Unassociated Document
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C.  20549

FORM 10-Q

x   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

¨    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to _______________

Commission File Number 0-16211

DENTSPLY International Inc.
 (Exact name of registrant as specified in its charter)

Delaware
 
39-1434669
 (State or other jurisdiction of
 
(I.R.S. Employer
incorporation or organization)
 
Identification No.)

221 West Philadelphia Street, York, PA
 
17405-0872
 (Address of principal executive offices)
 
(Zip Code)

(717) 845-7511
(Registrant’s telephone number, including area code)

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

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 October 25, 2010, DENTSPLY International Inc. had 142,099,209 shares of Common Stock outstanding, with a par value of $.01 per share.

 
 

 

DENTSPLY International Inc.

TABLE OF CONTENTS

       
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 Statements 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
 
27
         
Item 3
 
Quantitative and Qualitative Disclosures About Market Risk
 
40
         
Item 4
 
Controls and Procedures
 
40
         
PART II
 
OTHER INFORMATION
   
         
Item 1
 
Legal Proceedings
 
41
         
Item 1A
 
Risk Factors
 
41
         
Item 2
 
Unregistered Sales of Securities and Use of Proceeds
 
41
         
Item 4
 
Submission of Matters to a Vote of Security Holders
 
41
         
Item 6
 
Exhibits
 
41
         
   
Signatures
 
42
         

 
-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
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net sales
  $ 541,815     $ 531,203     $ 1,652,845     $ 1,590,984  
Cost of products sold
    269,001       259,473       810,399       767,854  
                                 
Gross profit
    272,814       271,730       842,446       823,130  
Selling, general and administrative expenses ("SG&A")
    182,057       177,579       552,474       539,383  
Restructuring and other costs
    338       1,210       5,261       5,905  
                                 
Operating income
    90,419       92,941       284,711       277,842  
                                 
Other income and expenses:
                               
Interest expense
    5,999       5,456       18,406       16,877  
Interest income
    (1,268 )     (858 )     (2,883 )     (4,326 )
Other expense (income), net
    585       491       2,252       1,359  
                                 
Income before income taxes
    85,103       87,852       266,936       263,932  
Provision for income taxes
    21,288       19,999       67,585       65,570  
                                 
Net income
    63,815       67,853       199,351       198,362  
Less: Net income (loss) attributable to the noncontrolling interests
    162       370       1,470       (1,062 )
Net income attributable to DENTSPLY International
  $ 63,653     $ 67,483     $ 197,881     $ 199,424  
                                 
Earnings per common share:
                               
Basic
  $ 0.45     $ 0.45     $ 1.37     $ 1.34  
Diluted
  $ 0.44     $ 0.45     $ 1.35     $ 1.33  
                                 
Cash dividends declared per common share
  $ 0.05     $ 0.05     $ 0.15     $ 0.15  
                                 
Weighted average common shares outstanding:
                               
Basic
    142,501       148,547       144,670       148,546  
Diluted
    144,063       150,638       146,679       150,077  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
-3-

 
 
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
(unaudited)
 
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 534,243     $ 450,348  
Accounts and notes receivables-trade, net
    366,789       348,684  
Inventories, net
    318,071       291,640  
Prepaid expenses and other current assets
    112,454       127,124  
                 
Total Current Assets
    1,331,557       1,217,796  
                 
Property, plant and equipment, net
    423,802       439,619  
Identifiable intangible assets, net
    79,701       89,086  
Goodwill, net
    1,304,938       1,312,596  
Other noncurrent assets, net
    55,158       28,835  
                 
Total Assets
  $ 3,195,156     $ 3,087,932  
                 
Liabilities and Equity
               
Current Liabilities:
               
Accounts payable
  $ 100,663     $ 100,847  
Accrued liabilities
    224,624       249,169  
Income taxes payable
    19,335       12,366  
Notes payable and current portion of long-term debt
    7,290       82,174  
                 
