Unassociated Document
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended September 30,
2010
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the
transition period from ______________ to _______________
Commission
File Number 0-16211
DENTSPLY
International Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
|
39-1434669
|
(State
or other jurisdiction of
|
|
(I.R.S.
Employer
|
incorporation
or organization)
|
|
Identification
No.)
|
221 West Philadelphia Street, York,
PA
|
|
17405-0872
|
(Address
of principal executive offices)
|
|
(Zip
Code)
|
(717)
845-7511
(Registrant’s
telephone number, including area code)
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.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, 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).
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
|
x
|
|
Accelerated
filer
|
¨
|
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
¨
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: At October 25, 2010,
DENTSPLY International Inc. had 142,099,209 shares of Common Stock outstanding,
with a par value of $.01 per share.
DENTSPLY
International Inc.
TABLE
OF CONTENTS
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Page
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PART I
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FINANCIAL INFORMATION
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Item
1
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|
Financial
Statements (unaudited)
|
|
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Consolidated
Statements of Operations
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3
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Consolidated
Balance Sheets
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4
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Consolidated
Statements of Cash Flows
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5
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|
Consolidated
Statements of Changes in Equity
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6
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Notes
to Unaudited Interim Consolidated Financial Statements
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7
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Item
2
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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27
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Item
3
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Quantitative
and Qualitative Disclosures About Market Risk
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40
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Item
4
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Controls
and Procedures
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40
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PART II
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OTHER INFORMATION
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Item
1
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Legal
Proceedings
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41
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Item
1A
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Risk
Factors
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41
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Item
2
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Unregistered
Sales of Securities and Use of Proceeds
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41
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Item
4
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Submission
of Matters to a Vote of Security Holders
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41
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|
Item
6
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Exhibits
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41
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Signatures
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42
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|
PART
I – FINANCIAL INFORMATION
Item
1 – Financial Statements
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS
(In
thousands, except per share amounts)
(unaudited)
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
541,815 |
|
|
$ |
531,203 |
|
|
$ |
1,652,845 |
|
|
$ |
1,590,984 |
|
Cost
of products sold
|
|
|
269,001 |
|
|
|
259,473 |
|
|
|
810,399 |
|
|
|
767,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
|
272,814 |
|
|
|
271,730 |
|
|
|
842,446 |
|
|
|
823,130 |
|
Selling,
general and administrative expenses ("SG&A")
|
|
|
182,057 |
|
|
|
177,579 |
|
|
|
552,474 |
|
|
|
539,383 |
|
Restructuring
and other costs
|
|
|
338 |
|
|
|
1,210 |
|
|
|
5,261 |
|
|
|
5,905 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
90,419 |
|
|
|
92,941 |
|
|
|
284,711 |
|
|
|
277,842 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
5,999 |
|
|
|
5,456 |
|
|
|
18,406 |
|
|
|
16,877 |
|
Interest
income
|
|
|
(1,268 |
) |
|
|
(858 |
) |
|
|
(2,883 |
) |
|
|
(4,326 |
) |
Other
expense (income), net
|
|
|
585 |
|
|
|
491 |
|
|
|
2,252 |
|
|
|
1,359 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
85,103 |
|
|
|
87,852 |
|
|
|
266,936 |
|
|
|
263,932 |
|
Provision
for income taxes
|
|
|
21,288 |
|
|
|
19,999 |
|
|
|
67,585 |
|
|
|
65,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
63,815 |
|
|
|
67,853 |
|
|
|
199,351 |
|
|
|
198,362 |
|
Less:
Net income (loss) attributable to the noncontrolling
interests
|
|
|
162 |
|
|
|
370 |
|
|
|
1,470 |
|
|
|
(1,062 |
) |
Net
income attributable to DENTSPLY International
|
|
$ |
63,653 |
|
|
$ |
67,483 |
|
|
$ |
197,881 |
|
|
$ |
199,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
1.37 |
|
|
$ |
1.34 |
|
Diluted
|
|
$ |
0.44 |
|
|
$ |
0.45 |
|
|
$ |
1.35 |
|
|
$ |
1.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
dividends declared per common share
|
|
$ |
0.05 |
|
|
$ |
0.05 |
|
|
$ |
0.15 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
142,501 |
|
|
|
148,547 |
|
|
|
144,670 |
|
|
|
148,546 |
|
Diluted
|
|
|
144,063 |
|
|
|
150,638 |
|
|
|
146,679 |
|
|
|
150,077 |
|
See
accompanying Notes to Unaudited Interim Consolidated Financial
Statements.
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(In
thousands)
(unaudited)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
Assets
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
534,243 |
|
|
$ |
450,348 |
|
Accounts
and notes receivables-trade, net
|
|
|
366,789 |
|
|
|
348,684 |
|
Inventories,
net
|
|
|
318,071 |
|
|
|
291,640 |
|
Prepaid
expenses and other current assets
|
|
|
112,454 |
|
|
|
127,124 |
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
1,331,557 |
|
|
|
1,217,796 |
|
|
|
|
|
|
|
|
|
|
Property,
plant and equipment, net
|
|
|
423,802 |
|
|
|
439,619 |
|
Identifiable
intangible assets, net
|
|
|
79,701 |
|
|
|
89,086 |
|
Goodwill,
net
|
|
|
1,304,938 |
|
|
|
1,312,596 |
|
Other
noncurrent assets, net
|
|
|
55,158 |
|
|
|
28,835 |
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$ |
3,195,156 |
|
|
$ |
3,087,932 |
|
|
|
|
|
|
|
|
|
|
Liabilities
and Equity
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
100,663 |
|
|
$ |
100,847 |
|
Accrued
liabilities
|
|
|
224,624 |
|
|
|
249,169 |
|
Income
taxes payable
|
|
|
19,335 |
|
|
|
12,366 |
|
Notes
payable and current portion of long-term debt
|
|
|
7,290 |
|
|
|
82,174 |
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
351,912 |
|
|
|
444,556 |
|
|
|
|
|
|
|
|
|
|
Long-term
debt
|
|
|
592,376 |
|
|
|
387,151 |
|
Deferred
income taxes
|
|
|
74,238 |
|
|
|
72,524 |
|
Other
noncurrent liabilities
|
|
|
300,074 |
|
|
|
276,743 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities
|
|
|
1,318,600 |
|
|
|
1,180,974 |
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred
stock, $.01 par value; .25 million shares authorized; no shares
issued
|
|
|
- |
|
|
|
- |
|
Common
stock, $.01 par value; 200.0 million shares authorized; 162.8 million
shares issued at September 30, 2010 and December 31, 2009
|
|
|
1,628 |
|
|
|
1,628 |
|
Capital
in excess of par value
|
|
|
202,482 |
|
|
|
195,495 |
|
Retained
earnings
|
|
|
2,258,531 |
|
|
|
2,083,459 |
|
Accumulated
other comprehensive income (loss)
|
|
|
41,820 |
|
|
|
83,542 |
|
Treasury
stock, at cost, 20.7 million shares at September 30, 2010 and 15.8 million
shares at December 31, 2009
|
|
|
(700,980 |
) |
|
|
(532,019 |
) |
Total
DENTSPLY International Equity
|
|
|
1,803,481 |
|
|
|
1,832,105 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interests
|
|
|
73,075 |
|
|
|
74,853 |
|
|
|
|
|
|
|
|
|
|
Total
Equity
|
|
|
1,876,556 |
|
|
|
1,906,958 |
|
|
|
|
|
|
|
|
|
|
Total
Liabilities and Equity
|
|
$ |
3,195,156 |
|
|
$ |
3,087,932 |
|
See
accompanying Notes to Unaudited Interim Consolidated Financial
Statements.
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In
thousands)
(unaudited)
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
199,351 |
|
|
$ |
198,362 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
43,022 |
|
|
|
40,118 |
|
Amortization
|
|
|
7,097 |
|
|
|
9,227 |
|
Deferred
income taxes
|
|
|
2,672 |
|
|
|
9,655 |
|
Share-based
compensation expense
|
|
|
14,769 |
|
|
|
14,778 |
|
Restructuring
and other costs - noncash
|
|
|
363 |
|
|
|
328 |
|
Excess
tax benefits from share-based compensation
|
|
|
(4,784 |
) |
|
|
(2,921 |
) |
Changes
in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
Accounts
and notes receivable-trade, net
|
|
|
(16,768 |
) |
|
|
(23,166 |
) |
Inventories,
net
|
|
|
(20,799 |
) |
|
|
10,670 |
|
Prepaid
expenses and other current assets
|
|
|
(6,305 |
) |
|
|
248 |
|
Accounts
payable
|
|
|
(2,390 |
) |
|
|
(9,699 |
) |
Accrued
liabilities
|
|
|
13,710 |
|
|
|
1,621 |
|
Income
taxes payable
|
|
|
10,395 |
|
|
|
(546 |
) |
Other,
net
|
|
|
8,557 |
|
|
|
(3,311 |
) |
Net
cash provided by operating activities
|
|
|
248,890 |
|
|
|
245,364 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
expenditures
|
|
|
(29,566 |
) |
|
|
(43,282 |
) |
Cash
paid for acquisitions of businesses, net of cash acquired
|
|
|
(21,997 |
) |
|
|
(2,986 |
) |
Liquidation
of short-term investments
|
|
|
- |
|
|
|
219 |
|
Expenditures
for identifiable intangible assets
|
|
|
(291 |
) |
|
|
(128 |
) |
Proceeds
from sale of property, plant and equipment, net
|
|
|
509 |
|
|
|
2,143 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(51,345 |
) |
|
|
(44,034 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
change in short-term borrowings
|
|
|
(10,367 |
) |
|
|
(1,482 |
) |
Cash
paid for treasury stock
|
|
|
(208,535 |
) |
|
|
(21,253 |
) |
Cash
dividends paid
|
|
|
(23,052 |
) |
|
|
(22,383 |
) |
Proceeds
from long-term borrowings
|
|
|
363,700 |
|
|
|
- |
|
Payments
on long-term borrowings
|
|
|
(240,385 |
) |
|
|
(57,150 |
) |
Proceeds
from exercise of stock options
|
|
|
26,932 |
|
|
|
9,451 |
|
Excess
tax benefits from share-based compensation
|
|
|
4,784 |
|
|
|
2,921 |
|
|
|
|
|
|
|
|
|
|
Net
cash used in financing activities
|
|
|
(86,923 |
) |
|
|
(89,896 |
) |
|
|
|
|
|
|
|
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(26,727 |
) |
|
|
17,943 |
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
83,895 |
|
|
|
129,377 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at beginning of period
|
|
|
450,348 |
|
|
|
203,991 |
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at end of period
|
|
$ |
534,243 |
|
|
$ |
333,368 |
|
See
accompanying Notes to Unaudited Interim Consolidated Financial
Statements.
