Align Technology (ALGN) 10-K risk factor changes: FY2016 vs FY2015

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

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; [added: or] if our product mix shifts to lower priced products or products that have a higher percentage of deferred revenue, our average selling prices would be adversely affected and our net revenues, gross profit, gross margin and net income may be reduced.

Based on this [removed: new] product policy, beginning in the third quarter of 2015, we deferred more revenue as a result of providing free additional aligners for eligible treatments.

Additionally, as we grandfathered over 1 million open cases, we will recognize lower revenues as additional aligners are shipped for at least the [removed: next] [added: following] two years until these cases complete.

Net revenues and net income generated by subsidiaries operating outside of the U.S. are translated into U.S. dollars [removed: using exchange rates effective during the respective period and are affected by changes in exchange rates.]

[removed: As a result, beginning] [added: We have] in [removed: September 2015, we began entering] [added: the past and may in the future enter] into currency hedging transactions in an effort to cover some of our exposure to foreign currency exchange fluctuations.

Our ability to plan, construct and equip additional [added: order acquisition, treatment planning and] manufacturing facilities is subject to significant risk and uncertainty, including risks inherent in the establishment of a [removed: new manufacturing] facility, such as hiring and retaining employees and delays and cost overruns as a result of a number of factors, any of which may be out of our control.

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

Any or all of these problems could result in the loss of customers, provide an opportunity for competing products to [added: gain market acceptance and otherwise harm our business and financial results.]

Because our business is evolving, it is difficult to predict our future operating results or levels of growth, and we have [added: not] in the past [removed: not been] and may [added: not] in the future [removed: not] be able to sustain our historical growth rates.

| • | our reliance on our contract manufacturers for the production of sub-assemblies for our [removed: intra-oral] [added: intraoral] scanners; |

| • | investments in research and development to develop new products and enhancements; [removed: and] |

As a result, if our net revenues for a particular period fall below our expectations, whether caused by changes in consumer spending, consumer preferences, weakness in the U.S. or global economies, changes in customer behavior related to advertising and prescribing our [removed: product,] [added: product] or other factors, we may be unable to adjust spending quickly enough to offset any shortfall in net revenues.

Our future success may depend on our ability to develop, manufacture, [removed: market,] [added: market] and obtain regulatory approval or clearance of new products.

Even if we successfully innovate and develop new products and produce enhancements, we may incur substantial costs in doing [removed: so,] [added: so] and our profitability may suffer.

Our ability to market and sell new products may also be subject to government regulation, including approval or clearance by the [removed: FDA,] [added: FDA] and foreign government agencies.

[added: Any failure in our ability to successfully develop and introduce or achieve market] acceptance of our new products or enhanced versions of existing products could have a material adverse effect on our operating results and could cause our net revenues to decline.

Our order acquisition, aligner fabrication and shipping operations are conducted in Juarez, [removed: Mexico.][added: Mexico and starting in July 2016, we transitioned order acquisition for EMEA region to our facility in Amsterdam, the Netherlands.]

In addition to the research and development efforts conducted in our North America facilities, we also carry out research and development [removed: at locations] in Moscow, Russia.

[removed: In addition, our] [added: We also have] customer-care, accounts receivable, credit and [removed: collections and] [added: collections,] customer event registration [added: and accounts payable] organizations [removed: are] located at our facility in San Jose, Costa Rica.

[removed: We also] [added: In addition, we] have operations in Israel where the design and wand assembly and our [removed: intra-oral] [added: intraoral] scanner are manufactured.

| • | difficulties in managing international operations, including any travel restrictions to or from our facilities located in [removed: Russia] [added: Russia, Israel] and [removed: Israel;] [added: other countries;] |

| • | [added: general] geopolitical [removed: risks around the Ukraine] [added: instability] and the [added: responses to it, such as the] possibility of additional sanctions against Russia which continue to bring uncertainty to this region; |

| • | burdens of complying with a wide variety of local country and regional [removed: laws;] [added: laws, including the risks associated with the Foreign Corrupt Practices Act and local anti-bribery compliance;] |

In addition, our [added: corporate] headquarters facility in California is located in the San Francisco Bay Area.

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

[removed: During transitions we must continue to rely on legacy information systems, which may be costly or inefficient, while the] [added: Additionally, this] implementation [removed: 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 [removed: and capitalized costs] related to the project, this may have an adverse impact on our financial condition and operating results.

In addition, experienced computer programmers and hackers may be able to penetrate our network security [added: or our cloud-based software servers hosted by third party] and misappropriate our confidential information or that of third parties, create system disruptions or cause shutdowns.

Because of the confidential health information we store and transmit, security breaches could expose us to a risk of regulatory action, litigation, [removed: possible liability and loss.]

Currently, our products compete directly against products manufactured and distributed by various companies, both within and outside the U.S. Many of these manufacturers, including Danaher Corporation, [removed: 3M,] Sirona Dental Systems, [removed: Inc. and] [added: Inc.,] Dentsply International, [added: Inc. and 3M,] have substantially greater financial resources and manufacturing and marketing experience than we [removed: do and may, in][added: do.]

[removed: Furthermore,] [added: In addition,] we may [added: also] face competition in the future from new companies that may introduce new technologies.

We cannot assure [removed: you] that we will be able to compete successfully against our current or future competitors or that competitive pressures will not have a material adverse effect on our business, results of operations and financial condition.

As of December 31, [removed: 2015,] [added: 2016,] we had issued [removed: 384] [added: 425] U.S. patents, [removed: 276] [added: 370] foreign issued patents, and [removed: 236] [added: 386] pending global patent applications.

[added: The report] includes, among other things, an assessment of the effectiveness of our internal control over financial reporting as of the end of our fiscal year, including a statement as to whether or not our internal control over financial reporting is effective.

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

Establishing, testing and maintaining an effective system of internal control over financial reporting requires significant resources and time commitments on the part of our management and our finance staff, may require additional staffing and infrastructure [removed: investments,] [added: investments] and would increase our costs of doing business.

We are highly dependent on manufacturers of specialized scanning equipment, rapid prototyping machines, resin and other advanced materials, as well as the optics, electronic and other mechanical components of our [removed: intra-oral] [added: intraoral] scanners.

We rely on a third party manufacturer [removed: in the Czech Republic] to supply key sub-assemblies for our iTero Element scanner.

Finding a substitute manufacturer may be expensive, time-consuming or impossible and could result in a significant interruption in the supply of our [removed: intra-oral] [added: intraoral] scanning products.

In addition, as a result of the expiration of certain key patents owned by us, commencing in 2017, we expect that these existing competitors as well as new entrants into the clear aligner market will begin offering an orthodontic system more similar to ours in the near future.

Several of these competitors will likely have greater resources as well as the ability to leverage their existing channels in the dental market to compete directly with us, and therefore our share of the clear aligner market could decline which would likely have a material adverse effect on our business, results of operation and financial condition.

In addition, corresponding foreign patents will start to expire in 2018 which will likely result in increased competition in some of the markets outside the U.S. large consumer product companies may also enter the orthodontic supply market.

Furthermore, we also face competition for companies that now offer clear aligner therapy directly to the consumer eliminating the need for the consumer to visit a dental office.

In addition, President Donald Trump and his administration have made recent statements regarding the possibility of changing the way in which the international operations of U.S. companies are taxed, including through the implementation of a border tax, tariff or increase in custom duties on products manufactured in countries outside of the U.S., such as Mexico, and imported into the U.S. In the event such taxes, tariffs, increased custom duties or other measures are implemented, they could have a materially adverse effect on our business and or operating results, and we may have to consider relocating some of our international operations.

Since our growth strategy depends in part on our ability to further penetrate markets outside the U.S. and increase the localization of our products and services, we expect to continue to increase our sales and presence outside the U.S., particularly in the high-growth markets.

Our international operations are subject to risks that are customarily encountered in non-U.S. operations, including:

using exchange rates effective during the respective period and are affected by changes in exchange rates.

In the near term, we intend to establish additional order acquisition and treatment planning facilities closer to our international customers in order to improve our operational efficiency and provide doctors with a better experience to further improve their confidence in using Invisalign to treat more patients, more often.

Production of our intraoral scanners may also be limited by capacity constraints due to a variety of factors, including our dependency on third party vendors for key components in addition to limited production yields.

| • | disruptions to our business as a result of our agreement to manufacture clear aligners for SmileDirectClub, LLC ("SDC"), including, market acceptance of the SDC business model and product, possible adverse customer reaction and negative publicity about us and our products; |

| • | impairments in the value of our strategic investments in SDC and other privately held companies could be material; |

| • | changes in accounting rules; and |

We implemented the first phase of our ERP on July 1, 2016 and, while we believe we are past any potential significant business disruption, we are still monitoring and troubleshooting potential issues.

possible liability and loss.

Litigation, interferences, oppositions, inter partes reviews or other proceedings are, have been and may in the future be necessary in some instances to determine the validity and scope of certain of our proprietary rights, and in other instances to determine the validity, scope or non-infringement of certain patent rights claimed by third parties to be pertinent to the manufacture, use or sale of our products.

Litigation, interference, oppositions, inter partes reviews, administrative challenges or other similar types of proceedings are unpredictable and may be protracted, expensive and distracting to management.

The outcome of such proceedings could adversely affect the validity and scope of our patent or other proprietary rights, hinder our ability to manufacture and market our products, require us to seek a license for the infringed product or technology or result in the assessment of significant monetary damages.

A product liability claim, regardless

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We are subject to risks associated with our strategic investments.

Impairments in the value of our investments could negatively impact our financial results.

We have invested in SmileDirectClub, LLC ("SDC") and other privately held companies for strategic reasons and to support key business initiatives, and we may not realize a return on our strategic investments.

Many of such companies generate net losses and the market for their products, services or technologies may be slow to develop.

Further, valuations of privately held companies are inherently complex due to the lack of readily available market data.

If we determine that our investments in SDC or other privately held companies have experienced a decline in value, we may be required to record impairments, which could be material and could have an adverse impact on our financial results.

Our accounting

On July 1, 2016, we changed our corporate structure; however, if we are unable to maintain this structure or if it is challenged by U.S. or foreign tax authorities, we may be unable to realize tax savings which could materially and adversely affect our operating results.

We implemented a new international corporate structure on July 1, 2016.

This corporate structure may reduce our overall effective tax rate over time through changes in the structure of our international procurement and sales operations, as well as realignment of the ownership and use of intellectual property among our wholly-owned subsidiaries.

The structure includes legal entities located in jurisdictions with income tax rates lower than the U.S. federal statutory tax rate.

Such intercompany arrangements would be designed to result in income earned by such entities in accordance with arm’s-length principles and commensurate with functions performed, risks assumed and ownership of valuable corporate assets.

We believe that income taxed in certain foreign jurisdictions at a lower rate relative to the U.S. federal statutory rate will have a beneficial impact on our worldwide effective tax rate over the medium to long term.

If the structure is challenged by U.S. or foreign tax authorities, if changes in domestic and international tax laws negatively impact the structure, including proposed legislation to reform U.S. taxation of international business activities, or if we do not operate our business in a manner consistent with the structure and applicable regulatory provisions, we may fail to achieve the financial and operational efficiencies that we anticipate as a result of the structure, and our business, financial condition and operating results may be materially and adversely affected.

In addition, our tax rate may be impacted by tax holidays or incentives.

such as intra-oral scanners.

