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, 2011

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, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer” and “accelerated filer” and “smaller reporting company” 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 Exchange 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 28, 2011, DENTSPLY International Inc. had 141,556,103 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
35
     
Item 3
Quantitative and Qualitative Disclosures About Market Risk
54
     
Item 4
Controls and Procedures
54
     
PART II
OTHER INFORMATION
 
     
Item 1
Legal Proceedings
54
     
Item 1A
Risk Factors
55
     
Item 2
Unregistered Sales of Securities and Use of Proceeds
56
     
Item 4
Submission of Matters to a Vote of Security Holders
56
     
Item 6
Exhibits
57
     
 
Signatures
57

 
- 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,
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net sales
  $ 619,759     $ 541,815     $ 1,799,705     $ 1,652,845  
Cost of products sold
    322,111       269,001       887,222       810,399  
                                 
Gross profit
    297,648       272,814       912,483       842,446  
Selling, general and administrative expenses
    231,493       182,057       643,244       552,474  
Restructuring and other costs
    26,353       338       33,849       5,261  
                                 
Operating income
    39,802       90,419       235,390       284,711  
                                 
Other income and expenses:
                               
Interest expense
    16,062       5,999       27,975       18,406  
Interest income
    (2,418 )     (1,268 )     (6,676 )     (2,883 )
Other expense (income), net
    7,182       585       8,686       2,252  
                                 
Income before income taxes
    18,976       85,103       205,405       266,936  
(Benefit) provision for income taxes
    (40,627 )     21,288       1,042       67,585  
Equity in net income of unconsolidated affiliated company
    1,597       -       1,690       -  
                                 
Net income
    61,200       63,815       206,053       199,351  
Less: Net income attributable to noncontrolling interests
    603       162       2,136       1,470  
                                 
Net income attributable to DENTSPLY International
  $ 60,597     $ 63,653     $ 203,917     $ 197,881  
                                 
Earnings per common share:
                               
Basic
  $ 0.43     $ 0.45     $ 1.44     $ 1.37  
Diluted
  $ 0.42     $ 0.44     $ 1.42     $ 1.35  
                                 
Weighted average common shares outstanding:
                               
Basic
    141,349       142,501       141,337       144,670  
Diluted
    143,395       144,063       143,578       146,679  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 3 -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
(unaudited)

   
September 30,
   
December 31,
 
   
2011
   
2010
 
Assets
           
Current Assets:
           
Cash and cash equivalents
  $ 81,866     $ 540,038  
Accounts and notes receivables-trade, net
    475,947       344,796  
Inventories, net
    391,528       308,738  
Prepaid expenses and other current assets
    140,264       121,473  
                 
Total Current Assets
    1,089,605       1,315,045  
                 
Property, plant and equipment, net
    569,853       423,105  
Identifiable intangible assets, net
    808,038       78,743  
Goodwill, net
    2,208,906       1,303,055  
Other noncurrent assets, net
    157,309       138,003  
                 
Total Assets
  $ 4,833,711     $ 3,257,951  
                 
Liabilities and Equity
               
Current Liabilities:
               
Accounts payable
  $ 133,200     $ 114,479  
Accrued liabilities
    323,141       224,745  
Income taxes payable
    10,775       13,113  
Notes payable and current portion of long-term debt
    45,573       7,754  
                 
Total Current Liabilities
    512,689       360,091  
                 
Long-term debt
    1,793,979       604,015  
Deferred income taxes
    242,162       72,489  
Other noncurrent liabilities
    394,467       311,444  
                 
Total Liabilities
    2,943,297       1,348,039  
                 
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, 2011 and December 31, 2010
    1,628       1,628  
Capital in excess of par value
    231,825       204,902  
Retained earnings
    2,502,945       2,320,350  
Accumulated other comprehensive (loss) income
    (146,683 )     24,156  
Treasury stock, at cost, 21.4 million shares at September 30, 2011 and 21.0 million shares at December 31, 2010
    (736,023 )     (711,650 )
Total DENTSPLY International Equity
    1,853,692       1,839,386  
                 
Noncontrolling interests
    36,722       70,526  
                 
Total Equity
    1,890,414       1,909,912  
                 
Total Liabilities and Equity
  $ 4,833,711     $ 3,257,951  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 4 -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except per share amounts)
(unaudited)

   
Nine Months Ended
 
   
September 30,
 
   
2011
   
2010
 
             
Cash flows from operating activities:
           
             
Net income
  $ 206,053     $ 199,351  
                 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    47,058       43,022  
Amortization
    16,830       7,097  
Deferred income taxes
    (28,953 )     9,840  
Share-based compensation expense
    15,659       14,769  
Restructuring and other costs - noncash
    725       363  
Excess tax benefits from share-based compensation
    (6,704 )     (4,784 )
Changes in operating assets and liabilities, net of acquisitions:
               
