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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-----------------------
( ) 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.)
570 West College Avenue, P. O. Box 872, 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.
( X ) Yes ( ) No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: At May 9, 1995 the Company had
26,847,373 shares of Common Stock outstanding, with a par value of $.01 per
share.
Page 1 of 16
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Exhibit Index at Page 13
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DENTSPLY INTERNATIONAL INC.
FORM 10-Q
For Quarter Ended March 31, 1995
------------------------
INDEX
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Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets............ 3
Consolidated Condensed Statements of Income...... 4
Consolidated Condensed Statements of Cash Flows.. 5
Consolidated Condensed Statement of
Stockholders' Equity........................... 6
Notes to Unaudited Consolidated Condensed
Financial Statements........................... 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.... 11
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings............................ 13
Item 6 - Exhibits and Reports on Form 8-K............. 13
Signatures........................................... 14
2
PART I
FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(audited) (unaudited)
December 31, March 31,
1994 1995
ASSETS ------------ ------------
Current assets: (in thousands)
Cash and cash equivalents $ 7,278 $ 3,430
Accounts and notes receivable-trade, net 78,771 84,112
Inventories 88,899 97,098
Deferred income taxes 5,710 5,710
Prepaid expenses and other current assets 8,410 8,968
Net assets of discontinued operations 7,632 6,629
--------- ---------
Total Current Assets 196,700 205,947
Property, plant and equipment, net 91,140 95,386
Other noncurrent assets, net 10,214 21,350
Identifiable intangible assets, net 35,532 32,840
Cost in excess of fair value of net
assets acquired, net 140,976 140,781
--------- ---------
Total Assets $ 474,562 $ 496,304
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 60,135 $ 63,408
Income taxes payable 27,577 22,840
Notes payable and current portion
of long-term debt 9,150 30,389
--------- ---------
Total Current Liabilities 96,862 116,637
Long-term debt 12,789 31,141
Other liabilities 65,574 69,756
--------- ---------
Total Liabilities 175,225 217,534
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value; 250,000
shares authorized; no shares issued - -
Common stock, $.01 par value; 100,000,000
shares authorized; 27,845,288 shares issued
at December 31, 1994 and March 31, 1995 278 278
Capital in excess of par value 182,087 180,046
Retained earnings 133,531 144,503
Cumulative translation adjustment 198 4,028
Employee stock ownership plan reserve (14,055) (13,593)
Treasury stock, at cost, 87,500 shares
at December 31, 1994 and 1,067,200 shares
at March 31, 1995 (2,702) (36,492)
--------- ---------
Total Stockholders' Equity 299,337 278,770
--------- ---------
Total Liabilities and Stockholders' Equity $ 474,562 $ 496,304
========= =========
See accompanying notes to unaudited consolidated condensed financial statements.
3
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(unaudited)
Three Months Ended
March 31,
-------------------------
1994 1995
-------- --------
(in thousands, except per
share data)
Net sales $126,848 $133,105
Cost of products sold 65,728 66,670
-------- --------
Gross profit 61,120 66,435
Selling, general and administrative expenses 39,247 43,524
-------- --------
Operating income from continuing operations 21,873 22,911
Interest expense 2,081 1,606
Interest income (146) (255)
Other (income)expense, net (203) 48
-------- --------
Income from continuing operations before
income taxes 20,141 21,512
Provision for income taxes 8,553 8,540
-------- --------
Income from continuing operations 11,588 12,972
Income from the operation of discontinued
Medical business (less applicable income
taxes) 767 -
-------- --------
Net income $ 12,355 $ 12,972
======== ========
Earnings per common share:
From continuing operations $.42 $.48
From discontinued operations .03 -
---- ----
Total $.45 $.48
==== ====
Weighted average common shares
outstanding 27,723 27,225
See accompanying notes to unaudited consolidated condensed financial statements.
4
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
Three Months Ended
March 31,
-------------------
1994 1995
-------- --------
(in thousands)
Cash flows from operating activities:
Net income $ 12,355 $ 12,972
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 5,236 4,768
Other, net (9,421) (10,251)
-------- --------
Net cash provided by operating activities 8,170 7,489
-------- --------
Cash flows from investing activities:
Acquisition of business - (10,950)
Property, plant and equipment additions (2,329) (2,716)
Other, net (33) 797
-------- --------
Net cash used in investing activities (2,362) (12,869)
-------- --------
Cash flows from financing activities:
Debt repayment (121,713) (11,589)
Proceeds from long-term debt 81,903 30,019
Cash paid for treasury stock - (38,400)
Increase in bank overdrafts and other
short-term debt 18,145 20,888
Other, net 1,446 485
-------- --------
Net cash provided by (used in) financing
activities (20,219) 1,403
-------- --------
Effect of exchange rate changes on cash
and cash equivalents (994) 129
-------- --------
Net decrease in cash and cash equivalents (15,405) (3,848)
Cash and cash equivalents at beginning
of period 17,984 7,278
-------- --------
Cash and cash equivalents at end of period $ 2,579 $ 3,430
======== ========
Supplemental disclosures of cash flow information:
Interest paid $ 2,617 $ 1,006
Income taxes paid 6,587 12,509
See accompanying notes to unaudited consolidated condensed financial statements.
