SEC Filing: Dentsply Sirona

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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, 2008

( ) 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

(Registrants telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes

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

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).

Yes

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: At October 28, 2008, DENTSPLY International Inc. (the Company) had 148,952,461 shares of Common Stock outstanding, with a par value of $.01 per share.

Page 1 of 36

DENTSPLY International Inc.

FORM 10-Q

For Quarter Ended September 30, 2008

INDEX

Page No.

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements (unaudited)

Consolidated Condensed Statements of Income	3
Consolidated Condensed Balance Sheets	4
Consolidated Condensed Statements of Cash Flows	5

Notes to Unaudited Interim Consolidated Condensed

Financial Statements

Item 2 - Managements Discussion and Analysis of

Financial Condition and Results of Operations

Item 3 - Quantitative and Qualitative Disclosures

About Market Risk

Item 4 - Controls and Procedures

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

Item 1A - Risk Factors

Item 2 - Unregistered Sales of Securities and Use of Proceeds

Item 4 - Submission of Matters to a Vote of Security Holders

Item 6 - Exhibits

Signatures

- 2 -

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)

	Three Months Ended September 30,		Nine Months Ended September 30,
	2008	2007	2008	2007
	(in thousands, except per share amounts)

Net sales	$ 529,953	$ 488,103	$ 1,685,582	$ 1,468,329
Cost of products sold	249,770	235,113	804,670	700,277

Gross profit	280,183	252,990	880,912	768,052
Selling, general and administrative expenses	180,729	165,708	565,599	501,869
Restructuring and other costs (Note 9)	18,539	4,692	20,202	8,889

Operating income	80,915	82,590	295,111	257,294

Other income and expenses:
Interest expense	9,284	7,138	25,437	16,803
Interest income	(4,669)	(6,613)	(14,564)	(20,109)
Other (income) expense, net	1,049	220	4,145	(337)

Income before income taxes	75,251	81,845	280,093	260,937
Provision for income taxes	9,204	16,126	67,219	71,313

Net income	$ 66,047	$ 65,719	$ 212,874	$ 189,624

Earnings per common share (Note 4):
-Basic	$ 0.44	$ 0.43	$ 1.43	$ 1.25
-Diluted	$ 0.44	$ 0.42	$ 1.40	$ 1.23

Cash dividends declared per common share	$ 0.045	$ 0.040	$ 0.135	$ 0.120

Weighted average common shares outstanding (Note 4):
-Basic	148,775	151,632	149,186	151,886
-Diluted	151,697	154,736	152,137	154,735

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

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DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
			September 30,		December 31,
			2008		2007
			(in thousands)
	Current Assets:
	Cash and cash equivalents	$	54,205	$	169,384
	Short-term investments		190,545		146,939
	Accounts and notes receivable-trade, net (Note 1)		345,477		307,622
	Inventories, net (Note 7)		278,761		258,032
	Prepaid expenses and other current assets		103,108		100,045
	Total Current Assets		972,096		982,022

	Property, plant and equipment, net		386,885		371,409
	Identifiable intangible assets, net		68,466		76,167
	Goodwill, net		1,145,212		1,127,420
	Other noncurrent assets, net		88,652		118,551
	Total Assets	$	2,661,311	$	2,675,569

Liabilities and Stockholders' Equity
	Current Liabilities:
	Accounts payable	$	90,782	$	82,321
	Accrued liabilities		213,112		189,405
	Income taxes payable		31,325		39,441
	Notes payable and current portion
	of long-term debt		2,828		1,244

	Total Current Liabilities		338,047		312,411

	Long-term debt		401,685		482,063
	Deferred income taxes		63,187		60,547
	Other noncurrent liabilities		271,618		304,146

	Total Liabilities		1,074,537		1,159,167

	Minority interests in consolidated subsidiaries		355		296
	Commitments and contingencies (Note 13)
	Stockholders' Equity:
	Preferred stock, $.01 par value; .25 million shares authorized; no shares issued		-		-
	Common stock, $.01 par value; 200 million shares authorized;
	162.8 million shares issued at September 30, 2008 and December 31, 2007		1,628		1,628
	Capital in excess of par value		186,275		173,084
	Retained earnings		1,775,410		1,582,683
	Accumulated other comprehensive income (Note 3)		91,827		145,819
	Treasury stock, at cost, 13.9 million shares at September 30, 2008 and
	12.0 million shares at December 31, 2007		(468,721)		(387,108)
	Total Stockholders' Equity		1,586,419		1,516,106
Total Liabilities and Stockholders' Equity		$	2,661,311	$	2,675,569