Accounts and notes receivable-trade, net
    (27,005 )     (16,768 )
Inventories, net
    (2,609 )     (20,799 )
Prepaid expenses and other current assets
    (8,016 )     (6,305 )
Accounts payable
    4,668       (2,390 )
Accrued liabilities
    34,959       13,710  
Income taxes payable
    (4,701 )     10,395  
Other, net
    4,181       8,557  
                 
Net cash provided by operating activities
    252,145       256,058  
                 
Cash flows from investing activities:
               
                 
Capital expenditures
    (45,458 )     (29,566 )
Cash paid for acquisitions of businesses, net of cash acquired
    (1,797,919 )     (21,997 )
Payments on settlements of net investment hedges
    (2,462 )     (18,569 )
Expenditures for identifiable intangible assets
    (337 )     (291 )
Proceeds from sale of property, plant and equipment, net
    593       509  
                 
Net cash used in investing activities
    (1,845,583 )     (69,914 )
                 
Cash flows from financing activities:
               
                 
Net change in short-term borrowings
    413       (10,367 )
Cash paid for treasury stock
    (79,500 )     (208,535 )
Cash dividends paid
    (21,512 )     (23,052 )
Cash paid for contingent consideration on prior acquisitions
    (1,780 )     -  
Cash paid for acquisition of noncontrolling interests of consolidated subsidiaries
    (16,431 )     -  
Proceeds from long-term borrowings
    1,446,414       363,700  
Repayments of long-term borrowings
    (251,336 )     (240,385 )
Payment on terminated derivative instruments
    (34,628 )     -  
Proceeds from exercise of stock options
    36,293       26,932  
Excess tax benefits from share-based compensation
    6,704       4,784  
                 
Net cash provided by (used in) financing activities
    1,084,637       (86,923 )
                 
Effect of exchange rate changes on cash and cash equivalents
    50,629       (15,326 )
                 
Net decrease in cash and cash equivalents
    (458,172 )     83,895  
                 
Cash and cash equivalents at beginning of period
    540,038       450,348  
                 
Cash and cash equivalents at end of period
  $ 81,866     $ 534,243  

See accompanying Notes to Unaudited Interim Consolidated Financial Statements.

 
- 5 -

 

DENTSPLY INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Statements 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 (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 )
Pension liability adjustments
    -       -       -       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 Ownership 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  

                      
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, 2010
  $ 1,628     $ 204,902     $ 2,320,350     $ 24,156     $ (711,650 )   $ 1,839,386     $ 70,526     $ 1,909,912  
Comprehensive Income:
                                                               
Net income
    -       -       203,917       -       -       203,917       2,136       206,053  
Other comprehensive income (loss), net of tax:
                                                               
Foreign currency translation adjustments
    -       -       -       (127,859 )     -       (127,859 )     1,242       (126,617 )
Net loss on derivative financial instruments
    -       -       -       (30,288 )     -       (30,288 )     -       (30,288 )
Net unrealized holding gains on available-for-sale adjustments
    -       -       -       (11,167 )     -       (11,167 )     -       (11,167 )
Pension liability adjustments
    -       -       -       337       -       337       -       337  
                                                                 
Comprehensive Income
                                            34,940       3,378       38,318  
                                                                 
Acquisition of noncontrolling interest
    -       22,439       -       (1,862 )     -       20,577       (37,008 )     (16,431 )
Exercise of stock options
    -       (12,439 )     -       -       48,982       36,543       -       36,543  
Tax benefit from stock options exercised
    -       6,704       -       -       -       6,704       -       6,704  
Share based compensation expense
    -       15,410       -       -       -       15,410       -       15,410  
Funding of Employee Stock Ownership Plan
    -       379       -       -       2,595       2,974       -       2,974  
Treasury shares purchased
    -       -       -       -       (79,500 )     (79,500 )     -       (79,500 )
Dividends paid by noncontrolling interest
    -       -       -               -       -       (174 )     (174 )
RSU distributions
    -       (5,707 )     -       -       3,550       (2,157 )     -       (2,157 )
RSU dividends
    -       137       (137 )     -       -       -       -       -  
Cash dividends ($0.15 per share)
    -       -       (21,185 )     -       -       (21,185 )     -       (21,185 )
Balance at September 30, 2011
  $ 1,628     $ 231,825     $ 2,502,945     $ (146,683 )   $ (736,023 )   $ 1,853,692     $ 36,722     $ 1,890,414  

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 United States 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, 2010.

