2017
Annual Report & Corporate
Social Responsibility Platform
dentsplysirona.com
Dentsply Sirona at a glance
Empowering dental professionals
to provide better, safer, faster
dental care
• The world’s largest manufacturer
of professional dental products and
technologies
• Leading positions and platforms across
consumables, equipment, technology, and
specialty products.
Global
• Sales in over 120 countries
• Infrastructure in more than 40 countries
• Dentsply Sirona products used on over
six million patients by 600,000 dental
professionals annually
Committed to innovation and education
• 30+ significant new products annually
• Training over 350,000 dental professionals annually
• ~12,000 courses conducted in 88 countries
Financially strong
• Consistent cash generation
• Solid balance sheet
• Member of the S&P 500® and
Nasdaq 100
Delivering innovative dental solutions to
improve oral health worldwide
Percent of 2017 sales by region*
US: 35%
Europe: 40%
Rest of World: 25%
*Non-US GAAP net sales, excluding precious metal content
02 I 03
Financial Highlights (in millions, except per share data)
Income Statement Data
2017
2016
2015
2014
Net Sales
Net Sales, Excluding Precious Metal Content
(Loss) Earnings Per Common Share – Diluted1
Adjusted Earnings Per Common Share – Diluted2, 3, 4, 5, 6
Cash Dividends Declared Per Common Share
$3,993.4
$3,952.9
$(6.76)
$2.66
$0.350
$3,745.3
$2,674.3
$2,922.6
$3,681.0
$2,581.5
$2,792.7
$1.94
$2.78
$1.76
$2.62
$2.24
$2.50
$0.310
$0.290
$0.265
Financial Position
2017
2016
2015
2014
Cash and Cash Equivalents
Total Debt7
Total Equity
$320.6
$1,641.7
$383.9
$284.6
$151.6
$1,532.2
$1,153.1
$1,261.9
$6,627.9
$8,125.9
$2,339.4
$2,322.2
1: 2017 – GAAP loss is calculated off of basic shares outstanding.
2: 2017 – Excludes pre-tax costs of $38.5 million related to business combinations; pre-tax amortization expense related to purchased intangible
assets of $189.0 million; pre-tax restructuring and other costs of $2,119.3 million; and the pre-tax loss on credit risk and fair value adjustments of
$5.0 million. The related net impact to income taxes on these excluded items and other income tax adjustments was $183.6 million. Calculation
also includes the $0.09 dilutive effect of common stock. In total, these items had a negative impact of $9.42 on earning per common share.
3: 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.
4: 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.
5: 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.
6: 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.
7: Total debt amounts shown are net of deferred financing costs.
Dear
Fellow
Shareholders
Dentsply Sirona‘s Global Headquarters in York, Pennsylvania, U.S.A.
Fiscal 2017 was a challenging but ultimately positive year for the organization. For the
last two years the organization has done the hard work of putting two organizations
together in over 100 countries around the world. This has taken a tremendous amount
of resources in terms of time, money and people’s attention. It has certainly tested
the resolve of the organization. As the year closed, however, we have begun to turn
the page on how we can focus on growing our portfolio of products and services.
All shareholders can be proud of the resilience, tenacity and resourcefulness the entire
Dentsply Sirona team has demonstrated throughout the process.
One of the most important lessons from 2017 is our
need to refocus on our fundamentals. We are in a very
attractive market with a great portfolio of brands and
products and have more than 16,000 passionate and
committed employees at Dentsply Sirona. We have the
opportunity to transform dentistry by delivering products
and solutions that enable better, safer and faster care.
If we provide our customers with unique dental solutions,
we should be able to grow faster than the market and
create significant shareholder value.
Financial Review
Revenues of $4.0 billion grew 6.6% compared to the prior
year, while sales of our combined businesses1 grew
1.6% excluding the effects of exchange rates. For the
year, the Company reported a loss of $6.76 per common
share which reflects the impact of a non-cash goodwill
impairment charge of $1,650.9 million and a non-cash
indefinite-lived intangible asset impairment charge of
$346.7 million, both driven by management’s projections,
tax reform and foreign exchange rate changes. On
an adjusted basis, we delivered earnings per share of
$2.66, down 5% from the prior year, reflecting some of
our challenges, including the transition to expanding
distribution of our equipment business in North America.
During the year we made the strategic decision to
expand our distribution of equipment from an exclusive
relationship to a non-exclusive relationship. Our intent
was to accelerate adoption of our technologies in the
market by leveraging multiple partners who would
support our offering. While we continue to believe
that this is the best course of action for our future, the
transition slowed decision making at the end user level.
Potential customers now are weighing the decision of
not only whether or not to buy technology, but also
from whom to buy. As retail sales did not materialize, we
built up inventory in the distribution channel. This has
impacted our performance.
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, 2016.
04 I 05
Our growth plan going forward will
be built on three pillars: sales force
effectiveness, accelerating the pace
of innovation and improving our
performance in developing economies.
In 2017, we did not meet our initial financial guidance.
The aforementioned transition coupled with integration
challenges hindered the Company’s ability to execute.
Under new leadership, we met our new, lower financial
guidance and improved performance in the back half of
the year, returning to both sales and earnings growth.
We are beginning to gain momentum and we expect to
deliver faster sales and earnings growth in 2018.
Growth and Margin Improvement
are Two Imperatives That
Will Create Shareholder Value
Our entire team is excited about taking the potential of
Dentsply Sirona and turning it into performance. Our
team will focus on two commitments that I make to you:
growth and margin expansion.
Our growth plan going forward will be built on three
pillars: sales force effectiveness, accelerating the pace of
innovation and improving our performance in developing
economies. At Dentsply Sirona, we have over 30 sales
forces and around 5,000 people around the globe
focused on sales and sales support. It is essential that
we improve the performance of this group. This includes
targeting, messaging, training, outstanding customer
service and sales force productivity tools including
teaching our groups how to cross-sell.
We will accelerate the pace of innovation by putting
the customer first, looking globally at their needs,
reallocating investments and creating urgency. We have
Donald Casey, Chief Executive Officer
the industry’s leading R&D budget and by focusing it on
higher impact projects, we expect to be in a much better
competitive position.
Our final pillar is to grow in the rapidly developing areas
around the globe—such as Asia, Latin America and the
Middle East—where we have an excellent foundation—
and also tremendous opportunity. This is going to require
more investment and resources but we expect will pay
off significantly.
Our entire employee base believes that we can and
should be a growth company built on an industry leading
go-to-market capability, world class research and
development and being a global solutions provider. We
plan to selectively add to our organic efforts by deploying
capital to support faster sales or earnings growth.
Margin improvement will be predicated on leveraging our
scale and operating more efficiently. Our team is focused
on delivering significant cost savings over the next two
years. Given our early stage of development in areas like
procurement, rationalizing our manufacturing footprint
and looking at our operating model, we believe we have
significant runway. We believe these savings can be
reinvested to support our pillars of growth, but we expect
will ultimately yield margin improvement both in the back
half of the year and beyond.
To the extent we accelerate our growth trajectory and
expand our margin profile, our business should become
more profitable and more valuable as an enterprise. Our
success here would not only enable reinvestment to
fuel long-term sustainable sales and earnings growth but
differentiate Dentsply Sirona as a truly unique asset.
Dentsply Sirona‘s Manufacturing Facility and Campus in Bensheim, Germany
An Integrated Approach to Financial and
Sustainability Reporting
At Dentsply Sirona, we believe that being a responsible
corporate citizen creates value for all of our stakeholders,
including our shareholders. For the first time, we have
decided to integrate our financial and sustainability
reporting to increase awareness and transparency about
our corporate social responsibility platform.
As the global market leader in dental solutions, Dentsply
Sirona strives to be the innovator and a pillar of the
communities in which we operate. Recognizing the global
reach of our business, Dentsply Sirona seeks to make a
positive impact first and foremost by staying true to our
vision of improving oral health worldwide. By continuing
to develop products, solutions and services that
empower dental professionals, we give them the tools to
provide their patients with better, safer, faster dental care.
For us, corporate philanthropy refers to our responsibility
to our employees, communities, society, and the
environment. Our corporate social responsibility platform
is focused on initiatives that aim to improve prevention,
education, and access to oral health care. The platform
also includes a commitment to ethics in the way in which
the Company operates; support for the development,
health and well-being of our employees; support for
communities both locally and globally; transparency
within the marketplace, and a commitment to safety
and reducing our environmental footprint.
back. We believe that continuing to strengthen our
corporate philanthropy initiatives will help forge long-
lasting and trustworthy relationships with customers,
employees, business partners, and shareholders.
Our Transformation Will Help Us Achieve
Our Mission and Vision
As we innovate, grow and create value for our
stakeholders, we will have more resources to commit
to Our Mission, to empower dental professionals to
provide better, safer, faster dental care. As we fulfill our
Mission, Dentsply Sirona will change the way dentistry is
practiced and improve oral health worldwide, a critical
part of our Vision.
I want to thank our employees around the world for
helping us develop, market, deliver and service our
products and solutions around the world. Thank you to
the clinical community—both internally and externally—
for all of your insights and support of advancing
dental care. Finally, thank you to our shareholders,
for your confidence in us as we aim to deliver leading
shareholder returns.
Respectfully yours,
As leaders in our industry, we believe in leading by
example. There are many ways in which Dentsply Sirona
and its employees work to make a difference and give
Don Casey
Chief Executive Officer
06 I 07
Corporate Social
Responsibility Platform
As an international company, Dentsply Sirona’s footprint is global. It believes it has a
responsibility to be a good corporate citizen and key contributor to the future of dental
care as well as a partner in improving the overall well-being of the global community.
Dentsply Sirona’s mission is to empower dental
professionals to provide better, safer, faster dental
care. That means that as a company, Dentsply Sirona
focuses on innovation and education with the purpose
of achieving better oral health outcomes around the
world. By aligning research efforts and the broadest
clinical education platform in the industry, resources are
targeted at improving patient care. When it comes to oral
care, at some point everyone is a patient, which is the
driving purpose of further advancing dentistry every day.
Improving oral health can have a profound impact on
economic prosperity, individual confidence, and
ultimately a person’s opportunity and overall health.
For example, tooth decay remains the most common
chronic disease among children. An estimated 51 million
school hours per year are lost in the U.S. alone due to
dental-related illness. Dentsply Sirona works with many
organizations and initiatives on local, national, and
international levels, helping to provide and improve
oral health care by donating expertise and resources.
In addition to supporting oral health initiatives, Dentsply
Sirona’s corporate social responsibility platform includes
support for research and education. Whether through
its longtime partnership in the Student Competition
for Advancing Dental Research and its Application or
through the vast amount of clinical education courses
run by the Company each year, Dentsply Sirona is
committed to the future of research and education
in the dental industry.
Dentsply Sirona supports charitable events such as
the Mission of Mercy, providing free dental care to
those without the means to afford it and employees
have joined dental missions helping to provide care to
underserved communities around the world. In addition
to donating expertise and equipment to good causes
that align with the goals of the Company, we are
committed to the development, health and well-being
of our employees and the communities in which they
live and work. Dentsply Sirona continues to set goals to
reduce its environmental footprint at all manufacturing
sites and offices.
As a company, Dentsply Sirona will continue to make a
positive impact on the world, with a core commitment
to empowering the improvement of oral health. The
management team and Board of Directors firmly
support and endorse this platform.
1
Oral Health
Improvement Initiatives
Dentsply Sirona is committed to empowering dental professionals to provide better, safer, and
faster dental care all over the world. Its core business is to provide dental professionals with
high-quality products to help them make a difference in the lives of their patients every
day. As the market leader, it is also important to donate time and contribute to charitable
and nonprofit organizations. Our philosophy toward corporate social responsibility and
philanthropy is consistent with our beliefs and business practices. Therefore, the focus
of these efforts is on people and programs engaged in health promotion and disease
prevention, improving access to oral health care, education and student research.
Disease Prevention and Treatment
Dentsply Sirona is proud to contribute to Oral Health
America’s Smiles Across America® program. These
contributions have resulted in thousands of children
receiving dental sealant treatment. Dental sealants are
plastic coatings applied to the chewing surfaces of the
teeth to protect against tooth decay, the most common
chronic disease of childhood.
Support for organizations such as The Florida Dental
Association Foundation’s, Mission of Mercy (MOM) helps
to provide free dental care to those in need without the
means to afford it. Dentsply Sirona also supports The
European Academy for Pediatric Dentistry’s network
of associations, which enable thousands of children to
receive health education and dental care.
Access to Oral Healthcare
Dentsply Sirona’s Project 32 is an example of a philanthropic
initiative combining education with a specially designed,
affordable, single-patient treatment kit developed by
the Endodontics Business Unit. The initiative focuses on
the importance of maintaining the health of all 32 teeth
Since its implementation in 2008 more than 350 clinical faculty have
participated in Ultrasonic Scaling Teaching Institute (USTI) events in the
US and Europe facilitated by the Dentsply Sirona clinical education team.
and trains local dentists in areas around the world, where
access to endodontic care is limited, on using the single-
patient kit to perform successful root canal treatment.
Supporting Clinical Education
Meeting the dental needs of a global population
requires extensive research and education. To support
this, Dentsply Sirona partners worldwide with dental
institutions, including every US and Canadian dental
school, to contribute to the development of the next
generation of innovative solutions. Dentsply Sirona
supports education programs such as ADEA (American
Dental Education Association, IFDEA (International
Federation of Dental Education Association), and
associations including the Hispanic Dental Association
(HAD), the American Association for Women Dentists
(AAWD), the National Dental Association (NDA), the
International College of Dentists, the American College
of Dentists, the Association for Dental Education in
Europe, and the South East Asia Dental Education
Association. Grants are also provided to schools and
universities around the world.
For example, we support the education of the future
of the dental profession through our long-standing
partnership with NYU Dentistry. This partnership
most recently helped with the creation of their new
Endodontic Suite. Dentsply Sirona contributed to the
design and construction of the Suite and provided
state-of-the-art equipment, including 37 new treatment
centers, along with additional technology and software.
Dentsply Sirona’s Clinical Affairs team also develops
and manages clinical education courses for dental
professionals and their teams in communities all over
the world. Last year, Clinical Affairs helped to provide
training and education for more than 350,000 dental
professionals in 88 countries, offering approximately
12,000 courses.
08 I 09
In the summer of 2008 Dentsply Professional (now Dentsply Sirona Preventive) successfully inaugurated the Ultrasonic Scaling Teaching Institute
(USTI), an ultrasonic instrumentation “train the trainer” program for clinical faculty.
Supporting student research
Since its inception in 1959, Dentsply Sirona has
been a partner in the Student Competition for the
Advancement of Dental Research and its Application
—known as SCADA. Started as a joint venture in 1959
between the American Dental Association and Dentsply
Sirona (then known as DENTSPLY International),
SCADA has always had three aims:
1. To engage students to discover the importance and
power of dental research
2. To provide opportunities for students to advance
their research skills and careers
3. To inspire students to look for new ways to have a
positive impact on dental care and oral health.
Each year, pre-doctoral students from around the
world compete at local, national, and finally global
levels. SCADA gives students the opportunity to be
excited about dental research and provides a platform
that exposes them to other students and research
from around the world. Locally appointed advisors
help the students to get the most out of their SCADA
experience by providing guidance and support.
Dr. Teresa A. Dolan, Vice President and Chief Clinical
Officer with Dentsply Sirona commented on the
SCADA program’s impact by noting that, “The SCADA
competition encourages students to pursue a clinical or
basic science topic that is exciting to them, and allows
them the opportunity to develop their critical thinking
skills, and network with faculty and students with similar
interests.”
Nearly 7,500 students have participated in SCADA
competitions worldwide and SCADA now includes 19
national programs across 39 countries.
Dentsply Sirona continues to believe in the power of
education and research. By developing these key areas,
innovative research, product development and new
technology adoption are faster and more efficient. The
Company continues to invest in oral health initiatives
and supports organizations working in the areas
outlined above, knowing that doing so helps to improve
the state of oral health worldwide which, in turn,
contributes to the improvement of overall health.
Dr. Teresa A. Dolan, Vice President and Chief Clinical Officer with Dentsply
Sirona and her team develop and manage clinical education courses for
dental professionals and their teams in communities all over the world.
2
Governance
Our promise to customers, partners and employees
At Dentsply Sirona, The Dental Solutions CompanyTM,
our comprehensive solutions offerings include leading
product brands across consumables, equipment,
technology and specialty products. With the broadest
clinical education platform and an unparalleled
commitment to R&D in dentistry, our mission and vision
guide us to continuously aim higher, support our
customers and advance patient care around the world.
Our Vision
Our Values
Delivering innovative
dental solutions to
improve oral health
worldwide.
Our Mission
Empowering dental
professionals to
provide better, safer,
faster dental care.
Dentsply Sirona has a core set of
values that we practice every day.
We are one global team
We bring out the best in our people
We live and breathe high performance
and personal accountability
We act with uncom promising integrity
We improve the practice of dentistry
with an unrelenting commitment to
customers
We demons trate passion for
innova tion and shape the dental
industry
Code of Business Conduct and Ethics Guiding Principles
Dentsply Sirona has a long history and reputation
of ethical business practices throughout the
global community. Through frequent and clear
communications and interactive training, Dentsply
Sirona employees and business partners are informed
that illegal or unethical conduct will not be tolerated.
The Company’s Code of Business Conduct and Ethics
(the Code) sets forth our guiding values and principles
for the conduct of our business that must be followed
by everyone who does business on behalf of Dentsply
Sirona and establishes the expectations for how we
will compete globally. We insist on uncompromising
integrity in terms of our interactions with customers,
suppliers, Key Opinion Leaders, and government
officials to assure compliance with all laws and
regulations. The Code provides guidance on identifying
and mitigating risk in a variety of areas and what to
do if a problem is identified. Lastly, it underscores our
commitment to our employees and the communities in
which we live and work around the world.
Company supervisors and managers are responsible
for ensuring compliance with the Code by their teams.
All employees are responsible for acquiring sufficient
knowledge to recognize potential compliance issues
applicable to their duties and for appropriately seeking
advice from subject matter experts regarding such issues.
10 I 11
The Code has been distributed to all employees and sets
forth the general standards relevant to the Company’s
business and operations. In addition, there are numerous
policies and procedures which provide more detailed
guidance on a variety of topics. The Company
communicates these specific policies to the employees
who are particularly affected by them and seeks full
compliance in the conduct of the Company’s business.
Dentsply Sirona’s Marketing to Professional Code of
Conduct requires all interactions with medical and
dental professionals comply with applicable laws and
regulations, as well as our core values. However,
Dentsply Sirona goes beyond strict legal standards and
follows the highest ethical standards when interacting
with health care professionals and institutions. Health
care professionals are also Dentsply Sirona customers
and their decisions about which product to buy should
be based on the quality and efficacy of the product and
the best interests of their patients. The Company’s Mar-
keting to Professionals Code of Conduct sets standards
that ensure employees, or any other party working on
behalf of the Company, do not unduly influence or even
give the perception of impropriety in their interactions
with the health care professionals and organizations.
Employees who interact with health care professionals
and institutions are required to regularly train on the
Marketing to Professionals Code of Conduct and agree
to comply with this policy. A network of Marketing
Compliance Liaisons is in place at each Dentsply Sirona
business across the globe that are actively engaged
in monitoring to ensure the concepts of the Marketing
to Professionals Code of Conduct are understood,
applied and enforced. Additionally, Dentsply Sirona is
committed to the reporting requirements of the
Physicians Payment Sunshine Act (Open Payments)
and other transparency laws worldwide.
In addition to the Code, we administer training on seven
additional topics:
• Anti-Corruption & Anti-Bribery
• Export Compliance
• Confidential Information & Insider Trading
• Antitrust & Competition Law
• Privacy & Data Protection
• Marketing to Professionals Code of Conduct
• Third Party Compliance
Dentsply Sirona supports global efforts to address the
issues of exploitation, slavery, and human trafficking
through our internal policies as well as through direct
actions with our business partners in our supply chain.
We expect all of our employees and business partners
to fully comply with the California Transparency in
Supply Chain Act of 2010 and the UK Modern Slavery
Act of 2015, and the Conflict Minerals provisions of the
US Dodd-Frank Act of 2010.
Ethics and Compliance Committee
Dentsply Sirona’s Chief Compliance Officer leads our
global ethics and compliance efforts. Together with
the Chief Compliance Officer, a cross-functional
Ethics and Compliance Committee promotes a work
environment and policies that uphold the highest
ethical standards for all Dentsply Sirona locations and
business partners. Under this committee’s charter,
our ethics and compliance initiatives illustrate Dentsply
Sirona’s strong commitment to our Core Values, which
set behavioral expectations for our employees,
business partners and industry consultants. Ultimately,
this proactive approach to managing our ethics and
compliance program helps ensure Dentsply Sirona’s
sustainable future.
3
Workplace
As an industry leader, Dentsply Sirona knows the importance of personal development,
job satisfaction, and maintaining an inclusive, safe and healthy work environment.
As a global company, we believe that a diverse workplace that reflects a variety of
ideas, experiences, and skills is a key to sustaining success. Employees at Dentsply
Sirona have many opportunities for training and development and, as a company
with a large international footprint working in many locations around the world, talent
development is built around the concept of working as one global team. One example
that illustrates the high level of employee satisfaction is from the Company’s Bensheim
location where employees remain for an average of 15.3 years while the turnover rate
was a low 1.4 percent for the period of January to November 2017.
Training and Career Development
Our greatest asset is our talented workforce. Career
development is an important factor for employees.
Therefore, Dentsply Sirona invests in training and
development programs to bring out the best in its
people and to ensure that we will continue to attract
top talent across the globe. The more consistently the
Company promotes the individual talents, strengths and
competencies of its employees, the more sustainable
development will be. In order to accomplish this, Dentsply
Sirona has committed to an Employee Value Proposition
(EVP) aligned to the mission, vision and values of the
Company. The EVP is made up of four pillars—helping
employees develop faster, perform better, have the
opportunity to shape an industry, and make a difference.
To help provide training, there are a number of initiatives,
including the Dentsply Sirona University, which was
created to build skills and competencies across three
disciplines: leadership excellence, operations excellence
and commercial excellence. One program within the
structure of the University is the Essential Leadership
Program in which participants are given tools to build
Laurie Reader, Global Talent Management Director, developed together
with her team the guiding principles for Dentsply Sirona’s talent programs,
enabling participants to grow themselves and move the business forward.
core leadership capability and to understand how their
leadership style impacts their effectiveness. The program
takes place over a 6-month period.
Other tracks that are part of the University include
the Advanced and Strategic Leadership Development
Programs and the Global Leadership Development
Program with a similar focus on accelerating the
development of specific employees with a desire to serve
in broader and bigger leadership roles. The majority
of employees who complete the Global Leadership
Development Program are promoted within two years
or take on broader roles within the organization.
Additionally, the University will soon be piloting sales
development and operational excellence programs.
Research shows that gender diversity within an
organization matters, and Dentsply Sirona supports
women in leadership through its Women Inspired
Network (WIN). The aim is to accelerate growth for
women by focusing on developing in those competencies
that specifically help women overcome their top
hurdles in career advancement. The 12-month program
combines internal and external training, allows for
extensive networking and collaboration and has the
women work in teams to complete an Action Learning
Project that is relevant and impactful for the business.
This year, the program added 32 participants. Alumnae
of WIN remain involved as mentors, compounding the
value of the program year after year.
Beyond internal training initiatives, in many locations, Dentsply
Sirona provides tuition assistance enabling participating
employees to complete their university education, while
others have pursued advanced degree programs.
Dentsply Sirona has a talent development strategy
that takes into account human capital risk assessment
considering the specific skill requirements at each level
of the Company. Rounding out the development process
is a recently revamped system for individual goal setting,
feedback and regular performance reviews corresponding
with an individual’s goals for career development.
12 I 13
A total of 32 Dentsply Sirona women met within the Women Inspired Network program in Dallas.
Equal employment opportunity and inclusion
Dentsply Sirona firmly believes that a diverse workforce
that draws on the talents and skills of people from all
backgrounds and cultures helps to contribute to an
inclusive society and is good for the future sustainability
of the business. As a business an active strategy of
cultural diversity and inclusion informs our efforts at
talent recruitment, development, and management. The
Company remains committed to the principle of equal
employment opportunity out of moral and legal obligation.
One example of a Dentsply Sirona initiative focused on
promoting inclusion is the Work Experience Program in
Japan. The program enables people with disabilities to
meet other qualified individuals with disabilities to gain
valuable experience in the workplace. Dentsply Sirona
recognizes the societal and employment challenges that
exist toward people with disabilities.
As an international business with offices in locations
around the world, local offices typically reflect the culture
of the country in which they operate. There is a diverse
workforce within our global Dentsply Sirona locations.
The commitment to diversity and inclusion includes
recruitment of diverse candidates throughout the
business, including the Board of Directors and
management, as well as Corporate and operating
functions, such as sales, marketing, finance, and
information technology, in locations around the globe.
Employee training and information, available in multiple
languages, maintains a focus on global diversity and
appreciation of regional cultures.
When filling an open position every effort continues to be
made to include a group of qualified, diverse candidates.
Job-specific qualifications, skills, and experience are
the basis for recruitment, training, and advancement of
employees at all levels. Dentsply Sirona’s policy is to fill
positions with the most qualified candidates regardless
of race, color, sex, age, national origin, disability, religion,
sexual orientation, or veteran status, except where
there is a bona fide occupational qualification. This
policy applies to all decisions about recruitment, hiring,
compensation, benefits, transfers, promotions, training,
social programs, layoffs, and any other conditions of
employment. In line with this policy, Dentsply Sirona
offers same and opposite gender domestic partner
benefits to employees. Reasonable accommodations are
provided to qualified individuals with disabilities.
Dentsply Sirona is committed to providing a workplace
that is free of discrimination, in all aspects of employment.
This practice is aligned with the core values of the
Company as well as being a sound business practice.
Looking toward the future, there is a renewed focus
on employee engagement with a series of surveys to
benchmark and improve the level of satisfaction across
the workforce.
Health and Safety
For 2017, a new health and wellness program was
unveiled with a different area of focus each quarter.
This year’s focus areas were oral health, physical health,
occupational health and safety, and nutrition. The
program is global but is designed to be adapted to the
specific needs of different locations around the world.
Some offices host or participate as a team in races
and walking challenges while others distribute weekly
health tips.
An example of a local initiative within the program
comes from the country of Colombia, where employees
participated in a week of activities to support a
healthy lifestyle such as free medical assessments and
vaccinations, taking part in a Zumba class, a healthy
breakfast, as well as joining in sports activities. An
additional local benefit of the program gives employees
subsidized access to a gym and rewards for achieving
personal health goals.
Dentsply Sirona remains committed to having safe and
healthy operations at all of our locations worldwide. Our
goal is to protect the lives and health of employees and
surrounding communities. Employees receive safety
training and annual Environmental, Health and Safety
audits are conducted in each of the manufacturing
facilities around the world. In the U.S., audits are also
conducted periodically by the Occupational Safety and
Health Administration (OSHA) and the Company works
with this regulatory body to ensure compliance with all
safety standards.
4
Community
As a leader in the dental industry, Dentsply Sirona recognizes the role it plays in
advocating for and investing in efforts that improve oral health worldwide—and
the importance of being a good corporate citizen in the communities and regions
in which offices and facilities are located.
On an annual basis, Dentsply Sirona supports
thousands of charitable events and activities around
the world. Some of these activities focus on donating
to causes that directly affect and help to sustain
healthy communities where a direct connection to the
Company exists, while others focus on more general
themes such as improving oral health and access for
chil dren and adults and supporting dental education
and research.
Dentsply Sirona believes that a strong understanding of
oral health from a young age promotes healthy habits
and helps to dramatically reduce the chance of oral
diseases and health problems later in life. There is also
an increasing recognition of the connection between
good oral health and general health.
The following examples illustrate some of the many ways
that Dentsply Sirona and its employees give back to both
local communities and the global community at large.
Community projects and support
Giving locally in Bensheim
To mark the 5th German Diversity Day on May 30, 2017,
employees in Bensheim, Germany compiled a cookbook
of regional recipes. Donations for the cookbooks,
totaling 1200 Euro, went to the Bensheimer Tafel, an
organization helping to provide food to those in need.
In Bensheim, this year’s collection was donated to the
Bergstrasse Hospice, managed by the Hospiz-Verein
Bergstraße e.V. A total of 8,000 Euro was donated to
the hospice, which provides a caring place for people
with advanced, incurable diseases who can no longer
receive the treatment they need at home.
United against cancer
Inspired by a colleague in urgent need of a stem cell
transplant, 377 employees at Dentsply Sirona’s site in
Bensheim, Germany registered as stem cell donors with
DKMS at the beginning of July. DKMS is an international
nonprofit organization dedicated to the fight against
blood cancer and blood disorders. The more people
who register, the greater the chances of survival for
those afflicted.
Toys for children
Toward the end of each year, many offices take up a
collection for a particular charity or organization to
support during the holiday season. This year, Dentsply
Sirona employees in New York participated in the
Salvation Army’s Angel Tree Program by sponsoring
40 children. The program matches donors with
children from qualified families and provides a tag
that symbolizes a child in one of the Salvation Army’s
programs. Each tag represents the wishes and desires
of a real child. Last year, the Salvation Army provided
6,500 toys to underprivileged children throughout
the metro New York area to help ensure that children
don’t feel forgotten on Christmas.
To raise funds for the Bensheimer Tafel, employees in Bensheim,
Germany gathered regional recipes for a cookbook.
Dentsply Sirona is supporting the Bensheimer Hospice with a
Christmas Donation.
14 I 15
importance of prevention and early detection of oral
cavity cancer and supports patients in need with
treatment and operations for oral cavity cancer and
facial deformities. Dentsply Sirona Korea employees
have been participating since 2013 to raise awareness
by running or walking with their family members for this
good cause. Parents and children also have the chance
to learn how to properly brush teeth and learn about
the prevention of oral cavity cancer.
Dentsply Sirona Korea is running for a good cause.
Donating briquettes for heating in Korea
Approximately 135 thousand households in Korea still
use briquettes to heat their homes. Mainly located in
areas without access to modern heating facilities, these
residents consist mostly of the elderly or those with
lower income. Due to a decrease in supply, the unit
price of briquettes has increased, making the situation
even more difficult for those who rely on this source of
heating. Dentsply Sirona donates to the Korea Briquette
Bank to buy briquettes so they can be provided free
of charge. Several members of Dentsply Sirona Korea
joined this year in supporting the charity delivery
activities as part of KCMC (Korea CEO’s Association
on Multinational Corporations) by delivering 5,000
briquettes to 30 households.
Smile Charity Foundation
Since 2010, Smile Charity Foundation and Korea
Dentist Association have been co-organizing the Smile
Run Festival, an event consisting of a half marathon,
10km, 5km and family walk. The run promotes the
Big participation at a stem cell donation for DKMS at Dentsply Sirona’s
site in Bensheim, Germany.
Several employees of Dentsply Sirona Korea supported the KCMC by
delivering 5,000 briquettes to 30 households
Donations outside the local community
joined to treat 5,000 patients across four different
locations.
Dentsply Sirona supports this initiative by providing
and assisting in giving Endodontic and Prosthodontic
treatment. This assistance includes product donations
(X-smartTM Plus files, Celtra Duo) as well as help during
the treatment and finalizing the crowns with CEREC.
Support for the Chulalongkorn foundation fits directly
into the vision of Dentsply Sirona by helping to make
a difference in the lives of these dental patients.
China Oral Health Foundation
China’s largest dental show, the Sino Dental Show
in Beijing, offered a perfect venue to auction off the
world’s last C8+ treatment center for charity. An
enthusiastic and crowd bid intensely, raising the auction
price to 160.000 RMB (approximately 23,000 USD)
by the time the hammer signaled the end of bidding.
Proceeds from the auction went to support the China
Oral Health Foundation’s Comprehensive Prevention
and Treatment of Oral Diseases for Disabled Children
and Orphan Project, which has provided oral health
services for more than 2000 disabled children in 23
provinces of China since its launch in 2011.
In addition to the donation, Dentsply Sirona recruited 12
volunteers to join a project led by the China Oral Health
Foundation to join the project in bringing oral health services
to Guangxi where a need exists for basic dental care.
Dr. Teresa A. Dolan, Vice President and Chief Clinical Officer of Dentsply
Sirona hands over the cheche to William R. Calnon, Board President and
Interim Executive Director of the ADAF.
Supporting disaster relief
The American Dental Association (ADA)Foundation is a
nonprofit organization with a mission to support access
to care, research, and education as well as to provide
charitable assistance for the dental community. Dentsply
Sirona cares deeply about the dental community, and
recent hurricanes and natural disasters have had a
devastating effect on many dentists. When disaster
struck, to help address urgent needs such as food,
bottled water, clothing, blankets, medicines and medical
supplies, emergency shelter, and toiletries, Dentsply
Sirona made a donation to the ADA Foundation to
support their Emergency Disaster Grant Program.
Chulalongkorn foundation annual roadshow
In rural areas of Thailand, one dentist is responsible for
20,000 inhabitants. For 47 years, the Chulalongkorn
foundation organizes monthly events in remote areas
to improve oral health and offer treatment to those
communities in need where the general population
has limited access to dental care. The largest of the
foundation’s events takes place once a year over the
course of four days. In November 2017, Dentsply Sirona
The San Patrignano Community
Located in the Rimini province of Italy, the San Patrignano
recovery community is a home for youth who are
recovering from drug addiction. The community helps its
residents to regain their self-esteem, dignity, responsibility
and enthusiasm. San Patrignano has its own in-house dental
center and Dentsply Sirona and the Technology Store of
Emilia Romagna are helping to bring the benefits of digital
dentistry to its patients by donating a CEREC system
consisting of an intraoral scanner and a milling unit.
Dentsply Sirona joined the annual 4-day roadshow of the Chulalongkorn
foundation to provide and assist in giving Endodontic and
Prosthodontic treatment to the communities who have limited or no
access to dental treatment.
Handover of the check to the foundation after the auction of the world’s
last C8+ treatment center.
16 I 17
A very welcome opportunity to support the values at Dentsply Sirona’s Corporate social responsibilities. The cycling team Rynkeby raises money for
children with cancer and their families by riding to Paris.
Dental humanitarian mission in Guatemala
Riding with Team Rynkeby
Last November, an employee from Montreal joined a
weeklong dental humanitarian mission as a hygienist
providing dental treatment in Champerico, a small village
in Guatemala on the Pacific coast. Her colleagues and
the Company supported her with products to help the
mission. Conditions were grueling with many patients
lacking access to dental treatment and unable to even
buy a toothbrush.
In total, the team of dentists and hygienists treated 356
patients. The results of the weeklong mission were:
• 344 restorations
• 202 extractions
• 102 scalings
• 134 prophylaxis
• 36 Fluoride varnishings
• 22 Sealants
• 8 endodontic treatments
• 19 consultations
• 32 CAI (metal crown for pedo)
• 1 cementation
The emotion displayed by patients upon receiving
treatment was overwhelming and incredibly moving
and a reminder of the importance of using skills and
resources to help those most in need.
The endodontic treatments performed on a lion at the Abu Dhabi
Wildlife Centre are similar to the procedures performed on humans with
the same condition; the main difference being the size of the files.
Founded in 2002, Team Rynkeby is a charity cycling
team that supports children with critical illnesses in
the Nordic region. The charity includes 1,700 cyclists
and 450 volunteers distributed across 44 local teams
in six countries: Denmark, Sweden, Finland, Norway,
the Faroe Islands, and Iceland. Every summer the team
raises money by riding to Paris to coincide with the final
stage of the Tour de France. Dentsply Sirona supports
Team Rynkeby in this great cause.
Helping to save animals’ teeth
Dentsply Sirona’s support for saving teeth doesn’t stop
with humans. The modern solutions provided by Dentsply
Sirona have also been used to help some surprising
patients: an eight-year-old female bottlenose dolphin
named Dumisa at Hong Kong’s Ocean Park, and two adult
lions at the Abu Dhabi Wildlife Center. Dumisa suffered
from general dental abrasion and required extensive root
canal treatment. Some of Dumisa’s teeth were worn,
exposing the central, living part of the tooth, the pulp,
which had subsequently died. In the past, extraction
of the affected teeth would have been the only option.
Thanks to extensive training with Dumisa, getting her
used to the dental instruments, the veterinary dentist
was able to use state-of-the-art endodontic therapeutics
to treat one damaged tooth by root canal treatment.
Eighteen others are in different stages of treatment. All
of the procedures were performed without anesthesia or
restraint. Dentsply Sirona supplied the products used in
the root canal procedure, preparation, compounding and
filling of the canal. A lion and lioness at the Abu Dhabi
Wildlife Center both had fractured canine teeth. Finding
files of suitable sizes and active working lengths for dental
procedures on larger animals is a difficult task which
is why Dentsply Sirona lent its support to the dentists
tasked with treating the lions by specifically developing
a sequence of Hedstroems from ISO 030 to ISO 180 and
donating an X-Smart iQ™ and ProTaper Gold™ files. The
files will have the benefit of reducing the amount of time
the animals are under anesthesia, lessening its profound
effects on an animal’s physiology.
5
Marketplace
A combination of intuition, imagination, insight, and curiosity drives Dentsply Sirona’s
innovation over a broad range of dental solutions. These solutions focus on defining
end-to-end treatments or integrated workflows, which typically require more than one
product and allows for “Single Visit” chairside dentistry, optimized dental laboratory
services and centralized manufacturing.
