Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended December 31,
2009
Commission
File Number 0-16211
DENTSPLY International
Inc
(Exact
name of registrant as specified in its charter)
Delaware
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39-1434669
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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221 West Philadelphia Street, York,
PA
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17405-0872
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number, including area code: (717) 845-7511
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class
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Name of each exchange on which
registered
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None
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Not
applicable
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Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $.01 per share (Title of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.
Yes o No
x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No ¨
Indicate
by check mark whether the Registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was
required to submit and post such files).
Yes x No ¨
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer
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x
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Accelerated
filer
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¨
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Non-accelerated
filer
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Smaller
reporting company
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¨
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Yes o No x
The
aggregate market value of the voting common stock held by non-affiliates of the
registrant computed by reference to the closing price as of the last business
day of the registrants most recently completed second quarter June 30, 2009, was
$4,762,176,900.
The
number of shares of the registrant's Common Stock outstanding as of the close of
business on February 16, 2010 was 147,173,059.
DOCUMENTS
INCORPORATED BY REFERENCE
Certain
portions of the definitive Proxy Statement of DENTSPLY International Inc (the
“Proxy Statement”) to be used in connection with the 2010 Annual Meeting of
Stockholders are incorporated by reference into Part III of this Form 10-K to
the extent provided herein. Except as specifically incorporated by
reference herein the Proxy Statement is not deemed to be filed as part of this
Form 10-K.
PART
I
Item
1. Business
The
nature and geographic scope of DENTSPLY International Inc’s (“DENTSPLY” or the
“Company”) business subjects it to changing economic, competitive, regulatory
and technological risks and uncertainties. In accordance with the
“Safe Harbor” provisions of the Private Securities Litigation Reform Act of
1995, the Company provides the following cautionary remarks regarding important
factors, which, among others, could cause future results to differ materially
from the forward-looking statements, expectations and assumptions expressed or
implied herein. All forward-looking statements made by the Company are subject
to risks and uncertainties and are not guarantees of future performance. These
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the Company’s actual results, performance and
achievements, or industry results to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. These statements are identified by the use of such
terms as “may,” “could,” “expect,” “intend,” “believe,” “plan,” “estimate,”
“forecast,” “project,” “anticipate” or words of similar expression.
Investors
are cautioned that forward-looking statements involve risks and uncertainties
which may materially affect the Company's business and prospects, and should be
read in conjunction with the risk factors and uncertainties discussed within
Item 1A, Part I of this Form 10-K. Investors are further cautioned that the risk
factors in Item 1A, Part I of this Form 10-K may not be exhaustive and that many
of these factors are beyond the Company’s ability to control or predict.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results. The Company undertakes no duty and has no
obligation to update forward-looking statements.
History
and Overview
DENTSPLY,
a Delaware corporation, was created in 1899 as a manufacturer and distributor of
artificial teeth, dental equipment and dental consumable
products. Today, the Company continues to primarily focus on dental
consumable products, dental laboratory products and dental specialty
products.
DENTSPLY
believes it is the world's largest designer, developer, manufacturer and
marketer of a broad range of products for the dental market. The Company's
worldwide headquarters and executive offices are located in York,
Pennsylvania.
Sales of
the Company's dental products accounted for approximately 97% of DENTSPLY's
consolidated net sales, excluding precious metal content, for the year ended
December 31, 2009. The remaining 3% of consolidated net sales, excluding
precious metal content, are related to materials sold to the investment casting
industry and various medical products. The presentation of net sales, excluding
precious metal content, is considered a measure not calculated in accordance
with generally accepted accounting principles in the United States of America
(“US GAAP”), and is therefore considered a non-US GAAP measure. This non-US GAAP
measure is discussed further in “Management's Discussion and Analysis of
Financial Condition and Results of Operations” and a reconciliation of net sales
to net sales, excluding precious metal content, is provided.
Through
the year ended December 31, 2009, the Company conducted its business through
four operating segments, all of which were primarily engaged in the design,
manufacture and distribution of dental products in three principal categories:
1) dental consumable products, 2) dental laboratory products and 3) dental
specialty products.
In
addition to the United States (“U.S.”), the Company conducts its business in
over 120 foreign countries, principally through its foreign subsidiaries.
DENTSPLY has a long-established presence in Canada and in the European market,
particularly in Germany, Switzerland, France, Italy and the United Kingdom. The
Company also has a significant market presence in Central and South America,
South Africa and the Pacific Rim. DENTSPLY has also established marketing
activities in Moscow, Russia to serve the countries of the Commonwealth of
Independent States (“CIS”).
For 2009,
2008 and 2007, the Company's net sales, excluding precious metal content, to
customers outside the U.S., including export sales, accounted for approximately
62%, 62% and 59%, respectively, of consolidated net sales, excluding precious
metal content. Reference is made to the information about the Company's U.S. and
foreign sales by shipment origin set forth in Note 4, Segment and Geographic
Information, to the consolidated financial statements in this Form
10-K.
Principal
Products
The
worldwide professional dental industry encompasses the diagnosis, treatment and
prevention of disease and ailments of the teeth, gums and supporting bone.
DENTSPLY's principal dental product categories are dental consumable products,
dental laboratory products and dental specialty products. These products are
produced by the Company in the U.S. and internationally and are distributed
throughout the world under some of the most well-established brand names and
trademarks in the industry, including ANKYLOS®, AQUASIL, AQUASIL
ULTRA, CALIBRA®, CAULK®, CAVITRON®, CERAMCO®, CERCON®, CITANEST®,
DELTON®, DENTSPLY®, DETREY®, DYRACT®, ECLIPSE®, ELEPHANT®, ESTHET.X®, FRIADENT®,
FRIALIT®, GENIE®, GOLDEN GATE®, IN-OVATION®, INTERACTIVE MYSTIQUE®, MAILLEFER®,
MIDWEST®, NUPRO®, ORAQIX®, PEPGEN P-15®, POLOCAINE®, PORTRAIT®, PRIME
& BOND®, PROFILE®, PROTAPER®, RINN®, R&R®, SANI-TIP®, SHADEPILOT™,
STYLUS™, SULTAN®, SUREFIL®, THERMAFIL®, TRUBYTE®, XENO®, XIVE®, XYLOCAINE®, and
ZHERMACK®.
Dental Consumable
Products
Dental
consumable products consist of dental sundries and small equipment used in
dental offices for the treatment of patients. Sales of dental consumable
products, excluding precious metal content, accounted for approximately 35%, 34%
and 35% of the Company’s consolidated net sales, excluding precious metal
content, for the years ended December 31, 2009, 2008 and 2007,
respectively.
DENTSPLY’s
dental sundry products in the dental consumable products category include dental
anesthetics, prophylaxis paste, dental sealants, impression materials,
restorative materials, tooth whiteners and topical fluoride. The Company
manufactures thousands of different dental sundry consumable products marketed
under more than one hundred brand names.
Small
equipment products in the dental consumable products category consist of various
durable goods used in dental offices for the treatment of patients. DENTSPLY’s
small equipment products include high and low speed handpieces, intraoral curing
light systems, dental diagnostic systems and ultrasonic scalers and
polishers.
Dental Laboratory
Products
Dental
laboratory products are used in the preparation of dental appliances by dental
laboratories. Net sales of dental laboratory products, excluding precious metal
content, accounted for approximately 17%, 18% and 19% of the Company’s
consolidated net sales, excluding precious metal content, for the years ended
December 31, 2009, 2008 and 2007, respectively.
DENTSPLY’s
products in the dental laboratory products category include dental prosthetics,
including artificial teeth, precious metal dental alloys, dental ceramics and
crown and bridge materials. Equipment in this category includes computer aided
machining (CAM) ceramic systems and porcelain furnaces.
Dental Specialty
Products
Dental
specialty products are specialized treatment products used within the dental
office and laboratory settings. Net sales of dental specialty products,
excluding precious metal content, accounted for approximately 45%, 45% and 43%
of the Company’s consolidated net sales, excluding precious metal content, for
the years ended December 31, 2009, 2008 and 2007, respectively. DENTSPLY’s
products in this category include endodontic (root canal) instruments and
materials, implants and related products, bone grafting materials, 3D digital
implantology and orthodontic appliances and accessories.
Markets,
Sales and Distribution
DENTSPLY
distributes approximately 56% of its dental products through domestic and
foreign distributors, dealers and importers. However, certain highly
technical products such as precious metal dental alloys, dental ceramics, crown
and bridge porcelain products, endodontic instruments and materials, orthodontic
appliances, implants, and bone substitute and grafting materials are sold
directly to the dental laboratory or dental professionals in some
markets. During 2009, 2008 and 2007, one customer, Henry Schein
Incorporated, a dental distributor, accounted for 11%, 11% and 12%,
respectively, of DENTSPLY’s consolidated net sales. No other single
customer represented ten percent or more of DENTSPLY’s consolidated net sales
during 2009, 2008 or 2007.
Reference
is made to the information about the Company's foreign and domestic operations
and export sales set forth in Note 4, Segment and Geographic Information, to the
consolidated financial statements in this Form 10-K.
Although
many of its sales are made to distributors, dealers and importers, DENTSPLY
focuses its marketing efforts on the dentists, dental hygienists, dental
assistants, dental laboratories and dental schools who are the end users of its
products. As part of this end-user “pull through” marketing approach,
DENTSPLY employs approximately 2,700 highly trained, product-specific sales and
technical staff to provide comprehensive marketing and service tailored to the
particular sales and technical support requirements of the distributors, dealers
and the end users. The Company conducts extensive distributor, dealer
and end-user marketing programs. Additionally, the Company trains
laboratory technicians, dental hygienists, dental assistants and dentists in the
proper use of its products and introduces them to the latest technological
developments at its educational courses located throughout the
world. The Company also maintains ongoing relationships with various
dental associations and recognized worldwide opinion leaders in the dental
field, although there is no assurance that these influential dental
professionals will continue to support the Company’s products.
DENTSPLY
believes that demand in a given geographic market for dental procedures and
products vary according to the stage of social, economic and technical
development of the particular market. Geographic markets for
DENTSPLY's dental products can be categorized into the following two stages of
development:
The U.S.,
Canada, Western Europe, Japan, Australia and certain other countries are highly
developed markets that demand the most advanced dental procedures and products
and have the highest level of expenditures for dental care. In these
markets, the focus of dental care is increasingly upon preventive care and
specialized dentistry. In addition to basic procedures, such as the
excavation and filling of cavities, tooth extraction and denture replacement,
dental professionals perform an increasing volume of preventive and cosmetic
procedures. These markets require varied and complex dental products,
utilize sophisticated diagnostic and imaging equipment, and demand high levels
of attention to protect against infection and patient
cross-contamination.
In
certain countries in Central America, South America, Eastern Europe, Pacific
Rim, Middle East and Africa, most dental care is often limited to the excavation
and filling of cavities and other restorative techniques, reflecting more modest
per capita expenditures for dental care. These markets demand diverse
products, such as high and low speed handpieces, restorative compounds,
finishing devices, custom restorative devices, basic surgical instruments,
bridgework and artificial teeth for dentures. However, there is also a portion
of the population in these markets that receive excellent dental care similar to
that received in developed countries and expect to receive the best dental care
available.
The
Company offers products and equipment for use in markets at both of these stages
of development. The Company believes that demand for more technically
advanced products will increase as each of these markets develop. The
Company also believes that its recognized brand names, high quality and
innovative products, technical support services and strong international
distribution capabilities position it well to take advantage of any
opportunities for growth in all of the markets that it serves.
The
Company believes that the market for its products will grow over the long-term
based on the following factors:
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Increasing worldwide
population.
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Growth of the population 65 or
older – The percentage of the U.S., European, Japanese and other regions
population over age 65 is expected to nearly double by the year
2030. In addition to having significant needs for dental care,
the elderly are well positioned to pay for the required procedures since
they control sizable amounts of discretionary
income.
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Natural teeth are being retained
longer – Individuals with natural teeth are much more likely to visit a
dentist in a given year than those without any natural teeth
remaining.
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The changing dental practice in
North America and Western Europe – Dentistry in North America and Western
Europe has been transformed from a profession primarily dealing with pain,
infections and tooth decay to one with increased emphasis on preventive
care and cosmetic dentistry.
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Per capita and discretionary
incomes are increasing in emerging nations – As personal incomes continue
to rise in the emerging nations of the Pacific Rim, CIS and Latin America,
healthcare, including dental services, are a growing
priority.
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The Company’s business is less
susceptible than other industries to general downturns in the economies in
which it operates. Many of the products the Company offers
relate to dental procedures that are considered necessary by patients
regardless of the economic environment. Dental specialty
products and products that support discretionary dental procedures are the
most susceptible to recessionary
conditions.
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Product
Development
Technological
innovation and successful product development are critical to strengthening the
Company’s prominent position in worldwide dental markets, maintaining its
leadership positions in product categories where it has a high market share and
increasing market share in product categories where gains are
possible. While many of DENTSPLY’s existing products undergo
evolutionary improvements, the Company also continues to successfully launch
innovative products that represent fundamental change.
New
advances in technology are also anticipated to have a significant influence on
future products in dentistry. As a result, the Company pursues
research and development initiatives to support this technological development,
including collaborations with external research institutions and dental
schools. Through its own internal research centers as well as through
its collaborations with external research institutions and dental schools, the
Company directly invested approximately $53.6 million, $52.3 million and $46.8
million for 2009, 2008 and 2007, respectively, in connection with the
development of new products, improvement of existing products and advances in
technology. The continued development of these areas is a critical
step in meeting the Company's strategic goal as a leader in defining the future
of dentistry.
In
addition to the direct investment in product development and improvement, the
Company also invests in these activities through acquisitions, by entering into
licensing agreements and by purchasing technologies developed by third
parties.
Acquisition
Activities
DENTSPLY
believes that the dental products industry continues to experience consolidation
with respect to both product manufacturing and distribution, although it
continues to be fragmented creating a number of acquisition
opportunities. In 2009, the Company made an additional earn-out
payment on an acquisition completed in 2007 and purchased a small sales and
marketing organization of 3D digital implantology products. The
Company made several acquisitions in 2008, including a 60% ownership in Zhermack
S.p.A., a dental consumables manufacturer and sales and marketing organization;
E.S. Holding N.V., a manufacturer and sales and marketing organization of dental
laboratory products; Dental Depot Lomberg B.V., a sales and marketing
organization of orthodontic products; and Apollonia & Fama Implant S.r.l., a
sales and marketing organization of dental implant products. The
Company also purchased an additional interest in Materialise Dental in
2008.
The
Company continues to view acquisitions as a key part of its growth
strategy. These acquisition activities are intended to supplement the
Company's core growth and assure ongoing expansion of its business, including
new technologies, additional products, and geographic breadth.
Operating
and Technical Expertise
DENTSPLY
believes that its manufacturing capabilities are important to its
success. The manufacturing process of the Company's products requires
substantial and varied technical expertise. Complex materials
technology and processes are necessary to manufacture the Company's
products. The Company continues to automate its global manufacturing
operations in order to remain a low cost producer.
Financing
DENTSPLY’s
cash, cash equivalents and short-term investments increased by $246.1 million
during the year ended December 31, 2009 to $450.4 million. DENTSPLY's
total long-term debt, including the current portion, at December 31, 2009 and
2008 was $453.7 million and $427.7 million, respectively, and the ratios of
long-term debt, including the current portion, to total capitalization were
19.2% and 20.5%. DENTSPLY defines total capitalization as the sum of
total long-term debt, including the current portion, plus total equity. The
Company’s long-term borrowings increased by a net of $26.0 million during the
year ended December 31, 2009. This net change included a net increase in
borrowings of $30.2 million during the year ended 2009, less a decrease of $4.2
million due to exchange rate fluctuations on debt denominated in foreign
currencies. The Company may incur additional debt in the future,
including, but not limited to, the funding of additional acquisitions and
capital expenditures.
Additional
information about DENTSPLY's working capital, liquidity and capital resources is
provided in “Management's Discussion and Analysis of Financial Condition and
Results of Operations” in this Form 10-K.
Competition
The
Company conducts its operations, both domestic and foreign, under highly
competitive market conditions. Competition in the dental products
industry is based primarily upon product performance, quality, safety and ease
of use, as well as price, customer service, innovation and acceptance by
professionals and technicians. DENTSPLY believes that its principal
strengths include its well-established brand names, its reputation for high
quality and innovative products, its leadership in product development and
manufacturing, its commitment to customer satisfaction and support of the
Company’s products by dental professionals.
The size
and number of the Company's competitors vary by product line and from region to
region. There are many companies that produce some, but not all, of
the same types of products as those produced by the Company.
Regulation
The
Company's products are subject to regulation by, among other governmental
entities, the U.S. Food and Drug Administration (the “FDA”). In
general, if a dental “device” is subject to FDA regulation, compliance with the
FDA's requirements constitutes compliance with corresponding state
regulations. In order to ensure that dental products distributed for
human use in the U.S. are safe and effective, the FDA regulates the
introduction, manufacture, advertising, labeling, packaging, marketing and
distribution of, and record-keeping for, such products. The
introduction and sale of dental products of the types produced by the Company
are also subject to government regulation in the various foreign countries in
which they are produced or sold. DENTSPLY believes that it is in
substantial compliance with the FDA and foreign regulatory requirements that are
applicable to its products and manufacturing operations.
Dental
devices of the types sold by DENTSPLY are generally classified by the FDA into a
category that renders them subject only to general controls that apply to all
medical devices, including regulations regarding alteration, misbranding,
notification, record-keeping and good manufacturing practices. In the
European Union, DENTSPLY's products are subject to the medical devices laws of
the various member states, which are based on a Directive of the European
Commission. Such laws generally regulate the safety of the products
in a similar way to the FDA regulations. DENTSPLY products in Europe
bear the CE mark showing that such products adhere to the European
regulations.
All
dental amalgam filling materials, including those manufactured and sold by
DENTSPLY, contain mercury. Various groups have alleged that dental
amalgam containing mercury is harmful to human health and have actively lobbied
state and federal lawmakers and regulators to pass laws or adopt regulatory
changes restricting the use, or requiring a warning against alleged potential
risks, of dental amalgams. The FDA's Dental Devices Classification
Panel, the National Institutes of Health and the U.S. Public Health Service have
each indicated that no direct hazard to humans from exposure to dental amalgams
has been demonstrated. In response to concerns raised by certain
consumer groups regarding dental amalgam, the FDA formed an advisory committee
in 2006 to review peer-reviewed scientific literature on the safety of dental
amalgam. In July 2009, the FDA concluded its review of dental
amalgam, confirming its use as a safe and effective restorative
material. Also, as a result of this review, the FDA classified
amalgam and its component parts, elemental mercury and powder alloy, as a Class
II medical device. Previously there was no classification for
encapsulated amalgam and dental mercury (Class I) and alloy (Class II) were
classified separately. This new regulation places encapsulated
amalgam in the same class of devices as most other restorative materials,
including composite and gold fillings.
In
Europe, particularly in Scandinavia and Germany, the contents of mercury in
amalgam filling materials have been the subject of public
discussion. As a consequence, in 1994 the German health authorities
required suppliers of dental amalgam to amend the instructions for use for
amalgam filling materials to include a precaution against the use of amalgam for
children less than eighteen years of age and to women of childbearing
age. Additionally, some groups have asserted that the use of dental
amalgam should be prohibited because of concerns about environmental impact from
the disposition of mercury within dental amalgam, which has resulted in the sale
of mercury containing products being banned in Sweden and severely curtailed in
Norway. DENTSPLY also manufactures and sells non-amalgam dental
filling materials that do not contain mercury.
Sources
and Supply of Raw Materials and Finished Goods
The
Company manufactures the majority of the products sold by the
Company. All of the raw materials used by the Company in the
manufacture of its products are purchased from various suppliers and are
typically available from numerous sources. No single supplier
accounts for a significant percentage of DENTSPLY's raw material
requirements. In addition to those products both manufactured and
sold by the Company, some finished goods products sold by the Company are
purchased from third party suppliers. Of these finished goods
products purchased from third party suppliers, a significant portion of the
Company’s injectable anesthetic products, orthodontic products and dental
cutting instruments are purchased from a limited number of
suppliers.
Intellectual
Property
Products
manufactured by DENTSPLY are sold primarily under its own trademarks and trade
names. DENTSPLY also owns and maintains more than 2,000 patents
throughout the world and is licensed under a small number of patents owned by
others.
DENTSPLY's
policy is to protect its products and technology through patents and trademark
registrations in the U.S. and in significant international markets for its
products. The Company carefully monitors trademark use worldwide and
promotes enforcement of its patents and trademarks in a manner that is designed
to balance the cost of such protection against obtaining the greatest value for
the Company. DENTSPLY believes its patents and trademark properties
are important and contribute to the Company's marketing position but it does not
consider its overall business to be materially dependent upon any individual
patent or trademark.
Employees
As of
December 31, 2009, the Company and its subsidiaries employed approximately 9,300
employees. A small percentage of the Company's U. S. employees are
represented by labor unions. A facility in Des Plaines, Illinois is
represented by the International Association of Machinists and Aerospace Workers
AFL-CIO, under a collective bargaining agreement that expires on May 31,
2012. Additionally, the Company’s Ransom & Randolph facility in
Maumee, Ohio is represented by Local No. 12 of the International Union, United
Automobile, Aerospace and Agriculture Implement Workers of America under a
collective bargaining agreement that expires on January 31, 2012. In
Germany, approximately 45% of DeguDent employees, approximately 30% of Friadent
employees, approximately 23% of VDW employees and approximately 30% of DeTrey
employees are represented by labor unions. The Company provides
pension and postretirement benefits to many of its employees (see Note 13,
Benefits Plans, to the consolidated financial statements). The
Company believes that its relationship with its employees is good.
Environmental
Matters
DENTSPLY
believes that its operations comply in all material respects with applicable
environmental laws and regulations. Maintaining this level of
compliance has not had, and is not expected to have, a material effect on the
Company's capital expenditures or on its business.
Other
Factors Affecting the Business
The
Company’s business is subject to quarterly fluctuations of net sales and
operating profits. The Company typically implements most of its price
changes early in the fourth quarter or beginning of the year. Price
changes, other marketing and promotional programs as well as the management of
inventory levels by distributors and the implementation of strategic
initiatives, may impact sales levels in a given period. Sales for the
industry and the Company are generally strongest in the second and fourth
calendar quarters and weaker in the first and third calendar quarters, due to
the effects of the items noted above and due to the impact of summer holidays
and vacations, particularly throughout Europe.
Securities
and Exchange Act Reports
DENTSPLY
makes available free of charge through its website at www.DENTSPLY.com its
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and amendments to these reports filed or furnished pursuant to Section
13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably
practicable after such materials are filed with or furnished to, the Securities
and Exchange Commission (“SEC”).
The
public may read and copy any materials the Company files with the SEC at its
Public Reference Room at the following address:
The
Securities and Exchange Commission
100 F
Street, NE
Washington,
D.C. 20549
The
public may obtain information on the operation of this Public Reference Room by
calling the SEC at 1-800-SEC-0330. In addition, since the Company is
an electronic filer, the public may access reports, the proxy and information
statements and other information filed or furnished by the Company at the
Internet site maintained by the SEC (http://www.sec.gov).
Item
1A. Risk Factors
Following
are the significant risk factors that could materially impact DENTSPLY’s
business, financial condition or future results. The order in which
these factors appear should not be construed to indicate its relative importance
or priority.
Negative
changes could occur in the dental markets, the general economic environments, or
government reimbursement or regulatory programs of the regions in which the
Company operates.
The
success of the Company is largely dependent upon the continued strength of
dental markets and is also somewhat dependent upon the general economic
environments of the regions in which it operates. Negative changes to
these markets and economies could materially impact the Company's results of
operations and financial condition. In addition, many of the
Company's markets are affected by government reimbursement and regulatory
programs. In certain markets, particularly in the European Union,
government and regulatory programs have a more significant impact than other
markets. Changes to these programs could have a positive or negative
impact on the Company's results.
Prolonged
negative economic conditions in domestic and global markets may adversely affect
the Company’s suppliers, customers and consumers, which could harm the Company’s
financial position.
Prolonged
negative changes in domestic and global economic conditions or disruptions of
either or both of the financial and credit markets may affect the Company’s
supply chain and the customers and consumers of the Company’s products and may
have a material adverse effect on the Company’s results of operations, financial
condition and liquidity.
Due
to the Company’s international operations, the Company is exposed to the risk of
changes in interest and foreign exchange rates.
DENTSPLY,
with its significant international operations, is subject to fluctuations in
exchange rates of various foreign currencies and other risks associated with
foreign trade and the impact of currency fluctuations in any given period can be
favorable or unfavorable. The Company’s balance sheet includes debt
and net investment hedges that are sensitive to movements in interest and
foreign exchange rates. Changes in interest rates and foreign
exchange rates may have an adverse effect on the Company’s results of
operations, financial condition and liquidity.
Volatility
in the capital markets or investment vehicles could limit the Company’s ability
to access capital or could raise the cost of capital.
Although
the Company has had continued positive operating cash flow, a disruption in the
credit markets may reduce sources of liquidity available to the
Company. The Company relies on multiple financial institutions to
provide funding pursuant to existing and/or future credit agreements, and those
institutions may not be able to provide funding in a timely manner, or at all,
when the Company requires it. The cost of or lack of available credit
could impact the Company’s ability to develop sufficient liquidity to maintain
or grow the Company, which in turn may adversely affect the Company’s
businesses and results of operations, financial condition and
liquidity.
The
Company also manages cash and cash equivalents and short-term investments
through various institutions. There may be a risk of loss on
investments based on the volatility of the underlying instruments that will not
allow the Company to recover the full principal of its investments.
The
market price for the Company’s common stock may be volatile.
DENTSPLY
experiences fluctuations in quarterly sales and earnings. As a
result, the Company may fail to meet or exceed the expectations of securities
analysts and investors, which could cause its stock price to
decline. The Company’s business is subject to quarterly fluctuations
with net sales and operating profits historically being higher in the second and
fourth quarters. The Company typically implements most of its price
changes early in the fourth quarter or beginning of the year. These
price changes, other marketing and promotional programs, which are offered to
customers from time to time in the ordinary course of business, the management
of inventory levels by distributors and the implementation of strategic
initiatives, may impact sales levels in a given period. Net sales and
operating profits generally have been lower in the first and third quarters,
primarily due not only to increased sales in the quarters preceding the first
and third quarters, but also due to the impact of summer holidays and vacations,
particularly throughout Europe.
In
addition to fluctuations in quarterly earnings, a variety of other factors may
have a significant impact on the market price of DENTSPLY’s common stock causing
volatility. These factors include, but are not necessarily limited
to, the publication of earnings estimates or other research reports and
speculation in the press or investment community; changes in the Company’s
industry and competitors; the Company’s financial condition and cash flows; any
future issuances of DENTSPLY’s common stock, which may include primary offerings
for cash, stock splits, issuances in connection with business acquisitions,
restricted stock and the grant or exercise of stock options from time to time;
general market and economic conditions; and any outbreak or escalation of
hostilities in geographical areas the Company does business.
Also, the
NASDAQ National Market can experience extreme price and volume fluctuations that
can be unrelated or disproportionate to the operating performance of the
companies listed on the NASDAQ. Broad market and industry factors may
negatively affect the market price of the Company’s common stock, regardless of
actual operating performance. In the past, following periods of
volatility in the market price of a company’s securities, securities class
action litigation has often been instituted against companies. This
type of litigation, if instituted, could result in substantial costs and a
diversion of management’s attention and resources, which could harm the
Company’s business.
The
dental supplies market is highly competitive, and there is no guarantee that the
Company can compete successfully.
The
worldwide market for dental supplies is highly competitive. There can
be no assurance that the Company will successfully identify new product
opportunities and develop and market new products successfully, or that new
products and technologies introduced by competitors will not render the
Company's products obsolete or noncompetitive. Additionally, the size
and number of the Company's competitors vary by product line and from region to
region. There are many companies that produce some, but not all, of
the same types of products as those produced by the Company. Certain
of DENTSPLY's competitors may have greater resources than does the
Company.
The
Company may be unable to develop innovative products or obtain regulatory
approval for new products.
DENTSPLY
has identified new products as an important part of its growth
opportunities. There can be no assurance that DENTSPLY will be able
to continue to develop innovative products and that regulatory approval of any
new products will be obtained, or that if such approvals are obtained, such
products will be favorably accepted in the marketplace. Additionally,
there is no assurance that entirely new technology or approaches to dental
treatment or competitors’ new products will not be introduced that could render
the Company's products obsolete.
The
Company may fail to comply with regulations issued by the FDA and similar
foreign regulatory agencies.
DENTSPLY's
business is subject to periodic review and inspection by the FDA and similar
foreign authorities to monitor DENTSPLY's compliance with the regulations
administered by such authorities. There can be no assurance that
these authorities will not raise compliance concerns. Failure to
satisfy any such requirements can result in governmental enforcement actions,
including possible product seizure, injunction and/or criminal or civil
proceedings.
Challenges
may be asserted against the Company’s dental amalgam product.
All
dental amalgam filling materials, including those manufactured and sold by
DENTSPLY, contain mercury. Some groups have
asserted that amalgam should be discontinued because of its mercury content
and/or that disposal of mercury containing products may be harmful to the
environment. If governmental authorities elect to place restrictions
or significant regulations on the sale and/or disposal of dental amalgam, that
could have an adverse impact on the Company’s sales of dental
amalgam.
The
Company may be unable to obtain a supply for certain finished goods purchased
from third parties.
A
significant portion of the Company’s injectable anesthetic products, orthodontic
products, dental cutting instruments and certain other products and raw
materials are purchased from a limited number of suppliers. As there
are a limited number of suppliers for these products, there can be no assurance
that the Company will be able to obtain an adequate supply of these products and
raw materials in the future.
The
Company’s expansion through acquisition involves risks and may not result in the
expected benefits.
The
Company continues to view acquisitions as a key part of its growth
strategy. The Company continues to be active in evaluating potential
acquisitions although there is no assurance that these efforts will result in
completed transactions as there are many factors that affect the success of such
activities. If the Company does succeed in acquiring a business or
product, there can be no assurance that the Company will achieve any of the
benefits that it might anticipate from such an acquisition and the attention and
effort devoted to the integration of an acquired business could divert
management’s attention from normal business operations. If the
Company makes acquisitions, it may incur debt, assume contingent liabilities or
create additional expenses, any of which might adversely affect its financial
results. Any financing that the Company might need for acquisitions
may only be available to it on terms that restrict its business or that impose
additional costs that reduce its operating results.
Changes
in, or interpretations of, accounting principles could result in unfavorable
accounting charges.
The
Company prepares its consolidated financial statements in accordance with US
GAAP. These principles are subject to interpretation by the SEC and
various bodies formed to interpret and create appropriate accounting
principles. Market conditions have prompted accounting standard
setters to issue new guidance which further interprets or seeks to revise
accounting pronouncements related to financial instruments, structures or
transactions as well as to issue new standards expanding
disclosures. It is possible that future accounting standards the
Company is required to adopt could change the current accounting treatment
applied to the consolidated financial statements and that such changes could
have a material adverse effect on the Company’s business, results of operations,
financial condition and liquidity.
If
the Company’s goodwill or amortizable intangible assets become impaired, the
Company may be required to record a significant charge to earnings.
Under US
GAAP, the Company reviews its goodwill and amortizable intangible assets for
impairment when events or changes in circumstances indicate the carrying value
may not be recoverable. Additionally, goodwill is required to be
tested for impairment at least annually. The valuations used to determine the
fair values used to test goodwill or amortizable intangible assets are dependent
upon various assumptions and reflect management’s best estimates. Net
sales growth, discount rates, earnings multiples and future cash flows are
critical assumptions used to determine these fair values. Slower net
sales growth rates in the dental industry, an increase in discount
rates, unfavorable changes in earnings multiples or a decline in
future cash flows, among other factors, may cause a change in circumstances
indicating that the carrying value of the Company’s goodwill or amortizable
intangible assets may not be recoverable. The Company may be required to record
a significant charge to earnings in the financial statements during the period
in which any impairment of the Company’s goodwill or amortizable intangible
assets is determined.
Changes
in, or interpretations of, tax rules, structures, country profitability mix and
regulations may adversely affect the Company’s effective tax rates.
The
Company is a U.S. based multinational company subject to tax in multiple U.S.
and foreign tax jurisdictions. Unanticipated changes in the Company’s
tax rates could affect its future results of operations. The
Company’s future effective tax rates could be unfavorably affected by changes
in, or interpretation of, tax rules and regulations in the jurisdictions in
which the Company does business, by structural changes in the Company’s
businesses, by unanticipated decreases in the amount of revenue or earnings in
countries with low statutory tax rates, by lapses of the availability of the
U.S. research and development tax credit, or by changes in the valuation of the
Company’s deferred tax assets and liabilities.
The
Company faces the inherent risk of litigation.
The
Company’s business involves a risk of product liability and other types of
claims, and from time to time the Company is named as a defendant in certain
cases. The primary risks to which the Company is exposed are related
to those products manufactured by the Company. The Company has
insurance policies, including product liability insurance, covering these risks
in amounts that are considered adequate; however, the Company cannot provide
assurance that the maintained coverage is sufficient to cover future claims or
that the coverage will be available in adequate amounts or at a reasonable
cost. Also, other types of claims asserted against the Company may
not be covered by insurance. A successful claim brought against the
Company in excess of available insurance, or another type of claim which is
uninsured or that results in significant adverse publicity against the Company,
could harm its business and overall cash flows of the Company.
Various
parties, including the Company, own and maintain patents and other intellectual
property rights applicable to the dental field. Although the Company
believes it operates in a manner that does not infringe upon any third party
intellectual property rights, it is possible that a party could assert that one
or more of the Company’s products infringe upon such party’s intellectual
property and force the Company to pay damages and/or discontinue the sale of
certain products.
The Company's success is dependent
upon its management and employees.
The
Company's success is dependent upon its management and employees. The
loss of senior management employees or any failure to recruit and train needed
managerial, sales and technical personnel, could have a material adverse effect
on the Company.
The
Company may be unable to sustain the operational and technical expertise that is
key to its success.
DENTSPLY
believes that its manufacturing capabilities are important to its
success. The manufacture of the Company's products requires
substantial and varied technical expertise. Complex materials
technology and processes are necessary to manufacture the Company's
products. There can be no assurance that the Company will be able to
maintain the necessary operational and technical expertise that is key to its
success.
The
Company may not generate sufficient cash flow to service its debt, pay its
contractual obligations and operate the business.
DENTSPLY's
ability to make payments on its indebtedness and contractual obligations, and to
fund its operations depends on its future performance and financial results,
which, to a certain extent, are subject to general economic, financial,
competitive, regulatory and other factors and the interest rate environment that
are beyond its control. Although Management believes that the Company
has and will continue to have sufficient liquidity, there can be no assurance
that DENTSPLY's business will generate sufficient cash flow from operations in
the future to service its debt, pay its contractual obligations and operate its
business.
The
Company may not be able to repay its outstanding debt in the event that cross
default provisions are triggered due to a breach of loan covenants.
DENTSPLY's
existing borrowing documentation contains a number of covenants and financial
ratios, which it is required to satisfy. The most restrictive of
these covenants pertain to asset dispositions, maintenance of certain levels of
net worth, and prescribed ratios of indebtedness to total capital and operating
income excluding depreciation and amortization of interest
expense. Any breach of any such covenants or restrictions would
result in a default under the existing borrowing documentation that would permit
the lenders to declare all borrowings under such documentation to be immediately
due and payable and, through cross default provisions, would entitle DENTSPLY's
other lenders to accelerate their loans. DENTSPLY may not be able to
meet its obligations under its outstanding indebtedness in the event that any
cross default provision is triggered.
Certain
provisions in the Company’s governing documents may discourage third party
offers to acquire DENTSPLY that might otherwise result in the Company’s
stockholders receiving a premium over the market price of their
shares.
Certain
provisions of DENTSPLY's Certificate of Incorporation and By-laws and of
Delaware law could have the effect of making it difficult for a third party to
acquire control of DENTSPLY. Such provisions include the division of
the Board of Directors of DENTSPLY into three classes, with the three-year term
of a class expiring each year, a provision allowing the Board of Directors to
issue preferred stock having rights senior to those of the common stock and
certain procedural requirements which make it difficult for stockholders to
amend DENTSPLY's By-laws and call special meetings of
stockholders. In addition, members of DENTSPLY's management and
participants in its Employee Stock Ownership Plan (“ESOP”) collectively own
approximately 4% of the outstanding common stock of DENTSPLY.
Issues
related to the quality and safety of the Company’s products, ingredients or
packaging could cause a product recall resulting in harm to the Company’s
reputation and negatively impacting the Company’s operating
results.
The
Company’s products generally maintain a good reputation with customers and end
users. Issues related to quality and safety of products,
ingredients or packaging, could jeopardize the Company’s image and
reputation. Negative publicity related to these types of concerns,
whether valid or not, might negatively impact demand for the Company’s products,
or cause production and delivery disruptions. The Company may need to
recall products if they become unfit for use. In addition, the
Company could potentially be subject to litigation or government action, which
could result in payment of fines or damages. Cost associated with
these potential actions could negatively affect the Company’s operating results,
financial condition and liquidity.
