Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2016
OR
 
o    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ______________ to _______________
 
Commission File Number 0-16211
 
DENTSPLY SIRONA Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
39-1434669
(State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
  
Identification No.)
 
221 West Philadelphia Street, York, PA
 
17401-2991
(Address of principal executive offices)
  
(Zip Code)
 
(717) 845-7511
(Registrant’s telephone number, including area code)

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   x No   o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, 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   x No   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” and “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x
Accelerated filer  o
Non-accelerated filer  o
Smaller reporting company  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   
 
Yes   o No   x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  At
July 28, 2016, DENTSPLY SIRONA Inc. had 233,012,331 shares of Common Stock outstanding, with a par value of $.01 per share.




DENTSPLY SIRONA Inc.

TABLE OF CONTENTS
 
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share amounts)
(unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net sales
$
1,022.0

 
$
698.0

 
$
1,794.6

 
$
1,354.3

Cost of products sold
495.1

 
298.3

 
848.8

 
581.3

 
 
 
 
 
 
 
 
Gross profit
526.9

 
399.7

 
945.8

 
773.0

Selling, general and administrative expenses
402.1

 
275.0

 
744.2

 
545.2

Restructuring and other costs
3.6

 
38.9

 
7.7

 
44.3

 
 
 
 
 
 
 
 
Operating income
121.2

 
85.8

 
193.9

 
183.5

 
 
 
 
 
 
 
 
Other income and expenses:
 

 
 

 
 
 
 
Interest expense
9.3

 
9.8

 
18.5

 
20.5

Interest income
(0.4
)
 
(0.7
)
 
(0.9
)
 
(1.4
)
Other expense (income), net
(11.5
)
 
(0.3
)
 
(14.9
)
 
0.2

 
 
 
 
 
 
 
 
Income before income taxes
123.8

 
77.0

 
191.2

 
164.2

Provision (benefit) for income taxes
17.9

 
24.8

 
(40.0
)
 
43.6

Equity in net loss of unconsolidated affiliated company

 
(8.1
)
 

 
(12.6
)
 
 
 
 
 
 
 
 
Net income
105.9

 
44.1

 
231.2

 
108.0

 
 
 
 
 
 
 
 
Less: Net income (loss) attributable to noncontrolling interests
0.5

 

 
0.8

 
(0.1
)
 
 
 
 
 
 
 
 
Net income attributable to Dentsply Sirona
$
105.4

 
$
44.1

 
$
230.4

 
$
108.1

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 
 
 
Basic
$
0.45

 
$
0.32

 
$
1.13

 
$
0.77

Diluted
$
0.44

 
$
0.31

 
$
1.11

 
$
0.76

 
 
 
 
 
 
 
 
Weighted average common shares outstanding:
 

 
 

 
 
 
 
Basic
233.7

 
139.8

 
204.2

 
140.1

Diluted
237.4

 
142.3

 
207.9

 
142.5


See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

3



DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
(unaudited)

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net income
$
105.9

 
$
44.1

 
$
231.2

 
$
108.0

 
 
 
 
 
 
 
 
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Foreign currency translation adjustments
(92.8
)
 
76.0

 
94.0

 
(112.9
)
Net gain (loss) on derivative financial instruments
8.5

 
(16.8
)
 
(16.3
)
 
7.9

Net unrealized holding gain on available-for-sale securities

 
39.4

 

 
70.3

Pension liability adjustments
0.9

 

 
1.8

 
1.4

Total other comprehensive income (loss), net of tax
(83.4
)
 
98.6

 
79.5

 
(33.3
)
 
 
 
 
 
 
 
 
Total comprehensive income
22.5

 
142.7

 
310.7

 
74.7

 
 
 
 
 
 
 
 
Less: Comprehensive income attributable
 

 
 

 
 
 
 
to noncontrolling interests
0.5

 

 
0.9

 
0.5

 
 
 
 
 
 
 
 
Comprehensive income attributable to
 
 
 
 
 
 
 
Dentsply Sirona
$
22.0

 
$
142.7

 
$
309.8

 
$
74.2

 


 


 
 
 
 

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

4



DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except per share amounts)
(unaudited)
 
June 30, 2016
 
December 31, 2015
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
311.6

 
$
284.6

Accounts and notes receivables-trade, net
637.2

 
399.9

Inventories, net
523.1

 
340.4

Prepaid expenses and other current assets, net
266.5

 
171.8

 
 
 
 
Total Current Assets
1,738.4

 
1,196.7

 
 
 
 
Property, plant and equipment, net
794.1

 
558.8

Identifiable intangible assets, net
3,028.5

 
600.7

Goodwill, net
5,794.7

 
1,987.6

Other noncurrent assets, net
95.7

 
59.1

 
 