In addition, in order to meet the demands from expected volumes, we purchased a second manufacturing facility in Juarez, Mexico.

We began manufacturing aligners in this second facility in September 2015 while continuing to manufacture Aligners at our existing facility in Juarez.

gain market acceptance and otherwise harm our business and financial results.

Any failure in our ability to successfully develop and introduce or achieve market

As a result of these sales operations, we face a variety of risks, including:

the future, attempt to develop an orthodontic system similar to ours or combine technologies that make our product economically unattractive.

The expiration of certain key patents commencing in 2017 owned by us may result in additional competition.

Large consumer product companies may also enter the orthodontic supply market.

Litigation is subject to inherent uncertainties and unfavorable rulings could occur.

The report

In addition, our ability to recognize revenue on the direct sales of our intra-oral scanners depends in part upon our ability to schedule and staff trainings.

The loss of the services provided by these individuals or our ability to timely hire such personnel in sufficient numbers based on our volume growth, may harm our business.

If we are unable to retain our trainers or replace such individuals with persons having equivalent technical expertise and qualifications, or if we are unable to successfully instill such technical expertise in newly hired personnel or accurately predict the number of such personnel needed, our net revenues could be materially harmed.

We are currently under audit by the California Franchise Tax Board for fiscal year 2011, 2012 and 2013.

The successful execution of our business strategy [removed: and our results] in [removed: 2015] [added: 2017] and beyond may be affected by a number of other factors including:

| • | New Products, Feature Enhancements and Technology Innovation. Product innovation drives greater treatment predictability and clinical [removed: applicability,] [added: applicability] and ease of use for our [removed: customers,] [added: 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 more comprehensive solutions so that Invisalign providers can more predictably treat the whole case, such as with [added: our] Invisalign [removed: G5 for deep bite treatment,] [added: "G-Series" of product innovations, including our most recent October 2016 release of] Invisalign [removed: G6 for premolar extraction] [added: G7. Invisalign G7 delivers better upper lateral control, improved root control] and [added: features to address prevention of posterior open bites. Concurrently, we also announced] ClinCheck [removed: Pro, the next generation Invisalign treatment software tool,] [added: Pro 5.0, which has new features] designed to [removed: provide more precise control over final tooth position] [added: deliver an improved] and [added: user friendly experience and increased control] to [removed: help] Invisalign [removed: providers achieve their treatment goals. In addition, we began shipping] [added: providers. Since] the [removed: next generation] iTero Element [removed: Intraoral Scanner] [added: began shipping] in September [removed: 2015 and expect to ramp up our production over] [added: 2015,] the [removed: next few quarters accordingly; however, if we are unable to scale production] [added: use] of [removed: our] iTero [removed: Element scanner] [added: scanners for Invisalign case submissions in place of Polyvinyl-siloxane ("PVS") impressions has gradually increased] to [removed: meet customer demand, our financial results may be negatively impacted.] [added: a record 51.3% of cases from North America and 24.9% of cases from international doctors as of the fourth quarter of 2016.] We believe that over the long-term, clinical solutions and treatment tools will increase adoption of Invisalign and increase sales of our intraoral scanners; however, it is difficult to predict the rate of adoption which may vary by region and channel. |

| • | Invisalign Adoption. 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 rates." Our quarterly utilization rates for the [removed: previous] [added: last] 9 quarters are as follows: |

[removed: ][added: ]

[added: | ◦ |] Total utilization in the fourth quarter of [removed: 2015] [added: 2016] increased to [removed: 4.9] [added: 5.2] cases per doctor compared to [removed: 4.4] [added: 4.9] in the fourth quarter of [removed: 2014.][added: 2015. |]

[added: | ▪ | North America: Utilization among our North American orthodontist customers reached an all time high of 11.3 cases per doctor in the fourth quarter of 2016 compared to 9.9 in the fourth quarter of 2015.] The increase in North America orthodontist utilization reflects improvements in product and [removed: technology,] [added: technology] 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, including their teenage patients. [added: |]

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 [removed: Invisalign,] [added: Invisalign;] however, we expect that our utilization rates may fluctuate from period to period due to a variety of factors, including seasonal trends in our business along with adoption rates of new products and features.

| • | Number of [removed: new] [added: New] Invisalign [removed: doctors trained.] [added: Doctors Trained.] We continue to expand our Invisalign customer base through the training of new doctors. In [removed: 2015,] [added: 2016,] Invisalign growth was driven primarily by increased utilization across all regions as well as by the continued expansion of our customer base as we trained a total of [removed: 9,795] [added: 11,680] new Invisalign doctors, of which [removed: 56%] [added: 60%] were trained internationally. |

| • | International [removed: Clear Aligner] [added: Invisalign] Growth. We will continue to focus our efforts towards increasing [added: Invisalign] adoption [removed: of our products] by dental professionals in our direct international markets. [removed: International] [added: On a year over year basis, international Invisalign] volume [removed: for 2015] increased [removed: 32.5%] [added: 32.4%] driven primarily by strong performance in [removed: the Asia Pacific region as well as growth] [added: our APAC and] in [removed: Europe.] [added: Europe regions.] In [removed: 2016,] [added: 2017,] we 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. We expect international [added: Invisalign] revenues to continue to grow at a faster rate than North America for the foreseeable future due to our continued investment in international market expansion, the size of the market opportunity, and our relatively low market penetration in this [removed: region. As our international revenues have increased from $219.7 million in 2014] [added: region (Refer] to [removed: $250.1 million in 2015, we] [added: Item 1A Risk Factors \- “We] are [removed: increasingly subject] [added: exposed] to fluctuations in [removed: foreign] currency exchange [removed: rates relative to the U.S. dollar. Although we have historically accepted the exposure to exchange rate movements without using derivative] [added: rates, which could negatively affect our] financial [removed: instruments to manage risk, in the third quarter] [added: condition and results] of [removed: 2015 we initiated a foreign currency economic hedging program to mitigate] [added: operations.” for information on related risk factors).] |

| • | Operating Expenses. We expect operating expenses to increase in [removed: 2016 compared to 2015] [added: 2017] due in part to: |

| ◦ | investments in international expansion in new country markets [removed: such as India and Korea;] [added: particularly in the APAC region;] |

| ◦ | [removed: the increase] [added: increases] in sales and customer support resources; [removed: and] |

| ◦ | product and technology innovation to address such things as treatment times, indications unique to [removed: teens,] [added: teens] and predictability. |

Net [removed: revenues] [added: Revenues] by Reportable Segment Comparison for Year Ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013:][added: 2014:]

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

| • | Our Clear Aligner segment consists of our Invisalign system which includes Invisalign Full, Teen and Assist [removed: ("Full] [added: ("Comprehensive] Products"), Express/Lite [removed: ("Express Products"),Vivera] [added: ("Non-Comprehensive Products"), Vivera] retainers, along with our training and ancillary products for treating [removed: malocclusion.] [added: malocclusion ("Non-Case"). Clear Aligner segment also include the sale of aligners to SDC under our supply agreement which commenced in the fourth quarter of 2016. SDC revenue is recorded after eliminating outstanding intercompany transactions.] |

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

Net revenues for our Clear Aligner segment [removed: by region] and [removed: our] Scanner segment [added: by region] for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013 is] [added: 2014 are] as follows (in millions):

| | December 31, [removed: 2015] [added: 2016] | | | | December 31, [removed: 2014] [added: 2015] | | | | Change | | | | [removed: | | |] December 31, [removed: 2014] [added: 2015] | | | | December 31, [removed: 2013] [added: 2014] | | | | Change | | | [removed: | | |]

| North America | $ | [removed: 498.7] [added: 568.7] | | | $ | [removed: 446.6] [added: 498.7] | | | $ | [removed: 52.1] [added: 70.0] | | | [removed: 11.7] [added: 14.0] | % | | $ | [removed: 446.6] [added: 498.7] | | | $ | [removed: 408.2] [added: 446.6] | | | $ | [removed: 38.4] [added: 52.1] | | | [removed: 9.4] [added: 11.7] | % |

| International | [removed: 250.1] [added: 326.6] | | | | [removed: 219.7] [added: 250.1] | | | | [removed: 30.4] [added: 76.5] | | | | [removed: 13.8] [added: 30.6] | % | | [removed: 219.7] [added: 250.1] | | | | [removed: 161.7] [added: 219.7] | | | | [removed: 58.0] [added: 30.4] | | | | [removed: 35.9] [added: 13.8] | % |

| [removed: Invisalign non-case net revenues] [added: Non-Case] | [removed: 51.4] [added: 63.0] | | | | [removed: 46.2] [added: 51.4] | | | | [removed: 5.2] [added: 11.6] | | | | [removed: 11.3] [added: 22.6] | % | | [removed: 46.2] [added: 51.4] | | | | [removed: 44.7] [added: 46.2] | | | | [removed: 1.5] [added: 5.2] | | | | [removed: 3.4] [added: 11.3] | % |

| Total Clear Aligner net revenues | $ | [removed: 800.2] [added: 958.3] | | | $ | [removed: 712.5] [added: 800.2] | | | $ | [removed: 87.7] [added: 158.1] | | | [removed: 12.3] [added: 19.8] | % | | $ | [removed: 712.5] [added: 800.2] | | | $ | [removed: 614.6] [added: 712.5] | | | $ | [removed: 97.9] [added: 87.7] | | | [removed: 15.9] [added: 12.3] | % |

| [removed: Total] Scanner net revenues | $ | [removed: 45.3] [added: 121.5] | | | $ | [removed: 49.1] [added: 45.3] | | | $ | [removed: (3.8] [added: 76.2] | [removed: )] | | [removed: (7.7] [added: 168.2] | [removed: )%] [added: %] | | $ | [removed: 49.1] [added: 45.3] | | | $ | [removed: 45.6] [added: 49.1] | | | $ | [removed: 3.5] [added: (3.8] | [added: )] | | [removed: 7.7] [added: (7.7] | [removed: %] [added: )%] |

| Total net revenues | $ | [removed: 845.5] [added: 1,079.8] | | | $ | [removed: 761.6] [added: 845.5] | | | $ | [removed: 83.9] [added: 234.3] | | | [removed: 11.0] [added: 27.7] | % | | $ | [removed: 761.6] [added: 845.5] | | | $ | [removed: 660.2] [added: 761.6] | | | $ | [removed: 101.4] [added: 83.9] | | | [removed: 15.4] [added: 11.0] | % |

Case volume data which represents [removed: Invisalign] [added: Clear Aligner] case shipments by region, for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] is as follows (in millions):

| | Year Ended | | | | | | | | | | | [removed: |] Year Ended | | | | | | | | [removed: | | |]

| Region | December 31, [removed: 2015] [added: 2016] | | | December 31, [removed: 2014] [added: 2015] | | | Change | | | | | | December 31, [removed: 2014] [added: 2015] | | | December 31, [removed: 2013] [added: 2014] | | | Change | | | | |

| International [removed: Invisalign] | [removed: 184.8] [added: 244.7] | | | [removed: 139.5] [added: 184.8] | | | [removed: 45.3] [added: 59.9] | | | [removed: 32.5] [added: 32.4] | % | | [removed: 139.5] [added: 184.8] | | | [removed: 108.5] [added: 139.5] | | | [removed: 31.0] [added: 45.3] | | | [removed: 28.6] [added: 32.5] | % |

| Total [removed: Invisalign] case volume | [removed: 583.2] [added: 709.2] | | | [removed: 478.0] [added: 583.2] | | | [removed: 105.2] [added: 126.0] | | | [removed: 22.0] [added: 21.6] | % | | [removed: 478.0] [added: 583.2] | | | [removed: 422.4] [added: 478.0] | | | [removed: 55.6] [added: 105.2] | | | [removed: 13.2] [added: 22.0] | % |

Total net revenues increased by $83.9 million in 2015 [removed: as] compared to 2014 primarily as a result of [removed: Invisalign] case volume growth across all regions and products as well as increased [removed: Invisalign] non-case revenue.

