the loan’s carrying value.
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, 2016 and 2015, which are
classified as Cash and cash equivalents, Prepaid expenses and other current assets, Other noncurrent assets,
net, Accrued liabilities, and Other noncurrent liabilities in 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.
114
Total
December 31, 2016
Level 2
Level 1
Level 3
(in millions)
Assets
Foreign exchange forward contracts . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14.7
$14.7
Liabilities
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . .
Contingent considerations on acquisitions . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(in millions)
Assets
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities
Interest rate swaps . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commodity forward purchase contracts . . . . . . . . . . . . . . .
Foreign exchange forward contracts . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 0.5
2.5
7.6
$10.6
Total
$ 0.1
35.9
$36.0
$ 1.2
0.1
10.3
45.1
$56.7
—
$ —
$ —
—
—
$ —
14.7
$14.7
$ 0.5
2.5
—
$ 3.0
—
$ —
$ —
—
7.6
$7.6
December 31, 2015
Level 2
Level 1
Level 3
$ —
—
$ —
$ —
—
—
—
$ —
$ 0.1
35.9
$36.0
$ 1.2
0.1
10.3
45.1
$56.7
$ —
—
$ —
$ —
—
—
—
$ —
Derivative valuations are based on observable
including interest rates,
inputs to the valuation model
future commodities
foreign currency exchange rates,
risks. The Company utilizes
prices and credit
commodity contracts, certain interest rates swaps and
foreign exchange forward contracts that are considered
cash flow hedges. In addition, the Company at times
employs certain cross currency interest rate swaps and
forward exchange contracts that are considered hedges
of net investment in foreign operations. Both types of
designated derivative instruments are further discussed
in Note 17, Financial Instruments and Derivatives.
The Company’s Level 3 liabilities at December 31, 2016 are related to earn-out obligations on prior
acquisitions that were assumed as part of the merger with Sirona. The following table presents a reconciliation of
the Company’s Level 3 holdings measured at fair value on a recurring basis using unobservable inputs:
(in millions)
Balance, February 29, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized gain:
Reported in Other expense (income), net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of exchange rate changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7.1
0.7
(0.2)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7.6
There were no additional purchases, issuances or transfers of Level 3 financial
instruments in 2016 and
2015.
NOTE 19 — COMMITMENTS AND CONTINGENCIES
Leases
The Company leases automobiles machinery,
equipment
and
manufacturing facilities under non-cancelable leases.
office, warehouse
certain
and
The leases generally require the Company to pay
taxes and other expenses related to the
insurance,
leased property. Total rental expense for all operating
leases was $33.3 million, $30.4 million and $37.4
million for 2016, 2015 and 2014, respectively.
115
Rental commitments, principally for real estate (exclusive of taxes, insurance and maintenance), automobiles
and office equipment are as follows:
(in millions)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 37.0
25.4
19.3
15.7
13.8
26.1
$137.3
Litigation
is
class
defined
as California
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® ultrasonic scalers are
suitable for use in oral surgical procedures. The
Complaint sought 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
dental
certified
professionals who, at any time during the period
beginning June 18, 2000 through September 14, 2012,
purchased and used one or more Cavitron® ultrasonic
scalers for the performance of oral surgical procedures
on their patients, which Cavitrons® were accompanied
by Directions for Use that “Indicated” Cavitron® use for
types of periodontal
“periodontal debridement
for all
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. The plaintiffs have
appealed the Superior Court’s decision, and the appeal
is now pending. The Company is defending against this
appeal.
filed a Complaint
On December 12, 2006, Carole Hildebrand, DDS,
in the
and Robert Jaffin, DDS,
Eastern District
(the Plaintiffs
of Pennsylvania
subsequently added Dr. Mitchell Goldman as a named
class representative). The same law firm that filed the
Weinstat case in California filed this case. The
Complaint asserts putative class action claims on
located in New Jersey and
behalf of dentists
the
asserts
Pennsylvania. The Complaint
Company’s Cavitron® ultrasonic scaler was negligently
designed and sold in breach of contract and warranty
arising from alleged misrepresentations about
the
potential uses of the product because the Company
cannot assure the delivery of potable or sterile water
through the device. The Court granted the Company’s
Motion for Dismissal of the case for lack of jurisdiction.
Following that dismissal, the plaintiffs filed a second
complaint under the name of Dr. Hildebrand’s corporate
practice, Center City Periodontists, asserting the same
allegations. The plaintiffs moved to have the case
certified as a class action and the Company objected.
that
The Court granted the Company’s Motion to Dismiss
plaintiffs’ New Jersey Consumer Fraud and negligent
leaving only a breach of express
design claims,
warranty claim. The Court subsequently denied the
Company’s Motion for Summary Judgment on the
express warranty claim. The Court held hearings during
2016 on plaintiffs’ class certification motion. The Court
has not scheduled further hearings in the matter and
the Company is awaiting a ruling on the class
certification motion by the Court.
that
and
and
fees
seek
fines,
various
engaged
attorneys’
injunctive relief,
On January 20, 2014, the Company was served
with a qui tam complaint filed by two former and one
current employee of the Company under the Federal
False Claims Act and equivalent state and city laws.
