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 June 30, 2009

 

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

 

Yes

X

 

No

 

 

 

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

 

Yes

X

 

No

 

 

 

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

 

Yes

X

 

No

 

 

 

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).   

 

Yes

 

 

No

X

 

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: At July 29, 2009, DENTSPLY International Inc. (the “Company”) had 148,592,159 shares of Common Stock outstanding, with a par value of $.01 per share.

 

 

DENTSPLY International Inc.

FORM 10-Q

 

For Quarter Ended June 30, 2009

 

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

 

Consolidated Statement of Changes in Equity

6

Notes to Unaudited Interim Consolidated Condensed

 

Financial Statements

7

 

Item 2 - Management’s Discussion and Analysis of

 

Financial Condition and Results of Operations

26

 

Item 3 - Quantitative and Qualitative Disclosures

 

About Market Risk

38

 

 

Item 4 - Controls and Procedures

38

 

 

PART II - OTHER INFORMATION

 

 

Item 1 - Legal Proceedings

39

 

 

Item 1A - Risk Factors

40

 

 

Item 2 - Unregistered Sales of Securities and Use of Proceeds

40

 

 

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

40

 

 

Item 6 - Exhibits

40

 

Signatures

41

 

 

- 2 -

 


DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

 

 

 

 

 

 

CONSOLIDATED CONDENSED STATEMENTS OF INCOME

 

 

 

 

 

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2009

 

 

2008

 

 

2009

 

 

2008

 

(in thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

$

553,216

 

$

594,847

 

$

1,060,165

 

$

1,155,629

Cost of products sold

 

266,245

 

 

279,361

 

 

506,225

 

 

554,900

 

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

286,971

 

 

315,486

 

 

553,940

 

 

600,729

Selling, general and administrative
  expenses

185,138

 

 

200,867

 

 

364,366

 

 

384,869

Restructuring, impairments and other
  costs (Note 9)

3,125

 

 

1,458

 

 

4,695

 

 

1,662

 

 

 

 

 

 

 

 

 

 

 

 

Operating income

 

98,708

 

 

113,161

 

 

184,879

 

 

214,198

 

 

 

 

 

 

 

 

 

 

 

 

Other income and expenses:

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

5,268

 

 

7,901

 

 

11,421

 

 

16,153

Interest income

 

(1,512)

 

 

(4,685)

 

 

(3,468)

 

 

(9,895)

Other (income) expense, net

 

(68)

 

 

(51)

 

 

846

 

 

3,071

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

95,020

 

 

109,996

 

 

176,080

 

 

204,869

Provision for income taxes

 

24,440

 

 

31,297

 

 

45,571

 

 

58,015

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

70,580

 

 

78,699

 

 

130,509

 

 

146,854

Less: Net gain (loss) attributable to the

 

 

 

 

 

 

 

 

 

  noncontrolling interests

 

381

 

 

51

 

 

(1,433)

 

 

26

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to
  DENTSPLY International

$

70,199

 

$

78,648

 

$

131,942

 

$

146,828

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share (Note 4):

 

 

 

 

 

 

 

 

 

 

-Basic

$

0.47

 

$

0.53

 

$

0.89

 

$

0.98

-Diluted

$

0.47

 

$

0.52

 

$

0.88

 

$

0.96

 

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per
  common share

$

0.050

 

$

0.045

 

$

0.100

 

$

0.090

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding (Note 4):

 

 

 

 

 

 

-Basic

 

148,577

 

 

148,851

 

 

148,546

 

 

149,394

-Diluted

 

150,057

 

 

151,790

 

 

149,822

 

 

152,371

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

- 3 -


DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

 

 

 

 

 

 

CONSOLIDATED CONDENSED BALANCE SHEETS

 

 

 

 

 

 

(unaudited)

 

 

June 30,

 

 

December 31,

 

 

 

 

2009

 

 

2008

Assets

 

 

(in thousands)

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

251,871

 

$

203,991

 

Short-term investments

 

 

36

 

 

258

 

Accounts and notes receivables-trade, net (Note 1)

 

 

357,546

 

 

319,260

 

Inventories, net (Note 7)

 

 

309,431

 

 

306,125

 

Prepaid expenses and other current assets

 

 

113,621

 

 

120,228

 

Total Current Assets

 

 

1,032,505

 

 

949,862

 

 

 

 

 

 

 

 

 

Property, plant and equipment, net

 