Item 1B.
|
Unresolved Staff
Comments
|
None
Item
2. Properties
The
following is a listing of DENTSPLY's principal manufacturing and distribution
locations as of December 31, 2009:
Location
|
|
Function
|
|
Leased
or
Owned
|
|
|
|
|
|
United
States:
|
|
|
|
|
Milford,
Delaware (1)
|
|
Manufacture
of dental consumable products
|
|
Owned
|
|
|
|
|
|
Bradenton,
Florida (3)
|
|
Manufacture
of orthodontic accessory products
|
|
Leased
|
|
|
|
|
|
Baldwin,
Georgia (3)
|
|
Manufacture
of orthodontic accessory products
|
|
Leased
|
|
|
|
|
|
Des
Plaines, Illinois (1)
|
|
Manufacture
and assembly of dental handpieces
|
|
Leased
|
|
|
|
|
|
Elgin,
Illinois (1)
|
|
Manufacture
of dental x-ray film holders, film mounts and accessories
|
|
Owned/Leased
|
|
|
|
|
|
Bohemia,
New York (3)
|
|
Manufacture
and distribution of orthodontic products and materials
|
|
Leased
|
|
|
|
|
|
Maumee,
Ohio (4)
|
|
Manufacture
and distribution of investment casting products
|
|
Owned
|
|
|
|
|
|
Lancaster,
Pennsylvania (5)
|
|
Distribution
of dental products
|
|
Leased
|
|
|
|
|
|
York,
Pennsylvania (4)
|
|
Manufacture
and distribution of artificial teeth and other dental laboratory
products
|
|
Owned
|
|
|
|
|
|
York,
Pennsylvania (1)
|
|
Manufacture
of small dental equipment, bone grafting products, and preventive dental
products
|
|
Owned
|
|
|
|
|
|
Johnson
City, Tennessee (3)
|
|
Manufacture
and distribution of endodontic instruments and materials
|
|
Leased
|
|
|
|
|
|
Foreign:
|
|
|
|
|
Beringen,
Belgium (4)
|
|
Manufacture
and distribution of dental products
|
|
Owned/Leased
|
|
|
|
|
|
Leuven,
Belgium (4)
|
|
Manufacture
and distribution of 3D digital implantology
|
|
Leased
|
|
|
|
|
|
Catanduva,
Brazil (3)
|
|
Manufacture
and distribution of dental anesthetic products
|
|
Owned
|
|
|
|
|
|
Petropolis,
Brazil (3)
|
|
Manufacture
and distribution of artificial teeth and dental consumable
products
|
|
Owned
|
|
|
|
|
|
Shanghai,
China (4)
|
|
Manufacture
and distribution of dental products
|
|
Leased
|
|
|
|
|
|
Tianjin,
China (2)
|
|
Manufacture
and distribution of dental products
|
|
Leased
|
|
|
|
|
|
Ivry
Sur-Seine, France (2)
|
|
Manufacture and
distribution of investment casting products
|
|
Leased
|
|
|
|
|
|
Bohmte,
Germany (4)
|
|
Manufacture
and distribution of dental laboratory products
|
|
Owned
|
Hanau,
Germany (4)
|
|
Manufacture
and distribution of precious metal dental
|
|
Owned
|
|
|
alloys,
dental ceramics and dental implant products
|
|
|
|
|
|
|
|
Konstanz,
Germany (1)
|
|
Manufacture
and distribution of dental consumable
|
|
Owned
|
|
|
products
|
|
|
|
|
|
|
|
Mannheim,
Germany (4)
|
|
Manufacture
and distribution of dental
|
|
Owned/Leased
|
|
|
implant
products
|
|
|
|
|
|
|
|
Munich,
Germany (3)
|
|
Manufacture
and distribution of endodontic
|
|
Owned
|
|
|
instruments
and materials
|
|
|
|
|
|
|
|
Radolfzell,
Germany (5)
|
|
Distribution
of dental products
|
|
Leased
|
|
|
|
|
|
Rosbach,
Germany (4)
|
|
Manufacture
and distribution of dental ceramics
|
|
Owned
|
|
|
|
|
|
Badia
Polesine, Italy (1)
|
|
Manufacture
and distribution of dental consumable
|
|
Owned/Leased
|
|
|
products
|
|
|
|
|
|
|
|
Nasu,
Japan (2)
|
|
Manufacture
and distribution of precious metal dental
|
|
Owned
|
|
|
alloys,
dental consumable products and orthodontic
|
|
|
|
|
products
|
|
|
|
|
|
|
|
Hoorn,
Netherlands (4)
|
|
Manufacture
and distribution of precious metal
|
|
Owned
|
|
|
dental
alloys and dental ceramics
|
|
|
|
|
|
|
|
HA
Soest, Netherlands (3)
|
|
Distribution
of orthodontic products
|
|
Leased
|
|
|
|
|
|
Warsaw,
Poland (1)
|
|
Manufacture
and distribution of dental consumable
|
|
Owned
|
|
|
products
|
|
|
|
|
|
|
|
Las
Piedras, Puerto Rico (4)
|
|
Manufacture
of crown and bridge materials
|
|
Owned
|
|
|
|
|
|
Ballaigues,
Switzerland (3)
|
|
Manufacture
and distribution of endodontic
|
|
Owned
|
|
|
instruments,
plastic components and packaging material
|
|
|
|
|
|
|
|
Le
Creux, Switzerland (3)
|
|
Manufacture
and distribution of endodontic
instruments
|
|
Owned
|
(1)
|
These
properties are included in the U. S., Germany, and Certain Other European
Regions Consumable Businesses
segment.
|
(2)
|
These
properties are included in the France, U.K., Italy and Certain Other
European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
segment.
|
(3)
|
These
properties are included in the Canada/Latin
America/Endodontics/Orthodontics
segment.
|
(4)
|
These
properties are included in the Dental Laboratory
Business/Implants/Non-Dental
segment.
|
(5)
|
This
property is a distribution warehouse not managed by named
segments.
|
In
addition, the Company maintains sales and distribution offices at certain of its
foreign and domestic manufacturing facilities, as well as at various other U.S.
and international locations. The Company maintains offices in
Toronto, Mexico City, Paris, Rome, Weybridge, Hong Kong and Melbourne and other
international locations. Most of these sites around the world that
are used exclusively for sales and distribution are leased.
The
Company also owns its corporate headquarters located in York,
Pennsylvania.
DENTSPLY
believes that its properties and facilities are well maintained and are
generally suitable and adequate for the purposes for which they are
used.
Item
3. Legal Proceedings
Incorporated
by reference to Part II, Item 8, Note 17, Commitments and Contingencies, to the
Consolidated Financial Statements.
Item
4. Submission of Matters to a Vote of Security Holders
Not
applicable.
Executive
Officers of the Registrant
The
following table sets forth certain information regarding the executive officers
of the Company as of February 22, 2010.
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Bret
W. Wise
|
|
49
|
|
Chairman
of the Board and Chief Executive Officer
|
Christopher
T. Clark
|
|
48
|
|
President
and Chief Operating Officer
|
William
R. Jellison
|
|
52
|
|
Senior
Vice President and Chief Financial Officer
|
James
G. Mosch
|
|
52
|
|
Executive
Vice President
|
Robert
J. Size
|
|
51
|
|
Senior
Vice President
|
Albert
J. Sterkenburg
|
|
46
|
|
Senior
Vice President
|
Brian
M. Addison
|
|
55
|
|
Vice
President, Secretary and General
Counsel
|
Bret W.
Wise has served as Chairman of the Board and Chief Executive Officer of the
Company since January 1, 2007 and also served as President in 2007 and
2008. Prior to that time, Mr. Wise served as President and Chief
Operating Officer in 2006, as Executive Vice President in 2005 and Senior Vice
President and Chief Financial Officer from December 2002 through December
2004. Prior to that time, Mr. Wise was Senior Vice President and
Chief Financial Officer with Ferro Corporation of Cleveland, OH (1999 -
2002), Vice President and Chief Financial Officer at WCI Steel, Inc.,
of Warren, OH, (1994 - 1999) and prior to that he was a partner with
KPMG LLP. Mr. Wise is a Certified Public Accountant.
Christopher
T. Clark has served as Chief Operating Officer of the Company since January 1,
2007, also serving as President since January 1, 2009 and as Executive Vice
President in 2007 and 2008. Prior to that time, Mr. Clark served as
Senior Vice President (2003 - 2005), as Vice President and General Manager of
DENTSPLY’s global imaging business (1999 - 2002), as Vice President and General
Manager of the Prosthetics Division (1996 - 1999), and as Director of Marketing
of DENTSPLY’S Prosthetics Division (1992 - 1996). Prior to
September 1992, Mr. Clark held various brand management positions with Proctor
& Gamble.
William
R. Jellison has served as Senior Vice President and Chief Financial Officer of
the Company since January 2005, a position he also held from April 1998 until
November 2002. From November 2002 until January 2005, Mr. Jellison
served as a Senior Vice President with operating
responsibilities. Prior to April 1998, Mr. Jellison held various
financial management positions including Vice President of Finance, Treasurer
and Corporate Controller for Donnelly Corporation of Holland, Michigan since
1980. Mr. Jellison is a Certified Management Accountant.
James G.
Mosch has served as Executive Vice President since January 1, 2009, and prior to
that as Senior Vice President since 2003. Prior to that, Mr. Mosch
served as Vice President and General Manager of DENTSPLY’s Professional
division, beginning in July 1994 when, he started with the
Company. Prior to 1994, Mr. Mosch served in general management and
marketing positions with Baxter International and American Hospital Supply
Corporation.
Robert J.
Size has served as Senior Vice President since January 1, 2007. Prior
to that, Mr. Size served as a Vice President (2006) and as Vice President and
General Manager of DENTSPLY’s Caulk division beginning June 2003 through
December 31, 2005. Prior to that time, he was the Chief Executive
Officer and President of Superior MicroPowders and held various cross-functional
and international leadership positions with The Cookson Group.
Albert J.
Sterkenburg, D.D.S. has served as Senior Vice President since January 1,
2009. Prior to that, Dr. Sterkenburg served as Vice President (2006 -
2009), Vice President and General Manager of the DeguDent division (2003 - 2006)
and Vice President and General Manger of the VDW division beginning in
2000. Prior to that time, he served in marketing and general
management roles at Johnson & Johnson.
Brian M.
Addison has served as Vice President, Secretary and General Counsel of the
Company since January 1, 1998. Prior to that, he was Assistant
Secretary and Corporate Counsel beginning in December 1994. Prior to
that he was a Partner at the Harrisburg, Pennsylvania law firm of McNees,
Wallace & Nurick, and prior to that he was Senior Counsel at Hershey Foods
Corporation.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
The
information set forth under the caption “Supplemental Stock Information” is
filed as part of this Form 10-K.
The Board
of Directors has authorized the Company to repurchase shares under its stock
repurchase program in an amount up to 17,000,000 shares of treasury
stock. The table below contains certain information with respect to
the repurchase of shares of the Company's common stock during the quarter ended
December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
|
|
|
May be Purchased
|
|
|
|
Total Number
|
|
|
Average Price
|
|
|
Total Cost
|
|
|
Under the Share
|
|
|
|
of Shares
|
|
|
Paid Per
|
|
|
of Shares
|
|
|
Repurchase
|
|
Period
|
|
Purchased
|
|
|
Share
|
|
|
Purchased
|
|
|
Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October
1-31, 2009
|
|
|
76.3 |
|
|
$ |
33.01 |
|
|
$ |
2,518.7 |
|
|
|
2,651.4 |
|
November
1-30, 2009
|
|
|
1,652.9 |
|
|
|
33.24 |
|
|
|
54,946.6 |
|
|
|
1,329.4 |
|
December
1-31, 2009
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,185.6 |
|
|
|
|
1,729.2 |
|
|
$ |
33.23 |
|
|
$ |
57,465.3 |
|
|
|
|
|
Performance
Graph
The following graph compares the
Company’s cumulative total stockholder return (Common Stock price appreciation
plus dividends, on a reinvested basis) over the last five fiscal years with the
NASDAQ Composite Index, the Standard & Poor’s S&P 500 Index and the
Standard & Poor’s S&P Health Care Index.
|
|
|
12/04 |
|
|
|
12/05 |
|
|
|
12/06 |
|
|
|
12/07 |
|
|
|
12/08 |
|
|
|
12/09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENTSPLY
International Inc
|
|
|
100.00 |
|
|
|
95.97 |
|
|
|
107.24 |
|
|
|
162.42 |
|
|
|
102.43 |
|
|
|
128.40 |
|
NASDAQ
Composite
|
|
|
100.00 |
|
|
|
101.33 |
|
|
|
114.01 |
|
|
|
123.71 |
|
|
|
73.11 |
|
|
|
105.61 |
|
S&P
500
|
|
|
100.00 |
|
|
|
104.91 |
|
|
|
121.48 |
|
|
|
128.16 |
|
|
|
80.74 |
|
|
|
102.11 |
|
S&P
Health Care
|
|
|
100.00 |
|
|
|
106.46 |
|
|
|
114.48 |
|
|
|
122.67 |
|
|
|
94.69 |
|
|
|
113.34 |
|
Item
6. Selected Financial Data
The
information set forth under the caption “Selected Financial Data” is filed as
part of this Form 10-K.
Item
7. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
The
information set forth under the caption “Management’s Discussion and Analysis of
Financial Condition and Results of Operations” is filed as part of this Form
10-K.
Item
7A. Quantitative and Qualitative Disclosure about Market
Risk
The
information set forth under the caption “Quantitative and Qualitative Disclosure
about Market Risk” is filed as part of this Form 10-K.
Item
8. Financial Statements and Supplementary Data
The
information set forth under the captions “Management’s Report on Internal
Control Over Financial Reporting,” “Report of Independent Registered Public
Accounting Firm,” “Consolidated Statements of Operations,” “Consolidated Balance
Sheets,” “Consolidated Statements of Equity and Comprehensive Income,”
“Consolidated Statements of Cash Flows,” and “Notes to Consolidated Financial
Statements” is filed as part of this Form 10-K.
Item
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not
applicable.
Item
9A. Controls and Procedures
(a) Conclusion Regarding the Effectiveness
of Disclosure Controls and Procedures
The
Company’s management, with the participation of the Company’s Chief Executive
Officer and Chief Financial Officer, evaluated the effectiveness of the
Company’s disclosure controls and procedures as of the end of the period covered
by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended) as of the end of the period covered by this
report were effective to provide reasonable assurance that the information
required to be disclosed by the Company in reports filed under the Securities
Exchange Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and that it is accumulated
and communicated to management, including the Chief Executive Officer and Chief
Financial Officer, as appropriate to allow timely decisions regarding required
disclosure.
(b)
Management’s Report on Internal Control Over Financial Reporting
Management’s
report on the Company’s internal control over financial reporting is included
under Item 15(a)(1) of this Form 10-K.
(c)
Changes in Internal Control Over Financial Reporting
There
have been no changes in the Company’s internal control over financial reporting
that occurred during the quarter ended December 31, 2009 that have materially
affected, or are likely to materially affect, its internal control over
financial reporting.
Item
9B. Other Information
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate
Governance
The
information (i) set forth under the caption “Executive Officers of the
Registrant” in Part I of this Form 10-K and (ii) set forth under the captions
“Election of Directors” and “Section 16(a) Beneficial Ownership Reporting
Compliance” in the 2010 Proxy Statement is incorporated herein by
reference.
Code
of Ethics
The
Company has adopted a Code of Business Conduct and Ethics that applies to the
Chief Executive Officer and the Chief Financial Officer and substantially all of
the Company's management level employees. A copy of the Code of
Business Conduct and Ethics is available upon request without charge by writing
to DENTSPLY International Inc, Attention: Investor Relations Suite 60, 221 West
Philadelphia Street, York, PA 17401.
Item
11. Executive Compensation
The
information set forth under the caption “Executive Compensation” in the 2010
Proxy Statement is incorporated herein by reference.
Item
12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The
information set forth under the caption “Security Ownership of Certain
Beneficial Owners and Management” and “Securities Authorized for Issuance Under
Equity Compensation Plans” in the 2010 Proxy Statement is incorporated herein by
reference.
Item
13. Certain Relationships and Related Transactions and Director
Independence
The
information required under this item number is presented in the 2010 Proxy
Statement, which is incorporated herein by reference.
Item
14. Principal Accounting Fees and Services
The
information set forth under the caption “Relationship with Independent
Registered Public Accounting Firm” in the 2010 Proxy Statement is incorporated
herein by reference.
PART
IV
Item
15. Exhibits and Financial Statement Schedule
(a)
|
Documents
filed as part of this Report
|
The
following consolidated financial statements of the Company are filed as part of
this Form 10-K:
Management’s
Report on Internal Control Over Financial Reporting
Report of
Independent Registered Public Accounting Firm
Consolidated
Statements of Operations - Years ended December 31, 2009, 2008 and
2007
Consolidated
Balance Sheets - December 31, 2009 and 2008
Consolidated
Statements of Equity and Comprehensive Income - Years ended December 31, 2009,
2008 and 2007
Consolidated
Statements of Cash Flows - Years ended December 31, 2009, 2008 and
2007
Notes to
Consolidated Financial Statements
|
2.
|
Financial
Statement Schedule
|
The
following financial statement schedule is filed as part of this Form 10-K and is
covered by the Report of Independent Registered Public Accounting
Firm:
Schedule
II — Valuation and Qualifying Accounts.
All other
schedules for which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission are not required to be included herein
under the related instructions or are inapplicable and, therefore, have been
omitted.
The
Exhibits listed below are filed or incorporated by reference as part of the
Company’s Form 10-K.
Exhibit
|
|
|
|
Number
|
|
|
Description
|
3.1
|
|
|
Restated
Certificate of Incorporation (1)
|
3.2
|
|
|
By-Laws,
as amended (8)
|
4.1
|
|
(a)
|
United
States Commercial Paper Issuing and paying Agency Agreement dated as of
August 12, 1999 between the Company and the Chase Manhattan Bank
(2)
|
|
|
(b)
|
United
States Commercial Paper Dealer Agreement dated as of March 28, 2002
between the Company and Salomon Smith Barney Inc. (3)
|
|
|
(c)
|
Japanese
Yen Term Loan Agreement, due March 28, 2012 dated as of July 31, 2008
(8)
|
4.2
|
|
(a)
|
Floating
Rate Senior Notes Agreement, due March 13, 2010 dated as of March 13, 2007
(4)
|
4.3
|
|
(a)
|
5-Year
Competitive Advance, Revolving Credit and Guaranty Agreements dated as of
May 9, 2005 among the Company, the Initial Lenders named therein, the
banks named therein, Citibank N.A. as Administrative Agent, JPMorgan Chase
Bank, N.A. as Syndication Agent, Harris Trust and Savings Bank,
Manufacturers and Traders Trust Company, and Wachovia Bank, N.A. as
Co-Documentation Agents, and Citigroup Global Markets, Inc. and J.P.
Morgan Securities Inc. as Joint Lead Arrangers and Joint
Bookrunners. (5)
|
4.4
|
|
|
Private
Placement Note Purchase Agreement, due February 19, 2016 dated
as of October 16, 2009
|
10.1
|
|
|
1998
Stock Option Plan (6)
|
10.2
|
|
|
2002
Amended and Restated Equity Incentive Plan (4)
|
10.3
|
|
|
Restricted
Stock Unit Deferral Plan (4)
|
10.4
|
|
(a)
|
Trust
Agreement for the Company's Employee Stock Ownership Plan between the
Company and T. Rowe Price Trust Company dated as of November 1, 2000
(7)
|
|
|
(b)
|
Plan
Recordkeeping Agreement for the Company's Employee Stock Ownership Plan
between the Company and T. Rowe Price Trust Company dated as of November
1, 2000 (7)
|
10.5
|
|
|
DENTSPLY
Supplemental Saving Plan Agreement dated as of December 10, 2007
(4)
|
10.6
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Bret W. Wise* (4)
|
10.7
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Christopher T. Clark*
(4)
|
10.8
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and William R. Jellison* (4)
|
10.9
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Brian M. Addison* (4)
|
10.10
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and James G. Mosch* (4)
|
10.11
|
|
|
Amended
and Restated Employment Agreement entered February 19, 2008 between the
Company and Robert J. Size* (4)
|
10.12
|
|
|
Amended
and Restated Employment Agreement entered January 1, 2009 between the
Company’s subsidiary, DeguDent GMBH and Albert Sterkenburg*
(8)
|
10.13
|
|
|
DENTSPLY
International Inc Directors' Deferred Compensation Plan effective January
1, 2008, as amended* (8)
|
10.14
|
|
|
Board
Compensation Arrangement*
|
10.15
|
|
|
Supplemental
Executive Retirement Plan effective January 1, 1999, as amended January 1,
2008* (8)
|
10.16
|
|
|
Written
Description of the Amended and Restated Incentive Compensation Plan*
(8)
|
10.17
|
|
|
AZ
Trade Marks License Agreement, dated January 18, 2001 between AstraZeneca
AB and Maillefer Instruments Holdings, S.A. (9)
|
10.18
|
|
(a)
|
Precious
metal inventory Purchase and Sale Agreement dated November 30, 2001, as
amended October 10, 2006 between Bank of Nova Scotia and the Company
(10)
|
|
|
(b)
|
Precious
metal inventory Purchase and Sale Agreement dated December 20, 2001
between JPMorgan Chase Bank and the Company (9)
|
|
|
(c)
|
Precious
metal inventory Purchase and Sale Agreement dated December 20, 2001
between Mitsui & Co., Precious Metals Inc. and the Company
(9)
|
|
|
(d)
|
Precious
metal inventory Purchase and Sale Agreement dated December 15, 2005
between ABN AMRO NV, Australian Branch and the Company
(5)
|
|
|
(e)
|
Precious
metal inventory Purchase and Sale Agreement dated January 30, 2002 between
Dresdner Bank AG, Frankfurt, and the Company (4)
|
10.19
|
|
|
Executive
Change in Control Plan for foreign executives, as amended December 31,
2008*
|
21.1
|
|
|
Subsidiaries
of the Company
|
23.1
|
|
|
Consent
of Independent Registered Public Accounting Firm - PricewaterhouseCoopers
LLP
|
31
|
|
|
Section
302 Certification Statements
|
32
|
|
|
Section
906 Certification Statement
|
101.INS
|
|
|
XBRL
Instance Document
|
101.SCH
|
|
|
XBRL
Taxonomy Extension Schema Document
|
101.CAL
|
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
|
XBRL
Extension Labels Linkbase Document
|
101.PRE
|
|
|
XBRL
Taxonomy Extension Presentation Linkbase
Document
|
*
|
Management
contract or compensatory plan.
|
(1)
|
Incorporated
by reference to exhibit included in the Company's Registration Statement
on Form S-8 (No. 333-101548).
|
(2)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 1999, File No.
0-16211.
|
(3)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2002, File No.
0-16211.
|
(4)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2007, File No.
0-16211.
|
(5)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2005, File No.
0-16211.
|
(6)
|
Incorporated
by reference to exhibit included in the Company's Registration Statement
on Form S-8 (No. 333-56093).
|
(7)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2000, File No.
0-16211.
|
(8)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2008, File No.
0-16211.
|
(9)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2001, File No.
0-16211.
|
(10)
|
Incorporated
by reference to exhibit included in the Company's Form 10-K for the fiscal
year ended December 31, 2001, File No.
0-16211.
|
SCHEDULE
II
VALUATION
AND QUALIFYING ACCOUNTS
FOR THE
YEARS ENDED DECEMBER 31, 2009, 2008 and 2007
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
|
|
Charged
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
(Credited)
|
|
|
|
Charged to
|
|
|
Write-offs
|
|
|
|
|
|
|
Balance
|
|
|
|
Beginning
|
|
|
To Costs
|
|
|
|
Other
|
|
|
Net of
|
|
|
|
Translation
|
|
|
at End
|
|
Description
|
|
of Period
|
|
|
And Expenses
|
|
|
|
Accounts
|
|
|
Recoveries
|
|
|
|
Adjustment
|
|
|
of Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
16,183 |
|
|
$ |
2,854 |
|
|
|
$ |
(182 |
) |
|
$ |
(1,927 |
) |
|
|
$ |
1,650 |
|
|
$ |
18,578 |
|
2008
|
|
|
18,578 |
|
|
|
3,674 |
|
|
|
|
(348 |
) |
|
|
(1,705 |
) |
|
|
|
(1,350 |
) |
|
|
18,849 |
|
2009
|
|
|
18,849 |
|
|
|
(3,124 |
) |
(a)
|
|
|
17 |
|
|
|
(4,253 |
) |
|
|
|
746 |
|
|
|
12,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for trade discounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
457 |
|
|
$ |
(155 |
) |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
$ |
5 |
|
|
$ |
307 |
|
2008
|
|
|
307 |
|
|
|
267 |
|
|
|
|
4 |
|
|
|
- |
|
|
|
|
(59 |
) |
|
|
519 |
|
2009
|
|
|
519 |
|
|
|
505 |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
79 |
|
|
|
1,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
valuation reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
26,305 |
|
|
$ |
3,134 |
|
|
|
$ |
(449 |
) |
|
$ |
(4,525 |
) |
|
|
$ |
1,725 |
|
|
$ |
26,190 |
|
2008
|
|
|
26,190 |
|
|
|
3,261 |
|
|
|
|
1,938 |
|
|
|
(1,981 |
) |
|
|
|
(1,019 |
) |
|
|
28,389 |
|
2009
|
|
|
28,389 |
|
|
|
5,883 |
|
|
|
|
80 |
|
|
|
(3,610 |
) |
|
|
|
1,190 |
|
|
|
31,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
tax asset valuation allowance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$ |
49,379 |
|
|
$ |
7,076 |
|
|
|
$ |
- |
|
|
$ |
(11,124 |
) |
(b)
|
|
$ |
4,919 |
|
|
$ |
50,250 |
|
2008
|
|
|
50,250 |
|
|
|
603 |
|
|
|
|
- |
|
|
|
(13,203 |
) |
(c)
|
|
|
(909 |
) |
|
|
36,741 |
|
2009
|
|
|
36,741 |
|
|
|
13,419 |
|
|
|
|
- |
|
|
|
- |
|
|
|
|
1,649 |
|
|
|
51,809 |
|
(a)
|
See
Note 1, Significant Accounting Policies, to the consolidated financial
statements, for further discussion.
|
(b)
|
The
significant increase for write-offs during 2007 is the result of a
global tax restructuring project, where-in net operating losses subject to
a full valuation allowance are not available for future
use.
|
(c)
|
The
write-offs during 2008 are the result of a global tax restructuring
project, tax audit closures, and expired tax
losses.
|
SELECTED
FINANCIAL DATA
(in
thousands, except per share amounts)
|
|
Year
ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
Statements
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,159,916 |
|
|
$ |
2,193,723 |
|
|
$ |
2,009,833 |
|
|
$ |
1,810,496 |
|
|
$ |
1,715,135 |
|
|
|
Net
sales, excluding precious metal content
|
|
|
1,991,204 |
|
|
|
1,993,800 |
|
|
|
1,819,899 |
|
|
|
1,623,074 |
|
|
|
1,542,711 |
|
|
|
Gross
profit
|
|
|
1,111,304 |
|
|
|
1,151,944 |
|
|
|
1,040,783 |
|
|
|
929,011 |
|
|
|
869,018 |
|
|
|
Restructuring,
impairments and other costs
|
|
|
6,890 |
|
|
|
32,355 |
|
|
|
10,527 |
|
|
|
7,807 |
|
|
|
232,755 |
|
|
(a) |
Operating
income
|
|
|
381,187 |
|
|
|
380,421 |
|
|
|
354,891 |
|
|
|
314,794 |
|
|
|
72,922 |
|
|
|
Income
before income taxes
|
|
|
363,356 |
|
|
|
354,873 |
|
|
|
358,192 |
|
|
|
314,837 |
|
|
|
71,038 |
|
|
|
Net
income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DENTSPLY
International
|
|
$ |
274,258 |
|
|
$ |
283,869 |
|
|
$ |
259,654 |
|
|
$ |
223,718 |
|
|
$ |
45,413 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.85 |
|
|
$ |
1.90 |
|
|
$ |
1.71 |
|
|
$ |
1.44 |
|
|
$ |
0.29 |
|
|
|
Diluted
|
|
$ |
1.83 |
|
|
$ |
1.87 |
|
|
$ |
1.68 |
|
|
$ |
1.41 |
|
|
$ |
0.28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.200 |
|
|
$ |
0.185 |
|
|
$ |
0.165 |
|
|
$ |
0.145 |
|
|
$ |
0.125 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Common Shares Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
148,319 |
|
|
|
149,069 |
|
|
|
151,707 |
|
|
|
155,229 |
|
|
|
159,191 |
|
|
|
Diluted
|
|
|
150,102 |
|
|
|
151,679 |
|
|
|
154,721 |
|
|
|
158,271 |
|
|
|
162,017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheets Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term investments
|
|
$ |
450,385 |
|
|
$ |
204,249 |
|
|
$ |
316,323 |
|
|
$ |
65,143 |
|
|
$ |
434,525 |
|
|
|
Property,
plant and equipment, net
|
|
|
439,619 |
|
|
|
432,276 |
|
|
|
371,409 |
|
|
|
329,616 |
|
|
|
316,218 |
|
|
|
Goodwill
and other intangibles, net
|
|
|
1,401,682 |
|
|
|
1,380,744 |
|
|
|
1,203,587 |
|
|
|
1,063,030 |
|
|
|
1,001,827 |
|
|
|
Total
assets
|
|
|
3,087,932 |
|
|
|
2,830,400 |
|
|
|
2,675,569 |
|
|
|
2,181,350 |
|
|
|
2,410,373 |
|
|
|
Total
debt and notes payable
|
|
|
469,325 |
|
|
|
449,474 |
|
|
|
483,307 |
|
|
|
370,156 |
|
|
|
682,316 |
|
|
|
Equity
|
|
|
1,906,958 |
|
|
|
1,659,413 |
|
|
|
1,516,402 |
|
|
|
1,273,835 |
|
|
|
1,246,596 |
|
|
|
Return
on average equity
|
|
|
15.4 |
% |
|
|
17.9 |
% |
|
|
18.6 |
% |
|
|
17.8 |
% |
|
|
3.4 |
% |
|
|
Long-term
debt to total capitalization
|
|
|
19.2 |
% |
|
|
20.5 |
% |
|
|
24.1 |
% |
|
|
22.4 |
% |
|
|
35.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
$ |
65,175 |
|
|
$ |
56,929 |
|
|
$ |
50,289 |
|
|
$ |
47,434 |
|
|
$ |
50,560 |
|
|
|
Cash
flows from operating activities
|
|
|
362,489 |
|
|
|
335,981 |
|
|
|
387,697 |
|
|
|
271,855 |
|
|
|
232,769 |
|
|
|
Capital
expenditures
|
|
|
56,481 |
|
|
|
76,440 |
|
|
|
64,163 |
|
|
|
50,616 |
|
|
|
45,293 |
|
|
|
Interest
expense (income), net
|
|
|
16,864 |
|
|
|
15,438 |
|
|
|
(2,645 |
) |
|
|
(1,683 |
) |
|
|
8,768 |
|
|
|
Inventory
days
|
|
|
99 |
|
|
|
103 |
|
|
|
92 |
|
|
|
94 |
|
|
|
87 |
|
|
|
Receivable
days
|
|
|
55 |
|
|
|
54 |
|
|
|
51 |
|
|
|
57 |
|
|
|
53 |
|
|
|
Effective
tax rate
|
|
|
24.5 |
% |
|
|
20.2 |
% |
|
|
27.5 |
% |
|
|
28.9 |
% |
|
|
36.1 |
% |
|
|
|
(a)
|
The Company recorded $230.8
million of impairment and restructuring charges related to the closing of
the pharmaceutical manufacturing facility outside of
Chicago.
|
Item
7.
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
nature and geographic scope of the Company’s business subjects it to changing
economic, competitive, regulatory and technological risks and
uncertainties. In accordance with the “Safe Harbor” provisions of the
Private Securities Litigation Reform Act of 1995, the Company provides the
following cautionary remarks regarding important factors, which, among others,
could cause future results to differ materially from the forward-looking
statements, expectations and assumptions expressed or implied
herein. All forward-looking statements made by the Company are
subject to risks and uncertainties and are not guarantees of future
performance. These forward-looking statements involve known and
unknown risks, uncertainties and other factors that may cause the Company’s
actual results, performance and achievements, or industry results to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. These
statements are identified by the use of such terms as “may,” “could,” “expect,”
“intend,” “believe,” “plan,” “estimate,” “forecast,” “project,” “anticipate” or
words of similar expression.
Investors
are cautioned that forward-looking statements involve risks and uncertainties
which may materially affect the Company's business and prospects, and should be
read in conjunction with the risk factors and uncertainties discussed within
Item 1A, Part I of this Form 10-K. Investors are further cautioned
that the risk factors in Item 1A, Part I of this Form 10-K may not be exhaustive
and that many of these factors are beyond the Company’s ability to control or
predict. Accordingly, forward-looking statements should not be relied
upon as a prediction of actual results. The Company undertakes no
duty and has no obligation to update forward-looking statements.
OVERVIEW
DENTSPLY
International Inc believes it is the world's largest designer, developer,
manufacturer and marketer of professional dental products. The
Company is headquartered in the United States and operates in more than 120
other countries, principally through its foreign subsidiaries. The
Company also has strategically located distribution centers to enable it to
better serve its customers and increase its operating
efficiency. While the United States and Europe are the Company's
largest markets, the Company serves all of the major professional dental markets
worldwide.
Key
Measurements
The
principal measurements used by the Company in evaluating its business are: (1)
internal growth by geographic region; (2) constant currency growth by geographic
region; (3) operating margins of each reportable segment; (4) the development,
introduction and contribution of innovative new products; (5) growth through
acquisition; and (6) continued focus on controlling costs and enhancing
efficiency.
The
Company defines “internal growth” as the increase or decrease in net sales from
period to period, excluding (1) precious metal content; (2) the impact of
changes in currency exchange rates; and (3) the net sales, for a period of
twelve months following the transaction date, of businesses that have been
acquired or divested. The Company defines “constant currency growth”
as internal growth plus acquisition growth.
Management
believes that an average internal growth rate of 4-6% is a long-term sustainable
rate for the Company. The internal growth rate may vary outside of this range
based on weaker or stronger economic conditions. Management expects
the Company to operate below this range in the near future due to the current
economic conditions; however, history shows that growth in the dental industry
typically performs better than the overall economy. There can be no
assurance that the Company’s assumptions concerning the growth rates in its
markets or the dental market generally will continue in the
future. If such rates are less than expected, the Company’s projected
growth rates and results of operations may be adversely affected.
Product
innovation is a key component of the Company's overall growth
strategy. New advances in technology are anticipated to have a
significant influence on future products in dentistry. As a result,
the Company continues to pursue research and development initiatives to support
this technological development, including collaborations with various research
institutions and dental schools. In addition, the Company licenses
and purchases technologies developed by third parties. Although the
Company believes these activities will lead to new innovative dental products,
they involve new technologies and there can be no assurance that commercialized
products will be developed.
Although
the professional dental market in which the Company operates has experienced
consolidation, it is still a fragmented industry. The Company
continues to focus on opportunities to expand the Company’s product offerings
through acquisitions. Management believes that there will continue to
be adequate opportunities to participate as a consolidator in the industry for
the foreseeable future.
Company’s
Response to Economic Conditions
Price
changes, other marketing and promotional programs offered to customers from time
to time, the management of inventory levels by distributors and the
implementation of strategic initiatives may impact sales and inventory levels in
a given period. Due to the current economic conditions, the overall
dental market has been negatively impacted by inventory reductions in its
distribution channels, particularly in certain emerging market
regions.
Additionally,
the current conditions of the economy have negatively impacted the Company’s
gross profit rate. Unfavorable product and geographic sales mix,
unfavorable overhead absorption and movements in foreign currencies are the key
factors that have recently affected the Company’s gross profits. The
Company continues to manage these negative factors to help minimize their impact
on the Company’s overall performance.
Due to
the international nature of DENTSPLY’s business, movements in foreign exchange
rates may impact the Consolidated Statements of Operations. With over
60% of the Company’s sales located in regions outside the U.S., the Company’s
sales are significantly impacted by the strengthening or weakening of the U.S.
dollar. As discussed further under the segment descriptions, the Company was
negatively impacted by the movements in currencies in 2009.
The
Company has always maintained its focus on minimizing costs and achieving
operational efficiencies. In response to the recent credit crisis and
the recessionary economic conditions, management is concentrating on cost
containment that focuses the business on creating and maintaining operational
and financial flexibility through controlling operating
costs. Management will continue to evaluate the consolidation of
operations or functions and reduce the cost of those operations and
functions. In addition, the Company remains focused on enhancing
efficiency through expanded use of technology and process improvement
initiatives. The Company believes that the benefits from these initiatives will
improve the cost structure and help offset areas of rising costs such as energy,
employee benefits, and regulatory oversight and compliance.
In
response to the recent economic conditions, the Company initiated several
restructuring plans that included targeted headcount reductions and business
consolidations and reorganizations in late 2008 through 2009. The
Company began to realize the cost savings associated with these restructuring
plans in 2009 and expects to realize incremental cost savings associated with
these restructuring plans in 2010. (See Note 14, Restructuring,
Impairments and Other Costs, to the consolidated financial
statements).
Reclassification
of Prior Year Amounts
Certain
reclassifications have been made to prior years' data in order to conform to
current year presentation.
RESULTS
OF OPERATIONS
2009
Compared to 2008
Net
Sales
The
discussion below summarizes the Company’s sales growth, excluding precious metal
content, into the following components: (1) constant currency, which includes
internal growth and acquisition growth, and (2) foreign currency
translation. These disclosures of net sales growth provide the reader
with sales results on a comparable basis between periods.