State-of-the-art expertise in materials science, equipment
design, and software development is the foundation
of Dentsply Sirona’s Research and Development team.
This know-how allows the team to utilize cutting-edge
processing technologies to create exciting consumable
products and equipment. Professionals use these products,
which include some of the most established brands in the
global market to prevent and treat dental disease as well
as replace and regenerate oral tissue. The most effective
treatment can only be achieved if the best diagnostic tools
are used. Dentsply Sirona delivers a wide range of diagnostic
tools, including optical and X-ray-based modalities to
the dental profession. Significant emphasis is placed on
delivering images optimized for the highest diagnostic
value at the lowest applied radiation dose. Dentsply
Sirona employs some of the best and brightest scientists,
engineers, and clinicians in the global dental industry to
ensure we are providing the highest quality services and
products to our customers. The broad experience and know-
how of more than 600 research and development employees
has translated into more than 30 innovative new products
created annually.
Pre-Clinical Testing
Dentsply Sirona develops and licenses numerous medical
devices for use in dental care applications. We believe
the vast majority of the products that we develop are
substantially greater in quality compared to products
already available in the market. Whenever possible,
Dentsply Sirona uses in vitro or benchtop methods that
do not require testing in animals. When studies involving
animals are absolutely necessary (e.g. when required by
law, regulation or standards) to establish safety, Dentsply
Sirona uses facilities that follow the relevant national
guidelines for the Care and Use of Animals. In the U.S., this
follows 21CFR Part 58 and 9CFR Parts 1-3 and global ISO
10993-2 (Animal Welfare Requirements). These guidelines
require that all studies be approved by an Institutional
Animal Care and Use Committee and the number of
animals are limited to the minimum amount possible to
demonstrate safety and efficacy prior to human clinical
studies. Within these facilities, animal research monitoring
is required to ensure that the animals are treated safely
and humanely.
Aquasil Ultra+ impression material delivers exceptional intraoral performance with market leading intraoral hydrophilicity and tear strength which
enables clinicians to capture and retain the detail they need.
18 I 19
SIMPLANT offers clinicians a comprehensive 3D system for accurate and predictable implant treatment including dental scanning and planning, drilling,
implant placement and restoration.
Clinical Testing
Prior to commercializing innovative products,
Dentsply Sirona often utilizes data from human
clinical tests. Dentsply Sirona conducts all studies
with human subjects in a manner that protects
the safety and rights of patients and investigators.
In addition to protecting the rights of individuals,
including confidentiality, Dentsply Sirona complies
with regulatory requirements of the countries in which
studies are conducted and those in which regulatory
submissions take place. Dentsply Sirona’s practice
ensures that controls are in place and followed to
protect the integrity of the study result
Dental Amalgam
Dental amalgam, which is composed of a mixture
of metals such as silver, mercury, copper, and tin, is
considered a safe, affordable, and durable material
that has been used for over 100 years to restore teeth
affected by dental caries (tooth decay). It has a long-
Advanced new 3D imaging software improves the planning and workflow
of endodontic procedures empowering dental professionals to provide
better, safer, faster dental care.
established record of safety and effectiveness. While
it has been the subject of questions because of its
mercury content, dental amalgam has been studied
and reviewed extensively and continues to be preferred
and used by dental professionals in certain clinical
applications. Dentsply Sirona sells numerous restorative
products that are alternatives to amalgam.
Many organizations, including the American Dental
Association, Federation Dentaire Internationale (World
Dental Federation) and the FDA, support the use of
dental amalgam. The Company has reviewed and
evaluated its dental amalgam product line. This review
included assessment of a wide range of factors, including
the clinical effectiveness of amalgam, published scientific
studies regarding material safety, the results of the FDA
review of dental amalgam, as well as environmental and
legal considerations. Based on our internal assessment
and published industry research, Dentsply Sirona has
concluded that dental amalgam continues to be a useful
restorative material whose safety and efficacy have been
extensively documented.
Based on this assessment and the needs of customers,
Dentsply Sirona expects to continue to responsibly
manufacture and sell dental amalgam while focusing
research and development investments on advanced
alternative dental-restorative materials. In agreement
with the Minamata Convention, Dentsply Sirona
supports the consensus for a phase-down approach,
ratified by the Convention and signed by over 100
countries, to reduce the use of dental amalgams.
Dentsply Sirona’s marketing efforts and educational
activities are designed to educate clinicians about the
benefits and techniques for using today’s state-of-the-
art alternative restorative solutions. In addition, Dentsply
Sirona continues to promote the use of the American
Dental Association’s Best Management Practices for
Amalgam Waste to customers who choose to use dental
amalgam. Finally, Dentsply Sirona supports a variety
of industry-wide initiatives to promote prevention
of oral health disease, which in turn, reduces the need
for restorative procedures.
6
Environment
Energy Resources
Dentsply Sirona manufactures products located in
facilities around the world. The nature of Dentsply
Sirona’s manufacturing businesses is such that it is not
a significant consumer of natural resources or energy. In
fact, Dentsply Sirona’s global electricity and natural gas
consumption costs in total less than 1% of sales.
Although not large consumers of energy, the Company
is committed to improving its ability to control its energy
consumption and reduce it. For example, a facility based
in Sweden is investing 17 million USD to begin, in 2018,
the transfer over to a production process with a smaller
environmental footprint, including use of chemicals
and energy. The facility in Ballaigues, Switzerland uses
572 photovoltaic panels (930 m2) implemented on
the roof delivering 151.6 kWp, 136 kWh of Energy
are recovered from hot water production on two air
pressure machines and a gas condensing boiler was
recently implemented for heating the building. Adiabatic
cooling is used for ventilation while an automatic
analyzer connected to the weather forecast manages
heating, lighting, and blinds for the facility. The building
itself was constructed following Minergie-P, which
takes into account the materials used, isolation, energy
consumption and overall concept of the building.
Since 2011, Dentsply Sirona has worked with Schneider
Electric on supply-side energy issues in the US and EU,
to strategically manage procurement of our energy
requirements across those geographies. In 2017,
Dentsply Sirona expanded the reach of this partnership
into Brazil and Japan. This represents over 95% of our
energy usage, globally. Schneider Electric also works
with the Company to gather data in order to participate
in and report for the CDP (Carbon Disclosure Project)
each year.
Dentsply Sirona tracks baseline energy impact based
on metric tons of CO2 (type 1 and type 2) to gain a
view of our global energy consumption and related
greenhouse gas emissions. This dashboard provides
a view of our cost efficiency and greenhouse gas
emission opportunities. We have continued to enhance
an understanding of the Company’s Type 3 CO2 impact
in both North America and Europe, with Brazil and the
APAC region to follow in the near future.
Several Dentsply Sirona facilities in Europe are already
obtaining up to 20% or more of their energy needs
from renewable energy sources, including wind and
solar power.
Hazardous Waste
Dentsply Sirona’s manufacturing facilities do not
produce large amounts of hazardous wastes and
emissions, based on the type of manufactured materials
and the size of our manufacturing footprint. In prior
years, the Company has reported U.S. manufacturing
facility permits related to the environment. For 2017
and beyond, it is expanding to reporting on a global
basis, encompassing permits worldwide. Six of the total
manufacturing facilities have hazardous waste permits,
18 manufacturing facilities have air emission permits or
authorizations, four of the manufacturing facilities are
required to have landfill disposal licenses or permits,
and Dentsply Sirona holds five water (emission/storm/
waste) permits. The Company strives to ensure that its
manufacturing facilities comply with those licenses and
permits. Each manufacturing facility tracks and reports
its hazardous waste and emissions on an annual basis.
Local Teams Go Green
Employees are motivated to reduce Dentsply Sirona’s
negative environmental impact by focusing on ways
to reduce energy consumption, increase recycling,
eliminate waste, and implement other “green” ideas
within local facilities. Through the partnership with
Schneider Electric, local teams have access to
statistical data to support their investment decisions
related to the reduction of energy consumption with
measurable results in both costs and usage. Several
facilities have already begun developing environmental
impact reduction strategies.
The Bensheim, Germany location has received it’s ISO
14001 certification and follows the worldwide
recognized guideline for health and safety measures
(NLF/ILO-OSH 2001). The ISO 14001 certification is
provided by the International Organization for
Standardization and is a systematic and process-driven
approach to controlling aspects of our business that
have a significant impact on the environment.
The NLF/ILO-OSH 2001 guidelines are a set of
safety measures that have been developed by the
International Labor Organization (ILO) and are a set of
safety measures put in place to reduce the hazards and
risks in the workplace. Their goal is to provide a safe
and risk-free environment for employees to thrive.
In addition, Dentsply Sirona committed to ambitious
energy saving targets for 2017 and 2018 at its
Bensheim location by signing an environmental pact
with nine other employers in the region. The agreement
is expected to lead to electricity savings of approximately
204,000 kWh/year and a reduction of CO2 emissions
by approximately 90 t/year. With the commitments
to LEEN (Learning Energy Efficiency Networks) and
the EMAS (EU Eco Audit) as well as membership in
the Hessian Environmental Alliance, Dentsply Sirona
is showing that it takes its responsibility towards the
environment seriously.
Selective Examples of Past Green Initiatives
20 I 21
Energy
Conservation
• German-based facility implemented a heat
• US-based facility installed energy efficient
recovery unit
infrared heaters in dock area
• Many facilities began or completed the
• Netherlands-based facility installed solar
conversion of their outdoor lighting to LED
• German-based facility converted to intelligent
air valves and control to optimize compressed
air generation to reduce energy consumption
• A Switzerland-based facility installed Smart
Sensors, which send automatic updates on
a series of energy consumption indicators
to a newly created, dedicated website. The
generated data helps make decisions to lower
energy consumption
• US-based facility converted to high efficiency
systems
energy panels
• Swedish-based facility uses renewable
resources to provide electrical power
• US-based facility initiated project to use
daylight when/where possible to reduce
electrical energy
• Brazil-based facility manages a recycle
materials program targeted to reduce
environmental waste
• Renewable energy sources are being
used in Swedish, German, Dutch and
Swiss facilities through wind and solar power
Carbon
Emissions
Hazardous
Waste
• US-based facility converted its lighting
• Swedish and Belgium-based facilities
to more efficient LED estimated to save 835
metric tons of CO2
implemented a strategy to improve car fleet
efficiency to reduce CO2 emissions
• German-based facility signed an
• Netherlands-based facility replaced gasoline
environmental agreement in which the
participating companies agree to a joint
CO2 savings target of six percent by 2018
• German-based facility installed new gas
heater system to reduce consumption
• Brazil-based facility replaced diesel with LBG
as energy source, reducing CO and CO2
powered cars with electrical cars
• German-based facility reduced natural gas
consumption by optimizing produc tion and
maintenance scheduling
• Swedish-based facility reduced the use and
leakage of Sulfur hexafluoride gas (SF6)
which resulted in a reduced CO2 footprint
• Swedish-based facility is investing to change
• US-based facility implemented CNC
to a production process with a smaller
environmental footprint, including reducing
its use of chemicals
• Switzerland-based facility introduced a
5-times recycling cycle for the plastic inserts
that are part of the manufacturing process
• Many facilities around the globe reuse or
recycle a majority of raw materials and
packaging materials to reduce pollution and
carbon footprint. In Switzerland, for example,
the recycling rate is 79%
grinding, reducing acid electrolyte solution
waste
• US-based facility eliminated use of all white
bliss boxes by converting to environmentally
friendly unbleached box packaging
• US-based facility using green custodial
supplies where suitable
• Swedish-based facility improved chemical
handling for surface treatment, leading to
less waste
Water
Usage
CO2
• Switzerland-based facilities implemented a
system for recycling water used for cooling
systems
• Additional facilities installed evapo-
concentrators to limit the treatment needs
of water volume for toxic wastes
• US and German-based facilities converted
to a closed loop water-cooling system,
resulting in significant water consumption
savings
• Brazil-based facility implemented system for
recycling water used for cooling system
• Netherlands-based facility refurbished heat
pump to minimize water used for cooling
system
• Swedish-based facility reduced water
consumption through the installation
of a tumbling system
• Belgium-based facility uses less water since
installing sensor faucets
7
Political Spending
Dentsply Sirona does not use corporate funds for
political spending or lobbying on political issues, and
has not done so for at least the last six years, nor do
we have a political action committee. As stated in our
Code of Business Conduct and Ethics, the Company’s
established policy is that no company funds or other
company assets may be contributed for political
purposes, regardless of whether in the U.S. or outside
the U.S., without the prior review by the Company’s
General Counsel, and approval by the Board of Directors.
In the U.S., Dentsply Sirona is a member of various
dental trade associations, such as the Dental Trade
Alliance (DTA) which is an association of companies
that provide dental equipment, supplies, materials and
services to dentists and other oral care professionals.
The DTA’s core purpose is to enhance member success
and increase dental demand. From time to time, DTA
may engage in lobbying regarding legislation that is of
interest to its members.
With headquarters in York, Pennsylvania, Dentsply
Sirona is also a member of the Pennsylvania
Chamber of Business and Industry. The Chamber is
the commonwealth’s largest broad-based business
advocacy organization with a mission to improve
Pennsylvania’s business climate and increase the
competitive advantage for its members.
8
Conclusion
Dentsply Sirona’s mission is to empower dental
professionals to provide better, safer, faster dental
care. That means that as a company, Dentsply
Sirona focuses on innovation and education with the
purpose of achieving better oral health outcomes
around the world. This Corporate Responsibility
Platform represents Dentsply Sirona’s efforts to
report on its sustainable activities and sharpen the
philanthropic focus in the area where the Company
has the greatest impact—that includes a core focus on
initiatives that aim to improve prevention, education,
and access to oral health care. The platform also
includes a commitment to ethics in the way in which
the Company operates, support for the development,
health and well-being of the employees, support for
communities both locally and globally, transparency
within the marketplace, and a commitment to
safety and reducing our environmental footprint.
Dentsply Sirona’s footprint is global and believes in
its responsibility to be a good corporate citizen and
key contributor to the future of dental care as well
as a partner in the overall well-being of the global
community. Dentsply Sirona is firmly committed to the
principles outlined in the platform. Dentsply Sirona
plans to continue to make a positive impact on the
world, with a core commitment to empowering the
improvement of oral health. The management team
and Board of Directors firmly support and endorse
this platform.
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, 2017
Commission File Number 0-16211
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
Delaware
39-1434669
221 West Philadelphia Street, York, PA
(Address of principal executive offices)
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, a smaller reporting
company, or an emerging growth company.See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company"
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Emerging growth company
Accelerated filer
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act.
Smaller reporting company
Non-accelerated filer
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes
No
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, 2017, was $14,871,012,567.
The number of shares of the registrant’s common stock outstanding as of the close of business on March 8, 2018 was 227,375,099.
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 2018 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
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosure
PART II
Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and
Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management
and Related Stock Matters
Item 1
Item 1A
Item 1B
Item 2
Item 3
Item 4
Item 5
Item 6
Item 7
Item 7A
Item 8
Item 9
Item 9A
Item 9B
Item 10
Item 11
Item 12
Item 13
Certain Relationships and Related Transactions and Director
Independence
Item 14
Principal Accountant Fees and Services
Item 15
Item 16
Exhibits and Financial Statement Schedules
Form 10-K Summary
PART IV
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3
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32
33
36
37
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68
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149
PART I
FORWARD-LOOKING STATEMENTS
Information included in or incorporated by reference in this Form 10-K, and other filings with the U. S. Securities and Exchange
Commission (the “SEC”) and the Company’s press releases or other public statements, contains or may contain forward-looking
statements. Please refer to a discussion of our forward-looking statements and associated risks in Part I, Item IA “Part Business-
Forward-Looking Statements and Associated Risks” and Part 1, Item 1A “Risk Factors” of this Form 10-K.
GENERAL
Unless otherwise stated herein, reference throughout this Form 10-K to “Dentsply Sirona”, or the “Company,” “we,” “us” or “our”
refers to financial information and transactions of DENTSPLY International Inc. (“DENTSPLY”) prior to February 29, 2016 and
to financial information and transactions of DENTSPLY SIRONA Inc., thereafter, in each case, with its subsidiaries on a
consolidated basis, unless the Company states or the context implies otherwise.
INDUSTRY AND MARKET DATA
Unless indicated otherwise, the information concerning our industry contained in this Annual Report is based on our general
knowledge of and expectations concerning the industry. The Company’s market position, market share and industry market size
are based on estimates using our internal data and estimates, based on data from various industry analyses, its internal research
and adjustments and assumptions that it believes to be reasonable. The Company has not independently verified data from industry
analyses and cannot guarantee their accuracy or completeness. In addition, we believe that data regarding the industry, market
size and its market position and market share within such industry provide general guidance but are inherently imprecise. Further,
the Company estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including
those discussed in the “Risk Factors” section. These and other factors could cause results to differ materially from those expressed
in the estimates and assumptions.
PART I
Item 1. Business
History and Overview
Dentsply Sirona 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 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 worldwide
headquarters is located in York, Pennsylvania. The Company’s shares of common stock are listed in the United States on Nasdaq
under the symbol XRAY.
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 innovation in the dental industry. The Company introduced
the first dental electric drill over 130 years ago, the first dental X-ray unit approximately 100 years ago, the first dental computer-
aided design/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 of innovative and profitable new products continues today.
3
Dental products and technology and equipment accounted for approximately 92% of Dentsply Sirona’s consolidated net sales
and 92% of Dentsply Sirona’s consolidated net sales, excluding precious metal content, for the year ended December 31, 2017.
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 in Item
7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-K and a reconciliation
of net sales to net sales, excluding precious metal content, is provided there.
Certain reclassifications have been made to prior years’ data in order to conform to current year presentation. During the
quarter ended September 30, 2017, the Company realigned reporting responsibilities for multiple businesses, as a result of a
retirement of one of the Company’s then Chief Operating Officers, into three operating segments. Furthermore, as a result of
changes in the senior management level during the quarter ended December 31, 2017, the Company realigned reporting
responsibilities into two operating segments. The segment information reflects the revised fourth quarter organizational structure
for all periods shown.
The Company conducts its business in the United States of America (“U.S.”), as well as in over 120 foreign countries,
principally through its foreign subsidiaries. Dentsply 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 the years ended December 31, 2017, 2016 and 2015, the Company’s net sales to customers outside the U.S., including
export sales, accounted for approximately 65% of consolidated net sales. Reference is made to further information provided
regarding 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, 2017, 2016 and 2015 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
The worldwide professional dental industry encompasses the diagnosis, treatment and prevention of disease and ailments of
the teeth, gums and supporting bone. Dentsply Sirona’s principal dental product categories are dental consumable products, dental
laboratory products, dental specialty products and dental equipment. Additionally, the Company’s consumable medical device
products provide for urological and surgical applications. These products are produced by the Company in the U.S. and
internationally and are distributed throughout the world under some of the most well-established brand names and trademarks in
these industries, including but not limited to: ANKYLOS, AQUASIL ULTRA, ARTICADENT, ASTRA TECH, ATLANTIS,
CALIBRA, CAULK, CAVITRON, CELTRA, CERAMCO, CERCON, CEREC, CEREC MCX, CITANEST, DAC, DELTON,
DENTSPLY, DETREY, DYRACT, ESTHET.X, GALILEOS, INLAB, IN-OVATION, INTEGO, 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,
SENTALLOY, SINIUS, SIROLASER, SIRONA, SLIMLINE, STYLUS, SULTAN, SUREFIL, T1, T2, T3, T4, TENEO,
THERMAFIL, TRIODENT, TRUBYTE, VIPI, WAVEONE, WELLSPECT, XENO, XIVE, XYLOCAINE and ZHERMACK.
Dental Consumable Products
Dental consumable products consist of value added dental supplies and small equipment used in dental offices for the treatment
of patients. 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 accounted for
approximately 44%, 44% and 57% of the Company’s consolidated net sales for the years ended December 31, 2017, 2016 and
2015, respectively.
4
Dentsply Sirona’s dental supplies include endodontic (root canal) instruments and materials, dental anesthetics, prophylaxis
paste, dental sealants, impression materials, restorative materials, tooth whiteners and topical fluoride. Small equipment products
include dental handpieces, intraoral curing light systems, dental diagnostic systems and ultrasonic scalers and polishers.
The Company’s products used in dental laboratories include dental prosthetics, including artificial teeth, precious metal dental
alloys, dental ceramics and crown and bridge materials. Dental laboratory equipment products include amalgamators, mixing
machines and porcelain furnaces.
Dental Technology and Equipment 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 offers the broadest line of products to
fully outfit a dental practitioner’s office. Net sales of dental technology & equipment products accounted for approximately 48%,
48% and 32% of the Company’s consolidated net sales for the years ended December 31, 2017, 2016 and 2015.
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 preventive 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 products designed for dental offices and laboratories used for dental restorations,
which includes several types of restorations, such as inlays, onlays, veneers, crowns, bridges, copings and bridge frameworks
made from ceramic, metal or composite blocks. This product line also includes high-tech CAD/CAM techniques of chairside
economical restoration of aesthetic ceramic dentistry, 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. The Company estimates that at December 31, 2017 the market penetration for in-office CAD/CAM systems in
the U.S. and Germany was approximately 17% to 18%.
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 accounted for approximately 8%, 8% and 11% of the Company’s
consolidated net sales for the years ended December 31, 2017, 2016 and 2015, respectively.
Markets, Sales and Distribution
The Company believes that the market for its products will grow over the long-term based on the following factors:
•
•
•
•
•
•
increasing worldwide population.
aging population in developed countries with access to greater amounts of discretionary income will require more
dental care.
natural teeth are being retained longer - Individuals with natural teeth are 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.
5
•
•
per capita and discretionary incomes are increasing in emerging markets. As personal incomes continue to rise in
emerging economies, healthcare, including dental services, is a growing priority. Many surveys indicate the middle
class population will expand significantly within these emerging markets.
the Company’s business is less susceptible than many other industries to general downturns in the economies in
which it operates. Many of the products the Company offers relate to dental procedures and health conditions that
are considered necessary by patients regardless of the economic environment. Dental specialty products, dental
equipment and products that support discretionary dental procedures are the most susceptible to changes in economic
conditions.
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 requirements of its distributors, dealers
and the end-users.
Dental Sales and Distribution
Dentsply Sirona distributes approximately half of its dental consumable and technology and equipment 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, 2017, one customer, Henry Schein,
Inc, accounted for approximately 15% of consolidated net sales. At December 31, 2017, two customers, Henry Schein, Inc. and
Patterson Companies, Inc., accounted for approximately 14% and 15%, respectively, of the consolidated accounts receivable
balance. For the year ended December 31, 2016, two customers, Henry Schein, Inc., and Patterson Companies, Inc., each accounted
for approximately 12% of consolidated net sales. At December 31, 2016, one customer, Patterson Companies, Inc., accounted for
17% of the consolidated accounts receivable balance. For the year ended December 31, 2015, the Company had one customer,
Henry Schein, Inc., that accounted for approximately 11% of consolidated net sales. At December 31, 2015, there were no customers
that accounted for ten percent or more of the consolidated accounts receivable balance.
The Company had two exclusive distribution agreements with Patterson Companies, Inc. (“Patterson”) for the marketing and
sales of certain legacy Sirona products and equipment in the United States and Canada. In order to maintain exclusivity, certain
purchase targets had to be achieved. In the fourth quarter of 2016, Patterson’s decision not to extend the exclusivity beyond
September 2017 was announced. Following that announcement, in May 2017, the Company entered into a new three-year agreement
with Patterson whereby Patterson would continue to distribute the Company’s equipment lines in the United States on a non-
exclusive basis. In the second quarter of 2017, the Company also entered into two separate multi-year agreements with Henry
Schein, Inc. (“Henry Schein”) for the distribution of the Company’s equipment lines in the United States and Canada. While the
agreement with Henry Schein with respect to the United States was effective September 1, 2017, the agreement relating to Canada
was effective June 2017. The Company began shipping initial stocking orders for the equipment products to Henry Schein under
the agreements in the second quarter of 2017 and continued through the balance of 2017. During the second quarter of 2017, the
Company also modified its distribution agreement with Henry Schein with respect to the distribution of certain products in France.
Based on the Company’s estimate, year-over-year changes in distributor inventories associated with these agreements positively
impacted the Company’s reported sales for the full year of 2017 by approximately $23 million. Based on the Company’s estimate,
distributor inventories increased during 2017 by approximately $26 million as compared to an increase of approximately $3 million
during 2016. The increase in inventory levels was the result of the combination of lower equipment sales to end-users as well as
higher than anticipated inventory levels held by distributors. The Company’s anticipated decrease in inventory levels held by
distributors is projected to negatively impact the Company’s sales by approximately $40 million during 2018.
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 and dental schools which are the end-users of its
products. As part of this end-user “pull 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 technological developments at 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.
Medical Sales and Distribution
The Company’s urology products are sold directly in approximately 15 countries throughout Europe and North America, and
through distributors 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.
6
Historical reimbursement levels within Europe have been higher for intermittent catheters which explain a greater penetration
of single-use catheter products in that market. In the 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.
New advances in technology are also anticipated to have a significant influence on future products in dentistry and in select
areas of healthcare. As a result, the Company pursues research and development initiatives to support this technological
development, including collaborations with external research institutions, dental and medical schools. Through its own internal
research centers as well as through its collaborations with external research institutions, dental and medical schools, the Company
directly invested $151.7 million, $128.5 million and $74.9 million for the years ended December 31, 2017, 2016 and 2015,
respectively, in connection with the development of new products, improvement of existing products and advances in technology.
The global investment for R&D is impacted by foreign currency translation, which creates 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.
In addition to the direct investment in product development and improvement, the Company also invests in these activities
through acquisitions, by entering into licensing agreements with third parties, and by purchasing technologies developed by third
parties.
Acquisition Activities
Dentsply Sirona believes that the dental consumable and technology products industries 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 intended to supplement
the Company’s core growth and assure ongoing expansion of its business, including new technologies, additional products,
organizational strength and geographic breadth.
Operating and Technical Expertise
Dentsply Sirona believes that its manufacturing capabilities are important to its 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.
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.
7
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, quality, safety and ease of use, as well as price, customer service, innovation and acceptance by clinicians, technicians
and patients. Dentsply Sirona believes that its principal strengths include its well-established brand names, its reputation for high
quality and innovative products, its leadership in product development and manufacturing, its global sales force, the breadth of
its product line and distribution network, its commitment to customer satisfaction and support of the Company’s products by dental
and medical professionals.
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 no company produces all, of the same types of products as those produced by the Company.
Regulation
The development, manufacture, sale and distribution of the Company’s products are subject to comprehensive governmental
regulation both within and outside the United States. The following sections describe certain, but not all, of the significant
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.
Certain of the Company’s products are classified as medical devices and are subject to restrictions under domestic and foreign
laws, rules, 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”) (1993) 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.
Dental and medical devices of the types sold by Dentsply Sirona are generally classified by the FDA into a category that
renders them subject to the same controls that apply to all medical devices, including regulations regarding alteration, misbranding,
notification, record-keeping and good manufacturing 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.
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 adopt regulatory changes restricting the use, or 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 for adults and children ages 6 and above. 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 FDA to consider these petitions. Hearings of the 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.
8
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 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 regulations exist in Europe and in 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. 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. Dentsply Sirona also manufactures and sells non-amalgam dental filling materials that
do not contain mercury.
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 (“AKS”), 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 international laws and regulations. The FCPA and similar anti-bribery and anti-corruption laws applicable in non-United
States jurisdictions generally prohibit 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 AKS and similar fraud and abuse laws applicable
in non-United States jurisdictions prohibit persons from knowingly and willfully soliciting, offering, receiving or providing
remuneration, directly or indirectly, in exchange for or to induce either 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 our employees or agents. Violations of
these requirements are punishable by criminal or civil sanctions, including substantial fines and imprisonment.
The Company is subject to domestic and foreign laws, rules, regulations, self-regulatory codes, circulars and orders governing
data privacy and transparency, including, but not limited to, the Health Insurance 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 adopted thereunder), 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 Sunshine Provisions of the Patient Protection and 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 Medicaid
Services for public disclosure. Similar 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 it is in substantial compliance with the laws and regulations that regulate its business.There are,
however, significant uncertainties involving the application of various legal requirements, the violation of which could result in,
among other things, sanctions. See “Part I - Item 1A - Risk Factors” for additional detail.
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.
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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 4,000 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 international markets. The Company 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
At December 31, 2017, the Company and its subsidiaries employed approximately 16,100 employees. Of these employees,
approximately 4,100 were employed in the United States and 12,000 in countries outside of the United States. Less than 5% of
employees in the United States are covered by collective bargaining agreements. Some employees outside of the United States
are covered by collective bargaining, union contract, worker councils, or other similar type programs. The Company believes that
it generally has a positive relationship with its employees.
Environmental Matters
Dentsply Sirona believes that its operations comply in all material respects with applicable environmental laws and regulations.
Maintaining this level of compliance has not had, and is not expected to have, a material effect on the Company’s capital expenditures
or on its business.
Other Factors Affecting the Business
Approximately two-thirds of the Company’s sales are located in regions outside the U.S., and the Company’s consolidated
net sales can be impacted negatively by the strengthening or positively by the weakening of the U.S. dollar. Additionally, movements
in certain foreign exchange rates may unfavorably or favorably impact the Company’s results of operations, financial condition
and liquidity 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 within its manufacturing, as such, the backlog on products is generally not
material to the financial statements.
Securities Exchange Act Reports
The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers,
including the Company, that file electronically with the SEC. The public can obtain any documents that the Company files with
the SEC at http://www.sec.gov. The Company files annual reports, quarterly reports, proxy statements and other documents with
the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). The public may read and copy any materials
the Company files with the SEC at its Public Reference Room at the following address:
The Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
The public may obtain information on the operation of this Public Reference Room by calling the SEC at 1-800-SEC-0330.
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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 amendments to these reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after such materials are filed with or furnished to
the SEC. Information on on the Company’s website does not constitute part of this document.
Forward-Looking Statements and Associated Risks
Information the Company has included or incorporated by reference in this Form 10-K, and information which may be
contained in other filings with the SEC as well as press releases or other public statements, contains or may contain forward-
looking statements. These forward-looking statements include, among other things, statements about the Company’s plans,
objectives, expectations (financial or otherwise) or intentions.
The Company’s forward-looking statements involve risks and uncertainties. Actual results may differ significantly from those
projected or suggested in any forward-looking statements. The Company does not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events or circumstances occurring after the date hereof or to reflect
the occurrence of unanticipated events. Any number of factors could cause the Company’s actual results to differ materially from
those contemplated by any forward-looking statements, including, but not limited to, the risks associated with the following:
the Company’s ability to remain profitable in a very competitive marketplace, which depends upon the Company’s
ability to differentiate its products and services from those of competitors
the Company’s failure to anticipate and appropriately adapt to changes or trends within the rapidly changing dental
industry
the effect of changes in the Company’s management and personnel
the Company’s ability to control costs
changes in applicable laws, rules or regulations, or their interpretation or enforcement, or the enactment of new laws,
rules or regulations, which apply to the Company’s business practices (past, present or future) or require the Company
to spend significant resources for compliance
the Company’s failure to execute on, or other issues arising under, certain key client contracts
a significant failure or disruption in service within the Company’s operations or the operations of key distributors
the Company’s failure to successfully integrate the business operations or achieve the anticipated benefits from any
acquired businesses
results in pending and future litigation, investigations or other proceedings which could subject the Company to
significant monetary damages or penalties and/or require us to change our business practices, or the costs incurred in
connection with such proceedings
the Company’s failure to attract and retain talented employees, or to manage succession and retention for its Chief
Executive Officer or other key executives
the impact of the Company’s debt service obligations on the availability of funds for other business purposes, the
terms of and required compliance with covenants relating to the Company’s indebtedness and its access to the credit
markets in general
general economic conditions
other risks described from time to time in the Company’s filings with the SEC
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You should carefully consider these and other relevant factors, including those risk factors in Part I, Item 1A, (“Risk Factors”)
in this Form 10-K and any other information included or incorporated by reference in this Report, and information which may be
contained in the Company’s other filings with the SEC, when reviewing any forward-looking statement. The Company notes
these factors for investors as permitted under the Private Securities Litigation Reform Act of 1995. Investors should understand
it is impossible to predict or identify all such factors or risks. As such, you should not consider either foregoing lists, or the risks
identified in the Company’s SEC filings, to be a complete discussion of all potential risks or uncertainties.
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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.
The Company recognized a substantial goodwill impairment charge in the current period and may be required to recognize
additional goodwill and intangible asset impairment charges in the future.
In connection with the Company’s April 30, 2017 annual goodwill impairment test and the preparation of the financial
statements for the quarter ended June 30, 2017, the Company determined it was necessary to record a $1,092.9 million non-cash
impairment charge related to goodwill associated with the CAD/CAM, Imaging and Treatment Center equipment reporting units.
The goodwill impairment charge was primarily driven by a change in forecasted sales and gross profit which resulted in a lower
fair value for these reporting units.
In preparing the financial statements for the year ended December 31, 2017, the Company identified an impairment triggering
event related to the CAD/CAM, Imaging and Treatment Center equipment reporting units. Forecasted revenues and operating
margins for these reporting units were impacted by continued unfavorable developments in the marketplace which included an
increase in competition. These developments resulted in significantly lower sales to end-users than expected in the fourth quarter
of 2017 in the North America and Rest of World regions as well as declines in expected gross profit rates which included the
unfavorable impacts from changes in the foreign exchange rates. The impacts from foreign exchange rate changes were primarily
driven by the strengthening of the euro versus the U.S. dollar as a result of the higher euro denominated costs and net assets
associated with these reporting units as compared to the lower amount of euro denominated sales. While the Company considered
unfavorable market developments and foreign exchange rate changes, in its April 30, 2017 assessment, the impact of these
developments were at levels beyond those anticipated by the Company despite moving away from a non-exclusive distribution
channel in the United States and the execution of new distribution agreements with Patterson Companies, Inc. and Henry Schein,
Inc. in May and June of 2017. In addition to the unfavorable market and foreign exchange rate developments, the income tax rate
forecast used in the annual goodwill test was unfavorably impacted by the recent tax legislation in the U.S. and other foreign
jurisdictions. As a result the Company tested these reporting units for impairment in preparation of the financial statements for
the year ended December 31, 2017 and determined that the goodwill associated with the CAD/CAM, Imaging and Treatment
Center equipment reporting units, all within the Technologies & Equipment segment, was impaired. The impairment was the
result of a change in forecasted sales and gross profit as well as changes in foreign exchange rates and the income tax rate. As a
result, the Company recorded a goodwill charge of $558.0 million for the three months ended December 31, 2017. The combination
of impairment charges for the second and fourth quarters of 2017 resulted in a total goodwill impairment charge of $1,650.9 million
for the year ended December 31, 2017.
In preparing the financial statements for the year ended December 31, 2017, the Company, as result of the triggering event,
tested the indefinite-lived intangible assets related to these reporting units for impairment. As a result, the Company identified
that certain tradenames and trademarks related to the CAD/CAM, Imaging and Treatment Center equipment reporting units, all
within the Technologies & Equipment segment, were impaired. The Company recorded an impairment charge of $266.9 million
for the three months ended December 31, 2017 which was recorded in Restructuring and other cost on the Consolidated Statements
of Operations. The combination of impairment charges for the second and fourth quarters of 2017 resulted in a total impairment
charge for the year ended December 31, 2017 of $346.7 million related to indefinite-lived assets.
In conjunction with the goodwill and indefinite-lived intangibles impairment tests at both April 30, 2017 and December 31,
2017, the Company utilized its best estimate of future revenue growth, operating margin rates and effective tax rate. Given the
market place uncertainty associated with the new distribution agreements, continued weakness in end-user demand for the
Company’s products as a result of competition, further developments in tax legislation that could impact the income tax rates and
unfavorable changes in foreign exchange rates these estimates could vary significantly in the future, which may result in an
impairment charge at that time. See Note 9, Goodwill and Intangible Assets, in the Notes to Consolidated Financial Statements
in Part 4, Item 15, of this Form 10-K.
For the Company’s reporting units that were not impaired at April 30, 2017, the Company applied a hypothetical sensitivity
analysis. Had the WACC rate of each of these reporting units been hypothetically increased by 100 basis points at April 30, 2017,
the fair value of those reporting units would still exceed net book value. If the fair value of each of these reporting units had been
hypothetically reduced by 5% at April 30, 2017, the fair value of those reporting units would still exceed net book value. If the
fair value of each of these reporting units had been hypothetically reduced by 10% at April 30, 2017, one reporting unit, within
the Company’s Consumables segment, would have a fair value that would approximate net book value. Goodwill for that reporting
unit totals $54.0 million at December 31, 2017. The Company did not identify any impairment triggers related to this reporting
unit at December 31, 2017.
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Under US GAAP, the Company reviews its goodwill and intangible assets for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. Additionally, goodwill and indefinite-lived intangible assets
are required to be tested for impairment at least annually. The valuation models used to determine the fair value of goodwill or
intangible assets are dependent upon various assumptions and reflect management’s best estimates. Significant management
assumptions, which are critical in this fair value determination, include, without limitation, revenue growth rates, operating margins,
weighted average cost of capital, future economic and market conditions (including with respect to the dental and medical device
industries), net sales growth, gross profit rates, discount rates, earnings multiples and future cash flow projections. The Company
has previously made disclosures about the fair values of certain reporting units and indefinite-lived intangible assets approximating
the book values. Specifically included in the previous disclosures is one reporting unit within the Consumables segment as well
as three reporting units created in connection with the Merger, all within the Technologies & Equipment segment. Any changes
to the assumptions and estimates made by management may cause a change in circumstances indicating that the carrying value
of the goodwill and indefinite-lived assets in these five reporting units may not be recoverable.
