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 June 30, 2010

OR

o    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.

Yes
x
 
No
¨
 

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).

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 26, 2010, DENTSPLY International Inc. had 142,821,937 shares of Common Stock outstanding, with a par value of $.01 per share.

 

 

DENTSPLY International Inc.

TABLE OF CONTENTS

   
Page
PART I
FINANCIAL INFORMATION
 
     
Item 1
Financial Statements (unaudited)
 
     
 
Consolidated Statements of Operations
3
     
 
Consolidated Balance Sheets
4
     
 
Consolidated Statements of Cash Flows
5
     
 
Consolidated Statement of Changes in Equity
6
     
 
Notes to Unaudited Interim Consolidated Financial Statements
7
     
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
     
Item 3
Quantitative and Qualitative Disclosures About Market Risk
41
     
Item 4
Controls and Procedures
41
     
PART II
OTHER INFORMATION
 
     
Item 1
Legal Proceedings
43
     
Item 1A
Risk Factors
43
     
Item 2
Unregistered Sales of Securities and Use of Proceeds
43
     
Item 4
Submission of Matters to a Vote of Security Holders
43
     
Item 6
Exhibits
43
     
 
Signatures
44

 
- 2 - -

 

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
   
Six Months Ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net sales
  $ 565,086     $ 552,832     $ 1,111,030     $ 1,059,781  
Cost of products sold
    277,491       267,164       541,397       508,381  
                                 
Gross profit
    287,595       285,668       569,633       551,400  
Selling, general and administrative expenses
    182,383       183,817       370,417       361,804  
Restructuring and other costs
    243       3,125       4,923       4,695  
                                 
Operating income
    104,969       98,726       194,293       184,901  
                                 
Other income and expenses:
                               
Interest expense
    6,686       5,268       12,406       11,421  
Interest income
    (827 )     (1,512 )     (1,614 )     (3,468 )
Other expense (income), net
    722       (50 )     1,667       868  
                                 
Income before income taxes
    98,388       95,020       181,834       176,080  
Provision for income taxes
    25,042       24,440       46,297       45,571  
                                 
Net income
    73,346       70,580       135,537       130,509  
Less: Net income (loss) attributable to the noncontrolling interests
    960       381       1,308       (1,433 )
Net income attributable to DENTSPLY International
  $ 72,386     $ 70,199     $ 134,229     $ 131,942  
                                 
Earnings per common share:
                               
Basic
  $ 0.50     $ 0.47     $ 0.92     $ 0.89  
Diluted
  $ 0.49     $ 0.47     $ 0.91     $ 0.88  
                                 
Cash dividends declared per common share
  $ 0.05     $ 0.05     $ 0.10     $ 0.10  
                                 
Weighted average common shares outstanding:
                               
Basic
    144,779       148,577       145,772       148,546  
Diluted
    146,939       150,057       148,048       149,822  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 3 - -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)

   
June 30,
   
December 31,
 
   
2010
   
2009
 
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 340,347     $ 450,348  
Accounts and notes receivables-trade, net
    351,304       348,684  
Inventories, net
    284,394       291,640  
Prepaid expenses and other current assets
    113,197       127,124  
                 
Total Current Assets
    1,089,242       1,217,796  
                 
Property, plant and equipment, net
    399,077       439,619  
Identifiable intangible assets, net
    76,998       89,086  
Goodwill, net
    1,208,765       1,312,596  
Other noncurrent assets, net
    23,185       28,835  
                 
Total Assets
  $ 2,797,267     $ 3,087,932  
                 
Liabilities and Equity
               
Current Liabilities:
               
Accounts payable
  $ 106,864     $ 100,847  
Accrued liabilities
    192,203       249,169  
Income taxes payable
    11,380       12,366  
Notes payable and current portion of long-term debt
    11,927       82,174  
                 
Total Current Liabilities
    322,374       444,556  
                 
Long-term debt
    462,976       387,151  
Deferred income taxes
    73,779       72,524  
Other noncurrent liabilities
    196,728       276,743  
                 
Total Liabilities
    1,055,857       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 June 30, 2010 and December 31, 2009
    1,628       1,628  
Capital in excess of par value
    198,237       195,495  
Retained earnings
    2,202,130       2,083,459  
Accumulated other comprehensive (loss) income
    (55,678 )     83,542  
Treasury stock, at cost, 19.6 million shares at June 30, 2010 and 15.8 million shares at December 31, 2009
    (670,603 )     (532,019 )
Total DENTSPLY International Equity
    1,675,714       1,832,105  
                 