 
 
Total Assets
$
11,451.4

 
$
4,402.9

 
 
 
 
Liabilities and Equity
 

 
 

Current Liabilities:
 

 
 

Accounts payable
$
227.1

 
$
133.6

Accrued liabilities
466.1

 
310.1

Income taxes payable
19.5

 
20.2

Notes payable and current portion of long-term debt
9.8

 
12.1

 
 
 
 
Total Current Liabilities
722.5

 
476.0

 
 
 
 
Long-term debt
1,171.8

 
1,141.0

Deferred income taxes
849.8

 
160.3

Other noncurrent liabilities
391.7

 
286.2

 
 
 
 
Total Liabilities
3,135.8

 
2,063.5

 
 
 
 
Commitments and contingencies


 


 
 
 
 
Equity:
 

 
 

Preferred stock, $1.00 par value; .25 million shares authorized; no shares issued

 

Common stock, $.01 par value;
2.6

 
1.6

400.0 million and 200.0 million shares authorized at June 30, 2016 and December 31, 2015, respectively
 
 
 
264.5 million and 162.8 million shares issued at June 30, 2016 and December 31, 2015, respectively
 
 
 
233.0 million and 140.1 million shares outstanding at June 30, 2016 and December 31, 2015, respectively.
 
 
 
Capital in excess of par value
6,498.8

 
237.8

Retained earnings
3,784.7

 
3,591.0

Accumulated other comprehensive loss
(514.6
)
 
(594.0
)
Treasury stock, at cost, 31.5 million and 22.7 million shares at June 30, 2016 and December 31, 2015, respectively
(1,460.0
)
 
(898.4
)
Total Dentsply Sirona Equity
8,311.5

 
2,338.0

 
 
 
 
Noncontrolling interests
4.1

 
1.4

 
 
 
 
Total Equity
8,315.6

 
2,339.4

 
 
 
 
Total Liabilities and Equity
$
11,451.4

 
$
4,402.9

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

5



DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(unaudited)
 
Six Months Ended June 30,
 
2016
 
2015
Cash flows from operating activities:
 
 
 
 
 
 
 
Net income
$
231.2

 
$
108.0

 
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 

 
 

Depreciation
55.1

 
38.8

Amortization
65.6

 
21.8

Amortization of deferred financing costs
2.1

 
2.2

Deferred income taxes
(70.5
)
 
28.7

Share-based compensation expense
17.4

 
11.8

Restructuring and other costs - non-cash
3.3

 
45.8

Excess tax benefits from share-based compensation
(8.8
)
 
(8.8
)
Equity in net loss from unconsolidated affiliates

 
12.6

Other non-cash income
(31.5
)
 
(13.6
)
Loss on disposal of property, plant and equipment
0.5

 
0.5

Changes in operating assets and liabilities, net of acquisitions:
 

 
 

Accounts and notes receivable-trade, net
(82.8
)
 
(40.0
)
Inventories, net
44.7

 
4.1

Prepaid expenses and other current assets, net
(8.5
)
 
1.8

Other noncurrent assets, net
1.6

 
0.7

Accounts payable
13.9

 
4.9

Accrued liabilities
(11.1
)
 
(17.7
)
Income taxes
(41.5
)
 
(0.1
)
Other noncurrent liabilities
7.4

 
9.7

 
 
 
 
Net cash provided by operating activities
188.1

 
211.2

 
 
 
 
Cash flows from investing activities:
 

 
 

 
 
 
 
Capital expenditures
(47.8
)
 
(33.5
)
Cash assumed in Sirona merger
522.3

 

Cash paid for acquisitions of businesses, net of cash acquired
(0.4
)
 
(3.3
)
Cash received from sale of business or product line
2.4

 

Cash received on derivatives contracts
10.7

 
14.3

Cash paid on derivatives contracts
(3.6
)
 
(0.8
)
Purchase of Company-owned life insurance policies
(1.7
)
 

Proceeds from sale of property, plant and equipment, net
4.4

 
0.3

 
 
 
 
Net cash provided by (used in) investing activities
486.3

 
(23.0
)
 
 
 
 
Cash flows from financing activities:
 

 
 

 
 
 
 
(Decrease) increase in short-term borrowings
(3.6
)
 
33.4

Cash paid for treasury stock
(600.0
)
 
(99.0
)
Cash dividends paid
(28.6
)
 
(19.6
)
Cash paid for acquisition of noncontrolling interests of consolidated subsidiary

 
(80.5
)
Proceeds from long-term borrowings
79.9

 

Repayments on long-term borrowings
(127.5
)
 
(100.2
)
Proceeds from exercised stock options
20.4

 
18.6

Excess tax benefits from share-based compensation
8.8

 
8.8

 
 