The goodwill impairment analysis is sensitive to changes in key assumptions used, such as future cash flows, discount rates
and growth rates as well as current market conditions in both the U.S. and globally. If the assumptions and projections used in
the analysis are not realized, it is possible that an additional impairment charge may need to be recorded in the future. The Company
cannot accurately predict the amount and timing of any impairment of goodwill or other intangible assets. Further, Company will
need to continue to evaluate the carrying value of goodwill for these reporting units. Any additional impairment charges that the
Company may take in the future could be material to Company’s results of operations and financial position.
The Company may fail to realize the expected benefits of its announced cost reduction and restructuring efforts.
In order to operate more efficiently and control costs, the Company may announce from time to time restructuring plans,
including workforce reductions, global facility consolidations and other cost reduction initiatives that are intended to generate
operating expense or cost of goods sold savings through direct and indirect overhead expense reductions as well as other savings.
The Company has targeted a cost reduction initiative of approximately $100 million expected to be achieved over the next several
years as the benefits of these initiatives, net of related investments, are realized over time. Due to the complexities inherent in
implementing these types of cost reduction and restructuring activities, and the quarterly phasing of related investments, the
Company may fail to realize expected efficiencies and benefits, or may experience a delay in realizing such efficiencies and
benefits, and its operations and business could be disrupted. Company management may be required to divert their focus to
managing these disruptions, and implementation may require the agreement of the Company’s labor unions. Risks associated
with these actions and other workforce management issues include delays in implementation of anticipated workforce reductions,
additional unexpected costs, changes in restructuring plans that increase or decrease the number of employees affected, negative
impact on 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.
Recent significant changes to the Company’s senior management team and any future loss of members of such team, and
the resulting management transition might harm our future operating results.
The Company has recently experienced significant changes to its senior leadership team. On October 2, 2017, the Company
announced that its Executive Chairman; Chief Executive Officer and Director, and President and Chief Operating Officer, had all
resigned from all positions with the Company. Additionally, on October 16, 2017, the Company announced that its Senior Vice
President, Secretary and General Counsel, had resigned from all positions with the Company and on November 2, 2017, the
Company announced that its Executive Vice President and Chief Financial Officer would resign from all positions with the
Company. The Board of Directors appointed an Interim Chief Executive Officer, Interim President and Chief Operating Officer,
and a Chief Administrative Officer, General Counsel and Secretary, both of whom are Executive Vice Presidents. Effective
November 10, 2017, Nicholas Alexos, the Company’s Chief Administrative Officer assumed the position of Chief Financial Officer.
Further, on January 17, 2018, the Company announced that the Board of Directors had appointed Donald M. Casey Jr. as the Chief
Executive Officer of the Company and as a member of the Company’s Board of Directors, in each case effective February 12,
2018.
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The Company’s success is dependent upon its management and employees. Leadership transitions can be inherently difficult
to manage and may cause operational and administrative inefficiencies, added costs, decreased employee morale, uncertainty and
decreased productivity among our employees, increased likelihood of turnover, and the loss of personnel with deep institutional
knowledge, which could result in significant disruptions to our operations. In addition, we must successfully integrate the new
management team members within our organization in order to achieve our operating objectives, and changes in key management
positions may temporarily affect our financial performance and results of operations as new management becomes familiar with
our business. These changes could also increase the volatility of our stock price. If we are unable to mitigate these or other similar
risks, our business, results of operations and financial condition may be adversely affected.
The Company’s quarterly operating results and market price for the Company’s common stock may be volatile.
Dentsply Sirona experiences fluctuations 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:
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the timing of new product introductions by Dentsply Sirona and its competitors;
the timing of industry trade shows;
changes in customer inventory levels;
developments in government or third party payor reimbursement policies;
changes in customer preferences and product mix;
the Company’s ability to supply products to meet customer demand;
fluctuations in manufacturing costs;
changes in income tax laws and incentives which could create adverse tax consequences;
competitors’ sales promotions;
fluctuations in currency exchange rates; and
general economic conditions, as well as those specific to the healthcare industry 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 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
negatively affect the market price of the Company’s common stock, regardless of actual operating 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 in substantial costs and a diversion of management’s attention
and resources, which could harm the Company’s business.
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 fluctuate, and may differ from the Company’s
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 levels of inventory in accordance with the
Company’s predictions or past history, or that the timing of customers’ inventory build or liquidation will be in accordance with
the Company’s predictions or past history.
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During the fourth quarter of 2016, upon the announcement that the exclusive provisions of the 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 of 2016. The reduction of inventory by Patterson continued throughout 2017 as the Company
and Patterson entered into a non-exclusive arrangement. In addition, during the second quarter of 2017 the Company entered into
new distribution agreements with Henry Schein, Inc. The Company’s anticipated decrease in inventory levels held by distributors
is expected to negatively impact the Company’s sales by approximately $40 million during 2018. The Company’s sales may also
continue to fluctuate on a quarter by quarter basis in 2018, as distributors adjust their inventory levels to correspond to end-user
demand.
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 and with respect to certain businesses, such
as orthodontics, may be subject to significant negative price pressures. 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 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 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. Further, acquisitions or dispositions may distract the Company’s management’s time and attention and
disrupt our ongoing business operations or relationships with customers, employees, suppliers or other parties. 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.
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 perspective,
risks associated 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, negative impacts on
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.
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 accomplishment of its strategic 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 may also involve continued financial
involvement in a 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.
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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 attention from normal business operations. The Company may not achieve the full revenue and cost synergies
anticipated to result from an acquisition. If the Company makes acquisitions, it may incur debt, assume contingent liabilities and/
or additional risks, or create additional expenses, any of which might adversely affect its financial results. Any financing that the
Company might need for acquisitions may only be available on terms that restrict its business or that impose additional costs that
reduce its operating results.
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.
Historically, a substantial portion of Dentsply Sirona’s revenue has come from a limited number of distributors. For example,
Henry Schein, Inc. accounted for approximately 15% of the annual revenue of Dentsply Sirona in 2017. It is anticipated that
Patterson Companies, Inc. and Henry Schein, Inc. will continue to be the largest contributors to Dentsply Sirona’s revenue for the
foreseeable future. While many distributors have minimum purchase requirements and/or targets 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 to purchase any products at all. If Patterson Companies, Inc. or Henry Schein, 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 condition. We cannot assure you that the cessation of exclusivity will not adversely affect our results of
operations. As we transition from a single distributor model to a multi-distributor model for our CEREC CAD/CAM products,
our sales could be adversely affected as we incorporate new distributors into our network.
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 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. Third-party payors are
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.
Due to the Company’s international operations, the Company is exposed to the risk of changes in foreign exchange rates.
Due to the international nature of Dentsply Sirona’s business, movements in foreign exchange rates may impact the consolidated
statements of operations. With approximately two-thirds of the Company’s sales located in regions outside the U.S., the Company’s
consolidated net sales are impacted negatively by the strengthening or 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 or other similar actions in the
EU, global markets and foreign currencies may be adversely impacted. Volatility in foreign currencies compared to the U.S. dollar
could have a negative effect on our business, financial condition and results of operations.
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 through which these
transactions are offered fail to 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.
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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 into these instruments for trading purposes or speculation, and although Dentsply Sirona’s management
believes all of these instruments are economically effective for accounting purposes 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.
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 bank failure. Dentsply
Sirona’s total liquidity also 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 that 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.
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 has continued to have positive operating cash flow, a disruption in the credit markets may reduce
sources of liquidity available to the Company. The Company relies on multiple financial institutions to provide funding pursuant
to existing and/or future credit agreements, and those institutions may not be able to provide funding in a timely manner, or at all,
when required by the Company. The cost of or lack of available credit could impact the Company’s ability to develop sufficient
liquidity to maintain or grow the Company, which in turn may adversely affect the Company’s businesses and results of operations,
financial condition and liquidity.
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 not subject to the FCPA. Any determination
that Dentsply Sirona violated the FCPA could result in sanctions that could have a material adverse effect on Dentsply Sirona’s
business.
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.
Our results of operations and financial condition could be affected by changes in healthcare spending and policy. The healthcare
industry is subject to 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 consolidation among office-based healthcare 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.
18
The Patient Protection and Affordable Care Act as amended by the Health Care and Education 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, adversely affecting 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, and recently suspended again through December
31, 2019 by the U.S. Tax Cuts and Jobs Act of 2017. If this provision delaying the excise tax is not repealed or further suspended,
it 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 trends, which could have an effect on the industry and potentially impact our business
and revenue as payors seek to offset these increases by reducing costs in other areas, although the extent of this impact is currently
unknown. Additionally, further federal and state proposals for health care reform are uncertain at this time, 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.
In certain international markets, particularly in European Union member countries and other countries whose marketplaces
are dominated by government-administered healthcare 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.
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 the Company is dependent upon the continued strength of the dental and medical device markets and is also
somewhat dependent upon the general economic environments of the regions in which it operates. Negative changes to these
markets and economies could materially impact the Company’s results of operations and financial condition. In many markets,
dental reimbursement is largely out of pocket for the consumer and thus utilization rates can vary significantly depending on
economic growth. For instance, data suggests that the utilization of dental services by working age adults in the U.S. may have
declined over the last several years. Prolonged 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 well as other similar actions 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 impact the economies of the U.K., the
European Union and other nations. However, any of these effects of Brexit, and other similar actions, could adversely affect our
financial position, results of operation or cash flows.
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.
Dentsply Sirona is subject to federal, state, local and foreign laws, rules, regulations, self-regulatory codes, circulars and
orders relating to health care fraud, including, but not limited to, 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) 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 laws,” prohibit the submission
or causing the submission of false or fraudulent claims for reimbursement to federal, state and other health care payors and
programs. Other laws, referred to as “anti-kickback laws,” prohibit soliciting, offering, 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.
The U.S. 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 practices as necessary to facilitate
compliance. In addition, under the reporting and disclosure obligations of the U.S.Physician Payment Sunshine Act and similar
foreign laws, rules, 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 access to detailed
information with regard to payments or other transfers of value to certain practitioners (including physicians, dentists and teaching
hospitals) by applicable drug and device manufacturers subject to such reporting and disclosure obligations, which includes us.
This information may lead to greater scrutiny, which may result in modifications to established practices and additional costs.
19
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 to frequent modification and varied
interpretation by prosecutorial, regulatory authorities, increasing compliance risks.
We cannot predict whether changes in applicable laws, rules, regulations, 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.
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 factors, or that we will be able to generate any economic return on the Company’s investment in product development.
If the Company’s products or technologies lose their competitive advantage or become noncompetitive or obsolete, Dentsply
Sirona’s business could be negatively affected.
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 or that regulatory approval of any new products will be
obtained from applicable U.S. or international government or regulatory authorities, or that if such approvals are obtained, such
products will be favorably accepted in the marketplace. Additionally, there is no assurance that entirely new technology or
approaches to dental treatment or competitors’ new products will not be introduced that could render the Company’s products
obsolete.
Dentsply 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.
Dentsply Sirona is subject to extensive domestic and foreign laws, rules, regulations, self-regulatory codes, circulars and
orders which are administered by various international, federal and state governmental authorities, including, among others, the
FDA, the Office of Foreign Assets Control of the United States Department of the Treasury (“OFAC”), the Bureau of Industry
and Security of the United States Department of Commerce (“BIS”), the United States Federal Trade Commission, the United
States Department of Justice, 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 adopted thereunder), the U.S. Foreign Corrupt Practices Act (the “FCPA”), the U.S. Federal Anti-Kickback
Statute and similar international 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 trade, import and export controls and economic sanctions. Such laws, rules,
regulations, self-regulatory codes, circulars and orders are 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 the Company’s business and results of operations.
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. There can be no assurance that governmental authorities will
not raise compliance concerns or perform audits to confirm compliance with such laws, rules, regulations, self-regulatory codes,
circulars and orders. Failure to comply with applicable laws, rules, 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 civil
proceedings. Any such actions could result in higher than anticipated costs or lower than anticipated revenue and could have a
material adverse effect on the Company’s reputation, business, financial condition and results of operations.
20
In 2012, the Company received subpoenas from the United States Attorney’s Office for the Southern District of Indiana (the
“USAO”) and from OFAC requesting documents and information related to compliance with export controls and economic
sanctions regulations by certain of its subsidiaries. The Company also voluntarily contacted OFAC and BIS regarding compliance
with export controls and economic sanctions regulations by certain other business units of the Company identified in an ongoing
internal review by the Company. In December 2017, the Company reached a settlement in this matter with OFAC and BIS regarding
possible violations arising from practices between 2009 and 2012.
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 pursuant to agreements that are subject to periodic renewal, some of which may also
compete with the Company. As there are a limited number of suppliers for these products, there can be no assurance that the
Company will be able to obtain an adequate supply of these products and raw materials in the future. Any delays in delivery of
or shortages in these products could interrupt and delay manufacturing of the Company’s products and result in the cancellation
of orders for these products. In addition, these suppliers could discontinue the manufacture or supply of these products to the
Company at any time or supply products to competitors. Dentsply 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. Some supply agreements are related to the
Company’s reporting unit that does not pass a hypothetically fair value reduction of 10%, as such, the lost of supply could lead
to goodwill impairment. 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.
Dentsply Sirona may be unable to obtain necessary product approvals and marketing clearances.
Dentsply Sirona must obtain certain approvals by, and marketing clearances from, governmental authorities, including the
FDA and similar health authorities in foreign countries to market and sell Dentsply Sirona’s products in those countries. These
agencies regulate the marketing, manufacturing, labeling, packaging, advertising, sale and distribution of medical devices. The
FDA enforces additional regulations regarding the safety of X-ray 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.
The FDA review process typically 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, or PMA, may be necessary. Such proceedings, which must be completed prior to 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 FDA’s advertising guidelines may
result in the imposition of penalties.
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.
Similar to the FDA review process, the EU review process typically requires extended 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.
Failure to comply with these 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 regulations 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 to frequent modification and varied interpretation
by prosecutorial, regulatory authorities, increasing compliance risks.
21
Changes in or interpretations of tax rules, operating structures, country profitability mix and regulations may adversely
affect the Company’s effective tax rates.
The Company is a U.S. based multinational company subject to tax in multiple U.S. and foreign tax jurisdictions. Unanticipated
changes in the Company’s tax rates could affect its future results of operations. The Company’s future effective tax rates could be
unfavorably affected by factors such as changes in, or interpretation of, tax rules and regulations in the jurisdictions in which the
Company does business, by structural changes in the Company’s businesses, by unanticipated decreases in the amount of revenue
or earnings in countries with low statutory tax rates, or by changes in the valuation of the Company’s deferred tax assets and
liabilities. On December 22, 2017, the U.S. government enacted legislation referred to as the Tax Cuts and Jobs Act, which
significantly revises the Internal Revenue Code of 1986, as amended. This law may have a significant impact on the Company’s
U.S. tax liabilities. The legislation is unclear in certain respects and will require the U.S. Internal Revenue Service (“IRS”) to
issue regulations and interpretations, and possibly technical corrections. While there can be no assurance as to the impact of any
additional guidance by the IRS, or of any guidance that may be issued by the SEC or the Financial Accounting Standards Board
relating to the Tax Cuts and Jobs Act, the Company has recorded a provisional amount of income tax to reflect the impact of the
law change based on management’s current interpretation of the new legislation. The ultimate impact of U.S. tax reform could
be materially different from current estimates based on the Company’s actual results and further analysis of the new law. In
addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law.
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 the Company endeavors
to ensure that its products are safe and effective, there can be no assurance that there may not be challenges from time to time
regarding the real or perceived quality, health or environmental impact of the Company’s products or 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 the United States, the EPA proposed 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 works. Similar
regulations exist in Europe and in 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
also manufactures and sells non-amalgam dental filling materials that do not contain mercury but that may contain bisphenol-A,
commonly called BPA. BPA is found in many everyday items, such as plastic bottles, foods, detergents and toys, and may be found
in certain dental composite materials or sealants either as a by-product of other ingredients that have degraded, or as a trace material
left over from the manufacture of other ingredients used in such composites or sealants. The FDA currently allows the use of BPA
in dental materials, medical devices, and food packaging. Nevertheless, public 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.
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 packaging, could jeopardize the Company’s image and reputation. Negative publicity related
to these types of concerns, whether valid or not, might negatively impact demand for the Company’s products or cause production
and delivery disruptions. The Company may need to recall or discontinue products if they become unfit for use. In addition, the
Company could potentially be subject to litigation or government action, which could result in payment of fines or damages. Cost
associated with these potential actions could negatively affect the Company’s operating results, financial condition and liquidity.
22
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 impair our financial condition, and damage Dentsply Sirona’s reputation.
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 issue new standards expanding disclosures.
It is 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.
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.
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, rules, regulations,
self-regulatory codes, circulars and orders that protect the privacy and security of such information, and require, among other
things, the implementation of various recordkeeping, operational, notice and other practices intended to safeguard that information,
limit 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 Federal
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), France’s Data Protection Act of 1978 (rev. 2004) and
similar international laws and the rules, 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.
Dentsply Sirona is also subject to domestic and foreign laws, rules, regulations, self-regulatory codes, circulars and orders
related to Internet communications (including the CAN-SPAM Act of 2003, EU Directive 2002/58/EC and similar international
laws and regulations), consumer protection (including the Telephone Consumer 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 laws regulations. If Dentsply Sirona or its agents or 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.
The Company faces the inherent risk of litigation and claims.
The Company’s business involves a risk of product liability and other types of legal actions or 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 future claims or that the coverage will be available in adequate amounts or at a reasonable cost. Also, other types of claims
asserted against the Company may not be covered by insurance. A successful claim brought against the Company in excess of
available insurance, or another type of claim which is uninsured or that results in significant adverse publicity against the Company,
could harm its business and overall cash flows of the Company.
Various parties, including the Company, own and maintain patents and other intellectual property rights applicable to the
dental and medical device fields. Although the Company believes it operates in a manner that does not infringe upon any third
party intellectual property rights, it is possible that a party could assert that one or more of the Company’s products infringe upon
such party’s intellectual property and force the Company to pay damages and/or discontinue the sale of certain products.
23
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 not provide meaningful protection;
•
• 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
taken may be inadequate to 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 Sirona’s ability to compete effectively. Further, defending Dentsply
Sirona’s intellectual property rights could result in the expenditure of significant financial and managerial resources.
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 Patent and Trademark Office, the European Patent Office or other
foreign patent governing authorities, to determine the priority of inventions, which could result in substantial costs. Acquisitions
by Dentsply Sirona of products or businesses that are found to infringe upon the intellectual property rights of others and the
resulting changes to the competitive landscape of the industry could further increase this risk.
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 Dentsply Sirona, prohibit Dentsply Sirona
from 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 Sirona may be restricted or prevented from
commercializing Dentsply Sirona’s products.
24
The enforcement, defense and prosecution of intellectual property rights, including the United States Patent and Trademark
Office’s, the European Patent Office’s and other foreign patent offices’ interference proceedings, and related legal and administrative
proceedings in the United States and elsewhere, involve complex legal and factual questions. As a result, these proceedings are
costly and time-consuming, and their outcome is uncertain. Litigation may be necessary to:
•
•
•
•
assert against others or defend Dentsply Sirona against claims of infringement;
enforce patents owned by, or licensed to Dentsply Sirona from, another party;
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:
Product registration requirements;
Import or export licensing requirements;
• Economic and political instability;
•
• Additional compliance-related risks;
• Trade restrictions and tariffs;
•
• Longer payment cycles;
• Changes in regulatory requirements and tariffs;
Fluctuations in currency exchange rates;
•
Potentially adverse tax consequences; and
•
Potentially weak protection of intellectual property rights.
•
Certain of these risks may be heightened as a result of changing political climates, 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.
The Company may be unable to sustain the operational and technical expertise that is key to its success.
Dentsply Sirona believes that its manufacturing capabilities are important to its success. The 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.
Certain of the Company’s products are dependent on consumer discretionary spending.
While many of Dentsply Sirona’s products are considered necessary by patients regardless of the economic environment,
certain dental specialty products, dental equipment and products that support discretionary dental procedures may be susceptible
to changes in economic conditions. Decreases in consumer discretionary spending could negatively affect the Company's business
and financial performance.
25
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.
Due to the global nature of the Company’s business and reliance on information systems to provide the Company’s services,
the Company may use web-enabled and other integrated information systems in delivering the Company’s services. As the breadth
and complexity of Company’s information systems continue to grow, the Company will increasingly be exposed to the risks
inherent in the development, integration and ongoing operation of evolving information systems, including:
•
•
•
disruption, impairment or failure of data centers, telecommunications facilities or other key infrastructure
platforms;
security breaches of, cyberattacks on and other failures or malfunctions in our critical application systems or
their associated hardware; and
excessive costs, excessive delays or other deficiencies in systems development and deployment.
Any disruption to the Internet or to the Company’s or its service providers’ global technology infrastructure, 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. The Company’s network and storage applications may be subject to unauthorized access
by hackers or breached due to operator error, malfeasance or other system disruptions and the Company may be the victim of
cyber-attacks, targeted at the theft of financial assets, intellectual property, personal information of individuals and customers, or
other sensitive information. Cyber threats are rapidly evolving and are becoming increasingly sophisticated. Despite the Company’s
efforts to ensure the integrity of the Company’s systems, as cyber threats evolve and become more difficult to detect and successfully
defend against, one or more cyber threats might defeat the measures that the Company or our vendors take to anticipate, detect,
avoid or mitigate such threats. Certain techniques used to obtain unauthorized access, introduce malicious software, disable or
degrade service, or sabotage systems may be designed to remain dormant until a triggering event and the Company may be unable
to anticipate these techniques or implement adequate preventative measures since techniques change frequently or are not
recognized until launched, and because cyberattacks can originate from a wide variety of sources. These data breaches and any
unauthorized access or disclosure of the Company’s information could compromise intellectual property and expose sensitive
business information. Cyber-attacks could also cause the Company to incur significant remediation costs, disrupt key business
operations and divert attention of management and key information technology resources.
The materialization of any of these risks may impede the processing of data and the day-to-day management of the Company’s
business and could result in the corruption, loss or unauthorized disclosure of proprietary, confidential or other data. Disaster
recovery plans, where in place, might not adequately protect the Company in the event of a system failure. Further, the Company
currently does not have excess or standby computer processing or network capacity everywhere in the world to avoid disruption
in the receipt, processing and delivery of data in the event of a system failure. Despite any precautions the Company take, damage
from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various
computer facilities could result in interruptions in the flow of data to the Company’s servers.
The Company’s inability to effectively manage the implementation and adapt to new processes designed into new or upgraded
systems in a timely and cost-effective manner may result in disruption to the Company’s business and negatively affect operations.
Any of the foregoing incidents could also subject the Company to liability, expose the Company to significant expense, or
cause significant harm to the Company’s reputation, which could result in lost revenues. While Dentsply Sirona has invested and
continues to invest in information technology risk management and disaster recovery plans, these 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.
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 $1.6 billion. Dentsply Sirona also has the ability to incur up
to $500.0 million of indebtedness under the Revolving Credit Facility and may incur significantly more indebtedness in the future.
26
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;
•
requiring Dentsply Sirona to 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 purposes, including working
capital, capital expenditures and acquisitions; and
reducing Dentsply Sirona’s flexibility in planning for or reacting to changes in its business and market conditions.
•
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 3.0 times, in each case, as such terms are defined in the relevant agreement. All of the Company’s
outstanding debt 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.
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.
Dentsply Sirona’s existing borrowing documentation contains a number of covenants and financial ratios, which it is required
to satisfy. Any breach of any such covenants or restrictions, the most restrictive of which pertain to asset dispositions, maintenance
of certain levels of net worth, and prescribed ratios of indebtedness to total capital and operating income excluding depreciation
and amortization of interest expense, would result in a default under the existing borrowing documentation that would permit the
lenders to declare all borrowings under such documentation to be immediately due and payable 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 or to the extent that no other parties
are willing to extend financing.
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.
Changes in our credit ratings or macroeconomic impacts on credit markets may increase our cost of capital and limit
financing options.
We utilize the short and long-term debt markets to obtain capital from time to time. Adverse changes in our credit ratings may
result in increased borrowing costs for future long-term debt or short-term borrowing facilities which may in turn limit financing
options, including our access to the unsecured borrowing market. We may also be subject to additional restrictive covenants that
would reduce our 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 requirements
which make it difficult for stockholders to amend Dentsply Sirona’s By-laws and prevent them from calling special meetings of
stockholders. Delaware law imposes some restrictions on mergers and other business combinations between the Company and
any “interested stockholder” with beneficial ownership of 15% or more of the Company’s outstanding common stock.
27
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 has developed and must continue to maintain internal controls.
Effective internal controls are necessary for us to provide assurance with respect to Dentsply Sirona’s financial reports and
to effectively prevent fraud. 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 management on internal control over financial reporting, including managements’
assessment of the effectiveness of such control. Internal control over financial reporting may not prevent or detect misstatements
because of its certain limitations, including the possibility of human error, the 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.
28
Item 1B. Unresolved Staff Comments
None.
29
Item 2. Properties
The following is a listing of Dentsply Sirona’s principal manufacturing and distribution locations at December 31, 2017:
Function
Leased
or Owned
Location
United States:
Milford, Delaware (2)
Manufacture of dental consumable products
Sarasota, Florida (2)
Manufacture of orthodontic accessory products
Waltham, Massachusetts (1)
Manufacture and distribution of dental implant products
Long Island City, New York (1)
Manufacture of dental technology products
Charlotte, North Carolina (1)
Distribution of dental technology products
Maumee, Ohio (1)
Manufacture and distribution of investment casting products
Lancaster, Pennsylvania (3)
Distribution of dental products
York, Pennsylvania (1) (2)
Manufacture and distribution of artificial teeth
and other dental consumable products
York, Pennsylvania (1) (2)
Manufacture of small dental equipment, bone grafting
products, and preventive dental products
Johnson City, Tennessee (2)
Manufacture and distribution of endodontic
instruments and materials
Foreign:
Hasselt, Belgium (1)
Manufacture and distribution of dental products
Pirassununga, Brazil (1)
Manufacture and distribution of artificial teeth
Tianjin, China (2)
Manufacture and distribution of dental products
Saint-Egrève, France (2)
Manufacture and distribution of endodontic materials
Bensheim, Germany (1)
Manufacture and distribution of dental equipment
Hanau, Germany (1)
Manufacture and distribution of precious metal dental
alloys, dental ceramics and dental implant products
Owned
Owned
Leased
Leased
Leased
Owned
Leased
Owned
Owned
Leased
Owned
Owned
Leased
Leased
Owned
Owned
Konstanz, Germany (2)
Manufacture and distribution of dental consumable products
Owned
Mannheim, Germany (1)
Manufacture and distribution of dental implant products
Owned/Leased
Munich, Germany (2)
Manufacture and distribution of endodontic
instruments and materials
Radolfzell, Germany (3)
Distribution of dental products
Rosbach, Germany (1)
Manufacture and distribution of dental ceramics
Owned
Leased
Owned
Bar Lev Industrial Park, Israel (1) Manufacture and distribution of dental implant products
Owned/Leased
Badia Polesine, Italy (2)
Manufacture and distribution of dental consumable products
Owned/Leased
Otawara, Japan (1) (2)
Manufacture and distribution of precious metal dental
alloys, dental consumable products and orthodontic products
Owned
30
Mexicali, Mexico (2)
Manufacture and distribution of orthodontic
products and materials
Venlo, Netherlands (3)
Distribution of dental consumable products
Warsaw, Poland (2)
Manufacture and distribution of dental consumable products
Las Piedras, Puerto Rico (1)
Manufacture of crown and bridge materials
Mölndal, Sweden (1)
Manufacture and distribution of dental implant products and
healthcare consumable products
Ballaigues, Switzerland (2)
Ankara, Turkey (1)
Manufacture and distribution of endodontic
instruments, plastic components and packaging material
Manufacture and distribution of healthcare consumable
products
(1) These properties are included in the Technologies & Equipment segment.
(2) These properties are included in the Consumables segment.
(3) This property is a distribution warehouse not managed by named segments.
Leased
Leased
Owned
Owned
Owned
Owned
Owned
In addition, the Company maintains sales and distribution offices at certain of its foreign and domestic manufacturing facilities,
as well as at various other U.S. and international locations. Most of these sites around the world that are used exclusively for sales
and distribution are leased. 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.
The Company also owns its worldwide headquarters located in York, Pennsylvania.
31
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.
32
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
PART II
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:
2017
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Market Range of Common Stock
High
Low
Period-end
Closing
Price
Cash
Dividend
Declared
$
$
$
$
64.80
65.68
65.44
68.98
63.68
65.83
65.16
62.92
$
$
55.00
61.02
52.34
54.91
53.43
58.84
58.57
55.01
$
$
62.44
64.84
59.81
65.83
61.63
62.04
59.43
57.73
0.0875
0.0875
0.0875
0.0875
0.0775
0.0775
0.0775
0.0775
Approximately 135,020 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 284 holders of record of the Company’s common stock.
Stock Repurchase Program
At December 31, 2017, 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. Under this program, the Company purchased
approximately 6.2 million shares, or approximately 2.7% of average diluted shares outstanding, during 2017 at a cost of $400.3
million for an average price of $64.40.
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, 2017:
(in millions, except per share amounts)
Period
October 1, 2017 to October 31, 2017
November 1, 2017 to November 30, 2017
December 1, 2017 to December 31, 2017
Total Number
of Shares
Purchased
Average Price
Paid Per
Share
Total Cost
of Shares
Purchased
— $
2.4
1.3
3.7
$
— $
67.02
65.82
66.60
$
—
162.8
87.2
250.0
Number of
Shares that
May Yet be
Purchased
Under the Stock
Repurchase
Program
4.1
2.6
1.3
33
On February 14, 2018, the Board of Directors of the Company approved an increase in the authorized number of shares of
common stock that may be repurchased under the share repurchase program for a total remaining authorization of $500 million
of shares of common stock. Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans,
accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as the
Company deems appropriate based upon prevailing market and business conditions and other factors.
Stock Authorized for Issuance Under Equity Compensation Plans
The information required under this item is set forth in the 2018 Proxy Statement, which is incorporated herein by reference.
34
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 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 December
31, 2012 to December 31, 2017. The S&P 500 Stock Index and the S&P Health Care Index are included for comparative purposes
only. They do not necessarily reflect management’s opinion that such indices are an appropriate measure of the relative performance
of the stock involved, and they are not intended to forecast or be indicative of possible future performance of the Company’s
common stock.
DENTSPLY SIRONA Inc.
S&P 500
S&P Health Care
12/12
12/13
12/14
12/15
12/16
12/17
100.00
100.00
100.00
123.10
132.39
141.46
136.01
150.51
177.30
156.20
152.59
189.52
148.95
170.84
184.42
170.79
208.14
225.13
35
Item 6. Selected Financial Data
DENTSPLY SIRONA INC. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
(in millions, except per share amounts, days and percentages)
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.
2017
2016(a)
2015
2014
2013
Year ended December 31,
Net (loss) income attributable to Dentsply Sirona
$
(1,550.0)
$
Net (loss) income per common share attributable to Dentsply Sirona:
Statement of Operations Data:
Net sales
Net sales, excluding precious metal content (b)
Gross profit
Goodwill impairment
Restructuring and other costs
Operating (loss) income
(Loss) income before income taxes
Net (loss) income
Basic
Diluted
Cash dividends declared per common share
Weighted Average Common Shares Outstanding:
Basic
Diluted
Balance Sheet Data:
Cash and cash equivalents
Property, plant and equipment, net
Goodwill and other intangibles, net
Total assets
Total debt, current and long-term portions (c)
Equity
Return on average equity
Total net debt to total capitalization (d)
Other Data:
Depreciation and amortization
Cash flows from operating activities
Capital expenditures
Interest expense (income), net
Inventory days
Receivable days
Effective tax rate
$
3,993.4
$
3,745.3
$
2,674.3
$
2,922.6
$
3,681.0
2,000.9
2,581.5
1,517.2
2,792.7
1,599.8
3,952.9
2,188.5
1,650.9
425.2
(1,562.3)
(1,603.5)
(1,550.3)
(6.76)
(6.76)
0.350
229.4
229.4
320.6
876.0
7,339.9
10,374.5
1,641.7
6,627.9
—
23.2
454.7
440.9
431.4
429.9
1.97
1.94
0.310
218.0
221.6
383.9
799.8
8,909.6
11,555.8
1,532.2
8,125.9
$
$
—
64.7
375.2
329.7
251.1
251.2
1.79
1.76
0.290
140.0
142.5
284.6
558.8
2,588.3
4,402.9
1,153.1
2,339.4
10.8%
27.1%
122.9
497.4
72.0
53.7
110
54
$
$
—
11.1
445.6
404.4
322.9
322.9
2.28
2.24
0.265
141.7
144.2
151.6
588.8
2,760.1
4,646.5
1,261.9
2,322.2
13.2%
32.3%
129.1
560.4
99.6
41.3
113
55
$
$
2,950.8
2,771.7
1,577.4
—
13.4
419.2
369.3
318.2
313.2
2.20
2.16
0.250
142.7
145.0
75.0
637.2
3,076.9
5,073.6
1,471.6
2,578.0
13.0%
35.1%
127.9
417.8
100.3
41.5
114
56
NM
16.6%
8.2%
12.4%
$
$
316.4
601.9
144.3
35.9
131
61
271.7
563.4
125.0
33.9
113
58
3.3%
2.2%
23.4%
20.1%
14.1%
NM - Not meaningful
(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.
36
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, and should be read in conjunction with, the 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
risks and uncertainties. See Part I, Item IA (“Part Business-Forward-Looking Statements and Associated Risks”) in the beginning
of this Form 10-K. The MD&A includes the following sections:
• 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 of accounting policies that require critical judgments and estimates; and
• Liquidity and Capital Resources - an analysis of cash flows; debt and other obligations; and aggregate contractual
obligations.
On February 29, 2016, DENTSPLY International Inc. merged with Sirona Dental Systems, Inc. (“Sirona”) to form Dentsply
Sirona Inc. (the “Merger”) The 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.
2017 Operational Highlights
•
•
For the year ended December 31, 2017, net sales increased 6.6% compared to the year ended December 31, 2016. Net
sales, excluding precious metal content, increased 7.4% compared to the prior year. The increase in sales primarily
reflects the impact of consolidating twelve months of Sirona’s sales in 2017 as compared to ten months of sales in 2016.
For the year ended December 31, 2017, sales of our combined businesses (a non-US GAAP measure as referenced above),
grew 1.6% on a constant currency basis including a benefit of 1.8% from net acquisitions. Net sales, excluding precious
metal content, were favorably impacted by approximately 1.0% due to the weakening of the U.S. dollar over the prior
period.
For the year ended December 31, 2017, net income attributable to Dentsply Sirona declined primarily as a result of a
non-cash goodwill impairment charge of $1,650.9 million and a non-cash intangible asset impairment charge of $346.7
million. The Company reported a net loss of $6.76 per share compared to earnings per diluted share of $1.94 in the prior
year. On an adjusted basis (a non-US GAAP measure as defined under the heading “Net Income attributable to Dentsply
Sirona”), full year 2017 net income was similar to prior year and earnings per diluted share declined 4.3% to $2.66 from
$2.78 in the prior year. The Company’s results reflect a significant earnings headwind from higher weighted average
share count of approximately 4.9%, or $0.13 per diluted share and currency rate changes compared to the prior year of
approximately 3.0%, or $0.05 per diluted share. These impacts were partially offset by $0.08 from the consolidation of
an additional two months of Sirona earnings in 2017.
• During 2017, the Company deployed cash in excess of $632 million as it returned cash to shareholders through common
share repurchases and dividend payments, as well as strengthened the business through acquisitions. During 2017, the
Company completed multiple acquisitions, including purchased intangible assets, with an aggregate purchase price of
$152.6 million, including the acquisition of Recherche Techniques Dentaires (RTD), the worldwide leader in endodontic
posts and Healthdent the market leader in gutta-percha formulations. In addition, the Company repurchased $401.4
million of common shares outstanding in 2017 and paid dividends of $78.3 million.
37
•
In 2017, the Company continued integration activities to capture cost synergies. The Company received the necessary
approvals to proceed with its current plans for German reorganization. Additionally, the Company completed the
elimination of certain corporate redundancies and continued execution of country and manufacturing consolidation
activities.
BUSINESS
The Company operates in two business segments, Technologies & Equipment and Consumables.
The Technologies & Equipment segment is responsible for the worldwide design, manufacture, sales and distribution of the
Company’s Dental Technology & Equipment Products and Healthcare Consumable Products. These products includes dental
implants, laboratory dental products, CAD/CAM systems, imaging systems, treatment centers as well as consumable medical
device products.
The Consumables segment includes responsibility for the worldwide design, manufacture, sales and distribution of the
Company’s Dental Consumable Products which include preventive, restorative, instruments, endodontic, and orthodontic dental
products.