Noncontrolling interests
    65,696       74,853  
                 
Total Equity
    1,741,410       1,906,958  
                 
Total Liabilities and Equity
  $ 2,797,267     $ 3,087,932  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 4 - -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)

   
Six Months Ended
 
   
June 30,
 
   
2010
   
2009
 
             
Cash flows from operating activities:
           
             
Net income
  $ 135,537     $ 130,509  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    29,438       26,373  
Amortization
    4,771       6,574  
Deferred income taxes
    (57 )     4,379  
Share-based compensation expense
    10,238       9,723  
Restructuring and other costs - noncash
    363       328  
Excess tax benefits from share-based compensation
    (4,666 )     (2,003 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts and notes receivable-trade, net
    (28,487 )     (34,458 )
Inventories, net
    (9,111 )     2,291  
Prepaid expenses and other current assets
    (16,549 )     4,124  
Accounts payable
    12,603       (11,257 )
Accrued liabilities
    4,183       (10,261 )
Income taxes payable
    4,913       (9,878 )
Other, net
    7,292       (1,085 )
Net cash provided by operating activities
    150,468       115,359  
                 
Cash flows from investing activities:
               
                 
Capital expenditures
    (18,897 )     (24,957 )
Cash paid for acquisitions of businesses, net of cash acquired
    (8,309 )     (2,986 )
Liquidation of short-term investments
    -       214  
Expenditures for identifiable intangible assets
    (255 )     (1,258 )
Proceeds from sale of property, plant and equipment, net
    279       998  
                 
Net cash used in investing activities
    (27,182 )     (27,989 )
                 
Cash flows from financing activities:
               
                 
Net change in short-term borrowings
    (5,237 )     36,342  
Cash paid for treasury stock
    (176,630 )     (9,778 )
Cash dividends paid
    (15,741 )     (14,919 )
Proceeds from long-term borrowings
    250,000       -  
Payments on long-term borrowings
    (240,108 )     (55,140 )
Proceeds from exercise of stock options
    25,845       5,850  
Excess tax benefits from share-based compensation
    4,666       2,003  
                 
Net cash used in financing activities
    (157,205 )     (35,642 )
                 
Effect of exchange rate changes on cash and cash equivalents
    (76,082 )     (3,848 )
                 
Net (decrease) increase in cash and cash equivalents
    (110,001 )     47,880  
                 
Cash and cash equivalents at beginning of period
    450,348       203,991  
                 
Cash and cash equivalents at end of period
  $ 340,347     $ 251,871  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 5 - -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Equity
(In thousands)
(unaudited)
                     
Accumulated
                         
         
Capital in
         
Other
         
Total DENTSPLY
             
   
Common
   
Excess of
   
Retained
   
Comprehensive
   
Treasury
   
International
   
Noncontrolling
   
Total
 
   
Stock
   
Par Value
   
Earnings
   
Income
   
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
    -       -       131,942       -       -       131,942       (1,433 )     130,509  
Other comprehensive income (loss), net of tax:
                                                               
Foreign currency translation adjustments
    -       -       -       9,907       -       9,907       1,245       11,152  
 Net gain on derivative financial instruments
    -       -       -       7,631       -       7,631       -       7,631  
 Unrecognized losses and prior service pension 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  

                     
Accumulated
                         
         
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
    -       -       134,229       -       -       134,229       1,308       135,537  
Other comprehensive income (loss), net of tax:
                                                               
Foreign currency translation adjustments
    -       -       -       (204,568 )     -       (204,568 )     (10,465 )     (215,033 )
Net gain on derivative financial instruments
    -       -       -       63,672       -       63,672       -       63,672  
Unrecognized losses and prior service pension cost, net
    -       -       -       1,676       -       1,676       -       1,676  
                                                                 
Comprehensive Income
                                            (4,991 )     (9,157 )     (14,148 )
                                                                 