 

429,935

 

 

432,276

 

Identifiable intangible assets, net

 

 

122,696

 

 

103,718

 

Goodwill, net

 

 

1,267,898

 

 

1,277,026

 

Other noncurrent assets, net

 

 

45,445

 

 

67,518

 

Total Assets

 

$

2,898,479

 

$

2,830,400

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

93,420

 

$

104,329

 

Accrued liabilities

 

 

207,430

 

 

193,660

 

Income taxes payable

 

 

15,737

 

 

36,178

 

Notes payable and current portion

 

 

 

 

 

 

 

of long-term debt (Note 13)

 

 

273,906

 

 

25,795

 

Total Current Liabilities

 

 

590,493

 

 

359,962

 

 

 

 

 

 

 

 

 

Long-term debt (Note 13)

 

 

145,949

 

 

423,679

 

Deferred income taxes

 

 

70,508

 

 

69,049

 

Other noncurrent liabilities

 

 

287,407

 

 

318,297

 

Total Liabilities

 

 

1,094,357

 

 

1,170,987

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 June 30, 2009 and December 31, 2008

1,628

 

 

1,628

 

Capital in excess of par value

 

 

192,501

 

 

187,154

 

Retained earnings

 

 

1,955,977

 

 

1,838,958

 

Accumulated other comprehensive income (Note 3)

 

 

58,277

 

 

39,612

 

Treasury stock, at cost, 14.2 million shares at June 30, 2009 and

 

 

 

 

 

14.2 million shares at December 31, 2008

 

 

(475,765)

 

 

(479,630)

 

Total DENTSPLY International Stockholders' Equity

 

 

1,732,618

 

 

1,587,722

 

 

 

 

 

 

 

 

 

Noncontrolling interests

 

 

71,504

 

 

71,691

 

Total Stockholders' Equity

 

 

1,804,122

 

 

1,659,413

Total Liabilities and Stockholders' Equity

 

$

2,898,479

 

$

2,830,400

 

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

- 4 -


 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

 

 

 

 

 

 

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

(unaudited)

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2009

 

 

2008

Cash flows from operating activities:

 

 

(in thousands)

Net income

 

$

130,509

 

$

146,854

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

Depreciation

 

 

26,373

 

 

23,943

Amortization

 

 

6,574

 

 

4,363

Deferred income taxes

 

 

4,379

 

 

18,542

Share-based compensation expense

 

 

9,723

 

 

8,404

Restructuring, impairments and other costs

 

 

3,039

 

 

1,127

Stock option income tax benefit

 

 

(2,003)

 

 

(2,008)

Changes in operating assets and liabilities, net of acquisitions:

 

 

 

 

 

 

Accounts and notes receivable-trade, net

 

 

(34,458)

 

 

(49,711)

Inventories, net

 

 

2,291

 

 

(10,283)

Prepaid expenses and other current assets

 

 

4,124

 

 

(5,314)

Accounts payable

 

 

(11,257)

 

 

9,179

Accrued liabilities

 

 

(12,972)

 

 

(62)

Income tax payable

 

 

(9,878)

 

 

(9,754)

Other, net

 

 

(1,085)

 

 

3,745

Net cash provided by operating activities

 

 

115,360

 

 

139,025

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(24,957)

 

 

(36,574)

Cash paid for acquisitions of businesses and equity investment, net of cash acquired

(2,986)

 

 

(2,415)

Purchases of short-term investments

 

 

-

 

 

(147,434)

Liquidation of short-term investments

 

 

214

 

 

12

Expenditures for identifiable intangible assets

 

 

(1,258)

 

 

(2,191)

Proceeds from sale of property, plant and equipment, net

 

 

998

 

 

799

Net cash used in investing activities

 

 

(27,989)

 

 

(187,803)

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

Net change in short-term borrowings

 

 

36,342

 

 

3,488

Cash paid for treasury stock

 

 

(9,778)

 

 

(95,467)

Cash dividends paid

 

 

(14,919)

 

 

(13,517)

Proceeds from long-term borrowings

 

 

-

 

 

77,799

Payments on long-term borrowings

 

 

(55,140)

 

 

-

Proceeds from exercise of stock options

 

 

5,850

 

 

5,741

Excess tax benefits from share-based compensation

 

 

2,003

 

 

2,008

Net cash used in financing activities

 

 

(35,642)

 

 

(19,948)

 

