BENEFIT PLANS
Defined Contribution Plans
The DENTSPLY Employee Stock Ownership Plan (“ESOP”) and 401(k) plans are designed to have contribution allocations of eligible compensation, with a targeted 3% going into the ESOP in Company stock and a targeted 3% going into the 401(k) as a non-elective contribution in cash. The Company sponsors an employee 401(k) savings plan for its U.S. workforce to which enrolled participants may contribute up to Internal Revenue Service defined limits. The ESOP is a non-contributory defined contribution plan that covers substantially all of the U.S. based non-union employees of the Company. All future ESOP allocations will come from a combination of forfeited shares and shares acquired in the open market. The share allocation will be accounted at fair value at the point of allocation, which is normally year-end. In addition to these plans, the Company also maintains various other U.S. and non-U.S. defined contribution and non-qualified deferred compensation plans. The annual expense, net of forfeitures, were $25.8 million, $26.1 million and $17.5 million for 2013, 2012 and 2011, 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 U.S. plans are funded in excess of the funding required by the U.S. Department of Labor.
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, Spain, 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 Sweden plans are unfunded book reserve plans. Most employees and retirees outside the U.S. are covered by government health plans.
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 do not include common stock of the Company. Fixed income securities include corporate bonds of companies from diversified industries, government bonds, mortgage notes and pledge letters. Other types of investments include investments in mutual funds, common trusts, insurance contracts, hedge funds and real estate. These plan assets are not recorded on the Company’s Consolidated Balance Sheet as they are held in trust or other off-balance sheet investment vehicles.
The defined benefit pension plan assets in the U.S. are held in trust and the investment policies of the plans are generally to invest the plans assets in equities and fixed income investments. The objective is to achieve a long-term rate of return in excess of 5% while at the same time mitigating the impact of 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, Germany, Japan, Norway, the Netherlands, Switzerland and Taiwan all have separate investment policies but generally have an objective to achieve a long-term rate of return in excess 4% while at the same time mitigating the impact of investment risk associated with investment categories that are expected to yield greater than average returns. In accordance with the investment policies for the plans outside the U.S., the plans’ assets were invested in the following investment categories: 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.
Postemployment Healthcare
The Company sponsors postemployment healthcare plans that cover certain union and salaried employee groups in the U.S. and is contributory, with retiree contributions adjusted annually to limit the Company’s contribution for participants who retired after June 1, 1985. The plans for postemployment healthcare have no plan assets. The Company also sponsors unfunded non-contributory postemployment medical plans for a limited number of union employees and their spouses and retirees of a discontinued operation.
Reconciliations of changes in the defined benefit and postemployment healthcare plans’ benefit obligations, fair value of assets and statement of funded status are as follows:
|
| | | | | | | | | | | | | | | |
| | | | | Other Postemployment |
| Pension Benefits | | Benefits |
| December 31, | | December 31, |
(in thousands) | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | |
Change in Benefit Obligation | | | | | | | |
Benefit obligation at beginning of year | $ | 355,766 |
| | $ | 270,607 |