The lawsuit was previously under seal
in the U.S.
District Court for the Eastern District of Pennsylvania.
the
The complaint alleges, among other things,
Company
illegal marketing
in
activities, and thereby caused dental and other
healthcare professionals to file false claims for
reimbursement with federal and state governments.
The relators
treble
damages,
costs. On
January 27, 2014, the United States filed with the Court
a notice that it had elected not to intervene in the qui
this time. The United States’ notice
tam action at
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. On
September 4, 2014, the Company’s motion to dismiss
the complaint was granted in part and denied in part.
The Company filed a motion for summary judgment in
December 2015. In April 2016, the Court granted the
Company’s motion for summary judgment, which
disposes of all remaining claims against the Company
in the matter. The plaintiffs filed a notice of appeal in
May 2016 and the matter has been assigned by the
Court of Appeals for mediation. The Company will
continue to vigorously defend itself.
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
these matters is
the event
that one or more of
116
unfavorably resolved,
it
results from operations,
could be materially impacted.
is possible the Company’s
financial position or liquidity
(“OFAC”)
requesting
documents
In 2012, the Company received subpoenas from
the U. S. 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
Treasury
and
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
U. S. 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 internal review by the Company.
On September 1, 2016, the Company entered into an
extension of the tolling agreement originally entered into
in August 2014, such that the statute of limitations is
now tolled until May 1, 2017. The Company is
cooperating with the USAO, OFAC and BIS with
respect to these matters.
At
the inquiries,
this stage of
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 of operations or cash flows. Violations
of export control or economic sanctions laws or
in a range of governmental
regulations could result
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.
the
In addition to the matters disclosed above,
Company is, from time to time, subject to a variety of
litigation and similar proceedings incidental
to its
business. These legal matters primarily involve claims
patent
including
for damages arising out of the use 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
connection with, divested businesses. Some of these
lawsuits may
and
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 liquidity. However, in the event of
unexpected further 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.
punitive
include
claims
for
While the Company maintains general, product,
property, workers’ compensation, automobile, cargo,
aviation, crime,
fiduciary and directors’ and officers’
liability insurance up to certain limits that cover certain
of these claims, this 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.
Purchase and Other Commitments
From time to time,
the Company enters into
long-term inventory
commitments with
purchase
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
inventory
maintained by the Company.
impact on levels of
117
NOTE 20 — QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
DENTSPLY SIRONA INC.
Quarterly Financial Information (Unaudited)
First
Quarter(a)
Second
Quarter
Third
Quarter
Fourth
Quarter
Rounding
and
Other(b)
Total
Year
(in millions, except per share amounts)
2016
Net sales . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . .
Gross profit
Operating income . . . . . . . . . . . . . . . . .
Net income attributable to
Dentsply Sirona . . . . . . . . . . . . . . . . .
Earnings per common share - basic . . . . .
Earnings per common share - diluted . . . .
Cash dividends declared per common
$ 772.6
418.9
72.7
125.0
$ 0.72
$ 0.70
$1,022.0
526.9
121.2
$ 954.2
513.6
126.6
$ 996.5
541.5
134.2
$ — $3,745.3
2,000.9
454.7
—
—
105.4
0.45
0.44
$
$
92.5
$ 0.40
$ 0.39
107.0
0.46
$
$ 0.46
—
$(0.06)
$(0.05)
429.9
1.97
1.94
$
$
share . . . . . . . . . . . . . . . . . . . . . . . .
$0.0775
$ 0.0775
$0.0775
$0.0775
$ — $ 0.3100
2015
Net sales . . . . . . . . . . . . . . . . . . . . . . .
Gross profit
. . . . . . . . . . . . . . . . . . . . .
Operating income . . . . . . . . . . . . . . . . .
Net income attributable to
Dentsply Sirona . . . . . . . . . . . . . . . . .
Earnings per common share - basic . . . . .
Earnings per common share - diluted . . . .
Cash dividends declared per common
$ 656.3
373.4
97.7
64.0
$ 0.46
$ 0.45
$ 698.0
399.7
85.8
$ 648.9
369.4
98.6
$ 671.1
374.7
93.1
$ — $2,674.3
1,517.2
375.2
—
—
44.1
0.32
0.31
84.5
$ 0.60
$ 0.59
58.6
$
0.42
$ 0.41
$
$
—
$(0.01)
$
$ — $
251.2
1.79
1.76
share . . . . . . . . . . . . . . . . . . . . . . . .