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(3,848)

 

 

12,796

Net increase (decrease) in cash and cash equivalents

 

 

47,880

 

 

(55,930)

Cash and cash equivalents at beginning of period

 

 

203,991

 

 

169,384

Cash and cash equivalents at end of period

 

$

251,871

 

$

113,454

 

 

 

 

 

 

 

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

 

- 5 -


DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES

 

 

 

 

Consolidated Statement of Changes in Equity

 

 

 

 

 

(unaudited)

 

  

          Capital

 

Accumulated

 

Total DENTSPLY         

 

 

 

in Excess

 

Other

 

International

 

Total

 

Common

of Par

Retained

Comprehensive

Treasury

Stockholders'

Noncontrolling

Stockholders'

 

Stock

Value

Earnings

Income (Loss)

Stock

Equity

Interests

Equity

 

(in thousands)

Balance at December 31,

  2007

$ 1,628

$173,084

$1,582,683

$ 145,819

$(387,108)

$ 1,516,106

$ 296

$ 1,516,402

Purchase of subsidiary shares from

  noncontrolling interest

-

-

-

-

-

-

71,931

71,931

Comprehensive Income:

 

 

 

 

 

 

 

Net income

-

-

283,869

-

-

283,869

(599)

283,270

Other comprehensive income

  

  

  

  

  

  

  

(loss), net of tax:

  

    

  

  

  

  

  

  

    Foreign currency translation

  

  

  

  

  

  

  

 adjustment

-

-

-

(71,521)

-

(71,521)

63

(71,458)

    Net loss on derivative

  

  

  

  

  

  

  

financial instruments

-

-

-

(13,986)

-

(13,986)

-

(13,986)

  Unrecognized losses and prior

  

  

  

  

  

  

  

   service cost, net

-

-

-

(20,700)

-

(20,700)

-

(20,700)

Comprehensive Income

  

  

  

 

177,662

(536)

177,126

Exercise of stock
  options

-

(7,268)

-

-

19,994

12,726

-

12,726

Tax benefit from stock
  options exercised

-

3,910

-

-

-

3,910

-

3,910

 Share based compensation

  

  

  

  

  

  

  

  expense

-

17,290

-

-

-

17,290

-

17,290

Funding of Employee
  Stock Option Plan

-

62

-

-

118

180

-

180

Treasury shares 
  purchased

-

-

-

-

(112,634)

(112,634)

-

(112,634)

RSU dividends

-

76

(76)

-

-

-

-

-

Cash dividends ($0.185
  per share)

-

-

(27,518)

-

-

(27,518)

-

(27,518)

Balance at December 31,

 

 2008

$ 1,628

$187,154

$1,838,958

$ 39,612

$(479,630)

$ 1,587,722

$ 71,691

$ 1,659,413

Comprehensive Income:

 

 

 

 

 

 

 

Net income

-

-

131,942

-

-

131,942

(1,433)

130,509

Other comprehensive income,
    net of tax:

 

 

 

 

 

 

 

   Foreign currency translation

  

  

  

  

  

  

  

 adjustment

-

-

-

9,907

-

9,907

1,245

11,152

  Net loss on derivative

  

  

  

  

  

  

  

    financial instruments

-

-

-

7,631

-

7,631

-

7,631

  Unrecognized losses and prior

  

  

  

  

  

  

  

 service cost, net

-

-

-

1,127

-

1,127

1

1,128

Comprehensive Income

 

 

 

 

150,607

(187)

150,420

Exercise of stock
  options

-

(6,386)

-

-

12,236

5,850

-

5,850

Tax benefit from stock
  options exercised

-

2,003

-

-

-

2,003

-

2,003

 Share based compensation

  

  

  

  

  

  

  

  expense

-

9,723

-

-

-

9,723

-

9,723

Funding of Employee
 Stock Option Plan

-

(61)

-

-

1,407

1,346

-

1,346

Treasury shares 
  purchased

-

-

-

-

(9,778)

(9,778)

-

(9,778)

RSU dividends

-

68

(68)

-

-

-

-

-

Cash dividends ($0.10
  per share)

-

-

(14,855)

-

-

(14,855)

-

(14,855)

Balance at June 30,
  2009

$ 1,628

$192,501

$1,955,977

$ 58,277

$(475,765)

$ 1,732,618

$ 71,504

$ 1,804,122

 

See accompanying notes to Unaudited Interim Consolidated Condensed Financial Statements.