 
 
Net cash used in financing activities
(650.6
)
 
(238.5
)
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
3.2

 
(4.8
)
 
 
 
 
Net increase (decrease) in cash and cash equivalents
27.0

 
(55.1
)
 
 
 
 
Cash and cash equivalents at beginning of period
284.6

 
151.6

 
 
 
 
Cash and cash equivalents at end of period
$
311.6

 
$
96.5

 
 
 
 
Schedule of non-cash investing activities:
 
 
 
   Merger financed by common stock
$
6,256.2

 
$

 
See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

6



DENTSPLY SIRONA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(In millions)
(unaudited)

 
Common
Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
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

 

 
108.1

 

 

 
108.1

 
(0.1
)
 
108.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive loss

 

 

 
(33.9
)
 

 
(33.9
)
 
0.5

 
(33.4
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options

 
(4.7
)
 

 

 
23.3

 
18.6

 

 
18.6

Tax benefit from stock options exercised

 
8.8

 

 

 

 
8.8

 

 
8.8

Share based compensation expense

 
11.8

 

 

 

 
11.8

 

 
11.8

Funding of Employee Stock Ownership Plan

 
1.1

 

 

 
3.6

 
4.7

 

 
4.7

Treasury shares purchased

 

 

 

 
(99.0
)
 
(99.0
)
 

 
(99.0
)
RSU distributions

 
(13.9
)
 

 

 
8.6

 
(5.3
)
 

 
(5.3
)
RSU dividends

 
0.2

 
(0.2
)
 

 

 

 

 

Cash dividends ($0.145 per share)

 

 
(20.2
)
 

 

 
(20.2
)
 

 
(20.2
)
Balance at June 30, 2015
$
1.6

 
$
225.0

 
$
3,468.4

 
$
(475.0
)
 
$
(905.1
)
 
$
2,314.9

 
$
1.3

 
$
2,316.2


 
Common
Stock
 
Capital in
Excess of
Par Value
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Loss
 
Treasury
Stock
 
Total Dentsply Sirona
Equity
 
Noncontrolling
Interests
 
Total
Equity
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

 

 
230.4

 

 

 
230.4

 
0.8

 
231.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income

 

 

 
79.4

 

 
79.4

 
0.1

 
79.5

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common stock issuance related to Sirona merger
1.0

 
6,253.4

 

 

 

 
6,254.4

 
1.8

 
6,256.2

Exercise of stock options

 
(4.5
)
 

 

 
24.8

 
20.3

 

 
20.3

Tax benefit from stock options exercised

 
8.8

 

 

 

 
8.8

 

 
8.8

Share based compensation expense

 
17.4

 

 

 

 
17.4

 

 
17.4

Funding of Employee Stock Ownership Plan

 
2.1

 

 

 
4.2

 
6.3

 

 
6.3

Treasury shares purchased

 

 

 

 
(600.0
)
 
(600.0
)
 

 
(600.0
)
RSU distributions

 
(16.5
)
 

 

 
9.4

 
(7.1
)
 

 
(7.1
)
RSU dividends

 
0.3

 
(0.3
)
 

 

 

 

 

Cash dividends ($0.155 per share)

 

 
(36.4
)
 

 

 
(36.4
)
 

 
(36.4
)
Balance at June 30, 2016
$
2.6

 
$
6,498.8

 
$
3,784.7

 
$
(514.6
)
 
$
(1,460.0
)
 
$
8,311.5

 
$
4.1

 
$
8,315.6


See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

7



DENTSPLY SIRONA Inc. and Subsidiaries

NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and the rules of the U.S. Securities and Exchange Commission (“SEC”).  The year-end consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by US GAAP. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of the results for interim periods have been included. Results for interim periods should not be considered indicative of results for a full year. These financial statements and related notes contain the accounts of DENTSPLY SIRONA Inc. and Subsidiaries (“Dentsply Sirona” or the “Company”) on a consolidated basis and should be read in conjunction with the consolidated financial statements and notes included in DENTSPLY International Inc.’s most recent Form 10-K for the year ended December 31, 2015.

On February 29, 2016, DENTSPLY International Inc. merged with Sirona Dental Systems, Inc. (“Sirona”) to form DENTSPLY SIRONA Inc. The accompanying unaudited interim Consolidated Statements of Operations for the three and six months ended June 30, 2016 include the results of operations for Sirona for the period February 29, 2016 to June 30, 2016. The accompanying unaudited interim Consolidated Balance Sheets at June 30, 2016 includes Sirona’s acquired assets and assumed liabilities. See Note 5, Business Combinations, for additional information about the merger.