Management
believes that the presentation of net sales, excluding precious metal content,
provides useful information to investors because a significant portion of
DENTSPLY’s net sales is comprised of sales of precious metals generated through
sales of the Company’s precious metal dental alloy products, which are used by
third parties to construct crown and bridge materials. Due to the
fluctuations of precious metal prices and because the precious metal content of
the Company’s sales is largely a pass-through to customers and has minimal
effect on earnings, DENTSPLY reports net sales both with and without precious
metal content to show the Company’s performance independent of precious metal
price volatility and to enhance comparability of performance between
periods. The Company uses its cost of precious metal purchased as a
proxy for the precious metal content of sales, as the precious metal content of
sales is not separately tracked and invoiced to customers. The
Company believes that it is reasonable to use the cost of precious metal content
purchased in this manner since precious metal dental alloy sale prices are
typically adjusted when the prices of underlying precious metals
change.
The
presentation of net sales, excluding precious metal content, is considered a
measure not calculated in accordance with US GAAP, and is therefore considered a
non-US GAAP measure. The Company provides the following
reconciliation of net sales to net sales, excluding precious metal
content. The Company’s definitions and calculations of net sales,
excluding precious metal content, and other operating measures derived using net
sales, excluding precious metal content, may not necessarily be the same as
those used by other companies.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,159.9 |
|
|
$ |
2,193.7 |
|
|
$ |
(33.8 |
) |
|
|
(1.5 |
)% |
Less:
Precious metal content of sales
|
|
|
168.7 |
|
|
|
199.9 |
|
|
|
(31.2 |
) |
|
|
(15.6 |
)% |
Net
sales, excluding precious metal content
|
|
$ |
1,991.2 |
|
|
$ |
1,993.8 |
|
|
$ |
(2.6 |
) |
|
|
(0.1 |
)% |
Net
sales, excluding precious metal content, for 2009 was $1,991.2 million, which
remained relatively unchanged when compared to 2008. Net sales,
excluding precious metal content, included constant currency growth of 2.3%,
offset by currency translation, which reduced sales by
2.4%. The constant currency sales growth was comprised of
acquisition growth of 4.5%, partially offset by internal growth of negative
2.2%. Sales for dental products grew on a constant currency basis by
3.0%, including internal growth of negative 1.3% and acquisition growth of
4.3%.
Internal
Sales Growth
United
States
In 2009,
net sales, excluding precious metal content, decreased 0.9% in the United States
on a constant currency basis, including 1.0% acquisition growth and internal
growth of negative 1.9%. The negative internal growth was primarily
driven by lower sales in dental laboratory and non-dental products, which was
partially offset by internal growth in dental consumables products.
Europe
In 2009,
net sales, excluding precious metal content, increased 4.0% in Europe on a
constant currency basis, including 7.8% acquisition growth and internal growth
of negative 3.8%. The negative internal growth was primarily driven
by lower sales in dental consumables, dental laboratory products and non-dental
products, which was partially offset by internal growth in dental specialty
products.
All Other
Regions
In 2009,
net sales, excluding precious metal content, increased 4.6% across all other
regions on a constant currency basis, including 4.3% acquisition growth and
internal growth of 0.3%. The dental consumables and dental specialty
products had positive internal growth, which was partially offset by negative
internal growth in dental laboratory and non-dental products.
Gross
Profit
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
1,111.3 |
|
|
$ |
1,151.9 |
|
|
$ |
(40.6 |
) |
|
|
(3.5 |
)% |
Gross
profit as a percentage of net sales,
including precious
metal content
|
|
|
51.5 |
% |
|
|
52.5 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales,
excluding precious
metal content
|
|
|
55.8 |
% |
|
|
57.8 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales, excluding precious metal content, decreased
2.0 percentage points in 2009 compared to 2008. The decrease is the
result of unfavorable product and geographic sales mix, unfavorable
manufacturing overhead absorption and movements in foreign
currencies. Additionally, acquisitions completed in 2008 negatively
impacted gross profit as a percentage of net sales.
Expenses
Selling, General and
Administrative (“SG&A”) Expenses
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$ |
723.2 |
|
|
$ |
739.2 |
|
|
$ |
(16.0 |
) |
|
|
(2.2 |
)% |
SG&A
expenses as a percentage of net sales,
including precious
metal content
|
|
|
33.5 |
% |
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
SG&A
expenses as a percentage of net sales,
excluding precious
metal content
|
|
|
36.3 |
% |
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
The
reduction in SG&A expenses as a percentage of net sales, excluding precious
metal content, was largely the result of the Company’s focus on cost containment
in response to the recessionary economic conditions that occurred in late 2008
through 2009. In early 2009, the Company undertook action on
discretionary expense categories, such as travel, and addressed
non-discretionary expense categories where appropriate. Additionally,
the Company executed several restructuring plans that focused on reductions in
overhead spending. Although cost reductions were made across the
Company, management continues to focus on controlling costs while creating and
maintaining financial flexibility. These cost containment efforts
were partially offset by a higher percentage of SG&A expenses in businesses
acquired in 2008, costs related to the 2009 biennial International Dental Show
and cost increases and higher investments in sales and marketing to support
future growth in certain geographic areas.
Restructuring, Impairments
and Other Costs
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring,
impairments and other costs
|
|
$ |
6.9 |
|
|
$ |
32.4 |
|
|
$ |
(25.5 |
) |
|
|
NM |
|
NM- not
meaningful
The
Company recorded net restructuring, impairments and other costs of $6.9 million
in 2009 compared to $32.4 million in 2008. The Company incurred $5.9
million of costs in 2009 related to several restructuring plans in response to
the worldwide economic crisis that began in late 2008. The
restructuring plans related to the closure and/or consolidation of certain
production and selling facilities in the United States, Europe and South America
to better leverage the Company’s resources by reducing costs and obtaining
operational efficiencies. Additionally, the Company executed targeted
reductions in workforce both in the manufacturing and non-manufacturing business
functions in certain locations. Also, the Company recorded certain
other costs related to legal matters and an impairment of an intangible
asset.
In 2008,
the Company recorded costs of $24.2 million related to legal settlements and
impairments of long-term assets. The legal settlements related to
several legal matters with multiple plaintiffs. These cases included
a patent dispute and cases relating to a prior distribution practice of the
Company in connection with the sale of artificial teeth. The
impairment charge was related to abandonment of patented technology purchased in
2005 and the impairment of a long-term note receivable recorded from a sale of a
business in 2006. The impairment of the long-term note receivable
occurred as the result of a change in payment terms on the non-interest bearing
note receivable. Additionally, the Company initiated several
restructuring plans primarily related to the closure and consolidation of
certain production and selling facilities in the United States, Europe and Asia
to better leverage the Company’s resources by reducing costs and obtaining
operational efficiencies. These restructuring plans included charges
of $5.9 million. Additionally, the Company expensed $2.3 million for
the fair value of in-process research and development associated with acquired
businesses (See Note 14, Restructuring, Impairments and Other Costs, to the
consolidated financial statements).
Other
Income and Expenses
|
|
Year
Ended December 31,
|
|
|
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
$ |
16.9 |
|
|
$ |
15.4 |
|
|
$ |
1.5 |
|
Other
expense, net
|
|
|
1.0 |
|
|
|
10.1 |
|
|
|
(9.1 |
) |
Net
interest and other expense
|
|
$ |
17.9 |
|
|
$ |
25.5 |
|
|
$ |
(7.6 |
) |
Net Interest
Expense
The
change in net interest expense in 2009 compared to 2008 was primarily due to
lower interest rates earned on invested cash balances offset by lower average
debt and interest rates on the Company’s Euro net investment
hedges. The impact of the Company’s net investment hedges typically
move in the opposite direction of currency movements, reducing some of the
volatility caused by movement in exchange rates on the Company’s income and
equity.
Other Expense,
Net
Other
expense in the 2009 period included approximately $0.3 million of currency
transaction losses and $0.7 million of other non-operating costs. The 2008
period included $8.9 million of currency transaction losses and $1.2 million of
other non-operating costs. In the fourth quarter of 2008, currency exchange rate
volatility was extremely high and global currencies weakened versus the U.S.
Dollar. The Company incurred transaction losses, mostly in the fourth
quarter of 2008, on settlement of intercompany and third party
transactions.
Income
Taxes and Net Income
|
|
Year
Ended December 31,
|
|
|
|
|
(in
millions, except per share amounts)
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
24.5 |
% |
|
|
20.2 |
% |
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
274.3 |
|
|
$ |
283.9 |
|
|
$ |
(9.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
1.83 |
|
|
$ |
1.87 |
|
|
|
|
|
Income
Taxes
The
Company’s effective income tax rates for 2009 and 2008 were 24.5% and 20.2%,
respectively. In 2009, the Company’s effective income tax rate
included the impact of restructuring, impairments and other costs, acquisition
related activity and various income tax adjustments, which impacted income
before income taxes and the provision for income taxes by $11.0 million and $8.8
million, respectively. In 2008, the Company’s effective income tax
rate included the impact of restructuring, impairments and other costs,
acquisition related activity, provisions for the fair value measurement
adjustment and various income tax adjustments, which impacted income before
income taxes and the provision for income taxes by $30.5 million and $28.3
million, respectively. The various income tax adjustments included
the impact of settlements with taxing authorities and statutes closures for both
periods.
Net Income attributable to
DENTSPLY International
Diluted
earnings per common share during 2009 were $1.83 compared to $1.87 during the
same period in 2008. Net income attributable to DENTSPLY
International in 2009 includes restructuring, impairments and other costs of
$5.1 million, or $0.03 per diluted share, net of tax and noncontrolling
interests, and income tax related adjustments benefit of $5.4 million, or $0.03
per diluted share, net of tax and noncontrolling interests, and acquisition
related activity expenses, net of tax and noncontrolling interests, of $1.8
million, or $0.01 per diluted share. Net income attributable to
DENTSPLY International in 2008 includes an after tax impact from restructuring,
impairments and other costs of $19.8 million, or $0.13 per diluted share and a
net income tax benefit of $17.1 million, or $0.11 per diluted share due to
income tax related adjustments, and provisions for the fair value measurement
adjustment, net of tax of $1.1 million or $0.01 per diluted share.
Operating
Segment Results
The
Company’s operating businesses are combined into operating groups, which have
overlapping product offerings, geographic presence, customer bases, distribution
channels and regulatory oversight. These operating groups are
considered the Company’s reportable segments as the Company’s chief operating
decision-maker regularly reviews financial results at the operating group level
and uses this information to manage the Company’s operations. Each of
these operating groups covers a wide range of product categories and geographic
regions. The product categories and geographic regions often overlap
across the groups. Further information regarding the details of each
group is presented in Note 4, Segment and Geographic Information, to the
consolidated financial statements. The management of each group is
evaluated for performance and incentive compensation purposes on net third party
sales, excluding precious metal content, and segment operating
income.
In
January 2009, the Company moved the reporting responsibility for several
locations between segments which resulted in a change to the management
structure and helped the Company gain operating efficiencies and
effectiveness. The segment information below reflects this revised
structure for all periods shown.
Net
Sales, excluding precious metal content
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
U.S.,
Germany and Certain Other
European Regions
Consumable Businesses
|
|
$ |
526.7 |
|
|
$ |
459.7 |
|
|
$ |
67.0 |
|
|
|
14.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European Countries,
CIS, Middle East,
Africa, Pacific Rim
Businesses
|
|
$ |
419.4 |
|
|
$ |
437.5 |
|
|
$ |
(18.1 |
) |
|
|
(4.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
$ |
618.4 |
|
|
$ |
628.9 |
|
|
$ |
(10.5 |
) |
|
|
(1.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
$ |
429.6 |
|
|
$ |
471.1 |
|
|
$ |
(41.5 |
) |
|
|
(8.8 |
)% |
Segment
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
$
Change
|
|
|
%
Change
|
|
U.S.,
Germany and Certain Other
European Regions
Consumable Businesses
|
|
$ |
158.4 |
|
|
$ |
162.7 |
|
|
$ |
(4.3 |
) |
|
|
(2.6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European Countries,
CIS, Middle East,
Africa, Pacific Rim
Businesses
|
|
$ |
18.7 |
|
|
$ |
13.0 |
|
|
$ |
5.7 |
|
|
|
43.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
$ |
185.8 |
|
|
$ |
200.1 |
|
|
$ |
(14.3 |
) |
|
|
(7.1 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
$ |
93.6 |
|
|
$ |
124.9 |
|
|
$ |
(31.3 |
) |
|
|
(25.1 |
)% |
U.S.,
Germany and Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, increased 14.6% during the year ended
December 31, 2009 compared to 2008. On a constant currency basis,
sales increased 15.7%, which was driven by acquisition growth.
Operating
income decreased $4.3 million during the year ended December 31, 2009 compared
to 2008. Operating income was negatively affected by lower sales in
Europe, unfavorable product and geographic sales mix, and currency translation.
In addition, the decrease was partially attributable to the roll-off of
inventory step-up related to an acquisition completed in late
2008. The segment, excluding an acquisition completed in 2008,
reduced operating expenses during 2009 when compared to the same period in
2008.
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa,
Pacific Rim Businesses
Net
sales, excluding precious metal content, decreased 4.1% during the year ended
December 31, 2009 compared to 2008, of which negative 2.7% was the result of
currency translation. On a constant currency basis, sales were
negative 1.4% primarily due to lower sales in the CIS partially offset by an
acquisition and growth in the Pacific Rim.
Operating
income increased $5.7 million during the year ended December 31, 2009 compared
to 2008. The increase was driven primarily by higher profits in the
Pacific Rim operations partially offset by lower profits, mainly in the CIS, due
to lower sales.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, decreased 1.7% during the year ended
December 31, 2009 compared to 2008, of which negative 2.4% was the result of
currency translation. On a constant currency basis, sales increased
by 0.7% as a result of an acquisition completed in 2008.
Operating
income decreased $14.3 million during the year ended December 31, 2009 compared
to 2008. The decrease was driven primarily by lower sales in
non-dental products, unfavorable absorption and the negative impact from foreign
currency transactions.
Dental
Laboratory Business/Implants/Non-Dental
Net
sales, excluding precious metal content, decreased 8.8% during the year ended
December 31, 2009 compared to 2008, of which negative 3.3% was the result of
currency translation. On a constant currency basis, sales were negative 5.5%,
primarily driven by the lower sales in dental laboratory products, dental
implant products and non-dental products partially offset by acquisition
growth.
Operating
income decreased $31.3 million during the year ended December 31, 2009 compared
to 2008 as a result of profitability being down across the segment primarily
related to lower sales in the dental laboratory businesses, unfavorable product
sales mix and currency translation.
RESULTS
OF OPERATIONS
2008
Compared to 2007
Factors
Impacting Comparability Between Years
Adoption of Fair Value
Measurement
In 2008,
the Company adopted the new accounting guidance for fair value measurement,
which requires the Company to define fair value, establish a framework for
measuring fair value in accordance with U.S. generally accepted accounting
principles (“US GAAP”), and expand disclosures about fair value
measurements. As part of the provisions, the Company is required to
determine the impact of credit risk on its financial instruments recorded at
fair value. As a result, the Company recognized pretax income of $1.8
million during 2008.
Net
Sales
The
discussion below summarizes the Company’s sales growth, excluding precious metal
content, from internal growth and net acquisition growth and highlights the
impact of foreign currency translation. These disclosures of net
sales growth provide the reader with sales results on a comparable basis between
periods.
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,193.7 |
|
|
$ |
2,009.8 |
|
|
$ |
183.9 |
|
|
|
(9.2 |
)% |
Less:
Precious metal content of sales
|
|
|
199.9 |
|
|
|
189.9 |
|
|
|
10.0 |
|
|
|
(5.3 |
)% |
Net
sales, excluding precious metal content
|
|
$ |
1,993.8 |
|
|
$ |
1,819.9 |
|
|
$ |
173.9 |
|
|
|
(9.6 |
)% |
The net
sales growth, excluding precious metal content, of 9.6% was comprised of 3.8% of
internal growth, 3.7% of foreign currency translation and 2.1% related to
acquisitions. The 3.8% internal growth was comprised of negative 0.9%
in the United States, 7.0% in Europe and 7.0% for all other regions
combined.
Internal
Sales Growth
United
States
The
internal sales growth of negative 0.9%, excluding precious metal content, in the
United States was negatively impacted by the supply issues with injectable
anesthetics and softness in dental consumables and in the dental specialty
businesses in the fourth quarter, as the economy in the United States
contracted.
Europe
In
Europe, the internal sales growth of 7.0%, excluding precious metal content, was
driven by strong performance in the dental specialty businesses and growth in
the dental consumable businesses partially offset by softness in the dental
laboratory businesses due to lower equipment and alloy product
sales.
All Other
Regions
During
2008, the internal growth of 7.0%, excluding precious metal content, was largely
the result of strong growth in the dental specialty category. Asia,
Australia, the Middle East and Latin America experienced strong
growth.
Gross
Profit
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
1,151.9 |
|
|
$ |
1,040.8 |
|
|
$ |
111.1 |
|
|
|
10.7 |
% |
Gross
profit as a percentage of net sales,
including precious
metal content
|
|
|
52.5 |
% |
|
|
51.8 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales,
excluding precious
metal content
|
|
|
57.8 |
% |
|
|
57.2 |
% |
|
|
|
|
|
|
|
|
The 2008
gross profit as a percentage of net sales, excluding precious metal content, was
favorably impacted by product pricing, product mix and operational
improvements.
Expenses
Selling, General and
Administrative Expenses
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
expenses
|
|
$ |
739.2 |
|
|
$ |
675.4 |
|
|
$ |
63.8 |
|
|
|
9.4 |
% |
SG&A
expenses as a percentage of net sales,
including precious
metal content
|
|
|
33.7 |
% |
|
|
33.6 |
% |
|
|
|
|
|
|
|
|
SG&A
expenses as a percentage of net sales,
excluding precious
metal content
|
|
|
37.1 |
% |
|
|
37.1 |
% |
|
|
|
|
|
|
|
|
The 9.4%
increase in SG&A expenses reflects additional SG&A expenses of $15.7
million from acquired companies and increases from currency translation of
approximately $24.6 million. The remaining increase in SG&A
expenses is primarily a result of increased expenditures to support growth in
the dental specialty businesses and higher growth regions as well as continued
investment in research and development.
Restructuring, Impairments
and Other Costs
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring,
impairments and other costs
|
|
$ |
32.4 |
|
|
$ |
10.5 |
|
|
$ |
21.9 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NM
- Not Meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2008,
the Company recorded costs of $24.2 million related to legal settlements and
impairments of long-term assets. The legal settlements related to
several legal matters with multiple plaintiffs. These cases included
a patent dispute and cases relating to a prior distribution practice of the
Company in connection with the sale of artificial teeth. The
impairment charge was related to abandonment of patented technology purchased in
2005 and the impairment of a long-term note receivable recorded from a sale of a
business in 2006. The impairment of the long-term note receivable
occurred as the result of a change in payment terms on the non-interest bearing
note receivable. Additionally, the Company initiated several
restructuring plans primarily related to the closure and consolidation of
certain production and selling facilities in the United States, Europe and Asia
to better leverage the Company’s resources by reducing costs and obtaining
operational efficiencies. These restructuring plans included charges
of $5.9 million. Additionally, the Company expensed $2.3 million for
the fair value of in-process research and development associated with acquired
businesses (See Note 14, Restructuring, Impairments and Other Costs, to the
consolidated financial statements).
During
2007, the Company recorded net restructuring, impairment and other costs of
$10.5 million. Several restructuring plans were initiated during
2007, primarily related to the closure and consolidation of certain production
and selling facilities in the United States, Europe, Asia and South America in
order to better leverage the Company’s resources by reducing costs and obtaining
operational efficiencies. These restructuring plans included charges
of $5.4 million. Additionally, the Company also recorded a total of
$5.1 million in expenses related to several legal claims and impairments of
long-term assets.
Other
Income and Expenses
|
|
Year
Ended December 31,
|
|
|
|
|
(in
millions)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense (income)
|
|
$ |
15.4 |
|
|
$ |
(2.6 |
) |
|
$ |
18.0 |
|
Other
expense (income), net
|
|
|
10.1 |
|
|
|
(0.7 |
) |
|
|
10.8 |
|
Net
interest and other expense (income)
|
|
$ |
25.5 |
|
|
$ |
(3.3 |
) |
|
$ |
28.8 |
|
Net Interest Expense
(Income)
The
change from net interest income in 2007 to net interest expense in 2008 was
mainly the result of the sharp divergence of lower U.S. dollar interest rates
versus increased Euro and Swiss franc interest rates, combined with weaker U.S.
dollar average exchange rates against both currencies. This resulted
in net interest expense in 2008 versus net interest income in 2007 on the Euro
and Swiss franc net investment hedges executed in the form of cross currency
swaps. The impact of the Company’s net investment hedges typically
move in the opposite direction of currency movements, reducing some of the
volatility caused by movement in exchange rates on the Company’s income and
equity. Partially offsetting the net investment hedge impact was
higher average investment balances in Euros and lower average interest rates on
U.S. dollar debt.
Other Expense (Income),
Net
Other
expense (income) in the 2008 period included $8.9 million of currency
transaction losses and $1.2 million of other non-operating
losses. The 2007 period included $0.5 million of currency transaction
gains and $0.2 million of other non-operating gains. Currency
exchange rate volatility was extremely high, especially during the fourth
quarter of 2008, and global currencies weakened versus the U.S.
Dollar. The Company incurred transaction losses, mostly in the fourth
quarter of 2008, on settlement of intercompany and third party
transactions.
Income
Taxes and Net Income
|
|
Year
Ended December 31,
|
|
|
|
|
(in
millions, except per share amounts)
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate
|
|
|
20.2 |
% |
|
|
27.5 |
% |
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
283.9 |
|
|
$ |
259.7 |
|
|
$ |
24.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
earnings per common share
|
|
$ |
1.87 |
|
|
$ |
1.68 |
|
|
|
|
|
Income
Taxes
The
Company’s effective income tax rates for 2008 and 2007 were 20.2% and 27.5%,
respectively. In 2008, the Company’s effective income tax rate
included the impact from restructuring, impairments and other costs, acquisition
related activity, provisions for the fair value measurement adjustment and
various income tax adjustments, which impacted income before income taxes and
the provision for income taxes by $30.5 million and $28.3 million,
respectively. In 2007, the Company’s effective income tax rate
included the impact from restructuring, impairments and other costs and various
income tax adjustments, which impacted income before income taxes and the
provision for income taxes by $10.5 million and $13.7 million,
respectively. The various income tax adjustments included the impact
of settlements with taxing authorities and statutes closures for both
periods.
Net Income attributable to
DENTSPLY International
Diluted
earnings per common share from during 2008 were $1.87 compared to $1.68 during
the same period in 2007. Net income attributable to DENTSPLY
International in 2008 includes an after tax impact from restructuring,
impairments and other costs of $19.8 million, or $0.13 per diluted share and a
net tax benefit of $17.1 million, or $0.11 per diluted share due to income tax
related adjustments, and provisions for fair value measurement adjustment, net
of tax of $1.1 million or $0.01 per diluted share. Net income
attributable to DENTSPLY International for 2007 includes an after tax impact
from restructuring, impairments and other costs of $6.7 million, or $0.04 per
diluted share and a net tax benefit of $9.9 million, or $0.06 per diluted share
due to income tax related adjustments.
Operating
Segment Results
In
January 2007, the Company reorganized its operating group structure expanding
into four operating groups from the three groups under the prior management
structure. These operating groups are considered the Company’s
reportable segments as the Company’s chief operating decision-maker regularly
reviews financial results at the operating group level and uses this information
to manage the Company’s operations. Each of these operating groups
covers a wide range of product categories and geographic regions. The
product categories and geographic regions often overlap across the
groups. Further information regarding the details of each group is
presented in Note 4, Segment and Geographic Information, to the consolidated
financial statements. The management of each group is evaluated for
performance and incentive compensation purposes on net third party sales,
excluding precious metal content, and segment operating income.
In
January 2009, the Company moved the reporting responsibility for several
locations between segments as a result of a change to the management
structure. This change also helped the Company gain operating
efficiencies and effectiveness. The segment information below
reflects this revised structure for all periods shown.
Net
Sales, excluding precious metal content
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
U.S.,
Germany and Certain Other
European Regions
Consumable Businesses
|
|
$ |
459.7 |
|
|
$ |
428.2 |
|
|
$ |
31.5 |
|
|
|
7.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European Countries,
CIS, Middle East,
Africa, Pacific Rim
Businesses
|
|
$ |
437.5 |
|
|
$ |
381.2 |
|
|
$ |
56.3 |
|
|
|
14.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
$ |
628.9 |
|
|
$ |
583.9 |
|
|
$ |
45.0 |
|
|
|
7.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
$ |
471.1 |
|
|
$ |
430.1 |
|
|
$ |
41.0 |
|
|
|
9.5 |
% |
Segment
Operating Income
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Year
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
$
Change
|
|
|
%
Change
|
|
U.S.,
Germany and Certain Other
European Regions
Consumable Businesses
|
|
$ |
162.7 |
|
|
$ |
139.0 |
|
|
$ |
23.7 |
|
|
|
17.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European Countries,
CIS, Middle East,
Africa, Pacific Rim
Businesses
|
|
$ |
13.0 |
|
|
$ |
10.0 |
|
|
$ |
3.0 |
|
|
|
30.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
$ |
200.1 |
|
|
$ |
180.9 |
|
|
$ |
19.2 |
|
|
|
10.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
$ |
124.9 |
|
|
$ |
112.4 |
|
|
$ |
12.5 |
|
|
|
11.1 |
% |
U.S.,
Germany and Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, increased 7.4% during the year ended
December 31, 2008 compared to 2007. This increase was driven by
acquisition related growth and positive currency translation. Supply
issues with injectable anesthetics as well as softness in the United States
dental consumable products in the fourth quarter due to a weakening economy
hindered the growth within the segment.
Operating
income increased $23.7 million during the year ended December 31, 2008 compared
to 2007. The increase was due to improved margins due to favorable
product mix across most of the segment and acquisitions.
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa,
Pacific Rim Businesses
Net
sales, excluding precious metal content, increased 14.8%, including the
favorable impact of currency translation, during the year ended December 31,
2008 compared to 2007. Strong growth occurred across many regions
within the segment.
Operating
income increased $3.0 million during the year ended December 31, 2008 compared
to 2007. The increase in income was related to sales growth and
leveraging of expenses.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, increased 7.7%, including acquisition
growth and favorable currency translation, during the year ended December 31,
2008 compared to 2007. Strong growth occurred in the Orthodontic,
Endodontic and Latin American businesses.
Operating
income increased $19.2 million during the year ended December 31, 2008 compared
to 2007. The increase in operating profits was driven primarily by
sales growth and leveraging of expenses.
Dental
Laboratory Business/Implants/Non-Dental
Net
sales, excluding precious metal content, increased 9.5%, including favorable
impact of currency translation, during the year ended December 31, 2008 compared
to 2007. Strong growth occurred in the dental implant products and
from acquisition related activity.
Operating
income increased $12.5 million during the year ended December 31, 2008 compared
to 2007. The increase in operating profits was driven primarily by
sales growth in the dental implant products and leveraging of expenses in the
dental laboratory products.
FOREIGN
CURRENCY
Since
approximately 63% of the Company's 2009 net sales, excluding precious metal
content, were generated in currencies other than the U.S. dollar, the value of
the U.S. dollar in relation to those currencies affects the results of
operations of the Company. The impact of currency fluctuations in any
given period can be favorable or unfavorable. The impact of foreign
currency fluctuations of European currencies on operating income is partially
offset by sales in the United States of products sourced from plants and third
party suppliers located overseas, principally in Germany and
Switzerland.
CRITICAL
ACCOUNTING JUDGMENTS AND POLICIES
The
preparation of the Company’s consolidated financial statements in conformity
with US GAAP requires the Company to make estimates and assumptions about future
events that affect the amounts reported in the consolidated financial statements
and accompanying notes. Future events and their effects cannot be
determined with absolute certainty. Therefore, the determination of
estimates requires the exercise of judgment. Actual results could
differ from those estimates, and such differences may be material to the
consolidated financial statements. The process of determining
significant estimates is fact specific and takes into account factors such as
historical experience, current and expected economic conditions, product mix and
in some cases, actuarial techniques. The Company evaluates these significant
factors as facts and circumstances dictate. Some events as described
below have caused results to differ significantly from those determined using
estimates. The Company has identified below the accounting estimates
believed to be critical to its business and results of operations.
Accounts
Receivable
The
Company sells dental products both through a worldwide network of distributors
and directly to end users. For customers on credit terms, the Company
performs an ongoing credit evaluation of those customers' financial condition
and generally does not require collateral from them. The Company
establishes allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. If the
financial condition of the Company’s customers were to improve or deteriorate,
their ability to make required payments may become less or more impaired and
decreases or increases in these allowances may be required. In
addition, a negative impact on sales to those customers may occur.
Inventories
Inventories
are stated at the lower of cost or market. The cost of inventories is
determined primarily by the first-in, first-out (“FIFO”) or average cost
methods, with a small portion being determined by the last in, first-out
(“LIFO”) method. The Company establishes reserves for inventory
estimated to be obsolete or unmarketable equal to the difference between the
cost of inventory and estimated market value based upon assumptions about future
demand and market conditions. If actual market conditions are less
favorable than those anticipated, additional inventory reserves may be
required.
Goodwill
and Other Long-Lived Assets
Goodwill
The
Company follows the accounting standards for goodwill, which requires an annual
test for impairment to goodwill using a fair value approach. In
addition to minimum annual impairment tests, the Company also requires that
impairment assessments be made more frequently if events or changes in
circumstances indicate that the goodwill might be impaired. If
impairment related to goodwill is identified as a result of impairment tests,
the resulting charge is determined by recalculating goodwill through a
hypothetical purchase price allocation of the fair value and reducing the
current carrying value to the extent it exceeds the recalculated
goodwill.
Other Long-Lived
Assets
Other
long-lived assets, such as definite-lived intangible assets and fixed assets,
are amortized or depreciated over their estimated useful lives. In
accordance with US GAAP, these assets are reviewed for impairment whenever
events or circumstances provide evidence that suggest that the carrying amount
of the asset may not be recoverable based upon an evaluation of the identifiable
undiscounted cash flows. If impaired based on the identifiable
undiscounted cash flows, the asset’s fair value is determined using the
discounted cash flow and market participant assumptions. The
resulting charge reflects the excess of the asset’s carrying cost over its fair
value.
Impairment
Assessment
Assessment
of the potential impairment of goodwill and other long-lived assets is an
integral part of the Company’s normal ongoing review of
operations. Testing for potential impairment of these assets is
significantly dependent on numerous assumptions and reflects management’s best
estimates at a particular point in time. The dynamic economic
environments in which the Company’s businesses operate and key economic and
business assumptions with respect to projected selling prices, increased
competition and introductions of new technologies can significantly affect the
outcome of impairment tests. Estimates based on these assumptions may
differ significantly from actual results. Changes in factors and
assumptions used in assessing potential impairments can have a significant
impact on the existence and magnitude of impairments, as well as the time at
which such impairments are recognized. If there are unfavorable
changes in these assumptions, particularly changes in the Company’s discount
rates, earnings multiples and future cash flows, the Company may be required to
recognize impairment charges. If the overall global economy continues
to experience recessionary conditions, the economic outlook for the assets being
evaluated could also result in additional impairment charges being
recognized. Information with respect to the Company’s significant
accounting policies on goodwill and other long-lived assets are included in Note
1, Significant Accounting Policies, to the consolidated financial
statements.
Pension
and Other Postretirement Benefits
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored defined benefit or defined contribution
plans. Additionally, certain union and salaried employee groups in
the U.S. are covered by postretirement healthcare plans. Costs
for Company-sponsored plans are based on expected return on plan assets,
discount rates, employee compensation increase rates and health care cost
trends. Expected return on plan assets, discount rates and health
care cost trend assumptions are particularly important when determining the
Company’s benefit obligations and net periodic benefit costs associated with
postretirement benefits. Changes in these assumptions can impact the
Company’s pretax earnings. In determining the cost of postretirement
benefits, certain assumptions are established annually to reflect market
conditions and plan experience to appropriately reflect the expected costs as
actuarially determined. These assumptions include medical inflation
trend rates, discount rates, employee turnover and mortality
rates. In establishing its discount rates, the Company predominantly
uses observed indices of high-grade corporate bond yields with durations that
are equivalent to the expected duration of the underlying
liability. The discount rate for each plan is based on observed
corporate bond yield indices in the respective economic region covered by the
plan. The expected return on plan assets is the weighted average
long-term expected return based upon asset allocations and historic average
returns for the markets where the assets are invested, principally in foreign
locations. Additional information related to the impact of changes in
these assumptions is provided in Note 13, Benefit Plans, to the consolidated
financial statements.
Litigation
The
Company and its subsidiaries are from time to time parties to lawsuits arising
out of their respective operations. The Company records liabilities
when a loss is probable and can be reasonably estimated. These
estimates are typically in the form of ranges, and the Company records the
liabilities at the low point of the ranges. The ranges established by
management are based on an analysis made by internal and external legal counsel
who considers information known at the time. If the Company
determines a liability to be only reasonably possible, it considers the same
information to estimate the possible exposure and disclose any material
potential liability. These loss contingencies are monitored regularly
for a change in fact or circumstance that would require an accrual
adjustment. The Company believes it has estimated liabilities for
probable losses well in the past; however, the unpredictability of litigation
and court decisions could cause a liability to be incurred in excess of
estimates. Legal costs related to these lawsuits are expensed as
incurred.
Accruals
for Product Returns, Customer Rebates and Product Warranties
The
Company makes provisions for customer returns, customer rebates and for product
warranties at the time of sale. These accruals are based on past
history, projections of customer purchases and sales and expected product
performance in the future. Because the actual results for product
returns, rebates and warranties are dependent in part on future events, these
matters require the use of estimates. The Company has a long history
of product performance in the dental industry and thus has an extensive
knowledge base from which to draw in measuring these estimates.
Income
Taxes
Income
taxes are determined using the liability method of accounting for income
taxes. The Company’s tax expense includes the U.S. and international
income taxes plus the provision for U.S. taxes on undistributed earnings of
international subsidiaries not deemed to be permanently invested.
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position.
Certain
items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of such temporary
differences is reported as deferred income taxes. Deferred tax assets
are recognized if it is more likely than not that the assets will be realized in
future years. The Company establishes a valuation allowance for
deferred tax assets for which realization is not likely. As of
December 31, 2009, the Company recorded a valuation allowance of $51.8 million
against the benefit of certain deferred tax assets of foreign and domestic
subsidiaries.
The
Company operates within multiple taxing jurisdictions and in the normal course
of business is examined in various jurisdictions. The reversal of the
accruals is recorded when examinations are completed, statutes of limitation are
closed or tax laws are changed.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
flows from operating activities during the year ended December 31, 2009 were
$362.5 million compared to $336.0 million during the year ended December 31,
2008. The increase of $26.5 million was primarily the result of favorable
working capital changes versus the prior year offset by lower earnings in the
2009 period compared to 2008. While net income decreased by $8.9 million to
$274.4 million, the Company had lower working capital
requirements. Improved inventory management in 2009 when compared to
2008 resulted in a $60.5 million generation of cash flow, which was partially
offset by an increase in accounts receivable and a decrease in accounts payables
and accrued liabilities. The Company’s cash, cash equivalents and
short-term investments increased by $246.1 million during the year ended
December 31, 2009 to $450.4 million.
For
the years ended December 31, 2009 and 2008, the number of days for sales
outstanding in accounts receivable was 55 days and 54 days,
respectively. On a constant currency basis, the number of days in
inventory was 99 days and 103 days for the years ended December 31, 2009 and
2008, respectively.
Investing
activities during 2009 include capital expenditures of $56.5
million. The Company expects that capital expenditures will be
between $70.0 million and $80.0 million for the full year of
2010. Activity related to the acquisition of businesses, for the year
ended December 31, 2009, was $3.0 million, which was primarily related to a
final payment on an acquisition from a previous year. (See Note 3,
Business Acquisitions, to the consolidated financial statements).
At
December 31, 2009, the Company had authorization to maintain up to 17.0 million
shares of treasury stock under its stock repurchase program as approved by the
Board of Directors. Under this program, the Company purchased approximately 2.5
million shares during 2009 at an average price of $32.09. As of December 31,
2009 and 2008, the Company held 15.8 million and 14.2 million shares of treasury
stock, respectively. The Company also received proceeds of $13.4 million
primarily as a result of 0.9 million stock option exercises during the year
ended December 31, 2009.
DENTSPLY's
total long-term debt, including the current portion, at December 31, 2009 and
2008 was $453.7 million and $427.7 million, respectively. The Company’s
long-term borrowings increased by a net of $26.0 million during the year ended
December 31, 2009. This net change included net increase in borrowings of $30.2
million during the year ended 2009, less a decrease of $4.2 million due to
exchange rate fluctuations on debt denominated in foreign
currencies. During the year ended December 31, 2009, the Company’s
ratio of long-term debt, including the current portion, to total capitalization
decreased to 19.2% compared to 20.5% at December 31, 2008. DENTSPLY
defines total capitalization as the sum of total long-term debt, including the
current portion, plus total equity.