| | $ | 14,218 |
| | $ | 12,217 |
|
Service cost | 14,863 |
| | 12,178 |
| | 234 |
| | 195 |
|
Interest cost | 9,901 |
| | 10,600 |
| | 464 |
| | 490 |
|
Participant contributions | 3,968 |
| | 3,638 |
| | 515 |
| | 535 |
|
Actuarial (gains) losses | (20,727 | ) | | 59,461 |
| | (2,708 | ) | | 1,601 |
|
Plan amendments | — |
| | (93 | ) | | 11 |
| | — |
|
Acquisitions/Divestitures | 30 |
| | 3,745 |
| | — |
| | — |
|
Effect of exchange rate changes | 8,248 |
| | 8,100 |
| | — |
| | — |
|
Foreign plan additions | — |
| | 540 |
| | — |
| | — |
|
Foreign plan deletions | (524 | ) | | — |
| | — |
| | — |
|
Plan curtailments | (1,669 | ) | | (310 | ) | | — |
| | — |
|
Benefits paid | (10,440 | ) | | (12,700 | ) | | (798 | ) | | (820 | ) |
Benefit obligation at end of year | $ | 359,416 |
| | $ | 355,766 |
| | $ | 11,936 |
| | $ | 14,218 |
|
| | | | | | | |
Change in Plan Assets | |
| | |
| | |
| | |
|
Fair value of plan assets at beginning of year | $ | 124,884 |
| | $ | 108,708 |
| | $ | — |
| | $ | — |
|
Actual return on assets | 9,658 |
| | 10,732 |
| | — |
| | — |
|
Effect of exchange rate changes | 2,377 |
| | 2,362 |
| | — |
| | — |
|
Employer contributions | 12,718 |
| | 12,144 |
| | 283 |
| | 285 |
|
Participant contributions | 3,968 |
| | 3,638 |
| | 515 |
| | 535 |
|
Benefits paid | (10,440 | ) | | (12,700 | ) | | (798 | ) | | (820 | ) |
Fair value of plan assets at end of year | $ | 143,165 |
| | $ | 124,884 |
| | $ | — |
| | $ | — |
|
| | | | | | | |
Funded status at end of year | $ | (216,251 | ) | | $ | (230,882 | ) | | $ | (11,936 | ) | | $ | (14,218 | ) |
The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as follows: |
| | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postemployment
Benefits |
| December 31, | | December 31, |
(in thousands) | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | |
Other noncurrent assets, net | $ | 23 |
| | $ | 263 |
| | $ | — |
| | $ | — |
|
Deferred tax asset | 19,618 |
| | 26,421 |
| | 605 |
| | 1,764 |
|
Total assets | $ | 19,641 |
| | $ | 26,684 |
| | $ | 605 |
| | $ | 1,764 |
|
| | | | | | | |
Current liabilities | (5,097 | ) | | (4,561 | ) | | (491 | ) | | (654 | ) |
Other noncurrent liabilities | (211,177 | ) | | (226,584 | ) | | (11,445 | ) | | (13,564 | ) |
Deferred tax liability | (644 | ) | | (449 | ) | | — |
| | — |
|
Total liabilities | $ | (216,918 | ) | | $ | (231,594 | ) | | $ | (11,936 | ) | | $ | (14,218 | ) |
| | | | | | | |
Accumulated other comprehensive income | 48,957 |
| | 70,377 |
| | 961 |
| | 2,805 |
|
Net amount recognized | $ | (148,320 | ) | | $ | (134,533 | ) | | $ | (10,370 | ) | | $ | (9,649 | ) |
Amounts recognized in AOCI consist of:
|
| | | | | | | | | | | | | | | |
| | | | | Other Postemployment |
| Pension Benefits | | Benefits |
| December 31, | | December 31, |
(in thousands) | 2013 | | 2012 | | 2013 | | 2012 |
| | | | | | | |
Net actuarial loss | $ | 70,615 |
| | $ | 99,129 |
| | $ | 1,557 |
| | $ | 4,569 |
|
Net prior service cost | (2,684 | ) | | (2,780 | ) | | 9 |
| | — |
|
Before tax AOCI | $ | 67,931 |
| | $ | 96,349 |
| | $ | 1,566 |
| | $ | 4,569 |
|
Less: Deferred taxes | 18,974 |
| | 25,972 |
| | 605 |
| | 1,764 |
|
Net of tax AOCI | $ | 48,957 |
| | $ | 70,377 |
| | $ | 961 |
| | $ | 2,805 |
|
Information for pension plans with an accumulated benefit obligation in excess of plan assets: |
| | | | | | | |
| December 31, |
(in thousands) | 2013 | | 2012 |
| | | |
Projected benefit obligation | $ | 357,459 |
| | $ | 344,653 |
|
Accumulated benefit obligation | 330,215 |
| | 315,963 |
|
Fair value of plan assets | 141,186 |
| | 117,413 |
|
Components of net periodic benefit cost:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postemployment
Benefits |
(in thousands) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | | | | | | | | | | |
Service cost | $ | 14,863 |
| | $ | 12,178 |
| | $ | 10,950 |
| | $ | 234 |
| | $ | 195 |
| | $ | 61 |
|
Interest cost | 9,901 |
| | 10,600 |
| | 9,633 |
| | 464 |