Reference throughout this Form 10-Q to “DENTSPLY”, or the “Company” refers to financial information and transactions of DENTSPLY International Inc. prior to February 29, 2016 and DENTSPLY SIRONA Inc, or the “Company”, thereafter.

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of the Company, as applied in the interim consolidated financial statements presented herein are substantially the same as presented in DENTSPLY’s Form 10-K for the year ended December 31, 2015, except as may be indicated below:

Accounts and Notes Receivable

The Company records a provision for doubtful accounts, which is included in Selling, general and administrative expenses in the Consolidated Statements of Operations.

Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $19.2 million at June 30, 2016 and $10.7 million at December 31, 2015.

Marketable Securities

The Company accounts for its direct investment in the DIO Corporation (“DIO”) using the cost-basis method of accounting. At June 30, 2016, the fair value of the direct investment was $79.8 million.

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

8



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. The Company expects to adopt these accounting standards for the quarter ended March 31, 2018. The Company is currently assessing the impact that these pronouncements may have on its financial position, results of operations, cash flows and disclosures, as well as the transition method it will use to adopt the guidance.

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 is currently assessing the impact that this pronouncements may have on its financial position and disclosures.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying Accounting for Measurement Period Adjustments.” This accounting standard seeks to simplify the accounting related to Business Combinations. Current US GAAP requires retrospective adjustment for provisional amounts recognized during the measurement periods when facts and circumstances that existed at the measurement date, if known, would have affected the measurement of the accounts initially recognized. This standard eliminates the requirement for retrospective adjustments and requires adjustments to the Financial Statements as needed in current period earnings for the full effect of changes. The Company adopted this accounting standard for the quarter ended March 31, 2016. The adoption of this standard did not materially impact the Company’s financial position or results of operations.
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 adoption of this standard is required for interim and fiscal periods ending after December 15, 2016 and is permitted to be adopted prospectively or retrospectively. The Company is currently assessing the impact that this standard may have on its financial position and disclosures.
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 on 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 on 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.
In March 2016, the FASB issued ASU No. 2016-09, “Stock Compensation.” This newly issued accounting standard seeks to simplify the accounting for all entities that issue share-based payment awards to their employees. The primary areas of change include accounting for income taxes, cash flow statement classification of excess tax benefits and employee taxes paid when an employer withholds shares, accounting for forfeitures and tax withholding requirements. The adoption of this standard is required for interim and fiscal periods ending after December 15, 2016. Early adoption is permitted. Amendments related to the timing of when excess tax benefits are recognized, 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

9



in which the guidance is adopted. Amendments related to the presentation of employee taxes paid on 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 is currently assessing the impact that this standard will have on its financial position, results of operations, cash flows and disclosures.
NOTE 2 – STOCK COMPENSATION

The following table represents total stock based compensation expense for non-qualified stock options, restricted stock units (“RSU”) and the tax related benefit for the three and six months ended June 30, 2016 and 2015.
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Stock option expense
 
$
3.4

 
$
2.3

 
$
5.5

 
$
3.8

RSU expense
 
8.7

 
4.3

 
11.1

 
7.4

Total stock based compensation expense
 
$
12.1

 
$
6.6

 
$
16.6

 
$
11.2

 
 
 
 
 
 
 
 
 
Total related tax benefit
 
$
2.8

 
$
1.8

 
$
4.1

 
$
3.4


For the three and six months ended June 30, 2016, stock compensation expense of $12.1 million and $16.6 million, respectively, of which, $11.9 million and $16.3 million, respectively, was recorded in Selling, general and administrative expenses and $0.2 million and $0.3 million, respectively, was recorded in Cost of products sold on the Consolidated Statements of Operations. For the three and six months ended June 30, 2015, stock compensation expense of $6.6 million and $11.2 million, respectively, of which $6.4 million and $10.9 million, respectively, was recorded in Selling, general and administrative expense and $0.2 million and $0.3 million, respectively, was recorded in Cost of products sold on the Consolidated Statements of Operations.

NOTE 3 – COMPREHENSIVE INCOME

During the quarter ended June 30, 2016, foreign currency translation adjustments included currency translation gains of $91.4 million and losses of $1.6 million on the Company’s loans designated as hedges of net investments.  During the quarter ended June 30, 2015, foreign currency translation adjustments included currency translation losses of $74.9 million and losses of $0.4 million on the Company’s loans designated as hedges of net investments.  During the six months ended June 30, 2016, foreign currency translation adjustments included currency translation gains of $107.2 million and losses of $13.3 million on the Company’s loans designated as hedges of net investments. During the six months ended June 30, 2015, foreign currency translation adjustments included currency translation losses of $113.7 million and losses of $1.2 million on the Company’s loans designated as hedges of net investments. These amounts are recorded in AOCI, net of any related tax adjustments. At June 30, 2016 and December 31, 2015, the cumulative tax adjustments were $185.5 million and $169.3 million, respectively, primarily related to foreign currency translation adjustments.