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

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DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)		Nine Months Ended September 30,
		2008		2007
		(in thousands)
Cash flows from operating activities:
Net income	$	212,874	$	189,624
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		36,697		32,212
Amortization		6,703		5,608
Deferred income taxes		25,245		11,617
Share-based compensation expense		12,748		11,541
Restructuring and other costs		20,202		8,889
Stock option income tax benefit		(3,575)		(5,412)
Changes in operating assets and liabilities, net of acquisitions:
Accounts and notes receivable-trade, net		(45,344)		(14,646)
Inventories, net		(25,918)		(22,820)
Prepaid expenses and other current assets		(2,176)		2,333
Accounts payable		6,838		(846)
Accrued liabilities		9,026		(999)
Income tax payable		(5,636)		47,639
Other, net		(10,841)		(7,844)
Net cash provided by operating activities		236,843		256,896
Cash flows from investing activities:
Capital expenditures		(55,286)		(37,840)
Cash paid for acquisitions of businesses and equity investment, net of cash acquired		(43,937)		(100,635)
Purchases of short-term investments		(154,568)		(112,771)
Liquidation of short-term investments		102,091		69
Expenditures for identifiable intangible assets		(2,201)		(781)
Proceeds from sale of property, plant and equipment, net		703		2,881
Net cash used in investing activities		(153,199)		(249,077)

Cash flows from financing activities:
Net change in short-term borrowings		1,033		3,356
Cash paid for treasury stock		(99,771)		(88,142)
Cash dividends paid		(20,231)		(19,071)
Proceeds from long-term borrowings		117,900		170,255
Payments on long-term borrowings		(205,613)		(49,562)
Proceeds from exercise of stock options		11,990		38,696
Excess tax benefits from share-based compensation		3,575		5,412
Net provided by (used in) cash financing activities		(191,117)		60,944

Effect of exchange rate changes on cash and cash equivalents		(7,706)		7,994
Net increase (decrease) in cash and cash equivalents		(115,179)		76,757
Cash and cash equivalents at beginning of period		169,384		65,064
Cash and cash equivalents at end of period	$	54,205	$	141,821

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

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DENTSPLY International Inc.

NOTES TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

September 30, 2008

The accompanying Unaudited Interim Consolidated Condensed Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial statements and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. The year-end condensed balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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 should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Companys most recent Form 10-K filed February 25, 2008.

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

The accounting policies of DENTSPLY International Inc., as applied in the consolidated interim financial statements presented herein, are substantially the same as presented on pages 51 through 56 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2007, except as indicated below:

Accounts and Notes Receivable-Trade

Accounts and notes receivables - trade are stated net of allowances for doubtful accounts and trade discounts, which were $18.3 million and $18.9 million at September 30, 2008 and December 31, 2007, respectively.

Fair Value Measurement

In September 2006, the Financial Accounting Standards Board (the FASB) issued Statement of Financial Accounting Standards No. 157 (SFAS 157), Fair Value Measurements, which requires the Company to define fair value, establish a framework for measuring fair value in accordance with U.S. GAAP, and expand disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.

On February 12, 2008, the FASB issued FASB Staff Position No. SFAS 157-2, Effective Date of FASB Statement No. 157, which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, beginning on January 1, 2008, this standard applies prospectively to new fair value measurements of financial instruments and recurring fair value measurements of non-financial assets and non-financial liabilities. On January 1, 2009, the standard will also apply to all other fair value measurements. The Company has adopted SFAS 157 and has presented the required disclosures in Note 12, Fair Value Measurement.

Fair Value Option

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 159 (SFAS 159), The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to choose to measure financial instruments and certain other items at fair value that are not currently required to be measured at fair value. This will allow entities the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently. SFAS 159 is effective for financial statements issued for fiscal years ending after November 15, 2007. While SFAS 159 became effective for the Companys 2008 fiscal year, the Company did not elect the fair value measurement option for any of the Companys financial assets or liabilities not already recorded at fair value.