Principal Measurements
The principal measurements used by the Company in evaluating its business are: (1) constant currency sales growth by
segment and geographic region; (2) 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 expenses, and certain other
items to enhance the comparability of results period to period. These principal measurements are not calculated in accordance
with accounting principles generally 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.
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 rates. This impact is calculated by comparing
current-period revenues to prior-period revenues, with both periods converted at the U.S. dollar to local currency foreign exchange
rate for each month of the prior period, for the currencies in which the Company does business. The Company defines “internal”
sales growth as constant currency sales growth excluding the impacts of net acquisitions and divestitures, Merger accounting
impacts and discontinued products.
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 marketing resources, including clinical education.
Management believes that the Company’s ability to execute its strategies should allow it to grow faster than the underlying dental
market over time. On a short term basis, changes in strategy or distributor inventory levels can impact internal growth.
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. While the current period
results reflect the unfavorable impact of integration related inefficiencies, the Company believes that the future 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. The Company has targeted a cost reduction initiative of
approximately $100 million expected to be achieved over the next several years as the benefits of these initiatives, net of related
investments, are realized over time. The Company expects that it will 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.
38
As announced in October 2016, the Company proposed plans in Germany to reorganize and combine portions of its
manufacturing, logistics and distribution networks within the Company’s two segments. As required under German law, the
Company entered into a statutory co-determination process under which it collaborated with the appropriate labor groups to jointly
define the infrastructure and staffing adjustments necessary to support this initiative. In 2017, the Company received all necessary
approvals and is proceeding with its current plans. The Company estimates the cost of these initiatives to be approximately $65
million, primarily for severance related benefits for employees, which is expected to be incurred as actions are implemented over
the next two years. The Company recorded costs of approximately $29 million associated with these plans. The Company estimates
that the future annual savings related to these plans to be in the range of $12 million and $14 million to be realized over the next
one to three years. There is no assurance that future savings will be fully achieved. The Company continues to initiate similar
actions in other regions of the world.
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 continues to pursue research and development initiatives to support technological development,
including collaborations with various research institutions and dental schools. In addition, the Company licenses and purchases
technologies developed by third parties. Although the Company believes these activities will lead to new innovative dental,
healthcare consumable and dental technology products, they involve new technologies and there can be no assurance that
commercialized products will be developed.
The Company’s business is subject to quarterly fluctuations of consolidated net sales and net income. Price increases,
promotional activities as well as changes in inventory levels at distributors contribute to this 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
in excess of retail demand. These net inventory changes have impacted the Company’s consolidated net sales and net income in
the past, and may continue to do so in the future, over a given period or multiple periods. In addition, the Company may from
time to time, engage in new distributor relationships that could cause quarterly fluctuations of consolidated net sales and net
income. Distributor inventory levels may fluctuate, and may differ from the Company’s predictions, resulting in the Company’s
projections of future results being different than expected. There can be no assurance that the Company’s dealers and customers
will maintain levels of inventory in accordance with the Company’s predictions or past history, or that the timing of customers’
inventory build or liquidation will be in accordance with the Company’s predictions or past history. Any of these fluctuations
could be material to the Company’s consolidated financial statements.
The Company had two exclusive distribution agreements with Patterson Companies, Inc. (“Patterson”) for the marketing and
sales of certain legacy Sirona products and equipment in the United States and Canada. In order to maintain exclusivity, certain
purchase targets had to be achieved. In the fourth quarter of 2016, Patterson’s decision not to extend the exclusivity beyond
September 2017 was announced. Following that announcement, in May 2017, the Company entered into a new three-year agreement
with Patterson whereby Patterson would continue to distribute the Company’s equipment lines in the United States on a non-
exclusive basis. In the second quarter of 2017, the Company also entered into two separate multi-year agreements with Henry
Schein, Inc. (“Henry Schein”) for the distribution of the Company’s equipment lines in the United States and Canada. While the
agreement with Henry Schein with respect to the United States was effective September 1, 2017, the agreement relating to Canada
was effective June 2017. The Company began shipping initial stocking orders for the equipment products to Henry Schein under
the agreements in the second quarter of 2017 and continued through the balance of 2017. During the second quarter of 2017, the
Company also modified its distribution agreement with Henry Schein with respect to the distribution of certain products in France.
Based on the Company’s estimate, year-over-year changes in distributor inventories associated with these agreements positively
impacted the Company’s reported sales for the full year of 2017 by approximately $23 million. Based on the Company’s estimate,
distributor inventories increased during 2017 by approximately $26 million as compared to an increase of approximately $3 million
during 2016. The increase in inventory levels was the result of the combination of lower equipment sales to end-users as well as
higher than anticipated inventory levels held by distributors. The Company’s anticipated decrease in inventory levels held by
distributors is projected to negatively impact the Company’s sales by approximately $40 million during 2018.
The Company will continue to pursue opportunities to expand the Company’s product offerings, technologies and sales and
service infrastructure through partnerships and acquisitions. Although the professional dental and the consumable medical device
markets in which the Company operates have experienced consolidation, they remain fragmented. Management believes that
there will continue to be adequate opportunities to participate as a consolidator in the industry for the foreseeable future.
39
Impact of Foreign Currencies and Interest Rates
Due to the Company’s significant international presence, movements in foreign exchange and interest rates may impact the
Consolidated Statements of 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.
Reclassification of Prior Year Amounts
Certain reclassifications have been made to prior years’ data in order to conform to current year presentation. During the
quarter ended September 30, 2017, the Company realigned reporting responsibilities for multiple businesses, as a result of a
retirement of one of the Company’s then Chief Operating Officers, into three operating segments. Furthermore, as a result of
changes in the senior management level during the quarter ended December 31, 2017, the Company realigned reporting
responsibilities into two operating segments. The segment information reflects the revised fourth quarter organizational structure
for all periods shown.
RESULTS OF OPERATIONS
2017 Compared to 2016
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, 2016. 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 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 presentation of net sales, excluding precious metal content, is considered a measure not calculated in accordance with
US GAAP, and is therefore considered a non-US GAAP measure. The Company provides the following reconciliation of net sales
to net sales, excluding precious metal content. The Company’s definitions and calculations of net sales, excluding precious metal
content, and other operating measures derived using net sales, excluding precious metal content, may not necessarily be the same
as those used by other companies.
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
Net sales
Less: Precious metal content of sales
Net sales, excluding precious metal content
$
$
3,993.4
40.5
3,952.9
$
$
3,745.3
64.3
3,681.0
$
$
248.1
(23.8)
271.9
6.6%
(37.0%)
7.4%
Year Ended December 31,
40
Net sales, excluding precious metal content, for the year ended December 31, 2017 were $3,952.9 million, an increase of
$271.9 million from the year ended December 31, 2016. The increase in net sales, excluding precious metal content, reflects sales
of $112.7 million as a result of the consolidation of two additional months of Sirona for the year end December 31, 2017 compared
to the prior year period. This excludes approximately $4.0 million of revenue that was eliminated in fair value purchase accounting
adjustments to deferred income. The increase in net sales, excluding precious metal content, was favorably impacted, based on
the Company’s estimate, by approximately $23 million as a result of net changes in equipment inventory levels in the current year
as compared to the prior year at certain distributors in North America and Europe, that the Company believes is related to the
transition in distribution strategy (see “Business Drivers” under this section for further detail). Based on the Company’s estimate,
inventory held by these distributors increased by approximately $26 million during the current year compared to an increase of
approximately $3 million in 2016. The inventory increase in 2017 was more than anticipated, in the Company’s assessment, as
a result of lower equipment sales to end-users as well as higher than anticipated stocking of inventory by distributors in the U.S.
The Company expects net sales during 2018 to be negatively impacted by approximately $40 million as a result of a planned
reduction of inventory held at distributors.
Sales related to precious metal content declined 37.0% during 2017, which was primarily due to the continued reduction in
the use of precious metal alloys in dentistry.
For the year ended December 31, 2017, sales of our combined businesses grew 1.6% on a constant currency basis. This
includes a benefit of 1.8% from net acquisitions, which leads to negative internal sales growth of 20 basis points. Net sales,
excluding precious metal content, were favorably impacted by approximately 1.0% due to the weakening of the U.S. dollar over
the prior year period. Based on the Company’s assessment, the internal sales growth was benefited by approximately 60 basis
points as a result of the net changes in equipment inventory levels in the current year over the prior year as discussed above. A
reconciliation of reported net sales to net sales, excluding precious metal content, of the combined business for the year ended
December 31, 2017 and 2016, respectfully, is as follows:
Year Ended
December 31,
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
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
$
$
3,993.4
40.5
3,952.9
—
4.0
—
$
3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
248.1
(23.8)
271.9
(160.7)
(9.5)
0.5
6.6%
(37.0%)
7.4%
NM
NM
NM
Non-US GAAP combined business, net sales, excluding
precious metal content
$
3,956.9
$
3,854.7
$
102.2
2.6%
(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 2017 and 2016 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, 2017 and 2016, respectfully, by geographic
region is as follows:
Year Ended
December 31,
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
United States
Europe
Rest of World
$
1,366.8
$
1,306.4
$
1,575.2
1,421.7
1,010.9
952.9
60.4
153.5
58.0
4.6%
10.8%
6.1%
41
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, 2017 and 2016, respectfully, is as follows:
Year Ended
December 31, 2017
(in millions)
United States
Europe
Rest of World
Total
Net sales
Less: precious metal content of sales
Net sales, excluding precious metal content
Merger related adjustments (a)
$
$
1,372.5
5.7
1,366.8
4.0
$
1,606.2
31.0
1,575.2
—
$
1,014.7
3.8
1,010.9
—
3,993.4
40.5
3,952.9
4.0
Non-US GAAP combined business, net sales, excluding
precious metal content
$
1,370.8
$
1,575.2
$
1,010.9
$
3,956.9
(a) Represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under business combination accounting standards to make
the 2017 and 2016 non-U.S. GAAP combined business results comparable.
Year Ended
December 31, 2016
(in millions)
United States
Europe
Rest of World
Total
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
$
$
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)
$
970.5
17.6
952.9
40.8
—
—
3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
Non-US GAAP combined business, net sales, 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.
United States
Reported net sales increased by 4.6% for the year ended December 31, 2017 as compared to the year ended December 31,
2016. Reported net sales, excluding precious metal content, increased by 4.6% for the year ended December 31, 2017 as compared
to the year ended December 31, 2016. The increase in net sales, excluding precious metal content, was favorably impacted, based
on the Company’s estimate, by approximately $42 million as a result of net changes in equipment inventory levels in the current
year as compared to the prior year at two distributors in the United States related to the transition in distribution strategy (see
“Business Drivers” under this section for further detail). This excludes approximately $4.0 million of revenue that was eliminated
in fair value purchase accounting adjustments to deferred income.
For the year ended December 31, 2017, sales of our combined businesses declined 0.5% on a constant currency basis. This
includes a benefit of 1.1% from net acquisitions and was unfavorably impacted by discontinued products by approximately 10
basis points, which results in a negative internal sales growth rate of 1.5%. The negative internal sales growth in this region was
driven by lower demand in the Technologies & Equipment segment. Based on the Company’s assessment, the internal sales growth
was benefited by approximately 3% as a result of the net changes in equipment inventory levels in the current year over the prior
year as discussed above. The impact from net changes in inventory levels was entirely within the Technologies & Equipment
segment.
42
Europe
Reported net sales increased by 9.8% for the year ended December 31, 2017 as compared to the year ended December 31,
2016. Reported net sales, excluding precious metal content, increased by 10.8% for the year ended December 31, 2017 as compared
to the year ended December 31, 2016. The increase in net sales, excluding precious metal content, was unfavorably impacted,
based on the Company’s estimate, by approximately $9 million as a result of net changes in equipment inventory levels in the
current year as compared to the prior year at a certain distributor in Europe that the Company believes is related to the transition
in distribution strategy (see “Business Drivers” under this section for further detail).
For the year ended December 31, 2017, sales of our combined businesses grew 4.1% on a constant currency basis. This
includes a benefit of 2.3% from net acquisitions, which results in internal sales growth of 1.8%. Net sales, excluding precious
metal content, were positively impacted by approximately 2.2% due to the weakening of the U.S. dollar over the prior year period.
Internal sales growth in this region was primarily driven by higher demand in both segments. Based on the Company’s assessment,
the internal sales growth was unfavorably impacted by approximately 50 basis points as a result of the net changes in equipment
inventory levels in the current year over the prior year as discussed above. The impact from net changes in inventory levels was
entirely within the Technologies & Equipment segment.
Rest of World
Reported net sales increased by 4.5% for the year ended December 31, 2017 as compared to the year ended December 31,
2016. Reported net sales, excluding precious metal content, increased by 6.1% for the year ended December 31, 2017 as compared
to the year ended December 31, 2016. The increase in net sales, excluding precious metal content, was unfavorably impacted,
based on the Company’s estimate, by approximately $10 million as a result of net changes in equipment inventory levels in the
current year as compared to the prior year at a certain distributor in Canada that the Company believes is related to the transition
in distribution strategy (see “Business Drivers” under this section for further detail).
For the year ended December 31, 2017, sales of our combined businesses grew 0.8% on a constant currency basis. This
includes a benefit of 2.2% from net acquisitions, which results in negative internal sales growth of 1.4%. Net sales, excluding
precious metal content, were positively impacted by approximately 0.9% due to the weakening of the U.S. dollar over the prior
year period. The negative internal sales growth in this region was driven by lower demand in the Technologies & Equipment
segment. Based on the Company’s assessment, the internal sales growth was unfavorably impacted by approximately 1% as a
result of the net changes in equipment inventory levels in the current year over the prior year as discussed above. The impact
from net changes in inventory levels was entirely within the Technologies & Equipment segment.
Gross Profit
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
Year Ended December 31,
Gross profit
Gross profit as a percentage of net sales, including precious
metal content
Gross profit as a percentage of net sales, excluding precious
metal content
$
2,188.5
$
2,000.9
$
187.6
9.4%
54.8%
53.4%
55.4%
54.4%
Gross profit as a percentage of net sales, excluding precious metal content, increased by 100 basis points for the year ended
December 31, 2017 as compared to the year ended December 31, 2016. Improvement in the gross profit rate for year ended
December 31, 2017, were primarily driven by net reductions in the roll-off of merger-related fair value adjustments and expenses
of approximately 150 basis points as compared to the year ended December 31, 2016. This increase was partially offset by
approximately 50 basis points associated with the equipment businesses primarily as a result of lower sales related to the transition
in distribution strategy as compared to the year ended December 31, 2016.
43
Operating Expenses
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
Selling, general and administrative expenses (“SG&A”)
$ 1,674.7
$ 1,523.0
$
151.7
Goodwill impairment
Restructuring and other costs
1,650.9
425.2
—
23.2
1,650.9
402.0
10.0%
NM
1,732.8%
Year Ended
December 31,
SG&A as a percentage of net sales, including precious metal
content
SG&A as a percentage of net sales, excluding precious metal
content
41.9%
40.7%
42.4%
41.4%
SG&A Expenses
SG&A expenses, including research and development expenses, as a percentage of net sales, excluding precious metal content,
for the year ended December 31, 2017 increased 100 basis points compared to the year ended December 31, 2016. The higher
rate was primarily driven by increased professional service costs, biennial trade show and other selling events, unfavorable foreign
currency and increased amortization and depreciation which unfavorably impacted the rate by approximately 100 basis points
compared to the year ended December 31, 2016. In addition, the rate was also unfavorably impact by 80 basis points due to
employment agreement costs related to the resignation of senior management compared to the year ended December 31, 2016.
Partially offsetting these increases was a reduction in business combination related costs which favorably impacted the rate by
120 basis points as compared to the year ended December 31, 2016.
Goodwill impairment
For the year ended December 31, 2017, the Company recorded a goodwill impairment charge of $1,650.9 million. The charge
is related to three reporting units in the Technologies & Equipment segment. For further information see Note 9, Goodwill and
Intangible Assets, in the Notes to Audited Consolidated Financial Statements in Part IV, Item 15 of this Form 10-K.
Restructuring and Other Costs
The Company recorded net restructuring and other costs of $425.2 million for the year ended December 31, 2017 compared
to $23.2 million for the year ended December 31, 2016.
The Company recorded net restructuring expense of $55.4 million related to restructuring initiatives in Germany and
organizational management changes announced during the fourth quarter. As announced in October 2016, the Company proposed
plans in Germany to reorganize and combine portions of its manufacturing, logistics and distribution networks within the Company’s
two segments. As required under German law, the Company entered into a statutory co-determination process under which it
collaborated with the appropriate labor groups to jointly define the infrastructure and staffing adjustments necessary to support
this initiative. In 2017, the Company received all necessary approvals and is proceeding with its current plans. The Company
estimates the cost of these initiatives to be approximately $65 million, primarily for severance related benefits for employees,
which is expected to be incurred as actions are implemented over the next two years. The Company recorded costs of approximately
$29 million associated with these plans. The Company estimates that the future annual savings related to these plans to be in the
range of $11 million to $14 million to be realized over the next one to three years. There is no assurance that future savings will
be fully achieved.
During the year ended December 31, 2017, the Company recorded other costs of $369.8 million which consist of impairment
charges of $346.7 million and legal settlements of $23.1 million. For further information on the impairment charges, see Note 9,
Goodwill and Intangible Assets, in the Notes to the Audited Consolidated Financial Statements in Part IV, Item 15 of this Form
10-K.
44
Other Income and Expenses
(in millions, except percentage amounts)
2017
2016
$ Change
% Change
Year Ended December 31,
Net interest expense
Other expense (income), net
Net interest and other expense
NM - Not meaningful
Net Interest Expense
$
$
35.9
5.3
41.2
$
$
33.9
(20.1)
13.8
$
$
2.0
25.4
27.4
5.9%
NM
Net interest expense for the year ended December 31, 2017 increased $2.0 million as compared to the year ended December
31, 2016. Increased debt levels in 2017 partially offset by lower average interest rates when compared to the prior year resulted
in an increase in net interest expense.
Other Expense (Income), Net
Other expense (income), net for the year ended December 31, 2017 increased $25.4 million compared to the year ended
December 31, 2016. Other expense (income), net for the year ended December 31, 2017 includes foreign exchange loss of $1.7
million and $3.6 million of other non-operating expenses. Other income, net for the year ended December 31, 2016 was $20.1
million, comprised primarily of $10.3 million of foreign exchange gains, and $9.9 million of other non-operating income primarily
due to legal settlements.
Income Taxes and Net Income
(in millions, except per share and percentage amounts)
2017
2016
$ Change
Effective income tax rate
3.3%
2.2%
Year Ended December 31,
Net (loss) income attributable to Dentsply Sirona
Diluted earnings per common share
Provision for Income Taxes
$
$
(1,550.0)
(6.76)
$
$
429.9
$
(1,979.9)
1.94
The Company’s effective tax rate for 2017 and 2016 was 3.3% and 2.2%, respectively. For the year ended December 31,
2017, income taxes were a net benefit of $53.2 million. During the year, the Company recorded the following discrete tax items,
$20.5 million of excess tax benefit related to employee share based compensation, tax expense of $12.0 million related primarily
to state valuation allowances, $ 3.6 million related to enacted statutory rate changes, $1.0 million related to other discrete tax
matters and $20.1 million related to US Tax Reform. The Company also recorded a $ 99.1 million tax benefit related to the
intangible asset impairment charge recorded during the twelve months ended December 31, 2017. Excluding these discrete tax
items and adjusting pretax loss to exclude the pretax loss related to the impairment of the intangible assets and non-deductible
goodwill impairment charge the Company’s effective tax rate was 7.54%. 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.
45
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act" or "U.S. tax reform") was enacted. U.S. tax reform, among
other things, reduces the U.S. federal income tax rate to 21% in 2018 from 35%, institutes a dividends received deduction for
foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings and creates a new U.S. minimum
tax on earnings of foreign subsidiaries. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides guidance on accounting for enactment effects of SAB 118 provides a measurement period of up to one year from the
Act’s enactment date for companies to complete their accounting under Accounting Standards Codification No. 740 “Income
Taxes”, (“ASC 740”). In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of
the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements.
If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC
740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act. The Company’s
accounting for certain income tax effects is incomplete, but the Company has determined reasonable estimates for those effects.
Accordingly, the Company has recognized a net provisional income tax charge of $20.1 million, which is included as a component
of the income tax provision on the consolidated statement of income.
Based on information available, the Company estimated the cumulative undistributed foreign earnings to be approximately
$1.1 billion and recorded a provisional estimate of $62.2 million of income tax expense related to the one-time deemed repatriation
toll charge. There is still uncertainty as to the application of the Act, in particular as it relates to state income taxes. Further, the
Company has not yet completed the analysis of the components of the computation, including the amount of the foreign earnings
subject to U.S. income tax, and the portion of the foreign earnings held in cash or other specified assets. As of December 31,
2017, primarily due to the utilization of foreign tax credit carryforwards and certain other tax attributes the estimated cash liability
for the deemed repatriation of foreign earnings is approximately $1.0 million. However, as the Company completes its analysis
an additional liability could be recorded and the Company would elect to make installment payments as allowed under the Act.
As a result of the Act, the Company can repatriate the cumulative undistributed foreign earnings back to the U.S. when needed
with minimal U.S. income tax consequences other than the one-time deemed repatriation toll charge. The Company is still
evaluating whether to change its indefinite reinvestment assertion in light of the Act and consider that conclusion to be incomplete
under SAB 118.
The remaining provisional amount is a benefit of $42.1 million relating to the remeasurement of the Company’s U.S. net
deferred tax liabilities. For the Global Intangible Low Tax Income (“GILTI”) provision of the Act, a provisional estimate could
not be made as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred
taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred.
In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from, and
interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period, provisional
amounts will be adjusted for the effects, if any, of interpretative guidance issued after January 19, 2018, by the U.S. Department
of the Treasury. The effects of the 2017 Tax Act may be subject to changes for items that were previously reported as provisional
amounts, as well as any element of the 2017 Tax Act that a provisional estimate could not be made, and such changes could be
material.
The Company’s effective income tax rate for 2017 included the net 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 and income tax related adjustments which impacted income before income taxes and the provision for
income taxes by $2,374.8 billion and $183.6 million, respectively.
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.
Net (Loss) Income attributable to Dentsply Sirona
In addition to the results reported in accordance with US GAAP, the Company provides adjusted net (loss) income attributable
to Dentsply Sirona and adjusted earnings per diluted common share (“adjusted EPS”). The Company discloses adjusted net 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 acquired
through a business combination. The Company believes that this information is helpful in understanding underlying operating
trends and cash flow generation.
46
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 significant 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 indicative of past and future performance of the Company
and are therefore excluded to allow investors to better understand underlying operating trends.
(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 and contract terminations costs, 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.
(3) Amortization of purchased intangible assets. This adjustment excludes the 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.
(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 represents the fair
value adjustment of the 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
operating performance of the affiliate or the Company.
(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.
47
(in millions, except per share amounts)
Net loss attributable to Dentsply Sirona
Pre-tax non-US GAAP adjustments:
Year Ended December 31, 2017
Net Income
(Loss)
Per Diluted
Common Share
$
(1,550.0) $
(6.76)
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
Tax impact of the pre-tax non-US GAAP adjustments (a)
Subtotal non-US GAAP adjustments
Adjustment for calculating non-US GAAP net income per diluted common
share (b)
Income tax related adjustments
2,119.3
189.0
38.5
5.0
(199.8)
2,152.0
16.2
Adjusted non-US GAAP net income
$
618.2
$
9.26
0.09
0.07
2.66
(a) The tax amount was calculated using the applicable statutory tax rate in the tax jurisdiction where the non-US GAAP adjustments were generated.
(b) The Company had a net loss for the year ended December 31, 2017, but had net income on a non-US GAAP basis. The shares used in calculating
diluted non-US GAAP net income per share includes the dilutive effect of common stock.
Shares used in calculating diluted GAAP net loss per share
Shares used in calculating diluted non-US GAAP net income per share
229.4
232.7
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona
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
Year Ended December 31, 2016
Net Income
Per Diluted
Common Share
$
429.9
$
1.94
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.
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 of operating results that includes adjusted operating 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.
48
(in millions, except percentage of net sales amount)
Operating loss 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
(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
Operating Segment Results
Year Ended December 31, 2017
Percentage of
Net Sales,
Excluding
Precious Metal
Content
(39.5)%
53.6 %
4.8 %
0.9 %
0.2 %
20.0 %
Operating
Income (Loss)
$
$
(1,562.3)
2,119.9
189.0
37.7
7.1
791.4
Year Ended December 31, 2016
Percentage of
Net Sales,
Excluding
Precious Metal
Content
Operating
Income (Loss)
$
$
454.7
161.8
155.3
27.1
5.3
804.2
12.4%
4.4%
4.2%
0.7%
0.1%
21.8%
Net Sales, Excluding Precious Metal Content
(in millions, except percentage amounts)
Year Ended December 31,
2017
2016
$ Change
% Change
Technologies & Equipment
Consumables
Segment Operating Income
(in millions, except percentage amounts)
Technologies & Equipment
Consumables
2,160.3
1,792.6
$
$
1,986.4
1,694.6
$
$
173.9
98.0
8.8%
5.8%
Year Ended December 31,
2017
2016
$ Change
% Change
411.0
487.1
$
$
355.7
445.3
$
$
55.3
41.8
15.5%
9.4%
$
$
$
$
49
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, 2017 and 2016, respectfully, is as follows:
Year Ended
December 31, 2017
(in millions)
Net sales
Less: precious metal content of sales
Net sales, excluding precious metal content
Merger related adjustments (a)
Non-US GAAP combined business, net sales, excluding
precious metal content
Technologies &
Equipment
Consumables
Total
$
$
$
2,200.8
40.5
2,160.3
4.0
$
1,792.6
—
1,792.6
—
3,993.4
40.5
3,952.9
4.0
2,164.3
$
1,792.6
$
3,956.9
(a) Represents an adjustment to reflect deferred subscription and warranty revenue that was eliminated under business combination accounting standards to make
the 2017 and 2016 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)
Merger related adjustments (b)
Elimination of intercompany net sales
Year Ended
December 31, 2016
Technologies &
Equipment
Consumables
Total
$
$
2,050.5
64.1
1,986.4
145.0
13.5
—
$
1,694.8
0.2
1,694.6
15.7
—
(0.5)
3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
Non-US GAAP combined business, net sales, excluding
precious metal content
$
2,144.9
$
1,709.8
$
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 2017 and 2016 non-U.S. GAAP combined business results comparable.
Technologies & Equipment
Reported net sales increased by 7.3% for the year ended December 31, 2017 as compared to the year ended December 31,
2016. Reported net sales, excluding precious metal content, increased by $173.9 million or 8.8% for the year ended December
31, 2017 as compared to the year ended December 31, 2016. This increase reflects sales of $98.6 million as a result of the inclusion
of two additional months of Sirona for the year ended December 31, 2017 compared to the year ended December 31, 2016. The
increase in net sales, excluding precious metal content, was favorably impacted, based on the Company’s estimate, by approximately
$23 million as a result of net changes in equipment inventory levels in the current year as compared to the prior year at certain
distributors in North America and Europe, that the Company believes is related to the transition in distribution strategy (see
“Business Drivers” under this section for further detail). Based on the Company’s estimate, inventory held by these distributors
increased by approximately $26 million during the current year compared to an increase of approximately $3 million in 2016.
The inventory increase in 2017 was more than anticipated, in the Company’s assessment, as a result of lower equipment sales to
end-users as well as higher than anticipated stocking of inventory by distributors in the U.S. The Company expects net sales
during 2018 to be negatively impacted by approximately $40 million as a result of a planned reduction of inventory held at
distributors.
50
For the year ended December 31, 2017, sales of our combined businesses declined 0.1% on a constant currency basis. This
includes a benefit of approximately 2.7% from net acquisitions, which results in negative internal sales growth of 2.8%. Net sales,
excluding precious metal content, were favorably impacted by approximately 1.0% due to the weakening of the U.S. dollar as
compared to the prior year. Sales decline was led by the U.S. and the Rest of World regions, partially offset by Europe. The
negative internal sales growth rate, based on the Company’s estimate, was favorably impacted by changes in equipment inventory
levels in the current year as compared to the prior year at certain distributors related to the transition in distribution strategy.
The operating income increased $55.3 million or 15.5% for the year ended December 31, 2017 as compared to 2016 reflects
the impact of the consolidation of two additional months of Sirona, and the savings from the Company’s global efficiency and
integration program. Based on the Company’s assessment, operating income was favorably impacted by the change in net equipment
inventory as discussed above.
Consumables
Reported net sales increased by 5.8% for the year ended December 31, 2017 as compared to the year ended December 31,
2016. Reported net sales, excluding precious metal content, increased by $98.0 million or 5.8% for the year ended December 31,
2017 as compared to the year ended December 31, 2016. This increase reflects sales of $14.1 million as a result of the inclusion
of two additional months of Sirona for the year ended December 31, 2017 compared to the year ended December 31, 2016.
For the year ended December 31, 2017, sales of our combined businesses grew 3.7% on a constant currency basis. This
includes a benefit of 0.6% from net acquisitions which results in internal growth of 3.1%. Net sales, excluding precious metal
content, were positively impacted by approximately 1.2% due to the weakening of the U.S. dollar over the prior year period. Sales
growth in this segment reflects increased demand in the all regions.
The operating income increased $41.8 million or 9.4% for the year ended December 31, 2017 as compared to 2016. This
increase was primarily driven by the increase in sales, favorable product mix and the favorable impact of foreign currency.
RESULTS OF OPERATIONS
2016 Compared to 2015
Net Sales
(in millions, except percentage amounts)
2016
2015
$ Change
% Change
Net sales
Less: Precious metal content of sales
Net sales, excluding precious metal content
$
$
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%
Year Ended December 31,
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 discontinued refinery
product lines and to a lesser extent the continued reduction in the use of precious metal alloys in dentistry.
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 and was unfavorably impacted 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 sales, excluding precious metal content, of the combined business for the year ended December 31, 2016 and 2015,
respectfully, is as follows:
51
Year Ended
December 31,
(in millions, except percentage amounts)
2016
2015
$ Change
% Change
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
$
$
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
Non-US GAAP combined business, net sales, excluding
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.
(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,
(in millions, except percentage amounts)
2016
2015
$ Change
% Change
United States
Europe
Rest of World
$
1,306.4
$
958.8
$
1,421.7
1,065.3
952.9
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:
Year Ended
December 31, 2016
(in millions)
United States
Europe
Rest of World
Total
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
$
$
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)
$
970.5
17.6
952.9
40.8
—
—
3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
Non-US GAAP combined business, net sales, 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.
52
(in millions)
United States
Europe
Rest of World
Total
Year Ended
December 31, 2015
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
precious metal content
(a) Represents Sirona sales for the year ended December 31, 2015.
United States
$
$
965.9
7.1
958.8
406.4
(0.1)
$
1,125.7
60.4
1,065.3
394.0
(2.2)
$
582.7
25.3
557.4
372.1
—
2,674.3
92.8
2,581.5
1,172.5
(2.3)
$
1,365.1
$
1,457.1
$
929.5
$
3,751.7
Reported net sales, excluding precious metal content, increased by 36.3% for 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 businesses for ten months. This excludes approximately $11.9 million of revenue that
was eliminated in fair value purchase accounting adjustments to deferred income.
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 acquisitions and was unfavorably impacted 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
& Equipment segment and was the result of lower purchases by a dealer compared to the prior period.
Europe
Reported net sales, excluding precious metal content, increased by 33.5% for 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 businesses for ten months. This excludes approximately $1.6 million of revenue that
was eliminated in fair value purchase accounting adjustments to deferred income.
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 and was unfavorably impacted by discontinued products by approximately 70
basis points, which results in internal growth of 2.9%. Net sales, excluding precious metal content, were negatively impacted by
approximately 1.5% due to the strengthening of the U.S. dollar over the prior year period. Internal sales growth in this region was
primarily driven by higher demand in the Consumables segment.
Rest of World
Reported net sales, excluding precious metal content, increased by 71.0% for 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.
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 and was unfavorably impacted 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 by
approximately 1.2% due to 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 & Equipment segment.
53
Gross Profit
(in millions, except percentage amounts)
2016
2015
$ Change
% Change
Year Ended December 31,
Gross profit
Gross profit as a percentage of net sales, including precious
metal content
Gross profit as a percentage of net sales, excluding precious
metal content
$
2,000.9
$
1,517.2
$
483.7
31.9%
53.4%
56.7%
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)
2016
2015
$ Change
% Change
Selling, general and administrative expenses (“SG&A”)
$ 1,523.0
$ 1,077.3
$
Restructuring and other costs
23.2
64.7
445.7
(41.5)
41.4%
(64.1%)
Year Ended
December 31,
SG&A as a percentage of net sales, including precious metal
content
SG&A as a percentage of net sales, excluding precious metal
content
40.7%
40.3%
41.4%
41.7%
SG&A Expenses
SG&A expenses, including research 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
The Company recorded net restructuring and other costs of $23.2 million for the year ended 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 facilities in an effort to streamline the Company’s operations and better leverage the Company’s resources. In 2015, the Company
reorganized portions of its laboratory business and associated manufacturing capabilities within the Consumables segment.
In October 2016, the Company announced proposed plans in Germany to reorganize and combine portions of its manufacturing,
logistics and distribution networks within both of the Company’s segments. As required under German law, the Company has
entered into a statutory co-determination process under which it will collaborate with the appropriate labor groups to jointly define
the infrastructure and staffing adjustments necessary to support this initiative. The Company also initiated similar actions in other
regions of the world. The Company estimates the cost of these initiatives to range up to $65 million, primarily for severance
related benefits for employees, which is expected to be incurred as actions are implemented over the next two years.
54
Other Income and Expenses
(in millions, except percentage amounts)
2016
2015
$ Change
% Change
Year Ended December 31,
Net interest expense
Other income, net
Net interest and other expense
NM - Not meaningful
Net Interest Expense
$
$
33.9
(20.1)
13.8
$
$
53.7
(8.2)
45.5
$
$
(19.8)
(11.9)
(31.7)
(36.9%)
NM
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)
2016
2015
$ Change
Effective income tax rate
2.2%
23.4%
Year Ended December 31,
Net income attributable to Dentsply Sirona
Diluted earnings per common share
Provision for Income Taxes
$
$
429.9
1.94
$
$
251.2
$
178.7
1.76
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.
legacy DENTSPLY subsidiary 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.
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.
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 value adjustments, income tax
related adjustments, credit risk and fair value adjustments and certain fair value adjustments related to 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.
55
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 earnings per diluted common share (“adjusted EPS”). The Company discloses adjusted net 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 acquired
through a business combination. The Company believes that this information is helpful in understanding underlying operating
trends and cash flow generation.
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.
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona
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
Year Ended December 31, 2016
Net Income
Per Diluted
Common Share
$
429.9
$
1.94
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.
(in millions, except per share amounts)
Net income attributable to Dentsply Sirona
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
Year Ended December 31, 2015
Net Income
Per Diluted
Common Share
$
251.2
$
1.76
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.
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.
56
Senior management receives a monthly analysis of operating results that includes adjusted operating 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.
(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
(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
Operating Segment Results
Year Ended December 31, 2016
Percentage of
Net Sales,
Excluding
Precious Metal
Content
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
375.2
81.1
43.7
13.1
8.0
521.1
14.5%
3.2%
1.7%
0.5%
0.3%
20.2%
$
$
$
$
$
Net Sales, Excluding Precious Metal Content
(in millions, except percentage amounts)
Year Ended December 31,
2016
2015
$ Change
% Change
Technologies & Equipment
Consumables
Segment Operating Income
(in millions, except percentage amounts)
Technologies & Equipment
Consumables
NM- Not meaningful
1,986.4
1,694.6
$
$
1,019.9
1,561.6
$
$
966.5
133.0
94.8%
8.5%
Year Ended December 31,
2016
2015
$ Change
% Change
355.7
445.3
$
$
159.1
443.2
$
$
196.6
123.6%
2.1
0.5%
$
$
$
$
57
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
Year Ended
December 31, 2016
Technologies &
Equipment
Consumables
Total
$
$
2,050.5
64.1
1,986.4
145.0
13.5
—
$
1,694.8
0.2
1,694.6
15.7
—
(0.5)
3,745.3
64.3
3,681.0
160.7
13.5
(0.5)
Non-US GAAP combined business, net sales, excluding
precious metal content
$
2,144.9
$
1,709.8
$
3,854.7
(a) Represents Sirona sales for January and February 2016.
(b) Represents an adjustments 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.
Year Ended
December 31, 2015
Technologies &
Equipment
Consumables
Total
$
$
$
1,112.7
92.8
1,019.9
1,060.4
—
$
1,561.6
—
1,561.6
112.1
(2.3)
2,674.3
92.8
2,581.5
1,172.5
(2.3)
2,080.3
$
1,671.4
$
3,751.7
(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
precious metal content
(a) Represents Sirona sales for the year ended December 31, 2015.
Technologies & Equipment
Reported net sales, excluding precious metal content, increased by $966.5 million for the year ended December 31, 2016 as
compared to the year ended December 31, 2015. The increase is a result of the Merger and other acquisitions, primarily 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.
For the year ended December 31, 2016, sales of our combined businesses grew 4.0% on a constant currency basis. This
includes a benefit of 3.2% from net acquisitions and was unfavorably impacted by discontinued products by approximately 80
basis points, which results in internal growth of 1.6%. Net sales, excluding precious metal content, were favorably impacted by
approximately 1% due to the strengthening of the U.S. dollar over the prior year period. Sales growth in this segment reflects
increased demand in the Rest of World region offset by sales declines in the United States 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.