The accompanying unaudited interim consolidated statements of operations for the three and nine months ended September 30, 2011 include the results of operations for Astra Tech AB (“Astra Tech”) for the period September 1, 2011 to September 30, 2011.  The accompanying unaudited interim consolidated balance sheet at September 30, 2011 includes Astra Tech’s acquired assets and assumed liabilities.

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, 2010, except as may be indicated below:

Accounts and Notes Receivable-Trade, Net

The Company sells dental products through a worldwide network of distributors and directly to end users.  For customers on credit terms, the Company performs ongoing credit evaluation of those customers' financial condition and generally does not require collateral from them.  The Company establishes allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments based on historical averages of aged receivable balances and the Company’s experience in collecting those balances, customer specific circumstances, as well as changes in the economic and political environments.  The Company records a provision for doubtful accounts, which is included in “Selling, general and administrative expenses.”

Accounts and notes receivables – trade, net are stated net of allowances for doubtful accounts and trade discounts, which were $17.8 million and $9.6 million at September 30, 2011 and December 31, 2010, respectively.

Litigation

The Company and its subsidiaries are from time to time parties to lawsuits arising out of their respective operations.  The Company records liabilities when a loss is probable and can be reasonably estimated.  These estimates are typically in the form of ranges, and the Company records the liabilities at the low point of the ranges, when no other point within the ranges are a better estimate of the probable loss.  The ranges established by management are based on analysis made by internal and external legal counsel who considers information known at the time.  If the Company determines a liability to be only reasonably possible, it considers the same information to estimate the possible exposure and discloses any material potential liability.  These loss contingencies are monitored regularly for a change in fact or circumstance that would require an accrual adjustment.  The Company believes it has estimated liabilities for probable losses appropriately in the past; however, the unpredictability of litigation and court decisions could cause a liability to be incurred in excess of estimates.  Legal costs related to these lawsuits are expensed as incurred.

Marketable Securities

The Company’s marketable securities consist of debt instruments that are classified as available-for-sale in “Other noncurrent assets, net” on the consolidated balance sheets as the instruments mature in December 2015. The Company determined the appropriate classification at the time of purchase and will re-evaluate such designation as of each balance sheet date. In addition, the Company reviews the securities each quarter for indications of possible impairment. Once identified, the determination of whether the impairment is temporary or other-than-temporary requires significant judgment. The primary factors that the Company considers in classifying the impairment include the extent and time the fair value of each investment has been below cost and the existence of a credit loss. If a decline in fair value is judged other-than-temporary, the basis of the securities is written down to fair value and the amount of the write-down is included as a realized loss.

 
- 7 -

 
 
On December 9, 2010, the Company invested $49.7 million in the corporate convertible bonds of DIO Corporation (“DIO”), which may be converted into common shares after a one year period.  The bonds are designated by the Company as available-for-sale securities which are reported in, “Other noncurrent assets, net,” on the consolidated balance sheets and the changes in fair value are reported in accumulated other comprehensive income (“AOCI”).  The convertible feature of the bond has not been bifurcated from the underlying bond as the feature does not contain a net-settlement feature, nor would the Company be able to achieve a hypothetical net-settlement that would substantially place the Company in a comparable cash settlement position.  As such, the derivative is not accounted for separately from the bond.  The cash paid by the Company is equal to the face value of the bonds issued by DIO, and therefore, the Company has not recorded any bond premium or discount on acquiring the bonds.  The fair value of the DIO bond was $50.2 million and $66.0 million at September 30, 2011 and December 31, 2010, respectively.  At September 30, 2011, an unrealized holding loss of $0.1 million on available-for-sale securities, net of tax, had been recorded in AOCI.  At December 31, 2010, an unrealized holding gain of $11.0 million on available-for-sale securities, net of tax, had been recorded in AOCI. The contractual maturity of the bond is in December 2015.

Revenue Recognition

Certain of the Company’s customers are offered cash rebates based on targeted sales increases.  Estimates of rebates are based on the forecasted performance of the customer and their expected level of achievement within the rebate programs.  In accounting for these rebate programs, the Company records an accrual as a reduction of net sales as sales take place over the period the rebate is earned.  The Company revises the accruals for these rebate programs as actual results and revised forecasts impact the estimated achievement for customers within the rebate programs.
 
Business Acquisitions
 
The Company acquires businesses as well as partial interests in businesses.  Acquired businesses are accounted for using the acquisition method of accounting which requires the Company to record assets acquired and liabilities assumed at their respective fair values with the excess of the purchase price over estimated fair values recorded as goodwill.  The assumptions made in determining the fair value of acquired assets and assumed liabilities as well as asset lives can materially impact the results of operations.
 