Exercise of stock options
    -       (8,213 )     -       -       34,058       25,845       -       25,845  
Tax benefit from stock options exercised
    -       4,666       -       -       -       4,666       -       4,666  
Share based compensation expense
    -       10,238       -       -       -       10,238       -       10,238  
Funding of Employee Stock Option Plan
    -       207       -       -       1,132       1,339       -       1,339  
Treasury shares purchased
    -       -       -       -       (176,630 )     (176,630 )     -       (176,630 )
RSU distributions
    -       (4,234 )     -       -       2,856       (1,378 )     -       (1,378 )
RSU dividends
    -       78       (78 )     -       -       -       -       -  
Cash dividends ($0.10 per share)
    -       -       (15,480 )     -       -       (15,480 )     -       (15,480 )
Balance at June 30, 2010
  $ 1,628     $ 198,237     $ 2,202,130     $ (55,678 )   $ (670,603 )   $ 1,675,714     $ 65,696     $ 1,741,410  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 6 - -

 

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 $10.3 million and $13.3 million at June 30, 2010 and December 31, 2009, respectively.

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance for variable interest entities (“VIE”).  The new guidance includes: (1) the elimination of the exemption from consolidation for qualifying special purpose entities, (2) a new approach for determining the primary beneficiary of a VIE, which requires that the primary beneficiary have both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, and (3) the requirement to continually reassess who should consolidate a VIE.  The 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.

 
- 7 - -

 

  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 six months ended June 30, 2010 and 2009:

   
Three Months Ended
   
Six Months Ended
 
(in millions)
 
2010
   
2009
   
2010
   
2009
 
                         
Stock option expense
  $ 2.9     $ 3.0     $ 5.8     $ 5.9  
RSU expense
    1.8       1.7       3.8       3.2  
Total stock based compensation expense
  $ 4.7     $ 4.7     $ 9.6     $ 9.1  
                                 
Total related tax benefit
  $ 1.5     $ 1.5     $ 2.9     $ 2.6  

The remaining unamortized compensation cost related to non-qualified stock options is $13.6 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.6 years. The unamortized compensation cost related to RSU is $10.2 million, which will be expensed over the remaining restricted period of the RSU, or 1.7 years.

The following table reflects the non-qualified stock option transactions from December 31, 2009 through June 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
    120       35.59                                  
Exercised
    (1,135 )     22.77                                  
Forfeited
    (64 )     34.28                                  
                                                 
June 30, 2010
    10,959     $ 28.96     $ 37,622       7,652     $ 27.43     $ 33,196  

The weighted average remaining contractual term of all outstanding options is 6.3 years and the weighted average remaining contractual term of exercisable options is 5.0 years.

 
- 8 - -

 

The following table summarizes the unvested restricted stock units and RSU dividend transactions from December 31, 2009 through June 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
    250       32.93  
Vested
    (200 )     31.27  
Forfeited
    (6 )     32.59  
                 
Unvested at June 30, 2010
    706     $ 32.48  

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 six months ended June 30, 2010 and 2009 are as follows:

   
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net income
  $ 73,346     $ 70,580     $ 135,537     $ 130,509  
Other comprehensive (loss) income:
                               
Foreign currency translation adjustments
    (137,840 )     91,338       (215,033 )     11,152  
Net gain (loss) on derivative financial instruments
    39,948       (34,840 )     63,672       7,631  
Amortization of unrecognized losses and prior year service pension cost
    913       (851 )     1,676       1,128  
Total other comprehensive (loss) income
    (96,979 )     55,647       (149,685 )     19,911  
                                 
Total comprehensive (loss) income
    (23,633 )     126,227       (14,148 )     150,420  
                                 
Comprehensive (loss) income attributable to the noncontrolling interests
    (5,734 )     6,053       (9,157 )     (187 )
                                 
Comprehensive (loss) income attributable to DENTSPLY
                               
International
  $ (17,899 )   $ 120,174     $ (4,991 )   $ 150,607  

During the quarter ended June 30, 2010, foreign currency translation adjustments included currency translation losses of $134.2 million and losses of $3.6 million on the Company’s loans designated as hedges of net investments.  During the quarter ended June 30, 2009, foreign currency translation adjustments included currency translation gains of $95.6 million and losses of $4.3 million on the Company’s loans designated as hedges of net investments.  During the six months ended June 30, 2010, foreign currency translation adjustments included currency translation losses of $212.3 million and losses of $2.7 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 $5.8 million and gains of $5.4 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. 
 
