Align Technology (ALGN) 10-K risk factor changes: FY2014 vs FY2013

Demand for our products may not increase as rapidly as we anticipate due to a variety of factors including a [removed: continued] weakness in general economic conditions.

[removed: Continued weakness] [added: Weakness] in the global economy results in a challenging environment for selling dental technologies and dentists may postpone investments in capital equipment, such as intra-oral scanners.

We have generally received positive feedback from orthodontists, GPs and consumers regarding Invisalign treatment as both an alternative to braces and as a clinical method for [added: the] treatment of malocclusion, but a number of dental professionals believe that [added: the] Invisalign treatment is appropriate for only a limited percentage of their patients.

We [removed: also] provide volume based discount programs to our doctors.

If we introduce any price reductions or consumer rebate programs; if we expand our discount programs in the future or participation in these programs increases; if our product mix shifts to lower priced products or products that have a higher percentage of deferred [removed: revenue; or if sales by our distributors grows at a faster pace than our direct sales,] [added: revenue] our average selling prices would be adversely affected and our net revenues, gross profit, gross margin and net income may be reduced.

We are subject to growth related risks, including [added: excess or constrained] capacity [removed: constraints] and pressure on our internal systems and personnel.

Because we cannot [removed: always] immediately adapt our production capacity and related cost structures to changing market conditions, our manufacturing capacity may at times exceed or fall short of our production requirements.

| • | changes in the timing of when revenue is recognized, including as a result of the introduction of new products or [removed: promotions] [added: promotions, modifications to our terms and conditions] or as a result of changes to critical accounting estimates or new accounting pronouncements; |

In a rising fuel cost environment, our freight costs will [added: increase.]

In addition to the research and development efforts conducted in our San Jose, California facility, we also carry out research and development at locations in [removed: San Jose, Costa Rica and] Moscow, Russia.

| • | product or material transportation delays or disruption, including as a result of [added: increased levels of violence, acts of terrorism, acts of war or] health epidemics restricting travel to and from our international locations or as a result of natural disasters, such as earthquakes or volcanic eruptions; |

| • | although it is our intention to [removed: permanently] [added: indefinitely] reinvest earnings outside the U.S., restrictions on the transfer of funds held by our foreign subsidiaries, including with respect to restrictions on our ability to repatriate foreign cash to the U.S at favorable tax rates; |

The expiration of [removed: key] certain [added: key] patents commencing in 2017 owned by us may result in additional competition.

Increased competition has resulted in the past and may in the future result in volume discounting and price reductions, reduced gross margins, reduced profitability and loss of market share, and reduce dental professionals’ efforts and commitment to expand their use of our products, any of which could have a material adverse effect on our net revenues, volume growth, net income [removed: (loss)] and stock price.

Furthermore, sophisticated hardware and operating system software and applications that we either internally develop or procure from third parties [added: which we depend upon] may contain defects in design and manufacture, including “bugs” and other problems that can unexpectedly interfere with the operation of the system.

As of December 31, [removed: 2013,] [added: 2014,] we had issued [removed: 313] [added: 352] U.S. patents, [removed: 124] [added: 97] pending U.S. patent applications, and [removed: 239] [added: 257] foreign issued patents, and [removed: 116] [added: 108] pending foreign patent applications.

We intend to rely on our portfolio of issued and pending patent applications in the U.S. and in other countries to protect a large part of our intellectual property and our competitive [removed: position.][added: position; however, our currently pending or future patent filings may not result in the issuance of patents.]

[removed: Additionally, any patents issued to us may be challenged, invalidated, held unenforceable,] circumvented, or may not be sufficiently broad to prevent third parties from producing competing products similar in design to our products.

While we believe our internal control over financial reporting is currently effective, the effectiveness of our internal controls [removed: to] [added: in] future periods is subject to the risk that our controls may become inadequate because of changes in conditions, and, as a result, the degree of compliance of our internal control over financial reporting with the [added: existing] policies or procedures may [removed: deteriorate.][added: become ineffective.]

Our future success will also depend on our ability to identify, recruit, train and retain additional qualified personnel, including [added: orthodontists.]

We are also committed to purchasing [removed: all] [added: the vast majority] of our resin and polymer, the primary raw materials used in our manufacturing process for clear aligners, from a single source.

As of December 31, [removed: 2013,] [added: 2014,] our North American sales organization consisted of approximately [removed: 260] [added: 280] people.

Internationally, we had approximately [removed: 100] [added: 160] people engaged in [added: direct] sales and sales support as of December 31, [removed: 2013.][added: 2014.]

If we are unable to retain our direct sales force personnel or replace them with individuals of equivalent technical expertise and qualifications, or if we are unable to successfully instill such technical expertise or if we fail to establish [added: and maintain] strong relationships with our customers within a relatively short period of time, our net revenues and our ability to maintain market share could be materially harmed.

The implementation of the existing U.S. requirements and any additional requirements in Europe could affect the sourcing and availability of metals used in the manufacture of a limited number of parts (if any) contained in our [removed: scanner] products.

Effective January 1, 2013, as a medical device manufacturer, we [removed: are] [added: were] required to pay an excise tax on the price for which we sell our medical devices in the U.S. This [removed: tax] [added: Medical Device Excise Tax ("MDET")] applies to most medical devices, including our products, which could have a material, negative impact on our results of operations and our cash flows.

The [removed: medical device excise tax] [added: MDET] is included in general and administrative expenses in the consolidated statements of operations.

The excise tax expense was $7.1 million for the year ended December 31, [removed: 2013.][added: 2013; however, MDET for year ended December 31, 2014 was reduced to $0.3 million due to the changes noted above.]

Any future changes in the applicability of the [removed: medical device excise tax] [added: MDET] as it applies to us [added: or refunds of amounts previously paid] will be recorded as an additional expense or a credit to the consolidated statement of operations in the period in which [removed: is] [added: it] becomes probable and reasonably estimable.

Regulations implemented pursuant to the Health Insurance Portability and Accountability Act ("HIPAA"), including regulations affecting the security and privacy of patient healthcare information held by healthcare providers and their business associates may require us to make significant and unplanned enhancements of software applications or services, result in delays or cancellations of orders, or result in the revocation of endorsement of our [added: products and services by healthcare participants.]

These broad market and industry factors may seriously harm the market price of our common stock, regardless [removed: of our operating performance.]

To date, our [removed: board of directors] [added: Board] has designated 200,000 shares as Series A participating preferred stock in connection with our shareholder rights’ plan.

[removed: These factors include, but are not limited to, changes in tax laws, regulations and/or rates, non-deductible goodwill impairments, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the] various jurisdictions in which we operate that have differing statutory tax rates, the future levels of tax benefits of stock option deductions relating to incentive stock options and employee stock purchase plans, settlement of income tax audits, and changes in overall levels of pretax earnings.

In June 2009, the Costa Rica Ministry of Foreign Trade, an agency of the Government of Costa Rica, granted a twelve year extension of various income tax incentives, which [removed: had been] [added: were] previously granted [removed: to us] in 2002.

Under these incentives, all of the income [removed: we earn] in Costa Rica during [removed: the] [added: these] twelve year incentive [removed: period] [added: periods] is [removed: exempt from] [added: subject to reduced rates of] Costa Rica income tax.

In order to receive the benefit of these incentives, we must hire specified numbers of employees and maintain certain minimum levels of fixed asset [removed: investments] [added: investment] in Costa Rica.

The Costa Rica [removed: Corporate] [added: corporate] income tax rate that would apply, absent the incentives, is 30% for [removed: 2013.][added: 2014.]

As a result of these incentives, [removed: the provision for] [added: our] income taxes [removed: was] [added: were] reduced by [removed: $27.7] [added: $32.5] million and [removed: $21.8] [added: $27.7] million for the year ended December 31, [removed: 2013] [added: 2014] and [removed: 2012,] [added: 2013,] respectively, representing a benefit to diluted net income per share of [removed: $0.34] [added: $0.40] and [removed: $0.26] [added: $0.34] in [removed: 2013] [added: 2014] and [removed: 2012,] [added: 2013,] respectively.

[removed: For] [added: Income taxes were reduced by $9.7 million in both] the three months ended December 31, [removed: 2013 and 2012, the provision for income taxes was reduced by $6.4 million] [added: 2014] and [removed: $4.7 million, respectively,] [added: 2013,] representing a benefit to diluted net income per share of $0.12 [removed: and $0.06, respectively.][added: in each period.]

Our [removed: subsidiaries] [added: subsidiary] in Israel [removed: and Germany are] [added: is] under audit by the local tax authorities for calendar years 2006 through [removed: 2011 and 2007 through 2011, respectively.][added: 2012.]

| • | difficulties in managing international operations, including any travel restrictions to or from our facilities located in Russia and Israel; |

| • | political, social and economic instability, including as a result of increased levels of violence in Juarez, Mexico or the Middle East. We cannot predict the effect on us of any future armed conflict, political instability or violence in these regions. In addition, some of our employees in Israel are obligated to perform annual reserve duty in the Israeli military and are subject to being called for additional active duty under emergency circumstances. We cannot predict the full impact of these conditions on us in the future, particularly if emergency circumstances or an escalation in the political situation occurs. If many of our employees are called for active duty, our operations in Israel and our business may not be able to function at full capacity; |

| • | geopolitical risks around the Ukraine and the possibility of additional sanctions against Russia which continue to bring uncertainty to this region; |

We are in the process of implementing a multi-year, company-wide program to transform certain business processes or extend established processes, including the transition to a single enterprise resource planning ("ERP") software system to perform various functions.

The implementation of additional functionality in the ERP system entails certain risks, including difficulties with changes in business processes that could disrupt our operations, such as our ability to track orders and timely ship products, manage our supply chain and aggregate financial and operational data.

During transitions we must continue to rely on legacy information systems, which may be costly or inefficient, while the implementation of new initiatives may not achieve the anticipated benefits and may divert management's attention from other operational activities, negatively affect employee morale, or have other unintended consequences.

Additionally, if we are not able to accurately forecast expenses and capitalized costs related to the project, this may have an adverse impact on our financial condition and operating results.

Additionally, any patents issued to us may be challenged, invalidated, held unenforceable,

During March 2014, Align had extensive discussions with the IRS and they informed us that our aligners are not subject to the MDET; however, our scanners are still subject to the MDET.

As a result of these discussions, beginning in March 2014, we ceased expensing and paying the MDET for aligners, which reduced our general and administrative expense for the year ended December 31, 2014 by approximately $6.8 million compared to the prior year period.

Additionally, we are in process of claiming a $6.8 million refund of MDET paid in 2013 related to our aligners; however, because this claim is subject to review and approval by the IRS, we have not recorded a receivable as the outcome of the audit is undeterminable.

of our operating performance.

These factors include, but are not limited to, changes in tax laws, regulations and/or rates, non-deductible goodwill impairments, changing interpretations of existing tax laws or regulations, changes in the relative proportions of revenues and income before taxes in the

In response to challenges in our business, including increased competition, we have in the past reduced the list price of our products.

We may never achieve the anticipated benefits from our acquisitions which may have an adverse effect on our business.

We acquired Cadent Holdings, Inc. in April 2011 for their people, their technology and their existing revenue streams such as, OrthoCAD iRecord and OrthoCAD iCast in addition to their intra-oral scanning technology.

This acquisition is expected to strengthen our ability to drive adoption of Invisalign treatment by integrating more fully with mainstream tools and procedures in doctors’ practices.

In addition, we believe that the combination of the two companies will help accelerate the use of intra-oral scanning in the dental industry by leveraging Align’s global sales reach, extensive professional and consumer marketing capabilities and large customer base.

We completed the acquisition of our Asia Pacific distributor on April 30, 2013.

We may experience difficulties in achieving the anticipated financial or strategic benefits of these acquisitions.