DENTSPLY
INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated
Statements of Changes in Equity
(In
thousands)
(unaudited)
|
|
|
|
|
Capital in
|
|
|
|
|
|
Accumulated
Other
|
|
|
|
|
|
Total DENTSPLY
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
International
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
- |
|
|
|
- |
|
|
|
199,424 |
|
|
|
- |
|
|
|
- |
|
|
|
199,424 |
|
|
|
(1,062 |
) |
|
|
198,362 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
76,518 |
|
|
|
- |
|
|
|
76,518 |
|
|
|
4,567 |
|
|
|
81,085 |
|
Net
loss on derivative financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,422 |
) |
|
|
- |
|
|
|
(21,422 |
) |
|
|
- |
|
|
|
(21,422 |
) |
Unrecognized
losses and prior service pension cost, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
431 |
|
|
|
- |
|
|
|
431 |
|
|
|
- |
|
|
|
431 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
254,951 |
|
|
|
3,505 |
|
|
|
258,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
- |
|
|
|
(8,724 |
) |
|
|
- |
|
|
|
- |
|
|
|
18,175 |
|
|
|
9,451 |
|
|
|
- |
|
|
|
9,451 |
|
Tax
benefit from stock options exercised
|
|
|
- |
|
|
|
2,921 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,921 |
|
|
|
- |
|
|
|
2,921 |
|
Share
based compensation expense
|
|
|
- |
|
|
|
14,778 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,778 |
|
|
|
- |
|
|
|
14,778 |
|
Funding
of Employee Stock Option Plan
|
|
|
- |
|
|
|
(61 |
) |
|
|
- |
|
|
|
- |
|
|
|
1,408 |
|
|
|
1,347 |
|
|
|
- |
|
|
|
1,347 |
|
Adjustment
from acquisitions
|
|
|
- |
|
|
|
(388 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(388 |
) |
|
|
- |
|
|
|
(388 |
) |
Treasury
shares purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(21,253 |
) |
|
|
(21,253 |
) |
|
|
- |
|
|
|
(21,253 |
) |
RSU
dividends
|
|
|
- |
|
|
|
101 |
|
|
|
(101 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends ($0.15 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(22,274 |
) |
|
|
- |
|
|
|
- |
|
|
|
(22,274 |
) |
|
|
- |
|
|
|
(22,274 |
) |
Balance
at September 30, 2009
|
|
$ |
1,628 |
|
|
$ |
195,781 |
|
|
$ |
2,016,007 |
|
|
$ |
95,139 |
|
|
$ |
(481,300 |
) |
|
$ |
1,827,255 |
|
|
$ |
75,196 |
|
|
$ |
1,902,451 |
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
Other
|
|
|
|
|
|
Total DENTSPLY
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Excess of
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
International
|
|
|
Noncontrolling
|
|
|
Total
|
|
|
|
Stock
|
|
|
Par Value
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Stock
|
|
|
Equity
|
|
|
Interests
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
1,628 |
|
|
$ |
195,495 |
|
|
$ |
2,083,459 |
|
|
$ |
83,542 |
|
|
$ |
(532,019 |
) |
|
$ |
1,832,105 |
|
|
$ |
74,853 |
|
|
$ |
1,906,958 |
|
Comprehensive
Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
- |
|
|
|
- |
|
|
|
197,881 |
|
|
|
- |
|
|
|
- |
|
|
|
197,881 |
|
|
|
1,470 |
|
|
|
199,351 |
|
Other
comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(41,699 |
) |
|
|
- |
|
|
|
(41,699 |
) |
|
|
(3,248 |
) |
|
|
(44,947 |
) |
Net
loss on derivative financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(322 |
) |
|
|
- |
|
|
|
(322 |
) |
|
|
- |
|
|
|
(322 |
) |
Unrecognized
losses and prior service pension cost, net
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
299 |
|
|
|
- |
|
|
|
299 |
|
|
|
- |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
156,159 |
|
|
|
(1,778 |
) |
|
|
154,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise
of stock options
|
|
|
- |
|
|
|
(8,577 |
) |
|
|
- |
|
|
|
- |
|
|
|
35,509 |
|
|
|
26,932 |
|
|
|
- |
|
|
|
26,932 |
|
Tax
benefit from stock options exercised
|
|
|
- |
|
|
|
4,784 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,784 |
|
|
|
- |
|
|
|
4,784 |
|
Share
based compensation expense
|
|
|
- |
|
|
|
14,769 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
14,769 |
|
|
|
- |
|
|
|
14,769 |
|
Funding
of Employee Stock Option Plan
|
|
|
- |
|
|
|
209 |
|
|
|
- |
|
|
|
- |
|
|
|
1,132 |
|
|
|
1,341 |
|
|
|
- |
|
|
|
1,341 |
|
Treasury
shares purchased
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(208,535 |
) |
|
|
(208,535 |
) |
|
|
- |
|
|
|
(208,535 |
) |
RSU
distributions
|
|
|
- |
|
|
|
(4,313 |
) |
|
|
- |
|
|
|
- |
|
|
|
2,933 |
|
|
|
(1,380 |
) |
|
|
- |
|
|
|
(1,380 |
) |
RSU
dividends
|
|
|
- |
|
|
|
115 |
|
|
|
(115 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Cash
dividends ($0.15 per share)
|
|
|
- |
|
|
|
- |
|
|
|
(22,694 |
) |
|
|
- |
|
|
|
- |
|
|
|
(22,694 |
) |
|
|
- |
|
|
|
(22,694 |
) |
Balance
at September 30, 2010
|
|
$ |
1,628 |
|
|
$ |
202,482 |
|
|
$ |
2,258,531 |
|
|
$ |
41,820 |
|
|
$ |
(700,980 |
) |
|
$ |
1,803,481 |
|
|
$ |
73,075 |
|
|
$ |
1,876,556 |
|
See
accompanying Notes to Unaudited Interim Consolidated Financial
Statements.
DENTSPLY
International Inc. and Subsidiaries
NOTES TO UNAUDITED INTERIM
CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying unaudited interim consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America (“US GAAP”) and the rules of the Securities and
Exchange Commission (“SEC”). The year-end consolidating balance sheet
data was derived from audited financial statements, but does not include all
disclosures required by US GAAP. In the opinion of management, all adjustments
(consisting only of normal recurring adjustments) considered necessary for a
fair statement of the results for interim periods have been included. Results
for interim periods should not be considered indicative of results for a full
year. These financial statements and related notes contain the accounts of
DENTSPLY International Inc. and Subsidiaries (“DENTSPLY” or the “Company”) on a
consolidated basis and should be read in conjunction with the consolidated
financial statements and notes included in the Company’s most recent Form 10-K
for the year ended December 31, 2009.
NOTE
1 - SIGNIFICANT ACCOUNTING POLICIES
The
accounting policies of the Company, as applied in the interim consolidated
financial statements presented herein are substantially the same as presented in
the Company’s Form 10-K for the year ended December 31, 2009, except as may be
indicated below:
Accounts
and Notes Receivable-Trade
Accounts
and notes receivables – trade, net are stated net of allowances for doubtful
accounts and trade discounts, which were $11.5 million and $13.3 million at
September 30, 2010 and December 31, 2009, respectively. The decrease
in the allowance for doubtful accounts reflects positive collections experience
in North America and Europe, reflecting improved global liquidity for our
customers.
Variable
Interest Entities
In June
2009, the Financial Accounting Standards Board (“FASB”) issued accounting
guidance for variable interest entities (“VIE”). The 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 Company adopted this
guidance on January 1, 2010, and the adoption did not have a material impact on
the Company’s financial position and results of operations.
The
Company consolidates all 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 reassesses VIE to determine if
consolidation is appropriate.
Revisions
in Classification
Certain
revisions in classification have been made to prior years’ data in order to
conform to current year presentation.
NOTE
2 – STOCK COMPENSATION
The
Company maintains the 2010 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
are equal to the closing stock price on the date of grant. The
Company authorized grants under the Plan of 13.0 million shares of common stock,
plus any unexercised portion of cancelled or terminated stock options granted
under the DENTSPLY International Inc. 2002 Equity Incentive Plan, as amended,
subject to adjustment as follows: each January, if 7% of the total
outstanding common shares of the Company exceed 13.0 million, the excess becomes
available for grant under the Plan. No more than 2.5 million shares
may be awarded as restricted stock and RSU, and no key employee may be granted
restricted stock and RSU in excess of approximately 0.2 million shares of common
stock in any calendar year.
Stock
options generally expire ten years after the date of grant under these plans and
grants become exercisable, subject to a service condition, 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. It is the Company’s practice to issue shares from
treasury stock when options are exercised.
At the
date of grant, the Company uses the Black-Scholes option-pricing model to
estimate the fair value of the non-qualified stock options. The assumptions used
to calculate the fair value of the awards granted are evaluated and revised, as
necessary, to reflect market conditions and the Company’s
experience.
The
following table represents total stock based compensation expense and the tax
related benefit for the three and nine months ended September 30, 2010 and
2009:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in millions)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Stock
option expense
|
|
$ |
2.4 |
|
|
$ |
3.1 |
|
|
$ |
8.2 |
|
|
$ |
9.0 |
|
RSU
expense
|
|
|
1.8 |
|
|
|
1.6 |
|
|
|
5.6 |
|
|
|
4.8 |
|
Total
stock based compensation expense
|
|
$ |
4.2 |
|
|
$ |
4.7 |
|
|
$ |
13.8 |
|
|
$ |
13.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
related tax benefit
|
|
$ |
1.2 |
|
|
$ |
1.4 |
|
|
$ |
2.7 |
|
|
$ |
4.0 |
|
The
remaining unamortized compensation cost related to non-qualified stock options
is $11.0 million, which will be expensed over the weighted average remaining
vesting period of the options, or 1.3 years. The unamortized compensation cost
related to RSU is $8.5 million, which will be expensed over the remaining
restricted period of the RSU, or 1.4 years.
The
following table reflects the non-qualified stock option transactions from
December 31, 2009 through September 30, 2010:
|
|
Outstanding
|
|
|
Exercisable
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
Average
|
|
|
Aggregate
|
|
(in
thousands,
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
except
per share data)
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
12,038 |
|
|
$ |
28.34 |
|
|
$ |
94,148 |
|
|
|
8,682 |
|
|
$ |
26.78 |
|
|
$ |
80,839 |
|
Granted
|
|
|
145 |
|
|
|
34.65 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,183 |
) |
|
|
22.76 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(162 |
) |
|
|
33.93 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
10,838 |
|
|
$ |
28.95 |
|
|
$ |
51,226 |
|
|
|
7,611 |
|
|
$ |
27.47 |
|
|
$ |
44,527 |
|
The
weighted average remaining contractual term of all outstanding options is 6.0
years and the weighted average remaining contractual term of exercisable options
is 4.7 years.
The
following table summarizes the unvested restricted stock units and RSU dividend
transactions from December 31, 2009 through September 30, 2010:
|
|
Unvested Restricted Stock and Stock Dividend Units
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
|
|
|
Grant
Date
|
|
(in
thousands, except per share data)
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
Unvested
at December 31, 2009
|
|
|
662 |
|
|
$ |
31.94 |
|
Granted
|
|
|
252 |
|
|
|
32.92 |
|
Vested
|
|
|
(207 |
) |
|
|
31.42 |
|
Forfeited
|
|
|
(25 |
) |
|
|
32.87 |
|
|
|
|
|
|
|
|
|
|
Unvested
at September 30, 2010
|
|
|
682 |
|
|
$ |
32.43 |
|
NOTE
3 – COMPREHENSIVE INCOME
The
changes to balances included in accumulated other comprehensive income (“AOCI”),
net of tax, in the consolidated balance sheets for the three and nine months
ended September 30, 2010 and 2009 are as follows:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(in
thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
63,815 |
|
|
$ |
67,853 |
|
|
$ |
199,351 |
|
|
$ |
198,362 |
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
170,086 |
|
|
|
69,933 |
|
|
|
(44,947 |
) |
|
|
81,085 |
|
Net
loss on derivative financial instruments
|
|
|
(63,994 |
) |
|
|
(29,053 |
) |
|
|
(322 |
) |
|
|
(21,422 |
) |
Amortization
of unrecognized losses and prior year service pension cost
|
|
|
(1,377 |
) |
|
|
(697 |
) |
|
|
299 |
|
|
|
431 |
|
Total
other comprehensive income (loss)
|
|
|
104,715 |
|
|
|
40,183 |
|
|
|
(44,970 |
) |
|
|
60,094 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
168,530 |
|
|
|
108,036 |
|
|
|
154,381 |
|
|
|
258,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss) attributable to the noncontrolling interests
|
|
|
7,379 |
|
|
|
3,692 |
|
|
|
(1,778 |
) |
|
|
3,505 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income attributable to DENTSPLY International
|
|
$ |
161,151 |
|
|
$ |
104,344 |
|
|
$ |
156,159 |
|
|
$ |
254,951 |
|
During
the quarter ended September 30, 2010, foreign currency translation adjustments
included currency translation gains of $175.9 million and losses of $5.8 million
on the Company’s loans designated as hedges of net
investments. During the quarter ended September 30, 2009, foreign
currency translation adjustments included currency translation gains of $77.6
million partially offset by losses of $7.7 million on the Company’s loans
designated as hedges of net investments. During the nine months ended
September 30, 2010, foreign currency translation adjustments included currency
translation losses of $36.4 million and losses of $8.5 million on the Company’s
loans designated as hedges of net investments. During the nine months
ended September 30, 2009, foreign currency translation adjustments included
currency translation gains of $83.4 million offset by losses of $2.3 million on
the Company’s loans designated as hedges of net investments. These
foreign currency translation adjustments were offset by net gains on derivative
financial instruments, which are discussed in Note 10, Financial Instruments and
Derivatives.
The
balances included in AOCI, net of tax, in the consolidated balance sheets are as
follows:
|
|
September 30,
|
|
|
December 31,
|
|
(in
thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
$ |
178,417 |
|
|
$ |
220,116 |
|
Net
loss on derivative financial instruments
|
|
|
(114,122 |
) |
|
|
(113,800 |
) |
Unrecognized
losses and prior year service pension cost
|
|
|
(22,475 |
) |
|
|
(22,774 |
) |
|
|
$ |
41,820 |
|
|
$ |
83,542 |
|
The
cumulative foreign currency translation adjustments included translation gains
of $297.8 million and $327.8 million as of September 30, 2010 and December 31,
2009, respectively, partially offset by losses of $119.4 million and $107.7
million, respectively, on loans designated as hedges of net
investments. These foreign currency translation adjustments were
offset by net losses on derivatives financial instruments, which are discussed
in Note 10, Financial Instruments and Derivatives.
NOTE
4 - EARNINGS PER COMMON SHARE
The
dilutive effect of outstanding options and restricted stock is reflected in
diluted earnings per share by application of the treasury stock method. The
following table sets forth the computation of basic and diluted earnings per
common share for the three and nine months ended September 30, 2010 and
2009:
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
Basic Earnings Per Common Share Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
63,653 |
|
|
$ |
67,483 |
|
|
$ |
197,881 |
|
|
$ |
199,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding
|
|
|
142,501 |
|
|
|
148,547 |
|
|
|
144,670 |
|
|
|
148,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - basic
|
|
$ |
0.45 |
|
|
$ |
0.45 |
|
|
$ |
1.37 |
|
|
$ |
1.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
Earnings Per Common Share Computation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
63,653 |
|
|
$ |
67,483 |
|
|
$ |
197,881 |
|
|
$ |
199,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
shares outstanding
|
|
|
142,501 |
|
|
|
148,547 |
|
|
|
144,670 |
|
|
|
148,546 |
|
Incremental
shares from assumed exercise of dilutive options
|
|
|
1,562 |
|
|
|
2,091 |
|
|
|
2,009 |
|
|
|
1,531 |
|
Total
shares
|
|
|
144,063 |
|
|
|
150,638 |
|
|
|
146,679 |
|
|
|
150,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
per common share - diluted
|
|
$ |
0.44 |
|
|
$ |
0.45 |
|
|
$ |
1.35 |
|
|
$ |
1.33 |
|
Options
to purchase 4.3 million and 3.3 million shares of common stock that were
outstanding during the three and nine months ended September 30, 2010,
respectively, were not included in the computation of diluted earnings per share
since the options’ exercise prices were greater than the average market price of
the common shares and, therefore, the effect would be
antidilutive. There were 1.5 million and 4.5 million antidilutive
shares of common stock outstanding during the three and nine months ended
September 30, 2009, respectively.