- 9 - -

 

The balances included in AOCI, net of tax, in the consolidated balance sheets are as follows:

   
June 30,
   
December 31,
 
(in thousands)
 
2010
   
2009
 
             
Foreign currency translation adjustments
  $ 15,548     $ 220,116  
Net loss on derivative financial instruments
    (50,128 )     (113,800 )
Unrecognized losses and prior year service pension cost
    (21,098 )     (22,774 )
    $ (55,678 )   $ 83,542  

The cumulative foreign currency translation adjustments included translation gains of $125.9 million and $327.8 million as of June 30, 2010 and December 31, 2009, respectively, partially offset by losses of $110.4 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 six months ended June 30, 2010 and 2009:

   
Three Months Ended
   
Six Months Ended
 
   
 
2010
   
2009
   
2010
   
2009
 
Basic Earnings Per Common Share Computation
                       
(in thousands, except per share amounts)
                       
                         
Net income attributable to DENTSPLY International
  $ 72,386     $ 70,199     $ 134,229     $ 131,942  
                                 
Common shares outstanding
    144,779       148,577       145,772       148,546  
                                 
Earnings per common share - basic
  $ 0.50     $ 0.47     $ 0.92     $ 0.89  
                                 
Diluted Earnings Per Common Share Computation
                               
(in thousands, except per share amounts)
                               
                                 
Net income attributable to DENTSPLY International
  $ 72,386     $ 70,199     $ 134,229     $ 131,942  
                                 
Common shares outstanding
    144,779       148,577       145,772       148,546  
Incremental shares from assumed exercise of dilutive options
    2,160       1,480       2,276       1,276  
Total shares
    146,939       150,057       148,048       149,822  
                                 
Earnings per common share - diluted
  $ 0.49     $ 0.47     $ 0.91     $ 0.88  

Options to purchase 3.1 million and 3.2 million shares of common stock that were outstanding during the three and six months ended June 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 4.6 million and 7.8 million antidilutive shares of common stock outstanding during the three and six months ended June 30, 2009, respectively.

NOTE 5 – BUSINESS ACQUISITIONS

The acquisition related activity for the six months ended June 30, 2010 of $8.3 million, net of cash acquired, was related to two acquisitions in 2010 and two earn-out payments on acquisitions from 2008 and 2005. The purchase agreement for one acquisition provides for an additional payment to be made based upon the operating performance of the business; however, the Company does not expect the additional payment to be material to the financial statements. The results of operations for the two businesses have been included in the accompanying financial statements since the effective date of the respective transaction. The purchase prices have been allocated on the basis of preliminary estimates of the fair values of assets acquired and liabilities assumed.  As of June 30, 2010, the Company has recorded a total of $4.4 million in goodwill related to the unallocated portions of the respective purchase prices, and all of this goodwill is associated with the Canada/Latin America/Endodontics/Orthodontics segment.

 
- 10 - -

 

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 June 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 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 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 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 the sales and distribution of the Company’s Endodontic products in the United States, Canada, Switzerland, Benelux, Scandinavia, Austria, Latin America and Eastern Europe, and for certain Endodontic products in Germany.  This business group is also responsible for the world-wide sales and distribution, excluding Japan, as well as some manufacturing of the Company’s Orthodontic products. In addition, this business group is also responsible for sales and distribution in the United States for implant and bone substitute/grafting materials and the sales and distribution of implants in Brazil. This business group is also responsible for the manufacture and sale of certain products in the Company’s non-dental business.

 
- 11 - -

 

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; France, Italy, Austria, and certain other Eastern European countries; Asia; and Australia.  This business group is also responsible for most of the Company’s non-dental business.

Significant interdependencies exist among the Company’s operations in certain geographic areas. Inter-group sales are at prices intended to provide a reasonable profit to the manufacturing unit after recovery of all manufacturing costs and to provide a reasonable profit for purchasing locations after coverage of marketing 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 six months ended June 30, 2010 and 2009:

Third Party Net Sales
   
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 137,245     $ 139,600     $ 272,219     $ 264,512  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    121,601       118,860       231,886       223,988  
Canada/Latin America/Endodontics/Orthodontics
    170,715       157,306       327,335       301,986  
Dental Laboratory Business/Implants/Non-Dental
    136,265       137,833       281,375       270,851  
All Other (a)
    (740 )     (767 )     (1,785 )     (1,556 )
Total
  $ 565,086     $ 552,832     $ 1,111,030     $ 1,059,781  