Under its
multi-currency revolving credit agreement, the Company is able to borrow up to
$500.0 million through May 9, 2010. This facility is unsecured and contains
certain affirmative and negative covenants relating to its operations and
financial condition. The most restrictive of these covenants pertain to asset
dispositions and prescribed ratios of indebtedness to total capital and
operating income excluding depreciation and amortization to interest
expense. At December 31, 2009, the Company was in compliance with
these covenants. The Company also has available an aggregate $250.0 million
under its U.S. commercial paper facility. The multi-currency revolving credit
facility serves as a back-up to the commercial paper facility. The
total available credit under the commercial paper facility and the
multi-currency facility in the aggregate is $500.0 million with $62.8 million
outstanding under the multi-currency facility and $85.2 million outstanding
under the commercial paper facility at December 31,
2009. Management’s intent is to replace only a portion of the
maturing facility, and expects to complete this in the second quarter of
2010.
The
Company also has access to $72.5 million in uncommitted short-term financing
under lines of credit from various financial institutions. The lines of credit
have no major restrictions and are provided under demand notes between the
Company and the lending institutions. At December 31, 2009, $15.6 million was
outstanding under these short-term lines of credit. At December 31, 2009,
the Company had total unused lines of credit related to the revolving credit
agreement and the uncommitted short-term lines of credit of $404.9
million.
At
December 31, 2009, the Company held $103.7 million of precious metals on
consignment from several financial institutions. These consignment agreements
allow the Company to acquire the precious metal at market rates at a point in
time, which is approximately the same time, and for the same price as alloys are
sold to the Company’s customers. In the event that the financial institutions
would discontinue offering these consignment arrangements, and if the Company
could not obtain other comparable arrangements, the Company may be required to
obtain third party financing to fund an ownership position in the required
precious metal inventory levels.
On
October 16, 2009, the Company and a group of investors agreed to a new $250.0
million Private Placement Note (“PPN”) to be funded not later than February 19,
2010 with an average maturity of five years and a final maturity of six years at
a fixed rate of 4.11%. The PPN is unsecured and contains certain
affirmative and negative covenants relating to its operations and financial
condition of the Company similar in substance to the existing $150.0 million
U.S. Private Placement Note maturing March 15, 2010.
In
accordance with the terms of PPN Purchase Agreement (the “Agreement”), the
Company received net proceeds of $250.0 million on February 19,
2010. The proceeds will be used to refinance the $150.0 million U.S.
Private Placement Note due on March 15, 2010 with the remaining proceeds used to
repay the commercial paper borrowing of $85.2 million and fund book overdrafts
of $4.0 million. As of December 31, 2009, the Company has classified
$239.2 million as long-term debt. The long-term debt classification
is supported by the fact that the Company has demonstrated its intent and
ability to fund existing short-term debt with the proceeds from the
PPN. Additionally, the Agreement has an average maturity of five
years, and the lenders are not permitted to cancel the Agreement or accelerate
repayments. The Agreement does not contain a material adverse change
clause subsequent to funding.
The
following table presents the Company's scheduled contractual cash obligations at
December 31, 2009:
Contractual Obligations
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
(in thousands)
|
|
Less Than
|
|
|
1-3
|
|
|
3-5
|
|
|
Than
|
|
|
|
|
|
|
1
Year
|
|
|
Years
|
|
|
Years
|
|
|
5
Years
|
|
|
Total
|
|
Long-term
borrowings (a)
|
|
$ |
66,580 |
|
|
$ |
144,769 |
|
|
$ |
76,897 |
|
|
$ |
165,485 |
|
|
$ |
453,731 |
|
Operating
leases
|
|
|
26,688 |
|
|
|
31,021 |
|
|
|
12,088 |
|
|
|
12,423 |
|
|
|
82,220 |
|
Interest
on long-term borrowings, net of interest rate swap
agreements
|
|
|
19,181 |
|
|
|
32,147 |
|
|
|
19,336 |
|
|
|
5,537 |
|
|
|
76,201 |
|
Postretirement
obligations
|
|
|
8,619 |
|
|
|
18,283 |
|
|
|
21,233 |
|
|
|
62,229 |
|
|
|
110,364 |
|
Cross
currency swaps
|
|
|
52,411 |
|
|
|
21,487 |
|
|
|
102,723 |
|
|
|
- |
|
|
|
176,621 |
|
Precious
metal consignment agreements
|
|
|
103,671 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
103,671 |
|
|
|
$ |
277,150 |
|
|
$ |
247,707 |
|
|
$ |
232,277 |
|
|
$ |
245,674 |
|
|
$ |
1,002,808 |
|
|
(a)
|
Refer
to Note 10, Financing Arrangements, to the consolidated financial
statements for information on the Company’s classification of debt between
short-term and long-term.
|
Due to
the uncertainty with respect to the timing of future cash flows associated with
the Company’s unrecognized tax benefits at December 31, 2009, the Company is
unable to make reasonably reliable estimates of the period of cash settlement
with the respective taxing authority. Therefore, $18.4 million of the
unrecognized tax benefit has been excluded from the contractual obligations
table above (See Note 12, Income Taxes, to the consolidated financial
statements).
The
Company expects on an ongoing basis to be able to finance cash requirements,
including capital expenditures, stock repurchases, debt service, operating
leases and potential future acquisitions, from the current cash, cash
equivalents and short-term investment balances, funds generated from operations
and amounts available under its existing credit facilities, which is further
discussed in Note 10, Financing Arrangements, to the consolidated financial
statements. As noted in the Company’s Consolidated Statements of Cash
Flows, the Company continues to generate strong cash flows from operations,
which is used to finance the Company’s activities.
NEW
ACCOUNTING PRONOUNCEMENTS
Refer to
Note 1, Significant Accounting Policies, to the Consolidated Financial
Statements for a discussion of recent accounting guidance and
pronouncements.
Item
7A.
QUANTITATIVE
AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The
Company's major market risk exposures are changing interest rates, movements in
foreign currency exchange rates and potential price volatility of commodities
used by the Company in its manufacturing processes. The Company's policy is to
manage interest rates through the use of floating rate debt and interest rate
swaps to adjust interest rate exposures when appropriate, based upon market
conditions. The Company employs foreign currency denominated debt and currency
swaps which serve to partially offset the Company's exposure on its net
investments in subsidiaries denominated in foreign currencies. The Company's
policy generally is to hedge major foreign currency transaction exposures
through foreign exchange forward contracts. These contracts are entered into
with major financial institutions thereby minimizing the risk of credit loss. In
order to limit the unanticipated earnings fluctuations from volatility in
commodity prices, the Company selectively enters into commodity swaps to convert
variable raw material costs to fixed costs. The Company does not hold or issue
derivative financial instruments for speculative or trading purposes. The
Company is subject to other foreign exchange market risk exposure in addition to
the risks on its financial instruments, such as possible impacts on its pricing
and production costs, which are difficult to reasonably predict, and have
therefore not been included in the table below. All items described are
non-trading and are stated in U.S. dollars.
Financial
Instruments
The fair
value of financial instruments is determined by reference to various market data
and other valuation techniques as appropriate. The Company believes the carrying
amounts of cash and cash equivalents, short-term investments, accounts
receivable (net of allowance for doubtful accounts), prepaid expenses and other
current assets, accounts payable, accrued liabilities, income taxes payable and
notes payable approximate fair value due to the short-term nature of these
instruments. The Company estimates the fair value and carrying value of its
total debt, including the current portion of long-term debt, was $453.7 million
and $427.7 million as of December 31, 2009 and 2008, respectively. The fair
value of the Company’s long-term debt equaled its carrying value as the
Company’s debt is variable rate and reflects current market rates. The interest
rates on private placement notes, revolving debt and commercial paper are
variable and therefore the fair value of these instruments approximates carrying
values. The following table shows the Company’s principal outstanding
debt amounts and the associated weighted average interest rates as of December
31, 2009.
EXPECTED MATURITY
DATES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
Carrying
|
|
|
Fair
|
|
(in thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
beyond
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
Payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
dollar denominated
|
|
$ |
5,341 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,341 |
|
|
$ |
5,341 |
|
Average
interest rate
|
|
|
3.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.04 |
% |
|
|
|
|
Taiwan
dollar denominated
|
|
|
150 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
150 |
|
|
|
150 |
|
Average
interest rate
|
|
|
0.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00 |
% |
|
|
|
|
Euro
denominated
|
|
|
9,721 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
9,721 |
|
|
|
9,721 |
|
Average
interest rate
|
|
|
2.53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.53 |
% |
|
|
|
|
Brazil
Reais denominated
|
|
|
382 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
382 |
|
|
|
382 |
|
Average
interest rate
|
|
|
13.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13.43 |
% |
|
|
|
|
Total
Notes Payable
|
|
$ |
15,594 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
15,594 |
|
|
$ |
15,594 |
|
|
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.95 |
% |
|
|
|
|
Current
Portion of Long-term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss
franc denominated
|
|
$ |
62,844 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
62,844 |
|
|
$ |
62,844 |
|
Average
interest rate
|
|
|
0.60 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.60 |
% |
|
|
|
|
Euro
denominated
|
|
|
3,736 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,736 |
|
|
|
3,736 |
|
Average
interest rate
|
|
|
1.59 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.59 |
% |
|
|
|
|
Total
Current Portion of Long-Term Debt
|
|
$ |
66,580 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
66,580 |
|
|
$ |
66,580 |
|
|
|
|
0.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long
Term Debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
dollar denominated
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
75,015 |
|
|
$ |
164,167 |
|
|
$ |
239,182 |
|
|
$ |
239,182 |
|
Average
interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.56 |
% |
|
|
0.41 |
% |
|
|
0.46 |
% |
|
|
|
|
Japanese
yen denominated
|
|
|
- |
|
|
|
- |
|
|
|
134,776 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
134,776 |
|
|
|
134,776 |
|
Average
interest rate
|
|
|
|
|
|
|
|
|
|
|
1.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.00 |
% |
|
|
|
|
Euro
denominated
|
|
|
- |
|
|
|
5,299 |
|
|
|
4,694 |
|
|
|
1,215 |
|
|
|
667 |
|
|
|
1,318 |
|
|
|
13,193 |
|
|
|
13,193 |
|
Average
interest rate
|
|
|
|
|
|
|
2.06 |
% |
|
|
3.59 |
% |
|
|
2.21 |
% |
|
|
2.93 |
% |
|
|
2.71 |
% |
|
|
2.73 |
% |
|
|
|
|
Total
Long Term Debt, net current portion
|
|
$ |
- |
|
|
$ |
5,299 |
|
|
$ |
139,470 |
|
|
$ |
1,215 |
|
|
$ |
75,682 |
|
|
$ |
165,485 |
|
|
$ |
387,151 |
|
|
$ |
387,151 |
|
|
|
|
|
|
|
|
2.06 |
% |
|
|
1.09 |
% |
|
|
2.21 |
% |
|
|
0.58 |
% |
|
|
0.43 |
% |
|
|
0.72 |
% |
|
|
|
|
Derivative
Financial Instruments
The
Company employs derivative financial instruments to hedge certain anticipated
transactions, firm commitments, or assets and liabilities denominated in foreign
currencies. Additionally, the Company utilizes interest rate swaps to convert
floating rate debt to fixed rate, cross currency basis swaps to convert debt
denominated in one currency to another currency and commodity swaps to fix its
variable raw materials.
Foreign Exchange Risk
Management
The
Company enters into forward foreign exchange contracts to selectively hedge
assets and liabilities denominated in foreign currencies. Market value gains and
losses are recognized in income currently and the resulting gains or losses
offset foreign exchange gains or losses recognized on the foreign currency
assets and liabilities hedged.
The
Company selectively enters into forward foreign exchange contracts to hedge
anticipated purchases of product to effectively fix certain variable costs. The
forward foreign exchange contracts are used to stabilize the cost of certain of
the Company's products. The Company generally accounts for the forward foreign
exchange contracts as cash flow hedges. As a result, the Company
records the fair value of the contract primarily through other comprehensive
income based on the tested effectiveness of the forward foreign exchange
contracts. Realized gains or losses in other comprehensive income are released
and recorded to costs of products sold as the products associated with the
forward foreign exchange contracts are sold. The Company measures the
effectiveness of cash flow hedges of anticipated transactions on a spot to spot
basis rather than on a forward to forward basis. Accordingly, any time value
component of the hedge fair value is deemed ineffective and will be reported
currently as interest expense in the period which it is applicable. The spot to
spot change in the derivative fair value will be deferred in other comprehensive
income and released and recorded to costs of products sold as the products
associated with the forward foreign exchange contracts are sold. Any cash flows
associated with these instruments are included in cash from operations in
accordance with the Company’s policy of classifying the cash flows from these
instruments in the same category as the cash flows from the items being
hedged.
Determination
of hedge activity is based upon market conditions, the magnitude of the foreign
currency assets and liabilities and perceived risks. These foreign
exchange contracts generally have maturities of less than twelve months and the
counterparties to the transactions are typically large international financial
institutions. The Company’s significant contracts outstanding as of
December 31, 2009 are summarized in the table that follows.
EXPECTED MATURITY
DATES
(represents notional amounts
for derivative financial instruments)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
Carrying
|
|
|
Fair
|
|
(in thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
beyond
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange Forward Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
sale, 13.3 million Australian dollars
|
|
$ |
11,268 |
|
|
$ |
635 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(316 |
) |
|
$ |
(316 |
) |
Forward
purchase, 6.2 million British pounds
|
|
|
(9,728 |
) |
|
|
(298 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
226 |
|
|
|
226 |
|
Forward
sale, 16.4 million Canadian dollars
|
|
|
15,117 |
|
|
|
560 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(927 |
) |
|
|
(927 |
) |
Forward
purchase, 7.0 million Swiss francs
|
|
|
(6,804 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15 |
) |
|
|
(15 |
) |
Forward
sale, 7.5 million Danish Krone
|
|
|
1,454 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13 |
|
|
|
13 |
|
Forward
purchase, 0.1 million Euros
|
|
|
(18 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13 |
|
|
|
13 |
|
Forward
sale, 83.3 million Japanese yen
|
|
|
895 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
628 |
|
|
|
628 |
|
Forward
sale, 96.7 million Mexican Pesos
|
|
|
7,390 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
94 |
|
|
|
94 |
|
Forward
sale, 1.2 billion South Korean won
|
|
|
999 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
|
|
|
10 |
|
Forward
sale, 6.5 million Taiwanese dollars
|
|
|
202 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
|
|
(2 |
) |
Total
Foreign Exchange Forward Contracts
|
|
$ |
20,775 |
|
|
$ |
897 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(276 |
) |
|
$ |
(276 |
) |
The
Company has numerous investments in foreign subsidiaries. The net assets of
these subsidiaries are exposed to volatility in currency exchange rates.
Currently, the Company uses both non-derivative financial instruments, including
foreign currency denominated debt held at the parent company level and
derivative financial instruments to hedge some of this exposure. Translation
gains and losses related to the net assets of the foreign subsidiaries are
offset by gains and losses in the non-derivative and derivative financial
instruments designated as hedges of net investments, which are included in
accumulated other comprehensive income.
In the
first quarter of 2005, the Company entered into cross currency interest rate
swaps with a notional principal value of Swiss francs 457.5 million paying three
month Swiss franc LIBOR and receiving three month U.S. dollar LIBOR on $384.4
million. In the first quarter of 2006, the Company entered into additional cross
currency interest rate swaps with a notional principal value of Swiss francs
55.5 million paying three month Swiss franc LIBOR and receiving three month U.S.
dollar LIBOR on $42.0 million. In the fourth quarter of 2006, the Company
entered into additional cross currency interest rate swaps with a notional
principal value of Swiss francs 80.4 million paying three month Swiss franc
LIBOR and receiving three month U.S. dollar LIBOR on $64.4 million. In the first
quarter of 2007, the Company entered into additional cross currency interest
rate swaps with a notional principal value of Swiss francs 56.6 million paying
three month Swiss franc LIBOR and receiving three month U.S. dollar LIBOR on
$46.3 million. Additionally, in the fourth quarter of 2005, the Company entered
into cross currency interest rate swaps with a notional principal value of Euro
358.0 million paying three month Euro LIBOR and receiving three month U.S.
dollar LIBOR on $419.7 million. In the first quarter of 2009, the
Company terminated Swiss francs 57.5 million cross currency swap at a fair value
of zero. In the second and third quarters of 2009, the Company
amended certain of its Swiss franc and Euro cross currency interest rate swaps
to extend their maturity dates for an additional three
years. Specifically, a total of Swiss francs 300.0 million have been
extended to March and April of 2013 and a total of Euro 250.0 million have been
extended to December 2013. The Swiss franc and Euro cross currency
interest rate swaps are designated as net investment hedges of the Swiss and
Euro denominated net assets. The interest rate differential is recognized in the
earnings as interest income or interest expense as it is accrued. The foreign
currency revaluation is recorded in accumulated other comprehensive income, net
of tax effects.
At
December 31, 2009 and 2008, the Company had Euro-denominated, Swiss
franc-denominated, and Japanese yen-denominated debt and cross currency interest
rate swaps (at the parent company level) to hedge the currency exposure related
to a designated portion of the net assets of its European, Swiss and Japanese
subsidiaries. The fair value of the cross currency interest rate swap agreements
is the estimated amount the Company would (pay) receive at the reporting date,
taking into account the effective interest rates and foreign exchange rates. As
of December 31, 2009 and December 31, 2008, the estimated net fair values of the
cross currency interest rate swap agreements were negative $176.6 million and
negative $148.9 million, respectively, which are recorded in accumulated other
comprehensive income, net of tax effects. At December 31, 2009 and 2008, the
accumulated translation gains on investments in foreign subsidiaries, primarily
denominated in Euros, Swiss francs and Japanese Yen, net of these net investment
hedges, were $111.1 million and $77.6 million, respectively, which were included
in accumulated other comprehensive income, net of tax effects. The Company’s
outstanding debt denominated in foreign currencies and the outstanding cross
currency interest rate swaps as of December 31, 2009 are summarized in the table
that follows.
EXPECTED MATURITY
DATES
(represents notional amounts
for derivative financial instruments)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
Carrying
|
|
|
Fair
|
|
(in thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
beyond
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross
Currency Basis Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss
franc 592.5 million @ $1.21
|
|
$ |
150,343 |
|
|
$ |
77,734 |
|
|
$ |
54,723 |
|
|
$ |
290,051 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(83,979 |
) |
|
$ |
(83,979 |
) |
pay
CHF 3mo. LIBOR rec. USD 3mo. LIBOR
|
|
|
0.02 |
% |
|
|
(0.02 |
)% |
|
|
(0.02 |
)% |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euros
358.0 million @ $1.17
|
|
|
154,827 |
|
|
|
- |
|
|
|
- |
|
|
|
358,395 |
|
|
|
- |
|
|
|
- |
|
|
|
(92,642 |
) |
|
|
(92,642 |
) |
pay
EUR 3mo. LIBOR rec. USD 3mo. LIBOR
|
|
|
0.46 |
% |
|
|
|
|
|
|
|
|
|
|
0.56 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Cross Currency Basis Swaps
|
|
$ |
305,170 |
|
|
$ |
77,734 |
|
|
$ |
54,723 |
|
|
$ |
648,446 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(176,621 |
) |
|
$ |
(176,621 |
) |
Interest Rate Risk
Management
The
Company uses interest rate swaps to convert a portion of its variable rate debt
to fixed rate debt. As of December 31, 2009, the Company has three groups of
significant variable rate to fixed rate interest rate swaps. One of the groups
of swaps has notional amounts totaling 12.6 billion Japanese Yen, and
effectively converts the underlying variable interest rates to an average fixed
rate of 1.6% for a term of ten years, ending in March 2012. Another swap has a
notional amount of 65.0 million Swiss francs, and effectively converts the
underlying variable interest rates to a fixed rate of 4.2% for a term of seven
years, ending in March 2012. A third group of swaps has a notional amount of
$150.0 million, and effectively converts the underlying variable interest rates
to a fixed rate of 3.9% for a term of two years, ending March
2010. The Company’s significant contracts outstanding as of December
31, 2009 are summarized in the table that follows.
EXPECTED MATURITY
DATES
(represents notional amounts
for derivative financial instruments)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
Carrying
|
|
|
Fair
|
|
(in thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
beyond
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Rate Swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps - Euro
|
|
$ |
2,056 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
3,046 |
|
|
$ |
(882 |
) |
|
$ |
(882 |
) |
Average
interest rate
|
|
|
2.5 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
3.8 |
% |
|
|
|
|
|
|
|
|
Interest
rate swaps - Japanese yen
|
|
|
- |
|
|
|
- |
|
|
|
134,776 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(3,351 |
) |
|
|
(3,351 |
) |
Average
interest rate
|
|
|
|
|
|
|
|
|
|
|
1.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps - Swiss francs
|
|
|
- |
|
|
|
- |
|
|
|
62,844 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(4,470 |
) |
|
|
(4,470 |
) |
Average
interest rate
|
|
|
|
|
|
|
|
|
|
|
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps - U.S. dollars
|
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,084 |
) |
|
|
(1,084 |
) |
Average
interest rate
|
|
|
3.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Rate Swaps
|
|
$ |
152,056 |
|
|
$ |
1,354 |
|
|
$ |
198,974 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
3,046 |
|
|
$ |
(9,787 |
) |
|
$ |
(9,787 |
) |
Commodity Risk
Management
The
Company selectively enters into commodity swaps to effectively fix certain
variable raw material costs. These swaps are used purely to stabilize the cost
of components used in the production of certain of the Company's products. The
Company generally accounts for the commodity swaps as cash flow hedges. As a
result, the Company records the fair value of the swap primarily through other
comprehensive income based on the tested effectiveness of the commodity swap.
Realized gains or losses in other comprehensive income are released and recorded
to costs of products sold as the products associated with the commodity swaps
are sold. The Company measures the effectiveness of cash flow hedges of
anticipated transactions on a spot to spot basis rather than on a forward to
forward basis. Accordingly, any time value component of the hedge fair value is
deemed ineffective and will be reported currently as interest expense in the
period which it is applicable. The spot to spot change in the derivative fair
value will be deferred in other comprehensive income and released and recorded
to costs of products sold as the products associated with the forward foreign
exchange contracts are sold. Any cash flows associated with these instruments
are included in cash from operations in accordance with the Company’s policy of
classifying the cash flows from these instruments in the same category as the
cash flows from the items being hedged. The Company’s significant
contracts outstanding as of December 31, 2009 are summarized in the table that
follows.
EXPECTED MATURITY
DATES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 and
|
|
|
Carrying
|
|
|
Fair
|
|
(in thousands)
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
beyond
|
|
|
Value
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity
Contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
Swap - U.S. dollar
|
|
$ |
(977 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
129 |
|
|
$ |
129 |
|
Platinum
Swap - U.S. dollar
|
|
|
(790 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
164 |
|
|
|
164 |
|
Total
Commodity Contracts
|
|
$ |
(1,767 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
293 |
|
|
$ |
293 |
|
Off
Balance Sheet Arrangements
Consignment
Arrangements
The
Company consigns the precious metals used in the production of precious metal
dental alloy products from various financial institutions. Under these
consignment arrangements, the banks own the precious metal, and, accordingly,
the Company does not report this consigned inventory as part of its inventory on
its consolidated balance sheet. These agreements are cancelable by either party
at the end of each consignment period, which typically run for a period of one
to nine months; however, because the Company typically has access to numerous
financial institutions with excess capacity, consignment needs created by
cancellations can be shifted among the other institutions. The consignment
agreements allow the Company to take ownership of the metal at approximately the
same time customer orders are received and to closely match the price of the
metal acquired to the price charged to the customer (i.e., the price charged to
the customer is largely a pass through).
As
precious metal prices fluctuate, the Company evaluates the impact of the
precious metal price fluctuation on its target gross margins for precious metal
dental alloy products and revises the prices customers are charged for precious
metal dental alloy products accordingly, depending upon the magnitude of the
fluctuation. While the Company does not separately invoice customers for the
precious metal content of precious metal dental alloy products, the underlying
precious metal content is the primary component of the cost and sales price of
the precious metal dental alloy products. For practical purposes, if the
precious metal prices go up or down by a small amount, the Company will not
immediately modify prices, as long as the cost of precious metals embedded in
the Company’s precious metal dental alloy price closely approximates the market
price of the precious metal. If there is a significant change in the price of
precious metals, the Company adjusts the price for the precious metal dental
alloys, maintaining its margin on the products.
At
December 31, 2009, the Company had 109,268 troy ounces of precious metal,
primarily gold, platinum and palladium, on consignment for periods of less than
one year with a market value of $103.7 million. Under the terms of the
consignment agreements, the Company also makes compensatory payments to the
consignor banks based on a percentage of the value of the consigned precious
metals inventory. At December 31, 2009, the average annual rate charged by the
consignor banks was 1.20%. These compensatory payments are considered
to be a cost of the metals purchased and are recorded as part of the cost of
products sold.
Management's
Report on Internal Control Over Financial Reporting
The
management of the Company is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934, as
amended. The Company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America. A Company’s internal control over financial
reporting includes those policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the Company; provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
Management of the Company has assessed
the effectiveness of the Company's internal control over financial reporting as
of December 31, 2009. In making its assessment, management used the
criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Based on its
assessment management concluded that, as of December 31, 2009, the Company’s
internal control over financial reporting was effective based on the criteria
established in Internal Control –
Integrated Framework issued by the COSO.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009 has been audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report, which appears
herein.
/s/
|
Bret W. Wise
|
|
|
/s/
|
William R. Jellison
|
|
|
Bret
W. Wise
|
|
|
|
William
R. Jellison
|
|
|
Chairman
of the Board and
|
|
|
|
Senior
Vice President and
|
|
|
Chief
Executive Officer
|
|
|
|
Chief
Financial Officer
|
|
|
February
22, 2010
|
|
|
|
February
22, 2010
|
|
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders
of
DENTSPLY International Inc
In our opinion, the
consolidated financial
statements listed in the index appearing under Item 15(a)(1) present fairly, in all material
respects, the financial position of DENTSPLY International Inc and its
subsidiaries at December 31, 2009 and 2008, and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2)
presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial
statements. Also in our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of
December 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The Company's management is responsible
for these financial statements and the financial statement schedule, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial
reporting, included in “Management's Report on Internal Control over
Financial Reporting” appearing under Item 15(a)(1). Our responsibility is to
express opinions on these financial statements, on the financial statement
schedule, and on the Company's internal control over financial reporting based
on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal control over
financial reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our
audits also included performing such other procedures as we considered necessary
in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As
discussed in Note 1 to the consolidated financial statements, in 2009 the
Company changed its method of presenting noncontrolling interests.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. In addition, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
/s/
|
PricewaterhouseCoopers
LLP
|
|
PricewaterhouseCoopers
LLP
|
|
Philadelphia,
Pennsylvania
|
|
February
22, 2010
|
DENTSPLY
INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(in
thousands, except per share amounts)
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
2,159,916 |
|
|
$ |
2,193,723 |
|
|
$ |
2,009,833 |
|
Cost
of products sold
|
|
|
1,048,612 |
|
|
|
1,041,779 |
|
|
|
969,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
1,111,304 |
|
|
|
1,151,944 |
|
|
|
1,040,783 |
|
Selling,
general and administrative expenses
|
|
|
723,227 |
|
|
|
739,168 |
|
|
|
675,365 |
|
Restructuring,
impairments and other costs
|
|
|
6,890 |
|
|
|
32,355 |
|
|
|
10,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
381,187 |
|
|
|
380,421 |
|
|
|
354,891 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
21,896 |
|
|
|
32,527 |
|
|
|
23,783 |
|
Interest
income
|
|
|
(5,032 |
) |
|
|
(17,089 |
) |
|
|
(26,428 |
) |
Other
expense (income), net
|
|
|
967 |
|
|
|
10,110 |
|
|
|
(656 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
363,356 |
|
|
|
354,873 |
|
|
|
358,192 |
|
Provision
for income taxes
|
|
|
88,944 |
|
|
|
71,603 |
|
|
|
98,481 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
274,412 |
|
|
|
283,270 |
|
|
|
259,711 |
|
Less:
Net income (loss) attributable
|
|
|
|
|
|
|
|
|
|
|
|
|
to
noncontrolling interests
|
|
|
154 |
|
|
|
(599 |
) |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to
|
|
|
|
|
|
|
|
|
|
|
|
|
DENTSPLY
International
|
|
$ |
274,258 |
|
|
$ |
283,869 |
|
|
$ |
259,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
1.85 |
|
|
$ |
1.90 |
|
|
$ |
1.71 |
|
Diluted
|
|
|
1.83 |
|
|
|
1.87 |
|
|
|
1.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.200 |
|
|
$ |
0.185 |
|
|
$ |
0.165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
148,319 |
|
|
|
149,069 |
|
|
|
151,707 |
|
Diluted
|
|
|
150,102 |
|
|
|
151,679 |
|
|
|
154,721 |
|
The
accompanying notes are an integral part of these financial
statements.
DENTSPLY
INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in
thousands)
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
450,348 |
|
|
$ |
203,991 |
|
Short-term
investments
|
|
|
37 |
|
|
|
258 |
|
Accounts
and notes receivable-trade, net
|
|
|
348,684 |
|
|
|
319,260 |
|
Inventories,
net
|
|
|
291,640 |
|
|
|
306,125 |
|
Prepaid
expenses and other current assets
|
|
|
127,087 |
|
|
|
120,228 |
|
Total
Current Assets
|
|
|
1,217,796 |
|
|
|
949,862 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
439,619 |
|
|
|
432,276 |
|
Identifiable
intangible assets, net
|
|
|
89,086 |
|
|
|
103,718 |
|
Goodwill,
net
|
|
|
1,312,596 |
|
|
|
1,277,026 |
|
Other
noncurrent assets, net
|
|
|
28,835 |
|
|
|
67,518 |
|
Total
Assets
|
|
$ |
3,087,932 |
|
|
$ |
2,830,400 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
100,847 |
|
|
$ |
104,329 |
|
Accrued
liabilities
|
|
|
249,169 |
|
|
|
193,660 |
|
Income
taxes payable
|
|
|
12,366 |
|
|
|
36,178 |
|
Notes
payable and current portion
|
|
|
|
|
|
|
|
|
of
long-term debt
|
|
|
82,174 |
|
|
|
25,795 |
|
Total
Current Liabilities
|
|
|
444,556 |
|
|
|
359,962 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
387,151 |
|
|
|
423,679 |
|
Deferred
income taxes
|
|
|
72,524 |
|
|
|
69,049 |
|
Other
noncurrent liabilities
|
|
|
276,743 |
|
|
|
318,297 |
|
Total
Liabilities
|
|
|
1,180,974 |
|
|
|
1,170,987 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; .25 million shares authorized; no shares
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value; 200 million shares authorized; 162.8 million shares
issued
at December 31, 2009 and December 31, 2008
|
|
|
1,628 |
|
|
|
1,628 |
|
Capital
in excess of par value
|
|
|
195,495 |
|
|
|
187,154 |
|
Retained
earnings
|
|
|
2,083,459 |
|
|
|
1,838,958 |
|
Accumulated
other comprehensive income
|
|
|
83,542 |
|
|
|
39,612 |
|
Treasury
stock, at cost, 15.8 million shares at December 31, 2009 and 14.2 million
shares
at December 31, 2008
|
|
|
(532,019 |
) |
|
|
(479,630 |
) |
Total
DENTSPLY International Equity
|
|
|
1,832,105 |
|
|
|
1,587,722 |
|
Noncontrolling
Interests
|
|
|
74,853 |
|
|
|
71,691 |
|
Total
Equity
|
|
|
1,906,958 |
|
|
|
1,659,413 |
|
Total
Liabilities and Equity
|
|
$ |
3,087,932 |
|
|
$ |
2,830,400 |
|
The
accompanying notes are an integral part of these financial
statements.
DENTSPLY
INTERNATIONAL INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF EQUITY AND COMPREHENSIVE INCOME
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
Other
|
|
|
|
|
|
DENTSPLY
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
International
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
$ |
1,628 |
|
|
$ |
168,135 |
|
|
$ |
1,352,342 |
|
|
$ |
79,914 |
|
|
$ |
(328,184 |
) |
|
$ |
1,273,835 |
|
|
$ |
239 |
|
|
$ |
1,274,074 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
259,654 |
|
|
|
- |
|
|
|
- |
|
|
|
259,654 |
|
|
|
57 |
|
|
|
259,711 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
106,231 |
|
|
|
- |
|
|
|
106,231 |
|
|
|
- |
|
|
|
106,231 |
|
Unrealized
loss on available-for-sale securities
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(333 |
) |
|
|
- |
|
|
|
(333 |
) |
|
|
- |
|
|
|
(333 |
) |
Net
loss on derivative financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(53,790 |
) |
|
|
- |
|
|
|
(53,790 |
) |
|
|
- |
|
|
|
(53,790 |
) |
Pension
liability adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
13,797 |
|
|
|
- |
|
|
|
13,797 |
|
|
|
- |
|
|
|
13,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
325,559 |
|
|
|
57 |
|
|
|
325,616 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
- |
|
|
|
(20,592 |
) |
|
|
- |
|
|
|
- |
|
|
|
66,186 |
|
|
|
45,594 |
|
|
|
- |
|
|
|
45,594 |
|
Tax
benefit from stock options exercised
|
|
|
- |
|
|
|
11,378 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,378 |
|
|
|
- |
|
|
|
11,378 |
|
Share
based compensation expense
|
|
|
- |
|
|
|
14,088 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,088 |
|
|
|
- |
|
|
|
14,088 |
|
Funding
of Employee Stock Option Plan
|
|
|
- |
|
|
|
39 |
|
|
|
- |
|
|
|
- |
|
|
|
312 |
|
|
|
351 |
|
|
|
- |
|
|
|
351 |
|
Treasury
shares purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(125,422 |
) |
|
|
(125,422 |
) |
|
|
- |
|
|
|
(125,422 |
) |
Adjustments
to initially apply changes in US GAAP
|
|
|
- |
|
|
|
- |
|
|
|
(4,282 |
) |
|
|
- |
|
|
|
- |
|
|
|
(4,282 |
) |
|
|
- |
|
|
|
(4,282 |
) |
RSU
dividends
|
|
|
- |
|
|
|
36 |
|
|
|
(36 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends ($0.165 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(24,995 |
) |
|
|
- |
|
|
|
- |
|
|
|
(24,995 |
) |
|
|
- |
|
|
|
(24,995 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
$ |
1,628 |
|
|
$ |
173,084 |
|
|
$ |
1,582,683 |
|
|
$ |
145,819 |
|
|
$ |
(387,108 |
) |
|
$ |
1,516,106 |
|
|
$ |
296 |
|
|
$ |
1,516,402 |
|
Purchase
of subsidiary shares from noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71,931 |
|
|
|
71,931 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
283,869 |
|
|
|
- |
|
|
|
- |
|
|
|
283,869 |
|
|
|
(599 |
) |
|
|
283,270 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(71,521 |
) |
|
|
- |
|
|
|
(71,521 |
) |
|
|
63 |
|
|
|
(71,458 |
) |
Net
loss on derivative financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,986 |
) |
|
|
- |
|
|
|
(13,986 |
) |
|
|
- |
|
|
|
(13,986 |
) |
Pension
liability adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(20,700 |
) |
|
|
- |
|
|
|
(20,700 |
) |
|
|
- |
|
|
|
(20,700 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
177,662 |
|
|
|
(536 |
) |
|
|
177,126 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
- |
|
|
|
(7,268 |
) |
|
|
- |
|
|
|
- |
|
|
|
19,994 |
|
|
|
12,726 |
|
|
|
- |
|
|
|
12,726 |
|
Tax
benefit from stock options exercised
|
|
|
- |
|
|
|
3,910 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,910 |
|
|
|
- |
|
|
|
3,910 |
|
Share
based compensation expense
|
|
|
- |
|
|
|
17,290 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
17,290 |
|
|
|
- |
|
|
|
17,290 |
|
Funding
of Employee Stock Option Plan
|
|
|
- |
|
|
|
62 |
|
|
|
- |
|
|
|
- |
|
|
|
118 |
|
|
|
180 |
|
|
|
- |
|
|
|
180 |
|
Treasury
shares purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(112,634 |
) |
|
|
(112,634 |
) |
|
|
- |
|
|
|
(112,634 |
) |
RSU
dividends
|
|
|
- |
|
|
|
76 |
|
|
|
(76 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends ($0.185 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(27,518 |
) |
|
|
- |
|
|
|
- |
|
|
|
(27,518 |
) |
|
|
- |
|
|
|
(27,518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
$ |
1,628 |
|
|
$ |
187,154 |
|
|
$ |
1,838,958 |
|
|
$ |
39,612 |
|
|
$ |
(479,630 |
) |
|
$ |
1,587,722 |
|
|
$ |
71,691 |
|
|
$ |
1,659,413 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
274,258 |
|
|
|
- |
|
|
|
- |
|
|
|
274,258 |
|
|
|
154 |
|
|
|
274,412 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
50,566 |
|
|
|
- |
|
|
|
50,566 |
|
|
|
3,008 |
|
|
|
53,574 |
|
Net
loss on derivative financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(13,960 |
) |
|
|
- |
|
|
|
(13,960 |
) |
|
|
- |
|
|
|
(13,960 |
) |
Pension
liability adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,324 |
|
|
|
- |
|
|
|
7,324 |
|
|
|
- |
|
|
|
7,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
318,188 |
|
|
|
3,162 |
|
|
|
321,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
- |
|
|
|
(11,515 |
) |
|
|
- |
|
|
|
- |
|
|
|
24,921 |
|
|
|
13,406 |
|
|
|
- |
|
|
|
13,406 |
|
Tax
benefit from stock options exercised
|
|
|
- |
|
|
|
3,505 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
3,505 |
|
|
|
- |
|
|
|
3,505 |
|
Share
based compensation expense
|
|
|
- |
|
|
|
16,276 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16,276 |
|
|
|
- |
|
|
|
16,276 |
|
Funding
of Employee Stock Option Plan
|
|
|
- |
|
|
|
(63 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,408 |
|
|
|
1,345 |
|
|
|
- |
|
|
|
1,345 |
|
Treasury
shares purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(78,718 |
) |
|
|
(78,718 |
) |
|
|
- |
|
|
|
(78,718 |
) |
RSU
dividends
|
|
|
- |
|
|
|
138 |
|
|
|
(138 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends ($0.200 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(29,619 |
) |
|
|
- |
|
|
|
- |
|
|
|
(29,619 |
) |
|
|
- |
|
|
|
(29,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
1,628 |
|
|
$ |
195,495 |
|
|
$ |
2,083,459 |
|
|
$ |
83,542 |
|
|
$ |
(532,019 |
) |
|
$ |
1,832,105 |
|
|
$ |
74,853 |
|
|
$ |
1,906,958 |
|
The
accompanying notes are an integral part of these financial
statements.