| | 490 |
| | 553 |
|
Expected return on assets | (4,998 | ) | | (4,727 | ) | | (5,184 | ) | | — |
| | — |
| | — |
|
Amortization of prior service cost (credit) | (133 | ) | | (138 | ) | | 80 |
| | 2 |
| | — |
| | — |
|
Amortization of net actuarial loss | 5,150 |
| | 1,995 |
| | 1,584 |
| | 303 |
| | 264 |
| | 189 |
|
Curtailment and settlement gains | (1,600 | ) | | (303 | ) | | 4 |
| | — |
| | — |
| | — |
|
Net periodic benefit cost | $ | 23,183 |
| | $ | 19,605 |
| | $ | 17,067 |
| | $ | 1,003 |
| | $ | 949 |
| | $ | 803 |
|
Other changes in plan assets and benefit obligations recognized in AOCI:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postemployment
Benefits |
(in thousands) | 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | | | | | | | | | | |
Net actuarial (gain) loss | $ | (23,364 | ) | | $ | 55,662 |
| | $ | 8,352 |
| | $ | (2,709 | ) | | $ | 1,601 |
| | $ | 537 |
|
Net prior service (credit) | (37 | ) | | (161 | ) | | (2,845 | ) | | 11 |
| | — |
| | — |
|
Amortization | (5,017 | ) | | (1,857 | ) | | (1,664 | ) | | (305 | ) | | (264 | ) | | (189 | ) |
Total recognized in AOCI | $ | (28,418 | ) | | $ | 53,644 |
| | $ | 3,843 |
| | $ | (3,003 | ) | | $ | 1,337 |
| | $ | 348 |
|
Total recognized in net periodic benefit cost and AOCI | $ | (5,235 | ) | | $ | 73,249 |
| | $ | 20,910 |
| | $ | (2,000 | ) | | $ | 2,286 |
| | $ | 1,151 |
|
The estimated net loss, prior service cost and transition obligation for the defined benefit plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year are $2.7 million. There will be an immaterial amount of estimated net loss and prior service credit for the other postemployment plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year.
The amounts in AOCI that are expected to be amortized as net expense (income) during fiscal year 2014 are as follows:
|
| | | | | | | |
(in thousands) | Pension Benefits | | Other Postemployment
Benefits |
| | | |
Amount of net prior service cost (credit) | $ | (138 | ) | | $ | 2 |
|
Amount of net loss | 2,838 |
| | 43 |
|
The weighted average assumptions used to determine benefit obligations for the Company’s plans, principally in foreign locations, at December 31, 2013, 2012 and 2011 are as follows:
|
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postemployment
Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | | | | | | | | | | |
Discount rate | 3.2 | % | | 2.8 | % | | 4.0 | % | | 4.8 | % | | 3.5 | % | | 4.0 | % |
Rate of compensation increase | 2.7 | % | | 2.7 | % | | 2.8 | % | | n/a |
| | n/a |
| | n/a |
|
Health care cost trend | n/a |
| | n/a |
| | n/a |
| | 8.5 | % | | 8.0 | % | | 7.5 | % |
Ultimate health care cost trend | n/a |
| | n/a |
| | n/a |
| | 5.0 | % | | 5.0 | % | | 5.0 | % |
Years until ultimate trend is reached | n/a |
| | n/a |
| | n/a |
| | 8.0 |
| | 7.0 |
| | 6.0 |
|
The weighted average assumptions used to determine net periodic benefit cost for the Company’s plans, principally in foreign locations, for the years ended December 31, 2013, 2012 and 2011 are as follows:
|
| | | | | | | | | | | | | | | | | |
| Pension Benefits | | Other Postemployment
Benefits |
| 2013 | | 2012 | | 2011 | | 2013 | | 2012 | | 2011 |
| | | | | | | | | | | |
Discount rate | 2.8 | % | | 4.0 | % | | 4.1 | % | | 3.5 | % | | 4.0 | % | | 5.0 | % |
Expected return on plan assets | 4.3 | % | | 4.1 | % | | 4.8 | % | | n/a |
| | n/a |
| | n/a |
|
Rate of compensation increase | 2.7 | % | | 2.8 | % | | 2.6 | % | | n/a |
| | n/a |
| | n/a |
|
Health care cost trend | n/a |
| | n/a |
| | n/a |
| | 8.5 | % | | 8.0 | % | | 7.5 | % |
Ultimate health care cost trend | n/a |
| | n/a |
| | n/a |
| | 5.0 | % | | 5.0 | % | | 5.0 | % |
Years until ultimate trend is reached | n/a |
| | n/a |
| | n/a |
| | 8.0 |
| | 7.0 |
| | 6.0 |
|
| | | | | | | | | | | |
Measurement Date | 12/31/2013 |
| | 12/31/2012 |
| | 12/31/2011 |
| | 12/31/2013 |
| | 12/31/2012 |
| | 12/31/2011 |
|
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.