5
DENTSPLY INTERNATIONAL INC.
CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
(unaudited)
Capital in Cumulative Total
Common Excess of Retained Translation Treasury Stockholders'
Stock Par Value Earnings Adjustment ESOP Reserve Stock Equity
(in thousands) ------ ----------- -------- ----------- ------------ --------- ------------
Balance at December 31, 1994 $ 278 $182,087 $133,531 $ 198 $(14,055) $ (2,702) $299,337
Exercise of stock options and
warrants --- (3,728) --- --- --- 4,610 882
Tax benefit related to stock
options and warrants exercised --- 1,687 --- --- --- --- 1,687
Purchase of 1,125,000 shares
of common stock --- --- --- --- --- (38,400) (38,400)
Cash dividends declared, $.075
per share --- --- (2,000) --- --- --- (2,000)
Translation adjustment --- --- --- 3,830 --- --- 3,830
Net change in ESOP reserve --- --- --- --- 462 --- 462
Net income --- --- 12,972 --- --- --- 12,972
------ -------- -------- ------- -------- -------- --------
Balance at March 31, 1995 $ 278 $180,046 $144,503 $ 4,028 $(13,593) $(36,492) $278,770
====== ======== ======== ======= ======== ========= =========
See accompanying notes to unaudited consolidated condensed financial statements.
6
DENTSPLY INTERNATIONAL INC.
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
--------------------------------------------------------------
The accompanying interim consolidated condensed financial statements
reflect all adjustments (consisting only of normal recurring adjustments) which
in the opinion of management are necessary for a fair presentation of financial
position, results of operations and cash flows for the interim periods. These
interim financial statements conform with the requirements for interim financial
statements and consequently do not include all the disclosures normally required
by generally accepted accounting principles. Disclosures are updated where
appropriate.
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
- - - - - - ----------------------------------------
Principles of Consolidation
- - - - - - ---------------------------
The consolidated condensed financial statements include the accounts of
DENTSPLY International Inc. (the "Company") and its subsidiaries. For the
quarter ended March 31, 1994, the financial statements for Gendex Dental Systems
S.r.l. and Gendex Dental Systeme GmbH are included on a current basis as
compared to a two month lag in 1993. Accordingly, the consolidated condensed
statements of income and cash flows for the three months ended March 31, 1994
include five months of operations for Gendex Dental Systems S.r.l. and Gendex
Dental Systeme GmbH. The effects of this change in reporting were insignificant
to the consolidated financial position and operations of the Company.
Inventories
- - - - - - -----------
Inventories are stated at the lower of cost or market. At December 31, 1994
and March 31, 1995, the cost of $10.2 million or 11% and $9.7 million or 10%,
respectively, of inventories was determined by the last-in, first-out (LIFO)
method. The cost of other inventories was determined by the first-in, first-out
or average cost method.
Property, Plant and Equipment
- - - - - - -----------------------------
Property, plant and equipment are stated at cost, net of accumulated
depreciation. Except for leasehold improvements, depreciation for financial
reporting purposes is computed by the straight-line method over the following
estimated useful lives: buildings - generally 40 years; and machinery and
equipment - 8 to 15 years. The cost of leasehold improvements is amortized over
the shorter of the estimated useful life or the term of the lease. For income
tax purposes, depreciation is computed using various methods.
7
Earnings per Share
- - - - - - ------------------
Earnings per share are based on the weighted average number of common
shares outstanding. Common stock equivalents (options and warrants) had no
material effect on the earnings per share computation. All shares held by the
DENTSPLY Employee Stock Ownership Plan are considered outstanding and are
included in the earnings per share computation.
NOTE 2 - PENDING BUSINESS ACQUISITION
- - - - - - -------------------------------------
On March 13, 1995, the Company announced that the Board of Directors
approved the purchase of approximately 95% of the outstanding Capital Stock of
Maillefer Instruments S.A. from Maillefer stockholders for 11,000 SFR per share
in a cash transaction valued at approximately $67 million. Based in Switzerland,
Maillefer Instruments is a manufacturer and distributor of principally
endodontic instruments.
The transaction is subject to due diligence, the execution of a
definitive agreement, regulatory approvals and the satisfaction of customary
closing conditions. The acquisition is expected to close in the second quarter
of 1995 and will be accounted for under the purchase method of accounting.