DENTSPLY
INTERNATIONAL INC AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
(in
thousands) |
|
Year
Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
274,412 |
|
|
$ |
283,270 |
|
|
$ |
259,711 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
54,087 |
|
|
|
47,887 |
|
|
|
42,628 |
|
Amortization
|
|
|
11,088 |
|
|
|
9,042 |
|
|
|
7,661 |
|
Deferred
income taxes
|
|
|
195 |
|
|
|
13,371 |
|
|
|
25,568 |
|
Share
based compensation expense
|
|
|
16,276 |
|
|
|
17,290 |
|
|
|
14,088 |
|
Restructuring,
impairments and other costs - noncash
|
|
|
369 |
|
|
|
8,303 |
|
|
|
190 |
|
Stock
option income tax benefit
|
|
|
(3,505 |
) |
|
|
(3,910 |
) |
|
|
(11,414 |
) |
Other
non-cash income
|
|
|
(8,650 |
) |
|
|
(19,654 |
) |
|
|
(10,676 |
) |
(Gain)
loss on disposal of property, plant and equipment
|
|
|
(1,997 |
) |
|
|
1,373 |
|
|
|
(1,904 |
) |
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable-trade, net
|
|
|
(16,942 |
) |
|
|
(3,690 |
) |
|
|
9,029 |
|
Inventories,
net
|
|
|
27,710 |
|
|
|
(32,824 |
) |
|
|
(716 |
) |
Prepaid
expenses and other current assets
|
|
|
6,996 |
|
|
|
(1,220 |
) |
|
|
644 |
|
Other
non current assets
|
|
|
(192 |
) |
|
|
390 |
|
|
|
1,253 |
|
Accounts
payable
|
|
|
(4,947 |
) |
|
|
5,430 |
|
|
|
(7,395 |
) |
Accrued
liabilities
|
|
|
(1,708 |
) |
|
|
5,748 |
|
|
|
(396 |
) |
Income
taxes
|
|
|
8,104 |
|
|
|
4,594 |
|
|
|
59,421 |
|
Other
noncurrent liabilities
|
|
|
1,193 |
|
|
|
581 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
362,489 |
|
|
|
335,981 |
|
|
|
387,697 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for acquisitions of businesses and equity investments
|
|
|
(2,986 |
) |
|
|
(117,300 |
) |
|
|
(101,492 |
) |
Capital
expenditures
|
|
|
(56,481 |
) |
|
|
(76,440 |
) |
|
|
(64,163 |
) |
Expenditures
for identifiable intangible assets
|
|
|
(14 |
) |
|
|
(2,477 |
) |
|
|
(1,665 |
) |
Purchases
of short-term investments
|
|
|
- |
|
|
|
(166,208 |
) |
|
|
(138,471 |
) |
Liquidations
of short-term investments
|
|
|
222 |
|
|
|
314,025 |
|
|
|
73 |
|
Proceeds
from sale of property, plant and equipment
|
|
|
5,860 |
|
|
|
596 |
|
|
|
6,327 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(53,399 |
) |
|
|
(47,804 |
) |
|
|
(299,391 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from long-term borrowings, net of deferred financing costs
|
|
|
86,091 |
|
|
|
117,900 |
|
|
|
149,500 |
|
Payments
on long-term borrowings
|
|
|
(58,403 |
) |
|
|
(226,147 |
) |
|
|
(50,543 |
) |
(Decrease)
increase in short-term borrowings
|
|
|
(7,465 |
) |
|
|
2,111 |
|
|
|
(2,166 |
) |
Proceeds
from exercise of stock options
|
|
|
13,406 |
|
|
|
12,726 |
|
|
|
45,594 |
|
Excess
tax benefits from share based compensation
|
|
|
3,505 |
|
|
|
3,910 |
|
|
|
11,378 |
|
Cash
paid for treasury stock
|
|
|
(78,718 |
) |
|
|
(112,634 |
) |
|
|
(125,422 |
) |
Cash
dividends paid
|
|
|
(29,836 |
) |
|
|
(26,952 |
) |
|
|
(25,134 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by financing activities
|
|
|
(71,420 |
) |
|
|
(229,086 |
) |
|
|
3,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
8,687 |
|
|
|
(24,484 |
) |
|
|
12,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
246,357 |
|
|
|
34,607 |
|
|
|
104,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
203,991 |
|
|
|
169,384 |
|
|
|
65,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
450,348 |
|
|
$ |
203,991 |
|
|
$ |
169,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
paid, net of amounts capitalized
|
|
$ |
23,231 |
|
|
$ |
34,222 |
|
|
$ |
21,926 |
|
Income
taxes paid
|
|
$ |
76,207 |
|
|
$ |
66,696 |
|
|
$ |
38,091 |
|
The
accompanying notes are an integral part of these financial
statements.
DENTSPLY
INTERNATIONAL INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
Description
of Business
DENTSPLY
International Inc (“DENTSPLY” or the “Company”), designs, develops, manufactures
and markets a broad range of products for the dental market. The
Company believes that it is the world's leading manufacturer and distributor of
dental prosthetics, endodontic instruments and materials, and ultrasonic
scalers; the leading United States manufacturer and distributor of denture
teeth, dental handpieces, dental x-ray film holders, film mounts and prophylaxis
paste; and a leading worldwide manufacturer or distributor of dental injectable
anesthetics, impression materials, orthodontic appliances, dental cutting
instruments, dental implants, restorative dental materials, dental sealants, and
crown and bridge materials. The Company distributes its dental products in over
120 countries under some of the most well established brand names in the
industry.
DENTSPLY
is committed to the development of innovative, high quality, cost effective
products for the dental market.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America (“US GAAP”) requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities
as of the date of the financial statements and the reported amounts of revenue
and expense during the reporting period. Actual results could differ
from those estimates, if different assumptions are made or if different
conditions exist.
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company. The
Company also consolidates all variable interest entities (“VIE”) where
the Company has determined that it has the power to direct the
activities that most significantly impact the VIE’s economic performance and
shares in either the significant risks or rewards of the VIE. The Company
continually reassess VIE to determine if consolidation is
appropriate. All significant intercompany accounts and transactions
are eliminated in consolidation.
Cash and Cash
Equivalents
Cash and
cash equivalents include deposits with banks as well as highly liquid time
deposits with maturities at the date of purchase of ninety days or
less.
Short-term
Investments
Short-term
investments are highly liquid time deposits with original maturities at the date
of purchase greater than ninety days and with remaining maturities of
approximately one year or less.
Accounts
and Notes Receivable-Trade
The
Company sells dental products through a worldwide network of distributors and
directly to end users. For customers on credit terms, the Company
performs ongoing credit evaluation of those customers' financial condition and
generally does not require collateral from them. The Company
establishes allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. The Company
records a provision for doubtful accounts, which is included in “Selling,
general and administrative expenses.”
Accounts
receivable – trade is stated net of these allowances that were $12.2 million and
$18.8 million at December 31, 2009 and 2008, respectively. In 2009,
the Company wrote-off $4.3 million of accounts receivable that were previously
reserved. The tighter credit markets caused the Company to reassess
and tighten its controls over customer credit terms, increase collection efforts
and analyze accounts receivable activity. This, along with improved
customer liquidity, enabled the Company to reduce the provision for doubtful
accounts by $3.1 million in 2009. The Company recorded a provision
for doubtful accounts of $3.7 million for 2008 and $2.9 million for
2007.
Additionally,
notes receivable – trade is stated net of these allowances that were $1.1
million and $0.5 million at December 31, 2009 and 2008,
respectively. The Company recorded provisions for doubtful accounts
on notes receivable – trade of approximately $0.5 million for 2009, $0.3 million
for 2008, and negative $0.2 million for 2007.
Inventories
Inventories
are stated at the lower of cost or market. At December 31, 2009 and
2008, the cost of $7.8 million, or 2.7%, and $9.6 million, or 3.1%,
respectively, of inventories was determined by the last in, first-out (“LIFO”)
method. The cost of other inventories was determined by the first-in,
first-out (“FIFO”) or average cost methods. The Company establishes
reserves for inventory estimated to be obsolete or unmarketable equal to the
difference between the cost of inventory and estimated market value based upon
assumptions about future demand and market conditions.
If the
FIFO method had been used to determine the cost of LIFO inventories, the amounts
at which net inventories are stated would be higher than reported at December
31, 2009 and 2008 by $4.0 million and $3.5 million, respectively.
Valuation
of Goodwill and Other Long-Lived Assets
Assessment
of the potential impairment of goodwill and other long-lived assets is an
integral part of the Company’s normal ongoing review of
operations. Testing for potential impairment of these assets is
significantly dependent on numerous assumptions and reflects management’s best
estimates at a particular point in time. The dynamic economic
environments in which the Company’s businesses operate and key economic and
business assumptions with respect to projected selling prices, increased
competition and introductions of new technologies can significantly affect the
outcome of impairment tests. Estimates based on these assumptions may
differ significantly from actual results. Changes in factors and
assumptions used in assessing potential impairments can have a significant
impact on the existence and magnitude of impairments, as well as the time at
which such impairments are recognized. If there are unfavorable
changes in these assumptions, the future cash flows, a key variable in assessing
the impairment of these assets, may decrease and as a result the Company may be
required to recognize impairment charges. Future changes in the
environment and the economic outlook for the assets being evaluated could also
result in additional impairment charges being recognized. Information
with respect to the Company’s significant accounting policies on long-lived
assets for each category of long-lived asset is discussed below.
Goodwill
US GAAP
requires that at least an annual impairment test be applied to
goodwill. The Company performs impairment tests using a fair value
approach. If impairment is identified on goodwill, the resulting
charge is determined by recalculating goodwill through a hypothetical purchase
price allocation of the fair value and reducing the current carrying value to
the extent it exceeds the recalculated goodwill.
The
Company’s fair value approach involves using a discounted cash flow model with
market-based support as its valuation technique to measure the fair value for
its reporting units. The discounted cash flows model uses five year
forecasted cash flows plus a terminal value based on a multiple of
earnings. In addition, the Company applied gross margin and operating
expense assumptions consistent with its historical trends. The total
cash flows were discounted based on market participant data, which included the
Company’s weighted-average cost of capital. The Company considered
the current market conditions when determining its
assumptions. Lastly, the Company reconciled the aggregate fair values
of its reporting units to its market capitalization, which included a reasonable
control premium based on market conditions. Additional information
related to the testing for goodwill impairment is provided in Note 8, Goodwill
and Intangible Assets.
Identifiable Definite-lived
Intangible Assets
Identifiable
definite-lived intangible assets, which primarily consist of patents,
trademarks, brand names, non-compete agreements and licensing agreements, are
amortized on a straight-line basis over their estimated useful
lives. These assets are reviewed for impairment whenever events or
circumstances suggest that the carrying amount of the asset may not be
recoverable. The Company closely monitors certain intangible assets
related to new and existing technologies for indicators of impairment as these
assets have more risk of becoming impaired. Impairment is based upon
an initial evaluation of the identifiable undiscounted cash flows. If
the initial evaluation identifies a potential impairment, a fair value is
determined by using a discounted cash flows valuation. If impaired,
the resulting charge reflects the excess of the asset’s carrying cost over its
fair value.
Property, Plant and
Equipment
Property,
plant and equipment are stated at cost, net of accumulated
depreciation. Except for leasehold improvements, depreciation for
financial reporting purposes is computed by the straight-line method over the
following estimated useful lives: buildings - generally 40 years and machinery
and equipment - 4 to 15 years. The cost of leasehold improvements is
amortized over the shorter of the estimated useful life or the term of the
lease. Maintenance and repairs are charged to operations;
replacements and major improvements are capitalized. These assets
groups are reviewed for impairment whenever events or circumstances suggest that
the carrying amount of the asset group may not be
recoverable. Impairment is based upon an evaluation of the
identifiable undiscounted cash flows. If impaired, the resulting
charge reflects the excess of the asset group’s carrying cost over its fair
value.
Derivative
Financial Instruments
The
Company requires that all derivative instruments be recorded on the balance
sheet at fair value and that changes in fair value be recorded each period in
current earnings or accumulated other comprehensive income.
The
Company employs derivative financial instruments to hedge certain anticipated
transactions, firm commitments, and assets and liabilities denominated in
foreign currencies. Additionally, the Company utilizes interest rate
swaps to convert floating rate debt to fixed rate, fixed rate debt to floating
rate, cross currency basis swaps to convert debt denominated in one currency to
another currency, and commodity swaps to fix its variable raw materials
costs.
On
January 1, 2009, the Company adopted the new accounting guidance for expanded
disclosures about derivative instruments and hedging activities. As a
result, the Company has expanded its disclosures about its strategies,
objectives and risks for using derivative instruments. In addition,
the Company has disclosed the fair value of derivative instruments and their
gains and losses in tabular format as required. The Company’s expanded
disclosures regarding its derivative instruments can be found in Note 15,
Financial Instruments and Derivatives.
Pension
and Other Postretirement Benefits
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored defined benefit or defined contribution
plans. Additionally, certain union and salaried employee groups in
the United States are covered by postretirement healthcare
plans. Costs for Company-sponsored plans are based on expected return
on plan assets, discount rates, employee compensation increase rates and health
care cost trends. Expected return on plan assets, discount rates and
health care cost trend assumptions are particularly important when determining
the Company’s benefit obligations and net periodic benefit costs associated with
postretirement benefits. Changes in these assumptions can impact the
Company’s pretax earnings. In determining the cost of postretirement
benefits, certain assumptions are established annually to reflect market
conditions and plan experience to appropriately reflect the expected costs as
actuarially determined. These assumptions include medical inflation
trend rates, discount rates, employee turnover and mortality
rates. The Company predominantly uses liability durations in
establishing its discount rates, which are observed from indices of high-grade
corporate bond yields in the respective economic regions of the
plans. The expected return on plan assets is the weighted average
long-term expected return based upon asset allocations and historic average
returns for the markets where the assets are invested, principally in foreign
locations. The Company reports the funded status of its defined
benefit pension and other postretirement benefit plans on its balance sheets as
a net liability or asset. Additional information related to the
impact of changes in these assumptions is provided in Note 13, Benefit
Plans.
In
December 2008, the Financial Accounting Standards Board (“FASB”) issued new
guidance for disclosures about the Company’s postretirement benefit plans (“the
Plans”). The objective of this new guidance is to provide financial
statement users additional information concerning the Plans’ investment policies
and strategies and how allocation decisions are made. Additionally, disclosures
are to be made concerning categories of the Plans’ assets, the valuation
technique used in regard to the fair value measurement of the Plans’ assets and
concentrations of risk within the Plans’ assets. The new guidance is effective
for fiscal years ending after December 15, 2009 with early application
permitted. The revised disclosures were not required to be applied to
earlier periods that are presented for comparative periods. The
Company’s expanded disclosures regarding its pension and postretirement benefits
can be found in Note 13, Benefit Plans.
Accruals
for Self-Insured Losses
The
Company maintains insurance for certain risks, including workers’ compensation,
general liability, product liability and vehicle liability, and is self-insured
for employee related health care benefits. The Company accrues for
the expected costs associated with these risks by considering historical claims
experience, demographic factors, severity factors and other relevant
information. Costs are recognized in the period the claim is
incurred, and the financial statement accruals include an estimate of claims
incurred but not yet reported. The Company has stop-loss coverage to
limit its exposure to any significant exposure on a per claim
basis.
Litigation
The
Company and its subsidiaries are from time to time parties to lawsuits arising
out of their respective operations. The Company records liabilities
when a loss is probable and can be reasonably estimated. These
estimates are typically in the form of ranges, and the Company records the
liabilities at the low point of the ranges. The ranges established by
management are based on an analysis made by internal and external legal counsel
who considers information known at the time. If the Company
determines a liability to be only reasonably possible, it considers the same
information to estimate the possible exposure and disclose any material
potential liability. These loss contingencies are monitored regularly
for a change in fact or circumstance that would require an accrual
adjustment. The Company believes it has estimated liabilities for
probable losses well in the past; however, the unpredictability of litigation
and court decisions could cause a liability to be incurred in excess of
estimates. Legal costs related to these lawsuits are expensed as
incurred.
Accumulated
Other Comprehensive Income
Accumulated
other comprehensive income (“AOCI”) includes foreign currency translation
adjustments related to the Company’s foreign subsidiaries, net of the related
changes in certain financial instruments hedging these foreign currency
investments. In addition, changes in the Company’s fair value of
certain derivative financial instruments and changes in its unrecognized pension
losses and prior service costs, net are recorded in AOCI. These
changes are recorded in AOCI net of any related tax effects. For the
years ended December 31, 2009, 2008 and 2007, these adjustments were net of tax
effects of $143.0 million, $138.5 million and $111.3 million, respectively,
primarily related to foreign currency translation adjustments.
The
balances included in AOCI in the consolidated balance sheets are as
follows:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
$ |
220,116 |
|
|
$ |
169,550 |
|
Net
loss on derivative financial instruments
|
|
|
(113,800 |
) |
|
|
(99,840 |
) |
Pension
liability adjustments
|
|
|
(22,774 |
) |
|
|
(30,098 |
) |
|
|
$ |
83,542 |
|
|
$ |
39,612 |
|
The
cumulative foreign currency translation adjustments included translation gains
of $327.8 million and $278.1 million as of December 31, 2009 and 2008,
respectively, offset by losses of $107.7 million and $108.5 million,
respectively, on loans designated as hedges of net investments.
Foreign
Currency Translation
The
functional currency for foreign operations, except for those in highly
inflationary economies, has been determined to be the local
currency.
Assets
and liabilities of foreign subsidiaries are translated at exchange rates on the
balance sheet date; revenue and expenses are translated at the average
year-to-date rates of exchange. The effects of these translation
adjustments are reported in equity within AOCI. During the year ended
December 31, 2009, the Company had gains of $0.9 million on its loans designated
as hedges of net investments and translation gains of $49.7
million. During the year ended December 31, 2008, the
Company had translation losses of $53.0 million, and losses of $18.5 million on
its loans designated as hedges of net investments.
Exchange
gains and losses arising from transactions denominated in a currency other than
the functional currency of the entity involved and remeasurement adjustments in
countries with highly inflationary economies are included in
income. Net exchange gains of $0.3 million, exchange losses of $8.9
million, and exchange gains of $0.5 million in 2009, 2008, and 2007,
respectively, are included in “Other expense (income), net.”
Revenue
Recognition
Revenue,
net of related discounts and allowances, is recognized when the earnings process
is complete. This occurs when products are shipped to or received by
the customer in accordance with the terms of the agreement, title and risk of
loss have been transferred, collectability is reasonably assured and pricing is
fixed or determinable. Net sales include shipping and handling costs
collected from customers in connection with the sale. Sales taxes,
value added taxes and other similar types of taxes collected from customers in
connection with the sale are recorded by the Company on a net basis and are not
included in the statement of operations.
Certain
of the Company’s customers are offered cash rebates based on targeted sales
increases. In accounting for these rebate programs, the Company
records an accrual as a reduction of net sales for the estimated rebate as sales
take place throughout the year.
A portion
of the Company’s net sales is comprised of sales of precious metals generated
through its precious metal dental alloy product offerings. As the
precious metal content of the Company’s sales is largely a pass-through to
customers, the Company uses its cost of precious metal purchased as a proxy for
the precious metal content of sales, as the precious metal content of sales is
not separately tracked and invoiced to customers. The Company
believes that it is reasonable to use the cost of precious metal content
purchased in this manner since precious metal alloy sale prices are typically
adjusted when the prices of underlying precious metals change. The
precious metals content of sales was $168.7 million, $199.9 million and $189.9
million for 2009, 2008 and 2007, respectively.
Cost
of Products Sold
Cost of
products sold represents costs directly related to the manufacture and
distribution of the Company’s products. Primary costs include raw
materials, packaging, direct labor, overhead, shipping and handling, warehousing
and the depreciation of manufacturing, warehousing and distribution
facilities. Overhead and related expenses include salaries, wages,
employee benefits, utilities, lease costs, maintenance and property
taxes.
Warranties
The
Company provides warranties on certain equipment products. Estimated
warranty costs are accrued when sales are made to
customers. Estimates for warranty costs are based primarily on
historical warranty claim experience. Warranty costs are included in “Cost of
products sold.”
Selling,
General and Administrative Expenses
Selling,
general and administrative expenses represent costs incurred in generating
revenues and in managing the business of the Company. Such costs
include advertising and other marketing expenses, salaries, employee benefits,
incentive compensation, research and development, travel, office expenses, lease
costs, amortization of capitalized software and depreciation of administrative
facilities.
Research
and Development Costs
Research
and development (“R&D”) costs relate primarily to internal costs for
salaries and direct overhead expenses. In addition, the Company
contracts with outside vendors to conduct R&D activities. All
such R&D costs are charged to expense when incurred. The Company
capitalizes the costs of equipment that have general R&D uses and expenses
such equipment that is solely for specific R&D projects. The
depreciation expense related to this capitalized equipment is included in the
Company’s R&D costs. R&D costs are included in “Selling,
general and administrative expenses” and amounted to approximately $53.6
million, $52.3 million and $46.8 million for 2009, 2008 and 2007,
respectively.
Stock Compensation
The
Company recognizes the compensation cost relating to share-based payment
transactions in the financial statements. The cost of share-based
payment transactions is measured at the grant date, based on the calculated fair
value of the award, and is recognized as an expense over the employee’s
requisite service period (generally the vesting period of the equity
awards). The compensation cost is only recognized for the portion of
the awards that are expected to vest.
Income Taxes
The
Company’s tax expense includes U.S. and international income taxes plus the
provision for U.S. taxes on undistributed earnings of international subsidiaries
not deemed to be permanently invested. Tax credits and other
incentives reduce tax expense in the year the credits are
claimed. Certain items of income and expense are not reported in tax
returns and financial statements in the same year. The tax effect of
such temporary differences is reported as deferred income
taxes. Deferred tax assets are recognized if it is more likely than
not that the assets will be realized in future years. The Company
establishes a valuation allowance for deferred tax assets for which realization
is not likely.
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the
financial statements, the impact of a tax position, if that position is more
likely than not of being sustained on audit, based on the technical merits of
the position.
Earnings
Per Share
Basic
earnings per share are calculated by dividing net earnings by the weighted
average number of shares outstanding for the period. Diluted earnings
per share is calculated by dividing net earnings by the weighted average number
of shares outstanding for the period, adjusted for the effect of an assumed
exercise of all dilutive options outstanding at the end of the
period.
Business
Acquisitions
During
the first quarter of 2009, the Company adopted the new accounting guidance for
business combinations. The new guidance establishes principles and
requirements for transactions that represent business combinations to be
accounted for under the acquisition method. It provides guidance
regarding the recognition and measurement of assets acquired, liabilities
assumed, goodwill, noncontrolling interest in the acquiree and financial
statement disclosure requirements. Additionally, it provides guidance for
identifying a business combination, measuring the acquisition date and defining
the measurement period for adjusting provisional amounts recorded. The
implementation of this standard did not impact the Company’s net income
attributable to DENTSPLY International.
The
Company purchases businesses and occasionally purchases partial interests in
businesses. These acquisitions are accounted for as purchases and
result in the recognition of goodwill in the Company’s financial
statements. This goodwill arises because the purchase prices for
these businesses reflect a number of factors including the future earnings and
cash flow potential of these businesses; the multiple to earnings, cash flow and
other factors at which similar businesses have been purchased by other
acquirers; the competitive nature of the process by which the Company acquired
the business; and because of the complementary strategic fit and expected
synergies these businesses bring to existing operations.
The
Company makes an allocation of the purchase price at the date of acquisition
based upon the fair values of the assets acquired and liabilities
assumed. The Company obtains this information during due diligence
and through other sources. Examples of factors and information that
the Company uses to determine the allocations include: tangible and intangible
asset evaluations and appraisals; evaluations of existing contingencies and
liabilities; product line integration information; and information systems
compatibilities. If the initial accounting for an acquisition is
incomplete by the end of the quarter in which the acquisition occurred, the
Company will record a provisional estimate in the financial
statements. The provisional estimate will be finalized as soon as
information becomes available but will only occur up to one year from the
acquisition date.
Noncontrolling
Interests
On
January 1, 2009, the Company adopted the new accounting guidance for reporting
noncontrolling interest (“NCI”) in a subsidiary. As a result, the
Company reported NCI as a separate component of Equity in the Consolidated
Balance Sheets. Additionally, the Company reported the portion of net
income and comprehensive income (loss) attributed to the Company and NCI
separately in the Consolidated Statements of Operations. The Company
also included a separate column for NCI in the Consolidated Statements of
Changes in Equity and Comprehensive Income. All related disclosures
have been adjusted accordingly. Prior year amounts associated with
NCI in the financial statements and accompanied footnotes have been
retrospectively adjusted to conform to the adoption.
Segment
Reporting
The
Company has numerous operating businesses covering a wide range of products and
geographic regions, primarily serving the professional dental
market. Professional dental products represented approximately 97% of
sales in 2009, 2008 and 2007. The Company has four reportable
segments and a description of the activities of these segments is included in
Note 4, Segment and Geographic Information.
Fair
Value Measurement
Recurring
Basis
The
Company records certain financial assets and liabilities at fair value in
accordance with the accounting guidance, which defines fair value as the
exchange price that would be received for an asset or paid to transfer a
liability (an exit price) in the principal or most advantageous market for the
asset or liability in an orderly transaction between market participants on the
measurement date. The accounting guidance establishes a
hierarchal disclosure framework associated with the level of pricing
observability utilized in measuring financial instruments at fair value. The
three broad levels defined by the fair value hierarchy are as
follows:
Level 1 –
Quoted prices are available in active markets for identical assets or
liabilities as of the reported date.
Level 2 –
Pricing inputs are other than quoted prices in active markets, which are either
directly or indirectly observable as of the reported date. The nature of
these financial instruments include, derivative instruments whose fair value
have been derived using a model where inputs to the model are directly
observable in the market, or can be derived principally from or corroborated by
observable market data.
Level 3 –
Instruments that have little to no pricing observability as of the reported
date. These financial instruments do not have two-way markets and are
measured using management’s best estimate of fair value, where the inputs into
the determination of fair value require significant management judgment or
estimation.
The
degree of judgment utilized in measuring the fair value of certain financial
assets and liabilities generally correlates to the level of pricing
observability. Pricing observability is impacted by a number of factors,
including the type of financial instrument. Financial assets and
liabilities with readily available active quoted prices or for which fair value
can be measured from actively quoted prices generally will have a higher degree
of pricing observability and a lesser degree of judgment utilized in measuring
fair value. Conversely, financial assets and liabilities rarely traded or not
quoted will generally have less, or no pricing observability and a higher degree
of judgment utilized in measuring fair value.
The
Company primarily applies the market approach for recurring fair value
measurements and endeavors to utilize the best available
information. Accordingly, the Company utilizes valuation techniques
that maximize the use of observable inputs and minimize the use of unobservable
inputs. Additionally, the Company considers its credit risks and its
counterparties' credit risks when determining the fair values of its financial
assets and liabilities. The Company has presented the required
disclosures in Note 16, Fair Value Measurement.
Non-Recurring
Basis
During
the first quarter of 2009, the Company adopted the fair value measurement
guidance for non-financial assets and liabilities. The new guidance
changed the effective date for recognizing and disclosing the fair value for
non-financial assets and liabilities except for items recognized or disclosed in
the financial statements on a recurring basis. Additionally, the guidance also
required additional disclosure about the fair value of financial instruments for
interim reporting periods in addition to annual financial statements. The
implementation of this new guidance did not impact the Company’s financial
statements in the current or prior periods.
When
events or circumstances require an asset or liability to be fair valued that
otherwise is generally recorded based on another valuation method, such as, net
realizable value, the Company will utilize the valuation techniques described
above.
Subsequent
Events
In May 2009, a new accounting guidance
was issued for disclosures about subsequent events. The new guidance requires
the Company to disclose the date through which it has evaluated subsequent
events and whether the date represents the date the financial statements were
issued or were available to be issued. The Company has evaluated
subsequent events through February 22, 2010, which is the date the financial
statements have been filed with the SEC.
Codification
In June
2009, the FASB issued The FASB Accounting Standards Codification™ (the
“Codification”) as the source of authoritative accounting principles recognized
by the FASB to be applied by nongovernmental entities in the preparation of
financial statements in conformity with generally accepted accounting principles
in the United States. All guidance contained in the Codification carries an
equal level of authority. On the effective date, the Codification superseded all
then-existing non-SEC accounting and reporting standards. All other
nongrandfathered non-SEC accounting literature not included in the Codification
became nonauthoritative. The Codification is effective for financial statements
issued for interim and annual periods ending after September 15,
2009. The Company has adopted this standard and updated all of
its disclosures to be consistent with the Codification and has determined that
the implementation of the Codification did not have a significant impact on its
financial results.
Reclassification
of Prior Year Amounts
Certain
reclassifications have been made to prior years' data in order to conform to
current year presentation.
Recent
Accounting Pronouncements
In June
2009, the FASB issued new accounting guidance for the transfer of financial
assets and the effects of a transfer on its financial position, financial
performance and cash flows. The new guidance eliminates the use of
qualified special purpose entities, clarifies the derecognition criteria for a
transfer accounted for as a sale, and expands the disclosure requirements among
other things. The new guidance is effective for fiscal years
beginning after November 15, 2009 and must be applied prospectively to new
transfers of financial assets. The Company believes this new guidance
will not have a material impact on its financial statements.
In June
2009, the FASB issued new accounting guidance for VIE. The new
guidance includes: (1) the elimination of the exemption from consolidation for
qualifying special purpose entities, (2) a new approach for determining the
primary beneficiary of a VIE, which requires that the primary beneficiary have
both (i) the power to control the most significant activities of the VIE and
(ii) either the obligation to absorb losses or the right to receive benefits
that could potentially be significant to the VIE, and (3) the requirement to
continually reassess who should consolidate a VIE. The new guidance
is effective for annual reporting periods that begin after November 15, 2009 and
applies to all existing and new VIE.
The
Company will be adopting new accounting guidance for VIE during the first
quarter of 2010. The Company believes this new guidance will not have
a material impact on its financial statements. The Company continues to believe
that it will be the primary beneficiary of Materialise and Zhermack under this
new accounting guidance for VIE. The accounting for Materialise and
Zhermack are discussed further in Note 3, Business
Acquisitions.
NOTE
2 - EARNINGS PER COMMON SHARE
The
following table sets forth the computation of basic and diluted earnings per
common share:
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
attributable
to
|
|
|
|
|
|
|
|
(in
thousands, except for share amounts)
|
|
DENTSPLY
|
|
|
|
|
|
Earnings
per
|
|
|
|
International
|
|
|
Shares
|
|
|
common
share
|
|
Year
Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
274,258 |
|
|
|
148,319 |
|
|
$ |
1.85 |
|
Incremental
shares from
assumed
exercise of dilutive options
|
|
|
- |
|
|
|
1,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
274,258 |
|
|
|
150,102 |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
283,869 |
|
|
|
149,069 |
|
|
$ |
1.90 |
|
Incremental
shares from
assumed
exercise of dilutive options
|
|
|
- |
|
|
|
2,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
283,869 |
|
|
|
151,679 |
|
|
$ |
1.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
Ended December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
259,654 |
|
|
|
151,707 |
|
|
$ |
1.71 |
|
Incremental
shares from
assumed
exercise of dilutive options
|
|
|
- |
|
|
|
3,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
259,654 |
|
|
|
154,721 |
|
|
$ |
1.68 |
|
Options
to purchase 2.9 million, 1.6 million and 0.2 million shares of common stock that
were outstanding during the years ended 2009, 2008 and 2007, respectively, were
not included in the computation of diluted earnings per common share since the
options' exercise prices were greater than the average market price of the
common shares and, therefore, the effect would be antidilutive.
NOTE
3 - BUSINESS ACQUISITIONS
The
Company accounts for all business combinations under the acquisition method of
accounting; and accordingly, the results of the operations acquired are included
in the accompanying financial statements for the periods subsequent to the
respective dates of the acquisitions.
During
2009, the acquisition related activity was $3.0 million, net of
cash. This activity was related to an additional earn-out payment on
a prior acquisition from 2007 and acquisition of a small sales and marketing
organization of 3D digital implantology products.
During
2008, the acquisition related activity was $117.3 million, net of cash and
assumed debt. This activity was related to three business
combinations, the acquisition and consolidation of two VIE, and three earn-out
payments on acquisitions from prior years.
Business
Combinations
The
following list provides information about the companies acquired in 2008,
excluding the VIE:
|
·
|
In
July 2008, the Company acquired Dental Depot Lomberg B.V. (“Lomberg”),
which markets and sells various dental products, including but not limited
to, orthodontic products and materials. Lomberg is included in
the Canada/Latin America/ Endodontics/ Orthodontics segment and further
strengthens the Company’s dental specialty
business.
|
|
·
|
In
July 2008, the Company acquired E.S. Holding N.V. (“E.S. Holding”), which
manufactures, markets and sells dental products, particularly dental
laboratory products, and non-dental products. E.S. Holding is
included in the Dental Laboratory Business/Implants/Non-Dental segment and
further strengthens the Company’s dental specialty and laboratory
businesses.
|
|
·
|
In
December 2008, the Company acquired the assets of Apollonia & Fama
Implant S.r.l. (“AFI”), which markets and sells dental implant products in
Italy. AFI is included in the France, U.K., Italy and Certain
Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
segment and further strengthens the Company’s dental specialty
business.
|
Variable
Interest Entities
During
2006, the Company acquired a 40% interest in Materialise Dental N.V.
(“Materialise”), a simulation software company and a leading manufacturer of a
variety of surgical guides to assist in the placement of dental
implants. The transaction provides the opportunity for the Company to
acquire the remaining interest over time. The Company accounted for
the initial purchase of 40% interest under the equity method.
In 2007,
Materialise received a $2.7 million uncollateralized loan of which the Company
funded $1.1 million, which was equivalent to its ownership
interest. The loan has a five year term and was issued to support
Materialise’s working capital. If the Company purchases additional
shares subsequent to December 31, 2009 under the provisions of the Sale and
Purchase Agreement (“SPA”), the loan is repayable immediately.
In the
fourth quarter of 2008, the Company purchased an additional 6% interest in
Materialise. The purchase of additional interest increased the Company’s total
ownership to 46%, and created a reconsideration event in determining if the
Company is the primary beneficiary of Materialise. The Company determined it was
the primary beneficiary based on the purchase of the additional 6% ownership
interests, existing provisions in the Share Purchase Agreement, and increased
business arrangements between Materialise and the Company. The
results and final estimates of fair values of assets acquired and liabilities of
Materialise have been included in the Company’s financial statements and
included in the Dental Laboratory Business/Implants/Non-Dental
segment. The consolidation of Materialise further strengthens the
Company’s product offerings in the dental specialty business.
On
December 31, 2008, the Company acquired a 60% interest in Zhermack S.p.A.
(“Zhermack”), a manufacturer, designer, marketer, and seller of dental
consumables products. The Company determined that Zhermack is
considered a VIE due to disproportionate voting rights. The Company is
considered the primary beneficiary based on its total ownership interest in
Zhermack and its opportunity to acquire the remaining interest over
time. The estimates of fair values of assets acquired and liabilities
assumed of Zhermack have been included in the Company’s financial statements and
included in the U.S., Germany, and Certain Other European Regions Consumable
Businesses segment. The consolidation of Zhermack further strengthens
the Company’s product offerings in the dental consumables
businesses.
The
Company will be adopting new accounting guidance for VIE during the first
quarter of 2010, which is discussed more fully in Note 1, Significant Accounting
Policies. The Company continues to believe that it will be the
primary beneficiary of Materialise and Zhermack under this new accounting
guidance for VIE.
Additional Earn-out
Payments
Several
of the Company’s 2005 and 2007 acquisitions included provisions for possible
additional payments based on the future performance of the individual businesses
(generally for two to three years). During 2008, the Company paid
$10.0 million in additional purchase price under these
agreements. Several of the 2007 and 2008 acquisitions still have
potential additional payments based on future operating performance of the
businesses that could be paid out over the next five years.