Potential risks include:

| | |

| --- | --- |

| • | slower adoption or lack of acceptance for intra-oral scanning products in general or our chairside features; |

| • | our inability to increase utilization by integrating Invisalign treatment more fully with intra-oral scanners; |

| • | difficulty in integrating the technology, operations, internal accounting controls or work force of the acquired business with our existing business; |

| • | diversion of management resources and focus from ongoing business matters; |

| • | retention of key employees following the acquisition; |

| • | continued changes in the competitive environment, including recent announcements from competitors of new lower-priced scanners which we expect will lengthen the customer evaluation process and may result in price reductions and/or loss of sales; |

| • | difficulty dealing with tax, employment, logistics, and other related issues unique to international operations in Israel and the Asia Pacific region; |

| • | possible impairment of relationships with employees and customers as a result of the integration; |

| • | possible inconsistencies in standards, controls, procedures and policies among the acquired businesses and Align, which may make it more difficult to implement and harmonize worldwide financial reporting, accounting, billing, information technology and other systems; |

| • | a large portion of Cadent’s operations are located in Israel, accordingly, any increase in hostilities in the Middle East involving Israel may cause interruption or suspension of business operations without warning; and |

| • | negative impact on our results of operations and financial condition from acquisition-related charges, further impairment of goodwill, impairment of intangible assets and/or asset impairment charges. |

If we cannot successfully integrate the acquired business with our existing business, our results of operations and financial condition could be adversely affected.

increase.

| • | difficulties in managing international operations; |

| • | political, social and economic instability, including as a result of increased levels of violence in Juarez, Mexico or the Middle East; |

We are currently focused on adding more functionality into our business enterprise systems to more efficiently integrate these systems with our other system applications, such as customer facing and manufacturing tools, and intend to continue this effort for the foreseeable future.

However, our currently pending or future patent filings may not result in the issuance of patents.

orthodontists.

During 2013 and early 2014, we announced the appointment of four executive officers, including a new Chief Financial Officer.

With these new appointments, there is the risk of uncertainty and instability relating to transition the duties and responsibilities to new key executives in an orderly, effective and efficient manner.

products and services by healthcare participants.

During the first quarter of 2013, we incurred a $40.7 million impairment of goodwill which was not deductible for tax purposes.

We have two operating segments: (1) Clear Aligner, known as the Invisalign System; and (2) Scanner and [removed: CAD/CAM] Services [removed: ("SCCS"),] [added: ("Scanner"),] known as the iTero intra-oral scanners and OrthoCAD [removed: services.][added: services (which we previously referred to as Scanner and CAD/CAM Services ("SCCS")).]

We received FDA clearance in 1998 and began our first commercial sales of Invisalign to U.S. orthodontists in 1999 followed by U.S. General Practitioner Dentists [removed: (GPs)] [added: ("GPs")] in 2002.

Over the next decade, we introduced Invisalign to the European market and Japan, added distribution partners in [removed: Asia-Pacific,] [added: Asia Pacific,] Latin America, and [removed: EMEA,] [added: Europe Middle East] and [added: Africa ("EMEA"), and] introduced a full range of treatment options including Invisalign Express 10, Invisalign Teen, Invisalign Assist, and Vivera Retainers.

In 2013, we launched SmartTrack, the next generation of Invisalign clear aligner [removed: material] [added: material,] which became the new standard aligner material for Invisalign [removed: products.][added: products in North America, Europe and other international markets where we have obtained regulatory approval.]

[removed: Most recently, we] [added: These innovations, both] launched [added: in early 2014, include] Invisalign [removed: G5 innovations,] [added: G5,] specifically designed for treatment of deep bite [removed: malocclusion] [added: malocclusion,] as well as ClinCheck Pro, the next generation Invisalign treatment software [removed: tool,] [added: tool] designed to help Invisalign providers achieve their treatment goals.

We also sell iTero intra-oral scanners and provide [removed: CAD/CAM] [added: computer-aided design and computer-aided manufacturing ("CAD/CAM")] services.

This qualification enables Invisalign providers with a True Definition scanner to submit a digital impression in place of a [added: traditional PVS impression as part of the Invisalign case submission process.]

The Invisalign System is offered in more than [removed: 60] [added: 80] countries and has been used to treat more than [removed: 2.5] [added: 3.0] million patients.

Our iTero intra-oral scanner, which is primarily sold in North America, provides dental professionals with an open choice to send digital impressions to any laboratory-based CAD/CAM system or to any of the more than [removed: 1,200] [added: 2,400] dental labs worldwide.

Our goal is to establish Invisalign clear aligners as the standard method for treating malocclusion and to establish the iTero intra-oral scanner as the preferred scanning [removed: protocol] [added: device] for 3D digital scans, ultimately driving increased product adoption by dental professionals.

We intend to achieve this by continued focus and execution of our strategic growth drivers set forth in the Business Strategy section in [removed: this] [added: our] Annual Report on Form 10-K.

The successful execution of our business strategy and our results in 2014 and beyond may be affected by a number of other factors, which are [removed: described] [added: updated] below:

| • | New Products, Feature Enhancements and Technology Innovation. Product innovation drives greater treatment predictability and clinical applicability, and ease of use for our customers, which supports adoption of Invisalign in their practices. Increasing applicability and treating more complex cases requires that we move away from individual features to [added: more] comprehensive solutions so that Invisalign providers can more predictably treat the whole case, such as with Invisalign G5 for deep bite treatment. Launched in February 2014, Invisalign G5 was engineered to [removed: treat] [added: help doctors achieve even better clinical outcomes when treating patients with] deep [removed: bite malocclusion in its entirety, making it easier for our customers to treat one of the most common malocclusions.] [added: bites - a prevalent orthodontic problem.] In [removed: addition,] [added: North America,] in February 2014, we [added: also] launched ClinCheck Pro, the next generation Invisalign treatment software tool, designed to provide more precise control over final tooth position and to help Invisalign providers achieve their treatment goals. We [added: intend to launch ClinCheck Pro in our other country markets in the first quarter of 2015. Most recently, in November 2014, we announced the upcoming release of Invisalign G6 clinical innovations for first premolar extraction. Invisalign G6 is engineered to improve clinical outcomes for orthodontic treatment of severe crowding and bimaxillary protrusion. Invisalign G6 clinical innovations will be available to Invisalign-trained providers beginning in the first quarter of 2015 with limited commercialization, followed by full commercialization in Asia Pacific, Europe, Middle East and Africa ("EMEA"), and Latin America geographies throughout 2015 and North America in early 2016. We] believe that over the long-term, clinical solutions and treatment tools will increase adoption of Invisalign; however, it is difficult to predict the rate of adoption which may vary by region and channel. |

| • | Invisalign Utilization rates. Our goal is to establish Invisalign as the treatment of choice for treating malocclusion ultimately driving increased product adoption and frequency of use by dental professionals, also known as "utilization [removed: rates".] [added: rates."] Our quarterly utilization rates for the previous [removed: 12] [added: 9] quarters are as follows: |

[removed: ] * Invisalign Utilization rates = # of cases shipped divided by # of doctors cases were shipped to

Total utilization in the fourth quarter of [removed: 2013] [added: 2014] was 4.4 cases per doctor [removed: a slight increase from 4.3 cases in] [added: which is flat when compared to] the third quarter of [removed: 2013 driven primarily by the increase] [added: 2014; however,] in [added: the fourth quarter of 2013,] utilization [removed: by] [added: rates increased for] our International [removed: customers] [added: doctors which was] offset by a decrease [added: in utilization by our North American orthodontic doctors.]

[removed: This] [added: The] decrease by our North American orthodontic [removed: customers] [added: doctors] reflects a [added: seasonal] decline in the number of teen-aged cases shipped as summer is typically the busiest season for orthodontists with practices that have a high percentage of adolescent and teenage patients as many parents want to get their teenagers started in treatment before the start of the school year.

| • | Number of new Invisalign doctors trained. We continue to expand our Invisalign customer base through the training of new doctors. In [removed: 2013,] [added: 2014,] Invisalign growth was driven primarily by increased utilization by our [added: North American] orthodontist [removed: customers] [added: doctors and International doctors] as well as by the continued expansion of our customer base as we trained a total of [removed: 8,065] [added: 9,440] new Invisalign [removed: doctors.] [added: doctors, of which 56% were trained internationally.] GPs are one of the keys to driving growth in the adult [removed: segment and] [added: segment, and,] in [removed: 2014] [added: 2014,] we launched [added: Invisalign Fundamentals,] a new [removed: CE I] training course, [removed: now called Invisalign Fundamentals,] designed to improve practice integration and increase utilization for newly trained doctors. We [removed: are implementing] [added: have implemented] this new Invisalign Fundamentals program across North America and will look for opportunities to adjust our international training programs as we work to help our GP practices worldwide more successfully adopt Invisalign into their practices. We believe that this new training approach [removed: will] [added: has the potential to] increase the number of doctors submitting cases 90-days post-training, as well as the number of cases submitted per doctor. |

| • | International Clear Aligner. We will continue to focus our efforts towards increasing adoption of our products by dental professionals in our direct international markets. [removed: On a year over year basis, international] [added: International] volume increased [removed: 25%,] [added: 28.6% in 2014 from 2013] driven primarily by growth in Europe as well as by strong performance in the [removed: Asia-Pacific] [added: Asia Pacific] region. In [removed: 2014,] [added: 2015,] we [removed: will continue] [added: are continuing] to expand in our existing markets through targeted investments in sales coverage and professional marketing and education programs, along with consumer marketing in selected country markets. [removed: In addition, given the significant long term potential this extensive geography represents and the support we can now provide by utilizing our direct coverage model in Europe, beginning in February 2014, we will transition a small number of those countries into direct sales regions.] We expect [removed: to leverage our existing infrastructure and resources] [added: international revenues] to [removed: bring sales coverage and customer support] [added: continue] to [removed: these countries, most of which are adjacent] [added: grow at a faster rate than North America for the foreseeable future due] to our [removed: directly covered European countries. Due to] [added: continued investment in international market expansion,] the [removed: small volume] [added: size] of [removed: business from our EMEA distributor, we do not anticipate that this transition will have a material effect on] [added: the market opportunity, and] our [removed: financial results] [added: relatively low market penetration] in [removed: the next several years.] [added: this region.] |

| • | Foreign exchange rates. Although the U.S. dollar is our reporting currency, a portion of our net revenues and income are generated in foreign currencies. Net revenues and income generated by subsidiaries operating outside of the U.S. are translated into U.S. dollars using exchange rates effective during the respective period and as a result are affected by changes in exchange rates. We have generally accepted the exposure to exchange rate movements without using derivative financial instruments to manage this risk; therefore, both positive and negative movements in currency exchange rates against the U.S. dollar will continue to affect the reported amount of net revenues and income in our consolidated financial statements. [added: In the third and fourth quarter of 2014 combined, our net revenues were negatively impacted by $3.1 million, and we incurred foreign currency translation net losses of $4.1 million in Interest and Other Income (Expense) net, primarily due to the weakening of the Euro and other foreign currencies relative to the] |

Net revenues by Reportable Segment Comparison for [removed: Years] [added: Year] Ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011:][added: 2012:]

We group our operations into two reportable segments: Clear Aligner segment and [removed: SCCS] [added: Scanner and Services] segment.

| • | Our Clear Aligner segment consists of our Invisalign [removed: System] [added: system] which includes Invisalign Full, [removed: Express/Lite, Teen, Assist, Vivera Retainers,] [added: Teen and Assist ("Full Products"), Express/Lite ("Express Products"),Vivera retainers,] along with our training and ancillary products for treating malocclusion. |

| • | Our [removed: SCCS] [added: Scanner and Services] segment consists of intra-oral scanning [removed: systems,] [added: systems] and additional services available with the intra-oral [removed: scanners,] [added: scanners] that provide digital alternatives to the traditional cast models. This segment includes our iTero scanner and OrthoCAD services. |