Assumed health care cost trend rates have an impact on the amounts reported for postemployment benefits. An ongoing one percentage point change in assumed healthcare cost trend rates would have had the following effects for the year ended December 31, 2013:
|
| | | | | | | |
| Other Postemployment
Benefits |
(in thousands) | 1% Increase | | 1% Decrease |
| | | |
Effect on total of service and interest cost components | $ | 161 |
| | $ | (123 | ) |
Effect on postemployment benefit obligation | 2,104 |
| | (1,656 | ) |
Fair Value Measurements of Plan Assets
The fair value of the Company’s pension plan assets at December 31, 2013 is presented in the table below by asset category. Approximately 82% of the total plan assets are categorized as Level 1, and therefore, the values assigned to these pension assets are based on quoted prices available in active markets. For the other category levels, a description of the valuation is provided in Note 1, Significant Accounting Policies, under the “Fair Value Measurement” heading.
|
| | | | | | | | | | | | | | | |
| December 31, 2013 |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
Assets Category | | | | | | | |
Cash and cash equivalents | $ | 15,231 |
| | $ | 15,231 |
| | $ | — |
| | $ | — |
|
Equity securities: | |
| | |
| | |
| | |
|
U. S. | 929 |
| | 929 |
| | — |
| | — |
|
International | 37,904 |
| | 37,904 |
| | — |
| | — |
|
Fixed income securities: | |
| | |
| | |
| | |
|
Fixed rate bonds (a) | 51,066 |
| | 51,066 |
| | — |
| | — |
|
Other types of investments: | |
| | |
| | |
| | |
|
Mutual funds (b) | 3,367 |
| | 3,367 |
| | — |
| | — |
|
Real estate mutual funds | 8,906 |
| | 8,906 |
| | — |
| | — |
|
Common trusts (c) | 10,100 |
| | — |
| | 6,802 |
| | 3,298 |
|
Insurance contracts | 13,240 |
| | — |
| | 3,739 |
| | 9,501 |
|
Hedge funds | 2,046 |
| | — |
| | — |
| | 2,046 |
|
Real estate | 376 |
| | — |
| | — |
| | 376 |
|
Total | $ | 143,165 |
| | $ | 117,403 |
| | $ | 10,541 |
| | $ | 15,221 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2012 |
(in thousands) | Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
Assets Category | | | | | | | |
Cash and cash equivalents | $ | 5,930 |
| | $ | 5,930 |
| | $ | — |
| | $ | — |
|
Equity securities: | |
| | |
| | |
| | |
|
U. S. | 1,015 |
| | 1,015 |
| | — |
| | — |
|
International | 34,197 |
| | 34,197 |
| | — |
| | — |
|
Fixed income securities: | |
| | |
| | |
| | |
|
Fixed rate bonds (a) | 48,450 |
| | 48,450 |
| | — |
| | — |
|
Other types of investments: | |
| | |
| | |
| | |
|
Mutual funds (b) | 8,994 |
| | — |
| | 8,994 |
| | — |
|
Real estate mutual funds | 9,713 |
| | 9,713 |
| | — |
| | — |
|
Common trusts (c) | 2,708 |
| | — |
| | — |
| | 2,708 |
|
Insurance contracts | 12,199 |
| | — |
| | 3,865 |
| | 8,334 |
|
Hedge funds | 1,311 |
| | — |
| | — |
| | 1,311 |
|
Real estate | 367 |
| | — |
| | — |
| | 367 |
|
Total | $ | 124,884 |
| | $ | 99,305 |
| | $ | 12,859 |
| | $ | 12,720 |
|
| |
(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. |
The following table provides a reconciliation from December 31, 2012 to December 31, 2013 for the plans assets categorized as Level 3. No assets were transferred in or out of the Level 3 category during the year ended December 31, 2013.