[removed: Clear Aligner] North America net revenues increased by $52.1 million in 2015 compared to 2014 primarily due to [removed: Invisalign] case volume growth [removed: of approximately $79.0 million] across all channels and [removed: products.][added: products which increased net revenues by approximately $79.0 million.]

These increases were offset in part by lower [removed: average selling prices ("ASP"),] [added: ASP,] which decreased net revenues by $26.9 million.

These decreases in ASP were offset in part by the price [removed: increase on our Full Products,] [added: increase,] effective April 1, [removed: 2015.][added: 2015 on our Comprehensive Products.]

[removed: Clear Aligner international] [added: International] net revenues increased by $30.4 million in 2015 compared to 2014 primarily driven by [removed: Invisalign] case volume growth [removed: of $71.5 million] across all [removed: products.][added: products of $71.5 million.]

The decrease in ASP was primarily as a result of the unfavorable impact from [added: changes in] foreign exchange rates primarily due to the weakening of the Euro compared to the U.S. dollar in 2015 compared to 2014 of $34.5 million, [removed: and] [added: and,] to a lesser [removed: extent] [added: extent,] higher net revenue deferrals of $7.8 million which includes the impact of our new additional aligner product policy launched in July 2015 of $4.7 million, as well as higher promotional discounts of $6.3 million in 2015 compared to 2014.

These decreases were partially offset by an increase in ASP as we transitioned to direct sales in certain [removed: Asia Pacific] [added: APAC] countries and [removed: Europe, Middle East and Africa] [added: EMEA] regions, as well as the price increase on our [removed: Full] [added: Comprehensive] Products effective July 1, 2015.

Clear Aligner - [removed: Invisalign] Non-Case

[removed: Invisalign non-case] [added: Non-case] net revenues, consisting of training fees and ancillary product revenues, increased by $5.2 million in 2015 as compared to 2014 primarily due to increased Vivera volume both in North America and International.

In March 2015, we announced our next generation scanner [removed: which] [added: and] began shipping [added: the iTero Element scanner] in September 2015.

| ▪ | International: International doctor utilization of 5.0 cases per doctor in the fourth quarter of 2016 was flat compared with the fourth quarter of 2015. The International utilization reflects growth in both the Europe, Middle East and Africa ("EMEA") and Asia Pacific ("APAC") regions due to increasing adoption of the product and its ability to treat more complex cases; however, utilization remained flat primarily due to the expansion of our customer base, particularly in APAC. |

| • | Establish Regional Order Acquisition and Treatment Planning Facilities: We intend to establish additional order acquisition and treatment planning facilities closer to our international customers in order to improve our operational efficiency and provide doctors with a great experience to further improve their confidence in using Invisalign to treat more patients and more often (Refer to Item 1A Risk Factors - “As we continue to grow, we are subject to growth related risks, including risks related to excess or constrained capacity at our existing facilities.” for information on related risk factors). |

| ◦ | investments in manufacturing to enhance our regional capabilities; |

| ◦ | increases in legal expenses primarily related to the continued protection of our intellectual property rights, including our patents; |

| ◦ | increases in expenses related to the purchase of our new corporate headquarters in San Jose, California; and |

| • | Stock Repurchases: |

| ◦ | April 2014 Repurchase Program. In 2016, we repurchased $50.0 million of our common stock through an accelerated stock repurchase agreement and $46.2 million of stock repurchase in the open market. |

| ◦ | April 2016 Repurchase Program. On April 28, 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of our stock. |

| ◦ | Remaining Available Repurchases. As of December 31, 2016, we have $3.8 million remaining under the April 2014 Repurchase Program and $300.0 million under the April 2016 Repurchase Plan (Refer to Note 10 "Common Stock Repurchase Program" of the Notes to Consolidated Financial Statements for details on stock repurchase program). |

| • | SmileDirectClub. On July 25, 2016, we entered into a supply agreement with SmileDirectClub, LLC ("SDC") to manufacture clear aligners for SDC's doctor-led, at-home program for simple teeth straightening. In October 2016, we became SDC's exclusive third-party supplier and commercial supplying aligners for its minor tooth movement aligner program. As part of the transaction, we acquired a 17% equity interest in SDC for $46.7 million. We also provided a revolving line of credit to SDC of up to $15.0 million to fund their working capital and general corporate needs (Refer to Note 4 "Equity Method Investments" of the Notes to Consolidated Financial Statements for details on accounting treatment). |

We expect the supply agreement to be incremental to revenue growth in 2017.

| • | New Corporate Headquarters Office Purchase Agreement. On December 19, 2016, we entered into a Purchase and Sale Agreement (the "Purchase Agreement") with LBA RIV-COMPANY XXX, LLC ("Seller") to purchase the real property located in San Jose, California (the "Property") for the purchase price of $44.1 million. We closed the Purchase Agreement on January 26, 2017 (Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for more information on the Purchase Agreement). |

| Net Revenues | December 31, 2016 | | | | December 31, 2015 | | | | Change | | | | | | | December 31, 2015 | | | | December 31, 2014 | | | | Change | | | | | |

| North America | 464.5 | | | 398.4 | | | 66.1 | | | 16.6 | % | | 398.4 | | | 338.5 | | | 59.9 | | | 17.7 | % |

Fiscal Year 2016 compared to Fiscal Year 2015

This increase was offset in part by lower average selling price ("ASP") which decreased net revenues by $12.7 million.

ASP declined in 2016 compared to 2015 as a result of higher promotional discounts of $21.9 million as well as an increase in net deferrals of $7.7 million primarily related to the full year effect of our new additional aligners product policy launched in July 2015.

These declines were partially offset by price increases on our Comprehensive Products effective April 1, 2016 which contributed $17.7 million to net revenues.

International net revenues increased by $76.5 million in 2016 compared to 2015 primarily driven by case volume growth across all channels and products which increased net revenues by $80.9 million.

This increase was offset in part by lower ASP which decreased net revenues by $4.4 million.

ASP declined in 2016 compared to 2015 as a result of higher promotional discounts of $6.9 million as well as the unfavorable impact of changes in foreign exchange rates of $6.8 million.

These declines were partially offset by the price increases on our Comprehensive products effective April 1, 2016 which contributed $5.7 million to net revenues, as well as an increase in additional aligner revenue of $3.5 million.

Scanner net revenues increased by $76.2 million in 2016 compared to 2015 primarily as a result of an increase in the number of scanners recognized as we began shipping our next generation iTero Element scanner in September 2015, and, to a lesser extent, an increase in ASP.

Clear Aligner - Non-Case

Fiscal Year 2016 compared to Fiscal Year 2015

The gross margin percentage declined in 2016 compared to 2015 primarily driven by a higher number of aligners per case and lower ASP which was partially offset by higher absorption as a result of increased production volumes.

The gross margin percentage increased in 2016 compared to 2015 due to a product mix shift to our iTero Element scanner which has a higher ASP along with lower costs per unit.

Selling, general and administrative expense increased in 2016 compared to 2015 primarily due to higher compensation related costs of $47.1 million as a result of increased headcount, resulting in higher salaries expense, incentive bonuses and fringe benefits.

We also incurred higher expenses from advertising and marketing of $16.5 million, outside services costs of $12.2 million, equipment and material costs of $6.8 million, travel and related costs of $6.0 million and credit card processing fees of $4.2 million.

In addition, during the first quarter of 2015, there was a refund of MDET taxes paid in 2014 of $6.8 million as our aligners are no longer subject to the excise tax.

Research and development expense increased in 2016 compared to 2015 due to higher compensation costs as a result of increased headcount along with annual salary increases.

Income from operations (in millions):

| | December 31, 2016 | | | | December 31, 2015 | | | | Change | | | | December 31, 2015 | | | | December 31, 2014 | | | | Change | | |

| Clear Aligner | | | | | | | | | | | | | | | | | | | | | | | |

| Income from operations | $ | 411.8 | | | $ | 371.1 | | | $ | 40.7 | | | $ | 371.1 | | | $ | 341.1 | | | $ | 30.0 | |

| Operating margin % | 43.0 | | % | | 46.4 | | % | | | | | | 46.4 | | % | | 47.9 | | % | | | | |

| Scanner | | | | | | | | | | | | | | | | | | | | | | | |

| Income (loss) from operations | $ | 37.5 | | | $ | (12.3 | ) | | $ | 49.8 | | | $ | (12.3 | ) | | $ | (8.5 | ) | | $ | (3.8 | ) |

| Operating margin % | 30.9 | | % | | (27.2 | | )% | | | | | | (27.2 | | )% | | (17.3 | | )% | | | | |

| Total income from operations(1) | $ | 248.9 | | | $ | 188.6 | | | $ | 60.3 | | | $ | 188.6 | | | $ | 193.6 | | | $ | (5.0 | ) |

| • | Additional Aligners at No Charge. In July 2015, we launched a new product policy called "Additional Aligners at No Charge" that addresses one of our customers' top complaints. Previously, we charged customers for additional aligners ordered beyond those covered by the initial treatment plan. With this product policy change, we no longer distinguish between mid-course corrections and case refinements and allow doctors to order additional aligners to address either treatment need at no charge, subject to certain requirements. These changes were effective for all new Invisalign Full, Teen, and Assist treatments shipped worldwide after July 18, 2015 as well as any open Invisalign Full, Teen and Assist cases as of that date. |

Based on this new product policy, beginning in the third quarter of 2015, we deferred more revenue as a result of providing free additional aligners for eligible treatments.

Additionally, since we grandfathered over 1 million open cases, we will recognize lower revenues as additional aligners are shipped.

We expect lower amounts of revenue to be recognized for at least the next two years until these cases complete.

In the fourth quarter of 2015, the new product policy decreased Clear Aligner net revenues by approximately $7.0 million and reduced operating margin by 2.2% and diluted earnings per share by $0.07 per share.

We expect a decrease in Clear Aligner net revenues by approximately $7.0 million to $8.0 million in the first quarter of 2016, and by approximately $25.0 million to $30.0 million in fiscal year 2016.

While this product policy change will impact the timing of our revenue recognition, we believe this policy change will result in a significant improvement in customer satisfaction and loyalty, and ultimately increase Invisalign utilization and volume over time.

Utilization among our North American orthodontist customers reached an all time high of 9.9 cases per doctor in the fourth quarter of 2015 compared to 8.6 in the fourth quarter of 2014.

International doctor utilization increased to 5.0 cases in the fourth quarter of 2015 from 4.5 in the fourth quarter of 2014.

North American GP doctor utilization increased to 3.1 cases in the fourth quarter of 2015 from 2.9 in the fourth quarter of 2014.

Increased International utilization reflects growth in both the EMEA and Asia Pacific regions driven by go-to-market and sales coverage investments, improving clinical education and support as well as ongoing technology innovation.

the foreign currency risk in countries where we have significant monetary assets and liabilities denominated in currencies other than the functional currency.

