Notes to Financial Statements
December 31, 2016
and
2015
NOTE 1 - DESCRIPTION OF THE PLAN
The following brief description of the Dentsply International Inc. 401(k) Savings Plan (the “Plan”) is provided for general information purposes only. Participants should refer to the Plan document for a more complete description of the Plan's provisions.
Plan Merger
Effective December 31, 2016, the assets of the Dentsply Employee Stock Ownership Plan (the “ESOP”) were transferred into the Plan resulting in a merged plan. The ESOP transferred in-kind all of its investments on December 30, 2016. The Statement of Net Assets Available for Benefits reflects the fair value of the assets of the Plan and those from the ESOP and the Statement of Changes in Net Assets Available for Benefits reflects the activity of the Plan and includes a transfer in of the assets from the ESOP. Included in the investments transferred in on December 30, 2016 was $221,716,271 of Company stock, which is a non-participant directed investment. As discussed in Note 8, on January 1, 2017, the new merged plan was amended, restated and renamed the Dentsply Sirona Inc. 401(k) Savings and Employee Stock Ownership Plan.
General
The Plan is a contributory defined contribution plan covering all permanent full and part-time employees of Dentsply Sirona Inc. (the “Company”) and its wholly-owned subsidiaries in the United States who are employed in or on temporary assignment outside the United States and who are not covered by another plan. The Plan was established January 1, 1992, and amended, subsequently, several times. On January 1, 2017, the Plan was restated to reflect the Plan merger discussed above.
The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974 (“ERISA”).
Plan Administration
The Plan is administered by the Retirement Program Committee (the “Committee”). At
December 31, 2016
and
2015
, T. Rowe Price Trust Company (“TRP”) was under a contract as the trustee (the “Trustee”) and custodian of the Plan’s assets. The Committee and Trustee of the Plan are appointed by the Board of Directors of the Company. At
December 31, 2016
and
2015
, TRP was the record keeper of the Plan. The trustee invests funds received from contributions, investment sales, interest and dividend income and makes distribution payments to participants.
Participation
An employee may become a participant in the Plan as soon as administratively feasible following their employment date. If the employee does not make an affirmative election to participate or opt out of participation, they will be automatically enrolled in the Plan. The Company may at times automatically increase participants' deferral percentages by performing an “auto boost” on the entire participant population or on certain population segments to encourage participation in the Plan.
Contributions and Forfeitures
Each year, participants may make pre-tax and post-tax (Roth) contributions up to 100% of their annual compensation, as defined by the Plan, in multiples of 1% except for certain highly compensated participants who are subject to limitations. Participants that are automatically enrolled in the Plan will be deemed to have elected a salary deferral contribution of 3%. Participants may change their deferral election at any time throughout the year as defined in the Plan document. Participants may also contribute amounts representing rollovers from other qualified defined benefit or contribution plans. The Company does not make matching contributions to the Plan. Effective for the 2006 plan year and beyond, the Company, at the discretion of the Board of Directors, may make a non-elective contribution to eligible participants. Contributions are recognized in the period when earned as determined by the Company’s Board of Directors. During
2016
and
2015
, the Company’s non-elective contribution amounted to $6,980,027 and $6,613,884, respectively. Forfeitures are used to reduce the Company non-elective contribution. At
December 31, 2016
and
2015
, forfeited non-elective contributions amounted to $265,283 and $236,178, respectively. These forfeitures were used to reduce the
2016
and
2015
non-elective contributions that are recorded as receivables to the Plan at year end and were paid in 2017 and 2016, respectively. As discussed in Note 1, due to the merger certain Company contributions earned in the ESOP are recorded as
receivables in this Plan. In addition to the investments being transferred into the Plan, the ESOP receivable of $6,603,493 was transferred and is included in Employer Contribution Receivable on the Statement of Net Assets Available for Benefits. This receivable was earned in the ESOP for the year ended December 31, 2016 and this activity is included in the Transfer In amount on the Statement of Changes in Net Assets Available for Benefits.
The participants may direct their contributions into several different investment options. If a participant fails to provide such direction, including those participants automatically enrolled in the Plan, contributions are invested in the target maturity fund appropriate for the participant’s expected normal retirement age. Contributions are subject to certain Internal Revenue Service (“IRS”) limitations.
The Company may amend or revoke a participant’s deferral election if the Company determines that such revocation or amendment is necessary to ensure that a participant's annual addition for any plan year will not exceed the limitation of Section 5.6(b) of the Plan document, or to ensure that the actual deferral percentage nondiscrimination test is met for such plan year.