Total Current Liabilities
    351,912       444,556  
                 
Long-term debt
    592,376       387,151  
Deferred income taxes
    74,238       72,524  
Other noncurrent liabilities
    300,074       276,743  
                 
Total Liabilities
    1,318,600       1,180,974  
                 
Commitments and contingencies
               
                 
Equity:
               
Preferred stock, $.01 par value; .25 million shares authorized; no shares issued
    -       -  
Common stock, $.01 par value; 200.0 million shares authorized; 162.8 million shares issued at September 30, 2010 and December 31, 2009
    1,628       1,628  
Capital in excess of par value
    202,482       195,495  
Retained earnings
    2,258,531       2,083,459  
Accumulated other comprehensive income (loss)
    41,820       83,542  
Treasury stock, at cost, 20.7 million shares at September 30, 2010 and 15.8 million shares at December 31, 2009
    (700,980 )     (532,019 )
Total DENTSPLY International Equity
    1,803,481       1,832,105  
                 
Noncontrolling interests
    73,075       74,853  
                 
Total Equity
    1,876,556       1,906,958  
                 
Total Liabilities and Equity
  $ 3,195,156     $ 3,087,932  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

-4-

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

   
Nine Months Ended
 
   
September 30,
 
   
2010
   
2009
 
             
Cash flows from operating activities:
           
             
Net income
  $ 199,351     $ 198,362  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    43,022       40,118  
Amortization
    7,097       9,227  
Deferred income taxes
    2,672       9,655  
Share-based compensation expense
    14,769       14,778  
Restructuring and other costs - noncash
    363       328  
Excess tax benefits from share-based compensation
    (4,784 )     (2,921 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts and notes receivable-trade, net
    (16,768 )     (23,166 )
Inventories, net
    (20,799 )     10,670  
Prepaid expenses and other current assets
    (6,305 )     248  
Accounts payable
    (2,390 )     (9,699 )
Accrued liabilities
    13,710       1,621  
Income taxes payable
    10,395       (546 )
Other, net
    8,557       (3,311 )
Net cash provided by operating activities
    248,890       245,364  
                 
Cash flows from investing activities:
               
                 
Capital expenditures
    (29,566 )     (43,282 )
Cash paid for acquisitions of businesses, net of cash acquired
    (21,997 )     (2,986 )
Liquidation of short-term investments
    -       219  
Expenditures for identifiable intangible assets
    (291 )     (128 )
Proceeds from sale of property, plant and equipment, net
    509       2,143  
                 
Net cash used in investing activities
    (51,345 )     (44,034 )
                 
Cash flows from financing activities:
               
                 
Net change in short-term borrowings
    (10,367 )     (1,482 )
Cash paid for treasury stock
    (208,535 )     (21,253 )
Cash dividends paid
    (23,052 )     (22,383 )
Proceeds from long-term borrowings
    363,700       -  
Payments on long-term borrowings
    (240,385 )     (57,150 )
Proceeds from exercise of stock options
    26,932       9,451  
Excess tax benefits from share-based compensation
    4,784       2,921  
                 
Net cash used in financing activities
    (86,923 )     (89,896 )
                 
Effect of exchange rate changes on cash and cash equivalents
    (26,727 )     17,943  
                 
Net increase in cash and cash equivalents
    83,895       129,377  
                 
Cash and cash equivalents at beginning of period
    450,348       203,991  
                 
Cash and cash equivalents at end of period
  $ 534,243     $ 333,368  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
-5-

 

 
DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Equity
(In thousands)
(unaudited)

         
Capital in
         
Accumulated
Other
         
Total DENTSPLY
             
    
Common
   
Excess of
   
Retained
   
Comprehensive
   
Treasury
   
International
   
Noncontrolling
   
Total
 
    
Stock
   
Par Value
   
Earnings
   
Income (Loss)
   