The Company obtains information during due diligence and through other sources to establish respective fair values. Examples of factors and information that the Company uses to determine the fair values include: tangible and intangible asset evaluations and appraisals; evaluations of existing contingencies and liabilities and product line integration information.  If the initial valuation for an acquisition is incomplete by the end of the quarter in which the acquisition occurred, the Company will record a provisional estimate in the financial statements.  The provisional estimate will be finalized as soon as information becomes available but will only occur up to one year from the acquisition date.
 
New Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) amended its rules regarding the presentation of comprehensive income.  The objective of this amendment is to improve the comparability, consistency and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income.  Specifically, this amendment requires that all non-owner changes in shareholders’ equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements.  The new rules will become effective during interim and annual periods beginning after December 15, 2011.  Because the standard only impacts the display of comprehensive income and does not impact what is included in comprehensive income, the standard will not have a significant impact on our Consolidated Financial Statements.

In September 2011, the FASB issued Accounting Standards Update (ASU) No. 2011-08, “Intangibles – Goodwill and Other (Topic 350): Testing Goodwill for Impairment” (ASU 2011-08). This newly issued accounting standard is intended to reduce the cost and complexity of the annual goodwill impairment test by providing entities an option to perform a "qualitative" assessment to determine whether further impairment testing is necessary. Under the revised standard, an entity has the option to first assess qualitative factors to determine whether it is necessary to perform the current two-step impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required; otherwise, no further testing is required. Prior to the issuance of the revised standard, an entity was required to perform step one of the impairment test at least annually by calculating and comparing the fair value of a reporting unit to its carrying amount. Under the revised standard, if an entity determines that step one is necessary and the fair value of the reporting unit is less than its carrying amount, then step two of the test will continue to be required to measure the amount of the impairment loss, if any. These amendments do not change the current guidance for testing other indefinite-lived intangible assets for impairment. This ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this standard will not impact the Company’s financial position or results of operations.

 
- 8 -

 

Revision of Cash Flow

The Company revised certain items in the unaudited consolidated statement of cash flows for the nine months ended September 30, 2010 to correct an error in classification of settlements of certain derivative instruments designated as net investment hedges.  These settlements were made during the three months ended March 31, 2010 and were reflected incorrectly in the consolidated statement of cash flow at that time as well as the periods of six months ended June 30, 2010, nine months ended September 30, 2010 and full year ended December 31, 2010.  The revisions of cash flow classifications in the unaudited consolidated statement of cash flows had no impact to the Company’s unaudited consolidated statement of operations or consolidated balance sheet for any of the periods noted above.  Additionally, the revisions did not impact the Company’s previously issued disclosures about compliance with respect to debt covenant calculations for any of the relevant periods.  The Company has concluded that the revisions were not material to previously issued consolidated financial statements.  As a result of the incorrect classification, the Company has made the following reclassification in the unaudited consolidated statement of cash flows:

 
·
For the nine months ended September 30, 2010, the total amount of $18.6 million was reclassified from effects of exchange rate changes on cash and cash equivalents of $11.4 million and cash flows from operating activities of $7.2 million to cash outflows from investing activities to reflect the payments on settlement of net investment hedges. These adjustments are also applicable to the unaudited consolidated statement of cash flows for the three months ended March 31, 2010 and the six months ended June 30, 2010.

 
·
For the year ended December 31, 2010, the total amount of $35.0 million was reclassified from effects of exchange rate changes on cash and cash equivalents of $21.5 million and cash flows from operating activities of $13.5 million to cash outflows from investing activities to reflect the payments on settlement of net investment hedges.

Revisions in Classification

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

NOTE 2 – STOCK COMPENSATION

The following table represents total stock based compensation expense for non-qualified stock options, restricted stock units (“RSU”) and the tax related benefit for the three and nine months ended September 30, 2011 and 2010:

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
Stock option expense
  $ 2,833     $ 2,413     $ 8,206     $ 8,249  
RSU expense
    2,204       1,794       6,551       5,562  
Total stock based compensation expense
  $ 5,037     $ 4,207     $ 14,757     $ 13,811  
                                 
Total related tax benefit
  $ 1,430     $ 1,240     $ 4,302     $ 2,747  

The remaining unamortized compensation cost related to non-qualified stock options is $14.3 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 $12.1 million, which will be expensed over the remaining restricted period of the RSU, or 1.4 years.

 
- 9 -

 

The following table reflects the non-qualified stock option transactions from December 31, 2010 through September 30, 2011:
   
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, 2010
    10,636     $ 29.07     $ 66,722       8,815     $ 28.58     $ 61,450  
Granted
    1,492       36.71                                  
Exercised
    (1,610 )     22.54                                  
Cancelled
    (50 )     45.15                                  
Forfeited
    (59 )     31.85                                  
                                                 
September 30, 2011
    10,409     $ 31.08     $ 26,671       7,276     $ 29.87     $ 24,173  

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 4.8 years.