The cumulative foreign currency translation adjustments included translation losses of $200.3 million and $307.5 million at June 30, 2016 and December 31, 2015, respectively, and cumulative losses on loans designated as hedges of net investments of $107.0 million and $93.7 million, respectively.  These foreign currency translation adjustments were partially offset by movements on derivative financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.















10





Changes in AOCI, net of tax, by component for the six months ended June 30, 2016 and 2015:
(in millions)
 
Foreign Currency Translation Adjustments
 
Gain (Loss) on Derivative Financial Instruments Designated as Cash Flow Hedges
 
Gain (Loss) on Derivative Financial Instruments Designated as Net Investment Hedges
 
Pension Liability Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2015
 
$
(401.2
)
 
$
(1.2
)
 
$
(110.2
)
 
$
(81.4
)
 
$
(594.0
)
Other comprehensive income (loss) before reclassifications and tax impact
 
86.0

 
(4.6
)
 
(17.2
)
 

 
64.2

Tax benefit
 
7.9

 
1.7

 
6.6

 

 
16.2

Other comprehensive income (loss), net of tax, before reclassifications
 
93.9

 
(2.9
)
 
(10.6
)
 

 
80.4

Amounts reclassified from accumulated other comprehensive income (loss)
 

 
(2.8
)
 

 
1.8

 
(1.0
)
Net increase (decrease) in other comprehensive income
 
93.9

 
(5.7
)
 
(10.6
)
 
1.8

 
79.4

Balance at June 30, 2016
 
$
(307.3
)
 
$
(6.9
)
 
$
(120.8
)
 
$
(79.6
)
 
$
(514.6
)

(in millions)
 
Foreign Currency Translation Adjustments
 
Gain (Loss) on Derivative Financial Instruments Designated as Cash Flow Hedges
 
Gain (Loss) on Derivative Financial Instruments Designated as Net Investment Hedges
 
Net Unrealized Holding Gain (Loss)on Available-for-Sale Securities
 
Pension Liability Adjustments
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2014
 
$
(212.5
)
 
$
(10.8
)
 
$
(112.7
)
 
$
8.5

 
$
(113.6
)
 
$
(441.1
)
Other comprehensive (loss) income before reclassifications and tax impact
 
(107.3
)
 
21.0

 
(3.4
)
 
101.4

 

 
11.7

Tax expense
 
(7.6
)
 
(2.6
)
 
1.0

 
(31.1
)
 

 
(40.3
)
Other comprehensive (loss) income, net of tax, before reclassifications
 
(114.9
)
 
18.4

 
(2.4
)
 
70.3

 

 
(28.6
)
Amounts reclassified from accumulated other comprehensive (loss) income
 

 
(8.2
)
 

 

 
2.9

 
(5.3
)
Net (decrease) increase in other comprehensive income
 
(114.9
)
 
10.2

 
(2.4
)
 
70.3

 
2.9

 
(33.9
)
Balance at June 30, 2015
 
$
(327.4
)
 
$
(0.6
)
 
$
(115.1
)
 
$
78.8

 
$
(110.7
)
 
$
(475.0
)









11





Reclassifications out of accumulated other comprehensive income (expense) to the Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015:
(in millions)
 
 
 
 
 
 
Details about AOCI Components
 
Amounts Reclassified from AOCI
 
Affected Line Item in the Consolidated Statements of Operations
 
Three Months Ended June 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
 
Gain (loss) on derivative financial instruments:
Interest rate swaps
 
$
(0.9
)
 
$
(1.1
)
 
Interest expense
Foreign exchange forward contracts
 
2.1

 
6.8

 
Cost of products sold
Foreign exchange forward contracts
 

 
0.2

 
SG&A expenses
Commodity contracts
 
0.2

 
(0.1
)
 
Cost of products sold
Net gain before tax
 
1.4

 
5.8

 

Tax impact
 
(0.1
)
 
(1.2
)
 
Provision (benefit) for income taxes
Net gain after tax
 
$
1.3

 
$
4.6

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit pension and other postemployment benefit items:
Amortization of prior service benefits
 
$
0.1

 
$

 
(a)
Amortization of net actuarial losses
 
(1.4
)
 
(2.0
)
 
(a)
Net loss before tax
 
(1.3
)
 
(2.0
)
 

Tax impact
 
0.4

 
0.6

 
Provision (benefit) for income taxes
Net loss after tax
 
$
(0.9
)
 
$
(1.4
)
 

 
 
 
 
 
 
 
Total reclassifications for the period
 
$
0.4

 
$
3.2

 
 
(a) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost for the three months ended June 30, 2016 and 2015 (see Note 8, Benefit Plans, for additional details).