[removed: The below represents net] [added: Net] revenues for our Clear Aligner segment by [removed: region, channel,] [added: region] and product and our [removed: SCCS] [added: Scanner] segment by region [removed: and product] for the year ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012 is] as follows (in millions):

| | Year Ended December 31, | | | | | | | [removed: | | | | | | | | | | | | | | | | | |]

| | [added: December 31, 2014 | | | | December 31,] 2013 | | | | [removed: Net] Change | | | | [removed: % Change] | | | [removed: 2012] [added: December 31, 2013] | | | | [removed: Net Change] [added: December 31, 2012] | | | | [removed: %] Change | | | [removed: 2011] | | |

| Clear Aligner | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | |]

| Region and Channel | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | |]

| [removed: Total] North America | [removed: 408.2] [added: $] | [added: 446.6] | | | [removed: 47.1] [added: $] | [added: 408.2] | | | [removed: 13.0] [added: $] | [added: 38.4 | | | 9.4 |] % | | [removed: 361.1] [added: $] | [added: 408.2] | | | [removed: 45.7] [added: $] | [added: 361.1] | | | [removed: 14.5] [added: $] | [removed: %] [added: 47.1] | | [removed: 315.4] | [added: 13.0] | [added: %] |

| International | [added: 219.7 | | | |] 161.7 | | | | [removed: 36.9] [added: $] | [added: 58.0] | | | [removed: 29.6] [added: 35.9] | % | | [removed: 124.8] [added: 161.7] | | | | [removed: 13.3] [added: 124.8] | | | | [removed: 11.9] [added: 36.9] | [removed: %] | | [removed: 111.5] | [added: 29.6] | [added: %] |

| Invisalign non-case net revenues | [added: 46.2 | | | |] 44.7 | | | | [removed: 14.0] [added: $] | [added: 1.5] | | | [removed: 45.6] [added: 3.4] | % | | [removed: 30.7] [added: 44.7] | | | | [removed: 6.0] [added: 30.7] | | | | [removed: 24.3] [added: 14.0] | [removed: %] | | [removed: 24.7] | [added: 45.6] | [added: %] |

| Total Clear Aligner net revenues 1 | $ | [added: 712.5 | | | $ |] 614.6 | | | $ | [removed: 98.0] [added: 97.9] | | | [removed: 19.0] [added: 15.9] | % | | $ | [removed: 516.6] [added: 614.6] | | | $ | [removed: 65.0] [added: 516.6] | | | [removed: 14.4] [added: $] | [removed: %] [added: 98.0] | | [removed: $] | [removed: 451.6] [added: 19.0] | [added: %] |

| Product | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | |]

| Invisalign [removed: Express/Lite] [added: Express Products] | [added: 80.6 | | | |] 72.4 | | | | [removed: 20.9] [added: 8.2] | | | | [removed: 40.6] [added: 11.3] | % | | [removed: 51.5] [added: 72.4] | | | | [removed: 8.9] [added: 51.5] | | | | 20.9 | [removed: %] | | [removed: 42.6] | [added: 40.6] | [added: %] |

| Invisalign non-case net revenues | [added: 46.2 | | | |] 44.7 | | | | [removed: 14.0] [added: 1.5] | | | | [removed: 45.6] [added: 3.4] | % | | [removed: 30.7] [added: 44.7] | | | | [removed: 5.9] [added: 30.7] | | | | [removed: 23.8] [added: 14.0] | [removed: %] | | [removed: 24.8] | [added: 45.6] | [added: %] |

| Total Clear Aligner net revenues | $ | [added: 712.5 | | | $ |] 614.6 | | | $ | [removed: 98.0] [added: 97.9] | | | [removed: 19.0] [added: 15.9] | % | | $ | [removed: 516.6] [added: 614.6] | | | $ | [removed: 65.0] [added: 516.6] | | | [removed: 14.4] [added: $] | [removed: %] [added: 98.0] | | [removed: $] | [removed: 451.6] [added: 19.0] | [added: %] |

| Region | | | | | | | | | | | | | | | | | | | | | | | | | | [added: | | | |]

| North America | $ | [added: 48.7 | | | $ |] 45.3 | | | $ | [removed: 3.1] [added: 3.4] | | | [removed: 7.3] [added: 7.5] | % | | $ | [removed: 42.2] [added: 45.3] | | | $ | [removed: 18.2] [added: 42.2] | | | [removed: 75.8] [added: $] | [removed: %] [added: 3.1] | | [removed: $] | [removed: 24.0] [added: 7.3] | [added: %] |

| International | [added: 0.4 | | | |] 0.3 | | | | [removed: (0.9] [added: 0.1] | | [removed: )] | | [removed: (75.0] [added: 33.3] | [removed: )%] [added: %] | | [removed: 1.2] [added: 0.3] | | | | [removed: (2.9] [added: 1.2] | | [removed: )] | | [removed: (70.7] [added: (0.9] | [removed: )%] | [added: )] | [removed: 4.1] | [added: (75.0] | [added: )%] |

Over the last several years’ we have continued to build upon our technology and expertise to deliver enhanced clinical innovations aimed at helping our customers treat some of the most challenging cases.

Most recently, in November 2014, we announced the upcoming release of Invisalign G6 clinical innovations for first premolar extraction.


On a year-over-year basis, total utilization of 4.4 cases per doctor in the fourth quarter of 2014 remained flat compared to the

fourth quarter of 2013.

We expect that over the long-term our utilization rates will gradually improve as a result of advancements in product and technology, which continue to strengthen our doctors’ clinical confidence in the use of Invisalign, along with the implementation of our Go-To-Market strategy (as discussed below).

However, we expect that our utilization rates may fluctuate from period to period.

| • | Go-To-Market Evolution. In order to provide more comprehensive sales and service coverage, we are currently implementing an updated go-to-market strategy with an expanded team and new structure in North America. In order to ensure our North America sales and marketing team can increase time in-office and help each practice become more successful, we are in the process of adding approximately 50 sales team members in 2015, the majority of which are in place as of the date of this Form 10-K. We believe that these investments in a refined go-to-market strategy and the strategic deployment of more people will improve adoption and utilization of Invisalign by our customers. |

| • | Operating Expenses. We expect operating expenses to increase in 2015 compared to 2014 due in part to: |

| ▪ | the increase in North American sales force coverage discussed above, as well as additions to our sales force in EMEA and Asia Pacific regions |

| ▪ | infrastructure investments, including a project to implement a new enterprise resource planning system which we started in late 2014 with expected "go-live" for various modules and subsidiaries throughout 2016; and |

| ▪ | investments in new products and markets like our recently announced intention to develop new products for dentists who treat mild to moderate obstructive sleep apnea with oral appliance therapy. |

We believe that these investments will position us to increase our revenue and continue to grow our market share.

| • | Increase in Invisalign Selling Price. We have historically invested in research and development and continuous product innovation. In order to continue and even accelerate this product innovation cycle, we recently announced a price increase of $50 per treatment, or approximately 3%, on Invisalign Full and Invisalign Teen products, effective April 1, 2015 in North America. The prices for Invisalign Assist, Invisalign Express 10 and Invisalign Express 5 products will remain unchanged. |

U.S. Dollar.

If the U.S. Dollar continues to strengthen compared to other foreign currencies, including the Euro, our reported amount of net revenues and income will be negatively impacted compared to the same period last year.

| • | Medical Device Excise Tax. During March 2014, Align had extensive discussions with the IRS and they informed us that our aligners are not subject to the medical device excise tax ("MDET") which we had been paying and expensing in general and administrative expenses in the consolidated statements of operations since January 1, 2013; however, our scanners are still subject to the MDET. As a result of these discussions, beginning in March 2014, we ceased expensing and paying the MDET for aligners. In June 2014, we received a $1.2 million refund for MDET paid in 2014 related to our aligners which reduced general and administrative expenses for the three months ended June 30, 2014. For the year ended December 31, 2014, MDET expense was lower by approximately $6.8 million compared to the prior year. Additionally, we are in process of claiming a $6.8 million refund of MDET paid in 2013 related to our aligners; however, because this claim is subject to review and approval by the IRS, we have not recorded a receivable as the outcome of the audit is uncertain. Any future changes in the applicability of the MDET as it applies to us or refunds of amounts previously paid will be recorded as an additional expense or a credit to the consolidated statement of operations in the period in which it becomes probable and reasonably estimable. |

| • | Stock Repurchase Authorization. On April 23, 2014, we announced that our Board of Directors had authorized a stock repurchase program pursuant to which we may purchase up to $300.0 million of our common stock over the next three years, with $100.0 million of that amount authorized to be purchased over the first twelve months. Any purchases under this stock repurchase program may be made, from time-to-time, pursuant to open market purchases (including pursuant to Rule 10b5-1 plans), privately-negotiated transactions, accelerated stock repurchases, block trades or derivative contracts or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934. The program does not obligate Align to acquire any particular amount of common stock and depending on market conditions or other factors these purchases may be commenced or suspended at any time, or from time-to-time without prior notice. The authorization or continuance of any repurchases under stock repurchase programs is contingent on a variety of factors, including our financial condition, results of operations, business requirements, and our Board of Directors' continuing determination that such stock repurchases are in the best interests of our stockholders and in compliance with all laws and applicable agreements. Additionally, there can be no assurance that our stock repurchase program will have a beneficial impact on our stock price. As of December 31, 2014, there is approximately $201.8 million remaining under the April 2014 stock repurchase program, of which $1.8 million was repurchased in January 2015. In addition, in January 2015, our Board of Directors has authorized the next $100.0 million under the program to be repurchased which we anticipate completing within twelve months. We expect to finance future stock repurchases with current cash on hand. |

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| Invisalign Full Products | $ | 585.7 | | | $ | 497.5 | | | $ | 88.2 | | | 17.7 | % | | $ | 497.5 | | | $ | 434.4 | | | $ | 63.1 | | | 14.5 | % |

| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Scanner: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

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Changes and percentages are based on actual values.

Certain tables may not sum or recalculate due to rounding.

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| | | | | | | | | | | | | | | | | | | | | | | | |

| Invisalign Full Product Group | 395.1 | | | 343.4 | | | 51.7 | | | 15.1 | % | | 343.4 | | | 304.8 | | | 38.6 | | | 12.7 | % |

| Total Invisalign case volume | 478.0 | | | 422.4 | | | 55.6 | | | 13.2 | % | | 422.4 | | | 363.5 | | | 58.9 | | | 16.2 | % |

Changes and percentages are based on actual values.

Certain tables may not sum or recalculate due to rounding.

Total net revenues increased by $101.4 million in 2014 as compared to 2013 primarily as a result of Invisalign case volume growth across all regions and products as well as increased Invisalign non-case revenue.

Clear Aligner North America net revenues increased by $38.4 million, or 9.4%, in 2014 compared to 2013 primarily due to Invisalign case volume growth of approximately $32.1 million across all channels and products, and, to a lesser extent, higher average selling prices ("ASP") which contributed approximately $6.3 million to the increase in net revenues.

The increase in ASP was primarily a result of increased mid-course correction revenue from higher usage as well as a product mix shift towards higher priced Invisalign products in 2014 compared to 2013.

This increase was offset in part by higher promotional discounts in 2014 as compared to 2013.

Clear Aligner international net revenues increased by $58.0 million, or 35.9%, in 2014 compared to 2013 primarily driven by Invisalign case volume growth of $46.2 million along with higher ASP which contributed approximately $11.8 million to the increase in net revenues.

The increase in ASP was primarily due to the impact from acquiring our distributor in the Asia Pacific region on April 30, 2013 when we began recognizing direct sales of Invisalign products sold in that region at our full ASP rather than the discounted ASP under the distributor agreement, as well as the price increases which were effective July 2013 along with a favorable impact from foreign exchange rates.

traditional PVS impression as part of the Invisalign case submission process.

in utilization by our North American orthodontic customers from 8.4 to 8.0 cases per doctor.

On a year-over-year basis, total utilization of 4.4 cases per doctor in the fourth quarter of 2013 increased from 4.1 cases in the fourth quarter of 2012 cases, reflecting improvements in product and technology over the past year, including Invisalign G4 and SmartTrack aligner material, which continues to strengthen our doctors’ clinical confidence in the use of Invisalign such that they now utilize Invisalign more often and on more complex cases.

Although we expect that over the long-term our utilization rates will gradually improve, we expect that period over period comparisons of our utilization rates will fluctuate.