Stock
   
Equity
   
Interests
   
Equity
 
                                                  
Balance at December 31, 2008
  $ 1,628     $ 187,154     $ 1,838,958     $ 39,612     $ (479,630 )   $ 1,587,722     $ 71,691     $ 1,659,413  
Comprehensive Income:
                                                               
Net income
    -       -       199,424       -       -       199,424       (1,062 )     198,362  
Other comprehensive income (loss), net of tax:
                                                               
Foreign currency translation adjustments
    -       -       -       76,518       -       76,518       4,567       81,085  
Net loss on derivative financial instruments
    -       -       -       (21,422 )     -       (21,422 )     -       (21,422 )
Unrecognized losses and prior service pension cost, net
    -       -       -       431       -       431       -       431  
                                                                 
Comprehensive Income
                                            254,951       3,505       258,456  
                                                                 
Exercise of stock options
    -       (8,724 )     -       -       18,175       9,451       -       9,451  
Tax benefit from stock options exercised
    -       2,921       -       -       -       2,921       -       2,921  
Share based compensation expense
    -       14,778       -       -       -       14,778       -       14,778  
Funding of Employee Stock Option Plan
    -       (61 )     -       -       1,408       1,347       -       1,347  
Adjustment from acquisitions
    -       (388 )     -       -       -       (388 )     -       (388 )
Treasury shares purchased
    -       -       -       -       (21,253 )     (21,253 )     -       (21,253 )
RSU dividends
    -       101       (101 )     -       -       -       -       -  
Cash dividends ($0.15 per share)
    -       -       (22,274 )     -       -       (22,274 )     -       (22,274 )
Balance at September 30, 2009
  $ 1,628     $ 195,781     $ 2,016,007     $ 95,139     $ (481,300 )   $ 1,827,255     $ 75,196     $ 1,902,451  

         
Capital in
         
Accumulated
Other
         
Total DENTSPLY
             
    
Common
   
Excess of
   
Retained
   
Comprehensive
   
Treasury
   
International
   
Noncontrolling
   
Total
 
    
Stock
   
Par Value
   
Earnings
   
Income (Loss)
   
Stock
   
Equity
   
Interests
   
Equity
 
                                                  
Balance at December 31, 2009
  $ 1,628     $ 195,495     $ 2,083,459     $ 83,542     $ (532,019 )   $ 1,832,105     $ 74,853     $ 1,906,958  
Comprehensive Income:
                                                               
Net income
    -       -       197,881       -       -       197,881       1,470       199,351  
Other comprehensive income (loss), net of tax:
                                                               
Foreign currency translation adjustments
    -       -       -       (41,699 )     -       (41,699 )     (3,248 )     (44,947 )
Net loss on derivative financial instruments
    -       -       -       (322 )     -       (322 )     -       (322 )
Unrecognized losses and prior service pension cost, net
    -       -       -       299       -       299       -       299  
                                                                 
Comprehensive Income
                                            156,159       (1,778 )     154,381  
                                                                 
Exercise of stock options
    -       (8,577 )     -       -       35,509       26,932       -       26,932  
Tax benefit from stock options exercised
    -       4,784       -       -       -       4,784       -       4,784  
Share based compensation expense
    -       14,769       -       -       -       14,769       -       14,769  
Funding of Employee Stock Option Plan
    -       209       -       -       1,132       1,341       -       1,341  
Treasury shares purchased
    -       -       -       -       (208,535 )     (208,535 )     -       (208,535 )
RSU distributions
    -       (4,313 )     -       -       2,933       (1,380 )     -       (1,380 )
RSU dividends
    -       115       (115 )     -       -       -       -       -  
Cash dividends ($0.15 per share)
    -       -       (22,694 )     -       -       (22,694 )     -       (22,694 )
Balance at September 30, 2010
  $ 1,628     $ 202,482     $ 2,258,531     $ 41,820     $ (700,980 )   $ 1,803,481     $ 73,075     $ 1,876,556  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.
 
 
-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 $11.5 million and $13.3 million at September 30, 2010 and December 31, 2009, respectively.  The decrease in the allowance for doubtful accounts reflects positive collections experience in North America and Europe, reflecting improved global liquidity for our customers.