The impact from these forward contracts was not material to our financial statements for the year ended December 31, 2015.

In addition, as we plan for further international expansion over the next several years, we must provide better support to our customers in these regions and be geographically closer to their practices.

Accordingly, we intend to make further investments in our manufacturing over the next few years to enhance our regional capabilities.

| • | Establish Regional Order Acquisition and Treatment Planning facilities: We intend to establish additional Order Acquisition and Treatment Planning facilities closer to our International customers in order to improve our operational efficiency and provide doctors with a great experience to further improve their confidence in using Invisalign to treat more patients, more often. If demand for our product in 2016 exceeds our current expectations, or if the timing of receipt of case product orders during a given quarter is different from our expectations, we may not be able to fulfill orders in a timely manner, which may negatively impact our financial results and overall business. Conversely, if demand decreases or if we fail to forecast demand accurately, we could be required to record excess capacity charges, which would lower our gross margin. |

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

Changes and percentages are based on actual values.

Certain tables may not sum or recalculate due to rounding.

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

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

| North American Invisalign | 398.4 | | | 338.5 | | | 59.9 | | | 17.7 | % | | 338.5 | | | 313.9 | | | 24.6 | | | 7.8 | % |

The increase in services revenue was primarily due to an increase in the volume of CAD/CAM services resulting from a larger installed base of scanners.

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 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.

Foreign exchange rates had a favorable impact on revenues in 2014 as compared to 2013, despite the weakening of the Euro to the U.S. dollar in the last six months of 2014.

Scanner net revenues increased by 7.7%, in 2014 compared to 2013 due to an increase in both services revenue as well as scanner revenue.

The increase in scanner revenue was primarily due to an increase in the number of scanners recognized offset in part by lower scanner ASP as a result of promotional discounts as well as permanent price reductions.

The increase was partially offset as 2013 had higher net revenues due to the release of $1.4 million of revenue previously reserved for the iTero upgrade program which was completed in the first quarter of 2013.

The gross margin percentage improved slightly in 2014 compared to 2013 due to higher ASP.

The ASP improvement was mostly offset by increased manufacturing costs in 2014 when compared to 2013 which benefited from an out of period adjustment (see Note 1 in the financial statements).

The gross margin percentage increased in 2014 compared to 2013 due to increased absorption of manufacturing spend from higher production volumes, lower product costs due to product mix and lower inventory reserves.

These were partially offset by a lower ASP as a result of price reductions.

Selling, general and administrative expense increased in 2014 compared to 2013 primarily due to higher compensation costs of $24.1 million due to increased headcount, including the additional headcount from the acquisition of our APAC distributor and stock based compensation.

In addition, we incurred higher advertising and marketing expenses as a result of increased advertising production and marketing campaigns combined with higher costs for trade shows and our Europe and APAC Summits as well as

increases in consulting expenses and credit card processing fees.

These increases were offset by lower MDET of $6.8 million as our aligners were no longer subject to the excise tax in 2014 as well as lower outside litigation costs.

In March 2014, the IRS informed us that our aligners are not subject to the MDET, which we had been paying and expensing in selling, general and administrative expense in the Consolidated Statements of Operations since January 1, 2013.

As of December 31, [removed: 2015,] [added: 2016,] we had approximately [removed: $511.0] [added: $310.8] million invested in available-for-sale marketable securities.

We do not have interest bearing liabilities as of December 31, [removed: 2015,] [added: 2016,] and, therefore, we are not subject to risks from immediate interest rate increases.

As a result of our international business activities, [added: including the impact of] our [added: new international corporate structure in 2016, our] financial results could be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets, and there is no assurance that exchange rate fluctuations will not harm our business in the future.

In September 2015, we [removed: entered] [added: started to enter] into foreign currency forward contracts to minimize the short-term impact of foreign currency exchange rate fluctuations on cash and certain trade and intercompany receivables and payables.

For the year ended December 31, 2016 and 2015, we had foreign currency net losses of $8.0 million and $4.0 million, respectively.

As of December 31, 2016, we did not have any outstanding foreign exchange forward contracts.

We operate in North America, Europe, Asia Pacific, Costa Rica and Israel.

The fair value of foreign exchange forward contracts outstanding as of December 31, 2015 was not material.

Align Technology, Inc (“We”, “Our”, “Align”) designs, manufactures and markets a system of clear aligner therapy, [removed: intra-oral] [added: intraoral] scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage.

Our headquarters [removed: are] [added: is] located at 2560 Orchard Parkway, San Jose, California 95131, and our telephone number is 408-470-1000.

Our international headquarters [removed: are] [added: is] located in Amsterdam, the Netherlands.

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

For the year ended December 31, [removed: 2015,] [added: 2016,] Clear Aligner revenues represent approximately [removed: 95 percent] [added: 89%] of worldwide revenue, while Scanner represent the remaining [removed: 5 percent] [added: 11%] of worldwide revenues.

The Invisalign System is primarily sold through a direct sales force in the United States ("U.S."), Canada, Europe, [removed: and] certain Asia Pacific [removed: countries] [added: countries, Latin America and Middle East and Africa] 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 [removed: Pacific,] [added: Pacific ("APAC"),] Europe, Middle East and Africa ("EMEA"), and Latin America regions.

Scanners and CAD/CAM Services are primarily sold through our direct sales force in North [removed: America] [added: America, Europe] and [removed: in select international markets primarily] [added: certain Asia Pacific countries including Taiwan, Singapore, Korea, Australia, New Zealand, and] through distribution [removed: partners.][added: partners in Thailand, Scandinavia and Russia.]

| | Fiscal Year | | | | | | [removed: | |]

| Percentage of Net Revenues by Product | [removed: 2015 | |] [added: 2016] | [removed: 2014] | [added: 2015] | | [removed: 2013] [added: 2014] | |

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

| Scanners and Services [removed: | 5 |] [added: Segment] | [added: 11] | [removed: 6] | [added: 5] | | [removed: 7] [added: 6] | |

| Total [removed: net revenues] [added: Net Revenues] | 100 | % | [removed: |] 100 | % | [removed: |] 100 | % |

Malocclusion, or the misalignment of teeth, is one of the most prevalent clinical dental conditions, affecting [removed: nearly a billion] [added: billions of] people, or approximately [removed: 50%] [added: 60%] to 75% of the [removed: population of major developed countries.][added: population.]

[removed: Approximately 6.8] [added: Annually, approximately 10] million people [removed: annually] [added: in major developed countries] elect treatment by orthodontists worldwide, of which approximately [removed: 2.6] [added: 50% or 5] million have mild to moderate malocclusion and are applicable to Invisalign treatment - our served market.

In the U.S., orthodontists and GPs treat malocclusion primarily with metal arch wires and brackets, referred to as braces, and [added: they may] augment braces with elastics, metal [removed: bands,] [added: expanders,] headgear [added: or functional appliances,] and other ancillary devices as needed.

The Invisalign System is a proprietary method for treating malocclusion based on a series of doctor-prescribed, custom manufactured, clear [removed: plastic] [added: plastic,] removable orthodontic aligners.

The Invisalign-trained dental professional can also submit an [removed: intra-oral] [added: intraoral digital] scan [removed: or “digital impression”] instead of a physical PVS impression through either Align's iTero [removed: scanner, 3M's True Definition] [added: scanner] or [removed: Sirona's CEREC Omnicam scanner, currently the only other Invisalign qualified intra-oral] [added: several third-party] scanners.

In cases where the dental professional submits a digital [removed: impression,] [added: scan,] this step in the process is eliminated.

Preparation of computer-simulated treatment [removed: and viewing of treatment using ClinCheck software.][added: plan.]

[removed: The ClinCheck plan simulates] appropriate tooth movement broken down into a series of [removed: two-week increments,] [added: increments] and details timing and placement of [added: any attachments that will be used during treatment.]

By [removed: reviewing] [added: reviewing, modifying as needed] and [removed: amending] [added: approving] the treatment [removed: simulation,] [added: plan,] the dental professional retains control over the treatment plan.

Upon the dental professional’s approval of the ClinCheck treatment plan, we use the data underlying the simulation, in conjunction with stereolithography [removed: technology,] [added: technology (a form of 3D printing technology),] to construct a series of molds depicting the future position of the patient’s teeth.

Each mold is a replica of the patient’s teeth at each [removed: two-week] stage of the simulated course of treatment.

Aligners are thin, clear plastic, removable dental appliances that are custom manufactured in a series to correspond to each [removed: two-week] stage of the ClinCheck [removed: animation.][added: treatment plan.]

Aligners are generally worn for consecutive two-week periods [added: or less] which correspond to the approved ClinCheck treatment plan.

[removed: After two weeks of use, the] [added: The] patient replaces [removed: them] [added: the aligners] with the next pair in the [removed: series,] [added: series when prescribed,] advancing tooth movement with each aligner stage.

Invisalign Full is sold in the U.S., [removed: Canada,] [added: Canada] and our international regions.

Invisalign Teen is sold in the U.S., [removed: Canada,] [added: Canada] and our international regions.

Invisalign Express [removed: treatment,] [added: treatments,] Invisalign Lite treatment and Invisalign i7 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.

Invisalign Express 10 and Invisalign Express 5, which are sold in the U.S. and Canada, [removed: uses] [added: use] up to 10 and 5 sets of aligners, respectively, and are also available as a single arch option.

Invisalign Lite and Invisalign i7, sold in our international regions, [removed: uses] [added: use] up to 14 and 7 sets of aligners, respectively.

[removed: Invisalign non-case revenues.][added: Non-Case Products:]

[removed: Invisalign] [added: Clear Aligner] non-case [removed: revenues represent retainer] products [removed: discussed above,] [added: include retention products,] Invisalign training fees and sales of ancillary products, such as cleaning material and adjusting tools used by dental professionals during the course of treatment.

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] Invisalign G5 (launched in February [removed: 2014).][added: 2014) and Invisalign G6 (launched in March 2015).]

[removed: Invisalign G5 feature enhancements include:][added: Feature Enhancements]

Invisalign G6 [added: clinical innovations for first premolar extraction] is engineered to improve clinical outcomes for orthodontic treatment of severe crowding and bimaxillary protrusion.

[removed: | • | New] [added: 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 [removed: retraction. |][added: retraction and new SmartForce features that are designed to deliver the force systems necessary to achieve predictable tooth movements.]

SmartTrack™ Aligner [removed: Material.][added: Material]

Conventional aligner materials relax and lose a substantial percent of energy in the initial days of aligner wear, but SmartTrack maintains more constant force over the [removed: two weeks that a] [added: period of time the] patient wears the [removed: aligners.]

We also supply clear aligners to SmileDirectClub, LLC ("SDC") who sells them directly to consumers, with a doctor’s approved prescription.

| | | | | | | |

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

| | | | | | | |

| Clear Aligner Segment | | | | | | |

| Comprehensive Products | 72 | % | 78 | % | 77 | % |

| Non-Comprehensive Products | 11 | | 11 | | 11 | |

| Total Clear Aligner Segment | 89 | | 95 | | 94 | |

In addition, approximately 100 million people with malocclusion want to straighten their teeth; however, they will not seek orthodontic treatment in a doctor's office and would instead elect to receive clear aligner treatment in the convenience of their own home - referred to as the doctor-directed at home market.

GPs, may also combine orthodontic treatment with restorative treatment.