Participant Accounts
Each participant's 401(k) account is credited with the participant’s contributions, Company non-elective contributions and an allocation of Plan earnings (including unrealized appreciation or depreciation of Plan assets) and charged with an allocation of administrative expenses, if any. Allocations are based on participant earnings or account balances, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Participants are immediately vested in their contributions and earnings thereon. If participants cease participation, other than by retirement, disability, or death, the vested interest in Company non-elective contributions to their accounts is dependent upon the years of credited service, as follows:
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Years of Service
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Percent Vested
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Less than 2
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—%
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2
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20%
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3
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40%
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4
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60%
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5
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80%
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6 years and after
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100%
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Payment of Benefits
Participants are entitled to receive a distribution equal to their vested account balances upon death, retirement, termination or permanent disability. Participants may elect to receive their 401(k) benefits in either a lump-sum payment or periodic installments as defined by the provisions of the Plan. Assets may be withdrawn by participants in the case of personal financial hardship upon approval of the Plan Administrator.
Notes Receivable from Participants
Participants may borrow from their accounts the lesser of $50,000 or 50% of their vested account balance (subject to a $1,000 minimum loan balance). Participants are charged a $50 fee for loans, which is paid directly from their account. Loan terms may not exceed five years, except for loans to facilitate the purchase of a primary residence. The loans bear interest at rates that range from 4.00% to 6.50% at
December 31, 2016
, which are commensurate with prevailing rates as determined by the Plan Administrator. Principal and interest are paid ratably through payroll deductions. Participants may not have more than two loans outstanding at the same time. Loans are secured by the balance in the participant’s account. Access to Company non-elective contribution balances is subject to the financial hardship conditions required under the hardship withdrawal provisions of the Plan.
Administrative Costs
Certain administrative costs of maintaining the Plan are absorbed by the Company and are excluded from these financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:
Basis of Accounting
The financial statements of the Plan are prepared on the accrual basis of accounting.
Investment Valuation and Income Recognition
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Retirement Plan Committee determines the Plans valuation policies utilizing information provided by the Trustee. See Note 3, Fair Value Measurements, for additional details.
Purchases and sales of securities are recorded on a trade-date basis. Net appreciation (depreciation) includes the Plan’s gains and losses on investments bought and sold as well as held during the years. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date.
Investment Fees
N
et investment returns reflect certain fees paid by the investment funds to their affiliated investment advisers, transfer agents, and others as further described in each fund prospectus or other published documents. These fees are deducted prior to allocation of the Plan’s investment earnings activity and thus are not separately identifiable as an expense.
Notes Receivable from Participants
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid interest. The loan default period is equal to the IRS maximum of 90 days, which is the end of the calendar quarter following the quarter in which the payment was missed. Delinquent notes receivable are recorded as distributions based upon the terms of the Plan document. Related fees are recorded as administrative expenses and are expensed when they are incurred. Interest income is recorded on the accrual basis. No allowance for credit losses has been recorded as of December 31, 2016 and 2015.
Payment of Benefits
Benefit payments to participants are recorded when paid.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) requires the Plan Administrator to make estimates and assumptions that affect certain reported amounts of assets and liabilities and changes therein, and disclosures of contingent assets and liabilities. Accordingly, actual results may differ from those estimates.
NOTE 3 - FAIR VALUE MEASUREMENT
The framework for measuring fair value provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under authoritative guidance are described as follows:
Level 1 - Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, such as:
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•
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quoted prices for similar assets or liabilities in active markets;
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•
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quoted prices for identical or similar assets or liabilities in inactive markets;
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•
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inputs other than quoted prices that are observable for the asset or liability;
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•
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inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques maximize the use of relevant observables and minimize the use of unobservable inputs.
Following is a description of the valuation methodologies used for assets measured at fair value. There have been no changes in the methodologies used at
December 31, 2016
and
2015
.
Mutual funds are valued at the daily closing price as reported by the fund. Mutual funds held by the Plan are open-end mutual funds that are registered with the U.S. Securities and Exchange Commission. These funds are required to publish their daily quoted net asset value (“NAV”) and to transact at that price. The mutual funds held by the Plan are deemed to be actively traded.
Company Common stock is valued at the closing price reported on the active markets on which the individual securities are traded.
The stable value fund is valued at the NAV of the units of collective trust. The NAV, as provided by the Trustee, is used as a practical expedient to estimate fair value. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. This practical expedient is not used when it is determined to be probable that the fund will sell the investment for an amount different than the reported NAV. Participant transactions (purchases and sales) may occur daily. Were the Plan to initiate a full redemption of the collective trust, the investment adviser reserves the right to temporarily delay withdrawal from the trust in order to ensure that securities liquidations will be carried out in an orderly business manner.
The following tables sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value at
December 31, 2016
and
2015
:
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Assets at Fair Value at December 31, 2016
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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259,065,526
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—
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—
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$
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259,065,526
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Company Common Stock
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239,342,742
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—
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—
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239,342,742
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Total assets in the fair value hierarchy
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498,408,268
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—
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—
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498,408,268
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Investment measured at net asset value (a)
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—
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—
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—
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23,589,880
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$
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521,998,148
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(a) In accordance with Accounting Standards Codification Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of their fair value hierarchy to the line items presented in the Statement of Net Assets Available for Benefits.