The following table summarizes the unvested RSU transactions from December 31, 2010 through September 30, 2011:
         
Weighted Average
 
         
Grant Date
 
(in thousands, except per share data)
 
Shares
   
Fair Value
 
             
Unvested at December 31, 2010
    744     $ 32.43  
Granted
    361       36.61  
Vested
    (174 )     41.03  
Forfeited
    (19 )     30.37  
                 
Unvested at September 30, 2011
    912     $ 32.48  

 
- 10 -

 

NOTE 3 – COMPREHENSIVE INCOME

The changes to balances included in AOCI, net of tax, in the consolidated balance sheets for the three and nine months ended September 30, 2011 and 2010 are as follows:

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                         
Net income
  $ 61,200     $ 63,815     $ 206,053     $ 199,351  
Other comprehensive income (loss):
                               
Foreign currency translation adjustments
    (279,384 )     170,086       (126,617 )     (44,947 )
Net gain (loss) on derivative financial instruments
    33,115       (63,994 )     (30,288 )     (322 )
Net unrealized holding losses on available-for-sale securities
    (9,136 )     -       (11,167 )     -  
Amortization of unrecognized gains (losses) and prior year service pension cost
    2,370       (1,377 )     337       299  
Total other comprehensive income (loss)
    (253,035 )     104,715       (167,735 )     (44,970 )
                                 
Total comprehensive income (loss)
    (191,835 )     168,530       38,318       154,381  
                                 
Comprehensive income (loss) attributable to the noncontrolling interests
    (4,098 )     7,379       3,378       (1,778 )
                                 
Comprehensive income (loss) attributable to DENTSPLY International
  $ (187,737 )   $ 161,151     $ 34,940     $ 156,159  

During the quarter ended September 30, 2011, foreign currency translation adjustments included currency translation losses of $256.1 million and losses on the Company’s loans designated as hedges of net investments of $21.9 million.  During the quarter ended September 30, 2010, foreign currency translation adjustments included currency translation gains of $175.9 million and losses on the Company’s loans designated as hedges of net investments of $5.8 million.  During the nine months ended September 30, 2011, foreign currency translation adjustments included currency translation losses of $115.4 million and losses on the Company’s loans designated as hedges of net investments of $11.2 million.  During the nine months ended September 30, 2010, foreign currency translation adjustments included currency translation losses of $36.4 million and losses on the Company’s loans designated as hedges of net investments of $8.5 million.  These foreign currency translation adjustments were offset by movements 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)
 
2011
   
2010
 
             
Foreign currency translation adjustments
  $ 42,738     $ 170,597  
Net loss on derivative financial instruments
    (156,936 )     (126,648 )
Net unrealized holding gains on available-for-sale securities
    (138 )     11,029  
Pension liability adjustments
    (30,485 )     (30,822 )
Foreign currency translation related to acquisition of noncontrolling interests
    (1,862 )     -  
    $ (146,683 )   $ 24,156  

The cumulative foreign currency translation adjustments included translation gains of $177.9 million and $294.6 million at September 30, 2011 and December 31, 2010, respectively, partially offset by losses of $135.1 million and $124.0 million, respectively, on loans designated as hedges of net investments.  These foreign currency translation adjustments were offset by movements on derivatives financial instruments, which are discussed in Note 10, Financial Instruments and Derivatives.

 
- 11 -

 

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, 2011 and 2010:

   
Three Months Ended
   
Nine Months Ended
 
Basic Earnings Per Common Share Computation
                       
(in thousands, except per share amounts)
 
2011
   
2010
   
2011
   
2010
 
                         
Net income attributable to DENTSPLY International
  $ 60,597     $ 63,653     $ 203,917     $ 197,881  
                                 
Common shares outstanding
    141,349       142,501       141,337       144,670  
                                 
Earnings per common share - basic
  $ 0.43     $ 0.45     $ 1.44     $ 1.37  
                                 
Diluted Earnings Per Common Share Computation
                               
(in thousands, except per share amounts)
                               
                                 
Net income attributable to DENTSPLY International
  $ 60,597     $ 63,653     $ 203,917     $ 197,881  
                                 
Common shares outstanding
    141,349       142,501       141,337       144,670  
Incremental shares from assumed exercise of dilutive options from stock-based compensation awards
    2,046       1,562       2,241       2,009  
Total shares
    143,395       144,063       143,578       146,679  
                                 
Earnings per common share - diluted
  $ 0.42     $ 0.44     $ 1.42     $ 1.35  

Options to purchase 3.2 million and 3.5 million shares of common stock that were outstanding during the three and nine months ended September 30, 2011, 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 4.3 million and 3.3 million antidilutive shares of common stock outstanding during the three and nine months ended September 30, 2010, respectively.