- 6 -


DENTSPLY International Inc. and Subsidiaries

 

NOTES TO UNAUDITED INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

June 30, 2009

 

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 Company’s most recent Form 10-K/A filed May 1, 2009.

 

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 52 through 58 of the Annual Report Form 10-K/A for the fiscal year ended December 31, 2008, except as indicated below:

 

Accounts and Notes Receivable-Trade, Net

 

Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $22.1 million and $19.4 million at June 30, 2009 and December 31, 2008, respectively.

 

Business Acquisitions

 

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 has adopted SFAS 141(R) in the first quarter of fiscal year 2009.

 

On April 1, 2009, the FASB issued FASB Staff Position (“FSP”) No. SFAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination that Arise from Contingencies,” which amends and clarifies SFAS 141(R) to address application issues raised by preparers, auditors and members of the legal profession on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The FSP is effective for fiscal years ending after December 15, 2008. The Company has adopted the FSP in the first quarter of fiscal year 2009, and as of June 30, 2009, the implementation did not impact the Company’s net income attributable to DENTSPLY International.

 

Noncontrolling Interests

 

In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160 (“SFAS 160”), “Noncontrolling Interests (“NCI”) 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. The Company adopted SFAS 160 on January 1, 2009 and retrospectively reclassed NCI to equity in the Condensed Balance Sheet, retrospectively included NCI in consolidated net income and consolidated comprehensive income, and provided other applicable disclosures. The implementation of SFAS 160 did not impact the Company’s net income attributable to DENTSPLY International in the current or prior periods.

 

Fair Value Measurement

 

        In February 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. The Company has adopted SFAS 157-2 in the first quarter of fiscal year 2009. The implementation of SFAS 157-2 did not impact the Company’s financial statements in the current or prior periods.

 

- 7 -


          In April 2009, the FASB issued FASB Staff Position No. SFAS 107-1 and APB 28-1, (“FSP 107-1”), “Disclosures about Fair Value of Financial Instruments,” to require disclosures about fair value of financial instruments for interim reporting periods as well as annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. The Company has disclosed the requirement information in Note 13, Financing Arrangements.

 

Subsequent Events

 

       In May 2009, the FASB issued Statement of Financial Accounting Standards No. 165 (“SFAS 165”), “Subsequent Events.” SFAS 165 requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date, that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company has evaluated subsequent events through July 30, 2009, which is the date the financial statements have been filed with the Securities and Exchange Commission.

 

New Accounting Pronouncements      

 

       In December 2008, the FASB issued FASB Staff Position No. SFAS 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets,” which amends SFAS 132(R) by providing guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. The FSP is effective for fiscal years ending after December 15, 2009 with early application permitted. Upon initial application, the provisions of this staff position are not required for earlier periods that are presented for comparative periods. The Company is currently evaluating the impact of adopting this staff position on its disclosures.

 

      In June 2009, the FASB issued Statement of Financial Accounting Standards No. 166 (“SFAS 166”), “Accounting for Transfers of Financial Assets,” which is an amendment to SFAS 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” SFAS 166 is effective for fiscal years beginning after November 15, 2009 and must be applied prospectively to new transfers of financial assets. The new standard eliminates the use of qualified special purpose entities, clarifies the derecognition criteria for a transfer accounted for as a sale, and expands the disclosure requirements among other things. The Company is currently evaluating the impact of adopting this new standard.

 

       In June 2009, the FASB issued Statement of Financial Accounting Standards No. 167 (“SFAS 167”), “Amendments to FASB Interpretation No. 46 (R).” SFAS 167 is effective for annual reporting periods that begin after November 15, 2009 and applies to all existing and new variable interest entities. The new standard significantly changes the consolidation model for variable interest entities. The Company is currently evaluating the impact of adopting this new standard.

 

     In June 2009, the FASB issued Statement of Financial Accounting Standards No. 168 (“SFAS 168”), “The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles – a replacement of FASB Statement No. 162.” SFAS 168 replaces SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and establishes the “FASB Accounting Standards Codification ™” (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with generally accepted accounting principles in the United States. All guidance contained in the Codification carries an equal level of authority. On the effective date of SFAS 168, the Codification will supersede all then-existing non-SEC accounting and reporting standards. All other nongrandfathered non-SEC accounting literature not included in the Codification will become nonauthoritative. SFAS 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company has evaluated this new statement, and has determined that it will not have a significant impact on the determination or reporting of our financial results.