Many times the dental professional may need to move certain teeth or roots out of the way to create more space for implant placement, or move teeth to create space for restorations of missing teeth.

In addition, GPs may need to move or adjust teeth or spaces to be able to place better restorations.

The orthodontic portion of treatment generally comes before the restorative portion.

See "Third Party Scanners."

The ClinCheck treatment plan simulates

Review and approval of the treatment plan by an Invisalign provider.

Manufacture of custom aligners.

Shipment to the dental professional and patient aligner wear.

All the aligners for a patient are shipped directly to the dental professional, who then dispenses them to the patient at regular check-up intervals throughout the treatment.

In October 2016, we introduced one-week aligner wear.

At the treating doctor’s discretion, we recommend changing from two-week aligner wear to one-week aligner wear for Invisalign treatments with Invisalign Full, Invisalign Teen and Invisalign Assist products, thereby reducing treatment time by up to 50%.

Align’s recommendation is based on clinical analysis of more than 200 in-progress Invisalign cases (data on file) and the experiences of numerous Invisalign providers.

Treatment progress and request for additional aligners.

Should the dental professional determine that the treatment is not tracking for various reasons, such as patient compliance, certain teeth not tracking to plan, or they need to extend the treatment a few stages further to achieve their treatment goals, the dental professional can request additional aligners at no charge at any point during the treatment, subject to certain requirements.

Comprehensive Products:

Non-Comprehensive Products:

Invisalign Go.

A simplified and streamlined solution designed for GP dentists to more easily identify and treat patients with mild malocclusion.

Invisalign Go combines case assessment support, a simplified ClinCheck treatment plan and a progress assessment feature for case monitoring.

Invisalign Go was launched in core European markets in the fourth quarter of 2016 and is expected to launch in North America in the first quarter of 2017.

SmileDirectClub Aligners.

On July 25, 2016, we entered into a supply agreement with SmileDirectClub, LLC ("SDC") to manufacture non-Invisalign clear aligners for SDC's doctor-led, at-home program for simple teeth straightening.

In October 2016, we became SDC's exclusive third-party supplier and began supplying aligners directly to SDC.

SDC aligners include up to 20 stages without attachments or interproximal reduction ("IPR").

Align manufactures the aligners per SDC’s specifications for minor tooth movement using EX-30 aligner material.

A shipment of four sets are available to both Invisalign and non-Invisalign patients.

In October 2016, we launched Invisalign G7, a set of features designed to deliver greater control of tooth movements and improved treatment outcomes.

Invisalign G5 innovations for deep bite is engineered to improve clinical outcomes in deep bite treatment with Invisalign treatment.

Comprehensive features dedicated to deep bite treatment include new SmartForce® features that are designed to level the curve of spee by improving control of anterior intrusion and premolar extrusion for more predictable deep bite treatments, and precision bite ramps that are designed to disocclude the posterior teeth for improved efficiency in deep bite treatments.

Invisalign G7 builds on earlier Invisalign G-series releases with new features to fine-tune certain tooth movements and deliver treatment outcome quality that Invisalign providers expect, particularly with teenage patients.

We acquired the iTero digital intra-oral scanner and CAD/CAM services business, our Scanner segment, in April 2011.

| | | | | | | | | |

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

| Invisalign Full Products | 78 | % | | 77 | % | | 75 | % |

| Invisalign Express Products | 11 | | | 11 | | | 11 | |

| | |

| --- | --- |

| * | Non-case net revenues include retainers, training revenues, and ancillary offerings under our Clear Aligner product lines. |

Preparation of 3D computer models of the patient’s initial malocclusion.

any attachments that will be used during treatment.

ClinCheck Pro is 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.

This latest software innovation features interactive 3D controls that, for the first time, allow Invisalign providers to make adjustments to the position of individual teeth directly on the 3D model and to visualize the effects on the whole dentition in real time.

Construction of molds corresponding to each step of treatment.

Manufacture of aligners and shipment to the dental professional.

Retention.

Upon completion of the treatment, the patient may be prescribed our single clear retainer product or our Vivera Retainer product.

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

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".

Each set of Vivera Retainers is intended to be used for three

consecutive months and deliver one year of retention.

Doctors can prescribe Vivera Retainers for their Invisalign and their non-Invisalign patients.

Feature Enhancements.

In 2015, we did a phased launch of Invisalign G6 clinical innovations for first premolar extraction.

These feature enhancements are a collection of clinical innovations designed to address some of the most significant treatment challenges doctors encounter.

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.

| • | Precision Cuts, which are custom mesial and distal hooks used to provide anchorage for elastics and button cutouts to accommodate buttons bonded to the tooth aimed to help treat patients with Class II and Class III malocclusion. |

| • | SmartForce features engineered to achieve more predictable tooth movements using custom optimized attachments and Power Ridges designed to provide additional force in cases where certain types of root movement are prescribed. |

| • | Precision aligner bite ramps designed to disocclude the posterior teeth for improved efficiency in deep bite treatments. |

Invisalign G6 clinical innovations was launched in Asia Pacific, Europe, Middle East and Africa, and Latin America geographies throughout 2015 and will be launched in North America in early 2016.

Invisalign G6 feature enhancements include:

| • | 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 includes our innovative powderless technology and features a modern design, scanning wand and easy-to-use keyboard design with full color model rendering, enabling clinicians to show patients a life-like final model of their scanned dentition.

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.

In March 2015, we announced that the Sirona CEREC Omnicam with the new CEREC Ortho software 1.1 was qualified for use with Invisalign case submissions.

The new CEREC Omnicam scanner was available in select markets in the summer of 2015.

The 3M True Definition scanner and Sirona CEREC Omnicam scanner are the only third-party scanners that have been qualified for use with Invisalign treatment.

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.

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

Briefing for the appeal was completed in May 2015 and the Ninth Circuit held oral arguments in October 2016.

For the fiscal year ended December 31, [removed: 2015][added: 2016]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate [removed: Web site,] [added: website,] if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was [removed: $3,646,077,546] [added: $4,608,283,946] as of June 30, [removed: 2015] [added: 2016] based on the closing sale price of the registrant’s common stock on the NASDAQ Global Market on such date.

On February [removed: 19, 2016, 79,625,640] [added: 21, 2017, 80,276,127] shares of the registrant’s common stock were outstanding.

Portions of the registrant’s definitive Proxy Statement relating to its [removed: 2016] [added: 2017] Annual Stockholders’ Meeting to be filed pursuant to Regulation 14A within 120 days after the registrant’s fiscal year end of December 31, [removed: 2015] [added: 2016] are incorporated by reference into Part III of this Annual Report on Form 10-K.

For the Year Ended December 31, [removed: 2015][added: 2016]

| Item 1. | Business | [removed: [3](#s074BAD764DAD5926AC939D293C00CC95)] [added: [3](#s12F3549FC7F4997EC91D74C66D591F03)] |

| | Executive Officers of the Registrant | [removed: [13](#s9BAD09926C96570D9B47833121505910)] [added: [13](#s20BEF6F07C99A75654A174C678DAA1A2)] |

| Item 1A. | Risk Factors | [removed: [14](#s6B9FC73241655060AE377E9A961DE273)] [added: [15](#s1C59B060A6D23678F00274C679014F3B)] |

| Item 1B. | Unresolved Staff Comments | [removed: [27](#s0AAE12C43508588CA6FDAE4254361218)] [added: [29](#sD482E588F7D3FCED921874C6795260F7)] |

| Item 2. | Properties | [removed: [27](#s73D13287332C543D8273368B3D0C6BA4)] [added: [29](#s243ADF7995E4EC7DDC1274C6795A5E99)] |

| Item 3. | Legal Proceedings | [removed: [28](#sF3AA9B8A686059DFB2D0DE363DA5400D)] [added: [30](#s6B37E4BC15DE9DACD5AC74C6797715DD)] |

| Item 4. | Mine Safety Disclosures | [removed: [29](#s82D1B9A067F7583A8CA204CB8435F9F9)] [added: [30](#sDB95D42F561459637F9D74C679A99765)] |

| Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | [removed: [30](#s49C8C62AC99656A0828A123C4F6B6857)] [added: [31](#s5E9E753CC3AD264CE81A74C66EF48497)] |

| Item 6. | Selected Consolidated Financial Data | [removed: [32](#sA2984C7C43E9599C9B8616D98DC07B1D)] [added: [33](#s75D6D68D61B7FCB5590774C66C5804AE)] |

| Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | [removed: [34](#s56869DE089175DCEAB1F30DB548D1889)] [added: [35](#sFF62B823FC8F1F5B27FA74C67A4F6F9A)] |

| Item 7A. | Quantitative and Qualitative Disclosures About Market Risk | [removed: [50](#sD993CBF0CBE751CFAEDFFC5CEEC081D0)] [added: [52](#sB0F50A933666333EBC4E74C67C4255E6)] |

| Item 8. | Consolidated Financial Statements and Supplementary Data | [removed: [51](#sEFA7E56F1026576F925414F130303DC6)] [added: [53](#sD3CA324ACB4345E731D974C66D362466)] |

| Item 9. | Changes [removed: In] [added: in] and Disagreements [removed: With] [added: with] Accountants on Accounting and Financial Disclosure | [removed: [89](#s4405EB1F10A4520D83C47C3718A39D9A)] [added: [91](#s2CD21330125BE4562F1974C6815827CE)] |

| Item 9A. | Controls and Procedures | [removed: [89](#s348CD8DC99A85DF193094ABA97C7B9CC)] [added: [91](#sE4D0398DBBABFAE9E5F274C6817832DD)] |

| Item 9B. | Other Information | [removed: [89](#s57A33C7B069F51F8BF69F37BE4AA19F7)] [added: [91](#sFBF73A247BA89A330A6074C6819914FF)] |

| [removed: PART III] [added: [PART III](#s7E575625D61047C8680774C681CCB37A)] | | [removed: [90](#s3C99AFFC941D56EDB1124077BC9F9D25)] [added: [92](#s7E575625D61047C8680774C681CCB37A)] |

| Item 10. | Directors, Executive Officers and Corporate Governance | [removed: [90](#s43CBF0B9B89A500FB2541EA406E8AC56)] [added: [92](#s92A1D4C74ECB6AF922BB74C681EDE942)] |

| Item 11. | Executive Compensation | [removed: [90](#s1F03354713B35D3AA1DD4D285B1225F5)] [added: [92](#sF28F0568BAD1ADB03D8574C68220831F)] |

| Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | [removed: [90](#s852EFA6F0A6D5D459406FF0B146D4751)] [added: [92](#s75A5A838782E209F416774C66DC5DCA7)] |

| Item 13. | Certain Relationships and Related Transactions and Director Independence | [removed: [91](#sA46E5AFD297152E592E3A1295A6BFD8A)] [added: [93](#s7D1F54E720B390F3CECC74C682746EE1)] |

| Item 14. | Principal Accounting Fees and Services | [removed: [91](#sA80EE1DB71D5563C8F61197BC9B0F0BA)] [added: [93](#sE320E8BB007FE174C5C574C682937A59)] |

| Item 15. | Exhibits, Financial Statement Schedules | [removed: [92](#sFE1F8CBED1A05C738FD136B5440F6C96)] [added: [94](#s65134CE97F6F0DC1555774C668F431B7)] |

Invisalign, Align, the Invisalign logo, ClinCheck, Invisalign Assist, Invisalign Teen, [added: Invisalign Go,] Vivera, SmartForce, SmartTrack, SmartStage, Power Ridge, iTero, iTero Element, 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.