Revisions in Classification

Certain revisions of classification have been made to prior years data in order to conform to current year presentation.

- 6 -

New Accounting Pronouncements

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) (SFAS 141(R)), Business Combinations. It requires the acquiring entity in a business combination to recognize all assets acquired and liabilities assumed in the transaction, establishes the acquisition-date fair value as the measurement objective for all assets acquired and liabilities assumed, and requires the acquirer to disclose the nature and financial effect of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS 141(R) in the first quarter of fiscal year 2009 and is currently evaluating the impact the adoption will have on the Companys financial statements.

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (SFAS 160), Noncontrolling Interests in Consolidated Financial Statements. This statement amends Accounting Research Bulletin No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company will adopt SFAS 160 in the first quarter of fiscal year 2009 and is currently evaluating the impact the adoption will have on the Companys financial statements.

In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (SFAS 161), Disclosures about Derivative Instruments and Hedging Activities. SFAS 161 is effective for fiscal years beginning after December 15, 2008. This statement amends and expands the disclosure requirements of SFAS 133, Accounting for Derivative Instruments and Hedging. The Company will adopt SFAS 161 in the first quarter of fiscal year 2009 and is currently evaluating the impact the adoption will have on the Companys footnotes to the financial statements.

In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162 (SFAS 162), The Hierarchy of Generally Accepted Accounting Principles. This statement identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles. This standard will have no impact on the Companys financial statements.

NOTE 2 STOCK COMPENSATION

The Company maintains the 2002 Equity Incentive Plan (the Plan) under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (RSU) and stock appreciation rights, collectively referred to as Awards. Awards are granted at exercise prices that approximate the fair market value of the common stock on the grant date. The Plan authorized grants of 14,000,000 shares of common stock, plus any unexercised portion of cancelled or terminated stock options granted under the DENTSPLY International Inc. 1993 and 1998 Plans, subject to adjustment as follows: each January, if 7% of the total outstanding common shares of the Company exceed 14,000,000, the excess becomes available for grant under the Plan. No more than 2,000,000 shares may be awarded as restricted stock and restricted stock units, and no key employee may be granted restricted stock units in excess of 150,000 shares of common stock in any calendar year.

Stock options generally expire ten years after the date of grant under these plans and grants become exercisable over a period of three years after the date of grant at the rate of one-third per year, except when they become immediately exercisable upon death, disability or qualified retirement. Restricted stock units 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. It is the Companys practice to issue shares from treasury stock when options are exercised.

Under SFAS 123(R), the Company continues to use the Black-Scholes option-pricing model to estimate the fair value of each award. The assumptions used to calculate the fair value of the awards granted are evaluated and revised, as necessary, to reflect market conditions and the Companys experience.

- 7 -

The following table represents total stock based compensation expense and the tax related benefit for the three and nine months ended September 30, 2008 and 2007:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2008		2007		2008		2007
		(in millions)
Stock option expense	$	2.9	$	3.3	$	8.6	$	9.5
RSU expense		1.1		0.5		3.2		1.3
Total stock based compensation expense	$	4.0	$	3.8	$	11.8	$	10.8
Total related tax benefit	$	1.1	$	0.6	$	2.9	$	2.4

The remaining unamortized compensation cost related to non-qualified stock options is $14.1 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.0 year. The unamortized compensation cost related to RSUs is $8.5 million, which will be expensed over the remaining weighted average restricted period of the RSUs, or 1.9 years.

The following table summarizes the non-qualified stock options transactions from December 31, 2007 through September 30, 2008:

	Outstanding					Exercisable

			Weighted					Weighted
			Average		Aggregate			Average		Aggregate
			Exercise		Intrinsic			Exercise		Intrinsic
	Shares		Price		Value	Shares		Price		Value
	(in thousands, except per share data)
December 31, 2007	10,314	$	26.41	$	192,333	7,378	$	22.46	$	166,664
Granted	123		39.40
Exercised	(597)		20.10
Forfeited	(111)		35.90

September 30, 2008	9,729	$	26.85	$	110,391	6,998	$	22.91	$	100,282

The weighted average remaining contractual term of all outstanding options is 5.9 years and the weighted average remaining contractual term of exercisable options is 4.9 years.