Variable Interest Entities

In June 2009, the Financial Accounting Standards Board (“FASB”) issued accounting guidance for variable interest entities (“VIE”).  The guidance includes: (1) the elimination of the exemption from consolidation for qualifying special purpose entities, (2) a new approach for determining the primary beneficiary of a VIE, which requires that the primary beneficiary have both (i) the power to control the most significant activities of the VIE and (ii) either the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE, and (3) the requirement to continually reassess who should consolidate a VIE.  The Company adopted this guidance on January 1, 2010, and the adoption did not have a material impact on the Company’s financial position and results of operations.

The Company consolidates all VIE where the Company has determined that it has the power to direct the activities that most significantly impact the VIE’s economic performance and shares in either the significant risks or rewards of the VIE.  The Company continually reassesses VIE to determine if consolidation is appropriate.

Revisions in Classification

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

NOTE 2 – STOCK COMPENSATION

The Company maintains the 2010 Equity Incentive Plan (the “Plan”) under which it may grant non-qualified stock options, incentive stock options, restricted stock, restricted stock units (“RSU”) and stock appreciation rights, collectively referred to as “Awards.”  Awards are granted at exercise prices that are equal to the closing stock price on the date of grant.  The Company authorized grants under the Plan of 13.0 million shares of common stock, plus any unexercised portion of cancelled or terminated stock options granted under the DENTSPLY International Inc. 2002 Equity Incentive Plan, as amended, subject to adjustment as follows:  each January, if 7% of the total outstanding common shares of the Company exceed 13.0 million, the excess becomes available for grant under the Plan.  No more than 2.5 million shares may be awarded as restricted stock and RSU, and no key employee may be granted restricted stock and RSU in excess of approximately 0.2 million shares of common stock in any calendar year.

 
-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 nine months ended September 30, 2010 and 2009:

   
Three Months Ended
   
Nine Months Ended
 
(in millions)
 
2010
   
2009
   
2010
   
2009
 
Stock option expense
  $ 2.4     $ 3.1     $ 8.2     $ 9.0  
RSU expense
    1.8       1.6       5.6       4.8  
Total stock based compensation expense
  $ 4.2     $ 4.7     $ 13.8     $ 13.8  
                                 
Total related tax benefit
  $ 1.2     $ 1.4     $ 2.7     $ 4.0  

The remaining unamortized compensation cost related to non-qualified stock options is $11.0 million, which will be expensed over the weighted average remaining vesting period of the options, or 1.3 years. The unamortized compensation cost related to RSU is $8.5 million, which will be expensed over the remaining restricted period of the RSU, or 1.4 years.

The following table reflects the non-qualified stock option transactions from December 31, 2009 through September 30, 2010:

   
Outstanding
   
Exercisable
 
         
Weighted
               
Weighted
       
         
Average
   
Aggregate
         
Average
   
Aggregate
 
(in thousands,
       
Exercise
   
Intrinsic
         
Exercise
   
Intrinsic
 
except per share data)
 
Shares
   
Price
   
Value
   
Shares
   
Price
   
Value
 
                                     
December 31, 2009
    12,038     $ 28.34     $ 94,148       8,682     $ 26.78     $ 80,839  
Granted
    145       34.65                                  
Exercised
    (1,183 )     22.76                                  
Forfeited
    (162 )     33.93                                  
                                                 
September 30, 2010
    10,838     $ 28.95     $ 51,226       7,611     $ 27.47     $ 44,527  

The weighted average remaining contractual term of all outstanding options is 6.0 years and the weighted average remaining contractual term of exercisable options is 4.7 years.