 

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 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 are equal to the closing stock price on the date of grant. The Company authorizes 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, 1998, and 2002 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.

 

- 8 -


 

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 Company’s 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 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 six months ended June 30, 2009 and 2008:

 

 

 

 

 

Three Months Ended          

Six Months Ended

 

 

 

 

June 30,

 

June 30,

 

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

                            (in millions)

 

 

 

 

 

 

 

 

 

 

 

Stock option expense

$

3.0

$

2.9

$

5.9

$

5.7

RSU expense

 

 

1.7

 

1.1

 

3.2

 

2.1

Total stock based compensation expense

$

4.7

$

4.0

$

9.1

$

7.8

 

 

 

 

 

 

 

 

 

 

 

Total related tax benefit

$

1.5

$

0.7

$

2.6

$

1.8

 

The remaining unamortized compensation cost related to non-qualified stock options is $19.3 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.5 years. The unamortized compensation cost related to RSUs is $12.3 million, which will be expensed over the remaining restricted period of the RSUs, or 1.7 years.

 

The following table reflects the non-qualified stock options transactions from December 31, 2008 through June 30, 2009:

 

 

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, 2008

11,285

$

26.75

$

41,428

 

8,185

$

24.71

$

37,796

Granted

152

 

27.65

 

 

 

 

 

 

 

 

Exercised

(399)

 

14.65

 

 

 

 

 

 

 

 

Forfeited

(125)

 

32.13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2009

10,913

$

27.14

$

56,846

 

7,846

$

25.29

$

48,649

 

The weighted average remaining contractual term of all outstanding options is 6.2 years and the weighted average remaining contractual term of exercisable options is 4.8 years.

 

- 9 -


The following table summarizes the unvested restricted stock unit and restricted stock unit dividend transactions from December 31, 2008 through June 30, 2009:

 

 

Unvested Restricted Stock Units

 

 

 

 

Weighted Average

 

 

 

 

Grant Date

 

Shares

 

 

Fair Value

 

(in thousands, except per share data)

 

 

 

 

 

Unvested at December 31, 2008

400

 

$

36.11

Granted

297

 

 

26.37

Vested

(2)

 

 

26.23

Forfeited

(16)

 

 

33.05

 

 

 

 

 

Unvested at June 30, 2009

679

 

$

31.96

 

NOTE 3 – COMPREHENSIVE INCOME

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2009

 

2008

 

2009

 

2008

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

Net income

$

70,580

$

78,699

$

130,509

$

146,854

Other comprehensive income:

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments, net of tax

91,338

 

(2,903)

 

11,152

 

97,821

 

Amortization of unrecognized losses

 

 

 

 

 

 

 

 

 

and prior year service cost, net of tax

 

(851)

 

208

 

1,128

 

(119)

 

Change in assumptions for the

 

 

 

 

 

 

 

 

 

Company's benefit plans

 

-

 

3,713

 

-

 

3,713

 

Net (loss) gain on derivative financial instruments,
   net of tax

(34,840)

 

16,167

 

7,631

 

(62,645)

 

Total other comprehensive income, net of tax

55,647

 

17,185

 

19,911

 

38,770

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive income

 

126,227

 

95,884

 

150,420

 

185,624

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to

 

 

 

 

 

 

 

 

 

   the noncontrolling interests

 

6,053

 

(1)

 

(187)

 

(26)

Comprehensive income attributable to

 

 

 

 

 

 

 

DENTSPLY International

$

120,174

$

95,885

$

150,607

$

185,650

 

During the quarter ended June 30, 2009, foreign currency translation adjustments included currency translation gains of $101.7 million and losses of $4.3 million on the Company’s loans designated as hedges of net investments. During the quarter ended June 30, 2008, foreign currency translation adjustments included currency translation losses of $8.8 million partially offset by gains of $5.9 million on the Company’s loans designated as hedges of net investments. During the six months ended June 30, 2009, foreign currency translation adjustments included currency translation gains of $5.4 million and gains of $5.6 million on the Company’s loans designated as hedges of net investments. During the six months ended June 30, 2008, foreign currency translation adjustments included currency translation gains of $108.1 million and losses of $10.3 million on the Company’s loans designated as hedges of net investments. These foreign currency translation adjustments were offset by net gains on derivatives financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

 