The following table summarizes the unvested restricted stock units and restricted stock units dividend transactions from December 31, 2007 through September 30, 2008:

	Unvested Restricted Stock Units
			Weighted Average
			Grant Date
	Shares		Fair Value
	(in thousands, except per share data)
Unvested at December 31, 2007	211	$	30.99
Granted	213		41.10
Exercised	(2)		34.01
Vested	(3)		35.66
Forfeited	(14)		35.04

Unvested at September 30, 2008	405	$	36.13

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NOTE 3 COMPREHENSIVE INCOME

The components of comprehensive income, net of tax, are as follows:

		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2008		2007		2008		2007
		(in millions)

Net Income	$	66,047	$	65,719	$	212,874	$	189,624
Other comprehensive income:
Foreign currency translation adjustments		(160,648)		55,414		(62,801)		92,950
Unrealized loss on available-for-sale securities		-		(89)		-		(227)
Pension liability adjustments		(1,266)		(2,465)		2,328		(2,064)
Net gain (loss) on derivative financial instruments		69,126		(30,582)		6,481		(36,437)
Total comprehensive (loss) income	$	(26,741)	$	87,997	$	158,882	$	233,846

During the quarter ended September 30, 2008, foreign currency translation adjustments included currency translation losses of $166.4 million and gains of $5.8 million on the Companys loans designated as hedges of net investments. During the quarter ended September 30, 2007, foreign currency translation adjustments included currency translation gains of $63.0 million and losses of $7.6 million on the Companys loans designated as hedges of net investments. During the nine months ended September 30, 2008, foreign currency translation adjustments included currency translation losses of $58.3 million and losses of $4.5 million on the Companys loans designated as hedges of net investments. During the nine months ended September 30, 2007, foreign currency translation adjustments included currency translation gains of $87.8 million and losses of $4.8 million on the Companys loans designated as hedges of net investments. These foreign currency translation adjustments were offset by net gains and losses on derivatives financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

The balances included in accumulated other comprehensive income in the consolidated balance sheets are as follows:

		September 30,		December 31,
		2008		2007
		(in thousands)

Foreign currency translation adjustments	$	178,270	$	241,071
Unrecognized losses and prior service cost, net		(7,070)		(9,398)
Net loss on derivative financial instruments		(79,373)		(85,854)
	$	91,827	$	145,819

The cumulative foreign currency translation adjustments included translation gains of $272.8 million and $331.1 million as of September 30, 2008 and December 31, 2007, respectively, offset by losses of $94.5 million and $90.0 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.

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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:

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
Basic Earnings Per Common Share Computation	(in thousands, except per share amounts)
Net income	$ 66,047	$ 65,719	$ 212,874	$ 189,624
Common shares outstanding	148,775	151,632	149,186	151,886

Earnings per common share - basic	$ 0.44	$ 0.43	$ 1.43	$ 1.25

Diluted Earnings Per Common Share Computation
Net income	$ 66,047	$ 65,719	$ 212,874	$ 189,624
Common shares outstanding	148,775	151,632	149,186	151,886
Incremental shares from assumed exercise
of dilutive options	2,922	3,104	2,951	2,849
Total shares	151,697	154,736	152,137	154,735

Earnings per common share - diluted	$ 0.44	$ 0.42	$ 1.40	$ 1.23

Options to purchase 1.3 million and 1.4 million shares of common stock that were outstanding during the three and nine months ended September 30, 2008, 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. Antidilutive shares during the three and nine months ended September 30, 2007, were 0.1 million and 1.4 million, respectively.

NOTE 5 - BUSINESS ACQUISITIONS

The acquisition related activity for the three and nine months ended September 30, 2008 was $41.5 million and $43.9 million, respectively, net of cash acquired. This activity was related to two acquisitions, both in Europe in 2008, and three earn-out payments on acquisitions from prior years. The following list provides information about the acquired companies:

Dental Depot Lomberg B.V. (Lomberg) markets and sells various dental products, including but not limited to, orthodontic products and materials. Lomberg was included in the Canada/Latin America/ Endodontics/ Orthodontics segment.