The following table summarizes the unvested restricted stock units and RSU dividend transactions from December 31, 2009 through September 30, 2010:

   
Unvested Restricted Stock and Stock Dividend Units
 
         
Weighted Average
 
         
Grant Date
 
(in thousands, except per share data)
 
Shares
   
Fair Value
 
       
Unvested at December 31, 2009
    662     $ 31.94  
Granted
    252       32.92  
Vested
    (207 )     31.42  
Forfeited
    (25 )     32.87  
                 
Unvested at September 30, 2010
    682     $ 32.43  
 
 
-8-

 
 
NOTE 3 – COMPREHENSIVE INCOME

The changes to balances included in accumulated other comprehensive income (“AOCI”), net of tax, in the consolidated balance sheets for the three and nine months ended September 30, 2010 and 2009 are as follows:

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
Net income
  $ 63,815     $ 67,853     $ 199,351     $ 198,362  
Other comprehensive income:
                               
Foreign currency translation adjustments
    170,086       69,933       (44,947 )     81,085  
Net loss on derivative financial instruments
    (63,994 )     (29,053 )     (322 )     (21,422 )
Amortization of unrecognized losses and prior year service pension cost
    (1,377 )     (697 )     299       431  
Total other comprehensive income (loss)
    104,715       40,183       (44,970 )     60,094  
                                 
Total comprehensive income
    168,530       108,036       154,381       258,456  
                                 
Comprehensive income (loss) attributable to the noncontrolling interests
    7,379       3,692       (1,778 )     3,505  
                                 
Comprehensive income attributable to DENTSPLY International
  $ 161,151     $ 104,344     $ 156,159     $ 254,951  

During the quarter ended September 30, 2010, foreign currency translation adjustments included currency translation gains of $175.9 million and losses of $5.8 million on the Company’s loans designated as hedges of net investments.  During the quarter ended September 30, 2009, foreign currency translation adjustments included currency translation gains of $77.6 million partially offset by losses of $7.7 million on the Company’s loans designated as hedges of net investments.  During the nine months ended September 30, 2010, foreign currency translation adjustments included currency translation losses of $36.4 million and losses of $8.5 million on the Company’s loans designated as hedges of net investments.  During the nine months ended September 30, 2009, foreign currency translation adjustments included currency translation gains of $83.4 million offset by losses of $2.3 million on the Company’s loans designated as hedges of net investments.  These foreign currency translation adjustments were offset by net gains on derivative financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

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

   
 
September 30,
   
December 31,
 
(in thousands)
 
2010
   
2009
 
   
           
Foreign currency translation adjustments
  $ 178,417     $ 220,116  
Net loss on derivative financial instruments
    (114,122 )     (113,800 )
Unrecognized losses and prior year service pension cost
    (22,475 )     (22,774 )
   
  $ 41,820     $ 83,542  

The cumulative foreign currency translation adjustments included translation gains of $297.8 million and $327.8 million as of September 30, 2010 and December 31, 2009, respectively, partially offset by losses of $119.4 million and $107.7 million, respectively, on loans designated as hedges of net investments.  These foreign currency translation adjustments were offset by net losses on derivatives financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

 
-9-

 

 
NOTE 4 - EARNINGS PER COMMON SHARE

The dilutive effect of outstanding options and restricted stock is reflected in diluted earnings per share by application of the treasury stock method. The following table sets forth the computation of basic and diluted earnings per common share for the three and nine months ended September 30, 2010 and 2009:

   
Three Months Ended
   
Nine Months Ended
 
Basic Earnings Per Common Share Computation
                       
(in thousands, except per share amounts)
 
2010
   
2009
   
2010
   
2009
 
                         
Net income attributable to DENTSPLY International
  $ 63,653     $ 67,483     $ 197,881     $ 199,424  
                                 
Common shares outstanding
    142,501       148,547       144,670       148,546  
                                 
Earnings per common share - basic
  $ 0.45     $ 0.45     $ 1.37     $ 1.34  
                                 
Diluted Earnings Per Common Share Computation
                               
(in thousands, except per share amounts)
                               
                                 
Net income attributable to DENTSPLY International
  $ 63,653     $ 67,483     $ 197,881     $ 199,424  
                                 