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| North America | | | | | | | | | | | | | | | | | | | | | | | | | |

| Orthodontist | $ | 203.9 | | | $ | 31.4 | | | 18.2 | % | | $ | 172.5 | | | $ | 25.0 | | | 16.9 | % | | $ | 147.5 | |

| GP | 204.3 | | | | 15.7 | | | | 8.3 | % | | 188.6 | | | | 20.7 | | | | 12.3 | % | | 167.9 | | |

| Invisalign Full | $ | 382.0 | | | $ | 43.4 | | | 12.8 | % | | $ | 338.6 | | | $ | 36.3 | | | 12.0 | % | | $ | 302.3 | |

| Invisalign Teen | 84.9 | | | | 17.8 | | | | 26.5 | % | | 67.1 | | | | 12.6 | | | | 23.1 | % | | 54.5 | | |

| Invisalign Assist | 30.6 | | | | 1.9 | | | | 6.6 | % | | 28.7 | | | | 1.3 | | | | 4.7 | % | | 27.4 | | |

| SCCS Services 2: | | | | | | | | | | | | | | | | | | | | | | | | | |

| Scanners | $ | 23.7 | | | $ | 3.7 | | | 18.5 | % | | $ | 20.0 | | | $ | 6.7 | | | 50.4 | % | | $ | 13.3 | |

| CAD/CAM Services | 21.9 | | | | (1.5 | | ) | | (6.4 | )% | | 23.4 | | | | 8.6 | | | | 58.1 | % | | 14.8 | | |

| 2 | As the acquisition of Cadent closed on April 29, 2011, the year ended December 31, 2011 balances for SCCS Services only reflect eight months of revenues. |

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| North America: | | | | | | | | | | | | | | | | | | | | |

| Orthodontist | 159.6 | | | 22.6 | | | 16.5 | % | | 137.0 | | | 21.6 | | | 18.7 | % | | 115.4 | |

| GP | 154.3 | | | 14.6 | | | 10.5 | % | | 139.7 | | | 16.5 | | | 13.4 | % | | 123.2 | |

| Invisalign Full | 262.4 | | | 27.4 | | | 11.7 | % | | 235.0 | | | 28.7 | | | 13.9 | % | | 206.3 | |

| Invisalign Teen | 59.6 | | | 11.3 | | | 23.4 | % | | 48.3 | | | 10.3 | | | 27.1 | % | | 38.0 | |

| Invisalign Assist | 21.4 | | | (0.1 | ) | | (0.5 | )% | | 21.5 | | | 0.6 | | | 2.9 | % | | 20.9 | |

Despite our recent product mix shift towards lower priced Invisalign products, we expect our worldwide ASP to trend upwards in the future as a result of higher growth rates in our international markets, which typically have higher ASP than North America.

SCCS

Total net revenues increased $80.3 million in 2012 primarily as a result of volume growth of 17.5% across all regions and customer channels in our Clear Aligner segment and the inclusion of a full year of Scanner and CAD/CAM Services (SCCS) segment activity in 2012 compared to eight months in 2011.

Revenue from our Clear Aligner segment, increased by 14.4% due to increased case volumes across all products which resulted in an increase in net revenues of approximately $74.8 million offset by lower ASP, which decreased net revenues by approximately $16.1 million.

Additionally, in the fourth quarter of 2012, we determined that the actual case refinement usage rate was lower than our estimate and, as a result, Invisalign revenue includes the release of $4.9 million of revenue previously deferred for case refinement (refer to Item 8 on this Form 10-K for further discussion).

North American revenue growth of 14.5% was driven by increased volumes of 16% in the Ortho Channel and GP channels due to higher utilization and an increased number of doctors submitting cases which resulted in an increase in net revenues of approximately $50.4 million.

Lower ASP contributed $5.0 million to a decrease in net revenues as a result of increased discounting from our volume rebate program and a product mix shift towards our lower priced products.

International revenue growth of 11.9% was mainly due to volume increases of 22.6% across all products which resulted in an increase in net revenues of approximately $25.3 million.

This increase was offset in part by lower ASP which resulted in a decrease in net revenues of approximately $12.0 million primarily due to higher discounts, unfavorable foreign exchange rates and a product mix shift towards distributor sales and lower priced products.

Invisalign non-case revenues, consisting of training fees and sales of ancillary products, were higher in 2012 compared to 2011 primarily due to increased sales of our Vivera product and training.

Revenue from our Scanner and CAD/CAM Services segment, consisting of scanner and CAD/CAM services, increased by $15.3 million as a result of $18.2 million increase in North America revenue related to higher scanner volume from a full year of activity in 2012 compared to eight months in 2011.

This is partially offset by a $2.9 million decrease in international revenue due to lower scanner volumes as a result of the termination of our exclusive distribution agreement with Straumann for iTero intra-oral scanners.

The financial results of Cadent have been included in this segment since the acquisition date on April 29, 2011.

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| Cost of revenues | $ | 129.8 | | | $ | 19.4 | | | $ | 110.6 | | | $ | 13.5 | | | $ | 97.1 | |

[added: Fixed-rate] securities may have their fair market value adversely impacted due to a rise in interest rates, and as a result, our future investment income may fall short of expectations due to changes in interest rates or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates.

As of December 31, [removed: 2013,] [added: 2014,] we had approximately [removed: $229.0] [added: $402.7] million invested in available-for-sale marketable securities.

We do not have interest bearing liabilities as of December 31, [removed: 2013,] [added: 2014,] and, therefore, we are not subject to risks from immediate interest rate increases.

We operate in North America, Europe, [removed: Asia-Pacific,] [added: Asia Pacific,] Costa Rica and Israel.

Fixed-rate

We have two operating segments: (1) Clear Aligner, known as the Invisalign System; and (2) Scanners and [removed: CAD/CAM] Services [removed: ("SCCS"),] [added: ("Scanner"),] known as the iTero intra-oral scanner and OrthoCAD [removed: services.][added: services and formerly referred to as our Scanners and CAD/CAM Services segment ("SCCS").]

For the year ended December 31, [removed: 2013,] [added: 2014,] Clear Aligner revenues represent approximately [removed: 93] [added: 94] percent of worldwide revenue, while Scanners [removed: and CAD/CAM Services] represent the remaining [removed: 7] [added: 6] percent of worldwide revenues.

The Invisalign System is primarily sold through a direct sales force in the United States ("U.S."), Canada, Europe, and certain [removed: Asia-Pacific] [added: Asia Pacific] countries including Australia, New Zealand, China and Japan.

We use a distributor model for the sale of our products in non-core country markets in the Asia Pacific, Europe, [removed: the] Middle East and Africa ("EMEA"), and Latin America regions.

We acquired the iTero digital intra-oral scanner and CAD/CAM services business, our [removed: SCCS] [added: Scanner] segment, in April 2011.

Available options for improving treatment aesthetics include the use of ceramic, tooth-colored brackets or bonding brackets on the inside, or lingual [added: surface, of the patient’s teeth.]

Scanners and [removed: CAD/CAM] Services Segment

[added: By enabling the dental practitioner to create a 3D image of the patient’s teeth using a handheld intra-oral] scanner inside the mouth, intra-oral scanning is more efficient and precise and more comfortable for patients, compared to the mess, discomfort, and subjective nature of taking physical impressions.

Our net revenues are generated from the sale of the following product [removed: offerings.][added: offerings:]

| Percentage of Net Revenues by Product | [removed: 2013] [added: 2014] | | | [removed: 2012] [added: 2013] | | | [removed: 2011] [added: 2012] | |

| Invisalign Full [added: Products] | [removed: 58] [added: 77] | % | | [removed: 61] [added: 75] | % | | [removed: 63] [added: 78] | % |

| Invisalign [removed: Express/Lite] [added: Express Products] | 11 | | | [removed: 9] [added: 11] | | | 9 | |

| Invisalign Non-case* | [removed: 7] [added: 6] | | | [removed: 5] [added: 7] | | | 5 | |

Used for a wide range of malocclusion, [added: the] Invisalign Full [added: treatment] consists of the number of aligners necessary to achieve the doctor’s treatment goals.

[removed: For] Invisalign [removed: Full,] [added: Full treatment] aligners are manufactured and then delivered to the dental professionals in a single shipment.

Invisalign [removed: Express,] [added: Express treatment,] Invisalign Lite [added: treatment] and Invisalign i7 [added: treatment] are lower-cost solutions for less complex orthodontic cases, non-comprehensive treatment relapse cases, or straightening prior to restorative or cosmetic treatments such as veneers.

[added: The] Invisalign Teen [added: treatment] includes all the features of Invisalign [removed: Full,] [added: Full treatment,] plus additional features that address the orthodontic needs of teenage patients such as compliance indicators, compensation for tooth eruption and six free single arch replacement aligners.

[removed: For] Invisalign [removed: Teen,] [added: Teen treatment] aligners (other than the replacement aligners) are manufactured and [removed: then delivered to the dental professionals in a single shipment.]

Used for anterior alignment and aesthetically-oriented cases, [added: the] Invisalign Assist [added: treatment] offers added support to our dental practitioners throughout the treatment process, including progress tracking that allows the dental professional to submit new impressions every nine stages.

We have consistently introduced enhanced features across the Invisalign System over the past several years, such as Invisalign G3 (launched in October 2010), Invisalign G4 (launched in November 2011), [removed: and, most recently,] [added: and] Invisalign G5 (launched in February 2014).

[removed: Most recently,] Invisalign G5 is our first set of innovations designed specifically as an integrated solution to enhance treatment predictability for deep bite, a specific type of malocclusion.

Scanners and [removed: CAD/CAM] Services Products

[removed: In January 2013, we announced the new] [added: The] iTero scanner [added: is] available as a single hardware platform with software options for restorative or orthodontic procedures.

[removed: Additionally,] [added: The iTero scanner includes our innovative powderless technology and features a modern design, scanning wand and easy-to-use keyboard design with] full color model [removed: rendering is available,] [added: rendering,] enabling clinicians to show patients a life-like final model of their scanned dentition.

We [removed: began marketing] [added: market] and [removed: selling] [added: sell] the [removed: new] iTero in North America [removed: beginning February 2013] and [removed: soon thereafter] in select international markets.

| 2. | Doctor Preference. We want all of our doctors to have the confidence and motivation to lead with Invisalign for every patient that walks into their practice. We strive to achieve this by investing in two areas. First, continuing to improve product predictability and applicability for more complex cases thereby expanding the types of malocclusion that our Invisalign products can treat. As an example, we [removed: recently] launched Invisalign G5 in February 2014, which represented our first set of features engineered specifically to treat deep bite malocclusion. We estimate that deep bite manifests itself in approximately 30% to 40% of the orthodontic cases treated worldwide depending on geography. [removed: Secondly, enhancing the customer’s experience by making it easier to treat with and integrate Invisalign into their practices. As an example, we] [added: We also] recently [removed: launched ClinCheck Pro in February 2014, the next generation Invisalign treatment software tool, designed to simplify the treatment process and help our doctors achieve their treatment goals.] |

[added: These technologies] include complex software algorithms and solutions, CT scanning, stereolithography and automated aligner fabrication.

In North America, Europe and certain [removed: Asia-Pacific] [added: Asia Pacific] country markets, we have direct sales and support organizations, which includes quota carrying sales representatives, sales management, and sales administration.

Currently, we have [removed: two] [added: several] distribution partners that sell the Invisalign System in smaller non-core country markets in the [removed: EMEA] [added: EMEA, Asia Pacific] and Latin America regions.

[removed: Given] [added: In addition, given] the significant long term potential [removed: this extensive] [added: the EMEA] geography represents and the support we can now provide by utilizing our direct coverage model in Europe, beginning in February 2014, we [removed: will] [added: began the] transition [added: of] a small number of [removed: those] countries into direct sales regions.

For [removed: our intra-oral scanners,] [added: the iTero scanner,] we have a small team of direct sales representatives in North America.

In [removed: 2013,] [added: 2014,] we had approximately [removed: 38,000] [added: 43,340] active Invisalign providers.

Our research and development expenses were [removed: $44.1] [added: $52.8] million, [removed: $42.9] [added: $44.1] million, and [removed: $37.2] [added: $42.9] million for the year ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011,] [added: 2012,] respectively.

As of December 31, [removed: 2013,] [added: 2014,] we had [removed: 313] [added: 352] issued U.S. patents, [removed: 124] [added: 97] pending U.S. patent applications, and [removed: 239] [added: 257] foreign issued patents, as well as [removed: 116] [added: 108] pending foreign patent applications.

For our [removed: SCCS] [added: Scanner] segment, capital equipment sales are often stronger in the fourth calendar quarter.

Our intra-oral scanner backlog as of December 31, [removed: 2013] [added: 2014] was not material.

[removed: The scope of our] Quality Management System certification includes the additional requirements defined by PAL and Invisalign has been authorized for sale.

Many government agencies, both domestic and foreign, have increased their enforcement activities with respect to healthcare providers and companies in recent [added: years.]

For example, the U.S. Federal Physician Payment Sunshine Act [removed: recently] went into [removed: effect,] [added: effect in 2014] which requires public transparency of transfers of value to physicians.