$0.0725
$ 0.0725
$0.0725
$0.0725
$ — $ 0.2900
Includes the results of operations for Sirona for the period February 29, 2016 through March 31, 2016
(a)
(b) During the March 31, 2016 quarter, the Company issued 101.8 million shares related to the Merger. As a
result, the calculation of the weighted average share count was lower in the March 31, 2016 quarter as
compared to the weighted average share count for the year ended December 31, 2016.
118
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
DENTSPLY SIRONA INC.
By: /s/ Jeffrey T. Slovin
Jeffrey T. Slovin
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 Company and in the capacities and on the dates indicated.
/s/ Jeffrey T. Slovin
Jeffrey T. Slovin
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Ulrich Michel
Ulrich Michel
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Bret W. Wise
Bret W. Wise
Chairman of the Board of Directors
/s/ Dr. Michael C. Alfano
Dr. Michael C. Alfano
Director
/s/ David K. Beecken
David K. Beecken
Director
/s/ Eric K. Brandt
Eric K. Brandt
Director
/s/ Michael J. Coleman
Michael J. Coleman
Director
/s/ Willie A. Deese
Willie A. Deese
Director
/s/ Harry M. Jansen Kraemer, Jr.
Harry M. Jansen Kraemer, Jr.
Director
/s/ Thomas Jetter
Thomas Jetter
Director
/s/ Arthur D. Kowaloff
Arthur D. Kowaloff
Director
/s/ Francis J. Lunger
Francis J. Lunger
Director
119
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
March 1, 2017
Date
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Directors and Officers
Board of Directors
Bret W. Wise
Executive Chairman of the Board
Jeffrey T. Slovin
Director and Chief Executive Officer
Thomas Jetter
Lead Independent Director
Michael C. Alfano
Director and Corporate Governance
and Nominating Committee Chair
David K. Beecken
Director
Eric K. Brandt
Director
Michael J. Coleman
Director
Willie A. Deese
Director
Harry M. Jansen Kraemer, Jr.
Director
Arthur D. Kowaloff
Director and Human Resources
Committee Chair
Francis J. Lunger
Director and Audit and Finance
Committee Chair
Executive Officers
Jeffrey T. Slovin
Chief Executive Officer
Rainer Berthan
Executive Vice President,
Manufacturing and Supply Chain
Christopher T. Clark
President and Chief Operating Officer,
Technologies
Jonathan Friedman
Senior Vice President, Secretary
and General Counsel
Maureen MacInnis
Senior Vice President and
Chief Human Resources Officer
Ulrich Michel
Executive Vice President and
Chief Financial Officer
James G. Mosch
President and Chief Operating Officer,
Dental and Healthcare Consumables
Global Headquarters
Dentsply Sirona
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
Phone: (800) 877-0020
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:
International Headquarters
Sirona Strasse 1
A-5071 Wals bei Salzburg
Austria
Phone: +43 662 2450-0
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 2017 Annual Meeting will be held
on Wednesday, May 24, at 11:00 a.m. at:
Dentsply Sirona
Global Headquarters
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
Trademarks
All brand names used in this report
are owned by or licensed trademarks
of DENTSPLY SIRONA Inc. or its
subsidiaries.
American Stock Transfer & Trust
Company
6201 15th Avenue
Brooklyn, NY 11219
www.amstock.com
Phone: (800) 937-5449
Investor Relations, Form 10-K
and Other Information
If you would like to receive our Investor
Relations 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
Phone: (717) 849-7863
Joshua Zable
Vice President, Investor Relations
and Corporate Communications
Phone: (718) 482-2184
Dentsply Sirona
Global Headquarters
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
Forward-Looking Statements
This report contains information that may constitute “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can
be identified by the use of forward-looking terminology, including “may,” “believe,” “will,” “expect,” “anticipate,” “plan,” “intend,”
“project,” “forecast,” or other similar words. All statements that address operating performance, events or developments that
DENTSPLY SIRONA Inc. (“Dentsply Sirona” or the “Company”) expects or anticipates will occur in the future are forward-looking
statements. Statements contained in this report are based on information presently available to the Company and assumptions
that the Company believes to be reasonable. These risks and uncertainties include, but are not limited to, those described in
Part I, Item 1A (“Risk Factors”) of this Form 10-K 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 is not assuming any duty to update this information if
those facts change or if the assumptions are no longer believed to be reasonable. Investors are cautioned that all such statements
involve risks and uncertainties, and important factors could cause actual events or results to differ materially from those indicated
by such forward-looking statements. Therefore, you should not rely on any of these forward-looking statements.
Dentsply Sirona
Global Headquarters
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
(800) 877-0020
www.dentsplysirona.com