- 10 -


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

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2009

 

 

2008

 

 

 

(in thousands)

 

 

 

 

 

 

 

Foreign currency translation adjustments

$

179,457

 

$

169,550

Unrecognized losses and prior service cost, net

 

(28,971)

 

 

(30,098)

Net loss on derivative financial instruments

 

(92,209)

 

 

(99,840)

 

 

$

58,277

 

$

39,612

 

The cumulative foreign currency translation adjustments included translation gains of $282.6 million and $278.1 million as of June 30, 2009 and December 31, 2008, respectively, offset by losses of $103.1 million and $108.5 million, respectively, on loans designated as hedges of net investments. These foreign currency translation adjustments were offset by net gains 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:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2009

 

 

2008

 

 

2009

 

 

2008

 

             (in thousands, except per share amounts)

Basic Earnings Per Common Share Computation

 

 

 

 

 

 

 

 

 

Net income attributable to DENTSPLY
   International

$

70,199

 

$

78,648

 

$

131,942

 

$

146,828

Common shares outstanding

 

148,577

 

 

148,851

 

 

148,546

 

 

149,394

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - basic

$

0.47

 

$

0.53

 

$

0.89

 

$

0.98

 

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share Computation

 

 

 

 

 

 

 

 

 

Net income attributable to DENTSPLY
   International

$

70,199

 

$

78,648

 

$

131,942

 

$

146,828

Common shares outstanding

 

148,577

 

 

148,851

 

 

148,546

 

 

149,394

Incremental shares from assumed exercise

 

 

 

 

 

 

 

 

 

 

of dilutive options

 

1,480

 

 

2,939

 

 

1,276

 

 

2,977

Total shares

 

150,057

 

 

151,790

 

 

149,822

 

 

152,371

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per common share - diluted

$

0.47

 

$

0.52

 

$

0.88

 

$

0.96

 

Options to purchase 4.6 million and 7.8 million shares of common stock that were outstanding during the three and six months ended June 30, 2009, 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 six months ended June 30, 2008, were 1.3 million and 1.4 million, respectively.

 

NOTE 5 - BUSINESS ACQUISITIONS

 

During the first six months of 2009, the Company paid $3.0 million, net of cash acquired, primarily related to a payment for an additional purchase price related to an acquisition completed in 2007. The payment was related to provisions in the purchase agreement that allow for additional payments based on the post closing performance of the individual business.

 

- 11 -

 


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 June 30, 2009 and 2008.

 

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 under SFAS 131 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 most recently filed 10-K/A 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.

 

In January 2009, the Company moved several locations between segments which resulted in a change to the management structure and helped the Company gain operating efficiencies and effectiveness. The segment information below reflects this revised structure for all periods shown.

 

United States, Germany, and Certain Other European Regions Consumable 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. It also has responsibility for the sales and distribution of certain Endodontic products in Germany.

 

France, United Kingdom, Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses

 

This business group includes responsibility for the sales and distribution for certain small equipment, chairside consumable products, certain laboratory products and certain Endodontic products in France, United Kingdom, Italy, the Commonwealth of Independent States (“CIS”), Middle East, Africa, Asia (excluding Japan), Japan and Australia, as well as the sale and distribution of implant products and bone substitute/grafting materials in Italy, Asia and Australia. This business group also includes the responsibility for sales and distribution for certain laboratory products, implants products and bone substitution/grafting materials for Austria. It also is responsible for sales and distribution for certain small equipment and chairside consumable products, certain laboratory products, implant products and bone substation/grafting materials in certain other European countries. In addition this business group also includes the 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 for Endodontic products in the United States, Switzerland and Germany and is responsible for sales and distribution Company Endodontic products in the United States, Canada, Switzerland, Benelux, Scandinavia, Austria, Latin America and Eastern Europe, and for certain Endodontic products in Germany. This business group is also responsible for the world-wide sales and distribution, excluding Japan, as well as some manufacturing of the Company’s Orthodontic products. In addition, this business group is also responsible for sales and distribution in the United States for implant and bone substitute/grafting materials and the sales and distribution of implants in Brazil. This business group is also responsible for manufacture and sale certain products in the Company’s non-dental business.