58
Consumables
Reported net sales, excluding precious metal content, increased by $133.0 million for the year ended December 31, 2016 as
compared to the year ended December 31, 2015. The increase is 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 3.2% on a constant currency basis. This
includes an unfavorable impact of approximately 0.2% from net acquisitions, which results in internal growth of 3.4%. Net sales,
excluding precious metal content, were negatively impacted by approximately 0.8% due to the strengthening of the U.S. dollar
over the prior year period. Sales growth occurred in all regions.
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.
CRITICAL ACCOUNTING JUDGMENTS AND POLICIES
The preparation of the Company’s consolidated financial statements in conformity with US GAAP requires the Company to
make estimates and assumptions about future events that affect the amounts reported in the consolidated financial 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.
Business Acquisitions
The Company acquires businesses as well as partial interests in businesses. Acquired businesses are accounted for using the
acquisition method of accounting which requires the Company to record assets acquired and liabilities assumed at their respective
fair values with the excess of the purchase price over estimated fair values recorded as goodwill. 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.
The Company obtains information during due diligence and through other sources to get respective fair values. Examples of
factors and information that the Company uses to determine the fair values include: tangible and intangible asset evaluations and
appraisals; evaluations of existing contingencies and liabilities and 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.
Goodwill and Other Long-Lived Assets
Goodwill and Indefinite-Lived Assets
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 impairment tests, the Company also
requires that 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. If the carrying amount of an indefinite-lived intangible asset exceeds its fair
value, an impairment loss is recognized.
59
Other Long-Lived Assets
Other long-lived assets, such as definite-lived intangible assets and fixed assets, are amortized or depreciated over their
estimated useful lives. 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 cash flow and market participant assumptions. The resulting charge reflects the excess of the
asset’s carrying cost over its fair value.
Impairment Assessment
Assessment of the potential impairment of goodwill and other long-lived assets is an integral part of the Company’s normal
ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on numerous assumptions
and reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s
businesses operate and key economic and business assumptions with respect to projected selling prices, increased competition
and introductions of new technologies can significantly affect the outcome of impairment tests. Estimates based on these
assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential
impairments can have a significant impact on the existence and magnitude of impairments, as well as the time at which such
impairments are recognized. If there are unfavorable changes in these assumptions, particularly changes in the Company’s discount
rates, earnings multiples and future cash flows, the Company may be required to recognize impairment charges. Information with
respect to the Company’s significant accounting policies on goodwill and other long-lived assets are included in Note 1, Significant
Accounting Policies, in the Notes to Consolidated Financial Statements in Item 15 of this Form 10-K.
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 segment. The Company has several reporting units contained within each operating segment.
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. 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 (“WACC”) rate is estimated for geographic regions and applied to
the reporting units located within the regions. The Company has not materially changed its methodology for goodwill impairment
testing for the years presented. Due to the many variables inherent in the estimation of a reporting unit’s fair value and the relative
size of the Company’s recorded goodwill, differences in assumptions may have a material effect on the results of the Company’s
impairment analysis.
Should the Company’s analysis in the future indicate an increase in discount rates or a degradation in the overall markets
served by these reporting units, it could result in impairment of the carrying value of goodwill to its implied fair value. There can
be no assurance that the Company’s future goodwill impairment testing will not result in a charge to earnings. The Company
adopted Accounting Standards Update No. 2017-04, “Intangibles, Goodwill and Other” during the three months ended March 31,
2017.
60
Annual Indefinite-Lived Intangible Asset Impairment Testing
Indefinite-lived intangible assets consist of tradenames and are not subject to amortization; instead, they are tested for
impairment annually or more frequently if indicators of impairment exist or if a decision is made to sell a business. A significant
amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a decline
in expected cash 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 forecasted sales, is tax-effected and
discounted at 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 key assumptions, including projected revenue, royalty rates and
appropriate discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation.
Other assumptions are consistent with those applied to goodwill impairment testing.
Goodwill and Indefinite-Lived Intangible Asset Impairment Results
The Company performed the required annual impairment tests of goodwill at April 30, 2017 on eleven 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- to
ten-year forecasted cash flows plus a terminal value based on a multiple of earnings or by capitalizing the last period’s cash flows
using a perpetual growth rate. In the development of the forecasted cash flows, the Company applies revenue, gross profit, and
operating expense assumptions taking into consideration historical trends as well as futures expectations. These future expectations
include, but are not limited to, new product development and distribution channel changes for the respective reporting units. The
Company also considers the current and projected market conditions for dental and medical device industries, both in the U.S.
and globally, when determining its assumptions. The total forecasted cash flows were discounted based on a range between 7.8%
to 9.5%, which included assumptions regarding the Company’s weighted-average cost of capital. The use of estimates and the
development of assumptions results in uncertainties around forecasted cash flows. A change in any of these estimates and
assumptions could produce a different fair value, which could have a material impact on the Company’s results of operations.
Goodwill Testing Results
As a result of the annual impairment tests of goodwill and in conjunction with the preparation of the financial statements for
the three months ended June 30, 2017, the Company recorded a goodwill impairment charge of $1,092.9 million related to the
CAD/CAM, Imaging and Treatment Center equipment reporting units all within the Technologies & Equipment segment. The
goodwill impairment charge was primarily driven by a change in forecasted sales and gross profit which resulted in a lower fair
value for these reporting units.
For the Company’s reporting units that were not impaired, the Company applied a hypothetical sensitivity analysis. Had the
WACC rate of each of these reporting units been hypothetically increased by 100 basis points at April 30, 2017, the fair value of
those reporting units would still exceed net book value. If the fair value of each of these reporting units had been hypothetically
reduced by 5% at April 30, 2017, the fair value of those reporting units would still exceed net book value. If the fair value of each
of these reporting units had been hypothetically reduced by 10% at April 30, 2017, one reporting unit, within the Company’s
Consumables segment, would have a fair value that would approximate net book value. Goodwill for that reporting unit totals
$54.0 million at December 31, 2017. The Company did not identify any impairment triggers related to this reporting unit at
December 31, 2017.
61
In preparing the financial statements for the year ended December 31, 2017, the Company identified an impairment triggering
event related to the CAD/CAM, Imaging and Treatment Center equipment reporting units. Forecasted revenues and operating
margins for these reporting units were impacted by continued unfavorable developments in the marketplace which included an
increase in competition. These developments resulted in significantly lower sales to end-users than expected in the fourth quarter
of 2017 in the North America and Rest of World regions as well as declines in expected gross profit rates which included the
unfavorable impacts from changes in the foreign exchange rates. The impacts from foreign exchange rate changes were primarily
driven by the strengthening of the euro versus the U.S. dollar as a result of the higher euro denominated costs and net assets
associated with these reporting units as compared to the lower amount of euro denominated sales. While the Company considered
unfavorable market developments and foreign exchange rate changes, in its April 30, 2017 assessment, the impact of these
developments were at levels beyond those anticipated by the Company despite moving away from a non-exclusive distribution
channel in the United States and the execution of new distribution agreements with Patterson Companies, Inc. and Henry Schein,
Inc. in May and June of 2017. In addition to the unfavorable market and foreign exchange rate developments, the income tax rate
forecast used in the annual goodwill test was unfavorably impacted by the recent tax legislation in the U.S. and other foreign
jurisdictions. As a result the Company tested these reporting units for impairment in preparation of the financial statements for
the year ended December 31, 2017 and determined that the goodwill associated with the CAD/CAM, Imaging and Treatment
Center equipment reporting units, all within the Technologies & Equipment segment, was impaired. The impairment was the
result of a change in forecasted sales and gross profit as well as changes in foreign exchange rates and the income tax rate. As a
result, the Company recorded a goodwill impairment charge of $558.0 million for the three months ended December 31, 2017.
The combination of impairment charges for the second and fourth quarters of 2017 resulted in a total goodwill impairment charge
of $1,650.9 million for the year ended December 31, 2017.
Slower net sales growth rates in the dental industry, continued weakness in end-user demand for the Company’s products as
a result of competition, an increase in discount rates, unfavorable changes in earnings multiples or a decline in future cash flow
projections, foreign currency changes, unfavorable tax legislation among other factors, may cause a change in circumstances
indicating that the carrying value of the Company’s goodwill may not be recoverable. There can be no assurance that the Company’s
future goodwill impairment testing will not result in a charge to earnings.
Indefinite-lived and Definite-lived Intangible Assets Testing Results
The Company also assessed the annual impairment of indefinite-lived intangible assets as of April 30, 2017, which largely
consists of acquired tradenames, in conjunction with the annual impairment tests of goodwill. As a result of the annual impairment
tests of indefinite-lived intangible assets, the Company recorded an impairment charge of $79.8 million for the three months ended
June 30, 2017 which was recorded in Restructuring and other costs on the Consolidated Statements of Operations. The impaired
indefinite-lived intangibles assets are tradenames and trademarks related to the CAD/CAM and Imaging equipment reporting
units. The impairment charge was primarily driven by a decline in forecasted sales. The assumptions and estimates used in
determining the fair value of the indefinite-lived intangible assets contain uncertainties, and any changes to these assumptions and
estimates could have a negative impact and result in a future impairment.
For the Company’s indefinite-lived assets that were not impaired, the Company applied a hypothetical sensitivity analysis.
If the fair value of each of these indefinite-lived intangibles assets had been hypothetically reduced by 10% or the discount rate
had been hypothetically increased by 50 basis points at April 30, 2017, the fair value of these assets would still exceed their book
value.
In preparing the financial statements for the year ended December 31, 2017, the Company, as result of the triggering event,
tested the indefinite-lived intangible assets related to these reporting units for impairment As a result, the Company identified
certain tradenames and trademarks related to the CAD/CAM, Imaging and Treatment Center equipment reporting units, all within
the Technologies & Equipment segment, were impaired. The Company recorded an impairment charge of $266.9 million for the
three months ended December 31, 2017 which was recorded in Restructuring and other cost on the Consolidated Statements of
Operations. The Company recorded a total impairment charge for the year ended December 31, 2017 of $346.7 million related
to indefinite-lived assets. The impairment charge was driven by a continuing decline in forecasted sales. The assumptions and
estimates used in determining the fair value of the indefinite-lived intangible assets contain uncertainties, and any changes to these
assumptions and estimates could have a negative impact and result in a future impairment.
Slower net sales growth rates in the dental industry continued weakness in end-user demand for the Company’s products as
a result of competition, an increase in discount rates, unfavorable changes in earnings multiples or a decline in future cash flow
projections, foreign currency changes, unfavorable tax legislation among other factors, may cause a change in circumstances
indicating that the carrying value of the Company’s indefinite-lived and definite-lived assets may not be recoverable. There can
be no assurance that the Company’s future indefinite-lived asset impairment testing will not result in a charge to earnings.
62
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 time. If 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.
Income Taxes
Income taxes are determined using the liability method of accounting for income taxes. The Company’s tax expense includes
the U.S. and international income taxes plus the provision for U.S. taxes on undistributed earnings of international subsidiaries
not deemed to be permanently invested.
The Company applies a recognition threshold and 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.
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 December 31, 2017, the Company has a valuation allowance of $3.0 billion against the benefit
of 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 limitation are closed or tax laws
are changed.
The Company has accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional
basis. The accounting for certain income tax effects is incomplete, but the Company has determined reasonable estimates for
those effects. The Company’s reasonable estimates are included in the financial statements at December 31, 2017 and expects to
complete the accounting during the one year measurement period from the enactment date.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities during the year ended December 31, 2017 were $601.9 million compared to $563.4
million during the year ended December 31, 2016. Net income declined by $1,981.7 million in the period ended December 31,
2017 compared to the prior year, largely from non-cash impairments of goodwill and intangible assets totaling $1,997.6 million
related to the Technologies & Equipment segment. Working capital consumed $149.3 million of operating cash flow in 2017
compared to $54.8 million consumed in 2016. Other non-cash charges increased approximately $116.3 million versus the prior
year, largely driven by restructuring, management changes, amortization and legal settlements. The Company's cash and cash
equivalents decreased by $63.3 million during the year ended December 31, 2017 to $320.6 million.
For the year ended December 31, 2017, on a constant currency basis, the number of days for sales outstanding in accounts
receivable increased by 3 days to 61 days as compared to 58 days in 2016. On a constant currency basis, the number of days of
sales in inventory increased by 18 days to 131 days at December 31, 2017 as compared to 113 days at December 31, 2016.
Investing activities during 2017 included capital expenditures of $144.3 million and acquisitions of businesses and intangible
assets of $152.6 million. The Company expects capital expenditures to be in the range of approximately $130 million to $140
million for the full year 2018.
63
At December 31, 2017, 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 6.2
million shares, or approximately 2.7% of average diluted shares outstanding, during 2017 at a cost of $400.3 million for an average
price of $64.40. As of December 31, 2017 and 2016, the Company held 37.7 million and 34.4 million shares of treasury stock,
respectively. The Company also received proceeds of $82.3 million primarily as a result of 2.3 million stock options exercised
during the year ended December 31, 2017. On February 14, 2018, the Board of Directors of the Company approved an increase
in the authorized number of shares of common stock that may be repurchased under the share repurchase program for a total
remaining authorization of $500.0 million of shares of common stock. Additional share repurchases, if any, will be made through
open market purchases, Rule 10b5-1 plans, accelerated share repurchases, privately negotiated transactions or other transactions
in such amounts and at such times as we deem appropriate based upon prevailing market and business conditions and other factors.
Total debt increased by $109.5 million for the year ended December 31, 2017. Dentsply Sirona's long-term debt, including
the current portion, at December 31, 2017 and 2016 was $1,620.8 million and $1,522.1 million, respectively. The Company's
long-term debt, including the current portion increased by a net of $98.7 million during the year ended December 31, 2017. This
net change included a net increase in borrowings of $12.7 million, and a decrease of $111.4 million due to exchange rate fluctuations
on debt denominated in foreign currencies. At December 31, 2017 there was $7.3 million outstanding under the commercial paper
facility, at 2016, there were no outstanding borrowings under the commercial paper facility.
During the year ended December 31, 2017, the Company's ratio of net debt to total capitalization increased to 16.6% compared
to 12.4% at December 31, 2016. 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 has access to $500.0 million revolving credit facility 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
restrictive of these covenants pertain to asset dispositions and prescribed ratios of indebtedness to total capital and operating
income plus depreciation and amortization to interest expense.
The Company’s revolving credit facility, term loans and senior notes contain certain affirmative and negative covenants
relating to the Company's 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, in each case, as such terms are defined in the relevant
agreement. Any breach of any such covenants or ratios would result in a default under 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, 2017, the Company was
in compliance with these covenants.
The Company also has access to $52.1 million in uncommitted short-term financing under lines of credit from various financial
institutions. The lines of credit have no major restrictions and are provided under demand notes between the Company and the
lending institutions. At December 31, 2017, $13.6 million was outstanding under these short-term lines of credit. At December
31, 2017, the Company had total unused lines of credit related to the revolving credit agreement and the uncommitted short-term
lines of credit of $531.2 million.
The Company expects on an ongoing basis to be able to finance cash requirements, including capital expenditures in a range
of $130 million to $140 million, stock repurchases, debt service, operating leases and potential future acquisitions, from the current
cash, cash equivalents and short-term investment balances, funds generated from operations and amounts available under its
existing credit 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 2018 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 has continued to generate strong cash flows from operations, which has been used to finance the Company's activities.
At December 31, 2017, the majority of the Company’s cash and cash equivalents were held outside of the United States. The
majority 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. 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.
64
As a result of U.S. tax reform, $271.7 million of cash and cash equivalents held by the Company’s non-U.S. subsidiaries was
subject to current tax in the U.S. in 2017. As of December 31, 2017, the Company had not repatriated any of these funds to the
U.S. However, to the extent the Company repatriates these funds to the U.S., the Company will be required to pay income taxes
in certain U.S. states and applicable foreign withholding taxes on those amounts during the period when such repatriation occurs.
Off Balance Sheet Arrangements
At December 31, 2017, the Company held $40.3 million of precious metals on consignment from several financial institutions.
Under these consignment arrangements, the financial institutions own the precious metal, and, accordingly, the Company does
not report this consigned inventory as part of its inventory on the Consolidated Balance Sheet. These consignment agreements
allow the Company to acquire the precious 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 could not obtain other 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.
Contractual Obligations
The following table presents the Company's scheduled contractual cash obligations at December 31, 2017:
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
Years 2-3
Years 4-5
Greater
Than
5 Years
$
$
$
9.2
38.6
$
244.1
56.2
$
298.9
36.0
$
1,073.9
35.3
27.3
18.7
40.3
134.1
$
51.5
37.2
—
389.0
$
45.0
39.8
—
419.7
$
68.1
117.2
—
1,294.5
$
Total
1,626.1
166.1
191.9
212.9
40.3
2,237.3
Due to the uncertainty with respect to the timing of future cash flows associated with the Company's unrecognized tax benefits
at December 31, 2017, the Company is unable to make reasonably reliable estimates of the period of cash settlement with the
respective taxing authority; therefore, $24.7 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 15 of this
Form 10-K for a discussion of recent accounting guidance and pronouncements.
65
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
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 interest rate exposures when appropriate, based
upon market conditions. The 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 transaction exposures through foreign exchange forward contracts. These contracts
are entered into with major financial institutions thereby minimizing the risk of credit loss. In order to limit the unanticipated
earnings fluctuations 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.
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 Company hedges various currencies, primarily
in euros, Swedish kronor, Canadian dollars, British pounds, Swiss francs, Japanese yen and Australian dollars. The gains and
losses on these derivative transactions offset the gains and losses generated by the revaluation of the underlying non-functional
currency balances. The Company primarily uses forward foreign exchange contracts and cross currency basis swaps to hedge
these risks.
The Company uses a layered hedging program to hedge select anticipated foreign currency cash flows to reduce volatility in
both cash flows and reported earnings of the consolidated Company. 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.
The Company has numerous 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.
Currently, the Company uses both derivative and non-derivative financial instruments, 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.
At December 31, 2017, 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 $18.4 million.
Interest Rate Risk Management
The Company uses interest rate swaps to convert a portion of its variable interest rate debt to fixed interest rate debt and, in
the past, to convert fixed rate debt to variable rate debt. At December 31, 2017, 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.
On January 2, 2018, the Company entered into a 245.6 million euro cross currency basis swap maturing in August 2021, that
is designated as a hedge of net investments. This contract effectively converts the $295.7 million bond coupon from 4.1% to 1.7%,
which will result in a net reduction of interest expense of approximately $7 million in 2018.
At December 31, 2017, 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.
66
Consignment Arrangements
The Company consigns the precious metals used in the production of precious metal dental alloy products from various
financial institutions. Under these consignment arrangements, the banks own the precious metal, and, accordingly, the Company
does not report this consigned inventory as part of its inventory on 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 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 evaluates the impact of the precious metal price fluctuation on its target
gross margins for precious metal dental alloy products and revises the prices customers are charged for precious metal dental alloy
products accordingly, depending upon the magnitude of the fluctuation. While the Company does not separately 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, 2017, the Company had approximately 43,100 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 $40.3 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, 2017, the average annual rate charged by the consignor
banks was 2.2%. These compensatory payments are considered to be a cost of the metals purchased and are recorded as part of
the cost of products sold.
67
Item 8. Financial Statements and Supplementary Data
The information set forth under the captions Management’s Report on Internal Control Over Financial Reporting, Report of
Independent Registered Public Accounting Firm, Consolidated Statements of Operations, Consolidated Statements of
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures as of
the end of the period covered by this report were effective to provide reasonable assurance that the information required to be
disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms and that it is accumulated and communicated
to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
(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, 2017 that have materially affected, or are reasonably likely to materially affect, its internal control over financial
reporting.
Item 9B. Other Information
Not Applicable
68
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required under this item is set forth in the 2018 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 other executive
officers, in the Investor Relations section of the Company’s website at www.dentsplysirona.com, within four business days
following the date of such amendment or waiver.
Item 11. Executive Compensation
The information required under this item is set forth in the 2018 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 2018 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 2018 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 2018 Proxy Statement, which is incorporated herein by
reference.
69
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 on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations - Years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Comprehensive Income - Years ended December 31, 2017, 2016 and 2015
Consolidated Balance Sheets - December 31, 2017 and 2016
Consolidated Statements of Changes in Equity - Years ended December 31, 2017, 2016 and 2015
Consolidated Statements of Cash Flows - Years ended December 31, 2017, 2016 and 2015
Notes to Consolidated Financial Statements
Quarterly Financial Information (Unaudited)
2.
Financial Statement Schedule for the Years Ended December 31, 2017, 2016, and 2015.
The following financial statement schedule is filed as part of this Form 10-K and is covered by the Report of
Independent Registered Public Accounting Firm:
Page
75
76
78
79
80
81
82
83
148
Page
Schedule II — Valuation and Qualifying Accounts for the Years Ended December 31, 2017, 2016, and 2015.
74
All other schedules for which provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are not required to be included herein under the related instructions or are inapplicable and,
therefore, have been omitted.
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
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. (14)
Description
Amended and Restated Certificate of Incorporation (17)
Fifth Amended and Restated By-Laws, dated as of February 14, 2018 (22)
(a) 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)) (3)
(b) 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.)
(13)
4.2
(a) United States Commercial Paper Dealer Agreement dated as of August 18, 2011 between the Company and
J.P. Morgan Securities LLC (13)
(b) 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 (13)
70
4.3
4.4
4.5
4.10
4.11
4.12
4.14
4.15
4.16
4.17
10.2
10.3
10.4
10.5
10.10
10.12
10.13
10.14
10.15
10.16
10.17
$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 (13)
(a) First Amendment to the $500.0 Million Credit Agreement dated as of July 1, 2015 between the Company and
the Subsidiary Borrowers party (15)
(b) Second Amendment to the $500.0 Million Credit Agreement dated November 30, 2015 between the Company
and Subsidiary Borrowers party (15)
$250.0 Million Private Placement Note Purchase Agreement, due February 19, 2016 dated as of October 16,
2009 (7)
(a) 65.0 Million Swiss Franc Term Loan Agreement, due March 1, 2012 dated as of February 24, 2010 (8)
(b) 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 (15)
(c) 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 (9)
(d) Third Amendment to the 65.0 Million Swiss Franc Term Loan Agreement dated November 30, 2015 (15)
$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 (12)
(a) 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 (15)
Form of Indenture (10)
Supplemental Indenture, dated August 23, 2011 between DENTSPLY International Inc., as Issuer and Wells
Fargo, National Association, as Trustee (11)
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 (13)
(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 (15)
United States Commercial Paper issuing and paying Agency Agreement dated as of November 4, 2014,
between the Company and U.S. Bank N.A. (13)
Note Purchase Agreement, dated December 11, 2015, by and among the Company and the purchasers listed in
Schedule A thereto (15)
Note Purchase Agreement, dated October 27, 2016, by and among the Company and the purchasers listed in
Schedule A thereto (17)
2002 Amended and Restated Equity Incentive Plan* (5)
Restricted Stock Unit Deferral Plan* (15)
(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 (1)
(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 (1)
DENTSPLY Supplemental Saving Plan Agreement dated as of December 10, 2007* (5)
Amended and Restated Employment Agreement entered February 19, 2008 between the Company and James
G. Mosch* (5)
Amended and Restated Employment Agreement entered January 1, 2009 between the Company’s subsidiary,
DeguDent GMBH and Albert Sterkenburg* (6)
DENTSPLY International Inc. Directors’ Deferred Compensation Plan effective January 1, 1997, amended
January 1, 2009* (6)
Board Compensation Arrangement* (Filed herewith)
Supplemental Executive Retirement Plan effective January 1, 1999, as amended January 1, 2009* (6)
Incentive Compensation Plan, amended and restated* (9)
AZ Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca AB and Maillefer
Instruments Holdings, S.A. (1)
71
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 (4)
(b) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between JPMorgan Chase
Bank and the Company (2)
(c) Precious metal inventory Purchase and Sale Agreement dated December 20, 2001 between Mitsui & Co.,
Precious Metals Inc. and the Company (2)
(e) Precious metal inventory Purchase and Sale Agreement dated January 30, 2002 between Commerzbank AG
(formerly known as Dresdner Bank AG), Frankfurt, and the Company (5)
(f) 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 (12)
(g) Precious metal inventory Purchase and Sale Agreement dated April 29, 2013 between The Toronto-Dominion
Bank and the Company (12)
Executive Change in Control Plan for foreign executives, as amended December 31, 2008* (7)
2010 Equity Incentive Plan, amended and restated (15)
Employment Agreement, dated December 11, 2015, between DENTSPLY International Inc. and Bret W.
Wise* (15)
Employment Agreement, dated February 12, 2016, between DENTSPLY SIRONA Inc. and Christopher T.
Clark* (17)
Employment Agreement, dated February 12, 2016, between DENTSPLY SIRONA Inc. and Ulrich Michel*
(17)
DENTSPLY SIRONA Inc. 2016 Omnibus Incentive Plan, as amended and restated effective February 14,
2018 (Filed herewith)
Employment Agreement, dated December 11, 2015, between DENTSPLY International Inc., Sirona Dental
Systems, Inc. and Jeffrey T. Slovin* (17)
Amended and Restated U.S. Distributorship Agreement, dated May 31, 2012, by and between Patterson
Companies, Inc. and Sirona Dental Systems, Inc. (16)
Amended and Restated U.S. CAD-CAM Distributorship Agreement, dated May 31, 2012, by and between
Patterson Companies, Inc. and Sirona Dental Systems GmbH (16)
Sirona Dental Systems, Inc. Equity Incentive Plan, as Amended* (17)
Sirona Dental Systems, Inc. 2015 Long-Term Incentive Plan* (17)
Employment Agreement, dated September 27, 2017, between DENTSPLY SIRONA and Mark Thierer* (18)
Employment Agreement, dated September 27, 2017, between DENTSPLY SIRONA and Robert Size* (19)
Employment Agreement, dated October 10, 2017, between DENTSPLY SIRONA and Nicholas W. Alexos*
(20)
Employment Agreement, dated October 10, 2017, between DENTSPLY SIRONA and Keith Ebling* (Filed
herewith)
Employment Agreement, dated February 12, 2018, between DENTSPLY SIRONA and Donald M. Casey Jr*
(21)
Form of DENTSPLY SIRONA Inc. Indemnification Agreement (22)
Form of Option Grant Notice Under the DENTSPLY SIRONA Inc 2016 Omnibus Incentive Plan as amended
and restated (22)
Form of Restricted Share Unit Grant Notice Under the DENTSPLY SIRONA Inc. 2016 Omnibus Incentive
Plan as amended and restated (22)
Form of Performance Restricted Share Unit Grant Notice Under the DENTSPLY SIRONA Inc. 2016 Omnibus
Incentive Plan as amended and restated (22)
Employment Agreement, dated May 5, 2016, between DENTSPLY SIRONA and Maureen J. MacInnis* (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
10.19
10.20
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
12.1
21.1
23.1
31.1
31.2
32
101.INS
Section 906 Certification Statement
XBRL Instance Document
72
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Extension Labels Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
*Management contract or compensatory plan.
(1)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2000, File 0-16211.
(2)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2001, File 0-16211.
(3)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2002, File 0-16211.
(4)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2006, File no. 0-16211.
(5)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2007, File No. 0-16211.
(6)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2008, File No. 0-16211.
(7)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2009, File no. 0-16211.
(8)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2010, File no. 0-16211.
(9)
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2011, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Registration Statement on Form S-3 dated August 15, 2011 (No. 333-176307).
Incorporated by reference to exhibit included in the Company’s Form 8-K dated August 29, 2011, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2013, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2014, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 8-K dated September 16, 2015, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2015, File no. 0-16211.
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).
Incorporated by reference to exhibit included in the Company’s Form 10-K for the fiscal year ended December 31, 2016, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 8-K, dated October 2, 2017, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 10-Q for the quarterly period ended September 30, 2017, File no. 0-16211.
Incorporated by reference to exhibit included in the Company’s Form 8-K, dated November 3, 2017, File no.0-16211.
Incorporated by reference to exhibit included in the Company’s Form 8-K, dated January 17, 2018, File no.0-16211.
Incorporated by reference to exhibit included in the Company’s Form 8-K, dated February 15, 2018, File no.0-16211.
(1
0)
(1
1)
(1
2)
(1
3)
(1
4)
(1
5)
(1
6)
(1
7)
(1
8)
(1
9)
(2
0)
(2
1)
(2
2)
73
SCHEDULE II
DENTSPLY SIRONA INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015
(in millions)
Description
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
Additions
Allowance for doubtful accounts:
For Year Ended December 31,
2015
2016
2017
$
8.8
$
10.7
22.7
4.3
9.2
6.6
Deferred tax asset valuation allowance:
For Year Ended December 31,
2015
2016
2017
$
253.3
$
274.3
182.7
26.7
(99.9)
2,829.8
$
$
$
1.4
4.3
(2.6)
(2.2) $
(2.5)
(4.8)
(1.6) $
1.0
0.5
10.7
22.7
22.4
—
8.5
—
$
— $
—
—
(5.7) $
(0.2)
2.3
274.3
182.7
3,014.8
74
Management’s Report on Internal Control Over Financial Reporting
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 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 of financial statements for external purposes in accordance with accounting principles
generally accepted in the United States of America. A Company’s internal control over financial reporting includes those policies
and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the Company; 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 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 financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management of the Company has assessed the effectiveness of the Company’s internal control over financial reporting as of
December 31, 2017. In making its assessment, management used the 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, 2017, 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 effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report, which appears herein.
/s/
Donald M. Casey, Jr.
Donald M. Casey, Jr.
Chief Executive Officer
March 15, 2018
/s/
Nicholas W. Alexos
Nicholas W. Alexos
Executive Vice President and
Chief Financial Officer
March 15, 2018
75
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
of DENTSPLY SIRONA Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the consolidated financial statements, including the related notes, as listed in the index appearing under Item
15 (a)(1) and the financial statement schedule listed in the index appearing under Item 15(a)(2), of DENTSPLY SIRONA Inc. and
its subsidiaries (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal
control over financial reporting as of December 31, 2017 based on criteria established in Internal Control - Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies
deferred taxes in 2017 due to the adoption of Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred
Taxes.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included
in the accompanying Management's Report on Internal Control over Financial Reporting, appearing under Item 15(a)(1). Our
responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control
over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with
the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits
also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
76
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 financial reporting may not prevent or detect 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 15, 2018
We have served as the Company’s auditor since 2000.
77
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Goodwill impairment
Restructuring and other costs
Operating (loss) income
Other income and expenses:
Interest expense
Interest income
Other expense (income), net
(Loss) income before income taxes
(Benefit) provision for income taxes
Equity in net loss of unconsolidated affiliated company
Year Ended December 31,
2016
2015
2017
$
$
3,993.4
1,804.9
$
3,745.3
1,744.4
2,674.3
1,157.1
2,188.5
1,674.7
1,650.9
425.2
2,000.9
1,523.0
—
23.2
1,517.2
1,077.3
—
64.7
(1,562.3)
454.7
375.2
38.3
(2.4)
5.3
(1,603.5)
(53.2)
—
35.9
(2.0)
(20.1)
440.9
9.5
—
55.9
(2.2)
(8.2)
329.7
77.0
(1.6)
Net (loss) income
(1,550.3)
431.4
251.1
Less: Net (loss) income attributable to noncontrolling interests
(0.3)
1.5
(0.1)
Net (loss) income attributable to Dentsply Sirona
$
(1,550.0) $
429.9
$
251.2
Net (loss) income per common share attributable to Dentsply Sirona:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
$
$
(6.76) $
(6.76) $
1.97
1.94
$
$
1.79
1.76
229.4
229.4
218.0
221.6
140.0
142.5
Dividends declared per common share:
$
0.35
$
0.31
$
0.29
The accompanying notes are an integral part of these consolidated financial statements.
78
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in millions)
Year Ended December 31,
2017
2016
2015
Net (loss) income
$
(1,550.3) $
431.4
$
251.1
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments
Net (loss) gain on derivative financial instruments
Net unrealized holding gain (loss) on available-for-sale securities
Pension liability adjustments
Total other comprehensive income (loss)
386.3
(20.2)
44.3
4.6
415.0
(90.5)
(8.6)
—
(13.8)
(112.9)
Total comprehensive (loss) income
(1,135.3)
318.5
Less: Comprehensive (loss) income attributable to noncontrolling interests
—
0.3
(188.1)
12.1
(8.5)
32.2
(152.3)
98.8
0.5
Comprehensive (loss) income attributable to Dentsply Sirona
$
(1,135.3) $
318.2
$
98.3
The accompanying notes are an integral part of these consolidated financial statements.
79
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in millions)
Assets
Current Assets:
Cash and cash equivalents
Accounts and notes receivable-trade, net
Inventories, net
Prepaid expenses and other current assets
Total Current Assets
Property, plant and equipment, net
Identifiable intangible assets, net
Goodwill, net
Other noncurrent assets, net
Total Assets
Liabilities and Equity
Current Liabilities:
Accounts payable
Accrued liabilities
Income taxes payable
Notes payable and current portion of long-term debt
Total Current Liabilities
Long-term debt
Deferred income taxes
Other noncurrent liabilities
Total Liabilities
Commitments and contingencies
Equity:
December 31,
2017
2016
$
$
$
$
$
$
320.6
746.2
623.1
312.6
2,002.5
876.0
2,800.7
4,539.2
156.1
10,374.5
284.4
585.8
54.2
30.1
954.5
1,611.6
718.0
462.5
3,746.6
383.9
636.0
517.1
206.5
1,743.5
799.8
2,957.6
5,952.0
102.9
11,555.8
223.0
462.7
60.8
21.1
767.6
1,511.1
751.7
399.5
3,429.9
Preferred stock, $1.00 par value; .25 million shares authorized; no shares issued
Common stock, $.01 par value;
—
2.6
—
2.6
400.0 million shares authorized at December 31, 2017 and 2016
264.5 million shares issued at December 31, 2017 and 2016
226.8 million and 230.1 million shares outstanding at December 31, 2017 and 2016,
respectively
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost, 37.7 million and 34.4 million shares at December 31, 2017 and
2016, respectively
Total Dentsply Sirona Equity
Noncontrolling interests
Total Equity
Total Liabilities and Equity
6,543.9
2,316.2
(291.0)
6,516.7
3,948.0
(705.7)
(1,955.4)
6,616.3
11.6
6,627.9
10,374.5
$
(1,647.3)
8,114.3
11.6
8,125.9
11,555.8
$
The accompanying notes are an integral part of these consolidated financial statements.
80
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(in millions)
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
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) income
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
—
—
—
—
—
—
—
—
—
—
—
—
(8.2)
11.6
25.6
1.1
—
(14.3)
0.3
—
251.2
—
—
—
—
—
—
—
—
(0.3)
(40.6)
(152.9)
—
—
—
—
—
—
—
—
—
—
43.4
—
—
3.6
(112.7)
8.9
—
—
251.2
(152.9)
35.2
11.6
25.6
4.7
(112.7)
(5.4)
—
(40.6)
(0.1)
0.6
—
—
—
—
—
—
—
—
251.1
(152.3)
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
Common stock issuance related to Sirona
merger
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
—
—
—
1.0
—
—
—
—
—
—
—
—
—
—
(0.1)
6,255.2
(10.8)
16.1
41.3
2.1
—
(25.5)
0.6
—
429.9
—
—
—
—
—
—
—
—
—
—
(0.6)
(72.3)
(111.7)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
48.1
—
—
4.3
(815.1)
13.8
—
—
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
37.3
16.1
41.3
6.4
(815.1)
(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
Net loss
Other comprehensive income
Exercise of stock options
Stock based compensation expense
Reclassification on adoption of ASU No.
2016-09 (see Note 1)
Funding of Employee Stock Ownership Plan
Treasury shares purchased
RSU distributions
RSU dividends
Cash dividends
—
—
—
—
—
—
—
—
—
—
—
—
6.9
48.0
1.0
3.3
—
(32.6)
0.6
—
(1,550.0)
—
—
—
(1.0)
—
—
—
(0.6)
(80.2)
—
414.7
—
—
—
—
—
—
—
—
—
—
75.0
—
—
3.3
(400.3)
13.9
—
—
(1,550.0)
(0.3)
(1,550.3)
414.7
0.3
415.0
81.9
48.0
—
6.6
(400.3)
(18.7)
—
(80.2)
—
—
—
—
—
—
—
—
81.9
48.0
—
6.6
(400.3)
(18.7)
—
(80.2)
Balance at December 31, 2017
$
2.6
$
6,543.9
$
2,316.2
$
(291.0)
$
(1,955.4)
$
6,616.3
$
11.6
$
6,627.9
The accompanying notes are an integral part of these consolidated financial statements.
