BENEFIT PLANS

The Company has both U.S. and non-U.S. pension plans covering substantially all of our U.S. employees and a portion of our non-U.S. employees. Total costs for Company-sponsored defined benefit, defined contribution and employee stock ownership plans were $45.7 million, $34.6 million and $27.4 million in 2012, 2011 and 2010, respectively.

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 annual expense and cash contribution to the 401(k) is expected to be $7.6 million for 2012 (of which $5.3 million will be contributed in the first quarter of 2013), and was $5.8 million for 2011 (of which $4.9 million was contributed in the first quarter of 2012), and $4.6 million for 2010 (of which $4.6 million was contributed in the first quarter of 2011).

The ESOP is a non-contributory defined contribution plan that covers substantially all of the U.S. based non-union employees of the Company. Contributions to the ESOP, net of forfeitures, are expected to be $4.6 million for 2012 (to be contributed in the first quarter of 2013), and were $3.6 million for 2011 (contributed in the first quarter of 2012), and were $3.0 million for 2010 (contributed in the first quarter of 2011). All future ESOP allocations will come from a combination of forfeited shares and shares acquired in the open market. The Company has targeted future ESOP allocations at 3% of eligible compensation. The share allocation will be accounted at fair value at the point of allocation, which is normally year-end.

In addition to the ESOP and 401(k) plans in the U.S., the Company also maintains various other U.S. and non-U.S. defined contribution and non-qualified deferred compensation plans. Total costs for these plans amounted to $13.9 million, $8.1 million and $6.7 million in 2012, 2011 and 2010, 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 its 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. Substantially all of the German and Sweden plans are unfunded book reserve plans. Other foreign plans are not significant individually or in the aggregate. 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.

Postretirement Healthcare

The Company sponsors postretirement 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 postretirement healthcare have no plan assets. The Company also sponsors unfunded non-contributory postretirement 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 postretirement healthcare plans’ benefit obligations, fair value of assets and statement of funded status are as follows:



							Other Postretirement
	Pension Benefits						Benefits
	December 31,						December 31,
(in thousands)	2012			2011			2012			2011

Change in Benefit Obligation
Benefit obligation at beginning of year	$	270,607		$	211,504		$	12,217		$	11,607
Service cost	12,178			10,950			195			61
Interest cost	10,600			9,633			490			553
Participant contributions	3,638			3,562			535			583
Actuarial losses	59,461			2,991			1,601			537
Plan amendments	(93		)	(3,034		)	—			—
Acquisitions/Divestitures	3,745			52,282			—			—
Effect of exchange rate changes	8,100			(8,355		)	—			—
Foreign plan additions	540			—			—			—
Plan curtailments	(310		)	—			—			—
Benefits paid	(12,700		)	(8,926		)	(820		)	(1,124		)
Benefit obligation at end of year	$	355,766		$	270,607		$	14,218		$	12,217

Change in Plan Assets
Fair value of plan assets at beginning of year	$	108,708		$	99,546		$	—		$	—
Actual return on assets	10,732			(889		)	—			—
Acquisitions/Divestitures	—			7,006			—			—
Effect of exchange rate changes	2,362			(1,238		)	—			—
Employer contributions	12,144			9,647			285			541
Participant contributions	3,638			3,562			535			583
Benefits paid	(12,700		)	(8,926		)	(820		)	(1,124		)
Fair value of plan assets at end of year	$	124,884		$	108,708		$	—		$	—

Funded status at end of year	$	(230,882	)	$	(161,899	)	$	(14,218	)	$	(12,217	)

The amounts recognized in the accompanying Consolidated Balance Sheets, net of tax effects, are as follows:



	Pension Benefits						Other Postretirement Benefits
	December 31,						December 31,
(in thousands)	2012			2011			2012			2011

Other noncurrent assets, net	$	263		$	355		$	—		$	—
Deferred tax asset	26,421			10,972			1,764			1,247
Total assets	$	26,684		$	11,327		$	1,764		$	1,247

Current liabilities	(4,561		)	(4,411		)	(654		)	(977		)
Other noncurrent liabilities	(226,584		)	(157,843		)	(13,564		)	(11,240		)
Deferred tax liability	(449		)	(269		)	—			—
Total liabilities	$	(231,594	)	$	(162,523	)	$	(14,218	)	$	(12,217	)

Accumulated other comprehensive income	70,377			32,002			2,805			1,984
Net amount recognized	$	(134,533	)	$	(119,194	)	$	(9,649	)	$	(8,986	)

Amounts recognized in AOCI consist of:



							Other Postretirement
	Pension Benefits						Benefits
	December 31,						December 31,
(in thousands)	2012			2011			2012		2011

Net actuarial loss	$	99,129		$	45,462		$	4,569	$	3,232
Net prior service cost	(2,780		)	(2,757		)	—		—
Before tax AOCI	$	96,349		$	42,705		$	4,569	$	3,232
Less: Deferred taxes	25,972			10,703			1,764		1,248
Net of tax AOCI	$	70,377		$	32,002		$	2,805	$	1,984

Information for pension plans with an accumulated benefit obligation in excess of plan assets:



	December 31,
(in thousands)	2012		2011

Projected benefit obligation	$	344,653	$	268,391
Accumulated benefit obligation	315,963		246,515
Fair value of plan assets	117,413		106,137

Components of net periodic benefit cost:



	Pension Benefits									Other Postretirement Benefits
(in thousands)	2012			2011			2010			2012		2011		2010