Common shares outstanding
    142,501       148,547       144,670       148,546  
Incremental shares from assumed exercise of dilutive options
    1,562       2,091       2,009       1,531  
Total shares
    144,063       150,638       146,679       150,077  
                                 
Earnings per common share - diluted
  $ 0.44     $ 0.45     $ 1.35     $ 1.33  

Options to purchase 4.3 million and 3.3 million shares of common stock that were outstanding during the three and nine months ended September 30, 2010, respectively, were not included in the computation of diluted earnings per share since the options’ exercise prices were greater than the average market price of the common shares and, therefore, the effect would be antidilutive.  There were 1.5 million and 4.5 million antidilutive shares of common stock outstanding during the three and nine months ended September 30, 2009, respectively.

NOTE 5 – BUSINESS ACQUISITIONS

The acquisition related activity for the nine months ended September 30, 2010 of $22.0 million, net of cash acquired, was related to several acquisitions in 2010 and earn-out payments on prior acquisitions. The purchase agreements for two of the acquisitions provide for additional payments to be made based upon the operating performance of the respective businesses; however, the Company does not expect the additional payments to be material to the financial statements. The results of operations for these businesses have been included in the accompanying financial statements since the effective date of the respective transactions. The purchase prices have been allocated on the basis of preliminary estimates of the fair values of assets acquired and liabilities assumed.  As of September 30, 2010, the Company has recorded a total of $14.3 million in goodwill related to the unallocated portions of the respective purchase prices, and most of this goodwill is associated with the Canada/Latin America/Endodontics/Orthodontics segment with the remaining portion being included in the Dental Laboratory Business/Implants/Non-Dental segment.

As discussed in Note 1, Significant Accounting Policies, the Company adopted the accounting guidance for VIE.  The adoption has not changed the Company’s prior conclusion that all current VIE should be consolidated.  Under the new accounting guidance for VIE, the Company believes it is the primary beneficiary for all the VIE since the Company directs the activities that most significantly impacts the economic performance of the VIE and has the obligation to absorb losses and the right to receive benefits that could potentially be significant to the VIE.  The consolidation of the VIE net assets is immaterial to the Company’s financial position with most of the net assets recorded in goodwill and identifiable intangible assets.

NOTE 6 - SEGMENT INFORMATION

The Company has numerous operating businesses covering a wide range of products and geographic regions, primarily serving the professional dental market. Professional dental products represented approximately 97% of sales for the periods ended September 30, 2010 and 2009.

 
-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 Company’s reportable segments as the Company’s chief operating decision-maker regularly reviews financial results at the operating group level and uses this information to manage the Company’s operations. The accounting policies of the groups are consistent with those described in the Company’s most recently filed Form10-K in the summary of significant accounting policies.  The Company measures segment income for reporting purposes as operating income before restructuring and other costs, interest expense, interest income, other income and expenses and income taxes.

United States, Germany and Certain Other European Regions Consumable Businesses

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

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

This business group includes responsibility for the sales and distribution for certain small equipment, chairside consumable products, certain laboratory products and certain Endodontic products in France, United Kingdom, Italy, the Commonwealth of Independent States (“CIS”), Middle East, Africa, Asia (excluding Japan), Japan and Australia, as well as the sale and distribution of implant products and bone substitute/grafting materials in France, Italy, Asia and Australia. This business group also includes the responsibility for sales and distribution for certain laboratory products, implants products and bone substitution/grafting materials for Austria.  It also is responsible for sales and distribution of certain small equipment and chairside consumable products, certain laboratory products, implant products and bone substation/grafting materials in certain other European countries.  In addition this business group also includes the manufacturing and sale of Orthodontic products and certain laboratory products in Japan, and the manufacturing of certain laboratory and certain Endodontic products in Asia.