Third Party Net Sales, Excluding Precious Metal Content

   
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 137,245     $ 139,600     $ 272,219     $ 264,512  
France, U.K., Italy and Certain Other European
                               
Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    112,509       109,690       214,718       207,090  
Canada/Latin America/Endodontics/Orthodontics
    170,011       156,558       326,041       300,596  
Dental Laboratory Business/Implants/Non-Dental
    100,255       106,446       205,573       206,534  
All Other (a)
    (740 )     (767 )     (1,785 )     (1,556 )
Total excluding precious metal content
    519,280       511,527       1,016,766       977,176  
Precious metal content
    45,806       41,305       94,264       82,605  
Total including precious metal content
  $ 565,086     $ 552,832     $ 1,111,030     $ 1,059,781  

(a) Includes amounts recorded at Corporate headquarters.

 
- 12 - -

 

Inter-segment Net Sales
   
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 30,846     $ 23,649     $ 57,063     $ 46,729  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    5,037       3,063       8,656       6,447  
Canada/Latin America/Endodontics/Orthodontics
    29,357       24,219       54,677       52,817  
Dental Laboratory Business/Implants/Non-Dental
    30,915       28,193       57,595       55,149  
All Other (a)
    45,081       43,021       89,084       81,347  
Eliminations
    (141,236 )     (122,145 )     (267,075 )     (242,489 )
Total
  $ -     $ -     $ -     $ -  

Segment Operating Income
   
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 49,654     $ 42,824     $ 94,515     $ 76,746  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    5,536       4,624       5,407       7,525  
Canada/Latin America/Endodontics/Orthodontics
    49,141       45,468       97,163       95,525  
Dental Laboratory Business/Implants/Non-Dental
    22,495       23,934       44,957       46,190  
All Other (b)
    (21,614 )     (14,999 )     (42,826 )     (36,390 )
Segment operating income
    105,212       101,851       199,216       189,596  
                                 
Reconciling Items:
                               
Restructuring and other costs
    (243 )     (3,125 )     (4,923 )     (4,695 )
Interest expense
    (6,686 )     (5,268 )     (12,406 )     (11,421 )
Interest income
    827       1,512       1,614       3,468  
Other expense (income), net
    (722 )     50       (1,667 )     (868 )
Income before income taxes
  $ 98,388     $ 95,020     $ 181,834     $ 176,080  

(a) Includes amounts recorded at Corporate headquarters and one distribution warehouse not managed by named segments.
(b) Includes results of Corporate headquarters, inter-segment eliminations and one distribution warehouse not managed by named segments.

 
- 13 - -

 

Assets
   
June 30,
   
December 31,
 
(in thousands)
 
2010
   
2009
 
       
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 565,160     $ 602,272  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    369,423       388,831  
Canada/Latin America/Endodontics/Orthodontics
    833,268       809,924  
Dental Laboratory Business/Implants/Non-Dental
    853,237       973,764  
All Other (a)
    176,179       313,141  
Total
  $ 2,797,267     $ 3,087,932  

(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 June 30, 2010 and December 31, 2009, the cost of $8.1 million, or 2.9%, 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 $31.7 million and $31.9 million as of June 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 June 30, 2010 and December 31, 2009 by $4.2 million and $4.0 million, respectively.

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

   
June 30,
   
December 31,
 
(in thousands)
 
2010
   
2009
 
             
Finished goods
  $ 171,770     $ 178,721  
Work-in-process
    51,389       53,056  
Raw materials and supplies
    61,235       59,863  
    $ 284,394     $ 291,640  

 
- 14 - -

 

NOTE 8 - BENEFIT PLANS

The following sets forth the components of net periodic benefit cost of the Company’s benefit plans and for the Company’s other postretirement employee benefit plans for the three and six months ended June 30, 2010 and 2009, respectively:

Defined Benefit Plans
 
Three Months Ended
   
Six Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Service cost
  $ 1,918     $ 2,061     $ 3,933     $ 4,067  
Interest cost
    2,014       1,979       4,157       3,898  
Expected return on plan assets
    (1,116 )     (981 )     (2,268 )     (1,939 )
Amortization of transition obligation
    28       59       59       116  
Amortization of prior service cost
    24       35       44       69  
Amortization of net loss
    234