81
DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash provided by operating activities:
Year Ended December 31,
2016
2015
2017
$
(1,550.3) $
431.4
$
251.1
Depreciation
Amortization of intangible assets
Amortization of deferred financing costs
Goodwill impairment
Indefinite-lived intangible asset impairment
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 expense (income)
Loss on disposal of property, plant and equipment
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net
Inventories, net
Prepaid expenses and other current assets
Other noncurrent assets
Accounts payable
Accrued liabilities
Income taxes
Other noncurrent liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Cash paid for acquisitions of businesses and equity investments
Proceeds from the sale of businesses
Purchases 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 (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from long-term borrowings, net of deferred financing costs
Payments on long-term borrowings
Increase (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 (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Schedule of non-cash investing activities:
Merger financed by common stock
Supplemental disclosures of cash flow information:
Interest paid, net of amounts capitalized
Income taxes paid
$
$
$
$
127.3
189.1
2.6
1,650.9
346.7
(143.8)
48.0
64.7
—
—
9.9
1.6
(63.4)
(62.9)
(75.0)
(3.7)
44.2
28.3
(20.5)
8.2
601.9
(145.9)
—
(2.5)
—
(144.3)
—
(0.9)
6.5
—
(6.7)
7.4
(286.4)
3.1
(16.7)
10.2
82.3
—
—
(401.4)
(78.3)
(400.8)
22.0
(63.3)
383.9
320.6
$
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
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
— $
6,256.2
37.0
122.7
$
$
36.7
112.3
$
$
$
$
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)
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
—
54.9
71.4
The accompanying notes are an integral part of these consolidated financial statements.
82
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, dental equipment, healthcare consumable products and dental technologies. 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, 2017 include the
results of operations for Sirona for the period February 29, 2016 to December 31, 2016. The accompanying 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.
Unless otherwise stated herein, reference throughout this Form 10-K to “Dentsply Sirona”, or the “Company” refers to financial
information and transactions of DENTSPLY International Inc. (“DENTSPLY”) prior to February 29, 2016 and to financial
information and transactions of DENTSPLY SIRONA Inc., thereafter.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America (“US GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the 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.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company. All significant intercompany accounts and
transactions are eliminated in consolidation.
Investments in non-consolidated affiliates (20-50 percent owned companies, joint ventures 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.
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 and equipment 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 included in Selling, general and administrative expenses in the Consolidated Statements of Operations.
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Accounts receivable – trade is stated net of these allowances that were $22.4 million and $22.7 million at December 31, 2017
and 2016, respectively. For the years ended December 31, 2017 and 2016, the Company wrote-off $4.8 million and $2.5 million,
respectively, of accounts receivable that were previously reserved. The Company increased the provision for doubtful accounts
by $6.6 million and $9.2 million during 2017 and 2016, respectively.
Inventories
Inventories are stated at the lower of cost and net realizable value. At December 31, 2017 and 2016, the cost of $12.4 million
and $8.6 million, respectively, of inventories was determined by the last-in, first-out (“LIFO”) method. The cost of remaining
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, 2017 and 2016 by $10.6 million and $6.8 million, respectively.
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
Assessment of the potential impairment of goodwill and other long-lived assets is an integral part of the Company’s normal
ongoing review of operations. Testing for potential impairment of these assets is significantly dependent on assumptions and
reflects management’s best estimates at a particular point in time. The dynamic economic environments in which the Company’s
businesses operate and key economic and business assumptions with respect to projected selling prices, increased competition
and introductions of new technologies can significantly affect the outcome of impairment tests. Estimates based on these
assumptions may differ significantly from actual results. Changes in factors and assumptions used in assessing potential
impairments can have a significant impact on the existence and magnitude of impairments, as well as the time at which such
impairments are recognized. If there are unfavorable changes in these assumptions, future cash flows, a key variable in assessing
the impairment of these assets, may decrease and as a result the Company may be required to recognize impairment charges.
Future changes in the environment and the economic outlook for the assets being evaluated could also result in additional impairment
charges being recognized. The following information outlines the Company’s significant accounting policies on long-lived assets
by type.
Goodwill
Goodwill is the excess of the purchase price over the fair value of identifiable net assets acquired and liabilities assumed in
a business combination. Goodwill is not amortized. Goodwill is tested for impairment annually, during the Company’s second
quarter, or when indications of potential impairment exist. The Company monitors for the existence of potential impairment
throughout the year. This impairment assessment includes an evaluation of various reporting units, which is an operating segment
or one reporting level below the operating segment. The Company performs impairment tests using a fair value approach. The
Company compares the fair value of each reporting unit to its carrying amount to determine if there is potential goodwill impairment.
If impairment is identified on goodwill, the resulting charge is determined by recalculating goodwill through a hypothetical purchase
price allocation of the fair value and reducing the current carrying value to the extent it exceeds the recalculated goodwill.
The Company’s fair value approach involves using a discounted cash flow model with market-based support as its valuation
technique to measure the fair value for its reporting units. The discounted cash flow model uses five-year forecasted cash flows
plus a terminal value based on a multiple of earnings. In addition, the Company applies gross profit and operating expense
assumptions consistent with its historical trends. The total cash flows were discounted based on market participant data, which
included the Company’s weighted-average cost of capital. The Company considered the current market conditions when
determining its assumptions. Lastly, the Company reconciled the aggregate fair values of its reporting units to its market
capitalization, which included a reasonable control premium based on market conditions. Additional information related to the
testing for goodwill impairment is provided in Note 9 Goodwill and Intangible Assets.
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Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets consist of tradenames and are not subject to amortization. Valuations of identifiable
intangibles assets acquired are based on information and assumptions available at the time of acquisition, using income and market
model approaches to determine fair value. In-process research and development assets are not subject to amortization until the
product associated with the research and development is substantially complete and is a viable product. At that time, the useful
life to amortize the intangible asset is determined by identifying the period in which substantially all the cash flows are expected
to be generated and the asset is moved to definite-lived.
These assets are reviewed for impairment annually or whenever events or circumstances suggest that the carrying amount of
the asset may not be recoverable. The Company uses an income approach, more specifically a relief from royalty method.
Significant management judgment is necessary to determine key assumptions, including projected revenue, royalty rates and
appropriate discount rates. Royalty rates used are consistent with those assumed for the original purchase accounting valuation.
Other assumptions are consistent with those applied to goodwill impairment testing. If the carrying value exceeds the fair value,
an impairment loss in the amount equal to the excess is recognized.
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 lives. The useful life is
the period over which the asset is expected to contribute to the future cash flows of the Company. The Company uses the following
guidance to determine the useful life of certain intangible assets:
Intangible Asset Type
Life
Patents
Trademarks
Licensing agreements
Customer relationships
Up to date patent expires
Up to 20 years
Up to 20 years
Up to 15 years
When the expected life is not known, the Company will estimate the useful life based on similar asset or asset groups, any
legal, regulatory, or contractual provision that limits the useful life, the effect of economic factors, including obsolescence, demand,
competition, and the level of maintenance expenditures required to obtain the expected future economic benefit from the asset.
Valuations of identifiable intangibles assets acquired are based on information and assumptions available at the time of acquisition,
using income and market model approaches to determine fair value.
These assets are reviewed for impairment whenever events or circumstances suggest that the carrying amount of the asset
may not be recoverable. The Company closely monitors all intangible assets 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 discounted cash flows valuation. If impaired, the resulting charge reflects the excess of the asset’s carrying
cost over its fair value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, with the exception of assets acquired through acquisitions, which are recorded
at fair value, net of accumulated depreciation. Except for leasehold improvements, depreciation for financial reporting purposes
is computed by the straight-line method over the following estimated useful lives: generally 40 years for buildings and 4 to 15
years for machinery and equipment. The cost of leasehold improvements is 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. These asset groups are reviewed for impairment whenever events or circumstances suggest that
the carrying amount of the asset group may not be recoverable. Impairment is based upon an evaluation of the identifiable
undiscounted cash flows. If impaired, the resulting charge reflects the excess of the asset group’s carrying cost over its fair value.
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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 that 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.
The Company employs derivative financial instruments to hedge certain anticipated transactions, firm commitments, and
assets and liabilities denominated in foreign currencies. Additionally, the Company utilizes interest rate swaps to convert floating
rate debt to fixed rate.
Pension and Other Postemployment Benefits
Some of the employees of the Company and its subsidiaries are covered by government or Company-sponsored defined benefit
plans. Many of the employees have available to them defined contribution plans. Additionally, certain union and salaried employee
groups in the United States are covered by postemployment healthcare plans. Costs for Company-sponsored defined benefit and
postemployment benefit plans are based on expected return on plan assets, discount rates, employee 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 assumptions can impact the Company’s earnings before income taxes. In determining the cost of
postemployment benefits, certain assumptions are established annually to reflect market conditions and plan experience to
appropriately reflect the expected costs as actuarially determined. These 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, severity factors and other relevant
information. Costs are recognized in the period the claim is incurred, and the financial statement accruals include an estimate of
claims incurred but not yet reported. The Company has stop-loss coverage to limit its exposure to any significant exposure on a
per claim basis.
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 better
estimate of the probable loss. The ranges established by management are based on analysis made by internal and external legal
counsel who considers information known at the time. If the Company determines a liability to be only reasonably possible, it
considers the same information to estimate the possible exposure and discloses any material potential liability. These loss
contingencies are monitored regularly for a change in fact or circumstance that would require an accrual adjustment. The Company
believes it has estimated liabilities for probable losses 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.
Foreign Currency Translation
The functional currency for foreign operations, except for those in highly inflationary economies, generally has been
determined to be the local currency.
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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, 2017, the Company had losses
of $48.5 million on its loans designated as hedges of net investments and translation gains of $434.5 million. 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.
Foreign exchange gains and losses arising from transactions denominated in a currency other than the functional currency of
the entity involved and remeasurement adjustments in countries with highly inflationary economies are included in income. Net
foreign exchange transaction loss of $1.7 million in 2017, and gains of $10.2 million and $5.2 million in 2016 and 2015, 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 similar types of taxes collected
from customers in connection with the sale are recorded by the Company on a net basis and are not included in the Consolidated
Statement of Operations.
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 of achievement within the rebate programs. In accounting
for these rebate programs, the Company records an accrual as a reduction of net sales as sales take place over the period the rebate
is earned. The Company updates the accruals for these rebate 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 precious metal content of the Company’s sales is largely a pass-through to customers, the Company
uses its cost of precious metal purchased as a proxy for the precious metal content of sales, as the precious metal content of sales
is not separately tracked and invoiced to customers. The Company believes that it is reasonable to use the cost of precious metal
content purchased in this manner since precious metal alloy sale prices are typically adjusted when the prices of underlying precious
metals change. The precious metals content of sales was $40.5 million, $64.3 million and $92.8 million for 2017, 2016 and 2015,
respectively.
Revenue Recognition related to Multiple Deliverables
Sales revenue arrangements can consist of multiple deliverables of its product and service offerings. Additionally, certain
products offerings, primarily dental technology products, may contain embedded software that functions together with the 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.
• Services: Service revenue is generally recognized ratably over the contract term as the specified services are performed.
Amounts received from customers in advance of rendering of services are classified as deferred income until the
revenue can be recognized upon rendering of those services.
• 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.
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• Multiple-Element Arrangements: Arrangements with customers may include multiple deliverables, including any
combination of equipment, services and extended 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 basis, and (ii) delivery of the undelivered service element(s) is probable and
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, if it exists, and then based on estimated selling price.
• Vendor-specific objective: In most instances, products are sold separately in stand-alone arrangements. Services are
also sold separately through renewals of contracts with varying periods. The Company determines vendor-specific
objective based on its pricing and discounting practices for the specific 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 nature of the
revenue as described above and application of the relative selling price method. Total recognized revenue is limited
to the amount not contingent upon future transactions.
Cost of Products Sold
Cost of products sold represents costs directly related to the manufacture and distribution of the Company’s products. Primary
costs include raw materials, packaging, direct labor, overhead, shipping and handling, warehousing and the depreciation of
manufacturing, warehousing and distribution facilities. Overhead and related expenses include salaries, wages, employee benefits,
utilities, lease costs, maintenance and property taxes.
Warranties
The Company provides warranties on certain 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 expense and accrual
increased as a result of the Merger. The following table presents the Company’s warranty expense and warranty accrual at December
31:
(in millions)
Warranty Expense
Warranty Accrual
Selling, General and Administrative Expenses
2017
December 31,
2016
2015
$
$
25.7
11.8
$
25.2
11.2
6.0
3.8
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, salaries, employee benefits, incentive compensation,
research and development, travel, office expenses, lease costs, amortization of capitalized software and depreciation of
administrative facilities. Advertising cost are expensed as incurred.
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Research and Development Costs
Research and development (“R&D”) costs relate primarily to internal costs for salaries and direct overhead expenses. In
addition, 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 technological 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 included in Cost of products sold over the estimated
life of the products. R&D costs are included in Selling, general and administrative expenses in the Consolidated Statements of
Operations and amounted to $151.7 million, $128.5 million and $74.9 million for 2017, 2016 and 2015, respectively.
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 period (generally the vesting period of the equity awards). The
compensation cost is only recognized for the portion of the awards that are expected to vest.
Income Taxes
The Company’s tax expense includes U.S. and international income taxes plus the provision for U.S. 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.
The Company has accounted for the tax effects of The Tax Cuts and Jobs Act, enacted on December 22, 2017, on a provisional
basis. The accounting for certain income tax effects is incomplete, but the Company has determined reasonable estimates for
those effects. The Company’s reasonable estimates are included in the financial statements at December 31, 2017 and expects to
complete the accounting during the one year measurement period from the enactment date.
Earnings Per Share
Basic earnings per share are calculated by dividing net earnings by the weighted average number of shares outstanding for
the period. Diluted earnings per share is calculated by dividing net earnings by the weighted average number of shares outstanding
for the period, adjusted for the effect of an assumed exercise of all dilutive options outstanding at the end of the period.
Business Acquisitions
The Company acquires businesses as well as partial interests in businesses. Acquired businesses are accounted for using the
acquisition method of accounting which requires the Company to record assets acquired and liabilities assumed at their respective
fair values with the excess of the purchase price over estimated fair values recorded as goodwill. 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.
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 values include: tangible and intangible asset evaluations
and appraisals; evaluations of existing contingencies and liabilities and product line 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.
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Noncontrolling Interests
The Company reports noncontrolling interest (“NCI”) in a subsidiary as a separate component of Equity in the Consolidated
Balance Sheets. Additionally, the Company reports 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.
Segment Reporting
The Company has numerous operating businesses covering a wide range of products and geographic regions, primarily serving
the professional dental market and to a lesser extent the consumable medical device market. Professional dental products and
equipment represented approximately 92%, 92% and 89% of sales for each of the years ended 2017, 2016 and 2015, 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 advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The accounting guidance establishes a hierarchal disclosure framework associated with the level of pricing
observability utilized in measuring financial instruments at fair value. The three broad levels defined by the fair value hierarchy
are as follows:
Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable
reported date. The nature of these financial instruments include, derivative instruments whose fair value have been
derived using a model where inputs to the model are directly observable in the market, or can be derived principally from,
or corroborated by observable market data.
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 financial instrument.
Financial assets and liabilities with readily available active quoted prices or for which fair value can be measured from actively
quoted prices generally will have a higher degree of pricing observability and a lesser degree of judgment utilized in measuring
fair value. Conversely, financial assets and liabilities rarely traded or not quoted will generally have less, or no pricing observability
and a higher degree of judgment utilized in measuring fair value.
The Company primarily applies the market approach for recurring fair value measurements and endeavors to utilize the best
available information. Accordingly, the Company utilizes valuation techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. Additionally, the Company considers its credit risks and its counterparties’ credit risks
when determining the fair values of its financial assets and liabilities. The Company has presented the required disclosures in
Note 18, Fair Value Measurement.
Non-Recurring Basis
When events or circumstances require an asset or liability to be fair valued that otherwise is generally recorded based on
another valuation method, such as, net realizable value, the Company will utilize the valuation techniques described above.
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Reclassification of Prior Years Amounts
Certain reclassifications have been made to prior years’ data in order to conform to current year presentation. During the
quarter ended September 30, 2017, the Company realigned reporting responsibilities for multiple businesses, as a result of a
retirement of one of the Company’s then Chief Operating Officers, into three operating segments. Furthermore, as a result of
changes in the senior management level during the quarter ended December 31, 2017, the Company realigned reporting
responsibilities into two operating segments. The segment information below reflects the revised fourth quarter organizational
structure for all periods shown.
New Accounting Pronouncements
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, comprehensive revenue recognition model
for all contracts with customers that improve comparability within industries, across industries and across capital markets. Under
this standard, an entity should recognize revenue for the transfer of goods or services equal to the amount it expects to be entitled
to receive for those goods or services. Enhanced disclosure requirements regarding the nature, timing and 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 the option to apply the new guidance 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 aspects of 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 accordance with Topic 606. 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 will adopt using a modified retrospective approach. Under this method, the
Company will recognize the cumulative effect of adopting this guidance as an adjustment to the opening balance of retained
earnings. The Company expects the adjustment to retained earnings to be less than $6 million, with immaterial impacts to our net
income on an ongoing basis. There will be no significant impact to the Company’s internal controls as a result of adoption. Prior
periods will not be retrospectively adjusted.
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 Company adopted this accounting standard for the quarter ended March 31, 2017 and
it did not materially impact the Company’s financial position or results of operations.
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In November 2015, the FASB issued ASU No. 2015-17, “Balance Sheet Classification of Deferred Taxes.” This accounting
standard seeks to simplify the accounting related to deferred income taxes. Current US GAAP requires an entity to separate
deferred tax assets (“DTAs”) and deferred tax liabilities (“DTLs”) into current and noncurrent amounts for each tax jurisdiction
based on the classification of the related asset or liability for financial reporting. DTAs and DTLs not 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 Company adopted this accounting
standard for the quarter ended March 31, 2017, applying retrospective application to the December 31, 2016, Consolidated Balance
Sheet presented in this Form 10-Q. At adoption, the Company reclassified certain deferred charges on the December 31, 2016
Consolidated Balance Sheet. During the quarter ended June 30, 2017, upon further review of these deferred charges, the Company
determined that an error was made in the reclassification of certain deferred charges on the December 31, 2016 Consolidated
Balance Sheet. As a result the Company corrected the presentation to the December 31, 2016 Consolidated Balance Sheet to
increase “Prepaid expenses and other current assets” by $33.0 million and decrease “Deferred income taxes” and “Other noncurrent
assets, net” by $28.2 million and $4.8 million, respectively. The Company determined that the error was not material to the
Company’s financial position in the periods covered. The adoption of this standard is reflected below in the summary of the
classification adjustments, including the correction for the error noted above, by financial statement line item:
(in millions)
December 31, 2016 Classification December 31, 2016
Deferred Tax Assets
As Reported
Adjustment
Consolidated Balance Sheet Item
and Liabilities
Balance
As Revised
Prepaid expenses and other current assets Current DTAs
$
345.6
$
Other noncurrent assets, net
Income taxes payable
Deferred income taxes
Noncurrent DTAs
Current DTLs
Noncurrent DTLs
64.1
64.2
848.6
(139.1) $
38.8
(3.4)
(96.9)
Revised
Balance
206.5
102.9
60.8
751.7
In January 2016, 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 model for financial instruments to provide
users of financial statements with more decision-useful 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 enhanced disclosures about those investments
and reduces the number of items that are recognized in other comprehensive income. The adoption of this standard is required
for interim and fiscal periods ending after December 15, 2017 and should be applied by means of a cumulative-effect adjustment
to the balance sheet as of the beginning of the fiscal year of adoption. The Company is currently assessing the impact that this
standard may have on its financial position, results of operations, cash flows and disclosures.
In February 2016, the FASB issued ASU No. 2016-02, “Leases.” This newly issued accounting standard seeks to increase
transparency and comparability among organizations by recognizing lease assets and lease liabilities in the balance sheet and
disclosing key information about leasing 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 each. The adoption
of this standard is required for 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.
92
In March 2016, the FASB issued ASU No. 2016-09, “Stock Compensation.” This 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. Amendments related to the timing of when excess
tax benefits are recognized, minimum statutory withholding requirements and forfeitures should be applied using a modified
retrospective transition method by means of a cumulative-effect adjustment to equity as of 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 when an
employer withholds shares to meet the minimum statutory withholding requirement should be applied retrospectively. Amendments
requiring recognition of excess tax benefits and tax deficiencies in the income statement should be applied prospectively. The
Company adopted this accounting standard for the quarter ended March 31, 2017. For the year ended December 31, 2017, the
Company recorded $20.5 million of excess tax benefit related to employee share-based compensation as a component of income
tax expense which impacted the current year tax provision. The Company elected to record forfeitures on stock-based compensation
as the participant terminates rather than estimating forfeitures. As result of election to actual-basis forfeitures, the Company
recorded a cumulative-effect adjustment of $1.0 million, net of tax, to “Capital in Excess of Par Value” and “Retained Earnings”
in the Consolidated Statements of Changes in Equity related to prior year’s estimated forfeitures. In addition, the Company elected
to adopt the cash flow classification of excess tax benefits on a prospective basis. The adoption of this standard did not materially
impact the Company’s financial position, results of operations, cash flows, or disclosures.
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 payments
made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-
owned life insurance policies, distributions received from equity method investees, beneficial interest 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 adoption of this standard will not materially impact the Company’s presentation of its
Consolidated Statements of Cash Flows.
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 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 adjustment directly to 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.
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.
93
In January 2017, 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 its assets and liabilities at 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 and then recognize an impairment charge for the 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 carrying amount of the reporting unit when
measuring the goodwill impairment loss, if applicable. The amendments in this update are required for annual and interim goodwill
impairment tests in fiscal years 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.
As permitted by the accounting standard, the Company early adopted this accounting standard during the three months ended
March 31, 2017. For the year ended December 31, 2017, the Company assessed its goodwill impairment under this new standard
and recorded an impairment charge of $1,650.9 million For further information, see Note 9, Goodwill and Intangibles Assets.
In March 2017, the FASB issued ASU No. 2017-07, “Compensation - Retirement Benefits.” This newly issued accounting
standard is primarily intended to improve the presentation of net periodic pension cost and net periodic postretirement benefit
cost. The amendments in this update require an employer to report the service cost component of net periodic benefit cost in
operating income, while the interest cost, amortization, return on assets and any settlement or curtailment expense will be reported
below operating income. More specifically, the service cost will be reported in the same line item as other compensation costs
arising from the services rendered by the pertinent employee during the period. The amendments in this update are required for
annual and interim periods beginning after December 15, 2017. Early adoption is permitted as of the beginning of an annual period
for which financial statements have not been issued. The amendments in this update should be applied retrospectively for the
presentation of the components of net periodic benefit cost and net periodic postretirement benefit cost in the income statement.
The Company is currently assessing the impact that this standard will have on its results of operations and disclosures.
In May 2017, the FASB issued ASU No. 2017-09, “Compensation - Stock Compensation.” This newly issued accounting
standard provides clarity and reduces both diversity in practice as well cost and complexity when applying Topic 718 “Stock
Compensation” as it relates to changes in terms or conditions of share based payments. The amendments in this update provide
guidance about what changes to a share based payment should be considered substantive and therefore require modification
accounting. More specifically, this update requires entities to apply modification accounting unless the modified awards fair value,
vesting conditions and award classification as an equity or liability instrument all remain the same as the original award. The
amendments in this update are required for annual and interim periods beginning after December 15, 2017. Early adoption is
permitted for reporting periods for which financial statements have not been issued. The amendments in this update should be
applied prospectively to an award modified on or after the adoption date. The Company is currently assessing the impact that this
standard will have on its results of operations, financial position, cash flows and disclosures.
In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging.” This newly issued accounting standard
improves the financial reporting and disclosure of hedging relationships to better portray the economic results of an entity’s risk
management activities in its financial statements. The amendments in this update make improvements to simplify the application
of the hedge accounting guidance in current GAAP based on the feedback received from preparers, auditors, users and other
stakeholders. More specifically, this update expands and refines hedge accounting for both nonfinancial and financial risk
components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial
statements. The amendments in this update are required for annual and interim periods beginning after December 15, 2018. Early
adoption is permitted. The effect of adoption should be reflected as of the beginning of the fiscal year of adoption. For cash flow
and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to
eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding
adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments
in this update. The amended presentation and disclosure guidance is required only prospectively. The Company is currently
assessing the impact that this standard will have on its results of operations, financial position, cash flows and disclosures.
94
NOTE 2 - EARNINGS PER COMMON SHARE
The following table sets forth the computation of basic and diluted (loss) earnings per common share:
(in millions, except for per share amounts)
Year Ended December 31, 2017
Basic
Incremental weighted average shares from assumed exercise of
dilutive options from stock-based compensation awards
Net (loss)
income
attributable to
Dentsply
Sirona
(Loss)
earnings per
common share
Shares
(1,550.0)
229.4
$
(6.76)
—
Diluted
(1,550.0)
229.4
$
(6.76)
Year Ended December 31, 2016
Basic
Incremental weighted average shares from assumed exercise of
dilutive options from stock-based compensation awards
429.9
218.0
$
1.97
3.6
Diluted
429.9
221.6
$
1.94
Year Ended December 31, 2015
Basic
Incremental weighted average shares from assumed exercise of
dilutive options from stock-based compensation awards
251.2
140.0
$
1.79
2.5
Diluted
251.2
142.5
$
1.76
The calculation of weighted average diluted shares outstanding excludes stock options and restricted stock units (“RSUs”)
of 4.3 million, 0.6 million and 0.9 million shares of common stock that were outstanding during the years ended December 31,
2017, 2016 and 2015, respectively, were excluded from the computation of diluted earnings per common share since their effect
would be antidilutive.
95
NOTE 3 - COMPREHENSIVE INCOME
AOCI includes foreign currency translation adjustments related to the Company’s foreign subsidiaries, net of the related
changes in certain financial instruments hedging these foreign currency investments. In addition, changes in the Company’s fair
value of certain derivative financial instruments, 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, 2017, 2016 and 2015,
these tax adjustments were $203.8 million, $166.4 million and $169.3 million, respectively, primarily related to foreign currency
translation adjustments.
The cumulative foreign currency translation adjustments included translation gain of $22.1 million and translation loss of
$412.4 million at December 31, 2017 and 2016, respectively, and which included losses of $126.6 million and $78.1 million, at
December 31, 2017 and 2016, respectively, on loans designated as hedges of net investments.
Changes in AOCI by component for the years ended December 31, 2017, 2016 and 2015:
(Loss) and
Gain on
Derivative
Financial
Instruments
Designated
as Cash
Flow
Hedges
Net
Unrealized
Holding
Gain (Loss)
on
Available-
for-Sale
Securities
(Loss) and
Gain on
Derivative
Financial
Instruments
Foreign
Currency
Translation
(Loss) Gain
Pension
Liability
(Loss) Gain
Total
$
(490.5) $
(3.2) $
(116.8) $
— $
(95.2) $ (705.7)
354.6
31.4
(14.7)
2.7
(14.1)
3.3
45.0
(0.7)
(1.0)
0.7
369.8
37.4
386.0
(12.0)
(10.8)
44.3
(0.3)
407.2
—
386.0
2.6
(9.4)
—
(10.8)
—
44.3
4.9
4.6
7.5
414.7
$
(104.5) $
(12.6) $
(127.6) $
44.3
$
(90.6) $ (291.0)
(in millions)
Balance, net of tax, at December 31,
2016
Other comprehensive income (loss)
before reclassifications and tax
impact
Tax benefit (expense)
Other comprehensive income
(loss), net of tax, before
reclassifications
Amounts reclassified from
accumulated other comprehensive
income, net of tax
Net increase (decrease) in other
comprehensive income
Balance, net of tax, at December 31,
2017
(in millions)
Foreign
Currency
Translation
(Loss) Gain
(Loss) and Gain on
Derivative Financial
Instruments
Designated as Cash
Flow Hedges
(Loss) and
Gain on
Derivative
Financial
Instruments
Pension
Liability
(Loss) Gain
Total
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 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 December 31, 2016
$
(71.4)
(17.9)
(89.3)
—
(89.3)
(490.5) $
96
(0.8)
0.5
(0.3)
(13.2)
6.6
(25.4)
7.9
(110.8)
(2.9)
(6.6)
(17.5)
(113.7)
(1.7)
—
3.7
2.0
(2.0)
(3.2) $
(6.6)
(116.8) $
(111.7)
(13.8)
(95.2) $ (705.7)
Reclassification out of accumulated other comprehensive income (loss) for the years ended December 31, 2017, 2016 and
2015:
(in millions)
Details about AOCI Components
2017
2016
2015
Amounts Reclassified from AOCI
Year Ended December, 31
Affected Line Item in the
Statements of Operations
Realized foreign currency gain on liquidation of foreign subsidiary:
Foreign currency translation adjustment
$
— $
— $
1.2 Other expense (income), net
(Loss) gain on derivative financial instruments:
Interest rate swaps
Foreign exchange forward contracts
Foreign exchange forward contracts
Commodity contracts
Net (loss) gain before tax
Tax impact
Net (loss) gain after tax
$
$
Realized gain on available-for-sale securities:
Available -for-sale-securities
Tax impact
Net gain after tax
$
$
(2.3) $
(3.0)
—
—
(5.3)
2.7
(2.6) $
— $
—
— $
(2.9) $
4.8
0.1
(0.1)
1.9
(0.2)
1.7
$
(10.1) Interest expense
18.0 Cost of products sold
0.6 SG&A expenses
(0.5) Cost of products sold
8.0
(Benefit) provision for income
taxes
1.2
9.2
— $
5.1 Other expense (income), net
—
— $
(1.4)
3.7
(Benefit) provision for income
taxes
Amortization of defined benefit pension and other postemployment benefit items:
Amortization of prior service benefits
$
0.2
$
Amortization of net actuarial losses
Net loss before tax
Tax impact
Net loss after tax
Total reclassifications for the period
$
$
(7.0)
(6.8)
1.9
(4.9) $
$
0.2
(5.3)
(5.1)
1.4
(3.7) $
0.2 (a)
(8) (a)
(7.8)
2.2
(5.6)
(Benefit) provision for income
taxes
(7.5) $
(2.0) $
8.5
(a) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost for the years ended December
31, 2017, 2016, and 2015, respectively (see Note 15, Benefit Plans, for additional details).
97
NOTE 4 - BUSINESS COMBINATIONS
Business Combinations
2017 Transactions
During the quarter ended June 30, 2017, the Company acquired RTD, a privately-held France-based manufacturer of
endodontic posts for $132.0 million which is subject to final purchase price adjustments. At December 31, 2017, the Company
recorded $83.4 million in goodwill related to the fair value of assets acquired and liabilities assumed and the consideration given
for the acquisition. Goodwill is considered to represent the value associated with workforce and synergies the two companies
anticipate realizing as a combined company. The goodwill is not expected to be deductible for tax purposes. 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)
Amount
$
$
18.1
22.4
8.5
49.0
15
15
Indefinite
The results of operation for this business have been included in the accompanying financial statements as of the effective
date of the transaction. The purchase price has been assigned on the basis of the fair values of assets acquired and liabilities
assumed. This transaction was not material to the Company’s net sales and net loss attributable to Dentsply Sirona for the year
ended December 31, 2017.
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 former shareholders of Sirona common stock, representing approximately 42% of the approximately 242.2 million total
shares of DENTSPLY common stock outstanding on the Merger date.
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 members of the former DENTSPLY board, and five members of the former Sirona
board, as well as DENTSPLY’s financial size.
The Merger combines 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 seeks to capitalize on key industry trends
to drive growth, including accelerating adoption of digital dentistry.
98
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
*Table may not foot due to rounding
56.1
1.8142
101.8
60.67
$
$
6,173.8
82.4
6,256.2
The Merger was recorded in accordance with US GAAP pursuant to the provisions of ASC Topic 805, Business
Combinations. The Company performed a valuation analysis of identifiable assets acquired and liabilities assumed and allocated
the consideration based on the final fair values of those identifiable assets acquired and liabilities assumed, there were no material
changes to the preliminary valuation.
The following table summarizes the final 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
3,758.1
6.9
7,434.2
68.0
197.9
57.5
749.1
95.3
1,167.8
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 adjustment which reduced
other current liabilities by $17.3 million. The consequence is that this amount cannot be recognized as revenue under US GAAP.
99
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)
Amount
$
$
495.0
1,035.0
905.0
2,435.0
14
12
Indefinite
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 management’s
judgments, including expected future cash flows resulting from existing customer 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 income approach, 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 $3,758.1 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 $3,615.3 million has been assigned to the
Company's Technologies & Equipment segment and $142.8 million has been assigned to the Company’s Consumables segment.
The goodwill is not expected to be deductible for tax purposes.
Sirona contributed net sales of $1,220.2 million and operating loss of $1,543.1 million to the Company’s Consolidated
Statements of Operations during the period January 1, 2017 to December 31, 2017. The operating loss includes a goodwill
impairment charge of $1,650.9 million and an indefinite-lived intangible asset impairment charge of $346.7 million. 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 &
Equipment 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
Net income attributable to Dentsply Sirona
Diluted earnings per common share
Pro forma - unaudited
Year Ended
2016
2015
$
$
$
3,916.0
437.0
1.85
$
$
$
3,830.0
388.5
1.58
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 to reflect adjustments that are directly attributable to the Merger. These adjustments mainly include additional
intangible asset amortization, depreciation, inventory fair value 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 tax effects
at the statutory rate. Pro forma results do not include any anticipated synergies or other benefits of the Merger.
100
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 $66.9 million. At December 31, 2016, the Company
recorded $204.6 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)
Amount
$
$
91.3
37.4
25.3
154.0
15
15
Indefinite
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 (other than the Merger) 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 American-based manufacturer of dental laboratory 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 and the consideration given for 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.
Investment in Affiliates
On December 9, 2010, the Company purchased an initial ownership interest of 17% of the outstanding 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 contractual maturity of 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.
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, 2015 and a cumulative unrealized holding gain of $8.5 million was recorded in available-for-sale
securities, net of tax in AOCI.
At December 31, 2016, the Company no longer has representation on the DIO Board of Directors and as a result the Company
no longer has significant influence on the operations of DIO. In addition, the buyers of the convertible bonds exercised the
conversion rights which resulted in DIO issuing additional shares and diluting the Company’s ownership position to 13%. As a
result of these changes the Company used the cost-basis method of accounting for the remaining direct investment.
101
For the year ended December 31, 2017, the Company has reclassified the security as available-for-sale. At December 31,
2017 the fair value is $54.4 million which is recorded in Prepaid expense and other current assets in the Consolidated Balance
Sheets. The unrealized gain of $45.0 million is recorded in Other comprehensive income, net of tax, in the Consolidated Statements
of Comprehensive Income. The book value of the Company’s direct investment in DIO is $9.4 million and $8.2 million at
December 31, 2017 and 2016, respectively. At December 31, 2016, the fair value of the direct investment is $63.4 million. On
March 12, 2018, the Company entered into an agreement to sell this investment.
102
NOTE 5 - SEGMENT AND GEOGRAPHIC INFORMATION
The operating businesses are combined into two operating groups, which generally have overlapping geographical presence,
customer bases, distribution channels, and regulatory oversight. Certain reclassifications have been made to prior years’ data in
order to conform to current year presentation. During the quarter ended September 30, 2017, the Company realigned reporting
responsibilities for multiple businesses, as a result of a retirement of one of the Company’s then Chief Operating Officers, into
three operating segments. Furthermore, as a result of changes in the senior management level during the quarter ended December
31, 2017, the Company realigned reporting responsibilities into two operating segments. The segment information below reflects
the revised fourth quarter organizational structure for all periods shown. No goodwill was reallocated and no change in the number
of reporting units as a result of the change in segments.
These operating groups are considered the Company’s reportable segments as the Company’s chief operating decision-maker
regularly reviews financial results at the operating group level and uses this information to manage the Company’s operations.
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 Company defines net third party sales excluding 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 segment 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.
Technologies & Equipment
This segment includes responsibility for the worldwide design, manufacture, sales and distribution of the Company’s Dental
Technology and Equipment Products and Healthcare Consumable Products. These products includes dental implants, laboratory
dental products, CAD/CAM systems, imaging systems, treatment centers as well as consumable medical device products.
Consumables
This segment is responsible for the worldwide design, manufacture, sales and distribution of the Company’s Dental
Consumable Products which include preventive, restorative, instruments, endodontic, and orthodontic dental products.
The following table sets forth information about the Company’s segments for the years ended December 31, 2017, 2016 and
2015.
Third Party Net Sales
(in millions)
Technologies & Equipment
Consumables
Total net sales
2017
2016
2015
$
$
2,200.8
1,792.6
3,993.4
$
$
2,050.5
1,694.8
3,745.3
$
$
1,112.7
1,561.6
2,674.3
103
Third Party Net Sales, Excluding Precious Metal Content
(in millions)
Technologies & Equipment
Consumables
Total net sales, excluding precious metal content
Precious metal content of sales
Total net sales, including precious metal content
Depreciation and Amortization
(in millions)
Technologies & Equipment
Consumables
All Other (a)
Total
(a)
Includes amounts recorded at Corporate headquarters.
Segment Operating Income (Loss)
(in millions)
Technologies & Equipment
Consumables
Segment adjusted operating income before income taxes and interest
Reconciling Items (income) expense:
All Other (a)
Restructuring and other costs
Goodwill Impairment
Interest expense
Interest income
Other expense (income), net
Amortization of intangible assets
Depreciation resulting from the fair value step-up of property,
plant and equipment from business combinations
Income before income taxes
2017
2016
2015
$
$
$
$
$
$
$
2,160.3
1,792.6
3,952.9
40.5
3,993.4
2017
257.5
57.5
1.4
316.4
2017
411.0
487.1
898.1
$
$
$
$
$
$
$
189.0
425.2
1,650.9
38.3
(2.4)
5.3
189.1
$
$
$
$
$
$
$
1,986.4
1,694.6
3,681.0
64.3
3,745.3
2016
218.1
52.6
1.0
271.7
2016
355.7
445.3
801.0
162.8
23.2
—
35.9
(2.0)
(20.1)
155.3
6.2
(1,603.5) $
$
5.0
440.9
$
1,019.9
1,561.6
2,581.5
92.8
2,674.3
2015
75.9
38.9
8.1
122.9
2015
159.1
443.2
602.3
116.9
64.7
—
55.9
(2.2)
(8.2)
43.7
1.8
329.7
(a) Includes results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.