Canada/Latin America/Endodontics/Orthodontics

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

Dental Laboratory Business/Implants/Non-Dental

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

Significant interdependencies exist among the Company’s operations in certain geographic areas. Inter-group sales are at prices intended to provide a reasonable profit to the manufacturing unit after recovery of all manufacturing costs and to provide a reasonable profit for purchasing locations after coverage of marketing and general and administrative costs.

Generally, the Company evaluates performance of the operating groups based on the groups’ operating income, excluding restructuring and other costs, and net third party sales, excluding precious metal content.

 
-11-

 

The following tables set forth information about the Company’s operating groups for the three and nine months ended September 30, 2010 and 2009:

Third Party Net Sales

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 139,137     $ 142,983     $ 411,356     $ 407,495  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    114,338       112,196       346,224       336,184  
Canada/Latin America/Endodontics/ Orthodontics
    159,238       149,907       486,573    
451,893
 
Dental Laboratory Business/ Implants/Non-Dental
    129,809       126,759       411,185       397,610  
All Other (a)
    (707 )     (642 )     (2,493 )     (2,198 )
Total
  $ 541,815     $ 531,203     $ 1,652,845     $ 1,590,984  

Third Party Net Sales, Excluding Precious Metal Content

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 139,137     $ 142,983     $ 411,356     $ 407,495  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    106,499       104,008       320,606       311,098  
Canada/Latin America/Endodontics/ Orthodontics
    158,682       149,219       484,723       449,815  
Dental Laboratory Business/ Implants/Non-Dental
    90,735       98,250       296,309       304,784  
All Other (a)
    (707 )     (642 )     (2,493 )     (2,198 )
Total excluding precious metal content
    494,346       493,818       1,510,501       1,470,994  
Precious metal content
    47,469       37,385       142,344       119,990  
Total including precious metal content
  $ 541,815     $ 531,203     $ 1,652,845     $ 1,590,984  

Inter-segment Net Sales
   
Three Months Ended
    Nine Months Ended  
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 30,940     $ 27,759     $ 88,003     $ 74,488  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    3,396       2,590       12,052       9,037  
Canada/Latin America/Endodontics/ Orthodontics
    31,187       24,424       85,864       77,241  
Dental Laboratory Business/ Implants/Non-Dental
    25,355       27,823       82,950       82,972  
All Other (b)
    43,218       42,914       132,302       124,261  
Eliminations
    (134,096 )     (125,510 )     (401,171 )     (367,999 )
Total
  $ -     $ -     $ -     $ -  

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

 
-12-

 
  
Segment Operating Income
   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2010
   
2009
   
2010
   
2009
 
                         
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 53,164     $ 49,034     $ 147,679     $ 125,780  
France, U.K., Italy and Certain Other European Countries, CIS, Middle East, Africa, Pacific Rim Businesses
    3,892       3,743       9,299       11,268  
Canada/Latin America/Endodontics/ Orthodontics
    44,910       39,543       142,073       135,068  
Dental Laboratory Business/ Implants/Non-Dental
    14,691       19,032       59,648       65,222  
All Other (a)
    (25,900 )     (17,201 )     (68,727 )     (53,591 )
Segment operating income
    90,757       94,151       289,972       283,747  
                                 
Reconciling Items:
                               
Restructuring and other costs
    (338 )     (1,210 )     (5,261 )     (5,905 )
Interest expense
    (5,999 )     (5,456 )     (18,406 )     (16,877 )
Interest income
    1,268       858       2,883       4,326  
Other expense (income), net
    (585 )     (491 )     (2,252 )     (1,359 )
Income before income taxes
  $ 85,103     $ 87,852     $ 266,936     $ 263,932  

Assets
           
   
September 30,
   
December 31,
 
(in thousands)
 
2010
   
2009
 
             
U.S., Germany and Certain Other European
           
Regions Consumable Businesses
  $ 604,496     $ 602,272  
France, U.K., Italy and Certain Other European
               
Countries, CIS, Middle East, Africa,
               
Pacific Rim Businesses
    395,587       388,831  
Canada/Latin America/Endodontics/