NOTE 3 - INVENTORIES
- - - - - - --------------------
Inventories consist of the following:
December 31, March 31,
1994 1995
------------ ------------
(in thousands)
Finished goods $ 46,765 $ 52,101
Work-in-process 19,238 19,562
Raw materials and supplies 22,896 25,435
-------- --------
$ 88,899 $ 97,098
======== ========
Pre-tax income was $.4 million and $.3 million lower in the three months
ended March 31, 1994 and 1995, respectively, as a result of using the LIFO
method compared to the first-in, first-out (FIFO) method. If the FIFO method had
been used to determine the cost of the LIFO inventories, the amounts at which
net inventory is stated would be lower than reported at December 31, 1994 and
March 31, 1995 by $2.2 million and $1.9 million, respectively.
8
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
- - - - - - --------------------------------------
Property, plant and equipment consist of the following:
December 31, March 31,
1994 1995
------------ ------------
Assets, at cost: (in thousands)
Land $ 16,130 $ 17,622
Buildings and improvements 41,420 44,088
Machinery and equipment 61,103 63,848
Construction in progress 5,244 5,359
-------- --------
123,897 130,917
Less: Accumulated depreciation 32,757 35,531
-------- --------
$ 91,140 $ 95,386
======== ========
NOTE 5 - DISCONTINUED OPERATIONS
- - - - - - --------------------------------
On October 13, 1994, the Company announced its strategic decision to
discontinue the operations comprising its medical business. The medical
operations include Eureka X-Ray Tube Corp. (Eureka), GENDEX Medical and CMW
business units which manufacture medical x-ray tubes, medical x-ray systems and
orthopedic bone cement, respectively. The net assets of CMW and substantially
all of the net assets of Eureka were sold in the fourth quarter of 1994.
Sales from these operations were $13.5 million and $5.2 million for the
three months ended March 31, 1994 and 1995, respectively. Income before
applicable income taxes for the three months ended March 31, 1994 and 1995 was
$1.2 million and $-0-, respectively.
The components of net assets of discontinued operations included in the
Consolidated Condensed Balance Sheets are as follows:
December 31, March 31,
1994 1995
------------ ------------
(in thousands)
Accounts and notes receivable-trade, net $ 4,650 $ 2,521
Inventories 6,312 6,452
Deferred income taxes 4,130 4,130
Prepaid expenses and other current assets 1,848 306
Property, plant and equipment 3,899 2,976
Other noncurrent assets, net 1,298 2,627
Cost in excess of fair value
of net assets acquired 3,448 3,423
Accounts payable and accrued liabilities (11,272) (9,138)
Other liabilities (6,681) (6,668)
-------- --------
$ 7,632 $ 6,629
======== ========
The sale of the remaining operations comprising the medical business is
expected to be completed in 1995.
9
NOTE 6 - NOTES PAYABLE AND LONG-TERM DEBT
- - - - - - -----------------------------------------
The increases from December 31, 1994 in Notes payable and current portion
of long-term debt ($21.2 million) and Long-term debt ($18.4 million) were
primarily due to utilization of the Company's credit facilities for the
following transactions.
- During the first quarter of 1995, the Company repurchased 1.1 million
shares of its common stock for $38.4 million, in accordance with the
share repurchase program authorized by the Board of Directors in
December 1994. The repurchased shares included .8 million shares from
the McDonough family interests pursuant to an agreement entered into
on February 8, 1995, in connection with John J. McDonough's resignation
as Chief Executive Officer of the Company.
- In March, 1995, the Company paid $11.0 million to acquire a product for the
crown and bridge product line.
10
DENTSPLY INTERNATIONAL INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
On October 13, 1994, the Company announced its strategic decision to discontinue
the operations comprising its medical business. Accordingly, the Company's
financial statements have been restated to reflect the accounting treatment for
discontinued operations. Management's discussion of the results of operations
covers continuing operations and discontinued operations, separately.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1995 Compared to Quarter Ended March 31, 1994
In the quarter ended March 31, 1995, net sales increased $6.3 million, or 4.9%,
to $133.1 million from $126.8 million in the same period in 1994. Sales
increased in Europe at a higher rate than in the United States and other
international markets. The amount of the increase in the first quarter 1995 net
sales attributed to a weaker U.S. dollar was more than offset by the additional
two months sales reported in the first quarter 1994 due to the elimination of a
reporting lag at two foreign locations.
Gross profit increased $5.3 million, or 8.7%, to $66.4 million from $61.1
million in the first quarter of 1994 as a result of higher net sales. As a
percentage of net sales, gross profit increased from 48.2% in the quarter ended
March 31, 1994 to 49.9% in the same period of 1995. The increase in the gross
profit percentage was mainly due to an improvement in product mix and
manufacturing cost efficiencies in the United States and Europe.