NOTE
5 – BUSINESS ACQUISITIONS
The
acquisition related activity for the nine months ended September 30, 2010 of
$22.0 million, net of cash acquired, was related to several acquisitions in 2010
and earn-out payments on prior acquisitions. The purchase agreements for two of
the acquisitions provide for additional payments to be made based upon the
operating performance of the respective businesses; however, the Company does
not expect the additional payments to be material to the financial statements.
The results of operations for these businesses have been included in the
accompanying financial statements since the effective date of the respective
transactions. The purchase prices have been allocated on the basis of
preliminary estimates of the fair values of assets acquired and liabilities
assumed. As of September 30, 2010, the Company has recorded a total
of $14.3 million in goodwill related to the unallocated portions of the
respective purchase prices, and most of this goodwill is associated with the
Canada/Latin America/Endodontics/Orthodontics segment with the remaining portion
being included in the Dental Laboratory Business/Implants/Non-Dental
segment.
As
discussed in Note 1, Significant Accounting Policies, the Company adopted the
accounting guidance for VIE. The adoption has not changed the
Company’s prior conclusion that all current VIE should be
consolidated. Under the new accounting guidance for VIE, the Company
believes it is the primary beneficiary for all the VIE since the Company directs
the activities that most significantly impacts the economic performance of the
VIE and has the obligation to absorb losses and the right to receive benefits
that could potentially be significant to the VIE. The consolidation
of the VIE net assets is immaterial to the Company’s financial position with
most of the net assets recorded in goodwill and identifiable intangible
assets.
NOTE
6 - SEGMENT INFORMATION
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 for the
periods ended September 30, 2010 and 2009.
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 groups are
consistent with those described in the Company’s most recently filed Form10-K in
the summary of significant accounting policies. The Company measures
segment income for reporting purposes as operating income before restructuring
and other costs, interest expense, interest income, other income and expenses
and income taxes.
United
States, Germany and Certain Other European Regions Consumable
Businesses
This
business group includes responsibility for the design, manufacturing, sales and
distribution of 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 France, 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 of 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 manufacturing and sale of
Orthodontic products and certain laboratory products in Japan, and the
manufacturing 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 manufacturing 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 of 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 of 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; France, Italy, Austria, and certain other
Eastern European countries; 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
and general and administrative costs.
Generally,
the Company evaluates performance of the operating groups based on the groups’
operating income, excluding restructuring and other costs, and net third party
sales, excluding precious metal content.
The
following tables set forth information about the Company’s operating groups for
the three and nine months ended September 30, 2010 and 2009:
Third Party Net
Sales
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
139,137 |
|
|
$ |
142,983 |
|
|
$ |
411,356 |
|
|
$ |
407,495 |
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East,
Africa, Pacific Rim Businesses
|
|
|
114,338 |
|
|
|
112,196 |
|
|
|
346,224 |
|
|
|
336,184 |
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
|
159,238 |
|
|
|
149,907 |
|
|
|
486,573 |
|
|
451,893
|
|
Dental
Laboratory Business/
Implants/Non-Dental
|
|
|
129,809 |
|
|
|
126,759 |
|
|
|
411,185 |
|
|
|
397,610 |
|
All
Other (a)
|
|
|
(707 |
) |
|
|
(642 |
) |
|
|
(2,493 |
) |
|
|
(2,198 |
) |
Total
|
|
$ |
541,815 |
|
|
$ |
531,203 |
|
|
$ |
1,652,845 |
|
|
$ |
1,590,984 |
|
Third Party Net Sales,
Excluding Precious Metal Content
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
139,137 |
|
|
$ |
142,983 |
|
|
$ |
411,356 |
|
|
$ |
407,495 |
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East,
Africa, Pacific Rim Businesses
|
|
|
106,499 |
|
|
|
104,008 |
|
|
|
320,606 |
|
|
|
311,098 |
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
|
158,682 |
|
|
|
149,219 |
|
|
|
484,723 |
|
|
|
449,815 |
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
|
90,735 |
|
|
|
98,250 |
|
|
|
296,309 |
|
|
|
304,784 |
|
All
Other (a)
|
|
|
(707 |
) |
|
|
(642 |
) |
|
|
(2,493 |
) |
|
|
(2,198 |
) |
Total
excluding precious metal content
|
|
|
494,346 |
|
|
|
493,818 |
|
|
|
1,510,501 |
|
|
|
1,470,994 |
|
Precious
metal content
|
|
|
47,469 |
|
|
|
37,385 |
|
|
|
142,344 |
|
|
|
119,990 |
|
Total
including precious metal content
|
|
$ |
541,815 |
|
|
$ |
531,203 |
|
|
$ |
1,652,845 |
|
|
$ |
1,590,984 |
|
Inter-segment Net
Sales
|
|
Three Months Ended
|
|
|
Nine Months Ended |
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
30,940 |
|
|
$ |
27,759 |
|
|
$ |
88,003 |
|
|
$ |
74,488 |
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle East,
Africa, Pacific Rim Businesses
|
|
|
3,396 |
|
|
|
2,590 |
|
|
|
12,052 |
|
|
|
9,037 |
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
|
31,187 |
|
|
|
24,424 |
|
|
|
85,864 |
|
|
|
77,241 |
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
|
25,355 |
|
|
|
27,823 |
|
|
|
82,950 |
|
|
|
82,972 |
|
All
Other (b)
|
|
|
43,218 |
|
|
|
42,914 |
|
|
|
132,302 |
|
|
|
124,261 |
|
Eliminations
|
|
|
(134,096 |
) |
|
|
(125,510 |
) |
|
|
(401,171 |
) |
|
|
(367,999 |
) |
Total
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
(a)
Includes amounts recorded at Corporate headquarters.
(b)
Includes amounts recorded at Corporate headquarters and one distribution
warehouse not managed by named segments.
Segment Operating
Income
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
53,164 |
|
|
$ |
49,034 |
|
|
$ |
147,679 |
|
|
$ |
125,780 |
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle
East, Africa, Pacific Rim Businesses
|
|
|
3,892 |
|
|
|
3,743 |
|
|
|
9,299 |
|
|
|
11,268 |
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
|
44,910 |
|
|
|
39,543 |
|
|
|
142,073 |
|
|
|
135,068 |
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
|
14,691 |
|
|
|
19,032 |
|
|
|
59,648 |
|
|
|
65,222 |
|
All
Other (a)
|
|
|
(25,900 |
) |
|
|
(17,201 |
) |
|
|
(68,727 |
) |
|
|
(53,591 |
) |
Segment
operating income
|
|
|
90,757 |
|
|
|
94,151 |
|
|
|
289,972 |
|
|
|
283,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring
and other costs
|
|
|
(338 |
) |
|
|
(1,210 |
) |
|
|
(5,261 |
) |
|
|
(5,905 |
) |
Interest
expense
|
|
|
(5,999 |
) |
|
|
(5,456 |
) |
|
|
(18,406 |
) |
|
|
(16,877 |
) |
Interest
income
|
|
|
1,268 |
|
|
|
858 |
|
|
|
2,883 |
|
|
|
4,326 |
|
Other
expense (income), net
|
|
|
(585 |
) |
|
|
(491 |
) |
|
|
(2,252 |
) |
|
|
(1,359 |
) |
Income
before income taxes
|
|
$ |
85,103 |
|
|
$ |
87,852 |
|
|
$ |
266,936 |
|
|
$ |
263,932 |
|
Assets
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European
|
|
|
|
|
|
|
Regions
Consumable Businesses
|
|
$ |
604,496 |
|
|
$ |
602,272 |
|
France,
U.K., Italy and Certain Other European
|
|
|
|
|
|
|
|
|
Countries,
CIS, Middle East, Africa,
|
|
|
|
|
|
|
|
|
Pacific
Rim Businesses
|
|
|
395,587 |
|
|
|
388,831 |
|
Canada/Latin
America/Endodontics/
|
|
|
|
|
|
|
|
|
Orthodontics
|
|
|
890,657 |
|
|
|
809,924 |
|
Dental
Laboratory Business/
|
|
|
|
|
|
|
|
|
Implants/Non-Dental
|
|
|
933,908 |
|
|
|
973,764 |
|
All
Other (b)
|
|
|
370,508 |
|
|
|
313,141 |
|
Total
|
|
$ |
3,195,156 |
|
|
$ |
3,087,932 |
|
(a)
Includes the results of Corporate headquarters, inter-segment eliminations and
one distribution warehouse not managed by named segments.
(b)
Includes the assets of Corporate headquarters, inter-segment eliminations and
one distribution warehouse not managed by named segments.
NOTE
7 - INVENTORIES
Inventories
are stated at the lower of cost or market. At September 30, 2010 and
December 31, 2009, the cost of $8.3 million, or 2.6%, and $7.8 million, or 2.7%,
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
in order to present the net realizable value. The inventory valuation
reserves were $36.9 million and $31.9 million as of September 30, 2010 and
December 31, 2009, respectively.
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 September
30, 2010 and December 31, 2009 by $4.3 million and $4.0 million,
respectively.
Inventories,
net of inventory valuation reserves, consist of the following:
|
|
September 30,
|
|
|
December 31,
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
Finished
goods
|
|
$ |
194,285 |
|
|
$ |
178,721 |
|
Work-in-process
|
|
|
54,976 |
|
|
|
53,056 |
|
Raw
materials and supplies
|
|
|
68,810 |
|
|
|
59,863 |
|
|
|
$ |
318,071 |
|
|
$ |
291,640 |
|
NOTE
8 - BENEFIT PLANS
The
following sets forth the components of net periodic benefit cost of the
Company’s defined benefit plans and for the Company’s other postretirement
employee benefit plans for the three and nine months ended September 30, 2010
and 2009, respectively:
Defined Benefit Plans
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
2,017 |
|
|
$ |
2,144 |
|
|
$ |
5,950 |
|
|
$ |
6,211 |
|
Interest
cost
|
|
|
2,094 |
|
|
|
2,059 |
|
|
|
6,251 |
|
|
|
5,957 |
|
Expected
return on plan assets
|
|
|
(1,179 |
) |
|
|
(1,012 |
) |
|
|
(3,447 |
) |
|
|
(2,951 |
) |
Amortization
of transition obligation
|
|
|
32 |
|
|
|
61 |
|
|
|
91 |
|
|
|
177 |
|
Amortization
of prior service cost
|
|
|
19 |
|
|
|
34 |
|
|
|
63 |
|
|
|
103 |
|
Amortization
of net loss
|
|
|
247 |
|
|
|
423 |
|
|
|
722 |
|
|
|
1,241 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
3,230 |
|
|
$ |
3,709 |
|
|
$ |
9,630 |
|
|
$ |
10,738 |
|
Other Postretirement Plans
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
(in thousands)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service
cost
|
|
$ |
14 |
|
|
$ |
13 |
|
|
$ |
43 |
|
|
$ |
40 |
|
Interest
cost
|
|
|
152 |
|
|
|
156 |
|
|
|
458 |
|
|
|
467 |
|
Amortization
of net loss
|
|
|
69 |
|
|
|
50 |
|
|
|
206 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$ |
235 |
|
|
$ |
219 |
|
|
$ |
707 |
|
|
$ |
658 |
|
The
following sets forth the information related to the funding of the Company’s
benefit plans for 2010:
|
|
Pension
|
|
|
Other
Postretirement
|
|
(in thousands)
|
|
Benefits
|
|
|
Benefits
|
|
|
|
|
|
|
|
|
Actual
at September 30, 2010
|
|
$ |
5,677 |
|
|
$ |
68 |
|
Projected
for the remainder of the year
|
|
|
3,049 |
|
|
|
1,039 |
|
Total
for year
|
|
$ |
8,726 |
|
|
$ |
1,107 |
|
NOTE
9 – RESTRUCTURING AND OTHER COSTS
Other
Costs
There
were no other costs during the three months ended September 30, 2010, and $1.2
million of other costs recorded by the Company during the three months ended
September 30, 2009. During the nine months ended September 30, 2010
and 2009, the Company recorded other costs of $4.1 million and $1.6 million,
respectively. Other costs for the three and nine months ended
September 30, 2010 and 2009 are primarily related to several legal
matters. These other costs are reflected in “Restructuring and other
costs” in the consolidated statements of operations.
Restructuring
Costs
During
the three and nine months ended September 30, 2010, the Company recorded
restructuring costs of $0.3 million and $1.2 million,
respectively. During the three months ended September 30, 2009 the
Company had no restructuring costs and for the nine months ended September 30,
2009, the Company recorded restructuring costs of $4.3 million. These
costs are recorded in “Restructuring and other costs” in the consolidated
statements of operations and the associated liabilities are recorded in accrued
liabilities in the consolidated balance sheets. These costs primarily
consist of employee severance costs.