 

Dental Laboratory Business/Implants/Non-Dental

 

This business group includes the responsibility for the design, manufacture, sales and distribution for most laboratory products, excluding certain countries mentioned previously, and the design, manufacture, and/or sales and distribution of the Company’s dental implant products and bone substitute/grafting materials, excluding sales and distribution of implants and bone substitute/grafting materials in the United States; Italy, Austria, and certain other Eastern European countries; Asia; and Australia. This business group is also responsible for most of the Company’s non-dental business.

 

- 12 -


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, impairment 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 six months ended June 30, 2009 and 2008:

 

Third Party Net Sales

 

 

 

 

 

 

 

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2009

 

2008

 

2009

 

2008

 

 

        (in thousands)

U.S., Germany, and Certain Other European

 

 

 

 

Regions Consumable Businesses

$

139,600

$

124,509

$

264,512

$

245,064

France, U.K., Italy, and Certain Other

 

 

European Countries, CIS, Middle East,

 

 

 

 

 

 

 

Africa, Pacific Rim Businesses

 

114,512

 

130,372

 

215,317

 

242,587

Canada/Latin America/Endodontics/

 

 

 

 

 

Orthodontics

 

157,306

 

168,551

 

301,986

 

322,349

Dental Laboratory Business/

 

 

 

 

 

 

Implants/Non-Dental

 

142,180

 

172,335

 

279,521

 

347,792

All Other (a)

 

(382)

 

(920)

 

(1,171)

 

(2,163)

Total

$

553,216

$

594,847

$

1,060,165

$

1,155,629

 

Third Part Net sales, excluding precious metal content

 

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.

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2009

 

2008

 

2009

 

2008

 

 

      (in thousands)

U.S., Germany, and Certain Other European

 

 

 

 

Regions Consumable Businesses

$

139,600

$

124,509

$

264,512

$

245,064

France, U.K., Italy, and Certain Other

 

 

European Countries, CIS, Middle East,

 

 

 

 

 

 

 

Africa, Pacific Rim Businesses

 

105,343

 

121,986

 

198,420

 

225,900

Canada/Latin America/Endodontics/

 

 

 

 

 

Orthodontics

 

156,557

 

167,546

 

300,596

 

320,442

Dental Laboratory Business/

 

 

 

 

 

 

Implants/Non-Dental

 

110,793

 

129,152

 

215,204

 

249,278

All Other (a)

 

(382)

 

(920)

 

(1,171)

 

(2,163)

Total excluding Precious Metal Content

511,911

 

542,273

 

977,561

 

1,038,521

Precious Metal Content

 

41,305

 

52,574

 

82,604

 

117,108

Total including Precious Metal Content

$

553,216

$

594,847

$

1,060,165

$

1,155,629

 

(a) Includes: amounts recorded at Corporate headquarters.

- 13 -


 

Inter-segment Net Sales

 

 

 

 

 

 

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2009

 

2008

 

2009

 

2008

 

 

    (in thousands)

U.S., Germany, and Certain Other European

 

 

 

 

Regions Consumable Businesses

$

23,649

$

34,278

$

46,729

$

64,715

France, U.K., Italy, and Certain Other

 

 

European Countries, CIS, Middle East,

 

 

 

 

 

 

 

Africa, Pacific Rim Businesses

 

3,063

 

4,601

 

6,447

 

8,816

Canada/Latin America/Endodontics/

 

 

 

 

 

Orthodontics

 

24,219

 

29,720

 

52,817

 

54,828

Dental Laboratory Business/

 

 

 

 

 

 

Implants/Non-Dental

 

25,544

 

29,255

 

49,926

 

56,947

All Other (a)

 

43,021

 

49,310

 

81,347

 

95,674

Eliminations

 

(119,496)

 

(147,164)

 

(237,266)

 

(280,980)

Total

$

-

$

-

$

-

$

-

 

 

Segment Operating Income

 

 

 

 

 

 

 

 

Three Months Ended

Six Months Ended

 

 

June 30,

 

June 30,

 

 

2009

 

2008

 

2009

 

2008

 

 

           (in thousands)

U.S., Germany, and Certain Other European

 

 

 

 

Regions Consumable Businesses

$

42,824

$

44,820

$

76,746

$

87,948

France, U.K., Italy, and Certain Other

 

 

European Countries, CIS, Middle East,

 

 

 

 

 

 

 

Africa, Pacific Rim Businesses

 

4,185

 

5,550

 

6,894

 

7,559

Canada/Latin America/Endodontics/

 

 

 

 

 

Orthodontics

 

45,467

 

55,061

 

95,525