|
| | | | | | | | | | | | | | | | | | | |
| Changes within Level 3 Category for |
| Year Ended December 31, 2013 |
(in thousands) | Common Trust | | Insurance Contracts | | Hedge Funds | | Real Estate | | Total |
| | | | | | | | | |
Balance at December 31, 2012 | $ | 2,708 |
| | $ | 8,334 |
| | $ | 1,311 |
| | $ | 367 |
| | $ | 12,720 |
|
Actual return on plan assets: | |
| | |
| | |
| | |
| | |
|
Relating to assets still held at the reporting date | 409 |
| | 421 |
| | 82 |
| | — |
| | 912 |
|
Relating to assets sold during the period | 99 |
| | — |
| | — |
| | — |
| | 99 |
|
Purchases, sales and settlements, net | 82 |
| | 637 |
| | 596 |
| | — |
| | 1,315 |
|
Effect of exchange rate changes | — |
| | 109 |
| | 57 |
| | 9 |
| | 175 |
|
Balance at December 31, 2013 | $ | 3,298 |
| | $ | 9,501 |
| | $ | 2,046 |
| | $ | 376 |
| | $ | 15,221 |
|
The following tables provide a reconciliation from December 31, 2011 to December 31, 2012 for the plans assets categorized as Level 3. No assets were transferred in or out of the Level 3 category during the year ended December 31, 2012.
|
| | | | | | | | | | | | | | | | | | | |
| Changes within Level 3 Category for |
| Year Ended December 31, 2012 |
(in thousands) | Common Trust | | Insurance Contracts | | Hedge Funds | | Real Estate | | Total |
| | | | | | | | | |
Balance at December 31, 2011 | $ | 2,083 |
| | $ | 5,820 |
| | $ | 890 |
| | $ | 358 |
| | $ | 9,151 |
|
Actual return on plan assets: | |
| | |
| | |
| | |
| | |
|
Relating to assets still held at the reporting date | 284 |
| | 1,700 |
| | 52 |
| | — |
| | 2,036 |
|
Relating to assets sold during the period | 8 |
| | — |
| | 6 |
| | — |
| | 14 |
|
Purchases, sales and settlements, net | 333 |
| | 533 |
| | 331 |
| | — |
| | 1,197 |
|
Effect of exchange rate changes | — |
| | 281 |
| | 32 |
| | 9 |
| | 322 |
|
Balance at December 31, 2012 | $ | 2,708 |
| | $ | 8,334 |
| | $ | 1,311 |
| | $ | 367 |
| | $ | 12,720 |
|
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 2014, the Company expects to make contributions and direct benefit payments of $12.1 million to its defined benefit pension plans and $0.5 million to its postemployment medical plans.
Estimated Future Benefit Payments
|
| | | | | | | |
(in thousands) | Pension Benefits | | Other
Postemployment
Benefits |
| | | |
2014 | $ | 10,595 |
| | $ | 502 |
|
2015 | 11,697 |
| | 497 |
|
2016 | 11,171 |
| | 487 |
|
2017 | 12,221 |
| | 504 |
|
2018 | 14,437 |
| | 524 |
|
2019-2022 | 82,030 |
| | 2,794 |
|
The above table reflects the total employer contributions and benefits expected to be paid from the plan and does not include the participants’ share of the cost.