During
2010 and 2009, 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
September 30, 2010, the Company’s restructuring accruals were as
follows:
|
|
Severance
|
|
|
|
2008 and
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
2009 Plans
|
|
|
2010 Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
5,301 |
|
|
$ |
3,240 |
|
|
$ |
- |
|
|
$ |
8,541 |
|
Provisions
and adjustments
|
|
|
(127 |
) |
|
|
- |
|
|
|
1,037 |
|
|
|
910 |
|
Amounts
applied
|
|
|
(2,288 |
) |
|
|
(1,655 |
) |
|
|
(1,014 |
) |
|
|
(4,957 |
) |
Balance
at September 30, 2010
|
|
$ |
2,886 |
|
|
$ |
1,585 |
|
|
$ |
23 |
|
|
$ |
4,494 |
|
|
|
Lease/Contract Terminations
|
|
|
|
2008 and
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
1,093 |
|
|
$ |
1,093 |
|
Provisions
and adjustments
|
|
|
- |
|
|
|
- |
|
Amounts
applied
|
|
|
(65 |
) |
|
|
(65 |
) |
Balance
at September 30, 2010
|
|
$ |
1,028 |
|
|
$ |
1,028 |
|
|
|
Other Restructuring Costs
|
|
|
|
2008 and
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Prior Plans
|
|
|
2009 Plans
|
|
|
2010 Plans
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at December 31, 2009
|
|
$ |
112 |
|
|
$ |
16 |
|
|
$ |
- |
|
|
$ |
128 |
|
Provisions
and adjustments
|
|
|
45 |
|
|
|
172 |
|
|
|
82 |
|
|
|
299 |
|
Amounts
applied
|
|
|
(67 |
) |
|
|
(188 |
) |
|
|
(82 |
) |
|
|
(337 |
) |
Balance
at September 30, 2010
|
|
$ |
90 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
90 |
|
The
following table provides the year-to-date changes in the restructuring accruals
by segment:
|
|
December 31,
|
|
|
Provisions and
|
|
|
Amounts
|
|
|
September 30,
|
|
(in thousands)
|
|
2009
|
|
|
Adjustments
|
|
|
Applied
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States, Germany and Certain
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
European Regions
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumable
Businesses
|
|
$ |
1,245 |
|
|
$ |
472 |
|
|
$ |
(529 |
) |
|
$ |
1,188 |
|
France,
U.K., Italy and Certain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
European Countries, CIS, Middle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
East,
Africa, Pacific Rim Businesses
|
|
|
84 |
|
|
|
212 |
|
|
|
(212 |
) |
|
|
84 |
|
Canada/Latin
America/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Endodontics/Orthodontics
|
|
|
639 |
|
|
|
- |
|
|
|
(639 |
) |
|
|
- |
|
Dental
Laboratory Business/
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Implants/Non-Dental
|
|
|
7,794 |
|
|
|
525 |
|
|
|
(3,979 |
) |
|
|
4,340 |
|
|
|
$ |
9,762 |
|
|
$ |
1,209 |
|
|
$ |
(5,359 |
) |
|
$ |
5,612 |
|
NOTE
10 – 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 foreign currency
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 foreign currency 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 September 30, 2010, the
Company has two groups of significant variable interest rate to fixed 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 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 interest rate of 4.2% for a term of seven years,
ending in March 2012. 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 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 eighteen 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 until the hedged item
is recognized in earnings.
The
Company selectively enters into commodity swaps to effectively fix certain
variable raw material costs. At September 30, 2010, the Company had
swaps in place to purchase 33 troy ounces of platinum bullion for use in the
production of its impression material products. The average fixed
rate of this agreement is $1,303 per troy ounce. In addition, the
Company had swaps in place to purchase 17,208 troy ounces of silver bullion for
use in the production of its amalgam products at an average fixed rate of $17
per troy ounce.
The
following tables summarize the fair value of the Company’s cash flow hedges at
September 30, 2010:
|
|
Notional Amounts Maturing in the Year
|
|
|
Fair Value
Net Asset
(Liability)
|
|
Foreign Exchange Forward Contracts
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
September
30,
2010
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
sale, 11.7 million Australian dollars
|
|
$ |
4,951 |
|
|
$ |
5,528 |
|
|
$ |
786 |
|
|
$ |
(532 |
) |
Forward
purchase, 5.5 million British pounds
|
|
|
(3,250 |
) |
|
|
(5,364 |
) |
|
|
- |
|
|
|
72 |
|
Forward
sale, 23.7 million Canadian dollars
|
|
|
5,499 |
|
|
|
15,887 |
|
|
|
1,665 |
|
|
|
131 |
|
Forward
sale, 5.1 million Danish kroner
|
|
|
935 |
|
|
|
- |
|
|
|
- |
|
|
|
9 |
|
Forward
purchase, 0.9 million euros
|
|
|
(1,189 |
) |
|
|
- |
|
|
|
- |
|
|
|
640 |
|
Forward
sale, 9.7 million euros
|
|
|
- |
|
|
|
13,154 |
|
|
|
- |
|
|
|
897 |
|
Forward
sale, 439.9 million Japanese yen
|
|
|
5,271 |
|
|
|
- |
|
|
|
- |
|
|
|
409 |
|
Forward
purchase, 313.4 million Japanese yen
|
|
|
- |
|
|
|
(3,756 |
) |
|
|
- |
|
|
|
401 |
|
Forward
sale, 115.1 million Mexican pesos
|
|
|
9,135 |
|
|
|
- |
|
|
|
- |
|
|
|
97 |
|
Forward
purchase, 1.0 million Norwegian kroner
|
|
|
(173 |
) |
|
|
- |
|
|
|
- |
|
|
|
(2 |
) |
Forward
sale, 2.0 million Singapore dollars
|
|
|
1,534 |
|
|
|
- |
|
|
|
- |
|
|
|
55 |
|
Forward
sale, 1.2 billion South Korean won
|
|
|
1,024 |
|
|
|
- |
|
|
|
- |
|
|
|
48 |
|
Forward
purchase, 42.0 million Swiss francs
|
|
|
(42,805 |
) |
|
|
- |
|
|
|
- |
|
|
|
301 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
foreign exchange forward contracts
|
|
$ |
(19,068 |
) |
|
$ |
25,449 |
|
|
$ |
2,451 |
|
|
$ |
2,526 |
|
|
|
Notional
Amounts Maturing in the Year
|
|
|
Fair
Value Net
Asset (Liability)
|
|
Interest
Rate Swaps
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
and
Beyond
|
|
|
September
30,
2010
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Euro
|
|
$ |
322 |
|
|
$ |
1,286 |
|
|
$ |
1,286 |
|
|
$ |
1,286 |
|
|
$ |
4,180 |
|
|
$ |
(817 |
) |
Japanese
yen
|
|
|
- |
|
|
|
- |
|
|
|
150,410 |
|
|
|
- |
|
|
|
- |
|
|
|
(2,400 |
) |
Swiss
francs
|
|
|
- |
|
|
|
- |
|
|
|
66,266 |
|
|
|
- |
|
|
|
- |
|
|
|
(3,521 |
) |
Total
interest rate swaps
|
|
$ |
322 |
|
|
$ |
1,286 |
|
|
$ |
217,962 |
|
|
$ |
1,286 |
|
|
$ |
4,180 |
|
|
$ |
(6,738 |
) |
|
|
Notional Amounts Maturing
in the Year
|
|
|
Fair Value Net
|
|
|
|
Asset (Liability)
|
|
Commodity
Contracts
|
|
2010
|
|
|
2011
|
|
|
September
30,
2010
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Silver
swap - U.S. dollar
|
|
$ |
(254 |
) |
|
$ |
(127 |
) |
|
$ |
94 |
|
Platinum
swap - U.S. dollar
|
|
|
(55 |
) |
|
|
- |
|
|
|
12 |
|
Total
commodity contracts
|
|
$ |
(309 |
) |
|
$ |
(127 |
) |
|
$ |
106 |
|
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 foreign 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.
During
the first quarter of 2010, the Company entered into new cross currency basis
swaps of Swiss francs 100.0 million and Swiss francs 55.5 million (collectively
the “Swiss Swaps”). The Swiss Swaps mature on February 2013, and the Company
pays three month Swiss franc London Inter-Bank Offered Rate (“LIBOR”) and
receives three month U.S. dollar LIBOR. The new contracts were entered into to
replace maturing contracts. The Swiss franc and euro cross currency basis 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 and the foreign currency
revaluation is recorded in AOCI, net of tax effects.
The fair
value of all the cross currency basis swap agreements is the estimated amount
the Company would (pay) or receive at the reporting date, taking into account
the effective interest rates and foreign exchange rates. As of
September 30, 2010 and December 31, 2009, the estimated net fair values of the
swap agreements were negative $164.6 million and negative $176.6 million,
respectively, which were recorded as other noncurrent liabilities, other
noncurrent assets and in AOCI, net of tax effects.
At
September 30, 2010, the Company had Swiss franc-denominated and Japanese
yen-denominated debt and cross currency basis swaps denominated in euro and
Swiss franc to hedge the currency exposure related to a designated portion of
the net assets of its European, Swiss and Japanese subsidiaries. The
accumulated translation impact on investments in foreign subsidiaries, primarily
denominated in euro, Swiss francs and Japanese yen, net of these net investment
hedges, was a gain of $66.1 million as of September 30, 2010 and a gain of
$111.1 million as of December 31, 2009, which are included in AOCI, net of
tax effects.
The
following tables summarize the fair value of the Company’s cross currency basis
swaps that are designated as hedges of net investments in foreign operations at
September 30, 2010:
|
|
Notional
Amounts Maturing in the Year
|
|
|
Fair
Value
Net
Asset
(Liability)
|
|
Cross
Currency Basis Swaps
|
|
2010
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
September
30,
2010
|
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Swiss
franc 592.5 million @ 1.17 pay CHF three month LIBOR rec. USD three
month LIBOR
|
|
$ |
- |
|
|
$ |
81,966 |
|
|
$ |
57,702 |
|
|
$ |
464,369 |
|
|
$ |
(97,057 |
) |
Euros
358.0 million @ $1.17 pay EUR three month LIBOR rec. USD three
month LIBOR
|
|
|
147,069 |
|
|
|
- |
|
|
|
- |
|
|
|
340,438 |
|
|
|
(67,578 |
) |
Total
cross currency basis swaps
|
|
$ |
147,069 |
|
|
$ |
81,966 |
|
|
$ |
57,702 |
|
|
$ |
804,807 |
|
|
$ |
(164,635 |
) |
As of
September 30, 2010, deferred net losses on derivative instruments of $1.5
million, which were 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 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
following tables summarize the fair value and consolidated balance sheet
location of the Company’s derivatives at September 30, 2010 and December 31,
2009:
|
|
September 30, 2010
|
|
|
|
Prepaid
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Expenses
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
and Other
|
|
|
Noncurrent
|
|
|
Accrued
|
|
|
Noncurrent
|
|
Designated as Hedges
|
|
Current Assets
|
|
|
Assets, Net
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange forward contracts
|
|
$ |
1,824 |
|
|
$ |
248 |
|
|
$ |
199 |
|
|
$ |
51 |
|
Commodity
contracts
|
|
|
106 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
|
|
- |
|
|
|
172 |
|
|
|
5,419 |
|
|
|
674 |
|
Cross
currency basis swaps
|
|
|
- |
|
|
|
- |
|
|
|
20,348 |
|
|
|
144,287 |
|
Total
|
|
$ |
1,930 |
|
|
$ |
420 |
|
|
$ |
25,966 |
|
|
$ |
145,012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
Designated as Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange forward contracts
|
|
$ |
1,138 |
|
|
$ |
- |
|
|
$ |
434 |
|
|
$ |
- |
|
Interest
rate swaps
|
|
|
- |
|
|
|
- |
|
|
|
123 |
|
|
|
694 |
|
Total
|
|
$ |
1,138 |
|
|
$ |
- |
|
|
$ |
557 |
|
|
$ |
694 |
|
|
|
December 31, 2009
|
|
|
|
Prepaid
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Expenses
|
|
|
Other
|
|
|
|
|
|
Other
|
|
|
|
and Other
|
|
|
Noncurrent
|
|
|
Accrued
|
|
|
Noncurrent
|
|
Designated as Hedges
|
|
Current Assets
|
|
|
Assets, Net
|
|
|
Liabilities
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange forward contracts
|
|
$ |
598 |
|
|
$ |
5 |
|
|
$ |
1,010 |
|
|
$ |
16 |
|
Commodity
contracts
|
|
|
293 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Interest
rate swaps
|
|
|
- |
|
|
|
- |
|
|
|
6,130 |
|
|
|
2,775 |
|
Cross
currency basis swaps
|
|
|
- |
|
|
|
- |
|
|
|
52,411 |
|
|
|
124,210 |
|
Total
|
|
$ |
891 |
|
|
$ |
5 |
|
|
$ |
59,551 |
|
|
$ |
127,001 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Not
Designated as Hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange forward contracts
|
|
$ |
556 |
|
|
$ |
- |
|
|
$ |
409 |
|
|
$ |
- |
|
Interest
rate swaps
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
882 |
|
Total
|
|
$ |
556 |
|
|
$ |
- |
|
|
$ |
409 |
|
|
$ |
882 |
|
The
following table summarizes the consolidated statement of operations impact of
the Company’s cash flow hedges for the three and nine months ended September 30,
2010 and 2009:
Three Months Ended September 30,
2010
Derivatives in Cash Flow Hedging