12



(in millions)
 
 
 
 
 
 
Details about AOCI Components
 
Amounts Reclassified from AOCI
 
Affected Line Item in the Consolidated Statements of Operations
 
Six Months Ended June 30,
 
 
2016
 
2015
 
 
 
 
 
 
 
 
Gain (loss) on derivative financial instruments:
Interest rate swaps
 
$
(2.0
)
 
$
(2.0
)
 
Interest expense
Foreign exchange forward contracts
 
5.2

 
10.7

 
Cost of products sold
Foreign exchange forward contracts
 
0.1

 
0.4

 
SG&A expenses
Commodity contracts
 
(0.1
)
 
(0.3
)
 
Cost of products sold
Net gain before tax
 
3.2

 
8.8

 
 
Tax impact
 
(0.4
)
 
(0.6
)
 
Provision (benefit) for income taxes
Net gain after tax
 
$
2.8

 
$
8.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of defined benefit pension and other postemployment benefit items:
Amortization of prior service benefits
 
$
0.1

 
$
0.1

 
(a)
Amortization of net actuarial losses
 
(2.6
)
 
(4.1
)
 
(a)
Net loss before tax
 
(2.5
)
 
(4.0
)
 
 
Tax impact
 
0.7

 
1.1

 
Provision (benefit) for income taxes
Net loss after tax
 
$
(1.8
)
 
$
(2.9
)
 
 
 
 
 
 
 
 
 
Total reclassifications for the period
 
$
1.0

 
$
5.3

 
 
(a) These accumulated other comprehensive income components are included in the computation of net periodic benefit cost for the six months ended June 30, 2016 and 2015 (see Note 8, Benefit Plans, for additional details).

NOTE 4 – EARNINGS PER COMMON SHARE

The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2016 and 2015:
Basic Earnings Per Common Share Computation
 
Three Months Ended
 
Six Months Ended
(in millions, except per share amounts)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net income attributable to Dentsply Sirona
 
$
105.4

 
$
44.1

 
$
230.4

 
$
108.1

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
233.7

 
139.8

 
204.2

 
140.1

 
 
 
 
 
 
 
 
 
Earnings per common share - basic
 
$
0.45

 
$
0.32

 
$
1.13

 
$
0.77

 
 
 
 
 
 
 
 
 
Diluted Earnings Per Common Share Computation
 
 

 
 

 
 
 
 
(in millions, except per share amounts)
 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
Net income attributable to Dentsply Sirona
 
$
105.4

 
$
44.1

 
$
230.4

 
$
108.1

 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
233.7

 
139.8

 
204.2

 
140.1

Incremental weighted average shares from assumed exercise of
dilutive options from stock-based compensation awards
 
3.7

 
2.5

 
3.7

 
2.4

Total weighted average diluted shares outstanding
 
237.4

 
142.3

 
207.9

 
142.5

 
 
 
 
 
 
 
 
 
Earnings per common share - diluted
 
$
0.44

 
$
0.31

 
$
1.11

 
$
0.76



13



The calculation of weighted average diluted common shares outstanding excludes stock options and RSUs of 0.5 million and 0.8 million shares of common stock that were outstanding during the three and six months ended June 30, 2016, respectively, because their effect would be antidilutive.

On February 29, 2016, in conjunction with the merger, the Company increased the authorized number of common shares to 400.0 million.

NOTE 5 – BUSINESS COMBINATIONS

On February 29, 2016, DENTSPLY merged with Sirona in an all-stock transaction and the registrant was renamed DENSTPLY SIRONA Inc. 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 of the 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 Company changed its name to DENTSPLY SIRONA Inc. and the common stock continues to trade on the NASDAQ under the ticker “XRAY”.

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 is positioned to capitalize on key industry trends to drive growth, including accelerating adoption of digital dentistry.

The following table summarizes the consideration transferred:
(in millions, except per share amount)*
 
 
 
 
 
 
 
 
 
Sirona common shares outstanding at February 29, 2016
 
56.1

 
 
Exchange ratio
 
1.8142

 
 
DENTSPLY common stock issued for consideration
 
101.8

 
 
DENTSPLY common stock per share price at February 26, 2016
 
$
60.67

 
 
Fair value of DENTSPLY common stock issued to Sirona shareholders
 
 
 
$
6,173.8

Fair value of vested portion of Sirona share-based awards outstanding - 1.5 million
 
 
 
 
   at February 29, 2016
 
 
 
82.4

Total acquisition consideration
 
 
 
$
6,256.2

*Table may not foot due to rounding

The merger was recorded in accordance with US GAAP pursuant to the provisions of ASC Topic 805, Business Combinations.  The Company has performed a preliminary valuation analysis of identifiable assets acquired and liabilities assumed and allocated the consideration based on the preliminary fair values of those identifiable assets acquired and liabilities assumed, but there may be material changes as the valuation is finalized. In addition, completion of the valuation may impact the assessment of the net deferred tax liability currently recognized with any adjustment resulting in a corresponding change to goodwill. The amount of these potential adjustments could be significant.