Purchase Price Allocations
for the Business Acquisitions, VIE, and Additional Earnout
Payments
The
purchase prices have been allocated on the basis of final estimates of fair
values of assets acquired and liabilities assumed and have been included in the
accompanying financial statements since the effective date of the respective
transaction. As of December 31, 2009, the Company has recorded a
total of $169.4 million in goodwill related to unallocated portions of the
respective purchase prices for the three business combinations, two VIE, and
additional earnout payments on acquisitions from prior years. None of
this goodwill is expected to be deductible for tax purposes.
The
aggregate purchase price allocation for these acquisitions based on final
estimates of fair value is as follows (in thousands):
Current
assets
|
|
$ |
58,390 |
|
Property,
plant and equipment
|
|
|
41,375 |
|
Identifiable
intangible assets and goodwill
|
|
|
200,788 |
|
Other
long-term assets
|
|
|
885 |
|
Total
assets
|
|
$ |
301,438 |
|
Current
liabilities
|
|
|
(51,155 |
) |
Long-term
liabilities
|
|
|
(34,712 |
) |
Total
liabilities
|
|
$ |
(85,867 |
) |
Noncontrolling
Interests
|
|
$ |
(67,962 |
) |
Net
assets
|
|
$ |
147,609 |
|
As a
result of the acquisition related activity in 2008, the Company expensed $2.3
million for the fair value of in-process research and development.
Also, as
a result of the finalization of fair values assigned to assets acquired and
liabilities assumed from 2008 acquisition related activity, the Company has
recorded a total of $31.4 million in intangible assets. Of this total
amount of intangible assets, $27.1 million was recorded as trademarks, brand
names and patents with an average weighted life of 16.0 years, and $4.3 million
was allocated to other intangible assets with an average weighted life of 6.4
years.
Goodwill
was assigned to the following four segments:
•
|
$77.6
million to U.S., Germany, and Certain Other European Regions Consumable
Businesses;
|
•
|
$2.8
million to France, U.K., Italy and Certain Other European Countries, CIS,
Middle East, Africa, Pacific Rim Businesses;
|
|
|
•
|
$16.2
million Canada/ Latin America/ Endodontics/ Orthodontics;
and,
|
•
|
$72.8
million to Dental Laboratory Business/
Implants/Non-Dental.
|
NOTE
4 – SEGMENT AND GEOGRAPHIC INFORMATION
The
operating businesses are combined into operating groups, which have overlapping
product offerings, geographical presence, customer bases, distribution channels
and regulatory oversight. These operating groups are considered the Company’s
reportable segments as the Company’s chief operating decision-maker regularly
reviews financial results at the operating group level and uses this information
to manage the Company’s operations. The accounting policies of the segments are
consistent with those described for the consolidated financial statements in the
summary of significant accounting policies (see Note 1, Significant Accounting
Policies). The Company measures segment income for reporting purposes
as net operating income before restructuring, impairments, and other costs,
interest and taxes. Additionally, net operating income is derived from net third
party sales, excluding precious metal content. A description of the
services provided within each of the Company’s four reportable segments is
provided below. The disclosure below reflects the Company’s segment
reporting structure.
In
January 2009, the Company moved the reporting responsibility for several
locations between segments as a result of a change to the management
structure. This change also helped the Company gain operating
efficiencies and effectiveness. The segment information below
reflects this revised structure for all periods shown.
United
States, Germany, and Certain Other European Regions Consumable
Businesses
This
business group includes responsibility for the design, manufacture, sales and
distribution for certain small equipment and chairside consumable products in
the United States, Germany, and certain other European regions. It
also has responsibility for the sales and distribution of certain Endodontic
products in Germany.
France,
United Kingdom, Italy and Certain Other European Countries, CIS, Middle East,
Africa, Pacific Rim Businesses
This
business group includes responsibility for the sales and distribution for
certain small equipment, chairside consumable products, certain laboratory
products and certain Endodontic products in France, United Kingdom, Italy, the
Commonwealth of Independent States (“CIS”), Middle East, Africa, Asia (excluding
Japan), Japan and Australia, as well as the sale and distribution of implant
products and bone substitute/grafting materials in Italy, Asia and Australia.
This business group also includes the responsibility for sales and distribution
for certain laboratory products, implants products and bone
substitution/grafting materials for Austria. It also is responsible
for sales and distribution for certain small equipment and chairside consumable
products, certain laboratory products, implant products and bone
substation/grafting materials in certain other European countries. In
addition this business group also includes the manufacture and sale of
Orthodontic products and certain laboratory products in Japan, and the
manufacture of certain laboratory and certain Endodontic products in
Asia.
Canada/Latin
America/Endodontics/Orthodontics
This
business group includes responsibility for the design, manufacture, and/or sales
and distribution of certain small equipment, chairside consumable products,
certain laboratory products and Endodontic products in Brazil. It
also has responsibility for the sales and distribution of most of the Company’s
dental products sold in Latin America and Canada. This business group also
includes the responsibility for the design and manufacture of Endodontic
products in the United States, Switzerland and Germany and is responsible for
the sales and distribution of the Company’s Endodontic products in the United
States, Canada, Switzerland, Benelux, Scandinavia, Austria, Latin America and
Eastern Europe, and for certain Endodontic products in Germany. This
business group is also responsible for the world-wide sales and distribution,
excluding Japan, as well as some manufacturing of the Company’s Orthodontic
products. In addition, this business group is also responsible for sales and
distribution in the United States for implant and bone substitute/grafting
materials and the sales and distribution of implants in Brazil. This business
group is also responsible for the manufacture and sale of certain products in
the Company’s non-dental business.
Dental
Laboratory Business/Implants/Non-Dental
This
business group includes the responsibility for the design, manufacture, sales
and distribution for most laboratory products, excluding certain countries
mentioned previously, and the design, manufacture, and/or sales and distribution
of the Company’s dental implant products and bone substitute/grafting materials,
excluding sales and distribution of implants and bone substitute/grafting
materials in the United States, Italy, Austria, and certain other Eastern
European countries, Asia, and Australia. This business group is also
responsible for most of the Company’s non-dental business.
Significant
interdependencies exist among the Company’s operations in certain geographic
areas. Inter-group sales are at prices intended to provide a reasonable profit
to the manufacturing unit after recovery of all manufacturing costs and to
provide a reasonable profit for purchasing locations after coverage of
marketing, sales, distribution and general and administrative
costs.
Generally,
the Company evaluates performance of the operating groups based on the groups’
operating income, excluding restructuring, impairments and other costs, interest
and taxes, and net third party sales, excluding precious metal
content. The Company considers net third party sales, excluding
precious metal content, as the appropriate sales measurement due to the
fluctuations of precious metal prices and due to the fact that the precious
metal content is largely a pass-through to customers and has a minimal effect on
earnings.
The
following table sets forth information about the Company’s operating groups for
the years ended December 31, 2009, 2008 and 2007.
Third Party Net
Sales
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
526,668 |
|
|
$ |
459,678 |
|
|
$ |
428,236 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
453,827 |
|
|
|
468,413 |
|
|
|
413,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
621,256 |
|
|
|
632,151 |
|
|
|
587,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
561,042 |
|
|
|
636,791 |
|
|
|
584,575 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
(2,877 |
) |
|
|
(3,310 |
) |
|
|
(3,585 |
) |
Total
Net Sales
|
|
$ |
2,159,916 |
|
|
$ |
2,193,723 |
|
|
$ |
2,009,833 |
|
Third Party Net Sales,
Excluding Precious Metal Content
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
526,668 |
|
|
$ |
459,678 |
|
|
$ |
428,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
419,385 |
|
|
|
437,479 |
|
|
|
381,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
618,414 |
|
|
|
628,887 |
|
|
|
583,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
429,614 |
|
|
|
471,066 |
|
|
|
430,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
(2,877 |
) |
|
|
(3,310 |
) |
|
|
(3,585 |
) |
Total
net sales, excluding precious metal content
|
|
$ |
1,991,204 |
|
|
$ |
1,993,800 |
|
|
$ |
1,819,899 |
|
Precious
metal content of sales
|
|
|
168,712 |
|
|
|
199,923 |
|
|
|
189,934 |
|
Total
net sales, including precious metal content
|
|
$ |
2,159,916 |
|
|
$ |
2,193,723 |
|
|
$ |
2,009,833 |
|
(a)
|
Includes
amounts recorded at Corporate
headquarters
|
Intersegment Net
Sales
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
104,328 |
|
|
$ |
130,463 |
|
|
$ |
100,964 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
13,202 |
|
|
|
15,941 |
|
|
|
16,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
103,329 |
|
|
|
106,031 |
|
|
|
88,953 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
104,164 |
|
|
|
111,925 |
|
|
|
98,558 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
176,539 |
|
|
|
177,251 |
|
|
|
151,345 |
|
Eliminations
|
|
|
(501,562 |
) |
|
|
(541,611 |
) |
|
|
(456,502 |
) |
Total
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
Depreciation and
Amortization
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
14,945 |
|
|
$ |
12,807 |
|
|
$ |
10,977 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
3,884 |
|
|
|
3,188 |
|
|
|
3,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
16,978 |
|
|
|
17,179 |
|
|
|
14,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
21,461 |
|
|
|
16,063 |
|
|
|
14,463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (b)
|
|
|
7,907 |
|
|
|
7,692 |
|
|
|
6,714 |
|
Total
|
|
$ |
65,175 |
|
|
$ |
56,929 |
|
|
$ |
50,289 |
|
(a)
Includes results of Corporate headquarters and one distribution warehouse not
managed by named segments.
(b)
Includes amounts recorded at Corporate headquarters.
Segment Operating
Income
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
158,389 |
|
|
$ |
162,717 |
|
|
$ |
139,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
18,721 |
|
|
|
13,017 |
|
|
|
9,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
185,772 |
|
|
|
200,101 |
|
|
|
180,944 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
93,569 |
|
|
|
124,898 |
|
|
|
112,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
(68,374 |
) |
|
|
(87,957 |
) |
|
|
(76,954 |
) |
Segment
Operating Income
|
|
$ |
388,077 |
|
|
$ |
412,776 |
|
|
$ |
365,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
and other costs
|
|
|
6,890 |
|
|
|
32,355 |
|
|
|
10,527 |
|
Interest
Expense
|
|
|
21,896 |
|
|
|
32,527 |
|
|
|
23,783 |
|
Interest
Income
|
|
|
(5,032 |
) |
|
|
(17,089 |
) |
|
|
(26,428 |
) |
Other
expense (income), net
|
|
|
967 |
|
|
|
10,110 |
|
|
|
(656 |
) |
Income
before income taxes
|
|
$ |
363,356 |
|
|
$ |
354,873 |
|
|
$ |
358,192 |
|
Capital
Expenditures
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
8,333 |
|
|
$ |
19,836 |
|
|
$ |
10,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
2,506 |
|
|
|
3,839 |
|
|
|
2,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
14,434 |
|
|
|
19,593 |
|
|
|
22,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
25,546 |
|
|
|
24,510 |
|
|
|
23,896 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (b)
|
|
|
5,662 |
|
|
|
8,662 |
|
|
|
5,067 |
|
Total
|
|
$ |
56,481 |
|
|
$ |
76,440 |
|
|
$ |
64,163 |
|
|
(a)
|
Includes
results of Corporate headquarters, inter-segment eliminations and one
distribution warehouse not managed by named
segments
|
|
(b)
|
Includes
capital expenditures of Corporate
headquarters.
|
Assets
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
European
Regions Consumable Businesses
|
|
$ |
602,272 |
|
|
$ |
556,125 |
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
European
Countries, CIS, Middle East,
Africa,
Pacific Rim Businesses
|
|
|
388,831 |
|
|
|
385,050 |
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
Orthodontics
|
|
|
809,924 |
|
|
|
763,479 |
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
973,764 |
|
|
|
942,504 |
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
313,141 |
|
|
|
183,242 |
|
Total
|
|
$ |
3,087,932 |
|
|
$ |
2,830,400 |
|
(a)
Includes assets of Corporate headquarters, inter-segment eliminations and one
distribution warehouse not managed by named segments.
Geographic
Information
The
following table sets forth information about the Company's operations in
different geographic areas for the years ended December 31, 2009, 2008 and 2007.
Net sales reported below represent revenues for shipments made by operating
businesses located in the country or territory identified, including export
sales. Assets reported represent those held by the operating businesses located
in the respective geographic areas.
|
|
United
|
|
|
|
|
|
Other
|
|
|
|
|
(in
thousands)
|
|
States
|
|
|
Germany
|
|
|
Foreign
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
843,349 |
|
|
$ |
482,130 |
|
|
$ |
834,437 |
|
|
$ |
2,159,916 |
|
Long-lived
assets
|
|
|
167,574 |
|
|
|
143,469 |
|
|
|
232,691 |
|
|
|
543,734 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
865,743 |
|
|
$ |
470,836 |
|
|
$ |
857,144 |
|
|
$ |
2,193,723 |
|
Long-lived
assets
|
|
|
175,360 |
|
|
|
137,871 |
|
|
|
233,668 |
|
|
|
546,899 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
844,162 |
|
|
$ |
438,099 |
|
|
$ |
727,572 |
|
|
$ |
2,009,833 |
|
Long-lived
assets
|
|
|
172,204 |
|
|
|
144,340 |
|
|
|
157,207 |
|
|
|
473,751 |
|
Product and Customer
Information
The
following table presents net sales information by product category:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Dental
consumables products
|
|
$ |
710,606 |
|
|
$ |
680,016 |
|
|
$ |
634,480 |
|
Dental
laboratory products
|
|
|
500,235 |
|
|
|
558,291 |
|
|
|
530,821 |
|
Dental
specialty products
|
|
|
895,357 |
|
|
|
888,484 |
|
|
|
782,808 |
|
Non-dental
products
|
|
|
53,718 |
|
|
|
66,932 |
|
|
|
61,724 |
|
Total
net sales
|
|
$ |
2,159,916 |
|
|
$ |
2,193,723 |
|
|
$ |
2,009,833 |
|
Dental
consumable products consist of dental sundries and small equipment products used
in dental offices for the treatment of patients. DENTSPLY’s products in this
category include dental anesthetics, infection control products, prophylaxis
paste, dental sealants, impression materials, restorative materials, bone
grafting materials, tooth whiteners and topical fluoride. The Company
manufactures thousands of different consumable products marketed under more than
a hundred brand names. Small equipment products consist of various durable goods
used in dental offices for treatment of patients. DENTSPLY’s small equipment
products include high and low speed handpieces, intraoral curing light systems
and ultrasonic scalers and polishers.
Dental
laboratory products are used in dental laboratories in the preparation of dental
appliances. DENTSPLY’s products in this category include dental prosthetics,
including artificial teeth, precious metal dental alloys, dental ceramics, crown
and bridge materials, and equipment products used in laboratories consisting of
computer aided machining (CAM) ceramic systems and porcelain
furnaces.
Dental
specialty products are specialized treatment products used within the dental
office and laboratory settings. DENTSPLY’s products in this category include
endodontic (root canal) instruments and materials, implants and related
products, bone grafting material, 3D digital implantology, and orthodontic
appliances and accessories.
Non-dental
products are comprised primarily of investment casting materials that are used
in the production of jewelry, golf club heads and other casting products, as
well as certain medical products.
One
customer, Henry Schein, Incorporated, a dental distributor, accounted for more
than ten percent of consolidated net sales in 2009, 2008 and 2007 accounting for
11%, 11% and 12% of all sales, respectively. Third party export sales from the
U.S. are less than ten percent of consolidated net sales.
NOTE
5 – OTHER EXPENSE (INCOME)
Other
expense (income), net, consists of the following:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange transaction losses (gains)
|
|
$ |
336 |
|
|
$ |
8,881 |
|
|
$ |
(452 |
) |
Other
expense (income)
|
|
|
631 |
|
|
|
1,229 |
|
|
|
(204 |
) |
|
|
$ |
967 |
|
|
$ |
10,110 |
|
|
$ |
(656 |
) |
NOTE
6 – INVENTORIES, NET
Inventories,
net, consist of the following:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$ |
178,721 |
|
|
$ |
184,226 |
|
Work-in-process
|
|
|
53,056 |
|
|
|
58,123 |
|
Raw
materials and supplies
|
|
|
59,863 |
|
|
|
63,776 |
|
|
|
$ |
291,640 |
|
|
$ |
306,125 |
|
The
Company’s inventory valuation reserve was $31.9 million for 2009 and $28.4
million for 2008.
NOTE
7- PROPERTY, PLANT AND EQUIPMENT, NET
Property,
plant and equipment, net, consist of the following:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
Assets,
at cost:
|
|
|
|
|
|
|
Land
|
|
$ |
43,207 |
|
|
$ |
40,702 |
|
Buildings
and improvements
|
|
|
295,297 |
|
|
|
256,172 |
|
Machinery
and equipment
|
|
|
546,806 |
|
|
|
511,618 |
|
Construction
in progress
|
|
|
18,610 |
|
|
|
31,659 |
|
|
|
|
903,920 |
|
|
|
840,151 |
|
Less: Accumulated
depreciation
|
|
|
464,301 |
|
|
|
407,875 |
|
Property,
plant and equipment, net
|
|
$ |
439,619 |
|
|
$ |
432,276 |
|
NOTE
8 – GOODWILL AND INTANGIBLE ASSETS
The
Company requires that impairment tests on goodwill or other indefinite-lived
intangible assets be performed annually and are based upon a fair value approach
rather than an evaluation of undiscounted cash flows. If goodwill impairment is
identified, the resulting charge is determined by recalculating goodwill through
a hypothetical purchase price allocation of the fair value and reducing the
current carrying value to the extent it exceeds the recalculated goodwill. If
impairment is identified on indefinite-lived intangibles, the resulting charge
reflects the excess of the asset’s carrying cost over its fair value. Other
intangible assets with finite lives are amortized over their useful lives and
tested for impairment when events or changes in circumstances indicate that the
finite-lived intangible assets may be impaired
In
addition to minimum annual impairment tests, the Company also requires that
impairment assessments be made more frequently if events or changes in
circumstances indicate that the goodwill or indefinite-lived intangible assets
might be impaired. As the Company learns of such changes in
circumstances through periodic analysis of actual results or through the annual
development of operating unit business plans in the fourth quarter of each year,
for example, impairment assessments will be performed as necessary.
The
Company performs its annual goodwill impairment test in the second quarter of
each year. This impairment assessment includes an evaluation of
various reporting units, which are generally an operating segment or one
reporting level below the operating segment. The Company compares the fair value
of each reporting unit to its carrying amount to determine if there is potential
goodwill impairment. If the fair value of a reporting unit is less than its
carrying value, an impairment loss is recorded to the extent that the fair value
of the goodwill of the reporting unit is less than the carrying value of its
goodwill.
The
Company performed the required annual impairment tests of goodwill as of April
30, 2009 on seven reporting units. To determine the fair value of our
reporting units, the Company uses a discounted cash flow model with market-based
support as its valuation technique to measure the fair value for its reporting
units. The discounted cash flow model uses five year forecasted
cash flows plus a terminal value based on a multiple of earnings. In
addition, the Company applied gross margin and operating expense assumptions
consistent with historical trends. The total cash flows were
discounted based on a range between 8% to 11%, which included assumptions
regarding the Company’s weighted-average cost of capital. The Company
considered the current market conditions when determining its assumptions as the
U.S. economy, and to a certain extent, the global economy, were in a recession
during 2009. Lastly, the Company reconciled the aggregated fair
values of its reporting units to its market capitalization, which included a
reasonable control premium based on market conditions. As a result of
the annual impairment tests of goodwill, no impairment was
identified.
As of
December 31, 2009, the Company has assigned no value to indefinite-lived
intangible assets. Impairments of finite-lived identifiable
intangible assets for the years ended December 31, 2009, 2008 and 2007 were $0.3
million, $2.7 million and $0.2 million, respectively.
The table
below presents the net carrying values of goodwill and finite-lived identifiable
intangible assets.
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Goodwill
|
|
$ |
1,312,596 |
|
|
$ |
1,277,026 |
|
|
|
|
|
|
|
|
|
|
Finite-lived
identifiable intangible assets, net
|
|
$ |
89,086 |
|
|
$ |
103,718 |
|
A
reconciliation of changes in the Company’s goodwill is as follows:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of the year
|
|
$ |
1,277,026 |
|
|
$ |
1,127,420 |
|
Acquisition
activity
|
|
|
3,572 |
|
|
|
164,200 |
|
Changes
to purchase price allocations
|
|
|
5,245 |
|
|
|
(175 |
) |
Effects
of exchange rate changes
|
|
|
26,753 |
|
|
|
(14,419 |
) |
Balance,
end of the year
|
|
$ |
1,312,596 |
|
|
$ |
1,277,026 |
|
The
Company has not recorded impairments to goodwill for the year ended December 31,
2009.
The
change in the net carrying value of goodwill from 2008 to 2009 was due to
foreign currency translation adjustments, additional payments based on the
performance of the previously acquired businesses and changes to purchase price
allocations. The purchase price allocation changes were primarily related to the
finalization of the purchase price allocation on 2008 acquisitions.
Goodwill
by reportable segment is as follows:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
|
|
|
|
|
|
|
European
Regions Consumable Businesses
|
|
$ |
252,538 |
|
|
$ |
255,768 |
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
|
|
|
|
|
|
|
|
|
European
Countries, CIS, Middle East,
|
|
|
|
|
|
|
|
|
Africa,
Pacific Rim Businesses
|
|
|
159,383 |
|
|
|
161,623 |
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
|
|
|
|
|
|
|
|
|
Orthodontics
|
|
|
267,427 |
|
|
|
257,183 |
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
|
|
|
|
|
|
|
|
|
Implants/Non-Dental
|
|
|
633,248 |
|
|
|
602,452 |
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
1,312,596 |
|
|
$ |
1,277,026 |
|
Finite-lived
identifiable intangible assets consist of the following:
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
(in
thousands)
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$ |
38,840 |
|
|
$ |
(25,842 |
) |
|
$ |
12,998 |
|
|
$ |
41,353 |
|
|
$ |
(22,945 |
) |
|
$ |
18,408 |
|
Trademarks
|
|
|
70,353 |
|
|
|
(17,939 |
) |
|
|
52,414 |
|
|
|
75,310 |
|
|
|
(14,472 |
) |
|
|
60,838 |
|
Licensing
agreements
|
|
|
28,880 |
|
|
|
(14,138 |
) |
|
|
14,742 |
|
|
|
29,490 |
|
|
|
(13,032 |
) |
|
|
16,458 |
|
Other
|
|
|
15,364 |
|
|
|
(6,432 |
) |
|
|
8,932 |
|
|
|
12,197 |
|
|
|
(4,183 |
) |
|
|
8,014 |
|
|
|
$ |
153,437 |
|
|
$ |
(64,351 |
) |
|
$ |
89,086 |
|
|
$ |
158,350 |
|
|
$ |
(54,632 |
) |
|
$ |
103,718 |
|
Amortization
expense for finite-lived identifiable intangible assets for 2009, 2008 and 2007
was $10.6 million, $8.7 million and $7.7 million, respectively. The annual
estimated amortization expense related to these intangible assets for each of
the five succeeding fiscal years is $9.3 million, $8.6 million, $7.9 million,
$6.6 million and $5.9 million for 2010, 2011, 2012, 2013 and 2014,
respectively.
NOTE
9 - ACCRUED LIABILITIES
Accrued
liabilities consist of the following:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Payroll,
commissions, bonuses, other
|
|
|
|
|
|
|
cash
compensation and employee benefits
|
|
$ |
60,083 |
|
|
$ |
68,602 |
|
General
insurance
|
|
|
13,222 |
|
|
|
14,130 |
|
Sales
and marketing programs
|
|
|
28,468 |
|
|
|
27,441 |
|
Professional
and legal costs
|
|
|
10,248 |
|
|
|
10,075 |
|
Restructuring
costs
|
|
|
9,358 |
|
|
|
4,905 |
|
Warranty
liabilities
|
|
|
4,141 |
|
|
|
4,260 |
|
Deferred
income
|
|
|
3,385 |
|
|
|
2,613 |
|
Accrued
vacation and holidays
|
|
|
13,425 |
|
|
|
12,391 |
|
Third
party royalties
|
|
|
9,806 |
|
|
|
9,053 |
|
Current
portion of derivatives
|
|
|
59,250 |
|
|
|
8,520 |
|
Other
|
|
|
37,783 |
|
|
|
31,670 |
|
|
|
$ |
249,169 |
|
|
$ |
193,660 |
|
A
reconciliation of changes in the Company's warranty liability for 2009 and 2008
is as follows:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Balance,
beginning of the year
|
|
$ |
4,260 |
|
|
$ |
4,431 |
|
Accruals
for warranties issued during the year
|
|
|
1,129 |
|
|
|
859 |
|
Accruals
related to pre-existing warranties
|
|
|
- |
|
|
|
(48 |
) |
Warranty
settlements made during the year
|
|
|
(1,295 |
) |
|
|
(875 |
) |
Effects
of exchange rate changes
|
|
|
47 |
|
|
|
(107 |
) |
Balance,
end of the year
|
|
$ |
4,141 |
|
|
$ |
4,260 |
|
NOTE 10 - FINANCING
ARRANGEMENTS
Recent
Financing Activities
On
October 16, 2009, the Company and a group of investors agreed to a new $250.0
million Private Placement Note (“PPN”) to be funded not later than February 19,
2010 with an average maturity of five years and a final maturity of six years at
a fixed rate of 4.11%. The PPN is unsecured and contains certain
affirmative and negative covenants relating to operations and financial
condition of the Company similar in substance to the existing $150.0 million
U.S. Private Placement Note maturing March 15, 2010.
In
accordance with the terms of PPN Purchase Agreement (the “Agreement”), the
Company received net proceeds of $250.0 million on February 19,
2010. The proceeds will be used to refinance the $150.0 million U.S.
Private Placement Note due on March 15, 2010 with the remaining proceeds used to
repay the commercial paper borrowing of $85.2 million and fund book overdrafts
of $4.0 million. As of December 31, 2009, the Company has classified
$239.2 million as long-term debt. The long-term debt classification
is supported by the fact that the Company has demonstrated its intent and
ability to fund existing short-term debt with the proceeds from the
PPN. Additionally, the Agreement has an average maturity of five
years, and the lenders are not permitted to cancel the Agreement or accelerate
repayments. The Agreement does not contain a material adverse change
clause subsequent to funding.
Short-Term
Borrowings
Short-term bank borrowings
amounted to $15.6 million and $21.8 million at December 31, 2009 and 2008,
respectively. The weighted average interest rates of these borrowings were 3.0%
and 5.3% at December 31, 2009 and 2008, respectively. Unused lines of credit for
short-term financing at December 31, 2009 and 2008 were $56.9 million and $43.4
million, respectively. Substantially all other short-term borrowings were
classified as long-term as of December 31, 2009 and 2008, reflecting the
Company's intent and ability to refinance these obligations beyond one year and
are included in the following table. The unused lines of credit have no major
restrictions and are provided under demand notes between the Company and the
lending institution. Interest is charged on borrowings under these lines of
credit at various rates, generally below prime or equivalent money
rates.
Long-Term
Borrowings
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Multi-currency
revolving credit agreement expiring May 2010:
|
|
|
|
|
|
|
Swiss
francs 65 million at 0.60%
|
|
$ |
62,844 |
|
|
$ |
60,809 |
|
Swiss
francs 57 million
|
|
|
- |
|
|
|
53,507 |
|
Private
placement notes:
|
|
|
|
|
|
|
|
|
U.S.
dollar denominated expiring March 2010 at 0.55%
|
|
|
150,000 |
|
|
|
150,000 |
|
Term
Loan Agreement:
|
|
|
|
|
|
|
|
|
Japanese
yen denominated expiring March 2012 at 1.00%
|
|
|
134,776 |
|
|
|
138,247 |
|
U.S.
dollar commercial paper:
|
|
|
|
|
|
|
|
|
Facility
rated A/2-P/2 U.S. dollar borrowings at 0.30%
|
|
|
85,200 |
|
|
|
- |
|
Other
borrowings, various currencies and rates
|
|
|
20,911 |
|
|
|
25,096 |
|
|
|
$ |
453,731 |
|
|
$ |
427,659 |
|
Less:
Current portion
|
|
|
|
|
|
|
|
|
(included
in notes payable and current portion of long-term debt)
|
|
|
66,580 |
|
|
|
3,980 |
|
Long
term portion
|
|
$ |
387,151 |
|
|
$ |
423,679 |
|
The table below reflects the
contractual maturity dates of the various borrowings at December 31,
2009. The borrowings under the U.S. Private Placement Note and the
commercial paper program are considered contractually due in 2014 and 2015 and
beyond.
(in
thousands)
|
|
|
|
|
|
|
|
2010
|
|
$ |
66,580 |
|
2011
|
|
|
5,299 |
|
2012
|
|
|
139,470 |
|
2013
|
|
|
1,215 |
|
2014
|
|
|
75,682 |
|
2015
and beyond
|
|
|
165,485 |
|
|
|
$ |
453,731 |
|
The
Company utilizes interest rate swaps to convert the Swiss franc denominated debt
under the revolving facility to fixed rate debt. The Company utilizes
interest rate swaps to convert the variable rate Japanese yen and U.S. dollar
denominated private placement notes to fixed rate debt. The Company's use of
interest rate swaps is further described in Note 15, Financial Instruments and
Derivatives.
The
Company has a $500.0 million revolving credit agreement with participation from
thirteen banks, which expires in May 2010. The revolving credit agreements
contain a number of covenants and two financial ratios, which the Company is
required to satisfy. The most restrictive of these covenants pertain to asset
dispositions and prescribed ratios of indebtedness to total capital and
operating income excluding depreciation and amortization to interest expense.
Any breach of any such covenants or restrictions would result in a default under
the existing borrowing documentation that would permit the lenders to declare
all borrowings under such documentation to be immediately due and payable and,
through cross default provisions, would entitle the Company's other lenders to
accelerate their loans. At December 31, 2009, the Company was in compliance with
these covenants. The Company pays a facility fee of 0.10% annually on the amount
of the commitment under the $500.0 million five-year facility. The entire $500.0
million revolving credit agreement has a usage fee of 0.10% annually if
utilization exceeds 50% of the total available facility. Interest rates on
amounts borrowed under the facility will depend on the maturity of the
borrowing, the currency borrowed, the interest rate option selected, and the
Company’s long-term credit rating from Standard and Poor’s.
The
Company has a U.S. dollar commercial paper facility totaling $250.0 million,
which has utilization, dealer and annual appraisal fees which on average cost
0.11% annually. The $500.0 million revolving credit facility acts as back-up
credit to this commercial paper facility. The total available credit
under the commercial paper facility and the revolving credit facility is $500.0
million. As of December 31, 2009, the Company had $85.2 million outstanding in
commercial paper and $62.8 million in revolving credit obligations.
At
December 31, 2009, the Company had total unused lines of credit, including lines
available under its short-term arrangements and revolving credit agreement, of
$404.9 million.
NOTE 11 - EQUITY
At
December 31, 2009, the Company had authorization to repurchase shares under its
stock repurchase program in an amount up to 17,000,000 shares of treasury stock.
Under its stock repurchase program, the Company purchased 2,452,903 shares and
2,971,155 shares during 2009 and 2008 at an average price of $32.09 and $37.91,
respectively. As of December 31, 2009 and 2008, the Company held 15.8 million
and 14.2 million shares of treasury stock, respectively. During 2009, the
Company repurchased $78.7 million in treasury stock. The Company also received
proceeds of $13.4 million primarily as a result of the exercise of 0.9 million
stock options during the year ended December 31, 2009. It is the Company’s
practice to issue shares from treasury stock when options are exercised. The tax
benefit realized for the options exercised during the year ended December 31,
2009 is $3.9 million.
The
following table represents total outstanding shares for the years ended December
31:
|
|
Common
|
|
|
Treasury
|
|
|
Outstanding
|
|
(in
thousands)
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2006
|
|
|
162,776 |
|
|
|
(10,985 |
) |
|
|
151,791 |
|
Shares
Issued
|
|
|
- |
|
|
|
2,421 |
|
|
|
2,421 |
|
Repurchase
of common stock at cost
|
|
|
- |
|
|
|
(3,390 |
) |
|
|
(3,390 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2007
|
|
|
162,776 |
|
|
|
(11,954 |
) |
|
|
150,822 |
|
Shares
Issued
|
|
|
- |
|
|
|
677 |
|
|
|
677 |
|
Repurchase
of common stock at cost
|
|
|
- |
|
|
|
(2,971 |
) |
|
|
(2,971 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2008
|
|
|
162,776 |
|
|
|
(14,248 |
) |
|
|
148,528 |
|
Shares
Issued
|
|
|
- |
|
|
|
886 |
|
|
|
886 |
|
Repurchase
of common stock at cost
|
|
|
- |
|
|
|
(2,453 |
) |
|
|
(2,453 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
|
162,776 |
|
|
|
(15,815 |
) |
|
|
146,961 |
|
The
Company maintains the 2002 Equity Incentive Plan (the “Plan”) under which it may
grant non-qualified stock options, incentive stock options, restricted stock,
restricted stock units (“RSU”) and stock appreciation rights, collectively
referred to as “Awards.” Awards are granted at exercise prices that
approximate the fair market value of the common stock on the grant
date. The Plan authorizes grants of 14,000,000 shares of common
stock, plus any unexercised portion of canceled or terminated stock options
granted under the DENTSPLY International Inc 1993 and 1998 Plans, subject to
adjustment as follows: each January, if 7% of the total outstanding
common shares of the Company exceed 14,000,000, the excess becomes available for
grant under the Plan. No more than 2,000,000 shares may be awarded as
restricted stock and restricted stock units, and no key employee may be granted
restricted stock units in excess of 150,000 shares of common stock in any
calendar year. The number of shares available for grant under the
2002 Plan as of December 31, 2009 is 1.0 million.
Stock
options generally expire ten years after the date of grant under these plans and
grants become exercisable over a period of three years after the date of grant
at the rate of one-third per year, except when they become immediately
exercisable upon death, disability or qualified retirement. RSU vest
100% on the third anniversary of the date of grant and are subject to a service
condition, which requires grantees to remain employed by the Company during the
three-year period following the date of grant. In addition to the
service condition, certain key executives are subject to performance
requirements. Similar to stock options, RSU become immediately exercisable upon
death, disability or qualified retirement. The fair value of each RSU
assumes that performance goals will be achieved. If such goals are
not met, no compensation cost is recognized and any recognized compensation
costs is reversed. Under the terms of the RSU, the three-year period
is referred to as the restricted period. RSU and the rights under the
award may not be sold, assigned, transferred, donated, pledged or otherwise
disposed of during the three year restricted period prior to
vesting. Upon the expiration of the applicable restricted period and
the satisfaction of all conditions imposed, all restrictions imposed on RSU will
lapse, and one share of common stock will be issued as payment for each vested
RSU.
The following table represents total
stock based compensation expense and the tax related benefit for the years
ended:
|
|
December
31,
|
|
(in
millions)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Stock
option expense
|
|
$ |
8.7 |
|
|
$ |
11.7 |
|
|
$ |
11.2 |
|
RSU
expense
|
|
|
6.4 |
|
|
|
4.4 |
|
|
|
1.7 |
|
Total
stock based compensation expense
|
|
$ |
15.1 |
|
|
$ |
16.1 |
|
|
$ |
12.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Related
deferred income tax benefit
|
|
$ |
3.6 |
|
|
$ |
3.9 |
|
|
$ |
3.2 |
|
The stock
option expense shown in the preceding table represents the aggregate fair value
of shares vested during the year ended December 31, 2009, 2008 and
2007. There were 3.4 million non-qualified stock options unvested as
of December 31, 2009. The remaining unamortized compensation cost related to
non-qualified stock options is $18.2 million, which will be expensed over the
weighted average remaining vesting period of the options, or 1.8 years. The
unamortized compensation cost related to RSU is $7.8 million, which will be
expensed over the remaining weighted average restricted period of the RSU, or
1.5 years.
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of each option awarded. The following table sets forth the assumptions used to
determine compensation cost for the Company’s non-qualified stock options issued
during the years ended:
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Weighted
average fair value per share
|
|
$ |
7.31 |
|
|
$ |
5.23 |
|
|
$ |
8.75 |
|
Expected
dividend yield
|
|
|
0.60 |
% |
|
|
0.69 |
% |
|
|
0.41 |
% |
Risk-free
interest rate
|
|
|
2.14 |
% |
|
|
1.85 |
% |
|
|
3.67 |
% |
Expected
volatility
|
|
|
22 |
% |
|
|
21 |
% |
|
|
21 |
% |
Expected
life (years)
|
|
|
4.84 |
|
|
|
4.66 |
|
|
|
4.66 |
|
The total
intrinsic value of options exercised for the years ended December 31, 2009, 2008
and 2007 was $12.3 million, $13.7 million and $41.1 million,
respectively.
The
following table summarizes the non-qualified stock option transactions for the
year ended December 31, 2009:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
(in thousands, except per share amounts)
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
December
31, 2008
|
|
|
11,285 |
|
|
$ |
26.75 |
|
|
$ |
41,428 |
|
|
|
8,185 |
|
|
$ |
24.71 |
|
|
$ |
37,796 |
|
Granted
|
|
|
1,805 |
|
|
|
33.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(824 |
) |
|
|
16.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(228 |
) |
|
|
32.44 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
12,038 |
|
|
$ |
28.34 |
|
|
$ |
94,148 |
|
|
|
8,682 |
|
|
$ |
26.78 |
|
|
$ |
80,839 |
|
The
weighted average remaining contractual term of all outstanding options is 6.3
years and the weighted average remaining contractual term of exercisable options
is 4.9 years.