|
|
|
|
|
|
Effective Portion
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Reclassified from
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
AOCI into Income
|
|
Interest
rate contracts
|
|
$ |
(636 |
)
|
Interest
expense
|
|
$ |
(1,175 |
) |
Foreign
exchange forward contracts
|
|
|
(597 |
) |
Cost
of products sold
|
|
|
189 |
|
Foreign
exchange forward contracts
|
|
|
(336 |
) |
SG&A
expenses
|
|
|
312 |
|
Commodity
contracts
|
|
|
61 |
|
Cost
of products sold
|
|
|
140 |
|
Total
|
|
$ |
(1,508 |
) |
|
|
$ |
(534 |
) |
Three Months Ended September 30,
2010
Derivatives
in Cash Flow Hedging
|
|
|
|
Ineffective portion
|
|
|
|
Classification
|
|
Recognized
|
|
(in
thousands)
|
|
of
Gains (Losses)
|
|
in
Income
|
|
Interest
rate contracts
|
|
Other
expense, net
|
|
$ |
(43 |
) |
Foreign
exchange forward contracts
|
|
Interest
expense
|
|
|
(120 |
) |
Foreign
exchange forward contracts
|
|
Interest
expense
|
|
|
7 |
|
Commodity
contracts
|
|
Interest
expense
|
|
|
(5 |
) |
Total
|
|
|
|
$ |
(161 |
) |
Three Months Ended September 30,
2009
Derivatives in Cash Flow Hedging
|
|
|
|
|
|
Effective Portion
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Reclassified from
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
AOCI into Income
|
|
Interest rate contracts
|
|
$ |
(2,051 |
) |
Interest expense
|
|
$ |
(2,252 |
) |
Foreign exchange forward contracts
|
|
|
(243 |
) |
Cost of products sold
|
|
|
(302 |
) |
Foreign exchange forward contracts
|
|
|
(449 |
) |
SG&A expenses
|
|
|
240 |
|
Commodity contracts
|
|
|
343 |
|
Cost of products sold
|
|
|
(190 |
) |
Total
|
|
$ |
(2,400 |
) |
|
|
$ |
(2,504 |
) |
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
|
|
|
|
Ineffective portion
|
|
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
of Gains (Losses)
|
|
in Income
|
|
Interest rate contracts
|
|
Other expense, net
|
|
$ |
(54 |
) |
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
(54 |
) |
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
13 |
|
Commodity contracts
|
|
Interest expense
|
|
|
(9 |
) |
Total
|
|
|
|
$ |
(104 |
) |
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
|
|
|
|
|
|
Effective Portion
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Reclassified from
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
AOCI into Income
|
|
Interest rate contracts
|
|
$ |
(1,515 |
) |
Interest expense
|
|
$ |
(4,414 |
) |
Foreign exchange forward contracts
|
|
|
2,306 |
|
Cost of products sold
|
|
|
214 |
|
Foreign exchange forward contracts
|
|
|
361 |
|
SG&A expenses
|
|
|
530 |
|
Commodity contracts
|
|
|
232 |
|
Cost of products sold
|
|
|
580 |
|
Total
|
|
$ |
1,384 |
|
|
|
$ |
(3,090 |
) |
Nine Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
|
|
|
|
Ineffective portion
|
|
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
of Gains (Losses)
|
|
in Income
|
|
Interest rate contracts
|
|
Other expense, net
|
|
$ |
149 |
|
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
(405 |
) |
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
4 |
|
Commodity contracts
|
|
Interest expense
|
|
|
(11 |
) |
Total
|
|
|
|
$ |
(263 |
) |
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
|
|
|
|
|
|
Effective Portion
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Reclassified from
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
AOCI into Income
|
|
Interest rate contracts
|
|
$ |
(3,425 |
) |
Interest expense
|
|
$ |
(5,594 |
) |
Foreign exchange forward contracts
|
|
|
(501 |
) |
Cost of products sold
|
|
|
1,106 |
|
Foreign exchange forward contracts
|
|
|
431 |
|
SG&A expenses
|
|
|
434 |
|
Commodity contracts
|
|
|
1,465 |
|
Cost of products sold
|
|
|
(1,095 |
) |
Total
|
|
$ |
(2,030 |
) |
|
|
$ |
(5,149 |
) |
Nine Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow Hedging
|
|
|
|
Ineffective portion
|
|
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
of Gains (Losses)
|
|
in Income
|
|
Interest rate contracts
|
|
Other expense, net
|
|
$ |
(155 |
) |
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
(235 |
) |
Foreign exchange forward contracts
|
|
Interest expense
|
|
|
(35 |
) |
Commodity contracts
|
|
Interest expense
|
|
|
(38 |
) |
Total
|
|
|
|
$ |
(463 |
) |
The following tables summarize the consolidated statement of operations impact of the Company’s hedges of net investment for the
three and nine months ended September 30, 2010 and 2009:
Three Months Ended September 30, 2010
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
in Income
|
|
Cross currency interest rate swaps
|
|
$ |
(54,204 |
) |
Interest income
|
|
$ |
423 |
|
|
|
|
|
|
Interest expense
|
|
|
(6 |
) |
Cross currency interest rate swaps
|
|
|
(48,688 |
) |
Interest expense
|
|
|
(542 |
) |
Total
|
|
$ |
(102,892 |
) |
|
|
$ |
(125 |
) |
Three Months Ended September 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Net Investment Hedging
|
|
|
|
|
|
|
Gain (Loss)
|
|
|
|
Gain (Loss)
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
in Income
|
|
Cross currency interest rate swaps
|
|
$ |
(25,826 |
) |
Interest income
|
|
$ |
190 |
|
Cross currency interest rate swaps
|
|
|
(21,525 |
) |
Interest expense
|
|
|
(896 |
) |
Total
|
|
$ |
(47,351 |
) |
|
|
$ |
(706 |
) |
Nine Months Ended
September 30, 2010
Derivatives
in Net Investment Hedging
|
|
|
|
|
|
Gain
(Loss)
|
|
|
|
Gain
(Loss)
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
in Income
|
|
Cross
currency interest rate swaps
|
|
$ |
(31,186 |
) |
Interest
income
|
|
$ |
643 |
|
|
|
|
|
|
Interest
expense
|
|
|
(85 |
) |
Cross
currency interest rate swaps
|
|
|
25,715 |
|
Interest
expense
|
|
|
(1,663 |
) |
Total
|
|
$ |
(5,471 |
) |
|
|
$ |
(1,105 |
) |
Nine Months Ended September
30, 2009
Derivatives
in Net Investment Hedging
|
|
|
|
|
|
Gain
(Loss)
|
|
|
|
Gain
(Loss)
|
|
Classification
|
|
Recognized
|
|
(in thousands)
|
|
in AOCI
|
|
of Gains (Losses)
|
|
in Income
|
|
Cross
currency interest rate swaps
|
|
$ |
(12,911 |
) |
Interest
income
|
|
$ |
1,402 |
|
Cross
currency interest rate swaps
|
|
|
(25,054 |
) |
Interest
expense
|
|
|
(3,340 |
) |
Total
|
|
$ |
(37,965 |
) |
|
|
$ |
(1,938 |
) |
The
following tables summarize the consolidated statement of operations impact of
the Company’s derivatives not designated as hedges for the three and nine months
ended September 30, 2010 and 2009:
Derivatives
Not Designated as Hedging
|
|
Classification
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(in thousands)
|
|
of Gains (Losses)
|
|
September 30, 2010
|
|
|
September 30, 2010
|
|
Foreign
exchange forward contracts
|
|
Other
expense, net
|
|
$ |
12,173 |
|
|
$ |
1,296 |
|
Interest
rate contracts
|
|
Interest
expense
|
|
|
(41 |
) |
|
|
(220 |
) |
Total
|
|
|
|
$ |
12,132 |
|
|
$ |
1,076 |
|
Derivatives
Not Designated as Hedging
|
|
Classification
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
(in thousands)
|
|
of Gains (Losses)
|
|
September 30, 2009
|
|
|
September 30, 2009
|
|
Foreign
exchange forward contracts
|
|
Other
expense, net
|
|
$ |
2,485 |
|
|
$ |
(13,428 |
) |
Interest
rate contracts
|
|
Other
expense, net
|
|
|
- |
|
|
|
(2 |
) |
Interest
rate contracts
|
|
Interest
expense
|
|
|
(124 |
) |
|
|
(390 |
) |
Total
|
|
|
|
$ |
2,361 |
|
|
$ |
(13,820 |
) |
Amounts
recorded in AOCI, net of tax, related to cash flow hedging instruments for the
three and nine months ended September 30, 2010 and 2009:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(in
thousands, net of tax)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(944 |
) |
|
$ |
(6,005 |
) |
|
$ |
(4,799 |
) |
|
$ |
(7,874 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes
in fair value of derivatives
|
|
|
(1,051 |
) |
|
|
(1,506 |
) |
|
|
1,221 |
|
|
|
(1,152 |
) |
Reclassifications
to earnings from equity
|
|
|
233 |
|
|
|
1,526 |
|
|
|
1,816 |
|
|
|
3,041 |
|
Total
activity
|
|
|
(818 |
) |
|
|
20 |
|
|
|
3,037 |
|
|
|
1,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
(1,762 |
) |
|
$ |
(5,985 |
) |
|
$ |
(1,762 |
) |
|
$ |
(5,985 |
) |
Amounts
recorded in AOCI, net of tax, related to hedges of net investments in foreign
operations for the three and nine months ended September 30, 2010 and
2009:
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
(in
thousands, net of tax)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
(33,636 |
) |
|
$ |
93,272 |
|
|
$ |
111,115 |
|
|
$ |
77,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustment
|
|
|
171,847 |
|
|
|
74,264 |
|
|
|
(29,999 |
) |
|
|
78,776 |
|
Changes
in fair value of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency debt
|
|
|
(8,978 |
) |
|
|
(7,673 |
) |
|
|
(11,700 |
) |
|
|
(2,260 |
) |
Derivative
hedge instruments
|
|
|
(63,176 |
) |
|
|
(29,073 |
) |
|
|
(3,359 |
) |
|
|
(23,311 |
) |
Total
activity
|
|
|
99,693 |
|
|
|
37,518 |
|
|
|
(45,058 |
) |
|
|
53,205 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance
|
|
$ |
66,057 |
|
|
$ |
130,790 |
|
|
$ |
66,057 |
|
|
$ |
130,790 |
|
NOTE
11 – 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 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.
The
degree of judgment utilized in measuring the fair value of financial instruments
generally correlates to the level of pricing observability. Pricing
observability is impacted by a number of factors, including the type of
financial instrument. Financial instruments 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 instruments 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
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 September 30, 2010 and December 31, 2009, which are
classified as “Cash and cash equivalents,” “Other noncurrent assets, net,”
“Accrued liabilities,” and “Other noncurrent liabilities” on the consolidated
balance sheets. 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.
|
|
September 30, 2010
|
|
(in
thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
424,445 |
|
|
$ |
424,445 |
|
|
$ |
- |
|
|
$ |
- |
|
Commodity
contracts
|
|
|
106 |
|
|
|
- |
|
|
|
106 |
|
|
|
- |
|
Interest
rate swaps
|
|
|
172 |
|
|
|
|
|
|
|
172 |
|
|
|
|
|
Foreign
exchange forward contracts
|
|
|
3,210 |
|
|
|
- |
|
|
|
3,210 |
|
|
|
- |
|
Total
assets
|
|
$ |
427,933 |
|
|
$ |
424,445 |
|
|
$ |
3,488 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
6,910 |
|
|
$ |
- |
|
|
$ |
6,910 |
|
|
$ |
- |
|
Cross
currency basis swaps
|
|
|
164,635 |
|
|
|
- |
|
|
|
164,635 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
684 |
|
|
|
- |
|
|
|
684 |
|
|
|
- |
|
Total
liabilities
|
|
$ |
172,229 |
|
|
$ |
- |
|
|
$ |
172,229 |
|
|
$ |
- |
|
|
|
December 31, 2009
|
|
(in
thousands)
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Money
market funds
|
|
$ |
364,765 |
|
|
$ |
364,765 |
|
|
$ |
- |
|
|
$ |
- |
|
Commodity
contracts
|
|
|
293 |
|
|
|
- |
|
|
|
293 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
1,159 |
|
|
|
- |
|
|
|
1,159 |
|
|
|
- |
|
Total
assets
|
|
$ |
366,217 |
|
|
$ |
364,765 |
|
|
$ |
1,452 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
$ |
9,787 |
|
|
$ |
- |
|
|
$ |
9,787 |
|
|
$ |
- |
|
Cross
currency basis swaps
|
|
|
176,621 |
|
|
|
- |
|
|
|
176,621 |
|
|
|
- |
|
Foreign
exchange forward contracts
|
|
|
1,435 |
|
|
|
- |
|
|
|
1,435 |
|
|
|
- |
|
Total
liabilities
|
|
$ |
187,843 |
|
|
$ |
- |
|
|
$ |
187,843 |
|
|
$ |
- |
|
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 contracts, interest rate swaps and foreign exchange forward contracts
are considered cash flow hedges and cross currency interest rate swaps are
considered hedges of net investments in foreign operations as discussed in Note
10, Financial Instruments and Derivatives.
NOTE
12 – UNCERTAINTIES IN INCOME TAXES
The
Company recognizes in the consolidated 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.
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 $1.0
million. In addition, expiration of statutes of limitation in various
jurisdictions during the next twelve months could include unrecognized tax
benefits of approximately $1.2 million.