E.S. Holding N.V. (E.S. Holding) markets and sells dental products, particularly dental laboratory products, and non-dental products. E.S. Holding was included in the Global Dental Laboratory Business/Implants/Non-Dental segment.

The purchase prices have been allocated on the basis of preliminary estimates of fair values of assets acquired and liabilities assumed. As of September 30, 2008, the Company has recorded a total of $31.5 million in goodwill related to the unallocated portions of the respective purchase prices. None of this goodwill is expected to be deductible for tax purposes.

NOTE 6 - SEGMENT INFORMATION

The Company follows Statement of Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments of an Enterprise and Related Information. SFAS 131 establishes standards for disclosing information about reportable segments in financial statements. 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, 2008 and 2007.

- 10 -

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 Companys reportable segments under SFAS 131 as the Companys chief operating decision-maker regularly reviews financial results at the operating group level and uses this information to manage the Companys operations. The accounting policies of the groups are consistent with those described in the most recently filed 10-K Consolidated Financial Statements in the summary of significant accounting policies. The Company measures segment income for reporting purposes as net operating profit before restructuring, interest and taxes.

United States, Germany, and Certain Other European Regions Consumables Businesses

This business group includes responsibility for the design, manufacturing, sales, and distribution for certain small equipment and chairside consumable products in the United States, Germany, and certain other European regions.

France, United Kingdom, Italy, CIS, Middle East, Africa, Pacific Rim Businesses

This business group includes responsibility for the sales and distribution for chairside consumable products and certain small equipment, certain laboratory products, and certain Endodontic products in France, United Kingdom, Italy, the Commonwealth of Independent States (CIS), Middle East, Africa, Asia (excluding Japan), Japan and Australia, as well as the sale and distribution of implant products and bone substitute/grafting materials in Italy, Asia and Australia. This business group also includes the manufacturing and sale of Orthodontic products, the manufacturing of 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 chairside consumable and laboratory products in Brazil. It also has responsibility for the sales and distribution of most Company dental products sold in Latin America and Canada. This business group also includes the responsibility for the design and manufacturing for Endodontic products in the United States, Switzerland and Germany and is responsible for sales and distribution of certain Company Endodontic products in the United States, Canada, Switzerland, Benelux, Scandinavia, and Eastern Europe, and 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 Companys Orthodontic products. This business group is also responsible for sales and distribution in the United States for implant and bone substitute/grafting materials and the distribution of implants in Brazil.

Global Dental Laboratory Business/Implants/Non-Dental

This business group includes the responsibility for the design, manufacture, world-wide sales and distribution for laboratory products, excluding certain laboratory products mentioned earlier, and the design, manufacture, and/or sales and distribution of the Companys dental implant products and bone substitute/grafting materials, excluding sales and distribution of implants and bone substitute/grafting materials in the United States, Italy, Asia, Australia and sales and distribution of implants in Brazil. This business group is also responsible for the Companys non-dental business.

Significant interdependencies exist among the Companys 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.

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The following tables set forth information about the Companys operating groups for the three and nine months ended September 30, 2008 and 2007:

Third Party Net Sales

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(in thousands)

U.S., Germany, and Certain Other European
Regions Consumable Businesses	$ 127,948	$ 120,313	$ 376,854	$ 326,947
France, U.K., Italy, CIS, Middle East,
Africa, Pacific Rim Businesses	97,819	85,748	318,163	270,458
Canada/Latin America/Endodontics/
Orthodontics	155,634	142,437	477,983	426,890
Global Dental Laboratory Business/
Implants/Non-Dental	149,197	141,047	515,391	447,790
All Other (a)	(645)	(1,442)	(2,809)	(3,756)
Total	$ 529,953	$ 488,103	$ 1,685,582	$ 1,468,329

The presentation of net sales, excluding precious metal content, is considered a measure not calculated in accordance with generally accepted accounting principles (GAAP), and is therefore considered a non-GAAP measure. This non-GAAP measure is discussed further in Management's Discussion and Analysis of Financial Condition and Results of Operations and a reconciliation of net sales, excluding precious metal content, to net sales is provided below.