14



The following table summarizes the preliminary fair value of identifiable assets acquired and liabilities assumed at the date of the merger:
(in millions)
 
 
 
 
 
Cash and cash equivalents
 
$
522.3

Trade receivables
 
143.0

Inventory
 
220.7

Prepaid expenses and other current assets
 
109.4

Property, plant and equipment
 
237.1

Identifiable intangible assets
 
2,435.0

Goodwill
 
3,754.6

Other long-term assets
 
10.9

Total assets
 
7,433.0

Accounts payable
 
68.0

Other current liabilities
 
191.0

Debt
 
57.5

Deferred income taxes
 
766.9

Other long-term liabilities
 
93.4

Total liabilities
 
1,176.8

Total identifiable net assets
 
$
6,256.2


Inventory held by Sirona includes a fair value adjustment of $72.0 million.  The Company expensed this amount by 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.

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)
 
 
 
Weighted Average

 
 
 
Useful Life
 
 
Amount
 
(in years)
 
 
 
 
 
Customer relationships
 
$
495.0

 
14
Developed technology and patents
 
1,035.0

 
12
Trade names and trademarks
 
905.0

 
Indefinite
Total
 
$
2,435.0

 
 

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.



15



The $3,754.6 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 $3,642.0 million has been assigned to the Company's Technologies segment and $112.6 million has been assigned to the Company’s Dental and Healthcare Consumables segment. The goodwill is not expected to be deductible for tax purposes.

Sirona contributed net sales of $438.3 million and operating income of $102.4 million to the Company's Consolidated Statements of Operations during the period from February 29, 2016 to June 30, 2016 and is primarily included in the Technologies segment.

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company had the merger occurred on January 1, 2015.  Sirona’s financial information has been compiled in a manner consistent with the accounting policies adopted by DENTSPLY. The unaudited pro forma financial information 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 are they indicative of any future results.
 
 
Pro forma - unaudited
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
(in millions, except per share amount)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Net sales
 
$
1,022.0

 
$
1,001.8

 
$
1,962.2

 
$
1,905.0

Net income attributable to Dentsply Sirona
 
$
141.2

 
$
81.5

 
$
234.9

 
$
175.9

Diluted earnings per common share
 
$
0.59

 
$
0.33

 
$
0.99

 
$
0.72


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.

For the six months ended June 30, 2016, in connection with the merger, the Company has incurred $31.4 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.

On June 27, 2016, the Company announced a definitive agreement to acquire all of the outstanding shares of privately held MIS Implants Technologies Ltd. (“MIS”), a dental implant systems manufacturer headquartered in northern Israel, for $375.0 million in cash. MIS is a growing and profitable manufacturer of dental implant systems with annual sales of approximately $80.0 million. The company is a leader in the value segment of the market, selling its products under the MIS brand through a wide distribution network that includes a direct sales force, reaching over 65 countries. The Company expects to close the acquisition by the end of 2016 upon successful completion of pre-closing conditions and routine governmental clearances.

NOTE 6 – SEGMENT INFORMATION

The Company has numerous operating businesses covering a wide range of dental consumable products, dental technology products and certain healthcare products primarily serving the professional dental market. Professional dental products represented approximately 92% of net sales for the three and six months ended June 30, 2016 and 88% of net sales for the three and six months ended June 30, 2015.

The operating businesses are combined into two operating groups, which generally have overlapping geographical presence, customer bases, distribution channels, and regulatory oversight. These operating groups are considered the Company’s reportable segments 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 accounting policies of the segments are consistent with those described in DENTSPLY’s most recently filed Form 10-K, in the summary of significant accounting policies.



16



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. 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 reportable segments is provided below.

During the March 31, 2016 quarter, the Company realigned reporting responsibilities as a result of the merger and changed the management structure. The segment information below reflects the revised structure for all periods shown.

Dental and Healthcare Consumables

This segment includes responsibility for the worldwide design, manufacture, sales and distribution of the Company’s preventive, restorative, instruments, endodontic, and laboratory dental products, as well as consumable medical device products.

Technologies

This segment is responsible for the worldwide design, manufacture, sales and distribution of the Company’s dental implants, CAD/CAM systems, imaging systems, treatment centers and orthodontic products.