The
following table summarizes information about non-qualified stock options
outstanding for the year ended December 31, 2009:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
Outstanding
|
|
|
Remaining
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
Weighted
|
|
|
|
at
|
|
|
Contractual
|
|
|
Average
|
|
|
at
|
|
|
Average
|
|
Incremental Changes
|
|
December 31,
|
|
|
Life
|
|
|
Exercise
|
|
|
December 31,
|
|
|
Exercise
|
|
in Stock Price
|
|
2009
|
|
|
(in years)
|
|
|
Price
|
|
|
2009
|
|
|
Price
|
|
$5.00
- $10.00
|
|
|
5,200 |
|
|
|
0.2 |
|
|
$ |
9.19 |
|
|
|
5,200 |
|
|
$ |
9.19 |
|
10.01
- 15.00
|
|
|
282,900 |
|
|
|
1.0 |
|
|
|
12.50 |
|
|
|
282,900 |
|
|
|
12.50 |
|
15.01
- 20.00
|
|
|
1,441,533 |
|
|
|
2.5 |
|
|
|
17.50 |
|
|
|
1,441,533 |
|
|
|
17.50 |
|
20.01
- 25.00
|
|
|
1,155,595 |
|
|
|
4.0 |
|
|
|
22.19 |
|
|
|
1,124,795 |
|
|
|
22.20 |
|
25.01
- 30.00
|
|
|
4,884,049 |
|
|
|
6.6 |
|
|
|
27.11 |
|
|
|
3,695,904 |
|
|
|
27.39 |
|
30.01
- 35.00
|
|
|
3,012,500 |
|
|
|
8.3 |
|
|
|
32.76 |
|
|
|
1,322,434 |
|
|
|
31.42 |
|
35.01
- 40.00
|
|
|
128,479 |
|
|
|
8.0 |
|
|
|
37.44 |
|
|
|
61,248 |
|
|
|
37.12 |
|
40.01
- 45.00
|
|
|
41,383 |
|
|
|
8.1 |
|
|
|
41.14 |
|
|
|
17,370 |
|
|
|
41.18 |
|
45.01
- 50.00
|
|
|
1,086,533 |
|
|
|
7.8 |
|
|
|
45.15 |
|
|
|
730,400 |
|
|
|
45.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,038,172 |
|
|
|
6.3 |
|
|
$ |
28.34 |
|
|
|
8,681,784 |
|
|
$ |
26.78 |
|
The
following table summarizes the unvested RSU and RSU dividend transactions for
the year ended December 31, 2009:
|
|
Unvested Restricted Stock Units
|
|
|
|
|
|
|
Weighted Average
|
|
(in thousands, except per share amounts)
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested
at December 31, 2008
|
|
|
400 |
|
|
$ |
36.11 |
|
Granted
|
|
|
300 |
|
|
|
26.46 |
|
Exercised
|
|
|
(1 |
) |
|
|
30.81 |
|
Vested
|
|
|
(10 |
) |
|
|
31.76 |
|
Forfeited
|
|
|
(27 |
) |
|
|
32.94 |
|
|
|
|
|
|
|
|
|
|
Unvested
at December 31, 2009
|
|
|
662 |
|
|
$ |
31.94 |
|
NOTE
12 - INCOME TAXES
The
components of income before income taxes from operations are as
follows:
|
|
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
United
States
|
|
$ |
99,009 |
|
|
$ |
45,171 |
|
|
$ |
100,740 |
|
Foreign
|
|
|
264,347 |
|
|
|
309,702 |
|
|
|
257,452 |
|
|
|
$ |
363,356 |
|
|
$ |
354,873 |
|
|
$ |
358,192 |
|
The
components of the provision for income taxes from operations are as
follows:
|
|
|
|
|
December 31,
|
|
|
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
U.S.
federal
|
|
$ |
30,851 |
|
|
$ |
(9,913 |
) |
|
$ |
14,395 |
|
U.S.
state
|
|
|
5,886 |
|
|
|
2,291 |
|
|
|
4,122 |
|
Foreign
|
|
|
52,012 |
|
|
|
65,854 |
|
|
|
54,396 |
|
Total
|
|
$ |
88,749 |
|
|
$ |
58,232 |
|
|
$ |
72,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
federal
|
|
$ |
(8,046 |
) |
|
$ |
23,496 |
|
|
$ |
28,131 |
|
U.S.
state
|
|
|
(476 |
) |
|
|
3,283 |
|
|
|
1,627 |
|
Foreign
|
|
|
8,717 |
|
|
|
(13,408 |
) |
|
|
(4,190 |
) |
Total
|
|
$ |
195 |
|
|
$ |
13,371 |
|
|
$ |
25,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
88,944 |
|
|
$ |
71,603 |
|
|
$ |
98,481 |
|
The
reconciliation of the U.S. federal statutory tax rate to the effective rate for
the years ended is as follows:
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Statutory
federal income tax rate
|
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Effect
of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State
income taxes, net of federal benefit
|
|
|
1.0 |
|
|
|
1.0 |
|
|
|
1.0 |
|
Federal
benefit of R&D and foreign tax credits
|
|
|
(11.3 |
) |
|
|
(15.8 |
) |
|
|
(3.2 |
) |
Tax
effect of international operations
|
|
|
0.7 |
|
|
|
5.3 |
|
|
|
(2.4 |
) |
Net
effect of tax audit activity
|
|
|
(1.3 |
) |
|
|
(4.4 |
) |
|
|
1.0 |
|
Tax
effect of enacted statutory rate changes
|
|
|
- |
|
|
|
0.1 |
|
|
|
(3.1 |
) |
Federal
tax on unremitted earnings of certain
|
|
|
|
|
|
|
|
|
|
|
|
|
foreign subsidiaries
|
|
|
0.1 |
|
|
|
(0.3 |
) |
|
|
0.1 |
|
Valuation
allowance adjustments
|
|
|
- |
|
|
|
(0.4 |
) |
|
|
- |
|
Other
|
|
|
0.3 |
|
|
|
(0.3 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rate on operations
|
|
|
24.5 |
% |
|
|
20.2 |
% |
|
|
27.5 |
% |
The tax
effect of temporary differences giving rise to deferred tax assets and
liabilities are as follows:
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
Current
|
|
|
Noncurrent
|
|
|
Current
|
|
|
Noncurrent
|
|
|
|
Asset
|
|
|
Asset
|
|
|
Asset
|
|
|
Asset
|
|
(in thousands)
|
|
(Liability)
|
|
|
(Liability)
|
|
|
(Liability)
|
|
|
(Liability)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
benefit accruals
|
|
$ |
2,791 |
|
|
$ |
25,085 |
|
|
$ |
4,159 |
|
|
$ |
20,832 |
|
Product
warranty accruals
|
|
|
980 |
|
|
|
- |
|
|
|
1,065 |
|
|
|
- |
|
Insurance
premium accruals
|
|
|
5,068 |
|
|
|
- |
|
|
|
5,401 |
|
|
|
- |
|
Commission
and bonus accrual
|
|
|
1,764 |
|
|
|
- |
|
|
|
1,904 |
|
|
|
- |
|
Sales
and marketing accrual
|
|
|
4,553 |
|
|
|
- |
|
|
|
3,799 |
|
|
|
- |
|
Restructuring
and other cost accruals
|
|
|
777 |
|
|
|
- |
|
|
|
800 |
|
|
|
2,178 |
|
Differences
in financial reporting and tax basis for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
15,554 |
|
|
|
- |
|
|
|
14,196 |
|
|
|
- |
|
Property,
plant and equipment
|
|
|
- |
|
|
|
(38,663 |
) |
|
|
- |
|
|
|
(40,493 |
) |
Identifiable
intangible assets
|
|
|
- |
|
|
|
(130,419 |
) |
|
|
- |
|
|
|
(109,278 |
) |
Unrealized
losses included in other comprehensive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income
|
|
|
22,249 |
|
|
|
33,296 |
|
|
|
2,347 |
|
|
|
82,641 |
|
Miscellaneous
accruals
|
|
|
7,072 |
|
|
|
1,457 |
|
|
|
10,108 |
|
|
|
1,073 |
|
Other
|
|
|
974 |
|
|
|
11,853 |
|
|
|
1,673 |
|
|
|
1,594 |
|
Taxes
on unremitted earnings of foreign subsidiaries
|
|
|
- |
|
|
|
(1,486 |
) |
|
|
- |
|
|
|
(1,076 |
) |
R&D
and foreign tax credit carryforwards
|
|
|
10,254 |
|
|
|
25,355 |
|
|
|
5,000 |
|
|
|
19,678 |
|
Tax
loss carryforwards and other tax attributes
|
|
|
3,979 |
|
|
|
66,031 |
|
|
|
11,833 |
|
|
|
46,869 |
|
Valuation
allowance
|
|
|
(485 |
) |
|
|
(51,324 |
) |
|
|
(194 |
) |
|
|
(36,547 |
) |
|
|
$ |
75,530 |
|
|
$ |
(58,815 |
) |
|
$ |
62,091 |
|
|
$ |
(12,529 |
) |
Current
and noncurrent deferred tax assets and liabilities are included in the following
balance sheet captions:
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Prepaid
expenses and other current assets
|
|
$ |
77,277 |
|
|
$ |
63,952 |
|
Income
taxes payable
|
|
|
1,747 |
|
|
|
1,861 |
|
Other
noncurrent assets
|
|
|
13,709 |
|
|
|
56,520 |
|
Deferred
income taxes
|
|
|
72,524 |
|
|
|
69,049 |
|
The
Company has $35.3 million of foreign tax credit carryforwards $7.9 million, $7.1
million, $9.9 million and $10.4 million will expire in 2015, 2016, 2017 and 2019
respectively.
Certain
foreign and domestic subsidiaries of the Company have tax loss carryforwards of
$536.3 million at December 31, 2009, of which $448.2 million expire through 2029
and $88.1 million may be carried forward indefinitely. The tax benefit of
certain tax loss carryforwards and deferred tax assets has been offset by a
valuation allowance as of December 31, 2009, because it is uncertain whether the
benefits will be realized in the future. The valuation allowance at December 31,
2009 and 2008 was $51.8 million and $36.7 million, respectively.
The
Company has provided federal income taxes on certain undistributed earnings of
its foreign subsidiaries that the Company anticipates will be repatriated.
Deferred federal income taxes have not been provided on $621.3 million of
cumulative earnings of foreign subsidiaries that the Company has determined to
be permanently reinvested. It is not practicable to estimate the amount of tax
that might be payable on these permanently reinvested earnings.
Tax
Contingencies
The
Company applies a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The Company recognizes in the financial
statements, the impact of a tax position, if that position is more likely than
not of being sustained on audit, based on the technical merits of the
position.
The total
amount of gross unrecognized tax benefits at December 31, 2009, is approximately
$18.4 million, of this total, approximately $17.0 million represents the amount
of unrecognized tax benefits that, if recognized, would affect the effective
income tax rate. It is reasonably possible that certain amounts of
unrecognized tax benefits will significantly increase or decrease within twelve
months of the reporting date of the Company’s consolidated financial statements.
Final settlement and resolution of outstanding tax matters in various
jurisdictions during the next twelve months could include unrecognized tax
benefits of approximately $1.1 million. In addition, expiration of
statutes of limitation in various jurisdictions during the next twelve months
could include unrecognized tax benefits of approximately $1.0
million.
The total
amount of accrued interest and penalties were $5.6 million and $7.2 million as
of December 31, 2009 and December 31, 2008, respectively. The Company
has consistently classified interest and penalties recognized in its
consolidated financial statements as income taxes based on the accounting policy
election of the Company. During the year ended December 31, 2009 and
December 31, 2008, the Company recognized income tax benefits in the amount of
$1.7 million and $5.5 million for interest and penalties. During the
year ended December 31, 2007, the company recognized income tax expense of $2.6
million in interest and penalties.
The
Company is subject to U.S. federal income tax as well as income tax of multiple
state and foreign jurisdictions. The significant jurisdictions
include the U.S., Germany and Switzerland. The Company has
substantially concluded all U.S. federal income tax matters for years through
2005, resulting in the years 2006, 2007 and 2008 being subject to future
potential tax audit adjustments while years prior to 2006 are
settled. The Company has concluded audits in Germany through the tax
year 2003 and is currently under audit for the years 2004 through
2008. The taxable years that remain open for Switzerland are 1999
through 2008.
The
Company had the following activity recorded for unrecognized tax
benefits:
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits at beginning of period
|
|
$ |
17,285 |
|
|
$ |
36,307 |
|
|
$ |
36,862 |
|
Gross
change for prior period positions
|
|
|
(672 |
) |
|
|
2,939 |
|
|
|
1,619 |
|
Gross
change for current year positions
|
|
|
1,630 |
|
|
|
785 |
|
|
|
1,129 |
|
Decrease
due to settlements and payments
|
|
|
(4,703 |
) |
|
|
(15,677 |
) |
|
|
- |
|
Decrease
due to statute expirations
|
|
|
(1,026 |
) |
|
|
(5,752 |
) |
|
|
(3,303 |
) |
Increase
due to effect of foreign currency translation
|
|
|
350 |
|
|
|
- |
|
|
|
- |
|
Decrease
due to effect from foreign currency translation
|
|
|
- |
|
|
|
(1,317 |
) |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized
tax benefits at end of period
|
|
$ |
12,864 |
|
|
$ |
17,285 |
|
|
$ |
36,307 |
|
NOTE
13 - BENEFIT PLANS
Substantially
all of the employees of the Company and its subsidiaries are covered by
government or Company-sponsored benefit plans. Total costs for Company-sponsored
defined benefit, defined contribution and employee stock ownership plans
amounted to $24.6 million, $21.2 million and $20.9 million in 2009, 2008 and
2007, respectively.
Defined
Contribution Plans
In
December 2006, the Board of Directors amended the DENTSPLY Employee Stock
Ownership Plan (“ESOP”) and 401(k) plans to redesign the future distribution of
allocations of “Covered Compensation,” with a targeted 3% going into the ESOP in
Company stock and a targeted 3% going into the 401(k) as a Non-Elective
Contribution (“NEC”) in cash. The principal driver of this redesign is to
provide quicker diversification opportunity to the participants as the
investment of the NEC is participant directed. The Company sponsors an employee
401(k) savings plan for its U.S. workforce to which enrolled participants may
contribute up to Internal Revenue Service (“IRS”) defined limits. The annual
expense and cash contribution to the 401(k) is expected to be $5.3 million for
2009 (to be contributed in the first quarter of 2010), and was $5.0 million and
$4.6 million in 2008 and 2007, respectively.
The ESOP
is a non-contributory defined contribution plan that covers substantially all of
the U.S. based non-union employees of the Company. Contributions to the ESOP,
net of forfeitures, are expected to be $1.4 million for 2009 (to be contributed
in the first quarter of 2010), and were $1.3 million for 2008 (contributed in
the first quarter of 2009), and were $0.2 million for 2007 (contributed in the
first quarter of 2008).
All
future ESOP allocations will come from a combination of forfeited shares and
shares acquired in the open market. The Company has targeted future ESOP
allocations at 3% of “Covered Compensation.” The share allocation will be
accounted at fair value at the point of allocation, which is normally
year-end.
Defined
Benefit Plans
The
Company maintains a number of separate contributory and non-contributory
qualified defined benefit pension plans and other postretirement medical plans
for certain union and salaried employee groups in the U.S. Pension benefits for
salaried plans are based on salary and years of service; hourly plans are based
on negotiated benefits and years of service. Annual contributions to the pension
plans are sufficient to satisfy minimum funding requirements. Pension plan
assets are held in trust and consist mainly of common stock and fixed income
investments. The U.S. plans are funded in excess of the funding required by the
U.S. Department of Labor.
The
Company maintains defined benefit pension plans for its employees in Germany,
Japan, the Netherlands, Switzerland and Taiwan. These plans provide benefits
based upon age, years of service and remuneration. Substantially all of the
German plans are unfunded book reserve plans. Other foreign plans are not
significant individually or in the aggregate. Most employees and retirees
outside the U.S. are covered by government health plans.
Defined Benefit Pension Plan
Assets
The
Company maintains defined benefit plans for it employees in the U.S., Germany,
Japan, the Netherlands, Switzerland and Taiwan. The primary
investment strategy is to ensure that the assets of the plans, along with
anticipated future contributions, will be invested in order that the benefit
entitlements of employees, pensioners and beneficiaries covered under the plan
can be met when due with high probability. Pension plan assets
consist mainly of common stock and fixed income investments. The target
allocations for plan assets are 30% to 65% equity securities, 30% to 65% fixed
income securities, 0% to 15% real estate, and 0% to 25% in all other types of
investments. Equity securities include investments in companies
located both in and outside the U.S. Equity securities do not include
common stock of the Company. Fixed income securities include corporate bonds of
companies from diversified industries, government bonds, mortgage notes and
pledge letters. Other types of investments include investments in
mutual funds, common trusts, insurance contracts, hedge funds and real
estate. These plan assets are not recorded on the Company’s
consolidated balance sheet as they are held in trust or other off-balance sheet
investment vehicles.
The
defined benefit pension plan assets in the U.S. are held in trust and the
investment policies of the plans are generally to invest the plans assets in
equities and fixed income investments. The objective is to achieve a
long-term rate of return in excess of 5% while at the same time mitigating the
impact of investment risk associated with investment categories that are
expected to yield greater than average returns. In accordance with
the investment policies of the U.S. plans, the plans assets were invested in the
following investment categories: interest-bearing cash, registered investment
companies (e.g. mutual funds), common/collective trusts, master trust investment
accounts and insurance company general accounts. The investment
objective is for assets to be invested in a manner consistent with the fiduciary
standards of the Employee Retirement Security Act of 1974.
The
defined benefit pension plan assets maintained in Germany, Japan, the
Netherlands, Switzerland and Taiwan all have separate investment policies but
generally have an objective is to achieve a long-term rate of return in excess
5% while at the same time mitigating the impact of investment risk associated
with investment categories that are expected to yield greater than average
returns. In accordance with the investment policies for the plans
outside the U.S., the plans assets were invested in the following investment
categories: interest-bearing cash, U.S. and foreign equities, foreign fixed
income securities (primarily corporate and government bonds), insurance company
contracts, real estate, and hedge funds.
Postretirement
Healthcare
The plans
for postretirement healthcare have no plan assets. The postretirement healthcare
plans cover certain union and salaried employee groups in the U.S. and is
contributory, with retiree contributions adjusted annually to limit the
Company’s contribution for participants who retired after June 1, 1985. The
Company also sponsors unfunded non-contributory postretirement medical plans for
a limited number of union employees and their spouses and retirees of a
discontinued operation.
Reconciliations
of changes in the defined benefit and postretirement healthcare plans’ benefit
obligations, fair value of assets and statement of funded status are as
follows:
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at beginning of year
|
|
$ |
183,785 |
|
|
$ |
176,634 |
|
|
$ |
10,501 |
|
|
$ |
10,420 |
|
Service
cost
|
|
|
8,375 |
|
|
|
6,980 |
|
|
|
50 |
|
|
|
50 |
|
Interest
cost
|
|
|
8,003 |
|
|
|
7,910 |
|
|
|
676 |
|
|
|
635 |
|
Participant
contributions
|
|
|
2,774 |
|
|
|
2,667 |
|
|
|
689 |
|
|
|
710 |
|
Actuarial
(gains) losses
|
|
|
(7,202 |
) |
|
|
7,973 |
|
|
|
1,018 |
|
|
|
670 |
|
Amendments
|
|
|
(29 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Divestitures
|
|
|
286 |
|
|
|
521 |
|
|
|
- |
|
|
|
- |
|
Effects
of exchange rate changes
|
|
|
4,929 |
|
|
|
1,055 |
|
|
|
- |
|
|
|
- |
|
Settlement
gains
|
|
|
(808 |
) |
|
|
(10,130 |
) |
|
|
- |
|
|
|
- |
|
Benefits
paid
|
|
|
(8,137 |
) |
|
|
(9,825 |
) |
|
|
(1,268 |
) |
|
|
(1,984 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit
obligation at end of year
|
|
$ |
191,976 |
|
|
$ |
183,785 |
|
|
$ |
11,666 |
|
|
$ |
10,501 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of plan assets at beginning of year
|
|
$ |
75,986 |
|
|
$ |
90,658 |
|
|
$ |
- |
|
|
$ |
- |
|
Actual
return on assets
|
|
|
5,687 |
|
|
|
(11,200 |
) |
|
|
- |
|
|
|
- |
|
Settlement
gains
|
|
|
- |
|
|
|
(10,130 |
) |
|
|
- |
|
|
|
- |
|
Effects
of exchange rate changes
|
|
|
2,474 |
|
|
|
4,578 |
|
|
|
- |
|
|
|
- |
|
Employer
contributions
|
|
|
10,082 |
|
|
|
9,238 |
|
|
|
579 |
|
|
|
1,274 |
|
Participant
contributions
|
|
|
2,774 |
|
|
|
2,667 |
|
|
|
689 |
|
|
|
710 |
|
Benefits
paid
|
|
|
(8,137 |
) |
|
|
(9,825 |
) |
|
|
(1,268 |
) |
|
|
(1,984 |
) |
Fair
value of plan assets at end of year
|
|
$ |
88,866 |
|
|
$ |
75,986 |
|
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded
status at end of year
|
|
$ |
(103,110 |
) |
|
$ |
(107,799 |
) |
|
$ |
(11,666 |
) |
|
$ |
(10,501 |
) |
The
amounts recognized in the accompanying Consolidated Balance Sheets, net of tax
effects, are as follows:
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
noncurrent assets
|
|
$ |
1 |
|
|
$ |
11 |
|
|
$ |
- |
|
|
$ |
- |
|
Deferred
tax asset
|
|
|
7,177 |
|
|
|
9,672 |
|
|
|
1,427 |
|
|
|
1,142 |
|
Total
assets
|
|
$ |
7,178 |
|
|
$ |
9,683 |
|
|
$ |
1,427 |
|
|
$ |
1,142 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
(3,604 |
) |
|
|
(3,290 |
) |
|
|
(1,107 |
) |
|
|
(1,084 |
) |
Long-term
liabilities
|
|
|
(99,507 |
) |
|
|
(104,521 |
) |
|
|
(10,559 |
) |
|
|
(9,416 |
) |
Deferred
tax liability
|
|
|
(238 |
) |
|
|
(452 |
) |
|
|
- |
|
|
|
- |
|
Total
liabilities
|
|
$ |
(103,349 |
) |
|
$ |
(108,263 |
) |
|
$ |
(11,666 |
) |
|
$ |
(10,500 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
comprehensive
income
|
|
|
20,504 |
|
|
|
28,282 |
|
|
|
2,270 |
|
|
|
1,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
amount recognized
|
|
$ |
(75,667 |
) |
|
$ |
(70,298 |
) |
|
$ |
(7,969 |
) |
|
$ |
(7,542 |
) |
Amounts
recognized in AOCI consist of:
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
December 31,
|
|
|
December 31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial loss
|
|
$ |
27,056 |
|
|
$ |
36,702 |
|
|
$ |
3,697 |
|
|
$ |
2,958 |
|
Net
prior service cost
|
|
|
262 |
|
|
|
437 |
|
|
|
- |
|
|
|
- |
|
Net
transition obligation
|
|
|
125 |
|
|
|
364 |
|
|
|
- |
|
|
|
- |
|
Pretax
AOCI
|
|
$ |
27,443 |
|
|
$ |
37,503 |
|
|
$ |
3,697 |
|
|
$ |
2,958 |
|
Less
deferred taxes
|
|
|
6,939 |
|
|
|
9,221 |
|
|
|
1,427 |
|
|
|
1,142 |
|
Post
tax AOCI
|
|
$ |
20,504 |
|
|
$ |
28,282 |
|
|
$ |
2,270 |
|
|
$ |
1,816 |
|
The
accumulated benefit obligation for all defined benefit pension plans was $182.8
million and $174.0 million at December 31, 2009 and 2008,
respectively.
Information
for pension plans with an accumulated benefit obligation in excess of plan
assets:
|
|
December
31,
|
|
(in
thousands)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Projected
benefit obligation
|
|
$ |
191,785 |
|
|
$ |
183,565 |
|
Accumulated
benefit obligation
|
|
|
182,594 |
|
|
|
173,747 |
|
Fair
value of plan assets
|
|
|
88,674 |
|
|
|
75,753 |
|
Components
of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
8,375 |
|
|
$ |
6,980 |
|
|
$ |
6,796 |
|
|
$ |
50 |
|
|
$ |
50 |
|
|
$ |
42 |
|
Interest
cost
|
|
|
8,003 |
|
|
|
7,910 |
|
|
|
7,094 |
|
|
|
676 |
|
|
|
635 |
|
|
|
573 |
|
Expected
return on assets
|
|
|
(3,991 |
) |
|
|
(4,458 |
) |
|
|
(4,115 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
of actuarial losses
|
|
|
240 |
|
|
|
240 |
|
|
|
217 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
of prior service
|
|
|
138 |
|
|
|
141 |
|
|
|
148 |
|
|
|
- |
|
|
|
- |
|
|
|
(386 |
) |
Amortization
of net loss
|
|
|
1,652 |
|
|
|
155 |
|
|
|
1,224 |
|
|
|
281 |
|
|
|
168 |
|
|
|
229 |
|
Settlement
gains
|
|
|
(1,148 |
) |
|
|
(2,259 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
periodic benefit cost
|
|
$ |
13,269 |
|
|
$ |
8,709 |
|
|
$ |
11,364 |
|
|
$ |
1,007 |
|
|
$ |
853 |
|
|
$ |
458 |
|
Other
changes in plan assets and benefit obligations recognized in AOCI:
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
(in thousands)
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
actuarial (gain) loss
|
|
$ |
(7,994 |
) |
|
$ |
26,214 |
|
|
$ |
(19,487 |
) |
|
$ |
1,020 |
|
|
$ |
670 |
|
|
$ |
466 |
|
Net
prior service (credit)
|
|
|
(37 |
) |
|
|
(3 |
) |
|
|
(113 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Net
transition obligation
|
|
|
1 |
|
|
|
32 |
|
|
|
(9 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
Amortization
|
|
|
(2,030 |
) |
|
|
(536 |
) |
|
|
(1,589 |
) |
|
|
(281 |
) |
|
|
(168 |
) |
|
|
156 |
|
Total
recognized in AOCI
|
|
$ |
(10,060 |
) |
|
$ |
25,707 |
|
|
$ |
(21,198 |
) |
|
$ |
739 |
|
|
$ |
502 |
|
|
$ |
622 |
|
Total
recognized in net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
periodic
benefit cost and AOCI
|
|
$ |
3,209 |
|
|
$ |
34,416 |
|
|
$ |
(9,834 |
) |
|
$ |
1,746 |
|
|
$ |
1,355 |
|
|
$ |
1,080 |
|
The
estimated net loss, prior service cost and transition obligation for the defined
benefit plans that will be amortized from AOCI into net periodic benefit cost
over the next fiscal year are $1.2 million. The estimated net loss and prior
service credit for the other postretirement plans that will be amortized from
AOCI into net periodic benefit cost over the next fiscal year is $0.3
million.
The
weighted average assumptions used to determine benefit obligations for the
Company's plans, principally in foreign locations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
4.7 |
% |
|
|
4.5 |
% |
|
|
5.0 |
% |
|
|
5.5 |
% |
|
|
6.3 |
% |
|
|
6.3 |
% |
Rate
of compensation increase
|
|
|
2.7 |
% |
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Health
care cost trend
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
8.5 |
% |
|
|
9.0 |
% |
|
|
9.0 |
% |
Ultimate
health care cost trend
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
5.0 |
% |
Years
until ultimate trend is reached
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
8.0 |
|
|
|
9.0 |
|
|
|
9.0 |
|
The
weighted average assumptions used to determine net periodic benefit cost for the
Company's plans, principally in foreign locations, are as follows:
|
|
|
|
|
|
|
|
|
|
|
Other Postretirement
|
|
|
|
Pension Benefits
|
|
|
Benefits
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
Discount
rate
|
|
|
4.5 |
% |
|
|
5.0 |
% |
|
|
4.1 |
% |
|
|
6.3 |
% |
|
|
6.3 |
% |
|
|
5.8 |
% |
Expected
return on plan assets
|
|
|
5.2 |
% |
|
|
5.4 |
% |
|
|
5.3 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Rate
of compensation increase
|
|
|
2.7 |
% |
|
|
2.8 |
% |
|
|
2.7 |
% |
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
Health
care cost trend
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
8.5 |
% |
|
|
9.0 |
% |
|
|
9.0 |
% |
Ultimate
health care cost trend
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
5.0 |
% |
Years
until ultimate trend is reached
|
|
|
n/a |
|
|
|
n/a |
|
|
|
n/a |
|
|
|
8.0 |
|
|
|
9.0 |
|
|
|
9.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measurement Date
|
|
12/31/2009
|
|
|
12/31/2008
|
|
|
12/31/2007
|
|
|
12/31/2009
|
|
|
12/31/2008
|
|
|
12/31/2007
|
|
Assumed
health care cost trend rates have an impact on the amounts reported for
postretirement benefits. A one percentage point change in assumed healthcare
cost trend rates would have the following effects for the year ended December
31, 2009:
|
|
Other Postretirement
|
|
|
|
Benefits
|
|
(in thousands)
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
|
|
|
|
|
Effect
on total of service and interest cost components
|
|
$ |
60 |
|
|
$ |
(51 |
) |
Effect
on postretirement benefit obligation
|
|
|
948 |
|
|
|
(818 |
) |
Fair
Value Measurements of Plan Assets
The fair
value of the Company's pension plan assets at December 31, 2009 are presented in
the table below by asset category. Over 80% of the total plan assets are
categorized as Level 1, and therefore, the values assigned to these pension
assets are based on quoted prices available in active markets. For
the other category levels, a description of the valuation is provided in Note 1,
Significant Accounting Policies, under the “fair value measurement”
heading.
|
|
December
31, 2009
|
|
(in
thousands)
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Assets
Category
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
& equivalents
|
|
$ |
3,180 |
|
|
$ |
3,038 |
|
|
$ |
142 |
|
|
$ |
- |
|
Equity
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.
S.
|
|
|
954 |
|
|
|
954 |
|
|
|
- |
|
|
|
- |
|
International
|
|
|
27,907 |
|
|
|
27,907 |
|
|
|
- |
|
|
|
- |
|
Fixed
income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
rate bonds (a)
|
|
|
35,350 |
|
|
|
35,350 |
|
|
|
- |
|
|
|
- |
|
Other
types of investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual
funds (b)
|
|
|
7,872 |
|
|
|
- |
|
|
|
7,872 |
|
|
|
- |
|
Common
trusts (c)
|
|
|
1,932 |
|
|
|
90 |
|
|
|
- |
|
|
|
1,842 |
|
Insurance
contracts
|
|
|
4,567 |
|
|
|
- |
|
|
|
2,825 |
|
|
|
1,742 |
|
Hedge
funds
|
|
|
1,672 |
|
|
|
- |
|
|
|
- |
|
|
|
1,672 |
|
Real
estate
|
|
|
5,432 |
|
|
|
5,107 |
|
|
|
- |
|
|
|
325 |
|
Total
|
|
$ |
88,866 |
|
|
$ |
72,446 |
|
|
$ |
10,839 |
|
|
$ |
5,581 |
|
(a)
|
This
category includes fixed income securities invested primarily in Swiss
bonds, foreign bonds in Swiss currency, foreign currency bonds, mortgage
notes and pledged letters.
|
(b)
|
Mutual
funds balanced between moderate-income generation and moderate capital
appreciation with investments allocation of approximately 50% equities and
50% fixed income investments.
|
(c)
|
This
category includes common/collective funds with investments in
approximately 65% equities and 35% in fixed income
investments.
|
The
following tables provide a reconciliation from December 31, 2008 to December 31,
2009 for the plans assets categorized as Level 3. No assets were
transferred in or out of the Level 3 category during the year ended December 31,
2009.
|
|
Changes within Level 3 Category for
|
|
|
|
Year
Ended December 31, 2009
|
|
|
|
Common
|
|
|
Insurance
|
|
|
Hedge
|
|
|
Real
|
|
|
|
|
(in
thousands)
|
|
Trust
|
|
|
Contracts
|
|
|
Funds
|
|
|
Estate
|
|
|
Total
|
|
Beginning
balance at December 31, 2008
|
|
$ |
1,233 |
|
|
$ |
1,578 |
|
|
$ |
1,002 |
|
|
$ |
314 |
|
|
$ |
4,127 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
return on plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Relating
to assets still held
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at
the reporting date
|
|
|
239 |
|
|
|
31 |
|
|
|
(224 |
) |
|
|
- |
|
|
|
46 |
|
Relating
to assets sold during
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
the
period
|
|
|
16 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
16 |
|
Purchases,
sales and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
settlements
|
|
|
354 |
|
|
|
89 |
|
|
|
832 |
|
|
|
- |
|
|
|
1,275 |
|
Effects
of exchange rate changes
|
|
|
- |
|
|
|
44 |
|
|
|
62 |
|
|
|
11 |
|
|
|
117 |
|
Ending
balance at December 31, 2009
|
|
$ |
1,842 |
|
|
$ |
1,742 |
|
|
$ |
1,672 |
|
|
$ |
325 |
|
|
$ |
5,581 |
|
Cash
Flows
In 2010,
the Company expects to contribute $8.0 million to its defined benefit pension
plans and $1.1 million to its postretirement medical plans.
Estimated
Future Benefit Payments
(in
thousands)
|
|
Pension
Benefits
|
|
|
Other
Post
Retirement
Benefits
|
|
2010
|
|
$ |
7,512 |
|
|
$ |
1,107 |
|
2011
|
|
|
7,825 |
|
|
|
1,138 |
|
2012
|
|
|
8,161 |
|
|
|
1,159 |
|
2013
|
|
|
9,287 |
|
|
|
1,100 |
|
2014
|
|
|
9,778 |
|
|
|
1,068 |
|
2015-2018
|
|
|
57,806 |
|
|
|
4,423 |
|
NOTE
14 – RESTRUCTURING, IMPAIRMENTS AND OTHER COSTS
Restructuring
Costs
Restructuring
costs of $5.9 million for 2009 are reflected in Restructuring, impairments and
other costs in the statement of operations and the associated liabilities are
recorded in accrued liabilities and other non-current liabilities in the
consolidated balance sheet. These costs consist of employee severance
benefits, payments due under operating contracts, and other restructuring
costs.
During
2009, the Company initiated several restructuring plans primarily related to the
closure and/or consolidation of certain production and selling facilities in the
United States, Europe and South America to better leverage the Company’s
resources by reducing costs and obtaining operational
efficiencies. Additionally, the Company executed targeted reductions
in workforce both in the manufacturing and non-manufacturing business functions
in certain locations.
During
2008, the Company initiated several restructuring plans primarily related to the
integration, reorganization, and closure or consolidation of certain production
and selling facilities in order to better leverage the Company’s resources by
minimizing costs and obtaining operational efficiencies.
As of
December 31, 2009, the Company’s restructuring accruals were as
follows:
|
|
Severances
|
|
|
|
2007 and
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
2008 Plans
|
|
|
2009 Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$ |
664 |
|
|
$ |
2,806 |
|
|
$ |
- |
|
|
$ |
3,470 |
|
Provisions
and adjustments
|
|
|
(185 |
) |
|
|
3,165 |
|
|
|
4,389 |
|
|
|
7,369 |
|
Amounts
applied
|
|
|
(46 |
) |
|
|
(1,102 |
) |
|
|
(1,133 |
) |
|
|
(2,281 |
) |
Balance,
December 31, 2009
|
|
$ |
433 |
|
|
$ |
4,869 |
|
|
$ |
3,256 |
|
|
$ |
8,558 |
|
|
|
Lease/contract terminations
|
|
|
|
2007 and
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$ |
1,271 |
|
|
$ |
1,271 |
|
Provisions
and adjustments
|
|
|
50 |
|
|
|
50 |
|
Amounts
applied
|
|
|
(196 |
) |
|
|
(196 |
) |
Balance,
December 31, 2009
|
|
$ |
1,125 |
|
|
$ |
1,125 |
|
|
|
Other restructuring costs
|
|
|
|
2007 and
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
2008 Plans
|
|
|
2009 Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$ |
108 |
|
|
$ |
56 |
|
|
$ |
- |
|
|
$ |
164 |
|
Provisions
and adjustments
|
|
|
137 |
|
|
|
568 |
|
|
|
(2,190 |
) |
|
|
(1,485 |
) |
Amounts
applied
|
|
|
(133 |
) |
|
|
(624 |
) |
|
|
2,190 |
|
|
|
1,433 |
|
Balance,
December 31, 2009
|
|
$ |
112 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
112 |
|
The
following table provides the cumulative amounts for the provisions and
adjustments and amounts applied for all the plans by segment:
|
|
December 31,
|
|
|
Provisions
|
|
|
Amounts
|
|
|
December 31,
|
|
(in thousands)
|
|
2008
|
|
|
and adjustments
|
|
|
applied
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other
|
|
|
|
|
|
|
|
|
|
|
|
|
European
Regions Consumable Businesses
|
|
$ |
1,286 |
|
|
$ |
338 |
|
|
$ |
(346 |
) |
|
$ |
1,278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
European
Countries, CIS, Middle East,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Africa,
Pacific Rim Businesses
|
|
|
190 |
|
|
|
285 |
|
|
|
(391 |
) |
|
|
84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orthodontics
|
|
|
178 |
|
|
|
924 |
|
|
|
(463 |
) |
|
|
639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implants/Non-Dental
|
|
|
3,251 |
|
|
|
4,147 |
|
|
|
396 |
|
|
|
7,794 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
Other (a)
|
|
|
- |
|
|
|
240 |
|
|
|
(240 |
) |
|
|
- |
|
Total
Balance
|
|
$ |
4,905 |
|
|
$ |
5,934 |
|
|
$ |
(1,044 |
) |
|
$ |
9,795 |
|
(a)
|
Includes amounts
recorded at Corporate headquarters.
|
Other
Costs
In 2009,
the Company recorded certain other costs of $0.9 million related to legal
matters and an impairment of an intangible asset.