Selling, general and administrative expenses increased $4.3 million, or 10.9%.
As a percentage of net sales, expenses increased from 30.9% in the quarter ended
March 31, 1994 to 32.7% for the same period in 1995 primarily due to higher than
normal marketing and sales expenses relating to several new product launches and
a major bi-annual trade show held in Europe, as well as expenditures for the
implementation of management information systems in Europe and increased
spending for product development.
Income from continuing operations before income taxes of $21.5 million for the
three months ended March 31, 1995 increased $1.4 million, or 6.8%, from $20.1
million in 1994 as a result of higher sales coupled with the increased gross
profit percentage.
The Company's effective tax rate on income from continuing operations before
income taxes decreased from 42.5% in the three months ended March 31, 1994 to
39.7% for the three months ended March 31, 1995 due mainly to lower foreign
losses without tax benefit in 1995.
Earnings per share from continuing operations of $.48 for the three months ended
March 31, 1995 increased $.06, or 14.3%, from $.42 in the same period in 1994.
Net sales from the discontinued medical business for the quarter ended March 31,
1995 were $5.2 million, a decrease of $8.3 million from the same period of 1994,
as a result of the divestiture during the fourth quarter of 1994 of two of the
three business units identified as discontinued operations.
11
LIQUIDITY AND CAPITAL RESOURCES
In March 1995, the Company paid $11.0 million to acquire a product for the crown
and bridge product line.
Investing activities for the three months ended March 31, 1995 include capital
expenditures of $2.7 million.
During the first quarter of 1995 the Company repurchased 1.1 million shares of
its common stock for $38.4 million, in accordance with the share repurchase
program authorized by the Board of Directors in December 1994. The repurchased
shares included .8 million shares from the McDonough family interests pursuant
to an agreement entered into on February 8, 1995 in connection with John J.
McDonough's resignation as Chief Executive Officer of the Company.
Excluding the net assets of discontinued operations, at March 31, 1995, the
Company's current ratio was 1.7 with working capital of $82.7 million. This
compares with a current ratio of 2.0 and working capital of $92.2 million at
December 31, 1994.
The Company expects to be able to finance cash requirements, including capital
expenditures, stock repurchases, debt service and the anticipated acquisition of
Maillefer Instruments S.A., from funds generated from operations and amounts
available under the existing Revolving Credit Agreement and a new $60.0 million
term loan. The new term loan, which is expected to become effective during the
second quarter of 1995, has the same maturity date, interest rate structure, and
covenants as the Revolving Credit Agreement, but permits borrowing in pounds
sterling and Swiss francs in addition to U.S. dollars.
For the three months ended March 31, 1995, cash flows from operating activities
were $7.5 million compared to $8.2 million for the three months ended March 31,
1994.
IMPACT OF INFLATION
The Company has generally offset the impact of inflation on wages and the cost
of purchased materials by reducing operating costs and increasing selling prices
to the extent permitted by market conditions.
12
PART II
OTHER INFORMATION
Item 1 - Legal Proceedings
DENTSPLY International Inc. (the "Company") and its subsidiaries are from
time to time parties to lawsuits arising out of their respective operations. The
Company believes that pending litigation to which it is a party will not have a
material adverse effect upon its consolidated financial position or results of
operations.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed herewith:
---------
Sequential
Number Description Page No.
------ ----------- ----------
11 Statement regarding computation 15
of earnings per share.
27 Financial Data Schedule 16
(pursuant to Item 601(c)(iv) of
Regulation S-K, this exhibit shall
not be deemed filed for purposes
of Section 18 of the Securities
Exchange Act of 1934, as amended)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1995.
13
Signatures
- - - - - - ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENTSPLY INTERNATIONAL INC.
May 12, 1995 /s/ Burton C. Borgelt
- - - - - - -------------------- -----------------------------------
Date Burton C. Borgelt
Chairman and
Chief Executive Officer
May 12, 1995 /s/ Edward D. Yates
- - - - - - -------------------- -----------------------------------
Date Edward D. Yates
Senior Vice President and
Chief Financial Officer
14
DENTSPLY INTERNATIONAL INC.
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
Earnings per common share:
- - - - - - --------------------------
Three Months Ended
March 31,
----------------------
1994 1995
-------- --------
(in thousands, except per
share data)
Weighted average common shares
outstanding 27,723 27,225
Income from continuing operations $11,588 $12,972
Income from discontinued medical
segment 767
------- -------
Net income $12,355 $12,972
======= =======
Earnings per common share:
From continuing operations $.42 $.48
From discontinued operations .03 -
---- ----
Net income $.45 $.48
==== ====
15