NOTE
13 - FINANCING ARRANGEMENTS
On
February 19, 2010, the Company received the proceeds of a $250.0 million Private
Placement Note at a fixed rate of 4.1% for an average term of five years and a
final maturity of six years. On March 1, 2010 the Company entered
into a term loan facility with PNC Bank for Swiss francs 65.0 million at a
variable rate based upon three month Swiss franc LIBOR, which matures in March
2012. The Company’s notes payable and current portion of long-term
debt, as classified on the consolidated balance sheets, amounted to $7.3 million
and $82.2 million at September 30, 2010 and December 31, 2009,
respectively.
On May 7,
2010 the Company entered into a $200.0 million multi-currency revolving credit
agreement with eight lenders for a period of three years maturing May 7,
2013. The multi-currency revolving credit agreement replaced the
$500.0 million multi-currency revolving credit agreement which matured May 9,
2010. As a consequence of the smaller multi-currency revolving credit
agreement, the Company also reduced its U.S. dollar Commercial Paper facility to
$200.0 million in May 2010.
The
Company estimates the fair value of its total debt as compared to its carrying
value as $612.3 million and $599.7 million, respectively, as of September 30,
2010. As of December 31, 2009, the fair value approximated the
carrying value, which was $469.3 million. The interest rate on the
Company’s $250.0 million Private Placement Note is a fixed rate of 4.1%, and the
fair value is based on the interest rates as of September 30, 2010. The interest
rates on term loan debt and commercial paper are variable, and therefore the
fair value of these instruments approximates their carrying values.
NOTE
14 - COMMITMENTS AND CONTINGENCIES
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 reversed the decertification decision of the trial
Court. This case has been remanded to and is pending in the San
Francisco County 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. The Court granted this Motion for lack of standing of the
individuals and did not allow the plaintiffs to amend the complaint to
substitute their corporate practices, leaving Dr. Goldman as a putative class
representative in Pennsylvania, raising a question of jurisdiction of the U.S.
District Court. The plaintiffs have now filed another complaint in
which they named the corporate practices of Drs. Hildebrand and Jaffin as class
representatives. The Company has moved to dismiss this
complaint.
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 past and future compensatory damages
and $40.0 million in punitive damages. In April 2010, the District
Court Judge formally entered the verdict that was reached in October
2009. 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 a number of
separate motions to overturn various aspects of the verdict, including the
punitive and future damages, or in the alternative to be granted a new trial,
because of the inappropriateness of such verdicts. The Court has
denied four of the Company’s post-trial Motions. The Company has two
remaining Motions pending which the Court has not yet ruled on.
As of
September 30, 2010, a reasonable estimate of a possible range of loss related to
the above litigation cannot be made except as reflected in the preceding
paragraph. DENTSPLY does not believe the outcome of any of these
matters will have a material adverse effect on its financial
position. In the event that one or more of these matters is
unfavorably resolved, it is possible the Company’s results from operations could
be materially impacted.
Purchase
Commitments
From time
to time, the Company enters into long-term inventory purchase commitments with
minimum purchase requirements for raw materials and finished goods to ensure the
availability of products for production and distribution. These
commitments may have a significant impact on levels of inventory maintained by
the Company.
DENTSPLY International Inc. and
Subsidiaries
Item
2 - Management’s Discussion and Analysis of Financial Condition and Results of
Operations
The
nature and geographic scope of DENTSPLY International Inc. and Subsidiaries
(“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 should be read in conjunction with
the risk factors and uncertainties discussed within Item 1A, Part I of the
Company’s Form 10-K for the year ended December 31, 2009. Investors
are further cautioned that the risk factors in Item 1A, Part I of the Company’s
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
believes it is the world's largest designer, developer, manufacturer and
marketer of a broad range of products for the dental market. The
Company is headquartered in the United States of America (“U.S.”) and operates
in more than 120 other countries, principally through its foreign
subsidiaries. The Company also has strategically located distribution
centers throughout the world to enable it to better serve its customers and
increase its operating efficiency. While the U.S. and Europe are the
Company's largest markets, the Company serves all of the major professional
dental markets worldwide.
Principal
Products
The
Company has three main product categories: 1) Dental Consumable Products; 2)
Dental Laboratory Products; and 3) Dental Specialty Products.
Dental
consumable products consist of dental sundries and small equipment used in
dental offices by general practitioners in the treatment of patients. The
Company manufactures a wide variety of different dental sundry consumable
products marketed under more than one hundred brand names. DENTSPLY’s
dental sundry products within this category include dental anesthetics,
prophylaxis paste, dental sealants, impression materials, restorative materials,
tooth whiteners and topical fluoride. Small equipment products in the
dental consumable category 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,
dental diagnostic systems, and ultrasonic scalers and polishers.
Dental
laboratory products are used in the preparation of dental appliances by dental
laboratories. DENTSPLY’s products within this category include dental
prosthetics, artificial teeth, precious metal dental alloys, dental ceramics,
and crown and bridge materials. This category also includes
fabricated dental appliances, computer aided design software and centralized
manufacturing of frameworks. Equipment in this category includes computer aided
machining ceramic systems and porcelain furnaces.
Dental
specialty products are specialized treatment products used within the dental
office and laboratory settings. DENTSPLY’s products within this
category include endodontic instruments and materials, implants and related
products, bone grafting materials, 3D digital implantology, and orthodontic
appliances and accessories.
Principal
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 including product
pricing and controlling expenses; (4) the development, introduction and
contribution of innovative new products; and (5) growth through
acquisition.
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) net acquisition
growth. The Company defines net acquisition growth as the net sales,
excluding precious metal content, for a period of twelve months following the
transaction date of businesses that have been acquired, less the net sales,
excluding precious metal content, for a period of twelve months prior to the
transaction date of businesses that have been divested. The Company
defines “constant currency growth” as internal growth plus net acquisition
growth.
Management
believes that an average internal growth rate of 4% to 6% is a long-term
targeted 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.
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.
The
Company has always maintained its focus on minimizing costs and achieving
operational efficiencies. Management continues to evaluate the
consolidation of operations or functions to 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.
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.
Impact
of Foreign Currencies
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 impacted negatively by the strengthening or positively by the
weakening of the U.S. dollar. Additionally, movements in certain
foreign exchange rates may unfavorably or favorably impact the Company’s gross
profit, certain operating expenses, interest expense, interest income, other
expense and other income, as well as the assets and liabilities.
RESULTS
OF OPERATIONS, QUARTER ENDED SEPTEMBER 30, 2010 COMPARED TO QUARTER ENDED
SEPTEMBER 30, 2009
Net
Sales
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 the generally accepted accounting
principles in the U.S. (“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.
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
541.8 |
|
|
$ |
531.2 |
|
|
$ |
10.6 |
|
|
|
2.0 |
% |
Less:
precious metal content of sales
|
|
|
47.5 |
|
|
|
37.4 |
|
|
|
10.1 |
|
|
|
27.0 |
% |
Net
sales, excluding precious metal content
|
|
$ |
494.3 |
|
|
$ |
493.8 |
|
|
$ |
0.5 |
|
|
|
0.1 |
% |
Net
sales, excluding precious metal content, for the three months ended September
30, 2010 was $494.3 million, an increase of 0.1% over the third quarter of
2009. The change in net sales, excluding precious metal content, was
driven by constant currency growth of 2.4%, substantially offset by currency
translation of 2.3%. The constant currency sales growth included
internal growth of 2.0%.
Constant
Currency and Internal Sales Growth
United
States
Net
sales, excluding precious metal content, decreased 0.8% for the third quarter of
2010 compared to the third quarter of 2009 on both a constant currency and
internal sales growth rate basis. Growth in dental consumable sundry products
and dental specialty products, along with strong non-dental sales growth were
offset by lower sales in dental laboratory and dental consumable small equipment
products.
Europe
Net
sales, excluding precious metal content, in Europe increased 5.5% in the third
quarter of 2010 on a constant currency basis, including 4.5% of internal
growth. Internal growth was primarily driven by growth in the dental
specialty products, dental consumable and non-dental products and a business
recovery in the CIS markets, which experienced customer liquidity constraints
during 2009. These gains were partially offset by lower sales in the
dental laboratory products.
All Other
Regions
Net
sales, excluding precious metal content, in the other regions of the world
increased by 3.0% on a constant currency basis, which includes 2.7% of internal
growth. Internal growth was driven primarily by growth in dental
specialty products, partially offset by lower sales in dental consumable
products.
Gross
Profit
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
272.8 |
|
|
$ |
271.7 |
|
|
$ |
1.1 |
|
|
|
0.4 |
% |
Gross
profit as a percentage of net sales, including precious metal
content
|
|
|
50.4 |
% |
|
|
51.2 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales, excluding precious metal
content
|
|
|
55.2 |
% |
|
|
55.0 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales, excluding precious metal content, increased
by 0.2 percentage points for the three months ended September 30, 2010 compared
to 2009. The increase was the result of product price increases and
improved manufacturing performance partially offset by an unfavorable impact
from foreign currency and product mix.
Operating
Expenses
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses (“SG&A”)
|
|
$ |
182.1 |
|
|
$ |
177.6 |
|
|
$ |
4.5 |
|
|
|
2.5 |
% |
Restructuring
and other costs
|
|
$ |
0.3 |
|
|
$ |
1.2 |
|
|
$ |
(0.9 |
) |
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
as a percentage of net sales, including precious metal
content
|
|
|
33.6 |
% |
|
|
33.4 |
% |
|
|
|
|
|
|
|
|
SG&A
as a percentage of net sales, excluding precious metal
content
|
|
|
36.8 |
% |
|
|
36.0 |
% |
|
|
|
|
|
|
|
|
NM – Not
meaningful
SG&A
Expenses
SG&A
expenses as a percentage of net sales, excluding precious metal content,
increased in the third quarter of 2010 by 0.8 percentage points when compared to
the third quarter of 2009. Increased expenses over prior year were primarily the
result of investments in certain businesses.
Restructuring and Other
Costs
During
the three months ended September 30, 2010, the Company recorded restructuring
and other costs of $0.3 million. These costs are related to ongoing
restructuring plans to reduce operational costs through consolidation of
facilities and business re-organizations. In the same period of 2009, the
Company incurred costs of $1.2 million primarily related to legal matters. (See
also Note 9, Restructuring and Other Costs, of the Notes to Unaudited Interim
Consolidated Financial Statements).
Other
Income and Expenses
|
|
Three
Months Ended
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
$ |
4.7 |
|
|
$ |
4.6 |
|
|
$ |
0.1 |
|
Other
expense (income), net
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.1 |
|
Net
interest and other expense
|
|
$ |
5.3 |
|
|
$ |
5.1 |
|
|
$ |
0.2 |
|
Net Interest
Expense
Net
interest expense for the three months ended September 30, 2010 was $0.1 million
higher compared to the three months ended September 30, 2009. Interest expense
increased by $0.5 million due to higher average interest rates on higher average
debt balances offset by a slightly lower average negative interest differential
spread on the Company’s cross currency swaps. Interest income increased $0.4
million as higher average investment balances offset lower average interest
rates.
Other Expense (Income), Net
Other
expense in the 2010 period included approximately $0.6 million of currency
transaction losses. The 2009 period included $0.6 million of currency
transaction losses and $0.1 million of other non-operating
income.
Income
Taxes and Net Income
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rates
|
|
|
25.0 |
% |
|
|
22.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
63.7 |
|
|
$ |
67.5 |
|
|
$ |
(3.8 |
) |
|
|
(5.6 |
)% |
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
0.44 |
|
|
$ |
0.45 |
|
|
|
|
|
|
|
|
|
Provision for Income
Taxes
The
Company’s effective income tax rates for the third quarter 2010 and 2009 were
25.0% and 22.8%, respectively. In 2010, the Company’s effective
income tax rate included the impact of restructuring and other costs,
acquisition related activity and various income tax adjustments, which impacted
income before income taxes and the provision for income taxes by $2.1 million
and $0.9 million, respectively. Components of the various income tax
adjustments include the tax effect of valuation allowance releases of $4.2
million, adverse audit settlements of $0.2 million, and adverse return to
provision adjustments of $3.5 million. In 2009, the Company’s effective income
tax rate included the impact of restructuring and other costs, acquisition
related activity and various income tax adjustments, including settlements with
taxing authorities and statute closures, which impacted income before income
taxes and the provision for income taxes by $1.5 million and $3.1 million,
respectively.
Net Income attributable to
DENTSPLY International
In
addition to the results reported in accordance with US GAAP, the Company
provides adjusted net income attributable to DENTSPLY International and adjusted
earnings per diluted common share. These adjusted amounts consist of US
GAAP amounts excluding (1) restructuring and other costs, (2) acquisition
related charges, and (3) income tax related adjustments. Adjusted earnings
per diluted common share is calculated by dividing adjusted net income
attributable to DENTSPLY International by diluted weighted-average common shares
outstanding. Adjusted net income attributable to DENTSPLY
International and adjusted earnings per diluted common share are considered
measures not calculated in accordance with US GAAP, and therefore are non-US
GAAP measures. These non-US GAAP measures may differ from other
companies.
The
Company believes that the presentation of adjusted net income attributable to
DENTSPLY International and adjusted earnings per diluted common share provides
important supplemental information to management and investors seeking to
understand the Company’s financial condition and results of operations.