These statements include, among other things, our expectations regarding the anticipated impact of our new products and product enhancements [removed: including Invisalign G5 and ClinCheck Pro] will have on doctor utilization and our market share, our expectations regarding product mix and product adoption, our expectations regarding the existence and impact of seasonality, our expectations regarding the financial and strategic benefits of [removed: our iTero scanner,] [added: establishing regional order acquisition and treatment planning facilities,] our expectations regarding the continued expansion of our international [removed: markets] [added: markets,] the level of our operating expenses and gross margins, [added: our expectation that the SmileDirectClub, LLC transaction will be incremental to revenue growth in 2017,] and other factors beyond our control, as well as other statements regarding our future operations, financial condition and prospects and business strategies.

10-K 1 algn-20161231x10k.htm 10-K

| [PART I](#s667EBA96A88C522EACD474C6787D63FD) | | [3](#s667EBA96A88C522EACD474C6787D63FD) |

| [PART II](#s1D69942EEFA448CB09E574C679CBC2FA) | | [31](#s1D69942EEFA448CB09E574C679CBC2FA) |

| [PART IV](#s15582FD539F8DEC42D7D74C682C5B822) | | [94](#s15582FD539F8DEC42D7D74C682C5B822) |

| Signatures | | [97](#s4E42F037A194F3742EE074C68318C239) |

10-K 1 algn-20151231x10k.htm 10-K

| [PART I](#s798E3D2015075730BEC2C2C5C29696CB) | | [3](#s798E3D2015075730BEC2C2C5C29696CB) |

| [PART II](#s3FFB199845745B28A2D24FE9719654E5) | | [30](#s3FFB199845745B28A2D24FE9719654E5) |

| PART IV | | [92](#s654448494DCE5C4A850D13C8E7808092) |

| Signatures | | [96](#s94A56C4CAEB7515BBAAD98D657600693) |

We occupy several leased and owned facilities with total office and manufacturing area of over [removed: 898,000] [added: 987,000] square feet.

At December 31, [removed: 2015,] [added: 2016,] the significant facilities were occupied as follows:

| Location | Lease/Own | Primary Use | [removed: Segment |] Expiration of [removed: lease] [added: Lease] |

| San Jose, California [added: (1)] | Lease | Office for corporate headquarters, research & development and administrative personnel | [removed: Clear Aligner and Scanner | September] [added: August] 2017 |

| San Jose, Costa Rica | Lease | Office for administrative personnel, [removed: manufacturing] [added: treatment] personnel, and customer care | [removed: Clear Aligner and Scanner | November 2017] [added: October 2018] |

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

| Or Yehuda, Israel | Lease | Manufacturing and office for manufacturing, administrative personnel, and research [removed: and] [added: &] development | [removed: Scanner | October 2017] [added: February 2022] |

| Amsterdam, The Netherlands | Lease | Office for international headquarters, sales and marketing and administrative personnel | [removed: Clear Aligner | April 2017] [added: March 2020] |

| Moscow, Russia | Lease | Office for research [removed: and] [added: &] development | [removed: Clear Aligner and Scanner | April 2017] [added: July 2023] |

| Raleigh, North Carolina | Lease | Office for research & development and administrative personnel | [removed: Clear Aligner | August 2020] [added: October 2024] |

| | | | |

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

| | | | |

(1) Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for information on our corporate headquarters office Purchase Agreement in December 2016.

| | | | | |

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

| Year Ended December 31, [removed: 2014:] [added: 2016:] | | | | | | | |

On February [removed: 19, 2016,] [added: 21, 2017,] the closing price of our common stock on the NASDAQ Global Market was [removed: $63.29] [added: $101.86] per share.

As of February [removed: 19, 2016] [added: 21, 2017,] there were approximately [removed: 101] [added: 96] 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: 2010] [added: 2011] to December 31, [removed: 2015.][added: 2016.]

[removed: ][added: ]

Following is a summary of stock repurchases for the three months ended December 31, [removed: 2015:][added: 2016:]

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

| Fourth quarter | $ | 102.10 | | | $ | 83.27 | |

| Third quarter | $ | 96.90 | | | $ | 80.30 | |

| Second quarter | $ | 81.98 | | | $ | 70.03 | |

| First quarter | $ | 73.55 | | | $ | 57.31 | |

| October 1, 2016 through October 31, 2016 | | 179,500 | | | $ | 89.28 | | | 179,500 | | | $ | 325,777,042 | |

| November 1, 2016 through November 30, 2016 | | 126,000 | | | $ | 92.36 | | | 126,000 | | | $ | 314,139,921 | |

| December 1, 2016 through December 31, 2016 | | 106,000 | | | $ | 97.92 | | | 106,000 | | | $ | 303,760,487 | |

(1) Stock Repurchase Programs

| | |

| --- | --- |

| ◦ | April 2014 Repurchase Program. In 2016, we repurchased $50.0 million of our common stock through an accelerated stock repurchase agreement and $46.2 million of stock repurchase in the open market. |

| | |

| --- | --- |

| ◦ | April 2016 Repurchase Program. On April 28, 2016, we announced that our Board of Directors had authorized a plan to repurchase up to $300.0 million of our stock. |

| | |

| --- | --- |

| ◦ | Remaining Available Repurchases. As of December 31, 2016, we have approximately $3.8 million remaining available under the April 2014 Repurchase Program and $300.0 million under the April 2016 Repurchase Plan (Refer to Note 10 "Common Stock Repurchase Program" of the Notes to Consolidated Financial Statements for details on common stock repurchase). |

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

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

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

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

| October 1, 2015 through October 31, 2015 | | 103,000 | | | $ | 59.97 | | | 103,000 | | | $ | 104,989,100 | |

| November 1, 2015 through November 30, 2015 | | 75,875 | | | $ | 66.04 | | | 75,875 | | | $ | 99,978,175 | |

| December 1, 2015 through December 31, 2015 | | — | | | $ | — | | | — | | | $ | 99,978,175 | |

(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 three years, with $100.0 million of that amount authorized to be purchased during each twelve month period.

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.

As of December 31, 2015, we have approximately $100 million remaining under the April 2014 stock repurchase program.

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

The following tables set forth the selected consolidated financial data for each of the years in the five-year period ended December 31, [removed: 2015.][added: 2016.]

We have derived the [removed: statement] [added: statements] of operations data for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] and the balance sheet data as of December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] from the consolidated audited financial statements included elsewhere in this Annual Report on Form 10-K.

The [removed: statement] [added: statements] of operations data for the year ended December 31, [removed: 2012] [added: 2013] and [removed: 2011] [added: 2012] and the balance sheet data as of December 31, [removed: 2013, 2012] [added: 2014, 2013] and [removed: 2011] [added: 2012] were derived from the consolidated audited financial statements that are not included in this Annual Report on Form 10-K.

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | | | [removed: 2012] [added: 2013] | | | | [removed: 2011] [added: 2012] | | |

| Consolidated [removed: Statement] [added: Statements] of Operations Data: | | | | | | | | | | | | | | | | | | | |

| Net revenues [removed: 1] | $ | [removed: 845,486] [added: 1,079,874] | | | $ | [removed: 761,653] [added: 845,486] | | | $ | [removed: 660,206] [added: 761,653] | | | $ | [removed: 560,041] [added: 660,206] | | | $ | [removed: 479,741] [added: 560,041] | |

| Gross profit [removed: 2] [added: (1)] | $ | [removed: 640,110] [added: 815,294] | | | $ | [removed: 578,443] [added: 640,110] | | | $ | [removed: 498,106] [added: 578,443] | | | $ | [removed: 416,388] [added: 498,106] | | | $ | [removed: 361,283] [added: 416,388] | |

| Income from operations [removed: 3] [added: (2)] | [removed: 188,634] [added: 248,921] | | | | [removed: 193,576] [added: 188,634] | | | | [removed: 94,212] [added: 193,576] | | | | [removed: 85,592] [added: 94,212] | | | | [removed: 90,360] [added: 85,592] | | |

| Interest and other income (expense), net | [removed: (2,533] [added: (6,355] | | ) | | [removed: (3,207] [added: (2,533] | | ) | | [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: 3] [added: and equity in losses of investee (2)] | [removed: 186,101] [added: 242,566] | | | | [removed: 190,369] [added: 186,101] | | | | [removed: 93,139] [added: 190,369] | | | | [removed: 84,296] [added: 93,139] | | | | [removed: 89,941] [added: 84,296] | | |

| Provision for income taxes [added: (3)] | [removed: 42,081] [added: 51,200] | | | | [removed: 44,537] [added: 42,081] | | | | [removed: 28,844] [added: 44,537] | | | | [removed: 25,605] [added: 28,844] | | | | [removed: 23,225] [added: 25,605] | | |

| Net income [removed: 3] | $ | [removed: 144,020] [added: 189,682] | | | $ | [removed: 145,832] [added: 144,020] | | | $ | [removed: 64,295] [added: 145,832] | | | $ | [removed: 58,691] [added: 64,295] | | | $ | [removed: 66,716] [added: 58,691] | |

| Net income per [removed: share] [added: share:] | | | | | | | | | | | | | | | | | | | |

| Basic | $ | [removed: 1.80] [added: 2.38] | | | $ | [removed: 1.81] [added: 1.80] | | | $ | [removed: 0.80] [added: 1.81] | | | $ | [removed: 0.73] [added: 0.80] | | | $ | [removed: 0.86] [added: 0.73] | |

| Diluted | $ | [removed: 1.77] [added: 2.33] | | | $ | 1.77 | | | $ | [removed: 0.78] [added: 1.77] | | | $ | [removed: 0.71] [added: 0.78] | | | $ | [removed: 0.83] [added: 0.71] | |

| Basic | [removed: 79,998] [added: 79,856] | | | | [removed: 80,754] [added: 79,998] | | | | [removed: 80,551] [added: 80,754] | | | | [removed: 80,529] [added: 80,551] | | | | [removed: 77,988] [added: 80,529] | | |

| Diluted | [removed: 81,521] [added: 81,484] | | | | [removed: 82,283] [added: 81,521] | | | | [removed: 82,589] [added: 82,283] | | | | [removed: 83,040] [added: 82,589] | | | | [removed: 80,294] [added: 83,040] | | |

| Working capital [removed: 4] [added: (4)] | $ | [removed: 460,338] [added: 598,643] | | | $ | [removed: 455,349] [added: 460,338] | | | $ | [removed: 369,338] [added: 455,349] | | | $ | [removed: 330,022] [added: 369,338] | | | $ | [removed: 236,699] [added: 330,022] | |

| Total assets | [removed: 1,158,633] [added: 1,396,151] | | | | [removed: 987,997] [added: 1,158,633] | | | | [removed: 832,147] [added: 987,997] | | | | [removed: 756,312] [added: 832,147] | | | | [removed: 649,264] [added: 756,312] | | |

| Total long-term liabilities | [removed: 39,035] [added: 46,427] | | | | [removed: 33,415] [added: 39,035] | | | | [removed: 22,839] [added: 33,415] | | | | [removed: 19,224] [added: 22,839] | | | | [removed: 10,366] [added: 19,224] | | |

| Stockholders’ equity | $ | [removed: 847,926] [added: 995,389] | | | $ | [removed: 752,771] [added: 847,926] | | | $ | [removed: 633,970] [added: 752,771] | | | $ | [removed: 581,317] [added: 633,970] | | | $ | [removed: 490,781] [added: 581,317] | |

| [removed: 2] [added: (1)] | Gross profit includes: |

| • | $1.7 million out of period adjustment in 2013 [removed: (See Note 1 in the financial statements)] |