Capital Expenditures
(in millions)
Technologies & Equipment
Consumables
All Other (a)
Total
(a) Includes capital expenditures of Corporate headquarters.
2017
2016
2015
$
$
98.6
37.6
8.1
144.3
$
$
73.7
42.2
9.1
125.0
$
$
22.1
39.1
10.8
72.0
104
Assets
(in millions)
Technologies & Equipment
Consumables
All Other (a)
Total
2017
2016
$
$
8,130.6
1,965.1
278.8
10,374.5
$
$
9,667.0
1,445.1
443.7
11,555.8
(a) Includes results 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, 2017, 2016 and 2015. 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.
(in millions)
2017
Net sales
Property, plant and equipment, net
2016
Net sales
Property, plant and equipment, net
2015
Net sales
Property, plant and equipment, net
Product and Customer Information
United
States
Germany
Sweden
Other
Foreign
Consolidated
$
$
$
$
$
$
1,376.5
202.0
1,383.0
192.5
1,027.4
178.5
$
$
$
493.3
331.5
617.0
244.1
472.8
92.1
$
$
$
52.4
103.4
53.2
82.5
42.3
92.3
$
$
$
2,071.2
239.1
1,692.1
280.7
1,131.8
195.9
3,993.4
876.0
3,745.3
799.8
2,674.3
558.8
The following table presents net sales information by product category:
(in millions)
Dental consumables products
Dental technology and equipment products
Healthcare consumable products
Total net sales
Dental Consumable Products
2017
December 31,
2016
2015
$
$
1,769.7
1,895.7
328.0
3,993.4
$
$
1,770.3
1,658.6
316.4
3,745.3
$
$
1,671.1
687.7
315.5
2,674.3
Dental consumable products consist of value added dental supplies and small equipment used in dental offices for the treatment
of patients. 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.
Dentsply Sirona’s dental supplies include endodontic (root canal) instruments and materials, dental anesthetics, prophylaxis
paste, dental sealants, impression materials, restorative materials, tooth whiteners and topical fluoride. Small equipment products
include dental handpieces, intraoral curing light systems, dental diagnostic systems and ultrasonic scalers and polishers.
The Company’s products used in the dental laboratories include dental prosthetics, including artificial teeth, precious metal
dental alloys, dental ceramics and crown and bridge materials. Dental laboratory equipment products include porcelain furnaces.
105
Dental Technology and Equipment Products
Dental technology products consist of 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 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 offers the broadest line of products to
fully outfit a dental practitioner’s office.
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 products designed for dental offices and laboratories used for dental restorations,
which includes several types of restorations, such as inlays, onlays, veneers, crowns, bridges, copings and 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, 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, 2017, one customer accounted for approximately 15% of consolidated net sales. At
December 31, 2017, two customers each accounted for approximately 14% and 15% of the consolidated accounts receivable
balance. For the year ended December 31, 2016, two customers accounted for approximately 12% each of consolidated net sales.
At December 31, 2016, one customer accounted for 17% of the consolidated accounts receivable balance. For the year ended
December 31, 2015, the Company had one customer that accounted for approximately 11% percent of consolidated net sales. At
December 31, 2015, there were no customers that accounted for ten percent or more of the consolidated accounts receivable
balance. For the years ended December 31, 2017, 2016 and 2015, third party export sales from the U.S. were less than ten percent
of consolidated net sales.
106
NOTE 6 - OTHER EXPENSE (INCOME), NET
Other expense (income), net, consists of the following:
(in millions)
Foreign exchange transaction loss (gain)
Other expense (income), net
Total other expense (income), net
2017
December 31,
2016
2015
$
$
1.7
3.6
5.3
$
$
(10.2) $
(9.9)
(20.1) $
(5.2)
(3.0)
(8.2)
107
NOTE 7 - INVENTORIES, NET
Inventories are stated at the lower of cost and net realizable value. The cost of inventories determined by the last-in, first-
out (“LIFO”) method at December 31, 2017, and December 31, 2016, were $12.4 million and $8.6 million, respectively. The
cost of remaining inventories was determined by using 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 amount at which net inventories are stated would be
higher than reported at December 31, 2017 and December 31, 2016 by $10.6 million and $6.8 million, respectively.
Inventories, net of inventory valuation reserve, consist of the following:
(in millions)
Finished goods
Work-in-process
Raw materials and supplies
Inventories, net
December 31,
2017
2016
$
$
387.6
90.4
145.1
623.1
$
$
311.3
77.1
128.7
517.1
The Company’s inventory valuation reserve was $71.7 million and $37.5 million at December 31, 2017 and 2016,
respectively.
108
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,
2017
2016
$
$
58.7
554.7
1,367.5
91.6
2,072.5
1,196.5
876.0
$
$
52.8
500.4
1,218.8
82.9
1,854.9
1,055.1
799.8
109
NOTE 9 - GOODWILL AND INTANGIBLE ASSETS
The Company performed the required annual impairment tests of goodwill at April 30, 2017 on eleven 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- to
ten-year forecasted cash flows plus a terminal value based on a multiple of earnings or by capitalizing the last period’s cash flows
using a perpetual growth rate. In the development of the forecasted cash flows, the Company applies revenue, gross profit, and
operating expense assumptions taking into consideration historical trends as well as futures expectations. These future expectations
include, but are not limited to, new product development and distribution channel changes for the respective reporting units. The
Company also considers the current and projected market conditions for dental and medical device industries, both in the U.S.
and globally, when determining its assumptions. The total forecasted cash flows were discounted based on a range between 7.8%
to 9.5%, which included assumptions regarding the Company’s weighted-average cost of capital. The use of estimates and the
development of assumptions results in uncertainties around forecasted cash flows. A change in any of these estimates and
assumptions could produce a different fair value, which could have a material impact on the Company’s results of operations.
Unfavorable developments in the market for the dental or medical device industries, an increase in discounts 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 carry value of the indefinite-lived assets and goodwill within the Company’s reporting units may not be
recoverable.
As a result of updating the estimates and assumptions following recent changes in circumstances, and in connection with the
annual impairment tests of goodwill and the preparation of the financial statements for the three months ended June 30, 2017, the
Company determined that the goodwill associated with the CAD/CAM, Imaging and Treatment Center equipment reporting units
were impaired. As a result, the Company recorded a goodwill impairment charge of $1,092.9 million. The CAD/CAM, Imaging
and Treatment Center reporting units are all within the Technologies & Equipment segment.
The goodwill impairment charge that was taken in the second quarter of 2017 was primarily driven by unfavorable changes
in estimates and assumptions used to forecast discounted cash flows, including lower forecasted revenues and operating margin
rates, which resulted in a lower fair value for the CAD/CAM, Imaging and Treatment Center equipment reporting units. The
forecasted revenues and operating margin rates were negatively impacted by recent unfavorable developments in the marketplace.
These developments included significantly lower retail sales for the fiscal quarter ended April 2017 reported by the Company’s
exclusive North America equipment distributor in May 2017, significant acceleration of sales declines in the Company’s quarter
ended June 30, 2017, and the execution of new distribution agreements with Patterson Companies, Inc. and Henry Schein, Inc. in
May and June 2017. The Company also observed an increase in competition, unfavorable changes in the end-user business model
as well as changes in channels of distribution for the Company and its competitors.
In preparing the financial statements for the year ended December 31, 2017, the Company identified an impairment triggering
event related to the CAD/CAM, Imaging and Treatment Center equipment reporting units. Forecasted revenues and operating
margins for these reporting units were impacted by continued unfavorable developments in the marketplace which included an
increase in competition. These developments resulted in significantly lower sales to end-users than expected in the fourth quarter
of 2017 in the North America and Rest of World regions as well as declines in expected gross profit rates which included the
unfavorable impacts from changes in the foreign exchange rates. The impacts from foreign exchange rate changes were primarily
driven by the strengthening of the euro versus the U.S. dollar as a result of the higher euro denominated costs and net assets
associated with these reporting units as compared to the lower amount of euro denominated sales. While the Company considered
unfavorable market developments and foreign exchange rate changes, in its April 30, 2017 assessment, the impact of these
developments were at levels beyond those anticipated by the Company despite moving away from a non-exclusive distribution
channel in the United States and the execution of new distribution agreements with Patterson Companies, Inc. and Henry Schein,
Inc. in May and June of 2017. In addition to the unfavorable market and foreign exchange rate developments, the income tax rate
forecast used in the annual goodwill test was unfavorably impacted by the recent tax legislation in the U.S. and other foreign
jurisdictions. As a result the Company tested these reporting units for impairment in preparation of the financial statements for
the year ended December 31, 2017 and determined that the goodwill associated with the CAD/CAM, Imaging and Treatment
Center equipment reporting units, all within the Technologies & Equipment segment, was impaired. The impairment was the
result of a change in forecasted sales and gross profit as well as changes in foreign exchange rates and the income tax rate. As a
result, the Company recorded a goodwill impairment charge of $558.0 million for the three months ended December 31, 2017.
The combination of impairment charges for the second and fourth quarters of 2017 resulted in a total goodwill impairment charge
of $1,650.9 million for the year ended December 31, 2017.
110
The estimates of discounted future cash flows include significant management assumptions such as revenue growth rates,
operating margins, weighted average cost of capital, and future economic and market conditions affecting the dental and medical
device industries. Any changes to these assumptions and estimates could have a negative impact on the fair value of these reporting
units and may result in further impairment. The goodwill impairment charge is not expected to result in future cash expenditures.
The Company also assessed the annual impairment of indefinite-lived intangible assets as of April 30, 2017, which largely
consists of acquired tradenames, in conjunction with the annual impairment tests of goodwill. As a result of the annual impairment
tests of indefinite-lived intangible assets, the Company recorded an impairment charge of $79.8 million for the three months ended
June 30, 2017 which was recorded in Restructuring and other cost on the Consolidated Statements of Operations. The impaired
indefinite-lived intangible assets are tradenames and trademarks related to the CAD/CAM and Imaging equipment reporting units.
The impairment charge was driven by a decline in forecasted sales. The assumptions and estimates used in determining the fair
value of the indefinite-lived intangible assets contain uncertainties, and any changes to these assumptions and estimates could
have a negative impact and result in a future impairment.
In preparing the financial statements for the year ended December 31, 2017, the Company, as result of the triggering event,
tested the indefinite-lived intangible assets related to these reporting units for impairment. As a result, the Company identified
that certain tradenames and trademarks related to the CAD/CAM, Imaging and Treatment Center equipment reporting units, all
within the Technologies & Equipment segment, were impaired. The Company recorded an impairment charge of $266.9 million
for the three months ended December 31, 2017 which was recorded in Restructuring and other cost on the Consolidated Statements
of Operations. The combination of impairment charges for the second and fourth quarters of 2017 resulted in a total impairment
charge for the year ended December 31, 2017 of $346.7 million related to indefinite-lived assets. The impairment charge was
driven by a continuing decline in forecasted sales. The assumptions and estimates used in determining the fair value of the
indefinite-lived intangible assets contain uncertainties, and any changes to these assumptions and estimates could have a negative
impact and result in a future impairment.
In conjunction with the goodwill and indefinite-lived intangibles impairment tests at both April 30, 2017 and December 31,
2017, the Company utilized its best estimate of future revenue growth, operating margin rates and income tax rate. Given the
market place uncertainty associated with the new distribution agreements, continued weakness in end-user demand for the
Company’s products as a result of competition, further developments in tax legislation that could impact the income tax rates and
unfavorable changes in foreign exchange rates, these estimates could vary significantly in the future, which may result in an
impairment charge at that time.
There were no 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 were
$3.7 million. Impairments of intangible assets are included in Restructuring and other costs in the Consolidated Statements of
Operations.
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, 2015
Merger related additions
Acquisition activity
Adjustment of provisional amounts on prior acquisitions
Effect of exchange rate changes
Balance at December 31, 2016
Acquisition activity
Adjustment of provisional amounts on prior acquisitions
Impairment
Effect of exchange rate changes
Balance, at December 31, 2017
Technologies &
Equipment
Consumables
Total
1,366.6
$
621.0
$
3,634.0
204.6
1.6
(13.5)
5,193.3
—
(19.2)
(1,650.9)
137.4
$
142.8
—
—
(5.1)
758.7
87.5
—
—
32.4
$
3,660.6
$
878.6
$
1,987.6
3,776.8
204.6
1.6
(18.6)
5,952.0
87.5
(19.2)
(1,650.9)
169.8
4,539.2
$
$
$
111
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
$
$
$
$
December 31, 2017
December 31, 2016
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
1,385.5
76.4
31.2
1,109.1
2,602.2
$
$
(305.0) $
(46.5)
(24.8)
(272.0)
(648.3) $
1,080.5
29.9
6.4
837.1
1,953.9
$
$
1,189.5
65.3
33.5
1,004.8
2,293.1
$
$
(177.3) $
(38.7)
(26.7)
(181.2)
(423.9) $
1,012.2
26.6
6.8
823.6
1,869.2
846.8
$
— $
846.8
$
1,088.4
$
— $
1,088.4
3,449.0
$
(648.3) $
2,800.7
$
3,381.5
$
(423.9) $
2,957.6
Amortization expense for identifiable definite-lived intangible assets for 2017, 2016 and 2015 was $189.1 million, $155.1
million and $43.8 million, respectively. The annual estimated amortization expense related to these intangible assets for each of
the five succeeding fiscal years is $189.9 million, $189.5 million, $189.3 million, $183.4 million and $171.8 million for 2018,
2019, 2020, 2021 and 2022, respectively. For the year ended December 31, 2017, the Company recorded an impairment charge
of $346.7 million related to indefinite-lived trademarks.
112
NOTE 10 - PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consist of the following:
(in millions)
Prepaid expenses
Available-for-sale securities
Deposits
Fair value of derivatives
Other current assets
Prepaid expenses and other current assets
$
December 31,
2017
2016
100.3
54.4
37.2
3.9
116.8
312.6
$
69.5
—
39.4
14.1
83.5
206.5
113
NOTE 11 - ACCRUED LIABILITIES
Accrued liabilities consist of the following:
(in millions)
Payroll, commissions, bonuses, other cash compensation and employee benefits
Sales and marketing programs
Restructuring costs
Accrued vacation and holidays
Professional and legal costs
Current portion of derivatives
General insurance
Warranty liabilities
Third party royalties
Deferred income
Accrued interest
Accrued travel expenses
Accrued property taxes
Other
Accrued liabilities
December 31,
2017
2016
$
$
171.4
105.8
60.3
42.8
31.5
17.4
15.0
11.8
10.7
8.9
9.4
7.8
7.3
85.7
585.8
$
$
143.4
102.0
27.4
37.5
20.2
2.7
15.0
11.2
10.4
14.1
8.1
6.9
6.4
57.4
462.7
114
NOTE 12 - FINANCING ARRANGEMENTS
Short-Term Debt
Short-term debt consisted of the following:
(in millions except percentage amounts)
Corporate commercial paper facility
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
Short-Term Borrowings
December 31,
2017
2016
Principal
Interest
Principal
Interest
Balance
Rate
Balance
Rate
—%
15.0%
3.5%
3.1%
$
$
$
7.3
0.3
9.7
3.6
9.2
30.1
2017
54.4
24.9
1.9%
11.2% $
0.4%
1.3%
$
$
—
1.5
6.8
1.8
11.0
21.1
2016
49.0
15.5
1.6%
13.4%
The Company has a $500.0 million commercial paper facility. At December 31, 2017, there was $7.3 million outstanding
and at December 31, 2016, there was no outstanding borrowings under this facility. The average balance outstanding for the
commercial paper facility during the year ended December 31, 2017 was $0.9 million.
115
Long-Term Debt
Long-term debt consisted of the following:
(in millions except percentage amounts)
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
December 31,
2017
2016
Principal
Interest
Principal
Interest
Balance
Rate
Balance
Rate
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%
111.4
140.0
295.7
84.0
25.6
116.5
31.2
59.5
127.3
84.0
7.7
18.0
143.6
84.1
84.1
54.0
66.7
84.1
8.6
1,626.1
9.2
5.3
1,611.6
$
$
0.7%
2.6%
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%
$
$
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
On August 26, 2017, the Company paid the third annual principal amortization of $8.8 million representing a 5% mandatory
principal amortization 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 2018 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 2018
Term Loan payment.
At December 31, 2017, the Company had $531.2 million borrowings available under unused lines of credit, including lines
available under its short-term arrangements and revolving credit agreement.
The Company’s revolving credit facility, term loans and senior notes contain certain affirmative and negative covenants
relating to the Company's operations and financial condition. At December 31, 2017, the Company was in compliance with all
debt covenants.
116
The table below reflects the contractual maturity dates of the various borrowings at December 31, 2017:
(in millions)
2018
2019
2020
2021
2022
2023 and beyond
$
$
9.2
120.9
123.2
296.4
2.5
1,073.9
1,626.1
117
NOTE 13 - EQUITY
At December 31, 2017, 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 2017, 2016 and 2015, the Company
repurchased outstanding shares of common stock at a cost of $400.3 million, $815.1 million and $112.7 million, respectively. For
the years ended December 31, 2017, 2016 and 2015, the Company received proceeds of $82.3 million, $41.0 million and $35.5
million, respectively, primarily as a result of stock options exercised in the amount of 2.3 million, 1.2 million and 1.1 million in
each of the years, respectively. It is the Company’s practice to issue shares from treasury stock when options are exercised. The
Company has 1.3 million common shares available under the current share repurchase program. The tax benefit realized for the
options exercised during the year ended December 31, 2016, and 2015 is $16.1 million and $11.6 million, respectively.
On February 14, 2018, the Board of Directors of the Company approved an increase in the authorized number of shares of
common stock that may be repurchased under the share repurchase program for a total remaining authorization of $500.0 million
of shares of common stock. Additional share repurchases, if any, will be made through open market purchases, Rule 10b5-1 plans,
accelerated share repurchases, privately negotiated transactions or other transactions in such amounts and at such times as the
Company deems appropriate based upon prevailing market and business conditions and other factors.
The following table represents total outstanding shares of common stock and treasury stock for the years ended December 31:
(in millions)
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
Shares of treasury stock issued
Repurchase of common stock at an average cost of $64.40
Balance at December 31, 2017
Shares of
Common Stock
Shares of
Treasury Stock
Outstanding
Shares
162.8
—
—
162.8
101.7
—
—
264.5
—
—
264.5
(21.9)
1.3
(2.1)
(22.7)
—
1.7
(13.4)
(34.4)
2.9
(6.2)
(37.7)
140.9
1.3
(2.1)
140.1
101.7
1.7
(13.4)
230.1
2.9
(6.2)
226.8
The Company maintains the 2016 Omnibus Incentive Plan (the “Plan”) under which it may grant non-qualified stock options
(“NQSOs”), incentive stock options, restricted stock, restricted stock units (“RSUs”) 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, 2017 is 33.7 million.
Stock options granted become exercisable as determined by the grant agreement and expire ten years after the date of grant
under these plans. RSUs 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 RSUs, the vesting
period is referred to as the restricted period. RSUs and the rights under the award may not be sold, assigned, transferred, donated,
pledged or otherwise disposed of during the restricted period prior to vesting. In addition to the service condition, certain key
executives are granted RSUs subject to performance requirements that can vary between the first year and up to the final year of
the RSU award. If targeted performance is not met the RSU granted is adjusted to reflect the achievement level. Upon the
expiration of the applicable restricted period and the satisfaction of all conditions imposed, the restrictions on RSUs will lapse,
and one share 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 expensed as compensation over their respective vesting
periods or to the eligible retirement date if shorter. The Company records forfeitures on stock-based compensation as the participant
terminates rather than estimating forfeitures.
118
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
2017
December 31,
2016
2015
$
$
$
15.4
31.2
46.6
8.4
$
$
$
10.6
29.1
39.7
10.9
$
$
$
8.1
16.2
24.3
7.1
For the years ended December 31, 2017, 2016, and 2015, stock compensation expense of $46.6 million, $39.7 million and
$24.3 million, respectively, was recorded in the Consolidated Statement of Operations. For the years ended December 31, 2017,
2016, and 2015, $45.7 million, $39.1 million and $23.6 million, respectively, was recorded in Selling, general and administrative
expense and $0.7 million, $0.6 million and $0.7 million, respectively, was recorded in Cost of products sold.
There were 1.3 million non-qualified stock options unvested at December 31, 2017. The remaining unamortized compensation
cost related to non-qualified stock options is $6.6 million, which will be expensed over the weighted average remaining vesting
period of the options, or 1.6 years. The unamortized compensation cost related to RSUs is $26.5 million, which will be expensed
over the remaining weighted average restricted period of the RSUs, or 1.3 years.
The Company uses the Black-Scholes option-pricing model to estimate the fair value of each option awarded. The following
table sets forth the average assumptions used to determine compensation cost for the Company’s NQSOs issued during the years
ended:
Weighted average fair value per share
Expected dividend yield
Risk-free interest rate
Expected volatility
Expected life (years)
2017
December 31,
2016
2015
$
$
13.83
0.57%
2.11%
20.0%
5.95
$
12.78
0.52%
1.54%
20.8%
6.14
10.87
0.51%
1.59%
20.3%
5.68
The total intrinsic value of options exercised for the years ended December 31, 2017, 2016 and 2015 was $65.2 million, $38.3
million and $22.3 million, respectively.
The total fair value of shares vested for the years ended December 31, 2017, 2016 and 2015 was $44.7 million, $34.8 million
and $22.7 million, respectively.
The following table summarizes the NQSO transactions for the year ended December 31, 2017:
(in millions, except per share amounts)
Shares
December 31, 2016
Granted
Exercised
Forfeited
8.4
1.0
(2.3)
(0.1)
Outstanding
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
Shares
Exercisable
Weighted
Average
Exercise
Price
Aggregate
Intrinsic
Value
$
39.22
$
155.9
6.7
$
36.03
$
144.9
61.78
35.70
55.22
December 31, 2017
7.0
$
43.43
$
157.0
5.4
$
38.74
$
144.9
The weighted average remaining contractual term of all outstanding options is 5.3 years and the weighted average remaining
contractual term of exercisable options is 4.3 years.
119
The following table summarizes information about NQSOs outstanding for the year ended December 31, 2017:
(in millions, except per share amounts and life)
Range of
Exercise Prices
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
Exercisable
Number
Outstanding
at
December 31,
2017
Weighted
Average
Remaining
Contractual
Life
(in years)
Weighted
Average
Exercise
Price
Number
Exercisable
at
December 31,
2017
Weighted
Average
Exercise
Price
0.2
0.1
0.4
2.6
1.5
1.2
1.0
7.0
0.9
1.0
1.7
3.5
5.7
7.5
8.9
5.3
$
$
6.56
12.56
25.26
36.63
43.90
54.11
62.01
43.43
0.2
0.1
0.4
2.6
1.4
0.6
0.1
5.4
$
$
6.56
12.56
25.26
36.63
43.68
53.14
61.08
38.74
The following table summarizes the unvested RSU transactions for the year ended December 31, 2017:
(in millions, except per share amounts)
Unvested at December 31, 2016
Granted
Vested
Forfeited
Unvested at December 31, 2017
Unvested Restricted Stock Units
Weighted
Average
Grant Date
Fair Value
Shares
1.9
$
0.6
(0.7)
(0.1)
1.7
$
49.55
61.66
44.89
55.49
56.05
120
NOTE 14 - INCOME TAXES
The components of income before income taxes from operations are as follows:
(in millions)
United States
Foreign
2017
December 31,
2016
2015
$
$
(145.0) $
(1,458.5)
(1,603.5) $
28.9
412.0
440.9
$
$
26.8
302.9
329.7
The components of the provision for income taxes from operations are as follows:
(in millions)
Current:
U.S. federal
U.S. state
Foreign
Total
Deferred:
U.S. federal
U.S. state
Foreign
Total
2017
December 31,
2016
2015
$
$
$
$
$
1.7
5.9
83.0
90.6
$
$
2.3
5.6
111.7
119.6
$
$
$
2.8
11.4
(158.0)
(143.8) $
$
27.6
1.3
(139.0)
(110.1) $
(53.2) $
9.5
$
(3.0)
1.7
50.9
49.6
44.3
0.3
(17.2)
27.4
77.0
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 on Non-US Jurisdictions
Federal tax on unremitted earnings of certain foreign subsidiaries
Valuation allowance adjustments
U.S. tax reform - net impacts
Tax effect of Impairment of Goodwill and Intangibles
Other
2017
December 31,
2016
2015
35.0%
35.0%
35.0%
(0.1)
2.8
3.6
(0.6)
(0.2)
—
(0.7)
(1.2)
(37.4)
2.1
1.1
(12.6)
(3.9)
(0.6)
(0.2)
0.1
(16.3)
—
—
(0.4)
0.4
(11.2)
(6.4)
(0.4)
0.2
2.5
0.2
—
—
3.1
Effective income tax rate on operations
3.3%
2.2%
23.4%
121
The tax effect of significant temporary differences giving rise to deferred tax assets and liabilities are as follows:
(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
December 31, 2017
December 31, 2016
Deferred
Tax
Asset
Deferred
Tax
Liability
Deferred
Tax
Asset
Deferred
Tax
Liability
$
$
5.4
62.7
11.6
—
3.7
17.4
10.7
46.3
—
1.1
69.0
6.2
5.9
—
3,038.4
(3,014.8)
263.6
$
$
— $
—
—
880.1
—
—
—
—
55.0
—
—
—
—
2.7
—
—
937.8
$
8.4
71.5
9.0
—
5.5
16.0
19.6
17.5
—
1.6
137.9
—
8.0
—
274.5
(182.7)
386.8
$
$
—
—
—
1,011.8
—
—
—
—
54.8
—
—
8.1
—
2.1
—
—
1,076.8
Deferred tax assets and liabilities are included in the following Consolidated Balance Sheet line items:
(in millions)
Assets
Other noncurrent assets, net
Liabilities
Deferred income taxes
December 31,
2017
2016
43.8
718.0
61.7
751.7
The Company has $69.0 million of foreign tax credit carryforwards at December 31, 2017, of which $69.0 million will expire
in 2025.
The Company has tax loss carryforwards related to certain foreign and domestic subsidiaries of approximately $12.0 billion
at December 31, 2017, of which $11.8 billion expires at various times through 2037 and $171.6 million may be carried forward
indefinitely. This is a significant increase from the Company’s accumulated losses at December 31, 2016. The increase of these
losses primarily relate to the impact of the US GAAP impairment on various Denstsply Sirona’s holding companies recorded in
2017. These losses are subject to recapture for statutory purposes should the overall investment value of these company’s increase
in the future. Included in deferred income tax assets at December 31, 2017 are tax benefits totaling $3.0 billion, before valuation
allowances, for the tax loss carryforwards.
The Company has recorded $3.0 billion of valuation allowance to offset the tax benefit of net operating losses and $10.8
million of valuation allowance for other deferred tax assets. The Company has recorded these valuation allowances due to the
uncertainty that these assets can be realized in the future.
As of December 31, 2017, a deferred tax asset of $24.2 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 January 1,
2019.
The Company has provided $2.7 million of withholding taxes on certain undistributed earnings of its foreign subsidiaries that
the Company anticipates will be repatriated.
122
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, 2017 is approximately $24.7 million, of this total,
approximately $23.5 million represents the amount of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate. It is reasonably possible that certain amounts of unrecognized tax benefits will significantly increase or decrease
within twelve months of the reporting date of the Company’s consolidated financial statements. 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 $3.5 million and $2.8 million at December 31, 2017 and 2016,
respectively. The Company has consistently classified interest and penalties recognized in its consolidated financial statements
as income taxes based on the accounting policy election of the Company. During the year ended December 31, 2017, the Company
recognized income tax expense of $0.5 million , related to interest and penalties. 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.
The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The
significant jurisdictions include the U.S., Germany, 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 through 2016 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 2012 through 2016. The taxable years that remain open for Switzerland are 2007 through 2016.
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
2015
$
2017
$
December 31,
2016
$
10.8
8.6
0.3
—
—
1.3
—
12.1
(2.0)
2.2
(1.3)
—
—
(0.2)
Unrecognized tax benefits at end of period
$
21.0
$
10.8
$
U.S. Federal Legislative Changes
21.9
(7.6)
0.2
(0.5)
(0.2)
—
(1.7)
12.1
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act" or "U.S. tax reform") was enacted. U.S. tax reform, among
other things, reduces the U.S. federal income tax rate to 21% in 2018 from 35%, institutes a dividends received deduction for
foreign earnings with a related tax for the deemed repatriation of unremitted foreign earnings and creates a new U.S. minimum
tax on earnings of foreign subsidiaries. In addition, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which
provides guidance on accounting for enactment effects of SAB 118 provides a measurement period of up to one year from the
Act’s enactment date for companies to complete their accounting under Accounting Standards Codification No. 740 “Income
Taxes”, (“ASC 740”). In accordance with SAB 118, to the extent that a company’s accounting for certain income tax effects of
the Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in its financial statements.
If a company cannot determine a provisional estimate to be included in its financial statements, it should continue to apply ASC
740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Act. The Company’s
accounting for certain income tax effects is incomplete, but the Company has determined reasonable estimates for those effects.
Accordingly, the Company has recognized a net provisional income tax charge of $20.1 million, which is included as a component
of the income tax provision on the consolidated statement of income.
123
Based on information available, the Company estimated the cumulative undistributed foreign earnings to be approximately
$1.1 billion and recorded a provisional estimate of $62.2 million of income tax expense related to the one-time deemed repatriation
toll charge. There is still uncertainty as to the application of the Act, in particular as it relates to state income taxes. Further, the
Company has not yet completed the analysis of the components of the computation, including the amount of the foreign earnings
subject to U.S. income tax, and the portion of the foreign earnings held in cash or other specified assets. As of December 31,
2017, primarily due to the utilization of foreign tax credit carryforwards and certain other tax attributes the estimated cash liability
for the deemed repatriation of foreign earnings is approximately $1.0 million. However, as the Company completes its analysis
an additional liability could be recorded and the Company would elect to make installment payments as allowed under the Act.
As a result of the Act, the Company can repatriate the cumulative undistributed foreign earnings back to the U.S. when needed
with minimal U.S. income tax consequences other than the one-time deemed repatriation toll charge. The Company is still
evaluating whether to change its indefinite reinvestment assertion in light of the Act and consider that conclusion to be incomplete
under SAB 118.
The remaining provisional amount is a benefit of $42.1 million relating to the remeasurement of the Company’s U.S. net
deferred tax liabilities. For the Global Intangible Low Tax Income (“GILTI”) provision of the Act, a provisional estimate could
not be made as the Company has not yet completed its assessment or elected an accounting policy to either recognize deferred
taxes for basis differences expected to reverse as GILTI or to record GILTI as period costs if and when incurred.
In accordance with SEC guidance, provisional amounts may be refined as a result of additional guidance from, and
interpretations by, U.S. regulatory and standard-setting bodies, and changes in assumptions. In the subsequent period, provisional
amounts will be adjusted for the effects, if any, of interpretative guidance issued after January 19, 2018, by the U.S. Department
of the Treasury. The effects of the 2017 Tax Act may be subject to changes for items that were previously reported as provisional
amounts, as well as any element of the 2017 Tax Act that a provisional estimate could not be made, and such changes could be
material.
124
NOTE 15 - BENEFIT PLANS
Defined Contribution Plans
The Company maintains both U.S. and non-U.S. employee defined contribution plans to help employees save for retirement.
The primary U.S. plan, the Dentsply Sirona Inc. 401(k) Savings and Employee Stock Ownership Plan (the "Plan"), allows eligible
employees to contribute a portion of their cash compensation to the plan on a tax-deferred basis, and in most cases, the Company
provides a matching contribution. The Plan includes various investment funds, including common stock of the Company. Effective
January 1, 2018, Dentsply Sirona will no longer contribute the Company’s common stock to the Plan, and participants will no
longer be allowed to contribute to the Company’s common stock under the Plan. The common stock contribution is being replaced
by a discretionary cash contribution that is initially targeted to be 3% of compensation. Each eligible participant who elects to
defer to the Plan will receive a matching contribution of one hundred percent (100%) on the first one percent (1%) contributed
and fifty percent (50%) on the next five percent (5%) contributed for a total maximum matching contribution of 3.5%. In addition
to the primary U.S. plan, the Company also maintains various other U.S. and non-U.S. defined contribution and non-qualified
deferred compensation plans. The annual expenses, net of forfeitures, were $33.4 million, $28.0 million and $24.9 million for for
the years ended 2017, 2016 and 2015, 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 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 meet the minimum funding standards prescribed by law. The Company may,
at its discretion, contribute amounts in excess of the minimum required contribution.
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 individually or in the aggregate. 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.
The Company predominantly uses 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 and 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 estimate and, accordingly,
accounted for it prospectively. This change does not affect the measurement of the Company’s total benefit obligation.
Defined Benefit Pension Plan Assets
The primary investment strategy is to ensure that the assets of the plans, along with anticipated future contributions, will be
invested in order that the benefit entitlements of employees, pensioners and beneficiaries covered under the plan can be met when
due with high probability. Pension plan assets consist mainly of common stock 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 25% in all other types of investments. Equity securities include investments in companies located both in and outside the
U.S. Equity securities in the defined benefit pension plans do not include Company common stock contributed directly by 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.
125
The defined benefit pension plan assets in the U.S. are held in trust and the investment policies of the plans are generally to
invest the plans assets in equities and fixed income investments. The objective is to achieve a long-term rate of return in excess
of 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 investment companies (e.g. mutual funds), common/
collective trusts, master trust investment accounts and insurance company general accounts. The investment objective is for assets
to be invested in a manner consistent with the fiduciary standards of the Employee Retirement Income Security Act of 1974, as
amended (“ERISA”).
The defined benefit pension plan assets maintained in Austria, France, Germany, 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
(primarily corporate and government bonds), insurance company contracts, real estate and hedge funds.
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 based on a
percentage of the employee’s eligible compensation. However, due to grandfathering 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 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 defined benefit obligation for the minimum benefit.
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 Company sponsors postemployment healthcare plans that cover certain union and salaried employee groups in the U.S.
and is contributory, with retiree contributions adjusted annually to limit the Company’s contribution for participants who retired
after June 1, 1985. The plans for postemployment healthcare have no plan assets. The Company also sponsors unfunded non-
contributory postemployment medical plans for a limited number of union employees and their spouses and retirees of a discontinued
operation.