The non-US GAAP financial information should not be considered in isolation
from, or as a substitute for, measures of financial performance prepared in
accordance with US GAAP.
|
|
Three
Months Ended
|
|
|
|
September
30, 2010
|
|
|
|
Income
|
|
|
Per
Diluted
|
|
(in
thousands)
|
|
(Expense)
|
|
|
Common Share
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
63,653 |
|
|
$ |
0.44 |
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
|
|
240 |
|
|
|
- |
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
|
|
1,283 |
|
|
|
0.01 |
|
Income
tax related adjustments
|
|
|
(320 |
) |
|
|
- |
|
Adjusted
non-US GAAP earnings
|
|
$ |
64,856 |
|
|
$ |
0.45 |
|
|
|
Three
Months Ended
|
|
|
|
September
30, 2009
|
|
|
|
Income
|
|
|
Per
Diluted
|
|
(in
thousands)
|
|
(Expense)
|
|
|
Common Share
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
67,483 |
|
|
$ |
0.45 |
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
|
|
843 |
|
|
|
0.01 |
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
|
|
131 |
|
|
|
- |
|
Income
tax related adjustments
|
|
|
(2,570 |
) |
|
|
(0.02 |
) |
Adjusted
non-US GAAP earnings
|
|
$ |
65,887 |
|
|
$ |
0.44 |
|
Operating
Segment Results
Third Party Net Sales,
Excluding Precious Metal Content
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
139.1 |
|
|
$ |
143.0 |
|
|
$ |
(3.9 |
) |
|
|
(2.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle
East, Africa, Pacific Rim Businesses
|
|
$ |
106.5 |
|
|
$ |
104.0 |
|
|
$ |
2.5 |
|
|
|
2.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
$ |
158.7 |
|
|
$ |
149.2 |
|
|
$ |
9.5 |
|
|
|
6.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
$ |
90.7 |
|
|
$ |
98.3 |
|
|
$ |
(7.6 |
) |
|
|
(7.7 |
)% |
Segment Operating
Income
|
|
Three
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
U.S.,
Germany and Certain Other European Regions Consumable
Businesses
|
|
$ |
53.2 |
|
|
$ |
49.0 |
|
|
$ |
4.2 |
|
|
|
8.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle
East, Africa, Pacific Rim Businesses
|
|
$ |
3.9 |
|
|
$ |
3.7 |
|
|
$ |
0.2 |
|
|
|
5.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
$ |
44.9 |
|
|
$ |
39.5 |
|
|
$ |
5.4 |
|
|
|
13.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
$ |
14.7 |
|
|
$ |
19.0 |
|
|
$ |
(4.3 |
) |
|
|
(22.6 |
)% |
United States, Germany and
Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, decreased $3.9 million, or
negative 2.7%, during the three months ended September 30, 2010 compared to
2009. On a constant currency basis, net sales, excluding precious metal content,
were essentially flat. Excluding the third quarter impact of the
year-over-year decrease of approximately $4 million in small equipment sales,
this segment’s constant currency growth would be 3.4%. Small
equipment sales for the third quarter of 2009 were favorably impacted by
increased net sales from promotional activities. Additionally, the
3.4% constant currency growth was led by strong growth in endodontic product
sales which included the accelerated timing of price increases versus prior
year.
Operating
income increased $4.2 million during the three months ended September 30, 2010
compared to 2009. The increase was primarily attributable to an
increase in gross profit, which was the result of improved manufacturing
performance and an increase in sales price. A reduction in the
selling, general and administrative expenses also benefited the segment by $1.0
million.
France, United Kingdom,
Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific
Rim Businesses
Net
sales, excluding precious metal content, increased $2.5 million, or 2.4%, during
the three months ended September 30, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content, increased
$5.2 million, or 5.0%, when compared to the same period in 2009. The
majority of this growth was in the CIS, Middle East and Africa
businesses.
Operating
income increased $0.2 million during the three months ended September 30, 2010
compared to 2009, primarily related to a $0.6 million increase in gross profit,
offset by a $0.4 million increase in expenses.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, increased $9.5 million, or 6.4%, during
the three months ended September 30, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content, increased
by $8.8 million, or 5.9%, when compared to the same period in
2009. Net sales, excluding precious metal content, were
positively impacted by growth in dental specialty products and non-dental
product sales and approximately $2 million from acquisitions.
Operating
income increased $5.4 million during the three months ended September 30, 2010
compared to 2009. The increase was attributable to an increase in
gross profit of $10.0 million, which was primarily the result of increased
sales volumes, increased prices and improved manufacturing performance for
dental specialty products. Partially offsetting the gross profit
increase were increased expenses of $4.7 million, which included investments in
certain businesses.
Dental Laboratory
Business/Implants/Non-Dental
Net
sales, excluding precious metal content, decreased $7.6 million, or negative
7.7%, during the three months ended September 30, 2010 compared to
2009. On a constant currency basis, net sales, excluding precious
metal content, decreased $1.7 million, or negative 1.7%, when compared to the
same period in 2009 due to lower sales in the dental laboratory business,
partially offset by an increase in dental implant products.
Operating
income for the three months ended September 30, 2010 decreased $4.3 million
compared to 2009 attributable to $7.3 million of reduced gross profit,
primarily due to lower sales, unfavorable product mix and unfavorable
manufacturing performance in the dental laboratory
business. Partially offsetting this decrease in gross profit was a
$3.0 million reduction in expenses due to currency translation.
RESULTS
OF OPERATIONS, NINE MONTHS ENDED SEPTEMBER 30, 2010 COMPARED TO NINE MONTHS
ENDED SEPTEMBER 30, 2009
Net
Sales
The
following is a reconciliation of net sales to net sales, excluding precious
metal content.
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Net
sales
|
|
$ |
1,652.8 |
|
|
$ |
1,591.0 |
|
|
$ |
61.8 |
|
|
|
3.9 |
% |
Less:
precious metal content of sales
|
|
|
142.3 |
|
|
|
120.0 |
|
|
|
22.3 |
|
|
|
18.6 |
% |
Net
sales, excluding precious metal content
|
|
$ |
1,510.5 |
|
|
$ |
1,471.0 |
|
|
$ |
39.5 |
|
|
|
2.7 |
% |
Net
sales, excluding precious metal content, for the nine months ended September 30,
2010 was $1,510.5 million, an increase of 2.7% over the prior year
amount. The change in net sales, excluding precious metal content,
was driven by constant currency growth of 2.6%, and currency translation of
0.1%. The constant currency sales growth included internal growth of
2.3%.
Constant
Currency and Internal Sales Growth
United
States
Net
sales, excluding precious metal content, were flat on a constant currency and
internal growth basis as compared to the nine months ended
2009. Growth in dental consumable sundry products and dental
specialty products, along with strong non-dental sales growth were offset by
lower sales in dental laboratory and dental consumable small equipment
products.
Europe
Net
sales, excluding precious metal content, in Europe increased 4.4% during the
nine months ended 2010 on a constant currency basis, including internal growth
of 3.7%. Internal growth was primarily driven by growth in the dental
consumables, dental specialty and non-dental products and a business recovery in
the CIS markets, which experienced customer liquidity constraints during
2009. These gains were partially offset by lower sales in the dental
laboratory products.
All Other
Regions
Net
sales, excluding precious metal content, in the other regions of the world
increased by approximately 4% on both a constant currency and internal growth
basis. Internal growth was driven primarily by growth in dental
specialty and dental consumable products, offset slightly by lower sales in
dental laboratory products.
Gross
Profit
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Gross
profit
|
|
$ |
842.4 |
|
|
$ |
823.1 |
|
|
$ |
19.3 |
|
|
|
2.3 |
% |
Gross
profit as a percentage of net sales, including precious metal
content
|
|
|
51.0 |
% |
|
|
51.7 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales, excluding precious metal
content
|
|
|
55.8 |
% |
|
|
56.0 |
% |
|
|
|
|
|
|
|
|
Gross
profit as a percentage of net sales, excluding precious metal content, decreased
0.2 percentage points for the nine months ended September 30, 2010 compared to
2009. The decrease was the result of unfavorable impacts from foreign currency
and product mix, partially offset by product price increases.
Operating
Expenses
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
Selling,
general and administrative expenses ("SG&A")
|
|
$ |
552.5 |
|
|
$ |
539.4 |
|
|
$ |
13.1 |
|
|
|
2.4 |
% |
Restructuring
and other costs, net
|
|
$ |
5.3 |
|
|
$ |
5.9 |
|
|
$ |
(0.6 |
) |
|
|
(10.2 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
as a percentage of net sales, including precious metal content
|
|
|
33.4 |
% |
|
|
33.9 |
% |
|
|
|
|
|
|
|
|
SG&A
as a percentage of net sales, excluding precious metal content
|
|
|
36.6 |
% |
|
|
36.7 |
% |
|
|
|
|
|
|
|
|
SG&A
Expenses
SG&A
expenses as a percentage of net sales, excluding precious metal content,
decreased to 36.6% in the nine months ended September 30, 2010 from 36.7% in
2009. Expenses continue to be tightly controlled, and the Company
benefited from expense reductions related to prior year restructurings, which
were offset by investments in certain businesses.
Restructuring and Other
Costs
During
the nine months ended September 30, 2010, the Company recorded restructuring and
other costs of $5.3 million. These costs are primarily related to
several legal matters and new and ongoing restructuring plans to reduce
operational costs through consolidation of facilities and business
re-organizations. In 2009, the Company incurred costs of $5.9 million primarily
related to new and ongoing restructuring plans.
The
restructuring plans and the ongoing benefits associated with these plans were
immaterial to the current period as well as future periods. (See also
Note 9, Restructuring and Other Costs, of the Notes to Unaudited Interim
Consolidated Financial Statements).
Other
Income and Expenses
|
|
Nine
Months Ended
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest expense
|
|
$ |
15.5 |
|
|
$ |
12.6 |
|
|
$ |
2.9 |
|
Other
expense, net
|
|
|
2.3 |
|
|
|
1.3 |
|
|
|
1.0 |
|
Net
interest and other expense
|
|
$ |
17.8 |
|
|
$ |
13.9 |
|
|
$ |
3.9 |
|
Net Interest
Expense
Net
interest expense for the nine months ended September 30, 2010 was $2.9 million
higher compared to the nine months ended September 30, 2009. Interest
expense increased by $1.5 million due to a credit risk adjustment to outstanding
derivatives, higher average interest rates on higher average debt balances,
which were offset by a slightly lower average negative interest differential
spread on the Company’s cross currency swaps. Interest income
decreased $1.4 million as the interest rates on investment balances decreased
while the average investment balance was higher in the current year than the
prior year.
Other Expense (Income), Net
Other
expense in the 2010 period included approximately $2.5 million of currency
transaction losses offset partially by Other Income of $0.2 million. The 2009
period included $0.9 million of currency transaction losses and $0.4 million of
other non-operating costs.
Income
Taxes and Net Income
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions, except per share data)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
income tax rates
|
|
|
25.3 |
% |
|
|
24.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
197.9 |
|
|
$ |
199.4 |
|
|
$ |
(1.5 |
) |
|
|
(0.8 |
)% |
Earnings
per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$ |
1.35 |
|
|
$ |
1.33 |
|
|
|
|
|
|
|
|
|
Provision for Income
Taxes
The
Company’s effective income tax rates for the nine months ended 2010 and 2009
were 25.3% and 24.8%, respectively. In 2010, the Company’s effective
income tax rate included the impact of restructuring and other costs,
acquisition related activity, provisions for a credit risk adjustment to
outstanding derivatives and various income tax adjustments, which impacted
income before income taxes and the provision for income taxes by $8.7 million
and $2.3 million, respectively. Components of the various income tax
adjustments include the tax effect of valuation allowance releases of $4.2
million, adverse audit settlements of $0.9 million, and adverse return to
provision adjustments of $3.3 million. In 2009, the Company’s
effective income tax rate included the impact of restructuring and other costs,
acquisition related activity, and various income tax adjustments, including
settlements with taxing authorities and statute closures, which impacted income
before income taxes and the provision for income taxes by $9.9 million and $5.2
million, respectively.
Net Income attributable to
DENTSPLY International
In
addition to the results reported in accordance with US GAAP, the Company
provides adjusted net income attributable to DENTSPLY International and adjusted
earnings per diluted common share. These adjusted amounts consist of US
GAAP amounts excluding (1) restructuring and other costs, (2) acquisition
related charges, (3) a credit risk adjustment, and (4) income tax related
adjustments. Adjusted earnings per diluted common share is calculated by
dividing adjusted net income attributable to DENTSPLY International by diluted
weighted-average common shares outstanding. Adjusted net income
attributable to DENTSPLY International and adjusted earnings per diluted common
share are considered measures not calculated in accordance with US GAAP, and
therefore are non-US GAAP measures. These non-US GAAP measures may differ
from other companies.
The
Company believes that the presentation of adjusted net income attributable to
DENTSPLY International and adjusted earnings per diluted common share provides
important supplemental information to management and investors seeking to
understand the Company’s financial condition and results of operations.