[removed: | 3 |] [added: (2)] Income from [removed: operations,] [added: operations and] net income before provision for income [removed: taxes,] [added: taxes] and [removed: net income includes the following, net] [added: equity in losses] of [removed: taxes: |][added: investee include:]

| • | $1.8 million out of period income tax adjustment in 2014 [removed: (see] [added: (Refer to] Note 1 [removed: in] [added: "Summary of Significant Accounting Policies" of] the [removed: financial statements)] [added: Notes to Consolidated Financial Statements)] |

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

| [removed: 4] [added: (4)] | Working capital is calculated as the difference between total current assets and total current liabilities. |

| Equity in losses of investee, net of tax | 1,684 | | | | — | | | | — | | | | — | | | | — | | |

| | 2016 | | | | 2015 | | | | 2014 | | | | 2013 | | | | 2012 | | |

| (3) | Provision for income taxes includes: |

| | |

| --- | --- |

| 1 | Net revenues for the year ended December 31, 2011 include eight months of revenues from our Scanners segment of approximately $28.0 million as a result of our acquisition of Cadent Holdings, Inc. on April 29, 2011. |

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

| • | $10.0 million acquisition and integration related costs, $3.2 million of amortization of intangible assets, and exit costs of $1.1 million in 2011 |

| | [removed: 2015 | | | | | | | |] [added: 2016] | | | | [added: 2015] | | | | 2014 | | | [removed: | | | | | | | | | | | |]

| | December 31, [removed: 2015] [added: 2016] | | | | September 30, [removed: 2015] [added: 2016] | | | | June 30, [removed: 2015] [added: 2016] | | | | March 31, [removed: 2015] [added: 2016] | | | | December 31, [removed: 2014] [added: 2015] | | | | September 30, [removed: 2014] [added: 2015] | | | | June 30, [removed: 2014] [added: 2015] | | | | March 31, [removed: 2014] [added: 2015] | | |

| Net revenues | $ | [removed: 230,276] [added: 293,203] | | | $ | [removed: 207,636] [added: 278,589] | | | $ | [removed: 209,488] [added: 269,362] | | | $ | [removed: 198,086] [added: 238,720] | | | $ | [removed: 198,600] [added: 230,276] | | | $ | [removed: 189,876] [added: 207,636] | | | $ | [removed: 192,531] [added: 209,488] | | | $ | [removed: 180,646] [added: 198,086] | |

| Gross profit | [removed: 172,810] [added: 220,249] | | | | [removed: 157,576] [added: 209,202] | | | | [removed: 158,634] [added: 205,216] | | | | [removed: 151,090] [added: 180,627] | | | | [removed: 150,662] [added: 172,810] | | | | [removed: 145,054] [added: 157,576] | | | | [removed: 145,476] [added: 158,634] | | | | [removed: 137,251] [added: 151,090] | | |

| Income from operations [removed: 1] | [removed: 59,339] [added: 68,372] | | | | [removed: 38,046] [added: 62,079] | | | | [removed: 42,325] [added: 65,136] | | | | [removed: 48,924] [added: 53,334] | | | | [removed: 51,493] [added: 59,339] | | | | [removed: 51,547] [added: 38,046] | | | | [removed: 48,732] [added: 42,325] | | | | [removed: 41,804] [added: 48,924] | | |

| Net income [removed: 1] | [removed: 48,877] [added: 47,621] | | | | [removed: 27,616] [added: 51,367] | | | | [removed: 31,350] [added: 50,148] | | | | [removed: 36,177] [added: 40,546] | | | | [removed: 39,541] [added: 48,877] | | | | [removed: 38,247] [added: 27,616] | | | | [removed: 35,600] [added: 31,350] | | | | [removed: 32,444] [added: 36,177] | | |

| Diluted | $ | [removed: 0.60] [added: 0.59] | | | $ | [removed: 0.34] [added: 0.63] | | | $ | [removed: 0.39] [added: 0.62] | | | $ | [removed: 0.44] [added: 0.50] | | | $ | [removed: 0.48] [added: 0.60] | | | $ | [removed: 0.47] [added: 0.34] | | | $ | [removed: 0.43] [added: 0.39] | | | $ | [removed: 0.39] [added: 0.44] | |

| Report of Management on Internal Control over Financial Reporting | [removed: [53](#s8FC347D8145E59AEA8D3E8C69CEBF8C9)] [added: [55](#s5823F517DCFC9FBF072874C67CB80E88)] |

| Report of Independent Registered Public Accounting Firm | [removed: [54](#s3164FCF07A3C5EFAA0533110398DD5E9)] [added: [56](#sD6C9DC66C6EB76748B3C74C67CE99D4C)] |

| Consolidated Statements of Operations | [removed: [55](#sCB999D273C095D85AB2E41A190F2FE0C)] [added: [57](#s1C935A505B5F2B34358174C66658AC43)] |

| Consolidated Statements of Comprehensive Income | [removed: [56](#sDC197AF3E956521C8A558BA74E0819A2)] [added: [58](#s03A6572F13689EF931FD74C66669F280)] |

| Consolidated Balance Sheets | [removed: [57](#s38133F6B57E35129A9D888D9AC4C972D)] [added: [59](#sB5EF733D7729801C4D4E74C6666FD30D)] |

| Consolidated Statements of Stockholders’ Equity | [removed: [58](#s6D15536E719957AA9EE7F17912E8C2E5)] [added: [60](#s3A72CBC25F31EF6B65DE74C666854FAC)] |

| Consolidated Statements of Cash Flows | [removed: [59](#s2126977D5A8A58E18AD159DA7E93F296)] [added: [61](#s68E04735C4E0E9EFBCA074C666AE0C6B)] |

| Notes to Consolidated Financial Statements | [removed: [60](#s4C8A316162C65085BCEDF8C84050C1FD)] [added: [62](#sFB3240C99560A3DAECAA74C67E05A8A5)] |

Management assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2015.][added: 2016.]

Based on its assessment, management has concluded that, as of December 31, [removed: 2015,] [added: 2016,] our internal control over financial reporting was effective based on criteria in Internal Control - Integrated Framework (2013) issued by the COSO.

The effectiveness of our internal control over financial reporting as of December 31, [removed: 2015] [added: 2016] 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) [removed: (1),] [added: (1)] present fairly, in all material respects, the financial position of Align Technology, Inc. and its subsidiaries at December 31, [removed: 2015] [added: 2016] and December 31, [removed: 2014,] [added: 2015,] and the results of their operations and their cash flows for each of the three years in the period ended December 31, [removed: 2015] [added: 2016] 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: 2015,] [added: 2016,] based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

| | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | | | [removed: 2013] [added: 2014] | | |

| Net revenues | $ | [removed: 845,486] [added: 1,079,874] | | | $ | [removed: 761,653] [added: 845,486] | | | $ | [removed: 660,206] [added: 761,653] | |

| Cost of net revenues | [removed: 205,376] [added: 264,580] | | | | [removed: 183,210] [added: 205,376] | | | | [removed: 162,100] [added: 183,210] | | |

| Gross profit | [removed: 640,110] [added: 815,294] | | | | [removed: 578,443] [added: 640,110] | | | | [removed: 498,106] [added: 578,443] | | |

| Selling, general and administrative | [removed: 390,239] [added: 490,653] | | | | [removed: 332,068] [added: 390,239] | | | | [removed: 292,798] [added: 332,068] | | |

| Research and development | [removed: 61,237] [added: 75,720] | | | | [removed: 52,799] [added: 61,237] | | | | [removed: 44,083] [added: 52,799] | | |

| [removed: Impairment of long lived] [added: Long-lived] assets [removed: | — | | |] [added: (1):] | [removed: —] | | | | [removed: 26,320] | | |

| Total operating expenses | [removed: 451,476] [added: 566,373] | | | | [removed: 384,867] [added: 451,476] | | | | [removed: 403,894] [added: 384,867] | | |

| Income from operations | [removed: 188,634] [added: 248,921] | | | | [removed: 193,576] [added: 188,634] | | | | [removed: 94,212] [added: 193,576] | | |

| Interest and other income (expense), net | [removed: (2,533] [added: (6,355] | | ) | | [removed: (3,207] [added: (2,533] | | ) | | [removed: (1,073] [added: (3,207] | | ) |

| Net income before provision for income taxes [added: and equity in losses of investee] | [removed: 186,101] [added: 242,566] | | | | [removed: 190,369] [added: 186,101] | | | | [removed: 93,139] [added: 190,369] | | |

| Provision for income taxes | [removed: 42,081] [added: 51,200] | | | | [removed: 44,537] [added: 42,081] | | | | [removed: 28,844] [added: 44,537] | | |

| Net income | $ | [removed: 144,020] [added: 189,682] | | | $ | [removed: 145,832] [added: 144,020] | | | $ | [removed: 64,295] [added: 145,832] | |

| Basic | $ | [removed: 1.80] [added: 2.38] | | | $ | [removed: 1.81] [added: 1.80] | | | $ | [removed: 0.80] [added: 1.81] | |

| Diluted | $ | [removed: 1.77] [added: 2.33] | | | $ | 1.77 | | | $ | [removed: 0.78] [added: 1.77] | |

| Basic | [removed: 79,998] [added: 79,856] | | | | [removed: 80,754] [added: 79,998] | | | | [removed: 80,551] [added: 80,754] | | |

| Diluted | [removed: 81,521] [added: 81,484] | | | | [removed: 82,283] [added: 81,521] | | | | [removed: 82,589] [added: 82,283] | | |

| Net change in [removed: cumulative] [added: foreign currency] translation adjustment | [removed: (154] [added: (670] | | ) | | [removed: (196] [added: (154] | | ) | | [removed: 62] [added: (196] | | [added: )] |

| Change in unrealized gains (losses) on [removed: available-for sale securities,] [added: investments,] net of tax | [removed: (686] [added: 712] | | [removed: )] | | [removed: (238] [added: (686] | | ) | | [removed: 29] [added: (238] | | [added: )] |

| Other comprehensive income (loss) | [removed: (840] [added: 42] | | [removed: )] | | [removed: (434] [added: (840] | | ) | | [removed: 91] [added: (434] | | [added: )] |

| | 2016 | | | | | | | | | | | | | | | | 2015 | | | | | | | | | | | | | | |

| Basic | $ | 0.60 | | | $ | 0.64 | | | $ | 0.63 | | | $ | 0.51 | | | $ | 0.61 | | | $ | 0.35 | | | $ | 0.39 | | | $ | 0.45 | |

| Basic | 79,667 | | | | 79,977 | | | | 79,951 | | | | 79,831 | | | | 79,481 | | | | 79,808 | | | | 80,257 | | | | 80,459 | | |

| Diluted | 81,248 | | | | 81,466 | | | | 81,281 | | | | 81,320 | | | | 81,051 | | | | 81,092 | | | | 81,394 | | | | 81,824 | | |

| February 28, 2017 |

| /S/ JOHN F. MORICI |

| John F. Morici |

| February 28, 2017 |

February 28, 2017

| Equity in losses of investee, net of tax | 1,684 | | | | — | | | | — | | |

| Net income | $ | 189,682 | | | $ | 144,020 | | | $ | 145,832 | |

| | 2016 | | | | 2015 | | |

| Cash and cash equivalents | $ | 389,275 | | | $ | 167,714 | |

| Equity method investments | 45,061 | | | | — | | |

| Retained earnings | 131,448 | | | | 27,391 | | |

| Net change in unrealized gains (losses) from investments | — | | | — | | | | — | | | | (238 | | ) | | — | | | | (238 | | ) |

| Net change in unrealized gains (losses) from investments | — | | | — | | | | — | | | | (686 | | ) | | — | | | | (686 | | ) |

| Net change in unrealized gains (losses) from investments | — | | | — | | | | — | | | | 712 | | | | — | | | | 712 | | |

| Common stock repurchased and retired | (1,110 | ) | | — | | | | (10,593 | | ) | | — | | | | (85,625 | | ) | | (96,218 | | ) |

| Stock-based compensation | — | | | — | | | | 54,148 | | | | — | | | | — | | | | 54,148 | | |

| Balances at December 31, 2016 | 79,553 | | | $ | 8 | | | $ | 864,871 | | | $ | (938 | ) | | $ | 131,448 | | | $ | 995,389 | |

| Net income | $ | 189,682 | | | $ | 144,020 | | | $ | 145,832 | |

| Equity in losses of investee | 1,684 | | | | — | | | | — | | |

| Purchase of equity method investments | (46,745 | | ) | | — | | | | — | | |

Variable Interest Entities

We have interests in entities determined to be variable interest entity (“VIE”).