126
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:
(in millions)
2017
2016
2017
2016
Pension Benefits
December 31,
Other Postemployment
Benefits
December 31,
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
Funded status at end of year
$
$
$
$
$
473.1
15.7
6.5
4.1
9.1
0.4
—
50.4
(0.2)
(13.6)
545.5
156.8
12.4
(0.2)
—
8.8
17.4
4.1
(13.6)
185.7
$
$
$
$
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
$
$
$
$
16.1
0.4
0.6
0.3
(0.2)
—
—
—
—
(1.3)
15.9
$
$
— $
—
—
—
—
1.0
0.3
(1.3)
— $
14.1
0.3
0.6
0.3
1.4
—
—
—
—
(0.6)
16.1
—
—
—
—
—
0.3
0.3
(0.6)
—
(359.8) $
(316.3) $
(15.9) $
(16.1)
The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as follows:
(in millions)
Location On The
Consolidated Balance Sheet
Other noncurrent assets, net Other noncurrent assets, net
Deferred tax asset
Other noncurrent assets, net
Total assets
Current liabilities
Other noncurrent liabilities
Deferred tax liability
Accrued liabilities
Other noncurrent liabilities
Deferred income taxes
Total liabilities
Accumulated other
comprehensive income
Net amount recognized
Accumulated other comprehensive
loss
127
Pension Benefits
December 31,
Other Postemployment
Benefits
December 31,
2017
2016
2017
2016
— $
34.8
34.8
$
0.1
31.7
31.8
$
$
(8.7)
(351.1)
(0.6)
(360.4) $
(6.9)
(309.5)
(0.5)
(316.9) $
— $
0.8
0.8
$
(0.7)
(15.2)
—
(15.9) $
—
1.4
1.4
(0.7)
(15.4)
—
(16.1)
86.2
(239.4) $
82.3
(202.8) $
2.5
(12.6) $
2.2
(12.5)
$
$
$
$
Amounts recognized in AOCI consist of:
(in millions)
Net actuarial loss
Net prior service cost
Before tax AOCI
Less: Deferred taxes
Net of tax AOCI
Pension Benefits
December 31,
2017
2016
Other Postemployment
Benefits
December 31,
2017
2016
$
$
$
121.7
(1.3)
120.4
34.2
86.2
$
$
$
115.3
(1.8)
113.5
31.2
82.3
$
$
$
3.3
—
3.3
0.8
2.5
$
$
$
3.5
—
3.5
1.3
2.2
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:
(in millions)
Service cost
Interest cost
Expected return on plan assets
Amortization of prior service credit
Amortization of net actuarial loss
Curtailment and settlement loss (gains)
December 31,
2017
2016
$
$
517.0
491.7
160.0
458.7
427.2
142.3
Pension Benefits
Other Postemployment
Benefits
2017
2016
2015
2017
2016
2015
$
15.7
$
15.7
$
17.1
$
6.5
(4.0)
(0.2)
6.9
—
8.0
(5.1)
(0.2)
5.1
1.2
7.3
(5.4)
(0.2)
7.8
(0.8)
25.8
$
0.4
0.6
—
—
0.1
—
1.1
$
$
0.3
0.6
—
—
0.2
—
1.1
$
$
0.4
0.6
—
—
0.2
—
1.2
Net periodic benefit cost
$
24.9
$
24.7
$
Other changes in plan assets and benefit obligations recognized in AOCI:
(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
Pension Benefits
2017
2016
2015
Other Postemployment
Benefits
2016
2015
2017
(48.6) $
(0.3)
(7.6)
(56.5) $
(0.2) $
—
(0.1)
(0.3) $
(30.7) $
0.8
$
2.3
1.4
$
—
(0.2)
1.2
$
$
(0.4)
—
(0.2)
(0.6)
0.6
$
$
$
13.3
$
20.3
$
0.3
(6.7)
6.9
31.8
$
$
0.4
(4.9)
15.8
40.5
$
$
128
The expected amounts of net loss, prior service cost and transition obligation for defined benefit plans and other
postemployment benefit plans in AOCI that are expected to be amortized as net expense (income) during fiscal year 2018 are as
follows:
(in millions)
Amount of net prior service credit
Amount of net loss
Total amount to be amortized out of AOCI in 2018
Assumptions
Pension
Benefits
Other
Postemployment
Benefits
$
$
(0.1) $
6.5
6.4
$
—
0.2
0.2
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, 2017, 2016 and 2015 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
Pension Benefits
Other Postemployment
Benefits
2017
2016
2015
2017
2016
2015
1.6%
2.5%
n/a
n/a
n/a
n/a
n/a
1.6%
2.6%
n/a
n/a
n/a
n/a
n/a
2.1%
2.5%
n/a
n/a
n/a
n/a
n/a
3.8%
n/a
7.9%
8.8%
4.4%
9.0
9.0
4.4%
n/a
7.8%
8.5%
4.5%
9.0
9.0
4.7%
n/a
7.6%
8.2%
5.0%
9.0
9.0
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, 2017, 2016 and 2015 are as follows:
Pension Benefits
Other Postemployment
Benefits
2017
2016
2015
2017
2016
2015
Discount rate
Expected return on plan assets
Rate of compensation increase
Health care cost trend
Ultimate health care cost trend
Years until ultimate trend is reached
1.6%
2.9%
2.6%
n/a
n/a
n/a
2.1%
3.3%
2.5%
n/a
n/a
n/a
1.8%
3.7%
2.6%
n/a
n/a
n/a
4.4%
n/a
n/a
7.9%
4.4%
9.0
4.7%
n/a
n/a
7.8%
4.5%
9.0
4.3%
n/a
n/a
8.5%
5.0%
8.0
Measurement Date
12/31/2017
12/31/2016
12/31/2015
12/31/2017
12/31/2016
12/31/2015
To develop the assumptions for the expected long-term rate of return on assets, the Company 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.
129
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,
2017:
(in millions)
Effect on total of service and interest cost components
Effect on postemployment benefit obligation
Fair Value Measurements of Plan Assets
Other Postemployment
Benefits
1% Increase
1% Decrease
$
$
0.2
2.9
(0.2)
(2.3)
The fair value of the Company’s pension plan assets at December 31, 2017 is presented in the table below by asset category.
Approximately 73% 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.
(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
(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
December 31, 2017
Total
Level 1
Level 2
Level 3
$
18.2
$
18.2
$
— $
53.0
48.5
16.3
13.3
29.0
7.1
0.3
185.7
$
53.0
48.5
16.3
—
—
—
—
136.0
$
$
—
—
—
13.3
—
—
—
13.3
$
—
—
—
—
—
29.0
7.1
0.3
36.4
December 31, 2016
Total
Level 1
Level 2
Level 3
$
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
(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.
(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.
130
The following table provides a reconciliation from December 31, 2016 to December 31, 2017 for the plan assets categorized
as Level 3. During the year ended December 31, 2017, no assets were transferred in or out of the Level 3 category.
(in millions)
Balance at December 31, 2016
Actual return on plan assets:
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
Balance at December 31, 2017
Year Ended December 31, 2017
Insurance
Contracts
Hedge
Funds
Real
Estate
Total
$
25.1
$
4.0
$
0.3
$
29.4
0.8
—
(0.3)
—
3.4
$
29.0
$
0.2
—
2.7
—
0.2
7.1
—
—
—
—
—
1.0
—
2.4
—
3.6
$
0.3
$
36.4
The following tables provide 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 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
Balance at December 31, 2016
2.1
12.7
1.0
(0.2)
(0.8)
25.1
$
—
—
0.9
—
(0.1)
4.0
$
—
—
—
—
—
$
0.3
$
2.1
12.7
1.9
(0.2)
(0.9)
29.4
Fair values for Level 3 assets are determined as follows:
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.
Real Estate: Investment is stated by its appraised value.
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 2018, the Company expects to make contributions and direct benefit payments of $15.9 million to its defined benefit pension
plans and $0.7 million to its postemployment medical plans.
131
Estimated Future Benefit Payments
(in millions)
2018
2019
2020
2021
2022
2023-2027
Pension
Benefits
Other
Postemployment
Benefits
$
$
18.0
16.6
19.4
18.7
19.9
114.0
0.7
0.6
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.
132
NOTE 16 - RESTRUCTURING AND OTHER COSTS
Restructuring Costs
Restructuring costs of $55.4 million, $20.9 million and $61.4 million for the year ended 2017, 2016 and 2015, respectively,
are reflected in Restructuring and other costs in the Consolidated Statement of Operations and the associated liabilities are recorded
in Accrued liabilities and Other noncurrent liabilities in the Consolidated Balance Sheets. These costs consist of employee
severance benefits, payments due under operating contracts, and other restructuring costs.
As announced in October 2016, the Company proposed plans in Germany to reorganize and combine portions of its
manufacturing, logistics and distribution networks within the Company’s two segments. As required under German law, the
Company entered into a statutory co-determination process under which it collaborated with the appropriate labor groups to jointly
define the infrastructure and staffing adjustments necessary to support this initiative. In 2017, the Company received all necessary
approvals and is proceeding with its current plans. The Company estimates the cost of these initiatives to be approximately $65
million, primarily for severance related benefits for employees, which is expected to be incurred as actions are implemented over
the next two years. For the year ended December 31, 2017 the Company recorded costs of approximately $29 million associated
with these plans.
During 2015, the Company announced that it reorganized portions of its laboratory business and associated manufacturing
capabilities within the Technologies & Equipment segment. During the year ended December 31, 2015, the Company recorded
$52.2 million of costs that consist primarily of employee severance benefits related to these and other similar actions. Also during
the year ended December 31, 2015, the Company recorded restructuring costs of $1.4 million within the Consumables segment
that 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, respectfully, in the Consolidated Statements of Operations.
At December 31, 2017, the Company’s restructuring accruals were as follows:
(in millions)
Balance at December 31, 2016
Provisions and adjustments
Amounts applied
Change in estimates
Balance at December 31, 2017
(in millions)
Balance at December 31, 2016
Provisions and adjustments
Amounts applied
Change in estimates
Balance at December 31, 2017
2015 and
Prior Plans
$
$
20.6
0.6
(10.4)
(4.8)
6.0
$
$
Severances
2016
2017
Total
8.2
—
(5.8)
(0.7)
1.7
$
$
— $
50.6
(4.2)
1.8
48.2
$
28.8
51.2
(20.4)
(3.7)
55.9
Lease/Contract Terminations
2015 and
Prior Plans
2016
2017
Total
$
$
2.7
0.7
(2.3)
(0.5)
0.6
$
$
$
0.3
—
(0.3)
(0.2)
(0.2) $
— $
0.5
(0.3)
—
0.2
$
3.0
1.2
(2.9)
(0.7)
0.6
133
(in millions)
Balance at December 31, 2016
Provisions and adjustments
Amounts applied
Change in estimates
Balance at December 31, 2017
Other Restructuring Costs
2015 and
Prior Plans
2016
2017
Total
$
$
0.5
2.4
(1.5)
0.5
1.9
$
$
0.2
2.0
(2.0)
—
0.2
$
$
— $
3.0
(1.3)
—
1.7
$
0.7
7.4
(4.8)
0.5
3.8
The following table provides the cumulative amounts for the provisions and adjustments and amounts applied for all the plans
by segment:
(in millions)
Technologies & Equipment
Consumables
All Other
Total
December
31, 2016
Provisions
and
Adjustments
Amounts
Applied
Change in
Estimates
December
31, 2017
$
$
22.1
10.3
0.1
32.5
$
$
44.2
13.8
1.8
59.8
$
$
(17.5) $
(9.3)
(1.3)
(28.1) $
(1.9) $
(1.5)
(0.5)
(3.9) $
46.9
13.3
0.1
60.3
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
Balance at December 31, 2016
(in millions)
Balance at December 31, 2015
Provisions and adjustments
Amounts applied
Change in estimates
Balance at December 31, 2016
(in millions)
Balance at December 31, 2015
Provisions and adjustments
Amounts applied
Change in estimates
Balance at December 31, 2016
Severances
2014 and
Prior Plans
2015 Plans
2016 Plans
Total
$
$
1.5
—
(0.8)
(0.1)
0.6
$
$
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
Lease/Contract Terminations
2014 and
Prior Plans
2015 Plans
2016 Plans
Total
$
$
0.8
—
(0.4)
(0.2)
0.2
$
$
3.4
5.4
(3.3)
(3.0)
2.5
$
$
— $
0.5
(0.2)
—
0.3
$
Other Restructuring Costs
2014 and
Prior Plans
2015 Plans
2016 Plans
Total
0.3
0.1
(0.2)
—
0.2
$
$
0.6
3.1
(3.0)
(0.4)
0.3
$
$
— $
0.5
(0.3)
—
0.2
$
$
$
134
4.2
5.9
(3.9)
(3.2)
3.0
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:
(in millions)
Technologies & Equipment
Consumables
All Other
Total
Other Costs
December
31, 2015
Provisions
and
Adjustments
Amounts
Applied
Change in
Estimates
December
31, 2016
$
$
30.9
9.2
1.1
41.2
$
$
15.5
9.9
0.3
25.7
$
$
(20.1) $
(8.5)
(0.9)
(29.5) $
(4.2) $
(0.3)
(0.4)
(4.9) $
22.1
10.3
0.1
32.5
For the year ended December 31, 2017, the Company recorded other costs of $369.8 million, which consist of impairment
charges of $346.7 million and legal settlements of $23.1 million. For further information on the impairment charges, see Note 9,
Goodwill and Intangible Assets.
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 year ended December 31, 2015, the Company recorded other costs of $3.3 million, which included $4.2 million of
impairments of fixed assets and intangibles offset by income from legal settlements.
135
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, interest rates and commodity prices. These financial exposures are monitored and
managed by the Company as part of its overall risk management program. The objective of this risk management program is to
reduce the volatility that these market risks may have on the Company’s operating results and equity. The Company currently
employs foreign currency forward contracts and cross currency basis swap contracts financial instruments to hedge certain
anticipated transactions or assets and liabilities denominated in foreign currencies. Additionally, the Company currently 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,
2017 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
Foreign Exchange Risk Management
Aggregate
Notional
Amount
Aggregate
Notional Amount
Maturing within
12 Months
$
$
372.3
111.4
483.7
$
$
295.2
—
295.2
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 Company records the fair value of the contracts primarily through AOCI
based on the tested effectiveness of the foreign exchange forward contracts. The Company measures the effectiveness of cash
flow hedges of anticipated transactions on a spot-to-spot basis rather than on a forward-to-forward basis. Accordingly, the spot-
to-spot change in the derivative fair value will be deferred in AOCI and released and recorded 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 excluded and is reported 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 exchange forward contracts generally have maturities up to 18 months and the counterparties to the transactions
are typically large international financial institutions.
Interest Rate Risk Management
The Company uses interest rate swaps to convert a portion of its variable interest rate debt to fixed interest rate debt. At
December 31, 2017, 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 variable
interest rate debt facility to a fixed interest rate of 0.9% for a term of five years ending September 2019.
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.
136
Cash Flow Hedge Activity
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, 2017, 2016 and 2015:
December 31, 2017
(Loss) Gain
Recognized
in AOCI
Consolidated Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into
(Expense) Income
Ineffective
Portion
Recognized in
Expense
$
$
$
(0.1)
Interest expense
(14.6) Cost of products sold
— Other expense (income), net
(14.7)
$
$
$
(2.3) $
(3.0)
— $
(5.3) $
—
—
(0.9)
(0.9)
December 31, 2016
(Loss) Gain
Recognized
in AOCI
Consolidated Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into
(Expense) Income
Ineffective
Portion
Recognized in
Expense
(in millions)
Effective Portion:
Interest rate swaps
Foreign exchange forward contracts
Ineffective Portion:
Foreign exchange forward contracts
Total in cash flow hedging
(in millions)
Effective Portion:
Interest rate swaps
$
(0.4)
Interest expense
Foreign exchange forward contracts
(0.3) Cost of products sold
Foreign exchange forward contracts
(0.2) SG&A expenses
Commodity contracts
0.1 Cost of products sold
Ineffective Portion:
Foreign exchange forward contracts
Total for cash flow hedging
$
$
— Other expense (income), net
(0.8)
$
$
$
(2.9) $
4.8
0.1
(0.1)
— $
1.9
$
—
—
—
—
(0.6)
(0.6)
December 31, 2015
(Loss) Gain
Recognized
in AOCI
Consolidated Statements of
Operations Location
Effective Portion
Reclassified from
AOCI into
(Expense)
Income
Ineffective
Portion
Recognized in
Expense
(in millions)
Effective Portion:
Interest rate swaps
$
(1.4)
Interest expense (a)
Foreign exchange forward contracts
23.3 Cost of products sold
Foreign exchange forward contracts
0.5 SG&A expenses
Commodity contracts
(0.3) Cost of products sold
Ineffective Portion:
Foreign exchange forward contracts
Total for cash flow hedging
$
$
— Other expense (income), net
22.1
$
$
(10.1) $
18.0
0.6
(0.5)
— $
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.
137
Overall, the derivatives designated as cash flow hedges are considered to be highly effective for accounting purposes. At
December 31, 2017, the Company expects to reclassify $8.1 million of deferred net losses 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. The time value component of the fair value of the derivative
is excluded and is reported 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 investing activities in the Consolidated Statements
of Cash Flows except for derivative instruments that include an other-than-insignificant financing element, in which case all cash
flows will be classified as financing activities in the Consolidated Statements of Cash Flows.
On January 2, 2018, the Company entered into a 245.6 million euro cross currency basis swap maturing in August 2021, that
was designated as a hedge of net investments. This contract effectively converts the $295.7 million bond coupon from 4.1% to
1.7%, which will result in a net reduction of interest expense of approximately $7 million in 2018.
The following table summarizes the notional amounts of hedges of net investments by derivative instrument type at
December 31, 2017 and the notional amounts expected to mature during the next 12 months:
(in millions)
Aggregate
Notional
Amount
Aggregate
Notional Amount
Maturing within
12 Months
Foreign exchange forward contracts
$
622.3
$
311.1
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 reporting date, taking into account the effective 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, 2017, 2016 and 2015:
(in millions)
Effective Portion:
December 31, 2017
Loss
Recognized
in AOCI
Consolidated Statements of
Operations Location
Recognized in
Income
Foreign exchange forward contracts
Total for net investment hedging
$
$
(14.1) Other expense (income), net
(14.1)
$
$
3.7
3.7
138
(in millions)
Effective Portion:
December 31, 2016
Loss
Recognized
in AOCI
Consolidated Statements of
Operations Location
Recognized in
Income
Foreign exchange forward contracts
Total for net investment hedging
$
$
(13.2) Other expense (income), net
(13.2)
$
$
6.7
6.7
(in millions)
Effective Portion:
December 31, 2015
Gain
Recognized
in AOCI
Consolidated Statements of
Operations Location
Recognized in
Income
Foreign exchange forward contracts
Total for net investment hedging
$
$
4.5
4.5
Interest expense
$
$
4.1
4.1
Fair Value Hedges
The Company used interest rate swaps to convert a portion of its fixed interest rate debt to variable interest rate debt. The
Company had U.S. dollar denominated interest rate swaps with an initial total notional value of $150.0 million to effectively
convert the underlying fixed interest rate of 4.1% on the Company’s $250.0 million 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, 2017, 2016 and 2015:
(in millions)
Interest rate swaps
Income (Expense) Recognized
Consolidated
Statements of
Operations Location
Twelve Months Ended December 31,
2017
2016
2015
Interest expense
$
— $
— $
0.3
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 revaluation of the underlying non-functional 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 for derivative instruments that
include an other-than-insignificant financing element, in which case the cash flows will be classified as financing activities in the
Consolidated Statements of Cash Flows.
139
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, 2017 and the notional amounts expected to mature during the next 12 months:
(in millions)
Foreign exchange forward contracts
Interest rate swaps
Total for instruments not designated as hedges
Derivative Instruments not Designated as Hedges Activity
Aggregate
Notional
Amount
Aggregate
Notional Amount
Maturing within
12 Months
$
$
369.3
0.2
369.5
$
$
369.3
0.2
369.5
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, 2017, 2016 and 2015:
(Loss) Gain Recognized
(in millions)
Consolidated Statements of
Operations Location
Twelve Months Ended December 31,
2017
2016
2015
Foreign exchange forward contracts (a)
Other expense (income), net
$
DIO equity option contracts
Cross currency basis swaps (a)
Other expense (income), net
Other expense (income), net
(7.7) $
—
—
(0.6) $
—
—
Total for instruments not designated as hedges
$
(7.7) $
(0.6) $
6.3
0.1
(1.8)
4.6
(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, 2017 and December 31, 2016:
(in millions)
Designated as Hedges
Foreign exchange forward contracts
Interest rate swaps
Total
Not Designated as Hedges
Foreign exchange forward contracts
Total
Prepaid
Expenses
and Other
Current Assets,
Net
$
$
$
$
1.4
—
1.4
3.4
3.4
$
$
$
$
December 31, 2017
Other
Noncurrent
Assets, Net
Accrued
Liabilities
Other
Noncurrent
Liabilities
— $
—
— $
— $
— $
13.4
0.3
13.7
3.7
3.7
$
$
$
$
4.5
0.1
4.6
—
—
140
(in millions)
Designated as Hedges
Foreign exchange forward contracts
Interest rate swaps
Total
Not Designated as Hedges
Foreign exchange forward contracts
Total
Balance Sheet Offsetting
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
—
—
Substantially all of the Company’s derivative contracts are subject to netting arrangements, whereby the right to offset occurs
in the event of default or termination in accordance with the terms of the arrangements with the counterparty. While these contracts
contain the enforceable right to offset through netting arrangements 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, 2017:
Gross Amounts Not Offset
in the Consolidated Balance
Sheets
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts
Recognized
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net Amount
$
$
4.8
4.8
$
$
— $
— $
4.8
4.8
$
$
(3.9) $
(3.9) $
— $
— $
0.9
0.9
Gross Amounts Not Offset
in the Consolidated Balance
Sheets
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts
Recognized
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net Amount
(in millions)
Assets
Foreign exchange forward
contracts
Total Assets
(in millions)
Liabilities
Foreign exchange forward
contracts
Interest rate swaps
Total Liabilities
$
$
21.6
0.4
22.0
$
$
21.6
0.4
22.0
$
$
(3.8) $
(0.1)
(3.9) $
— $
—
— $
17.8
0.3
18.1
— $
—
— $
141
Offsetting of financial assets and liabilities under netting arrangements at December 31, 2016:
Gross Amounts Not Offset
in the Consolidated Balance
Sheets
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts
Recognized
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net Amount
$
$
14.7
14.7
$
$
— $
— $
14.7
14.7
$
$
(2.8) $
(2.8) $
— $
— $
11.9
11.9
Gross Amounts Not Offset
in the Consolidated Balance
Sheets
Gross
Amount
Offset in the
Consolidated
Balance
Sheets
Net
Amounts
Presented in
the
Consolidated
Balance
Sheets
Gross
Amounts
Recognized
Financial
Instruments
Cash
Collateral
Received/
Pledged
Net Amount
(in millions)
Assets
Foreign exchange forward
contracts
Total Assets
(in millions)
Liabilities
Foreign exchange forward
contracts
Interest rate swaps
Total Liabilities
$
$
2.5
0.5
3.0
$
$
— $
—
— $
2.5
0.5
3.0
$
$
(2.5) $
(0.3)
(2.8) $
— $
—
— $
—
0.2
0.2
142
NOTE 18 - FAIR VALUE MEASUREMENT
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The Company records financial instruments at fair value with unrealized gains and losses related to certain financial instruments
reflected in AOCI in the Consolidated Balance Sheets. In addition, the Company has recognized certain liabilities at fair value.
The Company applies the market approach for recurring fair value measurements. Accordingly, the Company utilizes valuation
techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value of financial 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 current assets, accounts payable, accrued liabilities, income taxes payable and
notes payable approximate fair value due to the short-term nature of these instruments. The Company estimated the fair value
and carrying value of its total long-term debt, including current portion, was $1,629.9 million and $1,620.8 million, respectively,
at December 31, 2017. At December 31, 2016, the Company estimated the fair value and carrying value was $1,525.7 million
and $1,522.2 million, respectively. The interest rate on the outstanding principal of the $450.0 million Senior Notes is a fixed rate
of 4.1% and the fair value is based on interest rates at December 31, 2017. 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, 2017 and 2016.
(in millions)
Assets
Foreign exchange forward contracts
Available-for-sale security
Total assets
Liabilities
Interest rate swaps
Foreign exchange forward contracts
Contingent considerations on acquisitions
Total liabilities
(in millions)
Assets
Foreign exchange forward contracts
Total assets
Liabilities
Interest rate swaps
Foreign exchange forward contracts
Contingent considerations on acquisitions
Total liabilities
December 31, 2017
Total
Level 1
Level 2
Level 3
$
$
$
$
$
$
$
$
4.8
54.4
59.2
0.4
21.6
8.6
30.6
$
$
$
$
— $
—
— $
— $
—
—
— $
4.8
54.4
59.2
0.4
21.6
—
22.0
$
$
$
$
—
—
—
—
—
8.6
8.6
December 31, 2016
Total
Level 1
Level 2
Level 3
14.7
14.7
0.5
2.5
7.6
10.6
$
$
$
— $
— $
14.7
14.7
— $
—
—
— $
0.5
2.5
—
3.0
$
$
$
—
—
—
—
7.6
7.6
Derivative valuations are based on observable inputs to the valuation model including interest rates, foreign currency exchange
rates, future commodities prices and credit risks. The Company utilizes 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.
143
Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
The Company’s Level 3 liabilities at December 31, 2017 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
Balance, December 31, 2016
Unrealized gain:
Reported in Other expense (income), net
Effect of exchange rate changes
Balance at December 31, 2017
Level 3
7.1
0.7
(0.2)
7.6
0.1
0.9
8.6
$
$
$
There were no additional purchases, issuances or transfers of Level 3 financial instruments in 2017 and 2016.
Assets Measured at Fair Value on a Non-Recurring Basis
For the year ended December 31, 2017, the Company recorded impairments of $1,650.9 million related to goodwill and $346.7
million related to indefinite-lived intangible assets for the CAD/CAM, Imaging and Treatment Center equipment reporting units.
The carrying value of $1,980.6 million of goodwill related to these reporting units represents the estimated fair value as determined
in the December 31, 2017 valuation. The carrying value of $1,998.8 million of identifiable intangible assets were also related to
these reporting units and represents the estimated fair value as determined in the December 31, 2017 valuation. The valuation
technique and inputs, which used Level 3 unobservable inputs, as well as further details on the impairment are disclosed in Note
9, Goodwill and Intangible Assets.
The following tables set forth by level within the fair value hierarchy certain of the Company’s goodwill and identifiable
intangible assets that were measured at fair value on a non-recurring basis at December 31, 2017.
(in millions)
Assets
Identifiable intangible assets, net
Goodwill, net
Total assets
December 31, 2017
Total
Level 1
Level 2
Level 3
$
$
1,998.8
1,980.6
3,979.4
$
$
— $
—
— $
— $
—
— $
1,998.8
1,980.6
3,979.4
144
NOTE 19 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases automobiles machinery, equipment and certain office, warehouse and manufacturing facilities under
non-cancelable leases. The leases generally require the Company to pay insurance, taxes and other expenses related to the leased
property. Total rental expense for all operating leases was $28.3 million, $33.3 million and $30.4 million for 2017, 2016 and 2015,
respectively.
Rental commitments, principally for real estate (exclusive of taxes, insurance and maintenance), automobiles and office
equipment are as follows:
(in millions)
2018
2019
2020
2021
2022
2023 and thereafter
Litigation
$
$
34.8
28.0
22.5
17.7
14.8
34.4
152.2
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 certified class is defined as California dental professionals who, at any time during the period beginning
June 18, 2000 through September 14, 2012, purchased and used one or more Cavitron® 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 “periodontal debridement for all types of periodontal disease.” The case went to trial in September 2013, and on January
22, 2014, the San Francisco Superior Court issued its decision in the Company’s favor, rejecting all of the plaintiffs’ claims. The
plaintiffs appealed the Superior Court’s decision, but on January 10, 2018, the California Court of Appeals affirmed the trial court’s
judgment in the Company’s favor. On February 15, 2018, the Company reached a settlement on this matter, in which the plaintiffs
agreed to reimburse certain of the Company’s costs and not to appeal the California Court of Appeals decision.
On December 12, 2006, Carole Hildebrand, DDS, and Robert Jaffin, DDS, filed a complaint in the Eastern District of
Pennsylvania (the Plaintiffs 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 behalf of dentists located
in New Jersey and Pennsylvania. The complaint asserts that the 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. The court granted the Company’s Motion to Dismiss plaintiffs’ New
Jersey Consumer Fraud and negligent design claims, leaving only a breach of express 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. On July 24, 2017, the Court issued an order denying class certification on multiple,
independently sufficient grounds. On October 6, 2017, the parties to the lawsuit filed a stipulation of dismissal, dismissing all
claims with prejudice, with the plaintiffs agreeing to pay the Company’s costs associated with the litigation.
The Company has concluded both of these actions with favorable outcomes. It does not anticipate that these cases will have
any impact on the Company’s operations, financial position or liquidity going forward.
145
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 (“OFAC”) requesting documents
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 was tolled to May 1, 2017. On August 17, 2017, the Company entered into a new tolling agreement, which tolls
the statute of limitations to November 30, 2017. Effective December 1, 2017, the Company reached a settlement on this matter
with OFAC and BIS for $1.2 million regarding the above possible violations.
The SEC’s Division of Enforcement has asked the Company to provide documents and information concerning the Company’s
accounting and disclosures. The Company is cooperating with the SEC’s investigation. The Company is unable to predict the
ultimate outcome of this matter, or whether it will have a material adverse effect on the Company’s consolidated financial position,
results of operations or cash flows.
Following Sirona’s acquisition of Arges Imaging, Inc. (“Arges”) in 2011, certain prior shareholders (the “Arges Shareholders”)
of Arges filed a demand for arbitration with the American Arbitration Association alleging that Sirona violated certain provisions
of the related merger agreement. In January 2016, an interim award was made to the Arges Shareholders, which was subsequently
affirmed by the district court for the Southern District of New York. The Company subsequently appealed the decision. In October
2017, the Company entered into a Settlement Agreement, pursuant to which the Company agreed to pay the Arges Shareholders
approximately $6.5 million. Settlement costs associated with this agreement are included in Restructuring and other costs in the
Consolidated Statements of Operation for the period ended September 30, 2017.
On May 5, 2015, Roth Licensing, LLC (“Roth Licensing”) filed a demand for arbitration alleging that GAC International,
LLC, a subsidiary of the Company (“GAC”), infringes a registered trademark of Roth Licensing pursuant to the Lanham Act,
California Civil Code Section 3344.1, and certain other common law causes of action. On August 9, 2017, the arbitrator issued
an interim decision on liability finding that GAC had willfully infringed the registered trademark of Roth Licensing. On
November 8, 2017, the arbitrator served his Final Award on damages awarding Roth Licensing approximately $16.0 million for
damages, attorneys’ fees and costs as well as injunctive relief regarding the ROTH mark and any reproduction, counterfeit, copy,
or colorable imitation of the ROTH mark and Dr. Roth’s image. The Company believes the arbitrator’s decision exceeded the
scope of the arbitration agreement, and it has filed a Motion to Vacate Arbitration Award with the district court of the Eastern
District of New York.
On January 19, 2018, Futuredontics, Inc. received service of a purported class action lawsuit filed in the Superior Court of
the State of California, for the County of Los Angeles, brought by a former employee, Henry Olivares, on behalf of other similarly
situated individuals. The plaintiff alleges several wage and hour violations under California Business and Professions Code Section
17200, including, but not limited to, failure to provide rest and meal break periods and the failure to pay overtime. The Company
has filed its answer to the complaint and it intends to vigorously defend against this matter.
In addition to the matters discussed above, the 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 for damages arising out of the use of the
Company’s products and services and claims relating to intellectual property matters including patent 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
include claims for punitive 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.
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.
146
Purchase and Other Commitments
From time to time, the Company enters into long-term inventory purchase commitments with minimum purchase requirements
for raw materials and finished goods to ensure the availability of products for production and distribution. These commitments
may have a significant impact on levels of inventory maintained by the Company.
147
NOTE 20 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
DENTSPLY SIRONA INC.
Quarterly Financial Information (Unaudited)
(in millions, except per share amounts)
2017
Net sales
Gross profit
Goodwill impairment (a)
Operating income (loss)
Net income (loss) attributable to
Dentsply Sirona
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
Rounding
and Other
Total
Year
$
900.5
$
992.7
$
1,009.2
$
1,091.0
$
— $
3,993.4
492.0
—
84.2
544.2
1,092.9
(1,048.0)
559.0
—
107.9
593.3
558.0
(706.4)
—
—
—
2,188.5
1,650.9
(1,562.3)
59.7
(1,050.0)
90.6
(650.4)
0.1
(1,550.0)
Net income (loss) per common share -
basic
Net income (loss) per common share -
diluted
$
$
Cash dividends declared per common share $
0.0875
0.26
$
$
(4.58) $
0.39
0.0875
$
0.0875
$
$
(2.85) $
0.02
$
(6.76)
0.0875
$
— $
0.3500
0.26
$
(4.58) $
0.39
$
(2.85) $
0.02
$
(6.76)
2016
Net sales
Gross profit
Operating income
Net income attributable to
Dentsply Sirona
First
Quarter (b)
Second
Quarter
Third
Quarter
Fourth
Quarter
Rounding
and Other
(c)
Total
Year
$
772.6
$ 1,022.0
$
954.2
$
996.5
$
— $
3,745.3
418.9
72.7
526.9
121.2
125.0
105.4
513.6
126.6
92.5
0.40
0.39
0.0775
$
$
$
541.5
134.2
107.0
0.46
0.46
0.0775
—
—
—
2,000.9
454.7
429.9
$
$
$
(0.06) $
1.97
(0.05) $
1.94
— $
0.3100
Earnings per common share - basic
Earnings per common share - diluted
$
$
0.72
0.70
Cash dividends declared per common share $
0.0775
$
$
$
0.45
0.44
0.0775
$
$
$
(a) During the quarters ended June 30, 2017 and December 31, 2017, the Company recorded goodwill and intangible asset impairments. See Note 9,
Goodwill and Intangible Assets for further information.
(b) Includes the results of operations for Sirona for the period February 29, 2016 through March 31, 2016
(c) 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.
148
Item 16. Form 10-K Summary
None.
SIGNATURES
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.
DENTSPLY SIRONA INC.
By:
/s/
Donald M. Casey, Jr.
Donald M. Casey, Jr.
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/
/s/
/s/
/s/
/s/
Donald M. Casey, Jr.
Donald M. Casey, Jr.
Chief Executive Officer and Director
(Principal Executive Officer)
Nicholas W. Alexos
Nicholas W. Alexos
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Eric K. Brandt
Eric K. Brandt
Chairman of the Board of Directors
Dr. Michael C. Alfano
Dr. Michael C. Alfano
Director
David K. Beecken
David K. Beecken
Director
/s/ Michael J. Coleman
Michael J. Coleman
Director
/s/ Willie A. Deese
Willie A. Deese
Director
149
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
/s/
/s/
/s/
/s/
/s/
/s/
Betsy D. Holden
Betsy D Holden
Director
Harry M. Jansen Kraemer, Jr.
Harry M. Jansen Kraemer, Jr.
Director
Thomas Jetter
Thomas Jetter
Director
Arthur D. Kowaloff
Arthur D. Kowaloff
Director
Francis J. Lunger
Francis J. Lunger
Director
Leslie F. Varon
Leslie F Varon
Director
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
March 15, 2018
Date
150
22 I 23
Directors and Officers
Board of Directors
Global Headquarters
Eric K. Brandt
Non-Executive Chairman
of the Board
Donald M. Casey, Jr.
Director and
Chief Executive Officer
Michael C. Alfano
Director and Corporate Governance
and Nominating Committee Chair
David K. Beecken
Director
Michael J. Coleman
Director
Willie A. Deese
Director
Betsy D. Holden
Director
Thomas Jetter
Director
Arthur D. Kowaloff
Director and Human Resources
Committee Chair
Harry M. Jansen Kraemer, Jr.
Director
Francis J. Lunger
Director and Audit and
Finance Committee Chair
Leslie F. Varon
Director
Executive Team
Donald M. Casey, Jr.
Chief Executive Officer
Nicholas W. Alexos
Executive Vice President and
Chief Financial Officer
Keith Ebling
Executive Vice President,
General Counsel and Secretary
Maureen MacInnis
Senior Vice President,
Chief Human Resources Officer
and Communications
Dentsply Sirona
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
Phone: (800) 877-0020
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 Global Select Market
Symbol: XRAY
Annual Meeting
The 2018 Annual Meeting will be
held on Wednesday, May 23, 2018
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 trade-
marks of DENTSPLY SIRONA Inc. or
its subsidiaries.
Transfer Agent and Registrar
If your stock certificate is lost, stolen
or destroyed, or if you change
your address please contact the
Share holder Services Department at:
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:
Joshua Zable
Vice President, Investor Relations
Phone: (718) 482-2184
Dentsply Sirona
Global Headquarters
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
Forward-Looking Statements
Information the Company has included or incorporated by reference
in this document, and information which may be contained in other
filings with the Securities and Exchange Commission (“SEC”) as well
as press releases or other public statements, contains or may contain
forward-looking statements. These forward-looking statements
include, among other things, statements about the Company’s
plans, objectives, expectations (financial or otherwise) or intentions.
The Company’s forward-looking statements involve risks and
uncertainties. Actual results may differ significantly from those
projected or suggested in any forward-looking statements. The
Company does not undertake any obligation to release publicly
any revisions to such forward-looking statements to reflect events
or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Any number of factors could
cause the Company’s actual results to differ materially from those
contemplated by any forward-looking statements, including, but
not limited to, the risks associated with the following:
• the Company’s ability to remain profitable in a very competitive
marketplace, which depends upon the Company’s ability to
differentiate its products and services from those of competitors
• the Company’s failure to anticipate and appropriately adapt to
changes or trends within the rapidly changing dental industry
• the effect of changes in the Company’s management and personnel
• the Company’s ability to control costs
• changes in applicable laws, rules or regulations, or their interpretation
or enforcement, or the enactment of new laws, rules or regulations,
which apply to the Company’s business practices (past, present
or future) or require the Company to spend significant resources
for compliance
• the Company’s failure to execute on, or other issues arising under,
certain key client contracts
• a significant failure or disruption in service within the Company’s
operations or the operations of key distributors
• the Company’s failure to successfully integrate the business
operations or achieve the anticipated benefits from any acquired
businesses
• results in pending and future litigation, investigations or other
proceedings which could subject the Company to significant
monetary damages or penalties and/or require us to change
our business practices, or the costs incurred in connection with
such proceedings
• the Company’s failure to attract and retain talented employees,
or to manage succession and retention for its Chief Executive
Officer or other key executives
• the impact of the Company’s debt service obligations on the
availability of funds for other business purposes, the terms of and
required compliance with covenants relating to the Company’s
indebtedness and its access to the credit markets in general
• general economic conditions
• other risks described from time to time in the Company’s filings
with the SEC
You should carefully consider these and other relevant factors,
including those risk factors in Part I, Item 1A, (“Risk Factors”) in the
Company’s annual report on Form 10-K and information which may
be contained in the Company’s other filings with the SEC, when
reviewing any forward-looking statement. The Company notes
these factors for investors as permitted under the Private Securities
Litigation Reform Act of 1995. Investors should understand it is
impossible to predict or identify all such factors or risks. As such,
you should not consider either foregoing lists, or the risks identified
in the Company’s SEC filings, to be a complete discussion of all
potential risks or uncertainties.
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Dentsply Sirona
Global Headquarters
Susquehanna Commerce Center
221 W. Philadelphia Street, Suite 60W
York, PA 17401
dentsplysirona.com
Incorporates recycled materials.