Third Party Net Sales, excluding precious metal content

	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(in thousands)
U.S., Germany, and Certain Other European
Regions Consumable Businesses	$ 127,948	$ 120,313	$ 376,854	$ 326,947
France, U.K., Italy, CIS, Middle East,
Africa, Pacific Rim Businesses	92,102	80,635	300,021	252,698
Canada/Latin America/Endodontics/
Orthodontics	154,868	141,588	475,310	424,067
Global Dental Laboratory Business/
Implants/Non-Dental	113,813	104,238	377,231	330,750
All Other (a)	(645)	(1,442)	(2,809)	(3,756)
Total excluding Precious Metal Content	488,086	445,332	1,526,607	1,330,706
Precious Metal Content	41,867	42,771	158,975	137,623
Total including Precious Metal Content	$ 529,953	$ 488,103	$ 1,685,582	$ 1,468,329

(a)	Includes: amounts recorded at Corporate headquarters.

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Intersegment Net Sales
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(in thousands)
U.S., Germany, and Certain Other European
Regions Consumable Businesses	$ 33,448	$ 36,096	$ 95,850	$ 108,464
France, U.K., Italy, CIS, Middle East,
Africa, Pacific Rim Businesses	1,495	2,028	4,128	8,402
Canada/Latin America/Endodontics/
Orthodontics	26,205	21,515	81,033	66,334
Global Dental Laboratory Business/
Implants/Non-Dental	22,344	11,124	69,036	59,492
All Other (a)	40,880	36,675	136,553	108,876
Eliminations	(124,372)	(107,438)	(386,600)	(351,568)
Total	$ -	$ -	$ -	$ -

Segment Operating Income
	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2008	2007	2008	2007
	(in thousands)
U.S., Germany, and Certain Other European
Regions Consumable Businesses	$ 50,381	$ 38,823	$ 138,616	$ 110,625
France, U.K., Italy, CIS, Middle East,
Africa, Pacific Rim Businesses	1,253	1,373	6,832	6,091
Canada/Latin America/Endodontics/
Orthodontics	46,841	43,386	153,181	131,954
Global Dental Laboratory Business/
Implants/Non-Dental	26,301	21,675	94,796	79,202
All Other (b)	(25,322)	(17,975)	(78,112)	(61,689)
Segment Operating Income	99,454	87,282	315,313	266,183

Reconciling Items:
Restructuring and other costs	(18,539)	(4,692)	(20,202)	(8,889)
Interest Expense	(9,284)	(7,138)	(25,437)	(16,803)
Interest Income	4,669	6,613	14,564	20,109
Other income (expense), net	(1,049)	(220)	(4,145)	337
Income before income taxes	$ 75,251	$ 81,845	$ 280,093	$ 260,937

(a) Includes: amounts recorded at Corporate headquarters and one distribution warehouse not managed by named segments.

(b) Includes: the results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.

- 13 -

Assets
		September 30,		December 31,
		2008		2007
		(in thousands)

U.S., Germany, and Certain Other European
Regions Consumable Businesses	$	417,051	$	382,913
France, U.K., Italy, CIS, Middle East,
Africa, Pacific Rim Businesses		320,506		315,531
Canada/Latin America/Endodontics/
Orthodontics		783,253		715,300
Global Dental Laboratory Business/
Implants/Non-Dental		900,078		898,043
All Other (a)		240,423		363,782
Total	$	2,661,311	$	2,675,569

(a) Includes: 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, 2008 and December 31, 2007, the cost of $9.9 million, or 3.6%, and $10.6 million, or 4.1%, respectively, of inventories was determined by the last-in, first-out (LIFO) method. The cost of other inventories was determined by the first-in, first-out (FIFO) or average cost methods. The Company establishes reserves for inventory estimated to be obsolete or unmarketable equal to the difference between the cost of inventory and estimated market value based upon assumptions about future demand and market conditions. The inventory valuation reserves were $27.9 million and $26.2 million as of September 30, 2008 and December 31, 2007, 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, 2008 and December 31, 2007 by $3.8 million and $4.4 million, respectively.