If we determine we are the primary beneficiary of a VIE, we would consolidate the VIE into our financial statements.

In determining if we are the primary beneficiary, we evaluate whether we have the power to direct the activities that most significantly impact the VIE's economic performance and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.

Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding, financing, and other applicable agreements and circumstances.

Our assessments of whether we are the primary beneficiary of a VIE require significant assumptions and judgments.

We have concluded that we are not the primary beneficiary of our VIE investments; therefore, we do not consolidate their results into our consolidated financials.

Investments in Privately Held Companies

Investments in privately held companies in which we can exercise significant influence but do not own a majority equity interest or otherwise control, are accounted for under the equity method of accounting.

Equity method investments are reported on our balance sheet as a single amount, and we record our share of their operating results within equity in losses of investee, net of tax in our Consolidated Statement of Operations.

We invest excess cash primarily in money market funds, commercial paper, corporate bonds, U.S. government agency bonds, asset-backed securities, municipal securities, U.S. government treasury bonds and certificates of deposits.

We have certain credit risk under our Loan and Security Agreement ("Loan Agreement") with SmileDirectClub, LLC ("SDC").

We perform ongoing evaluation of credit worthiness of SDC.

If the fair value of equity investment is deemed to be other-than temporary impaired, we will be required to write down the value of our investments, which could adversely affect our results of operations and financial condition (Refer to Note 8 "Commitments and Contingencies" of the Notes of Consolidated Financial Statements for more information on our Loan Agreement with SDC).

Refer to Note 3 "Balance Sheet Components" of the Notes of Consolidated Financial Statements for details on estimated useful lives.

For the year ended December 31, 2016 and 2015, all goodwill is attributed to our Clear Aligner reporting unit.

| Basic | $ | 0.61 | | | $ | 0.35 | | | $ | 0.39 | | | $ | 0.45 | | | $ | 0.49 | | | $ | 0.47 | | | $ | 0.44 | | | $ | 0.40 | |

| Basic | 79,481 | | | | 79,808 | | | | 80,257 | | | | 80,459 | | | | 80,266 | | | | 80,629 | | | | 81,027 | | | | 81,120 | | |

| Diluted | 81,051 | | | | 81,092 | | | | 81,394 | | | | 81,824 | | | | 81,691 | | | | 82,014 | | | | 82,341 | | | | 82,817 | | |

1 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 25, 2016 |

| /S/ DAVID L. WHITE |

| David L. White |

As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it classifies deferred income tax assets and liabilities in 2015.

February 25, 2016

ALIGN TECHNOLOGY, INC. AND SUBSIDIARIES

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

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

| Impairment of goodwill | — | | | | — | | | | 40,693 | | |

| | | | | | | | |

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

| Deferred tax assets | 51,416 | | | | 3,099 | | |

| Accumulated surplus (deficit) | 27,391 | | | | (30,507 | | ) |

| Balances at December 31, 2012 | 80,611 | | | $ | 8 | | | $ | 670,732 | | | $ | 203 | | | $ | (89,626 | ) | | $ | 581,317 | |

| Net change in unrealized gain from available-for sale securities | — | | | — | | | | — | | | | 29 | | | | — | | | | 29 | | |

| Common stock repurchased and retired | (2,722 | ) | | — | | | | (24,528 | | ) | | — | | | | (70,579 | | ) | | (95,107 | | ) |

| Net change in unrealized gain from available-for sale securities | — | | | — | | | | — | | | | (238 | | ) | | — | | | | (238 | | ) |

| Net change in unrealized gain from available-for sale securities | — | | | — | | | | — | | | | (686 | | ) | | — | | | | (686 | | ) |

| Acquisition, net of cash acquired | — | | | | — | | | | (7,652 | | ) |

| Cash and cash equivalents, beginning of year | 199,871 | | | | 242,953 | | | | 306,386 | | |

In 2013, we recorded an out of period correction that resulted in decreases in cost of net revenues of approximately $1.7 million and operating expense of $0.7 million offset in part by an increase in the provision for income taxes of $0.5 million.

We do not believe the increase of $1.9 million to net income related to the out of period adjustment is material to the consolidated financial statements for the fiscal year ended December 31, 2013 or to any prior years' consolidated financial statements.

The carrying amounts of our cash, accounts receivable, accounts payable and other current liabilities approximate their fair value.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

These instruments are marked to market through earnings every period and generally are one month in original maturity.

Some of our international entities operate in a U.S. dollar functional currency environment, and therefore, the foreign currency assets and liabilities are remeasured into the U.S. dollar at current exchange rates except for non-monetary assets and liabilities which are remeasured at historical exchange rates.

Revenues and expenses are generally remeasured at an average exchange rate in effect during each period.

We invest excess cash primarily in money market funds of major financial institutions, U.S. government agencies, U.S. dollar dominated foreign corporate bonds and domestic corporate bonds.

We depreciate buildings over periods up to 20 years.

Land is not depreciated.

Refer to Note 5 for details of the impairment analysis.

In 2014, we started an ERP project which we have capitalized $25.4 million of costs as of December 31, 2015 which is included in construction in progress ("CIP").

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

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: 2015] [added: 2016] 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: 2015] [added: 2016] that have materially [removed: affected] [added: affected,] or are reasonably likely to materially affect, our internal control over financial reporting.

Certain information required by Part III is omitted from this Form 10-K because we intend to file a definitive Proxy Statement for our [removed: 2016] [added: 2017] Annual Meeting of Stockholders (the “Proxy Statement”) not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and certain information to be included therein is incorporated herein by reference.

The information required by Item 401 of Regulation S-K concerning our directors is incorporated by reference to the Proxy Statement under the section captioned “Election of Directors.” The information required by Item 401 of Regulation S-K concerning our executive officers is set forth in Item [removed: 1—“Business”] [added: 1— “Business”] of this Annual Report on Form 10-K.

The following table provides information as of December 31, [removed: 2015] [added: 2016] 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 Plan ("ESPP"), the 2001 Stock Incentive Plan and the 2005 Incentive Plan, each as amended, and certain individual arrangements.

| 1 | Includes [removed: 2,078,136] [added: 1,788,372] restricted stock [removed: units, including 611,150] [added: units and 520,350] market-performance based restricted stock units at target, which have an exercise price of zero. |

| 2 | Includes [removed: 1,133,749] [added: 936,867] 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 or the weighted average exercise price of outstanding rights under the ESPP. |

| 3 | Excludes [removed: 546,933] [added: 494,333] of potentially issuable MSUs if performance targets are achieved at maximum payout. |

| Equity compensation plans approved by security holders | 2,531,027 | | 1 | $ | 14.90 | | | 9,454,960 | | 2, 3 |

| Total | 2,531,027 | | | $ | 14.90 | | | 9,454,960 | | |

| Equity compensation plans approved by security holders | 3,185,509 | | 1 | $ | 15.14 | | | 6,550,307 | | 2, 3 |

| Total | 3,185,509 | | | $ | 15.14 | | | 6,550,307 | | |

| Report of Independent Registered Public Accounting Firm | [removed: [54](#s3164FCF07A3C5EFAA0533110398DD5E9)] [added: [56](#sD6C9DC66C6EB76748B3C74C67CE99D4C)] |

| Consolidated [removed: Statement] [added: Statements] of Operations for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] | [removed: [55](#sCB999D273C095D85AB2E41A190F2FE0C)] [added: [57](#s1C935A505B5F2B34358174C66658AC43)] |

| Consolidated [removed: Statement] [added: Statements] of Comprehensive Income for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] | [removed: [56](#sDC197AF3E956521C8A558BA74E0819A2)] [added: [58](#s03A6572F13689EF931FD74C66669F280)] |

| Consolidated Balance [removed: Sheet] [added: Sheets] as of December 31, [removed: 2015] [added: 2016] and [removed: 2014] [added: 2015] | [removed: [57](#s38133F6B57E35129A9D888D9AC4C972D)] [added: [59](#sB5EF733D7729801C4D4E74C6666FD30D)] |

| Consolidated [removed: Statement] [added: Statements] of Stockholders’ Equity for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] | [removed: [58](#s6D15536E719957AA9EE7F17912E8C2E5)] [added: [60](#s3A72CBC25F31EF6B65DE74C666854FAC)] |

| Consolidated [removed: Statement] [added: Statements] of Cash Flows for the year ended December 31, [removed: 2015, 2014] [added: 2016, 2015] and [removed: 2013] [added: 2014] | [removed: [59](#s2126977D5A8A58E18AD159DA7E93F296)] [added: [61](#s68E04735C4E0E9EFBCA074C666AE0C6B)] |

| Notes to Consolidated Financial Statements | [removed: [60](#s4C8A316162C65085BCEDF8C84050C1FD)] [added: [62](#sFB3240C99560A3DAECAA74C67E05A8A5)] |

| | Balance at Beginning of Period | | | | Additions [removed: (reductions)] [added: (Reductions)] to Costs and Expenses | | | | Write [removed: offs | | | | Charged to Other Accounts | | | | Reclass from Other Accounts] [added: Offs] | | | | Balance at End of Period | | |

| | (in thousands) | | | | | | | | | | | | | | | [removed: | | | | | | | |]

| Allowance for doubtful accounts and returns: | | | | | | | | | | | | | | | | [removed: | | | | | | | |]

| Year ended December 31, [removed: 2013] [added: 2014] | $ | [removed: 3,167] [added: 1,733] | | | $ | [removed: 2,116] [added: 6,563] | | | $ | [removed: (3,550] [added: (6,733] | ) | | $ | [removed: — | | | $ | — | | | $ | 1,733] [added: 1,563] | |

| Year ended December 31, [removed: 2014] [added: 2015] | $ | [removed: 1,733] [added: 1,563] | | | $ | [removed: 6,563] [added: 8,944] | | | $ | [removed: (6,733] [added: (8,035] | ) | | $ | [removed: — | | | $ | — | | | $ | 1,563] [added: 2,472] | |