NOTE 5 – BUSINESS ACQUISITIONS

The acquisition related activity for the nine months ended September 30, 2011 of $1.8 billion, net of cash acquired of $23.4 million, was related to six acquisitions and two earn-out payments for acquisitions completed during or prior to 2010.

On August 31, 2011, the Company acquired 100% of the outstanding common shares of Astra Tech using the available cash on hand and debt financing discussed in Note 13, Financing Arrangements.  Astra Tech is a leading developer, manufacturer and marketer of dental implants, customized implant abutments and consumable medical devices in the urology and surgery market segments.

This transaction strengthens the Company’s leadership position in the global dental market as well as provides additional growth opportunities within the broader medical devices category.

The Astra Tech acquisition was recorded in accordance with the business combinations provisions of US GAAP.  The Company has preliminarily valued tangible and identifiable intangible assets acquired based on their estimated fair values.  The Company is in the process of completing the valuation of identifiable assets acquired and liabilities assumed and, therefore, the fair values set forth below are subject to adjustment upon finalizing the valuations. In addition, completion of the valuation may impact the assessment of the net deferred tax liability currently recognized with any adjustment resulting in a corresponding change to goodwill. The amount of these potential adjustments could be significant.

 
- 12 -

 

The following table summarizes the preliminary fair value of identifiable assets and liabilities assumed at the date of the Astra Tech acquisition:
(in thousands)
     
       
Inventory
  $ 84,831  
Other Current assets
    150,342  
Property, plant and equipment
    155,596  
Identifiable intangible assets
    793,157  
Goodwill
    954,941  
Other long-term assets
    13,179  
Total assets
    2,152,046  
Current liabilities
    110,954  
Long-term liabilities
    254,492  
Total liabilities
    365,446  
Net assets
  $ 1,786,600  

Other current assets consist primarily of trade accounts receivable of $114.6 million.  Current liabilities assumed are primarily comprised of accrued and other current liabilities of $71.9 million and trade accounts payable of $26.2 million.  Long-term liabilities assumed are primarily comprised of noncurrent deferred tax liabilities of $226.0 million and pension obligations of $27.4 million.

Inventory held by Astra Tech includes a fair value adjustment of $33.8 million.  The Company expects to expense this amount by October 31, 2011 as the acquired inventory is sold.  During the third quarter the Company expensed $16.3 million of the inventory fair value adjustment.

Property, plant and equipment includes a fair value adjustment of $36.5 million and consist of land, buildings, plant and equipment.  Depreciable lives range 40 years for buildings and from 5 to 15 years for plant and equipment.

The fair values assigned to intangible assets were determined through the use of the income approach, specifically the relief from royalty method and the multi-period excess earnings method. Both valuation methods rely on management’s judgments, including expected future cash flows resulting from existing customer relationships, customer attrition rates, contributory effects of other assets utilized in the business, peer group cost of capital and royalty rates as well as other factors. The valuation of tangible assets was derived using a combination of the income approach, the market approach and the cost approach. Significant judgments used in valuing tangible assets include estimated reproduction or replacement cost, useful lives of assets, estimated selling prices, costs to complete and reasonable profit.
       
Useful lives for intangible assets were determined based upon the remaining useful economic lives of the intangible assets that are expected to contribute to future cash flows.  The acquired intangible assets are being amortized on a straight-line basis over their expected useful lives.

Intangible assets acquired consist of the following:

(in thousands, except for useful life)
       
Useful Life
 
   
Amount
   
(in years)
 
Customer relationships
  $ 226.9       15  
Developed technology and patents
    116.2       10  
Trade names and trademarks
    450.1    
Indefinite
 
Total
  $ 793.2          

The $954.9 million of goodwill is attributable to the excess of the purchase price over the fair value of the net tangible and intangible assets acquired and liabilities assumed. The goodwill recognized is primarily attributable to cost savings and other synergies that the Company expects to realize through operational efficiencies.  All of the goodwill has been assigned to the Company's Canada/Latin America/Endodontics/Orthodontics/Astra Tech segment and is not expected to be deductible for tax purposes.

 
- 13 -

 

Astra Tech contributed net sales of $50.9 million and an operating loss of $12.2 million to the Company's consolidated statements of operations during the period from September 1, 2011 to September 30, 2011 and is included in the Canada/Latin America/Endodontics/Orthodontics/Astra Tech segment.