Other
costs of $26.5 million for 2008 included costs primarily related to settlements
of legal matters and impairment of long-term assets. The legal settlements
related to several legal matters with multiple plaintiffs. These
cases included a patent dispute and cases relating to a prior distribution
practice of the Company in connection with the sale of artificial
teeth. The impairment charges were related to abandonment of patented
technology purchased in 2005 and the impairment of a long-term note receivable
recorded from a sale of a business in 2006. The impairment of the
long-term note receivable occurred as the result of a change in payment terms on
the non-interest bearing note receivable.
NOTE
15 – FINANCIAL INSTRUMENTS AND DERIVATIVES
Derivative
Instruments and Hedging Activities
The
Company's activities expose it to a variety of market risks, which primarily
include the risks related to the effects of changes in foreign currency exchange
rates, interest rates and commodity prices. These financial exposures
are monitored and managed by the Company as part of its overall risk management
program. The objective of this risk management program is to reduce the
volatility that these market risks may have on the Company's operating results
and equity.
Certain
of the Company's inventory purchases are denominated in foreign currencies,
which expose the Company to market risk associated with exchange rate
movements. The Company's policy generally is to hedge major foreign
currency transaction exposures through foreign exchange forward
contracts. These contracts are entered into with major financial
institutions thereby minimizing the risk of credit loss. In addition,
the Company's investments in foreign subsidiaries are denominated in foreign
currencies, which create exposures to changes in exchange rates. The
Company uses debt and derivatives denominated in the applicable foreign currency
as a means of hedging a portion of this risk.
With the
Company’s significant level of variable interest rate long-term debt and net
investment hedges, changes in the interest rate environment can have a major
impact on the Company’s earnings, depending upon its interest rate
exposure. As a result, the Company manages its interest rate exposure
with the use of interest rate swaps, when appropriate, based upon market
conditions.
The
manufacturing of some of the Company’s products requires the use of commodities,
which are subject to market fluctuations. In order to limit the
unanticipated impact on earnings from such market fluctuations, the Company
selectively enters into commodity swaps for certain materials used in the
production of its products. Additionally, the Company uses
non-derivative methods, such as the precious metal consignment agreements to
effectively hedge commodity risks.
Cash
Flow Hedges
The
Company uses interest rate swaps to convert a portion of its variable interest
rate debt to fixed interest rate debt. As of December 31, 2009, the
Company has three groups of significant variable interest rate to fixed rate
interest rate swaps. One of the groups of swaps has notional amounts
totaling 12.6 billion Japanese yen, and effectively converts the underlying
variable interest rates to an average fixed interest rate of 1.6% for a term of
ten years, ending in September 2012. Another swap has a notional
amount of 65.0 million Swiss francs, and effectively converts the underlying
variable interest rates to a fixed interest rate of 4.2% for a term of seven
years, ending in September 2012. A third group of swaps has a
notional amount of $150.0 million, and effectively converts the underlying
variable interest rates to a fixed interest rate of 3.9% for a term of two
years, ending March 2010. The Company enters into interest rate swap
contracts infrequently as they are only used to manage interest rate risk on
long-term debt instruments and not for speculative purposes.
The
Company selectively enters into commodity swaps to effectively fix certain
variable raw material costs. At December 31, 2009, the Company had
swaps in place to purchase 540 troy ounces of platinum bullion for use in the
production of its impression material products. The average fixed
rate of this agreement is $1,156 per troy ounce. In addition, the
Company had swaps in place to purchase 57,372 troy ounces of silver bullion for
use in the production of its amalgam products at an average fixed rate of $15
per troy ounce.
The
Company enters into forward exchange contracts to hedge the foreign currency
exposure of its anticipated purchases of certain inventory. In
addition, exchange contracts are used by certain of the Company's subsidiaries
to hedge intercompany inventory purchases, which are denominated in non-local
currencies. The forward contracts that are used in these programs
typically mature in twelve months or less. For these derivatives
which qualify as hedges of future anticipated cash flows, the effective portion
of changes in fair value is temporarily deferred in AOCI and then recognized in
earnings when the hedged item affects earnings.
Hedges
of Net Investments in Foreign Operations
The
Company has numerous investments in foreign subsidiaries. The net
assets of these subsidiaries are exposed to volatility in currency exchange
rates. Currently, the Company uses non-derivative financial
instruments, including foreign currency denominated debt held at the parent
company level and derivative financial instruments to hedge some of this
exposure. Translation gains and losses related to the net assets of
the foreign subsidiaries are offset by gains and losses in the non-derivative
and derivative financial instruments designated as hedges of net
investments.
In the
first quarter of 2005, the Company entered into cross currency interest rate
swaps with a notional principal value of Swiss francs 457.5 million paying three
month Swiss franc London Inter-Bank Offered Rate (“LIBOR”) and receiving
three month U.S. dollar LIBOR on $384.4 million. In the first quarter
of 2006, the Company entered into additional cross currency interest rate swaps
with a notional principal value of Swiss francs 55.5 million paying three month
Swiss franc LIBOR and receiving three month U.S. dollar LIBOR on $42.0
million. In the fourth quarter of 2006, the Company entered into
additional cross currency interest rate swaps with a notional principal value of
Swiss francs 80.4 million paying three month Swiss franc LIBOR and receiving
three month U.S. dollar LIBOR on $64.4 million. In the first quarter
of 2007, the Company entered into additional cross currency interest rate swaps
with a notional principal value of Swiss francs 56.6 million paying three month
Swiss franc LIBOR and receiving three month U.S. dollar LIBOR on $46.3
million. Additionally, in the fourth quarter of 2005, the Company
entered into cross currency interest rate swaps with a notional principal value
of Euro 358.0 million paying three month Euro LIBOR and receiving three month
U.S. dollar LIBOR on $419.7 million. In the first quarter of 2009,
the Company terminated Swiss francs 57.5 million cross currency swap at a fair
value of zero. In the second and third quarters of 2009, the Company amended
certain of its Swiss franc and Euro cross currency interest rate swaps to extend
their maturity dates for an additional three years. Specifically, a
total of Swiss francs 300.0 million have been extended to March and April of
2013 and a total of Euro 250.0 million have been extended to December
2013. The Swiss franc and Euro cross currency interest rate swaps are
designated as net investment hedges of the Swiss and Euro denominated net
assets. The interest rate differential is recognized in the earnings
as interest income or interest expense as it is accrued, the foreign currency
revaluation is recorded in AOCI, net of tax effects.
The fair
value of these cross currency interest rate swap agreements is the estimated
amount the Company would either pay or receive at the reporting date,
taking into account the effective interest rates and foreign exchange
rates. As of December 31, 2009 and December 31, 2008, the estimated
net fair values of the swap agreements were negative $176.6 million and negative
$148.9 million, respectively, which are recorded in AOCI, net of tax effects,
and as other noncurrent liabilities and other noncurrent assets.
At
December 31, 2009 and December 31, 2008, the Company had Euro-denominated, Swiss
franc-denominated, and Japanese yen-denominated debt and cross currency interest
rate swaps (at the parent company level) to hedge the currency exposure related
to a designated portion of the net assets of its European, Swiss and Japanese
subsidiaries. At December 31, 2009 and 2008, the accumulated
translation gains on investments in foreign subsidiaries, primarily denominated
in Euros, Swiss francs and Japanese yen, net of these net investment hedges,
were $111.1 million and $77.6 million, respectively, which are included in
AOCI, net of tax effects.
The
following tables summarize the fair value of the Company’s derivatives at
December 31, 2009.
|
|
Notional Amounts
|
|
|
Fair Value
(Liability) Asset
|
|
Foreign
Exchange Forward Contracts
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
sale, 13.3 million Australian dollars
|
|
$ |
11,268 |
|
|
$ |
635 |
|
|
$ |
(316 |
) |
Forward
purchase, 6.2 million British pounds
|
|
|
(9,728 |
) |
|
|
(298 |
) |
|
|
226 |
|
Forward
sale, 16.4 million Canadian dollars
|
|
|
15,117 |
|
|
|
560 |
|
|
|
(927 |
) |
Forward
purchase, 7.0 million Swiss francs
|
|
|
(6,804 |
) |
|
|
- |
|
|
|
(15 |
) |
Forward
sale, 7.5 million Danish Krone
|
|
|
1,454 |
|
|
|
- |
|
|
|
13 |
|
Forward
purchase, 0.01 million Euros
|
|
|
(18 |
) |
|
|
- |
|
|
|
13 |
|
Forward
sale, 83.3 million Japanese yen
|
|
|
895 |
|
|
|
- |
|
|
|
628 |
|
Forward
sale, 96.7 million Mexican Pesos
|
|
|
7,390 |
|
|
|
- |
|
|
|
94 |
|
Forward
sale, 1.2 billion South Korean won
|
|
|
999 |
|
|
|
- |
|
|
|
10 |
|
Forward
sale, 6.5 million Taiwanese dollars
|
|
|
202 |
|
|
|
- |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
foreign exchange forward contracts
|
|
$ |
20,775 |
|
|
$ |
897 |
|
|
$ |
(276 |
) |
|
|
Notional Amount
|
|
|
Fair Value
Liability
|
|
Interest
Rate Swaps
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
and Beyond
|
|
|
2009
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
$ |
2,056 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
1,354 |
|
|
$ |
4,400 |
|
|
$ |
(882 |
) |
Japanese
yen
|
|
|
- |
|
|
|
- |
|
|
|
134,776 |
|
|
|
- |
|
|
|
- |
|
|
|
(3,351 |
) |
Swiss
francs
|
|
|
- |
|
|
|
- |
|
|
|
62,844 |
|
|
|
- |
|
|
|
- |
|
|
|
(4,470 |
) |
U.S.
dollars
|
|
|
150,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,084 |
) |
Total
interest rate swaps
|
|
$ |
152,056 |
|
|
$ |
1,354 |
|
|
$ |
198,974 |
|
|
$ |
1,354 |
|
|
$ |
4,400 |
|
|
$ |
(9,787 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Fair Value
Liability
|
|
Cross
Currency Basis Swaps
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
and Beyond
|
|
|
2009
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss
franc 592.5 million @ $1.21 pay CHF 3mo. LIBOR rec. USD 3mo.
LIBOR
|
|
$ |
150,343 |
|
|
$ |
77,734 |
|
|
$ |
54,723 |
|
|
$ |
290,051 |
|
|
$ |
- |
|
|
$ |
(83,979 |
) |
Euros
358.0 million @ $1.17 pay EUR 3mo. LIBOR rec. USD 3mo.
LIBOR
|
|
|
154,827 |
|
|
|
- |
|
|
|
- |
|
|
|
358,395 |
|
|
|
- |
|
|
|
(92,642 |
)
|
Total
cross currency basis swaps
|
|
$ |
305,170 |
|
|
$ |
77,734 |
|
|
$ |
54,723 |
|
|
$ |
648,446 |
|
|
$ |
- |
|
|
$ |
(176,621 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amount
|
|
|
Fair
Value Asset
|
|
Commodity
Contracts
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
and Beyond
|
|
|
2009
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
swap - U.S. dollar
|
|
$ |
(977 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
129 |
|
Platinum
swap - U.S. dollar
|
|
|
(790 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
164 |
|
Total
commodity contracts
|
|
$ |
(1,767 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
293 |
|
As of
December 31, 2009, $4.8 million of deferred net losses on derivative instruments
recorded in AOCI are expected to be reclassified to current earnings during the
next twelve months. This reclassification is primarily due to the
sale of inventory that includes previously hedged purchases and interest rate
swaps. The maximum term over which the Company is hedging exposures
to variability of cash flows (for all forecasted transactions, excluding
interest payments on variable interest rate debt) is eighteen
months. Overall, the derivatives designated as cash flow hedges are
highly effective. Any cash flows associated with these instruments
are included in cash provided by operating activities in the Consolidated
Statements of Cash Flows in accordance with the Company’s policy of classifying
the cash flows from these instruments in the same category as the cash flows
from the items being hedged.
The
following tables summarize the fair value and location on the Consolidated
Balance Sheets of the Company's derivatives at:
|
|
Consolidated
Balance Sheets
|
|
December 31,
|
|
Asset Derivatives Designated as Hedging Instruments
|
|
Classification
|
|
2009
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other
current assets (a)
|
|
$ |
598 |
|
Foreign
exchange contracts
|
|
Other
noncurrent assets, net
|
|
|
5 |
|
Commodity
contracts
|
|
Other
current assets (a)
|
|
|
293 |
|
Total
asset derivatives designated as hedging instruments
|
|
|
|
$ |
896 |
|
|
|
|
|
|
|
|
Asset
Derivatives Not Designated as Hedging Instruments
|
|
|
|
|
|
|
Foreign
exchange contracts
|
|
Other
current assets (a)
|
|
$ |
556 |
|
|
|
|
|
|
|
|
Total
asset derivatives
|
|
|
|
$ |
1,452 |
|
(a)
Reported on the Consolidated Balance Sheets within "Prepaid expenses and other
current assets."
|
|
Consolidated
Balance Sheets
|
|
December 31,
|
|
Liability Derivatives Designated as Hedging Instruments
|
|
Classification
|
|
2009
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate contracts
|
|
Accrued
liabilities
|
|
$ |
6,130 |
|
Interest
rate contracts
|
|
Other
noncurrent liabilities
|
|
|
2,775 |
|
Foreign
exchange contracts
|
|
Accrued
liabilities
|
|
|
1,010 |
|
Foreign
exchange contracts
|
|
Other
noncurrent liabilities
|
|
|
16 |
|
Cross
currency interest rate swaps
|
|
Accrued
liabilities
|
|
|
52,411 |
|
Cross
currency interest rate swaps
|
|
Other
noncurrent liabilities
|
|
|
124,210 |
|
Total
liability derivatives designated as hedging instruments
|
|
|
|
$ |
186,552 |
|
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets
|
|
December 31,
|
|
Liability
Derivatives Not Designated as Hedging Instruments
|
|
Classification
|
|
2009
|
|
Interest
rate contracts
|
|
Other
noncurrent liabilities
|
|
$ |
882 |
|
Foreign
exchange contracts
|
|
Accrued
liabilities
|
|
|
409 |
|
Total
liability derivatives not designated as hedging
instruments
|
|
|
|
$ |
1,291 |
|
|
|
|
|
|
|
|
Total
liability derivatives
|
|
|
|
$ |
187,843 |
|
The
following table summarizes the statement of operations impact of the Company’s
cash flow hedges for the year ended December 31, 2009:
Derivatives in Cash Flow
|
|
|
|
|
|
Gain (Loss)
|
|
Hedging Relationships
|
|
Gain (Loss)
|
|
Consolidated
Statements of Operations
|
|
Reclassified from
|
|
(in thousands)
|
|
in AOCI (a)
|
|
Classification
|
|
AOCI into Earnings (b)
|
|
Interest
rate contracts
|
|
$ |
(4,186 |
) |
Interest
expense
|
|
$ |
(8,035 |
) |
Foreign
exchange contracts
|
|
|
(999 |
) |
Cost
of products sold
|
|
|
905 |
|
Foreign
exchange contracts
|
|
|
660 |
|
SG&A
expenses
|
|
|
459 |
|
Commodity
contracts
|
|
|
1,655 |
|
Cost
of products sold
|
|
|
(1,149 |
) |
Total
|
|
$ |
(2,870 |
) |
|
|
$ |
(7,820 |
) |
Derivatives in Cash Flow
|
|
|
|
Loss
|
|
Hedging Relationships
|
|
Consolidated
Statements of Operations
|
|
Recognized
|
|
(in thousands)
|
|
Classification
|
|
in Earnings (c)
|
|
Interest
rate contracts
|
|
Other
expense, net
|
|
$ |
(168 |
) |
Foreign
exchange contracts
|
|
Interest
expense
|
|
|
(330 |
) |
Foreign
exchange contracts
|
|
Interest
expense
|
|
|
(40 |
) |
Commodity
contracts
|
|
Interest
expense
|
|
|
(48 |
) |
Total
|
|
|
|
$ |
(586 |
) |
The
following table summarizes the statement of operations impact of the Company’s
hedges of net investments for the year ended December 31, 2009:
Derivatives
in Net Investment
|
|
|
|
|
|
Gain
(Loss)
|
|
Hedging
Relationships
|
|
Loss
in
|
|
Consolidated
Statements of Operations
|
|
Recognized
|
|
(in
thousands)
|
|
AOCI
(a)
|
|
Classification
|
|
in Earnings
(b)
|
|
Cross
currency interest rate swaps
|
|
$ |
(13,877 |
) |
Interest
Income
|
|
$ |
1,420 |
|
|
|
|
|
|
Interest
Expense
|
|
|
(85 |
) |
Cross
currency interest rate swaps
|
|
|
(13,868 |
) |
Interest
Expense
|
|
|
(4,098 |
) |
Total
|
|
$ |
(27,745 |
) |
|
|
$ |
(2,763 |
) |
|
(a)
|
Amount
of (loss) reported in AOCI, effective
portion.
|
|
(b)
|
Amount
of gain or (loss) reclassed from AOCI into earnings, effective
portion.
|
|
(c)
|
Amount
of (loss) recognized in earnings, ineffective portion and amount excluded
from effectiveness testing.
|
The
following tables summarize the statement of operations impact of the Company’s
hedges not designated as hedging for the year ended December 31,
2009:
Derivatives
Not Designated as Hedging
|
|
|
|
|
|
Instruments
under Hedging
|
|
|
|
Loss
|
|
Relationships
|
|
Consolidated
Statements of Operations
|
|
Recognized in
|
|
(in
thousands)
|
|
Classification
|
|
Earnings (a)
|
|
Foreign
exchange contracts
|
|
Other
expense, net
|
|
$ |
(14,984 |
) |
Interest
rate contracts
|
|
Other
expense, net
|
|
|
(2 |
) |
Interest
rate contracts
|
|
Interest
Expense
|
|
|
(514 |
) |
|
|
|
|
$ |
(15,500 |
) |
(a)
Amount of loss recognized in income, ineffective portion and amount excluded
from effectiveness testing.
Amounts
recorded in AOCI related to cash flow hedging instruments at:
|
|
December
31,
|
|
(in
thousands, net of tax)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(7,874 |
) |
|
$ |
(1,573 |
) |
|
|
|
|
|
|
|
|
|
Changes
in fair value of derivatives
|
|
|
(1,627 |
) |
|
|
(5,721 |
) |
Reclassifications
to earnings from equity
|
|
|
4,702 |
|
|
|
(580 |
) |
Total
activity
|
|
|
3,075 |
|
|
|
(6,301 |
) |
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
(4,799 |
) |
|
$ |
(7,874 |
) |
Amounts
recorded in AOCI related to hedges of net investments in foreign operations
at:
|
|
December
31,
|
|
(in
thousands, net of tax)
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
77,584 |
|
|
$ |
156,790 |
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
49,685 |
|
|
|
(52,983 |
) |
Changes
in fair value of:
|
|
|
|
|
|
|
|
|
foreign
currency debt
|
|
|
881 |
|
|
|
(18,538 |
) |
derivative
hedge instruments
|
|
|
(17,035 |
) |
|
|
(7,685 |
) |
Total
activity
|
|
|
33,531 |
|
|
|
(79,206 |
) |
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
111,115 |
|
|
$ |
77,584 |
|
NOTE
16 – FAIR VALUE MEASUREMENT
The
Company records financial instruments at fair value with unrealized gains and
losses related to certain financial instruments reflected in AOCI on the
Consolidated Balance Sheets. In addition, the Company recognizes
certain liabilities at fair value.
The fair
value of financial instruments is determined by reference to various market data
and other valuation techniques as appropriate. The Company believes the carrying
amounts of accounts receivable (net of allowance for doubtful accounts), prepaid
expenses and other current assets, accounts payable, accrued liabilities, income
taxes payable and notes payable approximate fair value due to the short-term
nature of these instruments. The Company estimates the fair value and carrying
value of its total long term debt, including current portion of long-term debt,
was $453.7 million and $427.7 million as of December 31, 2009 and 2008,
respectively. The fair value of the Company’s long-term debt equaled
its carrying value as the Company’s debt is variable rate and reflects current
market rates. The interest rates on private placement notes, revolving debt and
commercial paper are variable and therefore the fair value of these instruments
approximates their carrying values.
The
following tables set forth by level within the fair value hierarchy the
Company’s financial assets and liabilities that were accounted for at fair value
on a recurring basis as of December 31, 2009 and December 31, 2008, which are
classified as “Cash and cash equivalents,” “Prepaid expenses and other current
assets,” “Other noncurrent assets, net,” “Accrued liabilities,” and “Other
noncurrent liabilities.” Financial assets and liabilities that are
recorded at fair value as of the balance sheet date are classified in their
entirety based on the lowest level of input that is significant to the fair
value measurement.
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
450,348 |
|
|
$ |
450,348 |
|
|
$ |
- |
|
|
$ |
- |
|
Commodity
forward purchase contracts
|
|
|
293 |
|
|
|
- |
|
|
|
293 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
1,159 |
|
|
|
- |
|
|
|
1,159 |
|
|
|
- |
|
Total
assets
|
|
$ |
451,800 |
|
|
$ |
450,348 |
|
|
$ |
1,452 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
9,787 |
|
|
$ |
- |
|
|
$ |
9,787 |
|
|
$ |
- |
|
Cross
currency interest rate swaps
|
|
|
176,621 |
|
|
|
- |
|
|
|
176,621 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
1,435 |
|
|
|
- |
|
|
|
1,435 |
|
|
|
- |
|
Total
liabilities
|
|
$ |
187,843 |
|
|
$ |
- |
|
|
$ |
187,843 |
|
|
$ |
- |
|
|
|
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
203,991 |
|
|
$ |
203,991 |
|
|
$ |
- |
|
|
$ |
- |
|
Interest
rate swaps
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
2,053 |
|
|
|
- |
|
|
|
2,053 |
|
|
|
- |
|
Total
assets
|
|
$ |
206,046 |
|
|
$ |
203,991 |
|
|
$ |
2,055 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
12,529 |
|
|
$ |
- |
|
|
$ |
12,529 |
|
|
$ |
- |
|
Commodity
forward purchase contracts
|
|
|
1,931 |
|
|
|
- |
|
|
|
1,931 |
|
|
|
- |
|
Cross
currency interest rate swaps
|
|
|
148,935 |
|
|
|
- |
|
|
|
148,935 |
|
|
|
- |
|
Total
liabilities
|
|
$ |
163,395 |
|
|
$ |
- |
|
|
$ |
163,395 |
|
|
$ |
- |
|
Derivative
valuations are based on observable inputs to the valuation model including
interest rates, foreign currency exchange rates, future commodities prices and
credit risks.
The
commodity forward purchase contracts, interest rate swaps and foreign exchange
forward contracts are considered cash flow hedges and cross currency interest
rate swaps are considered hedge of net investments in foreign operations as
discussed in Note 15, Financial Instruments and Derivatives.
NOTE
17 - COMMITMENTS AND CONTINGENCIES
Leases
The
Company leases automobiles and machinery and equipment and certain office,
warehouse and manufacturing facilities under non-cancellable operating leases.
These leases generally require the Company to pay insurance, taxes and other
expenses related to the leased property. Total rental expense for all operating
leases was $32.2 million for 2009, $29.5 million for 2008 and $27.4 million for
2007.
Rental
commitments, principally for real estate (exclusive of taxes, insurance and
maintenance), automobiles and office equipment are as follows:
(in
thousands)
|
|
|
|
|
|
|
|
2010
|
|
$ |
26,688 |
|
2011
|
|
|
18,207 |
|
2012
|
|
|
12,814 |
|
2013
|
|
|
7,289 |
|
2014
|
|
|
4,799 |
|
2015
and thereafter
|
|
|
12,423 |
|
|
|
$ |
82,220 |
|
Litigation
On
January 5, 1999, the Department of Justice filed a Complaint against the Company
in the U.S. District Court in Wilmington, Delaware alleging that the Company’s
tooth distribution practices violated the antitrust laws and seeking an order
for the Company to discontinue its practices. This case has been
concluded and the District Court, upon the direction of the Court of Appeals,
issued an injunction in May 2006, preventing DENTSPLY from taking action to
restrict its tooth dealers in the U.S. from adding new competitive teeth
lines.
Subsequent
to the filing of the Department of Justice Complaint in 1999, a private party
putative class action was filed based on allegations similar to those in the
Department of Justice case, on behalf of dental laboratories who purchased
Trubyte®
teeth or products containing Trubyte®
teeth. The District Court granted the Company’s Motion on the lack of
standing of the laboratory class action to pursue damage claims. The
Plaintiffs appealed this decision to the Third Circuit and the Court largely
upheld the decision of the District Court in dismissing the Plaintiffs’ damages
claims against DENTSPLY, with the exception of allowing the Plaintiffs to pursue
a damage claim based on a theory of resale price maintenance between the Company
and its tooth dealers. The Plaintiffs then filed an amended complaint
in the District Court asserting that DENTSPLY and its tooth dealers, and the
dealers among themselves, engaged in a conspiracy to violate the antitrust
laws. The District Court has granted the Motions filed by DENTSPLY
and the dealers, to dismiss Plaintiffs’ claims, except for the resale price
maintenance claims. The Plaintiffs have appealed the dismissal of
these claims to the Third Circuit. The Third Circuit held oral
arguments in January 2010 and we are awaiting a decision. Also
pending is a case filed by a manufacturer of a competitive tooth line seeking
damages alleged to have been incurred as a result of the Company’s tooth
distribution practices, including the practice found to be a violation of the
antitrust law. This case is currently scheduled for trial in May 2010
and the Plaintiffs have submitted their expert’s report, which claims single
damages in the range of $1.6 million to $4.2 million.
On June
18, 2004, Marvin Weinstat, DDS and Richard Nathan, DDS filed a class action suit
in San Francisco County, California alleging that the Company misrepresented
that its Cavitron® ultrasonic scalers are suitable for use in oral surgical
procedures. The Complaint seeks a recall of the product and refund of
its purchase price to dentists who have purchased it for use in oral
surgery. The Court certified the case as a class action in June 2006
with respect to the breach of warranty and unfair business practices
claims. The class is defined as California dental professionals who
purchased and used one or more Cavitron® ultrasonic scalers for the performance
of oral surgical procedures. The Company filed a motion for
decertification of the class and this motion was granted. Plaintiffs
appealed the decertification of the class to the California Court of Appeals and
the Court of Appeals has reversed the decertification decision of the trial
Court. The Company is planning on filing a Petition for Review of the
Court of Appeals decision with the California Supreme Court.
On
December 12, 2006, a Complaint was filed by Carole Hildebrand, DDS and Robert
Jaffin, DDS in the Eastern District of Pennsylvania (the Plaintiffs subsequently
added Dr. Mitchell Goldman as a named class representative). The case
was filed by the same law firm that filed the Weinstat case in
California. The Complaint asserts putative class action claims on
behalf of dentists located in New Jersey and Pennsylvania. The
Complaint seeks damages and asserts that the Company’s Cavitron® ultrasonic
scaler was negligently designed and sold in breach of contract and warranty
arising from misrepresentations about the potential uses of the product because
it cannot assure the delivery of potable or sterile water. Plaintiffs
have filed their Motion for class certification to which the Company has filed
its response. The Company also filed other motions, including a
Motion to dismiss the claims of Drs. Hildebrand and Jaffin for lack of standing,
which Motion was recently granted by the Court.
As of
December 31, 2009, a reasonable estimate of a range of loss related to the
current litigation noted above cannot be made.
On
November 21, 2008, Guidance Endodontics LLC filed a complaint in the U.S.
District Court of New Mexico asserting claims against DENTSPLY arising
principally out of a breach of a manufacturing and supply contract between the
parties. Prior to trial, Guidance had claimed its damages were $1.2
million. The case went to trial in late September and early October
2009. On October 9, 2009, a jury returned a verdict against DENTSPLY, in the
amount of approximately $4.0 million for compensatory and $40.0 million in
punitive damages. The Company believes that this decision is not
supported by the facts in the case or the applicable law and intends to
vigorously pursue all available options to challenge it. The Company
has filed separate motions to overturn the punitive damages verdict and the
future damages verdict, or in the alternative to be granted a new trial, because
of the inappropriateness of such verdicts. The Company plans to file
additional motions. DENTSPLY does not believe the outcome of this
matter will have a material adverse effect on its financial
position.
Other
The
Company has no material non-cancelable purchase commitments.
The
Company has employment agreements with its executive officers. These agreements
generally provide for salary continuation for a specified number of months under
certain circumstances. If all of the employees under contract were to be
terminated by the Company without cause, as defined in the agreements, the
Company's liability would be approximately $12.6 million at December 31,
2009.
NOTE
18 – SUBSEQUENT EVENT
According
to the terms of the Private Placement Note Purchase Agreement entered into on
October 16, 2009 and further discussed in Note 10, Financing Arrangements, the
Company received $250.0 million aggregate principal on February 19,
2010. The net proceeds after deducting fees and expenses of the loan
are $250.0 million. The proceeds will be used to refinance the $150.0
million U.S. Private Placement Note and other short term
obligations.
NOTE
19 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
DENTSPLY
INTERNATIONAL INC
Quarterly
Financial Information (Unaudited)
(in
thousands, except per share amounts)
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
|
|
Total
|
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Rounding
|
|
|
Year
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
506,949 |
|
|
$ |
553,216 |
|
|
$ |
531,032 |
|
|
$ |
568,719 |
|
|
$ |
- |
|
|
$ |
2,159,916 |
|
Gross
profit
|
|
|
266,969 |
|
|
|
286,971 |
|
|
|
272,981 |
|
|
|
284,383 |
|
|
|
- |
|
|
|
1,111,304 |
|
Operating
income
|
|
|
86,171 |
|
|
|
98,708 |
|
|
|
92,930 |
|
|
|
103,378 |
|
|
|
- |
|
|
|
381,187 |
|
Net
income attributable to DENTSPLY
International
|
|
|
61,743 |
|
|
|
70,199 |
|
|
|
67,483 |
|
|
|
74,834 |
|
|
|
(1 |
) |
|
|
274,258 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic
|
|
$ |
0.42 |
|
|
$ |
0.47 |
|
|
$ |
0.45 |
|
|
$ |
0.51 |
|
|
$ |
- |
|
|
$ |
1.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted
|
|
$ |
0.41 |
|
|
$ |
0.47 |
|
|
$ |
0.45 |
|
|
$ |
0.50 |
|
|
$ |
- |
|
|
$ |
1.83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per
common
share
|
|
$ |
0.050 |
|
|
$ |
0.050 |
|
|
$ |
0.050 |
|
|
$ |
0.050 |
|
|
$ |
- |
|
|
$ |
0.200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
560,782 |
|
|
$ |
594,847 |
|
|
$ |
529,953 |
|
|
$ |
508,141 |
|
|
$ |
- |
|
|
$ |
2,193,723 |
|
Gross
profit
|
|
|
285,243 |
|
|
|
315,486 |
|
|
|
280,183 |
|
|
|
271,032 |
|
|
|
- |
|
|
|
1,151,944 |
|
Operating
income
|
|
|
101,037 |
|
|
|
113,161 |
|
|
|
80,915 |
|
|
|
85,310 |
|
|
|
(2 |
) |
|
|
380,421 |
|
Net
income attributable to DENTSPLY
International
|
|
|
68,180 |
|
|
|
78,648 |
|
|
|
66,047 |
|
|
|
70,995 |
|
|
|
(1 |
) |
|
|
283,869 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic
|
|
$ |
0.45 |
|
|
$ |
0.53 |
|
|
$ |
0.44 |
|
|
$ |
0.48 |
|
|
$ |
- |
|
|
$ |
1.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted
|
|
$ |
0.45 |
|
|
$ |
0.52 |
|
|
$ |
0.44 |
|
|
$ |
0.47 |
|
|
$ |
(0.01 |
) |
|
$ |
1.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per
common
share
|
|
$ |
0.045 |
|
|
$ |
0.045 |
|
|
$ |
0.045 |
|
|
$ |
0.050 |
|
|
$ |
- |
|
|
$ |
0.185 |
|
Net
sales, excluding precious metal content, were $465.6 million, $511.9 million,
$493.6 million and $520.1 million, respectively, for the first, second, third
and fourth quarters of 2009. Net sales, excluding precious metal
content, were $496.2 million, $542.3 million, $488.1 million
and $467.2 million, respectively, for the first, second, third and fourth
quarters of 2008. This measurement should be considered a non-US GAAP measure as
discussed further in Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Supplemental
Stock Information
The
common stock of the Company is traded on the NASDAQ National Market under the
symbol “XRAY.” The following table sets forth high, low and closing sale prices
of the Company's common stock for the periods indicated as reported on the
NASDAQ National Market:
|
|
Market
Range of Common Stock
|
|
|
Period-end
|
|
|
Cash
|
|
|
|
|
|
|
|
|
|
Closing
|
|
|
Dividend
|
|
|
|
High
|
|
|
Low
|
|
|
Price
|
|
|
Declared
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
29.19 |
|
|
$ |
21.80 |
|
|
$ |
26.85 |
|
|
$ |
0.050 |
|
Second
Quarter
|
|
|
30.99 |
|
|
|
25.20 |
|
|
|
30.57 |
|
|
|
0.050 |
|
Third
Quarter
|
|
|
36.08 |
|
|
|
27.79 |
|
|
|
34.54 |
|
|
|
0.050 |
|
Fourth
Quarter
|
|
|
36.80 |
|
|
|
32.30 |
|
|
|
35.17 |
|
|
|
0.050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
47.06 |
|
|
$ |
36.07 |
|
|
$ |
38.60 |
|
|
$ |
0.045 |
|
Second
Quarter
|
|
|
42.58 |
|
|
|
35.21 |
|
|
|
36.80 |
|
|
|
0.045 |
|
Third
Quarter
|
|
|
42.05 |
|
|
|
36.21 |
|
|
|
37.54 |
|
|
|
0.045 |
|
Fourth
Quarter
|
|
|
39.22 |
|
|
|
22.85 |
|
|
|
28.24 |
|
|
|
0.050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
Quarter
|
|
$ |
33.35 |
|
|
$ |
29.44 |
|
|
$ |
32.75 |
|
|
$ |
0.040 |
|
Second
Quarter
|
|
|
38.73 |
|
|
|
32.50 |
|
|
|
38.26 |
|
|
|
0.040 |
|
Third
Quarter
|
|
|
41.90 |
|
|
|
35.32 |
|
|
|
41.64 |
|
|
|
0.040 |
|
Fourth
Quarter
|
|
|
47.84 |
|
|
|
40.06 |
|
|
|
45.02 |
|
|
|
0.045 |
|
The
Company estimates, based on information supplied by its transfer agent, that
there are 442 holders of record of the Company’s common stock. Approximately
92,300 holders of the Company’s common stock are “street name” or beneficial
holders, whose shares are held of record by banks, brokers and other financial
institutions.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
|
DENTSPLY
INTERNATIONAL INC.
|
|
|
|
By:
|
/s/
|
Bret W. Wise
|
|
|
Bret
W. Wise
|
|
|
Chairman
of the Board and
|
|
|
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/
|
Bret W. Wise
|
|
February 22, 2010
|
|
|
Bret
W. Wise
|
|
Date
|
|
|
Chairman
of the Board and
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
/s/
|
William R. Jellison
|
|
February 22, 2010
|
|
|
William
R. Jellison
|
|
Date
|
|
|
Senior
Vice President and
|
|
|
|
|
Chief
Financial Officer
|
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
/s/
|
John C. Miles II
|
|
February 22, 2010
|
|
|
John
C. Miles II
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Dr. Michael C. Alfano
|
|
February 22, 2010
|
|
|
Dr.
Michael C. Alfano
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Eric K. Brandt
|
|
February 22, 2010
|
|
|
Eric
K. Brandt
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Paula H. Cholmondeley
|
|
February 22, 2010
|
|
|
Paula
H. Cholmondeley
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Michael J. Coleman
|
|
February 22, 2010
|
|
|
Michael
J. Coleman
|
|
Date
|
|
|
Director
|
|
|
|
/s/
|
William F. Hecht
|
|
February 22, 2010
|
|
|
William
F. Hecht
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Leslie A. Jones
|
|
February 22, 2010
|
|
|
Leslie
A. Jones
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Wendy L. Dixon
|
|
February 22, 2010
|
|
|
Wendy
L. Dixon
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
Francis J. Lunger
|
|
February 22, 2010
|
|
|
Francis
J. Lunger
|
|
Date
|
|
|
Director
|
|
|
|
|
|
|
|
|
/s/
|
W. Keith Smith
|
|
February 22, 2010
|
|
|
W.
Keith Smith
|
|
Date
|
|
|
Director
|
|
|
|