Service cost	$	12,178		$	10,950		$	8,108		$	195	$	61	$	58
Interest cost	10,600			9,633			8,415			490		553		605
Expected return on assets	(4,727		)	(5,184		)	(4,662		)	—		—		—
Amortization of transition obligation	—			—			124			—		—		—
Amortization of prior service cost (credit)	(138		)	80			86			—		—		—
Amortization of net actuarial loss	1,995			1,584			1,002			264		189		265
Curtailment and settlement gains	(303		)	4			—			—		—		—
Net periodic benefit cost	$	19,605		$	17,067		$	13,073		$	949	$	803	$	928

Other changes in plan assets and benefit obligations recognized in AOCI:



	Pension Benefits									Other Postretirement Benefits
(in thousands)	2012			2011			2010			2012			2011			2010

Net actuarial (gain) loss	$	55,662		$	8,352		$	12,640		$	1,601		$	537		$	(548	)
Net prior service (credit)	(161		)	(2,845		)	(8		)	—			—			—
Net transition obligation	—			—			(1		)	—			—			—
Amortization	(1,857		)	(1,664		)	(1,212		)	(264		)	(189		)	(265		)
Total recognized in AOCI	$	53,644		$	3,843		$	11,419		$	1,337		$	348		$	(813	)
Total recognized in net periodic benefit cost and AOCI	$	73,249		$	20,910		$	24,492		$	2,286		$	1,151		$	115

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 $5.0 million. The estimated net loss and prior service credit for the other postretirement plans that will be amortized from AOCI into net periodic benefit cost over the next fiscal year is $0.4 million.

The amounts in AOCI that are expected to be amortized as net expense (income) during fiscal year 2013 are as follows:



(in thousands)	Pension Benefits			Other Postretirement Benefits

Amount of net prior service cost	$	(139	)	$	—
Amount of net loss	5,144			352

The weighted average assumptions used to determine benefit obligations for the Company's plans, principally in foreign locations, at December 31, 2012, 2011 and 2010 are as follows:



	Pension Benefits						Other Postretirement Benefits
	2012		2011		2010		2012		2011		2010

Discount rate	2.8	%	4.0	%	4.1	%	3.5	%	4.0	%	5.0	%
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		8.0	%	7.5	%	8.0	%
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		7.0		6.0		7.0

The weighted average assumptions used to determine net periodic benefit cost for the Company's plans, principally in foreign locations, for the years ended December 31, 2012, 2011 and 2010 are as follows:



	Pension Benefits						Other Postretirement Benefits
	2012		2011		2010		2012		2011		2010

Discount rate	4.0	%	4.1	%	4.7	%	4.0	%	5.0	%	5.5	%
Expected return on plan assets	4.1	%	4.8	%	5.2	%	n/a		n/a		n/a
Rate of compensation increase	2.8	%	2.6	%	2.7	%	n/a		n/a		n/a
Health care cost trend	n/a		n/a		n/a		8.0	%	7.5	%	8.0	%
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		7.0		6.0		7.0

Measurement Date	12/31/2012		12/31/2011		12/31/2010		12/31/2012		12/31/2011		12/31/2010

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 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 postretirement benefits. A one percentage point change in assumed healthcare cost trend rates would have the following effects for the year ended December 31, 2012:



	Other Postretirement Benefits
(in thousands)	1% Increase		1% Decrease

Effect on total of service and interest cost components	$	140	$	(108	)
Effect on postretirement benefit obligation	2,503		(1,976		)

Fair Value Measurements of Plan Assets

The fair value of the Company's pension plan assets at December 31, 2012 is presented in the table below by asset category. Approximately 80% 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, 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



	December 31, 2011
(in thousands)	Total		Level 1		Level 2		Level 3

Assets Category
Cash and cash equivalents	$	5,165	$	5,001	$	164	$	—
Equity securities:
U. S.	2,036		2,036		—		—
International	27,982		27,982		—		—
Fixed income securities:
Fixed rate bonds (a)	44,499		44,499		—		—
Other types of investments:
Mutual funds (b)	8,065		—		8,065		—
Real estate mutual funds	8,307		8,307		—		—
Common trusts (c)	2,083		—		—		2,083
Insurance contracts	9,323		—		3,503		5,820
Hedge funds	891		—		—		891
Real estate	357		—		—		357
Total	$	108,708	$	87,825	$	11,732	$	9,151


(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, 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

The following tables provide a reconciliation from December 31, 2010 to December 31, 2011 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, 2011.



	Changes within Level 3 Category for
	Year Ended December 31, 2011
(in thousands)	Common Trust		Insurance Contracts			Hedge Funds			Real Estate			Total

Balance at December 31, 2010	$	2,066	$	1,824		$	1,334		$	360		$	5,584
Actual return on plan assets:
Relating to assets still held at the reporting date	5		(1,355		)	(80		)	—			(1,430		)
Relating to assets sold during the period	5		—			—			—			5
Acquisitions/Divestitures	—		6,738			—			—			6,738
Purchases, sales and settlements, net	7		(1,144		)	(384		)	—			(1,521		)
Effect of exchange rate changes	—		(243		)	20			(2		)	(225		)
Balance at December 31, 2011	$	2,083	$	5,820		$	890		$	358		$	9,151

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 2013, the Company expects to make contributions and direct benefit payments of $7.7 million to its defined benefit pension plans and $0.7 million to its postretirement medical plans.

Estimated Future Benefit Payments



(in thousands)	Pension Benefits		Other Postretirement Benefits

2013	$	9,229	$	665
2014	10,619		634
2015	10,899		612
2016	10,999		633
2017	12,512		614
2018-2022	70,668		3,058