The following tables set forth information about the Company’s segments for the three and six months ended June 30, 2016 and 2015:

Third Party Net Sales
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Dental and Healthcare Consumables
 
$
543.8

 
$
510.9

 
$
1,032.7

 
$
991.0

Technologies
 
478.2

 
187.1

 
761.9

 
363.3

Total net sales
 
$
1,022.0

 
$
698.0

 
$
1,794.6

 
$
1,354.3


Third Party Net Sales, Excluding Precious Metal Content
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Dental and Healthcare Consumables
 
$
526.7

 
$
487.8

 
$
997.5

 
$
943.3

Technologies
 
478.0

 
186.9

 
761.7

 
362.9

Total net sales, excluding precious metal content
 
1,004.7

 
674.7

 
1,759.2

 
1,306.2

Precious metal content of sales
 
17.3

 
23.3

 
35.4

 
48.1

Total net sales, including precious metal content
 
$
1,022.0

 
$
698.0

 
$
1,794.6

 
$
1,354.3











17





Inter-segment Net Sales
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Dental and Healthcare Consumables
 
$
58.2

 
$
55.9

 
$
113.5

 
$
108.0

Technologies
 
2.1

 
1.6

 
3.5

 
3.3

All Other (a)
 
74.0

 
67.1

 
142.7

 
132.2

Eliminations
 
(134.3
)
 
(124.6
)
 
(259.7
)
 
(243.5
)
Total
 
$

 
$

 
$

 
$

(a) Includes amounts recorded at one distribution warehouse not managed by named segments.

Segment Adjusted Operating Income
 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Dental and Healthcare Consumables
 
$
151.7

 
$
125.8

 
$
282.4

 
$
239.1

Technologies
 
112.1

 
21.7

 
165.9

 
42.6

Segment adjusted operating income before income taxes and interest
 
263.8

 
147.5

 
448.3

 
281.7

 
 
 
 
 
 
 
 
 
Reconciling items (income) expense:
 
 

 
 

 
 
 
 
All Other (b)
 
93.8

 
11.4

 
178.9

 
31.2

Restructuring and other costs
 
3.6

 
38.9

 
7.7

 
44.3

Interest expense
 
9.3

 
9.8

 
18.5

 
20.5

Interest income
 
(0.4
)
 
(0.7
)
 
(0.9
)
 
(1.4
)
Other expense (income), net
 
(11.5
)
 
(0.3
)
 
(14.9
)
 
0.2

Amortization of intangible assets
 
43.8

 
10.9

 
65.6

 
21.8

Depreciation resulting from the fair value step-up of property,
plant and equipment from business combinations
 
1.4

 
0.5

 
2.2

 
0.9

Income before income taxes
 
$
123.8

 
$
77.0

 
$
191.2

 
$
164.2

(b) Includes the results of unassigned Corporate headquarter costs, inter-segment eliminations and one distribution warehouse not managed by named segments.

Assets
(in millions)
 
June 30, 2016
 
December 31, 2015
 
 
 
 
 
Dental and Healthcare Consumables
 
$
2,160.5

 
$
1,776.5

Technologies
 
7,068.4

 
951.2

All Other (c)
 
2,222.5

 
1,675.2

Total
 
$
11,451.4

 
$
4,402.9

(c) Includes the assets of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.

For the three and six months ended June 30, 2016, two customers accounted for more than ten percent of consolidated net sales for the period and more than ten percent of the consolidated accounts receivable balance at the period ended.

NOTE 7 – INVENTORIES

Inventories are stated at the lower of cost or market.  The cost of inventories determined by the last-in, first-out (“LIFO”) method at June 30, 2016 and December 31, 2015 were $7.6 million and $8.1 million, respectively. The cost of other inventories

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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 June 30, 2016 and December 31, 2015 by $6.5 million and $6.6 million, respectively.

Inventories, net of inventory valuation reserves, consist of the following:
(in millions)
 
June 30, 2016
 
December 31, 2015
 
 
 
 
 
Finished goods
 
$
327.5

 
$
218.2

Work-in-process
 
76.4

 
52.3

Raw materials and supplies
 
119.2

 
69.9

Inventories, net
 
$
523.1

 
$
340.4


The inventory valuation reserves were $61.2 million and $36.3 million at June 30, 2016 and December 31, 2015, respectively.

NOTE 8 – BENEFIT PLANS

The following sets forth the components of net periodic benefit cost of the Company’s defined benefit plans and for the Company’s other postemployment benefit plans for the three and six months ended June 30, 2016 and 2015:

Defined Benefit Plans 
 
Three Months Ended
 
Six Months Ended
(in millions)
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
 
Service cost
 
$
3.9

 
$
4.3

 
$
7.7

 
$
8.7

Interest cost
 
2.0