Meanwhile, [removed: in] the [removed: Asia-Pacific] [added: Asia Pacific] region has also seen rapid development of privacy laws, including in Singapore, Hong Kong, and Australia.

| Scanners and Services | 6 | | | 7 | | | 8 | |

The Invisalign Full product is included in "Invisalign Full Products."

then delivered to the dental professionals in a single shipment.

The Invisalign Teen product is included in "Invisalign Full Products".

The Invisalign Assist product is included in "Invisalign Full Products".

The Invisalign Express (10 and 5) products and Invisalign Lite /i7 products are included in "Invisalign Express Products".

Most recently, in November 2014, we announced the upcoming release of Invisalign G6 clinical innovations for first premolar extraction.

Invisalign G6 is engineered to improve clinical outcomes for orthodontic treatment of severe crowding and bimaxillary protrusion.

Invisalign G6 clinical innovations will be available to Invisalign-trained providers beginning in the first quarter of 2015 with limited commercialization, followed by full commercialization in Asia Pacific, Europe, Middle East and Africa, and Latin America geographies throughout 2015 and North America in early 2016.

Invisalign G6 feature enhancements include:

| • | New SmartStage programmed tooth movements that optimize the progression of tooth movements and provide aligner activation, engineered to eliminate unwanted tipping and unwanted anterior extrusion during retraction. |

| • | New SmartForce features that are designed to deliver the force systems necessary to achieve predictable tooth movements. These new features include Optimized Retraction Attachments, designed to work with SmartStage technology for effective bodily movement during canine retraction, with or without elastics, and new Optimized Anchorage Attachments, designed to work with SmartStage technology to maximize posterior anchorage. |

The iTero scanner is interoperable with our Invisalign treatment such that a full arch digital scan can be submitted for the Invisalign case submission process treatment.

In January 2014, we announced that we qualified the 3M™ True Definition scanner for use with Invisalign case submissions.

This qualification enables Invisalign providers with a True Definition scanner to submit a digital impression in place of a traditional PVS impression as part of the Invisalign case submission process.

We support an open systems approach to digital impressions and continue to work with intraoral scanning companies interested in developing interoperability for use with Invisalign treatment.

In the past year, we have expanded the digital workflow options to include several partnerships which provide our customers with a broader spectrum of CAD/CAM options.

Connectivity partnership announcements include:

| • | IOS Technologies Inc, a wholly owned subsidiary of Glidewell Laboratories, provides the option to mill same-day restorations in the office. |

| • | DENTSPLY Implants featuring connectivity with ATLANTIS™ custom abutments. |

| • | Zimmer Dental, Inc. with connectivity with Zimmer Zfx custom abutments for implants. |

announced the upcoming release of Invisalign G6 clinical innovations for first premolar extractions.

The nature of malocclusion that requires first premolar tooth extraction is an orthodontic problem that affects more than 50% of people in Asia, 20% in Europe and 12% in North America.

Secondly, enhancing the customer’s experience by making it easier to treat with and integrate Invisalign into their practices.

As an example, we launched ClinCheck Pro in February 2014, the next generation Invisalign treatment software tool, designed to simplify the treatment process and help our doctors achieve their treatment goals.

We continued

to expand in our existing markets through targeted investments in sales coverage, professional marketing and education programs, along with consumer marketing in selected country markets.

We continued the transition of additional smaller countries during the year which will continue through February 2015.

We sell the iTero scanner in select country markets internationally and will look to grow the scanner business over time.

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The scope of our

surface, of the patient’s teeth.

By enabling the dental practitioner to create a 3D image of the patient’s teeth using a handheld intra-oral

| Invisalign Teen | 13 | | | 12 | | | 11 | |

| Invisalign Assist | 4 | | | 5 | | | 6 | |

| Scanners | 4 | | | 4 | | | 3 | |

| CAD/CAM Services | 3 | | | 4 | | | 3 | |

| | As the acquisition of Cadent Holdings, Inc. (“Cadent”) closed on April 29, 2011, the fiscal year 2011 percentages for Scanners and CAD/CAM Services only reflect eight months of net revenues. |

Previously, we sold two hardware platforms, the iTero scanner for GPs, prosthodontists, periodontists, and oral surgeons and the iOC scanner for orthodontists.

The newly redesigned iTero scanner maintains our innovative powderless technology and features a modern design with enhanced wand optics for a smaller, more ergonomic fit, easy-to-use keyboard design and a larger working surface.

The new iTero

delivers substantially reduced capture time through improved optics and enhanced algorithms while maintaining a high standard of digital imaging accuracy, the efficiency of open source imaging and streamlined workflow.

These technologies

Our direct sales organization in North America is comprised of a team of territory managers and to a lesser extent, territory specialists.

These territory specialists are used to enhance coverage, especially with lower volume GP customers.

Our EMEA distribution partner has been covering approximately 80 country markets and continues to make good progress in building a base of Invisalign trained doctors in those regions.

In 2014, we expect to have very few scanner sales internationally as we continue to evaluate the most effective sales model in this market.

years.

Prior to

Arola (“Mr. Arola”), [removed: Align's] [added: Align’s] former Vice President, Finance and Chief Financial Officer, in the United States District Court for the Northern District of California on behalf of a purported class of purchasers of our common stock [removed: between April 23, 2012 and October 17,][added: (the “Securities Action”).]

[removed: Specifically,] the [removed: amended complaint alleged that during the] purported class period defendants failed to take an appropriate goodwill impairment charge related to the April 29, 2011 acquisition of Cadent Holdings, Inc. in the fourth quarter of 2011, the first quarter of 2012 or the second quarter of 2012, which rendered our financial statements and projections of future earnings materially false and misleading and in violation of U.S. GAAP.

The amended complaint sought monetary damages in an unspecified amount, costs and [removed: attorney's] [added: attorneys’] fees.

On December 9, 2013, the [removed: judge] [added: court] granted [removed: our] [added: defendants’] motion to dismiss with leave for plaintiff to file a second amended complaint.

The second amended complaint states the same claims as the [removed: first] amended complaint.

Align is currently unable to predict the outcome of this [added: amended] complaint and therefore cannot determine the likelihood of loss nor estimate a range of possible [removed: loss.][added: loss, if any.]

The complaint also seeks an order directing Align to reform and improve its corporate governance and internal procedures, and seeks restitution in an unspecified amount, costs, and [removed: attorney's] [added: attorneys’] fees.

On January 15, 2014, an [removed: order] [added: Order] was entered staying this derivative lawsuit until an initial ruling on our second motion to dismiss the Securities [removed: Action discussed above.][added: Action.]

Specifically, the amended complaint alleged that during

On August 22, 2014, the court granted our motion to dismiss without leave to amend.

On September 22, 2014, Plaintiff filed a notice of appeal to the Ninth Circuit Court of Appeals.

On October 14, 2014, an Order was entered staying this derivative lawsuit until a ruling by the Ninth Circuit in the Securities Action discussed above.

2012 (the "Securities Action").

We filed a motion to dismiss the second amended complaint on February 7, 2014.

Align intends to vigorously defend itself against these allegations.

For the fiscal year ended December 31, [removed: 2013][added: 2014]

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $2,908,140,447] [added: $4,457,461,725] as of June 30, [removed: 2013] [added: 2014] based on the closing sale price of the registrant’s common stock on the NASDAQ Global Market on such date.

On February [removed: 21, 2014, 81,480,919] [added: 20, 2015, 80,720,243] shares of the registrant’s common stock were outstanding.

Portions of the registrant’s definitive Proxy Statement relating to its [removed: 2013] [added: 2014] Annual Stockholders’ Meeting to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of December 31, [removed: 2013] [added: 2014] are incorporated by reference into Part III of this Annual Report on Form 10-K.

For the Year Ended December 31, [removed: 2013][added: 2014]

| Item 1. | Business | [removed: [3](#s5227703BD855009C4B1F33C9D96D6488)] [added: [3](#s729756F7C591EC3F83639A475C146CA9)] |

| | Executive Officers of the Registrant | [removed: [13](#s6C2D2928757F0E10804333C9E53A248A)] [added: [14](#s68427DE3FA85CF4E16C59A47658F1DD4)] |

| Item 1A. | Risk Factors | [removed: [14](#s6D1D7C1BED3FD91DAA5D33C9E55B40B6)] [added: [15](#s747752262D6A6082C1A79A4765B7852F)] |

| Item 1B. | Unresolved Staff Comments | [removed: [28](#s6F89CE06A2882864F08733C9E58D6E37)] [added: [28](#s7EA1C97BEF28742D07879A4765D9249D)] |

| Item 2. | Properties | [removed: [28](#sD8BD0C715BC370632B2E33C9E5AE4149)] [added: [28](#s3387AC4A26F9D7D584069A47660B650D)] |

| Item 3. | Legal Proceedings | [removed: [28](#s6D13A63D042B633D23DB33C9E5E0A618)] [added: [28](#sBD62685EE3D29EAAB1D69A47662D85DD)] |

| Item 4. | Mine Safety Disclosures | [removed: [29](#s8FCF5FF89F60CB331DAD33C9E60291D3)] [added: [29](#s0777E6FE888AEDA045BC9A47666ED33E)] |

| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | [removed: [30](#s972E299D29F1F550A29D33C9D95FA9AB)] [added: [30](#sC33120922327764761339A4766B17D2E)] |

| Item 6. | Selected Consolidated Financial Data | [removed: [31](#s4F9B28D8E26E9D9DB46733C9D9A83401)] [added: [32](#s0F702FA7C2ED114C40D19A4766D39978)] |

| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | [removed: [33](#sEC24B9678114BA088DA733C9E6A84413)] [added: [34](#s05CB6F744307530A7BA99A476704EB7F)] |

| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | [removed: [50](#s11FC0F4273A2DB10188133C9E8F0560A)] [added: [54](#sC60C74527B27ACBC5CF69A4769198D2B)] |

| Item 8. | Consolidated Financial Statements and Supplementary Data | [removed: [51](#s0401F185699D858AFE6233C9D85A6C47)] [added: [54](#sB4A8BCEB9AAA85B99D1C9A475A763824)] |

| Item 9. | Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | [removed: [93](#s9E3F1C34F357F822CAB633C9EECCAEED)] [added: [94](#sC10B11DBD210615D939C9A476E2ED465)] |

| Item 9A. | Controls and Procedures | [removed: [93](#sA244A1A549C1D66A02C933C9EEFEE714)] [added: [94](#s4383D879073D1B77E2B19A476E4F5D89)] |

| Item 9B. | Other Information | [removed: [93](#s19D0AC4E0E96BA5DD39C33C9EF1F9B0B)] [added: [94](#s85BCDF3FB90CCFD663DD9A476E819604)] |

| PART III | | [removed: [94](#sCD6DAA7DDC9CE283650133C9EF512145)] [added: [95](#sFF32465539A7899BA5219A476EA3CAC2)] |

| Item 10. | Directors, Executive Officers and Corporate Governance | [removed: [94](#s7687DA80536484E347AC33C9EF72735A)] [added: [95](#sD670DE354AA43F57F6FA9A476ED5D2FF)] |

| Item 11. | Executive Compensation | [removed: [94](#s2785014C9075B987C49F33C9EFA4B9E6)] [added: [95](#s4ABDB2684383C59B4DDF9A476EF6F004)] |

| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | [removed: [94](#s1BBBA92EC0650C97F65A33C9D8AFF66C)] [added: [95](#sD79B0DE296C392E2DBCD9A475AD7685F)] |

| Item 13. | Certain Relationships and Related Transactions and Director Independence | [removed: [95](#sBF9EC0A4884CB19341B633C9EFF83C3D)] [added: [96](#s8B280A725A5B4EB94FE49A476F497ED7)] |

| Item 14. | Principal Accounting Fees and Services | [removed: [95](#s020D1BA053EDE77CE91033C9F019A335)] [added: [96](#s2907ECB2104FA2F7EA5D9A476F7BF855)] |

| Item 15. | Exhibits, Financial Statement Schedules | [removed: [96](#sB41B8B1F9930F05D56B133C9D485CB3D)] [added: [97](#s9348CB81FF390DA872E49A47554E9DA3)] |

Invisalign, Align, [added: the Invisalign logo,] ClinCheck, Invisalign Assist, Invisalign Teen, Vivera, SmartForce, SmartTrack, [added: SmartStage,] Power Ridge, iTero, Orthocad, iCast and iRecord, among others, are trademarks and/or service marks of Align Technology, Inc. or one of its subsidiaries or affiliated companies and may be registered in the United States and/or other countries.