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company had the Astra Tech acquisition occurred on January 1, 2010.  These amounts were calculated after conversion to US GAAP, applying the Company’s accounting policies and adjusting Astra Tech’s results to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment, inventory and intangible assets had been applied from January 1, 2010, together with the consequential tax effects at the statutory rate.  These adjustments also reflect the additional interest expense incurred on the debt to finance the acquisition.
   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                         
Net sales
  $ 705.4     $ 669.9     $ 2,185.0     $ 2,043.8  
Net income attributable to DENTSPLY
    51.9       63.7       200.2       197.7  
Diluted earnings per common share
    0.36       0.42       1.39       1.35  

The pro forma financial information is based on the Company's preliminary assignment of purchase price and therefore subject to adjustment upon finalizing the purchase price assignment. The Astra Tech financial information has been compiled in a manner consistent with the accounting policies adopted by DENTSPLY. Pro forma results do not include any anticipated synergies or other anticipated benefits of the acquisition. Accordingly, the unaudited pro forma financial information is not necessarily indicative of either future results of operations or results that might have been achieved had the acquisition occurred on January 1, 2010.  While the Company completed other transactions during the pro forma periods presented above, these transactions were immaterial to the Company’s net sales and net income attributable to DENTSPLY.

The Company had additional acquisition related activity for the nine months ended September 30, 2011 of $38.3 million, net of cash acquired. The activity was related to five acquisitions and two earn-out payments for acquisitions completed during or prior to 2010.

The results of operations for these businesses have been included in the accompanying financial statements as of the effective date of the respective transactions. The purchase prices have been assigned on the basis of preliminary estimates of the fair values of assets acquired and liabilities assumed.  At September 30, 2011, the Company has recorded a total of $9.7 million in goodwill related to the difference between the fair value of assets acquired and liabilities assumed and the consideration given. The goodwill is primarily associated with the Canada/Latin America/Endodontics/Orthodontics/Astra Tech segment.

For the three and nine months ended September 30, 2011, in connection with pending or completed acquisitions, the Company has incurred $19.7 million and $26.0 million, respectively, of transaction related costs, primarily banking fees and amounts paid to third party advisers.

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 93% and 97% of sales for the three months ended September 30, 2011 and 2010, respectively, and 95% and 97% of sales for the nine months ended September 30, 2011 and 2010, respectively.

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 Form 10-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.

 
- 14 -

 

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/Astra Tech

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, sales and distribution of implants in Brazil, sales of dental lasers and the manufacture and sale of certain products in the Company’s non-dental business.

This business group includes the Astra Tech business which was acquired on August 31, 2011, see Note 5, Business Acquisitions.  Astra Tech designs, manufactures and markets dental implants, customized implant abutments, hydrophilic intermittent catheters and certain surgical products.

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.

 
- 15 -

 

The following tables set forth information about the Company’s operating groups for the three and nine months ended September 30, 2011 and 2010:

Third Party Net Sales

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 148,072     $ 139,137     $ 440,652     $ 411,356  
France, U.K., Italy and Certain Other European  Countries, CIS, Middle East, Africa,  Pacific Rim Businesses
    128,383       114,338       393,321       346,224  
Canada/Latin America/Endodontics/ Orthodontics/Astra Tech
    202,327       159,238       545,679       486,573  
Dental Laboratory Business/ Implants/Non-Dental
    141,658       129,809       423,415       411,185  
All Other (a)
    (681 )     (707 )     (3,362 )     (2,493 )
Total
  $ 619,759     $ 541,815     $ 1,799,705     $ 1,652,845  

(a) Includes amounts recorded at Corporate headquarters

Third Party Net Sales, Excluding Precious Metal Content

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 148,072     $ 139,137     $ 440,652     $ 411,356  
France, U.K., Italy and Certain Other European  Countries, CIS, Middle East, Africa,  Pacific Rim Businesses
    117,492       106,499       361,462       320,606  
Canada/Latin America/Endodontics/ Orthodontics/Astra Tech
    201,557       158,682       543,374       484,723  
Dental Laboratory Business/ Implants/Non-Dental
    97,311       90,735       312,620       296,309  
All Other (a)
    (681 )     (707 )     (3,362 )     (2,493 )
Total excluding precious metal content
    563,751       494,346       1,654,746       1,510,501  
Precious metal content
    56,008       47,469       144,959       142,344  
Total including precious metal content
  $ 619,759     $ 541,815     $ 1,799,705     $ 1,652,845  