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Assets at Fair Value at December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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224,437,627
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—
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—
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$
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224,437,627
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Company Common Stock
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18,415,186
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—
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—
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18,415,186
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Total assets in the fair value hierarchy
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242,852,813
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—
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—
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242,852,813
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Investment measured at net asset value (a)
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—
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—
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—
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13,876,776
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$
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256,729,589
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(a) In accordance with Accounting Standards Codification Subtopic 820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of their fair value hierarchy to the line items presented in the Statement of Net Assets Available for Benefits.
For years ended
December 31, 2016
and
2015
, there were no significant transfers between Levels 1 and 2 and no transfers in or out of Level 3.
Investments Measured using NAV per share Practical Expedient
The following table summarizes investments measured at fair value using NAV per share at
December 31, 2016
and
2015
, respectively. There are no participant redemption restrictions for these investments; the redemption notice period is applicable only to the Plan.
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December 31, 2016
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Fair Value
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Unfunded Commitments
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Redemption
Frequency (if
currently eligible)
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Redemption Notice Period
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Common Trust
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Stable Value Fund
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23,589,880
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N/A
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Daily
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30 days
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N/A - Not applicable
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December 31, 2015
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Fair Value
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Unfunded Commitments
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Redemption
Frequency (if
currently eligible)
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Redemption Notice Period
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Common Trust
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Stable Value Fund
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13,876,776
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N/A
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Daily
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30 days
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N/A - Not applicable
NOTE 4 - PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan at any time, subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
NOTE 5 - INCOME TAX STATUS
The IRS has determined and informed the Company by a letter dated June 26, 2015, that the Plan and related trust are designed in accordance with applicable sections of the Internal Revenue Code (“IRC”). The Plan Administrator and the Plan’s advisers believe that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC. Therefore, they believe the Plan was qualified and the related trust was tax-exempt at the financial statement date.
US GAAP requires plan management to evaluate tax positions taken by the Plan and recognize a tax liability if the organization has taken an uncertain position that more likely than not would not be sustained upon examination by the IRS. The Plan is subject
to routine audits for the years 2013, 2014 and 2015 by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
NOTE 6 - RELATED PARTY TRANSACTIONS
During
2016
and
2015
, certain plan investments were shares of registered investment companies and a stable value fund managed by T. Rowe Price Trust Company, the Trustee of the Plan. In addition, the Plan offers an investment in Dentsply Sirona Inc. common stock. The transactions in these investments are party-in-interest transactions which are exempt from prohibited transaction rules of ERISA. Additionally, the Plan issues loans to participants, which are secured by the participant’s account balances. These transactions qualify as party-in-interest transactions.
Certain administrative functions of the Plan are performed by officers or employees of the Company. No such officer or employee receives compensation from the Plan.
Purchases made by the Plan for the investment in the Company’s common stock amounted to $3,017,338 and $1,665,348 for the years ended
December 31, 2016
and
2015
, respectively. Sales made by the Plan for the investment in the Company’s common stock amounted to $2,872,796 and $2,572,253 for the years ended
December 31, 2016
and
2015
, respectively.
At
December 31, 2016
, the Plan held approximately 4,260,285 shares of Dentsply Sirona Inc. common stock at a per share price of $57.73. At
December 31, 2015
, the Plan held approximately 302,632 shares of Dentsply Sirona Inc. common stock at a per share price of $60.85.
NOTE 7 - RISKS AND UNCERTAINTIES
Investments of the Plan are exposed to various risks, such as interest rate, market, and credit. Due to the level of risk associated with certain investments and the level of uncertainty related to changes in the value of investments, it is at least reasonably possible that changes in risks in the near term would materially affect investment assets reported in the Statements of Net Assets Available for Benefits and the Statements of Changes in Net Assets Available for Benefits.
Concentration of investments in the Plan is representative of an individual investment fund balance totaling more than approximately 10% of total net assets available for benefits. As of December 31, 2016 and 2015, the Plan had investments of $239,342,742 and $18,415,186, respectively, concentrated in Company common stock. As of December 31, 2016 and 2015, these investments consisted of approximately 46% and 7% of total net assets available for benefits, respectively.
NOTE 8 - SUBSEQUENT EVENT
As discussed in Note 1 to the Financial Statements, effective January 1, 2017 the Plan document was amended and restated and the Plan was renamed the Dentsply Sirona Inc. 401(k) and Employee Stock Ownership Plan. The new merged plan will operate consistent with the current 401(k) plan, but with the addition of an ESOP component. Some of the key provisions of the ESOP portion of the plan which differ from the 401(k) provisions previously disclosed are 1) a non-contributory defined contribution plan covering all eligible U.S. employees of the Company and its wholly-owned subsidiaries in the United States who are not covered by a collective bargaining unit, 2) contributions under the Plan may be paid to the trust in cash or shares of the Company common stock as determined by the Board Directors, 3) dividends are passed thru to the participant on a current basis unless otherwise elected by the participant and 4) ESOP distributions may be made in the form of Company common stock plus cash for any fractional shares or only cash.