10-K 1 algn-20141231x10k.htm 10-K

| [PART I](#s4C47F27F1B61DA7300C79A476533756C) | | [3](#s4C47F27F1B61DA7300C79A476533756C) |

| [PART II](#s2F600083CC24D74A153E9A47667FFC35) | | [30](#s2F600083CC24D74A153E9A47667FFC35) |

| PART IV | | [97](#sCFE24A7222BB38DC86459A476F9D958E) |

| Signatures | | [101](#s7A1174DD0779C3910A139A47700288E6) |

10-K 1 algn-20131231x10k.htm 10-K

| [PART I](#s1E3E92B7D42D097AC46633C9E4E63FD1) | | [3](#s1E3E92B7D42D097AC46633C9E4E63FD1) |

| [PART II](#s35A3D77271243ACF291033C9E634C11A) | | [30](#s35A3D77271243ACF291033C9E634C11A) |

| PART IV | | [96](#sC5D1BD39BA11BAD50B1033C9F04B824A) |

| Signatures | | [100](#sE79A6B323647C5BA5F7333C9F09ED486) |

We occupy several leased and owned facilities with total office and manufacturing area of over [removed: 850,000] [added: 870,000] square feet.

At December 31, [removed: 2013,] [added: 2014,] the significant facilities were occupied as follows:

| San Jose, California | Lease | Office for [added: corporate] headquarters, research & [removed: development,] [added: development and] administrative personnel | Clear Aligner and [removed: SCCS] [added: Scanner] | September 2017 |

| San Jose, Costa Rica | Lease | Office for administrative personnel, manufacturing personnel, and customer care | Clear Aligner and [removed: SCCS] [added: Scanner] | November 2017 |

| Juarez, Mexico | Own | Manufacturing and office facility for manufacturing and administrative personnel | Clear Aligner and [removed: SCCS] [added: Scanner] | N/A |

| Or Yehuda, Israel | Lease | Manufacturing and office for manufacturing, administrative personnel, and research and development | [removed: SCCS] [added: Scanner] | October 2017 |

| Moscow, Russia | Lease | Office for research and development | Clear Aligner and [removed: SCCS] [added: Scanner] | April [removed: 1,] 2017 |

We believe that our [removed: existing] facilities are adequate to meet current requirements and that additional or substitute space will be available as needed to accommodate any expansion of operations.

| Amsterdam, The Netherlands | Lease | Office for international headquarters, sales and marketing and administrative personnel | Clear Aligner | April 2017 |

In February 2015, we purchased another facility in Juarez, Mexico in order to expand our manufacturing capacity to support additional growth.

| Year Ended December 31, [removed: 2013:] [added: 2013] | | | | | | | |

| Year Ended December 31, [removed: 2012:] [added: 2014:] | | | | | | | |

On February [removed: 21, 2014,] [added: 20, 2015,] the closing price of our common stock on the NASDAQ Global Market was [removed: $52.98] [added: $56.81] per share.

As of January 31, [removed: 2014] [added: 2015] there were approximately [removed: 115] [added: 110] holders of record of our common stock.

The graph tracks the performance of a $100 investment in our common stock, in the peer group, and the index (with the reinvestment of all dividends) from December 31, [removed: 2008] [added: 2009] to December 31, [removed: 2013.][added: 2014.]

[removed: ][added: ]

| Fourth quarter | $ | 57.72 | | | $ | 43.27 | |

| Third quarter | $ | 57.79 | | | $ | 51.29 | |

| Second quarter | $ | 57.50 | | | $ | 47.22 | |

| First quarter | $ | 65.10 | | | $ | 50.37 | |

*$100 invested on 12/31/09 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Following is a summary of stock repurchases for the three months ended December 31, 2014:

| | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | | | | | |

| Period | | Total Number of Shares Repurchased | | | Average Price Paid per Share | | | | Total Number of Shares Repurchased as Part of Publicly Announced Program (1) | | | Approximate Dollar Value of Shares that May Yet Be Repurchased Under the Program (1) | | |

| October 1, 2014 through October 31, 2014 | | 280,015 | | | $ | 47.59 | | | 280,015 | | | $ | 209,257,956 | |

| November 1, 2014 through November 30, 2014 | | 85,584 | | | $ | 53.31 | | | 85,584 | | | $ | 204,695,591 | |

| December 1, 2014 through December 31, 2014 | | 51,900 | | | $ | 56.40 | | | 51,900 | | | $ | 201,768,477 | |

(1) On April 23, 2014, we announced that our Board of Directors had authorized a stock repurchase program pursuant to which we may purchase up to $300.0 million of our common stock over the next three years, with $100.0 million of that amount authorized to be purchased over the first twelve months.

Any purchases under this stock repurchase program may be made, from time-to-time, pursuant to open market purchases (including pursuant to Rule 10b5-1 plans), privately-negotiated transactions, accelerated stock repurchases, block trades or derivative contracts or otherwise in accordance with applicable federal securities laws, including Rule 10b-18 of the Securities Exchange Act of 1934.

In addition, in January 2015, our Board of Directors has authorized the next $100 million under the program to be repurchased which we anticipate completing within twelve months.

We expect to finance future stock repurchases with current cash on hand.

| Fourth quarter | $ | 39.39 | | | $ | 23.45 | |

| Third quarter | $ | 39.82 | | | $ | 30.02 | |

| Second quarter | $ | 35.15 | | | $ | 26.06 | |

| First quarter | $ | 28.69 | | | $ | 22.39 | |

The following tables set forth the selected consolidated financial data for each of the years in the five-year period ended December 31, [removed: 2013.][added: 2014.]

We have derived the statement of operations data for the [removed: years] [added: year] ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012] and the balance sheet data as of December 31, [removed: 2013] [added: 2014] and [removed: 2012] [added: 2013] from the consolidated audited financial statements included elsewhere in this Annual Report on Form 10-K.

The statement of operations data for the [removed: years] [added: year] ended December 31, [removed: 2010] [added: 2011] and [removed: 2009] [added: 2010] and the balance sheet data as of December 31, [removed: 2011, 2010] [added: 2012, 2011] and [removed: 2009] [added: 2010] were derived from the consolidated audited financial statements that are not included in this Annual Report on Form 10-K.

| | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | | | [removed: 2010] [added: 2011] | | | | [removed: 2009] [added: 2010] | | |

| Net revenues 1 | $ | [removed: 660,206] [added: 761,653] | | | $ | [removed: 560,041] [added: 660,206] | | | $ | [removed: 479,741] [added: 560,041] | | | $ | [removed: 387,126] [added: 479,741] | | | $ | [removed: 312,333] [added: 387,126] | |

| Gross profit 2 | $ | [removed: 498,106] [added: 578,443] | | | $ | [removed: 416,388] [added: 498,106] | | | $ | [removed: 361,283] [added: 416,388] | | | $ | [removed: 303,417] [added: 361,283] | | | $ | [removed: 233,492] [added: 303,417] | |

| Income [removed: (loss)] from operations 3 | [removed: 94,212] [added: 193,576] | | | | [removed: 85,592] [added: 94,212] | | | | [removed: 90,360] [added: 85,592] | | | | [removed: 102,734] [added: 90,360] | | | | [removed: (34,012] [added: 102,734] | | [removed: )] |

| Other income (expense), net | [removed: (1,073] [added: (3,207] | | ) | | [removed: (1,296] [added: (1,073] | | ) | | [removed: (419] [added: (1,296] | | ) | | [removed: (731] [added: (419] | | ) | | [removed: 119] [added: (731] | | [added: )] |

| Net income [removed: (loss)] before provision for [removed: (benefit from)] income taxes 3 | [removed: 93,139] [added: 190,369] | | | | [removed: 84,296] [added: 93,139] | | | | [removed: 89,941] [added: 84,296] | | | | [removed: 102,003] [added: 89,941] | | | | [removed: (33,893] [added: 102,003] | | [removed: )] |

| Provision for [removed: (benefit from)] income taxes | [removed: 28,844] [added: 44,537] | | | | [removed: 25,605] [added: 28,844] | | | | [removed: 23,225] [added: 25,605] | | | | [removed: 27,750] [added: 23,225] | | | | [removed: (2,624] [added: 27,750] | | [removed: )] |

| Net income [removed: (loss)] 3 | $ | [removed: 64,295] [added: 145,832] | | | $ | [removed: 58,691] [added: 64,295] | | | $ | [removed: 66,716] [added: 58,691] | | | $ | [removed: 74,253] [added: 66,716] | | | $ | [removed: (31,269] [added: 74,253] | [removed: )] |

| Net income [removed: (loss)] per share | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 0.80] [added: 1.81] | | | $ | [removed: 0.73] [added: 0.80] | | | $ | [removed: 0.86] [added: 0.73] | | | $ | [removed: 0.98] [added: 0.86] | | | $ | [removed: (0.45] [added: 0.98] | [removed: )] |

| Diluted | $ | [removed: 0.78] [added: 1.77] | | | $ | [removed: 0.71] [added: 0.78] | | | $ | [removed: 0.83] [added: 0.71] | | | $ | [removed: 0.95] [added: 0.83] | | | $ | [removed: (0.45] [added: 0.95] | [removed: )] |

| Shares used in computing net income [removed: (loss)] per share: | | | | | | | | | | | | | | | | | | | |

| Basic | [removed: 80,551] [added: 80,754] | | | | [removed: 80,529] [added: 80,551] | | | | [removed: 77,988] [added: 80,529] | | | | [removed: 75,825] [added: 77,988] | | | | [removed: 69,094] [added: 75,825] | | |

| Diluted | [removed: 82,589] [added: 82,283] | | | | [removed: 83,040] [added: 82,589] | | | | [removed: 80,294] [added: 83,040] | | | | [removed: 78,080] [added: 80,294] | | | | [removed: 69,094] [added: 78,080] | | |

| Working capital 4 | $ | [removed: 369,338] [added: 455,349] | | | $ | [removed: 330,022] [added: 369,338] | | | $ | [removed: 236,699] [added: 330,022] | | | $ | [removed: 295,637] [added: 236,699] | | | $ | [removed: 180,056] [added: 295,637] | |

| Total assets | [removed: 832,147] [added: 987,997] | | | | [removed: 756,312] [added: 832,147] | | | | [removed: 649,264] [added: 756,312] | | | | [removed: 476,943] [added: 649,264] | | | | [removed: 355,240] [added: 476,943] | | |

| Total long-term liabilities | [removed: 22,839] [added: 33,415] | | | | [removed: 19,224] [added: 22,839] | | | | [removed: 10,366] [added: 19,224] | | | | [removed: 6,222] [added: 10,366] | | | | [removed: 961] [added: 6,222] | | |

| Stockholders’ equity | $ | [removed: 633,970] [added: 752,771] | | | $ | [removed: 581,317] [added: 633,970] | | | $ | [removed: 490,781] [added: 581,317] | | | $ | [removed: 377,747] [added: 490,781] | | | $ | [removed: 273,036] [added: 377,747] | |

| 1 | Net revenues for the year ended December 31, 2011 include eight months of revenues from our Scanners and [removed: CAD/CAM] Services segment of approximately $28.0 million as a result of our acquisition of Cadent Holdings, Inc. on April 29, 2011. Net revenues for the year ended December 31, 2010 [removed: includes] [added: include] a $14.3 million release of previously deferred revenue for Invisalign Teen replacement aligners. |

| 3 | Income [removed: (loss)] from operations, net income [removed: (loss)] before provision for [removed: (benefit from)] income taxes, and net income [removed: (loss) included] [added: includes] the following, net of taxes: |

| • | $40.7 million and $26.3 million of goodwill and long-lived asset impairment, respectively, in [removed: 2013.] [added: 2013] |

| • | $1.9 million, net of tax, out of period adjustment in 2013 (see Note [removed: 1).] [added: 1 in the Financial Statements)] |

| • | $36.6 million of goodwill impairment, $1.3 million acquisition and integration related costs, $4.5 million of amortization of intangible assets, and $0.8 million of exit costs in [removed: 2012.] [added: 2012] |

| • | $14.3 million release of previously deferred revenue for Invisalign Teen replacement aligners in [removed: 2010.] [added: 2010] |