 (a)Includes amounts recorded at Corporate headquarters

Inter-segment Net Sales

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 28,454     $ 30,940     $ 86,753     $ 88,003  
France, U.K., Italy and Certain Other European  Countries, CIS, Middle East, Africa,  Pacific Rim Businesses
    5,844       3,396       15,284       12,052  
Canada/Latin America/Endodontics/ Orthodontics/Astra Tech
    35,060       31,187       103,571       85,864  
Dental Laboratory Business/ Implants/Non-Dental
    26,917       25,355       83,921       82,950  
All Other (a)
    51,325       43,218       158,160       132,302  
Eliminations
    (147,600 )     (134,096 )     (447,689 )     (401,171 )
Total
  $ -     $ -     $ -     $ -  

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

 
- 16 -

 

Segment Operating Income

   
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                   
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 51,508     $ 53,164     $ 151,554     $ 147,679  
France, U.K., Italy and Certain Other European  Countries, CIS, Middle East, Africa,  Pacific Rim Businesses
    1,483       3,892       4,816       9,299  
Canada/Latin America/Endodontics/ Orthodontics/Astra Tech
    25,503       44,910       125,448       142,073  
Dental Laboratory Business/ Implants/Non-Dental
    13,930       14,691       59,736       59,648  
All Other (a)
    (26,269 )     (25,900 )     (72,315 )     (68,727 )
Segment operating income
    66,155       90,757       269,239       289,972  
                                 
Reconciling Items:
                               
Restructuring and other costs
    (26,353 )     (338 )     (33,849 )     (5,261 )
Interest expense
    (16,062 )     (5,999 )     (27,975 )     (18,406 )
Interest income
    2,418       1,268       6,676       2,883  
Other expense (income), net
    (7,182 )     (585 )     (8,686 )     (2,252 )
Income before income taxes
  $ 18,976     $ 85,103     $ 205,405     $ 266,936  

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

Assets
           
   
September 30,
   
December 31,
 
(in thousands)
 
2011
   
2010
 
       
U.S., Germany and Certain Other European Regions Consumable Businesses
  $ 605,609     $ 578,770  
France, U.K., Italy and Certain Other European  Countries, CIS, Middle East, Africa,  Pacific Rim Businesses
    390,840       390,572  
Canada/Latin America/Endodontics/ Orthodontics/Astra Tech
    2,683,498       932,126  
Dental Laboratory Business/ Implants/Non-Dental
    964,660       995,090  
All Other (a)
    189,104       361,393  
Total
  $ 4,833,711     $ 3,257,951  

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

NOTE 7 - INVENTORIES

Inventories are stated at the lower of cost or market.  At September 30, 2011 and December 31, 2010, the cost of $8.9 million, or 2.3%, and $6.9 million, or 2.2%, respectively, of inventories was determined using the last-in, first-out (“LIFO”) method. The cost of the remaining inventories was determined using the first-in, first-out (“FIFO”) or average cost methods. If the FIFO method had been used to determine the cost of LIFO inventories, the amounts at which net inventories are stated would be higher than reported at September 30, 2011 and December 31, 2010 by $4.4 million and $4.9 million, respectively.

The Company establishes reserves for inventory in order to present the net realizable value.  The inventory valuation reserves were $35.1 million and $35.5 million at September 30, 2011 and December 31, 2010, respectively.

At September 30, 2011, inventory also included $15.7 million of inventory fair value adjustment from the Astra Tech acquisition.

 
- 17 -

 

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

   
September 30,
   
December 31,
 
(in thousands)
 
2011
   
2010
 
             
Finished goods
  $ 240,138     $ 189,343  
Work-in-process
    70,990       57,272  
Raw materials and supplies
    80,400       62,123  
    $ 391,528     $ 308,738  

NOTE 8 - BENEFIT PLANS

The following sets forth the components of net periodic benefit cost of the Company’s defined benefit plans and for the Company’s other postretirement employee benefit plans for the three and nine months ended September 30, 2011 and 2010:

Defined Benefit Plans 
 
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                         
Service cost
  $ 2,799     $ 2,017     $ 7,811     $ 5,950  
Interest cost
    2,453       2,094       6,945       6,251  
Expected return on plan assets
    (1,350 )     (1,179 )     (3,856 )     (3,447 )
Amortization of transition obligation
    -       32       -       91  
Amortization of prior service cost
    20       19       61       63  
Amortization of net loss
    407       247       1,195       722  
                                 
Net periodic benefit cost
  $ 4,329     $ 3,230     $ 12,156     $ 9,630  

Other Postretirement Plans
 
Three Months Ended
   
Nine Months Ended
 
(in thousands)
 
2011
   
2010
   
2011
   
2010
 
                         
Service cost
  $ 16     $ 14     $ 48     $ 43  
Interest cost
    137