The non-US GAAP financial information should not be considered in isolation
from, or as a substitute for, measures of financial performance prepared in
accordance with US GAAP.
|
|
Nine
Months Ended
|
|
|
|
September
30, 2010
|
|
|
|
Income
|
|
|
Per
Diluted
|
|
(in
thousands)
|
|
(Expense)
|
|
|
Common Share
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
197,881 |
|
|
$ |
1.35 |
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
|
|
3,250 |
|
|
|
0.02 |
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
|
|
1,670 |
|
|
|
0.01 |
|
Credit
risk adjustment to outstanding derivatives, net of tax
|
|
|
732 |
|
|
|
0.01 |
|
Income
tax related adjustments
|
|
|
670 |
|
|
|
- |
|
Adjusted
non-US GAAP earnings
|
|
$ |
204,203 |
|
|
$ |
1.39 |
|
|
|
Nine
Months Ended
|
|
|
|
September
30, 2009
|
|
|
|
Income
|
|
|
Per
Diluted
|
|
(in
thousands)
|
|
(Expense)
|
|
|
Common Share
|
|
|
|
|
|
|
|
|
Net
income attributable to DENTSPLY International
|
|
$ |
199,424 |
|
|
$ |
1.33 |
|
Restructuring
and other costs, net of tax and noncontrolling interests
|
|
|
4,024 |
|
|
|
0.03 |
|
Acquisition
related activities, net of tax and noncontrolling
interests
|
|
|
1,770 |
|
|
|
0.01 |
|
Income
tax related adjustments
|
|
|
(2,076 |
) |
|
|
(0.01 |
) |
Rounding
|
|
|
- |
|
|
|
(0.01 |
) |
Adjusted
non-US GAAP earnings
|
|
$ |
203,142 |
|
|
$ |
1.35 |
|
Operating
Segment Results
Third Party Net Sales,
Excluding Precious Metal Content
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
U.S.,
Germany, and Certain Other European Regions Consumable
Businesses
|
|
$ |
411.4 |
|
|
$ |
407.5 |
|
|
$ |
3.9 |
|
|
|
1.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle
East, Africa, Pacific Rim Businesses
|
|
$ |
320.6 |
|
|
$ |
311.1 |
|
|
$ |
9.5 |
|
|
|
3.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
$ |
484.7 |
|
|
$ |
449.8 |
|
|
$ |
34.9 |
|
|
|
7.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
$ |
296.3 |
|
|
$ |
304.8 |
|
|
$ |
(8.5 |
) |
|
|
(2.8 |
)% |
Segment Operating
Income
|
|
Nine
Months Ended
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
|
|
(in
millions)
|
|
2010
|
|
|
2009
|
|
|
$ Change
|
|
|
% Change
|
|
|
|
|
|
|
|
|
U.S.,
Germany, and Certain Other European Regions Consumable
Businesses
|
|
$ |
147.7 |
|
|
$ |
125.8 |
|
|
$ |
21.9 |
|
|
|
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
France,
U.K., Italy and Certain Other European Countries, CIS, Middle
East, Africa, Pacific Rim Businesses
|
|
$ |
9.3 |
|
|
$ |
11.3 |
|
|
$ |
(2.0 |
) |
|
|
(17.7 |
)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canada/Latin
America/Endodontics/ Orthodontics
|
|
$ |
142.1 |
|
|
$ |
135.1 |
|
|
$ |
7.0 |
|
|
|
5.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dental
Laboratory Business/ Implants/Non-Dental
|
|
$ |
59.6 |
|
|
$ |
65.2 |
|
|
$ |
(5.6 |
) |
|
|
(8.6 |
)% |
United States, Germany and
Certain Other European Regions Consumable Businesses
Net
sales, excluding precious metal content, increased $3.9 million, or 1.0%, during
the nine months ended September 30, 2010 compared to 2009. On a constant
currency basis, net sales, excluding precious metal content, increased $8.1
million or 2.0%, which included positive endodontic sales and dental consumable
product sales, excluding small equipment where 2009 was favorably impacted by
increased net sales from promotional activities. Excluding the impact
of the year-over-year decrease of $8.0 million in small equipment sales, this
segment’s constant currency growth would be 4.8%.
Operating
income increased $21.9 million during the nine months ended September 30, 2010
compared to 2009. The increase was primarily attributable to
an increase in gross profit, which was the result of higher sales volumes
in the European consumable markets, improved manufacturing performance and an
increase in sales price. Additionally, the 2009 results included $4.0
million from the roll-off of inventory step-up from acquisition-related
activities. A reduction in selling, general and administrative
expenses also benefited the segment by $3.6 million.
France, United Kingdom,
Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific
Rim Businesses
Net
sales, excluding precious metal content, increased $9.5 million, or 3.1%, during
the nine months ended September 30, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content, increased
$6.8 million, or 2.2%, when compared to the same period in 2009. The
increase was primarily due to the business recovery in the CIS
markets.
Operating
income decreased $2.0 million during the nine months ended September 30, 2010
compared to 2009. The decrease was attributable to $3.9 million of
higher expenses for certain investments in emerging markets and the negative
impact of foreign currency translation, partially offset by an increase in gross
profit of $1.9 million primarily due to the recovery in the CIS
markets.
Canada/Latin
America/Endodontics/Orthodontics
Net
sales, excluding precious metal content, increased $34.9 million or 7.8%, during
the nine months ended September 30, 2010 compared to 2009. On a
constant currency basis, net sales, excluding precious metal content, increased
by $25.3 million, or 5.6%, when compared to the same period in
2009. Sales increased in all regions and product categories in
this segment.
Operating
income increased $7.0 million during the nine months ended September 30, 2010
compared to 2009. Gross profit increased $18.6 million due to higher
sales, recent acquisitions and improved manufacturing performance for dental
specialty products. Partially offsetting the gross profit increase were higher
selling, general and administrative expenses of $11.6 million, which included
incremental investments to promote dental specialty products, the negative
impact of foreign currency translation and the expenses of recent
acquisitions.
Dental Laboratory
Business/Implants/Non-Dental
Net
sales, excluding precious metal content, decreased $8.5 million, or negative
2.8%, during the nine months ended September 30, 2010 compared to
2009. On a constant currency basis, net sales, excluding precious
metal content, decreased $1.4 million, or negative 0.5%, which was the result of
lower sales in the dental laboratory business, offset by growth in the dental
implant and non-dental business.
Operating
income for the nine months ended September 30, 2010 decreased $5.6 million,
compared to 2009, primarily due to lower operating income in the dental
laboratory businesses.
CRITICAL
ACCOUNTING POLICIES
There
have been no other material changes to the Company’s disclosure in its Form 10-K
for the year ended December 31, 2009.
LIQUIDITY
AND CAPITAL RESOURCES
Nine
months ended September 30, 2010
Cash flow
from operating activities during the nine months ended September 30, 2010 was
$248.9 million compared to $245.4 million during the nine months ended September
30, 2009. Net income increased by $1.0 million to $199.4
million. Additionally, working capital uses offset improvements in
non-cash items resulting in a modest improvement to cash from operations of $2.5
million. On a constant currency basis, increases in inventory
and prepaid expenses offset higher accounts payable, accruals and lower
accounts receivable balances. On a constant currency basis, as of
September 30, 2010, reported days for inventory and accounts receivable
increased by 4 days to 103 days and 3 days to 59 days, respectively, as compared
to December 31, 2009.
Investing
activities during the first nine months of 2010 include capital expenditures of
$29.6 million. The Company expects that capital expenditures will be
between $40.0 million and $50.0 million for the full year of
2010. The acquisition related activity for the nine months ended
September 30, 2010 of $22.0 million was related to four acquisitions and two
earn-out payments on a prior year acquisition.
At
September 30, 2010, the Company had authorization to maintain up to 22.0 million
shares of treasury stock under the stock repurchase program as approved by the
Board of Directors. Under this program, the Company purchased 6.2 million shares
for $208.5 million during the first nine months of 2010 at an average price of
$33.56. As of September 30, 2010, the Company held 20.7 million
shares of treasury stock. The Company also received proceeds of $26.9
million as a result of the exercise of 1.2 million of stock options during the
nine months ended September 30, 2010.
The
Company’s long-term borrowings increased by a net of $141.4 million during the
nine months ended September 30, 2010. This change included net borrowings of
$123.3 million during the first nine months and an increase of $18.4 million due
to exchange rate fluctuations on debt denominated in foreign currencies. At
September 30, 2010, the Company’s ratio of long-term debt to total
capitalization increased to 24.1% compared to 19.2% at December 31,
2009. Also in that same period, the Company’s cash and cash
equivalents and short-term investments have increased from $450.3 million to
$534.3 million.
On
February 19, 2010, the Company entered into a Note Purchase Agreement (“Note”)
with a group of initial purchasers through a private placement for $250.0
million aggregate principal amount of fixed rate 4.11% Senior Notes with an
average maturity of five years and a final maturity in six years. This Note is
unsecured and contains certain affirmative and negative covenants relating to
the operations and financial condition of the Company similar in substance to
the $150.0 million U.S. Private Placement Note (“U.S. Note”) which matured on
March 15, 2010. The new Note was used to refinance the U.S. Note at
maturity as well as for general corporate purposes.
On March
1, 2010, the Company entered into a Term Loan Agreement (“Term Loan”) with PNC
Bank providing for the issuance by the Company of Swiss francs 65.0 million
aggregate principal amount of floating rate Senior Term Loan with a final
maturity in March 2012. This Term Loan is unsecured and contains certain
affirmative and negative covenants relating to the operations and financial
condition of the Company similar in substance to the existing multi-currency
revolving credit agreement maturing May 9, 2010. The new Term Loan
was used to refinance a loan under the existing multi-currency revolving credit
agreement.
On May 7,
2010, the Company entered into a multi-currency revolving credit agreement
(“Revolver”) with a syndicate of eight lenders with a final maturity in May
2013. This Revolver is unsecured and contains certain affirmative and negative
covenants relating to the operations and financial condition of the Company
similar in substance to the previous multi-currency revolving credit agreement
which matured May 9, 2010.
Under its
multi-currency revolving credit agreement, the Company is able to borrow up to
$200.0 million through May 7, 2013. This facility is unsecured and
contains certain affirmative and negative covenants relating to the operations
and financial condition of the Company. The most restrictive of these covenants
pertain to asset dispositions and prescribed ratios of indebtedness to total
capital and operating income plus depreciation and amortization to interest
expense. At September 30, 2010, the Company was in compliance with these
covenants. The Company also has available an aggregate $200.0 million under a
U.S. dollar commercial paper facility. The multi-currency revolving credit
facility serves as a back-up to the commercial paper facility, thus the total
available credit under the commercial paper facility and the multi-currency
revolving credit facility in the aggregate is $200.0 million. At
September 30, 2010 there is $116.4 million outstanding under the
multi-currency revolving facility.
The
Company also has access to $71.0 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 September 30, 2010, the Company had
$4.5 million outstanding under these short-term lines of credit. At
September 30, 2010, the Company had total unused lines of credit related to the
revolving credit agreement and the uncommitted short-term lines of credit of
$150.1 million.
The
Company entered into new cross currency swaps of Swiss francs 100.0 million and
Swiss francs 55.5 million on February 18, 2010 and March 1, 2010 respectively to
replace maturing trades. The contracts are designated as net investment
hedges.
At
September 30, 2010, the Company held $108.3 million of precious metals on
consignment from several financial institutions. The 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.
Except
for the new term loan facility with PNC Bank for Swiss francs 65.0 million and
the new multicurrency revolving credit facility discussed in Note 13, Financial
Instruments and Derivatives, of the Notes to Unaudited Interim Consolidated
Financial Statements, there have been no other material changes to the Company’s
scheduled contractual cash obligations disclosed in its Form 10-K for the year
ended December 31, 2009. 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 funds
generated from operations and amounts available under its existing credit
facilities.
NEW
ACCOUNTING PRONOUNCEMENTS
Refer to Note 1, Significant Accounting
Policies, to the Unaudited Interim Consolidated Financial Statements for a
discussion of recent accounting standards and pronouncements.
Item
3 - Quantitative and Qualitative Disclosures About Market Risk
There
have been no significant material changes to the market risks as disclosed in
the Company’s Form 10-K for the year ended December 31, 2009.
Item
4 - Controls and Procedures
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 and
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.
Changes in Internal Control
Over Financial Reporting
There
have been no changes in the Company’s internal controls over financial reporting
that occurred during the most recent nine months to which this report relates
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
PART
II – OTHER INFORMATION
Item
1 - Legal Proceedings
Reference
to Part I, Item 1, Note 14, Commitments and Contingencies, to the Unaudited
Interim Consolidated Financial Statements.
Item
1A – Risk Factors
There
have been no significant material changes to the risks factors as disclosed in
the Company’s Form 10-K for the year ending December 31, 2009.
Item
2 - Unregistered Sales of Securities and Use of Proceeds
At
September 30, 2010, the Company had authorization to maintain up to 22.0 million
shares of treasury stock under the stock repurchase program as approved by the
Board of Directors. During the quarter ended September 30, 2010, the Company had
the following activity with respect to this repurchase program:
(in
thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July
1-31, 2010
|
|
|
288.0 |
|
|
$ |
29.36 |
|
|
$ |
8,455.5 |
|
|
|
2,049.1 |
|
August
1-31, 2010
|
|
|
798.4 |
|
|
|
29.37 |
|
|
|
23,450.3 |
|
|
|
1,284.1 |
|
September
1-30, 2010
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,299.4 |
|
|
|
|
1,086.4 |
|
|
$ |
29.37 |
|
|
$ |
31,905.8 |
|
|
|
|
|
Item
4 - Submission of Matters to Vote of Security Holders
Reserved.
Item
6 - Exhibits
Exhibit Number
|
|
Description
|
30
|
|
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
|
Signatures
Pursuant
to the requirements 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.
/s/
|
Bret W. Wise
|
|
October 28, 2010
|
|
|
Bret
W. Wise
|
|
Date
|
|
|
Chairman
of the Board and
|
|
|
|
|
Chief
Executive Officer
|
|
|
|
|
|
|
|
|
/s/
|
William R. Jellison
|
|
October 28, 2010
|
|
|
William
R. Jellison
|
|
Date
|
|
|
Senior
Vice President and
|
|
|
|
|
Chief
Financial Officer
|
|
|
|