| • | $10.0 million acquisition and integration related costs, $3.2 million of amortization of intangible assets, and exit costs of $1.1 million in [removed: 2011.] [added: 2011] |

| • | $0.8 million [removed: and $6.2 million] of amortization of prepaid royalties related to the litigation settlement with Ormco in 2010 [removed: and 2009, respectively.] |

| • | $4.5 million related to the class action litigation settlement with Leiszler in [removed: 2010.] [added: 2010] |

| • | $8.7 million benefit related to an insurance settlement over a disputed coverage under our general liability umbrella that was not previously reimbursed by our insurer related to the OrthoClear litigation in [removed: 2010.] [added: 2010] |

| | 2014 | | | | 2013 | | | | 2012 | | | | 2011 | | | | 2010 | | |

| 2 | Gross profit includes: |

| • | $1.7 million out of period adjustment in 2013 (See Note 1 in the Financial Statements) |

| • | $0.2 million acquisition and integration related costs, $0.9 million amortization of intangible assets, and $0.5 million of exit costs in 2012 |

| • | $0.4 million acquisition and integration related costs, $0.7 million amortization of intangible assets, and $0.8 million for exit costs in 2011 |

| • | $14.3 million release of previously deferred revenue for Invisalign Teen replacement aligners and $0.8 million for amortization of prepaid royalties related to the litigation settlement with Ormco in 2010 |

| • | $1.8 million out of period income tax adjustment in 2014 (see Note 1 in the Financial Statements) |

| • | |

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

| | |

| --- | --- |

___________________________________

| 2 | Gross profit for the year ended December 31, 2013 included an out of period adjustment of $1.7 million (See Note 1). Gross profit for the year ended December 31, 2012 included acquisition and integration related costs of $0.2 million, amortization of intangible assets of $0.9 million, and exit costs of $0.5 million. Gross profit for the year ended December 31, 2011 included acquisition and integration related costs of $0.4 million, amortization of intangible assets of $0.7 million, and exit costs of $0.8 million. For years ended December 31, 2010 and 2009, gross profit included amortization of prepaid royalties of $0.8 million and $6.2 million, respectively, related to the litigation settlement with Ormco. In addition, 2010 gross profit also included the $14.3 million release of previously deferred revenue for Invisalign Teen replacement aligners. |

| • | Litigation settlement charge of $69.7 million related to Ormco in 2009. |

| • | Restructuring charges of $1.3 million in 2009. |

| | [removed: 2013 | | | | | | | |] [added: 2014] | | | | [added: 2013] | | | | 2012 | | | [removed: | | | | | | | | | | | |]

| | (in thousands, except per share [removed: data )] [added: data)] (unaudited ) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Gross profit [removed: 2] | [removed: 136,476] [added: 150,662] | | | | [removed: 125,090] [added: 145,054] | | | | [removed: 123,691] [added: 145,476] | | | | [removed: 112,849] [added: 137,251] | | | | [removed: 106,478] [added: 136,476] | | | | [removed: 100,350] [added: 125,090] | | | | [removed: 108,800] [added: 123,691] | | | | [removed: 100,760] [added: 112,849] | | |

| Income [removed: (loss)] from operations [removed: 3] [added: 1] | [removed: 52,923] [added: 51,493] | | | | [removed: 41,464] [added: 51,547] | | | | [removed: 37,901] [added: 48,732] | | | | [removed: (38,075] [added: 41,804] | | [removed: )] | | [removed: 17,071] [added: 52,923] | | | | [removed: 4,503] [added: 41,464] | | | | [removed: 36,012] [added: 37,901] | | | | [removed: 28,006] [added: (38,075] | | [added: )] |

| Net income [removed: (loss)] [added: 1 2] 3 [removed: 4] | [removed: 42,422] [added: 39,541] | | | | [removed: 34,537] [added: 38,247] | | | | [removed: 29,320] [added: 35,600] | | | | [removed: (41,983] [added: 32,444] | | [removed: )] | | [removed: 9,559] [added: 42,422] | | | | [removed: (344] [added: 34,537] | | [removed: )] | | [removed: 28,492] [added: 29,320] | | | | [removed: 20,984] [added: (41,983] | | [added: )] |

| Net income [removed: (loss)] per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 0.53] [added: 0.49] | | | $ | [removed: 0.43] [added: 0.47] | | | $ | [removed: 0.36] [added: 0.44] | | | $ | [removed: (0.52] [added: 0.40] | [removed: )] | | $ | [removed: 0.12] [added: 0.53] | | | $ | [removed: —] [added: 0.43] | | | $ | [removed: 0.35] [added: 0.36] | | | $ | [removed: 0.26] [added: (0.52] | [added: )] |

| Diluted | $ | [removed: 0.51] [added: 0.48] | | | $ | [removed: 0.42] [added: 0.47] | | | $ | [removed: 0.36] [added: 0.43] | | | $ | [removed: (0.52] [added: 0.39] | [removed: )] | | $ | [removed: 0.12] [added: 0.51] | | | $ | [removed: —] [added: 0.42] | | | $ | [removed: 0.34] [added: 0.36] | | | $ | [removed: 0.26] [added: (0.52] | [added: )] |

| [removed: •] [added: 1] | [added: Income from operations included] $40.7 million and $26.3 million of goodwill and long-lived asset impairment, respectively, in [added: the three months ended] March [added: 31,] 2013. [added: Net income included these same items, net of tax.] |

[removed: | 4 | In the fourth quarter of 2013, we recorded an out of period correction that resulted in decreases in cost of net revenues of approximately $1.3 million and operating expense of $1.5 million offset in part by an increase in the provision for income taxes of $0.6 million.] The overall increase of $2.2 million in net income related to the out of period correction was not material to the consolidated financial statements for any quarter within [removed: 2012 or] 2013. [removed: |]

| Report of Management on Internal Control over Financial Reporting | [removed: [54](#sB8539F25BCE5AAB7F3F433C9E9758F1E)] [added: [57](#sCBF4D0543A829287D0A49A47699FAE78)] |

| Report of Independent Registered Public Accounting Firm | [removed: [55](#s2008712556034DC16A6133C9E996A9AD)] [added: [58](#sA2B5C4FDF578C77D808F9A4769C15A12)] |

| Consolidated Statements of Operations | [removed: [56](#sA3C6AE5F595D79D8DA9B33C9D2CAFFD6)] [added: [59](#sBCF3F21E253D71CA04B09A4754E79DBB)] |

| Consolidated Statements of Comprehensive Income | [removed: [57](#s82DCCAB80270C627453633C9D2DB259D)] [added: [60](#s51B4827C24B7633B72749A47549B9EC0)] |

| Consolidated Balance Sheets | [removed: [58](#s9DFC1E6CAAA08508629533C9D2DEC7E4)] [added: [61](#s2045B057E9924A291C969A47567D4D69)] |

| Consolidated Statements of Stockholders’ Equity | [removed: [59](#sBC4E43B52509CFAF0FE833C9D2F1B330)] [added: [62](#s5B06444299FB0436352D9A475612F90B)] |

| Consolidated Statements of Cash Flows | [removed: [60](#sABEB315C354FB9DCD47D33C9D30FE47C)] [added: [63](#s39122CE8157BB99A53EB9A4754CDBA90)] |

| Notes to Consolidated Financial Statements | [removed: [61](#s67D215095CEC51602C2F33C9EAE227F9)] [added: [64](#sAC56D2BD52AFEA4B34E89A476AED3955)] |

Management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2013.][added: 2014.]

In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework [removed: (1992)] [added: (2013)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Based on its [removed: assessment ,] [added: assessment,] management has concluded that, as of December 31, [removed: 2013,] [added: 2014,] our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework [removed: (1992)] [added: (2013)] issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2013] [added: 2014] has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1), present fairly, in all material respects, the financial position of Align Technology, Inc. and its subsidiaries at December 31, [removed: 2013] [added: 2014] and December 31, [removed: 2012,] [added: 2013,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2013] [added: 2014] in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2013,] [added: 2014,] based on criteria established in Internal Control—Integrated Framework [removed: (1992)] [added: (2013)] issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

| | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| Net revenues | $ | [removed: 660,206] [added: 761,653] | | | $ | [removed: 560,041] [added: 660,206] | | | $ | [removed: 479,741] [added: 560,041] | |

| Cost of net revenues | [removed: 162,100] [added: 183,210] | | | | [removed: 143,653] [added: 162,100] | | | | [removed: 118,458] [added: 143,653] | | |

| Gross profit | [removed: 498,106] [added: 578,443] | | | | [removed: 416,388] [added: 498,106] | | | | [removed: 361,283] [added: 416,388] | | |

| Sales and marketing | [removed: 180,046] [added: 217,262] | | | | [removed: 152,041] [added: 180,046] | | | | [removed: 142,174] [added: 152,041] | | |

| General and administrative | [removed: 112,752] [added: 114,806] | | | | [removed: 99,295] [added: 112,752] | | | | [removed: 91,595] [added: 99,295] | | |

| Research and development | [removed: 44,083] [added: 52,799] | | | | [removed: 42,869] [added: 44,083] | | | | [removed: 37,154] [added: 42,869] | | |

| Impairment of goodwill | [removed: 40,693] [added: —] | | | | [removed: 36,591] [added: 40,693] | | | | [removed: —] [added: 36,591] | | |

| Impairment of long lived assets | [removed: 26,320] [added: —] | | | | [removed: —] [added: 26,320] | | | | — | | |

| Total operating expenses | [removed: 403,894] [added: 384,867] | | | | [removed: 330,796] [added: 403,894] | | | | [removed: 270,923] [added: 330,796] | | |

| Income from operations | [removed: 94,212] [added: 193,576] | | | | [removed: 85,592] [added: 94,212] | | | | [removed: 90,360] [added: 85,592] | | |

| [removed: Other] [added: Interest and other] income (expense), net | [removed: (1,073] [added: (3,207] | | ) | | [removed: (1,296] [added: (1,073] | | ) | | [removed: (419] [added: (1,296] | | ) |

| Net income before provision for income taxes | [removed: 93,139] [added: 190,369] | | | | [removed: 84,296] [added: 93,139] | | | | [removed: 89,941] [added: 84,296] | | |

| Provision for income taxes | [removed: 28,844] [added: 44,537] | | | | [removed: 25,605] [added: 28,844] | | | | [removed: 23,225] [added: 25,605] | | |

| Net income | $ | [removed: 64,295] [added: 145,832] | | | $ | [removed: 58,691] [added: 64,295] | | | $ | [removed: 66,716] [added: 58,691] | |

| Basic | $ | [removed: 0.80] [added: 1.81] | | | $ | [removed: 0.73] [added: 0.80] | | | $ | [removed: 0.86] [added: 0.73] | |

| | 2014 | | | | | | | | | | | | | | | | 2013 | | | | | | | | | | | | | | |

| | December 31, 2014 | | | | September 30, 2014 | | | | June 30, 2014 | | | | March 31, 2014 | | | | December 31, 2013 | | | | September 30, 2013 | | | | June 30, 2013 | | | | March 31, 2013 | | |

| Net revenues | $ | 198,600 | | | $ | 189,876 | | | $ | 192,531 | | | $ | 180,646 | | | $ | 178,292 | | | $ | 164,506 | | | $ | 163,828 | | | $ | 153,580 | |

| Basic | 80,266 | | | | 80,629 | | | | 81,027 | | | | 81,120 | | | | 80,432 | | | | 79,967 | | | | 80,576 | | | | 81,248 | | |

| Diluted | 81,691 | | | | 82,014 | | | | 82,341 | | | | 82,817 | | | | 82,438 | | | | 81,848 | | | | 82,149 | | | | 81,248 | | |

| 2 | In the three months ended December 31, 2013, we recorded an out of period correction that resulted in decreases in cost of net revenues of approximately $1.3 million and operating expense of $1.5 million offset in part by an increase in the provision |

for income taxes of $0.6 million.

3 In the three months ended June 30, 2014, we recorded an out of period correction that resulted in an increase in the provision for income taxes of $2.1 million, which $1.8 million related to prior years and $0.3 million related to the three months ended March 31, 2014.