Inventories, net of inventory valuation reserves, consist of the following:

		September 30,		December 31,
		2008		2007
		(in thousands)

Finished goods	$	161,516	$	155,402
Work-in-process		54,233		49,622
Raw materials and supplies		63,012		53,008
	$	278,761	$	258,032

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NOTE 8 - BENEFIT PLANS

The following sets forth the components of net periodic benefit cost of the Companys benefit plans and for the Companys other postretirement employee benefit plans for the three and nine months ended September 30, 2008 and September 30, 2007, respectively:

Defined Benefit Plans		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2008		2007		2008		2007
		(in thousands)
Service cost	$	1,920	$	1,700	$	5,336	$	5,014
Interest cost		1,638		1,814		6,073		5,245
Expected return on plan assets		(1,022)		(1,075)		(3,387)		(3,075)
Amortization of transition obligation		59		54		183		161
Amortization of prior service cost		85		50		174		111
Amortization of net loss		(12)		308		50		906
Settlement gain		(2,313)		-		(2,313)		-
Net periodic benefit cost	$	355	$	2,851	$	6,116	$	8,362

Other Postretirement Plans		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		2008		2007		2008		2007
		(in thousands)
Service cost	$	12	$	(1)	$	37	$	31
Interest cost		163		169		476		430
Expected return on plan assets		-		-		-		-
Amortization of transition obligation		-		-		-		-
Amortization of prior service cost		-		(96)		-		(289)
Amortization of net loss		52		110		126		172
Net periodic benefit cost	$	227	$	182	$	639	$	344

The following sets forth the information related to the funding of the Companys benefit plans for 2008:

				Other
		Pension		Postretirement
		Benefits		Benefits
		(in thousands)
Actual, September 30, 2008	$	7,030	$	694
Projected for the remainder of the year		2,188		371
Total for year	$	9,218	$	1,065

NOTE 9 - RESTRUCTURING AND OTHER COSTS

Other costs of $17.6 million and $18.5 million for the three and nine months ended September 30, 2008, respectively, included costs primarily related to settlements of legal matters. These settlements are further discussed in Note 13, Commitments and Contingencies.

Restructuring Costs

Restructuring costs of $0.9 million and $1.7 for the three and nine months ended September 30, 2008, respectively, are reflected in accrued liabilities and other non-current liabilities in the consolidated condensed balance sheets and the associated costs are recorded in restructuring and other costs in the income statements. The accruals consist of employee severance benefits, payments due under operating contracts, and other restructuring costs. For further information regarding the Companys restructuring plans and the associated accruals, refer to Note 14, Restructuring, Impairment and Other Costs in the Notes to Consolidated Financial Statements appearing in the Companys Annual Report on Form 10-K for the year ended December 31, 2007. The Company does not expect any additional significant expenses related to any existing restructuring plans. The Company did not initiate any new restructuring plans for the three months or nine months ended September 30, 2008.

- 15 -

As of September 30, 2008, the Companys restructuring accruals were as follows:

			Severance
			2006 and
			Prior Plans			2007 Plans					Total
		(in thousands)

Balance, December 31, 2007		$	1,617	$		925			$			2,542
	Provisions		198			163						361
	Amounts applied		(863)			(867)						(1,730)
	Change in estimate		(214)			-						(214)
Balance, September 30, 2008		$	738	$		221			$			959

			Lease/contract terminations
			2006 and
			Prior Plans				2007 Plans			Total
		(in thousands)

Balance, December 31, 2007		$	252		$		-	$		252
	Provisions		-				380			380
	Amounts applied		(94)				(286)			(380)
	Change in estimate		-				-			-
Balance, September 30, 2008		$	158		$		94	$		252

			Other restructuring costs
			2006 and
			Prior Plans			2007 Plans					Total
		(in thousands)

Balance, December 31, 2007		$	206	$		52			$		258
	Provisions		419			1,010					1,429
	Amounts applied		(284)			(233)					(517)
	Change in estimate		(160)			(94)					(254)
Balance, September 30, 2008		$	181	$		735			$		916

The following table provides the cumulative amounts for the provision, amounts applied, and changes in estimates for all the plans by segment:

			December 31,				Amounts		Change		September 30,
			2007		Provisions		applied		in estimate