The out of period correction was not material to the consolidated financial statements for any quarter within 2014.

| February 26, 2015 |

| February 26, 2015 |

February 26, 2015

| Net income | $ | 145,832 | | | $ | 64,295 | | | $ | 58,691 | |

| | 2014 | | | | 2013 | | |

| Cash and cash equivalents | $ | 199,871 | | | $ | 242,953 | |

| Deferred tax assets | 37,053 | | | | 28,636 | | |

| Goodwill and intangible assets, net | 82,056 | | | | 85,362 | | |

| Income tax payable | 30,483 | | | | 18,326 | | |

| Common stock repurchased and retired | (1,914 | ) | | — | | | | (17,804 | | ) | | — | | | | (80,429 | | ) | | (98,233 | | ) |

| Balances at December 31, 2014 | 80,205 | | | $ | 8 | | | $ | 783,410 | | | $ | (140 | ) | | $ | (30,507 | ) | | $ | 752,771 | |

| Net income | $ | 145,832 | | | $ | 64,295 | | | $ | 58,691 | |

| Depreciation and amortization | 17,856 | | | | 16,825 | | | | 17,811 | | |

In 2014, we recorded an out of period correction that resulted in an increase in the provision for income taxes of $1.8 million.

We do not believe the decrease to net income related to the out of period adjustment is material to the consolidated financial statements for the fiscal year ended December 31, 2014 or to any prior years' consolidated financial statements.

Our restricted cash balance as of December 31, 2014 was $3.8 million, of which $3.6 million was classified as a long term asset and $0.2 million as a current asset.

The restricted cash primarily consisted of funds reserved for legal requirements.

For the year ended December 31, 2014, we had foreign currency net losses of $3.8 million.

If the carrying value of our investments exceeds the fair value, and the

The royalty

Internally developed software includes enterprise-level business software that we are customizing to meet our specific operational needs.

Such capitalized costs include external direct costs utilized in developing or obtaining the applications and payroll and payroll-related costs for employees, who are directly associated with the development of the applications.

In 2014, we started an enterprise resource planning ("ERP") project which we have capitalized $2.6 million of costs as of December 31, 2014 which is included in construction in progress ("CIP").

When the ERP is placed into production, these costs will be amortized over 10 years.

The costs to develop software that is marketed externally have not been capitalized as we believe our current software development process is essentially completed concurrent with the establishment of technological feasibility.

As such, all related software development costs are expensed as incurred and included in research and development expense in our consolidated statement of operations.

Scanners and Services

For certain distributors who provide installation and training to the

We use the Black-Scholes option pricing model to determine the fair value of stock options and employee stock purchase plan shares.

Consolidation of Variable Interest Entities

For an entity in which we have variable interests, we focus on identifying which entity has the power to direct the activities that most significantly impact the variable interest entity’s economic performance and which enterprise has the obligation to absorb losses or the right to receive benefits from the variable interest entity.

| | 31-Dec | | | | 30-Sept | | | | 30-June | | | | 31-Mar | | | | 31-Dec | | | | 30-Sept | | | | 30-June | | | | 31-Mar | | |

| Net revenues 1 | $ | 178,292 | | | $ | 164,506 | | | $ | 163,828 | | | $ | 153,580 | | | $ | 142,840 | | | $ | 136,496 | | | $ | 145,626 | | | $ | 135,079 | |

| Basic | 80,432 | | | | 79,967 | | | | 80,576 | | | | 81,248 | | | | 81,043 | | | | 81,437 | | | | 80,384 | | | | 79,235 | | |

| Diluted | 82,438 | | | | 81,848 | | | | 82,149 | | | | 81,248 | | | | 82,981 | | | | 81,437 | | | | 82,954 | | | | 81,856 | | |

| | |

| --- | --- |

| 1 | In the fourth quarter of 2012, we identified an error that the actual case refinement usage rate was lower than our estimate and, as a result, we recorded a net revenue release of $4.9 million previously deferred for case refinement of which $5.2 million was a correction of an error of which $4.5 million relates to the first three quarters for the fiscal year 2012 and $0.7 million relates to the fiscal year 2011. The adjustment was not material to any quarter within 2012. The net amount of $4.9 million is not material to the results of operations for twelve months ended December 31, 2012. |

| 2 | Gross profit for the quarter ended March 2012 included acquisition and integration related costs of $0.1 million, amortization of intangible assets of $0.3 million, and exit costs of $0.3 million. Gross profit for the quarter ended June 2012 included acquisition and integration related costs of $0.1 million, amortization of intangible assets of $0.2 million, and exit costs of $0.1 million. Gross profit for the quarter ended September 2012 included acquisition and integration related costs of $0.1 million, amortization of intangible assets of $0.2 million, and exit costs of $0.1 million. Gross profit for the quarter ended December 2012 amortization of intangible assets of $0.2 million. |

| 3 | Income (loss) from operations and net income (loss) included, net of taxes,: |

| • | Impairment of goodwill of $24.7 million for the quarter ended September 2012 and $11.9 million for the quarter ended December 2012. |

| • | Acquisition and integration related costs of $0.7 million for the quarter ended March 2012, $0.3 million for the quarter ended June 2012, and $0.2 million for the quarter ended September 2012. |

| • | Exit costs of $0.5 million for the quarter ended March 2012, $0.2 million for the quarter ended June 2012, and $0.1 million for the quarter ended September 2012. |

On April 30, 2013, we acquired ICA Holdings Pty Limited in a purchase business combination.

We excluded the acquired business from management's annual assessment of the effectiveness of our internal control over financial reporting as of December 31, 2013.

In the aggregate, this business represented approximately 1% of our total consolidated assets and approximately 4% of our total consolidated net revenues as of and for the year ended December 31, 2013.

| February 28, 2014 |

As described in the Report of Management on Internal Control over Financial Reporting, management has excluded ICA Holdings Pty Limited from its assessment of internal control over financial reporting as of December 31, 2013 because it was acquired by the Company in a purchase business combination during 2013.

We have also excluded ICA Holdings Pty Limited from our audit of internal control over financial reporting.

ICA Holdings Pty Limited is a wholly-owned subsidiary whose total consolidated assets and total consolidated net revenues represent approximately 1% and approximately 4%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2013.

February 28, 2014

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Goodwill | 61,623 | | | | 99,236 | | |

| Intangible assets, net | 23,739 | | | | 45,777 | | |

| Balances at December 31, 2010 | 76,390 | | | $ | 8 | | | $ | 555,851 | | | $ | 134 | | | $ | (178,246 | ) | | $ | 377,747 | |

| Common stock repurchased and retired | (322 | ) | | — | | | | (2,771 | | ) | | — | | | | (4,983 | | ) | | (7,754 | | ) |

| Depreciation and amortization | 13,887 | | | | 13,440 | | | | 12,112 | | |

| Amortization of intangibles | 2,938 | | | | 4,371 | | | | 5,365 | | |

| Cash and cash equivalents, beginning of year | 306,386 | | | | 240,675 | | | | 294,664 | | |

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The restricted cash balance as of December 31, 2012 was $1.6 million, included in Prepaid Expenses and Other Current Assets, and represented unclaimed merger consideration related to the acquisition of Cadent Holdings in April 2011.

Moreover, the performance of

and business conditions, and the structure that would yield the highest economic value, among other factors.

Costs relating to internal use software are accounted for in accordance with the provisions of accounting for the costs of computer software developed or obtained for internal use.

Capitalized software costs are amortized over the estimated useful life of three years.

As a result of our mid-course correction policy change in June 2013, we Have experienced a reduction in our warranty claims, which has decreased our warranty reserve.

and other economic or marketing variables, as well as renewal rates or stand-alone prices for the service element(s).

applicable tax laws and assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.

The medical excise tax expense was $7.1 million for the year ended December 31, 2013.

Based upon that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures are effective as of December 31, [removed: 2013] [added: 2014] to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure, and that such information is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms.

There have been no changes in our internal control over financial reporting during the quarter ended December 31, [removed: 2013] [added: 2014] that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

The information required by Item 402 of Regulation S-K is incorporated by reference to the Proxy Statement under the section captioned “Executive [removed: Compensation”.][added: Compensation.” The information required by Items 407(e)(4) and (e)(5) is incorporated by reference to the Proxy Statement under the section captioned “Corporate Governance—Compensation Committee Interlocks” and “Compensation Committee Report,” respectively.]

The information required by Items 407(e)(4) and (e)(5) is incorporated by reference to the Proxy Statement under the section captioned “Corporate Governance—Compensation Committee Interlocks” and “Compensation Committee Report”, respectively.

The following table provides information as of December 31, [removed: 2013] [added: 2014] about our common stock that may be issued upon the exercise of options and rights granted to employees, consultants or members of our Board of Directors under all existing equity compensation plans, including the 1997 Equity Incentive Plan, the Employee Stock Purchase [removed: Plan,] [added: Plan ("ESPP"),] the 2001 Stock Incentive Plan and the 2005 Incentive Plan, each as amended, and certain individual arrangements.

| Plan Category | Number of securities to be issued upon exercise of outstanding options and restricted stock units(a) | | | Weighted average exercise price of outstanding options(b) | | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column(a)) | | [added: |]

| Equity compensation plans [added: not] approved by security holders | [removed: 3,672,100] [added: —] | [removed: (1)(2)] | | [removed: $] [added: —] | [removed: 15.65] | | | [removed: 9,119,512] [added: —] | [removed: (3)] | [added: |]

| Equity compensation plans [removed: not] approved by security holders | [removed: —] [added: 3,288,512] | | [added: 1] | [removed: —] [added: $] | [added: 15.43] | | | [removed: —] [added: 8,688,957] | | [added: 2, 3 |]

| [removed: (2)] [added: 2] | [added: Includes 1,363,827 shares available for issuance under our ESPP.] We are unable to ascertain with specificity the number of securities to be issued upon exercise of outstanding rights [removed: under the Employee Stock Purchase Plan] or the weighted average exercise price of outstanding rights under the [removed: Employee Stock Purchase Plan.] [added: ESPP.] |

[removed: | (3) |] Please see Note 10 “Stockholders’ Equity” in the Notes to our Consolidated Financial Statements for description of equity compensation plans. [removed: |]

| | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | | | | | | | | | | |

| Total | 3,288,512 | | | $ | 15.43 | | | 8,688,957 | | |

| 1 | Includes 2,123,351 restricted stock units, including 497,500 market-performance based restricted stock units at target, which have an exercise price of zero. |

| 3 | Excludes 418,187 of potentially issuable MSUs if performance targets are achieved at maximum payout. |

| | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Total | 3,672,100 | | | $ | 15.65 | | | 9,119,512 | |

| (1) | This number reflects the number of securities to be issued upon exercise of outstanding options and restricted stock units under the 1997 Equity Incentive Plan, the 2001 Stock Incentive Plan, and the 2005 Incentive Plan. 2,351,493 restricted stock units, including 307,250 market\-performance based restricted stock units at target, are included in this number which have an exercise price of zero. |

The information required by Item 404 and Item 407 of Regulation S-K is incorporated by reference to the Proxy Statement under the sections captioned “Certain Relationships and Related Party Transactions” and “Corporate Governance—Director [removed: Independence”,] [added: Independence,”] respectively.

| Report of Independent Registered Public Accounting Firm | [removed: [55](#s2008712556034DC16A6133C9E996A9AD)] [added: [58](#sA2B5C4FDF578C77D808F9A4769C15A12)] |

| Consolidated [removed: Statements] [added: Statement] of Operations for the [removed: years] [added: year] ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012] | [removed: [56](#sA3C6AE5F595D79D8DA9B33C9D2CAFFD6)] [added: [59](#sBCF3F21E253D71CA04B09A4754E79DBB)] |

| Consolidated [removed: Statements] [added: Statement] of Comprehensive Income for the [removed: years] [added: year] ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012] | [removed: [57](#s82DCCAB80270C627453633C9D2DB259D)] [added: [60](#s51B4827C24B7633B72749A47549B9EC0)] |

| Consolidated Balance [removed: Sheets] [added: Sheet] as of December 31, [removed: 2013] [added: 2014] and [removed: 2012] [added: 2013] | [removed: [58](#s9DFC1E6CAAA08508629533C9D2DEC7E4)] [added: [61](#s2045B057E9924A291C969A47567D4D69)] |

| Consolidated [removed: Statements] [added: Statement] of Stockholders’ Equity for the [removed: years] [added: year] ended December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012] | [removed: [59](#sBC4E43B52509CFAF0FE833C9D2F1B330)] [added: [62](#s5B06444299FB0436352D9A475612F90B)] |